FORM 10-QSB
UNITED STATES 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 September 30, 1996
( ) 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 small business issuer as specified in its charter)
Kentucky 61-1256535
- ------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization Identification No.)
1065 Burlington Pike, Florence, Kentucky 41042
----------------------------------------------
(Address of principal executive offices)
(606) 371-2340
------------------------------------------------
(Issuer's telephone number, including area code)
Check whether the issuer (1) has filed all reports required to be filed by
section 13 of 15(d) of the Securities Exchange Act during the past 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 _____
As of October 25, 1996, the latest practicable date, 583,489 shares of the
registrant's common stock, $5.00 per value per share, were issued and
outstanding.
Transitional small business disclosure format:
Yes _____ No __X__
<PAGE>
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 9
The Bank of Kentucky Financial Corporation
Signatures 10
Exhibit 27 Financial Data Schedule 11
<PAGE>
THE BANK OF KENTUCKY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands)
September December 31,
1996 1995
Assets
Cash and Cash Equivalents $ 9,642 $ 11,132
Available-for-sale securities 11,678 8,831
Held-to-maturity securities 14,509 17,034
Total loans 147,878 120,332
Less: Allowances for loan losses 1,698 1,415
--------- ---------
Net Loans 146,180 118,917
Premises and equipment, net 2,370 2,033
FHLB stock, at cost 607 484
Accrued interest receivable 1,280 1,067
Other assets 516 773
--------- ---------
Total assets $ 186,782 $ 160,271
========= =========
Liabilities & Shareholders' Equity
Liabilities
Deposits $ 157,874 $ 136,918
Short-term borrowings 6,716 6,773
Notes payable 4,039 249
Accrued interest payable & other liabilities 1,475 939
--------- ---------
Total liabilities 170,104 144,879
Shareholders' Equity
Common stock 2,917 2,917
Additional paid-in capital 7,478 7,478
Retained earnings 6,374 5,039
Note payable for Employee
Stock Ownership Plan (ESOP) (20) (20)
Net unrealized holding loss on
available-for sale securities (71) (22)
--------- ---------
Total shareholders' equity 16,678 15,392
--------- ---------
Total liabilities and shareholders'
equity $ 186,782 $ 160,271
========= =========
See accompanying notes to consolidated financial statements
-1-
<PAGE>
<TABLE>
THE BANK OF KENTUCKY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands' except per share data)
Three Months Nine Months
Ended Ended
September 30 September 30
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 3,249 $ 2,679 $ 9,047 $ 7,718
Interest on securities 441 450 1,333 1,134
--------- --------- --------- ---------
Total interest income 3,690 3,129 10,380 8,852
--------- --------- --------- ---------
INTEREST EXPENSE
Interest on deposits 1,652 1,538 4,688 4,110
Interest on borrowings 137 145 374 439
--------- --------- --------- ---------
Total interest expense 1,789 1,683 5,062 4,549
--------- --------- --------- ---------
Net interest income 1,901 1,446 5,318 4,303
Provision for loan losses (135) (42) (309) (243)
--------- --------- --------- ---------
Net interest income after
provision for loan losses 1,766 1,404 5,009 4,060
--------- --------- --------- ---------
Non-interest income
Service charges and fees
on deposit accounts 116 82 327 231
Gain/(loss) on securities 0 0 0 0
Other income 66 50 233 99
--------- --------- --------- ---------
Total non-interest income 182 132 560 330
Non-interest expense
Salaries and benefits 561 397 1,649 1,197
Occupancy and equipment, net 213 184 649 552
FDIC insurance 60 (2) 72 127
Computer service expense 59 57 151 149
Other operating expenses 274 244 783 888
--------- --------- --------- ---------
Total non-interest expense 1,167 880 3,304 2,913
--------- --------- --------- ---------
Income before income taxes 781 656 2,265 1,477
Less: income taxes (268) (217) (785) (594)
--------- --------- --------- ---------
Net income $ 513 $ 439 $ 1,480 $ 883
========= ========= ========= =========
Earnings per share (Note 4) $ 0.88 $ 0.77 $ 2.54 $ 1.70
Average shares outstanding 583,489 567,480 583,489 520,653
