<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------------------------------
FORM 10-QSB
(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, 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 Number 0-27170
CLASSIC BANCSHARES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 61-1289391
- --------------------------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
344 Seventeenth Street, Ashland, Kentucky 41101
- --------------------------------------------------------------------------------
(Address of principal executive offices) (ZIP Code)
Registrant's telephone number, including area code: (606) 325-4789
-------------
Check here whether the issuer (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 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 [ ]
As of August 8, 1997, there were 1,304,950 shares of the
Registrant's common stock issued and outstanding.
Transitional Small Disclosure (check one): Yes [ ] No [X]
<PAGE>
CLASSIC BANCSHARES, INC.
INDEX
-----
<TABLE>
<CAPTION>
Page
Number
------
PART I. FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1997 (Unaudited)
and March 31, 1997 3
Consolidated Statements of Income for the three months
ended June 30, 1997 and 1996 4
Consolidated Statements of Stockholders' Equity for the three months
ended June 30, 1997 and Year Ended March 31, 1997 5
Consolidated Statements of Cash Flows for the three months ended
June 30, 1997 and 1996 6
Notes to Consolidated Financial Statements 7-8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9-14
PART II. OTHER INFORMATION 15
Signatures 16
Index to Exhibits 17
</TABLE>
2
<PAGE>
CLASSIC BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, March 31,
1997 1997
---- ----
(Unaudited)
ASSETS
- ------
<S> <C> <C>
Cash and due from bank $ 2,581,132 $ 3,309,309
Federal funds sold and securities purchased under resell agreement -- 5,525,000
Certificates of deposits in other financial institutions 293,000 293,000
Investment securities available for sale 22,940,962 23,374,597
Mortgage-backed securities available for sale 8,849,294 7,884,835
Loans receivable, net 86,139,935 81,727,685
Real estate acquired in the settlement of loans 370,314 336,337
Accrued interest receivable 995,552 690,186
Federal Home Loan Bank and Federal Reserve Bank stock 1,054,800 1,015,400
Premises and equipment, net 3,372,301 3,297,016
Cost in excess of fair value of net assets acquired (goodwill),
net of accumulated amortization 2,995,593 3,026,389
Other assets 931,901 1,074,481
------------- -------------
TOTAL ASSETS $ 130,524,784 $ 131,554,235
- ------------ ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Liabilities
Deposits $ 99,107,859 $ 100,519,473
Securities sold under agreement to repurchase 3,645,267 4,955,766
Advances from Federal Home Loan Bank 6,310,000 4,750,000
Treasury tax and loan note 397,313 428,954
Accrued expenses and other liabilities 337,627 287,836
Accrued interest payable 266,975 217,731
Accrued income taxes 100,514 90,588
Long-term debt 625,000 650,000
Deferred income taxes 325,151 284,087
------------- -------------
Total Liabilities $ 111,115,706 $ 112,184,435
------------- -------------
Commitments and contingencies
Stockholders' Equity
Common stock, $.01 par value, 1,304,950 shares
issued and outstanding $ 13,225 $ 13,225
Additional paid-in capital 12,689,158 12,689,158
Retained earnings - substantially restricted 8,324,210 8,172,085
Net unrealized gain (loss) on securities available for sale 18,499 (58,614)
Unearned ESOP shares (918,660) (918,660)
Unearned RRP shares (486,055) (486,055)
Minimum pension liability adjustment (11,024) (11,376)
Treasury stock, at cost (220,275) (29,963)
------------- -------------
Total Stockholders' Equity $ 19,409,078 $ 19,369,800
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 130,524,784 $ 131,554,235
- ------------------------------------------ ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
CLASSIC BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
------------------
1997 1996
---- ----
INTEREST INCOME
- ---------------
<S> <C> <C>
Loans $ 1,794,072 $ 849,320
Investment securities 393,296 172,534
Mortgage-backed securities 151,422 45,290
Other interest earning assets 31,019 91,920
