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, 2000
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.
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(Exact name of registrant as specified in its charter)
Delaware 61-1289391
--------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
344 Seventeenth Street, Ashland, Kentucky 41101
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(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 7, 2000, there were 1,322,500 shares of the Registrant's common
stock issued and 1,170,256 outstanding.
Transitional Small Disclosure (check one): Yes [ ] No [X]
<PAGE>
CLASSIC BANCSHARES, INC.
INDEX
<TABLE>
Page
Number
PART I. FINANCIAL INFORMATION ------
Item 1. Financial Statements
<S> <C> <C>
Consolidated Balance Sheets as of June 30, 2000 (Unaudited)
and March 31, 2000 3
Consolidated Statements of Income for the three months
ended June 30, 2000 and 1999 4
Consolidated Statements of Comprehensive Income for the three
months ended June 30, 2000 and 1999 5
Consolidated Statements of Stockholders' Equity for the three months
ended June 30, 2000 (Unaudited) and Year Ended March 31, 2000 6
Consolidated Statements of Cash Flows for the three months ended
June 30, 2000 and 1999 7-8
Notes to Consolidated Financial Statements 9-11
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 12-17
PART II. OTHER INFORMATION 18
Signatures 19
Index to Exhibits 20
</TABLE>
2
<PAGE>
CLASSIC BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
June 30, March 31,
2000 2000
---- ----
(Unaudited)
<S> <C> <C>
ASSETS
Cash and due from bank $ 5,054,596 $ 5,122,083
Federal funds sold 78,975 131,438
Securities available for sale 23,523,145 23,672,526
Mortgage-backed and related securities available for sale 3,161,527 3,229,952
Loans receivable, net 132,491,055 127,808,325
Real estate acquired in the settlement of loans 255,246 255,246
Accrued interest receivable 1,258,523 1,139,012
Federal Home Loan Bank and Federal Reserve Bank stock 1,502,900 1,462,350
Premises and equipment, net 5,042,255 5,061,929
Cost in excess of fair value of net assets acquired (goodwill),
net of accumulated amortization 5,745,302 5,808,774
Other assets 1,221,694 1,562,534
------------ ------------
TOTAL ASSETS $179,335,218 $175,254,169
------------
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Non-interest bearing demand deposits $ 16,337,924 $ 14,749,044
Savings, NOW, and money market demand deposits 42,251,609 45,807,285
Other time deposits 75,499,253 74,340,467
------------ ------------
Total deposits 134,088,786 134,896,796
Federal funds purchased and securities sold under
agreements to repurchase 2,760,108 2,687,714
Advances from Federal Home Loan Bank 21,550,681 17,075,380
Other short-term borrowing 1,005,303 573,751
Accrued expenses and other liabilities 426,030 427,998
Accrued interest payable 537,913 551,465
Accrued income taxes 10,758 42,419
Deferred income taxes --- ---
------------ ------------
Total Liabilities $160,379,579 $156,255,523
------------ ------------
Commitments and contingencies
Stockholders' Equity
Common stock, $.01 par value, 1,322,500 shares
issued and outstanding $ 13,225 $ 13,225
Additional paid-in capital 12,829,294 12,829,744
Retained earnings - substantially restricted 10,253,044 10,062,718
Accumulated other comprehensive income (loss) (1,377,781) (1,279,524)
Unearned ESOP shares (736,600) (736,600)
Unearned RRP shares (148,320) (174,146)
Treasury stock, at cost (1,877,223) (1,716,771)
------------ ------------
Total Stockholders' Equity $ 18,955,639 $ 18,998,646
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $179,335,218 $175,254,169
------------------------------------------ ============ ============
</TABLE>
See accompanying Accountant's Review Report and notyes to consilidated
financial statements.
