GENERAL

We operate 21 banking centers in eight contiguous counties in Central Kentucky along the Interstate 65 corridor and the Louisville Metropolitan area, including southern Indiana. Our markets range from Metro Louisville in Jefferson County, Kentucky approximately 40 miles north of our headquarters in Elizabethtown, Kentucky to Hart County, Kentucky, approximately 30 miles south of Elizabethtown to Harrison County, Indiana approximately 60 miles northwest of our headquarters. Our markets are supported by a diversified industry base and have a regional population of over 1 million. Based on the current economic slow-down, management anticipates that our markets may not continue to grow at the rate experienced over the last few years. However, we believe we will still be well positioned to benefit from growth in our local markets when the economy rebounds in the future.

We serve the needs and cater to the economic strengths of the local communities in which we operate, and we strive to provide a high level of personal and professional customer service. We offer a variety of financial services to our retail and commercial banking customers. These services include personal and corporate banking services and personal investment financial counseling services.

Through our personal investment financial counseling services, we offer a wide variety of mutual funds, equity investments, and fixed and variable annuities. We invest in the wholesale capital markets to manage a portfolio of securities and use various forms of wholesale funding. The security portfolio contains a variety of instruments, including callable debentures, taxable and non-taxable debentures, fixed and adjustable rate mortgage backed securities, and collateralized mortgage obligations.

Our results of operations depend primarily on net interest income, which is the difference between interest income from interest-earning assets and interest expense on interest-bearing liabilities. Our operations are also affected by non-interest income, such as service charges, insurance agency revenue, loan fees, gains and losses from the sale of mortgage loans and gains from the sale of real estate held for development. Our principal operating expenses, aside from interest expense, consist of compensation and employee benefits, occupancy costs, data processing expense and provisions for loan losses.

This discussion and analysis covers material changes in the financial condition since December 31, 2008 and material changes in the results of operations for the three month period ending March 31, 2009 as compared to 2008. It should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in the Annual Report on Form 10-K for the period ended December 31, 2008.

OVERVIEW

On June 25, 2008, we expanded our operations into southern Indiana with the acquisition of FSB Bancshares, Inc., the bank holding company for The Farmers State Bank. The Farmers State Bank had approximately $65.7 million in total assets and $55.8 million in deposits. The Farmers State Bank had four banking offices in Harrison and Floyd Counties in Indiana, which are adjacent to four Kentucky counties where we currently operate and are part of the Louisville MSA. Upon completion of the acquisition, these four offices became branches of First Federal Savings Bank. The acquisition is anticipated to be accretive to our earnings during the first full year of the combined operations.

Over the past several years we have focused on enhancing and expanding our retail and commercial banking network in our core markets as well as establishing our presence in the Louisville market. Our core markets, where we have a combined 23% market share, have become increasingly competitive as several new banks have entered those markets during the past few years. In order to protect and grow our market share, we are replacing existing branches with newer, enhanced facilities and anticipate constructing several new facilities over the next few years. In addition to the enhancement and expansion in our core markets, we have been increasing our presence in the Louisville market. Our acquisition of FSB Bancshares, Inc. has broadened our retail branch network in the Louisville market, which now extends into Southern Indiana. Approximately 73% of the deposit base in the Louisville market is controlled by six out-of-state banks. While the market is very competitive, we believe this creates an opportunity for smaller community banks with more power to make decisions locally. We believe our investment in these initiatives along with our continued commitment to a high level of customer service will enhance our market share in our core markets and our development in the Louisville market.

Our retail branch network continues to generate encouraging results. Total deposits have grown 28% over the past three years. Total deposits were $821.5 million at March 31, 2009, an increase of $46.1 million from December 31, 2008. After our acquisition of Farmers State Bank in 2008, our retail branch network in the Louisville market has broadened to fifteen offices. Additional sites within the Louisville market are under development with another location scheduled to open early in the third quarter of 2009. Competition for deposits continues to be challenging in all of the markets we serve. This intense competition and any additional actions taken by the Federal Open Market Committee (FOMC) to change interest rates could add to additional margin compression as the rate environment remains uncertain.

