<PAGE> 1
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 JUNE 30, 1999
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
---------
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
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of July 31, 1999, the latest
practicable date, 2,650,950 common shares of the registrant, no par value, were
issued and outstanding.
Transitional Small Business Disclosure Format (check one): Yes No X
--- ---
Page 1 of 14 Pages
<PAGE> 2
<TABLE>
INDEX
-----
COLUMBIA FINANCIAL OF KENTUCKY, INC.
<CAPTION>
Page
----
<S> <C> <C>
PART I - FINANCIAL INFORMATION
Consolidated Statements of Financial Condition 3
Consolidated Statements of Income 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II - OTHER INFORMATION 12
SIGNATURES 14
</TABLE>
Page 2 of 14 Pages
<PAGE> 3
<TABLE>
COLUMBIA FINANCIAL OF KENTUCKY, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<CAPTION>
JUNE 30, SEPT. 30,
1999 1998
-------- --------
(Dollars In Thousands)
<S> <C> <C>
ASSETS
Cash and due from Banks $ 729 $ 631
Interest Bearing Deposits in Other Banks 3,373 5,629
-------- --------
Total Cash and Cash Equivalents 4,102 6,260
Investment Securities
Held to Maturity, At Cost (Market Value of
$16,735 and $19,148 at June 30, 1999 and
September 30, 1998) 16,150 18,980
Available-for-Sale, At Market Value -- 4,091
Mortgage-Backed Securities, At Cost (Market Value of
$20,240 and $22,604 at June 30, 1999 and
September 30, 1998) 21,386 22,352
Loans Receivable, Net 67,513 62,161
Real Estate Owned 139 --
Interest Receivable 761 891
Premises and Equipment, Net 1,555 1,625
Federal Home Loan Bank Stock, At Cost 1,425 1,354
Deferred Federal Income Tax Asset 117 --
Other Assets 105 86
-------- --------
Total Assets $113,253 $117,800
======== ========
LIABILITIES AND EQUITY
Liabilities
Deposits $ 82,573 $ 79,484
Advances from Borrowers for Taxes
and Insurance 356 343
Accrued Federal Income Tax Liability 65 5
Deferred Federal Income Tax Liability 162 172
Other Liabilities 104 78
-------- --------
Total Liabilities 83,260 80,082
-------- --------
Equity
Preferred Stock (1,000,000 Shares, No Par Value, Authorized,
No Shares Issued or Outstanding) -- --
Common Stock (6,000,000 Shares, No Par Value, Authorized,
2,650,950 Issued and Outstanding) -- --
Additional Paid in Capital 18,271 25,821
Retained Earnings - Substantially Restricted 13,709 13,834
Treasury Stock (20,500 a share at cost) (262) --
Shares Acquired by Employee Stock Ownership Plan (ESOP) (1,725) (1,937)
-------- --------
Total Equity 29,993 37,718
-------- --------
Total Liabilities and Equity $113,253 $117,800
======== ========
</TABLE>
Page 3 of 14 Pages
<PAGE> 4
<TABLE>
COLUMBIA FINANCIAL OF KENTUCKY, INC.