------------ ------------
Total Interest Income 2,369,809 1,159,064
------------ ------------
INTEREST EXPENSE
- ----------------
Interest on deposits 1,029,987 612,860
Interest on FHLB Advances 82,458 7,796
Interest on other borrowed funds 67,901 --
------------ ------------
Total Interest Expense 1,180,346 620,656
------------ ------------
Net Interest Income 1,189,463 538,408
Provision for loss on loans 47,500 15,000
------------ ------------
Net interest income after
provision for loss on
loans 1,141,963 523,408
------------ ------------
NON-INTEREST INCOME
- -------------------
Service Charges 73,557 9,312
Gain on sale of securities 497 --
Other income 34,130 2,564
------------ ------------
Total Non-Interest Income 108,184 11,876
------------ ------------
NON-INTEREST EXPENSES
- ---------------------
Employee compensation and benefits 449,509 119,162
Occupancy and equipment expense 116,297 24,449
Federal deposit insurance premiums 7,355 27,364
(Gain) loss on foreclosed real estate 557 (500)
Amortization of goodwill 30,795 --
Other general and administrative
expenses 316,095 149,869
------------ ------------
Total Non-Interest Expense 920,608 320,344
------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES 329,539 214,940
- ---------------------------------
Income tax expense (benefit) 92,497 54,274
------------ ------------
NET INCOME (LOSS) $ 237,042 $ 160,666
- ----------------- ============ ============
Earnings per common share $ 0.20 $ 0.13
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
CLASSIC BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NET UNREALIZED
ADDITIONAL GAIN (LOSS) ON
COMMON PAID-IN RETAINED AVAILABLE FOR UNEARNED
STOCK CAPITAL EARNINGS SALE SECURITIES ESOP SHARES
----- ------- -------- --------------- -----------
<S> <C> <C> <C> <C> <C>
Balance at April 1, 1996 $ 13,225 $ 12,710,898 $ 7,707,753 $ 86,285 $ (1,005,100)
Net income for the year
ended March 31, 1997 - - 622,619 - -
Dividend paid - - (158,287) - -
ESOP shares earned - 15,213 - - 86,440
Change in unrealized gain
(loss) on securities available
for sale - - - (144,899) -
Shares repurchased for
RRP Plan - (36,953) - - -
RRP shares earned - - - - -
Amortization of minimum
pension liability adjustment - - - - -
----------- ------------- ----------- --------- ----------
Balances at March 31, 1997 13,225 12,689,158 8,172,085 (58,614) (918,660)
Net income for the three months
ended June 30, 1997 - - 237,042 - -
Dividend paid - - (84,917) - -
Change in unrealized gain
(loss) on securities available
for sale - - - 77,113 -
Amortization of minimum
pension liability adjustment - - - - -
Purchased 15,000 shares
of treasury stock - - - - -
----------- ------------- ----------- --------- ----------
Balances at June 30, 1997 $ 13,225 $ 12,689,158 $ 8,324,210 $ 18,499 $ (918,660)
=========== ============= =========== ========= ==========
</TABLE>
[Restubbed table]
<TABLE>
<CAPTION>
MINIMUM
PENSION
UNEARNED LIABILITY TREASURY
RRP SHARES ADJUSTMENT STOCK TOTAL
---------- ---------- ----- -----
<S> <C> <C> <C> <C>
Balance at April 1, 1996 $ - $(12,798) $ - $19,500,263
Net income for the year
ended March 31, 1997 - - - 622,619
Dividend paid - - - (158,287)
ESOP shares earned - - - 101,653
Change in unrealized gain
(loss) on securities available
for sale - - - (144,899)
Shares repurchased for
RRP Plan (554,659) - (29,963) (621,575)
RRP shares earned 68,604 - - 68,604
Amortization of minimum
pension liability adjustment - 1,422 - 1,422
--------- ---------- --------- -----------
Balances at March 31, 1997 (486,055) (11,376) (29,963) 19,369,800
Net income for the three months
ended June 30, 1997 - - - 237,042
Dividend paid - - - (84,917)
Change in unrealized gain
(loss) on securities available
for sale - - - 77,113
Amortization of minimum
pension liability adjustment - 352 - 352
Purchased 15,000 shares
of treasury stock - - (190,312) (190,312)
--------- ---------- --------- -----------
Balances at June 30, 1997 $ (486,055) $ (11,024) $(220,275) $19,409,078
========= ========== ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
CLASSIC BANCSHARES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
--------
1997 1996
---- ----
OPERATING ACTIVITIES
