NEWS RELEASE

 

 

 

_____________________________________________________________

 

THE BANK OF KENTUCKY FINANCIAL CORPORATION

ANNOUNCES THIRD QUARTER EARNINGS

 

Net income available to common shareholders of $4,196,000 up 5% for the

third quarter

 

CRESTVIEW HILLS, KENTUCKY, October 18, 2012 – 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 and nine months ended September 30, 2012. For the third quarter, the Company reported an increase in diluted earnings per common share of 4% from the same period in 2011.

A summary of the Company’s results follows:

 

Third Quarter ended September 30,		2012				2011				Change
Net income		$	4,196,000			$	4,274,000				(2	)%
Net income available to common shareholders		$	4,196,000			$	4,013,000				5	%
Earnings per common share, basic		$	0.56			$	0.54				4	%
Earnings per common share, diluted		$	0.56			$	0.54				4	%

  

Nine Months ended September 30,		2012				2011				Change
Net income		$	13,135,000			$	11,580,000				13	%
Net income available to common shareholders		$	13,135,000			$	10,803,000				22	%
Net income per common share, basic		$	1.76			$	1.45				21	%
Net income per common share, diluted		$	1.74			$	1.45				20	%

   

Robert Zapp, President & CEO stated, “The positive trends we have seen in lending over the past several months continued into the third quarter of 2012, with most of the growth coming in the past few months. In addition, increased mortgage volume at a time when interest rates were at historic lows helped to increase fee revenue for the quarter. Although slow moving, we are experiencing a steady climb in borrowing among businesses and consumers and are active in helping local businesses obtain credit of any size. We continue to grow organically and have focused on expanding existing customer relationships by selling investment services and additional bank products and services. The Bank has further established itself in the region by capturing additional market share and maintaining our position as the largest bank in Northern Kentucky with 23% of total deposits. Overall, The Bank continues to execute its strategy and looks forward to future success.”

 

The increase in earnings available to common shareholders in the third quarter of 2012 was primarily attributable to a $350,000 (14%) decrease in the provision for loan losses and a $261,000 (100%) decrease in preferred stock dividends and amortization as compared to the third 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 10% increase in noninterest expense. The decrease in the provision for loan losses reflected lower levels of impaired loan reserves, lower levels of nonperforming loans and lower levels of adversely classified loans as compared to September 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 (the “Series A Preferred Stock”), previously issued to the U.S. Department of the Treasury as part of the TARP CPP program.

 

Net interest income decreased $114,000 in the third quarter of 2012, as compared to the same period in 2011. The net interest margin, on a tax equivalent basis, decreased 19 basis points from 3.83% in the third quarter of 2011 to 3.64% in the third quarter of 2012. Contributing to the decrease in the net interest margin was the mix of the growth in earning assets. Of the $71 million growth in average earning assets from the third quarter of 2011 to third quarter of 2012, $46 million or 65% of the growth was attributed to the Bank’s securities portfolio, which generally has lower yields than loans.

 

The provision for loan losses decreased by $350,000 (14%) in the third quarter of 2012, as compared to the same period in 2011. Contributing to this decrease were lower levels of impaired loan reserves, non-performing and adversely classified loans as compared to September 2011. The Company’s non-performing loans as a percentage of total loans were 1.29% as of September 30, 2012, as compared to 1.43% as of September 30, 2011, while annualized net charge-offs to average loans increased from .86% in the third quarter of 2011 to 1.39% in the third quarter of 2012. The Company recorded $3,961,000 in net charge-offs in the third quarter of 2012 as compared to $2,425,000 in the third quarter of 2011. The majority of the loans charged off in the third quarter of 2012 were reserved for in prior quarters. On a sequential basis, the provision for loan losses of $2,200,000 in the third quarter of 2012 was $500,000 higher than the provision in the second quarter of 2012, while non-performing loans decreased from $16.5 million (1.44% of total loans) at June 30, 2012 to $14.9 million (1.29% of total loans) at September 30, 2012. Net charge-offs on a sequential basis increased from $1,716,000 (0.61% of loans) in the second quarter of 2012 to $3,961,000 (1.39% of loans) in the third quarter of 2012. The allowance for loan losses (ALL) as of September 30, 2012 decreased $1,761,000 from June 2012. The decrease in the ALL is primarily the result of the loans that were charged off in the third quarter of 2012 that were reserved for in previous quarters. The reserve for impaired loans was $6,254,000 at September 30, 2012, which was $1,261,000 lower than the $7,515,000 at June 30, 2012 and $1,508,000 lower than the $7,762,000 at September 30, 2011. As a result, the ALL has decreased from 1.60% of loans at the end of the second quarter of 2012 to 1.43% of loans at the end of the third 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.

