SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB
(Mark One)
[X]  ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE
     ACT OF 1934

For the fiscal year ended June 30, 2003

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


                           Commission File No. 1-13904

                          KENTUCKY FIRST BANCORP, INC.
--------------------------------------------------------------------------------
           (NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)

           DELAWARE                                         61-1281483
---------------------------------                        -------------------
  (STATE OR OTHER JURISDICTION                           (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION)                        IDENTIFICATION NO.)

308 NORTH MAIN STREET, CYNTHIANA, KENTUCKY                     41031-1210
------------------------------------------                     ----------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                       (ZIP CODE)

         ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE: (859) 234-1440

           SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

COMMON STOCK, PAR VALUE $.01 PER SHARE           AMERICAN STOCK EXCHANGE
--------------------------------------    --------------------------------------
           (TITLE OF CLASS)               (NAME OF EXCHANGE ON WHICH REGISTERED)

           SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
                                 NOT APPLICABLE

Check whether the issuer:  (1) filed all reports required by Section 13 or 15(d)
of the Exchange Act during the preceding 12 months (or 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
                                                  ---   ---

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure  will 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-KSB or any
amendment to this Form 10-KSB. [   ]

Registrant's revenues for the fiscal year ended June 30, 2003: $4.7 million.


At September 8, 2003,  the  registrant  had 882,613  shares of its Common Stock,
$0.01 per share, outstanding.


The  aggregate  market  value  of  voting  stock  held by  nonaffiliates  of the
registrant  at September 8, 2003 was  approximately  $14.3  million based on the
closing  sale price of the  registrant's  Common Stock as listed on the American
Stock  Exchange as of  September  8, 2003.  For  purposes  of this  calculation,
directors and executive officers are not treated as "non-affiliates".

Transitional Small Business Disclosure Format   Yes      No    X
                                                   -----   -------

                       DOCUMENTS INCORPORATED BY REFERENCE

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

1.   Portions of the Annual Report to  Stockholders  for the year ended June 30,
     2003 (the "Annual Report") (Part II)

2.   Portions of Proxy  Statement  for the 2003 Annual  Meeting of  Stockholders
     (the "Proxy Statement") (Part III)
<PAGE>

                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS
--------------------------------

GENERAL

     The Company.  Kentucky  First  Bancorp,  Inc. (the  "Company"),  a Delaware
corporation,  was  organized at the direction of the Board of Directors of First
Federal Savings Bank,  Cynthiana,  Kentucky  ("First  Federal" or the "Bank") in
April 1995 to acquire all of the  capital  stock to be issued by the Bank in its
conversion  from mutual to stock form (the  "Conversion").  The  Conversion  was
completed  August 28, 1995,  with the Company  issuing  1,388,625  shares of its
common stock, par value $0.01 per share (the "Common Stock") to the public,  and
the Bank issuing all of its issued and outstanding  common stock to the Company.
Prior to the Conversion,  the Company did not engage in any material operations.
The Company  does not have any  significant  assets  other than the  outstanding
capital  stock  of the  Bank,  cash  and  interest-bearing  deposits  and a note
receivable  from the Employee  Stock  Ownership  Plan.  The Company's  principal
business is the business of the Bank.  At June 30,  2003,  the Company had total
assets of $74.5  million,  deposits of $53.0  million,  net loans  receivable of
$33.9 million and shareholders' equity of $13.2 million.

     The Bank.  First  Federal  was formed in 1888  under the name of  Cynthiana
Building  &  Saving  Association.  In 1966  the Bank  converted  to a  federally
chartered  savings and loan  association  and adopted the name of First  Federal
Savings and Loan  Association  of Cynthiana.  The Bank  converted to a federally
chartered  savings bank under the name of First Federal  Savings Bank in January
1988.  The  Bank  operates  two  offices  in  Cynthiana,  Kentucky.  The Bank is
principally  engaged in the  business  of  accepting  deposits  from the general
public  through a variety of  deposit  programs  and  investing  these  funds by
originating  and  purchasing  loans secured by  one-to-four  family  residential
properties  located in its  market  area,  construction  loans,  commercial  and
multi-family mortgage loans,  agricultural loans,  commercial business loans and
consumer loans.

     The  Bank's  business  strategy  has been to  operate  a  well-capitalized,
profitable  community savings association  dedicated to financing home ownership
in its market area and providing  quality  service to its customers.  The Bank's
deposits are insured by the Federal Deposit Insurance Corporation ("FDIC") up to
applicable  limits for each depositor.  The Bank is a member of the Federal Home
Loan  Bank  ("FHLB")  of  Cincinnati,  which  is one of  the 12  district  banks
comprising the FHLB System.  The Bank is subject to  comprehensive  examination,
supervision and regulation by the Office of Thrift  Supervision  ("OTS") and the
FDIC. Such regulation is intended primarily for the protection of depositors.

     On July 8, 2003,  the Company  entered into an Agreement and Plan of Merger
with Kentucky Bancshares,  Inc. (who was called Bourbon Bancshares,  Inc. at the
time of the signing of the Agreement) and its wholly owned  subsidiary,  Bourbon
Acquisition Corp., pursuant to the terms of which, including the requirement for
receipt of  regulatory  approval  and the  approval of the  stockholders  of the
Company,  the  Company  will  merge  into  Bourbon  Acquisition  Corp.  and each
stockholder of the Company  (except for  stockholders  who have perfected  their
appraisal rights),  will be entitled to receive cash consideration of $23.25 for
each share of their Company  common stock from Kentucky  Bancshares,  Inc. It is
expected that the merger will be consummated in the fourth quarter of 2003.

     Both the Company's and First Federal's executive offices are located at 308
North Main Street, Cynthiana, Kentucky 41031-1210, and their telephone number is
(859) 234-1440.

MARKET AREA

     The Bank considers its primary market area to consist of the eight counties
of Harrison,  Pendleton, Scott, Grant, Robertson,  Nicholas, Bourbon and Fayette
Counties,  Kentucky.  Management believes that most of the Bank's depositors and
borrowers are  residents of these  counties.  The City of Cynthiana,  located in
Harrison  County,  is 26 miles north of Lexington,  Kentucky,  100 miles east of
Louisville, Kentucky and 80 miles south of Cincinnati, Ohio. Based upon the 2000
population   census   estimate,   Cynthiana   had  a  population  of  6,300  and
approximately 18,000 persons lived in Harrison County.

                                       3
<PAGE>

     The  economy  in  the  Bank's   market  area  is  based  on  a  mixture  of
manufacturing  and  agriculture.  Other  employment  is provided by a variety of
professionals,  service employers,  manufacturing  industries,  wholesale/retail
trade employers  including 3M, Bullard  Manufacturing,  Concept Packaging Group,
Cynthiana Publishing Company, Harrison Memorial Hospital, Judy Construction Co.,
Lucas Equine Equipment,  Farmer's Tobacco Co., SNAPCO,  and TI Group Automotive.
The Licking  Valley  Center of  Maysville  Community  College is also located in
Cynthiana with an enrollment of approximately 400 students.

     According to the US Bureau of Labor  Statistics,  the unemployment  rate in
Harrison County as of May 2003 was 5.6% as compared to 5.5% for the Commonwealth
of Kentucky.

LENDING ACTIVITIES

     General.  First Federal's  primary  lending  activity is the origination of
conventional  mortgage  loans for the  purpose of  constructing,  purchasing  or
refinancing  one-to-four  family  residential  properties in its primary  market
area. The Bank also makes  construction  loans and  originates  loans secured by
multi-family  properties  and commercial  properties and originates  commercial,
farm and consumer loans. In recent years, the Bank has purchased whole loans and
participation  interests in loans secured by one-to-four  family  properties and
multi-family and commercial real estate.

     Savings institutions generally are subject to the lending limits applicable
to national banks.  With certain limited  exceptions,  the maximum amount that a
savings  institution  or a  national  bank may lend to any  borrower  (including
certain related  entities of the borrower) at one time may not exceed 15% of the
unimpaired  capital and surplus of the  institution,  plus an additional  10% of
unimpaired  capital and surplus  for loans fully  secured by readily  marketable
collateral.  Savings  institutions are additionally  authorized to make loans to
one borrower,  for any purpose, in an amount not to exceed $500,000 or, by order
of the Director of OTS, in an amount not to exceed the lesser of  $30,000,000 or
30% of unimpaired capital and surplus to develop residential housing,  provided:
(i) the purchase price of each  single-family  dwelling in the development  does
not exceed  $500,000;  (ii) the savings  institution  is in compliance  with its
fully  phased-in  capital  requirements;  (iii) the loans comply with applicable
loan-to-value  requirements,  and; (iv) the aggregate amount of loans made under
this authority does not exceed 15% of unimpaired capital and surplus.

     At June 30, 2003, the maximum amount that the Bank could have loaned to any
one borrower  without  prior OTS approval was $1.8  million.  At such date,  the
largest  aggregate  amount  of loans  that the Bank had  outstanding  to any one
borrower was approximately $1.3 million.

                                       4
<PAGE>

     Loan Portfolio  Composition.  The following  table sets forth selected data
relating to the  composition of the Bank's loan portfolio by type of loan at the
dates  indicated.  At June 30,  2003,  the Bank had no  concentrations  of loans
exceeding 10% of total loans that are not otherwise disclosed below.

<TABLE>
<CAPTION>
                                                                          At June 30,
                                                         ------------------------------------------
                                                                 2003                   2002
                                                         -------------------    -------------------
                                                         Amount        %         Amount        %
                                                         ------       ---        ------       ---
                                                                   (Dollars in thousands)
Type of Loan:
-------------
<S>                                                       <C>          <C>        <C>          <C>
Real estate loans:
  One-to-four family residential and
   construction (1) .................................   $21,185       61.60%    $24,422       61.36%
  Multi-family residential ..........................     2,671        7.77       2,712        6.82
  Agricultural ......................................     2,779        8.08       3,772        9.48
  Commercial ........................................     4,775       13.89       5,668       14.24
                                                        -------       -----     -------       -----
     Total real estate loans ........................    31,410       91.34      36,574       91.90

Commercial loans ....................................       745        2.17       1,029        2.59
Agricultural operating loans ........................       567        1.65         537        1.35

Consumer loans:
  Automobiles .......................................       402        1.17         482        1.21
  Mobile home .......................................        11         .03          15        0.04
  Savings account ...................................       845        2.46         714        1.79
  Other .............................................       405        1.18         447        1.12
                                                        -------       -----     -------       -----
     Total consumer loans ...........................     1,663        4.84       1,658        4.16
                                                        -------       -----     -------       -----
     Total loans ....................................    34,385      100.00%     39,798      100.00%

Less:
  Loans in process...................................        89                     154
  Deferred loan origination fees.....................        24                      47
  Unearned discount..................................        --                       1
  Allowance for loan losses..........................       340                     241
                                                        -------                 -------
     Loans receivable, net...........................   $33,932                 $39,355
                                                        =======                 =======
</TABLE>

(1)  At June 30, 2003,  constructions loans amounted to $196,000 and represented
     .6% of total gross loans.


     Loan Maturity Schedule.  The following table sets forth certain information
at June 30, 2003  regarding  the dollar  amount of loans  maturing in the Bank's
portfolio  based on their  contractual  terms to maturity,  including  scheduled
repayments  of  principal.  Demand  loans,  loans  having no stated  schedule of
repayments  and no stated  maturity,  and  overdrafts are reported as due in one
year or less.


                                         Due Within  Due 1-5
                                            1 Year    Years  Due After 5
                                            After     After   Years After
                                           6/30/03   6/30/03   6/30/03     Total
                                           -------   -------   -------     -----
                                                     (Dollars in thousands)

Real estate mortgage ...................   $   412   $ 2,646   $28,352   $31,410
Consumer ...............................     1,552       111        --     1,663
Commercial and agricultural operating...     1,276        36        --     1,312
                                           -------   -------   -------   -------
     Total .............................   $ 3,240   $ 2,793   $28,352   $34,385
                                           =======   =======   =======   =======


                                       5
<PAGE>

The following  table sets forth at June 30, 2003, the dollar amount of all loans
due one year or more after June 30, 2003 which have (i)  predetermined  interest
rates and (ii) floating or adjustable interest rates.

                                              Predetermined    Floating or
                                                 Rates      Adjustable Rates
                                                 -----      ----------------
                                                 (Dollars in thousands)

Real estate mortgage ........................   $22,237          $ 8,761
Consumer ....................................       111               --
Commercial and agricultural operating........        36               --
                                                -------          -------
     Total ..................................   $22,384          $ 8,761
                                                =======          =======

     Scheduled  contractual  principal  repayments  of loans do not  necessarily
reflect the actual life of such assets.  The average life of long-term  loans is
substantially  less  than  their  contractual  terms,  due  to  prepayments.  In
addition,  the Bank's  mortgage  loans  generally give it the right to declare a
loan due and payable in the event, among other things, that a borrower sells the
real property subject to the mortgage and the loan is not repaid.

     The Bank  originates  both fixed rate and  adjustable  rate mortgage  loans
("ARMs") with terms of up to 30 years.  In late March 1995, the Bank changed the
index used to the Weekly Average Yield on U.S. Treasury Securities Adjusted to a
Constant  Maturity  of One  Year.  The  interest  rates on these  mortgages  are
generally  adjusted  annually with a limitation of either one or two  percentage
points per adjustment  and six percentage  points over the life of the loan. The
minimum  rate on such loans is 5%.  Prior to March 1995,  the Bank's  adjustable
rate loans were  indexed to the National  Monthly  Median Cost of Funds Ratio to
OTS Regulated, SAIF-Insured Institutions.

     The retention of ARMs in the portfolio  helps reduce the Bank's exposure to
increases in interest  rates.  However,  there are  unquantifiable  credit risks
resulting  from  potential  increased  costs  to the  borrower  as a  result  of
repricing of ARMs. It is possible that during periods of rising  interest rates,
the risk of  default  on ARMs  may  increase  due to the  upward  adjustment  of
interest  costs to the  borrower.  Although  ARMs allow the Bank to increase the
sensitivity of its asset base to changes in interest  rates,  the extent of this
interest  sensitivity  is limited by the  periodic and  lifetime  interest  rate
ceiling contained in ARM contracts.  Accordingly, there can be no assurance that
yields on the Bank's ARMs will adjust  sufficiently  to compensate for increases
in its cost of funds.

     One-to-Four  Family Real Estate Loans.  The primary  emphasis of the Bank's
lending  activity is the  origination  of loans  secured by first  mortgages  on
one-to-four family residential  properties.  At June 30, 2003, $20.8 million, or
60.4% of the Bank's  gross loan  portfolio  consisted  of loans  other than home
equity lines of credit that were secured by one-to-four  family residential real
properties  primarily  located in the Bank's  market  area.  The Bank's  lending
policies  generally limit the maximum  loan-to-value  ratio on mortgage loans to
85% of the lesser of the appraised value or purchase  price,  if applicable,  of
the property.

     Home Equity Lines of Credit. In 2001, the Bank began offering open-end home
equity lines of credit.  The loans are offered on owner  occupied  single family
homes  within the Bank's  lending  area.  Loan terms are 10 years with  interest
rates  subject to change  monthly.  The ceiling  rate cap is 18%. The index rate
used for these loans is the Wall Street Journal Prime Rate.  Currently there are
margins  of 1% and 2% added to the index  rate to set the  interest  rates.  The
margin  depends  on the  loan to  value  ratio.  Tax  assessed  value,  drive-by
inspections and appraisals may be used to determine the value of the homes.  The
maximum  loan to value  ratio is 85%.  Minimum  monthly  payments of 1.5% of the
outstanding  loan balance or $25.00  (whichever  is greater) are  required.  The
borrower may draw on the loan during the ten year period. An annual  maintenance
fee is charged.  Negative amortization is possible. At June 30, 2003, total home
equity lines of credit amounted to $211,000.