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
------------------ -----------------
1999 1998 1999 1998
------ ------ ------ ------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans $1,387 $1,362 $4,130 $4,046
Mortgage-Backed Securities 324 336 1,005 913
Investments 303 265 1,002 758
Interest-Bearing Deposits 71 263 205 397
------ ------ ------ ------
Total Interest Income 2,085 2,226 6,342 6,114
------ ------ ------ ------
INTEREST EXPENSE
Deposits 911 1,057 2,775 3,258
------ ------ ------ ------
NET INTEREST INCOME 1,174 1,169 3,567 2,856
PROVISION FOR LOSSES ON LOANS -- -- -- 74
------ ------ ------ ------
Net Interest Income After Provision for
Losses on Loans 1,174 1,169 3,567 2,782
------ ------ ------ ------
NON-INTEREST INCOME 27 25 85 81
------ ------ ------ ------
NON-INTEREST EXPENSE
Salaries and Employee Benefits 514 550 1,510 1,382
Occupancy Expense of Premises 69 72 203 200
Federal Deposit Insurance Premiums 14 14 41 42
Data Processing Services 28 27 82 86
Advertising 32 23 93 89
Other 133 144 508 392
------ ------ ------ ------
Total Non-Interest Expense 790 830 2,437 2,191
------ ------ ------ ------
Income Before Federal Income Tax
Expense 411 364 1,215 672
FEDERAL INCOME TAX EXPENSE 140 125 413 228
------ ------ ------ ------
NET INCOME $ 271 $ 239 $ 802 $ 444
====== ====== ====== ======
EARNINGS PER SHARE
Basic $ 0.11 0.10 0.32 N/A
====== ====== ======
Diluted $ 0.11 0.10 0.32 N/A
====== ====== ======
</TABLE>
Page 4 of 14 Pages
<PAGE> 5
<TABLE>
COLUMBIA FINANCIAL OF KENTUCKY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
NINE MONTHS ENDED
JUNE 30,
----------------------
1999 1998
------- --------
(Dollars In Thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 802 $ 444
Reconciliation of Net Income with
Cash Flows from Operations
Depreciation 81 91
Provision for Losses on Loans -- 74
FHLB Stock Dividends (71) (69)
Deferred Federal Income Tax (127) (19)
Changes In
Interest Receivable 130 (29)
Other Assets (19) 10
Federal Income Tax Receivable/Liability 60 92
Other Liabilities 26 (15)
------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 882 579
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment Securities
Purchased (7,996) (16,542)
Matured 14,917 10,587
Mortgage-Backed Securities
Purchased (3,093) (4,990)
Principal Collected 4,059 1,341
Loan Origination's and Repayments, Net (5,491) (495)
Purchases of Property and Equipment (11) (130)
------- --------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 2,385 (10,229)
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances from Borrowers for
Taxes and Insurance 13 (87)
Change in Deposits 3,089 (9,388)
Dividends Paid (8,543) --
ESOP Shares Released 278 --
Treasury Shares Acquired (262) --
Proceeds from Offering -- 23,803
------- --------
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES (5,425) 14,328
------- --------
CHANGE IN CASH AND CASH EQUIVALENTS (2,158) 4,678
BEGINNING BALANCE, CASH AND CASH EQUIVALENTS 6,260 6,827
------- --------
ENDING BALANCE, CASH AND CASH EQUIVALENTS $ 4,102 $ 11,505
======= ========
</TABLE>
Page 5 of 14 Pages
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COLUMBIA FINANCIAL OF KENTUCKY, INC.
For the three-and nine-month periods ended
June 30, 1999 and 1998
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 consolidated financial statements and notes
thereto of Columbia Federal Savings Bank for the year ended September 30, 1998.
However, in the opinion of management, all adjustments (consisting of only
normal recurring accruals) which are necessary for fair presentation of the
consolidated financial statements have been included. The results of operations
for the three-month and nine-month periods ended June 30, 1999 and 1998 are not
necessarily indicative of the results that may be expected for an entire fiscal
year.
The accompanying consolidated financial statements include the accounts
of Columbia Financial of Kentucky, Inc. ("CFKY") and Columbia Federal Savings
Bank ("Columbia Federal"). All significant intercompany items have been
eliminated.
2. IMPACT OF RECENT ACCOUNTING STANDARDS
-------------------------------------
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.
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 213,716 shares sold to the
Columbia Federal of Kentucky, Inc. Employee Stock Ownership Plan (the "ESOP"),
resulted in net proceeds of $23.8 million.
Page 6 of 14 Pages
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COLUMBIA FINANCIAL OF KENTUCKY, INC.
At the time of conversion, Columbia Federal established a liquidation
account in an amount equal to its regulatory capital as of September 30, 1998.
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 that are both well capitalized and given favorable
qualitative examination ratings by the OTS.
4. PENDING LEGISLATIVE CHANGES
---------------------------
The deposit accounts of Columbia Federal and other savings associations
are insured up to applicable limits by the Federal Deposit Insurance Corporation
in the Savings Association Insurance Fund (the "SAIF"). Legislation to
recapitalize the SAIF was enacted on September 30, 1996. Such legislation
provided that the SAIF will be merged into the Bank Insurance Fund if there are
no remaining federal savings associations. At the time such legislation was
adopted, Congress was considering the elimination of the federal thrift charter.
Although it now seems unlikely that Congress will eliminate the federal
thrift charter, legislation is currently being considered that may change the
range of activities in which various types of financial institutions and their
holding companies, including Columbia Federal and CFKY, may engage. Although
CFKY cannot predict when or whether this "financial modernization" legislation
will be passed or what its effect on CFKY and Columbia Federal will be, it is
not anticipated that the current activities of CFKY and Columbia will be
materially affected.
