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, 2001

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

For the transition period from                to
                               --------------    ---------------

                           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.)

306 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, 2001: $5,523,000

As of September 24, 2001,  the aggregate  market value of the 669,288  shares of
Common Stock of the registrant  issued and outstanding held by non-affiliates on
such date was  approximately  $8,446,415  based on the  closing  sales  price of
$12.62 per share of the  registrant's  Common  Stock on  September  22,  2001 as
listed on the American Stock Exchange.  For purposes of this calculation,  it is
assumed that directors,  executive  officers and beneficial  owners of more than
10% of the registrant's outstanding voting stock are affiliates.

Number of shares of Common Stock outstanding as of September 21, 2001: 940,165

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 Proxy  Statement for the 2001 Annual  Meeting of  Stockholders.
     (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 ESOP. The Company's  principal  business is the business of
the Bank.  At June 30,  2001,  the  Company had total  assets of $74.2  million,
deposits  of  $52.4  million,   net  loans   receivable  of  $45.7  million  and
shareholders' equity of $12.5 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.

     First  Federal's  business  strategy  is 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 OTS and the FDIC. Such regulation is intended
primarily for the protection of depositors.

     Both the Company's and First Federal's executive offices are located at 308
North Main Street, Cynthiana,  Kentucky 41031-1210,  and its 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 1998
population   census   estimate,   Cynthiana   had  a  population  of  6,300  and
approximately 18,000 persons lived in Harrison County.

     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,  Perm  Cast,  SNAPCO,  STI  Manufacturing,   TI  Group
Automotive  and  TST  Technologies.  The  Licking  Valley  Center  of  Maysville
Community   College  is  also  located  in  Cynthiana   with  an  enrollment  of
approximately 412 students.

                                       2
<PAGE>
     According to the US Bureau of Labor  Statistics,  the unemployment  rate in
Harrison  County for calendar year 2001 through May was 4.6% as compared to 4.1%
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, 2001, the maximum amount that the Bank could have loaned to any
one borrower  without  prior OTS approval was $1.7  million.  At such date,  the
largest  aggregate  amount  of loans  that the Bank had  outstanding  to any one
borrower was approximately $1.6 million.

                                       3
<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,  2001,  the Bank had no  concentrations  of loans
exceeding 10% of total loans that are not otherwise disclosed below.
<TABLE>
<CAPTION>
                                                                                At June 30,
                                                            -----------------------------------------------------
                                                                     2001                           2000
                                                            ---------------------           ---------------------
                                                            Amount            %             Amount            %
                                                            ------          -----           ------          -----
                                                                            (Dollars in thousands)
<S>                                                         <C>             <C>             <C>             <C>
Type of Loan:
------------
Real estate loans:
  One- to four-family residential and construction (1)....  $   27,701      59.72%          $  26,640       58.60%
  Multi-family residential................................       2,884       6.22               3,827        8.42
  Agricultural............................................       4,676      10.08               5,174       11.38
  Commercial..............................................       7,504      16.18               6,708       14.75
                                                             ---------   --------           ---------    --------
     Total real estate loans..............................      42,765      92.20              42,349       93.15

Commercial loans..........................................         859       1.85                 864        1.90
Agricultural operating loans..............................         605       1.30                 419        0.92

Consumer loans:
  Automobiles.............................................         466       1.01                 428        0.94
  Mobile home.............................................          28       0.06                  71        0.16
  Savings account.........................................       1,087       2.34                 825        1.81
  Other...................................................         577       1.24                 510        1.12
                                                            ----------  ---------           ---------    --------
     Total consumer loans.................................       2,158       4.65               1,834        4.03
                                                            ----------   --------           ---------    --------
     Total loans..........................................      46,387     100.00%             45,466      100.00%
                                                                           ======                          ======

Less:
  Loans in process........................................         114                             18
  Deferred loan origination fees..........................          71                             80
  Unearned discount.......................................           2                              5
  Allowance for loan losses...............................         480                            443
                                                            ----------                      ---------
     Loans receivable, net................................  $   45,720                      $  44,920
                                                            ==========                      =========
<FN>
__________
(1)  At June 30, 2001,  constructions loans amounted to $949,000 and represented
     2.0% of total gross loans.
</FN>
</TABLE>
     Loan Maturity Schedule.  The following table sets forth certain information
at June 30, 2001  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.
<TABLE>
<CAPTION>
                                                       Due Within       Due 1-5
                                                         1 Year          Years       Due After 5
                                                          After          After       Years After
                                                         6/30/01        6/30/01        6/30/01         Total
                                                         -------        -------        -------        --------
                                                                            (In thousands)
<S>                                                   <C>             <C>            <C>            <C>
Real estate mortgage........................          $      847      $    1,582     $   40,336     $   42,765
Consumer....................................               2,057             101            --           2,158
Commercial and agricultural operating.......               1,202             262            --           1,464
                                                      ----------      ----------     ----------     ----------
     Total..................................          $    4,106      $    1,945     $   40,336     $   46,387
                                                      ==========      ==========     ==========     ==========
</TABLE>

                                       4
<PAGE>

     The following  table sets forth at June 30, 2001,  the dollar amount of all
loans due one year or more  after June 30,  2001  which  have (i)  predetermined
interest rates and (ii) floating or adjustable interest rates.
<TABLE>
<CAPTION>
                                                                       Predetermined          Floating or
                                                                           Rates           Adjustable Rates
                                                                       -------------       ----------------
                                                                                  (In thousands)

                  <S>                                                   <C>                   <C>
                  Real estate mortgage...............................   $    28,444           $    13,474
                  Consumer...........................................           101                   --
                  Commercial and agricultural operating..............           262                   --
                                                                        -----------           -----------
                       Total.........................................   $    28,807           $    13,474
                                                                        ===========           ===========
</TABLE>
     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 First Federal 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 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, 2001, $26.8 million, or 57.7%
of the  Bank's  gross  loan  portfolio  consisted  of loans  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. The Bank offers mortgage loans up to 85% of the
lesser of the  appraised  value or the purchase  price,  if  applicable,  of the
underlying  property for owner occupied single and two family dwellings that are
located in Harrison County.

     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, 2001,  multi-family  and  commercial  real
estate  loans  totaled  $2.9  million  and  $7.5  million,   respectively,   and
represented 6.2% and 16.2%, respectively, of the Bank's gross loan portfolio.

     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 requires that the payments
under such leases be assigned to the Bank.


                                       5
<PAGE>

     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
twelve  units.  The  Bank's  largest  multi-family  real  estate  lending to one
borrower are participation  interests purchased from a financial  institution in
Lexington,  Kentucky.  The participation  interests  amounted to $1.3 million at
June 30, 2001 and were secured by 34 triplex/duplex units.

     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 motel located in Dry Ridge,
Kentucky. This loan had a balance of $1.4 million at June 30, 2001.

     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, 2001, the average size of the Bank's  multi-family  and commercial real
estate loans was $98,000 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.  Such loans  convert  to  permanent  financing  upon  completion  of
construction.  These  properties  are located in the Bank's market area. At June
30, 2001, the Bank's loan portfolio included $160,000 in loans originated by the
Bank and secured by properties under  construction.  All construction  loans are
secured by a first lien on the property  under  construction.  Loan proceeds are
disbursed in three  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, 2001, the Bank's participation  interest in these construction
loans was $789,000.  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.

     The Bank also makes a limited number of  construction  loans to finance the
construction of multi-family and commercial real estate. As of June 30, 2001, no
such loans were outstanding.

                                       6
<PAGE>

     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 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, 2001,  the Bank's
consumer loans totaled $2.2 million, or 4.7% 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,  2001,  the Bank had $4.7  million in  agricultural  real
estate loans, or 10.1% of its gross loan portfolio, and $605,000 in agricultural
operating loans, or 1.3% 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 15 years with no  residence  or 20 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, 2001, the average size of an agricultural real
estate loan originated by the Bank was $56,000.

     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 in the Bank's market area, and
cattle.  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.


                                       7
<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, 2001, the Bank's  commercial  loans  amounted to $859,000,  or
1.9% 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 loans are sometimes granted on an unsecured basis.  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.

     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. 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.

                                       8
<PAGE>
     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 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 and
from an unaffiliated  mortgage broker. 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.

     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.
                                       9
<PAGE>

     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  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  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, 2001 the Bank had $12,000 and $144,000 in assets  classified as
special mention and substandard,  respectively,  and had no assets classified as
doubtful or loss.  Amounts  classified are net of specific allowance for losses.
Included in the balance of substandard  loans was a loan secured by multi-family
residential  property,  which had a balance of $306,000 and a specific allowance
for loan  losses of  $200,000  as of June 30,  2001.  Payments  on this loan are
approximately twenty-six months delinquent.


                                       10
<PAGE>
     The following table sets forth an analysis of the Bank's allowance for loan
losses for the periods indicated.
<TABLE>
<CAPTION>
                                                                     Year Ended June 30,
                                                                  ---------------------------
                                                                   2001              2000
                                                                  ------            -------
                                                                       (In thousands)
<S>                                                              <C>                <C>
Balance at beginning of period.................................  $   443            $   414
Charge-offs:
  Real estate loans:
    One- to four-family residential............................       --                 10
    Multi-family residential...................................       --                 --
    Agricultural...............................................       --                 --
    Commercial and other.......................................       --                 --
    Construction...............................................       --                 --
  Commercial loans.............................................       --                 --
  Agricultural operating loans.................................       --                 --
  Consumer loans:
    Automobile.................................................       --                 --
    Savings account............................................       --                 --
    Other consumer.............................................        2                 --
                                                                 -------            -------
      Total:...................................................        2                 10
                                                                 -------            -------
Recoveries:
  Real estate loans:
    One- to four-family residential............................       --                 --
    Multi-family residential...................................       --                 --
    Agricultural...............................................       --                 --
    Commercial and other.......................................       --                 --
    Construction...............................................       --                 --
  Commercial loans.............................................       --                 --
  Agricultural operating loans.................................       --                 --
  Consumer loans:
    Automobile.................................................       --                 --
    Savings account............................................       --                 --
    Other consumer.............................................       --                 --
                                                                 -------            -------
      Total:...................................................       --                 --
Net charge-offs................................................        2                 10
                                                                 -------            -------
Provision for losses on loans..................................       39                 39
                                                                 -------            -------
Balance at end of period.......................................  $   480            $   443
                                                                 =======            =======
Ratio of net charge-offs to average loans
  outstanding during the period................................       --%               .02%
                                                                 =======            =======
</TABLE>
                                       11
<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,
                                                     -----------------------------------------------------------
                                                             2001                           2000
                                                     ---------------------------    ----------------------------
                                                                    Percent of                     Percent of
                                                                  Loans in Each                  Loans in Each
                                                                    Category to                    Category to
                                                     Amount         Total Loans     Amount         Total Loans
                                                     ------       --------------    ------       ---------------
                                                                         (Dollars in thousands)
<S>                                                  <C>               <C>           <C>              <C>
Real estate - mortgage:
  One- to four-family residential and construction.  $    87           59.72%        $   66           58.60%
  Multi-family residential.........................      229            6.22            241            8.42
  Agricultural.....................................       48           10.08             46           11.38
  Commercial.......................................       76           16.18             60           14.75
Commercial loans...................................       13            1.85             10            1.90
Agricultural operating loans.......................        9            1.30              5            0.92
Consumer loans:
  Automobiles......................................        8            1.01              5            0.94
  Mobile homes.....................................        1            0.06              3            0.16
  Savings account..................................       --            2.34             --            1.81
  Other consumer loans.............................        9            1.24              7            1.12
                                                     -------          ------         ------          ------
    Total allowance for loan losses................  $   480          100.00%        $  443          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.

                                       12
<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.  In addition, the Bank had no
real estate acquired as a result of foreclosure.
<TABLE>
<CAPTION>
                                                                                       At June 30,
                                                                              -------------------------------
                                                                               2001                     2000
                                                                              ------                   ------
                                                                                    (Dollars in thousands)
<S>                                                                          <C>                       <C>
Loans accounted for on a non-accrual basis: (1)
  Real estate:
    One- to four-family residential and construction.......................  $   --                    $   --
    Multi-family residential...............................................     306                       363
    Agricultural...........................................................      --                        --
    Commercial.............................................................      --                        --
  Commercial loans.........................................................      --                        --
  Agricultural operating loans.............................................      --                        --
  Consumer.................................................................      --                        --
                                                                              -----                    ------
     Total.................................................................     306                       363
                                                                              -----                    ------

Accruing loans which are contractually past due 90 days or more:
  Real estate:
    One- to four-family residential and construction.......................     166                        --
    Multi-family residential...............................................      --                        --
    Agricultural...........................................................      --                        --
    Commercial.............................................................      --                       166
  Commercial loans.........................................................       4                         4
  Agricultural operating loans.............................................      --                        --
  Consumer.................................................................      10                        12
                                                                              -----                    ------
     Total.................................................................     180                       182
                                                                              -----                    ------

Total non-performing loans (2).............................................   $ 486                    $  545
                                                                              =====                    ======
Total non-performing loans as a percentage
  of total net loans.......................................................    1.06%                     1.21%
                                                                              =====                    ======

Total non-performing assets as a percentage
  of total assets..........................................................     .66%                      .74%
                                                                              =====                    ======
<FN>
_______________
(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.
(2)  At June 30, 2001 and 2000, non-performing loan balances are presented gross
     and do not reflect specific loan loss allowances of $200,000.
</FN>
</TABLE>

     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, 2001,  gross interest  income of $29,000 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, 2001.

                                       13
<PAGE>

     At June  30,  2001,  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.

INVESTMENT ACTIVITIES

     First Federal 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 and a minimum  amount of
liquid  assets  which may be  invested  in cash and  specified  securities.  For
additional information, see "Regulation of the Bank -- Liquidity Requirements."

     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  Company  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,  2001,  the Bank had $3.3  million  in CMOs and  REMICs,  which
amounted to 4.4% 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,

                                       14
<PAGE>
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  Company  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 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  Company'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 Company's  mortgage-backed  securities  portfolio,  excluding  CMOs and
REMICs, consists primarily of seasoned fixed-rate mortgage-backed securities. At
June 30,  2001,  the Bank  had  $11.3  million,  or  15.3% of total  assets,  in
mortgage-backed  securities.  All of the Bank's  mortgage-backed  securities are
insured or guaranteed by FNMA, FHLMC or GNMA.

                                       15
<PAGE>

     The  following  table  sets  forth  the  carrying  value  of the  Company's
investments at the dates indicated.
<TABLE>
<CAPTION>
                                                                           At June 30,
                                                                    --------------------------
                                                                      2001             2000
                                                                     ------           ------
                                                                          (In thousands)
          <S>                                                       <C>               <C>
          Investment securities held to maturity:
             Municipal obligations...............................   $     -           $  2,235
                                                                    --------          --------

          Investment securities available for sale:
            FHLB obligations.....................................      3,556             4,376
            FHLMC notes..........................................        989               929
            Municipal obligations................................      3,634             1,478
                                                                    --------          --------
              Total investment securities available for sale.....      8,179             6,783
                                                                    --------          --------
                Total investment securities......................   $  8,179          $  9,018
                                                                    ========          ========

          Mortgage-backed securities held to maturity:
            FHLMC participation certificates.....................   $     -           $    808
            GNMA participation certificates......................         -                784
            FNMA participation certificates......................         -              6,483
                                                                    --------          --------
              Total mortgage-backed securities held
                to maturity......................................         -              8,075
                                                                    --------          --------

          Mortgage-backed securities available for sale:
            FHLMC participation certificates.....................      5,577             3,074
            GNMA participation certificates......................        644                -
            FNMA participation certificates......................      8,414             3,474
                                                                    --------          --------
              Total mortgage-backed securities available for sale     14,635             6,548
                                                                    --------          --------
              Total mortgage-backed securities...................     14,635            14,623

          Interest-earning deposits and certificates.............      2,069             1,223
                                                                    --------          --------

                Total investments and mortgage-backed
                  securities:....................................   $ 24,883          $ 24,864
                                                                    ========          ========
</TABLE>

                                       16
<PAGE>
     The following table sets forth the scheduled  maturities,  carrying values,
market   values  and   average   yields  for  the   Company's   investment   and
mortgage-backed securities,  including those designated as available for sale at
June 30, 2001.
<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)
<S>                           <C>         <C>     <C>          <C>     <C>        <C>      <C>         <C>
Investment securities:
  FHLB obligations..........  $  1,498    6.03%   $  1,993     6.71%   $   --       -- %   $    --      -- %
  FHLMC Notes...............        --     --           --      --      1,000      6.43         --      --
  State and municipal
    obligations.............        --     --        1,574     4.62     1,046      4.64        975     6.00
  Mortgage-backed securities        --     --           27    12.46       709      6.40     13,863     6.38
  Interest earning deposits.     2,069    3.55          --      --         --       --          --      --
                              --------             -------             ------              -------
      Total.................  $  3,567             $ 3,594             $2,755              $14,838
                              ========             =======             ======              =======
<CAPTION>
                               Total Investment Portfolio
                               ----------------------------
                               Amortized  Carrying  Average
                                 Cost      Value     Yield
                               ---------  --------  -------
<S>                             <C>        <C>       <C>
Investment securities:
  FHLB obligations..........    $  3,491   $  3,556  6.42%
  FHLMC Notes...............       1,000        989  6.43
  State and municipal
    obligations.............       3,595      3,634  5.00
  Mortgage-backed securities      14,599     14,635  6.39
  Interest earning deposits.       2,069      2,069  3.55
                                --------    -------
      Total.................    $ 24,754    $24,883
                                ========    =======
</TABLE>

                                       17
<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,  First Federal 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
$4.7 million,  or 9.0% of the Bank's total  savings  portfolio at June 30, 2001.
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, First Federal has no brokered funds, nor do these
Jumbos represent brokered funds.

