-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ko3YWLVUlZcRZvbPqm284J5r1RseWbd2wuM+Vk/fLxOwOBUs6MSOXZMB8hEPYxPK 1TT/pyhFPQ/RKpy2NEFtog== 0000910647-98-000229.txt : 19980817 0000910647-98-000229.hdr.sgml : 19980817 ACCESSION NUMBER: 0000910647-98-000229 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: COLUMBIA FINANCIAL OF KENTUCKY INC CENTRAL INDEX KEY: 0001051000 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTIONS, NOT FEDERALLY CHARTERED [6036] IRS NUMBER: 611319175 STATE OF INCORPORATION: OH FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-23935 FILM NUMBER: 98688128 BUSINESS ADDRESS: STREET 1: 2497 DIXIE HIGHWAY CITY: FT. MITCHELL STATE: KY ZIP: 41017 BUSINESS PHONE: 6063312419 MAIL ADDRESS: STREET 1: 2497 DIXIE HIGHWAY CITY: FT.MITCHELL STATE: KY ZIP: 41017 10QSB 1 FORM 10-QSB FOR 3RD QUARTER 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, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________ Commission File No. 0-23935 ----------- 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 July 31, 1998, the latest practicable date, 2,671,450 common shares of the registrant, no par value, were issued and outstanding. * Prior to April 15, 1998, the Registrant conducted no business except the offering of its common shares and preparation to acquire Columbia Federal Savings Bank. 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 9 PART II - OTHER INFORMATION 12 SIGNATURES 14 Columbia Financial of Kentucky, Inc. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 30 Sept. 30 1998 1997 -------- -------- (Dollars In Thousands) ASSETS Cash and due from Banks $ 595 $ 612 Interest Bearing Deposits in Other Banks 10,910 6,215 -------------------- Total Cash and Cash Equivalents 11,505 6,827 Investment Securities Held to Maturity, At Cost (Market Value of $20,155 and $13,068 at June 30, 1998 and September 30, 1997) 20,026 13,069 Available-for-Sale, At Market Value - 1,003 Mortgage-Backed Securities, At Cost (Market Value of $21,663 and $17,893 at June 30, 1998 and September 30, 1997) 21,511 17,862 Loans Receivable, Net 62,073 61,578 Real Estate Owned - - Interest Receivable 741 712 Premises and Equipment, Net 1,634 1,595 Federal Home Loan Bank Stock, At Cost 1,329 1,260 Deferred Federal Income Tax Asset 19 - Federal Income Tax - Refund Receivable - 13 Other Assets 130 87 -------------------- Total Assets $118,968 $104,006 ==================== LIABILITIES AND EQUITY Liabilities Deposits $ 80,807 $ 90,195 Advances from Borrowers for Taxes and Insurance 373 460 Accrued Federal Income Tax Liability 79 - Deferred Federal Income Tax Liability 162 162 Other Liabilities 83 98 -------------------- Total Liabilities 81,504 90,915 -------------------- 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 and Outstanding) - - Additional Paid in Capital 25,971 Retained Earnings - Substantially Restricted 13,535 13,090 Shares Acquired by Employee Stock Ownership Plan (ESOP) (2,042) - Unrealized Gain on Available-for-Sale Securities, Net of Related Taxes - 1 -------------------- Total Equity 37,464 13,091 -------------------- Total Liabilities and Equity $118,968 $104,006 ====================
Columbia Financial of Kentucky, Inc. CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Nine Months Ended June 30, June 30, ------------------ ------------------ 1998 1997 1998 1997 ------- ------- ------- ------- Interest Income (Dollars in Thousands) Loans $ 1,362 $ 1,487 $ 4,046 $ 4,436 Mortgage-Backed Securities 336 270 913 854 Investments 265 213 758 641 Interest-Bearing Deposits 263 46 397 117 ---------------------------------------- Total Interest Income 2,226 2,016 6,114 6,048 ---------------------------------------- Interest Expense Deposits 1,057 1,100 3,258 3,319 FHLB Advances - 7 - 25 ---------------------------------------- Total Interest Expense 1,057 1,107 3,258 3,344 ---------------------------------------- Net Interest Income 1,169 909 2,856 2,704 Provision for Losses on Loans - 2 74 2 ---------------------------------------- Net Interest Income After Provision for Losses on Loans 1,169 907 2,782 2,702 ---------------------------------------- Non-Interest Income 25 21 81 66 ---------------------------------------- Non-Interest Expense Salaries and Employee Benefits 550 433 1,382 1,261 Occupancy Expense of Premises 72 61 200 179 Federal Deposit Insurance Premiums 14 15 42 74 Data Processing Services 27 28 86 86 Advertising 23 24 89 78 Other 144 93 392 325 ---------------------------------------- Total Non-Interest Expense 830 654 2,191 2,003 ---------------------------------------- Income Before Federal Income Tax Expense 364 274 672 765 Federal Income Tax Expense 125 93 228 260 ---------------------------------------- Net Income $ 239 $ 181 $ 444 $ 505 ======================================== Earnings Per Share Basic $ 0.10 N/A N/A N/A ======= Diluted $ 0.10 N/A N/A N/A =======