3
<PAGE>
CLASSIC BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
THREE MONTHS ENDED
JUNE 30,
2000 1999
<S> <C> <C>
INTEREST INCOME
---------------
Loans $2,851,214 $2,228,910
Investment securities 397,667 396,903
Mortgage-backed securities 57,915 59,341
Other interest earning assets 3,466 13,480
---------- ----------
Total Interest Income 3,310,262 2,698,634
---------- ----------
INTEREST EXPENSE
----------------
Interest on deposits 1,337,093 1,221,429
Interest on FHLB advances 307,444 32,355
Interest on other borrowed funds 55,059 42,021
---------- ----------
Total Interest Expense 1,699,596 1,295,805
---------- ----------
Net Interest Income 1,610,666 1,402,829
Provision for loss on loans 68,500 35,000
---------- ----------
Net interest income after provision for loss on loans: 1,542,166 1,367,829
---------- ----------
NON-INTEREST INCOME
-------------------
Service charges and other fees 217,088 148,885
Gain on sale of securities --- ---
Other income 38,093 41,921
---------- ----------
Total Non-Interest Income 255,181 190,806
---------- ----------
NON-INTEREST EXPENSES
---------------------
Employee compensation and benefits 660,886 557,850
Occupancy and equipment expense 192,583 172,169
Federal deposit insurance premiums 7,082 9,714
Loss on foreclosed real estate 3,131 276
Amortization of goodwill 63,472 45,567
Other general and administrative expense 498,054 453,612
---------- ----------
Total Non-Interest Expense 1,425,208 1,239,188
---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES 372,139 319,447
---------------------------------
Income tax expense (benefit) 89,517 67,922
---------- ----------
NET INCOME $ 282,622 $ 251,525
---------- ========== ==========
Basic earnings per share $ 0.26 $ 0.22
========== ==========
Diluted earnings per share $ 0.26 $ 0.21
========== ==========
</TABLE>
See accompanying Accountant's Review Report and notyes to consilidated
financial statements.
4
<PAGE>
CLASSIC BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
<TABLE>
THREE MONTHS ENDED
JUNE 30,
2000 1999
<S> <C> <C>
Net Income $ 282,622 $ 251,525
---------- ------------
Other comprehensive income, net of tax:
Unrealized holding gains (losses) on securities
during the period, net of tax (98,257) (587,983)
Minimum pension liability adjustment --- ---
----------- ------------
Other comprehensive income (98,257) (587,983)
----------- ------------
Comprehensive Income (Loss) $ 184,365 $ (336,458)
=========== ============
ccumulated Other Comprehensive Income (Loss) $(1,377,781) $ (504,006)
=========== ============
</TABLE>
See accompanying Accountant's Review Report and notes to consolidated
financial statements.
5
<PAGE>
CLASSIC BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
NET UNREALIZED
GAIN (LOSS) ON
ADDITIONAL AVAILABE FOR
COMMON PAID-IN RETAINED SALE UNEARNED UNEARNED TREASURY
STOCK CAPITAL EARNINGS SECURITIES ESOP SHARES RRP SHARES STOCK TOTAL
----- ------- -------- ---------- ----------- ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at April 1, 1999 $13,225 $12,806,544 $9,362,668 $ 83,977 $(785,150) $(294,332) $(897,952) $20,288,980
Net income for the year
ended March 31, 2000 --- --- 1,069,682 --- --- --- --- 1,069,682
Dividend paid ($.32 per share) --- --- (369,632) --- --- --- --- (369,632)
ESOP shares earned --- 14,468 --- --- 48,550 --- --- 63,018
RRP shares earned --- --- --- --- --- 116,255 --- 116,255
RRPshares granted --- 365 --- --- --- (2,725) 2,360 ---
RRPshares forfeited --- (264) --- --- --- 6,656 (6,392) ---
Tax benefit from RRP --- 8,631 --- --- --- --- --- 8,631
Purchased 66,106 treasury shares --- --- --- --- --- --- $(814,787) (814,787)
Change in unrealized gain --- --- --- --- --- --- --- ---
(loss) on available for sale
securities, net of applicable
deferred income taxes of $702,410 --- --- --- (1,363,501) --- --- --- (1,363,501)
------- ----------- ---------- ----------- --------- --------- --------- ----------
Balances at March 31, 2000 13,225 12,829,744 10,062,718 (1,279,524) (736,600) (174,146)(1,716,771) 18,998,646
Net income for the three months
