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, 2000

[    ]         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: (606) 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. [X]

Registrant's revenues for the fiscal year ended June 30, 2000:
$5,583,000

As of September 22, 2000,  the aggregate  market value of the 769,290  shares of
Common Stock of the registrant  issued and outstanding held by non-affiliates on
such date was  approximately  $7,981,384  based on the  closing  sales  price of
$10.375 per share of the  registrant's  Common  Stock on  September  21, 2000 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  22,
2000:  1,030,177

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  2000  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,  2000,  the  Company had total  assets of $73.9  million,
deposits  of  $53.3  million,   net  loans   receivable  of  $44.9  million  and
shareholders' equity of $13.0 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
306 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, A.T.K., Bullard  Manufacturing,  Concept Packaging
Group,  Cynthiana  Publishing  Company,  Grede  Perm Cast (a  division  of Grede
Foundries),  Harrison  Memorial  Hospital,  Judy  Construction Co., Lucas Equine
Equipment,  Macro Products  Company,  TI Group  Automotive,  TR Technologies and
SNAPCO. The Licking Valley Center of Maysville Community College is also located
in Cynthiana with an enrollment of approximately 740 students.


                                       2
<PAGE>

         According to the US Bureau of Labor  Statistics,  the unemployment rate
in  Harrison  County  for  June  2000  was  3.8% as  compared  to  4.0%  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
commercial and multi-family 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, 2000, the maximum amount that the Bank could have loaned to
any one borrower without prior OTS approval was $1.9 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, 2000, the Bank had no  concentrations of loans
exceeding 10% of total loans that are not otherwise disclosed below.
<TABLE>
<CAPTION>
                                                                               At June 30,
                                                             ----------------------------------------------------
                                                                      2000                          1999
                                                             -------------------             --------------------
                                                             Amount          %               Amount           %
                                                             -----         -----             ------        ------
                                                                            (Dollars in thousands)
<S>                                                         <C>             <C>             <C>             <C>
Type of Loan:
------------
Real estate loans:
  One- to four-family residential and construction (1)....  $   25,727      56.59%          $  27,299       56.24%
  Multi-family residential................................       4,740      10.43               4,526        9.32
  Agricultural............................................       5,174      11.38               5,702       11.75
  Commercial..............................................       6,708      14.75               6,722       13.85
                                                             ---------     ------             -------      ------
     Total real estate loans..............................      42,349      93.15              44,249       91.16

Commercial loans..........................................         864       1.90                 904        1.86
Agricultural operating loans..............................         419       0.92                 920        1.90

Consumer loans:
  Automobiles.............................................         428       0.94                 472        0.97
  Mobile home.............................................          71       0.16                  97        0.20
  Savings account.........................................         825       1.81               1,004        2.07
  Other...................................................         510       1.12                 895        1.84
                                                            ----------  -----------         ---------    --------
     Total consumer loans.................................       1,834       4.03               2,468        5.08
                                                            ----------   ---------          ---------    --------
     Total loans..........................................      45,466     100.00%             48,541      100.00%
                                                                           ======                          ======
Less:
  Loans in process........................................          18                            227
  Deferred loan fees......................................          80                             89
  Unearned discount.......................................           5                             10
  Allowance for loan losses...............................         443                            414
                                                            ----------                      ---------
     Loans receivable, net................................  $   44,920                      $  47,801
                                                            ==========                      =========
<FN>
____________
(1)      At June 30,  2000,  constructions  loans  amounted to $1.0  million and
         represented 2.3% of total gross loans.
</FN>
</TABLE>
         Loan  Maturity  Schedule.   The  following  table  sets  forth  certain
information  at June 30, 2000  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
                                                         6/30/00        6/30/00        6/30/00         Total
                                                         -------        -------        -------        --------
                                                                            (In thousands)

<S>                                                   <C>             <C>            <C>            <C>
Real estate mortgage........................          $    1,171      $    1,426     $   39,752     $   42,349
Consumer....................................               1,713             111             10          1,834
Commercial and agricultural operating.......               1,012             271             --          1,283
                                                      ----------      ----------     ----------     ----------
     Total..................................          $    3,896      $    1,808     $   39,762     $   45,466
                                                      ==========      ==========     ==========     ==========
</TABLE>

                                       4
<PAGE>

         The following  table sets forth at June 30, 2000,  the dollar amount of
all loans due one year or more after June 30, 2000 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...............................   $    27,103           $   14,075
                  Consumer...........................................           121                   --
                  Commercial and agricultural operating..............           271                   --
                                                                        -----------           ----------
                       Total.........................................   $    27,495           $   14,075
                                                                        ===========           ==========
</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, 2000, $25.7 million,
or 56.6% 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 95%
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. Private mortgage insurance is required.

         Multi-family and Commercial Real Estate Loans. The Bank has been active
in the  origination  and purchase of loans secured by commercial real estate and
multi-family  properties.  At June 30, 2000,  multi-family  and commercial  real
estate  loans  totaled  $4.7  million  and  $6.7  million,   respectively,   and
represented 10.4% and 14.8%, 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 a  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, 2000 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  warehouse  property
located in Lexington,  Kentucky. This loan had a balance of $888,000 at June 30,
2000.

         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, 2000, the average size of the Bank's  multi-family  and commercial real
estate loans was $89,000 as compared to the average  size of one-to  four-family
residential  real  estate  loans of $40,000.  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, 2000, the Bank's loan portfolio included no 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 may have either an adjustable or 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,  2000,  the Bank's
participation  interest in these construction  loans was $1.0 million.  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 commercial and  multi-family  real estate.  As of June 30,
2000, 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, 2000,  the Bank's
consumer loans totaled $1.8 million, or 4.0% 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,  2000,  the Bank had $5.2  million in  agricultural  real
estate loans, or 11.4% of its gross loan portfolio, and $419,000 in agricultural
operating loans, or 0.9% 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, 2000, the average size of an agricultural real
estate loan originated by the Bank was $37,000.

         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, 2000, the Bank's commercial loans amounted to $864,000,
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.

                                       8
<PAGE>

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

         Unsecured  commercial and consumer loans in an amount exceeding $40,000
must be  approved by a majority  of the Board of  Directors.  Loans in excess of
$10,000 up to $40,000 may be approved by a majority of the Executive  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. If the proposed loan is to be a
construction  loan,  the Bank also requires all cost  estimates and must receive
inspection certificates and lien waivers prior to making any disbursements under
the loan. 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  commitments and  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,  2000  the  Bank  had  $201,000  and  $182,000  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  $363,000  and a
specific allowance for loan losses of $200,000 as of June 30, 2000.  Payments on
this loan are approximately fourteen 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,
                                                                 -------------------------
                                                                   2000             1999
                                                                 -------          --------
                                                                       (In thousands)
<S>                                                              <C>              <C>
Balance at beginning of period.................................  $   414          $   384
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.............................................       --                3
                                                                 -------          -------
      Total:...................................................       10                3
                                                                 -------          -------
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.................................................       --                3
    Savings account............................................       --               --
    Other consumer.............................................       --               --
                                                                 -------          -------
      Total:...................................................       --                3
Net charge-offs................................................       10               --
                                                                 -------          -------
Provision for losses on loans..................................       39               30
                                                                 -------          -------
Balance at end of period.......................................  $   443          $   414
                                                                 =======          =======
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,
                                                     ----------------------------------------------------------
                                                              2000                            1999
                                                     ---------------------------     --------------------------
                                                                    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.  $    66           56.59%       $    71           56.24%
  Multi-family residential.........................      241           10.43            180            9.32
  Agricultural.....................................       46           11.38              4           11.75
  Commercial.......................................       60           14.75            117           13.85
Commercial loans...................................       10            1.90             11            1.86
Agricultural operating loans.......................        5            0.92             11            1.90
Consumer loans:
  Automobiles......................................        5            0.94              6            0.97
  Mobile homes.....................................        3            0.16              2            0.20
  Savings account..................................       --            1.81             --            2.07
  Other consumer loans.............................        7            1.12             12            1.84
                                                     -------          ------         ------          ------
    Total allowance for loan losses................  $   443          100.00%        $  414          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 generally  accepted  accounting  principles,  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,
                                                                            -------------------------
                                                                              2000             1999
                                                                            --------         -------
                                                                              (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...............................................     363             352
    Agricultural...........................................................      --              --
    Commercial.............................................................      --              --
  Commercial loans.........................................................      --              --
  Agricultural operating loans.............................................      --              --
  Consumer.................................................................      --              --
                                                                              -----          ------
     Total.................................................................     363             352
                                                                              -----          ------

Accruing loans which are contractually past due 90 days or more:
  Real estate:
    One- to four-family residential and construction.......................      --              34
    Multi-family residential...............................................      --              --
    Agricultural...........................................................      --              --
    Commercial.............................................................     166              22
  Commercial loans.........................................................       4              --
  Agricultural operating loans.............................................      --              --
  Consumer.................................................................      12              10
                                                                              -----          ------
     Total.................................................................     182              66
                                                                              -----          ------

Total non-performing loans (2).............................................   $ 545          $  418
                                                                              =====          ======

Total non-performing loans as a percentage
  of total net loans.......................................................    1.21%            .87%
                                                                              =====          ======
Total non-performing assets as a percentage
  of total assets..........................................................     .74%            .53%
                                                                              =====          ======
<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, 2000 and 1999,  non-performing  loan balances are presented
         gross and do not reflect  specific loan loss allowances of $200,000 and
         $150,000, respectively.
</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, 2000, gross interest income of $30,000 would have
been recorded on loans  accounted  for on a  non-accrual  basis if the loans had
been  current  throughout  the  respective   periods.  No  interest  income  was
recognized on such loans during the year ended June 30, 2000.

                                       13
<PAGE>

         At June 30,  2000,  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 deposits 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.  From time to time,  the OTS adjusts the percentage of liquid assets
which savings institutions are required to maintain. 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, 2000,  the Bank had $3.5 million in CMOs and REMICs,  which
amounted to 4.7% 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


                                       14
<PAGE>
yields as a result of the effect of falling  interest  rates on the  indexes for
determining payment of interest.  Additionally, the increased principal payments
received may be subject to reinvestment at lower rates. Conversely,  in a period
of rising  rates,  prepayments  would be expected to decrease,  which would make
less  principal  available for  reinvestment  at higher rates.  In a rising rate
environment,  floating  rate  instruments  would  generate  higher yields to the
extent that the indexes for  determining  payment of interest did not exceed the
life-time  interest rate caps.  Such  prepayment may subject the Bank's CMOs and
REMICs to yield and price volatility.