     Savings  deposits in the Bank as of June 30, 2001 were  represented  by the
various types of savings programs described below.
<TABLE>
<CAPTION>
                                                                                     June 30, 2001
  Interest     Minimum                                                   Minimum       Balance in     Percentage of
    Rate         Term           Category                                 Amount        Thousands      Total Savings
  --------     --------         --------                                 -------     -------------    -------------
    <S>        <C>              <C>                                     <C>            <C>                <C>
    2.25%      None             Passbook Savings                        $    50        $  5,427           10.35%
    0.95       None             Demand Checking                             200           1,928            3.68
    1.30       None             Checking with Interest Accounts             200           7,340           14.00
    2.75       None             Money Market Deposit Accounts             2,500           1,522            2.90
*   3.69       None             First Money MMDA Accounts                10,000           1,015            1.94

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

*   4.29       91 days          91 day Fixed Term, Fixed Rate             1,000             437            0.83
*   4.96       6 months         6 Month Fixed Term, Fixed Rate            1,000           3,264            6.23
*   5.63       9 months         9 Month Fixed Term, Fixed Rate            1,000           5,864           11.18
*   6.02       1 year           1 Year, Fixed Term, Fixed Rate            1,000           7,931           15.13
*   6.19       15 months        15 Month Fixed Term, Fixed Rate           1,000           4,702            8.97
*   5.45       18 months        18 Month Fixed Term, Fixed Rate           1,000           2,212            4.22
*   5.62       18 months        IRA 18 Month Fixed Term, Fixed Rate         500           3,732            7.12
*   6.01       24 months        24 Month Fixed Term, Fixed Rate           1,000             961            1.83
*   5.36       30 months        30 Month Fixed Term, Fixed Rate           1,000             139            0.26
*   5.45       36 months        36 Month Fixed Term, Fixed Rate           1,000           1,842            3.51
*   5.12       36 months        IRA 36 Month Fixed Term, Fixed Rate         500             145            0.28
*   5.75       5 years          5 Year Fixed Term, Fixed Rate             1,000           3,387            6.46
*   5.91       5 years          IRA 5 Year, Fixed Term, Fixed Rate          500             582            1.11
                                                                                       --------        --------
                                                                                       $ 52,430          100.00%
                                                                                       ========          ======
<FN>
____________
*        Represents weighted average interest rate.
</FN>
</TABLE>


                                       18
<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,
                                         --------------------------------------------------------------------
                                                     2001                                   2000
                                         --------------------------------       -----------------------------
                                           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...........................   $   17,387       $   34,042            $   19,466     $   35,163
Average rate..............................         1.94%            5.74%                2.07%           5.23%
</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,
2001.

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

      Three months or less...................................     $ 1,061
      More than three through six months.....................       1,838
      More than six through 12 months........................       1,127
      Over 12 months.........................................         718
                                                                  -------
              Total..........................................     $ 4,744
                                                                  =======


     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,  First  Federal  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."


                                       19
<PAGE>

     The following table sets forth certain information  regarding the Company's
FHLB  advances  and  other  borrowed  money  at the  dates  and for the  periods
indicated.
<TABLE>
<CAPTION>
                                                                           At June 30,
                                                                   -------------------------
                                                                    2001               2000
                                                                   ------             ------
                                                                     (Dollars in thousands)
<S>                                                                <C>              <C>
Amounts outstanding at end of period:
  FHLB advances..................................................  $   8,811        $ 6,827

Weighted average rate paid on:
  FHLB advances..................................................      4.98%          5.90%
</TABLE>
<TABLE>
<CAPTION>
                                                                           For the Year
                                                                           Ended June 30,
                                                                   -------------------------
                                                                    2001               2000
                                                                   ------             ------
                                                                     (Dollars in thousands)
<S>                                                                <C>               <C>
Maximum amount of borrowings outstanding at any month end:
  FHLB advances and other borrowed money........................   $ 10,218          $ 7,632
</TABLE>
<TABLE>
<CAPTION>
                                                                          For the Year
                                                                          Ended June 30,
                                                                   -------------------------
                                                                    2001               2000
                                                                   ------             ------
                                                                      (Dollars in thousands)
<S>                                                                <C>               <C>
Approximate average borrowings outstanding with respect to:
  FHLB advances and other borrowed money.........................  $  8,239          $ 7,029

Approximate weighted average rate paid on: (1)
  FHLB advances and other borrowed money.........................      5.70%            5.58%
<FN>
______________
(1)  Weighted  average  computed  by  dividing  total  interest  paid by average
     balance outstanding.
</FN>
</TABLE>

     As of June 30,  2001,  the Bank had $8.8  million in advances  outstanding.
Further asset growth may be funded through additional advances.

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, 2001, the
Bank was  authorized  to invest up to $2.2  million  in the stock of or loans to
subsidiaries,  including the additional 1.0% 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, 2001,
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.


                                       20
<PAGE>
PERFORMANCE RATIOS

     The table below sets forth certain  performance ratios of the Company at or
for the years indicated.
<TABLE>
<CAPTION>
                                                                            At or for the
                                                                           Year Ended June 30,
                                                                         --------------------
                                                                           2001         2000
                                                                         -------       ------
<S>                                                                        <C>           <C>
   Return on assets (net earnings divided by
      average total assets)....................................            1.01%         1.11%
   Return on average stockholders' equity (net earnings
      divided by average stockholders' equity).................            5.87          6.27
   Dividend payout ratio (dividends declared per share
      divided by net earnings per share).......................           68.75         62.50
   Interest rate spread (combined weighted average
      interest rate earned less combined weighted
      average interest rate cost)..............................            2.84          3.03
   Ratio of average interest-earning assets to
      average interest-bearing liabilities.....................          118.92        119.11
   Ratio of noninterest expense to average total assets........            2.33          2.29
</TABLE>

COMPETITION

     The  Company  experiences  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  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,  branches  of an
out-of-county   commercial  bank  and  a  loan  production   office  of  another
out-of-county  commercial  bank. 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, 2001, the Company had 19 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.
<TABLE>
<CAPTION>
                               Age at
                              June 30,
         Name                   2001        Title
         ----                 ---------     -----
<S>                              <C>         <C>
         Kevin R. Tolle          44          Vice President, Secretary/Treasurer
         Robbie G. Cox           54          Vice President
</TABLE>

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

                                       21
<PAGE>

     ROBBIE G. COX is 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.

                                       22
<PAGE>
     TRANSACTIONS WITH AFFILIATES. Transactions between savings institutions and
any affiliate  are governed by Sections 23A and 23B of the Federal  Reserve Act.
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
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
                                       23
<PAGE>
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  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. 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.

                                       24
<PAGE>
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  ("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 will be permitted to bank holding  companies and
national bank  subsidiaries are securities and insurance  brokerage,  securities
underwriting and certain forms of insurance underwriting. Bank holding companies
will have broader  insurance  underwriting  powers than  national  banks and may
engage in  merchant  banking  activities  after  the  adoption  of  implementing
regulations.  Merchant banking  activities may also become available to national
bank  subsidiaries  after five years. 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  Corporation,  and firms that are
engaged in  commercial  activities  and  prohibits  the formation of new unitary
holding companies.

     The G-L-B Act imposes  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,  will be 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 directs the federal  banking  agencies,  the  National
Credit Union Administration,  the Secretary of the Treasury,  the Securities and
Exchange  Commission and the Federal Trade Commission,  after  consultation with
the National Association of Insurance Commissioners,  to promulgate implementing
regulations  within six months of enactment.  The privacy provisions will become
effective six months thereafter.

     The G-L-B Act contains significant  revisions to the Federal Home Loan Bank
System. The G-L-B Act imposes new capital  requirements on the Federal Home Loan
Banks and authorizes them to issue two classes of stock with differing  dividend
rates and redemption requirements. The G-L-B Act deletes the current 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 expands 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 makes  membership  in the Federal Home Loan Bank
voluntary for federal savings associations.

     The  G-L-B  Act  contains  a  variety  of  other  provisions   including  a
prohibition  against ATM surcharges  unless the customer has first been provided
notice of the  imposition  and  amount of the fee.  The  G-L-B Act  reduces  the
frequency of Community  Reinvestment Act  examinations for smaller  institutions
and imposes certain reporting requirements on depository  institutions that make
payments  to   non-governmental   entities  in  connection  with  the  Community
Reinvestment  Act.  The  G-L-B  Act  eliminates  the SAIF  special  reserve  and
authorizes a federal  savings  association  that converts to a national or state
bank charter to continue to use the term "federal" in its name and to retain any
interstate branches.

     The  Corporation  is unable to  predict  the impact of the G-L-B Act on its
operations  at this time.  Although the G-L-B Act reduces the range of companies
with which the Corporation may affiliate,  it may facilitate  affiliations  with
companies in the financial services industry.

                                       25
<PAGE>
     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 3.0% 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,  2001,  First  Federal  had  no  such
investments.

     Adjusted  total  assets  are  a  savings   association's  total  assets  as
determined under generally accepted accounting principles,  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  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, 2001, 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% 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,  2001,  the  Bank's
risk-weighted assets were approximately $42.3 million.


                                       26
<PAGE>
     The table  below  presents  the Bank's  capital  position  relative  to its
various regulatory capital requirements at June 30, 2001.
<TABLE>
<CAPTION>
                                                                                               Percent of
                                                                           Amount              Assets(1)
                                                                           ------              ---------
                                                                               (Dollars in Thousands)
          <S>                                                            <C>                     <C>
          Tangible capital.............................................  $  11,016               14.9%
          Tangible capital requirement.................................      1,108                1.5
                                                                         ---------            -------
            Excess.....................................................  $   9,908               13.4%
                                                                         =========             ======

          Core capital.................................................  $  11,016               14.9%
          Core capital requirement.....................................      2,954                4.0
                                                                         ---------            -------
            Excess.....................................................  $   8,062               10.9%
                                                                         =========             ======

          Total capital (i.e., core and supplementary capital).........  $  11,296               26.7%
          Risk-based capital requirement...............................      3,380                8.0
                                                                         ---------            -------
            Excess.....................................................  $   7,916               18.7%
                                                                         =========             ======
<FN>
__________
(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.
</FN>
</TABLE>
     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 schedule
with their Thrift Financial  Reports.  However,  the OTS will require 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 OTS has not yet
implemented  these  requirements.  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  the new rule and  does not  expect  that it will be
required  to  increase  its  total  capital  as a result  of the  rule  upon its
implementation.

     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

                                       27
<PAGE>

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 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

                                       28
<PAGE>
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,
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 but do not include any intangible  assets;  (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 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,
provided that the dollar amount treated as Qualified Thrift  Investments may not
exceed 10% of the savings  association's  portfolio  assets;  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, 2001,  approximately 76.6% 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.

     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

                                       29
<PAGE>
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.

                                       30
<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 2001, the rate is set at
1.88  basis  points  and will be  reduced  to 1.84  basis  points in the  fourth
quarter.

     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,
2001, of $1.4 million.  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,
2001, the Bank had $8.8 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
the first $42.8 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, 2001, 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, 2001.

     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
benefitted 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

                                       31
<PAGE>
interests in certain real property, and nonqualifying loans, which are all other
loans. The bad debt reserve  deduction with 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
be 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.

                                       32
<PAGE>
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,
2001, the amount of such expense for the Bank was $56,000.

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, 2001.
<TABLE>
<CAPTION>
                                                                  Book Value
                                  Year           Owned or         at June 30,           Approximate
                                 Opened           Leased             2001             Square Footage
                                 ------           ------             ----             --------------
<S>                               <C>                             <C>                      <C>
308 North Main Street             1975             Owned          $  230,000               4,278
Cynthiana, Kentucky

106 Ladish Road
Cynthiana, Kentucky               1994             Owned          $  840,000               2,500
</TABLE>

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

     The Bank is party to a lawsuit captioned Family Bank, FSB and First Federal
Savings  Bank v.  Oscar  S.  Blankenship  a/k/a  O. Sam  Blankenship  and  Jenny
Blankenship filed in the Johnson Circuit Court, Division No. II, Commonwealth of
Kentucky.  The lawsuit is a collection action seeking recovery of three loans of
which the Bank has an interest in two.  The suit also asks for the court to sell
the  property  securing  the  loans  with the  proceeds  to be used to repay all
amounts owed. The defendants  filed an answer on February 3, 2000 making various
counterclaims  alleging  breach  of  contract,  breach  of  fiduciary  duty  and
unspecified violations of federal banking laws. The defendants are seeking money
damages (including  punitive damages) of an unspecified  amount.  Certain of the
counterclaims  relate  only to the one loan in which  the Bank does not have any
interest.   While  the  Bank  does  not  believe  there  is  any  merit  in  the
counterclaims,  it is  preparing  an  appropriate  defense to them.  The case is
currently in the discovery  stage of litigation and settlement  discussions  are
ongoing.


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 2001.

                                     PART II

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

     The Common Stock began trading under the symbol "KYF" on the American Stock
Exchange on August 29, 1995. As of September 21, 2001, there were 940,165 shares
of the Common Stock  outstanding.  The number of  registered  holders as of that
date was 257.

                                       33
<PAGE>
     The  following  table  shows the high and low stock  prices  for the Common
Stock and dividends declared on a quarterly basis for the past two fiscal years.
<TABLE>
<CAPTION>
                    Quarter                                                                Dividends
                     Ended                            High               Low                Declared
                    -------                           ----               ---               ----------
                    <S>                             <C>                <C>                 <C>
                    September 30, 1999              $12.0000           $11.1250            $0.125
                    December 31, 1999               $11.5000           $10.0000            $0.125
                    March 31, 2000                  $10.3750           $ 9.7500            $0.125
                    June 30, 2000                   $10.1870           $ 9.9375            $0.125

                    September 30, 2000              $10.4375           $10.0000            $0.125
                    December 31, 2000               $10.6250           $10.1875            $0.125
                    March 31, 2001                  $11.5000           $10.2500            $0.150
                    June 30, 2001                   $12.5000           $11.1000            $0.150
</TABLE>

     The income of the Company  consists of interest on  investment  and related
securities  and  dividends  which may  periodically  be declared and paid by the
Board of  Directors  of the Bank on the  common  shares  of the Bank held by the
Company.

     In addition to certain federal income tax  considerations,  OTS regulations
impose  limitations on the payment of dividends and other capital  distributions
by savings associations.  Under OTS regulations  applicable to converted savings
associations,  the Bank is not  permitted  to pay a cash  dividend on its common
shares if the Bank's  regulatory  capital  would,  as a result of the payment of
such dividend,  be reduced below the amount required for the liquidation account
established in connection with the Conversion or applicable  regulatory  capital
requirements prescribed by the OTS.

     OTS  regulations  applicable  to all savings  associations  provide  that a
savings  association  which immediately prior to, and on a pro forma basis after
giving  effect to, a proposed  capital  distribution  (including a dividend) has
total capital (as defined by OTS  regulations)  that is equal to or greater than
the amount of its  capital  requirements  is  generally  permitted  without  OTS
approval  (but  subsequent  to 30 days' prior notice to the OTS) to make capital
distributions,  including dividends,  during a calendar year in an amount not to
exceed net income for the current calendar year plus the two preceding  calendar
years, less capital distributions paid over the comparable time period.  Savings
associations with total capital in excess of the capital  requirements that have
been  notified by the OTS that they are in need of more than normal  supervision
will be subject to restrictions on dividends.  A savings  association that fails
to meet current  minimum  capital  requirements  is  prohibited  from making any
capital distributions without the prior approval of the OTS.

     The Bank currently meets all of its regulatory requirements and, unless the
OTS  determines  that the Bank is an  institution  requiring  more  than  normal
supervision,  the Bank  may pay  dividends  in  accordance  with  the  foregoing
provisions of the OTS regulations.

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

FORWARD-LOOKING STATEMENTS

     In addition to  historical  information  contained  herein,  the  following
discussion   contains   forward-looking   statements   that  involve  risks  and
uncertainties.   Economic  circumstances,   the  Company's  operations  and  the
Company's actual results could differ  significantly from those discussed in the
forward-looking  statements.  Some of the factors that could cause or contribute
to such differences are discussed herein but also include changes in the economy
and interest rates in the nation and the Company's market area generally.

                                       34
<PAGE>

     Some of the  forward-looking  statements included herein are the statements
regarding management's determination of the amount and adequacy of the allowance
for losses on loans and the effect of certain recent accounting pronouncements.

GENERAL

     The Company's principal business since August 28, 1995 has been that of the
Bank.  Therefore,  this discussion relates primarily to the Bank.  Historically,
the Bank has functioned as a financial  intermediary,  attracting  deposits from
the general  public and using such  deposits to make and  purchase  mortgage and
other loans and, to a lesser extent, to purchase  investment and mortgage-backed
securities.  As such,  its earnings have depended  primarily on its net interest
income, or "spread," which is the difference between the amount it receives from
interest  earned on loans and  investments  ("interest-earning  assets") and the
amount it pays in interest on its  deposits  and  borrowings  ("interest-bearing
liabilities").  Results of operations  are also  dependent upon the level of the
Bank's other income,  including fee income and service  charges and by the level
of  its  general,   administrative   and  other  expense,   including   employee
compensation and benefits,  occupancy and equipment  expense and other operating
expenses.

     The  operations  of the  Bank  are  significantly  affected  by  prevailing
economic  conditions  and  the  monetary,  fiscal  and  regulatory  policies  of
governmental  agencies.  Lending activities are influenced by the demand for and
supply of housing,  competition  among lenders,  the level of interest rates and
the availability of funds. Deposit flows and costs of funds are likewise heavily
influenced  by  prevailing  market  rates of  interest on  competing  investment
alternatives,  account  maturities and the levels of personal income and savings
in the Bank's market areas.

