Bank of Kentucky Financial (BKYF) 10-Q 2008 Q2 Quarterly report

U.S. Securities and Exchange Commission

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For quarterly period ended June 30, 2008

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to            

Commission File Number: 0-25960

THE BANK OF KENTUCKY FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

Kentucky	61-1256535
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

111 Lookout Farm Drive, Crestview Hills, Kentucky 41017

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number: (859) 371-2340

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “accelerated filer” “large accelerated filer,” and “smaller reporting company,” in Rule 12b-2 of the Exchange Act .

Large accelerated filer	¨	Accelerated filer	x
Non-accelerated filer	¨	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

As of July 25, 2008, 5,606,607 shares of the registrant’s Common Stock, no par value, were issued and outstanding.

The Bank of Kentucky Financial Corporation

INDEX

		PAGE
PART I            FINANCIAL INFORMATION
	Item 1 – Financial Statements	3
	Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
	Item 3 – Quantitative and Qualitative Disclosures About Market Risk	23
	Item 4 – Controls and Procedures	23
PART II            OTHER INFORMATION
	Item 1 – Legal Proceedings	23
	Item 1A – Risk Factors	24
	Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	24
	Item 3 – Defaults Upon Senior Securities	24
	Item 4 – Submission of Matters to a Vote of Security Holders	24
	Item 5 – Other Information	25
	Item 6 – Exhibits	25

2

THE BANK OF KENTUCKY FINANCIAL CORPORATION

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

THE BANK OF KENTUCKY FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Dollars in thousands - unaudited)

	June 30 2008		December 31 2007
Assets
Cash and cash equivalents	$	51,940	$	38,876
Interest bearing deposits with banks		100		100
Available-for-sale securities		74,876		152,069
Held-to-maturity securities		26,266		16,230
Loans held for sale		1,883		2,673
Total loans		982,916		949,714
Less: Allowances for loan losses		9,099		8,505
Net loans		973,817		941,209
Premises and equipment, net		17,559		17,764
FHLB stock, at cost		4,893		4,766
Goodwill		15,209		15,209
Acquisition intangibles, net		3,146		3,830
Cash surrender value of life insurance		20,930		20,528
Accrued interest receivable and other assets		17,557		19,470
Total assets	$	1,208,176	$	1,232,724
Liabilities & Shareholders’ Equity
Liabilities
Deposits	$	1,031,990	$	1,062,079
Short-term borrowings		25,749		22,789
Notes payable		44,806		42,340
Accrued interest payable and other liabilities		10,117		12,031
Total liabilities		1,112,662		1,139,239
Shareholders’ Equity
Common stock, no par value, 15,000,000 shares authorized, 5,606,607 (2008) and 5,684,207 (2007) shares issued and outstanding		3,098		3,098
Additional paid-in capital		2,418		3,880
Retained earnings		89,867		86,305
Accumulated other comprehensive income		31		202
Total shareholders’ equity		95,514		93,485
Total liabilities and shareholders’ equity	$	1,208,176	$	1,232,724

See accompanying notes

3

THE BANK OF KENTUCKY FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2008 AND 2007

(Dollars in thousands, except per share data - unaudited)

	Three Months Ended June 30						Six Months Ended June 30
	2008			2007			2008			2007
INTEREST INCOME
Loans, including related fees	$	15,731		$	16,820		$	32,571		$	32,780
Securities and other		1,310			1,594			2,980			3,159
Total interest income		17,041			18,414			35,551			35,939
INTEREST EXPENSE
Deposits		6,172			8,566			14,256			16,743
Borrowings		752			754			1,571			1,335
Total interest expense		6,924			9,320			15,827			18,078
Net interest income		10,117			9,094			19,724			17,861
Provision for loan losses		1,600			300			2,400			950
Net interest income after provision for loan losses		8,517			8,794			17,324			16,911
NON-INTEREST INCOME
Service charges and fees		2,327			2,119			4,197			3,969
Mortgage banking income		165			298			601			490
Other		1,165			1,293			2,413			2,523
Total non-interest income		3,657			3,710			7,211			6,982
NON-INTEREST EXPENSE
Salaries and benefits		3,979			4,082			8,275			8,117
Occupancy and equipment		1,183			1,094			2,395			2,181
Data processing		339			372			699			703
Advertising		176			247			331			423
Other		2,715			2,534			5,432			5,202
Total non-interest expense		8,392			8,329			17,132			16,626
INCOME BEFORE INCOME TAXES		3,782			4,175			7,403			7,267
Less: income taxes		1,155			1,327			2,272			2,262
NET INCOME	$	2,627		$	2,848		$	5,131		$	5,005
Other comprehensive income (loss)		(495	)		(108	)		(171	)		(8	)
COMPREHENSIVE INCOME	$	2,132		$	2,740		$	4,960		$	4,997
Earnings per share, basic	$	.47		$	.49		$	.91		$	.87
Earnings per share, diluted	$	.47		$	.49		$	.91		$	.86

See accompanying notes

4

THE BANK OF KENTUCKY FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE SIX MONTHS ENDED JUNE 30

(Dollars in thousands, except per share data -unaudited)

	2008			2007
Balance January 1	$	93,485		$	86,883
Comprehensive Income:
Net Income		5,131			5,005
Change in net unrealized gain(loss), net of tax		(171	)		(8	)
Total Comprehensive Income		4,960			4,997
Cash dividends paid		(1,468	)		(1,273	)
Exercise of stock options (2,700 and 33,803 shares), including tax benefit		44			683
Stock-based compensation expense		359			529
Stock repurchase and retirement (80,300 and 64,400 shares)		(1,866	)		(1,673	)
Balance June 30	$	95,514		$	90,146
Dividends per share	$	0.26		$	0.22

See accompanying notes

5

THE BANK OF KENTUCKY FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30

(Dollars in thousands - unaudited)

