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

N E W S  R E L E A S E

THE BANK OF KENTUCKY FINANCIAL CORPORATION

ANNOUNCES FOURTH QUARTER EARNINGS

Net income available to common shareholders of $5,010,000 up 6% for the

Fourth quarter

CRESTVIEW HILLS, KENTUCKY, January 17, 2013 – 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 year ended December 31, 2012. For the fourth quarter and the twelve months of 2012, the Company reported an increase in diluted earnings per common share of 5% and 16% respectively as compared to the same periods in 2011.

A summary of the Company’s results follows:

Fourth Quarter ended December 31,	2012		2011		Change
Net income	$	5,010,000	$	4,909,000		2	%
Net income available to common shareholders	$	5,010,000	$	4,714,000		6	%
Earnings per common share, basic	$	0.67	$	0.63		6	%
Earnings per common share, diluted	$	0.66	$	0.63		5	%

Year ended December 31,	2012		2011		Change
Net income	$	18,145,000	$	16,489,000		10	%
Net income available to common shareholders	$	18,145,000	$	15,517,000		17	%
Net income per common share, basic	$	2.43	$	2.09		16	%
Net income per common share, diluted	$	2.41	$	2.07		16	%

Robert Zapp, President & CEO stated, “We continued to build on a strong year, highlighted by a fourth quarter in which earnings topped $5 million. Total loans increased by $65 million for the year, which was the highest organic loan growth experienced since the financial crisis began in 2008. Mortgage loan volume remained robust in the fourth quarter, capping off the best year since 2003. Adding new customer relationships, both on the business and consumer side, fueled core account growth, which added more than $70 million in net deposits for the year. Investment revenue from our Wealth Advisory Group continues to experience double-digit growth, and we are pleased with the success of our newest branch in Cincinnati, which celebrates its one year anniversary this month. Overall, I am pleased to report our financial performance for the fourth quarter and the full year. We continue to review opportunities to expand through acquisition, while striving to grow organically, investing in our core lines of business.”

The increase in earnings available to common shareholders in the fourth quarter of 2012 was primarily attributable to a $900,000 (41%) decrease in the provision for loan losses and a $195,000 (100%) decrease in preferred stock dividends and amortization as compared to the fourth 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 12% increase in noninterest expense. The decrease in the provision for loan losses reflected lower levels of charge-offs, lower levels of impaired loan reserves and lower levels of adversely classified loans as compared to December 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, previously issued to the U.S. Department of the Treasury as part of the TARP CPP program.

Net interest income increased $245,000 in the fourth quarter of 2012, as compared to the same period in 2011. The net interest margin, on a tax equivalent basis was 3.63% in the fourth quarter of 2012 which equaled the net interest margin in the fourth quarter of 2011. Contributing to the increase in net interest income was a $247,000 prepayment fee received in the quarter. This prepayment fee also contributed 6 basis points to the net interest margin for the quarter.

The provision for loan losses decreased by $900,000 (41%) in the fourth quarter of 2012, as compared to the same period in 2011. Contributing to this decrease were lower levels of charge-offs and lower levels of impaired loan reserves as compared to December 2011. The Company’s annualized net charge-offs to average loans decreased from .65% in the fourth quarter of 2011 to .45% in the fourth quarter of 2012. The Company recorded $1,317,000 in net charge-offs in the fourth quarter of 2012 as compared to $1,853,000 in the fourth quarter of 2011. Net charge-offs in the fourth quarter of 2012 were reduced by a $961,000 recovery on a loan charged-off in the third quarter of 2012. The majority of the loans charged off in the fourth quarter of 2012 were reserved for in prior quarters. The reserve for impaired loans was $6,265,000 at December 31, 2012, which was $1,178,000 lower than the $7,443,000 reserve at December 31, 2011. As a result of the lower impaired loan reserves, lower charge-offs and lower levels of adversely classified loans, the Allowance for Loan Losses (ALL) has decreased from 1.62% of loans at the end of the fourth quarter of 2011 to 1.39% of loans at the end of the fourth 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. On a sequential basis, the provision for loan losses of $1,300,000 in the fourth quarter of 2012 was $900,000 lower than the provision in the third quarter of 2012. Net charge-offs on a sequential basis decreased from $3,961,000 (1.39% of loans) in the third quarter of 2012 to $1,371,000 (.45% of loans) in the fourth quarter of 2012. Contributing to the decrease in the provision and charge-offs on a sequential basis was the $961,000 recovery discussed previously.

