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 December 31, 2002
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 Identification Number)
incorporation or organization) (I.R.S. Employer
344 SEVENTEENTH STREET, ASHLAND, KENTUCKY 41101
----------------------------------------- ----------
(Address of principal executive offices) (ZIP Code)
Registrant's telephone number, including area code: (606) 326-2800
--------------
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 February 10, 2003, there were 1,322,500 shares of the Registrant's common
stock issued and 1,105,486 outstanding.
Transitional Small Disclosure (check one): Yes [ ] No [X]
CLASSIC BANCSHARES, INC.
INDEX
-----
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of December 31, 2002
(Unaudited) and March 31, 2002 3
Consolidated Statements of Income for the three and nine
months ended December 31, 2002 and 2001 4
Consolidated Statements of Comprehensive Income for the
three and nine months ended December 31, 2002 and 2001 5
Consolidated Statements of Stockholders' Equity for the
nine months ended December 31, 2002 and 2001 6
Consolidated Statements of Cash Flows for the nine months
ended December 31, 2002 and 2001 7-8
Notes to Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12-18
PART II. OTHER INFORMATION 19
Certifications of Principal Executive Officer and Principal 20-21
Financial Officer
Signatures 22
Index to Exhibits 23
CLASSIC BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, MARCH 31,
2002 2002
---- ----
(UNAUDITED)
ASSETS
------
Cash and due from bank $ 5,771,176 $ 5,400,046
Federal funds sold 0 0
Securities available for sale 27,219,349 25,803,491
Mortgage-backed and related securities
available for sale 7,100,558 9,063,617
Loans receivable, net 180,160,836 160,315,663
Real estate acquired in the settlement
of loans 0 77,622
Accrued interest receivable 1,288,858 1,158,144
Federal Home Loan Bank stock 1,929,900 1,480,300
Premises and equipment, net 6,044,005 5,366,126
Cost in excess of fair value of net
assets acquired (goodwill),
net of accumulated amortization 5,554,549 5,554,549
Other assets 1,556,945 1,227,518
------------- -------------
TOTAL ASSETS $236,626,176 $215,447,076
------------ ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities
Non-interest bearing demand deposits $ 21,536,050 $ 20,404,210
Savings, NOW, and money market demand deposits 63,940,115 57,433,787
Other time deposits 90,511,568 81,036,439
------------- -------------
Total deposits 175,987,733 158,874,436
Securities sold under agreements to repurchase 4,630,401 5,395,941
Advances from Federal Home Loan Bank 29,146,862 27,401,157
Other short-term borrowings 500,577 445,806
Accrued expenses and other liabilities 722,199 501,744
Accrued interest payable 350,463 374,276
Accrued income taxes 11,117 0
Deferred income taxes 863,124 472,761
------------- -------------
Total Liabilities $212,212,476 $193,466,121
------------- -------------
Commitments and contingencies
Stockholders' Equity
Common stock, $.01 par value, 1,322,500 shares
issued and 1,105,486 shares outstanding $ 13,225 $ 13,225
Additional paid-in capital 20,373,556 20,373,556
Retained earnings - substantially restricted 7,055,587 5,136,114
Accumulated other comprehensive income (loss) 515,032 (325,896)
Unearned ESOP shares (643,310) (643,310)
Unearned RRP shares (12,388) (18,812)
Treasury stock, at cost (2,888,002) (2,553,922)
------------- -------------
Total Stockholders' Equity $ 24,413,700 $ 21,980,955
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $236,626,176 $215,447,076
------------------------------------------ ============= =============
See accompanying Accountant's Review Report and
notes to consolidated financial statements
3
CLASSIC BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------ ------------
2002 2001 2002 2001
---- ---- ---- ----
INTEREST INCOME
---------------
Loans $ 3,105,170 $2,951,456 $ 9,171,067 $ 9,049,109
Investment securities 382,111 404,564 1,151,829 1,097,197
Mortgage-backed securities 91,799 63,141 332,960 153,269
Other interest earning assets 1,620 3,632 5,220 10,036
------------- ----------- ------------ -------------
TOTAL INTEREST INCOME 3,580,700 3,422,793 10,661,076 10,309,611
------------- ----------- ------------ -------------
INTEREST EXPENSE
----------------
Interest on deposits 987,525 1,256,193 2,984,802 4,213,422
Interest on FHLB Advances 240,527 140,369 750,465 523,104
Interest on other borrowed funds 13,298 24,426 48,076 100,521
