FORM 10-Q
U.S. Securities and Exchange Commission
Washington, D.C. 20549
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
| For Quarterly Period ended June 30, 2001 | |||
| o | 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:0-25960 | |||
| THE BANK OF KENTUCKY FINANCIAL CORPORATION (Exact name of registrant as specified in its charter) | |||
Kentucky | 61-1256535 |
1065 Burlington Pike, Florence, Kentucky 41042
(Address of principal executive offices) (Zip Code)
Registrant's telephone number:(859) 371-2340
Indicate by checkmark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesx Noo
As of August 10, 2001, the latest practicable date, 6,072,871 shares of the Registrant's Common Stock, no par value, were issued and outstanding.
The Bank of Kentucky Financial Corporation
INDEX
THE BANK OF KENTUCKY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands)
| Assets | June 30, 2001 (Unaudited) | December 31, 2000 | ||||
|---|---|---|---|---|---|---|
| Cash and Cash Equivalents | $ | 18,908 | $ | 22,248 | ||
| Available-for-sale securities | 35,021 | 22,633 | ||||
| Held-to-maturity securities | 16,649 | 29,740 | ||||
| Loans held for sale | 649 | 0 | ||||
| Total loans | 388,749 | 384,081 | ||||
| Less: Allowance for loan loss | (3,997 | ) | (3,806 | ) | ||
| Net Loans | 384,752 | 380,275 | ||||
| Premises and equipment, net | 6,120 | 6,223 | ||||
| FHLB stock, at cost | 3,480 | 3,359 | ||||
| Accrued interest receivable and other assets | 6,335 | 5,651 | ||||
| Total assets | $ | 471,914 | $ | 470,129 | ||
| Liabilities & Shareholders' Equity | ||||||
| Liabilities | ||||||
| Deposits | $ | 395,585 | $ | 393,721 | ||
| Short-term borrowings | 17,437 | 12,643 | ||||
| Long-term borrowings | 4,464 | 12,174 | ||||
| Accrued interest payable & other liabilities | 4,521 | 3,814 | ||||
| Total liabilities | 422,007 | 422,352 | ||||
| Shareholders' Equity | ||||||
| Common Stock | 3,098 | 3,098 | ||||
| Additional paid-in capital | 13,272 | 14,538 | ||||
| Retained earnings | 33,379 | 30,446 | ||||
| Unearned compensation | 0 | (335 | ) | |||
| Accumulated other comprehensive income | 158 | 30 | ||||
| Total shareholder's equity | 49,907 | 47,777 | ||||
| Total liabilities & shareholders' equity | $ | 471,914 | $ | 470,129 | ||
| See accompanying notes | ||||||
THE BANK OF KENTUCKY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2001 AND 2000
(Dollars in thousands, except per share data - unaudited)
| Three Months Ended June 30 | Six Months Ended June 30 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
INTEREST INCOME | 2001 | 2000 | 2001 | 2000 | ||||||||
Loans, including related fees | $ | 8,289 | $ | 8,141 | $ | 16,831 | $ | 15,607 | ||||
| Securities and other | 887 | 909 | 1,769 | 1,802 | ||||||||
Total interest income | 9,176 | 9,050 | 18,600 | 17,409 | ||||||||
INTEREST EXPENSE | ||||||||||||
Deposits | 4,419 | 3,857 | 9,188 | 7,574 | ||||||||
Borrowings | 203 | 780 | 458 | 1,291 | ||||||||
Total interest expense | 4,622 | 4,637 | 9,646 | 8,865 | ||||||||
Net interest income | 4,554 | 4,413 | 8,954 | 8,544 | ||||||||
Provision for loan losses | (190 | ) | (316 | ) | (276 | ) | (535 | ) | ||||
Net interest income after provision for loan losses | 4,364 | 4,097 | 8,678 | 8,009 | ||||||||
NON-INTEREST INCOME | ||||||||||||
Service charges and fees | 500 | 379 | 915 | 758 | ||||||||
Gain/(loss) on securities | 0 | 0 | 67 | 0 | ||||||||
Gain on loans sold | 197 | 58 | 436 | 104 | ||||||||
Other | 294 | 276 | 603 | 485 | ||||||||
Total non-interest income | 991 | 713 | 2,021 | 1,347 | ||||||||
NON-INTEREST EXPENSE | ||||||||||||
Salaries and benefits | 1,373 | 1,279 | 2,725 | 2,554 | ||||||||
Occupancy and equipment | 491 | 486 | 986 | 954 | ||||||||
Data processing | 207 | 183 | 422 | 377 | ||||||||
Advertising | 81 | 87 | 162 | 162 | ||||||||
