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

NEWS RELEASE

THE BANK OF KENTUCKY FINANCIAL CORPORATION

ANNOUNCES FOURTH QUARTER EARNINGS

Net income available to common shareholders up 59% for the fourth quarter of

2011 and 65% for 2011

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CRESTVIEW HILLS, KENTUCKY, January 19, 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 fourth quarter and twelve months ended December 31, 2011.   For the fourth quarter and the twelve months of 2011, the Company reported an increase in diluted earnings per common share of 37% and 29% respectively as compared to the same periods in 2010.

The fourth quarter of 2011 also included the repurchase of the remaining $17 million of outstanding Fixed Rate Cumulative Perpetual Preferred Stock, Series A (the “Series A Preferred Stock”), issued in February 2009 to the U.S. Department of the Treasury under its TARP Capital Purchase Program and the closing of the United Kentucky Bank of Pendleton County, Inc, which included approximately $28 million in deposits and $14 million in loans.

A summary of the Company’s results follows:

Fourth Quarter ended December 31,	2011		2010		Change
Net income	$	4,909,000	$	3,673,000		34	%
Net income available to common shareholders	$	4,714,000	$	2,966,000		59	%
Earnings per common share, basic	$	0.63	$	0.46		37	%
Earnings per common share, diluted	$	0.63	$	0.46		37	%
Twelve Months ended December 31,	2011		2010		Change
Net income	$	16,489,000	$	11,671,000		41	%
Net income available to common shareholders	$	15,517,000	$	9,425,000		65	%
Net income per common share, basic	$	2.09	$	1.61		30	%
Net income per common share, diluted	$	2.07	$	1.61		29	%

Robert Zapp, President & CEO stated, “The fourth quarter was very active for us, and I am pleased to report on our financial performance for the quarter and the past twelve months.  We completed the acquisition of United Kentucky Bank, opening the Falmouth Branch in late October, which allowed us to enter Pendleton County.  We completed the repurchase of the remaining outstanding  shares of preferred stock related to TARP and we completed the renovation of space in Downtown Cincinnati, which will be home to our first branch location in Ohio and thirty-third overall.  The latest financial results also reflect the strength of our core lines of business and our ability to remain efficient in these tough economic times.  In addition, we were able to lower our provision for loan losses, as overall credit improved and losses decreased.”

Driving the increase in earnings in the fourth quarter of 2011 was an $800,000 (27%) decrease in the provision for loan losses as compared to the fourth quarter of 2010.  The increase in net income available to common shareholders was also attributable to a 72% reduction in preferred stock dividends and amortization expense. The decrease in the provision for loan losses reflected improving credit metrics as compared to December of 2010, while the reduction of preferred stock dividends and amortization expense reflects the repurchase of the final $17 million of the Company’s Series A Preferred Stock outstanding, previously issued to the U.S. Department of the Treasury as part of the TARP Capital Purchase Program.

Net interest income increased $658,000, or 5% in the fourth quarter of 2011, as compared to the same period in 2010.  Contributing to the increase in net interest income was the growth in average earning assets, which increased $105 million, or 7% on average from the fourth quarter of 2010.  The net interest margin, on a tax equivalent basis, decreased 7 basis points from 3.70% in the fourth quarter of 2010 to 3.63% in the fourth quarter of 2011.  Contributing to the decrease in the net interest margin was the mix of the growth in earning assets.  Of the $105 million in growth, $98 million or 93% of the growth was attributed to the Bank’s securities portfolio and fed funds sold, which generally have lower yields than loans.

