SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-K


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

     For the Fiscal Year Ended June 30, 1998.

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

        For the transition period from____________to____________
                         Commission File Number: 0-18832

                 FIRST FEDERAL FINANCIAL CORPORATION OF KENTUCKY
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                Kentucky                                         61-1168311
(State or other jurisdiction of incorporation                (I.R.S. Employer
 or organization)                                           Identification No.)

2323 Ring Road, Elizabethtown, Kentucky                            42701
(Address of principal executive offices)                         Zip Code

Registrant's telephone number, including area code:   (502) 765-2131

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

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

                     Common Stock, par value $1.00 per share
                                (Title of Class)

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

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

      The  aggregate  market  value of  the  outstanding  voting  stock  held by
non-affiliates  of the  registrant,  based  on the  closing  sales  price of the
Registrant's  Common Stock as quoted on the National  Association  of Securities
Dealers,  Inc. Automated Quotation National Market System on September 15, 1998,
was  $97,045,882.  Solely for purposes of this  calculation,  the shares held by
directors  and  executive  officers  of the  registrant  and by any  stockholder
beneficially  owning more than 5% of the registrant's  outstanding  common stock
are deemed to be shares held by affiliates.

        As of September 15, 1998,  there were issued and  outstanding  4,129,612
shares of the  registrant's  common  stock,  of which  directors  and  executive
officers  held 432,079  shares and more than 5%  beneficial  owners held 230,213
shares.

                       DOCUMENTS INCORPORATED BY REFERENCE
         
        1.  Portions  of  Proxy   Statement  for  the  1998  Annual  Meeting  of
            Stockholders. (Part III)




<PAGE>



                                            PART I

ITEM 1.  BUSINESS

The Corporation

First  Federal  Financial   Corporation  of  Kentucky  (the  "Corporation")  was
incorporated  in August 1989 under the laws of the  Commonwealth of Kentucky for
the purpose of becoming the holding  company for First  Federal  Savings Bank of
Elizabethtown   ("First   Federal"  or  the  "Bank")   pursuant  to  the  Bank's
reorganization into the holding company form of ownership, which was consummated
on June 1, 1990.  Prior to its acquisition of all the  outstanding  stock of the
Bank  in  connection  with  the  Bank's  holding  company  reorganization,   the
Corporation had no assets or liabilities and engaged in no business  activities.
Since its  acquisition  of First  Federal,  the  Corporation  has  engaged in no
significant activity other than holding the stock of First Federal and operating
the  business  of  a  savings  bank  through  First  Federal.  Accordingly,  the
information set forth in this report, including financial statements and related
data, relates primarily to First Federal and its subsidiary.

        The  Corporation's  executive  offices  are  located  at 2323 Ring Road,
Elizabethtown, Kentucky. Its telephone number is (502) 765-2131.

The Bank

        First Federal is a  federally-chartered  savings bank  headquartered  in
Elizabethtown,  Kentucky.  The business of First Federal  consists  primarily of
attracting  deposits from the general public and  originating  mortgage loans on
single family  residences,  and to a lesser extent on  multi-family  housing and
commercial property.  First Federal also makes home improvement loans,  consumer
loans and commercial  business loans and through its subsidiary offers insurance
products  and  brokerage  services  to its  customers.  In  April  1993 the Bank
established a full service trust  department to serve the fiduciary needs of its
customers. The principal sources of funds for First Federal's lending activities
include deposits  received from the general public,  borrowings from the Federal
Home Loan Bank of Cincinnati,  principal  amortization  and prepayment of loans.
First Federal's  primary sources of income are interest and origination  fees on
loans and interest on investments. First Federal also invests in various federal
and government agency obligations and other investment  securities  permitted by
applicable laws and regulations. First Federal's principal expenses are interest
paid on deposit accounts and operating expenses.

        First  Federal  was  originally  founded  in 1923  as a  state-chartered
institution and became  federally-chartered in 1940. In 1987, the Bank converted
to a federally-chartered savings bank and converted from mutual to stock form.

        The  Bank  is a  member  of the  Federal  Home  Loan  Bank  ("FHLB")  of
Cincinnati  and is subject to  regulation,  examination  and  supervision by the
Office of Thrift  Supervision  ("OTS").  The Bank's  deposits are insured by the
Savings Association  Insurance Fund ("SAIF") administered by the Federal Deposit
Insurance Corporation("FDIC").


LENDING ACTIVITIES

     GENERAL. The principal lending activity of First Federal is the origination
origination  of  conventional   first  mortgage  loans  secured  by  residential
property.  Residential  mortgage loans are generally  underwritten  according to
Federal  National  Mortgage  Association  (FNMA) and Federal Home Loan  Mortgage
Corporation  (FHLMC)  guidelines.  To  a  lesser  extent  the  Bank  engages  in
commercial real estate,  consumer and commercial  business lending.  Residential

                                       1



<PAGE>



mortgage  loans made by First  Federal are secured  primarily  by single  family
homes and include  construction  loans. The majority of First Federal's mortgage
loan portfolio is secured by real estate located in Hardin, Nelson, Hart, Meade,
LaRue, and Bullitt counties in the state of Kentucky.

        LOAN  UNDERWRITING  POLICIES.  During the loan approval  process,  First
Federal assesses both the borrower's  ability to repay the loan and the adequacy
of  the  underlying  security.   Potential  residential  borrowers  complete  an
application  which is submitted to a salaried loan officer.  As part of the loan
application process,  qualified fee appraisers inspect and appraise the property
which is  offered  to  secure  the  loan.  The  Bank  also  obtains  information
concerning the income, financial condition, employment and credit history of the
applicant. First Federal's loan committee, consisting of certain officers of the
Bank,  analyzes the loan  application  and the property to be used as collateral
and  subsequently  approves or denies the loan  request.  If the  mortgage  loan
amount is less than $250,000, it must be approved by a loan committee consisting
of certain  members of  management.  The Board of  Directors  must  approve  all
mortgage  loans in excess of $250,000.  All consumer  loans under $25,000 may be
approved by authorized loan officers under Board approved lines of authority and
all loans under $100,000 may be approved by an officer loan committee.  Consumer
loans in excess of $100,000  must be approved by the  President.  In  connection
with the  origination  of single  family  residential  adjustable  rate mortgage
loans,  borrowers are qualified at a rate of interest equal to the fully accrued
index rate.  It is the policy of  management  to make loans to borrowers who not
only  qualify at the low initial  rate of  interest,  but who would also qualify
following an upward interest rate adjustment.


                                       2

<PAGE>


LOAN  PORTFOLIO  ANALYSIS.  Set forth  below is  selected  data  relating to the
composition of the Bank's loan portfolio by type of loan and type of security on
the date indicated.
<TABLE>
<CAPTION>


                                                                                 June 30,

                                            1998                1997               1996              1995              1994
                                           ------              ------             ------            ------            ------

                                       Amount     %       Amount      %       Amount      %      Amount     %      Amount      %
                                      --------   ---      -------    ---     --------    ---    --------   ---    --------    ---
                                                                         (Dollars in thousands)
<S>                                   <C>        <C>     <C>        <C>     <C>         <C>     <C>       <C>     <C>         <C>
TYPE OF LOAN:
Conventional real estate
loans:
  Interim construction
    loans ..........................  $ 16,435   4.63%   $ 15,444   4.71%   $ 15,766    5.21%   $ 8,159   2.88%   $  7,007    3.03%
  Loans on existing
    property........................   231,071   65.03    217,759   66.43    204,301    67.57   195,424   69.06    146,228    63.35
  Loans refinanced..................    77,809   21.90     67,693   20.65     65,681    21.72    60,765   21.48     62,724    27.17



Commercial loans secured by
  real estate......................      3,254     .92      2,246     .69      2,406      .79     2,004     .71      3,234     1.40
Commercial lines of credit.........      1,116     .31      1,953     .60      1,785      .59     1,138     .40        721      .31
Home equity loans..................     16,271    4.57     10,377    3.16      4,959     1.64     3,802    1.35      3,675     1.59
Consumer loans: 
  Mobile home loans................         12     .01         18     .01         49      .02        51     .02         47      .02
  Savings account loans............      1,809     .51      1,667     .51      1,597      .52     1,357     .48        823      .35
  Home improvement loans...........          0     .00          2     .00        108      .04        44     .01        107      .04
  Automobile, boat and 
   recreational vehicle
   loans..........................          95     .03        338     .10        805      .27       980     .35      1,019      .44
  Other...........................      22,639    6.37     22,390    6.83     19,649     6.50    19,504    6.89     14,298     6.19
Accrued interest
  receivable.....................          241     .07        179     .05        187      .06       146     .05        133      .05
Less: 
  Loans in process................       9,729    2.74      7,098    2.17     10,156     3.36     5,671    2.00      5,503     2.38
  Discounts and other.............          12     .01         61     .02        184      .06       272     .10        285      .12
  Loan loss reserve...............       1,853     .52      1,715     .52      1,613      .53     1,661     .59      1,406      .61
  Deferred loan fees..............       3,026     .85      2,672     .81      2,329      .77     2,052     .72      1,804      .78
  Escrow deposits.................         760     .21        683     .21        618      .20       730     .26        225      .10
  Interest reserves (91 days
    or more delinquent)...........          66     .02         46     .01         30      .01        34     .01         13      .01
                                       -------  ------    -------  ------   --------   ------   -------  ------    --------  ------
         Total....................    $355,306  100.00%  $327,791  100.00%  $302,363   100.00% $282,954  100.00%   $230,793  100.00%
                                       =======  ======    =======  ======   ========   ======  ========  ======    ========  ======


</TABLE>

  
  
                                        3
 
  
  
<PAGE>
        
                                      

<TABLE>
<CAPTION>
                                                                             June 30,

                                  1998                  1997                   1996                1995                   1994
                            ----------------     -----------------      ------------------  ------------------     ----------------

                            Amount       %        Amount         %       Amount        %      Amount        %       Amount      %
                           --------    -----     --------      -----    --------    ------   --------     -----    --------   -----
                                                                      (Dollars in thousands)
<S>                        <C>        <C>        <C>          <C>       <C>        <C>       <C>         <C>       <C>        <C>
TYPE OF SECURITY:
Residential
  Single family............$283,591   79.82%     $267,839     81.71%    $249,161    82.40%   $230,672    81.52%    $188,559   81.70%
  2-to-4 family............   4,060     1.14        5,983       1.82       6,554      2.17      6,296      2.22       5,662    2.45
Commercial or industrial...  33,810     9.51       24,482       7.47      30,169      9.98     25,570      9.03      21,768    9.43
Home equity................  16,271     4.57       10,377       3.16       4,959      1.64      3,802      1.35       3,675    1.59
Savings Accounts...........   1,809      .51        1,667        .51       1,597       .52      1,357       .48         823     .36
Mobile Homes...............      12      .01           18        .01          49       .02         51       .02          47     .02
Automobile, boats and
  Recreational vehicles....      95      .03          338        .10         805       .27        980       .35       1,019     .44
Other......................  23,777     6.69       23,128       7.06      17,480      5.78     18,654      6.59      13,075    5.67
Accrued interest
receivable.................     241      .07          179        .05         187       .06        146       .05         133     .06

Less:
  Loans in process.........   9,729     2.74        7,098       2.17      10,156      3.36      5,671      2.00       5,503    2.38
  Discounts and other......      12      .01           61        .02         184       .06        272       .10         285     .12
  Loan loss reserve........   1,853      .52        1,715        .52       1,613       .53      1,661       .59       1,406     .61
  Deferred loan fees.......   3,026      .85        2,672        .81       2,329       .77      2,052       .72       1,804     .78
  Escrow deposits..........     760      .21          683        .21         618       .20        730       .26         225     .10
  Interest Reserves (91
   days or more delinquent)      66      .02           46        .01          30       .01         34       .01          13     .01
                            -------   ------      -------     ------    --------    ------   --------    ------    --------  ------
       Total.............. $355,306   100.00%    $327,791     100.00%   $302,363    100.00%  $282,954    100.00%   $230,793  100.00%
                            =======   ======      =======     ======    ========    ======   ========    ======    ========  ======
  
</TABLE>
      

        LOAN  MATURITY   SCHEDULE.   The  following  table  sets  forth  certain
        information  at June 30,  1998,  regarding  the  dollar  amount of loans
        maturing in the Bank's loan portfolio based on their  contractual  terms
        to maturity.

<TABLE>
<CAPTION>

                                                                              Due after
                                                         Due During           1 through          Due after 5
                                                       The year ended       5 years after        Years after
                                                          June 30,            June 30,             June 30,
                                                            1999                1998                 1998
                                                       --------------       -------------        -----------
                                                                         (Dollars in thousands)
<S>                                                      <C>                 <C>                  <C>   
Real estate mortgage...............................      $  2,515            $ 10,637             $295,347
Real estate construction (1).......................             0                   0                7,452
Installment........................................            55                 179                    4
Commercial, financial and
   Agricultural....................................         7,787              34,985                2,062
                                                           ------             -------              -------
      Total........................................      $ 10,357            $ 45,801             $304,865
                                                         ========            ========             ========
<FN>
(1) These  loans will become  permanent  real estate  loans upon  completion  of
construction.
</FN>
</TABLE>



                                       4


<PAGE>






           The following  table reflects a breakdown of loans maturing after one
year, by predetermined rates and adjustable rates.


                                                  Floating or
                              Predetermined       Adjustable
                                  Rates             Rates            Total
                              -------------       -----------        -----
                                            (Dollars in thousands)
Real estate mortgage            $213,928          $ 92,056         $305,984
Real Estate Construction           5,477             1,975            7,452
Installment                          183                 0              183
Commercial, consumer and
  agricultural                    19,021            18,026           37,047
                                 -------           -------         --------
Total                           $238,609          $112,057         $350,666
                                 =======           =======         ========



           RESIDENTIAL REAL ESTATE LENDING.  The Bank's primary lending activity
is the origination of loans on single family  residential units, which are units
consisting of one-to-four individual dwelling units. Fixed rate residential real
estate loans originated by the Bank have terms ranging from ten to thirty years.
Interest rates are competitively  priced within the primary  geographic  lending
market, and vary according to the term for which they are fixed.

           In  recent  years,   the  Bank  has  emphasized  the  origination  of
adjustable-rate  mortgage loans ("ARMs").  The Bank offers an ARM with an annual
adjustment which is tied to various  national indeces with a maximum  adjustment
of 2% annually and a lifetime cap of 15%. As of June 30, 1998, approximately 30%
of the Bank's  real  estate  loans were  adjustable  rate loans with  adjustment
periods ranging from one to five years and balloon loans of seven years or less.

           The Bank limits the maximum loan-to-value ratio on one-to-four-family
residential  first  mortgages to 80% of the  appraised  value and 95% on certain
mortgages,  with the requirement that private mortgage insurance be obtained for
loans with loan-to-value  ratios in excess of 80%. The Bank generally limits the
loan-to-value ratio to 80% on second mortgages on one-to-four-family dwellings.

           First  Federal's  residential  lending  activities also include loans
secured by multi-family residential property, consisting of properties with more
than four separate dwelling units.  These loans amounted to $7.1 million or 2.3%
of the loan  portfolio at June 30, 1998.  First Federal  generally does not lend
above 75% of the appraised  values of multi-family  residences on first mortgage
loans.  The  mortgage  loans  First  Federal  currently  offers on  multi-family
dwellings  are  generally  one or five year ARMs with  maturities of 25 years or
less.

           The Bank maintains a secondary  mortgage  operation  designed to make
qualified VA and FHA loans for sale to investors,  thereby  providing  necessary
liquidity to the Bank and needed loan products to the Bank's  customers.  During
fiscal 1998, the Bank's secondary mortgage  operations  originated $31.3 million
in loans for sale to investors.  Conventional  mortgage loans  originated by the
Bank do not meet certain guidelines,  therefore, they do not qualify for sale on
the secondary market.

           CONSTRUCTION  AND  COMMERCIAL  REAL  ESTATE  LENDING.  First  Federal
originates  loans secured by existing  commercial  properties  and  construction
loans primarily on residential real estate. The loans are secured by real estate
located in  Kentucky.  Substantially  all of the  commercial  real estate  loans
originated by First Federal have adjustable interest rates with maturities of 25
years or less or are loans  with fixed  interest  rates and  maturities  of five
years or less.  At June 30,  1998,  the Bank had $16.4  million  in  outstanding
interim  construction  loans.  The  security  for  commercial  real estate loans
includes retail businesses,  warehouses and motels. Commercial real estate loans
originated by the Bank range in size from $65,000 to $2,750,000.


                                       5

<PAGE>



        Commercial  real estate loans  typically  involve large loan balances to
single borrowers or groups of related borrowers and may also involve higher loan
principal  amount to security  property  appraisal  value  ratios as compared to
loans secured by residential real estate. In addition, the payment experience of
loans  secured by income  producing  properties  is  typically  dependent on the
successful  operation  of the related  real estate  project and thus may be more
vulnerable  to adverse  conditions  in the real estate  market or in the economy
generally.  Construction  loans involve additional risks as a result of the fact
that  loan  funds  are  advanced   upon  the  security  of  the  project   under
construction,   which  is  of  uncertain   value  prior  to  the  completion  of
construction.  Moreover,  because of the  uncertainties  inherent in  estimating
construction costs, delays arising from labor problems,  material shortages, and
other  unpredictable  contingencies,  it is  relatively  difficult  to  evaluate
accurately  the total loan funds  required  to  complete a project,  and related
loan-to-value  ratios.  The analysis of prospective  construction  loan projects
thus requires an expertise that varies in  significant  respects from that which
is required for residential mortgage lending.

        The Bank's underwriting  criteria are  designed to evaluate and minimize
the risks of each  construction  loan.  Among other things,  the Bank  considers
evidence of the availability of permanent  financing or a takeout  commitment to
the borrower; the reputation of the borrower and his or her financial condition;
the amount of the borrower's equity in the project;  independent  appraisals and
cost  estimates;  preconstruction  sale and leasing  information;  and cash flow
projections of the borrower.

        CONSUMER LOANS.  Federal  regulations permit federally  chartered thrift
institutions to make secured and unsecured  consumer loans of up to 30% of their
assets.  This limit may be exceeded  for certain  consumer  loans,  such as home
equity loans, property improvement loans, mobile home loans and loans secured by
savings accounts.  The consumer loans granted by the Bank have included loans on
automobiles,  boats,  recreational vehicles and other consumer goods, as well as
education loans, loans secured by savings accounts,  home improvement loans, and
unsecured lines of credit. As of June 30, 1998,  consumer loans outstanding were
$45.0 million or  approximately  12.6% of the Bank's total gross loan portfolio.
These loans involved a higher risk of default than loans secured by one-to-four-
family residential loans. The Bank believes,  however, that the shorter term and
the normally  higher interest rates available on various types of consumer loans
have been helpful in maintaining a profitable  spread between the Bank's average
loan yield and its cost of funds.

        In  view of the  riskier  nature  of  consumer  lending,  the  Bank  has
developed what management believes are conservative  underwriting  standards. In
applying these standards,  the Bank obtains detailed  financial  information and
credit bureau reports concerning each applicant.  In addition,  the relationship
of the loans to the value of the collateral is considered.

        The Bank offers a home equity line of credit,  which is a revolving line
of credit secured by the equity in a customer's home. As of June 30, 1998, these
loans totaled $16.3 million which is a 57% increase over the prior fiscal year.

        COMMERCIAL  BUSINESS LENDING.  The Bank is permitted to make secured and
unsecured loans for commercial,  corporate, business, and agricultural purposes,
including  issuing  letters of credit and  engaging in inventory  financing  and
commercial leasing activities.  First Federal has offered business loans secured
by real  estate  since  1982 and it has not been a  material  part of the Bank's
activities  to date.  The Bank may become more active in this type of lending in
the future.


                                       6

<PAGE>



        The Bank offers a commercial  line of credit,  which is a revolving line
of credit  secured by the equity in the property,  primarily  real estate,  of a
business. As of June 30, 1998, these loans totaled approximately $1.1 million.

        ORIGINATION,  PURCHASES AND SALES.  Historically,  all  residential  and
commercial real estate loans have been  originated  directly by the Bank through
salaried loan officers. Residential loan originations are generally attributable
to  referrals  from real estate  brokers and  builders,  depositors  and walk-in
customers.  Commercial real estate and  construction  loan origination have been
obtained  by direct  solicitation,  and  consumer  loan  origination  by walk-in
customers  in  response  to  the  Bank's  advertising,  as  well  as  by  direct
solicitation.

        The following  table shows loans  originated and sold during the periods
indicated.  No loans were  purchased  by the Bank  during  the last five  fiscal
years.

<TABLE>

                                                               Year Ended June 30,

                                           1998          1997         1996        1995        1994
                                          -------       ------        -----      ------      -----

                                                              (Dollars in thousands)

<S>                                      <C>           <C>           <C>          <C>          <C>    
Loans originated:
  Conventional real estate
    loans:
     Construction loans                  $ 18,648      $ 16,664      $ 16,078     $12,632     $15,093
     Loans on existing property            73,581        47,256        61,349      38,235      33,216
     Loans refinanced                      33,249        15,846        16,436       5,271      17,923
   Insured and quaranteed loans             2,355         2,286         2,472       1,936       1,705
   Commercial loans                         2,655         2,769         3,267       2,331       5,129
   Consumer loans                          35,463        29,440        21,071      18,548      14,199
                                          -------       -------       -------     -------     -------
        Total Loans Originated           $165,951      $114,261      $120,673     $78,953     $87,265
                                          =======       =======       =======     =======     =======

 Total Loans Sold                        $ 29,814      $ 16,199      $ 23,178     $ 8,822     $ 4,121
                                          =======       =======      ========     =======     =======
</TABLE>
  


           LOAN  COMMITMENTS.  Conventional  loan  commitments  by the  Bank are
granted  for  periods of 30 days.  The total  amount of the  Bank's  outstanding
commitments to originate  real estate loans at June 30, 1998, was  approximately
$6.6 million.  It has been the Bank's  experience  that few  commitments  expire
unfunded.

