**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      DC 20549**




**FORM
      10-K**


*(Mark
      One)*





**x**
            **ANNUAL
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**





For
      the
      fiscal year ended June 30, 2008


**OR**


** ̈**
            **TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**





For
      the
      transition period from  to





Commission
      file number **0-51176**





**KENTUCKY
      FIRST FEDERAL BANCORP**


(Exact
      name of registrant as specified in its charter)





**United
                States**
            
            **61-1484858**(State
                or other jurisdiction of
            
            (I.R.S.
                Employerincorporation
                or organization)
            
            Identification
                No.)**479
                Main Street, Hazard, Kentucky**
            
            **41702**(Address
                of principal executive offices)
            
            (Zip
                Code)




Registrant’s
      telephone number, including area code: **(502)
      223-1638**




Securities
      registered pursuant to Section 12(b) of the Act:




**Common
                Stock (par value $0.01 per share)**
            
            **Nasdaq
                Stock Market, LLC**(Title
                of each class)
            
            (Name
                of each exchange on which
                registered)




Securities
      registered pursuant to Section 12(g) of the Act: **None**




Indicate
      by check mark whether the registrant is a well-known seasoned issuer, as defined
      in Rule 405 of the Securities Act. Yes  ̈ No x





Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or Section 15(d) of the Act. Yes  ̈ No x





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days. Yes x No  ̈





Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K is not contained herein, and will not be contained, to the best
      of registrant’s knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10-K or any amendment to
      this
      Form 10-K.  ̈





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, a non-accelerated filer, or a smaller reporting company. See
      the
      definitions of “large accelerated filer,” “accelerated filer” and “smaller
      reporting company” in Rule 12b-2 of the Exchange Act. (Check one):





Large
                accelerated filer ̈
            Accelerated
                filer ̈
            Non-accelerated
                filer ̈
            Smaller
                Reporting Companyx





Indicate
      by a check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). Yes  ̈ No x





The
      aggregate market value of the common stock held by nonaffiliates was $25.5
      million as of June 30, 2008.





Number
      of
      shares of common stock outstanding as of December 31, 2007:
      7,734,164




**DOCUMENTS
      INCORPORATED BY REFERENCE**




The
      following lists the documents incorporated by reference and the Part of the
      Form
      10-K into which the document is incorporated:




1.  Portions
      of the Annual Report to Stockholders for the fiscal year ended June 30, 2008.
      (Part II)


2.  Portions
      of Proxy Statement for the 2008 Annual Meeting of Stockholders. (Part
      III)








**INDEX**





**PAGE****PART
                I**Item
                1.
            Business
            
            1Item
                1A
            Risk
                Factors
            
            16Item
                1B
            Unresolved
                Staff Comments
            
            18Item
                2.
            Properties
            
            19Item
                3.
            Legal
                Proceedings
            
            19Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            
            19**PART
                II**Item
                5.
            Market
                for Registrant’s Common Equity, Related Stockholder Matters and Issuer
                Purchases of Equity Securities
            
            20Item
                6.
            Selected
                Financial Data
            
            20Item
                7.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            
            20Item
                7A.
            Quantitative
                and Qualitative Disclosures About Market Risk
            
            20Item
                8.
            Financial
                Statements and Supplementary Data
            
            21Item
                9.
            Changes
                in and Disagreements with Accountants on Accounting and Financial
                Disclosure
            
            21Item
                9A(T).
            Controls
                and Procedures
            
            21Item
                9B.
            Other
                Information
            
            22**PART
                III**Item
                10.
            Directors,
                Executive Officers and Corporate Governance
            
            23Item
                11.
            Executive
                Compensation
            
            23Item
                12.
            Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters
            
            23Item
                13.
            Certain
                Relationships and Related Transactions, and Director
                Independence
            
            24Item
                14.
            Principal
                Accountant Fees and Services
            
            24**PART
                IV**Item
                15.
            Exhibits
                and Financial Statement Schedules
            
            24**SIGNATURES**


i





**PART
      I**




**Item
      1.**  **Business** ****




**Forward-looking
      Statements**




*This
      report contains certain “forward-looking statements” within the meaning of the
      federal securities laws. These statements are not historical facts, rather
      statements based on Kentucky First Federal Bancorp’s current expectations
      regarding its business strategies, intended results and future performance.
      Forward-looking statements are preceded by terms such as “expects,” “believes,”
“anticipates,” “intends” and similar expressions.*





*Management’s
      ability to predict results or the effect of future plans or strategies is
      inherently uncertain. Factors which could affect actual results include the
      following: interest rate trends; the general economic climate in the market
      areas in which Kentucky First Federal Bancorp operates, as well as nationwide;
      Kentucky First Federal Bancorp’s ability to control costs and expenses;
      competitive products and pricing; loan delinquency rates; and changes in federal
      and state legislation and regulation. These factors should be considered in
      evaluating the forward-looking statements and undue reliance should not be
      placed on such statements. Kentucky First Federal Bancorp assumes no obligation
      to update any forward-looking statements.*




**General**




*References
      in this Annual Report on Form 10-K to “we,” “us” and “our” refer to Kentucky
      First, and where appropriate, collectively to Kentucky First, First Federal
      of
      Hazard and First Federal of Frankfort.*




***Kentucky
      First Federal Bancorp.*** Kentucky
      First Federal Bancorp (“Kentucky First” or 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 Savings and Loan
      Association of Hazard (“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 Bancorp, Inc. (“Frankfort First Bancorp”) and its wholly owned
      subsidiary First Federal Savings Bank of Frankfort, Frankfort, Kentucky (“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 Frankfort First Bancorp as
      a
      wholly owned subsidiary and holds all of the capital stock of First Federal
      of
      Hazard and First Federal of Frankfort. The Company is operating First Federal
      of
      Hazard and First Federal of Frankfort as two independent, community-oriented
      savings institutions.




Kentucky
      First’s and First Federal of Hazard’s executive offices are located at
      479 **** Main
      Street, Hazard, Kentucky, 41702 and their main telephone number is (606)
      436-3860.




At
      June
      30, 2008, Kentucky First had total assets of $247.7 million, deposits of $137.6
      million and stockholders’ equity of $59.8 million. The discussion in this Annual
      Report on Form 10-K relates primarily to the businesses of First Federal of
      Hazard and First Federal of Frankfort (collectively, the “Banks”), as Kentucky
      First’s operations consist primarily of operating the Banks and investing funds
      retained in the Reorganization.




First
      Federal of Hazard and First Federal of Frankfort are subject to examination
      and
      comprehensive regulation by the Office of Thrift Supervision and their savings
      deposits are insured up to applicable limits by the Deposit Insurance Fund,
      which is administered by the Federal Deposit Insurance Corporation. Both of
      the
      Banks are members of the Federal Home Loan Bank of Cincinnati, which is one
      of
      the 12 regional banks in the FHLB System. See “Regulation and
      Supervision.”


1


***First
      Federal Savings and Loan Association of Hazard.*** ** First
      Federal of Hazard was formed as a federally chartered mutual savings and loan
      association in 1960. First Federal of Hazard operates from a single office
      in
      Hazard, Kentucky as a community-oriented savings and loan association offering
      traditional financial services to consumers in Perry and surrounding counties
      in
      eastern Kentucky. It 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 and
      occasionally other loans secured by 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 has historically invested in
      mortgage-backed and investment securities, although since the reorganization,
      First Federal of Hazard has been purchasing whole loans and participations
      in
      loans originated at First Federal of Frankfort. At
      June
      30, 2008, First Federal of Hazard had total assets of $112.0 million, net loans
      receivable of $65.0 million, total mortgage-backed and investment securities
      of
      $22.0 million, deposits of $79.9 million and total capital of $21.5
      million.




***First
      Federal Savings Bank of Frankfort.*** 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 originating
      primarily adjustable-rate loans secured by first mortgages on owner-occupied
      and
      nonowner-occupied one- to four-family residences in Franklin, Anderson, Scott,
      Shelby, Woodford and other counties in Kentucky. First Federal of Frankfort
      also
      originates, to a lesser extent, home equity loans and loans secured by churches,
      multi-family properties, professional office buildings and other types of
      property. At June 30, 2008, First Federal of Frankfort had total assets of
      $140.0 million, net loans receivable of $113.7 million, deposits of
      $65.5 million and total capital of $32.3 million.




First
      Federal of Frankfort’s main office is located at 216 W. Main Street, Frankfort,
      Kentucky 40602 and its main telephone number is (502) 223-1638.




**Market
      Areas**




First
      Federal of Hazard and First Federal of Frankfort operate in two distinct market
      areas.





First
      Federal of Hazard’s market area consists of Perry County, where the business
      office is located, as well as the surrounding counties of Letcher, Knott,
      Breathitt, Leslie and Clay Counties in eastern Kentucky. The economy in its
      market area has been distressed in recent years due to the decline in the coal
      industry on which the local economy has been historically dependent. However,
      recent price increases in the petroleum market have improved the prospects
      of
      the coal industry at least temporarily. Management cannot determine whether
      or
      not this will have a long-range positive impact on the local economy. The local
      economy has also improved recently from the influx of other industries, such
      as
      health care and manufacturing. Still, the economy in First Federal of Hazard’s
      market area continues to lag behind the economies of Kentucky and the United
      States. In the most recent available data, using information from the State
      of
      Kentucky Economic Development Information System (www.thinkkentucky.com), per
      capita personal income in Perry County averaged $25,648 in 2006, compared to
      personal income of $29,729 in Kentucky and $36,714 in the United States. Total
      population in Perry County has remained stable over the last five years at
      approximately 29,500. However, as a regional economic center, Hazard tends
      to
      draw consumers and workers who commute from surrounding counties. Employment
      in
      the market area, particularly in Perry County, consists primarily of the trade,
      transportation and utilities industry (18.7%), the services sector, including
      health care (16.6%) and the mining industry (9.3%). During the last five years,
      the unemployment rate has exceeded 6% and in 2007, was 7.1%, compared to 6.1%
      in
      Kentucky and 4.6% in the United States.





First
      Federal of Frankfort’s primary lending area includes the Kentucky counties of
      Franklin, Anderson, Scott, Shelby and Woodford, with the majority of lending
      originated on properties located in Franklin County. Franklin County has a
      population of approximately 48,000, of which approximately 27,000 live within
      the city of Frankfort, which serves as the capital of Kentucky. The primary
      employer in the area is the state government, which employs about 40% of the
      work force. In addition, there are several large industrial, financial and
      government employers in the community. Due to this large, relatively stable
      source of employment, there has been little fluctuation in the unemployment
      rate
      which has ranged from 3 to 5% in recent years and was 4.5% in June 2007.


2


**Lending
      Activities**





***General*** **.** Our
      loan
      portfolio consists primarily of one- to four-family residential mortgage loans.
      As opportunities arise, we also offer loans secured by churches, commercial
      real
      estate, and multi-family real estate, although there is little demand for such
      loans in our market areas. We also offer loans secured by deposit accounts
      and,
      through First Federal of Frankfort, home equity loans. Substantially all of
      our
      loans are made within the Banks’ respective market areas.





