Bank of Kentucky Financial (BKYF) 8-K Announces Second Quarter Earnings

NEWS RELEASE

THE BANK OF KENTUCKY FINANCIAL CORPORATION

ANNOUNCES SECOND QUARTER EARNINGS

Earnings per share up 27% for the Second quarter of 2011 and 49% year to date
 

       CRESTVIEW HILLS, KENTUCKY, July 20, 2011 – 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 and six months ended June 30, 2011.   For the second quarter and the first six months of 2011, the Company reported an increase in diluted earnings per common share of 27% and 49% respectively as compared to the same periods in 2010.

A summary of the Company’s results follows:

Second Quarter ended June 30,	2011		2010		Change
Net income	$	3,794,000	$	2,610,000		45	%
Net income available to common shareholders	$	3,535,000	$	2,096,000		69	%
Earnings per common share, basic	$	0.48	$	0.37		30	%
Earnings per common share, diluted	$	0.47	$	0.37		27	%
Six Months ended June 30,	2011		2010		Change
Net income	$	7,306,000	$	4,470,000		63	%
Net income available to common shareholders	$	6,790,000	$	3,446,000		97	%
Net income per common share, basic	$	0.91	$	0 .61		49	%
Net income per common share, diluted	$	0.91	$	0 .61		49	%

         Robert Zapp, President & CEO stated, “We followed an exceptional opening quarter of 2011 with a second quarter of improved earnings.  We announced plans to open our first branch in downtown Cincinnati later this year and we executed a purchase and assumption agreement with United Kentucky Bank of Pendleton County, Inc.  We are excited to open our first branch in Ohio and to welcome the staff and customers of UKB in Falmouth, Kentucky.  These positive and strategic moves are coupled with the continued improvement we witnessed in the second quarter with respect to our credit metrics and overall loan demand.  I have confidence in our team and the resources we have put in place as we work to maintain our path, strategically and financially, in the coming quarters.”

          Driving the increase in earnings in the second quarter of 2011 was a $1,500,000 (33%) decrease in the provision for loan losses as compared to the second quarter of 2010.  Also contributing to increased earnings was a 3% increase in total revenue. The increase in net income available to common shareholders was also attributable to a 50% reduction in preferred stock dividends and amortization. The decrease in the provision for loan losses reflected improving credit metrics as compared to June of 2010, while the reduction of preferred stock dividends and amortization reflects the December 2010 repurchase of $17 million of the outstanding $34 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 increased $573,000, or 4% in the second quarter of 2011, as compared to the same period in 2010. The net interest margin, on a tax equivalent basis, increased 3 basis points from 3.81% in the second quarter of 2010 to 3.84% in the second quarter of 2011.  Contributing to the increase in net interest income was the growth in average earning assets, which increased $53 million, or 4% on average from the second quarter of 2010.

The provision for loan losses decreased by $1,500,000 (33%) in the second quarter of 2011, as compared to the same period in 2010.  Contributing to this decrease were lower levels of non-performing loans and charge-offs as compared to June 2010.   The Company’s non-performing loans as a percentage of total loans were 1.46% as of June 30, 2011, as compared to 1.99% as of June 30, 2010, while annualized net charge-offs to average loans decreased from 1.26% in the second quarter of 2010 to 1.03% in the second quarter of 2011.  The Company recorded $2,871,000 in net charge-offs in the second quarter of 2011 as compared to $3,577,000 in the second quarter of 2010.  On a sequential basis, the provision for loan losses of $3,000,000 in the second quarter of 2011 was equal to the provision in the first quarter of 2011, while non-performing loans decreased from $20.4 million (1.82% of total loans) at March 31, 2011 to $16.4 million (1.46% of total loans) at June 30, 2011.  Net charge-offs on a sequential basis increased slightly from $2,680,000 (.98% of loans) in the first quarter of 2011 to $2,871,000 (1.03% of loans) in the second quarter of 2011.  The allowance for loan losses (ALL) increased $1,285,000 or 8% from June 2010, and $448,000 from December 31, 2010.  As a result of the added allowance, the ALL has increased from 1.47% of loans at the end of the second quarter of 2010 to 1.58% of loans at the end of the second quarter of 2011.   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.

          Non-interest income increased 1% ($34,000) in the second quarter of 2011, as compared to the same period in 2010, while non-interest expense increased 3% ($319,000) from the same period last year.  Contributing to the increase in non-interest expense was $281,000 (6%) increase in salaries and employee benefits.

           Total assets were $1.602 billion at the end of the second quarter of 2011, which was $82 million or 5% higher than the same date a year ago. Total loans increased $6 million (0%) while investments in securities increased $86 million (37%) from June of 2010.   The increased investments in securities were funded by an increase in deposits of $54 million, or 4%, and an increase in shareholders’ equity of $21 million or 15%.  The growth in equity was a result of increased earnings as described above and the net increase in capital from the Company’s December 2010 common stock offering, less the Series A Preferred Stock repurchase.