| Restructuring charges | 0 | 1,405 | 0 | 1,405 | ||||||||
| Merger and Acquisition | 0 | 490 | 0 | 490 | ||||||||
| Other | 909 | 589 | 1,622 | 1,380 | ||||||||
Total non-interest expense | 3,061 | 4,519 | 5,917 | 7,322 | ||||||||
INCOME BEFORE INCOME TAXES | 2,294 | 291 | 4,782 | 2,034 | ||||||||
Less: income taxes | 759 | 193 | 1,541 | 738 | ||||||||
NET INCOME | $ | 1,535 | $ | 98 | $ | 3,241 | $ | 1,296 | ||||
COMPREHENSIVE INCOME | $ | 1,549 | $ | 145 | $ | 3,369 | $ | 1,251 | ||||
Earnings per share | $ | .25 | $ | .02 | $ | .53 | $ | .21 | ||||
Earnings per share, assuming dilution | $ | .25 | $ | .02 | $ | .53 | $ | .21 | ||||
Dividends per share | $ | .00 | $ | .00 | $ | .05 | $ | .04 | ||||
See accompanying notes
THE BANK OF KENTUCKY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Dollars in thousands)
(Unaudited)
| 2001 | 2000 | |||||
|---|---|---|---|---|---|---|
| Balance as of January 1 | $ | 47,777 | $ | 42,584 | ||
| Comprehensive income | ||||||
| Net income | 3,241 | 1,296 | ||||
| Change in net unrealized gain/(loss) net of tax | 128 | (45 | ) | |||
| Total comprehensive income | 3,369 | 1,251 | ||||
| Cash dividends paid | (308 | ) | (212 | ) | ||
| Purchase of fractional shares | 0 | (7 | ) | |||
| Exercise of stock options (including tax benefits of $3 and $18) | 15 | 686 | ||||
| Adjustments related to merger | 0 | 448 | ||||
| Benefit Plan Termination | 458 | 0 | ||||
| Benefit Plan Amortization | 0 | 106 | ||||
| Stock repurchase and retirement | (1,404 | ) | 0 | |||
| Balance as of June 30 | $ | 49,907 | $ | 44,856 | ||
See accompanying notes
THE BANK OF KENTUCKY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)
| FOR THE SIX MONTHS ENDED JUNE 30 | 2001 | 2000 | ||||
|---|---|---|---|---|---|---|
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||
| Net income | $ | 3,241 | $ | 1,296 | ||
| Adjustments to reconcile net income to net cash from operating activities | 796 | 3,560 | ||||
| Net cash from operating activities | 4,037 | 4,856 | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||
| Net change in interest bearing deposits with banks | 0 | 1,000 | ||||
| Proceeds from pay downs and maturities of held-to-maturity securities | 14,295 | 3,156 | ||||
| Proceeds from sales, pay downs and maturities of available-for-sale securities | 16,259 | 1,039 | ||||
| Purchases of held-to-maturity securities | (1,170 | ) | (3,461 | ) | ||
| Purchases of available-for-sale securities | (28,370 | ) | (2,500 | ) | ||
| Net change in loans | (5,402 | ) | (31,600 | ) | ||
| Purchase stock in FHLB | 0 | 0 | ||||
| Property and equipment expenditures | (237 | ) | (1,613 | ) | ||
| Net cash from investing activities | (4,625 | ) | (33,979 | ) | ||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||
| Net change in deposits | 1,864 | 1,272 | ||||
| Net change in short-term borrowings | 4,794 | 29,237 | ||||
| Proceeds from exercise of stock options | 12 | 669 | ||||
| Payment for fractional shares | 0 | (7 | ) | |||
| Cash dividends paid | (308 | ) | (212 | ) | ||
| Stock repurchase and retirement | (1,404 | ) | 0 | |||
| Payments on note payable | (7,710 | ) | (696 | ) | ||
| Net cash from financing activities | (2,752 | ) | 30,263 | |||
| Net change in cash and cash equivalents | (3,340 | ) | 1,140 | |||
| Cash and cash equivalents at beginning of period | 22,248 | 19,407 | ||||
| Cash and cash equivalents at end of period | $ | 18,908 | $ | 20,547 | ||
| See accompanying notes | ||||||
THE BANK OF KENTUCKY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001
Note 1 - Basis of Presentation:
The consolidated financial statements include the accounts of The Bank of Kentucky Financial Corporation (the company) and its wholly owned subsidiary, The Bank of Kentucky (the Bank). All significant intercompany accounts and transactions have been eliminated.
