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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 March 31, 2000
[ ] 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
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THE BANK OF KENTUCKY FINANCIAL CORPORATION
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(Exact name of registrant as specified in its charter)
Kentucky 61-1256535
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1065 Burlington Pike, Florence, Kentucky 41042
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (606) 371-2340
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Indicate by checkmark whether the registrant (1) 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
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As of May 01, 2000, the latest practicable date, 5,292,427 shares of the
Registrant's Common Stock, no par value, were issued and outstanding.
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THE BANK OF KENTUCKY FINANCIAL CORPORATION
INDEX
FINANCIAL INFORMATION PAGE
The Bank of Kentucky Financial Corporation
Consolidated Statements of Financial Condition 1
The Bank of Kentucky Financial Corporation
Consolidated Statements of Income 2
The Bank of Kentucky Financial Corporation
Consolidated Statements of Changes
in Shareholders' Equity 3
The Bank of Kentucky Financial Corporation
Consolidated Statements of Cash Flows 4
The Bank of Kentucky Financial Corporation
Notes to Consolidated Financial Statements 5
The Bank of Kentucky Financial Corporation
Management's Discussion and Analysis of
Financial Condition and Results of Operations 6
The Bank of Kentucky Financial Corporation
Part II 9
The Bank of Kentucky Financial Corporation
Signatures 10
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THE BANK OF KENTUCKY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(DOLLARS IN THOUSANDS)
MARCH 31 DECEMBER 31
2000 1999
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ASSETS
Cash and cash equivalents $ 16,522 $ 18,684
Interest bearing deposits with banks 1,000 1,000
Available-for-sale securities 26,199 23,832
Held-to-maturity securities 27,787 26,730
Loans held for sale 532 426
Total loans 261,850 243,700
Less: Allowances for loan losses 2,821 2,643
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Net loans 259,029 241,057
Premises and equipment, net 4,578 4,466
FHLB stock, at cost 2,211 2,173
Accrued interest receivable and other assets 4,920 4,042
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Total assets $ 342,778 $ 322,410
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LIABILITIES & SHAREHOLDERS' EQUITY
LIABILITIES
Deposits $ 281,905 $ 272,718
Short-term borrowings 28,795 18,695
Notes payable 497 503
Accrued interest payable and other liabilities 1,900 1,572
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Total liabilities 313,097 293,488
SHAREHOLDERS' EQUITY
Common stock 3,148 3,098
Additional paid-in capital 7,803 7,785
Retained earnings 19,060 18,277
Accumulated other comprehensive income (330) (238)
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Total shareholders' equity 29,681 28,922
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Total liabilities and shareholders' equity $ 342,778 $ 322,410
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See accompanying notes
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THE BANK OF KENTUCKY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
INTEREST INCOME 2000 1999
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Loans, including related fees $ 5,593 $ 4,583
Securities and other 772 698
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Total interest income 6,365 5,281
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INTEREST EXPENSE
Deposits 2,909 2,350
Borrowings 259 158
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Total interest expense 3,168 2,508
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Net interest income 3,197 2,773
Provision for loan losses 190 120
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Net interest income after
Provision for loan losses 3,007 2,653
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NON-INTEREST INCOME
Service charges and fees 360 298
Gain/(loss) on securities 0 0
Gain on loans sold 46 134
Other 176 144
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Total non-interest income 582 576
NON-INTEREST EXPENSE
Salaries and benefits 1,005 784
Occupancy and equipment 420 356
Data processing 140 109
Advertising 75 63
Other operating expenses 512 361
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Total non-interest expense 2,152 1,673
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INCOME BEFORE INCOME TAXES 1,437 1,556
Less: income taxes 442 494
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NET INCOME $ 995 $ 1,062
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Earnings per share $ 0.19 $ 0.20
Earnings per share, assuming dilution $ 0.19 $ 0.20
See accompanying notes
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THE BANK OF KENTUCKY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
2000 1999
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Balance January 1 $ 28,922 $ 24,448
Comprehensive Income:
Net Income 995 1,062
Change in net unrealized gain/(loss) (92) (43)
