FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
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 No. 0-23935
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COLUMBIA FINANCIAL OF KENTUCKY, INC.
- ---------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 61-1319175
- --------------------------------------- ---------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification Number)
2497 Dixie Highway
Ft. Mitchell, Kentucky 41017-3085
- --------------------------------------- ---------------------------------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (606) 331-2419
Check whether the Issuer (1) has 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 [ ]
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: As of May 11, 1998, the
latest practicable date, 2,671,450 common shares of the registrant, no par
value, were issued and outstanding.
* Prior to April 15, 1998, the Registrant conducted no business except
the offering of its common shares and preparation to acquire Columbia
Federal Savings Bank. The financial information contained in this Form
10-QSB is, therefore, provided for Columbia Federal Savings Bank.
INDEX
COLUMBIA FEDERAL SAVINGS BANK
Page
----
PART I - FINANCIAL INFORMATION
Statements of Financial Condition 3
Statements of Income 4
Statements of Cash Flows 5
Notes to Financial Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II - OTHER INFORMATION 12
SIGNATURES 13
Columbia Federal Savings Bank
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
Mar. 31 Sept. 30
1998 1997
--------------------
(In Thousands)
<S> <C> <C>
ASSETS
Cash and due from Banks $ 616 $ 612
Interest Bearing Deposits in Other Banks 30,908 6,215
--------------------
Total Cash and Cash Equivalents 31,524 6,827
Investment Securities
Held to Maturity, At Cost (Market Value of
$13,090 and $13,068 at March 31, 1998 and
September 30, 1997) 13,025 13,069
Available-for-Sale, At Market Value -- 1,003
Mortgage-Backed Securities, At Cost (Market Value
of $19,917 and $17,893 at March 31, 1998 and
September 30, 1997) 17,846 17,862
Loans Receivable, Net 61,415 61,578
Interest Receivable 754 712
Premises and Equipment, Net 1,625 1,595
Federal Home Loan Bank Stock, At Cost 1,306 1,260
Federal Income Tax - Refund Receivable -- 13
Other Assets 231 87
--------------------
Total Assets $127,726 $104,006
====================
LIABILITIES AND EQUITY
Liabilities
Deposits $113,871 $ 90,195
Advances from Borrowers for Taxes and Insurance 278 460
Accrued Federal Income Tax Liability 45 --
Deferred Federal Income Tax Liability 162 162
Other Liabilities 74 98
--------------------
Total Liabilities 114,430 90,915
--------------------
Equity
Retained Earnings - Substantially Restricted 13,296 13,090
Unrealized (Loss) Gain on Available-for-Sale
Securities, Net of Related Taxes -- 1
--------------------
Total Equity 13,296 13,091
--------------------
Total Liabilities and Equity $127,726 $104,006
====================
</TABLE>
Columbia Federal Savings Bank
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
------------------------------------------
1998 1997 1998 1997
------------------------------------------
<S> <C> <C> <C> <C>
Interest Income
Loans $1,337 $1,484 $2,685 $2,949
Mortgage-Backed Securities 298 288 577 584
Investments 245 206 493 428
Interest-Bearing Deposits 77 35 134 70
------------------------------------------
Total Interest Income 1,957 2,013 3,889 4,031
------------------------------------------
Interest Expense
Deposits 1,103 1,099 2,201 2,219
FHLB Advances -- 14 -- 18
------------------------------------------
Total Interest Expense 1,103 1,113 2,201 2,237
------------------------------------------
Net Interest Income 854 900 1,688 1,794
Provision for Losses on Loans -- -- 74 --
------------------------------------------
Net Interest Income After Provision for
Losses on Loans 854 900 1,614 1,794
------------------------------------------
Non-Interest Income 29 17 56 45
------------------------------------------
Non-Interest Expense
Salaries and Employee Benefits 407 375 832 828
Occupancy Expense of Premises 64 65 128 117
Federal Deposit Insurance Premiums 14 3 28 59
Legal, Audit and Examination 19 17 34 36
Data Processing Services 31 30 59 57
Advertising 30 27 65 54
Intangible and Other Taxes 26 25 51 50
Other 63 65 164 147
------------------------------------------
Total Non-Interest Expense 654 607 1,361 1,348
------------------------------------------
Income Before Federal Income Tax Expense 229 310 309 401
Federal Income Tax Expense 76 105 103 167
------------------------------------------
Net Income $ 153 $ 205 $ 206 $ 324
==========================================
</TABLE>
See auditors' report and accompanying notes.
