BOURBON BANCSHARES INC /KY/ - 10-K Annual Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K

(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________________ to
___________________

Commission File Number: 33-96358

BOURBON BANCSHARES, INC.
(Exact name of registrant as specified in its charter)

Kentucky 61-0993464
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

P.O. Box 157, Paris, Kentucky 40362-0157
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code:
(606)987-1795

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

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

Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes
X No _____

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

Aggregate market value of voting stock held by non-
affiliates as of March 15, 2000 was approximately $55.1
million. For purposes of this calculation, it is assumed
that directors, executive officers and beneficial owners of
more than 5% of the registrant's outstanding voting stock
are affiliates.

Number of shares of Common Stock outstanding as of March 15,
2000: 2,817,731.

PART I

Item 1. Business

General

Bourbon Bancshares, Inc. ("Company" or "Bourbon") is a
Kentucky corporation organized in 1981 and a bank and
savings and loan holding company registered under the Bank
Holding Company Act of 1956, as amended ("BHCA") and the
Home Owners Loan Act of 1933, as amended ("HOLA").

On August 13, 1999, Kentucky Bank acquired the Wilmore,
Kentucky branch of National City Bank. Included in the
purchase were $9.0 million in net deposits and $353 thousand
in fixed assets. The net deposits assumed exceeded the cash
received by $287 thousand.

The Company conducts business through one banking
subsidiary, Kentucky Bank. Kentucky Bank is a commercial
bank and trust company organized under the laws of Kentucky.
Kentucky Bank has its main office in Paris (Bourbon County),
Kentucky, additional offices in Paris, North Middletown
(Bourbon County), Winchester (Clark County), Georgetown
(Scott County), Versailles (Woodford County), Nicholasville
(Jessamine County), Wilmore (Jessamine County), Kentucky and
a loan production office in Cynthiana (Harrison County),
Kentucky. The deposits of Kentucky Bank are insured up to
prescribed limits by the Bank Insurance Fund ("BIF") and the
Savings Association Insurance Fund ("SAIF"), both of the
Federal Deposit Insurance Corporation ("FDIC"). Kentucky
Bank is engaged in general full-service commercial and
consumer banking. Kentucky Bank makes commercial,
agricultural and real estate loans to its commercial
customers, with emphasis on small-to-medium-sized
industrial, service and agricultural businesses. Kentucky
Bank makes residential mortgage, installment and other loans
to its individual and other non-commercial customers.
Kentucky Bank also offers its customers the opportunity to
obtain a credit card. Kentucky Bank offers its customers a
variety of other services, including checking, savings, club
and money market accounts, certificates of deposits, safe
deposit facilities and other consumer-oriented financial
services. Recently, Kentucky Bank has made Internet banking
available to its customers at www.kybank.com. Through its
trust department, Kentucky Bank provides primarily personal
trust and agency services (including management agency
services) and, to a lesser extent, corporate trust services
(including the management of corporate pension and profits
sharing plans).

Competition

The Company and its subsidiary face vigorous competition
from a number of sources, including other bank holding
companies and commercial banks, consumer finance companies,
thrift institutions, other financial institutions and
financial intermediaries. In addition to commercial banks,
savings and loan associations, savings banks and credit
unions actively compete to provide a wide variety of banking
services. Mortgage banking firms, finance companies,
insurance companies, brokerage companies, financial
affiliates of industrial companies and government agencies
provide additional competition for loans and for many other
financial services. The subsidiary also currently competes
for interest-bearing funds with a number of other financial
intermediaries, including brokerage firms and mutual funds,
which offer a diverse range of investment alternatives.

Supervision and Regulation

As a bank holding company, the Company is subject to the
regulation and supervision of the Federal Reserve Board.
The Company's subsidiary is subject to supervision and
regulation by applicable state and federal banking agencies,
including the Federal Reserve Board, the Federal Deposit
Insurance Corporation and the Kentucky Department of
Financial Institutions. The subsidiary is also subject to
various requirements and restrictions under federal and
state law, including requirements to maintain reserves
against deposits, restrictions on the types and amounts of
loans that may be granted and the interest that may be
charged thereon, and limitations on the types of investments
that may be made and the types of services that may be
offered. Various consumer laws and regulations also affect
the operations of the subsidiary. In addition to the impact
of regulation, the subsidiary is affected significantly by
the actions of the Federal Reserve Board as it attempts to
control the money supply and credit availability in order to
influence the economy.

There are a number of obligations and restrictions imposed
on bank holding companies and their depository institution
subsidiaries by federal law and regulatory policy that are
designed to reduce potential loss exposure to the depositors
of such depository institutions and to the FDIC insurance
funds in the event the depository institution becomes in
danger of default or is in default. For example, under a
policy of the Federal Reserve Board with respect to bank
holding company operations, a bank holding company is
required to serve as a source of financial strength to its
subsidiary depository institutions and commit resources to
support such institutions in circumstances where it might
not do so absent such policy. In addition, the "cross-
guarantee" provisions of federal law require insured
depository institutions under common control to reimburse
the FDIC for any loss suffered or reasonably anticipated as
a result of the default of a commonly controlled insured
depository institution or for any assistance provided by the
FDIC to a commonly controlled insured depository institution
in danger of default.

The federal banking agencies have broad powers under current
federal law to take prompt corrective action to resolve
problems of insured depository institutions. The extent of
these powers depends upon whether the institutions in
question are "well capitalized", "adequately capitalized",
"undercapitalized", "significantly undercapitalized" or
"critically undercapitalized", as such terms are defined
under uniform regulation defining such capital levels issued
by each of the federal banking agencies.

There are various legal and regulatory limits on the extent
to which the Company's subsidiary bank may pay dividends or
otherwise supply funds to the Company. In addition, federal
and state regulatory agencies also have the authority to
prevent a bank or bank holding company from paying a
dividend or engaging in any other activity that, in the
opinion of the agency, would constitute an unsafe or unsound
practice.

There have been a number of legislative and regulatory
proposals that would have an impact on the operation of bank
holding companies and their banks. It is impossible to
predict whether or in what form these proposals may be
adopted in the future and, if adopted, what their effect
will be on the Company.

Beginning January 1, 2001, a new accounting standard will
require all derivatives to be recorded at fair value.
Unless designated as hedges, changes in these fair values
will be recorded in the income statement. Fair value
changes involving hedges will generally be recorded by
offsetting gains and losses on the hedge and on the hedged
item, even if the fair value of the hedged item is not
otherwise recorded. This is not expected to have a material
effect, but the effect will depend on derivative holdings
when this standard applies.

The recently adopted Gramm-Leach-Bliley Act of 1999
eliminates restrictions imposed by the Glass-Steagall
Financial Services Law, adopted in the 1930s, which
prevented banking, insurance and securities firms from fully
entering each other's businesses. While it is still
uncertain what the impact of this legislation will be, it is
likely to result in further consolidation in the financial
services industry. In addition, removal of these barriers
will likely increase the number of entities providing
banking services, thereby increasing competition.

Employees

At December 31, 1999, the number of full time equivalent
employees of the Company was 149.

Item 2. Properties

The main banking office of Kentucky Bank, which also serves
as the principal office of Kentucky Bank, is located at
Fourth and Main Streets, Paris, Kentucky 40361. In addition,
Kentucky Bank serves customer needs at 10 other locations.
All locations, except for the Cynthiana office (which is a
loan production office), offer a full range of banking
services. Kentucky Bank owns all of the properties at which
it conducts its business, except the location in Scott
County at Paris Pike, which is leased. The Company owns
approximately 63,000 square feet of office space and leases
approximately 2,000 square feet of office space, with
aggregate annual lease payments of approximately $15
thousand in 1999.

Note 5 to the Company's consolidated financial statements
included in this report contains additional information
relating to amounts invested in premises and equipment.

Item 3. Legal Proceedings

The Company and its subsidiary are from time to time
involved in routine legal proceedings occurring in the
ordinary course of business that, in the aggregate,
management believes will not have a material impact on the
Company's financial condition and results of operation.

Item 4. Submission of Matters to a Vote of Security Holders

Not Applicable.

PART II

Item 5. Market for Common Equity and Related Stockholder
Matters

The Company's Common Stock is not listed on any national
securities exchange nor is it quoted on the NASDAQ system.
However, it is listed on the OTC Bulletin Board under the
symbol "BBON". Trading in the Common Stock has been
infrequent, with two regional retail brokerage firms making
the market. On June 8, 1999, the stockholders approved a
two-for-one stock split effective July 15, 1999. All shares
and per share amounts have been retroactively restated to
reflect the split. The following table sets forth the high
and low sales prices of the Common Stock and the dividends
declared thereon, for the periods indicated below:

High Low Dividend

1999 Quarter 4 $26.00 $24.00 $.11
Quarter 3 24.00 22.00 .11
Quarter 2 22.50 20.50 .11
Quarter 1 21.00 20.00 .11

1998 Quarter 4 20.12 20.50 .10
Quarter 3 21.00 20.00 .10
Quarter 2 20.00 18.25 .10
Quarter 1 18.25 15.50 .10

As of December 31, 1999 the Company had 2,802,471
shares of Common Stock outstanding and approximately 442
holders of record of its Common Stock.

During 1999, 7,695 shares of unregistered stock were issued
to employees and directors. This stock was issued through
the exercise of stock options or employee gifts. In
accordance with Rule 701 promulgated under the Securities
Act of 1933, all shares of Common Stock were issued upon the
exercise of stock options issued prior to the Company
becoming subject to the reporting requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934. The
following shares were issued during 1999:

Aggregate
Date Issued Shares Consideration

March 10, 1999 1,220 $ 9,460
March 18, 1999 200 1,725
May 12, 1999 580 4,600
June 8, 1999 5,200 34,350
July 31, 1999 400 4,050
October 31, 1999 95 gift

Total 7,695

Item 6. Selected Financial Data

The following selected financial data should be read in
conjunction with the Company's Consolidated Financial
Statements and the accompanying notes presented elsewhere
herein. On June 8, 1999, the stockholders approved a two-
for-one stock split effective July 15, 1999. All shares and
per share amounts have been retroactively restated to
reflect the split.

At or For the Year Ended December 31
(dollars in thousands, except per share amounts)
1999 1998 1997 1996 1995
CONDENSED STATEMENT OF INCOME:
Total Interest Income $ 23,453 $ 21,983 $ 20,962 $ 19,425 $ 19,658
Total Interest Expense 10,547 10,666 10,415 9,839 10,426
Net Interest Income 12,906 11,317 10,547 9,586 9,232
Provision for Losses 700 700 493 402 396
Net Interest Income After
Provision for Losses 12,206 10,617 10,054 9,184 8,836
Noninterest Income 3,386 3,073 2,390 2,284 2,053
Noninterest Expense 9,422 8,514 7,888 7,715 7,684
Income Before Income
Tax Expense 6,170 5,176 4,556 3,753 3,205
Income Tax Expense 1,720 1,372 1,148 866 717
Net Income 4,450 3,804 3,408 2,887 2,488

SHARE DATA:
Basic Earnings per Share (EPS) 1.59 1.36 1.22 1.02 0.87
Diluted EPS 1.55 1.33 1.20 1.00 0.86
Cash Dividends Declared 0.44 0.40 0.36 0.32 0.30
Book Value 11.32 10.46 9.58 8.72 8.08
Average Common Shares-Basic 2,803 2,801 2,792 2,849 2,860
Average Common Shares-Diluted 2,868 2,862 2,844 2,887 2,916

SELECTED BALANCE SHEET DATA:
Loans, net including held
for sale 238,998 210,108 182,839 157,564 153,201
Investment Securities 70,623 72,353 81,703 92,540 92,639
Total Assets 347,479 308,705 290,655 272,453 269,431
Deposits 274,566 258,740 241,325 231,071 213,348
Securities sold under
agreements to repurchase
and other borrowings 11,858 11,248 9,458 4,160 11,791
Federal Home Loan Bank
advances 26,592 6,954 10,236 10,534 19,071
Stockholders' Equity 31,720 29,372 26,716 24,633 23,167

PERFORMANCE RATIOS:
(Average Balances)
Return on Assets 1.39% 1.31% 1.23% 1.10% 0.94%
Return on Stockholders' Equity 14.57% 13.57% 13.43% 12.06% 11.36%
Net Interest Margin (1) 4.46% 4.27% 4.18% 4.02% 3.80%
Equity to Assets (at period end) 9.13% 9.51% 9.19% 9.04% 8.60%

SELECTED STATISTICAL DATA:
Dividend Payout Ratio 27.73% 29.49% 29.49% 31.57% 32.93%
Number of Employees (at
period end) 149 144 145 137 125

ALLOWANCE COVERAGE RATIOS:
Allowance to Total Loans 1.28% 1.28% 1.25% 1.32% 1.20%
Net Charge-offs as a
Percentage of
Average Loans 0.15% 0.15% 0.16% 0.10% 0.12%

(1) Tax equivalent

Item 7. Management's Discussion and Analysis

The following discussion and analysis of financial condition
and results of operations should be read in conjunction with
the Consolidated Financial Statements and accompanying notes
included as Exhibit 13. When necessary, reclassifications
have been made to prior years' data throughout the following
discussion and analysis for purposes of comparability with
1999 data. On June 8, 1999, the stockholders approved a two-
for-one stock split effective July 15, 1999. All shares and
per share amounts have been retroactively restated to
reflect the split.

Summary

Net income for the year ended December 31, 1999 was $4.5
million, or $1.59 per common share compared to $3.8 million,
or $1.36 for 1998 and $3.4 million, or $1.22 for 1997.
Earnings per share assuming dilution were $1.55, $1.33 and
$1.20 for 1999, 1998 and 1997, respectively. During 1999,
net income increased $646 thousand, up 17%. Net interest
income increased 14% and the loan loss provision remained
relatively constant, while other income and other expenses
increased 10%. For 1998, net income increased over $395
thousand, nearly 12%. Increases in net interest income of
over 7% and other income of 28% were offset by increases in
other expenses of over 7% and the provision for loan losses
of 42%. The increase in the loan loss provision was mainly
attributable to the 15% growth in loans.

Return on average equity was 14.6% in 1999 compared to 13.6%
in 1998 and 13.4% in 1997. Return on average assets was
1.39% in 1999 compared to 1.31% in 1998 and 1.23% in 1997.

Non-performing loans as of a percentage of loans (including
held for sale) were 0.31%, 0.50% and 0.26% as of December
31, 1999, 1998 and 1997, respectively. With emphasis on
loan growth and through management's concerted effort on
loan quality, these ratios have remained well below peer
groups over the last three years.

During 1996, the federal thrift charters of Kentucky Savings
Bank, FSB and Jessamine were terminated and both entities
became branches of Kentucky Bank. Financial statements have
been adjusted to reflect this change.

RESULTS OF OPERATIONS

Net Interest Income

Net interest income, the largest source of revenue, on a tax
equivalent basis increased from $10.9 million in 1997 to
$11.7 million in 1998 to $13.2 million in 1999. The taxable
equivalent adjustment (which is net of the effect of the non-
deductible portion of interest expense) is based on a
Federal income tax rate of 34%.

Average earning assets and interest bearing liabilities both
increased from 1998 to 1999. The increase in earning assets
of $24 million offset with a decline of 18 basis points in
the tax equivalent yield have resulted in tax equivalent
interest income increasing $1.5 million. Average loans
increased $28 million along with a 25 basis point drop in
the yield, resulting in the loan income increasing $2
million. Average interest bearing liabilities increased $20
million coupled with a 42 basis point decline in the yield
caused the interest on liabilities to decline $119 thousand.
The $488 thousand decline in deposit interest is a result of
average deposits increasing $12 million and the
corresponding yield dropping 47 basis points.

For 1998, average earning assets and interest bearing
liabilities increased. The $12 million increase in average
earning assets, and maintenance of the same tax equivalent
yield resulted in tax equivalent interest income increasing
over $1 million. Average loans increasing over $22 million
with a 14 basis point decline in yield along with an over
$10 million decline in investment securities and an 8 basis
point decline caused the yield on earning assets to remain
constant. The increase of $10 million in deposits along
with an 8 basis point decline in yield accounted for the
change in liabilities.

The accompanying analysis of changes in net interest income
in the following table shows the relationships of the volume
and rate portions of these increases in 1999 and 1998.
Changes in interest income and expenses due to both rate and
volume are allocated on a pro rata basis.