The provision for loan losses decreased by $800,000 (27%) in the fourth 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 December 2010.   The Company’s non-performing loans as a percentage of total loans were 1.40% as of December 31, 2011, as compared to 1.90% as of December 31, 2010, while annualized net charge-offs to average loans decreased from 1.00% in the fourth quarter of 2010 to .65% in the fourth quarter of 2011.  The Company recorded $1,853,000 in net charge-offs in the fourth quarter of 2011 as compared to $2,795,000 in the fourth quarter of 2010.  On a sequential basis, the provision for loan losses of $2,200,000 in the fourth quarter of 2011 was $350,000 lower than the provision in the third quarter of 2011, while non-performing loans decreased from $16.0 million (1.43% of total loans) at September 30, 2011 to $15.9 million (1.40% of total loans) at December 31, 2011.  Net charge-offs on a sequential basis decreased from $2,425,000 (.86% of loans) in the third quarter of 2011 to $1,853,000 (.65% of loans) in the fourth quarter of 2011.  The allowance for loan losses (ALL) increased $920,000 or 5% from December 31, 2010.  As a result of the added allowance, the ALL has increased from 1.57% of loans at the end of the fourth quarter of 2010 to 1.62% of loans at the end of the fourth 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.

The Company’s non-performing assets as a percentage of total assets were 1.25% as of December 31, 2011, as compared to 1.32% as of December 31, 2010.  While non-performing loans decreased $5,192,000 from December 2010 to December 2011 other real estate owned increased $5,049,000 in the same time period.  On a sequential basis, other real estate owned increased $3,950,000 from September 2011, primarily as a result of one commercial real estate relationship that added $3,475,000 in other real estate owned in the fourth quarter.  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.

Non-interest income decreased $12,000 in the fourth quarter of 2011, as compared to the same period in 2010, while non-interest expense decreased $367,000 or 3% from the same period last year.  Contributing to the decrease in non-interest income was a $366,000 or 39% decrease in the gains on sale of real estate loans.  These gains were driven by a sharp drop in interest rates in the fourth quarter of 2010, which prompted increased demand for home mortgage loan refinancing.   Partially offsetting this decrease was an $111,000 or 14% increase in Bankcard revenue and a $59,000 or 24% increase in earnings from company owned life insurance.    Non-interest expense included decreases in FDIC insurance expense; down $261,000 or 46%, and amortization of intangible assets; down $137,000 or 38% from the fourth quarter of 2010.   The decrease in FDIC insurance was the result of recent changes in the methodology used by the FDIC to determine federal deposit insurance assessments.

Total assets were $1.745 billion at the end of 2011, which was $80 million or 5% higher than the same date a year ago.  Total loans increased $24 million (2%) while investments in securities increased $86 million (30%) from December of 2010.   The increased investments in securities and loans were funded by an increase in deposits of $77 million, or 5%, and a decrease in cash and cash equivalents of $37 million, or 21%.  Total equity decreased $3 million, or 2%, from the end of 2010 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)

	Fourth Quarter Comparison									Year ended December 31, Comparison
Income Statement Data	12/31/11			12/31/10			% Chg			12/31/11			12/31/10			% Chg
Interest income	$	16,096		$	16,402			(2	)%	$	64,798		$	66,682			(3	)%
Interest expense		2,009			2,973			(32	)%		9,260			13,273			(30	)%
Net interest income		14,087			13,429			5	%		55,538			53,409			4	%
Provision for loan losses		2,200			3,000			(27	)%		10,750			15,500			(31	)%
Net interest income after provision for loan losses		11,887			10,429			14	%		44,788			37,909			18	%
Non interest income		5,530			5,542			-	%		20,724			20,714			-	%
Non  interest expense		10,403			10,770			(3	)%		42,114			42,424			(1	)%
Net income before income taxes		7,014			5,201			35	%		23,398			16,199			44	%
Provision for income taxes		2,105			1,528			38	%		6,909			4,528			53	%
Net income		4,909			3,673			34	%		16,489			11,671			41	%
Preferred stock dividends & amortization		195			707			(72	)%		972			2,246			(57	)%
Net income available to common shareholders	$	4,714		$	2,966			59	%	$	15,517		$	9,425			65	%
Per Common Share Data
Diluted earnings per common share		0.63			0.46			37	%		2.07			1.61			29	%
Cash dividends declared		0.00			0.00			0	%		0.56			0.56			0	%
Earnings Performance Data
Return on common equity		12.21	%		9.33	%	288		bps		10.41	%		8.23	%	218		bps
Return on assets		1.13	%		.91	%	22		bps		1.00	%		.75	%	25		bps
Net interest margin		3.55	%		3.62	%	(7		)bps		3.65	%		3.72	%	(7		)bps

