<PAGE>
<PAGE>
UNITED STATES
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 MARCH 31, 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 Applied For
- ------------------------------- --------------------
(State or other jurisdiction of (IRS Employer
orgaization) Identification No.)
1000 North Dixie Avenue, Elizabethtown, Kentucky 42701
- ------------------------------------------------ ----------
(Address of principal executive offices) (Zip code)
Issuer's telephone number, including area code: (502)737-6000
-------------
Check whether the issuer (1) filed all reports required to
be filed by Section 13 or 15(d) of the 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.
Yes X No
___ ___
As of March 31, 1999, there were no shares of the issuer's
common stock, par value $.01 per share, outstanding.
Transitional Small Business Issuer Disclosure Format (check
one):
Yes X No
___ ___
NOTE: Kentucky National Bancorp, Inc. (the "Company") was
incorporated on February 5, 1999 for the purpose of becoming the
bank holding company for Kentucky National Bank (the "Bank")
pursuant to an Agreement and Plan of Reorganization by and among
the Company, the Bank and Kentucky National Interim Bank (the
"Plan of Reorganization"). The Company's Registration Statement
on Form S-4 was declared effective on March 19, 1999. The Plan
of Reorganization was approved by the Bank's stockholders on
April 27, 1999 and is currently expected to be consummated on or
about May 18, 1999. As of March 31, 1999, however, the Company
had no assets. Accordingly, the financial statements contained
in this Quarterly Report on Form 10-QSB consist of the financial
statements of the Company's proposed subsidiary, the Bank.
<PAGE>
<PAGE>
KENTUCKY NATIONAL BANCORP, INC.
Index
Page
PART I.
FINANCIAL INFORMATION
Item 1.
Statement of Condition as of March 31, 1999 and
December 31, 1998 (Unaudited) 3
Statement of Loss - (Unaudited) for the three months
ended March 31, 1999 and 1998 4
Statements of Stockholders' Equity (Unaudited) 5
Statement of Cash Flows - (Unaudited) for the three
months ended March 31, 1999 and 1998 6
Notes to Financial Statements (Unaudited) 7
Item 2.
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II.
OTHER INFORMATION
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
2<PAGE>
<PAGE>
KENTUCKY NATIONAL BANK
STATEMENT OF CONDITION
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
-------- ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 838,430 $ 924,798
Investment in Federal Home Loan Bank 159,800 96,900
Investment in Federal Reserve Stock 180,000 180,000
Loans, net 39,231,571 34,200,584
Premises and equipment 2,008,110 1,933,623
Accrued interest receivable and other
assets 339,696 492,711
----------- -----------
Total assets $42,757,607 $37,828,616
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits $35,796,747 $30,512,242
Federal funds purchased 401,000 447,000
Obligations under capital leases 1,338,601 1,349,196
Accrued interest payable and other
liabilities 358,023 324,491
----------- -----------
Total liabilities 37,894,371 32,632,929
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, $1 par value; authorized,
1,000,000 shares; issued and outstand-
ing, 240,000 shares 240,000 240,000
Surplus 5,766,203 5,762,966
Retained deficit (1,142,967) (807,279)
----------- -----------
Total stockholders' equity 4,863,236 5,195,687
----------- -----------
Commitments and contingent liabilities - -
Total liabilities and stockholders'
equity $42,757,607 $37,828,616
=========== ===========
</TABLE>
See notes to financial statements.
3<PAGE>
<PAGE>
KENTUCKY NATIONAL BANK
STATEMENT OF LOSS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
1999 1998
---------- -----------
<S> <C> <C>
Interest income:
Loans, including fees $ 832,502 $ 308,860
Securities 3,052 -
Federal funds sold 4,806 28,251
----------- -----------
Total interest income 840,360 337,111
----------- -----------
Interest expense:
Deposit accounts 273,469 62,837
Certificates of deposit over $100,000 121,209 61,703
Interest expense - federal funds 4,396 -
Interest expense - capital lease 34,004 -
----------- -----------
Total interest expense 433,078 124,540
----------- -----------
Net interest income 407,282 212,571
Provision for loan losses 175,570 100,000
----------- -----------
Net interest income after provision
for loan losses 231,712 112,571
----------- -----------
Other income:
Service charges and fees 56,322 21,635
Credit life and accident insurance 5,123 9,006
----------- -----------
61,445 30,641
----------- -----------
Other expenses:
Salaries and employee benefits 198,610 111,906
Net occupancy expense 28,780 6,744
Advertising 33,932 35,669
Data processing 48,589 25,788
Postage, telephone and supplies 27,341 22,918
Directors fees 18,900 19,000
Professional services 56,054 40,128
Other operating expenses 59,870 27,650
----------- -----------
472,076 289,803
----------- -----------
Loss before income taxes and cumulative
effect of accounting change (178,919) (146,591)
Income taxes - -
----------- -----------
Net loss before cumulative effect of
accounting change (178,919) (146,591)
Cumulative effect of accounting change (156,769) -
----------- -----------
Net loss $ (335,688) $ (146,591)
=========== ===========
Earnings (loss) per share $ (1.40) $ (.61)
=========== ===========
</TABLE>
See notes to financial statements.
