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

NEWS RELEASE

THE BANK OF KENTUCKY FINANCIAL CORPORATION

ANNOUNCES FIRST QUARTER EARNINGS

Net income of $4,618,000 for the first quarter, up 13% from 2013

CRESTVIEW HILLS, KENTUCKY, April 17, 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 first quarter ended March 31, 2014. For the first quarter, the Company reported an increase in net income of 13% compared with the same period in 2013.

A summary of the Company’s results follows:

First Quarter ended March 31,	2014		2013		Change
Net income	$	4,618,000	$	4,090,000		13	%
Earnings per common share, basic	$	0.60	$	0.55		9	%
Earnings per common share, diluted	$	0.60	$	0.54		11	%

Robert W. Zapp, President & CEO, commented, “The positive first quarter results for the Company were underscored by solid loan growth, specifically in our commercial lending divisions.  In addition, improving credit metrics and revenue growth from our Wealth Advisory Group helped offset the significant decline in mortgage loan volume compared to last year.  We continued to invest in technology and people in the first quarter.  We are in the process of improving how we process loans with an upgraded system; we continue to roll out new mobile and online banking services; and we added talent and resources to help us grow quality loans while addressing the increased regulatory demands on our business.  Going forward, we will maintain this path, maximizing opportunities to expand, grow, and improve the Bank.”

The increase in net income in the first quarter of 2014 was primarily due to a $1,100,000 (55%) decrease in the provision for loan losses and a $286,000 (2%) increase in net interest income compared with the first quarter of 2013. 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 March of 2013. Contributing to the increase in net interest income was the $74,121,000 (6%) growth in loans from March 31, 2013.

Non-interest income decreased 5% ($280,000) in the first quarter of 2014, compared with the same period in 2013, while non-interest expense increased 3% ($349,000) from the same period last year. Contributing to the decrease in non-interest income was a $274,000 or 100% decrease in gain on the sale of securities and a $374,000 or 69% decrease in gains on the sale of real estate loans, which was partially offset with $303,000 or 14% increase in service charges on deposits and an $89,000 or 10% increase in trust fee income. The decrease in gains on the sale of real estate was the result of lower refinancing volume due to slightly higher long term rates compared with 2013.

Net interest income increased $286,000, or 2% in the first quarter of 2014, compared with the same period in 2013. The net interest margin, on a tax equivalent basis, decreased 1 basis point from 3.40% in the first quarter of 2013 to 3.39% in the first quarter of 2014. The increase in the net interest income was the result of a $40.3 million or 2% growth in earning assets compared with the first quarter of 2013. The yield on earning assets decreased 6 basis points from 3.71% in the first quarter of 2013 to 3.65% in the first quarter of 2014, while the cost of interest bearing liabilities also decreased 6 basis points from .39% to .33% in the same period.

The provision for loan losses decreased by $1,100,000 (55%) in the first quarter of 2014, compared with the same period in 2013. Contributing to this decrease were lower levels of charge-offs compared with the first quarter of 2013. The Company’s annualized net charge-offs to average loans decreased from .66% in the first quarter of 2013 to .27% in the first quarter of 2014 while non-performing loans as a percentage of total loans were 1.23% as of March 31, 2014, compared with 1.84% as of March 31, 2013. The Company recorded $857,000 in net charge-offs in the first quarter of 2014 compared with $1,927,000 in the first quarter of 2013. On a quarterly sequential basis, the provision for loan losses of $900,000 in the first quarter of 2014 was $400,000 higher than the provision in the fourth quarter of 2013, while non-performing loans increased from $15.4 million (1.24% of total loans) at December 31, 2013 to $15.5 million (1.23% of total loans) at March 31, 2014. Net charge-offs on a quarterly sequential basis increased slightly from $826,000 (.27% of loans) in the fourth quarter of 2014 to $857,000 (.27% of loans) in the first quarter of 2014. As a result of improving credit metrics, the Allowance for Loan Losses (ALL) has decreased from 1.40% of loans at the end of the first quarter of 2013 to 1.30% of loans at the end of the first quarter of 2014. On a quarterly sequential basis the ALL remained stable at 1.30% at the end of the fourth quarter of 2013 and the end of the first quarter of 2014. 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 $1.859 billion at the end of the first quarter of 2014, which was $39 million or 2% higher than on the same date a year ago. The increase of $74 million (6%) in total loans and $20 million (5%) in investments were offset by a $49 million (38%) decrease in cash and cash equivalents. The decrease in cash and cash equivalents included a $53 million (67%) decrease in fed funds sold. The increase in assets was funded by an increase in deposits of $25 million, or 2%, and an increase in equity of $13.7 million or 8% from the same date in 2013.