           LOAN FEES. In addition to interest earned on loans,  certain fees are
received for  committing  to and  ultimately  originating  loans.  The Bank also
receives  other fees and  charges  relating  to existing  loans,  which  include
prepayment penalties,  late charges and fees for loan modifications.  Management
believes that these fees and charges do not materially affect operating results.

           NON-PERFORMING LOANS AND ASSET CLASSIFICATION.  Loans are reviewed on
a regular basis and normal collection procedures are implemented when a borrower
fails to make a required  payment on a loan.  If the  delinquency  on a mortgage
loan exceeds 90 days and is not cured through normal collection procedures or an
acceptable  arrangement is not worked out with the borrower, the Bank institutes
measures to remedy the  default,  including  commencing  a  foreclosure  action.
Consumer loans generally are charged off when a loan is deemed  uncollectible by
management  and any  available  collateral  has  been  disposed  of.  Commercial
business and real estate loan  delinquencies  are handled on an individual basis
by management with the advice of the Bank's legal counsel.  The Bank anticipates
that the increase  in non-performing  real estate loans will continue due to the
growth of the Bank's loan portfolio.

                                       7


<PAGE>





        Real estate  acquired by the Bank as a result of  foreclosure or by deed
in lieu of  foreclosure is classified as real estate owned until such time as it
is sold.  When such  property  is  acquired  it is  recorded at the lower of the
unpaid  principal  balance of the  related  loan or its fair market  value.  Any
write-down of the property is charged to the allowance for loan losses.

        The following  table sets forth  information  with respect to the Bank's
non-performing  assets for the periods indicated.  During the periods shown, the
Bank had no  restructured  loans  within the meaning of  Statement  of Financial
Accounting Standards No. 15.



<TABLE>
                                                                     At June 30,


                                                1998        1997        1996         1995        1994
                                               ------      ------     -------       ------      -----

                                                                (Dollars in thousands)
<S>                                           <C>         <C>         <C>          <C>         <C>    
Non-Performing loans which are
  contractually past due
    90 days or more:
      Real Estate:
        Residential.....................      $ 1,487     $ 1,172     $   940      $   649     $   254
        Commercial......................           --          --          --           --          --
      Consumer..........................          566         378         312          512         333
                                               ------      ------     -------      -------     -------

            Total.......................      $ 2,053     $ 1,550     $ 1,252      $ 1,161     $   587
                                              =======     =======     =======      =======     =======

            Total 90 days past
               due loans................      $ 2,053     $ 1,550     $ 1,252      $ 1,161     $   587
                                              =======     =======     =======      =======     =======

Percentage of Total Loans...............        0.58%       0.47%       0.41%        0.41%       0.25%

Other Non-Performing Assets                   $   134     $   184     $   375      $   260     $   267
                                              =======     =======     =======      =======     =======
(1).....................................


<FN>

(1)     Other  non-performing  assets  represents  property acquired by the Bank
        through  foreclosure  or  repossession.  This property is carried at the
        lower of its fair value or the principal balance of the related loan.
</FN>
</TABLE>




                                       8




<PAGE>



        The following  table sets forth an analysis of the Bank's  allowance for
possible loan losses for the periods indicated.
<TABLE>
                                                               Year Ended June 30,

                                               1998       1997        1996       1995        1994
                                              ------     ------      ------     ------      -----

                                                                   (Dollars in thousands)
<S>                                          <C>        <C>         <C>        <C>         <C>    
Balance at Beginning of Period............... $1,715     $1,613      $1,662     $1,406      $1,415
                                              ------     ------      ------     ------      ------
Loans Charged-Off:
  Real Estate--Mortgage:
    Residential..............................     16         17           0         14           0
    Commercial...............................      0          0           0         16          10
  Commercial Business........................      0          0          24          0           0
  Consumer...................................    132        114          50         21          35
                                             -------     ------      ------     ------      ------

Total Charge-Offs............................    148        131          74         51          45
                                              ------     ------      ------     ------      ------
Recoveries:
  Real Estate-Mortgage:
    Residential..............................      0          0           1          0           0
    Commercial...............................      0          0          23         16           0
  Consumer...................................     21         33           1          6           6
                                              ------     ------      ------     ------      ------

Total Recoveries.............................     21         33          25         22           6
                                              ------     ------      ------     ------      ------

Net Loans Charged-Off........................    127         98          49         29          39
                                              ------     ------      ------     ------      ------
Reserve associated with loans
acquired in merger...........................    --         --          --         185         --
Provision for Possible Loan
Losses.......................................    265        200           0        100          30
                                              ------     ------      ------     ------      ------

Balance at End of Period..................... $1,853     $1,715      $1,613     $1,662      $1,406
                                              ======     ======      ======     ======      ======

Ratio of Net Charge-Offs to
Average Loans Outstanding
During the Period..........................    0.037%     0.031%      0.017%     0.010%      0.017%

</TABLE>

        The  following  table sets forth the breakdown of the allowance for loan
losses by loan category for the periods 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
further  losses and does not restrict the use of the  allowance to absorb losses
in any category.

<TABLE>
                                                                 At June 30,

                                          1998        1997          1996         1995          1994
                                         ------      ------        ------       ------        -----

                                                            (Dollars in thousands)
<S>                                      <C>         <C>           <C>         <C>            <C>    
Real estate loans:
   Residential Loans.............        $1,234      $1,178        $1,277       $1,289        $1,043
   Commercial Loans..............           168         146           142          128           103
Non-real estate loans............           451         391           194          245           260
                                         ------      ------        ------       ------        ------
Total allowance for
  possible loan
  losses.........................        $1,853      $1,715        $1,613       $1,662        $1,406
                                         ======      ======        ======       ======        ======
</TABLE>

        It is management's  policy to provide for estimated  losses on loans and
investments  in real estate when it  determines  that losses are  expected to be
incurred  on  the  underlying  assets.   Management  also  establishes   general
allowances  based on the  amount  and  types of loans in the  Bank's  portfolio.
Subsequent  adjustments to allowances are made if current  circumstances  differ
substantially from the assumptions used in making the initial estimates.
       

                                       9


<PAGE>


        At June 30, 1998, there were no  concentrations of loans in any types of
industry which exceeded 10% of total loans that were not otherwise  disclosed as
a loan  category  above.  In  addition,  there  were no  loans  which  were  not
classified  as  non-accrual  or  restructured  at June 30,  1998 which may be so
classified in the near future  because of management  concerns as to the ability
of the borrowers to comply with repayment terms.

        Federal regulations  require insured  institutions to classify their own
assets on a regular  basis.  In addition,  in connection  with  examinations  of
insured  institutions,  OTS examiners have authority to identify  problem assets
and,  if  appropriate,   classify  them.  The  regulations   provide  for  three
classifications  of asset  categories  --  substandard,  doubtful and loss.  The
regulations also contain a special mention category,  defined as assets which do
not currently  expose an insured  institution to a sufficient  degree of risk to
warrant   classification  but  do  possess  credit   deficiencies  or  potential
weaknesses  deserving   management's  close  attention.   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.

        At June 30, 1998, on the basis of management's review of the Bank's loan
portfolio, the Bank had $1.9 million of assets classified substandard,  $185,000
of assets classified doubtful, and no assets classified as loss.


INVESTMENT ACTIVITIES

        Interest on investment  securities provides the largest source of income
for  First  Federal  after  interest  on loans,  constituting  5.9% of the total
interest income for fiscal year 1998. First Federal  maintains its liquid assets
above  the  minimum  requirements  imposed  by  regulation  at a level  believed
adequate to meet requirements of normal banking activities and potential savings
outflows.  Cash flow  projections  are regularly  reviewed and updated to assure
that  adequate  liquidity is  provided.  As of June 30,  1998,  First  Federal's
liquidity ratio (liquid assets as a percentage of net  withdrawable  savings and
current borrowings) was 9.17%.

        First  Federal has the  authority  to invest in various  types of liquid
assets,  including  short-term United States Treasury obligations and securities
of various  federal  agencies,  certificates  of deposit at insured  savings and
loans and banks,  bankers'  acceptances,  and federal  funds.  The Bank may also
invest a portion of its assets in certain  commercial  paper and corporate  debt
securities.  First  Federal  is also  authorized  to invest in mutual  funds and
stocks whose assets conform to the investments  that First Federal is authorized
to make directly.  See Note 3 of Notes to Consolidated  Financial Statements for
further information concerning the Bank's investment portfolio.

        As a member of the Federal  Home Loan Bank  System,  First  Federal must
maintain  minimum  levels of liquid assets  specified by the OTS which vary from
time to time.  See  "Regulation - Federal Home Loan Bank System."  Liquidity may
increase or decrease  depending upon the  availability  of funds and comparative
yields on investments in relation to return on loans.

        The table on the  following  page sets forth the  carrying  value of the
Bank's investment securities portfolio at the dates indicated. At June 30, 1998,
the  market  value of the  Bank's  investment  securities  portfolio  was  $26.9
million.



                                       10





<PAGE>

<TABLE>
                                                           At June 30,

                                                1998         1997        1996
                                              --------     --------     -------

                                                     (Dollars in thousands)
<S>                                           <C>           <C>         <C> 
Held-to-maturity securities:
  U.S. Treasury and agencies..............    $22,693      $15,335     $ 9,225
  Mortgage-backed securities..............    $ 1,946      $ 2,149     $ 2,769
                                              --------     -------     -------

  Total held-to-maturity
   securities.............................    $24,639      $17,484     $11,994
                                              =======      =======     =======

Securities available-for-sale:
  Equity securities.......................    $ 1,934      $ 5,192     $ 4,748
                                               ======      =======     =======
</TABLE>




            The following table sets forth the scheduled  maturities,  amortized
     cost, and average  yields for the Bank's debt  securities at June 30, 1998,
     all of which were classified as held-to-maturity.




                                                Amortized        Average
                                                  Cost            Yield

                                                 (Dollars in thousands)


Debt securities:
 Due in one year or less                      $   984             6.36%
 Due after one year through five years         12,718             6.61
 Due after five years through ten years           -                 -
 Due after ten years                            8,991             7.00
 Mortgage-backed securities                     1,946             6.99
                                              -------

                                              $24,639
                                              =======



                                       11


<PAGE>



SOURCES OF FUNDS

        GENERAL. Savings accounts and other types of deposits have traditionally
been an  important  source of the Bank's  funds for use in lending and for other
general business  purposes.  In addition to deposit  accounts,  the Bank derives
funds from loan  repayments,  FHLB advances,  other  borrowings and  operations.
Borrowings  may be used on a short-term  basis to compensate  for  reductions in
deposits or deposit  inflows at less than projected  levels and may be used on a
longer term basis to support expanded lending activities.

        DEPOSITS.  First Federal attracts both short-term and long-term deposits
from the  general  public by  offering  a wide  range of  deposit  accounts  and
interest rates. In recent years the Bank has been required by market  conditions
to rely  increasingly  on  short-term  certificate  accounts  and other  deposit
alternatives  that are more responsive to market  interest rates.  First Federal
offers  regular  passbook  accounts,  NOW  accounts,  money market  accounts and
fixed-interest-rate  certificates  with varying  maturities.  First Federal also
offers tax-deferred individual retirement accounts.

        As of June 30, 1998,  approximately  28.1% of First  Federal's  deposits
consisted of various  savings and demand deposit  accounts from which  customers
are permitted to withdraw funds at any time without penalty.

        Interest earned on passbook accounts is paid from the date of deposit to
the date of withdrawal and compounded quarterly. Interest earned on NOW accounts
is paid  from the date of  deposit  to the date of  withdrawal,  compounded  and
credited  monthly.  The interest rate on these  accounts is established by First
Federal's management.

        First  Federal  also  makes  available  to its  depositors  a number  of
certificates  of deposit with various terms and interest rates to be competitive
in its market area.  These  certificates  have minimum  deposit  requirements as
well.


                                       12




<PAGE>



The following  table sets forth the change in dollar amount of savings  deposits
in the various types of savings  accounts  offered by the Bank between the dates
indicated.

<TABLE>

                        Balance                       Balance                       Balance                        Balance
                        June 30,   % of    Increase   June 30,   % of    Increase   June 30,  % of      Increase   June 30,    % of
                          1998   Deposits (Decrease)    1997   Deposits (Decrease)    1996   Deposits  (Decrease)    1995   Deposits
                        -------- --------  --------  --------  --------  --------  --------  --------  --------   --------  --------

                                                                   (Dollars in thousands)
<S>                     <C>        <C>     <C>       <C>        <C>     <C>        <C>       <C>      <C>          <C>        <C> 
Passbook and
Regular Savings.........$ 30,182   9.84%   $(1,004)  $ 31,186   11.08%  $  (112)  $ 31,298  11.81%   $ (2,340)    $ 33,638    12.91%
NOW commercial
accounts................   9,196    3.00      (617)     9,813     3.49      833      8,980    3.39      1,447        7,533     2.89
NOW Demand Accounts.....  37,015   12.07     3,875     33,140    11.78    2,702     30,438   11.49        735       29,703    11.40
Money Market
deposit accounts........   9,856    3.21      (604)    10,460     3.72      191     10,269    3.88      1,629        8,640     3.32
Three month CD's........     925     .30      (108)     1,033      .37      (64)     1,097     .41       (253)       1,350      .52
Six month CD's..........  25,696    8.38    13,297     12,399     4.41   (5,132)    17,531    6.62      2,051       15,480     5.94
Fixed rate CD's
   - 12 months..........  41,007   13.37   (12,706)    53,713    19.09    5,140     48,573   18.33      9,394       39,179    15.04
Variable rate CD's
   - 12 months..........   2,448     .80      (671)     3,119     1.11   (1,205)     4,324    1.63       (814)       5,138     1.97
Fixed Rate CD's
   - 18 months..........  38,138   12.43     2,635     35,503    12.62   27,905      7.598    2.87     (6,929)      14,527     5.58
Fixed Rate CD's
   - 24 months..........  53,684   17.50    28,699     24,985     8.88   (8,673)    33,658   12.70      5,004       28,654    11.00
Fixed Rate CD's
   - 30 months..........   2,095     .68    (1,075)     3,170     1.13     (605)     3,775    1.42     (3,861)       7,636     2.93
Fixed Rate CD's
   - 36 months..........   8,201    2.67    (3,501)    11,702     4.16      (26)    11,728    4.43     (1,473)      13,201     5.07
Fixed Rate CD's
   - 48 months..........  12,348    4.03    (4,448)    16,796     5.97   (5,502)    22,298    8.42     (1,278)      23,576     9.05
Variable Rate CD's
   - 48 months..........       7     .01       (21)        28      .01       (7)        35     .01        (20)          55      .02
IRA accounts............  24,438    7.97     1,392     23,046     8.19    1,242     21,804    8.23      1,267       20,537     7.88
Other accounts -
   6 to 8 year CD's.....  11,467    3.74       218     11,249     3.99     (291)    11,540    4.36       (116)      11,656     4.48
                         -------  ------    ------    -------   ------  -------   --------  ------    -------     --------   ------

       Total............$306,703  100.00% $ 25,361   $281,342   100.00% $16,396   $264,946  100.00%   $ 4,443     $260,503   100.00%
                         =======  ======   =======   ========   ======  =======   ========  ======    =======     ========   ======

</TABLE>



                                       13





<PAGE>


        The variety  of deposit account  offered by  First Federal has permitted
it to be more  competitive in obtaining funds and has allowed it to respond with
more  flexibility to  disintermediation  (the flow of funds away from depository
institutions such as savings  institutions into direct investment  vehicles such
as government  and corporate  securities).  However,  the ability of the Bank to
attract and maintain deposits and its cost of funds have been, and will continue
to be, significantly affected by money market conditions.

         The following  table sets  forth the amount of deposits as of June 30,
1998 by various interest rate categories.

<TABLE>



      Weighted
       Average                                                                                    Percent
      Interest     Minimum                                         Minimum                        of Total
        Rate         Term            Category                       Amount       Balances(1)      Savings
      --------     -------           --------                      -------       ----------       -------


      <S><C>     <C>            <C>                                 <C>            <C>             <C>

         2.65%       NONE       Passbook Savings Account            $    1         $ 30,182        9.84%
           .10       NONE       NOW Commercial Accounts                300            9,196         3.00
          1.52       NONE       NOW Demand Accounts                  1,000           37,015        12.07
          3.31       NONE       Money Market Deposit Accounts          500            9,856         3.21
          3.61     91 days      3 Month Certificate                    500              925         0.30
          5.27     182 days     6 Month Certificate                    500           25,696         8.38
          5.58    12 months     Fixed Rate                             500           41,007        13.37
          5.14    12 months     Variable Rate                          500            2,448          .80
          6.11    18 months     Fixed Rate                             500           38,138        12.43
          5.89    24 months     Fixed Rate                             500           53,684        17.50
          5.63    30 months     Fixed Rate                             500            2,095          .68
          5.61    36 months     Fixed Rate                             500            8,201         2.67
          5.97    48 months     Fixed Rate                             500           12,348         4.03
          5.39    48 months     Variable Rate                          500                7          .01
          5.82    18 months     Individual Retirement Accounts         500           23,438         7.97
          6.11    6-8 years     Other Certificates                     500           11,467         3.74
                                                                                    -------       ------
                                                                                   $306,703      100.00%
                                                                                    =======      =======


        (1) Dollars in thousands.


</TABLE>
                                       14



<PAGE>

        The following  table indicates at June 30, 1998 the amount of the Bank's
certificates of deposit of $100,000 or more by time remaining until maturity.


Maturity Period                                         Certificates
                                                         of Deposit
                                                       (In Thousands)


Three months or less....................................  $ 5,863
Three through six months................................   11,753
Six through twelve months...............................   17,598
Over twelve months......................................   19,118
                                                           ------
    Total...............................................  $54,332
                                                           ======


        The following  table sets forth the average  balances and interest rates
based on month-end  balances for various deposit  categories  during the periods
indicated.

<TABLE>
                                                          Year Ended June 30,

                                        1998                     1997                   1996
                                  ---------------          ---------------         ---------------

                                            Average                  Average                  Average
                                Average      Rate        Average      Rate       Average       Rate
                                Balance      Paid        Balance      Paid       Balance       Paid

                                                     (Dollars in thousands)
<S>                            <C>           <C>       <C>           <C>       <C>             <C>
Non interest-bearing    
  accounts................     $  9,743       --%      $  9,104        --%     $  8,376         --%
Interest-bearing
  demand deposits.........       46,141      1.59        42,343       1.70       37,489        1.65
Savings deposits..........       30,696      2.64        31,259       2.62       31,885        2.65
Certificates of
   deposit................      207,333      5.78       187,974       5.52      180,959        5.68

</TABLE>

        BORROWINGS.  Savings  deposits are the primary source of funds for First
Federal's  lending  and  investment  activities  and  for its  general  business
purposes.  The  Bank  can  also  use  advances  (borrowings)  from  the  FHLB of
Cincinnati to supplement its supply of lendable funds,  meet deposit  withdrawal
requirements and to extend the term of its  liabilities.  Advances from the FHLB
are  typically  secured  by the  Bank's  stock in the FHLB and a portion  of the
Bank's first mortgage loans. At June 30, 1998 First Federal had $43.2 million in
advances outstanding from the FHLB of Cincinnati.

        The FHLB of  Cincinnati  functions as a central  reserve bank  providing
credit for savings banks 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 credit- worthiness have been met.

        The following table sets forth certain information  regarding the Bank's
FHLB advances during the periods indicated.

<TABLE>
                                                          At June 30,

                                              1998           1997         1996
                                            --------       --------      ------

                                                    (Dollars in thousands)

<S>                                          <C>           <C>          <C>    
Average balance outstanding...............   $41,990       $41,482      $31,825
Maximum amount outstanding at
 any month-end during the
period ...................................    43,441        47,716       35,051
Year end balance..........................    43,249        41,514       34,979
Weighted average interest rate:
   At end of year .......................       5.39%         5.62%        5.54%
   During the year........................      5.63%         5.61%        5.73%

</TABLE>

                                      15

<PAGE>


        AVERAGE BALANCE SHEET

        The  following  table  sets  forth  information  relating  to the Bank's
        average  balance  sheet 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  monthly
        balance  of  assets  or  liabilities,   respectively,  for  the  periods
        presented.

