<PAGE>
<PAGE>
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, 2000
[ ] 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 March 31, 2000, 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.
- ------
FINANCIAL INFORMATION
Item 1.
Consolidated Statement of Condition as of
March 31, 2000 and December 31, 1999 (Unaudited) 3
Consolidated Statement of Operations - (Unaudited)
for the three months ended March 31, 2000 and 1999 4
Consolidated Statement of Cash Flows - (Unaudited)
for the three months ended March 31, 2000 and 1999 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 4. Submission of Matters to a Vote of
Securities Holders 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 14
2
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<PAGE>
KENTUCKY NATIONAL BANCORP, INC.
CONSOLIDATED STATEMENT OF CONDITION
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- -----------
<S> <C> <C>
ASSETS
Cash and due from banks $ 1,938,081 $ 1,594,188
Federal funds sold 1,196,000 1,331,000
Investment securities:
Securities available-for-sale 3,126,560 2,152,985
Securities held-to-maturity, at fair value 180,000 180,000
Loans, net 51,130,302 48,330,667
Premises and equipment 1,955,030 1,980,301
Accrued interest receivable and other assets 588,491 501,106
----------- -----------
Total assets $60,114,464 $56,070,247
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $53,163,214 $49,206,413
Obligations under capital leases 1,294,834 1,305,929
Accrued interest payable and other
liabilities 513,769 477,767
----------- -----------
Total liabilities 54,971,817 50,990,109
----------- -----------
Stockholders' equity:
Preferred stock, $.01 par value;
authorized 1,000,000 shares - -
Common stock, $.01 par value;
authorized 5,000,000 shares; issued and
outstanding, 240,000 shares 2,400 2,400
Surplus 5,217,325 5,212,125
Retained deficit (49,359) (125,467)
Accumulated other comprehensive income (27,719) (8,920)
----------- -----------
Total stockholders' equity 5,142,647 5,080,138
----------- -----------
Commitments and contingent liabilities - -
----------- -----------
Total liabilities and stockholders'
equity $60,114,464 $56,070,247
=========== ===========
</TABLE>
See notes to consolidated financial statements.
3
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<PAGE>
KENTUCKY NATIONAL BANCORP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
2000 1999
--------- ---------
<S> <C> <C>
Interest income:
Loans, including fees $1,157,242 $ 832,502
Securities 47,756 3,052
Federal funds sold 7,557 4,806
---------- ---------
Total interest income 1,212,555 840,360
---------- ---------
Interest expense:
Deposit accounts 403,891 273,469
Certificates of deposit over $100,000 201,613 121,209
Interest expense -- federal funds 1,187 4,396
Interest expense -- capital leases 33,504 34,004
---------- ---------
Total interest expense 640,195 433,078
---------- ---------
Net interest income 572,360 407,282
Provision for loan losses 52,572 175,570
---------- ---------
Net interest income after provision for
loan losses 519,788 231,712
---------- ---------
Other income:
Service charges and fees 77,775 56,322
Credit life and accident insurance 11,544 5,123
---------- ---------
89,319 61,445
---------- ---------
Other expenses:
Salaries and employee benefits 244,186 198,610
Net occupancy expense 34,221 28,780
Advertising 35,401 33,932
Data processing 43,347 48,589
Postage, telephone and supplies 27,621 27,341
Bank franchise tax 16,730 -
Directors fees 6,020 18,900
Professional services 61,239 56,054
Other operating expenses 64,234 59,870
---------- ---------
532,999 472,076
---------- ---------
Income (loss) before income taxes and
cumulative effect of accounting changes 76,108 (178,919)
Income taxes - -
---------- ---------
Net income (loss) before cumulative effect
of accounting change 76,108 (178,919)
Cumulative effect of accounting change - (156,769)
---------- ---------
Net income (loss) $ 76,108 $(335,688)
========== =========
Earnings (loss) per share $ .32 $ (1.40)
========== =========
</TABLE>
See notes to consolidated financial statements.
