EXHIBIT 13



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

2005

Annual 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 reorganization 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 8,596,064 shares of common stock outstanding and approximately 864 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 2005                 |  | High |       | Low |   | Dividends   Per Share | 
|--------------------------- |  | ---- | ----- | --- | - | --------------------- | 
|                            |  |      |       |     |   |                       | 
|First quarter               |  |      | N/A   |     |   | N/A                   | 
|Second quarter              |  |      | N/A   |     |   | N/A                   | 
|Third quarter               |  | $    | 11.84 |     | $ | 10.20                 | 
|(March 3 to March 31, 2005) |  |      |       |     |   |                       | 
|Fourth quarter              |  | $    | 11.80 |     | $ | 10.71                 | 

(i)



|TABLE   OF CONTENTS                                                                     |    
|--------------------------------------------------------------------------------------- | ---
|                                                                                       
|Kentucky First Federal Bancorp                                                          | (i)
|Market Information                                                                      | (i)
|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                                                       | 29 
|Corporate Information                                                                   | 56 

(ii)



Message

Dear Shareholder:

We are pleased to present the first Annual Report for Kentucky First Federal Bancorp.  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 15.

Were also pleased to report that the reorganization of First Federal of Hazard and the merger with First Federal of Frankfort has gone extremely well.  As was our stated goal, we continue to retain our identities in our individual communities and have made the transition seamless to our customers.   As promised, no employees have been displaced and the local boards of both subsidiary Banks remain engaged and active.

With our June 30 fiscal year end, our first Annual Report only reflects four months of Kentucky First Federal as a consolidated company.   During this time weve primarily been engaged with organizing the new holding company and developing future plans.  A highlight for us was to preside over the closing ceremonies of the Nasdaq stock market in April.  This provided tremendous exposure for Kentucky First and garnered many positive comments.

We felt it was important to immediately establish a strong dividend, and we did so by paying our first 10 cents dividend in May and our second in August.  We also made it a priority to establish a dividend reinvestment plan so that if our investors so chose, they could allow their investment in Kentucky First Federal to grow.

In the future, we will continue to develop financial synergies between our sister banks and to develop new product opportunities.   As a shareholder, we encourage you to also consider becoming a customer of First Federal of Hazard or First Federal of Frankfort.  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,    |        
|--------------------------------------------- |  | ---------------- | -------
|                                              |  |                  |        
|                                              |  | 2005             |        
|                                              |  |                  |        
|                                              |  | (In   thousands) |        
|Total assets                                  |  | $                | 273,915
|Cash and cash equivalents                     |  |                  | 8,358  
|Investment securities held to maturity        |  |                  | 50,942 
|Investment securities available for sale      |  |                  | 12,686 
|Mortgage-backed securities held to maturity   |  |                  | 21,347 
|Mortgage-backed securities available for sale |  |                  | 1,861  
|Loans receivable, net                         |  |                  | 151,712
|Deposits                                      |  |                  | 155,044
|Federal Home Loan Bank advances               |  |                  | 50,985 
|Shareholders earnings  restricted           |  |                  | 65,939 
|Allowance for loan losses                     |  |                  | 708    
|Nonperforming loans                           |  |                  | 1,747  

Selected Operating Data (1)

|                                                          |  | Year Ended   June 30,                           |      
|--------------------------------------------------------- |  | ----------------------------------------------- | -----
|                                                          |  |                                                 |      
|                                                          |  | 2005                                            |      
|                                                          |  |                                                 |      
|                                                          |  | (Dollars   in thousands, except per share data) |      
|Total interest income                                     |  | $                                               | 8,153
|Total interest expense                                    |  |                                                 | 3,353
|                                                          |  |                                                 |      
|Net interest income                                       |  |                                                 | 4,800
|Provision for losses on loans                             |  |                                                 | 53   
|                                                          |  |                                                 |      
|Net interest income after provision for losses on   loans |  |                                                 | 4,747
|Total other income (loss)                                 |  |                                                 | 263  
|Total general, administrative and other expenses          |  |                                                 | 2,509
|                                                          |  |                                                 |      
|Income before federal income taxes                        |  |                                                 | 2,501
|Federal income taxes                                      |  |                                                 | 872  
|                                                          |  |                                                 |      
|Net income                                                |  | $                                               | 1,629
|                                                          |  |                                                 |      
|Net income per share  basic                              |  | $                                               | N/A  
|                                                          |  |                                                 |      
|Net income per share  diluted                            |  | $                                               | N/A  
|                                                          |  |                                                 |      

|   
|---
|(1)

2



Selected Financial Ratios and Other Data (1)

|                                                                                                                          |  | Year Ended   June 30, |       
|------------------------------------------------------------------------------------------------------------------------- |  | --------------------- | ------
|                                                                                                                          |  |                       |       
|                                                                                                                          |  | 2005                  |       
|                                                                                                                          |  |                       |       
|Performance   Ratios:                                                                                                     |  |                       |       
|Return  on   average assets (net income divided by average total assets)                                                  |  |                       | 0.88  
|Return  on   average equity (net income divided by average equity)                                                        |  |                       | 4.46  
|Interest rate spread (combined weighted average   interest rate earned less combined weighted average interest rate cost) |  |                       | 2.30  
|Net interest margin (net interest income divided   by  average interest-earning assets)                                   |  |                       | 2.69  
|Ratio of average interest-earning assets to average   interest-bearing liabilities                                        |  |                       | 120.74
|Ratio of total general administrative and other   expenses to average total assets                                        |  |                       | 1.35  
|Efficiency Ratio (2)                                                                                                      |  |                       | 49.56 
|Dividend payout ratio (dividends declared per share   divided by diluted net income per share)                            |  |                       | N/A   
|Asset   Quality Ratios:                                                                                                   |  |                       |       
|Nonperforming loans as a percent of total loans at   end of period (3)                                                    |  |                       | 1.15  
|Nonperforming assets as a percent of total assets at   end of period                                                      |  |                       | 0.66  
|Allowance for loan losses as a percent of total   loans at end of period                                                  |  |                       | 0.47  
|Allowance for loan losses as a percent of   nonperforming loans at end of period                                          |  |                       | 40.53 
|Provision for loan losses to total loans                                                                                  |  |                       | 0.03  
|Net charge-offs to average loans outstanding                                                                              |  |                       | 0.20  
|Capital   Ratios:                                                                                                         |  |                       |       
|Average equity to average assets                                                                                          |  |                       | 19.68 
|Shareholders equity or capital to total assets at   end of period                                                        |  |                       | 24.07 
|Regulatory Capital Ratios:                                                                                                |  |                       |       
|Tangible capital                                                                                                          |  |                       | 17.18 
|Core capital                                                                                                              |  |                       | 17.18 
|Risk-based capital                                                                                                        |  |                       | 43.83 
|Number of banking offices                                                                                                 |  |                       | 4     

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

3



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 (including payments to holders of Frankfort First stock options).  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 year ended June 30, 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.

4



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, charitable contributions 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.

General, administrative and other expense is expected to increase following completion of the Reorganization, due primarily to the increased costs associated with operating as a public company, the increased compensation expense associated with adopting and funding our employee stock ownership plan and an equity-based compensation plan, if approved by stockholders.

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 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 services.

Taxes consist of the current and deferred portion of federal income taxes as well as franchise taxes paid to the state 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.

5



The Companys practice is for the management and the boards of First Federal of Hazard and First Federal of Frankfort to 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, and improving, at June 30, 2005.

Nevertheless, management continues to monitor and evaluate factors which could have an impact on the required level of the allowance.  Nationally, management will watch for 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, 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 which 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 independent, community-oriented   savings institutions, First Federal of Hazard, which will serve customers in   Perry and surrounding counties in eastern Kentucky, and First Federal of   Frankfort, which will serve customers primarily in Franklin County, as well   as Anderson, Woodford, Scott and Shelby Counties, in central Kentucky.  Each Bank intends to operate substantially   in the same manner as it has operated in the past, emphasizing 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.    While no such programs have yet been effected, management is reviewing   resources and strategies that will effect this implementation;                                                                                                                                                                                                           
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  | 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   September 30, 2005, First Federal of Hazard had purchased approximately $1.5   million in loans from First Federal of Frankfort;                                                                                                                    

6



| |  | continuing our historic heavy reliance on our   low-costing deposit base to fund our lending and investment activities.  We expect our projected deposit mix to   generally retain its existing composition of passbook and certificate of   deposit accounts;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                               
| |  | reducing First Federal of Frankforts reliance on   third party borrowings through loan sales to First Federal of Hazard;                                                                                                                                     
| |   |                                                                                                                                                                                                                                                               
| |  | 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; and                                                                                                                                                       
| |   |                                                                                                                                                                                                                                                               
| |  | managing our net interest margin and interest rate   risk.                                                                                                                                                                                                    

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.

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.

The following table sets forth the interest rate sensitivity of our NPV as of June 30, 2005 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, 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, 2005, are held to maturity or available-for-sale.  We have no trading securities.

7



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

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

The preceding table indicates that at June 30, 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, although at current historically low interest rate levels such a decrease is deemed unlikely.  At all levels represented in the table, the Banks NPV 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.

8



Statement of Financial Condition

General.  At June 30, 2005, total assets were $273.9 million, an increase of $134.1 million, or 95.9%, over the $139.8 million total at June 30, 2004.  The increase in total assets was comprised primarily of an increase in loans receivable, net, which increased nearly five-fold with the acquisition of First Federal of Frankfort.  At June 30, 2005, total liabilities were $208.0 million, an increase of $99.2 million, or 91.2%, over the $108.8 million total at June 30, 2004.  The increase in total liabilities was comprised primarily of increases in deposits and Federal Home Loan Bank advances assumed in the acquisition of First Federal of Frankfort.

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, 2005, residential real estate loans totaled $134.1 million, or 87.4% of total loans, compared to $29.8 million, or 86.4% of total loans, at June 30, 2004.  We had $1.7 million, or 1.1% of total loans, in construction real estate loans at June 30, 2005, compared to $130,000, or 0.4% of total loans at June 30, 2004.  At June 30, 2005, multi-family real estate loans totaled $321,000 or 0.2% of total loans, compared to $280,000, or 0.8% of total loans at June 30, 2004, and nonresidential real estate loans totaled $7.2
million, or 4.7% of total loans at June 30, 2005, compared to $757,000, or 2.2% of total loans, at June 30, 2004.  We also originate home equity lines of credit and loans secured by deposit accounts, which totaled $10.1 million, or 6.6% of total loans at June 30, 2005, compared to loans secured by deposit accounts of $3.5 million, or 10.2% of total loans at June 30, 2004.

The increase in our loan portfolio during the year ended June 30, 2005 resulted primarily from the acquisition of First Federal of Frankforts loan portfolio of $119.5 million. The following table sets forth the composition of our loan portfolio at the dates indicated.

|                                 |  | At June   30,          |        
|-------------------------------- |  | ---------------------- | -------
|                                 |  |                        |        
|                                 |  | 2005                   |        
|                                 |  |                        |        
|                                 |  | Amount                 |        
|                                 |  |                        |        
|                                 |  | (Dollars in thousands) |        
|Real estate loans:               |  |                        |        
|Residential                      |  | $                      | 134,117
|Construction                     |  |                        | 1,925  
|Multi-family                     |  |                        | 321    
|Nonresidential   & other         |  |                        | 7,202  
|Consumer:                        |  |                        |        
|Home   equity lines of credit    |  |                        | 6,024  
|Loans   secured by deposits      |  |                        | 4,027  
|                                 |  |                        |        
|Total   loans                    |  |                        | 153,616
|                                 |  |                        |        
|Allowance for loan losses        |  |                        | (708   
|Undisbursed construction   loans |  |                        | (1,016 
|Deferred loan origination   fees |  |                        | (180   
|                                 |  |                        |        
|Loans receivable, net            |  | $                      | 151,712
|                                 |  |                        |        

9



The following table sets forth certain information at June 30, 2005 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                 |  | $                     | 22,442  |                  | $ | 10,051        | 
|More than one year to five years |  |                       | 55,791  |                  |   |              | 
|More than five years             |  |                       | 65,332  |                  |   |              | 
|                                 |  |                       |         |                  |   |               | 
|Total                            |  | $                     | 143,565 |                  | $ | 10,051        | 
|                                 |  |                       |         |                  |   |               | 

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

|                                                       |  | Year Ended   June 30, |        
|------------------------------------------------------ |  | --------------------- | -------
|                                                       |  |                       |        
|                                                       |  | 2005                  |        
|                                                       |  |                       |        
|                                                       |  | (In   thousands)      |        
|Total loans at beginning of year                       |  | $                     | 33,568 
|Loans originated:                                      |  |                       |        
|Real estate loans:                                     |  |                       |        
|Residential                                            |  |                       | 9,295  
|Construction                                           |  |                       | 562    
|Multi-family                                           |  |                       |       
|Nonresidential &   other                               |  |                       | 615    
|Consumer loans                                         |  |                       | 2,321  
|                                                       |  |                       |        
|Total loans originated                                 |  |                       | 12,793 
|Loans acquired  Frankfort First                       |  |                       | 119,526
|Deduct:                                                |  |                       |        
|Real estate loan   principal repayments                |  |                       | (13,450
|Loan sales                                             |  |                       | (520   
|Transfer to real estate   acquired through foreclosure |  |                       | (60    
|Other                                                  |  |                       | (145   
|                                                       |  |                       |        
|Net loan activity                                      |  |                       | 118,144
|                                                       |  |                       |        
|Total loans at end of period                           |  | $                     | 151,712
|                                                       |  |                       |        

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.