ASSET/LIABILITY MANAGEMENT

     Net interest income, the primary component of First Federal's net earnings,
is determined by the  difference,  or "spread,"  between the yield earned on the
Bank's  interest-earning  assets  and the  rates  paid  on its  interest-bearing
liabilities  and the  relative  amounts  of such  assets  and  liabilities.  Key
components  of a  successful  asset/liability  strategy are the  monitoring  and
managing of interest rate  sensitivity  of both the  interest-earning  asset and
interest-bearing  liability  portfolios.  First  Federal  has  employed  various
strategies  intended to minimize  the  adverse  effect of interest  rate risk on
future  operations  by  providing  a better  match  between  the  interest  rate
sensitivity of its assets and liabilities.  Such strategies include the purchase
of federal  agency bonds and the  origination  and  purchase of  adjustable-rate
mortgage  loans  secured  by  one-  to  four-family   residential  real  estate,
multi-family   and  commercial  real  estate  loans.  The  Bank's  loan  pricing
strategies are designed to encourage customers to choose adjustable rate, rather
than fixed rate, mortgage loans.

INTEREST RATE SENSITIVITY ANALYSIS AND NET PORTFOLIO VALUE

     In recent  years,  the Bank has measured its interest rate  sensitivity  by
computing  the "gap" between the assets and  liabilities  which were expected to
mature or reprice within certain  periods,  based on assumptions  regarding loan
prepayment and deposit decay rates formerly  provided by the OTS.  However,  the
OTS now requires the computation of amounts by which the net present value of an
institution's  cash flows from assets,  liabilities  and off balance sheet items
(the institution's net portfolio value, or "NPV") would change in the event of a
range of assumed  changes in market  interest  rates.  The OTS also requires the
computation  of  estimated  changes in net interest  income over a  four-quarter
period.  These computations  estimate the effect on an institution's NPV and net
interest income of an instantaneous and permanent 1% to 3% increase and decrease
in market interest rates.

                                       35
<PAGE>
     The following  tables set forth the interest rate sensitivity of the Bank's
net  portfolio  value as of June 30, 2001 and June 30, 2000, in the event of 1%,
2%,  and 3%  instantaneous  and  permanent  increases  and  decreases  in market
interest rates, respectively.
<TABLE>
<CAPTION>
                                     NET PORTFOLIO VALUE, JUNE 30, 2001
                                                                           NPV  as  %  of  Portfolio
                                    Net Portfolio Value                           Value of Assets
            Change         --------------------------------------       --------------------------------
            in Rates       Amount         $ Change      % Change        NPV Ratio    Basis Point Changes
            --------       ------         --------      --------        ---------    -------------------
                                              (Dollars in thousands)
            <S>             <C>           <C>               <C>            <C>             <C>
            +300 bp        $  9,047      $  (4,083)        (31)%          12.71%          (450) bp
            +200 bp          10,445         (2,685)        (20)           14.33           (288) bp
            +100 bp          11,830         (1,300)        (10)           15.86           (135) bp
               0 bp          13,130                                       17.21
            -100 bp          14,032            902           7            18.07             86  bp
            -200 bp          14,754          1,624          12            18.70            149  bp
            -300 bp          15,465          2,335          18            19.29            208  bp

</TABLE>
<TABLE>
<CAPTION>
                                     NET PORTFOLIO VALUE, JUNE 30, 2000
                                                                            NPV  as  %  of  Portfolio
                                    Net Portfolio Value                           Value of Assets
            Change         --------------------------------------       --------------------------------
            in Rates       Amount         $ Change      % Change        NPV Ratio    Basis Point Changes
            --------       ------         --------      --------        ---------    -------------------
                                               (Dollars in thousands)
            <S>            <C>           <C>               <C>            <C>             <C>
            +300 bp        $  9,050      $  (4,061)        (31)%          13.12%          (460) bp
            +200 bp          10,396         (2,715)        (21)           14.72           (300) bp
            +100 bp          11,762         (1,349)        (10)           16.27           (145) bp
               0 bp          13,111                                       17.72
            -100 bp          14,313          1,202           9            18.94            122  bp
            -200 bp          15,184          2,073          16            19.77            205  bp
            -300 bp          16,056          2,945          22            20.57            285  bp
</TABLE>

     Certain  shortcomings  are inherent in the method of analysis  presented in
the computation of NPV. For example, although certain assets and liabilities may
have similar  maturities  or periods to  repricing,  they may react in differing
degrees to changes in market interest rates. The interest rates on certain types
of assets and liabilities may fluctuate in advance of changes in market interest
rates,  while  interest  rates on other  types may lag behind  changes in market
rates. Additionally, certain assets, such as adjustable rate loans have features
which restrict changes in interest rates on a short-term basis and over the life
of the asset. In addition, the proportion of adjustable rate loans in the Bank's
portfolio could decrease in future periods if market interest rates remain at or
decrease below current levels due to refinance  activity.  Further, in the event
of a change in interest  rates,  prepayment  and early  withdrawal  levels would
likely deviate significantly from those assumed in the tables.

     Finally,  the ability of many  borrowers to service  their  adjustable-rate
debt may decrease in the event of an interest  rate  increase.  The retention of
adjustable-rate  mortgage and  commercial  loans in the Bank's  portfolio  helps
reduce the Bank's  exposure to changes in  interest  rates.  However,  there are
unquantifiable   credit  risks  resulting  from  potential  increased  costs  to
borrowers as a result of  repricing of  adjustable-rate  mortgage  loans.  It is
possible that during periods of rising  interest  rates,  the risk of default on
adjustable-rate  mortgage  loans may  increase due to the upward  adjustment  of
interest cost to the borrower.

                                       36
<PAGE>
AVERAGE BALANCES, INTEREST AND AVERAGE YIELDS

     Net  interest  income is affected by (i) the  difference  between  rates of
interest  earned  on  interest-earning  assets  and  rates of  interest  paid on
interest-bearing  liabilities  ("interest  rate  spread")  and (ii) the relative
amounts  of  interest-earning  assets  and  interest-bearing  liabilities.  When
interest-earning assets approximate or exceed interest-bearing  liabilities, any
positive  interest  rate spread  will  generate  net  interest  income.  Savings
institutions have  traditionally  used interest rate spreads as a measure of net
interest income.  Another  indication of an institution's net interest income is
its "net yield on interest-earning  assets" which is net interest income divided
by average  interest-earning  assets.  The  following  table sets forth  certain
information  relating  to  the  Bank's  average   interest-earning   assets  and
interest-bearing  liabilities  and  reflects  the  average  yield on assets  and
average cost of liabilities for the periods indicated. Such yields and costs are
derived by dividing  income or expense by the average daily balance of assets or
liabilities,  respectively,  for  the  periods  presented.  During  the  periods
indicated, nonaccruing loans are included in the net loan category.
<TABLE>
<CAPTION>
                                                                              Year Ended June 30,
                                       ----------------------------------------------------------------------------------------
                                                   2001                           2000                         1999
                                       ----------------------------   ----------------------------- ---------------------------
                                                            Average                        Average                     Average
                                                            Yield/                          Yield/                     Yield/
                                       Balance    Interest   Cost     Balance    Interest    Cost   Balance  Interest    Cost
                                       -------    -------- ---------  -------    --------  -------  -------  --------  -------
                                                                       (Dollars in thousands)
<S>                                    <C>        <C>        <C>      <C>        <C>         <C>   <C>       <C>       <C>
Interest-earning assets:
  Loans receivable, net (1)........... $  45,637  $  3,688   8.08%    $ 46,913   $ 3,728     7.95% $48,157   $3,914    8.13%
  Mortgage-backed securities..........    14,241       959   6.73       15,167       990     6.53   16,883    1,096    6.49
  Investment securities...............     8,953       525   5.86        9,213       521     5.66    9,138      529    5.79
  Other interest-earning assets.......     2,126       131   6.16        2,145       125     5.83    2,261      126    5.57
                                       ---------  --------            --------   -------           -------   ------
    Total interest-earning assets.....    70,957     5,303   7.47       73,438     5,364     7.30   76,439    5,665    7.41
Non-interest-earning assets...........     1,875                         2,468                       2,339
                                       ---------                      --------                     -------
    Total assets...................... $  72,832                      $ 75,906                     $78,778
                                       =========                      ========                     =======

Interest-bearing liabilities:
  Deposits............................ $  51,429     2,292   4.46     $ 54,629     2,241     4.10   56,945    2,418    4.25
  Borrowings..........................     8,239       470   5.70        7,029       392     5.58    7,401      390    5.27
                                       ---------  --------            --------   -------           -------   ------
     Total interest-bearing
       liabilities....................    59,668     2,762   4.63       61,658     2,633     4.27   64,346    2,808    4.36
                                                  -------- ------                -------    -----            ------  ------
Non-interest-bearing liabilities......       566                           853                         642
                                       ---------                      --------                     -------
     Total liabilities................    60,234                        62,511                      64,988
Shareholders' equity..................    12,598                        13,395                      13,790
                                       ---------                      --------                     -------
     Total liabilities and
       shareholders' equity........... $  72,832                      $ 75,906                     $78,778
                                       =========                      ========                     =======

Net interest income...................            $  2,541                       $  2,731                    $2,857
                                                  ========                       ========                    ======

Interest rate spread (2)..............                       2.84%                            3.03%                    3.05%
                                                           ======                           ======                   ======
Net yield on interest-earning
  assets (3)..........................                       3.58%                            3.72%                    3.74%
                                                           ======                           ======                   ======
Ratio of average interest-earning
  assets to average interest-
  bearing liabilities.................                     118.92%                          119.11%                  118.79%
                                                           ======                           ======                   ======
<FN>
_____________
(1)  Includes non-accrual loans.
(2)  Represents  the  difference  between the average yield on  interest-earning
     assets and the average cost of interest-bearing liabilities.
(3)  Represents  net interest  income as a percentage of the average  balance of
     interest-earning assets for the same period.
</FN>
</TABLE>


                                       37
<PAGE>
RATE/VOLUME ANALYSIS

     The table  below  sets  forth  certain  information  regarding  changes  in
interest income and interest expense of the Bank for the periods indicated.  For
each  category  of  interest-earning   asset  and  interest-bearing   liability,
information  is  provided  on changes  attributable  to:  (i)  changes in volume
(changes in volume multiplied by old rate); and (ii) changes in rates (change in
rate  multiplied  by old  volume).  Changes  in  rate-volume  (changes  in  rate
multiplied  by the  changes in volume)  are  allocated  proportionately  between
changes in rate and changes in volume.
<TABLE>
<CAPTION>
                                                                     Year Ended June 30,
                                         --------------------------------------------------------------------------
                                           2001        vs.       2000                   2000       vs.       1999
                                         -------------------------------            -------------------------------
                                                 Increase (Decrease)                      Increase (Decrease)
                                                      Due to                                      Due to
                                         -------------------------------            ------------------------------
                                           Rate      Volume       Total              Rate      Volume       Total
                                           ----      ------       -----              ----      ------       -----
                                                                        (In thousands)
<S>                                      <C>         <C>        <C>                <C>        <C>         <C>
Interest income:
  Loans................................  $   66      $ (106)    $   (40)           $  (86)    $ (100)     $ (186)
  Mortgage-backed securities (1).......      34         (65)        (31)                6       (112)       (106)
  Investment securities (1)............      16         (12)          4               (12)         4          (8)
  Other interest-earning assets........       7          (1)          6                 8         (9)         (1)
                                         ------      ------     -------            ------     -------     -------
     Total interest-earning assets.....     123        (184)        (61)              (84)      (217)       (301)
                                         ------      ------     -------            ------     ------      ------

Interest expense:
  Deposits.............................     159        (108)         51               (81)       (96)       (177)
  Borrowings...........................       9          69          78                15        (13)          2
                                         ------      ------     -------            ------     ------      ------
     Total interest-bearing
       liabilities.....................     168         (39)        129               (66)      (109)       (175)
                                         ------      ------     -------            ------   ----------    ------
Decrease in net interest income........                         $  (190)                                  $ (126)
                                                                =======                                   ======
<FN>
______________
(1)      Includes securities designated as available for sale.
</FN>
</TABLE>

COMPARISON OF FINANCIAL CONDITION AS OF JUNE 30, 2001 AND 2000

     At June 30, 2001, the Company's consolidated total assets amounted to $74.2
million, an increase of $337,000,  or 0.5%, from the total at June 30, 2000. The
increase  in assets  resulted  primarily  from an  increase  of $2.0  million in
advances  from the Federal  Home Loan Bank,  offset by a decrease in deposits of
$854,000,  a  decrease  in other  liabilities  of  $430,000  and a  decrease  in
shareholders' equity of $443,000.

     Liquid  assets  (i.e.  cash,   interest-bearing   deposits  and  investment
securities)  increased by $136,000, or 1.3%, to a total of $10.8 million at June
30, 2001. Investment securities totaling $2.2 million matured during the period,
while  purchases  totaled  $1.0  million.  Net  unrealized  gains on  investment
securities,   reflective  of  items   transferred  to  the  available  for  sale
classification,   improved   by   $366,000   during   the   period.   Cash   and
interest-bearing  deposits  increased  by $975,000.  Mortgage-backed  securities
totaled $14.6 million at June 30, 2001,  an increase of $12,000,  or 0.1%,  from
June 30, 2000 levels. Principal repayments on mortgage-backed securities totaled
$2.2  million  during the period  while  purchases  totaled  $2.0  million.  Net
unrealized gains on mortgage backed securities,  reflective of items transferred
to the  available  for sale  classification,  improved  by  $172,000  during the
period.  Proceeds from maturities of investment and  mortgage-backed  securities
were primarily used to fund deposit withdrawals and loan portfolio growth.

     Net loans receivable increased by $800,000,  or 1.8%, during the period, to
a total of $45.7 million at June 30, 2001.  Loan  disbursements  of $9.5 million
and loan  purchases  of $3.1  million  exceeded  principal  repayments  of $11.9
million.  The  allowance for loan losses  totaled  $480,000 at June 30, 2001, as
compared to $443,000 at June 30, 2000.  Non-performing loans totaled $286,000 at
June 30, 2001, as compared to $345,000 at June 30, 2000.  The allowance for loan
losses represented 168% of non-performing  loans as of June 30, 2001 and 128% at
June 30, 2000.  Although  management believes that its allowance for loan losses
at June 30, 2001 is adequate based upon the available  facts and  circumstances,
there can be no assurance that additions to such allowance will not be necessary
in future  periods,  which  could  adversely  affect  the  Company's  results of
operations.

                                       38
<PAGE>

     Deposits totaled $52.4 million at June 30, 2001, a decrease of $854,000, or
1.6%, from June 30, 2000 levels.  Advances from the FHLB totaled $8.8 million at
June 30, 2001, an increase of $2.0 million, or 29.1%, from the total at June 30,
2000.

     The Company's  shareholders'  equity  amounted to $12.5 million at June 30,
2001, a decrease of $443,000,  or 3.4%, from June 30, 2000 levels.  The decrease
resulted from purchases of treasury stock totaling $1.3 million,  from dividends
paid on common  stock  totaling  $507,000  and from a  decrease  related  to the
transfer of securities to the  available  for sale  classification  of $174,000,
which were offset by an improvement in unrealized gains on securities designated
as available for sale of $527,000,  by fiscal 2001 net earnings of $739,000,  by
the  issuance  of shares  under  the stock  option  plan of  $39,000  and by the
amortization of stock benefit plans of $193,000.

COMPARISON OF RESULTS OF OPERATIONS FOR THE FISCAL YEARS ENDED JUNE 30, 2001 AND
2000

     GENERAL.  Net earnings  amounted to $739,000 for the fiscal year ended June
30,  2001,  a decrease of  $101,000,  or 12.0%,  compared to the $840,000 of net
earnings  reported in fiscal  2000.  The decrease in net earnings in the current
period  was  due to a  $190,000  decrease  in net  interest  income,  which  was
partially  offset by a $1,000  increase in other income,  a $42,000  decrease in
general,  administrative  and  other  expense  and a  $46,000  decrease  in  the
provision for federal income taxes.

     NET INTEREST  INCOME.  Interest  income totaled $5.3 million for the fiscal
year ended June 30, 2001, a decrease of $61,000,  or 1.1%, from the $5.4 million
of interest  income  reported in fiscal 2000. The decrease  resulted from a $2.5
million, or 3.4%, decrease in the  weighted-average  balance of interest earning
assets outstanding, which was offset by a 17 basis point increase in the average
yield,  from 7.30%  during  fiscal 2000 to 7.47% during  fiscal  2001.  Interest
income on loans decreased by $40,000,  or 1.1%, due to a $1.3 million,  or 2.7%,
decrease in the weighted-average balances of loans outstanding, which was offset
by a 13 basis point  increase in yield,  from 7.95% during  fiscal 2000 to 8.08%
during fiscal 2001. Interest income on mortgage-backed  securities  decreased by
$31,000, or 3.1%, due to a $926,000,  or 6.1%, decrease in the  weighted-average
balance  outstanding,  which was offset by a 20 basis point  increase in average
yield,  from 6.53%  during  fiscal 2000 to 6.73% during  fiscal  2001.  Interest
income on  investment  securities  and  interest-bearing  deposits  increased by
$10,000,  or 1.5%,  due to a 23 basis point increase in average yield from 5.69%
during fiscal 2000 to 5.92% during fiscal 2001,  which was offset by a $279,000,
or 2.5%, decrease in the weighted-average balance outstanding.

