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The Bank of Kentucky Financial Corporation Announces Second Quarter Earnings

CRESTVIEW HILLS, Ky., July 18, 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 second quarter ended June 30, 2013. For the second quarter, the Company reported an increase in net income of 1% as compared to the same period in 2012.

A summary of the Company's results follows:

Second Quarter ended June 30, 2013 2012 Change
Net income $4,485,000 $4,424,000 1%
Earnings per common share, basic $0.60 $0.59 2%
Earnings per common share, diluted $0.59 $0.59 0%
Six Months ended June 30, 2013 2012 Change
Net income $8,575,000 $8,939,000 (4)%
Net income per common share, basic $1.15 $ 1. 20 (4)%
Net income per common share, diluted $1.13 $ 1 .19 (5)%

Robert W. Zapp, President & CEO, commented on the financial results: "Our second quarter finished strong as we maintained forward progress in our core businesses, even as we continue to experience margin compression and a sluggish economic recovery that has kept loan growth to a minimum. However, I am encouraged to see increased activity with respect to small business and corporate borrowing and I anticipate this trend to remain positive along with improved credit metrics." Zapp added, "We continue to deepen client relationships by cross-selling investments, mortgage loans, treasury management and card products. Revenue in these areas experienced double-digit growth in the second quarter compared to 2012, contributing to our increase in earnings. In addition, we continue to improve and modify our approach to retail banking, internet banking, mobile banking and how we serve our customers. As a result, we experienced an increase in overall service charge revenue, have become more efficient, and continue to invest in new technologies, maintaining our high level of customer service, and addressing the growing regulatory demands all banks are facing today. I am pleased with our second quarter performance as we look to build on this momentum for the second half of the year."

Driving the increase in net income in the second quarter of 2013 was a $487,000 (9%) increase in non-interest income, which offset a $339,000 (2%) decrease in net interest income as compared to the second quarter of 2012. Contributing to the increase in non-interest income were service charges on deposits, gains on the sale of real estate loans, trust fee income and bankcard revenue. The decrease in net interest income was the result of the compression on the net interest margin. The compression of the net interest margin is the result of the historically low interest rate environment, where the cost of funds are close to a floor and the yield on earning assets still has room to decline.

Non-interest income increased 9% ($487,000) in the second quarter of 2013, as compared to the same period in 2012, while non-interest expense increased 1% ($138,000) from the same period last year. Contributing to the increase in non-interest income was a $340,000 or 15% increase in service charges on deposits, a $156,000 or 22% increase in trust fee income, a $92,000 or 10% increase in bankcard transaction revenue and a $83,000 or 14% increase in gains on the sale of real estate loans which were offset by $268,000 higher losses on other real estate owned. Contributing to the increase in non-interest expense was $264,000 or 5% increase in the salaries and benefits expense.

Net interest income decreased $339,000, or 2% in the second quarter of 2013, as compared to the same period in 2012. The net interest margin, on a tax equivalent basis, decreased 19 basis points from 3.65% in the second quarter of 2012 to 3.46% in the second quarter of 2013. As discussed above, 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 31 basis points from 4.06% in the second quarter of 2012 to 3.75% in the second quarter of 2013, while the cost of interest bearing liabilities only decreased 15 basis points from .51% to .36% in the same period. The decrease in the interest margin was partially offset with an increase in earning assets of $42 million, or 3% on average from the second quarter of 2012. On a tax equivalent basis, the effect of the reduction in the net interest income as a result of rate was a negative $1,101,000, which was partially offset by an $748,000 positive effect on net interest income as a result of the growth in earning assets.

The provision for loan losses decreased by $100,000 (6%) in the second quarter of 2013, as compared to the same period in 2012. Contributing to this decrease were lower levels of charge-offs as compared to the second quarter of 2012. The Company's annualized net charge-offs to average loans decreased from .61% in the second quarter of 2012 to .54% in the second quarter of 2013 while non-performing loans as a percentage of total loans were 1.60% as of June 30, 2013, as compared to 1.44% as of June 30, 2012. The Company recorded $1,591,000 in net charge-offs in the second quarter of 2013 as compared to $1,716,000 in the second quarter of 2012. On a sequential basis, the provision for loan losses of $1,600,000 in the second quarter of 2013 was $400,000 lower than the provision in the first quarter of 2013, while non-performing loans decreased from $21.8 million (1.84% of total loans) at March 31, 2013 to $18.9 million (1.60% of total loans) at June 30, 2013. Net charge-offs on a sequential basis decreased from $1,927,000 (.66% of loans) in the first quarter of 2013 to $1,591,000 (.54% of loans) in the second quarter of 2013. The majority of the loans charged off in the first quarter of 2013 were reserved for in prior quarters. The reserve for impaired loans was $4,361,000 at June 30, 2013, which was $3,155,000 lower than the $7,516,000 reserve at June 30, 2012. As a result of the lower impaired loan reserves and lower levels of adversely classified loans, the Allowance for Loan Losses (ALL) has decreased from 1.60% of loans at the end of the second quarter of 2012 to 1.40% of loans at the end of the second quarter of 2013. On a sequential basis the ALL was 1.40% at the end of both the first and second 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.