10



At June 30, 2005, the allowance for loans losses totaled $708,000, or 0.47% of total loans, compared to $665,000, or 1.98% of total loans at June 30, 2004.  Nonperforming loans, which consist of all loans 90 days or more past due,  totaled $1.7 million at June 30, 2005 and $1.2 million at June 30, 2004.  At June 30, 2005, all of these loans consisted of loans secured by single-family residences.  The allowance for loans losses totaled 40.5 % and 57.6% of nonperforming loans at June 30, 2005 and June 30, 2004, 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, 2005.  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,    |      
|---------------------------------------------------------------- |  | ------------------------ | -----
|                                                                 |  |                          |      
|                                                                 |  | 2005                     |      
|                                                                 |  |                          |      
|                                                                 |  | (Dollars   in thousands) |      
|Allowance at beginning of period                                 |  | $                        | 665  
|Allowance acquired  Frankfort First                             |  |                          | 133  
|Provision for loan losses                                        |  |                          | 53   
|Charge-offs:                                                     |  |                          |      
|Real estate loans                                                |  |                          | 145  
|Consumer loans                                                   |  |                          |     
|                                                                 |  |                          |      
|Total charge-offs                                                |  |                          | 145  
|Recoveries:                                                      |  |                          |      
|Real estate loans                                                |  |                          | 2    
|                                                                 |  |                          |      
|Consumer loans                                                   |  |                          |     
|                                                                 |  |                          |      
|Total recoveries                                                 |  |                          | 2    
|                                                                 |  |                          |      
|Net charge-offs                                                  |  | $                        | 143  
|                                                                 |  |                          |      
|Allowance at end of period                                       |  | $                        | 708  
|                                                                 |  |                          |      
|Allowance to nonperforming loans                                 |  |                          | 40.53
|Allowance to total loans outstanding at end of   period          |  |                          | 0.47 
|Net charge-offs to average loans outstanding during   the period |  |                          | 0.01 

11



The following table sets forth the breakdown of the allowance for loan losses by
loan category at the dates indicated.

|                                  |  | At June   30,            |    
|--------------------------------- |  | ------------------------ | ---
|                                  |  |                          |    
|                                  |  | 2005                     |    
|                                  |  |                          |    
|                                  |  | Amount                   |    
|                                  |  |                          |    
|                                  |  | (Dollars   in thousands) |    
|Real Estate Loans:                |  |                          |    
|Residential                       |  |                          | 626
|Construction                      |  |                          | 7  
|Multi-family                      |  |                          | 1  
|Nonresidential & other            |  |                          | 31 
|Consumer Loans:                   |  |                          |    
|Home equity lines of credit       |  |                          | 26 
|Loans secured by deposits         |  |                          | 17 
|                                  |  |                          |    
|Total allowance for   loan losses |  | $                        | 708
|                                  |  |                          |    

|                                  |  | At June   30,            |    
|--------------------------------- |  | ------------------------ | ---
|                                  |  |                          |    
|                                  |  | 2002                     |    
|                                  |  |                          |    
|                                  |  | Amount                   |    
|                                  |  |                          |    
|                                  |  | (Dollars   in thousands) |    
|Real Estate Loans:                |  |                          |    
|Residential                       |  |                          | 636
|Construction                      |  |                          | 12 
|Multi-family                      |  |                          | 15 
|Nonresidential & other            |  |                          | 29 
|Consumer Loans:                   |  |                          |    
|Home equity lines of credit       |  |                          | 0  
|Loans secured by deposits         |  |                          | 43 
|                                  |  |                          |    
|Total allowance for   loan losses |  | $                        | 735
|                                  |  |                          |    

12



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 the loan is placed 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, 2005, 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,    |      
|-------------------------------------------------- |  | ------------------------ | -----
|                                                   |  |                          |      
|                                                   |  | 2005                     |      
|                                                   |  |                          |      
|                                                   |  | (Dollars   in thousands) |      
|Nonaccrual loans:                                  |  |                          |      
|Real estate loans                                  |  | $                        | 874  
|Deposit loans                                      |  |                          |     
|                                                   |  |                          |      
|Total                                              |  |                          | 874  
|Accruing loans past due 90 days or more:           |  |                          |      
|Real estate loans                                  |  |                          | 873  
|Deposit loans                                      |  |                          |     
|                                                   |  |                          |      
|Total of accruing loans   past due 90 days or more |  |                          | 873  
|                                                   |  |                          |      
|Total nonperforming   loans                        |  |                          | 1,747
|                                                   |  |                          |      
|Real estate acquired   through foreclosure         |  |                          | 60   
|                                                   |  |                          |      
|Total nonperforming   assets                       |  | $                        | 1,807
|                                                   |  |                          |      
|Total nonperforming loans to total loans           |  |                          | 1.15 
|Total nonperforming loans to total assets          |  |                          | 0.64 
|Total nonperforming assets to total assets         |  |                          | 0.66 

Interest income that would have been recorded for the years ended June 30, 2005, 2004 and 2003, had nonaccrual loans been current according to their original terms amounted to $71,000, $76,000 and $71,000, respectively.  Income related to nonaccrual loans included in interest income for the years ended June 30, 2005, 2004 and 2003 amounted to $49,000, $96,000 and $105,000, respectively.

At June 30, 2005, nonaccrual loans consisted of 21 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.

13



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.  When we classify an asset as substandard or doubtful, we must establish a general allowance for loan losses.  If we classify an asset as loss, we must charge off such amount.

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

|                        |  | At June   30,    |      
|----------------------- |  | ---------------- | -----
|                        |  |                  |      
|                        |  | 2005             |      
|                        |  |                  |      
|                        |  | (In   thousands) |      
|Special mention assets  |  | $                | 220  
|Substandard assets      |  |                  | 1,933
|Doubtful assets         |  |                  |     
|Loss assets             |  |                  |     
|                        |  |                  |      
|Total classified assets |  | $                | 2,153
|                        |  |                  |      

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 June 30, 2004 and 2003 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,         |      
|----------------- |  | --------------------- | -----
|                  |  |                       |      
|                  |  | 2005                  |      
|                  |  |                       |      
|                  |  | 30-59 Days   Past Due |      
|                  |  |                       |      
|                  |  | (In   thousands)      |      
|Real estate loans |  | $                     | 2,146
|Deposit loans     |  |                       |     
|                  |  |                       |      
|Total             |  | $                     | 2,146
|                  |  |                       |      

Other than disclosed above, there are no other loans at June 30, 2005 that we have serious doubts about the ability of the borrowers to comply with the present loan repayment terms.

14



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 $86.8 million at June 30, 2005, an increase of $622,000, or 0.72%, compared to the $86.2 million total at June 30, 2004.  During the year ended June 30, 2005, $2.1 million of mortgage-backed securities and a $100,000 certificate of deposit in another financial institution were acquired in the acquisition of First Federal of Frankforts portfolio.  The addition of these securities was partially offset by maturities, calls and prepayments of mortgage-backed securities totaling $1.9 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,    |       
|------------------------------------ |  | ---------------- | ------
|                                     |  |                  |       
|                                     |  | 2005             |       
|                                     |  |                  |       
|                                     |  | Amortized   Cost |       
|                                     |  |                  |       
|                                     |  | (In   thousands) |       
|Available for sale securities:       |  |                  |       
|U.S. Government agency   obligations |  | $                | 12,998
|Mortgage-backed   securities         |  |                  | 1,879 
|                                     |  |                  |       
|Total                                |  | $                | 14,877
|                                     |  |                  |       
|Held to maturity securities:         |  |                  |       
|U.S. Government agency   obligations |  | $                | 50,842
|Certificates of deposit              |  |                  | 100   
|Mortgage-backed   securities         |  |                  | 21,347
|                                     |  |                  |       
|Total                                |  | $                | 72,289
|                                     |  |                  |       

At June 30,
2005 and 2004, 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.

15



The following table sets forth the maturities and weighted average yields of securities at June 30, 2005.  At June 30, 2005, U.S. Government agency securities with adjustable rates totaled $9.0 million.

|                                     |  | One Year   or Less       |       | More ThanOne 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         |  |                          | 40    |                                   |  | 3.58                                  |  
|                                     |  |                          |       |                                   |  |                                       |  
|Total available for sale securities  |  | $                        | 40    |                                   |  |                                       |  
|                                     |  |                          |       |                                   |  |                                       |  
|Held to maturity securities:         |  |                          |       |                                   |  |                                       |  
|Certificates of deposit              |  | $                        | 100   |                                   |  | 2.77                                  | %
|U.S. Government agency   obligations |  |                          | 5,000 |                                   |  | 3.00                                  |  
|Mortgage-backed   securities         |  |                          | 1,066 |                                   |  | 4.21                                  |  
|                                     |  |                          |       |                                   |  |                                       |  
|Total held-to-maturity securities    |  | $                        | 6,166 |                                   |  |                                       |  
|                                     |  |                          |       |                                   |  |                                       |  

|                                       |  | 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           |  |                        | 1,360  |                              | 
|                                       |  |                        |        |                              | 
|Total  available for sale   securities |  | $                      | 1,360  |                              | 
|                                       |  |                        |        |                              | 
|Held to maturity securities:           |  |                        |        |                              | 
|Certificates of deposit                |  | $                      |       |                              | 
|U.S. Government agency   obligations   |  |                        | 3,999  |                              | 
|Mortgage-backed   securities           |  |                        | 8,470  |                              | 
|                                       |  |                        |        |                              | 
|Total held-to-maturity securities      |  | $                      | 12,469 |                              | 
|                                       |  |                        |        |                              | 

16



Other Assets.  Other assets at June 30, 2005 include goodwill of $15.4 million, which was a sole result of the Companys acquisition of Frankfort First.  In the acquisition, the Company also acquired three banking offices which increased office premises and equipment to $3.0 million at June 30, 2005.  Likewise, the Company acquired the Bank Owned Life Insurance policies worth $2.1 million of which First Federal of Frankfort is the owner and beneficiary.  Previously, the company had no such policies.  As both subsidiary Banks are members and stockholders of the Federal Home Loan Bank of Cincinnati (FHLB), FHLB stock, at cost, increased from $1.8 million to $5.0 million in the acquisition.