     Multi-family  and Commercial Real Estate Loans. The Bank has been active in
the  origination  and purchase of loans secured by  multi-family  properties and
commercial  real estate.  At June 30, 2003,  multi-family  and  commercial  real
estate  loans  totaled  $2.7  million  and  $4.8  million,   respectively,   and
represented 7.8% and 13.9%, respectively, of the Bank's gross loan portfolio.

                                       6
<PAGE>

     Multi-family  and commercial real estate loans are made in amounts of up to
80% of the lesser of the appraised  value or the purchase  price, if applicable,
of the  property and may be on a fixed rate basis for terms of up to 15 years or
an  adjustable  rate basis for terms of up to 20 years.  Prior to  committing to
make a multi-family  or commercial  real estate loan, the Bank requires that the
prospective  borrower provide a cash flow statement  indicating  sufficient cash
flow from the property to service the loan.

     The Bank's  multi-family  real  estate  loans  consist of loans  secured by
apartment  buildings  which are  primarily  located in the Bank's  market  area.
Generally,  these  apartment  buildings are small with an average of eight to 12
units.  The Bank's  largest  multi-family  real estate  lending to one  borrower
amounted  to  $660,000  at June 30,  2003.  The loan is secured  by one  18-unit
apartment building and one nine-unit apartment building in Lexington, Kentucky.

     The Bank's  commercial real estate  portfolio  consists of loans secured by
office buildings,  nursing homes,  warehouse properties and churches. The Bank's
largest  commercial  real  estate  loan is  secured by a retail  shopping  plaza
located  in Paris,  Kentucky.  This loan had a balance of  $202,000  at June 30,
2003.

     Multi-family  and  commercial  real  estate  lending  entails   significant
additional  risks as compared to one-to four family  residential  lending.  Such
loans typically involve large loans to single borrowers or related borrowers. At
June 30, 2003, the average size of the Bank's  multi-family  and commercial real
estate loans was $92,000 as compared to the average size of  one-to-four  family
residential  real  estate  loans of $45,000.  Such loans also  involve a greater
repayment risk as repayment is typically  dependent on the successful  operation
of the project such that the income  generated by the project is  sufficient  to
cover operating expenses and debt service,  and these risks can be significantly
affected  by the  supply  and demand  conditions  in the  market for  commercial
property and multi-family residential units. In addition, commercial real estate
is more likely to be subject to some form of  environmental  contamination.  The
Bank is  pricing  multi-family  and  commercial  loans it  originates  above the
single-family loan rate to compensate the Bank for these additional risks.

     Construction  Loans.  The Bank engages in  construction  lending  involving
loans to qualified  borrowers for construction of one-to-four family residential
properties  located in the Bank's  market area.  Such loans convert to permanent
financing  upon  completion of  construction.  At June 30, 2003, the Bank's loan
portfolio  included  $120,000  in loans  originated  by the Bank and  secured by
properties  under   construction  and  a  $76,000   participation   interest  in
construction   loans   purchased  from  another   financial   institution.   All
construction  loans  originated  by the Bank 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
have a fixed rate 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 six
months.  Interest  is billed  monthly  during the  construction  phase.  Monthly
principal and interest payments commence when 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.  The Bank
has also  purchased  a  participation  interest  in  construction  loans  from a
financial institution in Lexington,  Kentucky. These construction loans have all
been to a single  contractor  and are  secured by a first lien on single  family
residential  properties located in the Bank's market area. At June 30, 2003, the
Bank's participation  interest in these construction loans was $76,000. Terms of
the participation  provide that the Bank receives  sufficient  proceeds from the
sale of  individual  properties  in the project to satisfy the  mortgage on that
particular property.  The financial  institution  continues to service the loans
for the Bank including  performing  inspections  and authorizing all draws under
the construction loan.

     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  costs proves to be inaccurate,  the
Bank may be required to advance funds beyond the amount originally  committed to
permit  completion  of the  development.  If the  estimate of value proves to be
inaccurate, the Bank may be confronted, at or prior to the maturity of the loan,
with  collateral  having a value which is insufficient to assure full repayment.
The Bank has sought to minimize  this risk by limiting  construction  lending to
qualified  borrowers  (i.e.,  borrowers who satisfy all credit  requirements and
whose loans satisfy all other  underwriting  standards  which would apply to the
Bank's permanent mortgage loan financing for the subject property) in the Bank's
market area.

                                       7
<PAGE>

     The Bank has also made a limited  number of  construction  loans to finance
the  construction  of multi-family  and commercial  real estate.  As of June 30,
2003, no such loans were outstanding.

     Consumer  Loans.   The  consumer  loans  originated  by  the  Bank  include
automobile  loans,  savings account loans and unsecured  loans.  The Bank's loan
portfolio  includes  loans  secured by mobile homes  although the Bank no longer
originates such loans. The Bank's automobile loans are generally underwritten in
amounts up to 80% of the lesser of the purchase price of new  automobiles or the
loan value for used automobiles as published by the National  Automobile Dealers
Association. The terms of such loans generally do not exceed 60 months. The Bank
requires  that the  vehicles  be insured and the Bank be listed as loss payee on
the insurance  policy.  The Bank makes savings  account loans for terms of up to
the lesser of six months or the maturity  date of the  certificate  securing the
loan for up to 100% of the face amount of the  certificate or the balance in the
savings  account.  The  interest  rate  charged on these loans is  normally  two
percentage points above the rate paid on the certificate account and the account
must be pledged as collateral  to secure the loan. At June 30, 2003,  the Bank's
consumer loans totaled $1.7 million, or 4.8% of the Bank's gross loan portfolio.

     Consumer loans tend to be originated at higher interest rates than mortgage
loans and for shorter terms. However, consumer loans generally involve more risk
than one-to-four  family residential real estate 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 state and federal laws,  including  federal
and state  bankruptcy  and  insolvency  law,  may limit the amount  which may be
recovered.  In underwriting  consumer  loans,  the Bank considers the borrower's
credit  history,  an analysis of the borrower's  income and ability to repay the
loan, and the value of the collateral. The Bank's risks associated with consumer
loans have been further  limited by the modest amount of consumer  loans made by
the Bank.

     Agricultural  Loans.  The Bank originates  agricultural  loans both for the
purchase and  refinance  of  agriculture-related  real estate and for  operating
purposes.  At June 30,  2003,  the Bank had $2.8  million in  agricultural  real
estate loans, or 8.1% of its gross loan portfolio,  and $567,000 in agricultural
operating loans, or 1.7% of the Bank's gross loan portfolio.

     Agricultural  real  estate  loans are  primarily  secured by first liens on
farmland and buildings thereon, if any, located in the Bank's market area. Loans
are  generally  underwritten  in  amounts  of up to  75% of  the  lesser  of the
appraised  value or the purchase  price of the property on loans secured by farm
land and up to 80% of the lesser of the  appraised  value or  purchase  price on
loans secured by farms with residences. Such loans may be underwritten on either
a fixed rate basis with a term of up to 25 years with no  residence  or 30 years
with a residence or an adjustable  rate basis with a term of up to 30 years.  In
originating  an  agricultural  real estate  loan,  the Bank  considers  the debt
service  coverage of the  borrower's  cash flow and the  appraised  value of the
underlying property.  At June 30, 2003, the average size of an agricultural real
estate loan originated by the Bank was $50,000.

     Agricultural  operating  loans are made to finance the  acquisition of farm
equipment, seed, fertilizer,  cattle feed and other operating expenses of a farm
over the course of a year. As with  agricultural real estate loans, the Bank has
been  making  these  types of loans to satisfy  the  demand in its market  area.
Because such loans are made to finance a farm's annual operations,  the terms of
agricultural  operating  loans do not exceed  one year and are at a fixed  rate.
Interest  payments are made at least  semi-annually  and the rate may be changed
semi-annually in accordance with market rates.

     In underwriting  agricultural  operating loans, the Bank considers the cash
flow of the borrower based upon the farm's income stream as well as the value of
collateral used to secure the loan.  Collateral  generally  consists of the cash
crops  produced  by the farm,  predominantly  tobacco  and  cattle in the Bank's
market area.  The Bank requires that the  borrowers  provide  evidence of hazard
insurance on any equipment that will be used as collateral.  Representatives  of
the Bank may inspect such collateral on a periodic basis. In certain  instances,
the Bank may also take a lien on real  estate as  additional  collateral  for an
agricultural operating loan. In such instances, the Bank generally requires that
an appraisal of the real estate by a certified  appraiser be  performed,  if the
loan is in excess of $100,000. For loans of less than $100,000, as circumstances
warrant, an evaluation may be performed by senior loan officers of the Bank.

                                       8
<PAGE>

     Agricultural  real estate and operating  loans involve a greater  degree of
risk as  payments on such loans  depend,  to a large  degree,  on the results of
operation of the related farm.  In addition,  agricultural  operating  loans are
generally  made at the  beginning  of the growing  season and are secured by the
crops,  primarily  tobacco,  not yet grown. The ultimate value of the collateral
depends on the grade of tobacco produced and the prevailing price for that grade
at the time the  tobacco is sold.  As neither  the grade of the  tobacco nor the
market price to be obtained at the time of sale can be determined with certainty
at the  inception of the loan,  there is a risk that the  ultimate  value of the
collateral  securing an agricultural  operating loan may be  significantly  less
than the principal balance owed.

     Commercial  Loans.  The Bank originates a limited amount of non-real estate
commercial  loans to small and  medium  sized  businesses  located in its market
area. At June 30, 2003, the Bank's  commercial  loans  amounted to $745,000,  or
2.2% of the Bank's gross loan portfolio.

     Commercial  loans are generally  made to finance the purchase of inventory,
equipment and for short-term working capital.  Such loans are generally secured,
although  a  loan  may  be  granted  on  an  unsecured  basis  if  a  borrower's
credit-worthiness  is  substantial.  Commercial  business  loans  are  generally
written  for a term of one  year  or less  and  may be  renewed  by the  Bank at
maturity.  Interest payments are made at least semi-annually and the rate may be
changed semi-annually in accordance with market rates.

     Commercial  loans  involve a greater  degree  of risk than  other  types of
lending as payments on such loans are often dependent on successful operation of
the  business  involved  which may be  subject  to a greater  extent to  adverse
conditions  in the  economy.  The Bank seeks to minimize  this risk  through its
underwriting  guidelines,  which  require that the loan be supported by adequate
cash flow of the borrower, profitability of the business and collateral.

     Loan  Solicitation  and Processing.  Loan  originations  are derived from a
number of sources,  including  walk-in  customers  and  referrals  by  realtors,
directors,  depositors  and borrowers.  Also, the Bank regularly  advertises its
services in the local  weekly  newspaper,  weekly  advertising  paper and on the
local radio station.

     Upon receipt of a loan  application from a prospective  borrower,  a credit
report and employment  and other  verifications  are ordered to verify  specific
information  relating  to the loan  applicant's  employment,  income  and credit
standing.  An appraisal of the real estate  intended to secure the proposed loan
is undertaken by an  independent,  state  certified,  appraiser  approved by the
Bank's Board of Directors for loans in excess of $100,000. For loans of $100,000
and less, as  circumstances  warrant,  an evaluation  may be performed by senior
loan officers of the Bank or the tax assessed value of the property may be used.
Typically, an independent appraiser is utilized.

     All one-to-four  family mortgage loans in excess of $125,000 are subject to
the approval of a majority of the Bank's Board of Directors.  Loans on this type
of property  in an amount of  $125,000 or less may be approved by an  authorized
Bank  loan  officer.  Approval  authority  limits  for  each  loan  officer  are
determined by the Bank's Board of Directors for each type of loan.

     Commercial  real estate loans over  $100,000 must be approved by a majority
of the Bank's Board of Directors.  Loans of $100,000 and less may be approved by
a  majority  of the  Executive  Committee  of the Board of  Directors  or a loan
officer with that approval authority.

     Secured commercial loans (other than real estate) require the approval of a
majority of the Board of Directors for loan amounts in excess of $150,000. Loans
in excess of  $40,000  up to  $150,000  may be  approved  by a  majority  of the
Executive  Committee.  Loans of $40,000 and less may be approved by certain Bank
Loan Officers as authorized by the Board of Directors.

     Secured  consumer  loans in excess of $150,000  require  the  approval of a
majority  of the Board of  Directors.  Loans in excess of $40,000 up to $150,000
may be approved  by the  Executive  Committee.  Loans of $40,000 and less may be
approved by certain Bank loan officers as authorized by the Board of Directors.

     Unsecured commercial and consumer loans in an amount exceeding $40,000 must
be approved by a majority of the Board of Directors.  Loans in excess of $10,000
up to $40,000 may be approved by a majority of the Executive

                                       9
<PAGE>

Committee.  Loans of  $10,000  and less may be  approved  by  certain  Bank loan
officers as authorized by the Board of Directors.

     Fire and casualty and earthquake insurance, as well as flood insurance, are
required for all loans as appropriate, and a title opinion is required for loans
secured by real estate.

     Originations  and  Purchases  of Loans.  The  Bank's  loans  are  primarily
originated  by salaried  loan  officers of the Bank.  In addition,  the Bank has
purchased one-to-four family mortgage loans from various financial  institutions
in the  Bank's  market  area and has  purchased  a  number  of  residential  and
commercial whole mortgage loans and  participation  interests in mortgage loans.
The Bank purchases loans to supplement its lending  activities during periods of
low loan demand. The Bank has purchased  one-to-four family loans,  multi-family
real estate  loans and  commercial  loans from various  financial  institutions.
These loans are primarily secured by real estate located in central Kentucky.

     With respect to  purchased  multi-family  and  commercial  loans,  the Bank
reviews certain financial and property information provided to the Bank prior to
approval of the loan. Generally,  the Bank's Executive Committee also visits the
property  which will  secure  the loan.  In the case of  purchased  construction
loans, a representative of the servicer performs inspections on the property and
informs the Bank when additional advances are warranted.

     Generally,  in addition to the risks  associated  with the specific type of
loan  purchased,  the  purchase  of  loans  involves  certain  additional  risks
resulting  from the Bank's  lower  level of  control  over the  origination  and
subsequent administration of the loans. The Bank requires a detailed description
of  the  proposed  terms  of  the  loan,  copies  of  all  applicable  financial
statements,  tax returns and credit reports, a current appraisal on the property
securing the proposed loan,  occupancy  information and copies of all underlying
leases, if applicable, and a signed application.  The Bank also requests updated
financial  information  at least  annually  on all  outstanding  commercial  and
multi-family real estate loans or participations.

     Brokered  Loans.  The Bank has  recently  developed a  relationship  with a
mortgage broker in Lexington,  Kentucky.  The mortgage broker is a former senior
loan officer at a large financial institution in Lexington.  The mortgage broker
takes each loan  application  and will gather all required  information and will
send  such  information  to the Bank for  underwriting.  The Bank  will fund and
service these loans.

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

     In addition to the  interest  earned on loans,  the Bank  receives  fees in
connection  with loan  originations,  late  payments and fees for  miscellaneous
services  related to its loans.  The Bank  charges  an  origination  fee for its
adjustable rate mortgage loans and fixed rate mortgage loans.

