<PAGE> 1
FORM 10-Q
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, 2000
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 12, 2000, the latest
practicable date, 2,650,950 common shares of the registrant, no par value, were
issued and outstanding.
<PAGE> 2
INDEX
-----
COLUMBIA FINANCIAL OF KENTUCKY, INC.
<TABLE>
<CAPTION>
Page
----
<S> <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 8
PART II - OTHER INFORMATION 13
SIGNATURES 17
</TABLE>
Page 2 of 16
<PAGE> 3
COLUMBIA FINANCIAL OF KENTUCKY, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
(Unaudited)
MAR. 31 SEPT. 30
2000 1999
-------------- -----------
(In Thousands, Except Share Data)
ASSETS
<S> <C> <C>
Cash and due from Banks $ 627 $ 937
Interest Bearing Deposits in Other Banks 3,055 2,504
---------- ----------
Total Cash and Cash Equivalents 3,682 3,441
Investment Securities
Held to Maturity, At Cost (Market Value of
$16,465 and $16,664 at March 31,2000 and
and September 30, 1999) 15,899 16,999
Mortgage-Backed Securities, At Cost (Market Value of
$18,940 and $19,610 at March 31,2000 and
and September 30, 1999) 18,507 19,968
Loans Receivable, Net 70,920 69,089
Interest Receivable 853 867
Premises and Equipment, Net 1,543 1,534
Federal Home Loan Bank Stock, At Cost 1,503 1,451
Federal Income Tax - Refund Receivable - 11
Deferred Federal Income Tax Asset 165 -
Other Assets 49 61
---------- ----------
Total Assets $ 113,121 $ 113,421
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits $ 76,545 $ 81,654
Short-Term Borrowings 7,000 1,000
Advances from Borrowers for Taxes
and Insurance 269 381
Accrued Federal Income Tax Liability 70 -
Deferred Federal Income Tax Liability - 45
Other Liabilities 279 162
---------- ----------
Total Liabilities 84,163 83,242
---------- ----------
Shareholders' 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) - -
Treasury Stock, 20,500 Shares at Cost (262) (262)
Additional Paid in Capital 18,270 18,194
Retained Earnings - Substantially Restricted 13,855 13,890
Unearned ESOP Shares (1,502) (1,643)
Shares Acquired by RRP Trust (1,403) -
---------- ----------
Total Shareholders' Equity 28,958 30,179
---------- ----------
Total Liabilities and Shareholders' Equity $ 113,121 $ 113,421
========== ==========
</TABLE>
Page 3 of 16
<PAGE> 4
COLUMBIA FINANCIAL OF KENTUCKY, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, SIX MONTHS ENDED MARCH 31,
---------------------------- ---------------------------
2000 1999 2000 1999
---------- ----------- --------- ----------
(In Thousands Except Share Data)
INTEREST INCOME
<S> <C> <C> <C> <C>
Loans $ 1,427 $ 1,379 $ 2,877 $ 2,742
Mortgage-Backed Securities 297 337 599 681
Investments 261 340 528 699
Interest-Bearing Deposits 43 70 70 135
---------- ---------- --------- ---------
Total Interest Income 2,028 2,126 4,074 4,257
---------- ---------- --------- ---------
INTEREST EXPENSE
Deposits 840 929 1,700 1,863
FHLB Advances 88 - 127 -
---------- ---------- --------- ---------
Total Interest Expense 928 929 1,827 1,863
---------- ---------- --------- ---------
NET INTEREST INCOME 1,100 1,197 2,247 2,394
PROVISION FOR LOSSES ON LOANS - - - -
---------- ---------- --------- ---------
Net Interest Income After Provision for
Losses on Loans 1,100 1,197 2,247 2,394
---------- ---------- --------- ---------
NON-INTEREST INCOME 24 27 73 58
---------- ---------- --------- ---------
NON-INTEREST EXPENSE
Salaries and Employee Benefits 601 501 1,197 995
Occupancy Expense of Premises 67 69 141 134
Federal Deposit Insurance Premiums 4 14 17 27
Data Processing Services 32 30 60 54
Advertising 18 31 39 61
Other 176 203 356 377
---------- ---------- --------- ---------
Total Non-Interest Expense 898 848 1,810 1,648
---------- ---------- --------- ---------
Income Before Federal Income Tax
Expense 226 376 510 804
FEDERAL INCOME TAX EXPENSE 77 128 173 273
---------- ---------- --------- ---------
NET INCOME $ 149 $ 248 $ 337 $ 531
========== ========== ========= =========
EARNINGS PER SHARE
Basic $ 0.06 $ 0.10 $ 0.14 $ 0.21
========== ========== ========= =========
Diluted $ 0.06 $ 0.10 $ 0.14 $ 0.21
========== ========== ========= =========
</TABLE>
Page 4 of 16
<PAGE> 5
COLUMBIA FEDERAL SAVINGS BANK
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED
MARCH 31,
---------------------
2000 1999
------- -------