See accompanying notes to consolidated financial statements
-2-
</TABLE>
<PAGE>
THE BANK OF KENTUCKY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Dollars in thousands)
1996 1995
---- ----
Balance January 1 $ 15,392 $12,058
Net income 1,480 883
Exercise of stock options 2,193
Cash Dividends Paid (145) 0
Change in net unrealized holding
gain/(loss) on available-for-sale
securities (49) 100
-------- -------
Balance September 30 $ 16,678 $15,234
======== =======
See accompanying notes to consolidated financial statements
-3-
<PAGE>
THE BANK OF KENTUCKY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
For the nine months ended Sept. 30: 1996 1995
---- ----
Cash Flows from Operating Activities
Net income $ 1,480 $ 883
Adjustments to reconcile net income to net
cash from operating activities 1,121 (833)
-------- --------
Net cash from operating activities 2,601 50
Cash Flows from Investing Activities
Proceeds from paydowns and maturities
of held-to-maturity securities 4,065 3,656
Proceeds from paydowns and maturities
of available-for-sale securities 4,581 3,100
Purchases of held-to-maturity securities (1,555) (8,820)
Purchases of available-for-sale securities (7,496) (3,660)
Net change in loans (27,572) (10,087)
Purchase stock in FHLB (123) (60)
Property and equipment expenditures (535) (163)
-------- --------
Net cash from investing activities (28,635) (16,034)
Cash Flows from Financing Activities
Net change in deposits 20,956 20,613
Net change in short-term borrowings (57) 2,276
Proceeds from FHLB advance 26,900 11,185
Payments on FHLB advances (23,100) (14,260)
Proceeds from exercise of
stock options 0 2,193
Cash dividends paid (145) 0
Payments on note payable (10) (8)
-------- --------
Net cash from financing activities 24,544 21,999
-------- --------
Net change in cash and cash equivalents (1,490) 6,015
Cash and cash equivalents at beginning
of period 11,132 7,702
-------- --------
Cash and cash equivalents at end of
period $ 9,642 $ 13,717
======== ========
See accompanying notes to consolidated financial statements
-4-
<PAGE>
THE BANK OF KENTUCKY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
Note 1 - Basis of Presentation:
The consolidated financial statements include the accounts of The Bank of
Kentucky Financial Corporation (the Company), The Bank of Kentucky (formerly
the Bank of Boone County) (the Bank) and Burnett Federal Savings Bank
(Burnett) and give retroactive effect to the reorganization and acquisition
that occurred during 1995. During 1994, the Bank and Burnett entered into a
definitive agreement whereby both entities would become subsidiaries of the
Company. BKFC formed two wholly owned financial institution subsidiaries and,
on April 1, 1995, one was merged with and into the Bank and the other was
merged with and into Burnett.
The transaction was accounted for using the pooling of interests method of
accounting for business combinations and, accordingly, the assets and
liabilities of the Bank and Burnett are included in these financial statements
at historical cost and the results of operations of these two companies are
combined for all periods presented. Prior to April 1, 1995, the Company
conducted no business and had no assets or liabilities.
On October 1, 1995, Burnett was merged into the Bank and the combined entity
changed its name to The Bank of Kentucky.
Note 2 - General
These financial statements were prepared in accordance with the instructions
for Form 10Q-SB 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 the adoption of the required accounting changes
described in Note 3, 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 - Accounting Changes
Effective January 1, 1995, the Company adopted Financial Accounting Standard
No. 114, "Accounting by Creditors for the Impairment of a Loan," as amended by
FAS 118. Pursuant to this Standard, loans considered to be impaired are
reduced to the present value of expected future cash flows or to the fair
value of collateral, by allocating a portion of the allowance for loan losses
to such loans. Loans are deemed impaired when management concludes that it is
probable that the customer will be unable to comply with the contractual terms
-5-
<PAGE>
of their loan, with respect to the timing and amount of required payments.