ended June 30, 2000 --- --- 282,622 --- --- --- --- 282,622
Dividend paid --- --- (92,296) --- --- --- --- (92,296)
RRP shares earned --- --- --- --- --- 28,900 --- 28,900
RRP shares awarded --- (450) --- --- --- (3,074) 3,524 ---
Purchased 15,900 treasury shares --- --- --- --- --- --- (163,976) (163,976)
Change in unrealized gain
(loss) on available for sale
securities, net of applicable
deferred income taxes of $50,617 --- --- --- (98,257) --- --- --- (98,257)
------- ----------- ---------- ----------- --------- --------- ---------- ----------
Balances at June 30, 2000 $13,225 $12,829,294 $10,253,044 $(1,377,781) $(736,600) $(148,320) $(1,877,223)$18,955,639
======= =========== ========== =========== ========= ========= =========== ===========
</TABLE>
See accompanying Accountant's Review Report and notes to consolidated
financial statements.
6
<PAGE>
CLASSIC BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
THREE MONTHS ENDED
JUNE 30,
2000 1999
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 282,622 $ 251,525
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 118,178 125,299
Provision for loss on loans 68,500 35,000
Federal Home Loan Bank stock dividends (22,100) (18,700)
Deferred income tax expense (benefit) (1,913) 41,217
Amortization and accretion of invesment
securities premiums and discounts, net 6,584 23,101
RRP shares earned 28,900 29,840
Amortization of goodwill 63,472 45,567
Decrease (increase) in:
Accrued interest receivable (119,511) (187,728)
Other assets 327,787 53,399
Increase (decrease) in:
Accrued interest payable (13,552) 94,056
Accrued income taxes (31,661) (45,134)
Accounts payable and accrued expenses (1,968) (37,030)
------------- -----------
Net cash provided by operating activities 705,338 410,412
------------- -----------
INVESTING ACTIVITIES
Securities:
Proceeds from sale, maturities or calls --- ---
Purchased --- ---
Mortgage-backed securities:
Proceeds from sale --- ---
Purchased --- ---
Principal payments 61,473 379,008
Redemption of Federal Reserve Bank Stock 74,150 45,000
Purchase of Federal Home Loan Bank Stock (92,600) ---
Loan originations and principal payments, net (4,697,064) (9,479,427)
Purchases of software (3,498) (4,018)
Purchases of premises and equipment (82,714) (153,325)
Cash invested in purchase of Bank subsidiary in excess of cash and
cash equivalents acquired --- (1,497,572)
------------- -----------
Net cash used by investing activities (4,740,253) (10,710,334)
------------- -----------
</TABLE>
See accompanying Accountant's Review Report and notes
to consolidated financial statements.
7
<PAGE>
CLASSIC BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
THREE MONTHS ENDED
JUNE 30,
2000 1999
---- ----
<S> <C> <C>
FINANCING ACTIVITIES
--------------------
Net (decrease) increase in deposits $ (808,010) $ 9,534,437
Net proceeds from FHLB borrowings 4,475,301 1,215,781
Increase (decrease) in federal funds purchased and securities sold
under agreements to repurchase 72,394 (113,601)
Net increase in short-term borrowings 431,552 671,226
Purchase of treasury stock (163,976) (375,413)
Dividends paid (92,296) (92,767)
----------- -----------
Net cash (used) provided by financing activities 3,914,965 10,839,663
----------- -----------
Increase (decrease) in cash and cash equivalents (119,950) 539,741
Cash and cash equivalent at beginning of period 5,253,521 4,486,156
----------- -----------
Cash and cash equivalents at end of period $ 5,133,571 $ 5,025,897
=========== ===========
Additional cash flows and supplementary information
Cash paidduring the period for:
Interest on deposits and borrowings $ 550,759 $ 313,964
Taxes $ 123,091 $ 42,931
Assets acquired in settlement of loans $ --- $ 25,000
Net unrealized loss on securities available for sale $(1,377,781) $ (587,983)
Liabilities assumed and cash paid in acquisition of
Citizens Bank $ --- $17,017,497
Fair value of assets received $ --- $13,749,846
Amount assigned to goodwill $ --- $ 3,267,651
</TABLE>
See accompanying Accountant's Review Report and notes to consolidated
financial statements.