	2008			2007
Cash Flows from Operating Activities
Net income	$	5,131		$	5,005
Adjustments to reconcile net income to net cash
From operating activities		3,952			3,005
Net cash from operating activities		9,083			8,010
Cash flows from Investing Activities
Proceeds from paydowns and maturities of held-to-maturity securities		2,941			2,275
Proceeds from paydowns and maturities of available-for-sale securities		171,371			167,246
Purchases of held-to-maturity securities		(12,984	)		0
Purchases of available-for-sale securities		(94,315	)		(145,388	)
Net change in loans		(35,931	)		(33,432	)
Proceeds from the sale of other real estate		1,438			17
Property and equipment expenditures		(586	)		(396	)
Net payments in acquisition		—			(12,124	)
Net cash from investing activities		31,934			(21,802	)
Cash Flows from Financing Activities
Net change in deposits		(30,089	)		3,279
Net change in short-term borrowings		2,960			1,707
Advance on notes payable		20,000			18,557
Proceeds from exercise of stock options		44			683
Cash dividends paid		(1,468	)		(1,273	)
Stock repurchase and retirement		(1,866	)		(1,673	)
Payments on note payable		(17,534	)		(37	)
Net cash from financing activities		(27,953	)		21,243
Net change in cash and cash equivalents		13,064			7,451
Cash and cash equivalents at beginning of period		38,876			54,859
Cash and cash equivalents at end of period	$	51,940		$	62,310

See accompanying notes

6

THE BANK OF KENTUCKY FINANCIAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2008

(unaudited)

Note 1 – Basis of Presentation:

The condensed consolidated financial statements include the accounts of The Bank of Kentucky Financial Corporation (“BKFC” or the “Company”) and its wholly owned subsidiary, The Bank of Kentucky, Inc. (the “Bank”). All significant intercompany accounts and transactions have been eliminated.

Note 2 – General:

These financial statements were prepared in accordance with the instructions for Form 10-Q and, therefore, do not include all of the disclosures necessary for a complete presentation of financial position, results of operations and cash flows in conformity with generally accepted accounting principles. Except for required accounting changes, these financial statements have been prepared on a basis consistent with the annual financial statements and include, in the opinion of management, all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the results of operations and financial position at the end of and for the periods presented.

To prepare financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and future results could differ. The allowance for loan losses and the fair values of financial instruments, in particular, are subject to change.

Note 3 – Earnings per Share:

Earnings per share are computed based upon the weighted average number of shares outstanding during the three and six month periods. Diluted earnings per share are computed assuming that average stock options outstanding are exercised and the proceeds, including the relevant tax benefit, are used entirely to reacquire shares at the average price for the period. For the three months ended June 2008 and 2007, 611,737 and 382,602 options were not considered, as they were not dilutive, and for the six months ended June 2008 and 2007, 567,186 and 371,900 options were not considered, as they were not dilutive. The following table presents the numbers of shares used to compute basic and diluted earnings per share for the indicated periods:

	Three Months Ended June 30		Six Months Ended June 30
	2008	2007	2008	2007
Weighted average shares outstanding	5,613,530	5,770,536	5,635,766	5,781,296
Dilutive effects of assumed exercises of Stock Options	1,966	26,733	6,989	29,444
Shares used to compute diluted Earnings per share	5,615,496	5,797,269	5,642,755	5,810,740

7

Note 4 – Stock Compensation:

Options to buy stock are granted to directors, officers and employees under the Company’s stock option and incentive plan (the “Plan”) which provides for the issuance of up to 1,200,000 shares. The specific terms of each option agreement are determined by the Compensation Committee at the date of the grant. For current options outstanding, options granted to directors vest immediately and options granted to employees generally vest evenly over a five-year period.

The Company recorded stock option expense of $164,000 ($156,000 net of taxes) and $360,000 ($333,000 net of taxes) in the three and six months ended June 30, 2008, with 2007 stock option expense of $209,000 ($190,000 net of taxes) and $530,000 ($453,000 net of taxes) in the three and six months ended June 30, 2007, in accordance with Statement of Financial Accounting Standards No. 123(R),Share-BasedPayment (“SFAS 123(R)”), adopted on January 1, 2006.

Note 5 – Cash and Cash Equivalents:

Cash and cash equivalents include cash on hand, amounts due from banks, federal funds sold, and investments in money market mutual funds. The Company reports net cash flows for customer loan and deposit transactions, and interest-bearing balances with banks and short-term borrowings with maturities of 90 days or less.

Note 6 – Reclassification:

Certain prior period amounts have been reclassified to conform to the current period presentation.Such reclassifications have no effect on previously reported net income or shareholders’ equity.

8

Note 7 – Adoption of New Accounting Standards

Fair Value Option and Fair Value Measurements

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement No. 157,Fair Value Measurements(“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. The standard establishes a fair value hierarchy about the assumptions used to measure fair value and clarifies assumptions about risk and the effect of a restriction on the sale or use of an asset. The standard is effective for fiscal years beginning after November 15, 2007. In February 2008, the FASB issued Staff Position (“FSP”) 157-2,Effective Date of FASB Statement No. 157. This FSP delays the effective date of SFAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. The impact of adoption was not material.

In February 2007, the FASB issued Statement No. 159,The Fair Value Option for Financial Assets and Financial Liabilities. The standard provides companies with an option to report selected financial assets and liabilities at fair value and establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. The Company did not elect the fair value option for any financial assets or financial liabilities as of January 1, 2008, the effective date of the standard.

SAB 109

On November 5, 2007, the SEC issued Staff Accounting Bulletin No. 109,Written Loan Commitments Recorded at Fair Value through Earnings(“SAB 109”). Previously, SAB 105,Application of Accounting Principles to Loan Commitments, stated that in measuring the fair value of a derivative loan commitment, a company should not incorporate the expected net future cash flows related to the associated servicing of the loan. SAB 109 supersedes SAB 105 and indicates that the expected net future cash flows related to the associated servicing of the loan should be included in measuring fair value for all written loan commitments that are accounted for at fair value through earnings. SAB 105 also indicated that internally-developed intangible assets should not be recorded as part of the fair value of a derivative loan commitment, and SAB 109 retains that view. SAB 109 is effective for derivative loan commitments issued or modified in fiscal quarters beginning after December 15, 2007. As a result of the bulletin, the Company’s revenue increased $52,000 for the first six months of 2008, however, the revenue decreased $66,000 for the second quarter of 2008.

