Bank of Kentucky Financial (BKYF) 8-K Announces Record Earnings for 2013

Exhibit 99.1

N E W S   R E L E A S E

THE BANK OF KENTUCKY FINANCIAL CORPORATION

ANNOUNCES RECORD EARNINGS FOR 2013

Record net income of $5,775,000 for the fourth quarter, up 15% from 2012

CRESTVIEW HILLS, KENTUCKY, January 16, 2014 – 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 ended December 31, 2013. For the fourth quarter and the year ending December 31, 2013, the Company reported an increase in net income of 15% and 9% respectively compared with the same periods in 2012.

A summary of the Company’s results follows:

Fourth Quarter ended December 31,	2013		2012		Change
Net income	$	5,775,000	$	5,010,000		15	%
Earnings per common share, basic	$	0.76	$	0.67		13	%
Earnings per common share, diluted	$	0.76	$	0.66		15	%

Year ended December 31,	2013		2012		Change
Net income	$	19,765,000	$	18,145,000		9	%
Net income per common share, basic	$	2.63	$	2.43		8	%
Net income per common share, diluted	$	2.61	$	2.41		8	%

Robert W. Zapp, President & CEO, commented, “In the wake of achieving record earnings in the third quarter, we finished the year even better, setting another record by exceeding $5.7 million in net income for the fourth quarter and $19.7 million for the year. Several areas contributed to this achievement including record revenue from The Bank’s Wealth Advisory Group and revenue from retail banking. In addition, it was encouraging to see momentum on the commercial lending side, particularly since mortgage originations have decreased in recent months. We experienced our greatest loan growth in the fourth quarter and we believe the pipeline will remain robust with opportunities going into 2014. Net loan growth in the fourth quarter, for example, exceeded $48 million, helping push total loans outstanding to a record $1.250 billion.” Zapp added, “Charge-offs and non-performing loans continue to decline, resulting in lower allowances and decreased provisioning. The trend of improving credit metrics in 2013 not only helped the company’s financial performance, it is also a positive sign going forward for sound growth and economic development in the markets we serve, which benefits everyone.”

The increase in net income in the fourth quarter of 2013 was primarily due to an $800,000 (62%) decrease in the provision for loan losses and a $652,000 (12%) increase in non-interest income compared with the fourth quarter of 2012. Contributing to the decrease in the provision for loan losses were lower levels of charge-offs and lower levels of non-performing loans compared with December of 2012. Contributing to the increase in non-interest income were higher service charges on deposits and trust fee income.

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Non-interest income increased 12% ($652,000) in the fourth quarter of 2013, compared with the same period in 2012, while non-interest expense decreased 1% ($78,000) from the same period last year. Contributing to the increase in non-interest income was a $460,000 or 20% increase in service charges on deposits, a $105,000 or 14% increase in trust fee income and a $204,000 or 90% decrease in losses on other real estate owned, which was offset by a $529,000 or 76% decrease in gains on the sale of real estate loans. Other non-interest income and other non-interest expense both included $180,000 in revenue and expense related to benefits plans. The revenue reflected an increase in investments related to benefits plans and the expense reflected an offsetting increase in liabilities for the same benefits plans. The $180,000 was $213,000 higher than the figures from the fourth quarter of 2012. Contributing to the 3% ($178,000) decrease in salaries and benefits was lower bonus accruals and fewer employees as compared to the fourth quarter of 2012.

Net interest income decreased $291,000, or 2% in the fourth quarter of 2013, compared with the same period in 2012. The net interest margin, on a tax equivalent basis, decreased 24 basis points from 3.63% in the fourth quarter of 2012 to 3.39% in the fourth quarter of 2013. Contributing to the net interest income in 2012 was a $247,000 loan prepayment fee received in the quarter. This prepayment fee contributed 6 basis points to the net interest margin for the fourth quarter of 2012. Adjusting out the 2012 prepayment fee the net interest income remained relatively unchanged compared with the same period in 2012, decreasing $44,000 from the fourth quarter of 2012. 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 32 basis points from 3.97% in the fourth quarter of 2012 to 3.65% in the fourth quarter of 2013, while the cost of interest bearing liabilities only decreased 11 basis points from .44% to .33% in the same period. The decrease in the net interest margin was partially offset with an increase in earning assets of $58 million, or 4% on average from the fourth quarter of 2012.

