EXHIBIT 99.2
Safe Harbor Under the Private Securities Litigation Reform Act of 1995
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The Private Securities Litigation Reform Act of 1995 (the "Act")
provides a "safe harbor" for forward-looking statements to encourage
companies to provide prospective information about their companies, so long
as those statements are identified as forward-looking and are accompanied by
meaningful cautionary statements identifying important factors that could
cause actual results to differ materially from those discussed in the
statement. Columbia Financial of Kentucky, Inc. ("CFKY") desires to take
advantage of the "safe harbor" provisions of the Act. Certain information,
particularly information regarding future economic performance and finances
and plans and objectives of management, contained or incorporated by
referencing CFKY's Form 10-QSB for the three-months ended December 31, 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
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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
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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
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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
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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 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.