SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K
                                   (Mark One)
        ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
[X]     EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the fiscal year ended           September 30, 1996
                          -------------------------------------

                                     - or -

        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
|_|     EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the transition period from                              to
                               ----------------------------    -----------------
Commission Number:  0-26570

                    HARRODSBURG FIRST FINANCIAL BANCORP, INC.
                    -----------------------------------------
             (Exact name of Registrant as specified in its Charter)

                Delaware                                  61-1284899
---------------------------------------------         -------------------
(State or other jurisdiction of incorporation         (I.R.S. Employer
  or organization)                                    Identification No.)

104 South Chiles Street, Harrodsburg, Kentucky            40330-1620
----------------------------------------------            ----------
(Address of principal executive offices)                   Zip Code

Registrant's telephone number, including area code:     (606) 734-5452
                                                        --------------

Securities registered pursuant to Section 12(b) of the Act:      None
                                                             ------------

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

                     Common Stock, par value $.10 per share
                     --------------------------------------
                                (Title of Class)

     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 (Section 229.405 of this chapter) 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. [X]

     The aggregate  market value of the voting stock held by  non-affiliates  of
the Registrant,  based on the average bid price of the Registrant's Common Stock
as quoted on the National  Association of Securities  Dealers,  Inc.,  Automated
Quotations  System on December 9, 1996, was $30.7 million  (1,683,650  shares at
$18.25 per share).

     As of December 9, 1996 there were issued and outstanding  2,047,933  shares
of the Registrant's Common Stock.

                       DOCUMENTS INCORPORATED BY REFERENCE

1.   Portions  of the Annual  Report to  Stockholders  for the Fiscal Year Ended
     September 30, 1996. (Parts I, II and IV)

2.   Portions  of  the  Proxy   Statement   for  the  1997  Annual   Meeting  of
     Stockholders. (Part III)


<PAGE>



                                      INDEX
<TABLE>
<CAPTION>

PART I                                                                                    Page

<S>       <C>                                                                               <C>
Item 1.   Business.......................................................................... 1


Item 2.   Properties........................................................................ 26

Item 3.   Legal Proceedings................................................................. 26

Item 4.   Submission of Matters to a Vote of Security Holders............................... 26

PART II

Item 5.   Market for Registrant's Common Equity and Related Stockholder Matters............. 26

Item 6.   Selected Financial Data........................................................... 27

Item 7.   Management's Discussion and Analysis of Financial Condition and
          Results of Operations............................................................. 27

Item 8.   Financial Statements and Supplementary Data........................................27

Item 9.   Changes in and Disagreements with Accountants on Accounting and Financial
            Disclosure...................................................................... 27

PART III

Item 10.  Directors and Executive Officers of the Registrant................................ 27

Item 11.  Executive Compensation............................................................ 27

Item 12.  Security Ownership of Certain Beneficial Owners and Management.................... 27

Item 13.  Certain Relationships and Related Transactions.................................... 27

PART IV

Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K................... 28

</TABLE>

<PAGE>



PART I

Item 1.  Business
-----------------

General

        Harrodsburg First Financial Bancorp,  Inc. (the "Company") is a Delaware
corporation  organized in June 1995 at the  direction of First  Federal  Savings
Bank of  Harrodsburg  (the  "Bank" or "First  Federal")  to  acquire  all of the
capital stock that the Bank issued upon its conversion  from the mutual to stock
form of ownership.  On September 29, 1995, the Bank completed its conversion and
became a wholly owned subsidiary of the Company.

        The Company is a unitary savings and loan holding  company which,  under
existing laws,  generally is not restricted in the types of business  activities
in which it may engage provided that the Bank retains a specified  amount of its
assets in housing-related investments.

        First Federal is a federally  chartered stock savings bank headquartered
in Harrodsburg, Kentucky. The Bank attracts deposits from the general public and
uses such deposits  primarily to originate  loans secured by first  mortgages on
one- to four-family  residences  located in its market area.  Such loans totaled
$64.3  million,  or 80.18%,  of the Bank's total loan portfolio at September 30,
1996.  The Bank  originates and retains  adjustable-rate  loans as well as, to a
lesser extent,  fixed-rate  loans for its mortgage loan portfolio.  The Bank has
not sold mortgage loans into the secondary market during the past five years. In
addition,  the Bank originates  multi-family,  commercial and agricultural  real
estate  loans,  which  represented  $9.1  million or  11.40%,  of the total loan
portfolio at September 30, 1996. These loans were primarily secured by apartment
buildings, office buildings, churches, farms and other properties. The Bank also
offers  construction  loans which represented $3.9 million or 4.85% of the total
loan  portfolio at  September  30, 1996.  These loans are  primarily  secured by
residential properties and become permanent loans of the Bank upon completion of
the construction. The Bank offers consumer loans, which totaled $2.9 million, or
3.57% of the total loan  portfolio at September  30, 1996.  These loans  consist
primarily of home equity loans  secured by second  mortgages,  loans  secured by
savings deposits, and personal loans which are either secured or unsecured.

        In addition to interest-earning deposits with the Federal Home Loan Bank
("FHLB") of Cincinnati,  the Bank maintains an investment  securities  portfolio
consisting  of FHLB stock and Federal Home Loan Mortgage  Corporation  ("FHLMC")
capital stock,  Government  agency-backed bonds and mortgage-backed  securities.
See Note 2 of the Notes to Consolidated Financial Statements.

        The principal  sources of funds for the Bank's  lending  activities  are
deposits, and the amortization,  repayment, and maturity of loans and investment
securities.  Principal sources of income are interest on loans, interest-earning
deposits and to a lesser  extent  investment  securities.  The Bank's  principal
expense is interest paid on deposits.

Market Area

        The Bank's primary market area consists of Mercer and Anderson Counties,
Kentucky. This area is primarily rural with a large amount of agri-business. The
primary  lending  concentration  is in the Bank's  market  area,  an area mainly
comprised of the cities of Harrodsburg and Lawrenceburg which have

                                        1

<PAGE>



populations of approximately 7,795 and 5,911,  respectively.  Historically,  the
economy in the Bank's market area has been dependent on agriculture, agriculture
related industries and manufacturing.  Tourism is the second largest industry in
Mercer County, next to agriculture. The largest employers in the market area are
Hitachi Automotive, Trim Masters, Corning, Inc. and Bay West Paper.

        Economic  growth in the Bank's  market area remains  dependent  upon the
local  economy.  In  addition,  the  deposit  and loan  activity  of the Bank is
significantly affected by economic conditions in its market area.

Competition

        The Bank is one of ten  financial  institutions  serving  its  immediate
market area. The  competition for deposit  products comes from seven  commercial
banks in the Bank's market area, and two credit unions. Deposit competition also
includes a number of  insurance  products  sold by local  agents and  investment
products  such as mutual funds and other  securities  sold by local and regional
brokers.  Loan  competition  varies  depending  upon  market  conditions.   Loan
competition  comes from  commercial  banks in the  Bank's  market  area,  credit
unions, and mortgage bankers who serve the area.

        First Federal has  traditionally  maintained a  competitive  position in
mortgage  loan  originations  and market  share  throughout  its service area by
virtue of its local  presence and its  involvement  in the  community.  The Bank
believes  that it has been  able to  effectively  market  its  loans  and  other
financial products and services when compared to other local-based  institutions
and its  superior  customer  service  when  compared to other  institutions  and
mortgage bankers based outside of the Bank's market area.

Lending Activities

        General.  The Bank's loan portfolio  predominantly  consists of mortgage
loans secured by single family  residences.  First Federal also makes commercial
real estate,  multi-family real estate,  agricultural,  residential construction
and consumer loans.


                                        2

<PAGE>



        Analysis of Loan Portfolio.  The following table sets forth  information
concerning the composition of the Bank's loan portfolio in dollar amounts and in
percentages of the total loan portfolio (before deductions for loans in process,
deferred  loan  origination  fees and costs and allowance for loan losses) as of
the dates indicated.
<TABLE>
<CAPTION>

                                                                 At September 30,
                                                 -------------------------------------------------
                                                           1996                   1995
                                                           ----                   ----
                                                    Amount     Percent      Amount     Percent
                                                    ------     -------      ------     -------
Type of Loans:                                                (Dollars in Thousands)
--------------
Real Estate:
<S>                                                  <C>        <C>          <C>        <C>
  One-to four-family residential.................    $64,304     80.18%      $62,364     81.07%

  Multi-family...................................      3,559      4.44         3,053      3.97
  Agricultural...................................      2,352      2.93         2,654      3.45
  Commercial.....................................      3,228      4.03         3,116      4.05
  Construction...................................      3,891      4.85         1,979      2.57
Consumer:
  Savings account................................        407       .51           621       .81
  Home equity....................................      1,279      1.59         1,314      1.71
  Other(1).......................................      1,177      1.47         1,826      2.37
                                                      ------     -----        ------   -------

      Total loans receivable.....................     80,197    100.00%       76,927    100.00%
                                                                ======                  ======
Less:
  Loans in process...............................      2,168                     975
  Deferred loan origination fees
   and costs, net................................        229                     219
  Allowance for loan losses......................        297                     297
  Unearned discounts.............................          1                       2
                                                    --------                --------
Loans receivable, net............................    $77,502                 $75,434
                                                      ======                  ======
</TABLE>


----------------------
(1)     Includes home improvement and personal loans.


        The Bank primarily  originates  loans for retention in its portfolio and
has not purchased or sold loans during the past two years.