         Mortgage-Backed  Securities.  The 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,  2000,  the Bank  had  $11.1  million,  or  15.1% 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,
                                                                    -------------------------
                                                                       2000             1999
                                                                    --------         -------
                                                                         (In thousands)
<S>                                                                 <C>              <C>
          Investment securities held to maturity:
             Municipal obligations...............................   $  2,235          $  1,531
                                                                    --------          --------

          Investment securities available for sale:
            FHLB obligations.....................................      4,376             2,975
            FHLMC notes..........................................        929             1,914
            Municipal obligations................................      1,478             2,408
                                                                    --------          --------
              Total investment securities available for sale.....      6,783             7,297
                                                                    --------          --------
                Total investment securities......................   $  9,018          $  8,828
                                                                    ========          ========

          Mortgage-backed securities held to maturity:
            FHLMC participation certificates.....................   $    808               706
            GNMA participation certificates......................        784             1,063
            FNMA participation certificates......................      6,483             8,011
                                                                    --------          --------
              Total mortgage-backed securities held
                to maturity......................................      8,075             9,780
                                                                    --------          --------

          Mortgage-backed securities available for sale:
            FHLMC participation certificates.....................      3,074             3,174
            FNMA participation certificates......................      3,474             3,405
                                                                    --------          --------
              Total mortgage-backed securities available for sale      6,548             6,579
                                                                    --------          --------

              Total mortgage-backed securities...................     14,623            16,359

          Interest-earning deposits and certificates.............      1,223               809
                                                                    --------          --------

                Total investments and mortgage-backed
                  securities:....................................   $ 24,864          $ 25,996
                                                                    ========          ========
</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, 2000.
<TABLE>
<CAPTION>
                               One Year or Less       One to Five Years     Five to Ten Years      More than Ten Years
                               Carrying   Average   Carrying      Average   Carrying  Average     Carrying     Average
                                 Value     Yield      Value        Yield      Value    Yield        Value        Yield
                               --------   -------   --------      -------   --------  -------     --------     -------
                                                                  (Dollars in Thousands)
<S>                              <C>       <C>       <C>            <C>      <C>                  <C>            <C>
Investment securities:
  FHLB obligations..............  $   993   5.08%    $  2,459       6.61%    $    --      --%     $     924      7.00%
  FHLMC Notes...................       --     --           --         --         929    6.43             --        --
  State and municipal
    obligations.................      160   6.09        1,201       4.70         972    4.69          1,380      5.56
  Mortgage-backed
    securities..................       --     --           17       8.55       1,129    6.63         13,477      6.79
  Interest-earning deposits and
    certificates of deposits....    1,223   6.30           --         --          --      --             --        --
                                 --------             -------                -------                -------
      Total..................... $  2,376             $ 3,677                $ 3,030                $15,781
                                 ========             =======                =======                =======

<CAPTION>
                                          Total Investment Portfolio
                                     ------------------------------------
                                     Carrying      Market       Average
                                      Value        Value        Yield
                                     --------      ------       -------

<S>                                 <C>           <C>            <C>
Investment securities:
  FHLB obligations..............    $  4,376      $ 4,376        6.35%
  FHLMC Notes...................         929          929        6.43
  State and municipal
    obligations.................       3,713        3,701        5.08
  Mortgage-backed
    securities..................      14,623       14,371        6.78
  Interest-earning deposits and
    certificates of deposits....       1,223        1,223        6.30
                                     -------      -------
      Total.....................     $24,864      $24,600
                                     =======      ========

</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 $4.0 million,  or 7.5% of the Bank's total savings portfolio at June 30,
2000. 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, 2000 were  represented  by
the various types of savings programs described below.
<TABLE>
<CAPTION>
                                                                                    June 30, 2000
  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        $  6,015           11.29%
   0.92        None             Demand Checking                             200           1,399            2.63
   1.46        None             Checking with Interest Accounts             200           8,744           16.41
   2.95        None             Money Market Deposit Accounts             2,500           1,840            3.45
*  4.11        None             First Money MMDA Accounts                10,000           1,223            2.30
   2.25        None             Christmas Clubs                              --              62            0.12

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

*  5.00        91 days          91 day Fixed Term, Fixed Rate             1,000             448            0.84
*  5.44        6 months         6 Month Fixed Term, Fixed Rate            1,000           3,786            7.11
*  5.91        9 months         9 Month Fixed Term, Fixed Rate            1,000           3,640            6.83
*  5.44        1 year           1 Year, Fixed Term, Fixed Rate            1,000           8,677           16.28
*  6.44        15 months        15 Month Fixed Term, Fixed Rate           1,000           1,671            3.14
*  5.25        18 months        18 Month Fixed Term, Fixed Rate           1,000           3,953            7.42
*  5.26        18 months        IRA 18 Month Fixed Term, Fixed Rate         500           3,587            6.73
*  5.60        24 months        24 Month Fixed Term, Fixed Rate           1,000           1,416            2.66
*  5.51        30 months        30 Month Fixed Term, Fixed Rate           1,000             280            0.52
*  5.52        36 months        36 Month Fixed Term, Fixed Rate           1,000           2,106            3.95
*  5.61        36 months        IRA 36 Month Fixed Term, Fixed Rate         500             167            0.31
*  5.77        5 years          5 Year Fixed Term, Fixed Rate             1,000           3,619            6.79
*  5.92        5 years          IRA 5 Year, Fixed Term, Fixed Rate          500             651            1.22
                                                                                       --------          ------
                                                                                       $ 53,284          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 based on  month-end  balances for  interest-bearing
demand deposits and time deposits.
<TABLE>
<CAPTION>
                                                                   Year Ended June 30,
                                          ------------------------------------------------------------------
                                                            2000                                  1999
                                          ------------------------------        ----------------------------
                                           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...........................   $   19,466         $35,163           $19,610          $37,335
Average rate..............................         2.07%           5.23%             2.22%           5.31%
</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,
2000.


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

      Three months or less.......................................    $1,234
      More than three through six months.........................       815
      More than six through 12 months............................       491
      Over 12 months.............................................     1,477
                                                                     ------
              Total..............................................    $4,017
                                                                     ======

         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,
                                                                   ----------------------
                                                                    2000            1999
                                                                   ------          ------
                                                                   (Dollars in thousands)
<S>                                                                <C>             <C>
Amounts outstanding at end of period:
  FHLB advances..................................................  $6,827          $7,003

Weighted average rate paid on:
  FHLB advances..................................................    5.90%           5.09%
</TABLE>
<TABLE>
<CAPTION>
                                                                       For the Year
                                                                      Ended June 30,
                                                                   ----------------------
                                                                    2000            1999
                                                                   ------          ------
                                                                   (Dollars in thousands)
<S>                                                                <C>             <C>
Maximum amount of borrowings outstanding at any month end:
  FHLB advances and other borrowed money........................   $  7,632      $  9,511
</TABLE>

<TABLE>
<CAPTION>
                                                                       For the Year
                                                                      Ended June 30,
                                                                   ----------------------
                                                                    2000            1999
                                                                   ------          ------
                                                                   (Dollars in thousands)
<S>                                                                <C>             <C>
Approximate average borrowings outstanding with respect to:
  FHLB advances and other borrowed money.........................  $  7,029      $ 7,401

Approximate weighted average rate paid on: (1)
  FHLB advances and other borrowed money.........................      5.58%        5.27%
<FN>
____________
(1)      Weighted  average  computed by dividing total interest paid by
         average balance outstanding.
</FN>
</TABLE>

         As of June 30, 2000, the Bank had $6.8 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, 2000, 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, 2000, 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,
                                                                   ----------------------
                                                                    2000            1999
                                                                   ------          ------
<S>                                                                <C>             <C>
   Return on assets (net earnings divided by
      average total assets)....................................       1.11%         1.10%
   Return on average stockholders' equity (net earnings
      divided by average stockholders' equity).................       6.27          6.28
   Dividend payout ratio (dividends declared per share
      divided by net earnings per share).......................      62.50         64.94
   Interest rate spread (combined weighted average
      interest rate earned less combined weighted
      average interest rate cost)..............................       3.03          3.05
   Ratio of average interest-earning assets to
      average interest-bearing liabilities.....................     119.10        118.79
   Ratio of noninterest expense to average total assets........       2.29          2.28
</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, 2000, 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                           2000            Title
    ----                         --------          -----
<S>                                 <C>      <C>
Kevin R. Tolle                      43       Vice President, Secretary/Treasurer
Robbie G. Cox                       53       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.

         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-affilate.


                                       22
<PAGE>
The term "covered transaction" includes the making of loans, purchase of assets,
issuance of a guarantee and similar other types of transactions.  In addition to
the restrictions imposed by Sections 23A and 23B, no savings institution may (i)
loan or otherwise extend credit to an affiliate,  except for any affiliate which
engages only in activities which are permissible for bank holding companies,  or
(ii)  purchase  or invest in any  stocks,  bonds,  debentures,  notes or similar
obligations of any affiliate,  except for affiliates  which are  subsidiaries of
the savings institution. Savings associations are also subject to the anti-tying
provisions  of Section  106(b) of the Bank Holding  Company Act of 1956 ("BHCA")
which prohibits a depository  institution  from extending  credit to or offering
any other services, or fixing or varying the consideration for such extension of
credit or service,  on the condition  that the customer  obtain some  additional
service from the institution or certain of its affiliates or not obtain services
of a competitor of the institution, subject to certain exceptions.

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

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

                                       23
<PAGE>

         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 MODERIZATION.  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,  2000,  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, 2000, 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,  2000,  the Bank's
risk-weighted assets were approximately $42.6 million.


