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, 1998
                     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 29, 1999 was approximately $48.0
million.  For purposes of this calculation, it is assumed
that directors, 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 29, 1999:
  1,402,588.

<PAGE>

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").

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), 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.  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.

<PAGE>

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.

<PAGE>

Business Segments

The Financial Accounting Standards Board (FASB) has issued
SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information", which requires segmenting assets,
profit and loss and certain specific revenue and expense
items.  Although management monitors revenue streams from
various products and services, operations are managed and
financial performance is evaluated on a company-wide basis.
Therefore, all operations are considered by management to be
aggregated into one reportable operating segment.

Employees

At December 31, 1998, the number of full time equivalent
employees of the Company was 144.


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 9 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 59,000 square feet of office space and  leases
approximately  2,000  square  feet  of  office  space,  with
aggregate   annual  lease  payments  of  approximately   $16
thousand in 1998.

Note  5  to  the Company's consolidated financial statements
included  in  this  report  contain  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.

<PAGE>

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.  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

     1998 Quarter 1   $ 36.50      $31.00        $.20
          Quarter 2     40.00       36.50        $.20
          Quarter 3     42.00       40.00        $.20
          Quarter 4     41.25       41.00        $.20

     1997 Quarter 1     27.00       24.50        $.18
          Quarter 2     30.00       26.00        $.18
          Quarter 3     30.50       27.00        $.18
          Quarter 4     31.00       28.00        $.18

     As of December 31, 1998 the Company had 1,404,628
shares of Common Stock outstanding and approximately 437
holders of record of its Common Stock.

During 1998, 10,066 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 1998:

                                         Aggregate
          Date Issued         Shares   Consideration

     January 30, 1998         1,000          $ 8,500
     February 24, 1998          400            7,750
     March 9, 1998            3,640           65,030
     March 10, 1998               1             gift
     March 24, 1998             400            4,800
     August 26, 1998          3,000           27,700
     September 3, 1998          800           13,800
     September 14, 1998         800           13,800
     September 30, 1998          25             gift

          Total              10,066

<PAGE>

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.

                                    At or For the Year Ended December 31
                              (dollars in thousands, except per share amounts)
                                 1998      1997      1996      1995      1994
CONDENSED STATEMENT OF INCOME:
Total Interest Income          $21,983   $20,962   $19,425   $19,658   $15,657
Total Interest Expense          10,666    10,415     9,839    10,426     7,746
Net Interest Income             11,317    10,547     9,586     9,232     7,911
Provision for Losses               700       493       402       396       145
Net Interest Income After                                              
 Provision for Losses           10,617    10,054     9,184     8,836     7,766
Noninterest Income               3,073     2,390     2,284     2,053       992
Noninterest Expense              8,514     7,888     7,715     7,684     6,067
Income Before Income                                                   
 Tax Expense                     5,176     4,556     3,753     3,205     2,691
Income Tax Expense               1,372     1,148       866       717       488
Net Income                     $ 3,804   $ 3,408   $ 2,887   $ 2,488   $ 2,203
                                                                       
SHARE DATA:                                                            
Net Income-Earnings 
 per Share (EPS)                $ 2.72    $ 2.44    $ 2.03    $ 1.74    $ 1.54
Net Income-EPS assuming dilution  2.66      2.40      2.00      1.71      1.52
Cash Dividends Declared           0.80      0.72      0.64      0.60      0.54
Book Value                       20.91     19.16     17.44     16.16     14.00
Average Shares and Share                                               
 Equivalents Outstanding         1,431     1,422     1,443     1,448     1,432
                                                                       
SELECTED BALANCE SHEET DATA:                                           
Loans, net including
 held for sale                $210,108  $182,839  $157,564  $153,201  $145,817
Investment Securities           72,353    81,703    92,540    92,639    99,345
Total Assets                   308,705   290,655   272,453   269,431   274,497
Deposits                       258,740   241,325   231,071   213,348   223,810
Short-Term Borrowings           11,248     9,458     4,160    11,791     7,635
Long-Term Debt                   6,954    10,236    10,534    19,071    20,606
Stockholders' Equity            29,372    26,716    24,633    23,167    19,955
                                                                       
PERFORMANCE RATIOS:                                                    
(Average Balances)                                                     
Return on Assets                 1.31%     1.23%     1.10%     0.94%     0.95%
Return on Stockholders' Equity  13.57     13.43     12.06     11.36     10.61
Net Interest Margin (1)          4.27      4.18      4.02      3.80      3.76
Equity to Assets (at period end) 9.51      9.19      9.04      8.60      7.27
                                                                       
SELECTED STATISTICAL DATA:                                             
Dividend Payout Ratio           29.49%    29.49%    31.57%    32.93%    31.25%
Number of Employees
 (at period end)                   144       145       137       125       128
                                                                       
ALLOWANCE COVERAGE RATIOS:                                             
Allowance to Total Loans         1.28%     1.25%     1.32%     1.20%     1.12%
Net Charge-offs as a                                                   
 Percentage of Average Loans     0.15      0.16      0.10      0.12      0.13

(1)  Tax equivalent

<PAGE>

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
1998 data.

Summary

Net income for the year ended December 31, 1998 was $3.8
million, or $2.72 per common share compared to $3.4 million,
or $2.44 for 1997 and $2.9 million, or $2.03 for 1996.
Earnings per share assuming dilution were $2.66, $2.40 and
$2.00 for 1998, 1997 and 1996, respectively.  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.  In 1997, net income increasing over $520
thousand (over 18%) is mainly attributable to increased net
interest income and other income, offset by an increase in
the loan loss provision, while maintaining other expenses to
below modest increases.

Return on average equity was 13.6% in 1998 compared to 13.4%
in 1997 and 12.1% in 1996.  Return on average assets was
1.31% in 1998 compared to 1.23% in 1997 and 1.10% in 1996.

Non-performing loans as of a percentage of net loans were
0.50%, 0.26% and 0.49% as of December 31, 1998, 1997 and
1996, respectively.  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.

<PAGE>

RESULTS OF OPERATIONS

Net Interest Income

Net interest income, the largest source of revenue, on a tax
equivalent basis increased from $9.9 million in 1996 to
$10.9 million in 1997 to $11.7 million in 1998.  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%.  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 allowed 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.

An increase in earning assets and interest bearing
liabilities were both positive factors on 1997 net interest
income.  Loan growth on an average basis for 1997 increased
10%, while being funded by over 5% growth in interest
bearing deposits.  There was a positive effect on the rate
changes for assets, whereas the rate on liabilities was
relatively constant.  The 10% increase in loans from 1996 to
1997 and a 5% increase in deposits for the same time period
have resulted in the net interest margin increasing from
4.02% in 1996 to 4.18% in 1997.  Loan volume accounted for
over $1.3 million of the increase in total interest income,
while loan rates accounted for $0.3 million of the total
interest income increase.  Deposit volume accounted for $0.5
million of the $0.6 million increase in total interest
expense.

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 1998 and 1997.
Changes in interest income and expenses due to both rate and
volume are allocated on a pro rata basis.

<PAGE>
<TABLE>
<CAPTION>
                                    1998 vs. 1997                           1997 vs. 1996
                          Increase (Decrease) Due to Change in     Increase (Decrease) Due to Change in
                          Volume        Rate        Net Change     Volume        Rate        Net Change  
<S>                       <C>         <C>             <C>          <C>         <C>         <C>
Interest Income                                                        
 Loans                    $1,961      $ (233)         $1,728       $1,387      $  322      $1,709
 Investment                 (647)       (118)           (765)          34          (8)         26
 Securities
 Federal Funds Sold and                                                     
  Securities Purchased                                                     
  under Agreements to
  Resell                      75           1              76         (140)          3        (137)
 Deposits with Banks         (18)          1             (17)         (38)        (24)        (62)
  Total Interest Income    1,371        (349)          1,022        1,243         293       1,536
Interest Expense                                                       
 Deposits                                                               
  Demand                     305         (18)            287          349         269         618
  Savings                     (3)        (13)            (16)         (28)         (6)        (34)
  Negotiable Certificates
   of Deposit and Other
   Time Deposits              75         (38)             37           36          54          90
Short-Term Borrowings          6           0               6           62           1          63
Long-Term Borrowings         (71)          8             (63)        (173)         12        (161)
  Total Interest Expense     312         (61)            251          246         330         576
Net Interest Income       $1,059      $ (288)         $  771       $  997      $  (37)     $  960

</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Average Consolidated Balance Sheets and Net Interest Analysis  (dollars in thousands)
                                                            1998                       1997                      1996            
                                                 Average           Average  Average           Average Average           Average
                                                 Balance  Interest   Rate   Balance  Interest   Rate  Balance  Interest   Rate
<S>                                              <C>       <C>      <C>     <C>       <C>      <C>    <C>        <C>      <C>
ASSETS                                                                                    
Interest-Earning Assets                                                                   
 Securities Held to Maturity                                                                        
  State and Municipal obligations                $ 16,371  $   971   5.93%  $ 16,027  $   976   6.09% $ 16,377   $ 1,009   6.16%
 Securities Available for Sale (1)                                                                                            
  U.S. Treasury and Federal Agency Securities      50,902    3,108   6.11     63,057    3,919   6.22    60,890     3,778   6.20
  State and Municipal obligations                   3,917      197   5.03      3,943      198   5.02     3,944       199   5.05
  Other Securities                                  3,931      252   6.41      2,803      200   7.14     4,066       281   6.91
   Total Securities Available for Sale             58,750    3,557   6.05     69,803    4,317   6.18    68,900     4,258   6.18
   Total Investment Securities                     75,121    4,528   6.03     85,830    5,293   6.17    85,277     5,267   6.18
   Tax Equivalent Adjustment                                   345   0.46                 345   0.40                 362   0.42
   Tax Equivalent Total                                      4,873   6.49               5,638   6.57               5,629   6.60
 Federal Funds Sold and Agreements to Repurchase    4,372      236   5.40      2,979      160   5.37     5,579       297   5.37
 Interest-Bearing Deposits with Banks                 152        8   5.26        500       25   5.00     1,143        87   7.61
 Loans, Net of Deferred Loan Fees (2)                                                               
  Commercial                                       23,150    2,093   9.04     20,035    1,828   9.12    19,192     1,749   9.11
  Real Estate Mortgage                            154,764   13,525   8.74    137,079   12,194   8.90   123,145    10,674   8.67
  Installment                                      15,268    1,593  10.43     14,014    1,461  10.43    13,398     1,351  10.08
   Total Loans                                    193,182   17,211   8.91    171,128   15,483   9.05   155,735    13,774   8.84
Total Interest-Earning Assets                     272,827   22,328   8.18    260,437   21,306   8.18   247,734    19,787   7.99
Allowance for Loan Losses                          (2,550)                    (2,261)                   (1,988)              
Cash and Due From Banks                             9,225                      7,510                     6,839              
Premises and Equipment                              6,187                      5,475                     4,591              
Other Assets                                        5,793                      5,565                     5,617              
Total Assets                                     $291,482                   $276,726                  $262,793              
                                                                                          
