<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, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ___________
Commission File 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 Identification Number)
incorporation or organization)
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, 2001, there were 1,322,500 shares of the Registrant's
common stock issued and 1,133,336 outstanding.
Transitional Small Disclosure (check one): Yes [ ] No [X]
<Page>
CLASSIC BANCSHARES, INC.
INDEX
<Table>
<Caption>
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 2001 (Unaudited)
and March 31, 2001 3
Consolidated Statements of Income for the three months
ended June 30, 2001 and 2000 4
Consolidated Statements of Comprehensive Income for the three
months ended June 30, 2001 and 2000 5
Consolidated Statements of Stockholders' Equity for the three months
ended June 30, 2001 (Unaudited) and Year Ended March 31, 2001 6
Consolidated Statements of Cash Flows for the three months ended
June 30, 2001 and 2000 7
Notes to Consolidated Financial Statements 8-10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 11-16
PART II. OTHER INFORMATION 17
Signatures 18
Index to Exhibits 19
</Table>
2
<Page>
CLASSIC BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
JUNE 30, MARCH 31,
2001 2001
------------- -------------
(UNAUDITED)
ASSETS
Cash and due from bank $ 4,749,586 $ 5,555,900
Federal funds sold -- 50,491
Securities available for sale 24,728,401 24,794,369
Mortgage-backed and related securities available for sale 3,014,948 3,444,603
Loans receivable, net 144,267,519 138,861,807
Real estate acquired in the settlement of loans 280,745 210,745
Accrued interest receivable 1,275,467 1,187,242
Federal Home Loan Bank and Federal Reserve Bank stock 1,419,100 1,394,000
Premises and equipment, net 5,566,340 5,620,934
Cost in excess of fair value of net assets acquired (goodwill),
net of accumulated amortization 5,554,549 5,554,549
Other assets 1,191,713 1,185,734
------------- -------------
TOTAL ASSETS $192,048,368 $187,860,374
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Non-interest bearing demand deposits $ 17,907,087 $ 17,186,398
Savings, NOW, and money market demand deposits 49,571,044 48,805,047
Other time deposits 79,618,757 79,438,470
------------- -------------
Total deposits 147,096,888 145,429,915
Federal funds purchased and securities sold under
agreements to repurchase 4,126,955 3,179,589
Advances from Federal Home Loan Bank 18,025,219 16,635,590
Other short-term borrowings 466,797 234,319
Accrued expenses and other liabilities 423,466 736,676
Accrued interest payable 538,500 593,353
Accrued income taxes 140,086 57,919
Deferred income taxes 510,963 532,706
------------- -------------
Total Liabilities $171,328,874 $167,400,067
------------- -------------
Commitments and contingencies
Stockholders' Equity
Common stock, $.01 par value, 1,322,500 shares
issued and 1,139,336 shares outstanding $ 13,225 $ 13,225
Additional paid-in capital 12,830,398 12,830,398
Retained earnings - substantially restricted 11,090,969 10,762,703
Accumulated other comprehensive income (loss) (204,858) (171,073)
Unearned ESOP shares (689,320) (689,320)
Unearned RRP shares (29,666) (58,434)
Treasury stock, at cost (2,291,254) (2,227,192)
------------- -------------
Total Stockholders' Equity $ 20,719,494 $ 20,460,307
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $192,048,368 $187,860,374
============= =============
</Table>
See accompanying Accountant's Review Report
and notes to consolidated financial statements.