Columbia Federal Savings Bank
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
March 31,
-------------------
1998 1997
-------------------
(In Thousands)
<S> <C> <C>
Cash Flows From Operating Activities
Net Income $ 206 $ 324
Reconciliation of Net Income with Cash Flows from Operations
Depreciation 61 39
Provision for Losses on Loans 74 --
FHLB Stock Dividends (46) (41)
Changes In Interest Receivable (42) 63
Other Assets (29) 7
Federal Income Tax Receivable / Liability 58 157
Other Liabilities (24) (609)
-------------------
Net Cash Provided by Operating Activities 258 (60)
-------------------
Cash Flows From Investing Activities
Investment Securities
Purchased (6,001) (1,501)
Matured 7,048 2,502
Mortgage-Backed Securities
Principal Collected 16 2,535
Loan Originations and Repayments, Net 163 (1,880)
Deferred Conversion Costs (190) --
Purchases of Property and Equipment (91) (303)
-------------------
Net Cash (Used) Provided by Investing Activities 945 1,353
-------------------
Cash Flows From Financing Activities
Advances from Borrowers for Taxes and Insurance (182) 40
Change in Deposits 23,676 (2,456)
Proceeds from FHLB Advances -- 1,000
-------------------
Net Cash (Used) Provided by Financing Activities 23,494 (1,416)
-------------------
Change in Cash and Cash Equivalents 24,697 (123)
Beginning Balance, Cash and Cash Equivalents 6,827 3,047
-------------------
Ending Balance, Cash and Cash Equivalents $31,524 $ 2,924
===================
</TABLE>
See auditors report and accompany notes.
Columbia Federal Savings Bank
NOTES TO FINANCIAL STATEMENTS
COLUMBIA FEDERAL SAVINGS BANK
For the three and six-month periods ended
March 31, 1998 and 1997
1. Basis of Presentation
---------------------
The accompanying unaudited financial statements were prepared in
accordance with instructions for Form 10-QSB, and, therefore, do not
include information or footnotes necessary for complete presentation of
financial position, results of operations and cash flows in conformity with
generally accepted accounting principles. Accordingly, these financial
statements should be read in conjunction with the financial statements and
notes thereto of Columbia Federal Savings Bank for the year ended September
30, 1997. However, in the opinion of management, all adjustments
(consisting of only normal recurring accruals) which are necessary for fair
presentation of the financial statements have been included. The results
of operations for the three-month and six-month periods ended March 31,
1998 and 1997 are not necessarily indicative of the results which may be
expected for an entire fiscal year.
The accompanying financial statements include the accounts of
Columbia Federal Savings Bank ("Columbia Federal"). At March 31, 1998,
Columbia Federal was in the process of converting to a stock association.
Upon completion of the conversion, on April 15, 1998 Columbia Federal
became a wholly owned subsidiary of Columbia Financial of Kentucky, Inc.
("CFKY").
2. Impact of Recent Accounting Standards
-------------------------------------
In June 1997, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information." SFAS No. 131, which is effective for fiscal years
beginning after December 15, 1997, requires operating segments of a company
be segregated to provide a better understanding of performance and a better
assessment of its future cash flows. Generally, financial information is
required to be reported on the bases that it is used internally for
evaluating segment performance and deciding how to allocate resources to
segments. Management does not believe that the adoption of SFAS No. 131
will have a material impact on the disclosure requirements of CFKY.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which establishes standards for reporting and displaying
comprehensive income and its components (revenues, expenses, gains and
losses) in a full set of general-purpose financial statements. SFAS No.
130 requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements and requires that an enterprise (a) classify items of
other comprehensive income by their nature in a financial statement and (b)
display the accumulated balance of other comprehensive income separately
from retained earnings and additional paid-in capital in the equity section
of the statement of financial position. Under existing accounting
standards, other comprehensive income shall be classified separately into
foreign currency items, minimum pension liability adjustments and
unrealized gains and losses on certain investments in debt and equity
securities. The provisions of SFAS No. 130 are effective for fiscal years
beginning after December 15, 1997. Management does not believe the
adoption of SFAS No. 130 will have a material impact on the disclosure
requirements of CFKY.