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Total Comprehensive Income 903 1,019
Cash dividends paid (212) (211)
Exercise of stock options (including tax benefits of $18 and $23) 68 76
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Balance March 31 $ 29,681 $ 25,332
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See accompanying notes
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THE BANK OF KENTUCKY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
FOR THE THREE MONTHS ENDED MARCH 31 2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 995 $ 1,062
Adjustments to reconcile net income to net cash
From operating activities (206) 541
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Net cash from operating activities 789 1,603
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from paydowns and maturities of
Held-to-maturity securities 0 3,000
Proceeds from paydowns and maturities of
Available-for-sale securities 14 579
Purchases of held-to-maturity securities (1,056) (504)
Purchases of available-for-sale securities (2,500) (1,916)
Net change in loans (18,268) (5,348)
Purchase stock in FHLB 0 0
Property and equipment expenditures (260) (716)
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Net cash from investing activities (22,070) (4,905)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits 9,187 (4,820)
Net change in short-term borrowings 10,100 5,493
Proceeds from exercise of stock options 50 53
Cash dividends paid (212) (211)
Payments on note payable (6) (5)
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Net cash from financing activities 19,119 510
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Net change in cash and cash equivalents (2,162) (2,792)
Cash and cash equivalents at beginning of period 18,684 17,583
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Cash and cash equivalents at end of period $ 16,522 $ 14,791
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See accompanying notes to consolidated financial statements
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THE BANK OF KENTUCKY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
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.
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 quarter, which were 5,291,082 and 5,276,468 for 2000 and
1999. 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. For 2000 and 1999, this would result in there being an additional 45,927
and 36,554 shares outstanding, respectively.
NOTE 4 - PENDING ACQUISITION
On December 21, 1999, the Company entered into an Agreement and Plan of
Reorganization (the "Agreement") with Fort Thomas Financial Corporation ("FTFC")
and its subsidiary, Fort Thomas Savings Bank, FSB, ("FSB"). The Agreement
provides for the merger of FTFC with and into the Company and the immediately
subsequent merger of FSB with and into the Bank. The Agreement provides for each
of the outstanding shares of FTFC to be exchanged for .5645 share of the
Company. At December 31, 1999, FTFC had total assets of $99,678, total loans of
$88,345, total deposits of $67,324 and total equity of $13,966. The merger is
expected to be accounted for as a pooling of interests. Consummation of the
merger is subject to a number of conditions, including, but not limited to, the
approval of the appropriate regulatory agencies and the approval of the
requisite number of shareholders of FTFC and FSB. A special shareholders meeting
of FTFC shareholders has been set for May 23, 2000. The Agreement may be
terminated by the Board of Directors of either party in the event that certain
representations or warranties made by the parties in the Agreement are not true
in any material respect or in the event certain conditions contained in the
Agreement are not fulfilled, including the failure of the merger to be
consummated on or before September 30, 2000.
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THE BANK OF KENTUCKY FINANCIAL CORPORATION
Management's Discussion and Analysis of Financial Condition
and the Results of Operations
March 31, 2000
FINANCIAL CONDITION
Total assets at March 31,2000 were $342,778,000 compared to $322,410,000 at
December 31, 1999, an increase of $20,368,000 (6.32%). The increase was fueled
by an increase in total loans outstanding of $18,150,000 (7.45%), from
$243,700,000 at December 31, 1999 to $261,850,000 at March 31, 2000. The
increase was funded by increases in deposits and short-term borrowings. Deposits
increased $9,187,000 (3.37%) to $281,905,000 at March 31, 2000 compared to
$272,718,000 at December 31, 1999. Short-term borrowings increased $10,100,000
(54.03%), from $18,695,000 at December 31, 1999 to $28,795,000 at March 31,
2000.
RESULTS OF OPERATIONS
GENERAL
Net income decreased $67,000 (6.30%) in the first quarter of 2000 to $995,000
($.19 per share), compared to $1,062,000 ($.20 per share) for the same period in
1999. This decrease was driven primarily by merger and acquisition expenses of
$95,000 related to the proposed acquisition of Fort Thomas Financial
Corporation.
NET INTEREST INCOME
Net interest income for the first quarter of 2000 increased to $3,197,000,
compared to $2,773,000 for the same period in 1999. An increase of $18,150,000
in loans outstanding drove the $424,000 (15.3%) increase in net interest income,
partially offset by a .10% decrease in the net interest margin.