<TABLE>

                                                                             Year Ended June 30,

                                                1998                                1997                              1996
                                    ----------------------------   -----------------------------------   ---------------------------

                                                         Average                             Average                         Average
                                   Average                Yield/     Average                  Yield/     Average              Yield/
                                   Balance    Interest     Cost      Balance      Interest     Cost      Balance   Interest    Cost
                                   -------    --------   --------   ---------     --------   --------    -------   --------   ------

                                                                          (Dollars in thousands)
<S>                                <C>       <C>            <C>     <C>         <C>           <C>       <C>      <C>          <C> 
Interest-earning assets:
  Loans-receivable, net........... $343,822  $  29,339      8.53%   $317,565    $  26,945      8.48%    $295,657 $ 25,173     8.51%
  Debt securities................... 16,475      1,058      6.42      15,133          976      6.45       8,011       527     6.25
  Equity securities................   2,492         73      2.93       4,856          228      4.70       4,536       225     4.96
  Mortgage-backed securities........  2,090        147      7.03       2,514          178      7.08       3,042       222     7.30
  FHLB stock........................  2,875        207      7.20       2,674          188      7.03       2,495       174     6.97
  Interest-bearing deposits.........  2,968        221      7.45       1,805           98      5.43       9,981       605     6.06
                                    -------   --------    ------     -------      -------    ------      ------  --------   ------
    Total interest-earning
      assets......................  370,723     31,045      8.37     344,548       28,613      8.30     323,722    26,926     8.32
                                                                                                      
    Non-interest-earning assets..... 23,279                           21,981                             18,906
                                    -------                          -------                           --------
   Total assets....................$394,002                         $366,529                           $342,628
                                    =======                          =======                           ========
    

Interest-bearing liabilities:       
  Passbook accounts................$ 30,696   $    809      2.64%   $ 31,259     $    818     2.62%    $ 31,885  $    846     2.65%
  NOW and money market accounts..... 55,884        887      1.59      51,447          875     1.70       45,865       759     1.65
  Certificate accounts..............207,333     11,980      5.78     187,974       10,377     5.52      180,959    10,271     5.68
  FHLB advances..................... 41,990      2,383      5.68      41,482        2,306     5.56       31,825     1,800     5.66
                                    -------    -------   -------     -------      -------  -------     --------  --------   ------
  Total interest-bearing 
     liabilities....................335,903     16,059      4.78     312,162       14,376     4.61      290,534    13,676     4.71
                                               -------                            -------                        --------
Non-interest-bearing liabilities....  4,697                            3,879                              3,198
                                    -------                          -------                           --------
  Total liabilities...............  340,600                          316,041                            293,732
Stockholders' equity................ 53,402                           50,488                             48,896
                                    -------                          -------                           --------
  Total liabilities and   
   stockholders' equity            $394,002                         $366,529                           $342,628
                                    =======                          =======                           ========
Net interest income.................          $ 14,986                           $ 14,237                        $ 13,250
                                               =======                            =======                        ========
Interest rate spread................                        3.59%                             3.70%                          3.61%
                                                          =======                            ======                         ======
Net yield on interest-earning   
  assets............................                        4.04%                             4.13%                          4.09%
                                                          =======                            ======                         ======
Ratio of average interest-
earning assets to average
 interest-bearing liabilities.......                      110.37%                            110.37%                       111.42%
                                                          =======                            ======                        ======
</TABLE>

                                                                        16


<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   assets   and
        interest-bearing   liabilities,   information  is  provided  on  changes
        attributable  to (1) changes in rate (change in rate  multiplied  by old
        volume);(2) changes in volume (change in volume multiplied by old rate);
        and (3) changes in rate-volume  (change in rate  multiplied by change in
        volume).  Changes in rate-volume are  proportionately  allocated between
        rate and volume variance.

<TABLE>

                                                                   Year Ended June 30,

                                     1998  vs.  1997                1997  vs.  1996                 1996  vs.  1995
                              ---------------------------     ---------------------------    ----------------------------
                                   Increase (Decrease)            Increase (Decrease)             Increase (Decrease)
                                         Due to                         Due to                          Due to


                               Rate     Volume     Total      Rate     Volume      Total      Rate      Volume     Total
                              ------    ------    -------    ------    ------     -------    ------     ------    -------

                                                                  (Dollars in Thousands)

<S>                           <C>      <C>         <C>      <C>       <C>       <C>        <C>         <C>        <C> 
Interest income:
  Loans-receivable, net...... $  159   $  2,235    $ 2,394  $  (89)   $  1,860  $  1,771    $   578     $ 3,308    $  3,886
  Debt securities..............   (5)        87         82     (11)        460       449        (67)         96          29
  Equity securities............ (104)      (135)      (239)    (15)         12        (3)        40          12          52
  Mortgaged-backed
   securities..................   (1)       (30)       (32)     (7)        (39)      (46)        18          97         115
  FHLB stock...................    5         14         19       2          12        14         13          24          37
  Interest-bearing deposits....   45         78        123     (57)       (450)     (507)       (18)        134         116
                             -------      -----     ------   ------   --------  --------    --------     -------    --------

Total interest-earning
  assets.................... .$   99   $  2,249    $ 2,347  $ (177)   $  1,855  $  1,678   $    564     $ 3,671    $  4,235
                             =======    =======    =======   ======    =======  ========   ========     =======    ========

Interest expense:
  Passbook accounts.......... $    7   $   (14)    $    (7) $   (9)   $    (15)  $   (24)  $     20     $    18     $    38
  Now & money market
   accounts....................  (77)       48         (29)     16         100       116         29         103         132
  Certificate accounts.........  503     1,100       1,603    (756)        (70)     (826)       811       1,274       2,085
  FHLB advances................   52        29          81     (32)        538       506        (24)        930         906
                               -----     -----      ------   ------     ------   -------    --------    -------     -------

Total interest-bearing
  liabilities................ $  485   $ 1,163    $  1,648  $ (781)   $    553  $   (228)  $    836     $ 2,325    $  3,161
                               =====   =======    ========   ======    =======    =======  ========     =======    ========


</TABLE>


                                                                    17


<PAGE>



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,
intercity, and community development purposes.  Under such limitations,  on June
30, 1998, the Bank was authorized to invest up to approximately $12.3 million in
the  stock  of or loans  to  subsidiaries.  In  addition,  institutions  meeting
regulatory  capital  requirements,  which the Bank does, may invest up to 50% of
their  regulatory  capital in conforming first mortgage loans to subsidiaries in
which they own 10% or more of the capital stock. As of June 30, 1998, the Bank's
investment  in  and  loans  to  its  subsidiaries  was  approximately   $810,484
consisting of investment in common stock and earnings.

        In 1978,  the Bank formed First  Service  Corporation  of  Elizabethtown
("First  Service") which holds an equity interest in Intrieve,  Inc.,the company
performing the Bank's data  processing.  First Service also acts as a broker for
the purpose of selling  mortgage  life,  credit life and accident and disability
insurance to the Bank's customers.

        In March,  1998 First Service entered into a contract with Robert Thomas
Securities,  Inc. to provide investment  services to the Bank's customers in the
area of tax  deferred  annuities,  government  securities  and stocks and bonds.
First Service employs three full-time employees to perform these services.  This
investment  function  operates  under  licenses held by First  Service.  The net
earnings of First Service was $112,588 during fiscal year 1998.

        Savings   associations,   in   determining   compliance   with   capital
requirements,  are required to deduct from capital an  increasing  percentage of
their  debt and equity  investments  in, and  extensions  of credit to,  service
corporations  in  activities  not  permissible  for  a  national  bank.  Certain
activities of the Bank's service  corporations  are not permissible for national
banks.  Accordingly,  on June 30, 1998, the Bank deducted 100% of its investment
in its service  corporation from its core and tangible capital.  See "Regulation
--  Regulatory  Capital  Requirements."  Because  the Bank's  investment  in its
subsidiary  is  insignificant,  management  does not believe  that the  required
deductions  from  capital will have a material  effect on the Bank's  regulatory
capital position.

COMPETITION

        First Federal experiences substantial competition both in attracting and
retaining savings deposits and in the making of mortgage and other loans. Direct
competition  for  savings  deposits  comes  from  other  savings   institutions,
commercial   banks,  and  credit  unions  located  in  north-central   Kentucky.
Additional significant  competition for savings deposits comes from money market
mutual funds and corporate and government debt securities.

        The primary  factors in competing for loans are interest  rates and loan
origination  fees and the range of  services  offered by the  various  financial
institutions.  Competition  for  origination of real estate loans normally comes
from other savings institutions,  commercial banks,  mortgage bankers,  mortgage
brokers, and insurance  companies.  First Federal is able to compete effectively
in its primary market area.

        First Federal has offices in six cities in four contiguous counties.  In
addition to the  financial  institutions  which have offices in these  counties,
First Federal competes with several commercial banks and savings institutions in
surrounding counties,  many of which have  assets which are substantially larger

                                       18



<PAGE>



than First Federal's. In addition,  Kentucky's interstate banking statute, which
permits banks in all states to enter the Kentucky market if they have reciprocal
interstate banking statutes, has further increased competition for the Bank.

EMPLOYEES

        The  Corporation  and  subsidiaries  had 100 full-time  employees and 15
part-time  employees as of June 30, 1998. None of these employees is represented
by a collective bargaining agreement and the Corporation believes that it enjoys
good relations with its personnel.

REGULATION

        GENERAL. As a federally chartered savings association,  First Federal is
subject to extensive  regulation  by the OTS. The lending  activities  and other
investments   of  the  Bank  must  comply  with   various   federal   regulatory
requirements. The OTS periodically examines the Bank for compliance with various
regulatory  requirements  and the FDIC also has the authority to conduct special
examinations  of  institutions  insured by the SAIF.  The Bank must file reports
with the OTS describing its activities and financial condition. The Bank is also
subject to certain reserve requirements promulgated by the Board of Governors of
the Federal Reserve System (the "Federal Reserve  Board").  This supervision and
regulation is intended primarily for the protection of depositors.  As a savings
and loan holding  company,  the  Corporation is subject to the OTS'  regulation,
examination, supervision and reporting requirements.

        FEDERAL HOME LOAN BANK SYSTEM.  The Bank is a member of the FHLB System,
which consists of 12 regional Federal Home Loan Banks subject to supervision and
regulation by the Federal Housing Finance Board ("FHLB").  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 (borrowings) from the FHLB of Cincinnati,  whichever is greater.  First
Federal was in compliance with this  requirement  with investment in the FHLB of
Cincinnati stock at June 30, 1998, of $3.0 million.

        The FHLB of  Cincinnati  serves as a  reserve  or  central  bank for its
member  institutions  within its assigned  region.  It 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, 1998,  First Federal had $43.2 million in advances  outstanding from
the FHLB of Cincinnati. See "Business - Sources of Funds - Borrowings."

        LIQUIDITY  REQUIREMENTS.  As a member of the FHLB  System,  the Bank has
been  required to  maintain  average  daily  balances  of liquid  assets  (cash,
deposits  maintained  pursuant to Federal Reserve Board  requirements,  time and
savings  deposits in certain  institutions,  obligations of states and political
subdivisions thereof,  shares in mutual funds with certain restricted investment
policies,  highly rated corporate debt, and mortgage loans and  mortgage-related
securities with less than one year to maturity or subject to purchase within one
year) equal to the monthly  average of not less than a specified  percentage  of
its net withdrawable savings deposits plus short-term borrowings. This liquidity
requirement,  which is currently 5%, may be changed from time to time by the OTS
to any amount within the range of 4% to 10% depending  upon economic  conditions
and the savings flows of member institutions. Member institutions have also been


                                       19


<PAGE>



required to maintain  average daily  balances of  short-term  liquid assets at a
specified  percentage  (currently  1%) of the  total of their  net  withdrawable
savings accounts and borrowings payable in one year or less.  Monetary penalties
may be imposed for failure to meet liquidity requirements. The average liquidity
and  short-term  liquidity  ratios of First Federal for June 1998 were 9.81% and
9.17%, respectively.

        QUALIFIED  THRIFT  LENDER  TEST.  The Bank is  currently  subject to OTS
regulations  which use the  concept  of a  qualified  thrift  lender  ("QTL") to
determine  eligibility for Federal Home Loan Bank advances and for certain other
purposes.  To qualify as a QTL, a savings association 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 association
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,
credit card and education loans;  (ii) property used by the savings  association
in the conduct of its  business;  and (iii) stock in a Federal Home Loan Bank or
the Federal  National  Mortgage  Association  or the Federal Home Loan  Mortgage
Corporation. Qualified thrift investments may also include liquidity investments
and 50% of the dollar amount of residential mortgage loans subject to sale under
certain conditions. To qualify as a QTL, a savings association must maintain its
status as a QTL on a monthly  basis in nine out of every 12  months.  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 Federal  Home Loan Bank  System.  Upon
failure to qualify as a QTL for two years, a savings association must convert to
a commercial bank. At June 30, 1998,  approximately  97.53% of the Bank's assets
were invested in qualified thrift investments.

        LENDING  LIMITS.  Under  regulations of the OTS, loans and extensions of
credit  to a person  outstanding  at one time and not  fully  secured  shall not
exceed 15% of the unimpaired capital, surplus and the loan loss allowance of the
savings  association.  Loans and  extensions  of credit fully secured by readily
marketable  collateral (as defined) may comprise an additional 10% of unimpaired
capital and surplus.  At June 30, 1998,  the Bank complied  with its  regulatory
lending limits.

        The  aggregate  amount  of loans  which a  federally  chartered  savings
association may make on the security of liens on  non-residential  real property
may not exceed 400% of the institution's capital, though the Director of OTS has
the authority to permit savings associations to exceed the 400% of capital limit
in certain circumstances.

        REGULATORY  CAPITAL   REQUIREMENTS.   OTS  regulations  require  savings
associations  to satisfy three  different  capital  requirements.  Specifically,
savings  associations must maintain "tangible" capital equal to 1.5% of adjusted
total  assets,  "core"  capital  equal  to 3% of  adjusted  total  assets  and a
combination of core and "supplementary" capital equal to 8.0% of "risk-weighted"
assets. OTS regulations 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).  For  purposes of these
regulations,  Tier 1 capital has the same  definitions as core capital.  See "--
Prompt Corrective Regulatory Action."

        For purposes of the OTS's regulatory capital  regulations,  core capital
is  defined  as  common  stockholders'  equity  (including  retained  earnings),
noncumulative perpetual preferred stock  and related surplus, minority interests


                                       20


<PAGE>



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 held by an eligible savings
associating.  Tangible  capital is given the same definition as core capital but
does not include 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.

        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  rata  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 the
savings  association to net its debt and equity investments  against capital, as
well as a pro rata portion of the assets of other subsidiaries for which netting
is not fully  required  under the  phase-in  rules.  Adjusted  total  assets are
reduced  by the  amount of assets  that have been  deducted  from  capital,  the
portion of 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 an amount
equal to the  savings  association's  high  loan-to-value  ratio  land loans and
non-residential construction loans and the amount of capital instruments held by
other depository  institutions pursuant to reciprocal arrangements as well as by
an increasing percentage of the savings association's equity investments.

        The risk-based  capital  requirement is measured  against  risk-weighted
assets  which equals 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-weighted  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   loans  are   assigned  a  risk   weight  of  100%.
Mortgage-backed  securities  issued,  or fully  guaranteed  as to principal  and
interest,  by the FNMA or 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.  The  risk-based  capital  requirement  is 8% of
risk-weighted assets.

        In  determining  compliance  with  capital  standards,  all of a savings
association's  investments  in, and  extensions  of credit  to,  any  subsidiary
engaged  in  activities  not  permissible  for a  national  bank  are also to be
deducted  from the  savings  association's  capital.  Certain  subsidiaries  are
exempted from this treatment,  including any subsidiary engaged in impermissible
activities  solely  as agent  for its  customers  (unless  the  FDIC  determined
otherwise),  subsidiaries  engaged  solely in mortgage  banking,  and depository
institution subsidiaries acquired prior to May 1, 1989. In addition, the capital
deduction is not applied to federal savings  associations  existing as of August
9, 1989 that were either chartered as a state savings bank or state  cooperative
bank prior to October 10, 1982 or that acquired their principal assets from such
an  association.  The  required  reduction  of capital for this purpose is being
phased in over a period of  approximately  five  years.  At June 30,  1998,  the
Bank's  investment  in First  Service,  a wholly  owned  subsidiary  of the Bank
engaged in activities  which are not permitted for a national bank,  amounted to
$810,484.  Accordingly,  on  June  30,  1998,  the  Bank  deducted  100% of this
investment from its core and tangible capital.


                                       21



<PAGE>




        The tables below  present the Bank's  capital  position  relative to its
various minimum regulatory capital requirements at June 30, 1998.

<TABLE>

                                               June 30, 1998

                                                           Percent of
                                          Amount           Assets (1)
                                          ------           ----------
                                             (Dollars in thousands)
<S>                                      <C>                <C>    
Tangible capital......................   $ 48,243           11.9%
Tangible capital requirement..........      6,081            1.5
                                         --------            ---
Excess................................   $ 42,162           10.4%
                                         ========           ====

Tier 1/Core capital...................   $ 48,243           11.9%
Tier 1/Core capital
 requirement..........................     16,215            3.0
                                         --------            ---
Excess................................   $ 32,028            8.9%
                                         ========           ====

Tier 1/Risk-based capital.............   $ 48,243           17.9%
Tier 1/Risk-based capital
 requirement..........................     10,829            4.0
                                         --------           ----
Excess................................   $ 37,414           13.9%
                                         ========           ====

Risk-based capital....................   $ 50,096           18.5%
Risk-based capital
 requirement..........................     21,658            8.0
                                         --------           ----
Excess................................   $ 28,438           10.5%
                                         ========           ====


<FN>

(1)     Based upon  adjusted  total assets for purposes of the tangible  capital
        and core capital requirements,  and risk-weighted assets for purposes of
        the risk-based capital requirements.
</FN>
</TABLE>



        The OTS risk-based  capital  requirements  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
is  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.

                                       22





<PAGE>


        The OTS  will calculate  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, for any quarter is based on the institution's Thrift Financial Report filed
three  quarters  earlier.  The Bank does not have  more  than a normal  level of
interest  rate risk under the new rule and is not required to increase its total
capital as a result of the rule.

        Presented  below  as of June  30,  1998  is an  analysis  of the  Bank's
interest rate risk ("IRR") as measured by changes in NPV for  instantaneous  and
sustained parallel shifts of 100 basis points in market interest rates.



                             As of June 30, 1998
                             -------------------

                      Net Portfolio Value         NPV as % of PV of Assets
                      -------------------         ------------------------
  Change     
 In Rates     $ Amount     $ Change   % Change    NPV Ratio       Change
 --------     --------     --------   --------    ---------       ------
  +400 bp      $40,100     (27,721)       -41%       10.42%      -567 bp
  +300 bp       47,718     (20,103)       -30%       12.09%      -399 bp
  +200 bp       55,246     (12,575)       -19%       13.67%      -242 bp
  +100 bp       62,237      (5,584)        -8%       15.05%      -104 bp
     0 bp       67,821                               16.09%
  -100 bp       71,556        3,736        +6%       16.72%       +63 bp
  -200 bp       73,709        5,888        +9%       17.02%       +94 bp
  -300 bp       76,656        8,835       +13%       17.46%      +138 bp
  -400 bp       80,610       12,790       +19%       18.07%      +198 bp



        While  the  Bank  complies  with  its   currently   applicable   capital
requirements  and  expects to  continue  to comply  with the  requirements,  any
failure to comply with the capital  requirements  in the future  would result in
severe  penalties.   In  addition  to  requiring  generally  applicable  capital
standards  for  savings  associations,   applicable  regulations  authorize  the
Director  of OTS to  establish  the  minimum  level  of  capital  for a  savings
institution at such amount or at such ratio of capital-to-assets as the Director
determines to be necessary or appropriate  for such  institution in light of the
particular  circumstances of the institution.  The Director of 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 Director 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.

        The OTS staff policies specify that savings institutions failing any one
of their minimum  regulatory  capital  requirements may not increase their total
assets during any quarter in excess of an amount equal to net interest  credited
during the  quarter.  Under these  policies,  institutions  that have  submitted
capital  plans  that are  rejected  by the  District  Director  or that have had
capital  plans  approved  but do not meet the  targets  or  requirements  of the
capital  plan may not make any new loans or  investments  except  with the prior
written  approval of the District  Director.  Such approval will only be granted
when the  proposed  loan or  investment  is  reasonable  in the  context  of the
institution's operations and does not significantly increase the risk profile of
the savings institution.

        The  Director  of  OTS  must   restrict  the  asset  growth  of  savings
associations  not  in  regulatory  capital  compliance,  subject  to  a  limited
exception  for growth not  exceeding  interest  credited.  In addition,  savings
associations  not in full  compliance  with  applicable  capital  standards  are
subject to a capital  directive which may include such  restrictions,  including
restrictions  on the  payment  of  dividends  and  on  compensation,  as  deemed
appropriate  by the Director of OTS. The Director of OTS is directed to treat as
an unsafe and unsound practice any material failure by a savings  association to
comply with a capital plan or capital  directive.  The  sanctions  and penalties
that could be imposed range from  restrictions on branching or on the activities
of the institution,  to restrictions on the ability to obtain FHLB advances,  to
termination of insurance of accounts following appropriate  proceedings,  to the
appointment of a conservator or receiver.

                                       23


<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 also be requird 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  association  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,
1995.

        Under FDICIA,  regulations  implementing  the prompt  corrective  action
provisions  of a depository  institution's  capital  adequacy is measured 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
association  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  association  is  a  savings
association 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  association  has a  composite  of 1
MACRO rating). An  "undercapitalized  institution" is a savings association 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  association  has a  composite  1 MACRO  rating).  A
"significantly undercapitalized" institution is defined as a savings association
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  association  defined as a
savings  association  that has a ratio of core  capital to total  assets of less
than 2.0%.  The OTS may  reclassify a well  capitalized  savings  association as
adequately   capitalized   and  may  require  an   adequately   capitalized   or
undercapitalized  association to comply with the supervisory  actions applicable
to  associations in the next lower  opportunity for a hearing,  that the savings
association  is in an unsafe or unsound  condition or that the  association  has
received and not corrected a less-than-satisfactory  rating for any MACRO rating
category.  First  Federal  is  classified  as "well  capitalized"  under the new
regulations.