3
<Page>
CLASSIC BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<Table>
<Caption>
THREE MONTHS ENDED
JUNE 30,
--------------------------
2001 2000
----------- -----------
INTEREST INCOME
Loans $ 3,014,104 $ 2,851,214
Investment securities 348,233 397,667
Mortgage-backed securities 44,371 57,915
Other interest earning assets 2,925 3,466
----------- -----------
TOTAL INTEREST INCOME 3,409,633 3,310,262
----------- -----------
INTEREST EXPENSE
Interest on deposits 1,537,275 1,337,093
Interest on FHLB advances 198,141 307,444
Interest on other borrowed funds 38,641 55,059
----------- -----------
TOTAL INTEREST EXPENSE 1,774,057 1,699,596
----------- -----------
NET INTEREST INCOME 1,635,576 1,610,666
Provision for loss on loans 70,000 68,500
----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOSS ON
LOANS 1,565,576 1,542,166
----------- -----------
NON-INTEREST INCOME
Service charges and other fees 295,682 217,088
Gain on sale of securities -- --
Other income 37,632 38,093
----------- -----------
TOTAL NON-INTEREST INCOME 333,314 255,181
----------- -----------
NON-INTEREST EXPENSES
Employee compensation and benefits 658,483 660,886
Occupancy and equipment expense 236,502 192,583
Federal deposit insurance premiums 3,616 7,082
Gain (loss) on foreclosed real estate (15,451) 3,131
Amortization of goodwill -- 63,472
Other general and administrative expenses 474,473 498,054
----------- -----------
TOTAL NON-INTEREST EXPENSE 1,357,623 1,425,208
----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES 541,267 372,139
Income tax expense 127,828 89,517
----------- -----------
NET INCOME $ 413,439 $ 282,622
=========== ===========
Basic earnings per share $ 0.39 $ 0.26
=========== ===========
Diluted earnings per share $ 0.37 $ 0.26
=========== ===========
</Table>
See accompanying Accountant's Review Report
and notes to consolidated financial statements.
4
<Page>
CLASSIC BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
<Table>
<Caption>
THREE MONTHS ENDED
JUNE 30,
--------------------------
2001 2000
----------- -----------
NET INCOME $ 413,439 $ 282,622
----------- -----------
Other comprehensive income, net of tax:
Unrealized holding gains (losses) on securities
during the period, net of tax
(33,785) (98,257)
----------- -----------
Other comprehensive income
(33,785) (98,257)
----------- -----------
COMPREHENSIVE INCOME (LOSS) $ 379,654 $ 184,365
=========== ===========
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) $ (204,858) $(1,377,781)
=========== ===========
</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
ADDITIONAL GAIN (LOSS) ON
COMMON PAID-IN RETAINED AVAILABLE FOR
STOCK CAPITAL EARNINGS SALE SECURITIES
------- ----------- ----------- ---------------
BALANCES AT APRIL 1, 2000 $ 13,225 $ 12,829,744 $ 10,062,718 $ (1,279,524)
Net income for the year
ended March 31, 2001 -- -- 1,048,245 --
Dividend paid ($.32 per share) -- -- (348,260) --
ESOP shares earned -- 4,797 -- --
RRP shares earned -- -- -- --
RRPshares granted -- (450) -- --
RRPshares forfeited -- (210) -- --
Tax expense from RRP -- (3,483) -- --
Purchased 47,800 treasury shares -- -- -- --
Change in unrealized gain -- -- -- --
(loss) on available for sale
securities, net of applicable
deferred income taxes
of $571,019 -- -- -- 1,108,451
------------ ------------ ------------ ------------
BALANCES AT MARCH 31, 2001 13,225 12,830,398 10,762,703 (171,073)
Net income for the three months
ended June 30, 2001 -- -- 413,439 --
Dividend paid ($.08 per share) -- -- (85,173) --
RRP shares earned -- -- -- --
Purchased 5,000 treasury shares -- -- -- --
Change in unrealized gain
(loss) on available for sale
securities, net of applicable --
deferred income taxes of $17,404 -- -- -- (33,785)
------------ ------------ ------------ ------------
BALANCES AT JUNE 30, 2001 $ 13,225 $ 12,830,398 $ 11,090,969 $ (204,858)
============ ============ ============ ============
<Caption>
UNEARNED UNEARNED TREASURY
ESOP SHARES RRP SHARES STOCK TOTAL
----------- ---------- ----------- -----------
BALANCES AT APRIL 1, 2000 $ (736,600) $ (174,146) $ (1,716,771) $ 18,998,646
Net income for the year
ended March 31, 2001 -- -- -- 1,048,245
Dividend paid ($.32 per share) -- -- -- (348,260)
ESOP shares earned 47,280 -- -- 52,077
RRP shares earned -- 117,167 -- 117,167
RRPshares granted -- (3,075) 3,525 --
RRPshares forfeited -- 1,620 (1,410) --
Tax expense from RRP -- -- -- (3,483)
Purchased 47,800 treasury shares -- -- (512,536) (512,536)
Change in unrealized gain -- -- --
(loss) on available for sale
securities, net of applicable
deferred income taxes
of $571,019 -- -- -- 1,108,451
------------ ------------ ------------ ------------
BALANCES AT MARCH 31, 2001 (689,320) (58,434) (2,227,192) 20,460,307
Net income for the three months
ended June 30, 2001 -- -- -- 413,439
Dividend paid ($.08 per share) -- -- -- (85,173)
RRP shares earned -- 28,768 -- 28,768
Purchased 5,000 treasury shares -- -- (64,062) (64,062)
Change in unrealized gain
(loss) on available for sale
securities, net of applicable
deferred income taxes of $17,404 -- -- -- (33,785)
------------ ------------ ------------ ------------
BALANCES AT JUNE 30, 2001 $ (689,320) $ (29,666) $ (2,291,254) $ 20,719,494
============ ============ ============ ============
</Table>
See accompanying Accountant's Review Report
and notes to consolidated financial statements.