The Bank of Kentucky Financial Corporation

Selected Consolidated Financial Data

(Dollars in thousands, except per share data)

First Quarter Comparison

Income Statement Data	3/31/14			3/31/13			% Chg
Interest income	$	14,929		$	14,866			0	%
Interest expense		1,060			1,283			(17	)%
Net interest income		13,869			13,583			2	%
Provision for loan losses		900			2,000			(55	)%
Net interest income after provision for loan losses		12,969			11,583			12	%
Non interest income		5,582			5,862			(5	)%
Non interest expense		12,118			11,769			3	%
Net income before income taxes		6,433			5,676			13	%
Provision for income taxes		1,815			1,586			14	%
Net income	$	4,618		$	4,090			13	%
Per Common Share Data
Diluted earnings per common share		0.60			0.54			11	%
Cash dividends declared		0.18			0.17			6	%
Earnings Performance Data
Return on common equity		10.18	%		9.66	%		52	bps
Return on assets		1.01	%		0.92	%		9	bps
Net interest margin		3.31	%		3.32	%		(1	)bps

The Bank of Kentucky Financial Corporation

Selected Consolidated Financial Data

(Dollars in thousands, except per share data)

Balance Sheet Data
	March 31, 2014			December 31, 2013
Assets:
Cash and cash equivalents	$	89,102		$	78,621
Investments		396,733			418,385
Loans held for sale		6,248			3,214
Total loans, gross		1,261,863			1,249,645
Allowance for loan losses		(16,349	)		(16,306	)
Premises and equipment, net		22,845			22,444
Goodwill and acquisition intangibles, net		23,737			23,871
Other assets and accrued interest receivable		75,244			77,618
Total assets	$	1,859,423		$	1,857,492
Liabilities & Shareholders’ Equity
Total deposits	$	1,584,076		$	1,587,585
Short-term borrowings		29,220			27,643
Notes payable		45,515			45,577
Accrued interest payable and other liabilities		13,981			15,548
Total liabilities		1,672,792			1,676,353
Common stockholders’ equity		186,631			181,139
Total liabilities and shareholders’ equity	$	1,859,423		$	1,857,492

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 March 31, 2014							Quarter ended March 31, 2013
	Average outstanding balance		Interest earned/ paid		Yield/ rate			Average outstanding balance		Interest earned/ paid		Yield/ rate
Interest-earning assets:
Loans receivable (1)(2)	$	1,255,552	$	13,123		4.24	%	$	1,194,657	$	13,396		4.55	%
Securities (2)		412,047		2,074		2.04			376,370		1,679		1.81
Other interest-earning assets		29,854		67		0.91			86,110		96		0.45
Total interest-earning assets		1,697,453		15,264		3.65			1,657,137		15,171		3.71
Non-interest-earning assets		158,850							154,538
Total assets	$	1,856,303						$	1,811,675
Interest-bearing liabilities:
Transaction accounts		947,221		386		0.17			892,609		399		0.18
Time deposits		298,020		438		0.60			351,751		645		0.74
Borrowings		73,529		236		1.30			75,375		239		1.29
Total interest-bearing liabilities		1,318,770		1,060		0.33			1,319,735		1,283		0.39
Non-interest-bearing liabilities		353,648							320,242
Total liabilities		1,672,418							1,639,977
Shareholders’ equity		183,885							171,698
Total liabilities and shareholders’ equity	$	1,856,303						$	1,811,675
Net interest income			$	14,204						$	13,888
Interest rate spread						3.32	%						3.32	%
Net interest margin (net interest income as a percent of average interest-earning assets)						3.39	%						3.40	%

(1) Includes non-accrual loans.