                                        3

<PAGE>



Loan Maturity Tables

        The following table sets forth the maturity of the Bank's loan portfolio
at  September  30,  1996.  The table does not include  prepayments  or scheduled
principal  repayments.  Prepayments and scheduled principal  repayments on loans
totaled  $15.9  million,  $13.1 million and $14.9  million,  for the three years
ended September 30, 1996, 1995 and 1994, respectively.  Adjustable-rate mortgage
loans are shown as maturing based on contractual maturities.
<TABLE>
<CAPTION>
                                                   Multi-Family,
                                                   Agricultural
                                  1-4 Family            and
                                 Residential        Commercial    Construction    Consumer        Total
                                 -----------        ----------    ------------    --------        -----
                                                           (In Thousands)
<S>                               <C>                <C>            <C>           <C>             <C>
Non-performing............           $567            $    58        $    --       $   241         $  866
                                      ---             ------         ------        ------          -----
Amounts Due:
  Within 3 months.........              1                 --             --           808            809
  3 months to 1 year......             17                 46             --           480            543
                                    -----            -------       --------        ------       --------
  Total due within one year            18                 46             --         1,288          1,352
                                    -----            -------       --------        ------       --------

After 1 year:
  1 to 3 years............            420                 61             --            16            497
  3 to 5 years............          1,079                100             --            51          1,230
  5 to 10 years...........          6,531              1,128             --           373          8,032
  10 to 20 years..........         34,393              5,462            285           894         41,034
  Over 20 years...........         21,296              2,284          3,606            --         27,186
                                   ------              -----          -----        ------         ------
Total due after one year..         63,719              9,035          3,891         1,334         77,979
                                   ------              -----          -----         -----         ------
Total amount due..........        $64,304             $9,139         $3,891        $2,863         80,197
                                   ======              =====          =====         =====

Less:
Allowance for loan losses                                                                            297
Loans in process..........                                                                         2,168
Unearned discounts........                                                                             1
Deferred loan fees........                                                                           229
                                                                                                  ------
    Loans receivable, net.                                                                       $77,502
                                                                                                 =======

</TABLE>

        The following  table sets forth the dollar amount of all loans due after
September 30, 1997,  which have  pre-determined  (or fixed)  interest  rates and
which have floating or adjustable interest rates.
<TABLE>
<CAPTION>

                                                                 Floating or
                                               Fixed Rates     Adjustable Rates           Total
                                               -----------     ----------------           -----
                                                                  (In Thousands)
<S>                                                 <C>              <C>                <C>
One-to four-family residential.............         $11,574          $52,145            $63,719
Multi-family, agriculture and commercial...             434            8,601              9,035
Construction...............................             756            3,135              3,891
Consumer...................................              16            1,318              1,334
                                                         --            -----              -----
  Total....................................         $12,780          $65,199            $77,979
                                                     ======           ======             ======
</TABLE>
                                        4

<PAGE>



        One- to  Four-Family  Residential  Loans.  The  Bank's  primary  lending
activity consists of the origination of one- to four-family residential mortgage
loans secured by property  located in the Bank's  primary  market area. The Bank
generally  originates  one- to  four-family  residential  mortgage loans without
private  mortgage  insurance in amounts up to 85% of the lesser of the appraised
value or selling price of the mortgaged property.  Loans in excess of 85% of the
value of the mortgaged  property typically require private mortgage insurance in
the amount of 25% to 30% of the loan amount.

        First Federal offers three types of residential  ARM's, all of which use
the  index  value  of the  National  Monthly  Median  Cost  of  Funds  Ratio  to
SAIF-Insured  Institutions  plus a set margin added to it. The interest rates on
these loans have an initial adjustment period of between one and five years, and
generally adjust annually  thereafter,  with a maximum adjustment of 2% per year
and 5% maximum  increase  over the life of the loan.  The index  margin on a non
owner-occupied  one-  to  four-family  property  loan  is 1%  higher  than on an
owner-occupied  property loan.  The Bank's  adjustable-rate  one-to  four-family
mortgage  loans are for terms of up to 25 years,  amortized on a monthly  basis,
with principal and interest due each month.  Residential real estate loans often
remain  outstanding for  significantly  shorter  periods than their  contractual
terms.  Borrowers may refinance or prepay loans at their option without penalty.
First  Federal  originates,  to a  limited  extent,  10 year  and 20  year  term
fixed-rate  mortgages on one- to four-family,  owner-occupied homes with loan to
value ratios of 80% or less. First Federal originated $4.3 million in fixed-rate
one- to  four-family  mortgage  loans  with a  maximum  term of 20 years or less
during the year ended  September 30, 1996. All such loans are being held as long
term investments and none are being held for sale.

        Loan  originations  are  generally  obtained  from  existing and walk-in
customers,  members  of  the  local  community,  and  referrals  from  realtors,
depositors  and  borrowers  within  the  Bank's  lending  area.  Mortgage  loans
originated and held by the Bank in its portfolio  generally include  due-on-sale
clauses  which  provide  the Bank  with the  contractual  right to deem the loan
immediately due and payable in the event that the borrower  transfers  ownership
of the  property  without the Bank's  consent.  At  September  30,  1996,  $64.3
million, or 80.18%, of the total loan portfolio consisted of one- to four-family
residential  loans of which $52.7 million were  adjustable-rate  loans and $11.6
million were fixed-rate loans.

        The retention of  adjustable-rate  loans in the Bank's  portfolio  helps
reduce the Bank's  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.  Further,  adjustable-rate loans which
provide  for  initial  rates of interest  below the fully  indexed  rates may be
subject to increased risk of delinquency or default as the higher, fully indexed
rate of  interest  subsequently  replaces  the  lower,  initial  rate.  Further,
although adjustable-rate loans allow the Bank to increase the sensitivity of its
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  and the ability of  borrowers  to convert the loans to fixed rates.
Accordingly, there can be no assurance that yields on the Bank's adjustable-rate
loans will fully adjust to compensate for increases in the Bank's cost of funds.
Finally,  adjustable-rate  loans  increase  the Bank's  exposure to decreases in
prevailing  market  interest  rates,  although  the Bank's cost of funds tend to
offset this effect.

        Construction  Loans.  First  Federal  engages  in  construction  lending
involving loans to qualified  borrowers for  construction of one-to  four-family
dwellings, multi-family residential, commercial buildings and churches, with the
intent of such loans  converting  to  permanent  financing  upon  completion  of
construction.  As of September 30, 1996, the Bank's loan portfolio included $3.9
million of loans secured by  properties  under  construction,  all of which were
construction/permanent loans structured to become

                                        5

<PAGE>



permanent  loans upon the  completion of  construction  and none of which was an
interim  construction  loan  structured to be repaid in full upon  completion of
construction. All construction loans are secured by a first lien on the property
under  construction.  Loan proceeds are disbursed in increments as  construction
progresses and as inspections  warrant.  Construction/permanent  loans generally
have adjustable or fixed interest rates and are  underwritten in accordance with
the same terms and  requirements as the Bank's permanent  mortgages,  except the
loans generally provide for disbursement in stages during a construction  period
of up to twelve  months,  during  which the  borrower  is not  required  to make
monthly payments.  If construction  improvements are not completed at the end of
six months, accrued interest must be paid to date. Accrued interest must be paid
at  completion of  construction  to the first day of the  following  month,  and
monthly  payments  start the first day of the following  month after the loan is
converted to permanent financing. Borrowers must satisfy all credit requirements
which  would  apply to the Bank's  permanent  mortgage  loan  financing  for the
subject property and must execute a construction loan agreement with the Bank.

        Construction  financing  generally  is  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 is  dependent  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  cost proves to be
inaccurate,  the Bank  may be  required  to  advance  funds  beyond  the  amount
originally  committed  to permit  completion  of the  development.  The Bank has
sought to minimize this risk by requiring  precise  construction cost estimates,
specifications,  and drawing plans from qualified borrowers in the Bank's market
area.

        Multi-Family  and  Commercial  Real Estate Loans.  In order to serve its
community and enhance yields on its assets, the Bank originates loans secured by
commercial  real  estate  and  multi-family  properties.  The  multi-family  and
commercial real estate loans  originated by the Bank have generally been made to
individuals, small businesses and partnerships. They have primarily been secured
by first mortgages on apartment buildings, office buildings,  churches and other
properties.  The  Bank  benefits  from  originating  such  loans  due to  higher
adjustable interest rates. Adjustable-rate loans for this type of lending have a
margin that is 1% higher than the margin added to single  family  owner-occupied
property loan.  First  Federal's  multi-family  residential  and commercial real
estate  loans are  adjustable-rate  loans with  terms of 25 years or less,  with
loan-to-value  ratios not  exceeding  80%. As of September  30,  1996,  loans on
multi-family  residential  and  commercial  real estate  properties  constituted
approximately $9.1 million, or 11.40% of the Bank's total loan portfolio.

        Multi-family  and  commercial  real estate lending  entails  significant
additional  risks as compared to one-to  four-family  residential  lending.  For
example, such loans typically involve large loans to single borrowers or related
borrowers,  the payment  experience on such loans is typically  dependent on the
successful  operation  of the  project,  and these  risks  can be  significantly
affected  by the  supply  and demand  conditions  in the  market for  commercial
property and multi-family residential units.

        Loans  secured by  commercial  real estate  generally  involve a greater
degree of risk than  residential  mortgage loans and carry larger loan balances.
This  increased  credit  risk is a result  of  several  factors,  including  the
concentration  of  principal  in a limited  number of loans and  borrowers,  the
effects of general economic conditions on income producing  properties,  and the
increased  difficulty  of  evaluating  and  monitoring  these  types  of  loans.
Furthermore,  the  repayment  of loans  secured  by  commercial  real  estate is
typically  dependent  upon the  successful  operation of the related real estate
project. If the cash flow from the project is reduced, the borrower's ability to
repay the loan may be impaired. To minimize these risks, First Federal generally
limits loans of this type to its market area and to borrowers with which it

                                        6

<PAGE>



has  substantial  experience  or who are otherwise  well known to the Bank.  The
Bank's  underwriting  procedures  require  verification of the borrower's credit
history, income, financial statements, banking relationships, credit references,
and income  projections for the property.  It is the Bank's current  practice to
obtain personal guarantees from all principals  obtaining this type of loan. For
the small total  dollar  amount of loans  secured by church real estate that are
originated by the Bank,  repayment is dependent  upon the  continuing  financial
support  of the  church's  members.  The Bank also  obtains  appraisals  on each
property. All appraisals on commercial and multi-family real estate are reviewed
by the Bank's management.

        Set forth below is a brief  description of the Bank's  multi-family  and
commercial real estate loans with  outstanding  principal  balances in excess of
$350,000 at September 30, 1996. See also "-- Loans to One Borrower."

        Shopping Center,  Nicholasville,  Kentucky.  This loan was originated in
1987 in the amount of $885,000. At September 30, 1996, this loan had a principal
outstanding  balance  of  $771,000  and  an  estimated  loan-to-value  ratio  of
approximately 64%. The loan was over one month delinquent at September 30, 1996.

        Sixteen Townhouses,  Harrodsburg,  Kentucky. This loan was originated in
1993 for $442,000 as a loan to facilitate  the sale of real estate owned and had
an  original  loan-to-value  ratio  of 100%  and  therefore  the  Bank  required
additional  security  for the  loan.  At  September  30,  1996,  the  loan had a
principal outstanding balance of $402,000 and was current.

        Church,  Harrodsburg,  Kentucky. This loan was originated in 1991 in the
amount of $455,000 and had an original loan-to-value ratio of 83%. This loan had
an outstanding balance of $350,000 and was current at September 30, 1996.

        Eight Townhouses and Two Single Family Dwellings, Harrodsburg, Kentucky.
This loan was  originated  in 1996 in the amount of $450,000 and had an original
loan to value ratio of 76%. This loan had an outstanding balance of $449,000 and
was current at September 30, 1996.

        Two Eight Unit and One Four Plex Unit Apartment Dwellings, Lawrenceburg,
Kentucky.  This loan was originated in 1995 in the amount of $390,000 and had an
original  loan to value ratio of 70%.  This loan had an  outstanding  balance of
$382,000 and was current at September 30, 1996.

