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U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For Quarterly Period ended March 31, 2004

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)

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) 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 an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).   Yes  x   No  ¨

As of April 19, 2004, 5,975,174 shares of the Registrant’s Common Stock, no par value, were issued and outstanding.

The Bank of Kentucky Financial Corporation

INDEX

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THE BANK OF KENTUCKY FINANCIAL CORPORATION

PART I FINANCIAL INFORMATION

THE BANK OF KENTUCKY FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Dollars in thousands—unaudited)

See accompanying notes

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THE BANK OF KENTUCKY FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2004 AND 2003

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

See accompanying notes

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THE BANK OF KENTUCKY FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED MARCH 31

(Dollars in thousands – unaudited)

See accompanying notes

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THE BANK OF KENTUCKY FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31

(Dollars in thousands – unaudited)

See accompanying notes

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THE BANK OF KENTUCKY FINANCIAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2004

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 subsidiaries, The Bank of Kentucky, Inc. (the “Bank”) and The Bank of Kentucky Capital Trust I. 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.

Note 3—Earnings per Share:

Earnings per share are computed based upon the weighted average number of shares outstanding during the respective three and nine 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 2004 and 2003, 71,025 and 63,109 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:

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Note 4—Stock Compensation:

Employee compensation expense under stock options is reported using the intrinsic value method. No stock-based compensation cost is reflected in net income, as all options granted had an exercise price equal to or greater than the market price of the underlying common stock at date of grant. The following table illustrates the effect on net income and earnings per share if expense was measured using the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation, as of March 31.

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.

Note 7—Newly Issued But Not Yet Effective Accounting Standards:

There are currently no new accounting pronouncements that would have a significant impact on the Company’s financial statements.

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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 The Bank of Kentucky Capital Trust I or all three. Forward-looking statements involve inherent risks and uncertainties, and important factors could cause actual results to differ materially from those anticipated, including the following, in addition to those contained in BKFC’s reports on file with the Commission: (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 $7.0 million or

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1.04% of total loans was an adequate estimate of losses within the loan portfolio as of March 31, 2004. This estimate resulted in a provision for loan losses on the income statement of $325,000 for the three months ended March 31, 2004. 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

The first quarter of 2004 represents the first full quarter where the financial results of both the current and previous years reflect the November 22, 2002 purchase of certain assets and the assumption of certain liabilities of the Peoples Bank of Northern Kentucky (“PBNK”), and therefore management believes the historical results provide for a more relevant point of comparison. Highlighting the first quarter results was the effect that loan growth has had on the earnings of the Company. Total loans were $67 million (11%) higher at the end of the first quarter of 2004 than the same date in 2003. This growth helped drive the $525,000 (8%) growth in net interest income from the same period a year ago, and helped raise the net interest margin from 3.82% for the first quarter of 2003 to 3.96% for the first quarter of 2004. The growth in net interest income help offset the $308,000 (49%) reduction in gains on loans sold caused by the slowdown in the mortgage loan refinancing market.

FINANCIAL CONDITION

Total assets at March 31, 2004 were $819,209,000 compared to $815,976,000 at December 31, 2003, an increase of $3,233,000 (.40%). Loans outstanding increased $11,352,000 (1.72%) from $660,442,000 at December 31, 2003 to $671,794,000 at March 31, 2004, while available-for-sale securities decreased $10,501,000 (24%) for the same time period. The decrease in available-for-sale securities was the result of run-off in short-term investments purchased with excess liquidity in the second half of 2003. Loans held for sale increased $5,145,000 (506%) to $6,162,000 at March 31, 2004 compared to $1,017,000 at December 31, 2003. The increase in loans held for sale reflects a more active mortgage loan refinance market in March of 2004 than December 2003 brought on by lower rates. While the held for sale loans reflect higher refinancing levels than December of 2003 the current levels remain considerably slower than the first three quarters of 2003. Deposits decreased $2,531,000 (.36%) to $696,196,000 at March 31, 2004, compared to $698,727,000 at December 31, 2003, while short-term borrowings increased $4,115,000 (49%) to $12,462,000 at March 31, 2004 from $8,347,000 at December 31, 2003. The increase in short-term borrowings reflected higher overnight federal funds borrowed from correspondent banks. Federal Funds borrowed are used for short-term funding needs as growth in assets outpaces the growth in deposits and equity.

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RESULTS OF OPERATIONS

GENERAL

Net income for the quarter ended March 31, 2004 was $2,311,000 ($.39 per share), compared to $2,226,000 ($.37 per share) during the same period of 2003, an increase of $85,000 (4%). The driving force for the earnings gain from 2003 was the $525,000 (8%) increase in net interest income. The increase in net interest income offset lower gains on loans sold, which were $308,000 (49%) lower than the first quarter of 2003 as a result of a slowdown in the mortgage loan refinance market, and a $175,000 (117%) higher provision for loan losses than the first quarter of 2003, which increased as a result of applying loss factors to the increase in loans for the quarter.