The Company’s non-performing assets as a percentage of total assets were 1.34% as of December 31, 2012, as compared to 1.25% as of December 31, 2011. The Company’s non-performing loans as a percentage of total loans were 1.61% as of December 31, 2012, as compared to 1.40% as of December 31, 2011. Non-performing loans increased $3,413,000 from December 2011 to December 2012 and other real estate owned decreased $448,000 in the same time period. On a sequential quarterly basis, non-performing loans increased $4,365,000 while other real estate owned decreased $796,000 from September 2012. Contributing to the increase in non-performing loans from December of 2011 and September of 2012 was one commercial relationship which added approximately $7,000,000 to non-accruing loans in the fourth quarter of 2012. This relationship was reported as an accruing restructured loan in September of 2012 and the preceding four quarters.

Non-interest income increased 1% ($71,000) in the fourth quarter of 2012, as compared to the same period in 2011, while non-interest expense increased 12% ($1,267,000) from the same period last year. Contributing to the increase in non-interest income was an $114,000 or a 20% increase in the gains on sale of real estate loans and a $124,000 or 20% increase in trust fee income, which were offset by an increase of $141,000 or 166% increase in losses on other real estate owned. Contributing to the increase in non-interest expense was an $825,000 (16%) increase in salaries and benefits expense. The increase in salaries and benefits included $285,000 in higher accruals for bonuses and $182,000 in higher accruals for pension plan expense. The added bonus accrual reflects the end of the TARP restriction on bonus pay for executives, while the increased pension plan expense was the result of a lower discount rate applied to future benefits.

Total assets were $1.844 billion at the end of the fourth quarter of 2012, which was $99 million or 6% higher than the same date a year ago. Total loans increased $65 million (6%), investments in securities increased $10 million (3%) and cash and cash equivalents increased $16 million (12%) from December of 2011. The balance sheet increases were funded by an increase in deposits of $71 million, or 5% and an increase in short-term borrowings of $12 million or 41%. Total equity increased $14 million or 9% from the same date in 2011.

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	12/31/12			12/31/11			% Chg			12/31/12			12/31/11			% Chg
Interest income	$	15,742		$	16,096			(2	)%	$	62,524		$	64,798			(4	)%
Interest expense		1,410			2,009			(30	)%		6,339			9,260			(32	)%
Net interest income		14,332			14,087			2	%		56,185			55,538			1	%
Provision for loan losses		1,300			2,200			(41	)%		7,000			10,750			(35	)%
Net interest income after provision for loan losses		13,032			11,887			10	%		49,185			44,788			10	%
Non interest income		5,601			5,530			1	%		22,421			20,724			8	%
Non interest expense		11,670			10,403			12	%		46,338			42,114			10	%
Net income before income taxes		6,963			7,014			(1	)%		25,268			23,398			8	%
Provision for income taxes		1,953			2,105			(7	)%		7,123			6,909			3	%
Net income		5,010			4,909			2	%		18,145			16,489			10	%
Preferred stock dividends & amortization		-			195			(100	)%		-			972			(100	)%
Net income available to common shareholders	$	5,010		$	4,714			6	%	$	18,145		$	15,517			17	%
Per Common Share Data
Diluted earnings per common share		0.66			0.63			5	%		2.41			2.07			16	%
Cash dividends declared		0.17			0.00			100	%		0.79			0.56			41	%
Earnings Performance Data
Return on common equity		11.79	%		12.21	%		(42	)bps		11.08	%		10.41	%		47	bps
Return on assets		1.12	%		1.13	%		(1	)bps		1.05	%		1.00	%		5	bps
Net interest margin		3.52	%		3.55	%		(3	)bps		3.53	%		3.65	%		(12	)bps