1999 vs. 1998 1998 vs. 1997
Increase (Decrease) Due to Change in Increase (Decrease) Due to Change in
Volume Rate Net Change Volume Rate Net Change

INTEREST INCOME
Loans $ 2,419 $ (462) $ 1,957 $ 1,961 $ (233) $ 1,728
Investment Securities (135) (263) (398) (647) (118) (765)
Federal Funds Sold and
Securities Purchased under
Agreements to Resell (69) (18) (87) 75 1 76
Deposits with Banks (1) (1) (2) (18) 1 (17)
Total Interest Income 2,214 (744) 1,470 1,371 (349) 1,022
INTEREST EXPENSE
Deposits
Demand 793 (833) (40) 305 (18) 287
Savings 23 (69) (46) (3) (13) (16)
Negotiable Certificates of
Deposit and Other
Time Deposits 255 (657) (402) 75 (38) 37
Securities sold under
agreements to
repurchase and
other borrowings 142 (24) 118 6 0 6
Federal Home Loan
Bank advances 262 (11) 251 (71) 8 (63)
Total Interest Expense 1,475 (1,594) (119) 312 (61) 251
Net Interest Income 739 850 1,589 1,059 (288) 771

Average Consolidated Balance Sheets and Net Interest Analysis (dollars in thousands)
1999 1998 1997
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate

ASSETS
Interest-Earning Assets
Securities Held to Maturity
State and Municipal obligations $ 16,360 $ 945 5.78% $ 16,371 $ 971 5.93% $ 16,027 $ 976 6.09%
Securities Available for Sale (1)
U.S. Treasury and Federal Agency Securities 47,887 2,725 5.69% 50,902 3,108 6.11% 63,057 3,919 6.22%
State and Municipal obligations 3,642 182 5.00% 3,917 197 5.03% 3,943 198 5.02%
Other Securities 4,943 278 5.62% 3,931 252 6.41% 2,803 200 7.14%
Total Securities Available for Sale 56,472 3,185 5.64% 58,750 3,557 6.05% 69,803 4,317 6.18%
Total Investment Securities 72,832 4,130 5.67% 75,121 4,528 6.03% 85,830 5,293 6.17%
Tax Equivalent Adjustment 340 0.47% 345 0.46% 345 0.40%
Tax Equivalent Total 4,470 6.14% 4,873 6.49% 5,638 6.57%
Federal Funds Sold and Agreements to Repurchase 2,999 149 4.97% 4,372 236 5.40% 2,979 160 5.37%
Interest-Bearing Deposits with Banks 124 6 4.84% 152 8 5.26% 500 25 5.00%
Loans, Net of Deferred Loan Fees (2)
Commercial 26,530 2,306 8.69% 23,150 2,093 9.04% 20,035 1,828 9.12%
Real Estate Mortgage 175,429 14,946 8.52% 154,764 13,525 8.74% 137,079 12,194 8.90%
Installment 19,350 1,916 9.90% 15,268 1,593 10.43% 14,014 1,461 10.43%
Total Loans 221,309 19,168 8.66% 193,182 17,211 8.91% 171,128 15,483 9.05%
Total Interest-Earning Assets 297,264 23,793 8.00% 272,827 22,328 8.18% 260,437 21,306 8.18%
Allowance for Loan Losses (2,969) (2,550) (2,261)
Cash and Due From Banks 12,899 9,225 7,510
Premises and Equipment 6,952 6,187 5,475
Other Assets 6,091 5,793 5,565
Total Assets 320,237 291,482 276,726

LIABILITIES
Interest-Bearing Deposits
Negotiable Order of Withdrawal ("NOW")
and Money Market Investment Accounts 70,263 2,159 3.07% 63,413 2,199 3.47% 54,626 1,912 3.50%
Savings 13,533 269 1.99% 12,679 315 2.48% 12,786 331 2.59%
Certificates of Deposit and Other Deposits 139,381 6,872 4.93% 134,893 7,274 5.39% 133,509 7,237 5.42%
Total Interest-Bearing Deposits 223,177 9,300 4.17% 210,985 9,788 4.64% 200,921 9,480 4.72%
Securities sold under agreements
to repurchase and other borrowings 8,332 389 4.67% 5,222 271 5.19% 5,100 265 5.20%
Federal Home Loan Bank advances 14,499 858 5.92% 10,067 607 6.03% 11,247 670 5.96%
Total Interest-Bearing Liabilities 246,008 10,547 4.29% 226,274 10,666 4.71% 217,268 10,415 4.79%
Noninterest-Bearing Earning Demand Deposits 40,715 34,487 31,566
Other Liabilities 2,963 2,693 2,513
Total Liabilities 289,686 263,454 251,347
STOCKHOLDERS' EQUITY 30,551 28,028 25,379
Total Liabilities and Shareholders' Equity 320,237 291,482 276,726
Average Equity to Average Total Assets 9.54% 9.62% 9.17%
Net Interest Income 12,906 11,317 10,546
Net Interest Income (tax equivalent) (3) 13,246 11,662 10,891
Net Interest Spread (tax equivalent) (3) 3.72% 3.47% 3.39%
Net Interest Margin (tax equivalnet) (3) 4.46% 4.27% 4.18%

[FN]
(1) Averages computed at amortized cost.
(2) Includes loans on a nonaccrual status.
(3) Tax equivalent difference represents the tax equivalent
adjustment detailed above.

Noninterest Income and Expenses

Noninterest income was $3.4 million in 1999 compared to $3.1
million in 1998 and $2.4 million in 1997. In 1999
securities gains were $1 thousand compared to $41 thousand
gains in 1998 and $14 thousand gains in 1997. Typically, U.
S. Treasury securities are sold before maturity when
additional interest yields can be realized. Other types of
investment securities are generally not sold. In addition,
gains on loans sold were $351 thousand, $440 thousand and
$72 thousand in 1999, 1998 and 1997, respectively. During
1999, the volume of mortgage loans held for sale declined.
This decline along with rising rates account for the drop in
loan gains during the year. In 1998, management increased
its focus on mortgage banking and this focus along with the
increased volume of loans sold in a declining rate
environment resulted in the increased gain on loans sold.
Loans held for sale are generally sold after closing to
Federal Home Loan Mortgage Corporation. The sales of loans
were $25 million, $35 million and $18 million in 1999, 1998
and 1997, respectively. Other noninterest income excluding
security and loans net gains was $3.0 million in 1999, $2.6
million in 1998 and $2.3 million in 1997. Service charges
and trust department income have both been big contributors
to this increase in income over this three-year period.

Noninterest expense increased $908 thousand in 1999 to $9.4
million and $626 thousand from $7.9 million in 1997 to $8.5
million in 1998. The increases in salaries and benefits
from $4.3 million in 1997 to $4.5 million in 1998 and $5.1
million in 1999 are mainly attributable to normal salary and
benefit increases and a change in bonus compensation, with
an increased focus on incentive compensation. Due to this
change, bonuses were $234 thousand higher in 1999 compared
to 1998. Occupancy expense increased $197 thousand, or 17%
in 1999 to $1.4 million and 16% in 1998, from $1.0 million
in 1997 to $1.2 million in 1998. In August 1998 the Company
added a new branch in Georgetown and in March 1997, the
Company opened its new branch in Versailles resulting in
higher operating cost attributable to these facilities. The
Company has also placed more emphasis on maintaining its
existing facilities since 1997, which are reflected in
increases in occupancy expenses. Other noninterest expense
increased from $2.6 million in 1997 to $2.8 million in 1998
and in 1999 other noninterest expenses increased to $3.0
million.

The following table is a summary of noninterest income and
expense for the three-year period indicated.

Year Ended December 31 (in thousands)
1999 1998 1997
NON-INTEREST INCOME
Service Charges $2,075 $1,811 $1,674
Loan Service Fee Income 291 283 258
Trust Department Income 398 300 237
Investment Securities Gains 1 41 14
(Losses),net
Gains on Sale of Mortgage Loans 351 440 72
Other 270 198 135
Total Non-interest Income 3,386 3,073 2,390

NON-INTEREST EXPENSE
Salaries and Employee Benefits 5,054 4,527 4,274
Occupancy Expenses 1,361 1,164 1,002
Other 3,007 2,823 2,612
Total Non-interest Expense 9,422 8,514 7,888

Net Non-interest Expense as a
Percentage of Average Assets 1.88% 1.87% 1.99%

Income Taxes

The Company had income tax expense of $1.7 million in 1999
compared to $1.4 million in 1998 and $1.1 million in 1997.
This represents an effective income tax rate of 27.9% in
1999, 26.5% in 1998 and 25.2% in 1997. The difference
between the effective tax rate and the statutory federal
rate of 34% is due to tax exempt income on certain loans and
investment securities. The higher effective rate for 1999
and 1998 is a result of tax-free income remaining virtually
unchanged for these two years while income before taxes
increased $995 thousand in 1999 and $619 thousand in 1998.

Balance Sheet Review

Assets at year-end 1999 totaled $347 million compared to
$309 million in 1998 and $291 million in 1997. Loan growth
of $32 million in 1999 was funded by deposit growth of $16
million and an increase in borrowings of $20 million. At
the end of 1999, Cash and Due From Banks were $9 million
higher as a precaution to possible Y2K anxieties. Changes
in 1998 are a result of loans increasing $27.7 million and
investment securities decreasing $9.3 million. Assets were
funded by an increase in deposits of $17.4 million. Federal
Home Loan Bank Advances declined by $3.3 million.

Loans

Total loans (including loans held for sale) were $242
million at December 31, 1999 compared to $213 million at the
end of 1998 and $185 million in 1997. As of the end of 1999
and compared to the prior year-end, commercial loans
increased $2.5 million, real estate construction loans
increased $5.9 million, real estate mortgage loans
(including loans held for sale) increased $13.6 million,
agricultural loans increased $2.2 million and installment
loans increased $4.8 million. In 1998, commercial loans
increased $4.5 million, real estate construction loans
increased $3.4 million, real estate mortgages increased
$11.2 million, agricultural loans increased $6.3 million and
installment loans increased $2.4 million. Since 1998,
management has utilized regional loan goals for each type of
loan and this emphasis has resulted in improved sales
efforts by the lending personnel. Management continues to
place more emphasis on the growth without sacrificing the
quality of the loan portfolio.

As of December 31, 1999, the real estate mortgage portfolio
comprised 57% of total loans compared to 59% in 1998. Of
this, 1-4 family residential property represented 76% in
1999 and 79% in 1998. Agricultural loans comprised 19% in
1999 and 21% in 1998 of the loan portfolio. Approximately
75% and 73% of the agricultural loans are secured by real
estate for 1999 and 1998, respectively. The remainder of
the agricultural portfolio is used to purchase livestock,
equipment and other capital improvements and for general
operation of the farm. Generally, a secured interest is
obtained in the capital assets, equipment, livestock or
crops. Automobile loans account for 52% in 1999 and 47% in
1998 of the installment loan portfolio, while the purpose of
the remainder of this portfolio is used by customers for
purchasing retail goods, home improvement or other personal
reasons. Collateral is generally obtained on these loans
after analyzing the repayment ability of borrower.
Commercial loan's portfolio is mainly for capital outlays
and business operation. Collateral is requested depending
on the creditworthiness of the borrower. Unsecured loans
are made to individuals or companies mainly based on the
creditworthiness of the customer. Approximately 5% of the
loan portfolio is unsecured. Management is not aware of any
significant concentrations that may cause future material
risks, which may result in significant problems with future
income and capital requirements.

The following table represents a summary of the Company's
loan portfolio by category for each of the last five years.
There is no concentration of loans (greater than 5% of the
loan portfolio) in any industry. Bourbon has no foreign
loans or highly leveraged transactions in its loan
portfolio.

Loans Outstanding
December 31 (in thousands)
1999 1998 1997 1996 1995
Commercial $ 17,713 $ 15,177 $ 10,644 $ 10,216 $ 11,167
Real Estate Construction 17,003 11,055 7,657 4,200 3,497
Real Estate Mortgage 138,337 124,721 113,524 99,293 102,077
Agricultural 46,443 44,199 37,924 30,947 27,019
Installment 22,358 17,608 15,182 14,789 11,029
Other 280 159 287 374 397
Total Loans 242,134 212,919 185,218 159,819 155,186
Less Deferred Loan Fees 33 76 57 154 125
Total Loans Net of
Deferred Loan Fees 242,101 212,843 185,161 159,665 155,061
Less loans held for sale 3,494 5,909 5,418 863 1,364
Less Allowance For Loan Losses 3,103 2,734 2,322 2,101 1,860
Net Loans 235,504 204,200 177,421 156,701 151,837

The following table sets forth the maturity distribution and
interest sensitivity of selected loan categories at December
31, 1999. Maturities are based upon contractual term. The
total loans in this report represents loans net of deferred
loan fees, including loans held for sale but excluding the
allowance for loan losses. In addition, deferred loan fees
on the above schedule is netted with real estate mortgage
loans on the following schedule.

Loan Maturities and Interest Sensitivity

December 31, 1999 (in thousands)
One Year One Through Over Total
or Less Five Years Five Years Loans
Commercial $ 8,625 $ 6,595 $ 2,494 $ 17,714
Real Estate 14,321 2,525 162 17,008
Construction
Real Estate Mortgage 9,029 77,389 51,875 138,293
Agricultural 14,256 29,794 2,398 46,448
Installment 5,481 16,660 217 22,358
Other 280 0 0 280
Total Loans 51,992 132,963 57,146 242,101
Fixed Rate Loans 25,206 125,656 17,893 168,755
Floating Rate Loans 26,786 7,307 39,253 73,346
Total 51,992 132,963 57,146 242,101

Deposits

Total deposits increased to $275 million in 1999, up $16
million from 1998. Noninterest bearing deposits increased
$2 million, while time deposits of $100 thousand and over,
and other interest bearing deposits both increased $7
million. Public funds totaled $34 million at the end of
1999 ($33 million was interest bearing). On August 13,
1999, Kentucky Bank acquired the Wilmore, Kentucky branch of
National City Bank. Included in the purchase were $9.0
million in net deposits and $353 thousand in fixed assets.
The net deposits assumed exceeded the cash received by $287
thousand.

Total deposits increased $17 million in 1998 to $259
million. Noninterest bearing deposits increased $7 million
to $40 million, while $100,000 and over time deposits and
other interest bearing deposits both increased $5 million.
Public funds composed $35 million, with $34 million of this
being interest bearing. In addition, management placed more
emphasis on deposits and monitored deposits generated by
type on a monthly basis.

The tables below provide information on the maturities of
time deposits of $100,000 or more at December 31, 1999 and
detail of short-term borrowing for the past three years.

Maturity of Time Deposits of $100,000 or More

December 31, 1999
(in thousands)

Maturing 3 Months or Less $ 7,904
Maturing over 3 Months through 6 Months 8,540
Maturing over 6 Months through 12 Months 13,858
Maturing over 12 Months 4,412

Total 34,714

Borrowing

The Company utilizes both long and short term borrowing.
Long term borrowing is mainly from the Federal Home Loan
Bank (FHLB). As of December 31, 1999, $26.6 million was
borrowed from FHLB, an increase of $19.6 million from 1998.
Advances are either paid monthly or at maturity. This
borrowing is mainly used to fund long term, fixed rate
mortgages and to assist in asset/liability management.
Nearly $361 thousand of FHLB borrowing was paid in 1999, and
advances were made for an additional $20 million. The
following table depicts relevant information concerning our
short term borrowings.

Short Term Borrowings
December 31 (in thousands)
1999 1998 1997
Federal Funds Purchased:
Balance at Year end $ 0 $3,750 $2,375
Average Balance During the Year 2,196 446 488
Maximum Month End Balance 11,925 4,550 2,375
Repurchase Agreements:
Balance at Year end 10,330 6,713 4,615
Average Balance During the Year 5,683 4,329 4,103
Maximum Month End Balance 10,330 6,713 4,895
Other Borrowed Funds:
Balance at Year end 1,528 785 2,468
Average Balance During the Year 1,203 1,198 1,259
Maximum Month End Balance 1,759 1,761 2,468

Asset Quality

With respect to asset quality, management considers three
categories of assets to merit close scrutiny. These
categories include: loans that are currently nonperforming,
other real estate, and loans that are currently performing
but which management believes require special attention.

The Company discontinues the accrual of interest on loans
that become 90 days past due as to principal or interest
unless extreme justifiable reasons are documented such as
the loan being in the process of collection. Uncollected
interest generally remains in earned income until collected
and removed from earnings if the loan is charged-off. A
loan remains in a non-accrual status until factors
indicating doubtful collection no longer exist. A loan is
classified as a restructured loan when the interest rate is
materially reduced or the term is extended beyond the
original maturity date because of the inability of the
borrower to service the interest payments at market rates.
Other real estate is recorded at the lower of cost or fair
market value less estimated costs to sell. A summary of the
components of nonperforming assets, including several rates
using period-end data, is shown below.

Nonperforming Assets
December 31 (dollars in thousands)
1999 1998 1997 1996 1995
Non-accrual Loans $ 63 $ 136 $ 173 $ 33 $ 44
Accruing Loans which are
Contractually past due
90 days or more 565 790 154 562 438
Restructured Loans 131 147 160 180 201
Total Nonperforming Loans 759 1,073 487 775 683
Other Real Estate 371 70 0 79 57
Total Nonperforming Assets 1,130 1,143 487 854 740
Total Nonperforming Loans as a
Percentage of Net Loans (including
loans held for sale) (1) 0.31% 0.50% 0.26% 0.49% 0.44%
Total Nonperforming Assets
as a Percentage of Total Assets 0.33% 0.37% 0.17% 0.31% 0.27%

(1) Net of deferred loan fees

Total nonperforming assets loans at December 31, 1999 were
$1.1 million compared to $1.1 million at December 31, 1998
and $487 thousand at December 31, 1997. Total nonperforming
loans were $759 thousand, $1.1 million and $487 thousand at
December 31, 1999, 1998 and 1997, respectively. The amount
of lost interest on non-accrual loans is considered
immaterial. At December 31, 1999, loans currently
performing but which management believes require special
attention were not significant. The Company continues to
follow its long-standing policy of not engaging in
international lending and not concentrating lending activity
in any one industry.

