<PAGE>

                    U.S. Securities and Exchange Commission

                            Washington, D.C. 20549

                                   FORM 10-K

(Mark One)

     [X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
            EXCHANGE ACT OF 1934

          For the Fiscal Year December 31, 2001

                                      OR

     [_]  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                    (I.R.S. Employer
    incorporation or organization)                  Identification Number)

               1065 Burlington Pike, Florence, Kentucky 41042
              --------------------------------------------------
              (Address of principal executive offices) (Zip Code)

                   Issuer's telephone number: (859) 371-2340
                                              --------------

     Securities registered pursuant to Section 12(b) of the Exchange Act:
                                    None
                            -----------------------

     Securities registered pursuant to Section 12(g) of the Exchange Act:
                          Common Stock, no par value
                          --------------------------
                               (Title of Class)

Indicate by checkmark whether the registrant has (1) filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 checkmark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of issuer's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]

State the issuer's revenues for its most recent fiscal year:  $ 40.4 million.
                                                              ---------------

The issuer's Common Stock is not quoted or traded on any established trading
market. Using the most recent trade price of which management is aware of $20.10
per share, the aggregate market value of the voting stock held by non-affiliates
of the Registrant was $66.0 million on March 6, 2002.

At March 6, 2002 there were 5,970,465 shares of the Registrant's Common Stock
issued and outstanding.

Transitional Small Business Disclosure Format  Yes ___  No  X
                                                           ---

                                       1
<PAGE>

                                     PART I

Item 1.  Business

General

         The Bank of Kentucky Financial Corporation ("BKFC") was incorporated as
a Kentucky corporation in 1993 and engaged in no business activities until April
1, 1995, when BKFC acquired, in a reorganization, all of the issued and
outstanding shares of common stock of The Bank of Kentucky, Inc. ("BKI"), a bank
incorporated under the laws of the Commonwealth of Kentucky (formerly named "The
Bank of Boone County, Inc."), and Burnett Federal Savings Bank ("Burnett"), a
federal savings bank. As a result of such acquisition, BKFC became a bank
holding company and a savings and loan holding company.

         On September 30, 1995, Burnett was merged with and into BKI, as a
result of which, BKFC's status as a savings and loan holding company terminated.
As a bank holding company, BKFC, through BKI, is engaged in the banking business
in Kentucky. Since incorporation, BKFC has engaged in no business activity other
than owning the outstanding stock of BKI and Burnett.

         On June 14, 2000, the Company consummated the acquisition of the Fort
Thomas Financial Corporation ("FTFC") and its wholly owned subsidiary, the Fort
Thomas Savings Bank ("FTSB"). FTFC was merged with and into the Company and FTSB
was merged with and into BKI. Upon consummation of this acquisition, 865,592
shares of the Company were issued for substantially all of the outstanding
shares of FTFC. The combination was accounted for as a pooling of interests and
the historical financial position and results of operations of the two companies
have been combined for financial reporting purposes.

         Formed in 1990 to engage in the commercial banking business, BKI
provides a variety of community-oriented consumer and commercial financial
services to customers throughout Northern Kentucky. The principal business
activity of BKI consists of accepting consumer and commercial deposits and using
such deposits to fund residential and non-residential real estate loans and
commercial, consumer, construction and land development loans. BKI's primary
market area for both loans and deposits includes Boone, Kenton and Campbell
counties and parts of Grant and Gallatin counties in Northern Kentucky. Service
is provided to the market area through the main office of BKI and four branch
offices in Boone County, five branch offices in Kenton County, two branch
offices in Grant County, four branch offices in Campbell county, and two branch
offices in the City of Florence.

         Interest and fees on loans and interest on securities are BKI's primary
sources of income. BKI's principal expense is interest paid on deposit accounts
and borrowings. Operating results are dependent to a significant degree on the
"net interest income" of BKI, which is the difference between interest income
from loans and securities and other interest-earning assets, and interest
expense on deposits and borrowings. Interest income and expense are
significantly affected by general economic conditions and policies of various
regulatory authorities. See Part II, Item 6.

         As a bank holding company, BKFC is subject to regulation, supervision
and examination by the Board of Governors of the Federal Reserve System (the
"FRB"). See "Regulation of BKFC" and "Regulatory Capital Requirements."

         The deposits of BKI are insured up to the applicable limits by the
Federal Deposit Insurance Corporation (the "FDIC"). At December 31, 2001
approximately 75.7%, or $315 million, of BKI's deposits were insured in the Bank
Insurance Fund ("BIF") and 24.3%, or $101 million, which represent deposits
deemed to have been acquired through the acquisition of Burnett and FTSB, were
insured in the Savings Association Insurance Fund ("SAIF"). Because of the FDIC
insured deposits, BKI is subject to regulation, supervision and examination by
the FDIC. See "Regulation of BKI"; "Regulatory Capital Requirements" and
"Dividend Restrictions."

         As a bank incorporated under the laws of the Commonwealth of Kentucky,
BKI is subject to regulation, supervision and examination by the Department of
Financial Institutions of the Commonwealth of Kentucky (the "Department"). BKI
is also a member of the Federal Home Loan Bank of Cincinnati (the "FHLB").

         Because BKFC's activities have been limited primarily to holding the
shares of common stock of BKI, the following discussion of operations focuses
primarily on the business of BKI, and information regarding the business of BKI
reflects the combination of BKI and FTSB.

                                       2
<PAGE>

Forward-Looking Statements

         In addition to the historic financial information included herein, the
following discussion contains forward-looking statements that involve risks and
uncertainties. Economic circumstances and BKFC's operations and actual results
could differ significantly from those discussed in those forward-looking
statements. Some of the factors that could cause or contribute to such
differences are discussed herein, but also include changes in the economy and
interest rates in the nation and in BKFC's general market area. See Exhibit 99
hereto, "Safe Harbor Under the Private Securities Litigation Reform Act of
1995", which is incorporated herein by reference.

                                       3
<PAGE>

Lending Activities

      General. As a commercial bank, BKI offers a wide variety of loans. Among
  BKI's lending activities are the origination of loans secured by first
  mortgages on nonresidential real estate; loans secured by first mortgages on
  one- to four-family residences; commercial loans secured by various assets of
  the borrower; unsecured consumer loans and consumer loans secured by
  automobiles, boats and recreational vehicles; and construction and land
  development loans secured by mortgages on the underlying property.

      The following table sets forth the composition of BKI's loan portfolio by
  type of loan at the dates indicated:


<TABLE>
<CAPTION>
                                                                           As of December 31,
                                                                           ------------------
                                             2001                      2000                      1999                      1998
                                             ----                      ----                      ----                      ----
                                            Amount           %        Amount         %          Amount          %         Amount
                                            ------           -        ------         -          ------          -         ------
                                                                            (Dollars in thousands)
<S>                                        <C>            <C>        <C>           <C>         <C>           <C>       <C>
Type of Loan:
   Nonresidential real estate loans        $126,161        30.6%     $116,974      30.4%       $ 82,698       24.7%     $ 66,449
   One- to four-family residential
     real estate loans                      136,194         33.1      150,222       39.1        147,316        44.1      140,159
   Commercial loans                          81,051         19.7       73,538       19.1         62,320        18.7       57,877
   Consumer loans                            14,959          3.6       12,661        3.3         11,819         3.5       10,286
   Construction and land development
     loans                                   52,184         12.7       23,586        6.1         25,633         7.6       24,165
   Municipal obligations                      1,443          0.3        7,849        2.0          4,568         1.4        3,346
                                           --------       ------     --------     ------       --------      ------     --------
        Total loans                        $411,992        100.0%    $384,830      100.0%      $334,354       100.0%    $302,282
                                                          ======                  ======                     ======
Less:
   Deferred loan fees                           520                       749                       905                      948
   Allowance for loan losses                  4,244                     3,806                     3,257                    2,897
                                           --------                  --------                  --------                 --------
     Net loans                             $407,228                  $380,275                  $330,192                 $298,437
                                           ========                  ========                  ========                 ========

<CAPTION>
                                                      As of December 31,
                                                           1997
                                                           ----
                                                 %        Amount          %
                                                 -        ------          -
                                                        (In thousands)
<S>                                         <C>         <C>         <C>
Type of Loan:
   Nonresidential real estate loans            22.0%     $ 62,932       23.2%
   One- to four-family residential
     real estate loans                          46.4      136,172        50.2
   Commercial loans                             19.1       49,172        18.1
   Consumer loans                                3.4        9,303         3.4
   Construction and land development
     loans                                       8.0       12,367         4.6
   Municipal obligations                         1.1        1,475          .5
                                            --------     --------    --------
        Total loans                           100.00%    $271,421       100.0%
                                            ========                 ========
Less:
   Deferred loan fees                                         999
   Allowance for loan losses                                2,554
                                                         --------
     Net loans                                           $267,868
                                                         ========
</TABLE>

                                       4
<PAGE>

     Loan Maturity Schedule. The following table sets forth certain information,
as of December 31, 2001, regarding the dollar amount of loans maturing in BKI's
portfolio based on their contractual terms to maturity and the dollar amount of
such loans that have fixed or variable rates within certain maturity ranges
ending after 2001:

<TABLE>
<CAPTION>
                                                              Due after 1
                                                               year to 5         Due after 5
                                   Due within one year           years              years        Total
                                   -------------------       -------------     -------------     -----
                                                     (Dollars in thousands)
<S>                                 <C>                        <C>                <C>          <C>
Commercial loans                       $   50,861             $  29,066           $  1,124     $ 81,051
Construction and land
   development loans                       52,184                     -                  -       52,184
                                       ----------             ---------           --------     --------
     Total                             $  103,045             $  29,066           $  1,124     $133,235
                                       ==========             =========           ========     ========

Interest sensitivity:
   With fixed rates                                           $  12,209           $     93
   With variable rates                                           16,857              1,031
                                                              ---------           --------
     Total                                                    $  29,066           $  1,124
                                                              =========           ========
</TABLE>

     Nonresidential Real Estate Loans. BKI makes loans secured by first
mortgages on nonresidential real estate, including retail stores, office
buildings, warehouses, apartment buildings and recreational facilities. Such
mortgage loans have terms to maturity of between 10 and 20 years and are made
with adjustable interest rates ("ARMs"). Interest rates on the ARMs adjust
either each year or every three years based upon the interest rates of the
applicable one- or three- year U.S. Treasury security then offered. Such loans
typically have adjustment period caps of 2% and lifetime caps of 6%.

     BKI limits the amount of each loan in relationship to the appraised value
of the real estate and improvements at the time of origination of a
nonresidential real estate loan. In accordance with regulations, the maximum
loan-to-value ratio (the "LTV") on nonresidential real estate loans made by BKI
is 80%, subject to certain exceptions.

     Nonresidential real estate lending is generally considered to involve a
higher degree of risk than residential lending. Such risk is due primarily to
the dependence of the borrower on the cash flow from the property to service the
loan. If the cash flow from the property is reduced due to a downturn in the
economy for example, or due to any other reason the borrower's ability to repay
the loan may be impaired. To reduce such risk, the decision to underwrite a
nonresidential real estate loan is based primarily on the quality and
characteristics of the income stream generated by the property and/or the
business of the borrower. In addition, BKI generally obtains the personal
guarantees of one or more of the principals of the borrower and carefully
evaluates the location of the real estate, the quality of the management
operating the property, the debt service ratio and appraisals supporting the
property's valuation.

     At December 31, 2001, BKI had a total of $126 million invested in
nonresidential real estate loans, all of which were secured by property located
in the Northern Kentucky area. Such loans comprised approximately 31% of BKI's
total loans at such date, $387,000 of which were nonperforming.

     One- to Four-Family Residential Real Estate Loans. BKI originates permanent
conventional loans secured by first mortgages on one- to four-family residences,
primarily single-family residences, located in the Northern Kentucky area. BKI
also originates a limited amount of loans for the construction of one-to four-
family residences and home equity loans secured by second mortgages on one- to
four-family residential real estate. See "Construction and Land Development
Loans." Each of such loans is secured by a mortgage on the underlying real
estate and improvements thereon, if any. BKI does not originate mortgage loans
insured by the Federal Housing Administration or guaranteed by the Veterans
Administration.

     The residential real estate loans of BKI are either one- or three-year
ARMs. Such loans typically have adjustment period caps of 2% and lifetime caps
of 6%. The maximum amortization period of such loans is 30 years. BKI does not
engage in the practice of deeply discounting the initial rates on such loans,
nor does BKI engage in the practice of putting payment caps on loans which could
lead to negative amortization. Historically, BKI has not made fixed-rate
residential mortgage loans. In order to meet consumer demand for fixed-rate
loans, however, BKI has originated loans for other lenders willing to accept the
interest rate and credit risk.

     Federal regulations also limit the LTV on residential real estate loans to
95%. BKI requires private mortgage insurance for the amount of any such loan
with an LTV in excess of 90%.

                                       5
<PAGE>

     The aggregate amount of BKI's residential real estate loans equaled
approximately $136 million at December 31, 2001, and represented 33% of total
loans at such date. At December 31, 2001, BKI had $2.4 million of non-performing
loans of this type.

     Loans held for sale. BKI originates residential real estate loans to be
sold, service released, subject to commitment to purchase in the secondary
market. These loans are fixed rate with terms ranging from fifteen to thirty
years. At December 31, 2001 these loans totaled $6 million.

     Commercial Loans. BKI offers commercial loans to individuals and businesses
located throughout Northern Kentucky. The typical commercial borrower is a small
to mid-sized company with annual sales under $10 million. The majority of
commercial loans are made with adjustable rates of interest tied to BKI's prime
interest rate. Commercial loans typically have terms of five years.

     Commercial lending entails significant risks. Such loans are subject to
greater risk of default during periods of adverse economic conditions. Because
such loans are secured by equipment, inventory, accounts receivable and other
non-real estate assets, the collateral may not be sufficient to ensure full
payment of the loan in the event of a default. To reduce such risk, BKI
generally obtains the personal guarantees of one or more of the principals
backing the borrower. At December 31, 2001, BKI had $81 million, or 20% of total
loans, invested in commercial loans, $242,000 of which was non-performing.

     Consumer Loans. BKI makes a variety of consumer loans, including automobile
loans, recreational vehicle loans and personal loans. Such loans generally have
fixed rates with terms from three to five years.

     Consumer loans involve a higher risk of default than residential real
estate loans, particularly in the case of consumer loans that are unsecured or
secured by rapidly depreciating assets, such as automobiles. Repossessed
collateral for a defaulted consumer loan may not provide an adequate source of
repayment of the outstanding loan balance as a result of the greater likelihood
of damage, loss or depreciation, and the remaining deficiency may not warrant
further substantial collection efforts against the borrower. In addition,
consumer loan collections depend on the borrower's continuing financial
stability, and thus are more likely to be adversely affected by job loss,
illness or personal bankruptcy. Various federal and state laws, including
federal and state bankruptcy and insolvency laws, may also limit the amount
which can be recovered on such loans. At December 31, 2001, BKI had $15 million,
or 4% of total loans, invested in consumer loans, $41,000 of which was non-
performing.

     Construction and Land Development Loans. BKI makes loans for the
construction of residential and nonresidential real estate and land development
purposes. Most of these loans are structured with adjustable rates of interest
tied to changes in BKI's prime interest rate for the period of construction. A
general contractor makes many of the construction loans originated by BKI to
owner-occupants for the construction of single-family homes. Other loans are
made to builders and developers for various projects, including the construction
of homes and other buildings that have not been pre-sold and the preparation of
land for site and project development.

     Construction and land development loans involve greater underwriting and
default risks than do loans secured by mortgages on improved and developing
properties due to the effects of general economic conditions on real estate
developments, developers, managers and builders. In addition, such loans are
more difficult to evaluate and monitor. Loan funds are advanced upon the
security of the project under construction, which is more difficult to value
before the completion of construction. Moreover, because of the uncertainties
inherent in estimating construction costs, it is relatively difficult to
evaluate accurately the LTVs and the total loan funds required to complete a
project. In the event a default on a construction or land development loan
occurs and foreclosure follows, BKI must take control of the project and attempt
either to arrange for completion of construction or to dispose of the unfinished
project. At December 31, 2001, a total of $52 million, or approximately 13% of
BKI's total loans, consisted of construction and land development loans, none of
which were non-performing.

     Municipal Obligations. BKI makes loans to various Kentucky municipalities
for various purposes, including the construction of municipal buildings and
equipment purchases. Loans made to municipalities are usually secured by
mortgages on the properties financed or by a lien on equipment purchased and
provide certain tax benefits for BKI. At December 31, 2001, BKI had $1.4
million, or 0.3% of total loans, invested in municipal obligation loans, none of
which were non-performing.

                                       6
<PAGE>

     Loan Solicitation and Processing. BKI's loan originations are developed
from a number of sources, including continuing business with depositors,
borrowers and real estate developers, periodic newspaper and radio
advertisements, solicitations by BKI's lending staff, walk-in customers,
director referrals and an officer call program. For nonresidential real estate
loans, BKI obtains information with respect to the credit and business history
of the borrower and prior projects completed by the borrower. Personal
guarantees of one or more principals of the borrower are generally obtained. An
environmental study of such real estate is normally conducted. Upon the
completion of the appraisal of the nonresidential real estate and the receipt of
information on the borrower, the loan application is submitted to the Loan
Committee for approval or rejection. If, however, the loan amount is in excess
of $1.25 million, the loan will be submitted to the Executive Committee for
approval or rejection.

     In connection with residential real estate loans, BKI obtains a credit
report, verification of employment and other documentation concerning the
creditworthiness of the borrower. An appraisal of the fair market value of the
real estate on which BKI will be granted a mortgage to secure the loan is
prepared by an independent fee appraiser approved by the Board of Directors. An
environmental study of such real estate is conducted only if the appraiser has
reason to believe that an environmental problem may exist.

     When a residential real estate loan application is approved, a lawyer's
opinion of title is obtained in respect of the real estate, which will secure
the loan. When a nonresidential real estate loan application is approved, title
insurance is customarily obtained on the title to the real estate, which will
secure the mortgage loan. All borrowers are required to carry satisfactory fire
and casualty insurance and flood insurance, if applicable, and to name BKI as an
insured mortgagee.

     Commercial loans are underwritten primarily on the basis of the stability
of the income generated by the business and/or property. For most commercial
loans, however, the personal guarantees of one or more principals of the
borrowers are generally obtained. Consumer loans are underwritten on the basis
of the borrower's credit history and an analysis of the borrower's income and
expenses, ability to repay the loan and the value of the collateral, if any. The
procedure for approval of construction loans is the same as for permanent
mortgage loans, except that an appraiser evaluates the building plans,
construction specifications and estimates of construction costs. BKI also
evaluates the feasibility of the proposed construction project and the
experience and record of the builder.

     Loan Origination and Other Fees. BKI realizes loan origination fees and
other fee income from its lending activities and also realizes income from late
payment charges, application fees, and fees for other miscellaneous services.

     Loan origination fees and other fees are a volatile source of income,
varying with the volume of lending, loan repayments and general economic
conditions. Nonrefundable loan origination fees and certain direct loan
origination costs are deferred and recognized as an adjustment to yield over the
life of the related loan.

     Delinquent Loans, Non-performing Assets and Classified Assets. When a
borrower fails to make a required payment on a loan, BKI attempts to cause the
deficiency to be cured by contacting the borrower. In most cases, deficiencies
are cured promptly as a result of these collection efforts.

     When a borrower fails to make a timely payment, the borrower will receive a
delinquency notice within 10 days of the due date. When the payment is 15 days
past due, an employee of BKI will call the customer. When the payment reaches 30
days past due, a second notice will be sent and a second call will be made. In
most cases, delinquencies are paid promptly. Generally, if a real estate loan
becomes 45 days delinquent, the borrower and collateral will be assessed to
determine whether foreclosure action is required. When deemed appropriate by
management, a foreclosure action will be instituted or a deed in lieu of
foreclosure will be pursued.

     Loans that are 90 days past due and are not well secured and in the process
of collection will be placed on non-accrual status. Under-collateralized loans
which are 90 days past due, will be fully or partially charged-off. The amount
charged-off will be charged against the loan loss allowance.

     BKI has developed a risk-rating system to quantify loan quality. The system
assigns a risk rating from 1 to 8 for each loan. Classified loans are those with
risk ratings of 5 or higher. Loan rating is determined by analyzing the
borrowers' management, financial ability, sales trends, operating results,
financial conditions, asset protection, contingencies, payment history,
financial flexibility, credit enhancements and other relevant factors. Loans
that fall into the classified categories are monitored on a regular basis and
proper action is taken to minimize BKI's exposure. Losses or partial losses will
be taken when they are recognized.

                                       7
<PAGE>

     BKI's risk rating system is similar to that used by regulatory agencies.
Problem assets are classified as "substandard" (risk rating 6), "doubtful" (risk
rating 7) or "loss" (risk rating 8). "Substandard" assets have one or more
defined weaknesses and are characterized by the distinct possibility that the
insured institution will sustain some loss if the deficiencies are not
corrected. "Doubtful" assets have the same weaknesses as "substandard" assets,
with the additional characteristics that (i) the weaknesses make collection or
liquidation in full on the basis of currently existing facts, conditions and
values questionable and (ii) there is a high possibility of loss. An asset
classified "loss" is considered uncollectable and of such little value that its
continuance as an asset of the institution is not warranted. The regulations
also contain a "special mention" category, consisting of assets which do not
currently expose an institution to a sufficient degree of risk to warrant
classification but which possess credit deficiencies or potential weaknesses
deserving management's close attention.

     Generally, BKI classifies as "substandard" all loans that are delinquent
more than 60 days, unless management believes the delinquency status is short-
term due to unusual circumstances. Loans delinquent fewer than 60 days may also
be classified if the loans have the characteristics described above rendering
classification appropriate.