                                       24


<PAGE>


DEPOSIT INSURANCE

        Under FDICIA,  the FDIC has established a risk-based  assessment  system
for insured depository  institutions.  Under the system, the assessment rate for
an insured depository  institution depends on the assessment risk classification
assigned  to the  institution  by the  FDIC  which  will  be  determined  by the
institution's  capital  level  and  supervisory  evaluations.  Institutions  are
assigned  to one  of  three  capital  groups  --  well  capitalized,  adequately
capitalized or  undercapitalized -- based on the data reported to regulators for
date  closest to the last day of the seventh  month  preceding  the  semi-annual
assessment period. Well capitalized institutions are institutions satisfying the
following capital ratio standards;  (i) total risk-based  capital ratio of 10.0%
or greater;  (ii) Tier 1 risk-based capital ratio of 6.0% or greater;  and (iii)
Tier 1 leverage ratio of 5.0% or greater.  Adequately  capitalized  institutions
are   institutions   that  do  not  meet  the  standards  for  well  capitalized
institutions but which satisfy the following capital ratio standards:  (i) total
risk-based  capital  ratio of 8.0% or greater;  (ii) Tier 1  risk-based  capital
ratio of 4.0% or  greater;  and (iii) Tier 1 leverage  ratio of 4.0% or greater.
Undercapitalized  institutions  consist of  institutions  that do not qualify as
either  "well  capitalized"  or  "adequately  capitalized."  Within each capital
group,  institutions  are assigned to one of the 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.  Subgroup A consists of  financially  sound  institutions  with only a few
minor   weaknesses.   Subgroup  B  consists  of  institutions  that  demonstrate
weaknesses which, if not corrected, could result in significant deterioration of
the  fund.   Subgroup  C  consists  of  institutions  that  pose  a  substantial
probability of loss to the deposit  insurance fund unless  effective  corrective
action is taken.

The Bank  insures  its  customers'  deposits  through  the  Savings  Association
Insurance  Fund  ("SAIF").  On September  30, 1996,  Federal  Deposit  Insurance
Corporation  ("FDIC")  legislation was signed into law to recapitalize  the SAIF
due to a substantial disparity that existed between the premiums assessed by the
SAIF as compared to premiums  assessed to  commercial  banks.  All  SAIF-insured
savings institutions were required to pay a one-time special assessment of $.657
for every $100 of customer deposits held as of March 31, 1995. This has resulted
in a charge to earnings of $1,095,000,  net of tax,  during the first quarter of
fiscal 1997.  On January 1, 1997,  the Bank began paying  insurance  premiums of
$.064 per $100 of deposits as compared to a previous premium of $.23 per $100 of
deposits.


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 $51.9
million of transaction accounts,  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,
1998, the Bank met its reserve requirements.


                                       25


<PAGE>


        SAVINGS AND LOAN  HOLDING  COMPANY  REGULATIONS.  The  Corporation  is a
savings and loan  holding  company  within the meaning of the Home  Owners' Loan
Act, as amended.  As such, it 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,  First Federal is subject to
certain  restrictions  in its  dealings  with  the  Corporation  and  affiliates
thereof.

        The Home Owners' Loan Act, as amended, generally prohibits a savings and
loan holding  company,  without prior  approval of the Director of OTS, from (i)
acquiring  control of any other savings  institution or savings and loan holding
company or  controlling  the assets  thereof or (ii) acquiring or retaining more
than 5% of the voting shares of a savings institution or holding company thereof
which is not a subsidiary.  Additionally, under certain circumstances, a savings
and loan  holding  company is  permitted  to acquire,  with the  approval of the
Director  of  OTS,  up  to  15%  of  previously  unissued  voting  shares  of an
under-capitalized  savings association for cash without that savings association
being deemed  controlled by the holding company.  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 institution or any other savings and loan holding company.

        The Bank Holding Company Act of 1956 specifically authorizes the Federal
Reserve  Board and the Director of the OTS to approve an  application  by a bank
holding company to acquire control of any savings institution. 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 the  bank  holding  companies.  In
approving  such as  application,  the Federal  Reserve  Board may not impose any
restriction  on  transaction  between  the savings  institution  and its holding
company  affiliates  except as required  by Sections  23A and 23B of the Federal
Reserve Act.

        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.

        Transactions between savings associations and any affiliate are governed
by Sections  23A and 23B of the Federal  Reserve  Act. An affiliate of a savings
association  is any company or entity which  controls,  is  controlled  by or is
under common control with the savings association. In a holding company context,
the parent holding company of a savings  association  (such as the  Corporation)
and any  companies  which are  controlled  by such  parent  holding  company are
affiliates of the savings association. Generally, Sections 23A and 23B (i) limit
the extent to which the savings  institution or its  subsidiaries  may engage in
"covered  transactions" with any one affiliate to an amount equal to 10% of such
institution's  capital stock and surplus,  and contain an aggregate limit on all
such  transactions with all affiliates to an amount equal to 20% of such capital
stock  and  surplus  and (ii)  require  that all such  transactions  be on terms
substantially  the  same,  or at  least  as  favorable,  to the  institution  or
subsidiary as those provided to a non-affiliate.  The term "covered transaction"
includes the making of loans,  purchase of assets,  issuance of a guarantee  and
similar  other  types  of  transactions.   Additionally,   in  addition  to  the
restrictions  imposed by Sections  23A and 23B, no savings  association  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 association.


                                       26


<PAGE>


        Savings  associations are also subject to the restrictions  contained in
Section  22 (h) of the  Federal  Reserve  Act on  loans to  executive  officers,
directors  and  principal  shareholders.  Under  Section  22  (h),  loans  to an
executive officer and to a greater than 10% shareholder of a savings association
(18% in the case of  institutions  located  in an area with less than  30,000 in
population),  and certain affiliated entities of either, may not exceed together
with all other  outstanding  loans to such person and  affiliated  entities  the
association's  loan to one borrower limit as  established  by FIRREA  (generally
equal to 15% of the  institution's  unimpaired  capital and  surplus,  for loans
fully secured by certain readily marketable collateral, an additional 10% of the
institution's  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%  shareholders  of savings
association,  and their respective  affiliates,  unless such loan is approved in
advance by a majority  of the board of  directors  of the  association  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 if 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  shareholders  be made on terms
substantially the same as offered in comparable transactions to other persons.

        The Board of Directors of the Corporation  presently  intends to operate
the  Corporation  as a  unitary  savings  and loan  holding  company.  There are
generally  no  restrictions  on the  activities  of a unitary  savings  and loan
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 and limiting (i)
payment of dividends by the savings  association,  (ii) transactions between the
savings association and its affiliates,  and (iii) any activities of the savings
association that might create a serious risk that the liabilities of the holding
company and its affiliates may be imposed on the savings association.

        Notwithstanding the above rules as to permissible business activities of
unitary  savings  and  loan  holding  companies,   if  the  savings  association
subsidiary  of such a holding  company fails to meet (in three out to every four
quarters and two out of every three years) the QTL test, see  "Qualified  Thrift
Lender Test" above,  then such unitary holding company shall also become subject
to  the  activities   restrictions  applicable  to  multiple  holding  companies
(additional restrictions on securing advances from the FHLB also apply).

        If  the   Corporation   were  to  acquire  control  of  another  savings
institution other than through merger or other business  combinations with First
Federal,  the  Corporation  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 Corporation and any of its
subsidiaries (other than First Federal or other subsidiary savings institutions)
would thereafter be subject to further restrictions.  The Home Owners' Loan Act,
as amended,  provides  that,  among other things,  no multiple  savings and loan
holding company or subsidiary  thereof which is not a savings  institution shall
commence or  continue  for more than a limited  period of time after  becoming a
multiple  savings and loan holding company or subsidiary  thereof,  any business
activity  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 the
FSLIC by  regulations  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.


                                       27


<PAGE>


        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 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, or if
the  laws of the  state in which  the  institution  to be  acquired  is  located
specifically  permit institution 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 Director of OTS may approve an acquisition resulting
in a multiple savings and loan holding company controlling savings  institutions
in more than one state in the case of certain emergency thrift acquisitions.

        No subsidiary savings  association of a savings and loan holding company
may declare or pay a dividend on its permanent or  nonwithdrawable  stock unless
it first gives the Director of OTS 30 day advance notice of such declaration and
payment.  Any dividend declared during such period or without the giving of such
notice shall be invalid.


FEDERAL AND STATE TAXATION

        The Corporation and the Bank currently file consolidated  federal income
tax returns based on a fiscal year ending June 30.

        The Small  Business Job Protection Act passed by Congress in August 1996
included a provision  that repealed the  percentage  of taxable  income bad debt
deduction  for  federal  income  tax  purposes.  The Bank  used  this  method to
determine  its bad debt  deduction  when  computing  federal taxes in applicable
years.  This new legislation  also requires  recapture of the excess of bad debt
reserves  over  the base  year  reserve  as of  December  31,  1987.  For  years
subsequent  to the base  year,  deferred  taxes  have been  recorded;  thus,  no
additional tax provision is required as a result of this legislation.  Under the
new legislation,  the Bank is required to use the specific  charge-off method to
calculate  the bad debt  deduction  for  federal  income tax  purposes.  The new
legislation is effective for tax years beginning after December 31, 1995.

        Earnings  appropriated  to the Bank's bad debt  reserve and claimed as a
tax  deduction  will not be allowable  for the payment of cash  dividends or for
distribution to  shareholders  (including  distributions  made on dissolution or
liquidation),  without  payment of federal  income  taxes on such  dividends  or
distributions  by the Bank at the then  current  tax rates on the amount  deemed
removed to the Bank would include not only the amount actually distributed,  but
would also be increased  (subject to certain  limitations)  by the amount of the
tax payable by reason of such distribution.

        The Corporation adopted Statement of Financial Accounting Standard No.
109 (SFAS No. 109), "Accounting for Income Taxes," on July 1, 1993.

     SFAS No. 109 calculates taxes on the liability  method,  thus requiring the
recognition of current and deferred tax  liabilities and assets for the expected
future tax  consequences  of events that have been  recognized  in the financial
statements  or tax return.  This  statement's  emphasis on the balance  sheet is
consistent  with SFAS No. 96 but is a change from APB No.  11's  emphasis on the
expense  calculation.  Under  SFAS No.  109,  the tax  expense or benefit in the
statement of operations will be the current tax liability plus the change in the
deferred tax  liabilities  and assets  occurring  during the year.  SFAS No. 109
changes the treatment of loan loss provisions in the  calculation of taxes.  Tax
bad debt reserves that arose prior to 1988 will require  recognition of deferred
tax liabilities  only if it becomes  apparent that those  temporary  differences
will reverse in the foreseeable future.  Other differences between financial and
tax reserves will create temporary  differences for which deferred tax assets or
liabilities will be computed.



                                       28



<PAGE>



        The   Commonwealth  of  Kentucky   imposes  no  income  tax  on  savings
institutions.  Nonetheless,  First  Federal  must pay a Kentucky ad valorem tax.
This tax is 1/10th  of 1% of First  Federal's  total  savings  accounts,  common
stock,  capital and retained income with certain deductions for amounts borrowed
by depositors and for securities guaranteed by the U.S. Government or certain of
its agencies.  The Bank's  subsidiary  must pay a state income tax, as well as a
tax on capital. The tax on income is 4% for the first $25,000 of taxable income,
5% for the next $25,000,  6% for the next $50,000,  7% for the next $150,000 and
8.25% for all  income  over  $250,000.  The tax on  capital  is .0021  times the
capital  employed with a credit of .0014 times the first $350,000 of capital for
those corporations with gross income of under $500,000.

        For information  regarding federal income taxes, see Note 7 of the Notes
to Consolidated Financial Statements in the Annual Report.


                                       29



<PAGE>



ITEM 2.     PROPERTIES

        The following table sets forth the location of the Bank's offices, as
well as certain  additional  information  relating to these  offices at June 30,
1998. All of the properties are owned by the Bank.

<TABLE>

                                Year                                Approximate
                              Facility                                 Square
Office Location                Opened           Net Book Value        Footage
---------------               --------          --------------      -----------                             
                                             (Dollars in thousands)
<S>                             <C>                <C>                <C>   
Home Office                     1993               $6,369             55,000
2323 Ring Road
Elizabethtown, Kentucky


Radcliff Office                 1975                  561              2,728
475 West Lincoln Trail
Radcliff, Kentucky


Bardstown Office (1)            1997                1,275              4,500
315 North Third Street
Bardstown, Kentucky


Munfordville Office             1976                  255              2,928
925 Main Street
Munfordville, Kentucky


Elizabethtown Office            1985                  267              1,764
325 West Dixie Avenue
Elizabethtown, Kentucky

 Shepherdsville Office          1995                1,105              7,600
 395 North Buckman Street
 Shepherdsville, Kentucky

 Mt. Washington Office          1995                  620              2,500
 279 Bardstown Road
 Mt. Washington, Kentucky

 Wal-Mart Office (1)            1996                  295                984
 101 Wal-Mart Drive
 Elizabethtown, Kentucky

<FN>

(1) In February  1996,  the Bank leased  office space for its Wal-Mart  location
under a five year operating  lease agreement with options to extend the terms of
the lease at the end of the original  lease  period.  In August  1996,  the Bank
leased  land under a  five-year  operating  lease  agreement  for its  Bardstown
office.  This  lease  contains  options  to renew  the terms of the lease for an
additional forty-five years.
</FN>
</TABLE>

        As of June  30,  1998,  the net  book  value of  office  properties  and
equipment owned by the Bank and its subsidiaries was $10.7 million.  For further
information, see Note 4 of the Notes to Consolidated Financial Statements in the
Annual Report.

        The Bank utilizes the services of an outside data processing center
for most of its savings and loan operations.  All accounting and internal record
keeping functions are handled by the Bank's in-house computer system.


                                       30


<PAGE>


ITEM 3.     LEGAL PROCEEDINGS

        Although  the Bank is,  from time to time,  involved  in  various  legal
proceedings  in the normal  course of  business,  there are no material  pending
legal  proceedings  to which the  Corporation,  the Bank, or its subsidiary is a
party, or to which any of their property is subject.

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

        No  matters  were submitted  to a  vote of  security  holders during the
fourth quarter of the fiscal year ended June 30, 1998.


                                    PART II


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

<TABLE>
       

Quarterly Stock Prices                                                 Two
                                 Quarter Ended                    Months Ended

<S>               <C>         <C>         <C>        <C>             <C>    
Fiscal 1998:       9/30        12/31       3/31       6/30           8/31/98
                   ----        -----       ----       ----           -------
High              $23.25      $22.75      $23.00     $28.75          $28.50     
Low               $21.00      $22.00      $20.50     $21.50          $24.25
Cash dividends    $ 0.14      $ 0.14      $ 0.14     $ 0.14

Fiscal 1997:

High              $21.25      $21.25      $21.00     $20.25
Low               $19.75      $18.75      $19.75     $18.00
Cash dividends    $ 0.12      $0.12       $ 0.13     $ 0.13


</TABLE>


                                       31


<PAGE>



ITEM 6.     SELECTED FINANCIAL DATA

<TABLE>
     
                                                  At June 30,

Financial Condition Data:      1998        1997        1996         1995        1994
                               ----        ----        ----         ----        ----
                                              (Dollars in Thousands)
<S>                         <C>           <C>        <C>          <C>         <C>   
Total assets                $409,651     $377,380    $352,671     $331,375    $262,457
Interest bearing deposits      4,157          481       7,753        6,601      11,001
Net loans outstanding        355,306      327,791     302,363      282,954     230,792
Investments                   26,811       22,677      16,742       17,068       7,058
Savings deposits             306,703      281,342     264,946      260,503     197,143
Borrowings                    43,249       41,514      34,979       21,238      16,126
Net worth, substantially
 restricted                   54,688       51,665      49,946       47,310      47,119
                              ------       ------      ------       ------      ------
Number of:
Real estate loans
 outstanding                   6,709        6,380       5,914        5,858       4,525 
Deposits accounts             37,764       36,378      35,140       35,933      26,436
Offices                            8            8           8            7           5

</TABLE>

<TABLE>

                                                Year Ended June 30,

 Operations Data:              1998        1997        1996         1995        1994
                               ----        ----        ----         ----        ----
                                              (Dollars in Thousands)
<S>                         <C>          <C>         <C>          <C>         <C>   
Interest income              $31,182      $28,782     $26,926      $22,635     $20,017
Interest expense             (16,059)     (14,375)    (13,676)     (10,515)     (8,168)
                             -------      -------     -------      -------     -------
Net interest income           15,123       14,407      13,250       12,120      11,849
Provision for loan losses       (265)        (200)          0         (100)        (30)
Other income                   2,860        2,468       2,648        2,464       1,213
General and administrative
 expense (1)                  (8,082)      (9,472)     (7,547)      (6,428)     (5,145)
Income tax expense            (3,302)      (2,429)     (2,864)      (2,626)     (2,518)
                             -------      -------     -------      -------     -------
Net income                   $ 6,334      $ 4,774     $ 5,487      $ 5,430     $ 5,369
                             =======      =======     =======      =======     =======

Earnings per share**         $  1.53      $  1.14     $  1.30      $  1.24     $  1.22  
Book value per share**       $ 13.24      $ 12.39     $ 11.87      $ 11.17     $ 10.65
Dividends paid per share**   $   .56      $   .50     $   .46      $   .41     $   .39
Return payout ratio per 
 share**                          37%          44%         35%          33%         30%
Return on average assets        1.60%        1.30%       1.60%        1.85%       2.11%
Average equity to average
 assets                        13.55%       13.77%      14.27%       16.37%      17.80%
Return on average equity       11.81%        9.46%      11.22%       11.30%      11.87%

<FN>
(1) 1997 general and administrative expenses  include  the non-recurring special
 assessment paid to the FDIC in the amount of $1.7 million.
</FN>
</TABLE>

**All per share  information  has been adjusted for a  2-for-1 stock split which
was effective June 10, 1996.

Financial  data  for 1994  and six  months  of 1995 do not  reflect  results  of
operations from Shepherdsville and Mt. Washington offices.


                                       32


<PAGE>


Quarterly Financial Data
(Unaudited) (Dollars in thousands except per share data)

<TABLE>

Fiscal 1998:            September 30     December 31     March 31      June 30
                        ------------     -----------     --------      -------
<S>                       <C>               <C>            <C>           <C>   
Total interest income     $7,522            $7,693         $7,889        $8,078
Total interest expense     3,829             3,993          4,047         4,190     
Net interest income        3,693             3,700          3,842         3,888
Provision for loan   
 losses                       60                30             30           145
Net income                 1,604             1,452          1,650         1,628
Earnings per share        $ 0.39            $ 0.35         $ 0.40        $ 0.39

Fiscal 1997:

Total interest income     $6,953            $7,133         $7,250        $7,446
Total interest expense     3,484             3,582          3,595         3,714
Net interest income        3,469             3,551          3,655         3,732
Provision for loan 
 losses                      200                 0              0             0
Net income                   287             1,387          1,528         1,572
Earnings per share        $ 0.07            $ 0.33         $ 0.37        $ 0.37

</TABLE>

   

ITEM 7.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                             RESULTS OF OPERATIONS

        

              MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL INFORMATION


The management of First Federal Financial Corporation of Kentucky is responsible
for the preparation of the financial statements and all other information in the
Annual  Report.  The  financial  statements  were  prepared in  accordance  with
generally accepted accounting principles appropriate to our circumstances.

The accounting  system and internal  accounting  controls in use are designed to
provide  reasonable  assurance  that the  financial  records  are  reliable  for
preparing financial  statements and maintaining  accounting for assets, and that
assets are safeguarded against loss from unauthorized use or disposition.

To be  reasonably  certain that  policies  are followed and internal  accounting
controls are maintained,  the Internal Audit Department  monitors activities and
procedures throughout the year. Findings and recommendations are reported to the
Audit Committee of the Corporation. The Audit Committee is composed of directors
who are not employees.

                                       33


<PAGE>


                       MANAGEMENT DISCUSSION & ANALYSIS OF
                   FINANCIAL CONDITION & RESULTS OF OPERATIONS



GENERAL

First  Federal  Financial  Corporation  of  Kentucky is the parent to its wholly
owned subsidiary,  First Federal Savings Bank of Elizabethtown.  The Corporation
has no other material income other than that generated by the Bank.


RESULTS OF OPERATIONS

Net income was $6,334,000, or $1.53 per share in 1998, compared with $4,774,000,
or $1.14 per share in 1997.  During the quarter ended  September  30, 1996,  net
income was  affected by a one-time  special  assessment  of $1.7  million  ($1.1
million,  net of tax) paid to the FDIC to recapitalize  the Savings  Association
Insurance  Fund  ("SAIF").  Net  earnings  for the 1997  period  would have been
approximately  $5.87  million or $1.40 per share had it not been for the special
assessment. See further discussion under "Regulatory Matters."
                                     
In addition to the higher net income the 9% increase in net income per share was
also attributable to the Corporation's stock repurchase plans which have reduced
the weighted  average number of shares  outstanding  from 4,182,060 for the 1997
period to 4,145,039 for 1998.

Net Interest Income - Net interest  income  increased by $716,000 during 1998 to
$15,123,000  as compared to  $14,407,000  in 1997 in spite of the  declining net
interest  margin.  The Bank's net interest  margin  decreased from 4.13% for the
1997 period to 4.04% for the 1998 period.

Average loan balances,  which comprise 93% of the total interest-earning assets,
were $343.8 million during 1998 as compared to $317.6 million during 1997, or an
increase of $26.2  million.  The  average  yield on loans  increased  by 5 basis
points to 8.53%  during 1998 as compared to 8.48%  during  1997,  resulting in a
$2.4 million growth in loan interest income.



                                       34


<PAGE>


Customer  deposit  balances  averaged  $293.9 million during 1998, a $23 million
increase from the 1997 average balance of $270.7  million.  The cost of funds on
these  deposits  averaged  4.66% during 1998,  which was an increase of 20 basis
points  from  the  1997  average  cost of  funds of  4.46%.  This  increase  was
attributable to higher rates paid on short-term customer deposits.

