<PAGE> 1
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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 June 30, 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
---------
THE BANK OF KENTUCKY FINANCIAL CORPORATION
------------------------------------------------------
(Exact name of registrant as specified 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)
Registrant's telephone number: (606) 371-2340
----------------
Indicate by checkmark whether the registrant (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, 2000, the latest practicable date, 6,158,657 shares of the
Registrant's Common Stock, no par value, were issued and outstanding.
<PAGE> 2
THE BANK OF KENTUCKY FINANCIAL CORPORATION
INDEX
<TABLE>
<CAPTION>
FINANCIAL INFORMATION PAGE
--------------------- ----
<S> <C>
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 12
</TABLE>
<PAGE> 3
THE BANK OF KENTUCKY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, 2000 DECEMBER 31, 1999
------------- -----------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 18,838 $ 19,407
Federal Funds sold 1,709 0
--------- ---------
Total cash and due from banks 20,547 19,407
Interest bearing deposits with banks 0 1,000
Available-for-sale securities 25,255 23,832
Held-to-maturity securities 33,285 32,971
Total loans 364,355 333,023
Less: Allowance for loan loss (3,525) (3,257)
--------- ---------
Net Loans 360,830 329,766
Loans held for sale 66 426
Premises and equipment, net 6,338 5,068
FHLB stock, at cost 3,235 3,107
Accrued interest receivable and other assets 5,893 6,682
--------- ---------
Total assets $ 455,449 $ 422,259
========= =========
LIABILITIES & SHAREHOLDERS' EQUITY
LIABILITIES
Deposits $ 344,860 $ 343,588
Short-term borrowings 49,682 20,445
Long-term borrowings 11,809 12,492
Accrued interest payable & other liabilities 4,242 3,150
--------- ---------
Total liabilities 410,593 379,675
SHAREHOLDERS' EQUITY
Common Stock 3,098 3,098
Additional paid-in capital 14,601 14,080
Retained earnings 27,775 26,459
Unearned compensation (335) (815)
Accumulated other comprehensive income (283) (238)
--------- ---------
Total shareholder's equity 44,856 42,584
--------- ---------
Total liabilities & shareholders' equity $ 455,449 $ 422,259
========= =========
</TABLE>
See accompanying notes
1
<PAGE> 4
THE BANK OF KENTUCKY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2000 AND 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
June 30 June 30
--------------------- -----------------------
INTEREST INCOME 2000 1999 2000 1999
------ ------ ------- -------
<S> <C> <C> <C> <C>
Loans, including related fees $8,141 $6,659 $15,607 $13,214
Securities and other 909 806 1,802 1,636
------ ------ ------- -------
Total interest income 9,050 7,465 17,409 14,850
------ ------ ------- -------
INTEREST EXPENSE
Deposits 3,857 3,201 7,574 6,533
Borrowings 780 365 1,291 679
------ ------ ------- -------
Total interest expense 4,637 3,566 8,865 7,212
------ ------ ------- -------
Net interest income 4,413 3,899 8,544 7,638
Provision for loan losses (316) (144) (535) (276)
------ ------ ------- -------
Net interest income after
provision for loan losses 4,097 3,755 8,009 7,362
------ ------ ------- -------
NON-INTEREST INCOME
Service charges and fees 379 348 758 665
Gain/(loss) on securities 0 0 0 0
Gain on loans sold 58 119 104 253
Other 276 189 485 368
------ ------ ------- -------
Total non-interest income 713 656 1,347 1,286
NON-INTEREST EXPENSE
Salaries and benefits 1,279 1,116 2,554 2,219
Occupancy and equipment 486 415 954 817
Data processing 183 162 377 318
Advertising 87 63 162 126
Restructuring charges 1,405 -- 1,405 --
Merger and Acquisition 490 -- 490 --
Other 589 645 1,380 1,259
------ ------ ------- -------
Total non-interest expense 4,519 2,401 7,322 4,739
------ ------ ------- -------
INCOME BEFORE INCOME TAXES 291 2,010 2,034 3,909
Less: income taxes (193) (651) (738) (1,277)
------ ------ ------- -------
NET INCOME $ 98 $1,359 $ 1,296 $ 2,632
====== ====== ======= =======
COMPREHENSIVE INCOME $ 145 $1,206 $ 1,251 $ 2,478
====== ====== ======= =======
Earnings per share $ .02 $ .22 $ .21 $ .43
Earnings per share, assuming dilution $ .02 $ .22 $ .21 $ .43
Dividends per share $ .00 $ .00 $ .05 $ .04
</TABLE>
See accompanying notes
2
<PAGE> 5
THE BANK OF KENTUCKY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Balance as of January 1 $ 42,584 $ 37,161
Comprehensive income
Net income 1,296 2,632
Change in net unrealized gain/(loss)
Net of tax (45) (154)
-------- --------
