Exhibit 13

Message

Parent company of  First Federal Savings and Loan Association of Hazard and First Federal Savings Bank of Frankfort



2006Annual Report



KENTUCKY FIRST FEDERAL BANCORP

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

On March 2, 2005, First Federal of Hazard completed its reorganizaton into the mutual holding company form of ownership with the incorporation of the Company as parent of First Federal of Hazard.  Coincident with the Reorganization, First Federal of Hazard converted to the stock form of ownership and issued all of its common stock to the Company.  In addition, on March 2, 2005, the Company issued 4,727,938 common shares, or 55% of its common shares, to First Federal Mutual Holding Company (First Federal MHC), a federally chartered mutual holding company, and issued 2,127,572 common shares, or 24.8% of its shares at $10.00 per share to the public and a newly formed Employee Stock Ownership Plan (ESOP).  The Company received net cash proceeds of $12.7 million from the public sale of its common shares.  The Companys remaining 1,740,554 common shares were
issued as part of the $31.4 million cash and stock consideration paid for 100% of the common shares of Frankfort First Bancorp (Frankfort First) and its wholly owned subsidiary, First Federal of Frankfort.

First Federal Savings of Hazard is a federally chartered savings and loan association offering traditional financial services to consumers in Perry and surrounding counties in eastern Kentucky.  First Federal of Hazard engages primarily in the business of attracting deposits from the general public and using such funds to originate, when available, loans secured by first mortgages on owner-occupied, residential real estate.  To the extent there is insufficient loan demand in its market area, and where appropriate under its investment policies, First Federal of Hazard invests in mortgage-backed and investment securities.

First Federal of Frankfort is a federally chartered savings bank which is primarily engaged in the business of attracting deposits from the general public and the origination of fixed-rate and adjustable-rate loans secured by first mortgages on owner-occupied one-to four-family residences in its market area of Franklin, Anderson, Scott, Shelby and Woodford Counties, Kentucky.  First Federal of Frankfort also originates, to a lesser extent, church loans, home equity loans and other loans.

MARKET INFORMATION

The Companys common stock began trading under the symbol KFFB on the Nasdaq National Market on March 3, 2005.  There are currently 8,563,475 shares of common stock outstanding and approximately 821 holders of record of the common stock.  Following are the high and low closing prices, by fiscal quarter, as reported on the Nasdaq National Market during the periods indicated, as well as dividends declared on the common stock during each quarter.

|Fiscal   2006  |  | High |       | Low |   | Dividends   Per Share | 
|-------------- |  | ---- | ----- | --- | - | --------------------- | 
|               |  |      |       |     |   |                       | 
|First quarter  |  | $    | 11.60 |     | $ | 9.95                  | 
|Second quarter |  |      | 10.74 |     |   | 9.30                  | 
|Third quarter  |  |      | 11.25 |     |   | 10.10                 | 
|Fourth quarter |  |      | 10.95 |     |   | 9.80                  | 

|Fiscal   2005     |  | High |       | Low |   | Dividends   Per Share | 
|----------------- |  | ---- | ----- | --- | - | --------------------- | 
|                  |  |      |       |     |   |                       | 
|Third quarter (1) |  | $    | 11.84 |     | $ | 10.20                 | 
|Fourth quarter    |  |      | 11.80 |     |   | 10.71                 | 

|   
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|(1)

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|TABLE OF   CONTENTS                                                                     |   
|--------------------------------------------------------------------------------------- | --
|                                                                                        |   
|Kentucky First Federal   Bancorp                                                        | ii
|Market Information                                                                      | ii
|Letter to Shareholders                                                                  | 1 
|Selected Consolidated   Financial and Other Data                                        | 2 
|Managements Discussion   and Analysis of Financial Condition and Results of Operations | 4 
|Consolidated Financial   Statements                                                     | 28
|Corporate Information                                                                   | 60

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Message

Dear Shareholder:

We are pleased to present the 2006 Annual Report for Kentucky First Federal Bancorp, the first full year of operations for the Company.  We encourage you to read both the Annual Report and Proxy Statement, and we encourage you to vote and, if possible, to attend our annual meeting on November 14.

The Boards, Officers, and Employees of the Company and its subsidiary banks continue to be very pleased with our new arrangement under Kentucky First Federal.  We believe we have demonstrated to our communities that our primary focus continues to be meeting the financial needs of our hometowns.

However, our community banking activity is currently somewhat less profitable than in recent years.   As with much of our industry, we are dealing with increases in market interest rates and costs of deposits that rise faster than returns on loans and investments.  While we believe over time our assets can be repriced or redeployed into other types of assets, in the short term we expect lower margins to hamper our earnings.

Still, we will continue to develop financial synergies between our sister banks and to develop new product opportunities.   We also continue to use various strategies for a more robust implementation of the Companys high level of capital.  Very early in our existence we announced one of the stronger dividend policies among publicly traded thrifts in the country and we continue to pay a very attractive dividend.   In the past year, we have also begun a stock repurchase program  designed to utilize excess capital and enhance the value of your investment.

As a shareholder, we invite you to choose First Federal of Hazard or First Federal of Frankfort for your banking needs.  We also encourage you to give us a call any time you have any questions or concerns.

|Sincerely,          |                     
|------------------- | --------------------
|                    |                     
|                    |                     
|Tony Whitaker       | Don D. Jennings     
|Chairman and C.E.O. | President and C.O.O.



SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

Selected Financial Condition Data (1)

|                                                |  | At June 30,    |        
|----------------------------------------------- |  | -------------- | -------
|                                                |  |                |        
|                                                |  | 2006           |        
|                                                |  |                |        
|                                                |  | (In thousands) |        
|Total assets                                    |  | $              | 261,941
|Cash and cash equivalents                       |  |                | 2,294  
|Investment securities held   to maturity        |  |                | 45,944 
|Investment securities   available for sale      |  |                | 12,211 
|Mortgage-backed securities   held to maturity   |  |                | 18,185 
|Mortgage-backed securities   available for sale |  |                | 1,079  
|Loans receivable, net                           |  |                | 155,386
|Deposits                                        |  |                | 141,238
|Federal Home Loan Bank   advances               |  |                | 54,849 
|Shareholders equity    restricted (1)         |  |                | 63,881 
|Allowance for loan losses                       |  |                | 724    
|Nonperforming loans                             |  |                | 1,427  

Selected Operating Data (1)

|                                                          |  | Year Ended June 30,                           |       
|--------------------------------------------------------- |  | --------------------------------------------- | ------
|                                                          |  |                                               |       
|                                                          |  | 2006                                          |       
|                                                          |  |                                               |       
|                                                          |  | (Dollars in thousands, except per share data) |       
|Total interest income                                     |  | $                                             | 12,709
|Total interest expense                                    |  |                                               | 6,227 
|                                                          |  |                                               |       
|Net interest income                                       |  |                                               | 6,482 
|Provision for losses on   loans                           |  |                                               | 32    
|                                                          |  |                                               |       
|Net interest income after   provision for losses on loans |  |                                               | 6,450 
|Total other income (loss)                                 |  |                                               | 216   
|Total general,   administrative and other expenses        |  |                                               | 4,355 
|                                                          |  |                                               |       
|Income before federal   income taxes                      |  |                                               | 2,311 
|Federal income taxes                                      |  |                                               | 723   
|                                                          |  |                                               |       
|Net income                                                |  | $                                             | 1,588 
|                                                          |  |                                               |       
|Net earnings per share    basic                          |  | $                                             | 0.19  
|                                                          |  |                                               |       
|Net earnings per share    diluted                        |  | $                                             | 0.19  
|                                                          |  |                                               |       

|   
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|(1)
|(2)

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Selected Financial Ratios and Other Data (1)

|                                                                                                                          |  | Year Ended June 30, |       
|------------------------------------------------------------------------------------------------------------------------- |  | ------------------- | ------
|                                                                                                                          |  |                     |       
|                                                                                                                          |  | 2006                |       
|                                                                                                                          |  |                     |       
|Performance   Ratios:                                                                                                     |  |                     |       
|Return on average assets (net income divided by average total assets)                                                     |  |                     | 0.59  
|Return on average equity (net income divided by average equity)                                                           |  |                     | 2.68  
|Interest rate spread (combined weighted average interest rate   earned less combined weighted average interest rate cost) |  |                     | 2.15  
|Net interest margin (net interest income divided by average   interest-earning assets)                                    |  |                     | 2.63  
|Ratio of average   interest-earning assets to average interest-bearing liabilities                                        |  |                     | 118.77
|Ratio of total general   administrative and other expenses to average total assets                                        |  |                     | 1.62  
|Efficiency ratio (2)                                                                                                      |  |                     | 65.02 
|Dividend payout ratio (3)                                                                                                 |  |                     | 97.36 
|Asset   Quality Ratios:                                                                                                   |  |                     |       
|Nonperforming loans as a   percent of total loans at end of period (4)                                                    |  |                     | 0.92  
|Nonperforming assets as a   percent of total assets at end of period                                                      |  |                     | 0.54  
|Allowance for loan losses   as a percent of total loans at end of period                                                  |  |                     | 0.46  
|Allowance for loan losses   as a percent of nonperforming loans at end of period                                          |  |                     | 50.74 
|Provision for loan losses   to total loans                                                                                |  |                     | 0.02  
|Net charge-offs to average   loans outstanding                                                                            |  |                     | 0.01  
|Capital   Ratios:                                                                                                         |  |                     |       
|Average equity to average   assets                                                                                        |  |                     | 21.95 
|Shareholders equity or   capital to total assets at end of period                                                        |  |                     | 24.39 
|Regulatory   Capital Ratios:                                                                                              |  |                     |       
|Tangible capital                                                                                                          |  |                     | 17.42 
|Core capital                                                                                                              |  |                     | 17.42 
|Risk-based capital                                                                                                        |  |                     | 41.92 
|Number of banking offices                                                                                                 |  |                     | 4     

|   
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|(1)
|(2)
|(3)
|(4)

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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

Forward-Looking Statements

Certain statements contained in this Annual Report that are not historical facts are forward-looking statements that are subject to certain risks and uncertainties.  When used herein, the terms anticipates, plans, expects, believes, and similar expressions as they relate to the Company or its management are intended to identify such forward-looking statements.  The Companys actual results, performance or achievements may materially differ from those expressed or implied in the forward-looking statements.  Risks and uncertainties that could cause or contribute to such material differences include, but are not limited to, general economic conditions, prices for real estate in the Companys market areas, interest rate environment, competitive conditions in the financial services industry, changes in law, governmental policies and
regulations, and rapidly changing technology affecting financial services.  We wish to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made.  We wish to advise readers that the factors listed above could affect our financial performance and could cause our actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements.

We do not undertake, and specifically disclaim any obligation, to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

General

The Company was incorporated as a mid-tier holding company under the laws of the United States on March 2, 2005 upon the completion of the reorganization of First Federal of Hazard into a federal mutual holding company form of organization (the Reorganization).  On that date, Kentucky First completed its minority stock offering and issued a total of 8,596,064 shares of common stock, of which 4,727,938 shares, or 55%, were issued to First Federal MHC, a federally chartered mutual holding company formed in connection with the Reorganization, in exchange for the transfer of all of First Federal of Hazards capital stock, and 2,127,572 shares were sold at a cash price of $10.00 per share.

Also on March 2, 2005, Kentucky First completed its acquisition of Frankfort First and its wholly owned subsidiary, First Federal of Frankfort (the Merger).  Under the terms of the agreement of merger, shareholders of Frankfort First Bancorp received approximately 1,740,554 shares of Kentucky Firsts common stock and approximately $13.7 million in cash.  Following the Reorganization and Merger, the Company retained and holds all the capital stock of Frankfort First which holds all of the capital stock of First Federal of Frankfort.  The Company also holds all the capital stock of First Federal of Hazard.  First Federal of Hazard and First Federal of Frankfort are operated as two independent savings institutions with separate charters.  Each bank retains its own management and boards of directors.  The members of management of Kentucky First also serve in a
management capacity at one of the two subsidiary Banks, and the directors of Kentucky First also serve on the board of one of the two subsidiary Banks.

Our results for the years ended June 30, 2006 and 2005 were significantly affected by our increased asset size due to the Reorganization and the Merger.  Comparisons of current periods to past periods may be less meaningful than most readers would expect, given the radical size difference between Kentucky First and First Federal of Hazard prior to the Reorganization and Merger.

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

As expected, general, administrative and other expense increased following completion of the Reorganization, due primarily to the increased costs associated with operating as a public company and the increased compensation expense associated with adopting and funding our employee stock ownership plan and an equity-based compensation plan, approved by stockholders at the 2005 Annual Meeting of Shareholders.

Income.  We have two primary sources of pre-tax income.  The first is net interest income, which is the difference between interest income, the income that we earn on our loans and investments, and interest expense, the interest that we pay on our deposits and borrowings.

To a much lesser extent, we also recognize pre-tax income from fee and service charges, which is the compensation we receive from providing financial products and services, and sales of investment securities.

Expenses.The expenses we incur in operating our business consist of compensation, taxes and benefits, office occupancy, data processing fees, taxes and other expenses.

Compensation, taxes and benefits consist primarily of the salaries and wages paid to our employees and directors, payroll taxes and expenses for retirement and other employee benefits.

Office occupancy expenses, which are the fixed and variable costs of buildings and equipment, consist primarily of taxes, depreciation charges, maintenance and costs of utilities.

Data processing fees primarily includes fees paid to our third-party data processing providers.

Taxes consist of the current and deferred portion of federal income taxes as well as franchise taxes paid to the Commonwealth of Kentucky by the subsidiary Banks and state income taxes paid by Kentucky First Federal Bancorp.

Other expenses include expenses for attorneys, accountants and consultants, advertising, telephone, employee training and education, charitable contributions, insurance, office supplies, postage and other miscellaneous operating activities.

Critical Accounting Policies

We consider accounting policies involving significant judgments and assumptions by management that have, or could have, a material impact on the carrying value of certain assets or on income to be critical accounting policies.   In determining the allowance for loan losses, management makes significant estimates and we consider the allowance for loan losses to be a critical accounting policy.  The allowance for loan losses is the estimated amount considered necessary to cover probable incurred credit losses in the loan portfolio at the balance sheet date.  The allowance is established through the provision for losses on loans which is charged against income.

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The Companys management and the Boards of First Federal of Hazard and First Federal of Frankfort review the allowance for loan losses on a periodic basis.  Consideration is given to a variety of factors in establishing this estimate including, but not limited to, current economic conditions, delinquency statistics, geographic and industry concentrations, the adequacy of the underlying collateral, the financial strength of the borrower, results of internal loan reviews, volume and mix of the loan portfolio and other relevant factors.  This evaluation is inherently subjective as it requires material estimates that may be susceptible to change.  Management considers the economic climate in the Banks respective lending areas to be among the factors most likely to have an impact on the level of the required allowance for loan losses.  However, in view of the fact that the
local economies are diverse, without significant dependence on a single industry or employer, the economic climate is considered to be stable at June 30, 2006.

Nevertheless, management continues to monitor and evaluate factors which could have an impact on the required level of the allowance.  Management watches for national issues that may negatively affect a significant percentage of homeowners in the Banks lending areas.  These may include significant increases in unemployment or significant depreciation in home prices.  Management reviews employment statistics periodically when determining the allowance for loan losses and generally finds the unemployment rates in both lending areas to be acceptable in relation to historical trends.  Given the aforementioned indicators of economic stability at June 30, 2006, management does not foresee in the near term, any significant increases in the required allowance for loan losses related to economic factors.  Finally, management has no current plans to alter the type of lending or
collateral currently offered, but if such plans change or market conditions result in large concentrations of certain types of loans, such as commercial real estate or high loan-to-value ratio residential loans, management would respond with an increase in the overall allowance for loan losses.

The analysis has two components, specific and general allocations.  Specific allocations are made for loans that are determined to be impaired.  Impairment is measured by determining the present value of expected future cash flows or, for collateral-dependent loans, the fair value of the collateral adjusted for market conditions and selling expenses.  The general allocation is determined by segregating the remaining loans by type of loan, risk weighting (if applicable) and payment history.  We also analyze historical loss experience, delinquency trends, general economic conditions and geographic and industry concentrations.  This analysis establishes factors that are applied to the loan groups to determine the amount of the general reserve.  Actual loan losses may be significantly more than the allowances we have established and, if so, this could have a material negative
effect on our financial results.

Our Operating Strategy

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

| |  | operating two   community-oriented savings institutions, First Federal of Hazard, which   serves customers in Perry and surrounding counties in eastern Kentucky, and   First Federal of Frankfort, which serves customers primarily in Franklin   County and surrounding counties in central Kentucky.  Each Bank emphasizes traditional thrift   activities of accepting deposits and originating residential mortgage loans   for portfolio;                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  | broadening and   diversifying First Federal of Hazards lending activities by providing access   to First Federal of Frankforts expertise in certain lending products, such   as adjustable-rate mortgage loans and home equity loans;                                                                                                                                                                                                                                 
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  | increasing the yield on   First Federal of Hazards assets by decreasing its reliance on low yielding   government securities and reinvesting these assets into whole loans   originated by First Federal of Frankfort, with First Federal of Frankfort   retaining servicing on any loans sold.    The Banks have begun such sales and at June 30, 2006, First Federal of   Hazard had purchased approximately $8.9 million in loans from First Federal   of Frankfort;

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| |  | continuing our historic   heavy reliance on our deposit base to fund our lending and investment   activities and to supplement deposits with Federal Home Loan Bank of   Cincinnati (FHLB) advances when advantageous or necessary.  We expect our projected deposit mix to   generally retain its existing composition of passbook, transaction and   certificate of deposit accounts;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                          
| |  | gradually pursuing   opportunities to increase and diversify lending in our market areas;                                                                                                                                                                                                                                                                                                
| |   |                                                                                                                                                                                                                                                                                                                                                                                          
| |  | applying conservative underwriting   practices to maintain the high quality of our loan portfolios;                                                                                                                                                                                                                                                                                      
| |   |                                                                                                                                                                                                                                                                                                                                                                                          
| |  | managing our net interest   margin and interest rate risk; and                                                                                                                                                                                                                                                                                                                           
| |   |                                                                                                                                                                                                                                                                                                                                                                                          
| |  | entertaining possibilities   of expansion into other markets through branching or acquisition, if such   possibilities are beneficial to the Companys shareholders, provide a good   fit within the Companys mutual holding company framework and can be   accomplished without undue encumbrance of the Companys other operational   areas.                                          

Market Risk Analysis

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

Asset/Liability Management.  Management and the boards of the subsidiary Banks are responsible for the asset/liability management issues that affect the individual Banks.  Either bank may work with its sister bank to mitigate potential asset/liability risks to the Banks and to the Company as a whole.  Interest rate risk is monitored using the Office of Thrift Supervision Net Portfolio Value (NPV).  NPV represents the fair value of portfolio equity and is equal to the fair value of assets minus the fair value of liabilities, with adjustments made for off-balance sheet items.  Management monitors and considers methods of managing the rate sensitivity and repricing characteristics of balance sheet components in an effort to maintain acceptable levels of change in NPV in the event of changes in prevailing market interest rates.  Interest rate
sensitivity analysis is used to measure our interest rate risk by computing estimated changes in NPV that are a result of changes in the net present value of its cash flows from assets, liabilities, and off-balance sheet items.  These changes in cash flow are estimated based on hypothetical instantaneous and permanent increases and decreases in market interest rates.

As part of our interest rate risk policy, the Boards of Directors of the subsidiary Banks establish maximum decreases in NPV given these assumed instantaneous changes in interest rates.  Our exposure to interest rate risk is reviewed on a quarterly basis by the Boards of Directors.  If estimated changes to NPV would cause either bank to fall below the well-capitalized level, the Board will direct management to adjust its asset and liability mix to bring interest rate risk to a level which reflects the Boards goals.