We have developed a strong commercial real estate niche in our markets. We have an experienced team of bankers who focus on providing service and convenience to our customers. It is quite common for our bankers to close loans at a customer's place of business or even the customer's personal residence. This high level of service has been especially well received in our Louisville market, which is dominated by regional banks. To further develop our commercial banking relationships in Louisville, we opened a private banking office in April 2007. This upscale facility complements our full service centers in Louisville by attracting commercial deposit relationships in conjunction with our commercial lending relationships.

Our emphasis on commercial lending generated 35% growth in the total loan portfolio and 40% growth in commercial loans over the past three years.
Commercial loans were $666.2 million at March 31, 2009, an increase of $28.6 million, or 4.5% from December 31, 2008.

Although we had growth in the loan portfolio during the quarter, credit quality remained challenging in 2009. There was a significant migration of loans into the Substandard loan categories during the quarter, resulting in higher provision for loan losses. At March 31, 2009, the allowance for loan losses was $15.1 million compared to $13.6 million at December 31, 2008. Allowance for loan loss to total loans increased to 1.60% at March 31, 2009 compared to 1.50% at December 31, 2008. The allowance for loan losses to non-performing loans fell to 70% from 81% at March 31, 2009 compared to December 31, 2008.

Despite the continued deterioration in economic conditions during the first quarter, the Corporation's capital position remained well-capitalized as defined by regulatory standards. Our capital position was further bolstered in the first quarter of 2009 by our participation in the U.S. Treasury Department Capital Purchase Program. Under the Capital Purchase Program, we sold $20 million of cumulative perpetual preferred shares to the U.S. Treasury in a transaction that closed on January 9, 2009.

We believe that the economy is in a very deep and long lasting recession. During the last quarter of 2008, the continued economic slowdown moved to sectors not previously impacted, including consumer, commercial, industrial among others. Credit issues are broadening in these sectors and economic recovery is most likely several quarters away. We will continue to monitor credit quality very closely in 2009 as this recession persists. As the economy and the financial sector continue to struggle, probable losses in the loan portfolio could increase, resulting in higher provision for loan losses during 2009.

CRITICAL ACCOUNTING POLICIES

Our accounting and reporting policies comply with U.S. generally accepted accounting principles and conform to general practices within the banking industry. The accounting policy relating to the allowance for loan losses is critical to the understanding of our results of operations since the application of this policy requires significant management assumptions and estimates that could result in materially different amounts to be reported if conditions or underlying circumstances were to change.

Allowance for Loan Losses - We maintain an allowance sufficient to absorb probable incurred credit losses existing in the loan portfolio. Our Allowance for Loan Loss Review Committee, which is comprised of senior officers, evaluates the allowance for loan losses on a quarterly basis. We estimate the allowance using past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower's ability to repay, estimated value of the underlying collateral, and current economic conditions. While we estimate the allowance for loan losses based in part on historical losses within each loan category, estimates for losses within the commercial real estate portfolio are more dependent upon credit analysis and recent payment performance. Allocations of the allowance may be made for specific loans or loan categories, but the entire allowance is available for any loan that, in management's judgment, should be charged off.

The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired or loans otherwise classified as substandard or doubtful. The general component covers non-classified loans and is based on historical loss experience adjusted for current factors. Allowance estimates are developed with actual loss experience adjusted for current economic conditions. Allowance estimates are considered a prudent measurement of the risk in the loan portfolio and are applied to individual loans based on loan type.

Based on our calculation, an allowance of $15.1 million or 1.60% of total loans was our estimate of probable losses within the loan portfolio as of March 31, 2009. This estimate resulted in a provision for loan losses on the income statement of $2.0 million for the 2009 period. If the mix and amount of future charge off percentages differ significantly from those assumptions used by management in making its determination, the allowance for loan losses and provision for loan losses on the income statement could be materially increased.