Note 8 – Disclosures About Fair Value of Assets and Liabilities:

SFAS 157 establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1: Quoted prices (unadjusted) or identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

9

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The fair values of securities available for sale are determined by matrix pricing, which is a mathematical technique widely used to in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2). One corporate security is valued at book value because there is no market activity for this issue. Book value is used for this particular corporate security as a result of its current credit and interest rate characteristics (Level 3). The credit quality of the security is reviewed periodically and shows no deterioration since the security was purchased. The interest rate is variable, so changes in the rate environment are reflected in the actual interest received, and the spreads on associated with like kind securities, in the current market, are in line with the spread on this security.

Assets and Liabilities Measured on a Recurring Basis

Assets and liabilities measured at fair value on a recurring basis are summarized below:

			Fair Value Measurements at June 30, 2008 Using
	June 30, 2008		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Available for sale securities	$	74,876	$	—	$	73,576	$	1,300

There were no gains or losses for assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the quarter ended June 30, 2008.

There were no changes in unrealized gains and losses recorded in earnings for the quarter ended June 30, 2008 for Level 3 assets and liabilities that are still held at June 30, 2008.

10

Assets and Liabilities Measured on a Non-Recurring Basis

Assets and liabilities measured at fair value on a non-recurring basis are summarized below:

			Fair Value Measurements at June 30, 2008 Using
	June 30, 2008		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Impaired loans	$	7,282	$	—	$	5,783	$	1,499

Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a gross carrying amount of $10,037, with a valuation allowance of $2,755, resulting in an additional provision for loan losses of $639 for the second quarter of 2008.

Values for collateral dependent loans are generally based on appraisals obtained from licensed real estate appraisers and in certain circumstances consideration of offers obtained to purchase properties prior to foreclosure or other factors management deems relevant to arrive at a representative fair value. Appraisals for commercial real estate generally use three methods to derive value: cost, sales or market comparison and income approach. The cost method bases value on the cost to replace the current property. Values using the market comparison approach evaluate the sales price of similar properties in the same market area. The income approach considers net operating income generated by the property and an investor’s required return. The final fair value is based on the reconciliation of these three approaches.

11

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Form 10-Q contains forward-looking statements. Statements that are not historical or current facts, including statements about beliefs and expectations, are forward-looking statements. These forward-looking statements cover, among other things, anticipated future revenue and expenses and the future prospects of either The Bank of Kentucky Financial Corporation (“BKFC” or the “Company”) or The Bank of Kentucky, Inc (the “Bank”) or both.

Forward-looking statements involve inherent risks and uncertainties, and important factors could cause actual results to differ materially from those anticipated, including, in addition to those described in Item 1A of BKFC’s annual report on Form 10-K or other BKFC reports on file with the Commission, the following: (i) general economic or industry conditions could be less favorable than expected, resulting in a deterioration in credit quality, a change in the allowance for credit losses, or a reduced demand for credit or fee-based products and services; (ii) changes in the domestic interest rate environment could reduce net interest income and could increase credit losses; (iii) the conditions of the securities markets could change, adversely affecting revenues from capital markets businesses, the value or credit quality of the Company’s assets, or the availability and terms of funding necessary to meet the Company’s liquidity needs; (iv) changes in the extensive laws, regulations and policies governing financial services companies could alter BKFC’s and the Bank’s business environment or affect operations; (v) the potential need to adapt to industry changes in information technology systems, on which the Bank is highly dependent, could present operational issues or require significant capital spending; (vi) competitive pressures could intensify and affect the Bank’s profitability, including as a result of continued industry consolidation, the increased availability of financial services from non-banks, technological developments or bank regulatory reform; and (vii) acquisitions may not produce revenue enhancements or cost savings at levels or within timeframes originally anticipated, or may result in unforeseen integration difficulties. Forward-looking statements speak only as of the date they are made, and BFKC undertakes no obligation to update them in light of new information or future events.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company’s financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported periods.

Management continually evaluates the Company’s accounting policies and estimates it uses to prepare the consolidated financial statements. In general, management’s estimates are based on historical experience, on information from regulators and third party professionals and on various assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.

The Company believes its critical accounting policies and estimates include the valuation of the allowance for loan losses. Based on management’s calculations, an allowance of $9,099,000 or .93% of total loans was an appropriate estimate of losses within the loan portfolio as of June 30, 2008. This estimate resulted in a provision for loan losses on the income statement of $2,400,000 for the six months ended June 30, 2008. If the mix and amount of future losses differ significantly from those assumptions used by management in making its determination, the allowance for loan losses and provision for loan losses on the income statement could be materially affected.

OVERVIEW

For the second quarter and the first six months of 2008, the Company reported an increase in diluted net income per share of 6% for the first six months of 2008, and a decrease of 4% for the second quarter, as compared to the same periods in 2007. Revenues increased $970,000 or 8% for the second quarter of 2008, with a $1,023,000 (11%) increase in net interest income partially offset by a $53,000 decrease in non-interest income. The increase in net interest income was the result of the growth in average earning assets by $127,000,000, as compared to the second quarter of 2007. Offsetting the revenue increase was the addition of $1,300,000 in provision for loan losses as compared to the second quarter of 2007. Contributing to this increase in the provision for loan losses were higher levels of charge-offs and non-performing loans in the second quarter of 2008 as compared to the same period in 2007, and management’s concerns over the declining housing market and overall deteriorating economic conditions. The second quarter results included the impact of the acquisition of FNB Bancorporation, Inc. and its subsidiary, First Bank of Northern Kentucky, Inc. (“First Bank”), which was completed on May 18, 2007.