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share,"
which establishes standards for computing and presenting earnings per share
("EPS") by entities with publicly held common stock or potential common
stock. SFAS No. 128 simplifies the standards for computing earnings per
share previously found in Accounting Principles Board ("APB") Opinion No.
15, "Earnings Per Share." Basic EPS excludes dilution and is computed by
dividing income available to common stockholders by the weighted-average
number of common shares outstanding for the period. Diluted EPS reflects
the potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the earnings
of the entity.
Diluted EPS is computed similarly to fully diluted EPS pursuant to
APB Opinion No. 15. SFAS No. 128 supersedes APB Opinion No. 15 and is
effective for financial statements issued for periods ending after December
15, 1997, including interim periods. Effective this quarter, management
has adopted SFAS No. 128. Since CFKY's offering was not completed until
April 15, 1998, SFAS No. 128 has no effect on disclosure in these financial
statements. Management does not believe the application of this standard
to future periods will have a material impact on the disclosure
requirements of CFKY.
In February 1997, the FASB issued SFAS No. 129, which incorporates
the disclosure requirements of APB Opinion No. 15, and makes them
applicable to all public and nonpublic entities that have issued securities
addressed by SFAS No. 129. APB Opinion No. 15 requires disclosure of
descriptive information about securities that is not necessarily related to
the computation of EPS. SFAS No. 129 continues the previous requirements
to disclose certain information about an entity's capital structure found
in APB Opinions No. 19, "Omnibus Opinion - 1966," and No. 15, and SFAS No.
47, "Disclosure of Long-Term Obligations," for entities that were subject
to the requirements of those standards. SFAS No. 129 eliminates the
exemption of nonpublic entities from certain disclosure requirements of APB
Opinion No. 15 as provided by SFAS No. 21, "Suspension of the Reporting of
Earnings per Share, and Segment Information by Nonpublic Enterprises."
SFAS No. 129 supersedes specific disclosure requirements of APB Opinions
Nos. 10 and 15 and SFAS No. 47 and consolidates them in SFAS No. 129 for
ease of retrieval and for greater visibility to nonpublic entities. SFAS
No. 129 is effective for financial statements for periods ending after
December 15, 1997. Columbia Federal has not previously issued any common
shares and SFAS No. 129 will be adopted by CFKY in the initial period after
December 15, 1997. Management believes the adoption of SFAS No. 129 will
not have a material impact on the disclosure requirements of CFKY.
In December 1996, the FASB issued SFAS No. 126, which amends SFAS No.
107, "Disclosure About Fair Value of Financial Instruments," to make the
disclosures about fair value of financial instruments prescribed in SFAS
No. 107 optional for nonpublic entities with total assets less than $100
million on the date of the financial statement. SFAS No. 126 also requires
that the entity has not held or issued any derivative financial
instruments, as defined in SFAS No. 119, "Disclosure About Derivative
Financial Instruments and Fair Value of Financial Instruments," other than
loan commitments, during the reporting periods. Management believes the
adoption of SFAS No. 126 will not impact the disclosure requirements of
CFKY based on Columbia Federal's compliance with SFAS No. 107 disclosure
requirements in prior periods.
In June 1996, the FASB issued SFAS No. 125, which is effective, on a
prospective basis, for fiscal years beginning after December 31, 1996.
SFAS No. 125 provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishment of liabilities based on
consistent application of a financial-components approach that focuses on
control. SFAS No. 125 extends the "available for sale" and "trading"
approach of SFAS No. 115 to non-security financial assets that can be
contractually prepaid or otherwise settled in such a way that the holder of
the asset would not recover substantially all of its recorded investment.
In addition, SFAS No. 125 amends SFAS No. 115 to prevent a security from
being classified as held-to-maturity if the security can be prepaid or
settled in such a manner that the holder of the security would not recover
substantially all of its recorded investment. The extension of the SFAS
No. 115 approach to certain non-security financial assets and the amendment
to SFAS No. 115 are effective for financial assets held on or acquired
after January 1, 1997. Effective January 1, 1997, SFAS No. 125 superseded
SFAS No. 122, which is discussed above. Management does not believe the
adoption of SFAS No. 125 will have a material impact on the disclosure
requirements of CFKY.