     The aggregate amounts of BKI's classified assets at December 31, 2001, were
as follows:

                                                         (In thousands)

          Substandard (risk rating 6)                        $1,528
          Doubtful (risk rating 7)                              966
          Loss (risk rating 8)                                    0
                                                             ------

          Total classified assets                            $2,494
                                                             ======


     The following table reflects the amount of loans in delinquent status as of
December 31, 2001:

                                                      (In thousands)
          Loans delinquent
            30 to 59 days                                 $4,751
            60 to 89 days                                  1,558
            90 or more days                                2,199
                                                          ------

              Total delinquent loans                      $8,508
                                                          ======

          Ratio of total delinquent loans to total
            loans                                           2.07%
                                                          ======


     The following table sets forth information with respect to BKI's
nonperforming assets for the periods indicated. During the periods shown, BKI
had no restructured loans within the meaning of FAS No. 15. In addition, BKI
evaluates loans to identify those that are "impaired." Impaired loans are those
for which management has determined that it is probable that the customer will
be unable to comply with the contractual terms of the loan. Loans so identified
are reduced to the present value of expected future cash flows, or to the fair
value of the collateral securing the loan, by the allocation of a portion of the
allowance for loan losses to the loan. As of December 31, 2001, BKI had
designated $1,639 million as impaired loans. Management evaluates for impairment
all loans selected for specific review during the quarterly allowance analysis.
Generally, that analysis will not address smaller balance consumer credits.

                                       8
<PAGE>

<TABLE>
<CAPTION>
                                                                             At December 31,
                                                     -----------------------------------------------------------------
                                                         2001          2000         1999        1998         1997
                                                       ---------   ----------    ----------   ----------  ---------
                                                                          (Dollars in thousands)
<S>                                                      <C>           <C>          <C>          <C>         <C>
Loans accounted for on a non-accrual basis:(1)
  Real estate:
     Nonresidential                                    $     427   $      344    $        0   $        0  $       0
     Residential                                             329          226         1,902        3,259      1,626
     Construction                                              0            0           361          335        309
     Commercial                                              198          192             0          159         82
       Consumer and other                                      0          122             0            0          0
                                                       ---------   ----------    ----------   ----------  ---------
         Total                                               954          884         2,263        3,753      2,017
                                                       ---------   ----------    ----------   ----------  ---------

Accruing loans which are contractually past due
  90 days or more:
  Real estate:
     Nonresidential                                            0            0             0            0          0
     Residential                                           2,114        3,125           899          112          0
     Construction                                              0            0             0            0          0
       Commercial                                             44          628           210           59        101
       Consumer and other loans                               41          262           161           19         24
                                                       ---------   ----------    ----------   ----------  ---------
          Total                                            2,199        4,105         1,270          190        125
                                                       ---------   ----------    ----------   ----------  ---------

Total of non-accrual and 90 days past due loans        $   3,153   $    4,989    $    3,533   $    3,943  $   2,142
                                                       =========   ==========    ==========   ==========  =========


Percentage of total loans                                    .77%        1.30%         1.06%        1.31%       .79%
                                                       =========   ==========    ==========   ==========  =========

Other nonperforming assets(2)                          $     292   $       94    $      248   $      200  $       0
                                                       =========   ==========    ==========   ==========  =========
</TABLE>

----------------------------

(1)      Non-accrual status denotes loans on which, in the opinion of
         management, the collection of additional interest is unlikely, or loans
         that meet non-accrual criteria as established by regulatory
         authorities. Payments received on a non-accrual loan are either applied
         to the outstanding principal balance or recorded as interest income,
         depending on management's assessment of the collectibility of the loan.
         The amount of interest that would have been recorded on non-accrual
         loans was insignificant.

(2)      Consists of real estate acquired through foreclosure, which is carried
         at the lower of cost (fair value at disclosure) or fair value less
         estimated selling expenses.


     Allowance for Loan Losses. While management believes that it uses the best
information available to determine the allowance for loan losses, unforeseen
market conditions could result in adjustments, and net earnings could be
significantly affected if circumstances differ substantially from the
assumptions used in making the final determination. At December 31, 2001, BKI's
allowance for loan losses totaled $4.2 million.

     On at least a quarterly basis, a formal analysis of the adequacy of the
allowance is prepared and reviewed by management and the Board of Directors.
This analysis serves as a point in time assessment of the level of the allowance
and serves as a basis for provisions for loan losses. The loan quality
monitoring process includes assigning loan grades and the use of a watch list to
identify loans of concern.

     The analysis of the allowance for loan losses includes the allocation of
specific amounts of the allowance to individual problem loans, generally based
on an analysis of the collateral securing those loans. Portions of the allowance
are also allocated to loan portfolio, trends in delinquent and non-performing
loans, and economic trends affecting our market. These components are added
together and compared to the balance of our allowance at the evaluation date.

                                       9
<PAGE>

     The following table sets forth an analysis of BKI's allowance for losses
for the periods indicated:

<TABLE>
<CAPTION>
                                                                           Year ended at December 31,
                                                 ----------------------------------------------------------------------------
                                                    2001            2000              1999            1998             1997
                                                 ----------      ----------        ---------      -----------     -----------
                                                                             (Dollars in thousands)
<S>                                              <C>             <C>               <C>              <C>           <C>
Balance of allowance at beginning of period      $    3,806      $    3,257        $   2,897      $     2,554     $    2,118
Recoveries of loans previously charged off:
   Commercial loans                                      49              64               13                8               0
   Consumer loans                                        10              10               21               19              16
   Mortgage loans                                         2               0                0                0               0
                                                 ----------      ----------        ---------      -----------     -----------
     Total recoveries                                    61              74               34               27              16
                                                 ----------      ----------        ---------      -----------     -----------
Loans charged off:
   Commercial loans                                     242             383              150              431              11
   Consumer loans                                        69              78               53               60              31
   Mortgage loans                                        93             137              158               63              27
                                                 ----------      ----------        ---------      -----------     -----------
     Total charge-offs                                  404             598              361              554              69
                                                 ----------      ----------        ---------      -----------     -----------
     Net charge-offs                                   (343)           (524)            (327)            (527)            (53)
Provision for loan losses                               781           1,143              687              870             489
Merger adjustment                                         0             (70)               0                0               0
                                                 ----------      ----------        ---------      -----------     -----------
Balance of allowance at end of period            $    4,244      $    3,806        $   3,257      $     2,897     $     2,554
                                                 ==========      ==========        =========      ===========     ===========

Net charge-offs to average loans outstanding
   for period                                           .09%            .15%             .10%             .18%            .02%
                                                 ==========      ==========        =========      ===========     ===========
Allowance at end of period to loans at end of
   period                                              1.02%            .99%             .97%             .96%            .94%
                                                 ==========      ==========        =========      ===========     ===========
Allowance to nonperforming loans at end of
   period                                            134.60%          76.29%           92.19%           73.47%         119.23%
                                                 ==========      ==========        =========      ===========     ===========
</TABLE>

        The following table provides an allocation of BKI's allowance for
possible loan losses as of each of the following dates:

<TABLE>
<CAPTION>
                                                                                At December 31,
                                                 ----------------------------------------------------------------------------
                                                     2001            2000              1999            1998             1997
                                                 ----------      ----------        ---------      -----------     -----------
                                                                             (Dollars in thousands)
<S>                                              <C>             <C>               <C>              <C>           <C>
Loan type
  Commercial                                     $    2,099      $    1,757        $   1,271      $     1,007     $     1,000
  Real estate                                         1,556           1,497            1,438            1,528           1,285
  Consumer, CRA and credit cards                        589             552              548              362             269
                                                 ----------      ----------        ---------      -----------     -----------
    Total allowance for loan losses              $    4,244      $    3,806        $   3,257      $     2,897     $     2,554
                                                 ==========      ==========        =========      ===========     ===========
</TABLE>

     BKI increased its allowance for loan losses from $3.8 million at December
31, 2000, to $4.2 million at December 31, 2001, due primarily to growth in the
loan portfolio. Because the loan loss allowance is based on estimates, it is
monitored on an ongoing basis and adjusted as necessary to provide an adequate
allowance. See Exhibit 99 hereto, "Safe Harbor Under the Private Securities
Litigation Reform Act of 1995", which is incorporated herein by reference.

Investment Activities

     The investment policy of BKI is both to manage the utilization of excess
funds and to provide for liquidity needs of BKI as loan demand and daily
operations dictate. BKI's federal income tax position is a consideration in its
investment decisions. Investments in tax-exempt securities with maturities of
less than 10 years are considered when the net yield exceeds that of taxable
securities and BKI's effective tax rate warrants such investments.

                                       10
<PAGE>

         The following table sets forth the composition of BKI's securities
portfolio, at the dates indicated:

<TABLE>
<CAPTION>
                                                                              At December 31,
                                         ------------------------------------------------------------------------------------------
                                                      2001                         2000                             1999
                                         ---------------------------   ----------------------------     ---------------------------
                                           Amortized        Fair        Amortized          Fair           Amortized        Fair
                                             Cost           Value          Cost            Value             Cost        Value
                                         ------------      ---------   -----------        ---------     ------------    -----------
                                                                           (Dollars in thousands)
<S>                                         <C>            <C>            <C>            <C>              <C>           <C>
Held-to-maturity securities:

   U.S. Government obligations              $        0     $        0     $        0     $        0       $        0    $         0
   U.S. Government agency obligations            4,498          4,631         17,960         17,888           21,209         20,736
   Municipal and other obligations              12,636         12,837         11,780         11,768           11,762         11,582
                                            ----------     ----------     ----------     ----------       ----------    -----------

     Total held-to-maturity securities      $   17,134     $   17,468     $   29,740     $   29,656       $   32,971    $    32,318
                                            ==========     ==========     ==========     ==========       ==========    ===========

Available-for-sale securities:

   U.S. Government obligations              $        0     $        0     $        0     $        0       $        0     $        0
   U.S. Government agency obligations           34,855         35,164         22,588         22,633           24,192         23,832
   Municipal and other obligations                   0              0              0              0                0              0
                                            ----------     ----------     ----------     ----------       ----------     ----------

     Total available-for-sale securities    $   34,855     $   35,164     $   22,588     $   22,633       $   24,192     $   23,832
                                            ==========     ==========     ==========     ==========       ==========     ==========
</TABLE>

         The following table sets forth the amortized cost of BKI's securities
portfolio at December 31, 2001 by contractual or expected maturity. Securities
with call features are presented at call date if management expects that option
to be exercised.

<TABLE>
<CAPTION>
                                Maturing within    Maturing after one   Maturing after five   Maturing after
                                                                                            -------------------   ------------------
                                    one year     and within five years and within ten years      ten years              Total
                              ------------------ --------------------- -------------------- -------------------   ------------------
                              Amortized  Average  Amortized  Average   Amortized   Average  Amortized   Average   Amortized  Average
                                Cost      Yield     Cost      Yield      Cost       Yield      Cost      Yield       Cost     Yield
                                ----      -----     ----      -----      ----       -----      ----      -----       ----     -----
                                                      (Dollars in thousands)
<S>                           <C>        <C>      <C>        <C>       <C>        <C>      <C>         <C>       <C>        <C>
Held-to-maturity:
  U.S. Government obligations         0    0.00%          0     0.00%          0    0.00%           0     0.00%           0   0.00%
  U.S. Government agency            997    6.37%      3,500     5.55%          0    0.00%           0     0.00%       4,497   5.73%
obligations
  Municipal and other             4,571    6.12%      7,961     5.99%        105    6.29%           0     0.00%      12,637   6.04%
obligations (1)

Available for sale:
  U.S. Government obligations         0    0.00%          0     0.00%          0    0.00%           0     0.00%           0   0.00%
  U.S. Government agency          1,501    6.00%     27,003     5.29%          0    0.00%       6,351     5.96%      34,855   5.45%
obligations
</TABLE>

__________________________
(1)  Yield stated on a tax-equivalent basis using a 34% effective rate.

Deposits and Borrowings

     General. Deposits have traditionally been the primary source of BKI's funds
for use in lending and other investment activities. In addition to deposits, BKI
derives funds from interest payments and principal repayments on loans and
income on earning assets. Loan payments are a relatively stable source of funds,
while deposit inflows and outflows fluctuate more in response to economic
conditions and interest rates. BKI has lines of credit established at its major
correspondent banks to purchase federal funds to meet liquidity needs. BKI may
also borrow funds from the FHLB in the form of advances.

     BKI also uses retail repurchase agreements as a source of funds. These
agreements essentially represent borrowings by BKI from customers with
maturities of three months or less. Certain securities are pledged as collateral
for these agreements. At December 31, 2001 BKI had $4.6 million in retail
repurchase agreements.

                                       11
<PAGE>

         BKI has a mortgage payable that is secured by a parcel of real estate
owned by BKI (the "Mortgage Loan"). The Mortgage Loan has an interest rate of
9.00%, monthly payments of $2,762 and a balance of $126,000 at December 31,
2001, and $147,000 at December 31, 2000. BKI also entered into a capital lease
obligation for a branch in 1997 with a term of 20 years and a monthly payment of
$4,000.

         Deposits. Deposits are attracted principally from within BKI's
designated lending area through the offering of numerous deposit instruments,
including regular passbook savings accounts, negotiable order of withdrawal
("NOW") accounts, money market deposit accounts, term certificate accounts and
individual retirement accounts ("IRAs"). Interest rates paid, maturity terms,
service fees and withdrawal penalties for the various types of accounts are
established periodically by BKI's Board of Directors based on BKI's liquidity
requirements, growth goals and market trends. BKI does not use brokers to
attract deposits. The amount of deposits from outside BKI's market area is not
significant.

        The following table presents the amount of BKI's jumbo certificates of
deposit with principal balances greater than $100,000 by the time remaining
until maturity as of December 31, 2001:

             Maturity                             At December 31, 2001
             --------                             --------------------
                                                     (In thousands)

             Three months or less                      $18,411
             Over 3 months to 6 months                  12,538
             Over 6 months to 12 months                 14,784
             Over 12 months                              8,652
                                                       -------
                 Total                                 $54,385
                                                       =======


         Borrowings. In addition to repurchase agreements and the mortgage loan
described above, BKI has agreements with correspondent banks to purchase federal
funds on an as needed basis to meet liquidity needs. As a member in good
standing of the FHLB since 1994, BKI is authorized to apply for advances from
the FHLB, provided certain standards are met. See "Federal Home Loan Banks." BKI
had $9 million in long term advances outstanding as of December 31, 2001.

         The following table sets forth the maximum month end balance amount of
BKI's outstanding borrowings during the years ended December 31, 2001, 2000 and
1999, along with the average aggregate balances of BKI's outstanding borrowings
for such periods:

<TABLE>
<CAPTION>
                                                                 During year ended December 31,
                                                        -----------------------------------------------
                                                            2001              2000              1999
                                                        -----------        -----------        ---------
                                                                     (Dollars in thousands)
<S>                                                     <C>                <C>                <C>
Maximum balance at any month-end during
    the period                                             $35,792           $61,647           $46,561

Average balance                                             18,660            40,859            27,870

Weighted average interest rate                                4.58%             6.47%             5.18%
</TABLE>

         The following table sets forth certain information as to borrowings,
excluding the Mortgage Loan and the capital lease obligation, at the dates
indicated:

<TABLE>
<CAPTION>
                                                                  December 31,
                                           ------------------------------------------------------------
                                                2001                  2000                    1999
                                           -------------          ------------             ------------
                                                          (Dollars in thousands)
<S>                                        <C>                    <C>                      <C>
Borrowings outstanding                         $35,343               $24,338                $32,434
Weighted average interest rate                    4.43%                 6.43%                  5.09%
</TABLE>

                                       12
<PAGE>

        Asset/Liability Management. BKI's earnings depend primarily upon its net
interest income, which is the difference between its interest income on its
interest-earning assets, such as mortgage loans and investment securities, and
its interest expense paid on its interest-bearing liabilities, consisting of
deposits and borrowings. As market interest rates change, asset yields and
liability costs do not change simultaneously. Due to maturity, re-pricing and
timing differences of interest-earning assets and interest-bearing liabilities,
earnings will be affected differently under various interest rate scenarios. BKI
has sought to limit these net income fluctuations and manage interest rate risk
by originating adjustable-rate loans and purchasing relatively short-term and
variable-rate investments and securities.

         BKI's interest rate spread is the principal determinant of BKI's net
interest income. The interest rate spread can vary considerably over time
because asset and liability re-pricing do not coincide. Moreover, the long-term
and cumulative effect of interest rate changes can be substantial. Interest rate
risk is defined as the sensitivity of an institution's earnings and net asset
values to changes in interest rates.

         The ability to maximize net interest income is largely dependent upon
sustaining a positive interest rate spread during fluctuations in the prevailing
level of interest rates. Interest rate sensitivity is a measure of the
difference between amounts of interest-earning assets and interest-bearing
liabilities, which either re-price or mature within a given period of time. The
difference, or the interest rate re-pricing "gap," provides an indication of the
extent to which a financial institution's interest rate spread will be affected
by changes in interest rates. A positive gap occurs when interest-earning assets
exceed interest-bearing liabilities re-pricing during a designated time frame.
Conversely, a negative gap occurs when interest-bearing liabilities exceed
interest-earning assets re-pricing within a designated time frame. Generally,
during a period of rising interest rates, a negative gap would adversely affect
net interest income, while a positive gap would result in an increase in net
interest income, and during a period of falling interest rates, a negative gap
would result in an increase in net interest income, while a positive gap would
have the opposite effect.

         In recognition of the foregoing factors, the management and the Board
of Directors of BKI have implemented an asset and liability management strategy
directed toward maintaining a reasonable degree of interest rate sensitivity.
The principal elements of such strategy include: l) meeting the consumer
preference for fixed-rate loans over the past two years by establishing a
correspondent lending program that has enabled BKI to originate and sell
fixed-rate mortgage loans; 2) maintaining relatively short weighted-average
terms to maturity in the securities portfolio as a hedge against rising interest
rates; 3) emphasizing the origination and retention of adjustable-rate loans;
and 4) utilizing longer term certificates of deposit as funding sources when
available. While management and the Board of Directors believe the foregoing
steps have mitigated interest-rate risk to the maximum extent practicable, the
contractual terms to maturity or repricing of BKI's assets still exceed the
contractual terms to maturity or repricing of BKI's interest-bearing
liabilities. As a result, a rapid or protracted increase in the level of
interest rates will likely have a negative effect on BKI's net interest income.
Management and the Board of Directors monitor BKI's exposure to interest rate
risk on a monthly basis to ensure the interest rate risk is maintained within an
acceptable range.

         The following table sets forth the amounts of BKI's interest-earning
assets and interest-bearing liabilities outstanding at December 31, 2001, which
is scheduled to re-price or mature in each of the time periods shown. The amount
of assets and liabilities shown which re-price or mature in a given period were
determined in accordance with the contractual terms of the asset or liability.
This table does not necessarily indicate the impact of general interest rate
movements on BKI's net interest income because the re-pricing of certain
categories of assets and liabilities is subject to the interest rate
environment, competition and other factors beyond BKI's control. As a result,
certain assets and liabilities may in fact mature or re-price at different times
and in different volumes than indicated. See Exhibit 99 hereto, "Safe Harbor
Under the Private Securities Litigation Reform Act of 1995", which is
incorporated herein by reference.

                                       13
<PAGE>

<TABLE>
<CAPTION>
                                                Within 3 Months  4 - 12 Months   1 through 5 years     Over 5 years         Total
                                                ---------------  -------------   -----------------     ------------         -----
                                                                            (Dollars in thousands)
<S>                                             <C>              <C>             <C>                   <C>                <C>
Interest-earning assets:
   Federal funds sold                             $    2,481     $         0       $        0          $        0         $   2,481
   Interest bearing deposits with banks                    0               0                0                   0                 0
   Securities                                          4,224           6,483           38,791               6,390            55,888
   Loans receivable(1)                               162,587          79,003          164,294               8,394           414,278
                                                  ----------     -----------       ----------          ----------         ---------
     Total interest-earning assets                   169,292          85,486          203,085              14,784           472,647
                                                  ----------     -----------       ----------          ----------         ---------
Interest-bearing liabilities:
   Savings deposits                                   14,087               0                0                   0            14,087
   Money market deposit accounts                      78,798               0                0                   0            78,798
   NOW accounts                                       99,773               0                0                   0            99,773
   Certificates of deposit                            45,826          75,301           19,057                 103           140,287
   IRA's                                               8,594           9,358            9,523                   0            27,475
   Federal funds purchased                                 0               0                0                   0                 0
   Repurchase agreements                               4,543               0                0                   0             4,543
   Other borrowings                                   21,800               0            5,000               4,000            30,800
   Notes payable                                           8              23              126                 292               449
                                                  ----------     -----------       ----------          ----------         ---------
     Total interest-bearing liabilities              273,429          84,682           33,706               4,395           396,212
                                                  ----------     -----------       ----------          ----------         ---------
Interest-earning assets less
   Interest-bearing liabilities                   $ (104,137)    $       804       $  169,379          $   10,389         $  76,435
                                                  ==========     ===========       ==========          ==========         =========
Cumulative interest-rate sensitivity
   gap                                            $ (104,137)    $  (103,333)      $   66,046         $    76,435
                                                  ==========     ===========       ==========         ===========
Cumulative interest-rate gap as a
   percentage of total interest
   earning assets                                     (22.03)%       (21.86)%           13.97%              16.17%
                                                  ==========     ==========        ==========         ===========

</TABLE>

-----------------------------

(1)  Virtually all of BKI's loans are monthly amortizing adjustable-rate
     installment obligations and, therefore, are not subject to rollover and
     renewal provisions. Excludes overdrawn accounts reflected as loans.

                                       14
<PAGE>

     The following table sets forth certain information relating to BKI's
average balance sheet information and reflects the average yield on interest-
earning assets and the average cost of interest-bearing liabilities for the
years 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 BKI and include nonaccruing loans in the loan portfolio, net of the
allowance for loan losses.