The Bank of Kentucky Financial Corporation

Selected Consolidated Financial Data

(Dollars in thousands, except per share data)

Balance Sheet Data
	December 31, 2011			December 31, 2010
Assets:
Cash and cash equivalents	$	135,964		$	172,664
Investments		371,737			285,326
Loans held for sale		8,920			15,279
Total loans, gross		1,129,954			1,106,009
Allowance for loan losses		(18,288	)		(17,368	)
Premises and equipment, net		22,827			23,170
Goodwill and acquisition intangibles, net		25,251			25,464
Other assets and accrued interest receivable		68,359			54,340
Total assets	$	1,744,724		$	1,664,884
Liabilities & Shareholders’ Equity
Total deposits	$	1,498,821		$	1,422,312
Short-term borrowings		29,300			23,419
Notes payable		48,739			48,761
Accrued interest payable and other liabilities		11,294			11,022
Total liabilities		1,588,154			1,505,514
Common stockholders’ equity		156,570			142,580
Preferred stock		-			16,790
Shareholders’ equity		156,570			159,370
Total liabilities and shareholders’ equity	$	1,744,724		$	1,664,884

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, 2011							Quarter ended December 31, 2010
	Average outstanding balance		Interest earned/ paid		Yield/ rate			Average outstanding balance		Interest earned/ paid		Yield/ rate
Interest-earning assets:
Loans receivable (1)(2)	$	1,139,767	$	14,493		5.04	%	$	1,133,524	$	15,228		5.33	%
Securities (2)		360,265		1,848		2.02			252,793		1,352		2.12
Other interest-earning assets		76,258		81		0.42			85,384		113		0.53
Total interest-earning assets		1,576,290		16,422		4.13			1,471,701		16,693		4.50
Non-interest-earning assets		141,526							124,134
Total assets	$	1,717,816						$	1,595,835
Interest-bearing liabilities:
Transaction accounts		783,753		528		0.27			682,826		684		0.40
Time deposits		406,963		1,217		1.19			448,064		1,995		1.77
Borrowings		77,832		264		1.35			69,784		294		1.67
Total interest-bearing liabilities		1,268,548		2,009		0.63			1,200,674		2,973		0.98
Non-interest-bearing liabilities		286,340							237,383
Total liabilities		1,554,888							1,438,057
Shareholders’ equity		162,928							157,778
Total liabilities and shareholders’ equity	$	1,717,816						$	1,595,835
Net interest income			$	14,413						$	13,720
Interest rate spread						3.50	%						3.52	%
Net interest margin (net interest income as a percent of average interest-earning assets)						3.63	%						3.70	%

(1) Includes non-accrual loans.

(2) Income presented on a tax equivalent basis using a 35.00% and 34.62% tax rate in 2011 and 2010, respectively. The tax equivalent adjustment was $326,000 and $291,000 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 )
	Year ended December 31,2011							Year ended December 31, 2010
	Average outstanding balance		Interest earned/ paid		Yield/ rate			Average outstanding balance		Interest earned/ paid		Yield/ rate
Interest-earning assets:
Loans receivable (1)(2)	$	1,123,625	$	58,379		5.20	%	$	1,137,373	$	61,535		5.41	%
Securities (2)		326,681		7,302		2.24			236,838		5,812		2.45
Other interest-earning assets		71,085		372		0.52			62,722		395		0.63
Total interest-earning assets		1,521,391		66,053		4.34			1,436,933		67,742		4.71
Non-interest-earning assets		134,667							124,408
Total assets	$	1,656,058						$	1,561,341
Interest-bearing liabilities:
Transaction accounts		736,323		2,403		0.33			679,597		3,012		0.44
Time deposits		420,026		5,835		1.39			450,712		9,054		2.01
Borrowings		74,147		1,022		1.38			67,628		1,207		1.78
Total interest-bearing liabilities		1,230,496		9,260		0.75			1,197,937		13,273		1.11
Non-interest-bearing liabilities		262,245							215,427
Total liabilities		1,492,741							1,413,364
Shareholders’ equity		163,317							147,977
Total liabilities and shareholders’ equity	$	1,656,058						$	1,561,341
Net interest income			$	56,793						$	54,469
Interest rate spread						3.59	%						3.60	%
Net interest margin (net interest income as a percent of average interest-earning assets)						3.73	%						3.79	%

(1) Includes non-accrual loans.

