BANK OF KENTUCKY FINANCIAL CORP - FORM 8-K - EX-99.1 - PRESS RELEASE DATED JANUARY 20, 2011

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8-K - CURRENT REPORT - BANK OF KENTUCKY FINANCIAL CORP	d8k.htm

Exhibit 99.1

LOGO

THE BANK OF KENTUCKY FINANCIAL CORPORATION

ANNOUNCES FOURTH QUARTER EARNINGS

Earnings per share up 44% for the fourth quarter and 30% for 2010

CRESTVIEW HILLS, KENTUCKY, January 20, 2011 – 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 and twelve months ended December 31, 2010. For the fourth quarter and twelve months of 2010, the Company reported an increase in diluted earnings per common share of 44% and 30% respectively from the same periods in 2009.

A summary of the Company’s results follows:


Fourth Quarter ended December 31,	2010		2009		Change
Net income	$	3,673,000	$	2,328,000		58	%
Net income available to common shareholders	$	2,966,000	$	1,819,000		63	%
Earnings per common share, basic	$	0.46	$	0.32		44	%
Earnings per common share, diluted	$	0.46	$	0.32		44	%

Year ended December 31,	2010		2009		Change
Net income	$	11,671,000	$	8,760,000		33	%
Net income available to common shareholders	$	9,425,000	$	6,968,000		35	%
Net income per common share, basic	$	1.61	$	1.24		30	%
Net income per common share, diluted	$	1.61	$	1.23		30	%

Robert Zapp, President and Chief Executive Officer stated, “The fourth quarter was a very active period for the Company. A very successful stock issue in November, which allowed us to repurchase a portion of the TARP preferred stock, was a notable highlight. Significant revenue growth and improving credit metrics highlighted the increase in earnings in the fourth quarter. While credit quality has been trending in the right direction, the economic recovery is slow and we will continue to work closely with our business clients trying to emerge from the downturn. With much of the fight behind us, we will continue to focus on lending and identifying opportunities to assist businesses in a wide range of credit needs. We are pleased to report the Company’s successful fourth quarter financial performance, but stand ready to execute our strategy to grow organically and seek opportunities to expand the franchise through acquisition.”

On November 22, 2010 the Company announced the closing of a public offering of 1,765,588 shares of its common stock at $17.00 per share, for net proceeds of approximately $28.1 million. This offering was followed by the Company’s repurchase, on December 22, 2010, of $17 million of the outstanding $34 million of its Fixed Rate Cumulative Perpetual Preferred Stock, Series A(the “Series A Preferred Stock”), previously issued to the U.S. Department of the Treasury. As a result of the partial repurchase, the Company recognized the accretion of the remaining discount on the repurchased Series A Preferred Stock as of the date of repurchase. The additional accretion recognized at the date of repurchase reduced net income available to common stockholders for the fourth quarter of 2010 by $215,000.

Two acquisitions that were completed in the fourth quarter of 2009 also had a significant impact on the Company’s fourth quarter 2010 income statement as compared to the fourth quarter of 2009. In the fourth quarter of 2009, the Bank completed the purchase of three banking offices of Integra Bank Corporation’s wholly-owned bank subsidiary, Integra Bank N.A., located in Crittenden, Dry Ridge and Warsaw, Kentucky and a portfolio of selected commercial loans originated by Integra Bank’s Covington, Kentucky loan production office. This transaction added $76 million in deposits and $107 million in loans. The Bank also completed the purchase of Tapke Asset Management, LLC (“TAM”) in the fourth quarter of 2009.

Driving the increase in earnings in the fourth quarter of 2010 was strong revenue growth and a lower provision for loan losses as compared to the fourth quarter of 2009. Total revenue increased $2,093,000 or 12% from the fourth quarter of 2009 while the provision for loan losses decreased $1,500,000 or 33% in the same period. The growth in revenue included a $1,267,000 or 10% increase in net interest income and a $826,000 or 18% increase in non interest income. The decrease in the provision for loan losses reflected improving credit metrics.

Net interest income increased $1,267,000, or 10% in the fourth quarter of 2010, as compared to the same period in 2009, while the net interest margin, on a tax equivalent basis, increased 5 basis points from 3.65% in the fourth quarter of 2009 to 3.70% in the fourth quarter of 2010. Contributing to the increase in net interest income was the growth in average earning assets which increased $121 million, or 9% on average from the fourth quarter of 2009.