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The following table sets forth the interest rate sensitivity of our NPV as of June 30, 2006 in the event of instantaneous and permanent increases and decreases in market interest rates, respectively.  Due to the abnormally low prevailing interest rate environment at June 30, 2006 and 2005, NPV estimates are not made for decreases in interest rates greater than 200 basis points.  All market risk-sensitive instruments presented in this table at June 30, 2006, are held to maturity or available-for-sale.  We have no trading securities.

|                           |  | June 30, 2006             |     
|-------------------------- |  | ------------------------- | ----
|                           |  |                           |     
|                           |  | Net   Portfolio Value (1) |     
|                           |  |                           |     
|                           |  | Change in   Rates         |     
|                           |  |                           |     
|                           |  | (Dollars in thousands)    |     
|First Federal of Hazard    |  |                           | +300
|                           |  |                           | +200
|                           |  |                           | +100
|                           |  |                           | 0   
|                           |  |                           | -100
|                           |  |                           | -200
|First Federal of Frankfort |  |                           | +300
|                           |  |                           | +200
|                           |  |                           | +100
|                           |  |                           | 0   
|                           |  |                           | -100
|                           |  |                           | -200
|Consolidated               |  |                           | +300
|                           |  |                           | +200
|                           |  |                           | +100
|                           |  |                           | 0   
|                           |  |                           | -100
|                           |  |                           | -200

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|                           |  | June 30, 2005             |     
|-------------------------- |  | ------------------------- | ----
|                           |  |                           |     
|                           |  | Net   Portfolio Value (1) |     
|                           |  |                           |     
|                           |  | Change in   Rates         |     
|                           |  |                           |     
|                           |  | (Dollars in thousands)    |     
|First Federal of Hazard    |  |                           | +300
|                           |  |                           | +200
|                           |  |                           | +100
|                           |  |                           | 0   
|                           |  |                           | -100
|                           |  |                           | -200
|First Federal of Frankfort |  |                           | +300
|                           |  |                           | +200
|                           |  |                           | +100
|                           |  |                           | 0   
|                           |  |                           | -100
|                           |  |                           | -200
|Consolidated               |  |                           | +300
|                           |  |                           | +200
|                           |  |                           | +100
|                           |  |                           | 0   
|                           |  |                           | -100
|                           |  |                           | -200

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|(1)
|(2)
|(3)

The preceding tables indicate that at June 30, 2006 and 2005, in the event of a sudden and sustained increase in prevailing market interest rates, our NPV would be expected to decrease, and that in the event of a sudden and sustained decrease in prevailing interest rates, our NPV would be expected to increase.  The projected decreases in NPV in the event of sudden and sustained increases in prevailing interest rates are within the parameters established by each subsidiary Banks Board of Directors.  At all levels represented in the table, the Banks NPVs after the rate increase or decrease would be above the well-capitalized level based on the current level of assets.

NPV is calculated by the Office of Thrift Supervision using information provided by the Company.  The calculation is based on the net present value of discounted cash flows utilizing market prepayment assumptions and market rates of interest.  Computations or prospective effects of hypothetical interest rate changes are based on numerous assumptions, including relative levels of market interest rates, loan prepayments, and deposit run-offs.  These computations should not be relied upon as indicative of actual results.  Further, the computations do not contemplate any actions the Banks may undertake in response to changes in interest rates.  Certain shortcomings are inherent in this method of computing NPV.  For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in differing degrees to changes in market interest

rates.  The interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates.

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Statement of Financial Condition

General.  At June 30, 2006, total assets were $261.9 million, a decrease of $12.0 million, or 4.4%, from the $273.9 million total at June 30, 2005.  The decrease in total assets was comprised primarily of a decrease in cash and cash equivalents and investment and mortgage-backed securities.  At June 30, 2006, total liabilities were $198.1 million, a decrease of $9.9 million, or 4.8% from the $208.0 million total at June 30, 2005.  The decrease in total liabilities was comprised of a decrease in deposits offset by an increase in FHLB Advances.

Loans.  Our primary lending activity is the origination of loans for the purchase or construction of one- to four-family residential real estate located in our market areas.  As opportunities arise, we also originate church loans, commercial real estate loans, and multi-family and nonresidential real estate loans.  At June 30, 2006, residential real estate loans totaled $139.4 million, or 88.5% of total loans, compared to $134.1 million, or 87.3% of total loans, at June 30, 2005.  We had $2.7 million, or 1.7% of total loans, in construction real estate loans at June 30, 2006, compared to $1.9 million, or 1.3% of total loans at June 30, 2005.  At June 30, 2006, multi-family real estate loans totaled $296,000 or 0.2% of total loans, compared to $321,000, or 0.2% of total loans at June 30, 2005, and nonresidential real estate and other
loans totaled $6.4 million, or 4.1% of total loans at June 30, 2006, compared to $7.2 million, or 4.7% of total loans, at June 30, 2005.  We also originate home equity lines of credit and loans secured by deposit accounts, which totaled $8.6 million, or 5.5% of total loans at June 30, 2006, compared to home equity lines of credit and loans secured by deposit accounts of $10.1 million, or 6.5% of total loans at June 30, 2005.

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

|                                 |  | At June   30,          |        
|-------------------------------- |  | ---------------------- | -------
|                                 |  |                        |        
|                                 |  | 2006                   |        
|                                 |  |                        |        
|                                 |  | Amount                 |        
|                                 |  |                        |        
|                                 |  | (Dollars in thousands) |        
|Real estate loans:               |  |                        |        
|One-   to four-family            |  | $                      | 139,356
|Construction                     |  |                        | 2,703  
|Multi-family                     |  |                        | 296    
|Nonresidential   and other       |  |                        | 6,412  
|Consumer:                        |  |                        |        
|Consumer   and other             |  |                        | 5,211  
|Loans   on deposits              |  |                        | 3,432  
|                                 |  |                        |        
|Total loans                      |  |                        | 157,410
|                                 |  |                        |        
|Allowance for loan losses        |  |                        | (724   
|Undisbursed construction   loans |  |                        | (1,169 
|Deferred loan origination   fees |  |                        | (131   
|                                 |  |                        |        
|Loans receivable, net            |  | $                      | 155,386
|                                 |  |                        |        

10



The following table sets forth certain information at June 30, 2006 regarding the dollar amount of loans repricing or maturing during the periods indicated.  The table does not include any estimate of prepayments which significantly shorten the average life of all loans and may cause our actual repayment experience to differ from that shown below.  Demand loans having no stated maturity are reported as due in one year or less.



|                                   |  | Real   Estate   Loans |         | Consumer   Loans |   | Total   Loans | 
|---------------------------------- |  | --------------------- | ------- | ---------------- | - | ------------- | 
|                                   |  |                       |         |                  |   |               | 
|                                   |  | (In   thousands)      |        
|One year or less                   |  | $                     | 27,617  |                  | $ | 8,643         | 
|More than one year to five   years |  |                       | 60,249  |                  |   |              | 
|More than five years               |  |                       | 60,901  |                  |   |              | 
|                                   |  |                       |         |                  |   |               | 
|Total                              |  | $                     | 148,767 |                  | $ | 8,643         | 
|                                   |  |                       |         |                  |   |               | 

As of June 30, 2006, there were $25.6 million fixed-rate and $95.5 million adjustable-rate loans maturing in more than a year.

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

|                                                       |  | Year Ended June 30, |        
|------------------------------------------------------ |  | ------------------- | -------
|                                                       |  |                     |        
|                                                       |  | 2006                |        
|                                                       |  |                     |        
|                                                       |  | (In thousands)      |        
|Total loans at beginning   of year                     |  | $                   | 151,712
|Loans originated:                                      |  |                     |        
|Real   estate loans:                                   |  |                     |        
|Residential                                            |  |                     | 28,739 
|Construction                                           |  |                     | 2,197  
|Multi-family                                           |  |                     |       
|Nonresidential   and other                             |  |                     | 973    
|Consumer   loans                                       |  |                     | 4,962  
|                                                       |  |                     |        
|Total   loans originated                               |  |                     | 36,871 
|Loans acquired  Frankfort   First                     |  |                     |       
|Deduct:                                                |  |                     |        
|Real   estate loan principal repayments                |  |                     | (30,374
|Loan   sales                                           |  |                     | (2,712 
|Transfer   to real estate acquired through foreclosure |  |                     | (101   
|Other                                                  |  |                     | (10    
|                                                       |  |                     |        
|Net loan activity                                      |  |                     | 3,674  
|                                                       |  |                     |        
|Total loans at end of   period                         |  | $                   | 155,386
|                                                       |  |                     |        

Allowance for Loan Losses and Asset Quality.  The allowance for loan losses is a valuation allowance for the probable incurred losses in the loan portfolio.  We evaluate the allowance for loan losses no less than quarterly.  When additional allowances are needed a provision for losses on loans is charged against earnings.  The recommendations for increases or decreases to the allowance are presented by management to the Banks boards of directors.

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

11



At June 30, 2006, the allowance for loans losses totaled $724,000, or 0.46% of total loans, compared to $708,000, or 0.47% of total loans at June 30, 2005.  Nonperforming loans, which consist of all loans 90 days or more past due, totaled $1.4 million at June 30, 2006 and $1.7 million at June 30, 2005.  At June 30, 2006, all of these loans consisted of loans secured by single-family residences.  The allowance for loans losses totaled 50.7% and 40.5% of nonperforming loans at June 30, 2006 and 2005, respectively.  In determining the allowance for loan losses at any point in time, management and the boards of directors of the subsidiary Banks apply a systematic process focusing on the risk of loss in the portfolio.  First, the loan portfolio is segregated by loan types to be evaluated collectively and loan types to be evaluated individually. 
Delinquent multi-family and nonresidential loans are evaluated individually for potential impairment.  Second, the allowance for loan losses is evaluated using historic loss experience adjusted for significant factors by applying these loss percentages to the loan types to be evaluated collectively in the portfolio.  To the best of managements knowledge, all known and probable incurred losses that can be reasonably estimated have been recorded at June 30, 2006.  Although management believes that its allowance for loan losses conforms with generally accepted accounting principles based upon the available facts and circumstances, there can be no assurance that additions to the allowance will not be necessary in future periods, which would adversely affect our results of operations.

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

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

|                                                                 |  | Year Ended   June 30,    |      
|---------------------------------------------------------------- |  | ------------------------ | -----
|                                                                 |  |                          |      
|                                                                 |  | 2006                     |      
|                                                                 |  |                          |      
|                                                                 |  | (Dollars   in thousands) |      
|Allowance at beginning of   period                               |  | $                        | 708  
|Allowance acquired    Frankfort First                           |  |                          |     
|Provision for loan losses                                        |  |                          | 32   
|Charge-offs:                                                     |  |                          |      
|Real   estate loans                                              |  |                          | (16  
|Consumer   loans                                                 |  |                          |     
|                                                                 |  |                          |      
|Total   charge-offs                                              |  |                          | (16  
|Recoveries:                                                      |  |                          |      
|Real estate loans                                                |  |                          |     
|                                                                 |  |                          |      
|Consumer loans                                                   |  |                          |     
|                                                                 |  |                          |      
|Total   recoveries                                               |  |                          |     
|                                                                 |  |                          |      
|Net charge-offs                                                  |  | $                        | (16  
|                                                                 |  |                          |      
|Allowance at end of period                                       |  | $                        | 724  
|                                                                 |  |                          |      
|Allowance to nonperforming   loans                               |  |                          | 50.74
|Allowance to total loans   outstanding at end of period          |  |                          | 0.46 
|Net charge-offs to average   loans outstanding during the period |  |                          | 0.01 

12



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

|                                  |  | At June   30,          |    
|--------------------------------- |  | ---------------------- | ---
|                                  |  |                        |    
|                                  |  | 2006                   |    
|                                  |  |                        |    
|                                  |  | Amount                 |    
|                                  |  |                        |    
|                                  |  | (Dollars in thousands) |    
|Real Estate Loans:                |  |                        |    
|Residential                       |  | $                      | 633
|Construction                      |  |                        | 12 
|Multi-family                      |  |                        | 9  
|Nonresidential & other            |  |                        | 30 
|Consumer Loans:                   |  |                        |    
|Consumer and other                |  |                        | 24 
|Loans secured by deposits         |  |                        | 16 
|                                  |  |                        |    
|Total   allowance for loan losses |  | $                      | 724
|                                  |  |                        |    

|                                  |  | At June   30,            |    
|--------------------------------- |  | ------------------------ | ---
|                                  |  |                          |    
|                                  |  | 2003                     |    
|                                  |  |                          |    
|                                  |  | Amount                   |    
|                                  |  |                          |    
|                                  |  | (Dollars   in thousands) |    
|Real Estate Loans:                |  |                          |    
|Residential                       |  | $                        | 638
|Construction                      |  |                          | 7  
|Multi-family                      |  |                          | 5  
|Nonresidential & other            |  |                          | 20 
|Consumer Loans:                   |  |                          |    
|Consumer and other                |  |                          | 0  
|Loans secured by deposits         |  |                          | 50 
|                                  |  |                          |    
|Total   allowance for loan losses |  | $                        | 720
|                                  |  |                          |    

13



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

We consider repossessed assets and loans that are 90 days or more past due to be nonperforming assets.  Real estate that we acquire as a result of foreclosure or by deed-in-lieu of foreclosure is classified as real estate owned until it is sold.  When property is acquired it is recorded at the lower of its cost, which is the unpaid balance of the loan, or fair market value at the date of foreclosure.  Holding costs and declines in fair value after acquisition of the property are charged against income.

Under current accounting guidelines, a loan is defined as impaired when, based on current information and events, it is probable that the creditor will be unable to collect all amounts due under the contractual terms of the loan agreement.  We consider one- to four-family mortgage loans and deposit loans to be homogeneous and collectively evaluate them for impairment.  Other loans are evaluated for impairment on an individual basis.  At June 30, 2006, no loans were considered impaired.

The following table provides information with respect to our nonperforming assets at the dates indicated.  We did not have any troubled debt restructurings at any of the dates presented.

|                                                   |  | Year Ended   June 30,    |      
|-------------------------------------------------- |  | ------------------------ | -----
|                                                   |  |                          |      
|                                                   |  | 2006                     |      
|                                                   |  |                          |      
|                                                   |  | (Dollars   in thousands) |      
|Nonaccrual loans:                                  |  |                          |      
|Real   estate loans                                |  | $                        | 819  
|Deposit   loans                                    |  |                          |     
|                                                   |  |                          |      
|Total                                              |  |                          | 819  
|Accruing loans past due 90   days or more:         |  |                          |      
|Real   estate loans                                |  |                          | 608  
|Deposit   loans                                    |  |                          |     
|                                                   |  |                          |      
|Total   of accruing loans past due 90 days or more |  |                          | 608  
|                                                   |  |                          |      
|Total   nonperforming loans                        |  |                          | 1,427
|                                                   |  |                          |      
|Real   estate acquired through foreclosure         |  |                          | 51   
|                                                   |  |                          |      
|Total   nonperforming assets                       |  | $                        | 1,478
|                                                   |  |                          |      
|Total nonperforming loans   to total loans         |  |                          | 0.92 
|Total nonperforming loans   to total assets        |  |                          | 0.54 
|Total nonperforming assets   to total assets       |  |                          | 0.56 

Interest income that would have been recorded for the years ended June 30, 2006, 2005 and 2004, had nonaccrual loans been current according to their original terms amounted to $82,000, $71,000 and $76,000, respectively.  Income related to nonaccrual loans included in interest income for the years ended June 30, 2006, 2005 and 2004 amounted to $74,000, $49,000 and $96,000, respectively.

At June 30, 2006, nonaccrual loans consisted of 24 single-family residential real estate loans, the largest of which had an outstanding balance of $176,000.  Management believes all nonperforming loans are adequately collateralized; however, there can be no assurance that the loan loss allowance will be adequate to absorb losses on known nonperforming assets or that the allowance will be adequate to cover losses on nonperforming assets in the future.

14



Federal regulations require us to regularly review and classify our assets.  In addition, our regulators have the authority to identify problem assets and, if appropriate, require them to be classified.  There are three classifications for problem assets: substandard, doubtful and loss.  Substandard assets must have one or more defined weaknesses and are characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected.  Doubtful assets have the weaknesses of substandard assets with the additional characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions and values questionable, and there is a high possibility of loss.  An asset classified loss is considered uncollectible and of such little value that continuance as an asset of the
institution is not warranted.  The regulations also provide for a special mention category, described as assets which do not currently expose us to a sufficient degree of risk to warrant classification but do possess credit deficiencies or potential weaknesses deserving our close attention.  Special mention assets totaled $772,000 and $220,000 at June 30, 2006 and 2005, respectively.

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

|                        |  | At June   30,    |      
|----------------------- |  | ---------------- | -----
|                        |  |                  |      
|                        |  | 2006             |      
|                        |  |                  |      
|                        |  | (In   thousands) |      
|Substandard assets      |  | $                | 1,698
|Doubtful assets         |  |                  |     
|Loss assets             |  |                  |     
|                        |  |                  |      
|Total classified assets |  | $                | 2,470
|                        |  |                  |      

Substandard assets at June 30, 2006, consisted of $819,000 of nonaccrual loans, $828,000 of other loans and $51,000 of real estate owned.  Substandard assets at June 30, 2005 consisted of $874,000 of nonaccrual loans, $999,000 of other loans and $60,000 of real estate owned, while substandard assets at 2004 consisted almost entirely of nonaccrual loans.

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

|                  |  | At June   30,         |      
|----------------- |  | --------------------- | -----
|                  |  |                       |      
|                  |  | 2006                  |      
|                  |  |                       |      
|                  |  | 30-59 Days   Past Due |      
|                  |  |                       |      
|                  |  | (In   thousands)      |      
|Real estate loans |  | $                     | 2,183
|Deposit loans     |  |                       |     
|                  |  |                       |      
|Total             |  | $                     | 2,183
|                  |  |                       |      

Other than disclosed above, there are no other loans at June 30, 2006 that we have serious doubts about the ability of the borrowers to comply with the present loan repayment terms.

15



Securities.  Our securities portfolio consists primarily of U.S. Government agency obligations as well as mortgage-backed securities with maturities of 30 years or less.  Investment and mortgage-backed securities totaled $77.4 million at June 30, 2006, a decrease of $9.4 million, or 10.8%, compared to the $86.8 million total at June 30, 2005.  The reduction in these securities resulted from maturities, calls and prepayments of investments and mortgage-backed securities totaling $9.0 million.  All of our mortgage-backed securities were issued by  Ginnie Mae, Fannie Mae or Freddie Mac.

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

|                                     |  | At June   30,    |       
|------------------------------------ |  | ---------------- | ------
|                                     |  |                  |       
|                                     |  | 2006             |       
|                                     |  |                  |       
|                                     |  | Amortized   Cost |       
|                                     |  |                  |       
|                                     |  | (In   thousands) |       
|Available for sale   securities:     |  |                  |       
|U.S.   Government agency obligations |  | $                | 12,999
|Mortgage-backed   securities         |  |                  | 1,104 
|                                     |  |                  |       
|Total                                |  | $                | 14,103
|                                     |  |                  |       
|Held to maturity   securities:       |  |                  |       
|U.S.   Government agency obligations |  | $                | 45,844
|Certificates   of deposit            |  |                  | 100   
|Mortgage-backed   securities         |  |                  | 18,185
|                                     |  |                  |       
|Total                                |  | $                | 64,129
|                                     |  |                  |       

At June 30, 2006 and 2005, we did not own any securities, other than U.S. Government agency securities, that had an aggregate book value in excess of 10% of our equity at that date.

