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 September 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.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 61-1289391
- --------------------------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
344 Seventeenth Street, Ashland, Kentucky 41101
- --------------------------------------------------------------------------------
(Address of principal executive offices) (ZIP Code)
Registrant's telephone number, including area code: (606) 325-4789
--------------
Check here whether the issuer (1) has filed all reports required to be
filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]
As of November 7, 2000, there were 1,322,500 shares of the Registrant's
common stock issued and 1,159,456 outstanding.
Transitional Small Disclosure (check one): Yes [ ] No [X]
CLASSIC BANCSHARES, INC.
INDEX
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Page
Number
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 2000
(Unaudited) and March 31, 2000 3
Consolidated Statements of Income for the three and
six months ended September 30, 2000 and 1999 4
Consolidated Statements of Comprehensive Income for
the three and six months ended September 30, 2000 and 1999 5
Consolidated Statements of Stockholders' Equity for
the six months ended September 30, 2000 (Unaudited)
and Year Ended March 31, 2000 6
Consolidated Statements of Cash Flows for the six months
ended September 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 12-18
PART II. OTHER INFORMATION 19
Signatures 20
Index to Exhibits 21
2
CLASSIC BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
September 30, March 31,
2000 2000
---- ----
(Unaudited)
ASSETS
Cash and due from bank $ 5,173,081 $ 5,122,083
Federal funds sold - 131,438
Securities available for sale 24,185,302 23,672,526
Mortgage-backed and related securities available for sale 3,060,273 3,229,952
Loans receivable, net 134,473,980 127,808,325
Real estate acquired in the settlement of loans 257,941 255,246
Accrued interest receivable 1,288,530 1,139,012
Federal Home Loan Bank and Federal Reserve Bank stock 1,514,750 1,462,350
Premises and equipment, net 5,023,792 5,061,929
Cost in excess of fair value of net assets acquired (goodwill),
net of accumulated amortization 5,681,492 5,808,774
Other assets 1,074,961 1,562,534
------------ -----------------
TOTAL ASSETS $181,734,102 $ 175,254,169
- ------------
============= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Non-interest bearing demand deposits $ 16,857,279 $ 14,749,044
Savings, NOW, and money market demand deposits 46,284,988 45,807,285
Other time deposits 76,839,517 74,340,467
------------- ----------------
Total deposits 139,981,784 134,896,796
Federal funds purchased and securities sold under
agreements to repurchase 3,213,151 2,687,714
Advances from Federal Home Loan Bank 17,055,818 17,075,380
Other short-term borrowing 656,371 573,751
Accrued expenses and other liabilities 484,896 427,998
Accrued interest payable 547,012 551,465
Accrued income taxes 101,096 42,419
Deferred income taxes 142,210 -
------------- ----------------
Total Liabilities $ 162,182,338 $ 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 10,460,556 10,062,718
Accumulated other comprehensive income (loss) (903,998) (1,279,524)
Unearned ESOP shares (736,600) (736,600)
Unearned RRP shares (119,221) (174,146)
Treasury stock, at cost (1,991,492) (1,716,771)
------------- ---------------
Total Stockholders' Equity $ 19,551,764 $ 18,998,646
-------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 181,734,102 $ 175,254,169
- ------------------------------------------ ============= ===============
See accompanying Accountant's Review Report and notes to consolidated financial
statements
3
CLASSIC BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
2000 1999 2000 1999
---- ---- ---- ----
INTEREST INCOME
Loans $ 2,971,105 $ 2,538,893 $ 5,822,318 $ 4,767,803
Investment securities 397,298 396,547 794,965 793,450
Mortgage-backed securities 58,859 53,702 116,774 113,043
Other interest earning assets 4,972 5,756 8,437 19,236
