10-Q 1 l88318ae10-q.txt COLUMBIA FINANCIAL OF KENTUCKY FORM 10-Q 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, 2001 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: (859) 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 10, 2001, the latest practicable date, 2,625,950 common shares of the registrant, no par value, were issued and outstanding. Page 1 of 16 2 INDEX ----- COLUMBIA FINANCIAL OF KENTUCKY, INC.

Page 2 of 16 3 COLUMBIA FINANCIAL OF KENTUCKY, INC. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

Page 3 of 16 4 COLUMBIA FINANCIAL OF KENTUCKY, INC. CONSOLIDATED STATEMENTS OF INCOME

Page 4 of 16 5 COLUMBIA FINANCIAL OF KENTUCKY, INC. STATEMENTS OF CASH FLOWS

Page 5 of 16 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS COLUMBIA FINANCIAL OF KENTUCKY, INC. For the three-month and six-month periods ended March 31, 2001 and 2000 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 Financial of Kentucky, Inc. for the year ended September 30, 2000. 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, 2001 and 2000 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, 2001 or 2000. 3. IMPACT OF RECENT ACCOUNTING STANDARDS ------------------------------------- In September 2000, the FASB issued SFAS No. 140 "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," which revised the standards for accounting for securitizations and other transfers of financial assets and collateral and requires certain disclosures, but carries over most of the provisions of SFAS No. 125 without reconsideration. SFAS No. 140 is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001. The Statement is effective for recognition and reclassification of collateral and for disclosures relating to securitization transactions and collateral for fiscal years ending after December 15, 2000. SFAS No. 140 is not expected to have a material effect on the Corporation's financial position or results of operations. Page 6 of 16 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 did not 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 169,333 and 204,519 unallocated ESOP shares, totaled 2,456,617 and 2,446,431 shares for the three-month and six-month periods ended March 31, 2001 and 2000. Diluted earnings per share is computed taking into consideration common shares outstanding and dilutive potential common shares. Diluted earnings per share is computed using basic common shares outstanding; options on 252,600 shares were not considered because their exercise price exceeded the average market price of the common shares. Page 7 of 16 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, 2000 TO -------------------------------------------------------------------- MARCH 31, 2001 -------------- GENERAL. CFKY's assets totaled $108.4 million at March 31, 2001, a decrease of $3.1 million from $111.5 million at September 30, 2000. The decrease resulted primarily from a $3.0 million decrease in held-to-maturity securities, a $2.3 million decrease in mortgage-backed securities, and a $1.0 million decrease in loans receivable partially offset by a $3.5 million increase in cash and cash equivalents. Deposits increased $3.1 million. Short-term borrowings decreased $6.0 million and advances from borrowers for taxes and insurance decreased $151,000. LIQUID ASSETS AND INVESTMENTS. Liquid assets (cash and cash equivalents) totaled $8.6 million at March 31, 2001, an increase of $3.5 million, from the total at September 30, 2000. LOANS RECEIVABLE. Net loans receivable were $69.7 million at March 31, 2001, compared to $70.7 million at September 30, 2000, a 1.4% decrease, attributable to loans being repaid more rapidly than loans were being originated. ALLOWANCE FOR LOSSES ON LOANS. Columbia Federal's allowance for loan losses totaled $300,000 at March 31, 2001, and September 30, 2000. The allowance represented .43% and .42% of net loans at March 31, 2001 and September 30, 2000, respectively. As of March 31, 2001, there were $90,000 in nonperforming loans, which was .13% of total net loans at that date. As of September 30, 2000, there were $117,000 in nonperforming loans, which was .17% 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 9 The following table sets forth the composition of the Bank's portfolio by type of loan at the dates indicated.

The following is the change in the allowance for loan losses for the periods indicated.