***Residential
      Mortgage Loans*** **.** Our
      primary lending activity is the origination of mortgage loans to enable
      borrowers to purchase or refinance existing homes in the Banks’ respective
      market areas. At June 30, 2008, residential mortgage loans totaled
      $164.2 million, or 89.5% of our total loan portfolio. We offer a mix of
      adjustable-rate and fixed-rate mortgage loans with terms up to 40 years.
      Adjustable-rate loans have an initial fixed term of one, three, five or seven
      years. After the initial term, the rate adjustments on First Federal of
      Frankfort’s adjustable-rate loans are indexed to the National Average Contract
      Interest Rate for Major Lenders on the Purchase of Previously Occupied Homes.
      The interest rates on these mortgages are adjusted once a year, with limitations
      on adjustments of one percentage point per adjustment period, and a lifetime
      cap
      of five percentage points. We determine loan fees charged, interest rates and
      other provisions of mortgage loans on the basis of our own pricing criteria
      and
      competitive market conditions. Some loans originated by the Banks have an
      additional advance clause which allows the borrower to obtain additional funds
      at prevailing interest rates, subject to managements’ approval.





At
      June
      30, 2008, the Company’s loan portfolio included $103.6 million in
      adjustable-rate one- to four-family residential mortgage loans, or 65.6%, of
      the
      Company’s one- to four-family residential mortgage loan portfolio.





The
      retention of adjustable-rate loans in the portfolio helps reduce our exposure
      to
      increases in prevailing market interest rates. However, there are unquantifiable
      credit risks resulting from potential increases in costs to borrowers in the
      event of upward repricing of adjustable-rate loans. It is possible that during
      periods of rising interest rates, the risk of default on adjustable-rate loans
      may increase due to increases in interest costs to borrowers. However, despite
      their popularity in some parts of the country, neither bank offers
      adjustable-rate loans that contractually allow for negative amortization. Such
      loans, under some circumstances, can cause the balance of a closed-end loan
      to
      exceed the original balance and perhaps surpass the value of the collateral.
      Further, although adjustable-rate loans allow us to increase the sensitivity
      of
      our interest-earning assets to changes in interest rates, the extent of this
      interest sensitivity is limited by the initial fixed-rate period before the
      first adjustment and the periodic and lifetime interest rate adjustment
      limitations. Accordingly, there can be no assurance that yields on our
      adjustable-rate loans will fully adjust to compensate for increases in our
      cost
      of funds. Finally, adjustable-rate loans may decrease at a pace faster than
      decreases in our cost of funds, resulting in reduced net income.





While
      one- to four-family residential real estate loans are normally originated with
      up to 30-year terms, (with terms up to 40 years available for some products)
      such loans typically remain outstanding for substantially shorter periods
      because borrowers often prepay their loans in full upon sale of the mortgaged
      property or upon refinancing the original loan. Therefore, average loan maturity
      is a function of, among other factors, the level of purchase and sale activity
      in the real estate market, prevailing interest rates and the interest rates
      payable on outstanding loans. As interest rates declined and remained low over
      the past few years, we have experienced high levels of loan repayments and
      refinancings.





The
      Banks
      offer various programs for the purchase and refinance of one- to four-family
      loans. Most of these loans have loan-to-value ratios of 80% or less, based
      on an
      appraisal provided by a state licensed or certified appraiser. For
      owner-occupied properties, the borrower may be able to borrow up to 100% of
      the
      value if they secure and pay for private mortgage insurance or they may be
      able
      to obtain a second mortgage (at a higher interest rate) in which they borrow
      up
      to 90% of the value. On a rare case-by-case basis, the Boards of Directors
      of
      the Banks may approve a loan above the 80% loan-to-value ratio without such
      enhancements.





***Construction
      Loans*** **.** We
      originate loans to individuals to finance the construction of residential
      dwellings for personal use. On limited occasions we have made construction
      loans
      to builders for the construction of a single-family residence for subsequent
      sale. At June 30, 2008, construction loans totaled $3.5 million, or 1.9%, of
      our
      total loan portfolio. Our construction loans generally provide for the payment
      of interest only during the construction phase, which is usually less than
      one
      year. Loans generally can be made with a maximum loan to value ratio of 80%
      of
      the appraised value. Funds are disbursed as progress is made toward completion
      of the construction.


3





Construction
      financing is generally considered to involve a higher degree of risk of loss
      than long-term financing on improved, occupied real estate. Risk of loss on
      a
      construction loan depends largely upon the accuracy of the initial estimate
      of
      the property’s value at completion of construction or development and the
      estimated cost (including interest) of construction. During the construction
      phase, a number of factors could result in delays and cost overruns. If the
      estimate of construction costs proves to be inaccurate, we may be required
      to
      advance funds beyond the amount originally committed to permit completion of
      the
      development. If the estimate of value proves to be inaccurate, we may be
      confronted, at or before the maturity of the loan, with a project having a
      value
      which is insufficient to assure full repayment. As a result of the foregoing,
      construction lending often involves the disbursement of substantial funds with
      repayment dependent, in part, on the success of the ultimate project rather
      than
      the ability of the borrower or guarantor to repay principal and interest. If
      we
      are forced to foreclose on a project before or at completion due to a default,
      there can be no assurance that we will be able to recover the unpaid balance
      and
      accrued interest on the loan, as well as related foreclosure and holding costs.





The
      Company has made two construction loans beyond the scope discussed above. During
      fiscal 2008, we financed the construction of a small 4-unit condominium
      development ($800,000). The project is completed and financing will stay in
      place until the units are sold. We have also financed the construction of an
      addition to a church ($3.6 million). This project is completed and will convert
      to permanent financing. The Company does not intend to make a large number
      of
      loans outside the owner-occupied single-family construction model, but it may
      undertake such projects from time to time.




***Multi-Family
      and Nonresidential Loans*** **.** As
      opportunities arise, we offer mortgage loans secured by multi-family
      (residential property comprised of five or more units) or nonresidential real
      estate, which is generally secured by commercial office buildings, churches,
      condominiums and properties used for other purposes. At June 30, 2008,
      multi-family and nonresidential loans totaled $2.7 million and $11.3 million,
      respectively, or 1.5% and 6.2%, respectively, of our total loan portfolio.
      We
      originate multi-family and nonresidential real estate loans for terms of
      generally 25 years or less. Loan amounts generally do not exceed 80% of the
      appraised value and tend to range much lower.





Loans
      secured by multi-family and commercial real estate generally have larger
      balances and involve a greater degree of risk than one- to four-family
      residential mortgage loans. Of primary concern in multi-family and commercial
      real estate lending is the borrower’s creditworthiness and the feasibility and
      cash flow potential of the project. Payments on loans secured by income
      properties often depend on successful operation and management of the
      properties. As a result, repayment of such loans may be subject to a greater
      extent than residential real estate loans to adverse conditions in the real
      estate market or the economy. To monitor cash flows on income properties, we
      require borrowers and/or loan guarantors to provide annual financial statements
      on larger multi-family and commercial real estate loans. In reaching a decision
      on whether to make a multi-family or commercial real estate loan, we consider
      the net cash flow of the project, the borrower’s expertise, credit history and
      the value of the underlying property.





***Consumer
      Lending.*** Our
      consumer loans include home equity lines of credit and loans secured by savings
      deposits. At June 30, 2008, our consumer loan balance totaled $7.9 million,
      or
      4.3%, of our total loan portfolio. Of the consumer loan balance at June 30,
      2008, $4.5 million were home equity loans and $3.4 million were loans secured
      by
      savings deposits.





Our
      home
      equity loans are made at First Federal of Frankfort and are made on the security
      of residential real estate and have terms of up to 10 years. Most of First
      Federal of Frankfort’s home equity loans do not exceed 80% of the estimated
      value of the property, less the outstanding principal of the first mortgage.
      First Federal of Frankfort does offer home equity loans up to 90% of the value
      less the balance of the first mortgage at a premium rate to qualified borrowers.
      These loans are not secured by private mortgage insurance. First Federal of
      Frankfort’s home equity loans require the monthly payment of 2% of the unpaid
      principal until maturity, when the remaining unpaid principal, if any, is due.
      First Federal of Frankfort’s home equity loans bear variable rates of interest
      indexed to the prime rate for loans with 80% or less loan-to-value ratio, and
      2%
      above the prime rate for loans with a loan-to-value ratio in excess of 80%.
      Interest rates on these loans can be adjusted monthly. At June 30, 2008, the
      total outstanding home equity loans amounted to 2.5% of the Company’s total loan
      portfolio.


4





Loans
      secured by savings are originated for up to 90% of the depositor’s savings
      account balance. The interest rate is normally two percentage points above
      the
      rate paid on the savings account, and the account must be pledged as collateral
      to secure the loan. At June 30, 2008, loans on savings accounts totaled 1.8%
      of
      the Company’s total loan portfolio.





Consumer
      loans generally entail greater risk than do residential mortgage loans,
      particularly in the case of consumer loans which are unsecured or secured by
      rapidly depreciable assets. However, these risks are considerably reduced in
      our
      case, since all of our consumer loans are secured loans.





***Loan
      Originations, Purchases and Sales*** **.** Loan
      originations come from a number of sources. The primary source of loan
      originations are our in-house loan originators, and to a lesser extent,
      advertising and referrals from customers and real estate agents. We currently
      do
      not purchase loans. First Federal of Frankfort began selling fixed-rate loans
      in
      April 2004 to the Federal Home Loan Bank of Cincinnati (“FHLB-Cincinnati”). Loan
      servicing rights are retained on such loans. At June 30, 2008, $7.9 million
      in
      loans were being serviced by First Federal of Frankfort for the
      FHLB-Cincinnati.





***Loan
      Approval Procedures and Authority*** **.** Our
      lending activities follow written, nondiscriminatory, underwriting standards
      and
      loan origination procedures established by each Bank’s Board of Directors and
      management. First Federal of Hazard’s loan committee, consisting of its two
      senior officers, has authority to approve loans of up to $275,000. Loans above
      this amount and loans with non-standard terms such as longer repayment terms
      or
      high loan-to-value ratios, must be approved by our Board of Directors. First
      Federal of Frankfort’s loan approval process allows for various combinations of
      experienced bank officers to approve or deny loans which are one- to four-family
      properties totaling $275,000 or less, church loans of under $150,000, home
      equity lines of credit of $100,000 or less and loans to individuals whose
      aggregate borrowings with the Bank is less than $500,000. Loans that do not
      conform to these criteria must be submitted to the Board of Directors or
      Executive Committee composed of at least four directors, for
      approval.





It
      is the
      Company’s practice to record a lien on the real estate securing a loan. The
      Banks generally do not require title insurance, although it may be required
      for
      loans made in certain programs. The Banks do require fire and casualty insurance
      on all security properties and flood insurance when the collateral property
      is
      located in a designated flood hazard area. First Federal of Frankfort also
      requires an earthquake provision in all policies for new loans.





***Loans
      to One Borrower*** **.** The
      maximum amount either Bank may lend to one borrower and the borrower’s related
      entities is limited, by regulation, to generally 15% of that Bank’s stated
      capital and the allowance for loan losses. At June 30, 2008, the regulatory
      limit on loans to one borrower was $3.3 million for First Federal of Hazard
      and
      $2.6 million for First Federal of Frankfort. Neither of the banks had lending
      relationships in excess of their respective lending limits. However, loans
      or
      participations in loans may be sold among the Banks, which may allow a
      borrower’s total loans with the Company to exceed the limit of either individual
      bank.





***Loan
      Commitments*** **.** The
      Banks issue commitments for the funding of mortgage loans. Generally, these
      commitments exist from the time the underwriting of the loan is completed and
      the closing of the loan. Generally, these commitments are for a maximum of
      30 or
      60 days but management routinely extends the commitment if circumstances delay
      the closing. Management reserves the right to verify or re-evaluate the
      borrower’s qualifications and to change the rates and terms of the loan at that
      time.