<TABLE>
<CAPTION>
                                                                                           Year ended December 31,
                                        -----------------------------------------------------------------------------
                                                       2001                                         2000
                                        -------------------------------------     -----------------------------------
                                           Average       Interest                    Average      Interest
                                         outstanding     earned/       Yield/      outstanding     earned/     Yield/
                                           balance         paid         rate         balance        paid        rate
                                           -------         ----         ----         -------        ----        ----
                                                                      (Dollars in thousands)
<S>                                      <C>           <C>            <C>          <C>            <C>          <C>
Interest-earning assets:
   Loans receivable (1)(2)                 $390,546      $32,950        8.44%       $359,009        $32,865     9.15%
   Securities (2)                            51,057        2,980        5.84          57,406          3,415     5.95
   Other interest-earning assets             10,572          585        5.53           4,340            354     8.16
                                         ----------    ---------                   ---------      ---------
     Total interest-earning assets          452,175       36,515        8.08         420,755         36,634     8.71
                                         ----------    ---------       -----       ---------      ---------    -----

Non-interest-earning assets                  27,035                                   23,872
                                          ---------                                ---------
     Total assets                          $479,210                                 $444,627
                                           ========                                =========

Interest-bearing liabilities:
   Transaction accounts                     178,010        6,335        3.56         157,282          7,314     4.65
   Time deposits                            184,031       10,226        5.56         152,073          9,057     5.96
   Borrowings                                18,660          854        4.58          40,859          2,644     6.47
                                          ---------    ---------                   ---------      ---------
     Total interest-bearing
       liabilities                          380,701       17,415        4.57         350,214         19,015     5.43
                                          ---------    ---------       -----       ---------      ---------    -----

Non-interest-bearing liabilities             49,863                                   50,680
                                          ---------                                ---------
     Total liabilities                      430,564                                  400,894

Shareholders' equity                         48,646                                   43,733
                                          ---------                                ---------

     Total liabilities and
       shareholders' equity                $479,210                                 $444,627
                                           ========                                 ========

Net interest income                                      $19,100                                     $17,619
                                                         =======                                     =======
Interest rate spread                                                     3.51%                                  3.28%
                                                                        =====                                  =====
Net interest margin (net interest
   income as a percent of average
   interest-earning assets)                                              4.22%                                  4.19%
                                                                        =====                                  =====
Average interest-earning assets to
   interest-bearing liabilities             118.77%                                   120.14%
                                            =======                                  =======

<CAPTION>

                                        -----------------------------------
                                                        1999
                                        -----------------------------------
                                           Average      Interest
                                         outstanding     earned/      Yield/
                                           balance        paid         rate
                                           -------        ----         ----
<S>                                     <C>             <C>          <C>
Interest-earning assets:
   Loans receivable (1)(2)                 $314,755      $27,529       8.75%
   Securities (2)                            54,164        3,003       5.54
   Other interest-earning assets              7,430          529       7.12
                                        -----------     --------

     Total interest-earning assets          376,349       31,061       8.25
                                        -----------     --------      -----

Non-interest-earning assets                  20,388
                                        -----------
     Total assets                          $396,737
                                        ===========

Interest-bearing liabilities:
   Transaction accounts                     132,100        4,808       3.64
   Time deposits                            158,626        8,719       5.50
   Borrowings                                27,870        1,445       5.18
                                        -----------     --------

     Total interest-bearing
       liabilities                          318,596       14,972       4.70
                                        -----------     --------      -----

Non-interest-bearing liabilities             38,767
                                        -----------
     Total liabilities                      357,363

Shareholders' equity                         39,374
                                        -----------

     Total liabilities and
       shareholders' equity                $396,737
                                        ===========

Net interest income                                                 $16,089
                                                                    =======
Interest rate spread                                                   3.55%
                                                                    =======
Net interest margin (net interest
   income as a percent of average
   interest-earning assets)                                            4.28%
                                                                    =======
Average interest-earning assets to
   interest-bearing liabilities              118.13%
                                        ===========
</TABLE>

__________________________________
(1)  Includes non-accrual loans.
(2)  Income presented on a tax equivalent basis using a 34% tax rate. The tax
equivalent adjustment was $432,000, $387,000, and $320,000, in 2001, 2000, and
1999 respectively.

                                       15
<PAGE>

     The table below describes the extent to which changes in interest rates and
changes in volume of interest-earning assets and interest-bearing liabilities
have affected BKI'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>
<CAPTION>
                                                                                Year ended December 31,
                                                    ---------------------------------------------------------------------
                                                           2001 vs. 2000                             2000 vs. 1999
                                                    ----------------------------             ----------------------------
                                                        Increase (Decrease)                       Increase (Decrease)
                                                              due to                                    due to
                                                              ------                                    ------
                                                   Volume     Rate         Total         Volume         Rate        Total
                                                   ------     ----         -----         ------         ----        -----
                                                                          (Dollars in thousands)
<S>                                        <C>            <C>          <C>             <C>           <C>          <C>
Interest income attributable to:
   Loans receivable                        $   2,767      $  (2,682)   $     85        $4,006        $1,330       $5,336

   Securities                                   (372)           (63)       (435)          186           226          412
   Other interest-earning assets(1)              375           (144)        231          (244)           69         (175)
                                           ---------      ---------    --------        ------        ------       ------

     Total interest-earning assets             2,770         (2,889)       (119)        3,948         1,625        5,573
                                           ---------      ---------    --------        ------        ------       ------

Interest expense attributable to:
   Transactions accounts                         883         (1,862)       (979)        1,020         1,486        2,506
   Time deposits                               1,807           (638)      1,169          (370)          708          338
   Borrowings                                 (1,163)          (627)     (1,790)          782           417        1,199
                                           ---------      ---------    --------        ------        ------       ------

     Total interest-bearing liabilities        1,527         (3,127)     (1,600)        1,432         2,611        4,043
                                           ---------      ---------    --------        ------        ------       ------

Increase (decrease) in net interest
     income                                $  (1,243)     $     238    $  1,481        $2,516        $ (986)      $1,530
                                           =========      =========    ========        ======        ======       ======
</TABLE>

_______________________________

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


Competition

     BKI competes for deposits with other commercial banks, savings associations
and credit unions and with the issuers of commercial paper and other securities,
such as shares in money market mutual funds. The primary factors in competing
for deposits are interest rates and convenience of office location. In making
loans, BKI competes with other banks, savings associations, consumer finance
companies, credit unions, leasing companies and other lenders. BKI competes for
loan originations primarily through the interest rates and loan fees it charges
and through the efficiency and quality of services it provides to borrowers.
Competition is affected by, among other things, the general availability of
lendable funds, general and local economic conditions, current interest rate
levels and other factors that are not readily predictable.

     Due to BKI's size relative to the many other financial institutions in its
market area, management believes that BKI does not have a substantial share of
the deposit and loan markets. The size of financial institutions competing with
BKI is likely to increase as a result of changes in statutes and regulations
eliminating various restrictions on interstate and inter-industry branching and
acquisitions. Such increased competition may have an adverse effect upon BKI.
See Exhibit 99 hereto, "Safe Harbor Under the Private Securities Litigation
Reform Act of 1995", which is incorporated herein by reference.

                                       16
<PAGE>

Subsidiary Activities

        BKI has no subsidiaries.  BKFC's only subsidiary is BKI.

Personnel

        As of December 31, 2001, BKI had 114 full-time employees and 47 part-
time employees. BKI believes that relations with its employees are excellent.
BKI offers health, disability, and life insurance benefits to full-time
employees. BKI has a profit sharing plan for all employees 21 years of age or
older who work at least 1,000 hours per year. None of the employees of BKI are
represented by a collective bargaining unit.

Regulation of BKFC

        BKFC is a bank holding company subject to regulation by the FRB under
the Bank Holding Company Act of 1956, as amended ("BHCA"). As a bank holding
company, BKFC is required to file periodic reports with, and is subject to
regulation, supervision and examination by, the FRB. Such examination by the FRB
determines whether BKFC is operating in accordance with various regulatory
requirements and in a safe and sound manner. The FRB may initiate enforcement
proceedings against BKFC for violations of laws or regulations or for engaging
in unsafe and unsound practices, particularly if such conduct could or does
adversely impact BKI.

        In general, BKFC is only permitted to engage in activities deemed by the
FRB to be closely related to banking. FRB regulations contain a list of
activities that are deemed closely related to banking. Generally, many
securities and insurance activities, most real estate development activities and
most industrial operations, are not deemed to be closely related to banking. In
addition, the FRB could require that BKFC terminate any activity, if the FRB
deems the activity to constitute a serious risk to the financial soundness of
BKI.

        On November 12, 1999, President Clinton signed into law the
Gramm-Leach-Bliley Act (also known as the Financial Services Modernization Act
of 1999). The Financial Services Modernization Act, which became effective March
11, 2000, permits bank holding companies to become financial holding companies
and thereby affiliate with securities firms and insurance companies and engage
in other activities that are financial in nature. A bank holding company may
become a financial holding company if each of its subsidiary banks is well
capitalized under the FDIC Act of 1991 prompt corrective action provisions, is
well managed, and has at least a satisfactory rating under the Community
Reinvestment Act, by filing a declaration that the bank holding company wishes
to become a financial holding company. No regulatory approval will be required
for a financial holding company to acquire a company, other than a bank or
savings association, engaged in activities that are financial in nature or
incidental to activities that are financial in nature, as determine by the FRB.

        The Financial Services Modernization Act defines "financial in nature"
to include:

               .  securities underwriting, dealing and market making;
               .  sponsoring mutual funds and investment companies;
               .  insurance underwriting and agency;
               .  merchant banking; and
               .  activities that the FRB has determined to be closely related
                  to banking.

        Subsidiary banks of a financial holding company must continue to be well
capitalized and well managed in order to continue to engage in activities that
are financial in nature without regulatory actions or restrictions, which could
include divesture of a financial-in-nature subsidiary or subsidiaries of the
subsidiary banks. In addition, a financial holding company or a bank may not
acquire a company that is engaged in activities that are financial in nature
unless each of the subsidiary banks of the financial holding company or the bank
has a Community Reinvestment Act rating of satisfactory or better.

        It is the policy of the FRB that a bank holding company be ready and
able to use its resources to provide capital to its subsidiary banks during
periods of financial stress or adversity. See "Regulatory Capital Requirements"
and "Dividend Restrictions" regarding minimum capital levels to which BKFC will
be subject and regulatory limits on BKFC's ability to pay dividends to
stockholders. As a bank holding company, BKFC must notify the FRB if, during any
one-year period, it seeks to redeem shares of stock in an amount such that total
redemptions during the year, net of sales of shares, would be greater than 10%
of BKFC's net worth.

                                       17
<PAGE>

         Transactions between BKFC and its subsidiaries must comply with
Sections 23A and 23B of the FRA, which govern transactions with affiliates.
Generally, Sections 23A and 23B of the FRA (i) limit the extent to which a
financial institution or its subsidiaries may engage in "covered transactions"
with any one affiliate to an amount equal to 10% of such institution's capital
stock and surplus, (ii) limit the aggregate of all such transactions with all
affiliates to an amount equal to 20% of such capital stock and surplus, and
(iii) require that all such transactions be on terms substantially the same, or
at least as favorable to the financial institution, as those provided in
transactions with a non-affiliate. The term "covered transaction" includes the
making of loans, purchase of assets, issuance of a guarantee and other similar
types of transactions. In general, all such transactions must be at arms-length.
In addition, BKFC and BKI may not engage in arrangements by which any person is
required to utilize a product or service of any of them in order to obtain
another product or service from any of them.

Regulation of BKI

         BKI is a Kentucky-chartered bank with FDIC deposit insurance. BKI is
subject to numerous federal and state statutes and regulations regarding the
conduct of its business, including maintenance of reserves against deposits;
capital adequacy; restrictions on the nature and amount of loans which may be
made and the interest which may be charged thereon; restrictions on the terms of
loans to officers, directors, large shareholders and their affiliates;
restrictions relating to investments and other activities; and requirements
regarding mergers and branching activities.

         BKI is subject to regulation, supervision and examination by the
Department and the FDIC. Both the Department and the FDIC have the authority to
issue cease-and-desist orders if either determines that the activities of the
Bank represent unsafe and unsound banking practices. If the grounds provided by
law exist, the Department or the FDIC may appoint a conservator or receiver for
a bank.

         State-chartered banks, like BKI, are subject to regulatory oversight
under various consumer protection and fair lending laws. These laws govern,
among other things, truth-in-lending disclosure, equal credit opportunity, fair
credit reporting and community reinvestment. Failure to abide by federal laws
and regulations governing community reinvestment could limit the ability of a
state-chartered bank to open a new branch or engage in a merger transaction.

         Kentucky law limits loans or other extensions of credit to any borrower
to 20% of BKI's paid-in capital and actual surplus. Such limit is increased to
30% if the borrower provides collateral with a cash value exceeding the amount
of the loan. Loans or extensions of credit to certain borrowers are aggregated,
and loans secured by certain government obligations are exempt from these
limits. At December 31, 2001, the maximum the Bank could lend to any one
borrower generally equaled $5.3 million and equaled $8.0 million if the borrower
provided collateral with a cash value in excess of the amount of the loan.

         Generally, BKI's permissible activities and investments are prescribed
by Kentucky law. However, state-chartered banks, including BKI, may not,
directly or through a subsidiary, engage in activities or make any investments
as principal not permitted for a national bank, a bank holding company or a
subsidiary of a nonmember bank, unless they obtain FDIC approval.

Regulatory Capital Requirements

         The FRB has adopted risk-based capital guidelines for bank holding
companies. Such companies must maintain adequate consolidated capital to meet
the minimum ratio of total capital to risk-weighted assets (including certain
off-balance-sheet items, such as standby letters of credit) (the "Risk-Based
Ratio") of 8%. At least half of the minimum-required total capital of 8% is to
be composed of Tier 1 Capital, which consists of common shareholders' equity,
minority interests in the equity of consolidated subsidiaries and a limited
amount of perpetual preferred stock, less goodwill and certain other intangibles
("Tier 1 Risk-Based Ratio"). The remainder of total capital may consist of
subordinated debt, other preferred stock and a limited amount of loan and lease
loss allowances.

         The FRB also has established minimum leverage ratio guidelines for bank
holding companies. The guidelines provide for a minimum ratio of Tier 1 Capital
to average total assets (excluding the loan and lease loss allowance, goodwill
and certain other intangibles, and, effective April 1, 2002, portions of certain
nonfinancial equity investments) (the "Leverage Ratio") of 3% for bank holding
companies that meet specified criteria, including having the highest regulatory
rating. All other bank holding companies must maintain a Leverage Ratio of 4% to
5%. The guidelines further provide that bank holding companies making
acquisitions will be expected to maintain strong capital positions substantially
above the minimum supervisory levels.

                                       18
<PAGE>

        BKI is subject to similar capital requirements, and such capital
requirements are imposed and enforced by the FDIC.

        The following table sets forth the Tier 1 Risk-Based Ratio, Total
Risk-Based Ratio and Leverage Ratio for BKFC and BKI at December 31, 2001:

<TABLE>
<CAPTION>
                                                                            At December 31, 2001
                                                          ----------------------------------------------
                                                                 BKFC                         BKI
                                                          --------------------        ------------------
                                                           Amount      Percent         Amount    Percent
                                                          --------    --------        --------   -------
                                                                            (Dollars in thousands)
                  <S>                                      <C>        <C>             <C>        <C>
                  Tier 1 risk-based                        $ 51,317    10.46%         $ 48,606    10.62%
                  Requirement                                19,125     4.00            18,313     4.00
                                                           --------   ------          --------    -----
                  Excess                                   $ 32,192     6.46%         $ 30,293     6.62%
                                                           ========   ======          ========    =====

                  Total risk-based                         $ 55,561    12.12%         $ 52,850    11.54%
                  Requirement                                36,671     8.00            36,625     8.00
                                                           --------   ------          --------    -----
                  Excess                                   $ 18,890     4.12%         $ 16,225     3.54%
                                                           ========   ======          ========    =====

                  Leverage ratio                           $ 51,317    10.46%         $ 48,606     9.91%
                  Requirement                                19,125     4.00            19,625     4.00
                                                          ---------   ------          --------    -----
                  Excess                                  $ 32,192      6.46%         $ 28,981     5.91%
                                                          ========    ======          ========    =====
</TABLE>

        The FDIC may require an increase in a bank's risk-based capital
requirements on an individualized basis to address the bank's exposure to a
decline in the economic value of its capital due to a change in interest rates.

        The FDIC has adopted regulations governing prompt corrective action to
resolve the problems of capital deficient and otherwise troubled banks under its
regulation. At each successively lower defined capital category, an institution
is subject to more restrictive and numerous mandatory or discretionary
regulatory actions or limits, and the FDIC has less flexibility in determining
how to resolve the problems of the institution. The FDIC generally can downgrade
an institution's capital category, notwithstanding its capital level, if, after
notice and opportunity for hearing, the institution is deemed to be engaging in
an unsafe or unsound practice because it has not corrected deficiencies that
resulted in it receiving a less than satisfactory examination rating on matters
other than capital or it is deemed to be in an unsafe or unsound condition. An
undercapitalized institution must submit a capital restoration plan to the FDIC
within 45 days after it becomes undercapitalized. Such institution will be
subject to increased monitoring and asset growth restrictions and will be
required to obtain prior approval for acquisitions, branching and engaging in
new lines of business. Furthermore, critically undercapitalized institutions
must be placed in conservatorship or receivership within 90 days of reaching
that capitalization level, except under limited circumstances. BKI's capital
levels at December 31, 2001, meet the standards for the highest level, a
"well-capitalized" institution.

        Federal law prohibits a financial institution from making a capital
distribution to anyone or paying management fees to any person having control of
the institution if, after such distribution or payment, the institution would be
undercapitalized. In addition, each holding company controlling an
undercapitalized institution must guarantee that the institution will comply
with its capital restoration plan until the institution has been adequately
capitalized on an average during each of the four preceding calendar quarters
and must provide adequate assurances of performance. The aggregate liability
pursuant to such guarantee is limited to the lesser of (a) an amount equal to 5%
of the institution's total assets at the time it became undercapitalized or (b)
the amount necessary to bring the institution into compliance with all capital
standards applicable to such institution at the time the institution fails to
comply with its capital restoration plan.

                                       19
<PAGE>

Dividend Restrictions

     The ability of BKFC to pay cash dividends to its stockholders depends on
the amount of dividends that may be declared and paid by BKI. There are a number
of statutory and regulatory requirements applicable to the payment of dividends
by banks and bank holding companies.

     If the FRB or the FDIC, respectively, determines that a bank holding
company or a bank is engaged in or is about to engage in an unsafe or unsound
practice (which, depending on the financial condition of the entity, could
include the payment of dividends), that regulator may require, after notice and
hearing, that such bank holding company or bank cease and desist from such
practice. In addition, 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 BKFC
and BKI can pay as dividends.

     At December 31, 2001, BKI had capital in excess of the FDIC's most
restrictive minimum capital requirements in an amount equal to $7 million from
which dividends could be paid, subject to the FDIC's general safety and
soundness review. In 2001 BKFC paid a cash dividend of $0.10 per share totaling
$609,000.

     FDIC Deposit Insurance and Assessments. The FDIC is an independent federal
agency that insures the deposits, up to prescribed statutory limits, of
federally insured banks and thrifts and safeguards the safety and soundness of
the banking and thrift industries. The FDIC administers two separate insurance
funds, the BIF for commercial banks and state savings banks and the SAIF for
savings associations and SAIF deposits acquired by banks. The FDIC is required
to maintain designated levels of reserves in each fund.

     The deposits of Burnett and FTSB obtained by BKI in the mergers, which at
December 31, 2001 was $101 million, including the attributed growth factor,
remain insured by the SAIF. BKI is a member of the BIF, and, at December 31,
2001, it had $315 million in deposits insured in the BIF.

     The FDIC is authorized to establish separate annual assessment rates for
deposit insurance each for members of the BIF and the SAIF. The FDIC may
increase assessment rates for either fund if necessary to restore the fund's
ratio of reserves to insured deposits to its target level within a reasonable
time and may decrease such rates if such target level has been met. The FDIC has
established a risk-based assessment system for both SAIF and BIF members. Under
this system, assessments vary based on the risk the institution poses to its
deposit insurance fund. The risk level is determined based on the institution's
capital level and the FDIC's level of supervisory concern about the institution.

FRB Reserve Requirements

     FRB regulations currently require banks to maintain reserves of 3% of net
transaction accounts (primarily demand and NOW accounts) up to $41.3 million of
such accounts (subject to an exemption of up to $5.7 million), and of 10% of net
transaction accounts in excess of $41.3 million. At December 31, 2001, BKI was
in compliance with this reserve requirement.

Acquisitions of Control

     Acquisitions of controlling interests of BKFC and BKI are subject to
limitations in federal and state laws. These limits generally require regulatory
approval of acquisitions of specified levels of stock of any of these entities.
Acquisitions of BKFC or BKI by merger also require regulatory approval.

Federal Home Loan Banks

     The Federal Home Loan Banks provide credit to their members in the form of
advances. BKI is a member of the FHLB and must maintain an investment in the
capital stock of the FHLB in an amount equal to the greater of 1.0% of the
aggregate outstanding principal amount of BKI's residential mortgage loans, home
purchase contracts and similar obligations at the beginning of each year, or 5%
of its advances from the FHLB. BKI is in compliance with this requirement with
an investment in stock of the FHLB of $3,591,000 at December 31, 2001.
Generally, the FHLB is not permitted to make new advances to a member without
positive tangible capital.

                                       20
<PAGE>

Federal Taxation

     BKFC. BKFC and BKI file a consolidated federal income tax return on a
calendar year basis. BKFC is subject to the federal tax laws and regulations
that apply to corporations generally.

     BKI. With certain exceptions, BKI is subject to the federal tax laws and
regulations that apply to corporations generally. One such exception permits a
bank (other than a bank which has assets the total average adjusted bases of
which exceed $500 million or, if the bank is a member of a consolidated group,
the total average adjusted bases of all assets of the group exceed $500 million)
to deduct a reasonable addition to the reserve for bad debts in lieu of any
deduction for bad debts allowable to other corporations. The deduction addition
that a bank may make to its reserve may be based on either the experience method
or the base year method.

     The amount determined under the experience method for a tax year is the
amount necessary to increase the balance of the reserve for losses on loans at
the end of the year to the amount that bears the same ratio to loans outstanding
at the close of the tax year as (a) the total charge-offs sustained during the
tax year and the five preceding tax years, adjusted for recoveries of bad debts
during the year, bear to (b) the sum of the loans (as determined by the
applicable tax law) outstanding at the close of such six tax years. The amount
determined under the base year method for the tax year is the amount necessary
to increase the balance of the reserve for losses on loans at the end of the tax
year to the amount of the bad debt reserve established for the first taxable
year beginning before 1988.

Kentucky Taxation

     BKI. State banks are not subject to the Kentucky corporation income tax.