The provision for loan losses decreased by $1,500,000 (33%) in the fourth quarter of 2010, as compared to the same period in 2009. Contributing to this decrease were lower levels on non-performing loans and charge-offs as compared to December 2009. The Company’s non-performing loans as a percentage of total loans were 1.90% as of December 31, 2010, as compared to 2.21% as of December 31, 2009, while annualized net charge-offs to average loans decreased from 1.12% in the fourth quarter of 2009 to 1.00% in the fourth quarter of 2010, and the net charge-off ratio was lower than the levels experienced over the last four quarters. The Company recorded $2,795,000 in net charge-offs in the fourth quarter of 2010 as compared to $3,125,000 in the fourth quarter of 2009. On a sequential basis, the provision for loan losses of $3,000,000 in the fourth quarter of 2010 was $500,000 lower than the provision in the third quarter of 2010, while non-performing loans increased from $19 million (1.69% of total loans) at September 30, 2010 to $21.1 million (1.90% of total loans) at December 31, 2010. Net charge-offs on a sequential basis decreased from $2,867,000 (1.02% of loans) in the third quarter of 2010 to $2,795,000 (1.00% of loans) in the fourth quarter of 2010. As a result of the impact that current economic conditions have had on the Company’s loan portfolio, the allowance for loan losses (ALL) increased $2,215,000 (15%) from December 31, 2009. As a result of the added allowance, the ALL has increased from 1.31% of loans at the end of the fourth quarter of 2009 to 1.57% of loans at the end of the fourth quarter of 2010. Removing the loans purchased from Integra, the ALL would be approximately 1.72% of loans at the end of fourth quarter 2010. The portfolio of commercial loans purchased from Integra in the fourth quarter of 2009 were purchased at a discount of .98%, and current accounting does not allow this discount to be added to the ALL. 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.

Non-interest income increased 18% ($826,000) in the fourth quarter of 2010, as compared to the same period in 2009, while non-interest expense increased 16% ($1,524,000) from the same period last year. Contributing to the increase in non-interest income was gains on the sale of real estate loans which increase $670,000 (243%) from the fourth quarter of 2009. These gains were driven by extremely low interest rates, which have prompted increased demand for home mortgage loan refinancing. Non-interest income in the fourth quarter of 2009 included $465,000 in gains on the sale of securities versus $0 in the fourth quarter of 2010. Other increases in non-interest income

included trust income and bankcard revenue. Contributing to the $279,000 (87%) increase in trust fees was the TAM acquisition. Non-interest expense in the fourth quarter of 2010 included the full quarter effect of both the Integra branch acquisition and the TAM acquisition. Added personnel from the TAM and Integra acquisitions and higher commissions associated with the gains on the sale of real estate loans contributed to the 21% ($873,000) increase in salaries and benefits. Commissions accounted for $147,000 of this increase in salaries and benefits, which was 218% higher than the fourth quarter of 2009.

Total assets were $1.665 billion at the end of the fourth quarter of 2010, which was $100 million or 6% higher than the same date a year ago. Total loans decrease $48 million (4%) while investments in securities and other short-term investments grew $71 million (33%) and $74 million (127%) respectively, from December of 2009 and were funded by an increase in deposits of $79 million or 6%. Shareholders’ equity totaled $ $159 million at the end of 2010 which was $18 million (13%) higher than the end of 2009. The growth in equity was a result of earnings and the net increase in capital from the common stock offering less the Series A Preferred Stock repurchase.

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	12/31/10			12/31/09			% Chg			12/31/10			12/31/09			% Chg
Interest income	$	16,402		$	16,322			0	%	$	66,682		$	62,750			6	%
Interest expense		2,973			4,160			(29	)%		13,273			17,957			(26	)%

Net interest income		13,429			12,162			10	%		53,409			44,793			19	%

Provision for loan losses		3,000			4,500			(33	)%		15,500			12,825			21	%

Net interest income after provision for loan losses		10,429			7,662			36	%		37,909			31,968			19	%
Non interest income		5,542			4,716			18	%		20,714			16,616			25	%
Non interest expense		10,770			9,246			16	%		42,424			36,677			16	%

