Back to GetFilings.com

Table of Contents

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For Quarterly Period ended June 30, 2002

For the transition period from                      to                     

Commission File Number: 0-25960

(Exact name of registrant as specified in its charter)

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 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 o

As of August 9, 2002 the latest practicable date, 5,952,249 shares of the Registrant’s Common Stock, no par value, were issued and outstanding.

Table of Contents

The Bank of Kentucky Financial Corporation

INDEX

Table of Contents

THE BANK OF KENTUCKY FINANCIAL CORPORATION

PART I FINANCIAL INFORMATION

THE BANK OF KENTUCKY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands)

See accompanying notes

Table of Contents

THE BANK OF KENTUCKY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2002 AND 2001
(Dollars in thousands, except per share data - unaudited)

See accompanying notes

Table of Contents

THE BANK OF KENTUCKY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Dollars in thousands)
(Unaudited)

See accompanying notes

Table of Contents

THE BANK OF KENTUCKY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)

See accompanying notes

Table of Contents

THE BANK OF KENTUCKY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002

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 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.

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 of Contents

Note 4 - New and proposed accounting standards :

A new accounting standard dealing with asset retirement obligations will apply for 2003. The Company does not believe this standard will have a material affect on its financial position or results of operations.

Effective January 1, 2002, the Company adopted a new standard issued by the FASB on impairment and disposal of long-lived assets. The effect of this on the financial position and results of operations of the Company was not material.

New accounting standards issued in 2001 require all business combinations to be recorded using the purchase method of accounting for any transaction initiated after June 30, 2001. Under the purchase method, all identifiable tangible and intangible assets and liabilities of the acquired company must be recorded at fair value at date of acquisition, and the excess of cost over fair value of net assets acquired is recorded as goodwill. Identifiable intangible assets must be separated from goodwill. Identifiable intangible assets with finite useful lives will be amortized under the new standard, whereas goodwill, both amounts previously recorded and future amounts purchased, will cease being amortized starting in 2002. Annual impairment testing will be required for goodwill with impairment being recorded if the carrying amount of goodwill exceeds it implied fair value. Adoption of this standard on January 1, 2002 did not have a material effect on the Company’s financial statements .

Note 5 - Proposed Acquisition :

On July 23, 2002, the Bank entered into a non-binding letter of intent with Peoples Bank of Northern Kentucky (Peoples) to purchase certain assets and assume certain liabilities of Peoples.

Under terms of the contemplated transaction, the Bank will purchase certain loans, totaling approximately $147,000,000, all of the branches and ATMs of Peoples Bank and will assume approximately $156,000,000 in deposits. Consummation of the transaction is subject to final due diligence by the Bank, the final agreement being negotiated, and receipt of required regulatory and shareholder approvals.

Table of Contents

FINANCIAL CONDITION

Total assets at June 30, 2002 were $535,119,000 compared to $507,262,000 at December 31, 2001, an increase of $27,857,000 (5.5%). This increase was primarily due to an increase in loans of $36,696,000 (8.9%), from $411,472,000 at December 31, 2001 to $448,168,000 at June 30, 2001. Total deposits increased $26,716,000 (6.4%), from $416,183,000 at December 31, 2001 to $442,899,000 at June 30, 2002.

RESULTS OF OPERATIONS

GENERAL

Net income year to date increased from $3,241,000 in 2001 to $3,947,000 in 2002, an increase of $706,000 (21.8%). Net income for the quarter ended June 30, 2002 was $1,943,000 ($.33 per share) compared to $1,535,000 ($.25 per share) during the same period in 2001, an increase of $408,000 (26.6%). The increase in earnings was driven by an increase in net interest income and higher non-interest income, partially offset by an increase in operating expenses.

NET-INTEREST INCOME

Net interest income increased $775,000 (17.0%) in the second quarter of 2002 over the same period in 2001, while the year to date total increased $1,566,000 (17.5%) from $8,954,000 in 2001 to $10,520,000 in 2002. The increase in net interest income was driven by the continued growth in the loan portfolio and an improvement in the net interest margin to 4.44% through June 30, 2002 compared to 4.10% for the same period last year.

PROVISION FOR LOAN LOSSES

The loan loss provision was $520,000 for the six months ended June 30, 2002 compared to $276,000 recorded in the same period in 2001. The provision was increased to provide for strong loan growth and in recognition of continued higher levels of non-performing loans and loans that are performing but being monitored by management. The Bank had $2,886,000 in non-performing loans, .64% of total loans outstanding at June 30, 2002, compared to $3,763,000 (.97%) at June 30, 2001. Real estate loans accounted for $2,191,000 of the non-performing loans at June 30, 2002. Management is satisfied that the reserve is adequate at June 30, 2002.

Table of Contents

NON-INTEREST INCOME

Total non-interest income increased $178,000 (8.8%) to $2,199,000 through June 30, 2002, compared to $2,021,000 for the same period in 2001. Service charges on deposits increased $126,000 (25.2%) in the second quarter, to $626,000 for the quarter ending June 30, 2002 compared to $500,000 for the same period in 2001. Transaction growth and higher fees in the second quarter contributed to the continued growth in deposit fees. Income from the sale of loans into the secondary market decreased $137,000 (31.4%) to $299,000 through June 30, 2002, compared to $436,000 for the same period in 2001. The Bank originates fixed rate first mortgage loans and sells them, service released, into the secondary market. The decrease in fee income was driven by decreased volume. During the first half 2002, 190 loans with a principal balance of $28.9 million were sold compared to 318 loans with a principal balance of $37.7 million during the same period in 2001. Loans held for sale at June 30, 2002 decreased to $0 from $5,509,000 at December 31, 2001. At December 31, 2001, there was a large backlog of loans held for sale that had not yet been funded. 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 $179,000 (5.8%) in the second quarter of 2002, with year to date expenses increasing $422,000 (7.1%) to $6,339,000 through June 30, 2001 compared to $5,917,000 for the same period in 2001. Salary and employee benefit expense increased $289,000 (10.6%) to $3,014,000 through June 30, 2002, compared to $2,725,000 for the same period in 2001, driven by merit increases and some staff expansion. All other expenses remained relatively stable from period to period.

INCOME TAX EXPENSE

Income tax expense increased by $373,000 (24.2%) through the second quarter of 2002 compared to 2001 and the effective tax rate increased to 32.7% from 32.2%. The increase was partially due to less tax-free income from loans and investments.

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 June 30, 2002.

Table of Contents

The company’s total shareholders’ equity increased $2,976,000, from $51,521,000 at December 31, 2001 to $54,497,000 at June 30, 2002. In the first quarter of 2002 the Company paid a cash dividend of $.06 per share totaling $358,000.

On March 16, 2001 the Company’s Board of Directors approved the repurchase and retirement of up to 2% of the outstanding common shares of the Company in the over-the-counter market. All shares were repurchased according to the agreement by the end of the third quarter of 2001. On October 8, 2001 the Company’s Board of Directors approved the repurchase and retirement of 100,000 common shares of the Company in the over-the-counter market. As of the date of this report 96,630 of the 100,000 shares authorized for repurchase had been repurchased. Any repurchases are funded, as needed, by dividends from the Bank

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, 2002, the Bank’s leverage and total risk-based ratios were 10.12% and 11.63% respectively, which exceed the well-capitalized thresholds.

There has been no material change in market risk since the Company’s annual report on Form 10-K for the year ending December 31, 2001.

Table of Contents

THE BANK OF KENTUCKY FINANCIAL CORPORATION

PART II OTHER INFORMATION

Table of Contents

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.