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, 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
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 13, 1999, the
latest practicable date, 2,660,950 common shares of the registrant, no par
value, were issued and outstanding.
<PAGE> 1 of 15
INDEX
COLUMBIA FINANCIAL OF KENTUCKY, INC.
Page
----
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 8
PART II - OTHER INFORMATION 13
SIGNATURES 15
<PAGE> 2 of 15
Columbia Financial of Kentucky, Inc.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
March 31, Sept. 30,
1999 1998
--------- ---------
(In Thousands Except Share Data)
ASSETS
<S> <C> <C>
Cash and due from Banks $ 647 $ 631
Interest Bearing Deposits in Other Banks 6,660 5,629
----------------------
Total Cash and Cash Equivalents 7,307 6,260
Investment Securities
Held to Maturity, At Cost (Market Value of
$17,563 and $19,148 at March 31, 1999 and
September 30, 1998) 16,971 18,980
Available-for-Sale, At Market Value 4,071 4,091
Mortgage-Backed Securities, At Cost (Market
Value of $22,141 and $22,604 at March 31, 1999
and September 30, 1998) 21,610 22,352
Loans Receivable, Net 65,904 62,161
Interest Receivable 892 891
Premises and Equipment, Net 1,577 1,625
Federal Home Loan Bank Stock, At Cost 1,401 1,354
Deferred Federal Income Tax Asset 94 -
Other Assets 139 86
----------------------
Total Assets $119,966 $117,800
======================
LIABILITIES AND EQUITY
Liabilities
Deposits $ 81,524 $ 79,484
Advances from Borrowers for Taxes
and Insurance 264 343
Accrued Federal Income Tax Liability 53 5
Deferred Federal Income Tax Liability 162 172
Other Liabilities 52 78
----------------------
Total Liabilities 82,055 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, 2,671,450 Issued,
2,660,950 at March 31, 1999 and 2,671,450
at September 30, 1998 Outstanding) - -
Treasury Stock (10,500 Shares at Cost) (147) -
Additional Paid in Capital 26,034 25,993
Retained Earnings - Substantially Restricted 13,820 13,662
Shares Acquired by Employee Stock Ownership
Plan (ESOP) (1,796) (1,937)
----------------------
Total Equity 37,911 37,718
----------------------
Total Liabilities and Equity $119,966 $117,800
======================
</TABLE>
<PAGE> 3 of 15
Columbia Financial of Kentucky, Inc.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Six Months
Ended March 31, Ended March 31,
---------------- ----------------
1999 1998 1999 1998
---- ---- ---- ----
(In Thousands Except Share Data)
<S> <C> <C> <C> <C>
Interest Income
Loans $1,379 $1,337 $2,742 $2,685
Mortgage-Backed Securities 337 298 681 577
Investments 340 245 699 493
Interest-Bearing Deposits 70 77 135 134
------------------------------------------
Total Interest Income 2,126 1,957 4,257 3,889
------------------------------------------
Interest Expense
Deposits 929 1,103 1,863 2,201
Net Interest Income 1,197 854 2,394 1,688
------------------------------------------
Provision for Losses on Loans - - - 74
------------------------------------------
Net Interest Income After
Provision for Losses on
Loans 1,197 854 2,394 1,614
------------------------------------------
Non-Interest Income 27 29 58 56
------------------------------------------
Non-Interest Expense
Salaries and Employee Benefits 501 407 995 832
Occupancy Expense of Premises 69 64 134 128
Federal Deposit Insurance
Premiums 14 14 27 28
Data Processing Services 30 31 54 59
Advertising 31 30 61 65
Other 203 108 377 249
------------------------------------------
Total Non-Interest Expense 848 654 1,648 1,361
------------------------------------------
Income Before Federal
Income Tax Expense 376 229 804 309
Federal Income Tax Expense 128 76 273 103
------------------------------------------
Net Income $ 248 $ 153 $ 531 $ 206
==========================================
Comprehensive Income $ 248 $ 153 $ 531 $ 206
==========================================
Earnings Per Share
Basic $ 0.10 N/A $ 0.21 N/A
====== ======
Diluted $ 0.10 N/A $ 0.21 N/A
====== ======
</TABLE>
<PAGE> 4 of 15
Columbia Financial of Kentucky, Inc.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
March 31,
-----------------
1999 1998
---- ----
(In Thousands)
<S> <C> <C>
Cash Flows From Operating Activities
Net Income $ 531 $ 206
Reconciliation of Net Income with
Cash Flows from Operations
Depreciation 54 61
Provision for Losses on Loans - 74
FHLB Stock Dividends (47) (46)
Deferred Federal Income Tax Benefit (104) -
Changes In
Interest Receivable (1) (42)
Other Assets (53) (29)
Federal Income Tax Receivable / Liability 48 58
Other Liabilities (26) (24)
--------------------
Net Cash Provided by Operating Activities 402 258
--------------------
Cash Flows From Investing Activities
Investment Securities