------------- ----------- ------------ -------------
TOTAL INTEREST EXPENSE 1,241,350 1,420,988 3,783,343 4,837,047
------------- ----------- ------------ -------------
NET INTEREST INCOME 2,339,350 2,001,805 6,877,733 5,472,564
Provision for loss on loans 96,000 127,000 306,000 267,500
------------- ----------- ------------ -------------
NET INTEREST INCOME AFTER
PROVISION FOR LOSS ON LOANS 2,243,350 1,874,805 6,571,733 5,205,064
------------- ----------- ------------ -------------
NON-INTEREST INCOME
-------------------
Service charges and other fees 383,255 312,166 1,027,911 900,832
Gain on sale of securities 6,800 6,241 10,989 7,015
Other income 74,366 100,748 181,448 189,595
------------- ----------- ------------ -------------
TOTAL NON-INTEREST INCOME 464,421 419,155 1,220,348 1,097,442
------------- ----------- ------------ -------------
NON-INTEREST EXPENSES
---------------------
Employee compensation and benefits 785,490 744,292 2,395,487 2,076,645
Occupancy and equipment expense 269,644 220,581 745,449 695,996
Other general and administrative expense 559,897 478,808 1,661,695 1,402,488
------------- ----------- ------------ -------------
TOTAL NON-INTEREST EXPENSE 1,615,031 1,443,681 4,802,631 4,175,129
------------- ----------- ------------ -------------
INCOME BEFORE INCOME TAXES 1,092,740 850,279 2,989,450 2,127,377
--------------------------
Income tax expense 304,706 227,170 817,685 546,935
------------- ----------- ------------ -------------
NET INCOME 788,034 623,109 2,171,765 1,580,442
---------- ============= =========== ============ =============
Basic earnings per share $ 0.76 $ 0.59 $ 2.07 $ 1.50
Diluted earnings per share $ 0.70 $ 0.57 $ 1.91 $ 1.45
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 NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------ ------------
2002 2001 2002 2001
---- ---- ---- ----
NET INCOME $ 788,034 $ 623,109 $ 2,171,765 $ 1,580,442
------------ ----------- ------------- ------------
Other comprehensive income, net of tax:
Unrealized holding gains (losses) on
securities during the period, net of tax 288,194 (353,017) 833,675 (127,976)
Reclassification adjustments for realized gains
(losses) included in earnings, net of tax 4,488 4,119 7,253 4,630
------------ ----------- ------------- ------------
Other comprehensive income 292,682 (348,898) 840,928 (123,346)
------------ ----------- ------------- ------------
COMPREHENSIVE INCOME (LOSS) $ 1,080,716 $ 274,211 $ 3,012,693 $ 1,457,096
============ =========== ============= ============
ACCUMULATED OTHER COMPREHENSIVE INCOME $ 515,032 $ (294,419) $ 515,032 $ (294,419)
============ =========== ============= ============
See accompanying Accountant's Review Report and notes to consolidated financial
statements
5
CLASSIC BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
NET UNREALIZED
GAIN (LOSS) ON UNEARNED UNEARNED
PAID-IN RETAINED AVAILABLE FOR ESOP RRP TREASURY
COMMON ------- -------- ------------- ------ ------ --------
STOCK CAPITAL EARNINGS SALE SECURITIES SHARES SHARES STOCK TOTAL
----- ------- -------- --------------- ------ ------ ----- -----
BALANCES AT APRIL 1, 2001 $ 13,225 $12,830,398 $10,762,703 $(171,073) $(689,320) $(58,434) $(2,227,192) $20,460,307
Net income for the nine months
ended December 31, 2001 - - 1,580,442 - - - - 1,580,442
Dividend paid ($.08 per share) - - (255,378) - - - - (255,378)
RRP shares earned - - - - - 45,007 - 45,007
Purchased 24,000 treasury shares - - - - - - (329,668) (329,668)
Change in unrealized gain - - - - - - - 0
(loss) on available for
sale securities, net of
applicable deferred income
taxes of $63,452 - - - (123,346) - 0 - (123,346)
--------- ------------ ------------ ----------- ---------- --------- ------------ -----------
BALANCES AT DECEMBER 31, 2001 $ 13,225 $12,830,398 $12,087,767 $(294,419) $(689,320) $(13,427) $(2,556,860) $21,377,364
========= ============ ============ =========== ========== ========= ============ ===========
BALANCES AT APRIL 1, 2002 13,225 20,373,556 5,136,114 (325,896) (643,310) (18,812) (2,553,922) 21,980,955
Net income for the nine months
ended December 31, 2002 - - 2,171,765 - 0 - - 2,171,765
Dividend paid ($.08 per share) - - (252,292) - 0 - - (252,292)
RRP shares earned - - - - 0 6,424 - 6,424
Purchased 15,100 shares - - - - 0 0 (334,080) (334,080)
Change in unrealized gain
(loss) on available for
sale securities, net of
applicable deferred income
taxes of $433,051 - - 0 840,928 - - - 840,928
--------- ------------ ------------ ----------- ---------- --------- ------------ -----------
