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 June 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 July 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
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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 ................................................................. 9
The Bank of Kentucky Financial Corporation
Signatures .............................................................. 10
Exhibit 27 Financial Data Schedule ..................................... 11
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THE BANK OF KENTUCKY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands)
June 30, December 31,
1996 1995
Assets
Cash and Cash Equivalents ........................ $ 8,925 $ 11,132
Available-for-sale securities .................... 10,295 8,831
Held-to-maturity securities ...................... 14,805 17,034
Total loans ...................................... 138,939 120,332
Less: Allowances for loan losses ............... 1,562 1,415
--------- ---------
Net Loans ................................ 137,377 118,917
Premises and equipment, net ...................... 2,197 2,033
FHLB stock, at cost .............................. 598 484
Accrued interest receivable ...................... 1,235 1,067
Other assets ..................................... 507 773
--------- ---------
Total assets ................................... $ 175,939 $ 160,271
========= =========
Liabilities & Shareholders' Equity
Liabilities
Deposits ......................................... $ 148,301 $ 136,918
Short-term borrowings ............................ 7,011 6,773
Notes payable .................................... 3,242 249
Accrued interest payable & other liabilities ..... 1,209 939
--------- ---------
Total liabilities .............................. 159,763 144,879
Shareholders' Equity
Common stock ..................................... 2,917 2,917
Additional paid-in capital ....................... 7,478 7,478
Retained earnings ................................ 5,861 5,039
Note payable for Employee
Stock Ownership Plan (ESOP) .................... (20) (20)
Net unrealized holding loss on
available-for sale securities ................... (60) (22)
--------- ---------
Total shareholders' equity ..................... 16,176 15,392
--------- ---------
Total liabilities and shareholders'
equity .......................................... $ 175,939 $ 160,271
========= =========
See accompanying notes to consolidated financial statements
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<TABLE>
THE BANK OF KENTUCKY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands' except per share data)
Three Months Six Months
Ended Ended
June 30 June 30
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans .. $ 3,015 $ 2,538 $ 5,798 $ 4,890
Interest on securities ...... 399 343 892 684
--------- --------- --------- ---------
Total interest income .... 3,414 2,881 6,690 5,574
--------- --------- --------- ---------
INTEREST EXPENSE
Interest on deposits ........ 1,507 1,382 3,036 2,572
Interest on borrowings ...... 133 154 237 294
--------- --------- --------- ---------
Total interest expense ...... 1,640 1,536 3,273 2,866
--------- --------- --------- ---------
Net interest income ........... 1,774 1,345 3,417 2,708
Provision for loan losses ... (119) (58) (174) (201)
--------- --------- --------- ---------
Net interest income after
provision for loan losses .... 1,655 1,287 3,243 2,507
--------- --------- --------- ---------
Non-interest income
Service charges and fees
on deposit accounts ........ 113 74 211 149
Gain/(loss) on securities ... 0 0 0 0
Other income ................ 118 97 167 198
--------- --------- --------- ---------
Total non-interest income 231 171 378 347
Non-interest expense
Salaries and benefits ....... 565 404 1,088 800
Occupancy and equipment, net 222 180 436 368
FDIC insurance .............. 5 65 12 129
Computer service expense .... 46 47 92 92
Other operating expenses .... 267 391 509 644
--------- --------- --------- ---------
Total non-interest expense 1,105 1,087 2,137 2,033
--------- --------- --------- ---------
Income before income taxes .... 781 371 1,484 821
Less: income taxes .......... (273) (184) (517) (371)
--------- --------- --------- ---------
Net income .................... $ 508 $ 187 $ 967 $ 450
========= ========= ========= =========
Earnings per share (Note 4) ... $ 0.87 $ 0.38 $ 1.66 $ 0.91
Average shares outstanding .... 583,489 496,852 583,489 496,852
See accompanying notes to consolidated financial statements
</TABLE>
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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 ..................................... 967 450
Cash Dividends Paid ............................ (145) 0
Change in net unrealized holding
gain/(loss) on available-for-sale