If
      conditions exist whereby either Bank experiences a significant increase in
      loans
      outstanding or commits to originate loans that are riskier than a typical one-
      to four-family mortgage, management and the boards will consider reflecting
      the
      anticipated loss exposure in a separate liability. As residential loans are
      approved in the normal course of business, and those loans are underwritten
      to
      the standards of the Banks, management does not believe alteration of the
      allowance for loan losses is warranted. At June 30, 2008, no commitment losses
      were reflected in a separate liability.


5





First
      Federal of Frankfort offers construction loans in which the borrower obtains
      the
      loan for a short term, less than one year, and simultaneously extends a
      commitment for permanent financing. First Federal of Hazard offers a
      construction loan that is convertible to permanent financing, thus no additional
      commitment is made.





***Interest
      Rates and Loan Fees.*** Interest
      rates charged on mortgage loans are primarily determined by competitive loan
      rates offered in our market areas and our yield objectives. Mortgage loan rates
      reflect factors such as prevailing market interest rate levels, the supply
      of
      money available to the savings industry and the demand for such loans. These
      factors are in turn affected by general economic conditions, the monetary
      policies of the federal government, including the Board of Governors of the
      Federal Reserve System, the general supply of money in the economy, tax policies
      and governmental budget matters.





We
      receive fees in connection with late payments on our loans. Depending on the
      type of loan and the competitive environment for mortgage loans, we may charge
      an origination fee on all or some of the loans we originate. We may also offer
      a
      menu of loans whereby the borrower may pay a higher fee to receive a lower
      rate
      or to pay a smaller or no fee for a higher rate.





***Delinquencies*** **.** When a
      borrower fails to make a required loan payment, we take a number of steps to
      have the borrower cure the delinquency and restore the loan to current status.
      We make initial contact with the borrower when the loan becomes 15 days past
      due. Subsequently, bank staff under the direct supervision of senior management
      and with consultation by the Banks’ attorneys, attempt to contact the borrower
      and determine their status and plans for resolving the delinquency. However,
      once a delinquency reaches 90 days, management considers foreclosure and, if
      the
      borrower has not provided a reasonable plan (such as selling the collateral,
      a
      commitment from another lender to refinance the loan or a plan to repay the
      delinquent principal, interest, escrow, and late charges) the foreclosure suit
      may be initiated. In some cases, management may delay initiating the foreclosure
      suit if, in management’s opinion, the Banks’ chance of loss is minimal (such as
      with loans where the estimated value of the property greatly exceeds the amount
      of the loan) or if the original borrower is deceased or incapacitated. If a
      foreclosure action is initiated and the loan is not brought current, paid in
      full, or refinanced with another lender before the foreclosure sale, the real
      property securing the loan is sold at foreclosure. The Banks are represented
      at
      the foreclosure sale and in most cases will bid an amount equal to the Banks’
investment (including interest, advances for taxes and insurance, foreclosure
      costs, and attorney’s fees). If another bidder outbids the Bank, the Bank’s
      investment is received in full. If another bidder does not outbid the Banks,
      the
      Banks acquire the property and attempt to sell it to recover their
      investment.





A
      borrower’s filing for bankruptcy can alter the methods available to the Banks to
      seek collection. In such cases, the Banks work closely with legal counsel to
      resolve the delinquency as quickly as possible.





We
      may
      consider loan workout arrangements with certain borrowers under certain
      conditions. Management of each bank provides a report to its board of directors
      on a monthly basis of all loans more than 60 days delinquent, including loans
      in
      foreclosure, and all property acquired through foreclosure.





**Investment
      Activities**





We
      have
      legal authority to invest in various types of liquid assets, including U.S.
      Treasury obligations, securities of various federal agencies and state and
      municipal governments, mortgage-backed securities and certificates of deposit
      of
      federally insured institutions. We also are required to maintain an investment
      in FHLB-Cincinnati stock, the level of which is largely dependent on our level
      of borrowings from the FHLB.





At
      June
      30, 2008, our investment portfolio consisted primarily of U.S. Government agency
      securities with maturities of five years or less and mortgage-backed securities
      issued and guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae with stated
      final maturities of 30 years or less. The Company held no equity position with
      Fannie Mae or Freddie Mac.





Our
      investment objectives are to provide an alternate source of low-risk investments
      when loan demand is insufficient, to provide and maintain liquidity, to maintain
      a balance of high quality, diversified investments to minimize risk, to provide
      collateral for pledging requirements, to establish an acceptable level of
      interest rate risk, and to generate a favorable return. The Banks’ Board of
      Directors has the overall responsibility for each institution’s investment
      portfolio, including approval of investment policies **.** The
      management of each Bank may authorize investments as prescribed in each of
      the
      Bank’s investment policies.


6





**Bank
      Owned Life Insurance**




First
      Federal of Frankfort owns several Bank Owned Life Insurance policies totaling
      $2.3 million at June 30, 2008. The purpose of these policies is to offset future
      escalation of the costs of non-salary employee benefit plans such as First
      Federal of Frankfort’s defined benefit retirement plan and First Federal of
      Frankfort’s health insurance plan. The lives of certain key Bank employees are
      insured, and First Federal of Frankfort is the sole beneficiary and will receive
      any benefits upon the employee’s death. The policies were purchased from four
      highly-rated life insurance companies. The design of the plan allows for the
      cash value of the policy to be designated as an asset of First Federal of
      Frankfort. The asset’s value will increase by the crediting rate, which is a
      rate set by each insurance company and is subject to change on an annual basis.
      The growth of the value of the asset will be recorded as other operating income.
      Management does not foresee any expense associated with the plan. Because this
      is a life insurance product, current federal tax laws exempt the income from
      federal income taxes.





Bank
      owned life insurance is not secured by any government agency nor are the
      policies’ asset values or death benefits secured specifically by tangible
      property. Great care was taken in selecting the insurance companies, and the
      bond ratings and financial condition of these companies are monitored on a
      quarterly basis. The failure of one of these companies could result in a
      significant loss to First Federal of Frankfort. Other risks include the
      possibility that the favorable tax treatment of the income could change, that
      the crediting rate will not be increased in a manner comparable to market
      interest rates, or that this type of plan will no longer be permitted by First
      Federal of Frankfort’s regulators. This asset is considered illiquid because,
      although First Federal of Frankfort may terminate the policies and receive
      the
      original premium plus all earnings, such an action would require the payment
      of
      federal income taxes on all earnings since the policies’ inception.





**Deposit
      Activities and Other Sources of Funds**





***General*** **.** Deposits, loan repayments and maturities, redemptions, sales and repayments
      of
      investment and mortgage-backed securities are the major sources of our funds
      for
      lending and other investment purposes. Loan repayments are a relatively stable
      source of funds, while deposit inflows and outflows and loan prepayments are
      significantly influenced by general interest rates and money market
      conditions.





***Deposit
      Accounts*** **.** The vast
      majority of our depositors are residents of the Banks’ respective market areas.
      Deposits are attracted from within our market areas through the offering of
      passbook savings and certificate accounts, and, at First Federal of Frankfort,
      checking accounts and individual retirement accounts (“IRAs”). We do not utilize
      brokered funds. Deposit account terms vary according to the minimum balance
      required, the time periods the funds must remain on deposit and the interest
      rate, among other factors. In determining the terms of our deposit accounts,
      we
      consider the rates offered by our competition, profitability to us, asset
      liability management and customer preferences and concerns. We review our
      deposit mix and pricing on an ongoing basis as needed **.**





***Borrowings*** **.** First
      Federal of Hazard and First Federal of Frankfort borrow from the FHLB-Cincinnati
      to supplement their supplies of investable funds and to meet deposit withdrawal
      requirements. The Federal Home Loan Bank functions as a central reserve bank
      providing credit for member financial institutions. As members, each Bank is
      required to own capital stock in the FHLB-Cincinnati and is authorized to apply
      for advances on the security of such stock and certain of our mortgage loans
      and
      other assets (principally securities which are obligations of, or guaranteed
      by,
      the United States), provided certain standards related to creditworthiness
      have
      been met. Advances are made under several different programs, each having its
      own interest rate and range of maturities. Depending on the program, limitations
      on the amount of advances are based either on a fixed percentage of an
      institution’s net worth or on the Federal Home Loan Bank’s assessment of the
      institution’s creditworthiness.




**Subsidiary
      Activities**




The
      Company has no other wholly owned subsidiaries other than First Federal of
      Hazard and Frankfort First Bancorp.  Frankfort
      First Bancorp has one subsidiary, First Federal of Frankfort.


7


As
      federally chartered savings institutions, the Banks are permitted to invest
      an
      amount equal to 2% of assets in subsidiaries, with an additional investment
      of
      1% of assets where such investment serves primarily community, inner-city and
      community-development purposes. Under such limitations, as of June 30, 2008,
      First Federal of Hazard and First Federal of Frankfort were authorized to invest
      up to $3.4 million and $4.2 million, respectively, in the stock of or loans
      to
      subsidiaries, including the additional 1% investment for community, inner-city
      and community development purposes.





**Competition**





We
      face
      significant competition for the attraction of deposits and origination of loans.
      Our most direct competition for deposits has historically come from the banks
      and credit unions operating in our market areas and, to a lesser extent, from
      other financial services companies, such as investment brokerage firms. We
      also
      face competition for depositors’ funds from money market funds and other
      corporate and government securities. Several of our competitors are
      significantly larger than us and, therefore, have significantly greater
      resources. We expect competition to increase in the future as a result of
      legislative, regulatory and technological changes and the continuing trend
      of
      consolidation in the financial services industry. Technological advances, for
      example, have lowered the barriers to enter new market areas, allowed banks
      to
      expand their geographic reach by providing services over the Internet and made
      it possible for non-depository institutions to offer products and services
      that
      traditionally have been provided by banks. Changes in federal law permit
      affiliation among banks, securities firms and insurance companies, which
      promotes a competitive environment in the financial services industry.
      Competition for deposits and the origination of loans could limit our growth
      in
      the future.





According
      to the Federal Deposit Insurance Corporation (“FDIC”), at June 30, 2007, First
      Federal of Hazard had a deposit market share of 16.1% in Perry County. Its
      largest competitors, Peoples Bank & Trust Company of Hazard (approximately
      $285.8 million in assets), Community Trust Bank, Inc. (approximately $2.9
      billion in assets) and 1 st Trust
      Bank (approximately $81.0 million in assets), have Perry County deposit market
      shares of 46.3%, 17.2% and 11.0%, respectively. First Federal of Hazard’s
      competition for loans comes primarily from financial institutions in its market
      area and, to a lesser extent, from other financial services providers, such
      as
      mortgage companies and mortgage brokers. Competition for loans also comes from
      the increasing number of non-depository financial services companies entering
      the mortgage market, such as insurance companies, securities companies and
      specialty finance companies.