Impaired loans as of December 31, 1999 were $201 thousand
compared to $286 thousand in 1998 and $333 thousand in 1997.
These amounts are included in the total nonperforming and
restructured loans presented in the table above. See Note 4
in the notes to consolidated financial statements included
as Exhibit 13.

A loan is considered impaired when it is probable that all
principal and interest amounts will not be collected
according to the loan contract. The allowance for loan
losses on impaired loans is determined using the present
value of estimated future cash flows of the loan, discounted
at the loan's effective interest rate or the fair value of
the underlying collateral. The entire change in present
value of expected cash flows is reported as a provision for
loan losses in the same manner in which impairment initially
was recognized or as a reduction in the amount of provision
for loan losses that otherwise would be reported. The total
allowance for loan losses related to these loans was $10
thousand, $85 thousand and $57 thousand on December 31,
1999, 1998 and 1997, respectively.

Loan Losses

The following table is a summary of the Company's loan loss
experience for each of the past five years.

Year Ended December 31 (in thousands)
1999 1998 1997 1996 1995
Balance at Beginning of Year $2,735 $2,322 $2,101 $1,860 $1,648
Amounts Charged-off:
Commercial 0 13 5 55 14
Real Estate Construction 0 0 0 0 0
Real Estate Mortgage 50 36 25 4 41
Agricultural 72 19 52 12 36
Consumer 289 300 273 142 139
Total Charged-off Loans 411 368 355 213 230
Recoveries on Amounts
Previously Charged-off:
Commercial 5 4 3 12 15
Real Estate Construction 0 0 0 0 0
Real Estate Mortgage 1 9 1 8 21
Agricultural 32 2 25 1 0
Consumer 41 66 54 31 11
Total Recoveries 79 81 83 52 47
Net Charge-offs 332 287 272 161 183
Provision for Loan Losses 700 700 493 402 395
Balance at End of Year 3,103 2,735 2,322 2,101 1,860
Total Loans, Net of Deferred
Loan Fees
Average 221,309 193,182 171,128 155,735 153,109
At December 31 242,101 212,843 185,161 159,665 155,061
As a Percentage of Average Loans:
Net Charge-offs 0.15% 0.15% 0.16% 0.10% 0.12%
Provision for Loan Losses 0.32% 0.36% 0.29% 0.26% 0.26%
Allowance as a Percentage of
Year-end Net Loans (1) 1.28% 1.28% 1.25% 1.32% 1.20%
Beginning Allowance as a Multiple
Of Net Charge-offs 8.2 8.1 7.7 11.6 9.0

(1) Net of deferred loan fees

Loans are typically charged-off after being 120 days
delinquent. Limited exceptions for not charging-off a loan
would be well documented and approved by the appropriate
responsible party or committee. The provision for loan
losses for 1999 was $700 thousand compared to $700 thousand
in 1998 and $493 thousand in 1997. Net charge-offs were
$332 thousand in 1999, $287 thousand in 1998 and $272
thousand in 1997. Net chargeoffs to average loans were
0.15%, 0.15% and 0.16% in 1999, 1998 and 1997, respectively.
With the current quality of the loan portfolio, the loan
loss provision stayed constant from 1998 to 1999. The trend
in the loan loss provision increasing for 1998 is a result
of considering our historical loan loss trends, risk
analysis of our loan portfolio and the increase in loan
outstandings. In evaluating the allowance for loan losses,
management considers the composition of the loan portfolio,
historical loan loss experience, the overall quality of the
loans and an assessment of current economic conditions. At
December 31, 1999, the allowance for loan losses was 1.28%
of loans outstanding compared to 1.28% at year-end 1998 and
1.25% in 1997. Management believes the allowance for loan
losses at the end of 1999 is adequate to cover inherent
credit losses within the portfolio.

The following tables set forth an allocation for the
allowance for loan losses and loans by category and a
percentage distribution of the allowance allocation. In
making the allocation, management evaluates the risk in each
category, current economic conditions and charge-off
experience. An allocation for the allowance for loan losses
is an estimate of the portion of the allowance that will be
used to cover future charge-offs in each loan category, but
it does not preclude any portion of the allowance allocated
to one type of loan being used to absorb losses of another
loan type.

Allowance for Loan Losses
December 31 (in thousands)
1999 1998 1997 1996 1995
Dollars Percentage Dollars Percentage Dollars Percentage Dollars Percentage Dollars Percentage

Commercial $ 275 8.86% $ 262 9.58% $ 191 8.23% $ 168 8.00% $ 132 7.10%
Real Estate Construction 294 9.47% 168 6.14% 118 5.08% 77 3.66% 38 2.04%
Real Estate Mortgage 1,471 47.41% 1,480 54.11% 1,327 57.15% 1,252 59.59% 1,192 64.09%
Agricultural 565 18.21% 473 17.29% 393 16.93% 353 16.80% 327 17.58%
Consumer 498 16.05% 352 12.87% 293 12.62% 251 11.95% 171 9.19%
Total 3,103 100.00% 2,735 100.00% 2,322 100.00% 2,101 100.00% 1,860 100.00%

Loans
December 31 (in thousands)
1999 1998 1997 1996 1995
Dollars Percentage Dollars Percentage Dollars Percentage Dollars Percentage Dollars Percentage
Commercial $ 17,713 7.32% $ 15,177 7.13% $ 10,644 5.75% $ 10,216 6.40% $ 11,167 7.20%
Real Estate Construction 17,003 7.02% 11,055 5.19% 7,657 4.14% 4,200 2.63% 3,497 2.26%
Real Estate Mortgage 138,304 57.13% 124,645 58.56% 113,467 61.28% 99,139 62.09% 102,077 65.83%
Agricultural 46,443 19.18% 44,199 20.77% 37,924 20.48% 30,947 19.38% 27,019 17.42%
Consumer 22,358 9.23% 17,608 8.27% 15,182 8.20% 14,789 9.26% 10,904 7.03%
Other 280 0.12% 159 0.07% 287 0.16% 374 0.23% 397 0.26%
Total, Net (1) 242,101 100.00% 212,843 100.00% 185,161 100.00% 159,665 100.00% 155,061 100.00%

[FN]
(1) Net of deferred loan fees

Capital

As displayed by the following table, the Company's Tier I
capital (as defined by the Federal Reserve Board under the
Board's risk-based guidelines) at December 31, 1999
increased $2.9 million to $30.6 million. Total
stockholders' equity, excluding accumulated other
comprehensive income was $32.3 million at December 31, 1999.
The Company's risk-based capital and leverage ratios, as
shown in the following table, exceeded the levels required
to be considered "well capitalized". The leverage ratio
compares Tier I capital to total average assets less
disallowed amounts of goodwill.

December 31 (dollars in thousands)
1999 1998 Change
Stockholders' Equity (1) $ 32,269 $ 29,306 $ 2,963
Less Disallowed Amount 1,685 1,574 111
Tier I Capital 30,584 27,732 2,852
Allowance for Loan Losses 2,926 2,601 325
Tier II Capital 2,926 2,601 325
Total Capital 33,510 30,333 3,177
Total Risk Weighted Assets 233,929 207,970 25,959
Ratios:
Tier I Capital to Risk-weighted Assets 13.07% 13.33% -0.26%
Total Capital to Risk-weighted Assets 14.32% 14.59% -0.27%
Leverage 9.59% 9.56% 0.03%

(1) Excluding accumulated other comprehensive income.

The Federal Deposit Insurance Corporation Improvement Act of
1991 ("FDICIA") established five capital categories for
insured depository institutions under its Prompt Corrective
Action Provisions. The bank regulatory agencies adopted
regulations, which became effective in 1992, defining these
five capital categories for banks they regulate. The
categories vary from "well capitalized" to "critically
undercapitalized". A "well capitalized" bank is defined as
one with a total risk-based capital ratio of 10% or more, a
Tier I risk-based capital ratio of 6% or more, a leverage
ratio of 5% or more, and one not subject to any order,
written agreement, capital directive, or prompt corrective
action directive to meet or maintain a specific capital
level. At December 31, 1999, the bank had ratios that
exceeded the minimum requirements established for the "well
capitalized" category.

In management's opinion, there are no known trends, events
or uncertainties that will have or that are reasonably
likely to have a material effect on the Company's liquidity,
capital resources or operations.
Securities and Federal Funds Sold

Securities, including those classified as held to maturity
and available for sale, decreased from $72.4 million at
December 31, 1998 to $70.6 million at December 31, 1999.
The decrease is attributable to the increased loan demand.
Federal funds sold totaled $675 thousand at December 31,
1999.

Per Company policy, fixed rate asset backed securities will
not have an average life exceeding seven years, but final
maturity may be longer. Adjustable rate securities shall
adjust within three years per Company policy. Of the $14.6
million of adjustable asset backed securities held on
December 31, 1999, $3.4 million are repriceable monthly and
the remaining $11.2 million is repriceable annually. In
addition, all applicable securities have passed the
appropriate stress tests. The following tables present the
investment securities for each of the past three years and
the maturity and yield characteristics of securities as of
December 31, 1999.

Investment Securities (Held to maturity at amortized cost,
available for sale at market value)
December 31 (in thousands)
1999 1998 1997

U.S. Treasury Securities
Available for Sale $17,954 $16,087 $19,072
U.S. Federal Agency Securities
Available for Sale 5,902 5,979 10,485
State and Municipal Obligations
Available for Sale 3,681 3,804 4,077
Held to Maturity 15,693 16,933 15,603
Asset-Backed Securities
Available for Sale 25,773 25,624 32,466
Fixed -
GNMA, FNMA, FHLMC Passthroughs 5,998 2,352 4,924
GNMA, FNMA, FHLMC CMO's 5,191 7,570 9,970
Total 11,189 9,922 14,894
Variable -
GNMA, FNMA, FHLMC Passthroughs 11,539 12,529 14,306
GNMA, FNMA, FHLMC CMO's 3,045 3,173 3,266
Total 14,584 15,702 17,572
Other Securities
Available for Sale 1,620 3,926 0
Total Securities
Available for Sale 54,930 55,420 66,100
Held to Maturity 15,693 16,933 15,603
Total 70,623 72,353 81,703

Maturity Distribution of Securities
December 31, 1999 (in thousands)
Over One Over Five Asset
Year Years Backed
One Year Through Through Over Ten & Equity Market
or Less Five Yrs Ten Years Years Securities Total Value

U.S. Treasury Securities
Available for Sale $11,964 $ 5,990 $ 0 $ 0 $ 0 $17,954 $17,954
U.S. Federal Agency Securities
Available for Sale 1,982 3,920 0 0 0 5,902 5,902
State and Municipal Obligations
Available for Sale 0 2,808 873 0 0 3,681 3,681
Held to Maturity 651 7,758 4,407 2,877 0 15,693 15,917
Asset-Backed Securities
Available for Sale 0 0 0 0 25,773 25,773 25,773
Other Securities
Available for Sale 0 241 0 0 1,379 1,620 1,620
Total Securities
Available for Sale 13,946 12,959 873 0 27,152 54,930 54,930
Held to Maturity 651 7,758 4,407 2,877 0 15,693 15,917
Total 14,597 20,717 5,280 2,877 27,152 70,623 70,847
Percent of Total 20.67% 29.33% 7.48% 4.07% 38.45% 100.00%
Weighted Average Yield (1) 5.62% 6.89% 10.02% 7.14% 5.90% 6.49%

[FN]
(1) Tax Equivalent Yield

Impact of Inflation and Changing Prices

The majority of Bourbon's assets and liabilities are
monetary in nature. Therefore, Bourbon differs greatly from
most commercial and industrial companies that have
significant investments in nonmonetary assets and
inventories. However, inflation does have an important
impact on the growing of assets in the banking industry and
the resulting need to increase equity capital at higher than
normal rates in order to maintain an appropriate equity to
assets ratio. Inflation also affects other expenses, which
tend to rise during periods of inflation.

Other Accounting Issues

Beginning January 1, 2001, a new accounting standard will
require all derivatives to be recorded at fair value.
Unless designated as hedges, changes in these fair values
will be recorded in the income statement. Fair value
changes involving hedges will generally be recorded by
offsetting gains and losses on the hedge and on the hedged
item, even if the fair value of the hedged item is not
otherwise recorded. This is not expected to have a material
effect, but the effect will depend on derivative holdings
when this standard applies.

Year 2000

The Company assessed the operational and financial
implications of its Year 2000 needs and developed a plan to
address its data processing systems and their ability to
handle the change. The Company also assessed the Year 2000
readiness of other third party entities such as public
utilities and governmental units. These and other like
entities provide important ongoing services to the Company.
Therefore, management also developed contingency plans for
continued operations. The Company's credit customers were
also subject to review for potential losses as a result of
Year 2000 exposure in their own computer systems as well as
the computer systems of their suppliers and customers.

Management believes its plan was successful as all operating
systems performed will during the year change. While
management does not expect future problems resulting from
the Year 2000 issue, it is possible that other dates in the
year 2000 may further affect computer software and systems,
or cause a Year 2000 problem relating to the Company's own
systems or to those of third parties with whom the Company
conducts business that could adversely affect its financial
condition.

Costs for this project were under $150 thousand, with the
majority of this expenditure being for equipment and
software to be capitalized over 3-5 years.

Monitoring of computer date sensitive issues will continue
in 2000. Corrective action will be taken if such an event
arises. Management has determined that if an unlikely
business interruption as a result of computer date sensitive
issues occurred, such an interruption could be material to
the overall financial performance of the Company.

Forward-Looking Statements

This discussion contains forward-looking statements under
the Private Securities Litigation Reform Act of 1995 that
involve risks and uncertainties. Although the Company
believes that the assumptions underlying the forward-looking
statements contained herein are reasonable, any of the
assumptions could be inaccurate, and therefore, there can be
no assurance that the forward-looking statements included
herein will prove to be accurate. Factors that could cause
actual results to differ from the results discussed in the
forward-looking statements include, but are not limited to:
economic conditions (both generally and more specifically in
the markets, including the tobacco market, in which the
Company and its bank operate); competition for the Company's
customers from other providers of financial and mortgage
services; government legislation and regulation (which
changes from time to time and over which the Company has no
control); changes in interest rates (both generally and more
specifically mortgage interest rates); material unforeseen
changes in the liquidity, results of operations, or
financial condition of the Company's customers; material
unforeseen complications related to addressing the Year 2000
problem experienced by the Company, its suppliers, customers
and governmental agencies; and other risks detailed in the
Company's filings with the Securities and Exchange
Commission, all of which are difficult to predict and many
of which are beyond the control of the Company. The Company
undertakes no obligation to republish revised
forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the
occurrence of unanticipated events.

Item 7A. Asset/Liability Management, Interest Rate
Sensitivity, Market Risk and Liquidity

Asset/Liability management control is designed to ensure
safety and soundness, maintain liquidity and regulatory
capital standards, and achieve acceptable net interest
income. Management considers interest rate risk to be the
most significant market risk. The Company's exposure to
market risk is reviewed on a regular basis by the
Asset/Liability Committee. Interest rate risk is the
potential of economic losses due to future interest rate
changes. These economic losses can be reflected as a loss
of future net interest income and/or a loss of current fair
market values. The objective is to measure the effect on
net interest income and to adjust the balance sheet to
minimize the inherent risk while at the same time maximize
income. Management realizes certain risks are inherent and
that the goal is to identify and minimize the risks. Tools
used by management include the standard GAP model and an
interest rate shock simulation model. The Bank has no
market risk sensitive instruments held for trading purposes.
The following table depicts the change in net interest
income resulting from 100 and 300 basis point changes in
rates. The projections are based on balance sheet growth
assumptions and repricing opportunities for new, maturing
and adjustable rate amounts. In addition, the projected
percentage changes from level rates are outlined below along
with the Board of Directors specified limits. As of
December 31, 1999 the projected percentage changes are
within the Board limits and the Company's interest rate risk
is also within Board limits. The projected net interest
income report summarizing the Company's interest rate
sensitivity as of December 31, 1999 and December 31, 1998 is
as follows:

Projected Net Interest Income (December 31, 1999)

Level
Rate Change: - 300 - 100 Rates + 100 + 300

Year One (1/1/00 - 12/31/2000)
Interest Income $23,593 $25,822 $26,942 $28,063 $30,303
Interest Expense 9,785 11,818 12,834 13,850 15,882

Net Interest Income 13,808 14,004 14,108 14,213 14,421

Net interest income dollar change (300) (104) 105 313

Net interest income percentage
change -2.1% -0.7% N/A 0.7% 2.2%

Limitation on % Change >-10.0% >-4.0% N/A >-4.0% >-10.0%

Projected Net Interest Income (December 31, 1998)

Level
Rate Change: - 300 - 100 Rates + 100 + 300

Year One (1/1/99 - 12/31/99)
Interest Income $19,989 $22,127 $23,210 $24,295 $26,463
Interest Expense 7,317 9,281 10,264 11,246 13,210

Net Interest Income 12,672 12,846 12,946 13,049 13,253

Net interest income dollar change (274) (100) 103 307

Net interest income percentage
change -2.1% -0.8% N/A 0.8% 2.4%

Limitation on % Change >-10.0% >-4.0% N/A >-4.0% >-10.0%

These numbers are comparable to 1998. In 1998 and 1999,
year one reflected a decline in net interest income of 2.1%
with a 300 basis point decline. The 300 basis point
increase in rates reflected a 2.4% increase in net interest
income in 1998 compared to 2.2% in 1999.