        Agricultural  Loans.  First Federal  engages in lending on improved farm
land with no  dwelling,  building  lots and  building  acreage  sites.  The Bank
benefits  from  originating  such  loans  due to  higher  origination  fees  and
adjustable interest rates. These properties must have good road access. The loan
to value ratio for this type of loan is 75% or less with a maximum  loan term of
15 years. An adjustable-rate  loan for this type of lending has a margin that is
1% higher than the margin added to one-to  four-family  owner-occupied  property
loans.

        First  Federal  also  engages  in loans  for  improved  farm  land  with
dwelling.  The loan to value  ratio  for this type of loan is 80% or less with a
maximum  term of 25 years.  These  loans can be set up with  payment of interest
collected  semi-annually  and principal yearly as well as monthly  principal and
interest payments. As of September 30, 1996, agricultural farm loans constituted
approximately $2.4 million, or 2.93% of the Bank's total loan portfolio.

        Consumer  Lending.  These loans totaled $2.9 million,  or 3.57%,  of the
total loan  portfolio at September  30, 1996.  First  Federal does not emphasize
consumer lending although it does originate such

                                        7

<PAGE>



loans on a regular basis. The Bank originates consumer loans on either a secured
or unsecured basis.  These loans generally  require a pre-existing  relationship
with the Bank. The Bank generally  makes  certificate of deposit loans for terms
of up to six  months in amounts up to the face  amount of the  certificate.  The
interest  rate  charged  on these  loans is 1% higher  than the rate paid on the
certificate,  and  interest  is billed on a  quarterly  basis.  These  loans are
payable on demand and the account must be assigned to the Bank as collateral for
the loan.

        Federal  regulations permit federally  chartered thrift  institutions to
make secured and unsecured consumer loans up to 35% of an institution's  assets.
In addition,  a federal thrift has lending  authority above the 35% category for
certain consumer loans, property improvement loans, and loans secured by savings
accounts. The Bank originates consumer loans in order to provide a wide range of
financial  services to its  customers and because the shorter terms and normally
higher  interest  rates on such loans help maintain a profitable  spread between
its average loan yield and its cost of funds.

        Consumer loans  generally  involve more risk than first mortgage  loans.
Repossessed  collateral for a defaulted loan may not provide an adequate  source
of repayment  of the  outstanding  loan  balance as a result of damage,  loss or
depreciation,  and the  remaining  deficiency  often  does not  warrant  further
substantial   collection  efforts  against  the  borrower.  In  addition,   loan
collections are dependent on the borrower's continuing financial stability,  and
thus are more likely to be adversely affected by job loss,  divorce,  illness or
personal bankruptcy. Further, the application of various federal and state laws,
including federal and state bankruptcy and insolvency laws, may limit the amount
which can be recovered. These loans may also give rise to claims and defenses by
a borrower  against  the Bank and the seller of the  underlying  collateral.  In
underwriting  consumer loans, the Bank considers the borrower's  credit history,
an analysis of the borrower's income, expenses and ability to repay the loan and
the value of the  collateral.  At September  30, 1996,  the Bank had $241,000 of
consumer loans delinquent more than 90 days.

        The largest  consumer  loan made by the Bank consists of a $450,000 line
of credit made on May 23,  1996.  The line of credit is secured by  agricultural
crops grown in Harrodsburg,  Kentucky. As of September 30, 1996, the outstanding
balance on this line of credit was $358,000.

        Loan  Approval  Authority  and  Underwriting.  President  Hood  and Vice
President  Asbury have the  authority to approve  mortgage  loans and  unsecured
loans in the amount of  $175,000  or less with  ratification  by the full board.
Loans in  excess of  $175,000  must be  approved  by the full  board.  Loans are
approved  after  determining  they  meet the  Bank's  lending  and  underwriting
standards.

        For all loans  originated by the Bank,  upon receipt of a completed loan
application from a prospective  borrower,  a credit report is generally ordered,
income and certain other  information is verified and, if necessary,  additional
financial information is requested.  An appraisal of the real estate intended to
be used as security  for the  proposed  loan is  obtained.  All  appraisals  are
reviewed  by  officers  of the Bank  designated  by the Board of  Directors.  An
independent  appraiser  designated and approved by the Board of Directors of the
Bank is utilized for all real estate mortgage loans. For  construction/permanent
loans, the funds advanced during the  construction  phase are held in a loan-in-
process  account  and  disbursed  based upon  various  stages of  completion  in
accordance  with the results of inspection  reports that are based upon physical
inspection of the construction by an independent contractor hired by the Bank or
in some cases by a loan  officer.  For real estate  loans the Bank will  require
either title  insurance or a title opinion.  Borrowers must also obtain fire and
casualty,  hazard or flood  insurance (for loans on property  located in a flood
zone, flood insurance is required) prior to the closing of the loan.


                                        8

<PAGE>



        Loan  Commitments.  The Bank issues  written  commitments to prospective
borrowers on all approved real estate loans. Generally,  the commitment requires
acceptance  within 45 days of the date of issuance.  At September 30, 1996,  the
Bank had $4.7 million of commitments to cover  originations,  undisbursed  funds
for loans in process, and unused lines of credit. The Bank believes that most of
the Bank's commitments will be funded. The approximate percentage of commitments
that expire without being funded is less than 1%.

        Loans-to-One  Borrower.  Savings  associations  are  subject to the same
limits as those  applicable to national banks,  which under current  regulations
limit loans-to-one  borrower in an amount equal to 15% of unimpaired capital and
unimpaired  surplus,  calculated as the sum of the Bank's core and supplementary
capital  included in total  capital,  plus the balance of the general  valuation
allowances for loan and lease losses not included in supplementary capital, plus
investments in subsidiaries  that are not included in calculating  core capital,
or $500,000,  whichever is higher. The Bank's maximum loan-to-one borrower limit
was approximately $3.3 million at September 30, 1996.

        At  September  30,  1996,  the  Bank's  largest  amount  of loans to one
borrower  consisted  of several  residential  real estate loans in the amount of
$1.3 million in loans  secured by a first  mortgage on single  family  dwellings
located  in  Nicholasville  and  Versailles,  Kentucky.  This  does not  include
$935,000 in loans secured by single family  dwellings  made to the father of the
borrower, which are discussed below.

        The next four  largest  lending  relationships  at  September  30,  1996
consisted of $1.0 million in loans secured by a first  mortgage on single family
dwellings  located in  Nicholasville,  Kentucky;  $935,000  in loans  secured by
single  family  dwellings  located in  Nicholasville  and  Lancaster,  Kentucky;
$836,000 in loans secured by single family dwellings,  duplexes and 18 townhouse
units all located in  Harrodsburg,  Lawrenceburg,  and  Danville,  Kentucky (See
"--Multi-Family  and  Commercial  Real  Estate  Loans.")  and  $814,000 in loans
secured by a multi-unit  apartment  building and single family dwellings located
in  Lawrenceburg,  Kentucky.  (See  "--Multi-Family  and Commercial  Real Estate
Loans.")

Non-Performing and Problem Assets

        Loan  Delinquencies.  The Bank  monitors  delinquencies  on all types of
loans  closely.  If such loans later become  delinquent,  the Bank  contacts and
works with the borrower to resolve the delinquency before initiating foreclosure
proceedings.  The Bank's collection procedures provide that when a mortgage loan
is 10 days past due, a notice of nonpayment is sent. Delinquent notices are sent
if the loan  becomes  delinquent  for more  than 30 days.  If  payment  is still
delinquent  after 60 days,  the customer will receive a letter and/or  telephone
call  and  may  receive  a  visit  from a  representative  of the  Bank.  If the
delinquency  continues,  similar  subsequent  efforts are made to eliminate  the
delinquency.  If the loan continues in a delinquent  status for 90 days past due
and no repayment plan is in effect,  management  will  generally  initiate legal
proceedings.

        Loans are reviewed on a monthly  basis by  management  and are generally
placed  on a  non-accrual  status  when  the  loan  becomes  more  than  90 days
delinquent  and, in the opinion of  management,  the  collection  of  additional
interest is doubtful.  Interest  accrued and unpaid at the time a loan is placed
on non-accrual  status is charged against interest income.  Subsequent  interest
payments,  if any, are either applied to the  outstanding  principal  balance or
recorded  as  interest  income,  depending  on the  assessment  of the  ultimate
collectibility of the loan. At September 30, 1996, no loans were classified in a
non-accrual status.


                                        9

<PAGE>



        Non-Performing  Assets.  The  following  table  sets  forth  information
regarding  non-accrual  loans,  real estate owned and certain other  repossessed
assets and loans. As of the dates indicated,  the Bank had no loans  categorized
as troubled debt restructuring within the meaning of SFAS 15.
<TABLE>
<CAPTION>

                                                     At September 30,
                                                    ----------------
                                                     1996         1995
                                                     ----         ----
                                                      (In Thousands)
    Loans accounted for on a non-accrual basis:
    <S>                                          <C>         <C>
    Total................................        $   --      $     --
                                                 ------       -------

    Accruing loans which are contractually past
    due 90 days or more:
    Mortgage loans:
      Construction loans.................            --            --
      Permanent loans secured by 1 to 4 family
        dwelling units...................           567           472
      All other mortgage loans...........            58           110
    Non-mortgage loans:
      Commercial.........................            --            --
      Consumer...........................           241            85
                                                   ----        ------
    Total................................           866           667
                                                   ----        ------
    Total non-accrual and accrual loan...           866           667
    Real estate owned....................            --            --
                                                  -----        ------
    Total non-performing assets..........         $ 866        $  667
                                                   ====         =====
    Total non-performing loans to net loans        1.12%          .88%
                                                   ====         =====
    Total non-performing loans to total assets      .79%          .62%
                                                    ===         =====
    Total non-performing assets to total assets     .79%          .62%
                                                    ===         =====

</TABLE>


        There was no  interest  income  that would have been  recorded  on loans
accounted for on a non-accrual  basis under the original terms of such loans for
the year ended September 30, 1996,  because there were no loans accounted for on
a non-accrual basis for this period.

        Classified Assets. OTS regulations  provide for a classification  system
for problem  assets of insured  institutions  which  covers all problem  assets.
Under this  classification  system,  problem assets of insured  institutions are
classified  as  "substandard,"  "doubtful,"  or "loss."  An asset is  considered
substandard if it is inadequately  protected by the current net worth and paying
capacity of the obligor or of the collateral pledged, if any. Substandard assets
include  those  characterized  by the  "distinct  possibility"  that the insured
institution  will sustain  "some loss" if the  deficiencies  are not  corrected.
Assets  classified  as  doubtful  have all of the  weaknesses  inherent in those
classified  substandard,  with the  added  characteristic  that  the  weaknesses
present  make  "collection  or  liquidation  in full," on the basis of currently
existing facts,  conditions,  and values,  "highly questionable and improbable."
Assets  classified  as loss are  those  considered  "uncollectible"  and of such
little value that their  continuance  as assets without the  establishment  of a
specific  loss  reserve  is not  warranted.  Assets may be  designated  "special
mention"   because  of  potential   weakness  that  do  not  currently   warrant
classification in one of the aforementioned categories.