LIABILITIES                                                                               
Interest-Bearing Deposits                                                                 
 Negotiable Order of Withdrawal ("NOW) and                                                               
  and Money Market Investment Accounts           $ 63,413  $ 2,199   3.47%  $ 54,626  $ 1,912   3.50% $ 43,918   $ 1,294   2.95%
 Savings                                           12,679      315   2.48     12,786      331   2.59    13,850       365   2.64
 Certificates of Deposit and Other Deposits       134,893    7,274   5.39    133,509    7,237   5.42   132,835     7,147   5.38
  Total Interest-Bearing Deposits                 210,985    9,788   4.64    200,921    9,480   4.72   190,603     8,806   4.62
Short-Term Borrowings                               5,222      271   5.19      5,100      265   5.20     3,899       202   5.18
Long-Term Debt                                     10,067      607   6.03     11,247      670   5.96    14,158       831   5.87
Total Interest-Bearing Liabilities                226,274   10,666   4.71    217,268   10,415   4.79   208,660     9,839   4.72
Noninterest Bearing Demand Deposits                34,487                     31,566                    27,930              
Other Liabilities                                   2,693                      2,513                     2,262              
 Total Liabilities                                263,454                    251,347                   238,852              
STOCKHOLDERS' EQUITY                               28,028                     25,379                    23,941              
Total Liabilities and Stockholders' Equity       $291,482                   $276,726                  $262,793              
Average Equity to Average Total Assets               9.62%                      9.17%                     9.11%              
Net Interest Income                                         11,317                     10,546                      9,586
  Net Interest Income (tax equivalent) (3)                 $11,662                    $10,891                    $ 9,948
  Net Interest Spread (tax equivalent) (3)                           3.47%                      3.39%                      3.27%
  Net Interest Margin (tax equivalent) (3)                           4.27                       4.18                       4.02

</TABLE>
[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.

<PAGE>

Noninterest Income and Expenses

Noninterest income was $3.1 million in 1998 compared to $2.4
million in 1997 and $2.3 million in 1996.  In 1998
securities gains were $41 thousand compared to $14 thousand
gains in 1997 and $13 thousand losses in 1996.  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 $440 thousand, $72 thousand and
$200 thousand in 1998, 1997 and 1996, respectively.  In
1998, management increased its focus on mortgage banking and
this along with the increased volume of loans sold in a
declining rate environment have resulted in the increased
gain on loans sold.  Loans held for sale are generally sold
at closing to Federal Home Loan Mortgage Corporation.  The
sales of loans were $35 million, $18 million and $21 million
in 1998, 1997 and 1996, respectively.  Other noninterest
income excluding security and loans net gains was $2.6
million in 1998, $2.3 million in 1997 and $2.1 million in
1996.

Noninterest expense increased $626 thousand in 1998 to $8.5
million and a modest $173 thousand from $7.7 million in 1996
to $7.9 million in 1997.  The increases in salaries and
benefits from $4.0 million in 1996 to $4.3 million in 1997
and $4.5 million in 1998 are mainly attributable to normal
salary and benefit increases.  Occupancy expense increased
$162 thousand in 1998 to $1.2 million and 8% in 1997, from
$932 thousand in 1996 to $1.0 million in 1997.  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 in 1997 and 1998, which
are reflected in increases in occupancy expenses.  Other
noninterest expense decreased from $2.8 million in 1996 to
$2.6 million in 1997.  However, in 1998 other noninterest
expenses increased modestly to $2.8 million.  In December
1995, the FDIC set the 1996 premium for BIF-insured deposits
at zero. In September 1996, Congress declared a special, one-
time assessment on SAIF-insured deposits.  The cost of this
assessment was nearly $200 thousand net of income taxes.
For 1997, the BIF-insured deposit rate was 1.3 cents per
$100 and the SAIF-insured rate was 6.5 cents per $100.  Due
to the conversion of the savings institutions to branches of
Kentucky Bank, the Company has deposits of over $53 million
that will be assessed at the SAIF rate.  The resulting
decrease in FDIC assessment was $358 thousand from 1996 to
1997; there was little change from 1997 to 1998.  Excluding
this special FDIC assessment, other noninterest expense only
increased $200 thousand in both 1998 and 1997.
The following table is a summary of noninterest income and
expense for the three-year period indicated.

                                          Year Ended December 31
                                              (in thousands)
                                        1998       1997       1996
Non-interest Income                                                
Service Charges                        $1,811     $1,674     $1,508
Loan Service Fee Income                   283        258        255
Trust Department Income                   300        237        206
Investment Securities Gains                41         14        (13)
(Losses),net
Gains on Sale of Mortgage Loans           440         72        200
Other                                     198        135        128
Total Non-interest Income              $3,073     $2,390     $2,284
                                                                   
Non-interest Expense                                               
Salaries and Employee Benefits         $4,527     $4,274     $4,005
Occupancy Expenses                      1,164      1,002        932
Other                                   2,823      2,612      2,778
Total Non-interest Expense             $8,514     $7,888     $7,715
                                                                   
Net Non-interest Expense as a                                      
 Percentage of Average Assets            1.87%      1.99%      2.07%

<PAGE>

Income Taxes

The Company had income tax expense of $1.4 million in 1998
compared to $1.1 million in 1997 and $866 thousand in 1996.
This represents an effective income tax rate of 26.5% in
1998, 25.2% in 1997 and 23.1% in 1996.  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 1998
and 1997 is a result of tax free income remaining virtually
unchanged for these two years while income before taxes
increased over $600 thousand in 1998 and $800 thousand in
1997.

Balance Sheet Review

Assets at year-end 1998 totaled $309 million compared to
$291 million in 1997 and $272 million in 1996.  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.  The
increase in size from 1996 to 1997 is mainly attributable to
total loans increasing $25.5 million and investment
securities decreasing $10.8 million, while being funded by
an increase in deposits of $10.3 million and short term
borrowing of $5.3 million.

Loans

Total loans, net of deferred loan fees were $213 million at
December 31, 1998 compared to $185 million at the end of
1997 and $160 million in 1996.  In 1998, commercial loans
increased $4.5 million, real estate construction loans
increased $3.4 million, real estate mortgages increased
$11.2 million and agricultural loans increased $6.3 million.
During 1997, real estate construction loans increased $3.5
million, real estate mortgages increased $14.2 million and
agricultural loans increased $7.0 million.  Management
developed 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, 1998, the real estate mortgage portfolio
comprised 59% of total loans compared to 61% in 1997.  Of
this, 1-4 family residential property represented 79% in
1998 and 78% in 1997.  Agricultural loans comprised 21% in
1998 and nearly 20% in 1997 of the loan portfolio.
Approximately 73% of the agricultural loans for both years
are secured by real estate.  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 47% 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.

<PAGE>

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)
                                    1998     1997     1996     1995     1994
Commercial                        $ 15,177 $ 10,644 $ 10,216 $ 11,167  $ 7,502
Real Estate Construction            11,055    7,657    4,200    3,497    3,156
Real Estate Mortgage               124,721  113,524   99,293  102,077  101,361
Agricultural                        44,199   37,924   30,947   27,019   23,407
Installment                         17,608   15,182   14,789   11,029   11,391
Other                                  159      287      374      397      807
  Total Loans                      212,919  185,218  159,819  155,186  147,624
Less Deferred Loan Fees                 76       57      154      125      159
  Loans Net of Deferred Loan Fees  212,843  185,161  159,665  155,061  147,465
Less loans held for sale             5,909    5,418      863    1,364    1,553
Less Allowance For Loan Losses       2,734    2,322    2,101    1,860    1,648
  Net Loans                       $204,200 $177,421 $156,701 $151,837 $144,264


The following table sets forth the maturity distribution and
interest sensitivity of selected loan categories at December
31, 1998.  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, 1998 (in thousands)
                          One Year  One Through     Over     Total
                           or Less   Five Years  Five Years  Loans
Commercial                 $ 7,390   $  6,448     $ 1,339   $ 15,177
Real Estate                  8,593      2,291         171     11,055
Construction
Real Estate Mortgage         8,220     64,363      52,063    124,646
Agricultural                14,878     27,566       1,755     44,199
Installment                  5,327     12,091         189     17,607
Other                          159          0           0        159
  Total Loans               44,567    112,759      55,517    212,843
Fixed Rate Loans            25,848    103,495      15,858    145,201
Floating Rate Loans         18,719      9,264      39,659     67,642
  Total                    $44,567   $112,759     $55,517   $212,843

<PAGE>

Deposits

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.  During 1997, total deposits
increased $10 million to $241 million from $231 million in
1996. The increase was mainly a result of interest bearing
checking accounts increasing over $11 million during 1997.
Public deposits accounted for $22 million, with $21 million
of this being interest bearing deposits.  The Company
increased its focus on attracting more interest bearing
checking accounts.  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, 1998 and
detail of short-term borrowing for the past three years.

Maturity of Time Deposits of $100,000 or More
                                               December 31, 1998
                                                 (in thousands)
Maturing 3 Months or Less                           $ 7,409
Maturing over 3 Months through 6 Months               7,827
Maturing over 6 Months through 12 Months             10,707
Maturing over 12 Months                               2,225

     Total                                          $28,168

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, 1998, $7.0 million was
borrowed from FHLB, a decrease of $3.3 million from 1997.
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 $7.3 million of FHLB borrowing was paid in 1998, and
advances were made for an additional $4 million.  The
following table depicts relevant information concerning our
short term borrowings.

Short Term Borrowings
                                    December 31 (in thousands)
                                     1998      1997      1996
Federal Funds Purchased:                                      
  Balance at Year end               $3,750    $2,375    $    0
  Average Balance During the Year      446       488       142
  Maximum Month End Balance          4,550     2,375     1,075
Repurchase Agreements:                                        
  Balance at Year end                6,713     4,615     2,836
  Average Balance During the Year    4,329     4,103     3,342
  Maximum Month End Balance          6,713     4,895     4,668
Other Borrowed Funds:                                         
  Balance at Year end                  785     2,468     1,324
  Average Balance During the Year    1,198     1,259     1,225
  Maximum Month End Balance          1,761     2,468     1,873

<PAGE>

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 (in thousands)
                                  1998   1997   1996   1995   1994
Non-accrual Loans                $  136  $173   $ 33   $ 44   $ 85
Accruing Loans which are                                       
 Contractually past due                                         
 90 days or more                    790   154    562    438    283
Restructured Loans                  147   160    180    201    357
Total Nonperforming and                                        
 Restructured Loans               1,073   487    775    683    725
Other Real Estate                    70     0     79     57    306
Total Nonperforming and                                        
 Restructured Loans and                                         
 Other Real Estate                1,143   487    854    740  1,031
Nonperforming and Restructured                                 
 Loans as a Percentage                                          
 of Net Loans (1)                  0.50% 0.26%  0.49%  0.44%  0.49%
Nonperforming and Restructured                                 
 Loans and Other Real Estate                                    
 as a Percentage of Total Assets   0.37  0.17   0.31   0.27   0.38

(1)  Net of deferred loan fees

<PAGE>

Nonperforming and restructured loans at December 31, 1998
were $1.1 million compared to $487 thousand at December 31,
1997 and $775 thousand at December 31, 1996.  Total
nonperforming assets were $1.1 million, $487 thousand and
$854 thousand at December 31, 1998, 1997 and 1996,
respectively.  The amount of lost interest on non-accrual
loans is considered immaterial.  At December 31, 1998, 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, 1998 were $286 thousand
compared to $333 thousand in 1997 and $251 thousand in 1996.
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 $85
thousand, $57 thousand and $28 thousand on December 31,
1998, 1997 and 1996, respectively.