The Bank of Kentucky Financial Corporation

Selected Consolidated Financial Data

(Dollars in thousands, except per share data)

Balance Sheet Data
	December 31, 2012			December 31, 2011
Assets:
Cash and cash equivalents	$	151,832		$	135,964
Investments		381,537			371,737
Loans held for sale		16,324			8,920
Total loans, gross		1,195,409			1,129,954
Allowance for loan losses		(16,568	)		(18,288	)
Premises and equipment, net		22,494			22,827
Goodwill and acquisition intangibles, net		24,485			25,251
Other assets and accrued interest receivable		68,591			68,359
Total assets	$	1,844,104		$	1,744,724
Liabilities & Shareholders’ Equity
Total deposits	$	1,570,007		$	1,498,821
Short-term borrowings		41,408			29,300
Notes payable		48,715			48,739
Accrued interest payable and other liabilities		13,534			11,294
Total liabilities		1,673,664			1,588,154
Common stockholders’ equity		170,440			156,570
Total liabilities and shareholders’ equity	$	1,844,104		$	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 )

	Quarter ended December 31, 2012							Quarter ended December 31, 2011
	Average outstandingbalance		Interest earned/ paid		Yield/ rate			Average outstandingbalance		Interest earned/ paid		Yield/ rate
Interest-earning assets:
Loans receivable (1)(2)	$	1,175,879	$	14,365		4.86	%	$	1,139,767	$	14,493		5.04	%
Securities (2)		373,008		1,728		1.84			360,265		1,848		2.02
Other interest-earning assets		71,139		92		0.51			76,258		81		0.42
Total interest-earning assets		1,620,026		16,185		3.97			1,576,290		16,422		4.13
Non-interest-earning assets		152,740							141,526
Total assets	$	1,772,766						$	1,717,816
Interest-bearing liabilities:
Transaction accounts		848,302		432		0.20			783,753		528		0.27
Time deposits		358,936		720		0.80			406,963		1,217		1.19
Borrowings		72,193		258		1.42			77,832		264		1.35
Total interest-bearing liabilities		1,279,431		1,410		0.44			1,268,548		2,009		0.63
Non-interest-bearing liabilities		324,304							286,340
Total liabilities		1,603,735							1,554,888
Shareholders’ equity		169,031							162,928
Total liabilities and shareholders’ equity	$	1,772,766						$	1,717,816
Net interest income			$	14,775						$	14,413
Interest rate spread						3.53	%						3.50	%
Net interest margin (net interest income as a percent of average interest-earning assets)						3.63	%						3.63	%

(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 $443,000 and $326,000 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 )

	Year ended December 31, 2012							Year ended December 31, 2011
	Average outstandingbalance		Interest earned/ paid		Yield/ rate			Average outstandingbalance		Interest earned/ paid		Yield/ rate
Interest-earning assets:
Loans receivable (1)(2)	$	1,151,139	$	56,196		4.88	%	$	1,123,625	$	58,379		5.20	%
Securities (2)		373,029		7,412		1.99			326,681		7,302		2.24
Other interest-earning assets		65,716		334		0.51			71,085		372		0.52
Total interest-earning assets		1,589,884		63,942		4.02			1,521,391		66,053		4.34
Non-interest-earning assets		143,694							134,667
Total assets	$	1,733,578						$	1,656,058
Interest-bearing liabilities:
Transaction accounts		819,915		1,552		0.21			736,323		2,403		0.33
Time deposits		378,111		3,728		0.93			420,026		5,835		1.39
Borrowings		74,786		1,059		1.42			74,147		1,022		1.38
Total interest-bearing liabilities		1,272,812		6,339		0.50			1,230,496		9,260		0.75
Non-interest-bearing liabilities		297,003							262,245
Total liabilities		1,569,815							1,492,741
Shareholders’ equity		163,763							163,317
Total liabilities and shareholders’ equity	$	1,733,578						$	1,656,058
Net interest income			$	57,603						$	56,793
Interest rate spread						3.52	%						3.59	%
Net interest margin (net interest income as a percent of average interest-earning assets)						3.62	%						3.73	%