- --------------------
<S> <C> <C>
Net Income $ 237,042 $ 160,666
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 71,920 17,778
Provision for loss on loans 47,500 15,000
(Gain) on sale of securities available for sale (497) --
Federal Home Loan Bank stock dividends (16,600) (10,800)
Deferred income tax expense (benefit) -- 37,001
Loss (gain) on foreclosed real estate -- 500
Amortization and accretion of invesment
securities premiums and discounts, net 2,788 2,336
Amortization of goodwill 30,795 --
Decrease (increase) in:
Accrued interest receivable (305,366) (84,630)
Other assets 142,580 (70,134)
Increase (decrease) in:
Accrued interest payable 49,244 (37,512)
Accrued income taxes 9,926 19,402
Accounts payable and accrued expenses 49,791 (33,770)
----------- -----------
Net cash provided by operating activities 319,123 15,837
----------- -----------
INVESTING ACTIVITIES
- --------------------
Securities:
Proceeds from sale 1,197,960 --
Purchased (650,000) --
Mortgage-backed securities:
Proceeds from sale 1,004,375 --
Purchased (2,187,378) --
Principal payments 177,003 35,707
Certificates of deposits:
Proceeds from maturities -- 100,000
Loan originations and principal payments, net (4,462,655) (3,430,059)
Proceeds from the sale of foreclosed real estate -- 5,500
Purchases of software (10,414) --
Purchases of premises and equipment (147,205) (60,625)
----------- -----------
Net cash provided (used) by investing activities (5,078,314) (3,349,477)
----------- -----------
FINANCING ACTIVITIES
- --------------------
Net (decrease) increase in deposits (1,411,617) 218,341
Proceeds from FHLB borrowings 4,910,000 2,500,000
Repayment of FHLB borrowings (3,350,000) --
Repayment of long-term borrowings (25,000) --
Decrease in securities sold under agreements to repurchase (1,310,499) --
Decrease in term treasury tax and loan borrowings (31,641) --
Purchase of treasury stock (190,312) --
Dividends paid (84,917) --
----------- -----------
Net cash provided by financing activities (1,493,986) 2,718,341
----------- -----------
Increase (decrease) in cash and cash equivalents (6,253,177) (615,299)
Cash and cash equivalent at beginning of period 8,834,309 6,523,462
----------- -----------
Cash and cash equivalents at end of period $ 2,581,132 $ 5,908,163
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
CLASSIC BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Principles of Consolidation
---------------------------
The financial statements for 1997 are presented for Classic Bancshares,
Inc. (the "Company") and its wholly-owned subsidiaries, Classic Bank, and The
First National Bank of Paintsville ("First National"). The consolidated balance
sheets for June 30, 1997 and March 31, 1997 are for the Company, Classic Bank,
and First National. The consolidated statements of income include the operations
of the Company, Classic Bank and First National for the three months ended June
30, 1997. The statements of income for the three months ended June 30, 1996
include only the operations of the Company and Classic Bank. First National was
acquired as of the close of business, September 30, 1996, in a transaction
accounted for under the purchase method of accounting.
(2) Basis of Presentation
---------------------
The accompanying Consolidated Financial Statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Regulation
S-B. Accordingly, they do not include all the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, the Consolidated Financial Statements
contain all adjustments (consisting only of normal recurring adjustments)
necessary to present fairly the financial condition of Classic Bancshares, Inc.
as of June 30, 1997, and the results of operations for all interim periods
presented.
Operating results for the three months ended June 30, 1997 are not
necessarily indicative of the results that may be expected for the fiscal year
ended March 31, 1998.
(3) Earnings Per Share of Common Stock
----------------------------------
Earnings per share of common stock is computed by dividing net income
for the period by the weighted average number of common stock and common stock
equivalents outstanding during the three month period ended June 30, 1997.
