GENERAL

We operate 22 full-service banking centers and a commercial private banking center in eight contiguous counties in Central Kentucky along the Interstate 65 corridor and in 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.

The discussion and analysis in this report covers material changes in the financial condition since December 31, 2008 and material changes in the results of operations for the three and nine month periods ending September 30, 2009 as compared to the same periods in 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.

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 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 46% over the past three years. Total deposits were $937.7 million at September 30, 2009, an increase of $162.3 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 sixteen offices. In May 2009, we opened the Fort Knox banking center, our twenty-first banking center, which expanded our current footprint in Hardin County, Kentucky. The Fort Knox banking center complements our existing branch located in Radcliff, Kentucky and is located just outside the main entrance to the Fort Knox military base. We also completed the construction of our twenty-second banking center which opened in July 2009. The branch is located in the Middletown area of Louisville, Kentucky. Competition for deposits continues to be challenging in all of the markets we serve. We believe this intense competition combined with continued repricing of variable rate loans could add to additional margin compression.

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 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 40% growth in the total loan portfolio and 46% growth in commercial loans over the past three years.
Commercial loans were $692.7 million at September 30, 2009, an increase of $55.1 million, or 8.6% from December 31, 2008.

Although we had growth in the loan portfolio during the first nine months, credit quality remained challenging in 2009. There was a significant migration of loans into the Substandard loan categories during the period, resulting in a higher provision for loan losses. At September 30, 2009, the allowance for loan losses was $16.2 million compared to $13.6 million at December 31, 2008. The allowance for loan losses to non-performing loans fell to 46% from 81% at September 30, 2009 compared to December 31, 2008.

Despite the continued deterioration in economic conditions during the first nine months of 2009, 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 policies identified below are critical to the understanding of our results of operations since the application of these policies 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 $16.2 million or 1.65% of total loans was our estimate of probable losses within the loan portfolio as of September 30, 2009. This estimate resulted in a provision for loan losses on the income statement of $6.4 million for the 2009 nine month period. If the mix and amount of future charge off percentages differ significantly from the assumptions used by management in making its determination, the allowance for loan losses and provision for loan losses on the income statement could materially increase.

Goodwill and Other Intangible Assets - We record costs in excess of the estimated fair value of identified assets acquired through purchase transactions as an asset. In accordance with current accounting guidance we perform an annual impairment analysis to determine if the asset is impaired and needs to be written down to its fair value. We may conduct this assessment annually or more frequently if conditions warrant. No impairment was identified as a result of our most recent impairment analysis at March 31, 2009. In making these impairment analyses, management must make subjective assumptions regarding the fair value of our assets and liabilities. 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 - We review all unrealized losses to determine whether the losses are other-than-temporary. We evaluate our investment securities for other-than-temporary impairment on at least a quarterly basis and more frequently when economic or market conditions warrant to determine whether a decline in the value of the securities 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 September 30, 2009 was $576,000 or $0.07 per common share diluted compared to $991,000 or $0.21 per common share diluted for the same period in 2008. Net income for the nine month period ended September 30, 2009 was $2.1 million or $.27 per common share diluted compared to $5.0 million or $1.06 per common share diluted for the same period a year ago. Earnings decreased for 2009 compared to 2008 due to a decrease in our net interest margin, an increase in provision for loan loss expense, write downs taken on real estate acquired through foreclosure, write downs 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 $15.95 at September 30, 2008 to $15.80 at September 30, 2009. Annualized net income for the first nine months of 2009 represented a return on average assets of .16% and a return on average equity of 1.85%. These compare with a return on average assets of .72% and a return on average equity of 8.80% for the first nine months of 2008 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 $963,000 and $3.4 million for the three and nine month 2009 periods compared to the same prior year periods. Average interest earning assets increased $125.4 million for the 2009 quarter and $151.5 million for the nine months compared to 2008. Despite the increase in interest earning assets, our net interest margin realized a modest decline. The yield on earning assets averaged 5.75% and 5.85% for the three and nine month 2009 periods compared to an average yield on earning assets of 6.54% and 6.78% for the same periods 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 8 basis points to 3.64% for the quarter ended September 30, 2009 and 12 basis points to 3.69% for the nine months ended September 30, 2009 compared to 3.72% and 3.81% for the same periods in 2008.