     Asset  Classification  and Allowance for Loan Losses.  Federal  regulations
require  savings  associations  to review their assets on a regular basis and to
classify  them as  "substandard",  "doubtful"  or "loss," if  warranted.  Assets
classified as substandard  or doubtful may require the  institution to establish
general allowances for loan losses. If an asset or portion thereof is classified
as loss, the insured institution must either establish specified  allowances for
loan losses in the amount of 100% of the portion of the asset  classified  loss,
or  charge  off  such  amount.   An  asset  which  does  not  currently  warrant
classification  but which possesses  weaknesses or deficiencies  deserving close
attention is required to be designated as "special mention." Currently,  general
loss  allowances   established  to  cover  possible  losses  related  to  assets
classified   substandard   or  doubtful  may  be  included  in   determining  an
institution's  regulatory capital,  while specific valuation allowances for loan
losses do not qualify as  regulatory  capital.  See  "Regulation  of the Bank --
Regulatory  Capital  Requirements."  OTS examiners may disagree with the insured
institution's  classifications and amounts reserved.  If an institution does not
agree  with  an  examiner's  classification  of an  asset,  it may  appeal  this
determination  to the OTS.  Management of the Bank reviews assets on a quarterly
basis, and at the end of each quarter prepares an asset

                                       10
<PAGE>

classification listing in conformity with the OTS regulations, which is reviewed
by the Board of  Directors.  The Bank also makes  quarterly  inspections  of all
property securing loans that are delinquent three months or more.

     In  originating  loans,  the Bank  recognizes  that  credit  losses will be
experienced  and that the risk of loss will vary with,  among other things,  the
type of loan being made, the  creditworthiness  of the borrower over the term of
the loan,  general  economic  conditions and, in the case of a secured loan, the
quality of the security for the loan. It is  management's  policy to maintain an
adequate  allowance for loan losses based on, among other things, the Bank's and
the  industry's   historical  loan  loss  experience,   evaluation  of  economic
conditions and regular reviews of delinquencies and loan portfolio quality.  The
Bank  increases its allowance  for loan losses by charging  provisions  for loan
losses against the Bank's earnings.

     General allowances are made pursuant to management's  assessment of risk in
the Bank's loan  portfolio  as a whole.  Specific  allowances  are  provided for
individual  loans  when  ultimate  collection  is  considered   questionable  by
management  after reviewing the current status of loans which are  contractually
past due and considering the net realizable  value of the security for the loan.
Management also reviews  individual loans for which full  collectibility may not
be reasonably  assured and evaluates among other things the net realizable value
of the underlying collateral. General allowances are included in calculating the
Bank's  risk-based  capital,  while  specific  allowances  are not so  included.
Management  continues to actively monitor the Bank's asset quality and to charge
off loans against the allowance for loan losses when  appropriate  or to provide
specific loss reserves when necessary.

     At June 30, 2003 the Bank had $122,000 and $183,000 in assets classified as
special mention and substandard,  respectively,  and had no assets classified as
doubtful or loss.

                                       11
<PAGE>


     The following table sets forth an analysis of the Bank's allowance for loan
losses for the periods indicated.

                                                Year Ended June 30,
                                                -------------------
                                                 2003      2002
                                                 ----      ----
                                               (Dollars in thousands)

Balance at beginning of period ..............   $ 241    $ 480
Charge-offs:
  Real estate loans:
    One-to-four family residential ..........      --       --
    Multi-family residential ................      --     (267)
    Agricultural ............................      --       --
    Commercial and other ....................      --       --
    Construction ............................      --       --
  Commercial loans ..........................      --       --
  Agricultural operating loans ..............      --       --
  Consumer loans:
    Automobile ..............................      (1)      (8)
    Savings account .........................      --      (10)
    Other consumer ..........................      (5)      (3)
                                                -----    -----
      Total: ................................      (6)    (288)
                                                -----    -----
Recoveries:
  Real estate loans:
    One-to-four family residential ..........      --       --
    Multi-family residential ................     150       --
    Agricultural ............................      --       --
    Commercial and other ....................      --       --
    Construction ............................      --       --
  Commercial loans ..........................      --       --
  Agricultural operating loans ..............      --       --
  Consumer loans:
    Automobile ..............................       5       --
    Savings account .........................      --       10
    Other consumer ..........................      --       --
                                                -----    -----
      Total: ................................     155       10
                                                -----    -----
Net recoveries (charge-offs) ................     149     (278)
Provision for (recoveries of) losses
  on loans ..................................     (50)      39
                                                -----    -----
Balance at end of period ....................   $ 340    $ 241
                                                =====    =====

Ratio of net charge-offs to average loans
  outstanding during the period..............     .40%     .63%
                                                  ===      ===

                                       12
<PAGE>

     The  following  table sets forth the  breakdown of the  allowance  for loan
losses by loan  category at the dates  indicated.  Management  believes that the
allowance  can be  allocated  by  category  only on an  approximate  basis.  The
allocation of the allowance to each  category is not  necessarily  indicative of
future losses and does not restrict the use of the allowance to absorb losses in
any category.

<TABLE>
<CAPTION>
                                                                       At June 30,
                                                    ---------------------------------------------
                                                            2003                2002
                                                    ----------------------  ---------------------
                                                              Percent of             Percent of
                                                             Loans in Each          Loans in Each
                                                              Category to            Category to
                                                     Amount   Total Loans   Amount   Total Loans
                                                     ------   -----------   ------   -----------
                                                             (Dollars in thousands)

Real estate - mortgage:
<S>                                                   <C>        <C>         <C>        <C>
  One-to-four family residential and construction..   $123       61.60%      $ 57       61.36%
  Multi-family residential ........................     46        7.77         20        6.82
  Agricultural ....................................     48        8.08         45        9.48
  Commercial ......................................     83       13.89         70       14.24
Commercial loans ..................................     13        2.17         20        2.59
Agricultural operating loans ......................      9        1.65         10        1.35
Consumer loans:
  Automobiles .....................................      8        1.17          9        1.21
  Mobile homes ....................................      2         .03         --        0.04
  Savings account .................................     --        2.46         --        1.79
  Other consumer loans ............................      8        1.18         10        1.12
                                                      ----       -----       ----      ------
    Total allowance for loan losses ...............   $340      100.00%      $241      100.00%
                                                      ====       =====       ====      ======
</TABLE>

     Non-Performing  Loans and Other  Problem  Assets.  Management  reviews  the
Bank's loans on a regular basis.  Loans are placed on a non-accrual status when,
in the opinion of management, the collection of additional interest is doubtful.

     Real estate  acquired by the Bank as a result of  foreclosure is classified
as real  estate  owned  until  such time as it is sold.  When such  property  is
acquired,  it is recorded at its fair value less  estimated  costs of sale.  Any
required  write-down  of the  loan  to its  appraised  fair  market  value  upon
foreclosure  is charged  against the  allowance  for loan losses.  Subsequent to
foreclosure,  in accordance with accounting principles generally accepted in the
United States of America,  a valuation  allowance is established if the carrying
value of the property exceeds its fair value net of related selling expenses.


                                       13
<PAGE>

     The  following  table sets  forth  information  with  respect to the Bank's
non-performing  assets  at the  dates  indicated.  No  loans  were  recorded  as
restructured  loans  within the meaning of  Statement  of  Financial  Accounting
Standards ("SFAS") No. 114 at the dates indicated.

                                                             At June 30,
                                                        -----------------------
                                                         2003         2002
                                                         ----         ----
                                                         (Dollars in thousands)
Loans accounted for on a non-accrual basis: (1)
  Real estate:
    One-to-four family residential and construction ...  $ --         $ --
    Multi-family residential ..........................    --           --
    Agricultural ......................................    --           --
    Commercial ........................................    --           --
  Commercial loans ....................................    --           --
  Agricultural operating loans ........................    --
  Consumer ............................................    --           --
                                                         ----         ----
     Total ............................................    --           --
                                                         ----         ----

Accruing loans which are contractually past due
90 days or more:
  Real estate:
    One-to-four family residential and construction ...    70           49
    Multi-family residential ..........................    --           --
    Agricultural ......................................    --           --
    Commercial ........................................    51           --
  Commercial loans ....................................    --           --
  Agricultural operating loans ........................    --           --
  Consumer ............................................    25            2
                                                         ----         ----
     Total ............................................   146           51
                                                         ----         ----
Total non-performing loans ............................  $146         $ 51
                                                         ====         ====

Total non-performing loans as a percentage
  of total net loans...................................  .43%          .13%
                                                         ===           ===

Total non-performing assets as a percentage
  of total assets......................................  .20%          .06%
                                                         ===           ===

(1)  Non-accrual  status  denotes loans on which,  in the opinion of management,
     the collection of additional  interest is unlikely.  Payments received on a
     non-accrual loan are either applied to the outstanding principal balance or
     recorded as interest income,  depending on assessment of the collectibility
     of the loan.

     Loans  generally are placed on non-accrual  status when they become 90 days
past due unless they are well secured and in the process of  collection.  During
the year ended June 30, 2003,  gross  interest  income of  approximately  $1,000
would have been recorded on loans  accounted  for on a non-accrual  basis if the
loans had been current  throughout the period. No interest income was recognized
on such loans during the year ended June 30, 2003.

     At June  30,  2003,  the Bank did not have  any  loans  not  classified  as
non-accrual,  90 days past due or restructured but where known information about
possible credit problems of borrowers caused management to have serious concerns
as to the ability of the borrowers to comply with present loan  repayment  terms
and may result in disclosure as non-accrual, 90 days past due or restructured.

                                       14
<PAGE>

INVESTMENT ACTIVITIES

     The  Bank is  permitted  under  federal  law to make  certain  investments,
including investments in securities issued by various federal agencies and state
and municipal governments,  deposits at the FHLB of Cincinnati,  certificates of
deposit in federally  insured  institutions,  certain  bankers'  acceptances and
federal  funds.  The Bank may also invest,  subject to certain  limitations,  in
commercial  paper  having  one  of  the  two  highest  investment  ratings  of a
nationally recognized credit rating agency, and certain other types of corporate
debt  securities  and mutual  funds.  Federal  regulations  require  the Bank to
maintain an investment in FHLB of Cincinnati stock.

     The Bank invests in investment securities in order to diversify its assets,
manage cash flow,  obtain yield and maintain the minimum levels of liquid assets
required  by  regulatory  authorities.  The  investment  activities  of the Bank
consist primarily of investments in  mortgage-backed  and related securities and
other  investment  securities,  consisting  primarily  of  securities  issued or
guaranteed by the U.S.  Government or agencies  thereof.  The Bank's  investment
securities  include  obligations of the  Commonwealth  of Kentucky and political
subdivisions  thereof.  The Bank  generally  does not invest in  obligations  of
states other than Kentucky.  Such municipal securities are not guaranteed by any
third party.  The Bank has also invested in structured notes issued by the FHLB,
as discussed below.  Investment  decisions  generally are made by the Investment
Committee  consisting of three  directors of the Bank and later  ratified by the
full Board of Directors.

     Mortgage-Related   Securities.   The  Bank   invests  in   mortgage-related
securities such as collateralized  mortgage obligations ("CMOs") and real estate
mortgage investment conduits ("REMICs"), primarily as an alternative to mortgage
loans or mortgage-backed  securities.  CMOs and REMICs are typically issued by a
special purpose entity, which may be organized in a variety of legal forms, such
as a trust,  a corporation  or a  partnership.  The entity  aggregates  pools of
pass-through  securities,  which are used to collateralize the  mortgage-related
securities.  Once  combined,  the cash flows can be divided into  "tranches"  or
"classes" of individual  securities,  thereby creating more predictable  average
lives for each security than the  underlying  pass-through  pools.  Accordingly,
under this security structure,  all principal paydowns from the various mortgage
pools  are  allocated  to  a  mortgage-related   securities'  class  or  classes
structured to have priority until it has been paid off.

     Some  mortgage-related  securities  instruments are like  traditional  debt
instruments  due to their stated  principal  amounts and  traditionally  defined
interest rate terms.  Purchasers of certain  other  mortgage-related  securities
instruments  are entitled to the excess,  if any, of the issuer's  cash inflows.
These mortgage-related securities instruments may include instruments designated
as residual  interest and are riskier in that they could result in the loss of a
portion of the original investment.  Cash flows from residual interests are very
sensitive to prepayments and, thus, contain a high degree of interest rate risk.
The Bank does not purchase residual interests in mortgage-related securities.

     At June 30, 2003,  the Bank had $22,000 in CMOs and REMICs,  which amounted
to .03% of  total  assets.  All of the  CMOs  and  REMICs  owned by the Bank are
insured or  guaranteed  either  directly or indirectly  through  mortgage-backed
securities  underlying  the  obligations  of either FNMA or FHLMC.  The CMOs and
REMICs owned by the Bank are primarily floating rate instruments.

     Prepayments  in the Bank's  mortgage-related  securities  portfolio  may be
affected  by  declining  and rising  interest  rate  environments.  In a low and
declining interest rate environment,  prepayments would be expected to increase.
In such an event,  the Bank's  fixed-rate CMOs and REMICs purchased at a premium
price could result in actual yields to the Bank that are lower than  anticipated
yields.  The Bank's  floating rate CMOs and REMICs would be expected to generate
lower yields as a result of the effect of falling  interest rates on the indexes
for  determining  payment of interest.  Additionally,  the  increased  principal
payments received may be subject to reinvestment at lower rates. Conversely,  in
a period of rising rates, prepayments would be expected to decrease, which would
make less principal available for reinvestment at higher rates. In a rising rate
environment,  floating  rate  instruments  would  generate  higher yields to the
extent that the indexes for  determining  payment of interest did not exceed the
life-time  interest rate caps.  Such  prepayment may subject the Bank's CMOs and
REMICs to yield and price volatility.

     Mortgage-Backed   Securities.   The  Bank  also   invests  in   traditional
mortgage-backed securities. Mortgage-backed securities represent a participation
interest in a pool of single-family or multi-family mortgages, the principal and
interest  payments on which are passed  from the  mortgage  originators  through
intermediaries that pool and repackage the

                                       15
<PAGE>

participation  interest in the form of securities to investors such as the Bank.
Such intermediaries may include quasi-governmental  agencies such as FHLMC, FNMA
and GNMA which  guarantee  the payment of principal  and interest to  investors.
Mortgage-backed  securities  generally increase the quality of the Bank's assets
by virtue of the  guarantees  that back them,  are more liquid  than  individual
mortgage loans and may be used to collateralize  borrowings or other obligations
of the Bank.

     Mortgage-backed  securities  typically  are issued  with  stated  principal
amounts and the securities are backed by pools of mortgages that have loans with
interest  rates  that  are  within  a range  and have  similar  maturities.  The
underlying   pool  of  mortgages  can  be  composed  of  either   fixed-rate  or
adjustable-rate  mortgage  loans.   Mortgage-backed   securities  generally  are
referred to as mortgage participation certificates or pass-through certificates.
As a result,  the interest rate risk  characteristics  of the underlying pool of
mortgages, i.e., fixed-rate or adjustable-rate,  as well as prepayment risk, are
passed on to the certificate holder. The life of a mortgage-backed  pass-through
security is equal to the life of the underlying mortgages.