First
      Federal of Frankfort’s principal competitors for deposits in its market area are
      other banking institutions, such as commercial banks and credit unions, as
      well
      as mutual funds and other investments. First Federal of Frankfort principally
      competes for deposits by offering a variety of deposit accounts, convenient
      business hours and branch locations, customer service and a well-trained staff.
      According to the FDIC, at June 30, 2007, First Federal of Frankfort had a
      deposit market share of 6.4%. Its largest competitors for depositors are the
      Farmers Bank and Capital Trust ($602.3 million in assets) at a 45.6% market
      share, American Founders Bank ($508.9
      million in assets) at 20.4%, Whitaker Bank ($1.3 billion in assets) at 11.4%,
      Fifth Third Bank ($112 billion in assets) at 6.2%, and Republic Bank ($2.9
      billion in assets) at 4.4%. The Bank also faces considerable competition from
      credit unions including the Commonwealth Credit Union ($717.4 million in assets)
      and the Kentucky Employees Credit Union ($43.0 million in assets). First Federal
      of Frankfort competes for loans with other depository institutions, as well
      as
      specialty mortgage lenders and brokers and consumer finance companies. First
      Federal of Frankfort principally competes for loans on the basis of interest
      rates and the loan fees it charges, the types of loans it originates and the
      convenience and service it provides to borrowers. In addition, First Federal
      of
      Frankfort believes it has developed strong relationships with the businesses,
      real estate agents, builders and general public in its market area. Despite
      First Federal of Frankfort’s small size relative to the many and various other
      depository and lending institutions in its market area, First Federal of
      Frankfort usually ranks first with respect to the origination of single-family
      purchase mortgages made on properties located in Franklin County. Nevertheless,
      the level of competition in First Federal of Frankfort’s market area has
      limited, to a certain extent, the lending opportunities in its market
      area.


8


**Personnel**




At
      June
      30, 2008, we had 37 full-time employees and two part-time employees, none of
      whom is represented by a collective bargaining unit. We believe our relationship
      with our employees is good.





**Regulation
      and Supervision**





***General.*** First
      Federal of Hazard and First Federal of Frankfort are subject to extensive
      regulation, examination and supervision by the Office of Thrift Supervision,
      as
      their primary federal regulator, and the Federal Deposit Insurance Corporation,
      as insurer of deposits. First Federal of Hazard and First Federal of Frankfort
      are each members of the Federal Home Loan Bank System and their deposit accounts
      are insured up to applicable limits by the Deposit Insurance Fund managed by
      the
      Federal Deposit Insurance Corporation. First Federal of Hazard and First Federal
      of Frankfort must each file reports with the Office of Thrift Supervision and
      the Federal Deposit Insurance Corporation concerning their activities and
      financial condition in addition to obtaining regulatory approvals before
      entering into certain transactions such as mergers with, or acquisitions of,
      other financial institutions. There are periodic examinations by the Office
      of
      Thrift Supervision and, under certain circumstances, the Federal Deposit
      Insurance Corporation to evaluate First Federal of Hazard’s and First Federal of
      Frankfort’s safety and soundness and compliance with various regulatory
      requirements. This regulatory structure is intended primarily for the protection
      of the insurance fund and depositors.





Kentucky
      First and First Federal MHC, as savings and loan holding companies, are required
      to file certain reports with, and are subject to examination by, and otherwise
      are required to comply with the rules and regulations of the Office of Thrift
      Supervision. Certain of the regulatory requirements that are applicable to
      First
      Federal of Hazard, First Federal of Frankfort, Kentucky First and First Federal
      MHC are described below. This discussion does not purport to be a complete
      description of the laws and regulations involved, and is qualified in its
      entirety by the actual laws and regulations.





**Regulation
      of Federal Savings Institutions**





***Business
      Activities.*** Federal
      law and regulations, primarily the Home Owners’ Loan Act and the regulations of
      the Office of Thrift Supervision, govern the activities of federal savings
      institutions, such as First Federal of Hazard and First Federal of Frankfort.
      These laws and regulations delineate the nature and extent of the activities
      in
      which federal savings banks may engage. In particular, certain lending authority
      for federal savings institutions, *e.g.* ,
      commercial, nonresidential real property loans and consumer loans, is limited
      to
      a specified percentage of the institution’s capital or assets.





***Branching.*** Federal
      savings institutions are authorized to establish branch offices in any state
      or
      states of the United States and its territories, subject to the approval of
      the
      Office of Thrift Supervision.





***Capital
      Requirements*** **.** The
      Office of Thrift Supervision’s capital regulations require federal savings
      institutions to meet three minimum capital standards: a 1.5% tangible capital
      to
      total assets ratio, a 4% leverage ratio (3% for institutions receiving the
      highest examination rating under the Office of Thrift Supervision’s examination
      rating system) and an 8% risk-based capital ratio. In addition, the prompt
      corrective action standards discussed below also establish, in effect, a minimum
      2% tangible capital standard, a 4% leverage ratio (3% for institutions receiving
      the highest examination rating) and, together with the risk-based capital
      standard itself, a 4% Tier 1 risk-based capital standard. The Office of Thrift
      Supervision regulations also require that, in meeting the tangible, leverage
      and
      risk-based capital standards, institutions must generally deduct investments
      in
      and loans to subsidiaries engaged in activities as principal that are not
      permissible for a national bank.





The
      risk-based capital standard requires federal savings institutions to maintain
      Tier 1 (core) and total capital (which is defined as core capital and
      supplementary capital) to risk-weighted assets of at least 4% and 8%,
      respectively. In determining the amount of risk-weighted assets, all assets,
      including certain off-balance sheet assets, recourse obligations, residual
      interests and direct credit substitutes, are multiplied by a risk-weight factor
      assigned by the Office of Thrift Supervision capital regulation based on the
      risks believed inherent in the type of asset. Core (Tier 1) capital is defined
      as common stockholders’ equity (including retained earnings), certain
      noncumulative perpetual preferred stock and related surplus and minority
      interests in equity accounts of consolidated subsidiaries, less intangibles
      other than certain mortgage servicing rights and credit card relationships.
      The
      components of supplementary capital currently include cumulative preferred
      stock, long-term perpetual preferred stock, mandatory convertible securities,
      subordinated debt and intermediate preferred stock, the allowance for loan
      and
      lease losses limited to a maximum of 1.25% of risk-weighted assets and up to
      45%
      of unrealized gains on available-for-sale equity securities with readily
      determinable fair market values. Overall, the amount of supplementary capital
      included as part of total capital cannot exceed 100% of core
      capital.


9





The
      Office of Thrift Supervision also has authority to establish individual minimum
      capital requirements in appropriate cases upon a determination that an
      institution’s capital level is or may become inadequate in light of the
      particular circumstances. At June 30, 2008, First Federal of Hazard and First
      Federal of Frankfort each met each of these capital requirements.





***Prompt
      Corrective Regulatory Action.*** ** The
      Office of Thrift Supervision is required to take certain supervisory actions
      against undercapitalized institutions, the severity of which depends upon the
      institution’s degree of undercapitalization. Generally, a savings institution
      that has a ratio of total capital to risk weighted assets of less than 8%,
      a
      ratio of Tier 1 (core) capital to risk-weighted assets of less than 4% or a
      ratio of core capital to total assets of less than 4% (3% or less for
      institutions with the highest examination rating) is considered to be
“under-capitalized.” A savings institution that has a total risk-based capital
      ratio of less than 6%, a Tier 1 capital ratio of less than 3% or a leverage
      ratio that is less than 3% is considered to be “significantly undercapitalized”
and a savings institution that has a tangible capital to assets ratio equal
      to
      or less than 2% is deemed to be “critically undercapitalized.” Subject to a
      narrow exception, the Office of Thrift Supervision is required to appoint a
      receiver or conservator within specified time frames for an institution that
      is
“critically undercapitalized.” An institution must file a capital restoration
      plan with the Office of Thrift Supervision within 45 days of the date it
      receives notice that it is “undercapitalized,” “significantly undercapitalized,”
or “critically undercapitalized.” Compliance with the plan must be guaranteed by
      any parent holding company. In addition, numerous mandatory supervisory actions
      become immediately applicable to an undercapitalized institution, including,
      but
      not limited to, increased monitoring by regulators and restrictions on growth,
      capital distributions and expansion. “Significantly undercapitalized” and
“critically undercapitalized” institutions are subject to more extensive
      mandatory regulatory actions. The Office of Thrift Supervision could also take
      any one of a number of discretionary supervisory actions, including the issuance
      of a capital directive and the replacement of senior executive officers and
      directors.





***Loans
      to One Borrower.*** Federal
      law provides that savings institutions are generally subject to the limits
      on
      loans to one borrower applicable to national banks. A savings institution may
      not make a loan or extend credit to a single or related group of borrowers
      in
      excess of 15% of its unimpaired capital and surplus. An additional amount may
      be
      lent, equal to 10% of unimpaired capital and surplus, if secured by specified
      readily-marketable collateral.





***Standards
      for Safety and Soundness.*** As
      required by statute, the federal banking agencies have adopted Interagency
      Guidelines prescribing Standards for Safety and Soundness. The guidelines set
      forth the safety and soundness standards that the federal banking agencies
      use
      to identify and address problems at insured depository institutions before
      capital becomes impaired. If the Office of Thrift Supervision determines that
      a
      savings institution fails to meet any standard prescribed by the guidelines,
      the
      Office of Thrift Supervision may require the institution to submit an acceptable
      plan to achieve compliance with the standard.





***Limitation
      on Capital Distributions.*** Office
      of Thrift Supervision regulations impose limitations upon all capital
      distributions by a savings institution, including cash dividends, payments
      to
      repurchase its shares and payments to shareholders of another institution in
      a
      cash-out merger. Under the regulations, an application to and the prior approval
      of the Office of Thrift Supervision is required before any capital distribution
      if the institution does not meet the criteria for “expedited treatment” of
      applications under Office of Thrift Supervision regulations ( *i.e.* ,
      generally, examination and Community Reinvestment Act ratings in the two top
      categories), the total capital distributions for the calendar year exceed net
      income for that year plus the amount of retained net income for the preceding
      two years, the institution would be undercapitalized following the distribution
      or the distribution would otherwise be contrary to a statute, regulation or
      agreement with the Office of Thrift Supervision. If an application is not
      required, the institution must still provide prior notice to the Office of
      Thrift Supervision of the capital distribution if, like First Federal of Hazard
      and First Federal of Frankfort, it is a subsidiary of a holding company. If
      First Federal of Hazard’s or First Federal of Frankfort’s capital were ever to
      fall below its regulatory requirements or the Office of Thrift Supervision
      notified it that it was in need of increased supervision, its ability to make
      capital distributions could be restricted. In addition, the Office of Thrift
      Supervision could prohibit a proposed capital distribution that would otherwise
      be permitted by the regulation, if the agency determines that such distribution
      would constitute an unsafe or unsound practice.


10





***Qualified
      Thrift Lender Test.*** Federal
      law requires savings institutions to meet a qualified thrift lender test. Under
      the test, a savings association is required to either qualify as a “domestic
      building and loan association” under the Internal Revenue Code or maintain at
      least 65% of its “portfolio assets” (total assets less: (i) specified liquid
      assets up to 20% of total assets; (ii) intangibles, including goodwill; and
      (iii) the value of property used to conduct business) in certain “qualified
      thrift investments” (primarily residential mortgages and related investments,
      including certain mortgage-backed securities) in at least 9 months out of each
      12-month period.





A
      savings
      institution that fails the qualified thrift lender test is subject to certain
      operating restrictions and may be required to convert to a bank charter. Recent
      legislation has expanded the extent to which education loans, credit card loans
      and small business loans may be considered “qualified thrift investments.” At
      June 30, 2008, First Federal of Hazard and First Federal of Frankfort each
      met
      the qualified thrift lender test.





