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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
______________________________
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE
EXCHANGE ACT
For the transition period from ____________ to ____________
Commission File Number 333-72371
KENTUCKY NATIONAL BANCORP, INC.
- -----------------------------------------------------------------
(Exact name of Small Business Issuer as specified in its Charter)
Indiana 61-1345603
- -------------------------------------------- ------------------
(State or other jurisdiction of organization) (IRS Employer
Identification No.)
1000 North Dixie Avenue, Elizabethtown, Kentucky 42701
- ------------------------------------------------ ----------
(Address of principal executive offices) (Zip code)
Issuer's telephone number, including area code: (270)737-6000
-------------
Check whether the issuer (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act
during the past 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 90 days.
X Yes No
--- ----
As of September 30, 1999, there were 240,000 shares of the
Registrant's common stock, par value $.01 per share, outstanding.
Transitional Small Business Issuer Disclosure Format (check
one):
Yes X No
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KENTUCKY NATIONAL BANCORP, INC.
ELIZABETHTOWN, KENTUCKY
INDEX
PAGE
----
PART I.
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FINANCIAL INFORMATION
Item 1.
Consolidated Statement of Condition as of
September 30, 1999 and December 31, 1998
(Unaudited) 3
Consolidated Statement of Operations - (Unaudited)
for the three months and nine months ended
September 30, 1999 and 1998 4
Consolidated Statement of Cash Flows - (Unaudited)
for the nine months ended September 30, 1999 and 1998 5
Notes to Consolidated Financial Statements (Unaudited) 6
Item 2.
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II.
- -------
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
2
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KENTUCKY NATIONAL BANCORP, INC.
CONSOLIDATED STATEMENT OF CONDITION
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
ASSETS
<S> <C> <C>
Cash and due from banks $ 867,628 $ 924,798
Federal funds sold 1,450,000 -
Investment in Federal Home Loan Bank 162,400 96,900
Investment in Federal Reserve Stock 180,000 180,000
Loans, net 44,768,789 34,200,584
Premises and equipment 2,003,950 1,933,623
Accrued interest receivable and other
assets 492,660 492,711
----------- -----------
Total assets $49,925,427 $37,828,616
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits $42,215,158 $30,512,242
Federal funds purchased - 447,000
Federal Home Loan Bank advances 1,000,000 -
Obligations under capital leases 1,316,899 1,349,196
Accrued interest payable and other
liabilities 389,010 324,491
----------- -----------
Total liabilities 44,921,067 32,632,929
----------- -----------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value;
authorized 1,000,000 shares - -
1999 - Common stock $.01 par value;
authorized, 5,000,000 shares; issued
and outstanding 240,000 shares 2,400 -
1998 - Common stock, $1 par value;
authorized, 1,000,000 shares; issued
and outstanding, 240,000 shares - 240,000
Surplus 5,206,924 5,762,966
Retained deficit (204,964) (807,279)
----------- -----------
Total stockholders' equity 5,004,360 5,195,687
----------- -----------
Commitments and contingent liabilities - -
----------- -----------
Total liabilities and stockholders'
equity $49,925,427 $37,828,616
=========== ===========
</TABLE>
See notes to consolidated financial statements.