     In 1996 the Kentucky legislature passed legislation to replace the "Bank
Shares Tax" with the "Local Deposits Franchise Tax" and the "Kentucky Bank
Franchise Tax". The "Kentucky Bank Franchise Tax" is an annual tax equal to 1.1%
of net capital after apportionment if applicable. The value of net capital is
calculated annually by deducting from total capital an amount equal to the same
percentage of the total as the book value of United States obligations bears to
the book value of the total assets of the financial institution. The "Local
Deposits Franchise Tax" is an annual tax of up to .025% imposed by each city and
county on bank deposits within their jurisdictions.

     The Kentucky property tax extends to bank deposits ("Deposits Tax"). The
tax is levied at a rate of 0.001% of the amount of the deposits. It is the
responsibility of the bank, not the depositor, to report and pay the Deposits
Tax.

     State banks are subject to state and local ad valorem taxes on tangible
personal property and real property that is not otherwise exempt from taxation.
The rates of taxation for tangible personal property vary depending on the
character of the property. The state rate of taxation on real property equals
$0.315 per $100 of value as of January 1 each year.

     BKFC. Kentucky corporations, such as BKFC, are subject to the Kentucky
corporation income tax and the Kentucky corporation license (franchise) tax. The
income tax is imposed based on the following rates: 4% of the first $25,000 of
taxable net income allocated or apportioned to Kentucky; 5% of the next $25,000;
6% of the next $50,000; 7% of the next $150,000; and 8.25% of taxable net income
over $250,000. All dividend income received by a corporation is excluded for
purposes of arriving at taxable net income.

     The license (franchise) tax is equal to $2.10 per $1,000 of total capital
employed in the business. A corporation with gross income of not more than
$500,000 is entitled to a credit equal to $1.40 per $1,000 of the initial
$350,000 of capital employed in the business and apportioned to Kentucky.
"Capital" means capital stock, surplus, advances by affiliated companies,
intercompany accounts, borrowed moneys or any other accounts representing
additional capital used and employed in the business. Total capital used in the
business is apportioned to Kentucky according to a uniform apportionment
formula.

     A corporation's taxable "capital" generally includes its stock holdings in
other corporations. However, a Kentucky-domiciled corporation holding directly
or indirectly stock or securities in other corporations equal to or greater than
50% of its total assets may, at the corporation's option, be considered as one
taxpayer for purposes of determining and apportioning total capital, or it may
compute its capital by: (a) computing the total capital used in the business;
and (b) deducting the book

                                       21
<PAGE>

value of its investment in the stock and securities of any corporation in which
it owns more than 50% of the outstanding stock. The term "book value" means the
value as shown on financial statements prepared for book purposes as of the last
day of the corporation's calendar or fiscal year. Thus, in calculating its
taxable "capital" for Kentucky license (franchise) tax purposes, BKFC will be
able to deduct the book value of its investments in the stock of its wholly
owned subsidiaries, i.e., BKI.
                    ----

     Domestic corporations are subject to state and local ad valorem taxes on
tangible personal property and real property that is not otherwise exempt from
taxation. The rates of taxation for tangible personal property vary depending on
the character of the property. The state rate of taxation on real property
equals $0.315 per $100 of value as of January 1 each year. Thus, BKFC is subject
to ad valorem taxation on its taxable tangible personal property and real
property.

     BKI, as a financial institution, is exempt from both the corporate income
and license taxes.

Item 2.  Properties

     The following table sets forth certain information at December 31, 2001,
regarding properties on which the offices of BKI are located:

<TABLE>
<CAPTION>
Location                            Owned or leased        Date acquired       Square footage      Net book value(1)
--------                            ---------------        -------------       --------------      --------------
<S>                                 <C>                    <C>                 <C>                 <C>
Main Office                             Leased                   1991                12,300                    -
1065 Burlington Pike
Florence, KY

Weaver Road Operations                  Leased                   1992                 3,000                    -
Center  (2)
166 Weaver Road
Florence, KY

Independence Branch                     Leased                   1995                   750                    -
Industrial Road and Turkeyfoot
Independence, KY

Belleview Branch                        Leased                   1992                 1,000                    -
6710 McVille Road
Burlington, KY

Houston Road Branch                     Leased                   1994                 2,600                    -
4748 Houston Road
Florence, KY

Walton Branch                            Owned                   1994                 2,100             $634,000
116 Stephenson Mill Road              (No liens)
Walton, KY

19/th/ and Madison Branch(3)             Owned                   1998                 2,300             $459,000
1831 Madison Avenue                   (No liens)
Covington, KY

Nicholson Branch                        Leased                   1997                 1,600                    -
12020 Madison Pike
Independence, KY

Erlanger Branch                         Leased                   1997                 2,000                    -
3133 Dixie Hwy
Erlanger, KY

U S 42 Branch                           Leased                   1997                 2,800                    -
8660 Haines Drive
Florence, KY
</TABLE>

                                       22
<PAGE>

<TABLE>
<S>                                 <C>                    <C>                 <C>                 <C>
Mt. Zion Branch (4)                      Owned                   1998                 2,800           $1,062,000
330 Mt. Zion Road
Florence, KY

Dry Ridge Wal-Mart                      Leased                   1999                   600                    -
20 Ferguson Boulevard
Dry Ridge, KY

Covington Branch                        Leased                   1999                 4,000                    -
230 Scott Street
Covington, KY

Dry Ridge Branch                         Owned                   2000                 2,800           $1,092,000
12 Taft Highway
Dry Ridge, KY

Ft. Thomas Branch                        Owned                   2000                 3,336           $  114,000
25 N. Ft. Thomas Avenue
Ft. Thomas, KY

Alexandria Branch                        Owned                   2000                 3,000           $  254,000
7612 Alexandria Pike
Alexandria, KY

Dayton Branch                           Leased                   2001                   700                    -
118 6/th/ Street
Dayton, OH

Newport Branch                          Leased                   2001                   700                    -
82 Carothers Road
Newport, KY 41071
</TABLE>

___________________________

(1)   Net book value amounts are for land, buildings and improvements.
(2)   The Weaver Road branch was relocated to Mt. Zion Road and the Weaver Road
      branch was converted to an operations center.
(3)   The Covington branch was vacated and relocated to 19th Street and Madison
      Avenue.
(4)   Relocation of the Weaver Road Branch to Mt. Zion Road.

     BKI leases the Main Office, Weaver Road, Belleview, Nicholson, U.S. 42, and
Houston Road branches under operating lease agreements with some of its
directors and/or their family members. See Part III, Item 12 - "Certain
Relationships and Related Transactions." Total rental expense under these
operating lease agreements was $462,000 and $426,000 for the years ended
December 31, 2001 and 2000, respectively. BKI believes all of its office
locations are adequately insured.

     BKI also owns furniture, fixtures and various bookkeeping and accounting
equipment. The net book value of BKI's investment in office premises and
equipment totaled $6.1 million at December 31, 2001.

Item 3.  Legal Proceedings

     Neither BKFC nor BKI is presently involved in any legal proceedings of a
material nature. From time to time, BKI is a party to legal proceedings
incidental to its business to enforce its security interest in collateral
pledged to secure loans made by BKI.

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

     There were no matters submitted to a vote of stockholders of BKFC during
the last quarter of the fiscal year ended December 31, 2001.

                                       23
<PAGE>

Stockholder Services

Firstar Corporation serves as transfer agent for The Bank of Kentucky Financial
Corporation's shares. Communications regarding change of address, transfer of
shares, lost certificates, and dividends should be sent to:

                                    Firstar
                          Corporate Trust Department
                        425 Walnut Street (6/th/ Floor)
                             Cincinnati, OH 45202

Legal Counsel

The Bank of Kentucky Financial Corporation's legal counsel is:

                           Ziegler & Schneider, PSC
                              541 Buttermilk Pike
                              Covington, KY 41017

Annual Meeting

The Annual Meeting of Stockholders of The Bank of Kentucky Financial Corporation
will be held on April 19, 2002, at 5:00 p.m., local time, at Triple Crown
Country Club, One Triple Crown Blvd., Union, KY 41091.

Annual Report On Form 10-K

A copy of The Bank of Kentucky Financial Corporation's Annual Report on Form 10-
K for fiscal year 2001, as filed with the Securities and Exchange Commission,
will be available at no charge to stockholders upon request to:

                             The Bank of Kentucky
                                 P.O. Box 577
                            Florence, KY 41022-0577
                       Attention:  Senior Vice President

Market Price of the Company's Common Stock and Dividends Declared

There were 5,994,595 shares of common stock of the Company outstanding on
December 31, 2001, which were held of record by 1,052 shareholders. The Board of
Directors declared cash dividends of $.04 per share in March 1999, $.04 per
share in March 2000 and $.04 per share in September 2000, $.05 per share in
March 2001 and $.05 per share in September 2001. There is no established public
trading market for the Company's stock, although information about the Company's
stock is posted on the OTC Bulletin Board service under the symbol "BKYF". The
price paid in the last transaction known to management before the printing of
this Report was $20.50. The following brokerage firms trade the Company's common
stock:

<TABLE>
     <S>                          <C>                                          <C>
       Gradison/McDonald              Morgan Keegan & Co. Incorporated           Robert W. Baird & Co. Incorporated
       580 Walnut Street          100 East Rivercenter Boulevard, Ste. 400               9449 Kenwood Road
     Cincinnati, OH 45202                    Covington, KY 41011                       Cincinnati, OH 45242
         Jim Williams                             John Ryan                                 John Adams
        (513) 579-5000                          (859) 392-2948                            1-888-784-4856
</TABLE>

                                      24
<PAGE>

                            SELECTED FINANCIAL DATA

The following is a summary of selected consolidated financial data for The Bank
of Kentucky Financial Corporation for the five years ended December 31, 2001.
The summary should be read in conjunction with the Financial Statements and
Notes to Consolidated Financial Statements.

<TABLE>
<CAPTION>
(Dollars In Thousands                                          For Year Ended December 31/st/
Except Per Share Amounts) (a)                         2001       2000       1999       1998       1997
                                                   ------------------------------------------------------
<S>                                                <C>        <C>        <C>        <C>        <C>
Earnings:
Total Interest Income                              $ 36,083   $ 36,247   $ 30,741   $ 28,805   $ 25,217
Total Interest Expense                               17,415     19,015     14,972     14,371     12,456
                                                   --------   --------   --------   --------   --------
  Net Interest Income                                18,668     17,232     15,769     14,434     12,761
Provision for Loan Losses                               781      1,143        687        870        489
Noninterest Income                                    4,346      2,850      2,571      2,581      1,581
Noninterest Expense                                  11,854     12,747      9,634      8,600      7,615
                                                   --------   --------   --------   --------   --------
  Income Before Income Taxes                         10,379      6,192      8,019      7,545      6,238
Federal Income Taxes                                  3,310      1,979      2,285      2,490      2,082
                                                   --------   --------   --------   --------   --------
  Net Income                                       $  7,069   $  4,213   $  5,734   $  5,055   $  4,156
                                                   ========   ========   ========   ========   ========
Per Common Share Data:
Basic Earnings                                     $   1.16   $   0.69   $   0.94   $   0.83   $   0.62
Diluted Earnings                                       1.15       0.68       0.93       0.83       0.62
Dividends Paid (b)                                     0.10       0.08       0.04       0.03       0.03
Balances at December 31:
Total Investment Securities                        $ 52,298   $ 52,373   $ 56,803   $ 52,079   $ 36,362
Total Loans                                         411,472    384,081    333,449    301,334    270,422
Allowance for Loan Losses                             4,244      3,806      3,257      2,897      2,554
Total Assets                                        507,262    470,129    422,259    384,378    328,722
Noninterest Bearing Deposits                         55,763     52,253     49,678     39,916     31,638
Interest Bearing Deposits                           360,420    341,468    293,910    280,793    239,427
Total Deposits                                      416,183    393,721    343,588    320,709    271,065
Total Shareholders' Equity                           51,521     47,777     42,584     37,161     36,113
Other Statistical Information:
Return on Average Assets                               1.48%      0.95%      1.45%      1.43%      1.37%
Return on Average Equity                              14.05%      9.63%     14.56%     13.08%     12.20%
Dividend Payout Ratio (b)                              8.62%     11.59%      4.26%      3.61%      4.84%
Capital Ratios at December 31:
Total Equity to Total Assets                          10.16%     10.16%     10.08%      9.67%     10.99%
Tier 1 Leverage Ratio                                  9.91%     10.12%     10.73%     10.50%     10.77%
Tier 1 Capital to Risk-Weighted Assets                10.62%     11.39%     12.25%     13.67%     14.53%
Total Risk-Based Capital to Risk-Weighted Assets      11.54%     12.32%     13.19%     14.74%     15.59%
Loan Quality Ratios at December 31:
Allowance for Loan Losses
  To Total Loans                                       1.02%      0.99%      0.98%      0.96%      0.94%
Allowance for Loan  Losses
  To Nonperforming Loans                             136.33%     76.29%     92.19%     73.47%    119.23%
Net Charge-Offs to Average Net Loans                   0.09%      0.15%      0.10%      0.18%      0.02%
-------------------------------------------------------------------------------------------------------
</TABLE>

     (a)  Financial Data reflects a combination accounted for as a pooling of
          interest. See Managements Discussion and Analysis of Financial
          Condition and The Results of Operation-General.
     (b)  Dividends per share are the Company's historical dividends.

                                      25
<PAGE>

          Management's Discussion and Analysis of Financial Condition
                         And the Results of Operations
                               December 31, 2001

                                    GENERAL

The business of The Bank of Kentucky Financial Corporation (BKFC or the
Corporation) consists of holding and administering its interest in The Bank of
Kentucky, Inc. (the Bank).  BKFC conducts basic banking operations from
locations in Boone, Kenton, Campbell, and Grant Counties in Northern Kentucky.
The majority of the Corporation's revenue is derived from its loan portfolio.
The loan portfolio is diversified and the ability of debtors to repay their
loans is not dependent upon any single industry.  Commercial or residential real
estate or other business and consumer assets secure the majority of BKFC's
loans.

On June 14, 2000, BKFC consummated the acquisition of the Fort Thomas Financial
Corporation (FTFC) and its wholly owned subsidiary, the Fort Thomas Savings Bank
(FTSB).  FTFC was merged with and into BKFC and FTSB was merged with and into
the Bank.  The combination was accounted for as a pooling of interests and the
historical financial position and results of operations of the two companies
have been combined for financial reporting purposes.  FTFC reported its results
on a September 30 fiscal year basis.  For years prior to 2000, these financial
statements combine the historical financial position of FTFC as of September 30
with the historical financial position of the Company as of December 31 and
combine FTFC's results of operations for the years ended September 30 with the
Company's results of operations for the years ended December 31.  Dividends per
share are the Company's historical dividends.

                              FINANCIAL CONDITION

Total assets at December 31, 2001 were $507,262,000 compared to $470,129,000 at
December 31, 2000, an increase of $37,133,000 (7.9%).  This increase was
primarily due to a $26,952,000 (7.1%) increase in net loans from $380,275,000 at
December 31, 2000 to $407,228,000 at December 31, 2001. The loan growth was
fueled by a $28,598,000 (121.3%) increase in construction loans from $23,586,000
at December 31, 2000 to $52,184,000 at December 31, 2001. This was partially
offset by a decrease in residential loans outstanding of $8,519,000 (5.7%) from
$150,222,000 at December 31, 2000 to $141,703,000 at December 31, 2001. The
decrease in residential real estate loans was due to a large amount of
refinancing done in the secondary market.  At year end 2001, the Company had
$5,509,000 of loans held for sale.  These loans have been committed for sale,
service released and were delivered shortly after year end.  The asset growth
was funded by an increase in deposits of $22,462,000 (5.7%), from $393,721,000
at December 31, 2000 to $416,183,000 at December 31, 2001 and an increase in
short-term borrowings of $13,700,000 (108.4%), from $12,643,000 at December 31,
2000 to $26,343,000 at December 31, 2001.

                                      26
<PAGE>

                             RESULTS OF OPERATIONS

SUMMARY

Net income was $7,069,000 for the year ended December 31, 2001 compared to
$4,213,000 in 2000, an increase of $2,856,000 (67.8%).  Last year's earnings
reflect restructuring and merger related expenses incurred, which aggregated to
$1,500,000 net of taxes.  Net income for the year ended December 31, 2000
decreased $1,521,000 (26.5%) from the  $5,734,000 recorded in 1999, again due
primarily to the restructuring and merger expenses.   Absent those expenses, net
income for 2001 increased $1,356,000 (23.7%) and $1,335,000 (23.3%) over net
income for 2000 and 1999.

NET INTEREST INCOME

Net interest income grew to $18,668,000 in 2001, an increase of $1,436,000
(8.3%) over the $17,232,000 earned in 2000.  The increase was driven by volume,
with average earning assets and average interest-bearing liabilities growing by
7.5% and 8.7% respectively.  The net interest margin increased to 4.22% in 2001
from 4.19% in 2000 due to a 15.8% decrease in cost of funds compared to a 7.4%
decrease in yield on earning assets.  Net interest income in 2000 increased
$1,463,000 (9.3%) over the $15,769,000 earned in 1999.  The increase was also
driven by volume, with average earning assets and average interest-bearing
liabilities growing by 11.8% and 9.9%, respectively.  The impact of this growth
was partially offset by a decrease in the net interest margin to 4.19% for 2000
compared to 4.28% for 1999.

PROVISION FOR LOAN LOSSES

The provision for loan losses was $781,000 for the year ended December 31, 2001,
compared to $1,143,000 for 2000.  Last year's higher provision reflects the
increase in non performing loans following the acquisition of FTSB and
management's judgment that the allowance needed to be increased. The remainder
of the decrease was in response to lower net charge-offs during 2001.    Net
charge-offs for 2001 decreased to $343,000, compared to $524,000 in 2000.  Total
non-accrual loans and loans past due 90 days or more decreased to $3,153,000
(.77% of loans outstanding) at December 31, 2001 compared to $4,989,000 (1.30%
of loans outstanding) at year end 2000.  The provision for loan losses was
$1,143,000 for the year ended December 31, 2000, compared to $687,000 for 1999.
As discussed above, a portion of that increase  can be attributed to increasing
FTSB's allowance to the level determined to be needed by Bank management.  The
remainder of the increase was in response to higher net charge-offs and to
maintain the allowance at the level indicated as needed by management's
quarterly analysis.  Net charge-offs for 2000 increased to $524,000, compared to
$327,000 in 1999.  Total non-accrual loans and loans past due 90 days or more
increased to $4,989,000 (1.30% of loans outstanding) at December 31, 2000,
compared to $3,533,000 (1.06% of loans outstanding) at December 31, 1999.

The allowance is maintained at an amount management believes sufficient to
absorb probable incurred losses in the loan portfolio.  Monitoring loan quality
and maintaining an adequate allowance is an ongoing process overseen by senior
management and the loan review function.  On at least a quarterly basis, a
formal analysis of the adequacy of the allowance is prepared and

                                      27
<PAGE>

reviewed by management and the Board of Directors. This analysis serves as a
point in time assessment of the level of the allowance and serves as a basis for
provisions for loan losses. The loan quality monitoring process includes
assigning loan grades and the use of a watch list to identify loans of concern.

The analysis of the allowance for loan losses includes the allocation of
specific amounts of the allowance to individual problem loans, generally based
on an analysis of the collateral securing those loans.  Portions of the
allowance are also allocated to loan portfolios, based upon a variety of
factors, including historical loss history experience, trends in the type and
volume of the loan portfolios, trends in delinquent and non-performing loans,
and economic trends affecting our market. These components are added together
and compared to the balance of our allowance at the evaluation date.

NONINTEREST INCOME

Total noninterest income increased by $1,496,000 (52.5%) to $4,346,000 for 2001,
compared to $2,850,000 for 2000.   Interest rate decreases fueled mortgage
refinancing activity and increased gains on sales of real estate loans in the
secondary market.  These gains increased  $768,000 (310.8%) to $1,015,000 in
2001, compared to $247,000 for 2000.  This income results from the sale, service
released, of fixed-rate residential real estate mortgage loans. During 2001, the
principal balance of loans originated for sale significantly increased due to
the low rate environment to $89.6 million, compared to $18.7 million in 2000.
Service charges on deposits increased $345,000 (21.4%) to $1,959,000 for 2001,
compared to $1,614,000 for 2000.  This was due to both an increase in the
service charge assessed on deposit accounts and an increase in the number of
accounts.  Trust fee income, part of other noninterest income, increased
$115,000 (565.5%) to $135,000 for 2001, compared to $20,000 for 2000. This was
the first full year of operations for the trust department, which was started in
the first quarter of 2000.  Gains from the sale of investments were $93,000 in
2001, compared to $0 for 2000.  Other fees increased $170,000 (17.5%) to
$1,144,000 for 2001, compared to $974,000 for 2000.  Increases in debit card
interchange fees and letter of credit fees accounted for $102,000 of the
increase.

Total noninterest income increased $279,000 (10.9%) to $2,850,000 for 2000,
compared to $2,571,000 for 1999.  Service charges on deposits increased to
$203,000 (14.4%) to $1,614,000 for 2000, compared to $1,411,000 for 1999. This
was due to both an increase in the service charge assessed on deposit accounts
and an increase in the number of accounts.  Increases in service charges on
deposits and other non-interest income were offset by a decrease in gains on the
sales of loans in the secondary market.  Interest rate increases slowed mortgage
refinancing activity and adversely affected gains on sales of real estate loans
in the secondary market with a decrease of $132,000 (34.8%) to $247,000 in 2000,
compared to $379,000 for 1999.   Other fees increased $208,000 (26.6%) to
$989,000 for 2000, compared to $781,000 for 1999.  Increases in debit card fees
and ATM surcharge fees accounted for $153,000 of the increase, partially offset
by a $19,000 decrease in fees from the sale of SBA loans.

NONINTEREST EXPENSE

Noninterest expense decreased $893,000 (7.0%) to $11,854,000 for 2001, compared
to $12,747,000 in 2000.  Most of the decrease was related to last years
restructuring and merger and

                                      28
<PAGE>

acquisition expenses related to the Fort Thomas acquisition of $1,993,000. This
was partially offset by a $460,000 increase in salaries and employee benefits to
$5,475,000 for 2001, compared to $5,015,000 for 2000. The increase in salaries
and employee benefits was due to increased staffing associated with two
additional branch locations opened in 2001 and annual merit increases. Computer
service expense increased $142,000 to $857,000 for 2001, compared to $715,000
for 2000. The increase was due to data processing associated with trust
processing and increased data communication expense associated with the
upgrading of data communication links between the main office and the branches.
Other operating expenses increased $441,000 (14.3%) to $3,521,000 for 2001,
compared to $3,080,000 for 2000. Bank shares tax and deposit tax accounted for
$174,000 of the increase. ATM expenses increased $148,000 due to two additional
machines and a large increase in the rates to service the machines. Advertising
expense increased $62,000 in 2001 due to a more aggressive marketing campaign
and the opening of two new branches.