Provision  for Loan Losses - Management  periodically  evaluates the adequacy of
the  allowance  for loan losses  based on the Bank's past loan loss  experience,
known and inherent risks in the portfolio,  adverse  situations  that may affect
the borrower's ability to repay and other factors.

The  provision  for loan losses was  $265,000  for 1998.  Net  charge-offs  were
$126,936  during 1998 as compared to $98,115 during 1997.  The Bank's  allowance
for loan losses was $1.9 million or .52% of loans  outstanding  at June 30, 1998
compared  to $1.7  million  or .52%  of  loans  outstanding  at June  30,  1997.
Nonperforming  loans represented .58% of the loans outstanding at June 30, 1998.
As  demonstrated  in the summary table below,  68% of the Bank's  non-performing
assets are collateralized by one-to-four  family  residential  mortgages on real
estate located in central  Kentucky.  Management chose not to add to the reserve
during 1996 due to their assessment as to its adequacy.
                                      
<TABLE>

                                                YEAR ENDED JUNE 30,                                           

                                          1998        1997        1996
                                          ----        ----        ----
                                              (Dollars in thousands)
<S>                                   <C>         <C>          <C>                                                               
Allowance for loan losses:
   Balance, July 1                     $  1,715    $  1,613    $  1,662
   Provision for loan losses                265         200         -                                                              
   Charge-offs                             (148)       (131)        (74)
   Recoveries                                21          33          25
                                         ------      ------      ------                                  
   Balance, June 30                    $  1,853    $  1,715    $  1,613
                                         ======      ======      ======              
                                                                                                                           
Net loans outstanding at year end      $355,306    $327,791    $302,363
Nonperforming loans at year end:
   Collateralized by one-to-four                  
     family homes                      $  1,487    $  1,172    $    940
   Other non-performing loans          $    566    $    378    $    312           
                                                       
Ratios: Non-performing loans to                      
         total loans                       0.58%       0.47%       0.41%
        Allowance for loan losses
         to non-performing loans             90%        111%        128%
        Allowance for loan losses to                
         net loans                         0.52%       0.52%       0.53% 
        Non-performing assets to                 
         total assets                      0.53%       0.46%       0.46%

</TABLE>

                                       35

<PAGE>


Non-Interest Income and Expense - Non-interest income was $2,860,000 in 1998, an
increase of $392,000  over 1997.  Customer  service  fees  increased  by $43,000
during the 1998  period due to a growth in  customer  checking  accounts.  Gains
reported  from  investment  sales were  $375,000 in 1998 as compared to $317,000
reported in the 1997 period. Income from government lending operations increased
by $172,000  from $314,000 in 1997 to $486,000 in 1998 due to a growth in VA and
FHA loans. Other sources of non-interest income, such as brokerage  commissions,
loan fees,  and other  customer  transaction  fees  increased by $119,000 due to
growth in deposit relationships with existing customers.

Non-interest  expense was $8,082,000 in 1998, compared to $9,472,000 in 1997. If
it had not been for the SAIF special  assessment of  $1,685,000  recorded in the
first  quarter  of 1997,  non-interest  expense  would  have been  approximately
$7,787,000 for the 1997 period.

Compensation  and benefits  increased by $184,000 or 5.2% in 1998 as compared to
1997,  due to routine  inflationary  salary raises and new  associate  positions
required to service the normal customer growth of the Bank.

Office  occupancy and equipment  expenses  increased by $36,000 or 4% in 1998 as
compared to 1997 due to inflationary  increases in other occupancy and equipment
related expenses.

Due to the SAIF  recapitalization,  on January 1,  1997,  the Bank began  paying
federal  insurance  premiums  of $.064 per $100 of  deposits  as  compared  to a
previous premium of $.23 per $100 of deposits,  resulting in a $210,000 decrease
in federal  insurance  premiums  exclusive of special  assessments.  See further
discussion under "Regulatory Matters."

All other expenses  increased by $285,000 in 1998 as compared to 1997.  Expenses
directly related to customer checking accounts  increased due to a higher volume
of accounts.  Expenses directly related to postage,  telephone,  data processing
costs,  marketing,  and supplies  increased  due to asset  growth,  new services
provided by the Bank, and general inflation.


LIQUIDITY AND CAPITAL RESOURCES

The Bank is  required  to  maintain  levels of liquid  assets as  defined by the
Office  of  Thrift  Supervision  regulations.  This  requirement  is  based on a
percentage of deposits and short-term borrowings and is currently 4%. The Bank's
liquidity ratio was 9.17% at June 30, 1998.

The Bank's primary source of funds for meeting its liquidity  needs are customer
deposits,  borrowings  from the Federal Home Loan Bank of Cincinnati,  principal
and interest payments from loans and  mortgage-backed  securities,  and earnings
from  operations  retained by the  Corporation.  The Bank also has a significant
investment portfolio to meet liquidity should the need arise.

At  June  30,  1998,  the  Bank  had  outstanding  loan  commitments,  including
undisbursed portions of loans in process, standby letters of credit and lines of
credit in the amount of $29.4 million.  It is anticipated  that these demands on
liquidity  will be net  through  growth  in  customer  deposits  and  additional
borrowings from the Federal Home Loan Bank of Cincinnati.

                                       36

<PAGE>


The  Office  of  Thrift   Supervision's   capital  regulations  require  savings
institutions to meet three capital standards:  a 1.5% tangible capital standard;
a 3% leverage (core capital) ratio; and an 8% risk-based capital standard. As of
June 30, 1998, the Bank's actual  capital  percentages  for tangible  capital of
11.9%,  core  capital  of  11.9%,  and  current  risk-based  capital  of  18.5%,
significantly exceed the regulatory requirement for each category.


IMPACT OF INFLATION & CHANGING PRICES

The financial statements and related data presented herein have been prepared in
accordance  with generally  accepted  accounting  principles,  which require the
measurement of financial  position and operating  results in historical  dollars
without  considering changes in the relative purchasing power of money over time
due to inflation.

The Bank has an asset and liability  structure that is  essentially  monetary in
nature. As a result interest rates have a more significant  impact on the Bank's
performance  than the effects of general  levels of  inflation.  Periods of high
inflation are often  accompanied by relatively higher interest rates and periods
of low inflation are  accompanied by relatively  lower interest rates. As market
interest  rates rise or fall in relation to the rates earned on the Bank's loans
and investments, the value of these assets decreases or increases respectively.


REGULATORY MATTERS

The Bank  insures  its  customers'  deposits  through  the  Savings  Association
Insurance  Fund  ("SAIF").  On September  30, 1996,  Federal  Deposit  Insurance
Corporation  ("FDIC")  legislation was signed into law to recapitalize the SAIF.
As was anticipated,  all SAIF- insured savings institutions were required to pay
a one-time special assessment of $.657 for every $100 of customer deposits. This
has resulted in a charge to earning of $1,095,000,  net of tax, during the first
quarter of 1997. On January 1, 1997, the Bank began paying insurance premiums of
$.064 per $100 of deposits as compared to a previous premium of $.23 per $100 of
deposits.


ACQUISITION

In March 1998,  the Bank  entered into an  agreement  to acquire  three  banking
centers of Bank One Corporation  located in Meade County,  Kentucky.  Two of the
banking  centers  are located in  Brandenburg,  Kentucky  and the third  banking
center is in  Flaherty,  Kentucky.  On July 24,  1998,  the Bank  completed  its
acquisition of the three offices.

In the  transaction,  the Bank  acquired  certain  assets  and  assumed  certain
liabilities associated with the Meade County banking centers,  including deposit
liabilities,  certain loans, real estate leases, furniture, fixtures, equipment,
and other assets totaling  approximately  $72.5 million.  The consideration paid
for the assets totaled  approximately $20.5 million,  which was determined based
on a premium for the core deposits of the acquired banking centers plus the book
or cash value of certain other transferred assets. The acquisition was funded by
reducing the cash associated with the transferred  deposits by the amount of the
purchase price.  This  acquisition will expand the Bank's market share to 53% of
the total  deposits  in Meade  County.  The Bank plans to operate  the  acquired
banking centers as branch offices.


YEAR 2000

Recognizing the need to ensure its operations will not be adversely  impacted by
Y2K failures,  the Bank has developed a proactive  plan for  minimizing its risk
and  updating a majority of its computer  hardware  and software  systems in the
process. The Bank has entered into agreements with hardware and software vendors
to systematically  replace all non-Y2K compliant  hardware and software by March
1999. An equally important  objective of the complete overhaul of the systems is
to enhance the Bank's  technological  capabilities.  The anticipated benefits of
the new systems  include faster  customer  service,  the  flexibility to offer a
wider range of new products and services and the capability to offer  electronic
banking  services in the future.  Communication  systems  will be converted to a
fully  integrated  wide area network,  thereby  connecting  all banking  centers
electronically  to one another.  Although the Bank  anticipates a $400,000 after
tax charge  against  operations  during the quarter  ended  September  30, 1998,
future  technology  costs are  expected  not to  differ  materially  from  those
incurred in prior periods.



                                       37

<PAGE>

NEW ACCOUNTING PRONOUNCEMENT

Statement of Financial Accounting Standards No. 130 ("SFAS 130"), "Comprehensive
Income,"  was  issued in June 1997 and  becomes  effective  for  fiscal  periods
beginning after December 15, 1997. SFAS 130 requires reclassification of earlier
financial statements for comparative purposes. SFAS 130 requires that changes in
the amounts of certain items, including foreign currency translation adjustments
and gains and losses on certain securities be shown in the financial statements.
SFAS 130 does not require a specific format for the financial statement in which
comprehensive  income is reported,  but does require that an amount representing
total  comprehensive  income  be  reported  in that  statement.  Management  has
determined  that the adoption of SFAS 130 will not have a material effect on the
consolidated financial statements.


COMPARISON OF FISCAL 1997 TO 1996

Net income for the fiscal year ended June 30, 1997, was $4,774,000, or $1.14 per
share,  as compared to net income of  $5,487,000 or $1.30 per share for the same
period in 1996. The decrease in earnings is attributable to the one-time special
assessment  of $1.7  million  ($1.1  million,  net of tax) to  recapitalize  the
Savings Association Insurance Fund ("SAIF") and a $200,000 addition to provision
for loan losses. Net earnings for the period would have been approximately $5.87
million  or $1.40  per  share had it not been for the  special  assessment.  See
further discussion under "Regulatory Matters".

Total interest  income  increased by $1,856,000 from fiscal 1996 to 1997, due to
the  strong  growth  of the  Bank's  loan  portfolio.  Interest  income on loans
accounts for a majority of the Bank's  interest income as average loan balances,
which  comprise 92% of the total  interest-earning  assets,  were $317.6 million
during 1997 as compared to $295.7  million  during 1996, or an increase of $21.9
million.  The average yield on loans decreased by 3 basis points to 8.48% during
1997 as compared to 8.51% during 1996. The growth in volume of loans exceeds the
impact of a decrease in yield thus  resulting in a $1.8  million  growth in loan
interest income.

Total  interest  expense  increased  by $700,000  from fiscal 1996 to 1997.  The
weighted average interest rate paid on customer  deposits  averaged 4.46% during
1997,  which was a decrease  of 13 basis  points from the 1996  average  cost of
funds  of  4.59%.  This  decrease  was  primarily   attributable  to  customers'
transferring deposits from long-term to short-term maturities.  Customer deposit
balances  averaged  $270.7 million during 1997, a $12 million  increase from the
1996  average  balance of $258.7  million.  Interest  expense  paid on  deposits
increased  by $194,000  while  interest  expense  paid on Federal Home Loan Bank
advances increased by $506,000.

As a result of the  foregoing  discussion,  net  interest  income  increased  by
$1,157,000 to $14,407,000 in 1997 from $13,250,000 in 1996.

Management  periodically  evaluates  the adequacy of the reserve for loan losses
based on the Bank's past loan loss  experience,  known and inherent risks in the
portfolio,  adverse  situations that may affect the borrower's  ability to repay
and other factors.  During fiscal 1997, the Bank's provision for loan losses was
$200,000.  The  allowance  for loan  losses  was $1.7  million  or .52% of loans
outstanding  at June  30,  1997,  compared  to  $1.6  million  or .53% of  loans
outstanding at June 30, 1996. During fiscal 1996, management chose not to add to
the reserve based on their  assessment as to its adequacy.  Net loan charge-offs
have been $98,115 and $49,054 for fiscal 1997 and 1996, respectively.

Other  income was  $2,468,000  in 1997,  a decrease of $180,000  from 1996.  The
decrease in income is due to reduced sales of available-for-sale  securities. In
1997, the Bank reported gains from  investment  sales of $317,000 as compared to
$754,000 in 1996.  Service fees charged on customer checking accounts  increased
by  $170,000  or 16% from  1996 to 1997,  due to a growth in  customer  checking
accounts  and  an  increase  in  customer   service   fees.   Other  sources  of
miscellaneous  income,  such as safety deposit box rental,  loan fees, and other
customer  transaction  fees  increased  by  $88,000  due to  growth  in  deposit
relationships with existing customers.

Other expense was  $9,472,000  for the 1997 period as compared to $7,547,000 for
the 1996 period, an increase of $1,925,000. The increase is a result of the SAIF
special  assessment  recorded  in the  first  quarter  of 1997,  resulting  in a
$1,685,000  charge  against  earnings.   Associate   compensation  and  benefits
increased by $217,000 or 6.6% in 1997 as compared to 1996 due to the addition of
new  associates  required to offer  expanded  services to the Bank's  customers.
Office occupancy and equipment  expenses increased by $56,000 or 6.6% in 1997 as
compared  to 1996 due to costs  attributable  to the  opening  of a new  banking
center in the Elizabethtown  Wal-Mart Supercenter and inflationary  increases in
other   occupancy   and   equipment   related   expenses.   Due  to   the   SAIF
recapitalization,  on January 1, 1997, the Bank began paying  federal  insurance
premiums of $.064 per $100 of deposits as compared to a previous premium of $.23
per $100 of  deposits,  resulting  in a $230,000  decrease in federal  insurance
premiums  exclusive  of special  assessments.  All other  expenses  increased by
$224,000 in 1997 as compared to 1996 due to a higher  volume of accounts,  asset
growth, general inflation, and expanded services offered to customers.

                                       38

<PAGE>



ITEM 7A.       DISCLOSURES ABOUT MARKET RISK

        To  minimize  the  volatility  of net  interest  income and  exposure to
economic loss that may result from fluctuating  interest rates, the Bank manages
its exposure to adverse  changes in interest  rates  through asset and liability
management  activities  within  guidelines  established  by its Asset  Liability
Committee ("ALOC"). The ALCO, which includes senior management  representatives,
has  the   responsibility   for   approving   and   ensuring   compliance   with
asset/liability  management policies of the Corporation,  which include managing
the  sensitivity  repricing  characteristics  of the  balance  sheet  components
consistent with maintaining  acceptable levels of changes in net portfolio value
("NPV") and net interest income. A primary purpose of the Corporation's  ALCO is
to manage interest rate risk to effectively invest the Corporation's capital and
to preserve the value created by its core business operations.  As such, certain
management  monitoring  processes  are designed to minimize the impact of sudden
and sustained changes in interest rates on NPV and net interest income.

        The Corporation's exposure to interest rate risk is reviewed on at least
a quarterly  basis by the Board of Directors  and the ALCO.  Interest  rate risk
exposure is measured using interest rate  sensitivity  analysis to determine the
Corporation's  change in NPV in the event of  hypothetical  changes in  interest
rates and  interest  rate  sensitivity  gap  analysis is used to  determine  the
repricing  characteristics  of the  Bank's  assets and  liabilities.  The table,
presented on page 23, under Item 1 "Regulatory Capital  Requirements",  presents
the  Corporation's  projected change in NPV for the various rate shock levels as
of June 30, 1998. All market risk sensitive  instruments presented in this table
are held to maturity  or  available  for sale.  The  Corporation  has no trading
securities.

     NPV is calculated by the  Corporation  pursuant to guidelines  estimated by
the  OTS.  The  calculation  is  based on the net  present  value  of  estimated
discounted cash flows utilizing market  prepayment  assumptions and market rates
of interest  provided by independent  broker quotations and other public sources
as of June 30, 1998, with  adjustments made to reflect the shift in the Treasury
yield curve as appropriate.  Computation of prospective  effects of hypothetical
interest  rate  changes are based on numerous  assumptions,  including  relative
levels of market  interest rates,  loan  prepayments,  and deposits  decay,  and
should  not be  relied  upon as  indicative  of  actual  results.  Further,  the
computations do not contemplate any actions the ALCO could undertake in response
to changes in interest rates.

     Certain  shortcomings  are inherent in the method of analysis  presented in
the  computation  of NPV.  Actual  values  may  differ  from  those  projections
presented,   should  market   conditions  vary  from  assumptions  used  in  the
calculation of the NPV.  Certain assets,  such as adjustable  rate loans,  which
represent one of the  Corporation's  primary loan products,  have features which
restrict  changes in interest  rates on a short-term  basis and over the life of
the  assets.  In  addition,  the  proportion  of  adjustable  rate  loans in the
Corporation'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
NPV.  Finally,  the ability of many  borrowers  to repay  their  adjustable-rate
mortgage loans may decrease in the event of interest rate increases.

        Another tool of evaluating the institution's sensitivity to net interest
income to changes in interest rates is to examine the extent to which its assets
and liabilities are "interest rate sensitive" and by monitoring an institution's
interest rate  sensitivity  "gap".  An asset or liability is said to be interest
rate sensitive within a specific time period if it will mature or reprice within
that time period. The interest rate sensitivity gap is defined as the difference
between the amount of  interest-earning  assets  maturing or repricing  within a
specific time period and the amount of interest-bearing  liabilities maturing or
repricing within that same time period.



                                       39


<PAGE>

        The  following  interest  rate  sensitivity  table sets forth the Bank's
interest-earning assets and interest-bearing liabilities at June 30, 1998, which
are anticipated to reprice or mature in each of the future time periods shown.
<TABLE>

                                                             Interest Rate Sensitivity (Gap Analysis)
                                                                      As of June 30, 1998
                                                                    (Dollars in thousands)


                                                        0 - 3         4 - 6         7 - 12         1 - 3         3 - 5      Over 5
                                          Total         Months        Months        Months         Years         Years      Years
                                          -----         ------        ------        ------         -----         -----      -----
<S>                                      <C>           <C>           <C>           <C>          <C>            <C>        <C> 
  Interest-Earning Assets:
    Loans                                $358,547      $35,752       $26,163       $44,166      $107,997       $42,724    $101,744
    Debt and equity securities             25,653        2,984            --         1,000         1,000        11,669       9,000
    Mortgage-backed securities              1,970           69            66           126           423           322         964
                                          -------      -------       -------       -------      --------        ------    --------
      Total rate sensitive assets         386,170       38,805        26,229        45,292       109,420        54,715     111,708
                                          -------      -------       -------       -------      --------        ------    --------
  Interest-Bearing Liabilities:
    Money market deposits                   9,856          939           850         1,464         3,639         1,634       1,330
    Passbook accounts                      30,928        2,146         1,997         3,588        10,148         5,708       7,340
    Demand deposit accounts                32,714        2,270         2,113         3,796        10,734         6,038       7,763
    Certificates of deposit               220,454       27,233        45,727        68,113        70,860         8,521          --
    Borrowed funds                         44,521       21,272            --            --            --            --      23,249
                                           ------       ------        ------        ------        ------         -----      ------
     Total rate sensitive
       liabilities                        338,473       53,860        50,686        76,961        95,382        21,901      39,682
                                          -------       ------        ------        ------        ------        ------      ------

  Interest sensitivity gap               $ 47,697      (15,055)      (24,458)      (31,669)       14,038        32,814      72,026
                                           ======       ======        ======        ======        ======        ======      ======
  Cumulative interest
       sensitivity gap                                $(15,055)     $(39,513)     $(71,182)     $(57,143)     $(24,329)    $47,697
                                                       =======        ======        ======        ======        ======      ======
  Cumulative interest
       sensitivity gap as a
       percentage of total assets                        -3.67%        -9.63%       -17.36%       -13.93%        -5.93%      11.64%
                                                         =====         =====        ======        ======         =====       =====
</TABLE>


        As the  preceding  table  indicates,  the Bank has a  moderate  negative
cumulative gap for assets and liabilities  maturing or repricing within one year
in the amount of  $(71,182)  million or 17.38  percent  of total  assets.  Thus,
decreases in interest rates during this time period would generally increase net
interest income,  while increases in interest rates would generally decrease net
interest  income.  However,  even  though the  periodic  gap  analysis  provides
management  with a method of  measuring  current  interest  rate  risk,  it only
measures rate  sensitivity  at a specific  point in time.  Gap analysis does not
take into  consideration  that assets and  liabilities  with  similar  repricing
characteristics  may not  reprice  at the same time or to the same  degree  and,
therefore,  does not necessarily predict the impact of changes in general levels
of interest rates on net interest income.  Additionally,  certain assets such as
adjustable rate mortgage loans have features which restrict  changes in interest
rates on a  short-term  basis and over the life of the  asset.  Further,  in the
event of changes in  interest  rates,  prepayment  and decay  rates may  deviate
significantly from those assumed in calculating the table.  Finally, the ability
of many borrowers to afford the payments on their adjustable rate mortgage loans
may decrease in the event of an interest rate increase.