Columbia Financial of Kentucky, Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended June 30, --------------------- 1998 1997 -------- --------- (Dollars In Thousands) Cash Flows From Operating Activities Net Income $ 444 $ 505 Reconciliation of Net Income with Cash Flows from Operations Depreciation 91 58 Provision for Losses on Loans 74 2 FHLB Stock Dividends (69) (63) Deferred Federal Income Tax (19) 215 Changes In Interest Receivable (29) 79 Other Assets 10 48 Federal Income Tax Receivable / Liability 92 35 Other Liabilities (15) (584) -------------------- Net Cash Provided by Operating Activities 579 295 -------------------- Cash Flows From Investing Activities Investment Securities Purchased (16,542) (2,502) Matured 10,587 4,502 Mortgage-Backed Securities Purchased (4,990) - Principal Collected 1,341 1,536 Loan Originations and Repayments, Net (495) 3,706 Purchases of Property and Equipment (130) (330) -------------------- Net Cash (Used) Provided by Investing Activities (10,229) 6,912 -------------------- Cash Flows From Financing Activities Advances from Borrowers for Taxes and Insurance (87) 127 Change in Deposits (9,388) (4,760) Proceeds from Offering 23,803 - -------------------- Net Cash (Used) Provided by Financing Activities 14,328 (4,633) Change in Cash and Cash Equivalents 4,678 2,574 -------------------- Beginning Balance, Cash and Cash Equivalents 6,827 3,047 -------------------- Ending Balance, Cash and Cash Equivalents $ 11,505 $ 5,621 ====================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS COLUMBIA FINANCIAL OF KENTUCKY, INC. For the three-and nine-month periods ended June 30, 1998 and 1997 1. Basis of Presentation - --------------------------- The accompanying unaudited financial statements were prepared in accordance with instructions for Form 10-QSB, and, therefore, do not include information or footnotes necessary for complete presentation of financial position, results of operations and cash flows in conformity with generally accepted accounting principles. Accordingly, these financial statements should be read in conjunction with the consolidated financial statements and notes thereto of Columbia Federal Savings Bank for the year ended September 30, 1997. However, in the opinion of management, all adjustments (consisting of only normal recurring accruals) which are necessary for fair presentation of the consolidated financial statements have been included. The results of operations for the three-month and nine-month periods ended June 30, 1998 and 1997 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 Financial Accounting Standards Board ("FASB") issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 131, which is effective for fiscal years beginning after December 15, 1997, requires operating segments of a company be segregated to provide a better understanding of performance and a better assessment of its future cash flows. Generally, financial information is required to be reported on the bases that it is used internally for evaluating segment performance and deciding how to allocate resources to segments. Management does not believe that the adoption of SFAS No. 131 will have a material impact on the disclosure requirements of CFKY. In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income," which establishes standards for reporting and displaying comprehensive income and its components (revenues, expenses, gains and losses) in a full set of general-purpose financial statements. SFAS No. 130 requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements and requires that an enterprise (a) classify items of other comprehensive income by their nature in a financial statement and (b) display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of the statement of financial position. Under existing accounting standards, other comprehensive income shall be classified separately into foreign currency items, minimum pension liability adjustments and unrealized gains and losses on certain investments in debt and equity securities. The provisions of SFAS No. 130 are effective for fiscal years beginning after December 15, 1997. Management does not believe the adoption of SFAS No. 130 will have a material impact on the disclosure requirements of CFKY. In December 1996, the FASB issued SFAS No. 126, which amends SFAS No. 107, "Disclosure About Fair Value of Financial Instruments," to make the disclosures about fair value of financial instruments prescribed in SFAS No. 107 optional for nonpublic entities with total assets less than $100 million on the date of the financial statement. SFAS No. 126 also requires that the entity has not held or issued any derivative financial instruments, as defined in SFAS No. 119, "Disclosure About Derivative Financial Instruments and Fair Value of Financial Instruments," other than loan commitments, during the reporting periods. Management believes the adoption of SFAS No. 126 has not impacted the disclosure requirements of CFKY based on Columbia Federal's compliance with SFAS No. 107 disclosure requirements in