BALANCES AT DECEMBER 31, 2002 $ 13,225 $20,373,556 $ 7,055,587 $ 515,032 $(643,310) $(12,388) $(2,888,002) $24,413,700
========= ============ ============ =========== ========== ========= ============ ===========
See accompanying Accountant's Review Report and notes to consolidated financial
statements
6
CLASSIC BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
DECEMBER 31,
------------
2002 2001
---- ----
OPERATING ACTIVITIES
--------------------
Net Income 2,171,765 1,580,442
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 304,301 359,758
Provision for loss on loans 306,000 267,500
Gain on sale of securities available for sale (10,989) (7,015)
Gain on foreclosed real estate (1,453) (12,027)
Federal Home Loan Bank stock dividends (64,000) (70,100)
Deferred income tax benefit (42,843) (17,636)
Net amortization of mortgage-backed and investment
securities 63,312 69,548
RRP shares earned 6,424 45,007
Decrease (increase) in:
Accrued interest receivable (130,714) (95,046)
Other assets (341,829) (34,591)
Increase (decrease) in:
Accrued interest payable (23,813) (145,634)
Accrued income taxes 11,117 (5,410)
Accounts payable and accrued expenses 221,432 (64,682)
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,468,710 1,870,114
----------- -----------
INVESTING ACTIVITIES
--------------------
Securities:
Proceeds from sale, maturities or calls 1,904,600 1,292,224
Purchased (2,377,125) (2,223,223)
Mortgage-backed securities:
Purchased 0 (6,991,295)
Principal payments 2,240,568 765,687
Purchase of Federal Home Loan Bank Stock (385,600) 0
Loan originations and principal payments, net (20,227,173) (17,488,055)
Proceeds from sale of foreclosed real estate 155,066 239,284
Purchases of software 0 (1,747)
Purchases of premises and equipment (969,777) (147,913)
----------- -----------
NET CASH USED BY INVESTING ACTIVITES (19,659,441) (24,555,038)
----------- -----------
See accompanying Accountant's Review Report and notes to consolidated financial
statements
7
CLASSIC BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
DECEMBER 31,
------------
2002 2001
---- ----
FINANCING ACTIVITIES
--------------------
Net increase in deposits $ 17,113,297 $ 19,498,131
Net proceeds from FHLB borrowings 1,745,705 5,034,325
(Decrease) increase in securities sold under agreements to
repurchase (765,540) 1,528,037
Net increase (decrease) in short-term borrowings 54,771 (212,265)
Purchase of treasury stock (334,080) (329,668)
Dividends paid (252,292) (255,378)
------------ ------------
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES 17,561,861 25,263,182
------------ ------------
Increase (decrease) in cash and cash equivalents 371,130 2,578,258
Cash and cash equivalent at beginning of period 5,400,046 5,606,391
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,771,176 $ 8,184,649
============ ============
ADDITIONAL CASH FLOWS AND SUPPLEMENTARY INFORMATION
Cash paid during the period for:
Interest on deposits and borrowings $ 1,484,324 $ 1,363,756
Taxes $ 800,000 $ 569,981
Assets acquired in settlement of loans $ 76,000 $ 288,033
Net unrealized (loss) gain on securities available for
sale $ 840,928 $ (123,346)
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 fiscal year 2003 are presented for Classic
Bancshares, Inc. (the "Company") and its wholly owned subsidiary, Classic Bank.
The consolidated balance sheets for December 31, 2002 and March 31, 2002 are for
the Company and Classic Bank. The consolidated statements of income include the
operations of the Company and Classic Bank for the three and nine months ended
December 31, 2002 and 2001.
(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 December 31, 2002, and the results of operations for all interim periods
presented. Operating results for the nine months ended December 31, 2002 are not
necessarily indicative of the results that may be expected for the fiscal year
ended March 31, 2003.
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, 2002.
(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 1,040,204 and 1,049,550 for the three-month periods ended
December 31, 2002 and 2001, respectively and 1,047,448 and 1,056,797 for the
nine-month periods ended December 31, 2002 and 2001. The weighted average number
of shares used in the diluted earnings per share computations was 1,127,129 and
1,084,419 for the three-month periods ended December 31, 2002 and 2001,
respectively and 1,134,373 and 1,091,666 for the nine-month periods ended
December 31, 2002 and 2001, respectively.
