Market Overview

The Bank of Kentucky Financial Corporation Announces Fourth Quarter Earnings

CRESTVIEW HILLS, Ky., Jan. 17, 2013 (GLOBE NEWSWIRE) -- The Bank of Kentucky Financial Corporation (the "Company") (Nasdaq: BKYF), the holding company of The Bank of Kentucky, Inc. (the "Bank"), today reported its earnings for the fourth quarter and year ended December 31, 2012. For the fourth quarter and the twelve months of 2012, the Company reported an increase in diluted earnings per common share of 5% and 16% respectively as compared to the same periods in 2011.

A summary of the Company's results follows:

Fourth Quarter ended December 31, 2012 2011 Change
Net income $5,010,000 $4,909,000 2%
Net income available to common shareholders $5,010,000 $4,714,000 6%
Earnings per common share, basic $0.67 $0.63 6%
Earnings per common share, diluted $0.66 $0.63 5%
       
Twelve Months ended December 31, 2012 2011 Change
Net income $18,145,000 $16,489,000 10%
Net income available to common shareholders $18,145,000 $15,517,000 17%
Net income per common share, basic $2.43 $2.09 16%
Net income per common share, diluted $2.41 $2.07 16%

Robert Zapp, President & CEO stated, "We continued to build on a strong year, highlighted by a fourth quarter in which earnings topped $5 million. Total loans increased by $65 million for the year, which was the highest organic loan growth experienced since the financial crisis began in 2008. Mortgage loan volume remained robust in the fourth quarter, capping off the best year since 2003.    Adding new customer relationships, both on the business and consumer side, fueled core account growth, which added more than $70 million in net deposits for the year. Investment revenue from our Wealth Advisory Group continues to experience double-digit growth, and we are pleased with the success of our newest branch in Cincinnati, which celebrates its one year anniversary this month.    Overall, I am pleased to report our financial performance for the fourth quarter and the full year. We continue to review opportunities to expand through acquisition, while striving to grow organically, investing in our core lines of business."   

The increase in earnings available to common shareholders in the fourth quarter of 2012 was primarily attributable to a $900,000 (41%) decrease in the provision for loan losses and a $195,000 (100%) decrease in preferred stock dividends and amortization as compared to the fourth quarter of 2011. Also contributing to increased earnings was a 2% increase in total revenue (net interest income and non interest income), which was offset with a 12% increase in noninterest expense. The decrease in the provision for loan losses reflected lower levels of charge-offs, lower levels of impaired loan reserves and lower levels of adversely classified loans as compared to December 2011. The reduction of preferred stock dividends and amortization reflects the November 2011 repurchase of the final $17 million of the Company's Fixed Rate Cumulative Perpetual Preferred Stock, Series A, previously issued to the U.S. Department of the Treasury as part of the TARP CPP program.

Net interest income increased $245,000 in the fourth quarter of 2012, as compared to the same period in 2011. The net interest margin, on a tax equivalent basis was 3.63% in the fourth quarter of 2012 which equaled the net interest margin in the fourth quarter of 2011.  Contributing to the increase in net interest income was a $247,000 prepayment fee received in the quarter. This prepayment fee also contributed 6 basis points to the net interest margin for the quarter. 

The provision for loan losses decreased by $900,000 (41%) in the fourth quarter of 2012, as compared to the same period in 2011. Contributing to this decrease were lower levels of charge-offs and lower levels of impaired loan reserves as compared to December 2011. The Company's annualized net charge-offs to average loans decreased from .65% in the fourth quarter of 2011 to .45% in the fourth quarter of 2012. The Company recorded $1,317,000 in net charge-offs in the fourth quarter of 2012 as compared to $1,853,000 in the fourth quarter of 2011. Net charge-offs in the fourth quarter of 2012 were reduced by a $961,000 recovery on a loan charged-off in the third quarter of 2012. The majority of the loans charged off in the fourth quarter of 2012 were reserved for in prior quarters. The reserve for impaired loans was $6,265,000 at December 31, 2012, which was $1,178,000 lower than the $7,443,000 reserve at December 31, 2011. As a result of the lower impaired loan reserves, lower charge-offs and lower levels of adversely classified loans, the Allowance for Loan Losses (ALL) has decreased from 1.62% of loans at the end of the fourth quarter of 2011 to 1.39% of loans at the end of the fourth quarter of 2012.   The adequacy of the ALL is analyzed quarterly and adjusted as necessary to maintain appropriate reserves for probable incurred losses in the Bank's loan portfolio. On a sequential basis, the provision for loan losses of $1,300,000 in the fourth quarter of 2012 was $900,000 lower than the provision in the third quarter of 2012.   Net charge-offs on a sequential basis decreased from $3,961,000 (1.39% of loans) in the third quarter of 2012 to $1,371,000 (.45% of loans) in the fourth quarter of 2012. Contributing to the decrease in the provision and charge-offs on a sequential basis was the $961,000 recovery discussed previously. 

