The Bank of Kentucky Financial Corporation Announces Record Earnings for the Third Quarter

CRESTVIEW HILLS, Ky., Oct. 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 third quarter ended September 30, 2013. For the quarter, the Company reported an increase in net income of 29% compared with the same period in 2012.

A summary of the Company's results follows:

Third Quarter ended September 30, 2013 2012 Change
Net income $5,415,000 $4,196,000 29%
Earnings per common share, basic $0.72 $0.56 29%
Earnings per common share, diluted $0.72 $0.56 29%
Nine Months ended September 30, 2013 2012 Change
Net income $13,990,000 $13,135,000 7%
Net income per common share, basic $1.87 $ 1. 76 6%
Net income per common share, diluted $1.85 $ 1 .74 6%

Robert W. Zapp, President & CEO, commented, "I am particularly pleased to report on the company's third quarter results as The Bank achieved more than one milestone. First and foremost, earnings for the quarter set a record by surpassing $5.4 million, which was 29% higher compared with the same period last year. Even in the midst of a significant slowdown in mortgage loan originations due to the rate environment, we have been successful in other lines of business and continue to focus on expense control and credit quality. For example, the Wealth Advisory Group continued to contribute double-digit revenue growth, credit metrics across the board maintained their positive trends, and I applaud the efforts of employees throughout the company who have kept expenses in check and have found ways to improve efficiency." Zapp added, "the second milestone is also significant as we operate in the shadow of the financial crisis and navigate through a slow moving economy. The Bank's total loans outstanding finished the quarter strong and exceeded $1.2 billion for the first time. Our team of lenders, business bankers, and branch managers are working together every day to meet the borrowing and banking needs of the community and we look forward to continued growth in the fourth quarter and into 2014."

The increase in net income in the third quarter of 2013 was primarily due to a $1,600,000 (73%) decrease in the provision for loan losses and a $195,000 (3%) increase in non-interest income compared with the third quarter of 2012. Contributing to the decrease in the provision for loan losses were lower levels of charge-offs and lower levels of adversely classified loans compared with September of 2012. Contributing to the increase in non-interest income were service charges on deposits, trust fee income and bankcard revenue.

Non-interest income increased 3% ($195,000) in the third quarter of 2013, compared with the same period in 2012, while non-interest expense decreased 1% ($80,000) from the same period last year. Contributing to the increase in non-interest income was a $504,000 or 22% increase in service charges on deposits, a $136,000 or 19% increase in trust fee income and a $72,000 or 8% increase in bankcard transaction revenue, which was offset by a $635,000 or 69% decrease in gains on the sale of real estate loans.

Net interest income remained relatively unchanged compared with the same period in 2012, decreasing $40,000 in the third quarter of 2013. The net interest margin, on a tax equivalent basis, decreased 14 basis points from 3.64% in the third quarter of 2012 to 3.50% in the third quarter of 2013. The decrease in the net interest income and the compression of the net interest margin was the result of the yield on earning assets falling faster than the cost of interest bearing liabilities. The yield on earning assets decreased 25 basis points from 4.02% in the third quarter of 2012 to 3.77% in the third quarter of 2013, while the cost of interest bearing liabilities only decreased 12 basis points from .47% to .35% in the same period. The decrease in the net interest margin was partially offset with an increase in earning assets of $55 million, or 4% on average from the third quarter of 2012. On a tax equivalent basis, the effect of the reduction in net interest income as a result of rate was a negative $653,000, which was partially offset by a $601,000 positive effect on net interest income as a result of the growth in earning assets.

The provision for loan losses decreased by $1,600,000 (73%) in the third quarter of 2013, compared with the same period in 2012. Contributing to this decrease were lower levels of charge-offs compared with the third quarter of 2012. The Company's annualized net charge-offs to average loans decreased from 1.39% in the third quarter of 2012 to .21% in the third quarter of 2013 while non-performing loans as a percentage of total loans were 1.37% as of September 30, 2013, compared with 1.29% as of September 30, 2012. The Company recorded $618,000 in net charge-offs in the third quarter of 2013 compared with $3,961,000 in the third quarter of 2012. On a sequential basis, the provision for loan losses of $600,000 in the third quarter of 2013 was $1,000,000 lower than the provision in the second quarter of 2013, while non-performing loans decreased from $18.9 million (1.60% of total loans) at June 30, 2013 to $16.4 million (1.37% of total loans) at September 30, 2013. Net charge-offs on a sequential basis decreased from $1,591,000 (.54% of loans) in the second quarter of 2013 to $618,000 (.21% of loans) in the third quarter of 2013. As a result of improving credit metrics, the Allowance for Loan Losses (ALL) has decreased from 1.43% of loans at the end of the third quarter of 2012 to 1.38% of loans at the end of the third quarter of 2013. On a sequential basis the ALL decreased from 1.40% at the end of the second quarter of 2013 to 1.38% at the end of the third quarter of 2013. 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.