<PAGE>

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)
                                   1998     1997     1996     1995     1994
Balance at Beginning of Year     $  2,322 $  2,101 $  1,860 $  1,648 $  1,420
Balance of Allowance for Loan                                         
 Losses of Acquired Branch                                             
 at Acquisition Date                                                      252
Amounts Charged-off:                                                  
 Commercial                            13        5       55       14      123
 Real Estate Construction               0        0        0        0        0
 Real Estate Mortgage                  36       25        4       41       53
 Agricultural                          19       52       12       36        3
 Consumer                             300      273      142      139       56
  Total Charged-off Loans             368      355      213      230      235
Recoveries on Amounts                                                 
Previously Charged-off:                                               
 Commercial                             4        3       12       15       22
 Real Estate Construction               0        0        0        0        0
 Real Estate Mortgage                   9        1        8       21        1
 Agricultural                           2       25        1        0        0
 Consumer                              66       54       31       11       43
  Total Recoveries                     81       83       52       47       66
Net Charge-offs                       287      272      161      183      169
Provision for Loan Losses             700      493      402      395      145
Balance at End of Year              2,735    2,322    2,101    1,860    1,648
Total Loans, Net of Unearned                                          
 Income                                                                
Average                           193,182  171,128  155,735  153,109  125,643
At December 31                   $212,843 $185,161 $159,665 $155,061 $147,465
As a Percentage of Average Loans:                                       
 Net Charge-offs                     0.15%   0.16%     0.10%    0.12%    0.13%
 Provision for Loan Losses           0.36    0.29      0.26     0.26     0.12
 Allowance as a Percentage of                                          
  Year-end Net Loans (1)             1.28    1.25      1.32     1.20     1.128
Beginning Allowance as a                                              
 Multiple Of Net Charge-offs          8.1     7.7      11.6      9.0      8.4

(1)  Net of deferred loan fees

<PAGE>

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 1998 was $700 thousand compared to $493 thousand
in 1997 and $402 thousand in 1996.  Net charge-offs were
$287 thousand in 1998, $272 thousand in 1997 and $161
thousand in 1996.  Net chargeoffs to average loans were
0.15%, 0.16% and 0.10% in 1998, 1997 and 1996, respectively.
The trend in the loan loss provisions increasing for 1998
and 1997 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, 1998, the allowance for loan
losses was 1.28% of loans outstanding compared to 1.25% at
year-end 1997 and 1.32% in 1996.  Management believes the
allowance for loan losses at the end of 1998 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 loans
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.

<PAGE>
<TABLE>
<CAPTION>

Allowance for Loan Losses
                                        December 31 (in thousands)
                                 1998                 1997                 1996                 1995                 1994     
                          Dollars  Percentage  Dollars  Percentage  Dollars  Percentage  Dollars  Percentage  Dollars  Percentage
>s>                      <C>        <C>       <C>        <C>       <C>        <C>       <C>        <C>       <C>        <C>   
Commercial               $    262     9.58%   $    191     8.23%   $    168     8.00%   $    132     7.10%   $     94     5.70%
Real Estate Construction      168     6.14         118     5.08          77     3.66%         38     2.04          27     1.64
Real Estate Mortgage        1,480    54.11       1,327    57.15       1,252    59.59%      1,192    64.09       1,105    67.05
Agricultural                  473    17.29         393    16.93         353    16.80%        327    17.58         269    16.32
Consumer                      352    12.87         293    12.62         251    11.95%        171     9.19         153     9.28
 Total                   $  2,735   100.00%   $  2,322   100.00%   $  2,101   100.00%   $  1,860   100.00%   $  1,648   100.00%


Loans
                                                                  December 31 (in thousands)
                                 1998                 1997                 1996                 1995                 1994     
                          Dollars  Percentage  Dollars  Percentage  Dollars  Percentage  Dollars  Percentage  Dollars  Percentage
Commercial               $ 15,177     7.13%   $ 10,644     5.75%   $ 10,216     6.40%   $ 11,167     7.20%   $  7,502     5.09%
Real Estate Construction   11,055     5.19       7,657     4.14       4,200     2.63       3,497     2.26       3,156     2.14
Real Estate Mortgage      124,645    58.56     113,467    61.28      99,139    62.09     102,077    65.83     101,361    68.74
Agricultural               44,199    20.77      37,924    20.48      30,947    19.38      27,019    17.42      23,407    15.87
Consumer                   17,608     8.27      15,182     8.20      14,789     9.26      10,904     7.03      11,232     7.62
Other                         159     0.07         287     0.16         374     0.23         397     0.26         807     0.55
 Total, net (1)          $212,843   100.00%   $185,161   100.00%   $159,665   100.00%   $155,061   100.00%   $147,465   100.00%
</TABLE>
[FN]
(1)  Net of deferred loan fees

<PAGE>

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, 1998
increased $3.0 million to $27.7 million.  Total capital was
$29.3 million at December 31, 1998.  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 (in thousands)
                                          1998      1997      Change
Stockholders' Equity (1)                $ 29,306  $ 26,483    $ 2,823
  Less Disallowed Amount of Goodwill       1,574     1,789      (215)
Tier I Capital                            27,732    24,694      3,038
  Allowance for Loan Losses                2,601     2,272        329
Tier II Capital                            2,601     2,272        329
  Total Capital                           30,333    26,966      3,367
Total Risk Weighted Assets              $207,970  $181,702    $26,268
Ratios:                                                              
 Tier I Capital to Risk-weighted Assets    13.33%    13.59%     -0.26%
 Total Capital to Risk-weighted Assets     14.59     14.84      -0.25
 Leverage                                   9.56      8.77       0.79

 (1)  Excluding net unrealized gains and losses on
securities available for sale.

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, 1998, 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 $81.7 million at
December 31, 1997 to $72.4 million at December 31, 1998.
The decrease is attributable to the increased loan demand.
Federal funds sold totaled $75 thousand at December 31,
1996.

<PAGE>

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 $15.7
million of adjustable asset backed securities held on
December 31, 1998, $3.4 million are repriceable monthly and
the remaining $12.3 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, 1998.

Investment Securities (Held to maturity at amortized cost,
available for sale at market value)
                                                 December 31
                                         1998       1997      1996
                                                (in thousands)
U.S. Treasury Securities                                            
 Available for Sale                       $16,087   $19,072   $24,571
U.S. Federal Agency Securities                                      
 Available for Sale                         5,979    10,485     8,984
State and Municipal Obligations                                     
 Available for Sale                         3,804     4,077     4,012
 Held to Maturity                          16,933    15,603    16,313
Asset-Backed Securities                                             
 Available for Sale                   
  Fixed -                                                           
    GNMA, FNMA, FHLMC Passthroughs          2,352     4,924    10,899
    GNMA, FNMA, FHLMC CMO's                 7,570     9,970    10,482
        Total                               9,922    14,894    21,381
  Variable -                                                        
    GNMA, FNMA, FHLMC Passthroughs         12,529    14,306    13,907
    GNMA, FNMA, FHLMC CMO's                 3,173     3,266     3,372
       Total                               15,702    17,572    17,279
Other Securities                                                    
 Available for Sale                         3,926         0         0
Total Securities                                                    
 Available for Sale                        55,420    66,100    76,227
 Held to Maturity                          16,933    15,603    16,313
Total                                     $72,353   $81,703   $92,540

<PAGE>
<TABLE>
<CAPTION>

Maturity Distribution of Securities
                              December 31, 1998 (in thousands)
                                       Over One Year Over Five Years        Asset Backed            
                               One Year   Through        Through    Over Ten and Equity           Market
                               or Less   Five Years     Ten Years     Years  Securities  Total    Value
<S>                            <C>        <C>            <C>        <C>        <C>      <C>      <C>  
U.S. Treasury Securities                                                                             
 Available for Sale            $14,070    $ 2,017        $     0    $     0    $     0  $16,087  $16,087
U.S. Federal Agency Securities                                                    
 Available for Sale              3,986      1,993              0          0          0    5,979    5,979
State and Municipal Obligations                                                     
 Available for Sale                  0      2,378          1,426          0          0    3,804    3,804
 Held to Maturity                1,093      5,757          6,857      3,226          0   16,933   17,855
Asset-Backed Securities                                                             
 Available for Sale                                                             25,624   25,624   25,624
Other Securities                                                          
 Available for Sale                534        955          1,460        977               3,926    3,926
Total Securities                                                           
 Available for Sale             18,056      6,922          2,381      1,460     26,601   55,420   55,420
 Held to Maturity                1,093      5,757          6,857      3,226          0   16,933   17,855
Total                          $19,149    $12,679        $ 9,238    $ 4,686    $26,601  $72,353  $73,275
Percent of Total                 26.47%     17.52%         12.77%      6.48%     36.77%  100.00%        
Weighted Average Yield (1)        5.25       7.66           8.36       7.15       6.13     6.52        
</TABLE>
[FN]
(1)     Tax Equivalent Yield                                                    

<PAGE>

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

In June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income.  Comprehensive income consists of net
income and 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.  The accounting standard that requires reporting
comprehensive income first applies for 1998, with prior
information restated to be comparable.

Year 2000

Management has 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.  Management has determined that if a
business interruption as a result of the Year 2000 issue
occurred, such an interruption could be material.  The
primary effort required to prevent a potential business
interruption is the installation of the most current
software release from the Company's third party provider and
replacement of certain system hardware.  The third party
software provider has warranted that Year 2000 remediation
and testing efforts to become compliant have been
successfully completed.  Testing of mission critical systems
was be completed the first quarter 1999.  Non-
mission critical systems will continue to be evaluated and,
if necessary, will be upgraded or replaced.  Current cost
estimates for this project are under $150 thousand, with the
majority of this expenditure being for equipment and
software to be capitalized over 3-5 years.  In addition,
over $400 thousand was spent on a new mainframe computer
system to enhance our overall computer technology.  Year 2000
expenses are subject to change and could vary from current
estimates if the final requirements for Year 2000 readiness
exceed management's expectations.

The Company must also rely to some extent on 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.
Management is therefore developing and implementing
contingency plans that are scheduled to be in place by the
end of the second quarter, 1999.

