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

NEWS RELEASE

THE BANK OF KENTUCKY FINANCIAL CORPORATION

ANNOUNCES SECOND QUARTER EARNINGS

Net income of $5,065,000 for the second quarter, up 13% from 2013

CRESTVIEW HILLS, KENTUCKY, July 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 second quarter ended June 30, 2014. For the second 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 are as follows:

Second Quarter ended June 30,	2014		2013		Change
Net income	$	5,065,000	$	4,485,000		13	%
Earnings per common share, basic	$	0.66	$	0.60		10	%
Earnings per common share, diluted	$	0.66	$	0.59		12	%
Six Months ended June 30,		2014		2013		Change
Net income	$	9,683,000	$	8,575,000		13	%
Net income per common share, basic	$	1.27		$         1. 15		10	%
Net income per common share, diluted	$	1.26		$         1 .13		12	%

“Our strong second quarter performance mirrored the first quarter as The Bank increased earnings by 13% from the previous year,” commented Robert W. Zapp, President & CEO. “Not only is solid commercial loan growth contributing to the Bank’s success, but new relationships have led to opportunities in other areas such as treasury management.  Our Wealth Advisory Group and their team of investment specialists continue to partner closely with our retail branch personnel, expanding relationships and reaching new clients, which resulted in another record quarter for this business unit.  Zapp added, “As we begin the second half of the year, I feel we are well positioned in the markets we serve to grow organically and leverage our talent, technologies and relationships to meet our goals”. 

The increase in net income in the second quarter of 2014 was primarily due to a $600,000 (38%) decrease in the provision for loan losses and a $454,000 (8%) increase in non-interest income compared with the second 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 June of 2013. Contributing to the increase in non-interest income was a $305,000 gain on the sale of securities.

Non-interest income increased $454,000 or 8% in the second quarter of 2014 compared with the same period in 2013, while non-interest expense increased $483,000 or 4% from the same period last year. Contributing to the increase in non-interest income was a $305,000 or 100% increase in gain on the sale of securities and a $134,000 or 16% increase in trust fee income, which was partially offset by a $424,000 or 63% decrease in gains on the sale of real estate loans. The decrease in gains on the sale of real estate loans was the result of lower refinancing volume due to slightly higher long term rates compared to 2013.

Net interest income increased $273,000, or 2% in the second quarter of 2014, compared with the same period in 2013. The net interest margin, on a tax equivalent basis, decreased eight basis points from 3.46% in the second quarter of 2013 to 3.38% in the second quarter of 2014. The increase in net interest income was the result of a $72.6 million or 4% growth in earning assets compared with the second quarter of 2013. The yield on earning assets decreased 10 basis points from 3.75% in the second quarter of 2013 to 3.65% in the second quarter of 2014, while the cost of interest bearing liabilities decreased two basis points from 0.36% to 0.34% in the same period.

The provision for loan losses decreased by $600,000 (38%) in the second quarter of 2014, compared with the same period in 2013. Contributing to this decrease were lower levels of charge-offs compared with the second quarter of 2013. The Company’s annualized net charge-offs to average loans decreased from 0.54% in the second quarter of 2013 to 0.32% in the second quarter of 2014 while non-performing loans as a percentage of total loans were 1.37% as of June 30, 2014, compared with 1.60% as of June 30, 2013. The Company recorded $1,015,000 in net charge-offs in the second quarter of 2014 compared with $1,591,000 in the second quarter of 2013. On a quarterly sequential basis, the provision for loan losses of $1,000,000 in the second quarter of 2014 was $100,000 higher than the provision in the first quarter of 2014, while non-performing loans increased from $15.5 million (1.23% of total loans) at March 31, 2014 to $17.4 million (1.37% of total loans) at June 30, 2014. Net charge-offs on a quarterly sequential basis increased from $857,000 (.27% of loans) in the first quarter of 2014 to $1,015,000 (.32% of loans) in the second quarter of 2014. As a result of improving credit metrics, the Allowance for Loan Losses (ALL) decreased from 1.40% of loans at the end of the second quarter of 2013 to 1.28% of loans at the end of the second quarter of 2014. On a quarterly sequential basis the ALL decreased two basis points from 1.30% at the end of the first quarter of 2014 to 1.28% at the end of the second 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 $1.858 billion at the end of the second quarter of 2014, which was $92 million or 5% higher than the end of the second quarter of 2013. The increase of $87 million (7%) in total loans and $16 million (4%) in investments were offset by a $6 million (8%) decrease in cash and cash equivalents. The increase in assets was funded by an increase in deposits of $68 million, or 5%, and an increase in equity of $22 million or 13% from the same date in 2013.