Total assets were $1.802 billion at the end of the third quarter of 2013, which was $80 million or 5% higher than the same date a year ago. Total loans increased $42 million (4%) and were funded by an increase in deposits of $58 million, or 4%. Total equity increased $7.6 million from the same date in 2012. In September 2012, the Company's Board of Directors voted to change from a semi-annual cash dividend to a quarterly cash dividend, commencing with the fourth quarter of 2012. This resulted in cash dividends declared decreasing from $.32 per share in the third quarter of 2012 to $.17 per share in the same period of 2013. The change in the dividend frequency also resulted in cash dividends decreasing from $.62 per share in 2012 to $.51 per share in 2013 on a year to date basis.

The Bank of Kentucky Financial Corporation
Selected Consolidated Financial Data
(Dollars in thousands, except per share data)
Third Quarter Comparison Nine months ended September 30, Comparison
Income Statement Data 9/30/13 9/30/12 % Chg 9/30/13 9/30/12 % Chg
Interest income $15,034 $15,433 (3)% $44,780 $46,782 (4)%
Interest expense 1,112 1,471 (24)% 3,567 4,929 (28)%
Net interest income 13,922 13,962 (--)% 41,213 41,853 (2)%
Provision for loan losses 600 2,200 (73)% 4,200 5,700 (26)%
Net interest income after provision for loan losses 13,322 11,762 13% 37,013 36,153 2%
Non interest income 6,056 5,861 3% 17,758 16,820 6%
Non interest expense 11,719 11,799 (1)% 35,153 34,668 1%
Net income before income taxes 7,659 5,824 32% 19,618 18,305 7%
Provision for income taxes 2,244 1,628 38% 5,628 5,170 9%
Net income $5,415 $4,196 29% $13,990 $13,135 7%
Per Common Share Data
Diluted earnings per common share 0.72 0.56 29% 1.85 1.74 6%
Cash dividends declared 0.17 0.32 (47)% 0.51 0.62 (18)%
Earnings Performance Data
Return on common equity 12.44% 10.05% 239bps 10.87% 10.83% 4bps
Return on assets 1.21% .98% 23bps 1.04% 1.02% 2bps
Net interest margin 3.42% 3.56% (14)bps 3.38% 3.54% (16)bps
The Bank of Kentucky Financial Corporation
Selected Consolidated Financial Data
(Dollars in thousands, except per share data)
Balance Sheet Data
September 30, 2013 December 31, 2012
Assets:
Cash and cash equivalents $102,448 $151,832
Investments 389,179 381,537
Loans held for sale 2,435 16,324
Total loans, gross 1,201,193 1,195,409
Allowance for loan losses (16,632) (16,568)
Premises and equipment, net 22,517 22,494
Goodwill and acquisition intangibles, net 24,018 24,485
Other assets and accrued interest receivable 77,066 68,591
Total assets $1,802,224 $1,844,104
Liabilities & Shareholders' Equity
Total deposits $1,529,505 $1,570,007
Short-term borrowings 32,167 41,408
Notes payable 50,695 48,715
Accrued interest payable and other liabilities 14,606 13,534
Total liabilities 1,626,973 1,673,664
Common stockholders' equity 175,251 170,440
Total liabilities and shareholders' equity $1,802,224 $1,844,104
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 )
Three Months ended September 30,
2013
Three Months ended September 30,
2012
Average
outstanding
balance
Interest
earned/
paid
Yield/
rate
Average
outstanding
balance
Interest
earned/
paid
Yield/
rate
Interest-earning assets:
Loans receivable (1)(2) $1,199,824 $13,442 4.44% $1,158,072 $13,926 4.78%
Securities (2) 386,644 1,835 1.88 369,707 1,763 1.90
Other interest-earning assets 29,039 73 1.00 32,781 71 0.86
1,615,507 15,350 3.77 1,560,560 15,760 4.02
Total interest-earning assets
Non-interest-earning assets 155,984 147,283
Total assets $1,771,491 $1,707,843
Interest-bearing liabilities:
Transaction accounts 848,512 327 0.15 796,346 280 0.14
Time deposits 316,435 519 0.65 369,327 934 1.01
Borrowings 80,733 266 1.31 70,445 257 1.45
Total interest-bearing liabilities 1,245,680 1,112 0.35 1,236,118 1,471 0.47
Non-interest-bearing liabilities 353,071 305,689
Total liabilities 1,598,751 1,541,807
Shareholders' equity 172,740 166,036
Total liabilities and shareholders' equity $1,771,491 $1,707,843
Net interest income $14,238 $14,289
Interest rate spread 3.42% 3.55%
Net interest margin (net interest income as a percent of average interest-earning assets) 3.50% 3.64%

(1) Includes non-accrual loans.
(2) Income presented on a tax equivalent basis using a 35.00% tax rate in 2013 and 2012. The tax equivalent adjustment was $316,000 and $327,000 in 2013 and 2012, respectively.