The Company's non-performing assets as a percentage of total assets were 1.38% as of June 30, 2013, as compared to 1.32% as of June 30, 2012. While non-performing loans increased $2,485,000 from June 2012 to June 2013, other real estate owned decreased $743,000 in the same time period. These properties are recorded at their estimated net realizable value with the difference between this value and the loan balance being recorded as a charge-off at the time of foreclosure.

Total assets were $1.766 billion at the end of the second quarter of 2013, which was $62 million or 4% higher than the same date a year ago. Total loans increased $42 million (4%) and were funded by an increase in deposits of $50 million, or 3%. Total equity increased $5.8 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 increasing from $.00 in the second quarter of 2012 to $.17 in the same period of 2013. On a year to date basis, cash dividends increased from $.30 in 2012 to $.34 in 2013.

The Bank of Kentucky Financial Corporation
Selected Consolidated Financial Data
(Dollars in thousands, except per share data)
Second Quarter Comparison Six months ended June 30, Comparison
Income Statement Data 6/30/13 6/30/12 % Chg 6/30/13 6/30/12 % Chg
Interest income $ 14,880 $ 15,661 (5)% $ 29,746 $ 31,349 (5)%
Interest expense 1,172 1,614 (27)% 2,455 3,458 (29)%
Net interest income 13,708 14,047 (2)% 27,291 27,891 (2)%
Provision for loan losses 1,600 1,700 (6)% 3,600 3,500 3%
Net interest income after provision for loan losses 12,108 12,347 (2)% 23,691 24,391 (3)%
Non interest income 5,840 5,353 9% 11,702 10,959 7%
Non interest expense 11,665 11,527 1% 23,434 22,869 2%
Net income before income taxes 6,283 6,173 2% 11,959 12,481 (4)%
Provision for income taxes 1,798 1,749 3% 3,384 3,542 (4)%
Net income $ 4,485 $ 4,424 1% $ 8,575 $ 8,939 (4)%
Per Common Share Data
Diluted earnings per common share 0.59 0.59 0% 1.13 1.19 (5)%
Cash dividends declared 0.17 0.00 0% 0.34 0.30 13%
Earnings Performance Data
Return on common equity 10.48% 10.99% (51)bps 10.07% 11.24% (117)bps
Return on assets 1.00% 1.03% (3)bps .96% 1.03% (7)bps
Net interest margin 3.38% 3.57% (19)bps 3.35% 3.53% (18)bps
The Bank of Kentucky Financial Corporation
Selected Consolidated Financial Data
(Dollars in thousands, except per share data)
Balance Sheet Data
June 30, 2013 December 31, 2012
Assets:
Cash and cash equivalents $ 80,941 $ 151,832
Investments 384,653 381,537
Loans held for sale 9,909 16,324
Total loans, gross 1,185,449 1,195,409
Allowance for loan losses (16,650) (16,568)
Premises and equipment, net 22,560 22,494
Goodwill and acquisition intangibles, net 24,169 24,485
Other assets and accrued interest receivable 74,859 68,591
Total assets $ 1,765,890 $ 1,844,104
Liabilities & Shareholders' Equity
Total deposits $ 1,504,829 $ 1,570,007
Short-term borrowings 26,934 41,408
Notes payable 50,702 48,715
Accrued interest payable and other liabilities 13,196 13,534
Total liabilities 1,595,661 1,673,664
Common stockholders' equity 170,229 170,440
Total liabilities and shareholders' equity $ 1,765,890 $ 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 June 30, 2013 Three Months ended June 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) $1,190,590 $13,390 4.51% $1,136,894 $13,948 4.93%
Securities (2) 387,526 1,725 1.79 375,245 1,961 2.10
Other interest-earning assets 46,886 78 0.67 70,648 79 0.45
Total interest-earning assets 1,625,002 15,193 3.75 1,582,787 15,988 4.06
Non-interest-earning assets 165,041 147,788
Total assets $1,790,043 $1,730,575
Interest-bearing liabilities:
Transaction accounts 882,084 355 0.16 813,312 425 0.21
Time deposits 333,774 579 0.70 381,387 923 0.97
Borrowings 74,927 238 1.27 75,789 266 1.41
Total interest-bearing liabilities 1,290,785 1,172 0.36 1,270,488 1,614 0.51
Non-interest-bearing liabilities 327,665 298,125
Total liabilities 1,618,450 1,568,613
Shareholders' equity 171,593 161,962
Total liabilities and shareholders' equity $1,790,043 $1,730,575
Net interest income $14,021 $14,374
Interest rate spread 3.39% 3.55%
Net interest margin (net interest income as a percent of average interest-earning assets) 3.46% 3.65%
(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 $313,000 and $327,000 in 2013 and 2012, 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 )
Six Months ended June 30,2013 Six Months ended June 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) $1,192,612 $26,785 4.53% $1,135,131 $27,906 4.94%
Securities (2) 381,979 3,404 1.80 374,636 3,921 2.10
Other interest-earning assets 66,390 174 0.53 79,622 171 0.43
Total interest-earning assets 1,640,981 30,363 3.73 1,589,389 31,998 4.05
Non-interest-earning assets 159,819 148,483
Total assets $1,800,800 $1,737,872
Interest-bearing liabilities:
Transaction accounts 887,317 754 0.17 817,477 895 0.22
Time deposits 342,714 1,224 0.72 392,243 2,019 1.04
Borrowings 75,149 477 1.28 78,293 544 1.40
Total interest-bearing liabilities 1,305,180 2,455 0.38 1,288,013 3,458 0.54
Non-interest-bearing liabilities 323,975 289,867
Total liabilities 1,629,155 1,577,880
Shareholders' equity 171,645 159,992
Total liabilities and shareholders' equity $1,800,800 $1,737,872
Net interest income $27,908 $28,540
Interest rate spread 3.35% 3.51%
Net interest margin (net interest income as a percent of average interest-earning assets)