***Transactions
      with Related Parties.*** Federal
      law limits the authority of First Federal of Hazard and First Federal of
      Frankfort to lend to, and engage in certain other transactions with
      (collectively, “covered transactions”), “affiliates” ( *e.g.* ,
      any
      company that controls or is under common control with an institution, including
      Kentucky First, First Federal MHC and their non-savings institution
      subsidiaries). The aggregate amount of covered transactions with any individual
      affiliate is limited to 10% of the capital and surplus of the savings
      institution. The aggregate amount of covered transactions with all affiliates
      is
      limited to 20% of the savings institution’s capital and surplus. Loans and other
      specified transactions with affiliates are required to be secured by collateral
      in an amount and of a type described in federal law. The purchase of low quality
      assets from affiliates is generally prohibited. Transactions with affiliates
      must be on terms and under circumstances that are at least as favorable to
      the
      institution as those prevailing at the time for comparable transactions with
      non-affiliated companies. In addition, savings institutions are prohibited
      from
      lending to any affiliate that is engaged in activities that are not permissible
      for bank holding companies and no savings institution may purchase the
      securities of any affiliate other than a subsidiary. Transactions between sister
      depository institutions that are 80% or more owned by the same holding company
      are exempt from the quantitative limits and collateral requirements.





The
      Sarbanes-Oxley Act of 2002 generally prohibits a company from making loans
      to
      its executive officers and directors. However, that act contains a specific
      exception for loans by a depository institution to its executive officers and
      directors in compliance with federal banking laws. Under such laws, First
      Federal of Hazard’s and First Federal of Frankfort’s authority to extend credit
      to executive officers, directors and 10% shareholders (“insiders”), as well as
      entities such persons control, is limited. The law restricts both the individual
      and aggregate amount of loans First Federal of Hazard and First Federal of
      Frankfort may make to insiders based, in part, on First Federal of Hazard’s and
      First Federal of Frankfort’s respective capital positions and requires certain
      board approval procedures to be followed. Such loans must be made on terms
      substantially the same as those offered to unaffiliated individuals and not
      involve more than the normal risk of repayment. There is an exception for loans
      made pursuant to a benefit or compensation program that is widely available
      to
      all employees of the institution and does not give preference to insiders over
      other employees. There are additional restrictions applicable to loans to
      executive officers.





***Enforcement.*** The
      Office of Thrift Supervision has primary enforcement responsibility over federal
      savings institutions and has the authority to bring actions against the
      institution and all institution-affiliated parties, including stockholders,
      and
      any attorneys, appraisers and accountants who knowingly or recklessly
      participate in wrongful action likely to have an adverse effect on an insured
      institution. Formal enforcement action may range from the issuance of a capital
      directive or cease and desist order to removal of officers and/or directors
      to
      appointment of a receiver or conservator or termination of deposit insurance.
      Civil penalties cover a wide range of violations and can amount to $25,000
      per
      day, or even $1 million per day in especially egregious cases. The Federal
      Deposit Insurance Corporation has authority to recommend to the Director of
      the
      Office of Thrift Supervision that enforcement action to be taken with respect
      to
      a particular savings institution. If action is not taken by the Director, the
      Federal Deposit Insurance Corporation has authority to take such action under
      certain circumstances. Federal law also establishes criminal penalties for
      certain violations.


11





***Assessments.*** Federal
      savings banks are required to pay assessments to the Office of Thrift
      Supervision to fund its operations. The general assessments, paid on a
      semi-annual basis, are based upon the savings institution’s total assets,
      including consolidated subsidiaries, as reported in the institution’s latest
      quarterly thrift financial report, its financial condition and the complexity
      of
      its portfolio.





***Insurance
      of Deposit Accounts.***  The
      Banks’ deposits are insured up to applicable limits by the Deposit Insurance
      Fund of the FDIC. The Deposit Insurance Fund is the successor to the Bank
      Insurance Fund and the Savings Association Insurance Fund, which were merged
      in
      2006. The FDIC recently amended its risk-based assessment system for 2007 to
      implement authority granted by the Federal Deposit Insurance Reform Act of
      2005
      (“Reform Act”). Under the revised system, insured institutions are assigned to
      one of four risk categories based on supervisory evaluations, regulatory capital
      levels and certain other factors. An institution’s assessment rate depends upon
      the category to which it is assigned. Risk category I, which contains the least
      risky depository institutions, is expected to include more than 90% of all
      institutions. Unlike the other categories, Risk Category I contains further
      risk
      differentiation based on the FDIC’s analysis of financial ratios, examination
      component ratings and other information. Assessment rates are determined by
      the
      FDIC and currently range from five to seven basis points for the healthiest
      institutions (Risk Category I) to 43 basis points of assessable deposits for
      the
      riskiest (Risk Category IV). The FDIC may adjust rates uniformly from one
      quarter to the next, except that no single adjustment can exceed three basis
      points. No institution may pay a dividend if in default of the FDIC
      assessment.





The
      Reform Act also provided for a one-time credit for eligible institutions based
      on their assessment base as of December 31, 1996. Subject to certain limitations
      with respect to institutions that are exhibiting weaknesses, credits can be
      used
      to offset assessments until exhausted. First Federal of Hazard’s and First
      Federal of Frankfort’s one-time credits were approximately $126,000 and
      $126,000, respectively, of that, $73,000 and $90,000, respectively, remain
      unused at June 30, 2008. The Reform Act also provided for the possibility that
      the FDIC may pay dividends to insured institutions once the Deposit Insurance
      Fund reserve ratio equals or exceeds 1.35% of estimated insured
      deposits.





In
      addition to the assessment for deposit insurance, institutions are required
      to
      make payments on bonds issued in the late 1980s by the Financing Corporation
      to
      recapitalize a predecessor deposit insurance fund. This payment is established
      quarterly and during the four quarters ended June 30, 2008 averaged 1.35 basis
      points of assessable deposits.





The
      Reform Act provided the FDIC with authority to adjust the Deposit Insurance
      Fund
      ratio to insured deposits within a range of 1.15% and 1.50%, in contrast to
      the
      prior statutorily fixed ratio of 1.25%. The ratio, which is viewed by the FDIC
      as the level that the fund should achieve, was established by the agency at
      1.25% for 2008, which remained unchanged from 2007.





The
      FDIC
      has authority to increase insurance assessments. A significant increase in
      insurance premiums would likely have an adverse effect on the operating expenses
      and results of operations of the Banks. Management cannot predict what insurance
      assessment rates will be in the future. However, the recent failure of
      FDIC-insured institutions may increase the likelihood that insurance assessments
      will increase in the future.





Insurance
      of deposits may be terminated by the FDIC upon a finding that the institution
      has engaged in unsafe or unsound practices, is in an unsafe or unsound condition
      to continue operations or has violated any applicable law, regulation, rule,
      order or condition imposed by the FDIC. Management does not know of any
      practice, condition or violation that might lead to termination of deposit
      insurance.





***Federal
      Home Loan Bank System.*** First
      Federal of Hazard and First Federal of Frankfort are members of the Federal
      Home
      Loan Bank System, which consists of 12 regional Federal Home Loan Banks. The
      Federal Home Loan Bank provides a central credit facility primarily for member
      institutions. As members of the Federal Home Loan Bank of Cincinnati, First
      Federal of Hazard and First Federal of Frankfort are each required to acquire
      and hold shares of capital stock in that Federal Home Loan Bank. First Federal
      of Hazard and First Federal of Frankfort were in compliance with this
      requirement with investments in Federal Home Loan Bank of Cincinnati stock
      at
      June 30, 2008, of $2.1 million and $3.4 million, respectively.


12





***Community
      Reinvestment Act.*** ** Under
      the
      Community Reinvestment Act, as implemented by Office of Thrift Supervision
      regulations, a savings institution has a continuing and affirmative obligation
      consistent with its safe and sound operation to help meet the credit needs
      of
      its entire community, including low and moderate income neighborhoods. The
      Community Reinvestment Act does not establish specific lending requirements
      or
      programs for financial institutions nor does it limit an institution’s
      discretion to develop the types of products and services that it believes are
      best suited to its particular community, consistent with the Community
      Reinvestment Act. The Community Reinvestment Act requires the Office of Thrift
      Supervision, in connection with its examination of a savings association, to
      assess the institution’s record of meeting the credit needs of its community and
      to take such record into account in its evaluation of certain applications
      by
      such institution.





The
      Community Reinvestment Act requires public disclosure of an institution’s rating
      and requires the Office of Thrift Supervision to provide a written evaluation
      of
      an institution’s Community Reinvestment Act performance utilizing a four-tiered
      descriptive rating system. First Federal of Hazard and First Federal of
      Frankfort each received a “Satisfactory” rating as a result of their most recent
      Community Reinvestment Act assessments.





**Holding
      Company Regulation**





***General.*** Kentucky
      First and First Federal MHC are savings and loan holding companies within the
      meaning of federal law. As such, they are registered with the Office of Thrift
      Supervision and are subject to Office of Thrift Supervision regulations,
      examinations, supervision, reporting requirements and regulations concerning
      corporate governance and activities. In addition, the Office of Thrift
      Supervision has enforcement authority over Kentucky First and First Federal
      MHC
      and their non-savings institution subsidiaries. Among other things, this
      authority permits the Office of Thrift Supervision to restrict or prohibit
      activities that are determined to be a serious risk to First Federal of Hazard
      and/or First Federal of Frankfort.





***Restrictions
      Applicable to Mutual Holding Companies.*** According
      to federal law and Office of Thrift Supervision regulations, a mutual holding
      company, such as First Federal MHC, may generally engage in the following
      activities: (1) investing in the stock of insured depository institutions and
      acquiring them by means of a merger or acquisition; (2) investing in a
      corporation the capital stock of which may be lawfully purchased by a savings
      association under federal law; (3) furnishing or performing management services
      for a savings association subsidiary of a savings and loan holding company;
      (4)
      conducting an insurance agency or escrow business; (5) holding, managing or
      liquidating assets owned or acquired from a savings association subsidiary
      of
      the savings and loan holding company; (6) holding or managing properties used
      or
      occupied by a savings association subsidiary of the savings and loan holding
      company; (7) acting as trustee under deed or trust; (8) any activity permitted
      for multiple savings and loan holding companies by Office of Thrift Supervision
      regulations; (9) any activity permitted by the Board of Governors of the Federal
      Reserve System for bank holding companies and financial holding companies;
      and
      (10) any activity permissible for service corporations. Recent legislation,
      which authorized mutual holding companies to engage in activities permitted
      for
      financial holding companies, expanded the authorized activities. Financial
      holding companies may engage in a broad array of financial services activities,
      including insurance and securities.





Federal
      law prohibits a savings and loan holding company, including a federal mutual
      holding company, from directly or indirectly, or through one or more
      subsidiaries, acquiring more than 5% of the voting stock of another savings
      institution, or its holding company, without prior written approval of the
      Office of Thrift Supervision. Federal law also prohibits a savings and loan
      holding company from acquiring or retaining control of a depository institution
      that is not insured by the Federal Deposit Insurance Corporation. In evaluating
      applications by holding companies to acquire savings institutions, the Office
      of
      Thrift Supervision must consider the financial and managerial resources and
      future prospects of the company and institution involved, the effect of the
      acquisition on the risk to the insurance funds, the convenience and needs of
      the
      community and competitive factors.





The
      Office of Thrift Supervision is prohibited from approving any acquisition that
      would result in a multiple savings and loan holding company controlling savings
      institutions in more than one state, except: (1) the approval of interstate
      supervisory acquisitions by savings and loan holding companies, and (2) the
      acquisition of a savings institution in another state if the laws of the state
      of the target savings institution specifically permit such acquisitions. The
      states vary in the extent to which they permit interstate savings and loan
      holding company acquisitions.


13







If
      a
      savings institution subsidiary of a savings and loan holding company fails
      to
      meet the qualified thrift lender test set, the holding company must register
      with the Federal Reserve Board as a bank holding company within one year of
      the
      savings institution’s failure to so qualify.