------------- ----------- ------------- -------------
Total Interest Income 3,432,234 2,994,898 6,742,494 5,693,532
------------- ----------- ------------- -------------
INTEREST EXPENSE
Interest on deposits 1,477,289 1,345,625 2,814,383 2,567,053
Interest on FHLB Advances 313,366 54,127 620,810 86,481
Interest on other borrowed funds 61,265 55,637 116,324 97,658
------------- ----------- ------------- ------------
Total Interest Expense 1,851,920 1,455,389 3,551,517 2,751,192
------------- ----------- ------------- ------------
Net Interest Income 1,580,314 1,539,509 3,190,977 2,942,340
Provision for loss on loans 55,000 52,500 123,500 87,500
------------- ----------- ------------- ------------
Net interest income after provision
for loss on loans 1,525,314 1,487,009 3,067,477 2,854,840
------------- ----------- ------------- ------------
NON-INTEREST INCOME
Service charges and other fees 220,166 169,798 437,254 318,683
Gain on sale of securities
available for sale - (2,500) - (2,500)
Gain on disposal of assets - 3,704 - 3,704
Other income 35,504 43,708 73,598 85,629
------------- ----------- ------------- -------------
Total Non-Interest Income 255,670 214,710 510,852 405,516
------------- ----------- ------------- -------------
NON-INTEREST EXPENSES
Employee compensation and benefits 646,464 654,549 1,307,350 1,212,399
Occupancy and equipment expense 218,449 192,497 411,033 364,665
Federal deposit insurance premiums 6,924 10,310 14,006 20,024
Loss (gain) on foreclosed real estate 2,457 1,708 5,588 1,983
Other general and administrative
expenses 463,060 443,069 961,111 896,685
------------ ----------- ------------- -------------
Total Non-Interest Expense 1,337,354 1,302,133 2,699,088 2,495,756
------------ ----------- ------------- -------------
INCOME BEFORE INCOME TAXES 443,630 399,586 879,241 764,600
- --------------------------
Income tax expense 84,919 76,124 174,436 144,046
------------ ----------- ------------- -------------
INCOME BEFORE GOODWILL AMORTIZATION 358,711 323,462 704,805 620,554
- ----------------------------------- ------------ ----------- ------------- -------------
Goodwill amortization (63,810) (62,234) (127,282) (107,801)
------------- ------------ ------------- -------------
NET INCOME $ 294,901 $ 261,228 $ 577,523 $ 512,753
- ----------
============ ============ ============ =============
Basic earnings per share before goodwill amortization $ 0.33 $ 0.29 $ 0.65 $ 0.55
Goodwill amortization (0.06) (0.06) (0.12) (0.10)
------------ ------------ ------------ -------------
Basic earnings per share after goodwill amortization $ 0.27 $ 0.23 $ 0.53 $ 0.45
============= ============ ============ =============
Diluted earnings per share before goodwill amortization $ 0.33 $ 0.28 $ 0.65 $ 0.54
Goodwill amortization (0.06) (0.06) (0.12) (0.10)
------------ ------------ ------------ -------------
Diluted earnings per share after goodwill amortization $ 0.27 $ 0.22 $ 0.53 $ 0.44
============ ============ ============ =============
See accompanying Accountant's Review Report and notes to consolidated financial
statements.
4
CLASSIC BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
---- ---- ---- ----
Net Income $ 294,901 $ 261,228 $ 577,523 $ 512,753
------------ ----------- ------------- --------------
Other comprehensive income, net of tax:
Unrealized holding gains (losses) on securities
during the period, net of tax 473,783 (430,417) 375,526 (1,018,401)
Reclassification adjustments for realized gains
(losses) included in earnings (1,650) (1,650)
------------- ----------- -------------- --------------
Other comprehensive income 473,783 (428,767) 375,526 (1,016,751)
------------- ----------- -------------- --------------
Comprehensive Income (Loss) $ 768,684 $ (167,539) $ 953,049 $ (503,998)
============= =========== ============== ==============
Accumulated Other Comprehensive Income $ (903,998) $ (932,774) $ (903,998) $ (932,774)
============= =========== ============== ==============
See accompanying Accountant's Review Report and notes to consolidated financial
statements.