The Company's credit customers are also subject to 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.  The Company is working with  those
customers  that  the Company believes may  be  significantly
affected  to  assess each customer's Year 2000 exposure  and
the  extent to which the customer has addressed the problem.
Any  exposure  which, in the opinion of management,  is  not
adequately addressed will be taken into account in assessing
the  loss  potential, if any, associated  with  that  credit
relationship.

<PAGE>

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  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.

<PAGE>

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
within the Board of Directors specified limits.  As of
December 31, 1998 the projected percentage changes are
within the Board limits and the Company's interest rate risk
is also with Board limits.  The projected net interest
income report summarizing the Company's interest rate
sensitivity as of December 31, 1998 is as follows:
Projected Net Interest Income

                                           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
                                                                  
                                                                  
PROJECTED DOLLAR INCREASE (DECREASE) FROM "LEVEL RATES"
                                                                  
Year One  (1/1/99 - 12/31/99)
Interest Income       $(3,221) $(1,083)      N/A  $ 1,085  $ 3,253
Interest Expense       (2,947)    (983)      N/A      982    2,946
                                                                  
Net Interest Income      (274)    (100)               103      307
                                                                  
                                                                  
PROJECTED PERCENTAGE INCREASE (DECREASE) FROM "LEVEL RATES"
                                                                  
Year One  (1/1/99 - 12/31/99)
Interest Income         -13.9%    -4.7%      N/A     4.7%    14.0%
Interest Expense        -28.7     -9.6       N/A     9.6     28.7 
                                                                  
Net Interest Income      -2.1%    -0.8%      N/A     0.8%     2.4%
                                                                  
Limitation on % Change >-10.0%   >-4.0%      N/A   >-4.0%  >-10.0%

<PAGE>
                                                                  

These numbers are comparable to 1997.  In 1997, year one
reflected a decline in net interest income of 2.6% with a
300 basis point decline compared to the 2.1% decline in
1998.  The 300 basis point increase in rates reflected a
2.8% increase in net interest income in 1997 compared to
2.4% in 1998.

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,
1998 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.

<PAGE>

<TABLE>
<CAPTION>

Interest Rate Sensitivity Analysis

                                                        December 31, 1998 (in thousands)
                                        Total     1 Year   2 Years   3 Years   4 Years   5 Years   >5 Years
ASSETS                                                                    
<S>                                    <C>       <C>       <C>       <C>       <C>       <C>   
Cash & Due From Banks                  $ 10,619  $      -  $      -  $      -  $      -  $      -  $ 10,619     
Fed Funds & Int-Earning Due From Banks      137       137         -         -         -         -         -
Variable Rate Investment (1)             19,849    19,849         -         -         -         -         -
Fixed Rate Investment (1)                52,504    24,131     6,254     4,143     2,071     4,265    11,640
Variable Rate Loans                      67,681    61,065     2,546     1,234     1,220     1,616
Fixed Rate Loans                        145,162    44,267    21,636    23,888    26,010    26,560     2,801
Others Assets                            12,753     3,120         -         -         -         -     9,633
                                                                          
 Total Assets / Repricing Assets        308,705   152,569    30,436    29,265    29,301    32,441    34,693
 Repricing Assets - Accumulated         152,569   183,005   212,270   241,571   274,012   308,705
   % of Current Balance                    49.4%      9.9%      9.5%      9.5%     10.5%     11.2%
   % of Current Balance - Accumulated      49.4      59.3      68.8      78.3      88.8     100.0
                                                                          
LIABILITIES                                                               
                                                                          
Demand Deposit Accounts                $ 40,336  $  2,017  $  1,916  $  2,017  $  1,916  $  1,624  $ 30,846
NOW Accounts                             63,467    19,040    13,328     9,330     6,530     4,572    10,667
Savings Accounts                         12,572     2,517     2,011     1,609     1,287     1,030     4,118
Money Market Savings                      9,477     2,843     1,990     1,393       975       683     1,593
   Subtotal Deposit Accounts            125,852    26,417    19,245    14,349    10,708     7,909    47,224
Other Variable Deposits                   5,959     5,959         -         -         -         -         -
Fixed Rate Deposits                     126,929   112,999     9,977     1,320       689       963       981
Variable Rate Other Liabilities          10,498    10,248       250         -         -         -         -
Fixed Rate Other Liabilities              7,704       299     1,237       234       248     5,576       110
Other Liabilities                         2,391         -         -         -         -         -     2,391
Total Capital                            29,372         -         -         -         -         -    29,372
                                                                          
 Total Liabilities / Repricing Liab     308,705   155,922    30,709    15,903    11,645    14,448    80,078
   Repricing Liabilities - Accumulated            155,922   186,631   202,534   214,179   228,627   308,705
   % of Current Balance                    50.5%      9.9%      5.2%      3.8%      4.7%     25.9%
   % of Current Balance - Accum            50.5      60.5      65.6      69.4      74.1     100.0

                                                                          
SUMMARY                                                                   
                                                                          
Total Repricing Assets                            152,569    30,436    29,265    29,301    32,441    34,693
Total Repricing Liabilities                       155,922    30,709    15,903    11,645    14,448    80,078
                                                                          
Total Repricing Gap (by Bucket)          (3,353)     (273)   13,362    17,656    17,993   (45,385)
                                                                          
Total Repricing Assets - Cumulative               152,569   183,005   212,270   241,571   274,012   308,705
Total Repricing Liabilities - Cumul               155,922   186,631   202,534   214,179   228,627   308,705
                                                                          
Gap/Total Assets (by Bucket)                        -1.09%    -0.09%     4.33%     5.72%     5.83%   -14.70%
Cumulative Gap/Total Assets                         -1.09     -1.17      3.15      8.87     14.70      0.00
</TABLE>
[FN]
 (1) Held to maturity at amortized cost, available for sale at market value

<PAGE>

Little change in the above numbers has occurred since 1997.
For the first three years in 1997 and 1998, the cumulative
gap percentage is less than 4%.  There was a slight increase
in the cumulative gap for the three year period from 1.86%
in 1997 to 3.15% in 1998.  There has been a trend in the 3
to 5 year periods of being more positive.  The cumulative
gap at December 31, 1997 for the 5 year period was 10.36%.
This increased to 14.7% as of December 31, 1998.  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 $29.9 million at December 31, 1998.
Additionally, securities available-for-sale with maturities
greater than one year totaled $37.4 million at December 31,
1998.  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, 1998 these balances totaled over $28 million,
approximately 10.9% 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 decreased $3.3 million in
1998 to $7.0 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 1998, 1997 and 1996 follows.

Net cash provided by operating activities was $3.5 million,
$5.2 million and $5.1 million for the years ended December
31, 1998, 1997 and 1996, respectively.  The changes in 1998
and 1997 were mainly a result of the increase in net income
from $2.9 million to $3.4 million to $3.8 million in 1996,
1997 and 1998, respectively.

<PAGE>

Net cash flow used in investing activities was $20.0
million, $15.8 million, and $7.1 million and for the years
ended December 31, 1998, 1997 and 1996, 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.
During 1998, funds used for loan growth were $28 million,
partly offset by a decline in investments of $9 million.  In
1997, the loan growth resulted in a use of funds of nearly
$26 million, being offset by a decline in investment
securities of $11 million.  This was funded mainly by
deposits increasing $10 million and short term borrowing
increasing $5 million.  In addition, $1.3 million was used
for purchases of bank premises and equipment.  During 1996
and 1997, over $1 million was expended for land, building
and equipment for the new branch location in Versailles.  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.  Increase in loans of nearly
$6 million and $1.3 million for purchases of bank premises
and equipment account for the majority of the change in
1996.

Net cash flow from financing activities was $14.9 million,
$13.7 million and $0.1 million for the years ended December
31, 1998, 1997 and 1996, 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.

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
                                      1998    1997   1996
Total Loans/Total Deposits            78.7%   73.6%  71.3%
Net Short-term Borrowings/Total        1.8     1.8    1.5

<PAGE>

Assets

This chart shows that the loan to deposit ratio increased in
1998 and 1997.  Loan growth of 15% and deposit growth of 7%
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 1998 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

<PAGE>

PART III

Item 10.  Directors, Executive Officers, Promoters and
Control Persons, Compliance With Section 16(a) of the
Exchange Act

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 1999:

Henry Hinkle, age 47, is President of Hinkle Construction
Company.  He has been a director of the Company since 1989.

Theodore Kuster, age 55, is a farmer and thoroughbred horse
breeder.  He has been a director of the Company since 1979.

Robert G. Thompson, age 49, is Executive Director of the
Paris Bourbon County YMCA, a farmer and thoroughbred horse
breeder.  He has been a director of the Company since 1991.

Terms expiring in 2000:

William R. Stamler, age 64, is Chairman of Signal
Investments, Inc.  He has been a director of the Company
since 1988.

Buckner Woodford, age 54, is President and Chief Executive
Officer of Bourbon Bancshares, Inc. and Kentucky Bank.  He
has been a director of the Company since 1971.

Terms expiring in 2001:

William Arvin, age 58, is an attorney.  He has been a
director of the Company since December 19, 1995.

James L. Ferrell, M.D., age 64, is a Physician.  He has been
a director of the Company since 1980.

Joseph B. McClain, age 70, is President of Hopewell Co.
(insurance agency).  He has been a director of the Company
since 1971.

The Company's other executive officer is Gregory J. Dawson,
age 38.  He is the Chief Financial Officer and has been with
the Company since 1985 and serves at the pleasure of the
Board of Directors.

<PAGE>

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    1998 $156,000  $  3,161       (1)        1,900
Buckner Woodford    1997 $150,000  $  4,879       (1)        1,600
Buckner Woodford    1996 $136,500  $  1,505       (1)        3,000

(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, 1998.  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 1998      ($/Sh)      Date      Value($)

Buckner Woodford       1,900    14.6%       $31.00     1/7/08    $16,568


The following table sets forth certain information regarding
options exercised by the Chief Executive Officer during
calendar year 1998 and unexercised stock options held by him
as of December 31, 1998.
<TABLE>
Aggregated Option Exercises in Calendar 1998
      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 12/31/98         Options at 12/31/98
     Name               (#)           ($)    Exercisable/Unexercisable   Exercisable/Unexercisable
<S>                     <C>           <C>           <C>                      <C>
Buckner Woodford        None          N/A           4,460/5,380              $85,412/$74,413

</TABLE>

The Company did not have any Stock Appreciation Rights (SAR's) at 
December 31, 1998.

<PAGE>

Compensation of Directors

Directors are paid $300 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 an 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 27 years.

<PAGE>

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, 1998.