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 337 $ 531
Reconciliation of Net Income with
Cash Flows from Operations
Depreciation 54 54
Shares Released to ESOP 216 181
FHLB Stock Dividends (52) (47)
Deferred Federal Income Tax (210) (104)
Changes In
Interest Receivable 14 (1)
Other Assets 12 (53)
Federal Income Tax Receivable / Liability 81 48
Other Liabilities 118 (26)
------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 570 583
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment Securities
Purchased - (1,000)
Matured 1,100 3,029
Mortgage-Backed Securities
Principal Collected 1,461 742
Loan Originations and Repayments, Net (1,831) (3,743)
Purchases of Property and Equipment (63) (6)
------- --------
NET CASH (USED) PROVIDED BY INVESTING ACTIVITIES 667 (978)
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
FHLB Advances 6,000 -
Advances from Borrowers for
Taxes and Insurance (112) (79)
Change in Deposits (5,109) 2,040
Dividends Paid (372) (372)
Shares Acquired by RRP (1,403) -
Treasury Shares Acquired - (147)
------- --------
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES (996) 1,442
------- --------
CHANGE IN CASH AND CASH EQUIVALENTS 241 1,047
BEGINNING BALANCE, CASH AND CASH EQUIVALENTS 3,441 6,260
------- --------
ENDING BALANCE, CASH AND CASH EQUIVALENTS $ 3,682 $ 7,307
======= ========
Page 5 of 16
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COLUMBIA FINANCIAL OF KENTUCKY, INC.
For the three-month and six-month periods ended
March 31, 2000 and 1999
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements were prepared in
accordance with instructions for Form 10-Q, 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, 1999.
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 period ended March 31, 2000 and 1999 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" or the "Company") and Columbia
Federal Savings Bank ("Columbia Federal" or the "Savings Bank"). All significant
intercompany items have been eliminated.
2. COMPREHENSIVE INCOME
Comprehensive income includes net income and other non-owner changes in
equity. The Company had no other comprehensive income for the quarters ended
March 31, 2000 or 1999.
3. IMPACT OF RECENT ACCOUNTING STANDARDS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This Statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
SFAS No. 133 is effective for fiscal years beginning after June 15, 1999.
Management has adopted SFAS No. 133 and it has not had a material impact on the
disclosures or accounting principles of the Company.
In October 1998, the FASB issued SFAS No. 134, "Accounting for
Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise." Statement No. 134 requires
entities conducting certain mortgage banking activities to classify
mortgage-backed securities retained after a securitization as trading
securities. This pronouncement had no material effects on the disclosures or
accounting principles of the Company.
Page 6 of 16
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COLUMBIA FINANCIAL OF KENTUCKY, INC.
4. PENDING LEGISLATIVE CHANGES
On November 12, 1999, the Gramm-Leach-Bliley Act (the GLB Act") was
enacted into law. The GLB Act makes sweeping changes in the financial services
in which various types of financial institutions may engage. The Glass-Steagall
Act, which had generally prevented banks from affiliating with securities and
insurance firms, was repealed. A new "financial holding company," which owns
only well capitalized and well managed depository institutions, will be
permitted to engage in a variety of financial activities, including insurance
and securities underwriting and agency activities.
The GLB Act permits unitary savings and loan holding companies in
existence on May 4, 1999, including the Company, to continue to engage in all
activities in which they were permitted to engage prior to the enactment of the
Act. Such activities are essentially unlimited, provided that the thrift
subsidiary remains a qualified thrift lender. Any thrift holding company formed
after May 4, 1999, will be subject to the same restrictions as a multiple thrift
holding company. In addition, a unitary thrift holding company in existence on
May 4, 1999, may be sold only to a financial holding company engaged in
activities permissible for multiple savings and loan holding companies.