        When  an  insured  institution   classifies  problem  assets  as  either
substandard or doubtful,  it may establish general allowances for loan losses in
an amount  deemed  prudent by  management.  General  allowances  represent  loss
allowances which have been established to recognize the inherent risk associated
with lending activities,  but which, unlike specific  allowances,  have not been
allocated to particular

                                       10

<PAGE>



problem assets. When an insured  institution  classifies problem assets as loss,
it is required either to establish a specific allowance for losses equal to 100%
of that  portion of the asset so  classified  or to charge off such  amount.  An
institution's  determination  as to the  classification  of its  assets  and the
amount of its valuation  allowances  is subject to review by the OTS,  which may
order the  establishment of additional  general or specific loss  allowances.  A
portion of general loss allowances  established to cover possible losses related
to assets  classified as  substandard or doubtful may be included in determining
an institution's  regulatory  capital,  while specific valuation  allowances for
loan losses generally do not qualify as regulatory capital.

        At September 30, 1996,  the Bank had loans  designated  special  mention
which aggregated $19,000 and classified assets consisting of loans classified as
substandard which aggregated $497,000,  and none classified as doubtful or loss.
The  Bank had  delinquent  loans of 60 days or more of $1.1  million  (of  which
$732,000 were  residential  mortgage  loans) and an allowance for loan losses of
$297,000 which includes a general valuation allowance of $290,000 and a specific
reserve of $7,000.

        Foreclosed Real Estate.  Real estate acquired by the Bank as a result of
foreclosure or by deed in lieu of foreclosure is classified as real estate owned
until it is sold.  When property is acquired it is recorded at the lower of cost
or fair value at the date of foreclosure less estimated costs of disposition.

        Allowance  for Loan  Losses.  It is  management's  policy to provide for
losses on loans in its loan portfolio. A provision for loan losses is charged to
operations  based on management's  evaluation of the losses that may be incurred
in the Bank's loan portfolio.  Such  evaluation,  which includes a review of all
loans  of  which  full  collectibility  of  interest  and  principal  may not be
reasonably  assured,  considers the Bank's past loan loss experience,  known and
inherent  risks  in the  portfolio,  adverse  situations  that  may  affect  the
borrower's  ability  to repay,  estimated  value of any  underlying  collateral,
current  economic  conditions,  and the  relationship  of the allowance for loan
losses to outstanding loans.

        In June 1993,  the Financial  Accounting  Standards  Board (FASB) issued
SFAS  No.  114  "Accounting  by  Creditors  for  Impairment  of  a  Loan."  This
promulgation, which was amended by SFAS No. 118 as to certain income recognition
and disclosure  provisions,  became  effective as to the Company in fiscal 1996.
The new accounting  standards require that impaired loans be measured based upon
the  present  value of  expected  future  cash  flows  discounted  at the loan's
effective  interest rate, or as an alternative,  at the loan's observable market
price  or fair  value of the  collateral.  The  Bank's  current  procedures  for
evaluating  impaired loans result in carrying such loans at the lower of cost or
fair value.
See Note 1 of Notes to Consolidated Financial Statements.

        The amount of provisions for loan losses  recorded in future periods may
be  significantly  greater or lesser than the provisions  taken in the past. The
allowance  for loan losses,  as a ratio of total loans was .37% at September 30,
1996.

        Management  will  continue  to  review  the  entire  loan  portfolio  to
determine the extent, if any, to which further additional loss provisions may be
deemed  necessary.  There can be no assurance that the allowance for loan losses
will be adequate to cover losses which may in fact be realized in the future and
that additional provisions for losses will not be required.


                                       11

<PAGE>



        Allocation of Allowance for Loan Losses.  The following table sets forth
the allocation of the Bank's  allowance for loan losses by loan category and the
percent  of loans  in each  category  to total  loans  receivable  at the  dates
indicated.  Except as set forth  below,  the portion of the loan loss  allowance
allocated to each loan  category  does not  represent  the total  available  for
future  losses that may occur  within the loan  category  because the total loan
loss allowance is a valuation reserve applicable to the entire loan portfolio.
<TABLE>
<CAPTION>
                                                             At September 30,
                                           ------------------------------------------------
                                                   1996                     1995
                                                   ----                     ----

                                                       Percent of                Percent of
                                                        Loans to                  Loans to
                                             Amount    Total Loans    Amount    Total Loans
                                             ------    -----------    ------    -----------
At end of period allocated                                 (Dollars in Thousands)
  to:
Real estate mortgage:
<S>                                           <C>         <C>          <C>          <C>
  One- to four-family residential             $238         80.18%      $241          81.07%
  Multi-family.............                     13          4.44         12           3.97
  Agricultural..............                    12          4.03         10           3.45
  Commercial................                    14          4.85         12           4.05
  Residential construction..                     9          2.93          8           2.57
Consumer(1).................                    11          3.57         14           4.89
                                               ---          ----       ----         ------
    Total allowance for loan
      losses................                  $297        100.00%      $297         100.00%
                                               ===        ======        ===         ======
</TABLE>

-----------------------
(1)  Includes $7,000 specific reserve  attributable to a particular loan and not
     available for other loan losses.

        Analysis of the  Allowance  for Loan Losses.  The  following  table sets
forth  information  with respect to the Bank's  allowance for loan losses at the
dates and for the periods indicated:
<TABLE>
<CAPTION>
                                                         At or For the
                                                          Year Ended
                                                         September 30,
                                                   -------------------------
                                                      1996           1995
                                                      ----           ----
                                                     (Dollars in Thousands)

<S>                                                  <C>             <C>
Total loans outstanding.......................       $80,197         $76,927
                                                      ======          ======
Average loans outstanding.....................       $74,797         $74,013
                                                      ======          ======

Allowance balances (at beginning of
  period).....................................       $   297            $252

Provision (credit):
  Residential.................................            --              85
  Consumer....................................             7               7
Net Charge-offs (recoveries):
  Residential.................................            --              27
  Consumer....................................             7              20
                                                         ---            ----
Allowance balance (at end of period)..........          $297            $297
                                                         ===             ===
Allowance for loan losses as a percent
  of total loans outstanding..................          .37%             .39%
Net loans charged off as a percent of
  average loans outstanding...................          .01%             .06%

</TABLE>


                                       12

<PAGE>



Investment Activities

        First  Federal is  required  under  federal  regulations  to  maintain a
minimum  amount of liquid  assets which may be invested in specified  short-term
securities  and certain other  investments.  See "-- Regulation -- Regulation of
the Bank -- Federal Home Loan Bank System".  The Bank has maintained a liquidity
portfolio  in  excess  of  regulatory  requirements.  Liquidity  levels  may  be
increased or decreased depending upon the yields on investment  alternatives and
upon management's judgment as to the attractiveness of the yields then available
in relation to other  opportunities  and its expectation of future yield levels,
as well as management's  projections as to the short term demand for funds to be
used in the Bank's loan origination and other activities. At September 30, 1996,
First  Federal  had an  investment  portfolio  which  included  interest-earning
deposits of $14.2 million, certificates of deposit with the FHLB of $2.5 million
and investment securities of $12.4 million, consisting of FHLB stock, Government
agency-backed  bonds and FHLMC capital stock. The Bank is permitted to invest in
various securities,  including U.S. Treasury securities,  U.S. government agency
obligations,  mortgage-backed  and related  securities,  and municipal bonds, as
permitted by the OTS regulations.  The Bank classifies its investment securities
as held-to-maturity or  available-for-sale  in accordance with SFAS No. 115. The
fair value of the investment portfolio at September 30, 1996, was $12.3 million,
and the carrying  value of the  investment  portfolio  includes a net unrealized
gain at that date of approximately $1.1 million,  after deduction of $579,000 in
deferred income tax expense.

        Investment Portfolio.  The following table sets forth the carrying value
of the Bank's investment securities  portfolio,  short term investments and FHLB
stock,  at the dates  indicated.  At September 30, 1996, the market value of the
Bank's investment securities portfolio was $12.3 million.
<TABLE>
<CAPTION>
                                                  At September 30,
                                             ----------------------------
                                                 1996             1995
                                                 ----             ----
                                                    (In Thousands)

Investment Securities available for
  sale:
<S>                                           <C>               <C>
FHLMC securities.....................          $1,881           $ 1,332
                                                -----             -----
  Total..............................           1,881             1,332
                                                -----             -----
Investment securities held to maturity:
  FHLB Stock and bonds ..............          10,405             1,616
  Mortgaged-backed securities........              98               131
                                                   --               ---
  Total..............................          10,503             1,747
                                               ------             -----
  Total investment securities........          12,384             3,079
Interest-earning deposits (1)........          16,730            26,939
                                               ------            ------
   Total investments.................         $29,114           $30,018
                                               ======            ======
</TABLE>
--------------------
(1)  Includes interest-earning overnight deposits and term deposits with FHLB.