     Name             Shares Beneficially Owned(1)
                        Number             Percentage

William Arvin (2)            15,626               1.1%

Gregory J. Dawson (3)         5,250                *

James L. Ferrell, M.D. (4)   15,120               1.1

Henry Hinkle (5)             13,925                *

Theodore Kuster (6)           8,885                *

Joseph B. McClain (7)        21,618               1.5

William R. Stamler (8)       15,430               1.1

Robert G. Thompson (9)        3,270                *

Buckner Woodford (10)       128,939               9.1

All directors and officers
(9 persons) as a group
(consisting of those
persons named above)(11)    228,063              16.1%

*  Less than 1%

<PAGE>

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 5,929 shares held in a
  retirement account, 5,984 shares held of
  record by Mr. Arvin's wife, as to which Mr.
  Arvin disclaims beneficial ownership and
  3,638 held jointly with his wife.
3)   Includes 4,900 shares that Mr. Dawson
  may acquire upon exercise of outstanding
  stock options.
4)   Includes 2,500 shares held in a
  retirement account and 570 shares that Mr.
  Ferrell may acquire upon exercise of
  outstanding stock options.  Also, includes
  1,500 shares held by Dr. Ferrell's wife, as
  to which Dr. Ferrell disclaims beneficial
  ownership.
5)  Includes 500 shares held by his wife and 320 shares held by
  three sons, as to which Mr. Hinkle disclaims beneficial
  ownership.  Includes 12,000 shares held of record by
  Hinkle Contracting Company, as to which Mr. Hinkle, as
  president, has shared voting power.  Also includes 170
  shares that Mr. Hinkle may acquire upon exercise of
  outstanding stock options.
6)   Includes 3,135 share held of record by
  Mr. Kuster's wife, as to which Mr. Kuster
  disclaims beneficial ownership.  Also
  includes 2,500 shares held in a retirement
  account and 570 shares that Mr. Kuster may
  acquire upon exercise of outstanding stock
  options.
7)   Includes 570 shares that Mr. McClain may
  acquire upon exercise of outstanding stock
  options.  Also includes 9,400 shares held of
  record by Mr. McClain's wife, as to which Mr.
  McClain disclaims beneficial ownership.
8)   Includes 2,000 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 570 shares that Mr. Stamler may
  acquire upon exercise of outstanding stock
  options.
9)   Includes 570 shares that Mr. Thompson
  may acquire upon exercise of outstanding
  stock options.
10)  Includes 4,000 shares held by his wife
  and 5,666 shares held by two sons, as to
  which Mr. Woodford disclaims beneficial
  ownership.  Also includes 104 shares held in
  a retirement account and 4,460 shares that
  Mr. Woodford may acquire upon exercise of
  outstanding stock options.
11)  Includes 12,380 shares that may be
  acquired upon exercise of outstanding stock
  options.

<PAGE>

The following table sets forth as of December 31, 1998 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.

Name and Address              Shares Beneficially
of Beneficial Owner            Owned       Percentage

Buckner Woodford              128,939         9.1%
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, 1998.  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 $1.8 million as of
December 31, 1998 and 1997, respectively.  See Note 4 in the
notes to consolidated financial statements included as
Exhibit 13.

<PAGE>

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:

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 - December 31, 1998
           and 1997
          Consolidated Statements of Income and
          Comprehensive Income - Years Ended December 31,
           1998, 1997 and 1996
          Consolidated Statements of Stockholders' Equity -
           Years Ended December 31, 1998, 1997 and 1996
          Consolidated Statements of Cash Flows - Years
           Ended December 31, 1998, 1997 and 1996
          Notes to Consolidated Financial Statements
          Report of Independent Auditors

21   Subsidiaries of Registrant

23   Consent of Crowe, Chizek and Company LLP

(b)  Current Reports on Form 8-K during the quarter ended
December 31, 1998
     None

<PAGE>

                 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, 1999

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, 1999
Buckner Woodford, President and Chief Executive Officer,
Director

__/s/Gregory J. Dawson_______      March 29, 1999
Gregory J. Dawson, Chief Financial and Accounting Officer

__/s/James L. Ferrell________      March 29, 1999
James L. Ferrell, M.D., Chairman of the Board, Director

_____________________________      March 29, 1999
William Arvin, Director

_____________________________      March 29, 1999
Henry Hinkle, Director

__/s/Theodore Kuster_________      March 29, 1999
Theodore Kuster, Director

__/s/Joseph B. McClain_______      March 29, 1999
Joseph B. McClain, Director

_____________________________      March 29, 1999
William R. Stamler, Director

__/s/Robert G. Thompson______      March 29, 1999
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.

<PAGE>

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).*

     10.2     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).*

     13       Bourbon Bancshares, Inc. 1998 Annual Report

     21       Subsidiaries of the Registrant

     23       Consent of Crowe, Chizek and Company LLP

     27       Financial Data Schedule  (for SEC use only)

     99.1     Proxy statement dated March 25, 1999, sent to  the
              Registrant's  security holders in connection with  the  1999
              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.

<PAGE>

     Exhibit 13

BOURBON BANCSHARES, INC.

ANNUAL REPORT 1998

<PAGE>

To Our Shareholders,

     The economy in central Kentucky continues to enjoy
healthy expansion.  This includes a high level of
residential and industrial building as well as strong demand
for thoroughbred horses and horse farms.  All of this
activity is beneficial to the financial institutions here.

     Bourbon Bancshares had very good financial results in
1998.  Earnings per share after dilution were $2.66 compared
with $2.40 last year and $2.00 in 1996.  This has resulted
from a combination of growth in our balance sheet with
attention to expense control.

     Total assets rose to $308 million, exceeding $300
million for the first time.  Loan demand was strong for a
second consecutive year.  Our loan portfolio grew by 15%
last year following 16% the prior year.  Deposits also
showed a very nice 7% growth.  We believe we have these
growth opportunities because our subsidiary, Kentucky Bank,
is firmly established in all segments of a very healthy
economy.

     We continue to make investments that we believe will
keep our future bright as well.  In 1998 we opened a second
branch facility in Georgetown.  This is the fastest growing
community in central Kentucky.

     Like virtually all banks we devoted considerable effort
last year to preparing our computer systems for the year
2000.  Our extensive testing program is nearly complete.
The largest expenditure made was over $400,000 for a new
mainframe computer which was installed in the fall of 1998.
We believe we are very well prepared for the new century.

     Two of our bank directors retired at the end of 1998.
Betty Jo Denton Heick and Alex Miller devoted many years of
loyal and faithful service to this institution.  Their
advice was always helpful.  We will miss them both.

     One possible concern about the future is the bleak
outlook for tobacco.  This crop has made a made a major
contribution to the local economy for decades.  Over time,
every community must respond to the economic changes that
arise.  Central Kentucky has diversified its economy enough
that overall growth should continue.


                                   Buckner Woodford

<PAGE>

FINANCIAL HIGHLIGHTS

BOURBON BANCSHARES, INC.        1998     1997     1996     1995

   Assets ($ millions)        $   309  $   291  $   272  $   269

   Net Income ($ thousands)   $ 3,804  $ 3,408  $ 2,887  $ 2,488

Per Share Results

   Earnings
      (assuming dilution)     $  2.66  $  2.40  $  2.00  $  1.71

   Dividends                  $   .80  $   .72  $   .64  $   .60

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 Monday, May 3, 1999 at 9:00 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 1998 Form 10-K Report may obtain these by
writing Investor Relations at the Corporate Headquarters.

<PAGE>

       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,  1998  and  1997,  and  the
related consolidated statements of income and
comprehensive     income,     changes      in
stockholders' equity and cash flows for  each
of  the years in the three year period  ended
December 31, 1998. 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, 1998 and 1997, and the  results
of its operations and its cash flows for each
of  the years in the three year period  ended
December   31,   1998,  in  conformity   with
generally accepted accounting principles.



Crowe, Chizek and Company LLP

Lexington, Kentucky
January 15, 1999
                      

<PAGE>
                      


                    BOURBON BANCSHARES, INC.
                         Paris, Kentucky
                                
                CONSOLIDATED FINANCIAL STATEMENTS
                December 31, 1998, 1997 and 1996

<PAGE>

                   CONSOLIDATED BALANCE SHEETS
                   December 31, 1998 and 1997
                                
                                
                                                    1998         1997
ASSETS
Cash and due from banks                         $ 10,756,213  $ 12,274,875
Investment securities:
 Available for sale                               55,419,734    66,100,663
 Held to maturity (fair value 1998 - $17,854,550
  and 1997 - $16,410,523)                         16,933,755    15,602,778
Mortgage loans held for sale                       5,908,676     5,418,297

Loans                                            206,934,127   179,742,143
 Allowance for loan losses                        (2,734,589)   (2,321,536)
  Net loans                                      204,199,538   177,420,607

Federal Home Loan Bank stock                       3,119,500     2,905,200
Bank premises and equipment, net                   6,793,998     5,765,310
Interest receivable                                3,165,110     2,855,565
Intangible assets                                  2,034,441     2,103,688
Other assets                                         374,272       207,806

Total assets                                    $308,705,237  $290,654,789

LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
 Non-interest bearing                           $ 40,336,201  $ 33,481,215
 Time deposits, $100,000 and over                 28,168,022    22,573,181
 Other interest bearing                          190,235,493   185,270,925
   Total deposits                                258,739,716   241,325,321
Securities sold under agreements to repurchase
 and other borrowings                             11,248,277     9,457,606
Federal Home Loan Bank advances                    6,953,502    10,236,291
Interest payable                                   1,778,984     1,900,824
Other liabilities                                    612,453     1,018,629
Total liabilities                                279,332,932   263,938,671

Stockholders' equity
 Preferred stock, 300,000 shares authorized and
  unissued                                                 -             -
 Common stock, no par value; 3,000,000 shares
  authorized; 1,404,628 and 1,394,562 shares
  issued and outstanding in 1998 and 1997, 
  respectively                                     6,474,241     6,332,861
 Retained earnings                                22,832,043    20,150,369
 Accumulated other comprehensive income               66,021       232,888
  Total stockholders' equity                      29,372,305    26,716,118

Total liabilities and stockholders' equity      $308,705,237  $290,654,789

<PAGE>

      CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
             Years Ended December 31, 1998, 1997 and 1996
                                   
                                   
                                           1998          1997          1996
Interest income
  Loans, including fees                $17,211,687   $15,483,271   $13,774,234
 Investment securities
  Taxable                                3,141,285     3,918,974     3,777,906
  Tax exempt                             1,168,049     1,174,113     1,208,098
 Other                                     462,117       385,106       664,515
                                        21,983,138    20,961,464    19,424,753
Interest expense
 Deposits                                9,787,511     9,480,440     8,806,069
 Securities sold under agreements to
  repurchase and other short-term
  borrowings                               269,135       234,521       175,745
 Federal Home Loan Bank advances           517,105       569,927       701,091
 Other                                      92,717       129,827       155,942
                                        10,666,468    10,414,715     9,838,847

Net interest income                     11,316,670    10,546,749     9,585,906
Provision for loan losses                  700,400       492,800       401,965
Net interest income after provision for
 loan losses                            10,616,270    10,053,949     9,183,941

