It gives me great pleasure to report that 2006 was another year of growth and accomplishment for The Bank of Kentucky. Basic earnings per share was $1.79, an increase of 5% from last year’s earnings of $1.71. Without the added and required expense of recording stock options, these numbers would look even better. We also achieved a significant milestone as we became a billion dollar bank. As of December 31, 2006, total assets stood at $1,051,563,000, an increase of 10% from last’s year’s total of $957,338,000.
This is an exciting time in the life of our bank. 2006 was the year in which we began leveraging the investments we made during 2005 in technology, risk management and new products. However, none of this could have occurred without the commitment to service demonstrated every day by our employees. Every employee who serves our customers well, serves The Bank of Kentucky well. I am confident this commitment to service provides us with a competitive advantage.
Yet, when it was all said and done, 2006 was a year in which we also re-emphasized the basics, focusing on the reasons we created The Bank of Kentucky in the first place.
Serving Our Customers
We want to provide the best customer service of any bank in Northern Kentucky. This is what guides us everyday and is one of our three Founding Principles. I once read a quote that said “Excellence is a habit, not an occurrence” and the same holds true for quality customer service. One of the ways we help our employees to focus on customer service is through our Service Making an Impression Leading to Excellence (SMILE) program. SMILE is there to remind, recognize and reward individual employees for great customer service. The results are outstanding.
The stories you will read later in our report are impressive. It’s hard to believe great customer service can actually save a life, but it can … and did. I am so proud of ALL of our employees, not just the few that are mentioned within these pages.
Improving Our Community
Our second Founding Principle is to improve the communities in which we do business and we do this through a variety of ways. One way is to become and remain a vital and healthy business concern, providing salaries and benefits to hundreds of workers and spending millions of dollars locally with Northern Kentucky businesses. We also provide corporate sponsorships to places like The Bank of Kentucky Center (at Northern Kentucky University), The Bank of Kentucky Observatory (at Thomas More College) and to the Florence Freedom. These high-profile community resources not only improve our quality of life, but spur economic development in Northern Kentucky.
Another way is through personal involvement. In 2006, the Bank and its employees were active participants, providing money and time to dozens of different nonprofit organizations, including large, well-known ones like the United Way and to small, less-known ones like the Hispanic Scholarship Fund.
A third way is to provide individuals and businesses the opportunity to borrow money within the geographic areas in which we operate, especially when it pertains to low-to-moderate income residents. In 2006, we were active in distributing dozens of grants and providing educational resources, down payment and closing cost assistance through a variety of home ownership programs.
Creating Value
Last year was a year in which we demonstrated solid growth in virtually every measure of financial success as we grew to become a billion dollar bank. In fact, as of June 30, 2006, we ranked 5th largest in total assets when compared to the other 177 banks that were created in the United States in 1990.
2006 was also a year in which we began expensing stock options, in accordance with Statement of Financial Accounting Standards No. 123(R), Share-Based Payment (“FAS 123(R)”). Without this added expense, our record Net Income numbers would be even better.
We achieved these solid results despite a challenging interest rate environment. Rising short-term interest rates in 2005 and early 2006 led to a flattening of the yield curve, making it difficult for all banks to grow earnings and revenues.
Numerous banks in our market had to restructure their balance sheets, resulting in substantial charges against earnings.
What’s Ahead in 2007
On January 29, 2007, we announced our intent to purchase FNB Bancorporation, Inc. and its subsidiary, First Bank of Northern Kentucky, Inc. This acquisition will help fill a hole in our regional branch network, help us leverage investments in technology and new products and give us a highly-visible location in the lucrative Ft. Mitchell market. For the rest of 2007, you can expect us to follow the same course we’ve followed for the past 16 years.
In closing, I want to thank the 300+ employees who deliver great customer service, are active contributors in their communities and who help make good on our promise to create value for our shareholders.
Sincerely,
Robert W. Zapp
President and CEO
The Bank of Kentucky, Inc.