prior periods. In June 1996, the FASB issued SFAS No. 125, which is effective, on a prospective basis, for fiscal years beginning after December 31, 1996. SFAS No. 125 provides accounting and reporting standards for transfers and servicing of financial assets and extinguishment of liabilities based on consistent application of financial-components approach that focuses on control. SFAS No. 125 extends the "available for sale" and "trading" approach of SFAS No. 115 to non-security financial assets that can be contractually prepaid or otherwise settled in such a way that the holder of the asset would not recover substantially all of its recorded investment. In addition, SFAS No. 125 amends SFAS No. 115 to prevent a security from being classified as held-to-maturity if the security can be prepaid or settled in such a manner that the holder of the security would not recover substantially all of its recorded investment. The extension of the SFAS No. 115 approach to certain non-security financial assets and the amendment to SFAS No. 115 are effective for financial assets held on or acquired after January 1, 1997. The adoption of SFAS No. 125 did not 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 allocated to the Columbia Federal of Kentucky, Inc. Employee Stock Ownership Plan (the "ESOP"), resulted in net proceeds of $23.8 million. At the time of conversion, Columbia Federal established a liquidation account in an amount equal to its regulatory capital as of September 30, 1997. The liquidation account will be maintained for the benefit of eligible depositors who continue to maintain their accounts at Columbia Federal after the conversion. The liquidation account will be reduced annually to the extent eligible depositors have reduced their qualifying deposits. Subsequent increases in deposits will not restore an eligible account holder's interest in the liquidation account. In the event of complete liquidation, and only in such event, each eligible depositor will be entitled to receive a distribution from the liquidation account in an amount proportionate to the current adjusted qualifying balances for accounts then held. Columbia Federal may not pay dividends that would reduce shareholders' equity below the required liquidation account balance. Under OTS regulations, limitations have been imposed on all "capital distributions", including cash dividends by savings institutions. The regulation establishes a three-tiered system of restrictions, with the greatest flexibility afforded to thrifts that are both well capitalized and given favorable qualitative examination ratings by the OTS. 4. Pending Legislative Changes - --------------------------------- Legislation to recapitalize the Savings Association Insurance Fund (the "SAIF") of the Federal Deposit Insurance Corporation (the "FDIC") and to eliminate a significant premium disparity between the Bank Insurance Fund (the "BIF") of the FDIC and the SAIF effective September 30, 1996, provides for the merger of the BIF and the SAIF effective January 1, 1999, assuming that the federal savings association charter has been eliminated. 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 213,716 unallocated ESOP shares, totaled 2,457,734 shares for the three-month period ended June 30, 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 2,457,734 for the three months ended June 30, 1998. The provisions of SFAS No. 128 "Earnings Per Share" are not applicable to the three-month and nine-month periods ended June 30, 1997 and nine-month period ended June 30, 1998, as the conversion from mutual to stock form was completed in April, 1998. 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, 1997 to June 30, 1998 - -------------------------------------------------------------------- General. CFKY's assets totaled $119.0 million at June 30, 1998, an increase of $15.0 million, or 14.4%, from $104.0 million at September 30, 1997. The increase resulted primarily from a $4.7 million increase in cash and cash equivalents, a $6.9 million increase in held-to-maturity securities and a $3.6 million increase in mortgage-backed securities, partially offset by a $1.0 million decrease in available-for-sale securities. Deposits decreased $9.4 million and advances from borrowers for taxes and insurance decreased $87,000. The increase in cash, investments and mortgage-backed securities was primarily a result of funds received in conjunction with CFKY's initial public stock offering (the "offering"), which was completed on April 15, 1998. Liquid Assets and Investments. Liquid assets (cash and cash equivalents) totaled $11.5 million at June 30, 1998, an increase of $4.7 million, or 69%, from the total at September 30, 1997. This increase resulted primarily from an increase in funds from the Offering. Proceeds from the Offering were also invested in mortgage-backed securities. Loans Receivable. Net loans receivable equaled $62.1 million at June 30, 1998, compared to $61.6 million