Other income
 Service charges                         1,810,756     1,674,348     1,507,506
 Loan service fee income                   282,879       257,953       255,426
 Trust department income                   300,342       237,254       205,740
 Investment securities gains (losses), net  40,955        13,686       (12,839)
 Gain on sale of mortgage loans            439,927        72,236       200,366
 Other                                     198,116       134,510       127,850
                                         3,072,975     2,389,987     2,284,049
Other expenses
 Salaries and employee benefits          4,526,735     4,274,022     4,005,122
 Occupancy expenses                      1,163,872     1,002,137       931,434
 FDIC assessment                            54,344        54,281       412,483
 Amortization                              400,147       346,891       314,553
 Taxes other than payroll, property
  and income                               307,146       287,718       255,055
 Advertising                               340,664       276,430       261,929
 Other                                   1,721,219     1,646,499     1,534,013
                                         8,514,127     7,887,978     7,714,589

Income before income taxes               5,175,118     4,555,958     3,753,401

Provision for income taxes               1,371,602     1,147,924       866,295

Net income                             $ 3,803,516   $ 3,408,034   $ 2,887,106

<PAGE>

      CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (continued)
             Years Ended December 31, 1998, 1997 and 1996
                                   
                                   
                                             1998          1997          1996
Other comprehensive income (loss), 
 net of tax:
  Unrealized gains (losses) on 
   securities arising during the period   (125,912)      245,108       (22,335)
  Reclassification of realized amount      (40,955)      (13,686)       12,839
  Net change in unrealized gain (loss)
   on securities                          (166,867)      231,422        (9,496)

Comprehensive income                    $3,636,649    $3,639,456   $ 2,877,610

Earnings per share:
 Basic                                    $   2.72      $   2.44      $   2.03
 Diluted                                  $   2.66      $   2.40      $   2.00

<PAGE>
<TABLE>
<CAPTION>
      CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
             Years Ended December 31, 1998, 1997 and 1996
                                   
                                   
                                                                           Accumulated
                                                                               Other        Total
                                          Common  Stock         Retained  Comprehensive  Stockholders'
                                       Shares       Amount      Earnings       Income       Equity
<S>                                  <C>          <C>          <C>           <C>         <C> 
Balances, January 1, 1996             1,432,700   $6,481,769   $16,673,906   $  10,962   $23,166,637

Common stock issued (including
 employee gifts of 49 shares)               129          960             -           -           960

Common stock purchased                  (20,000)     (90,400)     (409,764)          -      (500,164)

Net change in unrealized gain (loss)
 on securities available for sale, net
 of tax                                       -            -             -      (9,496)       (9,496)

Net income                                    -            -     2,887,106           -     2,887,106

Dividends declared - $.64 per share           -            -      (911,564)          -      (911,564)

Balances, December 31, 1996           1,412,829    6,392,329    18,239,684       1,466    24,633,479

Common stock issued (including
 employee gifts of 50 shares)             6,130       50,948             -           -        50,948

Common stock purchased                  (24,397)    (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 - $.72 per share           -            -    (1,005,153)          -    (1,005,153)

Balances, December 31, 1997           1,394,562    6,332,861    20,150,369     232,888    26,716,118

Common stock issued (including
 employee gifts of 26 shares)            10,066      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 - $.80 per share           -            -    (1,121,842)          -    (1,121,842)

Balances, December 31, 1998           1,404,628   $6,474,241   $22,832,043   $  66,021   $29,372,305
</TABLE>
<PAGE>
<TABLE>
              CONSOLIDATED STATEMENTS OF CASH FLOWS
          Years Ended December 31, 1998, 1997 and 1996
                                
                                
                                                        1998           1997           1996
<S>                                                 <C>            <C>            <C>      
Cash flows from operating activities
 Net income                                         $  3,803,516   $  3,408,034   $  2,887,106
 Adjustments to reconcile net income
  to net cash from operating activities
   Depreciation and amortization                       1,007,948        946,973        870,092
   Provision for loan losses                             700,400        492,800        401,965
   Investment securities amortization
     (accretion), net                                    (42,854)        23,081        149,205
   Investment securities (gains) losses, net             (40,955)       (13,686)        12,839
   Originations of loans held for sale               (35,798,502)   (18,497,646)   (21,292,899)
   Proceeds from sale of loans                        35,417,148     18,428,256     21,778,522
   Gain on sale of mortgage loans                       (439,927)       (72,236)      (200,366)
   Federal Home Loan Bank stock dividends               (214,300)      (199,600)      (185,600)
   Changes in:
     Interest receivable                                (309,545)      (117,665)       (26,485)
     Other assets                                        (10,827)       (82,785)       688,313
     Interest payable                                   (121,840)       537,251        110,322
     Other liabilities                                  (406,176)       327,241       (108,589)
      Net cash from operating activities               3,544,086      5,180,018      5,084,425

Cash flows from investing activities
 Purchases of securities available for sale          (29,252,389)   (26,674,021)   (46,990,894)
 Proceeds from sales of securities 
  available for sale                                   6,548,219     17,343,034     13,512,387
 Proceeds from principal payments and maturities
  of securities available for sale                    33,189,842     19,982,850     33,441,384
 Purchases of investment securities held to maturity  (2,374,891)      (785,000)    (1,375,000)
 Proceeds from maturities of investment securities
  held to maturity                                     1,070,150      1,510,950      1,520,000
 Net change in loans                                 (27,549,007)   (25,886,674)    (5,883,441)
 Purchases of bank premises and equipment, net        (1,636,487)    (1,284,947)    (1,307,597)
  Net cash from investing activities                 (20,004,563)   (15,793,808)    (7,083,161)

Cash flows from financing activities
 Net change in deposits                               17,414,395     10,254,610     17,722,380
 Net change in securities sold under agreements
  to repurchase and other borrowings                   1,790,671      5,298,109     (7,031,807)
 Advances from Federal Home Loan Bank                  4,000,000              -        400,000
 Payments on Federal Home Loan Bank advances          (7,282,789)      (297,740)    (8,937,095)
 Proceeds from notes payable                                   -        450,000        330,000
 Payments on notes payable                                     -       (450,000)      (930,000)
 Proceeds from issuance of common stock                  141,380         50,948            960
 Purchase of common stock                                      -       (602,612)      (500,164)
 Dividends paid                                       (1,121,842)    (1,005,153)      (911,564)
  Net cash from financing activities                  14,941,815     13,698,162        142,710

<PAGE>

              CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
          Years Ended December 31, 1998, 1997 and 1996
                                
                                
                                                        1998           1997           1996

Net change in cash and cash equivalents               (1,518,662)     3,084,372     (1,856,026)

Cash and cash equivalents at beginning of year        12,274,875      9,190,503     11,046,529

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

Supplemental disclosures of cash flow information
 Cash paid during the year for:
  Interest expense                                   $10,788,308    $ 9,877,464    $ 9,728,525
  Income taxes                                         1,370,000      1,100,000        787,008

Supplemental schedules of non-cash investing and
 financing activities:
  Real estate acquired through foreclosure             $  69,676    $          -   $   541,377
  Transfer of loans to loans held for sale                     -       4,597,849             -
</TABLE>
<PAGE>

           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 also regulated by the Federal Reserve.

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 classifies  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.

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.

<PAGE>

NOTE  1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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.

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.

<PAGE>

NOTE  1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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  a  branch
which  is being amortized on a straight-line basis over ten years
and   capitalized  mortgage  servicing  rights  which  are  being
amortized over the life of the related loans.

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.   The accounting  standard  that  requires
reporting comprehensive income first applies for 1998, with prior
information restated to be comparable.

<PAGE>

NOTE  1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

New  Accounting Pronouncements:  Beginning January 1, 2000, 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.

Reclassifications:  Certain reclassifications have been  made  in
the   1997   and   1996  financial  statements  to   conform   to
classifications used in 1998.

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, 1998 was $5,988,000.

NOTE  3 - INVESTMENT SECURITIES

Amortized  cost  and  fair  value of  investment  securities,  by
category, at December 31, 1998 are as follows:
                                  Amortized  Unrealized Unrealized     Fair
                                     Cost      Gains      Losses       Value
Available for sale
 U. S. Treasury securities       $16,013,161  $ 74,300  $       -   $16,087,461
 Obligations of U. S. government
  agencies                         5,979,883       406     (1,210)    5,979,079
 Obligations of states and
  political subdivisions           3,641,873   161,498          -     3,803,371
 Mortgage-backed securities       25,725,143    71,089   (172,037)   25,624,195
 Other securities                  3,959,643     9,161    (43,176)    3,925,628

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

Held to maturity
 Obligations of states and 
  political subdivisions         $16,933,755  $923,038  $  (2,243)  $17,854,550

<PAGE>

NOTE  3 - INVESTMENT SECURITIES (Continued)

Amortized  cost  and  fair  value of  investment  securities,  by
category, at December 31, 1997 are as follows:
                                  Amortized  Unrealized Unrealized     Fair
                                     Cost      Gains      Losses       Value
Available for sale
 U. S. Treasury securities       $18,983,175  $ 88,978  $    (278)  $19,071,875
 Obligations of U. S. government
  agencies                        10,487,431         -     (1,931)   10,485,500
 Obligations of states and
  political subdivisions           3,942,551   134,644          -     4,077,195
 Mortgage-backed securities       32,334,645   303,520   (172,072)   32,466,093

  Total available for sale       $65,747,802  $527,142  $(174,281)  $66,100,663

Held to maturity
 Obligations of states and 
  political subdivisions         $15,602,778  $807,926  $    (181)  $16,410,523

The  amortized  cost and fair value of investment  securities  at
December  31,  1998,  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                   $17,999,966   $18,056,615
 Due after one year through five years       6,794,401     6,921,685
 Due after five years through ten years      1,376,336     1,425,428
 Due after ten years                         2,415,000     2,415,000
                                            28,585,703    28,818,728

 Mortgage-backed securities                 25,725,143    25,624,195
 Equity securities                           1,008,857       976,811

  Total available for sale                 $55,319,703   $55,419,734

<PAGE>

NOTE  3 - INVESTMENT SECURITIES (Continued)

                                            Amortized      Fair
                                               Cost        Value
Held to maturity
 Due in one year or less                   $ 1,093,452   $ 1,138,863
 Due after one year through five years       5,757,494     6,119,091
 Due after five years through ten years      6,856,735     7,264,184
 Due after ten years                         3,226,074     3,332,412

  Total held to maturity                   $16,933,755   $17,854,550

Proceeds  from sales of investment securities during  1998,  1997
and  1996  were  $6,548,219, $17,343,034 and  $13,512,387.  Gross
gains  of  $40,955, $31,347 and $30,211 and gross losses  of  $0,
$17,661 and $43,050, were realized on those sales.