On June 14, 2000, the Company consummated the acquisition of the Fort Thomas Financial Corporation (FTFC) and its wholly owned subsidiary, the Fort Thomas Savings Bank. Upon consummation, 865,592 shares of the Company were issued for substantially all of the outstanding shares of FTFC. The combination was accounted for as a pooling of interests and the historical financial position and results of operations of the two companies have been combined for financial reporting purposes. FTFC reported its results on a September 30 fiscal year basis. These financial statements combine the historical financial position of FTFC as of October 1, 1999 with the historical financial position of the Company as of January 1, 2000. As a result, FTFC's results of operations for the three months ended December 31, 1999 are not included in these financial statements. Net income for that quarter was $232,000 and it, combined with $216,000 in dividends paid on unawarded FTFC management recognition plan shares that were returned to the company upon consummation of the transaction, is reflected in the consolidated statements of changes in shareholders' equity and as an "adjustment related to the merger." Dividends per share are the company's historical dividends.
Note 2 - General:
These financial statements were prepared in accordance with the instructions for Form 10-Q and, therefore, do not include all of the disclosures necessary for a complete presentation of financial position, results of operations and cash flows in conformity with generally accepted accounting principles. These financial statements have been prepared on a basis consistent with the annual financial statements and include, in the opinion of management, all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the results of operations and financial position at the end of and for the periods presented.
Note 3 - Earnings per Share:
Earnings per share are computed based upon the weighted average number of shares outstanding during the respective three and six month periods. Diluted earnings per share are computed assuming that average stock options outstanding are exercised and the proceeds, including the relevant tax benefit, are used entirely to reacquire shares at the average price for the period. The
following table presents the numbers of shares used to compute basic and diluted earnings per share for the indicated periods:
Three Months | Six Months | |||
2001 | 2000 | 2001 | 2000 | |
Weighted Average Shares Outstanding | 6,134,567 | 6,135,720 | 6,146,402 | 6,129,528 |
Shares used to compute diluted | 6,161,854 | 6,175,962 | 6,173,043 | 6,166,367 |
Note 4 - Restructuring Charges:
Restructuring charges reflected on the consolidated statement of income in 2000 relate to severance benefits for three former FTFC executives and penalties associated with the early termination of data processing and equipment lease contracts associated with FTFC's operations. On June 14, 2000, the effective date of the merger, the Company executed severance agreements with three senior executives of FTFC. These agreements call for monthly cash payments, beginning July 2000 and the continuation of certain benefits for 36 months. This obligation, approximately $1.2 million, was accrued at that time. Most of the balance of the $1.4 million in identified restructuring charges relates to a penalty associated with the early termination of FTFC's data processing service agreement, effective June 24, 2000.
Note 5 - Benefit Plan Termination:
In May 2001, the FTFC Employee Stock Ownership Plan (ESOP) was terminated. The value of unallocated shares held by the ESOP was approximately $450,000. The excess of the value of the shares held by the ESOP over the balance of the loan encumbering these shares was approximately $123,000. This amount was distributed to former FTFC ESOP participants and was recorded as ESOP expense in 2001.