Management measures the Company's interest rate risk by
computing estimated changes in net interest income in the
event of a range of assumed changes in market interest
rates. The Company's exposure to interest rates is reviewed
on a monthly basis by senior management and quarterly with
the Board of Directors. Exposure to interest rate risk is
measured with the use of interest rate sensitivity analysis
to determine the change in net interest income in the event
of hypothetical changes in interest rates, while interest
rate sensitivity gap analysis is used to determine the
repricing characteristics of the Company's assets and
liabilities. If estimated changes to net interest income
are not within the limits established by the Board, the
Board may direct management to adjust the Company's asset
and liability mix to bring interest rate risk within Board
approved limits.

In addition, the Company uses interest rate sensitivity gap
analysis to monitor the relationship between the maturity
and repricing of its interest-earning assets and interest-
bearing liabilities, while maintaining an acceptable
interest rate spread. Interest rate sensitivity gap is
defined as the difference between the amount of interest-
earning assets maturing or repricing within a specific time
period and the amount of interest-bearing liabilities
maturing or repricing within that time period. A gap is
considered positive when the amount of interest-rate-
sensitive assets exceeds the amount of interest-sensitive-
liabilities, and is considered negative when the amount of
interest-rate-sensitive liabilities exceeds the amount of
interest-rate-sensitive assets. Generally, during a period
of rising interest rates, a negative gap would adversely
affect net interest income, while a positive gap would
result in an increase in net interest income. Conversely,
during a period of falling interest rates, a negative gap
would result in an increase in net interest income, while a
positive gap would negatively affect net interest income.
The Company's goal is to maintain a reasonable balance
between exposure to interest rate fluctuations and earnings.

The interest rate sensitivity analysis as of December 31,
1999 shown below depicts amounts based on the earliest
period in which they can normally be expected to reprice.
The chart reveals that assets and liabilities are fairly
well matched for the early periods specified below. The
decay rates used for Demand deposits, NOW's, Savings and
Money Market Savings are 5%, 30%, 20% and 30%, respectively.

Interest Rate Sensitivity Analysis

December 31, 1999 (in thousands)
Total 1 Year 2 Years 3 Years 4 Years 5 Years >5 Years
ASSETS

Cash & Due From Banks $ 19,769 $ - $ - $ - $ - $ - $ 19,769
Fed Funds & Int-Earning Due from Banks 948 948 - - - - -
Investment Securities (1) 70,623 35,736 12,835 3,494 4,917 3,694 9,947
Loans (including held for sale) 242,100 108,970 28,849 35,899 40,582 25,494 2,306
Others Assets 14,039 3,345 - - - - 10,694

Total Assets / Repricing Assets 347,479 148,999 41,684 39,393 45,499 29,188 42,716
Repricing Assets - Accumulated 148,999 190,683 230,076 275,575 304,763 347,479
% of Current Balance 42.9% 12.0% 11.3% 13.1% 8.4% 12.3%
% of Current Balance - Accumulated 42.9% 54.9% 66.2% 79.3% 87.7% 100.0%

LIABILITIES

Total Deposits 274,566 144,843 43,599 15,341 11,438 8,728 50,617
Other Borrowings 38,451 22,088 477 240 5,568 10,022 56
Other Liabilities 2,742 - - - - - 2,742
Total Capital 31,720 - - - - - 31,720

Total Liabilities / Repricing Liab 347,479 166,931 44,076 15,581 17,006 18,750 85,135
Repricing Liabilities - Accumulated 166,931 211,007 226,588 243,594 262,344 347,479
% of Current Balance 48.0% 12.7% 4.5% 4.9% 5.4% 24.5%
% of Current Balance - Accum 48.0% 60.7% 65.2% 70.1% 75.5% 100.0%

SUMMARY

Total Repricing Assets 148,999 41,684 39,393 45,499 29,188 42,716
Total Repricing Liabilities 166,931 44,076 15,581 17,006 18,750 85,135

Total Repricing Gap (by Bucket) (17,932) (2,392) 23,812 28,493 10,438 (42,419)

Total Repricing Assets - Cumulative 315,455 148,999 190,683 230,076 275,575 304,763 347,479
Total Repricing Liabilities - Cumulative 314,233 166,931 211,007 226,588 243,594 262,344 347,479

Repricing Gap - Cumulative 1,222 (17,932) (20,324) 3,488 31,981 42,419 -

Gap/Total Assets (by Bucket) -5.16% -0.69% 6.85% 8.20% 3.00% -12.21%
Cumulative Gap/Total Assets -5.16% -5.85% 1.00% 9.20% 12.21% 0.00%

[FN]
(1) Held to maturity at amortized cost, available for sale at market value

Little change in the above numbers has occurred since 1998.
For the first three repricing years in 1998 and 1999, the
cumulative gap percentage is less than 4%. There was a
slight decrease in the cumulative gap for the three-year
repricing period from 3.15% in 1998 to 1.00% in 1999. The
cumulative gap at December 31, 1998 for the 5-year period
was 14.7%. This decreased to 12.2% as of December 31, 1999.
These percentages remain below the Board established
guidelines.

Liquidity risk is the possibility that Bourbon may not be
able to meet its cash requirements. Management of liquidity
risk includes maintenance of adequate cash and sources of
cash to fund operations and meeting the needs of borrowers,
depositors and creditors. Excess liquidity has a negative
impact on earnings resulting from the lower yields on short-
term assets.

In addition to cash and cash equivalents, the securities
portfolio provides an important source of liquidity. Total
securities maturing within one year along with cash and cash
equivalents totaled $35.3 million at December 31, 1999.
Additionally, securities available-for-sale with maturities
greater than one year totaled $41.0 million at December 31,
1999. These securities are available to meet liquidity
needs on a continuing basis.

Bourbon maintains a relatively stable base of customer
deposits and its steady growth is expected to be adequate to
meet its funding demands. In addition, management believes
the majority of its $100,000 or more certificates of deposit
are no more volatile than its core deposits. At December
31, 1999 these balances totaled $35 million, approximately
12.6% of total deposits.

The Company also relies on FHLB advances for both liquidity
and asset/liability management purposes. These advances are
used primarily to fund long-term fixed rate residential
mortgage loans. FHLB advances increased $19.6 million in
1999 to $26.6 million.

Generally, Bourbon relies upon net cash inflows from
financing activities, supplemented by net cash inflows from
operating activities, to provide cash used in its investing
activities. As is typical of many financial institutions,
significant financing activities include deposit gathering,
and the use of short-term borrowings, such as federal funds
purchased and securities sold under repurchase agreements
along with long-term debt. The Company's primary investing
activities include purchasing investment securities and loan
originations. Management believes there is sufficient
liquidity to meet all reasonable borrower, depositor and
creditor needs in the present economic environment.

The cash flow statements for the periods presented provide
an indication of Bourbon's sources and uses of cash as well
as an indication of the ability of Bourbon to maintain an
adequate level of liquidity. A discussion of cash flow
statements for 1999, 1998 and 1997 follows.

Net cash provided by operating activities was $8.3 million,
$3.5 million and $5.2 million for the years ended December
31, 1999, 1998 and 1997, respectively. The changes in 1999
and 1998 were mainly a result of the increase in net income
from $3.4 million to $3.8 million to $3.5 million in 1997,
1998 and 1999, respectively. In addition for 1999, $2.6
million more was received from the sale of loans versus the
origination of loans held for sale.

Net cash flow used in investing activities was $23.9
million, $20.0 million, and $15.8 million and for the years
ended December 31, 1999, 1998 and 1997, respectively. The
changes in net cash from investing activities included the
result of normal maturities and reinvestment of investment
securities as well as funding related to increases in loans.
In 1999, funding for loan growth was $32 million. This was
partially offset by the $8 million acquired in the Wilmore
Branch acquisition. During 1998, funds used for loan growth
were $28 million, partly offset by a decline in investments
of $9 million. In 1997 and 1998, over $1.1 million was
invested in the new Georgetown branch that opened in August
1998. In addition, over $400 thousand investment was made
to upgrade the existing hardware and software.

Net cash flow from financing activities was $25.6 million,
$14.9 million and $13.7 million for the years ended December
31, 1999, 1998 and 1997, respectively. The net cash
increases and decreases were primarily attributable to
changes in total deposits, securities sold under agreements
to repurchase and federal funds purchased, and net changes
in advances from the Federal Home Loan Bank and other
borrowings. The chance in deposits was $6.8 million, $17.4
million and $10.3 million in 1999, 1998 and 1997,
respectively. Federal Home Loan Bank advances were $20
million in 1999 and $4 million in 1998.

A number of other techniques are used to measure the
liquidity position, including the ratios presented below.
These ratios are calculated based on annual averages for
each year.

Liquidity Ratios
December 31
1999 1998 1997
Average Loans (including loans held
for sale)/Average Deposits 83.9% 78.7% 73.6%
Average Securities sold under
agreements to repurchase and other
borrowings/Average Assets 2.6% 1.8% 1.8%

This chart shows that the loan to deposit ratio increased in
1999 and 1998. Loan growth of 15% and deposit growth of 6%
have both been contributing factors to the greater change in
this ratio from 1997 to 1998 compared to the previous year.

Item 8. Financial Statements

The consolidated financial statements of the Company
together with the notes thereto and report of independent
auditors are contained in the Company's 1999 Annual Report
to Stockholders included as Exhibit 13, and are incorporated
herein by reference.

Item 9. Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure

Not Applicable

PART III

Item 10. Directors and Executive Officers of the Registrant

Under the Company's Articles of Incorporation, the Board of
Directors consists of three different classes, each to
serve, subject to the provisions of the Articles of
Incorporation and Bylaws for a three year term and until his
successor is duly elected and qualified. The names of the
directors and their terms are set forth below.

Terms expiring in 2000:

William R. Stamler, age 65, is Chairman of Signal
Investments, Inc. He has been a director of Kentucky Bank
since 1984 and the Company since 1988.

Buckner Woodford, age 55, is President and Chief Executive
Officer of Bourbon Bancshares, Inc. and Kentucky Bank. He
has been a director of the Kentucky Bank since 1971 and the
Company since inception.

Terms expiring in 2001:

William Arvin, age 59, is an attorney. He has been a
director of Kentucky Bank and the Company since December 19,
1995.

James L. Ferrell, M.D., age 65, is a Physician. He has been
a director of Kentucky Bank since 1980 and the Company since
inception.

Joseph B. McClain, age 71, is President of Hopewell Co.
(insurance agency). He has been a director of Kentucky Bank
since 1971 and the Company since 1984.

Terms expiring in 2002:

Henry Hinkle, age 48, is President of Hinkle Construction
Company. He has been a director of Kentucky Bank and the
Company since 1989.

Theodore Kuster, age 56, is a farmer and thoroughbred horse
breeder. He has been a director of Kentucky Bank since 1979
and the Company since 1985.

Robert G. Thompson, age 50, is Executive Director of the
Paris Bourbon County YMCA, a farmer and thoroughbred horse
breeder. He has been a director of Kentucky Bank and the
Company since 1991.

The Company's other executive officer is Gregory J. Dawson,
age 39. He is the Chief Financial Officer and has been with
the Company since 1985 and serves at the pleasure of the
Board of Directors.

Item 11. Executive Compensation

The following table sets forth information with respect to
the compensation of the President and Chief Executive
Officer of the Company. No other executive officer earned
total salary and bonus in excess of $100,000.
Summary Compensation Table
Annual Compensation
Other Annual Options
Name Year Salary Bonus Compensation Granted
Buckner Woodford 1999 $162,000 $ 1,467 (1) 3,600
Buckner Woodford 1998 $156,000 $ 3,161 (1) 3,800
Buckner Woodford 1997 $150,000 $ 4,879 (1) 3,200
Buckner Woodford 1996 $136,500 $ 1,505 (1) 6,000

(1) Less than the lesser of $50,000 or 10% of annual salary
and bonuses

The following table contains information regarding the grant
of stock options under the Company's stock option plan to
the Chief Executive Officer during the year ended December
31, 1999. In addition, in accordance with rules of the
Securities and Exchange Commission, the following table sets
forth the hypothetical grant date present value with respect
to the referenced options, using the Black-Scholes Option
Pricing Model.

Option Grants in the Last Fiscal Year

% of Total
Options Grant
Shares Granted to Exercise Date
Granted Employees Price Expiration Present
Name (#) in 1999 ($/Sh) Date Value($)

Buckner Woodford 3,600 14.6% $20.63 1/12/09 $18,504

The following table sets forth certain information regarding
options exercised by the Chief Executive Officer during
calendar year 1999 and unexercised stock options held by him
as of December 31, 1999.

Aggregated Option Exercises in Calendar 1999
and Year-end Stock Option Values

Shares Number of Securities Value of Unexercised
Acquired Value Underlying Unexercised In-the-Money
on Exercise Realized Options at 12/31/99 Options at 12/31/99
Name (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable

Buckner Woodford None N/A 10,960/23,280 $152,512/$85,852

No SAR's exist for the company.

Compensation of Directors

Directors are paid $400 for each board meeting attended and
$100 for each committee meeting attended. Directors are
also granted a 10-year option to purchase 50 shares of the
Company's common stock following each year in which Kentucky
Bank has a return on assets of 1 percent or greater. The
option's exercise price is the fair market value per share
on the date of grant.

Pension Plan

The following table sets forth the annual benefits which an
eligible employee would receive under the Company's
qualified defined benefit pension plan based on remuneration
that is covered under the plan and years of service with the
Company and its subsidiaries.

Years of Service

Remuneration 15 20 25 30 35

$ 25,000 $ 3,750 $ 5,000 $ 6,250 $ 7,500 $ 8,750
50,000 7,500 10,000 12,500 15,000 17,500
75,000 11,250 15,000 18,750 22,500 26,250
100,000 15,000 20,000 25,000 30,000 35,000
125,000 18,750 25,000 31,250 37,500 43,750
150,000 22,500 30,000 37,500 45,000 52,500
175,000 26,250 35,000 43,750 52,500 61,250
200,000 30,000 40,000 50,000 60,000 70,000

In general, a participant's remuneration covered by the
Company's pension plan is his or her average annual cash
compensation (W-2 earnings) for the last 5 years. The years
of service for Mr. Woodford are 28 years.

Item 12. Security Ownership of Certain Beneficial Owners
and Management

Set forth below are the number of shares of the Company's
common stock beneficially owned by each director and
executive officer, and all current directors and executive
officers as a group as of December 31, 1999.

Name Shares Beneficially Owned(1)
Number Percentage

William Arvin (2) 31,532 1.1%

Gregory J. Dawson (3) 11,220 *

James L. Ferrell, M.D. (4) 30,200 1.1%

Henry Hinkle (5) 27,805 *

Theodore Kuster (6) 18,210 *

Joseph B. McClain (7) 43,596 1.5%

William R. Stamler (8) 31,220 1.1%

Robert G. Thompson (9) 6,900 *

Buckner Woodford (10) 259,278 9.2%

All directors and officers
(9 persons) as a group
(consisting of those
persons named above)(11) 459,961 16.4%

* Less than 1%

1) Beneficial ownership as reported in the
above table has been determined in accordance
with Rule 13d-3 under the Exchange Act.
Unless otherwise indicated, beneficial
ownership includes both sole or shared voting
and sole or shared investment power.
2) Includes 11,858 shares held in a
retirement account, 11,968 shares held of
record by Mr. Arvin's wife, as to which Mr.
Arvin disclaims beneficial ownership, 7,276
held jointly with his wife and 300 shares
that Mr. Arvin may acquire upon exercise of
outstanding stock options.
3) Includes 10,520 shares that Mr. Dawson
may acquire upon exercise of outstanding
stock options.
4) Includes 5,000 shares held in a
retirement account and 1,500 shares that Mr.
Ferrell may acquire upon exercise of
outstanding stock options. Also, includes
3,000 shares held by Dr. Ferrell's wife, as
to which Dr. Ferrell disclaims beneficial
ownership.

5)
Includes 1,000 shares held by his wife and 640 shares held
by three sons, as to which Mr. Hinkle disclaims
beneficial ownership. Includes 24,000 shares held of
record by Hinkle Contracting Company, as to which Mr.
Hinkle, as president, has shared voting power. Also
includes 700 shares that Mr. Hinkle may acquire upon
exercise of outstanding stock options.
6) Includes 6,270 share held of record by
Mr. Kuster's wife, as to which Mr. Kuster
disclaims beneficial ownership. Also
includes 5,080 shares held in a retirement
account and 1,500 shares that Mr. Kuster may
acquire upon exercise of outstanding stock
options.
7) Includes 1,500 shares that Mr. McClain
may acquire upon exercise of outstanding
stock options. Also includes 18,800 shares
held of record by Mr. McClain's wife, as to
which Mr. McClain disclaims beneficial
ownership.
8) Includes 7,860 shares held by Signal
Investments Corporation, as to which Mr.
Stamler, as the chief executive officer and
majority Stockholder of such corporation, has
sole voting and investment power. Also
includes 280 shares that Mr. Stamler may
acquire upon exercise of outstanding stock
options.
9) Includes 1,500 shares that Mr. Thompson
may acquire upon exercise of outstanding
stock options.
10) Includes 8,000 shares held by his wife
and 11,332 shares held by two sons, as to
which Mr. Woodford disclaims beneficial
ownership. Also includes 208 shares held in
a retirement account and 12,320 shares that
Mr. Woodford may acquire upon exercise of
outstanding stock options.
11) Includes 30,120 shares that may be
acquired upon exercise of outstanding stock
options.