4
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<PAGE>
KENTUCKY NATIONAL BANCORP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
2000 1999
--------- ---------
<S> <C> <C>
Operating activities:
Net income (loss) $ 76,108 $ (335,688)
Adjustments to reconcile net loss to net
cash provided by operating activities:
FHLB stock dividend (2,800) -
Provision for loan losses 52,572 175,570
Provision for depreciation 26,787 22,951
Incentive stock option plan 5,200 3,237
Deferred tax 9,684 -
Cumulative effect of accounting change - 156,769
Changes in assets and liabilities:
Increase in accrued interest receivable
and other assets (87,385) (3,754)
Increase in accrued interest payable 36,002 33,532
----------- -----------
Net cash provided by operating
Activities 116,168 52,617
----------- -----------
Investing activities:
Purchase of available-for-sale securities (999,258) (62,900)
Net increase in loans (3,203,569) (5,206,557)
Purchases of premises and equipment (1,516) (97,438)
----------- -----------
Net cash used in investing activities (4,204,343) (5,366,985)
----------- -----------
Financing activities:
Net increase in deposits 4,308,162 5,284,505
Payments on capital lease obligations (11,095) (10,595)
Net decrease in federal funds purchased - (46,000)
----------- -----------
Net cash provided by financing activities 4,297,068 5,227,910
----------- -----------
Net increase (decrease) in cash and
cash equivalents 208,893 (86,368)
Cash and cash equivalents, beginning of period 2,925,188 924,798
----------- -----------
Cash and cash equivalents, end of period $ 3,134,081 $ 838,430
=========== ===========
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest $ 597,829 $ 424,913
=========== ===========
</TABLE>
See notes to consolidated financial statements.
5
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<PAGE>
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. 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 operations 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 operations for periods presented is not
necessarily indicative of the results which may be expected
for the entire year.
2. COMPREHENSIVE INCOME
During the year ended December 31, 1999, Kentucky National
Bancorp, Inc. adopted FASB Statement No. 130, "Reporting
Comprehensive Income." The statement requires the reporting
of comprehensive income in addition to net income from
operations. Comprehensive income is a more inclusive
financial reporting methodology that includes disclosures of
certain financial information that historically has not been
recognized in the calculation of net income.
At March 31, 2000 and December 31, 1999, the Bank held
securities classified as available-for-sale, which have net
unrealized losses of $42,000 and $13,500, respectively. The
before and after tax amount and tax expense (benefit) of this
component of comprehensive income at March 31, 2000 and
December 31, 1999 is summarized below:
<TABLE>
<CAPTION>
TAX
BEFORE (BENEFIT) AFTER
TAX EXPENSE TAX
------ --------- -----
<S> <C> <C> <C>
MARCH 31, 2000
Unrealized holding gains $(41,998) $(14,279) $(27,719)
Reclassification adjustment
for gains included in net
income - - -
-------- -------- --------
$(41,998) $(14,279) $(27,719)
======== ======== ========
DECEMBER 31, 1999
Unrealized holding gains $(13,515) $ (4,595) $ (8,920)
Reclassification adjustment
for gains included in net
income - - -
-------- -------- --------
$(13,515) $ (4,595) $ (8,920)
======== ======== ========
</TABLE>
6
<PAGE>
<PAGE>
KENTUCKY NATIONAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
3. FEDERAL HOME LOAN BANK ADVANCES
During 1999, the Bank entered into a blanket agreement for
advances with the Federal Home Loan Bank (FHLB). The Bank
had no advances outstanding at March 31, 2000 or December 31,
1999. Mortgage loans and all FHLB stock are pledged to the
FHLB as collateral in the event that the Bank requires future
advances.
4. 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, 2000 and 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.
5. ORGANIZATION COSTS
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.
6. RECLASSIFICATIONS
Certain 1999 amounts have been reclassified to conform with
the 2000 presentation.
7
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<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 consolidated financial condition and results
of operations of the Company.
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 THE RESULTS OF OPERATIONS FOR THE THREE MONTH
PERIODS ENDED MARCH 31, 2000 AND 1999
NET INCOME (LOSS). Net income for the quarter ended March 31,
2000 was $76,100 or $.32 per share compared to a net loss of
$(335,700) or $(1.40) for the same period last year, an increase
of $411,800 or $1.72 per share.
