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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ___________
Commission File Number 0-27170
CLASSIC BANCSHARES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 61-1289391
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
344 Seventeenth Street, Ashland, Kentucky 41101
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(Address of principal executive offices) (ZIP Code)
Registrant's telephone number, including area code: (606) 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 August 11, 2004, there were 1,407,318 shares of the Registrant's
common stock outstanding.
Transitional Small Disclosure (check one): Yes [ ] No [X]
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CLASSIC BANCSHARES, INC.
INDEX
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Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 2004
and March 31, 2004 3
Consolidated Statements of Income for the three months
ended June 30, 2004 and 2003 4
Consolidated Statements of Comprehensive Income for
the three months ended June 30, 2004 and 2003 5
Consolidated Statements of Stockholders' Equity for
the three months ended June 30, 2004 6
Consolidated Statements of Cash Flows for the three
months ended June 30, 2004 and 2003 7-8
Notes to Consolidated Financial Statements 9-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-17
Item 3. Controls and Procedures 16-17
PART II. OTHER INFORMATION 18
Signatures 19
Index to Exhibits 20
2
CLASSIC BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
June 30, March 31,
2004 2004
---------- ----------
(Unaudited)
(In Thouands)
ASSETS
Cash and due from banks $ 10,041 $ 9,155
Federal funds sold 57 58
---------- ----------
Cash and cash equivalents 10,098 9,213
Securities available for sale 46,122 50,916
Loans receivable, net 255,961 257,455
Foreclosed assets, net 827 856
Accrued interest receivable 1,524 1,446
Federal Home Loan Bank stock 2,923 2,894
Premises and equipment, net 8,566 8,288
Goodwill 7,681 7,681
Other intangible assets 784 811
Prepaid expenses and other assets 1,489 1,899
---------- ----------
TOTAL ASSETS $ 335,975 $ 341,459
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Non-interest bearing demand deposits $ 29,775 $ 29,165
Savings, NOW, and money market demand deposits 106,816 109,772
Other time deposits 121,592 121,304
---------- ----------
Total deposits 258,183 260,241
Securities sold under agreements to repurchase 11,541 9,168
Advances from Federal Home Loan Bank 29,580 34,218
Other short-term borrowings 9 12
Accrued expenses and other liabilities 1,450 2,287
Accrued interest payable 298 306
---------- ----------
Total Liabilities 301,061 306,232
---------- ----------
Stockholders' Equity
Common stock, $.01 par value, 1,684,443 shares
issued 17 17
Additional paid-in capital 31,134 31,100
Retained earnings 7,147 6,207
Accumulated other comprehensive income (loss) 52 1,350
Unearned ESOP shares (59,901 and 61,061 shares) (545) (555)
Unearned RRP shares (210 and 310 shares) (3) (4)
Treasury stock, at cost (217,014 shares) (2,888) (2,888)
---------- ----------
Total Stockholders' Equity 34,914 35,227
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 335,975 $ 341,459
========== ==========
See accompanying notes.
3
CLASSIC BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED
JUNE 30,
--------
2004 2003
---------- ----------
(In Thousands, except per share data)
INTEREST INCOME
Loans $ 3,947 $ 3,156
Securities 551 480
Dividends on Federal Home Loan Bank stock 29 20
Other interest 1 2
---------- ----------
Total interest and dividend income 4,528 3,658
---------- ----------
INTEREST EXPENSE
Deposits 996 948
Federal Home Loan Bank advances 277 244
Securities sold under repurchase agreements 25 13
Other short-term borrowings -- 1
---------- ----------
Total interest expense 1,298 1,206
---------- ----------
Net interest income 3,230 2,452
Provision for loss on loans 135 46
---------- ----------
Net interest income after
provision for loass on loans 3,095 2,406
---------- ----------
NONINTEREST INCOME
Service charges 517 399
Gain on sale of securities 17 --
Secondary market commissions 25 38
Other income 46 59
---------- ----------
Total noninterest income 605 496
---------- ----------
NONINTEREST EXPENSES
Employee compensation and benefits 1,079 902
Occupancy and equipment expense 322 273
Advertising 45 96
Communications 71 52
Franchise and deposit taxes 79 66
Directors fees 25 24
Professional fees 90 67
Stationery and supplies 69 95
Other operating expenses 401 303
---------- ----------
Total noninterest expense 2,181 1,878
---------- ----------
INCOME BEFORE INCOME TAXES 1,519 1,024
Income tax expense 467 279
---------- ----------
NET INCOME $ 1,052 $ 745
========== ==========
Basic earnings per share $ 0.75 $ 0.63
========== ==========
Diluted earnings per share $ 0.68 $ 0.57
========== ==========
See accompanying notes.