Options to purchase 187,850 shares of common stock were outstanding at
December 31, 2002 but 7,000 of those shares were not included in the computation
of diluted earnings per share due to their anti-dilutive effect. Options to
purchase 180,750 shares of common stock were outstanding at December 31, 2001
but 10,550 of those shares were not included in the computation of diluted
earnings per share due to their anti-dilutive effect.
9
(4) GOODWILL AND OTHER INTANGIBLES
------------------------------
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. 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 changes in the carrying amount of goodwill for the nine months ended
December 31, 2002, are as follows:
($000s) BANKING SEGMENT
---------------
Balance as of April 1, 2002 $5,555
Goodwill acquired --
Impairment losses --
Goodwill written off related to
disposal of reporting unit --
------
Balance as of December 31, 2002 $5,555
------
The annual goodwill impairment test was performed in the third quarter of the
Company's 2003 fiscal year. To determine an estimate of the banking segment's
fair value, we utilized a market approach (comparative transactions method). The
comparative transactions method is based on the consideration of recent sales of
stock of similar companies. Under the comparative transactions method,
comparisons are made of the relationship of selling prices to such indicators as
total assets, total deposits, total core deposits, total equity, total tangible
equity and earnings. The testing indicated that the fair value of the reporting
unit exceeded the carrying amount of the net assets (including goodwill). The
goodwill will be tested annually for impairment.
(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 $26,480 and $17,064 for the three months ended
December 31, 2002 and 2001, respectively and $75,335 and $49,511 for the
10
nine months ended December 31, 2002 and 2001, respectively. As of December 31,
2002, the Company considered 64,331 shares as unearned ESOP shares with a fair
value of $1,647,517.
(6) STOCK OPTION AND INCENTIVE PLANS 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 19,000
shares at $13.375 per share, options on 4,500 shares at $13.875 per share,
options on 626 shares at $13.75 per share, options on 200 shares at $13.625 per
share, options on 450 shares at $12.313 per share and options on 400 shares at
$16.75 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 52,786 shares. At the end of the quarter, 300 of the stock
options remain ungranted due to forfeitures and 114 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.
At the end of the quarter, 1,100 of the stock options remain ungranted due to
forfeitures.
On August 13, 2001, the shareholders of the Company ratified the
adoption of the Company's 2001 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 7,000 shares
at $22.549 per share. At the end of the quarter, 43,000 of the stock options
remain ungranted.
(7) CASH DIVIDEND
-------------
On January 21, 2003, the Board declared a cash dividend of $.08 per
share payable on February 18, 2003 to shareholders of record on February 4,
2003.
(8) CONSTRUCTION OF NEW FACILITY
----------------------------
In April 2002, the Company acquired land in Greenup, Kentucky for the
purpose of constructing a new branch bank. The total estimated cost of the new
branch, including land, improvements and furnishings, totals approximately
$925,000. The construction of the facility was completed in December 2002 and
the Company spent approximately $855,000 towards the purchase of land and the
construction of the new facility.
(9) ACQUISITION OF FIRST FEDERAL FINANCIAL BANCORP, INC.
---------------------------------------------------
On December 30, 2002, the Company entered into an Agreement and Plan of
Merger (the "Agreement") with First Federal Financial Bancorp, Inc. ("First
Federal"). Under the terms of the Agreement, First Federal will merge into the
Company in a transaction valued at approximately $11.5 million. Under the terms
of the agreement, First Federal shareholders may elect to receive either shares
of the Company's common stock, $24.00 in cash or a combination of stock and cash
in exchange for their shares of First Federal common stock. The elections of
First Federal shareholders will be subject to the requirement that 50% of First
Federal shares be exchanged for cash and 50% be exchanged for the Company's
common stock.
11
Under the terms of the agreement, the number of shares of the Company's
common stock for which each First Federal share will be exchanged will be .9797.
Based on the above, the total number of the Company's shares to be issued in the
transaction is anticipated to be 226,615 and the total amount of cash to be paid
in the transaction is anticipated to be $5.5 million.
The merger is subject to certain condition, including the approval of
the shareholders of the Company and First Federal and receipt of regulatory
approval. The merger is expected to be completed in the second quarter of 2003.
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
-------------------
The Company's total assets increased $21.2 million from $215.4 million
at March 31, 2002 to $236.6 million at December 31, 2002. The increase was due
primarily to an increase in loans of $19.9 million, an increase in investment
securities of approximately $1.4 million, an increase in cash and cash
equivalents of approximately $400,000, an increase in FHLB stock of $400,000, an
increase in premise and equipment of approximately $700,000 and an increase in
other assets of approximately $400,000 offset by a decrease in mortgage-backed
securities of approximately $2.0 million.