Deposits.  Our primary source of funds is retail deposit accounts held primarily by individuals within our market area.  Deposits totaled $155.0 million at June 30, 2005, an increase of $56.3 million or 57.0%, over the $98.8 million total at June 30, 2004.  Deposits obtained in the acquisition of Frankfort First totaled $71.5 million.  Although management generally strives to maintain a moderate rate of growth in deposits, primarily through marketing and pricing strategies, we historically have not engaged in sporadic increases and decreases in interest rates on deposits.  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,    |        
|------------------------------------------------- |  | ---------------- | -------
|                                                  |  |                  |        
|                                                  |  | 2005             |        
|                                                  |  |                  |        
|                                                  |  | (In   thousands) |        
|Certificate of deposit accounts                   |  | $                | 96,771 
|Demand, transaction and passbook savings accounts |  |                  | 58,273 
|                                                  |  |                  |        
|Total                                             |  | $                | 155,044
|                                                  |  |                  |        

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, 2005.

|Maturity Period                       |  | Certificates   of Deposit |       
|------------------------------------- |  | ------------------------- | ------
|                                      |  |                           |       
|                                      |  | (In   thousands)          |       
|Three months or less                  |  | $                         | 4,351 
|Over three months through six months  |  |                           | 4,047 
|Over six months through twelve months |  |                           | 5,348 
|Over twelve months                    |  |                           | 4,254 
|                                      |  |                           |       
|Total                                 |  | $                         | 18,000
|                                      |  |                           |       

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

|              |  | At June   30,    |       
|------------- |  | ---------------- | ------
|              |  |                  |       
|              |  | 2005             |       
|              |  |                  |       
|              |  | (In   thousands) |       
|Rate          |  |                  |       
|1.00 -  1.99% |  |                  | 12,939
|2.00 -  2.99  |  |                  | 41,977
|3.00 -  3.99  |  |                  | 29,884
|4.00 -  4.99  |  |                  | 9,771 
|5.00 -  5.99  |  |                  | 1,838 
|6.00 -  6.99  |  |                  | 75    
|7.00 - 7.99   |  |                  | 287   
|8.00 - 8.99   |  |                  |      
|9.00 - 9.99   |  |                  |      
|              |  |                  |       
|Total         |  |                  | 96,771
|              |  |                  |       

17



The following table sets forth the amount and maturities of certificate accounts at June 30, 2005.

|            |  | 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% |  | $                        | 12,928 |                                     | $ |                                           | 
|2.00  2.99 |  |                          | 35,910 |                                     |   | 5,339                                      | 
|3.00  3.99 |  |                          | 15,566 |                                     |   | 10,138                                     | 
|4.00  4.99 |  |                          | 4,732  |                                     |   | 785                                        | 
|5.00  5.99 |  |                          | 470    |                                     |   | 60                                         | 
|6.00  6.99 |  |                          | 72     |                                     |   | 2                                          | 
|7.00  7.99 |  |                          | 288    |                                     |   |                                           | 
|            |  |                          |        |                                     |   |                                            | 
|Total       |  | $                        | 69,966 |                                     | $ | 16,324                                     | 
|            |  |                          |        |                                     |   |                                            | 

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

|                           |  | Year Ended June 30,      |       
|-------------------------- |  | ------------------------ | ------
|                           |  |                          |       
|                           |  | 2005                     |       
|                           |  |                          |       
|                           |  | Average   Balance        |       
|                           |  |                          |       
|                           |  | (Dollars   in thousands) |       
|Noninterest-Bearing Demand |  | $                        | 217   
|Interest-Bearing Demand    |  |                          | 3,976 
|Passbook                   |  |                          | 50,076
|Time                       |  |                          | 69,880

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

|                                             |  | Year Ended June 30, |        
|-------------------------------------------- |  | ------------------- | -------
|                                             |  |                     |        
|                                             |  | 2005                |        
|                                             |  |                     |        
|                                             |  | (In   thousands)    |        
|Beginning balance                            |  | $                   | 98,751 
|Increase (decrease) before interest credited |  |                     | 53,843 
|Interest credited                            |  |                     | 2,450  
|                                             |  |                     |        
|Net increase (decrease) in deposits          |  |                     | 56,293 
|                                             |  |                     |        
|Ending balance                               |  | $                   | 155,044
|                                             |  |                     |        

Borrowings.  Advances from the Federal Home Loan Bank of Cincinnati amounted to $51.0 million and $9.0 million at June 30, 2005 and 2004, respectively.  A total of $43.3 million in advances was added with the acquisition of Frankfort First, including premium on borrowings of $2.8 million.

18



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,      |       
|--------------------------------------------------------------------------- |  | ------------------------ | ------
|                                                                            |  |                          |       
|                                                                            |  | 2005                     |       
|                                                                            |  |                          |       
|                                                                            |  | (Dollars   in thousands) |       
|Balance outstanding at end of period                                        |  | $                        | 50,985
|Maximum amount of advances outstanding at any month   end during the period |  | $                        | 52,291
|Average advances outstanding during the period                              |  | $                        | 23,631
|Weighted average interest rate during the period                            |  |                          | 3.82  
|Weighted average interest rate at end of period                             |  |                          | 4.22  

Shareholders Equity.  Shareholders equity totaled $65.9 million at June 30, 2005, a $34.9 million or 112.4%, increase over June 30, 2004.  The increase resulted from the sale of $33.4 million of common shares in the reorganization coupled with net earnings of $1.6 million and a $190,000 decrease in the unrealized losses on securities designated as available for sale.  Such increases were partially offset by dividends of $353,000.

We are required to maintain minimum regulatory capital pursuant to federal regulations.  At June 30, 2005, 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, 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, and 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%.

19



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 $23.1 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.

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,      |        
|------------------------------------------------------------------------- |  | ------------------------ | -------
|                                                                          |  |                          |        
|                                                                          |  | 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 (1)                                                  |  |                          | 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) At June 30, 2004, consists of only retained   earnings

20



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.Other operating income increased $251,000, to $272,000 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.  This reversal of expense was unusual and, as a result, other operating income will be considerably less for the foreseeable future.  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 related to the normal expenses of Frankfort First and for four months additional recurring expenses for the Company.  Those increased expenses include regulatory assessments for supervision purposes, auditing and accounting, supplies and legal expense.

21



Federal Income Tax.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 117.2%.  Effective tax rates for the years ended June 30, 2005 and 2004 were 34.9% and 34.0%, respectively.

Results of Operations for the Years Ended June 30, 2004 and 2003

General.Our net earnings totaled $761,000 for the fiscal year ended June 30, 2004, a decrease of $289,000, or 27.5%, from the $1.1 million of net earnings recorded for the fiscal year ended June 30, 2003.  The decrease in net earnings was primarily attributable to a decrease in other income of $332,000 and an increase in general, administrative and other expense of $629,000, which were partially offset by an increase in net interest income of $467,000, a decrease in the provision for losses on loans of $56,000 and a decrease in the provision for federal income taxes of $149,000.

Interest Income.Total interest income for the fiscal year ended June 30, 2004 totaled $5.6 million, a decrease of $712,000, or 11.3%, compared to the fiscal year ended June 30, 2003.  The decrease in interest income primarily reflects the impact of a decrease of 51 basis points in the average yield on interest-earning assets, from 4.71% for fiscal 2003 to 4.20% for fiscal 2004.

Interest income on loans decreased by $847,000, or 23.3%, for the fiscal year ended June 30, 2004, compared to fiscal 2003, due primarily to a $9.9 million, or 20.9%, decrease in the average balance of loans outstanding and a decrease of 23 basis points in the average yield on loans to 7.42% for fiscal 2004.  Interest income on mortgage-backed securities increased by $337,000 during the fiscal year ended June 30, 2004, due primarily to a $7.7 million increase in the average balance outstanding, which was partially offset by a decrease in the average yield of 173 basis points from fiscal 2003.  Interest income on investment securities increased by $25,000, or 1.2%, during the fiscal year ended June 30, 2004, due primarily to a $12.9 million, or 23.4%, increase in the average balance outstanding, which was partially offset by a decrease in the average yield of 71 basis points from
fiscal 2003.  Interest income on other interest-earning assets decreased by $227,000, or 50.9%, during the fiscal year ended June 30, 2004.  The decrease was due primarily to a decrease of $11.3 million, or 37.2%, in the average balance outstanding from fiscal 2003 and a 32 basis point decrease in the average yield year to year.

Interest Expense.Interest expense totaled $2.2 million for the fiscal year ended June 30, 2004, a decrease of $1.2 million, or 34.7%, from interest expense of $3.4 million for fiscal 2003.  The decrease resulted from a 110 basis point decrease in the average cost of funds, to 2.16% for fiscal 2004, and a $1.4 million, or 1.3%, decrease in the average balance of deposits and borrowings outstanding for the fiscal year ended June 30, 2004.  Interest expense on deposits totaled $2.2 million for the fiscal year ended June 30, 2004, a decrease of $1.2 million, or 36.3%, from fiscal 2003.  This decrease was a result of a 112 basis point decrease in the average cost of deposits to 2.14% for fiscal 2004, and a decrease in the average balance of deposits outstanding of $3.3 million, or 3.2%, for fiscal 2004.  Interest expense on borrowings totaled
$54,000 for the fiscal year ended June 30, 2004, an increase of $54,000 over fiscal 2003.  We had no borrowings outstanding during fiscal 2003, but took a $9.0 million Federal Home Loan Bank advance in fiscal 2004 to purchase approximately an equivalent amount of mortgage-backed securities with similar maturities to generate a net interest rate spread of 1.50%.  Decreases in yields on interest-earning assets and costs of interest-bearing liabilities during fiscal 2004 as compared to fiscal 2003 were due primarily to the overall decreases in interest rates in the economy.

Net Interest Income.  As a result of the foregoing changes in interest income and interest expense, net interest income increased by $467,000, or 16.0%, during the fiscal year ended June 30, 2004 compared to fiscal 2003.  The average interest rate spread increased to 2.04% for the fiscal year ended June 30, 2004 from 1.45% for fiscal 2003.  The net interest margin increased to 2.54% for the fiscal year ended June 30, 2004 from 2.18% for fiscal 2003.

22



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,      |        
|------------------------------------------------------------------------- |  | ------------------------ | -------
|                                                                          |  |                          |        
|                                                                          |  | 2004                     |        
|                                                                          |  |                          |        
|                                                                          |  | Average
Balance          |        
|                                                                          |  |                          |        
|                                                                          |  | (Dollars   in thousands) |        
|Interest-earning assets:                                                  |  |                          |        
|Loans receivable                                                          |  | $                        | 37,647 
|Mortgage-backed   securities                                              |  |                          | 8,625  
|Investment securities                                                     |  |                          | 68,048 
|Other interest-earning   assets                                           |  |                          | 19,020 
|                                                                          |  |                          |        
|Total interest-earning   assets                                           |  |                          | 133,340
|                                                                          |  |                          |        
|Noninterest-earning assets                                                |  |                          | 1,591  
|                                                                          |  |                          |        
|Total assets                                                              |  | $                        | 134,931
|                                                                          |  |                          |        
|Interest-bearing liabilities:                                             |  |                          |        
|Passbook deposits                                                         |  | $                        | 43,696 
|Certificates of deposit                                                   |  |                          | 57,292 
|Borrowings                                                                |  |                          | 1,940  
|                                                                          |  |                          |        
|Total interest-bearing   liabilities                                      |  |                          | 102,928
|                                                                          |  |                          |        
|Noninterest-bearing liabilities                                           |  |                          | 785    
|                                                                          |  |                          |        
|Total liabilities                                                         |  |                          | 103,713
|Retained earnings                                                         |  |                          | 31,218 
|                                                                          |  |                          |        
|Total liabilities and   retained earnings                                 |  | $                        | 134,931
|                                                                          |  |                          |        
|Net interest income/average yield                                         |  |                          |        
|                                                                          |  |                          |        
|Net interest margin                                                       |  |                          |        
|                                                                          |  |                          |        
|Average interest-earning assets to average   interest-bearing liabilities |  |                          |        
|                                                                          |  |                          |        

23



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, 2004   Compared   To Year Ended June 30, 2003 |     
|------------------------------------- |  | ------------------------------------------------------------------- | ----
|                                      |  |                                                                     |     
|                                      |  | Increase   (Decrease) Due to                                        |     
|                                      |  |                                                                     |     
|                                      |  | Volume                                                              |     
|                                      |  |                                                                     |     
|                                      |  | (In   thousands)                                                    |     
|Interest income:                      |  |                                                                     |     
|Loans receivable                      |  | $                                                                   | (740
|Mortgage-backed   securities          |  |                                                                     | 357 
|Investment securities                 |  |                                                                     | 455 
|Interest-bearing   deposits and other |  |                                                                     | (143
|                                      |  |                                                                     |     
|Total interest income                 |  |                                                                     | (71 
|                                      |  |                                                                     |     
|Interest expense:                     |  |                                                                     |     
|Passbook deposits                     |  |                                                                     | 67  
|Certificates of deposit               |  |                                                                     | (232
|Borrowings                            |  |                                                                     | 54  
|                                      |  |                                                                     |     
|Total interest expense                |  |                                                                     | (111
|                                      |  |                                                                     |     
|Increase in net interest income       |  | $                                                                   | 40  
|                                      |  |                                                                     |     

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 $10,000 for the fiscal year ended June 30, 2004, a decrease of $56,000 compared to fiscal 2003.  The provision recorded during the fiscal year ended June 30, 2004 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 2004. 
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).Other loss totaled $35,000 for the fiscal year ended June 30, 2004, compared to other income of $297,000 recorded for the fiscal year ended June 30, 2003.  The decrease was primarily attributable to a $269,000 reduction in gains on sales of securities and a $57,000 increase in losses on sales of real estate acquired through foreclosure.