Net income before income taxes		5,201			3,132			66	%		16,199			11,907			36	%
Provision for income taxes		1,528			804			90	%		4,528			3,147			44	%

Net income		3,673			2,328			58	%		11,671			8,760			33	%
Preferred stock dividends & amortization		707			509			39	%		2,246			1,792			25	%

Net income available to common shareholders	$	2,966		$	1,819			63	%	$	9,425		$	6,968			35	%

Per Common Share Data
Diluted earnings per common share		0.46			0.32			44	%		1.61			1.23			30	%
Cash dividends declared		0.00			0.00			0	%		0.56			0.56			0	%
Earnings Performance Data
Return on common equity		9.33	%		6.76	%		257	bps		8.23	%		6.66	%		157	bps
Return on assets		.91	%		.63	%		28	bps		.75	%		.65	%		10	bps
Net interest margin		3.62	%		3.57	%		5	bps		3.72	%		3.56	%		16	bps

The Bank of Kentucky Financial Corporation

Selected Consolidated Financial Data

(Dollars in thousands, except per share data)

Balance Sheet Data


	December 31, 2010			December 31, 2009
Assets:
Cash and cash equivalents	$	171,399		$	98,738
Investments		285,326			214,667
Loans held for sale		15,279			6,798
Total loans, gross		1,107,274			1,154,984
Allowance for loan losses		(17,368	)		(15,153	)
Premises and equipment, net		23,170			23,588
Goodwill and acquisition intangibles, net		25,464			26,936
Other assets and accrued interest receivable		54,340			54,440

Total assets	$	1,664,884		$	1,564,998


Liabilities & Shareholders’ Equity
Total deposits	$	1,422,312		$	1,343,272
Short-term borrowings		23,419			21,669
Notes payable		48,761			44,781
Accrued interest payable and other liabilities		11,022			14,143

Total liabilities		1,505,514			1,423,865
Common stockholders’ equity		142,580			107,907
Preferred stock		16,790			33,226

Shareholders’ equity		159,370			141,133
Total liabilities and shareholders’ equity	$	1,664,884		$	1,564,998

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, 2010							Quarter ended December 31, 2009
	Average outstanding balance		Interest earned/ paid		Yield/ rate			Average outstanding balance		Interest earned/ paid		Yield/ rate
Interest-earning assets:
Loans receivable (1)(2)	$	1,133,524	$	15,228		5.33	%	$	1,123,355		15,106		5.33	%
Securities (2)		252,793		1,352		2.12			182,769		1,390		3.02
Other interest-earning assets		85,384		113		.53			44,822		86		.76


Total interest-earning assets		1,471,701		16,693		4.50			1,350,946		16,582		4.87


Non-interest-earning assets		124,134							104,550

Total assets	$	1,595,835						$	1,455,496

Interest-bearing liabilities:
Transaction accounts		682,826		684		0.40			629,018		1,068		0.67
Time deposits		448,064		1,995		1.77			435,326		2,775		2.53
Borrowings		69,784		294		1.67			67,517		317		1.86

Total interest-bearing liabilities		1,200,674		2,973		.98			1,131,861		4,160		1.46

Non-interest-bearing liabilities		237,383							183,633


Total liabilities		1,438,057							1,315,494

Shareholders’ equity		157,778							140,002

Total liabilities and shareholders’ equity	$	1,595,835						$	1,455,496

Net interest income			$	13,720						$	12,422

Interest rate spread						3.52	%						3.41	%

Net interest margin (net interest income as a percent of average interest-earning assets)						3.70	%						3.65	%

(1)	Includes non-accrual loans.

(2)	Income presented on a tax equivalent basis using a 34.62% and 34.35% tax rate in 2010 and 2009, respectively. The tax equivalent adjustment was $291,000 and $260,000 in 2010 and 2009, 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, 2010							Year ended December 31, 2009
	Average outstanding balance		Interest earned/ paid		Yield/ rate			Average outstanding balance		Interest earned/ paid		Yield/ rate
Interest-earning assets:
Loans receivable (1)(2)	$	1,137,373	$	61,535		5.41	%	$	1,066,886	$	58,093		5.45	%
Securities (2)		236,838		5,812		2.45			156,847		5,354		3.41
Other interest-earning assets		62,722		395		.63			34,224		298		0.87