***Stock
      Holding Company Subsidiary Regulation.*** The
      Office of Thrift Supervision has adopted regulations governing the two-tier
      mutual holding company form of organization and subsidiary stock holding
      companies that are controlled by mutual holding companies. Kentucky First is
      the
      stock holding company subsidiary of First Federal MHC. Kentucky First is only
      permitted to engage in activities that are permitted for First Federal MHC
      subject to the same restrictions and conditions.





***Waivers
      of Dividends by First Federal MHC*** *.* Office
      of
      Thrift Supervision regulations require First Federal MHC to notify the Office
      of
      Thrift Supervision if it proposes to waive receipt of our dividends from
      Kentucky First. The Office of Thrift Supervision reviews dividend waiver notices
      on a case-by-case basis, and, in general, does not object to any such waiver
      if:
      (i) the waiver would not be detrimental to the safe and sound operation of
      the
      savings association; and (ii) the mutual holding company’s board of directors
      determines that such waiver is consistent with such directors’ fiduciary duties
      to the mutual holding company’s members. The Office of Thrift Supervision will
      not consider the amount of dividends waived by the mutual holding company in
      determining an appropriate exchange ratio in the event of a full conversion
      to
      stock form. Kentucky First has been granted such a waiver. Dividends paid to
      shareholders on November 19, 2007, February 25, May 23 and August 18, 2008
      were
      waived by First Federal MHC.





***Conversion
      of First Federal MHC to Stock Form.*** Office
      of
      Thrift Supervision regulations permit First Federal MHC to convert from the
      mutual form of organization to the capital stock form of organization. In a
      conversion transaction, a new holding company would be formed as successor
      to
      First Federal MHC, its corporate existence would end, and certain depositors
      of
      First Federal of Hazard would receive the right to subscribe for additional
      shares of the new holding company. In a conversion transaction, each share
      of
      common stock held by stockholders other than First Federal MHC would be
      automatically converted into a number of shares of common stock of the new
      holding company based on an exchange ratio determined at the time of conversion
      that ensures that stockholders other than First Federal MHC own the same
      percentage of common stock in the new holding company as they owned in us
      immediately before conversion. Under Office of Thrift Supervision regulations,
      stockholders other than First Federal MHC would not be diluted because of any
      dividends waived by First Federal MHC (and waived dividends would not be
      considered in determining an appropriate exchange ratio), in the event First
      Federal MHC converts to stock form. The total number of shares held by
      stockholders other than First Federal MHC after a conversion transaction also
      would be increased by any purchases by stockholders other than First Federal
      MHC
      in the stock offering conducted as part of the conversion transaction.





***Acquisition
      of Control.*** Under
      the
      federal Change in Bank Control Act, a notice must be submitted to the Office
      of
      Thrift Supervision if any person (including a company), or group acting in
      concert, seeks to acquire “control” of a savings and loan holding company or
      savings association. An acquisition of “control” can occur upon the acquisition
      of 10% or more of the voting stock of a savings and loan holding company or
      savings institution or as otherwise defined by the Office of Thrift Supervision.
      Under the Change in Bank Control Act, the Office of Thrift Supervision has
      60
      days from the filing of a complete notice to act, taking into consideration
      certain factors, including the financial and managerial resources of the
      acquirer and the anti-trust effects of the acquisition. Any company that so
      acquires control would then be subject to regulation as a savings and loan
      holding company.





**Federal
      and State Taxation**





***General.*** We
      report our income on a fiscal year basis using the accrual method of
      accounting.





***Federal
      Taxation.*** The
      federal income tax laws apply to us in the same manner as to other corporations
      with some exceptions, including particularly the reserve for bad debts discussed
      below. The following discussion of tax matters is intended only as a summary
      and
      does not purport to be a comprehensive description of the tax rules applicable
      to us. Each of our federal income tax returns have been either audited or closed
      under the statute of limitations through tax year 2002. For the 2008 fiscal
      year, First Federal of Hazard’s and Frankfort First’s maximum federal income tax
      rate was 34%.


14





For
      fiscal years beginning before June 30, 1996, thrift institutions that
      qualified under certain definitional tests and other conditions of the Internal
      Revenue Code were permitted to use certain favorable provisions to calculate
      their deductions from taxable income for annual additions to their bad debt
      reserve. A reserve could be established for bad debts on qualifying real
      property loans, generally secured by interests in real property improved or
      to
      be improved, under the percentage of taxable income method or the experience
      method. The reserve for nonqualifying loans was computed using the experience
      method. Federal legislation enacted in 1996 repealed the reserve method of
      accounting for bad debts and the percentage of taxable income method for tax
      years beginning after 1995 and require savings institutions to recapture or
      take
      into income certain portions of their accumulated bad debt reserves. First
      Federal of Hazard did not qualify for such favorable tax treatment for any
      years
      through 1996. Approximately $5.4 million of First Federal of Frankfort First’s
      accumulated bad debt reserves would not be recaptured into taxable income unless
      Frankfort First makes a “non-dividend distribution” to Kentucky First as
      described below.





If
      First
      Federal of Hazard or First Federal of Frankfort makes “non-dividend
      distributions” to us, the distributions will be considered to have been made
      from First Federal of Hazard’s and First Federal of Frankfort’s unrecaptured tax
      bad debt reserves, including the balance of their reserves as of
      December 31, 1987, to the extent of the “non-dividend distributions,” and
      then from First Federal of Frankfort’s supplemental reserve for losses on loans,
      to the extent of those reserves, and an amount based on the amount distributed,
      but not more than the amount of those reserves, will be included in First
      Federal of Frankfort’s taxable income. Non-dividend distributions include
      distributions in excess of First Federal of Frankfort’s current and accumulated
      earnings and profits, as calculated for federal income tax purposes,
      distributions in redemption of stock, and distributions in partial or complete
      liquidation. Dividends paid out of First Federal of Frankfort’s current or
      accumulated earnings and profits will not be so included in First Federal of
      Frankfort’s taxable income.





The
      amount of additional taxable income triggered by a non-dividend is an amount
      that, when reduced by the tax attributable to the income, is equal to the amount
      of the distribution. Therefore, if First Federal of Frankfort makes a
      non-dividend distribution to us, approximately one and one-half times the amount
      of the distribution not in excess of the amount of the reserves would be
      includable in income for federal income tax purposes, assuming a 34% federal
      corporate income tax rate. First Federal of Frankfort does not intend to pay
      dividends that would result in a recapture of any portion of its bad debt
      reserves.





***State
      Taxation.*** ** Although
      First Federal MHC and Kentucky First are subject to the Kentucky corporation
      income tax and state corporation license tax (franchise tax), the corporation
      license tax is repealed effective for tax periods ending on or after December
      31, 2005. Gross income of corporations subject to Kentucky income tax is similar
      to income reported for federal income tax purposes except that dividend income,
      among other income items, is exempt from taxation. For First Federal MHC and
      Kentucky First tax years beginning July 1, 2005, the corporations are subject
      to
      an alternative minimum income tax. Corporations must pay the greater of the
      income tax, the alternative tax or $175. The corporations can choose between
      two
      methods to calculate the alternative minimum; 9.5 cents per $100 of the
      corporation’s gross receipts, or 75 cents per $100 of the corporation’s Kentucky
      gross profits. Kentucky gross profits means Kentucky gross receipts reduced
      by
      returns and allowances attributable to Kentucky gross receipts, less Kentucky
      cost of goods sold. The corporations, in their capacity as holding companies
      for
      financial institutions, do not have a material amount of cost of good sold.
      Although the corporate license tax rate is 0.21% of total capital employed
      in
      Kentucky, a bank holding company, as defined in Kentucky Revised Statutes
      287.900, is allowed to deduct from its taxable capital, the book value of its
      investment in the stock or securities of subsidiaries that are subject to the
      bank franchise tax.





First
      Federal of Hazard and First Federal of Frankfort are exempt from both the
      Kentucky corporation income tax and corporation license tax. However, both
      institutions are instead subject to the bank franchise tax, an annual tax
      imposed on federally or state chartered savings and loan associations, savings
      banks and other similar institutions operating in Kentucky. The tax is 0.1%
      of
      taxable capital stock held as of January 1 each year. Taxable capital stock
      includes an institution’s undivided profits, surplus and general reserves plus
      savings accounts and paid-up stock less deductible items. Deductible items
      include certain exempt federal obligations and Kentucky municipal bonds.
      Financial institutions which are subject to tax both within and without Kentucky
      must apportion their net capital.


15





**Item
      1A. Risk Factors**





***We
      may not be able to achieve sufficient growth in our retail franchise to allow
      us
      to achieve the anticipated benefits of our merger with Frankfort First
      Bancorp*** **.**





We
      intend
      to efficiently utilize excess liquidity at either Bank or Kentucky First by
      buying and selling whole loans or participations in loans between First Federal
      of Hazard and First Federal of Frankfort, with the originating bank retaining
      servicing of any loans sold, or by making deposits into accounts at either
      bank,
      subject to regulatory limitations, in order to maximize the potential earnings
      of each bank. This strategy will not succeed if we do not maintain sufficient
      loan demand at First Federal of Frankfort or sufficient deposit growth and
      retention at First Federal of Hazard. At June 30, 2008, Frankfort First had
      total real estate loans of $106.2 million, compared to $117.6 million at June
      30, 2007, a decrease of approximately $11.4 million, or 9.7%. Loans sold by
      First Federal of Frankfort to First Federal of Hazard were $41.9 million and
      $21.4 million at June 30, 2008 and 2007, respectively. At June 30, 2008, First
      Federal of Hazard had total deposits of $79.9 million, compared to total
      deposits of $84.4 million at June 30, 2007, a decrease of $4.5 million, or
      5.3%.
      There can be no assurance as to if or when this strategy can be accomplished.
      In
      an attempt to increase the overall interest rate spread of the combined company,
      management may adopt strategies that result in decreases in the assets and/or
      liabilities of either or both Banks.





***Rising
      interest rates may hurt our profits and asset values*** **.**





If
      interest rates continue to rise, our net interest income would likely decline
      in
      the short term since, due to the generally shorter terms of interest-bearing
      liabilities, interest expense paid on interest-bearing liabilities, increases
      more quickly than interest income earned on interest-earning assets, such as
      loans and investments. **** In
      addition, a continuation of rising interest rates may hurt our income because
      of
      reduced demand for new loans, the demand for refinancing loans and the interest
      and fee income earned on new loans and refinancings. At June 30, 2008, in the
      event of an instantaneous and permanent 200 basis point increase in interest
      rates, our net portfolio value, which represents the discounted present value
      of
      the difference between incoming cash flows on interest-earning and other assets
      and outgoing cash flows on interest-bearing liabilities, would be expected
      to
      decrease by approximately 15.5%. While we believe that modest interest rate
      increases will not significantly hurt our interest rate spread over the long
      term due to our high level of liquidity and the presence of a significant amount
      of adjustable-rate mortgage loans in our loan portfolio, interest rate increases
      may initially reduce our interest rate spread until such time as our loans
      and
      investments reprice to higher levels.





Changes
      in interest rates also affect the value of our interest-earning assets, and
      in
      particular our securities portfolio. Generally, the value of fixed-rate
      securities fluctuates inversely with changes in interest rates. Unrealized
      gains
      and losses on securities available for sale are reported as separate components
      of equity. Decreases in the fair value of securities available for sale
      resulting from increases in interest rates therefore could have an adverse
      effect on stockholders’ equity.