___________________________

(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 $1,418,000 and $1,255,000 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		12/31/12			9/30/12			6/30/12			3/31/12			12/31/11
Net interest income	$	14,332		$	13,962		$	14,047		$	13,844		$	14,087
Provision for loan losses		1,300			2,200			1,700			1,800			2,200
Net interest income after provision for loan losses		13,032			11,762			12,347			12,044			11,887
Service charges and fees		2,322			2,325			2,241			2,201			2,390
Gain on sale of real estate loans		694			917			589			586			580
Gain/(loss) on sale of securities		-			-			(4	)		207			-
Trust fee income		749			710			694			689			625
Bankcard transaction revenue		971			940			952			902			885
Gains/(losses) on other real estate owned		(226	)		(67	)		(40	)		(94	)		(85	)
Other non-interest income		1,091			1,036			921			1,115			1,135
Total non-interest income		5,601			5,861			5,353			5,606			5,530
Salaries and employee benefits expense		5,869			5,909			5,724			5,451			5,044
Occupancy and equipment expense		1,341			1,316			1,315			1,277			1,192
Data processing expense		618			505			533			535			522
State bank taxes		554			579			579			559			415
Amortization of intangible assets		183			187			196			200			220
FDIC Insurance		296			267			295			305			305
Other non-interest expenses		2,809			3,036			2,885			3,015			2,705
Total non-interest expense		11,670			11,799			11,527			11,342			10,403
Net income before income tax expense		6,963			5,824			6,173			6,308			7,014
Income tax expense		1,953			1,628			1,749			1,793			2,105
Net income		5,010			4,196			4,424			4,515			4,909
Preferred stock dividends & amortization		-			-			-			-			195
Net income available to common shareholders	$	5,010		$	4,196		$	4,424		$	4,515		$	4,714
Per Common Share Data
Diluted earnings per common share		0.66			0.56			0.59			0.60			0.63
Cash dividends declared		0.17			0.32			0.00			0.30			0.00
Weighted average common shares outstanding
Basic		7,470,146			7,465,926			7,465,434			7,448,604			7,432,995
Diluted		7,557,777			7,554,271			7,542,372			7,520,062			7,465,606
Earnings Performance Data
Return on common equity		11.79	%		10.05	%		10.99	%		11.49	%		12.21	%
Return on assets		1.12	%		0.98	%		1.03	%		1.04	%		1.13	%
Net interest margin		3.52	%		3.56	%		3.57	%		3.49	%		3.55	%
Net interest margin (tax equivalent)		3.63	%		3.64	%		3.65	%		3.57	%		3.63	%

The Bank of Kentucky Financial Corporation

Selected Consolidated Financial Data

(Dollars in thousands, except per share data)