4
CLASSIC BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED
JUNE 30,
--------
2004 2003
---------- ----------
(In Thousands)
Net Income $ 1,052 $ 745
---------- ----------
Other comprehensive income, net of tax:
Unrealized holding gains (losses) on securities
during the period, net of tax (1,287) 501
Reclassification adjustments for realized (gains)
losses included in earnings, net of tax (11) --
---------- ----------
Other comprehensive income (loss) (1,298) 501
---------- ----------
Comprehensive Income (Loss) $ (246) $ 1,246
========== ==========
See accompanying notes.
5
CLASSIC BANCSHARES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In Thousands)
ACCUMULATED
COMMON ADDITIONAL OTHER UNEARNED UNEARNED
SHARES COMMON PAID-IN RETAINED COMPREHENSIVE ESOP RRP TREASURY
OUTSTANDING STOCK CAPITAL EARNINGS INCOME (LOSS) SHARES SHARES STOCK TOTAL
----------- ----- ------- -------- ------------- ------ ------ ----- -----
Balances at April 1, 2004 1,406,058 $ 17 $ 31,100 $ 6,207 $ 1,350 $ (555) $ (4) $(2,888) $35,227
Net income for the three months
ended June 30, 2004 - - - 1,052 - - - - 1,052
Dividend paid ($.08 per share) - - - (112) - - - - (112)
Commitment of shares to be
released under ESOP (1,160) 1,160 - 34 - - 10 - - 44
RRP shares earned (100) 100 - - - - - 1 - 1
Change in unrealized gain
(loss) on available for sale
securities, net of applicable
taxes and reclassifications - - - - (1,298) - - - (1,298)
--------- ---- -------- ------- ------- ------ ---- ------- ------
Balances at June 30, 2004 1,407,318 $ 17 $ 31,134 $ 7,147 $ 52 $ (545) $ (3) $(2,888) $34,914
========= ==== ======== ======= ======= ====== ==== ======= =======
See accompanying notes.
6
CLASSIC BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
JUNE 30,
--------
2004 2003
---------- ----------
(In Thousands)
OPERATING ACTIVITIES
Net Income $ 1,052 $ 745
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 203 138
Provision for loss on loans 135 46
Gain on sale of securities available for sale (17) --
Loss on foreclosed real estate 2 --
Federal Home Loan Bank stock dividends (29) (20)
Net amortization of securities 47 16
ESOP shares earned 44 31
RRP shares earned 1 1
Decrease (increase) in:
Accrued interest receivable (78) (126)
Other assets 379 6
Increase (decrease) in:
Accrued interest payable (8) (189)
Accounts payable and accrued expenses (168) (144)
---------- ----------
Net cash provided by operating activities 1,563 504
---------- ----------
INVESTING ACTIVITIES
Securities:
Proceeds from sale, maturities or calls 975 202
Mortgage-backed securities:
Principal payments 1,813 375
Loan originations and principal payments, net 1,247 (3,582)
Proceeds from the sale of foreclosed assets 76 --
Purchases of software -- (62)
Purchases of premises and equipment (422) (245)
Proceeds from sale of fixed assets 12 --
Net cash acquired in acquisition -- 3,594
---------- ----------
Net cash provided by investing activities 3,701 282
---------- ----------
See accompanying notes.
7
CLASSIC BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
JUNE 30,
--------
2004 2003
---------- ----------
(In Thousands)
FINANCING ACTIVITIES
Net (decrease) increase in deposits $ (2,001) $ 1,501
Net proceeds from FHLB borrowings (4,638) 5,522
Increase in securities sold under agreements to repurchase 2,375 614
Net increase in short-term borrowings (3) 464
Dividends paid (112) (83)
---------- ----------
Net cash (used) provided by financing activities (4,379) 8,018
---------- ----------
Increase in cash and cash equivalents 885 8,804
Cash and cash equivalent at beginning of period 9,213 8,185
---------- ----------
Cash and cash equivalents at end of period $ 10,098 $ 16,989
========== ==========
Additional cash flows and supplementary information
Cash paid during the period for:
Interest on deposits and borrowings $ 1,305 $ 1,206
Taxes $ 300 $ --
Assets acquired in settlement of loans $ 49 $ --
See accompanying notes.