General, Administrative and Other Expense.General, administrative and other expense totaled $2.2 million for the fiscal year ended June 30, 2004, an increase of $629,000, or 40.5%, compared to fiscal 2003.  The increase in general, administrative and other expense was due primarily to a $686,000, or 73.4%, increase in employee compensation and benefits, which was partially offset by a $40,000, or 23.3%, decrease in occupancy and equipment and a $38,000, or 12.2%, decrease in other operating expense.  The increase in employee compensation and benefits was comprised of a $580,000 increase in expense related to our participation in a multi-employer defined benefit pension plan.  This plan had been in an over-funded status for years prior to fiscal 2004, but became underfunded in fiscal 2004.  For the fiscal 2004 plan year, we contributed
approximately $582,000 toward the underfunded liability.  Additionally, during the year ended June 30, 2004, we adopted a deferred unfunded directors compensation plan for the benefit of two members of the board of directors, which provided for an immediately vested benefit of $50,000 each.  The decrease in occupancy and equipment was due primarily to a decrease in depreciation expense.  The decrease in other operating expense was due primarily to a $34,000 decrease in consulting expenses year to year, and a $10,000 reduction in expenses related to real estate acquired through foreclosure.

24



Federal Income Taxes.The provision for federal income taxes totaled $392,000 for the fiscal year ended June 30, 2004, a decrease of $149,000, or 27.5%, compared to the provision recorded for fiscal 2003.  The decrease resulted primarily from a $438,000, or 27.5%, decrease in pretax earnings.  The effective tax rate was 34.0% for each of the fiscal years ended June 30, 2004 and 2003.

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, 2005 and June 30, 2004, cash and cash equivalents totaled $8.4 million and $16.9 million respectively.  Investment securities classified as available-for-sale, which provide additional sources of liquidity, totaled $12.7 million and $12.4 million at June 30, 2005 and 2004, respectively.  At June 30, 2005, we had the ability to borrow a total $95.4 million from the FHLB, of which $48.4 million 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 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 2005, we originated $12.8 million of loans.  In fiscal 2004, we originated $5.0 million of loans and purchased $111.6 million of investment and mortgage-backed securities.  In fiscal 2003, we originated $7.0 million of loans and purchased $232.7 million of investment and mortgage-backed securities.  During fiscal 2005, these activities were funded primarily by proceeds from the principal repayments on loans of $13.5 million and maturities of investment securities and mortgage-backed securities of $1.9 million.  During fiscal 2004, these activities were funded primarily by the proceeds from maturities and sales of securities of $87.1 million, advances from the FHLB of $9.0 million and the proceeds from principal repayments on loans of $11.9 million.

Historically, our investment portfolio has been funded by excess liquidity as deposit inflows typically far exceed loan demand.

While financing activities consist primarily of activity in deposit accounts and in FHLB advances, 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 $15.2 million and $6.0 million for the years ended June 30, 2005 and 2004, respectively.  We experienced a net increase in total deposits of $2.1 million for the year ended June 30, 2003.  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.  We generally manage the pricing of our deposits to be competitive and to increase core deposit relationships.

25



Commitments and Contractual Obligations

At June 30, 2005, we had $530,000 in mortgage commitments.  Certificates of deposit due within one year of June 30, 2005 totaled $70.0 million, or 45.1% of total deposits.  If these deposits do not remain with us, we might be required to seek other sources of funds, including 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, 2005.  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, 2005.

|                                           |  | Total   Amounts
Committed |        | Less   Than   One Year |   | One to   Three   Years |  | Four to
Six   Years |      
|------------------------------------------ |  | ------------------------- | ------ | ---------------------- | - | ---------------------- |  | ------------------- | -----
|                                           |  |                           |        |                        |   |                        |  |                     |      
|                                           |  | (In   thousands)          |       
|Federal Home Loan Bank advances (1)        |  | $                         | 48,411 |                        | $ | 3,563                  |  | $                   | 6,048
|One to four family residential real estate |  |                           | 530    |                        |   | 530                    |  |                     |     
|Unused lines of credit                     |  |                           | 8,363  |                        |   | 8,363                  |  |                     |     
|Undisbursed loans                          |  |                           | 1,016  |                        |   | 1,016                  |  |                     |     
|                                           |  |                           |        |                        |   |                        |  |                     |      
|Total commitments                          |  | $                         | 58,320 |                        | $ | 13,472                 |  | $                   | 6,048
|                                           |  |                           |        |                        |   |                        |  |                     |      

| |    
| | ---
| | (1)

Off-Balance Sheet Arrangements

In the normal course of operations, we engage in a variety of financial transactions that, in accordance with generally accepted accounting principles, are not recorded in our financial statements.  These transactions involve, to varying degrees, elements of credit, interest rate, and liquidity risk.  Such transactions are used primarily to manage customers requests for funding and take the form of loan commitments and amounts due mortgagors on construction loans.  See note I of the notes to the financial statements.

For the year ended June 30, 2005, 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 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.

26



Impact of Recent Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (Statement No. 123R), which requires entities 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).  The cost is recognized over the period during which the employee is required to provide service in exchange for the award, which is usually the vesting period.  As a public company and assuming the Companys stock option plan is approved, Kentucky First would be required to adopt Statement No. 123R in its first annual reporting period beginning after June 15, 2005 (i.e., the quarter beginning July 1, 2006).  For stock option awards, Kentucky First would recognize the
grant-date fair value of the options as compensation expense on a straight-line basis over the applicable vesting period.  This accounting treatment differs significantly from the previous accounting for fixed stock options under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, which generally required expense recognition only when the exercise price of the option was less than the market price of the underlying stock on the grant date.  As required by Statement No. 123R, Kentucky First would estimate the fair value of its stock options on each grant date, using an appropriate valuation approach such as the Black-Scholes model.  Statement No. 123R did not change existing accounting principles applicable to employee stock ownership plans.  The effects of Statement No. 123R on the Companys results of operations cannot be determined until the stock option plan is approved and options are granted.

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, 2005 and 2004, 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, 2005.  These consolidated financial statements are the responsibility of the Corporation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 Corporation 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 Corporation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, 2005 and 2004, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2005, in conformity with accounting principles generally accepted in the United States of America.

s\s\ Grant Thornton LLP

Cincinnati, Ohio September 1, 2005

28



KENTUCKY FIRST FEDERAL BANCORP

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

June 30, 2005 and 2004 (In thousands, except share data)

|                                                                                                                                                         |  | 2005 |         | 2004 |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | ---- | -
|                                                                                                                                                         |  |      |         |      |  
|ASSETS                                                                                                                                                   |  |      |         |      |  
|Cash and due from banks                                                                                                                                  |  | $    | 1,060   |      | $
|Federal funds sold                                                                                                                                       |  |      |        |      |  
|Interest-bearing deposits in other financial   institutions                                                                                              |  |      | 7,298   |      |  
|                                                                                                                                                         |  |      |         |      |  
|Cash and cash   equivalents                                                                                                                              |  |      | 8,358   |      |  
|Investment securities available for sale  at market                                                                                                     |  |      | 12,686  |      |  
|Investment securities held to maturity, at amortized   cost-approximate fair value of $49,944 and $49,401 at June 30, 2005 and   2004, respectively      |  |      | 50,942  |      |  
|Mortgage-backed securities available for sale - at   market                                                                                              |  |      | 1,861   |      |  
|Mortgage-backed securities held to maturity, at   amortized cost-approximate fair value of $21,168 and $22,103 at June 30,   2005 and 2004, respectively |  |      | 21,347  |      |  
|Loans receivable  net                                                                                                                                   |  |      | 151,712 |      |  
|Real estate acquired through foreclosure - net                                                                                                           |  |      | 60      |      |  
|Office premises and equipment - at depreciated cost                                                                                                      |  |      | 2,977   |      |  
|Federal Home Loan Bank stock - at cost                                                                                                                   |  |      | 4,981   |      |  
|Accrued interest receivable                                                                                                                              |  |      | 916     |      |  
|Bank-owned life insurance                                                                                                                                |  |      | 2,095   |      |  
|Goodwill and other intangible assets - net                                                                                                               |  |      | 15,398  |      |  
|Prepaid expenses and other assets                                                                                                                        |  |      | 211     |      |  
|Prepaid federal income taxes                                                                                                                             |  |      | 371     |      |  
|Deferred federal income taxes                                                                                                                            |  |      |        |      |  
|                                                                                                                                                         |  |      |         |      |  
|Total assets                                                                                                                                             |  | $    | 273,915 |      | $
|                                                                                                                                                         |  |      |         |      |  
|LIABILITIES   AND SHAREHOLDERS EQUITY                                                                                                                   |  |      |         |      |  
|Deposits                                                                                                                                                 |  | $    | 155,044 |      | $
|Advances from the Federal Home Loan Bank                                                                                                                 |  |      | 50,985  |      |  
|Advances by borrowers for taxes and insurance                                                                                                            |  |      | 332     |      |  
|Accrued interest payable                                                                                                                                 |  |      | 177     |      |  
|Deferred federal income taxes                                                                                                                            |  |      | 384     |      |  
|Other liabilities                                                                                                                                        |  |      | 1,054   |      |  
|                                                                                                                                                         |  |      |         |      |  
|Total liabilities                                                                                                                                        |  |      | 207,976 |      |  
|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 at June 30, 2005                                                   |  |      | 86      |      |  
|Additional paid-in   capital                                                                                                                             |  |      | 36,714  |      |  
|Retained earnings -   restricted                                                                                                                         |  |      | 32,719  |      |  
|Less shares acquired by   Employee Stock Ownership Plan                                                                                                  |  |      | (3,370  | )    |  
|Accumulated   comprehensive loss, unrealized losses on securities designated as available   for sale - net of related tax benefits                       |  |      | (210    | )    |  
|                                                                                                                                                         |  |      |         |      |  
|Total shareholders   equity                                                                                                                             |  |      | 65,939  |      |  
|                                                                                                                                                         |  |      |         |      |  
|Total liabilities and   shareholders equity                                                                                                             |  | $    | 273,915 |      | $
|                                                                                                                                                         |  |      |         |      |  