     The actual maturity of a mortgage-backed security varies, depending on when
the  mortgagors  prepay or repay the  underlying  mortgages.  Prepayments of the
underlying  mortgages may shorten the life of the investment,  thereby adversely
affecting   its  yield  to  maturity  and  the  related   market  value  of  the
mortgage-backed  security.  The yield is based upon the interest  income and the
amortization  of the  premium  or  accretion  of  the  discount  related  to the
mortgage-backed  security.  The  prepayment  assumptions  used to determine  the
amortization  period for premiums and  discounts  can  significantly  affect the
yield of the  mortgage-backed  security,  and  these  assumptions  are  reviewed
periodically  to reflect the actual  prepayment.  The actual  prepayments of the
underlying mortgages depend on many factors, including the type of mortgage, the
coupon  rate,  the  age of  the  mortgages,  the  geographical  location  of the
underlying  real estate  collateralizing  the  mortgages  and general  levels of
market  interest  rates.  The  difference  between  the  interest  rates  on the
underlying  mortgages and the prevailing mortgage interest rates is an important
determinant  in the rate of  prepayments.  During  periods of  falling  mortgage
interest rates, prepayments generally increase, and, conversely,  during periods
of rising mortgage interest rates, prepayments generally decrease. If the coupon
rate of the underlying  mortgage  significantly  exceeds the  prevailing  market
interest rates offered for mortgage loans,  refinancing  generally increases and
accelerates the prepayment of the underlying mortgages. Prepayment experience is
more difficult to estimate for adjustable-rate mortgage-backed securities.

     The Bank's mortgage-backed securities portfolio, excluding CMOs and REMICs,
consists primarily of seasoned fixed-rate  mortgage-backed  securities.  At June
30,  2003,  the  Bank  had  $15.3  million,   or  20.5%  of  total  assets,   in
mortgage-backed  securities.  All of the Bank's  mortgage-backed  securities are
insured or guaranteed by FNMA, FHLMC or GNMA.

                                       16
<PAGE>

     The following table sets forth the carrying value of the Bank's investments
at the dates indicated.

                                                                 At June 30,
                                                          ----------------------
                                                              2003      2002
                                                          ----------  ----------
                                                          (Dollars in thousands)
  Investment securities available for sale:
    FHLB obligations ......................................  $12,394   $ 8,164
    Municipal obligations .................................    3,261     2,941
                                                             -------   -------
      Total investment securities available for sale ......  $15,655   $11,105
                                                             =======   =======

  Mortgage-backed securities available for sale:
    FHLMC participation certificates ......................  $ 1,728   $ 5,569
    GNMA participation certificates .......................      916     1,531
    FNMA participation certificates .......................   12,643    15,104
                                                             -------   -------
      Total mortgage-backed securities available for sale..   15,287    22,204
                                                             -------   -------
  Interest-earning deposits and certificates ..............    6,378     3,079
                                                             -------   -------
        Total investments and mortgage-backed
          securities ......................................  $37,320   $36,388
                                                             =======   =======

                                       17
<PAGE>

     The following table sets forth the scheduled  maturities,  carrying values,
market values and average yields for the Bank's  investment and  mortgage-backed
securities at June 30, 2003.

<TABLE>
<CAPTION>

                                    One Year or Less      One to Five Years    Five to Ten Years   More than Ten Years
                                   ------------------    ------------------   ------------------  --------------------
                                   Amortized  Average    Amortized  Average   Amortized  Average  Amortized  Average
                                      Cost    Yield         Cost     Yield       Cost      Yield     Cost     Yield
                                      ----    -----         ----     -----       ----      -----     ----     -----
                                                                       (Dollars in Thousands)
Investment securities:
<S>                                     <C>     <C>        <C>        <C>         <C>   <C>          <C>      <C>
  FHLB obligations ..............   $ 4,508     4.09%    $ 7,545      3.78%    $   --     --%    $    --        --%
  State and municipal obligations       460     4.90       1,522      4.62        690   4.65         410      4.35
  Mortgage-backed securities ....        --       --           3      8.15      4,063   3.61      10,733      5.28
  Interest earning deposits .....     6,378      .81          --        --         --     --          --        --
                                    -------               ------               ------            -------
      Total......................   $11,346               $9,070               $4,753            $11,143
                                    =======               ======               ======            =======


<CAPTION>

                                           Total Investment Portfolio
                                        -------------------------------
                                        Amortized  Carrying    Average
                                          Cost      Value       Yield
                                          ----      -----       -----
                                            (Dollars in Thousands)
Investment securities:
<S>                                      <C>       <C>          <C>
  FHLB obligations ..............        $12,053   $12,394      3.90%
  State and municipal obligations          3,082     3,261      4.63
  Mortgage-backed securities ....         14,799    15,287      4.82
  Interest earning deposits .....          6,378     6,378       .81
                                         -------   -------
      Total......................        $36,312   $37,320
                                         =======   =======

</TABLE>

                                       18
<PAGE>

DEPOSIT ACTIVITY AND OTHER SOURCES OF FUNDS

     General.  Deposits  are the primary  source of the Bank's funds for lending
and other investment purposes.  In addition to deposits,  the Bank derives funds
primarily from loan principal repayments,  maturing investment  securities,  and
interest payments. Loan repayments and interest payments are a relatively stable
source of funds, while deposit inflows and outflows are significantly influenced
by general interest rates and money market conditions.

     Deposits. Deposits are attracted principally from within the Bank's primary
market area through the offering of a variety of deposit instruments,  including
passbook and statement accounts and certificates of deposit currently ranging in
term from 91 days to five years. Deposit account terms vary,  principally on the
basis of the minimum balance required, the time periods the funds must remain on
deposit  and the  interest  rate.  The Bank also  offers  individual  retirement
accounts ("IRAs").

     The Bank's policies are designed  primarily to attract  deposits from local
residents rather than to solicit deposits from areas outside its primary market.
Interest rates paid, maturity terms,  service fees and withdrawal  penalties are
established by the Bank on a periodic  basis.  Determination  of rates and terms
are predicated upon funds acquisition and liquidity requirements,  rates paid by
competitors, growth goals and federal regulations.

     Certificates of deposit in amounts of $100,000 or more ("Jumbos"),  totaled
$4.6 million,  or 8.8% of the Bank's total  savings  portfolio at June 30, 2003.
The  majority of these  Jumbos  represent  deposits by  individuals.  This large
amount of Jumbos as a percentage of total deposits makes the Bank susceptible to
large deposit  withdrawals if one or more depositors  withdraw deposits from the
Bank.  Such  withdrawals  may  adversely  affect the Bank's  liquidity and funds
available  for  lending  if the Bank  were to be unable  to  obtain  funds  from
alternative  sources.  However,  the Bank has no  brokered  funds,  nor do these
Jumbos represent brokered funds.

     Savings  deposits in the Bank as of June 30, 2003 were  represented  by the
various types of savings programs described below.

<TABLE>
<CAPTION>
                                                                                     June 30, 2003
  Interest     Minimum                                                   Minimum       Balance in     Percentage of
    Rate       Term             Category                                 Amount        Thousands      Total Savings
    ----       ----             --------                                 ------        ---------      -------------
<S>           <C>              <C>                                   <C>               <C>                <C>
   1.10%       None             Passbook Savings                     $       50        $  6,523           12.30%
     --        None             Demand Checking                             200           2,881            5.44
    .52        None             Checking with Interest Accounts             200           7,453           14.07
   1.19        None             Money Market Deposit Accounts             2,500           2,073            3.91
*  1.32        None             First Money MMDA Accounts                10,000             824            1.56

                                Certificates of Deposit
                                -----------------------

*  1.37        91 days          91 day Fixed Term, Fixed Rate             1,000             246             .46
*  1.81        6 months         6 Month Fixed Term, Fixed Rate            1,000           2,802            5.29
*  2.15        9 months         9 Month Fixed Term, Fixed Rate            1,000           6,094           11.51
*  2.43        1 year           1 Year, Fixed Term, Fixed Rate            1,000           6,595           12.46
*  2.49        15 months        15 Month Fixed Term, Fixed Rate           1,000           8,048           15.21
*  2.50        18 months        18 Month Fixed Term, Fixed Rate           1,000           1,294            2.44
*  2.78        18 months        IRA 18 Month Fixed Term, Fixed Rate         500           3,998            7.55
*  3.07        24 months        24 Month Fixed Term, Fixed Rate           1,000             427             .81
*  3.78        30 months        30 Month Fixed Term, Fixed Rate           1,000              97             .18
*  3.90        36 months        36 Month Fixed Term, Fixed Rate           1,000           1,159            2.19
*  4.62        36 months        IRA 36 Month Fixed Term, Fixed Rate         500             123             .23
*  4.91        5 years          5 Year Fixed Term, Fixed Rate             1,000           1,831            3.46
*  4.84        5 years          IRA 5 Year, Fixed Term, Fixed Rate          500             495             .93
                                                                                        -------          ------
                                                                                        $52,963          100.00%
                                                                                        =======          ======
</TABLE>
*    Represents weighted average interest rate.

                                       19
<PAGE>

     The  following  table sets forth,  for the periods  indicated,  the average
balances  and  interest  rates for  interest-bearing  demand  deposits  and time
deposits.

<TABLE>
<CAPTION>
                                                               Year Ended June 30,
                                          ----------------------------------------------------------
                                                        2003                         2002
                                          ----------------------------   ---------------------------
                                           Interest-Bearing              Interest-Bearing
                                             Demand and         Time        Demand and        Time
                                          Savings Deposits    Deposits   Savings Deposits  Deposits
                                          ----------------    --------   ----------------  --------
                                                           (Dollars in thousands)
<S>                                          <C>              <C>             <C>            <C>
Average balance...........................   $18,959          $34,269         $18,324        $35,192
Average rate..............................      1.12%            3.20%           1.54%          4.63%
</TABLE>


     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 June 30,
2003.

                                                        Certificates
      Maturity Period                                    of Deposit
      ---------------                                    ----------
                                                    (Dollars in thousands)

      Three months or less...........................     $   478
      More than three through six months.............       1,581
      More than six through 12 months................       2,133
      Over 12 months.................................         450
                                                           ------
              Total..................................      $4,642
                                                           ======


     Borrowings.  Savings deposits  historically have been the primary source of
funds for the Bank's  lending  and  investment  activities  and for its  general
business activities.  The Bank is authorized,  however, to use advances from the
FHLB of  Cincinnati  to  supplement  its  supply of  lendable  funds and to meet
deposit  withdrawal  requirements.  Advances  from the FHLB are  secured  by the
Bank's one-to-four-family mortgage loans.

     The FHLB of Cincinnati functions as a central reserve bank providing credit
for savings institutions and certain other member financial  institutions.  As a
member,  the Bank is required to own capital stock in the FHLB and is authorized
to apply for  advances  on the  security  of such stock and  certain of its home
mortgages and other assets (principally, securities which are obligations of, or
guaranteed  by,  the  United  States)  provided  certain  standards  related  to
creditworthiness have been met. See "Regulation of the Bank -- Federal Home Loan
Bank System."

                                       20
<PAGE>

     The  following  table sets forth certain  information  regarding the Bank's
FHLB  advances  and  other  borrowed  money  at the  dates  and for the  periods
indicated.


                                                 At June 30,
                                           ---------------------
                                            2003          2002
                                           -------       -------
                                           (Dollars in thousands)
Amounts outstanding at end of period:
  FHLB advances .....................      $7,676       $11,794

Weighted average rate paid on
  FHLB advances .....................        4.94%         4.22%

                                               For the Year
                                              Ended June 30,
                                           ---------------------
                                            2003          2002
                                           -------       -------
                                          (Dollars in thousands)
Maximum amount of borrowings outstanding
  at any month end:
  FHLB advances and other
    borrowed money......................  $11,794       $11,807

                                                For the Year
                                               Ended June 30,
                                           ---------------------
                                            2003          2002
                                           -------       -------
                                          (Dollars in thousands)
Approximate average borrowings outstanding
  with respect to:
  FHLB advances and other
    borrowed money......................   $9,990       $11,082

Approximate weighted average
  rate paid on: (1)
  FHLB advances and other
    borrowed money......................     4.40%         4.40%

----------
(1)  Weighted  average rate computed by dividing  total interest paid by average
     balance outstanding.


     As of June 30,  2003,  the Bank had $7.7  million in advances  outstanding.

SUBSIDIARY ACTIVITIES

     As a federally  chartered  savings bank, the Bank is permitted to invest an
amount equal to 2% of its assets in subsidiaries,  with an additional investment
of 1% of assets where such investment serves primarily community, inner-city and
community-development purposes. Under such limitations, as of June 30, 2003, the
Bank was  authorized  to invest up to $1.5  million  in the stock of or loans to
subsidiaries,  including the additional 1% investment  for community  inner-city
and community  development  purposes.  The Bank has one wholly owned subsidiary:
Cynthiana Service Corporation, a Kentucky corporation, formed for the purpose of
holding the Bank's investments in data processing operations.  At June 30, 2003,
the Bank's total  investment in the  subsidiary  was $15,000.  The operations of
Cynthiana  Service  Corporation are not consolidated  with the operations of the
Bank as the subsidiary's operations were immaterial.

                                       21
<PAGE>

PERFORMANCE RATIOS

     The table below sets forth certain  performance ratios of the Company at or
for the years indicated.

                                                               At or for the
                                                             Year Ended June 30,
                                                             -------------------
                                                               2003      2002
                                                             ---------  --------

   Return on assets (net earnings divided by
      average total assets)................................    1.13%      1.21%
   Return on average stockholders' equity (net earnings
      divided by average stockholders' equity).............    6.69       7.43
   Dividend payout ratio (dividends declared per share
      divided by net earnings per share)...................   62.75      57.94
   Interest rate spread (combined weighted average
      interest rate earned less combined weighted
      average interest rate cost)..........................    3.24       3.14
   Ratio of average interest-earning assets to
      average interest-bearing liabilities.................  117.13     117.27
   Ratio of noninterest expense to average total assets....    2.21       2.05

COMPETITION

     The Company and the Bank  experience  competition  both in  attracting  and
retaining savings deposits and in the making of mortgage and other loans. Direct
competition  for savings  deposits  and loans in  Harrison  County and the other
counties in the  Company's  and the Bank's  market area comes from other savings
institutions,  credit  unions,  commercial  banks,  money market  mutual  funds,
brokerage firms and insurance companies. Within Harrison County, the Bank is the
only thrift  institution  although there are two local  commercial banks and two
branches of out-of-county commercial banks. The primary factors in competing for
loans are  interest  rates and loan  origination  fees and the range of services
offered by various financial institutions.

EMPLOYEES

     As of June 30, 2003, the Company and the Bank on a  consolidated  basis had
17 full-time employees,  none of whom was represented by a collective bargaining
agreement.  The  Company  believes  that  it  enjoys  good  relations  with  its
personnel.

EXECUTIVE OFFICERS

     The following sets forth information with respect to the executive officers
of the Company who do not serve on the Board of Directors.

                            Age at
                           June 30,
         Name               2003         Title
         ----               ----         -----

         Kevin R. Tolle      46          Vice President, Secretary/Treasurer
         Robbie G. Cox       56          Chief Financial Officer, Vice President


     KEVIN R. TOLLE is Vice President and Secretary/Treasurer of the Company and
Vice President and Secretary of the Bank. Mr. Tolle joined the Bank in 1975 as a
teller and was  promoted  to his current  position  in 1994.  He has served as a
mortgage  loan  officer  of the  Bank  since  1986.  He is a  member  of the New
Friendship  Baptist  Church  in  Harrison

                                       22
<PAGE>

County.  He is a past  member  of the  Harrison  County  Habitat  for  Humanity,
Cynthiana-Harrison County Jaycees, and the Harrison County United Fund Board.

     ROBBIE G. COX was appointed as Chief  Financial  Officer of the Company and
the Bank in June 2002.  He is also the Vice  President  of the  Company  and the
Bank,  a position  he has held since  joining the Bank in  December  1986.  From
September 1992 to December 31, 1993 he also served as Chief Executive Officer of
the Bank and served as President  and Chief  Executive  Officer of the Bank from
January  1994 to May  1994.  Mr.  Cox is a  member  and  past  president  of the
Cynthiana Lions Club and Deacon at Cynthiana Christian Church.