at September 30, 1997, an 0.8% 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 June 30, 1998, and September 30, 1997. The allowance represented .49% of total loans at June 30, 1998 and September 30, 1997. As of September 30, 1997, there was $601,000 in nonperforming loans, which was .98% of total loans at that date. Of such amount, $473,000 was due from one borrower with 18 loans. As of June 30, 1998, all nonperforming loans had been brought current. Although management believes that its allowance for loan losses at June 30, 1998, was adequate based upon the available facts and circumstances, there can be no assurances that additions to such allowance will not be necessary in future periods, which could adversely affect CFKY's results of operations. Deposits. Total deposits decreased by $9.4 million, to $80.8 million, at June 30, 1998, from $90.2 million at September 30, 1997. This decrease resulted primarily from depositors withdrawing funds to purchase common shares in the conversion. At June 30, 1998, certificates of deposit that will mature within one year accounted for 28.7% of Columbia Federal's deposit liabilities. Capital. Columbia Federal is required to meet each of three minimum capital standards promulgated by the Office of Thrift Supervision (the "OTS"), hereinafter described as the tangible capital requirement, the core capital requirement and the risk-based capital requirement. The tangible capital requirement provides for the maintenance of tangible capital, consisting of retained earnings less all-intangible assets, equal to 1.5% of adjusted total assets. The core capital requirement provides for the maintenance of core capital consisting of tangible capital plus certain forms of supervisory goodwill, equal to 3% of adjusted total assets, while the risk-based capital requirement mandates maintenance of risk-based capital consisting of core capital plus general loan loss allowances, equal to 8% of risk-weighted assets as defined by OTS regulations. As of June 30, 1998, Columbia Federal's tangible and core capital totaled $26.2 million, or 21.8% of adjusted total assets, which exceeded the minimum requirements of $2.4 million and $4.8 million, by $23.8 million and $21.4 million, respectively. As of June 30, 1998, Columbia Federal's risk-based capital was $26.5 million, or 53.5% of risk-weighted assets, exceeding the minimum requirement by $22.5 million. Comparison of Operating Results for the Three-Month Periods Ended June 30, 1998 and 1997 - ----------------------------------------------------------------- General. CFKY's recorded net income of $239,000 for the three months ended June 30, 1998, compared to income of $181,000 for the same period in 1997, a $58,000 and 32% increase. The increase resulted primarily from a $210,000 increase in interest income and a decrease in interest expense of $50,000. Such changes were offset by a $176,000 increase in non-interest expenses and a $32,000 increase in income tax expense. Interest Income. Interest income increased $210,000 for the three months ended June 30, 1998 compared to the three months ended June 30, 1997. This was a result of an increase in average balances in interest-earning assets as a result of funds from the Offering. Yields on interest-earning assets were relatively constant for the three-month period ended June 30, 1998 and 1997. Interest Expense. Interest expense decreased $50,000 for the three months ended June 30, 1998 compared to the three months ended June 30, 1997. This decrease was the result of a decrease in cost of funds from 4.80% for the three months ended June 30, 1997 to 4.04% for the three months ended June 30, 1998, partially offset by an increase in average deposits of $12.8 million from $91.4 million for the three months ended June 30, 1997 to $104.2 for the three months ended June 30, 1998. Also, interest on FHLB advances decreased $7,000 for the three months ended June 30, 1998. Columbia Federal's net interest rate spread was 3.20% for the three months ended June 30, 1998, compared to 3.08% for the three months ended June 30, 1997. Non-interest Income and Non-interest Expense. Non-interest income was $25,000 for the three months ended June 30, 1998, compared to $21,000 for the same period in 1997, primarily due to an increase in fee income. Non-interest expense increased $176,000, or 26.9%, to $830,000. The primary reason for this increase was the increase in salaries and employee benefits from $433,000 for the three months ended June 30, 1997, to $550,000 for the three months ended June 30, 1998 as a result of costs associated with CFKY's new ESOP. Also, other expenses increased $51,000 for the period primarily due to expenses associated with the operation of a public company. Comparison of Operating Results for the Nine-Month Periods Ended June 30, 1998 and 1997 - ---------------------------------------------------------------- General. Columbia Federal recorded net income of $444,000 for the nine