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, 1998
OR
[X] 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 of (I.R.S. Employer
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 10, 1998, there were 1,322,500 shares of the Registrant's
common stock issued and 1,299,590 shares outstanding.
Transitional Small Disclosure (check one): Yes [ ] No [X]
CLASSIC BANCSHARES, INC.
INDEX
Page
Number
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1998 (Unaudited)
and March 31, 1998 3
Consolidated Statements of Income for the three months
ended June 30, 1998 and 1997 4
Consolidated Statements of Stockholders' Equity for the three
months ended June 30, 1998 (Unaudited)
and Year Ended March 31, 1998 5
Consolidated Statements of Cash Flows for the three months
ended June 30, 1998 and 1997 6-7
Notes to Consolidated Financial Statements 8-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-14
PART II. OTHER INFORMATION 15
Signatures 16
Index to Exhibits 17
2
CLASSIC BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
June 30, March 31,
1998 1998
------------- -------------
(Unaudited)
ASSETS
Cash and due from bank $ 2,931,378 $ 2,500,841
Federal funds sold and securities purchased under resell agreement 100,000 1,131,414
Certificates of deposits in other financial institutions 293,000 293,000
Investment securities available for sale 21,169,540 18,176,807
Mortgage-backed securities available for sale 9,638,263 7,830,714
Loans receivable, net 92,337,320 90,100,000
Real estate acquired in the settlement of loans 271,390 229,390
Accrued interest receivable 1,003,176 851,767
Federal Home Loan Bank and Federal Reserve Bank stock 1,329,350 1,297,150
Premises and equipment, net 4,605,631 4,468,002
Cost in excess of fair value of net assets acquired (goodwill),
net of accumulated amortization 2,872,074 2,902,869
Other assets 1,432,745 1,338,572
------------- -------------
TOTAL ASSETS $ 137,983,867 $ 131,120,526
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits $ 108,399,557 $ 104,926,667
Securities sold under agreement to repurchase 2,915,700 3,521,799
Advances from Federal Home Loan Bank 2,862,000 --
Other short-term borrowings 1,046,838 273,697
Accrued expenses and other liabilities 433,239 402,090
Accrued interest payable 435,353 390,409
Accrued income taxes 216,602 --
Long-term debt 525,000 550,000
Deferred income taxes 634,268 648,802
------------- -------------
Total Liabilities $ 117,468,557 $ 110,713,464
------------- -------------
Commitments and contingencies
Stockholders' Equity
Common stock, $.01 par value, 1,322,500 shares
issued and 1,299,590 outstanding $ 13,225 $ 13,225
Additional paid-in capital 12,753,789 12,753,789
Retained earnings - substantially restricted 8,965,519 8,853,606
Net unrealized gain (loss) on securities available for sale 293,341 297,125
Unearned ESOP shares (834,970) (834,970)
Unearned RRP shares (371,879) (371,879)
Minimum pension liability adjustment (9,835) (9,954)
Treasury stock, at cost (293,880) (293,880)
------------- -------------
Total Stockholders' Equity $ 20,515,310 $ 20,407,062
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 137,983,867 $ 131,120,526
============= =============
See accompanying notes to consolidated financial statements.
3
CLASSIC BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED
JUNE 30,
--------------------------
1998 1997
----------- -----------
INTEREST INCOME
Loans $ 1,917,470 $ 1,794,072
Investment securities 337,221 393,296
Mortgage-backed securities 142,343 151,422
Other interest earning assets 18,398 31,019
----------- -----------
Total Interest Income 2,415,432 2,369,809
----------- -----------
INTEREST EXPENSE
Interest on deposits 1,117,267 1,029,987
Interest on FHLB advances 43,909 82,458
Interest on other borrowed funds 66,067 67,901
----------- -----------
Total Interest Expense 1,227,243 1,180,346
----------- -----------
Net Interest Income 1,188,189 1,189,463
Provision for loss on loans 25,000 47,500
----------- -----------
Net interest income after
provision for loss on
loans 1,163,189 1,141,963
----------- -----------
NON-INTEREST INCOME
Service charges and other fees 111,374 73,557
Gain on sale of securities 563 497
Other income 33,405 34,130
----------- -----------
Total Non-Interest Income 145,342 108,184
----------- -----------
NON-INTEREST EXPENSES
Employee compensation and benefits 496,640 449,509
Occupancy and equipment expense 138,240 116,297
Federal deposit insurance premiums 8,683 7,355
(Gain) loss on foreclosed real estate 39 557
Amortization of goodwill 30,795 30,795
Other general and administrative
expenses 372,284 316,095
----------- -----------
Total Non-Interest Expense 1,046,681 920,608
----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES 261,850 329,539
Income tax expense (benefit) 64,811 92,497
----------- -----------
NET INCOME $ 197,039 $ 237,042
=========== ===========
OTHER COMPREHENSIVE INCOME, NET OF TAX
Unrealized holding (loss) gain from available-for-sale securities $ (3,784) $ 77,113
Minimum pension liability adjustment 119 352
----------- -----------
Total Other Comprehensive Income (3,665) 77,465
----------- -----------
COMPREHENSIVE INCOME $ 193,374 $ 314,507
=========== ===========
Basic earnings per share $ 0.17 $ 0.20
=========== ===========
Diluted earnings per share $ 0.16 $ 0.20
=========== ===========
See accompanying notes to consolidated financial statements.