Weighted average number of shares used in the earnings per share computations
was 1,214,568 for the three month period ended June 30, 1997 and 1,221,990 for
the three month period ended June 30, 1996.
(4) Employee Stock Ownership Plan (ESOP)
-----------------------------------
In conjunction with the Bank's conversion on December 28, 1995, the
Company established an Employee Stock Ownership Plan (ESOP) which covers
substantially all employees. The ESOP borrowed $1,058,000 from the Company, and
purchased 105,800 common shares, equal to 8% of the total number of shares
issued in the conversion . Classic Bank makes scheduled discretionary
contributions to the ESOP sufficient to service the debt. Shares are allocated
to participants' accounts under the shares allocated method. The cost of shares
committed to be released and unallocated shares is reported as a reduction of
stockholders' equity. Compensation expense is recorded based on the average fair
market value of the ESOP shares when committed to be released. Furthermore, ESOP
shares that have not been committed to be released are not considered
outstanding. The expense under the ESOP for the three months ended June 30, 1997
and 1996 was $28,500 and $24,000, respectively. As of
7
<PAGE>
June 30, 1997, the Company considered 91,866 shares as unearned ESOP shares with
a fair value of $1,286,124.
(5) Stock Option and Incentive Plan and Recognition and Retention Plan
------------------------------------------------------------------
On July 29, 1996, the shareholders of the Company ratified the adoption
of the Company's 1996 Stock Option and Incentive Plan and the Recognition and
Retention Plan ("RRP"). Pursuant to the Stock Option Plan, 132,250 shares of the
Company's common stock are reserved for issuance, of which the Company has
granted options on 112,447 shares at $10.8125 per share and options on 19,750
shares at $13.375. Pursuant to the Recognition and Retention Plan, 52,900 shares
of the Company's common stock are reserved for issuance, of which the Company
has granted awards on 50,350 shares. Ungranted RRP shares (2,550) are included
in treasury stock at cost. RRP shares that are granted are considered common
stock equivalents.
(6) Cash Dividend
-------------
On July 28, 1997, the Board declared a cash dividend of $.07 per share
payable on August 25, 1997 to shareholders of record on August 11, 1997.
(7) Supplemental Disclosure of Cash Flows Information
-------------------------------------------------
<TABLE>
<CAPTION>
Three months ended June 30,
---------------------------
1997 1996
---- ----
<S> <C> <C>
Cash paid for:
Interest $202,561 $175,068
Taxes 164,128 -0-
Noncash investing activities:
Transfer from loans to real estate
acquired through foreclosure -0- 18,000
</TABLE>
8
<PAGE>
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Financial Condition
- -------------------
The Company's total assets decreased $1.1 million, or .8%, from $131.6
million at March 31, 1997 to $130.5 million at June 30, 1997. This decrease was
due primarily to a decrease in cash and cash equivalents of $6.2 million and a
decrease in investment securities of approximately $400,000 offset by an
increase in loans of $4.4 million and an increase in mortgage-backed securities
of approximately $1.0 million.
Net loans receivable increased $4.4 million from $81.7 million at March
31, 1997 to $86.1 million at June 30, 1997 due to aggressive origination efforts
in that resulted in originations of $6.0 million of one to four family loans,
$670,000 in commercial real estate loans, $4.0 million in commercial business
loans and $2.0 million in consumer loans offset by repayments since March 31,
1997.
Investment securities decreased approximately $400,000 from March 31,
1997 to June 30, 1997 primarily as the result of purchases of $650,000 and an
increase in the market value on these available for sale securities of
approximately $102,000 offset by sold securities of $1.1 million.
Mortgage-backed securities increased approximately $1.0 million from $7.9
million at March 31, 1997 to $8.8 million at June 30, 1997. The increase is
primarily the result of purchases of $2.2 million offset by sales of $1.0
million and principal repayments.
Net deposits decreased $1.4 million from $100.5 million at March 31,
1997 to $99.1 million at June 30, 1997. The decrease in deposits was due to the
outflow of deposits exceeding the inflow of deposits in the normal course of
business. Securities sold under agreement to repurchase decreased $1.3 million
from $4.9 million at March 31, 1997 to $3.6 million at June 30, 1997. The
decrease was due to a withdrawal in the normal course of business.