The improvement of net income for the three months ended at
March 31, 2000 over the same period last year was due largely to
the increase in net interest income of $165,100 and reduced
provisions for loan losses relative to a small increase in other
expenses of $60,900. In addition, the quarter ended March 31,
1999 included a nonrecurring accounting change implementation
which required the Bank to expense previously capitalized start-
up costs of $156,800 and also included a specific charge off of
$120,000 which increased the provision for loan losses for that
quarter.
NET INTEREST INCOME. Net interest income increased $165,100 or
40.5% to $572,400 for the three months ended March 31, 2000
compared to $407,300 for the three months ended March 31, 1999.
This increase reflects the continued growth in interest-earning
assets and the improvement in the interest rate spread since the
quarter ended March 31, 1999. Total average interest-earning
assets increased by approximately $16.1 million with an increase
in average yield of 6 basis points while average interest
bearing liabilities increased by approximately $14.8 million
with a decrease in average costs of approximately 2 basis
points. As a result, the Bank's interest rate spread increased
to 3.53% for the three months ended March 31, 2000 compared to
3.45% for the three months ended March 31, 1999. Net interest
margin decreased to 4.32% for the 2000 period compared to 4.40%
for the 1999 period.
PROVISION FOR LOAN LOSSES. The provision for loan losses was
$52,600 and $175,600 for the quarters ended March 31, 2000 and
1999, respectively. The decrease of $123,000 was primarily due
to a specific charge off in the amount of $120,000 during the
first quarter of 1999. At March 31, 2000, the Bank's allowance
for loan losses was $615,100 or 1.2% of the gross loan
portfolio.
8
<PAGE>
<PAGE>
OTHER INCOME. Other income was $89,300 and $61,400 for the
quarters ended March 31, 2000 and 1999, respectively. The
increase for the quarter of $27,900 or 45.4% is reflective of
loan and deposit growth from which other income of service
charges and fees are generated.
OTHER EXPENSE. Other expense was $533,000 and $472,100 for the
quarters ended March 31, 2000 and 1999, respectively. The
increase for the quarter of $60,900 or 12.9% was due primarily
to the increases in salaries and employee benefits of $45,600
for the quarter. The growth in salaries and benefits is the
result of bank growth.
COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 2000 AND DECEMBER
31, 1999
The Bank continued to experience strong asset growth during the
first quarter of 2000. Total assets increased $4.0 million, or
7.1% to $60.1 million at March 31, 2000 compared to $56.1
million at December 31, 1999. The increase in total assets was
primarily attributable to a $2.8 million or 5.7% increase in the
loan portfolio. Also contributing to the increase in assets was
a $1 million increase in investment securities as the Bank has
sought to improve liquidity. Funding for the Bank's asset
growth came primarily from increased deposits. At March 31,
2000, deposits totaled $53.2 million, a $4.0 million, or 8.0%,
increase over deposits at December 31, 1999.
Stockholders' equity increased by $62,500 to $5,142,600 at March
31, 2000 from $5,080,100 at December 31, 1999. Net income for
the quarter of $76,100 is the source of the increase, less
$13,600 change in unrealized gain or loss on available-for-sale
securities and net surplus from stock options accrued.
Management believes that a strong capital position is vital to
future profitability and to promote depositor and investor
confidence. The Bank continues to be in compliance with all
applicable regulatory capital requirements.
As a condition to its approval of the Bank's deposit insurance,
the FDIC required the Bank to maintain a ratio of Tier I capital
to assets of no less than 8% during its first three years of
operations. The Bank was in compliance with this requirement as
of March 31, 2000, with a Tier 1 capital ratio of 9.06%. Based
on its level of Tier I capital at March 31, 2000, the Bank will
only be permitted to grow its assets to approximately $64
million prior to October 15, 2000 and still be in compliance
with the FDIC requirement. Accordingly, the Bank will not be
able to maintain its historic rate of asset growth with its
current level of capital. Management has made arrangements to
borrow funds from a third party lender for capital infusion to
enhance continued growth. Although the Bank believes that is
will be permitted to maintain Tier 1 capital at a lower
percentage of assets after October 15, 2000, there can be no
assurance that the Bank will be permitted to resume its historic
rate of growth without an increase in capital.