                                       26
<PAGE>

         The table below  presents the Bank's capital  position  relative to its
various regulatory capital requirements at June 30, 2000.
<TABLE>
<CAPTION>
                                                                                    Percent of
                                                                        Amount      Assets(1)
                                                                        ------      ----------
                                                                        (Dollars in Thousands)

          <S>                                                           <C>           <C>
          Tangible capital............................................. $12,569       17.0%
          Tangible capital requirement.................................   1,111        1.5
                                                                        -------       ----
            Excess..................................................... $11,458       15.5%
                                                                        =======       ====

          Core capital................................................. $12,569       17.0%
          Core capital requirement.....................................   2,964        4.0
                                                                        -------       ----
            Excess..................................................... $ 9,605       13.0%
                                                                        =======       ====

          Total capital (i.e., core and supplementary capital)......... $12,812       30.1%
          Risk-based capital requirement...............................   3,408        8.0
                                                                        -------       ----
            Excess..................................................... $ 9,404       22.1%
                                                                        =======       ====
<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 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.

                                       27
<PAGE>

         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  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



                                       28
<PAGE>
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, 2000,  approximately 75.3% 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 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



                                       29
<PAGE>
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.

         The  FDIC has  adopted  a new  assessment  schedule  for  SAIF  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.  Until  December  31,  1999,  however,
SAIF-insured  institutions,  were required to pay assessments to the FDIC at the
rate of 6.5 basis points to help


                                       30
<PAGE>
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.  During this  period,  BIF members  were  assessed for these
obligations at the rate of 1.3 basis points.  Since December 31, 1999,  however,
both BIF and SAIF members are being assessed at the same rate for FICO payments.
This rate is reset  quarterly.  For the third calendar quarter of 2000, the rate
is set at 2.06 basis points.

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

         LIQUIDITY REQUIREMENTS.  The Bank is required to maintain average daily
balances of liquid assets (cash,  certain time deposits,  bankers'  acceptances,
highly rated corporate debt and commercial  paper,  securities of certain mutual
funds,  and  specified  United  States  government,   state  or  federal  agency
obligations)  in each calendar year of not less than 4% of its net  withdrawable
savings deposits plus short term borrowings at the end of the preceding  quarter
or 4% of the  average  daily  balance  of its  net  withdrawable  accounts  plus
short-term borrowings during the preceding calendar quarter.  Monetary penalties
may be imposed for failure to meet  liquidity  requirements.  The average  daily
liquidity ratio of the Bank for the month of June 2000 was 11.3%.

         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,
2000, of $1.3 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,
2000, the Bank had $6.8 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 $44.3 million,  plus 10% on the remainder.  This percentage is subject
to adjustment by the Federal Reserve Board.  Because  required  reserves must be
maintained in the form of vault cash or in a non-interest  bearing  account at a
Federal  Reserve Bank,  the effect of the reserve  requirement  is to reduce the
amount of the  institution's  interest-earning  assets. As of June 30, 2000, the
Bank met its reserve requirements.


                                       31
<PAGE>

TAXATION

         The Company and the Bank will file a consolidated federal income return
for the year ended June 30, 2000.

         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 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


                                       32
<PAGE>

certain  acquired   intangible  assets  such  as  goodwill  and   customer-based
intangibles were allowed a 15-year amortization period. Beginning with tax years
ending on or after January 1, 1993,  RRA also provides that  securities  dealers
must use mark-to-market accounting and generally reflect changes in value during
the year or upon sale as taxable  gains or losses.  The IRS has  indicated  that
financial  institutions  which  originate  and sell loans will be subject to the
rule.

STATE INCOME TAXATION

         The  Commonwealth  of Kentucky  imposes no income or franchise taxes on
savings institutions.  The Bank is subject to an annual Kentucky ad valorem tax.
This tax is 0.1% of the Bank's  savings  accounts,  common  stock,  capital  and
retained income with certain deductions allowed for securities guaranteed by the
U.S.  Government or certain of its agencies.  For the fiscal year ended June 30,
2000, the amount of such expense for the Bank was $60,000.

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, 2000.
<TABLE>
<CAPTION>

                                                                  Book Value
                                  Year           Owned or         at June 30,           Approximate
                                 Opened           Leased             2000             Square Footage
                                 ------           ------             ----             --------------

<S>                               <C>              <C>            <C>                      <C>
306 North Main Street             1975             Owned          $  240,000               4,278
Cynthiana, Kentucky

100 Ladish Road
Cynthiana, Kentucky               1994             Owned          $  856,000               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 having the answer evaluated by counsel.


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 2000.


                                       33
<PAGE>

                                     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,  2000,  there were
1,030,177  shares of the Common  Stock  outstanding.  The  number of  registered
holders as of that date was 292.

         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, 1998                        $15.0000   $13.5000   $0.125
December 31, 1998 ................        $13.6250   $12.1250   $0.125
March 31, 1999 ...................        $12.9375   $12.5000   $0.125
June 30, 1999 ....................        $12.5000   $11.8750   $0.125

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 ....................        $10.1875   $ 9.9375   $0.125
</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.


                                       34
<PAGE>

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.

         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
SAIF deposit insurance premiums,  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.


                                       35
<PAGE>
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.

         The  following  tables set forth the interest rate  sensitivity  of the
Bank's net  portfolio  value as of June 30, 2000 and June 30, 1999, 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, 2000

                      Net Portfolio Value       NPV as % of Portfolio  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
<CAPTION>

                       NET PORTFOLIO VALUE, JUNE 30, 1999

                      Net Portfolio Value       NPV as % of Portfolio  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 .........  $ 8,535  $(4,162)     (33)%     11.64%        (451) bp
+200 bp .........    9,998   (2,699)     (21)      13.30         (285) bp
+100 bp .........   11,417   (1,280)     (10)      14.84         (131) bp
   0 bp .........   12,697                         16.15
-100 bp .........   13,734    1,037        8       17.16          101 bp
-200 bp .........   14,664    1,967       15       18.02          187 bp
-300 bp .........   15,764    3,067       24       19.01          286 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.

                                       36
<PAGE>

         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.


                                       37
<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,
                                            -----------------------------------------------------------------------------
                                                          2000                                    1999
                                            ---------------------------------      ---------------------------------
                                            Average                   Yield/       Average                   Yield/
                                            Balance       Interest     Cost        Balance       Interest     Cost
                                            -------       --------   --------      -------       --------    -------
                                                                                        (Dollars in thousands)
<S>                                         <C>           <C>            <C>        <C>          <C>             <C>
Interest-earning assets:
  Loans receivable, net (1)...............  $  46,913     $  3,728       7.95%      $  48,157    $   3,914       8.13%
  Mortgage-backed securities..............     15,167          990       6.53          16,883        1,096       6.49
  Investment securities...................      9,213          521       5.66           9,138          529       5.79
  Other interest-earning assets...........      2,145          125       5.83           2,261          126       5.57
                                            ---------     --------                  ---------    ---------
    Total interest-earning assets.........     73,438        5,364       7.30          76,439        5,665       7.41
Non-interest-earning assets...............      2,468                                   2,339
                                            ---------                               ---------
    Total assets..........................  $  75,906                               $  78,778
                                            =========                               =========
Interest-bearing liabilities:
  Deposits................................  $  54,629        2,241       4.10       $  56,945        2,418       4.25
  Borrowings..............................      7,029          392       5.58           7,401          390       5.27
                                            ---------     --------                  ---------    ---------
     Total interest-bearing liabilities...     61,658        2,633       4.27          64,346        2,808       4.36
                                                          --------   --------                    ---------   --------
Non-interest-bearing liabilities..........        853                                     642
                                            ---------                               ---------
     Total liabilities....................     62,511                                  64,988
Shareholders' equity......................     13,395                                  13,790
                                            ---------                               ---------
     Total liabilities and
       shareholders' equity...............  $  75,906                               $  78,778
                                            =========                               =========
Net interest income.......................                $  2,731                               $   2,857
                                                          ========                               =========
Interest rate spread (2)..................                               3.03%                                   3.05%
                                                                     ========                                ========
Net yield on interest-earning assets (3)..                               3.72%                                   3.74%
                                                                     ========                                ========
Ratio of average interest-earning assets to
  average interest-bearing liabilities....                             119.11%                                 118.79%
                                                                       ======                                  ======

<CAPTION>

                                                            Year Ended June 30,
                                                -----------------------------------
                                                             1998
                                                -----------------------------------
                                                Average                     Yield/
                                                Balance     Interest          Cost
                                                -------     --------        --------

<S>                                               <C>        <C>              <C>
Interest-earning assets:
  Loans receivable, net (1)...............        $ 49,732   $    4,072       8.19%
  Mortgage-backed securities..............          19,509        1,312       6.73
  Investment securities...................          11,937          746       6.25
  Other interest-earning assets...........           1,930           99       5.13
                                                  --------     --------
    Total interest-earning assets.........          83,108        6,229       7.50
Non-interest-earning assets...............           2,482
                                                  --------
    Total assets..........................        $ 85,590
                                                  ========
Interest-bearing liabilities:
  Deposits................................        $ 55,480        2,467       4.45
  Borrowings..............................          14,860          849       5.71
                                                  --------     --------
     Total interest-bearing liabilities...          70,340        3,316       4.71
                                                               --------     ------
Non-interest-bearing liabilities..........             808
                                                  --------
     Total liabilities....................          71,148
Shareholders' equity......................          14,442
                                                  --------
     Total liabilities and
       shareholders' equity...............        $ 85,590
                                                  ========
Net interest income.......................                     $   2,913
                                                               =========
Interest rate spread (2)..................                                    2.79%
                                                                           =======
Net yield on interest-earning assets (3)..                                    3.51%
                                                                           =======
Ratio of average interest-earning assets to
  average interest-bearing liabilities....                                  118.15%
                                                                            ======

<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>


                                       38
<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,
                                         -----------------------------------------------------------------------
                                           2000       vs.          1999               1999       vs.      1998
                                         --------------------------------          -----------------------------
                                                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................................  $  (86)     $ (100)    $  (186)           $  (30)    $ (128)     $ (158)
  Mortgage-backed securities (1).......       6        (112)       (106)              (46)      (170)       (216)
  Investment securities (1)............     (12)          4          (8)              (55)      (162)       (217)
  Other interest-earning assets........       8          (9)         (1)                9         18          27
                                         ------      ------     -------            ------     ------      ------
     Total interest-earning assets.....     (84)       (217)       (301)             (122)      (442)       (564)
                                         ------      ------     -------            ------     ------      ------

Interest expense:
  Deposits.............................     (81)        (96)       (177)             (111)        62         (49)
  Borrowings...........................      15         (13)          2               (66)      (393)       (459)
                                         ------      ------     -------            ------     ------      ------
     Total interest-bearing
       liabilities.....................     (66)       (109)       (175)             (177)      (331)       (508)
                                         ------      ------     -------            ------     ------      ------
Decrease in net interest income........                         $  (126)                                  $  (56)
                                                                =======                                   ======
<FN>
_________
(1)      Includes securities designated as available for sale.
</FN>
</TABLE>

COMPARISON OF FINANCIAL CONDITION AS OF JUNE 30, 2000 AND 1999

         At June 30, 2000, the Company's  consolidated  total assets amounted to
$73.9 million,  a decrease of $4.2 million,  or 5.5%, from the total at June 30,
1999. The decrease in assets resulted  primarily from a decrease of $3.3 million
in deposits, a $176,000 decrease in advances from the Federal Home Loan Bank and
a decline in shareholders' equity of $849,000.