PROVISION FOR LOAN LOSSES
The provision for loan losses was $190,000 for the three months ending March 31,
2000, an increase of $70,000 compared to the $120,000 provision recorded during
the same period in 1999. At March 31, 2000 the Bank had $1,404,000 in
non-performing loans or .54% of total loans outstanding, compared to $971,000 at
December 31, 1999. Net charge-offs, year to date were only $12,000. Management
believes the reserve, at 1.08% of loans, was adequate at March 31, 2000.
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NON-INTEREST INCOME
Total non-interest income increased $6,000 during the first quarter of 2000 from
$576,000 in 1999 to $582,000 in 2000. Service charges on deposit accounts
totaled $360,000 for the first quarter of 2000, compared to $298,000 for the
same period in 1999; an increase of $62,000 (20.8%), driven by increased volume.
Other fee income increased $32,000 to $176,000 for the first quarter of 2000
compared to $144,000 for the same period in 1999. Fee income from the sales of
mortgage loans into the secondary market decreased $88,000 in the first quarter
of 2000 to $46,000 from $134,000 for the same period last year. The decrease was
due to a slight increase in mortgage loan rates compared to this period last
year. The Bank originates fixed rate first mortgage loans and sells them,
service released, into the secondary market. During the first quarter of 2000,
31 loans with a principal balance of $5.2 million were sold compared to 69 loans
with a principal balance of $9.9 million during the same period in 1999. Loans
held for sale at March 31, 2000 increased to $532,000 from $426,000 at December
31, 1999. 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 increased to $2,152,000 in the first quarter of 2000 from
$1,673,000 in 1999, an increase of $479,000 (28.6%). The change was driven by
increases in salaries and benefits and occupancy and equipment expense. Salaries
and benefits increased $221,000 (28.2%) in the first quarter of 2000 to
$1,005,000 compared to $784,000 for the same period in 1999. Most of the
increase was due to annual merit increases and an increase in staffing
associated with the opening of new branches in the last quarter of 1999 and the
first quarter of 2000. Occupancy and equipment expense increased $64,000 (18.0%)
to $420,000 through March 31,2000 compared to $356,000 for the same period in
1999. The increase was due to expenses associated with the opening of branches
in the last quarter of 1999 and the first quarter of 2000. Other operating
expenses increased to $512,000 in the first quarter of 2000, from $361,000 for
the same period in 1999, an increase of $151,000 (41.8%). Expenses related to
the proposed merger accounted for $95,000 of the increase.
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INCOME TAX EXPENSE
Income tax expense decreased by $52,000 (10.5%) in the first quarter of 2000
compared to 1999. The decrease was primarily due to lower income before tax and
a decrease in the effective tax rate to 30.8% for 2000 from 31.7% for 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Bank 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 the ability to draw funds
from the Federal Home Loan Bank and two of its correspondent banks to meet
liquidity demands. Management is satisfied that the Company's liquidity is
sufficient at March 31, 2000.
The company's total shareholders' equity increased $759,000, from $28,922,000 at
December 31, 1999 to $29,681,000 at March 31, 2000. In the first quarter of 2000
the Company paid a cash dividend of $.04 per share totaling $212,000. 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 March 31,
2000, the Bank's leverage and total risk-based ratios were 8.99% and 11.88%
respectively, which exceed the well-capitalized thresholds.
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THE BANK OF KENTUCKY FINANCIAL CORPORATION
PART II
ITEM 1. Legal Proceedings
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Not applicable
ITEM 2. Changes in Securities and Use of Proceeds
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Not applicable
ITEM 3. Defaults Upon Senior Securities
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Not applicable
ITEM 4. Submission of Matters to a Vote of Security Holders
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Not applicable
ITEM 5. Other Information
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Not applicable
ITEM 6. Exhibits and Reports on Form 8 - K
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(a) Exhibit 27 Financial Data Schedule.
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 March 31, 2000.
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SIGNATURES
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Pursuant to the requirements 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: May 9, 2000 /s/ Robert W. Zapp
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Robert W. Zapp
President
Date: May 9, 2000 /s/ Robert D. Fulkerson
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Robert D. Fulkerson
Treasurer (Chief Financial Officer)