The GLB Act is not expected to have a material effect on the activities
in which the Company and the Savings Bank currently engage, except to the extent
that competition with other types of financial institutions may increase as they
engage in activities not permitted prior to enactment of the GLB Act.
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 204,519 and 193,661 unallocated ESOP shares,
totaled 2,446,431 and 2,457,289 shares for the three-month and six-month periods
ended March 31, 2000 and 1999. Diluted earnings per share is computed taking
into consideration common shares outstanding and dilutive potential common
shares. Weighted-average shares outstanding for purposes of computing diluted
earnings per share totaled 2,458,297 and 2,457,289 for the three and six months
ended March 31, 2000 and 1999.
Page 7 of 16
<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-Q
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, interest rate risk, and the effect of certain accounting
pronouncements. 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, 1999 TO MARCH 31,
2000
GENERAL. CFKY's assets totaled $113.1 million at March 31, 2000, a
decrease of $300,000 from $113.4 million at September 30, 1999. The decrease
resulted primarily from a $1.1 million decrease in held-to-maturity securities
and a $1.5 million decrease in mortgage-backed securities, partially offset by a
$1.8 million increase in loans receivable and a $241,000 increase in cash and
cash equivalents. Deposits decreased $5.1 million. Short-term borrowings
increased $6.0 million and advances from borrowers for taxes and insurance
decreased $112,000.
LIQUID ASSETS AND INVESTMENTS. Liquid assets (cash and cash
equivalents) totaled $3.7 million at March 31, 2000, an increase of $241,000,
from the total at September 30, 1999.
LOANS RECEIVABLE. Net loans receivable were $70.9 million at March 31,
2000, compared to $69.1 million at September 30, 1999, a 2.7% 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, 2000, and September 30, 1999. The allowance
represented .42% of net loans at March 31, 2000 and September 30, 1999. As of
September 30, 1999, there were $76,000 in nonperforming loans, which was .11% of
total net loans at that date. As of March 31, 2000, there were $83,000 in
nonperforming loans, which was .12% of total 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 16
<PAGE> 9
The following table sets forth the composition of the Bank's portfolio
by type of loan at the dates indicated.
<TABLE>
<CAPTION>
March 31, 2000 September 30, 1999
-------------- ------------------
Amount Percent Amount Percent
--------- --------- ------ -------
<S> <C> <C> <C> <C>
REAL ESTATE LOANS
One-to-four Family Residential $60,620 80.50% $58,675 80.03%
Multi-family and Non-residential 4,056 5.39 5,493 7.49
Land and Construction:
Nonresidential Real Estate 4,116 5.47 3,671 5.01
Construction Loans 6,493 8.62 5,439 7.42
------- ------- ------- -------
Total Real Estate Loans 75,285 99.98 73,278 99.95
------- ------- ------- -------
CONSUMER LOANS
Loans on Deposit 19 .02 38 .05
Home Improvement Loans - - - -
------- ------- ------- -------
Total Consumer Loans 19 .02 38 .05
------- ------- ------- -------
Total Loans 75,304 100.00% 73,316 100.00%
------- ======= ------- =======
LESS
Loans in Process 3,345 3,174
Deferred Loan Fees 739 753
Allowance for Loan Losses 300 300
------- -------
Loans Receivable, Net $70,920 $69,089
======= =======
</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, 2000 September 30, 1999
-------------- ------------------
<S> <C> <C>
ALLOWANCE FOR LOAN LOSSES
Balance at Beginning of Period $300 $300
Net (Charge-Offs) Recoveries - (8)
Provision for Loan Losses - 8
----- -----
Balance at End of Period $300 $300
=== ===
</TABLE>
Although management believes that its allowance for loan losses at
March 31, 2000, 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 decreased by $5.1 million, to $76.5 million,
at March 31, 2000, compared to September 30, 1999, a 6.3% decrease, attributable
to borrowing from FHLB at better rates than competitors deposit rates. At March
31, 2000, certificates of deposit that will mature within one year accounted for
29.2% of Columbia Federal's deposit liabilities.
SHORT-TERM BORROWINGS. Advances from FHLB were $7.0 million at March
31, 2000, compared to $1.0 million at September 30, 1999. These advances were
used to fund the decrease in deposits.
