Bank of Kentucky Financial (BKYF) 8-K Announces Third Quarter Earnings

Exhibit 99.1

NEWS RELEASE

THE BANK OF KENTUCKY FINANCIAL CORPORATION

ANNOUNCES THIRD QUARTER EARNINGS

CRESTVIEW HILLS, KENTUCKY, October 22, 2009 – 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 third quarter and the nine months ended September 30, 2009. For the third quarter and the first nine months of 2009, the Company reported a decrease in diluted earnings per common share of 40% for the year, and 70% for the third quarter, as compared to the same periods in 2008. The third quarter results reflect the sale of $34 million in preferred stock and the issuance of a warrant for shares of common stock to the U.S. Department of Treasury (“Treasury”) on February 13, 2009 in connection with the Company’s participation in the Treasury’s TARP Capital Purchase Program. The effect of Treasury’s investment on earnings per common share includes the accrual for the payment of dividends on the preferred stock and related preferred stock amortization expense of $506,000 for the third quarter and $1,283,000 for the nine-months ended September 30, 2009. No comparable dividends were paid for the corresponding periods in 2008. With continued earnings and the Treasury investment, the Company continues to maintain a significantly higher level of capital than required by regulatory authorities to be designated as well-capitalized. The third quarter results included an additional $3,225,000 provision for loan losses as compared to the third quarter of 2008. Contributing to this increase in the provision for loan losses were higher levels of charge-offs and non-performing loans in the third quarter of 2009 as compared to the same period in 2008, and management’s continuing concerns over the effect of the declining housing market, falling real estate values and overall deteriorating economic conditions will have on the Company’s loan portfolio. The third quarter results also included $594,000 in losses on the sale of other real estate owned, of which $462,000 was from one property. In the third quarter of 2009, the Bank announced plans to purchase 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 is expected to add $85 million in deposits and at least $85 million in loans. As of September 30, 2009, the Bank has purchased $50 million of the loans from Integra. The remainder of the transaction is expected to close in the fourth quarter of 2009.

A summary of the Company’s results follows:

Third Quarter ended September 30,	2009		2008		Change
Net income	$	1,545,000	$	3,419,000	(55	)%
Net income available for common shareholders	$	1,039,000	$	3,419,000	(70	)%
Earnings per common share, basic	$	0.19	$	0.61	(69	)%
Earnings per common share, diluted	$	0.18	$	0.61	(70	)%
Nine Months ended September 30,	2009		2008		Change
Net income	$	6,432,000	$	8,550,000	(25	)%
Net income available for common shareholders	$	5,149,000	$	8,550,000	(40	)%
Net income per common share, basic	$	0.92	$	1.52	(39	)%
Net income per common share, diluted	$	0.91	$	1.52	(40	)%

Net interest income increased $873,000, or 8% in the third quarter of 2009, as compared to the same period in 2008, while the net interest margin, on a tax equivalent basis, decreased 14 basis points from 3.86% in the third quarter of 2008 to 3.72% in the third quarter of 2009. The increase in net interest income was the result of the growth in earning assets, which increased $148 million or 14% on average from the third quarter of 2008. While the net interest margin decreased, the net interest spread, the difference between the Bank’s yield on earning assets and the cost of interest bearing liabilities, decreased by only 1 basis point from the third quarter of 2008. The difference between the net interest margin and net interest spread is accounted for by the diminishing impact that net non interest bearing funding, net free funds, has on the margin as overall funding cost decreased.

The provision for loan losses increased by $3,225,000 (416%) in the third quarter of 2009, as compared to the same period in 2008. Contributing to this increase were higher levels of charge-offs in the third quarter of 2009, as compared to the same period in 2008, and management’s concerns over the declining housing market, falling real estate values and overall deteriorating economic conditions. The Company recorded $2,038,000 in net charge-offs in the third quarter of 2009 as compared to $410,000 in the third quarter of 2008. The Company’s non-performing loans as a percentage of total loans were 2.29% as of September 30, 2009, as compared to 1.17% as of September 30, 2008, and the annualized net charge-offs to average loans increased from .16% in the third quarter of 2008 to .76% in the third quarter of 2009. As a result of the stress current economic conditions have had on the Company’s loan portfolio, the allowance for loan losses (ALL) increased $1,962,000 (17%) from the end of the second quarter of 2009 and $3,868,000 (39%) from the end of 2008. As a result of the added allowance, the ALL has increased from .97% of loans at the end of 2008 to 1.24% of loans at the end of the third quarter. Removing the loans purchased from Integra, the ALL would be 1.30% of loans. The loans from Integra 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 loan portfolio.

