10-Q 1 l89937ae10-q.txt COLUMBIA FINANCIAL OF KENTUCKY, INC. 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 JUNE 30, 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 ---------------------- ---------- -- (Zip Code) (Address of principal executive office) Registrant's telephone number, including area code: (859) 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 August 14, 2001, the latest practicable date, 2,625,950 common shares of the registrant, no par value, were issued and outstanding. Transitional Small Business Disclosure Format (check one): Yes No X ----- ---- 2 INDEX ----- COLUMBIA FINANCIAL OF KENTUCKY, INC.

Page 2 of 15 Pages 3 COLUMBIA FINANCIAL OF KENTUCKY, INC. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

Page 3 of 14 Pages 4 COLUMBIA FINANCIAL OF KENTUCKY, INC. CONSOLIDATED STATEMENTS OF INCOME

Page 4 of 14 Pages 5 COLUMBIA FEDERAL SAVINGS BANK STATEMENTS OF CASH FLOWS

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, 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) that 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, 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 three-month and nine-month periods ended June 30, 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. 4. 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 2,479,751 and 2,446,431 shares for the three-month periods ended June 30, 2001 and 2000, respectively, and 2,464,328 and 2,446,431 shares for the nine-month periods ended June 30, 2001 and 2000, respectively. Diluted earnings per share is computed taking into consideration shares outstanding and dilutive potential common shares, which includes shares subject to options. Diluted earnings per share is computed using 2,479,865 and 2,446,431 common shares outstanding for the three-month periods ended June 30, 2001 and 2000, respectively, and 2,464,671 and 2,446,431 for the nine-month periods ended June 30, 2001 and 2000, respectively. 5. AGREEMENT TO BE ACQUIRED BY CAMCO FINANCIAL CORPORATION On June 4, 2001, CFKY signed an agreement to be acquired by Camco Financial Corporation. Due to the signing of that agreement, awards made in 1999 under CFKY's recognition and retention plan that had not yet vested immediately vested and were distributed, resulting in an additional $474,576 compensation expense affecting CFKY's earnings. Page 6 of 14 Pages 7 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 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 JUNE 30, 2001 GENERAL. CFKY's assets totaled $109.3 million at June 30, 2001, a decrease of $2.2 million from $111.5 million at September 30, 2000. Columbia Federal had a $3.0 million decrease in held to maturity securities, a $3.4 million decrease in mortgage-backed securities and a $1.3 million decrease in loans receivable. These net repayments of loans and maturity of investments were temporarily invested in cash which created an increase in cash and cash equivalents of $5.7 million. Deposits increased $3.6 million and short-term borrowings decreased $6.0 million. LIQUID ASSETS AND INVESTMENTS. Liquid assets (cash and cash equivalents) totaled $10.7 million at June 30, 2001, an increase of $5.7 million from the total at September 30, 2000. LOANS RECEIVABLE. Net loans receivable were $69.4 million at June 30, 2001, compared to $70.7 million at September 30, 2000, a decrease, attributable to loans being repaid more rapidly than loans were originated. ALLOWANCE FOR LOSSES ON LOANS. Columbia Federal's allowance for loan losses totaled $300,000 at June 30, 2001, and September 30, 2000. The allowance represented .42% of total loans at June 30, 2001 and .41% at September 30, 2000. As of June 30, 2001, there were $135,000 in nonperforming loans, which was .19% of net loans at that date. As of September 30, 2000, there were $117,000 in nonperforming loans, which was .17% of 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 Savings Bank, industry standards, past due loans, general economic conditions and other factors related to the collectibility of the loan portfolio. Page 7 of 14 Pages 8 The following table sets forth the composition of the Savings 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 June 30, 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 $3.6 million, to $79.1 million, at June 30, 2001, compared to September 30, 2000, a 4.8% increase, attributable to increased certificates of deposit. At June 30, 2001, certificates of deposit that will mature within one year accounted for 50.1% of Columbia Federal's deposit liabilities. SHORT-TERM BORROWINGS. There were no advances from the FHLB at June 30, 2001, compared to $6.0 million at September 30, 2000. These advances were repaid with maturing investments and mortgage-backed securities and increased deposits. Page 8 of 14 Pages 9 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 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 that 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 June 30, 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 June 30, 2001, the total approved loan commitments outstanding, excluding construction loans, amounted to $872,000. At the same date, the unadvanced portion of construction loans approximated $736,000. There were no investment securities scheduled to mature within one year or less. Certificates of deposit scheduled to mature in one year or less at June 30, 2001 totaled $39.6 million. Mortgage-backed securities scheduled to mature in one year or less at June 30, 2001 were 165,000. The Savings Bank is required by the OTS to maintain of liquid assets in an amount 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 June 30, 2001 was 27.2%. 