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, 1997.

[ ] 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 August 29, 1997, was
$89,680,714.  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 August 29,  1997,  there were  issued and  outstanding  4,171,196
shares of the  registrant's  common  stock,  of which  directors  and  executive
officers  held 473,603  shares and more than 5%  beneficial  owners held 307,595
shares.

                       DOCUMENTS INCORPORATED BY REFERENCE

         1.  Portions  of  Proxy  Statement  for  the  1997  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
of  conventional  first  mortgage loans secured by  residential  property.  To a
lesser  extent  the  Bank  engages  in  commercial  real  estate,  consumer  and
commercial  business lending.  Residential  mortgage loans made by First Federal
are secured primarily by single family homes and include construction loans. The

                                       1

<PAGE>



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,

                                         1997               1996                 1995               1994                  1993
                                        ------             ------              -------             -------               ------
                                    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 ...................     $ 15,444     4.71%  $ 15,766     2.88%   $ 8,159     2.88%  $  7,007      3.03%  $  8,227    3.79%
  Loans on existing
    property.......................217,759    66.43    204,301    69.06    195,424    69.06    146,228     63.35    136,047   62.78
  Loans refinanced..................67,693    20.65     65,681    21.48     60,765    21.48     62,724     27.17     57,010   26.30

Commercial loans secured by
  real estate........................2,246      .69      2,406      .71      2,004      .71      3,234      1.40      4,551    2.10
Commercial lines of credit...........1,953      .60      1,785      .40      1,138      .40        721       .31      1,140     .52
Home equity loans...................10,377     3.16      4,959     1.35      3,802     1.35      3,675      1.59      3,120    1.44
Consumer loans:
  Mobile home loans.................... 18      .01         49      .02         51      .02         47       .02        125     .06
  Education loans.....................   0      .00          0      .00          0      .00          0       .00         14     .01
  Savings account loans..............1,667      .51      1,597      .48      1,357      .48        823       .35      1,424     .66
  Home improvement loans................ 2      .00        108      .01         44      .01        107       .04        405     .19
  Automobile, boat and
   recreational vehicle
   loans.............................. 338      .10        805      .35        980      .35      1,019       .44      1,363     .63
  Other.............................22,390     6.83     19,649     6.89     19,504     6.89     14,298      6.19     11,818    5.45
  Accrued interest
   receivable..........................179      .05        187      .05        146      .05        133       .05         83     .04

Less:
  Loans in process...................7,098     2.17     10,156     2.00      5,671     2.00      5,503      2.38      4,894    2.26
  Discounts and other...................61      .02        184      .10        272      .10        285       .12        549     .25
  Loan loss reserve..................1,715      .52      1,613      .59      1,661      .59      1,406       .61      1,415     .65
  Deferred loan fees................ 2,672      .81      2,329      .72      2,052      .72      1,804       .78      1,586     .73
  Escrow deposits..................... 683      .21        618      .26        730      .26        225       .10        160     .07
  Interest reserves (91 days
   or more delinquent)..................46      .01         30      .01         34      .01         13       .01         28     .01
                                   -------   ------   --------   ------    -------   ------   --------   -------     ------  ------
        Total.....................$327,791   100.00%  $302,363   100.00%  $282,954   100.00%  $230,793    100.00%  $216,695  100.00%
                                   =======   ======   ========  =======   ========   ======    =======   =======    =======  ======
</TABLE>


                                        3
<PAGE>
                                            

<TABLE>
<CAPTION>
                                                                              June 30,

                                      1997                1996                  1995               1994               1993
                                ----------------    -----------------    ----------------    ----------------   ----------------
                                  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................. $267,839  81.71%  $249,161     82.40% $230,672     81.52% $188,559     81.70% $173,741    80.17%
  2-to-4 family..................   5,983   1.82      6,554      2.17     5,846      2.07     5,268      2.28     5,843     2.70
  Other dwelling.................   6,055   1.85      6,332      2.09     6,296      2.22     5,662      2.45     6,138     2.83
Commercial or industrial.........  24,482   7.47     30,169      9.98    25,570      9.03    21,768      9.43    21,774    10.04
Home equity......................  10,377   3.16      4,959      1.64     3,802      1.35     3,675      1.59     3,120     1.44
Savings Accounts.................   1,667    .51      1,597       .52     1,357       .48       823       .36     1,424      .66
Mobile Homes.....................      18    .01         49       .02        51       .02        47       .02       125      .06
Automobile, boats and
  recreational vehicles..........     338    .10        805       .27       980       .35     1,019       .44     1,363      .63
Other............................  23,128   7.06     17,480      5.78    18,654      6.59    13,075      5.67    11,716     5.40
Accrued interest
 receivable....................       179    .05        187       .06       146       .05       133       .06        83      .04

Less:
  Loans in process...............   7,098   2.17     10,156      3.36     5,671      2.00     5,503      2.38     4,894     2.26
  Discounts and other............      61    .02        184       .06       272       .10       285       .12       549      .25
  Loan loss reserve..............   1,715    .52      1,613       .53     1,661       .59     1,406       .61     1,415      .65
  Deferred loan fees.............   2,672    .81      2,329       .77     2,052       .72     1,804       .78     1,586      .73
  Escrow deposits................     683    .21        618       .20       730       .26       225       .10       160      .07
  Interest Reserves (91
     days or more
      delinquent)................      46    .01         30       .01        34       .01        13       .01        28      .01
                                  -------  ------   --------    ------  --------    ------  --------    ------  --------   ------
       Total.....................$327,791 100.00%   $282,954   100.00%  $230,793   100.00%  $230,793   100.00%  $216,695  100.00%
                                  ======= ======    ========   ======   ========   ======   ========   ======   ========  ======
</TABLE>

         Loan  Maturity  Schedule.   The  following  table  sets  forth  certain
         information  at June 30,  1997,  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,
                                    1998            1997            1997

                                          (Dollars in thousands)
<S>                             <C>              <C>            <C>    

Real estate mortgage..........  $  1,557         $  9,024       $274,111
Real estate construction (1).........  0                0          8,435
Installment......................... 133              542              1
Commercial, financial and
   agricultural................... 7,922           30,325            918
                                 --------         --------       --------
      Total.................... $  9,612         $ 39,891       $283,465
                                 ========         ========       ========
<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.

<TABLE>

                                    Predetermined    Floating or
                                        Rates      Adjustable Rates     Total

                                               (Dollars in thousands)
<S>                                   <C>             <C>             <C>    
                                                                     
Real estate mortgage ................ $177,946        $105,166        $283,112
Real estate construction.................3,979           4,457           8,436
Installment................................543               0             543
Commercial, consumer and
  agricultural..........................17,228          14,037          31,265
                                       -------         -------         -------
        Total.........................$199,696        $123,660        $323,356
                                       =======         =======         =======
</TABLE>


         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, 1997, approximately 37%
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 $6.1 million or 1.9%
of the loan  portfolio at June 30, 1997.  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 1997, the Bank's secondary mortgage  operations  originated $18.2 million
in loans for sale to investors.

         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,  1997,  the Bank had $15.4  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

                                        5

<PAGE>



in size from $80,000 to $215,000.

         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, 1997,  consumer loans outstanding were
$39.0 million or  approximately  11.8% 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, 1997, these
loans totaled $10.4 million which is a 112% 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, 1997, these loans totaled approximately $2.0 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,

                                              1997        1996       1995       1994       1993
                                             -------     ------      -----     ------      -----
                                                            (Dollars in thousands)
<S>                                        <C>         <C>         <C>         <C>        <C>    
Loans originated:
  Conventional real estate
   loans:
    Construction loans...................  $ 16,664    $ 16,078    $12,632     $15,093    $15,664
    Loans on existing property...............47,256      61,349     38,235      33,216     35,834
    Loans refinanced.........................15,846      16,436      5,271      17,923     18,172
  Insured and guaranteed loans................2,286       2,472      1,936       1,705      2,679
  Commercial loans........................... 2,769       3,267      2,331       5,129      3,493
  Consumer loans.............................29,440      21,071     18,548      14,199     12,009
                                            -------     -------    -------     -------    -------
       Total Loans Originated..............$114,261    $120,673    $78,953     $87,265    $87,851
                                            =======     =======    =======     =======    =======

Total Loans Sold.......................... $ 16,199    $ 23,178    $ 8,822     $ 4,121    $ 3,176
                                            =======    ========    =======     =======    =======
</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, 1997, was approximately $6.2 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.


                                        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,

                                           1997          1996           1995            1994          1993
                                          ------        ------        -------          ------        -----
                                                               (Dollars in thousands)
<S>                                     <C>           <C>            <C>             <C>            <C>   
Non-Performing loans which are
    contractually past due
    90 days or more:
      Real Estate:
        Residential.....................$ 1,172       $   940        $   649         $   254        $  610
        Commercial......................... --            --             --              --            --
      Consumer............................. 378           312            512             333           343
                                         ------       -------        -------         -------        ------

            Total...................... $ 1,550       $ 1,252        $ 1,161         $   587        $  953
                                        =======       =======        =======         =======        ======

            Total 90 days past
               due loans................$ 1,550       $ 1,252        $ 1,161         $   587        $  953
                                        =======       =======        =======         =======        ======

Percentage of Total Loans................ 0.47%         0.41%          0.41%           0.25%         0.44%

Other Non-Performing Assets             $   184       $   375        $   260         $   267        $  500
                                        =======       =======        =======         =======        ======
(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,
                                      1997          1996           1995         1994          1993
                                     ------        ------         ------       ------        ------
                                                          (Dollars in thousands)
<S>                                  <C>           <C>            <C>          <C>           <C>   
Balance at Beginning of Period...... $1,613        $1,662         $1,406       $1,415        $1,127
                                      ------        ------         ------       ------        ------
Loans Charged-Off:
  Real Estate--Mortgage:
    Residential..........................17             0             14            0            10
    Commercial............................0             0             16           10             0
  Commercial Business.................... 0            24              0            0             0
  Consumer..............................114            50             21           35            15
                                     -------        ------         ------       ------        ------

Total Charge-Offs.....................  131            74             51           45            25
                                      ------        ------         ------       ------        ------

Recoveries:
  Real Estate-Mortgage:
    Residential...........................0             1              0            0            12
    Commercial............................0            23             16            0             0
  Consumer...............................33             1              6            6             6
                                     ------        ------         ------       ------        ------

Total Recoveries........................ 33            25             22            6            18
                                     ------        ------         ------       ------        ------

Net Loans Charged-Off................... 98            49             29           39             7
                                     ------        ------         ------       ------        ------
Reserve associated with loans
acquired in merger...................... --            --            185           --            --
Provision for Possible Loan
Losses..................................200             0            100           30           295
                                     ------        ------         ------       ------        ------

Balance at End of Period.............$1,715        $1,613         $1,662       $1,406        $1,415
                                     ======        ======         ======       ======        ======

Ratio of Net Charge-Offs to
Average Loans Outstanding
During the Period................... 0.031%        0.017%         0.010%       0.017%        0.003%
</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,
                             1997      1996         1995        1994       1993
                            ------    -------      ------      ------      -----
                                            (Dollars in thousands)
<S>                          <C>        <C>        <C>         <C>        <C>    
Real estate loans:
   Residential Loans.........$1,178     $1,277     $1,289      $1,043     $1,012
   Commercial Loans.............146        142        128         103        112
Non-real estate loans...........391        194        245         260        291
                             ------     ------     ------      ------     ------
Total allowance for
  possible loan
  losses.................... $1,715     $1,613     $1,662      $1,406     $1,415
                             ======     ======     ======      ======     ======
</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.