Investment  securities  with  an approximate  carrying  value  of
$55,657,000 and $56,631,000 at December 31, 1998 and  1997,  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

Major classifications of loans are summarized as follows:

                                              1998        1997

Commercial                               $ 15,177,364  $ 10,643,958
Real estate construction                   11,055,329     7,656,856
Real estate mortgage                      118,735,789   108,048,265
Agricultural                               44,198,784    37,924,098
Consumer                                   17,607,474    15,181,883
Other                                         159,387       287,083

                                         $206,934,127  $179,742,143
<PAGE>

NOTE  4 - LOANS (Continued)

Changes in the allowance for loan losses were as follows:

                                      1998         1997         1996

Beginning balance                  $2,321,536   $2,101,081   $1,860,093
Charge-offs                          (368,017)    (355,123)    (213,328)
Recoveries                             80,670       82,778       52,351
Provision for loan losses             700,400      492,800      401,965

Ending balance                     $2,734,589   $2,321,536   $2,101,081

Impaired loans totaled $286,000 and $333,000 at December 31, 1998
and  1997.  The  average recorded investment  in  impaired  loans
during  1998, 1997 and 1996 was $310,000, $192,000 and  $298,000.
The  total  allowance for loan losses related to these loans  was
$85,000  and  $57,000  at December 31, 1998  and  1997.  Interest
income  on  impaired loans of $22,000, $23,000  and  $55,000  was
recognized  for  cash payments received in 1998, 1997  and  1996.
Loans  over 90 days past due and still accruing interest  totaled
$790,000 and $154,000 at December 31, 1998 and 1997.

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
$103,122,000  and  $91,423,000 at December  31,  1998  and  1997.
Custodial  escrow  balances maintained  in  connection  with  the
foregoing  loan servicing, and included in demand deposits,  were
approximately  $593,000 and $545,000 at  December  31,  1998  and
1997.

Changes in mortgage servicing rights were as follows:

                                    1998        1997       1996

Beginning balance                  $314,877   $189,451   $      -
Additions                           330,902    184,125    215,812
Amortization                       (111,957)   (58,699)   (26,361)

Ending balance                     $533,822   $314,877   $189,451

<PAGE>

NOTE  4 - LOANS (Continued)

Certain  directors  and executive officers  of  the  Company  and
companies  in  which  they have beneficiary ownership  were  loan
customers of the Bank during 1998 and 1997. 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:

                                                 1998        1997
Balance, beginning of year                    $1,824,000  $1,828,000
Additions, including loans now meeting
 disclosure requirements                         704,000   1,381,000
Amounts collected, including loans no
 longer meeting disclosure requirements       (1,312,000) (1,385,000)

Balance, end of year                          $1,216,000  $1,824,000

NOTE  5 - BANK PREMISES AND EQUIPMENT

Bank premises and equipment are summarized as follows:
                                                1998       1997

Land and buildings                            $7,040,895   $6,371,645
Furniture and equipment                        5,423,361    4,429,043
Construction in progress                               -       27,082
                                              12,464,256   10,827,770
Less accumulated depreciation                 (5,670,258)  (5,062,460)

                                              $6,793,998   $5,765,310

Depreciation  expense  was $667,799, $523,892,  and  $523,888  in
1998, 1997, and 1996.

NOTE  6 - DEPOSITS

At  December 31, 1998, the scheduled maturities of time  deposits
are as follows:

        1999                                 $108,922,295
        2000                                    9,858,070
        2001                                    1,329,974
        2002                                      688,935
        2003 and thereafter                     1,026,210

                                             $121,825,484
<PAGE>

NOTE  6 - DEPOSITS (Continued)

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 $3,173,000 and $2,393,000 at December 31,
1998 and 1997.

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 1998 and 1997 is summarized as follows:


                                                1998      1997

Average daily balance during the year         $4,329,000 $4,103,000
Average interest rate during the year              4.76%      5.03%
Maximum month-end balance during the year     $6,713,000 $4,895,000
Carrying and fair value of U.S. Treasury
 securities underlying the agreements         $6,904,000 $6,895,000

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 which the Bank uses to fund fixed-rate mortgages.

At  December  31,  1998  and  1997,  $6,953,502  and  $10,236,291
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 fixed interest  rates
ranging  from 5.05% to 6.80%. Advances are secured  by  the  FHLB
stock  and  all  single  family first mortgage  loans.  Scheduled
principal payments due on advances during the years subsequent to
December  31,  1998  are as follows:  1999  -  $302,254;  2000  -
$1,240,674;  2001 - $237,970; 2002 - $251,637; 2003 - $4,825,652;
years thereafter - $95,315.

<PAGE>

NOTE  9 - INCOME TAXES

The components of the provision for income taxes are as follows:

                                   1998        1997       1996

Current payable                 $1,306,758  $1,158,777   $697,751
Deferred                            64,844     (10,853)   168,544

                                $1,371,602  $1,147,924   $866,295

The Company's deferred tax assets and liabilities at December  31
are  shown  below. No valuation allowance for the realization  of
deferred tax assets is considered necessary.

                                                1998       1997
Deferred tax assets
 Allowance for loan losses                    $736,526    $596,087
 Premium on deposits purchased                 127,144      97,641
 Deferred loan fees                             22,547      19,336
 Other                                          46,597      28,119

Deferred tax liabilities
 Bank premises and equipment                  (131,872)   (129,217)
 Unrealized gain on investment securities      (55,802)   (119,972)
 FHLB stock                                   (379,151)   (306,289)
 Mortgage servicing rights                    (181,499)   (107,058)
 Other                                         (27,780)    (50,951)

  Net deferred tax asset                      $156,710   $  27,696

An  analysis of the differences between the effective  tax  rates
and the statutory U.S. federal income tax rate is as follows:
                                          1998      1997     1996

U. S. federal income tax rate             34.0%     34.0%    34.0%
Changes from the statutory rate
 Tax-exempt investment incom              (8.7)    (10.0)   (12.4)
 Non-deductible interest expense related to
  carrying tax-exempt investments          1.1       1.3      1.5
 Other                                      .1      (0.1)       -

                                          26.5%     25.2%    23.1%

<PAGE>

NOTE  10 - EARNINGS PER SHARE

Basic  and diluted earnings per common share for 1998,  1997  and
1996 are presented below.

                                      1998        1997        1996
Basic Earnings Per Share
 Net income                        $3,803,516  $3,408,034  $2,887,106

 Weighted average common shares
  outstanding                       1,400,660   1,396,201   1,424,704

 Basic earnings per share          $     2.72  $     2.44  $     2.03

Diluted Earnings Per Share
 Net income                        $3,803,516  $3,408,034  $2,887,106

 Weighted average common shares
  outstanding                       1,400,660   1,396,201   1,424,704

 Add dilutive effects of assumed 
  exercise of stock options            29,987      25,596      18,771

 Weighted average common and 
  dilutive potential common shares
  outstanding                       1,430,647   1,421,797   1,443,475

  Diluted  earnings per share      $     2.66  $     2.40  $     2.00

Stock options for 600 and 12,400 shares of common stock were not considered in
computing earnings per share for 1997 and 1996 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.

<PAGE>

NOTE  11 - RETIREMENT PLANS (Continued)

Information about the pension plan was as follows:
                                                1998       1997
Change in benefit obligation:
 Beginning benefit obligation                 $1,813,183  $1,597,843
 Service cost                                    143,717     137,229
 Interest cost                                   143,564     126,623
 Actuarial gain                                        -      (3,240)
 Benefits paid                                   (67,547)    (45,272)
  Ending benefit obligation                    2,032,917   1,813,183

Change in plan assets, at fair value:
 Beginning plan assets                         1,995,586   1,718,776
 Actual return                                   348,607     322,082
 Employer contribution                           223,363           -
 Benefits paid                                   (67,547)    (45,272)
  Ending plan assets                           2,500,009   1,995,586

Funded status                                    467,092     182,403
Unrecognized net actuarial gain                 (515,005)   (346,338)
Unrecognized prior transition asset               (3,717)     (4,089)

Accrued benefit cost                          $  (51,630)  $(168,024)

Net periodic pension cost include the following components:

                                    1998       1997       1996

Service cost                      $143,717   $137,229    $118,339
Interest cost                      143,564    126,623     112,826
Expected return on plan assets    (172,099)  (136,298)   (125,632)
Amortization of transition asset      (372)      (372)       (372)
Recognized net actuarial gain       (7,841)         -           -

Net periodic cost                 $106,969   $127,182    $105,161

<PAGE>

 NOTE  11 - RETIREMENT PLANS (Continued)

A  discount  rate of 8% is used to compute the actuarial  present
value of the accumulated and projected benefit obligations.   The
assumed  rate  of return on plan assets is also 8%.  The  assumed
rate of salary increases is 5%.

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 $181,743, $166,647 and
$157,162 in 1998, 1997 and 1996, respectively.

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:

                                1998             1997             1996
                               Weighted         Weighted         Weighted
                                Option           Option           Option
                            Options  Price   Options  Price   Options Price

Outstanding,
  beginning of year          62,820  $19.47  58,550   $17.20  49,160  $15.33
Granted during the year      13,600   31.76  11,000    25.24  10,350   26.36
Canceled during the year     (1,000)  29.10    (650)   16.00    (880)  20.73
Exercised during the year   (10,040)  14.08  (6,080)    8.38     (80)  12.00
Outstanding, end of year     65,380  $22.71  62,820   $19.47  58,550  $17.20

Weighted remaining contractual
 life                          81.6 months     69.3 months      66.4 months

<PAGE>

NOTE  12 - STOCK OPTION PLAN (Continued)

                                    1998         1997        1996
                                   Options      Options     Options
Options outstanding
 From $7.83 to $12.75 per share     12,360       17,900      24,380
 From $17.25 to $22.28 per share    16,320       20,320      20,420
 From $24.00 to $30.00 per share    35,100       24,600      13,750
 From $36.00 to $40.00 per share     1,600            -           -
                                    65,380       62,820      58,550
Eligible for exercise
 From $7.83 to $12.75 per share     12,360       17,900      24,380
 From $17.25 to $22.28 per share    14,680       18,240      10,332
 From $24.00 to $26.50 per share     8,460        7,620       1,120           
                                    35,500       43,760      35,832

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:

                                  1998        1997         1996
Net income
 As reported                    $3,803,516   $3,408,034  $2,887,106
 Pro forma                       3,747,871    3,375,248   2,870,017

Basic earnings per share
 As reported                    $   2.72     $  2.44     $   2.03
 Pro forma                          2.68        2.42         2.01

Diluted earnings per share
 As reported                    $   2.66     $  2.40     $   2.00
 Pro forma                          2.63        2.38         1.98

Weighted averages
 Fair value of options granted  $   9.05     $  7.24     $   7.77
 Risk free interest rate           5.20%       6.50%        6.50%
 Expected life                   8 years     8 years      8 years
 Expected volatility              23.40%      21.79%       19.66%
 Expected dividend yield           2.53%       2.86%        2.43%

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 1999 the Bank could, without
prior  approval,  declare  dividends of approximately  $2,815,000
plus  any  1999 net profits retained to the date of the  dividend
declaration.