Purchased (1,000) (6,001)
Matured 3,029 7,048
Mortgage-Backed Securities
Principal Collected 742 16
Loan Originations and Repayments, Net - (190)
Deferred Conversion Costs (3,743) 163
Purchases of Premises and Equipment (6) (91)
--------------------
Net Cash (Used) Provided by Investing
Activities (978) 945
--------------------
Cash Flows From Financing Activities
Advances from Borrowers for
Taxes and Insurance (79) (182)
Change in Deposits 2,040 23,676
Dividends Paid (186) -
ESOP Shares Released (5) -
Treasury Shares Acquired (147) -
--------------------
Net Cash Provided by Financing Activities
by Financing Activities 1,623 23,494
--------------------
Change in Cash and Cash Equivalents 1,047 24,697
Beginning Balance, Cash and Cash Equivalents 6,260 6,827
--------------------
Ending Balance, Cash and Cash Equivalents $ 7,307 $31,524
====================
</TABLE>
<PAGE> 5 of 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COLUMBIA FINANCIAL OF KENTUCKY, INC.
For the three-month and six-month periods ended
March 31, 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 six-month periods ended
March 31, 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. The adoption of SFAS No. 130 has not had 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
allocated to the Columbia Federal of Kentucky, Inc. Employee Stock Ownership
Plan (the "ESOP"), resulted in net proceeds of $23.8 million.
<PAGE> 6 of 15
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,
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 that are both well capitalized and
given favorable qualitative examination ratings by the OTS.
4. Pending Legislative Changes
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.
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 2,471,139 and 2,474,464, respectively, shares for the three month
and six month periods ended March 31, 1999 and 1998. 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 2,471,139 and 2,474,464,
respectively, for the three months and six months ended March 31, 1999 and
1998.
<PAGE> 7 of 15
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 March 31, 1999
General. CFKY's assets totaled $120.0 million at March 31, 1999, an
increase of $2.2 million, or 1.9%, from $117.8 million at September 30,
1998. The increase resulted primarily from a $1.0 million increase in cash
and cash equivalents and a $3.7 million increase in loans receivable,
partially offset by a $2.0 million decrease in investment securities and a
$742,000 decrease in mortgage-backed securities. Deposits increased $2.0
million.
Liquid Assets and Investments. Liquid assets (cash and cash
equivalents) totaled $7.3 million at March 31, 1999, an increase of $1.0
million, or 15.9%, from the total at September 30, 1998. This increase was
funded by an increase in deposits.
Loans Receivable. Net loans receivable equaled $65.9 million at March
31, 1999, compared to $62.2 million at September 30, 1998, a 5.9% increase,
attributable to loans being originated more rapidly than loans were being
repaid.
Allowance for Losses on Loans. Columbia Federal's allowance for loan
losses totaled $300,000 at March 31, 1999, and September 30, 1998. The
allowance represented .43% of total loans at March 31, 1999 and .45% at
September 30, 1998. As of September 30, 1998, there were $173,000 in
nonperforming loans, which was .28% of net loans at that date. As of March
31, 1999, there was $32,000 in nonperforming loans, which was .05% of net
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 15
The following table sets forth the composition of the Bank's portfolio
by type of loan at the dates indicated.
<TABLE>
<CAPTION>
March 31, 1999 September 30, 1998
------------------- -------------------
Amount Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C>
Real Estate Loans
One-to-four Family Residential $55,065 79.35% $53,579 81.21%
Multi-family and Non-residential 8,256 11.90 7,440 11.28
Land and Construction:
Nonresidential Real Estate 791 1.14 704 1.07
Construction Loans 5,267 7.59 4,228 6.41
-------------------------------------------
Total Real Estate Loans 69,379 99.98 65,951 99.96
-------------------------------------------
Consumer Loans
Savings Accounts 16 .02 20 0.03
Other Consumer Loans - - 5 0.01
-------------------------------------------
Total Consumer Loans 16 .02 25 0.04
-------------------------------------------
Total Loans 69,395 100.00% 65,976 100.00%
------- ====== ------- ======
Less
Loans in Process 2,433 2,759
Deferred Loan Fees 759 756
Allowance for Loan Losses 300 300
------- -------
Loans Receivable, Net $65,903 $62,161
======= =======
</TABLE>
The following is the change in the allowance for loan losses for the
periods indicated.