<PAGE>
ASSET QUALITY
The following table sets forth information regarding the Bank's
non-performing assets at the dates indicated.
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
<S> <C> <C>
Restructured loans $ - $ -
Non-accrual loans 236,000 155,000
Accruing loans past due 90
days or more - -
-------- --------
Total $236,000 $155,000
======== ========
</TABLE>
9
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<PAGE>
At March 31, 2000, there were $504,500 in loans outstanding not
reflected in the above table as to which know information about
possible credit problems of borrowers caused management to have
serious doubts as to the ability of such borrowers to comply
with present loan repayment terms.
An analysis of the changes in the allowance for loan losses is
as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
---------------------------
2000 1999
-------- --------
<S> <C> <C>
Balance, beginning of period $561,944 $ 347,000
Loans charged off (3,963) (126,291)
Loan recoveries 4,568 -
-------- ---------
Net charge-offs (605) (126,291)
Provision for loan losses 52,572 175,570
-------- ---------
Balance, end of period $615,121 $ 396,279
======== =========
</TABLE>
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.
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, 2000, the Bank's ratio of loans to deposits was
96.2% compared to 98.2% at December 31, 1999. 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.
Due to the growth of the Bank and increase in personnel, the
Bank is currently reaching full premises capacity at the main
branch location. Management has begun the preliminary planning
stage for future expansion of bank premises to enable continued
growth.
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, 2000, totaled $2.1 million compared to
$2.9 million at March 31, 1999. The Bank's cash
10
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<PAGE>
flows were provided mainly by financing activities, including
$4.3 million from net deposit increases. Operating activities
provided $116,200 in cash for the three months ended March 31,
2000 compared to $52,600 in cash for the first three months of
1999. The Bank used cash flows for its investing activities
primarily to fund an increase in gross loans of $3.2 million and
purchase of securities of $1 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 March 31, 2000, 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.
11
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<PAGE>
PART II
OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
On April 25, 2000, the Company held its annual meeting of
shareholders at which the following items were voted on.
(1) Election of Directors
WITH-
NOMINEE FOR HELD
Ronald J. Pence 152,775 634
Kevin D. Addington 152,775 634
Henry Lee Chitwood 152,775 634
There were no abstentions or broker non-votes.
The terms of office of the following directors continued
after the meeting: Robert E. Robbins, Lawrence P. Calvert, Lois
Watkins Gray, William R. Hawkins, Christopher G. Knight and
Leonard Allen McNutt.
(2) Approval of the Kentucky National Bancorp, Inc. 2000
Stock Option and Incentive Plan:
FOR: 145,254 AGAINST: 4,394 ABSTAIN: 3,761
There were no broker non-votes.
(3) Approval of the Kentucky National Bancorp, Inc.
Director Fee Deferral Plan:
FOR: 145,454 AGAINST: 4,194 ABSTAIN: 3,761
There were no broker non-votes.
ITEM 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) The following exhibits are either being filed with or
incorporated by reference in this quarterly report on
Form 10-QSB:
NUMBER DESCRIPTION
3.1 Articles of Incorporation *
3.2 Bylaws *
4 Form of Common Stock Certificate *
10.1 Restrictive Stock Transfer Agreement *
10.2 Organizational Stock Option and Incentive Plan **
10.3 Lease Agreement Between Kentucky National
Properties, L.L.C and Kentucky National Bank *
10.4 Kentucky National Bancorp, Inc. 2000 Stock and
Incentive Plan ***
10.5 Kentucky National Bancorp, Inc. Director Fee
Deferral Plan
27 Financial Data Schedule (EDGAR Only)
_____________
* Incorporated by reference from the registrant's
Registration Statement on Form S-4 (File No.
333-72371).
12
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<PAGE>
** Incorporated by reference from Registrant's Post-
Effective Amendment No. 1 to Registration Statement
on Form S-8 (File No. 333-72371).