The following table sets forth as of December 31, 1999 the
persons known by the Company to own beneficially (as
determined in accordance with the rules and regulations of
the Commission) more than 5% of the outstanding common
stock. See note 10 in the preceding table for further
information.

Name and Address Shares Beneficially
of Beneficial Owner Owned Percentage

Buckner Woodford 259,278 9.2%
340 Stoner Avenue
Paris, Kentucky 40361

Item 13. Certain Relationships and Related Transactions

Directors and officers of the Company and their associates
were customers of and had transactions with the Company's
subsidiary bank in the ordinary course of business during
the year ended December 31, 1999. Similar transactions may
be expected to take place with the Company's subsidiary bank
in the future. Outstanding loans and commitments made by
such subsidiary bank in transactions with the Company's
directors and officers and their associates were made on
substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable
transactions with other persons and did not involve more
than a normal risk of collectibility or present other
unfavorable features. Certain directors and executive
officers were loan customers of Kentucky Bank and
outstanding loans were $1.2 million and $1.2 million as of
December 31, 1999 and 1998, respectively. See Note 4 in the
notes to consolidated financial statements included as
Exhibit 13.

Part IV

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

(a) The following exhibits are incorporated
by reference herein or made a part of this
Form 10-K:

3.1 Articles of Incorporation of the Registrant are
incorporated by reference to Exhibit 3.1 of the
Registrant's Registration Statement on Form S-4
(File No. 33-96358).

3.2 Bylaws of the Registrant are incorporated by
reference to Exhibit 3.2 of the Registrant's
Registration Statement on Form S-4 (File No.
33-96358).

10.1 Bourbon's 1993 Employee Stock Ownership Incentive
Plan is incorporated by reference to Exhibit 10.2
of the Registrant's Registration Statement on Form
S-4 (File No. 33-96358).*

10.2 Bourbon's 1993 Non-Employee Directors
Stock Ownership Incentive Plan is
incorporated by reference to Exhibit 10.3 of
the Registrant's Registration Statement on
Form S-4 (File No. 33-96358).*

10.3 Bourbon Bancshares, Inc. 1999 Employee
Stock Option Plan is incorporated by
reference to Exhibit 99.1 of the Registrant's
Form 10-K for the fiscal year ended December
31, 1998.*

11 Computation of earnings per share - See Note 10 in
the notes to consolidated financial statements
included as Exhibit 13.

13 Financial Statements:
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in
Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Report of Independent Auditors

21 Subsidiaries of Registrant

23 Consent of Crowe, Chizek and Company LLP

27 Financial Data Schedule (for SEC use only)

99.1 Proxy statement dated March 17, 2000, sent to the
Registrant's security holders in connection with
the 2000 Annual Meeting of Shareholders and
supplementally furnished to the Commission for its
information as required by Form 10-K for
registrants which have not registered securities
pursuant to Section 12 of the Securities Exchange
Act of 1934. This material is not otherwise to be
deemed filed with the Commission.

* Denotes a management contract or compensatory plan or
arrangement of the Registrant required to be filed as an
exhibit pursuant to Item 601(10) (iii) of Regulation S-K.

(b) Current Reports on Form 8-K during the quarter ended
December 31, 1999
None

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

Bourbon Bancshares, Inc.
By: __/S/Buckner Woodford__
Buckner Woodford, President and Chief Executive Officer, Director
March 29, 2000

Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities
and on the dates indicated.

__/s/Buckner Woodford________ March 29, 2000
Buckner Woodford, President and Chief Executive Officer, Director

__/s/Gregory J. Dawson_______ March 29, 2000
Gregory J. Dawson, Chief Financial and Accounting Officer

__/s/James L. Ferrell________ March 29, 2000
James L. Ferrell, M.D., Chairman of the Board, Director

_____________________________ March 29, 2000
William Arvin, Director

__/s/Henry Hinkle____________ March 29, 2000
Henry Hinkle, Director

__/s/Theodore Kuster_________ March 29, 2000
Theodore Kuster, Director

__/s/Joseph B. McClain_______ March 29, 2000
Joseph B. McClain, Director

_____________________________ March 29, 2000
William R. Stamler, Director

__/s/Robert G. Thompson______ March 29, 2000
Robert G. Thompson, Director

SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED
PURSUANT TO SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH
HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE
ACT.

The Registrant refers to Exhibits 13 and 99.1 to the Form 10-K.

INDEX TO EXHIBITS

Exhibit
Number Description of Document

3.1 Articles of Incorporation of the Registrant are
incorporated by reference to Exhibit 3.1 of the
Registrant's Registration Statement on Form S-4
(File No. 33-96358).

3.2 Bylaws of the Registrant are incorporated by
reference to Exhibit 3.2 of the Registrant's
Registration Statement on Form S-4 (File No.
33-96358).

10.1 Bourbon's 1993 Employee Stock Ownership
Incentive Plan is incorporated by reference
to Exhibit 10.2 of the Registrant's
Registration Statement on Form S-4 (File No.
33-96358).*

10.3 Bourbon's 1993 Non-Employee Directors
Stock Ownership Incentive Plan is
incorporated by reference to Exhibit 10.3 of
the Registrant's Registration Statement on
Form S-4 (File No. 33-96358).*

10.3 Bourbon Bancshares, Inc. 1999 Employee
Stock Option Plan is incorporated by
reference to Exhibit 99.1 of the Registrant's
Form 10-K for the fiscal year ended December
31, 1998.*

11 Computation of earnings per share - See Note 10 in
the notes to consolidated financial statements
included as Exhibit 13.

13 Bourbon Bancshares, Inc. 1999 Annual Report

21 Subsidiaries of Registrant

23 Consent of Crowe, Chizek and Company LLP

27 Financial Data Schedule (for SEC use only)

99.1 Proxy statement dated March 17, 2000, sent to the
Registrant's security holders in connection with
the 2000 Annual Meeting of Shareholders and
supplementally furnished to the Commission for its
information as required by Form 10-K for
registrants which have not registered securities
pursuant to Section 12 of the Securities Exchange
Act of 1934. This material is not otherwise to be
deemed filed with the Commission.

* Denotes a management contract or compensatory plan or
arrangement of the Registrant required to be filed as an
exhibit pursuant to Item 601(10) (iii) of Regulation S-K.

Exhibit 13

BOURBON BANCSHARES, INC.

ANNUAL REPORT 1999

Dear Shareholders,

Agriculture has long been important to central
Kentucky. It has provided a livelihood for many and
indirect benefits to many more. Much of the cash flow from
these farms are from raising tobacco. Therefore it is a
blow to our entire region that tobacco production will be
cut so drastically. This has many of our customers taking a
hard look at their operations and trying to adjust to the
inevitable changes.

We are fortunate that the overall economy in central
Kentucky remains strong. Population is growing and
unemployment is low. This environment should make it easier
for both the bank and our customers to adapt.

Bourbon Bancshares, Inc. had an outstanding year in
1999. Earnings rose by 17%. The loan portfolio grew more
than 15% for the third consecutive year. Total assets
reached an all time high of $347 million.

We were able to expand our franchise during 1999. In
August we acquired a branch in Wilmore. This fit in
perfectly with our geographic pattern in the smaller
communities around Lexington. We now have eleven offices in
eight different communities, all around the perimeter of
Lexington.

As we start the new year the Internet continues to grow
in commercial importance. Kentucky Bank has been preparing
to offer Internet service to all its customers at
www.kybank.com. We expect this to be started during the
first quarter of 2000.

Plans are also underway to continue improving our
facilities. There will be an historic renovation project of
the headquarters building in downtown Paris that will
include exterior renovation. There will also be expansion
of one of our most valuable sites, the branch in Winchester
at Colby Road. This will include expanding from three drive-
in lanes to six.

At year-end our Executive Vice President Joe Allen
retired as an employee of Kentucky Bank. His total banking
career spanned fifty-two years. His many friends at the
bank wish him a very happy and well-deserved retirement.

/s/Buckner Woodford

Buckner Woodford

FINANCIAL HIGHLIGHTS

BOURBON BANCSHARES, INC. 1999 1998 1997

Assets ($ millions) $ 347 $ 309 $ 291

Net Income ($ thousands) $ 4,450 $ 3,804 $ 3,408

Per Share Results

Primary Earnings $ 1.55 $ 1.33 $ 1.20

Dividends $ .44 $ .40 $ .36

Stockholder Information

CORPORATE HEADQUARTERS
Bourbon Bancshares, Inc.
4th and Main Street
Paris, Kentucky 40361
606-987-1795

ANNUAL MEETING
The annual meeting of Stockholders of Bourbon Bancshares,
Inc. will be held Tuesday, May 2, 2000 at 11:00 a.m. in the
corporate headquarters.

TRANSFER AGENT, REGISTRAR AND DIVIDEND DISBURSING AGENT
Kentucky Bank
Trust Department
606-987-1795, ext. 316

MARKET MAKERS

Morgan Keegan & Co.
489 East Main Street
Lexington, Kentucky 40507
1-800-937-0161

Hilliard Lyons
West Vine Street, Suite 400
Lexington, Kentucky 40507
1-800-944-2663

OTC Bulletin Board
Symbol: BBON

INVESTOR INFORMATION
Any individual requesting general information or a copy of
the Corporation's 1999 Form 10-K Report may obtain these by
writing Investor Relations at the Corporate Headquarters.

BOURBON BANCSHARES, INC.
Paris, Kentucky

CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997

CONSOLIDATED BALANCE SHEETS
December 31

1999 1998
ASSETS
Cash and due from banks $ 20,041,648 $ 10,756,213
Federal funds sold 675,000 -
Cash and cash equivalents 20,716,648 10,756,213
Investment securities:
Available for sale 54,930,326 55,419,734
Held to maturity (fair value 1999 -
$15,916,799 and 1998 - $17,854,550) 15,692,975 16,933,755
Mortgage loans held for sale 3,493,765 5,908,676

Loans 238,606,545 206,934,127
Allowance for loan losses (3,102,800) (2,734,589)
Net loans 235,503,745 204,199,538

Federal Home Loan Bank stock 3,345,500 3,119,500
Bank premises and equipment, net 7,081,860 6,793,998
Interest receivable 3,454,218 3,165,110
Intangible assets 2,108,274 2,034,441
Other assets 1,151,471 374,272

Total assets $347,478,782 $308,705,237

LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Non-interest bearing $ 42,931,235 $ 40,336,201
Time deposits, $100,000 and over 34,714,390 28,168,022
Other interest bearing 196,920,315 190,235,493
Total deposits 274,565,940 258,739,716
Securities sold under agreements to
repurchase and other borrowings 11,858,464 11,248,277
Federal Home Loan Bank advances 26,592,305 6,953,502
Interest payable 2,141,754 1,778,984
Other liabilities 600,746 612,453
Total liabilities 315,759,209 279,332,932

Stockholders' equity
Preferred stock, 300,000 shares
authorized and unissued - -
Common stock, no par value; 10,000,000
shares authorized; 2,802,471 and
2,809,256 shares issued and outstanding
in 1999 and 1998 6,491,373 6,474,241
Retained earnings 25,777,789 22,832,043
Accumulated other comprehensive income (549,589) 66,021
Total stockholders' equity 31,719,573 29,372,305

Total liabilities and stockholders' equity $347,478,782 $308,705,237

CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31

1999 1998 1997
Interest income
Loans, including fees $19,167,985 $17,211,687 $15,483,271
Investment securities
Taxable 2,761,337 3,141,285 3,918,974
Tax exempt 1,115,480 1,168,049 1,174,113
Other 408,077 462,117 385,106
23,452,879 21,983,138 20,961,464
Interest expense
Deposits 9,300,244 9,787,511 9,480,440
Securities sold under agreements
to repurchase and other
short-term borrowings 386,607 269,135 234,521
Federal Home Loan Bank advances 767,779 517,105 569,927
Other 92,440 92,717 129,827
10,547,070 10,666,468 10,414,715

Net interest income 12,905,809 11,316,670 10,546,749
Provision for loan losses 699,600 700,400 492,800
Net interest income after provision
for loan losses 12,206,209 10,616,270 10,053,949

Other income
Service charges 2,074,999 1,810,756 1,674,348
Loan service fee income 290,622 282,879 257,953
Trust department income 397,416 300,342 237,254
Investment securities gains, net 906 40,955 13,686
Gain on sale of mortgage loans 351,192 439,927 72,236
Other 270,416 198,116 134,510
3,385,551 3,072,975 2,389,987
Other expenses
Salaries and employee benefits 5,054,249 4,526,735 4,274,022
Occupancy expenses 1,361,025 1,163,872 1,002,137
Amortization 441,286 400,147 346,891
Advertising and marketing 323,726 340,664 276,430
Taxes other than payroll, property
and income 234,818 307,146 287,718
Other 2,006,858 1,775,563 1,700,780
9,421,962 8,514,127 7,887,978

Income before income taxes 6,169,798 5,175,118 4,555,958
Provision for income taxes 1,719,685 1,371,602 1,147,924

Net income $ 4,450,113 $ 3,803,516 $ 3,408,034

Earnings per share:
Basic $ 1.59 $ 1.36 $1.22
Diluted 1.55 1.33 1.20

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years Ended December 31

1999 1998 1997

Net income $4,450,113 $3,803,516 $3,408,034

Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on securities
arising during the period (615,012) (139,837) 240,455
Reclassification of realized amount (598) (27,030) (9,033)
Net change in unrealized gain (loss)
on securities (615,610) (166,867) 231,422

Comprehensive income $3,834,503 $3,636,649 $3,639,456

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended December 31, 1999, 1998 and 1997

Accumulated
Other Total
Common Stock Retained Comprehensive Stockholders'
Shares Amount Earnings Income Equity

Balances, January 1, 1997 $ 2,825,658 $ 6,392,329 $18,239,684 $ 1,466 $24,633,479

Common stock issued (including
employee gifts of 100 shares) 12,260 50,948 - - 50,948

Common stock purchased (48,794) (110,416) (492,196) - (602,612)

Net change in unrealized gain (loss)
on securities available for sale, net
of tax - - - 231,422 231,422

Net income - - 3,408,034 - 3,408,034

Dividends declared - $.36 per share - - (1,005,153) - (1,005,153)

Balances, December 31, 1997 2,789,124 6,332,861 20,150,369 232,888 26,716,118

Common stock issued (including
employee gifts of 52 shares) 20,132 141,380 - - 141,380

Net change in unrealized gain (loss)
on securities available for sale, net
of tax - - - (166,867) (166,867)

Net income - - 3,803,516 - 3,803,516

Dividends declared - $.40 per share - - (1,121,842) - (1,121,842)

Balances, December 31, 1998 2,809,256 6,474,241 22,832,043 66,021 29,372,305

Common stock issued (including
employee gifts of 95 shares) 7,695 54,187 - - 54,187

Common stock purchased (14,480) (37,055) (271,071) - (308,126)

Net change in unrealized gain (loss)
on securities available for sale, net
of tax - - - (615,610) (615,610)

Net income - - 4,450,113 - 4,450,113

Dividends declared - $.44 per share - - (1,233,296) - (1,233,296)

Balances, December 31, 1999 $ 2,802,471 $ 6,491,373 $25,777,789 $(549,589) $31,719,573

CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31

1999 1998 1997

Cash flows from operating activities
Net income $ 4,450,113 $ 3,803,516 $ 3,408,034
Adjustments to reconcile net income to net
cash from operating activities
Depreciation and amortization 1,207,402 1,007,948 946,973
Provision for loan losses 699,600 700,400 492,800
Investment securities amortization
(accretion), net 5,293 (42,854) 23,081
Investment securities gains, net (906) (40,955) (13,686)
Originations of loans held for sale (22,264,141) (35,798,502) (18,497,646)
Proceeds from sale of loans 24,802,228 35,417,148 18,428,256
Gain on sale of mortgage loans (351,192) (439,927) (72,236)
Federal Home Loan Bank stock dividends (226,000) (214,300) (199,600)
Changes in:
Interest receivable (289,108) (309,545) (117,665)
Other assets (33,731) (10,827) (82,785)
Interest payable 332,017 (121,840) 537,251
Other liabilities (50,333) (406,176) 327,241
Net cash from operating activities 8,281,242 3,544,086 5,180,018

Cash flows from investing activities
Purchases of securities available for sale (38,694,863) (29,252,389) (26,674,021)
Proceeds from sales of securities available for sale 17,828,018 6,548,219 17,343,034
Proceeds from principal payments and maturities
of securities available for sale 20,393,126 33,189,842 19,982,850
Purchases of investment securities held to maturity (349,522) (2,374,891) (785,000)
Proceeds from maturities of investment securities
held to maturity 1,616,300 1,070,150 1,510,950
Net change in loans (32,401,646) (27,549,007) (25,886,674)
Purchases of bank premises and equipment, net (701,261) (1,636,487) (1,284,947)
Net cash acquired in branch acquisition 8,387,089 - -
Net cash from investing activities (23,922,759) (20,004,563) (15,793,808)

Cash flows from financing activities
Net change in deposits 6,840,197 17,414,395 10,254,610
Net change in securities sold under agreements
to repurchase and other borrowings 610,187 1,790,671 5,298,109
Advances from Federal Home Loan Bank 20,000,000 4,000,000 -
Payments on Federal Home Loan Bank advances (361,197) (7,282,789) (297,740)
Proceeds from notes payable - - 450,000
Payments on notes payable - - (450,000)
Proceeds from issuance of common stock 50,135 141,380 50,948
Purchase of common stock (304,074) - (602,612)
Dividends paid (1,233,296) (1,121,842) (1,005,153)
Net cash from financing activities 25,601,952 14,941,815 13,698,162

CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31

1999 1998 1997

Net change in cash and cash equivalents 9,960,435 (1,518,662) 3,084,372

Cash and cash equivalents at beginning of year 10,756,213 12,274,875 9,190,503

Cash and cash equivalents at end of year $ 20,716,648 $ 10,756,213 $ 12,274,875

Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest expense $ 10,184,300 $ 10,788,308 $ 9,877,464
Income taxes 1,849,988 1,370,000 1,100,000

Supplemental schedules of non-cash investing and
financing activities:
Real estate acquired through foreclosure $ 426,205 $ 69,676 $ -
Transfer of loans to loans held for sale - - 4,597,849

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation: The consolidated financial statements
include the accounts of Bourbon Bancshares, Inc. (the Company)
and its wholly-owned subsidiary, Kentucky Bank (the Bank).
Intercompany transactions and balances have been eliminated in
consolidation.