3
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KENTUCKY NATIONAL BANCORP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS AND NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
1999 1998 1999 1998
-------- -------- ------- -------
<S> <C> <C> <C> <C>
Interest income:
Loans, including fees $1,033,647 $597,450 $2,813,823 $1,386,193
Securities 2,615 36,171 11,067 92,115
Federal funds sold 6,125 5,400 12,203 7,665
---------- -------- ---------- ----------
Total interest income 1,042,387 639,021 2,837,093 1,485,973
---------- -------- ---------- ----------
Interest expense:
Deposit accounts 316,408 202,692 881,125 407,568
Certificates of deposit over
$100,000 133,751 92,287 385,895 237,559
Interest expense - federal funds 18,127 - 33,965 -
Interest expense - capital lease 33,630 27,740 101,500 64,070
---------- -------- ---------- ----------
Total interest expense 501,916 322,719 1,402,485 709,197
---------- -------- ---------- ----------
Net interest income 540,471 316,302 1,434,608 776,776
Provision for loan losses 67,538 57,619 326,442 191,304
---------- -------- ---------- ----------
Net interest income after
provision for loan losses 472,833 258,683 1,108,166 585,472
---------- -------- ---------- ----------
Other income:
Service charges and fees 71,390 39,819 194,081 109,342
Credit life and accident insurance 5,085 7,221 22,430 33,962
---------- -------- ---------- ----------
76,475 47,040 216,511 143,304
---------- -------- ---------- ----------
Other expenses:
Salaries and employee benefits 192,849 161,768 593,298 452,334
Net occupancy expense 28,370 20,773 88,972 50,190
Advertising 29,339 34,396 91,155 91,685
Data processing 49,517 26,346 123,274 71,030
Postage, telephone and supplies 27,587 11,888 76,364 48,323
Directors fees 19,320 18,900 57,330 57,010
Professional services 47,499 26,260 144,012 130,344
Other operating expenses 77,832 69,142 198,467 152,282
---------- -------- ---------- ----------
472,313 369,473 1,372,872 1,053,198
---------- -------- ---------- ----------
Income (loss) before income taxes
and cumulative effect of accounting
change 76,995 (63,750) (48,195) (324,422)
Income taxes - - - -
---------- -------- ---------- ----------
Net income (loss) before cumulative
effect of accounting change 76,995 (63,750) (48,195) (324,422)
Cumulative effect of accounting
change - - (156,769) -
---------- -------- ---------- ----------
Net income (loss) $ 76,995 $(63,750) $ (204,964) $ (324,422)
========== ======== ========== ==========
Earnings (loss) per share $ .32 $ (.27) $ (.85) $ (1.35)
========== ======== ========== ==========
</TABLE>
See notes to consolidated financial statements.
4
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KENTUCKY NATIONAL BANCORP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------
1999 1998
----------- ----------
<S> <C> <C>
Operating activities:
Net loss $ (204,964) $ (324,422)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Provision for loan losses 326,442 191,304
Provision for depreciation 67,131 30,319
Provision for amortization - 30,938
Incentive stock option plan 13,637 18,488
Cumulative effect of accounting change 156,769 -
Changes in assets and liabilities:
Increase in accrued interest receivable
and other assets (156,718) (233,177)
Increase in accrued interest payable 64,519 209,035
Decrease in due to banks - (631,250)
------------ ------------
Net cash provided (used) by
operating activities 266,816 (708,765)
------------ ------------
Investing activities:
Purchase of Federal Home Loan Bank Stock (65,500) -
Net increase in loans (10,894,647) (19,451,012)
Purchases of premises and equipment (137,458) (167,366)
------------ ------------
Net cash used in investing
activities (11,097,605) (19,618,378)
------------ ------------
Financing activities:
Net increase in deposits 11,702,916 18,475,367
Payments on capital lease obligations (32,297) (29,886)
Net decrease in federal funds purchased (447,000) -
Federal Home Loan Bank advances 1,000,000 -
------------ ------------
Net cash provided by financing
activities 12,223,619 18,445,481
------------ ------------
Net increase (decrease) in cash and cash
equivalents 1,392,830 (1,881,662)
Cash and cash equivalents, beginning of period 924,798 4,353,888
------------ ------------
Cash and cash equivalents, end of period $ 2,317,628 $ 2,472,226
============ ============
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest $ 1,368,867 $ 546,319
============ ============
</TABLE>
NONCASH TRANSACTIONS:
During the nine month period ended September 30, 1998, the Bank
recorded assets and obligations for bank equipment and building
under capital leases in the amount of $205,034 and $783,000,
respectively.
See notes to consolidated financial statements.
5
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KENTUCKY NATIONAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
Kentucky National Bancorp, Inc., (the Company) became the
holding company for Kentucky National Bank (the Bank) on
May 18, 1999, by issuing and exchanging its stock on a
share for share basis for the outstanding stock of the
Bank. The transfer of stock between the entities under
common control was accounted for at historical cost in a
manner similar to a pooling of interests. Accordingly, the
1999 financial statements are presented as if the holding
company formation occurred on January 1, 1999.
The unaudited consolidated financial statements include the
accounts of Kentucky National Bancorp, Inc., and its
subsidiary Kentucky National Bank, for periods presented in
1999 and the accounts of Kentucky National Bank for periods
presented in 1998. All material intercompany balances and
transactions have been eliminated in consolidation.