REGULATION OF THE COMPANY

     GENERAL.  The  Company is a savings  and loan  holding  company  within the
meaning of the Home Owners' Loan Act, as amended ("HOLA").  As such, the Company
is  registered  with the OTS and is  subject to OTS  regulations,  examinations,
supervision  and reporting  requirements.  As a subsidiary of a savings and loan
holding  company,  the Bank is subject to certain  restrictions  in its dealings
with the Company and affiliates thereof.

     ACTIVITIES  RESTRICTIONS.  The Board of Directors of the Company  presently
operates the Company as a unitary  savings and loan holding  company.  There are
generally  no  restrictions  on the  activities  of a unitary  savings  and loan
holding  company.  However,  if the  Director  of OTS  determines  that there is
reasonable  cause to believe that the continuation by a savings and loan holding
company of an  activity  constitutes  a serious  risk to the  financial  safety,
soundness,  or stability of its subsidiary savings association,  the Director of
OTS may impose  such  restrictions  as deemed  necessary  to  address  such risk
including limiting:  (i) payment of dividends by the savings  institution,  (ii)
transactions  between the savings institution and its affiliates;  and (iii) any
activities of the savings  institution that might create a serious risk that the
liabilities  of the  holding  company and its  affiliates  may be imposed on the
savings institution.  Notwithstanding the above rules as to permissible business
activities  of  unitary  savings  and loan  holding  companies,  if the  savings
institution  subsidiary  of such a holding  company  fails to meet the Qualified
Thrift  Lender  ("QTL")  Test,  then such  unitary  holding  company  shall also
presently become subject to the activities  restrictions  applicable to multiple
holding companies and unless the savings association requalifies as a QTL within
one year  thereafter,  register  as, and  become  subject  to, the  restrictions
applicable to a bank holding  company.  See "Regulation of the Bank -- Qualified
Thrift Lender Test."

     If the  Company  were to acquire  control of another  savings  association,
other than  through  merger or other  business  combination  with the Bank,  the
Company  would  thereupon  become a multiple  savings and loan holding  company.
Except where such acquisition is pursuant to the authority to approve  emergency
thrift  acquisitions and where each subsidiary savings institution meets the QTL
Test, the activities of the Company and any of its subsidiaries  (other than the
Bank or other subsidiary  savings  institutions)  would thereafter be subject to
further  restrictions.  Among other things, no multiple savings and loan holding
company or subsidiary thereof which is not a savings institution may commence or
continue for a limited period of time after becoming a multiple savings and loan
holding company or subsidiary thereof, any business activity,  upon prior notice
to,  and no  objection  by the OTS,  other  than (i)  furnishing  or  performing
management  services for a subsidiary  savings  institution,  (ii) conducting an
insurance agency or escrow  business,  (iii) holding,  managing,  or liquidating
assets owned by or acquired from a subsidiary savings institution,  (iv) holding
or managing properties used or occupied by a subsidiary savings institution, (v)
acting  as  trustee  under  deeds of trust,  (vi)  those  activities  previously
directly  authorized  by  regulation  as of March 5,  1987 to be  engaged  in by
multiple holding  companies or (vii) those activities  authorized by the Federal
Reserve Board as permissible for bank holding companies,  unless the Director of
OTS by  regulation  prohibits  or limits  such  activities  for savings and loan
holding  companies.  Those  activities  described  in (vii)  above  must also be
approved by the Director of OTS prior to being engaged in by a multiple  holding
company.

     TRANSACTIONS WITH AFFILIATES. Transactions between savings institutions and
any  affiliate  are governed by Sections 23A and 23B of the Federal  Reserve Act
and Regulation W promulgated thereunder An affiliate of a savings institution is
any  company or entity  which  controls,  is  controlled  by or is under  common
control with the savings  institution.  In a holding company context, the parent
holding company of a savings institution (such as the Company) and any companies
which are  controlled  by such  parent  holding  company are  affiliates  of the
savings  institution.  Generally,  Sections  23A and 23B (i) limit the extent to
which the  savings  institution  or its  subsidiaries  may  engage  in  "covered
transactions"  with  any  one  affiliate  to an  amount  equal  to 10%  of  such
institution's  capital stock and surplus,  and contain

                                       23
<PAGE>

an aggregate  limit on all such  transactions  with all  affiliates to an amount
equal to 20% of such capital  stock and surplus,  and (ii) require that all such
transactions be on terms  substantially  the same, or at least as favorable,  to
the  institution  or subsidiary as those provided to a  non-affiliate.  The term
"covered transaction" includes the making of loans, purchase of assets, issuance
of a guarantee  and  similar  other  types of  transactions.  In addition to the
restrictions  imposed by Sections  23A and 23B, no savings  institution  may (i)
loan or otherwise extend credit to an affiliate,  except for any affiliate which
engages only in activities which are permissible for bank holding companies,  or
(ii)  purchase  or invest in any  stocks,  bonds,  debentures,  notes or similar
obligations of any affiliate,  except for affiliates  which are  subsidiaries of
the savings institution. Savings associations are also subject to the anti-tying
provisions  of Section  106(b) of the Bank Holding  Company Act of 1956 ("BHCA")
which prohibits a depository  institution  from extending  credit to or offering
any other services, or fixing or varying the consideration for such extension of
credit or service,  on the condition  that the customer  obtain some  additional
service from the institution or certain of its affiliates or not obtain services
of a competitor of the institution, subject to certain exceptions.

     Savings  institutions  are also  subject to the  restrictions  contained in
Section  22(h)  of the  Federal  Reserve  Act on loans  to  executive  officers,
directors and principal stockholders. Under Section 22(h), loans to an executive
officer and to a greater  than 10%  stockholder  of a savings  institution,  and
certain affiliated  entities of either, may not exceed,  together with all other
outstanding loans to such person and affiliated  entities the institution's loan
to one borrower limit  (generally equal to 15% of the  institution's  unimpaired
capital and surplus and an additional  10% of such capital and surplus for loans
fully secured by certain  readily  marketable  collateral) and all loans to such
persons  may not exceed the  institution's  unimpaired  capital  and  unimpaired
surplus unless the  institution  has less than $100 million in deposits in which
case the aggregate  limit may be increased to no more than two times  unimpaired
capital  and  surplus.   Section  22(h)  also  prohibits  loans,  above  amounts
prescribed by the appropriate  federal banking agency,  to directors,  executive
officers and greater than 10% stockholders of a savings  institution,  and their
respective affiliates,  unless such loan is approved in advance by a majority of
the board of directors of the  institution  with any  "interested"  director not
participating  in the voting.  The Federal Reserve Board has prescribed the loan
amount (which includes all other outstanding loans to such person),  as to which
such prior  board of  director  approval  is  required,  as being the greater of
$25,000 or 5% of capital  and  surplus (up to  $500,000).  Further,  the Federal
Reserve  Board  pursuant  to Section  22(h)  requires  that loans to  directors,
executive officers and principal stockholders be made on terms substantially the
same as offered in comparable  transactions  to other persons unless the loan is
made  pursuant to a benefit or  compensation  plan that is widely  available  to
other  employees and does not give  preference  to insiders.  Section 22(h) also
generally  prohibits a depository  institution from paying the overdrafts of any
of its executive officers or directors.

     Savings  institutions are also subject to the requirements and restrictions
of Section 22(g) of the Federal Reserve Act and Regulation on loans to executive
officers  and the  restrictions  of 12  U.S.C.  Section  1972 on  certain  tying
arrangements and extensions of credit by correspondent  banks.  Section 22(g) of
the Federal Reserve Act requires that loans to executive  officers of depository
institutions  not be made on terms more  favorable  than those afforded to other
borrowers,  requires  approval  for such  extensions  of  credit by the board of
directors  of the  institution,  and  imposes  reporting  requirements  for  and
additional  restrictions  on the  type,  amount  and  terms of  credits  to such
officers.  Section 1972  prohibits (i) a depository  institution  from extending
credit to or offering any other services, or fixing or varying the consideration
for such  extension  of credit or service,  on the  condition  that the customer
obtain some additional service from the institution or certain of its affiliates
or not obtain  services of a competitor of the  institution,  subject to certain
exceptions, and (ii) extensions of credit to executive officers,  directors, and
greater  than  10%  stockholders  of  a  depository  institution  by  any  other
institution which has a correspondent banking relationship with the institution,
unless  such  extension  of credit is on  substantially  the same terms as those
prevailing at the time for comparable  transactions  with other persons and does
not involve more than the normal risk of repayment or present other  unfavorable
features.

     RESTRICTIONS ON ACQUISITIONS. The HOLA generally prohibits savings and loan
holding companies from acquiring, without prior approval of the Director of OTS,
(i) control of any other savings institution or savings and loan holding company
or  substantially  all the  assets  thereof,  or (ii) more than 5% of the voting
shares  of a savings  institution  or  holding  company  thereof  which is not a
subsidiary.  Under certain circumstances,  a registered savings and loan holding
company is permitted to acquire, with the approval of the Director of OTS, up to
15% of the voting shares of an under-capitalized savings institution pursuant to
a "qualified  stock  issuance"  without that  savings  institution  being deemed
controlled  by the  holding  company.  In  order  for  the  shares  acquired  to
constitute a "qualified  stock  issuance," the shares must consist of previously
unissued  stock or treasury  shares,  the shares must be acquired for cash,  the
savings and loan holding company's other subsidiaries must have tangible capital
of at least  6-1/2% of total  assets,  there  must not be more

                                       24
<PAGE>

than one common director or officer between the savings and loan holding company
and the  issuing  savings  institution  and  transactions  between  the  savings
institution  and the savings and loan holding  company and any of its affiliates
must conform to Sections 23A and 23B of the Federal  Reserve Act and  Regulation
W. Except with the prior approval of the Director of OTS, no director or officer
of a savings and loan holding  company or person owning or  controlling by proxy
or otherwise more than 25% of such company's  stock, may also acquire control of
any savings institution,  other than a subsidiary savings institution, or of any
other savings and loan holding company.

     The  Director  of  OTS  may  only  approve  acquisitions  resulting  in the
formation of a multiple  savings and loan holding company which controls savings
institutions  in more than one  state  if:  (i) the  multiple  savings  and loan
holding company involved controls a savings institution which operated a home or
branch  office in the state of the  institution  to be  acquired  as of March 5,
1987;  (ii) the  acquiror  is  authorized  to  acquire  control  of the  savings
institution  pursuant to the  emergency  acquisition  provisions  of the Federal
Deposit  Insurance  Act;  or (iii)  the  statutes  of the  state  in  which  the
institution to be acquired is located  specifically  permit  institutions  to be
acquired by  state-chartered  institutions or savings and loan holding companies
located in the state  where the  acquiring  entity is  located  (or by a holding
company that controls such state-chartered savings institutions).

     The OTS regulations  permit federal  associations to branch in any state or
states of the United States and its territories.  Except in supervisory cases or
when interstate branching is otherwise permitted by state law or other statutory
provision, a federal association may not establish an out-of-state branch unless
(i)  the  federal  association  qualifies  as  a  "domestic  building  and  loan
association"   under  Sec.   7701(a)(19)  of  the  Code  and  the  total  assets
attributable  to all branches of the association in the state would qualify such
branches  taken  as a whole  for  treatment  as a  domestic  building  and  loan
association  and (ii)  such  branch  would  not  result  in (a)  formation  of a
prohibited  multi-state  multiple  savings  and loan  holding  company  or (b) a
violation of certain statutory  restrictions on branching by savings association
subsidiaries of banking holding companies.  Federal  associations  generally may
not  establish  new branches  unless the  association  meets or exceeds  minimum
regulatory  capital  requirements.  The OTS will also consider the association's
record of compliance with the Community  Reinvestment  Act of 1977 in connection
with any branch application.

     Under the BHCA,  bank holding  companies  are  specifically  authorized  to
acquire control of any savings association. Pursuant to rules promulgated by the
Federal Reserve Board, owning, controlling or operating a savings institution is
a permissible  activity for bank holding companies,  if the savings  institution
engages only in deposit-taking  activities and lending and other activities that
are permissible for bank holding companies. A bank holding company that controls
a savings institution may merge or consolidate the assets and liabilities of the
savings  institution 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.  The  resulting  bank will be
required to continue to pay assessments to the SAIF at the rates  prescribed for
SAIF members on the deposits attributable to the merged savings institution plus
an annual growth  increment.  In addition,  the transaction must comply with the
restrictions on interstate acquisitions of commercial banks under the BHCA.

     SARBANES-OXLEY  ACT OF 2002. On July 30, 2002,  the  Sarbanes-Oxley  Act of
2002 ("SOX") was signed into law which mandated a variety of reforms intended to
address corporate and accounting fraud. SOX contains  provisions which amend the
Securities  Exchange Act of 1934,  as amended (the "Act") and  provisions  which
directed the Securities and Exchange Commission (the "SEC") to promulgate rules.
The Act  provides  for the  establishment  of a new  Public  Company  Accounting
Oversight  Board  ("PCAOB"),  which will enforce  auditing,  quality control and
independence  standards for firms that audit public reporting companies and will
be funded by fees from all public  reporting  companies.  The Act imposes higher
standards  for  auditor  independence  and  restricts  provision  of  consulting
services by auditing firms to companies they audit. Any non-audit services being
provided to an audit  client will require  preapproval  by the  Company's  audit
committee  members.  In  addition,   certain  audit  partners  must  be  rotated
periodically.  The Act requires  chief  executive  officers and chief  financial
officers,  or their  equivalent,  to certify to the accuracy of periodic reports
filed with the SEC, subject to civil and criminal penalties if they knowingly or
willfully violate this certification  requirement.  In addition,  under the Act,
counsel  will be required  to report  evidence  of a material  violation  of the
securities  laws or a  breach  of  fiduciary  duty  by a  company  to its  chief
executive  officer or its chief legal  officer,  and, if such  officer  does not
appropriately  respond,  to report such evidence to the audit committee or other
similar committee of the board of directors or the board itself.

                                       25
<PAGE>

     Longer  prison  terms  will also be  applied to  corporate  executives  who
violate federal  securities laws, the period during which certain types of suits
can be brought against a company or its officers has been extended,  and bonuses
issued  to  top  executives  prior  to  restatement  of  a  company's  financial
statements  are now  subject  to  disgorgement  if such  restatement  was due to
corporate  misconduct.  Executives  are  also  prohibited  from  trading  during
retirement  plan  "blackout"  periods,  and  loans  to  company  executives  are
restricted.  In addition, a provision directs that civil penalties levied by the
SEC as a result  of any  judicial  or  administrative  action  under  the Act be
deposited in a fund for the benefit of harmed investors. Directors and executive
officers  must also  report  most  changes  in their  ownership  of a  company's
securities  within two business  days of the change,  and as of the end of June,
2003, all ownership reports must be electronically filed.

     The Act also  increases the oversight and authority of audit  committees of
publicly traded  companies.  Audit committee members must be independent and are
barred from accepting  consulting,  advisory or other compensatory fees from the
issuer. In addition, all SEC-reporting  companies must disclose whether at least
one member of the committee is an "audit  committee  financial  expert" (as such
term is  defined  by the SEC rules) and if not,  why not.  Audit  committees  of
publicly  traded  companies  will have authority to retain their own counsel and
other advisors funded by the company. Audit committees must establish procedures
for the receipt,  retention and treatment of complaints regarding accounting and
auditing  matters and  procedures  for  confidential,  anonymous  submission  of
employee concerns regarding  questionable  accounting or auditing matters. It is
the  responsibility  of  the  audit  committee  to  hire,  oversee  and  resolve
disagreements with the Company's independent auditor.