     Interest  expense  totaled  $2.8 million for the fiscal year ended June 30,
2001, an increase of $129,000,  or 4.9%, from the $2.6 million of total interest
expense  reported in fiscal  2000.  Interest  expense on deposits  increased  by
$51,000,  or 2.3%,  due to a 36 basis  point  increase  in the  average  cost of
deposits,  from 4.10% during fiscal 2000 to 4.46% during fiscal 2001,  which was
offset by a $3.2 million, or 5.9%, decrease in the  weighted-average  balance of
deposits  outstanding.  Interest expense on borrowings  increased by $78,000, or
19.9%, due to a $1.2 million, or 17.2%, increase in the weighted-average balance
of such advances outstanding and due to a 12 basis point increase in the average
cost of advances  from the Federal Home Loan Bank from 5.58% during  fiscal 2000
to 5.70% during fiscal 2001.

     As a result of the  foregoing  changes  in  interest  income  and  interest
expense, net interest income decreased by $190,000,  or 7.0%, to a total of $2.5
million for the fiscal year ended June 30, 2001, as compared to fiscal 2000. The
interest  rate  spread  amounted  to  approximately  2.84% and 3.03%  during the
respective fiscal 2001 and 2000 years, while the net interest margin amounted to
approximately 3.58% in fiscal 2001 and 3.72% in fiscal 2000.

     PROVISION  FOR LOSSES ON LOANS.  A provision for losses on loans is charged
to earnings to bring the total  allowance for loan losses to a level  considered
appropriate by management based on historical experience, the volume and type of
lending  conducted by the Bank,  the status of past due  principal  and interest
payments, general economic conditions, particularly as such conditions relate to
the Bank's market area, and other factors related to the  collectability  of the
Bank's  loan  portfolio.  As a result of such  analysis,  management  recorded a
$39,000 provision for losses on loans during each of the fiscal years ended June
30,  2001  and  2000.  The  provision  in the  current  year  is  reflective  of
management's concern about the level of the Bank's  non-performing  loans. There
can be no assurance that the loan loss allowance of the Bank will be adequate to
cover losses on non-performing assets in the future.

                                       39
<PAGE>

     OTHER INCOME.  Other income  increased by $1,000,  or 0.5%,  for the fiscal
year ended June 30, 2001,  compared to fiscal 2000, due to a $12,000,  or 23.6%,
increase in other  operating  income and due to a gain on investment  securities
transactions  of $3,000 in fiscal 2001  compared to the lack of any gain or loss
on such  transactions in fiscal 2000,  which were offset by a $14,000,  or 8.3%,
decrease in service charges on deposits.  The increase in other operating income
was due primarily to an increase in income from late charges on loan payments in
fiscal  2001.  The  decrease in service  charges on deposits  was related to the
introduction  of a service  charge free  non-interest  paying  checking  account
product during fiscal 2001.

     GENERAL,  ADMINISTRATIVE  AND OTHER EXPENSE.  General,  administrative  and
other  expense  totaled  $1.7 million for the fiscal year ended June 30, 2001, a
decrease of  $42,000,  or 2.4%,  from fiscal  2000.  The  decrease  was due to a
$29,000, or 2.9%, decrease in employee  compensation and benefits,  a $2,000, or
1.4%,  decrease  in data  processing,  to a $6,000,  or 8.7%,  decrease in state
franchise tax and a $5,000, or 1.4%, decrease in other operating expense.

     The decrease in employee  compensation  and benefits was primarily due to a
decrease in expenses  related to the  expiration of a stock  benefit  management
recognition  plan  during  the  last  quarter  of  fiscal  2001 as well as to an
increase in the amounts of the direct costs of loan  department  personnel which
were able to be deferred  rather than  expensed  during the current  period as a
result of increased loan origination  volume during fiscal 2001. The decrease in
state  franchise  tax was due to a reduction  in fiscal 2001 in the Bank's state
savings and loan tax, which is based on the balance of deposits and capital less
certain qualifying deductions.

     FEDERAL  INCOME  TAXES.  The  provision  for federal  income taxes  totaled
$288,000  for the fiscal year ended June 30,  2001,  a decrease  of $46,000,  or
13.8%, compared to fiscal 2000. This decrease resulted primarily from a decrease
in net earnings before taxes of $147,000, or 12.5%. The effective tax rates were
28.0% and 28.4% for the fiscal years ended June 30, 2001 and 2000, respectively.

COMPARISON OF RESULTS OF OPERATIONS FOR THE FISCAL YEARS ENDED JUNE 30, 2000 AND
1999

     GENERAL.  Net earnings  amounted to $840,000 for the fiscal year ended June
30,  2000,  a decrease of  $26,000,  or 3.0%,  compared  to the  $866,000 of net
earnings  reported in fiscal  1999.  The  decrease in net  earnings was due to a
$126,000  decrease in net interest income and a $9,000 increase in the provision
for losses on loans,  which were partially offset by a $32,000 increase in other
income,  a $61,000 decrease in general,  administrative  and other expense and a
$16,000 decrease in the provision for federal income taxes.

     NET INTEREST  INCOME.  Interest  income totaled $5.4 million for the fiscal
year ended June 30, 2000, a decrease of $301,000, or 5.3%, from the $5.7 million
of interest  income  reported in fiscal 1999. The decrease  resulted from a $3.0
million, or 3.9%, decrease in the  weighted-average  balance of interest earning
assets  outstanding  and an 11 basis point decrease in the average  yield,  from
7.41% during fiscal 1999 to 7.30% during fiscal 2000.  Interest  income on loans
decreased by $186,000,  or 4.8%, due to a $1.2 million, or 2.6%, decrease in the
weighted-average  balances of loans outstanding,  coupled with an 18 basis point
decrease in yield,  from 8.13% during  fiscal 1999 to 7.95% during  fiscal 2000.
Interest income on mortgage-backed  securities  decreased by $106,000,  or 9.7%,
due to a $1.7  million,  or  10.2%,  decrease  in the  weighted-average  balance
outstanding,  offset by a four basis point increase in average yield, from 6.49%
during  fiscal 1999 to 6.53% during fiscal 2000.  Interest  income on investment
securities and interest-bearing  deposits decreased by $9,000, or 1.4%, due to a
$41,000, or 0.4%, decrease in the  weighted-average  balance outstanding and due
to a six basis point decrease in average yield, from 5.75% during fiscal 1999 to
5.69% during fiscal 2000.

     Interest  expense  totaled  $2.6 million for the fiscal year ended June 30,
2000, a decrease of $175,000,  or 6.2%,  from the $2.8 million of total interest
expense  reported in fiscal  1999.  Interest  expense on deposits  decreased  by
$177,000,   or  7.3%,  due  to  a  $2.3  million,   or  4.1%,  decrease  in  the
weighted-average  balance of  deposits  outstanding  and due to a 15 basis point
decrease in the average cost of deposits, from 4.25% during fiscal 1999 to 4.10%
during fiscal 2000. Interest expense on borrowings increased by $2,000, or 0.5%,
due to a 31 basis  point  increase  in the  average  cost of  advances  from the
Federal  Home Loan Bank from 5.27%  during  fiscal 1999 to 5.58%  during  fiscal
2000, offset by a $372,000, or 5.0%, decrease in the weighted-average balance of
such advances outstanding.

     As a result of the  foregoing  changes  in  interest  income  and  interest
expense, net interest income decreased by $126,000,  or 4.4%, to a total of $2.7
million for the fiscal year ended June 30, 2000, as compared to fiscal 1999. The

                                       40
<PAGE>

interest  rate  spread  amounted  to  approximately  3.03% and 3.05%  during the
respective fiscal 2000 and 1999 years, while the net interest margin amounted to
approximately 3.72% in fiscal 2000 and 3.74% in fiscal 1999.

     PROVISION  FOR LOSSES ON LOANS.  A provision for losses on loans is charged
to earnings to bring the total  allowance for loan losses to a level  considered
appropriate by management based on historical experience, the volume and type of
lending  conducted by the Bank,  the status of past due  principal  and interest
payments, general economic conditions, particularly as such conditions relate to
the Bank's market area, and other factors related to the  collectability  of the
Bank's  loan  portfolio.  As a result of such  analysis,  management  recorded a
$39,000  and a $30,000  provision  for losses on loans  during the fiscal  years
ended June 30, 2000 and 1999,  respectively.  The increase in the  provision was
reflective of management's concern about a moderate increase in the level of the
Bank's non-performing loans.

     OTHER INCOME.  Other income increased by $32,000,  or 17.1%, for the fiscal
year ended June 30, 2000,  compared to fiscal 1999, due to a $35,000,  or 26.3%,
increase in service charges on deposits and a $2,000,  or 4.1% increase in other
operating income, which were partially offset by the lack of any gain or loss on
investment  securities  transactions in fiscal 2000 compared to a gain of $5,000
in such transactions in fiscal 1999. The increase in service charges on deposits
was due to an  increase,  during the early part of fiscal  2000,  in the monthly
service charge fee schedule on checking accounts.

     GENERAL,  ADMINISTRATIVE  AND OTHER EXPENSE.  General,  administrative  and
other  expense  totaled  $1.7 million for the fiscal year ended June 30, 2000, a
decrease of  $61,000,  or 3.4%,  from fiscal  1999.  The  decrease  was due to a
$19,000, or 1.9%, decrease in employee  compensation and benefits, a $19,000, or
10.1%,  decrease in occupancy and equipment  expense,  and a $33,000,  or 8.78%,
decrease in other operating expense, which were partially offset by a $9,000, or
6.8%, increase in data processing.

     The decrease in employee  compensation  and benefits was primarily due to a
decrease in expenses of the employee  stock  benefit plan related to the reduced
market  value of the  Company's  stock and due to the director  retirement  plan
becoming  fully  funded prior to the  beginning of fiscal 2000.  The decrease in
other operating  expense was primarily due to a decrease in assessment  rates of
federal  deposit  insurance  premiums  and due to the  reduction  of  outsourced
internal  audit  services  and the  elimination  of  asset/liability  consulting
services.  Internal audit and asset/liability management functions are now being
performed by the Bank's staff. The increase in data processing was primarily due
to  increased  charges  for  on-line  services  and ATM  processing  related  to
preparing computer systems for the change to calendar year 2000.

     FEDERAL  INCOME  TAXES.  The  provision  for federal  income taxes  totaled
$334,000  for the fiscal year ended June 30,  2000,  a decrease  of $16,000,  or
4.6%,  compared  to fiscal  1999.  This  decrease  resulted  primarily  from the
decrease in net earnings  before taxes of $42,000,  or 3.5%.  The  effective tax
rates were 28.4% and 28.8% for the fiscal  years  ended June 30,  2000 and 1999,
respectively.

LIQUIDITY AND CAPITAL RESOURCES

     The Company's  primary  source of liquidity is dividends  paid by the Bank.
The Bank,  as a stock  savings  institution,  is subject  to certain  regulatory
limitations with respect to the payment of dividends to the Company.

     First Federal's principal sources of funds for operations are deposits from
its  primary  market  area,   principal  and  interest  payments  on  loans  and
mortgage-backed  securities and proceeds from maturing investment securities. In
addition, as a member of the FHLB of Cincinnati,  the Bank is eligible to borrow
funds from the FHLB of  Cincinnati  in the form of  advances.  First  Federal is
required  by OTS  regulations  to  maintain  minimum  levels  of  liquid  assets
consistent with safe and sound operation.

     The  Bank's  liquid  assets  consist of cash and cash  equivalents  and the
portfolio of  investment  and  mortgage-backed  securities.  The level of liquid
assets is dependent on the Bank's operating,  financing and investing activities
during any given period. At June 30, 2001, the Bank had outstanding  commitments
to originate  loans  totaling  $380,000.  Certificates  of deposit  scheduled to
mature in one year or less at June 30, 2001,  totaled  $27.7  million.  The Bank
believes that it has adequate  resources to fund all of its commitments and that
it can adjust the rate of certificates of deposit in order to retain deposits in
changing interest rate environments.

                                       41
<PAGE>

     First  Federal's  capital  ratios  are  substantially  in excess of current
regulatory capital requirements.  At June 30, 2001, the Bank's tangible and core
capital  amounted  to 14.9% of  adjusted  total  assets,  or  13.4%  and  10.9%,
respectively,  in excess  of the  Bank's  current  1.5%  tangible  and 4.0% core
capital  requirements.  Additionally,  the Bank's  risk-based  capital ratio was
26.7% at June 30, 2001, or 18.7% in excess of the Bank's 8.0% risk-based capital
requirement.

IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS

     In September  2000, the Financial  Accounting  Standards Board (the "FASB")
issued SFAS No. 140 "Accounting for Transfers and Servicing of Financial  Assets
and Extinguishments of Liabilities",  which revises the standards for accounting
for  securitizations  and other transfers of financial assets and collateral and
requires  certain  disclosures,  but carries over most of the provisions of SFAS
No. 125 without  reconsideration.  SFAS No. 140 is effective  for  transfers and
servicing of financial assets and extinguishments of liabilities occurring after
March 31, 2001. The Statement is effective for recognition and  reclassification
of collateral and for disclosures  relating to  securitization  transactions and
collateral for fiscal years ending after December 15, 2000.  Management  adopted
SFAS No. 140 effective  April 1, 2001, as required,  without  material effect on
the Corporation's financial position or results of operations.

     In June 2001, the FASB issued SFAS No. 141 "Business  Combinations,"  which
requires  that all  business  combinations  initiated  after  June  30,  2001 be
accounted  for using the purchase  method.  The  pooling-of-interests  method of
accounting is prohibited except for combinations initiated before June 30, 2001.
The  remaining  provisions  of SFAS No. 141  relating to  business  combinations
accounted for by the purchase  method,  including  identification  of intangible
assets,  accounting for negative goodwill,  financial statement presentation and
disclosure,  are  effective  for  combinations  completed  after June 30,  2001.
Management  adopted SFAS No. 141 effective  July 1, 2001,  as required,  without
material  effect  on  the  Corporation's   financial   position  or  results  of
operations.

     In June  2001,  the FASB  issued  SFAS No.  142  "Goodwill  and  Intangible
Assets," which prescribes  accounting for all purchased  goodwill and intangible
assets.  Pursuant to SFAS No. 142,  acquired  goodwill is not amortized,  but is
tested for  impairment  at the  reporting  unit level  annually  and whenever an
impairment  indicator arises. All goodwill should be assigned to reporting units
that are expected to benefit from the goodwill.  Goodwill  impairment  should be
tested with a two-step  approach.  First,  the fair value of the reporting  unit
should be compared to its carrying value,  including goodwill.  If the reporting
unit's  carrying  value  exceeds its fair value,  then any  goodwill  impairment
should be  measured  as the  excess of the  goodwill's  carrying  value over its
implied fair value.  The implied fair value of goodwill  should be calculated in
the same manner as goodwill is calculated for a business combination,  using the
reporting unit's fair value as the "purchase price."  Therefore,  the goodwill's
implied fair value will be the excess of the  "purchase  price" over the amounts
allocated to assets,  including unrecognized  intangible assets, and liabilities
of the  reporting  unit.  Goodwill  impairment  losses should be reported in the
income  statement  as a separate  line item within  operations,  except for such
losses  included  in  the  calculation  of a  gain  or  loss  from  discontinued
operations.

     An acquired intangible asset, other than goodwill, should be amortized over
its useful  economic life. The useful life of an intangible  asset is indefinite
if it extends beyond the foreseeable  horizon. If an asset's life is indefinite,
the asset should not be  amortized  until the life is  determined  to be finite.
Intangible  assets being amortized should be tested for impairment in accordance
with SFAS No. 121.  Intangible  assets not being amortized  should be tested for
impairment  annually  and  whenever  there  are  indicators  of  impairment,  by
comparing the asset's fair value to its carrying amount.

     SFAS No. 142 is effective  for fiscal years  beginning  after  December 15,
2001.  Early  adoption is permitted  for companies  with fiscal years  beginning
after March 15, 2001, but only if the first quarter  financial  statements  have
not  previously  been  issued.  SFAS No. 142 is not  expected to have a material
effect on the Corporation's financial position or results of operations.


                                       42
<PAGE>
ITEM 7.  FINANCIAL STATEMENTS
-----------------------------

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


Report of Independent Certified Public Accountants...........................44
Consolidated Statements of Financial Condition...............................45
Consolidated Statements of Earnings..........................................46
Consolidated Statements of Comprehensive Income..............................47
Consolidated Statements of Shareholders' Equity..............................48
Consolidated Statements of Cash Flows........................................49
Notes to Consolidated Financial Statements...................................51


                                       43
<PAGE>

                       [Letterhead of Grant Thornton LLP]


               Report of Independent Certified Public Accountants
               --------------------------------------------------

Board of Directors
Kentucky First Bancorp, Inc.

We have audited the accompanying  consolidated statements of financial condition
of Kentucky  First  Bancorp,  Inc. as of June 30, 2001 and 2000, and the related
consolidated statements of earnings,  comprehensive income, shareholders' equity
and cash flows for each of the three  years in the period  ended June 30,  2001.
These   consolidated   financial   statements  are  the  responsibility  of  the
Corporation's  management.  Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the consolidated  financial  position of Kentucky First
Bancorp,  Inc. as of June 30, 2001 and 2000, and the consolidated results of its
operations,  comprehensive income and its cash flows for each of the three years
in the period ended June 30, 2001,  in  conformity  with  accounting  principles
generally accepted in the United States of America.



/s/ Granton Thornton LLP


Cincinnati, Ohio
September 6, 2001

                                       44
<PAGE>

                          KENTUCKY FIRST BANCORP, INC.