                                       40

<PAGE>



ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                                                             
                                         
                                 INDEPENDENT AUDITORS' REPORT



Board of Directors
First Federal Financial Corporation
 of Kentucky
Elizabethtown, Kentucky



We have audited the accompanying  consolidated statements of financial condition
of First Federal  Financial  Corporation of Kentucky and Subsidiaries as of June
30,  1998  and  1997,  and  the  related  consolidated   statements  of  income,
stockholders'  equity,  and cash flows for each of the three years in the period
ended June 30, 1998. These financial  statements are the  responsibility  of the
Bank's  management.  Our  responsibility  is to  express  an  opinion  on  these
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  financial  position  of First  Federal  Financial
Corporation of Kentucky and  Subsidiaries  as of June 30, 1998 and 1997, and the
results of its  operations and its cash flows for each of the three years in the
period ended June 30, 1998, in conformity  with  generally  accepted  accounting
principles.


/s/ Whelan, Doerr & Pike, PSC


Elizabethtown, Kentucky
August 17, 1998


                                       41


<PAGE>


                              FIRST FEDERAL FINANCIAL CORPORATION
                                 OF KENTUCKY AND SUBSIDIARIES

                        CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION


<TABLE>

                                                                   June 30,
                                                         --------------------------
                                                             1998            1997
                                                         ------------    ----------
<S>                                                    <C>             <C> 
ASSETS

Cash and cash equivalents                              $  4,992,588    $  8,694,283
Interest bearing deposits                                 4,157,124         481,430
  Securities held-to-maturity (fair value approximates
   $24,935,000 and $17,800,000 at June 30, 1998 and
   1997, respectively)                                   24,639,484      17,484,427
  Securities available-for-sale, at fair value            1,934,412       5,192,323
Loans receivable, net                                   355,306,342     327,791,495
Real estate owned:
  Acquired through foreclosure                              133,584         183,569
  Held for development                                      642,491         687,261
Investment in Federal Home Loan Bank stock                2,983,800       2,777,200
Premises and equipment                                   10,747,145      10,221,228
Other assets                                              1,329,890         842,656
Excess of cost over net assets of affiliates
  purchased                                               2,784,409       3,024,481
                                                          ---------       ---------
        TOTAL ASSETS                                   $409,651,269    $377,380,353
                                                        ===========     ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES:

Savings deposits                                       $306,702,649    $281,342,174
Advances from Federal Home Loan Bank                     43,248,855      41,514,194
Accrued interest payable                                    358,435         202,982
Accounts payable and other liabilities                    2,576,839         706,892
Deferred income taxes                                     2,076,104       1,949,361

        TOTAL LIABILITIES                               354,962,882     325,715,603
                                                        -----------     -----------

COMMITMENTS                                                  -               -

STOCKHOLDERS' EQUITY:

Serial preferred stock, 5,000,000 shares
   authorized and unissued                                   -               -
Common stock, $1 par value per share;
   authorized 10,000,000 shares; issued and
    outstanding, 4,129,612 shares in 1998 and
     4,170,003 shares in 1997                             4,129,612       4,170,003
Additional paid-in capital                                3,253,664       4,330,548
Retained earnings-substantially restricted               46,208,807      42,193,609
Net unrealized holding gain on securities
     available-for-sale, net of tax                       1,096,304         970,590
                                                         ----------      ----------

       TOTAL STOCKHOLDERS' EQUITY                        54,688,387      51,664,750
                                                         ----------      ----------
       TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY      $409,651,269    $377,380,353  
                                                        ===========     ===========
</TABLE>



                 See notes to consolidated financial statements.


                                       42



<PAGE>

                       FIRST FEDERAL FINANCIAL CORPORATION
                          OF KENTUCKY AND SUBSIDIARIES

                        CONSOLIDATED STATEMENTS OF INCOME

<TABLE>


                                                                Year Ended June 30,
                                                          1998          1997         1996
                                                      -----------    ----------   ----------

<S>                                                   <C>           <C>           <C>   
Interest income:
  Interest on loans                                   $29,338,526   $26,944,715   $25,173,320
  Interest and dividends on investments and deposits    1,843,413     1,837,661     1,752,590
                                                       ----------    ----------    ----------
       Total interest income                           31,181,939    28,782,376    26,925,910

Interest expense:
  Savings deposits                                     13,676,525    12,069,782    11,875,423
  Federal Home Loan Bank advances                       2,382,084     2,305,725     1,800,194
                                                       ----------    ----------    ----------
       Total interest expense                          16,058,609    14,375,507    13,675,617
                                                       ----------    ----------    ----------

Net interest income                                    15,123,330    14,406,869    13,250,293
Provision for loan losses                                 265,000       200,000         -
                                                       ----------    ----------    ----------
Net interest income after provision for loan losses    14,858,330    14,206,869    13,250,293
                                                       ----------    ----------    ----------
Noninterest income:
  Customer service fees on deposit accounts             1,274,298     1,231,149     1,061,102
  Other income                                          1,210,716       919,943       832,381
  Gain on sale of investments                             375,356       316,927       754,409
                                                       ----------    ----------     ---------
       Total other income                               2,860,370     2,468,019     2,647,892
                                                       ----------    ----------     ---------
Noninterest expense:
  Employee compensation and benefits                    3,706,255     3,522,340     3,305,384
  Office occupancy expense and equipment                  935,972       899,855       843,969
  Federal insurance premiums                              178,476     2,014,218       586,428
  Marketing and advertising                               377,135       373,117       342,710
  Outside services and data processing                    663,442       600,167       609,906
  State franchise tax                                     308,691       292,880       279,914
  Other expense                                         1,912,515     1,769,357     1,579,128
                                                       ----------     ---------     ---------
       Total other expense                              8,082,486     9,471,934     7,547,439
                                                       ----------    ----------     ---------
Income before income taxes                              9,636,214     7,202,954     8,350,746
Income taxes                                            3,301,997     2,428,892     2,864,122
                                                       ----------    ----------     ---------
Net income                                            $ 6,334,217    $4,774,062    $5,486,624         
                                                       ==========    ==========     =========
Earnings per share:
     Basic                                            $      1.53    $     1.14    $     1.30 
                                                       ==========    ==========     =========
     Diluted                                          $      1.52    $     1.13    $     1.29         
                                                       ==========    ==========     =========

</TABLE>


                 See notes to consolidated financial statements.

                                       43


<PAGE>


                              FIRST FEDERAL FINANCIAL CORPORATION
                                 OF KENTUCKY AND SUBSIDIARIES


                        CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY


<TABLE>

                                                                                Net Unrealized
                                                                                 Holding Gains
                                  Common               Additional                on Securities
                                  Stock      Common     Paid-in      Retained     Available-
                                  Shares     Stock      Capital      Earnings      for-sale       Total
                                 -------     ------    ----------    --------   --------------    -----              
                                                
<S>                             <C>        <C>         <C>          <C>           <C>          <C>
BALANCE, June 30, 1995          2,118,898  $2,118,898  $8,194,890   $35,965,471   $1,031,099   $47,310,358
Net earnings                         -           -         -          5,486,624        -         5,486,624
Exercise of stock
 options                            8,950       8,950     102,398        -             -           111,348
Stock tendered as payment
 for options excercised            (2,655)     (2,655)    (79,821)       -             -           (82,476)
Change in unrealized holding
 gains on securities avail-
  able-for-sale, net of tax           -           -         -            -           228,877       228,877
Gain realized on the sale
 of securities available-
  for-sale                            -           -         -            -          (497,910)     (497,910)
Cash dividends declared               -           -         -        (1,942,906)       -        (1,942,906)
Stock repurchased                 (20,898)    (20,898)   (646,572)       -             -          (667,470)
2-for-1 stock split             2,104,195   2,104,195  (2,104,195)
                                ---------   ---------   ---------    ----------    ---------    ----------
BALANCE, June 30, 1996          4,208,490   4,208,490   5,466,700    39,509,189      762,066    49,946,445
Net earnings                          -           -         -         4,774,062        -         4,774,062
Exercise of stock
 options                           26,930      26,930      92,576        -             -           119,506
Stock tendered as payment
 for options exercised             (3,018)     (3,018)    (55,937)       -             -           (58,955)
Change in unrealized holding
 gains on securities avail-
  able-for-sale, net of tax           -           -          -           -           417,696       417,696
Gain realized on the sale
 of securities available-
  for-sale                            -           -          -           -          (209,172)     (209,172)
Cash dividends declared               -           -          -       (2,089,642)       -        (2,089,642)
Stock repurchased                 (62,399)    (62,399) (1,172,791)       -             -        (1,235,190)
                                ---------   ---------   ---------    ----------    ---------    ----------
BALANCE, June 30, 1997          4,170,003   4,170,003   4,330,548    42,193,609      970,590    51,664,750
Net earnings                          -           -          -        6,334,217        -         6,334,217
Exercise of stock
 options                           21,000      21,000     220,875        -             -           241,875
Stock tendered as payment
 for options exercised            (10,994)    (10,994)   (230,841)       -             -          (241,835)
Change in unrealized holding
 gains on securities avail-
  able-for-sale, net of tax           -           -          -           -           373,449       373,449
Gain realized on the sale
 of securities available-
  for-sale                            -           -          -           -          (247,735)     (247,735)
Cash dividends declared               -           -          -       (2,319,019)       -        (2,319,019)
Stock repurchased                 (50,397)    (50,397) (1,066,918)       -             -        (1,117,315)
                                ---------   ---------   ---------    ----------    ---------    ----------
BALANCE, June 30, 1998          4,129,612  $4,129,612  $3,253,664   $46,208,807   $1,096,304   $54,688,387           
                                =========   =========   =========    ==========    =========    ==========  
</TABLE>



                 See notes to consolidated financial statements.


                                       44



<PAGE>



                       FIRST FEDERAL FINANCIAL CORPORATION
                          OF KENTUCKY AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>

                                                              Year Ended June  30,
                                                      1998           1997          1996
                                                  -----------    -----------    -----------
<S>                                             <C>             <C>            <C>    
Operating Activities:
 Net income                                      $  6,334,217   $  4,774,062   $  5,486,624
 Adjustments to reconcile net income to net
  cash provided by operating activities:
   Provision for loan losses and real estate
    owned                                             265,000        200,000          -
   Provision for depreciation                         605,955        550,488        462,621
   Net change in deferred loan fees and costs         195,066        178,756        164,059
   Federal Home Loan Bank stock dividends            (206,600)      (187,300)      (173,700)
   Amortization of acquired intangible assets         240,072        240,072        240,072
   Amortization of discounts on securities
    held-to-maturity                                 (147,972)      (151,218)      (125,833)
   Gain on sale of investments available-for-sale    (375,356)      (316,927)      (754,409)
  (Decrease) increase in interest payable             155,453        (15,302)       (30,533)
   Decrease (increase) in other assets               (498,363)       143,604         45,245
   Increase in accounts payable and other
    liabilities                                     1,996,690         74,490        507,652
                                                    ---------      ---------      ---------   
Net cash provided by operating activities           8,564,162      5,490,725      5,821,798
                                                    ---------      ---------      ---------
Investing Activities:
   Sales of securities available-for-sale           3,808,207        455,831        793,308
   Purchases of securities available-for-sale         (36,082)      (221,543)      (495,960)
   Purchases of securities held-to-maturity       (14,000,000)    (5,993,995)    (5,000,000)
   Principal collections on securities held-to-
    maturity                                        6,979,771        654,582      5,499,137
   Net increase in loans to customers             (27,924,928)   (25,753,189)   (19,729,353)
   Purchases of premises and equipment             (1,131,872)    (1,087,549)      (346,653)
   Decrease (increase) in real estate held for
    development                                        44,770       (182,000)       (12,102)
                                                  -----------    -----------    -----------
Net cash used in investing activities             (32,260,134)   (32,127,863)   (19,291,623)
                                                  -----------    -----------    -----------
Financing Activities:
   Advances from Federal Home Loan Bank             1,734,661      6,535,115     13,740,731
   Net increase in customer savings deposits       25,360,475     16,396,430      4,442,692
   Proceeds from stock options exercised                   40         60,551         28,872
   Dividends paid                                  (2,319,019)    (2,089,642)    (1,942,906)
   Common stock repurchased                        (1,117,315)    (1,235,190)      (667,470)
   Collection on advance to ESOP                       11,129          -            163,677
   Advance to ESOP                                       -           (14,685)         -
                                                  -----------    -----------     ----------   
Net cash provided by financing activities          23,669,971     19,652,579     15,765,596
                                                  -----------    -----------     ----------
   
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS      (26,001)    (6,984,559)     2,295,771

CASH AND CASH EQUIVALENTS, beginning of year        9,175,713     16,160,272     13,864,501
                                                  -----------    -----------     ----------

CASH AND CASH EQUIVALENTS, end of year            $ 9,149,712    $ 9,175,713    $16,160,272           
                                                  ===========    ===========     ==========

</TABLE>


                 See notes to consolidated financial statements.


                                       45

<PAGE>



                       FIRST FEDERAL FINANCIAL CORPORATION
                          OF KENTUCKY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The following is a description of the more significant accounting policies which
First  Federal  Financial  Corporation  of  Kentucky  follows in  preparing  and
presenting its consolidated financial statements:

PRINCIPLES OF CONSOLIDATION - The consolidated  financial statements include the
accounts of First Federal  Financial  Corporation of Kentucky (the  Corporation)
and its  wholly-owned  subsidiary,  First Federal Savings Bank of  Elizabethtown
(the  Bank),   and  its   wholly-owned   subsidiary,   First  Service  Corp.  of
Elizabethtown.  All significant intercompany transactions and balances have been
eliminated.

SECURITIES - The  Corporation  records  securities  under Statement of Financial
Accounting  Standards No. 115 (SFAS No. 115) "Accounting for Certain Investments
in Debt and Equity Securities",  which requires the classification of securities
into three categories: held-to-maturity,  available-for-sale,  or trading. Based
upon a periodic review of the investment portfolio, debt securities in which the
Corporation  has a  positive  intent  and  ability  to hold  are  classified  as
held-to-maturity  and are  carried  at cost  adjusted  for the  amortization  of
premiums  and  discounts  using  the  interest  method  over  the  terms  of the
securities.

Debt and equity  securities  which do not fall into this category,  nor held for
the purpose of selling in the near term are  classified  as  available-for-sale.
Unrealized  holding gains and losses,  net of income tax, on  available-for-sale
securities are reported as a net amount in a separate component of stockholders'
equity until realized.

FEDERAL HOME LOAN BANK STOCK - Investment  in stock of Federal Home Loan Bank is
required by law of every federally insured savings and loan or savings bank. The
investment is carried at cost. No ready market exists for the stock,  and it has
no quoted market value.

REAL ESTATE OWNED - Real estate properties  acquired through  foreclosure and in
settlement of loans are stated at the lower of cost or fair value less estimated
selling  costs at the date of  foreclosure.  The  excess of cost over fair value
less the estimated  costs to sell at the time of  foreclosure  is charged to the
allowance for loan losses.  Costs  relating to  development  and  improvement of
property are  capitalized,  whereas costs  relating to holding  property are not
capitalized and are charged against operations in the current period.

Real estate properties held for development and sale are carried at the lower of
cost,  including cost of development and improvement  subsequent to acquisition,
or fair value less  estimated  selling  costs.  The  portion of  interest  costs
relating to the development of real estate is capitalized.

PREMISES  AND  EQUIPMENT  -  Premises  and  equipment  are  stated  at cost less
accumulated  depreciation.  Depreciation is computed by the straight-line method
for buildings and  improvements  and furniture and fixtures,  over the estimated
useful lives of the related assets.

INCOME TAXES - Deferred income tax assets and  liabilities are determined  using
the liability method. Under this method, the net deferred tax asset or liability
is determined  based on the tax effects of the differences  between the book and
tax basis of the various balance sheet assets and liabilities.


                                       46


<PAGE>


                       FIRST FEDERAL FINANCIAL CORPORATION
                          OF KENTUCKY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   (Continued)


1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)

LOANS  RECEIVABLE - Loans  receivable are stated at unpaid  principal  balances,
less the  allowance  for loan losses,  net deferred  loan  origination  fees and
unearned  discounts.  The Bank defers loan origination fees and discounts net of
certain direct  origination  costs.  These net deferred fees are amortized using
the level yield method on a loan-by-loan  basis over the lives of the underlying
loans. Unearned discounts on consumer loans are recognized over the lives of the
loans using methods that approximate the interest method.

The allowance for loan losses is increased by charges to income and decreased by
charge-offs  (net  of  recoveries).  Management's  periodic  evaluation  of  the
adequacy  of the  allowance  is based on the Bank's  past loan loss  experience,
known and inherent risks in the portfolio,  adverse  situations  that may affect
the borrower's ability to repay,  estimated value of any underlying  collateral,
and current economic conditions.

Uncollectible  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
cash payments are received  until,  in  management's  judgement,  the borrower's
ability to make periodic  interest and principal  payments is back to normal, in
which case the loan is returned to accrual status.

The Bank's primary lending area is a region within north central  Kentucky.  The
economy within this region is based on agriculture,  a variety of  manufacturing
industries and Ft. Knox, a military  installation.  The Bank's  primary  lending
activity is the  origination of  residential  real estate loans secured by first
mortgage for the purpose of acquisition or  construction  of one-to-four  family
residential properties.

CASH FLOWS - For  purposes  of the  statement  of cash  flows,  the  Corporation
considers all highly liquid debt instruments  purchased with a maturity of three
months or less to be cash equivalents. Cash and cash equivalents include cash on
hand and amounts due from banks.

ESTIMATES AND ASSUMPTIONS - The preparation of consolidated financial statements
in conformity with generally accepted accounting  principles requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities  and disclosure of contingent  assets and liabilities at the date of
the consolidated  financial  statements and the reported amounts of revenues and
expenses  during the reporting  period.  Actual  results could differ from those
estimates.

ADVERTISING COSTS - The Corporation expenses all advertising costs when they are
incurred.

RECLASSIFICATIONS  - Certain amounts for 1997 and 1996 have been reclassified to
conform to the presentation for 1998.




                                       47

<PAGE>


                       FIRST FEDERAL FINANCIAL CORPORATION
                          OF KENTUCKY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   (Continued)

2.SECURITIES

The  amortized  cost  basis  and fair  values  of  securities  at June 30 are as
follows:
<TABLE>

                                           Amortized      Gross        Gross
                                             Cost       Unrealized   Unrealized     Fair
                                             Basis        Gains        Losses       Value
                                           ---------    ----------   ----------     ----- 
     <S>                                  <C>          <C>            <C>        <C>        
     Securities held-to-maturity:
       June 30, 1998:
        U.S. Treasury and agencies        $22,693,407  $  229,673     $   -      $22,923,080
        Mortgage-backed securities          1,946,077      66,004         -        2,012,081     
                                           ----------    --------      -------    ----------
     Total held-to-maturity securities    $24,639,484  $  295,677     $   -      $24,935,161
                                           ==========    ========      =======    ==========  

       June 30, 1997:
        U.S. Treasury and agencies        $15,335,411  $  234,624     $   -      $15,570,035
        Mortgage-backed securities          2,149,016      80,972         -        2,229,988
                                           ----------     -------      -------    ----------
     Total held-to-maturity securities    $17,484,427  $  315,596     $   -      $17,800,023
                                           ==========     =======      =======    ==========    
     Securities available-for-sale:
       June 30, 1998:
        Equity securities                 $   273,341  $1,688,883     $(27,812)  $ 1,934,412                          
                                           ==========   =========      =======    ==========

       June 30, 1997:
        Equity securities                 $ 3,721,730  $1,479,974     $ (9,381)  $ 5,192,323                                  
                                           ==========   =========      =======     =========
</TABLE>

The amortized cost and fair value of debt  securities  held-to-maturity  at June
30, 1998, by contractual maturity, are shown below.
<TABLE>

                                                       Amortized       Market
                                                         Cost          Value
          <S>                                       <C>           <C>   
          Due in one year or less                   $   983,932   $   999,370
          Due after one year through five years      12,718,642    13,008,000
          Due after five years through ten years          --
          Due after ten years                         8,990,833     8,915,710
          Mortgage backed securities                  1,946,077     2,012,081
                                                     ----------    ----------
                                                    $24,639,484   $24,835,161
                                                     ==========    ==========
</TABLE>


The following schedule sets forth the proceeds from sales of  available-for-sale
securities  and the gross  realized  gains on those  sales for the fiscal  years
ended June 30:
<TABLE>

                                              1998         1997        1996
                                              ----         ----        ----
   <S>                                     <C>           <C>       <C> 
   Proceeds from sales                     $3,808,207    $455,831   $793,308


   Gross realized gains                    $  375,356    $316,927   $754,409


   Realized gains, net of tax              $  247,735    $209,172   $518,430


   Change in net unrealized holding gains  $  565,832    $632,873   $346,783

</TABLE>


                                       48


<PAGE>



                       FIRST FEDERAL FINANCIAL CORPORATION
                          OF KENTUCKY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   (Continued)



2.SECURITIES - (Continued)

The average cost method was used for  determining the basis of the securities in
computing the realized  gains.  Investment  securities of $4,356,362 at June 30,
1998 were pledged to secure public deposits.

3.   LOANS RECEIVABLE:

Loans receivable at June 30 are summarized as follows:

<TABLE>

                                                        1998             1997
                                                    -----------      ----------
           <S>                                    <C>             <C>    

            Commercial                             $  4,274,499    $  4,310,725
            Real estate construction                 16,435,042      15,444,350
            Residential real estate                 307,405,412     284,145,699
            Consumer                                 42,636,990      36,164,536
                                                    -----------     -----------

                                                    370,751,943     340,065,310
                                                    -----------     -----------
           Less:
             Loans in process                         9,728,902       7,097,807
             Net deferred loan origination fees       3,026,307       2,672,040
             Escrow deposits                            760,090         683,258
             Unearned discounts                          11,859          60,521
             Interest reserves                           65,867          45,677
             Allowance for loan losses                1,852,576       1,714,512
                                                    -----------     -----------

                                                     15,445,601      12,273,815
                                                    -----------     -----------
                                                   $355,306,342    $327,791,495
                                                    ===========     ===========
</TABLE>


The Bank did not materially  participate in the servicing of loans for others on
any of the dates presented in these financial statements.

