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THE BANK KENTUCKY FINANCIAL CORP
Symbol U : BKYF
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The Bank of Kentucky Financial Corporation Announces Third Quarter Earnings

2012-10-18 12:40 ET - News Release

CRESTVIEW HILLS, Ky., Oct. 18, 2012 (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 third quarter and nine months ended September 30, 2012. For the third quarter, the Company reported an increase in diluted earnings per common share of 4% from the same period in 2011.

A summary of the Company's results follows:

Third Quarter ended September 30, 2012 2011 Change
Net income $4,196,000 $4,274,000 (2)%
Net income available to common shareholders $4,196,000 $4,013,000 5%
Earnings per common share, basic $0.56 $0.54 4%
Earnings per common share, diluted $0.56 $0.54 4%
       
Nine Months ended September 30, 2012 2011 Change
Net income $13,135,000 $11,580,000 13%
Net income available to common shareholders $13,135,000 $10,803,000 22%
Net income per common share, basic $1.76 $1.45 21%
Net income per common share, diluted $1.74 $1.45 20%

Robert Zapp, President & CEO, stated, "The positive trends we have seen in lending over the past several months continued into the third quarter of 2012, with most of the growth coming in the past few months. In addition, increased mortgage volume at a time when interest rates were at historic lows helped to increase fee revenue for the quarter. Although slow moving, we are experiencing a steady climb in borrowing among businesses and consumers and are active in helping local businesses obtain credit of any size. We continue to grow organically and have focused on expanding existing customer relationships by selling investment services and additional bank products and services. The Bank has further established itself in the region by capturing additional market share and maintaining our position as the largest bank in Northern Kentucky with 23% of total deposits. Overall, The Bank continues to execute its strategy and looks forward to future success."

The increase in earnings available to common shareholders in the third quarter of 2012 was primarily attributable to a $350,000 (14%) decrease in the provision for loan losses and a $261,000 (100%) decrease in preferred stock dividends and amortization as compared to the third 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 10% increase in noninterest expense. The decrease in the provision for loan losses reflected lower levels of impaired loan reserves, lower levels of nonperforming loans and lower levels of adversely classified loans as compared to September 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 (the "Series A Preferred Stock"), previously issued to the U.S. Department of the Treasury as part of the TARP CPP program.

Net interest income decreased $114,000 in the third quarter of 2012, as compared to the same period in 2011. The net interest margin, on a tax equivalent basis, decreased 19 basis points from 3.83% in the third quarter of 2011 to 3.64% in the third quarter of 2012. Contributing to the decrease in the net interest margin was the mix of the growth in earning assets. Of the $71 million growth in average earning assets from the third quarter of 2011 to third quarter of 2012, $46 million or 65% of the growth was attributed to the Bank's securities portfolio, which generally has lower yields than loans.

The provision for loan losses decreased by $350,000 (14%) in the third quarter of 2012, as compared to the same period in 2011. Contributing to this decrease were lower levels of impaired loan reserves, non-performing and adversely classified loans as compared to September 2011. The Company's non-performing loans as a percentage of total loans were 1.29% as of September 30, 2012, as compared to 1.43% as of September 30, 2011, while annualized net charge-offs to average loans increased from .86% in the third quarter of 2011 to 1.39% in the third quarter of 2012. The Company recorded $3,961,000 in net charge-offs in the third quarter of 2012 as compared to $2,425,000 in the third quarter of 2011. The majority of the loans charged off in the third quarter of 2012 were reserved for in prior quarters. On a sequential basis, the provision for loan losses of $2,200,000 in the third quarter of 2012 was $500,000 higher than the provision in the second quarter of 2012, while non-performing loans decreased from $16.5 million (1.44% of total loans) at June 30, 2012 to $14.9 million (1.29% of total loans) at September 30, 2012. Net charge-offs on a sequential basis increased from $1,716,000 (0.61% of loans) in the second quarter of 2012 to $3,961,000 (1.39% of loans) in the third quarter of 2012. The allowance for loan losses (ALL) as of September 30, 2012 decreased $1,761,000 from June 2012. The decrease in the ALL is primarily the result of the loans that were charged off in the third quarter of 2012 that were reserved for in previous quarters. The reserve for impaired loans was $6,254,000 at September 30, 2012, which was $1,261,000 lower than the $7,515,000 at June 30, 2012 and $1,508,000 lower than the $7,762,000 at September 30, 2011. As a result, the ALL has decreased from 1.60% of loans at the end of the second quarter of 2012 to 1.43% of loans at the end of the third 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.