Total interest-earning assets		1,436,933		67,742		4.71			1,257,957		63,745		5.07


Non-interest-earning assets		124,408							99,562

Total assets	$	1,561,341						$	1,357,519

Interest-bearing liabilities:
Transaction accounts		679,597		3,012		0.44			568,135		3,924		0.69
Time deposits		450,712		9,054		2.01			416,179		12,505		3.00
Borrowings		67,628		1,207		1.78			67,527		1,528		2.26

Total interest-bearing liabilities		1,197,937		13,273		1.11			1,051,841		17,957		1.71

Non-interest-bearing liabilities		215,427							171,585


Total liabilities		1,413,364							1,223,426

Shareholders’ equity		147,977							134,093

Total liabilities and shareholders’ equity	$	1,561,341						$	1,357,519

Net interest income			$	54,469						$	45,788

Interest rate spread						3.60	%						3.36	%

Net interest margin (net interest income as a percent of average interest-earning assets)						3.79	%						3.64	%

(1)	Includes non-accrual loans.

(2)	Income presented on a tax equivalent basis using a 34.62% and 34.35% tax rate in 2010 and 2009, respectively. The tax equivalent adjustment was $1,060,000 and $995,000 in 2010 and 2009, respectively.

The Bank of Kentucky Financial Corporation

Selected Consolidated Financial Data

(Dollars in thousands, except per share data)


	Five-Quarter Comparison
Income Statement Data	12/31/10			9/30/10			6/30/10			3/31/10			12/31/09
Net interest income	$	13,429		$	13,592		$	13,454		$	12,934		$	12,162
Provision for loan losses		3,000			3,500			4,500			4,500			4,500


Net interest income after provision for loan losses		10,429			10,092			8,954			8,434			7,662

Service charges and fees		2,411			2,589			2,622			2,267			2,408
Gain on sale of real estate loans		946			1,041			337			322			276
Gain on sale of securities		—			—			—			—			465
Trust fee income		601			620			602			550			322
Bankcard transaction revenue		774			727			749			673			615
Gains/(losses) on Other Real Estate Owned		(125	)		(110	)		30			141			14
Other non-interest income		935			760			600			652			616

Total non-interest income		5,542			5,627			4,940			4,605			4,716

Salaries and employee benefits expense		4,959			5,110			4,764			4,565			4,086
Occupancy and equipment expense		1,185			1,195			1,187			1,450			1,139
Data processing expense		484			442			443			461			426
State bank taxes		477			492			507			490			433
Amortization of intangible assets		357			357			375			384			258
FDIC Insurance		566			504			587			585			553
Other non-interest expenses		2,742			2,625			2,453			2,678			2,351

Total non-interest expense		10,770			10,725			10,316			10,613			9,246

Net income before income tax expense		5,201			4,994			3,578			2,426			3,132
Income tax expense		1,528			1,466			968			566			804

Net income		3,673			3,528			2,610			1,860			2,328
Preferred stock dividends & amortization		707			515			514			510			509

Net income available to common shareholders	$	2,966		$	3,013		$	2,096		$	1,350		$	1,819

Per Common Share Data
Diluted earnings per common share		0.46			0.53			0.37			0.24			0.32
Cash dividends declared		0.00			0.28			0.00			0.28			0.00
Weighted average common shares outstanding
Basic		6,434,354			5,666,707			5,666,707			5,666,707			5,622,142
Diluted		6,434,354			5,666,707			5,666,707			5,681,515			5,652,722
Earnings Performance Data
Return on common equity		9.33	%		10.68	%		7.59	%		5.03	%		6.76	%
Return on assets		.91	%		.93	%		.67	%		.48	%		.63	%
Net interest margin		3.62	%		3.90	%		3.74	%		3.63	%		3.57	%
Net interest margin (tax equivalent)		3.70	%		3.97	%		3.81	%		3.69	%		3.65	%

The Bank of Kentucky Financial Corporation

Selected Consolidated Financial Data

(Dollars in thousands, except per share data)