3.43%


3.61%
________________________
(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 $617,000 and $649,000 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 6/30/13 3/31/13 12/31/12 9/30/12 6/30/12
Net interest income $ 13,708 $ 13,583 $ 14,332 $ 13,962 $ 14,047
Provision for loan losses 1,600 2,000 1,300 2,200 1,700
Net interest income after provision for loan losses 12,108 11,583 13,032 11,762 12,347
Service charges and fees 2,581 2,131 2,322 2,325 2,241
Gain on sale of real estate loans 672 539 694 917 589
Gain on sale of securities -- 274 -- -- (4)
Trust fee income 850 852 749 710 694
Bankcard transaction revenue 1,044 957 971 940 952
Gains/(losses) on other real estate owned (308) (4) (226) (67) (40)
Other non-interest income 1,001 1,113 1,091 1,036 921
Total non-interest income 5,840 5,862 5,601 5,861 5,353
Salaries and employee benefits expense 5,988 5,913 5,869 5,909 5,724
Occupancy and equipment expense 1,315 1,306 1,341 1,316 1,315
Data processing expense 537 550 618 505 533
State bank taxes 615 575 554 579 579
Amortization of intangible assets 157 159 183 187 196
FDIC Insurance 335 295 296 267 295
Other non-interest expenses 2,718 2,971 2,809 3,036 2,885
Total non-interest expense 11,665 11,769 11,670 11,799 11,527
Net income before income tax expense 6,283 5,676 6,963 5,824 6,173
Income tax expense 1,798 1,586 1,953 1,628 1,749
Net income $ 4,485 $ 4,090 $ 5,010 $ 4,196 $ 4,424
Per Common Share Data
Diluted earnings per common share 0.59 0.54 0.66 0.56 0.59
Cash dividends declared 0.17 0.17 0.17 0.32 0.00
Weighted average common shares outstanding
Basic 7,491,619 7,478,901 7,470,146 7,465,926 7,465,434
Diluted 7,564,179 7,583,544 7,557,777 7,554,271 7,542,372
Earnings Performance Data
Return on common equity 10.48% 9.66% 11.79% 10.05% 10.99%
Return on assets 1.00% 0.92% 1.12% 0.98% 1.03%
Net interest margin 3.38% 3.32% 3.52% 3.56% 3.57%
Net interest margin (tax equivalent) 3.46% 3.40% 3.63% 3.64% 3.65%