The accompanying unaudited consolidated financial
statements were prepared in accordance with instructions
for Form 10-QSB and therefore, do not include all
disclosures necessary for a complete presentation of the
statement of financial condition, statement of loss,
statement of stockholders' equity, and statement of cash
flows in conformity with generally accepted accounting
principles. However, all adjustments which are, in the
opinion of management, necessary for the fair presentation
of the interim financial statements have been included.
The statement of income for periods presented is not
necessarily indicative of the results which may be expected
for the entire year.
2. FEDERAL HOME LOAN BANK ADVANCES
Advances from Federal Home Loan Bank of Cincinnati are
payable at maturity, with interest payable monthly, and are
summarized as follows at September 30, 1999 and 1998:
<TABLE>
<CAPTION>
MATURITY RATE 1999 1998
<S> <C> <C> <C> <C>
Short-term borrowings 11/22/99 Variable $1,000,000 $ -
========== =====
</TABLE>
All advances are secured by 100% of the Bank's mortgage
loan portfolio and all FHLB stock.
3. EARNINGS (LOSS) PER SHARE
Earnings (loss) per share has been determined in accordance
with Statements of Financial Accounting Standards No. 128,
"Earnings per Share."
Earnings (loss) per share for the nine month periods ended
September 30, 1999 and 1998 and for the three month periods
ended September 30, 1999 and 1998 have been computed based
on the weighted average number of shares outstanding
throughout the period of 240,000. Diluted earnings (loss)
per share has not been presented as the effect of options
granted at inception to purchase 16,000 shares of common
stock is either immaterial or antidilutive.
<PAGE>
4. NEW ACCOUNTING STANDARDS
In April 1998, Accounting Standards Executive Committee
issued Statement of Position 98-5, "Reporting on the Costs
of Start-up Activities," effective for financial statements
for fiscal years beginning after December 15, 1998. In
accordance with this standard, the Bank expensed on January
1, 1999, unamortized start-up costs in the amount of
$156,769 as a cumulative effect of a change in accounting
principle.
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5. RECLASSIFICATIONS
Certain 1998 amounts have been reclassified to conform with
the 1999 presentation.
7
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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following discussion and analysis is intended to assist in
understanding the financial condition and the results of
operations of the Bank.
FORWARD-LOOKING STATEMENTS
When used in this discussion and elsewhere in this Quarterly
Report on Form 10-QSB, the words or phrases "will likely
result," "are expected to," will continue," "is anticipated,"
"estimate," "project," or similar expressions are intended to
identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. The Company
cautions readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date
made, and advises readers that various factors, including
regional and national economic conditions, substantial
changes in level of market interest rates, credit and other
risks of lending and investment activities and competitive and
regulator factors could affect the Company's financial
performance and could cause the Company's actual results for
future periods to differ materially from those anticipated or
projected.
The Company does not undertake and specifically disclaims any
obligation to update any forward-looking statements to reflect
occurrence of anticipated or unanticipated events or
circumstances after the date of such statements.
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 1999 AND
DECEMBER 31, 1998
Growth trends in loans and deposits continued strong in the
third quarter of 1999. Total assets increased $12.1 million, or
32.0% to $49.9 million at September 30, 1999 compared to $37.8
million at December 31, 1998. The increase in total assets was
primarily attributable to a $10.6 million or 30.9% increase in
the loan portfolio. Also contributing to the increase in assets
was a $1.5 million increase in federal funds sold as the Bank
has sought to increase liquidity before the year 2000.
Funding for the Bank's asset growth came primarily from
increased deposits. At September 30, 1999, deposits totaled
$42.2 million, a $11.7 million, or 38.4%, increase over deposits
at December 31, 1998. During this quarter, the Bank continued
to maintain liquidity through Federal Home Loan Bank (FHLB)
advances in the amount of $1,000,000. These advances are part
of a formal liquidity strategy implemented by the Bank. The
strategy also includes increased deposits through the Bank's
recently opened branch location and internet banking site,
participating existing loans, and the establishment of an
investment securities portfolio to ensure the Bank's liquidity
position.