Selected Consolidated Financial Data
(Dollars in thousands, except per share data)
Average Balance Sheet Rates (presented on a tax equivalent basis )
Nine Months ended September
30,2013
Nine Months ended September 30,
2012
Average
outstanding
balance
Interest
earned/
paid
Yield/
rate
Average
outstanding
balance
Interest
earned/
paid
Yield/
rate
Interest-earning assets:
Loans receivable (1)(2) $1,195,042 $40,226 4.48% $1,142,833 $41,832 4.89%
Securities (2) 383,551 5,240 1.82 373,036 5,684 2.04
Other interest-earning assets 53,803 247 0.61 63,895 242 0.51
Total interest-earning assets 1,632,396 45,713 3.74 1,579,764 47,758 4.04
Non-interest-earning assets 158,527 148,025
Total assets $1,790,923 $1,727,789
Interest-bearing liabilities:
Transaction accounts 874,240 1,081 0.17 810,382 1,175 0.19
Time deposits 333,857 1,743 0.70 384,549 2,953 1.03
Borrowings 77,024 743 1.29 75,657 801 1.41
Total interest-bearing liabilities 1,285,121 3,567 0.37 1,270,588 4,929 0.52
Non-interest-bearing liabilities 333,792 295,194
Total liabilities 1,618,913 1,565,782
Shareholders' equity 172,010 162,007
Total liabilities and shareholders' equity $1,790,923 $1,727,789
Net interest income $42,146 $42,829
Interest rate spread 3.37% 3.52%
Net interest margin (net interest income as a percent of average interest-earning assets) 3.45% 3.62%
(1) Includes non-accrual loans.
(2) Income presented on a tax equivalent basis using a 35.00% tax rate in 2013 and 2012. The tax equivalent adjustment was $933,000 and $976,000 in 2013 and 2012, respectively.
The Bank of Kentucky Financial Corporation
Selected Consolidated Financial Data
(Dollars in thousands, except per share data)
Five-Quarter Comparison
Income Statement Data 9/30/13 6/30/13 3/31/13 12/31/12 9/30/12
Net interest income $13,922 $13,708 $13,583 $14,332 $13,962
Provision for loan losses 600 1,600 2,000 1,300 2,200
Net interest income after provision for loan losses 13,322 12,108 11,583 13,032 11,762
Service charges and fees 2,829 2,581 2,131 2,322 2,325
Gain on sale of real estate loans 282 672 539 694 917
Gain on sale of securities -- -- 274 -- --
Trust fee income 846 850 852 749 710
Bankcard transaction revenue 1,012 1,044 957 971 940
Gains/(losses) on other real estate owned (201) (308) (4) (226) (67)
Other non-interest income 1,288 1,001 1,113 1,091 1,036
Total non-interest income 6,056 5,840 5,862 5,601 5,861
Salaries and employee benefits expense 5,969 5,988 5,913 5,869 5,909
Occupancy and equipment expense 1,366 1,315 1,306 1,341 1,316
Data processing expense 533 537 550 618 505
State bank taxes 615 615 575 554 579
Amortization of intangible assets 151 157 159 183 187
FDIC Insurance 317 335 295 296 267
Other non-interest expenses 2,768 2,718 2,971 2,809 3,036
Total non-interest expense 11,719 11,665 11,769 11,670 11,799
Net income before income tax expense 7,659 6,283 5,676 6,963 5,824
Income tax expense 2,244 1,798 1,586 1,953 1,628
Net income $5,415 $4,485 $4,090 $5,010 $4,196
Per Common Share Data
Diluted earnings per common share 0.72 0.59 0.54 0.66 0.56
Cash dividends declared 0.17 0.17 0.17 0.17 0.32
Weighted average common shares outstanding
Basic 7,516,770 7,491,619 7,478,901 7,470,146 7,465,926
Diluted 7,549,530 7,564,179 7,583,544 7,557,777 7,554,271
Earnings Performance Data
Return on common equity 12.44% 10.48% 9.66% 11.79% 10.05%
Return on assets 1.21% 1.00% 0.92% 1.12% 0.98%
Net interest margin 3.42% 3.38% 3.32% 3.52% 3.56%
Net interest margin (tax equivalent) 3.50% 3.46% 3.40% 3.63% 3.64%
The Bank of Kentucky Financial Corporation
Selected Consolidated Financial Data
(Dollars in thousands, except per share data)
Five-Quarter Comparison