NET INTEREST INCOME

Net interest income increased $525,000 (8%) in the first quarter of 2004 over the same period in 2003. The increase in the net interest income was the result of the growth in earning assets and the reduction on rates paid on interest bearing liabilities from the first quarter of 2003 to the first quarter of 2004. As illustrated in Table 2, net interest income was positively impacted by volume additions to the balance sheet by $667,000. However, these gains were offset by the rate variance which had a $151,000 negative impact on net interest income. The main contributor to the growth in earning assets was loans, which were up $67 million or 11% at the end of the first quarter of 2004 from the same period a year earlier. The loan growth and the resulting higher yielding mix of earning assets produced a net interest margin of 3.96% for the first quarter of 2004, which was 14 basis points higher than the 3.82% net interest margin for the first quarter of 2003. The mix of earning assets changed significantly from the first quarter of 2003, as higher yielding loans increased and lower yielding investments declined. Average loans for the first quarter of 2004 increased $56 million (9%) from a year earlier, while lower yielding securities and other interest bearing assets decreased $34 million (37%) from the same period in 2003.

Although the Bank currently has more interest bearing transaction accounts that can be repriced immediately than assets that are immediately repriceable, management believes lower interest rates would not have a positive impact on earnings. The rates on these interest bearing transactions accounts can not drop appreciably lower than their current levels, and the value of net free funds (earning assets funded by non interest bearing liabilities) drops as rates fall. The value of net free funds can be seen in Table 1, which shows the value of these funds dropping to .20% in 2004 from .25% in 2003 as the yield on earning assets declined from 5.92% in the first quarter of 2003 to 5.46% in the first quarter of 2004. Table 1 also shows that the Bank’s percentage of average interest-earning assets to interest-bearing liabilities improved to 112.96% in 2004 from 111.49% in 2003. Management expects this ratio to increase as the balance sheet grows. This growth will leverage the non-earning assets, fixed assets, goodwill and purchase intangibles, acquired with the PBNK acquisition.

Table 1 sets forth certain information relating to the Bank’s average balance sheet information and reflects 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 years presented. Average balances are daily averages for the Bank and include nonaccruing loans in the loan portfolio, net of the allowance for loan losses.

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Table 1- Average Balance Sheet Rates for Three Months Ended March 31, 2004 and 2003 (presented on a tax equivalent basis in thousands)

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Table 2 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.

Table 2-Volume/Rate Analysis (in thousands)

PROVISION FOR LOAN LOSSES

The provision for loan losses was $325,000 for the first quarter of 2004, an increase of $175,000 (117%) over the $150,000 provision recorded during the same period in 2003. During the first quarter of 2004, total loans increased by $11,352,000, from $660,442,000 at December 31, 2003 to $671,794,000 at March 31, 2004. For the same period of 2003 total loans decreased $2,448,000. Non-performing loans increased slightly, to $3,584,000 or .53% of total loans outstanding at March 31, 2004, compared to $3,473,000 or .53% at December 31, 2003, but decreased from the March 31, 2003 level of $4,024,000 or .67%. Net charge-offs for the first quarter of 2004 were $163,000 or .10% on an annualized basis to average loans, compared to the $112,000 and .07% for the first quarter of 2003. These charge-off ratios are well below industry average and the .10% for 2004 is equal to the Bank’s charge-off ratio for the year of 2003. The allowance for loan losses was 196%

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of non-performing loans on March 31, 2004 compared to 197% at the end of 2003 and 160% at March 31, 2003. While non-performing loans, annual charge-off levels and allowance to non-performing loan ratios were stable for the quarter, the application of loss factors to the increase in loans outstanding led to the increase in the provision from 2003. Management continues to monitor the loan portfolio closely and believes the provision for loan losses is directionally consistent with the change in credit quality, and the allowance is sufficient to absorb probable incurred losses in the loan portfolio.

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

Table 3-Summary of Loan Loss Experience and Allowance for Loan Loss Analysis (in thousands)

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NON-INTEREST INCOME

Table 4-Major Components of non-interest income (in thousands)

Total non-interest income decreased $2,000 (.10%) for the first quarter of 2004 from $1,910,000 at March 31, 2003 to $1,908,000 at March 31, 2004. Driving the decrease in non-interest income for the first quarter of 2004, were gains on loans sold, which decreased $308,000 (49%) for the quarter ending March 31, 2004 compared to the same period in 2003. The decrease was due to saturation in the refinancing market as a high percentage of consumers have already taken advantage of the historically low rates that have now been in place for an extended period of time. The Bank originates fixed rate first mortgage loans and sells them, servicing released, into the secondary market. During the first quarter of 2004, 211 loans with principal balances of $29 million were sold compared to 545 loans with a principal balance of $80 million during the same period in 2003. Loans held for sale at March 31, 2004 increased to $6,162,000 from $1,017,000 at December 31, 2003. These loans have been approved by the secondary market buyer and closed by the Bank. The Bank is awaiting settlement, but is not exposed to significant interest rate or pricing risk during the period between closing the loan and settlement. While the loans held for sale have increased significantly from the end of 2003 the refinancing activity remains well behind the level experienced in the first three quarters of 2003, and with rates rising in April, the refinancing activity is expected to stay well below 2003 levels.