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	6/30/14			6/30/13			% Chg			6/30/14			6/30/13			% Chg
Interest income	$	15,100		$	14,880			1	%	$	30,029		$	29,746			1	%
Interest expense		1,119			1,172			(5	)%		2,179			2,455			(11	)%
Net interest income		13,981			13,708			2	%		27,850			27,291			2	%
Provision for loan losses		1,000			1,600			(38	)%		1,900			3,600			(47	)%
Net interest income after provision for loan losses		12,981			12,108			7	%		25,950			23,691			10	%
Non interest income		6,294			5,840			8	%		11,876			11,702			1	%
Non  interest expense		12,148			11,665			4	%		24,266			23,434			4	%
Net income before income taxes		7,127			6,283			13	%		13,560			11,959			13	%
Provision for income taxes		2,062			1,798			15	%		3,877			3,384			15	%
Net income	$	5,065		$	4,485			13	%	$	9,683		$	8,575			13	%
Per Common Share Data
Diluted earnings per common share		0.66			0.59			12	%		1.26			1.13			12	%
Cash dividends declared		0.18			0.17			6	%		0.36			0.34			6	%
Earnings Performance Data
Return on common equity		10.70	%		10.48	%		22	bps		10.45	%		10.07	%		38	bps
Return on assets		1.10	%		1.00	%		10	bps		1.06	%		.96	%		10	bps
Net interest margin		3.30	%		3.38	%		(8	)bps		3.31	%		3.35	%		(4	)bps

The Bank of Kentucky Financial Corporation

Selected Consolidated Financial Data

(Dollars in thousands, except per share data)

Balance Sheet Data
	June 30, 2014			December 31, 2013
Assets:
Cash and cash equivalents	$	74,447		$	78,621
Investments		400,444			418,385
Loans held for sale		4,437			3,214
Total loans, gross		1,272,152			1,249,645
Allowance for loan losses		(16,334	)		(16,306	)
Premises and equipment, net		22,704			22,444
Goodwill and acquisition intangibles, net		23,620			23,871
Other assets and accrued interest receivable		76,317			77,618
Total assets	$	1,857,787		$	1,857,492
Liabilities & Shareholders’ Equity
Total deposits	$	1,572,819		$	1,587,585
Short-term borrowings		21,012			27,643
Notes payable		55,451			45,577
Accrued interest payable and other liabilities		16,242			15,548
Total liabilities		1,665,524			1,676,353
Common stockholders’ equity		192,263			181,139
Total liabilities and shareholders’ equity	$	1,857,787		$	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 )
	Three Months ended June 30, 2014							Three Months ended June 30, 2013
	Average outstanding balance		Interest earned/ paid		Yield/ rate			Average outstanding balance		Interest earned/ paid		Yield/ rate
Interest-earning assets:
Loans receivable (1)(2)	$	1,268,370	$	13,356		4.22	%	$	1,190,590	$	13,390		4.51	%
Securities (2)		403,047		2,020		2.01			387,526		1,725		1.79
Other interest-earning assets		26,175		62		0.95			46,886		78		0.67
Total interest-earning assets		1,697,592		15,438		3.65			1,625,002		15,193		3.75
Non-interest-earning assets		149,684							165,041
Total assets	$	1,847,276						$	1,790,043
Interest-bearing liabilities:
Transaction accounts		934,082		387		0.17			882,084		355		0.16
Time deposits		300,759		482		0.64			333,774		579		0.70
Borrowings		79,455		250		1.26			74,927		238		1.27
Total interest-bearing liabilities		1,314,296		1,119		0.34			1,290,785		1,172		0.36
Non-interest-bearing liabilities		343,033							327,665
Total liabilities		1,657,329							1,618,450
Shareholders’ equity		189,947							171,593
Total liabilities and shareholders’ equity	$	1,847,276						$	1,790,043
Net interest income			$	14,319						$	14,021
Interest rate spread						3.31	%						3.39	%
Net interest margin (net interest income as a percent of average interest-earning assets)						3.38	%						3.46	%

(1) Includes non-accrual loans.