The provision for loan losses decreased by $800,000 (62%) in the fourth quarter of 2013, compared with the same period in 2012. Contributing to this decrease were lower levels of charge-offs compared with the fourth quarter of 2012. The Company’s annualized net charge-offs to average loans decreased from .45% in the fourth quarter of 2012 to .27% in the fourth quarter of 2013 while non-performing loans as a percentage of total loans were 1.24% as of December 31, 2013, compared with 1.61% as of December 31, 2012. The Company recorded $826,000 in net charge-offs in the fourth quarter of 2013 compared with $1,317,000 in the fourth quarter of 2012. On a sequential basis, the provision for loan losses of $500,000 in the fourth quarter of 2013 was $100,000 lower than the provision in the third quarter of 2013, while non-performing loans decreased from $16.4 million (1.37% of total loans) at September 30, 2013 to $15.4 million (1.24% of total loans) at December 31, 2013. Net charge-offs on a sequential basis increased from $618,000 (.21% of loans) in the third quarter of 2013 to $826,000 (.27% of loans) in the fourth quarter of 2013. The majority of the charge-offs in the fourth quarter of 2013 were reserved for in previous periods. As a result of improving credit metrics, the Allowance for Loan Losses (ALL) has decreased from 1.39% of loans at the end of the fourth quarter of 2012 to 1.30% of loans at the end of the fourth quarter of 2013. On a sequential basis the ALL decreased from 1.38% at the end of the third quarter of 2013 to 1.30% at the end of the fourth quarter of 2013, as a result of $326,000 decrease in the ALL balance and a $48 million increase in loans outstanding. 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.

Total assets were $1.857 billion at the end of the fourth quarter of 2013, which was $13 million or 1% higher than the same date a year ago. The increase of $54 million (5%) in total loan and $37 million (10%) in investments were offset by a $73 million (48%) decrease in cash and cash equivalents. The decrease in cash and cash equivalents included a $53 million (70%) decrease in fed funds sold. The increase in assets was funded by an increase in deposits of $18 million, or 1%. Total equity increased $10.6 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. The change in the dividend frequency resulted in cash dividends decreasing from $.79 per share in 2012 to $.69 per share in 2013 on a year to date basis. Cash dividends declared in the fourth quarter increased $.01 (6%) to $.18 per share as compared to $.17 per share in the fourth quarter of 2012. 

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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		12/31/13			12/31/12		% Chg			12/31/13			12/31/12		% Chg
Interest income	$	15,132		$	15,742		(4	)%	$	59,912		$	62,524		(4	)%
Interest expense		1,091			1,410		(23	)%		4,658			6,339		(27	)%
Net interest income		14,041			14,332		(2	)%		55,254			56,185		(2	)%
Provision for loan losses		500			1,300		(62	)%		4,700			7,000		(33	)%
Net interest income after provision for loan losses		13,541			13,032		4	%		50,554			49,185		3	%
Non interest income		6,253			5,601		12	%		24,011			22,421		7	%
Non  interest expense		11,592			11,670		(1	)%		46,745			46,338		1	%
Net income before income taxes		8,202			6,963		18	%		27,820			25,268		10	%
Provision for income taxes		2,427			1,953		24	%		8,055			7,123		13	%
Net income	$	5,775		$	5,010		15	%	$	19,765		$	18,145		9	%
Per Common Share Data
Diluted earnings per common share		0.76			0.66		15	%		2.61			2.41		8	%
Cash dividends declared		0.18			0.17		6	%		0.69			0.79		(13	)%
Earnings Performance Data
Return on common equity		12.86	%		11.79	%	107	bps		11.39	%		11.08	%	31	bps
Return on assets		1.25	%		1.12	%	13	bps		1.10	%		1.05	%	5	bps
Net interest margin		3.32	%		3.52	%	(20	)bps		3.36	%		3.53	%	(17	)bps