Total comprehensive income 1,251 2,478
Cash dividends paid (212) (487)
Purchase of fractional shares (7) --
Exercise of stock options 686 139
Adjustments related to merger 448 295
Benefit Plan Amortization 106 193
-------- --------
Balance as of June 30 $ 44,856 $ 39,779
======== ========
</TABLE>
See accompanying notes
3
<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 2000 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,296 $ 2,632
Adjustments to reconcile net income to net cash
from operating activities 3,560 644
-------- --------
Net cash from operating activities 4,856 3,276
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in interest bearing deposits with banks 1,000 --
Proceeds from paydowns and maturities of
held-to-maturity securities 3,156 7,137
Proceeds from paydowns and maturities of
available-for-sale securities 1,039 4,134
Purchases of held-to-maturity securities (3,461) (6,857)
Purchases of available-for-sale securities (2,500) (4,738)
Net change in loans (31,600) (10,552)
Purchase stock in FHLB 0 --
Property and equipment expenditures (1,613) (990)
-------- --------
Net cash from investing activities (33,979) (11,866)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits 1,272 (14,993)
Net change in short-term borrowings 29,237 17,423
Proceeds from exercise of stock options 669 139
Payment for fractional shares (7) --
Cash dividends paid (212) (487)
Payments on note payable (696) (11)
-------- --------
Net cash from financing activities 30,263 2,071
-------- --------
Net change in cash and cash equivalents 1,140 (6,519)
Cash and cash equivalents at beginning of period 19,407 20,718
-------- --------
Cash and cash equivalents at end of period $ 20,547 $ 14,199
======== ========
</TABLE>
See accompanying notes
4
<PAGE> 7
THE BANK OF KENTUCKY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 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.
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 September 30, 1999 with the historical financial position of the
Company as of December 31, 1999. The results of operations of the separate
companies are combined and presented for the three and six-month periods ended
June 30, 1999 and 2000. FTFC's results of operations for the three months ended
December 31, 1999 are not included in these financial statements. Net interest
income and net income for that period were $923,000 and $232,000, respectively.
Net income, combined with $216,000 in dividends paid on unawarded FTFC shares,
that were returned to the Company upon consummation of the transaction, are
reflected in the consolidated statements of changes in shareholders' equity and
as a $448,000 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 1999 periods included in these financial
statements (dollars in thousands):
<TABLE>
<CAPTION>
COMPANY FTFC COMBINED
------- ---- --------
<S> <C> <C> <C>
THREE MONTHS ENDED JUNE 30, 1999:
Net interest income $2,922 $ 977 $3,899
Net income 1,086 273 1,359
SIX MONTHS ENDED JUNE 30, 1999:
Net interest income 5,695 1,943 7,638
Net income 2,147 485 2,632
</TABLE>
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
5
<PAGE> 8
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 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 numbers of shares used to compute basic and diluted earnings
per share for the indicated periods:
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
June 30 June 30
-------------------------- ---------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Weighted Average Shares Outstanding 6,135,720 6,087,486 6,129,528 6,084,051
Shares used to compute diluted
Earnings per share 6,175,962 6,168,393 6,166,367 6,163,606
</TABLE>
NOTE 4 - RESTRUCTURING CHARGES:
Restructuring charges reflected on the consolidated statement of income for the
quarter ended June 30, 2000 relate to severance benefits for three former FTFC
executives and penalties associated with the early termination of data
processing and equipment lease contracts associated with FTFC's operations. On
June 14, 2000, the effective date of the merger, the Company executed severance
agreements with three senior executives of FTFC. These agreements call for
monthly cash payments, beginning July 2000 and the continuation of certain
benefits for 36 months. This obligation, approximately $1.2 million, was accrued
at that time. Most of the balance of the $1.4 million in identified
restructuring charges relates to a penalty associated with the early termination
of FTFC's data processing service agreement, effective June 24, 2000.