Goodwill and Other Intangible Assets - Costs in excess of the estimated fair value of identified assets acquired through purchase transactions are recorded as an asset. As per Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets", an annual impairment analysis is required to be performed to determine if the asset is impaired and needs to be written down to its fair value. This assessment is conducted annually or more frequently if conditions warrant. No impairment was identified as a result of the impairment analysis at December 31, 2008. In making these impairment analyses, management must make subjective assumptions regarding the fair value of our assets and liabilities. It is possible that these judgments may change over time as market conditions or our strategies change, and these changes may cause us to record impairment changes to adjust the goodwill to its estimated fair value.

Impairment of Investment Securities - All unrealized losses are reviewed to determine whether the losses are other-than-temporary. Investment securities are evaluated for other-than-temporary impairment on at least a quarterly basis and more frequently when economic or market conditions warrant such an evaluation to determine whether a decline in their value below amortized cost is other-than-temporary. We evaluate a number of factors including, but not limited to: a discounted cash flow analysis; valuation estimates provided by investment brokers; how much fair value has declined below amortized cost; how long the decline in fair value has existed; the financial condition of the issuer; significant rating agency changes on the issuer; and whether management has the intent to sell the debt security or whether it is more likely than not that we will be required to sell the debt security before its anticipated recovery.

The term "other-than-temporary" is not intended to indicate that the decline is permanent, but indicates that the possibility for a near-term recovery of value is not necessarily favorable, or that there is a lack of evidence to support a realizable value equal to or greater than the carrying value of the investment. Once a decline in value is determined to be other-than-temporary, the cost basis of the security is written down to fair value and a corresponding charge to earnings is recognized if the security is an equity security. If other-than-temporary impairment exists for a debt security, the security's carrying value is reduced by the amount of the credit loss and is charged to earnings while the remainder of the loss remains in other comprehensive income.

RESULTS OF OPERATIONS

Net income for the quarter ended March 31, 2009 was $761,000 or $0.10 per common share diluted compared to $1.9 million or $0.40 per common share diluted for the same period in 2008. Earnings decreased for 2009 compared to 2008 due to a decrease in our net interest margin, an increase in provision for loan loss expense, a write down taken on investment securities that were other-than-temporary impaired, and a higher level of non-interest expense related to our expansion efforts. Net income available to common shareholders was also impacted by dividends paid on preferred shares. Our book value per common share decreased from $16.01 at March 31, 2008 to $15.62 at March 31, 2009. Annualized net income for 2009 represented a return on average assets of .30% and a return on average equity of 3.37%. These compare with a return on average assets of .87% and a return on average equity of 10.16% for the 2008 period also annualized.

Net Interest Income - The principal source of our revenue is net interest income. Net interest income is the difference between interest income on interest-earning assets, such as loans and securities and the interest expense on liabilities used to fund those assets, such as interest-bearing deposits and borrowings. Net interest income is affected by both changes in the amount and composition of interest-earning assets and interest-bearing liabilities as well as changes in market interest rates.

The growth in our commercial loan portfolio has increased net interest income. The increase in the volume of interest earning assets increased net interest income by $1.1 million for the first three months of 2009 compared to the prior year period. Average interest earning assets increased $154.8 million for 2009 compared to 2008. Despite the increase in interest earning assets, our net interest margin realized a modest decline of ten basis points. The yield on earning assets averaged 6.01% for 2009 compared to an average yield on earning assets of 7.16% for the same period in 2008. This decrease was offset by a decrease in our cost of funds. Net interest margin as a percent of average earning assets decreased to 3.73% for 2009 compared to 3.83% for the 2008 period.