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The Bank of Kentucky Financial Corporation

Selected Consolidated Financial Data

(Dollars in thousands, except per share data)

Balance Sheet Data
	December 31, 2013			December 31, 2012
Assets:
Cash and cash equivalents	$	78,621		$	151,832
Investments		418,385			381,537
Loans held for sale		3,214			16,324
Total loans, gross		1,249,645			1,195,409
Allowance for loan losses		(16,306	)		(16,568	)
Premises and equipment, net		22,444			22,494
Goodwill and acquisition intangibles, net		23,871			24,485
Other assets and accrued interest receivable		77,618			68,591
Total assets	$	1,857,492		$	1,844,104
Liabilities & Shareholders’ Equity
Total deposits	$	1,587,585		$	1,570,007
Short-term borrowings		27,643			41,408
Notes payable		45,577			48,715
Accrued interest payable and other liabilities		15,548			13,534
Total liabilities		1,676,353			1,673,664
Common stockholders’ equity		181,139			170,440
Total liabilities and shareholders’ equity	$	1,857,492		$	1,844,104

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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, 2013							Quarter ended December 31, 2012
	Average outstanding balance		Interest earned/paid		Yield/ rate			Average outstanding balance		Interest earned/ paid		Yield/ rate
Interest-earning assets:
Loans receivable (1)(2)	$	1,218,140	$	13,344		4.35	%	$	1,175,879	$	14,365		4.86	%
Securities (2)		404,687		2,013		1.97			373,008		1,728		1.84
Other interest-earning assets		55,521		88		0.63			71,139		92		0.51
Total interest-earning assets		1,678,348		15,445		3.65			1,620,026		16,185		3.97
Non-interest-earning assets		161,014							152,740
Total assets	$	1,839,362						$	1,772,766
Interest-bearing liabilities:
Transaction accounts		911,075		368		0.16			848,302		432		0.20
Time deposits		304,380		472		0.62			358,936		720		0.80
Borrowings		78,197		251		1.27			72,193		258		1.42
Total interest-bearing liabilities		1,293,652		1,091		0.33			1,279,431		1,410		0.44
Non-interest-bearing liabilities		367,515							324,304
Total liabilities		1,661,106							1,603,735
Shareholders’ equity		178,195							169,031
Total liabilities and shareholders’ equity	$	1,839,362						$	1,772,766
Net interest income			$	14,354						$	14,775
Interest rate spread						3.32	%						3.53	%
Net interest margin (net interest income as a percent of average interest-earning assets)						3.39	%						3.63	%

(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 $314,000 and $443,000 in 2013 and 2012, respectively.

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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, 2013							Year ended December 31, 2012
	Average outstanding balance		Interest earned/ paid		Yield/ rate			Average outstanding balance		Interest earned/ paid		Yield/ rate
Interest-earning assets:
Loans receivable (1)(2)	$	1,200,866	$	53,570		4.46	%	$	1,151,139	$	56,196		4.88	%
Securities (2)		388,878		7,253		1.87			373,029		7,412		1.99
Other interest-earning assets		54,235		335		0.62			65,716		334		0.51
Total interest-earning assets		1,643,979		61,158		3.72			1,589,884		63,942		4.02
Non-interest-earning assets		159,153							149,211
Total assets	$	1,803,132						$	1,739,095
Interest-bearing liabilities:
Transaction accounts		883,525		1,449		0.16			819,915		1,552		0.21
Time deposits		326,427		2,215		0.68			378,111		3,728		0.93
Borrowings		77,352		994		1.29			74,786		1,059		1.42
Total interest-bearing liabilities		1,287,304		4,658		0.36			1,272,812		6,339		0.50
Non-interest-bearing liabilities		342,272							302,520
Total liabilities		1,629,576							1,575,332
Shareholders’ equity		173,556							163,763
Total liabilities and shareholders’ equity	$	1,803,132						$	1,739,095
Net interest income			$	56,500						$	57,603
Interest rate spread						3.36	%						3.52	%
Net interest margin (net interest income as a percent of average interest-earning assets)						3.44	%						3.62	%