5. EARNINGS PER SHARE
------------------
Basic earnings per share is computed based upon the weighted average
shares outstanding during the period, less shares in the ESOP that are
unallocated and not committed to be released. Weighted average common shares
outstanding, which give effect to 193,661 unallocated ESOP shares, totaled
2,463,345 shares and 2,470,758 for the three-month and nine-month periods ended
June 30, 1999, respectively. Diluted earnings per share is computed taking into
consideration common shares outstanding and dilutive potential common shares.
Presently, CFKY has no dilutive potential common shares. Weighted-average shares
outstanding for purposes of computing diluted earnings per share totaled
2,463,345 and 2,470,758 for the three months and nine months ended June 30,
1999. The weighted average shares outstanding for the three months ended June
30, 1998 totaled 2,457,734. The provisions of SFAS No. 128 "Earnings Per Share"
are not applicable to the nine-month period ended June 30, 1998, as the
conversion from mutual to stock form was completed in April, 1998.
Page 7 of 14 Pages
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
COLUMBIA FINANCIAL OF KENTUCKY, INC.
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. See Exhibit 99 "Safe Harbor Under
the Private Securities Litigation Reform Act of 1995," attached hereto and
incorporated herein by reference.
DISCUSSION OF FINANCIAL CONDITION CHANGES FROM SEPTEMBER 30, 1998 TO JUNE 30,
- -----------------------------------------------------------------------------
1999
- ----
GENERAL. CFKY's assets totaled $113.3 million at June 30, 1999, a
decrease of $4.5 million, or 3.8%, from $117.8 million at September 30, 1998.
The decrease resulted primarily from a $2.2 million decrease in cash and cash
equivalents, a $6.9 million decrease in investment securities and a $1.0 million
decrease in mortgage-backed securities, partially offset by a $5.4 million
increase in loans receivable. Deposits increased $3.1 million and advances from
borrowers for taxes and insurance decreased $13,000.
The decrease in cash, investments and mortgage-backed securities was
primarily a result of the use of funds for a $8.0 million special capital
distribution in June, 1999. The distribution was paid from funds retained by the
Company in the conversion and is expected by management to constitute a return
of excess capital, although the amount that constitutes a tax-deferred return of
capital will not be known until after September 30, 1999. The Company charged
the special capital distribution to additional paid-in capital.
LIQUID ASSETS AND INVESTMENTS. Liquid assets (cash and cash
equivalents) totaled $4.1 million at June 30, 1999, a decrease of $2.2 million,
or 34.5%, from the total at September 30, 1998. Investment securities totaled
$16.2 million at June 30, 1999, a decrease of $6.9 million or 30.0% from
September 30, 1998. These decreases resulted primarily from the special
distribution in June, 1999 and management's plan to restructure its portfolio to
maximize its return on assets.
LOANS RECEIVABLE. Net loans receivable equaled $67.5 million at June
30, 1999, compared to $62.2 million at September 30, 1998, an 8.6% increase,
attributable to loans being originated more rapidly than loans were being
repaid. This was also part of management's plan to increase its return on
assets.
ALLOWANCE FOR LOSSES ON LOANS. Columbia Federal's allowance for loan
losses totaled $300,000 at June 30, 1999, and September 30, 1998. The allowance
represented .43% of total loans at June 30, 1999 and .45% of total loans at
September 30, 1998. As of September 30, 1998, there was $173,000 in
nonperforming loans, which was .26% of total loans at that date. As of June 30,
1999, there was $58,000 in nonperforming loans, which was .08% of total loans at
that date.
It is management's policy to maintain an allowance for estimated losses
based on the perceived risk of loss in the loan portfolio. In assessing risk,
management considers historical loss experience, the volume and type of lending
conducted by the Bank, industry standards, past due loans, general economic
conditions and other factors related to the collectibility of the loan
portfolio.