 

The Company’s non-performing assets as a percentage of total assets were 1.23% as of September 30, 2012, as compared to 1.11% as of September 30, 2011. Non-performing loans decreased $1,091,000 from September 2011 to September 2012 and other real estate owned increased $4,298,000 in the same time period. On a sequential quarterly basis, other real estate owned increased $242,000 from June 2012. The increase in other real estate owned from September of 2011 was primarily the result of one commercial real estate relationship which added $3,475,000 in other real estate owned in the fourth quarter of 2011. These properties are recorded at their fair value less estimated costs to sell with the difference between this value and the loan balance being recorded as a charge-off.

 

Non-interest income increased 11% ($564,000) in the third quarter of 2012, as compared to the same period in 2011, while non-interest expense increased 10% ($1,072,000) from the same period last year. Contributing to the increase in non-interest income was a $214,000 or a 30% increase in the gains on sale of real estate loans. These gains were driven by the low current interest rates, which has prompted increased demand for home mortgage loan refinancing. Contributing to the increase in non-interest expense was a $558,000 (10%) increase in salaries and benefits expense. The increase in salaries and benefits included $181,000 in higher commission expense. The increase in commission expense included higher commissions paid based on higher real estate loan originations.

 

Total assets were $1.722 billion at the end of the third quarter of 2012, which was $98 million or 6% higher than the same date a year ago. Total loans increased $40 million (4%), investments in securities increased $21 million (6%) and cash and cash equivalents increased $14 million (21%) from September of 2011. The balance sheet increases were funded by an increase in deposits of $102 million, or 7%. Total equity decreased $1.7 million from the same date in 2011 as a result of the repurchase of the Series A Preferred Stock.

 

  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			9/30/12				9/30/11				% Chg				9/30/12				9/30/11				% Chg
Interest income		$	15,433			$	16,280				(5	)%		$	46,782			$	48,702				(4	)%
Interest expense			1,471				2,204				(33	)%			4,929				7,251				(32	)%
Net interest income			13,962				14,076				(1	)%			41,853				41,451				1	%
Provision for loan losses			2,200				2,550				(14	)%			5,700				8,550				(33	)%
Net interest income after provision for loan losses			11,762				11,526				2	%			36,153				32,901				10	%
Non interest income			5,861				5,297				11	%			16,820				15,194				11	%
Non  interest expense			11,799				10,727				10	%			34,668				31,711				9	%
Net income before income taxes			5,824				6,096				(4	)%			18,305				16,384				12	%
Provision for income taxes			1,628				1,822				(11	)%			5,170				4,804				8	%
Net income			4,196				4,274				(2	)%			13,135				11,580				13	%
Preferred stock dividends & amortization			-				261				(100	)%			-				777				(100	)%
Net income available to common shareholders		$	4,196			$	4,013				5	%		$	13,135			$	10,803				22	%
Per Common Share Data
Diluted earnings per common share			0.56				0.54				4	%			1.74				1.45				20	%
Cash dividends declared			0.32				0.28				14	%			0.62				0.56				11	%
Earnings Performance Data
Return on common equity			10.05	%			10.51	%			(46	)bps			10.83	%			9.78	%			105	bps
Return on assets			0.98	%			1.05	%			(7	)bps			1.02	%			0.95	%			7	bps
Net interest margin			3.56	%			3.76	%			(20	)bps			3.54	%			3.69	%			(15	)bps