5
CLASSIC BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
NET UNREALIZED
ADDITIONAL GAIN (LOSS) ON
COMMON PAID-IN RETAINED AVAILABLE FOR UNEARNED UNEARNED TREASURY
STOCK CAPITAL EARNINGS SALE SECURITIES ESOP SHARES RRP SHARES STOCK TOTAL
----- ------- -------- --------------- ----------- ---------- ----- -----
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
RRP shares granted - 365 - - - (2,725) (2,360) -
RRP shares forfeited - (264) - - - 6,656 (6,392)56 -
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 six months
ended September 30, 2000 - - 577,523 - - - - 577,523
Dividend paid - - (179,685) - - - - (179,685)
RRP shares earned - - - - - 57,999 - 57,999
RRP shares awarded - (450) - - - (3,074) 3,524 -
Purchased 27,000 treasury shares - - - - - - (278,245) (278,245)
Change in unrealized gain
(loss) on available for sale
securities, net of applicable - - - - - - - -
deferred income taxes of
$193,451 - - - 375,526 - - - 375,526
------- ---------- ----------- ------------ --------- --------- ---------- ----------
Balances at September 30, 2000 $13,225 $12,829,294 $10,460,556 $ 903,998) (736,600) $(119,221) $(1,991,492)$19,551,764
======= =========== =========== ============ ======== ========= =========== ===========
See accompanying Accountant's Review Report and notes to consolidated financial
statements.
6
CLASSIC BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
SEPTEMBER 30,
2000 1999
---- -----
OPERATING ACTIVITIES
Net Income $ 577,523 $ 512,753
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 253,355 254,339
Provision for loss on loans 123,500 87,500
Loss on sale of securities available for sale - 2,500
Gain on disposal of equipment - (3,704)
Loss on sale of foreclosed real estate 273
Federal Home Loan Bank stock dividends (46,000) (38,600)
Deferred income tax (benefit) expense 7,332) 46,176
Amortization and accretion of invesment
securities premiums and discounts, net 11,592 47,954
RRP shares earned 57,999 59,926
Amortization of goodwill 127,282 107,801
Decrease (increase) in:
Accrued interest receivable (149,518) (217,629)
Other assets 458,055 59,156
Increase (decrease) in:
Accrued interest payable (4,453) 133,239
Accrued income taxes 58,677 (45,134)
Accounts payable and accrued expenses 56,898 62,798
---------------- ---------------
Net cash provided by operating activities 1,517,851 1,069,075
---------------- ---------------
INVESTING ACTIVITIES
Securities:
Proceeds from sale, maturities or calls 45,000 527,500
Purchased - -
Mortgage-backed securities:
Proceeds from sale - -
Purchased - -
Principal payments 168,414 734,452
Redemption of Federal Reserve Bank Stock 86,200 45,000
Purchase of Federal Home Loan Bank Stock (92,600) -
Loan originations and principal payments, net (6,878,562) (18,135,566)
Proceeds from sale of equipment - 28,000
Proceeds from sale of foreclosed real estate 34,547 -
Purchases of software (3,498) (4,755)
Purchases of premises and equipment (173,345) (163,313)
Cash invested in purchase of Bank subsidiary in excess of cash and
cash equivalents acquired - (1,497,572)
---------------- ---------------
Net cash used by investing activities (6,813,844) (18,466,254)
---------------- ---------------
See accompanying Accountant's Review Report and notes to consolidated financial
statements.
7
CLASSIC BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
SEPTEMBER 30,
2000 1999
---- -----
FINANCING ACTIVITIES
Net increase in deposits $ 5,084,988 $ 10,424,457
Net (repayments) proceeds from FHLB borrowing (19,562) 4,906,558
Increase in federal funds purchased and securities sold
under agreements to repurchase 525,437 1,472,739
Net increase in short-term borrowings 82,620 975,052
Purchase of treasury stock (278,245) (375,413)
Dividends paid (179,685) (185,268)
---------------- ------------
Net cash (used) provided by financing activities 5,215,553 17,218,125
---------------- ------------
Increase (decrease) in cash and cash equivalents (80,440) (179,054)
Cash and cash equivalent at beginning of period 5,253,521 4,486,156
---------------- ------------
Cash and cash equivalents at end of period $ 5,173,081 $ 4,307,102
================ ============
Additional cash flows and supplementary information
Cash paid during the period for:
Interest on deposits and borrowings $ 1,161,998 $ 688,281
Taxes $ 123,091 $ 155,001
Assets acquired in settlement of loans $ - $ 45,000
Net unrealized loss on securities available for sale $ 375,526 $ (1,016,751)
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
See accompanying Accountant's Review Report and notes to consolidated financial
statements.