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, 2005, 2004 and 2003 (In thousands, except share data)

|                                                           |  | 2005 |       | 2004 |   | 2003  |  
|---------------------------------------------------------- |  | ---- | ----- | ---- | - | ----- | -
|                                                           |  |      |       |      |   |       |  
|Interest income                                            |  |      |       |      |   |       |  
|Loans                                                      |  | $    | 4,592 |      | $ | 2,794 |  
|Mortgage-backed   securities                               |  |      | 982   |      |   | 396   |  
|Investment securities                                      |  |      | 2,123 |      |   | 2,192 |  
|Interest-bearing   deposits and other                      |  |      | 456   |      |   | 219   |  
|                                                           |  |      |       |      |   |       |  
|Total interest income                                      |  |      | 8,153 |      |   | 5,601 |  
|Interest expense                                           |  |      |       |      |   |       |  
|Deposits                                                   |  |      | 2,450 |      |   | 2,166 |  
|Borrowings                                                 |  |      | 903   |      |   | 54    |  
|                                                           |  |      |       |      |   |       |  
|Total interest expense                                     |  |      | 3,353 |      |   | 2,220 |  
|                                                           |  |      |       |      |   |       |  
|Net interest income                                        |  |      | 4,800 |      |   | 3,381 |  
|Provision for losses on loans                              |  |      | 53    |      |   | 10    |  
|                                                           |  |      |       |      |   |       |  
|Net interest income   after provision for losses on loans  |  |      | 4,747 |      |   | 3,371 |  
|Other income (loss)                                        |  |      |       |      |   |       |  
|Gain on sale of   investment securities                    |  |      |      |      |   | 5     |  
|Loss on sale of real   estate acquired through foreclosure |  |      | (9    | )    |   | (61   | )
|Other operating                                            |  |      | 272   |      |   | 21    |  
|                                                           |  |      |       |      |   |       |  
|Total other income   (loss)                                |  |      | 263   |      |   | (35   | )
|General, administrative and other expense                  |  |      |       |      |   |       |  
|Employee compensation   and benefits                       |  |      | 1,688 |      |   | 1,620 |  
|Occupancy and equipment                                    |  |      | 210   |      |   | 132   |  
|Franchise and other   taxes                                |  |      | 104   |      |   | 83    |  
|Data processing                                            |  |      | 67    |      |   | 32    |  
|Charitable   contributions                                 |  |      | 15    |      |   | 42    |  
|Other operating                                            |  |      | 425   |      |   | 274   |  
|                                                           |  |      |       |      |   |       |  
|Total general,   administrative and other expense          |  |      | 2,509 |      |   | 2,183 |  
|                                                           |  |      |       |      |   |       |  
|Earnings before income   taxes                             |  |      | 2,501 |      |   | 1,153 |  
|Federal income taxes                                       |  |      |       |      |   |       |  
|Current                                                    |  |      | 309   |      |   | 364   |  
|Deferred                                                   |  |      | 563   |      |   | 28    |  
|                                                           |  |      |       |      |   |       |  
|Total federal income   taxes                               |  |      | 872   |      |   | 392   |  
|                                                           |  |      |       |      |   |       |  
|NET EARNINGS                                               |  | $    | 1,629 |      | $ | 761   |  
|                                                           |  |      |       |      |   |       |  
|EARNINGS PER SHARE                                         |  |      |       |      |   |       |  
|Basic                                                      |  |      | N/A   |      |   | N/A   |  
|                                                           |  |      |       |      |   |       |  
|Diluted                                                    |  |      | N/A   |      |   | 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, 2005, 2004 and 2003 (In thousands)

|                                                                                                                                                             |  | 2005 |       | 2004 |   | 2003 |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---- | ----- | ---- | - | ---- | -
|                                                                                                                                                             |  |      |       |      |   |      |  
|Net earnings                                                                                                                                                 |  | $    | 1,629 |      | $ | 761  |  
|Other comprehensive income, net of tax:                                                                                                                      |  |      |       |      |   |      |  
|Unrealized holding   gains (losses) on securities during the year, net of taxes (benefits) of $98,   $(204) and $93 in 2005, 2004 and 2003, respectively     |  |      | 190   |      |   | (397 | )
|Reclassification adjustment for realized gains   included in earnings, net of taxes of $2 and $93 for the years ended June 30,   2004 and 2003, respectively |  |      |      |      |   | (3   | )
|                                                                                                                                                             |  |      |       |      |   |      |  
|Comprehensive income                                                                                                                                         |  | $    | 1,819 |      | $ | 361  |  
|                                                                                                                                                             |  |      |       |      |   |      |  
|Accumulated comprehensive loss                                                                                                                               |  | $    | (210  | )    | $ | (400 | )
|                                                                                                                                                             |  |      |       |      |   |      |  

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, 2005, 2004 and 2003 (In thousands, except share data)

|                                                                                                                              |  | Common   stock |    | Additional   paid-in   capital |   | Retained   earnings |  | Less   unearned   ESOP   shares |        | Unrealized   gains (losses)   on securities   designated   as available   for sale |   | Total  |  
|----------------------------------------------------------------------------------------------------------------------------- |  | -------------- | -- | ------------------------------ | - | ------------------- |  | ------------------------------- | ------ | ---------------------------------------------------------------------------------- | - | ------ | -
|                                                                                                                              |  |                |    |                                |   |                     |  |                                 |        |                                                                                    |   |        |  
|Balance at July 1, 2002                                                                                                       |  | $              |   |                                | $ |                    |  | $                               | 29,632 |                                                                                    | $ |       |  
|Net earnings for the year ended June 30, 2003                                                                                 |  |                |   |                                |   |                    |  |                                 | 1,050  |                                                                                    |   |       |  
|                                                                                                                              |  |                |    |                                |   |                     |  |                                 |        |                                                                                    |   |        |  
|Balance at June 30, 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 benefits                               |  |                |   |                                |   |                    |  |                                 |       |                                                                                    |   |       |  
|                                                                                                                              |  |                |    |                                |   |                     |  |                                 |        |                                                                                    |   |        |  
|Balance at June 30, 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 | )
|                                                                                                                              |  |                |    |                                |   |                     |  |                                 |        |                                                                                    |   |        |  

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, 2005, 2004 and 2003 (In thousands)

|                                                                                                  |  | 2005 |         | 2004 |   | 2003    |  
|------------------------------------------------------------------------------------------------- |  | ---- | ------- | ---- | - | ------- | -
|                                                                                                  |  |      |         |      |   |         |  
|Cash flows from operating activities:                                                             |  |      |         |      |   |         |  
|Net earnings for the   year                                                                       |  | $    | 1,629   |      | $ | 761     |  
|Adjustments to   reconcile net earnings to net cash provided by (used in) operating   activities: |  |      |         |      |   |         |  
|Amortization of   premiums and discounts on investment securities - net                           |  |      | 4       |      |   | (6      | )
|Depreciation                                                                                      |  |      | 106     |      |   | 81      |  
|Amortization of   deferred loan origination fees                                                  |  |      | (34     | )    |   | (87     | )
|Amortization of   purchase accounting adjustments - net                                           |  |      | (139    | )    |   |        |  
|Gain on sale of   investment securities                                                           |  |      |        |      |   | (5      | )
|Loss on sale of real   estate acquired through foreclosure                                        |  |      | 9       |      |   | 61      |  
|Federal Home Loan Bank   stock dividends                                                          |  |      | (151    | )    |   | (71     | )
|Provision for losses on   loans                                                                   |  |      | 53      |      |   | 10      |  
|Mortgage loans   originated for sale                                                              |  |      | (520    | )    |   |        |  
|Proceeds from sale of   mortgage loans                                                            |  |      | 519     |      |   |        |  
|Increase (decrease) in   cash due, net of acquisition of Frankfort First Federal Bancorp:         |  |      |         |      |   |         |  
|Accrued interest   receivable                                                                     |  |      | 18      |      |   | (98     | )
|Prepaid expenses and   other assets                                                               |  |      | 125     |      |   | 32      |  
|Accrued interest   payable                                                                        |  |      | (190    | )    |   |        |  
|Accounts payable and   other liabilities                                                          |  |      | (544    | )    |   | 398     |  
|Federal income taxes                                                                              |  |      |         |      |   |         |  
|Current                                                                                           |  |      | (313    | )    |   | (84     | )
|Deferred                                                                                          |  |      | 563     |      |   | 28      |  
|                                                                                                  |  |      |         |      |   |         |  
|Net cash provided by   operating activities                                                       |  |      | 1,135   |      |   | 1,020   |  
|Cash flows provided by (used in) investing activities:                                            |  |      |         |      |   |         |  
|Investment securities   available for sale:                                                       |  |      |         |      |   |         |  
|Sales                                                                                             |  |      |        |      |   | 7,002   |  
|Purchases                                                                                         |  |      |        |      |   | (5,997  | )
|Investment securities   held to maturity:                                                         |  |      |         |      |   |         |  
|Maturities, prepayments   and calls                                                               |  |      |        |      |   | 56,981  |  
|Purchases                                                                                         |  |      |        |      |   | (59,973 | )
|Mortgage-backed   securities available for sale:                                                  |  |      |         |      |   |         |  
|Sales                                                                                             |  |      |        |      |   | 22,352  |  
|Maturities, prepayments   and calls                                                               |  |      | 307     |      |   |        |  
|Purchases                                                                                         |  |      |        |      |   | (22,352 | )
|Mortgage-backed   securities held to maturity:                                                    |  |      |         |      |   |         |  
|Maturities, prepayments   and calls                                                               |  |      | 1,633   |      |   | 727     |  
|Purchases                                                                                         |  |      |        |      |   | (23,323 | )
|Loan disbursements                                                                                |  |      | (12,273 | )    |   | (4,958  | )
|Principal repayments on   loans                                                                   |  |      | 13,450  |      |   | 11,882  |  
|Increase in cash   surrender value of bank-owned life insurance                                   |  |      | (25     | )    |   |        |  
|Proceeds from sale of   real estate acquired through foreclosure                                  |  |      | 118     |      |   | 224     |  
|Purchase of office   premises and equipment                                                       |  |      | (65     | )    |   | (39     | )
|Purchase of Frankfort   First Federal Bancorp, net of cash received                               |  |      | (8,923  | )    |   |        |  
|                                                                                                  |  |      |         |      |   |         |  
|Net cash provided by   (used in) investing activities                                             |  |      | (5,778  | )    |   | (17,474 | )
|Cash flows provided by (used in) financing   activities:                                          |  |      |         |      |   |         |  
|Net increase (decrease)   in deposits                                                             |  |      | (15,220 | )    |   | (6,033  | )
|Advances by borrowers   for taxes and insurance                                                   |  |      | 215     |      |   |        |  
|Proceeds from Federal   Home Loan Bank advances                                                   |  |      |        |      |   | 9,000   |  
|Repayments on Federal   Home Loan Bank advances                                                   |  |      | (1,223  | )    |   |        |  
|Cash proceeds from   issuance of common stock, net                                                |  |      | 12,720  |      |   |        |  
|Dividends paid on   common stock                                                                  |  |      | (353    | )    |   |        |  
|                                                                                                  |  |      |         |      |   |         |  
|Net cash provided by   (used in) financing activities                                             |  |      | (3,861  | )    |   | 2,967   |  
|                                                                                                  |  |      |         |      |   |         |  
|Net increase (decrease) in cash and cash equivalents                                              |  |      | (8,504  | )    |   | (13,487 | )
|Cash and cash equivalents at beginning of year                                                    |  |      | 16,862  |      |   | 30,349  |  
|                                                                                                  |  |      |         |      |   |         |  
|Cash and cash equivalents at end of year                                                          |  | $    | 8,358   |      | $ | 16,862  |  
|                                                                                                  |  |      |         |      |   |         |  

33



KENTUCKY FIRST FEDERAL BANCORP

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

For the years ended June 30, 2005, 2004 and 2003 (In thousands)

|                                                                                                       |  | 2005 |         | 2004 |   | 2003  |  
|------------------------------------------------------------------------------------------------------ |  | ---- | ------- | ---- | - | ----- | -
|                                                                                                       |  |      |         |      |   |       |  
|Supplemental disclosure of cash flow information:                                                      |  |      |         |      |   |       |  
|Cash paid during the   year for:                                                                       |  |      |         |      |   |       |  
|Federal income taxes                                                                                   |  | $    | 460     |      | $ | 450   |  
|                                                                                                       |  |      |         |      |   |       |  
|Interest on deposits   and borrowings                                                                  |  | $    | 3,342   |      | $ | 2,270 |  
|                                                                                                       |  |      |         |      |   |       |  
|Supplemental disclosure of   noncash investing activities:                                             |  |      |         |      |   |       |  
|Transfers from loans to real estate acquired through foreclosure                                       |  | $    | 206     |      | $ | 171   |  
|                                                                                                       |  |      |         |      |   |       |  
|Loans disbursed upon sales of real estate acquired through foreclosure                                 |  | $    | 19      |      | $ | 70    |  
|                                                                                                       |  |      |         |      |   |       |  
|Unrealized gains (losses) on securities designated as available for   sale, net of related tax effects |  | $    | 190     |      | $ | (397  | )
|                                                                                                       |  |      |         |      |   |       |  
|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, 2005, 2004 and 2003

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 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, 2005, 2004 and 2003

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.

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.

5.     Allowance for Loan Losses

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.  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.

36



KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2005, 2004 and 2003

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

5.     Allowance for Loan Losses (continued)

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.

For fiscal years ended  June 30, 2005,  2004 and 2003  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.