3. Consummation of the Conversion to a Stock Savings Bank
------------------------------------------------------
On October 9, 1997, the Board of Directors of Columbia Federal
unanimously adopted a Plan of Conversion to convert Columbia Federal from a
federal mutual savings bank to a federal stock savings bank with the
concurrent formation of a newly formed holding company, CFKY, incorporated
under the laws of the State of Ohio. The conversion was accomplished
through the adoption of a Federal Stock Charter and Federal Stock Bylaws
and the sale of CFKY's common shares in an amount equal to the pro forma
market value of Columbia Federal after giving effect to the conversion. A
subscription offering of the shares of CFKY to Columbia Federal's members
and to an employee stock benefit plan was conducted.
The conversion was completed on April 15, 1998 and resulted in the
issuance of 2,671,450 common shares of CFKY which, after consideration of
offering expenses totaling approximately $775,000 and shares purchased by
the ESOP of $2.1 million, resulted in net proceeds of $23.8 million.
At the time of conversion, Columbia Federal established a liquidation
account in an amount equal to its regulatory capital as of September 30,
1997. The liquidation account will be maintained for the benefit of
eligible depositors who continue to maintain their accounts at Columbia
Federal after the conversion. The liquidation account will be reduced
annually to the extent eligible depositors have reduced their qualifying
deposits. Subsequent increases in deposits will not restore an eligible
account holder's interest in the liquidation account. In the event of
complete liquidation, and only in such event, each eligible depositor will
be entitled to receive a distribution from the liquidation account in an
amount proportionate to the current adjusted qualifying balances for
accounts then held. Columbia Federal may not pay dividends that would
reduce shareholders' equity below the required liquidation account balance.
Under OTS regulations, limitations have been imposed on all "capital
distributions", including cash dividends by savings institutions. The
regulation establishes a three-tiered system of restrictions, with the
greatest flexibility afforded to thrifts which are both well-capitalized
and given favorable qualitative examination ratings by the OTS.
Conversion costs were deferred and deducted from the proceeds of the
shares sold in connection with the conversion. As of March 31, 1998,
$193,000 of conversion costs had been deferred.
4. Pending Legislative Changes
---------------------------
Legislation to recapitalize the Savings Association Insurance Fund
(the "SAIF") of the Federal Deposit Insurance Corporation (the "FDIC") and
to eliminate a significant premium disparity between the Bank Insurance
Fund (the "BIF") of the FDIC and the SAIF effective September 30, 1996,
provides for the merger of the BIF and the SAIF effective January 1, 1999,
assuming that the federal savings association charter has been eliminated.
Columbia Federal cannot predict the impact of such a merger on Columbia
Federal's net earnings and capital.
Congress is considering legislation to eliminate the federal savings
association charter and the separate regulation of federal thrifts,
including federal savings banks. Pursuant to such legislation, Congress
may develop a common charter for all financial institutions, eliminate the
OTS and regulate Columbia Federal under federal law as a bank or require
Columbia Federal to change its charter, which would likely change the type
of activities in which Columbia Federal may engage and would probably
subject Columbia Federal to more regulation by the FDIC. In addition, CFKY
may become subject to different holding company regulations, including
separate capital requirements and limitations on activities. Although CFKY
cannot predict whether or when Congress may actually pass legislation
regarding CFKY's and Columbia Federal's regulatory requirements or charter,
it is not anticipated that the current activities of CFKY or Columbia
Federal will be materially affected by such legislation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
COLUMBIA FEDERAL SAVINGS BANK
Note Regarding Forward-Looking Statements
-----------------------------------------
In addition to historical information contained herein, this Form 10-
QSB contains forward-looking statements that involve risks and
uncertainties. Economic circumstances, Columbia Federal's operations and
actual results could differ significantly from those discussed in the
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 Columbia
Federal's market area generally.
Some of the forward-looking statements included herein are the
statements regarding management's determination of the amount of allowance
for losses on loans, the adequacy of collateral on nonperforming loans,
legislative changes with respect to the federal thrift charter, the effect
of certain accounting pronouncements and the year 2000.