Net loans receivable increased $19.9 million from $160.3 million at
March 31, 2002 to $180.2 million at December 31, 2002. Consistent with the
Company's strategic plan, the growth in loans was primarily in the areas of
consumer and commercial business loans. Consumer loans increased approximately
$8.9 million, commercial business loans increased approximately $7.2 million,
1-4 family mortgage loans increased approximately $2.0 million and commercial
real estate loans increased approximately $1.8 million. The Company experienced
loan growth for the period due to use of an incentive plan for lending
personnel, and competitive loan rates.
Investment securities increased approximately $1.4 million from $25.8
million at March 31, 2002 to $27.2 million at December 31, 2002 primarily due to
an increase in the market value of these available for sale securities of
$963,000. The remainder of the increase was due to purchases of investment
securities during the period of $2.4 million offset by sales, maturities and
calls of $1.9 million. Mortgage-backed securities decreased approximately $2.0
million from $9.1 million at March 31, 2002 to $7.1 million at December 31,
2002. The decrease was primarily due to principal repayments during the period
partially offset by an increase in the market value of these available for sale
securities.
Net deposits increased $17.1 million from $158.9 million at March 31,
2002 to $176.0 million at December 31, 2002. Non-interest bearing demand
deposits increased approximately $1.1 million, savings, NOW and money market
accounts increased approximately $6.5 million and other time deposits consisting
primarily of certificates of deposit increased approximately $9.5 million. The
increase in deposits was used to fund loan growth. In the first quarter of the
2003 fiscal year, the Company funded loan growth primarily utilizing short-term,
variable rate borrowings, however during the second and third quarters of the
fiscal year the Company was able to increase deposits at attractive rates to
fund growth. Several factors contributed to the increased deposits in the second
and third quarters, including the attraction of a large public fund deposit
account, deposits from equity fund disintermediation and an increase in
certificate of deposit accounts primarily through competitive market pricing in
order to lengthen liability maturities.
12
Total stockholders' equity was $22.0 million at March 31, 2002 compared
to $24.4 million at December 31, 2002. The increase was due to net income
recorded for the period and an increase in the market value of available for
sale securities 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 including unemployment levels and plant closings, changes in real estate
values in the Company's market area, changes in policies by regulatory agencies,
fluctuations in interest rates, demand for loans in the Company's market area
and competition, that could cause actual results to differ materially from
historical earnings, the failure to achieve anticipated merger cost savings or
difficulty in merger integration, 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 NINE
--------------------------------------------------------------------------------
MONTHS ENDED DECEMBER 31, 2002 AND 2001
---------------------------------------
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 $788,000 for the three months ended
December 31, 2002 compared to net income of $623,000 for the three months ended
December 31, 2001. The increase in net income of $165,000 between the two
periods was primarily the result of an increase in net interest income of
$338,000, an increase in non-interest income of $45,000 and a decrease in
provision for loss on loans of $31,000 partially offset by an increase in
non-interest expense of $171,000 and an increase in income taxes of $78,000.
The Company reported net income of $2.2 million for the nine months
ended December 31, 2002 compared to net income of $1.6 million for the nine
months ended December 31, 2001. The increase in income of $591,000 between the
two periods was primarily the result of an increase in net interest income of
$1.4 million and an increase in non-interest income of $123,000 partially offset
by an increase in provision for loss on loans of $39,000, an increase in
non-interest expense of $628,000 and an increase in income taxes of $271,000.
13
INTEREST INCOME. Total interest income increased $158,000 for the three
months ended December 31, 2002 and increased $351,000 for the nine months ended
December 31, 2002 as compared to the three and nine months ended December 31,
2001. The increase in interest income for the three and nine-month period was
due to an increase in the average balance of interest-earning assets of $29.4
million for the three-month period and an increase of $31.6 million for the
nine-month period offset by a decrease in the yield earned on interest-earning
assets. The increase in the average balance of interest-earning assets was due
primarily to an increase in the average balance of loans and an increase in the
average balance of mortgage-backed securities. The average balance of loans
increased $25.7 million for the three-month period and $25.5 million for the
nine-month period. The average balance of mortgage-backed securities increased
$2.3 million for the three-month period and $4.5 million for the nine-month
period. The average yield on interest-earning assets was 6.9% for the three
months ended December 31, 2002 and 7.0% for the nine months ended December 31,
2002 compared to 7.6% and 7.9% for the same periods in 2001. Tax equivalent
adjustments were made to the yield. The decrease in the yield was due to the
repricing of assets during the period in a declining interest rate environment.