Noninterest expense increased $3,113,000 (32.3%) to $12,747,000 for 2000,
compared to $9,634,000 in 1999. Two-thirds of the increase was due to
restructuring and merger and acquisition expenses related to the Fort Thomas
acquisition.   Occupancy and equipment expense, driven by additional locations
and technology investments, increased $210,000 (12.1%) to $1,944,000 for 2000,
compared to $1,734,000 in 1999.  Higher rental expense associated with one new
branch opening in the fourth quarter and rental increases at existing branch
locations accounted for $101,000 (48.1%) of the increase.  Depreciation
expenses, both leasehold and bank building, associated with the new branch
locations accounted for  $33,000 (15.8%) of the increase.  The Bank continued to
upgrade and replace personal computers and software, which resulted in higher
equipment depreciation expense which generated $84,000 (40.0%) of the increase.
Salary and benefit expense for 2000 was $5,015,000 compared to $4,705,000 for
1999, an increase of $310,000 (6.6%).  Staffing expenses associated with the
opening of two new branches and annual merit increases accounted for most of the
increase.   Other operating expenses increased $537,000 (21.1%) to $3,080,000
for 2000, compared to $2,543,000 for 1999.  ATM expenses accounted for $107,000
(19.9%) of the increase resulting from the expansion of the ATM network.
Checkbook expenses accounted for $53,000 (9.9%) of the increase due to reissue
of checks as a result of the merger. Donation expenses increased $60,000
(260.9%) to $83,000 for 2000, compared to  $23,000 for 1999.


TAX EXPENSE

Federal income tax expense increased $1,331,000 (67.3%) to $3,310,000 for 2001
compared to $1,979,000 for 2000, due primarily to an increase in earnings. The
effective tax rate remained 32.0% for 2001.

Federal income tax expense decreased $306,000 (13.4%) to $1,979,000 for 2000
compared to $2,285,000 for 1999, due primarily to a decrease in earnings
partially offset by a higher effective tax rate of 32.0% for 2000 compared to
28.5% for 1999.  The higher effective tax rate was due to non-deductible merger
and acquisition expenses of $543,000 and not having the $287,000 tax credit
received in 1999 for the restoration of a historic building for a branch site in
the inner city.

                                      29
<PAGE>

ASSET/LIABILITY MANAGEMENT AND MARKET RISK

Market risk is the risk of loss arising from adverse changes in the fair value
of financial instruments due to interest rate risk, exchange rate risk, equity
price risk and commodity price risk.  The Bank does not maintain a trading
account for any class of financial instrument and is not currently subject to
foreign currency exchange rate risk, equity price risk or commodity price risk.
The Bank's market risk is composed primarily of interest rate risk.

BKFC engages in a formal process of measuring and defining the amount of
interest rate risk it assumes.  Interest rate risk is the potential for economic
losses due to future interest rate changes. These economic losses can be
reflected as a loss of future net interest income and /or a decline in fair
market values. Interest rate risk results from the fact that the interest
sensitive assets and liabilities can adjust their rates at different times and
by different amounts.  The goal of asset/liability management is to maintain a
high, yet stable, net interest margin and to manage the effect that changes in
market interest rates will have on net interest income.  A common measure of
interest rate risk is interest rate "gap" measurement.  The gap is the
difference, in dollars, between the amount of interest-earning assets and
interest-bearing liabilities that will reprice within a certain time frame.
Repricing can occur when an asset or liability matures or, if an adjustable rate
instrument, when it can be adjusted.  Typically, the measurement will focus on
the interest rate gap position over the next twelve months.  An institution is
said to have a negative gap position when more interest-bearing liabilities
reprice within a certain period than do interest-earning assets.  Interest rate
gap is considered an indicator of the effect that changing rates may have on net
interest income.  Generally, an institution with a negative gap will benefit
from declining market interest rates and be negatively impacted by rising
interest rates.

At December 31, 2001, BKFC's twelve-month interest rate gap position was
negative.  Over the succeeding twelve months, interest rate sensitive
liabilities exceed interest rate sensitive assets by $93,528,000 (20.2% of
interest earning assets).  At December 31, 2000 the one-year interest rate gap
was negative $62,713,000 (14.5% of interest earning assets). An assumption
contributing to this result is that all NOW and savings accounts can be changed
within one year if market rates change. These instruments are not tied to
specific indices and are only influenced by market conditions and other factors.
Accordingly, a general movement in interest rates may not have any immediate
effect on the rates paid on those deposit accounts.  BKFC's asset/liability
management policy establishes guidelines governing the amount of interest rate
risk the Corporation wishes to assume, and management continually monitors
BKFC's gap position and other key indicators.

                                      30
<PAGE>

   The table below provides information about the quantitative market risk of
   interest sensitive instruments at December 31, 2001 (dollars in thousands)
   and shows the contractually projected maturities, and related average
   interest rates, for each of the next five years and thereafter:

<TABLE>
<CAPTION>
Maturing in:                              2002     2003     2004     2005     2006   Thereafter     Total   Fair Value
                                       ---------------------------------------------------------------------------------
<S>                                    <C>        <C>      <C>     <C>       <C>     <C>          <C>       <C>
Assets

  Fixed Securities                       9,596    5,648    5,321   15,140   12,683        6,391    54,779       55,113

  Average Interest Rate                   3.98%    4.56%    5.14%    4.72%    5.62%        5.30%     4.89%

  FHLB Stock                             3,590        -        -        -        -            -     3,590        3,590

  Average Interest Rate                   6.70%       -        -        -        -            -         -            -

  Fixed Rate Loans                      25,219    7,529    6,267    6,841    4,773          118    50,747       52,125

  Average Interest Rate                   8.42%    8.61%    8.09%    8.69%    8.94%       16.15%        -            -

  Variable Rate Loans                  231,271   37,202   68,293   25,151       19        1,595   363,531      369,796

  Average Interest Rate                   6.37%    8.51%    7.22%    7.39%    5.50%        9.84%        -            -

Liabilities

  Savings, NOW, MMA                    192,658        -        -        -        -            -   192,658      192,658

  Average Interest Rate                   1.77%       -        -        -        -            -         -            -

  CD's and IRA's                       139,543   19,655    3,797    3,120    1,544          103   167,762      170,521

  Average Interest Rate                   5.13%    4.66%    5.40%    5.84%    5.99%        6.08%        -            -

  Borrowings                            26,343        -        -        -        -            -    26,343       26,343

  Average Interest Rate                   1.94%       -        -        -        -            -         -            -

  Notes Payable                              -        -        -        -        -        9,449     9,449        9,696

  Average Interest Rate                      -        -        -        -        -         4.17%        -            -
</TABLE>

                                      31
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

Liquidity refers to the availability of funds to meet deposit withdrawals, fund
loan commitments and pay expenses.  During 2001, BKFC funded its loan growth
with deposits and short-term borrowings.  At December 31, 2001, BKFC's customers
have available $82,269,000 in unused lines and letters of credit, and BKFC has
further extended loan commitments totaling $14,512,000.  Historically many such
commitments have expired without being drawn and, accordingly, do not represent
future cash commitments.

If needed, BKFC has the ability to borrow term and overnight funds from the
Federal Home Loan Bank or other financial intermediaries.  Further, BKFC has
$35,164,000 of securities designated as available-for-sale and an additional
$5,568,000 of held-to-maturity securities that mature within one year that can
serve as sources of funds.  Management is satisfied that BKFC's liquidity is
sufficient at December 31, 2001 to meet known and potential obligations.

Both BKFC and the Bank are required to comply with capital requirements
promulgated by their primary regulators.  These regulations and other regulatory
requirements limit the amount of dividends that may be paid by the Bank to BKFC
and by BKFC to its shareholders.  In 2001 BKFC paid cash dividends of $.10 per
share totaling $609,000.

The FDIC has issued regulations that relate a bank's deposit insurance
assessment and certain aspects of its operations to specified capital levels.  A
"well-capitalized" bank, one with a leverage ratio of 5% or more and a total
risk-based capital ratio of 10% or more, and no particular areas of supervisory
concern, pays the lowest premium and is subject to the fewest restrictions.  The
Bank's capital levels and ratios well exceed the regulatory definitions of well-
capitalized institutions. At December 31, 2001 BKFC's leverage and total risk-
based capital ratios were 10.5% and 12.1%, respectively, which exceed all
required ratios established for bank holding companies.

                                      32
<PAGE>

                             THE BANK OF KENTUCKY
                             FINANCIAL CORPORATION

                             FINANCIAL STATEMENTS
                       December 31, 2001, 2000 and 1999

                                      33
<PAGE>

                  THE BANK OF KENTUCKY FINANCIAL CORPORATION
                              Florence, Kentucky


                             FINANCIAL STATEMENTS
                       December 31, 2001, 2000 and 1999




                                   CONTENTS

<TABLE>
<S>                                                             <C>
REPORT OF INDEPENDENT AUDITORS.................................  35


CONSOLIDATED FINANCIAL STATEMENTS

 CONSOLIDATED BALANCE SHEETS...................................  37

 CONSOLIDATED STATEMENTS OF INCOME.............................  38

 CONSOLIDATED STATEMENTS OF CHANGES IN
   SHAREHOLDERS' EQUITY........................................  39

 CONSOLIDATED STATEMENTS OF CASH FLOWS.........................  40

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS....................  41
</TABLE>

                                      34
<PAGE>

                         REPORT OF INDEPENDENT AUDITORS



Board of Directors and Shareholders
The Bank of Kentucky Financial Corporation
Florence, Kentucky


We have audited the accompanying consolidated balance sheets of The Bank of
Kentucky Financial Corporation as of December 31, 2001 and 2000 and the related
consolidated statements of income, changes in shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 2001.  These
financial statements are the responsibility of the Company's management.  Our
responsibility is to express an opinion on these financial statements based on
our audits.

The consolidated statements of income, changes in shareholders' equity, and cash
flows for the year ended December 31, 1999 have been restated to reflect the
Fort Thomas Financial Corporation and The Bank of Kentucky Financial Corporation
pooling of interests, as described in Note 1.  We did not audit the separate
1999 financial statements of Fort Thomas Financial Corporation, which statements
reflect (in thousands) net income of $1,020 for 1999.  Those statements were
audited by other auditors whose reports have been furnished to us, and our
opinion, insofar as it relates to the amounts included for Fort Thomas Financial
Corporation for 1999, is based solely on the report of the other auditors.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America.  Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation.  We believe that our audits provide a
reasonable basis for our opinion.

--------------------------------------------------------------------------------

                                      35
<PAGE>

In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of The Bank of Kentucky Financial
Corporation as of December 31, 2001 and 2000, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
2001, in conformity with auditing standards generally accepted in the United
States of America.



                                    Crowe, Chizek and Company LLP

Indianapolis, Indiana
January 23, 2002

--------------------------------------------------------------------------------

                                      36
<PAGE>

                  THE BANK OF KENTUCKY FINANCIAL CORPORATION
                          CONSOLIDATED BALANCE SHEETS
                           December 31, 2001 and 2000
            (Dollar amounts in thousands, except per share amounts)

--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                2001      2000
                                                              --------  --------
<S>                                                           <C>       <C>
ASSETS
 Cash and due from banks                                      $ 24,225  $ 22,248
 Federal funds sold                                              2,481         -
                                                              --------  --------
   Total cash and cash equivalents                              26,706    22,248
 Available-for-sale securities                                  35,164    22,633
 Held-to-maturity securities
  (Fair value of $17,468 and $29,656)                           17,134    29,740
 Loans held for sale                                             5,509         -
 Loans, net of allowance ($4,244 and $3,806)                   407,228   380,275
 Premises and equipment - net                                    6,081     6,223
 Federal Home Loan Bank stock, at cost                           3,590     3,359
 Accrued interest receivable and other assets                    5,850     5,651
                                                              --------  --------

                                                              $507,262  $470,129
                                                              ========  ========

LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
 Deposits
   Non interest-bearing deposits                              $ 55,763  $ 52,253
   Interest-bearing deposits                                   360,420   341,468
                                                              --------  --------
    Total deposits                                             416,183   393,721
 Short-term borrowings                                          26,343    12,643
 Notes payable                                                   9,449    12,174
 Accrued expenses and other liabilities                          3,766     3,814
                                                              --------  --------
                                                               455,741   422,352

Shareholders' equity
 Common stock, no par value, 15,000,000 shares authorized,
  5,994,595 (2001) and 6,156,917 (2000) shares issued            3,098     3,098
 Additional paid-in capital                                     11,313    14,538
 Retained earnings                                              36,906    30,446
 Unearned compensation                                               -      (335)
 Accumulated other comprehensive income                            204        30
                                                              --------  --------
                                                                51,521    47,777
                                                              --------  --------

                                                              $507,262  $470,129
                                                              ========  ========
</TABLE>

--------------------------------------------------------------------------------

                            See accompanying notes.

                                      37
<PAGE>

                  THE BANK OF KENTUCKY FINANCIAL CORPORATION
                       CONSOLIDATED STATEMENTS OF INCOME
                  Years ended December 31, 2001, 2000 and 1999
            (Dollar amounts in thousands, except per share amounts)

--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                        2001      2000     1999
                                                       -------  -------  -------
<S>                                                    <C>      <C>      <C>
Interest income
  Loans, including related fees                        $32,773  $32,742  $27,437
  Securities
     Taxable                                             2,230    2,638    2,334
     Tax exempt                                            495      513      441
  Other                                                    585      354      529
                                                       -------  -------  -------
                                                        36,083   36,247   30,741
Interest expense
  Deposits                                              16,561   16,371   13,527
  Borrowings                                               854    2,644    1,445
                                                       -------  -------  -------
                                                        17,415   19,015   14,972
                                                       -------  -------  -------

Net interest income                                     18,668   17,232   15,769

Provision for loan losses                                  781    1,143      687
                                                       -------  -------  -------

Net interest income after provision for loan losses     17,887   16,089   15,082

Noninterest income
  Service charges and fees                               1,959    1,614    1,411
  Gain on sale of real estate loans                      1,015      247      379
  Gain on sale of securities                                93        -        -
  Other                                                  1,279      989      781
                                                       -------  -------  -------
                                                         4,346    2,850    2,571
Noninterest expense
  Salaries and employee benefits                         5,475    5,015    4,705
  Occupancy and equipment                                2,001    1,944    1,734
  Data processing                                          857      715      652
  Restructuring charges                                      -    1,450        -
  Merger and acquisition                                     -      543        -
  Other                                                  3,521    3,080    2,543
                                                       -------  -------  -------
                                                        11,854   12,747    9,634
                                                       -------  -------  -------

Income before income taxes                              10,379    6,192    8,019

Federal income taxes                                     3,310    1,979    2,285
                                                       -------  -------  -------

Net income                                             $ 7,069  $ 4,213  $ 5,734
                                                       =======  =======  =======

Per share data
  Earnings per share                                   $  1.16  $   .69  $   .94
                                                       =======  =======  =======
  Earnings per share, assuming dilution                $  1.15  $   .68  $   .93
                                                       =======  =======  =======
</TABLE>

--------------------------------------------------------------------------------

                            See accompanying notes.

                                      38
<PAGE>

                  THE BANK OF KENTUCKY FINANCIAL CORPORATION
                            CONSOLIDATED STATEMENTS
                      OF CHANGES IN SHAREHOLDERS' EQUITY
                 Years ended December 31, 2001, 2000 and 1999
            (Dollar amounts in thousands, except per share amounts)

--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                                            Accumulated
                                                                    Additional                                 Other
                                                            Common    Paid-in      Unearned     Retained   Comprehensive
                                                  Shares    Stock     Capital    Compensation   Earnings   Income (Loss)    Total
                                                ----------  ------  -----------  -------------  ---------  --------------  --------
<S>                                             <C>         <C>     <C>          <C>            <C>        <C>             <C>
Balance January 1, 1999                         4,060,068   $2,972  $   13,904   $     (1,048)  $ 21,305     $        28   $37,161
Comprehensive income
  Net income                                            -        -           -              -      5,734               -     5,734
  Change in net unrealized gain (loss), net
   of tax                                               -        -           -              -          -            (266)     (266)
                                                                                                                           -------
     Total comprehensive income                                                                                              5,468
Cash dividends - $.04 per share                         -        -           -              -       (580)              -      (580)
Stock split                                     2,030,025        -           -              -          -               -         -
Exercise of stock options                          14,685      126         111              -          -               -       237
Benefit plan amortization                               -        -          65            233          -               -       298
                                               ----------   ------  ----------   ------------   --------     -----------   -------
Balance December 31, 1999                       6,104,778    3,098      14,080           (815)    26,459            (238)   42,584
Comprehensive income
  Net income                                            -        -           -              -      4,213               -     4,213
  Change in net unrealized gain (loss), net
   of tax                                               -        -           -              -          -             268       268
                                                                                                                           -------
     Total comprehensive income                                                                                              4,481
Cash dividends - $.08 per share                         -        -           -              -       (458)              -      (458)
Benefit plan amortization                               -        -          23             83          -               -       106
Exercise of stock options                          55,525        -         710              -          -               -       710
Payment for fractional and dissenting shares       (3,386)       -         (94)             -          -               -       (94)
Adjustments related to merger                           -        -        (181)           397        232               -       448
                                               ----------   ------  ----------   ------------   --------     -----------   -------
Balance December 31, 2000                       6,156,917    3,098      14,538           (335)    30,446              30    47,777
Comprehensive income
  Net income                                            -        -           -              -      7,069               -     7,069
  Change in net unrealized gain (loss), net
   of tax                                               -        -           -              -          -             174       174
                                                                                                                           -------
     Total comprehensive income                         -        -           -              -          -               -     7,243
Cash dividends - $.10 per share                         -        -           -              -       (609)              -      (609)
Termination of ESOP                                     -        -         123            335          -               -       458
Exercise of stock options                           1,508        -          15              -          -               -        15
Repurchase and retirement of common shares       (163,830)       -      (3,363)             -          -               -    (3,363)
                                               ----------   ------  ----------   ------------   --------     -----------   -------

Balance December 31, 2001                       5,994,595   $3,098  $   11,313   $          -   $ 36,906     $       204   $51,521
                                               ==========   ======  ==========   ============   ========     ===========   =======
</TABLE>

--------------------------------------------------------------------------------

                            See accompanying notes.

                                      39
<PAGE>

                  THE BANK OF KENTUCKY FINANCIAL CORPORATION
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                 Years ended December 31, 2001, 2000 and 1999
                         (Dollar amounts in thousands)

--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                    2001       2000       1999
                                                                  --------   --------   --------
<S>                                                               <C>        <C>        <C>
Cash flows from operating activities
 Net income                                                       $  7,069   $  4,213   $  5,734
 Adjustments related to merger                                           -        448          -
 Adjustments to reconcile net income to net
   cash from operating activities
    Benefit plan amortization                                          458        106        360
    Depreciation                                                       684        692        578
    Net accretion on securities                                       (251)       (40)        (2)
    Provision for loan losses                                          781      1,143        687
    Federal Home Loan Bank stock dividend                             (231)      (252)      (210)
    Securities gains                                                   (93)         -          -
    Change in assets and liabilities
     Loans held for sale                                            (5,509)         -          -
     Accrued interest receivable and other assets                     (284)       912       (880)
     Accrued expenses and other liabilities                            (48)       664         98
                                                                  --------   --------   --------
      Net cash from operating activities                             2,576      7,886      6,365

Cash flows from investing activities
 Net change in interest-bearing deposits with banks                      -      1,000       (578)
 Proceeds from maturities and principal reductions of
   held-to-maturity securities                                      17,156      6,707     11,752
 Purchase of held-to-maturity securities                            (4,298)    (3,476)   (10,672)
 Proceeds from maturities and sales of
  available-for-sale securities                                     26,566      4,144      6,625
 Purchase of available-for-sale securities                         (38,742)    (2,500)   (12,830)
 Loans made to customers, net of principal collections thereon     (27,734)   (51,226)   (32,521)
 Property and equipment expenditures, net                             (542)    (1,847)    (1,398)
                                                                  --------   --------   --------
    Net cash from investing activities                             (27,594)   (47,198)   (39,622)

Cash flows from financing activities
 Net change in deposits                                             22,462     50,133     22,879
 Net change in short-term borrowings                                13,700     (7,802)     8,297
 Draws on notes payable                                              5,000          -      5,750
 Payments on notes payable                                          (7,725)      (318)    (4,560)
 Dividends paid on common stock                                       (609)      (458)      (580)
 Fractional and dissenting shares redeemed                               -        (94)         -
 Stocks repurchase and retirement, net                              (3,363)         -          -
 Proceeds from exercise of stock options                                11        692        160
                                                                  --------   --------   --------
    Net cash from financing activities                              29,476     42,153     31,946
                                                                  --------   --------   --------
Net change in cash and cash equivalents                              4,458      2,841     (1,311)

Cash and cash equivalents at beginning of year                      22,248     19,407     20,718
                                                                  --------   --------   --------
Cash and cash equivalents at end of year                          $ 26,706   $ 22,248   $ 19,407
                                                                  ========   ========   ========

Cash paid for interest                                            $ 17,284   $ 18,578   $ 14,980

Cash paid for income taxes                                           3,597      2,041      2,156
</TABLE>

--------------------------------------------------------------------------------

                            See accompanying notes.

                                      40
<PAGE>

                  THE BANK OF KENTUCKY FINANCIAL CORPORATION
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       December 31, 2001, 2000 and 1999
            (Dollar amounts in thousands, except per share amounts)

--------------------------------------------------------------------------------

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation:  The consolidated financial statements include the
---------------------
accounts of The Bank of Kentucky Financial Corporation (the Company) and its
wholly owned subsidiary, The Bank of Kentucky (the Bank).  Intercompany
transactions are eliminated in consolidation.

