SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549
                                 _____________

                                   FORM 10-KSB

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
    OF 1934 [Fee Required]
    For the fiscal year ended March 31, 2000

                                       OR

[] TRANSITION  REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
   EXCHANGE ACT OF 1934 [No Fee Required]
   For the  transition  period from __________________ to __________________

                         COMMISSION FILE NUMBER 0-27170

                            CLASSIC BANCSHARES, INC.
        (Exact Name of Small Business Issuer as Specified in its Charter)

  Delaware                                            61-1289391
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)

344 Seventeenth Street, Ashland, Kentucky              41101
(Address of principal executive offices)             (Zip Code)



         Issuer's telephone number, including area code: (606) 325-4789

           Securities Registered Pursuant to Section 12(b) of the Act:

                                      None

           Securities Registered Pursuant to Section 12(g) of the Act:

                     Common Stock, par value $.01 per share
                                (Title of Class)

     Check  whether  the Issuer (1) filed all  reports  required  to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past twelve  months (or for
such shorter period that the Issuer was required to file such reports),  and (2)
has been subject to such requirements for the past 90 days. YES [X] NO [ ]

     Check if there is no disclosure  of  delinquent  filers in response to Item
405 of  Regulation  S-B  contained  in  this  form,  and no  disclosure  will be
contained, to the best of Issuer's knowledge, in definitive proxy or information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB. [X]

     The Issuer had $12.8  million in gross  income for the year ended March 31,
2000.

     As of June 13, 2000, there were issued and outstanding  1,176,356 shares of
the Issuer's Common Stock.  The aggregate  market value of the voting stock held
by non-affiliates of the Issuer, computed by reference to the last sale price of
such stock on the Nasdaq SmallCap  Market as of June 13, 2000 was  approximately
$10.7 million. (The exclusion from such amount of the market value of the shares
owned by any person  shall not be deemed an  admission  by the Issuer  that such
person is an affiliate of the Issuer.)

                       DOCUMENTS INCORPORATED BY REFERENCE

PART II of Form 10-KSB--Portions of Annual Report to Stockholders for the fiscal
year ended March 31, 2000. PART III of Form 10-KSB--Proxy Statement for the 2000
Annual Meeting of Stockholders.


                                        1

<PAGE>



                                     PART I

Item 1.     Business

General

     Classic  Bancshares,   Inc.  ("Classic"  or  the  "Company"),   a  Delaware
corporation,  is a bank holding  company  which has as its primary  wholly-owned
subsidiaries  Classic Bank (formerly  known as Ashland  Federal Savings Bank), a
federal  savings bank, and The First National Bank of Paintsville  ("Paintsville
Bank").  The Company was  organized  in 1995 by Classic  Bank for the purpose of
becoming the savings and loan holding company of Classic Bank in connection with
Classic  Bank's  conversion  from  mutual  to stock  form of  organization  (the
"Conversion") on December 28, 1995.  Paintsville Bank became a subsidiary of the
Company upon  consummation  of the Company's  acquisition  of First  Paintsville
Bancshares,   Inc.  ("First   Paintsville"),   the  former  holding  company  of
Paintsville  Bank,  on September  30,  1996.  See  "--Acquisitions."  Unless the
context otherwise requires,  all references herein to Classic Bank,  Paintsville
Bank or the Company include the Company,  Classic Bank and Paintsville Bank on a
consolidated basis.  References to the Company prior to September 30, 1996 refer
only to the  Company  and  Classic  Bank.  References  to the  Company  prior to
December 28, 1995 refer only to Classic Bank.

     At March 31,  2000,  the  Company had total  consolidated  assets of $175.3
million,  deposits of $134.9 million and stockholders'  equity of $19.0 million.
On such date, the Company's assets  consisted of all of the outstanding  capital
stock of Classic Bank and Paintsville  Bank and cash and cash  equivalents.  The
executive office of the Company is located at 344 Seventeenth  Street,  Ashland,
Kentucky 41101 and its telephone number is (606) 325-4789.

     As community-oriented financial institutions,  Classic Bank and Paintsville
Bank seek to serve the financial needs of communities in their respective market
areas. Their businesses involve attracting  deposits from the general public and
using such deposits,  together with other funds, to originate  primarily  one-to
four-family  residential  mortgage  loans and,  to a lesser  extent,  commercial
business, consumer,  commercial real estate, multi-family and construction loans
in their respective market areas.  Classic Bank and Paintsville Bank also invest
in mortgage-backed  and related  securities and investment  securities and other
permissible investments. See "Investment Activities."

     Since its inception,  the Company has operated under a "community  banking"
oriented  strategy that is designated to provide  planned and profitable  growth
and sustained  profitability  while  maintaining the safety and soundness of the
Company's  subsidiary  banks.  This strategy includes internal growth and growth
through acquisitions.  The implementation of this strategy has produced positive
results for the  Company  during its brief  history.  The  continued  and future
success of the Company  will be  accomplished  by the ongoing  execution of this
strategy,  which  requires  (i)  continued  growth  in  lower  cost  transaction
deposits, (ii) continued expansion of the Company's consumer and commercial loan
portfolios,  (iii) continued  increases in noninterest  income,  (iv) continuous
review of loan  underwriting  standards  to  assure  asset  quality  and (v) the
acquisition  of  other  community  banking   institutions  to  the  extent  that
opportunities  arise.  The Company has expanded its  delivery  channels  through
traditional branch offices, ATM locations and on-line banking systems that allow
customers alternative means of banking.