8
<PAGE>
CLASSIC BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Principles of Consolidation
---------------------------
The financial statements for 2000 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, 2000 and March 31, 2000 is for the Company, Classic Bank,
and First National. The acquisition of Citizens Bank, Grayson ("Citizens") was
completed on May 14, 1999 at which time Citizens was merged with and into
Classic Bank with Classic Bank as the surviving institution. The acquisition was
accounted for under the purchase method of accounting. The consolidated
statements of income include the operations of the Company, Classic Bank and
First National for the three months ended June 30, 2000 and 1999. The earnings
of Citizens Bank are included in the consolidated statement of income for the
three months ending June 30, 1999 from the date of closing.
(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, 2000, and the results of operations for all interim periods presented.
Operating results for the three months ended June 30, 2000 are not necessarily
indicative of the results that may be expected for the fiscal year ended March
31, 2001.
Certain financial information and footnote disclosures normally included in
annual financial statements prepared in conformity with generally accepted
accounting principles have been omitted pursuant to the rules and regulations of
the Securities and Exchange Commission. The unaudited interim consolidated
financial statements presented herein should be read in conjunction with the
annual consolidated financial statements of the Company as of and for the fiscal
year ended March 31, 2000.
(3) Earnings per Share
------------------
Effective December 31, 1997, the Company began presenting earnings per
share pursuant to the provisions of SFAS No. 128, "Earnings Per Share."
Basic earnings per share are calculated based on the weighted average
number of common shares outstanding during the respective periods.
Diluted earnings per share is computed taking into consideration common
shares outstanding and dilutive potential common shares to be issued under the
Company's stock option plan and recognition and retention plan.
The weighted average number of shares used in the basic earnings per share
computations was 1,088,744 and 1,127,579 for the three-month periods ended June
30, 2000 and 1999, respectively. The weighted average number of shares used in
the diluted earnings per share computations was 1,096,746 and 1,165,710 for the
three-month periods ended June 30, 2000 and 1999, respectively.
9
<PAGE>
Options to purchase 168,452 and 5,000 shares of common stock were
outstanding at June 30, 2000 and 1999, respectively, but were not included in
the computation of diluted earnings per share due to their anti-dilutive effect.
(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. The Company's subsidiary banks make 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 was $12,881 and $17,923 for the three
months ended June 30, 2000 and 1999, respectively. As of June 30, 2000, the
Company considered 73,660 shares as unearned ESOP shares with a fair value of
$745,808.
On September 14, 1998, the Board of Directors of the Company adopted a
resolution to refinance the ESOP loan by extending its term to twenty-five years
effective for the plan year beginning April 1, 1998.
(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 106,774 shares at $10.8125 per share, options on 19,300
shares at $13.375 per share, options on 4,500 shares at $13.875 per share,
options on 1,026 shares at $13.75 per share and options on 200 shares at $13.625
per share. 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 52,656 shares. During the quarter, 450 stock option shares and
244 RRP shares remain ungranted. Ungranted RRP shares are included in treasury
stock at cost.
On July 27, 1998, the shareholders of the Company ratified the adoption of
the Company's 1998 Premium Price Stock Option Plan. Pursuant to the Premium
Price Stock Option Plan, 50,000 shares of the Company's common stock is reserved
for issuance of which the Company has granted options on 5,000 shares at $16.295
per share, options on 6,300 shares at $14.988 per share, and options on 24,900
shares at $11.275 per share.
