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

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| Source: The Bank of Kentucky Financial Corp.

CRESTVIEW HILLS, Ky., Jan. 16, 2014 (GLOBE NEWSWIRE) -- 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. 

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. 

 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% 107bps 11.39% 11.08%  31bps
Return on assets 1.25% 1.12% 13bps 1.10% 1.05%  5bps
Net interest margin 3.32% 3.52% (20)bps 3.36% 3.53% (17)bps
             
     
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
     
             
 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 Interest   Average Interest  
  outstanding  earned/ Yield/ outstanding  earned/ Yield/
   balance paid rate  balance paid 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.
             
 
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 Interest   Average Interest  
  outstanding  earned/ Yield/ outstanding  earned/ Yield/
   balance paid rate  balance paid 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.
           
 
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%
           
           
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
           
           
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