6
CLASSIC BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
JUNE 30,
--------
2001 2000
---- ----
OPERATING ACTIVITIES
Net Income $ 413,438 $ 282,622
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 124,428 118,178
Provision for loss on loans 70,000 68,500
Federal Home Loan Bank stock dividends (25,100) (22,100)
Deferred income tax expense (benefit) - (1,913)
Amortization and accretion of invesment
securities premiums and discounts, net 35,412 6,584
RRP shares earned 28,768 28,900
Amortization of goodwill - 63,472
Decrease (increase) in:
Accrued interest receivable (88,225) (119,511)
Other assets (12,310) 327,787
Increase (decrease) in:
Accrued interest payable (54,853) (13,552)
Accrued income taxes 82,167 (31,661)
Accounts payable and accrued expenses (313,210) (1,968)
---------------- ----------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 260,515 705,338
---------------- ----------------
INVESTING ACTIVITIES
Mortgage-backed securities:
Principal payments 400,578 61,473
Redemption of Federal Reserve Bank Stock - 74,150
Purchase of Federal Home Loan Bank Stock - (92,600)
Loan originations and principal payments, net (5,658,958) (4,697,064)
Proceeds from sale of foreclosed real estate 120,000 -
Purchased software (1,747) (3,498)
Purchased premises and equipment (64,404) (82,714)
---------------- ----------------
NET CASH USED BY INVESTING ACTIVITIES (5,204,531) (4,740,253)
---------------- ----------------
FINANCING ACTIVITIES
Net (decrease) increase in deposits $ 1,666,973 $ (808,010)
Net proceeds from FHLB borrowings 1,389,629 4,475,301
Increase in federal funds purchased and securities sold
under agreements to repurchase 947,366 72,394
Net increase in short-term borrowings 232,478 431,552
Purchase of treasury stock (64,062) (163,976)
Dividends paid (85,173) (92,296)
---------------- ----------------
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES 4,087,211 3,914,965
---------------- ----------------
Increase (decrease) in cash and cash equivalents (856,805) (119,950)
Cash and cash equivalent at beginning of period 5,606,391 5,253,521
---------------- ----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,749,586 $ 5,133,571
================ ================
ADDITIONAL CASH FLOWS AND SUPPLEMENTARY INFORMATION
CASH PAID DURING THE PERIOD FOR:
Interest on deposits and borrowings $ 508,530 $ 550,759
Taxes $ 50,000 $ 123,091
Assets acquired in settlement of loans $ 172,971 $ -
Net unrealized loss on securities available for sale $ (33,785) $ (98,257)
See accompanying Accountant's Review Report and notes to consolidated
financial statements.
7
CLASSIC BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) PRINCIPLES OF CONSOLIDATION
The financial statements for 2001 are presented for Classic Bancshares,
Inc. (the "Company") and its wholly owned subsidiary, Classic Bank. The
consolidated balance sheets for June 30, 2001 and March 31, 2001 are for the
Company and Classic Bank. The consolidated statements of income include the
operations of the Company and Classic Bank for the three months ended June 30,
2001.
On March 16, 2001, the Company merged its two subsidiaries, Classic
Bank and The First National Bank of Paintsville ("First National") with Classic
Bank as the surviving institution. The financial statements for 2000 are
presented for the Company, Classic Bank and First National. The consolidated
statements of income include the operation of the Company, Classic Bank and
First National for the three months ended June 30, 2000.
(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, 2001, and the results of operations for all interim periods
presented. Operating results for the three months ended June 30, 2001 are not
necessarily indicative of the results that may be expected for the fiscal year
ended March 31, 2002.
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, 2001.
(3) EARNINGS PER SHARE
Earnings per share are presented 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 are computed taking into consideration
common shares outstanding and dilutive potential common shares to be issued
under the Company's stock option plans and recognition and retention plan.