         Liquid  assets (i.e.  cash,  interest-bearing  deposits and  investment
securities)  increased by $347,000, or 3.4%, to a total of $10.6 million at June
30, 2000.  Investment securities totaling $1.5 million were purchased during the
period and were offset by maturities of $1.2 million. Mortgage-backed securities
totaled $14.6  million at June 30, 2000, a decrease of $1.7  million,  or 10.6%,
from June 30, 1999 levels. The decrease in mortgage-backed  securities  resulted
primarily  from  principal  repayments of $2.6 million offset by $1.0 million of
purchases  during  the  period.  Proceeds  from  maturities  of  investment  and
mortgage-backed  securities  were  primarily  used to fund deposit  withdrawals.
Regulatory liquidity amounted to 11.51% at June 30, 2000.

         Net loans  receivable  decreased by $2.9 million,  or 6.0%,  during the
period, to a total of $44.9 million at June 30, 2000. Loan disbursements of $5.6
million and loan purchases of $2.9 million were exceeded by principal repayments
of $11.3  million.  The allowance for loan losses  totaled  $443,000 at June 30,
2000,  as compared to $414,000 at June 30, 1999.  Non-performing  loans  totaled
$345,000  at June 30,  2000,  as compared  to  $268,000  at June 30,  1999.  The
allowance for loan losses  represented 128% of  non-performing  loans as of June
30,  2000 and 154% at June  30,  1999.  Although  management  believes  that its
allowance for loan losses at June 30, 2000, 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.

                                       39
<PAGE>

         Deposits  totaled  $53.3  million at June 30,  2000, a decrease of $3.3
million,  or 5.9%,  from  June 30,  1999  levels.  During  the  current  period,
management  had not attempted to match premium  deposit rates offered by certain
competitors and had instead  continued its  conservative  pricing  strategy with
respect to  deposit  accounts  during the  current  interest  rate  environment.
Advances  from the FHLB  totaled  $6.8  million at June 30,  2000, a decrease of
$176,000, or 2.5%, from the total at June 30, 1999.

         The Company's  shareholders'  equity  amounted to $13.0 million at June
30,  2000,  a decrease of  $849,000,  or 6.1%,  from June 30, 1999  levels.  The
decrease  resulted  from  purchases of treasury  stock  totaling  $1.3  million,
dividends  paid on common stock  totaling  $533,000  and a $154,000  increase in
unrealized  losses on securities  designated  as available for sale,  which were
partially offset by fiscal 2000 net earnings of $840,000, the issuance of shares
under the stock  option plan of $73,000 and the  amortization  of stock  benefit
plans of $237,000.

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 in the current
period  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
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 in the current year is  reflective  of  management's  concern  about a
moderate increase in 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.

                                       40
<PAGE>

         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,  a $12,000,  or 35.3%,
decrease in federal deposit insurance premiums and a $20,000,  or 4.8%, 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 is primarily 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.


COMPARISON  OF RESULTS OF  OPERATIONS  FOR THE FISCAL  YEARS ENDED JUNE
30, 1999 AND 1998

         GENERAL.  Net  earnings  amounted to $866,000 for the fiscal year ended
June 30, 1999, a decrease of $51,000,  or 5.6%,  compared to the $917,000 of net
earnings  reported in fiscal 1998.  The decrease in fiscal 1999 net earnings was
due to a $56,000  decrease in net interest  income,  a $7,000  decrease in other
income,  and a $24,000  increase in general,  administrative  and other expense,
which were partially  offset by a $36,000  decrease in the provision for federal
income taxes.

         NET  INTEREST  INCOME.  Interest  income  totaled  $5.7 million for the
fiscal year ended June 30, 1999, a decrease of $564,000,  or 9.1%, from the $6.2
million of  interest  income  reported in fiscal  1998.  The  decrease  resulted
primarily from a $6.7 million, or 8.0%, decrease in the weighted-average balance
of interest  earning assets  outstanding,  and, to a lesser extent,  from a nine
basis point  decrease in the average  yield,  from 7.50%  during  fiscal 1998 to
7.41% during fiscal 1999.  Interest  income on loans  decreased by $158,000,  or
3.9%, due to a $1.6 million, or 3.2%, decrease in the weighted-average  balances
of loans  outstanding  coupled  with a six basis point  decrease in yield,  from
8.19%  during  fiscal  1998 to 8.13%  during  fiscal  1999.  Interest  income on
mortgage-backed  securities  decreased  by  $216,000,  or  16.5%,  due to a $2.6
million, or 13.5%, decrease in the weighted-average  balance outstanding and due
to a 24 basis point decrease in average yield,  from 6.73% during fiscal 1998 to
6.49%  during  fiscal  1999.  Interest  income  on  investment   securities  and
interest-bearing  deposits  decreased  by  $190,000,  or  22.5%,  due  to a $2.5
million, or 17.8%, decrease in the weighted-average  balance outstanding and due
to a 34 basis point decrease in average yield,  from 6.09% during fiscal 1998 to
5.75% during fiscal 1999.

         Interest  expense  totaled  $2.8 million for the fiscal year ended June
30,  1999,  a decrease of  $508,000,  or 15.3%,  from the $3.3  million of total
interest expense reported in fiscal 1998. Interest expense on deposits decreased
by $49,000,  or 2.0%,  due to a 20 basis point  decrease in the average  cost of
deposits,  from 4.45% during fiscal 1998 to 4.25% during fiscal 1999,  which was
partially offset by a $1.5 million,  or 2.6%,  increase in the  weighted-average
balance of deposits  outstanding.  Interest  expense on borrowings  decreased by
$459,000,  or  54.1%,  due  to  a  $7.5  million,  or  50.2%,  decrease  in  the
weighted-average balance of advances outstanding from the Federal Home Loan Bank
and due


                                       41
<PAGE>
to a 44 basis point  decrease in the average cost on such  advances,  from 5.71%
during fiscal 1998 to 5.27% during fiscal 1999.

          As a result of the foregoing  changes in interest  income and interest
expense,  net interest income decreased by $56,000,  or 1.9%, to a total of $2.9
million for the fiscal year ended June 30, 1999, as compared to fiscal 1998. The
interest  rate  spread  amounted  to  approximately  3.05% and 2.79%  during the
respective fiscal 1999 and 1998 periods,  while the net interest margin amounted
to approximately 3.74% in fiscal 1999 and 3.51% in fiscal 1998.

         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 $30,000  provision  for losses on loans during the fiscal
year  ended June 30,  1999,  equal to the  $30,000  provision  recorded  for the
comparable period in 1998.

         OTHER INCOME. Other income decreased by $7,000, or 3.6%, for the fiscal
year ended June 30, 1999,  compared to fiscal 1998, due to an $11,000, or 68.8%,
decrease in gain on  investment  securities  transactions,  which was  partially
offset by a $3,000,  or 2.3%,  increase in service charges and fees on loans and
deposits.

         GENERAL,  ADMINISTRATIVE AND OTHER EXPENSE. General, administrative and
other  expense  totaled $1.8 million for the fiscal year ended June 30, 1999, an
increase of  $24,000,  or 1.4%,  from fiscal  1998.  The  increase  was due to a
$38,000,  or 25.3%,  increase in occupancy  and  equipment,  a $7,000,  or 5.6%,
increase in data processing,  and a $9,000, or 2.2%, increase in other operating
expense, which were partially offset by a $30,000, or 2.8%, decrease in employee
compensation and benefits.

         The  increase  of  $38,000 in  occupancy  and  equipment  was due to an
increase in depreciation  expense in fiscal 1999 as compared to fiscal 1998. The
decrease of $30,000 in employee  compensation and benefits was due to a decrease
in the  expense  recorded  in fiscal  1999  related to the stock  benefit  plans
reflecting the decreased market price of the Kentucky First Bancorp, Inc. common
stock,  which was offset by an  increase  in  compensation  due to an  increased
staffing level during fiscal 1999.

         FEDERAL  INCOME TAXES.  The provision for federal  income taxes totaled
$350,000  for the fiscal year ended June 30,  1999,  a decrease  of $36,000,  or
9.3%,  compared  to fiscal  1998.  This  decrease  resulted  primarily  from the
decrease in net earnings  before taxes of $87,000,  or 6.7%.  The  effective tax
rates were 28.8% and 29.6% for the fiscal  years  ended June 30,  1999 and 1998,
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  capital ratios are  substantially in excess of current
regulatory capital requirements.  At June 30, 2000, the Bank's tangible and core
capital  amounted  to 17.0% of  adjusted  total  assets,  or  15.5%  and  13.0%,
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
30.1% at June 30, 2000, or 22.1% in excess of the Bank's 8.0% risk-based capital
requirement.

         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  specified  liquid
assets  which  are  currently  equal to 4% of  deposits  and  borrowings.  First
Federal's  daily average  liquidity  ratio for the month of June 2000 was 11.3%.
Management seeks to maintain a liquidity ratio at or near the regulatory minimum
as a means of improving the return on the investment of the Bank's assets.

                                       42
<PAGE>

         The  Bank's   regulatory   liquid  assets  consist  of  cash  and  cash
equivalents and certain of the Bank's investment and mortgage-backed securities,
with original  maturities of less than five years. The level of liquid assets is
dependent on the Bank's operating, financing and investing activities during any
given  period.  At  June  30,  2000  the  Bank's  regulatory  liquidity  totaled
approximately $6.0 million.

IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS

         Derivatives  and  Hedging  Activities.  In  June  1998,  the  Financial
Accounting Standards Board (the "FASB") issued Statement of Financing Accounting
Standards ("SFAS") No. 133,  "Accounting for Derivative  Instruments and Hedging
Activities"  which  requires  entities to  recognize  all  derivatives  in their
financial  statements  as either assets or  liabilities  measured at fair value.
SFAS No. 133 also specifies new methods of accounting for hedging  transactions,
prescribes the items and transactions that may be hedged, and specifies detailed
criteria to be met to qualify for hedge accounting.

         The definition of a derivative  financial instrument is complex, but in
general it is an instrument  with one or more  underlyings,  such as an interest
rate or foreign exchange rate, that is applied to a notional amount,  such as an
amount of currency, to determine the settlement amount(s). It generally requires
no  significant  initial  investment and can be settled net or by delivery of an
asset that is readily  convertible to cash.  SFAS No. 133 applies to derivatives
embedded in other contracts, unless the underlying of the embedded derivative is
clearly and closely related to the host contract.

         SFAS No. 133, as amended by SFAS No. 137, is effective for fiscal years
beginning  after June 15, 2000. On adoption,  entities are permitted to transfer
held-to-maturity debt securities to the  available-for-sale  category or trading
category  without  calling  into  question  their  intent  to  hold  other  debt
securities to maturity in the future. Management adopted SFAS No. 133, effective
July 1, 2000, as required,  without a material impact on the Company's financial
statements.

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, 2000 and 1999, and the related
consolidated statements of earnings,  comprehensive income, shareholders' equity
and cash  flows  for the  years  ended  June 30,  2000,  1999  and  1998.  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  generally   accepted  auditing
standards.  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, 2000 and 1999, and the consolidated results of its
operations and its cash flows for the years ended June 30, 2000,  1999 and 1998,
in conformity with generally accepted accounting principles.



/S/ Grant Thornton LLP


Cincinnati, Ohio
August 28, 2000




                                       44
<PAGE>

                          KENTUCKY FIRST BANCORP, INC.

                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

                                    June 30,
                        (In thousands, except share data)
<TABLE>
<CAPTION>

         ASSETS                                                                                2000                1999
<S>                                                                                        <C>                 <C>
Cash and due from banks                                                                    $    378            $    635
Interest-bearing deposits in other financial institutions                                     1,223                 809
                                                                                            -------             -------
         Cash and cash equivalents                                                            1,601               1,444

Investment securities available for sale - at market                                          6,783               7,297
Investment securities held to maturity - at amortized cost, approximate
  market value of $2,223 and $1,545 as of June 30, 2000 and 1999                              2,235               1,531
Mortgage-backed securities available for sale - at market                                     6,548               6,579
Mortgage-backed securities held to maturity - at amortized cost, approximate
  market value of $7,823 and $9,613 as of June 30, 2000 and 1999                              8,075               9,780
Loans receivable - net                                                                       44,920              47,801
Office premises and equipment - at depreciated cost                                           1,203               1,271
Federal Home Loan Bank stock - at cost                                                        1,301               1,212
Accrued interest receivable                                                                     424                 409
Prepaid expenses and other assets                                                               520                 479
Prepaid federal income taxes                                                                     86                 181
Deferred federal income taxes                                                                   165                 160
                                                                                            -------             -------

         Total assets                                                                       $73,861             $78,144
                                                                                             ======              ======


         LIABILITIES AND SHAREHOLDERS' EQUITY

Deposits                                                                                    $53,284             $56,628
Advances from the Federal Home Loan Bank                                                      6,827               7,003
Accrued interest payable                                                                        147                  91
Other liabilities                                                                               620                 590
                                                                                            -------             -------
         Total liabilities                                                                   60,878              64,312

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                                                                  9,320               9,300
  Retained earnings - restricted                                                              8,754               8,447
  Less shares acquired by stock benefit plans                                                  (798)             (1,024)
  Less 333,933 and 214,658 shares of treasury stock - at cost                                (4,039)             (2,791)
  Accumulated comprehensive loss, unrealized losses on securities
    designated as available for sale, net of related tax effects                               (268)               (114)
                                                                                            -------             --------
         Total shareholders' equity                                                          12,983              13,832
                                                                                             ------              ------

         Total liabilities and shareholders' equity                                         $73,861             $78,144
                                                                                             ======              ======
</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>

                                                                                2000             1999              1998
<S>                                                                           <C>              <C>               <C>
Interest income
  Loans                                                                       $3,728           $3,914            $4,072
  Mortgage-backed securities                                                     990            1,096             1,312
  Investment securities                                                          521              529               746
  Interest-bearing deposits and other                                            125              126                99
                                                                              ------           ------           -------
         Total interest income                                                 5,364            5,665             6,229

Interest expense
  Deposits                                                                     2,241            2,418             2,467
  Borrowings                                                                     392              390               849
                                                                              ------           ------            ------
         Total interest expense                                                2,633            2,808             3,316
                                                                               -----            -----             -----

         Net interest income                                                   2,731            2,857             2,913

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

         Net interest income after provision
           for losses on loans                                                 2,692            2,827             2,883

Other income
  Gain on investment securities transactions                                     -                  5                16
  Service charges on deposit accounts                                            168              133               130
  Other operating                                                                 51               49                48
                                                                              ------           ------            ------
         Total other income                                                      219              187               194

General, administrative and other expense
  Employee compensation and benefits                                           1,010            1,029             1,059
  Occupancy and equipment                                                        169              188               150
  Federal deposit insurance premiums                                              22               34                34
  Data processing                                                                142              133               126
  Other operating                                                                394              414               405
                                                                              ------           ------            ------
         Total general, administrative and other expense                       1,737            1,798             1,774
                                                                               -----            -----             -----

         Earnings before income taxes                                          1,174            1,216             1,303

Federal income taxes
  Current                                                                        260              361               385
  Deferred                                                                        74              (11)                1
                                                                             -------          -------          --------
         Total federal income taxes                                              334              350               386
                                                                              ------           ------            ------

         NET EARNINGS                                                        $   840          $   866           $   917
                                                                              ======           ======            ======

         EARNINGS PER SHARE
           Basic                                                                $.80             $.77              $.77
                                                                                 ===              ===               ===

           Diluted                                                              $.79             $.75              $.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 years ended June 30,
                                 (In thousands)
<TABLE>
<CAPTION>

                                                                                         2000         1999         1998

<S>                                                                                    <C>          <C>          <C>
Net earnings                                                                           $  840       $  866       $  917

Other comprehensive income, net of tax:
  Unrealized holding gains (losses) on securities
    during the period, net of tax of $(79), $(104) and $55
    in 2000, 1999 and 1998, respectively                                                 (154)        (202)         107
  Reclassification adjustment for realized gains
    included in earnings, net of tax of $2 and $5 for the
    years ended June 30, 1999 and 1998                                                    -             (3)         (11)
                                                                                        -----        -----        -----

Comprehensive income                                                                   $  686       $  661       $1,013
                                                                                        =====        =====        =====

Accumulated comprehensive income (loss)                                                $ (268)      $ (114)      $   91
                                                                                        =====        =====        =====

</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, 2000, 1999 and 1998
                        (In thousands, except share data)
<TABLE>
<CAPTION>


                                                                                                                     SHARES
                                                                             ADDITIONAL                            ACQUIRED
                                                                 COMMON         PAID-IN         RETAINED           BY STOCK
                                                                  STOCK         CAPITAL         EARNINGS      BENEFIT PLANS
<S>                                                              <C>             <C>              <C>               <C>
Balance at July 1, 1997                                          $   14          $9,220           $7,825            $(1,509)

Purchase of treasury stock                                           -               -                -                  -
Amortization expense of stock benefit plans                          -               81               -                 260
Net earnings for the year ended June 30, 1998                        -               -               917                 -
Cash dividends of $.50 per share                                     -               -              (598)                -
Issuance of shares under stock option plan                           -              (10)              -                  -
Unrealized gains on securities designated as
  available for sale, net of related tax effects                     -               -                -                  -
                                                                  -----           -----            -----              -----

Balance at June 30, 1998                                             14           9,291            8,144             (1,249)

Purchase of treasury stock                                           -               -                -                  -
Amortization expense of stock benefit plans                          -               34               -                 225
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             (1,024)

Purchase of treasury stock                                           -               -                -                  -
Amortization expense of stock benefit plans                          -               11               -                 226
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             $ (798)
                                                                  =====           =====            =====              =====
<CAPTION>
                                                                                     UNREALIZED
                                                                                 GAINS (LOSSES)
                                                                                  ON SECURITIES
                                                                                     DESIGNATED
                                                                   TREASURY        AS AVAILABLE
                                                                      STOCK            FOR SALE        TOTAL
<S>                                                                 <C>                 <C>          <C>
Balance at July 1, 1997                                             $  (818)            $    (5)     $14,727

Purchase of treasury stock                                           (1,124)                 -        (1,124)
Amortization expense of stock benefit plans                              -                   -           341
Net earnings for the year ended June 30, 1998                            -                   -           917
Cash dividends of $.50 per share                                         -                   -          (598)
Issuance of shares under stock option plan                               59                  -            49
Unrealized gains on securities designated as
  available for sale, net of related tax effects                         -                   96           96
                                                                      -----             -------     --------

Balance at June 30, 1998                                             (1,883)                 91       14,408

Purchase of treasury stock                                           (1,050)                 -        (1,050)
Amortization expense of stock benefit plans                              -                   -           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                                             (2,791)               (114)      13,832

Purchase of treasury stock                                           (1,312)                 -        (1,312)
Amortization expense of stock benefit plans                              -                   -           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                                            $(4,039)             $ (268)     $12,983
                                                                     ======               =====       ======

