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 DECEMBER 31, 1997
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. ____________
COLUMBIA FINANCIAL OF KENTUCKY, INC.
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(Exact name of registrant as specified in its charter)
Ohio 61-1319175
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(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification Number)
2497 Dixie Highway
Ft. Mitchell, Kentucky 41017-3085
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(Address of principal (Zip Code)
executive office)
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 No X *
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State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 100 common shares as of
March 20, 1998.
Transitional Small Business Disclosure Format:
Yes No X
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* The Registrant's Registration Statement on Form S-1 was declared
effective on February 11, 1998. The Registrant has conducted no
business except the offering of its shares and preparation to acquire
Columbia Federal Savings Bank. The financial information contained in
this Form 10-QSB is, therefore, provided for Columbia Federal Savings
Bank.
INDEX
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COLUMBIA FEDERAL SAVINGS BANK
Page
----
PART I - FINANCIAL INFORMATION
Statements of Financial Condition 3
Statements of Earnings 4
Statements of Cash Flows 5
Notes to Financial Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II - OTHER INFORMATION 11
SIGNATURES 12
Columbia Federal Savings Bank
STATEMENTS OF FINANCIAL CONDITION
Dec. 31 Sept. 30
1997 1997
--------------------
(In Thousands)
ASSETS
Cash and due from Banks $ 628 $ 612
Interest Bearing Deposits in Other Banks 3,498 6,215
--------------------
Total Cash and Cash Equivalents 4,126 6,827
Investment Securities
Held to Maturity, At Cost (Market Value of
$______ and $13,068 at December 31,1997 and
and September 30, 1997) 15,061 13,069
Available-for-Sale, At Market Value 1,001 1,003
Mortgage-Backed Securities, At Cost (Market Value
of $______ and $17,893 at December 31,1997 and
and September 30, 1997) 17,630 17,862
Loans Receivable, Net 61,361 61,578
Real Estate Owned 48 -
Interest Receivable 725 712
Premises and Equipment, Net 1,592 1,595
Federal Home Loan Bank Stock, At Cost 1,283 1,260
Deferred Federal Income Tax Asset - -
Federal Income Tax - Refund Receivable - 13
Other Assets 172 87
--------------------
Total Assets $102,999 $104,006
====================
LIABILITIES AND EQUITY
Liabilities
Deposits $ 89,455 $ 90,195
Advances from Borrowers for Taxes
and Insurance 164 460
Accrued Federal Income Tax Liability 14 -
Deferred Federal Income Tax Liability 162 162
Other Liabilities 62 98
--------------------
Total Liabilities 89,857 90,915
--------------------
Equity
Retained Earnings - Substantially Restricted 13,143 13,090
Unrealized (Loss) Gain on Available-for-Sale
Securities,
Net of Related Taxes (1) 1
--------------------
Total Equity 13,142 13,091
--------------------
Total Liabilities and Equity $102,999 $104,006
====================
COLUMBIA FEDERAL SAVINGS BANK
STATEMENTS OF INCOME
Three Months
Ended December 31,
------------------
1997 1996
Interest Income
Loans $1,348 $1,465
Mortgage-Backed Securities 279 296
Investments 248 222
Interest-Bearing Deposits 57 35
------------------
Total Interest Income 1,932 2,018
------------------
Interest Expense
Deposits 1,098 1,120
FHLB Advances - 4
------------------
Total Interest Expense 1,098 1,124
------------------
Net Interest Income 834 894
Provision for Losses on Loans 74 -
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Net Interest Income After Provision
for Losses on Loans 760 894
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Non-Interest Income 27 28
------------------
Non-Interest Expense
Salaries and Employee Benefits 425 453
Occupancy Expense of Premises 64 52
Federal Deposit Insurance Premiums 14 56
Data Processing Services 28 27
Advertising 35 27
Other 141 126
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Total Non-Interest Expense 707 741
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Income Before Federal Income Tax 80 181
Expense
Federal Income Tax Expense 27 62
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Net Income $ 53 $ 119
==================
See auditors' report and accompanying notes.
COLUMBIA FEDERAL SAVINGS BANK
STATEMENTS OF CASH FLOWS
Three Months Ended
December 31,
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1997 1996
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(In Thousands)
Cash Flows From Operating Activities
Net Income $ 53 $ 119
Reconciliation of Net Income with
Cash Flows from Operations
Depreciation 30 19
Provision for Losses on Loans 74 -
FHLB Stock Dividends (23) (21)
Deferred Federal Income Tax - (62)
Changes In
Interest Receivable (13) 29
Other Assets (55) 85
Federal Income Tax Receivable / Liability 27 115
Other Liabilities (36) (601)
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Net Cash Provided by Operating Activities 57 (317)
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Cash Flows From Investing Activities
Investment Securities
Purchased (4,000) -
Matured 2,010 1,500
Mortgage-Backed Securities Principal Collected 232 1,817
Loan Originations and Repayments, Net 141 (1,870)
Deferred Conversion Costs (78) -
Purchases of Property and Equipment (27) (268)
-------------------
Net Cash (Used) Provided by Investing Activities (1,722) 1,179
-------------------
Cash Flows From Financing Activities
Advances from Borrowers for Taxes and Insurance (296) (92)
Change in Deposits (740) (1,775)
Proceeds from FHLB Advances - 1,000
-------------------
Net Cash (Used) Provided by Financing Activities (1,036) (867)
-------------------
Change in Cash and Cash Equivalents (2,701) (5)
Beginning Balance, Cash and Cash Equivalents 6,827 3,047
-------------------
Ending Balance, Cash and Cash Equivalents $ 4,126 $ 3,042
===================
See auditors report and accompany notes.