                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

                                    June 30,
                        (In thousands, except share data)
<TABLE>
<CAPTION>
         ASSETS                                                                                2001                2000
<S>                                                                                         <C>                 <C>
Cash and due from banks                                                                     $   507             $   378
Interest-bearing deposits in other financial institutions                                     2,069               1,223
                                                                                            -------             -------
         Cash and cash equivalents                                                            2,576               1,601

Investment securities available for sale - at market                                          8,179               6,783
Investment securities held to maturity - at amortized cost, approximate
  market value of $2,223 as of June 30, 2000                                                     -                2,235
Mortgage-backed securities available for sale - at market                                    14,635               6,548
Mortgage-backed securities held to maturity - at amortized cost, approximate
  market value of $7,823 as of June 30, 2000                                                     -                8,075
Loans receivable - net                                                                       45,720              44,920
Office premises and equipment - at depreciated cost                                           1,137               1,203
Federal Home Loan Bank stock - at cost                                                        1,399               1,301
Accrued interest receivable                                                                     464                 424
Prepaid expenses and other assets                                                                81                 520
Prepaid federal income taxes                                                                      7                  86
Deferred federal income taxes                                                                    -                  165
                                                                                            -------             -------

         Total assets                                                                       $74,198             $73,861
                                                                                            =======              ======


         LIABILITIES AND SHAREHOLDERS' EQUITY

Deposits                                                                                    $52,430             $53,284
Advances from the Federal Home Loan Bank                                                      8,811               6,827
Accrued interest payable                                                                        158                 147
Other liabilities                                                                               190                 620
Deferred federal income taxes                                                                    69                  -
                                                                                            -------             -------
         Total liabilities                                                                   61,658              60,878

Commitments                                                                                      -                   -

Shareholders' equity
  Preferred stock - authorized 500,000 shares of $.01 par value;
    no shares issued                                                                             -                   -
  Common stock - authorized 3,000,000 shares of $.01 par value;
    1,388,625 shares issued                                                                      14                  14
  Additional paid-in capital                                                                  9,264               9,320
  Retained earnings - restricted                                                              8,986               8,754
  Less shares acquired by stock benefit plans                                                  (555)               (798)
  Less 448,460 and 333,933 shares of treasury stock at June 30, 2001
    and 2000, respectively - at cost                                                         (5,254)             (4,039)
  Accumulated comprehensive income (loss), unrealized gains (losses) on
    securities designated as available for sale, net of related tax effects                      85                (268)
                                                                                            -------             -------
         Total shareholders' equity                                                          12,540              12,983
                                                                                            -------             -------

         Total liabilities and shareholders' equity                                         $74,198             $73,861
                                                                                            =======             =======
</TABLE>

The accompanying notes are an integral part of these statements.

                                       45
<PAGE>

                          KENTUCKY FIRST BANCORP, INC.

                       CONSOLIDATED STATEMENTS OF EARNINGS

                           For the year ended June 30,
                        (In thousands, except share data)
<TABLE>
<CAPTION>
                                                                                2001             2000              1999
<S>                                                                           <C>              <C>               <C>
Interest income
  Loans                                                                       $3,688           $3,728            $3,914
  Mortgage-backed securities                                                     959              990             1,096
  Investment securities                                                          525              521               529
  Interest-bearing deposits and other                                            131              125               126
                                                                              ------           ------            ------
         Total interest income                                                 5,303            5,364             5,665

Interest expense
  Deposits                                                                     2,292            2,241             2,418
  Borrowings                                                                     470              392               390
                                                                              ------           ------            ------
         Total interest expense                                                2,762            2,633             2,808
                                                                              ------           ------            ------

         Net interest income                                                   2,541            2,731             2,857

Provision for losses on loans                                                     39               39                30
                                                                              ------           ------            ------

         Net interest income after provision
           for losses on loans                                                 2,502            2,692             2,827

Other income
  Gain on investment securities transactions                                       3               -                  5
  Service charges on deposit accounts                                            154              168               133
  Other operating                                                                 63               51                49
                                                                              ------           ------            ------
         Total other income                                                      220              219               187

General, administrative and other expense
  Employee compensation and benefits                                             981            1,010             1,029
  Occupancy and equipment                                                        169              169               188
  Data processing                                                                140              142               133
  State franchise tax                                                             63               69                68
  Other operating                                                                342              347               380
                                                                              ------           ------            ------
         Total general, administrative and other expense                       1,695            1,737             1,798
                                                                              ------           ------            ------

         Earnings before income taxes                                          1,027            1,174             1,216

Federal income taxes
  Current                                                                        236              260               361
  Deferred                                                                        52               74               (11)
                                                                              ------           ------            ------
         Total federal income taxes                                              288              334               350
                                                                              ------           ------            ------
         NET EARNINGS                                                         $  739           $  840            $  866
                                                                              ======           ======            ======
         EARNINGS PER SHARE
           Basic                                                               $.80             $.80              $.77
                                                                                ===              ===               ===
           Diluted                                                             $.79             $.79              $.75
                                                                                ===              ===               ===
</TABLE>

The accompanying notes are an integral part of these statements.

                                       46
<PAGE>


                          KENTUCKY FIRST BANCORP, INC.

                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

                           For the year ended June 30,
                                 (In thousands)
<TABLE>
<CAPTION>
                                                                                         2001        2000         1999
<S>                                                                                    <C>          <C>          <C>
Net earnings                                                                           $  739       $  840       $  866

Other comprehensive income (loss), net of tax:
  Unrealized holding gains (losses) on securities
    during the period, net of taxes (benefits) of $273, $(79)
    and $(104) in 2001, 2000 and 1999, respectively                                       529         (154)        (202)
  Reclassification adjustment for realized gains
    included in earnings, net of tax of $1 and $2 for the
    years ended June 30, 2001 and 1999, respectively                                       (2)          -            (3)
                                                                                       ------       ------       ------

Comprehensive income                                                                   $1,266       $  686       $  661
                                                                                       ======       ======       ======

Accumulated comprehensive income (loss)                                                $   85       $ (268)      $ (114)
                                                                                       ======       ======       =======
</TABLE>

The accompanying notes are an integral part of these statements.

                                       47
<PAGE>


                          KENTUCKY FIRST BANCORP, INC.

                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

                For the years ended June 30, 2001, 2000 and 1999
                        (In thousands, except share data)
<TABLE>
<CAPTION>



                                                                             ADDITIONAL
                                                                 COMMON         PAID-IN         RETAINED
                                                                  STOCK         CAPITAL         EARNINGS
<S>                                                              <C>             <C>              <C>
Balance at July 1, 1998                                          $   14          $9,291           $8,144

Purchase of treasury stock                                           -               -                -
Amortization expense of stock benefit plans                          -               34               -
Net earnings for the year ended June 30, 1999                        -               -               866
Cash dividends of $.50 per share                                     -               -              (563)
Issuance of shares under stock option plan                           -              (25)              -
Unrealized losses on securities designated as
  available for sale, net of related tax effects                     -               -                -
                                                                  -----           -----            -----

Balance at June 30, 1999                                             14           9,300            8,447

Purchase of treasury stock                                           -               -                -
Amortization expense of stock benefit plans                          -               11               -
Net earnings for the year ended June 30, 2000                        -               -               840
Cash dividends of $.50 per share                                     -               -              (533)
Issuance of shares under stock option plan                           -                9               -
Unrealized losses on securities designated as
  available for sale, net of related tax effects                     -               -                -
                                                                  -----           -----            -----

Balance at June 30, 2000                                             14           9,320            8,754

Purchase of treasury stock                                           -               -                -
Amortization expense of stock benefit plans                          -              (50)              -
Net earnings for the year ended June 30, 2001                        -               -               739
Cash dividends of $.55 per share                                     -               -              (507)
Issuance of shares under stock option plan                           -               (6)              -
Transfer of securities to available for sale classification          -               -                -
Unrealized gains on securities designated as
  available for sale, net of related tax effects                     -               -                -
                                                                  -----           -----            -----

Balance at June 30, 2001                                        $    14          $9,264           $8,986
                                                                 ======           =====            =====
<CAPTION>
                                                                                                     UNREALIZED
                                                                                                  GAINS (LOSSES)
                                                                         SHARES                    ON SECURITIES
                                                                       ACQUIRED                       DESIGNATED
                                                                       BY STOCK     TREASURY        AS AVAILABLE
                                                                  BENEFIT PLANS        STOCK            FOR SALE        TOTAL
<S>                                                                  <C>             <C>                 <C>          <C>
Balance at July 1, 1998                                              $(1,249)        $(1,883)            $    91      $14,408

Purchase of treasury stock                                                -           (1,050)                 -        (1,050)
Amortization expense of stock benefit plans                              225              -                   -           259
Net earnings for the year ended June 30, 1999                             -               -                   -           866
Cash dividends of $.50 per share                                          -               -                   -          (563)
Issuance of shares under stock option plan                                -              142                  -           117
Unrealized losses on securities designated as
  available for sale, net of related tax effects                          -               -                 (205)        (205)
                                                                       -----           -----              ------      -------

Balance at June 30, 1999                                              (1,024)         (2,791)               (114)      13,832

Purchase of treasury stock                                                -           (1,312)                 -        (1,312)
Amortization expense of stock benefit plans                              226              -                   -           237
Net earnings for the year ended June 30, 2000                             -               -                   -           840
Cash dividends of $.50 per share                                          -               -                   -          (533)
Issuance of shares under stock option plan                                -               64                  -            73
Unrealized losses on securities designated as
  available for sale, net of related tax effects                          -               -                 (154)        (154)
                                                                       -----           -----              ------      -------

Balance at June 30, 2000                                                (798)         (4,039)               (268)      12,983

Purchase of treasury stock                                                -           (1,260)                 -        (1,260)
Amortization expense of stock benefit plans                              243              -                   -           193
Net earnings for the year ended June 30, 2001                             -               -                   -           739
Cash dividends of $.55 per share                                          -               -                   -          (507)
Issuance of shares under stock option plan                                -               45                  -            39
Transfer of securities to available for sale classification               -               -                 (174)        (174)
Unrealized gains on securities designated as
  available for sale, net of related tax effects                          -               -                  527          527
                                                                       -----           -----              ------      -------

Balance at June 30, 2001                                              $ (555)        $(5,254)            $    85      $12,540
                                                                       =====          ======              ======       ======
</TABLE>

The accompanying notes are an integral part of these statements.

                                       48
<PAGE>
                          KENTUCKY FIRST BANCORP, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                           For the year ended June 30,
                                 (In thousands)
<TABLE>
<CAPTION>
                                                                                    2001            2000           1999
<S>                                                                             <C>             <C>            <C>
Cash flows from operating activities:
  Net earnings for the year                                                      $   739         $   840       $    866
  Adjustments to reconcile net earnings to net cash
  provided by (used in) operating activities:
    Amortization of discounts and premiums on loans,
      investments and mortgage-backed securities - net                               (19)             (1)           (11)
    Amortization of deferred loan origination fees                                   (23)            (14)           (21)
    Depreciation and amortization                                                     79              83            100
    Provision for losses on loans                                                     39              39             30
    Amortization of expense related to stock benefit plans                           193             237            259
    Gain on investment securities transactions                                        (3)             -              (5)
    Federal Home Loan Bank stock dividends                                           (98)            (89)           (82)
    Increase (decrease) in cash due to changes in:
      Accrued interest receivable                                                    (40)            (15)            83
      Prepaid expenses and other assets                                              439             (41)           (19)
      Accrued interest payable                                                        11              56            (26)
      Other liabilities                                                             (430)             30             47
      Federal income taxes
        Current                                                                       79              95            (37)
        Deferred                                                                      52              74            (11)
                                                                                 -------         -------       --------
         Net cash provided by operating activities                                 1,018           1,294          1,173

Cash flows provided by (used in) investing activities:
  Proceeds from maturity of investment securities                                  2,216           1,175          7,173
  Purchase of investment securities designated as available for sale              (1,000)         (1,485)        (6,369)
  Purchase of mortgage-backed securities designated as available for sale         (2,010)           (978)        (3,975)
  Principal repayments on mortgage-backed securities                               2,178           2,602          5,352
  Purchase of loans                                                               (3,139)         (2,908)        (2,601)
  Loan principal repayments                                                       11,850          11,329         15,387
  Loan disbursements                                                              (9,527)         (5,565)       (11,795)
  Purchase of office premises and equipment                                          (13)            (15)           (15)
                                                                                 -------         -------       --------
         Net cash provided by investing activities                                   555           4,155          3,157
                                                                                 -------         -------       --------

         Net cash provided by operating and investing
           activities (subtotal carried forward)                                   1,573           5,449          4,330
                                                                                 -------         -------       --------
</TABLE>


                                       49
<PAGE>

                          KENTUCKY FIRST BANCORP, INC.

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                           For the year ended June 30,
<TABLE>
<CAPTION>
                                                                                    2001            2000           1999
<S>                                                                             <C>             <C>            <C>
         Net cash provided by operating and investing
           activities (subtotal brought forward)                                 $ 1,573         $ 5,449       $  4,330

Cash flows provided by (used in) financing activities:
  Net increase (decrease) in deposits                                               (854)         (3,344)            62
  Proceeds from Federal Home Loan Bank advances                                    7,500           4,536          6,900
  Repayment of Federal Home Loan Bank advances                                    (5,516)         (4,712)       (10,309)
  Proceeds from note payable                                                         100             550             -
  Repayment of note payable                                                         (100)           (550)            -
  Purchase of treasury stock                                                      (1,260)         (1,312)        (1,050)
  Proceeds from issuance of shares under stock option plan                            39              73            117
  Dividends on common stock                                                         (507)           (533)          (563)
                                                                                 -------         -------       --------
         Net cash used in financing activities                                      (598)         (5,292)        (4,843)
                                                                                 -------         -------       --------

Net increase (decrease) in cash and cash equivalents                                 975             157           (513)

Cash and cash equivalents at beginning of year                                     1,601           1,444          1,957
                                                                                 -------         -------       --------

Cash and cash equivalents at end of year                                         $ 2,576         $ 1,601       $  1,444
                                                                                 =======         =======       ========


Supplemental disclosure of cash flow information:
  Cash paid during the year for:
    Federal income taxes                                                        $    240         $   166       $    419
                                                                                ========         =======       ========

    Interest on deposits and borrowings                                         $  2,751         $ 2,577       $  2,834
                                                                                ========         =======        =======

Supplemental disclosure of noncash investing activities:
  Transfer of investment and mortgage-backed securities to an
    available for sale classification                                           $ 10,310         $    -        $     -
                                                                                ========         =======        =======

  Unrealized gains (losses) on securities designated as available
    for sale, net of related tax effects                                        $    529         $  (154)      $   (205)
                                                                                ========         =======       ========
</TABLE>

The accompanying notes are an integral part of these statements.

                                       50
<PAGE>
                          KENTUCKY FIRST BANCORP, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          June 30, 2001, 2000 and 1999


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Kentucky  First  Bancorp,  Inc. (the  "Corporation")  is a savings and loan
     holding  company  whose  activities  are  primarily  limited to holding the
     common  stock of First  Federal  Savings  Bank (the  "Savings  Bank").  The
     Savings Bank conducts a general banking  business in central Kentucky which
     consists of attracting  deposits from the general public and applying those
     funds  to  the   origination  of  loans  for   residential,   consumer  and
     nonresidential  purposes. The Savings Bank's profitability is significantly
     dependent  on its net  interest  income,  which is the  difference  between
     interest  income  generated from  interest-earning  assets (i.e.  loans and
     investments) and the interest expense paid on interest-bearing  liabilities
     (i.e.  customer  deposits  and  borrowed  funds).  Net  interest  income is
     affected   by  the   relative   amount  of   interest-earning   assets  and
     interest-bearing  liabilities  and the  interest  received or paid on these
     balances.  The level of interest rates paid or received by the Savings Bank
     can be significantly  influenced by a number of environmental factors, such
     as governmental monetary policy, that are outside of management's control.

     The consolidated  financial  information presented herein has been prepared
     in accordance with accounting  principles  generally accepted in the United
     States of America ("U.S. GAAP") and general accounting practices within the
     financial services industry. In preparing consolidated financial statements
     in accordance with U.S. GAAP,  management is required to make estimates and
     assumptions  that affect the reported amounts of assets and liabilities and
     the  disclosure of  contingent  assets and  liabilities  at the date of the
     financial statements and revenues and expenses during the reporting period.
     Actual results could differ from such estimates.

     The  following  is a summary of the  Corporation's  significant  accounting
     policies  which have been  consistently  applied in the  preparation of the
     accompanying consolidated financial statements.

     1.   Principles of Consolidation
          ---------------------------

     The  consolidated   financial   statements  include  the  accounts  of  the
     Corporation and the Savings Bank. All significant intercompany balances and
     transactions have been eliminated.

     2.   Investment Securities and Mortgage-Backed Securities
          ----------------------------------------------------

     The Corporation  accounts for investment and mortgage-backed  securities in
     accordance with Statement of Financial  Accounting  Standards  ("SFAS") No.
     115  "Accounting  for Certain  Investments in Debt and Equity  Securities".
     SFAS No. 115 requires  that  investments  in debt and equity  securities be
     categorized as held-to-maturity, trading, or available for sale. Securities
     classified  as  held-to-maturity  are to be  carried  at  cost  only if the
     Corporation has the positive intent and ability to hold these securities to
     maturity.  Trading  securities and  securities  designated as available for
     sale are  carried  at fair  value with the  resulting  unrealized  gains or
     losses recorded to operations or shareholders' equity, respectively. During
     fiscal   2001,   management   elected  to  transfer  all   investment   and
     mortgage-backed  securities  from  the  held to  maturity  portfolio  to an
     available for sale classification, in conjunction with the adoption of SFAS
     No. 133.  Securities  transferred  totaled $10.3 million,  resulting in the
     recognition of a net unrealized loss upon transfer of $174,000.