Although management believes that its allowance for loan losses at March 31, 2001, was adequate based upon the available facts and circumstances, there can be no assurances that additions to such allowance will not be necessary in future periods, which could adversely affect CFKY's results of operations. DEPOSITS. Total deposits increased by $3.1 million, to $78.5 million, at March 31, 2001, compared to September 30, 2000, a 4.1% increase, attributable to growth in certificates of deposit in the quarter. At March 31, 2001, certificates of deposit that will mature within one year accounted for 45.1% of Columbia Federal's deposit liabilities. SHORT-TERM BORROWINGS. There were no advances from FHLB at March 31, 2001, compared to $6.0 million at September 30, 2000. These advances were repaid with maturing investments and mortgage-backed securities. 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, amortization, prepayments and maturities of outstanding loans, sales of loans, maturities of investment securities Page 9 of 16 10 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, 2001, the Savings Bank did not have 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, 2001, the total approved loan commitments outstanding, excluding construction loans, amounted to $201,000. At the same date, the unadvanced portion of construction loans approximated $1.4 million. There are no investment securities scheduled to mature within one year or less. Certificates of deposit scheduled to mature in one year or less at March 31, 2001 totaled $35.4 million. The Savings Bank did not have any mortgage-backed securities scheduled to mature in one year or less at March 31, 2001. The Savings Bank is required by the OTS to maintain liquid assets sufficient to assure its ability to meet demand for withdrawals and repayment of short-term borrowings. 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, 2001 was 23.1%. 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, 2001. Under the "prompt corrective action" regulations of the 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, 2001. COMPARISON OF OPERATING RESULTS FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2001 -------------------------------------------------------------------------------- AND 2000 -------- GENERAL. CFKY's recorded net income of $97,000 for the three months ended March 31, 2001, compared to income of $149,000 for the same period in 2000, a $52,000 and 34.9% decrease. The decrease resulted primarily from a $30,000 decrease in interest income and a $74,000 increase in interest expense. Such changes were partially offset by a $30,000 decrease in non-interest expense and a $27,000 decrease in income tax expense. INTEREST INCOME. Interest income decreased $30,000 for the three months ended March 31, 2001 compared to the three months ended March 31, 2000. This decrease was primarily a result of a decrease of $3.2 million in average balances in interest earning assets, which resulted in large part from the repayment of FHLB advances during the quarter. Page 10 of 16 11 INTEREST EXPENSE. Interest expense increased by $74,000 for the three months ended March 31, 2001 compared to the three months ended March 31, 2000. Interest expense was affected by an increase of 57 basis points in the average rate on interest-bearing liabilities. The higher cost of funds was a result of paying higher rates on certificates of deposit to retain and attract deposits. Columbia Federal's net interest rate spread was 2.44% for the three months ended March 31, 2001, compared to 2.90% for the three months ended March 31, 2000. NON-INTEREST INCOME AND NON-INTEREST EXPENSE. Non-interest income was $19,000 for the three months ended March 31, 2001, compared to $24,000 for the same period in 2000, primarily due to a decrease in fee income from decreased loan activity. Non-interest expense decreased $30,000, or 3.3%, to $868,000. The primary reason for this decrease was the decrease in salaries and employee benefits from $601,000 for the three months ended March 31, 2000, to $581,000 for the three months ended March 31, 2001, caused by decreased costs associated with CFKY's stock compensations plans. COMPARISON OF OPERATING RESULTS FOR THE SIX-MONTH PERIODS ENDED MARCH 31, 2001 ------------------------------------------------------------------------------ AND 2000 -------- GENERAL. CFKY's recorded net income of $226,000 for the six months ended March 31, 2001, compared to income of $337,000 for the same period in 2000, a $111,000 and 33.0% decrease. The decrease resulted primarily from a $62,000 decrease in interest income, a $196,000 increase in interest expense, and decreases of $31,000 in non-interest income. Such changes were offset by a $121,000 decrease in non-interest expense and a $57,000 decrease in income tax expense. INTEREST INCOME. Interest income decreased $62,000 for the six months ended March 31, 2001 compared to the six months ended March 31, 2000. This decrease was primarily a result of a decrease of $3.2 million in average balances in interest earning assets. Income on mortgage loans increased by $11,000 and income on interest-bearing deposits increased by $50,000, which were offset by decreases in income on investment securities of $48,000 and mortgage-backed securities of $75,000 for the six months ended March 31, 2001 compared to the same period in 2000. INTEREST EXPENSE. Interest expense increased $196,000 for the six months ended March 31, 2001 compared to the six months ended March 31, 2000. This increase was the result of an increase in the average rate on interest-bearing liabilities of 65 basis points, and offset by a decrease in average interest-bearing liabilities for the six months ended March 31, 2001. The higher cost of funds was a result of paying higher rates on certificates of deposit to retain and attract deposits. Columbia Federal's net interest rate spread was 2.45% for the six months ended March 31, 2001, compared to 2.99% for the six months ended March 31, 2000. NON-INTEREST INCOME AND NON-INTEREST EXPENSE. Non-interest income was $42,000 for the six months ended March 31, 2001, compared to $73,000 for the same period in 2000, primarily due to a decrease in fee income from less loan activity. Non-interest expense decreased $121,000, or 4.8% to $1.7 million. The primary reason for this decrease was the decrease in salaries and employee benefits by $63,000 for the six months ended March 31, 2001 to $1.1 million, as a result of costs associated with CFKY's stock compensation plans. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's March 31, 2001 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, 2000. Page 11 of 16 12 PART II COLUMBIA FINANCIAL OF KENTUCKY, INC. ITEM 1. LEGAL PROCEEDINGS ----------------- Not applicable. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS ----------------------------------------- (a) Not applicable. (b) Not applicable. (c) Not applicable. (d) Not applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES ------------------------------- Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS --------------------------------------------------- Not applicable. ITEM 5. OTHER INFORMATION ----------------- Not applicable. Page 12 of 16 13 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K -------------------------------- Exhibit 99 - Safe Harbor Under the Private Securities Litigation Reform Act of 1995 Page 13 of 16 14 SIGNATURES COLUMBIA FINANCIAL OF KENTUCKY, INC. Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: By: /s/ Robert V. Lynch ------------------------- --------------------------- Robert V. Lynch, President and Chief Executive Officer Date: By: /s/ Abijah Adams ------------------------- --------------------------- Abijah Adams, Controller Page 14 of 16

COLUMBIA FINANCIAL OF KENTUCKY INC 10-Q