7.     Office Premises and Equipment

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

37



KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2005, 2004 and 2003

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

8.     Federal Income Taxes (continued)

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, deferred compensation, and the recapture of percentage of earnings bad debt deductions.  Additional temporary differences result from depreciation computed using accelerated methods for tax purposes.

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 $190,000, $590,000 and $2,000 for the fiscal years ended June 30, 2005, 2004 and 2003.

The Company also maintains deferred unfunded compensation plans for the benefit of certain directors.  While no expense was recognized by the Company for the fiscal years ended June 30, 2005 and 2003, the Company recognized expense under this plan for the fiscal year ended June 30, 2004, of $100,000.

In connection with the reorganization to stock form, First Federal of Hazard implemented an Employee Stock Ownership Plan (ESOP) which provided for the purchase of 337,000 common shares in the Companys conversion offering.  The Company recognized expense under the ESOP of $93,000 for the fiscal year ended June 30, 2005.

10.     Earnings Per Share

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.     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.

38



KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2005, 2004 and 2003

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

11.     Fair Value of Financial Instruments (continued)

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, 2005 and 2004:

| | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | Certificates of deposit in other financial   institutions:  The   carrying amounts presented in the consolidated statements of financial   condition for interest-bearing deposits in other financial institutions are   deemed to approximate fair value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | Investment and mortgage-backed securities:  For investment and mortage-backed 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | 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.                                                                                                                                                                                                                                                                                                                                                 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | 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, 2005   and 2004, was not material.                                                                                                                                                                                                                                                                                                                                                                                                                                                             

39



KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2005, 2004 and 2003

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

11.     Fair Value of Financial Instruments (continued)

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:

|                                                |  | 2005              |         | 2004          |  
|----------------------------------------------- |  | ----------------- | ------- | ------------- | -
|                                                |  |                   |         |               |  
|                                                |  | Carrying    value |         | Fair    value |  
|                                                |  |                   |         |               |  
|                                                |  | (In   thousands)  |        
|Financial assets                                |  |                   |         |               |  
|Cash and cash   equivalents                     |  | $                 | 8,358   |               | $
|Investment securities   available for sale      |  |                   | 12,686  |               |  
|Investment securities   held to maturity        |  |                   | 50,942  |               |  
|Mortgage-backed   securities available for sale |  |                   | 1,861   |               |  
|Mortgage-backed   securities held to maturity   |  |                   | 21,347  |               |  
|Loans receivable - net                          |  |                   | 151,712 |               |  
|Federal Home Loan Bank   stock                  |  |                   | 4,981   |               |  
|Accrued interest   receivable                   |  |                   | 916     |               |  
|                                                |  |                   |         |               |  
|                                                |  | $                 | 252,803 |               | $
|                                                |  |                   |         |               |  
|Financial liabilities                           |  |                   |         |               |  
|Deposits                                        |  | $                 | 155,044 |               | $
|Advances from the   Federal Home Loan Bank      |  |                   | 50,984  |               |  
|Accrued interest   payable                      |  |                   | 177     |               |  
|                                                |  |                   |         |               |  
|                                                |  | $                 | 206,205 |               | $
|                                                |  |                   |         |               |  

12.     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.

13.     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 has assigned $14.5 million of goodwill to the Banks as the reporting units which are expected to benefit from the goodwill.

The Company evaluated the goodwill in April 2005 via independent third-party appraisal.  The evaluation showed no indication of impairment.  In addition to goodwill, the Company had assigned $918,000 to a core deposit intangible.  This intangible asset is being amortized over the estimated life of the acquired deposit base.  At June 30, 2005, the amortized cost of the core deposit intangible was $874,000.

40



KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2005, 2004 and 2003

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

14.     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.

15.     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 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.

The Company plans on submitting an option plan to the shareholders for approval at the Annual Meeting in November 2005.  If the option plan is approved and the Board proceeds to grant options, then the Company will be subject to SFAS No. 123(R) for the fiscal year ending June 30, 2007.

41



KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2005, 2004 and 2003

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

16.     Reclassifications

Certain prior year amounts have been reclassified to conform to the 2005 consolidated financial statement presentation.

NOTE B  INVESTMENT AND MORTGAGE-BACKED SECURITIES

The amortized cost, gross unrealized gains, gross unrealized losses and estimated fair values of investments and mortgage-backed securities at June 30, 2005 and 2004 are summarized as follows:

|                                               |  | 2005              |       
|---------------------------------------------- |  | ----------------- | ------
|                                               |  |                   |       
|                                               |  | Amortized    cost |       
|                                               |  |                   |       
|                                               |  | (In   thousands)  |       
|Investment   securities available for sale     |  |                   |       
|U.S. Government agency   securities            |  | $                 | 12,998
|                                               |  |                   |       
|Investment   securities held to maturity       |  |                   |       
|U.S. Government agency   securities            |  | $                 | 50,842
|Certificates of deposit                        |  |                   | 100   
|                                               |  |                   |       
|Total investment   securities held to maturity |  | $                 | 50,942
|                                               |  |                   |       

|                                           |  | 2004             |       
|------------------------------------------ |  | ---------------- | ------
|                                           |  |                  |       
|                                           |  | Amortized   cost |       
|                                           |  |                  |       
|                                           |  | (In   thousands) |       
|Investment   securities available for sale |  |                  |       
|U.S. Government agency   securities        |  | $                | 12,998
|                                           |  |                  |       
|Investment   securities held to maturity   |  |                  |       
|U.S. Government agency   securities        |  | $                | 50,840
|                                           |  |                  |       

At June 30, 2005, virtually all of the Companys investment securities were in an unrealised loss position for more than twelve months.  At June 30, 2004, $59.7 million of the companys $63.2 million in investment securities was in an unrealised loss for more than twelve months.

Management has the intent and ability to hold these securities to maturity. The fair values are expected to recover as the securities approach maturity.

42



KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2005, 2004 and 2003

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

The amortized cost and estimated fair value of investment securities as of June 30, 2005 and 2004, 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.

|                                     |  | 2005                     |        | 2004             |  
|------------------------------------ |  | ------------------------ | ------ | ---------------- | -
|                                     |  |                          |        |                  |  
|                                     |  | Estimated   fair   value |        | Amortized   cost |  
|                                     |  |                          |        |                  |  
|                                     |  | (In   thousands)         |       
|Investments   available for sale     |  |                          |        |                  |  
|Due in one year through   five years |  | $                        | 12,686 |                  | $
|Due five years through   ten years   |  |                          |       |                  |  
|                                     |  |                          |        |                  |  
|Total                                |  | $                        | 12,686 |                  | $
|                                     |  |                          |        |                  |  
|Investments   held to maturity       |  |                          |        |                  |  
|Due in one year through   five years |  | $                        | 40,990 |                  | $
|Due five years through   ten years   |  |                          | 8,954  |                  |  
|Due in more than ten   years         |  |                          |       |                  |  
|                                     |  |                          |        |                  |  
|Total                                |  | $                        | 49,944 |                  | $
|                                     |  |                          |        |                  |  

While there were no sales of investment securities during the fiscal year ended June 30, 2005, proceeds from sales of investment securities during the fiscal years ended June 30, 2004 and 2003 totaled $7.0 million and $111.2 million, respectively, resulting in gross realized gains of $5,000 and $274,000, respectively.

The amortized cost, gross unrealized gains, gross unrealized losses and estimated fair value of mortgage-backed securities are as follows:

|                                                      |  | 2005             |       
|----------------------------------------------------- |  | ---------------- | ------
|                                                      |  |                  |       
|                                                      |  | Amortized   cost |       
|                                                      |  |                  |       
|                                                      |  | (In   thousands) |       
|Available   for sale                                  |  |                  |       
|FNMA                                                  |  | $                | 819   
|GNMA                                                  |  |                  | 1,048 
|                                                      |  |                  |       
|Total mortgage-backed   securities available for sale |  | $                | 1,867 
|                                                      |  |                  |       
|Held   to maturity                                    |  |                  |       
|FNMA                                                  |  | $                | 18,049
|FHLMC                                                 |  |                  | 3,147 
|GNMA                                                  |  |                  | 151   
|                                                      |  |                  |       
|Total mortgage-backed   securities held to maturity   |  | $                | 21,347
|                                                      |  |                  |       

43



KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2005, 2004 and 2003

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

|                                                    |  | 2004             |       
|--------------------------------------------------- |  | ---------------- | ------
|                                                    |  |                  |       
|                                                    |  | Amortized   cost |       
|                                                    |  |                  |       
|                                                    |  | (In   thousands) |       
|Held   to maturity                                  |  |                  |       
|FNMA                                                |  | $                | 20,417
|FHLMC                                               |  |                  | 2,342 
|GNMA                                                |  |                  | 224   
|                                                    |  |                  |       
|Total mortgage-backed   securities held to maturity |  | $                | 22,983
|                                                    |  |                  |       

The amortized cost of mortgage-backed securities as of June 30, 2005 and 2004, 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.

|                                                      |  | 2005             |        | 2004 |  
|----------------------------------------------------- |  | ---------------- | ------ | ---- | -
|                                                      |  |                  |        |      |  
|                                                      |  | (In   thousands) |       
|Available for sale                                    |  |                  |        |      |  
|Due   within five years                               |  | $                | 233    |      | $
|Due   five years through ten years                    |  |                  | 1,634  |      |  
|                                                      |  |                  |        |      |  
|Total   mortgage-backed securities available for sale |  | $                | 1,867  |      | $
|                                                      |  |                  |        |      |  
|Held to maturity                                      |  |                  |        |      |  
|Due   within five years                               |  | $                | 5,794  |      | $
|Due   five years through ten years                    |  |                  | 15,553 |      |  
|                                                      |  |                  |        |      |  
|Total   mortgage-backed securities held to maturity   |  | $                | 21,347 |      | $
|                                                      |  |                  |        |      |  

At June 30, 2005, the Companys
investment in FNMA mortgage-backed securities were in an unrealised loss
position for more than twelve months. Management has the intent and ability to
hold these securities to maturity. The fair value of the mortgage-backed
securities is expected to recover as the securities approach maturity.

44



KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2005, 2004 and 2003

NOTE C - LOANS RECEIVABLE

The composition of the loan portfolio at June 30 is as follows:

|                                          |  | 2005             |         | 2004 |  
|----------------------------------------- |  | ---------------- | ------- | ---- | -
|                                          |  |                  |         |      |  
|                                          |  | (In   thousands) |        
|Residential real estate                   |  |                  |         |      |  
|One-to-four family                        |  | $                | 134,117 |      | $
|Multi-family                              |  |                  | 321     |      |  
|Construction                              |  |                  | 1,925   |      |  
|Nonresidential real estate and land       |  |                  | 7,202   |      |  
|Loans on deposits                         |  |                  | 4,027   |      |  
|Consumer and other                        |  |                  | 6,024   |      |  
|                                          |  |                  |         |      |  
|                                          |  |                  | 153,616 |      |  
|Less:                                     |  |                  |         |      |  
|Undisbursed portion of   loans in process |  |                  | 1,016   |      |  
|Deferred loan   origination fees          |  |                  | 180     |      |  
|Allowance for loan   losses               |  |                  | 708     |      |  
|                                          |  |                  |         |      |  
|                                          |  | $                | 151,712 |      | $
|                                          |  |                  |         |      |  

The Banks lending efforts have historically focused on one-to-four family and multi-family residential real estate loans, which comprise approximately $134.4 million, or 88.6%, of the total loan portfolio at June 30, 2005, and $30.0 million, or 89.5%, of the total loan portfolio at June 30, 2004.  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 $1.2 million and $276,000 at June 30, 2005 and 2004, respectively.

45



KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2005, 2004 and 2003

NOTE D - ALLOWANCE FOR LOAN LOSSES

The activity in the allowance for loan losses is summarized as follows for the years ended June 30:

|                                            |  | 2005             |      | 2004 |   | 2003 |  
|------------------------------------------- |  | ---------------- | ---- | ---- | - | ---- | -
|                                            |  |                  |      |      |   |      |  
|                                            |  | (In   thousands) |     
|Balance at beginning of year                |  | $                | 665  |      | $ | 720  |  
|Allowance of Frankfort First at acquisition |  |                  | 133  |      |   |     |  
|Provision for losses on loans               |  |                  | 53   |      |   | 10   |  
|Charge-offs                                 |  |                  | (143 | )    |   | (65  | )
|                                            |  |                  |      |      |   |      |  
|Balance at end of year                      |  | $                | 708  |      | $ | 665  |  
|                                            |  |                  |      |      |   |      |  

As of June 30, 2005, 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 still accruing and non-accrual loans) totaled approximately $1.7 million, $1.2 million and $1.3 million at June 30, 2005, 2004 and 2003, respectively.