4
<PAGE>
KENTUCKY NATIONAL BANK
STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK
--------------- RETAINED
SHARES AMOUNT SURPLUS DEFICIT TOTAL
------ ------ ------- -------- -----
<S> <C> <C> <C> <C> <C>
Balance,
December 31, 1998 240,000 $240,000 $5,762,966 $ (807,279) $5,195,687
Incentive stock
option plan - - 3,237 - 3,237
Net loss - - - (335,688) (335,688)
------- -------- ---------- ----------- ----------
Balance,
March 31, 1999 240,000 $240,000 $5,766,203 $(1,142,967) $4,863,236
======= ======== ========== =========== ==========
</TABLE>
See notes to financial statements.
5<PAGE>
<PAGE>
KENTUCKY NATIONAL BANK
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
1999 1998
---------- -----------
<S> <C> <C>
Operating activities:
Net loss $ (335,688) $ (151,290)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Provision for loan losses 175,570 100,000
Provision for depreciation 22,951 6,940
Provision for amortization - 10,313
Incentive stock option plan 3,237 9,533
Cumulative effect of accounting change 156,769 -
Changes in assets and liabilities:
Increase in accrued interest receivable
and other assets (3,754) (76,593)
Increase in accrued interest payable 33,532 71,392
Decrease in due to banks - (631,250)
----------- -----------
Net cash provided (used) by
operating activities 52,617 (660,955)
----------- -----------
Investing activities:
Purchase of Federal Home Loan Bank Stock (62,900) -
Net increase in loans (5,206,557) (9,455,545)
Purchases of premises and equipment (97,438) (18,172)
----------- -----------
Net cash used in investing
activities (5,366,895) (9,473,717)
----------- -----------
Financing activities:
Net increase in deposits 5,284,505 7,467,142
Payments on capital lease obligations (10,595) (11,508)
Net decrease in federal funds purchased (46,000) -
----------- -----------
Net cash provided by financing
activities 5,227,910 7,455,634
----------- -----------
Net decrease in cash and cash
equivalents (86,368) (2,679,038)
----------- -----------
Cash and cash equivalents, beginning of
period 924,798 4,353,888
----------- -----------
Cash and cash equivalents, end of period $ 838,430 $ 1,674,850
=========== ===========
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest $ 424,913 $ 215,925
=========== ===========
</TABLE>
NONCASH TRANSACTIONS:
During the period ended March 31, 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 financial statements.
6
<PAGE>
KENTUCKY NATIONAL BANK
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited 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. 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 three month periods ended
March 31, 1998 and March 31, 1999 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 antidilutive.
3. 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, previously capitalized start-up costs in the
amount of $156,769 as a cumulative effect of a change in
accounting principle.
4. RECLASSIFICATIONS
Certain 1998 amounts have been reclassified to conform with
the 1999 presentation.
7<PAGE>
<PAGE>
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 Bank
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 levels of market interest rates, credit and other risks
of lending and investment activities and competitive and
regulatory factors could affect the Bank's financial performance
and could cause the Bank's actual results for future periods to
differ materially from those anticipated or projected.
The Bank 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 MARCH 31, 1999 AND DECEMBER
31, 1998
The Bank has continued to experience strong asset growth.