         At June 30, 1997, 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,  1997 which may be so
classified in the near future because of management concerns as to the ability

                                        9

<PAGE>



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,  1997,  on the basis of  management's  review of the Bank's
loan portfolio,  the Bank had $1.7 million of assets classified substandard,  no
assets classified doubtful, and $18,000 of assets classified as loss.


Investment Activities

         Interest on investment securities provides the largest source of income
for  First  Federal  after  interest  on loans,  constituting  6.1% of the total
interest income for fiscal year 1997. 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,  1997,  First  Federal's
liquidity ratio (liquid assets as a percentage of net  withdrawable  savings and
current borrowings) was 7.72%.

         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, 1997,
the market value of the Bank's investment securities portfolio was $23 million.






                                        10

<PAGE>


<TABLE>



                                                     At June 30,
                                        1997           1996           1995
                                      --------       --------        ------
                                               (Dollars in thousands)
<S>                                   <C>           <C>            <C>   
Held-to-maturity securities:
  U.S. Treasury and agencies..........$15,335        $ 9,225        $ 9,132
  Mortgage-backed securities............2,149          2,769          3,202
  Tax exempt bond........................   0              0             33
                                      -------        -------        -------

  Total held-to-maturity
   securities.........................$17,484        $11,994        $12,367
                                      =======        =======        =======

Securities available-for-sale:
  Equity securities.................  $ 5,192        $ 4,748        $ 4,701
                                      =======        =======        =======

</TABLE>

         The  following  table sets forth the  scheduled  maturities,  amortized
cost, and average yields for the Bank's debt securities at June 30, 1997, all of
which were classified as held-to-maturity.

<TABLE>


                                               Amortized              Average
                                                 Cost                  Yield

                                                    (Dollars in thousands)
<S>                                           <C>                      <C>   
Debt securities:
  Due in one year or less.................... $   735                  5.73%
  Due after one year through five years........12,852                  6.79
  Due after five years through ten years........1,748                  5.64
  Mortgage-backed securities................... 2,149                  6.90
                                               ------

                                              $17,484
                                              =======
</TABLE>




                                       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, 1997,  approximately  30.1% 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
                        1997   Deposits  (Decrease)    1996    Deposits (Decrease)   1995    Deposits  (Decrease)   1994    Deposits
                      -------- --------   --------   --------  --------  --------  --------  --------   --------  --------  --------
                                                                         (Dollars in thousands)
<S>                 <C>        <C>     <C>        <C>         <C>      <C>        <C>        <C>      <C>        <C>

Passbook and
Regular Savings.....$ 31,186   11.08%  $   (112)  $ 31,298     11.81%  $ (2,340)  $ 33,638    12.91%  $  4,567   $ 29,071     14.75%
NOW commercial
accounts.............. 9,813    3.49        833      8,980      3.39      1,447      7,533     2.89      4,086      3,447      1.75
NOW Demand Accounts...33,140   11.78      2,702     30,438     11.49        735     29,703    11.40      9,598     20,105     10.20
Money Market
deposit accounts..... 10,460    3.72        191     10,269      3.88      1,629      8,640     3.32      (950)      9,590      4.86
Three month CD's.......1,033     .37       (64)      1,097       .41      (253)      1,350      .52      (514)      1,864       .95
Six month CD's....... 12,399    4.41    (5,132)     17,531      6.62      2,051     15,480     5.94      3,604     11,876      6.02
Fixed rate CD's
   - 12 months........53,713   19.09      5,140     48,573     18.33      9,394     39,179    15.04     28,636     10,543      5.35
Variable rate CD's
   - 12 months........ 3,119    1.11    (1,205)      4,324      1.63      (814)      5,138     1.97    (4,528)      9,666      4.90
Fixed Rate CD's
   - 18 months........35,503   12.62     27,905      7.598      2.87    (6,929)     14,527     5.58      4,093     10,434      5.29
Fixed Rate CD's
   - 24 months........24,985    8.88    (8,673)     33,658     12.70      5,004     28,654    11.00      5,494     23,160     11.75
Fixed Rate CD's
   - 30 months........ 3,170    1.13      (605)      3,775      1.42    (3,861)      7,636     2.93      (616)      8,252      4.19
Fixed Rate CD's
   - 36 months........11,702    4.16       (26)     11,728      4.43    (1,473)     13,201     5.07      7,142      6,059      3.07
Fixed Rate CD's
   - 48 months........16,796    5.97    (5,502)     22,298      8.42    (1,278)     23,576     9.05    (2,635)     26,211     13.29
Variable Rate CD's
   - 48 months..........  28     .01        (7)         35       .01       (20)         55      .02       (38)         93       .05
IRA accounts..........23,046    8.19      1,242     21,804      8.23      1,267     20,537     7.88      4,645     15,892      8.06
Other accounts -
   6 to 8 year CD's...11,249    3.99      (291)     11,540      4.36      (116)     11,656     4.48        776     10,880     5.52%
                     -------   ------   -------    --------    ------  ---------   --------   ------     ------   --------    -----

       Total........$281,342  100.00%   $16,396   $264,946   100.00%   $  4,443   $260,503  100.00%   $ 63,360   $197,143   100.00%
                     =======  ======    =======   ========   ======    ========   ========  ======    ========   ========   =======

</TABLE>




                                       13

<PAGE>




     The variety of deposit  accounts  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, 1997
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     $ 31,186      11.08%
     .20         NONE         NOW Commercial Accounts              300        9,813        3.49
    1.31         NONE         NOW Demand Accounts                1,000       33,140       11.78
    3.38         NONE         Money Market Deposit Accounts        500       10,460        3.72
    3.45       91 days        3 Month Certificate                  500        1,033        0.37
    4.41       182 days       6 Month Certificate                  500       12,399        4.41
    5.33      12 months       Fixed Rate                           500       53,713       19.09
    4.88      12 months       Variable Rate                        500        3,119        1.11
    6.05      18 months       Fixed Rate                           500       35,503       12.62
    5.56      24 months       Fixed Rate                           500       24,985        8.88
    5.79      30 months       Fixed Rate                           500        3,170        1.13
    5.96      36 months       Fixed Rate                           500       11,702        4.16
    5.74      48 months       Fixed Rate                           500       16,796        5.97
    4.65      48 months       Variable Rate                        500           28        0.01
    5.75      18 months       Individual Retirement Accounts       500       23,046        8.19
    6.30      6-8 years       Other Certificates                   500       11,249        3.99
                                                                            -------      ------
                                                                           $281,342     100.00%
                                                                           ========     =======                 ======

<FN>
(1) Dollars in thousands.
</FN>
</TABLE>

                                       14

<PAGE>




         The following table indicates at June 30, 1997 the amount of the Bank's
certificates of deposit of $100,000 or more by time remaining until maturity.
<TABLE>


Maturity Period                        Certificates
                                        of Deposit
                                      (In Thousands)
<S>                                     <C>

Three months or less.................... $7,226
Three through six months................  5,249
Six through twelve months...............  8,756
Over twelve months...................... 22,695
                                         ------
    Total.............................. $43,926
                                         ======

</TABLE>


         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,
                                   1997                   1996                1995
                               ---------------      ---------------      ----------------
                                        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...................$  9,104     --%     $  8,376      --%    $ 10,591       --%
Interest-bearing
  demand deposits............. 42,343    1.70       37,489     1.65      29,020      1.58
Savings deposits...............31,259    2.62       31,885     2.65      31,224      2.59
Certificates of
   deposit....................187,974    5.52      180,959     5.68     157,579      5.19

</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, 1997 First Federal had $41.5 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.


                                       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,
                                                1997                             1996                               1995
                                  -----------------------------   -----------------------------------   ----------------------------
                                                        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......... $317,565  $  26,945     8.48%    $295,657   $ 25,173       8.51%    $256,659     $ 21,287     8.29%
  Debt securities................. 15,133        976     6.45        8,011        527       6.25        6,629          498     7.51
  Equity securities.................4,856        228     4.70        4,536        225       4.96        4,260          173     4.06
  Mortgage-backed securities........2,514        178     7.08        3,042        222       7.30        1,688          107     6.34
  FHLB stock........................2,674        188     7.03        2,495        174       6.97        2,138          137     6.41
  Interest-bearing deposits.........1,805         98     5.43        9,981        605       6.06        7,746          489     6.31
    Total interest-earning       --------    -------    ------     -------    --------     -----     --------      -------    ------
     assets...................... 344,548     28,613     8.30      323,722      26,926      8.32      279,120       22,691     8.13
                                             -------                          --------                             -------
Non-interest-earning assets........21,981                           18,906                             15,761
                                  -------                         --------                           --------
    Total assets................ $366,529                         $342,628                           $294,881
                                  =======                         ========                           ========

Interest-bearing liabilities:
  Passbook accounts............. $ 31,259   $    818     2.62%    $ 31,885    $    846     2.65%     $ 31,224     $    808     2.59%
  NOW and money market accounts... 51,447        875     1.70       45,865         759     1.65        39,611          627     1.58
  Certificate accounts........... 187,974     10,377     5.52      180,959      10,271     5.68       157,579        7,345     5.19
  FHLB advances................... 41,482      2,306     5.56       31,825       1,800     5.66        15,379        8,186     5.81
                                  -------    -------   -------    --------    --------   ------      --------     --------    ------
    Total interest-bearing
     liabilities................  312,162     14,376     4.61      290,534      13,676     4.71       243,793       10,515     4.31
                                             -------                          --------                            --------

Non-interest-bearing liabilities....3,879                            3,198                              2,815
                                  -------                         --------                           --------
    Total liabilities............ 316,041                          293,732                            246,608
Stockholders' equity...............50,488                           48,896                             48,273
                                  -------                         --------                           --------
    Total liabilities and
     stockholders' equity....... $366,529                         $342,628                           $294,881
                                  =======                         ========                           ========
Net interest income........................ $ 14,237                          $ 13,250                             $12,176
                                             =======                          ========                             =======
Interest rate spread.......................              3.70%                             3.61%                               3.82%
                                                        ======                           ======                               ======
Net yield on interest-earning
 assets....................................              4.13%                             4.09%                               4.36%
                                                        ======                           ======                               ======
Ratio of average interest-
 earning assets to average
 interest-bearing liabilities..............            110.37%                           111.42%                             114.49%
                                                       =======                           ======                              =======
</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,

                                     1997  vs.  1996                        1996  vs.  1995                  1995  vs.  1994
                               ------------------------------        ------------------------------     -------------------------
                                    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... $    (89)    $  1,860     $ 1,771    $    578    $ 3,308    $  3,886     $  (623)     $ 2,545     $1,922
  Debt securities...............(11)         460         449         (67)        96          29          80          184        264
  Equity securities...........  (15)          12          (3)         40         12          52          28          100        128
  Mortgaged-back
   securities................... (7)         (39)        (46)         18         97         115           0          107        107
  FHLB stock....................  2           12          14          13         24          37          31           17         48
  Interest-bearing deposits.....(57)        (450)       (507)        (18)       134         116         185           20        205
                              ------     --------    --------    --------    -------    --------     -------       ------     ------

Total interest-earning
  assets................... $  (177)    $  1,855    $  1,678    $    564    $ 3,671    $  4,235     $  (299)      $ 2,973    $2,674
                              ======      =======   ========     ========   ========    ========     =======       =======   ======

Interest expense:
  Passbook accounts........ $    (9)    $    (15)    $   (24)   $     20    $    18    $     38      $   17      $     55    $   72
  Now & money market
   accounts....................  16          100         116          29        103         132         (96)          137        41
  Certificate accounts.........(756)         (70)       (826)        811      1,274       2,085         868         1,317     2,185
  FHLB advances................ (32)         538         506         (24)       930         906          12            37        49
                              ------       ------     -------    --------   -------      -------     -------      -------    ------

Total interest-bearing
  liabilities.............. $  (781)    $    553     $  (228)   $    836    $ 2,325    $  3,161     $   801       $ 1,546    $2,347
                              ======      =======     =======    ========    =======    ========     =======      =======    ======

</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, 1997, the Bank was authorized to invest up to approximately $11.3 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, 1997, the Bank's
investment  in  and  loans  to  its  subsidiaries  was  approximately   $698,000
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 April, 1988 First Service entered into a contract with Marketing One
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 $97,259 during fiscal year 1997.