Business Combination:  On June 14, 2000, the Company consummated the acquisition
--------------------
of the Fort Thomas Financial Corporation (FTFC) and its wholly owned subsidiary,
the Fort Thomas Savings Bank (FTSB).  FTFC was merged with and into the Company
and FTSB was merged with and into the Bank.  Upon consummation, 865,592 shares
of the Company were issued for substantially all of the outstanding shares of
FTFC.  The combination was accounted for as a pooling of interests and the
historical financial position and results of operations of the two companies
have been combined for financial reporting purposes.  FTFC reported its results
on a September 30 fiscal year basis.  These financial statements combine the
historical financial position of FTFC as of September 30, 2000 with the
historical financial position of the Company as of December 31, 2000.  The
Company's statements of income combine FTFC's results of operations for the year
ended September 30, 1999 with the Company's results of operations for the year
ended December 31, 1999.  FTFC's results of operations for the three months
ended December 31, 1999 are not included in these financial statements.  Net
interest income and net income for that period were $923 and $232.  Net income
for that quarter, combined with $216 in dividends paid on unawarded FTFC
management recognition plan shares that were returned to the Company upon
consummation of the transaction, are reflected in the consolidated statements of
changes in shareholders' equity and cash flows as a $448 "adjustment related to
the merger."  Dividends per share are the Company's historical dividends.  The
following table presents the combination of the operating results for the 1999
period included in these financial statements:

<TABLE>
<CAPTION>
                                                  Company      FTFC    Combined
                                                  -------     ------   --------
1999
----
  <S>                                             <C>         <C>      <C>
  Net interest income                             $11,938     $3,831   $15,769
  Net income                                        4,714      1,020     5,734
</TABLE>

Description of Business:  The Company provides financial services through its
-----------------------
subsidiary which operates primarily in Boone, Campbell, Grant and Kenton
counties in northern Kentucky.  Operations consist of generating commercial,
mortgage and consumer loans and accepting deposits from customers.  The loan
portfolio is diversified and the ability of debtors to repay loans is not
dependent upon any single industry.  The majority of the institution's loans are
secured by specific items of collateral including business assets, real property
and consumer assets.

--------------------------------------------------------------------------------

                                  (Continued)

                                      41
<PAGE>

                  THE BANK OF KENTUCKY FINANCIAL CORPORATION
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       December 31, 2001, 2000 and 1999
            (Dollar amounts in thousands, except per share amounts)

--------------------------------------------------------------------------------

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Use of Estimates:  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 are particularly subject to
change.

Securities:  Securities are classified as held-to-maturity and carried at
----------
amortized cost when management has the positive intent and ability to hold them
to maturity.  Available-for-sale securities are classified as available-for-sale
when they might be sold before maturity.  Available-for-sale securities are
carried at fair value, with unrealized holding gains and losses reported in
other comprehensive income.  Other securities such as Federal Home Loan Bank
stock are carried at cost.

Interest income includes amortization of purchase premium or discount.  Gains
and losses on sales are based on the amortized cost of the security sold.
Securities are written down to fair value when a decline in fair value is not
temporary.

Loans:  Loans are reported at the principal balance outstanding, net of unearned
-----
interest, deferred loan fees and costs, and an allowance for loan losses.  The
Bank originates loans for sale, service released, to secondary market brokers.
Loans held for sale at year-end 2001 are loans, which have been closed and are
awaiting delivery to these brokers.  They are reported at the lower of cost or
market, on an aggregate basis.

Interest income is reported on the interest method and include amortization of
net deferred loan fees and costs over the loan term.  Interest income is not
reported when full loan repayment is in doubt, typically when the loan is
impaired or payments are significantly past due.  Payments received on such
loans are reported as principal reductions.

Allowance for Loan Losses:  The allowance for loan losses is a valuation
-------------------------
allowance for probable incurred credit losses, increased by the provision for
loan losses and decreased by charge-offs less recoveries.  Management estimates
the allowance balance required using past loan loss experience, the nature and
volume of the portfolio, information about specific borrower situations, and
estimated collateral values, economic conditions, and other factors.
Allocations of the allowance may be made for specific loans, but the entire
allowance is available for any loan that, in management's judgment, should be
charged off.  Loan losses are charged against the allowance when management
believes the uncollectibility of a loan balance is confirmed.

--------------------------------------------------------------------------------

                                  (Continued)

                                      42
<PAGE>

                  THE BANK OF KENTUCKY FINANCIAL CORPORATION
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       December 31, 2001, 2000 and 1999
            (Dollar amounts in thousands, except per share amounts)

--------------------------------------------------------------------------------

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

A loan is impaired when full payment under the loan terms is not expected.
Impairment is evaluated in total for smaller-balance loans of similar nature
such as residential mortgage, consumer, and credit card loans, and on an
individual loan basis for other loans.  If a loan is impaired, a portion of the
allowance is allocated so that the loan is reported, net, at the present value
of estimated future cash flows using the loan's existing rate or at the fair
value of collateral if repayment is expected solely from the collateral.

Repurchase Agreements:  Substantially all repurchase agreement liabilities
---------------------
represent amounts advanced by various customers.  Securities are pledged to
cover these liabilities, which are not covered by federal deposit insurance.

Stock Compensation:  Employee compensation expense under stock option plans is
------------------
reported if options are granted below market price at grant date.  Pro forma
disclosures of net income and earnings per share are shown using the fair value
method to measure expense using an option pricing model to estimate fair value.

Premises and Equipment:  Premises and equipment are stated at cost less
----------------------
accumulated depreciation.  Premises and equipment are depreciated on the
straight-line and declining-balance methods over the estimated useful lives of
the assets.

Other Real Estate:  Other real estate acquired through foreclosure is carried at
-----------------
the lower of cost (fair value at foreclosure) or fair value less estimated
selling costs.  Expenses incurred in carrying other real estate are charged to
operations as incurred.

Restructuring Charges:  Restructuring charges relate to severance benefits for
---------------------
three former FTFC executives and penalties associated with the early termination
of data processing and equipment lease contracts associated with FTFC's
operations.  On June 14, 2000, the effective date of the merger, the Company
executed severance agreements with three senior executives of FTFC.  These
agreements call for monthly cash payments, beginning July 2000 and the
continuation of certain benefits for 36 months.  This obligation, approximately
$1,200 was accrued at that time.  The balance of the $1,450 in identified
restructuring charges relate to a penalty associated with the early termination
of FTFC's data processing service agreement, effective June 24, 2001.

Income Taxes: Income tax expense is the amount of taxes payable for the current
------------
year plus or minus the change in deferred taxes.  Deferred tax liabilities and
assets are the expected future tax consequences of temporary differences between
the carrying amounts and tax bases of assets and liabilities, computed using
enacted tax rates.  Recognition of deferred tax assets is limited by the
establishment of a valuation allowance unless management concludes that they are
more likely than not to result in future tax benefits to the Company.

--------------------------------------------------------------------------------

                                  (Continued)

                                      43
<PAGE>

                  THE BANK OF KENTUCKY FINANCIAL CORPORATION
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       December 31, 2001, 2000 and 1999
            (Dollar amounts in thousands, except per share amounts)

--------------------------------------------------------------------------------

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)


Financial Instruments:  Financial instruments include credit instruments, such
---------------------
as commitments to make loans and standby letters of credit, issued to meet
customer financing needs.  The face amount of these items represents the
exposure to loss, before considering customer collateral or ability to repay.

Fair Value of Financial Instruments:  Fair values of financial instruments are
-----------------------------------
estimated using relevant market information and other assumptions, as more fully
disclosed in a separate note.  Fair value estimates involve uncertainties and
matters of significant judgment regarding interest rates, credit risk,
prepayments and other factors, especially in the absence of broad markets for
particular items.  Changes in assumptions or in market conditions could
significantly affect the estimates.

Loss Contingencies:  Loss contingencies, including claims and legal actions
------------------
arising in the ordinary course of business, are recorded as liabilities when the
likelihood of loss is probable and an amount or range of loss can be reasonably
estimated.  Management does not believe there now are such matters that will
have a material effect on the financial statements.

Cash Flows:  Cash and cash equivalents include cash on hand, amounts due from
----------
banks, and federal funds sold.  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.

Comprehensive Income:  Comprehensive income consists of net income and other
--------------------
comprehensive income.  Other comprehensive income includes unrealized gains and
losses on securities available for sale which are also recognized as separate
components of equity.

Dividend Restriction:  Banking regulations require the maintenance of certain
--------------------
capital levels and  may limit the amount of dividends which may be paid by the
Bank to the Company or by the Company to its shareholders.

Long-term Assets:  These assets are reviewed for impairment when events indicate
----------------
their carrying amount may not be recoverable from future undiscounted cash
flows. If impaired, the assets are recorded at discounted amounts.

Share Data:  Earnings, dividends and stock option related per share data are
----------
restated for the effect of stock splits and dividends.  Outstanding share data
is not restated.

Industry Segment:  Internal financial information is reported and aggregated in
----------------
one line of business, banking.

New Accounting Pronouncements:  New accounting standards require all business
-----------------------------
combinations to be recorded using the purchase method of accounting for any
transaction initiated after June 30, 2001.  Under the purchase method, all
identifiable tangible and intangible assets and liabilities of the acquired
company must be recorded at fair value at date

--------------------------------------------------------------------------------

                                  (Continued)

                                      44
<PAGE>

                  THE BANK OF KENTUCKY FINANCIAL CORPORATION
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       December 31, 2001, 2000 and 1999
            (Dollar amounts in thousands, except per share amounts)

--------------------------------------------------------------------------------


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

of acquisition, and the excess of cost over fair value of net assets acquired is
recorded as goodwill. Identifiable intangible assets must be separated from
goodwill. Identifiable intangible assets with finite useful lives will be
amortized under the new standard, whereas goodwill, both amounts previously
recorded and future amounts purchased, will cease being amortized starting in
2002. Annual impairment testing will be required for goodwill with impairment
being recorded if the carrying amount of goodwill exceeds its implied fair
value. Adoption of this standard on January 1, 2002 will not have a material
effect on the Company's financial statements.

NOTE 2 - SECURITIES

The fair value of available for sale securities and the related gains and losses
recognized in accumulated other comprehensive income (loss) were as follows:

<TABLE>
<CAPTION>
                                                               Gross       Gross
Available-for-Sale                                    Fair   Unrealized  Unrealized
------------------                                    Value     Gains      Losses
                                                    -------- ----------  ----------
<S>                                                <C>       <C>         <C>
2001
----
U.S. Government and federal agency                 $ 35,164    $   466   $   (157)
                                                   ========    =======   ========
2000
----
U.S. Government and federal agency                 $ 22,633    $    86   $    (41)
                                                   ========    =======   ========
</TABLE>

The carrying amount, unrecognized gains and losses, and fair value of securities
held to maturity were as follows:

<TABLE>
<CAPTION>
                                                            Gross       Gross
Held-to-Maturity                                Carrying  Unrealized  Unrealized    Fair
----------------                                 Amount     Gains       Losses      Value
                                                --------  ----------  ----------   -------
<S>                                             <C>       <C>         <C>          <C>
2001
----
U.S. Government and federal agency               $ 4,498    $    133    $      -   $ 4,631
Municipal and other obligations                   12,636         209          (8)   12,837
                                                 -------    --------    --------   -------
                                                 $17,134    $    342    $     (8)  $17,468
                                                 =======    ========    ========   =======
2000
----
U.S. Government and federal agency               $17,960    $     21    $    (93)  $17,888
Municipal and other obligations                   11,780          35         (47)   11,768
                                                 -------    --------    --------   -------
                                                 $29,740    $     56    $   (140)  $29,656
                                                 =======    ========    ========   =======
</TABLE>

--------------------------------------------------------------------------------

                                  (Continued)

                                      45
<PAGE>

                  THE BANK OF KENTUCKY FINANCIAL CORPORATION
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       December 31, 2001, 2000 and 1999
            (Dollar amounts in thousands, except per share amounts)

--------------------------------------------------------------------------------

NOTE 2 - SECURITIES (Continued)

The fair value of debt securities and carrying amount, if different, at year end
2001 by contractual maturity were as follows.

<TABLE>
<CAPTION>
                                          Available-for-Sale  Held-to-Maturity
                                          ------------------  ----------------
                                          Amortized   Fair     Carrying  Fair
                                            Cost      Value     Value    Value
                                            ----      -----     -----    -----
<S>                                       <C>        <C>      <C>       <C>
Due in one year or less                   $   1,501  $ 1,547  $ 5,568   $ 5,635
Due after one year through five years        27,003   27,331   11,461    11,727
Due after five years through ten years            -        -      105       106
Due after ten years                           6,351    6,286        -         -
                                          ---------  -------  -------   -------
                                          $  34,855  $35,164  $17,134   $17,468
                                          =========  =======  =======   =======
</TABLE>

Gross proceeds from sales of available-for-sale securities during 2001 were
$9,068. There were no security sales in 2000 and 1999. Gross gains of $93 were
realized for 2001.

At December 31, 2001 and 2000, securities with a carrying value of $49,163 and
$49,724 were pledged to secure public deposits and repurchase agreements.


NOTE 3 - LOANS

Year-end loans are as follows:

<TABLE>
<CAPTION>
                                                         2001       2000
                                                       --------   --------
     <S>                                               <C>        <C>
     Commercial                                        $ 81,051   $ 73,538
     Residential real estate                            136,194    150,222
     Nonresidential real estate                         126,161    116,974
     Construction                                        52,184     23,586
     Consumer                                            14,959     12,661
     Municipal obligations                                1,443      7,849
                                                       --------   --------
        Gross loans                                     411,992    384,830
     Less: Deferred loan origination fees                  (520)      (749)
           Allowance for loan losses                     (4,244)    (3,806)
                                                       --------   --------
        Net loans                                      $407,228   $380,275
                                                       ========   ========
</TABLE>

Certain of the Company's directors were loan customers of the Bank.  A schedule
of the aggregate activity in these loans follows:

<TABLE>
     <S>                                                          <C>
     Balance, January 1, 2001                                     $ 13,049
     New loans and advances on lines of credit                      56,059
     Loan reductions                                               (57,162)
                                                                  --------
     Balance, December 31, 2001                                   $ 11,746
                                                                  ========
</TABLE>

--------------------------------------------------------------------------------

                                  (Continued)

                                      46
<PAGE>

                  THE BANK OF KENTUCKY FINANCIAL CORPORATION
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       December 31, 2001, 2000 and 1999
            (Dollar amounts in thousands, except per share amounts)

--------------------------------------------------------------------------------

NOTE 4 - ALLOWANCE FOR LOAN LOSSES

Activity in the allowance for loan losses is as follows:

<TABLE>
<CAPTION>
                                                             2001     2000      1999
                                                            ------   ------   --------
  <S>                                                       <C>      <C>      <C>
  Beginning balance                                         $3,806   $3,257   $  2,897
  Provision charged to operations                              781    1,143        687
  Adjustments related to merger                                  -      (70)         -
  Loans charged off                                           (404)    (598)      (361)
  Recoveries                                                    61       74         34
                                                            ------   ------   --------
  Ending balance                                            $4,244   $3,806   $  3,257
                                                            ======   ======   ========
  Nonaccrual loans at year end                              $  954   $  884   $  2,263
  Loans past due over 90 days, still accruing at
   year end                                                  2,199    4,105      1,270
  Average impaired loans during the year                     1,785    1,025        309
  Interest income recognized during impairment                  54       81         15
  Interest income received during impairment                    54       81          -
  Loans designated as impaired at year end                   1,639    1,301        786
  Allowance allocated to impaired loans at year end            559      250        317
</TABLE>

NOTE 5 - PREMISES AND EQUIPMENT

Year-end premises and equipment are as follows:

<TABLE>
<CAPTION>
                                                            2001      2000
                                                            ----      ----
  <S>                                                     <C>       <C>
  Land and improvements                                   $ 1,468   $ 1,468
  Leasehold improvements                                    1,309     1,163
  Buildings                                                 3,772     3,726
  Furniture, fixtures and equipment                         3,851     3,797
                                                          -------   -------
     Total                                                 10,400    10,154
  Accumulated depreciation                                 (4,319)   (3,931)
                                                          -------   -------

     Net premises and equipment                           $ 6,081   $ 6,223
                                                          =======   =======
</TABLE>

--------------------------------------------------------------------------------

                                 (Continued)

                                      47
<PAGE>

                  THE BANK OF KENTUCKY FINANCIAL CORPORATION
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       December 31, 2001, 2000 and 1999
            (Dollar amounts in thousands, except per share amounts)

--------------------------------------------------------------------------------

NOTE 6 - INTEREST BEARING DEPOSITS


Time deposits of $100 or more were $54,385 and $38,876 at year-end 2001 and
2000.


Scheduled maturities of time deposits are as follows:

<TABLE>
<CAPTION>
            <S>                                        <C>
            2002                                       $139,543
            2003                                         19,655
            2004                                          3,797
            2005                                          3,120
            2006                                          1,544
            Thereafter                                      103
                                                       --------

                                                       $167,762
                                                       ========
</TABLE>

Deposits from principal officers, directors, and their affiliates at year-end
2001 and 2000 were $17,259 and $13,304, respectively, comprising 4.15% and 3.38%
of total deposits at those dates.

NOTE 7 - BORROWINGS

Short-term borrowings consisted of daily federal funds purchased, short term
borrowings from Federal Home Loan Bank,  and retail repurchase agreements of
$21,800 and $4,543, and $8,027 and $7,850 at year end 2001 and 2000.  Repurchase
agreements outstanding at year-end 2001 had remaining maturities ranging from
one day up to one year.

Information regarding repurchase agreements for the years ended December 31,
2001 and 2000 is presented below:

<TABLE>
<CAPTION>
                                                           2001      2000
                                                          ------   -------
  <S>                                                     <C>      <C>
  Average balance during the year                         $4,292   $ 8,242

  Maximum month end balance during the year                4,623    12,157

  Average rate paid during the year                         4.25%     5.51%
</TABLE>

Notes payable consist of the following:

<TABLE>
<CAPTION>
                                                           2001      2000
                                                          ------   -------
  <S>                                                     <C>      <C>
  FHLB advances                                           $9,000   $11,695
  Other notes payable                                        449       479
                                                          ------   -------

                                                          $9,449   $12,174
                                                          ======   =======

</TABLE>

--------------------------------------------------------------------------------

                                  (Continued)

                                      48
<PAGE>

                  THE BANK OF KENTUCKY FINANCIAL CORPORATION
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       December 31, 2001, 2000 and 1999
            (Dollar amounts in thousands, except per share amounts)

--------------------------------------------------------------------------------

NOTE 7 - BORROWINGS (Continued)

The FHLB advances are secured by a blanket pledge of eligible loans and
securities and require monthly interest payments.  Advances with principal
balances of $4,000 and $5,000 are due in full, at maturity, in 2008 and 2003 and
bear interest at 4.82% and 3.11%.

Other notes payable include a mortgage payable secured by a branch building and
a capitalized lease obligation.


NOTE 8 - EMPLOYEE BENEFITS

The Bank maintains an employee profit sharing plan covering substantially all
employees.  Contributions are at the discretion of the Board of Directors.
Profit sharing expense totaled $288, $177 and $191 for the years ended December
31, 2001, 2000 and 1999.

FTSB also maintained an Employee Stock Ownership Plan (ESOP) covering,
essentially, all full-time employees.  The ESOP plan was terminated in 2001.
Proceeds from the sale of 17,104 unallocated shares were used to pay off the
outstanding ESOP loan which had a principal balance of $335.  The remaining
4,724 shares were allocated and distributed to the participants.  ESOP expense
is based upon the fair value of shares committed to be released to participants
during the period and was $123, $76 and $174 in 2001, 2000 and 1999.

FTFC also maintained a stock award plan under which shares were awarded to
directors and executive officers.  The cost of shares awarded was amortized to
expense as the awards vested.  Expense recorded in 2000 and 1999 was $30 and
$124.  Upon consummation of the merger, the remaining unawarded shares, which
had an aggregate cost of $398, were retired.

Options to buy stock are granted to directors, officers and employees under the
Company's stock option and incentive plan which provide for the issuance of up
to 720,000 shares.  The specific terms of each option agreement are determined
by the Compensation Committee at the date of the grant.

--------------------------------------------------------------------------------

                                  (Continued)

                                      49
<PAGE>

                  THE BANK OF KENTUCKY FINANCIAL CORPORATION
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       December 31, 2001, 2000 and 1999
            (Dollar amounts in thousands, except per share amounts)

--------------------------------------------------------------------------------

NOTE 8 - EMPLOYEE BENEFITS (Continued)

A summary of the Company's stock option activity, and related per share
information follows. All data is restated for stock splits.

<TABLE>
<CAPTION>
                                                                       2001                     2000                 1999
                                                                       ----                     ----                 ----
                                                                            Weighted-               Weighted              Weighted
                                                                             Average                Average               Average
                                                                            Exercise                Exercise              Exercise
                                                                 Options      Price     Options      Price     Options     Price
                                                                ---------   ---------  ----------   --------  ---------   --------
<S>                                                             <C>         <C>        <C>          <C>       <C>         <C>
Outstanding beginning of year                                     169,682      $20.25     114,315   $  15.82     63,000     $ 8.59
Granted                                                            59,750       20.66      57,600      29.78     66,000      21.62
Issued in exchange for FTFC options                                     -           -      12,441      12.54          -          -
Exercised                                                          (1,508)       8.17      (6,135)     12.52    (14,685)     10.88
Forfeited                                                          (7,675)      22.66      (8,539)     18.93          -          -
                                                               ----------              ----------             ---------

Outstanding at end of year                                        220,249      $20.36     169,682   $  20.25    114,315     $15.82
                                                               ==========      ======  ==========   ========  =========     ======

Exercisable at end of year                                        129,482      $19.49     105,105   $  19.11     41,415     $16.57
                                                               ==========      ======  ==========   ========  =========     ======

Weighted average contractual remaining life                    5.41 years              6.63 years             8.7 years

Weighted average fair value of options granted during the year     $ 4.11                   $8.51                $ 5.05
</TABLE>

--------------------------------------------------------------------------------

                                  (Continued)

                                      50
<PAGE>

                  THE BANK OF KENTUCKY FINANCIAL CORPORATION
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       December 31, 2001, 2000 and 1999
            (Dollar amounts in thousands, except per share amounts)

--------------------------------------------------------------------------------


NOTE 8 - EMPLOYEE BENEFITS (Continued)

Had compensation cost for stock options been recorded using the fair value
method, net income and earnings per share would have been the pro forma amounts
indicated below. The pro forma effect may increase in the future if more options
are granted.