 

The Bank of Kentucky Financial Corporation

Selected Consolidated Financial Data

(Dollars in thousands, except per share data)

 

Balance Sheet Data
		September 30, 2012				December 31, 2011
Assets:
Cash and cash equivalents		$	81,950			$	135,964
Investments			361,108				371,737
Loans held for sale			19,314				8,920
Total loans, gross			1,159,074				1,129,954
Allowance for loan losses			(16,585	)			(18,288	)
Premises and equipment, net			22,714				22,827
Goodwill and acquisition intangibles, net			24,668				25,251
Other assets and accrued interest receivable			69,711				68,359
Total assets		$	1,721,954			$	1,744,724
Liabilities & Shareholders’ Equity
Total deposits		$	1,471,246			$	1,498,821
Short-term borrowings			22,142				29,300
Notes payable			48,721				48,739
Accrued interest payable and other liabilities			12,224				11,294
Total liabilities			1,554,333				1,588,154
Common stockholders’ equity			167,621				156,570
Total liabilities and shareholders’ equity		$	1,721,954			$	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 )
		Three Months ended September 30, 2012												Three Months ended September 30, 2011
		Average outstanding balance				Interest earned/ paid				Yield/ rate				Average outstanding balance				Interest earned/ paid				Yield/ rate
Interest-earning assets:
Loans receivable (1)(2)		$	1,158,072			$	13,926				4.78	%		$	1,126,118			$	14,652				5.16	%
Securities (2)			369,707				1,763				1.90				324,144				1,881				2.30
Other interest-earning assets			32,781				71				0.86				39,721				69				0.69
Total interest-earning assets			1,560,560				15,760				4.02				1,489,983				16,602				4.42
Non-interest-earning assets			147,283												133,736
Total assets		$	1,707,843											$	1,623,719
Interest-bearing liabilities:
Transaction accounts			796,346				280				0.14				711,046				524				0.29
Time deposits			369,327				934				1.01				411,193				1,430				1.38
Borrowings			70,445				257				1.45				72,421				250				1.37
Total interest-bearing liabilities			1,236,118				1,471				0.47				1,194,660				2,204				0.73
Non-interest-bearing liabilities			305,689												261,219
Total liabilities			1,541,807												1,455,879
Shareholders’ equity			166,036												167,840
Total liabilities and shareholders’ equity		$	1,707,843											$	1,623,719
Net interest income						$	14,289											$	14,398
Interest rate spread											3.55	%											3.69	%
Net interest margin (net interest income as a percent of average interest-earning assets)											3.64	%											3.83	%

  

(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 $327,000 and $322,000 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 )
		Nine Months ended September 30, 2012												Nine Months ended September 30, 2011
		Average outstanding balance				Interest earned/ paid				Yield/ rate				Average outstanding balance				Interest earned/ paid				Yield/ rate
Interest-earning assets:
Loans receivable (1)(2)		$	1,142,833			$	41,832				4.89	%		$	1,118,185			$	43,886				5.25	%
Securities (2)			373,036				5,684				2.04				315,364				5,454				2.31
Other interest-earning assets			63,895				242				0.51				69,341				291				0.56
Total interest-earning assets			1,579,764				47,758				4.04				1,502,890				49,631				4.40
Non-interest-earning assets			148,025												132,355
Total assets		$	1,727,789											$	1,635,245
Interest-bearing liabilities:
Transaction accounts			810,382				1,175				0.19				720,339				1,708				0.32
Time deposits			384,549				2,953				1.03				424,428				4,785				1.51
Borrowings			75,657				801				1.41				72,879				758				1.39
Total interest-bearing liabilities			1,270,588				4,929				0.52				1,217,646				7,251				0.80
Non-interest-bearing liabilities			295,194												252,033
Total liabilities			1,565,782												1,469,679
Shareholders’ equity			162,007												165,566
Total liabilities and shareholders’ equity		$	1,727,789											$	1,635,245
Net interest income						$	42,829											$	42,380
Interest rate spread											3.52	%											3.60	%
Net interest margin (net interest income as a percent of average interest-earning assets)											3.62	%											3.77	%