Stockholders equity decreased to $5 million at September 30,
1999 from $5.2 million at December 31, 1998 as the result of
losses during the first six months of the year. Although the
Bank recorded a profit during the most recent quarter, it was
not sufficient to offset earlier losses. The Bank continues to
be in compliance with all applicable regulatory capital
requirements as well as the requirement imposed by the Federal
Deposit Insurance Corporation that it maintain Tier I Capital
equal to 8% of assets for the first three years of operations.
<PAGE>
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE THREE AND NINE
MONTH PERIODS ENDED SEPTEMBER 30, 1999 AND 1998
NET INCOME (LOSS). Net income for the quarter ended September
30, 1999 was $77,000 or $.32 per share compared to a net loss of
$(63,800) or $(.27) for the same period last year, an increase
of $140,800 or $.59 per share. Earnings improved for the
quarter largely as a result of the increase in net interest
8
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income from Bank growth relative to a small increase in other
expenses. The year to date loss at September 30, 1999 was
$(205,000) or $(.85) per share compared to a net loss of
$(324,400) or $(1.35) per share for the same period in 1998.
The decrease of the net loss for the nine months ended September
30, 1999 in comparison to the nine months ended September 30,
1998, is the result of the Bank's net income position for the
quarters ended June 30, and September 30, 1999 enabling the Bank
to recover from the first quarter additional loan loss provision
of $120,000 for a specific charge off and the implementation of
SOP 98-5, "Reporting on the Costs of Start-up Activities,"
effective for financial statements for fiscal years beginning
after December 15, 1998. Implementation of this standard
required an expense of previously capitalized start-up costs in
the amount of $156,800, which was reported as a cumulative
effect of a change in accounting principle.
NET INTEREST INCOME. Net interest income continues to improve
at $540,500 and $316,300, for the quarters ended September 30,
1999 and 1998, respectively. Year to date net interest income
was $1.4 million and $776,800 for the nine months ended
September 30, 1999 and 1998, respectively. The increase of
$224,200 or 71% for the quarter ended September 30, 1999 and the
year to date increase of $623,200 or 80% for the nine months
ended September 30, 1999 reflects the significant growth in
loans and deposits from September 30, 1998 to September 30,
1999. Management expects that the level of net interest income
will continue to improve as the loan portfolio grows.
PROVISION FOR LOAN LOSSES. The provision for loan losses was
$67,600 and $57,600 for the quarters ended September 30, 1999
and 1998, respectively. The increase of $10,000 is relative to
the increase in loans for the quarter. The year to date
provision for loan losses was $326,400 and $191,300 for the nine
months ended September 30, 1999 and 1998, respectively. The
year to date increase of $135,100 was primarily due to a
specific charge off in the amount of $120,000 during the first
quarter of 1999. At September 30, 1999, the Bank's allowance
for loan losses was $507,000, or 1.2% of the gross loan
portfolio.
OTHER INCOME. Other income was $76,500 and $47,000 for the
quarters ended September 30, 1999 and 1998, respectively. Year
to date other income was $216,500 and $143,300 for the nine
months ended September 30, 1999 and 1998, respectively. The
increase for the quarter of $29,500 or 62.8% and the year to
date increase of $73,200 or 51% is reflective of loan and
deposit growth from which other income of service charges and
fees are generated.
OTHER EXPENSE. Other expense was $472,300 and $369,500 for the
quarters ended September 30, 1999 and 1998, respectively. Year
to date other expense was $1,372,900 and $1,053,200 for the nine
months ended September 30, 1999 and 1998, respectively. The
increase for the quarter of $102,800 or 27.8% and the year to
date increase of $319,700 or 30% was due primarily to the
increases in salaries and employee benefits of $31,100 for the
quarter and $141,000 year to date. The growth in salaries and
benefits is due to Bank growth and the addition of the branch
location in December 1998. Other significant factors included
increases in data processing of $23,200 for the quarter and
$52,200 for the year to date, increases in net occupancy expense
of $7,600 for the quarter and $38,800 year to date, increases in
postage, telephone and supplies of $15,700 for the quarter and
$28,000 for the year to date, and increases in other operating
expenses of $8,700 for the quarter and $46,200 year to date.
Increases in these factors were primarily due to the addition of
the branch location.
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LIQUIDITY AND CAPITAL RESOURCES.