8
CLASSIC BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
---------------------
The accompanying Consolidated Financial Statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Regulation
S-B. Accordingly, they do not include all the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, the Consolidated Financial Statements
contain all adjustments (consisting only of normal recurring adjustments)
necessary to present fairly the financial condition of Classic Bancshares, Inc.
as of June 30, 2004, and the results of operations for all interim periods
presented. Operating results for the three months ended June 30, 2004 are not
necessarily indicative of the results that may be expected for the fiscal year
ended March 31, 2005.
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, 2004.
STOCK OPTION PLANS
------------------
Employee compensation expense under stock option plans is reported
using the intrinsic value method. No stock-based compensation cost is reflected
in net income, as all options granted had an exercise price equal to or greater
than the market price of the underlying common stock at date of grant. The
following table illustrates the effect on net income and earnings per share if
expense was measured using the fair value recognition provisions of FASB
Statement No. 123, Accounting for Stock-Based Compensation.
THREE MONTHS ENDED
JUNE 30,
--------
2004 2003
---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net income as reported $ 1,052 $ 745
Deduct:
Stock-based compensation
expense determined under fair
value-based method -- 1
--------- ---------
Pro forma net income $ 1,052 $ 744
========= =========
Basic earnings per share as reported $0.75 $0.63
Pro forma basic earnings per share 0.75 0.63
Diluted earnings per share as reported 0.68 0.57
Pro forma diluted earnings per share 0.68 0.57
9
PRINCIPLES OF CONSOLIDATION
---------------------------
The financial statements include the accounts of Classic Bancshares,
Inc. (the "Company") and its wholly owned subsidiary, Classic Bank. All
significant intercompany balances and transactions have been eliminated.
DIVIDEND
--------
The Company paid a 10% stock dividend on November 17, 2003. Per
share amounts have been restated for the impact of this stock dividend.
(2) 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.
For the Three Months Ended For the Three Months Ended
June 30, 2004 June 30, 2003
(In thousands, except per share data) (In thousands, except per share data)
------------------------------------------------------------------------------
Per-Share Per-Share
Income Shares Amount Income Shares Amount
Basic EPS $1,052 1,407 $0.75 $745 1,177 $0.63
Effect of Dilutive
Securities-Options -- 149 (0.07) -- 120 (0.06)
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Diluted EPS $1,052 1,556 $0.68 $745 1,297 $0.57
==============================================================================
Options to purchase 319,935 shares of common stock were outstanding
at June 30, 2004. Options to purchase 253,935 shares of common stock were
outstanding at June 30,
2003.
10
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
-------------------
The Company's total assets decreased $5.8 million from $341.8
million at March 31, 2004 to $336.0 million at June 30, 2004. The decrease was
due primarily to a decrease in loans of $1.5 million and a decrease in
securities of $4.8 million.
Net loans receivable decreased $1.5 million from $257.5 million at
March 31, 2004 to $256.0 million at June 30, 2004. The decrease was due
primarily to the payout of some large commercial credits offset by loan
originations during the period. The Company experienced a slowing of loan demand
within the Company's market area during the period.
Securities decreased approximately $4.8 million from $50.9 million
at March 31, 2004 to $46.1 million at June 30, 2004 primarily due to the
maturities, calls and principal repayments of $2.8 million and a decline in the
market value of these available for sale securities.
Deposits decreased approximately $2.0 million from $260.2 million at
March 31, 2004 to $258.2 million at June 30, 2004. The decrease was due to the
outflow of deposits in the normal course of business as well as pricing
discipline in an environment of soft loan demand and rising interest rates. The
decrease was primarily in interest-bearing demand deposits. Borrowings from FHLB
also decreased $4.6 million. Short-term borrowings were repaid during the period
due to the decline in loan demand and the roll-off of securities.
Total stockholders' equity was $34.9 million at June 30, 2004
compared to $35.2 million at March 31, 2004. The decrease was due primarily to a
decrease in the market value of available for sale securities and cash dividends
paid offset by net income recorded for the period.
