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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, 2001
[ ] 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: (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 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, 2001, the latest practicable date, 6,158,339 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 7
The Bank of Kentucky Financial Corporation
Part II 10
The Bank of Kentucky Financial Corporation
Signatures 11
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THE BANK OF KENTUCKY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(DOLLARS IN THOUSANDS)
MARCH 31 DECEMBER 31
2001 2000
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ASSETS (UNAUDITED)
Cash and cash equivalents $ 38,884 $ 22,248
Available-for-sale securities 28,130 22,633
Held-to-maturity securities 21,398 29,740
Loans held for sale 2,236 0
Total loans 374,336 384,081
Less: Allowances for loan losses 3,850 3,806
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Net loans 370,486 380,275
Premises and equipment, net 6,254 6,223
FHLB stock, at cost 3,359 3,359
Accrued interest receivable and other assets 5,804 5,651
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Total assets $ 476,551 $ 470,129
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LIABILITIES & SHAREHOLDERS' EQUITY
LIABILITIES
Deposits $ 407,448 $ 393,721
Short-term borrowings 3,760 12,643
Notes payable 12,109 12,174
Accrued interest payable and other liabilities 3,931 3,814
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Total liabilities 427,248 422,352
SHAREHOLDERS' EQUITY
Common stock 3,098 3,098
Additional paid-in capital 14,553 14,538
Retained earnings 31,843 30,446
Unearned compensation (335) (335)
Accumulated other comprehensive income 144 30
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Total shareholders' equity 49,303 47,777
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Total liabilities and shareholders' equity $ 476,551 $ 470,129
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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, 2001 AND 2000
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
2001 2000
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INTEREST INCOME
Loans, including related fees $ 8,542 $ 7,466
Securities and other 882 893
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Total interest income 9,424 8,359
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INTEREST EXPENSE
Deposits 4,769 3,717
Borrowings 255 511
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Total interest expense 5,024 4,228
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Net interest income 4,400 4,131
Provision for loan losses 86 219
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Net interest income after
Provision for loan losses 4,314 3,912
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NON-INTEREST INCOME
Service charges and fees 415 379
Gain/(loss) on securities 67 0
Gain on loans sold 239 46
Other 309 209
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Total non-interest income 1,030 634
NON-INTEREST EXPENSE
Salaries and benefits 1,352 1,275
Occupancy and equipment 495 468
Data processing 215 194
Advertising 81 75
Other operating expenses 713 791
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Total non-interest expense 2,856 2,803
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INCOME BEFORE INCOME TAXES 2,488 1,743
Less: income taxes 782 545
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NET INCOME $ 1,706 $ 1,198
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Earnings per share $ 0.28 $ 0.20
Earnings per share, assuming dilution $ 0.28 $ 0.19
Dividends per share $ 0.05 $ 0.04
See accompanying notes
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THE BANK OF KENTUCKY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
(UNAUDITED)
2001 2000
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Balance January 1 $ 47,777 $ 42,584
Comprehensive Income:
Net Income 1,706 1,198
Change in net unrealized gain/(loss) 114 (92)
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Total Comprehensive Income 1,820 1,106
Cash dividends paid (309) (211)
Benefit plan amortization 0 106
Exercise of stock options (including tax benefits of $3 and $18) 15 68
Adjustments related to merger 0 232
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Balance March 31 $ 49,303 $ 43,885
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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)
(UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31 2001 2000
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,706 $ 1,198
Adjustments to reconcile net income to net cash
From operating activities 154 (100)
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Net cash from operating activities 1,860 1,098
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from paydowns and maturities of
Held-to-maturity securities 8,541 14
Proceeds from paydowns and maturities of
Available-for-sale securities 10,988 -
Purchases of held-to-maturity securities (205) (1095)
Purchases of available-for-sale securities (16,296) (2,500)
Net change in loans 7,467 (17,744)
Property and equipment expenditures (201) (260)
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Net cash from investing activities 10,294 (21,585)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits 13,727 6,708
Net change in short-term borrowings (8,883) 11,846
Proceeds from exercise of stock options 12 50
Cash dividends paid (309) (211)
Payments on note payable (65) (6)
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Net cash from financing activities 4,482 18,387
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Net change in cash and cash equivalents 16,636 (2,100)
Cash and cash equivalents at beginning of period 22,248 19,407
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Cash and cash equivalents at end of period $ 38,884 $ 17,307
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See accompanying notes
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THE BANK OF KENTUCKY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
NOTE 1 - BASIS OF PRESENTATION:
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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. The results of operations of the separate companies are
combined and presented for the three month period ended March 31, 2000. FTFC's
results of operations for the three months ended December 31, 1999 are not
included in these financial statements. Net income for that period was $232,000
and 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. The following table presents the combination of
the operating results for the 2000 period included in these financial statements
(dollars in thousands):
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COMPANY FTFC COMBINED
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THREE MONTHS ENDED MARCH 30, 2000:
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Net interest income $ 3,197 $ 934 $ 4,131
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Net income 995 203 1,198
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NOTE 2 - GENERAL:
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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. Except for
required accounting changes, 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.
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NOTE 3 - EARNINGS PER SHARE:
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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 number of shares used to compute basic and diluted earnings
per share for the indicated periods:
Three Months
Ended
March 31
2001 2000
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Weighted Average Shares Outstanding 6,158,236 6,102,970
Shares used to compute diluted
Earnings per share 6,184,660 6,198,125
NOTE 4 - NEW ACCOUNTING PRONOUNCEMENTS:
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Effective January 1, 2001, a new accounting standard required all derivatives to
be recorded at fair value. Unless designated as hedges, changes in fair value
are recorded in the income statement. Fair value changes involving hedges are
recorded by offsetting gains and losses on the hedge and on the hedge item, even
if the fair value of the hedged item is not otherwise recorded. Adoption of this
standard did not have a material effect on the Company.