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	6/30/11			6/30/10			% Chg			6/30/11			6/30/10			% Chg
Interest income	$	16,423		$	16,813			(2	)%	$	32,422		$	33,586			(3	)%
Interest expense		2,396			3,359			(29	)%		5,047			7,198			(30	)%
Net interest income		14,027			13,454			4	%		27,375			26,388			4	%
Provision for loan losses		3,000			4,500			(33	)%		6,000			9,000			(33	)%
Net interest income after provision for loan losses		11,027			8,954			23	%		21,375			17,388			23	%
Non interest income		4,974			4,940			1	%		9,897			9,545			4	%
Non  interest expense		10,635			10,316			3	%		20,984			20,929			-	%
Net income before income taxes		5,366			3,578			50	%		10,288			6,004			71	%
Provision for income taxes		1,572			968			62	%		2,982			1,534			94	%
Net income		3,794			2,610			45	%		7,306			4,470			63	%
Preferred stock dividends & amortization		259			514			(50	)%		516			1,024			(50	)%
Net income available to common shareholders	$	3,535		$	2,096			69	%	$	6,790		$	3,446			97	%
Per Common Share Data
Diluted earnings per common share		0.47			0.37			27	%		0.91			0.61			49	%
Cash dividends declared		0.00			0.00			0	%		0.28			0.28			0	%
Earnings Performance Data
Return on common equity		9.59	%		7.59	%	200		bps		9.40	%		6.33	%	307		bps
Return on assets		.93	%		.67	%	26		bps		.90	%		.57	%	33		bps
Net interest margin		3.76	%		3.74	%	2		bps		3.66	%		3.68	%	(2		)bps

The Bank of Kentucky Financial Corporation

Selected Consolidated Financial Data

(Dollars in thousands, except per share data)

Balance Sheet Data
	June 30, 2011			December 31, 2010			June 30, 2010
Assets:
Cash and cash equivalents	$	61,098		$	172,664		$	69,094
Investments		320,202			285,326			233,817
Loans held for sale		1,107			15,279			6,795
Total loans, gross		1,128,511			1,106,009			1,122,964
Allowance for loan losses		(17,816	)		(17,368	)		(16,531	)
Premises and equipment, net		22,576			23,170			23,690
Goodwill and acquisition intangibles, net		25,028			25,464			26,178
Other assets and accrued interest receivable		61,013			54,340			53,613
Total assets	$	1,601,719		$	1,664,884		$	1,519,620
Liabilities & Shareholders’ Equity
Total deposits	$	1,355,284		$	1,422,312		$	1,300,949
Short-term borrowings		20,610			23,419			18,097
Notes payable		48,750			48,761			44,770
Accrued interest payable and other liabilities		10,682			11,022			10,894
Total liabilities		1,435,325			1,505,514			1,374,710
Common stockholders’ equity		149,511			142,580			111,510
Preferred stock		16,882			16,790			33,400
Shareholders’ equity		166,393			159,370			144,910
Total liabilities and shareholders’ equity	$	1,601,719		$	1,664,884		$	1,519,620

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, 2011							Three Months ended June 30, 2010
	Average outstanding balance		Interest earned/ paid		Yield/ rate			Average outstanding balance		Interest earned/ paid		Yield/ rate
Interest-earning assets:
Loans receivable (1)(2)	$	1,119,767	$	14,770		5.29	%	$	1,139,730	$	15,426		5.43	%
Securities (2)		319,377		1,881		2.36			243,572		1,536		2.53
Other interest-earning assets		57,607		84		0.58			60,416		97		0.64
Total interest-earning assets		1,496,751		16,735		4.48			1,443,718		17,059		4.74
Non-interest-earning assets		137,239							124,119
Total assets	$	1,633,990						$	1,567,837
Interest-bearing liabilities:
Transaction accounts		721,948		513		0.29			695,866		646		0.37
Time deposits		423,038		1,629		1.54			450,254		2,415		2.15
Borrowings		72,580		254		1.40			66,333		298		1.80
Total interest-bearing liabilities		1,217,566		2,396		0.79			1,212,453		3,359		1.11
Non-interest-bearing liabilities		252,718							212,297
Total liabilities		1,470,284							1,424,750
Shareholders’ equity		163,706							143,087
Total liabilities and shareholders’ equity	$	1,633,990						$	1,567,837
Net interest income			$	14,339						$	13,700
Interest rate spread						3.69	%						3.63	%
Net interest margin (net interest income as a percent of average interest-earning assets)						3.84	%						3.81	%

(1) Includes non-accrual loans.

