<PAGE> 1
FORM 10-QSB
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, 1997
[ ] 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
------------------------------------------
(Name of small business issuer in its charter)
Kentucky 61-1256535
------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1065 Burlington Pike, Florence, Kentucky 41042
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (606) 371-2340
Check whether the issuer (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.
Yes X No
--- ---
As of August 8, 1997, the latest practicable date, 1,750,467 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> 2
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 8
The Bank of Kentucky Financial Corporation
Signatures 9
<PAGE> 3
THE BANK OF KENTUCKY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
1997 1996
--------- ---------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 11,094 $ 10,762
Interest bearing deposits with banks 685 685
Available-for-sale securities 8,350 11,530
Held-to-maturity securities 19,399 16,815
Total loans 164,673 154,048
Less: Allowances for loan losses 1,911 1,752
--------- ---------
Net loans 162,762 152,296
Premises and equipment, net 2,755 2,655
FHLB stock, at cost 1,304 629
Accrued interest receivable 1,360 1,216
Other assets 493 532
--------- ---------
Total assets $ 208,202 $ 197,120
========= =========
LIABILITIES & SHAREHOLDERS' EQUITY
LIABILITIES
Deposits $ 171,807 $ 171,663
Short-term borrowings 16,190 6,618
Notes payable 209 216
Accrued interest payable & other liabilities 1,476 1,238
--------- ---------
Total liabilities 189,682 179,735
SHAREHOLDERS' EQUITY
Common stock 2,917 2,917
Additional paid-in capital 7,478 7,478
Retained earnings 8,147 7,012
Net unrealized holding loss on available-for sale
securities (22) (22)
--------- ---------
Total shareholders' equity 18,520 17,385
--------- ---------
Total liabilities and shareholders' equity $ 208,202 $ 197,120
========= =========
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE> 4
THE BANK OF KENTUCKY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 1997 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
June 30 June 30
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, including related fees $ 3,706 $ 3,015 $ 7,177 $ 5,798
Securities and other 448 399 907 892
----------- ----------- ----------- -----------
Total interest income 4,154 3,414 8,084 6,690
----------- ----------- ----------- -----------
INTEREST EXPENSE
Deposits 1,809 1,507 3,551 3,036
Borrowings 179 133 316 237
----------- ----------- ----------- -----------
Total interest expense 1,988 1,640 3,867 3,273
----------- ----------- ----------- -----------
Net interest income 2,166 1,774 4,217 3,417
Provision for loan losses (99) (119) (167) (174)
----------- ----------- ----------- -----------
Net interest income after
provision for loan losses 2,067 1,655 4,050 3,243
----------- ----------- ----------- -----------
NON-INTEREST INCOME
Service charges and fees 163 113 303 211
Gain/(loss) on securities 0 0 0 0
Other 139 118 247 167
----------- ----------- ----------- -----------
Total non-interest income 302 231 550 378
NON-INTEREST EXPENSE
Salaries and benefits 685 565 1,362 1,088
Occupancy and equipment 248 222 488 436
Deposit insurance 7 5 7 12
Data processing 95 46 185 92
Other 311 267 624 509
----------- ----------- ----------- -----------
Total non-interest expense 1,346 1,105 2,666 2,137
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 1,023 781 1,934 1,484
Less: income taxes (346) (273) (653) (517)
----------- ----------- ----------- -----------
NET INCOME $ 677 $ 508 $ 1,281 $ 967
=========== =========== =========== ===========
Earnings per share (Note 4) $ .38 $ .29 $ .73 $ .55
Average shares outstanding 1,750,467 1,750,467 1,750,467 1,750,467
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE> 5
THE BANK OF KENTUCKY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Balance January 1 $ 17,385 $ 15,392
Net income 1,281 967
Cash dividends paid (146) (145)
Change in net unrealized
gain/(loss) on available-for-sale securities 0 (38)
-------- --------
Balance June 30 $ 18,520 $ 16,176
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE> 6
THE BANK OF KENTUCKY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30 1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 1,281 $ 967
Adjustments to reconcile net income to net cash
from operating activities 455 708
-------- --------
Net cash from operating activities 1,736 1,675
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from paydowns and maturities of
held-to-maturity securities 6,970 2,515
Proceeds from paydowns and maturities of
available-for-sale securities 5,180 3,980
Purchases of held-to-maturity securities (9,545) (300)
Purchases of available-for-sale securities (1,995) (5,503)
Net change in loans (10,633) (18,634)
Purchase stock in FHLB (675) (114)
Property and equipment expenditures (269) (295)
-------- --------
Net cash from investing activities (10,967) (18,351)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits 144 11,383
Net change in short-term borrowings 9,572 3,238
Proceeds from exercise of stock options
Cash dividends paid (146) (145)
Payments on note payable (7) (7)
-------- --------
Net cash from financing activities 9,563 14,469
-------- --------
Net change in cash and cash equivalents 332 (2,207)
Cash and cash equivalents at beginning of period 10,762 11,132
-------- --------
Cash and cash equivalents at end of period $ 11,094 $ 8,925
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE> 7
THE BANK OF KENTUCKY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
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 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, 1997, the company adopted Financial Accounting Standard No.
125, Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities, was issued by the Financial Accounting Standards
Board in 1996. It revised the accounting for future transfers of financial
assets, such as loans and securities, and for distinguishing between sales and
secured borrowings. It is effective for some transactions in 1997 and others in
1998. Adoption of the Standard did not significantly impact the Company's
financial position or results of operations.
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. In the second quarter the Company declared a three for one stock
dividend resulting in there being 1,750,467 shares outstanding. All share and
per share data has been has been restated to reflect the stock dividend.
<PAGE> 8
THE BANK OF KENTUCKY FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND THE RESULTS OF OPERATIONS
JUNE 30, 1997
FINANCIAL CONDITION
Total assets at June 30, 1997 were $208,202,000 compared to $197,120,000 at
December 31, 1996, an increase of $11,082,000 (5.6%). This increase was
primarily due to an increase in loans of $10,625,000, from $154,048,000 at
December 31, 1996 to $164,673,000 at June 30,1997. This growth was funded by an
increase in short term borrowings of $9,572,000 (144.6%), from $6,618,000 at
December 31, 1996 to $16,190,000 at June 30,1997. Short-term borrowings at
December 31, 1996 consisted only of customer repurchase agreements. At June 30,
1997, repurchase agreements totaled $6,535,000 and short-term advances from the
Federal Home Loan Bank (FHLB) totaled $9,655,000. FHLB advances are secured by a
blanket lien on the Company's mortgage loan portfolio (i.e., each and every one
to four family residential mortgage). The FHLB advances are overnight borrowings
with interest paid monthly based upon current federal funds rates. Total
deposits increased $4,911,000 in the second quarter from a cyclical low of
$166,896,000 at March 31,1997 to $171,807,000 at June 30,1997 and are up
$144,000 from December 31, 1996.
RESULTS OF OPERATIONS
GENERAL
Net income year to date increased significantly from $967,000 in 1996 to
$1,281,000 in 1997, an increase of $314,000 (32.4%). Net income for the quarter
ended June 30, 1997 was $677,000 ($.38 per share) compared to $508,000 ($.29 per
share) during the same period in 1996, an increase of $169,000 (33.3%). The
increase in earnings was driven by improvements in net interest and non-interest
income offset by higher non-interest expense.
NET INTEREST INCOME
Net interest income increased $392,000 (22.1%) in the second quarter of 1997
over the same period in 1996, while the year to date total increased $800,000
(23.4%) from $3,417,000 in 1996 to $4,217,000 in 1997. The increase in net
interest income was driven by the continued growth of the loan portfolio.
PROVISION FOR LOAN LOSSES
The loan loss provision was $167,000 for the six months ended June 30,1997
compared to $174,000 recorded in the same period in 1996. The ratio of
non-performing loans to total loans outstanding was at .18% at June 30,1997. The
Bank has incurred year to date net charge-offs of only $8,000 through June 30,
1997. Based upon their quarterly analysis of the loan portfolio, management is
satisfied that the allowance for loan losses is adequate at June 30, 1997.
<PAGE> 9
NON-INTEREST INCOME
Non-interest income increased $172,000 (45.5%) to $550,000 through June 30,1997,
compared to $378,000 for the same period in 1996. Service charges on deposits
increased $50,000 (44.2%) in the second quarter, to $163,000 for the period
ending June 30,1997 compared to $113,000 for the same period in 1996. This
increase was consistent with the first quarter increase. Other fees increased
$80,000 (47.9%) to $247,000 through June 30,1997, compared to $167,000 for the
same period in 1996. Additional gains on the sale of mortgage loans and
increased credit life insurance commissions accounted for $50,000 of the
increase in other fees, year to date.
NON-INTEREST EXPENSE
Non-interest expense increased $241,000 (21.8%) in the second quarter of 1997,
with year to date expenses increasing $529,000 (24.7%) to $2,666,000 through
June 30, 1997 compared to $2,137,000 for the same period in 1996. Salary and
benefit expenses continued to account for slightly more than half of the
increase, with year to date expenses of $1,362,000 through June 30, 1997,
compared to $1,088,000 for the same period in 1996, an increase of $274,000
(25.2%). This large increase was due to salary and benefit expense associated
with the staffing of two new branches in 1996 along with annual merit increases.