Non-interest income decreased 8% ($331,000) in the third quarter of 2009, as compared to the same period in 2008, while non-interest expense increased 3% ($264,000) from the same period last year. Contributing to the decrease in non-interest income was $594,000 in losses on the sale of other real estate owned. Non-interest expense in the third quarter of 2009 included a $235,000 (121%) increase in FDIC insurance expense.

Total assets were $1.392 billion at the end of the third quarter of 2009, which was $177 million or 15% higher than the same date a year ago. Total loans and investments grew $111 million or 11% and $56 million or 57% respectively, from September of 2008 and were funded by an increase in deposits of $158 million or 16% and an increase in preferred stock and warrants of $34 million.

The Bank of Kentucky Financial Corporation

Selected Consolidated Financial Data

(Dollars in thousands, except per share data)

	Third Quarter Comparison						Nine months ended September 30, Comparison
Income Statement Data	9/30/09			9/30/08			% Chg		9/30/09			9/30/08			% Chg
Interest income	$	15,787		$	16,863		(6	)%	$	46,428		$	52,414		(11	)%
Interest expense		4,370			6,319		(31	)%		13,797			22,146		(38	)%
Net interest income		11,417			10,544		8	%		32,631			30,268		8	%
Provision for loan losses		4,000			775		416	%		8,325			3,175		162	%
Net interest income after provision for loan losses		7,417			9,769		(24	)%		24,306			27,093		(10	)%
Non – interest income		3,576			3,907		(8	)%		11,900			11,118		7	%
Non – interest expense		8,998			8,734		3	%		27,431			25,866		6	%
Net income before income taxes		1,995			4,942		(60	)%		8,775			12,345		(29	)%
Provision for income taxes		450			1,523		(70	)%		2,343			3,795		(38	)%
Net income		1,545			3,419		(55	)%		6,432			8,550		(25	)%
Preferred Stock Dividends & Amortization		506			—		100	%		1,283			—		100	%
Net Income Available to Common Shareholders	$	1,039		$	3,419		(70	)%	$	5,149		$	8,550		(40	)%
Per Common Share Data
Diluted earnings per common share		0.18			0.61		(70	)%		0.91			1.52		(40	)%
Cash dividends declared		0.28			0.28		0	%		0.56			0.54		4	%
Earnings Performance Data
Return on common equity		3.95	%		14.08	%	(1,013	)bps		6.63	%		12.08	%	(545	)bps
Return on assets		.46	%		1.14	%	(68	)bps		.65	%		.95	%	(30	)bps
Net interest margin		3.64	%		3.82	%	(18	)bps		3.56	%		3.64	%	(8	)bps
Balance Sheet Data
Investments									$	153,732		$	97,819		57	%
Total loans										1,110,202			999,393		11	%
Allowance for loan losses										13,778			9,464		46	%
Total assets										1,391,669			1,214,339		15	%
Total deposits										1,150,764			992,493		16	%
Total borrowings										91,005			113,256		(20	)%
Common Stockholders’ equity										105,728			97,720		8	%
Preferred Stock										33,142			—		100	%
Common Shares Outstanding										5,616,707			5,606,607		—	%