Management evaluates loans for impairment in conjunction with the quarterly
evaluation of the allowance for loan losses. Generally, such evaluation is
limited to large commercial and commercial real estate loans. Consumer loans
and mortgage loans secured by 1 to 4 family residential property are generally
not evaluated for impairment. Application of this Standard on January 1, 1995
did not result in any loans being designated as impaired.
Effective January 1, 1996 the Company adopted Financial Accounting Standard
No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of." Management does not believe the Company
has any assets subject to this new Standard.
Effective January 1, 1996 the Company adopted Financial Accounting Standard
No. 122, "Accounting for Mortgage Servicing Rights." This Standard requires
the basis of mortgage loans originated and sold, with servicing retained, to
be allocated between the mortgage loan and the mortgage servicing right, based
upon the relative fair value of such assets. The Company does not currently
engage in transactions that this Statement would apply to.
Effective January 1, 1996 the Company adopted Financial Accounting Standard
No. 123, "Accounting for Stock Based Compensation." This Standard encourages,
but does not require, entities to use a fair value based method to account for
stock-based compensation plans. If fair value accounting is not adopted,
entities must disclose the pro-forma effect on net income and earnings per
share, had fair value accounting been adopted. The Company has not issued any
stock options to which this guidance would apply.
Note 4 - Earnings per Share
Earnings per share have been computed based upon the weighted average number
of shares outstanding during the periods presented, adjusted for the business
combination.
-6-
<PAGE>
THE BANK OF KENTUCKY FINANCIAL CORPORATION
Management's Discussion and Analysis of Financial Condition
and the Results of Operations
September 30, 1996
FINANCIAL CONDITION
Total assets at September 30, 1996 were $186,782,000 compared to $160,271,00
at December 31, 1995, an increase of $26,511,000 (16.5%). Loans increased by
$8,939,000(6.4%) in the third quarter to $147,878,000 compared to $138,939,000
at June 30,1996. This growth was funded by an increase in deposits of
$9,573,000 (6.5%) in the third quarter from $148,301,000 at June 30,1996 to
$157,874,000 at September 30,1996. The growth in the third quarter continued
the trend through 1996. During the year, loans have increased 22.9%
($27,546,000), funded primarily by a 15.3% ($20,956,000) increase in deposits.
RESULTS OF OPERATION
GENERAL
Net income year to date increased significantly from $883,000 in 1995 to
$1,480,000 in 1996, an increase of $597,000 (67.6%). Net income for the
quarter ended September 30,1996 was $513,000 ($.88 per share) compared to
$439,000 ($.77 per share) during the same period in 1995 an increase of
$74,000. The dramatic increase in earnings was primarily due to an increase in
net interest income from $4,303,000 in 1995 to $5,318,000 in 1996 driven by
increased volune.
NET INTEREST INCOME
Net interest income continued to improve with an increase of $455,000 (31.5%)
in the third quarter of 1996 over the same period in 1995, while the
year-to-date total increased $1,015,000 (23.6%) from $4,303,000 in 1995 to
$5,318,000 in 1996. This large increase was primarily due to an increase in
volume of interest earning assets especially in the loan portfolio.
LOAN LOSS PROVISION
The loan loss provision was $309,000 for the nine months ended September
30,1996 compared to $243,000 recorded during the same period in 1995. The
increased provision is driven by loan growth and reflects managements's desire
to maintain the allowance at a consistent level. The allowance as a precent of
total loans is 1.15% at September 30, 1996 compared to 1.18% at December 31,
1995. Despite the significant loan growth, asset quality has remained good.
The Bank has incurred net chargeoffs of only $26,000 through September 30,
1996. The ratio of non-performing loans to total loans outstanding was at .09%
at September 30,1996. Based on their quarterly analysis of the loan portfolio,
management is satisfied that the allowance for loan losses is adequate at
September 30, 1996.
-7-
<PAGE>
NON INTEREST INCOME
Non interest income increase sharply during the nine month period ending
September 30, 1996 from $330,000 in 1995 to $560,000 in 1996. This was due to
an increase in both service charges on deposits and other fee income. Other
fee income increased $134,000, from $99,000 for the period ending September
30,1995 to $233,000 for the same period in 1996. This increase was driven by
an increase in gains on mortgage loans sold in the secondary market and fees
on SBA loans sold in secondary market. Service charge on deposits increased
$96,000, from $231,000 for the period ending September 30,1995 to $327,000 for
the same period in 1996.