<TABLE>
<CAPTION>
Six Months Ended Year Ended
March 31, 1999 September 30, 1998
---------------- ------------------
<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
March 31, 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 $2.0 million, to $81.5 million,
at March 31, 1999, from $79.5 million at September 30, 1998. At March 31,
1999, certificates of deposit that will mature within one year accounted for
40.4% of Columbia Federal's deposit liabilities. The increase resulted from
managements continuing efforts to maintain a moderate rate of growth through
marketing and pricing strategies.
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.
<PAGE> 9 of 15
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 condition or to be
engaging 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 March 31, 1999 met the standards for the highest
category, a "well-capitalized" association.
Comparison of Operating Results for the
Three-Month Periods Ended March 31, 1999 and 1998
General. CFKY's recorded net income was $248,000 for the three months
ended March 31, 1999, compared to income of $153,000 for the same period in
1998, a $95,000 and 62% increase. The increase resulted primarily from a
$169,000 increase in interest income and decreases in interest expense of
$174,000. Such changes were offset by a $194,000 increase in non-interest
expenses and a $52,000 increase in income tax expense.
Interest Income. Interest income increased $169,000 for the three
months ended March 31, 1999 compared to the three months ended March 31,
1998. This was primarily a result of an increase of $14.4 million in
average balances in interest earning assets, partially offset by a decrease
of 37 basis points, from 7.65% for the three months ended March 31, 1998 to
7.28% for the three months ended March 31, 1999, in the yield on interest
earning assets. The increase in average interest earning assets was a
result of the initial public offering proceeds.
Interest Expense. Interest expense decreased $174,000 for the three
months ended March 31, 1999 compared to the three months ended March 31,
1998. This decrease was the result of a decrease in cost of funds from
4.81% for the three months ended March 31,1998 to 4.57% for the three months
ended March 31, 1999, and by a decrease in average deposits of $10.3 million
from $91.7 million for the three months ended March 31, 1998 to $81.4
million for the three months ended March 31, 1999. The decreases in average
deposits were mainly the result of deposits being used to purchase stock in
the initial public offering.
Columbia Federal's net interest rate spread was 2.71% for the three
months ended March 31, 1999, compared to 2.84% for the three months ended
March 31, 1998.
Non-interest Income and Non-interest Expense. Non-interest income was
$27,000 for the three months ended March 31, 1999, compared to $29,000 for
the same period in 1998, primarily due to a decrease in fee income. Non-
interest expense increased $194,000, or 29.7%, to $848,000. The primary
reason for this increase was the increase in salaries and employee benefits
from $407,000 for the three months ended March 31, 1998, to $501,000 for the
three months ended March 31, 1999 as a result of costs associated with
CFKY's new ESOP. Also, other expenses increased $95,000 for the period
primarily due to an increase in license taxes for the holding company and
increased expenses associated with the operation of a public company.
<PAGE> 10 of 15
Comparison of operating results for the
six-month periods ended March 31, 1999 and 1998
General. Columbia Federal recorded net income of $531,000 for the six
months ended March 31, 1999, an increase of $325,000, or 158%, compared to
income of $206,000 for the same period in 1998. The increase resulted
primarily from a $368,000 increase in interest income, a $338,000 decrease
in interest expense, and a $74,000 decrease in provision for loan losses,
partially offset by a $163,000 increase in salary and employee benefits, a
$128,000 increase in other non-interest expense and a $170,000 increase in
income tax expense.
Interest Income. Interest income increased $368,000 for the six
months ended March 31, 1999 compared to the six months ended March 31, 1998.
This was primarily a result of an increase of $15.0 million in average
balances in interest earning assets, partially offset by a reduction in
yield on interest earning assets of 36 basis points from 7.68% for the six
months ended March 31, 1998 to 7.32% for the six months ended March 31,
1999. The increase in average interest earning assets was a result of the
offering proceeds.
Interest Expense. Interest expense decreased $338,000 for the six
months ended March 31, 1999 compared to the six months ended March 31, 1998.
