1 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, 1999 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 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, 1999, the latest practicable date, 2,650,950 common shares of the registrant, no par value, were issued and outstanding. Transitional Small Business Disclosure Format (check one): Yes No X --- --- Page 1 of 14 Pages 2 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 Page 2 of 14 Pages 3 COLUMBIA FINANCIAL OF KENTUCKY, INC. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION JUNE 30, SEPT. 30, 1999 1998 -------- -------- (Dollars In Thousands) ASSETS Cash and due from Banks $ 729 $ 631 Interest Bearing Deposits in Other Banks 3,373 5,629 -------- -------- Total Cash and Cash Equivalents 4,102 6,260 Investment Securities Held to Maturity, At Cost (Market Value of $16,735 and $19,148 at June 30, 1999 and September 30, 1998) 16,150 18,980 Available-for-Sale, At Market Value -- 4,091 Mortgage-Backed Securities, At Cost (Market Value of $20,240 and $22,604 at June 30, 1999 and September 30, 1998) 21,386 22,352 Loans Receivable, Net 67,513 62,161 Real Estate Owned 139 -- Interest Receivable 761 891 Premises and Equipment, Net 1,555 1,625 Federal Home Loan Bank Stock, At Cost 1,425 1,354 Deferred Federal Income Tax Asset 117 -- Other Assets 105 86 -------- -------- Total Assets $113,253 $117,800 ======== ======== LIABILITIES AND EQUITY Liabilities Deposits $ 82,573 $ 79,484 Advances from Borrowers for Taxes and Insurance 356 343 Accrued Federal Income Tax Liability 65 5 Deferred Federal Income Tax Liability 162 172 Other Liabilities 104 78 -------- -------- Total Liabilities 83,260 80,082 -------- -------- Equity Preferred Stock (1,000,000 Shares, No Par Value, Authorized, No Shares Issued or Outstanding) -- -- Common Stock (6,000,000 Shares, No Par Value, Authorized, 2,650,950 Issued and Outstanding) -- -- Additional Paid in Capital 18,271 25,821 Retained Earnings - Substantially Restricted 13,709 13,834 Treasury Stock (20,500 a share at cost) (262) -- Shares Acquired by Employee Stock Ownership Plan (ESOP) (1,725) (1,937) -------- -------- Total Equity 29,993 37,718 -------- -------- Total Liabilities and Equity $113,253 $117,800 ======== ======== Page 3 of 14 Pages 4 COLUMBIA FINANCIAL OF KENTUCKY, INC. CONSOLIDATED STATEMENTS OF INCOME THREE MONTHS ENDED NINE MONTHS ENDED JUNE 30, JUNE 30, ------------------ ----------------- 1999 1998 1999 1998 ------ ------ ------ ------ (Dollars in Thousands) INTEREST INCOME Loans $1,387 $1,362 $4,130 $4,046 Mortgage-Backed Securities 324 336 1,005 913 Investments 303 265 1,002 758 Interest-Bearing Deposits 71 263 205 397 ------ ------ ------ ------ Total Interest Income 2,085 2,226 6,342 6,114 ------ ------ ------ ------ INTEREST EXPENSE Deposits 911 1,057 2,775 3,258 ------ ------ ------ ------ NET INTEREST INCOME 1,174 1,169 3,567 2,856 PROVISION FOR LOSSES ON LOANS -- -- -- 74 ------ ------ ------ ------ Net Interest Income After Provision for Losses on Loans 1,174 1,169 3,567 2,782 ------ ------ ------ ------ NON-INTEREST INCOME 27 25 85 81 ------ ------ ------ ------ NON-INTEREST EXPENSE Salaries and Employee Benefits 514 550 1,510 1,382 Occupancy Expense of Premises 69 72 203 200 Federal Deposit Insurance Premiums 14 14 41 42 Data Processing Services 28 27 82 86 Advertising 32 23 93 89 Other 133 144 508 392 ------ ------ ------ ------ Total Non-Interest Expense 790 830 2,437 2,191 ------ ------ ------ ------ Income Before Federal Income Tax Expense 411 364 1,215 672 FEDERAL INCOME TAX EXPENSE 140 125 413 228 ------ ------ ------ ------ NET INCOME $ 271 $ 239 $ 802 $ 444 ====== ====== ====== ====== EARNINGS PER SHARE Basic $ 0.11 0.10 0.32 N/A ====== ====== ====== Diluted $ 0.11 0.10 0.32 N/A ====== ====== ====== Page 4 of 14 Pages 5 COLUMBIA FINANCIAL OF KENTUCKY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED JUNE 30, ---------------------- 1999 1998 ------- -------- (Dollars In Thousands) CASH FLOWS FROM OPERATING ACTIVITIES Net Income $ 802 $ 444 Reconciliation of Net Income with Cash Flows from Operations Depreciation 81 91 Provision for Losses on Loans -- 74 FHLB Stock Dividends (71) (69) Deferred Federal Income Tax (127) (19) Changes In Interest Receivable 130 (29) Other Assets (19) 10 Federal Income Tax Receivable/Liability 60 92 Other Liabilities 26 (15) ------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES 882 579 ------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Investment Securities Purchased (7,996) (16,542) Matured 14,917 10,587 Mortgage-Backed Securities Purchased (3,093) (4,990) Principal Collected 4,059 1,341 Loan Origination's and Repayments, Net (5,491) (495) Purchases of Property and Equipment (11) (130) ------- -------- NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 2,385 (10,229) ------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Advances from Borrowers for Taxes and Insurance 13 (87) Change in Deposits 3,089 (9,388) Dividends Paid (8,543) -- ESOP Shares Released 278 -- Treasury Shares Acquired (262) -- Proceeds from Offering -- 23,803 ------- -------- NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES (5,425) 14,328 ------- -------- CHANGE IN CASH AND CASH EQUIVALENTS (2,158) 4,678 BEGINNING BALANCE, CASH AND CASH EQUIVALENTS 6,260 6,827 ------- -------- ENDING BALANCE, CASH AND CASH EQUIVALENTS $ 4,102 $ 11,505 ======= ======== Page 5 of 14 Pages 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS COLUMBIA FINANCIAL OF KENTUCKY, INC. For the three-and nine-month periods ended June 30, 1999 and 1998 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, 1998. 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, 1999 and 1998 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 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. 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 sold to the Columbia Federal of Kentucky, Inc. Employee Stock Ownership Plan (the "ESOP"), resulted in net proceeds of $23.8 million. Page 6 of 14 Pages 7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS COLUMBIA FINANCIAL OF KENTUCKY, INC. At the time of conversion, Columbia Federal established a liquidation account in an amount equal to its regulatory capital as of September 30, 1998. 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 --------------------------- The deposit accounts of Columbia Federal and other savings associations are insured up to applicable limits by the Federal Deposit Insurance Corporation in the Savings Association Insurance Fund (the "SAIF"). Legislation to recapitalize the SAIF was enacted on September 30, 1996. Such legislation provided that the SAIF will be merged into the Bank Insurance Fund if there are no remaining federal savings associations. At the time such legislation was adopted, Congress was considering the elimination of the federal thrift charter. Although it now seems unlikely that Congress will eliminate the federal thrift charter, legislation is currently being considered that may change the range of activities in which various types of financial institutions and their holding companies, including Columbia Federal and CFKY, may engage. Although CFKY cannot predict when or whether this "financial modernization" legislation will be passed or what its effect on CFKY and Columbia Federal will be, it is not anticipated that the current activities of CFKY and Columbia will be materially affected. 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 193,661 unallocated ESOP shares, totaled 2,463,345 shares and 2,470,758 for the three-month and nine-month periods ended June 30, 1999, respectively. 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 2,463,345 and 2,470,758 for the three months and nine months ended June 30, 1999. The weighted average shares outstanding for the three months ended June 30, 1998 totaled 2,457,734. The provisions of SFAS No. 128 "Earnings Per Share" are not applicable to the nine-month period ended June 30, 1998, as the conversion from mutual to stock form was completed in April, 1998. Page 7 of 14 Pages 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-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, 1998 TO JUNE 30, - ----------------------------------------------------------------------------- 1999 - ---- GENERAL. CFKY's assets totaled $113.3 million at June 30, 1999, a decrease of $4.5 million, or 3.8%, from $117.8 million at September 30, 1998. The decrease resulted primarily from a $2.2 million decrease in cash and cash equivalents, a $6.9 million decrease in investment securities and a $1.0 million decrease in mortgage-backed securities, partially offset by a $5.4 million increase in loans receivable. Deposits increased $3.1 million and advances from borrowers for taxes and insurance decreased $13,000. The decrease in cash, investments and mortgage-backed securities was primarily a result of the use of funds