Balance Sheet Data 9/30/13 6/30/13 3/31/13 12/31/12 9/30/12
Assets:
Cash and cash equivalents $102,448 $80,941 $138,561 $151,832 $81,950
Investments 389,179 384,653 376,704 381,537 361,108
Loans held for sale 2,435 9,909 14,038 16,324 19,314
Total loans 1,201,193 1,185,449 1,187,742 1,195,409 1,159,074
Allowance for loan losses (16,632) (16,650) (16,641) (16,568) (16,585)
Premises and equipment, net 22,517 22,560 22,559 22,494 22,714
Goodwill and acquisition intangibles, net 24,018 24,169 24,325 24,485 24,668
Other assets & accrued interest receivable 77,066 74,859 73,223 68,591 69,711
Total assets $1,802,224 $1,765,890 $1,820,511 $1,844,104 $1,721,954
Liabilities & Shareholders' Equity:
Total deposits $1,529,505 $1,504,829 $1,558,933 $1,570,007 $1,471,246
Short-term borrowings 32,167 26,934 28,309 41,408 22,142
Notes payable 50,695 50,702 48,709 48,715 48,721
Accrued interest payable & other liabilities 14,606 13,196 11,604 13,534 12,224
Total liabilities 1,626,973 1,595,661 1,647,555 1,673,664 1,554,333
Shareholders' equity 175,251 170,229 172,956 170,440 167,621
Total liabilities and shareholders' equity $1,802,224 $1,765,890 $1,820,511 $1,844,104 $1,721,954
Common shares outstanding 7,528,618 7,498,014 7,482,776 7,470,236 7,467,396
Average Balance Sheet Data
Average investments $386,644 $387,526 $376,370 $373,008 $369,707
Average other earning assets 29,039 46,886 86,110 71,139 32,781
Average loans 1,199,824 1,190,590 1,194,657 1,175,879 1,158,072
Average earning assets 1,615,507 1,625,002 1,657,137 1,620,026 1,560,560
Average assets 1,771,491 1,790,043 1,811,675 1,772,766 1,707,843
Average deposits 1,506,101 1,529,159 1,551,953 1,518,557 1,459,593
Average interest bearing deposits 1,164,947 1,215,858 1,244,360 1,207,238 1,165,673
Average interest bearing transaction deposits 848,512 882,084 892,609 848,302 796,346
Average interest bearing time deposits 316,435 333,774 351,751 358,936 369,327
Average borrowings 80,733 74,927 75,375 72,193 70,445
Average interest bearing liabilities 1,248,680 1,290,785 1,319,735 1,279,431 1,236,118
Average common stockholders equity 172,740 171,593 171,698 169,031 166,036
The Bank of Kentucky Financial Corporation
Selected Consolidated Financial Data
(Dollars in thousands, except per share data)
Five-Quarter Comparison
Asset Quality Data 9/30/13 6/30/13 3/31/13 12/31/12 9/30/12
Allowance for loan losses to total loans 1.38% 1.40% 1.40% 1.39% 1.43%
Allowance for loan losses to non-performing loans 101% 88% 76% 86% 112%
Nonaccrual loans $16,197 $18,934 $21,771 $19,244 $14,813
Loans – 90 days past due & still accruing 207 11 36 39 105
Total non-performing loans 16,404 18,945 21,807 19,283 14,918
OREO and repossessed assets 6,141 5,207 5,454 5,396 6,192
Total non-performing assets 22,545 24,152 27,261 24,679 21,110
Restructured loans-accruing 7,109 7,204 7,499 6,046 12,270
Non-performing loans to total loans 1.37% 1.60% 1.84% 1.61% 1.29%
Non-performing assets to total assets 1.26% 1.38% 1.50% 1.34% 1.23%
Annualized charge-offs to average loans 0.21% 0.54% 0.66% 0.45% 1.39%
Net charge-offs $618 $1,591 $1,927 $1,317 $3,961
Other Information
Total assets under management (in millions) 766 747 744 714 715
Full-time equivalent employees 351 361 364 365 370

About BKFC

BKFC, a bank holding company with assets of approximately $1.802 billion, offers banking and related financial services to both individuals and business customers. BKFC operates thirty-two branch locations and fifty-six ATMs in the Northern Kentucky market.

CONTACT: For more information contact: Martin Gerrety Executive Vice President and CFO (859) 372-5169 mgerrety@bankofky.comSource:The Bank of Kentucky Financial Corp.