8
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 September 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 and six months ended September 30, 2000 and 1999.
The earnings of Citizens Bank are included in the consolidated statement of
income for the six months ending September 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 September 30, 2000, and the results of operations for all interim periods
presented. Operating results for the six months ended September 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 1,082,116 and 1,127,512 for the three-month periods ended
September 30, 2000 and 1999, respectively and 1,085,412 and 1,127,548 for the
six-month periods ended September 30, 2000 and 1999, respectively. The weighted
average number of shares used in the diluted earnings per share computations was
1,083,779 and 1,159,509 for the three-month periods ended September 30, 2000 and
1999, respectively and 1,087,075 and 1,159,544 for the six-month periods ended
September 30, 2000 and 1999, respectively.
9
Options to purchase 168,000 and 11,300 shares of common stock were
outstanding at September 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 $11,973 and $17,361 for
the three months ended September 30, 2000 and 1999, respectively and $24,854 and
$35,284 for the six months ended September 30, 2000 and 1999, respectively. As
of September 30, 2000, the Company considered 73,660 shares as unearned ESOP
shares with a fair value of $759,656.
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 October 16, 2000, the Board declared a cash dividend of $.08 per
share payable on November 13, 2000 to shareholders of record on October 30,
2000.
(7) Charter Conversion
------------------
Effective June 30, 2000, Classic Bank converted from a federal savings
bank to a Kentucky-chartered commercial bank. During the first quarter of this
fiscal year, 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.
10
(8) Director Resignation
--------------------
The Board of Directors accepted a letter of resignation from Director
A. Bruce Addington. The resignation was effective October 4, 2000. The letter
stated that the resignation was not due to any disagreements with management or
the Board. Because of the resignation, the Board voted to reduce the number of
board seats by one. Therefore, the Board now has nine seats, all of which are
currently filled.
11
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Financial Condition
- -------------------
The Company's total assets increased $6.4 million, or 3.7%, from $175.3
million at March 31, 2000 to $181.7 million at September 30, 2000. The increase
was due primarily to an increase in loans of $6.7 million.
Net loans receivable increased $6.7 million from $127.8 million at
March 31, 2000 to $134.5 million at September 30, 2000. The increase reflected
originations of $20.7 million in commercial business loans, $7.8 million in
consumer loans, $6.0 million in one-to-four family mortgage loans, and $2.7
million in commercial real estate loans offset by repayments since March 31,
2000.
Investment securities increased approximately $500,000 from $23.7
million at March 31, 2000 to $24.2 million at September 30, 2000 primarily
because of an increase in the market value of these available for sale
securities. Mortgage-backed securities decreased approximately $200,000 from
$3.2 million at March 31, 2000 to $3.0 million at September 30, 2000. The
decrease was primarily the result of principal repayments of approximately
$200,000.
Net deposits increased $5.1 million from $134.9 million at March 31,
2000 to $140.0 million at September 30, 2000. The increase in deposits is the
direct result of marketing and sales efforts to grow deposits in order to fund
loan demand. Non-interest bearing demand deposits increased $2.1 million,
savings, NOW and money market demand deposits increased approximately $500,000,
and other time deposits consisting primarily of certificates of deposit
increased approximately $2.5 million.
Federal Home Loan Bank advances were $17.1 at March 31, 2000 and
September 30, 2000. The advances are short-term, variable rate advances with an
average term of 90 days.