for a $8.0 million special capital distribution in June, 1999. The distribution was paid from funds retained by the Company in the conversion and is expected by management to constitute a return of excess capital, although the amount that constitutes a tax-deferred return of capital will not be known until after September 30, 1999. The Company charged the special capital distribution to additional paid-in capital. LIQUID ASSETS AND INVESTMENTS. Liquid assets (cash and cash equivalents) totaled $4.1 million at June 30, 1999, a decrease of $2.2 million, or 34.5%, from the total at September 30, 1998. Investment securities totaled $16.2 million at June 30, 1999, a decrease of $6.9 million or 30.0% from September 30, 1998. These decreases resulted primarily from the special distribution in June, 1999 and management's plan to restructure its portfolio to maximize its return on assets. LOANS RECEIVABLE. Net loans receivable equaled $67.5 million at June 30, 1999, compared to $62.2 million at September 30, 1998, an 8.6% increase, attributable to loans being originated more rapidly than loans were being repaid. This was also part of management's plan to increase its return on assets. ALLOWANCE FOR LOSSES ON LOANS. Columbia Federal's allowance for loan losses totaled $300,000 at June 30, 1999, and September 30, 1998. The allowance represented .43% of total loans at June 30, 1999 and .45% of total loans at September 30, 1998. As of September 30, 1998, there was $173,000 in nonperforming loans, which was .26% of total loans at that date. As of June 30, 1999, there was $58,000 in nonperforming loans, which was .08% of total 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 14 Pages 9 The following table sets forth the composition of the Bank's portfolio by type of loan at the dates indicated: June 30, 1999 September 30, 1998 ------------- ------------------ Amount Percent Amount Percent ------ ------- ------ ------- (In Thousands) (In Thousands) Real Estate Loans One-to-Four Family Residential $56,998 80.99% $53,579 81.21% Multi-Family and Non Residential 8,352 11.87 7,440 11.28 Land and Construction Non Residential Real Estate 744 1.06 704 1.07 Construction Loans 4,249 6.04 4,228 6.41 ------- ------ ------- ------ Total Real Estate Loans 70,343 99.96 65,951 99.96 Consumer Loans Savings Accounts 31 .04 20 0.03 Other Consumer Loans -- -- 5 0.01 ------- ------ ------- ------ Total Consumer Loans 31 .04 25 0.04 ------- ------ ------- ------ Total Loans $70,374 100.00% 65,976 100.00% ======= ====== ======= ====== Less Loans in Process 1,809 2,759 Deferred Loan Fees 752 756 Allowance for Loan Losses 300 300 ------- ------- Loans Receivable, Net $67,513 $62,161 ======= ======= The following is the change in the allowance for loan losses for the periods indicated. Nine Months Ended Year Ended June 30, 1999 September 30, 1998 ------------- ------------------ (In Thousands) (In Thousands) Allowance for Loan Losses Balance at Beginning of Period $300 $ 300 Net (Charge-Offs) Recoveries -- (74) Provision for Loan Losses -- 74 ---- ----- Balance at End of Period $300 $ 300 ==== ===== Although management believes that its allowance for loan losses at June 30, 1999, 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 $82.6 million, at June 30, 1999, from $79.5 million at September 30, 1998. At June 30, 1999, certificates of deposit that will mature within one year accounted for 41.6% of Columbia Federal's deposit liabilities. Page 9 of 14 Pages 10 REGULATORY CAPITAL REQUIREMENTS. Columbia Federal is required by OTS regulations to meet certain minimum capital requirements. These requirements call for tangible capital of 1.5% of adjusted total assets, core capital (which for Columbia Federal is equal to tangible capital) of 4% of adjusted total assets, and risk-based capital (which for Columbia Federal consists of core capital and general valuation allowances) equal to 8% of risk-weighted assets. Assets and certain off balance sheet items are weighted at percentage levels ranging from 0% to 100% depending on their relative risk. The OTS has adopted regulations governing prompt corrective action to resolve the problems of capital deficient and otherwise troubled savings associations. At each successively lower capital category, an institution is subject to more restrictive and numerous mandatory or discretionary regulatory actions or limits, and the OTS has less flexibility in determining how to resolve the