(2) Income presented on a tax equivalent basis using a 35.00% tax rate in 2014 and 2013, respectively. The tax equivalent adjustment was $335,000 and $305,000 in 2014 and 2013, respectively.

The Bank of Kentucky Financial Corporation

Selected Consolidated Financial Data

(Dollars in thousands, except per share data)

Five-Quarter Comparison

Income Statement Data	3/31/14			12/31/13			9/30/13			6/30/13			3/31/13
Net interest income	$	13,869		$	14,041		$	13,922		$	13,708		$	13,583
Provision for loan losses		900			500			600			1,600			2,000
Net interest income after provision for loan losses		12,969			13,541			13,322			12,108			11,583
Service charges and fees		2,434			2,782			2,829			2,581			2,131
Gain on sale of real estate loans		165			165			282			672			539
Gain on sale of securities		-			-			-			-			274
Trust fee income		941			854			846			850			852
Bankcard transaction revenue		999			1,008			1,012			1,044			957
Gains/(losses) on other real estate owned		(81	)		(22	)		(201	)		(308	)		(4	)
Other non-interest income		1,124			1,466			1,288			1,001			1,113
Total non-interest income		5,582			6,253			6,056			5,840			5,862
Salaries and employee benefits expense		5,873			5,691			5,969			5,988			5,913
Occupancy and equipment expense		1,435			1,330			1,366			1,315			1,306
Data processing expense		535			551			533			537			550
State bank taxes		642			584			615			615			575
Other real estate owned and loan collection		342			384			457			350			334
Amortization of intangible assets		133			148			151			157			159
FDIC Insurance		554			376			317			335			295
Other non-interest expenses		2,604			2,528			2,311			2,368			2,637
Total non-interest expense		12,118			11,592			11,719			11,665			11,769
Net income before income tax expense		6,433			8,202			7,659			6,283			5,676
Income tax expense		1,815			2,427			2,244			1,798			1,586
Net income	$	4,618		$	5,775		$	5,415		$	4,485		$	4,090
Per Common Share Data
Diluted earnings per common share		0.60			0.76			0.72			0.59			0.54
Cash dividends declared		0.18			0.18			0.17			0.17			0.17
Weighted average common shares outstanding
Basic		7,640,872			7,565,121			7,516,770			7,491,619			7,478,901
Diluted		7,687,106			7,611,879			7,549,530			7,564,121			7,583,544
Earnings Performance Data
Return on common equity		10.18	%		12.86	%		12.44	%		10.48	%		9.66	%
Return on assets		1.01	%		1.25	%		1.21	%		1.00	%		0.92	%
Net interest margin		3.31	%		3.32	%		3.42	%		3.38	%		3.32	%
Net interest margin (tax equivalent)		3.39	%		3.39	%		3.50	%		3.46	%		3.40	%

The Bank of Kentucky Financial Corporation

Selected Consolidated Financial Data

(Dollars in thousands, except per share data)