16



The following table sets forth the maturities and weighted average yields of securities at June 30, 2006.  At June 30, 2006, U.S. Government agency securities with adjustable rates totaled $9.0 million.

|                                     |  | One Year or Less       |       | More Than   One Year to    Five Years |  | More Than   Five Years to    Ten Years |  
|------------------------------------ |  | ---------------------- | ----- | ------------------------------------- |  | -------------------------------------- | -
|                                     |  |                        |       |                                       |  |                                        |  
|                                     |  | Amortized   Cost       |       | Weighted   Average   Yield            |  | Amortized   Cost                       |  
|                                     |  |                        |       |                                       |  |                                        |  
|                                     |  | (Dollars in thousands) |      
|Available for sale   securities:     |  |                        |       |                                       |  |                                        |  
|U.S.   Government agency obligations |  | $                      |      |                                       |  |                                       | %
|Mortgage-backed   securities         |  |                        | 22    |                                       |  | 4.35                                   |  
|                                     |  |                        |       |                                       |  |                                        |  
|Total  available for sale securities |  | $                      | 22    |                                       |  |                                        |  
|                                     |  |                        |       |                                       |  |                                        |  
|Held to maturity   securities:       |  |                        |       |                                       |  |                                        |  
|Certificates   of deposit            |  | $                      | 100   |                                       |  | 4.04                                   | %
|U.S.   Government agency obligations |  |                        | 2,000 |                                       |  | 2.25                                   |  
|Mortgage-backed   securities         |  |                        | 913   |                                       |  | 4.21                                   |  
|                                     |  |                        |       |                                       |  |                                        |  
|Total   held-to-maturity securities  |  | $                      | 3,013 |                                       |  |                                        |  
|                                     |  |                        |       |                                       |  |                                        |  

|                                     |  | More Than Ten Years |                        | Total Investment Portfolio | 
|------------------------------------ |  | ------------------- | ---------------------- | -------------------------- | 
|                                     |  |                     |                        |                            | 
|                                     |  | Amortized   Cost    |                        | Weighted   Average   Yield | 
|                                     |  |                     |                        |                            | 
|                                     |  |                     | (Dollars in thousands) |                           
|Available for sale   securities:     |  |                     |                        |                            | 
|U.S.   Government agency obligations |  | $                   |                       |                            | 
|Mortgage-backed   securities         |  |                     | 727                    |                            | 
|                                     |  |                     |                        |                            | 
|Total  available for sale securities |  | $                   | 727                    |                            | 
|                                     |  |                     |                        |                            | 
|Held to maturity   securities:       |  |                     |                        |                            | 
|Certificates   of deposit            |  | $                   |                       |                            | 
|U.S.   Government agency obligations |  |                     | 3,999                  |                            | 
|Mortgage-backed   securities         |  |                     | 7,140                  |                            | 
|                                     |  |                     |                        |                            | 
|Total   held-to-maturity securities  |  | $                   | 11,139                 |                            | 
|                                     |  |                     |                        |                            | 

17



Other Assets.  Other assets at June 30, 2006 include goodwill and other intangible assets of $15.3 million, which was a sole result of the Companys acquisition of Frankfort First and bank owned life insurance policies with a carrying value of  $2.2 million and $2.1 million at June 30, 2006 and 2005, respectively, both of which First Federal of Frankfort is the owner and beneficiary.  Previously, the company had no such policies.  Both subsidiary Banks are members and stockholders of the Federal Home Loan Bank of Cincinnati (FHLB).  FHLB stock, at cost, totaled $5.3 million and $5.0 million at June 30, 2006 and 2005, respectively.

Deposits.  Our primary source of funds is retail deposit accounts held primarily by individuals within our market areas.  Deposits totaled $141.2 million at June 30, 2006, a decrease of $13.8 million or 8.9%, compared to the $155.0 million total at June 30, 2005.  Although management generally strives to maintain a moderate rate of growth in deposits, primarily through marketing and pricing strategies, market conditions and competition may curtail growth opportunities.  Rather than striving to offer the highest interest rate on deposit products in our market area, management of the Banks offer deposit products that fit the Banks funding strategies.

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

|                                                    |  | At June   30,    |        
|--------------------------------------------------- |  | ---------------- | -------
|                                                    |  |                  |        
|                                                    |  | 2006             |        
|                                                    |  |                  |        
|                                                    |  | (In   thousands) |        
|Certificate of deposit   accounts                   |  | $                | 90,782 
|Demand, transaction and   passbook savings accounts |  |                  | 50,456 
|                                                    |  |                  |        
|Total                                               |  | $                | 141,238
|                                                    |  |                  |        

The following table indicates the amount of certificate of deposit accounts with balances equal to or greater than $100,000, by time remaining until maturity at June 30, 2006.

|Maturity Period                         |  | Certificates   of Deposit |               
|--------------------------------------- |  | ------------------------- | --------------
|                                        |  |                           |               
|                                        |  |                           | (In thousands)
|Three months or less                    |  | $                         | 3,693         
|Over three months through   six months  |  |                           | 5,148         
|Over six months through   twelve months |  |                           | 9,081         
|Over twelve months                      |  |                           | 8,453         
|                                        |  |                           |               
|Total                                   |  | $                         | 26,375        
|                                        |  |                           |               

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

|              |  | At June   30,    |       
|------------- |  | ---------------- | ------
|              |  |                  |       
|Rate          |  | 2006             |       
|              |  |                  |       
|              |  | (In   thousands) |       
|1.00 -  1.99% |  | $                | 3,192 
|2.00 -  2.99  |  |                  | 9,350 
|3.00 -  3.99  |  |                  | 39,763
|4.00 -  4.99  |  |                  | 30,690
|5.00 -  5.99  |  |                  | 7,783 
|6.00 -  6.99  |  |                  | 4     
|7.00 -  7.99  |  |                  |      
|              |  |                  |       
|Total         |  | $                | 90,782
|              |  |                  |       

18



The following table sets forth the amount and maturities of certificate accounts at June 30, 2006.

|            |  | Amount Due               |        | Total                               |   | Percentage   of   Total Certificate   Accounts | 
|----------- |  | ------------------------ | ------ | ----------------------------------- | - | ---------------------------------------------- | 
|            |  |                          |        |                                     |   |                                                | 
|            |  | Less Than   One Year     |        | More Than   One Year to   Two Years |   | More Than   Two Years to   Three Years         | 
|            |  |                          |        |                                     |   |                                                | 
|            |  | (Dollars   in thousands) |       
|1.00 1.99% |  | $                        | 3,170  |                                     | $ | 1                                              | 
|2.00  2.99 |  |                          | 7,959  |                                     |   | 503                                            | 
|3.00  3.99 |  |                          | 22,597 |                                     |   | 7,057                                          | 
|4.00  4.99 |  |                          | 24,345 |                                     |   | 4,923                                          | 
|5.00  5.99 |  |                          | 3,396  |                                     |   | 1,849                                          | 
|6.00  6.99 |  |                          | 4      |                                     |   |                                               | 
|7.00  7.99 |  |                          |       |                                     |   |                                               | 
|            |  |                          |        |                                     |   |                                                | 
|Total       |  | $                        | 61,471 |                                     | $ | 14,333                                         | 
|            |  |                          |        |                                     |   |                                                | 

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

|                           |  | Year Ended   June 30,  |       
|-------------------------- |  | ---------------------- | ------
|                           |  |                        |       
|                           |  | 2006                   |       
|                           |  |                        |       
|                           |  | Average   Balance      |       
|                           |  |                        |       
|                           |  | (Dollars in thousands) |       
|Noninterest-bearing demand |  | $                      | 742   
|Interest-bearing demand    |  |                        | 13,377
|Passbook                   |  |                        | 44,549
|Time                       |  |                        | 94,440

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

|                                               |  | Year Ended   June 30, |        
|---------------------------------------------- |  | --------------------- | -------
|                                               |  |                       |        
|                                               |  | 2006                  |        
|                                               |  |                       |        
|                                               |  | (In   thousands)      |        
|Beginning balance                              |  | $                     | 155,044
|Increase (decrease) before   interest credited |  |                       | (17,834
|Interest credited                              |  |                       | 4,028  
|                                               |  |                       |        
|Net increase (decrease) in   deposits          |  |                       | (13,806
|                                               |  |                       |        
|Ending balance                                 |  | $                     | 141,238
|                                               |  |                       |        

Borrowings.  Advances from the Federal Home Loan Bank of Cincinnati amounted to $54.8 million and $51.0 million at June 30, 2006 and 2005, respectively.

19



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

|                                                                            |  | Year Ended   June 30,    |       
|--------------------------------------------------------------------------- |  | ------------------------ | ------
|                                                                            |  |                          |       
|                                                                            |  | 2006                     |       
|                                                                            |  |                          |       
|                                                                            |  | (Dollars   in thousands) |       
|Balance outstanding at end   of period                                      |  | $                        | 54,849
|Maximum amount of advances   outstanding at any month end during the period |  | $                        | 54,849
|Average advances   outstanding during the period                            |  | $                        | 54,696
|Weighted average interest   rate during the period                          |  |                          | 4.02  
|Weighted average interest   rate at end of period                           |  |                          | 6.04  

Shareholders Equity.  Shareholders equity totaled $63.9 million at June 30, 2006, a $2.1 million or 3.1%, decrease compared to June 30, 2005.  The reduction resulted primarily from previously announced repurchases of the Companys common stock.

The Banks are required to maintain minimum regulatory capital pursuant to federal regulations.  At June 30, 2006, both First Federal of Hazards and First Federal of Frankforts regulatory capital substantially exceeded all minimum regulatory capital requirements.  Management is not aware of any recent event that would cause this classification to change.

Results of Operations for the Years Ended June 30, 2006 and 2005

General.Our net earnings totaled $1.6 million for the fiscal year ended June 30, 2006, a decrease of $41,000, or 2.5%, from the net earnings recorded for the fiscal year ended June 30, 2005.  The decline resulted primarily from a post-merger increase in general, administrative and other expense, partially offset by increases in net interest income.  Earnings in fiscal 2005 also reflect a non-recurring reversal of a previously pledged charitable donation of $200,000.  Since acquiring Frankfort First on March 2, 2005, the Company has experienced large increases in interest income, interest expense and general, administrative, and other expense.

Interest Income.Total interest income for the fiscal year ended June 30, 2006 totaled $12.7 million, an increase of $4.6 million, or 55.9%, compared to the fiscal year ended June 30, 2005.  The increase in interest income primarily reflects the impact of the acquisition of Frankfort First. Also contributing to the growth in interest income was an increase of 58 basis points in the average yield on interest-earning assets, from 4.57% for fiscal 2005 to 5.15% for fiscal 2006.

Interest income on loans increased by $4.6 million, or 100.3%, for the fiscal year ended June 30, 2006, compared to fiscal 2005, due primarily to a $80.7 million, or 111.8%, increase in the average balance of loans outstanding, which was partially offset by a decline of 34 basis points in the average yield on loans to 6.02% for fiscal 2006.  Interest income on mortgage-backed securities decreased by $92,000 during the fiscal year ended June 30, 2006, due primarily to a $2.1 million decrease in the average balance outstanding.  Interest income on investment securities decreased by $45,000, or 2.1%, during the fiscal year ended June 30, 2006, due primarily to a $3.7 million, or 5.7%, decrease in the average balance outstanding, while the average yield increased by 13 basis points from fiscal 2005.  Interest income on other interest-earning assets increased by $86,000, or
18.9%, during the fiscal year ended June 30, 2006, due primarily to a 202 basis point increase in the average yield year to year, although the average balance outstanding decreased by $6.5 million, or 34.8%.

Interest Expense.Interest expense totaled $6.2 million for the fiscal year ended June 30, 2006, an increase of $2.9 million, or 85.7%, from interest expense of $3.4 million for fiscal 2005.  The increase resulted from a 73 basis point increase in the average cost of funds, from 2.27% for fiscal 2005 to 3.00% for fiscal 2006, and a $60.0 million, or 40.6%, increase in the average balance of deposits and borrowings outstanding for the fiscal year ended June 30, 2006.  Interest expense on deposits totaled $4.0 million for the fiscal year ended June 30, 2006, an increase of $1.6 million, or 64.4%, from fiscal 2005.  This increase was a result of an increase in the average balance of deposits outstanding of $29.0 million or 23.3% for fiscal 2006 and a 66 basis point increase in the average cost of deposits to 2.63% for fiscal 2006.  Interest
expense on borrowings totaled $2.2 million for the fiscal year ended June 30, 2006, an increase of $1.3 million over fiscal 2005.  Average borrowings increased during the fiscal year ended June 30, 2006, by $31.1 million primarily as a result of the acquisition of Frankfort First.  The average rate paid on borrowings increased 20 basis points to 4.02% for fiscal 2006.

20



Net Interest Income.  As a result of the aforementioned changes in interest income and interest expense, net interest income increased by $1.7 million, or 35.0%, during the fiscal year ended June 30, 2006, compared to fiscal 2005.  The average interest rate spread decreased from 2.30% for the fiscal year ended June 30, 2005 to 2.15% for fiscal 2006.  The net interest margin decreased to 2.63% for the fiscal year ended June 30, 2006 from 2.69% for fiscal 2005.

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

|                                                                          |  | Year Ended   June 30,    |        
|------------------------------------------------------------------------- |  | ------------------------ | -------
|                                                                          |  |                          |        
|                                                                          |  | 2006                     |        
|                                                                          |  |                          |        
|                                                                          |  | Average   Balance        |        
|                                                                          |  |                          |        
|                                                                          |  | (Dollars   in thousands) |        
|Interest-earning assets:                                                  |  |                          |        
|Loans   receivable                                                        |  | $                        | 152,832
|Mortgage-backed   securities                                              |  |                          | 21,150 
|Investment   securities                                                   |  |                          | 60,751 
|Other   interest-earning assets                                           |  |                          | 12,086 
|                                                                          |  |                          |        
|Total   interest-earning assets                                           |  |                          | 246,819
|Noninterest-earning assets                                                |  |                          | 22,727 
|                                                                          |  |                          |        
|Total   assets                                                            |  | $                        | 269,546
|                                                                          |  |                          |        
|Interest-bearing   liabilities:                                           |  |                          |        
|Demand   deposits                                                         |  | $                        | 13,377 
|Noninterest-Bearing   demand deposits                                     |  |                          | 742    
|Savings                                                                   |  |                          | 44,549 
|Certificates   of deposit                                                 |  |                          | 94,440 
|                                                                          |  |                          |        
|Total   deposits                                                          |  |                          | 153,108
|Borrowings                                                                |  |                          | 54,696 
|                                                                          |  |                          |        
|Total   interest-bearing liabilities                                      |  |                          | 207,804
|                                                                          |  |                          |        
|Noninterest-bearing   liabilities                                         |  |                          | 2,577  
|                                                                          |  |                          |        
|Total   liabilities                                                       |  |                          | 210,381
|Shareholders equity                                                      |  |                          | 59,165 
|                                                                          |  |                          |        
|Total   liabilities and shareholders equity                              |  | $                        | 269,546
|                                                                          |  |                          |        
|Net interest   income/average yield                                       |  |                          |        
|                                                                          |  |                          |        
|Net interest margin                                                       |  |                          |        
|                                                                          |  |                          |        
|Average   interest-earning assets to average interest-bearing liabilities |  |                          |        
|                                                                          |  |                          |        

21



Rate/Volume Analysis.The following table sets forth the effects of changing rates and volumes on our net interest income.  The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume).  The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate).  For purposes of this table, changes attributable to changes in both rate and volume that cannot be segregated have been allocated proportionately based on the changes due to rate and the changes due to volume.  The net column represents the sum of the prior columns.

|                                      |  | Year Ended   June 30, 2006   Compared   To Year Ended June 30, 2005 |      
|------------------------------------- |  | ------------------------------------------------------------------- | -----
|                                      |  |                                                                     |      
|                                      |  | Increase   (Decrease) Due to                                        |      
|                                      |  |                                                                     |      
|                                      |  | Volume                                                              |      
|                                      |  |                                                                     |      
|                                      |  | (In   thousands)                                                    |      
|Interest income:                      |  |                                                                     |      
|Loans   receivable                    |  | $                                                                   | 4,842
|Mortgage-backed   securities          |  |                                                                     | (90  
|Investment   securities               |  |                                                                     | (138 
|Interest-bearing   deposits and other |  |                                                                     | (63  
|                                      |  |                                                                     |      
|Total   interest income               |  |                                                                     | 4,551
|                                      |  |                                                                     |      
|Interest expense:                     |  |                                                                     |      
|Deposits                              |  |                                                                     | 762  
|Borrowings                            |  |                                                                     | 1,247
|                                      |  |                                                                     |      
|Total   interest expense              |  |                                                                     | 2,009
|                                      |  |                                                                     |      
|Increase in net interest   income     |  | $                                                                   | 2,542
|                                      |  |                                                                     |      

Provision for Losses on Loans.  A provision for losses on loans is charged to earnings to maintain the total allowance for loan losses at a level calculated by management based on historical experience, the volume and type of lending conducted by the Banks, the status of past due principal and interest payments and other factors related to the collectibility of the loan portfolio.  Based upon an analysis of these factors, management recorded a provision for losses on loans totaling $32,000 for the fiscal year ended June 30, 2006, a decrease of $21,000 compared to fiscal 2005.  The provision recorded during the fiscal year ended June 30, 2006 generally reflects managements perception of the risk prevalent in the economy integrated, with the overall decline in the level of nonperforming loans year over year.  Management believes all nonperforming loans
are adequately collateralized; however, there can be no assurance that the loan loss allowance will be adequate to absorb losses on known nonperforming assets or that the allowance will be adequate to cover losses on nonperforming assets in the future.

Other  Income.Other operating income decreased $47,000, to $216,000 for the fiscal year ended June 30, 2006, due primarily to the cancellation of a charitable contribution pledge of $200,000 in fiscal 2005.  The reversal of expense in the previous year was unusual and is not expected to recur.  Other operating income is generally comprised of service charges and fees charged on loan and deposit accounts.

General, Administrative and Other Expense.General, administrative and other expense increased $1.8 million or 73.6% to $4.4 million for the fiscal year ended June 30, 2006 compared to fiscal 2005.  The increase in general, administrative and other expense is primarily attributed to a complete fiscal year of operations including Frankfort First and the costs of operating a public company as well as expenses associated with the ESOP and the Equity Incentive Plan, which was approved at the 2005 Annual Meeting.

Federal Income Taxes.The provision for federal income tax decreased $149,000 or 17.1% from $872,000 for the fiscal year ended June 30, 2005 to $723,000 for the fiscal year ended June 30, 2006, as a result of lower earnings before income taxes of $190,000, or 7.6%.  Effective tax rates for the years ended June 30, 2006 and 2005 were 31.3% and 34.9%, respectively.

22



Results of Operations for the Years Ended June 30, 2005 and 2004

General.Our net earnings totaled $1.6 million for the fiscal year ended June 30, 2005, an increase of $868,000, or 114.1%, from the $761,000 of net earnings recorded for the fiscal year ended June 30, 2004.  The increase in net earnings was primarily attributable to an increase in net interest income of $1.4 million and an increase in other income of $298,000, which were partially offset by increases in general, administrative and other expense of $326,000, an increase in the provision for losses on loans of $43,000 and an increase in the provision for federal income taxes of $480,000.

Interest Income.Total interest income for the fiscal year ended June 30, 2005 totaled $8.2 million, an increase of $2.6 million, or 45.6%, compared to the fiscal year ended June 30, 2004.  The increase in interest income primarily reflects the impact of the acquisition of Frankfort First, which resulted in an increase of $45.1 million in average interest-earning assets for fiscal 2005 compared to fiscal 2004. Also contributing to the growth in interest income was an increase of 37 basis points in the average yield on interest-earning assets, from 4.20% for fiscal 2004 to 4.57% for fiscal 2005.

Interest income on loans increased by $1.8 million, or 64.4%, for the fiscal year ended June 30, 2005, compared to fiscal 2004, due primarily to a $34.5 million, or 91.7%, increase in the average balance of loans outstanding, which was partially offset by a decline of 106 basis points in the average yield on loans to 6.36% for fiscal 2005.  Interest income on mortgage-backed securities increased by $586,000 during the fiscal year ended June 30, 2005, due primarily to a $14.7 million increase in the average balance outstanding despite a decrease in the average yield of 37 basis points from fiscal 2004.  Interest income on investment securities decreased by $69,000, or 3.1%, during the fiscal year ended June 30, 2005, due primarily to a $3.6 million, or 5.3%, decrease in the average balance outstanding, while the average yield increased by 7 basis points from fiscal 2004. 
Interest income on other interest-earning assets increased by $237,000, or 108.2%, during the fiscal year ended June 30, 2005.  The increase was due primarily to a 131 basis point increase in the average yield year to year, although the average balance outstanding decreased by $476,000, or 2.5%.