     Beginning  six months  after the SEC  determines  that the PCAOB is able to
carry  out its  functions,  it will be  unlawful  for any  person  that is not a
registered public accounting firm ("RPAF") to audit a public reporting  company.
Under the Act, a RPAF is prohibited from performing  statutorily  mandated audit
services  for a  company  if  such  company's  chief  executive  officer,  chief
financial officer,  comptroller,  chief accounting officer or any person serving
in equivalent  positions has been employed by such firm and  participated in the
audit of such company during the one-year period  preceding the audit initiation
date.  The Act also  prohibits any officer or director of a company or any other
person  acting  under their  direction  from  taking any action to  fraudulently
influence,  coerce,  manipulate or mislead any  independent  public or certified
accountant  engaged in the audit of the Company's  financial  statements for the
purpose of rendering the financial statement's  materially  misleading.  The Act
also  requires the SEC to  prescribe  rules  requiring  inclusion of an internal
control   report  and   assessment   by  management  in  the  annual  report  to
shareholders.  The Act  requires the RPAF that issues the audit report to attest
to and report on management's  assessment of the Company's internal controls. In
addition, the Act requires that each financial report required to be prepared in
accordance with (or reconciled to) generally accepted accounting  principles and
filed  with  the SEC  reflect  all  material  correcting  adjustments  that  are
identified by a RPAF in accordance with generally accepted accounting principles
and the rules and regulations of the SEC.

     Although  the  Company  anticipates  it will  incur  additional  expense in
complying with the provisions of the Act and the related rules,  management does
not expect that such  compliance  will have a material  impact on the  Company's
financial condition or results of operations.

REGULATION OF THE BANK

     GENERAL.  As a federally  chartered savings  institution,  First Federal is
subject to extensive  regulation  by the OTS. The lending  activities  and other
investments  of First  Federal  must  comply  with  various  state  and  federal
regulatory  requirements.  The OTS periodically examines the Bank for compliance
with various regulatory requirements. The FDIC also has the authority to conduct
special  examinations  of the Bank because its deposits are insured by SAIF. The
Bank must file  reports  with  these  agencies  describing  its  activities  and
financial  condition.  The Bank is also subject to certain reserve  requirements
promulgated by the Federal  Reserve Board.  This  supervision  and regulation is
intended primarily for the protection of depositors. Certain of these regulatory
requirements are referred to below or appear elsewhere herein.

     FINANCIAL  MODERNIZATION.  On November 12, 1999,  President  Clinton signed
into law  legislation  that could have a  far-reaching  impact on the  financial
services  industry.  The  Gramm-Leach-Bliley  Act (the "G-L-B  Act")  authorizes
affiliations between banking, securities and insurance firms and authorizes bank
holding  companies  and national  banks to engage in a variety of new  financial
activities.  Among  the new  activities  that  are  permitted  to  bank

                                       26
<PAGE>

holding  companies and national bank  subsidiaries  are securities and insurance
brokerage,  securities underwriting and certain forms of insurance underwriting.
Bank holding companies have broader insurance  underwriting powers than national
banks and may engage in merchant banking activities.  The Federal Reserve Board,
in  consultation  with  the  Department  of  Treasury,  may  approve  additional
financial  activities.  The G-L-B Act,  however,  prohibits future  affiliations
between existing unitary savings and loan holding  companies,  like the Company,
and firms that are engaged in commercial  activities and prohibits the formation
of new unitary holding companies.

     The G-L-B Act imposed  new  requirements  on  financial  institutions  with
respect to customer  privacy.  The G-L-B Act generally  prohibits  disclosure of
customer  information  to  non-affiliated  third parties unless the customer has
been given the  opportunity  to object and has not objected to such  disclosure.
Financial  institutions  are further required to disclose their privacy policies
to customers annually.  Financial institutions,  however, are required to comply
with state law if it is more protective of customer privacy than the G-L-B Act.

     The G-L-B Act contained significant revisions to the Federal Home Loan Bank
System. The G-L-B Act imposed new capital  requirements on the Federal Home Loan
Banks and authorized them to issue two classes of stock with differing  dividend
rates and redemption  requirements.  The G-L-B Act deleted the requirement  that
the Federal Home Loan Banks annually  contribute $300 million to pay interest on
certain  government  obligations in favor of a 20% of net earnings formula.  The
G-L-B Act expanded the  permissible  uses of Federal Home Loan Bank  advances by
community  financial  institutions  (under  $500  million  in assets) to include
funding loans to small businesses,  small farms and small  agri-businesses.  The
G-L-B Act made  membership  in the Federal Home Loan Bank  voluntary for federal
savings associations.

     REGULATORY  CAPITAL  REQUIREMENTS.  Under OTS  capital  standards,  savings
associations  must maintain  "tangible"  capital equal to 1.5% of adjusted total
assets,  "core" capital equal to 4.0% of adjusted total assets and a combination
of core and "supplementary"  capital equal to 8.0% of "risk-weighted" assets. In
addition,  the  OTS  has  recently  adopted  regulations  which  impose  certain
restrictions on savings  associations that have a total risk-based capital ratio
that is less than  8.0%,  a ratio of Tier 1 capital to  risk-weighted  assets of
less than 4.0% or a ratio of Tier 1 capital  to  adjusted  total  assets of less
than  4.0%  (or  3.0% if the  institution  is rated  Composite  1 under  the OTS
examination rating system).  See "-- Prompt Corrective  Regulatory  Action." For
purposes  of this  regulation,  Tier 1 capital has the same  definition  as core
capital  which is defined as common  shareholders'  equity  (including  retained
earnings), noncumulative perpetual preferred stock and related surplus, minority
interests in the equity  accounts of fully  consolidated  subsidiaries,  certain
nonwithdrawable  accounts  and  pledged  deposits  and  "qualifying  supervisory
goodwill."  Core  capital is  generally  reduced  by the  amount of the  savings
association's  intangible assets for which no market exists.  Limited exceptions
to the  deduction  of  intangible  assets are provided  for  purchased  mortgage
servicing rights and qualifying supervisory goodwill.  Tangible capital is given
the same  definition  as core  capital  but does not  include an  exception  for
qualifying  supervisory goodwill and is reduced by the amount of all the savings
association's  intangible  assets with only a limited  exception  for  purchased
mortgage servicing rights. Both core and tangible capital are further reduced by
an amount  equal to the savings  association's  debt and equity  investments  in
subsidiaries  engaged in activities not permissible to national banks other than
subsidiaries  engaged in activities  undertaken solely as an agent for customers
or in mortgage  banking  activities and subsidiary  depository  institutions  or
their holding companies. At June 30, 2003, the Bank had no such investments.

     Adjusted  total  assets  are  a  savings   association's  total  assets  as
determined under accounting  principles  generally accepted in the United States
of America,  adjusted for certain  goodwill amounts and increased by a pro-rated
portion of the assets of subsidiaries in which the savings  association  holds a
minority  interest and which are not engaged in activities for which the capital
rules  require  deduction  of its debt and equity  investments.  Adjusted  total
assets are reduced by the amount of assets that have been deducted from capital,
the portion of the savings  association's  investments in subsidiaries that must
be netted against  capital under the capital rules and, for purposes of the core
capital requirement, qualifying supervisory goodwill.

     In  determining  compliance  with the  risk-based  capital  requirement,  a
savings  association  is  allowed  to use both core  capital  and  supplementary
capital  provided the amount of  supplementary  capital used does not exceed the
savings association's core capital.  Supplementary capital is defined to include
certain  preferred stock issues,  nonwithdrawable  accounts and pledged deposits
that do not qualify as core capital, certain approved subordinated debt, certain
other capital  instruments  and a portion of the savings  association's  general
loss allowances.  Total core and supplementary capital are reduced by the amount
of  capital  instruments  held by  other  depository  institutions  pursuant  to
reciprocal

                                       27
<PAGE>

arrangements  and by the savings  association's  high  loan-to-value  ratio land
loans and  non-residential  construction loans and equity investments other than
those deducted from core and tangible capital. At June 30, 2003, the Bank had no
high  ratio  land  or  nonresidential  construction  loans  and  had  no  equity
investments for which OTS regulations require deduction from total capital.

     The risk-based capital requirement is measured against risk-weighted assets
which  equal  the sum of each  asset  and the  credit-equivalent  amount of each
off-balance sheet item after being multiplied by an assigned risk weight.  Under
the OTS risk-weighting system,  one-to-four family first mortgages not more than
90 days past due with loan-to-value  ratios under 80%,  qualifying  multi-family
mortgage loans,  qualifying residential  construction loans and privately-issued
mortgage-backed securities representing an interest in qualifying mortgage loans
or qualifying multi-family loans are assigned a risk weight of 50%. Consumer and
residential   construction   loans  are   assigned   a  risk   weight  of  100%.
Mortgage-backed  securities  issued,  or fully  guaranteed  as to principal  and
interest,  by FNMA and the FHLMC are assigned a 20% risk  weight.  Cash and U.S.
Government securities backed by the full faith and credit of the U.S. Government
are given a 0% risk weight. As of June 30, 2003, the Bank's risk-weighted assets
were approximately $33.9 million.

     The table  below  presents  the Bank's  capital  position  relative  to its
various regulatory capital requirements at June 30, 2003.

                                                                  Percent of
                                                        Amount    Assets(1)
                                                        ------    ---------
                                                       (Dollars in Thousands)

Tangible capital ...................................   $11,849     16.2%
Tangible capital requirement .......................     1,100      1.5
                                                       -------     ----
  Excess ...........................................   $10,749     14.7%
                                                       =======     ====

Core capital .......................................   $11,849     16.2%
Core capital requirement ...........................     2,932      4.0
                                                       -------     ----
  Excess ...........................................   $ 8,917     12.2%
                                                       =======     ====

Total capital (i.e., core and supplementary
  capital) .........................................   $12,189     36.0%
Risk-based capital requirement .....................     2,710      8.0
                                                       -------     ----
  Excess ...........................................   $ 9,479     28.0%
                                                       =======     ====

(1)  Based upon  adjusted  total assets for purposes of the  tangible,  core and
     Tier 1 capital  requirements,  and risk-weighted assets for purposes of the
     risk-based capital requirements.


     OTS  regulations  require  savings  institutions  with more than a "normal"
level of interest  rate risk to maintain  additional  total  capital.  A savings
institution's  interest rate risk is measured in terms of the sensitivity of its
"net  portfolio  value" to changes in interest  rates.  Net  portfolio  value is
defined,  generally, as the present value of expected cash inflows from existing
assets and  off-balance  sheet contracts less the present value of expected cash
outflows from existing liabilities.  A savings institution will be considered to
have a "normal"  level of interest  rate risk exposure if the decline in its net
portfolio  value  after an  immediate  200 basis  point  increase or decrease in
market interest rates  (whichever  results in the greater  decline) is less than
two percent of the current  estimated  economic  value of its assets.  A savings
institution  with a greater than normal interest rate risk is required to deduct
from  total  capital,   for  purposes  of  calculating  its  risk-based  capital
requirement,  an amount (the "interest rate risk  component")  equal to one-half
the difference  between the  institution's  measured  interest rate risk and the
normal level of interest  rate risk,  multiplied  by the  economic  value of its
total assets.

     The OTS calculates the sensitivity of a savings institution's net portfolio
value based on data submitted by the  institution in a schedule to its quarterly
Thrift  Financial  Report and using the  interest  rate risk  measurement  model
adopted by the OTS. The amount of the interest rate risk  component,  if any, to
be  deducted  from  a  savings  institution's  total  capital  is  based  on the
institution's  Thrift  Financial  Report  filed two  quarters  earlier.  Savings
institutions  with less than $300  million  in assets and a  risk-based  capital
ratio above 12% are generally exempt from filing the interest rate risk

                                       28
<PAGE>

schedule  with their Thrift  Financial  Reports.  However,  the OTS requires any
exempt savings  institution that it determines may have a high level of interest
rate risk  exposure to file such  schedule on a  quarterly  basis.  The Bank has
determined  that, on the basis of current  financial data, it will not be deemed
to have more than normal level of interest rate risk under this rule.

     In addition to requiring generally applicable capital standards for savings
institutions,  the OTS is  authorized  to establish the minimum level of capital
for a savings  institution at such amount or at such ratio of  capital-to-assets
as the OTS  determines to be necessary or  appropriate  for such  institution in
light of the particular circumstances of the institution.  The OTS may treat the
failure of any savings institution to maintain capital at or above such level as
an unsafe or unsound  practice and may issue a directive  requiring  any savings
institution  which  fails to  maintain  capital  at or above the  minimum  level
required by the OTS to submit and adhere to a plan for increasing capital.  Such
an order may be enforced in the same manner as an order issued by the FDIC.

     PROMPT CORRECTIVE  REGULATORY  ACTION.  Under the Federal Deposit Insurance
Corporation  Improvement Act of 1991 ("FDICIA"),  the federal banking regulators
are  required  to  take  prompt  corrective  action  if  an  insured  depository
institution  fails  to  satisfy  certain  minimum  capital   requirements.   All
institutions, regardless of their capital levels, are restricted from making any
capital  distribution  or paying any management  fees if the  institution  would
thereafter   fail  to  satisfy  the  minimum  levels  for  any  of  its  capital
requirements.  An  institution  that  fails to meet the  minimum  level  for any
relevant capital measure (an "undercapitalized institution") may be: (i) subject
to increased  monitoring by the  appropriate  federal  banking  regulator;  (ii)
required to submit an acceptable capital  restoration plan within 45 days; (iii)
subject to asset growth  limits;  and (iv)  required to obtain prior  regulatory
approval for  acquisitions,  branching and new lines of businesses.  The capital
restoration plan must include a guarantee by the  institution's  holding company
that the  institution  will  comply  with the plan until it has been  adequately
capitalized on average for four  consecutive  quarters,  under which the holding
company would be liable up to the lesser of 5% of the institution's total assets
or the amount necessary to bring the institution  into capital  compliance as of
the date it failed to comply with its capital restoration plan. A "significantly
undercapitalized"  institution, as well as any undercapitalized institution that
did not  submit an  acceptable  capital  restoration  plan,  may be  subject  to
regulatory demands for recapitalization,  broader application of restrictions on
transactions  with  affiliates,  limitations on interest rates paid on deposits,
asset  growth  and other  activities,  possible  replacement  of  directors  and
officers,  and restrictions on capital distributions by any bank holding company
controlling the institution.  Any company controlling the institution could also
be required to divest the  institution or the  institution  could be required to
divest   subsidiaries.   The  senior  executive   officers  of  a  significantly
undercapitalized   institution   may  not  receive   bonuses  or   increases  in
compensation  without prior  approval and the  institution  is  prohibited  from
making  payments of principal  or interest on its  subordinated  debt.  In their
discretion,  the  federal  banking  regulators  may also  impose  the  foregoing
sanctions on an  undercapitalized  institution if the regulators  determine that
such actions are  necessary  to carry out the purposes of the prompt  corrective
action provisions. If an institution's ratio of tangible capital to total assets
falls  below a "critical  capital  level,"  the  institution  will be subject to
conservatorship  or receivership  within 90 days unless periodic  determinations
are made that  forbearance  from such action  would  better  protect the deposit
insurance fund. Unless  appropriate  findings and certifications are made by the
appropriate  federal bank  regulatory  agencies,  a critically  undercapitalized
institution   must  be  placed  in   receivership   if  it  remains   critically
undercapitalized on average during the calendar quarter beginning 270 days after
the date it became critically  undercapitalized.  If a savings institution is in
compliance  with an approved  capital  plan on the date of  enactment of FDICIA,
however,  it will not be required to submit a capital  restoration plan if it is
undercapitalized  or become subject to the statutory  prompt  corrective  action
provisions   applicable  to   significantly   and  critically   undercapitalized
institutions prior to July 1, 1994.