INTEREST EXPENSE. Interest expense decreased $180,000 and $1.1 million
for the three and nine months ended December 31, 2002 as compared to the same
period in 2001. Interest expense decreased for the periods primarily due to a
decrease in the average rate paid on interest-bearing liabilities offset by an
increase in the average balance of interest-bearing liabilities. The average
rate paid on interest-bearing liabilities was 2.6% and 2.7% for the three and
nine months ended December 31, 2002 compared to 3.5% and 4.2% for the three and
nine months ended December 31, 2001. The decrease in the average rate paid on
interest-bearing liabilities was due to a significant decline in interest rates
in the past twelve months. Most of the Company's interest-bearing liabilities
have repriced to lower interest rates in the past twelve months. All of the
Company's borrowings during the period of the interest rate decreases were
short-term with variable rates allowing the cost of the borrowings to decrease
as rates decreased. Within the past six months, some of the borrowings have been
restructured to long-term, fixed rate borrowings. At December 31, 2002, the
Company's FHLB borrowings had an average remaining maturity of 2.8 years and an
average cost of 3.3%.
The average balance of interest-bearing liabilities increased $27.1
million for the three months ended December 31, 2002 compared to the same period
in 2001 and the average balance of interest-bearing liabilities increased $29.0
million for the nine months ended December 31, 2002 compared to the same period
in 2001. The increase in these balances is primarily the result of an increase
in the average balance of interest-bearing transaction accounts, an increase in
the average balance of certificate of deposit accounts and an increase in the
average balance of FHLB borrowings.
The resulting interest rate spread was 4.3% for the three and nine
months ended December 31, 2002 compared to 4.1% and 3.7% for the same periods in
2001.
PROVISION FOR LOAN LOSSES. The Company's provision for loan losses
totaled $96,000 and $306,000 for the three and nine months ended December 31,
2002 compared to $127,000 and $267,500 for the three and nine months ended
December 31, 2001 based on management's overall assessment of the loan
portfolio. The provision recorded for the three and nine-month period was based
on management's evaluation of the Company's current portfolio including factors
such as the quality of the portfolio, the increase in loans that are not secured
by 1-4 family real estate, charge-off history, peer data 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.
14
NON-INTEREST INCOME. Non-interest income increased approximately
$45,000 and $123,000 for the three and nine months ended December 31, 2002
compared to the same period in 2001. The increase for the three and nine-month
period is primarily the result of an increase in service charges and other fees
on deposits of $71,000 and $127,000, respectively offset by a decrease in other
income for the three and nine-month period of $26,000 and $8,000. The increase
in service charges and other fees on deposits for the periods is the result of
an increased core deposit base. Non-interest income also increased for the
nine-month period due to an increase of $4,000 in the gain recorded on the sale
of securities.
NON-INTEREST EXPENSE. Non-interest expenses increased $171,000 and
$628,000 for the three and nine months ended December 31, 2002 compared to the
same periods in 2001. Non-interest expenses increased $171,000 for the
three-month period due to an increase in employee compensation and benefits of
$41,000, an increase in occupancy and equipment expense of $49,000, an increase
in tax on deposits of $29,000, an increase in stationary, printing and supplies
expense of $12,000, an increase in communications expense of $8,000, and an
increase in other general administrative expenses of $32,000.
Non-interest expenses increased $628,000 for the nine-month period due
to an increase in employee compensation and benefits of $319,000, an increase in
stationary, printing and supplies of $62,000, an increase in technology expense
related to on-line banking, ATM and other services of $52,000, an increase in
occupancy and equipment expense of $49,000, an increase in taxes paid on capital
and deposits of $44,000, an increase in marketing and advertising of $24,000, an
increase in federal deposit insurance premiums of $7,000, an increase in the
loss on foreclosed real estate of $10,000, an increase in insurance expense of
$10,000 and an increase in other general and administrative expenses of $51,000.
Employee compensation and benefits increased for the two periods
primarily due to the hiring of staff for our new Greenup County banking office
which opened in August 2002; an increase in costs related to incentive-based
compensation programs; and an increase in ESOP expense due to the increase in
the average market price of the Company's stock. Stationary, printing and
supplies expense and occupancy and equipment expense also increased due to
expenses related to the opening of the new Greenup County office.
Advertising increased due to the undertaking of an aggressive
advertising campaign utilizing the endorsement of a national celebrity. The
increase for the nine-month period in the loss reported on foreclosed real
estate was due to the write-down of a piece of foreclosed real estate.