The Company's non-performing assets as a percentage of total assets were 1.23% as of September 30, 2012, as compared to 1.11% as of September 30, 2011. Non-performing loans decreased $1,091,000 from September 2011 to September 2012 and other real estate owned increased $4,298,000 in the same time period. On a sequential quarterly basis, other real estate owned increased $242,000 from June 2012. The increase in other real estate owned from September of 2011 was primarily the result of one commercial real estate relationship which added $3,475,000 in other real estate owned in the fourth quarter of 2011. These properties are recorded at their fair value less estimated costs to sell with the difference between this value and the loan balance being recorded as a charge-off.

Non-interest income increased 11% ($564,000) in the third quarter of 2012, as compared to the same period in 2011, while non-interest expense increased 10% ($1,072,000) from the same period last year. Contributing to the increase in non-interest income was a $214,000 or a 30% increase in the gains on sale of real estate loans. These gains were driven by the low current interest rates, which has prompted increased demand for home mortgage loan refinancing. Contributing to the increase in non-interest expense was a $558,000 (10%) increase in salaries and benefits expense. The increase in salaries and benefits included $181,000 in higher commission expense. The increase in commission expense included higher commissions paid based on higher real estate loan originations.

Total assets were $1.722 billion at the end of the third quarter of 2012, which was $98 million or 6% higher than the same date a year ago. Total loans increased $40 million (4%), investments in securities increased $21 million (6%) and cash and cash equivalents increased $14 million (21%) from September of 2011. The balance sheet increases were funded by an increase in deposits of $102 million, or 7%. Total equity decreased $1.7 million from the same date in 2011 as a result of the repurchase of the Series A Preferred Stock.

The Bank of Kentucky Financial Corporation
Selected Consolidated Financial Data
(Dollars in thousands, except per share data)
             
  Third Quarter Comparison Nine months ended September 30, Comparison
Income Statement Data 9/30/12 9/30/11 % Chg 9/30/12 9/30/11 % Chg
Interest income $15,433 $16,280 (5)% $46,782 $48,702 (4)%
Interest expense 1,471 2,204 (33)% 4,929 7,251 (32)%
Net interest income 13,962 14,076 (1)% 41,853 41,451 1%
             
Provision for loan losses 2,200 2,550 (14)% 5,700 8,550 (33)%
Net interest income after provision for loan losses 11,762 11,526 2% 36,153 32,901 10%
Non interest income 5,861 5,297 11% 16,820 15,194 11%
Non interest expense 11,799 10,727 10% 34,668 31,711 9%
Net income before income taxes 5,824 6,096 (4)% 18,305 16,384 12%
Provision for income taxes 1,628 1,822 (11)% 5,170 4,804 8%
Net income 4,196 4,274 (2)% 13,135 11,580 13%
Preferred stock dividends & amortization  -- 261 (100)%  -- 777 (100)%
Net income available to common shareholders $4,196 $4,013 5% $13,135 $10,803 22%
Per Common Share Data            
Diluted earnings per common share 0.56 0.54 4% 1.74 1.45 20%
Cash dividends declared 0.32 0.28 14% 0.62 0.56 11%
Earnings Performance Data            
Return on common equity 10.05% 10.51% (46)bps 10.83% 9.78%  105bps
Return on assets 0.98% 1.05% (7)bps 1.02% 0.95% 7bps
Net interest margin 3.56% 3.76% (20)bps 3.54% 3.69% (15)bps
 
The Bank of Kentucky Financial Corporation
Selected Consolidated Financial Data
(Dollars in thousands, except per share data)
     
     
Balance Sheet Data    
  September 30, 2012 December 31, 2011
Assets:    
Cash and cash equivalents $81,950 $135,964
Investments 361,108 371,737
Loans held for sale 19,314 8,920
Total loans, gross 1,159,074 1,129,954
Allowance for loan losses (16,585) (18,288)
Premises and equipment, net 22,714 22,827
Goodwill and acquisition intangibles, net 24,668 25,251
Other assets and accrued interest receivable 69,711 68,359
Total assets $1,721,954 $1,744,724
     
Liabilities & Shareholders' Equity    
Total deposits $1,471,246 $1,498,821
Short-term borrowings 22,142 29,300
Notes payable 48,721 48,739
Accrued interest payable and other liabilities 12,224 11,294
Total liabilities 1,554,333 1,588,154
Common stockholders' equity 167,621 156,570
Total liabilities and shareholders' equity $1,721,954 $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 )
  Three Months ended September 30, 2012 Three Months ended September 30, 2011
  Average
outstanding balance
Interest earned/
paid
Yield/ rate Average
outstanding balance
Interest earned/
paid
Yield/ rate
Interest-earning assets:            
Loans receivable (1)(2) $1,158,072 $13,926 4.78% $1,126,118 $14,652 5.16%
Securities (2) 369,707 1,763 1.90 324,144 1,881 2.30
Other interest-earning assets 32,781 71 0.86 39,721 69 0.69
             
Total interest-earning assets 1,560,560 15,760 4.02 1,489,983 16,602 4.42
             
Non-interest-earning assets 147,283     133,736    
Total assets $1,707,843     $1,623,719    
             