securities ..................................... (38) 123
-------- -------
Balance June 30 ................................ $ 16,176 $12,631
======== =======
See accompanying notes to consolidated financial statements
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THE BANK OF KENTUCKY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
For the six months ended June 30: 1996 1995
------ ------
Cash Flows from Operating Activities
Net income ......................................... $ 967 $ 450
Adjustments to reconcile net income to net
cash from operating activities ................... 708 (147)
-------- --------
Net cash from operating activities .............. 1,675 303
Cash Flows from Investing Activities
Proceeds from paydowns and maturities
of held-to-maturity securities ................... 2,515 2,528
Proceeds from paydowns and maturities
of available-for-sale securities ................. 3,980 2,091
Purchases of held-to-maturity securities ........... (300) (2,829)
Purchases of available-for-sale securities ......... (5,503) (3,660)
Net change in loans ................................ (18,634) (12,684)
Purchase stock in FHLB ............................. (114) (60)
Property and equipment expenditures ................ (295) (126)
-------- --------
Net cash from investing activities .............. (18,351) (14,740)
Cash Flows from Financing Activities
Net change in deposits ............................. 11,383 8,026
Net change in short-term borrowings ................ 238 4,088
Proceeds from FHLB advance ......................... 11,500 10,810
Payments on FHLB advances .......................... (8,500) (10,260)
Proceeds from exercise of
stock options .................................... 0 0
Cash dividends paid ................................ (145) 0
Payments on note payable ........................... (7) (5)
-------- --------
Net cash from financing activities .............. 14,469 12,659
-------- --------
Net change in cash and cash equivalents ............ (2,207) (1,778)
Cash and cash equivalents at beginning
of period ........................................ 11,132 7,702
-------- --------
Cash and cash equivalents at end of
period ........................................... $ 8,925 $ 5,924
======== ========
See accompanying notes to consolidated financial statements
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THE BANK OF KENTUCKY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 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, Inc.
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
of their loan, with respect to the timing and amount of required payments.
Management evaluates loans for impairment in conjunction with the quarterly
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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.
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THE BANK OF KENTUCKY FINANCIAL CORPORATION
Management's Discussion and Analysis of Financial Condition
and the Results of Operations
June 30,1996
FINANCIAL CONDITION
Total assets at June 30,1996 were $175,939,000 compared to $160,271,000 at
December 31,1995, an increase of $15,668,000 (9.8%). This increase was
primarily due to continued strong loan demand. Loans increased by $18,607,000
from $120,332,000 at December 31,1995 to $138,939,000 at June 30,1996. The
increase was funded primarily by an increase in deposits of $11,383,000 and an
increase in short term borrowings and notes payable.
RESULTS OF OPERATION
GENERAL
Net income for the quarter ended June 30,1996 was $508,000 ($.87 per share)
compared to $187,000 ($.38 per share) during the same period in 1995, an
increase of $321,000. Net income year to date improved dramatically from
$450,000 in 1995 to $967,000 in 1996. The large increase was due primarily to
an improvement in net interest income from $2,708,000 in 1995 to $3,417,000 in
1996.
NET INTEREST INCOME
Net interest income increased $429,000 (31.9%) in the second quarter of 1996
over the same period in 1995, while the year to date total increased $709,000
(26.2%) from $2,708,000 in 1995 to $3,417,000 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
In response to the continued strong loan demand management increased the
provision for loan losses in the second quarter of 1996 to $119,000 compared
to $58,000 for the same period last year. The ratio of non-performing loans to
total loans outstanding dropped to .07% at June 30,1996 from .08% at March 31,
1996. Management believes the reserve is adequate, but expects to continue to
increase the provision in the second half of the year in anticipation of
continued strong loan growth.
NON INTEREST INCOME
Non interest income increased $31,000 (8.9%) to $378,000 through June 30, 1996
compared to $348,000 for the same period in 1995 driven primarily by increased
service charge revenues.