NOTE E - OFFICE PREMISES AND EQUIPMENT

Office premises and equipment at June 30 are comprised of the following:

|                                               |  | 2005             |       | 2004 |  
|---------------------------------------------- |  | ---------------- | ----- | ---- | -
|                                               |  |                  |       |      |  
|                                               |  | (In   thousands) |      
|Land                                           |  | $                | 860   |      | $
|Buildings and improvements                     |  |                  | 2,239 |      |  
|Furniture and equipment                        |  |                  | 1,120 |      |  
|Automobiles                                    |  |                  | 51    |      |  
|                                               |  |                  |       |      |  
|                                               |  |                  | 4,270 |      |  
|Less accumulated depreciation and amortization |  |                  | 1,293 |      |  
|                                               |  |                  |       |      |  
|                                               |  | $                | 2,977 |      | $
|                                               |  |                  |       |      |  

46



KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2005, 2004 and 2003

NOTE F - DEPOSITS

Deposits consist of the following major classifications at June 30:

|Deposit type and weighted-average interest rate |  | 2005           |         | 2004 |  
|----------------------------------------------- |  | -------------- | ------- | ---- | -
|                                                |  |                |         |      |  
|                                                |  | (In thousands) |        
|NOW accounts                                    |  |                |         |      |  
|2005 - 1.29%                                    |  | $              | 7,203   |      | $
|Passbook                                        |  |                |         |      |  
|2005 - 1.20%                                    |  |                | 46,753  |      |  
|2004 - 1.25%                                    |  |                |         |      |  
|Money market deposit accounts                   |  |                |         |      |  
|2005 - 2.05%                                    |  |                | 4,317   |      |  
|                                                |  |                |         |      |  
|Total demand, transaction and passbook deposits |  |                | 58,273  |      |  
|Certificates of deposit                         |  |                |         |      |  
|Original maturities of:                         |  |                |         |      |  
|Less than 12 months                             |  |                |         |      |  
|2005 - 1.82%                                    |  |                | 10,351  |      |  
|2004 - 1.48%                                    |  |                |         |      |  
|12 months to 24 months                          |  |                |         |      |  
|2005 - 2.76%                                    |  |                | 62,937  |      |  
|2004 - 2.23%                                    |  |                |         |      |  
|30 months to 36 months                          |  |                |         |      |  
|2005 - 3.61%                                    |  |                | 15,978  |      |  
|2004 - 3.48%                                    |  |                |         |      |  
|Over 36 months                                  |  |                |         |      |  
|2005 - 4.34%                                    |  |                | 7,505   |      |  
|2004 - 5.71%                                    |  |                |         |      |  
|                                                |  |                |         |      |  
|Total certificates of deposit                   |  |                | 96,771  |      |  
|                                                |  |                |         |      |  
|Total deposit accounts                          |  | $              | 155,044 |      | $
|                                                |  |                |         |      |  

At June 30, 2005 and 2004, the Banks had certificate of deposit accounts with balances in excess of $100,000 totaling approximately $18.0 million and $20.6 million, respectively.

Maturities of outstanding certificates of deposit at June 30 are summarized as follows:

Maturing in fiscal year ending

|                    |  | 2005             |        | 2004 |  
|------------------- |  | ---------------- | ------ | ---- | -
|                    |  |                  |        |      |  
|                    |  | (In   thousands) |       
|2005                |  | $                |       |      | $
|2006                |  |                  | 69,966 |      |  
|2007                |  |                  | 16,324 |      |  
|2008                |  |                  | 7,328  |      |  
|2009                |  |                  | 1,436  |      |  
|2010 and thereafter |  |                  | 1,717  |      |  
|                    |  |                  |        |      |  
|                    |  | $                | 96,771 |      | $
|                    |  |                  |        |      |  

47



KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2005, 2004 and 2003

NOTE F - DEPOSITS (continued)

Interest expense on deposits is summarized as follows for the years ended June 30:

|                            |  | 2005 |       | 2004 |   | 2003  | 
|--------------------------- |  | ---- | ----- | ---- | - | ----- | 
|                            |  |      |       |      |   |       | 
|NOW and money market demand |  | $    | 143   |      | $ |      | 
|Certificates of deposit     |  |      | 1,765 |      |   | 1,612 | 
|Passbook                    |  |      | 542   |      |   | 554   | 
|                            |  |      |       |      |   |       | 
|                            |  | $    | 2,450 |      | $ | 2,166 | 
|                            |  |      |       |      |   |       | 

NOTE G - ADVANCES FROM THE FEDERAL HOME LOAN BANK

Advances from the Federal Home Loan Bank, collateralized at June 30, 2005 by pledges of certain residential mortgage loans totaling $60.5 million, and the Banks investment in Federal Home Loan Bank stock, are summarized as follows:

|Stated   Interest rate                                                               |  | Maturing   year ending   June 30, |      | 2005 |                          | 2004   |  
|------------------------------------------------------------------------------------ |  | --------------------------------- | ---- | ---- | ------------------------ | ------ | -
|                                                                                     |  |                                   |      |      |                          |        |  
|                                                                                     |  |                                   |      |      | (Dollars   in thousands) |       
|1.65% - 1.85%                                                                        |  |                                   | 2005 |      | $                        |       |  
|2.52%                                                                                |  |                                   | 2006 |      |                          | 2,800  |  
|3.17% - 6.75%                                                                        |  |                                   | 2007 |      |                          | 2,828  |  
|3.68% - 6.35%                                                                        |  |                                   | 2008 |      |                          | 3,261  |  
|4.94% - 7.35%                                                                        |  |                                   | 2009 |      |                          | 9,205  |  
|5.96% - 6.86%                                                                        |  |                                   | 2010 |      |                          | 21,000 |  
|5.80% - 6.22%                                                                        |  |                                   | 2011 |      |                          | 8,000  |  
|6.90%                                                                                |  |                                   | 2012 |      |                          | 286    |  
|5.75%                                                                                |  |                                   | 2013 |      |                          | 128    |  
|6.15% - 6.95%                                                                        |  |                                   | 2016 |      |                          | 626    |  
|6.30% - 6.35%                                                                        |  |                                   | 2017 |      |                          | 120    |  
|6.20%                                                                                |  |                                   | 2018 |      |                          | 157    |  
|                                                                                     |  |                                   |      |      |                          |        |  
|                                                                                     |  |                                   |      |      |                          | 48,411 |  
|Premium assigned to borrowings in Frankfort First   acquisition, net of amortization |  | 2,574                             |      |      |                         |       
|                                                                                     |  |                                   |      |      |                          |        |  
|                                                                                     |  |                                   |      |      | $                        | 50,985 |  
|                                                                                     |  |                                   |      |      |                          |        |  
|Weighted-average   interest rate                                                     |  |                                   |      |      |                          | 4.22   | %
|                                                                                     |  |                                   |      |      |                          |        |  

48



KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2005, 2004 and 2003

NOTE H - FEDERAL INCOME TAXES

Federal income taxes for the fiscal years ended June 30, 2005, 2004 and 2003, do not differ materially from the amounts computed at the statutory corporate tax.

The composition of the Companys net deferred tax liability at June 30 is as follows:

|                                                                                       |  | 2005             |        | 2004 |  
|-------------------------------------------------------------------------------------- |  | ---------------- | ------ | ---- | -
|                                                                                       |  |                  |        |      |  
|                                                                                       |  | (In   thousands) |       
|Taxes (payable) refundable on temporary differences   at estimated corporate tax rate: |  |                  |        |      |  
|Deferred tax assets:                                                                   |  |                  |        |      |  
|General loan loss   allowance                                                          |  | $                | 241    |      | $
|Deferred loan   origination fees                                                       |  |                  | 65     |      |  
|Deferred compensation                                                                  |  |                  | 86     |      |  
|Charitable   contributions                                                             |  |                  | 63     |      |  
|Purchase price   adjustments                                                           |  |                  | 164    |      |  
|Unrealized losses on   securities available for sale                                   |  |                  | 116    |      |  
|                                                                                       |  |                  |        |      |  
|Total deferred tax   assets                                                            |  |                  | 735    |      |  
|Deferred tax liabilities:                                                              |  |                  |        |      |  
|Federal Home Loan Bank   stock dividends                                               |  |                  | (1047  | )    |  
|Book/tax depreciation                                                                  |  |                  | (72    | )    |  
|                                                                                       |  |                  |        |      |  
|Total deferred tax   liabilities                                                       |  |                  | (1,119 | )    |  
|                                                                                       |  |                  |        |      |  
|Net deferred tax asset   (liability)                                                   |  | $                | (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, 2005, 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, 2005.

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.

49



KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2005, 2004 and 2003

NOTE I - LOAN COMMITMENTS (continued)

At June 30, 2005, the Banks had outstanding commitments of approximately $530,000 to originate loans.  Additionally, First Federal of Frankfort was obligated under unused lines of credit for home equity loans totaling $8.1 million and obligated under unused commercial lines of credit totaling $221,000.  In the opinion of the Banks management, all loan commitments equaled or exceeded prevalent market interest rates as of June 30, 2005, 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 2,127,572 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 1,740,554 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 and its wholly-owned subsidiary, First Federal of
Frankfort.  The acquisition was accounted for using the purchase method of
accounting and resulted in recording 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 |        | 2004 |  
|----------------------------------------- |  | ---- | ------ | ---- | -
|                                          |  |      |        |      |  
|Total interest income                     |  | $    | 12,784 |      | $
|Total interest expense                    |  |      | 5,731  |      |  
|                                          |  |      |        |      |  
|Net interest income                       |  |      | 7,053  |      |  
|Provision for losses on loans             |  |      | 105    |      |  
|Other income                              |  |      | 802    |      |  
|General, administrative and other expense |  |      | 3,884  |      |  
|                                          |  |      |        |      |  
|Earnings before income   taxes            |  |      | 3,866  |      |  
|Federal income taxes                      |  |      | 1,150  |      |  
|                                          |  |      |        |      |  
|Net earnings                              |  | $    | 2,716  |      | $
|                                          |  |      |        |      |  

50



KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2005, 2004 and 2003

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 2005, 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, 2005    |       
|-------------------------- |  | ------------------------ | ------
|                           |  |                          |       
|                           |  | Actual                   |       
|                           |  |                          |       
|                           |  | Amount                   |       
|                           |  |                          |       
|                           |  | (Dollars   in thousands) |       
|Tangible   capital         |  |                          |       
|First Federal of Hazard    |  | $                        | 28,322
|First Federal of Frankfort |  | $                        | 16,129
|Core   capital             |  |                          |       
|First Federal of Hazard    |  | $                        | 28,322
|First Federal of Frankfort |  | $                        | 16,129
|Risk-based   capital       |  |                          |       
|First Federal of Hazard    |  | $                        | 28,762
|First Federal of Frankfort |  | $                        | 16,262

51



KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2005, 2004 and 2003

NOTE K - REGULATORY CAPITAL (continued)

|                           |  | As of June   30, 2004    |       
|-------------------------- |  | ------------------------ | ------
|                           |  |                          |       
|                           |  | Actual                   |       
|                           |  |                          |       
|                           |  | Amount                   |       
|                           |  |                          |       
|                           |  | (Dollars   in thousands) |       
|Tangible   capital         |  |                          |       
|First Federal of Hazard    |  | $                        | 31,443
|First Federal of Frankfort |  | $                        | 16,366
|Core   capital             |  |                          |       
|First Federal of Hazard    |  | $                        | 31,443
|First Federal of Frankfort |  | $                        | 16,366
|Risk-based   capital       |  |                          |       
|First Federal of Hazard    |  | $                        | 31,927
|First Federal of Frankfort |  | $                        | 16,448

As of June 30, 2005 and 2004, 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.

52



KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2005, 2004 and 2003

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, 2005, and the results of its operations and its cash flows for the fiscal year ended June 30, 2005.