NOTES TO FINANCIAL STATEMENTS
COLUMBIA FEDERAL SAVINGS BANK
For the three-month periods ended
December 31, 1997 and 1996
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 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 financial statements have been included. The results of operations for
the three-month periods ended December 31, 1997 and 1996 are not necessarily
indicative of the results which may be expected for an entire fiscal year.
The accompanying financial statements include the accounts of Columbia
Federal Savings Bank ("Columbia Federal"). Columbia Federal is in the
process of converting to a stock association. Upon completion of the
conversion, Columbia Federal will become a wholly owned subsidiary of
Columbia Financial of Kentucky, Inc. ("CFKY").
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 to 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 February 1997, the FASB issued SFAS No. 128, "Earnings Per Share,"
which establishes standards for computing and presenting earnings per share
("EPS") by entities with publicly held common stock or potential common
stock. SFAS No. 128 simplifies the standards for computing earnings per
share previously found in Accounting Principles Board ("APB") Opinion No.
15, "Earnings Per Share." Basic EPS excludes dilution and is computed by
dividing income available to common stockholders by the weighted-average
number of common shares outstanding for the period. Diluted EPS reflects
the potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock or resulted
in the issuance of common stock that then shared in the earnings of the
entity.
Diluted EPS is computed similarly to fully diluted EPS pursuant to APB
Opinion No. 15. SFAS No. 128 supersedes APB Opinion No. 15 and is effective
for financial statements issued for periods ending after December 15, 1997,
including interim periods. Management does not believe the adoption of SFAS
No. 128 will have a material impact on the disclosure requirements of CFKY.
In February 1997, the FASB issued SFAS No. 129, which incorporates the
disclosure requirements of APB Opinion No. 15, and makes them applicable to
all public and nonpublic entities that have issued securities addressed by
SFAS No. 129. APB Opinion No. 15 requires disclosure of descriptive
information about securities that is not necessarily related to the
computation of EPS. SFAS No. 129 continues the previous requirements to
disclose certain information about an entity's capital structure found in
APB Opinions No. 19, "Omnibus Opinion - 1966," and No. 15, and SFAS No. 47,
"Disclosure of Long-Term Obligations," for entities that were subject to the
requirements of those standards. SFAS No. 129 eliminates the exemption of
nonpublic entities from certain disclosure requirements of APB Opinion No.
15 as provided by SFAS No. 21, "Suspension of the Reporting of Earnings per
Share, and Segment Information by Nonpublic Enterprises." SFAS No. 129
supersedes specific disclosure requirements of APB Opinions Nos. 10 and 15
and SFAS No. 47 and consolidates them in SFAS No. 129 for ease of retrieval
and for greater visibility to nonpublic entities. SFAS No. 129 is effective
for financial statements for periods ending after December 15, 1997.
Columbia Federal has not previously issued any common shares and SFAS No.
129 will be adopted by CFKY in the initial period after December 15, 1997.
Management believes the adoption of SFAS No. 129 will not 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 will not impact 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 a 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. Effective January 1, 1997, SFAS No. 125 superseded SFAS
No. 122, which is discussed above. Management does not believe the adoption
of SFAS No. 125 will have a material impact on the disclosure requirements
of CFKY.
3. Consummation of the Conversion to a Stock Savings Bank
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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 will be 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 is being conducted.
At the time of conversion, Columbia Federal will establish 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 which are both well-capitalized and
given favorable qualitative examination ratings by the OTS.
Conversion costs are being deferred and will be deducted from the
proceeds of the shares sold in connection with the conversion. If the
conversion is not completed, all costs will be charged to expense. As of
December 31, 1997, $81,000 of conversion costs had been deferred.
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. Columbia
Federal cannot predict the impact of such a merger on Columbia Federal's net
earnings and capital.
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
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
COLUMBIA FEDERAL SAVINGS BANK
Note Regarding Forward-Looking Statements
-----------------------------------------
In addition to historical information contained herein, the following
discussion 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 and the
effect of certain accounting pronouncements.
Discussion of Financial Condition Changes from September 30, 1997
- -----------------------------------------------------------------
to December 31, 1997
--------------------
General. Columbia Federal's assets totaled $103.0 million at December
31, 1997, a decrease of $1.0 million, or 1.0%, from $104.0 million at
September 30, 1997. This decrease resulted primarily from a $2.7 million
decrease in cash and cash equivalents, partially offset by a $2.0 million
increase in held-to-maturity securities. Deposits decreased $700,000 and
advances from borrowers for taxes and insurance decreased $300,000.