6
<PAGE> 9
THE BANK OF KENTUCKY FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND THE RESULTS OF OPERATIONS
JUNE 30, 2000
Total assets at June 30, 2000 were $455,449,000 compared to $422,259,000 at
December 31, 1999, an increase of $33,190,000 (7.9%). This increase was
primarily due to an increase in loans of $31,332,000 (9.4%), from $333,023,000
at December 31, 1999 to $364,355,000 at June 30, 2000. Loan growth was funded by
an increase in short-term borrowings of $29,237,000 (143.0%), from $20,445,000
at December 31, 1999 to $49,682,000 at June 30, 2000. Total deposits increased
$1,272,000 (.4%), from $343,588,000 at December 31, 1999 to $344,860,000 at June
30,2000.
RESULTS OF OPERATIONS
GENERAL
Net income year to date decreased from $2,632,000 in 1999 to $1,296,000 in 2000,
a decrease of $1,336,000 (50.8%). Net income for the quarter ended June 30, 2000
was $98,000 ($.02 per share) compared to $1,359,000 ($.22 per share) during the
same period in 1999, a decrease of $1,261,000 (92.8%). The decrease in earnings
was due primarily to restructuring and merger related expenses incurred during
the second quarter, which aggregated to $1,417,000, net of tax. Earnings year to
date excluding merger related expenses increased $81,000 (3.1%) to $2,713,000 in
2000 compared to $2,632,000 for the same period in 1999. Net income for the
quarter ended June 30, 2000 excluding merger related expenses, increased
$156,000 (11.5%) to $1,515,000 in 2000 from $1,359,000 in 1999. The increase in
earnings was driven by higher net interest income, partially offset by an
increase in operating expenses.
NET INTEREST INCOME
Net interest income increased $514,000 (13.2%) in the second quarter of 2000
over the same period in 1999, while the year to date total increased $906,000
(11.9%) from $7,638,000 in 1999 to $8,544,000 in 2000. The increase in net
interest income was driven by the continued growth in the loan portfolio.
PROVISION FOR LOAN LOSSES
The loan loss provision was $535,000 for the six months ended June 30,2000
compared to $276,000 recorded in the same period in 1999. The provision was
increased due increased loan volume and a $167,000 increase in net charge-offs
to $267,000 through June 30, 2000 compared to $100,000 for the same period last
year. The Bank had $5,656,000 in non-performing loans or 1.55% of total loans
outstanding at June 30, 2000 compared to $3,547,000 (1.12%) at June 30,
7
<PAGE> 10
1999. Real estate loans accounted for $3,607,000 of the non-performing loans at
June 30, 2000. Management is satisfied that the reserve is adequate at June 30,
2000.
NON INTEREST INCOME
Total non-interest income increased $61,000 (4.7%) to $1,347,000 through June
30,2000, compared to $1,286,000 for the same period in 1999. Service charges on
deposits increased $31,000 (8.8%) in the second quarter, to $379,000 for the
period ending June 30,2000 compared to $348,000 for the same period in 1999.
Transaction growth in the first quarter contributed to the continued growth in
deposit fees. Income from the sale of loans into the secondary market decreased
$149,000 (59.0%) to $104,000 through June 30, 2000, compared to $253,000 for the
same period in 1999. The Bank originates fixed rate first mortgage loans and
sells them, service released, into the secondary market. The decrease in fee
income is driven by decreased volume. During the first half 2000, 68 loans with
a principal balance of $9.3 million were sold compared to 144 loans with a
principal balance of $18.3 million during the same period in 1999. Loans held
for sale at June 30, 2000 decreased to $66,000 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 $2,118,000 (88.2%) in the second quarter of 2000,
with year to date expenses increasing $2,583,000 (54.5%) to $7,322,000 through
June 30, 2000 compared to $4,739,000 for the same period in 1999. Merger and
restructuring related expenses accounted for $1,895,000 of the increase (see
note 4). Non-interest expense excluding merger and restructuring related
expenses increased $688,000 (14.5%) through June 30,2000. Occupancy and
equipment expense increased $137,000 (16.8%) to $954,000 through June 30, 2000,
compared to $817,000 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. Data processing expense increased $59,000 (18.5%)
through the first six months of 2000 to $377,000 from $318,000 for the same
period last year. Other operating expenses increased $121,000 (9.6%) through
June 30, 2000 to $1,380,000 from $1,259,000 for the same period in 1999.