KENTUCKY FIRST FEDERAL BANCORP STATEMENTS OF FINANCIAL CONDITIONJune 30, 2005 and 2004 (In thousands)

|                                                          |  | 2005 |        | 2004 |  
|--------------------------------------------------------- |  | ---- | ------ | ---- | -
|                                                          |  |      |        |      |  
|ASSETS                                                    |  |      |        |      |  
|Interest-bearing deposits in First Federal of Hazard      |  | $    | 2,356  |      | $
|Interest-bearing deposits   in First Federal of Frankfort |  |      | 100    |      |  
|Investment in First Federal of Hazard                     |  |      | 31,489 |      |  
|Investment in Frankfort First                             |  |      | 31,785 |      |  
|Prepaid expenses and other assets                         |  |      | 531    |      |  
|                                                          |  |      |        |      |  
|Total assets                                              |  | $    | 66,261 |      | $
|                                                          |  |      |        |      |  
|LIABILITIES   AND SHAREHOLDERS EQUITY                    |  |      |        |      |  
|Accounts payable and other liabilities                    |  | $    | 322    |      | $
|Shareholders equity                                      |  |      |        |      |  
|Common stock                                              |  |      | 86     |      |  
|Additional paid-in   capital                              |  |      | 36,714 |      |  
|Retained earnings                                         |  |      | 32,719 |      |  
|Shares acquired by Employee Stock Ownership Plan          |  |      | (3,370 | )    |  
|Accumulated other comprehensive loss                      |  |      | (210   | )    |  
|                                                          |  |      |        |      |  
|Total shareholders   equity                              |  |      | 65,939 |      |  
|                                                          |  |      |        |      |  
|Total liabilities and   shareholders equity              |  | $    | 66,261 |      | $
|                                                          |  |      |        |      |  

KENTUCKY FIRST FEDERAL BANCORP STATEMENTS OF EARNINGSYears ended June 30, 2005, 2004 and 2003 (In thousands)

|                                                |  | 2005 |       | 2004 |   | 2003 | 
|----------------------------------------------- |  | ---- | ----- | ---- | - | ---- | 
|                                                |  |      |       |      |   |      | 
|Revenue                                         |  |      |       |      |   |      | 
|Interest income                                 |  | $    | 71    |      | $ |     | 
|Equity in earnings of   First Federal of Hazard |  |      | 1,352 |      |   |     | 
|Equity in earnings of   Frankfort First         |  |      | 369   |      |   |     | 
|                                                |  |      |       |      |   |      | 
|Total revenue                                   |  |      | 1,792 |      |   |     | 
|General and administrative expenses             |  |      | 171   |      |   |     | 
|                                                |  |      |       |      |   |      | 
|Earnings before income   tax credits            |  |      | 1,621 |      |   |     | 
|Federal income tax credits                      |  |      | (8    | )    |   |     | 
|                                                |  |      |       |      |   |      | 
|NET EARNINGS                                    |  | $    | 1,629 |      | $ |     | 
|                                                |  |      |       |      |   |      | 

53



KENTUCKY FIRST FEDERAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2005, 2004 and 2003

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

KENTUCKY FIRST FEDERAL BANCORP STATEMENTS OF CASH FLOWSYears ended June 30, 2005, 2004 and 2003 (In thousands)

|                                                                                      |  | 2005 |         | 2004 |   | 2003 | 
|------------------------------------------------------------------------------------- |  | ---- | ------- | ---- | - | ---- | 
|                                                                                      |  |      |         |      |   |      | 
|Cash flows from operating activities:                                                 |  |      |         |      |   |      | 
|Net earnings for the   year                                                           |  | $    | 1,629   |      | $ |     | 
|Adjustments to   reconcile net earnings to net cash provided by operating activities: |  |      |         |      |   |      | 
|Excess distributions   from consolidated subsidiaries                                 |  |      | 871     |      |   |     | 
|Increase (decrease) in   cash due to changes in:                                      |  |      |         |      |   |      | 
|Prepaid expenses and   other assets                                                   |  |      | (531    | )    |   |     | 
|Other liabilities                                                                     |  |      | 322     |      |   |     | 
|                                                                                      |  |      |         |      |   |      | 
|Net cash provided by   operating activities                                           |  |      | 2,291   |      |   |     | 
|Cash flows used in investing activities:                                              |  |      |         |      |   |      | 
|Shares acquired by ESOP                                                               |  |      | (3,370  | )    |   |     | 
|Cash flows provided by (used in) financing   activities:                              |  |      |         |      |   |      | 
|Dividends paid on   common stock                                                      |  |      | (353    | )    |   |     | 
|Cash proceeds from   issuance of common stock                                         |  |      | 16,090  |      |   |     | 
|Net cash paid in the   acquisition of Frankfort First Bancorp, Inc.                   |  |      | (12,202 | )    |   |     | 
|                                                                                      |  |      |         |      |   |      | 
|Net cash provided by   financing activities                                           |  |      | 3,535   |      |   |     | 
|                                                                                      |  |      |         |      |   |      | 
|Net increase in cash and cash equivalents                                             |  |      | 2,456   |      |   |     | 
|Cash and cash equivalents at beginning of year                                        |  |      |        |      |   |     | 
|                                                                                      |  |      |         |      |   |      | 
|Cash and cash equivalents at end of year                                              |  | $    | 2,456   |      | $ |     | 
|                                                                                      |  |      |         |      |   |      | 

The Banks are subject to regulations
imposed by the OTS regarding the amount of capital distributions payable by the
Banks to the Company.  Generally, the Banks payments of dividends is
limited, without prior OTS approval, to net income 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.
During fiscal 2005, the Companys parent, First Federal MHC, waived its
right to dividends of $473,000. Such waiver was approved by the OTS.

54



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 Vice   President/Lending/Collection |  | Mindy Abbott, Customer Service                           
|Phyllis Campbell, Customer Service                               |  | Brenda Baldwin, Branch Manager                           
|Sandy Craft, Customer Service                                    |  | Stan Betsworth, Lending                                  
|Donna Davis, Data Processing                                     |  | Phyllis Bowman, Loan Servicing                           
|Lou Ella R. Farler, Assistant Vice President/Data   Processing   |  | Lisa Brinley, Customer Service                           
|Deloris S. Justice, Accounting Assistant                         |  | Carolyn Eades, Customer Service                          
|Velma Kelly, Customer Service                                    |  | Diana Eads, Customer Service                             
|Kaye Lewis, Treasurer                                            |  | Danny A. Garland, President                              
|Brenda Lovelace, Customer Service                                |  | Stacey Greenawalt, Lending                               
|Roy L. Pulliam, Jr., Vice President/Lending/Secretary            |  | Barry Holder, Customer Service                           
|Fred Skaggs, Vice President/Lending                              |  | R. Clay Hulette, Vice President/Treasurer                
|Peggy Hopper Steele, Receptionist/Loan Processing                |  | Don D. Jennings, Executive Vice President                
|Molly Ann E. Toler, Asst. Vice President, Teller   Operations    |  | Teresa A. Kuhl, Vice President/Operations/Human Resources
|Tony Whitaker, President                                         |  | Janet Lewis, Branch Manager                              
|                                                                 |  | Patty Luttrell, Loan Processing/Compliance               
|                                                                 |  | Carla McMillen, Customer Service                         
|                                                                 |  | Kim Moore, Head Teller                                   
|                                                                 |  | 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       

55



|Kentucky   First 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                                                                                                                                                                                                                |  | Don D. Jennings                                                                                                                                                                                                                                                                                                                                                                                                                        
|Herman D. Regan, Jr.         |  |                                                                                                                                                                                                                              |  | William C. Jennings,Chairman                                                                                                                                                                                                                                                                                                                                                                                                           
|Tony Whitaker, Chairman      |  |                                                                                                                                                                                                                              |  | William M. Johnson                                                                                                                                                                                                                                                                                                                                                                                                                     
|                             |  |                                                                                                                                                                                                                              |  | Frank McGrath                                                                                                                                                                                                                                                                                                                                                                                                                          
|                             |  |                                                                                                                                                                                                                              |  | Herman D. Regan, Jr.                                                                                                                                                                                                                                                                                                                                                                                                                   
|                             |  |                                                                                                                                                                                                                              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                        
|                             |  | Office   Locations                                                                                                                                                                                                           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                        
|First Federal of Hazard      |  | First Federal of Frankfort                                                                                                                                                                                                   |  | First Federal of Frankfort                                                                                                                                                                                                                                                                                                                                                                                                             
|Main Office                  |  | Main Office                                                                                                                                                                                                                  |  | East Branch                                                                                                                                                                                                                                                                                                                                                                                                                            
|479 Main Street              |  | 216 W Main Street                                                                                                                                                                                                            |  | 190 Versailles Road                                                                                                                                                                                                                                                                                                                                                                                                                    
|P.O. Box 1069                |  | P.O. Box 535                                                                                                                                                                                                                 |  | Frankfort, KY    40601                                                                                                                                                                                                                                                                                                                                                                                                                 
|Hazard, KY    41702-1069     |  | Frankfort, KY    40602                                                                                                                                                                                                       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                        
|                             |  |                                                                                                                                                                                                                              |  | First Federal of Frankfort                                                                                                                                                                                                                                                                                                                                                                                                             
|                             |  |                                                                                                                                                                                                                              |  | West Branch                                                                                                                                                                                                                                                                                                                                                                                                                            
|                             |  |                                                                                                                                                                                                                              |  | 1220 US 127 S                                                                                                                                                                                                                                                                                                                                                                                                                          
|                             |  |                                                                                                                                                                                                                              |  | Frankfort, KY    40601                                                                                                                                                                                                                                                                                                                                                                                                                 
|                             |  |                                                                                                                                                                                                                              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                        
|Chairman   and CEO           |  |                                                                                                                                                                                                                              |  | Shareholder   Inquiries and Availability of 10-K Report:  A COPY OF THE COMPANYS ANNUAL REPORT ON   FORM 10-K FOR THE YEAR ENDED JUNE 30, 2005, AS  FILED WITH THE SECURITIES EXCHANGE COMMISSION WILL BE   FURNISHED WITHOUT CHARGE TO SHARE-HOLDERS AS OF THE RECORD DATE FOR THE   NOVEMBER 15, 2005 ANNUAL MEETING UPON WRITTEN REQUEST TO INVESTOR   RELATIONS KENTUCKY FIRST FEDERAL BANCORP; P.O. BOX 535; FRANKFORT, KY  40602
|Tony Whitaker                |  | Special   Counsel                                                                                                                                                                                                            | 
|(606) 436-3860               |  | Muldoon, Murphy and Aguggia LLP                                                                                                                                                                                              | 
|firstfederal@alltel.com      |  | 5101 Wisconsin Ave NW                                                                                                                                                                                                        | 
|                             |  | Washington, D.C.    20016                                                                                                                                                                                                    | 
|Investor   Relations         |  |                                                                                                                                                                                                                              | 
|Don Jennings                 |  | Transfer   Agent and Registrar                                                                                                                                                                                               | 
|djenni7474@aol.com           |  | Illinois Stock Transfer                                                                                                                                                                                                      | 
|Clay Hulette                 |  | 209 W. Jackson Blvd    Ste 903                                                                                                                                                                                               | 
|rchulette@hotmail.com        |  | Chicago, IL    60606-6905                                                                                                                                                                                                    | 
|(502) 223-1638               |  | (312) 427-2953                                                                                                                                                                                                               | 
|P.O. Box 535                 |  |                                                                                                                                                                                                                              | 
|Frankfort, KY    40602       |  | Annual   Meeting                                                                                                                                                                                                             | 
|                             |  | The Annual Meeting of Shareholders will
be held on November 15, 2005 at 3:30 p.m., Eastern Time, at the First Federal
Center on the campus of Hazard Community and Technical College, One Community
College Blvd, Hazard, KY | 
|Independent   Auditors       |  |                                                                                                                                                                                                                             
|Grant Thornton LLP           |  |                                                                                                                                                                                                                             
|Suite 900                    |  |                                                                                                                                                                                                                             
|625 Eden Park Drive          |  |                                                                                                                                                                                                                             
|Cincinnati, OH    45202-4181 |  |                                                                                                                                                                                                                             
|                             |  |                                                                                                                                                                                                                             

56