4
CLASSIC BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
ACCUMULATED OTHER
COMPREHENSIVE INCOME
-------------------------------
NET UNREALIZED MINIMUM
ADDITIONAL GAIN (LOSS) ON PENSION
COMMON PAID-IN RETAINED AVAILABLE FOR LIABILITY
STOCK CAPITAL EARNINGS SALE SECURITIES ADJUSTMENT
------------ ------------ ------------ --------------- -------------
Balance at April 1, 1997 $ 13,225 $ 12,689,158 $ 8,172,085 $ (58,614) $ (11,376)
Net income for the year
ended March 31, 1998 -- -- 1,020,486 -- --
Dividend paid -- -- (338,965) -- --
ESOP shares earned -- 49,796 -- -- --
RRP shares earned -- -- -- -- --
RRP shares forfeited -- 337 -- -- --
Tax benefit from RRP -- 14,498 -- -- --
Purchased 20,000 treasury shares -- -- -- -- --
Change in unrealized gain
(loss) on securities available
for sale -- -- -- 355,739 --
Amortization of minimum
pension liability adjustment -- -- -- -- 1,422
------------ ------------ ------------ ------------ ------------
Balances at March 31, 1998 13,225 12,753,789 8,853,606 297,125 (9,954)
Net income for the three months
ended June 30, 1998 -- -- 197,039 -- --
Other comprehensive income, net of tax:
Change in unrealized gain
(loss) on securities available
for sale -- -- -- (3,784) --
Amortization of minimum
pension liability adjustment -- -- -- -- 119
Dividend paid -- -- (85,126) -- --
------------ ------------ ------------ ------------ ------------
Balances at June 30, 1998 $ 13,225 $ 12,753,789 $ 8,965,519 $ 293,341 $ (9,835)
============ ============ ============ ============ ============
UNEARNED UNEARNED TREASURY
ESOP SHARES RRP SHARES STOCK TOTAL
------------ ------------ ------------ ------------
Balance at April 1, 1997 $ (918,660) $ (486,055) $ (29,963) $ 19,369,800
Net income for the year
ended March 31, 1998 -- -- -- 1,020,486
Dividend paid -- -- -- (338,965)
ESOP shares earned 83,690 -- -- 133,486
RRP shares earned -- 110,283 -- 110,283
RRP shares forfeited -- 3,893 (4,230) --
Tax benefit from RRP -- -- -- 14,498
Purchased 20,000 treasury shares -- -- (259,687) (259,687)
Change in unrealized gain
(loss) on securities available
for sale -- -- -- 355,739
Amortization of minimum
pension liability adjustment -- -- -- 1,422
------------ ------------ ------------ ------------
Balances at March 31, 1998 (834,970) (371,879) (293,880) 20,407,062
Net income for the three months
ended June 30, 1998 -- -- -- 197,039
Other comprehensive income, net of tax:
Change in unrealized gain
(loss) on securities available
for sale -- -- -- (3,784)
Amortization of minimum
pension liability adjustment -- -- -- 119
Dividend paid -- -- -- (85,126)
------------ ------------ ------------ ------------
Balances at June 30, 1998 $ (834,970) $ (371,879) $ (293,880) $ 20,515,310
============ ============ ============ ============
See accompanying notes to consolidated financial statements.