(6) Cash Dividend
-------------
On July 25, 2000, the Board declared a cash dividend of $.08 per share
payable on August 22, 2000 to shareholders of record on August 8, 2000.
10
<PAGE>
(7) Charter Conversion
------------------
Effective June 30, 2000, Classic Bank converted from a federal savings bank
to a Kentucky-chartered commercial bank. During the quarter, the Company also
filed with the Federal Reserve Bank of Cleveland for its election as a financial
holding company. The election was deemed effective by the Federal Reserve on
June 2, 2000.
11
<PAGE>
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Financial Condition
-------------------
The Company's total assets increased $4.0 million, or 2.3%, from $175.3
million at March 31, 2000 to $179.3 million at June 30, 2000. The increase was
due primarily to an increase in loans of $4.7 million.
Net loans receivable increased $4.7 million from $127.8 million at March
31, 2000 to $132.5 million at June 30, 2000. The increase resulted in
originations of $6.6 million in commercial business loans, $3.5 million in
one-to-four family mortgage loans, $3.7 million in consumer loans and $1.0
million in commercial real estate loans partially offset by repayments since
March 31, 2000.
Net deposits decreased approximately $800,000 from $134.9 million at March
31, 2000 to $134.1 million at June 30, 2000. The decrease was due to less
aggressive deposit pricing and the availability of attractively priced borrowing
facilities in order to control the Company's cost of funds. Non-interest bearing
demand deposits increased $1.6 million, savings, NOW and money market demand
deposits decreased $3.6 million, and other time deposits consisting primarily of
certificates of deposit increased $1.2 million.
Federal Home Loan Bank advances increased $4.5 million from $17.1 million
at March 31, 2000 to $21.6 million at June 30, 2000 as the Company took
advantage of attractive borrowing rates. The advances are short-term, variable
rate advances with an average term of 90 days. Net proceeds from the advances
were used to fund the increase in loans.
Total stockholders' equity was $19.0 million at March 31, 2000 and June 30,
2000.
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 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.
12
<PAGE>
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, 2000 AND 1999
-----------------------------------
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 $283,000 for the first quarter ended
June 30, 2000 compared to net income of $252,000 for the quarter ended June 30,
1999. The increase in income of $31,000 between the two periods was primarily
the result of an increase in net interest income of $208,000, an increase in
non-interest income of $64,000 partially offset by an increase in provision for
loss on loans of $33,000, an increase in non-interest expenses of $168,000, an
increase in goodwill amortization of $18,000 and an increase in income taxes of
$22,000.
Interest Income. Total interest income increased $612,000 for the three
months ended June 30, 2000 as compared to the three months ended June 30, 1999.
The increase in interest income for the three-month period resulted primarily
from an increase in the average balance of interest-earning assets of $26.3
million from $136.3 million for the three months ended June 30, 1999 to $162.6
million for the three months ended June 30, 2000. The increase in the average
balance of interest-earning assets was due primarily to the increase in the
average balance of loans and the average balance of mortgage-backed and
investment securities. The increase in these balances is the result of the
significant growth that the Company experienced from June 30, 1999 to June 30,
2000 within the Company's existing market area and from the acquisition of
Citizens Bank. The average yield on interest-earning assets was 8.4% for the
three months ended June 30, 2000 compared to 8.2% for the three months ended
June 30, 1999. The increase in the yield was due to the continued
diversification of the loan portfolio in higher yielding commercial and consumer
lending as well as increases in general interest rates. Tax equivalent
adjustments were made to the yield.
Interest Expense. Interest expense increased $404,000 for the three months
ended June 30, 2000 as compared to the same period in 1999. Interest expense
increased for the periods primarily due to an increase in the average balance of
interest-bearing liabilities and an increase in the cost of interest-bearing
liabilities. The average balance of interest-bearing liabilities increased from
$123.3 million for the three months ended June 30, 1999 to $142.7 million for
the three months ended June 30, 2000. The increase in these balances is the
result of a slight increase in the average balance of deposits and a significant
increase in FHLB and other borrowings. The average rate paid on interest-bearing
liabilities was 4.8% for the three months ended June 30, 2000 compared to 4.3%
for the three months ended June 30, 1999. The increase in the average rate paid
on interest-bearing liabilities for the three-month period is due to a
significant increase in market interest rates since June 30, 1999.