THE BANK OF KENTUCKY FINANCIAL CORPORATION
Management's Discussion and Analysis of Financial Condition
And the Results of Operations
June 30, 2001
Total assets at June 30, 2001 were $471,914,000 compared to $470,129,000 at December 31, 2000, an increase of $1,785,000 (.4%). This increase was primarily due to an increase in loans of $4,668,000 (1.2%), from $384,081,000 at December 31, 2000 to $388,749,000 at June 30, 2001. Loan growth was partially offset by a $3,340,000 decrease in cash and due from banks. Total deposits increased $1,864,000 (.5%), from $393,721,000 at December 31, 2000 to $395,585,000 at June 30, 2001.
RESULTS OF OPERATIONS
GENERAL
Net income year to date increased from $1,296,000 in 2000 to $3,241,000 in 2001, an increase of $1,945,000 (150.1%). Net income for the quarter ended June 30, 2001 was $1,535,000 ($.25 per share) compared to $98,000 ($.02 per share) during the same period in 2000, an increase of $1,437,000 (1466.3%). Last year's earnings reflect restructuring and merger related expenses incurred during the second quarter, which aggregated to $1,417,000, net of tax. Earnings year to date, excluding last year's merger related expenses, increased $528,000 (19.5%) to $3,241,000 in 2001 compared to $2,713,000 for the same period in 2000. Net income for the quarter ended June 30, 2001 excluding last year's merger related expenses, increased $20,000 (1.3%) to $1,535,000 in 2001 from $1,515,000 in 2000. The increase in earnings was driven by higher non-interest income, partially offset by an increase in operating expenses including a non-recurring charge of approximately $125,000 for expenses associated with the termination of the Fort Thomas ESOP plan.
NET INTEREST INCOME
Net interest income increased $141,000 (3.2%) in the second quarter of 2001 over the same period in 2000, while the year to date total increased $410,000 (4.8%) from $8,544,000 in 2000 to $8,954,000 in 2001. The increase in net interest income was driven by the continued growth in the loan portfolio.
PROVISION FOR LOAN LOSSES
The loan loss provision was $276,000 for the six months ended June 30, 2001 compared to $535,000 recorded in the same period in 2000. The provision was decreased due to slower loan growth and a $182,000 decrease in net charge-offs to $85,000 through June 30, 2001 compared to $267,000 for the same period last year. The Bank had $3,763,000 in non-performing loans, .97% of total loans outstanding at June 30, 2001, compared to $5,656,000 (1.55%) at June 30,
2000. Real estate loans accounted for $2,841,000 of the non-performing loans at June 30, 2001 Management is satisfied that the reserve is adequate at June 30, 2001.
NON INTEREST INCOME
Total non-interest income increased $674,000 (50.0%) to $2,021,000 through June 30, 2001, compared to $1,347,000 for the same period in 2000. Service charges on deposits increased $121,000 (31.9%) in the second quarter, to $500,000 for the period ending June 30, 2001 compared to $379,000 for the same period in 2000. Transaction growth and higher fees in the second quarter contributed to the continued growth in deposit fees. Income from the sale of loans into the secondary market increased $332,000 (320.2%) to $436,000 through June 30, 2001, compared to $104,000 for the same period in 2000. The Bank originates fixed rate first mortgage loans and sells them, service released, into the secondary market. The increase in fee income was driven by increased volume due to lower interest rates. During the first half 2001, 318 loans with a principal balance of $37.7 million were sold compared to 68 loans with a principal balance of $9.3 million during the same period in 2000. Loans held for sale at June 30, 2001 increased to $649,000 from $0 at December 31, 2000. These loans have been approved by the secondary market buyer and closed by the Bank. The Bank is awaiting settlement but is not exposed to significant interest rate or pricing risk during the period between closing the loan and settlement.