The Company's non-performing assets as a percentage of total assets were 1.34% as of December 31, 2012, as compared to 1.25% as of December 31, 2011. The Company's non-performing loans as a percentage of total loans were 1.61% as of December 31, 2012, as compared to 1.40% as of December 31, 2011. Non-performing loans increased $3,413,000 from December 2011 to December 2012 and other real estate owned decreased $448,000 in the same time period. On a sequential quarterly basis, non-performing loans increased $4,365,000 while other real estate owned decreased $796,000 from September 2012. Contributing to the increase in non-performing loans from December of 2011 and September of 2012 was one commercial relationship which added approximately $7,000,000 to non-accruing loans in the fourth quarter of 2012. This relationship was reported as an accruing restructured loan in September of 2012 and the preceding four quarters.

Non-interest income increased 1% ($71,000) in the fourth quarter of 2012, as compared to the same period in 2011, while non-interest expense increased 12% ($1,267,000) from the same period last year. Contributing to the increase in non-interest income was an $114,000 or a 20% increase in the gains on sale of real estate loans and a $124,000 or 20% increase in trust fee income, which were offset by an increase of $141,000 or 166% increase in losses on other real estate owned. Contributing to the increase in non-interest expense was an $825,000 (16%) increase in salaries and benefits expense.  The increase in salaries and benefits included $285,000 in higher accruals for bonuses and $182,000 in higher accruals for pension plan expense. The added bonus accrual reflects the end of the TARP restriction on bonus pay for executives, while the increased pension plan expense was the result of a lower discount rate applied to future benefits. 

Total assets were $1.844 billion at the end of the fourth quarter of 2012, which was $99 million or 6% higher than the same date a year ago. Total loans increased $65 million (6%), investments in securities increased $10 million (3%) and cash and cash equivalents increased $16 million (12%) from December of 2011.   The balance sheet increases were funded by an increase in deposits of $71 million, or 5% and an increase in short-term borrowings of $12 million or 41%.  Total equity increased $14 million or 9% from the same date in 2011.  

 
The Bank of Kentucky Financial Corporation
Selected Consolidated Financial Data
(Dollars in thousands, except per share data)
             
  Fourth Quarter Comparison    Year ended December 31, Comparison 
Income Statement Data 12/31/12 12/31/11 % Chg 12/31/12 12/31/11 % Chg
Interest income $15,742 $16,096 (2)% $62,524 $64,798 (4)%
Interest expense 1,410 2,009 (30)% 6,339 9,260 (32)%
Net interest income 14,332 14,087 2% 56,185 55,538 1%
             
Provision for loan losses 1,300 2,200 (41)% 7,000 10,750 (35)%
Net interest income after provision for loan losses 13,032 11,887 10% 49,185 44,788 10%
Non interest income 5,601 5,530 1% 22,421 20,724 8%
Non interest expense 11,670 10,403 12% 46,338 42,114 10%
Net income before income taxes 6,963 7,014 (1)% 25,268 23,398 8%
Provision for income taxes 1,953 2,105 (7)% 7,123 6,909 3%
Net income 5,010 4,909 2% 18,145 16,489 10%
Preferred stock dividends & amortization  -- 195 (100)%  -- 972 (100)%
Net income available to common shareholders $5,010 $4,714 6% $18,145 $15,517 17%
Per Common Share Data            
Diluted earnings per common share 0.66 0.63 5% 2.41 2.07 16%
Cash dividends declared 0.17 0.00 100% 0.79 0.56 41%
Earnings Performance Data            
Return on common equity 11.79% 12.21% (42)bps 11.08% 10.41%  47bps
Return on assets 1.12% 1.13% (1)bps 1.05% 1.00% 5bps
Net interest margin 3.52% 3.55% (3)bps 3.53% 3.65% (12)bps
 