Discussion of Financial Condition Changes from September 30, 1997 to
March 31, 1998
- ---------------------------------------------------------------------
General. Columbia Federal's assets totaled $127.7 million at
December 31, 1997, an increase of $23.7 million, or 22.8%, from $104.0
million at September 30, 1997. The increase resulted primarily from a
$24.7 million increase in cash and cash equivalents, partially offset by a
$1.0 million decrease in available-for-sale securities. Deposits increased
$23.7 million and advances from borrowers for taxes and insurance decreased
$182,000.
The increase in cash and deposits was primarily a result of stock
subscriptions received in regard to Columbia Financial of Kentucky, Inc.'s
(CFKY) initial public stock offering which was completed on April 15, 1998.
On about that date, approximately $38.4 million received by Columbia
Federal for unfilled stock subscriptions was returned.
Liquid Assets. Liquid assets (cash and cash equivalents) totaled
$31.5 million, an increase of $24.7 million, or 362%, from the total at
September 30, 1997. This increase resulted primarily from an increase in
deposits of $23.7 million, in conjunction with CFKY's stock offering.
Loans Receivable. Net loans receivable equaled $61.4 million at
March 31, 1998, compared to $61.6 million at September 30, 1997, a 0.3%
decrease, attributable to loans being repaid more rapidly than loans were
being originated.
Allowance for Losses on Loans. Columbia Federal's allowance for loan
losses totaled $300,000 at March 31, 1998, and September 30, 1997. The
allowance represented .49% of total loans at March 31, 1997 and September
30, 1997. As of September 30, 1997, there was $601,000 in nonperforming
loans, which was .98% of total loans at that date. Of such amount,
$473,000 was due from one borrower with 18 loans. As of March 31, 1998,
all nonperforming loans had been brought current.
Although management believes that its allowance for loan losses at
March 31, 1998, was adequate based upon the available facts and
circumstances, there can be no assurances that additions to such allowance
will not be necessary in future periods, which could adversely affect
Columbia Federal's results of operations.
Deposits. Total deposits increased by $23.7 million, to $113.9
million, at March 31, 1998, from $90.2 million at September 30, 1997. This
increase resulted primarily from deposits during the period, in conjunction
CFKY's stock offering. At March 31, 1998, certificates of deposit that
will mature within one year accounted for 16.3% of Columbia Federal's
deposit liabilities.
Capital. Columbia Federal is required to meet each of three minimum
capital standards promulgated by the Office of Thrift Supervision (the
"OTS"), hereinafter described as the tangible capital requirement, the core
capital requirement and the risk-based capital requirement. The tangible
capital requirement provides for the maintenance of retained earnings less
all intangible assets equal to 1.5% of adjusted total assets. The core
capital requirement provides for the maintenance of tangible capital plus
certain forms of supervisory goodwill equal to 3% of adjusted total assets,
while the risk-based capital requirement mandates maintenance of core
capital plus general loan loss allowances equal to 8% of risk-weighted
assets as defined by OTS regulations. As of March 31, 1998, Columbia
Federal's tangible and core capital totaled $13.3 million, or 10.3% of
adjusted total assets, which exceeded the minimum requirements of $2.5
million and $5.1 million, by $10.8 million and $8.2 million, respectively.
As of December 31, 1997, Columbia Federal's risk-based capital was $13.6
million, or 28.0% of risk-weighted assets, exceeding the minimum
requirement by $9.7 million.
Comparison of Operating Results for the Three-Month Periods Ended
March 31, 1998 and 1997
- -----------------------------------------------------------------
General. Columbia Federal recorded net income of $153,000 for the
three months ended March 31, 1998, compared to income of $205,000 for the
same period in 1997. The decrease resulted primarily from a $56,000
decrease in interest and fees on loans and a $47,000 increase in non-
interest expense. Such changes were offset by a $14,000 decrease in
interest on FHLB advances, a $29,000 decrease in income tax expense, and a
$12,000 increase in non-interest income.
Interest Income. Interest income decreased $56,000 for the three
months ended March 31, 1998 compared to the three months ended March 31,
1997. This was a result of a reduction in yield on earning assets of .12%
from 7.76% for the three months ended March 31, 1997 to 7.64% for the three
months ended March 31, 1998 coupled with a decrease in average loans
receivable of $7.5 million from $68.7 million for the three months ended
March 31, 1997 to $61.2 million for the three months ended March 31, 1998.