The weighted average number of shares used in the basic earnings per
share computations was 1,065,508 and 1,088,744 for the three-month periods ended
June 30, 2001 and 2000, respectively. The weighted average number of shares used
in the diluted earnings per
8
share computations was 1,108,700 and 1,096,746 for the three-month periods ended
June 30, 2001 and 2000, respectively.
Options to purchase 181,750 shares of common stock were outstanding at
June 30, 2001 but 10,550 of those shares were not included in the computation of
diluted earnings per share due to their anti-dilutive effect. Options to
purchase 168,452 shares of common stock were outstanding at June 30, 2000 but
were not included in the computation of diluted earnings per share due to their
anti-dilutive effect.
(4) IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board issued Statement
No. 142, Goodwill and Other Intangible Assets. This Statement addresses
financial accounting and reporting for acquired goodwill and other intangible
assets and how they should be accounted for after they have been initially
recognized in the financial statements. This Statement provides specific
guidance for testing goodwill for impairment. This Statement specifically
relates to the Company in that it changes the accounting for goodwill that the
Company currently has on its balance sheet. The Statement outlines that goodwill
should not be amortized but should be tested for impairment on an annual basis
and between annual tests in certain circumstances. Impairment is the condition
that exists when the carrying amount of goodwill exceeds its implied fair value.
The annual goodwill impairment test may be performed any time during the fiscal
year provided the test is performed at the same time every year.
The Statement is effective for fiscal years beginning after December
15, 2001. However, early application is permitted for entities with fiscal years
beginning after March 15, 2001. An entity has six months from the date it
initially applies this statement to complete the impairment test. The Company
adopted Statement No. 142 effective April 1, 2001, the beginning of the
Company's fiscal year. As a result of the adoption of Statement No. 142, the
Company will discontinue the amortization of its goodwill and will only record
impairment losses if deemed necessary in future periods. The impact of the
adoption of Statement No. 142 on net income for the Company is as follows:
FOR THE 3 MONTHS ENDED JUNE 30,
-------------------------------
($000s except for earnings per share amounts) 2001 2000
---- ----
Reported net income $413 $283
Add back: Goodwill amortization - 63
---- ----
Adjusted net income $413 $346
---- ----
BASIC EARNINGS PER SHARE:
Reported net income $.39 $.26
Goodwill amortization - .06
---- ----
Adjusted net income $.39 $.32
---- ----
DILUTED EARNINGS PER SHARE:
Reported net income $.37 $.26
Goodwill amortization - .06
---- ----
Adjusted net income $.37 $.32
---- ----
9
(5) EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)
The Company has 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 loan is for a term of twenty-five years. The
Company's subsidiary 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 $16,414 and $12,881 for the three months ended June
30, 2001 and 2000, respectively. As of June 31, 2001, the Company considered
63,844 shares as unearned ESOP shares with a fair value of $927,015.
(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, 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, options on 200 shares at $13.625
per share and options on 450 shares at $12.313 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 52,536 shares.
At the end of the quarter, all of the stock options had been granted and 364 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 5,550 shares at $14.988 per share, options on 24,000
shares at $11.275 per share and options on 14,350 shares at $13.544 per share.
The Company had forfeitures on 600 shares during the quarter. Therefore, 600
stock options under this plan remain ungranted.
(7) CASH DIVIDEND
On July 23, 2001, the Board declared a cash dividend of $.08 per share
payable on August 20, 2001 to shareholders of record on August 6, 2001.
10
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
The Company's total assets increased $4.1 million from $187.9 million
at March 31, 2001 to $192.0 million at June 30, 2001. The increase was due
primarily to an increase in loans of $5.4 million offset by a decrease in cash
and cash equivalents of approximately $900,000 and a decrease in mortgage-backed
securities of approximately $400,000.
Net loans receivable increased $5.4 million from $138.9 million at
March 31, 2001 to $144.3 million at June 30, 2001. Consistent with the Company's
strategic plan, the growth in loans was primarily in the areas of commercial
business and consumer loans. Commercial business loans increased approximately
$4.5 million and consumer loans increased approximately $2.7 million offset by a
decrease in 1-4 family mortgage loans of approximately $2.1 million.
Mortgage-backed securities decreased approximately $400,000 from $3.4
million at March 31, 2001 to $3.0 million at June 30, 2001. The decrease was
primarily the result of principal repayments during the period.