(2) Income presented on a tax equivalent basis using a 35.00% and 34.23% tax rate in 2011 and 2010, respectively. The tax equivalent adjustment was $312,000 and $246,000 in 2011 and 2010, 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 30,2011							Six Months ended June 30, 2010
	Average outstanding balance		Interest earned/ paid		Yield/ rate			Average outstanding balance		Interest earned/ paid		Yield/ rate
Interest-earning assets:
Loans receivable (1)(2)	$	1,114,153	$	29,234		5.29	%	$	1,146,378	$	30,803		5.42	%
Securities (2)		310,901		3,573		2.32			230,001		3,067		2.69
Other interest-earning assets		84,397		222		.53			68,735		206		.60
Total interest-earning assets		1,509,451		33,029		4.41			1,445,114		34,076		4.76
Non-interest-earning assets		133,063							124,880
Total assets	$	1,642,514						$	1,569,994
Interest-bearing liabilities:
Transaction accounts		725,063		1,184		0.33			699,182		1,596		0.46
Time deposits		431,155		3,355		1.57			454,405		5,010		2.22
Borrowings		73,065		508		1.40			66,736		592		1.79
Total interest-bearing liabilities		1,229,283		5,047		0.83			1,220,323		7,198		1.19
Non-interest-bearing liabilities		251,281							207,529
Total liabilities		1,480,564							1,427,852
Shareholders’ equity		161,950							142,142
Total liabilities and shareholders’ equity	$	1,642,514						$	1,569,994
Net interest income			$	27,982						$	26,878
Interest rate spread						3.58	%						3.57	%
Net interest margin (net interest income as a percent of average interest-earning assets)						3.74	%						3.75	%

(1) Includes non-accrual loans.

(2) Income presented on a tax equivalent basis using a 35.00% and 34.23% tax rate in 2011 and 2010, respectively. The tax equivalent adjustment was $607,000 and $490,000 in 2011 and 2010, respectively.

The Bank of Kentucky Financial Corporation

Selected Consolidated Financial Data

(Dollars in thousands, except per share data)

	Five-Quarter Comparison
Income Statement Data	06/30/11			03/31/11			12/31/10			9/30/10			6/30/10
Net interest income	$	14,027		$	13,348		$	13,429		$	13,592		$	13,454
Provision for loan losses		3,000			3,000			3,000			3,500			4,500
Net interest income after provision for loan losses		11,027			10,348			10,429			10,092			8,954
Service charges and fees		2,424			2,157			2,411			2,589			2,622
Gain on sale of real estate loans		228			278			946			1,041			337
Gain on sale of securities		-			231			-			-			-
Trust fee income		723			663			601			620			602
Bankcard transaction revenue		859			789			774			727			749
Gains/(losses) on Other Real Estate Owned		(94	)		16			(125	)		(110	)		30
Other non-interest income		834			789			935			760			600
Total non-interest income		4,974			4,923			5,542			5,627			4,940
Salaries and employee benefits expense		5,045			4,754			4,959			5,110			4,764
Occupancy and equipment expense		1,241			1,248			1,185			1,195			1,187
Data processing expense		467			494			484			442			443
State bank taxes		550			536			477			492			507
Amortization of intangible assets		215			221			357			357			375
FDIC Insurance		384			583			566			504			587
Other non-interest expenses		2,733			2,513			2,742			2,625			2,453
Total non-interest expense		10,635			10,349			10,770			10,725			10,316
Net income before income tax expense		5,366			4,922			5,201			4,994			3,578
Income tax expense		1,572			1,410			1,528			1,466			968
Net income		3,794			3,512			3,673			3,528			2,610
Preferred stock dividends & amortization		259			257			707			515			514
Net income available to common shareholders	$	3,535		$	3,255		$	2,966		$	3,013		$	2,096
Per Common Share Data
Diluted earnings per common share		0.47			0.44			0.46			0.53			0.37
Cash dividends declared		0.00			0.28			0.00			0.28			0.00
Weighted average common shares outstanding
Basic		7,432,487			7,432,295			6,434,354			5,666,707			5,666,707
Diluted		7,501,731			7,459,220			6,434,354			5,666,707			5,666,707
Earnings Performance Data
Return on common equity		9.59	%		9.21	%		9.33	%		10.68	%		7.59	%
Return on assets		.93	%		.86	%		.91	%		.93	%		.67	%
Net interest margin		3.76	%		3.56	%		3.62	%		3.90	%		3.74	%
Net interest margin (tax equivalent)		3.84	%		3.63	%		3.70	%		3.97	%		3.81	%

The Bank of Kentucky Financial Corporation

Selected Consolidated Financial Data

(Dollars in thousands, except per share data)