(2) Income presented on a tax equivalent basis using a 35.00% and 34.62% tax rate in 2011 and 2010, respectively. The tax equivalent adjustment was $1,255,000 and $1,060,000 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	12/31/11			9/30/11			6/30/11			3/31/11			12/31/10
Net interest income	$	14,087		$	14,076		$	14,027		$	13,348		$	13,429
Provision for loan losses		2,200			2,550			3,000			3,000			3,000
Net interest income after provision for loan losses		11,887			11,526			11,027			10,348			10,429
Service charges and fees		2,390			2,470			2,424			2,157			2,411
Gain on sale of real estate loans		580			703			228			278			946
Gain on sale of securities		-			-			-			231			-
Trust fee income		625			630			723			663			601
Bankcard transaction revenue		885			849			859			789			774
Gains/(losses) on Other Real Estate Owned		(85	)		(98	)		(94	)		16			(125	)
Other non-interest income		1,135			743			834			789			935
Total non-interest income		5,530			5,297			4,974			4,923			5,542
Salaries and employee benefits expense		5,044			5,351			5,045			4,754			4,959
Occupancy and equipment expense		1,192			1,216			1,241			1,248			1,185
Data processing expense		522			500			467			494			484
State bank taxes		415			550			550			536			477
Amortization of intangible assets		220			202			215			221			357
FDIC Insurance		305			269			384			583			566
Other non-interest expenses		2,705			2,639			2,733			2,513			2,742
Total non-interest expense		10,403			10,727			10,635			10,349			10,770
Net income before income tax expense		7,014			6,096			5,366			4,922			5,201
Income tax expense		2,105			1,822			1,572			1,410			1,528
Net income		4,909			4,274			3,794			3,512			3,673
Preferred stock dividends & amortization		195			261			259			257			707
Net income available to common shareholders	$	4,714		$	4,013		$	3,535		$	3,255		$	2,966
Per Common Share Data
Diluted earnings per common share		0.63			0.54			0.47			0.44			0.46
Cash dividends declared		0.00			0.28			0.00			0.28			0.00
Weighted average common shares outstanding
Basic		7,432,995			7,432,995			7,432,487			7,432,295			6,434,354
Diluted		7,465,606			7,488,743			7,501,731			7,459,220			6,434,354
Earnings Performance Data
Return on common equity		12.21	%		10.51	%		9.59	%		9.21	%		9.33	%
Return on assets		1.13	%		1.05	%		.93	%		.86	%		.91	%
Net interest margin		3.55	%		3.76	%		3.76	%		3.56	%		3.62	%
Net interest margin (tax equivalent)		3.63	%		3.83	%		3.84	%		3.63	%		3.70	%

The Bank of Kentucky Financial Corporation

Selected Consolidated Financial Data

(Dollars in thousands, except per share data)