                                       51
<PAGE>

                          Kentucky First Bancorp, Inc.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                          June 30, 2001, 2000 and 1999


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

    2.  Investment Securities and Mortgage-Backed Securities (continued)
        ----------------------------------------------------------------

     At June 30, 2001 and 2000, the Corporation's shareholders' equity reflected
     a net  unrealized  gain of $85,000 and a net  unrealized  loss of $268,000,
     respectively,  on securities  designated  as available  for sale.  Realized
     gains and losses on sales of securities are  recognized  using the specific
     identification method.

     3.   Loans Receivable
          ----------------

     Loans receivable are stated at the principal amount  outstanding,  adjusted
     for  deferred  loan  origination  fees and the  allowance  for loan losses.
     Interest is accrued as earned unless the  collectibility  of the loan is in
     doubt. Interest on loans that are contractually past due is charged off, or
     an allowance is established based on management's periodic evaluation.  The
     allowance  is  established  by a charge  to  interest  income  equal to all
     interest previously accrued, and income is subsequently  recognized only to
     the extent that cash payments are received until, in management's judgment,
     the borrower's ability to make periodic interest and principal payments has
     returned to normal,  in which case the loan is returned to accrual  status.
     If the  ultimate  collectibility  of the loan is in  doubt,  in whole or in
     part,  all  payments  received  on  nonaccrual  loans are applied to reduce
     principal until such doubt is eliminated.

     4.   Loan Origination Fees
          ---------------------

     The Savings Bank accounts for loan origination fees in accordance with SFAS
     No.  91  "Accounting  for  Nonrefundable  Fees and  Costs  Associated  with
     Originating  or  Acquiring  Loans  and  Initial  Direct  Costs of  Leases".
     Pursuant to the provisions of SFAS No. 91,  origination  fees received from
     loans,  net of direct  origination  costs,  are deferred  and  amortized to
     interest income using the level-yield method,  giving effect to actual loan
     prepayments.  Additionally,  SFAS No. 91 generally limits the definition of
     loan  origination  costs to the direct costs  attributable to originating a
     loan, i.e.,  principally  actual  personnel  costs.  Fees received for loan
     commitments that are expected to be drawn upon, based on the Savings Bank's
     experience  with similar  commitments,  are deferred and amortized over the
     life of the  loan  using  the  level-yield  method.  Fees  for  other  loan
     commitments are deferred and amortized over the loan commitment period on a
     straight-line basis.

     5.   Allowance for Loan Losses
          -------------------------

     It is the  Savings  Bank's  policy  to  provide  valuation  allowances  for
     estimated  losses  on loans  based on past loss  experience,  trends in the
     level of delinquent and problem loans,  adverse  situations that may affect
     the  borrower's  ability to repay,  the estimated  value of any  underlying
     collateral and current and anticipated  economic  conditions in the primary
     lending area. When the collection of a loan becomes doubtful,  or otherwise
     troubled,  the  Savings  Bank  records  a  loan  charge-off  equal  to  the
     difference between the fair value of the property securing the loan and the
     loan's carrying value.  Major loans  (including  development  projects) and
     major  lending  areas are  reviewed  periodically  to  determine  potential
     problems at an early date.  The  allowance  for loan losses is increased by
     charges to earnings and decreased by charge-offs (net of recoveries).

                                       52
<PAGE>
                          KENTUCKY FIRST BANCORP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                          June 30, 2001, 2000 and 1999


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

     5.   Allowance for Loan Losses (continued)
          -------------------------

     The Savings Bank accounts for impaired  loans in  accordance  with SFAS No.
     114,  "Accounting  by Creditors for  Impairment of a Loan," which  requires
     that  impaired  loans be measured  based upon the present value of expected
     future cash flows discounted at the loan's  effective  interest rate or, as
     an alternative,  at the loan's observable market price or fair value of the
     collateral.  The Savings Bank's current procedures for evaluating  impaired
     loans result in carrying such loans at the lower of cost or fair value.

     A loan is defined  under SFAS No. 114 as  impaired  when,  based on current
     information  and events,  it is probable  that a creditor will be unable to
     collect all  amounts due  according  to the  contractual  terms of the loan
     agreement.  In applying  the  provisions  of SFAS No. 114, the Savings Bank
     considers  its  investment  in  one-to-four  family  residential  loans and
     consumer  installment  loans to be homogeneous and therefore  excluded from
     separate  identification for evaluation of impairment.  With respect to the
     Savings Bank's investment in multi-family and nonresidential loans, and its
     evaluation of impairment thereof,  such loans are collateral  dependent and
     as a result are  carried as a practical  expedient  at the lower of cost or
     fair value.

     It is the Savings  Bank's  general  policy to charge off unsecured  credits
     that are more than ninety days delinquent.  Similarly, collateral dependent
     loans  which  are more  than  ninety  days  delinquent  are  considered  to
     constitute  more than a minimum  delay in repayment  and are  evaluated for
     impairment under SFAS No. 114 at that time.

     The Savings  Bank had one loan  totaling  $306,000 and $363,000 at June 30,
     2001 and 2000,  respectively,  that met the definition for impairment under
     SFAS No. 114. The allowance for losses specifically related to this account
     amounted to $200,000 at June 30, 2001 and 2000.

     6.   Office Premises and Equipment
          -----------------------------

     Office premises and equipment are carried at cost and include  expenditures
     which extend the useful lives of existing assets. Maintenance,  repairs and
     minor  renewals  are  expensed  as  incurred.   For  financial   reporting,
     depreciation  and  amortization  are  provided  on  the  straight-line  and
     accelerated  methods over the useful  lives of the assets,  estimated to be
     forty years for  buildings,  ten to forty years for building  improvements,
     and five to ten years for furniture and equipment. An accelerated method is
     used for tax reporting purposes.


                                       53
<PAGE>
                          KENTUCKY FIRST BANCORP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                          June 30, 2001, 2000 and 1999


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

     7.   Real Estate Acquired Through Foreclosure
          ----------------------------------------

     Real estate  acquired  through  foreclosure  is carried at the lower of the
     loan's unpaid principal balance (cost) or fair value less estimated selling
     expenses  at the date of  acquisition.  Real  estate  loss  provisions  are
     recorded if the  properties'  fair value  subsequently  declines  below the
     amount  determined at the recording  date. In determining the lower of cost
     or fair value at acquisition, costs relating to development and improvement
     of property are capitalized. Costs relating to holding real estate acquired
     through foreclosure,  net of rental income, are charged against earnings as
     incurred.

     8.   Federal Income Taxes
          --------------------

     The  Corporation  accounts for federal income taxes in accordance  with the
     provisions of SFAS No. 109, "Accounting for Income Taxes".  Pursuant to the
     provisions  of SFAS No. 109, a deferred tax liability or deferred tax asset
     is computed by applying the current  statutory  tax rates to net taxable or
     deductible  differences  between the tax basis of an asset or liability and
     its reported  amount in the  consolidated  financial  statements  that will
     result in taxable or  deductible  amounts in future  periods.  Deferred tax
     assets are  recorded  only to the extent that the amount of net  deductible
     temporary  differences or carryforward  attributes may be utilized  against
     current period earnings,  carried back against prior years earnings, offset
     against  taxable  temporary  differences  reversing in future  periods,  or
     utilized to the extent of management's estimate of future taxable income. A
     valuation  allowance is provided for deferred tax assets to the extent that
     the  value  of  net  deductible  temporary   differences  and  carryforward
     attributes  exceeds  management's  estimates  of taxes  payable  on  future
     taxable  income.  Deferred tax liabilities are provided on the total amount
     of net temporary differences taxable in the future.

     The Corporation's  principal temporary differences between pretax financial
     income and taxable income result from  different  methods of accounting for
     deferred  loan  origination  fees and costs,  Federal  Home Loan Bank stock
     dividends, the general loan loss allowance, deferred compensation,  certain
     components of benefit  plans and the  accumulated  post-1987  percentage of
     earnings bad debt deductions.  Additional temporary differences result from
     depreciation computed using accelerated methods for tax purposes.


                                       54
<PAGE>
                          KENTUCKY FIRST BANCORP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                          June 30, 2001, 2000 and 1999


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

     9.   Benefit Plans
          -------------

     The  Corporation   provides   retirement  benefits  for  substantially  all
     employees who have  completed one year of service and have attained the age
     of 21 through the Kentucky First  Bancorp,  Inc.  Employee Stock  Ownership
     Plan ("ESOP"). Expense recognized related to the ESOP totaled approximately
     $129,000,  $125,000  and $147,000 for the fiscal years ended June 30, 2001,
     2000 and 1999, respectively.

     Additionally,   the  Corporation  has  the  Kentucky  First  Bancorp,  Inc.
     Management Recognition Plan ("MRP"). The MRP purchased 55,545 shares of the
     Corporation's  common stock in the open market. All of the shares available
     under the MRP were granted to executive  officers,  directors and employees
     of the Savings  Bank in fiscal  1996.  The MRP  provides  that common stock
     awarded under the MRP vests ratably over a five year period. A provision of
     $101,000,  $133,000 and $125,000  related to the MRP was charged to expense
     for the fiscal years ended June 30, 2001, 2000, and 1999, respectively.

     10.  Earnings Per Share
          ------------------

     Basic earnings per share for the years ended June 30, 2001,  2000 and 1999,
     is computed based upon the  weighted-average  shares outstanding during the
     period less shares in the ESOP that are unallocated and not committed to be
     released.  Weighted-average  common shares deemed  outstanding (which gives
     effect to 56,229,  65,935  and 80,153  unallocated  ESOP  shares),  totaled
     926,955,  1,055,126 and  1,121,745 for the years ended June 30, 2001,  2000
     and 1999, respectively.

     Diluted  earnings per share is computed  taking into  consideration  common
     shares  outstanding and dilutive potential common shares to be issued under
     the Corporation's stock option plan.  Weighted-average common shares deemed
     outstanding  for purposes of computing  diluted  earnings per share totaled
     940,349,  1,066,541 and 1,159,390 for the fiscal years ended June 30, 2001,
     2000 and 1999,  respectively.  Incremental  shares  related to the  assumed
     exercise of stock options  included in the computation of diluted  earnings
     per share totaled 13,394, 11,415 and 37,645 for the fiscal years ended June
     30, 2001, 2000 and 1999, respectively.

     11.  Investment in Subsidiary
          ------------------------

     The  Savings  Bank  has  a  wholly-owned   subsidiary,   Cynthiana  Service
     Corporation, which was incorporated for the sole purpose of owning stock in
     the Savings Bank's data processor. The subsidiary's assets at June 30, 2001
     and 2000 are limited to a $15,000  investment  in such stock.  As a result,
     the subsidiary has not been consolidated based on materiality.



                                       55
<PAGE>

                          KENTUCKY FIRST BANCORP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                          June 30, 2001, 2000 and 1999


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

     12.  Fair Value of Financial Instruments
          -----------------------------------

     SFAS No.  107,  "Disclosures  about Fair Value of  Financial  Instruments,"
     requires disclosure of the fair value of financial instruments, both assets
     and liabilities whether or not recognized in the consolidated  statement of
     financial  condition,  for which it is  practicable to estimate that value.
     For financial  instruments  where quoted  market prices are not  available,
     fair values are based on estimates  using present value and other valuation
     methods.

     The methods used are greatly affected by the assumptions applied, including
     the discount rate and estimates of future cash flows.  Therefore,  the fair
     values  presented  may not  represent  amounts that could be realized in an
     exchange for certain financial instruments.

     The  following  methods and  assumptions  were used by the  Corporation  in
     estimating its fair value disclosures for financial instruments at June 30,
     2001 and 2000:

               Cash and cash equivalents:  The carrying amounts presented in the
               -------------------------
               consolidated  statements of financial condition for cash and cash
               equivalents are deemed to approximate fair value.

               Investment and  mortgage-backed  securities:  For investments and
               -------------------------------------------
               mortgage-backed  securities,  fair  value is  deemed to equal the
               quoted market price.

               Loans  receivable:  The loan portfolio has been  segregated  into
               -----------------
               categories  with  similar  characteristics,  such as  one-to-four
               family residential,  multi-family  residential and nonresidential
               real estate.  These loan categories were further  delineated into
               fixed-rate  and  adjustable-rate  loans.  The fair values for the
               resultant loan  categories were computed via discounted cash flow
               analysis,  using  current  interest  rates offered for loans with
               similar terms to borrowers of similar credit  quality.  For loans
               on deposit  accounts and  consumer  and other loans,  fair values
               were deemed to equal the historic carrying values. The historical
               carrying  amount  of  accrued  interest  on  loans is  deemed  to
               approximate fair value.

               Federal Home Loan Bank stock:  The carrying  amount  presented in
               ----------------------------
               the consolidated  statements of financial  condition is deemed to
               approximate fair value.

               Deposits:  The fair value of NOW accounts,  passbook accounts and
               --------
               money market deposits is deemed to approximate the amount payable
               on demand.  Fair values for  fixed-rate  certificates  of deposit
               have been  estimated  using a  discounted  cash flow  calculation
               using the  interest  rates  currently  offered  for  deposits  of
               similar remaining maturities.


                                       56
<PAGE>
                          KENTUCKY FIRST BANCORP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                          June 30, 2001, 2000 and 1999


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

     12.  Fair Value of Financial Instruments (continued)
          -----------------------------------

               Advances  from  Federal  Home Loan Bank:  The fair value of these
               ---------------------------------------
               advances  is  estimated  using the rates  currently  offered  for
               similar  advances  of  similar  remaining   maturities  or,  when
               available, quoted market prices.

               Commitments to extend credit: For fixed-rate and  adjustable-rate
               ----------------------------
               loan   commitments,   the  fair  value  estimate   considers  the
               difference between current levels of interest rates and committed
               rates. The difference  between the fair value and notional amount
               of outstanding loan commitments at June 30, 2001 and 2000 was not
               material.

     Based on the foregoing methods and assumptions, the carrying value and fair
     value of the Corporation's financial instruments at June 30 are as follows:
<TABLE>
<CAPTION>

                                                                            2001                           2000
                                                               CARRYING           FAIR          CARRYING           FAIR
                                                                  VALUE          VALUE             VALUE          VALUE
                                                                                     (In thousands)
<S>                                                            <C>            <C>               <C>            <C>
    Financial assets
      Cash and cash equivalents                                $  2,576       $  2,576          $  1,601       $  1,601
      Investment securities                                       8,179          8,179             9,018          9,006
      Mortgage-backed securities                                 14,635         14,635            14,623         14,371
      Loans receivable                                           45,720         47,353            44,920         43,813
      Federal Home Loan Bank stock                                1,399          1,399             1,301          1,301
                                                                -------        -------           -------        -------

             Total financial assets                             $72,509        $74,142           $71,463        $70,092
                                                                 ======         ======            ======         ======

    Financial liabilities
      Deposits                                                  $52,430        $52,727           $53,284        $53,263
      Advances from the Federal Home Loan Bank                    8,811          8,721             6,827          6,713
                                                                -------        -------           -------        -------

             Total financial liabilities                        $61,241        $61,448           $60,111        $59,976
                                                                 ======         ======            ======         ======
</TABLE>
     13.  Advertising
          -----------

     Advertising costs are expensed when incurred. The Corporation's advertising
     expense  totaled  $25,000,  $25,000 and $27,000 for the fiscal  years ended
     June 30, 2001, 2000 and 1999, respectively.


                                       57
<PAGE>

                          KENTUCKY FIRST BANCORP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                          June 30, 2001, 2000 and 1999


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

     14.  Cash and Cash Equivalents
          -------------------------

     For purposes of reporting  cash flows,  cash and cash  equivalents  include
     cash  and due from  banks  and  interest-bearing  deposits  due from  other
     financial institutions with original maturities of less than ninety days.

     15.  Reclassifications
          -----------------

     Certain  prior year amounts have been  reclassified  to conform to the 2001
     consolidated financial statement presentation.


NOTE B - INVESTMENTS AND MORTGAGE-BACKED SECURITIES

     The amortized cost and estimated fair values of investment  securities held
     to maturity at June 30 are summarized as follows:
<TABLE>
<CAPTION>
                                                                    2001                                 2000
                                                                         ESTIMATED                            ESTIMATED
                                                       AMORTIZED              FAIR          AMORTIZED              FAIR
                                                            COST             VALUE               COST             VALUE
                                                                                 (In thousands)
<S>                                                     <C>               <C>                  <C>               <C>
    Municipal obligations                               $   -             $   -                $2,235            $2,223
                                                         =======           =======              =====             =====
</TABLE>

     At June  30,  2000,  the  carrying  value of the  Corporation's  investment
     securities exceeded the estimated fair value of such securities by $12,000,
     consisting solely of gross unrealized losses.