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 and the failure to achieve anticipated merger cost savings or
difficulty in merger integration, 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
11
materially from any opinions or statements expressed with respect to future
periods in any current statements.
The Company does not undertake - and specifically declines any
obligation - to publicly release the result of any revisions, which may be made
to any forward-looking statements to reflect events or circumstances after the
date of such statements or to reflect the occurrence of anticipated or
unanticipated events.
RESULTS OF OPERATIONS - COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS
----------------------------------------------------------------------------
ENDED JUNE 30, 2004 AND 2003
----------------------------
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 $1.1 million for the three months
ended June 30, 2004 compared to net income of $745,000 for the three months
ended June 30, 2003. The increase in net income of $307,000 between the two
periods was primarily the result of an increase in net interest income of
$778,000 and an increase in non-interest income of $109,000 partially offset by
an increase in provision for loss on loans of $89,000, and increase in
non-interest expense of $303,000 and an increase in income taxes of $188,000.
INTEREST INCOME. Total interest income increased $870,000 for the
three months ended June 30, 2004 as compared to the three months ended June 30,
2003. The increase in interest income for the three-month period was due to an
increase in the average balance of interest-earning assets of $78.6 million for
the three months ended June 30, 2004 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
securities primarily as a result of the acquisition of First Federal Financial
Bancorp, Inc. ("First Federal") completed in June 2003. The average tax
equivalent yield on interest-earning assets was 6.0% for the three months ended
June 30, 2004 compared to 6.5% for the same period in 2003. The decrease in the
yield was due to a portion of interest-earning assets repricing at lower rates
between the two periods.
INTEREST EXPENSE. Interest expense increased $92,000 for the three
months ended June 30, 2004 as compared to the same period in 2003. Interest
expense increased for the period primarily due to an increase in the average
balance of interest-bearing liabilities offset by a decrease in the average rate
paid on interest-bearing liabilities. The average balance of interest-bearing
liabilities increased $64.7 million for the three months ended June 30, 2004
compared to the same period in 2003. The increase in these balances is primarily
the result of an increase in the average balance of interest-bearing deposits
and FHLB borrowings due primarily to the acquisition of First Federal. The
average rate paid on interest-bearing liabilities was 1.9% for the three months
ended June 30, 2004 compared to 2.4% for the three months ended June 30, 2003
due to a portion of interest-bearing liabilities repricing at lower rates
between the two periods.
12
The resulting interest rate spread was 4.1% for the three months
ended June 30, 2004 and June 30, 2003. The resulting net interest margin was
4.3% for the three months ended June 30, 2004 compared to 4.5% for the three
months ended June 30, 2003.
PROVISION FOR LOAN LOSSES. The Company's provision for loan losses
totaled $135,000 for the three months ended June 30, 2004 compared to $46,000
for the three months ended June 30, 2003. The provision for the three-month
period increased as result of specific consumer credits identified during the
quarter requiring additional coverage. Management does not feel that this is
necessarily a trend in total consumer portfolio but is specific to the credits
identified. The provision recorded for the three-month period was based on
management's evaluation of the Company's current portfolio including factors
such as the quality of the portfolio, the increase in loans that are not secured
by 1-4 family real estate, the level of non-performing loans, charge-off history
and the economy in the Company's market area. Management continually monitors
the Company's allowance for loan losses and makes adjustments as economic
conditions, portfolio quality and portfolio diversity dictates. Although the
Company maintains its allowance for loan losses at a level which the Board
considers to be adequate to provide for probable incurred losses on existing
loans, there can be no assurance that future losses will not exceed estimated
amounts or that additional provisions for loan losses will not be required for
future periods.
NON-INTEREST INCOME. Non-interest income increased approximately
$109,000 for the three months ended June 30, 2004 compared to the same period in
2003. The increase for the three-month period is primarily the result of an
increase in service charges and other fees on deposits of $118,000 for the
three-month period, an increase in the gain realized on the sale of securities
of $17,000 offset by a decrease in secondary market commissions of $13,000 and a
decrease in other income of $13,000. The increase in service charges and other
fees on deposits for the periods is the primarily result of increased deposit
accounts.