The allowance for losses on loans is summarized as follows:
<TABLE>

                                            Year Ended June 30,

                                      1998         1997        1996
                                   ----------   ----------   ---------
<S>                                <C>         <C>          <C>    
Balance, beginning of year         $1,714,512  $1,612,627   $1,661,681
Provision charged to operations       265,000     200,000        -
Charge-offs                          (147,985)   (131,132)     (74,018)
Recoveries                             21,049      33,017       24,964
                                    ---------   ---------    ---------
Balance, end of year               $1,852,576  $1,714,512   $1,612,627        
                                    =========   =========    =========
</TABLE>




                                       49


<PAGE>


                       FIRST FEDERAL FINANCIAL CORPORATION
                          OF KENTUCKY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   (Continued)


3.  LOANS RECEIVABLE - (Continued)

The  Bank  records  impaired  loans  under  Statement  of  Financial  Accounting
Standards No. 114 (SFAS No. 114)  "Accounting  by Creditors for  Impairment of a
Loan",  as amended by SFAS No. 118. SFAS No. 114 defines a loan as impaired when
it is  probable  that a  creditor  will be unable to  collect  all  amounts  due
according to the contractual terms of the loan agreement. Management has defined
its  population  of  impaired  loans  as  residential  mortgage,   consumer  and
commercial real estate loans which are classified as substandard,  doubtful,  or
loss, as defined by Office of Thrift  Supervision  (OTS)  regulations.  Interest
income is recognized on an impaired loan when earned.

Investment in impaired loans is summarized as follows:

                                                               June 30,

                                                          1998         1997
                                                          ----         ----

      Impaired loans with no related allowances       $2,128,000    $1,739,000
      Impaired loans with related allowances              -             -
                                                       ---------     ---------
             Total impaired loans                     $2,128,000    $1,739,000 
                                                       =========     =========

       Average impaired loans outstanding             $1,934,000    $1,983,000
       Interest income recognized                     $  157,000    $  163,000
       Interest income received                       $  157,000    $  163,000

At June 30, 1998,  the Bank had loan  commitments of  approximately  $6,586,069,
excluding  undisbursed  portions of loans in process.  Commitments to fund fixed
rate loans  included in the above amount were  $4,182,800  with  interest  rates
ranging  from  6.75% to  9.50%.  The Bank  also had  standby  letters  of credit
totaling  $694,640 and  undisbursed  lines of credit of  $12,389,690 at June 30,
1998.

Non-performing  loans were  $2,057,000 and $1,540,000 at June 30, 1998 and 1997,
respectively.  Interest income in the amount of $94,390 and $60,486 for 1998 and
1997, respectively, would have been recorded on non-performing loans if they had
been performing in accordance with their contractual terms.

4.  PREMISES AND EQUIPMENT

Premises and equipment consist of the following:

                                                               June 30,

                                                    1998         1997
                                                    ----         ----

        Land                                   $   816,266   $   816,266
        Buildings                                8,805,668     8,205,723
        Furniture, fixtures and equipment        4,680,069     4,172,502
                                                ----------    ----------
                                                14,302,003    13,194,491
        Less accumulated depreciation            3,554,858     2,973,263
                                                ----------    ----------
                                               $10,747,145   $10,221,228      
                                                ==========    ==========


                                       50



<PAGE>



                       FIRST FEDERAL FINANCIAL CORPORATION
                          OF KENTUCKY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   (Continued)


4.  PREMISES AND EQUIPMENT - (Continued)

Certain premises and equipment are leased under various operating leases. Rental
expense was $63,200,  $65,458 and $-0- for the years ended June 30,  1998,  1997
and 1996, respectively. Future minimum commitments under these leases are:

                 Year Ended    
                  June 30
                 ----------
                    1999              $ 63,200
                    2000                63,200
                    2001                51,533
                    2002                 2,350
                                       -------
                                      $180,283
                                       =======

5.  SAVINGS DEPOSITS

    Deposits at June 30 are summarized as follows:

<TABLE>

                               Weighted-
                              Average Rate             1998                    1997

                              1998    1997       Amount     Percent       Amount     Percent
                              -----   -----   ------------  -------    -----------   -------

         <S>                  <C>     <C>     <C>             <C>     <C>             <C>   
         NOW Accounts         1.52%   1.51%   $ 46,211,024    15.07   $ 42,952,707    15.27
         Money Market         3.31%   3.38%      9,856,242     3.21     10,460,267     3.72
         Passbook Savings     2.65%   2.65%     30,181,812     9.84     31,185,601    11.08
                                               -----------    -----     ----------    -----
                                                86,249,078    28.12     84,598,575    30.07
         Certificates of
          Deposit:
           0.00% -  4.00%                          884,495      .29      1,128,044      .40
           4.01% -  6.00%                      149,186,507    48.64    143,982,629    51.18
           6.01% -  8.00%                       70,382,569    22.95     51,632,926    18.35
           8.01% - 10.00%                            -          -           -           -
                                               -----------   ------    -----------    ----- 
                                               220,453,571    71.88    196,743,599    69.93
                                               -----------   ------    -----------    -----
                                              $306,702,649   100.00   $281,342,174   100.00
                                               ===========   ======    ===========   ======
</TABLE>


At June 30,  1998,  scheduled  maturities  of  certificates  of  deposit  are as
follows:
                                             Average
                                Amount        Rate     Percent
                                ------       -------   -------
        1999                 $141,072,560     5.71%     63.99
        2000                   64,239,488     5.87%     29.14
        2001                    6,620,146     5.82%      3.00
        2002                    4,227,988     5.99%      1.92
        Thereafter              4,293,389     6.20%      1.95
                              -----------               -----
                             $220,453,571              100.00
                              ===========              ======



                                       51


<PAGE>



                       FIRST FEDERAL FINANCIAL CORPORATION
                          OF KENTUCKY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   (Continued)



5.   SAVINGS DEPOSITS - (Continued):

The average  interest rate on the savings deposit  portfolio,  computed  without
effect of  compounding  daily  interest,  at June 30, 1998 and 1997 is 4.76% and
4.54%, respectively.

The Bank had  certificates  of deposit  with  balances  of  $100,000  or more of
$54,332,191 and $43,925,939 at June 30, 1998 and 1997, respectively.

A summary of interest expense on deposits is as follows:

                                                     Year Ended
                                                      June 30,

                                          1998         1997          1996
                                       ---------    ---------     ---------
   


          Savings accounts           $   809,108  $   818,414   $   845,727
          Money Market and NOW
           accounts                      887,153      874,464       759,117
          Certificates of deposit     11,980,264   10,376,904    10,270,579
                                      ----------   ----------    ----------
                                     $13,676,525  $12,069,782   $11,875,423
                                      ==========   ==========    ==========

6.ADVANCES FROM FEDERAL HOME LOAN BANK

Advances from the Federal Home Loan Bank of  Cincinnati  are  collateralized  by
Federal  Home  Loan  Bank  stock and a  blanket  pledge  of  one-to-four  family
residential  mortgage  loans  equivalent  to  150  percent  of  the  outstanding
advances.
<TABLE>

                                                            June 30,
                                                   
                                                   1998                  1997
                                           ------------------    --------------------                 
                                           Weighted-              Weighted-
                                           Average                Average
                                             Rate      Amount       Rate       Amount

         <S>                                 <C>     <C>            <C>      <C>   
         Short-term borrowings from
          Federal Home Loan Bank:
           Variable rate advances            5.59%   $20,000,000    5.58     $40,000,000
           Fixed rate advances               5.09%    22,000,000     -             -
         Long-term borrowings from
          Federal Home Loan Bank:
            Mortgage matched advances
             payable monthly through
             May, 2009 with interest
             rates from 5.30% to 7.80%       6.72%     1,248,855    6.75%      1,514,194
                                                      ----------              ----------        
          Total long-term borrowings                   1,248,855               1,514,194
                                                      ----------              ----------
          Total borrowings                           $43,248,855             $41,514,194                    
                                                      ==========              ==========


</TABLE>




                                       52



<PAGE>


                       FIRST FEDERAL FINANCIAL CORPORATION
                          OF KENTUCKY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   (Continued)


6.ADVANCES FROM FEDERAL HOME LOAN BANK - (Continued)

The aggregate minimum annual  repayments of long-term  borrowings as of June 30,
1998 is as follows:

                1998                      $   95,013
                1999                         101,643
                2000                         108,744
                2001                         116,352
                2002                         124,503
                Thereafter                   702,600
                                           ---------
                                          $1,248,855
                                           =========

7.INCOME TAXES

The  Corporation  and its  subsidiaries  file a consolidated  federal income tax
return and income tax is apportioned  among all companies based on their taxable
income or loss.

Provision for income taxes for the years ended June 30, are as follows:

                                          1998          1997         1996
                                        ---------     --------     ---------



         Current                       $3,198,763    $2,321,803   $2,369,470
         Deferred                         103,234       107,089      494,652
                                        ---------     ---------    ---------
         Total income tax expense      $3,301,997    $2,428,892   $2,864,122
                                        =========     =========    =========


Temporary  differences between the financial statements carrying amounts and tax
bases of  assets  and  liabilities  that give rise to  significant  portions  of
deferred income taxes at June 30, relate to the following:


                                                 1998             1997
 Deferred tax assets:
  Loan fees deferred for financial
   reporting purpose                         $  229,679       $  344,518
  Accrued liabilities and other                 108,612           44,855
  Assets acquired, purchase price adjustments   149,937          251,368
                                                -------           ------- 
                                                488,228          640,741
                                                -------          -------
 Deferred tax liabilities:
  Depreciation differences                      762,591          705,697
  Basis difference in real estate                48,514           48,514
  Difference in bad debt reserve                619,159          842,979
  Unrealized appreciation on securities
   available-for-sale                           574,103          503,191
  Basis difference in Federal Home Loan
   Bank stock                                   559,965          489,721
                                                -------          -------
                                              2,564,332        2,590,102
                                              ---------        ---------
 Net deferred tax liability                  $2,076,104       $1,949,361
                                              =========        =========



                                       53


<PAGE>




                       FIRST FEDERAL FINANCIAL CORPORATION
                          OF KENTUCKY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   (Continued)


7.INCOME TAXES - (Continued)

Included in retained earnings at June 30, 1998, is approximately  $11,437,000 in
bad debt  reserves for which no deferred  federal  income tax liability has been
recorded.  These amounts represent  allocations of income to bad debt deductions
for tax purposes  only.  Reduction of these reserves for purposes other than tax
bad-debt losses would create income for tax purposes,  which would be subject to
the then-current corporate income tax rate. The unrecorded deferred liability on
these amounts was approximately $3,888,600.

8.STOCKHOLDERS' EQUITY

(a) LIQUIDATION  ACCOUNT - In connection with the Bank's  conversion from mutual
to stock form of ownership  during 1987,  the Bank  established  a  "liquidation
account",  currently in the amount of $1,641,000  for the purpose of granting to
eligible savings account holders a priority in the event of future  liquidation.
Only in such an event,  an eligible  account  holder who continues to maintain a
savings account will be entitled to receive a distribution  from the liquidation
account.  The total  amount of the  liquidation  account  decreases in an amount
proportionately  corresponding  to decreases in the savings account  balances of
the eligible account holders.

(b) DIVIDEND  RESTRICTIONS - The Bank is subject to certain  restrictions on the
amount of dividends that it may declare without prior regulatory approval. Based
upon these  restrictions,  the Bank could have  declared  dividends  for 1998 of
$10,240,000 without prior regulatory approval.

(c) EARNINGS PER SHARE - On December  15,  1997,  the Bank adopted  Statement of
Financial  Accounting  Standards  No. 128 (SFAS No. 128)  "Earnings  per Share,"
which establishes new standards for computing and presenting  earnings per share
("EPS"). Specifically,  SFAS 128 replaces the presentation of primary EPS with a
presentation of basic EPS,  requires dual  presentation of basic and diluted EPS
on the face of the  income  statement  for all  entities  with  complex  capital
structures and requires a reconciliation of the numerator and denominator of the
basic EPS  computation  to the  numerator  and  denominator  of the  diluted EPS
computation.

     The  reconciliation  of the  numerators and  denominators  of the basic and
diluted EPS is as follows:

                                                    Year Ended June 30,

                                              1998         1997         1996
                                           ----------   ----------   ----------

     Net income available to common
      shareholders                         $6,334,217   $4,774,062   $5,486,624
                                            =========    =========    =========
      Basic EPS:
       Weighted average common shares       4,145,039    4,182,060    4,222,788
                                            =========    =========    =========
      Diluted EPS:
       Weighted average common shares       4,145,039    4,182,060    4,222,788
       Dilutive effect of stock options        29,114       46,456       46,830
                                            ---------    ---------    ---------
       Weighted average common and 
        incremental shares                  4,174,153    4,228,516    4,269,618
                                            =========    =========    =========
       Earnings Per Share:       
        Basic                                   $1.53        $1.14        $1.30
                                                 ====         ====         ====
        Diluted                                 $1.52        $1.13        $1.29
                                                 ====         ====         ====






                                       54


<PAGE>


                       FIRST FEDERAL FINANCIAL CORPORATION
                          OF KENTUCKY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   (Continued)



8.STOCKHOLDERS' EQUITY - (Continued)

(d) REGULATORY CAPITAL  REQUIREMENTS - The Bank is subject to various regulatory
capital  requirements  administered by the OTS.  Failure to meet minimum capital
requirements   can  initiate   certain   mandatory,   and  possibly   additional
discretionary,  actions  by the OTS that,  if  undertaken,  could  have a direct
material  effect  on  the  Corporation's  financial  statements.  Under  capital
adequacy guidelines and the regulatory framework for prompt corrective action, a
bank must meet specific capital guidelines that involve quantitative measures of
a bank's assets, liabilities,  and certain off-balance sheet items as calculated
under  regulatory  accounting  practices.  The amounts and  classification  of a
bank's  capital  are also  subject  to  qualitative  judgments  by the OTS about
components, risk weightings, and other factors. Qualitative measures established
by  regulation  to  ensure  capital  adequacy  and  to be  classified  as  "well
capitalized"  require the Bank to maintain  minimum amounts and ratios of Total,
Tier I, Core and Tangible  capital as set forth in the following table. In their
evaluation of capital  adequacy,  the regulators  assess exposure to declines in
the  economic  value of the Bank's  capital  adequacy,  as well as  exposure  to
declines in the economic value of capital due to changes in interest  rates.  As
of June 30, 1998, the most recent notification from the OTS categorized the Bank
as "well  capitalized"  under the  regulatory  framework  for prompt  corrective
action.  There  are  no  conditions  or  events  since  that  notification  that
management believes have changed the Bank's category.

<TABLE>                                                 
          
                                                                                 To Be Considered
                                                                                 Well Capitalized
                                                                                   Under Prompt
                                                               For Capital          Correction 
                                              Actual        Adequacy Purposes    Action Provisions

                                         Amount     Ratio   Amount     Ratio      Amount    Ratio
 <S>                                   <C>          <C>     <C>          <C>   <C>          <C>
 AS OF JUNE 30, 1998:                      
   Total risk-based capital (to risk-
    weighted assets)                   $50,096,000  18.5%   $21,658,000  8.0%  $27,073,000  10.0%
   Tier I capital (to risk-weighted
    assets)                            $48,243,000  17.9%   $   n/a      n/a   $16,244,000   6.0%
   Core capital (to adjusted tangible
    assets)                            $48,243,000  11.9%   $16,215,000  3.0%  $20,269,000   5.0%
   Tangible capital (to tangible
    assets)                            $48,243,000  11.9%   $ 6,081,000  1.5%       n/a      n/a

 AS OF JUNE 30, 1997:

   Total risk-based capital (to risk-
    weighted assets)                   $47,532,000  19.6%   $19,423,000  8.0%  $24,279,000  10.0%
   Tier I capital (to risk-weighted
    assets)                            $45,817,000  18.9%   $   n/a      n/a   $14,567,000   6.0%
   Core capital (to adjusted tangible
    assets)                            $45,817,000  12.3%   $11,197,000  3.0%  $18,662,000   5.0%
   Tangible capital (to tangible
    assets)                            $45,817,000  12.3%   $ 5,599,000  1.5%       n/a      n/a

</TABLE>


9.  EMPLOYEE BENEFIT PLANS:

(A) PENSION  PLANS - The Bank is a  participant  in the  Financial  Institutions
Retirement  Fund, a  multiple-employer  defined  benefit  pension plan  covering
substantially all employees. Employees are 100% vested at the completion of five
years of participation in the plan. The Bank's policy is to contribute  annually
the minimum funding amounts.  Employer  contributions  charged to operations for
1998, 1997 and 1996 were $4,438, $56,475, and $113,584, respectively.

                                       55




<PAGE>

                       FIRST FEDERAL FINANCIAL CORPORATION
                          OF KENTUCKY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   (Continued)


 9.EMPLOYEE BENEFIT PLANS - (Continued):

(a) PENSION PLANS - (CONTINUED) - The Bank has a contributory  thrift plan which
covers  substantially  all  of the  employees.  Under  the  terms  of the  plan,
voluntary  employee  contributions  are matched by up to 6% of the employee base
pay and employees are  immediately  vested.  Employer  contributions  charged to
operations  for  1998,  1997 and 1996  were  $116,367,  $114,939  and  $103,107,
respectively.

(b) EMPLOYEE  STOCK  OWNERSHIP  PLAN - The  Corporation  has a  non-contributory
employee  stock  ownership  plan  (ESOP)  in which  employees  are  eligible  to
participate  upon  completion  of one year of service.  Employees  are vested in
accordance  with a schedule which  provides for 100% vesting upon  completion of
seven years of service.

Shares  of  the  Corporation's   common  stock  were  acquired  in  a  leveraged
transaction,  and were initially held in an unallocated stock account. Annually,
the aggregate  number of shares released and allocated to eligible  employees is
determined by a formula specified in the plan agreement, based on the total debt
service for the year made on the ESOP  indebtedness.  The indebtedness is repaid
by  the  ESOP  from  Bank  contributions  and  dividends  on the  allocated  and
unallocated  stock  held  by the  ESOP.  The  number  of  shares  allocated  and
unallocated at June 30 is as follows:


                                          1998         1997        1996
                                          ----         ----        ----
           Allocated                    230,213      307,595     321,504
           Unallocated                     -            -            860 
                                        -------      -------     -------
           Total shares held by ESOP    230,213      307,595     322,364
                                        =======      =======     =======

The  Corporation  has elected not to adopt the  accounting  guidelines  of AICPA
Statement of Position 93-6  "Employers  Accounting for Employee Stock  Ownership
Plans" (SOP  93-6),  since all of the ESOP  shares  were  acquired  prior to the
transition  date of December 31, 1992.  Bank  contributions  charged to employee
compensation  costs  during the year ended June 30,  1998,  1997,  and 1996 were
$30,000, $30,000, and $30,000, respectively.

(c) STOCK  OPTION PLAN - Under the 1987 Stock  Option and  Incentive  Plan,  the
Corporation  may grant either  incentive or  non-qualified  stock options to key
employees for an aggregate of 423,200 shares of the  Corporation's  common stock
at not less than fair market  value at the date such  options are  granted.  The
option to purchase  shares  expires ten years after the date of grant. A summary
of option  transactions,  which has been  adjusted to reflect the 2-for-1  stock
split on June 10, 1996, is as follows:
<TABLE>

                                                                June 30,

                                             1998                 1997                 1996
                                    -------------------   -------------------   ------------------      
                                               Weighted              Weighted             Weighted
                                               Average               Average              Average
                                    Number of  Excercise  Number of  Exercise  Number of  Exercise            
                                     Options    Price      Options    Price     Options    Price
 <S>                                 <C>         <C>       <C>        <C>       <C>       <C>
 Outstanding, beginning of year       71,314     $12.77     98,244    $10.49    106,044   $ 9.42
 Granted during year                     -          -          -         -       10,000    14.25
 Forfeited during year                (7,750)     15.60        -         -         -         -
 Exercised during the year           (21,000)     11.52    (26,930)     4.44    (17,800)    6.25
                                      ------                ------               ------
 Outstanding, end of year             42,564      12.88     71,314     12.77     98,244    10.49                        
                                      ======                ======               ======
 Eligible for exercise at year end    26,564                42,564               61,244
                                      ======                ======               ======                                  
 Weighted average fair value of
  options granted during the year    $  n/a                $  n/a               $  8.88
                                      ======                ======               ======

</TABLE>



                                       56



<PAGE>



                       FIRST FEDERAL FINANCIAL CORPORATION
                          OF KENTUCKY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   (Continued)



 9.EMPLOYEE BENEFIT PLANS - (Continued)

The  Corporation  applies APB Opinion No. 25,  "Accounting  for Stock  Issued to
Employees".  Accordingly, no compensation cost has been recognized for its plan.
Had compensation  cost for the  Corporation's  Stock Option Plan been determined
based on the fair value at the grant dates for awards under the plan  consistent
with the method of SFAS No. 123, "Accounting for Stock-Based Compensation",  the
Corporation's  net income and earnings per share would have been restated to the
pro-forma amounts indicated below:

                                                        Years Ended
                                                          June 30,

                                             1998          1997         1996
                                             ----          ----         ----

 Net income:  As reported                 $6,334,217    $4,774,062   $5,486,624
              Pro-forma                   $6,332,502    $4,762,347   $5,480,429


 Earnings per share:  As reported           $   1.53      $   1.14    $    1.30
                      Pro-forma             $   1.53      $   1.14    $    1.30

The following table summarizes  information  about stock options  outstanding at
June 30, 1998:
<TABLE>

                                  Options Outstanding              Options Exercisable
                       ----------------------------------------   ---------------------
                                                                                                                            
                                    Weighted Average   Average                 Average                     
       Range of          Number        Remaining       Exercise      Number    Exercise
    Exercise Prices    Outstanding  Contractual Life    Price     Exercisable   Price
                                                                                               
      <S>                <C>             <C>           <C>          <C>         <C>    
      $ 6.88               5,564         3.4 years     $ 6.88        5,564      $ 6.88
      $12.50              25,000         5.7           $12.50       20,000      $12.50
      $16.00 to $17.13    12,000         6.6           $16.45        1,000      $17.13
                          ------                                    ------
      
                          42,564         5.5           $12.88       26,564      $11.49
                          ======                                    ======
                    
</TABLE>



The fair value of each stock  option  granted is  estimated on the date of grant
using the Black-Scholes  option-pricing model with the following assumptions for
grants in 1996: 1) expected dividend yields at 2.5%, 2) risk-free interest rates
at 7.5%,  3) expected  volatility  at 6%, and 4)  expected  life of options at 5
years.