Federal Home Loan Bank advances increased $1.6 million from $4.7
million at March 31, 1997 to $6.3 million at June 30, 1997. Net proceeds from
advances during the quarter were used to fund loan demand and the outflow of
deposits and repurchase agreements.
Total stockholders' equity was $19.4 million at March 31, 1997 and June
30, 1997 as stock repurchases and dividends offset increases in retained
earnings and unrealized gains on securities.
Forward-Looking Statements
- --------------------------
When used in this Form 10-QSB and in future filings by the Company with
the Securities and Exchange Commission (the "SEC"), in the Company's press
releases or other public or shareholder communications, and in oral statements
made with the approval of an authorized executive officer, the words or phrases
"will likely result", "are expected to", "will continue", "is anticipated",
"estimate", "project" or similar expressions are intended to identify
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements are subject to certain risks and
uncertainties, including changes in economic conditions
9
<PAGE>
in the Company's market area, changes in policies by regulatory agencies,
fluctuations in interest rates, demand for loans in the Company's market area
and competition, that could cause actual results to differ materially from
historical earnings and those presently anticipated or projected. The Company
wishes to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made. The Company
wishes to advise readers that the factors listed above could affect the
Company's financial performance and could cause the Company's actual results for
future periods to differ materially from any opinions or statements expressed
with respect to future periods in any current statements.
The Company does not undertake - and specifically declines any
obligation - to publicly release the result of any revisions which may be made
to any forward-looking statements to reflect events or circumstances after the
date of such statements or to reflect the occurrence of anticipated or
unanticipated events.
RESULTS OF OPERATIONS - COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS
- ----------------------------------------------------------------------------
ENDED JUNE 30, 1997 AND 1996
- ----------------------------
General. The Company's results of operations depend primarily upon the
level of net interest income, which is the difference between the interest
income earned on its interest-earning assets such as loans and investments, and
the costs of the Company's interest-bearing liabilities, primarily deposits and
borrowings. Results of operations are also dependent upon the level of the
Company's non-interest income, including fee income and service charges, and
affected by the level of its non-interest expenses, including its general and
administrative expenses. Net interest income depends upon the volume of
interest-earning assets and interest-bearing liabilities and the interest rates
earned or paid on them, respectively.
The Company reported net income of $237,000 during the three month
period ended June 30, 1997 compared to net income of $161,000 during the three
month period ended June 30, 1996. The increase in income of $76,000 between the
two periods was primarily the result of an increase in net interest income of
$651,000, an increase in non-interest income of $96,000, partially offset by an
increase in the provision for loss on loans of $33,000, an increase in
non-interest expenses of $600,000 and an increase in income tax expense of
$38,000.
Interest Income. Total interest income increased $1.2 million for the
three months ended June 30, 1997 as compared to the three months ended June 30,
1996. The increase in interest income resulted primarily from the inclusion of
First National's interest income for the period. The average yield on
interest-earning assets increased from 7.2% for the three months ended June 30,
1996 to 7.9% for the three months ended June 30, 1997. The average yield
increased due to an increase in higher yielding loans and investments as a
result of the acquisition of First National, as well as, an increase in the
origination of higher yielding loans. The average balance of interest-earning
assets increased from $65.9 million at June 30, 1996 to $120.4 million at June
30, 1997. The increase in the average balance of interest-earning assets was due
primarily to the increase in the average balance of loans, mortgage-backed and
investment securities and other interest-earning assets as a result of the
acquisition of First National.
Interest Expense. Interest expense increased $560,000 for the three
months ended June 30, 1997 as compared to the same period in 1996 primarily as a
result of the inclusion of First National's interest expense for the period. The
average balance of interest-earning liabilities
10
<PAGE>
increased from $47.1 million at June 30, 1996 to $100.9 at June 30, 1997 as a
result of the inclusion of First National's interest-bearing liabilities. The
average rate paid on interest-bearing liabilities decreased to 4.7% for the
three months ended June 30, 1997 from 5.2% for the three months ended June 30,
1996. The average cost of interest-bearing liabilities decreased primarily as a
result of the acquisition of a substantial amount of non-certificate accounts,
including transaction accounts, from First National as well as the success of
Classic Bank's efforts to increase its non-certificate accounts.