Five-Quarter Comparison

Balance Sheet Data	12/31/12			9/30/12			6/30/12			3/31/12			12/31/11
Assets:
Cash and cash equivalents	$	151,832		$	81,950		$	66,719		$	133,153		$	135,964
Investments		381,537			361,108			376,454			374,336			371,737
Loans held for sale		16,324			19,314			13,983			10,863			8,920
Total loans		1,195,409			1,159,074			1,143,733			1,130,200			1,129,954
Allowance for loan losses		(16,568	)		(16,585	)		(18,346	)		(18,362	)		(18,288	)
Premises and equipment, net		22,494			22,714			22,923			23,159			22,827
Goodwill and acquisition intangibles, net		24,485			24,668			24,856			25,051			25,251
Other assets & accrued interest receivable		68,591			69,711			73,543			74,381			68,359
Total assets	$	1,844,104		$	1,721,954		$	1,703,865		$	1,752,781		$	1,744,724
Liabilities & Shareholders’ Equity
Total deposits	$	1,570,007		$	1,471,246		$	1,455,328		$	1,505,709		$	1,498,821
Short-term borrowings		41,408			22,142			24,373			29,334			29,300
Notes payable		48,715			48,721			48,727			48,733			48,739
Accrued interest payable & other liabilities		13,534			12,224			10,987			9,531			11,294
Total liabilities		1,673,664			1,554,333			1,539,415			1,593,307			1,588,154
Common stockholders’ equity		170,440			167,621			164,450			159,474			156,570
Preferred stock		-			-			-			-			-
Shareholders’ equity		170,440			167,621			164,450			159,474			156,570
Total liabilities and shareholders’ equity	$	1,844,104		$	1,721,954		$	1,703,865		$	1,752,781		$	1,744,724
Common shares outstanding		7,470,146			7,467,396			7,465,841			7,464,811			7,432,995
Average Balance Sheet Data
Average investments	$	373,008		$	369,707		$	375,245		$	374,027		$	360,265
Average other earning assets		71,139			32,781			70,648			88,597			76,258
Average loans		1,175,879			1,158,072			1,136,894			1,133,367			1,139,767
Average earning assets		1,620,026			1,560,560			1,582,787			1,595,991			1,576,290
Average assets		1,772,766			1,707,843			1,730,575			1,745,169			1,717,816
Average deposits		1,518,557			1,459,593			1,482,222			1,494,332			1,464,550
Average interest bearing deposits		1,207,238			1,165,673			1,194,699			1,224,743			1,190,716
Average interest bearing transaction deposits		848,302			796,346			813,312			821,643			783,753
Average interest bearing time deposits		358,936			369,327			381,387			403,100			406,963
Average borrowings		72,193			70,445			75,789			80,798			77,832
Average interest bearing liabilities		1,279,431			1,236,118			1,270,488			1,305,541			1,268,548
Average common stockholders equity		169,031			166,036			161,962			158,022			153,175
Average preferred stock		-			-			-			-			9,753

The Bank of Kentucky Financial Corporation

Selected Consolidated Financial Data

(Dollars in thousands, except per share data)

Five-Quarter Comparison

Asset Quality Data	12/31/12			9/30/12			6/30/12			3/31/12			12/31/11
Allowance for loan losses to total loans		1.39	%		1.43	%		1.60	%		1.62	%		1.62	%
Allowance for loan losses to non-performing loans		86	%		112	%		111	%		105	%		115	%
Nonaccrual loans	$	19,244		$	14,813		$	16,265		$	16,779		$	15,651
Loans – 90 days past due & still accruing		39			105			195			680			219
Total non-performing loans		19,283			14,918			16,460			17,459			15,870
OREO and repossessed assets		5,396			6,192			5,950			6,328			5,844
Total non-performing assets		24,679			21,110			22,410			23,787			21,714
Restructured loans-accruing		6,046			12,270			15,388			15,492			13,306
Non-performing loans to total loans		1.61	%		1.29	%		1.44	%		1.54	%		1.40	%
Non-performing assets to total assets		1.34	%		1.23	%		1.32	%		1.36	%		1.25	%
Annualized charge-offs to average loans		0.45	%		1.39	%		0.61	%		0.62	%		0.65	%
Net charge-offs	$	1,317		$	3,961		$	1,716		$	1,726		$	1,853

Other Information
Total assets under management (in millions)	714	715	701	702	667
Full-time equivalent employees	365	370	376	359	356

About BKFC

BKFC, a bank holding company with assets of approximately $1.844 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/Cincinnati market.

For more information contact:

Martin Gerrety

Executive Vice President and CFO

(859) 372-5169

mgerrety@bankofky.com

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