The Bank of Kentucky Financial Corporation Announces Fourth Quarter Earnings

/ Source: GlobeNewswire

CRESTVIEW HILLS, Ky., Jan. 20, 2011 (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 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:



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.   



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.

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