The Bank of Kentucky Financial Corporation
Selected Consolidated Financial Data
(Dollars in thousands, except per share data)
     
Balance Sheet Data    
  December 31, 2012 December 31, 2011
Assets:    
Cash and cash equivalents $151,832 $135,964
Investments 381,537 371,737
Loans held for sale 16,324 8,920
Total loans, gross 1,195,409 1,129,954
Allowance for loan losses (16,568) (18,288)
Premises and equipment, net 22,494 22,827
Goodwill and acquisition intangibles, net 24,485 25,251
Other assets and accrued interest receivable 68,591 68,359
Total assets $1,844,104 $1,744,724
     
Liabilities & Shareholders' Equity    
Total deposits $1,570,007 $1,498,821
Short-term borrowings 41,408 29,300
Notes payable 48,715 48,739
Accrued interest payable and other liabilities 13,534 11,294
Total liabilities 1,673,664 1,588,154
Common stockholders' equity 170,440 156,570
Total liabilities and shareholders' equity $1,844,104 $1,744,724
 
The Bank of Kentucky Financial Corporation
Selected Consolidated Financial Data
(Dollars in thousands, except per share data)
             
  Average Balance Sheet Rates (presented on a tax equivalent basis)
  Quarter ended December 31, 2012  Quarter ended December 31, 2011
  Average outstanding balance Interest earned/ paid Yield/ rate Average outstanding balance Interest earned/ paid Yield/ rate
             
Interest-earning assets:            
Loans receivable (1)(2) $1,175,879 $14,365 4.86% $1,139,767 $14,493 5.04%
Securities (2) 373,008 1,728 1.84 360,265 1,848 2.02
Other interest-earning assets 71,139 92 0.51 76,258 81 0.42
Total interest-earning assets 1,620,026 16,185 3.97 1,576,290 16,422 4.13
Non-interest-earning assets 152,740     141,526    
Total assets $1,772,766     $1,717,816    
Interest-bearing liabilities:            
Transaction accounts 848,302 432 0.20 783,753 528 0.27
Time deposits 358,936 720 0.80 406,963 1,217 1.19
Borrowings 72,193 258 1.42 77,832 264 1.35
Total interest-bearing liabilities 1,279,431 1,410 0.44 1,268,548 2,009 0.63
Non-interest-bearing liabilities 324,304     286,340    
Total liabilities 1,603,735     1,554,888    
Shareholders' equity 169,031     162,928    
Total liabilities and shareholders' equity $1,772,766     $1,717,816    
Net interest income   $14,775     $14,413  
Interest rate spread     3.53%     3.50%
Net interest margin (net interest income as a percent of average interest-earning assets)     3.63%     3.63%
             
(1)  Includes non-accrual loans.            
(2) Income presented on a tax equivalent basis using a 35.00% tax rate in 2012 and 2011. The tax equivalent adjustment was $443,000 and $326,000 in 2012 and 2011, respectively.            
 
The Bank of Kentucky Financial Corporation
Selected Consolidated Financial Data
(Dollars in thousands, except per share data)
             
  Average Balance Sheet Rates (presented on a tax equivalent basis)
  Year ended December 31, 2012 Year ended December 31, 2011
  Average
outstanding
balance
Interest
earned/
paid
Yield/
rate
Average
outstanding
balance
Interest
earned/
paid
Yield/
rate
             