Total stockholders' equity was $19.0 million at March 31, 2000 compared
to $19.6 million at September 30, 2000. The increase was due to an increase in
the market value of available for sale securities and net income recorded for
the period partially offset by 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
12
agencies, fluctuations in interest rates, demand for loans in the Company's
market area and competition, that could cause actual results to differ
materially from historical earnings and those presently anticipated or
projected. The Company wishes to caution readers not to place undue reliance on
any such forward-looking statements, which speak only as of the date made. The
Company wishes to advise readers that the factors listed above could affect the
Company's financial performance and could cause the Company's actual results for
future periods to differ materially from any opinions or statements expressed
with respect to future periods in any current statements.
The Company does not undertake - and specifically declines any
obligation - to publicly release the result of any revisions which may be made
to any forward-looking statements to reflect events or circumstances after the
date of such statements or to reflect the occurrence of anticipated or
unanticipated events.
RESULTS OF OPERATIONS - COMPARISON OF OPERATING RESULTS FOR THE THREE AND SIX
-----------------------------------------------------------------------------
MONTHS ENDED SEPTEMBER 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 $295,000 during the three months
ended September 30, 2000 compared to net income of $261,000 during the three
months ended September 30, 1999. The increase in income of $34,000 between the
two periods was primarily the result of an increase in net interest income of
$41,000, an increase in non-interest income of $41,000 partially offset by an
increase in provision for loss on loans of $3,000, an increase in non-interest
expenses of $35,000, an increase in goodwill amortization of $1,000 and an
increase in income taxes of $9,000.
The Company reported net income of $578,000 for the six months ended
September 30, 2000 compared to net income of $513,000 for the six months ended
September 30, 1999. The increase in income of $65,000 between the two periods
was primarily the result of an increase in net interest income of $249,000, an
increase in non-interest income of $105,000 partially offset by an increase in
provision for loss on loans of $36,000, an increase in non-interest expenses of
$203,000, an increase in goodwill amortization of $19,000, and an increase in
income taxes of $30,000.
Interest Income. Total interest income increased $438,000 and $1.0
million for the three and six months ended September 30, 2000 as compared to the
three and six months ended September 30, 1999. The increase in interest income
for the three-month period resulted partially from an increase in the average
balance of interest-earning assets of $11.3 million from $153.0 million for the
three months ended September 30, 1999 to $164.3 million for the three months
ended September 30, 2000. The increase in interest income for the six-month
period resulted primarily from an increase in the average balance of
interest-earning assets of $16.1 million from $147.4 million for the six months
ended September 30,1999 to $163.5 million for the six months ended September 30,
2000. The increase in the average balance of interest-earning assets was due
primarily to the increase in the average balance of loans. The increase in the
average balance of loans was due to aggressive sales efforts and continued loan
demand within the Company's market area.
13
Interest income increased also due to an increase in the average yield.
The average yield on interest-earning assets was 8.6% and 8.5% for the three and
six months ended September 30, 2000 compared to 8.1% and 8.0% for the three and
six months ended September 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 during the period in general interest
rates. Tax equivalent adjustments were made to the yield.
Interest Expense. Interest expense increased $397,000 and $800,000 for
the three and six months ended September 30, 2000 as compared to the same period
in 1999. Interest expense increased for the periods partially due to an increase
in the average balance of interest-bearing liabilities. The average balance of
interest-bearing liabilities increased $8.4 million from $135.4 million for the
three months ended September 30, 1999 to $143.8 million for the three months
ended September 30, 2000. The average balance of interest-bearing liabilities
increased $14.0 from $129.3 million for the six months ended September 30, 1999
to $143.3 million for the six months ended September 30, 2000. The increase in
these balances is the result of a significant increase in the average balance of
FHLB and other borrowings offset by a decrease in the average balance of
interest-bearing deposits. In the past twelve months, the Company has taken
advantage of attractive borrowing rates and utilized FHLB borrowings rather than
paying a higher cost to obtain deposits within the Company's market area.
However, during this past quarter ended September 30, 2000, the Company did
elect to pay a higher rate on certificates of deposit in accordance with market
rates in order to fund some of the loan growth.