12

FINANCIAL CONDITION

Total assets at June 30, 2008 were $1,208,176,000 as compared to $1,232,724,000 at December 31, 2007, a decrease of $24,548,000 (2%). Loans outstanding increased $33,202,000 (4%) from $949,714,000 at December 31, 2007 to $982,916,000 at June 30, 2008, while available-for-sale securities decreased $77,193,000 (51%) for the same time period. As Table 1 illustrates, the growth in the loan portfolio in the second quarter of 2008 came from increases in one to four family residential loans of $12,643,000 (6%) and nonresidential real estate loans of $28,384,000 (7%). Contributing to the decrease in the available-for-sale securities was the run-off of short-term discount notes, which the Bank invested in at the end of 2007 as an alternative to federal funds, a portion of which were used to pledge as collateral for public fund deposits, which have decreased approximately $26,600,000 since December 31, 2007.

Deposits decreased $30,089,000 (3%) to $1,031,990,000 at June 30, 2008, compared to $1,062,079,000 at December 31, 2007, while notes payable increased $2,466,000 (6%) to $44,806,000 at June 30, 2008 from $42,340,000 at December 31, 2007. The decrease in deposits was affected by the seasonal fluctuation in public fund deposits, which represent the collateralized balances of local municipalities, school boards and other county government agencies. Public funds deposits were down approximately $26,000,000 from December 31, 2007 to June 30, 2008. Deposits other than public fund deposits decreased $14,000,000 since December 31, 2007. The increase in notes payable consisted of a $20,000,000 subordinated debt facility that was entered into in March of 2008, the proceeds of which the Company used to redeem $17,000,000 of outstanding trust preferred securities that were previously issued in 2002.

Table 1 The following table sets forth the composition of the Bank’s loans and deposits at the dates indicated:

	June 30, 2008				December 31, 2007
	Amount		%		Amount		%
	(Dollars in thousands)
Type of Loan:
Nonresidential real estate loans	$	415,618	42.3	%	$	387,234	40.7	%
One- to four-family residential real estate loans		228,558	23.2			215,915	22.7
Commercial loans		185,548	18.9			182,431	19.2
Consumer loans		18,510	1.9			20,601	2.2
Construction and land development loans		128,775	13.1			134,807	14.2
Municipal obligations		6,523	0.6			9,354	1.0
Total loans	$	983,532	100.0	%	$	950,342	100.0	%
Less:
Deferred loan fees		616				628
Allowance for loan losses		9,099				8,505
Net loans	$	973,817			$	941,209
Type of Deposit:
Non interest bearing deposits		167,763	16.3	%	$	167,578	15.8	%
Interest bearing transaction deposits		221,296	21.5			245,604	23.1
Money market deposits		248,048	24.0			244,860	23.0
Savings deposits		35,477	3.4			30,530	2.9
Certificates of deposits		305,788	29.6			319,577	30.1
Individual Retirement accounts		53,618	5.2			53,930	5.1
Total Deposits	$	1,031,990	100.0	%	$	1,062,079	100.0	%

13

RESULTS OF OPERATIONS

GENERAL

Net income year to date increased from $5,005,000 ($.87 diluted earnings per share) in 2007 to $5,131,000 ($.91 diluted earnings per share) in 2008, an increase of $126,000 (3%). Net income for the quarter ended June 30, 2008 was $2,627,000 ($.47 diluted earnings per share) as compared to $2,848,000 ($.49 diluted earnings per share) during the same period of 2007, a decrease of $221,000 (8%). The primary reason for the increase in earnings during the first six months of 2008 was a $2,092,000 (8%) increase in revenue and lower salary incentive accruals, which were partially offset by a $1,450,000 (153%) increase in the provision for loan losses. The increase in revenue included a $1,863,000 (10%) increase in net interest income and $229,000 (3%) increase in non-interest income. Contributing to the increase in the provision for loan losses was higher levels of charge-offs and non-performing loans in the second quarter of 2008 versus the same period in 2007. Incentive salary accruals decreased $386,000 (70%) as a result of lower earnings.

NET INTEREST INCOME

Net interest income increased $1,023,000 (11%) in the second quarter of 2008 as compared to the same period in 2007, while the year to date total increased $1,863,000 (10%) from $17,861,000 in 2007 to $19,724,000 in 2008. As illustrated in Table 4, relatively all of the growth in net interest income was the result of growth in the balance sheet. The table shows the net interest income on a fully tax equivalent basis was positively impacted by the volume additions to the balance sheet by $1,058,000.

As illustrated in Table 2, the net interest margin of 3.68% for the second quarter of 2008 was 3 basis points lower than the 3.71% net interest margin for the second quarter of 2007, while table 3 shows that the net interest margin of 3.60% for the first six months of 2008 was 13 basis points lower than the 3.73% for the first six months of 2007. However, on a linked quarter basis, the net interest margin increased 20 basis points from the 3.48% net interest margin in the first quarter of 2008. Contributing to the increase in the net interest margin from the first quarter of 2008 was the cost of interest bearing liabilities decreasing faster than the yield on earning assets was decreasing. In the first quarter of 2008, the Federal Reserve Bank’s 200 basis point reduction in short term rates put pressure on the net interest margin, as this reduction tended to reduce interest income more swiftly than interest expense. The reduction in funding cost in the second quarter of 2008 offset some of the lost interest margin as the cost of interest bearing liabilities decreased 77 basis points from 3.67% for the first quarter of 2008 to 2.90% in the second quarter of 2008, while the yield on earning assets only decreased 50 basis points from 6.67% for the first quarter of 2008 to 6.17% in the second quarter of 2008.

The balance sheet growth from the second quarter of 2007 to the second quarter of 2008 included the impact of the First Bank acquisition as well as organic growth in loans and deposits. Total average assets increased $156,309,000 or 15% from the second quarter of 2007 to the second quarter of 2008. Average interest bearing liabilities increased $116,117,000 or 14% to $959,908,000 from the second quarter of 2007 to the second quarter of 2008.