Our cost of funds averaged 2.49% for the first three months of 2009 compared to an average cost of funds of 3.68% for the same period in 2008. Going forward, our cost of funds is expected to continue to decrease as certificates of deposit re-price and roll off into new certificates of deposit at lower interest rates.

Our net interest margin is likely to compress in future quarters as a result of the FOMC decreasing the Federal Funds rate by 500 basis points since September 2007. The current Federal Funds rate is a range of 0.00% to 0.25%. Correspondingly, variable rate loans that are tied to the federal prime rate are immediately re-priced downward when the prime rate decreases. However, interest rates paid on customer deposits, which are priced off of the London Interbank Offering Rate (LIBOR), have not adjusted downward proportionately with the declining interest yields on loans and investments. LIBOR, which is a market driven rate, did not decline in rate as much as the prime rate. Therefore, we do not expect our deposit costs to decline as fast as our yield on loans. Sixty percent of deposits are time deposits that re-price over a longer period of time. This difference in the timing of the repricing of our assets and deposits is expected to continue to lower our net interest margin.

AVERAGE BALANCE SHEET

The following table provides information relating to our average balance sheet
and reflects the average yield on assets and average cost of liabilities for the
indicated periods. Yields and costs for the periods presented are derived by
dividing income or expense by the average monthly balance of assets or
liabilities, respectively.

                                                                  Quarter Ended March 31,
                                               2009                                               2008

(Dollars in thousands)        Average                           Average          Average                           Average
                              Balance        Interest       Yield/Cost (5)       Balance        Interest        Yield/Cost (5)

ASSETS
Interest earning assets:
U.S. Treasury and
agencies                    $     4,161     $        39                3.80 %   $   11,283     $       106                 3.78 %
Mortgage-backed
securities                        7,691              82                4.32         10,248             109                 4.28
Equity securities                   940              33               14.23          1,613              14                 3.49
State and political
subdivision securities
(1)                               9,093             161                7.18          9,524             152                 6.42
Corporate bonds                     333              34               41.45          3,091              49                 6.38
Loans (2) (3) (4)               939,647          13,944                6.02        774,443          14,032                 7.29
FHLB stock                        8,515              96                4.57          7,622             100                 5.28
Interest bearing deposits         2,956              24                3.29            741               6                 3.26
Total interest earning
assets                          973,336          14,413                6.01        818,565          14,568                 7.16
Less: Allowance for loan
losses                          (13,793 )                                           (8,060 )
Non-interest earning
assets                           80,188                                             64,781
Total assets                $ 1,039,731                                         $  875,286

LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest bearing
liabilities:
Savings accounts            $   111,149     $       197                0.72 %   $   95,009     $       511                 2.16 %
NOW and money market
accounts                        157,873             249                0.64        127,211             435                 1.38
Certificates of deposit
and other time deposits         491,731           4,054                3.34        417,054           4,740                 4.57
Short term borrowings            59,942              43                0.29         38,634             322                 3.35
FHLB advances                    52,603             597                4.60         53,061             596                 4.52
Subordinated debentures          18,000             329                7.41         10,000             167                 6.72
Total interest bearing
liabilities                     891,298           5,469                2.49        740,969           6,771                 3.68
Non-interest bearing
liabilities:
Non-interest bearing
deposits                         54,117                                             54,335
Other liabilities                 2,605                                              5,435
Total liabilities               948,020                                            800,739

Stockholders' equity             91,711                                             74,547
Total liabilities and
stockholders' equity        $ 1,039,731                                         $  875,286

Net interest income                         $     8,944                                        $     7,797
Net interest spread                                                    3.52 %                                              3.48 %
Net interest margin                                                    3.73 %                                              3.83 %

(1) Taxable equivalent yields are calculated assuming a 34% federal income tax rate.

(2) Includes loan fees, immaterial in amount, in both interest income and the calculation of yield on loans.

(3) Calculations include non-accruing loans in the average loan amounts outstanding.

(4) Includes loans held for sale.