                                       13

<PAGE>



        Investment Portfolio Maturities.  The following table sets forth certain
information   regarding  the  carrying  values,   weighted  average  yields  and
maturities of the Bank's investment securities portfolio.
<TABLE>
<CAPTION>
                                                 As of September 30, 1996
                                -----------------------------------------------------------------------------------------------
                                                               More Than One to
                                     One Year or Less              Five Years
                                ------------------------   -------------------------
                                   Carrying      Average      Carrying      Average
                                     Value        Yield         Value        Yield
                                    -------      -------       -------      -------
                                                    (Dollars in Thousands)

Investments securities available for sale:
<S>                                 <C>            <C>        <C>            <C>
FHLMC Securities.............       $1,881         1.60%      $    --          --%
                                     -----         ----        ------        ----

Investment securities held to           --           --
 maturity:
Bonds - U.S. Government and
   Federal agencies..........           --           --         8,996        6.32
GNMA PC......................           --           --            --          --
FHLB Stock...................           --           --            --          --
Bonds - Municipal............           --           --            --          --
                                    ------         ----         -----       -----
  Total......................           --           --         8,996        6.32
                                    ------         ----         -----        ----
Total investment securities..      $ 1,881         1.60%      $ 8,996        6.32%
                                    ======         ====        ======        ====
</TABLE>


<TABLE>
<CAPTION>
                                                               As of September 30, 1996
                                -----------------------------------------------------------------------------------------
                                    More Than Five to
                                        Ten Years             More than Ten Years         Total Investment Securities
                                  -----------------------  ------------------------    --------------------------------
                                   Carrying      Average     Carrying      Average      Carrying     Average     Market
                                     Value        Yield        Value        Yield        Value        Yield      Value
                                    -------      -------      -------      -------      -------      -------    ------
                                                              (Dollars in Thousands)

Investments securities available for sale:
<S>                                <C>           <C>        <C>            <C>        <C>            <C>     <C>
FHLMC Securities.............      $   --           --%     $    --           --%     $ 1,881        1.60%   $  1,881
                                     ----         ----         ----         ----        -----        ----       -----

Investment securities held to
 maturity:
Bonds - U.S. Government and
   Federal agencies..........          --           --           --           --        8,996        6.32       8,903
GNMA PC......................          --           --           98         7.41           98        7.41          98
FHLB Stock...................          --           --        1,196         6.94        1,196        6.94       1,196
Bonds - Municipal............         105         4.21          108         5.37          213        4.80         202
                                      ---         ----          ---         ----          ---        ----         ---
  Total......................         105         4.21        1,402         6.85       10,503        6.37      10,399
                                      ---         ----        -----         ----       ------        ----      ------
Total investment securities..      $  105         4.21%     $ 1,402         6.85%     $12,384        5.65%   $ 12,280
                                    =====        =====       ======        =====       ======        ====     =======
</TABLE>






                                                               14

<PAGE>



Sources of Funds

        General.  Deposits are the major external source of the Bank's funds for
lending  and  other  investment  purposes.  First  Federal  derives  funds  from
amortization and prepayment of loans and, to a much lesser extent, maturities of
investment  securities,  borrowings,  and  operations.  Scheduled loan principal
repayments are a relatively  stable source of funds,  while deposit  inflows and
outflows and loan prepayments are  significantly  influenced by general interest
rates and market  conditions.  Although  First  Federal had no FHLB  advances at
September 30, 1996,  such advances may also be a source of funds for the Bank in
the future.

        Deposits.  Consumer and  commercial  deposits are attracted  principally
from  within the Bank's  primary  market area  through  the  offering of a broad
selection of deposit instruments  including passbook,  NOW, non-interest earning
accounts,  money market deposit and certificates of deposit ranging in term from
three months to five years.  The Bank also offers IRA accounts.  Deposit account
terms vary according to the minimum balance required,  the time period the funds
must remain on deposit, and the interest rate, among other factors.

        The  interest  rates paid by the Bank on deposits  are set weekly at the
direction of senior  management.  The Bank determines the interest rate to offer
the public on new and maturing  accounts by reviewing the current U.S.  Treasury
rate for the term and the market interest rates offered by competitors.

        Passbook,  money market and NOW accounts  constituted $16.7 million,  or
21.73%, of the Bank's deposit  portfolio at September 30, 1996.  Certificates of
deposit  constituted  $60.2 million or 78.27% of the deposit  portfolio of which
$3.2 million or 5.3% of the deposit  portfolio were certificates of deposit with
balances of $100,000 or more. As of September 30, 1996, the Bank had no brokered
deposits.


                                       15

<PAGE>



        Deposit  Portfolio.  Deposits in the Bank as of September 30, 1996, were
represented by various types of savings programs described below.

<TABLE>
<CAPTION>

                                                           Minimum        Balance as of    Percentage of
                                            Interest       Balance        September 30,       of Total
Category                     Term           Rate(1)        Amount            1996(2)          Deposits
--------                     ----           -------        ------           ---------        ---------

<S>                          <C>               <C>          <C>             <C>                 <C>
Now Accounts(3)              None                --%        $  250            $5,402              7.02%
Regular Savings              None                --             10             8,329             10.82
Money Market Accounts(4)     None                --          2,500             2,994              3.89

Certificates of Deposit:

3-month Money Market         91 days           4.76            500             1,447              1.88
6-month Money Market         182 days          5.01            500             8,953             11.63
Fixed Term, Fixed Rate       12 month          6.50              *                81               .10
Fixed Term, Fixed Rate       12 month          5.31            500            14,057             18.26
Fixed Term, Fixed Rate       18 month          5.69            500             6,025              7.83
IRA                          18 month          6.00             25             9,072             11.79
Fixed Term, Fixed Rate       30 month          6.75              *                11               .11
Fixed Term, Fixed Rate       30 month          5.98            500             9,790             12.70
Fixed Term, Fixed Rate       30 month          5.30              *                65               .08
Fixed Term, Fixed Rate       36 month          6.75              *                 3                --
Fixed Term, Fixed Rate       42 month          5.92            500             5,178              6.72
Fixed Term, Fixed Rate       48 month          7.50              *               100               .12
Fixed Term, Fixed Rate       60 month          6.06            500             5,306              6.89
Fixed Term, Fixed Rate       72 month          7.75              *                29               .03
Fixed Term, Fixed Rate       96 month          8.00              *               104               .13
                                                                             -------            ------
                             Total                                          $ 76,946            100.00%
                                                                             =======            ======
</TABLE>

---------------
(1)  Represents weighted average interest rates.
(2)  In thousands.
(3)  If average daily balance of $2,500 maintained, interest rate was 2.75%
(4)  If average daily balance drops below $2,500, interest rate was 2.00% * This
     type of certificate was no longer offered at September 30, 1996.

        Jumbo Certificates of Deposit.  The following table indicates the amount
of the Bank's  certificates  of deposit of  $100,000  or more by time  remaining
until maturity as of September 30, 1996.

                                                                 Certificates
                                                                  of Deposit
                                                                  ----------
Maturity Period                                                 (In Thousands)
---------------

Three months or less....................................              $  506
More than three through six months......................               1,005
More than six through twelve months.....................                 568
Over twelve months......................................               1,132
                                                                       -----
   Total................................................             $ 3,211
                                                                      ======

                                       16

<PAGE>





        The following  table sets forth the average  balances and interest rates
based on  month-end  balances  for  interest-bearing  demand  deposits  and time
deposits as of the dates indicated.
<TABLE>
<CAPTION>
                                                              Year Ended September 30,
                                        ----------------------------------------------------------------
                                                    1996                               1995
                                                   ------                             -----
                                         Average           Average          Average             Average
                                         Balance            Rate            Balance              Rate
                                         -------            ----            -------              ----
                                                              (Dollars in Thousands)
Deposit Category:

<S>                                     <C>                  <C>             <C>                <C>
Demand Accounts(1)                      $ 8,430              2.32%           $ 9,372            2.24%
Passbook Accounts                         8,088              2.75              8,676            2.75
Certificates                             60,261              5.79             63,491            5.26
                                         ------              ----             ------            ----
                                        $76,779              5.08%           $81,539            4.67%
                                         ======              ====             ======            ====
</TABLE>



--------------
(1)  Includes  non-interest  bearing accounts,  which represent less than 10% of
     total deposits.

        Borrowings.  Deposits  are the  primary  source  of funds of the  Bank's
lending and investment  activities and for its general  business  purposes.  The
Bank may obtain advances from the FHLB of Cincinnati to supplement its supply of
lendable funds.  Advances from the FHLB of Cincinnati are typically secured by a
pledge of the Bank's stock in the FHLB of Cincinnati and a portion of the Bank's
first mortgage loans and certain other assets. The Bank, if the need arises, may
also access the Federal Reserve Bank discount window to supplement its supply of
lendable  funds and to meet deposit  withdrawal  requirements.  At September 30,
1996, the Bank had no borrowings.

Subsidiary Activity

        First  Federal  is  permitted  to invest  up to 2% of its  assets in the
capital  stock  of,  or  provide  secured  or  unsecured  loans  to,  subsidiary
corporations, with an additional investment of 1% of assets when such additional
investment is utilized primarily for community development purposes.  Under such
limitations, as of September 30, 1996, First Federal was authorized to invest up
to  approximately  $2.2  million in the stock of, or provide  loans to,  service
corporations  (based  upon the 2%  limitation).  The Bank has one  wholly  owned
subsidiary,  Harrodsburg  Savings and Loan  Service  Corporation  (the  "Service
Corporation").  The sole purpose of the Service  Corporation  is to purchase and
hold the required amount of stock of Savings and Loan Data Corp.,  now Intrieve,
pursuant to the Bank's  agreement  with Intrieve for data  processing  services.
Incorporated in Kentucky in 1978, the Service  Corporation has not conducted any
other  business and has been inactive since its  acquisition  of the stock.  The
Bank's investment in its subsidiary totaled $15,000 at September 30, 1996.


                                       17

<PAGE>



Personnel

        As of  September  30, 1996,  the Bank had 15 full-time  and no part-time
employees.  None  of  the  Bank's  employees  are  represented  by a  collective
bargaining  group. The Bank believes that its relationship with its employees is
good.

Regulation

        Set forth below is a brief  description  of certain laws which relate to
the regulation of the Company and the Bank. The description  does not purport to
be complete and is qualified in its entirety by reference to applicable laws and
regulations.

Company Regulation

        General.  The  Company is a unitary  savings  and loan  holding  company
subject to regulatory  oversight by the OTS. As such, the Company is required to
register  and  file  reports  with  the OTS and is  subject  to  regulation  and
examination  by the OTS. In addition,  the OTS will have  enforcement  authority
over the  Company  and its  non-savings  association  subsidiaries,  should such
subsidiaries  be formed,  which also  permits  the OTS to  restrict  or prohibit
activities  that are determined to be a serious risk to the  subsidiary  savings
association.  This  regulation  and  oversight  is  intended  primarily  for the
protection of the depositors of the Bank and not for the benefit of stockholders
of the Company.  The Company will also be required to file certain reports with,
and  otherwise  comply  with,  the  rules  and  regulations  of the  OTS and the
Securities and Exchange Commission ("SEC").

        QTL Test.  As a unitary  savings and loan holding  company,  the Company
generally  will not be  subject  to  activity  restrictions,  provided  the Bank
satisfies  the QTL test.  If the  Company  acquires  control of another  savings
association  as a separate  subsidiary,  it would become a multiple  savings and
loan  holding  company,  and  the  activities  of  the  Company  and  any of its
subsidiaries (other than the Bank or any other SAIF-insured savings association)
would become subject to restrictions applicable to bank holding companies unless
such  other  associations  each  also  qualify  as a QTL or were  acquired  in a
supervised acquisition.

        Restrictions on Acquisitions.  The Company must obtain approval from the
OTS  before  acquiring  control  of any  other  SAIF-insured  association.  Such
acquisitions  are generally  prohibited if they result in a multiple savings and
loan holding company  controlling  savings  associations in more than one state.
However,  such  interstate  acquisitions  are permitted  based on specific state
authorization or in a supervisory acquisition of a failing savings association.