5
CLASSIC BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
JUNE 30,
1998 1997
----------- -----------
OPERATING ACTIVITIES
Net Income $ 197,039 $ 237,042
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 91,393 71,920
Provision for loss on loans 25,000 47,500
Gain on sale of securities available for sale (563) (497)
Federal Home Loan Bank stock dividends (17,829) (16,600)
Deferred income tax expense (benefit) (12,585) --
Amortization and accretion of invesment
securities premiums and discounts, net 9,638 2,788
Amortization of goodwill 30,795 30,795
Decrease (increase) in:
Accrued interest receivable (151,409) (305,366)
Other assets (94,173) 142,580
Increase (decrease) in:
Accrued interest payable 44,944 49,244
Accrued income taxes 216,602 9,926
Accounts payable and accrued expenses 31,149 49,791
----------- -----------
Net cash provided by operating activities 370,001 319,123
----------- -----------
INVESTING ACTIVITIES
Securities:
Proceeds from sale, maturities or calls 750,000 1,197,960
Purchased (3,760,663) (650,000)
Mortgage-backed securities:
Proceeds from sale 1,004,062 1,004,375
Purchased (3,265,025) (2,187,378)
Principal payments 448,341 177,003
Certificates of deposits:
Proceeds from maturities -- --
Loan originations and principal payments, net (2,308,675) (4,462,655)
Purchases of software -- (10,414)
Purchases of premises and equipment (230,724) (147,205)
----------- -----------
Net cash used by investing activities (7,362,684) (5,078,314)
----------- -----------
See accompanying notes to consolidated financial statements.
6
CLASSIC BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
JUNE 30,
1998 1997
----------- -----------
FINANCING ACTIVITIES
Net increase (decrease) in deposits 3,472,890 (1,411,617)
Net proceeds from FHLB borrowings 2,862,000 1,560,000
Repayment of long-term borrowings (25,000) (25,000)
Decrease in securities sold under agreement to repurchase (606,099) (1,310,499)
Net increase (decrease) in term treasury tax and loan borrowings 773,141 (31,641)
Purchase of treasury stock -- (190,312)
Dividends paid (85,126) (84,917)
----------- -----------
Net cash (used) provided by financing activities 6,391,806 (1,493,986)
----------- -----------
(Decrease) increase in cash and cash equivalents (600,877) (6,253,177)
Cash and cash equivalent at beginning of period 3,632,255 8,834,309
----------- -----------
Cash and cash equivalents at end of period $ 3,031,378 $ 2,581,132
=========== ===========
See accompanying notes to consolidated financial statements.
7
CLASSIC BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Principles of Consolidation
The financial statements for 1998 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, 1998 and March 31, 1998 is 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, 1998 and 1997.
(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, 1998, and the results of operations for all interim periods presented.
Operating results for the three months ended June 30, 1998 are not necessarily
indicative of the results that may be expected for the fiscal year ended March
31, 1999.
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, 1998.
(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." In
accordance with the Statement, the June 30, 1997 earnings per share presentation
have been restated to conform to SFAS No. 128.
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.
Weighted average number of shares used in the basic earnings per share
computations was 1,176,168 and 1,172,954 for the three month period ended June
30, 1998 and 1997. Weighted average number of shares used in the diluted
earnings per share computations was 1,242,574 and 1,212,900 for the three month
period ended June 30, 1998 and 1997.
8
(4) Impact of Recent Accounting Pronouncements
During the three months ended June 30, 1998, the Company adopted SFAS No.
130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for
the reporting and display of comprehensive income and its components (revenue,
expenses, gains and losses) in a full set of general-purpose financial
statements. SFAS No. 130 is effective for fiscal years beginning after December
15, 1997.
(5) 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 was $35,363 and $28,500 for the three months ended June 30, 1998
and 1997. As of June 30, 1998, the Company considered 83,497 shares as unearned
ESOP shares with a fair value of $1,429,886.
(6) 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 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 49,990 shares. Ungranted RRP shares (2,910) are included
in treasury stock at cost. RRP shares that are granted are considered common
stock equivalents.
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. No awards have been granted under the Premium Price Stock Option
Plan.
(7) Cash Dividend
On July 27, 1998, the Board declared a cash dividend of $.08 per share
payable on August 24, 1998 to shareholders of record on August 10, 1998.
(8) Supplemental Disclosure of Cash Flows Information
Three months ended June 30,
---------------------------
1998 1997
-------- --------
Cash paid for:
Interest on deposits and borrowings $263,099 $175,068
Taxes 46,099 -0-
Transfer from loans to real estate
acquired through foreclosure 29,782 18,000
9
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Financial Condition
The Company's total assets increased $6.9 million, or 5.3%, from $131.1
million at March 31, 1998 to $138.0 million at June 30, 1998. The increase was
due primarily to an increase in loans of $2.2 million, an increase in investment
securities of $2.9 million, and an increase in mortgage-backed securities of
$1.8 million.