INCOME TAX EXPENSE
Income tax expense decreased by $539,000 (42.2%) through the second quarter of
2000 compared to 1999 and the effective tax rate increased to 36% from 33%. The
change was driven by lower income before tax and the fact that the majority of
merger and acquisition costs are not deductible for tax purposes.
8
<PAGE> 11
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, 2000. 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, 2000, the
Bank's leverage and total risk-based ratios were 9.74% and 12.54% respectively,
which exceeds the well-capitalized threshold.
9
<PAGE> 12
THE BANK OF KENTUCKY FINANCIAL CORPORATION
PART II
ITEM 1. Legal Proceedings
None.
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 Annual Meeting of Stockholders of The Bank of Kentucky
Financial Corporation ("BKFC") was held on April 28, 2000.
(b) Not applicable.
(b) To reelect four directors of BKFC for terms expiring in 2003:
<TABLE>
<CAPTION>
For Against/Withheld Abstentions
--------- ---------------- -----------
<S> <C> <C> <C>
Harry J. Humpert 4,153,132 21,690
Robert B. Sathe 4,144,818 22,140
Herbert H. Works 4,145,268 21,690
Robert W. Zapp 4,145,268 21,690
</TABLE>
To ratify the selection of Crowe, Chizek and Company LLP as
the auditors of BKFC for the current fiscal year: 4,165,672
for, 750 against, and 2,502 abstain.
(d) Not applicable.
ITEM 5. Other Information
(a) Press Release dated June 14, 2000.
ITEM 6. Exhibits and Reports on Form 8 - K
(a) Exhibit 27 - Financial Data Schedule.
(b) BKFC filed a current report on Form 8-K dated June 14, 2000,
disclosing the acquisition of Fort Thomas Financial Corporation.
10
<PAGE> 13
Press Release FOR IMMEDIATE RELEASE
Contact: The Bank of Kentucky Financial Corporation
Robert W. Zapp, President and CEO
Telephone: (859) 372-5173
Contact: Fort Thomas Financial Corporation
Larry N. Hatfield, President and CEO
Telephone: (859) 441-3302
THE BANK OF KENTUCKY FINANCIAL CORPORATION ANNOUNCES THE COMPLETION
OF THE MERGER WITH FORT THOMAS FINANCIAL CORPORATION
FLORENCE AND FORT THOMAS, KENTUCKY, JUNE 14, 2000 - The Bank of Kentucky
Financial Corporation announced the completion of the merger of Fort Thomas
Financial Corporation, the parent company of Fort Thomas Savings Bank, into the
Bank of Kentucky Financial Corporation effective Wednesday June 14, 2000. The
merger of Fort Thomas Savings Bank into The Bank of Kentucky, the wholly owned
subsidiary of The Bank of Kentucky Financial Corporation, was also effected as a
matter of law, although th4e data processing functions of the two banks will not
be merged until June 24, 2000.
The Bank of Kentucky is a state-charted commercial bank with total assets of
$350,000,000 and thirteen locations in Boone, Kenton, and Grant counties. The
combined company will have assets totaling $450,000,000 with fifteen branch
locations in Boone, Kenton, Campbell and Grant Counties and twenty-three ATM
locations.
Robert W. Zapp, the President and Chief Executive Officer of The Bank of
Kentucky stated, "This acquisition is consistent with our strategic plan of
increasing market share in the Northern Kentucky Market and provides The Bank of
Kentucky an opportunity to expand into an attractive Campbell County market. We
are excited about the expansion in the Northern Kentucky Market and look forward
to serving our new customers in Campbell County."
11
<PAGE> 14
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 14, 2000 /s/ Robert W. Zapp
---------------------- -----------------------------------
Robert W. Zapp
President
Date: August 14, 2000 /s/ Robert D. Fulkerson
---------------------- -----------------------------------
Robert D. Fulkerson
Treasurer (Chief Financial Officer)
12