13
<PAGE>
Provision for Loan Losses. The Company's provision for loan losses totaled
$68,000 for the three months ended June 30, 2000 compared to $35,000 for the
three months ended June 30, 1999 based on management's overall assessment of the
loan portfolio. The increase for the three month period was based on
management's evaluation of the Company's current portfolio including factors
such as an increase in net charge-offs and non-performing loans and the change
in the structure of the loan portfolio resulting in an increase in
non-residential loans. Management continually monitors the Company's 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 the Board 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 $64,000
for the three months ended June 30, 2000 compared to the same period in 1999.
The increase for the three-month period is primarily the result of an increase
in service charges and other fees on deposits of $68,000 offset by a decrease in
other income of $4,000. The increase in service charges and other fees on
deposits is the result of an increased deposit base.
Non-interest Expense. Non-interest expense increased $168,000 for the three
months ended June 30, 2000 compared to the same period in 1999. Non-interest
expenses increased for the three-month period due to an increase in employee
compensation and benefits of $103,000. Employee compensation and benefits
increased as a result of an increase in the net number of employees due the
hiring of additional employees in order to facilitate the growth of the Company.
Compensation and benefit expenses also increased due to the rising costs of
medical insurance premiums. Effective April 1, 2000, the Company implemented a
Section 125 Cafeteria Plan in order to try to control rising medical insurance
premiums in future years.
Occupancy and equipment expense increased $20,000 due to an increase in
maintenance costs related to existing facilities and an increase in maintenance
costs related to equipment. ATM expense increased $5,000 due to an increase in
the usage of the various ATM locations. Marketing and advertising expense
increased $11,000 due to aggressive marketing efforts in order to continue
internal growth for the Company. Professional fees increased $13,000 due
primarily to the outsourcing of the loan review function for the Company.
Technology related costs increased $16,000 due to the continued building of a
technological infrastructure that will serve the Company well into the future.
Goodwill amortization increased $18,000 due to amortization being recorded
on the Citizens acquisition for only part of the quarter ended June 30, 1999
compared to the entire quarter for the quarter ended June 30, 2000.
Income Tax Expense. Income tax expense increased $22,000 for the three
months ended June 30, 2000 primarily due to an increase in income before income
taxes for the period.
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
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<PAGE>
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, 2000 was $1.3 million or 1.0% of total loans. The March
31, 2000 allowance for loan loss was $1.3 million, or 1.0% of total loans. The
Company recorded a provision for loan losses of $68,000 for the three-month
period and had net charge-offs of $22,000 for the three-month period. The
allowance for loan losses at June 30, 2000 was allocated as follows: $232,000 to
one-to-four family real estate loans, $100,000 to commercial real estate,
$430,000 to commercial business loans, $97,000 to consumer loans and $477,000
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
restructurings. The following table sets forth the amount of non-performing
assets at the periods indicated.
<TABLE>
June 30, 2000 March 31, 2000
------------- --------------
(Dollars in Thousands)
<S> <C> <C>
Non-Accruing Loans ............................ $ 570 $ 620
Accruing Loans Delinquent 90 Days or More...... 163 153
Foreclosed Assets ............................. 282 296
--- ---
Total Non-Performing Assets ................... $1,015 $1,069
Total Non-Performing Assets as a
Percentage of Total Assets ........... .6% .6%
</TABLE>
Total non-performing assets decreased $54,000 from March 31, 2000 to June
30, 2000. This decrease is due aggressive collection efforts. Management
continually pursues collection of these loans in order to decrease the level of
non-performing loans.