Interest Expense.Interest expense totaled $3.4 million for the fiscal year ended June 30, 2005, an increase of $1.1 million, or 51.0%, from interest expense of $2.2 million for fiscal 2004.  The increase resulted from an 11 basis point increase in the average cost of funds, to 2.27% for fiscal 2005, and a $44.9 million, or 43.6%, increase in the average balance of deposits and borrowings outstanding for the fiscal year ended June 30, 2005.  Interest expense on deposits totaled $2.5 million for the fiscal year ended June 30, 2005, an increase of $284,000, or 13.1%, from fiscal 2004.  This increase was a result of an increase in the average balance of deposits outstanding of $23.2 million or 22.9% for fiscal 2005 despite a 17 basis point decrease in the average cost of deposits to 1.97% for fiscal 2005.  Interest expense on borrowings totaled

$903,000 for the fiscal year ended June 30, 2005, an increase of $849,000 over fiscal 2004.  Average borrowings increased during the fiscal year ended June 30, 2005, by $21.7 million primarily as a result of the acquisition of Frankfort First.  The average rate paid on borrowings increased 104 basis points to 3.82% for fiscal 2005.

Net Interest Income.  As a result of the aforementioned changes in interest income and interest expense, net interest income increased by $1.4 million, or 42.0%, during the fiscal year ended June 30, 2005, compared to fiscal 2004.  The average interest rate spread increased to 2.30% for the fiscal year ended June 30, 2005 from 2.04% for fiscal 2004.  The net interest margin increased to 2.69% for the fiscal year ended June 30, 2005 from 2.54% for fiscal 2004.

23



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

|                                                                          |  | Year Ended June 30,    |        
|------------------------------------------------------------------------- |  | ---------------------- | -------
|                                                                          |  |                        |        
|                                                                          |  | 2005                   |        
|                                                                          |  |                        |        
|                                                                          |  | Average
Balance        |        
|                                                                          |  |                        |        
|                                                                          |  | (Dollars in thousands) |        
|Interest-earning assets:                                                  |  |                        |        
|Loans   receivable                                                        |  | $                      | 72,154 
|Mortgage-backed   securities                                              |  |                        | 23,289 
|Investment   securities                                                   |  |                        | 64,441 
|Other   interest-earning assets                                           |  |                        | 18,544 
|                                                                          |  |                        |        
|Total   interest-earning assets                                           |  |                        | 178,428
|Noninterest-earning assets                                                |  |                        | 7,067  
|                                                                          |  |                        |        
|Total   assets                                                            |  | $                      | 185,495
|                                                                          |  |                        |        
|Interest-bearing   liabilities:                                           |  |                        |        
|Deposits                                                                  |  | $                      | 124,149
|Borrowings                                                                |  |                        | 23,631 
|                                                                          |  |                        |        
|Total   interest-bearing liabilities                                      |  |                        | 147,780
|                                                                          |  |                        |        
|Noninterest-bearing   liabilities                                         |  |                        | 1,207  
|                                                                          |  |                        |        
|Total   liabilities                                                       |  |                        | 148,987
|Shareholders equity                                                      |  |                        | 36,508 
|Total   liabilities and shareholders equity                              |  | $                      | 185,495
|                                                                          |  |                        |        
|Net interest   income/average yield                                       |  |                        |        
|                                                                          |  |                        |        
|Net interest margin                                                       |  |                        |        
|                                                                          |  |                        |        
|Average interest-earning   assets to average interest-bearing liabilities |  |                        |        
|                                                                          |  |                        |        

|   
|---
|(1)

24



Rate/Volume Analysis.The following table sets forth the effects of changing rates and volumes on our net interest income.  The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume).  The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate).  For purposes of this table, changes attributable to changes in both rate and volume that cannot be segregated have been allocated proportionately based on the changes due to rate and the changes due to volume.  The net column represents the sum of the prior columns.

|                                      |  | Year Ended   June 30, 2005   Compared   To Year Ended June 30, 2004 |      
|------------------------------------- |  | ------------------------------------------------------------------- | -----
|                                      |  |                                                                     |      
|                                      |  | Increase   (Decrease) Due to                                        |      
|                                      |  |                                                                     |      
|                                      |  | Volume                                                              |      
|                                      |  |                                                                     |      
|                                      |  | (In   thousands)                                                    |      
|Interest income:                      |  |                                                                     |      
|Loans   receivable                    |  | $                                                                   | 2,128
|Mortgage-backed   securities          |  |                                                                     | 615  
|Investment   securities               |  |                                                                     | (122 
|Interest-bearing   deposits and other |  |                                                                     | (5   
|                                      |  |                                                                     |      
|Total   interest income               |  |                                                                     | 2,616
|                                      |  |                                                                     |      
|Interest expense:                     |  |                                                                     |      
|Deposits                              |  |                                                                     | 437  
|Borrowings                            |  |                                                                     | 821  
|                                      |  |                                                                     |      
|Total   interest expense              |  |                                                                     | 1,258
|                                      |  |                                                                     |      
|Increase in net interest   income     |  | $                                                                   | 1,358
|                                      |  |                                                                     |      

Provision for Losses on Loans.  A provision for losses on loans is charged to earnings to maintain the total allowance for loan losses at a level calculated by management based on historical experience, the volume and type of lending conducted by the Banks, the status of past due principal and interest payments and other factors related to the collectibility of the loan portfolio.  Based upon an analysis of these factors, management recorded a provision for losses on loans totaling $53,000 for the fiscal year ended June 30, 2005, an increase of $43,000 compared to fiscal 2004.  The provision recorded during the fiscal year ended June 30, 2005 generally reflects managements perception of the risk prevalent in the economy integrated with the overall decline in the level of the loan portfolio and the level of charge-offs recorded in fiscal 2005. 
Management believes all nonperforming loans are adequately collateralized; however, there can be no assurance that the loan loss allowance will be adequate to absorb losses on known nonperforming assets or that the allowance will be adequate to cover losses on nonperforming assets in the future.

Other Income(Loss).Total other income increased $298,000, to $263,000 for the fiscal year ended June 30, 2005, due primarily to the cancellation of a charitable contribution pledge of $200,000, previously charged to expense in the fiscal year ended June 30, 2004.  Other operating income is generally comprised of service charges and fees charged on loan and deposit accounts.

General, Administrative and Other Expense.General, administrative and other expense increased $326,000 or 14.9% to $2.5 million for the fiscal year ended June 30, 2005 compared to fiscal 2004.  The increase in general, administrative and other expense is primarily attributed to an increase in other operating expenses which increased $151,000 or 55.1% to $425,000 for fiscal year 2005 compared to fiscal 2004.  The increase is primarily related to the normal operating expenses of Frankfort First and four months additional recurring expenses for the Company.

Federal Income Taxes.The provision for federal income tax increased $480,000 or 122.4% from $392,000 for the fiscal year ended June 30, 2004 to $872,000 for the fiscal year ended June 30, 2005, as a result of higher earnings before income taxes of $1.3 million, or 116.9%.  Effective tax rates for the years ended June 30, 2005 and 2004 were 34.9% and 34.0%, respectively.

25



Liquidity and Capital Resources

Liquidity is the ability to meet current and future short-term financial obligations.  Our primary sources of funds consist of cash and deposits at other banks, deposit inflows, loan repayments and maturities, calls and sales of investment and mortgage-backed securities and advances from the FHLB.  While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition.

We periodically assess our available liquidity and projected upcoming liquidity demands.  We regularly adjust our investments in liquid assets based upon our assessment of (1) expected loan demand, (2) expected deposit flows, (3) yields available on interest-earning deposits and securities, and (4) the objectives of our asset/liability management program.  Excess liquid assets are invested generally in interest-earning deposits, federal funds and short- and intermediate-term U.S. Government agency obligations.

Our most liquid assets are cash, federal funds sold and interest-bearing deposits.  The levels of these assets depend on our operating, financing, lending and investing activities during any given period.  At June 30, 2006 and June 30, 2005, cash and cash equivalents totaled $2.3 million and $8.4 million respectively.  Investment securities classified as available-for-sale, which provide additional sources of liquidity, totaled $12.2 million and $12.7 million at June 30, 2006 and 2005, respectively.  At June 30, 2006, we had the ability to borrow a total $95.4 million from the FHLB, of which $52.8 million (net of premium) was outstanding.

Historically, we have remained highly liquid.  We are not aware of any trends and/or demands, commitments, events or uncertainties that could result in a material protracted decrease in liquidity.  We expect that all of our liquidity needs, including the contractual commitments set forth in the table below can be met by our currently available liquid assets and cash flows.  In the event any unforeseen demand or commitments were to occur, we would access our borrowing capacity with the FHLB.  We expect that our currently available liquid assets and our ability to borrow from the FHLB would be sufficient to satisfy our liquidity needs without any material adverse effect on our liquidity.

Our primary investing activities are the origination of loans and the purchase of investment securities.  In fiscal 2006, we originated $34.2 million of loans.  In fiscal 2005, we originated $12.2 million of loans.  In fiscal 2004, we originated $5.0 million of loans and purchased $111.6 million of investment and mortgage-backed securities.  During fiscal 2006, these activities were funded primarily by proceeds from the principal repayments on loans of $30.4 million and maturities of investment securities and mortgage-backed securities of $9.0 million.  During fiscal 2005, these activities were funded primarily by the proceeds from the principal repayments on loans of $13.5 million and maturities of securities of $1.9 million.

Financing activities consist primarily of activity in deposit accounts and in FHLB advances.  In fiscal 2005, the net proceeds from the issuance of common stock contributed $12.7 million to the Company.  We experienced a net decrease in total deposits of $13.8 million, $15.2 million and $6.0 million for the years ended June 30, 2006, 2005 and 2004, respectively.  Deposit flows are affected by the overall level of interest rates, the interest rates and products offered by us and our local competitors and other factors.  While we generally manage the pricing of our deposits to be competitive and to increase core deposit relationships, during fiscal 2006, management chose to emphasize maintaining existing deposits over attracting new deposits.

26



Commitments and Contractual Obligations

At June 30, 2006, we had $1.0 million in mortgage commitments.  Certificates of deposit due within one year of June 30, 2006 totaled $61.5 million, or 43.5% of total deposits.  If these deposits do not remain with us, we might be required to seek other sources of funds, including FHLB advances or other certificates of deposit.  Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the certificates of deposit due on or before June 30, 2006.  We believe, however, based on past experience, that a significant portion of our certificates of deposit will remain with us.  We have the ability to attract and retain deposits by adjusting the interest rates offered.

The following table sets forth our contractual obligations and loan commitments as of June 30, 2006.

|                                             |  | TotalAmountsCommitted |        | LessThanOne Year |   | One toThreeYears |  | Four toSixYears |      
|-------------------------------------------- |  | --------------------- | ------ | ---------------- | - | ---------------- |  | --------------- | -----
|                                             |  |                       |        |                  |   |                  |  |                 |      
|                                             |  | (In thousands)        |       
|Federal Home Loan Bank   advances (1)        |  | $                     | 52,823 |                  | $ | 18,649           |  | $               | 4,040
|One to four family   residential real estate |  |                       | 1,045  |                  |   | 1,045            |  |                 |     
|Unused lines of credit                       |  |                       | 9,111  |                  |   | 9,111            |  |                 |     
|Undisbursed loans                            |  |                       | 1,169  |                  |   | 1,169            |  |                 |     
|                                             |  |                       |        |                  |   |                  |  |                 |      
|Total   commitments                          |  | $                     | 64,148 |                  | $ | 29,974           |  | $               | 4,040
|                                             |  |                       |        |                  |   |                  |  |                 |      

|   
|---
|(1)

For the year ended June 30, 2006, other than loan commitments, we engaged in no off-balance-sheet transactions reasonably likely to have a material effect on our financial condition, results of operations or cash flows.

Impact of Inflation and Changing Prices

Our consolidated financial statements and accompanying notes have been prepared in accordance with generally accepted accounting principles, which require the measurement of financial position and operating results in terms of historical dollars without considering the change in the relative purchasing power of money over time due to inflation.  The primary impact of inflation on our operations is reflected in increased operating costs.  Unlike most industrial companies, virtually all of our assets and liabilities are monetary in nature.  As a result, interest rates generally have a more significant impact on our performance than do general levels of inflation.  Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.

27



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors Kentucky First Federal Bancorp

We have audited the accompanying consolidated statements of financial condition of Kentucky First Federal Bancorp as of June 30, 2006 and 2005, and the related consolidated statements of earnings, comprehensive income, shareholders equity and cash flows for each of the three years in the period ended June 30, 2006.  These consolidated financial statements are the responsibility of the Companys management.  Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting.  Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting.  Accordingly, we express no such opinion.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Kentucky First Federal Bancorp as of June 30, 2006 and 2005, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2006, in conformity with accounting principles generally accepted in the United States of America.

|/s/ Grant Thornton LLP | 
|---------------------- | 
|                       | 
|Cincinnati, Ohio       | 
|September 1, 2006      | 

28



KENTUCKY FIRST FEDERAL BANCORP

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

June 30, 2006 and 2005 (In thousands, except share data)

|                                                                                                                                                         |  | 2006 |         | 2005 |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | ---- | -
|                                                                                                                                                         |  |      |         |      |  
|ASSETS                                                                                                                                                   |  |      |         |      |  
|Cash and due from banks                                                                                                                                  |  | $    | 832     |      | $
|Interest-bearing deposits   in other financial institutions                                                                                              |  |      | 1,462   |      |  
|                                                                                                                                                         |  |      |         |      |  
|Cash   and cash equivalents                                                                                                                              |  |      | 2,294   |      |  
|Investment securities   available for sale  at market                                                                                                   |  |      | 12,211  |      |  
|Investment securities held   to maturity, at amortized cost-approximate fair value of $44,019 and $49,944   at  June 30, 2006 and 2005,   respectively   |  |      | 45,944  |      |  
|Mortgage-backed securities   available for sale - at market                                                                                              |  |      | 1,079   |      |  
|Mortgage-backed securities   held to maturity, at amortized cost-approximate fair value of $17,028 and   $21,168 at June 30, 2006 and 2005, respectively |  |      | 18,185  |      |  
|Loans receivable  net                                                                                                                                   |  |      | 155,386 |      |  
|Real estate acquired   through foreclosure - net                                                                                                         |  |      | 51      |      |  
|Office premises and   equipment - at depreciated cost                                                                                                    |  |      | 2,857   |      |  
|Federal Home Loan Bank   stock - at cost                                                                                                                 |  |      | 5,264   |      |  
|Accrued interest   receivable                                                                                                                            |  |      | 868     |      |  
|Bank-owned life insurance                                                                                                                                |  |      | 2,175   |      |  
|Goodwill and other   intangible assets - net                                                                                                             |  |      | 15,250  |      |  
|Prepaid expenses and other   assets                                                                                                                      |  |      | 252     |      |  
|Prepaid federal income   taxes                                                                                                                           |  |      | 125     |      |  
|                                                                                                                                                         |  |      |         |      |  
|Total   assets                                                                                                                                           |  | $    | 261,941 |      | $
|                                                                                                                                                         |  |      |         |      |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                     |  |      |         |      |  
|Deposits                                                                                                                                                 |  | $    | 141,238 |      | $
|Advances from the Federal   Home Loan Bank                                                                                                               |  |      | 54,849  |      |  
|Advances by borrowers for   taxes and insurance                                                                                                          |  |      | 369     |      |  
|Accrued interest payable                                                                                                                                 |  |      | 253     |      |  
|Deferred federal income   taxes                                                                                                                          |  |      | 484     |      |  
|Other liabilities                                                                                                                                        |  |      | 867     |      |  
|                                                                                                                                                         |  |      |         |      |  
|Total   liabilities                                                                                                                                      |  |      | 198,060 |      |  
|Commitments                                                                                                                                              |  |      |        |      |  
|Shareholders equity                                                                                                                                     |  |      |         |      |  
|Preferred   stock, 500,000 shares authorized, $.01 par value; no shares issued                                                                           |  |      |        |      |  
|Common   stock, 20,000,000 shares authorized, $.01 par value; 8,596,064 shares issued                                                                    |  |      | 86      |      |  
|Additional   paid-in capital                                                                                                                             |  |      | 36,769  |      |  
|Retained   earnings - restricted                                                                                                                         |  |      | 32,761  |      |  
|Shares   acquired by stock benefit plans                                                                                                                 |  |      | (4,845  | )    |  
|Treasury   shares at cost, 32,589 shares at June 30, 2006                                                                                                |  |      | (354    | )    |  
|Accumulated   comprehensive loss, unrealized losses on securities designated as available   for sale - net of related tax benefits                       |  |      | (536    | )    |  
|                                                                                                                                                         |  |      |         |      |  
|Total   shareholders equity                                                                                                                             |  |      | 63,881  |      |  
|                                                                                                                                                         |  |      |         |      |  
|Total   liabilities and shareholders equity                                                                                                             |  | $    | 261,941 |      | $
|                                                                                                                                                         |  |      |         |      |  

The accompanying notes are an integral part of these statements.

29



KENTUCKY FIRST FEDERAL BANCORP

CONSOLIDATED STATEMENTS OF EARNINGS

For the years ended June 30, 2006, 2005 and 2004 (In thousands, except share data)

|                                                                  |  | 2006 |        | 2005 |   | 2004  |  
|----------------------------------------------------------------- |  | ---- | ------ | ---- | - | ----- | -
|                                                                  |  |      |        |      |   |       |  
|Interest income                                                   |  |      |        |      |   |       |  
|Loans                                                             |  | $    | 9,199  |      | $ | 4,592 |  
|Mortgage-backed   securities                                      |  |      | 890    |      |   | 982   |  
|Investment   securities                                           |  |      | 2,078  |      |   | 2,123 |  
|Interest-bearing   deposits and other                             |  |      | 542    |      |   | 456   |  
|                                                                  |  |      |        |      |   |       |  
|Total   interest income                                           |  |      | 12,709 |      |   | 8,153 |  
|Interest expense                                                  |  |      |        |      |   |       |  
|Deposits                                                          |  |      | 4,028  |      |   | 2,450 |  
|Borrowings                                                        |  |      | 2,199  |      |   | 903   |  
|                                                                  |  |      |        |      |   |       |  
|Total   interest expense                                          |  |      | 6,227  |      |   | 3,353 |  
|                                                                  |  |      |        |      |   |       |  
|Net   interest income                                             |  |      | 6,482  |      |   | 4,800 |  
|Provision for losses on   loans                                   |  |      | 32     |      |   | 53    |  
|                                                                  |  |      |        |      |   |       |  
|Net   interest income after provision for losses on loans         |  |      | 6,450  |      |   | 4,747 |  
|Other income (loss)                                               |  |      |        |      |   |       |  
|Earnings   on bank-owned life insurance                           |  |      | 80     |      |   | 25    |  
|Gain   on sale of loans                                           |  |      | 24     |      |   | 31    |  
|Gain   (loss) on sale of investment securities                    |  |      |       |      |   |      |  
|Gain   (loss) on sale of real estate acquired through foreclosure |  |      | 5      |      |   | (9    | )
|Gain   on sale of office premises and equipment                   |  |      | 13     |      |   |      |  
|Other   operating                                                 |  |      | 94     |      |   | 216   |  
|                                                                  |  |      |        |      |   |       |  
|Total   other income (loss)                                       |  |      | 216    |      |   | 263   |  
|General, administrative   and other expense                       |  |      |        |      |   |       |  
|Employee   compensation and benefits                              |  |      | 3,014  |      |   | 1,688 |  
|Occupancy   and equipment                                         |  |      | 364    |      |   | 210   |  
|Franchise   and other taxes                                       |  |      | 186    |      |   | 104   |  
|Data   processing                                                 |  |      | 125    |      |   | 67    |  
|Other   operating                                                 |  |      | 666    |      |   | 440   |  
|                                                                  |  |      |        |      |   |       |  
|Total   general, administrative and other expense                 |  |      | 4,355  |      |   | 2,509 |  
|                                                                  |  |      |        |      |   |       |  
|Earnings   before income taxes                                    |  |      | 2,311  |      |   | 2,501 |  
|Federal income taxes                                              |  |      |        |      |   |       |  
|Current                                                           |  |      | 455    |      |   | 309   |  
|Deferred                                                          |  |      | 268    |      |   | 563   |  
|                                                                  |  |      |        |      |   |       |  
|Total   federal income taxes                                      |  |      | 723    |      |   | 872   |  
|                                                                  |  |      |        |      |   |       |  
|NET   EARNINGS                                                    |  | $    | 1,588  |      | $ | 1,629 |  
|                                                                  |  |      |        |      |   |       |  
|EARNINGS   PER SHARE                                              |  |      |        |      |   |       |  
|Basic                                                             |  | $    | 0.19   |      |   | N/A   |  
|                                                                  |  |      |        |      |   |       |  
|Diluted                                                           |  | $    | 0.19   |      |   | N/A   |  
|                                                                  |  |      |        |      |   |       |  

The accompanying notes are an integral part of these statements.