14

The Company uses an earnings simulation model to estimate and evaluate the impact of changing interest rates on earnings. The model projects the effect of instantaneous movements in interest rates of both 100 and 200 basis points. By simulating the effects of movements in interest rates the model can estimate the Company’s interest rate exposure. The results of the model are used by management to approximate the results of rate changes and do not indicate actual expected results. As shown below, the June 30, 2008 simulation analysis indicates that the Company is in a slightly liability interest rate sensitive position with the net interest income benefitting from declining rates and being reduced by rising rates.

Net interest income estimates are summarized below.

	Net Interest Income Change
Increase 200 bp	(4.30	)%
Increase 100 bp	(2.15	)
Decrease 100 bp	1.59
Decrease 200 bp	1.30

Tables 2 and 3 set forth certain information relating to the Bank’s average balance sheet information and reflect the average yield on interest-earning assets, on a tax equivalent basis, and the average cost of interest-bearing liabilities for the periods indicated. Such yields and costs are derived by dividing income or expense by the average monthly balance of interest-earning assets or interest-bearing liabilities, respectively, for the periods presented. Average balances are daily averages for the Bank and include nonaccruing loans in the loan portfolio, net of the allowance for loan losses.

15

Table 2- Average Balance Sheet Rates for Three Months Ended June 30, 2008 and 2007 (presented on a tax equivalent basis in thousands)

	Three Months ended June 30, 2008							Three Months ended June 30, 2007
	Average outstanding balance			Interest earned/ paid		Yield/ rate		Average outstanding balance			Interest earned/ paid		Yield/ rate
Interest-earning assets:
Loans receivable (1)(2)	$	971,573		$	15,773	6.53	%	$	860,607		$	16,861	7.86	%
Securities (2)		110,174			1,164	4.25			83,837			976	4.67
Other interest-earning assets		38,578			242	2.52			48,537			657	5.43
Total interest-earning assets		1,120,325			17,179	6.17			992,981			18,494	7.47
Non-interest-earning assets		93,833							85,664
Total assets	$	1,214,158						$	1,078,645
Interest-bearing liabilities:
Transaction accounts		523,734			2,166	1.66			448,103			4,202	3.76
Time deposits		363,467			4,006	4.43			351,824			4,364	4.98
Borrowings		72,707			752	4.16			43,864			754	6.89
Total interest-bearing liabilities		959,908			6,924	2.90			843,791			9,320	4.43
Non-interest-bearing liabilities		159,694							145,985
Total liabilities		1,119,602							989,776
Shareholders’ equity		94,556							88,869
Total liabilities and shareholders’ equity	$	1,214,158						$	1,078,645
Net interest income				$	10,255						$	9,174
Interest rate spread						3.27	%						3.04	%
Net interest margin (net interest income as a percent of average interest-earning assets)						3.68	%						3.71	%
Effect of Net Free Funds (earning assets funded by non interest bearing liabilities)						.41	%						.67	%
Average interest-earning assets to interest-bearing liabilities		116.71	%						117.68	%

(1) Includes non-accrual loans.

(2) Income presented on a tax equivalent basis using a 34.40% and 34.25% tax rate in 2008 and 2007, respectively. The tax equivalent adjustment was $138,000 and $80,000 in 2008 and 2007, respectively.

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Table 3- Average Balance Sheet Rates for Six Months Ended June 30, 2008 and 2007 (presented on a tax equivalent basis in thousands)

	Six Months ended June 30, 2008							Six Months ended June 30, 2007
	Average outstanding balance			Interest earned/ paid		Yield/ rate		Average outstanding balance			Interest earned/ paid		Yield/ rate
Interest-earning assets:
Loans receivable (1)(2)	$	962,583		$	32,664	6.86	%	$	842,170		$	32,859	7.87	%
Securities (2)		117,066			2,511	4.34			88,450			2,045	4.66
Other interest-earning assets		42,701			639	3.03			44,661			1,196	5.40
Total interest-earning assets		1,122,350			35,814	6.45			975,281			36,100	7.46
Non-interest-earning assets		93,962							84,722
Total assets	$	1,216,312						$	1,060,003
Interest-bearing liabilities:
Transaction accounts		530,504			5,721	2.18			447,883			8,427	3.79
Time deposits		368,392			8,535	4.68			340,915			8,316	4.92
Borrowings		70,580			1,571	4.50			43,722			1,335	6.16
Total interest-bearing liabilities		969,476			15,827	3.30			832,520			18,078	4.38
Non-interest-bearing liabilities		152,788							139,253
Total liabilities		1,122,264							971,773
Shareholders’ equity		94,048							88,230
Total liabilities and shareholders’ equity	$	1,216,312						$	1,060,003
Net interest income				$	19,987						$	18,022
Interest rate spread						3.15	%						3.08	%
Net interest margin (net interest income as a percent of average interest-earning assets)						3.60	%						3.73	%
Effect of Net Free Funds (earning assets funded by non interest bearing liabilities)						.45	%						.65	%
Average interest-earning assets to interest-bearing liabilities		115.77	%						117.15	%

(1) Includes non-accrual loans.

(2) Income presented on a tax equivalent basis using a 34.40% and 34.25% tax rate in 2008 and 2007, respectively. The tax equivalent adjustment was $263,000 and $161,000 in 2008 and 2007, respectively.

Table 4 below describes the extent to which changes in interest rates and changes in volume of interest-earning assets and interest-bearing liabilities have affected the Bank’s interest income and expense during the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in volume (change in volume multiplied by prior year rate), (ii) changes in rate (change in rate multiplied by prior year volume), and (iii) total changes in rate and volume. The combined effects of changes in both volume and rate, which cannot be separately identified, have been allocated proportionately to the change due to volume and the change due to rate.