<PAGE>

NOTE  14 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The  fair  values  of  the  Company's  financial  instruments  at
December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
                              1998                   1997
                       Carrying               Carrying
                        Amount   Fair Value    Amount   Fair Value
<S>                            <C>          <C>          <C>          <C>
Financial assets
 Cash and cash equivalents    $  10,756,213  $  10,756,000  $  12,274,875  $  12,275,000
 Investment securities           72,353,489     73,274,000     81,703,441     82,511,000
 Federal Home Loan Bank stock     3,119,500      3,120,000      2,905,200      2,905,000
 Mortgage loans held for sale     5,908,676      5,978,000      5,418,297      5,431,000
 Loans, net                     204,199,538    204,716,000    177,420,607    177,574,000

Financial liabilities
 Deposits                     $(258,739,716) $(259,532,000) $(241,325,321) $(242,188,000)
 Securities sold under
  agreements to repurchase
  and other borrowed funds      (11,248,277)   (11,248,000)    (9,457,606)    (9,458,000)
 Federal Home Loan Bank
  advances                       (6,953,502)    (7,032,527)   (10,236,291)   (10,157,000)
</TABLE>

The  following methods and assumptions were used to estimate  the
fair value of each class of financial instruments for which it is
practicable to estimate that value:

Cash and Cash Equivalents:  For those short-term instruments, the
carrying amount is a reasonable estimate of fair value.

Investment  Securities:  For investment securities,  fair  values
are based on quoted market prices or dealer quotes.

<PAGE>

NOTE  14 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
         (Continued)

Federal  Home  Loan  Bank Stock:  Federal Home  Loan  Bank  stock
carrying  value  is equivalent to market since  it  can  only  be
purchased or sold with the FHLB at carrying value.

Mortgage  Loans  Held for Sale:  Fair value is based  on  current
quoted  secondary market price for loans without regard to  other
commitments to make and sell loans.

Loans:   Fair  value is estimated by discounting the future  cash
flows  using  the current rates at which similar loans  would  be
made  to  borrowers with similar credit ratings and for the  same
remaining maturities.

Deposit  Liabilities:  The fair value of demand deposits, savings
accounts, and certain money market deposits is the amount payable
on  demand  at  the  reporting date.  The fair  value  of  fixed-
maturity  certificates of deposit is estimated  using  the  rates
currently offered for deposits of similar remaining maturities.

Securities Sold Under Agreements to Repurchase and Other Borrowed
Funds:  For those short-term instruments, the carrying amount  is
a reasonable estimate of fair value.

Federal  Home  Loan Bank Advances:  Rates currently available  to
the  Company  for  advances  with  similar  terms  and  remaining
maturities are used to estimate fair value of existing debt.

Commitments  to  Extend  Credit and Standby  Letters  of  Credit:
Commitments  to  extend  credit and  standby  letters  of  credit
represent  agreements to lend to a customer at  the  market  rate
when  the  loan  is extended.  The fair value of commitments  and
letters of credit are not considered material.

Commitments to Sell Loans:  The fair value of commitments to sell
loans  is based on the difference between interest rates at which
the  Company  has  committed to sell the loans  and  the  current
quoted secondary market price for similar loans.  The fair  value
of commitments is not 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.

<PAGE>

NOTE  15 - OFF-BALANCE-SHEET ACTIVITIES (Continued)

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

                                                 1998             1997

Unused lines of credit                        $34,728,000      $28,879,000
Commitments to make loans                       3,892,000        4,190,000
Letters of credit                                 586,000          643,000
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 6.125% to 7% 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.    The
commitments outstanding at year end had delivery dates within  90
days and rates ranging from 6.25% to 7.25%.

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 - 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.

<PAGE>

NOTE  17 - REGULATORY MATTERS (Continued)

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, 1998 and 1997,
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:
<TABLE>
<CAPTION>
                                                                            To Be Well
                                                                            Capitalized
                                                                           Under Prompt
                                                          For Capital       Corrective
                                           Actual      Adequacy Purposes  Action Provisions
                                       Amount   Ratio   Amount   Ratio    Amount   Ratio
                                           (dollars in thousands)
<S>                                    <C>      <C>     <C>        <C>    <C>       <C>
Consolidated as of  December 31, 1998:
 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 as of December 31, 1998                                      
 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
                                                                   
Consolidated as of  December 31, 1997                                      
 Total  Capital
  (to  Risk-Weighted Assets)           $26,966  14.8%   $14,536    8%     $18,170   10%
 Tier  I Capital
  (to  Risk-Weighted Assets)            24,694  13.6      7,268    4       10,902    6
 Tier I Capital
  (to Average Assets)                   24,694   8.8     11,001    4       13,751    5
                                                                   
Bank Only as of December 31, 1997                                       
 Total  Capital
  (to  Risk-Weighted Assets)           $26,319  14.5%   $14,535    8%     $18,168   10%
 Tier  I Capital
  (to  Risk-Weighted Assets)            24,047  13.2      7,267    4       10,901    6
 Tier I Capital
  (to Average Assets)                   24,047   8.7     11,000    4       13,750    5
</TABLE>
      
<PAGE>
                                                             
NOTE  18 - PARENT COMPANY FINANCIAL STATEMENTS

                    Condensed Balance Sheets
                   December 31, 1998 and 1997
                                
                                                  (In thousands)
                                                  1998      1997
ASSETS
Cash on deposit with subsidiary                 $   967   $   616
Investment in subsidiary                         27,411    26,070
Investment securities available for sale            977         -
Other assets                                         17        30

Total assets                                    $29,372   $26,716

STOCKHOLDERS' EQUITY
Preferred stock                                 $     -   $     -
Common stock                                      6,474     6,333
Retained earnings                                22,832    20,150
Accumulated other comprehensive income               66       233

Total stockholders' equity                      $29,372   $26,716

<PAGE>

NOTE  18 - PARENT COMPANY FINANCIAL STATEMENTS (Continued)

     Condensed Statements of Income and Comprehensive Income
          Years Ended December 31, 1998, 1997 and 1996

                                              (In thousands)
                                           1998    1997     1996
Income
 Dividends from subsidiary               $2,330   $2,100   $1,850
 Interest income                              5        -        -
 Other income                                 -        -      807
  Total income                            2,335    2,100    2,657

Expenses
 Interest expense                             -       10       40
 Other expenses                              25       21      823
  Total expenses                             25       31      863

Income before income taxes and equity in
 undistributed income of subsidiary       2,310    2,069    1,794

Applicable income tax benefits                7       11       18

Income before equity in undistributed
 income of subsidiary                     2,317    2,080    1,812

Equity in undistributed income of 
 subsidiary                              1,487    1,328     1,075

Net income                              $3,804   $3,408    $2,887

Other comprehensive income (loss), net of tax:
 Unrealized gains (losses) on securities
  arising during the period              $(126)   $ 245      $(22)
 Reclassification of realized amount       (41)     (14)       13

 Net change in unrealized gain (loss)
  on securities                           (167)     231        (9)

Comprehensive income                    $3,637   $3,639    $2,878


<PAGE>

NOTE  18 - PARENT COMPANY FINANCIAL STATEMENTS (Continued)

     Condensed Statements of Cash Flows
Years Ended December 31, 1998, 1997 and 1996

                                              (In thousands)
                                                 1998      1997      1996
Cash flows from operating
activities
 Net income                                    $ 3,804   $ 3,408   $ 2,887
 Adjustments to reconcile net income to net
  cash from operating activities
   Equity in undistributed earnings of
     subsidiary                                 (1,487)   (1,328)   (1,075)
   Change in other assets                           (8)        8        94
   Change in other liabilities                       -       (11)       10
     Net cash from operating activities          2,309     2,077     1,916

Cash flows from investing activities
 Purchase of investment securities available
  for sale                                        (977)        -         -
                      
Cash flows from financing activities
 Dividends paid                                 (1,122)   (1,005)     (912)
 Proceeds from issuance of common stock            141        51         1
 Purchase of common stock                            -      (603)     (500)
 Repayment of long-term debt                         -         -      (930)
 Proceeds from long-term debt                        -         -       330
  Net cash from financing activities              (981)   (1,557)   (2,011)

Net change in cash                                 351       520       (95)

Cash at beginning of year                          616        96       191

Cash at end of year                             $  967    $  616    $   96


<PAGE>
                      


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 1999

Robert G. Thompson
Director, Paris/Bourbon County YMCA; Snow Hill Farm
Class of 1999

Theodore Kuster
Farmer and Thoroughbred Breeder; West View Farm
Class of 1999

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

William M. Arvin
Attorney
Class of 2001

Joseph B. McClain
President; Hopewell Insurance Company, Inc.
Class of 2001

<PAGE>

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

James L. Ferrell, M.D.
Physician

Betty Jo Denton Heick
Retired Bourbon County Court Clerk

Henry Hinkle
President; Hinkle Contracting Company

R.C. Johnson, Jr.
Owner & President
Johnson Funeral Home

James Kay
Businessman, Farmer

Theodore Kuster
Farmer and Thoroughbred Breeder; West View Farm

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

Alex Miller
Retired President, Paris Stockyards, Inc.

Ed Saunier
President, Saunier North American Van Lines

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

<PAGE>

REGIONAL BOARD OF DIRECTORS
CLARK

C. Richard Gamble
Investor

Donald Pace
Superintendent, Clark Co. Schools

Ed Saunier
President, Saunier North American Van Lines

Mary Beth Hendricks
Farmer

John G. Roche
Oprician

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

James B. Wooten, Jr.
Attorney and Partner; Bradley, Blanton and Wooten

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

Victor Comley
Retired, Kentucky Association of Highway Contractors

Bonnie Dean
Nicholasville City Clerk, Treasurer

Eva McDaniel
Jessamine County Clerk

<PAGE>

OFFICERS
BOURBON COUNTY
PARIS
Buckner Woodford - President and CEO
James P. Shipp, Jr. - Sr. Vice President, Branch Administration
Norman J. Fryman - Sr. Vice President, Director of Lending
Joe Allen - Executive Vice President
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 Manager
Jean Patton - Compliance/CRA/Quality Control
Donald Roe - Data Processing
Lydia Sosby - Auditor
Martha Woodford - Corporate and Automated Products Officer
Jan Worth - Trust Officer

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

North Middletown Branch
Jerry Ann McFarland - Branch Manager

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 - Assistant Vice President, Loan Officer
Carolyn Wilkins - Calling Officer
Ron Burden, Vice President, Loan Officer

Colby Road Branch
Teresa Shimfessel - Branch Manager, Assistant Vice President, 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 - 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
Earl Lewallen - Assistant Vice President, Loan Officer
Jeanie Thompson - Assistant Cashier & CSR

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

<PAGE>

Exhibit 21     Subsidiaries of Registrant

              Bourbon Bancshares, Inc.'s Subsidiary
                                
                          Kentucky Bank

<PAGE>
                                
                           EXHIBIT 23
                                
                 CONSENT OF INDEPENDENT AUDITORS
                                
                                
                                
      We  consent  to  the  use  of our report dated January  15,  1999  on  the
consolidated financial statements of Bourbon Bancshares, Inc. as of December 31,
1998  and 1997 and for each of the three years in the period ended December  31,
1998 appearing in this Annual Report on Form 10-K of Bourbon Bancshares, Inc. as
Exhibit 13.


                         Crowe, Chizek and Company LLP


Lexington, KY
March 26, 1999