Interest expense increased also due to an increase in the average rate
paid. The average rate paid on interest-bearing liabilities was 5.1% and 5.0%
for the three and six months ended September 30, 2000 compared to 4.3% for the
three and six months ended September 30, 1999. The increase in the average rate
paid on interest-bearing liabilities for the three and six-month period is due
to a significant increase in market interest rates.
Provision for Loan Losses. The Company's provision for loan losses
totaled $55,000 and $124,000 for the three and six months ended September 30,
2000 compared to $53,000 and $88,000 for the three and six months ended
September 30, 1999 based on management's overall assessment of the loan
portfolio. The increase for the three and six month period was based on
management's evaluation of the Company's current portfolio including factors
such as an increase in charge-offs and non-performing loans and the 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
$41,000 for the three months ended September 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 $50,000
partially offset by a decrease in other income of $8,000. Non-interest income
increased approximately $105,000 for the six months ended September 30, 2000
compared to the same period in 1999. The increase for the six-month period is
primarily the result of an increase in service charges and other fees on
deposits of $119,000 partially offset by a decrease in other income of $12,000.
The increase in service charges and other fees on deposits for the three and six
month period is the result of increased product offerings, an increased core
deposit base, aggressive pricing strategies and a stringent waiver policy. The
Company adheres to a waive factor of less than 1% of total fees and charges.
14
Non-interest Expense. Non-interest expenses increased $35,000 for the
three months ended September 30, 2000 compared to the same period in 1999.
Non-interest expenses increased for the three-month period due to an increase in
occupancy and equipment expense of $26,000, an increase in ATM expense of
$4,000, an increase in marketing, advertising and promotion expense of $8,000,
an increase in professional fees of $8,000 offset by a decrease in employee
compensation and benefits of $8,000, and a decrease in FDIC premiums of $3,000.
Occupancy and equipment expense increased due to an increase in maintenance
costs related to existing facilities; an increase in maintenance costs related
to equipment; an increase in lease expense due to the leasing of additional
space and a land lease to construct a new facility in the Paintsville area and
an increase in depreciation expense due to an improved technological
infrastructure. Marketing, advertising and promotion expense increased due to
aggressive marketing efforts and various promotions implemented during the
quarter. Professional fees increased due to the Company engaging a major bank
consulting firm to assist the Company in its strategic planning process,
including revenue enhancements and expense control and reduction. Employee
compensation and benefits decreased primarily due to the reduction of ESOP
expense for the quarter.
Goodwill amortization increased $1,000 for the three months ended
September 30, 2000.
Non-interest expense increased approximately $200,000 for the six
months ended September 30, 2000 compared to the same period in 1999.
Non-interest expenses increased for the six month period due to an increase in
compensation and benefits of $95,000, an increase in occupancy and equipment
expense of $46,000, an increase in ATM expense of $9,000, an increase in
marketing and advertising expense of $19,000, and an increase in professional
fees of $31,000. Employee compensation and benefits increased as a result of an
increase in the net number of employees due to 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 for the period due to costs
related to repairs and maintenance of the existing facilities and equipment,
increased lease expense and increased depreciation due to an improved
technological infrastructure. ATM expense increased due to an increase in the
usage of the various ATM locations. Marketing, advertising and promotion expense
increased due to aggressive marketing efforts and increased marketing
promotions. Professional fees increased due to the engagement of a major bank
consulting firm to assist in the strategic planning process for the Company.
Professional fees also increased due to the outsourcing of the loan review
function for the Company.
Goodwill amortization increased $19,000 for the six months ended
September 30, 2000 due to amortization being recorded on the Citizens
acquisition for only part of the six months ended September 30, 1999 compared to
the entire six months ended September 30, 2000.
Income Tax Expense. Income tax expense increased $9,000 and $30,000 for
the three and six months ended September 30, 2000 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 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 September 30, 2000 was $1.4 million or 1.0% of the 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 $124,000 for the six-month
period, and had net charge-offs of $60,000 for the six-month period.