*** Incorporated by reference from the registrant's
Annual Report on Form 10-KSB for the year ended
December 31, 1999.
(b) During the quarter ended March 31, 2000, the Company did
not file any current reports on Form 8-K.
13
<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: May 11, 2000 By:/s/ Ronald J. Pence
------------------------------
Ronald J. Pence, President
(Duly Authorized Represen-
tative and Principal
Financial Officer)
14
KENTUCKY NATIONAL BANCORP, INC.
DIRECTOR FEE DEFERRAL PLAN
ARTICLE I
ESTABLISHMENT OF THE PLAN
1.01 The Company hereby establishes this Plan upon the
terms and conditions hereinafter stated.
1.02 Through acceptance of their appointment to the
Committee, each member of the Committee hereby accepts his or
her appointment hereunder upon the terms and conditions
hereinafter stated.
ARTICLE II
PURPOSE OF THE PLAN
2.01 The purpose of the Plan is to compensate Directors
of the Company, the Bank and their Affiliates through the
issuance of Shares in lieu of cash fees for service on the
Board.
ARTICLE III
DEFINITIONS
The following words and phrases when used in this Plan
with an initial capital letter, shall have the meanings set
forth below unless the context clearly indicates otherwise.
Wherever appropriate, the masculine pronoun shall include the
feminine pronoun and the singular shall include the plural.
3.01 "Affiliate" shall mean any "parent corporation" or
"subsidiary corporation" of the Company, as such terms are
defined in Section 424(e) and (f), respectively, of the Internal
Revenue Code of 1986, as amended.
3.02 "Bank" means Kentucky National Bank.
3.03 "Beneficiary" means the person or persons designated
by a Participant to receive any benefits payable under the Plan
in the event of such Participant's death. Such person or
persons shall be designated in writing on forms provided for
this purpose by the Committee and may be changed from time to
time by similar written notice to the Committee. In the absence
of a written designation, the Beneficiary shall be the
Participant's surviving spouse, if any or if none, his estate.
3.04 "Board" means the Board of Directors of the Company.
3.05 "Committee" means the Board or the Director Fee
Deferral Plan Committee appointed by the Board pursuant to
Article IV hereof.
3.06 "Company" means Kentucky National Bancorp, Inc.
3.07 "Director" means a member of the Board, an advisor
to the Board designated by the Board and any member of the board
of directors of an Affiliate whose members the Board has by
resolution designated as being eligible for participation in
this Plan.
3.08 "Disability" shall mean a physical or mental
condition, which in the sole and absolute discretion of the
Committee, is reasonably expected to be of indefinite duration
and to substantially prevent a Participant from fulfilling his
or her duties or responsibilities to the Company or an
Affiliate.
1
<PAGE>
3.09 "Effective Date" means the date on which the Plan
first becomes effective, as determined under Section 8.06
hereof.
3.10 "Non-employee Director" means shall mean any member
of the Board who, at the time discretion under the Plan is
exercised, is a "Non-Employee Director" within the meaning of
Rule 16b-3 of the Securities Exchange Act of 1934.
3.11 "Participant" means a Director who has been granted
Shares pursuant to this Plan.
3.12 "Plan" means this Kentucky National Bancorp, Inc.
Director Fee Deferral Plan.
3.13 "Plan Year" means the 12 month period ending
December 31 of each year. The initial Plan Year shall begin on
January 1, 2000 and end December 31, 2000.
3.14 "Share" means one share of Common Stock, par value
$.01 per share, of Kentucky National Bancorp, Inc.
ARTICLE IV
ADMINISTRATION OF THE PLAN
4.01 ROLE AND POWERS OF THE COMMITTEE. The Plan shall be
administered and interpreted by the Committee, which shall
consist of not less than two members of the Board who are Non-
Employee Directors. In the absence at any time of a duly
appointed Committee, the Plan shall be administered by those
members of the Board who are Non-Employee Directors, and by the
Board if there are less than two Non-Employee Directors.