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 June 30, 2001. Under the "prompt corrective action" regulations of 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 June 30, 2001. COMPARISON OF OPERATING RESULTS FOR THE THREE-MONTH PERIODS ENDED JUNE 30, 2001 AND 2000 GENERAL. CFKY's recorded net loss of $(178,000) for the three months ended June 30, 2001, compared to net income of $185,000 for the same period in 2000, a $363,000 and 196% decrease. The decrease was primarily the result of compensation expense of $474,576 resulting from the vesting of the recognition and retention plan awards in connection with the execution by CFKY of an agreement to be acquired by Camco Financial Corporation. INTEREST INCOME. Interest income decreased $93,000 for the three months ended June 30, 2001 compared to the three months ended June 30, 2000. This was primarily a result of a decrease of $3.5 million in Page 9 of 14 Pages 10 average balances in interest earning assets. The yield on assets decreased 11 basis points to 7.27% for the three months ended June 30, 2001 compared to the same period the previous year. INTEREST EXPENSE. Interest expense decreased $37,000 for the three months ended June 30, 2001 compared to the three months ended June 30, 2001. Interest expense was affected by a decrease in average interest-bearing liabilities for the three months ended June 30, 2001 of $4.1 million partially offset by an increase in cost of funds of 6 basis points to 4.82% for the three months ended June 30, 2001 compared to the same period the previous year. Columbia Federal's net interest rate spread was 2.46% for the three months ended June 30, 2001, compared to 2.62% for the three months ended June 30, 2000. NON-INTEREST INCOME AND NON-INTEREST EXPENSE. Non-interest income was $32,000 for the three months ended June 30, 2001, compared to $23,000 for the same period in 2000, primarily due to an increase in fee income. Non-interest expense increased $531,000, or 68.2%, to $1.3 million. The primary reason for this increase was an increase in salaries and employee benefits of $499,000 as a result of costs associated with CFKY's recognition and retention plan. COMPARISON OF OPERATING RESULTS FOR THE NINE-MONTH PERIODS ENDED JUNE 30, 2001 AND 2000 GENERAL. CFKY's recorded net income of $48,000 for the nine months ended June 30, 2001, compared to income of $522,000 for the same period in 2000, a $474,000 and 90.8% decrease. The decrease resulted primarily from a $155,000 decrease in interest income, an increase of $158,000 in interest expense and increases of $411,000 in non-interest expenses. Such changes were partially offset by a $272,000 decrease in income tax expense. INTEREST INCOME. Interest income decreased $155,000 for the nine months ended June 30, 2001 compared to the nine months ended June 30, 2000. This decrease was primarily a result of a decrease of $2.3 million in average balances in interest earning assets. The yield on assets decreased 3 basis points, to 7.42% for the nine months ended June 30, 2001 compared to the same period the previous year. INTEREST EXPENSE. Interest expense increased $158,000 for the nine months ended June 30, 2001 compared to the nine months ended June 30, 2000. This increase was the result of an increase in average interest-bearing liabilities for the nine months ended June 30, 2001 of $2.2 million. Columbia Federal's net interest rate spread was 2.45% for the nine months ended June 30, 2001, compared to 2.88% for the nine months ended June 30, 2000. NON-INTEREST INCOME AND NON-INTEREST EXPENSE. Non-interest income was $74,000 for the nine months ended June 30, 2001, compared to $96,000 for the same period in 2000, primarily due to a decrease in fee income. Non-interest expense increased $411,000, or 15.9%, to $3.0 million. The primary reason for this increase was the increase in salaries and employee benefits from $1.7 million for the nine months ended June 30, 2000 to $2.2 million for the nine months ended June 30, 2001 as a result of costs associated with CFKY's recognition and retention plan. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's June 30, 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 10 of 14 Pages 11 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. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K Exhibits and Reports on Form 8-K (a) Exhibit 2 - Agreement of Merger and Plan of Reorganization Incorporated by reference to Current Report on Form 8-K filed on June 6, 2001, Exhibit 2 Exhibit 3.1 - Articles of Incorporation, as amended Incorporated by reference to Registration Statement on Form 8-A filed on March 20, 1998, Exhibit 2(a) and 2(b) Exhibit 3.2 - Code of Regulations, as amended Incorporated by reference to Registration Statement on Form 8-A filed on March 20, 1998, Exhibit 2(c) Exhibit 99 - Safe Harbor Under the Private Securities Litigation Reform Act of 1995

Page 11 of 14 Pages 12 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, 2001 By: /S/ ROBERT V. LYNCH --------------------------------------- Robert V. Lynch, President and Chief Executive Officer Date: August 14, 2001 By: /S/ ABIJAH ADAMS --------------------------------------- Abijah Adams, Controller Page 12 of 14 Pages

COLUMBIA FINANCIAL OF KENTUCKY INC 10-Q