Interest-earning assets:            
Loans receivable (1)(2) $1,151,139 $56,196 4.88% $1,123,625 $58,379 5.20%
Securities (2) 373,029 7,412 1.99 326,681 7,302 2.24
Other interest-earning assets 65,716 334 0.51 71,085 372 0.52
 Total interest-earning assets 1,589,884 63,942 4.02 1,521,391 66,053 4.34
Non-interest-earning assets 143,694     134,667    
Total assets $1,733,578     $1,656,058    
Interest-bearing liabilities:            
Transaction accounts 819,915 1,552 0.21 736,323 2,403 0.33
Time deposits 378,111 3,728 0.93 420,026 5,835 1.39
Borrowings 74,786 1,059 1.42 74,147 1,022 1.38
Total interest-bearing liabilities 1,272,812 6,339 0.50 1,230,496 9,260 0.75
Non-interest-bearing liabilities 297,003     262,245    
Total liabilities 1,569,815     1,492,741    
Shareholders' equity 163,763     163,317    
Total liabilities and shareholders' equity $1,733,578     $1,656,058    
Net interest income   $57,603     $56,793  
Interest rate spread     3.52%     3.59%
Net interest margin (net interest income as a percent of average interest-earning assets)   3.62%     3.73%
___________________________            
(1) Includes non-accrual loans.  
(2) Income presented on a tax equivalent basis using a 35.00% tax rate in 2012 and 2011. The tax equivalent adjustment was $1,418,000 and $1,255,000 in 2012 and 2011, respectively. .
 
The Bank of Kentucky Financial Corporation
 Selected Consolidated Financial Data
(Dollars in thousands, except per share data)
  Five-Quarter Comparison    
Income Statement Data 12/31/12 9/30/12 6/30/12 3/31/12 12/31/11
Net interest income $14,332 $13,962 $14,047 $13,844 $14,087
Provision for loan losses 1,300 2,200 1,700 1,800 2,200
           
Net interest income after provision for loan losses 13,032 11,762 12,347 12,044 11,887
Service charges and fees 2,322 2,325 2,241 2,201 2,390
Gain on sale of real estate loans 694 917 589 586 580
Gain/(loss) on sale of securities -- -- (4) 207 --
Trust fee income 749 710 694 689 625
Bankcard transaction revenue 971 940 952 902 885
Gains/(losses) on other real estate owned (226) (67) (40) (94) (85)
Other non-interest income 1,091 1,036 921 1,115 1,135
Total non-interest income 5,601 5,861 5,353 5,606 5,530
Salaries and employee benefits expense 5,869 5,909 5,724 5,451 5,044
Occupancy and equipment expense 1,341 1,316 1,315 1,277 1,192
Data processing expense 618 505 533 535 522
State bank taxes 554 579 579 559 415
Amortization of intangible assets 183 187 196 200 220
FDIC Insurance 296 267 295 305 305
Other non-interest expenses 2,809 3,036 2,885 3,015 2,705
Total non-interest expense 11,670 11,799 11,527 11,342 10,403
Net income before income tax expense 6,963 5,824 6,173 6,308 7,014
Income tax expense 1,953 1,628 1,749 1,793 2,105
Net income 5,010 4,196 4,424 4,515 4,909
Preferred stock dividends & amortization  --  --  --  -- 195
Net income available to common shareholders $5,010 $4,196 $4,424 $4,515 $4,714
Per Common Share Data          
Diluted earnings per common share  0.66 0.56 0.59 0.60 0.63
Cash dividends declared 0.17 0.32 0.00 0.30 0.00
Weighted average common shares outstanding          
Basic  7,470,146 7,465,926 7,465,434 7,448,604 7,432,995
Diluted  7,557,777 7,554,271 7,542,372 7,520,062 7,465,606
Earnings Performance Data          
Return on common equity 11.79% 10.05% 10.99% 11.49% 12.21%
Return on assets 1.12% 0.98% 1.03% 1.04% 1.13%
Net interest margin 3.52% 3.56% 3.57% 3.49% 3.55%
Net interest margin (tax equivalent) 3.63% 3.64% 3.65% 3.57% 3.63%
 
The Bank of Kentucky Financial Corporation
Selected Consolidated Financial Data
(Dollars in thousands, except per share data)
  Five-Quarter Comparison
           