30



KENTUCKY FIRST FEDERAL BANCORP

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the years ended June 30, 2006, 2005 and 2004 (In thousands)

|                                                                                                                                                             |  | 2006 |       | 2005 |   | 2004  |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---- | ----- | ---- | - | ----- | -
|                                                                                                                                                             |  |      |       |      |   |       |  
|Net earnings                                                                                                                                                 |  | $    | 1,588 |      | $ | 1,629 |  
|Other comprehensive income   (loss), net of tax-related effects:                                                                                             |  |      |       |      |   |       |  
|Unrealized holding gains   (losses) on securities during the year, net of taxes (benefits) of $(168),   $98, and $(204) in 2006, 2005 and 2004, respectively |  |      | (326  | )    |   | 190   |  
|Reclassification   adjustment for realized gains included in earnings, net of taxes of $2                                                                    |  |      |      |      |   |      |  
|                                                                                                                                                             |  |      |       |      |   |       |  
|Comprehensive income                                                                                                                                         |  | $    | 1,262 |      | $ | 1,819 |  
|                                                                                                                                                             |  |      |       |      |   |       |  
|Accumulated comprehensive   loss                                                                                                                             |  | $    | (536  | )    | $ | (210  | )
|                                                                                                                                                             |  |      |       |      |   |       |  

The accompanying notes are an integral part of these statements.

31



KENTUCKY FIRST FEDERAL BANCORP

CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY

For the years ended June 30, 2006, 2005 and 2004 (In thousands, except share data)

|                                                                                                                                |  | Common   stock |    | Additional   paid-in   capital |   | Retained   earnings |  | Shares
acquiredby stock   benefit   plans |        | Treasury   shares |   | Unrealized
gains (losses)on securitiesdesignatedas availablefor sale |   | Total |     
|------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | -- | ------------------------------ | - | ------------------- |  | ----------------------------------------- | ------ | ----------------- | - | -------------------------------------------------------------------- | - | ----- | ----
|                                                                                                                                |  |                |    |                                |   |                     |  |                                           |        |                   |   |                                                                      |   |       |     
|Balance at July 1, 2003                                                                                                         |  | $              |   |                                | $ |                    |  | $                                         | 30,682 |                   | $ |                                                                     |   | $     |    
|Net earnings for the year   ended June 30, 2004                                                                                 |  |                |   |                                |   |                    |  |                                           | 761    |                   |   |                                                                     |   |       |    
|Unrealized losses on   securities designated as available for sale, net of related tax effects                                  |  |                |   |                                |   |                    |  |                                           |       |                   |   |                                                                     |   |       |    
|                                                                                                                                |  |                |    |                                |   |                     |  |                                           |        |                   |   |                                                                      |   |       |     
|Balance at July 1, 2004                                                                                                         |  |                |   |                                |   |                    |  |                                           | 31,443 |                   |   |                                                                     |   |       |    
|Conversion to stock form   of ownership and issuance of shares in connection with Frankfort First   Federal Bancorp acquisition |  |                | 86 |                                |   | 36,714              |  |                                           |       |                   |   | (3,370                                                               | ) |       |    
|Net earnings for the year   ended June 30, 2005                                                                                 |  |                |   |                                |   |                    |  |                                           | 1,629  |                   |   |                                                                     |   |       |    
|Unrealized gains on   securities designated as available for sale, net of related tax effects                                   |  |                |   |                                |   |                    |  |                                           |       |                   |   |                                                                     |   |       |    
|Cash dividends of $0.10   per common share                                                                                      |  |                |   |                                |   |                    |  |                                           | (353   | )                 |   |                                                                     |   |       |    
|                                                                                                                                |  |                |    |                                |   |                     |  |                                           |        |                   |   |                                                                      |   |       |     
|Balance at June 30, 2005                                                                                                        |  |                | 86 |                                |   | 36,714              |  |                                           | 32,719 |                   |   | (3,370                                                               | ) |       |    
|Net earnings for the year   ended June 30, 2006                                                                                 |  |                |   |                                |   |                    |  |                                           | 1,588  |                   |   |                                                                     |   |       |    
|Amortization expense of   stock benefit plans                                                                                   |  |                |   |                                |   | 55                  |  |                                           |       |                   |   | 178                                                                  |   |       |    
|Acquisition of shares for:                                                                                                      |  |                |    |                                |   |                     |  |                                           |        |                   |   |                                                                      |   |       |     
|Stock   Benefit Plans                                                                                                           |  |                |   |                                |   |                    |  |                                           |       |                   |   | (1,653                                                               | ) |       |    
|Treasury                                                                                                                        |  |                |   |                                |   |                    |  |                                           |       |                   |   |                                                                     |   |       | (354
|Unrealized losses on   securities designated as available for sale, net of related tax effects                                  |  |                |   |                                |   |                    |  |                                           |       |                   |   |                                                                     |   |       |    
|Cash dividends of $0.40   per common share                                                                                      |  |                |   |                                |   |                    |  |                                           | (1,546 | )                 |   |                                                                     |   |       |    
|                                                                                                                                |  |                |    |                                |   |                     |  |                                           |        |                   |   |                                                                      |   |       |     
|Balance at June 30, 2006                                                                                                        |  | $              | 86 |                                | $ | 36,769              |  | $                                         | 32,761 |                   | $ | (4,845                                                               | ) | $     | (354
|                                                                                                                                |  |                |    |                                |   |                     |  |                                           |        |                   |   |                                                                      |   |       |     

The accompanying notes are an integral part of these statements.

32



KENTUCKY FIRST FEDERAL BANCORP

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the years ended June 30, 2006, 2005 and 2004 (In thousands)

|                                                                                            |  | 2006 |         | 2005 |   | 2004    |  
|------------------------------------------------------------------------------------------- |  | ---- | ------- | ---- | - | ------- | -
|                                                                                            |  |      |         |      |   |         |  
|Cash flows from operating   activities:                                                     |  |      |         |      |   |         |  
|Net   earnings for the year                                                                 |  | $    | 1,588   |      | $ | 1,629   |  
|Adjustments   to reconcile net earnings to net cash provided by operating activities:       |  |      |         |      |   |         |  
|Amortization   of premiums and discounts on investment securities - net                     |  |      | 9       |      |   | 4       |  
|Depreciation                                                                                |  |      | 173     |      |   | 106     |  
|Amortization   of deferred loan origination (fees) costs                                    |  |      | 2       |      |   | (34     | )
|Amortization   of purchase accounting adjustments - net                                     |  |      | (403    | )    |   | (139    | )
|Gain   on sale of loans                                                                     |  |      | (24     | )    |   | (31     | )
|Gain   on sale of investment securities                                                     |  |      |        |      |   |        |  
|(Gain)   loss on sale of real estate acquired through foreclosure                           |  |      | (5      | )    |   | 9       |  
|Gain   on sale of office premises and equipment                                             |  |      | (13     | )    |   |        |  
|Amortization   of stock benefit plans                                                       |  |      | 233     |      |   |        |  
|Federal   Home Loan Bank stock dividends                                                    |  |      | (283    | )    |   | (151    | )
|Bank-owned   life insurance earnings                                                        |  |      | (80     | )    |   | (25     | )
|Provision   for losses on loans                                                             |  |      | 32      |      |   | 53      |  
|Mortgage   loans originated for sale                                                        |  |      | (2,711  | )    |   | (520    | )
|Proceeds   from sale of mortgage loans                                                      |  |      | 2,712   |      |   | 519     |  
|Increase   (decrease) in cash due, net of acquisition of Frankfort First Federal   Bancorp: |  |      |         |      |   |         |  
|Accrued   interest receivable                                                               |  |      | 48      |      |   | 18      |  
|Prepaid   expenses and other assets                                                         |  |      | (42     | )    |   | 125     |  
|Accrued   interest payable                                                                  |  |      | 76      |      |   | (190    | )
|Accounts   payable and other liabilities                                                    |  |      | (187    | )    |   | (544    | )
|Federal   income taxes                                                                      |  |      |         |      |   |         |  
|Current                                                                                     |  |      | 246     |      |   | (313    | )
|Deferred                                                                                    |  |      | 268     |      |   | 563     |  
|                                                                                            |  |      |         |      |   |         |  
|Net   cash provided by operating activities                                                 |  |      | 1,639   |      |   | 1,079   |  
|Cash flows provided by   (used in) investing activities:                                    |  |      |         |      |   |         |  
|Investment   securities available for sale:                                                 |  |      |         |      |   |         |  
|Sales                                                                                       |  |      |        |      |   |        |  
|Purchases                                                                                   |  |      |        |      |   |        |  
|Investment   securities held to maturity:                                                   |  |      |         |      |   |         |  
|Maturities,   prepayments and calls                                                         |  |      | 5,100   |      |   |        |  
|Purchases                                                                                   |  |      | (100    | )    |   |        |  
|Mortgage-backed   securities available for sale:                                            |  |      |         |      |   |         |  
|Sales                                                                                       |  |      |        |      |   |        |  
|Maturities,   prepayments and calls                                                         |  |      | 758     |      |   | 307     |  
|Purchases                                                                                   |  |      |        |      |   |        |  
|Mortgage-backed   securities held to maturity:                                              |  |      |         |      |   |         |  
|Maturities,   prepayments and calls                                                         |  |      | 3,160   |      |   | 1,633   |  
|Purchases                                                                                   |  |      |        |      |   |        |  
|Loan   disbursements                                                                        |  |      | (34,160 | )    |   | (12,242 | )
|Principal   repayments on loans                                                             |  |      | 30,374  |      |   | 13,450  |  
|Proceeds   from sale of real estate acquired through foreclosure                            |  |      | 115     |      |   | 118     |  
|Proceeds   from sale of office premises and equipment                                       |  |      | 13      |      |   |        |  
|Purchase   of office premises and equipment                                                 |  |      | (53     | )    |   | (65     | )
|Purchase   of Frankfort First Federal Bancorp, net of cash received                         |  |      |        |      |   | (8,923  | )
|                                                                                            |  |      |         |      |   |         |  
|Net   cash provided by (used in) investing activities                                       |  |      | 5,207   |      |   | (5,753  | )
|Cash flows provided by   (used in) financing activities:                                    |  |      |         |      |   |         |  
|Net   decrease in deposits                                                                  |  |      | (13,806 | )    |   | (15,220 | )
|Advances   by borrowers for taxes and insurance                                             |  |      | 37      |      |   | 215     |  
|Proceeds   from Federal Home Loan Bank advances                                             |  |      | 23,850  |      |   |        |  
|Repayments   on Federal Home Loan Bank advances                                             |  |      | (19,438 | )    |   | (1,223  | )
|Cash   proceeds from issuance of common stock, net                                          |  |      |        |      |   | 12,720  |  
|Purchase   of shares for stock benefit plans                                                |  |      | (1,653  | )    |   |        |  
|Treasury   stock repurchases                                                                |  |      | (354    | )    |   |        |  
|Dividends   paid on common stock                                                            |  |      | (1,546  | )    |   | (353    | )
|                                                                                            |  |      |         |      |   |         |  
|Net   cash used in financing activities                                                     |  |      | (12,910 | )    |   | (3,861  | )
|                                                                                            |  |      |         |      |   |         |  
|Net decrease in cash and   cash equivalents                                                 |  |      | (6,064  | )    |   | (8,504  | )
|Cash and cash equivalents   at beginning of year                                            |  |      | 8,358   |      |   | 16,862  |  
|                                                                                            |  |      |         |      |   |         |  
|Cash and cash equivalents   at end of year                                                  |  | $    | 2,294   |      | $ | 8,358   |  
|                                                                                            |  |      |         |      |   |         |  

33



KENTUCKY FIRST FEDERAL BANCORP

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

For the years ended June 30, 2006, 2005 and 2004 (In thousands)

|                                                                                                         |  | 2006 |       | 2005 |   | 2004    | 
|-------------------------------------------------------------------------------------------------------- |  | ---- | ----- | ---- | - | ------- | 
|                                                                                                         |  |      |       |      |   |         | 
|Supplemental disclosure of   cash flow information:                                                      |  |      |       |      |   |         | 
|Cash   paid during the year for:                                                                         |  |      |       |      |   |         | 
|Federal   income taxes                                                                                   |  | $    | 510   |      | $ | 460     | 
|                                                                                                         |  |      |       |      |   |         | 
|Interest   on deposits and borrowings                                                                    |  | $    | 6,182 |      | $ | 3,319   | 
|                                                                                                         |  |      |       |      |   |         | 
|Supplemental disclosure of   noncash investing activities:                                               |  |      |       |      |   |         | 
|Transfers   from loans to real estate acquired through foreclosure                                       |  | $    | 101   |      | $ | 206     | 
|                                                                                                         |  |      |       |      |   |         | 
|Loans   disbursed upon sales of real estate acquired through foreclosure                                 |  | $    |      |      | $ | 19      | 
|                                                                                                         |  |      |       |      |   |         | 
|Unrealized   gains (losses) on securities designated as available for sale, net of related   tax effects |  | $    | (326  | )    | $ | 190     | 
|                                                                                                         |  |      |       |      |   |         | 
|Recognition   of mortgage servicing rights in accordance with SFAS No. 140                               |  | $    | 21    |      | $ | 31      | 
|                                                                                                         |  |      |       |      |   |         | 
|Acquisition   of Frankfort First Federal Bancorp, Inc.                                                   |  |      |       |      |   |         | 
|Cash and stock   consideration and liabilities assumed:                                                  |  |      |       |      |   |         | 
|Deposits                                                                                                 |  | $    |      |      | $ | 71,513  | 
|Advances   from the Federal Home Loan Bank                                                               |  |      |      |      |   | 43,390  | 
|Other   liabilities                                                                                      |  |      |      |      |   | 1,175   | 
|Cash   and stock consideration  net                                                                     |  |      |      |      |   | 29,625  | 
|                                                                                                         |  |      |       |      |   |         | 
|                                                                                                         |  |      |      |      |   | 145,703 | 
|Less net assets acquired:                                                                                |  |      |       |      |   |         | 
|Loans                                                                                                    |  |      |      |      |   | 119,526 | 
|Investments                                                                                              |  |      |      |      |   | 2,141   | 
|Other   assets                                                                                           |  |      |      |      |   | 8,593   | 
|                                                                                                         |  |      |       |      |   |         | 
|                                                                                                         |  |      |      |      |   | 130,260 | 
|                                                                                                         |  |      |       |      |   |         | 
|Amounts assigned to   goodwill and other intangible assets                                               |  | $    |      |      | $ | 15,443  | 
|                                                                                                         |  |      |       |      |   |         | 

The accompanying notes are an integral part of these statements.

34



KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2006, 2005 and 2004

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

| | Kentucky First Federal   Bancorp (the Company) is a savings and loan holding company whose   activities are primarily limited to holding the stock and managing the   operations of First Federal Savings and Loan Association of Hazard, Kentucky   (First Federal of Hazard) and Frankfort First Bancorp, Inc., (Frankfort   First) the holding company for First Federal Savings Bank of Frankfort   (First Federal of Frankfort).  First   Federal of Hazard and First Federal of Frankfort are collectively referred to   herein as the Banks.  First Federal   of Hazard conducts a community-oriented savings and loan association   dedicated to serving consumers in Perry and surrounding counties in eastern   Kentucky, while First Federal of Frankfort operates through three banking   offices located in Frankfort, Kentucky.    Both institutions engage primarily in the business of attracting   deposits from the
general public and applying those funds to the origination   of loans for residential and consumer purposes.  First Federal of Frankfort also originates, to a lesser extent,   church loans, home equity and other loans, as well as offering certain types   of nondeposit investment products to its customers.  The Banks profitability is significantly dependent on net   interest income, which is the difference between interest income generated   from interest-earning assets (i.e. loans and investments) and the interest   expense paid on interest-bearing liabilities (i.e. customer deposits and   borrowed funds).  Net interest income   is affected by the relative amount of interest-earning assets and   interest-bearing liabilities and the interest received or paid on these   balances.  The level of interest rates   paid or received by the Banks can be significantly influenced by a number of   environmental factors, such as governmental monetary policy, that are outside   of
managements control.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | The consolidated financial   information presented herein has been prepared in accordance with accounting   principles generally accepted in the United States of America (U.S. GAAP)   and general accounting practices within the financial services industry.  In preparing consolidated financial   statements in accordance with U. S. GAAP, management is required to make   estimates and assumptions that affect the reported amounts of assets and   liabilities and the disclosure of contingent assets and liabilities at the   date of the financial statements and revenues and expenses during the   reporting period.  Actual results   could differ from such estimates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | The following is a summary   of the Companys significant accounting policies which have been consistently   applied in the preparation of the accompanying consolidated financial   statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | 1.  Principles of Consolidation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | The consolidated financial   statements include the accounts of the Company, First Federal of Hazard,   Frankfort First and First Federal of Frankfort.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | 2.  Investment and Mortgage-backed   Securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | The Company accounts for   investment and mortgage-backed securities in accordance with Statement of   Financial Accounting Standards (SFAS) No. 115 Accounting for Certain   Investments in Debt and Equity Securities.    SFAS No. 115 requires that investments in debt and equity securities   be categorized as held-to-maturity, trading, or available for sale.  Securities classified as held-to-maturity   are to be carried at cost only if the Company has the positive intent and   ability to hold these securities to maturity.  Trading securities and securities designated as available for   sale are carried at fair value with resulting unrealized gains or losses   recorded to operations or shareholders equity, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | Realized gains and losses   on sales of securities are recognized using the specific identification   method.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

35



KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2006, 2005 and 2004

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

| | 3.  Loans Receivable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | Loans receivable are   stated at the principal amount outstanding, adjusted for deferred loan   origination fees and the allowance for loan losses.  Interest is accrued as earned unless the collectibility of the   loan is in doubt.  An allowance may be   established for interest on loans that are contractually past due based on   managements periodic evaluation.  The   allowance is established by a charge to interest income equal to all interest   previously accrued, and income is subsequently recognized only to the extent   that cash payments are received until, in managements judgment, the   borrowers ability to make periodic interest and principal payments has   returned to normal, in which case the loan is returned to accrual   status.  If the ultimate   collectibility of the loan is in doubt, in whole or in part, all payments   received on nonaccrual loans are applied to reduce principal until such doubt   is
eliminated.                                
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | Loans held for sale are   carried at the lower of cost (less principal payments received) or fair value   (market value), calculated on an aggregate basis.  At June 30, 2006 and 2005, the Company had not identified any   loans held for sale.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | In selling loans, the Company   utilizes a program with the Federal Home Loan Bank, retaining servicing on   loans sold.  The Company accounts for   mortgage servicing rights in accordance with SFAS No. 140 Accounting for   Transfers and Servicing of Financial Assets and Extinguishments of   Liabilities, which requires that the Company recognize, as separate assets,   rights to service mortgage loans for others, regardless of how those   servicing rights are acquired.  An   institution that acquires mortgage servicing rights through either the purchase   or origination of mortgage loans and sells those loans with servicing rights   retained must allocate some of the cost of the loans to the mortgage   servicing rights.  SFAS No. 140   requires that capitalized servicing rights be amortized in proportion to and   over the estimated period of servicing income.                                                                                                      
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | The Company recorded   amortization related to mortgage servicing rights totaling $3,000 and $1,000   during the years ended June 30, 2006 and 2005, respectively.  For the year ended June  30, 2004, there was no amortization.  The carrying value of the Companys   mortgage servicing rights, which approximated fair value, totaled   approximately $49,000 and $30,000 at June 30, 2006 and 2005, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | The Company was servicing   mortgage loans of approximately $6.1 million and $3.8 million that had been   sold to the Federal Home Loan Bank at June 30, 2006 and 2005, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | 4.  Loan Origination Fees                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | The Banks account for loan   origination fees in accordance with SFAS No. 91 Accounting for Nonrefundable   Fees and Costs Associated with Originating or Acquiring Loans and Initial   Direct Cost of Leases.  Pursuant to   the provisions of SFAS No. 91, origination fees received from loans, net of   direct origination costs, are deferred and amortized to interest income using   the level-yield method, giving effect to actual loan prepayments.  Additionally, SFAS No. 91 generally limits   the definition of loan origination costs to the direct costs attributable to   originating a loan, i.e., principally actual personnel costs.  Fees received for loan commitments that   are expected to be drawn upon, based on the Banks experience with similar   commitments, are deferred and amortized over the life of the loan using the   level-yield method.  Fees for other   loan commitments are deferred and amortized over the loan commitment
period   on a straight-line basis.