Provision for Loan Losses. The Company's provision for loan losses
totaled $47,500 for the three months ended June 30, 1997 compared to $15,000 for
the three months ended June 30, 1996 based on management's overall assessment of
the loan portfolio. The increase was due to an increase in delinquent loans as
well as an increase in charge-offs as a result of the acquisition of First
National. Management continually monitors its allowance for loan losses and
makes adjustments as economic conditions, portfolio quality and portfolio
diversity dictate. Although the Company maintains its allowance for loan losses
at a level which it considers to be adequate to provide for potential losses,
there can be no assurance that future losses will not exceed estimated amounts
or that additional provisions for loan losses will not be required for future
periods.
Non-interest Income. Non-interest income increased approximately
$96,000 for the three months ended June 30, 1997 compared to the same period in
1996 due primarily to an increase of approximately $64,000 in service charges
and other fees on deposits, and an increase of $32,000 in other miscellaneous
income. The increase in service charges and other fees on deposits is the result
of the inclusion of First National's income, as well as, an increase in service
charges on deposits charged by Classic Bank. The increase in other income is the
result of the inclusion of First National's other income for the three month
period.
Non-interest Expense. Non-interest expense increased $600,000 for the
three months ended June 30, 1997 compared to the same period in 1996.
Non-interest expenses increased due to an increase in compensation and benefits
of $330,000 for the three month period; an increase in occupancy expense of
$92,000 for the three month period, the amortization of goodwill of $31,000 and
an increase in audit, legal and other general and administrative expenses of
$166,000 for the three month period. The increase in compensation and benefits
was due to the net increase in the number of employees as a result of the hiring
of new employees and the acquisition of First National for the three month
period, and the establishment of a management recognition and retention plan.
The increase in occupancy expenses resulted from increased depreciation as a
result of improvements made to the facilities and the inclusion of the expenses
of First National. The increases in audit, legal and general and administrative
expenses were the result of the introduction of new product offerings, costs
relative to operation as a public company, and the inclusion of the expenses of
First National for the three month period.
Income Tax Expense. Income tax expense increased $38,000 for the three
months ended June 30, 1997 primarily due to an increase in income before income
taxes.
Non-Performing Assets and Allowance for Loan Losses. The allowance for
loan losses is calculated based upon an evaluation and assessment of pertinent
factors underlying the types and qualities of the Company's loans. Management
considers such factors as the payment status of a loan, the borrower's ability
to repay the loan, the estimated fair value of the underlying collateral,
anticipated economic conditions that may affect the borrower's repayment ability
and the Company's historical charge-offs. The Company's allowance for loan
losses as of June 30, 1997
11
<PAGE>
was $805,000 or .9% of the total loans. The March 31, 1997 allowance for loan
loss was $801,000, or 1.0% of total loans. The allowance for loan losses at June
30, 1997 was allocated as follows: $78,000 to one-to-four family real estate
loans, $52,000 to commercial real estate loans, $25,000 to commercial business
loans, $10,000 to consumer loans and $640,000 remained unallocated.
The ratio of non-performing assets to total assets is one indicator of
other exposure to credit risk. Non-performing assets of the Company consist of
non-accruing loans, accruing loans delinquent 90 days or more, and foreclosed
assets which have been acquired as a result of foreclosure or deed-in-lieu of
foreclosure. For all periods presented the Company had no troubled debt
restructuring. The following table sets forth the amount of non-performing
assets at the periods indicated.
<TABLE>
<CAPTION>
June 30, 1997 March 31, 1997
------------- --------------
(Dollars in Thousands)
<S> <C> <C>
Non-Accruing Loans ...................................... $ 485 $ 559
Accruing Loans Delinquent 90 Days or More 375 157
Foreclosed Assets ....................................... 370 360
------- ------
Total Non-Performing Assets ............................. $ 1,230 $1,076
Total Non-Performing Assets as a
Percentage of Total Assets ..................... .9% .8%
</TABLE>
Total non-performing assets increased $154,000 from March 31, 1997 to
June 30, 1997. The increase in non-performing assets is the result of an
increase in loans 90 days or more delinquent still accruing interest offset by a
decrease in non-accruing loans.