The decrease in yield was primarily due to the repayment before maturity of
a large, higher yielding mortgage loan. The reduction in loans receivable
was a result of decreased loan demand.
Interest Expense. Interest expense decreased $10,000 for the three
months ended March 31, 1998 compared to the three months ended March 31,
1997. This decrease was the result of a $14,000 decrease in interest on
FHLB advances for the three months ended March 31, 1998. Average deposits
decreased $1.6 million from $93.3 million for the three months ended March
31, 1997 to $91.7 for the three months ended March 31, 1998. The decrease
in average deposits was offset by an increase in cost of funds from 4.72%
for the three months ended March 31, 1997 to 4.80% for the three months
ended March 31, 1998. This increase in costs of deposits was due to
increased competitive pressures.
Columbia Federal's net interest rate spread was 2.84% for the three
months ended March 31, 1998, compared to 3.04% for the three months ended
March 31, 1997.
Non-interest Income and Non-interest Expense. Non-interest income
was $29,000 for the three months ended March 31, 1998, compared to $17,000
for the same period in 1997, primarily due to an increase in fee income.
Non-interest expense increased $47,000, or 7.7%, to $654,000. The primary
reason for this increase was the increase in salaries and employee benefits
from $375,000 for the three months ended March 31, 1997, to $407,000 for
the three months ended March 31, 1998 as a result of merit increases
coupled with an increase in benefit costs.
Comparison of Operating Results for the Six-Month Periods Ended
March 31, 1998 and 1997
- ---------------------------------------------------------------
General. Columbia Federal recorded net income of $206,000 for the
six months ended March 31, 1998, compared to income of $324,000 for the
same period in 1997. The decrease resulted primarily from a $142,000
decrease in interest and fees on loans, a $74,000 provision for loan losses
in 1998 with no provision in 1997, and a $13,000 increase in non-interest
expense. Such changes were offset by a $36,000 decrease in interest on
deposits and FHLB advances, a $64,000 decrease in income tax expense and an
$11,000 increase in non-interest income.
Interest Income. Interest income decreased $142,000 for the six
months ended March 31, 1998 compared to the six months ended March 31,
1997. This was a result of a reduction in yield on earning assets of .08%
from 7.76% for the six months ended March 31, 1997 to 7.68% for the six
months ended March 31, 1998 coupled with a decrease in average loans
receivable of $8.0 million from $69.4 million for the six months ended
March 31, 1997 to $61.4 million for the six months ended March 31, 1998.
The decrease in yield was due to the repayment before maturity of a large,
higher yielding mortgage loan. The reduction in loans receivable was a
result of decreased loan demand.
Interest Expense. Interest expense decreased $36,000 for the six
months ended March 31, 1998 compared to the six months ended March 31,
1997. This decrease was a result of a decrease in average deposits of $3.0
million from $93.6 million for the six months ended March 31, 1997 to $90.6
million for the six months ended March 31, 1998 and the repayment of FHLB
advances. The decrease in average deposits was partially offset by an
increase in cost of funds from 4.78% for the six months ended March 31,
1997 to 4.86% for the six months ended March 31, 1998. This increase in
costs of deposits was due to increased competitive pressures.
Columbia Federal's net interest rate spread was 2.82% for the six
months ended March 31, 1998, compared to 2.98% for the six months ended
March 31, 1997.
Allowance and Provision for Loan Losses. After review of its
allowance for loan losses, management decided to record a provision for
loan losses of $74,000 to return its allowance to $300,000. During the six
months ended March 31, 1998, Columbia Federal incurred losses on five loans
held by two individuals. The balances of these loans totaled $153,000. A
writedown of $74,000 was recorded when these loans were recorded as real
estate owned. These properties were sold during the six months ended March
31, 1998.
Non-interest Income and Non-interest Expense. Non-interest income
was $56,000 for the six months ended March 31, 1998, compared to $45,000
for the same period in 1997, primarily due to an increase in fee income.