36



KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2006, 2005 and 2004

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

| | 5.  Allowance for Loan Losses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | It is the Banks policy to   provide valuation allowances for estimated losses on loans based on past loss   experience, trends in the level of delinquent and problem loans, adverse   situations that may affect the borrowers ability to repay, the estimated   value of any underlying collateral and current and anticipated economic   conditions in the primary lending area.    When the collection of a loan becomes doubtful, or otherwise troubled,   the Banks record a loan charge-off equal to the difference between the fair   value of the property securing the loan and the loans carrying value.  Major loans and lending areas are reviewed   periodically to determine potential problems at an early date.  The allowance for loan losses is increased   by charges to earnings and decreased by charge-offs (net of recoveries).
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | The Banks account for   impaired loans in accordance with SFAS No. 114, Accounting by Creditors for   Impairment of a Loan, which requires that impaired loans be measured based   upon the present value of expected future cash flows discounted at the loans   effective interest rate or, as an alternative, at the loans observable   market price or fair value of the collateral.  The Banks current procedures for evaluating impaired loans   result in carrying such loans at the lower of cost or fair value.                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | A loan is defined under   SFAS No. 114 as impaired when, based on current information and events, it is   probable that a creditor will be unable to collect all amounts due according   to the contractual terms of the loan agreement.  In applying the provisions of SFAS No. 114, the Banks consider   investments in one- to four-family residential loans and consumer installment   loans to be homogeneous and therefore excluded from separate identification   for evaluation of impairment.  With   respect to the Banks investment in multi-family and nonresidential loans,   and the evaluation of impairment thereof, such loans are collateral dependent   and, as a result, are carried as a practical expedient at the lower of cost   or fair value.                                                                                  
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | Collateral dependent loans   which are more than ninety days delinquent are considered to constitute more   than a minimum delay in repayment and are evaluated for impairment under SFAS   No. 114 at that time.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | At June 30, 2006 and 2005,   the Banks had no loans that would be defined as impaired under SFAS No. 114.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | 6.  Real Estate Acquired through   Foreclosure                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | Real estate acquired   through foreclosure is carried at the lower of the loans unpaid principal   balance (cost) or fair value less estimated selling expenses at the date of   acquisition.  A charge-off is recorded   for any write-down in the loans carrying value to fair value at the date of   acquisition.  Real estate loss   provisions are recorded if the fair value of the property subsequently   declines below the value determined at the recording date.  In determining the lower of cost or fair   value at acquisition, costs relating to development and improvement of   property, which would be capitalized, are considered.  Costs relating to holding real estate   acquired through foreclosure, net of rental income, are charged against   earnings as incurred.                                                        

37



KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2006, 2005 and 2004

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

| | 7.  Office Premises and Equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | Office premises and   equipment are carried at cost and include expenditures which extend the   useful lives of existing assets.    Maintenance, repairs and minor renewals are expensed as incurred.  For financial reporting, depreciation and   amortization are provided on the straight-line and accelerated methods over   the useful lives of the assets, estimated to be forty years for buildings,   ten to forty years for building improvements, and five to ten years for   furniture and equipment.  An   accelerated method is used for tax reporting purposes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | 8.  Federal Income Taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | The Company accounts for   federal income taxes in accordance with the provisions of SFAS No. 109,   Accounting for Income Taxes.  SFAS   No. 109 established financial accounting and reporting standards for the   effects of income taxes that result from the Companys activities within the   current and previous years.  Pursuant   to the provisions of SFAS No. 109, a deferred tax liability or deferred tax   asset is computed by applying the current statutory tax rates to net taxable   or deductible differences between the tax basis of an asset or liability and   its reported amount in the financial statements that will result in taxable   or deductible amounts in future periods.    Deferred tax assets are recorded only to the extent that the amount of   net deductible temporary differences or carryforward attributes may be   utilized against current period earnings, carried back against prior years   earnings, offset against taxable
temporary differences reversing in future   periods, or utilized to the extent of managements estimate of future taxable   income.  A valuation allowance is   provided for deferred tax assets to the extent that the value of net   deductible temporary differences and carryforward attributes exceeds   managements estimates of taxes payable on future taxable income.  Deferred tax liabilities are provided on   the total amount of net temporary differences taxable in the future.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | The Companys principal   temporary differences between pretax financial income and taxable income   result from different methods of accounting for deferred loan origination   fees and costs, Federal Home Loan Bank stock dividends, the general loan loss   allowance and deferred compensation.    Additional temporary differences result from depreciation computed   using accelerated methods for tax purposes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
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| | 9.  Retirement and Employee Benefit Plans                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | The Banks each participate   in a noncontributory, multi-employer defined benefit pension fund covering   all employees who qualify as to length of service.  Contributions are based upon covered employees ages and salaries   and are dependent upon the ultimate prescribed benefits of the participants   and the funded status of the plan. The Company recognized expense related to   the plans totaling approximately $411,000, $190,000 and $590,000 for the   fiscal years ended June 30, 2006, 2005 and 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | The Company also maintains   nonqualified deferred unfunded compensation plans for the benefit of certain   directors.  For the fiscal year ended   June 30, 2006, the Company recognized expense related to these plans in the amount   of $15,000.  No expense was recognized   by the Company for the fiscal years ended June 30, 2005 and 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

38



KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2006, 2005 and 2004

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

| | 9.  Retirement and Employee Benefit Plans   (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | In connection with the   Reorganization, First Federal of Hazard implemented an Employee Stock   Ownership Plan (ESOP) which provides retirement benefits for substantially   all full-time employees who have completed one year of service and have   attained the age of 21.  The Company   accounts for the ESOP in accordance with Statement of Position (SOP) 93-6,   Employers Accounting for Employee Stock Ownership Plans.  SOP 93-6 requires that compensation   expense recorded by employers equal the fair value of ESOP shares allocated   to participants during a given year.    Allocation of shares to the ESOP participants is contingent upon the   repayment of a loan to Kentucky First Federal Bancorp totaling $3.2 million   and $3.4 million at June 30, 2006 and 2005, respectively.  The Company recorded expense for the ESOP   of approximately $185,000 and $93,000 for the years ended June 30, 2006 and   2005,
respectively.                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | In fiscal 2006, the   Company initiated the 2005 Equity Incentive Plan (EIP or the Plan) which   provides for the purchase of 168,486 shares of common stock and the issuance   of such shares in the form of restricted stock awards to members of the board   of directors, management and certain employees.  Common shares awarded under the restricted stock plan vest over   a five year period, commencing with the date of the grant.  Expense recognized under the restricted stock   plan totaled $157,000 for the year ended June 30, 2006.  As of June 30, 2006, 134,500 shares   under the Companys restricted stock plan have been awarded.                                                                                                                                                                                                                                                                                                                                                                    
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | 10.  Earnings Per Share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | Basic earnings per share   is computed based upon the weighted-average shares outstanding during the   year less shares in the ESOP that are unallocated and not committed to be   released.  Weighted-average common   shares deemed outstanding gives effect to a reduction for 319,152 unallocated   shares held by the ESOP for the fiscal year ended June 30, 2006.  Diluted earnings per share is computed   taking into consideration common shares outstanding and dilutive potential   common shares to be issued under the Companys stock option plan.  The Companys weighted average common   shares were 8,198,621 and 8,212,886 on a basic and diluted basis,   respectively for the fiscal year ended June 30, 2006.  The dilutive effect of assumed exercise of   stock options in fiscal 2006 was 14,265 shares.  For the years ended June 30, 2005 and 2004, basic and diluted   earnings per share are not presented as the Company did not convert to the

 stock form of ownership until March 2, 2005.     
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | 11.  Stock Option Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | The Company has a stock   option plan that provides for grants of up to 421,216 stock options.  The Company accounts for its stock option   plan in accordance with SFAS No. 123, Accounting for Stock-based   Compensation, which contains a fair value based method for valuing   stock-based compensation that entities may use, measuring compensation cost   at the grant date based on the fair value of the award.  Compensation is then recognized over the   service period, which is usually the vesting period.  Alternatively, SFAS No. 123 permits   entities to continue to account for stock options and similar equity   instruments under Accounting Principles Board (APB) Opinion No. 25,   Accounting for Stock Issued to Employees.    Entities that continue to account for stock options using APB Opinion   No. 25 are required to make pro-forma disclosures of net earnings and   earnings per share, as if the fair value-based

method of accounting defined   in SFAS No. 123 had been applied.

39



KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2006, 2005 and 2004

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

| | 11.  Stock Option Plan (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | The Company presently applies APB Opinion No. 25 and related interpretations in accounting for its stock option plan.  Accordingly, no compensation cost has been recognized for the plan.  Had compensation cost for the Companys stock option plan been determined based on the fair value at the grant dates for awards under the plan consistent with the accounting method utilized in SFAS No. 123, the Companys net earnings and earnings per share would have been reduced to the pro-forma amounts indicated below for the year ended June 30:

|                              |  |                                        |  | Year ended 
June 30,   2006 |      
|----------------------------- |  | -------------------------------------- |  | --------------------------- | -----
|                              |  |                                        |  |                             |      
|Net earnings (In   thousands) |  | As   reported                          |  | $                           | 1,588
|                              |  | Stock-based compensation,   net of tax |  |                             | 40   
|                              |  |                                        |  |                             |      
|                              |  | Pro-forma                              |  | $                           | 1,548
|                              |  |                                        |  |                             |      
|Earnings per share            |  |                                        |  |                             |      
|Basic                         |  | As   reported                          |  | $                           | .19  
|                              |  | Stock-based compensation,   net of tax |  |                             |     
|                              |  |                                        |  |                             |      
|                              |  | Pro-forma                              |  | $                           | .19  
|                              |  |                                        |  |                             |      
|Diluted                       |  | As   reported                          |  | $                           | .19  
|                              |  | Stock-based compensation,   net of tax |  |                             |     
|                              |  |                                        |  |                             |      
|                              |  | Pro-forma                              |  | $                           | .19  
|                              |  |                                        |  |                             |      

| | The fair value of each option granted is estimated on the date of grant using the modified Black-Scholes options-pricing model with the following weighted-average assumptions used for grants:  dividend yield of 3.96%; expected volatility of 20.0%; risk-free interest rates of 4.49%; and expected lives of 7 years.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                          
| | A summary of the status of the Companys stock option plan as of June 30, 2006, and changes during the year then ended is presented below:                                                                                                                                                                               

|                                                          |  | Shares |         | Weighted-   average   exercise   price |  
|--------------------------------------------------------- |  | ------ | ------- | -------------------------------------- | -
|                                                          |  |        |         |                                        |  
|Outstanding at beginning   of year                        |  |        |        |                                        | $
|Granted                                                   |  |        | 347,600 |                                        |  
|Exercised                                                 |  |        |        |                                        |  
|Forfeited                                                 |  |        |        |                                        |  
|                                                          |  |        |         |                                        |  
|Outstanding at end of year                                |  |        | 347,600 |                                        | $
|                                                          |  |        |         |                                        |  
|Options exercisable at   year-end                         |  |        |        |                                        | $
|                                                          |  |        |         |                                        |  
|Fair value of options   granted                           |  |        |         |                                        | $
|                                                          |  |        |         |                                        |  
|Cumulative option   compensation cost over service period |  |        |         |                                        | $
|                                                          |  |        |         |                                        |  
|Remaining service period                                  |  |        |         |                                        |  
|                                                          |  |        |         |                                        |  

40



KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2006, 2005 and 2004

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)




11.  Stock Option Plan (continued) The following information applies to options outstanding at June 30, 2006: Number   outstanding
  
  
  347,600Exercise price
  
  $
  10.10Weighted-average exercise   price
  
  $
  10.10Weighted-average remaining   contractual life
  
  
  9.5   years 12.  Fair Value of Financial Instruments SFAS No. 107, Disclosures about Fair Value of Financial Instruments, requires disclosure of the fair value of financial instruments, both assets and liabilities, whether or not recognized in the consolidated statement of financial condition, for which it is practicable to estimate that value.  For financial instruments where quoted market prices are not available, fair values are based on estimates using present value and other valuation methods. The methods used are greatly affected by the assumptions applied, including the discount rate and estimates of future cash flows.  Therefore, the fair values presented may not represent amounts that could be realized in an exchange for certain financial instruments. The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments at June 30, 2006 and 2005: Cash and cash equivalents:    The carrying amounts presented in the consolidated statements of   financial condition for cash and cash equivalents are deemed to approximate   fair value.Investment securities:    For investment securities, fair value is deemed to equal the quoted   market price.Loans receivable:    The loan portfolio has been segregated into categories with similar   characteristics, such as one- to four-family residential, multi-family   residential and nonresidential real estate.    These loan categories were further delineated into fixed-rate and   adjustable-rate loans.  The fair   values for the resultant loan categories were computed via discounted cash   flow analysis, using current interest rates offered for loans with similar   terms to borrowers of similar credit quality.  For loans on deposit accounts and consumer and other loans,   fair values were deemed to equal the historic carrying values.  The historical carrying amount of accrued   interest on loans is deemed to approximate fair value.Federal Home Loan Bank   stock:  The carrying amount presented in the   consolidated  statements of financial   condition is deemed to approximate fair value.


41



KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2006, 2005 and 2004

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)




12.  Fair Value of Financial Instruments (continued) Deposits:    The fair value of NOW accounts, passbook accounts, money market   deposits and advances by borrowers for taxes and insurance are deemed to   approximate the amount payable on demand.    Fair values for fixed-rate certificates of deposit have been estimated   using a discounted cash flow calculation using the interest rates currently   offered for deposits of similar remaining maturities.  The historical carrying amount of accrued   interest payable on deposits is deemed to approximate fair value.Advances from the Federal   Home Loan Bank:  The fair value of these advances is   estimated using the rates currently offered for similar advances of similar   remaining maturities or, when available, quoted market prices.Advances by borrowers for   taxes and insurance:  The carrying amount presented in the   consolidated statement of financial condition is deemed to approximate fair   value.Commitments to extend   credit:  For fixed-rate and adjustable-rate loan   commitments, the fair value estimate considers the difference between current   levels of interest rates and committed rates.  The fair value of outstanding loan commitments at June 30, 2006   and 2005, was not material.  Based on   the foregoing methods and assumptions, the carrying value and fair value of   the Companys financial instruments at June 30 are as follows:  2006
  
  2005Carrying   value
  
  Fair   value
  
  Carrying   value
  
  Fair   value(In Thousands)Financial assetsCash   and cash equivalents
  
  $
  2,294
  
  $
  2,294
  
  $
  8,358
  
  $
  8,358Investment   securities available for sale
  
  
  12,211
  
  
  12,211
  
  
  12,686
  
  
  12,686Investment   securities held to maturity
  
  
  45,944
  
  
  44,019
  
  
  50,942
  
  
  49,944Mortgage-backed   securities available for sale
  
  
  1,079
  
  
  1,079
  
  
  1,861
  
  
  1,861Mortgage-backed   securities held to maturity
  
  
  18,185
  
  
  17,028
  
  
  21,347
  
  
  21,168Loans   receivable - net
  
  
  155,386
  
  
  152,680
  
  
  151,712
  
  
  154,189Federal   Home Loan Bank stock
  
  
  5,264
  
  
  5,264
  
  
  4,981
  
  
  4,981Accrued   interest receivable
  
  
  868
  
  
  868
  
  
  916
  
  
  916$
  241,231
  
  $
  235,443
  
  $
  252,803
  
  $
  254,103Financial liabilitiesDeposits
  
  $
  141,238
  
  $
  142,900
  
  $
  155,044
  
  $
  154,602Advances   from the Federal Home Loan Bank
  
  
  54,849
  
  
  53,382
  
  
  50,984
  
  
  48,550Advances   by borrowers for taxes and insurance
  
  
  369
  
  
  369
  
  
  332
  
  
  332Accrued   interest payable
  
  
  253
  
  
  253
  
  
  177
  
  
  177$
  195,971
  
  $
  196,904
  
  $
  206,537
  
  $
  203,661 13.  Cash and Cash Equivalents For purposes of reporting cash flows, cash and cash equivalents include cash and due from banks and interest-bearing deposits in other financial institutions with original maturities of less than ninety days.