</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>


                                                                                    2000            1999           1998
<S>                                                                             <C>             <C>            <C>
Cash flows from operating activities:
  Net earnings for the year                                                     $    840        $    866       $    917
  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                                (1)            (11)           (14)
    Amortization of deferred loan origination fees                                   (14)            (21)           (36)
    Depreciation and amortization                                                     83             100             67
    Provision for losses on loans                                                     39              30             30
    Amortization of expense related to stock benefit plans                           237             259            341
    Gain on investment securities transactions                                        -               (5)           (16)
    Federal Home Loan Bank stock dividends                                           (89)            (82)           (78)
    Increase (decrease) in cash due to changes in:
      Accrued interest receivable                                                    (15)             83             82
      Prepaid expenses and other assets                                              (41)            (19)           (45)
      Accrued interest payable                                                        56             (26)           (31)
      Other liabilities                                                               30              47            (25)
      Federal income taxes
        Current                                                                       95             (37)          (112)
        Deferred                                                                      74             (11)             1
                                                                                --------        --------       --------
         Net cash provided by operating activities                                 1,294           1,173          1,081

Cash flows provided by (used in) investing activities:
  Proceeds from maturity of investment securities                                  1,175           7,173          7,811
  Purchase of investment securities designated as available for sale              (1,485)         (6,369)        (3,580)
  Purchase of mortgage-backed securities designated as available for sale           (978)         (3,975)            -
  Principal repayments on mortgage-backed securities                               2,602           5,352          3,387
  Purchase of loans                                                               (2,908)         (2,601)          (783)
  Loan principal repayments                                                       11,329          15,387         12,756
  Loan disbursements                                                              (5,565)        (11,795)       (11,848)
  Purchase of office premises and equipment                                          (15)            (15)           (26)
                                                                                --------        --------       --------
         Net cash provided by investing activities                                 4,155           3,157          7,717
                                                                                --------        --------       --------

         Net cash provided by operating and investing
           activities (subtotal carried forward)                                   5,449           4,330          8,798
                                                                                --------        --------       --------
</TABLE>

                                       49


<PAGE>


                          KENTUCKY FIRST BANCORP, INC.

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                           For the year ended June 30,

<TABLE>
<CAPTION>

                                                                                    2000            1999           1998
<S>                                                                             <C>             <C>            <C>
         Net cash provided by operating and investing
           activities (subtotal brought forward)                                $  5,449        $  4,330       $  8,798

Cash flows provided by (used in) financing activities:
  Net increase (decrease) in deposits                                             (3,344)             62          1,123
  Proceeds from Federal Home Loan Bank advances                                    4,536           6,900         28,700
  Repayment of Federal Home Loan Bank advances                                    (4,712)        (10,309)       (36,258)
  Proceeds from note payable                                                         550              -              -
  Repayment of note payable                                                         (550)             -              -
  Purchase of treasury stock                                                      (1,312)         (1,050)        (1,124)
  Proceeds from issuance of shares under stock option plan                            73             117             49
  Dividends on common stock                                                         (533)           (563)          (598)
                                                                                 -------         -------        -------
         Net cash used in financing activities                                    (5,292)         (4,843)        (8,108)
                                                                                 -------         -------        -------

Net increase (decrease) in cash and cash equivalents                                 157            (513)           690

Cash and cash equivalents at beginning of year                                     1,444           1,957          1,267
                                                                                 -------         -------        -------

Cash and cash equivalents at end of year                                        $  1,601        $  1,444       $  1,957
                                                                                 =======         =======        =======


Supplemental disclosure of cash flow information:
  Cash paid during the year for:
    Federal income taxes                                                        $    166       $     419      $     466
                                                                                 =======         =======        =======

    Interest on deposits and borrowings                                         $  2,577        $  2,834       $  3,347
                                                                                 =======         =======        =======

 Unrealized gains (losses) on securities designated as available
    for sale, net of related tax effects                                        $   (154)      $    (205)    $       96
                                                                                 =======         =======        =======

</TABLE>

The accompanying notes are an integral part of these statements.

                                       50


<PAGE>


                          KENTUCKY FIRST BANCORP, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          June 30, 2000, 1999 and 1998


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  generally  accepted  accounting  principles  ("GAAP")  and
    general  accounting  practices within the financial  services  industry.  In
    preparing   consolidated  financial  statements  in  accordance  with  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.  At June 30, 2000 and
    1999, the Corporation's shareholders' equity reflected a net unrealized loss
    on  securities  designated  as  available  for sale  totaling  $268,000  and
    $114,000, respectively. Realized gains and losses on sales of securities are
    recognized using the specific identification method.



                                       51

<PAGE>


                          KENTUCKY FIRST BANCORP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                          June 30, 2000, 1999 and 1998


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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

    Loans  receivable are stated at the principal amount  outstanding,  adjusted
    for  deferred  loan  origination  fees and the  allowance  for loan  losses.
    Interest is accrued as earned  unless the  collectibility  of the loan is in
    doubt.  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, 2000, 1999 and 1998


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  $363,000  and $352,000 at June 30,
    2000 and 1999,  respectively,  that met the definition for impairment  under
    SFAS No. 114. The allowance for losses specifically  related to this account
    amounted to $200,000 and $150,000 at June 30, 2000 and 1999, respectively.

    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, 2000, 1999 and 1998


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, 2000, 1999 and 1998


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
    $125,000,  $147,000  and  $158,000 for the fiscal years ended June 30, 2000,
    1999 and 1998, 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
    $133,000,  $125,000 and  $186,000  related to the MRP was charged to expense
    for the fiscal years ended June 30, 2000, 1999 and 1998, respectively.

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

    Basic  earnings per share for the years ended June 30, 2000,  1999 and 1998,
    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 65,935,  80,153  and  92,574  unallocated  ESOP  shares),  totaled
    1,055,126,  1,121,745 and 1,188,719 for the years ended June 30, 2000,  1999
    and 1998, 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
    1,066,541, 1,159,390 and 1,230,251 for the fiscal years ended June 30, 2000,
    1999 and 1998,  respectively.  Incremental  shares  related  to the  assumed
    exercise of stock options  included in the  computation of diluted  earnings
    per share totaled 11,415,  37,645 and 41,532 for the fiscal years ended June
    30, 2000, 1999 and 1998, 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, 2000
    and 1999 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, 2000, 1999 and 1998


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,
    2000 and 1999:

                  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, 2000, 1999 and 1998


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, 2000 and 1999 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>

                                                                            2000                           1999
                                                               CARRYING           FAIR          CARRYING           FAIR
                                                                  VALUE          VALUE             VALUE          VALUE
                                                                                     (In thousands)
<S>                                                            <C>            <C>               <C>            <C>
    Financial assets
      Cash and cash equivalents                                $  1,601       $  1,601          $  1,444       $  1,444
      Investment securities                                       9,018          9,006             8,828          8,842
      Mortgage-backed securities                                 14,623         14,371            16,359         16,192
      Loans receivable                                           44,920         43,813            47,801         48,045
      Federal Home Loan Bank stock                                1,301          1,301             1,212          1,212
                                                                -------        -------           -------        -------

             Total financial assets                             $71,463        $70,092           $75,664        $75,735
                                                                 ======         ======            ======         ======

    Financial liabilities
      Deposits                                                  $53,284        $53,263           $56,628        $56,851
      Advances from the Federal Home Loan Bank                    6,827          6,713             7,003          6,896
                                                                -------        -------           -------        -------

             Total financial liabilities                        $60,111        $59,976           $63,631        $63,747
                                                                 ======         ======            ======         ======
</TABLE>

    13.  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.


                                       57
<PAGE>


                          KENTUCKY FIRST BANCORP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                          June 30, 2000, 1999 and 1998


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

    14.  Reclassifications
         -----------------

    Certain  prior year  amounts have been  reclassified  to conform to the 2000
    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>

                                                                    2000                                 1999
                                                                         ESTIMATED                            ESTIMATED
                                                       AMORTIZED              FAIR          AMORTIZED              FAIR
                                                            COST             VALUE               COST             VALUE
                                                                                 (In thousands)

<S>                                                       <C>               <C>                <C>               <C>
    Municipal obligations                                 $2,235            $2,223             $1,531            $1,545
                                                           =====             =====              =====             =====
</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.  At June  30,  1999,  the
    estimated fair value of the Corporation's investment securities exceeded the
    carrying  value of such  securities by $14,000,  consisting  solely of gross
    unrealized gains.

    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>

                                                                    2000                                 1999
                                                                         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             $  285            $  293
    Due after three years through
      five years                                             619               610                394               398
    Due after five years                                   1,421             1,414                852               854
                                                           -----             -----              -----             -----

                                                          $2,235            $2,223             $1,531            $1,545
                                                           =====             =====              =====             =====
</TABLE>



                                       58


<PAGE>


                          KENTUCKY FIRST BANCORP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                          June 30, 2000, 1999 and 1998


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, 2000 and 1999, are summarized as follows:
<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
                                                                 ------          ------            -----         ------

                                                                 $7,052          $    3            $(272)        $6,783
                                                                  =====           =====             ====          =====

<CAPTION>

                                                                                      JUNE 30, 1999
                                                                                  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                                 $2,990           $   3           $  (18)        $2,975
      Due after five years                                        2,000             -                (86)         1,914

    Municipal obligations:
      Due after three years through five years                      219               5              -              224
      Due after five years                                        2,226             -                (42)         2,184
                                                                  -----          ------            -----          -----

                                                                 $7,435          $    8            $(146)        $7,297
                                                                  =====           =====             ====          =====

</TABLE>



                                       59


<PAGE>


                          KENTUCKY FIRST BANCORP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                          June 30, 2000, 1999 and 1998


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, 2000 and
    1999  (including  those  designated as available for sale) are summarized as
    follows:
<TABLE>
<CAPTION>
                                                                                      JUNE 30, 2000
                                                                                   GROSS             GROSS    ESTIMATED
                                                              AMORTIZED       UNREALIZED        UNREALIZED         FAIR
                                                                   COST            GAINS            LOSSES        VALUE
                                                                                      (In thousands)
<S>                                                            <C>              <C>                <C>         <C>
   HELD TO MATURITY:
      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
                                                                 ======           ======            ======       ======
<CAPTION>

                                                                                      JUNE 30, 1999
                                                                                   GROSS             GROSS    ESTIMATED
                                                              AMORTIZED       UNREALIZED        UNREALIZED         FAIR
                                                                   COST            GAINS            LOSSES        VALUE
                                                                                      (In thousands)
<S>                                                            <C>               <C>                 <C>       <C>
   HELD TO MATURITY
      Federal Home Loan Mortgage
        Corporation  participation certificates                $    706          $  -                $ (18)    $    688
      Government National Mortgage
        Association participation certificates                    1,063               26                (4)       1,085
      Federal National Mortgage Association
        participation certificates                                8,011                4              (175)       7,840
                                                                -------            -----             -----        -----
         Total mortgage-backed securities held to maturity        9,780               30              (197)       9,613
                                                                -------             ----             -----        -----