Page 8 of 14 Pages
<PAGE> 9
The following table sets forth the composition of the Bank's portfolio
by type of loan at the dates indicated:
<TABLE>
<CAPTION>
June 30, 1999 September 30, 1998
------------- ------------------
Amount Percent Amount Percent
------ ------- ------ -------
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C>
Real Estate Loans
One-to-Four Family Residential $56,998 80.99% $53,579 81.21%
Multi-Family and Non Residential 8,352 11.87 7,440 11.28
Land and Construction
Non Residential Real Estate 744 1.06 704 1.07
Construction Loans 4,249 6.04 4,228 6.41
------- ------ ------- ------
Total Real Estate Loans 70,343 99.96 65,951 99.96
Consumer Loans
Savings Accounts 31 .04 20 0.03
Other Consumer Loans -- -- 5 0.01
------- ------ ------- ------
Total Consumer Loans 31 .04 25 0.04
------- ------ ------- ------
Total Loans $70,374 100.00% 65,976 100.00%
======= ====== ======= ======
Less
Loans in Process 1,809 2,759
Deferred Loan Fees 752 756
Allowance for Loan Losses 300 300
------- -------
Loans Receivable, Net $67,513 $62,161
======= =======
</TABLE>
The following is the change in the allowance for loan losses for the
periods indicated.
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
June 30, 1999 September 30, 1998
------------- ------------------
(In Thousands) (In Thousands)
<S> <C> <C>
Allowance for Loan Losses
Balance at Beginning of Period $300 $ 300
Net (Charge-Offs) Recoveries -- (74)
Provision for Loan Losses -- 74
---- -----
Balance at End of Period $300 $ 300
==== =====
</TABLE>
Although management believes that its allowance for loan losses at June
30, 1999, 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 CFKY's results of operations.
DEPOSITS. Total deposits increased by $3.1 million, to $82.6 million,
at June 30, 1999, from $79.5 million at September 30, 1998. At June 30, 1999,
certificates of deposit that will mature within one year accounted for 41.6% of
Columbia Federal's deposit liabilities.
Page 9 of 14 Pages
<PAGE> 10
REGULATORY CAPITAL REQUIREMENTS. Columbia Federal is required by OTS
regulations to meet certain minimum capital requirements. These requirements
call for tangible capital of 1.5% of adjusted total assets, core capital (which
for Columbia Federal is equal to tangible capital) of 4% of adjusted total
assets, and risk-based capital (which for Columbia Federal consists of core
capital and general valuation allowances) equal to 8% of risk-weighted assets.
Assets and certain off balance sheet items are weighted at percentage levels
ranging from 0% to 100% depending on their relative risk.
The OTS has adopted regulations governing prompt corrective action to
resolve the problems of capital deficient and otherwise troubled savings
associations. At each successively lower capital category, an institution is
subject to more restrictive and numerous mandatory or discretionary regulatory
actions or limits, and the OTS has less flexibility in determining how to
resolve the problems of the institution. In addition, the OTS can downgrade an
association's designation notwithstanding its capital level, based on less than
satisfactory examination ratings in areas other than capital or, after notice
and an opportunity for hearing, if the institution is deemed to be in an unsafe
or unsound practice. Each undercapitalized association must submit a capital
restoration plan to the OTS 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. A critically undercapitalized
institution must be placed in conservatorship or receivership within 90 days
after reaching such capitalization level, except under limited circumstances.
Columbia Federal's capital at June 30, 1999 met the standards for the highest
category, a "well-capitalized" association.
COMPARISON OF OPERATING RESULTS FOR THE THREE-MONTH PERIODS ENDED JUNE 30, 1999
- -------------------------------------------------------------------------------
AND 1998
- --------
GENERAL. CFKY's recorded net income of $271,000 for the three months
ended June 30, 1999, compared to income of $239,000 for the same period in 1998,
a $32,000 and 13.4% increase. The increase resulted primarily from a $146,000
decrease in interest expense and a decrease in non-interest expense of $40,000.
Such changes were partially offset by a $141,000 decrease in interest income and
a $15,000 increase in income tax expense.
INTEREST INCOME. Interest income decreased $141,000 for the three
months ended June 30, 1999 compared to the three months ended June 30, 1998.
This was a result of a decrease in average balances in interest-earning assets
as a result of the special capital distribution. Yields on interest-earning
assets were relatively constant for the three-month period ended June 30, 1999
and 1998.
INTEREST EXPENSE. Interest expense decreased $146,000 for the three
months ended June 30, 1999 compared to the three months ended June 30, 1998.
This decrease was the result of a decrease in average deposits of $22.7 million
from $104.2 million for the three months ended June 30, 1998 to $81.5 million
for the three months ended June 30, 1999, partially offset by an increase in
cost of funds for the three months ended June 30, 1999.