	Five-Quarter Comparison
Balance Sheet Data	12/31/11			9/30/11			6/30/11			3/31/11			12/31/10
Assets:
Cash and cash equivalents	$	135,964		$	67,657		$	61,098		$	97,712		$	172,664
Investments		371,737			339,780			320,202			328,271			285,326
Loans held for sale		8,920			6,612			1,107			1,223			15,279
Total loans		1,129,954			1,118,630			1,128,511			1,118,136			1,106,009
Allowance for loan losses		(18,288	)		(17,941	)		(17,816	)		(17,688	)		(17,368	)
Premises and equipment, net		22,827			22,653			22,576			22,856			23,170
Goodwill and acquisition intangibles, net		25,251			24,826			25,028			25,242			25,464
Other assets & accrued interest receivable		68,359			62,182			61,013			61,684			54,340
Total assets	$	1,744,724		$	1,624,399		$	1,601,719		$	1,637,436		$	1,664,884
Liabilities & Shareholders’ Equity
Total deposits	$	1,498,821		$	1,369,215		$	1,355,284		$	1,390,706		$	1,422,312
Short-term borrowings		29,300			26,248			20,610			24,667			23,419
Notes payable		48,739			48,745			48,750			48,756			48,761
Accrued interest payable & other liabilities		11,294			10,905			10,682			12,289			11,022
Total liabilities		1,588,154			1,455,113			1,435,326			1,476,418			1,505,514
Common stockholders’ equity		156,570			152,356			149,511			144,183			142,580
Preferred stock		-			16,930			16,882			16,835			16,790
Shareholders’ equity		156,570			169,286			166,393			161,018			159,370
Total liabilities and shareholders’ equity	$	1,744,724		$	1,624,399		$	1,601,719		$	1,637,436		$	1,664,884
Common shares outstanding		7,432,995			7,432,995			7,432,995			7,432,295			7,432,295
Average Balance Sheet Data
Average investments	$	360,265		$	324,144		$	319,377		$	302,331		$	252,793
Average other earning assets		76,258			39,721			57,607			111,484			85,384
Average loans		1,139,767			1,126,118			1,119,767			1,108,477			1,133,524
Average earning assets		1,576,290			1,489,983			1,496,751			1,522,292			1,471,701
Average assets		1,717,816			1,623,719			1,633,990			1,649,947			1,595,835
Average deposits		1,464,550			1,372,244			1,385,624			1,406,861			1,366,256
Average interest bearing deposits		1,190,716			1,122,239			1,144,986			1,168,383			1,130,890
Average interest bearing transaction deposits		783,753			711,046			721,948			729,022			682,826
Average interest bearing time deposits		406,963			411,193			423,038			439,361			448,064
Average borrowings		77,832			72,421			72,580			73,555			69,784
Average interest bearing liabilities		1,268,548			1,194,660			1,217,566			1,241,938			1,200,674
Average common stockholders equity		153,175			150,934			146,848			143,382			126,068
Average preferred stock		9,753			16,906			16,858			16,813			31,710

The Bank of Kentucky Financial Corporation

Selected Consolidated Financial Data

(Dollars in thousands, except per share data)

	Five-Quarter Comparison
Asset Quality Data	12/31/11			9/30/11			6/30/11			3/31/11			12/31/10
Allowance for loan losses to total loans		1.62	%		1.60	%		1.58	%		1.58	%		1.57	%
Allowance for loan losses to non-performing loans		1.15	%		1.12	%		1.07	%		87	%		82	%
Nonaccrual loans	$	15,651		$	15,964		$	16,322		$	19,735		$	20,648
Loans – 90 days past due & still accruing		219			45			100			637			414
Total non-performing loans		15,870			16,009			16,422			20,372			21,062
OREO and repossessed assets		5,844			1,894			1,902			1,083			795
Total non-performing assets		21,714			17,903			18,324			21,455			21,857
Restructured loans-accruing		13,306			13,108			7,022			3,294			6,135
Non-performing loans to total loans		1.40	%		1.43	%		1.46	%		1.82	%		1.90	%
Non-performing assets to total assets		1.25	%		1.11	%		1.15	%		1.32	%		1.32	%
Annualized charge-offs to average loans		.65	%		.86	%		1.03	%		0.98	%		1.00	%
Net charge-offs	$	1,853		$	2,425		$	2,871		$	2,680		$	2,795

About BKFC

BKFC, a bank holding company with assets of approximately $1.744 billion, offers banking and related financial services to both individuals and business customers.  BKFC operates thirty-three branch locations and fifty-six  ATMs.

For more information contact:

Martin Gerrety

Executive Vice President and CFO

(859) 372-5169

mgerrety@bankofky.com

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