LIQUIDITY AND CAPITAL RESOURCES
The Savings Bank's liquidity, represented by cash and cash equivalents,
is a product of its operating, investing and financing activities. The Savings
Bank's primary sources of funds are deposits, borrowings,
Page 9 of 16
<PAGE> 10
amortization, prepayments and maturities of outstanding loans, sales of loans,
maturities of investment securities and other short-term investments and funds
provided from operations. While scheduled loan amortization and maturing
investment securities and short-term investments are relatively predictable
sources of funds, deposit flows and loan prepayments are greatly influenced by
general interest rates, economic conditions and competition. In addition, the
Savings Bank invests excess funds in overnight deposits and other short-term
interest-earning assets which provide liquidity to meet lending requirements.
The Savings Bank has generally been able to generate enough cash through the
retail deposit market, its traditional funding source, to offset the cash
utilized in investing activities. As an additional source of funds, the Savings
Bank may borrow from the FHLB of Cincinnati. At March 31, 2000, the Savings Bank
had $7 million in outstanding advances from the FHLB of Cincinnati.
Liquidity management is both a daily and long-term function of business
management. Excess liquidity is generally invested in short-term investments
such as overnight deposits. On a longer-term basis, the Savings Bank maintains a
strategy of investing in various lending products. The Savings Bank uses its
sources of funds primarily to meet its ongoing commitments, to pay maturing
savings certificates and savings withdrawals and fund loan commitments. At March
31, 2000, the total approved loan commitments outstanding, excluding
construction loans amounted to $383,000. At the same date, the unadvanced
portion of construction loans approximated $3.3 million. Investment securities
scheduled to mature within one year or less is $1.0 million. Certificates of
deposit scheduled to mature in one year or less at March 31, 2000 totaled $22.3
million. The Savings Bank did not have any mortgage-backed securities scheduled
to mature in one year or less at March 31, 2000.
The Savings Bank is required by the OTS to maintain average daily
balances of liquid assets (as defined) in an amount equal to 4% of net
withdrawable deposits and borrowings payable in one year or less to assure its
ability to meet demand for withdrawals and repayment of short-term borrowings.
The liquidity requirements may vary from time to time at the direction of the
OTS depending upon economic conditions and deposit flows. The Savings Bank has a
policy of maintaining a liquidity ratio of at least 8% of its net withdrawable
deposits and borrowings payable in one year or less. The Savings Bank's
liquidity ratio at March 31, 2000 was 22.54%.
Federally insured savings institutions are required to satisfy three
different OTS capital requirements. Under these standards, savings institutions
must maintain "tangible" capital equal to at least 1.5% of adjusted total
assets, "core" capital generally equal to at least 4% of adjusted total assets
and "total" capital (a combination of core and "supplementary" capital) equal to
at least 8% of "risk-weighted" assets. For purposes of the regulation, core
capital is defined as common stockholders' equity (including retained earnings),
noncumulative perpetual preferred stock and related surplus, minority interests
in the equity accounts of fully consolidated subsidiaries, certain
nonwithdrawable accounts and pledged deposits and qualifying supervisory
goodwill. Core capital generally does not include the amount of a savings
institution's intangible assets. Tangible capital is core capital less all
intangible assets, with a limited exception for purchased mortgage-servicing
rights. Risk-based capital is defined as core capital plus certain additional
items of capital, which in the case of the Savings Bank, includes a general
valuation allowance for losses on loans of $300,000 at March 31, 2000.
Under the "prompt corrective action" regulations of OTS, a savings bank
that has not received the highest possible examination rating may become subject
to corrective action if its core capital is less than 4% of its adjusted total
assets.
The Savings Bank substantially exceeded each of the above-described
regulatory capital requirements at March 31, 2000.
COMPARISON OF OPERATING RESULTS FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2000
AND 1999
GENERAL. CFKY's recorded net income of $149,000 for the three months
ended March 31, 2000, compared to income of $248,000 for the same period in
1999, a $99,000 and 40% decrease. The decrease resulted primarily from a $98,000
decrease in interest income and increases of $50,000 in non-interest expense.
Such changes were partially offset by a $51,000 decrease in income tax expense.
INTEREST INCOME. Interest income decreased $98,000 for the three months
ended March 31, 2000 compared to the three months ended March 31, 1999. This was
primarily a result of a decrease of $6.7 million in average balances in interest
earning assets, which resulted in large part from the payment of a return of
capital in June, 1999 of $8.0 million. Income on mortgage loans increased by
$48,000 which was offset by decreases in
Page 10 of 16
<PAGE> 11
income on investments of $79,000 and on Mortgage-Backed Securities of $40,000
for the three month period ended March 31, 2000 compared to the same period in
1999 due to decreases in investment and Mortgage-Backed Securities balances
primarily because of the return of capital.