         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, 1997, 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
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.

                                       18

<PAGE>




Employees

         The  Corporation  and  subsidiaries  had 97 full-time  employees and 12
part-time  employees as of June 30, 1997. 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, 1997, of $2.8 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, 1997,  First Federal had $41.5 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
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 1997 were 7.72% and
6.78%, respectively.

                                       19

<PAGE>


     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, 1997,  approximately  97.66% 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, 1997,  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
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

                                       20

<PAGE>



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,  1997,  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
$698,000.  Accordingly,  on  June  30,  1997,  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, 1997.

<TABLE>


                                                        June 30, 1997

                                                                   Percent of
                                                  Amount            Assets (1)

                                                    (Dollars in thousands)
<S>                                            <C>                   <C> 


Tangible capital.............................. $ 45,817               12.3%
Tangible capital requirement..................    5,599                1.5
                                                --------              ----
Excess........................................ $ 40,218               10.8%
                                                ========              ====

Tier 1/Core capital........................... $ 45,817               12.3%
Tier 1/Core capital
 requirement..................................   11,197                3.0
                                                --------              ----
Excess........................................ $ 34,620                9.3%
                                                ========              ====

Tier 1/Risk-based capital..................... $ 45,817               18.9%
Tier 1/Risk-based capital
 requirement..................................    9,712                4.0
                                                --------              ----
Excess.......................................  $ 36,105               14.9%
                                                ========              ====

Risk-based capital............................ $ 47,532               19.6%
Risk-based capital
 requirement..................................   19,423                8.0
                                                --------              ----
Excess........................................ $ 28,109               11.6%
                                                ========              ====

<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.

         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

                                       22

<PAGE>



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.

         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.



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

                                       23

<PAGE>



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 required
to  divest  subsidiaries.  The  senior  executive  officers  of a  significantly
undercapitalized   institution   may  not  receive   bonuses  or   increases  in
compensation  without prior  approval and the  institution  is  prohibited  from
making  payments of principal  or interest on its  subordinated  debt.  In their
discretion,  the  federal  banking  regulators  may also  impose  the  foregoing
sanctions on an  undercapitalized  institution if the regulators  determine that
such actions are  necessary  to carry out the purposes of the prompt  corrective
action provisions. If an institution's ratio of tangible capital to total assets
falls  below a "critical  capital  level,"  the  institution  will be subject to
conservatorship  or receivership  within 90 days unless periodic  determinations
are made that  forbearance  from such action  would  better  protect the deposit
insurance fund. Unless  appropriate  findings and certifications are made by the
appropriate  federal bank  regulatory  agencies,  a critically  undercapitalized
institution   must  be  placed  in   receivership   if  it  remains   critically
undercapitalized on average during the calendar quarter beginning 270 days after
the date it became critically  undercapitalized.  If a savings 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

                                       24

<PAGE>



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.


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 institutions
financial condition and the risk posed to the deposit insurance fund. Subgroup A
consists of financially  sound  institution's  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.  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 institutions
financial condition and the risk posed to the deposit insurance fund. Subgroup A
consists of financially  sound  institution's  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. The reduced premium contributed approximately $143,000, net of tax, to
1997 earnings.

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,
1997, 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,

                                       26

<PAGE>



except for affiliates which are subsidiaries of the savings association.

         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,

                                       27

<PAGE>



(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.

         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

                                       28

<PAGE>



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.

         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 8 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, 1997.
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             $6,314              55,000
2323 Ring Road
Elizabethtown, Kentucky

Radcliff Office                     1975                575               2,728
475 West Lincoln Trail
Radcliff, Kentucky

Bardstown Office (1)                1973                659               1,271
315 North Third Street
Bardstown, Kentucky

Munfordville Office                 1976                263               2,928
925 Main Street
Munfordville, Kentucky

Elizabethtown Office                1985                292               1,764
325 West Dixie Avenue
Elizabethtown, Kentucky

Shepherdsville Office               1995              1,156               7,600
395 North Buckman Street
Shepherdsville, Kentucky

Mt. Washington Office               1995                613               2,500
279 Bardstown Road
Mt. Washington, Kentucky

Wal-Mart Office                     1996                341                 984
101 Wal-Mart Drive
Elizabethtown, Kentucky

<FN>
(1) On August 1, 1996,  the Bank leased land under a five-year  operating  lease
agreement for $2,350 per month.  This lease contains  options to renew the terms
of the lease for an  additional  forty-five  years.  The land lease is to be the
site of a new Bardstown  branch location which is currently under  construction.
Total construction costs are estimated to be approximately $1.1 million of which
$550,000 has been funded through June 30, 1997.
</FN>
</TABLE>

         As of June 30,  1997,  the net  book  value of  office  properties  and
equipment owned by the Bank and its subsidiaries was $10.2 million.  For further
information, see Note 5 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, 1997.



                                     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 1997:         9/30         12/31        3/31        6/30       8/31/97

High*              $21.25        $21.25       $21.00      $20.25       $22.75
Low*               $19.75        $18.75       $19.75      $18.00       $20.75
Cash dividends*     $0.12         $0.12        $0.13       $0.13

Fiscal 1996:

High*              $15.38        $16.75       $18.25      $22.25
Low*               $14.38        $15.38       $16.25      $20.00
Cash dividends*     $0.11         $0.11        $0.12       $0.12

There were 818 stockholders of record on August 30, 1997.
<FN>
*All per share information has been adjusted to reflect the effect of a 2-for-1
stock split effective June 10, 1996.
</FN>
</TABLE>

                                       31

<PAGE>


Item 6.     Selected Financial Data
<TABLE>

                                                  At June 30,

Financial Condition Data:     1997       1996       1995       1994      1993
                                             (Dollars in Thousands)
<S>                        <C>        <C>        <C>        <C>        <C>     
Total assets                $377,380   $352,671   $331,375   $262,457   $244,044
Interest bearing deposits        481      7,753      6,601     11,001      8,485
Net loans outstanding        327,791    302,363    282,954    230,792    216,695
Investments                   22,677     16,742     17,068      7,058      4,563
Savings deposits             281,342    264,946    260,503    197,143    188,733
Borrowings                    41,514     34,979     21,238     16,126     11,355
Net worth, substantially      
restricted                    51,716     49,946     47,310     47,119     41,465
                             -------    -------    -------    -------    -------
Number of:
Real estate loans              
outstanding                    6,380      5,914      5,858      4,525      4,717
Deposit accounts              36,378      5,140     35,933     26,436     25,516
Offices                            8          8          7          5          5
</TABLE>

<TABLE>

                                               Year Ended June 30,

Operations Data:               1997      1996       1995       1994       1993
                                            (Dollars in  Thousands)
                                                             
<S>                         <C>        <C>        <C>        <C>       <C>          
Interest income              $28,782    $26,926    $22,635    $20,017   $19,883
Interest expense             (14,375)   (13,676)   (10,515)    (8,168)   (8,389)
                             -------    -------    -------    --------  -------
Net interst income            14,407     13,250     12,120     11,849    11,494
Provision for loan losses       (200)         0       (100)       (30)     (295)
Other income                   2,468      2,648      2,464      1,213     1,009
General and administrative    
expense (1)                   (9,472)    (7,547)    (6,428)    (5,145)   (4,767)
Income tax expense            (2,429)    (2,864)    (2,626)    (2,518)   (2,495)
                              -------    -------    -------    -------   -------
Net income                    $4,774     $5,487     $5,430     $5,369    $4,946
                              =======    =======    =======    =======   =======

Earnings per share**            1.14       1.30       1.24       1.22      1.15
Book value per share**         12.39      11.87      11.17      10.65      9.58
Dividends paid per share**      0.50       0.46       0.41       0.39      0.38
Return payout ratio per           44%        35%        33%      0.30%       33%
share**
Return on average assets        1.30%      1.60%      1.85%      2.11%     2.13%
Average equity to average      13.77%     14.27%     16.37%     17.80%    17.17%
assets
Return on average equity        9.46%     11.22%     11.30%     11.87%    12.39%
<FN>
(1) 1997 general and administrative expenses  include  the non-recurring special
 assessment paid to the FDIC in the amount of $1.7 million.

** All per share  information  has been  adjusted for 2-for-1 stock splits which
were effective July 20, 1993 and June 10, 1996.
</FN>
</TABLE>

Financial data for 1993,  1994 and six months of 1995 do not reflect  results of
operations  from  Shepherdsville  and Mt.  Washington  offices,  (See"Management
Discussion & Analysis").
                                                        
                                       32

<PAGE>


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

Fiscal 1997:           September 30    December 31    March 31     June 30
<S>                      <C>             <C>           <C>         <C>    

Total interest income     $6,953          $7,133        $7,250      $7,447
Total interest expense     3,484           3,582         3,595       3,715
Net interest income        3,469           3,551         3,655       3,732
Provision for loan           200               0             0           0
losses
Net income                   287           1,387         1,529       1,573
Earnings per share*        $0.07           $0.33         $0.37       $0.38

Fiscal 1996:

Total interest income     $6,538          $6,715        $6,824       $6,849
Total interest expense     3,333           3,479         3,451        3,413
Net interest income        3,205           3,236         3,373        3,436
Provision for loan             0               0             0            0
losses
Net income                 1,434           1,378         1,394        1,281
Earnings per share*        $0.34           $0.33         $0.33        $0.30

</TABLE>


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


General

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


Results of Operations

Net income was $4,774,000, or $1.14 per share in 1997, compared with $5,487,000,
or $1.30 per share 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."


                                       33

<PAGE>



Net Interest Income - Net interest income increased by $1,157,000 during 1997 to
$14,407,000 as compared to  $13,250,000,  in 1996.  This increase was due to the
strong growth of the Bank's loan  portfolio and a 4 basis point  improvement  in
the net  interest  margin.  The Bank's net  interest  margin for the 1997 period
increased to 4.13% as compared to 4.09% during 1996. Also, interest and dividend
income on investments and deposits  increased by $85,000,  due to higher average
investment balances.

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,  resulting in a
$1.8 million growth in loan interest income.

Customer  deposit  balances  averaged  $270.7 million during 1997, a $12 million
increase from the 1996 average balance of $258.7  million.  The cost of funds on
these deposit  balances  averaged 4.46% during 1997, which was an increase 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
maturities to short-term.