Net loans receivable increased $2.2 million from $90.1 million at March 31,
1998 to $92.3 million at June 30, 1998 due to aggressive origination efforts and
strong loan demand that resulted in originations of $3.7 million of one to four
family loans, $1.6 million in commercial real estate loans, $3.7 million in
commercial business loans and $3.0 million in consumer loans offset by
repayments since March 31, 1998.
Investment securities increased approximately $2.9 million from $18.2
million at March 31, 1998 to $21.1 million at June 30, 1998 primarily as the
result of purchases of $3.8 million partially offset by sold or called
securities of $750,000. Mortgage-backed securities increased approximately $1.8
million from $7.8 million at March 31, 1998 to $9.6 million at June 30, 1998.
The increase was primarily the result of purchases of $3.3 million partially
offset by sales of $1.0 million and principal repayments of approximately
$448,000.
Net deposits increased $3.5 million from $104.9 million at March 31, 1998
to $108.4 million at June 30, 1998. The increase in deposits was due the opening
of the two new banking offices in the last quarter of fiscal 1998 and increased
marketing efforts within the Company's market area. Securities sold under
agreement to repurchase decreased $600,000 from $3.5 million at March 31, 1998
to $2.9 million at June 30, 1998. The decrease was due to a withdrawal in the
normal course of business.
Federal Home Loan Bank advances increased to $2.9 million at June 30, 1998
compared to no advances at March 31, 1998. Net proceeds from advances were used
to fund loan demand.
Total stockholders' equity was $20.4 million at March 31, 1998 compared to
$20.5 million at June 30, 1998.
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
10
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, 1998 AND 1997
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 $197,000 during the three months ended
June 30, 1998 compared to net income of $237,000 during the three months ended
June 30, 1997. The decrease in income of $40,000 between the two periods was
primarily the result of an increase in non-interest expenses of $126,000,
partially offset by a decrease in provision for loan losses of $22,000, an
increase in non-interest income of $37,000, and a decrease in income taxes of
$27,000.
Interest Income. Total interest income increased $46,000 for the three
months ended June 30, 1998 as compared to the three months ended June 30, 1997.
The increase in interest income for the three month period resulted primarily
from an increase in the average balance of interest-earning assets of $2.6
million from $120.4 million at June 30, 1997 to $123.0 million at June 30, 1998.
The increase in the average balance of interest-earning assets was due primarily
to the increase in the average balance of loans, offset by a decrease in the
average balance of mortgage-backed and investment securities and other interest
earning assets. The average yield on interest-earning assets was 7.9% for the
three months ended June 30, 1998 and 1997, as the relationship between long and
short-term rates remained flat.
Interest Expense. Interest expense increased $46,000 for the three months
ended June 30, 1998 as compared to the same period in 1997. Interest expense
increased for the three month period primarily due to an increase in the average
balance of interest-bearing liabilities. The average balance of interest-bearing
liabilities increased from $100.9 million at June 30, 1997 to $103.8 million at
June 30, 1998 as a result of an increase in deposits. The average rate paid on
interest-bearing liabilities was 4.7% for the three months ended June 30, 1998
and 1997.
11
Provision for Loan Losses. The Company's provision for loan losses totaled
$25,000 for the three months ended June 30, 1998 compared to $47,500 for the
three months ended June 30, 1997 based on management's overall assessment of the
loan portfolio. The decrease for the three month period was due to a decrease in
charge-offs. 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 $37,000
for the three months ended June 30, 1998 compared to the same period in 1997.
The increase for the three month period was the result of an increase in service
charges and other fees on deposits due to more aggressive pricing strategies.
Non-interest Expense. Non-interest expense increased $126,000 for the three
months ended June 30, 1998 compared to the same period in 1997. Non-interest
expenses increased for the three month period due to an increase in compensation
and benefits of $47,000; an increase in occupancy expense of $22,000; an
increase in advertising expense of $7,000, an increase in ATM expense of
$12,000, an increase in telephone expense $4,000, an increase in legal fees of
$16,000 and an increase in other general and administrative expenses of $18,000.
The increase in these expenses was the result of the opening of two new banking
offices during the last quarter of fiscal 1998.
