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Bull of the Day

The Bank of Kentucky Financial Corporation (BKYF - Snapshot Report) delivered solid fourth quarter results on January 16, driven by improving credit quality and strong non-interest income. That prompted analysts to revise their estimates significantly higher for both 2014 and 2015.

It is a Zacks Rank #1 (Strong Buy) stock.

Valuation looks attractive for The Bank of Kentucky too, with shares trading at a very reasonable 13x forward earnings.

The Bank of Kentucky operates 32 branches in Northern Kentucky. It has assets of approximately $1.857 billion and a market cap of $276 million.

Fourth Quarter Results

The Bank of Kentucky reported better-than-expected fourth quarter results on January 16. Earnings per share came in at 76 cents, beating the Zacks Consensus Estimate by 11 cents. It was a 15% increase over the same quarter last year.

The increase in EPS was driven in large part by a lower provision for loan losses and strong growth in non-interest income. Net interest income actually declined 2% year-over-year as solid loan growth was offset by a 24 basis point contraction in the net interest margin, on a tax equivalent basis, to 3.39%.

Non-interest income jumped 12% year-over-year, driven by a 20% increase in service charges on deposit accounts. Meanwhile, non-interest expenses declined slightly.

Credit quality continued to improve. The percentage of non-performing loans to total loans improved 37 basis points to 1.24%. And the allowance for loan losses declined 9 basis points to 1.30% of total loans.

Estimates Rising

Following solid Q4 results, analysts revised their estimates meaningfully higher for both 2014 and 2015, sending the stock to a Zacks Rank #1 (Strong Buy).

The 2014 Zacks Consensus Estimate is now $2.72, up from $2.53 before the Q4 beat. The 2015 consensus is currently $2.75, up from $2.61 over the same period.

You can see the nice jump in earnings estimates for The Bank of Kentucky in the 'Agreement' and 'Magnitude' of analysts' estimates:

Reasonable Valuation

The valuation picture looks very reasonable for The Bank of Kentucky. The stock trades at 13x 2014 earnings, and its price to book ratio is just 1.5.

The bank also pays a dividend that yields 2.0%.

The Bottom Line

With solid growth, risings earnings estimates and reasonable valuation, The Bank of Kentucky offers investors attractive upside potential.

Todd Bunton, CFA is the Growth & Income Stock Strategist for Zacks Investment Research and Editor of the Income Plus Investor service.

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