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Table 4-Volume/Rate Analysis (in thousands)

	Three months ended June 30, 2008 Compared to Three months ended June 30, 2007									Six months ended June 30, 2008 Compared to Six months ended June 30, 2007
	Increase (Decrease) Due to									Increase (Decrease) Due to
	Volume			Rate			Total			Volume			Rate			Total
Interest income attributable to:
Loans receivable	$	2,021		$	(3,108	)	$	(1,087	)	$	4,418		$	(4,612	)	$	(194	)
Securities		286			(99	)		187			629			(163	)		466
Other interest-earning assets(1)		(115	)		(300	)		(415	)		(51	)		(506	)		(557	)
Total interest-earning assets		2,192			(3,507	)		(1,315	)		4,996			(5,281	)		(285	)
Interest expense attributable to:
Transactions accounts		619			(2,655	)		(2,036	)		1,366			(4,072	)		(2,706	)
Time deposits		141			(499	)		(358	)		656			(437	)		219
Borrowings		374			(376	)		(2	)		672			(436	)		236
Total interest-bearing liabilities		1,134			(3,530	)		(2,396	)		2,693			(4,944	)		(2,251	)
Increase (decrease) in net interest income	$	1,058		$	23		$	1,081		$	2,303		$	(337	)	$	1,966

(1) Includes federal funds sold and interest-bearing deposits in other financial institutions.

PROVISION FOR LOAN LOSSES

The provision for loan losses was $2,400,000 for the six months ended June 30, 2008, an increase of $1,450,000 compared to the $950,000 provision recorded during the same period in 2007. For the second quarter of 2008 the provision for loan losses was $1,600,000, an increase of $1,300,000 compared to the $300,000 provision for the second quarter of 2007. Contributing to this increase were higher levels of charge-offs and non-performing loans in the second quarter of 2008 versus the same period in 2007 and management’s concerns over the declining housing market and overall deteriorating economic conditions. As a result of management concerns over the current economic environment, individual lending authorities have been reduced, and a new loan committee structure has been put into place, adding the chief executive officer to the committee, to further scrutinize credit decisions.

The allowance for loan losses was $9,099,000, (.93% of loans outstanding) at June 30, 2008 versus $8,505,000 (.90% of loans outstanding) at December 31, 2007 and $8,664,000 (.95% of loans outstanding) at June 30, 2007. Although the allowance has increased $435,000 or 5% from June 30, 2007 the allowance as a percentage of outstanding loans has decreased from .95% at June 30, 2007 to .93% at June 30, 2008. Contributing to the decrease in the allowance to loan ratio is lower specific reserves for impaired loans, which decreased from $3,328,000 (.37% of loans outstanding) at June 30, 2007 to $2,756,000 (.28% of loan outstanding) at June 30, 2008.

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Non-performing loans increased to $12,235,000 or 1.24% of total loans outstanding at June 30, 2008, compared to $9,047,000 or .95% at December 31, 2007, and also increased from the June 30, 2007 level of $10,095,000 or 1.11% of then total loans outstanding. The majority of the non-performing loans are individual commercial loans, which are reviewed for impairment with specific reserves allocated to them. Net charge-offs, year to date 2008, were $1,806,000 or .36% on an annualized basis to average loans, compared to the $214,000 and .05% for the first six months of 2007. The allowance for loan losses was 74% of non-performing loans on June 30, 2008 compared to 94% at the end of 2007 and 86% at June 30, 2007. Management’s evaluation of the inherent risk in the loan portfolio considers both historic losses and information about specific borrowers. Management believes the provision for loan losses is directionally consistent with the Bank’s change in credit quality, and is sufficient to absorb probable incurred losses in the loan portfolio.

Non-performing assets, which include non-performing loans and other real estate owned, totaled $15,709,000 at June 30, 2008 and $13,164,000 at December 31, 2007. This represents 1.30% of total assets at June 30, 2008 compared to 1.07% at December 31, 2007. Total non-performing assets as of June 30, 2008 increased from the level at June 30, 2007 when total non-performing assets were $13,872,000 or 1.11% of total assets. Management currently expects to sell the largest piece of other real estate owned property, a repossessed commercial office building, in the third quarter of 2008.

The following table sets forth an analysis of certain credit risk information for the periods indicated:

Table 5-Summary of Loan Loss Experience and Allowance for Loan Loss Analysis (in thousands)

	Three Months ended June 30,						Six Months ended June 30,
	2008			2007			2008			2007
Balance of allowance at beginning of period	$	8,820		$	7,342		$	8,505		$	6,918
Adjustment related to business combination					1,010						1,010
Recoveries of loans previously charged off:
Commercial loans		37			116			188			143
Consumer loans		60			14			134			36
Mortgage loans		0			0			0			23
Total recoveries		97			129			322			202
Loans charged off:
Commercial loans		(944	)		(44	)		(1,425	)		(191	)
Consumer loans		(462	)		(68	)		(634	)		(194	)
Mortgage loans		(12	)		(6	)		(69	)		(31	)
Total charge-offs		(1,418	)		(118	)		(2,128	)		(416	)
Net charge-offs		(1,321	)		11			(1,806	)		(214	)
Provision for loan losses		1,600			300			2,400			950
Balance of allowance at end of period	$	9,099		$	8,664		$	9,099		$	8,664
Net charge-offs to average loans outstanding for period		.54	%		.00	%		.40	%		.05	%
Allowance at end of period to loans at end of period		.93	%		.95	%		.93	%		.95	%
Allowance to nonperforming loans at end of period		74.37	%		85.83	%		74.37	%		85.83	%

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NON-INTEREST INCOME

Table 6-Major Components of Non-Interest Income (in thousands)

	Three Months ended June 30,				Six Months ended June 30,
	2008		2007		2008		2007
Non-interest income:
Service charges and fees	$	2,327	$	2,119	$	4,197	$	3,969
Mortgage banking income		165		298		601		490
Trust Fee Income		283		258		575		532
Bankcard transaction revenue		500		421		933		781
Company owned life insurance earnings		197		195		407		371
Other		185		419		498		839
Total non-interest income	$	3,657	$	3,710	$	7,211	$	6,982