                                            2001     2000     1999
                                            ----     ----     ----

  Pro forma net income                     $6,866   $4,024   $5,615

  Pro forma earnings per share               1.13      .66      .92
  Pro forma diluted earnings per share       1.11      .65      .91

The pro forma effects are computed using option pricing models, using the
following weighted-average assumptions as of grant date. No assumption is made
for expected stock price volatility when, as in the company's case, a stock is
not actively traded. With volatility excluded, the option pricing model produces
the option's minimum value.

                                           2001        2000        1999
                                           ----        ----        ----

  Risk-free interest rate                  4.81%       6.54%       5.30%
  Expected option life               5.4  years   5.7 years   5.7 years
  Expected stock price volatility             -           -           -
  Dividend yield                            .48%        .27%        .19%

Proceeds recorded upon exercise of the stock options include cash received from
the option holder and the tax benefit derived by the Company. During 2001, 2000
and 1999, proceeds from the exercise of stock options, excluding the FTFC
options, totaled $11, $94 and $237. The tax benefit recognized was $4, $18 and
$77.

FTFC also had a stock option plan under which 110,164 options had been granted
to directors and executive officers. None had been exercised. Prior to
consummation of the merger, 87,494 options were exercised generating proceeds of
$616. The remaining 22,670 options for FTFC stock were cancelled and
extinguished in exchange for 12,441 options on the Company's stock, of
equivalent value.


--------------------------------------------------------------------------------

                                  (Continued)

                                      51
<PAGE>

                  THE BANK OF KENTUCKY FINANCIAL CORPORATION
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       December 31, 2001, 2000 and 1999
            (Dollar amounts in thousands, except per share amounts)

--------------------------------------------------------------------------------


NOTE 9 - FEDERAL INCOME TAXES

Federal income taxes consist of the following components:

                           2001     2000     1999
                           ----     ----     ----
  Income tax/(benefit)
     Currently payable    $3,499   $2,259   $2,052
     Deferred               (189)    (280)     233
                          ------   ------   ------
                          $3,310   $1,979   $2,285
                          ======   ======   ======

The following is a reconciliation of income tax expense and the amount computed
by applying the effective federal income tax rate of 34% to income before income
taxes:

                                                   2001     2000     1999
                                                   ----     ----     ----
  Statutory rate applied to income
   before income taxes                            $3,529   $2,105   $2,727
  Tax exempt income                                 (235)    (203)    (174)
  Rehabilitation credit                                -        -     (287)
  Merger and acquisition expenses                      -      184        -
  Other                                               16     (107)      19
                                                  ------   ------   ------
                                                  $3,310   $1,979   $2,285
                                                  ======   ======   ======

Year-end deferred tax assets and liabilities were due to the following factors:

                                                            2001     2000
                                                            ----     ----
  Deferred tax assets from:
     Allowance for loan loss                               $1,535   $1,178
     Deferred loan fees                                        21       22
     Premises and equipment                                    45       33
     Benefit plans                                            194      218
     Severance pay                                            206      343
                                                           ------   ------
                                                            2,001    1,794
  Deferred tax liabilities for:
     FHLB stock dividends                                    (532)    (453)
     Net unrealized gain on available for sale
      securities                                             (105)     (15)
     Other                                                    (33)     (94)
                                                           ------   ------
                                                             (670)    (562)
                                                           ------   ------

     Net deferred tax asset                                $1,331   $1,232
                                                           ======   ======


--------------------------------------------------------------------------------

                                  (Continued)

                                      52
<PAGE>

                  THE BANK OF KENTUCKY FINANCIAL CORPORATION
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       December 31, 2001, 2000 and 1999
            (Dollar amounts in thousands, except per share amounts)

--------------------------------------------------------------------------------


NOTE 10 - EARNINGS PER SHARE

Earnings per share are computed based upon the weighted average number of shares
outstanding during the period, which were 6,092,027 for 2001, 6,136,538 for 2000
and 6,088,166 for 1999.  Diluted earnings per share are computed assuming that
the stock options outstanding are exercised and the proceeds used entirely to
reacquire shares at the year's average price.  For 2001, 2000 and 1999 this
would result in there being an additional 26,299, 25,613 and 83,217 shares
outstanding.  For 2001 and 2000, 165,884 and 55,950 options were not considered,
as they were not dilative.


NOTE 11 - COMMITMENTS AND OFF BALANCE SHEET ACTIVITIES

The Bank leases branch facilities and sites and is committed under various non-
cancelable lease contracts that expire at various dates through the year 2017.
Most of these leases are with members of the Bank's Board of Directors or
companies they control.  Expense for leased premises was $669, $632 and $530 for
2001, 2000 and 1999.  Minimum lease payments, excluding the capital lease
obligation, at December 31, 2001 for all non-cancelable leases are as follows:

             2002                               $  680
             2003                                  689
             2004                                  691
             2005                                  683
             2006                                  497
             Thereafter                          2,435
                                                ------
             Total minimum lease payments       $5,675
                                                ======

Some financial instruments, such as loan commitments, credit lines, letters of
credit, and overdraft protection, are issued to meet customer financing needs.
These are agreements to provide credit or to support the credit of others, as
long as conditions established in the contract are met, and usually have
expiration dates.  Commitments may expire without being used.  Off-balance-sheet
risk to credit loss exists up to the face amount of these instruments, although
material losses are not anticipated.  The same credit policies are used to make
such commitments as are used for loans, including obtaining collateral at
exercise of the commitment.


--------------------------------------------------------------------------------

                                  (Continued)

                                      53
<PAGE>

                  THE BANK OF KENTUCKY FINANCIAL CORPORATION
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       December 31, 2001, 2000 and 1999
            (Dollar amounts in thousands, except per share amounts)

--------------------------------------------------------------------------------


NOTE 11 - COMMITMENTS AND OFF BALANCE SHEET ACTIVITIES (Continued)

Financial instruments with off-balance-sheet risk were as follows at year end.

                                        2001                  2000
                                        ----                  ----
                                  Fixed      Variable    Fixed    Variable
                                  Rate         Rate      Rate       Rate
                                  ----         ----      ----       ----
 Commitments to make loans
  (at market rates)               $  -        14,512     $   -     $ 1,300
 Unused lines of credit and
  letters of credit                  -        82,269         -      77,341


The loan commitments are generally extended for terms of up to 60 days and, in
many cases, allow the customer to select from one of several financing options
offered.

The Bank maintains a $30,500 letter of credit from the Federal Home Loan Bank of
Cincinnati.  The letter is pledged to secure public funds deposit accounts and
is secured by a blanket pledge of the Bank's residential real estate loans.

At December 31, 2001, the Bank was required to have $5,239 on deposit with the
Federal Reserve or as cash on hand as reserve.


NOTE 12 - CAPITAL REQUIREMENTS AND RESTRICTIONS ON RETAINED
 EARNINGS

The Company and the Bank are subject to various regulatory capital requirements
administered by the federal banking agencies.  Failure to meet minimum capital
requirements can result in certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the financial statements.  These guidelines and the
regulatory framework for prompt corrective action involve quantitative measures
of capital, assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting practices as well as qualitative
judgments by the regulators about components, risk weightings, and other
factors.

Compliance with these regulations can limit dividends paid by either entity.
Both entities must comply with regulations that establish minimum levels of
capital adequacy.  The Bank must also comply with capital requirements
promulgated by the FDIC under its "prompt corrective action" rules.  The Bank's
deposit insurance assessment rate is based, in part, on these measurements.  At
December 31, 2001 and 2000, the Bank's capital levels result in it being
designated "well capitalized" under these guidelines.


--------------------------------------------------------------------------------

                                  (Continued)

                                      54
<PAGE>

                  THE BANK OF KENTUCKY FINANCIAL CORPORATION
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       December 31, 2001, 2000 and 1999
            (Dollar amounts in thousands, except per share amounts)

--------------------------------------------------------------------------------


NOTE 12 - CAPITAL REQUIREMENTS AND RESTRICTIONS ON RETAINED
 EARNINGS (Continued)


The consolidated and the Bank's capital amounts and ratios at December 31, 2001
and 2000 are presented below:

<TABLE>
<CAPTION>
                                                                                                   To Be Well
                                                                                                Capitalized Under
                                                                    For Capital                 Prompt Corrective
                                         Actual                  Adequacy Purposes              Action Provisions
                                         ------                  -----------------              -----------------
                                  Amount         Ratio           Amount      Ratio             Amount         Ratio
                                  ------         -----           ------      -----             ------         -----
<S>                              <C>           <C>              <C>         <C>               <C>           <C>
2001
Total Capital to risk
 weighted assets
  Consolidated                   $ 55,561        12.12%          $ 36,671    8.00%            $      -           -
  Bank                             52,850        11.54%            36,625    8.00%              45,781       10.00%
Tier 1 (Core) Capital to risk
 weighted assets
  Consolidated                   $ 51,317        10.46%          $ 19,125    4.00%            $      -           -
  Bank                             48,606        10.62%            18,313    4.00%              27,469        6.00%
Tier 1 (Core) Capital to
 average assets
  Consolidated                   $ 51,317        10.46%          $ 19,125    4.00%            $      -           -
  Bank                             48,606         9.91%            19,625    4.00%              24,531        5.00%

<CAPTION>
                                                                                                   To Be Well
                                                                                                Capitalized Under
                                                                    For Capital                 Prompt Corrective
                                         Actual                  Adequacy Purposes              Action Provisions
                                         ------                  -----------------              -----------------
                                  Amount         Ratio           Amount      Ratio             Amount         Ratio
                                  ------         -----           ------      -----             ------         -----
<S>                              <C>            <C>             <C>         <C>                 <C>           <C>
2000
Total Capital to risk
  weighted assets
  Consolidated                   $ 51,553        12.67%          $ 32,545    8.00%            $      -           -
  Bank                             50,064        12.32%            32,504    8.00%              40,630       10.00%
Tier 1 (Core) Capital to risk
 weighted assets
  Consolidated                   $ 47,747        11.74%          $ 16,273    4.00%            $      -           -
  Bank                             46,258        11.39%            16,252    4.00%              24,378        6.00%
Tier 1 (Core) Capital to
 average assets
  Consolidated                   $ 47,747        10.44%          $ 18,290    4.00%            $      -           -
  Bank                             46,258        10.12%            18,290    4.00%              22,863        5.00%
</TABLE>

--------------------------------------------------------------------------------

                                  (Continued)

                                      55
<PAGE>

                  THE BANK OF KENTUCKY FINANCIAL CORPORATION
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       December 31, 2001, 2000 and 1999
            (Dollar amounts in thousands, except per share amounts)

--------------------------------------------------------------------------------

NOTE 13 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

Financial instruments at year-end are as follows at December 31:

<TABLE>
<CAPTION>
                                               2 0 0 1                      2 0 0 0
                                               -------                      -------
                                         Carrying        Fair        Carrying         Fair
                                           Value         Value         Value          Value
                                           -----         -----         -----          -----
<S>                                    <C>           <C>            <C>           <C>
Financial assets
 Cash, cash equivalents, and
  deposits with banks                  $   26,706     $  26,706     $  22,248      $  22,248
 Available-for-sale securities             35,164        35,164        22,633         22,633
 Held-to-maturity securities               17,134        17,468        29,740         29,656
 Federal Home Loan Bank stock               3,590         3,590         3,359          3,359
 Loans held for sale                        5,509         5,509             -              -
 Loans (net)                              407,228       414,713       380,275        379,316
 Accrued interest receivable                2,608         2,608         3,012          3,012

Financial liabilities
 Deposits                                (416,183)     (418,943)     (393,721)      (395,441)
 Short-term borrowings                    (26,343)      (26,343)      (12,643)       (12,643)
 Notes payable                             (9,449)       (9,696)      (12,174)       (11,926)
 Accrued interest payable                  (1,629)       (1,629)       (1,498)        (1,498)
</TABLE>

The estimated fair value approximates carrying amount for all items except those
described below.  Estimated fair value for securities is based on quoted market
values for the individual securities or for equivalent securities.  Estimated
fair value for loans is based on the rates charged at year end for new loans
with similar maturities, applied until the loan is assumed to reprice or be
paid.  Estimated fair value for time deposits is based on the rates paid at year
end for new deposits, applied until maturity.  Estimated fair value for off-
balance-sheet loan commitments are considered nominal.


--------------------------------------------------------------------------------

                                  (Continued)

                                      56
<PAGE>

                  THE BANK OF KENTUCKY FINANCIAL CORPORATION
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       December 31, 2001, 2000 and 1999
            (Dollar amounts in thousands, except per share amounts)

--------------------------------------------------------------------------------

NOTE 14 - PARENT COMPANY FINANCIAL STATEMENTS


Presented below are condensed balance sheets and the related statements of
income and cash flows for the parent company:


                           CONDENSED BALANCE SHEETS
                          December 31, 2001 and 2000


                                                           2001          2000
                                                           ----          ----
Assets
 Cash                                                    $ 2,134       $   982
 Investment in subsidiary                                 48,810        46,288
 Other assets                                                577           507
                                                         -------       -------

                                                         $51,521       $47,777
                                                         =======       =======


Shareholders' equity                                     $51,521       $47,777
                                                         =======       =======



                        CONDENSED STATEMENTS OF INCOME
                 Years ended December 31, 2001, 2000, and 1999


                                                 2001      2000          1999
                                                 ----      ----          ----

Interest income                                 $   34   $    68       $    92
Dividends from subsidiary                        4,900       300         4,250
Operating expenses                                (267)     (826)         (520)
Tax benefit                                         54       176           151
                                                ------   -------       -------

Income before equity in undistributed income
  of the Bank                                    4,721      (282)        3,973
Equity in undistributed income of the Bank       2,348     4,495         1,761
                                                ------   -------       -------


Net income                                      $7,069   $ 4,213       $ 5,734
                                                ======   =======       =======

--------------------------------------------------------------------------------

                                  (Continued)

                                      57
<PAGE>

                  THE BANK OF KENTUCKY FINANCIAL CORPORATION
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       December 31, 2001, 2000 and 1999
            (Dollar amounts in thousands, except per share amounts)

--------------------------------------------------------------------------------

NOTE 14 - PARENT COMPANY FINANCIAL STATEMENTS (Continued)


                      CONDENSED STATEMENTS OF CASH FLOWS
                 Years ended December 31, 2001, 2000 and 1999

                                                     2001      2000      1999
                                                     ----      ----      ----

Cash flows from operating activities
  Net income                                       $ 7,069   $ 4,213   $ 5,734
  Adjustment relative to merger                          -       448         -
  Adjustments to reconcile net income to
   net cash from operating activities
     Equity in undistributed income of the Bank     (2,348)   (4,495)   (1,761)
     Benefit plan amortization                         123         -         -
     Change in other assets and other liabilities      (66)       81       230
                                                   -------   -------   -------
       Net cash from operating activities            4,778       247     4,203

Cash flows from investing activities
  ESOP loan repayment                                  335        60       163
                                                   -------   -------   -------
       Net cash from investing activities              335        60       163

Cash flows from financing activities
  Dividends paid                                      (609)     (458)     (580)
  Exercise of stock options                             11       692       160
  Fractional and dissenting shares redeemed              -       (94)        -
  Stock repurchase and retirement                   (3,363)        -         -
  Draws on notes payable, net                            -         -    (4,000)
                                                   -------   -------   -------
     Net cash from financing activities             (3,961)      140    (4,420)
                                                   -------   -------   -------

Net change in cash                                   1,152       447       (54)

Cash at beginning of year                              982       535       589
                                                   -------   -------   -------

Cash at end of year                                $ 2,134   $   982   $   535
                                                   =======   =======   =======



--------------------------------------------------------------------------------

                                  (Continued)

                                      58
<PAGE>

                  THE BANK OF KENTUCKY FINANCIAL CORPORATION
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       December 31, 2001, 2000 and 1999
            (Dollar amounts in thousands, except per share amounts)

--------------------------------------------------------------------------------

NOTE 15 - SELECTED QUARTERLY DATA (Unaudited)

<TABLE>
<CAPTION>

                                                                  2 0 0 1
                           -----------------------------------------------------------------------------------
                                                                                            Earnings Per Share
                                                                                            ------------------
                                                      Net        Provision
                          Interest     Interest    Interest      for Loan        Net
                           Income      Expense      Income        Losses        Income      Basic      Diluted
                           ------      -------      ------        ------        ------      -----      -------
<S>                        <C>         <C>         <C>           <C>           <C>         <C>         <C>
March 31                    $9,424       $5,024       $4,400        $ (86)     $  1,706      $.28         $.28
June 30                      9,176        4,622        4,554         (190)        1,535       .25          .25
September 30                 8,988        4,228        4,760         (365)        1,724       .28          .28
December 31                  8,495        3,541        4,954         (140)        2,104       .34          .34

<CAPTION>

                                                                  2 0 0 0
                           -----------------------------------------------------------------------------------
                                                                                            Earnings Per Share
                                                                                            ------------------
                                                      Net        Provision
                          Interest     Interest    Interest      for Loan        Net
                           Income      Expense      Income        Losses        Income      Basic      Diluted
                           ------      -------      ------        ------        ------      -----      -------
<S>                        <C>         <C>         <C>           <C>           <C>         <C>         <C>
March 31                    $8,359       $4,228       $4,131        $(219)     $  1,198      $.20         $.19
June 30                      9,050        4,637        4,413         (316)           98       .02          .02
September 30                 9,296        4,981        4,315         (393)        1,313       .21          .21
December 31                  9,542        5,169        4,373         (215)        1,604       .26          .26
</TABLE>

The decline during the quarter ended June 30, 2000 was the result of merger and
restructuring charges.

--------------------------------------------------------------------------------

                                      59
<PAGE>

Item 9.  Changes in and Disagreements with Accountants on Accounting and
         Financial Disclosure

          None.

                                   PART III

Item 10. Directors and Executive Officers of the Registrant

                              BOARD OF DIRECTORS

     The Board of Directors proposes the reelection of the following directors
for terms expiring in 2005:

<TABLE>
<CAPTION>
                                                              Director of       Director of the
  Name                       Age       Position(s) Held      BKFC Since (1)        Bank Since
  ----                       ---       ----------------      --------------        ----------
<S>                          <C>       <C>                   <C>                <C>
  Charles M. Berger          49               N/A                 N/A                 N/A
  David E. Meyer             67            Director               1994               1991
  John E. Miracle            59            Director               1994               1991
  Mary Sue Rudicill          58            Director               1994               1991
</TABLE>

______________________

(1)      BKFC acquired the Bank in 1995.

                                      60

<PAGE>

     The following directors will continue to serve after the 2002 Annual
Meeting for the terms indicated:

<TABLE>
<CAPTION>
                                                               Term         Director of      Director of the
  Name                       Age       Position(s) Held       Expires       BKFC Since (1)      Bank Since
  ----                       ---       ----------------       -------       -----------        ----------
<S>                          <C>    <C>                       <C>           <C>              <C>
  Harry J. Humpert           75            Director            2003             1995              1995
  Robert B. Sathe            54            Director            2003             1994              1990
  Herbert H. Works           72            Director            2003             1994              1992
  Robert W. Zapp             50       President, CEO and       2003             1994              1990
                                           Director
  Rodney S. Cain             63     Secretary and Director     2004             1994              1990
  Wayne Carlisle             60            Director            2004             2000              2000
  Ruth Seligman-Doering      61            Director            2004             1994              1990
  R. C. Durr                 82      Chairman and Director     2004             1994              1990
</TABLE>

____________________________

(1)  BKFC acquired the Bank in 1995.

     Charles M. Berger has been the President of Bilz Insurance Agency in
Covington, Kentucky, since 1990.

     David E. Meyer is the President of Wolfpen Associates, a commercial real
estate firm; the managing partner of a commercial real estate investment firm,
Meyer Realty; the President of Fuller Square Corporation; and the retired
President of H. Meyer Dairy Company.

     John E. Miracle, D.M.D., had a private dental practice for thirty years.
Dr. Miracle retired from practice in September 1999.

     Mary Sue Rudicill has been the Chairman of Belleview Sand and Gravel, Inc.,
and Gravelview Trucking Company for fifteen years. Ms. Rudicill is a director of
Farmer's Mutual Life Insurance Company.

     Harry J. Humpert is the President of Humpert Enterprises, Inc., a company
which operates Klingenberg's Hardware and Paint in Covington, Kentucky.

     Robert B. Sathe resigned as a Regional Vice President of CIGNA Financial
Advisors, Inc., but remained a registered representative until July 31, 2000. He
now operates Mid-Central Financial Advisors, a registered investment advisory
firm.

     Herbert H. Works has been the President of Boone-Kenton Lumber for the last
26 years.

     Robert W. Zapp was the Executive Vice President and the Senior Loan Officer
of Fifth Third Bank of Boone County from January 1982 until June 1988. From June
1988 until January 1990, Mr. Zapp was the President of Fifth Third Bank of
Kenton County, formerly Security Bank. Mr. Zapp resigned as President of such
institution in order to participate in the organization of the Bank. Currently,
Mr. Zapp is the President and the Chief Executive Officer of the Bank and BKFC.

     Rodney S. Cain has served as the Secretary of the Bank since 1990 and of
BKFC since 1994. Mr. Cain is also the Chairman and CEO of Wiseway Supply and has
served in that capacity since 1972.

     Wayne Carlisle has been Chairman of the Board of Carlisle Equipment Group,
L.P., a wholly owned subsidiary of Maxim Crane Works, since July 1999. Prior to
that, Mr. Carlisle was President and CEO of Carlisle Construction for over 40
years.

     Ruth M. Seligman-Doering is currently a director of Charles Seligman
Distributing Company, Inc., and has also been its President and CEO since 1992.

     R. C. Durr was one of the founders of Boone State Bank. From the time Boone
State Bank was organized in 1971 until Boone State Bank was acquired by Fifth
Third Bank in 1985, Mr. Durr was active in the day-to-day management of the

                                      61
<PAGE>

activities of the institution. After such acquisition, Mr. Durr served as the
Chairman of the Board of Fifth Third Bank of Boone County, the successor to
Boone State Bank, until he resigned in order to participate in the organization
of the Bank. Mr. Durr has served as the Chairman of the Board of Directors of
the Bank since 1990 and of BKFC since 1994.