Liquid Assets. Liquid assets (cash and cash equivalents) totaled $4.1
million, a decrease of $2.7 million, or 40%, from the total at September 30,
1997. This decrease resulted primarily from a re-allocation of funds to
higher yielding held-to-maturity securities.
Loans Receivable. Net loans receivable equaled $61.4 million at
December 31, 1997, compared to $61.6 million at September 30, 1997, a 0.3%
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 December 31, 1997, and September 30, 1997. The
allowance represented .49% of total loans at December 31, 1997 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 December 31, 1997, all
nonperforming loans had been brought current. At December 31, 1997, Columbia
Federal had $48,000 of real estate owned.
Although management believes that its allowance for loan losses at
December 31, 1997, 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
Columbia Federal's results of operations.
Deposits. Total deposits decreased by $0.7 million, to $89.5 million,
at December 31, 1997, from $90.2 million at September 30, 1997. This
decrease resulted primarily from deposits withdrawn during the period. At
December 31, 1997, certificates of deposit that will mature within one year
accounted for 27.9% 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 retained earnings less
all intangible assets equal to 1.5% of adjusted total assets. The core
capital requirement provides for the maintenance 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 core
capital plus general loan loss allowances equal to 8% of risk-weighted
assets as defined by OTS regulations. As of December 31, 1997, Columbia
Federals tangible and core capital totaled $13.1 million, or 12.7% of
adjusted total assets, which exceeded the minimum requirements of $1.5
million and $3.1 million, by $11.6 million and $10.0 million, respectively.
As of December 31, 1997, Columbia Federal's risk-based capital was $13.4
million, or 30.6% of risk-weighted assets, exceeding the minimum requirement
by $9.9 million.
Comparison of Operating Results for the Three-Month Periods Ended
- -----------------------------------------------------------------
December 31, 1997 and 1996
--------------------------
General. Columbia Federal recorded net income of $53,000 for the
three months ended December 31, 1997, compared to income of $119,000 for the
same period in 1996. The decrease resulted primarily from an $86,000
decrease in interest and fees on loans and a $74,000 provision for loan
losses in 1997 with no provision in 1996. Such changes were offset by a
$26,000 decrease in interest on deposits, a $35,000 decrease in income tax
expense and a $34,000 decrease in non-interest expense.
Interest Income. Interest income decreased $86,000 from $2.0 million
for the three months ended December 31, 1996 to $1.9 million for the three
months ended December 31, 1997. This was a result of a reduction in yield
on earning assets of .07% from 7.80% for the three months ended December 31,
1996 to 7.73% for the three months ended December 31, 1997 coupled with a
decrease in average loans receivable of $6.8 million from $68.4 million for
the three months ended December 31, 1996 to $61.6 million for the three
months ended December 31, 1997. The decrease in yield was due to the
repayment before maturity of a large, higher yielding mortgage loan. The
reduction in loans receivable was a result of decreased loan demand.
Interest Expense. Interest expense decreased $26,000 for the three
months ended December 31, 1996 compared to the three months ended December
31, 1997. This decrease was a result of a decrease in average deposits of
$3.7 million from $93.2 million for the three months ended December 31, 1996
to $89.5 million for the three months ended December 31, 1997. The decrease
in average deposits was partially offset by an increase in cost of funds
from 4.81% for the three months ended December 31, 1996 to 4.91% for the
three months ended December 31, 1997. This increase in costs of deposits was
due to increased competitive pressures.
Columbia Federal's net interest rate spread was 2.82% for the three
months ended December 31, 1997, compared to 2.99% for the three months ended
December 31, 1996.
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 three
months ended December 31, 1997, 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. Three of these properties were sold leaving
two properties with a recorded value of $48,000 at December 31, 1997.
Management expects no additional losses on these properties.
Non-interest Income and Non-interest Expense. Non-interest income was
$27,000 for the three months ended December 31, 1997, compared to $28,000
for the same period in 1996. Non-interest expense decreased $34,000, or
4.6%, to $707,000. The primary reason for this decrease was the reduction
of deposit insurance premiums from $56,000 for the three months ended
December 31, 1996, to $14,000 for the three months ended December 31, 1997,
a result of the special SAIF assessment.
PART II
COLUMBIA FINANCIAL OF KENTUCKY, INC.
Item 1. Legal Proceedings
-----------------
Not applicable.
Item 2. Changes in Securities and Use of Proceeds
-----------------------------------------
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.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
Exhibit 27 - Financial Data Schedule
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: March 27, 1997 By: /s/ Robert V. Lynch
------------------------------
Robert V. Lynch, President and
Chief Executive Officer
Date: March 27, 1997 By: /s/ Abijah Adams
------------------------------
Abijah Adams, Controller