___________________________

(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 $976,000 and $929,000 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		9/30/12				6/30/12				3/31/12				12/31/11				9/30/11
Net interest income		$	13,962			$	14,047			$	13,844			$	14,087			$	14,076
Provision for loan losses			2,200				1,700				1,800				2,200				2,550
Net interest income after provision for loan losses			11,762				12,347				12,044				11,887				11,526
Service charges and fees			2,325				2,241				2,201				2,390				2,470
Gain on sale of real estate loans			917				589				586				580				703
Gain/(loss) on sale of securities			-				(4	)			207				-				-
Trust fee income			710				694				689				625				630
Bankcard transaction revenue			940				952				902				885				849
Gains/(losses) on other real estate owned			(67	)			(40	)			(94	)			(85	)			(98	)
Other non-interest income			1,036				921				1,115				1,135				743
Total non-interest income			5,861				5,353				5,606				5,530				5,297
Salaries and employee benefits expense			5,909				5,724				5,451				5,044				5,351
Occupancy and equipment expense			1,316				1,315				1,277				1,192				1,216
Data processing expense			505				533				535				522				500
State bank taxes			579				579				559				415				550
Amortization of intangible assets			187				196				200				220				202
FDIC Insurance			267				295				305				305				269
Other non-interest expenses			3,036				2,885				3,015				2,705				2,639
Total non-interest expense			11,799				11,527				11,342				10,403				10,727
Net income before income tax expense			5,824				6,173				6,308				7,014				6,096
Income tax expense			1,628				1,749				1,793				2,105				1,822
Net income			4,196				4,424				4,515				4,909				4,274
Preferred stock dividends & amortization			-				-				-				195				261
Net income available to common shareholders		$	4,196			$	4,424			$	4,515			$	4,714			$	4,013
Per Common Share Data
Diluted earnings per common share			0.56				0.59				0.60				0.63				0.54
Cash dividends declared			0.32				0.00				0.30				0.00				0.28
Weighted average common shares outstanding
Basic			7,465,926				7,465,434				7,448,604				7,432,995				7,432,995
Diluted			7,554,271				7,542,372				7,520,062				7,465,606				7,488,743
Earnings Performance Data
Return on common equity			10.05	%			10.99	%			11.49	%			12.21	%			10.51	%
Return on assets			0.98	%			1.03	%			1.04	%			1.13	%			1.05	%
Net interest margin			3.56	%			3.57	%			3.49	%			3.55	%			3.76	%
Net interest margin (tax equivalent)			3.64	%			3.65	%			3.57	%			3.63	%			3.83	%

 

 The Bank of Kentucky Financial Corporation

Selected Consolidated Financial Data

(Dollars in thousands, except per share data)

 