Nature of Operations: The Bank operates under a state bank
charter and provides full banking services, including trust
services, to customers located in Bourbon, Clark, Scott,
Harrison, Woodford, Jessamine, and adjoining counties in
Kentucky. As a state bank, the Bank is subject to regulation by
the Kentucky Department of Financial Institutions and the Federal
Deposit Insurance Corporation (FDIC). The Company, a bank holding
company, is regulated by the Federal Reserve.

Branch Acquisition: On August 13, 1999, the Bank acquired the
Wilmore, Kentucky branch of National City Bank. Included in the
purchase were $9.0 million in net deposits and $353,000 in fixed
assets. The net deposits assumed exceeded the cash received by
$287,000.

Estimates in the Financial Statements: The preparation of
financial statements in conformity with generally accepted
accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual
results could differ from those estimates. The allowance for
loan losses and fair value of financial instruments are
particularly subject to change.

Cash Flows: For purposes of reporting cash flows, cash and cash
equivalents include cash on hand, amounts due from banks, federal
funds sold, and certain short-term investments with maturities of
less than three months. Generally, federal funds are sold for one-
day periods. Net cash flows are reported for loan and deposit
transactions.

Investment Securities: The Company is required to classify its
investment securities portfolio into three categories: trading
securities, securities available for sale and securities held to
maturity. Fair value adjustments are made to the securities based
on their classification with the exception of the held to
maturity category. The Company has no investments classified as
trading.

Investment securities available for sale are carried at fair
value. The difference between amortized cost and fair value is
recorded in stockholders' equity, net of related income tax,
under accumulated other comprehensive income. Changes in this
difference are recorded as a component of comprehensive income.
Amortization of premiums and accretion of discounts are recorded
as adjustments to interest income using the constant yield
method.

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Investment securities for which the Company has the positive
intent and ability to hold to maturity are stated at cost,
adjusted for amortization of premiums and accretion of discounts
which are recorded as adjustments to interest income using the
constant yield method.

Gains or losses on dispositions are based on the net proceeds and
the adjusted carrying amount of the securities sold, using the
specific identification method.

Loans Held for Sale: Loans held for sale are valued at the lower
of cost or market as determined by outstanding commitments from
investors or current investor yield requirements, calculated on
the aggregate loan basis.

Loans: Loans are stated at the amount of unpaid principal,
reduced by an allowance for loan losses. Interest income on
loans is recognized on the accrual basis except for those loans
on a nonaccrual status. The accrual of interest on impaired loans
is discontinued when management believes, after consideration of
economic and business conditions and collection efforts, that the
borrowers' financial condition is such that collection of
interest is doubtful. When interest accrual is discontinued,
interest income is subsequently recognized only to the extent
cash payments are received.

Loan origination fees and certain direct origination costs are
capitalized and recognized as an adjustment of the yield on the
related loan.

Allowance for Loan Losses: The allowance for loan losses is
established through a provision for loan losses charged to
expense. The allowance is an amount that management believes will
be adequate to absorb losses on existing loans that may become
uncollectible, based on evaluations of the collectibility of
loans and prior loan loss experience. The evaluations take into
consideration such factors as changes in the nature and volume of
the loan portfolio, overall portfolio quality, review of specific
problem loans, and current economic conditions that may affect
the borrowers' ability to pay. Loans are charged against the
allowance for loan losses when management believes that the
collectibility of the principal is unlikely.

The allowance for loan losses on impaired loans is determined
using the present value of estimated future cash flows of the
loan, discounted at the loan's effective interest rate or the
fair value of the underlying collateral. A loan is considered to
be impaired when it is probable that all principal and interest
amounts will not be collected according to the loan contract. The
entire change in present value of expected cash flows is reported
as provision for loan losses in the same manner in which
impairment initially was recognized or as a reduction in the
amount of provision for loan losses that otherwise would be
reported.

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Mortgage Servicing Rights: The Bank has sold various loans to
the Federal Home Loan Mortgage Corporation (FHLMC) while
retaining the servicing rights. Gains and losses on loan sales
are recorded at the time of the cash sale, which represents the
premium or discount paid by the FHLMC. The Bank receives a
servicing fee from the FHLMC on each loan sold. Servicing rights
are capitalized based on the relative fair value of the rights
and the loan and are included in intangible assets on the balance
sheet and expensed in proportion to, and over the period of,
estimated net servicing revenues.

Bank Premises and Equipment: Bank premises and equipment are
stated at cost less accumulated depreciation. Depreciation is
recorded principally by the straight-line method over the
estimated useful lives of the bank premises and equipment.

Real Estate Acquired Through Foreclosure: Real estate acquired
through foreclosure is carried at the lower of the recorded
investment in the property or its fair value. The value of the
underlying loan is written down to the fair value of the real
estate to be acquired by a charge to the allowance for loan
losses, if necessary. Any subsequent write-downs are charged to
operating expenses. Certain parcels of real estate are being
leased to third parties to offset holding period costs. Operating
expenses of such properties, net of related income, and gains and
losses on their disposition are included in other expenses.

Repurchase Agreements: Substantially all repurchase agreement
liabilities represent amounts advanced by various customers.
Securities are pledged to cover these liabilities, which are not
covered by federal deposit insurance.

Income Taxes: Income tax expense is the total of the current
year income tax due or refundable and the change in deferred tax
assets and liabilities. The Company uses the liability method
for computing deferred income taxes. Under the liability method,
deferred income taxes are based on the change during the year in
the deferred tax liability or asset established for the expected
future tax consequences of differences in the financial reporting
and tax bases of assets and liabilities. The differences relate
principally to premises and equipment, accrued pension, premium
on loans and deposits purchased, unrealized gains (losses) on
investment securities available for sale, mortgage servicing
rights, FHLB stock, and the allowance for loan losses.

Intangible Assets: Intangible assets include a premium on
deposits paid in connection with the acquisition of branches
which is being amortized on a straight-line basis over ten or
fifteen years and capitalized mortgage servicing rights which are
being amortized over the life of the related loans.

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Earnings Per Common Share: Basic earnings per common share is
net income divided by the weighted average number of common
shares outstanding during the period. Diluted earnings per
common share includes the dilutive effect of additional potential
common shares issuable under stock options. Earnings and
dividends per share are restated for all stock splits and
dividends through the date of issuance of the financial
statements.

Comprehensive Income: Comprehensive income consists of net
income and other comprehensive income. Other comprehensive
income includes unrealized gains and losses on securities
available for sale which are also recognized as a separate
component of equity.

New Accounting Pronouncements: Beginning January 1, 2001, a new
accounting standard will require all derivatives to be recorded
at fair value. Unless designated as hedges, changes in these
fair values will be recorded in the income statement. Fair value
changes involving hedges will generally be recorded by offsetting
gains and losses on the hedge and on the hedged item, even if the
fair value of the hedged item is not otherwise recorded. This is
not expected to have a material effect, but the effect will
depend on derivative holdings when this standard applies.

Industry Segments: While the Company's chief decision makers
monitor the revenue streams of the various Company products and
services, operations are managed and financial performance is
evaluated on a Company-wide basis. Accordingly, all of the
Company's operations are considered by management to be
aggregated into one reportable operating segment.

NOTE 2 - RESTRICTIONS ON CASH AND DUE FROM BANKS

Included in cash and due from banks are certain non-interest
bearing deposits that are held at the Federal Reserve or
maintained in vault cash in accordance with average balance
requirements specified by the Federal Reserve Board of Governors.
The reserve requirement at December 31, 1999 and 1998 was
$7,544,000 and $5,988,000.

NOTE 3 - INVESTMENT SECURITIES

Year-end securities are as follows:

Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Available for Sale

1999
U. S. Treasury $18,012,932 $ - $ (58,683) $17,954,249
U. S. government agencies 5,983,561 - (81,261) 5,902,300
States and political subdivisions 3,642,574 44,699 (6,121) 3,681,152
Mortgage-backed 26,317,036 5,812 (550,487) 25,772,361
Other 1,806,933 14,730 (201,399) 1,620,264

Total $55,763,036 $65,241 $(897,951) $54,930,326

1998
U. S. Treasury $16,013,161 $74,300 $ - $16,087,461
U. S. government agencies 5,979,883 406 (1,210) 5,979,079
States and political subdivisions 3,641,873 161,498 - 3,803,371
Mortgage-backed 25,725,143 71,089 (172,037) 25,624,195
Other 3,959,643 9,161 (43,176) 3,925,628

Total $55,319,703 $316,454 $(216,423) $55,419,734

Held to Maturity

1999
States and political subdivisions $15,692,975 $361,580 $(137,756) $15,916,799

1998
States and political subdivisions $16,933,755 $923,038 $ (2,243) $17,854,550

NOTE 3 - INVESTMENT SECURITIES (Continued)

The amortized cost and fair value of investment securities at
December 31, 1999, by category and contractual maturity, are
shown below. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
Securities not due at a single maturity are shown separately.

Amortized Fair
Cost Value
Available for Sale
Due in one year or less $13,992,453 $13,946,162
Due after one year through five years 13,013,406 12,959,679
Due after five years through ten years 876,226 873,024
27,882,085 27,778,865

Mortgage-backed 26,317,036 25,772,361
Equity 1,563,909 1,379,100

Total $55,763,036 $54,930,326

Held to Maturity
Due in one year or less $ 650,790 $ 655,643
Due after one year through five years 7,758,325 8,034,867
Due after five years through ten years 4,406,937 4,480,209
Due after ten years 2,876,923 2,746,080

Total $15,692,975 $15,916,799

Proceeds from sales of investment securities during 1999, 1998
and 1997 were $17,828,018, $6,548,219 and $17,343,034. Gross
gains of $29,674, $40,955 and $31,347 and gross losses of
$28,768, $0 and $17,661, were realized on those sales.

Investment securities with an approximate carrying value of
$61,321,000 and $55,657,000 at December 31, 1999 and 1998, were
pledged to secure public deposits, trust funds, securities sold
under agreements to repurchase and for other purposes as required
or permitted by law.

NOTE 4 - LOANS

Loans at year-end were as follows:

1999 1998

Commercial $ 17,713,094 $ 15,177,364
Real estate construction 17,003,060 11,055,329
Real estate mortgage 134,809,876 118,735,789
Agricultural 46,442,610 44,198,784
Consumer 22,357,830 17,607,474
Other 280,075 159,387

$238,606,545 $206,934,127

Activity in the allowance for loan losses was as follows:

1999 1998 1997

Beginning balance $2,734,589 $2,321,536 $2,101,081
Charge-offs (410,245) (368,017) (355,123)
Recoveries 78,856 80,670 82,778
Provision for loan losses 699,600 700,400 492,800

Ending balance $3,102,800 $2,734,589 $2,321,536

Impaired loans totaled $201,085 and $286,000 at December 31, 1999
and 1998. The average recorded investment in impaired loans
during 1999, 1998 and 1997 was $244,000, $310,000 and $192,000.
The total allowance for loan losses related to these loans was
$10,000 and $85,000 at December 31, 1999 and 1998. Interest
income on impaired loans of $18,000, $22,000 and $23,000 was
recognized for cash payments received in 1999, 1998 and 1997.

Nonperforming loans were as follows:
1999 1998 1997

Loans past due over 90 days still on accrual $549,000 $790,000 $154,000
Nonaccrual loans 63,000 136,000 173,000

Nonperforming loans include impaired loans and smaller balance
homogeneous loans, such as residential mortgage and consumer
loans, that are collectively evaluated for impairment.

NOTE 4 - LOANS (Continued)

Mortgage loans serviced for others are not included in the
accompanying consolidated balance sheets. The unpaid principal
balances of mortgage loans serviced for others was approximately
$108,480,000 and $103,122,000 at December 31, 1999 and 1998.
Custodial escrow balances maintained in connection with the
foregoing loan servicing, and included in demand deposits, were
approximately $646,000 and $593,000 at December 31, 1999 and
1998.

Changes in mortgage servicing rights were as follows:

1999 1998 1997

Beginning balance $ 533,822 $ 314,877 $ 189,451
Additions 228,016 330,902 184,125
Amortization (155,351) (111,957) (58,699)

Ending balance $ 606,487 $ 533,822 $ 314,877

Certain directors and executive officers of the Company and
companies in which they have beneficiary ownership were loan
customers of the Bank during 1999 and 1998. Such loans were made
in the ordinary course of business at the Bank's normal credit
terms and interest rates. An analysis of the activity with
respect to all director and executive officer loans is as
follows:

1999 1998
Balance, beginning of year $1,216,000 $1,824,000
Additions, including loans now meeting
disclosure requirements 615,000 704,000
Amounts collected, including loans no
longer meeting disclosure requirements (657,000) (1,312,000)

Balance, end of year $1,174,000 $1,216,000

NOTE 5 - PREMISES AND EQUIPMENT

Year-end premises and equipment were as follows:

1999 1998

Land and buildings $ 7,717,995 $ 7,040,895
Furniture and equipment 5,800,240 5,423,361
13,518,235 12,464,256
Less accumulated depreciation (6,436,375) (5,670,258)

$ 7,081,860 $ 6,793,998

Depreciation expense was $766,117, $667,799, and $523,892 in
1999, 1998, and 1997.

NOTE 6 - DEPOSITS

At December 31, 1999, the scheduled maturities of time deposits
are as follows:

2000 $108,940,738
2001 24,824,192
2002 1,266,304
2003 911,140
2004 and thereafter 792,094

$136,734,468

Certain directors and executive officers of the Company and
companies in which they have beneficiary ownership, are deposit
customers of the Bank. The amount of these deposits was
approximately $2,522,000 and $3,173,000 at December 31, 1999 and
1998.

NOTE 7 - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

Securities sold under agreements to repurchase generally mature
within one to four days from the transaction date. The securities
underlying the agreements are maintained in a third-party
custodian's account under a written custodial agreement.
Information concerning securities sold under agreements to
repurchase for 1999 and 1998 is summarized as follows:

1999 1998

Average daily balance during the year $ 5,683,000 $4,329,000
Average interest rate during the year 4.37% 4.76%
Maximum month-end balance during the year $10,333,000 $6,713,000

NOTE 8 - FEDERAL HOME LOAN BANK ADVANCES

The Bank owns stock of the Federal Home Loan Bank (FHLB) of
Cincinnati, Ohio. This stock allows the Bank to borrow advances
from the FHLB. At December 31, 1999 and 1998, $26,592,305 and
$6,953,502 represented the balance due on advances from the FHLB.
All advances are paid either on a monthly basis or at maturity,
over remaining terms of one to eight years, with either a
variable interest rate which was 4.75% on December 31, 1999 or
fixed interest rates ranging from 5.05% to 6.80%. Advances
subject to the variable rate were $10,000,000 on December 31,
1999. Advances are secured by the FHLB stock and substantially
all first mortgage loans. Scheduled principal payments due on
advances during the years subsequent to December 31, 1999 are as
follows: 2000 - $11,230,522; 2001 - $226,717; 2002 - $239,613;
2003 - $4,817,531; 2004 - $10,022,174; and for years thereafter -
$55,748.

NOTE 9 - INCOME TAXES

Income tax expense (benefit) was as follows:

1999 1998 1997

Current payable $1,697,291 $1,306,758 $1,158,777
Deferred 22,394 64,844 (10,853)

$1,719,685 $1,371,602 $1,147,924

NOTE 9 - INCOME TAXES (Continued)

Year-end deferred tax assets and liabilities were due to the
following. No valuation allowance for the realization of
deferred tax assets is considered necessary.