Non-interest expense increased $13,000, or 0.9%, to $1.4 million. The
primary reason for this increase was an increase in occupancy expense of
$11,000, increase in other expenses of $17,000 and an increase in
advertising expense of $11,000. These increases were primarily the result
of the relocation of the Florence office, which increased advertising,
furniture, telephone and stationary costs. This was partially offset by a
$31,000 decrease in federal deposit insurance premiums as a result of the
recapitalization of the Savings Association Insurance Fund.
Year 2000 Issues
- ----------------
As with all financial institutions, Columbia Federal's operations
depend almost entirely on computer systems. Columbia Federal is addressing
the potential problems associated with the possibility that the computers
which control or operate Columbia Federal's operating systems, facilities
and infrastructure may not be programmed to read four-digit date codes and,
upon arrival of year 2000, may recognize the two-digit code "00" as the
year 1900, causing systems to fail to function or generate erroneous data.
Columbia Federal is working with the companies that supply or service its
computer-operated or dependent systems to identify and remedy any year 2000
related problems.
Currently, Columbia Federal has not identified any specific expenses
which are reasonably likely to be incurred by Columbia Federal in
connection with the issue, and does not expect to incur significant expense
to implement corrective measures. No assurance can be given, however, that
significant expense will not be incurred in future periods. In the event
that Columbia Federal is ultimately required to purchase replacement
computer systems, programs and equipment, or that substantial expense must
be incurred to make Columbia Federal's current systems, programs and
equipment year 2000 compliant, Columbia Federal's net income and financial
condition could be adversely affected.
In addition to possible expense related to its own systems, Columbia
Federal could incur losses if loan payments are delayed due to year 2000
problems affecting any of Columbia Federal's significant borrowers or
impairing the payroll systems of large employers in Columbia Federal's
primary market area. Because Columbia Federal's loan portfolio is highly
diversified with regard to individual borrowers and types of businesses and
Columbia Federal's primary market area is not significantly dependent upon
one employer or industry, Columbia Federal does not expect any significant
or prolonged difficulties that will affect net earnings or cash flow.
PART II
COLUMBIA FINANCIAL OF KENTUCKY, INC.
Item 1. Legal Proceedings
-----------------
Not applicable.
Item 2. Changes in Securities and Use of Proceeds
-----------------------------------------
Not applicable.
Item 3. Defaults Upon Senior Securities
-------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
By an action in writing without a meeting effective February 9,
1998, the sole shareholder of CFKY adopted amendments to the
Articles of Incorporation and the Code of Regulations of CFKY
eliminating cumulative voting in the election of directors and
adopted an amendment to the Articles of Incorporation of CFKY
increasing the number of authorized shares of CFKY to seven
million, of which six million are common shares and one million
are preferred shares, each without par value.
Item 5. Other Information
-----------------
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
Exhibit 27 - Financial Data Schedule
SIGNATURES
COLUMBIA FINANCIAL OF KENTUCKY, INC.
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Date: May 15, 1998 By: /s/ Robert V. Lynch
---------------------- -------------------------------
Robert V. Lynch, President and
Chief Executive Officer
Date: May 15, 1998 By: /s/ Abijah Adams
---------------------- -------------------------------
Abijah Adams, Controller
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 616
<INT-BEARING-DEPOSITS> 30,908
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 30,871
<INVESTMENTS-MARKET> 33,007
<LOANS> 61,415
<ALLOWANCE> 300
<TOTAL-ASSETS> 127,726
<DEPOSITS> 113,871
<SHORT-TERM> 0
<LIABILITIES-OTHER> 74
<LONG-TERM> 0
0
0
<COMMON> 0
<OTHER-SE> 13,296
<TOTAL-LIABILITIES-AND-EQUITY> 127,726
<INTEREST-LOAN> 2,635
<INTEREST-INVEST> 493
<INTEREST-OTHER> 134
<INTEREST-TOTAL> 3,889
<INTEREST-DEPOSIT> 2,201
<INTEREST-EXPENSE> 2,201
<INTEREST-INCOME-NET> 1,688
<LOAN-LOSSES> 74
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,361
<INCOME-PRETAX> 309
<INCOME-PRE-EXTRAORDINARY> 309
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 206
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 3.34
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 300
<CHARGE-OFFS> 74
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 300
<ALLOWANCE-DOMESTIC> 300
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