Net deposits increased $1.7 million from $145.4 million at March 31,
2001 to $147.1 million at June 30, 2001. Non-interest bearing demand deposits
increased approximately $700,000, savings, NOW and money market accounts
increased approximately $800,000 and other time deposits consisting primarily of
certificates of deposit increased approximately $200,000. The Company also
utilized Federal Home Loan Bank advances, which increased $1.4 million from
$16.6 million at March 31, 2001 to $18.0 million at June 30, 200, to fund loan
demand. The advances are short-term, variable rate advances with an average term
of 90 days. The Company continues to utilize FHLB borrowing as a cheaper source
of funding due to the continual high rates paid on deposits within the Company's
market area.
Total stockholders' equity was $20.5 million at March 31, 2001 compared
to $20.7 million at June 30, 2001. The increase was due to net income recorded
for the period partially offset by a decrease in the value of available for sale
securities, the purchase of treasury stock and cash dividends paid.
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
11
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, 2001 AND 2000
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 $413,000 for the three months ended
June 30, 2001 compared to net income of $283,000 for the three months ended June
30, 2000. The increase in income of $130,000 between the two periods was
primarily the result of an increase in net interest income of $25,000, an
increase in non-interest income of $78,000 and a decrease in non-interest
expenses of $67,000 partially offset by an increase in provision for loss on
loans of $2,000, and an increase in income taxes of $38,000.
INTEREST INCOME. Total interest income increased $99,000 for the three
months ended June 30, 2001 as compared to the three months ended June 30, 2000.
The increase in interest income for the three-month period resulted primarily
from an increase in the average balance of interest-earning assets of $10.0
million from $162.6 million for the three months ended June 30, 2000 to $172.6
million for the three months ended June 30, 2001. The increase in the average
balance of interest-earning assets was due primarily to the increase in the
average balance of loans. The average yield on interest-earning assets was 8.1%
for the three months ended June 30, 2001 compared to 8.4% for the three months
ended June 30, 2000. The decrease in the yield on interest-earning assets was
due to a decrease in market interest rates between the two periods. Tax
equivalent adjustments were made to the yield.
INTEREST EXPENSE. Interest expense increased $74,000 for the three
months ended June 30, 2001 as compared to the same period in 2000. Interest
expense increased for the periods primarily due to an increase in the average
balance of interest-bearing liabilities. The average balance of interest-bearing
liabilities increased $8.3 million from $142.7 million for the three months
ended June 30, 2000 to $151.0 million for the three months ended June 30, 2001.
The increase in these balances is the result of an increase in the average
balance of interest-bearing transaction accounts of $5.8 million and an increase
in certificate of deposit accounts of $5.4
12
million offset by a decrease in the average balance of FHLB and other borrowings
of $2.6 million. The average rate paid on interest-bearing liabilities was 4.7%
for the three months ended June 30, 2001 compared to 4.8% for the three months
ended June 30, 2000. Rates paid on deposits within the Company's market area
remain high despite the decrease in general interest rates.
PROVISION FOR LOAN LOSSES. The Company's provision for loan losses
totaled $70,000 for the three months ended June 30, 2001 compared to $68,000 for
the three months ended June 30, 2000 based on management's overall assessment of
the loan portfolio. The provision recorded for the three-month period was based
on management's evaluation of the Company's current portfolio including factors
such as the increase in non-residential loans and overall growth in the loan
portfolio. Management continually monitors the Company's allowance for loan
losses and makes adjustments as economic conditions, portfolio quality and
portfolio diversity dictates. Although the Company maintains its allowance for
loan losses at a level which the Board considers to be adequate to provide for
probable incurred losses on existing loans, 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
$78,000 for the three months ended June 30, 2001 compared to the same period in
2000. The increase for the three-month period is primarily the result of an
increase in service charges and other fees on deposits of $78,000. The increase
in service charges and other fees on deposits for the three-month period is the
result of an increased core deposit base and a stringent policy with regard to
the waiving of service charges and fees.
NON-INTEREST EXPENSE. Non-interest expenses decreased $67,000 for the
three months ended June 31, 2001 compared to the same period in 2000.
Non-interest expenses decreased for the three-month period due to a decrease in
employee compensation and benefits of $2,000, a decrease in FDIC premiums of
$3,000, an increase in the gain reported on the sale of foreclosed real estate
of $19,000, a decrease in the amortization of goodwill of $63,000, a decrease in
stationary, printing and supplies of $22,000, and a reduction in other general
and administrative expenses of $2,000 offset by an increase in occupancy and
equipment expense of $44,000.