15
The allowance for loan losses at September 30, 2000 was allocated as follows:
$201,000 to one-to-four family real estate loans, $503,000 to commercial real
estate and commercial business loans, $102,000 to consumer loans and $547,000
remained unallocated.
The ratio of non-performing assets to total assets is one indicator of
other exposure to credit risk. Nonperforming 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.
September 30, 2000 March 31, 2000
------------------ --------------
(Dollars in Thousands)
Non-Accruing Loans.......................................... $ 706 $ 620
Accruing Loans Delinquent 90 Days or More................... 170 153
Foreclosed Assets .......................................... 309 296
------ ------
Total Non-Performing Assets ................................ $1,185 $1,069
Total Non-Performing Assets as a
Percentage of Total Assets......................... .7% .6%
Total non-performing assets increased $116,000 from March 31, 2000 to
September 30, 2000. 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 September 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 September 30, 2000
and March 31, 2000, cash and cash equivalents totaled $5.2 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 September 30, 2000
maturing within one year total $59.8 million.
16
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 September 30, 2000, the
Company had $17.1 million in borrowings outstanding with the FHLB.
At September 30, 2000, the Company had outstanding commitments to
originate loans of $10.3 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 September 30, 2000, the capital requirements applicable to
Classic Bank and its actual capital ratios. As of September 30, 2000, Classic
Bank exceeded all current regulatory capital standards.
Regulatory Actual Capital
Capital Requirement (CB Only)
------------------- -------
Amount Percent Amount Percent
------ ------- ----- -------
(Dollars in Thousands)
Total Capital
(to Risk Weighted Assets) $5,763 8.0% $8,495 11.8%
Tier 1 Capital
(to Adjusted Total Assets) 4,039 4.0 7,694 7.6
First National is subject to the regulatory capital requirements of the
Office of the Comptroller of the Currency (the "OCC"). The following table
summarizes, as of September 30, 2000, the capital requirements applicable to
First National and its actual capital ratios. As of September 30, 2000, First
National exceeded all current regulatory capital standards.
Regulatory Actual Capital
Capital Requirement (CB Only)
------------------- -------
Amount Percent Amount Percent
------ ------- ------ -------
(Dollars in Thousands)
Total Capital
(to Risk Weighted Assets) $4,292 8.0% $6,344 11.8%
Tier 1 Capital
(to Adjusted Total Assets) 2,975 4.0 5,791 7.6
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.
17
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 25, 2000. 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:
E.B. Gevedon, Jr. (three years) 968,461 55,400 0
Robert A. Moyer, Jr. (three years) 968,461 55,400 0
John W. Clark (three years) 968,461 55,400 0
Broker
For Against Abstain Non-votes
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, 2001 1,022,861 0 1,000 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 September 30, 2000:
Press release, dated July 11, 2000 announcing the conversion of
its thrift subsidiary to a commercial bank, election as
financial holding company and its projected earnings for the
fiscal year ending March 31, 2000.
Press release, dated July 25, 2000 announcing earnings for the
quarter ending June 30, 2000 and declaring a cash dividend.
18
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: November 13, 2000 /s/ David B. Barbour
----------------- -------------------------------------------
David B. Barbour, President, Chief Executive
Officer and Director (Duly Authorized Officer)
Date: November 13, 2000 /s/ Lisah M. Frazier
----------------- -------------------------------------------
Lisah M. Frazier, Senior Vice President,
Treasurer and Chief Financial Officer
(Principal Financial Officer)
20
INDEX TO EXHIBITS
Exhibit
Number
27 Financial Data Schedule
28 Accountant's Review Report
EXHIBIT 28
INDEPENDENT ACCOUNTANT'S REPORT
We have reviewed the accompanying consolidated statement of condition as of
September 30, 2000 and the related consolidated statement of income for the
three and six month periods ended September 30, 2000 and 1999, and cash flowa
for the six month periods ended September 30, 2000and 1999, in accordance with
Statement on Stadndards for Accounting and Review Services issued by the
American Institute of Certified Public Accountants. The financial statements are
the responsibility of the corporation's managements.
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
EXHIBIT 27
FINANCIAL DATA SCHEDULE