16


***Strong
      competition within our market area could hurt our profits and slow
      growth.***





Although
      we consider ourselves competitive in our market areas, we face intense
      competition both in making loans and attracting deposits. Price competition
      for
      loans and deposits might result in our earning less on our loans and paying
      more
      on our deposits, which reduces net interest income. Some of the institutions
      with which we compete have substantially greater resources than we have and
      may
      offer services that we do not provide. We expect competition to increase in
      the
      future as a result of legislative, regulatory and technological changes and
      the
      continuing trend of consolidation in the financial services industry. Our
      profitability will depend upon our continued ability to compete successfully
      in
      our market areas.





***The
      distressed economy in First Federal of Hazard’s market area could hurt our
      profits and slow our growth.***





First
      Federal of Hazard’s market area consists of Perry and surrounding counties in
      eastern Kentucky. The economy in this market area has been distressed in recent
      years due to the decline in the coal industry on which the economy has been
      dependent. While there has been improvement in the economy from the influx
      of
      other industries, such as health care and manufacturing, and there may be signs
      that the coal industry is improving with the rising costs of petroleum, the
      economy in First Federal of Hazard’s market area continues to lag behind the
      economies of Kentucky and the United States. As a result, First Federal of
      Hazard has experienced insufficient loan demand in its market area. While First
      Federal of Hazard will seek to use excess funds to purchase loans from First
      Federal of Frankfort, we expect the redeployment of funds from securities into
      loans to take several years. Moreover, the slow economy in First Federal of
      Hazard’s market area will limit our ability to grow our asset base in that
      market.





***We
      operate in a highly regulated environment and we may be adversely affected
      by
      changes in laws and regulations.***





We
      are
      subject to extensive government regulation, supervision and examination. Such
      regulation, supervision and examination govern the activities in which we may
      engage, and is intended primarily for the protection of the deposit insurance
      fund and our depositors. Regulatory authorities have extensive discretion in
      their supervisory and enforcement activities, including the imposition of
      restrictions on our operations, the classification of our assets and
      determination of the level of our allowance for loan losses. Any change in
      such
      regulation and oversight, whether in the form of regulatory policy, regulations,
      legislation or supervisory action, may have a material impact on our
      operations.





***We
      expect that our return on equity will be low compared to other companies as
      a
      result of our high level of capital.***





Return
      on
      average equity, which equals net income divided by average equity, is a ratio
      used by many investors to compare the performance of a particular company with
      other companies. For the year ended June 30, 2008, our return on average equity
      was 1.54%. Over time, we intend to leverage our capital by continued investment
      in higher-yielding assets, such as loans. We also intend to continue managing
      excess capital through our stock repurchase program, which has been successful,
      given relatively low market prices of the Company’s common stock. However, this
      program could be curtailed or rendered less effective if the market price of
      our
      stock increases, or if the Company’s liquid funds are deployed elsewhere. Our
      goal of generating a return on average equity that is competitive with other
      publicly-held subsidiaries of mutual holding companies, by increasing earnings
      per share and book value per share, without assuming undue risk, could take
      a
      number of years to achieve, and we cannot assure that our goal will be attained.
      Consequently, you should not expect a competitive return on average equity
      in
      the near future. Failure to achieve a competitive return on average equity
      might
      make an investment in our common stock unattractive to some investors and might
      cause our common stock to trade at lower prices than comparable companies with
      higher returns on average equity.


17


***Additional
      annual employee compensation and benefit expenses may reduce our profitability
      and stockholders’ equity*** **.**





We
      will
      continue to recognize employee compensation and benefit expenses for employees
      and executives under our benefit plans. With regard to the employee stock
      ownership plan, applicable accounting practices require that the expense be
      based on the fair market value of the shares of common stock at specific points
      in the future, therefore we will recognize expenses for our employee stock
      ownership plan when shares are committed to be released to participants’
accounts. We will also recognize expenses for restricted stock awards and
      options over the vesting periods of those awards. In addition, employees of
      both
      subsidiary Banks participate in a defined-benefit plan through Pentegra. Costs
      associated with the defined-benefit plans could increase or legislation could
      be
      enacted that would increase the Banks’ obligations under the plan or change the
      methods the Banks use in accounting for the plans. Those changes could adversely
      affect personnel expense and the Company’s balance sheet.





***First
      Federal MHC owns a majority of our common stock and is able to exercise voting
      control over most matters put to a vote of stockholders, including preventing
      sale or merger transactions you may like or a second-step conversion by First
      Federal MHC.***





First
      Federal MHC owns a majority of our common stock and, through its Board of
      Directors, is able to exercise voting control over most matters put to a vote
      of
      stockholders. As a federally chartered mutual holding company, the board of
      directors of First Federal MHC must ensure that the interests of depositors
      of
      First Federal of Hazard are represented and considered in matters put to a
      vote
      of stockholders of Kentucky First. Therefore, the votes cast by First Federal
      MHC may not be in your personal best interests as a stockholder. For example,
      First Federal MHC may exercise its voting control to prevent a sale or merger
      transaction in which stockholders could receive a premium for their shares,
      prevent a second-step conversion transaction by First Federal MHC or defeat
      a
      stockholder nominee for election to the Board of Directors of Kentucky First.
      However, implementation of a stock-based incentive plan will require approval
      of
      Kentucky First’s stockholders other than First Federal MHC. Office of Thrift
      Supervision regulations would likely prevent an acquisition of Kentucky First
      other than by another mutual holding company or a mutual
      institution.





***There
      may be a limited market for our common stock which may lower our stock
      price.***





Although
      our shares of common stock are listed on the Nasdaq Global Market, there is
      no
      guarantee that the shares will be regularly traded. If an active trading market
      for our common stock does not develop, you may not be able to sell all of your
      shares of common stock on short notice and the sale of a large number of shares
      at one time could temporarily depress the market price.





**Item
      1B. Unresolved Staff Comments**





None.


18


**Item
      2.**  **Properties**





We
      conduct our business through four offices. The following table sets forth
      certain information relating to our offices at June 30, 2008.


**Year**
                **Opened/Acquired**
              
              **Owned or**
                **Leased**
              
              **Net**
                **Book Value at**
                **June 30,**
                **2008**
              
              **Approximate**
                **Square Footage****(Dollars
                  in thousands)*****First
                  Federal of Hazard***
                Main
                  Office:
                479
                  Main Street
                Hazard,
                  Kentucky 41701
              
              
              1960
              
              
              Owned
              
              $
              76
              
              
              15,000***First
                  Federal of Frankfort*******
                Main
                  Office:
                216
                  West Main Street
                Frankfort,
                  Kentucky 40601
              
              
              2005
              
              
              Owned
              
              
              1,320
              
              
              14,000East
                  Branch
                1980
                  Versailles Road
                Frankfort,
                  Kentucky 40601
              
              
              2005
              
              
              Owned
              
              
              519
              
              
              1,800West
                  Branch
                1220
                  US 127 South
                Frankfort,
                  Kentucky 40601
              
              
              2005
              
              
              Owned
              
              
              501
              
              
              2,480




The
      net
      book value of our investment in premises and equipment was $2.7 million at
      June
      30, 2008. See Note E of Notes to Consolidated Financial Statements.




**Item
      3. Legal Proceedings**




From
      time
      to time, we may be defendants in claims and lawsuits against us, such as claims
      to enforce liens, condemnation proceedings on properties in which we hold
      security interests, claims involving the making and servicing of real property
      loans and other issues incident to our business. We are not a party to any
      pending legal proceedings that we believe could have a material adverse effect
      on our financial condition, results of operations or cash flows.




**Item
      4.**  **Submission
      of Matters to a Vote of Security Holders**




Not
      applicable.


19


**PART
      II**




**Item
      5.**  **Market
      for the Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities**




(a)  The
      information contained under the sections captioned “Market Information” in the
      Company’s Annual Report to Stockholders for the Fiscal Year Ended June 30, 2008
      (the “Annual Report”) filed as Exhibit 13 hereto is incorporated herein by
      reference.




(b)
      Not
      applicable.





(c)  The
      Company repurchased the following equity securities registered under the
      Securities Exchange Act of 1934, as amended, during the fourth quarter of the
      fiscal year ended June 30, 2008.




**Period**
            
            **(a)**
              **Total**
              **Number of**
              **Shares**
              **Purchased**
            
            **(b)**
              **Average**
              **Price Paid**
              **per Share**
            
            **(c)**
              **Total Number of**
              **Shares Purchased**
              **as Part of Publicly**
              **Announced Plans**
              **or Programs**
            
            **(d)**
              **Maximum**
              **Number of Shares**
              **That May Yet Be**
              **Purchased Under**
              **the Plans or**
              **Programs (1)**April
                2008
              Beginning
                date: April 1
              Ending
                date: April 30
            
            
            12,500
            
            $
            10.16
            
            
            12,500
            
            
            110,500May
                2008
              Beginning
                date: May 1
              Ending
                date: May 31
            
            
            12,800
            
            $
            10.12
            
            
            12,800
            
            
            97,700June
                2008
              Beginning
                date: June 1
              Ending
                date: June 30
            
            
            27,200
            
            $
            9.99
            
            
            27,200
            
            
            70,500Total
            
            
            52,500
            
            $
            10.06
            
            
            52,500







(1)
            On
                August 17, 2007, the Company announced a program to repurchase up
                to
                150,000 shares of its Common Stock. This program was completed on
                February
                13, 2008 when the Company completed the repurchase of substantially
                all
                shares authorized under this program and on that same date announced
                another program to repurchase up to 150,000 shares of its Common
                Stock.





**Item
      6.**  **Selected
      Financial Data**





The
      information contained in the table captioned “Selected Consolidated Financial
      and Other Data” in the Annual Report is incorporated herein by
      reference.




**Item
      7.**  **Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations**




The
      information contained in the section captioned “Management’s Discussion and
      Analysis of Financial Condition and Results of Operations” in the Annual Report
      is incorporated herein by reference.




**Item
      7A.**  **Quantitative
      and Qualitative Disclosures About Market Risk**




The
      information contained under the sections captioned “Market Risk” in the Annual
      Report is incorporated herein by reference.


20


**Item
      8.**  **Financial
      Statements and Supplementary Data**




The
      Consolidated Financial Statements, Notes to Consolidated Financial Statements,
      Independent Auditor’s Report and Selected Financial Data, which are listed under
      Item 15 herein, are included in the Annual Report and are incorporated herein
      by
      reference.




**Item
      9.**  **Changes
      in and Disagreements With Accountants on Accounting and Financial
      Disclosure**




None.




**Item
      9A(T).**  **Controls
      and Procedures**





(a)
            Disclosure
                Controls and Procedures





The
      Company’s management, including the Company’s principal executive officer and
      principal financial officer, have conducted an evaluation of the effectiveness
      of the Company’s “disclosure controls and procedures,” as such term is defined
      in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934,
      as
      amended, (the “Exchange Act”). Based upon their evaluation, management has
      concluded that, as a result of a material weakness in internal control over
      financial reporting discussed below, as of June 30, 2008, the Company’s
      disclosure controls and procedures were not effective to ensure that information
      required to be disclosed by us in the reports that we file or submit under
      the
      Exchange Act is recorded, processed, summarized and reported within the time
      periods specified in the SEC’s rules and regulations.





(b)
            Management’s
                Annual Report on Internal Control Over Financial Reporting





Management
      is responsible for establishing and maintaining adequate internal control over
      financial reporting, as such term is defined under Exchange Act Rule 13a-15(f).
      The Company’s internal control over financial reporting is designed to provide
      reasonable assurance to its management and board of directors regarding the
      preparation and fair presentation of published financial statements. Under
      the
      supervision and with the participation of our management, including our
      principal executive officer and principal financial officer, we conducted an
      evaluation of the effectiveness of our internal control over financial reporting
      based on the framework in *Internal
      Control-Integrated Framework* issued
      by the Committee of Sponsoring Organizations of the Treadway Commission. Based
      on this evaluation, management has concluded that the Company’s disclosure
      controls and procedures are not effective because of the identification of
      a
      material weakness in our internal control over financial reporting, which we
      view as an integral part of our disclosure controls and procedures. ** A
      material weakness is a deficiency, or a combination of control deficiencies,
      in
      internal control over financial reporting such that there is a reasonable
      possibility that a material misstatement of the Company’s annual or interim
      financial statements will not be prevented or detected on a timely basis.