Our cost of funds averaged 2.29% and 2.36% for the quarter and nine month periods of 2009 compared to an average cost of funds of 3.05% and 3.24% 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 September 30,
                                                               2009                                              2008

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

ASSETS
Interest earning assets:
U.S. Treasury and agencies                $    15,024     $      75                 1.98 %   $   5,332     $      49                 3.66 %
Mortgage-backed securities                      6,373            65                 4.05         8,501            91                 4.26
Equity securities                                 977            25                10.15         1,775            12                 2.69
State and political subdivision
securities (1)                                 12,580           207                 6.53         9,416           136                 5.75
Corporate bonds                                   265            26                38.93         3,110            47                 6.01
Loans (2) (3) (4)                             984,468        14,410                 5.81       861,230        14,337                 6.62
FHLB stock                                      8,515           103                 4.80         8,410           113                 5.35
Interest bearing deposits                       2,706            18                 2.64         7,685            90                 4.66
Total interest earning assets               1,030,908        14,929                 5.75       905,459        14,875                 6.54
Less: Allowance for loan losses               (14,753 )                                         (9,029 )
Non-interest earning assets                    87,857                                           84,270
Total assets                              $ 1,104,012                                        $ 980,700

LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing liabilities:
Savings accounts                          $   115,882     $     236                 0.81 %   $ 114,518     $     442                 1.54 %
NOW and money market
accounts                                      179,348           352                 0.78       142,036           322                 0.90
Certificates of deposit and
other time deposits                           525,372         3,925                 2.96       478,747         4,561                 3.79
Short term borrowings                          57,235            27                 0.19        29,392           156                 2.11
FHLB advances                                  52,788           601                 4.52        52,993           610                 4.58
Subordinated debentures                        18,000           331                 7.30        18,000           315                 6.96
Total interest bearing liabilities            948,625         5,472                 2.29       835,686         6,406                 3.05
Non-interest bearing liabilities:
Non-interest bearing deposits                  58,176                                           62,606
Other liabilities                               3,481                                            6,261
Total liabilities                           1,010,282                                          904,553

Stockholders' equity                           93,730                                           76,147
Total liabilities and stockholders'
equity                                    $ 1,104,012                                        $ 980,700

Net interest income                                       $   9,457                                        $   8,469
Net interest spread                                                                 3.46 %                                           3.49 %
Net interest margin                                                                 3.64 %                                           3.72 %

(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

                                                                          Nine Months Ended September 30,
                                                               2009                                              2008

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

ASSETS
Interest earning assets:
U.S. Treasury and agencies                $    10,306     $     177                 2.30 %   $   7,126     $     216                 4.05 %
Mortgage-backed securities                      7,058           221                 4.19         9,311           297                 4.26
Equity securities                                 953            82                11.50         1,683            42                 3.33
State and political subdivision
securities (1)                                 10,961           547                 6.67         9,478           450                 6.34
Corporate bonds                                   222            86                51.79         3,092           123                 5.31
Loans (2) (3) (4)                             963,728        42,509                 5.90       811,036        41,718                 6.87
FHLB stock                                      8,515           290                 4.55         7,983           317                 5.30
Interest bearing deposits                       2,749            69                 3.36         3,257           100                 4.10
Total interest earning assets               1,004,492        43,981                 5.85       852,966        43,263                 6.78
Less: Allowance for loan losses               (14,465 )                                         (8,537 )
Non-interest earning assets                    84,899                                           75,195
Total assets                              $ 1,074,926                                        $ 919,624

LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing liabilities:
Savings accounts                          $   115,323     $     634                 0.74 %   $ 105,827     $   1,389                 1.75 %
NOW and money market
accounts                                      166,202           861                 0.69       135,172         1,078                 1.07
Certificates of deposit and other time
deposits                                      502,542        11,864                 3.16       437,792        13,348                 4.07
Short term borrowings                          66,866           117                 0.23        34,132           661                 2.59
FHLB advances                                  52,737         1,798                 4.56        53,026         1,808                 4.55
Subordinated debentures                        18,000           989                 7.35        13,556           649                 6.40
Total interest bearing liabilities            921,670        16,263                 2.36       779,505        18,933                 3.24
Non-interest bearing liabilities:
Non-interest bearing deposits                  57,230                                           58,847
Other liabilities                               3,093                                            5,762
Total liabilities                             981,993                                          844,114

Stockholders' equity                           92,933                                           75,510
Total liabilities and stockholders'
equity                                    $ 1,074,926                                        $ 919,624

Net interest income                                       $  27,718                                        $  24,330
Net interest spread                                                                 3.49 %                                           3.54 %
Net interest margin                                                                 3.69 %                                           3.81 %

(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 shows 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                     Nine Months Ended
. . .