During the first quarter, total assets increased by $4.9
million, or 13%, as the Bank continued to build its loan
portfolio which grew $5.0 million, or 15%. Funding for loan
growth has continued to come from deposits which increased $5.3
million, or 17%, during the quarter. As the Bank is expected to
continue its growth trend, management is currently exploring
alternative sources of funding to meet liquidity needs and is
formalizing a strategy to ensure future liquidity. This
strategy includes use of short-term and long-term Federal Home
Loan Bank advances, increased deposits through the Bank's
recently opened branch location and internet banking site, and
the establishment of an investment securities portfolio. During
the quarter, stockholders' equity declined $332,000, or 6.4%,
due to an increase in the retained deficit from $807,000 to $1.1
million as the result of operating 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 1 Capital
equal to 8% of assets for the first three years of operations.
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE THREE MONTH
PERIODS ENDED MARCH 31, 1999 AND 1998
NET LOSS. Net loss for the three month periods ended March 31,
1999 and 1998 was approximately $335,700 and $146,600,
respectively. Basic(loss) per share for the three months ended
March 31, 1999 and 1998 was $(1.40) and $(.61), respectively.
8<PAGE>
<PAGE>
The increase in the net loss for the quarter ended March 31,
1999 in comparison to the quarter ended March 31, 1998, resulted
primarily from 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.
In implementing this standard, the Bank was required to expense
previously capitalized start-up costs in the amount of
approximately $156,800. In accordance with SOP 98-5, the Bank
reported this adjustment as a cumulative effect of a change in
accounting principle. In addition, as discussed below, the
increase in net loss before cumulative effect of accounting
change reflects an increase in the provision for loan losses
that was required due to a specific charge off of $120,000 and a
$182,000 increase in other expense which were attributable to
the expansion of the Bank's operations. These expenses offset a
93% increase in combined net interest income and other income.
NET INTEREST INCOME. Net interest income was $407,300 and
$212,600 for the periods ended March 31, 1999 and 1998,
respectively. The increase of $194,700 or 92% reflects the
significant growth in both loans and deposits from March 31,
1998 to March 31, 1999. As a result of the Bank's growth and
expected continued growth, the results of the current period are
not necessarily indicative of future operating results.
PROVISION FOR LOAN LOSSES. The provision for loan losses for the
three month period ended March 31, 1999, was $175,570 compared
to $100,000 during the three month period ended March 31, 1998.
The increase in the provision for loan losses during the first
quarter of 1999 was necessary due to a specific charge-off in
the amount of $120,000.
OTHER INCOME. Other income was $61,400 and $30,600 for the
periods ended March 31, 1999 and 1998, respectively. The
increase of $30,800 or 101% was related to loan growth from
which the other income of service charges, fees and credit life
and accident insurance commissions are generated.
OTHER EXPENSES. Other expenses increased from $289,800 for the
period ended March 31, 1998 to $472,100 for the period ended
March 31, 1999. The increase of $182,300 is due primarily to
additional salaries and employee benefits in the amount of
$86,700, resulting from increased personnel related to Bank
growth and the addition of the branch location at the end of
December 1998. Other significant factors include an increase of
$22,000 in net occupancy expense and an increase in data
processing fees of $22,800, resulting primarily from the
addition of the branch location in December 1998. In addition,
other operating expenses increased $32,200, primarily due to the
addition of the branch location.
LIQUIDITY AND CAPITAL RESOURCES
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 March 31, 1999, the Bank's ratio of loans to deposits was
109.6% compared to 112.1% at December 31, 1998. The
loan-to-deposit ratio is used 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 source
of liquidity and earnings.
9<PAGE>
<PAGE>
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 March 31, 1999, totaled $838,430 compared to
$1.7 million at March 31, 1998. The Bank's cash flows were
provided mainly by financing activities including $5.2 million
from deposit increases. Operating activities provided $53,000
in cash for the quarter ended March 31, 1999 compared to using
$661,000 in cash in the first quarter of 1998. The Bank used
cash flows for its investing activities primarily to fund an
increase in gross loans of $5.2 million.
As a national bank, the Bank is subject to the 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 1
Capital to average assets of at least 5% and ratios of Tier 1
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 1 capital to assets of at least 8% for
the first three years of operations. At March 31, 1999, the
Bank satisfied the capital requirements for classification as
well 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. Form 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.
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
10<PAGE>
<PAGE>
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.
Most of the Bank's loan customers are individuals and small
businesses which are not technologically intensive. The Bank
has surveyed its loan customers and believes that most of its
commercial loan customers will continue to operate even if a
Year 2000 problem disrupts their data processing functions. The
Bank 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.