        Federal law  generally  provides  that no "person,"  acting  directly or
indirectly or through or in concert with one or more other persons,  may acquire
"control," as that term is defined in OTS  regulations,  of a federally  insured
savings  institution  without  giving at least 60 days written notice to the OTS
and providing the OTS an  opportunity  to disapprove  the proposed  acquisition.
Such acquisitions of control may be disapproved if it is determined, among other
things,  that (i) the acquisition would substantially  lessen competition;  (ii)
the financial  condition of the acquiring  person might jeopardize the financial
stability  of  the  savings  institution  or  prejudice  the  interests  of  its
depositors;  or (iii) the competency,  experience, or integrity of the acquiring
person or the proposed  management  personnel  indicates that it would not be in
the  interest  of the  depositors  or the public to permit the  acquisitions  of
control by such person.

                                       18

<PAGE>




        The Bank Holding  Company Act of 1956  ("BHCA")  authorizes  the Federal
Reserve  Board to approve an  application  by a bank holding  company to acquire
control of a savings  association.  Furthermore,  a bank  holding  company  that
controls a savings  association is authorized to merge or consolidate the assets
and  liabilities  of the  savings  association  with,  or  transfer  assets  and
liabilities  to,  any  subsidiary  bank  which is a  member  of the BIF with the
approval of the  appropriate  federal  banking  agency and the  Federal  Reserve
Board. Generally, federal savings associations can acquire or be acquired by any
insured depository institution.

        Federal  Securities  Law. The Company's  Common Stock is registered with
the SEC under the  Securities  Exchange Act of 1934,  as amended (the  "Exchange
Act"). The Company is subject to the information,  proxy  solicitation,  insider
trading restrictions and other requirements under the Exchange Act.


Bank Regulation

        General.  As a federally  chartered,  SAIF-insured  savings bank,  First
Federal  is  subject  to  regulation  and  examination  by the OTS and the FDIC.
Lending  activities  and other  investments  must  comply with  various  federal
statutory  and  regulatory  requirements.  The Bank is also  subject  to certain
reserve requirements promulgated by the Federal Reserve Board.

        The OTS, in conjunction with the FDIC,  regularly  examines the Bank and
prepares  reports for the  consideration of the Bank's Board of Directors on any
deficiencies that they find in the Bank's  operations.  The Bank's  relationship
with its depositors and borrowers is also regulated to a great extent by federal
law,  especially  in such matters as the  ownership of savings  accounts and the
form and content of the Bank's mortgage documents.

        First Federal must file reports with the OTS and the FDIC concerning its
activities  and  financial  condition,   in  addition  to  obtaining  regulatory
approvals  prior to entering into certain  transactions  such as mergers with or
acquisitions  of other savings  institutions.  This  regulation and  supervision
establishes a comprehensive  framework of activities in which an institution can
engage and is intended  primarily for the protection of the Savings  Association
Insurance Fund ("SAIF") and depositors.  The regulatory structure also gives the
regulatory authorities extensive discretion in connection with their supervisory
and enforcement  activities and examination  policies,  including  policies with
respect to the  classification  of assets and the establishment of adequate loan
loss reserves for regulatory purposes.  Any change in such regulations,  whether
by the OTS, the FDIC or the United States Congress could have a material adverse
impact on the Company and the Bank and their operations.

        Insurance of Deposit  Accounts.  The Bank's deposit accounts are insured
by the SAIF to a maximum of $100,000 for each insured  member (as defined by law
and regulation).  The FDIC has the authority,  should it initiate proceedings to
terminate an institution's  deposit  insurance,  to suspend the insurance of any
such institution without tangible capital. However, if a savings association has
positive capital when it includes qualifying  intangible assets, the FDIC cannot
suspend deposit  insurance unless capital declines  materially,  the institution
fails to enter into and remain in compliance  with an approved  capital plan, or
the institution is operating in an unsafe or unsound manner.


                                       19

<PAGE>



        Regardless of an institution's capital level,  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 or the  institution's  primary  regulator.  The
management of the Bank is unaware of any practice,  condition or violation  that
might lead to termination of its deposit insurance.

        On September 30, 1996,  H.R. 1362 was signed into law by the  President.
Title II of H.R. 1362 is titled the Economic Growth and Paperwork  Reduction Act
of 1996 (the "Act").  Among its many provisions,  the Act provides for resolving
the BIF/SAIF premium disparity.  Currently, most insured depository institutions
holding BIF-assessable  deposits pay the statutory minimum of $2,000 for deposit
insurance on these  deposits  while most insured  depository  institutions  with
SAIF-assessable  deposits  pay 23 basis  points per $100 of these  deposits  for
deposit  insurance.  The Bank  currently  pays an insurance  premium to the FDIC
equal to 0.23% of its total deposits.

        The  BIF/SAIF   legislation   provides  for  a  one-time  assessment  to
recapitalize   the  SAIF.  The  assessment  will  be  based  on  the  amount  of
SAIF-assessable  deposits  held by an  institution  as of March 31,  1995  (with
certain  exceptions).  The  assessment is effective on September 30, 1996 and is
payable on November 27, 1996.

        The  BIF/SAIF  legislation  does not  specify an actual  assessment  but
states  that the  total  assessment  will be equal to the  amount  necessary  to
recapitalize  the SAIF as of October 1, 1996. A recent  report of the  America's
Community  Bankers  estimated the assessment at approximately  65.7 basis points
per  $100 of  SAIF-assessable  deposits  as of  March  31,  1995.  The  BIF/SAIF
legislation  provides  that the amount of the special  assessment  is deductible
under section 162 of the Internal Revenue Code (the "Code") in the year in which
the  assessment  is paid.  The BIF/SAIF  legislation  also provides that section
172(f) of the Code will not apply to  deductions  taken under section 162 of the
Code for the  special  assessment.  The Bank has  estimated  the  amount  of the
assessment to be  approximately  $536,000 before tax benefit and such amount was
accrued on September 30, 1996.

        Regulatory Capital Requirements. OTS capital regulations require savings
institutions to meet three capital standards: (1) tangible capital equal to 1.5%
of total adjusted assets,  (2) a leverage ratio (core capital) equal to at least
3% of total adjusted assets and (3) a risk-based  capital  requirement  equal to
8.0% of total risk-weighted assets.

        Tangible  capital is defined as core capital less all intangible  assets
(including  supervisory  goodwill),  plus purchased  mortgage  servicing  rights
valued  at the lower of the  maximum  percentage  established  by the OTS or the
amount   includable  in  core  capital.   Core  capital  is  defined  as  common
stockholders'  equity (including  retained  earnings),  noncumulative  perpetual
preferred  stock and minority  interests in the equity  accounts of consolidated
subsidiaries, and qualifying supervisory goodwill, less nonqualifying intangible
assets.

        The OTS leverage ratio regulation establishes a core capital ratio of at
least  3%  for  those  savings  associations  in  the  strongest  financial  and
managerial  condition based on the "CAMEL" rating system currently in use by the
OTS.  Those  savings  associations  receiving  a CAMEL  rating of "1",  the best
possible  rating on a scale of 1 to 5, will be  required  to maintain a ratio of
core capital to adjusted total assets of 3%. All other savings associations will
be required to maintain  minimum core  capital of at least 4% of total  adjusted
assets,  with a maximum core capital ratio requirement of 5%. In determining the
required  minimum core capital  ratio,  the OTS would assess the quality of risk
management  and the level of risk in each savings  association on a case-by-case
basis. The OTS has not indicated the standards it

                                       20

<PAGE>



will use in establishing  the appropriate  core capital  requirement for savings
associations not rated "1" under the CAMEL rating system.

        The risk-based  capital standard for savings  institutions  requires the
maintenance of total  risk-based  capital (which is defined as core capital plus
supplementary  capital)  of 8.0% of  risk-weighted  assets.  The  components  of
supplementary capital include, among other items, cumulative perpetual preferred
stock,  perpetual  subordinated debt, mandatory  convertible  subordinated debt,
intermediate-term  preferred  stock and the  portion of the  allowance  for loan
losses not designated for specific loan losses. The portion of the allowance for
loan and lease  losses  includable  in  supplementary  capital  is  limited to a
maximum of 1.25% of  risk-weighted  assets.  Overall,  supplementary  capital is
limited  to 100% of core  capital.  A savings  association  must  calculate  its
risk-weighted  assets by multiplying  each asset and  off-balance  sheet item by
various risk factors as determined  by the OTS,  which range from 0% for cash to
100% for delinquent  loans,  property acquired through  foreclosure,  commercial
loans and other assets.

        As of September  30, 1996,  the Bank had tangible,  core and  risk-based
capital of $21.7 million, $21.7 million and $22.0 million,  respectively,  which
amounts  significantly  exceed all applicable fully phased-in regulatory capital
requirements of the OTS.

        OTS  regulations  set  forth  the  methodology  for  calculating  an IRR
component  which  is  added  to the  risk-based  capital  requirements  for  OTS
regulated thrift  institutions.  Generally,  savings associations with a greater
than  "normal"  level of interest  rate  exposure will be subject to a deduction
from  total  capital  for  purposes  of  calculating  their  risk-based  capital
requirement.  Specifically,  interest  rate  exposure  will be  measured  as the
decline  in net  portfolio  value  due to a 200  basis  point  change  in market
interest rates.  The IRR component to be deducted from total capital is equal to
one-half  the  difference  between an  institution's  measured  exposure and the
"normal"  level of  exposure  which is defined as two  percent of the  estimated
economic  value of its assets.  Institutions,  such as the Bank,  with less than
$300  million  in assets  and a  risk-based  capital  ratio in excess of 12% are
exempt from deducting the IRR component.

        In  addition,  pursuant to the  Federal  Deposit  Insurance  Corporation
Improvement Act of 1991 ("FDICIA"),  the OTS must revise the risk-based  capital
regulations to include a credit risk component and a  nontraditional  activities
component,  the  purpose  of  which  will be to  increase  the  minimum  capital
requirements for savings associations with higher credit risks.

        Dividend and Other Capital  Distribution  Limitations.  OTS  regulations
impose limitations upon all capital distributions by savings institutions,  such
as cash  dividends,  payments to  repurchase  or  otherwise  acquire its shares,
payments to shareholders of another  institution in a cash-out merger, and other
distributions  charged  against  capital.  The rule  establishes  three tiers of
institutions, based primarily on an institution's capital level. OTS regulations
require  the  Bank  to  give  the OTS 30 days  advance  notice  of any  proposed
declaration of dividends to the Company, and the OTS has the authority under its
supervisory  powers to prohibit  the payment of  dividends  to the  Company.  In
addition,  the Bank may not declare or pay a cash  dividend on its capital stock
if the  effect  thereof  would be to reduce the  regulatory  capital of the Bank
below the amount required for the liquidation  account  established  pursuant to
the Bank's  conversion.  Finally,  under the FDICIA,  a savings  association  is
prohibited from making a capital distribution if, after making the distribution,
the  savings  association  would be  undercapitalized  (not  meet any one of its
minimum regulatory capital requirements).