As illustrated in Table 6, total non-interest income increased $229,000 (3%) for the first six months of 2008 from $6,982,000 at June 30, 2007 to $7,211,000 at June 30, 2008. For the second quarter of 2008 non-interest income decreased $53,000 (1%) to $3,657,000 compared to $3,710,000 for the same period in 2007. Increases for the six months ended June 30, 2008 included service charges and fees (up $228,000, 6%) and bankcard transaction revenue (up $152,000, 19%) which were partially offset by lower other non-interest income (down $341,000, 41%). The increase in bankcard transaction revenue reflects consumers continued acceptance of electronic forms of payments and the resulting growth in usage of the Bank’s debit and credit card products. Contributing to the decrease in other non-interest income was $214,000 in losses on the sale of other real estate owned. While the increase in bankcard transaction revenue was consistent for the first and second quarters of 2008, the majority of the losses on the sale of other real estate owned ($200,000) occurred in the second quarter of 2008.

NON-INTEREST EXPENSE

Table 7-Major Components of Non-Interest Expense (in thousands)

	Three Months ended June 30,				Six Months ended June 30,
	2008		2007		2008		2007
Non-interest expense:
Salaries and benefits	$	3,979	$	4,082	$	8,275	$	8,117
Occupancy and equipment		1,183		1,094		2,395		2,181
Data processing		339		372		699		703
Advertising		176		247		331		423
Electronic banking		274		241		498		456
Outside servicing fees		336		290		646		569
State bank taxes		330		307		640		658
Other real estate owned		37		245		126		766
Amortization of intangible assets		333		230		685		391
FDIC insurance		195		28		376		52
Other		1,210		1,193		2,461		2,310
Total non-interest expense	$	8,392	$	8,329	$	17,132	$	16,626

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As illustrated in Table 7, non-interest expense increased to $17,132,000 in the first half of 2008 and to $8,392,000 for the second quarter of 2008 from $16,626,000 and $8,329,000 in the same periods of 2007, an increase of $506,000 (3%) and $63,000 (1%), respectively. For the first six months of 2008, increases in FDIC insurance (up $324,000, 623%) and the amortization of intangible assets (up $294,000, 75%) were offset with a reduction in expenses for other real estate owned (down $640,000, 84%) as compared to the same period in 2007. Additionally, salaries and benefits expense was impacted by the $386,000 (70%) reduction in accruals for the bonus and profit sharing plans. The increase in FDIC insurance cost was the result of the increased assessment rate which was offset by prior insurance premium credits in 2007. The higher amortization of intangible assets was the result of the First Bank acquisition. The other real owned expenses in 2007 were the result of certain improvements made to a repossessed commercial office building. While the FDIC insurance cost and the amortization of intangible assets increased in both the first and second quarters of 2008, the bonus and profit sharing accruals were reduced in the second quarter of 2008. Also, the majority of the other real estate owned expenses (68%) occurred in the first quarter of 2007.

INCOME TAX EXPENSE

During the first six months of 2008, income tax expense increased $10,000 (.4%) from $2,262,000 in the first six months of 2007 to $2,272,000 in the same period of 2008 as a result of higher earnings. For the second quarter of 2008 income tax expense decreased $172,000 (-13%) to $1,155,000 compared to $1,327,000 for the same period in 2007 as a result of lower earnings. The effective tax rate decreased to 30.69% for the first six months of 2008 compared to 31.13% for the same period in 2007. For the second quarter of 2008 the effective tax rate decreased to 30.54% compared to 31.78% for the same period of 2007.

LIQUIDITY AND CAPITAL RESOURCES

The Bank achieves liquidity by maintaining an appropriate balance between its sources and uses of funds to assure that sufficient funds are available to meet loan demands and deposit fluctuations. As indicated on the statement of cash flows, cash and cash equivalents have increased $13,064,000, from $38,876,000 at December 31, 2007 to $51,940,000 at June 30, 2008. This increase was the result of a reduction in short-term discount notes with a corresponding increase in federal funds sold from December 31, 2007 to June 30, 2008. This was the result of the Bank investing in short-term discount notes as an alternative to federal funds at December 31, 2007. In addition, the Bank has the ability to draw funds from the Federal Home Loan Bank and four of its correspondent banks to meet liquidity demands.

The Company’s total shareholders’ equity increased $2,029,000, from $93,485,000 at December 31, 2007 to $95,514,000 at June 30, 2008. In the first six months of 2008, the Company paid a cash dividend of $.26 per share totaling $1,468,000.

On December 21, 2007, the Company’s Board of Directors approved a new share repurchase program. The repurchase program began January 1, 2008 and will expire on December 31, 2008.

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The repurchase program authorized the repurchase of up to 200,000 shares of the Company’s outstanding common shares in the over-the-counter market from time to time. Any repurchases will be funded, as needed, by dividends from the Bank, or from the Company’s revolving line of credit. The Company has repurchased a total of 80,300 shares through June 30, 2008.

The Company’s liquidity depends primarily on the dividends paid to it as the sole shareholder of the Bank and the Company’s line of credit. The Company needs liquidity to meet the financial obligations of its trust preferred securities, for the payment of dividends to shareholders, for the stock repurchase plan and for general operating expenses. The Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation (“FDIC”) have legal requirements, which provide that insured banks and bank holding companies should generally only pay dividends out of current operating earnings. The FDIC prohibits the payment of any dividend by a bank that would constitute an unsafe or unsound practice. Compliance with the minimum capital requirements limits the amounts that the Company and the Bank can pay as dividends. At June 30, 2008, the Bank had capital in excess of the FDIC’s most restrictive minimum capital requirements in an amount over $9,500,000 from which dividends could be paid, subject to the FDIC’s general safety and soundness review and state banking regulations.