NON-INTEREST EXPENSE. Non-interest expenses increased $303,000 for
the three months ended June 30, 2004 compared to the same period in 2003.
Non-interest expenses increased for the three-month period due to an increase in
employee compensation and benefits of $177,000, an increase in occupancy and
equipment expense of $49,000, an increase in communications expense of $19,000,
an increase in deposit and franchise taxes of $13,000, an increase in
professional fees of $23,000, and an increase in other operating expenses of
$99,000 offset by a decrease in advertising of $51,000 and a decrease in
stationery and supplies of $26,000.
Employee compensation and benefits increased primarily due to an
increase in the number of employees as a result of the First Federal
acquisition. Occupancy and equipment expense increased primarily due to an
increase in depreciation expense as a result of additional locations,
improvements to existing facilities, and upgrades in equipment. The increase in
communications expense and deposit and franchise taxes and other operating
expenses was due primarily to increased expenses as a result of the acquisition
of First Federal. Professional fees increased primarily as a result of the
Company's efforts to upgrade its corporate governance and comply with new
regulatory requirements.
INCOME TAX EXPENSE. Income tax expense increased $188,000 for the
three months ended June 30, 2004 primarily due to an increase in income before
income taxes for the period.
13
NON-PERFORMING ASSETS AND ALLOWANCE FOR LOAN LOSSES
---------------------------------------------------
The allowance for loan losses is calculated based upon management's
evaluation and assessment of pertinent factors underlying the types and
qualities of the Company's loans. The assessment includes internal risk grading
of all commercial credits and based upon this evaluation, a specific allocation
allowance may be assigned to individual loans. Consumer and residential mortgage
loans are not specifically graded unless apparent weakness is determined through
payment history at which time a specific allowance allocation may be made.
Additionally, a general reserve is assigned to each lending segment in
recognition of probable incurred losses based upon historical loss and peer loss
information, while taking into consideration current delinquency trends, current
economic trends both local and national, strength of supervision and
administration of the loan portfolio, trends of non-performing assets to the
allowance and concentrations within commercial credits. These factors are
weighed quarterly and adjusted as deemed appropriate by management. The Company
has not materially changed any aspect of its overall approach in the
determination of the allowance for loan losses and there have been no material
changes in assumptions or estimations as compared to prior years that have
impacted the basis of the current year allowance.
The Company's allowance for loan losses as of June 30, 2004 was $2.2
million or .9% of total loans. The March 31, 2004 allowance for loan loss was
$2.0 million, or .9% of total loans. Activity in the allowance for loan losses
is summarized as follows:
THREE MONTHS ENDED
JUNE 30,
--------
2004 2003
-------- --------
(IN THOUSANDS)
Balance at beginning of year $ 2,209 $ 1,975
Acquisition of First Federal -- 885
Provision for losses 135 46
Charge-offs 160 27
Recoveries 19 9
-------- --------
Ending balance $ 2,203 $ 2,888
======== ========
The ratio of non-performing assets to total assets is an indicator
of exposure to credit risk. Non-performing assets of the Company consist of
non-accruing loans, accruing loans delinquent 90 days or more, and foreclosed
assets, which have been acquired as a result of foreclosure or deed-in-lieu of
foreclosure. For all periods presented the Company had no troubled debt
restructurings. The following table sets forth the amount of non-performing
assets at the periods indicated.
JUNE 30, MARCH 31,
2004 2004
-------- --------
(IN THOUSANDS)
Non-Accruing Loans $ 626 $ 507
Accruing Loans Delinquent 90 Days or More 1,338 969
Foreclosed Assets 827 856
-------- --------
Total Non-Performing Assets $ 2,791 $ 2,332
======== ========
Total Non-Performing Assets as a
Percentage of Total Assets .8% .7%
14
Total non-performing assets increased $459,000 from March 31, 2004
to June 30, 2004 due primarily to a commercial credit that was part of First
Federal portfolio at the time of acquisition. The credit became 90 days past due
during the current quarter. This problem credit was identified through
pre-acquisition due diligence and reserved for appropriately. Management does
not feel that this is an indication of a trend within the Company's commercial
portfolio.