     The  amortized  cost and  estimated  fair  value of  municipal  obligations
     designated as held to maturity at June 30, by contractual term to maturity,
     are shown below:
<TABLE>
<CAPTION>
                                                                    2001                                 2000
                                                                         ESTIMATED                            ESTIMATED
                                                       AMORTIZED              FAIR          AMORTIZED              FAIR
                                                            COST             VALUE               COST             VALUE
                                                                                 (In thousands)

<S>                                                     <C>               <C>                  <C>               <C>
    Due in three years or less                          $   -             $   -                $  195            $  199
    Due after three years through
      five years                                            -                 -                   619               610
    Due after five years                                    -                 -                 1,421             1,414
                                                        --------          --------              -----             -----

                                                        $   -             $   -                $2,235            $2,223
                                                         =======           =======              =====             =====
</TABLE>

                                       58
<PAGE>
                          KENTUCKY FIRST BANCORP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                          June 30, 2001, 2000 and 1999


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

     The amortized cost, gross  unrealized  gains,  gross unrealized  losses and
     estimated fair values of investment  securities designated as available for
     sale at June 30, 2001 and 2000, are summarized as follows:
<TABLE>
<CAPTION>
                                                                                      JUNE 30, 2001
                                                                                  GROSS            GROSS      ESTIMATED
                                                              AMORTIZED      UNREALIZED       UNREALIZED           FAIR
                                                                   COST           GAINS           LOSSES          VALUE
                                                                                      (In thousands)
<S>                                                              <C>             <C>            <C>              <C>
    U.S. Government agency obligations:
      Due in three years or less                                 $2,490          $   53         $    -           $2,543
      Due after three years through five years                    1,000              13              -            1,013
      Due after five years                                        1,000             -                (11)           989

    Municipal obligations:
      Due in three years or less                                    614              13              -              627
      Due after three years through five years                      960              18              -              978
      Due after five years                                        2,021               8              -            2,029
                                                                  -----          -------         -------          -----

             Total investment securities                         $8,085          $  105           $  (11)        $8,179
                                                                  =====           =====            =====          =====
</TABLE>
<TABLE>
<CAPTION>

                                                                                      JUNE 30, 2000
                                                                                  GROSS            GROSS      ESTIMATED
                                                              AMORTIZED      UNREALIZED       UNREALIZED           FAIR
                                                                   COST           GAINS           LOSSES          VALUE
                                                                                      (In thousands)
<S>                                                              <C>              <C>             <C>            <C>
    U.S. Government agency obligations:
      Due in three years or less                                 $2,983           $   3           $  (34)        $2,952
      Due after three years through five years                      500             -                 (1)           499
      Due after five years                                        2,000             -               (146)         1,854

    Municipal obligations:
      Due in three years or less                                    120             -                 (2)           118
      Due after three years through five years                      640             -                (20)           620
      Due after five years                                          809             -                (69)           740
                                                                 ------          ------            -----         ------

             Total investment securities                         $7,052          $    3            $(272)        $6,783
                                                                  =====           =====             ====          =====
</TABLE>

     At June 30, 2001 and 2000, investment securities totaling $3.4 million were
     pledged to secure public deposits.

                                       59
<PAGE>

                          KENTUCKY FIRST BANCORP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                          June 30, 2001, 2000 and 1999


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

     The amortized cost, gross  unrealized  gains,  gross unrealized  losses and
     estimated  fair values of  mortgage-backed  securities at June 30, 2001 and
     2000 (including  those  designated as available for sale) are summarized as
     follows:
<TABLE>
<CAPTION>
                                                                                      JUNE 30, 2001
                                                                                   GROSS             GROSS    ESTIMATED
                                                              AMORTIZED       UNREALIZED        UNREALIZED         FAIR
                                                                   COST            GAINS            LOSSES        VALUE
<S>                                                             <C>              <C>             <C>           <C>
    AVAILABLE FOR SALE:                                                               (In thousands)
      Federal Home Loan Mortgage
        Corporation participation certificates                  $ 5,528          $    49         $     -       $  5,577
      Government National Mortgage
        Association participation certificates                      621               23               -            644
      Federal National Mortgage Association
        participation certificates                                8,451              -                 (37)       8,414
                                                                -------         --------           -------      -------
         Total mortgage-backed securities                       $14,600          $    72           $   (37)     $14,635
                                                                 ======           ======            ======       ======
</TABLE>
<TABLE>
<CAPTION>
                                                                                      JUNE 30, 2000
                                                                                   GROSS             GROSS    ESTIMATED
                                                              AMORTIZED       UNREALIZED        UNREALIZED         FAIR
                                                                   COST            GAINS            LOSSES        VALUE
<S>                                                            <C>              <C>                  <C>       <C>
    HELD TO MATURITY:                                                                 (In thousands)
      Federal Home Loan Mortgage
        Corporation  participation certificates                 $   808          $  -              $   (14)    $    794
      Government National Mortgage
        Association participation certificates                      784                9                (7)         786
      Federal National Mortgage Association
        participation certificates                                6,483             -                 (240)       6,243
                                                                -------          -------           -------     --------
         Total mortgage-backed securities held to maturity        8,075                9              (261)       7,823
                                                                -------          -------           -------     --------

    AVAILABLE FOR SALE:
      Federal Home Loan Mortgage
        Corporation participation certificates                    3,065                9              -           3,074
      Federal National Mortgage Association
        participation certificates                                3,620                3              (149)       3,474
                                                                -------          -------           -------     --------
         Total mortgage-backed securities available for sale      6,685               12              (149)       6,548
                                                                -------          -------           -------     --------

         Total mortgage-backed securities                       $14,760          $    21           $  (410)     $14,371
                                                                =======          =======           =======      =======
</TABLE>

                                       60
<PAGE>

                          KENTUCKY FIRST BANCORP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                          June 30, 2001, 2000 and 1999


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

     The amortized cost of mortgage-backed  securities,  by contractual terms to
     maturity, are shown below. Based on materiality,  contractual maturities of
     mortgage-backed  securities  designated  as  available  for sale  have been
     combined  with those  designated as held to maturity.  Expected  maturities
     will differ from  contractual  maturities  because  borrowers may generally
     prepay obligations without prepayment penalties.
<TABLE>
<CAPTION>
                                                                 JUNE 30,
                                                          2001            2000
                                                             (In thousands)

<S>                                                     <C>              <C>
Due within three years                                  $     1          $     3
Due in three to five years                                   27               15
Due in five to ten years                                    709            1,133
Due in ten to twenty years                                9,090            8,291
Due after twenty years                                    4,773            5,318
                                                        -------          -------

                                                        $14,600          $14,760
                                                        =======          =======

</TABLE>

                                       61
<PAGE>
                          KENTUCKY FIRST BANCORP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                          June 30, 2001, 2000 and 1999


NOTE C - LOANS RECEIVABLE

    The composition of the loan portfolio at June 30 is as follows:
<TABLE>
<CAPTION>
                                                                                      2001                2000
                                                                                            (In thousands)
<S>                                                                                <C>                 <C>
    Residential real estate
      One-to-four family                                                           $26,752             $25,607
      Multi-family                                                                   2,884               3,827
      Construction                                                                     949               1,033
    Nonresidential real estate and land                                             12,180              11,882
    Consumer                                                                         2,158               1,834
    Commercial                                                                       1,464               1,283
                                                                                   -------             -------
                                                                                    46,387              45,466
    Less:
      Undisbursed portion of loans in process                                          114                  18
      Deferred loan origination fees                                                    71                  80
      Unearned discount                                                                  2                   5
      Allowance for loan losses                                                        480                 443
                                                                                   -------             -------

                                                                                   $45,720             $44,920
                                                                                   =======             =======
</TABLE>

     The Savings Bank's lending efforts have historically focused on one-to-four
     family and  multi-family  residential  real estate  loans,  which  comprise
     approximately  $30.5  million,  or 67%, of the total loan portfolio at June
     30, 2001,  and $30.4  million,  or 68%, of the total loan portfolio at June
     30, 2000.  Generally,  such loans have been underwritten on the basis of no
     more than an 85% loan-to-value  ratio, which has historically  provided the
     Savings  Bank with  adequate  collateral  coverage in the event of default.
     Nevertheless, the Savings Bank, as with any lending institution, is subject
     to the risk  that real  estate  values  could  deteriorate  in its  primary
     lending area of central  Kentucky,  thereby  impairing  collateral  values.
     However, management is of the belief that residential real estate values in
     the Savings Bank's primary lending area are presently stable.

     In the normal  course of business,  the Savings Bank has made loans to some
     of its  directors,  officers and  employees.  In the opinion of management,
     such loans are  consistent  with  sound  lending  practices  and are within
     applicable  regulatory lending limitations.  The aggregate dollar amount of
     loans outstanding to directors and executive officers totaled approximately
     $205,000 and $202,000 at June 30, 2001 and 2000, respectively.


                                       62
<PAGE>

                          KENTUCKY FIRST BANCORP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                          June 30, 2001, 2000 and 1999


NOTE D - ALLOWANCE FOR LOAN LOSSES

     The activity in the  allowance for loan losses is summarized as follows for
     the years ended June 30:
<TABLE>
<CAPTION>
                                                                            2001           2000           1999
                                                                                   (In thousands)
<S>                                                                         <C>            <C>            <C>
    Balance at beginning of year                                            $443           $414           $384
    Provision for losses on loans                                             39             39             30
    Charge-offs, net of recoveries                                            (2)           (10)            -
                                                                            ----           ----           ----

    Balance at end of year                                                  $480           $443           $414
                                                                            ====           ====           ====
</TABLE>

     As of June 30,  2001,  $280,000 of the Savings  Bank's  allowance  for loan
     losses  was  general  in  nature,  and was  includible  as a  component  of
     regulatory risk-based capital,  subject to certain percentage  limitations.
     The remaining allowance for loan losses of $200,000 relates specifically to
     a non-accruing multi-family residential real estate loan.

     Nonperforming and nonaccrual loans totaled approximately $286,000, $345,000
     and $268,000 at June 30, 2001, 2000 and 1999, respectively.

     During the years ended June 30,  2001,  2000 and 1999,  interest  income of
     approximately $29,000,  $29,000 and $6,000,  respectively,  would have been
     recognized had such loans been  performing in accordance  with  contractual
     terms.


NOTE E - OFFICE PREMISES AND EQUIPMENT

     Office premises and equipment at June 30 are comprised of the following:
<TABLE>
<CAPTION>
                                                                                      2001                2000
                                                                                            (In thousands)
<S>                                                                                <C>                 <C>
    Land                                                                           $   448             $   448
    Office buildings and improvements                                                  950                 949
    Furniture, fixtures and equipment                                                  347                 339
                                                                                    ------              ------
                                                                                     1,745               1,736
      Less accumulated depreciation and
        amortization                                                                   608                 533
                                                                                    ------              ------

                                                                                    $1,137              $1,203
                                                                                    ======              ======
</TABLE>

                                       63
<PAGE>
                          KENTUCKY FIRST BANCORP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                          June 30, 2001, 2000 and 1999


NOTE F - DEPOSITS

Deposits consist of the following major classifications at June 30:
<TABLE>
<CAPTION>
DEPOSIT TYPE AND WEIGHTED-
AVERAGE INTEREST RATE                                        2001                  2000
                                                                    (In thousands)
<S>                                                      <C>                   <C>
NOW accounts
  2001 - 1.23%                                            $ 9,268
  2000 - 1.39%                                                                 $ 10,143
Passbook
  2001 - 2.25%                                              5,427
  2000 - 2.25%                                                                    6,077
Money market deposit accounts
  2001 - 3.11%                                              2,537
  2000 - 3.35%                                                                    3,063
                                                          -------               -------
Total demand, transaction and
  passbook deposits                                        17,232                19,283

Certificates of deposit
  Original maturities of:
    Less than 12 months
      2001 - 5.34%                                          9,565
      2000 - 5.63%                                                                7,874
    12 months to 24 months
      2001 - 5.99%                                         15,806
      2000 - 5.51%                                                               15,717
    30 months to 36 months
      2001 - 5.44%                                          1,981
      2000 - 5.52%                                                                2,385
    More than 36 months
      2001 - 5.75%                                          3,387
      2000 - 5.77%                                                                3,620
  Individual retirement accounts
      2001 - 5.64%                                          4,459
      2000 - 5.37%                                                                4,405
                                                          -------               -------
Total certificates of deposit                              35,198                34,001
                                                          -------               -------

Total deposit accounts                                    $52,430               $53,284
                                                          =======               =======
</TABLE>

At June 30, 2001 and 2000, the Savings Bank had certificate of deposit  accounts
with  balances in excess of $100,000  totaling  $2.6  million and $1.9  million,
respectively.

                                       64
<PAGE>
                          KENTUCKY FIRST BANCORP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                          June 30, 2001, 2000 and 1999


NOTE F - DEPOSITS (continued)

     Interest  expense on deposits for the year ended June 30 is  summarized  as
     follows:
<TABLE>
<CAPTION>
                                                                            2001           2000           1999
                                                                                     (In thousands)
<S>                                                                          <C>            <C>            <C>
    NOW, passbook and money market deposit
      accounts                                                               337            402            435
    Certificates of deposit                                                1,955          1,839          1,983
                                                                          ------         ------         ------

                                                                          $2,292         $2,241         $2,418
                                                                          ======         ======         ======
</TABLE>

     Maturities of outstanding certificates of deposit at June 30 are summarized
     as follows:
<TABLE>
<CAPTION>
                                                                                           2001           2000
                                                                                              (In thousands)
<S>                                                                                     <C>            <C>
    Less than one year                                                                  $27,688        $23,785
    One to three years                                                                    7,146          8,778
    Over three years                                                                        364          1,438
                                                                                        -------        -------
                                                                                        $35,198        $34,001
                                                                                        =======        =======
</TABLE>


NOTE G - ADVANCES FROM THE FEDERAL HOME LOAN BANK

     Advances from the Federal Home Loan Bank,  collateralized  at June 30, 2001
     by pledges of certain  residential  mortgage  loans  totaling $6.8 million,
     certain securities  totaling $3.4 million and the Savings Bank's investment
     in Federal Home Loan Bank stock, are summarized as follows:
<TABLE>
<CAPTION>
                                            MATURING
                                            YEAR ENDING                                        JUNE 30,
    INTEREST RATE                           JUNE 30,                                  2001                2000
                                                                                       (Dollars in thousands)
    <S>                                     <C>                                     <C>                <C>
    5.91%                                   2003                                    $1,000             $    -
    6.56%                                   2004                                     1,000                  -
    3.81% - 3.93%                           2006                                     3,100               3,100
    5.64%                                   2010                                     3,000               3,000
    4.00%                                   2025                                       290                 297
    4.00%                                   2026                                        95                  97
    3.00%                                   2030                                       326                 333
                                                                                    ------              ------

                                                                                    $8,811              $6,827
                                                                                    ======              ======

           Weighted-average interest rate                                             4.98%               5.90%
                                                                                      ====                ====
</TABLE>

                                       65
<PAGE>
                          KENTUCKY FIRST BANCORP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                          June 30, 2001, 2000 and 1999


NOTE H - FEDERAL INCOME TAXES

     Federal  income  taxes  differ from the amounts  computed at the  statutory
     corporate tax rate for the year ended June 30 as follows:
<TABLE>
<CAPTION>
                                                                            2001           2000           1999
                                                                                     (In thousands)
<S>                                                                         <C>            <C>            <C>
    Federal income taxes computed at
      statutory rate                                                        $349           $399           $413
    Decrease in taxes resulting from:
      Municipal interest income                                              (61)           (65)           (63)
                                                                            ----           ----           ----
    Federal income tax provision per consolidated
      statements of earnings                                                $288           $334           $350
                                                                            ====           ====           ====
</TABLE>

     The composition of the  Corporation's net deferred tax asset (liability) at
     June 30 is as follows:
<TABLE>
<CAPTION>
                                                                                           2001           2000
                                                                                               (In thousands)
<S>                                                                                       <C>            <C>
     Taxes (payable) refundable on temporary
     differences at estimated corporate tax rate:
       Deferred tax assets:
         Allowance for loan losses                                                        $  95          $  82
         Deferred compensation                                                              102             99
         Retirement plans                                                                    67             97
         Unrealized losses on securities designated as
           available for sale                                                                -             138
                                                                                          -----           ----
           Total deferred tax assets                                                        264            416

       Deferred tax liabilities:
         Percentage of earnings bad debt deduction                                           (4)            (8)
         Book/tax depreciation                                                              (28)           (30)
         Federal Home Loan Bank stock dividends                                            (161)          (128)
         Accrual vs. cash basis of accounting                                                -             (25)
         Deferred loan origination costs                                                    (67)           (60)
         Employee stock ownership plan                                                      (29)            -
         Unrealized gains on securities designated as
           available for sale                                                               (44)            -
                                                                                          -----          -----
           Total deferred tax liabilities                                                  (333)          (251)
                                                                                          -----          -----

           Net deferred tax asset (liability)                                             $ (69)         $ 165
                                                                                          =====          =====
</TABLE>


                                       66
<PAGE>
                          KENTUCKY FIRST BANCORP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                          June 30, 2001, 2000 and 1999


NOTE H - FEDERAL INCOME TAXES (continued)

     Prior to 1997,  the Savings Bank was allowed a special bad debt  deduction,
     generally limited to 8% of otherwise taxable income, and subject to certain
     limitations  based on aggregate loans and deposit  account  balances at the
     end of the year. If the amounts that  qualified as  deductions  for federal
     income  taxes are  later  used for  purposes  other  than bad debt  losses,
     including distributions in liquidation,  such distributions will be subject
     to federal  income  taxes at the then  current  corporate  income tax rate.
     Retained earnings at June 30, 2001 include  approximately  $1.6 million for
     which  federal  income  taxes  have  not  been  provided.   The  amount  of
     unrecognized  deferred tax liability  relating to the  cumulative  bad debt
     deduction was approximately  $520,000 at June 30, 2001. The Savings Bank is
     required to recapture as taxable  income  approximately  $70,000 of its tax
     bad debt reserve,  which represents the post-1987 additions to the reserve,
     and will be unable to utilize the percentage of earnings  method to compute
     its bad debt  deduction  in the  future.  The  Savings  Bank  has  provided
     deferred  taxes for this amount and began,  in fiscal 1998, to amortize the
     recapture  of the bad debt  reserve  into  taxable  income  over a six year
     period.


NOTE I - LOAN COMMITMENTS

     The Savings Bank is a party to financial instruments with off-balance-sheet
     risk in the normal  course of business to meet the  financing  needs of its
     customers,   including  commitments  to  extend  credit.  Such  commitments
     involve,  to varying degrees,  elements of credit and interest-rate risk in
     excess of the amount recognized in the consolidated  statement of financial
     condition.  The contract or notional amounts of the commitments reflect the
     extent of the Savings Bank's involvement in such financial instruments.