     The federal  banking  regulators,  including the OTS,  generally  measure a
depository  institution's  capital  adequacy  on the basis of the  institution's
total risk-based  capital ratio (the ratio of its total capital to risk-weighted
assets),  Tier 1  risk-based  capital  ratio (the  ratio of its core  capital to
risk-weighted  assets)  and  leverage  ratio (the  ratio of its core  capital to
adjusted total assets). Under the regulations, a savings institution that is not
subject to an order or written  directive to meet or maintain a specific capital
level will be deemed "well  capitalized" if it also has: (i) a total  risk-based
capital ratio of 10% or greater;  (ii) a Tier 1 risk-based capital ratio of 6.0%
or  greater;  and (iii) a  leverage  ratio of 5.0% or  greater.  An  "adequately
capitalized" savings institution is a savings institution that does not meet the
definition of well capitalized and has: (i) a total risk-based  capital ratio of
8.0% or greater;  (ii) a Tier 1 capital risk-based ratio of 4.0% or greater; and
(iii) a  leverage  ratio of 4.0% or greater  (or 3.0% or greater if the  savings
institution has a composite 1 CAMELS rating). An "undercapitalized  institution"
is a savings institution that has (i) a total risk-based capital ratio less than
8.0%;  or (ii) a Tier 1 risk-based  capital  ratio of less than 4.0%; or (iii) a
leverage ratio of less than 4.0% (or 3.0% if the  institution  has a

                                       29
<PAGE>

composite 1 CAMELS rating).  A "significantly  undercapitalized"  institution is
defined as a savings  institution that has: (i) a total risk-based capital ratio
of less than 6.0%; or (ii) a Tier 1 risk-based  capital ratio of less than 3.0%;
or (iii) a leverage  ratio of less than 3.0%.  A  "critically  undercapitalized"
savings  institution  is  defined as a savings  institution  that has a ratio of
"tangible equity" to total assets of less than 2.0%.  Tangible equity is defined
as core capital plus cumulative  perpetual preferred stock (and related surplus)
less all  intangibles  other than  qualifying  supervisory  goodwill and certain
purchased  mortgage  servicing rights. The OTS may reclassify a well capitalized
savings  institution  as  adequately  capitalized  and may require an adequately
capitalized  or  undercapitalized  institution  to comply  with the  supervisory
actions  applicable to institutions in the next lower capital  category (but may
not  reclassify  a  significantly  undercapitalized  institution  as  critically
under-capitalized) if the OTS determines,  after notice and an opportunity for a
hearing,  that the savings  institution is in an unsafe or unsound  condition or
that the  institution  has received and not  corrected a  less-than-satisfactory
rating  for any  CAMELS  rating  category.  The  Bank  is  classified  as  "well
capitalized" under these regulations.

     QUALIFIED THRIFT LENDER TEST. A savings  institution that does not meet the
Qualified  Thrift Lender test ("QTL Test") must either convert to a bank charter
or comply with the following restrictions on its operations: (i) the institution
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 institution  shall be restricted to those
of a national bank;  (iii) the  institution  shall not be eligible to obtain any
advances from its FHLB; and (iv) payment of dividends by the  institution  shall
be subject to the rules regarding  payment of dividends by a national bank. Upon
the expiration of three years from the date the institution  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).

     To qualify as a QTL, a savings  institution  must  maintain at least 65% of
its "portfolio"  assets in Qualified  Thrift  Investments.  Portfolio assets are
defined as total assets less intangibles, property used by a savings institution
in its business and  liquidity  investments  in an amount not  exceeding  20% of
assets. Qualified Thrift Investments consist of: (i) loans, equity positions, or
securities related to domestic,  residential real estate or manufactured housing
(including home equity loans),  and educational,  small business and credit card
loans;  (ii) shares of stock  issued by an FHLB.  Subject to a 20% of  portfolio
assets limit,  however,  savings institutions are able to treat the following as
Qualified  Thrift  Investments:  (i) 50% of the  dollar  amount  of  residential
mortgage loans subject to sale under certain conditions; (ii) investments,  both
debt and equity,  in the capital stock or  obligations of and any other security
issued by a service  corporation  or operating  subsidiary,  provided  that such
subsidiary  derives at least 80% of its annual gross  revenues  from  activities
directly  related  to  purchasing,  refinancing,   constructing,   improving  or
repairing domestic  residential housing or manufactured  housing;  (iii) 200% of
their   investments  in  loans  to  finance   "starter   homes"  and  loans  for
construction,  development  or  improvement  of housing  and  community  service
facilities,   churches,  schools  and  nursing  homes  or  for  financing  small
businesses in "credit-needy"  areas; (iv) loans for the purchase,  construction,
development  or  improvement  of  community  service  facilities,  (v) loans for
personal,  family,  household or educational purposes,  and (vi) shares of stock
issued by FNMA or FHLMC.

     A savings  institution must maintain its status as a QTL on a monthly basis
in nine out of every 12 months.  A savings  institution  that fails to  maintain
Qualified  Thrift Lender status will be permitted to requalify  once,  and if it
fails the QTL Test a second  time,  it will  become  immediately  subject to all
penalties  as if all time  limits on such  penalties  had  expired.  Failure  to
qualify as a QTL results in a number of sanctions,  including the  imposition of
certain  operating  restrictions  imposed on national banks and a restriction on
obtaining additional advances from the FHLB System. Upon failure to qualify as a
QTL for two years, a savings  association  must convert to a commercial bank. At
June 30, 2003,  approximately 74.7% of the Bank's portfolio assets were invested
in Qualified Thrift Investments.

     DIVIDEND LIMITATIONS.  Under OTS regulations,  the Bank is not permitted to
pay  dividends on its capital stock if its  regulatory  capital would thereby be
reduced below the amount then required for the liquidation  account  established
for the benefit of certain  depositors of the Bank at the time of its conversion
to stock form. Under the OTS' prompt corrective action regulations,  the Bank is
also  prohibited  from  making any  capital  distributions  if after  making the
distribution,  the Bank would have: (i) a total risk-based capital ratio of less
than 8.0%; (ii) a Tier 1 risk-based  capital ratio of less than 4.0%; or (iii) a
leverage  ratio of less than 4.0%. The OTS,  after  consultation  with the FDIC,
however,  may  permit  an  otherwise  prohibited  stock  repurchase  if  made in
connection  with the issuance of additional  shares in an equivalent  amount and
the repurchase will reduce the institution's  financial obligations or otherwise
improve the institution's financial condition.

                                       30
<PAGE>

     OTS regulations require that savings  institutions submit notice to the OTS
prior to making a capital distribution if (a) they would not be well-capitalized
after the distribution,  (b) the distribution  would result in the retirement of
any of the  institution's  common  or  preferred  stock or debt  counted  as its
regulatory capital, or (c) the institution is a subsidiary of a holding company.
A  savings  institution  must  make  application  to the  OTS  to pay a  capital
distribution  if  (x)  the  institution  would  not  be  adequately  capitalized
following the distribution,  (y) the institution's  total  distributions for the
calendar year exceeds the institution's net income for the calendar year to date
plus its net income (less distributions) for the preceding two years, or (z) the
distribution  would  otherwise  violate  applicable  law  or  regulation  or  an
agreement  with  or  condition  imposed  by the  OTS.  If  neither  the  savings
institution  nor the proposed  capital  distribution  meet any of the  foregoing
criteria,  then no notice or  application  is  required to be filed with the OTS
before making a capital  distribution.  The OTS may disapprove or deny a capital
distribution  if in  the  view  of  the  OTS,  the  capital  distribution  would
constitute an unsafe or unsound practice.

     SAFETY AND  SOUNDNESS  STANDARDS.  Under  FDICIA,  as amended by the Riegle
Community  Development and Regulatory  Improvement Act of 1994 (the "CDRI Act"),
each  Federal  banking  agency is required  to  establish  safety and  soundness
standards  for  institutions  under  its  authority.  The  final  rule  and  the
guidelines  went into effect on August 9, 1995. The guidelines  require  savings
institutions to maintain internal controls and information  systems and internal
audit  systems  that are  appropriate  for the  size,  nature  and  scope of the
institution's  business.  The guidelines also establish  certain basic standards
for loan documentation,  credit underwriting,  interest rate risk exposure,  and
asset growth.  The guidelines further provide that savings  institutions  should
maintain  safeguards to prevent the payment of  compensation,  fees and benefits
that are  excessive or that could lead to material  financial  loss,  and should
take  into  account  factors  such  as  comparable   compensation  practices  at
comparable institutions. If the OTS determines that a savings institution is not
in  compliance  with the safety and  soundness  guidelines,  it may  require the
institution  to  submit  an  acceptable  plan to  achieve  compliance  with  the
guidelines.  A savings institution must submit an acceptable  compliance plan to
the OTS  within 30 days of  receipt  of a request  for such a plan.  Failure  to
submit or implement a compliance  plan may subject the institution to regulatory
sanctions. Management believes that the Bank already meets substantially all the
standards adopted in the interagency guidelines,  and therefore does not believe
that  implementation  of these regulatory  standards will materially  affect the
Bank's operations.

     Additionally, under FDICIA, as amended by the CDRI Act, the Federal banking
agencies are required to establish  standards  relating to the asset quality and
earnings that the agencies  determine to be  appropriate.  On July 10, 1995, the
federal banking agencies, including the OTS, issued proposed guidelines relating
to asset  quality  and  earnings.  Under  the  proposed  guidelines,  a  savings
institution  should maintain systems,  commensurate with its size and the nature
and  scope  of  its   operations,   to  identify   problem  assets  and  prevent
deterioration  in those assets as well as to evaluate  and monitor  earnings and
ensure that earnings are sufficient to maintain  adequate  capital and reserves.
Management believes that the asset quality and earnings  standards,  in the form
proposed by the banking agencies, would not have a material effect on the Bank's
operations.

     DEPOSIT  INSURANCE.  The Bank is  required  to pay  assessments  based on a
percentage of its insured  deposits to the FDIC for insurance of its deposits by
the FDIC through the SAIF. Under the Federal Deposit  Insurance Act, the FDIC is
required to set semi-annual assessments for SAIF-insured institutions at a level
necessary  to  maintain  the  designated  reserve  ratio of the SAIF at 1.25% of
estimated  insured  deposits  or at a higher  percentage  of  estimated  insured
deposits that the FDIC determines to be justified for that year by circumstances
indicating a significant risk of substantial future losses to the SAIF.

     Under the  FDIC's  risk-based  deposit  insurance  assessment  system,  the
assessment rate for an insured depository  institution depends on the assessment
risk classification assigned to the institution by the FDIC, which is determined
by the  institution's  capital level and supervisory  evaluations.  Based on the
data reported to regulators  for the date closest to the last day of the seventh
month preceding the semi-annual assessment period,  institutions are assigned to
one of three  capital  groups -- well  capitalized,  adequately  capitalized  or
undercapitalized  -- using the same  percentage  criteria  as under  the  prompt
corrective action  regulations.  See " -- Prompt Corrective  Regulatory Action."
Within each capital group,  institutions  are assigned to one of three subgroups
on the basis of supervisory evaluations by the institution's primary supervisory
authority and such other  information  as the FDIC  determines to be relevant to
the  institution's  financial  condition  and  the  risk  posed  to the  deposit
insurance fund.

                                       31
<PAGE>

     The FDIC has adopted an assessment  schedule for deposit insurance pursuant
to which the assessment rate for well-capitalized  institutions with the highest
supervisory ratings has been reduced to zero and institutions in the lowest risk
assessment  classification  will be  assessed  at the rate of  0.27% of  insured
deposits.  Institutions  are also  assessed  to help fund  interest  payments on
certain  bonds  issued by the  Financing  Corporation  ("FICO") an agency of the
Federal government  established to finance takeovers of insolvent thrifts.  Both
BIF and SAIF members are assessed at the same rate for FICO payments.  This rate
is reset  quarterly.  For the third calendar quarter of 2003, the rate is set at
1.6 basis points.

     The  FDIC  has  adopted  a  regulation  which  provides  that  any  insured
depository  institution  with a ratio of Tier 1 capital to total  assets of less
than 2% will be deemed to be operating in an unsafe or unsound condition,  which
would constitute  grounds for the initiation of termination of deposit insurance
proceedings.  The FDIC,  however,  will not  initiate  termination  of insurance
proceedings if the depository  institution has entered into and is in compliance
with a written agreement with its primary regulator,  and the FDIC is a party to
the  agreement,  to increase  its Tier 1 capital to such level as the FDIC deems
appropriate.  Tier 1  capital  is  defined  as the sum of  common  stockholders'
equity,  noncumulative perpetual preferred stock (including any related surplus)
and minority interests in consolidated subsidiaries, minus all intangible assets
other  than  certain  purchased  servicing  rights  and  purchased  credit  card
receivables and qualifying  supervisory  goodwill eligible for inclusion in core
capital under OTS  regulations  and minus  identified  losses and investments in
certain securities  subsidiaries.  Insured  depository  institutions with Tier 1
capital  equal to or  greater  than 2% of total  assets may also be deemed to be
operating in an unsafe or unsound condition  notwithstanding such capital level.
The regulation  further provides that in considering  applications  that must be
submitted to it by savings institutions, the FDIC will take into account whether
the  savings  association  is meeting the Tier 1 capital  requirement  for state
non-member banks of 4% of total assets.

     LIQUIDITY  REQUIREMENTS.  The Bank is required to  maintain  average  daily
balances of liquid assets consistent with safe and sound operations.

     FEDERAL  HOME LOAN  BANK  SYSTEM.  The Bank is a member of the FHLB,  which
consists of 12 Federal Home Loan Banks subject to supervision  and regulation by
the Federal Housing Finance Board ("FHFB").  The Federal Home Loan Banks provide
a central credit facility primarily for member institutions.  As a member of the
FHLB of  Cincinnati,  the Bank is required to acquire and hold shares of capital
stock  in the  FHLB of  Cincinnati  in an  amount  at  least  equal to 1% of the
aggregate unpaid principal of its home mortgage loans, home purchase  contracts,
and similar  obligations  at the beginning of each year, or 1/20 of its advances
from the FHLB of  Cincinnati,  whichever is greater.  The Bank was in compliance
with this requirement with an investment in FHLB of Cincinnati stock at June 30,
2003,  of $725,000.  The FHLB of Cincinnati  is funded  primarily  from proceeds
derived from the sale of consolidated  obligations of the FHLB System.  It makes
advances to members in accordance  with policies and  procedures  established by
the FHFB and the Board of  Directors of the FHLB of  Cincinnati.  As of June 30,
2003, the Bank had $7.7 million in advances and other  borrowings  from the FHLB
of Cincinnati. See "Deposit Activity and Other Sources of Funds -- Borrowings."

     FEDERAL  RESERVE  SYSTEM.  Pursuant to regulations  of the Federal  Reserve
Board, a thrift  institution must maintain average daily reserves equal to 3% on
transaction  accounts  up to  $41.3  million,  plus 10% on the  remainder.  This
percentage  is subject to  adjustment  by the  Federal  Reserve  Board.  Because
required  reserves  must  be  maintained  in the  form  of  vault  cash  or in a
non-interest  bearing  account  at a Federal  Reserve  Bank,  the  effect of the
reserve   requirement   is  to   reduce   the   amount   of  the   institution's
interest-earning  assets.  As of  June  30,  2003,  the  Bank  met  its  reserve
requirements.

TAXATION

     The Company and the Bank will file a consolidated federal income return for
the year ended June 30, 2003.