For purposes of determining a bank’s deposit insurance assessment, the FDIC has issued regulations that define a “well capitalized” bank as one with a leverage ratio of 5% or more and a total risk-based ratio of 10% or more. At June 30, 2008, the Bank’s leverage and total risk-based ratios were 7.95% and 10.84% respectively, which exceed the well-capitalized thresholds.

CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS

On March 3, 2005, the Bank entered into an agreement with Northern Kentucky University whereby the University will grant to the Bank the naming rights for the new Northern Kentucky University Arena to be constructed on the campus of the University for a term commencing immediately upon execution of the agreement and expiring twenty years after the opening of the Arena. In consideration therefore the Bank will pay the lesser of 10% of the total construction cost of the Arena or $6,000,000, such sum to be paid in seven equal annual installments beginning after substantial completion and opening of the Arena. The cost of the naming rights will be amortized over the life of the contract commencing on the opening of the Arena, which will take place in September 2008.

In the second quarter of 2007, the Bank and Thomas More College announced a naming rights agreement for the new athletic field being constructed on Thomas More’s campus. The Bank committed $1 million to the project, which will be named The Bank of Kentucky Field. The cost of the naming rights will be amortized over the twenty-five year life of the agreement commencing on the opening of the field, which will take place in September 2008.

There have been no other significant changes to the Bank’s contractual obligations or off-balance sheet arrangements since December 31, 2007. For additional information regarding the Bank’s contractual obligations and off-balance sheet arrangements, refer to the Company’s Form 10-K for the year ending December 31, 2007.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

There has been no material change in market risk since December 31, 2007. For information regarding the Company’s market risk, refer to the Company’s Form 10-K for the year ending December 31, 2007. Market risk is discussed further under the heading “Net Interest Income” above.

Item 4. Controls and Procedures.

Disclosure Controls and Procedures

Disclosure controls and procedures are the Company’s controls and other procedures that are designed to ensure that information required to be disclosed by the Company in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be included in the reports filed or submitted under the Exchange Act is accumulated and communicated to Management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Under the supervision, and with the participation of Management, including the Company’s Chief Executive Officer and Chief Financial Officer, the Company has evaluated the effectiveness of the design and operation of the disclosure controls and procedures as of June 30, 2008, and, based upon this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that these controls and procedures are effective to ensure that information requiring disclosure is communicated to Management in a timely manner and reported within the timeframe specified by the SEC’s rules and forms.

Changes in Internal Control Over Financial Reporting

There was no change in the Company’s internal control over financial reporting that occurred in the last fiscal quarter that has materially affected, or is reasonably likely to materially affect the Company’s internal control over financial reporting.

The Bank of Kentucky Financial Corporation

PART II OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, the Company and the Bank are involved in litigation incidental to the conduct of business, but neither the Company nor the Bank is presently involved in any lawsuit or proceeding which, in the opinion of management, is likely to have a material adverse affect on the Company.

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Item 1A. Risk Factors

There have been no material changes in the Company’s risk factors from those previously disclosed in the Company’s Form 10-K for the year ended December 31, 2007.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table shows information relating to the repurchase of shares by the Company during the three months ended June 30, 2008:

Period	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced plans (1)	Maximum number of shares that may be purchased under the plans or programs
April 1-30, 2008	0	$	0	62,300	137,700
May 1-31, 2008	18,000	$	20.85	80,300	119,700
June 1-30, 2008	0	$	0	80,300	119,700

(1) The Company currently maintains a share repurchase program that was approved by the Company’s board of directors in December of 2007. This repurchase program, which began on January 1, 2008 and will expire on December 31, 2008, authorizes the repurchase and retirement of 200,000 common shares of the Company in the over-the-counter market. As of the date of this report, 80,300 of the 200,000 shares authorized for repurchase have been repurchased. There were no share repurchase plans that expired during the quarter, and the Company did not terminate any plan prior to its expiration date. The Company purchased 62,300 shares in the first quarter of 2008.

Item 3. Defaults Upon Senior Securities

Not applicable

Item 4. Submission of Matters to a Vote of Security Holders

The Annual Meeting of Stockholders of the Company was held on April 18, 2008. The matters voted on at the meeting and the results of these votes are as follows.

(1) Election of four directors of BKFC:

	For	Against/Withheld	Abstentions
Charles M. Berger	4,740,943	26,787	—
Barry G. Kienzle	4,740,943	26,787	—
John E. Miracle	4,748,003	19,727	—
Mary Sue Rudicill	4,749,518	18,212	—

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(2) To approve an amendment to the Articles of Incorporation of BKFC

For	Against/Withheld	Abstentions
4,703,227	61,036	3,467

(3) Ratification of the selection of Crowe Chizek and Company LLC as the independent registered public accounting firm of BKFC for the current fiscal year:

For	Against/Withheld	Abstentions
4,737,972	25,791	3,967

Item 5. Other Information

None

Item 6. Exhibits

Exhibit Number	Description
3.1	Fourth Amendment to Articles of Incorporation of The Bank of Kentucky Financial Corporation, as filed with the Secretary of State of the Commonwealth of Kentucky on May 27, 2008 (incorporated by reference to the Current Report on Form 8-K filed with the SEC on May 28, 2008)
3.2	Articles of Incorporation of The Bank of Kentucky Financial Corporation, including all amendments through May 27, 2008
3.3	Amended and Restated By-Laws of The Bank of Kentucky Financial Corporation (incorporated by reference to the Current Report on Form 8-K filed with the SEC on June 24, 2008)
31.1	Rule 13a – 14(a) Certification of Robert W. Zapp
31.2	Rule 13a – 14(a) Certification of Martin J. Gerrety
32.1	Section 1350 Certification of Robert W. Zapp
32.2	Section 1350 Certification of Martin J. Gerrety

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	The Bank of Kentucky Financial Corporation
Date: August 8, 2008	/s/ Robert W. Zapp
	Robert W. Zapp
	President
Date: August 8, 2008	/s/ Martin J. Gerrety
	Martin J. Gerrety
	Treasurer and Assistant Secretary

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