Service charges and fees on deposit accounts increased by $50,000 (6%) from $796,000 in the first quarter of 2003 to $846,000 for the same period in 2004. Company owned life insurance earnings increased by $120,000 in the first quarter from $9,000 in 2003 to $129,000 in 2004. The increase was the result of earnings from the investment of $10 million in Company owned life insurance policies in the second half of 2003. Trust fee income increased $35,000 (26%) for the quarter ending March 31, 2004 compared to the same period in 2003 as a result of continued new business development and equity market advances. Bankcard transaction revenue, which are the fees received from vendors when the Bank’s debit cards and credit cards are used, decreased by $14,000 (9%) from $163,000 in the first quarter of 2003 to $149,000 in the same period in 2004 as a result of an industry wide legal settlement which effectively reduced the fee percentage that banks receive from customers using the Bank’s cards. This reduction in fees went into effect mid-year of 2003.

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NON-INTEREST EXPENSE

Table 5-Major Components of non-interest expense (in thousands)

Non-interest expense increased to $5,214,000 for the first quarter of 2004 from $4,937,000 for the same period of 2003, an increase of $277,000 (6%). The largest increase in non-interest expense was in salaries and benefits, which increased $273,000 (12%) in the first quarter of 2004 compared to the same period in 2003. The increase in salaries and benefits was the result of annual merit increases, staff additions and added employee benefit plans related to the investments in Company owned life insurance policies. Contributing to the decreases in occupancy and equipment, $59,000 (7%), and data processing, $22,000 (6%), was certain conversion expenses and temporary redundancies associated with the PBNK transaction in 2003.

INCOME TAX EXPENSE

During the first quarter of 2004, income tax expense decreased $14,000 (1%) from $1,136,000 in the first quarter of 2003 to $1,122,000 in the first quarter of 2004 as a result of higher tax-free income from company owned life insurance earnings. The increased tax-free income lowered the effective tax rate to 32.68% for the first quarter of 2004 compared to 33.78% for the same period in 2003.

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. The Bank has the ability to draw funds from the Federal Home Loan Bank and three of its correspondent banks to meet liquidity demands.

The Company’s total shareholders’ equity increased $1,656,000, from $66,689,000 at December 31, 2003 to $68,345,000 at March 31, 2004. In the first three months of 2004, the Company paid a cash dividend of $.11 per share totaling $658,000.

On June 27, 2003, the Company’s Board of Directors approved the repurchase and retirement of 200,000 common shares of the Company in the over-the-counter market, this plan ends on December 31, 2004. As of the date of this report, 15,500 of the 200,000 shares authorized for

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repurchase have been repurchased. Any repurchases will be funded, as needed, by dividends from the Bank.

The Company’s liquidity depends primarily on the dividends paid to it as the sole shareholder of the Bank. The Company needs liquidity to meet the financial obligations of its trust preferred securities, for the payment of dividends to shareholders and for general operating expenses. The FRB and the FDIC have issued policy statements, 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 March 31, 2004, the Bank had capital in excess of the FDIC’s most restrictive minimum capital requirements in an amount over $2.9 million from which dividends could be paid, subject to the FDIC’s general safety and soundness review.

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 March 31, 2004, the Bank’s leverage and total risk-based ratios were 8.83% and 10.40% respectively, which exceed the well-capitalized thresholds.

CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS:

There have been no significant changes to the Bank’s contractual obligations or off-balance sheet arrangements since December 31, 2003. For 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, 2003.

NEWLY ISSUED BUT NOT YET EFFECTIVE ACCOUNTING STANDARDS:

There are currently no new accounting pronouncements that would have a significant impact on the Company’s financial statements.

There has been no material change in market risk since December 31,2003. For information regarding the Company’s market risk, refer to the Company’s Form 10-K for the year ending December 31, 2003.

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 disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and

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communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

Under the supervision, and with the participation of our management, including our chief executive officer and chief financial officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2004, and, based upon this evaluation, our chief executive officer and chief financial officer have concluded that these controls and procedures are adequate 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 were no changes in our internal controls over financial reporting that occurred in the last fiscal quarter that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.

The Bank of Kentucky Financial Corporation

PART II

From time to time, BKFC and the Bank are involved in litigation incidental to the conduct of the business, but neither BKFC 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 BKFC.

Not applicable

Not applicable

None

None

(a) Exhibits

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BKFC filed a report on Form 8-K on January 23, 2004, disclosing under Item 9, a press release. The press release announced BKFC’s financial results for the fiscal year 2003.

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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 hereunto duly authorized.

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