     Thrift  institutions  are subject to the provisions of the Internal Revenue
Code of 1986,  as  amended  (the  "Code")  in the same  general  manner as other
corporations.  Prior to recent  legislation,  institutions such as First Federal
which met certain definitional tests and other conditions prescribed by the Code
benefited 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 were  separated  into  "qualifying  real
property  loans," which generally are loans secured by interests in certain real
property,  and  nonqualifying  loans,  which are all other  loans.  The bad debt
reserve  deduction with

                                       32
<PAGE>

respect to nonqualifying loans was based on actual loss experience, however, the
amount  of the bad debt  reserve  deduction  with  respect  to  qualifying  real
property  loans  could be based upon  actual loss  experience  (the  "experience
method") or a percentage of taxable  income  determined  without  regard to such
deduction (the "percentage of taxable income method").

     The Bank  historically  elected to use the  percentage  of  taxable  income
method.  Under such method,  the bad debt reserve  deduction for qualifying real
property  loans was computed as a  percentage  of taxable  income,  with certain
adjustments,  effective for taxable years  beginning  after 1986.  The allowable
deduction  under the  percentage of taxable income method (the  "percentage  bad
debt  deduction") for taxable years beginning before 1987 was scaled downward in
the event  that less than 82% of the  total  dollar  amount of the  assets of an
association  were within  certain  designated  categories.  When the  percentage
method  bad  debt  deduction  was  lowered  to 8%,  the  82%  qualifying  assets
requirement  was  lowered  to 60%.  For all  taxable  years,  no  deduction  was
permitted  in the event  that less  than 60% of the total  dollar  amount of the
assets of an association fell within such categories.

     Earnings appropriated to an institution's bad debt reserve and claimed as a
tax  deduction  were not  available  for the  payment of cash  dividends  or for
distribution to  shareholders  (including  distributions  made on dissolution or
liquidation),  unless such amount was included in taxable income, along with the
amount deemed necessary to pay the resulting federal income tax.

     Legislation  signed by the  President in 1996  repealed the  percentage  of
taxable income method of calculating the bad debt reserve. Savings associations,
like the Bank,  which had previously  used that method are required to recapture
into taxable  income  post-1987  reserves in excess of the  reserves  calculated
under the  experience  method over a six-year  period  beginning  with the first
taxable year beginning  after December 31, 1995. The start of such recapture may
have been delayed until the third taxable year beginning 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  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.  Under
such legislation, the Bank is required to recapture approximately $70,000 of its
tax bad debt reserve. The Bank has provided deferred taxes for the amount of the
recapture.

     Beginning  with the first taxable year  beginning  after December 31, 1995,
savings institutions, such as the Bank, are being 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.

     Neither  the Company nor the Bank's  federal  corporate  income tax returns
have been audited in the last five years.

     Under provisions of the Revenue Reconciliation Act of 1993 ("RRA"), enacted
on August 10, 1993, the maximum federal  corporate income tax rate was increased
from 34% to 35% for taxable income over $10.0 million,  with a 3% surtax imposed
on taxable income over $15.0 million.  Also under  provisions of RRA, a separate
depreciation calculation requirement has been eliminated in the determination of
adjusted  current  earnings  for  purposes of  determining  alternative  minimum
taxable income,  rules relating to payment of estimated  corporate  income taxes
were  revised,  and certain  acquired  intangible  assets  such as goodwill  and
customer-based intangibles were allowed a 15-year amortization period. Beginning
with tax years  ending on or after  January  1,  1993,  RRA also  provides  that
securities  dealers must use  mark-to-market  accounting  and generally  reflect
changes in value  during the year or upon sale as taxable  gains or losses.  The
IRS has indicated that  financial  institutions  which  originate and sell loans
will be subject to the rule.

STATE INCOME TAXATION

     The  Commonwealth  of  Kentucky  imposes  no income or  franchise  taxes on
savings institutions.  The Bank is subject to an annual Kentucky ad valorem tax.
This tax is 0.1% of the Bank's  savings  accounts,  common  stock,  capital  and
retained income with certain deductions allowed for securities guaranteed by the
U.S.  Government or certain of its agencies.  For the fiscal year ended June 30,
2003, the amount of such expense for the Bank was $54,000.

                                       33
<PAGE>

ITEM 2.  DESCRIPTION OF PROPERTY
--------------------------------

          The  following  table sets forth the location  and certain  additional
     information regarding the Bank's two offices at June 30, 2003.

                                                 Book Value
                            Year     Owned or    at June 30,     Approximate
                           Opened     Leased        2003       Square Footage
                           ------     ------        ----       --------------

308 North Main Street       1975       Owned      $414,000          5,982
Cynthiana, Kentucky

106 Ladish Road
Cynthiana, Kentucky         1994       Owned      $824,000          3,322

ITEM 3. LEGAL PROCEEDINGS
-------------------------

     From time to time,  the Company  and the Bank are a party to various  legal
proceedings  incident to its  business.  At June 30,  2003,  there were no legal
proceedings  to which the  Company  or the Bank was a party,  or to which any of
their  property was subject,  which were  expected by  management to result in a
material loss to the Company or the Bank.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------------------------------------------------------------

     There were no matters  submitted to a vote of the security  holders  during
the fourth quarter of fiscal year 2003.

                                     PART II

ITEM 5.  MARKET  FOR THE  REGISTRANT'S  COMMON  EQUITY AND  RELATED  STOCKHOLDER
--------------------------------------------------------------------------------
MATTERS
-------

     The  information  contained  under the  section  captioned  "Market for the
Registrant's Common Equity and Related Stockholder Matters" in the Annual Report
is incorporated herein by reference.

                                       34
<PAGE>


ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
------------------------------------------------------------------

     The  information  contained  under  the  section  captioned   "Management's
Discussion  and  Analysis  or  Plan  of  Operation"  in  the  Annual  Report  is
incorporated herein by reference.

ITEM 7.  FINANCIAL STATEMENTS
-----------------------------

     The financial  statements  contained in the Annual Report are  incorporated
herein by reference.

ITEM  8.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
--------------------------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------

     Not applicable.

ITEM 8A.  CONTROLS AND PROCEDURES.
----------------------------------

     As of the end of the  period  covered  by this  report,  management  of the
Company  carried  out  an  evaluation,   under  the  supervision  and  with  the
participation  of  the  Company's  principal  executive  officer  and  principal
financial officer, of the effectiveness of the Company's disclosure controls and
procedures.  Based on this evaluation, the Company's principal executive officer
and principal financial officer concluded that the Company's disclosure controls
and  procedures  are  effective  in  ensuring  that  information  required to be
disclosed  by the  Company  in  reports  that it  files  or  submits  under  the
Securities Exchange Act of 1934, as amended, is recorded, processed,  summarized
and reported,  within the time periods  specified in the Securities and Exchange
Commission's  rules  and  forms.  It  should  be noted  that the  design  of the
Company's  disclosure  controls  and  procedures  is based in part upon  certain
reasonable  assumptions about the likelihood of future events,  and there can be
no reasonable  assurance  that any design of disclosure  controls and procedures
will  succeed  in  achieving  its  stated  goals  under  all  potential   future
conditions,  regardless of how remote, but the Company's principal executive and
financial  officers have  concluded that the Company's  disclosure  controls and
procedures are, in fact, effective at a reasonable assurance level.

     In addition,  there have been no changes in the Company's  internal control
over financial  reporting (to the extent that elements of internal  control over
financial  reporting are subsumed  within  disclosure  controls and  procedures)
identified in connection  with the evaluation  described in the above  paragraph
that occurred  during the Company's  last fiscal  quarter,  that has  materially
affected,  or is reasonably likely to materially  affect, the Company's internal
control over financial reporting.


                                    PART III

ITEM 9.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
-----------------------------------------------------------

     The  information  required by this item is  incorporated  by  reference  to
"Proposal III -- Election of Directors" in the Proxy Statement.

     For certain  information  regarding the non-director  executive officers of
the Company, see "Item 1. Description of Business -- Executive Officers."

ITEM 10.  EXECUTIVE COMPENSATION
--------------------------------

     The  information  required by this item is  incorporated  by  reference  to
"Executive Compensation" in the Proxy Statement.

                                       35
<PAGE>


ITEM 11.  SECURITY  OWNERSHIP OF CERTAIN  BENEFICIAL  OWNERS AND  MANAGEMENT AND
--------------------------------------------------------------------------------
RELATED STOCKHOLDER MATTERS
---------------------------

     (a)  Security Ownership of Certain Beneficial Owners

          The  information  required  by this  item is  incorporated  herein  by
          reference to the section  captioned  "Voting  Securities and Principal
          Holders Thereof" in the Proxy Statement.

     (b)  Security Ownership of Management

          Information  required by this item is incorporated herein by reference
          to the sections captioned  "Proposal III -- Election of Directors" and
          "Voting  Securities  and  Principal  Holders  Thereof"  in  the  Proxy
          Statement.

     (c)  Changes in Control

          On July 8, 2003,  the Company  entered into an  Agreement  and Plan of
          Merger with Kentucky Bancshares, Inc. and its wholly owned subsidiary,
          Bourbon Acquisition Corp.,  pursuant to the terms of which,  including
          the  receipt  of   regulatory   approval   and  the  approval  of  the
          stockholders  of the  Company,  the  Company  will merge into  Bourbon
          Acquisition  Corp.  and each  stockholder  of the Company  (except for
          stockholders  who have  perfected  their  appraisal  rights),  will be
          entitled  to receive  cash  consideration  of $23.25 for each share of
          their  Company  common stock from  Kentucky  Bancshares,  Inc..  It is
          expected that the merger will be  consummated in the fourth quarter of
          2003.  Each of the  directors  and  officers of the  Company  signed a
          Voting Agreement  agreeing to vote their shares of common stock of the
          Company in favor of the merger.

     (d)  Equity Compensation Plans

     The  following  table sets forth  certain  information  with respect to the
Company's equity compensation plans.

<TABLE>
<CAPTION>
                                        (a)                             (b)                             (c)
                                                                                           NUMBER OF SECURITIES REMAINING
                                                                                            AVAILABLE FOR FUTURE ISSUANCE
                           NUMBER OF SECURITIES TO BE ISSUED    WEIGHTED-AVERAGE EXERCISE     UNDER EQUITY COMPENSATION
                             UPON EXERCISE OF OUTSTANDING         PRICE OF OUTSTANDING      PLANS (EXCLUDING SECURITIES)
PLAN CATEGORY                OPTIONS, WARRANTS AND RIGHTS     OPTIONS, WARRANTS AND RIGHTS    REFLECTED IN COLUMN (a))
-------------                ----------------------------     ----------------------------    ------------------------
<S>                                   <C>                                <C>                              <C>
Equity compensation plans
  approved by security holders        129,686                            $9.8583                          --

Equity compensation plans not
  approved by security holders             --                                 --                          --
                                     --------                            -------                        ----
       Total                         $129,686                            $9.8583                          --
                                     ========                            =======                        ====
</TABLE>


ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------------

     The information  required by this item is incorporated  herein by reference
to the section captioned "Transactions with Management" in the Proxy Statement.

                                       36
<PAGE>


ITEM 13.  EXHIBITS, LISTS AND REPORTS ON FORM 8-K.
--------------------------------------------------

     (a)  LIST OF DOCUMENTS FILED AS PART OF THIS REPORT
          ----------------------------------------------

     (1)  Financial   Statements.   The  following   financial   statements  are
          incorporated by reference from Item 7:

          Independent Auditors' Report
          Consolidated Statements of Financial Condition as of June 30, 2003 and
           2002
          Consolidated  Statements  of  Earnings  for  Each of the  Years in the
           Three-Year Period Ended June 30, 2003
          Consolidated  Statements of Comprehensive Income for Each of the Years
           in the Three-Year Period Ended June 30, 2003
          Consolidated  Statements of Shareholders' Equity for Each of the Years
           in the Three-Year Period Ended June 30, 2003
          Consolidated  Statements  of Cash  Flows  for Each of the Years in the
           Three-Year Period Ended June 30, 2003
          Notes to Consolidated Financial Statements

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

<TABLE>
<CAPTION>
                                                                                   Page in
                                                                                  Sequentially
 No.     Description                                                              Numbered Copy
 ---     -----------                                                              -------------
<S>       <C>                                                                       <C>
 3.1      Certificate of Incorporation of Kentucky First Bancorp, Inc.                  *
 3.2      Bylaws of Kentucky First Bancorp, Inc.                                        **
 4        Form of Common Stock Certificate of Kentucky First Bancorp, Inc.              *
10.1      First Federal Savings Bank Incentive Compensation Plan                        *+
10.2      Kentucky First Bancorp, Inc. Stock Option and Incentive Plan                  *+
10.3      Kentucky First Bancorp, Inc. Management Recognition Plan                      *+
10.4      Deferred Compensation Agreements, as amended                                  *+
10.5      First Federal Savings Bank Retirement Plan for Non-Employee Directors         *+
10.6      Supplemental  Executive  Retirement  Agreement  between  First Federal
          Savings Bank and Betty J. Long                                                *+
10.7      Amended  and  Restated  Employment  Agreement  between  First  Federal
          Savings Bank and Betty J. Long
10.8      Employment  Agreement  between First Federal Savings Bank and Kevin R.
          Tolle                                                                         *+
10.9      Amended and  Restated  Employment  Agreement  between  Kentucky  First
          Bancorp, Inc. and Betty J. Long
10.10     Employment Agreement between Kentucky First Bancorp, Inc. and Kevin R.
          Tolle                                                                         *
13        Annual Report
21        Subsidiaries of the Registrant
23        Consent of Grant Thornton LLP
31        Rule 13a-14(a) Certifications
32        Section 1350 Certifications

</TABLE>

----------
(*)  Incorporated  herein by reference from  Registration  Statement on Form S-1
     filed (File No. 33-91134).
(**) Incorporated  herein by reference  from the Company's  Quarterly  Report on
     Form 10-QSB for the quarter ended March 31, 1999.
(+)  Management contract or compensatory plan or arrangement.


     (b)  REPORTS ON FORM 8-K. On April 25, 2003,  the Company filed a report on
          Form 8-K issuing a press release  announcing  its unaudited  financial
          results for the quarter and nine months ended March 31, 2003. The full
          press  release dated April 25, 2003 was attached as Exhibit 99 to this
          Form 8-K filing.

                                       37
<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.

                                       KENTUCKY FIRST BANCORP, INC.

September 29, 2003                     By: /s/ Betty J. Long
                                           ------------------------------------
                                           Betty J. Long
                                           President and Chief Executive Officer
                                           (Duly Authorized Representative)

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

/s/ Betty J. Long                                   September 29, 2003
------------------------------------
Betty J. Long
President and Chief Executive Officer
(Director and Principal Executive Officer)

/s/ William D. Morris                               September 29, 2003
------------------------------------
William D. Morris
Chairman of the Board
(Director)

/s/ Luther O. Beckett                               September 29, 2003
------------------------------------
Luther O. Beckett
Vice Chairman of the Board
(Director)

/s/ Charles S. Brunker                              September 29, 2003
------------------------------------
Charles S. Brunker
(Director)

/s/ Milton G. Rees                                  September 29, 2003
------------------------------------
Milton G. Rees
(Director)

/s/ Diane Ritchie                                   September 29, 2003
------------------------------------
Diane Ritchie
(Director)

/s/ John Swinford                                   September 29, 2003
------------------------------------
John Swinford
(Director)

/s/ Wilbur H. Wilson                                September 29, 2003
------------------------------------
Wilbur H. Wilson
(Director)


/s/ Robbie Cox                                      September 29, 2003
------------------------------------
Robbie Cox
Chief Financial Officer
Vice President
(Principal Accounting and Financial Officer)