This decrease was a result of a decrease in average deposits of $9.7 million
from $90.6 million for the six months ended March 31, 1998 and a decrease in
cost of funds from 4.86% for the six months ended March 31, 1998 to 4.61%
for the six months ended March 31, 1999. The decreases in average deposits
were mainly the result of deposits being used to purchase stock in the
initial public offering.
Columbia Federal's net interest rate spread was 2.71% for the six
months ended March 31, 1999, compared to 2.82% for the six months ended
March 31, 1998.
Allowance and provision for loan losses. During the six months ended
March 31, 1998, management decided to record a provision to 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. A write-down of $74,000 was recorded when these loans were
recorded as real estate owned. The allowance for loan losses did not change
during the six months ended March 31, 1999.
Non-interest income and non-interest expense. Non-interest income was
$58,000 for the six months ended March 31, 1999, compared to $56,000 for the
same period in 1998. Non-interest expense increased $287,000, or 21.1%, to
$1.6 million. Salaries and employee benefits increased $163,000, or 19.59%,
to $995,000, mainly as a result of the Company's ESOP. Other non-interest
expenses increased $128,000 to $377,000 due to increased costs of the
holding company, including license taxes and other costs associated with
being a public company.
<PAGE> 11 of 15
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. Based upon an initial assessment, the Board of Directors
believes that with planned modifications to existing software and hardware
and planned conversions to new software and hardware, the third-party
vendors are taking the appropriate steps to ensure that critical systems
will function properly. The planned modifications and conversions should be
completed and tested by June 30, 1999.
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 Bank has estimated that
the cost for new hardware and software will be 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 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 as 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 is therefore
attempting to assess these risks and take action to minimize their effect.
<PAGE> 12 of 15
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> 13 of 15
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> 14 of 15
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 14, 1999 By: /s/ Robert V. Lynch
Robert V. Lynch, President and
Chief Executive Officer
Date: May 14, 1999 By: /s/ Abijah Adams
Abijah Adams, Controller
<PAGE> 15 of 15
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> MAR-31-1999
<CASH> 647
<INT-BEARING-DEPOSITS> 6,660
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 4,071
<INVESTMENTS-CARRYING> 38,581
<INVESTMENTS-MARKET> 39,704
<LOANS> 65,904
<ALLOWANCE> 300
<TOTAL-ASSETS> 119,966
<DEPOSITS> 81,524
<SHORT-TERM> 0
<LIABILITIES-OTHER> 531
<LONG-TERM> 0
0
0
<COMMON> 0
<OTHER-SE> 37,911
<TOTAL-LIABILITIES-AND-EQUITY> 119,966
<INTEREST-LOAN> 27,442
<INTEREST-INVEST> 1,380
<INTEREST-OTHER> 135
<INTEREST-TOTAL> 4,257
<INTEREST-DEPOSIT> 1,863
<INTEREST-EXPENSE> 1,863
<INTEREST-INCOME-NET> 2,394
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,648
<INCOME-PRETAX> 804
<INCOME-PRE-EXTRAORDINARY> 531
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 531
<EPS-PRIMARY> 0.21
<EPS-DILUTED> 0.21
<YIELD-ACTUAL> 4.12
<LOANS-NON> 0
<LOANS-PAST> 32
<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>
EXHIBIT 99.2
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 Form 10-QSB for the three-months ended March 31, 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.
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
For several years, Congress has been considering various changes to
the bank and savings association charters, the activities in which banks
and savings associations and their holding companies and subsidiaries may
engage and the authority of various regulatory authorities over the
financial institutions and their holding companies and subsidiaries. CFKY
cannot predict at this time whether and when Congress will actually adopt
such a "financial modernization legislation" or in what form it will be
adopted. It is expected, however, that the range of activities in which
banks and their affiliated companies may engage will be expanded, and it is
possible that the range of activities in which CFKY and Columbia Federal
may engage will be restricted. It is not anticipated that the current
activities of CFKY or Columbia Federal will be materially affected by any
such legislation.
Legislation to recapitalize the SAIF, which was enacted in 1996, provided
that the SAIF and to Bank Insurance Fund (the "BIF") would be merged if the
federal savings association charter was eliminated. Although the
elimination of the federal savings association charter has not occurred and
is not now expected in the near future, Congress is still discussing the
merger of the SAIF and the BIF. Although the merger could be expected to
change the deposit insurance premiums paid by Columbia Federal, the effect
on Columbia Federal and CFKY cannot be predicted at this time.