Five-Quarter Comparison

Balance Sheet Data	3/31/14			12/31/13			9/30/13			6/30/13			3/31/13
Assets:
Cash and cash equivalents	$	89,102		$	78,621		$	102,448		$	80,941		$	138,561
Investments		396,733			418,385			389,179			384,653			376,704
Loans held for sale		6,248			3,214			2,435			9,909			14,038
Total loans		1,261,863			1,249,645			1,201,193			1,185,449			1,187,742
Allowance for loan losses		(16,349	)		(16,306	)		(16,632	)		(16,650	)		(16,641	)
Premises and equipment, net		22,845			22,444			22,517			22,560			22,559
Goodwill and acquisition intangibles, net		23,737			23,871			24,018			24,169			24,325
Other assets & accrued interest receivable		75,244			77,618			77,066			74,859			73,223
Total assets	$	1,859,423		$	1,857,492		$	1,802,224		$	1,765,890		$	1,820,511
Liabilities & Shareholders’ Equity:
Total deposits	$	1,584,076		$	1,587,585		$	1,529,505		$	1,504,829		$	1,558,933
Short-term borrowings		29,220			27,643			32,167			26,934			28,309
Notes payable		45,515			45,577			50,695			50,702			48,709
Accrued interest payable & other liabilities		13,981			15,548			14,606			13,196			11,604
Total liabilities		1,672,792			1,676,353			1,626,973			1,595,661			1,647,555
Shareholders’ equity		186,631			181,139			175,251			170,229			172,956
Total liabilities and shareholders’ equity	$	1,859,423		$	1,857,492		$	1,802,224		$	1,765,890		$	1,820,511
Common shares outstanding		7,649,493			7,619,999			7,528,618			7,498,014			7,482,776
Average Balance Sheet Data
Average investments	$	412,047		$	404,687		$	386,644		$	387,526		$	376,370
Average other earning assets		29,854			55,521			29,039			46,886			86,110
Average loans		1,255,552			1,218,140			1,199,824			1,190,590			1,194,657
Average earning assets		1,697,453			1,678,348			1,615,507			1,625,002			1,657,137
Average assets		1,856,303			1,839,242			1,771,491			1,790,043			1,811,675
Average deposits		1,576,944			1,568,764			1,506,101			1,529,159			1,551,953
Average interest bearing deposits		1,245,241			1,215,455			1,164,947			1,215,858			1,244,360
Average interest bearing transaction deposits		947,221			911,075			848,512			882,084			892,609
Average interest bearing time deposits		298,020			304,380			316,435			333,774			351,751
Average borrowings		73,529			78,197			80,733			74,927			75,375
Average interest bearing liabilities		1,318,770			1,293,652			1,248,680			1,290,785			1,319,735
Average common stockholders equity		183,885			178,135			172,740			171,593			171,698

The Bank of Kentucky Financial Corporation

Selected Consolidated Financial Data

(Dollars in thousands, except per share data)

Five-Quarter Comparison

Asset Quality Data	3/31/14			12/31/13			9/30/13			6/30/13			3/31/13
Allowance for loan losses to total loans		1.30	%		1.30	%		1.38	%		1.40	%		1.40	%
Allowance for loan losses to non-performing loans		105	%		106	%		101	%		88	%		76	%
Nonaccrual loans	$	15,531		$	15,417		$	16,197		$	18,934		$	21,771
Loans – 90 days past due & still accruing		12			21			207			11			36
Total non-performing loans		15,543			15,438			16,404			18,945			21,807
OREO and repossessed assets		5,557			5,305			6,141			5,207			5,454
Total non-performing assets		21,100			20,743			22,545			24,152			27,261
Restructured loans-accruing		11,825			8,816			7,109			7,204			7,499
Non-performing loans to total loans		1.23	%		1.24	%		1.37	%		1.60	%		1.84	%
Non-performing assets to total assets		1.14	%		1.12	%		1.26	%		1.38	%		1.50	%
Annualized charge-offs to average loans		0.27	%		0.27	%		0.21	%		0.54	%		0.66	%
Net charge-offs	$	857		$	826		$	618		$	1,591		$	1,927
Other Information
Total assets under management (in millions)		858			836			766			747			744
Full-time equivalent employees		345			346			351			361			364

About BKFC

BKFC, a bank holding company with assets of approximately $1.859 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

###