___________________________

(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 $1,246,000 and $1,418,000 in 2013 and 2012, respectively.

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The Bank of Kentucky Financial Corporation

Selected Consolidated Financial Data

(Dollars in thousands, except per share data)

	Five-Quarter Comparison
Income Statement Data	12/31/13			9/30/13			6/30/13			3/31/13			12/31/12
Net interest income	$	14,041		$	13,922		$	13,708		$	13,583		$	14,332
Provision for loan losses		500			600			1,600			2,000			1,300
Net interest income after provision for loan losses		13,541			13,322			12,108			11,583			13,032
Service charges and fees		2,782			2,829			2,581			2,131			2,322
Gain on sale of real estate loans		165			282			672			539			694
Gain on sale of securities		-			-			-			274			-
Trust fee income		854			846			850			852			749
Bankcard transaction revenue		1,008			1,012			1,044			957			971
Gains/(losses) on other real estate owned		(22	)		(201	)		(308	)		(4	)		(226	)
Other non-interest income		1,466			1,288			1,001			1,113			1,091
Total non-interest income		6,253			6,056			5,840			5,862			5,601
Salaries and employee benefits expense		5,691			5,969			5,988			5,913			5,869
Occupancy and equipment expense		1,330			1,366			1,315			1,306			1,341
Data processing expense		551			533			537			550			618
State bank taxes		584			615			615			575			554
Other real estate owned and loan collection		389			455			444			244			324
Amortization of intangible assets		148			151			157			159			183
FDIC Insurance		376			317			335			295			296
Other non-interest expenses		2,523			2,313			2,274			2,727			2,485
Total non-interest expense		11,592			11,719			11,665			11,769			11,670
Net income before income tax expense		8,202			7,659			6,283			5,676			6,963
Income tax expense		2,427			2,244			1,798			1,586			1,953
Net income	$	5,775		$	5,415		$	4,485		$	4,090		$	5,010
Per Common Share Data
Diluted earnings per common share		0.76			0.72			0.59			0.54			0.66
Cash dividends declared		0.18			0.17			0.17			0.17			0.17
Weighted average common shares outstanding
Basic		7,565,121			7,516,770			7,491,619			7,478,901			7,470,146
Diluted		7,611,879			7,549,530			7,564,121			7,583,544			7,557,777
Earnings Performance Data
Return on common equity		12.86	%		12.44	%		10.48	%		9.66	%		11.79	%
Return on assets		1.25	%		1.21	%		1.00	%		0.92	%		1.12	%
Net interest margin		3.32	%		3.42	%		3.38	%		3.32	%		3.52	%
Net interest margin (tax equivalent)		3.39	%		3.50	%		3.46	%		3.40	%		3.63	%

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The Bank of Kentucky Financial Corporation

Selected Consolidated Financial Data

(Dollars in thousands, except per share data)