INCOME TAX EXPENSE. Income tax expense increased $78,000 and $271,000
for the three and nine months ended December 31, 2002 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, peer data, 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 December 31, 2002 was
$1.9 million or 1.1% of the total loans. The March 31, 2002 allowance for loan
loss was $1.6 million, or 1.0% of total loans. The Company recorded a provision
for loan losses of $306,000 for the nine-month period, and had net charge-offs
of $23,000 for the nine-month period. The allowance for loan losses at December
31, 2002 was allocated as follows: $337,000 to one-to-four family real estate
loans, $17,000 to commercial real estate, $92,000 to commercial business loans,
$31,000 to consumer loans and $1.4 million remained unallocated.
15
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.
December 31, 2002 March 31, 2002
----------------- --------------
(Dollars in Thousands)
Non-Accruing Loans ...................... $ 353 $ 412
Accruing Loans Delinquent 90 Days or More 1,022 244
Foreclosed Assets ....................... 4 82
------ ------
Total Non-Performing Assets ............. $1,379 $ 738
Total Non-Performing Assets as a
Percentage of Total Assets ..... .6% .3%
Total non-performing assets increased $641,000 from March 31, 2002 to
December 31, 2002 due primarily to an increase in non-performing loans in
primarily the 1-4 family mortgage portfolio and commercial real estate
portfolio. The increase includes a few large delinquent 1-4 family mortgage
loans and commercial real estate loans which management believes are adequately
collateralized and which involve borrowers which management believes have
sufficient resources to service the debt. Management does not feel that this is
an indication of a trend of increased non-performing assets for the Company.
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 December 31, 2002, 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 December 31, 2002 and March 31, 2002, cash and cash
equivalents totaled $5.8 million and $5.4 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 and other borrowings. While scheduled loan and
mortgage-backed security repayments and proceeds from maturing investment
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 December 31, 2002 maturing within one year totaled
$63.0 million. Management believes based on experience that most of these funds
will remain with the Company.
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 and other third parties. At
December 31, 2002, the Company had $29.1 million in borrowings outstanding with
the FHLB. On a limited basis, the Company at times utilizes repurchase
agreements for the generation of additional funds from our established
relationship business customers. At December 31, 2002, the Company had $4.6
million of repurchase agreements with existing relationship based business
customers.
16
At December 31, 2002, the Company had outstanding commitments to fund
loans of $18.5 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 December 31, 2002, the capital requirements applicable to
Classic Bank and its actual capital ratios. As of December 31, 2002, 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) $13,926 8.0% $ 18,892 10.9%
Tier 1 Capital
(to Adjusted Total Assets) 9,144 4.0 16,980 7.4
The Company is subject to the regulatory capital requirements of the
Federal Reserve Board that generally parallels the capital requirements for FDIC
insured banks. The following table summarizes, as of December 31, 2002, the
capital requirements applicable to the Company and its actual capital ratios. As
of December 31, 2002, the Company 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) $13,966 8.0% $20,255 11.6%
Tier 1 Capital
(to Adjusted Total Assets) 9,187 4.0 18,343 8.0
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.
ITEM 3 - CONTROLS AND PROCEDURES
The Company has adopted interim disclosure controls and procedures
designed to facilitate the Company's financial reporting. The interim disclosure
controls currently consist of communications among the Chief Executive Officer,
the Chief Financial Officer and each department head to identify any
transactions, events, trends, risks or contingencies which may be material to
the Company's operations. The Company's disclosure controls also include certain
internal controls adopted in connection with applicable accounting guidelines.
Finally, the Chief Executive Officer, Chief Financial Officer, the Audit
Committee and the Company's independent auditors also meet on a quarterly basis
and discuss the Company's material
17
accounting policies. The Company's Chief Executive Officer and Chief Financial
Officer have evaluated the effectiveness of these interim disclosure controls
within the 90 days prior to the filing of this report and found them to be
adequate.
The Company maintains internal controls and has evaluated such controls
within 90 days of the filing of this report. There have not been any significant
changes in such internal controls subsequent to the date of their evaluation
18
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
Exhibit 99.1 Certification of David B. Barbour pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
Exhibit 99.2 Certification of Lisah M. Frazier pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
b. Reports on Form 8-K
The Registrant filed the following current reports on
Form 8-K during the three months ended December 31, 2002:
Report filed on November 1, 2002 containing press release,
dated October 30, 2002, announcing earnings for the quarter
ending September 30, 2002 and declaring a cash dividend.
Report filed December 31, 2002 containing press release,
dated December 30, 2002, announcing merger agreement
between the Company and First Federal Bancorp, Inc.