Balance Sheet Data 12/31/12 9/30/12 6/30/12 3/31/12 12/31/11
Assets:          
Cash and cash equivalents $151,832 $81,950 $66,719 $133,153 $135,964
Investments 381,537 361,108 376,454 374,336 371,737
Loans held for sale 16,324 19,314 13,983 10,863 8,920
Total loans 1,195,409 1,159,074 1,143,733 1,130,200 1,129,954
Allowance for loan losses (16,568) (16,585) (18,346) (18,362) (18,288)
Premises and equipment, net 22,494 22,714 22,923 23,159 22,827
Goodwill and acquisition intangibles, net 24,485 24,668 24,856 25,051 25,251
Other assets & accrued interest receivable 68,591 69,711 73,543 74,381 68,359
Total assets $1,844,104 $1,721,954 $1,703,865 $1,752,781 $1,744,724
Liabilities & Shareholders' Equity          
Total deposits $1,570,007 $1,471,246 $1,455,328 $1,505,709 $1,498,821
Short-term borrowings 41,408 22,142 24,373 29,334 29,300
Notes payable 48,715 48,721 48,727 48,733 48,739
Accrued interest payable & other liabilities 13,534 12,224 10,987 9,531 11,294
Total liabilities 1,673,664 1,554,333 1,539,415 1,593,307 1,588,154
Common stockholders' equity 170,440 167,621 164,450 159,474 156,570
Preferred stock  --  --  --  --  --
Shareholders' equity 170,440 167,621 164,450 159,474 156,570
Total liabilities and shareholders' equity $1,844,104 $1,721,954 $1,703,865 $1,752,781 $1,744,724
Common shares outstanding 7,470,146 7,467,396 7,465,841 7,464,811 7,432,995
Average Balance Sheet Data          
Average investments $373,008 $369,707 $375,245 $374,027 $360,265
Average other earning assets 71,139 32,781 70,648 88,597 76,258
Average loans 1,175,879 1,158,072 1,136,894 1,133,367 1,139,767
Average earning assets 1,620,026 1,560,560 1,582,787 1,595,991 1,576,290
Average assets 1,772,766 1,707,843 1,730,575 1,745,169 1,717,816
Average deposits 1,518,557 1,459,593 1,482,222 1,494,332 1,464,550
Average interest bearing deposits 1,207,238 1,165,673 1,194,699 1,224,743 1,190,716
Average interest bearing transaction deposits 848,302 796,346 813,312 821,643 783,753
Average interest bearing time deposits 358,936 369,327 381,387 403,100 406,963
Average borrowings 72,193 70,445 75,789 80,798 77,832
Average interest bearing liabilities 1,279,431 1,236,118 1,270,488 1,305,541 1,268,548
Average common stockholders equity 169,031 166,036 161,962 158,022 153,175
Average preferred stock -- -- -- -- 9,753
 
The Bank of Kentucky Financial Corporation
Selected Consolidated Financial Data
(Dollars in thousands, except per share data)
           
  Five-Quarter Comparison 
           
Asset Quality Data 12/31/12 9/30/12 6/30/12 3/31/12 12/31/11
Allowance for loan losses to total loans 1.39% 1.43% 1.60% 1.62% 1.62%
Allowance for loan losses to non-performing loans 86% 112% 111% 105% 115%
Nonaccrual loans  $19,244  $14,813  $16,265  $16,779  $15,651
Loans – 90 days past due & still accruing 39 105 195 680 219
Total non-performing loans 19,283 14,918 16,460 17,459 15,870
OREO and repossessed assets 5,396 6,192 5,950 6,328 5,844
Total non-performing assets 24,679 21,110 22,410 23,787 21,714
Restructured loans-accruing 6,046 12,270 15,388 15,492 13,306
Non-performing loans to total loans 1.61% 1.29% 1.44% 1.54% 1.40%
Non-performing assets to total assets 1.34% 1.23% 1.32% 1.36% 1.25%
Annualized charge-offs to average loans 0.45% 1.39% 0.61% 0.62% 0.65%
Net charge-offs $1,317 $3,961 $1,716 $1,726 $1,853
           
Other Information          
Total assets under management (in millions) 714 715 701 702 667
Full-time equivalent employees 365 370 376 359 356

About BKFC

BKFC, a bank holding company with assets of approximately $1.844 billion, offers banking and related financial services to both individuals and business customers. BKFC operates thirty-three branch locations and fifty-six ATMs in the Northern Kentucky/Cincinnati market.

CONTACT: Martin Gerrety Executive Vice President and CFO (859) 372-5169 mgerrety@bankofky.com
 

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