Employee compensation and benefits decreased primarily due to a
reduction in employees as a result of the consolidation of the Company's
subsidiaries in March 2001 offset by an increase in ESOP expense of $4,000 due
to an increase in the average market value of the Company's stock. Amortization
of goodwill was eliminated due to the implementation of the Financial Accounting
Standards Board Statement No. 142, Goodwill and Other Intangibles. The statement
was applied effective April 1, 2001 and resulted in the discontinuance of the
amortization of goodwill. Occupancy and equipment expense increased due
primarily to the opening of an additional branch office in the Paintsville
market, which opened in March 2001.
INCOME TAX EXPENSE. Income tax expense increased $38,000 for the three
months ended June 30, 2001 primarily due to an increase in income before income
taxes for each 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
to repay the loan, the estimated fair value of the underlying
13
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, 2001 was $1.5 million or 1.0% of the
total loans. The March 31, 2001 allowance for loan loss was $1.4 million, or
1.0% of total loans. The Company recorded a provision for loan losses of $70,000
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, 2001 was allocated
as follows: $230,000 to one-to-four family real estate loans, $102,000 to
commercial real estate, $36,000 to commercial business loans, $28,000 to
consumer loans and $1.1 million 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.
JUNE 30, 2001 MARCH 31, 2001
------------- --------------
(Dollars in Thousands)
Non-Accruing Loans .......................................... $ 554 $ 662
Accruing Loans Delinquent 90 Days or More.................... 150 124
Foreclosed Assets ........................................... 216 228
------- ------
Total Non-Performing Assets ................................. $ 920 $1,014
Total Non-Performing Assets as a
Percentage of Total Assets ......................... .5% .5%
Total non-performing assets decreased $94,000 from March 31, 2001 to
June 30, 2001 due to management's strategic focus on maintaining asset quality
and adhering to stringent underwriting standards. Management continually pursues
collection of these loans in order to decrease the level of non-performing
assets.
OTHER ASSETS OF CONCERN. Other than the non-performing assets set forth
in the table above, as of June 30, 2001, 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, 2001 and
March 31, 2001, cash and cash equivalents totaled $4.7 million and $5.6 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. Certificates of deposit as of June 30, 2001 maturing
within one year total $68.9 million.
14
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, 2001, the Company
had $18.0 million in borrowings outstanding with the FHLB.
At June 30, 2001, the Company had outstanding commitments to originate
loans of $13.4 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, 2001, the capital requirements applicable to Classic
Bank and its actual capital ratios. As of June 30, 2001, Classic Bank was in
compliance with its capital requirements.
REGULATORY ACTUAL CAPITAL
CAPITAL REQUIREMENT CLASSIC BANK
------------------- --------------
AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ -------
(Dollars in Thousands)
Total Capital
(to Risk Weighted Assets) $10,936 8.0% $15,240 11.1%
Tier 1 Capital
(to Adjusted Total Assets) 7,362 4.0 13,785 7.5
The Company is subject to the regulatory capital requirements of the
Federal Reserve Board that generally parallel the capital requirements for FDIC
insured banks. The following table summarizes, as of June 30, 2001, the capital
requirements applicable to the Company and its actual capital ratios. As of June
30, 2001, the Company was in compliance with its capital requirements.
REGULATORY ACTUAL CAPITAL
CAPITAL REQUIREMENT CLASSIC BANCSHARES, INC.
------------------- ------------------------
AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ -------
(Dollars in Thousands)
Total Capital
(to Risk Weighted Assets) $10,981 8.0% $16,825 12.3%
Tier 1 Capital
(to Adjusted Total Assets) 7,419 4.0 15,370 8.3
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
15
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.
16
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 28 Accountant's Review Report
b. Reports on Form 8-K
None
17
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 13, 2001 /s/ David B. Barbour
------------------------ -------------------------------------------------------------
David B. Barbour, President, Chief Executive Officer
and Director (Duly Authorized Officer)
Date: August 13, 2001 /s/ Lisah M. Frazier
------------------------ -------------------------------------------------------------
Lisah M. Frazier, Chief Operating Officer, Treasurer and
Chief Financial Officer (Principal Financial Officer)
18
INDEX TO EXHIBITS
Exhibit
Number
-------
28 Accountant's Review Report
19