months ended June 30, 1998, compared to income of $505,000 for the same period in 1997. The decrease resulted primarily from a $390,000 decrease in interest and fees on loans, a $72,000 increase in provision for loan losses and a $188,000 increase in non-interest expense. Such changes were offset by an increase in interest income on mortgage-backed securities, investments and interest-bearing deposits of $456,000, an $86,000 decrease in interest on deposits and FHLB advances, a $15,000 increase in non-interest income, and a $32,000 decrease in income tax expense. Interest Income. Interest income increased $66,000 for the nine months ended June 30, 1998 compared to the nine months ended June 30, 1997. This was a result of an increase in average interest earning assets of $5.1 million from $103.4 million for the nine months ended June 30, 1997 to $108.5 million for the nine months ended June 30, 1998. This increase in interest-earning assets was partially offset by a reduction in yield on earning assets of .28% to 7.52% for the nine months ended June 30, 1998. Interest Expense. Interest expense decreased $86,000 for the nine months ended June 30, 1998 compared to the nine months ended June 30, 1997. This decrease was primarily due to a decrease in the cost of funds from 4.76% for the nine months ended June 30, 1997 to 4.57% for the nine months ended June 30, 1998. This decrease was partially offset by an increase in average deposits of $2.1 million from $93.0 million for the nine months ended June 30, 1997 to $95.1 million for the nine months ended June 30, 1998. Columbia Federal's net interest rate spread was 2.95% for the nine months ended June 30, 1998, compared to 3.04% for the nine months ended June 30, 1997. Allowance and Provision for Loan Losses. After review of its allowance for loan losses, management decided to record a provision for loan losses of $74,000 to return its allowance to $300,000. During the nine months ended June 30, 1998, Columbia Federal incurred losses on five loans held by two individuals. The balances of these loans totaled $153,000. A writedown of $74,000 was recorded when these loans were recorded as real estate owned. These properties were sold during the nine months ended June 30, 1998. Non-interest Income and Non-interest Expense. Non-interest income was $81,000 for the nine months ended June 30, 1998, compared to $66,000 for the same period in 1997, primarily due to an increase in fee income. Non-interest expense increased $188,000, or 9.4%, to $2.2 million. The primary reasons for this increase were an increase in salaries and employee benefits of $121,000, an increase in occupancy expense of $21,000, an increase in other expenses of $67,000 and an increase in advertising expense of $11,000. These increases were primarily the result of cost associated with Columbia's new ESOP plan, the relocation of the Florence office, which increased advertising, furniture, telephone and stationary costs, and to cost associated with the operation of a public company. This was partially offset by a $32,000 decrease in federal deposit insurance premiums as a result of the recapitalization of the Savings Association Insurance Fund. Year 2000 Issues - ---------------- As with all financial institutions, Columbia Federal's operations depend almost entirely on computer systems. Columbia Federal is addressing the potential problems associated with the possibility that the computers which control or operate Columbia Federal's operating systems, facilities and infrastructure may not be programmed to read four-digit date codes and, upon arrival of year 2000, may recognize the two-digit code "00" as the year 1900, causing systems to fail to function or generate erroneous data. Columbia Federal is working with the companies that supply or service its computer-operated or dependent systems to identify and remedy any year 2000 related problems. CFKY does not expect to incur significant expense to implement corrective measures. No assurance can be given, however, that significant expense will not be incurred in future periods. In the event that Columbia Federal is ultimately required to purchase replacement computer systems, programs and equipment, or that substantial expense must be incurred to make Columbia Federal's current systems, programs and equipment year 2000 compliant, Columbia Federal's net income and financial condition could be adversely affected. In addition to possible expense related to its own systems, Columbia Federal could incur losses if loan payments are delayed due to year 2000 problems affecting any of Columbia Federal's significant borrowers or impairing the payroll systems of large employers in Columbia Federal's primary market area. Because Columbia Federal's loan portfolio is highly diversified with regard to individual borrowers and types of businesses and Columbia Federal's primary market area is not significantly dependent upon one employer or industry, Columbia Federal