11<PAGE>
<PAGE>
PART II
OTHER INFORMATION
ITEM 5. OTHER INFORMATION
-----------------
On May 12, 1999, Kentucky National Bank (the
"Registrant"), with the approval of the Board of
Directors, dismissed the Registrant's independent
public auditors, Whelan, Doerr & Company, PSC ("Whelan
Doerr"), and engaged York, Neel & Co.- Owensboro, LLP.
Whelan Doerr served as the Registrant's independent
public auditors from October 15, 1997 through May 12,
1999. Whelan Doerr's reports on the financial
statements of the Registrant for the past two fiscal
years did not contain any adverse opinion or
disclaimer of opinion, nor were they qualified or
modified as to uncertainty, audit scope or accounting
principles. There have not been any disagreements
between the Registrant and Whelan, Doerr, PSC on any
matter of accounting principles or practices,
consolidated financial statement disclosure or audit
scope or procedure of the nature required to be
reported herein. None of the events set forth in Item
304(a)(1)(iv)(B) of Regulation S-B occurred within the
Registrant's two most recently completed fiscal years
or the subsequent interim period preceding the
dismissal.
York, Neel & Co.- Owensboro, LLP has been engaged as
the Registrant's independent public auditors effective
immediately. The Registrant has not requested or
obtained any advice from York, Neel & Co.- Owensboro,
LLP that was an important factor considered by the
Registrant in reaching a decision as to accounting,
auditing or financial reporting issues concerning any
material accounting, auditing or financial reporting
issue regarding the application of accounting
principles to a specified transaction or the type of
audit opinions that might be rendered on the
Registrant's consolidated financial statements.
A copy of a letter from Whelan Doerr in response to
this item is attached hereto as Exhibit 16.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits. The following exhibits are being filed with
-------- this Quarterly Report on Form 10-QSB.
Exhibit
No. Description
------- -----------
16 Letter re Change in Certifying
Accountants
27 Financial Data Schedule
(b) Reports on Form 8-K. During the quarter ended March
------------------- 31, 1999, the Company did not file
any current reports on Form 8-K.
12
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act
of 1934, the registrant had duly caused this report to be signed
on its behalf by the undersigned there unto duly authorized.
KENTUCKY NATIONAL BANCORP, INC.
Date: May 14, 1999 By: /s/ Ronald J. Pence
__________________________
Ronald J. Pence, President
(Duly Authorized Represen-
tative and Principal
Financial Officer)
Exhibit 16
[WHELAN, DOERR & COMPANY, PSC LETTERHEAD]
May 13, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
We have read the disclosure which Kentucky National Bank
proposes to make with respect to the termination of our
engegement as their independent accountants and we concur that
there has been no disagreement with us on any matters of
accounting principles or practices, financial statement
disclosure, auditing scope or procedures, and that we did not
issue an adverse or qualified opinion on the financial
statements of Kentucky National Bank for the periods ending
December 31, 1998 or 1997.
Very truly yours,
/s/ Whelan, Doerr & Company, PSC
WHELAN, DOERR & COMPANY, PSC
Certified Public Accountants, PSC
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 838,430
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 159,800
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 39,231,571
<ALLOWANCE> 396,279
<TOTAL-ASSETS> 42,757,607
<DEPOSITS> 35,796,747
<SHORT-TERM> 401,000
<LIABILITIES-OTHER> 1,696,624
<LONG-TERM> 0
0
0
<COMMON> 240,000
<OTHER-SE> 4,623,236
<TOTAL-LIABILITIES-AND-EQUITY> 42,757,607
<INTEREST-LOAN> 832,502
<INTEREST-INVEST> 3,052
<INTEREST-OTHER> 4,806
<INTEREST-TOTAL> 840,360
<INTEREST-DEPOSIT> 394,678
<INTEREST-EXPENSE> 433,078
<INTEREST-INCOME-NET> 408,282
<LOAN-LOSSES> 175,570
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 472,076
<INCOME-PRETAX> (178,919)
<INCOME-PRE-EXTRAORDINARY> (178,919)
<EXTRAORDINARY> 0
<CHANGES> (156,769)
<NET-INCOME> (335,688)
<EPS-PRIMARY> (1.40)
<EPS-DILUTED> (1.40)
<YIELD-ACTUAL> 4.44
<LOANS-NON> 53,678
<LOANS-PAST> 7,158
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 516,743
<ALLOWANCE-OPEN> 347,000
<CHARGE-OFFS> 126,291
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 396,279
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 396,279
</TABLE>