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NON INTEREST EXPENSE
Non interest expense increased slightly through the second quarter of 1996,
with year to date expenses increasing to $2,137,000 through June 30,1996 from
$2,033,000 for the same period last year. Increases in salaries and benefits
of $288,000 in the first half of the year were partially offset by the
reduction in FDIC insurance premiums from $129,000 through June 30,1995 to
$12,000 for the same period in 1996. Occupancy and equipment expense increased
$68,000 (18.5%) through the first six months of 1996 to $436,000 from $368,000
in 1995. This increase was due to the opening of new branches in November 1995
and April 1996. Other operating expenses decreased $135,000 (21.0%) through
June 30,1996 to $509,000 from $644,000 for the same period last year. Other
operating expenses during the second quarter of 1995 include non-recurring
expenses associated with the acquisition of Burnett Federal Savings Bank.
LIQUIDITY AND CAPITAL RESOURCES
Management continually monitors liquidity to insure adequate levels of funding
to meet unexpected deposits withdrawals and fund loan commitments. The Bank
has established a network of community banks to participate out loans to fund
large loans request. During the second quarter, the Bank increased its ability
to draw funds from the Federal Home Loan Bank from $3,000,000 to $5,000,000.
While the Bank has developed alternate sources of funding, emphasis remains on
acquiring core deposits through the branch network and a more aggressive
marketing plan.
The Corporation's total shareholders' equity increased $784,000, from
$15,392,000 at December 31,1995 to $16,176,000 at June 30,1996. During the
second quarter, the Corporation paid a cash dividend of $145,000 ($.25 per
share). At June 30,1996 the Bank's total risk based capital ratio was 11.89%,
which is above the 10% threshold established by the FDIC to be designated for
a well capitalized bank.
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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
a) The Bank of Kentucky Financial Corporation held its annual
meeting on April 19, 1996.
b) The following members of the Board of Directors of the
Corporation were selected by the votes and terms set forth
below:
NAME FOR WITHHELD TERM
------ ----- ---------- ------
Harry J. Humpert 453,224 0 1 year
Robert B. Sathe 453,224 0 1 year
Herbert H. Works 453,224 0 1 year
Robert W. Zapp 453,224 0 1 year
Rodney S. Cain 453,224 0 2 years
Ruth Seligman-Doering 453,224 0 2 years
R.C. Durr 453,224 0 2 years
John J. Flesch 453,224 0 2 years
Thomas L. Franxman 453,224 0 2 years
David E. Meyer 453,224 0 3 years
Dr. John E. Miracle 453,224 0 3 years
Mary Sue Rudicill 453,224 0 3 years
William E. Snyder 453,224 0 3 years
c) The selection of Crowe, Chizek and Company as the auditors
of the Corporation for the current fiscal year was
ratified by the votes as set forth below:
FOR: 453,224 AGAINST: 0 ABSTAINED: 130,265
------------- ------------ ------------------
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 -- Financial Data Schedule
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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: August 6, 1996 /s/ Robert W. Zapp
_____________________________
Robert W. Zapp
President
Date: August 6, 1996 /s/ Robert D. Fulkerson
______________________________
Robert D. Fulkerson
Treasurer
(Chief Financial Officer)
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<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1996
<CASH> 8,540
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 385
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 10,295
<INVESTMENTS-CARRYING> 14,805
<INVESTMENTS-MARKET> 14,856
<LOANS> 138,939
<ALLOWANCE> 1,562
<TOTAL-ASSETS> 175,939
<DEPOSITS> 148,301
<SHORT-TERM> 7,011
<LIABILITIES-OTHER> 1,209
<LONG-TERM> 3,242
0
0
<COMMON> 2,917
<OTHER-SE> 13,259
<TOTAL-LIABILITIES-AND-EQUITY> 175,939
<INTEREST-LOAN> 5,798
<INTEREST-INVEST> 892
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 6,690
<INTEREST-DEPOSIT> 3,036
<INTEREST-EXPENSE> 3,273
<INTEREST-INCOME-NET> 3,417
<LOAN-LOSSES> 174
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,137
<INCOME-PRETAX> 1,484
<INCOME-PRE-EXTRAORDINARY> 1,484
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 967
<EPS-PRIMARY> 1.66
<EPS-DILUTED> 1.66
<YIELD-ACTUAL> 8.22
<LOANS-NON> 3
<LOANS-PAST> 93
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 96
<ALLOWANCE-OPEN> 1,415
<CHARGE-OFFS> 27
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 1,562
<ALLOWANCE-DOMESTIC> 1,562
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