                              EXECUTIVE OFFICERS

     The following table sets forth certain information with respect to the
executive officers of BKFC:

Name                       Age                Position(s) Held
----                       ---                ----------------

R. C. Durr                 82             Chairman of the Board
Robert W. Zapp             50             President and Chief Executive Officer
Rodney S. Cain             63             Secretary
Robert D. Fulkerson        50             Treasurer and Assistant Secretary


     For biographical information regarding each of these executive officers,
except Mr. Fulkerson, see "BOARD OF DIRECTORS - Election of Directors."

     Robert D. Fulkerson was Vice President of Fifth Third Bank of Boone County
from 1985 until 1990. He served as Vice President of the Bank from 1990 until
1995 and has served as Senior Vice President of the Bank since 1995. He has also
been the Assistant Secretary of BKFC since 1996 and its Treasurer since 1998.

            SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     Under the federal securities laws, BKFC's directors and executive officers
and persons holding more than ten percent of the outstanding Shares are required
to report their ownership of Shares and changes in such ownership to the
Securities and Exchange Commission (the "SEC") and BKFC. The SEC has established
specific due dates for such reports. Based upon a review of such reports, BKFC
must disclose any failures to file such reports timely in proxy statements used
in connection with annual meetings of stockholders. The only persons known by
BKFC to have failed to file a report timely are Mr. Durr, who filed late a Form
4 reporting one purchase of shares, and Mr. Sathe, who did not timely file two
Forms 4 reporting two sales of shares and failed to timely report on Form 5 four
gifts of shares.

                                      62
<PAGE>

Item 11.  Executive Compensation

     BKFC does not pay any compensation to its executive officers. Executive
officers of the Bank are compensated by the Bank for services rendered to the
Bank. Except for the President of the Bank, no director or executive officer of
BKFC received more than $100,000 in salary and bonus payments from the Bank
during the year ended December 31, 2001. The following table sets forth certain
information with respect to compensation paid to the President of the Bank.

                          Summary Compensation Table

<TABLE>
<CAPTION>
                                                                           ------------------------
                                                                                  Long-Term
                                                                                 Compensation
---------------------------------------------------------------------------------------------------------------------
                                                Annual Compensation (1)            Awards              All Other
                                                                           ------------------------
                                                                            Securities underlying    Compensation
Name and Principal Position         Year         Salary($)      Bonus($)      Options/SARs (#)            ($)
---------------------------------------------------------------------------------------------------------------------
<S>                                <C>           <C>             <C>           <C>                   <C>
Robert W. Zapp, President          2001           $180,000      $ 50,000           6,000/-0-           $  14,767 (2)
    and CEO                        2000            165,000       100,000           6,000/-0-              33,353 (3)
                                   1999            149,616       110,000           6,000/-0-             129,501 (4)

Robert D. Fulkerson                2001           $ 84,430      $ 15,900           2,600/-0-           $   8,716 (5)
</TABLE>

_______________________

(1)  Does not include amounts attributable to other miscellaneous benefits. The
     cost to BKFC of providing such benefits to each of Mr. Zapp and Mr.
     Fulkerson was less than 10% of his cash compensation.

(2)  Consists of contributions of $11,330 to the Bank's Profit Sharing Plan for
     Mr. Zapp's account, a matching contribution to Mr. Zapp's 401(k) plan
     account of $3,023, and premium payments of $414 for a split-dollar life
     insurance policy.

(3)  Consists of contributions of $15,300 to the Bank's Profit Sharing Plan for
     Mr. Zapp's account, a matching contribution to Mr. Zapp's 401(k) plan
     account of $3,023, premium payments of $15,030 for a split-dollar life
     insurance policy.

(4)  Consists of contributions of $12,000 to the Bank's Profit Sharing Plan for
     Mr. Zapp's account, a matching contribution to Mr. Zapp's 401(k) plan
     account of $2,646, premium payments of $15,030 for a split-dollar life
     insurance policy, and the $99,825 value at December 31, 1999, of
     allocations to Mr. Zapp's ESOP account.

(5)  Consists of contributions of $6,704 to the Bank's Profit Sharing Plan for
     Mr. Fulkerson's account and a matching contribution to Mr. Fulkerson's
     401(k) plan account of $2,012.

Director Compensation

     Although BKFC and the Bank do not pay regularly established director's
fees, each director of the Bank, except Mr. Zapp, received a $500 bonus in
December 2001. During 2001, each non-employee director of BKFC was awarded
options to purchase 2,250 shares, except Mr. Carlisle, who received options to
purchase 1,625 shares.

Stock Option Plan

     At the 1997 Annual Meeting of Stockholders of BKFC, the stockholders
approved The Bank of Kentucky Financial Corporation 1997 Stock Option and
Incentive Plan (the "Stock Option Plan"), providing for the award of options to
purchase up to 1,080,000 Shares. Options to purchase 268,850 Shares have been
awarded to directors, officers and employees of BKFC pursuant to the Stock
Option Plan. In addition, options to purchase 12,441 Shares were granted to
holders of options to purchase shares of Ft. Thomas Financial Corporation
("FTFC") in connection with the merger of FTFC into BKFC in

                                      63
<PAGE>

2000. Options to purchase a total of 16,214 Shares have been forfeited, and
44,828 Shares have been acquired upon the exercise of options. All of the
numbers of Shares contained in this paragraph are adjusted for stock dividends
issued in 1998 and 1999.

         The following table sets forth information regarding all grants of
options to purchase Shares of BKFC made to Mr. Zapp and Mr. Fulkerson during the
fiscal year ended December 31, 2001:

<TABLE>
<CAPTION>
                                              Options/SAR Grants in Last Fiscal Year
-----------------------------------------------------------------------------------------------------------------------------------

                                                                                                            Potential Realizable
                                                                                                          Value at Assumed Annual
                                                                                                            Rates of Stock Price
                                                                                                                Appreciation
                                                     Individual Grants                                        for Option Term
-----------------------------------------------------------------------------------------------------------------------------------
                                                    % of  Total Options/
                          Number of Securities         SARs Granted to        Exercise or     Expiration
Name                           Underlying         Employees in Fiscal Year     Base Price        Date        5% ($)    10% ($)
----                                              ------------------------     -----------    ----------   --------- -----------
                              Options/SARs                                     ($/share)
                              ------------                                     ---------
                             Granted (#)(1)
                             --------------
<S>                          <C>                  <C>                          <C>             <C>          <C>       <C>
Robert W. Zapp                    6,000/-0-              17.98%                 $20.50         1/19/11       $77,340    $196,020
Robert D. Fulkerson               2,600/-0-               7.79                   20.50         1/19/11        33,514      84,942
</TABLE>
___________________________

(1)      Options granted were intended to qualify as incentive stock options
         under the Internal Revenue Code of 1986, as amended. One-fifth is
         exercisable each year for five years beginning on January 19, 2002.


         The following table sets forth information regarding the number and
value of unexercised options held by Mr. Zapp and by Mr. Fulkerson at December
31, 2001:

<TABLE>
<CAPTION>
                          Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End Values
                          ------------------------------------------------------------------------------

                                                           Number of Securities Underlying         Value of Unexercised
                               Shares                        Unexercised Options/SARs at       In-the-Money Options/SARs at
                             Acquired on       Value                  12/31/01                        12/31/01 ($)(1)
Name                        Exercise (#)     Realized         Exercisable/Unexercisable          Exercisable/Unexercisable
----                        ------------     --------         -------------------------          -------------------------
<S>                         <C>              <C>              <C>                                <C>
Robert W. Zapp                  -0-             -0-                  7,200/16,800                    $44,388/$29,592
Robert D. Fulkerson             -0-             -0-                  3,895/ 8,130                    $23,859/$15,906
</TABLE>
_____________________________

(1)      For purposes of this table, the value of the options was determined by
         multiplying the number of Shares subject to unexercised options by the
         difference between the exercise price for the unexercised options and
         the fair market value of BKFC's Shares, which was $20.50 per Share as
         of December 31, 2001, based upon the average prices of trades in BKFC
         shares known by management to have occurred in December 2001. No
         established trading market for BKFC's Shares existed at December 31,
         2001, BKFC's Shares are not traded on any securities exchange and the
         prices at which its Shares are traded are not quoted by a national
         quotation service.


Compensation Committee Interlocks and Insider Participation

The Board of Directors of the Bank has a Compensation Committee whose members
are Messrs. Meyer and Miracle and Ms. Rudicill. None of these members are
employees of the Bank or BKFC.

                                      64
<PAGE>

Item 12.  Security Ownership of Certain Beneficial Owners and Management

The following table sets forth certain information with respect to the only
persons known to BKFC to own beneficially more than five percent of the
outstanding Shares as of March 1, 2002:

<TABLE>
<CAPTION>
                                                        Amount and Nature                 Percentage of
Name and Address (1)                               of Beneficial Ownership (2)         Shares Outstanding
----------------                                   -----------------------             ------------------
<S>                                                <C>                                 <C>
Rodney S. Cain and
   Jacqueline M. Cain                                          922,958 (3)                    15.45%

R. C. Durr and
   R. C. Durr Company, Inc.                                    937,924 (4)                    15.68%
</TABLE>
_____________________________

(1)      Mr. and Mrs. Cain, Mr. Durr and R. C. Durr Company, Inc., through Mr.
         Durr, its sole stockholder, may be contacted in care of BKFC at 1065
         Burlington Pike, Florence, Kentucky 41042.

(2)      A person is the beneficial owner of Shares if such person, directly or
         indirectly, has sole or shared voting or investment power over such
         Shares or has the right to acquire such voting or investment power
         within 60 days. Each person listed, unless otherwise indicated by
         footnote, owns all Shares with sole voting and investment power.

(3)      Includes 909,187 Shares owned jointly by Mr. and Mrs. Cain and 5,250
         Shares that may be acquired upon the exercise of options.

(4)      Includes 613,049 Shares owned by R. C. Durr Company, Inc. and 11,250
         Shares that may be acquired upon the exercise of options. Mr. Durr is
         the sole stockholder of R. C. Durr Company, Inc.


         The following table sets forth certain information with respect to the
number of Shares beneficially owned by each director of BKFC and by all
directors and executive officers of BKFC as a group as of March 1, 2002:

<TABLE>
<CAPTION>
                                                   Amount and Nature of                    Percentage of
Name and Address (1)                             Beneficial Ownership (2)               Shares Outstanding
----------------                                 --------------------                   ------------------
<S>                                              <C>                                    <C>
Charles M. Berger                                          37,039 (3)                              .62%
Rodney S. Cain                                            922,958 (4)                            15.45
Wayne Carlisle                                              9,875 (5)                              .17
Ruth Seligman-Doering                                     112,410 (6)                             1.88
R. C. Durr                                                937,924 (7)                            15.68
Robert D. Fulkerson                                        25,176 (8)                              .42
Harry J. Humpert                                           40,497 (9)                              .68
David E. Meyer                                             89,793 (10)                            1.50
Dr. John E. Miracle                                        87,276 (11)                            1.46
Mary Sue Rudicill                                          75,190 (12)                            1.26
Robert B. Sathe                                            96,820 (13)                            1.62
William E. Snyder                                          29,513 (14)                             .49
Herbert H. Works                                           31,664 (15)                             .53
Robert W. Zapp                                            189,833 (16)                            3.17
All directors, nominees and executive
   officers of BKFC as a group (14 persons)             2,685,968                                44.25
</TABLE>
______________________________

(1)      Each of the persons listed in this table may be contacted at the
         address of BKFC, 1065 Burlington Pike, Florence, Kentucky 41042.

                                      65
<PAGE>

(2)  A person is the beneficial owner of Shares if such person, directly or
     indirectly, has sole or shared voting or investment power over such Shares
     or has the right to acquire such voting or investment power within 60 days.
     Each person listed, unless otherwise indicated by footnote, owns all Shares
     with sole voting and investment power.

(3)  Includes 16,863 Shares held by Mr. Berger's spouse and sons and 15,000
     Shares held by Berger-Collins L.L.C.

(4)  Includes 909,187 Shares owned jointly by Mr. Cain and his wife and 5,250
     Shares that may be acquired upon the exercise of options.

(5)  Includes 2,375 Shares that may be acquired upon the exercise of options.

(6)  Includes 6,750 Shares that may be acquired upon the exercise of options.

(7)  Includes 613,049 Shares owned by R. C. Durr Company, Inc., of which Mr.
     Durr is the sole stockholder, and 11,250 Shares that may be acquired upon
     the exercise of options.

(8)  Includes 9,825 Shares owned jointly by Mr. Fulkerson and his wife, 450
     Shares held by Mr. Fulkerson's wife and 6,300 Shares that may be acquired
     upon the exercise of options.

(9)  Includes 11,588 Shares owned by Mr. Humpert's wife and 7,500 Shares that
     may be acquired upon the exercise of options.

(10) Includes 72,342 Shares held in trust, with respect to which Mr. Meyer
     shares investment power only as co-trustee, and 7,500 Shares that may be
     acquired upon the exercise of options.

(11) Includes 22,000 Shares owned by Dr. Miracle's wife, 17,100 Shares held in a
     trust of which Dr. Miracle is the trustee and with respect to which Dr.
     Miracle has sole voting and investment power and 6,750 Shares that may be
     acquired upon the exercise of options.

(12) Includes 1,500 Shares owned jointly by Ms. Rudicill and her husband, 13,500
     Shares owned by Belleview Sand and Gravel, Inc., of which Ms. Rudicill is
     Chairman and which is owned by Ms. Rudicill and her husband, and 9,750
     Shares that may be acquired upon the exercise of options.

(13) Includes 1,000 Shares held by Mr. Sathe as custodian of a family
     foundation, 1,000 Shares held on behalf of Mr. Sathe's son and 7,500 Shares
     that may be acquired upon the exercise of options.

(14) Includes 9,750 Shares that may be acquired upon the exercise of options.

(15) Includes 2,000 Shares owned by Boone-Kenton Lumber, of which Mr. Works is
     the President and owner, and 6,750 Shares that may be acquired upon the
     exercise of options.

(16) Includes 43,715 Shares owned jointly by Mr. Zapp and his wife, 5,496 Shares
     held by Mr. Zapp's wife as custodian for Mr. Zapp's children, 43,584 Shares
     owned by his wife and 12,000 Shares that may be acquired upon the exercise
     of options.

Item 13.  Certain Relationships and Related Transactions

The Bank has extended loans to certain of its and BKFC's directors and executive
officers, their affiliates and members of their families. All such loans were
made in the ordinary course of business on substantially the same terms,
including interest rates and collateral requirements, as those prevailing at the
time for comparable transactions with other persons and did not present more
than the normal risk of collectibles or other unfavorable features.

                                       66
<PAGE>

         The Bank has a lease  agreement for office  premises  located at 1065
Burlington Pike with Mr. Durr, R. C. Durr Company, Inc., Mr. Cain, and Mr.
Cain's sons, John S. Cain, Rodney C. Cain and David Alfred Cain, each of whom is
a lessor under the lease agreement. The annual rental expense under this lease
was $191,782, $178,279 and $178,279 for each of the years ended December 31,
2001, 2000 and 1999, respectively. The lease has an initial term of 15 years
expiring in 2006 and may, at the option of the Bank, be renewed for three
successive five-year periods.

         The Bank has a lease agreement for office premises located on Weaver
Road in Boone County, Kentucky, with Ms. Seligman-Doering and Mr. Sathe as
lessors under the lease agreement. Total rental expense under this lease was
$64,886 for each of the years ended December 31, 2001, 2000 and 1999. The lease
has an initial term of 15 years expiring in 2007 and may, at the option of the
Bank, be renewed for three successive five-year periods.

         The Bank has a lease agreement for office premises located on Kentucky
Highway 18 in Boone County, Kentucky, with William R. Rudicill, the husband of
Ms. Rudicill. Total rental expense under this lease was $11,056 for the years
ended December 31, 2001, 2000 and 1999. The lease has an initial term of 15
years expiring in 2008 and may, at the option of the Bank, be renewed for three
successive five-year periods.

         The Bank has a lease  agreement for office  premises  located on
Houston Road in Boone County, Kentucky, with Dr. Miracle, Geraldine G. Miracle,
Jennifer A. Meyer, Maria A. Meyer, Leila L. Meyer, Herbert E. Works, Mark T.
Wilson, Nicolette Wilson, Bryan E. Wilson and Josephina Wilson, each of whom is
a lessor under the lease agreement. Geraldine Miracle is Dr. Miracle's spouse.
Jennifer Meyer, Maria Meyer and Leila Meyer are daughters-in-law of Mr. Meyer.
Herbert E. Works is the son of Mr. Works. Mark Wilson, Nicolette Wilson, Bryson
Wilson and Josephina Wilson were related to Mr. Works through his former wife.
The annual rental expense under this lease was $80,808, $80,808 and $75,912 for
the years ended December 31, 2001, 2000 and 1999, respectively. The lease has an
initial term of 15 years expiring in 2009 and may, at the option of the Bank, be
renewed for three successive five-year periods.

         The Bank has a ground lease agreement for office premises located at
12020 Madison Pike in Nicholson, Kentucky, with Nicholson Properties LLC. R. C.
Durr owns 50% of Nicholson Properties LLC. The annual rental expense under this
agreement is $24,000. The lease had an initial term of five years expiring in
December 2001 and was renewed for an additional term of five years at an annual
expense of $26,400.

         The Bank has a lease agreement for office premises located on U.S. 42
in Boone County, Kentucky, with Burnett Mortgage Company, LLC, of which Mr.
Humpert and Mr. Snyder are members. Total rental expense under this lease was
$89,495 for each of the years ended December 31, 2001, 2000 and 1999. The lease
was effective in May 1998 with an initial term of 15 years and may, at the
option of the Bank, be renewed for three successive five-year periods.

                                    PART IV

Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K

                  (a)   Exhibits

                        Item  3.   Amended Articles of Incorporation and By-Laws

                        Item 10.   Material Contracts/Stock Option Plan

                        Item 21.   Subsidiaries of the Registrant

                        Item 23.   Consent of Crowe, Chizek and Company LLP

                        Item 99.   Safe Harbor Under the Private Securities
                                   Litigation Reform Act of 1995

                  (b)   No forms 8-K were filed during the quarter ended
                        December 31, 2002.

                                       67
<PAGE>

                                  SIGNATURES

     In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                      THE BANK OF KENTUCKY FINANCIAL CORPORATION


                                      By _________________________________
                                         Robert W. Zapp
                                         President, Chief Executive
                                         Officer and a Director

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been duly signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.


By______________________________                By______________________________
  Robert Fulkerson,                               Rodney S. Cain,
  Treasurer                                       Secretary and Director

Date:  3/15/02                                  Date:  3/15/02


By______________________________                By______________________________
  R.C. Durr,                                      Harry J. Humpert,
  Director                                        Director

Date:  3/15/02                                  Date:  3/15/02


By______________________________                By______________________________
  David E. Meyer,                                 John E. Miracle,
  Director                                        Director

Date:  3/15/02                                  Date:  3/15/02


By______________________________                By______________________________
  Mary Sue Rudicill,                              Robert B. Sathe,
  Director                                        Director

Date:  3/15/02                                  Date:  3/15/02


By______________________________                By______________________________
  William E. Snyder,                              Herbert H. Works,
  Director                                        Director

Date:  3/15/02                                  Date:  3/15/02

                                      68
<PAGE>

By__________________________________            By______________________________
  Ruth Doering-Seligman,                          Wayne Carlisle,
  Director                                        Director

Date:  3/15/02                                  Date:  3/15/02

                                      69
<PAGE>

                                  SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

                                       THE BANK OF KENTUCKY FINANCIAL
                                        CORPORATION


                                       By /s/ Robert W. Zapp
                                          -------------------------------------
                                          Robert W. Zapp,
                                          President, Chief Executive
                                          Officer and a Director

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been duly signed below by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.


By /s/ Robert Fulkerson                         By /s/ Rodney S. Cain
   ---------------------------------               -----------------------------
    Robert Fulkerson,                               Rodney S. Cain,
    Treasurer                                       Secretary and Director

Date:  3/15/02                                  Date:  3/15/02


By /s/ R.C. Durr                                By /s/ Harry J. Humpert
   ---------------------------------               -----------------------------
    R.C. Durr,                                      Harry J. Humpert,
    Director                                        Director

Date:  3/15/02                                  Date:  3/15/02


By /s/ David E. Meyer                           By /s/ John E. Miracle
   ---------------------------------               -----------------------------
    David E. Meyer,                                 John E. Miracle,
    Director                                        Director

Date:  3/15/02                                  Date:  3/15/02

                                      70
<PAGE>

By /s/ Mary Sue Rudicill                        By /s/ Robert B. Sathe
   ---------------------------------               -----------------------------
    Mary Sue Rudicill,                              Robert B. Sathe,
    Director                                        Director

Date:  3/15/02                                  Date:  3/15/02


By /s/ William E. Snyder                        By /s/ Herbert H. Works
   ---------------------------------               -----------------------------
    William E. Snyder,                              Herbert H. Works,
    Director                                        Director

Date:  3/15/02                                  Date:  3/15/02


By /s/ Ruth Doering-Seligman                    By /s/ Wayne Carlisle
   ---------------------------------               -----------------------------
    Ruth Doering-Seligman,                             Wayne Carlisle,
    Director                                           Director

Date:  3/15/02                                  Date:  3/15/02

                                      71
<PAGE>

                               INDEX TO EXHIBITS


<TABLE>
<CAPTION>
EXHIBIT
NUMBER      DESCRIPTION
<S>         <C>                                                          <C>
   3.1      Articles of Incorporation of The Bank of Kentucky            Incorporated by reference to Form S-4 filed by
            Financial Corporation, as amended                            the Registrant on March 24, 2000, (the "S-4"),
                                                                         Exhibit 3(a).

   3.2      By-Laws of The Bank of Kentucky Financial Corporation        Incorporated by reference to the 8-K, Exhibit
                                                                         2(d).

   10       The Bank of Kentucky Financial Corporation 1997 Stock        Incorporated by reference to Form S-8 filed by
            Option and Incentive Plan                                    the Registrant on October 2, 1997, Exhibit 4(d).

   21       Subsidiaries of the Registrant

   23       Consent of Crowe, Chizek and Company LLP

   99       Safe Harbor Under the Private Securities Litigation Reform
            Act of 1995
</TABLE>

                                      72