        Qualified  Thrift  Lender  Test.  The Home  Owners' Loan Act, as amended
("HOLA"),  requires  savings  institutions  to  meet a QTL  test.  If  the  Bank
maintains  an  appropriate  level  of  Qualified  Thrift  Investments   ("QTIs")
(primarily  residential  mortgages and related  investments,  including  certain
mortgage-related  securities) and otherwise qualifies as a QTL, it will continue
to enjoy full borrowing  privileges  from the FHLB of  Cincinnati.  The required
percentage  of QTIs is 65% of  portfolio  assets  (defined  as all assets  minus
intangible assets, property used by the institution in conducting its business

                                       21

<PAGE>



and liquid assets equal to 10% of total assets). Certain assets are subject to a
percentage  limitation  of  20%  of  portfolio  assets.  In  addition,   savings
associations may include shares of stock of the FHLBs, Federal National Mortgage
Association ("FNMA"), and FHLMC as qualifying QTIs. Compliance with the QTL test
is determined on a monthly basis in nine out of every 12 months. As of September
30, 1996, the Bank was in compliance with its QTL requirement with 84.91% of its
assets invested in QTIs.

        A savings  association that does not meet a QTL test must either convert
to a bank charter or comply with the following  restrictions  on its operations:
(i) the savings  association  may not engage in any new activity or make any new
investment,  directly or  indirectly,  unless such  activity  or  investment  is
permissible  for a  national  bank;  (ii) the  branching  powers of the  savings
association  shall be restricted to those of a national bank;  (iii) the savings
association shall not be eligible to obtain any advances from its FHLB; and (iv)
payment of  dividends by the savings  association  shall be subject to the rules
regarding  payment of dividends by a national bank. Upon the expiration of three
years from the date the  savings  association  ceases to be a QTL, it must cease
any activity and not retain any investment not  permissible  for a national bank
and  immediately  repay any  outstanding  FHLB  advances  (subject to safety and
soundness considerations).

        Transactions  With Affiliates.  Generally,  restrictions on transactions
with affiliates require that transactions  between a savings  association or its
subsidiaries  and  its  affiliates  be on  terms  as  favorable  to the  Bank as
comparable  transactions  with  non-affiliates.  In  addition,  certain of these
transactions are restricted to an aggregate percentage of the Bank's capital and
collateral  in  specified  amounts  must  usually be provided by  affiliates  to
receive loans from the Bank.  Affiliates of the Bank include the Company and any
company  which would be under  common  control  with the Bank.  In  addition,  a
savings  association  may not lend to any affiliate  engaged in  activities  not
permissible  for a  bank  holding  company  or  acquire  the  securities  of any
affiliate  which  is not a  subsidiary.  The  OTS has the  discretion  to  treat
subsidiaries of savings associations as affiliates on a case-by-case basis.

        The Bank's  authority to extend credit to its officers,  directors,  and
10%  stockholders  as well as to entities that such persons control is currently
governed by Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O
promulgated by the Federal Reserve Board. Among other things,  these regulations
require such loans to be made on terms substantially similar to those offered to
unaffiliated individuals,  place limits on the amount of loans the Bank may make
to such persons  based,  in part, on the Bank's  capital  position,  and require
certain  approval  procedures  to  be  followed.  OTS  regulations,  with  minor
variation, apply Regulation O to savings associations.

        Liquidity  Requirements.   All  savings  associations  are  required  to
maintain an average daily balance of liquid assets equal to a certain percentage
of the sum of its average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less. The liquidity  requirement may vary from
time to time (between 4% and 10%) depending upon economic conditions and savings
flows  of all  savings  associations.  As of  September  30,  1996,  the  Bank's
liquidity ratio was 34.26%.

        Liquid  assets for purposes of this ratio include  specified  short term
assets (e.g., cash,  certain time deposits,  certain banker's  acceptances,  and
short  term U.S.  Government  obligations),  and long term  assets  (e.g.,  U.S.
Government  obligations  of more  than one and less  than  five  years and state
agency obligations with a maximum remaining term of 24 months).  The regulations
governing liquidity requirements include as liquid assets debt securities hedged
with forward commitments obtained from, or debt securities subject to repurchase
agreements  with,  members  of the Bank of  Primary  Dealers  in  United  States
Government  Securities  or banks whose  accounts  are insured by the FDIC,  debt
securities  directly hedged with a short  financial  future  position,  and debt
securities  that  provide the holder with a right to redeem the  security at par
value,  regardless of the stated  maturities of the securities.  The OTS is also
authorized to designate as liquid  assets  certain  mortgage-related  securities
with less than one year to maturity.  Short term liquid  assets  currently  must
constitute  at  least  1% of an  association's  average  daily  balance  of  net
withdrawable

                                       22

<PAGE>



deposit accounts and current borrowings.  Monetary penalties may be imposed upon
associations for violations of liquidity requirements.

        Federal  Home  Loan  Bank  System.  The Bank is a member  of the FHLB of
Cincinnati, which is one of 12 regional FHLBs that administer the home financing
credit  function  of  savings  associations.  Each FHLB  serves as a reserve  or
central bank for its members within its assigned region.  It is funded primarily
from  proceeds  derived from the sale of  consolidated  obligations  of the FHLB
System.  It makes loans to members (i.e.,  advances) in accordance with policies
and  procedures  established  by the  Board  of  Directors  of the  FHLB.  As of
September 30, 1996,  the Bank had no funds  borrowed from the FHLB of Cincinnati
to fund operations; however, there can be no assurances that borrowings will not
be made in the future.

        As a member,  the Bank is required to purchase and maintain stock in the
FHLB of  Cincinnati  in an amount equal to at least 1% of its  aggregate  unpaid
residential  mortgage loans, home purchase contracts,  or similar obligations at
the beginning of each year. As of September 30, 1996,  the Bank had $1.2 million
in FHLB stock, which was in compliance with this requirement.

        The FHLBs are required to provide  funds for the  resolution of troubled
savings  associations  and to contribute to affordable  housing programs through
direct loans or interest subsidies on advances targeted for community investment
and  low-  and  moderate-income  housing  projects.   These  contributions  have
adversely  affected the level of FHLB dividends paid and could continue to do so
in the future.  For the fiscal year ended September 30, 1996,  dividends paid by
the FHLB of Cincinnati to the Bank totaled $80,230.

        Federal  Reserve   System.   The  Federal  Reserve  Board  requires  all
depository  institutions to maintain  non-interest bearing reserves at specified
levels against their transaction  accounts (primarily  checking,  NOW, and Super
NOW checking accounts) and non-personal time deposits.  The balances  maintained
to meet the reserve  requirements  imposed by the Federal  Reserve  Board may be
used to satisfy the  liquidity  requirements  that are imposed by the OTS. As of
September 30, 1996,  the Bank was in compliance  with its Federal  Reserve Board
minimum reserve requirements.

        Savings  associations  have authority to borrow from the Federal Reserve
Bank "discount  window," but Federal Reserve policy  generally  requires savings
associations  to exhaust  all OTS  sources  before  borrowing  from the  Federal
Reserve System. The Bank had no such borrowings at September 30, 1996.

Federal Taxation

        The Bank files its tax  return on a fiscal  year  (September  30) basis.
Savings  associations are subject to the provisions of the Internal Revenue Code
in the same general manner as other corporations.  However, savings associations
such as the Bank,  which meet certain  definitional  tests and other  conditions
prescribed by the Code may benefit from certain favorable  provisions  regarding
their  deductions  from  taxable  income for annual  additions to their bad debt
reserve.  For purposes of the bad debt reserve  deduction,  loans are  separated
into  "qualifying  real property  loans,"  which  generally are loans secured by
interests in real property, and nonqualifying real property loans, which are all
other loans. The bad debt reserve deduction with respect to nonqualifying  loans
must be based on actual  loss  experience.  The  amount of the bad debt  reserve
deduction  with  respect to  qualifying  real  property  loans may be based upon
actual loss  experience  (the  "experience  method") or a percentage  of taxable
income  determined  without regard to such actual experience (the "percentage of
taxable income  method").  The Bank used the percentage of taxable income method
for the years ended  September 30, 1996,  1995 and 1994. The Bank is expected to
use the  percentage of taxable  income method for the year ending  September 30,
1996.

                                       23

<PAGE>



The Bank reviews the most favorable way to calculate the deduction  attributable
to an addition to its bad debt reserve on an annual basis.

        Under the experience  method, the bad debt deduction may be based on (i)
a six-year  moving  average of actual  losses on qualifying  and  non-qualifying
loans or (ii) a fill-up to the institution's base year reserve amount,  which is
the tax bad debt reserve determined as of September 30, 1988.

        The  percentage  of specially  computed  taxable  income that is used to
compute a savings  association's bad debt reserve deduction under the percentage
of taxable  income  method  (the  "percentage  bad debt  deduction")  is 8%. The
percentage  of bad  debt  deduction  thus  computed  is  reduced  by the  amount
permitted as a deduction for non-qualifying loans under the experience method.

        If an  association's  qualifying  assets  (generally,  loans  secured by
residential  real  estate  or  deposits,  educational  loans,  cash and  certain
government  obligations)  constitute  less  than 60% of its  total  assets,  the
association may not deduct any addition to a bad debt reserve and generally must
include existing reserves in income over a four year period. As of September 30,
1996, at least 60% of the Bank's assets were qualifying assets as defined in the
Code.  No  assurance  can be  given  that the  Bank  will  meet the 60% test for
subsequent taxable years.

        Earnings  appropriated  to the Bank's bad debt  reserve and claimed as a
tax  deduction  will not be available  for the payment of cash  dividends or for
distribution to  stockholders  (including  distributions  made on dissolution or
liquidation),  unless the Bank  includes  the  amount in income,  along with the
amount deemed necessary to pay the resulting federal income tax. As of September
30, 1996, the Bank had  approximately  $1.6 million of accumulated  earnings for
which federal  income taxes have not been  provided.  If such amount is used for
any purpose other than bad debt losses,  including a dividend  distribution or a
distribution  in  liquidation,  it will be subject to federal  income tax at the
then current rate.

        On August 20, 1996,  the  President  signed into law the Small  Business
Jobs  Protection Act.  Included  within this act were  provisions  repealing the
percentage of taxable  income method of  calculating a thrift's bad debt reserve
for  tax  purposes.  This  method  as  described  above,  had  permitted  thrift
institutions,  such as the Bank, who satisfied  certain  definitional  tests and
other  conditions  prescribed  by the Internal  Revenue Code to deduct an annual
addition to their bad debt reserve calculated as a percentage of taxable income.
Other financial institutions generally were required to calculate their bad debt
deduction  based upon actual loss  experience (the  "experience  method").  As a
result  of  the   elimination  of  the  percentage  of  taxable  income  method,
institutions  that have utilized such method will be required to recapture  into
taxable income post-1987 reserves in excess of the reserves calculated under the
experience method, over period of six years commencing in the first taxable year
beginning  after  December  31,  1995.  An  institution  will be  able to  defer
recapture  until up to the third  taxable  year after  December  31, 1995 if the
dollar amount of the institution's residential loan originations in each year is
not less  than the  average  dollar  amount  of  residential  loan  originations
originated in each of the six most recent years  disregarding the years with the
highest and lowest  originations  during such period. For purposes of this test,
residential  loan  originations  would not include  refinancings and home equity
loans.