	Five-Quarter Comparison
Balance Sheet Data	12/31/10			9/30/10			6/30/10			3/31/10			12/31/09
Assets:
Cash and cash equivalents	$	171,399		$	41,280		$	69,094		$	121,299		$	98,738
Investments		285,326			240,657			233,817			240,650			214,667
Loans held for sale		15,279			21,903			6,795			2,072			6,798
Total loans		1,107,274			1,120,168			1,122,964			1,142,609			1,154,984
Allowance for loan losses		(17,368	)		(17,163	)		(16,531	)		(15,607	)		(15,153	)
Premises and equipment, net		23,170			23,373			23,690			23,883			23,588
Goodwill and acquisition intangibles, net		25,464			25,820			26,178			26,552			26,936
Other assets & accrued interest receivable		54,340			54,028			53,613			54,096			54,440

Total assets	$	1,664,884		$	1,510,066			1,519,620			1,595,554			1,564,998

Liabilities & Shareholders’ Equity
Total deposits	$	1,422,312		$	1,271,455		$	1,300,949		$	1,376,468		$	1,343,272
Short-term borrowings		23,419			36,175			18,097			22,833			21,669
Notes payable		48,761			44,766			44,770			44,776			44,781
Accrued interest payable & other liabilities		11,022			11,307			10,894			10,214			14,143

Total liabilities		1,505,514			1,363,703			1,374,710			1,454,291			1,423,865
Common stockholders’ equity		142,580			112,873			111,510			107,952			107,907
Preferred stock		16,790			33,490			33,400			33,311			33,226

Shareholders’ equity		159,370			146,363			144,910			141,263			141,133
Total liabilities and shareholders’ equity	$	1,664,884		$	1,510,066			1,519,620			1,595,554			1,564,998

Common shares outstanding		7,432,295			5,666,707			5,666,707			5,666,707			5,666,707
Average Balance Sheet Data
Average investments	$	252,793		$	234,335		$	243,572		$	216,280		$	182,769
Average other earning assets		85,384			28,232			60,416			77,147			44,822
Average loans		1,133,524			1,123,503			1,139,730			1,153,099			1,123,355
Average earning assets		1,471,701			1,386,070			1,443,718			1,446,526			1,350,946
Average assets		1,595,835			1,509,821			1,567,837			1,572,174			1,455,496
Average deposits		1,366,256			1,285,557			1,347,906			1,354,035			1,236,465
Average interest bearing deposits		1,130,890			1,083,935			1,146,120			1,161,137			1,064,344
Average interest bearing transaction deposits		682,826			637,835			695,866			702,534			629,018
Average interest bearing time deposits		448,064			446,100			450,254			458,603			435,326
Average borrowings		69,784			67,153			66,333			67,144			67,517
Average interest bearing liabilities		1,200,674			1,151,088			1,212,453			1,288,281			1,131,861
Average common stockholders equity		126,068			112,192			109,732			107,929			106,818
Average preferred stock		31,710			33,445			33,355			33,269			33,184

The Bank of Kentucky Financial Corporation

Selected Consolidated Financial Data

(Dollars in thousands, except per share data


	Five-Quarter Comparison
Asset Quality Data	12/31/10			9/30/10			6/30/10			3/31/10			12/31/09
Allowance for loan losses to total loans		1.57	%		1.53	%		1.47	%		1.37	%		1.31	%
Allowance for loan losses to non-performing loans		82	%		90	%		74	%		72	%		59	%
Nonaccrual loans	$	21,062		$	18,768		$	22,184		$	21,692		$	23,826
Loans – 90 days past due & still accruing		414			207			213			114			1,736

Total non-performing loans		21,062			18,975			22,397			21,806			25,562
OREO and repossessed assets		795			1,392			1,397			1,535			1,381

Total non-performing assets		21,857			20,367			23,794			23,341			26,943

Restructured loans-accruing		6,135			3,901			3,441			6,332			3,568
Non-performing loans to total loans		1.90	%		1.69	%		1.99	%		1.91	%		2.21	%
Non-performing assets to total assets		1.32	%		1.35	%		1.57	%		1.47	%		1.73	%
Annualized charge-offs to average loans		1.00	%		1.02	%		1.26	%		1.41	%		1.12	%
Net charge-offs	$	2,795		$	2,867		$	3,577		$	4,046		$	3,125

About BKFC

BKFC, a bank holding company with assets of approximately $1.665 billion, offers banking and related financial services to both individuals and business customers. BKFC operates thirty-one branch locations and forty-seven 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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