The Bank of Kentucky Financial Corporation
Selected Consolidated Financial Data
(Dollars in thousands, except per share data)
Five-Quarter Comparison
Balance Sheet Data 6/30/13 3/31/13 12/31/12 9/30/12 6/30/12
Assets:
Cash and cash equivalents $ 80,941 $ 138,561 $ 151,832 $ 81,950 $ 66,719
Investments 384,653 376,704 381,537 361,108 376,454
Loans held for sale 9,909 14,038 16,324 19,314 13,983
Total loans 1,185,449 1,187,742 1,195,409 1,159,074 1,143,733
Allowance for loan losses (16,650) (16,641) (16,568) (16,585) (18,346)
Premises and equipment, net 22,560 22,559 22,494 22,714 22,923
Goodwill and acquisition intangibles, net 24,169 24,325 24,485 24,668 24,856
Other assets & accrued interest receivable 74,859 73,223 68,591 69,711 73,543
Total assets $ 1,765,890 $ 1,820,511 $ 1,844,104 $ 1,721,954 $ 1,703,865
Liabilities & Shareholders' Equity:
Total deposits $ 1,504,829 $ 1,558,933 $ 1,570,007 $ 1,471,246 $ 1,455,328
Short-term borrowings 26,934 28,309 41,408 22,142 24,373
Notes payable 50,702 48,709 48,715 48,721 48,727
Accrued interest payable & other liabilities 13,196 11,604 13,534 12,224 10,987
Total liabilities 1,595,661 1,647,555 1,673,664 1,554,333 1,539,415
Shareholders' equity 170,229 172,956 170,440 167,621 164,450
Total liabilities and shareholders' equity $ 1,765,890 $ 1,820,511 $ 1,844,104 $ 1,721,954 $ 1,703,865
Common shares outstanding 7,498,014 7,482,776 7,470,236 7,467,396 7,465,841
Average Balance Sheet Data
Average investments $387,526 $376,370 $373,008 $369,707 $375,245
Average other earning assets 46,886 86,110 71,139 32,781 70,648
Average loans 1,190,590 1,194,657 1,175,879 1,158,072 1,136,894
Average earning assets 1,625,002 1,657,137 1,620,026 1,560,560 1,582,787
Average assets 1,790,043 1,811,675 1,772,766 1,707,843 1,730,575
Average deposits 1,529,159 1,551,953 1,518,557 1,459,593 1,482,222
Average interest bearing deposits 1,215,858 1,244,360 1,207,238 1,165,673 1,194,699
Average interest bearing transaction deposits 882,084 892,609 848,302 796,346 813,312
Average interest bearing time deposits 333,774 351,751 358,936 369,327 381,387
Average borrowings 74,927 75,375 72,193 70,445 75,789
Average interest bearing liabilities 1,290,785 1,319,735 1,279,431 1,236,118 1,270,488
Average common stockholders equity 171,593 171,698 169,031 166,036 161,962
The Bank of Kentucky Financial Corporation
Selected Consolidated Financial Data
(Dollars in thousands, except per share data)
Five-Quarter Comparison
Asset Quality Data 6/30/13 3/31/13 12/31/12 9/30/12 6/30/12
Allowance for loan losses to total loans 1.40% 1.40% 1.39% 1.43% 1.60%
Allowance for loan losses to non-performing loans 88% 76% 86% 112% 111%
Nonaccrual loans $18,934 $21,771 $19,244 $14,813 $16,265
Loans – 90 days past due & still accruing 11 36 39 105 195
Total non-performing loans 18,945 21,807 19,283 14,918 16,460
OREO and repossessed assets 5,207 5,454 5,396 6,192 5,950
Total non-performing assets 24,152 27,261 24,679 21,110 22,410
Restructured loans-accruing 7,204 7,499 6,046 12,270 15,388
Non-performing loans to total loans 1.60% 1.84% 1.61% 1.29% 1.44%
Non-performing assets to total assets 1.38% 1.50% 1.34% 1.23% 1.32%
Annualized charge-offs to average loans 0.54% 0.66% 0.45% 1.39% 0.61%
Net charge-offs $1,591 $1,927 $1,317 $3,961 $1,716
Other Information
Total assets under management (in millions) 747 744 714 715 701
Full-time equivalent employees 361 364 365 370 376

About BKFC

BKFC, a bank holding company with assets of approximately $1.766 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 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.