        Beginning with the first taxable year beginning after December 31, 1995,
(Fiscal  1997 for the Bank)  savings  institutions,  such as the  Bank,  will be
treated the same as commercial banks.  Institutions with $500 million or more in
assets will only be able to take a tax deduction when a loan is actually charged
off.  Institutions with less than $500 million in assets will still be permitted
to make deductible bad debt additions to reserves, but only using the experience
method.  The Bank has provided deferred taxes on its post-1987  additions to the
bad debt reserve and, as a result, management does not expect that the recapture
of the Bank's  post-1987  reserves  will have a material  adverse  effect on the
Bank's operations.

                                       24

<PAGE>




        Generally,  for  taxable  years  beginning  after  1986,  the Code  also
requires  most  corporations,  including  savings  associations,  to utilize the
accrual method of accounting for tax purposes. Further, for taxable years ending
after 1986, the Code disallows 100% of a savings association's  interest expense
allocated  to certain  tax-exempt  obligations  acquired  after  August 7, 1986.
Interest expense allocable to (i) tax-exempt  obligations  acquired after August
7, 1986  which are not  subject to this rule,  and (ii)  tax-exempt  obligations
issued  after 1982 but  before  August 8,  1986,  are  subject to the rule which
applied prior to the Code  disallowing the  deductibility of 20% of the interest
expense.

        The Bank's  federal income tax returns have not been examined by the IRS
during the past 10 years.

State Taxation

        The  Commonwealth  of Kentucky  imposes no income or franchise  taxes on
savings institutions.  First Federal is subject to an annual Kentucky ad valorem
tax. This tax is .1% of the Bank's savings accounts,  common stock,  capital and
retained  income  with  certain  deductions  allowed  for  amounts  borrowed  by
depositors  and for securities  guaranteed by the U.S.  Government or certain of
its agencies.  For the fiscal year ended  September 30, 1996, the amount of such
expense for the Bank was $93,037.

        The Company is subject to an annual license fee on capital  employed and
income tax on its operations by the Commonwealth of Kentucky. The annual license
fee is based on $2.10  per  $1,000  of  capital  employed  and the tax on income
ranges from 4% on the first $25,000 of taxable income to 8.25% on taxable income
in excess of $250,000. In addition, the Company must pay an annual franchise tax
to the state of Delaware.

        Stockholders  of the Company who are  residents of the  Commonwealth  of
Kentucky may be subject to a Kentucky tax on  intangible  property,  defined for
this  purpose  to  include  shares of stock in a  corporation.  The tax is an ad
valorem  tax  based  upon  the  fair  market  value  of the  shares  held by the
individual,  and is assessed at a rate of $.25 per $100 in value.  All  Kentucky
residents are urged to consult  their own tax and  financial  advisors as to the
applicability of this tax.


                                       25

<PAGE>



Item  2.  Properties
--------------------

        The Bank  operates  from its main  office  and one full  service  branch
office. The Bank's total investment in offices, office property and equipment is
$1.4  million  with a net book value of  $658,000 at  September  30,  1996.  The
following table sets forth information regarding the Bank's properties:

<TABLE>
<CAPTION>
                                                          Original
                                         Leased             Date              Net Book Value at
Location                                or Owned          Acquired            September 30, 1996
--------                                --------          --------            ------------------


MAIN OFFICE:
<S>                                       <C>               <C>                   <C>
104 South Chiles Street                   Owned             1964                  $535,000
Harrodsburg, Kentucky 40330

BRANCH OFFICE:
216 South Main Street                     Owned             1973                   123,000
Lawrenceburg, Kentucky

</TABLE>


        In November 1994, the Bank purchased the house and lot located next door
to the main office for $82,500.  The house has been  demolished and the .25 acre
lot has been  filled with  crushed  stone.  Construction  of the parking lot and
expansion of the existing  drive-in  facility for another lane with an ATM which
began in October 1995, has been completed.

Item 3.  Legal Proceedings
--------------------------

        The Bank, from time to time, is a party to ordinary routine  litigation,
which arises in the normal course of business,  such as claims to enforce liens,
condemnation  proceedings  on  properties  in  which  the  Bank  holds  security
interests, claims involving the making and servicing of real property loans, and
other  issues  incident  to the  business  of the Bank.  There were no  lawsuits
pending or known to be contemplated against the Bank or the Company at September
30, 1996.

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

        None.


                                     PART II

Item 5.  Market for Common Equity and Related Stockholder Matters
-----------------------------------------------------------------

        Information  relating to the market for  Registrant's  common equity and
related stockholder  matters appears under "Market and Dividend  Information" in
the  Registrant's  1996 Annual Report to  Stockholders on the inside cover page,
and is incorporated herein by reference.


                                       26

<PAGE>




Item 6.  Selected Financial Data
--------------------------------

        The  above-captioned  information  appears under "Selected Financial and
Other Data" in the  Registrants'  1996 Annual Report to  Stockholders on pages 2
and 3 and is incorporated by reference herein.

Item 7.  Management's Discussion and Analysis of Financial Condition and Results
--------------------------------------------------------------------------------
         of Operations
         -------------

        The above-captioned  information appears under "Management's  Discussion
and  Analysis  of  Financial   Condition  and  Results  of  Operations"  in  the
Registrant's  1996 Annual  Report to  Stockholders  on pages 4 through 15 and is
incorporated herein by reference.

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

        The   Consolidated   Financial   Statements   of  the  Company  and  its
subsidiaries,  together  with the report  thereon by Miller,  Mayer,  Sullivan &
Stevens LLP appears in the  Registrant's  1996 Annual Report to  Stockholders on
pages 16 through 41 and are incorporated herein by reference.

Item 9.  Changes  In  and  Disagreements  with  Accountants  on  Accounting  and
--------------------------------------------------------------------------------
         Financial Disclosure
         --------------------

        None.

                                    PART III

Item 10.  Directors and Executive Officers of the Registrant
------------------------------------------------------------

        The  information  contained under the section  captioned  "Proposal I --
Election of  Directors"  at pages 3 to 5 of the  Registrant's  definitive  proxy
statement for the  Registrant's  Annual  Meeting of  Stockholders  to be held on
January 27, 1997 (the "Proxy Statement"), which was filed with the Commission on
December  18,  1996 and  incorporated  herein by  reference.  See also  "Item 1.
Business -- Personnel" included herein.

Item 11.  Executive Compensation
--------------------------------

        The  information  relating to  executive  compensation  is  incorporated
herein by reference to the Registrant's Proxy Statement at pages 7 through 12.


Item 12.  Security Ownership of Certain Beneficial Owners and Management
------------------------------------------------------------------------

        The  information  relating to security  ownership of certain  beneficial
owners and management is  incorporated  herein by reference to the  Registrant's
Proxy Statement at page 4.


Item 13.  Certain Relationships and Related Transactions
--------------------------------------------------------

        The   information   relating  to  certain   relationships   and  related
transactions  is  incorporated  herein by  reference to the  Registrant's  Proxy
Statement at page 11.

                                       27

<PAGE>



                                     PART IV

Item 14.  Exhibits and Reports on Form 8-K
------------------------------------------

(a)     The following documents are filed as a part of this report:

        (1) Financial Statements of the Company are incorporated by reference to
the following indicated pages of the 1996 Annual Report to Stockholders.
<TABLE>
<CAPTION>
                                                                                            PAGE
                                                                                            ----

<S>                                                                                          <C>
Independent Auditors' Report.......................................................          16

Consolidated Balance Sheets as of September 30, 1996 and 1995......................          17

Consolidated Statements of Income For the Years Ended September 30, 1996, 1995
   and 1994 .......................................................................          18
Consolidated Statement of Stockholders' Equity
   for the Years Ended September 30, 1996, 1995 and 1994...........................          19

Consolidated Statements of Cash Flows for the Years Ended September 30, 1996,
  1995 and 1994....................................................................          20

Notes to Consolidated Financial Statements.........................................          22

</TABLE>

        The remaining information appearing in the Annual Report to Stockholders
is not deemed to be filed as part of this report,  except as expressly  provided
herein.

        (2)  All  schedules  are  omitted  because  they  are  not  required  or
applicable,  or the required information is shown in the consolidated  financial
statements or the notes thereto.

        (3)    Exhibits

               (a)    The following exhibits are filed as part of this report.

         3.1   Certificate of Incorporation of Harrodsburg First Financial
                 Bancorp, Inc.*
         3.2   Bylaws of Harrodsburg First Financial Bancorp, Inc.*
        13.0   1996 Annual Report to Stockholders
        21.0   Subsidiary Information
        27.0   Financial Data Schedules

               (b)    Reports on Form 8-K.


                      None.

-------------
*    Incorporated  herein by reference  into this  document from the Exhibits to
     Form  S-1,  Registration  Statement,  initially  filed  on June  14,  1995,
     Registration No. 33-93458.


                                       28

<PAGE>

                                   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.

                                    HARRODSBURG FIRST FINANCIAL BANCORP, INC.


Dated:  December 30, 1996          By:     /s/ Jack D. Hood
                                            ------------------------------------
                                            Jack D. Hood
                                            President, Chief Executive
                                            Officer and Director

        Pursuant to the requirement 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.
<TABLE>
<CAPTION>

<S>                                                <C>
By:     /s/ Jack D. Hood                           By:   /s/ Wickliffe T. Asbury, Sr.
        -----------------------------------              -------------------------------------
        Jack D. Hood                                     Wickliffe T. Asbury, Sr.
         President, Chief Executive Officer              Vice President and Director
          and Director

Date:   December 30, 1996                         Date: December 30, 1996


By:     /s/ Jack L. Coleman, Sr.                   By:   /s/ Teresa W. Noel
        -----------------------------------              -------------------------------------
        Jack L. Coleman, Sr.                             Teresa W. Noel
        Director                                         Treasurer and Chief Financial Officer

Date:   December 30, 1996                         Date: December 30, 1996


By:     /s/ Elwood Burgin                          By:   /s/ Jack L. Coleman, Jr.
        -----------------------------------              -------------------------------------
        Elwood Burgin                                    Jack L. Coleman, Jr.
        Director                                         Director

Date:   December 30, 1996                         Date: December 30, 1996


By:     /s/ Thomas Les Letton
        -----------------------------------
        Thomas Les Letton
        Director

Date:   December 30, 1996

</TABLE>