   AVAILABLE FOR SALE:
      Federal Home Loan Mortgage
        Corporation participation certificates                    3,088               86                -         3,174
      Federal National Mortgage Association
        participation certificates                                3,526             -                 (121)       3,405
                                                                -------           ------            -------     -------
         Total mortgage-backed securities available for sale      6,614               86              (121)       6,579
                                                                -------             ----             -----       ------

         Total mortgage-backed securities                       $16,394             $116            $ (318)     $16,192
                                                                 ======              ===             =====       ======

</TABLE>


                                       60


<PAGE>


                          KENTUCKY FIRST BANCORP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                          June 30, 2000, 1999 and 1998


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,
                                                                                               2000                1999
                                                                                                     (In thousands)
<S>                                                                                      <C>                   <C>
    Due within three years                                                               $        3            $     51
    Due in three to five years                                                                   15                   3
    Due in five to ten years                                                                  1,133               1,125
    Due in ten to twenty years                                                                8,291               9,929
    Due after twenty years                                                                    5,318               5,286
                                                                                            -------             -------

                                                                                            $14,760             $16,394
                                                                                             ======              ======
</TABLE>

    At June 30, 2000 and 1999,  investment  securities totaling $3.4 million and
    $2.7 million, respectively, were pledged to secure public deposits.





                                       61


<PAGE>

                          KENTUCKY FIRST BANCORP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                          June 30, 2000, 1999 and 1998


NOTE C - LOANS RECEIVABLE

    The composition of the loan portfolio at June 30 is as follows:
<TABLE>
<CAPTION>

                                                                                      2000                1999
                                                                                            (In thousands)
<S>                                                                                <C>                 <C>
    Residential real estate
      One-to-four family                                                           $24,694             $26,279
      Multi-family                                                                   4,740               4,526
      Construction                                                                   1,033               1,020
    Nonresidential real estate and land                                             11,882              12,424
    Consumer and other                                                               3,117               4,292
                                                                                   -------             -------
                                                                                    45,466              48,541
    Less:
      Undisbursed portion of loans in process                                           18                 227
      Deferred loan origination fees                                                    80                  89
      Unearned discount                                                                  5                  10
      Allowance for loan losses                                                        443                 414
                                                                                  --------            --------

                                                                                   $44,920             $47,801
                                                                                    ======              ======
</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 $30.4 million, or 68%, of the total loan portfolio at June 30,
    2000,  and $31.6  million,  or 66%, of the total loan  portfolio at June 30,
    1999.  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
    $202,000 and $170,000 at June 30, 2000 and 1999, respectively.



                                       62



<PAGE>


                          KENTUCKY FIRST BANCORP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                          June 30, 2000, 1999 and 1998


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>


                                                                            2000           1999           1998
                                                                                   (In thousands)

<S>                                                                         <C>            <C>            <C>
    Balance at beginning of year                                            $414           $384           $372
    Provision for losses on loans                                             39             30             30
    Charge-offs, net of recoveries                                           (10)          -               (18)
                                                                           -----        -------           ----

    Balance at end of year                                                  $443           $414           $384
                                                                             ===            ===            ===
</TABLE>

    As of June 30,  2000,  $243,000 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 $345,000,  $268,000
    and $141,000 at June 30, 2000, 1999 and 1998, respectively.

    During the years  ended June 30,  2000,  1999 and 1998,  interest  income of
    approximately  $30,000,  $6,000 and  $3,000,  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>

                                                                                      2000                1999
                                                                                            (In thousands)

<S>                                                                                <C>                 <C>
    Land                                                                           $   448             $   448
    Office buildings and improvements                                                  949                 982
    Furniture, fixtures and equipment                                                  339                 403
                                                                                    ------              ------
                                                                                     1,736               1,833
      Less accumulated depreciation and
        amortization                                                                   533                 562
                                                                                    ------              ------

                                                                                    $1,203              $1,271
                                                                                     =====               =====
</TABLE>



                                       63



<PAGE>


                          KENTUCKY FIRST BANCORP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                          June 30, 2000, 1999 and 1998


NOTE F - DEPOSITS

Deposits consist of the following major classifications at June 30:
<TABLE>
<CAPTION>
DEPOSIT TYPE AND WEIGHTED-
AVERAGE INTEREST RATE                                                               2000                  1999
                                                                                           (In thousands)
<S>                                                                             <C>                   <C>
NOW accounts
  2000 - 1.39%                                                                  $ 10,143
  1999 - 1.40%                                                                                         $ 8,909
Passbook
  2000 - 2.25%                                                                     6,077
  1999 - 2.25%                                                                                           6,293
Money market deposit accounts
  2000 - 3.35%                                                                     3,063
  1999 - 3.35%                                                                                           4,580
                                                                                  ------                ------
Total demand, transaction and
  passbook deposits                                                               19,283                19,782

Certificates of deposit
  Original maturities of:
    Less than 12 months
      2000 - 5.63%                                                                 7,874
      1999 - 4.43%                                                                                       6,134
    12 months to 24 months
      2000 - 5.51%                                                                15,717
      1999 - 5.09%                                                                                      19,528
    30 months to 36 months
      2000 - 5.52%                                                                 2,385
      1999 - 5.53%                                                                                       2,867
    More than 36 months
      2000 - 5.77%                                                                 3,620
      1999 - 5.81%                                                                                       4,002
  Individual retirement accounts
      2000 - 5.37%                                                                 4,405
      1999 - 5.26%                                                                                       4,315
                                                                                  ------                ------
Total certificates of deposit                                                     34,001                36,846
                                                                                  ------                ------

Total deposit accounts                                                           $53,284               $56,628
                                                                                  ======                ======
</TABLE>

At June 30, 2000 and 1999, the Savings Bank had certificate of deposit  accounts
with  balances in excess of $100,000  totaling  $1.9  million and $2.4  million,
respectively.



                                       64


<PAGE>


                          KENTUCKY FIRST BANCORP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                          June 30, 2000, 1999 and 1998


NOTE F - DEPOSITS (continued)

    Interest  expense on deposits  for the year ended June 30 is  summarized  as
follows:
<TABLE>
<CAPTION>

                                                                            2000           1999           1998
                                                                                     (In thousands)

<S>                                                                      <C>             <C>           <C>
    Passbook                                                             $   136         $  148        $   180
    NOW and money market deposit
      accounts                                                               266            287            302
    Certificates of deposit                                                1,839          1,983          1,985
                                                                           -----          -----          -----

                                                                          $2,241         $2,418         $2,467
                                                                           =====          =====          =====
</TABLE>

    Maturities of outstanding  certificates of deposit at June 30 are summarized
as follows:
<TABLE>
<CAPTION>

                                                                                           2000           1999
                                                                                              (In thousands)

<S>                                                                                     <C>            <C>
    Less than one year                                                                  $23,785        $27,864
    One to three years                                                                    8,778          6,142
    Over three years                                                                      1,438          2,840
                                                                                        -------        -------

                                                                                        $34,001        $36,846
                                                                                        =======        =======
</TABLE>

NOTE G - ADVANCES FROM THE FEDERAL HOME LOAN BANK

    Advances from the Federal Home Loan Bank, collateralized at June 30, 2000 by
    pledges of certain residential mortgage loans totaling $6.6 million, certain
    securities  totaling  $4.0  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,                                  2000                1999
                                                                                       (Dollars in thousands)

    <S>                                     <C>                                   <C>                  <C>
    6.02%                                   2000                                  $     -              $   500
    5.14% - 6.70%                           2006                                     3,100               3,100
    5.15% - 5.64%                           2009                                     3,000               3,000
    4.00%                                   2025                                       297                 304
    4.00%                                   2026                                        97                  99
    3.00%                                   2030                                       333                  -
                                                                                     -----               ------
                                                                                    $6,827              $7,003
                                                                                     =====               =====

           Weighted-average interest rate                                             5.90%               5.09%
                                                                                      ====                ====

</TABLE>

                                       65


<PAGE>


                          KENTUCKY FIRST BANCORP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                          June 30, 2000, 1999 and 1998


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>

                                                                            2000           1999           1998
                                                                                     (In thousands)
<S>                                                                         <C>            <C>            <C>
    Federal income taxes computed at
      statutory rate                                                        $399           $413           $443
    Decrease in taxes resulting from:
      Municipal interest income                                              (65)           (63)           (57)
                                                                            ----           ----           ----
    Federal income tax provision per consolidated
      statements of earnings                                                $334           $350           $386
                                                                             ===            ===            ===
</TABLE>


    The composition of the Corporation's net deferred tax asset at June 30 is as
follows:
<TABLE>
<CAPTION>

                                                                                           2000           1999
                                                                                               (In thousands)
<S>                                                                                       <C>             <C>
     Taxes (payable) refundable on temporary  differences at estimated corporate
     tax rate:
       Deferred tax assets:
         Allowance for loan losses                                                        $  82           $145
         Deferred compensation                                                               99             95
         Retirement plans                                                                    97             86
         Unrealized losses on securities designated as
           available for sale                                                               138             59
                                                                                           ----           ----
           Total deferred tax assets                                                        416            385

       Deferred tax liabilities:
         Percentage of earnings bad debt deduction                                           (8)           (12)
         Book/tax depreciation                                                              (30)           (49)
         Federal Home Loan Bank stock dividends                                            (128)           (97)
         Accrual vs. cash basis of accounting                                               (25)           (49)
         Deferred loan origination costs                                                    (60)           (18)
                                                                                           ----           ----
           Total deferred tax liabilities                                                  (251)          (225)
                                                                                            ---            ---

           Net deferred tax asset                                                          $165           $160
                                                                                            ===            ===
</TABLE>


                                       66



<PAGE>


                          KENTUCKY FIRST BANCORP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                          June 30, 2000, 1999 and 1998


NOTE H - FEDERAL INCOME TAXES (continued)

    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,
    2000 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, 2000.  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,  2000,  the  Savings  Bank  had  outstanding   commitments  of
    approximately  $146,000 to originate loans. In the opinion of management all
    loan commitments  equaled or exceeded prevailing market interest rates as of
    June 30, 2000, and will be funded from normal cash flow from operations.