problems of the institution. In addition, the OTS can downgrade an association's designation notwithstanding its capital level, based on less than satisfactory examination ratings in areas other than capital or, after notice and an opportunity for hearing, if the institution is deemed to be in an unsafe or unsound practice. Each undercapitalized association must submit a capital restoration plan to the OTS within 45 days after it becomes undercapitalized. Such institution will be subject to increased monitoring and asset growth restrictions and will be required to obtain prior approval for acquisitions, branching and engaging in new lines of business. A critically undercapitalized institution must be placed in conservatorship or receivership within 90 days after reaching such capitalization level, except under limited circumstances. Columbia Federal's capital at June 30, 1999 met the standards for the highest category, a "well-capitalized" association. COMPARISON OF OPERATING RESULTS FOR THE THREE-MONTH PERIODS ENDED JUNE 30, 1999 - ------------------------------------------------------------------------------- AND 1998 - -------- GENERAL. CFKY's recorded net income of $271,000 for the three months ended June 30, 1999, compared to income of $239,000 for the same period in 1998, a $32,000 and 13.4% increase. The increase resulted primarily from a $146,000 decrease in interest expense and a decrease in non-interest expense of $40,000. Such changes were partially offset by a $141,000 decrease in interest income and a $15,000 increase in income tax expense. INTEREST INCOME. Interest income decreased $141,000 for the three months ended June 30, 1999 compared to the three months ended June 30, 1998. This was a result of a decrease in average balances in interest-earning assets as a result of the special capital distribution. Yields on interest-earning assets were relatively constant for the three-month period ended June 30, 1999 and 1998. INTEREST EXPENSE. Interest expense decreased $146,000 for the three months ended June 30, 1999 compared to the three months ended June 30, 1998. This decrease was the result of a decrease in average deposits of $22.7 million from $104.2 million for the three months ended June 30, 1998 to $81.5 million for the three months ended June 30, 1999, partially offset by an increase in cost of funds for the three months ended June 30, 1999. NON-INTEREST INCOME AND NON-INTEREST EXPENSE. Non-interest income was $27,000 for the three months ended June 30, 1999, compared to $25,000 for the same period in 1998. Non-interest expense decreased $40,000, or 4.8%, to $790,000. The primary reason for this decrease was a reduction in salaries and benefits caused by lower ESOP expense for the three months ended June 30, 1999. COMPARISON OF OPERATING RESULTS FOR THE NINE-MONTH PERIODS ENDED JUNE 30, 1999 - ------------------------------------------------------------------------------ AND 1998 - -------- GENERAL. Columbia Federal recorded net income of $802,000 for the nine months ended June 30, 1999, compared to income of $444,000 for the same period in 1998, a $358,000, or 80.6%, increase. The increase resulted primarily from a $228,000 increase in interest income, a $483,000 decrease in interest expense and a $74,000 decrease in provision for loan losses. Such changes were offset by an increase in non-interest expense of $246,000, and a $185,000 increase in income tax expense. Page 10 of 14 Pages 11 INTEREST INCOME. Interest income increased $228,000 for the nine months ended June 30, 1999 compared to the nine months ended June 30, 1998. This was a result of an increase in average interest earning assets of $7.4 million from $108.5 million for the nine months ended June 30, 1998 to $115.9 million for the nine months ended June 30, 1999. This interest income increase due to the increase in interest-earning assets was partially offset by a reduction in yield on earning assets of 21 basis points to 7.3% for the nine months ended June 30, 1999. INTEREST EXPENSE. Interest expense decreased $483,000 for the nine months ended June 30, 1999 compared to the nine months ended June 30, 1998. This decrease was primarily due to a decrease in average deposits of $14 million from $95.1 million for the nine months ended June 30, 1998 to $81.1 million for the nine months ended June 30, 1999. Columbia Federal's net interest margin, net interest income as a percent of average interest earning assets, was 