does not expect any significant or prolonged difficulties that will affect net earnings or cash flow. PART II COLUMBIA FINANCIAL OF KENTUCKY, INC. Item 1. Legal Proceedings - -------------------------- Not applicable. Item 2. Changes in Securities and Use of Proceeds - -------------------------------------------------- (a) Not applicable. (b) Not applicable. (c) Not applicable. (d) On February 11, 1998, the Securities and Exchange Commission declared effective a Registration Statement on Form S-1 (File No. 333-42523) registering 2,671,450 common shares of CFKY, no par value, to be sold for an aggregate price of $26.7 million. The offering of such shares was completed on April 15, 1998, and all 2,671,450 shares were sold for an aggregate price of $26.7 million. Charles Webb & Company, a Division of Keefe, Bruyette & Woods, Inc. ("Webb"), acted as agent in the sale of the shares on a best efforts basis. The total of $775,000 in expenses of the offering consisted of $363,000 paid to Webb for its services and expenses and $412,000 for other expenses. All of such expenses were direct payments to persons other than directors, officers, associates of directors or officers or of CFKY, or 10% beneficial owners of CFKY. After deducting total expenses, the net proceeds of the offering equaled $25.9 million, including a promissory note in the amount of $2.1 received in exchange for shares issued to the CFKY ESOP. Of such net proceeds, $12.7 million were used to purchase all of the outstanding common stock of Columbia Federal. Of the proceeds not used to purchase Columbia Federal stock, $11.1 million was deposited into interest bearing accounts at Columbia Federal and another local financial institution. All of such proceeds were paid directly to persons other than directors, officers, associates of directors or officers of CFKY or persons beneficially owning 10% or more of the outstanding common shares of CFKY. 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 - -------------------------- Any proposals of shareholders intended to be included in CFKY's proxy statement and proxy card for the 1999 Annual Meeting of Shareholders should be sent to CFKY by certified mail and must be received by CFKY no later than August 21, 1998. In addition, if a shareholder intends to present a proposal at the 1999 Annual Meeting without including the proposal in the proxy materials related to that meeting, and if the proposal is not received by November 6, 1998, then the proxies designated by the Board of Directors of CFKY for the 1999 Annual Meeting of Shareholders of CFKY may vote in their discretion on any such proposal any shares for which they have been appointed proxies without mention of such matter in the proxy statement or on the proxy card for such meeting. Item 6. Exhibits and Reports on Form 8-K - ----------------------------------------- Exhibit 10.1 - Employment Agreement with Robert V. Lynch (Incorporated by reference to Registration Statement on Form S-1, as amended, declared effective by the SEC on February 11, 1998 (the "S-1", Exhibit 10.3). Exhibit 10.2 - Form of Severance Agreement for each of Abijah Adams, Mary Jane Lucas, Carol S. Margrave, George Raybourne and Edward Schwartz (Incorporated by reference to the S-1, Exhibit 10.4). Exhibit 27 - Financial Data Schedule Exhibit 99 - Safe Harbor Under the Private Securities Litigation Reform Act of 1995 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 14, 1998 By: /s/ Robert V. Lynch --------------------------- -------------------------------- Robert V. Lynch, President and Chief Executive Officer Date: August 14, 1998 By: /s/ Abijah Adams --------------------------- -------------------------------- Abijah Adams, Controller EX-27 2 ARTICLE 9 FDS
9 1,000 9-MOS SEP-30-1998 JUN-30-1998 595 10,910 0 0 0 41,537 41,818 62,073 300 118,968 80,807 0 83 0 0 0 0 37,464 118,968 4,046 758 397 6,114 3,258 3,258 2,856 74 0 2,191 672 672 0 0 444 0.10 0.10 3.51 0 0 0 0 300 74 0 300 300 0 0
EX-99 3 EXHIBIT 99 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, 1998, 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 - -------------------------------------------------------------------- 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. Congress is considering legislation to eliminate the federal thrift charter and the separate federal regulation of savings and loan associations. As a result, Columbia Federal may have to convert to a different financial institution charter or might be regulated under federal law as a bank. If Columbia Federal becomes a bank or is regulated as a bank, it would become subject to the more restrictive holding company requirements, including activity limits and capital requirements similar to those imposed on Columbia Federal. CFKY cannot predict the impact of the conversion of Columbia Federal to, or regulation of Columbia Federal as, a bank until any legislation requiring such change is enacted. -----END PRIVACY-ENHANCED MESSAGE-----