(2) Income presented on a tax equivalent basis using a 35.00% tax rate in 2014 and 2013. The tax equivalent adjustment was $337,000 and $313,000 in 2014 and 2013, 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 30,2014							Six Months ended June 30, 2013
	Average outstanding balance		Interest earned/ paid		Yield/ rate			Average outstanding balance		Interest earned/ paid		Yield/ rate
Interest-earning assets:
Loans receivable (1)(2)	$	1,261,997	$	26,478		4.23	%	$	1,192,612	$	26,785		4.53	%
Securities (2)		407,522		4,094		2.03			381,979		3,404		1.80
Other interest-earning assets		28,005		129		0.93			66,390		174		0.53
Total interest-earning assets		1,697,524		30,701		3.65			1,640,981		30,363		3.73
Non-interest-earning assets		150,559							159,819
Total assets	$	1,848,083						$	1,800,800
Interest-bearing liabilities:
Transaction accounts		940,614		773		0.17			887,317		754		0.17
Time deposits		299,398		920		0.62			342,714		1,224		0.72
Borrowings		76,481		486		1.28			75,149		477		1.28
Total interest-bearing liabilities		1,316,493		2,179		0.33			1,305,180		2,455		0.38
Non-interest-bearing liabilities		344,674							323,975
Total liabilities		1,661,167							1,629,155
Shareholders’ equity		186,916							171,645
Total liabilities and shareholders’ equity	$	1,848,083						$	1,800,800
Net interest income			$	28,522						$	27,908
Interest rate spread						3.32	%						3.35	%
Net interest margin (net interest income as a percent of average interest-earning assets)						3.39	%						3.43	%

___________________________

(1) Includes non-accrual loans.

(2) Income presented on a tax equivalent basis using a 35.00% tax rate in 2014 and 2013. The tax equivalent adjustment was $672,000 and $617,000 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		6 /30/14			3 /31/14			12 /31/13			9 /30/13			6 /30/13
Net interest income	$	13,981		$	13,869		$	14,041		$	13,922		$	13,708
Provision for loan losses		1,000			900			500			600			1,600
Net interest income after provision for loan losses		12,981			12,969			13,541			13,322			12,108
Service charges and fees		2,496			2,434			2,782			2,829			2,581
Gain on sale of real estate loans		248			165			165			282			672
Gain on sale of securities		305			-			-			-			-
Trust fee income		984			941			854			846			850
Bankcard transaction revenue		1,105			999			1,008			1,012			1,044
Gains/(losses) on other real estate owned		(106	)		(81	)		(22	)		(201	)		(308	)
Other non-interest income		1,262			1,124			1,466			1,288			1,001
Total non-interest income		6,294			5,582			6,253			6,056			5,840
Salaries and employee benefits expense		6,026			5,873			5,691			5,969			5,988
Occupancy and equipment expense		1,404			1,435			1,330			1,366			1,315
Data processing expense		520			535			551			533			537
State bank taxes		642			642			584			615			615
Other real estate owned and loan collection		346			342			384			457			350
Amortization of intangible assets		117			133			148			151			157
FDIC Insurance		595			554			376			317			335
Other non-interest expenses		2,498			2,604			2,528			2,311			2,368
Total non-interest expense		12,148			12,118			11,592			11,719			11,665
Net income before income tax expense		7,127			6,433			8,202			7,659			6,283
Income tax expense		2,062			1,815			2,427			2,244			1,798
Net income	$	5,065		$	4,618		$	5,775		$	5,415		$	4,485
Per Common Share Data
Diluted earnings per common share		0.66			0.60			0.76			0.72			0.59
Cash dividends declared		0.18			0.18			0.18			0.17			0.17
Weighted average common shares outstanding
Basic		7,662,927			7,640,872			7,565,121			7,516,770			7,491,619
Diluted		7,702,231			7,687,106			7,611,879			7,549,530			7,564,121
Earnings Performance Data
Return on common equity		10.70	%		10.18	%		12.86	%		12.44	%		10.48	%
Return on assets		1.10	%		1.01	%		1.25	%		1.21	%		1.00	%
Net interest margin		3.30	%		3.31	%		3.32	%		3.42	%		3.38	%
Net interest margin (tax equivalent)		3.38	%		3.39	%		3.39	%		3.50	%		3.46	%

The Bank of Kentucky Financial Corporation

Selected Consolidated Financial Data

(Dollars in thousands, except per share data)