42



KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2006, 2005 and 2004

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)




14.  Goodwill and Other Intangible Assets Goodwill and other intangible assets arising from the Frankfort First acquisition are accounted for in accordance with SFAS No. 142, Goodwill and Intangible Assets.  Pursuant to SFAS No. 142, acquired goodwill is not amortized but is tested for impairment at the reporting unit annually or whenever an impairment indicator arises.  The Company evaluated the goodwill in March 2006 via independent third-party appraisal.  The evaluation showed no indication of impairment.  Goodwill and other intangible assets consist of the following at June 30, 2006 and 2005: 2006
  
  2005(In   thousands)Goodwill
  
  $
  14,507
  
  $
  14,507Core deposit intangible,   net
  
  
  743
  
  
  891$
  15,250
  
  $
  15,398 Amortization of the Companys core deposit intangible totaled $131,000 and $44,000 for the years ended June 30, 2006 and 2005, respectively. 15.  Cash Surrender Value of Life Insurance The cash surrender value of bank-owned life insurance policies represents the value of life insurance policies on certain officers of the Company for which the Company is the beneficiary.  The Company accounts for these assets using the cash surrender value method in determining the carrying value of the insurance policies. 16.  Effects of Recent Accounting Pronouncements In December 2004, the Financial Accounting Standards Board (the FASB) issued a revision to Statement of Financial Accounting Standards (SFAS) No. 123 which establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services, primarily on accounting for transactions in which an entity obtains employee services in share-based transactions.  This Statement, SFAS No. 123(R), requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award, with limited exceptions.  That cost will be recognized over the period during which an employee is required to provide services in exchange for the award  the requisite service period.  No compensation cost is recognized for equity instruments for which employees do not render the requisite service.  Employee share
purchase plans will not result in recognition of compensation cost if certain conditions are met. Initially, the cost of employee services received in exchange for an award of equity instruments will be measured based on current fair value; the fair value of that award will be remeasured subsequently at each reporting date through the settlement date.  Changes in fair value during the requisite service period will be recognized as compensation cost over that period.  The grant-date fair value of employee share options and similar instruments will be estimated using option-pricing models adjusted for the unique characteristics of those instruments (unless observable market prices for the same or similar instruments are available).  If an equity award is modified after the grant date, incremental compensation cost will be


43



KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2006, 2005 and 2004

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)




16.  Effects of Recent Accounting Pronouncements  (continued) recognized in an amount equal to the excess of the fair value of the modified award over the fair value of the original award immediately  before the modification.  Excess tax benefits, as defined by SFAS No. 123(R) will be recognized as an addition to additional paid in capital.  Cash retained as a result of those excess tax benefits will be presented in the statement of cash flows as financing cash inflows.  The write-off of deferred tax assets relating to unrealized tax benefits associated with recognized compensation cost will be recognized as income tax expense unless there are excess tax benefits from previous awards remaining in additional paid in capital against which it can be offset. Compensation cost is required to be recognized in the beginning of the annual period that begins after December 31, 2005, or July 1, 2006 as to the Company.  Management believes the annual after-tax compensation expense for 2007 will approximate $80,000 based on the current vesting schedule of shares granted in fiscal 2006. In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial Assets  an amendment of SFAS No. 140, to simplify the accounting for separately recognized servicing assets and servicing liabilities. Specifically, SFAS No. 156 amends SFAS No. 140 to require an entity to take the following steps: 
  Separately recognize financial   assets as servicing assets or servicing liabilities, each time it undertakes   an obligation to service a financial asset by entering into certain kinds of   servicing contracts;
  Initially measure all   separately recognized servicing assets and liabilities at fair value, if   practicable; and
  Separately present   servicing assets and liabilities subsequently measured at fair value in the   statement of financial condition and additional disclosures for all   separately recognized servicing assets and servicing liabilities. Additionally, SFAS No. 156 permits, but does not require, an entity to choose either the amortization method or the fair value measurement method for measuring each class of separately recognized servicing assets and servicing liabilities. SFAS No. 156 also permits a servicer that uses derivative financial instruments to offset risks on servicing to use fair value measurement when reporting both the derivative financial instrument and related servicing asset or liability. SFAS No. 156 applies to all separately recognized servicing assets and liabilities acquired or issued after the beginning of an entitys fiscal year that begins after September 15, 2006, or July 1, 2007 as to the Company, with earlier application permitted.  The Company is currently evaluating SFAS No. 156, but does not expect it to have a material effect on the Companys financial condition or results of operations. In July 2006, the FASB issued FIN 48,
Accounting for Uncertainly in Income Taxes. This Interpretation of FASB
Statement No. 109, Accounting for Income Taxes, contains guidance on the
recognition and measurement of uncertain tax positions. The Company will be
required to recognize the impact of a tax position if it is more likely than not
that it will be sustained upon examination, based upon the technical merits of
the position. The effective date for application of this interpretation is for
periods beginning after December 15, 2006. The cumulative effect of applying the
provisions of this Interpretation must be reported as an adjustment to the
opening balance of retained earnings for that fiscal period. Management is
currently evaluating the impact this Interpretation will have on its
consolidated financial statements. 17.  Reclassifications Certain prior year amounts have been reclassified to conform to the 2006 consolidated financial statement presentation.


44



KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2006, 2005 and 2004

NOTE B - INVESTMENT AND MORTGAGE-BACKED SECURITIES




The amortized cost, gross unrealized gains, gross unrealized losses and estimated fair values of mortgage-backed securities at June 30, 2006 and 2005 are summarized as follows: 2006Amortized   cost
  
  Gross   unrealized   gains
  
  Gross   unrealized   losses
  
  Estimated   fair   value(In   thousands)Investment   securities available for saleU.S.   Government agency securities
  
  $
  12,999
  
  $
  
  
  $
  (788
  )
  $
  12,211Investment   securities held to maturityU.S.   Government agency securities
  
  $
  45,844
  
  $
  
  
  $
  (1,925
  )
  $
  43,919Certificates   of deposit
  
  
  100
  
  
  
  
  
  
  
  
  100Total   investment securities held to maturity
  
  $
  45,944
  
  $
  
  
  $
  (1,925
  )
  $
  44,019  2005Amortized   cost
  
  Gross   unrealized   gains
  
  Gross   unrealized   losses
  
  Estimated   fair   value(In   thousands)Investment   securities available for saleU.S.   Government agency securities
  
  $
  12,998
  
  $
  
  
  $
  (312
  )
  $
  12,686Investment   securities held to maturityU.S.   Government agency securities
  
  $
  50,842
  
  $
  6
  
  $
  (1,004
  )
  $
  49,844Certificates   of deposit
  
  
  100
  
  
  
  
  
  
  
  
  100Total   investment securities held to maturity
  
  $
  50,942
  
  $
  6
  
  $
  (1,004
  )
  $
  49,944 The amortized cost and estimated fair value of investment securities as of June 30, 2006 and 2005, by contractual maturity, are shown below.  Actual maturities may differ from contractual maturities, because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. 2006
  
  2005Estimated   fair   value
  
  Amortized   cost
  
  Estimated   fair   value
  
  Amortized   cost(In   thousands)Investments   available for saleDue   within five years
  
  $
  12,211
  
  $
  12,999
  
  $
  12,686
  
  $
  12,998Investments   held to maturityDue   within five years
  
  $
  35,235
  
  $
  36,947
  
  $
  40,990
  
  $
  41,945Due   five years through ten years
  
  
  4,791
  
  
  4,998
  
  
  4,955
  
  
  4,998Due   in more than ten years
  
  
  3,993
  
  
  3,999
  
  
  3,999
  
  
  3,999Total
  
  $
  44,019
  
  $
  45,944
  
  $
  49,944
  
  $
  50,942


45



KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2006, 2005 and 2004

NOTE B - INVESTMENT AND MORTGAGE-BACKED SECURITIES (continued)




Proceeds from sales of investment securities during the fiscal year ended June 30, 2004 totaled $7.0 million resulting in a gross realized gain of $5,000 for the year.  There were no sales of investment securities during the fiscal years ended June 30, 2006 or 2005. The amortized cost, gross unrealized gains, gross unrealized losses and estimated fair value of mortgage-backed securities are as follows: 2006Amortized   cost
  
  Gross   unrealized   gains
  
  Gross   unrealized   losses
  
  Estimated   fair   value(In   thousands)Available   for saleFNMA
  
  $
  548
  
  $
  
  
  $
  (11
  )
  $
  537GNMA
  
  
  556
  
  
  
  
  
  (14
  )
  
  542Total   mortgage-backed securities available for sale
  
  $
  1,104
  
  $
  
  
  $
  (25
  )
  $
  1,079Held to   maturityFNMA
  
  $
  15,386
  
  $
  
  
  $
  (1,023
  )
  $
  14,363FHLMC
  
  
  2,702
  
  
  
  
  
  (138
  )
  
  2,564GNMA
  
  
  97
  
  
  4
  
  
  
  
  
  101Total   investment securities held to maturity
  
  $
  18,185
  
  $
  4
  
  $
  (1,161
  )
  $
  17,028  2005Amortized   cost
  
  Gross   unrealized   gains
  
  Gross   unrealized   losses
  
  Estimated   fair   value(In   thousands)Available   for saleFNMA
  
  $
  819
  
  $
  3
  
  $
  
  
  $
  822GNMA
  
  
  1,048
  
  
  
  
  
  (9
  )
  
  1,039Total   mortgage-backed securities available for sale
  
  $
  1,867
  
  $
  3
  
  $
  (9
  )
  $
  1,861Held to   maturityFNMA
  
  $
  18,049
  
  $
  
  
  $
  (224
  )
  $
  17,825FHLMC
  
  
  3,147
  
  
  42
  
  
  (7
  )
  
  3,182GNMA
  
  
  151
  
  
  10
  
  
  
  
  
  161Total   investment securities held to maturity
  
  $
  21,347
  
  $
  52
  
  $
  (231
  )
  $
  21,168


46



KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2006, 2005 and 2004

NOTE B - INVESTMENT AND MORTGAGE-BACKED SECURITIES (continued)




The amortized cost of mortgage-backed securities as of June 30, 2006 and 2005, by contractual maturity, are shown below.  Actual maturities may differ from contractual maturities, because borrowers may have the right to prepay obligations without prepayment penalties. 2006
  
  2005(In   thousands)Available   for saleDue   within five years
  
  $
  167
  
  $
  233Due   five years through ten years
  
  
  210
  
  
  282Due   after ten years
  
  
  727
  
  
  1,352Total   mortgage-backed securities available for sale
  
  $
  1,104
  
  $
  1,867Held to   maturityDue   within five years
  
  $
  4,961
  
  $
  5,840Due   five years through ten years
  
  
  6,084
  
  
  7,141Due   after ten years
  
  
  7,140
  
  
  8,366Total   mortgage-backed securities held to maturity
  
  $
  18,185
  
  $
  21,347 The table below indicates the length of time individual securities have been in a continuous unrealized loss position at June 30, 2006 and 2005: June 30, 2006Less than   12 months
  
  12 months   or longer
  
  TotalDescription   of   securities
  
  Number of   investments
  
  Fair   value
  
  Unrealized   losses
  
  Number of   investments
  
  Fair   value
  
  Unrealized   losses
  
  Number of   investments
  
  Fair   value
  
  Unrealized   losses(Dollars in   thousands)U.S. Government agency   securities
  
  
  
  
  $
  
  
  $
  
  
  
  15
  
  $
  56,130
  
  $
  2,713
  
  
  15
  
  $
  56,130
  
  $
  2,713Mortgage-backed securities
  
  
  10
  
  
  2,069
  
  
  81
  
  
  7
  
  
  16,432
  
  
  1,105
  
  
  17
  
  
  18,501
  
  
  1,186Total temporarily impaired   securities
  
  
  10
  
  $
  2,069
  
  $
  81
  
  
  22
  
  $
  72,562
  
  $
  3,818
  
  
  32
  
  $
  74,631
  
  $
  3,899  June 30, 2005Less than   12 months
  
  12 months   or longer
  
  TotalDescription   of   securities
  
  Number of   investments
  
  Fair   value
  
  Unrealized   losses
  
  Number of   investments
  
  Fair   value
  
  Unrealized   losses
  
  Number of   investments
  
  Fair   value
  
  Unrealized   losses(Dollars in   thousands)U.S. Government agency   securities
  
  
  3
  
  $
  10,997
  
  $
  37
  
  
  15
  
  $
  51,533
  
  $
  1,279
  
  
  18
  
  $
  62,530
  
  $
  1,316Mortgage-backed securities
  
  
  12
  
  
  8,086
  
  
  51
  
  
  4
  
  
  14,358
  
  
  189
  
  
  16
  
  
  22,444
  
  
  240Total temporarily impaired   securities
  
  
  15
  
  $
  19,083
  
  $
  88
  
  
  19
  
  $
  65,891
  
  $
  1,468
  
  
  34
  
  $
  84,974
  
  $
  1,556


47



KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2006, 2005 and 2004

NOTE B - INVESTMENT AND MORTGAGE-BACKED SECURITIES (continued)




Management has the intent and ability to hold these securities for the foreseeable future.  The decline in the fair value is primarily due to an increase in market interest rates.  The fair values are expected to recover as securities approach maturity dates.


NOTE C - LOANS RECEIVABLE




The composition of the loan portfolio at June 30 is as follows: 2006
  
  2005(In   thousands)Residential real estateOne-   to four-family
  
  $
  139,356
  
  $
  134,117Multi-family
  
  
  296
  
  
  321Construction
  
  
  2,703
  
  
  1,925Nonresidential real estate   and land
  
  
  6,412
  
  
  7,202Loans on deposits
  
  
  3,432
  
  
  4,027Consumer and other
  
  
  5,211
  
  
  6,024157,410
  
  
  153,616Less:Undisbursed   portion of loans in process
  
  
  1,169
  
  
  1,016Deferred   loan origination fees
  
  
  131
  
  
  180Allowance   for loan losses
  
  
  724
  
  
  708$
  155,386
  
  $
  151,712 The Banks lending efforts have historically focused on one- to four-family and multi-family residential real estate loans, which comprise approximately $139.7 million, or 89.9%, of the total loan portfolio at June 30, 2006, and $134.4 million, or 88.6%, of the total loan portfolio at June 30, 2005.  Generally, such loans have been underwritten on the basis of no more than an 80% loan-to-value ratio, which has historically provided the Banks with adequate collateral coverage in the event of default.  Nevertheless, the Banks, as with any lending institution, are subject to the risk that real estate values could deteriorate in their primary lending areas of southeastern and central Kentucky, thereby impairing collateral values.  However, management is of the belief that residential real estate values in the Banks primary lending areas are presently stable. In the normal course of business, the Banks have made loans to some of the directors, officers and employees.  Related party loans are made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated persons and do not involve more than the normal risk of collectibility.  The aggregate dollar amount of loans outstanding to directors and officers totaled approximately $659,000 and $1.2 million at June 30, 2006 and 2005, respectively.


48



KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2006, 2005 and 2004

NOTE D - ALLOWANCE FOR LOAN LOSSES




The activity in the allowance for loan losses is summarized as follows for the years ended June 30: 2006
    
    2005
    
    2004(In thousands )Balance at beginning of year
    
    $
    708
    
    $
    665
    
    $
    720Allowance of Frankfort First at acquisition
    
    
    
    
    
    133
    
    
    Provision for losses on loans
    
    
    32
    
    
    53
    
    
    10Charge-offs
    
    
    (16
    )
    
    (143
    )
    
    (65
    )Balance at end of year
    
    $
    724
    
    $
    708
    
    $
    665 As of June 30, 2006, the allowance for loan losses is primarily general in nature, and, for the most part, is includible as a component of the Banks regulatory risk-based capital. Nonperforming loans (loans delinquent greater than 90 days and non-accrual loans) totaled approximately $1.4 million, $1.7 million and $1.2 million at June 30, 2006, 2005 and 2004, respectively.


NOTE E - OFFICE PREMISES AND EQUIPMENT




Office premises and equipment at June 30 are comprised of the following: 2006
  
  2005(In   thousands)Land
  
  $
  860
  
  $
  860Buildings and improvements
  
  
  3,421
  
  
  3,418Furniture and equipment
  
  
  1,145
  
  
  1,120Automobiles
  
  
  27
  
  
  515,453
  
  
  5,449Less accumulated depreciation   and amortization
  
  
  2,596
  
  
  2,472$
  2,857
  
  $
  2,977


49



KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2006, 2005 and 2004

NOTE F - DEPOSITS




Deposits consist of the following major classifications at June 30: Deposit type and weighted-   average interest rate
  
  2006
  
  2005(In   thousands)NOW accounts2006   - 1.43%
  
  $
  7,3452005   - 1.29%
  
  
  
  
  $
  7,203Passbook2006   - 1.33%
  
  
  39,4592005   - 1.20%
  
  
  
  
  
  46,753Money market deposit   accounts2006   - 3.28%
  
  
  3,6522005   - 2.05%
  
  
  
  
  
  4,317Total demand, transaction   and passbook deposits
  
  
  50,456
  
  
  58,273Certificates   of depositOriginal maturities of:Less   than 12 months:2006   - 2.09%
  
  
  6,3782005   - 1.82%
  
  
  
  
  
  10,35112   months to 24 months2006   - 3.80%
  
  
  58,9312005   - 2.76%
  
  
  
  
  
  62,93730   months to 36 months2006   - 3.99%
  
  
  16,1592005   - 3.61%
  
  
  
  
  
  15,978Over   36 months2006   - 4.45%
  
  
  9,3142005   - 4.34%
  
  
  
  
  
  7,505Total certificates of   deposit
  
  
  90,782
  
  
  96,771Total deposit accounts
  
  $
  141,238
  
  $
  155,044 At June 30, 2006 and 2005, the Banks had certificate of deposit accounts with balances in excess of $100,000 totaling approximately $15.8 million and $18.0 million, respectively.


50



KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2006, 2005 and 2004

NOTE F - DEPOSITS (continued)




Maturities of outstanding certificates of deposit at June 30 are summarized as follows: Maturing in fiscal year ending 2006
  
  2005(In   thousands)2006
  
  $
  
  
  $
  69,9662007
  
  
  61,471
  
  
  16,3242008
  
  
  14,333
  
  
  7,3282009
  
  
  10,345
  
  
  1,4362010
  
  
  3,347
  
  
  1,7172010 and thereafter
  
  
  1,286
  
  
  $
  90,782
  
  $
  96,771 Interest expense on deposits is summarized as follows for the years ended June 30: 2006
  
  2005
  
  2004NOW and money market   demand
  
  $
  285
  
  $
  143
  
  $
  Certificates of deposit
  
  
  3,216
  
  
  1,765
  
  
  1,612Passbook
  
  
  527
  
  
  542
  
  
  554$
  4,028
  
  $
  2,450
  
  $
  2,166 Deposits from directors and executive officers were $1.2 million and $1.1 million at June 30, 2006 and 2005, respectively.  Such deposits were accepted in the normal course of business on substantially the same terms as those prevailing at the time for comparable transactions with other customers.


51



KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2006, 2005 and 2004

NOTE G - ADVANCES FROM THE FEDERAL HOME LOAN BANK




Advances from the Federal Home Loan Bank, collateralized at June 30, 2006 and 2005 by pledges of certain residential mortgage loans totaling $66.9 million and $60.5 million, respectively, and the Banks investment in Federal Home Loan Bank stock, are summarized as follows: Interest rate
  
  Maturing   year ending   June 30,
  
  2006
  
  2005(Dollars   in thousands)2.52%
  
  
  2006
  
  $
  
  
  $
  2,8003.17% - 6.75%
  
  
  2007
  
  
  18,649
  
  
  2,8283.68% - 6.35%
  
  
  2008
  
  
  2,925
  
  
  3,2615.02% - 7.35%
  
  
  2009
  
  
  1,115
  
  
  9,2055.96% - 6.86%
  
  
  2010
  
  
  21,000
  
  
  21,0005.80% - 6.22%
  
  
  2011
  
  
  8,000
  
  
  8,0006.90%
  
  
  2012
  
  
  251
  
  
  2865.75%
  
  
  2013
  
  
  91
  
  
  1286.15% - 6.95%
  
  
  2016
  
  
  584
  
  
  6266.30% - 6.35%
  
  
  2017
  
  
  90
  
  
  1206.20%
  
  
  2018
  
  
  118
  
  
  15752,823
  
  
  48,411Premium assigned to   borrowings in Frankfort First acquisition, net of amortization
  
  
  2,026
  
  
  2,574$
  54,849
  
  $
  50,985Weighted-average   interest rate
  
  
  6.04
  %
  
  5.58
  %


NOTE H - FEDERAL INCOME TAXES




Federal income taxes on earnings differs from that computed at the statutory corporate tax rate for the years ended June 30, 2006, 2005 and 2004, as follows: 2006
  
  2005
  
  2004(In   thousands)Federal income taxes at   the statutory rate
  
  $
  786
  
  $
  850
  
  $
  392Increase (decrease)   resulting primarily from:Cash   surrender value of life insurance
  
  
  (27
  )
  
  (9
  )
  
  Other
  
  
  (36
  )
  
  31
  
  
  $
  723
  
  $
  872
  
  $
  392


52



KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2006, 2005 and 2004

NOTE H - FEDERAL INCOME TAXES  (continued)




The composition of the Companys net deferred tax liability at June 30 is as follows: 2006
  
  2005(In   thousands)Taxes   (payable) refundable on temporary differences at estimated corporate tax   rate:Deferred   tax assets:General   loan loss allowance
  
  $
  246
  
  $
  241Deferred   loan origination fees
  
  
  47
  
  
  65Deferred   compensation
  
  
  40
  
  
  86Charitable   contributions
  
  
  14
  
  
  63Purchase   price adjustments
  
  
  202
  
  
  164Unrealized   losses on securities available for sale
  
  
  276
  
  
  116Total   deferred tax assets
  
  
  825
  
  
  735Deferred   tax liabilities:Federal   Home Loan Bank stock dividends
  
  
  (1,143
  )
  
  (1,047
  )Book/tax   depreciation
  
  
  (166
  )
  
  (72
  )Total   deferred tax liabilities
  
  
  (1,309
  )
  
  (1,119
  )Net   deferred tax liability
  
  $
  (484
  )
  $
  (384
  ) Prior to 1997, the Banks were allowed a special bad debt deduction, generally limited to 8% of otherwise taxable income, and subject to certain limitations based on aggregate loans and deposit account balances at the end of the year.  If the amounts that qualified as deductions for federal income taxes are later used for purposes other than bad debt losses, including distributions in liquidation, such distributions will be subject to federal income taxes at the then current corporate income tax rate.  Retained earnings at June 30, 2006, include approximately $5.4 million for which federal income taxes have not been provided.  The amount of unrecognized deferred tax liability relating to the cumulative bad debt deduction was approximately$1.8 million at June 30, 2006.