During
      the course of our external audit for the fiscal year ended June 30, 2008, we
      noted an adjustment identified by our external auditors related to accrual
      of
      mortgage loan interest receivable. While management has concluded that the
      Company did not maintain effective internal control over financial reporting
      as
      of June 30, 2008, due to this material weakness, this did not result in a
      material misstatement of any of the Company’s financial statements, including
      the annual and interim financial statements for fiscal 2008.





This
      annual report does not include an attestation report of the Company’s registered
      public accounting firm regarding internal control over financial reporting.
      Management’s report was not subject to attestation by the Company’s registered
      public accounting firm pursuant to temporary rules of the Securities and
      Exchange Commission that permit the Company to provide only management’s report
      in this Annual Report on Form 10-K.





21


(c)
            Changes
                to Internal Control Over Financial
                Reporting





In
      connection with the above evaluation of our disclosure controls and procedures,
      no change was identified that occurred in the Company’s internal control over
      financial reporting during the three months ended June 30, 2008 that have
      materially affected, or are reasonably likely to materially affect, the
      Company’s internal control over financial reporting. However, management has
      taken remedial steps to address the material weakness described above in
“Management’s Annual Report on Internal Control Over Financial
      Reporting.”





**Item
      9B. Other Information**





Not
      Applicable.


22


**PART
      III**





**Item
      10.**  **Directors,
      Executive Officers, and Corporate Governance**





**Directors**





The
      information contained under the section captioned “Proposal I — Election of
      Directors” in the Company’s definitive proxy statement for the Company’s 2008
      Annual Meeting of Stockholders (the “Proxy Statement”) is incorporated herein by
      reference.





**Executive
      Officers**





The
      information regarding the Company’s executive officers is incorporated herein by
      reference to *“Proposal
      I - Election of Directors”* in the
      Proxy Statement.





**Corporate
      Governance**





Information
      regarding the Company’s Audit Committee and Audit Committee financial expert is
      incorporated herein by reference to the section captioned *“Proposal
      I ─ Election of Directors ─ Committees of the Board of
      Directors”* in the
      Proxy Statement.





**Compliance
      with Section 16(a) of the Exchange Act**





Information
      regarding compliance with Section 16(a) of the Exchange Act, the cover page
      to
      this Annual Report on Form 10-K and the section captioned *“Section
      16(a) Beneficial Ownership Reporting Compliance”* in the
      Proxy Statement are incorporated herein by reference.





**Disclosure
      of Code of Ethics**





Kentucky
      First has adopted a Code of Ethics and Business Conduct that applies to all
      of
      its directors, officers and employees. To obtain a copy of this document at
      no
      charge, please write to Kentucky First Federal Bancorp, P.O. Box 535, Frankfort,
      Kentucky 40602-0535, or call toll-free (888) 818-3372 and ask for Investor
      Relations.




**Item
      11.**  **Executive
      Compensation**




The
      information contained under the section captioned “Executive Compensation” in
      the Proxy Statement is incorporated herein by reference.





**Item
      12.**  **Security
      Ownership of Certain Beneficial Owners and Management and Related Stockholder
      Matters**







(a)
            **Security
                Ownership of Certain Beneficial Owners.**Information
                required by this item is incorporated herein by reference to the
                section
                captioned “Voting Securities and Security Ownership” in the Proxy
                Statement.




(b)
            **Security
                Ownership of Management.**Information
                required by this item is incorporated herein by reference to the
                sections
                captioned “Voting Securities and Security Ownership” and “Proposal
                I — Election of Directors” in the Proxy
                Statement.




(c)
            **Changes
                in Control.**Management
                of the Company knows of no arrangements, including any pledge by
                any
                person of securities of the Company, the operation of which may at
                a
                subsequent date result in a change in control of the Company.


23


(d)
            **Equity
                Compensation Plans.**The
                following table sets forth certain information with respect to the
                Company’s equity compensation plans as of June 30,
                2008.




**(a)**
              **Number of securities to be**
              **issued upon exercise of**
              **outstanding options,**
              **warrants and rights**
            
            **(b)**
              **Weighted-average**
              **exercise price of**
              **outstanding options,**
              **warrants and rights**
            
            **(c)**
              **Number of securities**
              **remaining available**
              **for future issuance**
              **under equity compensation**
              **plans (excluding securities**
              **reflected in column (a))**Equity
                compensation plans approved by security holders
            
            
            339,200
            
            $
            10.10
            
            
            82,016Equity
                compensation plans not approved by security holders
            
            
            —
            
            
            —
            
            
            —Total
            
            
            339,200
            
            $
            10.10
            
            
            82,016







**Item
      13.**  **Certain
      Relationships and Related Transactions, and Director
      Independence**





**Certain
      Relationships and Related Transactions**





The
      information required by this item is incorporated herein by reference to the
      section captioned “Proposal I — Election of Directors — Transactions with
      Management” in the Proxy Statement.





**Corporate
      Governance**





For
      information regarding director independence, the section captioned *“Proposal
      I – Election of Directors”* is
      incorporated herein by reference.





**Item
      14. Principal Accountant Fees and Services**




The
      information required by this item is incorporated herein by reference to the
      section captioned *“Audit
      and Other Fees Paid to Independent Registered Public Accounting
      Firm”* in the
      Proxy Statement.




**PART
      IV**




**Item
      15.**  **Exhibits
      and Financial Statement Schedules**




**(a)** **List
      of Documents Filed as Part of This Report**




(1)
            ***Financial
                Statements*****.**The following consolidated financial statements are incorporated
                by
                reference from Item 8 hereof (see Exhibit
                13):




Report
      of
      Independent Registered Public Accounting Firm


Consolidated
      Statements of Financial Condition as of June 30, 2008 and 2007


Consolidated
      Statements of Earnings for the Years Ended June 30, 2008 and 2007


Consolidated
      Statements of Shareholders’ Equity and Comprehensive Income for the Years Ended


June 30, 2008 and 2007


Consolidated
      Statements of Cash Flows for the Years Ended June 30, 2008 and 2007


Notes
      to
      Consolidated Financial Statements


24


(2)
            ***Financial
                Statement Schedules******.***All schedules for which provision is made in the applicable accounting
                regulations of the Securities and Exchange Commission are omitted
                because
                of the absence of conditions under which they are required or because
                the
                required information is included in the consolidated financial statements
                and related notes thereto.




(3)
            ***Exhibits*****.**The following is a list of exhibits filed as part of this Annual
                Report on
                Form 10-K and is also the Exhibit
                Index.




**No.**
            
            **Description**3.1
            
            Charter
                of Kentucky First Federal Bancorp*3.2
            
            Bylaws
                of Kentucky First Federal Bancorp*4.1
            
            Specimen
                Stock Certificate of Kentucky First Federal Bancorp*10.1
            
            Form
                of First Federal Savings and Loan Association of Hazard Employee
                Stock
                Ownership Plan and Trust Agreement*†10.2
            
            Form
                of ESOP Loan Documents*†10.3
            
            Form
                of Employment Agreement between Kentucky First Federal Bancorp, First
                Federal Savings Bank of Frankfort and Don D. Jennings*†10.4
            
            Form
                of Employment Agreement between Kentucky First Federal Bancorp, First
                Federal Savings Bank of Frankfort and R. Clay Hulette*†10.5
            
            Form
                of Employment Agreement between First Federal Savings Bank of Frankfort
                and Danny A. Garland*†10.6
            
            Form
                of Employment Agreement between First Federal Savings Bank of Frankfort
                and Teresa Kuhl*†10.7
            
            Form
                of Employment Agreement between Kentucky First Federal Bancorp, First
                Federal Savings and Loan Association of Hazard and Tony D.
                Whitaker*†10.8
            
            Form
                of First Federal Savings and Loan Association of Hazard Supplemental
                Executive Retirement Plan*†10.9
            
            Form
                of First Federal Savings and Loan Association of Hazard Change in
                Control
                Severance Compensation Plan*†10.10
            
            Form
                of First Federal Savings Bank of Frankfort Change in Control Severance
                Compensation Plan*†10.11
            
            Kentucky
                First Federal Bancorp 2005 Equity Incentive Plan **†10.12
            
            Form
                of Restricted Stock Award Agreement***†10.13
            
            Form
                of Incentive Stock Option Award Agreement***†10.14
            
            Form
                of Non-Statutory Option Award Agreement***†13
            
            Annual
                Report to Stockholders for the year ended June 30, 200821
            
            Subsidiaries23.1
            
            Consent
                of BKD LLP31.1
            
            Rule
                13a-14(a) Certification of Chief Executive Officer31.2
            
            Rule
                13a-14(a) Certification of Chief Financial Officer32
            
            Section
                1350 Certifications


__________


†
            Management
                contract or compensation plan or
                arrangement.


*
            Incorporated
                herein by reference to the Company’s Registration Statement on Form S-1
                (File No. 333-119041).


**
            Incorporated
                herein by reference to the Company’s definitive additional proxy
                solicitation materials filed with the Securities and Exchange Commission
                on October 24, 2005.


***
            Incorporated
                herein by reference to the Company’s Registration Statement on Form S-8
                (File No. 333-130243).





**(b)**
            **Exhibits****.**The exhibits required by Item 601 of Regulation S-K are either filed
                as
                part of this Annual Report onForm
                10-K or incorporated by reference
                herein.




**(c)**
            **Financial
                Statements and Schedules Excluded from Annual
                Report****.**There are no other financial statementsand
                financial statement schedules which were excluded from the Annual
                Report
                to Stockholders pursuant toRule
                14a-3(b) which are required to be included
                herein.


25


**SIGNATURES**





Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
      1934, the registrant has duly caused this report to be signed on its behalf
      by
      the undersigned, thereunto duly authorized.





KENTUCKY
                FIRST FEDERAL BANCORPSeptember
                29, 2008
            By:
            /s/
                Tony D. WhitakerTony
                D. WhitakerChief
                Executive Officer





Pursuant
      to the requirements of the Securities Exchange Act of 1934, this report has
      been
      signed below by the following persons on behalf of the registrant and in the
      capacities and on the dates indicated.





/s/
                Tony D. Whitaker
            September
                  29, 2008Tony
                D. WhitakerChairman
                of the Board and Chief Executive Officer(Principal
                Executive Officer)/s/
                R. Clay Hulette
            September
                  29, 2008R.
                Clay HuletteVice
                President, Chief Financial Officer and Treasurer(Principal
                Financial and Accounting Officer)/s/
Don
              D. Jennings
            September
                  29, 2008Don
                D. JenningsDirector/s/
Stephen
              G. Barker
            September
                  29, 2008Stephen
                G. BarkerDirector/s/
William
              D. Gorman
            September
                  29, 2008William
                D. GormanDirector/s/
Walter
              G. Ecton, Jr.
            September
                  29, 2008Walter
                G. Ecton, Jr.Director/s/
David
              R. Harrod
            September
                  29, 2008David
                R. HarrodDirector/s/
Herman
              D. Regan, Jr.
            September
                29, 2008Herman
                D. Regan, Jr.Director