Provision for Loan Losses-Management periodically evaluates the adequacy of the

                                       34

<PAGE>



allowance for loan losses based on the Bank's past loan loss  experience,  known
and inherent  risks in the  portfolio,  adverse  situations  that may effect the
borrower's ability to repay and other factors.

The  provision  for loan losses was  $200,000  for 1997.  Net  charge-offs  were
$98,115 during 1997 as compared to $49,054 during 1996. The Bank's 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.
Non-performing loans represented .47% of the loans outstanding at June 30, 1997.
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,
                                               (Dollars in thousands)

                                        1997            1996           1995
                                       ------          ------          -----
<S>                               <C>              <C>             <C>    

Allowance for loans losses:
   Balance, July 1                 $   1,613        $   1,662       $   1,406
   Balance acquired in merger             -               -               185
   Provision for loans losses            200              -               100
   Charge-offs                          (131)             (74)            (51)
   Recoveries                             33               25              22
                                     --------         --------       --------
   Balance, June 30                $   1,715        $   1,613       $   1,662
                                     ========         ========       ========

Net loans outstanding at year end  $ 327,791        $ 302,363       $ 282,954
Nonperforming loans at year end:
    Collateralized by one-to-four
     family homes                     $1,172             $940            $649
    Other non-performing loans          $378             $312            $512

Ratios:  Non-performing loans to
          total loans                    .47%             .41%            .41%
         Allowance for loan losses
          to non-performing loans        111%             128%            143%
         Allowance for loan losses to
          net loans                      .52%             .53%            .59%
         Non-performing assets to
          total assets                   .46%             .46%            .43%

</TABLE>


Non-Interest  Income and Expense - Non-interest income was $2,468,000 in 1997, a
decrease of $180,000  over 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 1997 to
1996, due to a growth in customer checking accounts and an increase in customer

                                       35

<PAGE>



service fees.  Trust account fees  increased  from $58,000 in 1996 to $80,000 in
1997, as the Trust Department  completed another  successful year of operations.
Other sources of miscellaneous  income,  such as safety deposit box rental, loan
fees, and other customer  transaction fees increased by $66,000 due to growth in
deposit relationships with existing customers.


Non-interest  expense was  $9,472,000 in 1997,  an increase of  $1,925,000  over
1996.  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.

Compensation  and benefits  increased by $217,000 or 6.6% in 1997 as compared to
1996.  Compensation  costs  deferred  under SFAS No. 91 in connection  with loan
originations  resulted in an increase of $29,000 in costs in 1997 as compared to
1996. The remaining increase of $188,000 or 5.7%,  reflects  inflationary salary
raises and new  employees  added to service  the normal  customer  growth of the
Bank.

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 branch office
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.
See further discussion under "Regulatory Matters."

All other  expenses  increased by $224,000,  or 8%, in 1997 as compared to 1996.
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 5%. The Bank's
liquidity ratio was 7.72% at June 30, 1997.

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,  proceeds from
the  sale  of  investments,   and  earnings  from  operations  retained  by  the
Corporation.

At  June  30,  1997,  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 $22.7 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.

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, 1997, the Bank's actual  capital  percentages  for tangible  capital of
12.1%,  core  capital  of  12.1%,  and  current  risk-based  capital  of  19.9%,
significantly exceed the regulatory requirement for each category.


                                      36

<PAGE>



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. The reduced premium contributed approximately $143,000, net of tax, to
1997 earnings.

Recent legislation  required the Bank to change its method of computing bad debt
deductions for income tax purposes,  effective July 1, 1996. Formerly,  the Bank
was permitted a bad debt deduction in the amount of 8% of its pretax income. The
annual  deductions  created a bad debt  reserve  for income tax  purposes.  This
reserve  resulted in a restriction  upon retained  earnings which  subjected the
reserve  to tax  recapture.  Although  the new law  requires  the  recapture  of
post-1987   reserves,   the  Bank  has  previously   deferred  the  related  tax
consequences  and therefore will have no material  effect on the future earnings
of the Bank.

Comparison of Fiscal 1996 to 1995

Acquisition

On  January 4, 1995,  the Bank  completed  its  acquisition  of Bullitt  Federal
Savings Bank ("Bullitt").  Bullitt's main office (Shepherdsville,  Kentucky) and
branch office (Mt. Washington,  Kentucky) are located within a 40-mile radius of
the Bank's headquarters.  Like the Bank, the primary business of Bullitt was the
origination of residential  real estate  mortgage loans.  Simultaneous  with the
acquisition, Bullitt was merged into the bank. The acquisition was accounted for
using the purchase method of accounting and,  accordingly,  Bullitt's results of
operations  prior  to  the  acquisition  date  have  not  been  included  in the
accompanying consolidated statements of income. Therefore any ratios or analyses
comparing years before the acquisition will not be comparable.

Net income for the fiscal year ended June 30, 1996, was $5,487,000, or $1.30 per
share, as compared to net income of $5,430,000,  or $1.24 per share for the same
period in 1995, an increase of 4.8%.  Factors  contributing to the 1996 earnings
increase are primarily due to the Bullitt acquisition completed during the third
quarter of fiscal 1995 and continued  favorable interest margins  experienced in
1996. The favorable  impact of the above factors was partially  offset by higher
operating  costs.  Where referenced as such, the following  discussion  includes
estimated  income  and  expenses  attributable  to  the  Shepherdsville and  Mt.
Washington offices prior to the acquisition and merger.


                                       37

<PAGE>

Total interest  income  increased by $4,291,000 from fiscal 1995 to 1996, due to
higher average loan balances  resulting from the Bullitt  acquisition.  Interest
income on loans account for a majority of the Bank's  interest income as average
loans for 1996 were $295.7 million or 91% of the total average  interest-earning
assets.  The average  yield on loans  increased  from 8.29% to 8.51% from fiscal
1995 to fiscal 1996. Average loan balances increased by $39 million resulting in
an overall increase in interest income on loans of $3.9 million. .

Total  interest  expense  increased by $3,160,000  from fiscal 1995 to 1996. The
weighted  average  interest  rate paid on customer  deposits  increased to 4.59%
during 1996 as compared to 4.21% during 1995. Customer deposit balances averaged
$258.7  million  during 1996,  a $30.3  million  increase  from the 1995 average
balance of $228.4  million.  Interest  expense  paid on  deposits  increased  by
$2,254,000  while  interest  expense  paid on  Federal  Home Loan Bank  advances
increased by $906,000.

As a result of the  foregoing  discussion,  net  interest  income  increased  by
$1,130,000 to $13,250,000 in 1996 from $12,120,000 in 1995.

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 effect the borrower's  ability to repay
and other factors.  In fiscal 1996,  management  chose not to add to the reserve
based on their assessment as to its adequacy.  The allowance for loan losses was
$1.6 million or .53% of loans  outstanding  at June 30,  1996,  compared to $1.7
million or .59% of loans  outstanding at June 30, 1995.  During fiscal 1995, the
Bank's  provision for loan losses was $100,000.  Net loan  charge-offs have been
$49,054 and $29,427 for fiscal 1996 and 1995, respectively.

Other  income  increased  by  $184,000  during  fiscal 1996 to  $2,648,000.  The
increase  would have been $75,000 or 2.91% if  non-interest  income for the 1995
year had included  income  attributable  to Bullitt from July, 1995 to December,
1995. Gains from the sale of available-for-sale securities were $754,000 in 1996
versus $1,104,000 in 1995.

Other  expense for fiscal 1996  increased by $1,119,000 or 16% from fiscal 1995.
The  increase  would have been  $642,000 or 9.3% if other  expenses for 1995 had
included  expenses  attributable to Bullitt from July,  1995 to December,  1995.
Associate  compensation  and benefits  increased by $242,000 in 1996  (including
Bullitt  costs)  as  compared  to 1995  due to the  addition  of new  associates
required to offer expanded  services to the Bank's  customers.  Office occupancy
and equipment  expenses  increased by $119,000 in 1996 (including Bullitt costs)
as  compared  to 1995  due to  inflationary  increases  in other  occupancy  and
equipment  related  expenses.  All other expenses  increased by $350,000 in 1996
(including  Bullitt  expenses)  as  compared  to 1995 due to  expanded  services
offered to customers, asset growth, and general inflation.


                                       38

<PAGE>

Item 8.     Financial Statements and Supplementary Data


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,  1997  and  1996,  and  the  related  consolidated   statements  of  income,
stockholders'  equity,  and cash flows for each of the three years in the period
ended June 30, 1997. 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 audit.

We conducted our audit 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 audit provides 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, 1997 and 1996, and the
results of its  operations and its cash flows for each of the three years in the
period ended June 30, 1997, in conformity  with  generally  accepted  accounting
principles.


/s/ Whelan, Doerr, Pike & Pawley, PSC


Elizabethtown, Kentucky
August 13, 1997


                                       39

<PAGE>



                       FIRST FEDERAL FINANCIAL CORPORATION
                          OF KENTUCKY AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>


                                                               June 30,
                                                     --------------------------
ASSETS                                                   1997           1996
                                                     -----------    -----------
<S>                                               <C>            <C>    

Cash                                               $   8,694,283  $   8,407,735
Interest bearing deposits                                481,430      7,752,537
Securities (Note 3)
  Securities held-to-maturity                         17,484,427     11,993,796
  Securities available-for-sale
   (Total securities fair value: $22,992,346
    at June 30, 1997; $17,086,603 at June 30, 1996)    5,192,323      4,748,417
Loans receivable, net (Notes 1 and 4)                327,791,495    302,363,297
Real estate owned (Note 1):
  Acquired through foreclosure                           183,569        375,392
  Held for development                                   687,261        505,261
Investment in Federal Home Loan Bank stock             2,777,200      2,589,900
Premises and equipment  (Notes 1 and 5)               10,221,228      9,684,167
Other assets                                             842,656        986,260
Excess of cost over net assets of affiliates
  purchased (Note 2)                                   3,024,481      3,264,553
                                                     ------------   -----------

          TOTAL ASSETS                              $377,380,353   $352,671,315
                                                     ===========    ===========
LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES:
   Savings deposits (Note 6)                        $281,342,174   $264,945,744
   Advances from Federal Home Loan Bank (Note 7)      41,514,194     34,979,079
   Accrued interest payable                              202,982        218,284
   Accounts payable and other liabilities                706,892      1,099,293
   Deferred income taxes (Note 8)                      1,949,361      1,482,470
                                                    -------------   -----------

         TOTAL LIABILITIES                           325,715,603    302,724,870

COMMITMENTS (Note 4)                                       -             -
                                                       
STOCKHOLDERS' EQUITY (Notes 8, 9, and 10):

  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, 4,170,003 shares in 1997 and        
    4,208,490 shares in 1996                          4,170,003       4,208,490
  Additional paid-in capital                          4,330,548       5,466,700
  Retained earnings-substantially restricted         42,193,609      39,509,189
  Net unrealized holding gain on securities
    available-for-sale, net of tax                      970,590         762,066
                                                    -----------    ------------

       TOTAL STOCKHOLDERS' EQUITY                    51,664,750      49,946,445
                                                    -----------    ------------
       TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY  $377,380,353    $352,671,315
                                                    ===========     ===========

                    See notes to consolidated financial statements.
</TABLE>




                                       40

<PAGE>



                       FIRST FEDERAL FINANCIAL CORPORATION
                          OF KENTUCKY AND SUBSIDIARIES

                        CONSOLIDATED STATEMENTS OF INCOME
<TABLE>

                                                                 Year Ended June 30,
                                                         1997           1996         1995
<S>                                                  <C>           <C>           <C>    
INTEREST INCOME:
  Interest on loans                                   $26,944,715   $25,173,320   $21,287,154
  Interest and dividends on investments and deposits    1,837,661     1,752,590     1,348,244
                                                       ----------    ----------    ----------