The Company currently has no operating business other than the
Bank and does not have material funding needs. In the future,
the Company may require funds for dividends and tax payments for
which it will rely on dividends and other distributions from the
Bank. The Bank is subject to various regulatory restrictions on
the payment of dividends.
9
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The Bank's sources of funds for lending activities and
operations are deposits from its primary market area, funds
raised in its initial public offering, principal and interest
payments on loans, interest received on other investments and
federal funds purchased. The Bank is also eligible to borrow
from the FHLB of Cincinnati. Its principal funding commitments
are for the origination of loans, the payment of maturing
deposits and obligations under capital leases for buildings and
equipment. Deposits are considered a primary source of funds
supporting the Bank's lending and investment activities.
At September 30, 1999, the Bank's ratio of loans to deposits was
106% compared to 112.1% at December 31, 1998. The loan-to
deposit ratio is used as an indicator of a bank's ability to
originate additional loans and general liquidity. The Bank's
comparatively high loan-to-deposit ratio reflects management's
emphasis on building the loan portfolio and has been possible
because the Bank has funded a significant portion of its loan
growth with capital raised in its initial public offering.
Because the Bank's continued loan growth will depend on deposit
growth, management expects to place more emphasis on building
liquidity on the balance sheet and that the loan-to-deposit
ratio will decline. The Bank's strategies in this regard
include the sale of participations in loans and the creation of
an investment securities portfolio that can be used as a source
of liquidity and earnings.
The Bank's most liquid assets are cash and cash equivalents,
which are cash on hand, amounts due from financial institutions,
federal funds sold and money market mutual funds. The levels of
such assets are dependent on the Bank's operating financing and
investment activities at any given time. The variations in
levels of cash and cash equivalents are influenced by deposit
flows and anticipated future deposit flows.
Cash and cash equivalents (cash due from banks, interest-bearing
deposits in other financial institutions, and federal funds
sold), as of September 30, 1999, totaled $2.3 million compared
to $2.5 million at September 30, 1998. The Bank's cash flows
were provided mainly by financing activities, including $11.7
million from net deposit increases. Operating activities
provided $266,800 in cash for the nine months ended September
30, 1999 compared to using $708,800 in cash in the first nine
months of 1998. The Bank used cash flows for its investing
activities primarily to fund an increase in gross loans of $10.9
million.
As a national bank, the Bank is subject to regulatory capital
requirements of the Office of the Comptroller of the Currency
("OCC"). In order to be well capitalized under OCC regulations,
the Bank must maintain a leverage ratio of Tier I Capital to
average assets of at lease 5% and ratios of Tier I and total
capital to risk-weighted assets of at least 6% and 10%
respectively. In addition, as a condition to the approval of
the insurance of its deposits, the FDIC required the Bank to
maintain a ratio of Tier I capital to assets of at least 8% for
the first three years of operations. At September 30, 1999, the
Bank satisfied the capital requirements for classification as
well as capitalized under OCC regulations and was in compliance
with the condition imposed by the FDIC in connection with the
insurance of its deposits.
YEAR 2000 READINESS DISCLOSURE.
Like most financial services companies, the Bank relies heavily
on computers and other information technology systems. As the
year 2000 approaches, an important business issue has emerged
regarding how existing application software programs and
operating systems can accommodate this date value. For many
years, software applications routinely conserved magnetic
storage space by using only two digits to record calendar years;
for example, the year 1999 is stored as "99". On January 1,
2000, the calendars in many software applications will change
from "99" to "00". Many of these software applications, in
their current form, will produce erroneous results or will fail
to run at all since their logic cannot deal with this
transaction.
10
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The Bank's Year 2000 plan calls for the identification of all
systems that could be affected by Year 2000 problem, the
systematic assessment of their Year 2000 readiness and
appropriate remedial measures and contingency planning,
including liquidity planning. As part of its Year 2000 plan,
the Bank has ranked its various computer systems according to
their importance to the continued functioning of the Bank.
Assessment procedures range from actual testing for the Bank's
most mission critical systems to seeking written self
assessments from individual customers. Based on these
assessments, the Bank has undertaken appropriate remedial
measures. The Bank's Year 2000 plan includes contingency and
back-up plans for mission critical systems.