19
Certification of Principal Executive Officer and Principal Financial Officer
CERTIFICATION FOR QUARTERLY REPORT ON FORM 10-QSB
I, David B. Barbour, certify that:
1) I have reviewed this quarterly report on Form 10-QSB of Classic
Bancshares, Inc.;
2) Based on my knowledge, this quarterly report does not contain any
untrue statements of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3) Based on my knowledge, the financial statements and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date");
and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5) The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether material or not material, that involves
management or other employees who have a significant role in
the registrant's internal controls; and
6) The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in other
factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
Signature and Title: /s/ David B. Barbour Date: 2/13/03
------------------------------ ---------------
David B. Barbour
President and Chief
Executive Officer
20
Certification of Principal Executive Officer and Principal Financial Officer
CERTIFICATION FOR QUARTERLY REPORT ON FORM 10-QSB
I, Lisah M. Frazier, certify that:
1) I have reviewed this quarterly report on Form 10-QSB of Classic
Bancshares, Inc.;
2) Based on my knowledge, this quarterly report does not contain any
untrue statements of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3) Based on my knowledge, the financial statements and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date");
and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5) The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether material or not material, that involves
management or other employees who have a significant role in
the registrant's internal controls; and
6) The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in other
factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
Signature and Title: /s/ Lisah M. Frazier Date: 2/13/03
--------------------------- ---------------------
Lisah M. Frazier
Chief Operating Officer
and Chief Financial Officer
21
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: _______________________ /s/ David B. Barbour
------------------------------------
David B. Barbour, President, Chief
Executive Officer and Director
(duly Authorized Officer)
Date: _______________________ /s/ Lisah M. Frazier
---------------------------------------
Lisah M. Frazier, Chief Operating Officer,
Treasurer and Chief Financial Officer
(Principal Financial Officer)
22
------------------------------------------------------------------------------
INDEX TO EXHIBITS
Exhibit
Number
-------
28 Accountant's Review Report
99.1 Certification of David B. Barbour Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
99.2 Certification of Lisah M. Frazier Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
------------------------------------------------------------------------------
23
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Classic Bancshares, Inc.
(the "Company") on Form 10-QSB for the period ending December 31, 2002 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
I, David B. Barbour, President and Chief Executive Officer of the Company,
certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, that:
(1) The report fully complies with the requirements of Section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of
operations of the Company.
Date: 2/13/03 /s/ David B. Babour
------------------------- ------------------------------------------
David B. Barbour
President and Chief Executive Officer
24
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Classic Bancshares, Inc.
(the "Company") on Form 10-QSB for the period ending December 31, 2002 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
I, Lisah M. Frazier, Chief Operations Officer and Chief Financial Officer of the
Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The report fully complies with the requirements of Section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of
operations of the Company.
Date: 2/13/03 /s/ Lisah M. Frazier
-------------------- ----------------------------------------------
Lisah M. Frazier
Chief Operations Officer and
Chief Financial Officer
25
SMITH, GOOLSBY,
ARITS & REAMS, P.S.C.
CERTIFIED PUBLIC ACCOUNTANTS
P.O. BOX 551 1330 CARTER AVE.
ASHLAND, KENTUCKY 41105-0551
(606) 329-1171 FAX (606) 326-0590
Board of Directors
Classic Bancshares, Inc.
INDEPENDENT ACCOUNTANT'S REPORT
We have reviewed the accompanying consolidated statement of conditions as of
December 31, 2002 and the related consolidated statements of income and
comprehensive income for the three and six month periods ended December 31, 2002
and 2001, and the consolidated statements of stockholders equity for he nine
months ended December 31, 2002, and the consolidated statements of cash flow for
the nine months ended December 31, 2002 and 2001, in accordance with Statement
on Standards for Accounting and Review Services issues by the American Institute
of Certified Public Accountants. The financial statements are the responsibility
of the corporation's management.
A review of interim financial information consists principally of applying
analytical procedures to financial data and making inquiries 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 expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our review, we are not aware of any materials modifications that should
be made to the accompanying financial statements for them to be in conformity
with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated statement of financial condition as of March 31,
2002, and the related consolidated statements of income, comprehensive income,
stockholders' equity and cash flows for the year then ended (not presented
herein) and in our report dated June 11, 2002, we expressed 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, 2002, is fairly stated, in all material respects, in
relation to the consolidated statement of financial condition from which it has
been derived.
/s/ Smith, Goolsby, Artis & Reams, psc
--------------------------------------
Ashland, Kentucky
February 11, 2003