(5) Annualized

RATE/VOLUME ANALYSIS

The table below provides information regarding changes in interest income and interest expense for the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (1) changes in rate (changes in rate multiplied by old volume); (2) changes in volume (change in volume multiplied by old rate); and (3) changes in rate-volume (change in rate multiplied by change in volume). Changes in rate-volume are proportionately allocated between rate and volume variance.

                                                         Three Months Ended
                                                              March 31,
                                                            2009 vs. 2008
                                                         Increase (decrease)
                                                          Due to change in
(Dollars in thousands)                                                       Net
                                                    Rate       Volume       Change
Interest income:
U.S. Treasury and agencies                        $      -     $   (67 )   $    (67 )
Mortgage-backed securities                               1         (28 )        (27 )
Equity securities                                       27          (8 )         19
State and political subdivision securities              16          (7 )          9
Corporate bonds                                         63         (78 )        (15 )
Loans                                               (2,812 )     2,724          (88 )
FHLB stock                                             (15 )        11           (4 )
Interest bearing deposits                                -          18           18

Total interest earning assets                       (2,720 )     2,565         (155 )

Interest expense:
Savings accounts                                      (389 )        75         (314 )
NOW and money market accounts                         (273 )        87         (186 )
Certificates of deposit and other time deposits     (1,443 )       757         (686 )
Short term borrowings                                 (396 )       117         (279 )
FHLB advances                                            6          (5 )          1
Subordinated debentures                                 17         145          162

Total interest bearing liabilities                  (2,478 )     1,176       (1,302 )

Net change in net interest income                 $   (242 )   $ 1,389     $  1,147

Non-Interest Income and Non-Interest Expense

The following tables provide a comparison of the components of non-interest
income and expenses for the periods ended March 31, 2009 and 2008. The tables
show the dollar and percentage change from 2008 to 2009. Below each table is a
discussion of significant changes and trends.

                                                            Three Months Ended
                                                                March 31,
 (Dollars in thousands)                      2009          2008          Change           %
Non-interest income
Customer service fees on deposit
accounts                                   $   1,477     $   1,416     $       61           4.3 %
Gain on sale of mortgage loans                   177           148             29          19.6 %
Net impairment losses recognized in
earnings                                        (155 )           -           (155 )       100.0 %
Write down on real estate acquired
through foreclosure                              (17 )           -            (17 )       100.0 %
Brokerage commissions                             93           118            (25 )       -21.2 %
Other income                                     428           272            156          57.4 %
                                           $   2,003     $   1,954     $       49           2.5 %

Growth in customer service fees on deposit accounts, our largest component of non-interest income, is primarily due to growth in customer deposits, overdraft fee income on retail checking accounts and the sale of fee-based products for 2009. We continue to increase our customer base through cross-selling opportunities and marketing initiatives and promotions. In addition, we continue to emphasize growing our checking account base to better enhance our profitability and franchise value.

We originate qualified VA, KHC, RHC and conventional secondary market loans and sell them into the secondary market with servicing rights released. For the quarter, gain on sale of mortgage loans increased due to an increase in the volume of loans closed.

We recognized other-than-temporary impairment charges of $155,000 for the expected credit loss during the first quarter of 2009 on two of our trust preferred securities. Management believes this impairment was primarily attributable to the current economic environment which caused the financial conditions of some of the issuers to deteriorate.

Further reducing non-interest income for the 2009 period was a 10% or $17,000 write-down of the carrying value of real estate owned properties that had been held for twelve months.

Other income increased during the quarter due to $135,000 in gains recorded on the sale of a real estate acquired through foreclosure properties.

                                                      Three Months Ended
                                                           March 31,
 (Dollars in thousands)                    2009        2008       Change         %
Non-interest expenses
Employee compensation and benefits        $ 4,002     $ 3,418     $   584        17.1 %
Office occupancy expense and equipment        848         653         195        29.9 %
. . .