INTEREST EXPENSE. Interest expense remained fairly constant for the
three months ended March 31, 2000 compared to the three months ended March 31,
1999. Interest expense was effected by an increase in average interest-bearing
liabilities for the three months ended March 31, 2000, offset by a decrease of
10 basis points in the average rate on interest-bearing liabilities.
Columbia Federal's net interest rate spread was 2.90% for the three
months ended March 31, 2000, compared to 2.71% for the three months ended March
31, 1999.
NON-INTEREST INCOME AND NON-INTEREST EXPENSE. Non-interest income was
$24,000 for the three months ended March 31, 2000, compared to $27,000 for the
same period in 1999, primarily due to a decrease in fee income. Non-interest
expense increased $50,000, or 5.9%, to $898,000. The primary reason for this
increase was the increase in salaries and employee benefits from $501,000 for
the three months ended March 31, 1999, to $601,000 for the three months ended
March 31, 2000 as a result of costs associated with CFKY's Employee Stock
Ownership Plan (ESOP) and its recognition and retention stock compensation plan
(RRP).
COMPARISON OF OPERATING RESULTS FOR THE SIX-MONTH PERIODS ENDED MARCH 31, 2000
AND 1999
GENERAL. CFKY's recorded net income of $337,000 for the six months
ended March 31, 2000, compared to income of $531,000 for the same period in
1999, a $194,000 and 36.5% decrease. The decrease resulted primarily from a
$183,000 decrease in interest income and increases of $162,000 in non-interest
expense. Such changes were offset by a $36,000 decrease in interest expense and
a $100,000 decrease in income tax expense.
INTEREST INCOME. Interest income decreased $183,000 for the six months
ended March 31, 2000 compared to the six months ended March 31, 1999. This was
primarily a result of a decrease of $6.1 million in average balances in interest
earning assets, which resulted in large part from the payment of a return of
capital in June, 1999 of $8.0 million. Income on mortgage loans increased by
$135,000 which was offset by decreases in income on investments of $171,000 and
Mortgage-Backed Securities of $82,000 for the six months ended March 31, 2000
compared to the same period in 1999 due to decreases in investment and
Mortgage-Backed Securities balances primarily because of the return of capital.
INTEREST EXPENSE. Interest expense decreased $36,000 for the six months
ended March 31, 2000 compared to the six months ended March 31, 1999. This
decrease was the result of an increase in average interest-bearing liabilities
for the six months ended March 31, 2000, and offset by a decrease in the average
rate on interest-bearing liabilities of 21 basis points.
Columbia Federal's net interest rate spread was 2.99% for the six
months ended March 31, 2000, compared to 2.71% for the six months ended March
31, 1999.
NON-INTEREST INCOME AND NON-INTEREST EXPENSE. Non-interest income was
$73,000 for the six months ended March 31, 2000, compared to $58,000 for the
same period in 1999, primarily due to an increase in fee income. Non-interest
expense increased $162,000, or 9.8% to $1.8 million. The primary reason for this
increase was the increase in salaries and employee benefits from $995,000 for
the six months ended March 31, 1999 to $1.2 million for the six months ended
March 31, 2000 as a result of costs associated with CFKY's ESOP and RRP.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's March 31, 2000 analysis of the impact of changes in interest rates
on net interest income over the next 12 months indicates no significant changes
in its exposure to interest rate changes since the Company filed its Annual
Report on Form 10-K with the Securities and Exchange Commission for the year
ended September 30, 1999.
Page 11 of 16
<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> 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 27 - Financial Data Schedule
Exhibit 99 - Safe Harbor Under the Private Securities Litigation
Reform Act of 1995
Page 13 of 16
<PAGE> 14
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 reference in CFKY's Form 10-Q for the
three-months ended March 31, 2000, 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 14 of 16
<PAGE> 15
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 established 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.
Page 15 of 16
<PAGE> 16
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 12, 2000 By: /s/ Robert V. Lynch
------------ ---------------------------------
Robert V. Lynch, President and
Chief Executive Officer
Date: May 12, 2000 By: /s/ Abijah Adams
------------ ---------------------------------
Abijah Adams, Controller
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<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-END> MAR-30-2000
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0
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