Other Assets of Concern. Other than the non-performing assets set forth in
the table above, as of June 30, 2000, 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, 2000 and March 31,
2000, cash and cash equivalents totaled $5.1 million and $5.3 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. Certificates of deposit as of June 30, 2000 maturing
within one year totaled $58.4 million.
15
<PAGE>
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 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, 2000, the Company
had $21.6 million in borrowings outstanding with the FHLB.
At June 30, 2000, the Company had outstanding commitments to originate
loans of $9.6 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.
Classic Bank is subject to the regulatory capital requirements of the
Federal Deposit Insurance Corporation (the "FDIC"). The following table
summarizes, as of June 30, 2000, the capital requirements applicable to Classic
Bank and its actual capital ratios. As of June 30, 2000, Classic Bank exceeded
all current regulatory capital standards.
<TABLE>
Regulatory Actual Capital
Capital Requirement (CB Only)
------------------- --------
Amount Percent Amount Percent
------ ------- ------ -------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Total Capital
(to Risk Weighted Assets) $5,780 8.0% $8,452 11.7%
Tier 1 Capital
(to Adjusted Total Assets) 3,974 4.0 7,666 7.7
</TABLE>
First National is subject to the regulatory capital requirements the Office
of the Comptroller of the Currency (the "OCC"). The following table summarizes,
as of June 30, 2000, the capital requirements applicable to First National and
its actual capital ratios. As of June 30, 2000, First National exceeded all
current regulatory capital standards.
<TABLE>
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) $4,148 8.0% $6,305 12.2%
Tier 1 Capital
(to Adjusted Total Assets) 2,943 4.0 5,755 7.8
</TABLE>
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
16
<PAGE>
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.
17
<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
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 27 Financial Data Schedule
Exhibit 28 Accountant's Review Report
b. Reports on Form 8-K
The Registrant filed the following current reports on
Form 8-K during the three months ended June 30, 2000:
May 31, 2000 announcing annual earnings for the 2000
Fiscal Year .
18
<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 11, 2000 /s/ David B. Barbour
------------------------- ----------------------------------------------
David B. Barbour, President, Chief Executive
Officer and Director (Duly Authorized Officer)
Date: August 11, 2000 /s/ Lisah M. Frazier
------------------------ --------------------------------- ------------
Lisah M. Frazier, Senior Vice President,
Treasurer and Chief Financial Officer
(Principal Financial Officer)
19
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number
-------
27 Financial Data Schedule
28 Accountant's Reveiw Report
20
<PAGE>
EXHIBIT 28
INDEPENDENT ACCOUNTANT'S REPORT
We have reviewed the accompanying consolidate statement of condition as of
June 30, 2000 and the related consolidated statements of income, comprehensive
income and cash flows for the three-month period ended June 30, 2000 and 1999,
in accordance with Statement of Standards for Accounting and Review Services
issued by the American Institute of Certified Public Accountants. The financial
statements are the responsibility of the corporation's management.
A review of interim financial information consists principally of applying
analytical procedures to financial data and making inquires of persons
responsible for financial and accounting matters. It is substantially less in
scope than an audit conducted in accordance with generally accepted auditing
standards, the objective of which is the expressions of an opinion regarding the
financial statement taken as a whole. Accordingly, we do not express such an
opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial statement for them to be in
conformity with generally accepted accounting principals.
We have previously audited, in accordance with generally accepted auditing
standards, the consilodated statement of financial condition as of March 31,
2000, and the related consolidated statements of income, comprehensive income,
stockholders' equity and cash flow for the year then ended (not presented
herein) and in our report dated May 26, 2000, we express an unqualified opinion
on those consolidated financial statements. In our opinion, the information set
forth in the accompanying consolidated statement of financial condition as of
March 31, 2000, is fairly stated, in all material reports, in relation to the
consolidated statement of financial condition form which it has been derived.
/s/ Smith, Goolsby, Artis & Reams, P.S.C.
Ashland, Kentucky
August 9, 2000
<PAGE>
EXHIBIT 27
FINANCIAL DATA SCHEDULE