Data processing expense increased $93,000 (100%) through the first six months of
1997 to$185,000 from $92,000 for the same period last year. Introduction of
image technology in the third quarter of 1996 and an increase in volume
contributed to the large increase in data processing expense. Other operating
expenses increased $115,000 (22.6%) through June 30, 1997 to $624,000 from
$509,000 for the same period in 1996.
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 two of its correspondent banks to meet liquidity demands. Management is
satisfied that BKFC's liquidity is sufficient at June 30, 1997. 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, 1997, the
Bank's leverage and total risk-based ratios were 8.99% and 12.50% respectively,
which both exceed the well capitalized threshold.
<PAGE> 10
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 an Reports on Form 8 - K
Exhibit 3.1 Articles of Incorporation of The Bank of Kentucky
Financial Corporation, as amended (Incorporated by reference
to the Form 8-A filed by Registrant on April 28, 1995 the
"8-A", Exhibits 2(a), 2(b), and 2(c).
Exhibit 3.2 By-Laws of The Bank of Kentucky Financial
Corporation (Incorporated by reference to the 8-A, Exhibit
2(d).
Exhibit 27 Financial Data Schedule.
Exhibit 99 Safe Harbor under the Private Securities Litigation
Reform Act of 1995.
<PAGE> 11
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 hereunto duly authorized.
Date: August 8, 1997 /s/ Robert W. Zapp
-------------------- -----------------------------------
Robert W. Zapp
President
Date: August 8, 1997 /s/ Robert D. Fulkerson
-------------------- -----------------------------------
Robert D. Fulkerson
Treasurer (Chief Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 9,956
<INT-BEARING-DEPOSITS> 685
<FED-FUNDS-SOLD> 1,138
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 8,350
<INVESTMENTS-CARRYING> 19,399
<INVESTMENTS-MARKET> 19,407
<LOANS> 164,673
<ALLOWANCE> 1,911
<TOTAL-ASSETS> 208,202
<DEPOSITS> 171,807
<SHORT-TERM> 16,190
<LIABILITIES-OTHER> 1,476
<LONG-TERM> 209
0
0
<COMMON> 2,917
<OTHER-SE> 15,603
<TOTAL-LIABILITIES-AND-EQUITY> 208,202
<INTEREST-LOAN> 7,177
<INTEREST-INVEST> 907
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 8,084
<INTEREST-DEPOSIT> 3,551
<INTEREST-EXPENSE> 3,867
<INTEREST-INCOME-NET> 4,217
<LOAN-LOSSES> 167
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,666
<INCOME-PRETAX> 1,934
<INCOME-PRE-EXTRAORDINARY> 1,934
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,281
<EPS-PRIMARY> .73
<EPS-DILUTED> .73
<YIELD-ACTUAL> 8.48
<LOANS-NON> 82
<LOANS-PAST> 211
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 82
<ALLOWANCE-OPEN> 1,752
<CHARGE-OFFS> 16
<RECOVERIES> 8
<ALLOWANCE-CLOSE> 1,911
<ALLOWANCE-DOMESTIC> 1,911
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<PAGE> 1
EXHIBIT 99
SAFE HARBOR UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Private Securities Litigation Reform Act of 1995 (the "Act")
provides a "safe harbor" for forward-looking statements to encourage companies
to provide prospective information about their companies, so long as those
statements are identified as forward-looking and are accompanied by meaningful
cautionary statements identifying important factors that could cause actual
results to differ materially from those discussed in the statement. The Bank of
Kentucky Financial Corporation ("BKFC") desires to take advantage of the "safe
harbor" provisions of the Act. Certain information, particularly information
regarding future economic performance and finances and plans and objectives of
management, contained or incorporated by reference in BKFC's Annual Report on
Form 10-KSB for fiscal year 1996 is forward-looking. In some cases, information
regarding certain important factors that could cause actual results of
operations or outcomes of other events to differ materially from any such
forward-looking statement appear together with such statement. In addition,
forward-looking statements are subject to other risks and uncertainties
affecting the financial institutions industry, including, but not limited to,
the following:
Interest Rate Risk
BKFC's operating results are dependent to a significant degree on its
net interest income, which is the difference between interest income from loans,
investments and other interest-earning assets and interest expense on deposits,
borrowings and other interest-bearing liabilities. The interest income and
interest expense of BKFC change as the interest rates on interest-earning assets
and interest-bearing liabilities change. Interest rates may change because of
general economic conditions, the policies of various regulatory authorities and
other factors beyond BKFC's control. In a rising interest rate environment,
loans tend to prepay slowly and new loans at higher rates increase slowly, while
interest paid on deposits increases rapidly because the terms to maturity of
deposits tend to be shorter than the terms to maturity or prepayment of loans.
Such differences in the adjustment of interest rates on assets and liabilities
may negatively affect BKFC's income.