1999 1998
Deferred tax assets
Allowance for loan losses $ 861,717 $ 736,526
Unrealized loss on investment securities 283,121 -
Premium on deposits purchased 156,646 127,144
Deferred loan fees 1,279 22,547
Other 29,763 46,597

Deferred tax liabilities
Bank premises and equipment (142,812) (131,872)
Unrealized gain on investment securities - (55,802)
FHLB stock (455,991) (379,151)
Mortgage servicing rights (206,206) (181,499)
Other (54,278) (27,780)

Net deferred tax asset $ 473,239 $ 156,710

Effective tax rates differ from federal statutory rates applied
to financial statement income due to the following:

1999 1998 1997

U. S. federal income tax rate 34.0% 34.0% 34.0%
Changes from the statutory rate
Tax-exempt investment income (7.2) (8.7) (10.0)
Non-deductible interest expense related to
carrying tax-exempt investments .8 1.1 1.3
Other .3 .1 (0.1)

27.9% 26.5% 25.2%

NOTE 10 - EARNINGS PER SHARE

The factors used in the earnings per share computation follow:

1999 1998 1997
Basic Earnings Per Share
Net income $ 4,450,113 $ 3,803,516 $ 3,408,034
Weighted average common shares
outstanding 2,803,276 2,801,320 2,792,402
Basic earnings per share $ 1.59 $ 1.36 $ 1.22

Diluted Earnings Per Share
Net income $ 4,450,113 $ 3,803,516 $ 3,408,034
Weighted average common shares
outstanding 2,803,276 2,801,320 2,792,402
Add dilutive effects of assumed
exercise of stock options 64,667 59,974 51,192
Weighted average common and dilutive
potential common shares outstanding 2,867,943 2,861,294 2,843,594
Diluted earnings per share $ 1.55 $ 1.33 $ 1.20

Stock options for 600 shares of common stock were not considered
in computing earnings per share for 1997 because they were
antidilutive.

NOTE 11 - RETIREMENT PLANS

The Company has a defined benefit pension plan covering
substantially all of its employees. The Company's funding policy
is to contribute annually the maximum amount that can be deducted
for federal income tax purposes. Benefits are based on one
percent of employee average earnings for the previous five years
times years of credited service.

NOTE 11 - RETIREMENT PLANS (Continued)

Information about the pension plan was as follows:
1999 1998
Change in benefit obligation:
Beginning benefit obligation $2,032,917 $1,813,183
Service cost 188,925 143,717
Interest cost 169,649 143,564
Actuarial adjustment 420,482 -
Benefits paid (79,880) (67,547)
Ending benefit obligation 2,732,093 2,032,917

Change in plan assets, at fair value:
Beginning plan assets 2,500,009 1,995,586
Actual return 272,728 348,607
Employer contribution 234,801 223,363
Benefits paid (53,707) (67,547)
Ending plan assets 2,953,831 2,500,009

Funded status 221,738 467,092
Unrecognized net actuarial gain (195,185) (515,005)
Unrecognized prior transition asset (3,345) (3,717)

Prepaid (accrued) benefit cost $ 23,208 $ (51,630)

Net periodic pension cost include the following components:

1999 1998 1997

Service cost $ 188,925 $ 143,717 $ 137,229
Interest cost 169,649 143,564 126,623
Expected return on plan assets (198,239) (179,940) (136,298)
Amortization of transition asset (372) (372) (372)

Net periodic cost $ 159,963 $ 106,969 $ 127,182

Discount rate on benefit obligation 7% 8% 8%
Long-term expected rate of return on
plan assets 8% 8% 8%
Rate of compensation increase 5% 5% 5%

NOTE 11 - RETIREMENT PLANS (Continued)

The Company also has a qualified profit sharing plan which covers
substantially all employees and includes a 401(k) provision.
Profit sharing contributions, excluding the 401(k) provision, are
at the discretion of the Company's Board of Directors. Expense
recognized in connection with the plan was $165,087, $181,743 and
$166,647 in 1999, 1998 and 1997.

NOTE 12 - STOCK OPTION PLAN

The Company has stock option plans, which are accounted for in
accordance with Accounting Principles Board Opinion (APB) No. 25,
"Accounting for Stock Issued to Employees", and related
interpretations. Under the plans, the Company grants certain
directors, officers and key employees stock option awards which
vest and become fully exercisable at the end of five years. The
exercise price of each option, which has a ten year life, was
equal to the market price of the Company's stock on the date of
grant; therefore, no compensation expense was recognized.

Although the Company has elected to follow APB No. 25, Statement
of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation", requires pro forma disclosures of net
income and earnings per share as if the Company had accounted for
its employee stock options under that Statement. The fair value
of each option grant was estimated on the grant date using an
option-pricing model.

Summary of stock option transactions are as follows:

1999 1998 1997
Weighted Weighted Weighted
Option Option Option
Options Price Options Price Options Price

Outstanding,
beginning of year 130,760 $11.36 125,640 $ 9.74 117,100 $ 8.60
Granted 25,780 20.62 27,200 15.88 22,000 12.62
Canceled - - (2,000) 14.55 (1,300) 8.00
Exercised (7,600) 7.13 (20,080) 7.04 (12,160) 4.19
Outstanding, end of year 148,940 $13.17 130,760 $11.36 125,640 $ 9.74

Weighted remaining contractual
life 90.4 months 81.6 months 69.3 months

NOTE 12 - STOCK OPTION PLAN (Continued)

1999 1998 1997
Options Options Options
Options outstanding
From $3.92 to $6.38 per share 19,600 24,720 35,800
From $8.63 to $11.14 per share 30,480 32,640 40,640
From $12.00 to $15.50 per share 69,900 70,200 49,200
From $18.00 to $20.63 per share 28,960 3,200 -
148,940 130,760 125,640
Eligible for exercise
From $3.92 to $6.38 per share 19,600 24,720 35,800
From $8.63 to $11.14 per share 30,480 29,360 36,480
From $12.00 to $15.50 per share 31,740 16,920 15,240
From $18.00 to $20.50 per share 2,680 - -
84,500 71,000 87,520

Under SFAS No. 123, compensation cost is recognized in the amount
of the estimated fair value of the options and amortized to
expense over the options' vesting periods. The pro forma effect
on net income and earnings per share of this statement are as
follows:

1999 1998 1997
Net income
As reported $4,450,113 $3,803,516 $3,408,034
Pro forma 4,368,134 3,747,871 3,375,248

Basic earnings per share
As reported $ 1.59 $ 1.36 $ 1.22
Pro forma 1.56 1.34 1.21

Diluted earnings per share
As reported $ 1.55 $ 1.33 $ 1.20
Pro forma 1.53 1.32 1.19

Weighted averages
Fair value of options granted $ 5.14 $ 4.52 $ 3.62
Risk free interest rate 4.82% 5.20% 6.50%
Expected life 8 years 8 years 8 years
Expected volatility 18.17% 23.40% 21.79%
Expected dividend yield 2.13% 2.53% 2.86%

NOTE 13 - LIMITATION ON BANK DIVIDENDS

The Company's principal source of funds is dividends received
from the Bank. Banking regulations limit the amount of dividends
that may be paid by the Bank without prior approval of regulatory
agencies. Under these regulations, the amount of dividends that
may be paid in any calendar year is limited to the current year's
net profits, as defined, combined with the retained net profits
of the preceding two years. During 2000 the Bank could, without
prior approval, declare dividends of approximately $3,254,000
plus any 2000 net profits retained to the date of the dividend
declaration.

NOTE 14 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair values of the Company's financial instruments at
December 31, 1999 and 1998 are as follows:
1999 1998
Carrying Fair Carrying Fair
Amount Value Amount Value
(In Thousands)
Financial assets
Cash and cash equivalents $ 20,717 $ 20,717 $ 10,756 $10,756
Investment securities 70,623 70,847 72,353 73,274
Mortgage loans held for sale 3,494 3,494 5,909 5,978
Loans, net 235,504 234,778 204,200 204,716
FHLB stock 3,346 3,346 3,120 3,120
Interest receivable 2,108 2,108 2,034 2,034

Financial liabilities
Deposits $274,566 $275,192 $258,740 $259,532
Securities sold under
agreements to repurchase
and other borrowed funds 11,858 11,858 11,248 11,248
FHLB advances 26,592 25,892 6,954 7,033
Interest payable 2,142 2,142 1,789 1,789

Carrying amount is the estimated fair value for cash and cash
equivalents, short-term borrowings, Federal Home Loan Bank stock,
accrued interest receivable and payable, demand deposits, short-
term debt, and variable rate loans or deposits that reprice
frequently and fully. Security fair values are based on market
prices or dealer quotes, and if no such information is available,
on the rate and term of the security and information about the
issuer. For fixed rate loans or deposits and for variable rate
loans or deposits with infrequent repricing or repricing limits,
fair value is based on discounted cash flows using current market
rates applied to the estimated life and credit risk. Fair values
for impaired loans are estimated using discounted cash flow
analysis or underlying collateral values. Fair value of debt is
based on current rates for similar financing. The fair value of
commitments to extend credit and standby letters of credit is not
considered material.

NOTE 15 - OFF BALANCE SHEET ACTIVITIES

Some financial instruments, such as loan commitments, credit
lines, letters of credit, and overdraft protection, are issued to
meet customer financing needs. These are agreements to provide
credit or to support the credit of others, as long as conditions
established in the contract are met, and usually have expiration
dates. Commitments may expire without being used. Off-balance-
sheet risk to credit loss exists up to the face amount of these
instruments, although material losses are not anticipated. The
same credit policies are used to make such commitments as are
used for loans, including obtaining collateral at exercise of the
commitment.

Financial instruments with off balance sheet risk were as follows
at year-end:

1999 1998

Unused lines of credit $37,976,000 $34,728,000
Commitments to make loans 3,800,000 3,892,000
Letters of credit 453,000 586,000
Commitments to sell loans - 4,000,000

Unused lines of credit are substantially all at variable rates.
Commitments to make loans are generally made for a period of 60
days or less and are primarily fixed at current market rates
ranging from 7.63% to 8.25% with maturities ranging from 15 to 30
years.

Commitments to sell loans are to the Federal Home Loan Mortgage
Corporation and have an underlying interest rate designed to
transfer risk associated with loans held for sale and commitments
to make loans that are intended to be sold. The notional amount
of commitments to sell loans represent amounts of loans that have
been committed for delivery on a specified date and within
certain interest rate ranges, not credit exposure.

NOTE 16 - CONTINGENT LIABILITIES

The Bank is a defendant in legal actions arising from normal
business activities. Management believes these actions are
without merit or that the ultimate liability, if any, resulting
from them will not materially affect the Company's consolidated
financial position or results of operations.

NOTE 17 - STOCKHOLDER'S EQUITY

Stock Split: On March 9, 1999, the stockholders approved an
amendment to Bourbon Bancshares, Inc.'s Articles of Incorporation
to increase the authorized common stock to 10,000,000 shares. On
June 8, 1999, the stockholders approved a two-for-one common
stock split. All shares and per share amounts have been
retroactively restated to reflect the split.

NOTE 17 - STOCKHOLDER'S EQUITY (Continued)

Regulatory Matters: The Company and the Bank are subject to
various regulatory capital requirements administered by the
federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and possible
additional discretionary actions by regulators that, if
undertaken, could have a direct material effect on the Company's
financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Company
and the Bank must meet specific capital guidelines that involve
quantitative measures of the Company's and the Bank's assets,
liabilities, and certain off-balance sheet items as calculated
under regulatory accounting practices. The Company and Bank
capital amounts and classifications are also subject to
qualitative judgments by regulators about components, risk
weightings, and other factors.

Quantitative measures established by regulation to ensure capital
adequacy require the Company and the Bank to maintain minimum
amounts and ratios (set forth in the table below) of Total and
Tier I capital (as defined in the regulations) to risk-weighted
assets (as defined), and of Tier I capital to average assets (as
defined). Management believes, as of December 31, 1999 and 1998,
that the Company and the Bank meet all capital adequacy
requirements to which they are subject.

The most recent notification from the Federal Deposit Insurance
Corporation categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be
categorized as well capitalized, the Bank must maintain minimum
Total risk-based, Tier I risk-based and Tier I leverage ratios as
set forth in the following table. There are no conditions or
events since that notification that management believes have
changed the institution's category.

The Company's and the Bank's actual amounts and ratios are
presented in the table below:

To Be Well
Capitalized
Under Prompt
For Capital Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio

1999 (Dollars in Thousands)
Consolidated
Total Capital (to Risk-Weighted Assets) $33,510 14.3% $18,714 8% $23,392 10%
Tier I Capital (to Risk-Weighted Assets) 30,584 13.1 9,357 4 14,035 6
Tier I Capital (to Average Assets) 30,584 9.6 12,755 4 15,944 5
Average Assets)

Bank Only
Total Capital (to Risk-Weighted Assets) $30,431 13.1% $18,563 8% $23,204 10%
Tier I Capital (to Risk-Weighted Assets) 27,528 11.9 9,281 4 13,922 6
Tier I Capital (to Average Assets) 27,528 8.7 12,700 4 15,875 5

NOTE 17 - STOCKHOLDER'S EQUITY (Continued)

To Be Well
Capitalized
Under Prompt
For Capital Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
(Dollars in Thousands)
1998
Consolidated
Total Capital (to Risk-Weighted Assets) $30,333 14.6% $16,621 8% $20,776 10%
Tier I Capital (to Risk-Weighted Assets) 27,732 13.3 8,340 4 12,511 6
Tier I Capital (to Average Assets) 27,732 9.6 11,555 4 14,444 5

Bank Only
Total Capital (to Risk-Weighted Assets) $28,360 13.7% $16,561 8% $20,701 10%
Tier I Capital (to Risk-Weighted Assets) 25,771 12.5 8,247 4 12,370 6
Tier I Capital (to Average Assets) 25,771 8.9 11,582 4 14,478 5

NOTE 18 - PARENT COMPANY FINANCIAL STATEMENTS

Condensed Balance Sheets
December 31

1999 1998
(In Thousands)
ASSETS
Cash on deposit with subsidiary $ 1,606 $ 967
Investment in subsidiary 28,663 27,411
Investment securities available for sale 1,379 977
Other assets 71 17

Total assets $31,719 $29,372

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities $ - $ -

Stockholders' equity
Preferred stock - -
Common stock 6,491 6,474
Retained earnings 25,778 22,832
Accumulated other comprehensive income (550) 66

Total liabilities and stockholders' equity $31,719 $29,372

NOTE 18 - PARENT COMPANY FINANCIAL STATEMENTS (Continued)

Condensed Statements of Income and Comprehensive Income
Years Ended December 31

1999 1998 1997
(In Thousands)
Income
Dividends from subsidiary $2,700 $2,330 $2,100
Interest income 28 5 -
Total income 2,728 2,335 2,100

Expenses
Interest expense - - 10
Other expenses 53 25 21
Total expenses 53 25 31

Income before income taxes and equity in
undistributed income of subsidiary 2,675 2,310 2,069

Applicable income tax benefits 9 7 11

Income before equity in undistributed
income of subsidiary 2,684 2,317 2,080

Equity in undistributed income of subsidiary 1,766 1,487 1,328

Net income 4,450 3,804 3,408

Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on securities arising
during the period (615) (140) 240
Reclassification of realized amount - (27) (9)

Net change in unrealized gain (loss) on securities (615) (167) 231

Comprehensive income $3,835 $3,637 $3,639

NOTE 18 - PARENT COMPANY FINANCIAL STATEMENTS (Continued)

Condensed Statements of Cash Flows
Years Ended December 31

1999 1998 1997
(In Thousands)
Cash flows from operating activities
Net income $ 4,450 $ 3,804 $ 3,408
Adjustments to reconcile net income to net
cash from operating activities
Equity in undistributed earnings of
subsidiary (1,766) (1,487) (1,328)
Change in other assets (3) (8) 8
Change in other liabilities - - (11)
Net cash from operating activities 2,681 2,309 2,077

Cash flows from investing activities
Purchase of investment securities available
for sale (555) (977) -

Cash flows from financing activities
Dividends paid (1,233) (1,122) (1,005)
Proceeds from issuance of common stock 50 141 51
Purchase of common stock (304) - (603)
Net cash from financing activities (1,487) (981) (1,557)

Net change in cash 639 351 520

Cash at beginning of year 967 616 96

Cash at end of year $ 1,606 $ 967 $ 616

REPORT OF INDEPENDENT AUDITORS

Board of Directors
Bourbon Bancshares, Inc.
Paris, Kentucky

We have audited the accompanying consolidated balance sheets of
Bourbon Bancshares, Inc. as of December 31, 1999 and 1998, and
the related consolidated statements of income, comprehensive
income, changes in stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Bourbon Bancshares, Inc. as of December 31, 1999 and
1998, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 1999, in
conformity with generally accepted accounting principles.