	Five-Quarter Comparison
Balance Sheet Data	06/30/11			03/31/11			12/31/10			9/30/10			6/30/10
Assets:
Cash and cash equivalents	$	61,098		$	97,712		$	172,664		$	41,280		$	69,094
Investments		320,202			328,271			285,326			240,657			233,817
Loans held for sale		1,107			1,223			15,279			21,903			6,795
Total loans		1,128,511			1,118,136			1,106,009			1,120,168			1,122,964
Allowance for loan losses		(17,816	)		(17,688	)		(17,368	)		(17,163	)		(16,531	)
Premises and equipment, net		22,576			22,856			23,170			23,373			23,690
Goodwill and acquisition intangibles, net		25,028			25,242			25,464			25,820			26,178
Other assets & accrued interest receivable		61,013			61,684			54,340			54,028			53,613
Total assets	$	1,601,719		$	1,637,436		$	1,664,884		$	1,510,066			1,519,620
Liabilities & Shareholders’ Equity
Total deposits	$	1,355,284		$	1,390,706		$	1,422,312		$	1,271,455		$	1,300,949
Short-term borrowings		20,610			24,667			23,419			36,175			18,097
Notes payable		48,750			48,756			48,761			44,766			44,770
Accrued interest payable & other liabilities		10,682			12,289			11,022			11,307			10,894
Total liabilities		1,435,325			1,476,418			1,505,514			1,363,703			1,374,710
Common stockholders’ equity		149,511			144,183			142,580			112,873			111,510
Preferred stock		16,882			16,835			16,790			33,490			33,400
Shareholders’ equity		166,393			161,018			159,370			146,363			144,910
Total liabilities and shareholders’ equity	$	1,601,719		$	1,637,436		$	1,664,884		$	1,510,066			1,519,620
Common shares outstanding		7,432,995			7,432,295			7,432,295			5,666,707			5,666,707
Average Balance Sheet Data
Average investments	$	319,377		$	302,331		$	252,793		$	234,335		$	243,572
Average other earning assets		57,607			111,484			85,384			28,232			60,416
Average loans		1,119,767			1,108,477			1,133,524			1,123,503			1,139,730
Average earning assets		1,496,751			1,522,292			1,471,701			1,386,070			1,443,718
Average assets		1,633,990			1,649,947			1,595,835			1,509,821			1,567,837
Average deposits		1,385,624			1,406,861			1,366,256			1,285,557			1,347,906
Average interest bearing deposits		1,144,986			1,168,383			1,130,890			1,083,935			1,146,120
Average interest bearing transaction deposits		721,948			729,022			682,826			637,835			695,866
Average interest bearing time deposits		423,038			439,361			448,064			446,100			450,254
Average borrowings		72,580			73,555			69,784			67,153			66,333
Average interest bearing liabilities		1,217,566			1,241,938			1,200,674			1,151,088			1,212,453
Average common stockholders equity		146,848			143,382			126,068			112,192			109,732
Average preferred stock		16,858			16,813			31,710			33,445			33,355

The Bank of Kentucky Financial Corporation

Selected Consolidated Financial Data

(Dollars in thousands, except per share data)

	Five-Quarter Comparison
Asset Quality Data	06/30/11			03/31/11			12/31/10			9/30/10			6/30/10
Allowance for loan losses to total loans		1.58	%		1.58	%		1.57	%		1.53	%		1.47	%
Allowance for loan losses to non-performing loans		1.07	%		87	%		82	%		90	%		74	%
Nonaccrual loans	$	16,322		$	19,735		$	20,648		$	18,768		$	22,184
Loans – 90 days past due & still accruing		100			637			414			207			213
Total non-performing loans		16,422			20,372			21,062			18,975			22,397
OREO and repossessed assets		1,902			1,083			795			1,392			1,397
Total non-performing assets		18,324			21,455			21,857			20,367			23,794
Restructured loans-accruing		7,022			3,294			6,135			3,901			3,441
Non-performing loans to total loans		1.46	%		1.82	%		1.90	%		1.69	%		1.99	%
Non-performing assets to total assets		1.15	%		1.32	%		1.32	%		1.35	%		1.57	%
Annualized charge-offs to average loans		1.03	%		0.98	%		1.00	%		1.02	%		1.26	%
Net charge-offs	$	2,871		$	2,680		$	2,795		$	2,867		$	3,577

About BKFC

BKFC, a bank holding company with assets of approximately $1.601 billion, offers banking and related financial services to both individuals and business customers.  BKFC operates thirty-one branch locations and fifty-two ATMs in the Northern Kentucky market.

For more information contact:

Martin Gerrety

Executive Vice President and CFO

(859) 372-5169

mgerrety@bankofky.com

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