		Five-Quarter Comparison
Balance Sheet Dataaia		9/30/12				6/30/12				3/31/12				12/31/11				9/30/11
Assets:
Cash and cash equivalents		$	81,950			$	66,719			$	133,153			$	135,964			$	67,657
Investments			361,108				376,454				374,336				371,737				339,780
Loans held for sale			19,314				13,983				10,863				8,920				6,612
Total loans			1,159,074				1,143,733				1,130,200				1,129,954				1,118,630
Allowance for loan losses			(16,585	)			(18,346	)			(18,362	)			(18,288	)			(17,941	)
Premises and equipment, net			22,714				22,923				23,159				22,827				22,653
Goodwill and acquisition intangibles, net			24,668				24,856				25,051				25,251				24,826
Other assets & accrued interest receivable			69,711				73,543				74,381				68,359				62,182
Total assets		$	1,721,954			$	1,703,865			$	1,752,781			$	1,744,724			$	1,624,399
Liabilities & Shareholders’ Equity
Total deposits		$	1,471,246			$	1,455,328			$	1,505,709			$	1,498,821			$	1,369,215
Short-term borrowings			22,142				24,373				29,334				29,300				26,248
Notes payable			48,721				48,727				48,733				48,739				48,745
Accrued interest payable & other liabilities			12,224				10,987				9,531				11,294				10,905
Total liabilities			1,554,333				1,539,415				1,593,307				1,588,154				1,455,113
Common stockholders’ equity			167,621				164,450				159,474				156,570				152,356
Preferred stock			-				-				-				-				16,930
Shareholders’ equity			167,621				164,450				159,474				156,570				169,286
Total liabilities and shareholders’ equity		$	1,721,954			$	1,703,865			$	1,752,781			$	1,744,724			$	1,624,399
Common shares outstanding			7,467,396				7,465,841				7,464,811				7,432,995				7,432,995
Average Balance Sheet Data
Average investments		$	369,707			$	375,245			$	374,027			$	360,265			$	324,144
Average other earning assets			32,781				70,648				88,597				76,258				39,721
Average loans			1,158,072				1,136,894				1,133,367				1,139,767				1,126,118
Average earning assets			1,560,560				1,582,787				1,595,991				1,576,290				1,489,983
Average assets			1,707,843				1,730,575				1,745,169				1,717,816				1,623,719
Average deposits			1,459,593				1,482,222				1,494,332				1,464,550				1,372,244
Average interest bearing deposits			1,165,673				1,194,699				1,224,743				1,190,716				1,122,239
Average interest bearing transaction deposits			796,346				813,312				821,643				783,753				711,046
Average interest bearing time deposits			369,327				381,387				403,100				406,963				411,193
Average borrowings			70,445				75,789				80,798				77,832				72,421
Average interest bearing liabilities			1,236,118				1,270,488				1,305,541				1,268,548				1,194,660
Average common stockholders equity			166,036				161,962				158,022				153,175				150,934
Average preferred stock			-				-				-				9,753				16,906

 

The Bank of Kentucky Financial Corporation

Selected Consolidated Financial Data

(Dollars in thousands, except per share data)

 

		Five-Quarter Comparison
Asset Quality Data		9/30/12				6/30/12				3/31/12				12/31/11				9/30/11
Allowance for loan losses to total loans			1.43	%			1.60	%			1.62	%			1.62	%			1.60	%
Allowance for loan losses to non-performing loans			112	%			111	%			105	%			115	%			112	%
Nonaccrual loans		$	14,813			$	16,265			$	16,779			$	15,651			$	15,964
Loans – 90 days past due & still accruing			105				195				680				219				45
Total non-performing loans			14,918				16,460				17,459				15,870				16,009
OREO and repossessed assets			6,192				5,950				6,328				5,844				1,894
Total non-performing assets			21,110				22,410				23,787				21,714				17,903
Restructured loans-accruing			12,270				15,388				15,492				13,306				13,108
Non-performing loans to total loans			1.29	%			1.44	%			1.54	%			1.40	%			1.43	%
Non-performing assets to total assets			1.23	%			1.32	%			1.36	%			1.25	%			1.11	%
Annualized charge-offs to average loans			1.39	%			0.61	%			0.62	%			0.65	%			0.86	%
Net charge-offs		$	3,961			$	1,716			$	1,726			$	1,853			$	2,425

 

 

Other Information
Total assets under management (in millions)	715	701	702	667	639
Full-time equivalent employees	370	376	359	356	349

 

About BKFC

BKFC, a bank holding company with assets of approximately $1.722 billion, offers banking and related financial services to both individuals and business customers. BKFC operates thirty-three branch locations and fifty-five ATMs in the Northern Kentucky/Cincinnati market.

For more information contact:

 

Martin Gerrety

Executive Vice President and CFO

(859) 372-5169

mgerrety@bankofky.com

###