The Bank has identified its most mission critical systems as its
on-line core account processing which is performed by a third
party service provider. This service provider has advised the
Bank that it is Year 2000 compliant and has successfully done
testing with a number of its other customers. The service
provider tested the Bank's equipment and links during the fourth
quarter of 1998 and found them to be Year 2000 compliant. The
Bank has developed a contingency plan for back-up data
processing with another provider in the event its current data
processor in unable to operate because of Year 2000 problems.
The Bank also uses personal computers and a variety of other
software packages in other facets of its day-to-day operations.
These systems were all purchased just before the Bank opened in
October 1997 and were selected in part based on their millennium
compliance. Management believes that it has also identified all
the equipment which relies on embedded computer chips to operate
and has received correspondence from the vendors indicating that
they are Year 2000 compliant. In addition to the risks posed by
the Year 2000 readiness of its internal system, the Bank
recognizes that the Bank is exposed to Year 2000 risks from its
customers. The Bank surveyed its larger loan customers
regarding their Year 2000 readiness and is working
to increase their awareness of the problem. The Bank does not
believe that the costs associated with its Year 2000 planning
will have a material impact on its results of operations.
Based on its testing and preparation, management does not
currently believe that the Bank's mission-critical systems are
vulnerable to the Year 2000 problem or that the century date
change will materially disrupt internal operations.
Accordingly, management believes that the Bank's most
significant internal risk from the Year 2000 problem is either
that Year 2000 problems will affect the ability of some loan
customers to make payments on a timely basis or that problems
will occur in less critical systems. Management believes that
the Bank's most significant risk from the Year 2000 problem is
that the Year 2000 failures of others will cause an interruption
of basic services such as electrical power, telecommunications
or government services. Although the Bank has received
assurances of Year 2000 compliance from most of these
providers, there can be no assurance that Year 2000 failures on
the part of these parties will not have a material adverse
effect on the Bank.
RECENTLY ENACTED LEGISLATION
On November 12, 1999, President Clinton signed legislation
which could have a far-reaching impact on the financial services
industry. The Gramm-Leach-Bliley ("G-L-B") Act authorizes
affiliations between banking, securities and insurance firms and
authorizes bank holding companies and national banks to engage
in a variety of new financial activities. Under the G-L-B Act,
any bank holding company whose depository institution
subsidiaries have satisfactory Community Reinvestment Act ("CRA")
records may elect to become a financial holding company if it
certifies to the Federal Reserve Board that all of its
depository institution subsidiaries are well-capitalized and
well-managed. Financial holding companies may engage in any
activity that the Federal Reserve Board, after consultation with
the Secretary of the Treasury, determines to be financial in
nature or incidental to a financial activity. Financial holding
companies may also engage in activities that are complementary
to financial activities and do not pose a substantial risk to
the safety and soundness of their depository institution
subsidiaries or the financial system generally. The G-L-B Act
specifies that activities that are financial in nature include
lending and investing activities, insurance and annuity
underwriting and brokerage, financial, investment and economic
advice, selling interests in pooled investment
11
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vehicles, securities underwriting, engaging in activities
currently permitted to bank holding companies (including
activities in which bank holding companies may currently engage
outside the United States) and merchant banking through a
securities or insurance underwriting affiliate. The Federal
Reserve Board, in consultation with the Department of Treasury,
may approve additional financial activities.
The G-L-B Act permits well capitalized and well managed
national banks with satisfactory CRA records to invest in
financial subsidiaries that engage in activities that are
financial in nature (or incidental thereto) on an agency basis.
National banks that are among the 50 largest insured banks and
have at least one issue of investment grade debt outstanding may
invest in financial subsidiaries that engage in activities as
principal other than insurance underwriting, real estate
development or merchant banking. All national banks are given
the authority to underwrite municipal revenue bonds. The
aggregate total consolidated assets of a national bank's
financial subsidiaries may not exceed the lesser of 45% of the
bank's total consolidated assets or $50 billion. A national
bank would be required to deduct its investments in financial
subsidiaries from its regulatory capital. National banks must
also adopt procedures for protecting the bank against risks
associated with the financial subsidiary and to preserve the
separate corporate identity of the financial subsidiary.