       Total interest income                           28,782,376    26,925,910    22,635,398
                                                       ----------    ----------    ----------
INTEREST EXPENSE:
  Savings deposits                                     12,069,782    11,875,423     9,621,015
  Federal Home Loan Bank advances                       2,305,725     1,800,194       894,247
                                                       -----------   ----------    -----------

       Total interest expense                          14,375,507    13,675,617    10,515,262
                                                       ----------    ----------    ----------

Net interest income                                    14,406,869    13,250,293    12,120,136
Provision for loan losses                                 200,000        -            100,000
                                                       ----------    ----------    ----------

Net interest income after provision for loan losses    14,206,869    13,250,293    12,020,136

OTHER INCOME:
  Customer service fees on deposit accounts             1,231,149     1,061,102       661,858
  Other income                                            919,943       832,381       697,185
  Gain on sale of investments                             316,927       754,409     1,104,492
                                                       ----------    ----------    ----------

       Total other income                               2,468,019     2,647,892     2,463,535

OTHER EXPENSE:
  Employee compensation and benefits                    3,522,340     3,305,384     2,901,055
  Office occupancy expense and equipment                  899,855       843,969       646,595
  Federal insurance premiums                            2,014,218       586,428       498,454
  Marketing and advertising                               373,117       342,710       278,653
  Outside services and data processing                    600,167       609,906       688,143
  State franchise tax                                     292,880       279,914       240,106
  Other expense                                         1,769,357     1,579,128     1,174,840
                                                       ----------    ----------    ----------

       Total other expense                              9,471,934     7,547,439     6,427,846
                                                       ----------    ----------    ----------

Income before income taxes                              7,202,954     8,350,746     8,055,825
Income taxes (Note 8)                                   2,428,892     2,864,122     2,625,839
                                                       ----------    ----------    ----------

NET INCOME                                            $ 4,774,062   $ 5,486,624   $ 5,429,986
                                                      ===========   ===========   ===========

Net income per share of common stock (Note 9)         $      1.14   $      1.30   $      1.24
                                                      ===========   ===========   ===========           

                    See notes to consolidated financial statements.
</TABLE>

                                       41

<PAGE>





                       FIRST FEDERAL FINANCIAL CORPORATION
                          OF KENTUCKY AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
                                                                                                    Net Unrealized
                                                                                                    Holding Gains
                                Common               Additional                  Employee Stock      on Securities
                                 Stock     Common      Paid-in     Retained     Ownership Trust       Available-
                                 Shares     Stock      Capital     Earnings        Obligation          for-sale         Total
                               --------- ----------  -----------   ----------   ---------------     --------------    ----------

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

BALANCE, July 1, 1994         2,212,247  $2,212,247  $11,048,733  $32,341,597     $(126,349)         $1,643,186      $47,119,414
Net earnings                       -           -           -        5,429,986          -                  -            5,429,986
Principal repayments
  on ESOP loan                     -           -           -           -            126,349               -              126,349
Exercise of stock
  options                        11,038      11,038       97,627       -               -                  -              108,665
Stock tendered as payment
  for options exercised          (1,804)     (1,804)     (53,173)      -               -                  -              (54,977)
Change in unrealized holding
   gains on securities avail-
   able-for-sale, net of tax        -          -           -           -               -                116,878          116,878
Gain realized on the sale
  of securities available-
  for-sale                          -          -           -           -               -               (728,965)        (728,965)
Cash dividends declared             -          -           -       (1,806,112)         -                   -          (1,806,112)
Stock repurchased              (102,583)   (102,583)  (2,898,297)      -               -                   -          (3,000,880)
                               ---------   ---------  ----------  ------------    ----------          ------------     ------------


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
Principal repayments
  on ESOP loan                      -          -           -           -               -                   -               -
Exercise of stock options         8,950       8,950      102,398       -               -                   -             111,348
Stock tendered as payment
  for options exercised          (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
  (Note 9)                    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
Principal repayments
   on ESOP loan                     -          -           -           -                -                  -               -
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
                             ==========   =========    =========  ==========    =============         ==========      ==========


                       See notes to consolidated financial statements.
</TABLE>                                 




                                       42

<PAGE>



                       FIRST FEDERAL FINANCIAL CORPORATION
                          OF KENTUCKY AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>


                                                                 Year Ended June 30,
                                                        1997            1996          1995
                                                   --------------   ------------   ----------
<S>                                                <C>            <C>           <C>    
OPERATING ACTIVITIES:
  Net income                                        $  4,774,062   $  5,486,624  $  5,429,986
  Adjustments to reconcile net income to net
   cash provided by operating activities:
     Provision for loan losses and real estate
      owned                                              200,000         -            100,000
     Provision for depreciation                          550,488        462,621       368,412
     Net change in deferred loan fees and costs          178,756        164,059       159,949
     Federal Home Loan Bank stock dividends             (187,300)      (173,700)     (136,500)
     Amortization of acquired intangible assets          240,072        240,072       120,036
     Amortization of discounts on securities
      held-to-maturity                                  (151,218)      (125,833)      (72,249)
     Gain on sale of investments available-for-sale     (316,927)      (754,409)   (1,104,492)
    (Decrease) increase in interest payable              (15,302)       (30,533)       66,397
     Decrease (increase) in other assets                 143,604         45,245      (418,000)
     Increase in accounts payable and other
      liabilities                                         74,490        507,652        53,297
                                                       -----------   -----------   -----------

Net cash provided by operating activities              5,490,725      5,821,798     4,566,836

INVESTING ACTIVITIES:
  Sales of securities available-for-sale                 455,831        793,308     3,642,085
  Purchases of securities available-for-sale            (221,543)      (495,960)     (142,638)
  Purchases of securities held-to-maturity            (5,993,995)    (5,000,000)         -
  Principal collections on securities held-to-
   maturity                                              654,582      5,499,137       141,652

  Net increase in loans to customers                 (26,451,594)   (19,832,353)  (20,015,742)
  Purchases of premises and equipment                 (1,087,549)      (346,653)     (888,368)
  Sales of real estate acquired in settlement of
   loans                                                 698,405        103,000        31,600
  Increase in real estate held for development          (182,000)       (12,102)      (41,982)
  Acquisition of Bullitt Federal Savings Bank,
   net of cash and cash equivalents acquired                -              -       (9,328,699)
                                                       -----------    ----------   -----------

Net cash used in investing activities                (32,127,863)   (19,291,623   (26,602,092)

FINANCING ACTIVITIES:
  Advances from Federal Home Loan Bank                 6,535,115     13,740,731     2,953,737
  Net increase in customer savings deposits           16,396,430      4,442,692    23,794,301
  Proceeds from stock options exercised                   60,551         28,872        53,688
  Dividends paid                                      (2,089,642)    (1,942,906)   (1,806,112)
  Common stock repurchased                            (1,235,190)      (667,470)   (3,000,880)
  Collection on advance to ESOP                             -           163,677         -
  Advance to ESOP                                        (14,685)          -            -
                                                     ------------    -----------   -----------

Net cash provided by financing activities             19,652,579     15,765,596    21,994,734
                                                     ------------    -----------   -----------

(DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS                                      (6,984,559)     2,295,771       (40,522)

CASH AND CASH EQUIVALENTS, beginning of year          16,160,272     13,864,501    13,905,023
                                                     ------------    -----------   -----------

CASH AND CASH EQUIVALENTS, end of year              $  9,175,713   $ 16,160,272  $ 13,864,501
                                                     ===========    ============  ============


                    See notes to consolidated financial statements.
</TABLE>
                                 


                                       43

<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.


                                       44

<PAGE>








                       FIRST FEDERAL FINANCIAL CORPORATION
                          OF KENTUCKY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   (Continued)




1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)

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 taxes have been  provided on income and expenses
reported for financial  statement purposes in periods which differ from those in
which they are reported for income tax purposes.

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.

                                       45

<PAGE>






                       FIRST FEDERAL FINANCIAL CORPORATION
                          OF KENTUCKY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   (Continued)






1 .SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)

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 Bank 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 1996 and 1995 have been reclassified to
conform to the presentation for 1997.

2.ACQUISITION

On  January 4, 1995,  the Bank  completed  the  acquisition  of Bullitt  Federal
Savings Bank  ("Bullitt")  for cash totaling  $10,614,633.  The  acquisition was
accounted for using the purchase  method of accounting,  and,  accordingly,  the
results of  operations of Bullitt  prior to the  acquisition  date have not been
included in the accompanying  consolidated  statements of income.  The excess of
cost over fair value of tangible net assets acquired was $3,606,805 and is being
amortized over a fifteen year period on a straight-line basis.




                                       46

<PAGE>





                       FIRST FEDERAL FINANCIAL CORPORATION
                          OF KENTUCKY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   (Continued)





3.SECURITIES

The amortized  cost basis and fair values of  securities  are as follows at June
30, 1997:

<TABLE>

                                           Amortized       Gross        Gross
                                              Cost       Unrealized   Unrealized     Fair
                                              Basis        Gains        Losses       Value
<S>                                      <C>            <C>            <C>       <C>    
Securities held-to-maturity:
    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:
    Equity securities                     $ 3,721,730   $1,479,974    $  (9,381)  $ 5,192,323
                                           ==========    =========     =========  ===========

</TABLE>

The amortized  cost basis and fair values of  securities  are as follows at June
30, 1996:


<TABLE>

                                           Amortized       Gross        Gross
                                             Cost        Unrealized   Unrealized      Fair
                                             Basis         Gains        Losses        Value
<S>                                      <C>           <C>          <C>          <C>    
Securities held-to-maturity:  
    U.S. Treasury and agencies           $ 9,225,316   $  228,074   $      -      $  9,453,390
    Mortgage-backed securities             2,768,480      116,316          -         2,884,796
                                         -----------      -------     ----------   -----------

     Total held-to-maturity- securities  $11,993,796   $  344,390   $      -      $ 12,338,186
                                          ==========    =========     ==========    ==========

Securities available-for-sale:
    Equity securities                   $  3,593,771   $1,154,646   $      -      $  4,748,417
                                         ===========    =========     ==========   ===========


</TABLE>





                                       47

<PAGE>



                       FIRST FEDERAL FINANCIAL CORPORATION
                          OF KENTUCKY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   (Continued)





3.SECURITIES - (Continued)


The amortized cost and fair value of debt  securities  held-to-maturity  at June
30, 1997, by contractual maturity, are shown below.
<TABLE>

                                                    Amortized       Market
                                                       Cost         Value
     <S>                                          <C>           <C>  

      Securities held-to-maturity:
        Due in one year or less                   $   735,298    $   745,545
        Due after one year through five years      12,852,113     12,995,450
        Due after five years through ten years      1,748,000      1,829,040
        Mortgage backed securities                  2,149,016      2,229,988
                                                   ----------     ----------

                                                  $17,484,427    $17,800,023
                                                   ==========     ==========
</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>

                                                       1997          1996
                                                     --------      --------
     <S>                                           <C>            <C>    

     Proceeds from sales                             $455,831      $793,308

     Gross realized gains                            $316,927      $754,409

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

     Change in net unrealized holding gains          $632,873      $346,783
</TABLE>


The average cost method was used for  determining the basis of the securities in
computing the realized gains.