Income Tax Expense. Income tax expense decreased $27,000 for the three
months ended June 30, 1998 primarily due to an decrease in income before income
taxes and an increase in tax exempt income.
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, 1998 was $856,000 or .9% of the total loans. The March 31,
1998 allowance for loan loss was $831,000, or .9% of total loans. The allowance
for loan losses at June 30, 1998 was allocated as follows: $213,000 to
one-to-four family real estate loans, $43,000 to commercial real estate loans,
$75,000 to commercial business loans, $160,000 to consumer loans and $365,000
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.
12
June 30, 1998 March 31, 1998
------------- --------------
(Dollars in Thousands)
Non-Accruing Loans $112 $308
Accruing Loans Delinquent 90 Days or More 13 25
Foreclosed Assets 271 229
---- ----
Total Non-Performing Assets $396 $562
Total Non-Performing Assets as a
Percentage of Total Assets .3% .4%
Total non-performing assets decreased $166,000 from March 31, 1998 to June
30, 1998. The decrease in non-performing assets is the result of an increase in
management's collection efforts.
Other Assets of Concern. Other than the non-performing assets set forth in
the table above, as of June 30, 1998, 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, 1998 and March 31,
1998, cash and cash equivalents totaled $3.0 million and $3.6 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 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, 1998, the Company
had $2.9 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 4.0%. The Bank's liquidity ratios have consistently been maintained at
levels in compliance with regulatory requirements. As of June 30, 1998 and March
31, 1998, Classic Bank's liquidity ratios were 4.81% and 4.43% respectively.
First National, as a national bank, is not subject to any prescribed liquidity
requirements.
13
At June 30, 1998, the Company had outstanding commitments to originate
loans of $6.8 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 several separate minimum capital-to-asset requirements.
The following table summarizes, as of June 30, 1998, the capital requirements
applicable to Classic Bank and its actual capital ratios. As of June 30, 1998,
Classic Bank exceeded all current regulatory capital standards.
Regulatory Actual Capital
Capital Requirement (CB Only)
------------------- ---------
Amount Percent Amount Percent
------ ------- ------ -------
(Dollars in Thousands)
Risk-Based $3,045 8.0% $8,498 22.3%
Tier 1 (Core) Capital 2,726 4.0 7,987 21.0
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, 1998, the capital
requirements applicable to First National and its actual capital ratios. As of
June 30, 1998, First National exceeded all current regulatory capital standards.
Regulatory Actual Capital
Capital Requirement (FN Only)
------------------- ---------
Amount Percent Amount Percent
------ ------- ------ -------
(Dollars in Thousands)
Risk-Based Capital
(to Risk Weighted Assets) $3,140 8.0% $9,066 23.1%
Tier 1 Capital
(to Risk Weighted Assets) 1,570 4.0 8,575 21.8
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
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 27, 1998. 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:
PROPOSAL NUMBER OF VOTES
-------- ---------------
Broker
For Withheld Non-votes
--- -------- ---------
Election of the following directors for the terms indicated:
C. Cyrus Reynolds (three years) 1,010,693 35,490 0
David B. Barbour (three years) 1,010,693 35,490 0
Jeffrey P. Lopez (three years) 1,010,596 35,587 0
Broker
For Against Abstain Non-votes
--- ------- ------- ---------
The approval of the Classic Bancshares,
Inc. 1998 Premium Price Stock Option
Growth Plan 884,126 148,957 13,100 0
The ratification of the appointment of Smith,
Goolsby, Artis & Reams, P.S.C. as the
Company's auditors for the fiscal year ending
March 31, 1999 1,008,383 37,000 800 0
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 27 Financial Data Schedule
b. Reports on Form 8-K
The Registrant filed the following current reports on Form 8-K
during the three months ended June 30, 1998:
Press release, dated May 29, 1998 announcing the results of
March 31, 1998 quarter end and year end earnings. Press
release, dated April 16, 1998 announcing the declaration of a
cash dividend.
15
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, 1998 /s/ David B. Barbour
------------------------- ------------------------------------------
David B. Barbour, President, Chief
Executive Officer and Director
(Duly Authorized Officer)
Date: August 14, 1998 /s/ Lisah M. Frazier
------------------------- ------------------------------------------
Lisah M. Frazier, Senior Vice President,
Treasurer and Chief Financial Officer
(Principal Financial Officer)
16
INDEX TO EXHIBITS
Exhibit
Number
27 Financial Data Schedule