Possible Inadequacy of the Allowance for Loan Losses
BKFC maintains an allowance for loan losses based upon a number of
relevant factors, including, but not limited to, trends in the level of
nonperforming assets and classified loans, current and anticipated economic
conditions in the primary lending area, past loss experience, possible losses
arising from specific problem loans and changes in the composition of the loan
portfolio. While the Board of Directors of BKFC believes that it uses the best
information available to determine the allowance for loan losses, unforeseen
market conditions could result in material adjustments, and net earnings could
be significantly adversely affected if circumstances differ substantially from
the assumptions used in making the final determination.
Loans not secured by one- to four-family residential real estate are
generally considered to involve greater risk of loss than loans secured by one-
to four-family residential real estate due, in part, to the effects of general
economic conditions. The repayment of commercial loans and multifamily
residential and nonresidential real estate loans generally depends upon the cash
flow from the operation of the business or property, which may be negatively
affected by national and local economic conditions. Construction loans may also
be negatively affected by such economic conditions, particularly loans made to
developers who do not have a buyer for a property before the loan is made. The
risk of default on consumer loans increases during periods of recession, high
unemployment and other adverse economic conditions. When consumers have trouble
paying their bills, they are more likely to pay mortgage loans than consumer
loans. In addition, the collateral securing such loans, if any, may decrease in
value more rapidly than the outstanding balance of the loan.
<PAGE> 2
Competition
The Bank of Kentucky, Inc. (the "Bank") competes for deposits with
other savings associations, commercial banks and credit unions and issuers of
commercial paper and other securities, such as shares in money market mutual
funds. The primary factors in competing for deposits are interest rates and
convenience of office location. In making loans, the Bank competes with other
commercial banks, savings and loan associations, savings banks, consumer finance
companies, credit unions, leasing companies, mortgage companies and other
lenders. Competition is affected by, among other things, the general
availability of lendable funds, general and local economic conditions, current
interest rate levels and other factors which are not readily predictable. The
size of financial institutions competing with the Bank is likely to increase as
a result of changes in statutes and regulations eliminating various restrictions
on interstate and inter-industry branching and acquisitions. Such increased
competition may have an adverse effect upon the Bank.
Legislation and Regulation that may Adversely Affect BKFC's Earnings
The Bank is subject to regulation by the Department of Financial
Institutions of the Commonwealth of Kentucky and the Federal Deposit Insurance
Corporation (the "FDIC") and is periodically examined by such regulatory
agencies to test compliance with various regulatory requirements. As a savings
and loan holding company, BKFC is also subject to regulation and examination by
the Board of Governors of the Federal Reserve System. Such supervision and
regulation of the Bank and BKFC are intended primarily for the protection of
depositors and not for the maximization of shareholder value and may affect the
ability of the company to engage in various business activities. The
assessments, filing fees and other costs associated with reports, examinations
and other regulatory matters are significant and may have an adverse effect on
BKFC's net earnings.
The FDIC is authorized to establish separate annual assessment rates
for deposit insurance of members of the Bank Insurance fund (the "BIF") and the
Savings Association Insurance Fund (the "SAIF"). The FDIC has established a
risk-based assessment system for both SAIF and BIF members. Under such system,
assessments may vary depending on the risk the institution poses to its deposit
insurance fund. Such risk level is determined by reference to the institution's
capital level and the FDIC's level of supervisory concern about the institution.
Because the reserves of the BIF exceeded the statutorily set minimum,
assessments for healthy BIF institutions were significantly decreased in the
last half of 1995 and were reduced to $2,000 per year for well-capitalized,
well-managed banks, like the Bank, in 1996. Assessments paid by healthy
institutions on deposits in the SAIF exceed that paid by healthy banks by
approximately $.23 per $100 in deposits in 1996.
Federal legislation that was effective September 30, 1996, provided for
the recapitalization of the SAIF by means of a special assessment of $.657 per
$100 in deposits held at March 31, 1995, in order to increase SAIF reserves to
the level required by law. Certain banks were required to pay the special
assessment on only 80% of SAIF deposits held at that date. That legislation also
required that BIF members begin to share the cost of prior thrift failures. As a
result of the recapitalization of the SAIF and this cost sharing between BIF and
SAIF members, FDIC assessments for healthy institutions during 1997 have been
set at $.013 per $100 in BIF deposits and $.064 per $100 in SAIF deposits. The
recapitalization plan also provides of the merger of the BIF and the SAIF
effective January 1, 1999, assuming there are no savings associations under
federal law. Under separate proposed legislation, Congress is considering the
elimination of the federal thrift charter. BKFC cannot predict the impact of
such legislation and the merger of the BIF and the SAIF on BKFC or the Bank
until the legislation is enacted and the funds are merged.