Investment  securities  of  $4,126,362  at June 30, 1997 were  pledged to secure
public deposits.





                                       48

<PAGE>



                       FIRST FEDERAL FINANCIAL CORPORATION
                          OF KENTUCKY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   (Continued)


4.LOANS RECEIVABLE

Loans receivable at June 30 are summarized as follows:
<TABLE>

                                                     1997              1996
                                                ------------       ------------
<S>                                             <C>               <C>   
 First mortgage loans (principally conventional):
      Principal balances:
          Secured by one-to-four family
            residences                           $255,454,108      $236,210,054
          Secured by other properties              28,535,596        31,584,126
          Construction loans                       15,444,350        15,766,465
          Accrued interest                            155,995           218,162
                                                 -------------     ------------

                                                  299,590,049       283,778,807

      Less:
        Undisbursed portion of construction
         loans                                      7,097,807        10,156,383
        Interest reserves (90 days or more
         delinquent)                                   45,677            29,724
        Escrow deposits                               683,258           618,445
        Net deferred loan origination fees          2,672,040         2,329,118
                                                  -----------       -----------

             Total first mortgage loans           289,091,267       270,645,137

  Consumer and other loans:
           Automobile                                 338,320           804,929
           Manufactured home                           17,587            49,005
           Home equity                             10,377,025         4,959,476
           Commercial                               4,310,725         4,618,724
           Secured by real estate and other
            consumer loans                         25,252,447        22,895,170

           Accrued interest                           179,157           187,201
                                                   -----------      -----------

                                                   40,475,261        33,514,505
  Less:
         Unearned discounts                            60,521           183,718
                                                  ------------      -----------

             Total consumer and other loans        40,414,740        33,330,787
                                                  ------------     ------------

             Total loans                          329,506,007       303,975,924

             Less allowance for loan losses         1,714,512         1,612,627
                                                   -----------      -----------

                                                 $327,791,495      $302,363,297
                                                  ===========       ===========
</TABLE>

                                       49

<PAGE>







                       FIRST FEDERAL FINANCIAL CORPORATION
                          OF KENTUCKY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   (Continued)

4.  LOANS RECEIVABLE - (Continued)

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,
                                             1997          1996         1995
<S>                                      <C>          <C>          <C>    
Balance, beginning of year                $1,612,627   $1,661,681   $1,406,300
 Provision charged to operations             200,000        -          100,000
    Reserve associated with loans
     acquired in merger                         -           -          184,808
    Charge-offs                             (131,132)     (74,018)     (51,347)
 Recoveries                                   33,017       24,964       21,920
                                           ---------     ---------    ---------

 Balance, end of year                     $1,714,512   $1,612,627   $1,661,681
                                           =========    =========    =========
</TABLE>


On July 1, 1995,  the  Corporation  adopted  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:
<TABLE>
                                                               June 30,
                                                          1997         1996
<S>                                                   <C>          <C>    
Impaired loans with no related allowances              $1,739,000   $2,154,000
Impaired loans with related allowances                      -             -
                                                        ---------    ---------

     Total impaired loans                              $1,739,000   $2,154,000
                                                        =========    =========


                                                         Year Ended June 30,
                                                          1997         1996

Average impaired loans outstanding                     $1,983,000   $1,848,000
Interest income recognized                             $  163,000   $  147,000
Interest income received                               $  163,000   $  147,000
</TABLE>

                                       50

<PAGE>





                       FIRST FEDERAL FINANCIAL CORPORATION
                          OF KENTUCKY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   (Continued)



4.  LOANS RECEIVABLE - (Continued)

At June 30, 1997,  the Bank had loan  commitments of  approximately  $6,239,300,
excluding  undisbursed  portions of loans in process.  Commitments to fund fixed
rate loans  included in the above amount were  $4,584,500  with  interest  rates
ranging  from  7.50% to  9.75%.  The Bank  also had  standby  letters  of credit
totaling  $514,250 and  undisbursed  lines of credit of  $8,805,316  at June 30,
1997.

Non-performing  loans were  $1,540,000 and $1,252,000 at June 30, 1997 and 1996,
respectively.  Interest income in the amount of $60,486 and $35,819 for 1997 and
1996, respectively, would have been recorded on non-performing loans if they had
been performing in accordance with their contractual terms.

5.  PREMISES AND EQUIPMENT

Premises and equipment consist of the following:
<TABLE>

                                                                June 30,
                                                        1997              1996
<S>                                               <C>               <C>    
Land                                               $   816,266       $   816,266
Buildings                                            8,205,723         7,375,643
Furniture, fixtures and equipment                    4,172,502         4,283,618
                                                   -----------       -----------

                                                    13,194,491        12,475,527
Less accumulated depreciation                        2,973,263         2,791,360
                                                   -----------       -----------

                                                   $10,221,228       $ 9,684,167
                                                   ===========       ===========
</TABLE>

On February 23,  1996,  the Bank leased  office  space for its WalMart  location
under a five year operating lease agreement for $2,917 per month with options to
extend the terms of the lease at the end of the original lease period. On August
1, 1996, the Bank leased land under a five-year  operating  lease  agreement for
$2,350 per month.  This lease  contains  options to renew the terms of the lease
for an additional forty-five years. Lease expense during the year ended June 30,
1997 was $65,458. Future minimum commitments under these leases are:
<TABLE>

                    Year Ended
                     June 30,
                     <S>              <C>   

                       1998            $ 63,200
                       1999              63,200
                       2000              63,200
                       2001              51,533
                       2002               2,350
                                        -------
                                       $243,483
                                        =======
</TABLE>

The  above-mentioned  land  lease  is to be the site of a new  Bardstown  branch
location which is currently under  construction.  Total  construction  costs are
estimated  to be  approximately  $1,100,000  of which  $550,000  has been funded
through June 30, 1997.

                                       51

<PAGE>





                       FIRST FEDERAL FINANCIAL CORPORATION
                          OF KENTUCKY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   (Continued)




6.  SAVINGS DEPOSITS

    Deposits at June 30 are summarized as follows:
<TABLE>

                        Weighted-
                      Average Rate              1997                      1996
                      1997   1996        Amount      Percent       Amount      Percent
<S>                  <C>     <C>     <C>             <C>      <C>              <C>

NOW Accounts         1.51%   1.48%   $ 42,952,707    15.27    $ 39,417,737      14.88
Money Market         3.38%   3.33%     10,460,267     3.72      10,269,596       3.88
Passbook Savings     2.65%   2.67%     31,185,601    11.08      31,298,130      11.81
                                       -----------   ------     -----------     ------

                                       84,598,575    30.07      80,985,463      30.57

Certificates of
   Deposit:
0.00% -  4.00%                          1,128,044      .40       1,310,971        .49
4.01% -  6.00%                        143,982,629    51.18     146,026,842      55.12
6.01% -  8.00%                         51,632,926    18.35      36,617,468      13.82
8.01% - 10.00%                              -          -             5,000        -
                                     ------------   ------    ------------     ------

                                      196,743,599    69.93     183,960,281      69.43
                                     ------------   ------     ------------     ------

                                     $281,342,174   100.00    $264,945,744     100.00
                                     ============   ======    ============     ======
</TABLE>

At June 30,  1997,  scheduled  maturities  of  certificates  of  deposit  are as
follows:
<TABLE>

                                         Average
                             Amount       Rate       Percent
<S>                    <C>              <C>          <C>    

 1998                   $116,794,556     5.35%        59.36
 1999                     63,252,227     6.01%        32.15
 2000                     11,428,248     5.69%         5.81
 2001                      4,245,325     5.98%         2.16
Thereafter                 1,023,243     6.02%          .52
                      ---------------                 ------

                     $   196,743,599                 100.00
                      ===============                ======
</TABLE>

The average  interest rate on the savings deposit  portfolio,  computed  without
effect of  compounding  daily  interest,  at June 30, 1997 and 1996 is 4.54% and
4.53%, respectively.

The Bank had  certificates  of deposit  with  balances  of  $100,000  or more of
$43,925,939 and $37,398,782 at June 30, 1997 and 1996, respectively.

                                       52

<PAGE>



                             FIRST FEDERAL FINANCIAL CORPORATION
                                OF KENTUCKY AND SUBSIDIARIES

                         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                         (Continued)



6.SAVINGS DEPOSITS - (Continued)

A summary of interest expense on deposits is as follows:
<TABLE>


                                                   Year Ended June 30,
                                          1997            1996            1995
                                       ---------       ---------       ---------     
<S>                                 <C>             <C>             <C>   
Savings accounts                     $   818,414     $   845,727     $   807,560
Money Market and NOW
 accounts                                874,464         759,117         627,422
Certificates of deposit               10,376,904      10,270,579       8,186,033
                                     -----------     -----------     -----------

                                     $12,069,782     $11,875,423     $ 9,621,015
                                      ==========      ==========       =========
</TABLE>

7.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,
                                          1997                      1996
                                  --------------------     ----------------------     

                                   Weighted-               Weighted-
                                    Average                 Average
                                     Rate       Amount       Rate       Amount
                                  ----------  ----------   --------   -----------
<S>                                <C>      <C>             <C>      <C>    
Short-term borrowings from    
 Federal Home Loan Bank:
  Variable rate advances            5.58%    $40,000,000     5.41%    $30,000,000
Long-term borrowings from
 Federal Home Loan Bank:
  Fixed rate advances                 -           -          5.95%      3,000,000
  Mortgage matched advances
   payable monthly through
   May, 2009 with interest
   rates from 5.30% to 7.80%        6.75%     1,514,194      6.85%      1,979,079
                                            ------------               -----------

Total long-term borrowings                    1,514,194                 4,979,079
                                            ------------               -----------

Total borrowings                            $41,514,194               $34,979,079
                                             ==========                ==========
</TABLE>


                                       53

<PAGE>



                       FIRST FEDERAL FINANCIAL CORPORATION
                          OF KENTUCKY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   (Continued)



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

The aggregate minimum annual  repayments of long-term  borrowings as of June 30,
1997 is as follows:
<TABLE>
                   <S>                            <C>                        
                   1997                           $  102,414
                   1998                              107,710
                   1999                              115,248
                   2000                              123,357
                   2001                              132,036
                   Thereafter                        933,429
                                                   ---------

                                                  $1,514,194
                                                   =========
</TABLE>

8.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.