/s/Crowe, Chizek and Company LLP

Crowe, Chizek and Company LLP

Lexington, Kentucky
January 21, 2000

Bourbon Bancshares, Inc.
Board of Directors

Buckner Woodford
President and Chief Executive Officer;
Kentucky Bank and Bourbon Bancshares, Inc.
Class of 2000

William R. Stamler
Chairman, Signal Investments, Inc.
Class of 2000

Henry Hinkle
President; Hinkle Contracting Company
Class of 2002

Robert G. Thompson
Director, Paris/Bourbon County YMCA; Snow Hill Farm
Class of 2002

Theodore Kuster
Farmer and Thoroughbred Breeder; West View Farm
Class of 2002

James L. Ferrell, M.D.
Physician; Chairman, Bourbon Bancshares, Inc.
Class of 2001

William M. Arvin
Attorney
Class of 2001

Kentucky Bank - Board of Directors

Buckner Woodford
President and Chief Executive Officer;
Bourbon Bancshares, Inc. and Kentucky Bank

Joe Allen
Executive Vice President, Kentucky Bank

William M. Arvin
Attorney, William M. Arvin and Associates

Dr. Gus A. Bynum
Physician

Bonnie Dean
Retired - Nicholasville City Clerk, Treasurer

James L. Ferrell, M.D.
Physician

Dr. William J. Graul
Physician

Mary Beth Hendricks
Director of Clark County Child Support Services

Henry Hinkle
President; Hinkle Contracting Company

Theodore Kuster
Farmer and Thoroughbred Breeder; West View Farm

Joseph B. McClain
President; Hopewell Insurance Company, Inc.

William R. Stamler
Chairman, Signal Investments, Inc.

Robert G. Thompson
Director, Paris/Bourbon County YMCA

Gerald M. Whalen
President, Whalen and Co. Insurance and Real Estate

REGIONAL BOARD OF DIRECTORS
CLARK

C. Richard Gamble
Investor

Donald Pace
Consultant, Clark Co. Schools

Ed Saunier
President, Saunier North American Van Lines

Mary Beth Hendricks
Director of Clark County Child Support Services

John G. Roche
Optician

WOODFORD

Dr. William J. Graul
Physician

James Kay
Businessman, Farmer

Loren Carl
Director, KY Attorney General's Office

Tricia N. Kittinger
Woodford Circuit Clerk

SCOTT

R.C. Johnson, Jr.
Owner and President; Johnson's Funeral Home

Dr. Gus A. Bynum
Physician

Mike Hockensmith
Owner and President, The Hockensmith Agency, Inc.

George Lusby
County Judge Executive

JESSAMINE

William M. Arvin
Attorney, William M. Arvin and Associates

Dan Brewer
Bluegrass RECC

Bonnie Dean
Retired - Nicholasville City Clerk, Treasurer

Eva McDaniel
Jessamine County Clerk

OFFICERS
BOURBON COUNTY
PARIS
Buckner Woodford - President and CEO
Joe Allen - Executive Vice President
James P. Shipp, Jr. - Sr. Vice President, Branch Administration
Norman J. Fryman - Sr. Vice President, Director of Lending
Greg Dawson - Vice President, Chief Financial Officer
Hugh Crombie - Vice President, Operations
Bill Reynolds - Vice President, Trust Officer
Brenda Bragonier - Vice President, Director of Marketing and Human Resources
R.W. Collins, Jr. - Vice President, Loan Officer
Michael Lovell - Vice President, Loan Officer
George Wilder - Vice President, Loan Officer
Nicholas L. Carter - Assistant Vice President, Loan Officer
Cathy Hill - Assistant Vice President, Loan Officer
Brenda Berry - Accountant
Mary Lou Boyle - Human Resources
Wallis Brooks - Branch Manager
Patty Carpenter - Loan Operations Officer
Paul Clift - Systems Support
Janice Hash - Accountant and Purchasing Agent
Jean Patton - Compliance/CRA/Quality Control
Donald Roe - Data Processing
Lydia Sosby - Corporate and Automated Products Officer
Rick Wagner - Maintenance Supervisor
Martha Woodford - Corporate and Automated Products Officer
Jan Worth - Trust Officer

Lexington Road Branch
Rita Bugg - Vice President, Branch Manager, Loan Officer

Pleasant Street Branch
Philip Hurst - Assistant Branch Manager

CLARK COUNTY
WINCHESTER
Tim Duncan - Regional Vice President
Becky Taulbee - Assistant Vice President, Loan Officer
Darryl Terry - Vice President, Loan Officer
Carolyn Wilkins - Calling Officer
Ron Burden, Vice President, Loan Officer

Colby Road Branch
Teresa Shimfessel - Assistant Vice President, Branch Manager, Loan Officer

WOODFORD COUNTY
VERSAILLES
Duncan Gardner - Regional Vice President
A.J. Gullett - Assistant Vice President, Loan Officer

SCOTT COUNTY
PARIS PIKE BRANCH
Jennifer Roberts - Assistant Vice President, Branch Manager, Loan Officer

GEORGETOWN
Mark Walls - Regional Vice President
Ben Sargent - Assistant Vice President, Loan Officer

JESSAMINE COUNTY
NICHOLASVILLE
Tom Buford - Regional Vice President
Jeanie Thompson - Assistant Cashier & CSR
Rick Walling - Assistant Vice President, Loan Officer

WILMORE
Freida Lear, Assistant Vice President, Branch Manager, Loan Officer

HARRISON COUNTY
CYNTHIANA LOAN PRODUCTION OFFICE
Ken DeVasher - Regional Manager, Loan Officer

Exhibit 21 Subsidiaries of Registrant

Bourbon Bancshares, Inc.'s Subsidiary

Kentucky Bank

EXHIBIT 23

CONSENT OF INDEPENDENT AUDITORS

We hereby consent to the incorporation by reference in the Form S-8
Registration Statement No. 333-92725 of Bourbon Bancshares, Inc., of our
report dated January 21, 2000 on the consolidated financial statements of
Bourbon Bancshares, Inc. as of December 31, 1999 and 1998 and for each of the
three years in the period ended December 31, 1999 as included in the
registrant's annual report on Form 10-K.

/s/Crowe, Chizek and Company LLP

Crowe, Chizek and Company LLP

Lexington, KY
March 29, 2000

Exhibit 99.1 Proxy Statement

BOURBON BANCSHARES
400 Main Street
Paris, Kentucky 40361

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 2, 2000

March 17, 2000
To our Shareholders:

The annual meeting of the shareholders of Bourbon Bancshares
(the "Company") will be held on Tuesday, May 2, 2000 at
11:00 a.m. local time, at the Lexington Road Branch of
Kentucky Bank, Paris, Kentucky, for the purposes of:

1. Election of directors; to elect two Class I directors

2. Ratification of Independent Auditors. To act upon a
proposal to ratify the appointment of Crowe, Chizek and Company
LLP as the Corporation's independent auditors for the fiscal year
ending December 31, 2000.

3. Other Business. To act upon such other matters as may
properly be brought before the Annual Meeting or any adjournment
thereof. The Board of Directors does not know of any other
matter to come before the Annual Meeting.

Information regarding the matters to be acted upon at the
Annual Meeting is contained in the Proxy statement
accompanying this Notice. Only those holders of record of
the corporation's common stock at the close of business on
March 17, 2000, are entitled to notice of and to vote at the
Annual Meeting and any adjournment thereof.

All Shareholders are cordially invited to attend the Annual
Meeting, but whether or not you expect to attend the Annual
Meeting in person, please sign and date the enclosed Proxy
and return it promptly so your stock may be voted.

Thank you for your time and consideration. Please feel free
to contact my office should you have any questions.

BY ORDER OF THE BOARD OF DIRECTORS

/s/Buckner Woodford
Buckner Woodford
President Bourbon Bancshares, Inc.

YOUR VOTE IS IMPORTANT

PLEASE MARK, SIGN, DATE AND RETURN THE ACCOMPANYING PROXY
IMMEDIATELY EVEN IF YOU PLAN TO ATTEND THE ANNUAL MEETING.

BOURBON BANCSHARES, INC.

PROXY STATEMENT

INTRODUCTION

This Proxy Statement is being furnished to shareholders of
Bourbon Bancshares, Inc., a Kentucky Corporation (the "Company"),
in connection with the solicitation of proxies by the Board of
Directors of the Company (the "Board") from holders of record of
the Company's outstanding Common Shares (the "Common Shares") as
of the close of business on March 17, 2000 (the "Annual Meeting
Record Date"), for use at the Annual Meeting of Shareholders of
the Company (the "Annual Meeting") to be held on Tuesday, May 2,
2000, at 11:00 a.m. (Eastern Daylight Time) at the Company's
Lexington Road Branch office of Kentucky Bank, Fourth and Main
Streets, Paris, Kentucky, and at any adjournment or postponement
thereof. This Proxy Statement is first being mailed to the
Company's shareholders on or about March 17, 2000. The principal
executive offices of the Company are located at Fourth and Main
Streets, Paris, Kentucky 40361. Its telephone number is (606)
987-1795.

Purposes of the Annual Meeting

At the Annual Meeting, holders of Common Shares will be
asked to consider and to vote upon the following matters:

(1) To elect two Class I directors:
(2) To ratify the appointment of Crowe, Chizek and Company LLP
as the Company's independent auditors for the 2000 fiscal
year end
(3) To transact such other business as may properly come before
the meeting.

The Board recommends that shareholders vote FOR the election
of the Board's nominees for Class I directors and the
ratification of the Board's appointment of Crowe, Chizek and
Company LLP as the Company's independent auditors for the 2000
fiscal year. As of the date of this Proxy Statement, the Board
knows of no other business to come before the Annual Meeting.

Voting Rights and Proxy Information

Only holders of record of Common Shares as of the close of
business on the Annual Meeting Record Date will be entitled to
notice of and to vote at the Annual Meeting or any adjournment or
postponement thereof. As of December 31, 1999, there were
2,802,471 Common Shares outstanding and entitled to vote at the
Annual Meeting. The presence either in person or by properly
executed proxy, of the holders of a majority of the outstanding
Common Shares as of the Annual Meeting Record Date is necessary
to constitute a quorum at the Annual Meeting. Holders of Common
Shares are entitled to one vote per share on any matter, other
than the election of directors, that may properly come before the
Annual Meeting. In the election of directors, holders of Common
Shares have cumulative voting rights whereby each holder is
entitled to vote the number of Common Shares owned multiplied by
two (the number of directors to be elected at the Annual
Meeting), and each holder may cast the whole number of votes for
one candidate or distribute such votes among two or more
candidates. The Board of Directors is soliciting discretionary
authority for the individuals appointed in the proxies to
cumulate votes represented by properly executed proxies and to
vote for less than all the Company's nominees to the Board if
deemed appropriate to ensure the election of as many of the
Company's nominees to the Board as possible.

Those persons receiving the two highest number of votes in
the election of directors (net of any votes against their
election) will be elected to the Board. The appointment of
Crowe, Chizek and Company LLP as the company's independent
auditors for the 2000 year will be ratified, if the votes cast in
favor of ratification exceed the votes cast against that matter.

All Common Shares that are represented at the Annual Meeting
by properly executed proxies received prior to or at the Annual
Meeting and not revoked will be voted at the Annual Meeting in
accordance with the instructions indicated in such proxies. If
no instructions are indicated, such proxies will be voted "FOR"
(I) the election of the Board's two nominees as Class I directors
of the Company (or, if deemed appropriate by the individuals
appointed in the proxies, cumulatively voted for less than all of
the Board's nominees) and (II) the ratification of Crowe, Chizek
and Company LLP as the Company's independent auditors for the
2000 year.

Any proxy given pursuant to this solicitation may be revoked
by the person giving it at any time before it is voted. Proxies
may be revoked by (i) filing with the Company, to the attention
of William C. Reynolds, Secretary, at or before the Annual
Meeting, a written notice of revocation bearing a later date than
the proxy, (ii) duly executing a subsequent proxy relating to the
same Common Shares and delivering it to the Company at or before
the Annual Meeting or (iii) attending the Annual Meeting and
voting in person (although attendance at the Annual Meeting will
not in and of itself constitute a revocation of a proxy). Any
written notice revoking a proxy should be sent to Bourbon
Bancshares, Inc., P. O. Box 157, Paris, Kentucky 40362-0157,
Attention: William C. Reynolds, Secretary.

The Company will bear the cost of the solicitation of
proxies by the Board in connection with the Annual Meeting. In
addition to solicitation by mail, the Company will request banks,
brokers and other custodian nominees and fiduciaries to supply
proxy material to the beneficial owners of Common Shares, and
will reimburse them for their expenses in so doing. Certain
directors, officers and other employees of the Company, not
specially employed for this purpose, may solicit proxies without
additional remuneration therefore, by personal interview, mail,
telephone, facsimile or other electronic means.

ITEM 1 -- ELECTION OF DIRECTORS

Under the Company's Articles of Incorporation, the Board of
Directors consists of three different classes (Class I, Class II
and Class III), each to serve, subject to the provisions of the
Articles of Incorporation and Bylaws for a three year term and
until his successor is duly elected and qualified. Except as
listed below, each nominee for a Class II directorship has held
the specified position for the last five years. The names of the
nominees proposed for election as Class I directors, all of whom
are presently directors of the Company, are set forth below. The
Company is not aware of any other individual who may be nominated
for election to the Board of Directors at the Annual Meeting.

William R. Stamler, Retired, is a consultant of Stamler Corp,
Oldenburg Group. He has been a director since 1988.

Buckner Woodford, President of the bank and holding company.
Became a director in 1981.

The Board of Directors does not contemplate that any of the
nominees will be unable to accept election as a director for any
reason. However, in the event that one or more of such nominees
is unable or unwilling to accept or is unavailable to serve, the
persons named in the proxies or their substitutes shall have
authority, according to their judgment, to vote or to refrain
from voting for other individuals as directors.

The Board recommends that shareholders vote "FOR" each of
the above nominees for election as Class I directors of the
Company.

ITEM 2 -- RATIFICATION OF APPOINTMENT OF
INDEPENDENT AUDITORS

The Company has appointed Crowe, Chizek and Company LLP,
Louisville and Lexington, Kentucky as the Company's independent
auditors for the fiscal year ending December 31, 2000. Eskew &
Gresham, P.S.C. has served as the Company's independent auditors
since 1982. In January 1998 Eskew & Gresham was merged into
Crowe, Chizek and Company LLP. Services provided to the Company
and its subsidiaries by Crowe, Chizek and Company LLP with
respect to the fiscal year ended December 31, 1999 included the
examination of the Company's consolidated financial statements
and consultations on various tax matters.

In the event shareholders do not ratify the appointment of
Crowe, Chizek and Company LLP as the Company's independent
auditors for the 2000 year such appointment will be reconsidered
by the Board.

The Board recommends that shareholders vote "FOR"
ratification of the appointment of Crowe, Chizek and Company LLP
as the Company's independent auditors for the 2000 year.

OTHER MATTERS

As of the date of this Proxy Statement, the Company knows of
no business that will be presented for consideration at the
Annual Meeting other than that referred to above. Proxies in the
enclosed form will be voted in respect of any other business that
is properly brought before the Annual Meeting in accordance with
the judgment of the person or persons voting the proxies.

By Order of the Board of Directors

/s/William C. Reynolds

William C. Reynolds, Secretary

March 17, 2000

This Proxy Form is Solicited by the Board of Directors

Bourbon Bancshares, Inc.
Paris, Kentucky

The undersigned hereby appoints Buckner Woodford and William
Reynolds, or either one of them (with full power to act alone),
my proxy, each with the power to appoint his substitute, to
represent me to vote all of the Corporation's Common Stock which
I held of record or am otherwise entitled to vote at the close of
business on March 17, 2000, at the 2000 Annual Meeting of
Shareholders to be held on May 2, 2000 and at any adjournments
thereof, with all powers the undersigned would possess if
personally present, as follows:

I ELECTION OF DIRECTORS

__ FOR all nominees listed below (except as otherwise
indicated below)

__ AGAINST all nominees listed below

William Stamler, Buckner Woodford

(INSTRUCTION: To withhold authority to vote for any individual
nominee, write the nominee's name on the line)

II RATIFICATION OF CROWE, CHIZEK AND CO. LLP AS
INDEPENDENT AUDITORS

______FOR ______AGAINST _____ABSTAIN

III OTHER BUSINESS. In their discretion, the Proxies are
authorized to act upon such other matters
As may properly be brought before the Annual Meeting
or any adjournment thereof.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ALL OF THE NOMINEES
LISTED IN ITEM I AND "FOR" ITEMS 2 AND 3.

(PLEASE DATE, MARK, SIGN AND RETURN IMMEDIATELY)

This proxy form relates to ALL shares owned by the undersigned.

This proxy form is solicited by the Board of
Directors and will be voted as specified and in
accordance with the accompanying proxy statement. If no
instruction is indicated, this proxy form will be
voted "FOR" all of the nominees listed in Item 1 and "FOR" Items
2 and 3.

Please sign exactly as name appears. When shares
are held by joint tenants, both should sign.
When signing as attorney, as executor, administrator, trustee or
guardian, please give full title as such. If
a corporation, please sign full corporate name by President or
other authorized officer. If a partnership,
please sign partnership name by authorized person.

DATE___________, 2000
______________________________________
Signature

_______________________________________
Signature if held jointly