	Five-Quarter Comparison
Balance Sheet Data	12/31/13			9/30/13			6/30/13			3/31/13			12/31/12
Assets:
Cash and cash equivalents	$	78,621		$	102,448		$	80,941		$	138,561		$	151,832
Investments		418,385			389,179			384,653			376,704			381,537
Loans held for sale		3,214			2,435			9,909			14,038			16,324
Total loans		1,249,645			1,201,193			1,185,449			1,187,742			1,195,409
Allowance for loan losses		(16,306	)		(16,632	)		(16,650	)		(16,641	)		(16,568	)
Premises and equipment, net		22,444			22,517			22,560			22,559			22,494
Goodwill and acquisition intangibles, net		23,871			24,018			24,169			24,325			24,485
Other assets & accrued interest receivable		77,618			77,066			74,859			73,223			68,591
Total assets	$	1,857,492		$	1,802,224		$	1,765,890		$	1,820,511		$	1,844,104
Liabilities & Shareholders’ Equity:
Total deposits	$	1,587,585		$	1,529,505		$	1,504,829		$	1,558,933		$	1,570,007
Short-term borrowings		27,643			32,167			26,934			28,309			41,408
Notes payable		45,577			50,695			50,702			48,709			48,715
Accrued interest payable & other liabilities		15,548			14,606			13,196			11,604			13,534
Total liabilities		1,676,353			1,626,973			1,595,661			1,647,555			1,673,664
Shareholders’ equity		181,139			175,251			170,229			172,956			170,440
Total liabilities and shareholders’ equity	$	1,857,492		$	1,802,224		$	1,765,890		$	1,820,511		$	1,844,104
Common shares outstanding		7,619,999			7,528,618			7,498,014			7,482,776			7,470,236
Average Balance Sheet Data
Average investments	$	404,687		$	386,644		$	387,526		$	376,370		$	373,008
Average other earning assets		55,521			29,039			46,886			86,110			71,139
Average loans		1,218,140			1,199,824			1,190,590			1,194,657			1,175,879
Average earning assets		1,678,348			1,615,507			1,625,002			1,657,137			1,620,026
Average assets		1,839,242			1,771,491			1,790,043			1,811,675			1,772,766
Average deposits		1,568,764			1,506,101			1,529,159			1,551,953			1,518,557
Average interest bearing deposits		1,215,455			1,164,947			1,215,858			1,244,360			1,207,238
Average interest bearing transaction deposits		911,075			848,512			882,084			892,609			848,302
Average interest bearing time deposits		304,380			316,435			333,774			351,751			358,936
Average borrowings		78,197			80,733			74,927			75,375			72,193
Average interest bearing liabilities		1,293,652			1,248,680			1,290,785			1,319,735			1,279,431
Average common stockholders equity		178,135			172,740			171,593			171,698			169,031

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The Bank of Kentucky Financial Corporation

Selected Consolidated Financial Data

(Dollars in thousands, except per share data)

	Five-Quarter Comparison
Asset Quality Data	12/31/13			9/30/13			6/30/13			3/31/13			12/31/12
Allowance for loan losses to total loans		1.30	%		1.38	%		1.40	%		1.40	%		1.39	%
Allowance for loan losses to non-performing loans		106	%		101	%		88	%		76	%		86	%
Nonaccrual loans	$	15,417		$	16,197		$	18,934		$	21,771		$	19,244
Loans – 90 days past due & still accruing		21			207			11			36			39
Total non-performing loans		15,438			16,404			18,945			21,807			19,283
OREO and repossessed assets		5,305			6,141			5,207			5,454			5,396
Total non-performing assets		20,743			22,545			24,152			27,261			24,679
Restructured loans-accruing		8,816			7,109			7,204			7,499			6,046
Non-performing loans to total loans		1.24	%		1.37	%		1.60	%		1.84	%		1.61	%
Non-performing assets to total assets		1.12	%		1.26	%		1.38	%		1.50	%		1.34	%
Annualized charge-offs to average loans		0.27	%		0.21	%		0.54	%		0.66	%		0.45	%
Net charge-offs	$	826		$	618		$	1,591		$	1,927		$	1,317

Other Information
Total assets under management (in millions)	836		766		747		744		714
Full-time equivalent employees		346		351		361		364		365

About BKFC

BKFC, a bank holding company with assets of approximately $1.857 billion, offers banking and related financial services to both individuals and business customers. BKFC operates thirty-two branch locations and fifty-six 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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