The effective tax rate is below the statutory rate due to the following:
<TABLE>

                                                        Year Ended June 30,
                            
                                                  1997        1996        1995
                                                 ------      ------      ------
<S>                                               <C>         <C>         <C>

Statutory tax rate                                34.0%       34.0%       34.0%

Increase (reduction) in tax rate from:
  Tax exempt income                               (2.6)       (1.9)       (1.6)
  Purchase accounting                              1.4         1.2         1.5
  Other - net                                       .9         1.0        (1.3)
                                                 ------      ------      ------

                                                  33.7%       34.3%       32.6%
                                                 ======      ======      ======

</TABLE>

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

                                         1997            1996            1995
                                       ---------       ---------       ---------
<S>                                   <C>             <C>             <C>    
Current                               $2,321,803      $2,369,470      $2,460,201
Deferred                                 107,089         494,652         165,638
                                      ----------      ----------      ----------

Total income tax expense              $2,428,892      $2,864,122      $2,625,839
                                      ==========      ==========      ==========
</TABLE>


                                       54

<PAGE>




                       FIRST FEDERAL FINANCIAL CORPORATION
                          OF KENTUCKY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   (Continued)




8.INCOME TAXES - (Continued)

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:
<TABLE>

                                                           1997           1996
                                                       ----------     ----------
<S>                                                    <C>            <C>      
Deferred tax assets:
  Loan fees deferred for financial
   reporting purpose                                   $  344,518     $  459,357
  Accrued liabilities and other                            44,855        182,843
  Assets acquired, purchase price adjustments             251,368        301,124
                                                       ----------     ----------

                                                          640,741        943,324

Deferred tax liabilities:
  Depreciation differences                                705,697        640,062
  Basis difference in real estate                          48,514         44,633
  Difference in bad debt reserve                          842,979        922,480
  Unrealized appreciation on securities
   available-for-sale                                     503,191        392,580
  Basis difference in Federal Home Loan
   Bank stock                                             489,721        426,039
                                                       ----------     ----------

                                                        2,590,102      2,425,794

Net deferred tax liability                             $1,949,361     $1,482,470
                                                       ==========     ==========
</TABLE>


The Bank's  annual  addition  to its  reserve  for bad debts  allowed  under the
Internal Revenue Code may differ significantly from the bad debt experience used
for  financial  statement  purposes.  Such bad debt  deductions  for  income tax
purposes  are  included  in taxable  income of later  years only if the bad debt
reserves are used for purposes  other than to absorb bad debt losses.  Since the
Bank does not  intend  to use the  reserve  for  purposes  other  than to absorb
losses,  no deferred  income taxes have been  provided on the amount of bad debt
reserves for tax purposes that arose in tax years beginning  before December 31,
1987, in accordance with SFAS No. 109. Therefore,  retained earnings at June 30,
1997 includes approximately  $12,100,000,  representing such bad debt deductions
for  which no  deferred  income  taxes  have been  provided.  In  August,  1996,
legislation  was passed by Congress  that  repealed  the  percentage  of taxable
income  bad debt  deduction  and  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.


                                       55

<PAGE>





                       FIRST FEDERAL FINANCIAL CORPORATION
                          OF KENTUCKY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   (Continued)





9.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 $1,916,000 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  may  not  declare  or  pay a cash
          dividend on any of its capital stock if the effect thereof would cause
          the net worth of the Bank to be reduced below the amount  required for
          the  liquidation  account. 

          Additionally,   federal   regulations   limit   dividend  and  capital
          distributions during a calendar year to the greater of: 100 percent of
          the Bank's  current net income  plus the amount  that would  reduce by
          one-half its surplus  capital  ratio at the  beginning of the calendar
          year;   or  75  percent  of  its  net  income  over  the  most  recent
          four-quarter period.

     (c)  Earnings  Per Share - Net income per share of common stock is computed
          by dividing  net income by the  weighted  average  number of shares of
          common  stock  issued and  outstanding  for the period.  Common  stock
          equivalents  have not been  used in  computing  net  income  per share
          because  their effect is not  material.  Net income per share for each
          period  reflects a 2-for-1  common  stock  split in the form of a 100%
          stock dividend distributed on June 10, 1996.

     (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.

                                       56
<PAGE>



                       FIRST FEDERAL FINANCIAL CORPORATION
                          OF KENTUCKY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   (Continued)

9.STOCKHOLDERS' EQUITY - (Continued)

          As of June  30,  1997,  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, 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

             As of June 30, 1996:
               Total risk-based capital (to risk-
                weighted assets)                      $45,639,000  21.4%  $17,045,000  8.0%  $21,306,000  10.0%
               Tier I capital (to risk-weighted
                assets)                               $44,043,000  20.7%  $    n/a     n/a   $12,784,000   6.0%
               Core capital (to adjusted tangible
                assets)                               $44,043,000  12.6%  $10,448,000  3.0%  $17,413,000   5.0%
               Tangible capital (to tangible
                assets)                               $44,043,000  12.6%  $ 5,224,000  1.5%       n/a       n/a
</TABLE>

10.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 1997, 1996
          and 1995 were $56,475, $113,584, and $112,558, respectively.

                                       57

<PAGE>




                       FIRST FEDERAL FINANCIAL CORPORATION
                          OF KENTUCKY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                                   (Continued)




10. EMPLOYEE BENEFIT 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 1997, 1996 and 1995 were $114,939, $103,107 and $99,741,
         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:
<TABLE>

                                                    1997       1996       1995
                                                 --------    --------    ------
                   <S>                            <C>        <C>        <C>    
                   Allocated                      307,595    321,504    362,232
                   Unallocated                       -           860     11,044
                                                 --------    -------    -------

                   Total shares held by ESOP      307,595    322,364    373,276
                                                  =======    =======    =======
</TABLE>


         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, 1997, 1996, and 1995 were $30,000,  $30,000, and $9,244,
         respectively.





                                       58

<PAGE>







                       FIRST FEDERAL FINANCIAL CORPORATION
                          OF KENTUCKY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   (Continued)








10.EMPLOYEE BENEFIT PLANS - (Continued)

    (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,
                                                       1997                   1996                    1995
                                               --------------------   -------------------     ---------------------
                                                          Weighted               Weighted                  Weighted
                                                           Average                Average                   Average
                                              Number of   Exercise    Number of  Exercise     Number of    Exercise
                                               Options      Price      Options      Price      Options       Price
             <S>                                <C>        <C>         <C>         <C>         <C>          <C>
             Outstanding, beginning of year     98,244     $10.49      106,044     $ 9.42      113,120      $ 7.75

             Granted during year                   -          -         10,000      14.25       15,000       15.42

             Exercised during the year         (26,930)      4.44      (17,800)      6.25      (22,076)       4.92
                                               -------                 -------                 -------

             Outstanding, end of year           71,314      12.77       98,244      10.49      106,044        9.42
                                              ========                 =======                 =======

             Eligible for exercise at year
              end                               42,564                  61,244                  69,044
                                               =======                 =======                 =======

             Weighted average fair value of
              options granted during the year  $  n/a                 $   8.88
                                              ========                 =======
</TABLE>







                                       59

<PAGE>





                       FIRST FEDERAL FINANCIAL CORPORATION
                          OF KENTUCKY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   (Continued)






10. 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:
<TABLE>

                                                             Years Ended
                                                               June 30,
                                                         1997            1996
                                                     ----------      ----------
         <S>                                         <C>             <C>    

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

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

</TABLE>

The following table summarizes  information  about stock options  outstanding at
June 30, 1997:
<TABLE>


                                Options Outstanding                     Options Exercisable
 
                                                       Weighted                      Weighted
                                   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            15,564          4.4 years      $ 6.88          15,564         $ 6.88
      $12.50            25,000          6.7            $12.50          20,000         $12.50
  $15.00 to $17.13      30,750          7.3            $15.98           7,000         $15.73
                        ------                                         ------

                        71,314          6.5            $12.77          42,564         $10.97
                        ======                                         ======

</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 10
years.
                                       60

<PAGE>




                       FIRST FEDERAL FINANCIAL CORPORATION
                          OF KENTUCKY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   (Continued)







11. 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:
<TABLE>


                                        1997          1996         1995
                                     ----------    ----------   ----------      
            <S>                     <C>           <C>          <C> 

            Interest expense        $14,390,809   $13,706,150  $10,448,865
                                     ==========    ==========   ==========

            Income taxes            $ 2,482,000   $ 2,370,201  $ 2,560,000
                                     ==========    ==========   ==========
</TABLE>

     (b) Supplemental disclosure of non-cash activities:

<TABLE>
             <S>                   <C>           <C>           <C>    
  
             Transfers from loans
               to real estate
               acquired through
               foreclosure         $   505,579   $   216,484   $      -
                                    ==========     ==========     =========

             Change in unrealized
               gains on securities
               available-for-sale,
               net of tax          $   208,524   $  (269,033)  $  (612,087)
                                    ==========    ===========    ==========
</TABLE>


12. CONSOLIDATING CONDENSED FINANCIAL INFORMATION

      The following  consolidating  condensed financial statements summarize the
     financial  position  and  operating  results  of  First  Federal  Financial
     Corporation of Kentucky and its  subsidiary,  First Federal Savings Bank of
     Elizabethtown,  and the Bank's wholly-owned subsidiary, First Service Corp.
     of Elizabethtown.




                                       61

<PAGE>




                       FIRST FEDERAL FINANCIAL CORPORATION
                          OF KENTUCKY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)


12.CONSOLIDATING CONDENSED FINANCIAL INFORMATION - (Continued)

                      CONSOLIDATING CONDENSED STATEMENTS OF FINANCIAL CONDITION

                                           JUNE 30, 1997
<TABLE>

                                                                   Consolidated                                 Consolidated
                             First                                     First          First                         First
                            Federal                                   Federal        Federal                       Federal
                            Savings     First Service                 Savings       Financial                     Financial
                            Bank of       Corp. of                    Bank of      Corporation                   Corporation
                        Elizabethtown  Elizabethtown  Eliminations Elizabethtown   of Kentucky    Eliminations   of Kentucky
ASSETS
<S>                    <C>               <C>           <C>         <C>            <C>            <C>            <C>
Cash                   $  8,694,283      $ 31,900      $ (31,900)  $  8,694,283   $   51,135     $   (51,135)   $  8,694,283
Interest bearing
 deposits                   362,904          -              -           362,904      118,526          -              481,430
Securities held-to-
 maturity                17,484,427          -              -        17,484,427         -             -           17,484,427
 Securities available-
 for-sale                 4,964,241          -              -         4,964,241      228,082          -            5,192,323
Loans receivable        327,791,495          -              -       327,791,495         -        327,791,495
Real estate owned           183,569       687,261           -           870,830         -             -              870,830
Investment in Federal
 Home Loan Bank stock     2,777,200          -              -         2,777,200         -             -            2,777,200
Premises and equipment   10,221,228          -              -        10,221,228         -             -           10,221,228
Investment in sub-
 sidiary                    697,896          -          (697,896)         -       50,584,319     (50,584,319)          -
Other assets              3,743,961        46,634           -         3,790,595      734,308        (657,766)      3,867,137
                          ----------      -------    -------------- ------------  ----------      ----------     -----------

TOTAL ASSETS           $376,921,204      $765,795      $(729,796   $376,957,203  $51,716,370     $51,293,220    $377,380,353
                        ===========       =======       ========    ===========   ==========      ==========     ===========

LIABILITIES AND
 STOCKHOLDERS' EQUITY
Savings deposits       $281,425,209      $   -         $ (31,900)  $281,393,309   $     -        $   (51,135)   $281,342,174
Federal Home Loan
 Bank Advances           41,514,194          -              -        41,514,194         -             -           41,514,194
Accrued interest
 payable                    202,982          -              -           202,982         -             -              202,982
Accounts payable and
 other liabilities        1,241,950        67,899           -         1,309,849       51,620        (654,577)        706,892
Deferred income taxes     1,952,550          -              -         1,952,550         -             (3,189)      1,949,361
                         ----------       -------        --------    -----------  ------------     -----------   ------------

TOTAL LIABILITIES        26,336,885        67,899        (31,900)   326,372,884       51,620        (708,901)    325,715,603

STOCKHOLDERS'
   EQUITY                50,584,319       697,896       (697,896)    50,584,319   51,664,750     (50,584,319)     51,664,750
                         ----------       -------       --------     -----------  ----------     -----------     -----------