Balance Sheet Data		6 /30/14			3 /31/14			12 /31/13			9 /30/13			6 /30/13
Assets:
Cash and cash equivalents	$	74,447		$	89,102		$	78,621		$	102,448		$	80,941
Investments		400,444			396,733			418,385			389,179			384,653
Loans held for sale		4,437			6,248			3,214			2,435			9,909
Total loans		1,272,152			1,261,863			1,249,645			1,201,193			1,185,449
Allowance for loan losses		(16,334	)		(16,349	)		(16,306	)		(16,632	)		(16,650	)
Premises and equipment, net		22,704			22,845			22,444			22,517			22,560
Goodwill and acquisition intangibles, net		23,620			23,737			23,871			24,018			24,169
Other assets & accrued interest receivable		76,317			75,244			77,618			77,066			74,859
Total assets	$	1,857,787		$	1,859,423		$	1,857,492		$	1,802,224		$	1,765,890
Liabilities & Shareholders’ Equity:
Total deposits	$	1,572,819		$	1,584,076		$	1,587,585		$	1,529,505		$	1,504,829
Short-term borrowings		21,012			29,220			27,643			32,167			26,934
Notes payable		55,451			45,515			45,577			50,695			50,702
Accrued interest payable & other liabilities		16,242			13,981			15,548			14,606			13,196
Total liabilities		1,665,524			1,672,792			1,676,353			1,626,973			1,595,661
Shareholders’ equity		192,263			186,631			181,139			175,251			170,229
Total liabilities and shareholders’ equity	$	1,857,787		$	1,859,423		$	1,857,492		$	1,802,224		$	1,765,890
Common shares outstanding		7,671,045			7,649,493			7,619,999			7,528,618			7,498,014
Average Balance Sheet Data
Average investments	$	403,047		$	412,047		$	404,687		$	386,644		$	387,526
Average other earning assets		26,175			29,854			55,521			29,039			46,886
Average loans		1,268,370			1,255,552			1,218,140			1,199,824			1,190,590
Average earning assets		1,697,592			1,697,453			1,678,348			1,615,507			1,625,002
Average assets		1,847,276			1,856,303			1,839,242			1,771,491			1,790,043
Average deposits		1,564,626			1,576,944			1,568,764			1,506,101			1,529,159
Average interest bearing deposits		1,234,841			1,245,241			1,215,455			1,164,947			1,215,858
Average interest bearing transaction deposits		934,082			947,221			911,075			848,512			882,084
Average interest bearing time deposits		300,759			298,020			304,380			316,435			333,774
Average borrowings		79,455			73,529			78,197			80,733			74,927
Average interest bearing liabilities		1,314,296			1,318,770			1,293,652			1,248,680			1,290,785
Average common stockholders equity		189,947			183,885			178,135			172,740			171,593

The Bank of Kentucky Financial Corporation

Selected Consolidated Financial Data

(Dollars in thousands, except per share data)

	Five-Quarter Comparison
Asset Quality Data		6/30/14			3/31/14			12/31/13			9/30/13			6/30/13
Allowance for loan losses to total loans			1.28	%		1.30	%		1.30	%		1.38	%		1.40	%
Allowance for loan losses to non-performing loans			94	%		105	%		106	%		101	%		88	%
Nonaccrual loans		$	17,384		$	15,531		$	15,417		$	16,197		$	18,934
Loans – 90 days past due & still accruing			24			12			21			207			11
Total non-performing loans			17,408			15,543			15,438			16,404			18,945
OREO and repossessed assets			4,931			5,557			5,305			6,141			5,207
Total non-performing assets			22,339			21,100			20,743			22,545			24,152
Restructured loans-accruing			8,154			11,825			8,816			7,109			7,204
Non-performing loans to total loans			1.37	%		1.23	%		1.24	%		1.37	%		1.60	%
Non-performing assets to total assets			1.21	%		1.14	%		1.12	%		1.26	%		1.38	%
Annualized charge-offs to average loans			0.32	%		0.27	%		0.27	%		0.21	%		0.54	%
Net charge-offs		$	1,015		$	857		$	826		$	618		$	1,591
Other Information
Total assets under management (in millions)		$	876		$	858		$	836		$	766		$	747
Full-time equivalent employees
			346			345			346			351			361

About BKFC

BKFC, a bank holding company with assets of approximately $1.858 billion, offers banking and related financial services to both individuals and business customers. BKFC operates thirty-two 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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