Other Assets of Concern. Other than the non-performing assets set forth
in the table above, as of June 30, 1997, there were no loans with respect to
which known information about the possible credit problems of the borrowers or
the cash flows of the security properties have caused management to have
concerns as to the ability of the borrowers to comply with present loan
repayment terms and which may result in the future inclusion of such items in
the non-performing asset categories.
Liquidity and Capital Resources. The Company's most liquid assets are
cash and cash equivalents. The levels of these assets are dependent on the
Company's operating, financing, and investing activities. At June 30, 1997 and
March 31, 1997, cash and cash equivalents totaled $2.6 million and $8.8 million,
respectively. The Company's primary sources of funds include principal and
interest payments on loans (both scheduled and prepayments), maturities of
investment securities and principal payments from mortgage-backed securities,
deposits and Federal Home Loan Bank of Cincinnati advances. While scheduled loan
repayments and proceeds from maturing investment securities and principal
payments on mortgage-backed securities are relatively predictable, deposit flows
and early repayments are more influenced by interest rates, general economic
conditions and competition.
Liquidity management is both a short- and long-term responsibility of
management. The Company adjusts its investments in liquid assets based upon
management's assessment of expected loan demand, projected purchases of
investment and mortgage-backed securities, expected deposit flows, yields
available on interest-bearing deposits, and liquidity of its asset/liability
management
13
<PAGE>
program. Excess liquidity is generally invested in interest-bearing
overnight deposits and other short-term liquid asset funds. If funds are
required beyond the funds generated internally, the subsidiaries of the Company
have the ability to borrow funds from the FHLB. At June 30, 1997, the Company
had $6.3 million in borrowings outstanding with the FHLB.
Classic Bank is required to maintain minimum levels of liquid assets as
defined by OTS regulations. This requirement, which may be varied at the
direction of the OTS depending on economic conditions, is based upon a
percentage of deposits and short-term borrowings. The required ratio is
currently 5.0%. The Bank's liquidity ratios have consistently been maintained at
levels in compliance with regulatory requirements. As of June 30, 1997 and March
31, 1997, the Bank's liquidity ratios were 5.10% and 5.0% respectively.
At June 30, 1997, the Company had outstanding commitments to originate
loans of $4.6 million. The Company anticipates that it will have sufficient
funds available to meet its current commitments principally through the use of
current liquid assets and through its borrowing capacity with the FHLB.
Pursuant to rules promulgated by the Office of Thrift Supervision,
savings institutions must meet three separate minimum capital-to-asset
requirements. The following table summarizes, as of June 30, 1997, the capital
requirements applicable to Classic Bank and its actual capital ratios. As of
June 30, 1997, Classic Bank exceeded all current regulatory capital standards.
<TABLE>
<CAPTION>
Regulatory Actual Capital
Capital Requirement (CB Only)
------------------- ---------
Amount Percent Amount Percent
------ ------- ------ -------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Risk-Based $2,669 8.0% $8,003 24.0%
Core Capital 1,973 3.0 7,676 11.7
Tangible Capital 987 1.5 7,676 11.7
</TABLE>
Pursuant to regulations promulgated by the Office of the Comptroller of
the Currency (the "OCC"), national banks must meet two minimum capital-to-asset
requirements. The following table summarizes, as of June 30, 1997, the capital
requirements applicable to First National and its actual capital ratios. As of
June 30, 1997, First National exceeded all current regulatory capital standards.