                                       67


<PAGE>


                          KENTUCKY FIRST BANCORP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                          June 30, 2000, 1999 and 1998


    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 2000, the Savings Bank was notified from its regulator 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, 2000 and 1999, management believes that the
    Savings Bank met all capital adequacy requirements to which it was subject.
<TABLE>
<CAPTION>

                                                                AS OF JUNE 30, 2000
                                                                                                 TO BE "WELL-
                                                                                              CAPITALIZED" UNDER
                                                                     FOR CAPITAL               PROMPT CORRECTIVE
                                             ACTUAL                ADEQUACY PURPOSES          ACTION PROVISIONS
                                        -----------------        -------------------          -------------------
                                         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%
                                                                 -           -               -            -
</TABLE>



                                       68


<PAGE>


                          KENTUCKY FIRST BANCORP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                          June 30, 2000, 1999 and 1998


NOTE J - REGULATORY CAPITAL (continued)
<TABLE>
<CAPTION>

                                                                AS OF JUNE 30, 1999
                                                                                                 TO BE "WELL-
                                                                                              CAPITALIZED" UNDER
                                                                     FOR CAPITAL               PROMPT CORRECTIVE
                                             ACTUAL                ADEQUACY PURPOSES          ACTION PROVISIONS
                                        -----------------        -------------------          -------------------
                                         AMOUNT    RATIO           AMOUNT    RATIO             AMOUNT     RATIO
                                                               (Dollars in thousands)

<S>                                     <C>        <C>             <C>         <C>             <C>            <C>
    Tangible capital                    $11,964    15.3%         >$1,172     >1.5%           >$3,907      >  5.0%
                                                                 -           -               -            -
    Core capital                        $11,964    15.3%         >$3,126     >4.0%           >$4,689      >  6.0%
                                                                 -           -               -            -
    Risk-based capital                  $12,229    27.1%         >$3,607     >8.0%           >$4,509      >10.0%
                                                                 -           -               -            -
</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, 2000, 1999 and 1998


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, 2000, 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,  2000,  1999 and 1998,  and changes  during the periods  ending on those
    dates is presented below:
<TABLE>
<CAPTION>

                                                   2000                      1999                        1998
                                                       WEIGHTED-                 WEIGHTED-                    WEIGHTED-
                                                         AVERAGE                   AVERAGE                      AVERAGE
                                                        EXERCISE                  EXERCISE                     EXERCISE
                                             SHARES        PRICE       SHARES        PRICE          SHARES        PRICE

<S>                                         <C>          <C>          <C>          <C>             <C>          <C>
    Outstanding at beginning of year        149,661      $9.7375      168,609      $9.7375         173,579      $9.7375
    Granted                                      -            -            -            -               -            -
    Exercised                                (5,379)      9.7375      (12,005)      9.7375          (4,970)      9.7375
    Forfeited                                    -            -        (6,943)          -               -            -
                                           --------       ------     ---------      ------        --------       ------

    Outstanding at end of year              144,282      $9.7375      149,661      $9.7375         168,609      $9.7375
                                            =======       ======      =======       ======         =======       ======

    Options exercisable at year-end         112,662      $9.7375       86,457      $9.7375          69,654      $9.7375
                                            =======       ======      =======       ======         =======       ======

    The following information applies to options outstanding at June 30, 2000:

    Number outstanding                                                                                          144,282
    Range of exercise prices                                                                                    $9.7375
    Weighted-average exercise price                                                                             $9.7375
    Weighted-average remaining contractual life                                                               5.4 years

</TABLE>






                                       70



<PAGE>


                          KENTUCKY FIRST BANCORP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                          June 30, 2000, 1999 and 1998


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, 2000 and 1999, and
    the  results of its  operations  and its cash flows for the years ended June
    30, 2000, 1999 and 1998.
                          KENTUCKY FIRST BANCORP, INC.
                        STATEMENTS OF FINANCIAL CONDITION
                                    June 30,
                                 (In thousands)
<TABLE>
<CAPTION>

         ASSETS                                                                              2000                  1999

<S>                                                                                     <C>                   <C>
    Deposits in First Federal Savings Bank                                              $       1             $     139
    Interest-bearing deposits in other financial institutions                                   1                    46
    Loan receivable from ESOP                                                                 648                   741
    Investment in First Federal Savings Bank                                               12,301                11,851
    Prepaid expenses and other assets                                                           3                 1,005
    Prepaid federal income taxes                                                               35                    57
                                                                                         --------              --------

         Total assets                                                                     $12,989               $13,839
                                                                                           ======                ======

         LIABILITIES AND SHAREHOLDERS' EQUITY

    Liabilities
      Accounts payable and other liabilities                                            $       6             $       7

    Shareholders' equity
      Common stock and additional paid-in capital                                           9,334                 9,314
      Retained earnings                                                                     8,754                 8,447
      Less treasury stock                                                                  (4,039)               (2,791)
      Less shares acquired by stock benefit plans                                            (798)               (1,024)
      Unrealized losses on securities designated as available for sale,
        net of related tax effects                                                           (268)                 (114)
                                                                                          -------               --------
          Total shareholders' equity                                                       12,983                13,832
                                                                                           ------                ------

          Total liabilities and shareholders' equity                                      $12,989               $13,839
                                                                                           ======                ======

</TABLE>
                          KENTUCKY FIRST BANCORP, INC.
                             STATEMENTS OF EARNINGS
                              Years ended June 30,
                                 (In thousands)
<TABLE>
<CAPTION>
                                                                                    2000            1999           1998
<S>                                                                              <C>             <C>            <C>
    Revenue
      Interest income                                                            $    39         $    50        $    55
      Equity in earnings of First Federal Savings Bank                               868             877            964
                                                                                  ------          ------         ------
          Total revenue                                                              907             927          1,019

    General, administrative and other expense                                         81              67            126
                                                                                 -------          ------          -----

    Earnings before income tax credits                                               826             860            893

    Federal income tax credits                                                       (14)             (6)           (24)
                                                                                  ------         -------         ------

          NET EARNINGS                                                            $  840          $  866         $  917
                                                                                   =====           =====          =====
</TABLE>

                                       71


<PAGE>


                          KENTUCKY FIRST BANCORP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                          June 30, 2000, 1999 and 1998


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>

                                                                                    2000            1999           1998
<S>                                                                              <C>             <C>            <C>
    Cash provided by (used in) operating activities:
      Net earnings for the year                                                  $   840         $   866        $   917
      Adjustments to reconcile net earnings to net cash provided by (used in)
      operating activities
        Distributions from consolidated subsidiary in excess of earnings             633             123            996
        Increase (decrease) in cash due to changes in:
          Prepaid expenses and other assets                                            2             125           (617)
          Prepaid federal income taxes                                                22              (6)           (20)
          Accounts payable and other liabilities                                      (1)              6            (24)
                                                                                 --------       --------        --------
          Net cash provided by operating activities                                1,496           1,114          1,252

    Cash flows provided by investing activities:
      Proceeds from repayment of loan                                                 93              92             93
      Proceeds from maturities of investment securities                               -               -             501
                                                                                  ------          ------         ------
          Net cash provided by investing activities                                   93              92            594

    Cash flows provided by (used in) financing activities:
      Proceeds from note payable                                                     550              -              -
      Repayment of note payable                                                     (550)             -              -
      Payment of dividends on common stock                                          (533)           (563)          (598)
      Proceeds from exercise of stock options                                         73             117             93
      Purchase of treasury stock                                                  (1,312)         (1,050)        (1,124)
                                                                                  ------          ------         ------
          Net cash used in financing activities                                   (1,772)         (1,496)        (1,629)
                                                                                  ------          ------         ------

    Net increase (decrease) in cash and cash equivalents                            (183)           (290)           217

    Cash and cash equivalents at beginning of year                                   185             475            258
                                                                                  ------          ------         ------

    Cash and cash equivalents at end of year                                    $      2         $   185        $   475
                                                                                 =======          ======         ======
</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,
    and, at June 30, 2000, $4.5 million of this amount remained as available for
    future capital distributions.




                                       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,
                    2000 and 1999
                  Consolidated  Statements of Earnings for Each of the
                    Years in the Three-Year Period Ended June 30, 2000
                  Consolidated Statements of Comprehensive Income for
                    Each of the Years in the Three-Year Period Ended
                    June 30, 2000
                  Consolidated  Statements of Shareholders'  Equity for
                    Each of the Years in the Three-Year Period
                    Ended June 30, 2000
                  Consolidated  Statements  of Cash  Flows  for Each of
                    the Years in the Three-Year Period Ended
                    June 30, 2000
                  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.

                                                                       Page in
                                                                    Sequentially
  No.     Description                                              Numbered Copy

 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
27       Financial Data Schedule (EDGAR only)

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

         (B)  REPORTS ON FORM 8-K.  There  were no  Current  Reports on Form 8-K
              -------------------
filed by the Company during the fourth quarter of fiscal year 2000.



                                       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, 2000                    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, 2000
------------------------------------------
September 27, 2000
Betty J. Long
President and Chief Executive Officer
(Director and Principal Executive Officer)

/s/ William D. Morris                              September 27, 2000
------------------------------------------
September 27, 2000
William D. Morris
Chairman of the Board
(Director)

/s/ Luther O. Beckett                              September 27, 2000
------------------------------------------
September 27, 2000
Luther O. Beckett
Vice Chairman of the Board
(Director)

/s/ Milton G. Rees                                 September 27, 2000
------------------------------------------
September 27, 2000
Milton G. Rees
(Director)

/s/ Diane Ritchie                                  September 27, 2000
------------------------------------------
September 27, 2000
Diane Ritchie
(Director)

/s/ John Swinford                                  September 27, 2000
------------------------------------------
September 27, 2000
John Swinford
(Director)

/s/ Wilbur H. Wilson                               September 27, 2000
------------------------------------------
Wilbur H. Wilson
(Director)

/s/ Russell M. Brooks                              September 27, 2000
------------------------------------------
September 27, 2000
Russell M. Brooks
Executive Vice President
(Director and Principal Accounting and
  Financial Officer)