	Five-Quarter Comparison
Income Statement Data	9/30/09			6/30/09			3/31/09			12/31/08			9/30/08
Net interest income		11,417		$	10,978		$	10,236		$	10,394		$	10,544
Provision for loan losses		4,000			2,800			1,525			1,675			775
Net interest income after provision for loan losses		7,417			8,178			8,711			8,719			9,769
Service charges and fees		2,444			2,289			2,015			2,269			2,452
Gain on sale of real estate loans		223			478			526			220			116
Gain on sale of securities		—			—			263			—			—
Trust fee income		288			271			230			252			284
Bankcard transaction revenue		579			551			491			489			502
Losses on Other Real Estate Owned		(594	)		39			13			(94	)		(71	)
Other non-interest income		636			594			564			514			624
Total non-interest income		3,576			4,222			4,102			3,650			3,907
Salaries and employee benefits expense		4,006			4,048			3,999			3,886			4,224
Occupancy and equipment expense		1,158			1,169			1,237			1,132			1,191
Data processing expense		392			385			394			330			336
State bank taxes		456			456			452			336			420
Amortization of intangible assets		258			283			296			296			296
FDIC Insurance		429			1,027			399			194			194
Other non-interest expenses		2,299			2,217			2,071			2,183			2,073
Total non-interest expense		8,998			9,585			8,848			8,357			8,734
Net income before income tax expense		1,995			2,815			3,965			4,012			4,942
Income tax expense		450			744			1,149			1,221			1,523
Net income		1,545			2,071			2,816			2,791			3,419
Preferred Stock Dividends & Amortization		506			519			258			—			—
Net Income Available to Common Shareholders	$	1,039		$	1,552		$	2,558			2,791			3,419
Per Common Share Data
Diluted earnings per common share		0.18			0.27			0.46			0.50			0.61
Cash dividends declared		0.28			0.00			0.28			0.00			0.28
Weighted average common shares outstanding
Basic		5,615,475			5,612,607			5,611,607			5,606,607			5,606,607
Diluted		5,695,096			5,658,818			5,611,607			5,606,749			5,606,980
Earnings Performance Data
Return on common equity		3.95	%		5.96	%		10.11	%		11.15	%		14.08	%
Return on assets		.46	%		.62	%		.89	%		.90	%		1.14	%
Net interest margin		3.64	%		3.53	%		3.50	%		3.64	%		3.82	%
Net interest margin (tax equivalent)		3.72	%		3.61	%		3.58	%		3.70	%		3.86	%

Balance Sheet Data	9/30/09			6/30/09			3/31/09			12/31/08			9/30/08
Investments	$	153,732		$	163,260		$	159,192		$	119,212		$	97,819
Total loans		1,110,202			1,052,033			1,026,845			1,026,557			999,393
Allowance for loan losses		13,778			11,816			10,753			9,910			9,464
Total assets		1,391,669			1,334,114			1,315,329			1,255,382			1,214,339
Total deposits		1,150,764			1,119,335			1,097,811			1,071,153			992,493
Total borrowings		91,005			65,356			71,050			72,951			113,256
Common Stockholders’ equity		105,728			105,325			103,711			101,448			97,720
Preferred Stock		33,142			33,057			33,007			—			—
Common Shares Outstanding		5,616,707			5,612,607			5,612,607			5,606,607			5,606,607
Average Balance Sheet Data
Average investments	$	161,026		$	159,767		$	123,123		$	106,903		$	99,185
Average other earning assets		20,516			36,244			35,120			17,872			7,865
Average loans		1,065,031			1,050,749			1,027,391			1,011,395			991,206
Average earning assets		1,246,573			1,246,760			1,185,634			1,136,170			1,098,256
Average assets		1,346,674			1,344,100			1,282,008			1,236,114			1,195,289
Average deposits		1,128,342			1,127,982			1,080,699			1,046,289			1,003,548
Average interest bearing deposits		967,968			967,030			936,503			899,434			852,399
Average interest bearing transaction deposits		546,114			556,248			536,141			516,082			492,501
Average interest bearing time deposits		421,854			410,782			400,362			383,352			359,898
Average borrowings		67,553			67,383			73,397			78,631			79,227
Average interest bearing liabilities		1,035,521			1,034,413			1,009,900			978,065			931,626
Average Common stockholders equity		105,506			104,518			102,579			99,584			96,618
Average Preferred stock		33,100			33,032			16,504			—			—
Asset Quality Data
Allowance for loan losses to total loans		1.24	%		1.12	%		1.05	%		.97	%		.95	%
Allowance for loan losses to non-performing loans		54	%		80	%		89	%		98	%		85	%
Nonaccrual loans	$	24,046		$	12,105		$	7,636		$	8,211		$	8,226
Restructured loans		—			632			3,492			575			575
Loans – 90 days past due & still accruing		1,351			1,943			1,022			1,350			2,844
Total non-performing loans		25,397			14,680			12,150			10,136			11,645
OREO and repossessed assets		1,015			1,209			1,259			712			3,673
Total non-performing assets		26,412			15,889			13,409			10,848			15,318
Non-performing loans to total loans		2.29	%		1.40	%		1.18	%		.99	%		1.17	%
Non-performing assets to total assets		1.91	%		1.20	%		1.02	%		.87	%		1.26	%
Annualized charge-offs to average loans		.76	%		.68	%		.27	%		.48	%		.16	%
Net charge-offs	$	2,038		$	1,737		$	682		$	1,229		$	410

About BKFC

BKFC, a bank holding company with assets of approximately $1.392 billion, offers banking and related financial services to both individuals and business customers. BKFC operates twenty-eight branch locations and forty-five 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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