NON-INTEREST INCOME AND NON-INTEREST EXPENSE. Non-interest income was
$27,000 for the three months ended June 30, 1999, compared to $25,000 for the
same period in 1998. Non-interest expense decreased $40,000, or 4.8%, to
$790,000. The primary reason for this decrease was a reduction in salaries and
benefits caused by lower ESOP expense for the three months ended June 30, 1999.
COMPARISON OF OPERATING RESULTS FOR THE NINE-MONTH PERIODS ENDED JUNE 30, 1999
- ------------------------------------------------------------------------------
AND 1998
- --------
GENERAL. Columbia Federal recorded net income of $802,000 for the nine
months ended June 30, 1999, compared to income of $444,000 for the same period
in 1998, a $358,000, or 80.6%, increase. The increase resulted primarily from a
$228,000 increase in interest income, a $483,000 decrease in interest expense
and a $74,000 decrease in provision for loan losses. Such changes were offset by
an increase in non-interest expense of $246,000, and a $185,000 increase in
income tax expense.
Page 10 of 14 Pages
<PAGE> 11
INTEREST INCOME. Interest income increased $228,000 for the nine months
ended June 30, 1999 compared to the nine months ended June 30, 1998. This was a
result of an increase in average interest earning assets of $7.4 million from
$108.5 million for the nine months ended June 30, 1998 to $115.9 million for the
nine months ended June 30, 1999. This interest income increase due to the
increase in interest-earning assets was partially offset by a reduction in yield
on earning assets of 21 basis points to 7.3% for the nine months ended June 30,
1999.
INTEREST EXPENSE. Interest expense decreased $483,000 for the nine
months ended June 30, 1999 compared to the nine months ended June 30, 1998. This
decrease was primarily due to a decrease in average deposits of $14 million from
$95.1 million for the nine months ended June 30, 1998 to $81.1 million for the
nine months ended June 30, 1999.
Columbia Federal's net interest margin, net interest income as a
percent of average interest earning assets, was 4.1% for the nine months ended
June 30, 1999, compared to 3.5% for the nine months ended June 30, 1998.
ALLOWANCE AND PROVISION FOR LOAN LOSSES. After review of its allowance
for loan losses in 1998, management decided to record a provision for loan
losses of $74,000 to return its allowance to $300,000. No losses on loans have
been recorded during the nine months ended June 30, 1999.
NON-INTEREST INCOME AND NON-INTEREST EXPENSE. Non-interest income was
$85,000 for the nine months ended June 30, 1999, compared to $81,000 for the
same period in 1998, primarily due to an increase in fee income. Non-interest
expense increased $246,000, or 11.2%, to $2.4 million. The primary reasons for
this increase were an increase in salaries and employee benefits of $128,000 and
an increase in other expenses of $116,000. These increases were primarily the
result of cost associated with Columbia's new ESOP plan and the costs associated
with the operation of a public company.
YEAR 2000 READINESS
- -------------------
Because the Bank's operations rely extensively on computer systems, the
Bank is addressing problems associated with the possibility that computer
systems will not recognize the year 2000 ("Y2K") correctly. The Bank has
developed a Year 2000 Plan, which was presented to the Board of Directors in
1997. The Board of Directors appointed a Year 2000 Committee, which reports to
the Board of Directors quarterly.
The Bank relies primarily on third-party vendors for its computer
output and processing, as well as other significant functions and services, such
as securities safekeeping services, ATM service, and wire transfers. The Year
2000 Committee is working with the vendors to assess their Y2K readiness. The
Board of Directors has received written notification that the third-party
vendors are year 2000 compliant.
All date-dependent equipment and related software throughout the Bank
have been inventoried and tested for Y2K capabilities. Equipment identified as
not being Y2K compatible has been replaced. The cost for new hardware and
software was approximately $15,000.
If the modifications and conversions by both third-party vendors and
the Bank are not completed on a timely basis or if they fail to function
properly, the operations and financial condition of the Company could be
materially adversely affected. The Bank has developed contingency plans for
continued operations in the event of system failure. In the event that
transactions cannot be processed through the Bank's third-party processing firm,
the Bank has established procedures for the processing of transactions through
the Y2K ready computers located at each branch in a stand-alone mode.