NON INTEREST EXPENSE
Non interest expense increased during the nine month period ending September
30,1996 from $2,913,000 in 1995 to $3,304,000 in 1996 an increase of
$391,000(13.4%). This increase was primarily due to salaries and employee
benefits which increased from $1,197,000 in 1995 to $1,649,000 in 1996 an
increase of $452,000 (37.8%). Occupancy and equipment expenses increased
$97,000 (17.6%) in the first nine months of 1996 to $649,000 from $552,000 in
1995. The opening of new branches in November 1995 and April 1996 drove the
increase in salary and benefits and occupancy expense. During the quarter
ended September 30, 1996, the Bank recorded a $54,000 one time charge related
to Burnett's deposit account. These accounts (approximately $8 million of
includable deposits) were insured by the Savings Association Insurance Fund.
Legislation enacted on September 30, 1996 required the Bank to pay an
assessment of $.67 per hundred dollars of those deposits. Prospectively, in
1997 , the deposit insurance that the Bank pays on these deposits is expected
to decline from $.23 per hundred dollars to $.07 per hundred dollars.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is the company's ability to meet its customers' present and future
withdrawals and changes in loan demand. Liquidity is maintained by providing
sufficient cash and assets readily convertible to cash to meet loan demand and
deposit fluctuation. The Company provides for liquidity through growth in
deposits and alternate sources of funding. During the third quarter, the Bank
increased its ability to draw funds from the Federal Home Loan Bank from
$5,000,000 to $10,000,000.
The Corporation's total shareholders' equity increased $1,286,000 from
$15,392,000 at December 31,1995 to $16,678,000 at September 30,1996. At
September 30,1996 the Bank's total risk based capital ratio was 12.33% which
is above the 10% threshold established by the FDIC to be designated a well
capitalized bank.
-8-
<PAGE>
The Bank of Kentucky Financial Corporation
PART II
ITEM 1. Legal Proceedings
Not applicable
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
Not applicable
ITEM 5. Other Information
Not applicable
ITEM 6. Exhibits and Reports on Form 8-K
Not applicable
-9-
<PAGE>
SIGNATURES
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 thereunto duly authorized.
Date: November 11, 1996 /s/ Robert W. Zapp
--------------------- -------------------
Robert W. Zapp
President
Date: November 11, 1996 /s/ Robert D. Fulkerson
--------------------- -------------------
Robert D. Fulkerson
Treasurer (Chief Financial Officer)
-10-
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 8,452
<INT-BEARING-DEPOSITS> 685
<FED-FUNDS-SOLD> 505
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 11,678
<INVESTMENTS-CARRYING> 14,509
<INVESTMENTS-MARKET> 14,530
<LOANS> 147,878
<ALLOWANCE> 1,698
<TOTAL-ASSETS> 186,782
<DEPOSITS> 157,874
<SHORT-TERM> 6,716
<LIABILITIES-OTHER> 1,475
<LONG-TERM> 4,039
0
0
<COMMON> 2,917
<OTHER-SE> 13,761
<TOTAL-LIABILITIES-AND-EQUITY> 186,782
<INTEREST-LOAN> 9,047
<INTEREST-INVEST> 1,333
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 10,380
<INTEREST-DEPOSIT> 4,688
<INTEREST-EXPENSE> 5,062
<INTEREST-INCOME-NET> 5,318
<LOAN-LOSSES> 309
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,304
<INCOME-PRETAX> 2,265
<INCOME-PRE-EXTRAORDINARY> 2,265
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,480
<EPS-PRIMARY> 2.54
<EPS-DILUTED> 2.54
<YIELD-ACTUAL> 8.24
<LOANS-NON> 43
<LOANS-PAST> 94
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 137
<ALLOWANCE-OPEN> 1,415
<CHARGE-OFFS> 27
<RECOVERIES> 1
<ALLOWANCE-CLOSE> 1,698
<ALLOWANCE-DOMESTIC> 1,698
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