Interest-bearing liabilities:            
Transaction accounts 796,346 280 0.14 711,046 524 0.29
Time deposits 369,327 934 1.01 411,193 1,430 1.38
Borrowings 70,445 257 1.45 72,421 250 1.37
Total interest-bearing liabilities 1,236,118 1,471 0.47 1,194,660 2,204 0.73
             
Non-interest-bearing liabilities 305,689     261,219    
             
Total liabilities 1,541,807     1,455,879    
             
Shareholders' equity 166,036     167,840    
             
Total liabilities and shareholders' equity $1,707,843     $1,623,719    
             
Net interest income   $14,289     $14,398  
Interest rate spread     3.55%     3.69%
Net interest margin (net interest income as a percent of average interest-earning assets)     3.64%     3.83%
             
(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 $327,000 and $322,000 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 )
  Nine Months ended September 30, 2012 Nine Months ended September 30, 2011
  Average
outstanding balance
Interest earned/
paid
Yield/
rate
Average
outstanding balance
Interest earned/
paid
Yield/
rate
             
Interest-earning assets:            
Loans receivable (1)(2) $1,142,833 $41,832 4.89% $1,118,185 $43,886 5.25%
Securities (2) 373,036 5,684 2.04 315,364 5,454 2.31
Other interest-earning assets 63,895 242 0.51 69,341 291 0.56
             
Total interest-earning assets 1,579,764 47,758 4.04 1,502,890 49,631 4.40
             
Non-interest-earning assets 148,025     132,355    
Total assets $1,727,789     $1,635,245    
             
Interest-bearing liabilities:            
Transaction accounts 810,382 1,175 0.19 720,339 1,708 0.32
Time deposits 384,549 2,953 1.03 424,428 4,785 1.51
Borrowings 75,657 801 1.41 72,879 758 1.39
Total interest-bearing liabilities 1,270,588 4,929 0.52 1,217,646 7,251 0.80
             
Non-interest-bearing liabilities 295,194     252,033    
             
Total liabilities 1,565,782     1,469,679    
             
Shareholders' equity 162,007     165,566    
             
Total liabilities and shareholders' equity $1,727,789     $1,635,245    
             
Net interest income   $42,829     $42,380  
Interest rate spread     3.52%     3.60%
Net interest margin (net interest income as a percent of average interest-earning assets)     3.62%     3.77%
             
(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 $976,000 and $929,000 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 9/30/12 6/30/12 3/31/12 12/31/11 9/30/11
Net interest income $13,962 $14,047 $13,844 $14,087 $14,076
Provision for loan losses 2,200 1,700 1,800 2,200 2,550
           
Net interest income after provision for loan losses 11,762 12,347 12,044 11,887 11,526
Service charges and fees 2,325 2,241 2,201 2,390 2,470
Gain on sale of real estate loans 917 589 586 580 703
Gain/(loss) on sale of securities -- (4) 207 -- --
Trust fee income 710 694 689 625 630
Bankcard transaction revenue 940 952 902 885 849
Gains/(losses) on other real estate owned (67) (40) (94) (85) (98)
Other non-interest income 1,036 921 1,115 1,135 743
Total non-interest income 5,861 5,353 5,606 5,530 5,297
Salaries and employee benefits expense 5,909 5,724 5,451 5,044 5,351
Occupancy and equipment expense 1,316 1,315 1,277 1,192 1,216
Data processing expense 505 533 535 522 500
State bank taxes 579 579 559 415 550
Amortization of intangible assets 187 196 200 220 202
FDIC Insurance 267 295 305 305 269
Other non-interest expenses 3,036 2,885 3,015 2,705 2,639
Total non-interest expense 11,799 11,527 11,342 10,403 10,727
Net income before income tax expense 5,824 6,173 6,308 7,014 6,096
Income tax expense 1,628 1,749 1,793 2,105 1,822
Net income 4,196 4,424 4,515 4,909 4,274
Preferred stock dividends & amortization  --  --  -- 195 261
Net income available to common shareholders $4,196 $4,424 $4,515 $4,714 $4,013
Per Common Share Data          
Diluted earnings per common share  0.56 0.59 0.60 0.63 0.54
Cash dividends declared 0.32 0.00 0.30 0.00 0.28
Weighted average common shares outstanding          
Basic  7,465,926 7,465,434 7,448,604 7,432,995 7,432,995
Diluted  7,554,271 7,542,372 7,520,062 7,465,606 7,488,743
Earnings Performance Data          
Return on common equity 10.05% 10.99% 11.49% 12.21% 10.51%
Return on assets 0.98% 1.03% 1.04% 1.13% 1.05%
Net interest margin 3.56% 3.57% 3.49% 3.55% 3.76%
Net interest margin (tax equivalent) 3.64% 3.65% 3.57% 3.63% 3.83%
 