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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, 2001
FINANCIAL CONDITION
Total assets at March 31, 2001 were $476,551,000 compared to $470,129,000 at
December 31, 2000, an increase of $6,422,000 (1.37%). Deposits increased
$13,727,000 (3.49%) to $407,448,000 at March 31, 2001 compared to $393,721,000
at December 31, 2000 resulting in a decrease in short-term borrowings of
$8,883,000 (-70.26%) to $3,760,000 at March 31,2001 from $12,643,000 December
31, 2000. Loans outstanding decreased $9,745,000 (-2.54%) from $384,081,000 at
December 31, 2000 to $374,336,000 at March 31, 2001. Funds generated by the
decrease in loans outstanding and the deposit growth increased overnight federal
funds to $18,638,000 at March 31, 2001 from $0 at December 31, 2000.
RESULTS OF OPERATIONS
GENERAL
Net income increased $508,000 (42.40%) in the first quarter of 2001 to
$1,706,000 ($.28 per share), compared to $1,198,000 ($.20 per share) for the
same period in 2000. Improved net interest income, a lower provision, and a
62.46% increase in non-interest income contributed to the increased earnings.
NET INTEREST INCOME
Net interest income for the first quarter of 2001 increased to $4,400,000, an
increase of $269,000 (6.51%) compared to $4,131,000 for the same period in 2000.
An increase of $24,545,000 in loans outstanding, compared to March 31, 2000,
drove the $269,000 (6.51%) increase in net interest income, partially offset by
a .04% decrease in the net interest margin.
PROVISION FOR LOAN LOSSES
The provision for loan losses was $86,000 for the three months ending March 31,
2001, a decrease of $133,000 compared to the $219,000 provision recorded during
the same period in 2000. Lower net charge-offs, fewer non-performing loans and a
decline in loans outstanding of $9,745,000, from $384,081,000 at December 31,
2000 to $373,336,000 at March 31, 2001, contributed to the lower provision for
loan losses. At March 31, 2001 the Bank had $3,167,000 in non-performing loans
or .85% of total loans outstanding,
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compared to $4,989,000 at December 31, 2000. Net charge-offs, year to date 2001
were $41,000 compared to $117,000 in 2000. Management believes the reserve, at
1.03% of loans, was adequate at March 31, 2001.
NON-INTEREST INCOME
Total non-interest income increased $396,000 during the first quarter of 2001
from $634,000 in 2000 to $1,030,000 in 2001. The increase was driven by fee
income from the sale of mortgage loans into the secondary market, which
increased $193,000 in the first quarter of 2001 to $239,000 from $46,000 for the
same period last year. The increase was due to a decrease 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 2001, 173 loans with a principal balance of $20.3 million were
sold compared to 31 loans with a principal balance of $5.2 million during the
same period in 2000. Loans held for sale at March 31, 2001 increased to
$2,236,000 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. The Bank also realized a gain of
$67,000 on the sale of $6,500,000 in available for sale securities. These
securities were replaced with bonds in the two to three year maturity range.
Other fee income increased $100,000 (47.84%) to $309,000 for the first quarter
of 2001 compared to $209,000 for the same period in 2000. Increases in letter of
credit fees, ATM surcharge fees, and debit card interchange fees accounted for
$58,000 of the increase.
NON-INTEREST EXPENSE
Non-interest expense increased only slightly to $2,856,000 in the first quarter
of 2001 from $2,803,000 in 1999, an increase of $53,000 (1.89%). The change was
driven by increases in salaries and benefits. Salaries and benefits increased
$77,000 (6.04%) in the first quarter of 2001 to $1,352,000 compared to
$1,275,000 for the same period in 2000. Most of the increase was due to annual
merit increases. Other operating expenses decreased to $713,000 in the first
quarter of 2001, from $791,000 for the same period in 2000, a decrease of
$78,000 (-9.86%). Savings from the merger of the two companies accounted for the
decrease.
INCOME TAX EXPENSE
Income tax expense increased due to higher income before taxes. The effective
tax rate was stable at just over 31%.
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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, 2001.
The company's total shareholders' equity increased $1,526,000, from $47,777,000
at December 31, 2000 to $49,303,000 at March 31, 2001. In the first quarter of
2001 the Company paid a cash dividend of $.05 per share totaling $309,000.
On March 16, 2001 the Company's Board of Directors approved the repurchase of up
to 2% of the outstanding common shares of the Company in the over-the-counter
market during the twelve months following the public release of the Company's
earnings for the first quarter of 2001. The timing and terms of any repurchase
transactions will be determined by management based upon a number of factors.
Any repurchases will be funded, as needed, by dividends from the Bank. As of the
date of this report, no shares had yet been repurchased.
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,
2001, the Bank's leverage and total risk-based ratios were 10.26 and 12.49
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 99 Safe Harbor under the Private Securities Litigation
Reform Act of 1995.
(a) The registrant did not file any reports on Form 8-K during the
quarter ended March 31, 2001.
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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, 2001 /s/ Robert W. Zapp
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Robert W. Zapp
President
Date: May 9, 2001 /s/ Robert D. Fulkerson
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Robert D. Fulkerson
Treasurer (Chief Financial Officer)