NON INTEREST EXPENSE
Non-interest expense decreased $1,458,000 (32.3%) in the second quarter of 2001, with year to date expenses decreasing $1,405,000 (19.2%) to $5,917,000 through June 30, 2001 compared to $7,322,000 for the same period in 2000, which included merger and restructuring related expenses of $1,895,000. Non-interest expense excluding merger and restructuring related expenses, increased $490,000 (9.0%) through June 30, 2001. Salary and employee benefit expense increased $171,000 (6.7%) to $2,725,000 through June 30, 2001, compared to $2,554,000 for the same period in 2000. Occupancy and equipment expense increased $32,000 (3.3%) to $986,000 through June 30, 2001, compared to $954,000 for the same period in 2000. Data processing expense increased $45,000 (11.9%) through the first six months of 2001 to $422,000 from $377,000 for the same period last year. Other operating expenses increased $242,000 (17.5%) through June 30, 2001 to $1,622,000 from $1,380,000 for the same period in 2000. Increases in bank shares tax and ATM expenses of $128,000 and $84,000 respectively contributed to most of the increase.
INCOME TAX EXPENSE
Income tax expense increased by $803,000 (108.8%) through the second quarter of 2001 compared to 2000 and the effective tax rate decreased to 32% from 36%. Last year's effective tax rate of 36% was partially due to the majority of the merger and acquisition cost not being
deductible for tax purposes. The current effective tax rate is more in line with historical effective tax rates.
LIQUIDITY AND CAPITAL RESOURCES
The company achieves liquidity by maintaining an appropriate balance between its sources and uses of funds to assure that sufficient funds are available to meet loan demands and deposit fluctuations. The Bank has established a network of community banks to participate out loans to fund large loan request. In addition, the Bank has the ability to draw funds from the Federal Home Loan Bank and three of its correspondent banks to meet liquidity demands. Management is satisfied that BKFC's liquidity is sufficient at June 30, 2001. For purposes of determining a bank's deposit insurance assessment, the FDIC has issued regulations that define a "well capitalized " bank as one with a leverage ratio of 5% or more and a total risk-based ratio of 10% or more. At June 30, 2001, the Bank's leverage and total risk-based ratios were 10.22% and 12.55% respectively, which exceeds the well-capitalized threshold.
The Bank of Kentucky Financial Corporation
PART II
| ITEM 1. | Legal Proceedings | ||||
| None. | |||||
ITEM 2. | Changes in Securities | ||||
| Not applicable. | |||||
| ITEM 3. | Defaults Upon Senior Securities | ||||
| Not applicable | |||||
ITEM 4. | Submission of Matters to a Vote of Security Holders | ||||
| (a) | The Annual Meeting of Stockholders of The Bank of Kentucky Financial Corporation ("BKFC") was held on April 20, 2001. | ||||
| (b) | Not applicable. | ||||
| (b) | To reelect four directors of BKFC for terms expiring in 2004: | ||||
| For | Against/Withheld | Abstentions | |||
Rodney S. Cain | 5,058,781 | 0 | 83,200 | ||
| Wayne Carlisle | 5,089,068 | 0 | 55,241 | ||
| Ruth Seligman Doering | 5,068,483 | 0 | 73,498 | ||
| R. C. Durr | 5,063,231 | 0 | 78,750 | ||
| To ratify the selection of Crowe, Chizek and Company LLP as the auditors of BKFC for the current fiscal year: 5,076,165 for, 38,360 against, and 28,038 abstain. | |||||
| (d) | Not applicable. | ||||
ITEM 5. | Other Information | ||||
| Not applicable | |||||
ITEM 6. | Exhibits and Reports on Form 8 - K | ||||
(a) | Exhibit 99 Safe Harbor under the Private Securities Litigation Reform Act of 1995. | ||||
(b) | The Registrant did not file any reports on Form 8-K during the quarter ended June 30, 2001. | ||||
Pursuant to the requirement of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Date:August 10, 2001 | /s/ Robert W. Zapp |
| Robert W. Zapp President | |
| Date:August 10, 2001 | /s/ Robert D. Fulkerson |
Robert D. Fulkerson |