The Committee shall have all of the powers allocated to it
in this and other Sections of the Plan. Except as limited by
the express provisions of the Plan or by resolutions adopted by
the Board, the Committee shall have sole and complete authority
and discretion (i) to grant Shares as payment for Board fees to
Participants, (ii) to interpret the Plan, (iii) to prescribe,
amend and rescind rules and regulations relating to the Plan and
(iv) to make other determinations necessary or advisable for the
administration of the Plan. The Committee shall have and may
exercise such other power and authority as may be delegated to
it by the Board from time to time. Subject to Section 4.02, the
interpretation and construction by the Committee of any
provisions of the Plan hereunder shall be final and binding.
The Committee shall act by vote or written consent of a majority
of its members, and shall report its actions and decisions with
respect to the Plan to the Board at appropriate times, but in no
event less than one time per calendar year.
4.02 ROLE OF THE BOARD. The members of the Committee
shall be appointed or approved by, and will serve at the
pleasure of, the Board. The Board may in its discretion from
time to time remove members from, or add members to, the
Committee. The Board shall have all of the powers allocated to
it in this and other Sections of the Plan, may take any action
under or with respect to the Plan which the Committee is
authorized to take, and may reverse or override any action taken
or decision made by the Committee under or with respect to the
Plan, provided, however, that the Board may not revoke any
Shares already granted or impair a Participant's rights.
Further, with respect to all actions taken by the Board in
regard to the Plan, such action shall be taken by a majority of
the Board where such a majority of the directors acting in the
matter are Non-Employee Directors.
4.03 LIMITATION ON LIABILITY. No member of the Board or
the Committee shall be liable for any determination made in good
faith with respect to the Plan or any Shares granted under it.
If a member of the Board or the Committee is a party or is
threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of anything done or
not done by him in such capacity under or with respect to the
Plan, the Company shall indemnify such member to the fullest
extent permitted under Company's governing instruments with
respect to the indemnification of Directors.
2
<PAGE>
<PAGE>
ARTICLE V
PLAN SHARE RESERVE
5.01 SHARES SUBJECT TO THE PLAN. Except as otherwise
required under Article 8.01, the aggregate number of Shares
deliverable pursuant to the Plan shall not exceed 18,000 Shares.
Such Shares may either be authorized but unissued shares, shares
held in Treasury or share held in a grantor trust held by the
Bank.
ARTICLE VI
ELIGIBILITY; ALLOCATIONS
6.01 ELIGIBILITY. The Committee shall grant each
Director shares of Common Stock, as payment in lieu of his or
her cash Board fees (including Board fees earned prior to the
Effective Date), pursuant to procedures established by the
Committee.
ARTICLE VII
EARNINGS AND DISTRIBUTION OF SHARES
7.01 EARNING SHARES; FORFEITURES. All Shares granted to
Participants shall be fully vested upon grant and nonforfeitable
by a Participant.
7.02 DISTRIBUTION OF SHARES.
(a) TIMING OF DISTRIBUTIONS: GENERAL RULE.
Except as provided in subsections (c), and (d) below, Shares
shall be distributed no less frequently than as soon as
practicable after the calendar year for which the Shares have
been earned. As soon as practicable after the Effective Date,
Shares shall be distributed to Directors for all Board fees that
had been deferred through December 31, 1999. No fractional
shares shall be distributed.
(b) FORM OF DISTRIBUTION. The Committee shall
distribute all Shares in the form of Common Stock.
(c) WITHHOLDING. The Company's obligation to
deliver Shares shall be subject to the Participant's
satisfaction of any applicable federal, state or local income
and employment tax withholding obligation. The Committee, in
its discretion, may permit the Participant to satisfy the
obligation, in who or in part, by irrevocably electing to have
the Company withhold Shares, or to deliver to the Company,
Shares that the Participant already owns having a value equal to
the amount required to be withheld. The value of the shares to
be withheld, or delivered to the Company, shall be based on the
market value of the Shares on the date the amount of tax to be
withheld is determined. As an alternative, the Company may
return, or sell without notice a number of such shares
sufficient to cover the amount required to be withheld.