In addition, financial institutions may experience increases in problem
loans and credit losses in the event that borrowers fail to prepare properly for
Y2K, and higher funding costs could result if consumers react to publicity about
the issue by withdrawing deposits. The Bank has assessed such risks among its
customers as very low due to the composition of its loan portfolio of
approximately 90% residential real estate. The Company could also be materially
adversely affected if other third parties, such as governmental agencies,
clearinghouses, telephone companies, utilities and other service providers fail
to prepare properly. The Bank has assessed these risks and has developed
contingency plans to minimize their effect.
Page 11 of 14 Pages
<PAGE> 12
PART II
COLUMBIA FINANCIAL OF KENTUCKY, INC.
ITEM 1. LEGAL PROCEEDINGS
-----------------
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
-----------------------------------------
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
(d) Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
-------------------------------
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
Not applicable.
ITEM 5. OTHER INFORMATION
-----------------
Not applicable
Page 12 of 14 Pages
<PAGE> 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
Exhibit 3.1 - Articles of Incorporation of Columbia Financial of
Kentucky, Inc.
Incorporated by reference to Registration Statement on
Form 8-A of the Registrant filed with the SEC on March
20, 1998, Exhibit 2(a) and 2(b).
Exhibit 3.2 - Code of Regulations of Columbia Financial of Kentucky,
Inc.
Incorporated by reference to Registration Statement on
Form 8-A of the Registrant filed with the SEC on March
20, 1998, Exhibit 2(c).
Exhibit 27 - Financial Data Schedule
Exhibit 99 - Safe Harbor Under the Private Securities Litigation
Reform Act of 1995
Page 13 of 14 Pages
<PAGE> 14
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: August 12, 1999 By: /s/ Robert V. Lynch
--------------------------------
Robert V. Lynch, President and
Chief Executive Officer
Date: August 12, 1999 By: /s/ Abijah Adams
--------------------------------
Abijah Adams, Controller
Page 14 of 14 Pages
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> JUN-30-1999
<CASH> 729
<INT-BEARING-DEPOSITS> 3,373
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 16,150
<INVESTMENTS-MARKET> 16,735
<LOANS> 67,513
<ALLOWANCE> 300
<TOTAL-ASSETS> 113,253
<DEPOSITS> 82,573
<SHORT-TERM> 0
<LIABILITIES-OTHER> 687
<LONG-TERM> 0
0
0
<COMMON> 0
<OTHER-SE> 29,993
<TOTAL-LIABILITIES-AND-EQUITY> 113,253
<INTEREST-LOAN> 4,130
<INTEREST-INVEST> 2,007
<INTEREST-OTHER> 205
<INTEREST-TOTAL> 6,342
<INTEREST-DEPOSIT> 2,775
<INTEREST-EXPENSE> 2,775
<INTEREST-INCOME-NET> 3,567
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,437
<INCOME-PRETAX> 1,215
<INCOME-PRE-EXTRAORDINARY> 802
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 802
<EPS-BASIC> 0.32
<EPS-DILUTED> 0.32
<YIELD-ACTUAL> 4.10
<LOANS-NON> 0
<LOANS-PAST> 58
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 300
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 300
<ALLOWANCE-DOMESTIC> 300
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<PAGE> 1
EXHIBIT 99
SAFE HARBOR UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
----------------------------------------------------------------------
The Private Securities Litigation Reform Act of 1995 (the "Act") provides a
"safe harbor" for forward-looking statements to encourage companies to provide
prospective information about their companies, so long as those statements are
identified as forward-looking and are accompanied by meaningful cautionary
statements identifying important factors that could cause actual results to
differ materially from those discussed in the statement. Columbia Financial of
Kentucky, Inc. ("CFKY") desires to take advantage of the "safe harbor"
provisions of the Act. Certain information, particularly information regarding
future economic performance and finances and plans and objectives of management,
contained or incorporated by referencing CFKY's Quarterly Report on Form 10-QSB
for the quarter ended June 30, 1999, is forward-looking. In some cases,
information regarding certain important factors that could cause actual results
of operations or outcomes of other events to differ materially from any such
forward-looking statement appears together with such statement. In addition,
forward-looking statements are subject to other risks and uncertainties
affecting the financial institutions industry, including but not limited to, the
following:
Interest Rate Risk
- ------------------
CFKY's operating results are dependent to a significant degree on its
net interest income, which is the difference between interest income from loans
and investments and interest expense on deposits and borrowings. The interest
income and interest expense of CFKY change as the interest rates and mortgages,
securities and other assets and on deposits and other liabilities change.