<TABLE>
<CAPTION>
Regulatory Actual Capital
Capital Requirement (FN Only)
------------------- ---------
Amount Percent Amount Percent
------ ------- ------ -------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Total Capital
(to Risk Weighted Assets) $2,835 8.0% $8,057 22.7%
Tier 1 Capital
(to Risk Weighted Assets) 1,418 4.0 7,614 21.5
Tier 1 Capital
(to Average Assets) 2,646 4.0 7,614 11.5
</TABLE>
13
<PAGE>
Impact of Inflation and Changing Prices
- ---------------------------------------
The consolidated financial statements and related data presented herein
have been prepared in accordance with generally accepted accounting principles
which require the measurement of financial position and operating results in
terms of historical dollars without considering changes in the relative
purchasing power of money over time due to inflation. The primary impact of
inflation on the operations of the Company is reflected in increased operating
costs. Unlike most industrial companies, virtually all of the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates, generally, have a more significant impact on a financial
institution's performance than does inflation. Interest rates do not necessarily
move in the same direction or to the same extent as the prices of goods and
services.
14
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of Shareholders (the "Meeting") of Classic
Bancshares, Inc. was held on July 28, 1997. The matters approved
by shareholders at the Meeting and the number of votes cast for,
against or withheld (as well as the number of abstentions) as to
each matter are as follows:
<TABLE>
<CAPTION>
PROPOSAL NUMBER OF VOTES
-------- ---------------
Broker
For Withheld Non-votes
--- -------- ---------
<S> <C> <C> <C> <C>
Election to the following directors for the terms indicated:
E.B. Gevedon, Jr. (three years) 1,159,393 0 0
Robert A. Moyer, Jr. (three years) 1,153,108 6,585 0
John W. Clark (three years) 1,153,408 6,285 0
Robert L. Bayes (two years) 1,153,408 6,285 0
Broker
For Against Abstain Non-votes
--- ------- ------- ---------
The ratification of the appointment of Smith,
Goolsby, Artis and Reams, P.S.C. as the
Company's auditors for the fiscal year
ending March 31, 1998 1,149,108 1,300 9,285 0
</TABLE>
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
Exhibits
Exhibit 27 Financial Data Schedule
Reports on Form 8-K
The Registrant filed the following current reports on Form 8-K
during the three months ended June 30, 1997:
Press release, dated May 22, 1997 announcing the results of
March 31, 1997 quarter end March 31, 1997 year end earnings.
Press release, dated April 30, 1997 announcing the
declaration of a cash dividend.
15
<PAGE>
SIGNATURES
Pursuant to the requirement 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.
CLASSIC BANCSHARES, INC.
REGISTRANT
Date: August 14, 1997 /s/ David B. Barbour
--------------- ----------------------------------------------------
David B. Barbour, President, Chief Executive Officer
and Director (Duly Authorized Officer)
Date: August 14, 1997 /s/ Lisah M. Frazier
--------------- ----------------------------------------------------
Lisah M. Frazier, Vice President, Treasurer and
Chief Financial Officer (Principal Financial Officer)
16
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number
------
27 Financial Data Schedule
17
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> JUN-30-1997
<CASH> 2,581
<INT-BEARING-DEPOSITS> 77
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 31,790
<INVESTMENTS-CARRYING> 31,790
<INVESTMENTS-MARKET> 31,790
<LOANS> 86,140
<ALLOWANCE> 805
<TOTAL-ASSETS> 130,525
<DEPOSITS> 99,108
<SHORT-TERM> 10,353
<LIABILITIES-OTHER> 1,030
<LONG-TERM> 625
0
0
<COMMON> 13
<OTHER-SE> 19,396
<TOTAL-LIABILITIES-AND-EQUITY> 130,525
<INTEREST-LOAN> 1,794
<INTEREST-INVEST> 545
<INTEREST-OTHER> 31
<INTEREST-TOTAL> 2,370
<INTEREST-DEPOSIT> 1,030
<INTEREST-EXPENSE> 150
<INTEREST-INCOME-NET> 1,189
<LOAN-LOSSES> 47
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 921
<INCOME-PRETAX> 330
<INCOME-PRE-EXTRAORDINARY> 330
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 237
<EPS-PRIMARY> .20
<EPS-DILUTED> 0
<YIELD-ACTUAL> 7.9
<LOANS-NON> 860
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 801
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 805
<ALLOWANCE-DOMESTIC> 165
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 640
</TABLE>