OTHER ASSETS OF CONCERN. Other than the non-performing assets set
forth in the table above, as of June 30, 2004, there were no loans with respect
to which known information about the possible credit problems of the borrowers
or the cash flows of the security properties have caused management to have
concerns as to the ability of the borrowers to comply with present loan
repayment terms and which may result in the future inclusion of such items in
the non-performing asset categories.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company's most liquid assets are cash and cash equivalents. The
levels of these assets are dependent on the Company's operating, financing, and
investing activities. At June 30, 2004 and March 31, 2004, cash and cash
equivalents totaled $10.1 million and $9.2 million, respectively. The Company's
primary sources of funds include principal and interest payments on loans (both
scheduled and prepayments), maturities of and interest payments on investment
securities and principal and interest 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 June 30, 2004 maturing
within one year totaled $81.5 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 other assets, and the liquidity goals 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 subsidiary of the Company
has the ability to borrow funds from the FHLB and other third parties. At June
30, 2004, the Company had $29.6 million in borrowings outstanding with the FHLB
and additional borrowing capacity of $90.5 million. On a limited basis, the
Company at times utilizes repurchase agreements for the generation of additional
funds from our established relationship business customers. At June 30, 2004,
the Company had $11.5 million of repurchase agreements with existing
relationship based business customers.
At June 30, 2004, the Company had outstanding commitments to fund
loans of $23.9 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.
15
Classic Bank is subject to the regulatory capital requirements of
the Federal Deposit Insurance Corporation (the "FDIC"). The following table
summarizes, as of June 30, 2004, the capital requirements applicable to Classic
Bank and its actual capital ratios. As of June 30, 2004, Classic Bank was in
compliance with its capital requirements.
REGULATORY ACTUAL CAPITAL
CAPITAL REQUIREMENT CLASSIC BANK
------------------- ------------
AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ -------
(In Thousands)
Total Capital
(to Risk Weighted Assets) $18,567 8.0% $26,915 11.6%
Tier 1 Capital
(to Adjusted Total Assets) 13,121 4.0 24,712 7.5
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 June 30, 2004, the capital
requirements applicable to the Company and its actual capital ratios. As of June
30, 2004, the Company was in compliance with its capital requirements.
REGULATORY ACTUAL CAPITAL
CAPITAL REQUIREMENT CLASSIC BANCSHARES, INC.
------------------- ------------------------
AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ -------
(In Thousands)
Total Capital
(to Risk Weighted Assets) $18,642 8.0% $28,600 12.3%
Tier 1 Capital
(to Adjusted Total Assets) 13,158 4.0 26,397 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 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 contain certain elements of
its internal controls adopted in connection with applicable accounting and
regulatory
16
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 accounting policies. The Company's
Chief Executive Officer and Chief Financial Officer have evaluated the
effectiveness of these disclosure controls as of the end of the period covered
by this report and found them to be adequate.
The Company maintains internal control over financial reporting.
There have not been any significant changes in such internal control over
financial reporting in the last quarter that has materially affected, or is
reasonably likely to materially affect, the Company's internal control over
financial reporting.
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
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 31.1 Certification of David B. Barbour pursuant to Rule
13a-14 under the Securities Exchange Act of 1934.
Exhibit 31.2 Certification of Lisah M. Frazier pursuant to Rule
13a-14 under the Securities Exchange Act of 1934.
Exhibit 32.1 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 32.2 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 June 30, 2004:
Report filed on June 4, 2004 containing press release, dated June 4,
2004, announcing earnings for the fiscal year and the quarter ended
March 31, 2004.
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: August 13, 2004 /s/ David B. Barbour
--------------- --------------------------------------------
David B. Barbour, President, Chief Executive
Officer and Director (Duly Authorized Officer)
Date: August 13, 2004 /s/ Lisah M. Frazier
--------------- --------------------------------------------
Lisah M. Frazier, Chief Operating Officer,
Treasurer and Chief Financial Officer
(Principal Financial Officer)
19
INDEX TO EXHIBITS
Exhibit
Number
------
11 Statement regarding computation of Per Share Earnings in the Notes to the
Consolidated Financial Statements in Part I of this Report . For such
computation, see Note 2 "Earnings Per Share."
31.1 Certification of David B. Barbour pursuant to Rule 13a-14 under the
Securities Exchange Act of 1934
31.2 Certification of Lisah M. Frazier pursuant to Rule 13a-14 under the
Securities Exchange Act of 1934
32.1 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
32.2 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
20