Financial subsidiaries of state and national banks (which
include any subsidiary engaged in an activity not permitted to a
national bank directly) would be treated as affiliates for
purposes of the limitations on aggregate transactions with
affiliates in Sections 23A and 23B of the Federal Reserve Act
and for purposes of the anti-tying restrictions of the Bank
Holding Company Act. State-chartered banks would be prohibited
from investing in financial subsidiaries unless they would be
well capitalized after deducting the amount of their investment
from capital and observe the other safeguards applicable to
national banks.
The G-L-B Act imposes functional regulation on bank
securities and insurance activities. Banks will only be exempt
from SEC regulation as securities brokers if they limit their
activities to those described in the G-L-B Act. Banks that
advise mutual funds will be subject to the same SEC regulation
as other investment advisors. Bank common trust funds will be
regulated as mutual funds if they are advertised or offered for
sale to the general public. National banks and their
subsidiaries will be prohibited from underwriting insurance
products other than those which they were lawfully underwriting
as of January 1, 1999 and are prohibited from underwriting title
insurance or tax-free annuities. National banks may only sell
title insurance in states in which state-chartered banks are
authorized to sell title insurance. The G-L-B Act directs the
federal banking agencies to promulgate regulations governing
sales practices in connection with permissible bank sales of
insurance.
The G-L-B Act imposes new requirements on financial
institutions with respect to customer privacy. The G-L-B Act
generally prohibits disclosure of customer information to non-
affiliated third parties unless the customer has been given the
opportunity to object and has not objected to such disclosure.
Financial institutions are further required to disclose their
privacy policies to customers annually. Financial institutions,
however, will be required to comply with state law if it is more
protective of customer privacy than the G-L-B Act. The G-L-B Act
directs the federal banking agencies, the National Credit Union
Administration, the Secretary of the Treasury, the Securities
and Exchange Commission and the Federal Trade Commission, after
consultation with the National Association of Insurance
Commissioners, to promulgate implementing regulations within six
months of enactment. The privacy provisions will become
effective six months thereafter.
12
<PAGE>
<PAGE>
The G-L-B Act contains significant revisions to the
Federal Home Loan Bank System. The G-L-B Act imposes new
capital requirements on the Federal Home Loan Banks and
authorizes them to issue two classes of stock with differing
dividend rates and redemption requirements. The G-L-B Act
deletes the current requirement that the Federal Home Loan Banks
annually contribute $300 million to pay interest on certain
government obligations in favor of a 20% of net earnings
formula. The G-L-B Act expands the permissible uses of Federal
Home Loan Bank advances by community financial institutions
(under $500 million in assets) to include funding loans to small
businesses, small farms and small agri-businesses. The G-L-B
Act makes membership in the Federal Home Loan Bank System
voluntary for federal savings associations.
The G-L-B Act contains a variety of other provisions
including a prohibition against ATM surcharges unless the
customer has first been provided notice of the imposition and
amount of the fee. The G-L-B Act reduces the frequency of CRA
examinations for smaller institutions and imposes certain
reporting requirements on depository institutions that make
payments to non-governmental entities in connection with the
CRA.
13
<PAGE>
<PAGE>
Part II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) The following exhibits are being filed with this
quarterly report on Form 10-QSB:
Number Description
------ -----------
27 Financial Data Schedule (EDGAR Only)
(b) During the quarter ended September 30, 1999, the
Company did not file any current reports on Form 8-K.
14
<PAGE>
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
KENTUCKY NATIONAL BANCORP, INC.
Date: November 15, 1999 By:/s/ Ronald J. Pence
__________________________
Ronald J. Pence, President
(Duly Authorized Represen-
tative and Principal
Financial Officer)
15
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 867,628
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 1,450,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
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<ALLOWANCE> (507,318)
<TOTAL-ASSETS> 49,925,427
<DEPOSITS> 42,215,158
<SHORT-TERM> 1,000,000
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<LONG-TERM> 0
0
0
<COMMON> 2,400
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<LOAN-LOSSES> 326,442
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,372,872
<INCOME-PRETAX> (48,195)
<INCOME-PRE-EXTRAORDINARY> (48,195)
<EXTRAORDINARY> 0
<CHANGES> (156,769)
<NET-INCOME> (204,964)
<EPS-BASIC> (0.85)
<EPS-DILUTED> (0.85)
<YIELD-ACTUAL> 9.06
<LOANS-NON> 96,090
<LOANS-PAST> 543
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