NOTE I - LOAN COMMITMENTS




The Banks are a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of their customers, including commitments to extend credit.  Such commitments involve, to varying degrees, elements of credit and interest-rate risk in excess of the amount recognized in the consolidated statements of financial condition.  The contract or notional amounts of the commitments reflect the extent of the Banks involvement in such financial instruments. The Banks exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual notional amount of those instruments.  The Banks use the same credit policies in making commitments and conditional obligations as those utilized for on-balance-sheet instruments.


53



KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2006, 2005 and 2004

NOTE I - LOAN COMMITMENTS(continued)




At June 30, 2006, the Banks had outstanding commitments of approximately $1.0 million to originate loans.  Additionally, First Federal of Frankfort was obligated under unused lines of credit for equity loans totaling $9.8 million.  In the opinion of the Banks management, all loan commitments equaled or exceeded prevalent market interest rates as of June 30, 2006, and will be funded from normal cash flow from operations.


NOTE J  REORGANIZATION AND BUSINESS COMBINATION




On July 14, 2004, the Board of Directors of First Federal of Hazard (the Association) adopted a Plan of Reorganization (the Plan or the Reorganization) pursuant to which the Association would reorganize into the mutual holding company form of ownership with the incorporation of a stock holding company, Kentucky First Federal Bancorp (the Company) as parent of the Association.  Coincident with the Reorganization, the Association would convert to the stock form of ownership, followed by the issuance of all the Associations outstanding stock to Kentucky First Federal Bancorp.  On March 2, 2005, the Plan of Reorganization was completed with Kentucky First Federal Bancorp issuing 4,727,938 common shares, or 55% of its common shares, to First Federal Mutual Holding Company (First Federal MHC), a federally chartered mutual holding company, with 2,127,842 common shares, or 24.8% of its shares
offered for sale at $10.00 per share to the public and a newly formed Employee Stock Ownership Plan (ESOP).  The Company received net cash proceeds of $12.7 million from the public sale of its common shares.  The Companys remaining 1,740,740 common shares were issued as part of the $31.4 million cash and stock consideration paid for 100% of the common shares of Frankfort First and its wholly-owned subsidiary, First Federal of Frankfort (Frankfort First Federal).  The acquisition was accounted for using the purchase method of accounting and resulted in the recordation of goodwill and other intangible assets totaling $15.4 million.  In accordance with the purchase method of accounting, the Companys results of operations and cash flows for the fiscal year ended June 30, 2005 only reflect Frankfort Firsts results for the four month period ended June 30, 2005. Presented below are the Companys pro-forma condensed consolidated statements of earnings which have been prepared as if the acquisition had been consummated as of the beginning of each of the years ended June 30, 2005 and 2004. 2005
  
  2004Total interest income
  
  $
  12,784
  
  $
  13,072Total interest expense
  
  
  5,731
  
  
  6,010Net   interest income
  
  
  7,053
  
  
  7,062Provision for losses on   loans
  
  
  105
  
  
  10Other income
  
  
  802
  
  
  34General, administrative   and other expense
  
  
  3,884
  
  
  4,184Earnings   before income taxes
  
  
  3,866
  
  
  2,902Federal income taxes
  
  
  1,150
  
  
  980Net   earnings
  
  $
  2,716
  
  $
  1,922


54



KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2006, 2005 and 2004

NOTE K - REGULATORY CAPITAL




The Banks are subject to minimum regulatory capital standards promulgated by the Office of Thrift Supervision (the OTS).  Failure to meet minimum capital requirements can initiate certain mandatory -- and possibly additional discretionary -- actions by regulators that, if undertaken, could have a direct material effect on the consolidated financial statements.  Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Banks must meet specific capital guidelines that involve quantitative measures of the Banks assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices.  The Banks capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. The minimum capital standards of the OTS generally require the maintenance of regulatory capital sufficient to meet each of three tests, hereinafter described as the tangible capital requirement, the core capital requirement and the risk-based capital requirement.  The tangible capital requirement provides for minimum tangible capital (defined as shareholders equity less all intangible assets) equal to 1.5% of adjusted total assets.  The core capital requirement provides for minimum core capital (tangible capital plus certain forms of supervisory goodwill and other qualifying intangible assets) generally equal to 4.0% of adjusted total assets, except for those associations with the highest examination rating and acceptable levels of risk.  The risk-based capital requirement provides for the maintenance of core capital plus general loss allowances equal to 8.0% of risk-weighted assets.  In computing risk-weighted assets, the Banks
multiply the value of each asset on their respective statements of financial condition by a defined risk-weighting factor, e.g., one- to four-family residential loans carry a risk-weighted factor of 50%. During fiscal 2006, the Banks were notified by the OTS that each was categorized as well-capitalized under the regulatory framework for prompt corrective action.  To be categorized as well-capitalized the Banks must maintain minimum capital ratios as set forth in the following tables: As of June 30, 2006Actual
  
  For   capital   adequacy purposes
  
  To be   well-   capitalized under   prompt corrective   action provisionsAmount
  
  Ratio
  
  Amount
  
  Ratio
  
  Amount
  
  Ratio(Dollars   in thousands
)Tangible   capitalFirst Federal of Hazard
  
  $
  26,232
  
  
  21.9
  %
  $
  31,799
  
  
  31.5
  %
  $
  35,996
  
  
  35.0
  %First Federal of Frankfort
  
  $
  17,283
  
  
  13.3
  %
  $
  31,949
  
  
  31.5
  %
  $
  36,497
  
  
  35.0
  %Core   capitalFirst Federal of Hazard
  
  $
  26,232
  
  
  21.9
  %
  $
  34,797
  
  
  34.0
  %
  $
  37,196
  
  
  36.0
  %First Federal of Frankfort
  
  $
  17,283
  
  
  13.3
  %
  $
  35,197
  
  
  34.0
  %
  $
  37,796
  
  
  36.0
  %Risk-based   capitalFirst Federal of Hazard
  
  $
  26,675
  
  
  75.4
  %
  $
  32,831
  
  
  38.0
  %
  $
  33,539
  
  
  310.0
  %First Federal of Frankfort
  
  $
  17,416
  
  
  25.0
  %
  $
  35,583
  
  
  38.0
  %
  $
  36,979
  
  
  310.0
  %


55



KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2006, 2005 and 2004

NOTE K - REGULATORY CAPITAL (continued)




As of June 30, 2005Actual
  
  For   capital   adequacy purposes
  
  To be   well-   capitalized under   prompt corrective   action provisionsAmount
  
  Ratio
  
  Amount
  
  Ratio
  
  Amount
  
  Ratio(Dollars   in thousands
)Tangible   capitalFirst Federal of Hazard
  
  $
  28,322
  
  
  22.3
  %
  $
  31,902
  
  
  31.5
  %
  $
  36,341
  
  
  35.0
  %First Federal of Frankfort
  
  $
  16,129
  
  
  12.1
  %
  $
  32,006
  
  
  31.5
  %
  $
  36,686
  
  
  35.0
  %Core   capitalFirst Federal of Hazard
  
  $
  28,322
  
  
  22.3
  %
  $
  35,073
  
  
  34.0
  %
  $
  37,609
  
  
  36.0
  %First Federal of Frankfort
  
  $
  16,129
  
  
  12.1
  %
  $
  35,348
  
  
  34.0
  %
  $
  38,023
  
  
  36.0
  %Risk-based   capitalFirst Federal of Hazard
  
  $
  28,762
  
  
  81.8
  %
  $
  32,815
  
  
  38.0
  %
  $
  33,518
  
  
  310.0
  %First Federal of Frankfort
  
  $
  16,262
  
  
  23.1
  %
  $
  35,636
  
  
  38.0
  %
  $
  37,045
  
  
  310.0
  % As of June 30, 2006 and 2005, management believes that First Federal of Hazard and First Federal of Frankfort met all capital adequacy requirements to which the Banks were subject. The Banks management believes that, under the current regulatory capital regulations, both Banks will continue to meet their minimum capital requirements in the foreseeable future.  However, events beyond the control of the Banks, such as increased interest rates or a downturn in the economy in the Banks market area, could adversely affect future earnings and, consequently, the ability to meet future minimum regulatory capital requirements.


56



KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2006, 2005 and 2004

NOTE L - CONDENSED FINANCIAL STATEMENTS OF KENTUCKY FIRST FEDERAL BANCORP




The following condensed financial statements summarize the financial position of Kentucky First Federal Bancorp as of June 30, 2006 and 2005, and the results of its operations and its cash flows for the fiscal years ended June 30, 2006 and 2005. KENTUCKY FIRST FEDERAL BANCORPSTATEMENTS OF FINANCIAL CONDITIONJune 30, 2006 and 2005(In thousands) 2006
  
  2005ASSETSInterest-bearing   deposits in First Federal of Hazard
  
  $
  1,758
  
  $
  2,356Interest-bearing   deposits in First Federal of Frankfort
  
  
  41
  
  
  100Investment   in First Federal of Hazard
  
  
  28,940
  
  
  31,489Investment   in Frankfort First
  
  
  32,481
  
  
  31,785Prepaid   expenses and other assets
  
  
  704
  
  
  531Total   assets
  
  $
  63,924
  
  $
  66,261LIABILITIES   AND SHAREHOLDERS EQUITYAccounts   payable and other liabilities
  
  $
  43
  
  $
  322Shareholders   equityCommon   stock
  
  
  86
  
  
  86Additional   paid-in capital
  
  
  36,769
  
  
  36,714Retained   earnings
  
  
  32,761
  
  
  32,719Shares   acquired by stock benefit plans
  
  
  (4,739
  )
  
  (3,370
  )Shares   acquired for treasury  at cost
  
  
  (460
  )
  
  Accumulated   other comprehensive loss
  
  
  (536
  )
  
  (210
  )Total   shareholders equity
  
  
  63,881
  
  
  65,939Total   liabilities and shareholders equity
  
  $
  63,924
  
  $
  66,261 KENTUCKY FIRST FEDERAL BANCORPSTATEMENTS OF EARNINGSYears ended June 30, 2006 and 2005(In thousands) 2006
  
  2005RevenueInterest   income
  
  $
  210
  
  $
  71Equity   in earnings of First Federal of Hazard
  
  
  771
  
  
  1,352Equity   in earnings of Frankfort First
  
  
  989
  
  
  369Total   revenue
  
  
  1,970
  
  
  1,792General and administrative   expenses
  
  
  492
  
  
  155Earnings   before income tax credits
  
  
  1,478
  
  
  1,637Federal income taxes   (credits)
  
  
  (110
  )
  
  8NET   EARNINGS
  
  $
  1,588
  
  $
  1,629


57



KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2006, 2005 and 2004

NOTE L - CONDENSED FINANCIAL STATEMENTS OF KENTUCKY FIRST FEDERAL BANCORP(continued)




KENTUCKY FIRST FEDERAL BANCORPSTATEMENTS OF CASH FLOWSYears ended June 30, 2006 and 2005(In thousands) 2006
  
  2005Cash flows from operating   activities:Net   earnings for the year
  
  $
  1,588
  
  $
  1,629Adjustments to reconcile net earnings to net cash provided by   operating activities:Excess   distributions from consolidated subsidiary
  
  
  1,354
  
  
  871Noncash   compensation expense
  
  
  269
  
  
  Increase   (decrease) in cash due to changes in:Prepaid   expenses and other assets
  
  
  (173
  )
  
  (531
  )Other   liabilities
  
  
  (142
  )
  
  322Net   cash provided by operating activities
  
  
  2,896
  
  
  2,291Cash flows used in   investing activities:Shares   acquired by ESOP
  
  
  
  
  
  (3,370
  )Cash flows provided by   (used in) financing activities:Dividends   paid on common stock
  
  
  (1,546
  )
  
  (353
  )Purchase   of shares for benefit plans
  
  
  (1,547
  )
  
  Repurchase   of treasury shares
  
  
  (460
  )
  
  Cash   proceeds from issuance of common stock
  
  
  
  
  
  16,090Net   cash paid in the acquisition of Frankfort First Bancorp, Inc.
  
  
  
  
  
  (12,202
  )Net   cash provided by financing activities
  
  
  (3,553
  )
  
  3,535Net increase (decrease) in   cash and cash equivalents
  
  
  (657
  )
  
  2,456Cash and cash equivalents   at beginning of year
  
  
  2,456
  
  
  Cash and cash equivalents   at end of year
  
  $
  1,799
  
  $
  2,456 The Banks are subject to regulations imposed by the OTS regarding the amount of capital distributions payable to the Company.  Generally, the Banks payments of dividends is limited, without prior OTS approval, to net earnings for the current calendar year plus the two preceding calendar years, less capital distributions paid over the comparable time period.  Insured institutions are required to file an application with the OTS for capital distributions in excess of this limitation.


58



The Board of Kentucky First Federal Bancorp would like to recognize our employees who are working hard every day to maximize the value of your investment:

|First   Federal Savings & Loan of Hazard |  | First   Federal Savings Bank of Frankfort 
|---------------------------------------- |  | ------------------------------------------
|                                         |  |                                           
|Deborah Bersaglia, Assistant             |  | Mindy Abbott, Customer Service            
|Vice President/Lending/Collection        |  | Brenda Baldwin, Branch Manager            
|Phyllis Campbell, Customer Service       |  | Stan Betsworth, Lending                   
|Sandy Craft, Customer Service            |  | Phyllis Bowman, Loan Servicing            
|Donna Davis, Data Processing             |  | Lisa Brinley, Customer Service            
|Lou Ella R. Farler, Assistant Vice       |  | Carolyn Eades, Customer Service           
|President/Data Processing                |  | Diana Eads, Customer Service              
|Deloris S. Justice, Accounting Assistant |  | Danny A. Garland, President               
|Velma Kelly, Customer Service            |  | Stacey Greenawalt, Lending                
|Kaye C. Lewis, Treasurer                 |  | Barry Holder, Customer Service            
|Brenda Lovelace, Customer Service        |  | Clay Hulette, Vice President/Treasurer    
|Roy L. Pulliam, Jr., Vice                |  | Don D. Jennings, Executive Vice President 
|President/Lending/Secretary              |  | Teresa A. Kuhl, Vice President/           
|Fred Skaggs, Vice President/Lending      |  | Operations/Human Resources                
|Peggy Hopper Steele, Receptionist/Loan   |  | Janet Lewis, Branch Manager               
|Processing                               |  | Patty Luttrell, Loan Processing/Compliance
|Molly Ann E. Toler, Asst. Vice President |  | Carla McMillen, Customer Service          
|Teller Operations                        |  | Kim Moore, Head Teller                    
|Tony Whitaker, President                 |  | Carolyn Mulcahy, Accounting               
|                                         |  | Jeannie Murphy, Customer Service          
|                                         |  | Danny Prather, Accounting                 
|                                         |  | David Semones, Loan Processing            
|                                         |  | Sandy Stover, Receptionist                
|                                         |  | Melissa Thompson, Administrative Assistant
|                                         |  | Yvonne Thornberry, Loan Processing/       
|                                         |  | Servicing                                 
|                                         |  | Nancy Watts, Customer Service/Insurance   
|                                         |  | Processing                                

59



|Kentucky   First Federal Bancorp |  | First   Federal Savings and   Loan Association of Hazard |  | First   Federal Savings Bank of   Frankfort
|-------------------------------- |  | -------------------------------------------------------- |  | -------------------------------------------
|                                 |  |                                                          |  |                                            
|Board of Directors               |  | Board of Directors                                       |  | Board of Directors                         
|                                 |  |                                                          |  |                                            
|Stephen G. Barker                |  | Stephen G. Barker                                        |  | Charles A. Cotton, III                     
|Walter G. Ecton, Jr.             |  | Walter G. Ecton, Jr.                                     |  | C. Michael Davenport                       
|William D. Gorman                |  | William D. Gorman                                        |  | Danny A. Garland                           
|David R. Harrod                  |  | Lewis A. Hopper, Chairman                                |  | David R. Harrod                            
|Don D. Jennings                  |  | Tony Whitaker                                            |  | William C. Jennings, Chairman              
|Herman D. Regan, Jr.             |  |                                                          |  | William M. Johnson                         
|Tony Whitaker, Chairman          |  |                                                          |  | Frank McGrath                              
|                                 |  |                                                          |  | Herman D. Regan, Jr.                       
|                                 |  |                                                          |  |                                            
|                                 |  | Office Locations                                         |  |                                            
|                                 |  |                                                          |  |                                            
|                                 |  |                                                          |  | First Federal of Frankfort                 
|                                 |  |                                                          |  | East Branch                                
|First Federal of Hazard          |  | First Federal of Frankfort                               |  | 1980 Versailles Road                       
|Main Office                      |  | Main Office                                              |  | Frankfort, KY 40601                        
|479 Main Street                  |  | 216 West Main Street                                     |  |                                            
|P.O. Box 1069                    |  | P.O. Box 535                                             |  | First Federal of Frankfort                 
|Hazard, KY 41702-1069            |  | Frankfort, KY 40602-0535                                 |  | West Branch                                
|                                 |  |                                                          |  | 1220 US 127 South                          
|                                 |  |                                                          |  | Frankfort, KY 40601                        
|                                 |  |                                                          |  |                                            
|Chairman   and CEO               |  |                                                          |  | Shareholder   Inquiries and                
|Tony Whitaker                    |  | Special   Counsel                                        |  | Availability   of 10-K Report:A            
|(606) 436-3860                   |  | Muldoon, Murphy and                                      |  | COPY OF THE COMPANYS                      
|firstfederal@windstream.net      |  | Aguggia LLP                                              |  | ANNUAL REPORT ON FORM                      
|                                 |  | 5101 Wisconsin Ave, NW                                   |  | 10-K FOR THE YEAR ENDED                    
|                                 |  | Washington, DC 20016                                     |  | JUNE 30, 2006, AS FILED                    
|Investor   Relations             |  |                                                          |  | WITH THE SECURITIES AND                    
|Don Jennings                     |  | Transfer   Agent and Registrar                           |  | EXCHANGE COMMISSION                        
|Djenni7474@aol.com               |  | Illinois Stock Transfer   Company                        |  | WILL BE FURNISHED                          
|                                 |  | 209 W Jackson Blvd, Ste   903                            |  | WITHOUT CHARGE TO                          
|Clay Hulette                     |  | Chicago, IL 60606-6905                                   |  | SHAREHOLDERS AS OF THE                     
|rchulette@hotmail.com            |  | (312) 427-2953                                           |  | RECORD DATE FOR THE                        
|                                 |  |                                                          |  | NOVEMBER 14, 2006                          
|(502) 223-1638                   |  | Annual   Meeting                                         |  | ANNUAL MEETING UPON                        
|P.O. Box 535                     |  | The Annual Meeting of   Share-                           |  | WRITTEN REQUEST TO                         
|Frankfort, KY 40602              |  | holders will be held on                                  |  |                                            
|                                 |  | November 14, 2006 at                                     |  | INVESTOR RELATIONS                         
|Independent   Auditors           |  | 3:30 p.m., Eastern Time,   at                            |  | KENTUCKY FIRST                             
|Grant Thornton LLP               |  | the First Federal Center   on the                        |  | FEDERAL BANCORP                            
|4000 Smith Road, Suite 500       |  | campus of Hazard Community                               |  | P.O. BOX 535                               
|Cincinnati, OH 45209             |  | and Technical College, One                               |  | FRANKFORT, KY 40602                        
|                                 |  | Community College Blvd,                                  |  |                                            
|                                 |  | Hazard, KY                                               |  |                                            

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