     The Savings Bank's  exposure to credit loss in the event of  nonperformance
     by the other party to the financial  instrument  for  commitments to extend
     credit  is  represented  by  the  contractual   notional  amount  of  those
     instruments.  The  Savings  Bank uses the same  credit  policies  in making
     commitments   and   conditional   obligations   as   those   utilized   for
     on-balance-sheet instruments.

     At  June  30,  2001,  the  Savings  Bank  had  outstanding  commitments  of
     approximately $380,000 to originate loans. In the opinion of management all
     loan commitments equaled or exceeded prevailing market interest rates as of
     June 30, 2001, and will be funded from normal cash flow from operations.


                                       67
<PAGE>

                          KENTUCKY FIRST BANCORP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                          June 30, 2001, 2000 and 1999


    NOTE J - REGULATORY CAPITAL

     The  Savings  Bank is  subject  to  minimum  regulatory  capital  standards
     promulgated  by the Office of Thrift  Supervision  (the "OTS").  Failure to
     meet minimum capital  requirements  can initiate  certain  mandatory -- and
     possibly  additional  discretionary  --  actions  by  regulators  that,  if
     undertaken,  could  have a  direct  material  effect  on  the  consolidated
     financial statements.  Under capital adequacy guidelines and the regulatory
     framework for prompt corrective action, the Savings Bank must meet specific
     capital guidelines that involve quantitative measures of the Savings Bank's
     assets,  liabilities,  and certain  off-balance-sheet  items as  calculated
     under regulatory accounting  practices.  The Savings Bank's capital amounts
     and  classifications  are also  subject  to  qualitative  judgments  by the
     regulators about components, risk weightings and other factors.

     The minimum capital  standards of the OTS generally require the maintenance
     of regulatory capital  sufficient to meet each of three tests,  hereinafter
     described as the tangible capital requirement, the core capital requirement
     and the risk-based capital  requirement.  The tangible capital  requirement
     provides for minimum tangible capital (defined as shareholders' equity less
     all  intangible  assets) equal to 1.5% of adjusted  total assets.  The core
     capital  requirement  provides for minimum core capital  (tangible  capital
     plus certain forms of supervisory goodwill and other qualifying  intangible
     assets)  equal  to  4.0%  of  adjusted  total  assets,   except  for  those
     associations with the highest  examination  rating and acceptable levels of
     risk. The risk-based  capital  requirement  provides for the maintenance of
     core capital plus general loss  allowances  equal to 8.0% of  risk-weighted
     assets. In computing  risk-weighted assets, the Savings Bank multiplies the
     value of each asset on its  statement of  financial  condition by a defined
     risk-weighting factor, e.g., one- to four-family  residential loans carry a
     risk-weighted factor of 50%.

     During  fiscal  2001,  the Savings Bank was notified by the OTS that it was
     categorized as "well-capitalized" under the regulatory framework for prompt
     corrective action. To be categorized as "well-capitalized" the Savings Bank
     must maintain minimum capital ratios as set forth in the following  tables.
     As of June 30, 2001 and 2000, management believes that the Savings Bank met
     all capital adequacy requirements to which it was subject.
<TABLE>
<CAPTION>
                                                                AS OF JUNE 30, 2001
                                                                                                 TO BE "WELL-
                                                                                              CAPITALIZED" UNDER
                                                                    FOR CAPITAL               PROMPT CORRECTIVE
                                             ACTUAL             ADEQUACY PURPOSES (1)         ACTION PROVISIONS(1)
                                         ---------------        ---------------------        --------------------
                                         AMOUNT    RATIO           AMOUNT    RATIO             AMOUNT     RATIO
                                                               (Dollars in thousands)
    <S>                                 <C>        <C>             <C>         <C>           <C>          <C>
    Tangible capital                    $11,016    14.9%         >$1,108     >1.5%           >$3,693      > 5.0%
                                                                 -           -               -            -
    Core capital                        $11,016    14.9%         >$2,954     >4.0%           >$4,432      > 6.0%
                                                                 -           -               -            -
    Risk-based capital                  $11,296    26.7%         >$3,380     >8.0%           >$4,225      >10.0%
                                                                 -           -               -            -
<FN>
>
- means greater than or equal to.
</FN>
</TABLE>

                                       68
<PAGE>
                          KENTUCKY FIRST BANCORP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                          June 30, 2001, 2000 and 1999


NOTE J - REGULATORY CAPITAL (continued)
<TABLE>
<CAPTION>
                                                                AS OF JUNE 30, 2000
                                                                                                 TO BE "WELL-
                                                                                              CAPITALIZED" UNDER
                                                                    FOR CAPITAL               PROMPT CORRECTIVE
                                             ACTUAL             ADEQUACY PURPOSES (1)         ACTION PROVISIONS(1)
                                         ---------------        ---------------------        --------------------
                                         AMOUNT    RATIO           AMOUNT    RATIO             AMOUNT     RATIO
                                                               (Dollars in thousands)
    <S>                                 <C>        <C>           <C>         <C>             <C>            <C>
    Tangible capital                    $12,569    17.0%         >$1,111     >1.5%           >$3,705      > 5.0%
                                                                 -           -               -            -
    Core capital                        $12,569    17.0%         >$2,964     >4.0%           >$4,445      > 6.0%
                                                                 -           -               -            -
    Risk-based capital                  $12,812    30.1%         >$3,408     >8.0%           >$4,261      >10.0%
                                                                 -           -               -            -
<FN>
>
- means greater than or equal to.
</FN>
</TABLE>

     The Savings Bank's management  believes that, under the current  regulatory
     capital  regulations,  the Savings  Bank will  continue to meet its minimum
     capital requirements in the foreseeable future.  However, events beyond the
     control of the Savings Bank, such as increased interest rates or a downturn
     in the economy in the Savings Bank's market area,  could  adversely  affect
     future  earnings  and,  consequently,  the ability to meet  future  minimum
     regulatory capital requirements.


NOTE K - STOCK OPTION PLAN

     In fiscal 1996 the Board of Directors  adopted the Kentucky  First Bancorp,
     Inc.  Stock Option and Incentive  Plan (the "Plan") which  provided for the
     issuance of 173,579 shares  (adjusted for the fiscal 1997 return of capital
     distribution)  of authorized,  but unissued  shares of common stock at fair
     value at the date of grant. The Corporation immediately granted all options
     at an  adjusted  fair  value of $9.74  per  share.  The Plan  provides  for
     one-fifth of the shares granted to be exercisable on each of the first five
     anniversaries of the date of the grant.

     The  Corporation  accounts  for the Plan in  accordance  with SFAS No. 123,
     "Accounting   for   Stock-Based   Compensation,"   which  contains  a  fair
     value-based method for valuing  stock-based  compensation that entities may
     use, which measures  compensation  cost at the grant date based on the fair
     value of the  award.  Compensation  is then  recognized  over  the  service
     period,  which is usually the vesting period.  Alternatively,  SFAS No. 123
     permits  entities  to  continue  to account  for stock  options and similar
     equity  instruments  under Accounting  Principles Board ("APB") Opinion No.
     25,  "Accounting for Stock Issued to Employees."  Entities that continue to
     account for stock options using APB Opinion No. 25 are required to make pro
     forma  disclosures  of net earnings and earnings per share,  as if the fair
     value-based method of accounting defined in SFAS No. 123 had been applied.



                                       69
<PAGE>
                          KENTUCKY FIRST BANCORP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                          June 30, 2001, 2000 and 1999


NOTE K - STOCK OPTION PLAN (continued)

     The Corporation  applies APB Opinion No. 25 and related  Interpretations in
     accounting for its stock option plan. Accordingly, no compensation cost has
     been  recognized  with  respect  to the  Plan.  The  pro-forma  disclosures
     required  under SFAS No. 123 are not  applicable  to the three years in the
     period ended June 30, 2001, as no stock option grants  occurred  during the
     period.

     A summary of the status of the  Corporation's  stock option plan as of June
     30, 2001,  2000 and 1999,  and changes  during the periods  ending on those
     dates is presented below:
<TABLE>
<CAPTION>
                                                   2001                      2000                        1999
                                                       WEIGHTED-                 WEIGHTED-                    WEIGHTED-
                                                         AVERAGE                   AVERAGE                      AVERAGE
                                                        EXERCISE                  EXERCISE                     EXERCISE
                                             SHARES        PRICE       SHARES        PRICE          SHARES        PRICE

    
                                     <C>          <C>          <C>          <C>             <C>          <C>
    Outstanding at beginning of year        144,282      $9.7375      149,661      $9.7375         168,609      $9.7375
    Granted                                      -            -            -            -               -            -
    Exercised                                (3,835)      9.7375       (5,379)      9.7375         (12,005)      9.7375
    Forfeited                                    -            -            -            -           (6,943)          -
                                            -------      -------      -------      -------         -------      -------

    Outstanding at end of year              140,447      $9.7375      144,282      $9.7375         149,661      $9.7375
                                            =======      =======      =======      =======         =======      =======

    Options exercisable at year-end         140,447      $9.7375      112,662      $9.7375          86,457      $9.7375
                                            =======      =======      =======      =======         =======      =======
</TABLE>

     The following information applies to options outstanding at June 30, 2001:

    Number outstanding                                                   140,447
    Range of exercise prices                                             $9.7375
    Weighted-average exercise price                                      $9.7375
    Weighted-average remaining contractual life                        4.8 years


                                       70
<PAGE>
                          KENTUCKY FIRST BANCORP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                          June 30, 2001, 2000 and 1999

NOTE L - CONDENSED FINANCIAL STATEMENTS OF KENTUCKY FIRST BANCORP, INC.

     The  following  condensed  financial  statements  summarize  the  financial
     position of Kentucky First Bancorp,  Inc. as of June 30, 2001 and 2000, and
     the results of its  operations  and its cash flows for the years ended June
     30, 2001, 2000 and 1999.
<TABLE>
<CAPTION>
                          Kentucky First Bancorp, Inc.
                        STATEMENTS OF FINANCIAL CONDITION
                                    June 30,
                                 (In thousands)
         ASSETS                                                                              2001                  2000
    <S>                                                                                 <C>                   <C>
    Deposits in First Federal Savings Bank                                              $     138             $       1
    Interest-bearing deposits in other financial institutions                                 240                     1
    Loan receivable from ESOP                                                                 555                   648
    Investment in First Federal Savings Bank                                               11,102                12,301
    Dividends receivable from First Federal Savings Bank                                      500                    -
    Prepaid expenses and other assets                                                           3                     3
    Prepaid federal income taxes                                                               10                    35
                                                                                          -------               -------

         Total assets                                                                     $12,548               $12,989
                                                                                          =======               =======

         LIABILITIES AND SHAREHOLDERS' EQUITY

    Liabilities
      Accounts payable and other liabilities                                            $       8             $       6

    Shareholders' equity
      Common stock and additional paid-in capital                                           9,278                 9,334
      Retained earnings                                                                     8,986                 8,754
      Less treasury stock                                                                  (5,254)               (4,039)
      Less shares acquired by stock benefit plans                                            (555)                 (798)
      Unrealized gains (losses) on securities designated as available for sale,
        net of related tax effects                                                             85                  (268)
                                                                                          -------               -------
          Total shareholders' equity                                                       12,540                12,983
                                                                                          -------               -------

          Total liabilities and shareholders' equity                                      $12,548               $12,989
                                                                                          =======               =======
</TABLE>
<TABLE>
<CAPTION>
                          Kentucky First Bancorp, Inc.
                             STATEMENTS OF EARNINGS
                              Years ended June 30,
                                 (In thousands)
                                                                                    2001            2000           1999
<S>                                                                                <C>             <C>            <C>
    Revenue
      Interest income                                                              $  43           $  39          $  50
      Equity in earnings of First Federal Savings Bank                               754             868            877
                                                                                   -----           -----          -----
          Total revenue                                                              797             907            927

    General, administrative and other expense                                         66              81             67
                                                                                   -----           -----          -----

    Earnings before income tax credits                                               731             826            860

    Federal income tax credits                                                        (8)            (14)            (6)
                                                                                   -----           -----          -----

          NET EARNINGS                                                             $ 739           $ 840          $ 866
                                                                                   =====           =====          =====
</TABLE>


                                       71
<PAGE>

                          KENTUCKY FIRST BANCORP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                          June 30, 2001, 2000 and 1999


NOTE  L -  CONDENSED  FINANCIAL  STATEMENTS  OF  KENTUCKY  FIRST  BANCORP,  INC.
(continued)

                          KENTUCKY FIRST BANCORP, INC.
                            STATEMENTS OF CASH FLOWS
                               Year ended June 30,
                                 (In thousands)
<TABLE>
<CAPTION>
                                                                                    2001            2000           1999
<S>                                                                              <C>             <C>            <C>
    Cash provided by (used in) operating activities:
      Net earnings for the year                                                  $   739         $   840        $   866
      Adjustments to reconcile net earnings to net cash provided by (used in)
      operating activities
        Distributions from consolidated subsidiary in excess of earnings           1,245             633            123
        Increase (decrease) in cash due to changes in:
          Prepaid expenses and other assets                                           -                2            125
          Prepaid federal income taxes                                                25              22             (6)
          Accounts payable and other liabilities                                       2              (1)             6
                                                                                 -------         -------        -------
               Net cash provided by operating activities                           2,011           1,496          1,114

    Cash flows provided by investing activities:
      Proceeds from repayment of loan                                                 93              93             92

    Cash flows provided by (used in) financing activities:
      Proceeds from note payable                                                     100             550             -
      Repayment of note payable                                                     (100)           (550)            -
      Payment of dividends on common stock                                          (507)           (533)          (563)
      Proceeds from exercise of stock options                                         39              73            117
      Purchase of treasury stock                                                  (1,260)         (1,312)        (1,050)
                                                                                 -------         -------        -------
               Net cash used in financing activities                              (1,728)         (1,772)        (1,496)
                                                                                 -------         -------        -------

    Net increase (decrease) in cash and cash equivalents                             376            (183)          (290)

    Cash and cash equivalents at beginning of year                                     2             185            475
                                                                                 -------         -------        -------

    Cash and cash equivalents at end of year                                     $   378         $     2        $   185
                                                                                 =======         =======        =======
</TABLE>

     The Savings Bank is subject to regulations  imposed by the Office of Thrift
     Supervision ("OTS") regarding the amount of capital  distributions  payable
     by the Savings  Bank to the  Corporation.  Generally,  the  Savings  Bank's
     payment of dividends is limited,  without prior OTS approval, to net income
     for the current calendar year plus the two preceding  calendar years,  less
     capital  distributions  paid  over  the  comparable  time  period.  Insured
     institutions  are required to file an application  with the OTS for capital
     distributions in excess of this limitation.  During the year ended June 30,
     2000,  the Savings  Bank  received  OTS  approval  to make $5.0  million in
     capital distributions to the Corporation.  At March 31, 2001, which was the
     expiration date of the approval, the Savings Bank had declared $3.0 million
     of the approved capital distributions. As of June 30, 2001, $500,000 of the
     Savings Bank's  declared  capital  distribution  remained to be paid to the
     Corporation.


                                       72
<PAGE>

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

     Not applicable.

                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
        WITH SECTION 16(A) OF THE EXCHANGE ACT
--------------------------------------------------------------------------------

     The  information  required by this item is  incorporated  by  reference  to
"Proposal I -- 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.


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

     The  information  required by this item is  incorporated  by  reference  to
"Voting Securities and Principal Holders Thereof" and "Proposal I -- Election of
Directors" in the Proxy Statement.


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.

                                     PART IV

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,
                  2001 and 2000
                  Consolidated Statements of Earnings for Each of the Years in
                    the Three-Year Period Ended June 30, 2001
                  Consolidated Statements of Comprehensive Income for Each of
                    the Years in the Three-Year Period Ended June 30, 2001
                  Consolidated Statements of Shareholders' Equity for Each of
                    the Years in the Three-Year Period Ended June 30, 2001
                  Consolidated Statements of Cash Flows for Each of the Years in
                    the Three-Year Period Ended June 30, 2001
                  Notes to Consolidated Financial Statements

                                       73
<PAGE>

          (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     Employment Agreements between First Federal Savings Bank and Betty J.
                   Long and Kevin R. Tolle                                                              *+
      10.8     Employment Agreements between Kentucky First Bancorp, Inc. and Betty J.
                   Long and Kevin R. Tolle                                                              *
      21       Subsidiaries of the Registrant
      23       Consent of Grant Thornton LLP
<FN>
---------
(*)  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.
</FN>
</TABLE>

     (b) REPORTS ON FORM 8-K. There were no Current Reports on Form 8-K filed by
         -------------------
the Company during the fourth quarter of fiscal year 2001.


                                       74
<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 27, 2001                     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 27, 2001
-----------------------------------------------------
Betty J. Long
President and Chief Executive Officer
(Director and Principal Executive Officer)

/s/ William D. Morris                                        September 27, 2001
-----------------------------------------------------
William D. Morris
Chairman of the Board
(Director)

/s/ Luther O. Beckett                                        September 27, 2001
-----------------------------------------------------
Luther O. Beckett
Vice Chairman of the Board
(Director)

/s/ Milton G. Rees                                           September 27, 2001
-----------------------------------------------------
Milton G. Rees
(Director)

/s/ Diane Ritchie                                            September 27, 2001
-----------------------------------------------------
Diane Ritchie
(Director)

/s/ John Swinford                                            September 27, 2001
-----------------------------------------------------
John Swinford
(Director)

/s/ Wilburt H. Wilson                                        September 27, 2001
-----------------------------------------------------
Wilbur H. Wilson
(Director)

/s/ Russell M. Brooks                                        September 27, 2001
-----------------------------------------------------
Russell M. Brooks
Executive Vice President
(Director and Principal Accounting and Financial Officer)