(d) REGULATORY EXCEPTIONS. No Shares shall be
distributed unless and until all of the requirements of all
applicable law and regulation shall have been fully complied
with, including the receipt of approval of the Plan by the
shareholders of the Company by such vote, if any, as may be
required by applicable law and regulations.
ARTICLE VIII
MISCELLANEOUS
8.01 ADJUSTMENTS FOR CAPITAL CHANGES.
(a) RECAPITALIZATIONS; STOCK SPLITS, ETC. The
number and kind of shares which may be granted under the Plan
shall be proportionately adjusted for any increase, decrease,
change or exchange of shares of Common Stock for a different
number or kind of shares or other securities of the Company
which results from a merger, consolidation, recapitalization,
reorganization, reclassification, stock dividend, split-up,
combination of
3
<PAGE>
<PAGE>
shares, or similar event in which the number or kind of shares
is changed without the receipt or payment of consideration by
the Company.
(b) TRANSACTIONS IN WHICH THE COMPANY IS NOT THE
SURVIVING ENTITY. In the event of (i) the liquidation or
dissolution of the Company, (ii) a merger or consolidation in
which the Company is not the surviving entity, or (iii) the sale
or disposition of all or substantially all of the Company's
assets (any of the foregoing to be referred to herein as a
"Transaction"), all outstanding Shares shall be adjusted for any
change or exchange of shares of Common Stock for a different
number or kind of shares or other securities which results from
the Transaction.
(c) CONDITIONS AND RESTRICTIONS ON NEW, ADDITIONAL,
OR DIFFERENT SHARES OR SECURITIES. If, by reason of any
adjustment made pursuant to this Section, a Participant becomes
entitled to new, additional, or different shares of stock or
securities, such new, additional, or different shares of stock
or securities shall thereupon be subject to all of the
conditions and restrictions which were applicable to the shares
before the adjustment was made. In addition, the Committee
shall have the discretionary authority to impose on the Shares
subject to Plan Share Awards to Employees such restrictions as
the Committee may deem appropriate or desirable, including but
not limited to a right of first refusal, or repurchase option,
or both of these restrictions.
(d) OTHER ISSUANCES. Except as expressly provided
in this Section, the issuance by the Company or an Affiliate of
shares of stock of any class, or of securities convertible into
shares of Common Stock or stock of another class, for cash or
property or for labor or services either upon direct sale or
upon the exercise of rights or warrants to subscribe therefor,
shall not affect, and no adjustment shall be made with respect
to, the number or class of shares of Common Stock reserved for
issuance under the Plan.
8.02 AMENDMENT AND TERMINATION OF PLAN. The Board may,
by resolution, at any time amend or terminate the Plan; provided
that no amendment or termination of the Plan shall, without the
written consent of a Participant, impair any rights or
obligations under Shares theretofore granted to the Participant.
8.03 NO EMPLOYMENT OR OTHER RIGHTS. Neither the Plan nor
any grant of Shares hereunder nor any action taken by the
Committee or the Board in connection with the Plan shall create
any right, either express or implied, on the part of any
Director to continue in the service of the Company, the Bank, or
an Affiliate thereof.
8.04 VOTING AND DIVIDEND RIGHTS. No Participant shall
have any voting or dividend rights or other rights of a
stockholder in respect of any Shares prior to the time said
Shares are actually distributed to him.
8.05 GOVERNING LAW. The Plan and Trust shall be governed
and construed under the laws of the Commonwealth of Kentucky to
the extent that the Indiana Business Corporation Act or federal
law shall apply.
8.06 EFFECTIVE DATE. The Plan shall become effective
upon its approval by a favorable vote of shareholders of the
Company who own at least a majority of the total votes cast at a
duly called meeting of the Company's shareholders held in
accordance with applicable laws. In no event shall Shares be
made prior to the Effective Date.
<PAGE>
8.07 TERM OF PLAN. This Plan shall remain in effect its
termination by the Board. Termination of the Plan shall not
affect any Shares previously granted, and such Shares shall
remain valid and in effect until they have been earned and paid,
or by their terms expire or are forfeited.
4
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