10. CASH FLOW ACTIVITIES

The  following  information  is presented  as  supplemental  disclosures  to the
statement  of cash flows,  as  required by  Statement  of  Financial  Accounting
Standards No. 95.

(a)Cash paid during the year ended June 30 for:

                                   1998           1997          1996
                                -----------    ----------    ----------

      Interest expense         $15,903,156    $14,390,809   $13,706,150
                                ==========     ==========    ==========
      Income taxes             $ 1,461,000    $ 2,482,000   $ 2,370,201
                                ==========     ==========    ==========


         

                                       57



<PAGE>

                       FIRST FEDERAL FINANCIAL CORPORATION
                          OF KENTUCKY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   (Continued)



10.  CASH FLOW ACTIVITIES - (Continued)

(b)Supplemental disclosure of non-cash activities:

<TABLE>

                                                        1998        1997        1996
                                                        ----        ----        ----
    <S>                                               <C>         <C>        <C>    
    Loans to facilitate sales of real estate owned    $716,448    $698,405    $103,000      
                                                       =======     =======     =======         
    Transfers from loans to real estate acquired
     through foreclosure                              $666,463    $505,579    $216,484   
                                                       =======     =======     =======         
    Change in unrealized gains on securities
     available-for-sale, net of tax                   $125,714    $208,524   $(269,033)       
                                                       =======     =======     =======        
</TABLE>

11.CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY)

The following condensed statements  summarize the financial position,  operating
results  and cash  flows of First  Federal  Financial  Corporation  of  Kentucky
(Parent Company only).

                   CONDENSED STATEMENTS OF FINANCIAL CONDITION

                                                      June 30,

                                                 1998         1997

     ASSETS
Cash and interest bearing deposits          $    92,006  $   169,661
Investment in subsidiary                     52,978,174   50,584,319
Securities available-for-sale                   209,995      228,082
Other assets                                  1,408,212      734,308
                                             ----------   ----------
                                            $54,688,387  $51,716,370
                                             ==========   ==========
                                                    
    LIABILITIES AND STOCKHOLDERS' EQUITY
Other liabilities                           $     -      $    51,620
Stockholders' equity                         54,688,387   51,664,750
                                             ----------   ----------
                                            $54,688,387  $51,716,370
                                             ==========   ==========
                                                       


                         CONDENSED STATEMENTS OF INCOME

                                                    Year Ended June 30,

                                               1998         1997         1996
                                            ----------   -----------  ---------

Interest income                             $   35,188   $   57,162   $  68,183
Gain on sale of investments                     51,620       25,344         -
Other expenses                                 (65,329)     (47,044)    (44,731)
                                             ---------    ---------   ---------
Net income before income tax benefit            21,479       35,462      23,452
Income tax benefit                              56,535       39,635      20,480
                                             ---------    ---------   ---------
Income before equity in undistributed
 net income of subsidiaries                     78,014       75,097      43,932
Equity in undistributed net income (excess
 of dividends distributed) of subsidiaries   6,256,203    4,698,965   5,494,311
                                             ---------    ---------   ---------
Net income                                  $6,334,217   $4,774,062  $5,538,243
                                             =========    =========   =========




                                       58



<PAGE>


                       FIRST FEDERAL FINANCIAL CORPORATION
                          OF KENTUCKY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   (Continued)

11.CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY) - (Continued)
<TABLE>


                       CONDENSED STATEMENTS OF CASH FLOWS


                                                      Year Ended June 30,

                                                 1998         1997         1996
<S>                                          <C>          <C>          <C>   
 Operating Activities:
   Net income                                $ 6,334,217  $ 4,774,062  $ 5,538,243
   Adjustments to reconcile net income to
    cash provided by operating activities:  
     Earnings from investment in subsidiary   (6,256,203)  (4,698,965)  (5,494,311)
     Gain on sale of investments available-
      for-sale                                   (51,620)     (25,344)       -
     Decreaes (increase) in other assets         (26,691)      51,531     (153,217)
    (Decrease) increase in other
      liabilities                                (51,620)     (57,080)      37,550
                                              ----------   ----------   ----------
Net cash provided (used) by operating  
 activities                                      (51,917)      44,204      (71,735)
                                              ----------   ----------   ----------
Investing Activities:
  Sale of securities available-for-sale             -         152,064        -
  Purchases of securities available-for-sale        -         (17,463)    (301,400)
  Collections on note receivable from
   subsidiary                                  3,399,427    3,029,780    2,851,275
                                              ----------   ----------   ----------
Net cash provided by investing
 activities                                    3,399,427    3,164,381    2,549,875
                                              ----------   ----------   ----------
Financing Activities:
  Proceeds from stock options exercised               40       60,551       28,872
  Dividends paid                              (2,319,019)  (2,089,642)  (1,942,906)
  Common stock repurchases                    (1,117,315)  (1,235,190)    (667,470)
  Collection on advance to ESOP                   11,129        -          163,677
  Advance to ESOP                                   -         (14,685)       -
                                              ----------    ---------    ---------
Net cash used by financing activities         (3,425,165)  (3,278,966)  (2,417,827)
                                              ----------   ----------   ----------
Net (decrease) increase in cash                  (77,655)     (70,381)      60,313

Cash, beginning of year                          169,661      240,042      179,729
                                               ---------   ----------   ----------
Cash, end of year                            $    92,006  $   169,661  $   240,042       
                                               =========   ==========   ==========

</TABLE>


12.FAIR VALUE OF FINANCIAL INSTRUMENTS

Statement of Financial  Accounting  Standards No. 107,  "Disclosures  about Fair
Value of Financial  Instruments",  requires disclosure of fair value information
about financial instruments, whether or not recognized in the balance sheet, for
which it is  practicable  to estimate  that value.  In cases where quoted market
prices are not available, fair values are based on estimates using present value
or other valuation  techniques.  Those techniques are significantly  affected by
the assumptions  used,  including the discount rate and estimates of future cash
flows. In that regard,  the derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases could not be realized in
immediate  settlement of the instrument.  Accordingly,  the aggregate fair value
amounts  presented  are not intended to represent  the  underlying  value of the
Corporation.

                                       59



<PAGE>



                       FIRST FEDERAL FINANCIAL CORPORATION
                          OF KENTUCKY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   (Continued)



12.FAIR VALUE OF FINANCIAL INSTRUMENTS - (Continued)

The methods and assumptions used by the Corporation in estimating its fair value
disclosures for financial instruments are presented below:

CASH AND INTEREST  BEARING DEPOSITS - The carrying amounts for cash and interest
bearing deposits approximates their fair values.

INVESTMENT  SECURITIES - Fair values for  investment  securities  are based upon
quoted  market  prices,  where  available.  If  quoted  market  prices  are  not
available,  fair  values  are  based  on  quoted  market  prices  of  comparable
instruments.

LOANS,  NET - For  variable  rate  loans  that  reprice  frequently  and with no
significant  change in credit risk,  fair values are based on carrying  amounts.
The fair values of other types of loans are estimated by discounting  the future
cash flows using current  interest rates at which similar loans would be made to
borrowers with similar credit quality and for the same remaining maturities.

DEPOSITS - The fair values for demand  deposits,  savings  accounts  and certain
money market  deposits are the amounts  payable on demand at the reporting date.
The carrying amounts for  variable-rate,  money market accounts and certificates
of deposit  approximate their fair values at the reporting date. Fair values for
fixed-rate  certificates  of deposit are estimated  using a discounted cash flow
calculation  that applies interest rates currently being offered on certificates
to a schedule of aggregated expected monthly maturities on time deposits.

ADVANCES  FROM FEDERAL HOME LOAN BANK - The fair values for  long-term  debt are
estimated  using  discounted  cash  flow  analyses,  based on the  Corporation's
current incremental borrowing rates for similar types of borrowing arrangements.

COMMITMENTS TO EXTEND CREDIT AND STANDBY  LETTERS OF CREDIT - The fair values of
commitments to extend credit is estimated using fees currently  charged to enter
into  similar  agreements,  taking  into  account  the  remaining  terms  of the
agreements and the present creditworthiness of the customer. For fixed-rate loan
commitments,  fair value also considers the difference between current levels of
interest rates and the committed  rates.  The fair values of standby  letters of
credit are based on fees  currently  charged  for similar  agreements  or on the
estimated cost to terminate them or otherwise  settle the  obligations  with the
counter parties at the reporting date. The value of these financial  instruments
was not material at June 30, 1998 and 1997.

The estimated  fair values of the  Corporation's  financial  instruments  are as
follows:
<TABLE>

                                                  June 30, 1998                  June 30, 1997
                                         -----------------------------   ----------------------------                   
                                             Carrying         Fair           Carrying        Fair
                                              Value           Value           Value          Value  
<S>                                       <C>             <C>            <C>             <C>       
 Financial assets:
   Cash and interest bearing deposits     $  9,149,712    $  9,149,000   $  9,175,713    $  9,175,000
   Investment securities:
    Securities held-to-maturity           $ 24,639,484    $ 24,935,000   $ 17,484,427    $ 17,800,000
    Securities available-for-sale         $  1,934,412    $  1,934,000   $  5,192,323    $  5,192,000
    Loans, net                            $355,306,342    $352,805,000   $327,791,495    $329,094,000
 Financial liabilities:
    Deposits                              $306,702,649    $309,326,000   $281,342,174    $283,863,000
    Advances from Federal Home Loan Bank  $ 43,248,855    $ 42,317,000   $ 41,514,194    $ 41,630,000

</TABLE>




                                       60



<PAGE>



                       FIRST FEDERAL FINANCIAL CORPORATION
                          OF KENTUCKY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   (Continued)



13.  CONTINGENCIES

In  the  normal  course  of  business,   there  are  various  outstanding  legal
proceedings and claims.  In the opinion of management,  after  consultation with
legal counsel,  the  disposition of such legal  proceedings  and claims will not
materially affect the Corporation's  consolidated financial position, results of
operations or liquidity.

14.  FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK

The 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.  These
financial  instruments include  commitments to extend credit.  Those instruments
involve, to varying degrees, elements of credit and interest-rate risk in excess
of the amount  recognized in the balance sheet. The contract or notional amounts
of those instruments  reflect the extent of the Bank's involvement in particular
classes of financial instruments.

The 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 Bank
uses the same credit policies in making commitments and conditional  obligations
as it does for on-balance-sheet instruments.

Commitments  to extend  credit are  agreements  to lend to a customer as long as
there is no violation of any condition established in the contract.  Commitments
generally  have fixed  expiration  dates or other  termination  clauses  and may
require  payment of a fee. Since many of the  commitments are expected to expire
without  being  drawn  upon,  the total  commitment  amounts do not  necessarily
represent future cash  requirements.  The Bank evaluates each customer's  credit
worthiness.  The amount of collateral obtained, if it is deemed necessary by the
Bank upon extension of credit, is based on management's credit evaluation of the
counterpart.

The Bank's only financial  instruments with  off-balance-sheet  risk at June 30,
1998 and 1997 are outlined in Note 3.

15.  SUBSEQUENT EVENTS

In July, 1998, the Bank acquired certain assets and assumed certain  liabilities
associated with the acquisition of Meade County banking centers. The transaction
resulted in recording of assets of  $11,870,000,  liabilities of $72,500,000 and
core deposit intangibles of approximately $8,670,000. The acquisition was funded
by reducing proceeds due for the net liability amount assumed.

In July,  1998,  the Bank  received  final  regulatory  approval for its plan to
address Year 2000 related data processing concerns. The plan includes converting
data  processing  centers and  replacing  non Year 2000  compliant  software and
hardware.  The plan  will  result  in an  after  tax  charge  to  operations  of
approximately $400,000.



                                       61



<PAGE>



ITEM 9.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
            AND FINANCIAL DISCLOSURE

                                      None.


                                    PART III


ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

        For  information  concerning the Board of Directors of the  Corporation,
the information contained under the section captioned "Proposal I -- Election of
Directors" in the Corporation's definitive proxy statement for the Corporation's
1998 Annual Meeting of  Stockholders  (the "Proxy  Statement")  is  incorporated
herein by reference.


ITEM 11.    EXECUTIVE COMPENSATION

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


ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

        (a)    Security Ownership of Certain Beneficial Owners

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

        (b)    Security Ownership of Management

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

        (c)    Changes in Control

               Management of the Corporation knows of no arrangements, including
               any pledge by any person of  securities of the  Corporation,  the
               operation of which may at a subsequent date result in a change of
               control of the Corporation.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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



                                       62


<PAGE>



                                     PART IV


ITEM 14.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

        1.     Financial Statements Filed

               (a)    Report of Independent Certified Public Accountants
               (b)    Consolidated Statements of Financial Condition at June 30,
                      1998 and 1997.
               (c)    Consolidated  Statements  of Earnings  for the Years ended
                      June 30, 1998, 1997, and 1996.
               (d)    Consolidated  Statements of  Stockholders'  Equity for the
                      Years ended June 30, 1998, 1997, and 1996.
               (e)    Consolidated  Statements of Cash Flows for the Years ended
                      June 30, 1998, 1997, and 1996.
               (f)    Notes to Consolidated Financial Statements

        2.     All  financial  statement  schedules  have  been  omitted  as the
               required  information is either  inapplicable  or included in the
               financial statements or related notes.

        3.     Exhibits
               (3) (a)       Articles of Incorporation **
               (3) (b)       Bylaws **
               10  (b)       First Federal Savings Bank of Elizabethtown
                             Stock Option and Incentive Plan, as amended***
              (21)           Subsidiaries of the Registrant
              (99)           Undertakings
              (23)           Consent of Whelan, Doerr, & Pike, PSC, Certified
                              Public Accountants

        4.     No reports on Form 8-K have been filed during the last quarter of
               the fiscal year covered by this report.









**      Incorporated by reference to the Corporation's Form S-4
        Registration Statement (No. 33-30582)
***     Incorporated by reference  to  Exhibit  10(b) of the Corporation's Form 
        10-K for the fiscal year ended June 30, 1994.




                                       63

<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.

                                             FIRST FEDERAL FINANCIAL CORPORATION
                                             OF KENTUCKY

Date: 9/15/98                 By:    /s/  B. Keith Johnson
                                     ------------------------------ 
                                          B. Keith Johnson
                                          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.


By:     /s/  B. Keith Johnson                        By:  /s/  Irene B. Lewis
        ---------------------                             --------------------
        B. Keith Johnson                                  Irene B. Lewis
        Principal Executive Officer                       Director
        and Director

Date:  9/15/98                                       Date:  9/15/98


By:     /s/  Wreno M. Hall                           By:  /s/  Bob Brown
        ---------------------                             --------------------
        Wreno M. Hall                                     Bob Brown
        Director                                          Director

Date:    9/15/98                                     Date:  9/15/98

By:     /s/  J. Alton Rider                          By:  /s/  Kennard Peden
        ---------------------                             --------------------
        J. Alton Rider                                    Kennard Peden
        Director                                          Director

Date:    9/15/98                                     Date:  9/15/98


By:     /s/  Burlyn Pike                             By:  /s/   Steven Mouser
        ---------------------                             --------------------
        Burlyn Pike                                       Steven Mouser
        Director                                          Director

Date:    9/15/98                                     Date:  9/15/98


By:     /s/  Walter D. Huddleston                    By: /s/  Richard L. Muse
        -------------------------                        --------------------
        Walter D. Huddleston                            Richard L. Muse
        Director                                        Chief Financial Officer
                                                        and Comptroller

Date:  9/15/98                                       Date:  9/15/98


By:     /s/  Michael Thomas
        -------------------------
        Michael Thomas, DVM
        Director 

                                       
Date:  9/15/98                              



                                       64


<PAGE>



                                INDEX TO EXHIBITS



Exhibit No.                Description

  (3) (a)         Articles of Incorporation *

  (3) (b)         Bylaws*

  (10)(b)         First Federal Savings Bank of Elizabethtown Stock Option and
                  Incentive Plan, as amended **

  (21)            Subsidiaries of the Registrant

  (99)            Undertakings

  (23)            Consent of Whelan, Doerr, & Pike, PSC, Certified Public
                  Accountants

  (27)            Financial Data Schedule    





*       Incorporated by reference to the Corporation's Form S-4 Registration
        Statement (No. 33-30582)
**      Incorporated  by reference to Exhibit  10(b) of the  Corporation's  Form
        10-K for the fiscal year ended June 30, 1994.



                         
                                       65


<PAGE>




                                   EXHIBIT 21


                         SUBSIDIARIES OF THE REGISTRANT



Parent

First Federal Financial Corporation of Kentucky



                                              State of            Percentage
Subsidiaries                                Incorporation           Owned

First Federal Savings Bank                  United States           100%
  of Elizabethtown

First Federal Service Corporation             Kentucky              100%
  of Elizabethtown (a)


(a)     Wholly-owned subsidiary of First Federal Savings Bank of Elizabethtown.



                                       66




<PAGE>


                                   EXHIBIT 99



EXHIBIT 99 - UNDERTAKINGS

(a)     The undersigned Registrant hereby undertakes:

        (1)    To file,  during  any  period in which  offers or sales are being
               made, a  post-effective  amendment  to its Form S-8  registration
               statement No. 33- 30582

               (i)    To include any prospectus required by section 10(a)(3) of
                      the Securities Act of 1933;
               (ii)   To reflect in the  prospectus  any facts or events arising
                      after the effective date of the registration statement (or
                      the most recent  post-effective  amendment thereof) which,
                      individually or in the aggregate, represents a fundamental
                      change in the  information  set forth in the  registration
                      statement;
               (iii)  To include any  material  information  with respect to the
                      plan  of  distribution  not  previously  disclosed  in the
                      registration  statement  or any  material  change  to such
                      information in the registration statements;

        (2)    That,  for the purpose of  determining  any  liability  under the
               Securities Act of 1933, each such post-effective  amendment shall
               be  deemed to be a new  registration  statement  relating  to the
               securities  offered therein,  and the offering of such securities
               at that time shall be deemed to be the initial bona fide offering
               thereof.

        (3)    To  remove  from   registration  by  means  of  a  post-effective
               amendment any of the  securities  being  registered  which remain
               unsold at the termination of the offering.

(b)     The  undersigned  Registrant  hereby  undertakes  that, for  purposes of
        determining any  liability under the Securities Act of 1933, each filing
        of the Registrant's  Annual Report  pursuant to section 13(a) or section
        15(d) of the Securities  Exchange  Act of 1934  (and,  where applicable,
        each  filing of an employee  benefit plan's annual report  pursuant  to 
        section 15(d) of the Securities Exchange of 1934) that is  incorporated 
        by  reference in the registration  statement relating to the  securities
        offered  therein, and the offering of such securities at that time shall
        be deemed to be the initial bona fide offering thereof.

(h)     Insofar as indemnification for liabilities arising under the Securities 
        Act of  1933  may be  permitted to  directors,  officers and controlling
        persons  of  the  registrant  pursuant  to the foregoing provisions, or 
        otherwise, the registrant  has been  advised that in the opinion of the 
        Securities  and  Exchange  Commission  such  indemnification  is against
        public policy as expressed in the Act and is, therefore, unenforceable. 
        In the event that a claim  for indemnification  against such liabilities
        (other  than  the payment by the registrant of expenses incurred or paid
        by a director,  officer  or  controlling person of the registrant in the
        successful defense  of any  action,  suit or  proceeding) is asserted by
        such director,  officer  or  controlling  person in  connection with the
        securities being registered, the registrant will,  unless in the opinion
        of its  counsel  the  matter  has been settled by controlling precedent,
        submit to a court of  appropriate jurisdiction the question whether such
        indemnification by it is against public  policy as expressed in the Act 
        and will be governed by the final adjudication of such issue. 



                                       67



<PAGE>



                                   EXHIBIT 23



EXHIBIT 23 - Consent of Whelan, Doerr, & Pike, P.S.C.

The Board of Directors
First Federal Financial Corporation of Kentucky

We consent to  incorporation  by reference  in the  Registration  Statement  No.
33-30582 on Form S-8 of First Federal  Financial  Corporation of Kentucky of our
report dated August 17, 1998,  relating to the  consolidated  balance  sheets of
First Federal Financial  Corporation of Kentucky and Subsidiaries as of June 30,
1998 and 1997,  and  related  consolidated  statements  of  income,  changes  in
stockholders'  equity,  and cash  flows for each of the years in the  three-year
period ended June 30,  1998,  which  reports  appear in the June 30, 1998 annual
report on Form 10-K of First Federal Financial Corporations of Kentucky.



Whelan, Doerr, & Pike, P.S.C.

/s/ Whelan, Doerr, & Pike, P.S.C.

Elizabethtown, Kentucky  42701
September 25, 1998






                                       68