TOTAL LIABILITIES AND
  STOCKHOLDERS'
  EQUITY               $376,921,204      $765,795      $(729,796)  $376,957,203  $51,716,370    $(51,293,220)   $377,380,353
                        ===========       =======       ========    ===========   ==========     ===========     ===========
</TABLE>

                                       62

<PAGE>




                       FIRST FEDERAL FINANCIAL CORPORATION
                          OF KENTUCKY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   (Continued)


12.CONSOLIDATING CONDENSED FINANCIAL INFORMATION - (Continued)


                                   CONSOLIDATING CONDENSED STATEMENTS OF INCOME

                                                YEAR ENDED JUNE 30, 1997
<TABLE>


                                                                 Consolidated                             Consolidated
                           First                                     First        First                      First
                          Federal                                   Federal      Federal                    Federal
                          Savings     First Service                 Savings     Financial                  Financial
                          Bank of       Corp. of                    Bank of    Corporation                Corporation
                       Elizabethtown Elizabethtown Eliminations Elizabethtown  of Kentucky  Eliminations  of Kentucky
<S>                    <C>             <C>         <C>         <C>            <C>          <C>           <C>
Interest and
 dividend income       $ 28,745,961    $   -       $    -      $ 28,745,961   $   57,162    $  (20,746)  $ 28,782,377
Interest expense        (14,396,254)       -            -        (4,396,254)        -           20,746    (14,375,508)
Provision for loan
 losses                    (200,000)       -            -          (200,000)        -           -            (200,000)
                         -----------    -------    --------      -----------   ---------     ---------    -----------

Net interest income
 after provision for
 loan losses             14,149,707        -           -         14,149,707       57,162        -          14,206,869
Equity in earnings of
 subsidiary                  97,259        -        (97,259)          -        4,698,965    (4,698,965)        -
Other income              2,232,911     353,764    (144,000)      2,442,675       25,344        -           2,468,019
Other expense             9,354,755)   (214,135)    144,000      (9,424,890)     (47,044)       -          (9,471,934)
                         -----------   --------    --------     -----------    ---------    ----------    -----------
Income before income
 tax                      7,125,122     139,629     (97,259)      7,167,492    4,734,427    (4,698,965)     7,202,954
Income tax (benefit)      2,426,157      42,370         -         2,468,527      (39,635)       -           2,428,892
                         -----------    --------    --------    -----------    ---------    ----------    -----------

NET INCOME             $  4,698,965   $  97,259   $ (97,259)   $  4,698,965   $4,774,062   $(4,698,965)  $  4,774,062
                         ===========   ========    =========    ===========    =========    ==========    ===========


</TABLE>










                                       63

<PAGE>



                       FIRST FEDERAL FINANCIAL CORPORATION
                          OF KENTUCKY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   (Continued)


13.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
<TABLE>


                                                           June 30,
                                                  1997                 1996
     Assets
<S>                                          <C>                  <C>   
Cash and interest bearing deposits           $   169,661          $   240,042
Investment in subsidiary                      50,584,319           48,670,638
Securities available-for-sale                    228,082              301,400
Other assets                                     734,308              894,685
                                              ----------           ----------

                                             $51,716,370          $50,106,765
                                              ==========           ==========


   Liabilities and Stockholders' Equity


Other liabilities                            $    51,620          $   108,700
Stockholders' equity                          51,664,750           49,998,065
                                              ----------         ------------

                                             $51,716,370          $50,106,765
                                              ==========           ==========
</TABLE>


                         Condensed Statements of Income

<TABLE>

                                                       Year Ended June 30,
                                                 1997           1996          1995
<S>                                         <C>            <C>           <C>    
Interest income                             $   57,162     $   68,183    $  191,312
    Gain on sale of investments                 25,344            -            -
Other expenses                                 (47,044)       (44,731)      (70,593)
                                             ---------       ---------     ---------

Net income before income tax benefit            35,462         23,452       120,719

Income tax benefit                              39,635         20,480         3,856
                                             ----------       ---------    ---------

Income before equity in undistributed
 net income of subsidiaries                     75,097         43,932       124,575


Equity in undistributed net income (excess
 of dividends distributed) of subsidiaries   4,698,965      5,494,311     5,305,411
                                             ---------      ---------     ---------


Net income                                  $4,774,062     $5,538,243    $5,429,986
                                             =========      =========     =========
</TABLE>


                                       64

<PAGE>




                       FIRST FEDERAL FINANCIAL CORPORATION
                          OF KENTUCKY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   (Continued)



13.CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY) - (Continued)

<TABLE>

                                                 Condensed Statements of Cash Flows


                                                          Year Ended June 30,

                                                    1997            1996             1995
                               
<S>                                            <C>             <C>            <C>    
Operating Activities:
  Net income                                   $ 4,774,062     $ 5,538,243     $ 5,429,986
  Adjustments to reconcile net income to
   cash provided by operating activities:
     Earnings from investment in subsidiary     (4,698,965)     (5,494,311)     (5,305,411)
     Gain on sale of investments avail-
      able-for-sale                                (25,344)          -               -
     Decrease (increase) in other assets            51,531        (153,217)        (42,196)
    (Decrease) increase in other
      liabilities                                  (57,080)         37,550          21,150
                                                 ----------     -----------      ----------
Net cash provided (used) by operating
     activities                                     44,204         (71,735)        103,529

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                                    3,029,780       2,851,275       4,660,116
                                                 ----------      ----------      ----------

Net cash provided (used) by investing
   activities                                    3,164,381       2,549,875       4,660,116

Financing Activities:
  Proceeds from stock options exercised             60,551          28,872          53,688
  Dividends paid                                (2,089,642)     (1,942,906)     (1,806,112)
Common stock repurchases                        (1,235,190)       (667,470)     (3,000,880)
  Collection on advance to ESOP                      -             163,677            -
  Advance to ESOP                                  (14,685)          -                -
                                                  ---------      ----------      ----------

Net cash used by financing activities           (3,278,966)     (2,417,827)      (4,753,304)
                                                 ----------      ----------      ----------

Net (decrease) increase in cash                    (70,381)         60,313           10,341

Cash, beginning of year                            240,042         179,729          169,388
                                                 ----------      ----------       ----------

Cash, end of year                              $   169,661     $   240,042      $   179,729
                                                 ==========      ==========       ==========

</TABLE>





                                       65

<PAGE>





                       FIRST FEDERAL FINANCIAL CORPORATION
                          OF KENTUCKY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   (Continued)





14.       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.

         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.








                                       66

<PAGE>




                       FIRST FEDERAL FINANCIAL CORPORATION
                          OF KENTUCKY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   (Continued)





14.      FAIR VALUES OF FINANCIAL INSTRUMENTS - (Continued)

         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, 1997 and 1996.

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

                                                      June 30, 1997                    June 30, 1996
                                             -----------------------------    -----------------------------
                                                Carrying          Fair           Carrying           Fair
                                                  Value           Value            Value            Value
     <S>                                     <C>             <C>              <C>            <C>
     Financial assets:
       Cash and interest bearing deposits    $  9,175,713    $  9,175,000     $ 16,160,272   $   16,160,000
     Investment securities:
       Securities held-to-maturity             17,484,427      17,800,000       11,993,796       12,338,000
       Securities available-for-sale            5,192,323       5,192,000        4,748,417        4,748,000
       Loans, net                             327,791,495     329,094,000      302,363,297      301,502,000
     Financial liabilities:
       Deposits                               281,342,174     283,863,000      264,945,744      267,471,000
       Advances from Federal Home Loan Bank    41,514,194      41,630,000       34,979,079       35,253,000



</TABLE>







                                       67

<PAGE>




                      FIRST FEDERAL FINANCIAL CORPORATION
                          OF KENTUCKY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  (Continued)







15.       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.


16.       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, 1997 and 1996 are outlined in Note 4.










                                       68

<PAGE>






                       FIRST FEDERAL FINANCIAL CORPORATION
                          OF KENTUCKY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   (Continued)






17.      CONTRIBUTIONS

         Effective  July 1,  1995,  the  Bank  adopted  Statement  of  Financial
         Accounting  Standards No. 116,  "Accounting for Contributions  Received
         and Contributions Made", (SFAS 116), on a prospective basis. On May 10,
         1994,  the Bank  pledged  $100,000 to a local  non-profit  organization
         payable over 5 years at $20,000 per year.  As a result,  the  remaining
         pledge  payable of $40,000 has been  accrued  and  included in accounts
         payable and other  liabilities at June 30, 1997 in accordance with SFAS
         116. The  cumulative  effect of this change in accounting  principle is
         properly  reflected  in the  June 30,  1997  balance  of  stockholders'
         equity.  Also,  for purposes of SFAS 107,  the  carrying  amount of the
         pledge approximates the fair value at June 30, 1997.


18.       CONCENTRATION OF CREDIT RISK FOR CASH HELD IN BANK

         The  Corporation  maintains  a  certificate  of  deposit  in  excess of
         $100,000  in  another  financial  institution  which is  insured by the
         Federal Deposit Insurance Corporation up to $100,000. At June 30, 1997,
         the Corporation's uninsured cash balance totaled $18,526.







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
1997 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.

                                       69

<PAGE>



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.


                                       70

<PAGE>



                                     PART IV


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

         1.       Financial Statements Filed

            The following documents are filed as part of this report in
            Part II, Item 8

                  (a)      Report of Independent Certified Public Accountants
                  (b)      Consolidated  Statements of  Financial  Condition at 
                           June 30, 1997 and 1996.
                  (c)      Consolidated  Statements  of  Earnings  for the Years
                           ended June 30, 1997, 1996, and 1995.
                  (d)      Consolidated  Statements of Stockholders'  Equity for
                           the Years ended June 30, 1997, 1996, and 1995.
                  (e)      Consolidated  Statements  of Cash Flows for the Years
                           ended June 30, 1997, 1996, and 1995.
                  (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 & Pawley, PSC, 
                           Certified Public Accountants
                 (27)      Financial Data Schedule

         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.

                                       71

<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: 9/24/97                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:    9/24/97                              Date:  9/24/97


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

Date:    9/24/97                              Date:  9/24/97

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

Date:    9/24/97                              Date:  9/24/97


By:      /s/  Burlyn Pike                     By:    /s/  Van E. Allen
         ---------------------------                 ----------------------
         Burlyn Pike                                 Van E. Allen
         Director                                    Director

Date:    9/24/97                              Date:  9/24/97

By:      /s/  Walter D. Huddleston            By:    /s/  Richard L. Muse
         ---------------------------                 ----------------------
         Walter D. Huddleston                        Richard L. Muse
         Director                                    Comptroller

Date:    9/24/97                              Date:  9/24/97




                                       72

<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 & Pawley, 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.



                                       73

<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.



                                       74

<PAGE>




EXHIBIT 99 - UNDERTAKINGS

(a)      The undersigned Registrant hereby undertakes:

         (1)      To file, during any period in which offers or sales are being
                  made, 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.
                                       75

<PAGE>




                                   EXHIBIT 23





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

The Board of Directors
First Federal Financial Corporation of Kentucky

We consent to the filing of our report dated  August 13,  1997,  relating to the
consolidated  balance sheets of First Federal Financial  Corporation of Kentucky
and  Subsidiaries  as of June  30,  1997  and  1996,  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, 1997, which reports appear
in the June 30,  1997  annual  report  on Form 10-K of First  Federal  Financial
Corporations of Kentucky.



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


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


Elizabethtown, Kentucky  42701
September 24, 1997

                                       76

<PAGE>