Interest rates may change because of general economic conditions, the policies
of various regulatory authorities and other factors beyond CFKY's control. The
interest rates on specific assets and liabilities of CFKY will change or
"reprice" in accordance with the contractual terms of the asset or liability
instrument and in accordance with customer reaction to general economic trends.
In a rising interest rate environment, loans tend to prepay slowly and new loans
at higher rates increase slowly, while interest paid on deposits increases
readily because the terms to maturity of deposits tend to be shorter than the
terms to maturity or prepayment of loans. Such differences in the adjustment of
interest rates on assets and liabilities may negatively affect CFKY's income.
Moreover, rising interest rates tend to decrease loan demand in general,
negatively affecting CFKY's income.
Possible Inadequacy of the Allowance for Loan Losses
- ----------------------------------------------------
Columbia Federal Savings Bank ("Columbia Federal") maintains an
allowance for loan losses based upon a number of relevant factors, including,
but not limited to, trends in the level of nonperforming assets and classified
loans, current and anticipated economic conditions in the primary lending area,
past loss experience, possible losses arising from specific problem assets and
changes in the composition of the loan portfolio. While the Board of Directors
of Columbia Federal believes that it uses the best information available to
determine the allowance for loan losses, unforeseen market conditions could
result in material adjustments, and net earnings could be significantly
adversely affected if circumstances differ substantially from the assumptions
used in making the final determination.
Loans not secured by one-to four-family residential real estate are
generally considered to involve greater risk of loss than loans secured by one-
to four-family residential real estate due, in part, to the effects of general
economic conditions. The repayment of multifamily residential and nonresidential
real estate loans generally depends upon the cash flow from the operation of the
property, which may be negatively affected by national and local economic
conditions that cause leases not to be renewed or that negatively affect the
operations of a commercial borrower. Construction loans may also be negatively
affected by such economic conditions, particularly loans made to developers who
do not have a buyer for a property before the loan is made. The risk of default
on consumer loans increases during periods of recession, high unemployment and
other adverse economic conditions. When consumers have trouble paying their
bills, they are more likely to pay mortgage loans than consumer loans, and the
collateral securing such loans, if any, may decrease in value more rapidly than
the outstanding balance of the loan.
<PAGE> 2
Competition
- -----------
Columbia Federal competes for deposits with other savings associations,
commercial banks and credit unions and 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, Columbia Federal competes with other savings associations,
commercial banks, consumer finance companies, credit unions, leasing companies,
mortgage companies and other lenders. 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. The size of financial institutions competing with Columbia Federal
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 CFKY.
Legislation and Regulation that may Adversely Affect CFKY's Earnings
- --------------------------------------------------------------------
Columbia Federal is subject to extensive regulation by the Office of Thrift
Supervision (the "OTS") and the Federal Deposit Insurance Corporation (the
"FDIC") and is periodically examined by such regulatory agencies to test
compliance with various regulatory requirements. As a savings and loan holding
company, CFKY is also subject to regulation and examination by the OTS. Such
supervision and regulation of Columbia Federal and CFKY are intended primarily
for the protection of depositors and not for the maximization of shareholder
value and may affect the ability of the company to engage in various business
activities. The assessments, filing fees and other costs associated with
reports, examinations and other regulatory matters are significant and may have
an adverse effect on CFKY's net earnings.
The FDIC is authorized to establish separate annual assessment rates
for deposit insurance of members of the Bank Insurance Fund (the "BIF") and the
Savings Association Insurance Fund (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 the 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
such system, assessments may vary depending on the risk the institution poses to
its deposit insurance fund. Such risk level is determined by reference to the
institution's capital level and the FDIC's level of supervisory concern about
the institution.
Congress recently enacted a plan to recapitalize the SAIF. The
recapitalization plan also provides for the merger of the SAIF and BIF effective
January 1, 1999, assuming there are no savings associations under federal law.
Although it now seems unlikely that Congress will eliminate the federal
thrift charter, legislation is currently being considered that may change the
range of activities in which various types of financial institutions and their
holding companies, including Columbia Federal and CFKY, may engage. Although
CFKY cannot predict when or whether this "financial modernization" legislation
will be passed or what its effects on CFKY and Columbia Federal will be, it is
not anticipated that the current activities of CFKY and Columbia will be
materially affected.