The Bank of Kentucky Financial Corporation
Selected Consolidated Financial Data
(Dollars in thousands, except per share data)
           
           
  Five-Quarter Comparison
Balance Sheet Data 9/30/12 6/30/12 3/31/12 12/31/11 9/30/11
Assets:          
Cash and cash equivalents $81,950 $66,719 $133,153 $135,964 $67,657
Investments 361,108 376,454 374,336 371,737 339,780
Loans held for sale 19,314 13,983 10,863 8,920 6,612
Total loans 1,159,074 1,143,733 1,130,200 1,129,954 1,118,630
Allowance for loan losses (16,585) (18,346) (18,362) (18,288) (17,941)
Premises and equipment, net 22,714 22,923 23,159 22,827 22,653
Goodwill and acquisition intangibles, net 24,668 24,856 25,051 25,251 24,826
Other assets & accrued interest receivable 69,711 73,543 74,381 68,359 62,182
Total assets $1,721,954 $1,703,865 $1,752,781 $1,744,724 $1,624,399
Liabilities & Shareholders' Equity          
Total deposits $1,471,246 $1,455,328 $1,505,709 $1,498,821 $1,369,215
Short-term borrowings 22,142 24,373 29,334 29,300 26,248
Notes payable 48,721 48,727 48,733 48,739 48,745
Accrued interest payable & other liabilities 12,224 10,987 9,531 11,294 10,905
Total liabilities 1,554,333 1,539,415 1,593,307 1,588,154 1,455,113
Common stockholders' equity 167,621 164,450 159,474 156,570 152,356
Preferred stock  --  --  --  -- 16,930
Shareholders' equity 167,621 164,450 159,474 156,570 169,286
Total liabilities and shareholders' equity $1,721,954 $1,703,865 $1,752,781 $1,744,724 $1,624,399
Common shares outstanding 7,467,396 7,465,841 7,464,811 7,432,995 7,432,995
Average Balance Sheet Data          
Average investments $369,707 $375,245 $374,027 $360,265 $324,144
Average other earning assets 32,781 70,648 88,597 76,258 39,721
Average loans 1,158,072 1,136,894 1,133,367 1,139,767 1,126,118
Average earning assets 1,560,560 1,582,787 1,595,991 1,576,290 1,489,983
Average assets 1,707,843 1,730,575 1,745,169 1,717,816 1,623,719
Average deposits 1,459,593 1,482,222 1,494,332 1,464,550 1,372,244
Average interest bearing deposits 1,165,673 1,194,699 1,224,743 1,190,716 1,122,239
Average interest bearing transaction deposits 796,346 813,312 821,643 783,753 711,046
Average interest bearing time deposits 369,327 381,387 403,100 406,963 411,193
Average borrowings 70,445 75,789 80,798 77,832 72,421
Average interest bearing liabilities 1,236,118 1,270,488 1,305,541 1,268,548 1,194,660
Average common stockholders equity 166,036 161,962 158,022 153,175 150,934
Average preferred stock -- -- -- 9,753 16,906
 
The Bank of Kentucky Financial Corporation
Selected Consolidated Financial Data
(Dollars in thousands, except per share data)
           
  Five-Quarter Comparison
Asset Quality Data 9/30/12 6/30/12 3/31/12 12/31/11 9/30/11
Allowance for loan losses to total loans 1.43% 1.60% 1.62% 1.62% 1.60%
Allowance for loan losses to non-performing loans 112% 111% 105% 115% 112%
Nonaccrual loans $14,813 $16,265 $16,779 $15,651 $15,964
Loans – 90 days past due & still accruing 105 195 680 219 45
Total non-performing loans 14,918 16,460 17,459 15,870 16,009
OREO and repossessed assets 6,192 5,950 6,328 5,844 1,894
Total non-performing assets 21,110 22,410 23,787 21,714 17,903
Restructured loans-accruing 12,270 15,388 15,492 13,306 13,108
Non-performing loans to total loans 1.29% 1.44% 1.54% 1.40% 1.43%
Non-performing assets to total assets 1.23% 1.32% 1.36% 1.25% 1.11%
Annualized charge-offs to average loans 1.39% 0.61% 0.62% 0.65% 0.86%
Net charge-offs $3,961 $1,716 $1,726 $1,853 $2,425
           
           
Other Information          
Total assets under management (in millions) 715 701 702 667 639
Full-time equivalent employees 370 376 359 356 349

About BKFC

BKFC, a bank holding company with assets of approximately $1.722 billion, offers banking and related financial services to both individuals and business customers. BKFC operates thirty-three branch locations and fifty-five ATMs in the Northern Kentucky/Cincinnati market.

CONTACT: Martin Gerrety
         Executive Vice President and CFO
         (859) 372-5169
         mgerrety@bankofky.com

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