4.1% for the nine months ended June 30, 1999, compared to 3.5% for the nine months ended June 30, 1998. ALLOWANCE AND PROVISION FOR LOAN LOSSES. After review of its allowance for loan losses in 1998, management decided to record a provision for loan losses of $74,000 to return its allowance to $300,000. No losses on loans have been recorded during the nine months ended June 30, 1999. NON-INTEREST INCOME AND NON-INTEREST EXPENSE. Non-interest income was $85,000 for the nine months ended June 30, 1999, compared to $81,000 for the same period in 1998, primarily due to an increase in fee income. Non-interest expense increased $246,000, or 11.2%, to $2.4 million. The primary reasons for this increase were an increase in salaries and employee benefits of $128,000 and an increase in other expenses of $116,000. These increases were primarily the result of cost associated with Columbia's new ESOP plan and the costs associated with the operation of a public company. YEAR 2000 READINESS - ------------------- Because the Bank's operations rely extensively on computer systems, the Bank is addressing problems associated with the possibility that computer systems will not recognize the year 2000 ("Y2K") correctly. The Bank has developed a Year 2000 Plan, which was presented to the Board of Directors in 1997. The Board of Directors appointed a Year 2000 Committee, which reports to the Board of Directors quarterly. The Bank relies primarily on third-party vendors for its computer output and processing, as well as other significant functions and services, such as securities safekeeping services, ATM service, and wire transfers. The Year 2000 Committee is working with the vendors to assess their Y2K readiness. The Board of Directors has received written notification that the third-party vendors are year 2000 compliant. All date-dependent equipment and related software throughout the Bank have been inventoried and tested for Y2K capabilities. Equipment identified as not being Y2K compatible has been replaced. The cost for new hardware and software was approximately $15,000. If the modifications and conversions by both third-party vendors and the Bank are not completed on a timely basis or if they fail to function properly, the operations and financial condition of the Company could be materially adversely affected. The Bank has developed contingency plans for continued operations in the event of system failure. In the event that transactions cannot be processed through the Bank's third-party processing firm, the Bank has established procedures for the processing of transactions through the Y2K ready computers located at each branch in a stand-alone mode. In addition, financial institutions may experience increases in problem loans and credit losses in the event that borrowers fail to prepare properly for Y2K, and higher funding costs could result if consumers react to publicity about the issue by withdrawing deposits. The Bank has assessed such risks among its customers as very low due to the composition of its loan portfolio of approximately 90% residential real estate. The Company could also be materially adversely affected if other third parties, such as governmental agencies, clearinghouses, telephone companies, utilities and other service providers fail to prepare properly. The Bank has assessed these risks and has developed contingency plans to minimize their effect. Page 11 of 14 Pages 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 14 Pages 13 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K -------------------------------- Exhibit 3.1 - Articles of Incorporation of Columbia Financial of Kentucky, Inc. Incorporated by reference to Registration Statement on Form 8-A of the Registrant filed with the SEC on March 20, 1998, Exhibit 2(a) and 2(b). Exhibit 3.2 - Code of Regulations of Columbia Financial of Kentucky, Inc. Incorporated by reference to Registration Statement on Form 8-A of the Registrant filed with the SEC on March 20, 1998, Exhibit 2(c). Exhibit 27 - Financial Data Schedule Exhibit 99 - Safe Harbor Under the Private Securities Litigation Reform Act of 1995 Page 13 of 14 Pages 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: August 12, 1999 By: /s/ Robert V. Lynch -------------------------------- Robert V. Lynch, President and Chief Executive Officer Date: August 12, 1999 By: /s/ Abijah Adams -------------------------------- Abijah Adams, Controller Page 14 of 14 Pages