     The Company, Classic Bank and Paintsville Bank are subject to comprehensive
regulation. See "Regulation."


                                        2

<PAGE>



Forward-Looking Statements

     When used in this Form 10-KSB and in future filings by the Company with the
Securities and Exchange  Commission (the "SEC"), in the Company's press releases
or other public or shareholder communications,  and in oral statements made with
the approval of an  authorized  executive  officer,  the words or phrases  "will
likely   result,"  "are  expected  to,"  "will   continue,"  "is   anticipated,"
"estimate,"   "project"  or  similar   expressions   are  intended  to  identify
"forward-looking  statements"  within  the  meaning  of the  Private  Securities
Litigation  Reform Act of 1995. Such statements are subject to certain risks and
uncertainties,  including changes in economic conditions in the Company's market
area,  changes in  policies by  regulatory  agencies,  fluctuations  in interest
rates, demand for loans in the Company's market area and competition, that could
cause actual results to differ  materially  from  historical  earnings and those
presently anticipated or projected. The Company wishes to caution readers not to
place undue reliance on any such forward-looking statements, which speak only as
of the date made.  The Company  wishes to advise readers that the factors listed
above  could  affect the  Company's  financial  performance  and could cause the
Company's  actual  results  for  future  periods to differ  materially  from any
opinions or statements  expressed  with respect to future periods in any current
statements.

     The   Company   does   not   undertake--and   specifically   declines   any
obligation--to publicly release the result of any revisions which may be made to
any forward-looking statements to reflect events or circumstances after the date
of such statements or to reflect the occurrence of anticipated or  unanticipated
events.

Acquisitions

     On September 30, 1996, the Company acquired First  Paintsville,  the former
holding company of Paintsville  Bank, for $9.3 million in cash. At September 30,
1996,  First  Paintsville  had total assets of $66.6 million,  deposits of $52.8
million and stockholders'  equity of $10.2 million.  Paintsville Bank engages in
retail and  commercial  banking,  including  one-to  four-family,  consumer  and
commercial business lending, and provides trust services.  Paintsville Bank also
offers a variety of certificate, savings, money market and checking accounts and
credit cards.

     On May 14, 1999,  the Company  completed its  acquisition of Citizens Bank,
Grayson (Grayson,  Kentucky). In the transaction,  Citizens Bank was merged with
and  into  Classic  Bank,  with  Classic  Bank  as  the  surviving  institution.
Shareholders of Citizens Bank received $75.00 in cash for each share of Citizens
Bank stock held, for an aggregate  consideration of $4.5 million. On the date of
the closing,  Citizens had total assets of approximately $13.7 million and total
deposits of $12.0  million.  Citizens  Bank's office is now operated as a branch
office of Classic Bank.

Market Area

     Classic Bank serves primarily Boyd and Greenup  Counties,  Kentucky through
its main  office  located at 344  Seventeenth  Street in Ashland  and two branch
offices  located in Greenup and Boyd  counties.  Classic Bank's market area also
includes  portions of Lawrence and Carter Counties,  Kentucky,  Lawrence County,
Ohio and Wayne and Cabell  Counties,  West  Virginia.  Upon the  acquisition  of
Citizens  Bank,  the  Company  added a third  branch  office,  located in Carter
County, which had served as Citizens Bank's main office before the acquisition.


                                        3

<PAGE>



     Paintsville  Bank  conducts  its  business  through its main office and one
branch office located in Paintsville, Kentucky. Paintsville Bank's customer base
includes  individuals and small to medium sized businesses located in its market
area.  First  Paintsville's  market area includes  Johnson County,  Kentucky and
portions of Martin, Floyd, Magoffin and Lawrence Counties, Kentucky.

     Historically,  the regional economy in and around the Company's market area
has been based on the coal,  oil and railroad  industries  and dependent  upon a
small number of large employers. While the coal industry and some heavy industry
remain,  the market  area has  experienced  industrial  decline  during the past
several  years due to layoffs and  transfers of some of the  operations of these
companies  to other  locations.  The  Company's  primary  market area also has a
significant medical community.

     The economy of the Company's  market area is in a period of transition from
a primarily industrial- based economy to a service- and retail-based economy. In
the past two years, the Company's  market area has experienced  increases in the
retail and service  sectors which have somewhat  offset the impact of job losses
and  consolidations  from  heavy  industry.   Notwithstanding   recent  economic
diversification, the unemployment rate in the Company's market area continues to
exceed the rates for the Commonwealth of Kentucky and the United States.

Lending Activities

     General.  The principal  lending activity of the Company is originating for
its portfolio  mortgage loans secured by one- to four-family  residences located
primarily  in the  Company's  market  area.  The Company  has also  increasingly
emphasized consumer,  commercial business,  commercial real estate, construction
and multi-family  loans in its market area. At March 31, 2000, loans receivable,
net, totaled $127.8 million. See "Originations, Purchases and Sales of Loans."

                                        4

<PAGE>



         Loan   Portfolio   Composition.   The  following   table  presents  the
composition of the Company's loan portfolio in dollar amounts and in percentages
(before  deductions  for  loans in  process,  deferred  fees and  discounts  and
allowances for losses) as of the dates indicated.
<TABLE>


                                                                                             March 31,
                                          2000               1999              1998               1997                     1996
                                   ------------------------------------------------------------------------------------------------
                                   Amount    Percent   Amount   Percent   Amount   Percent   Amount    Percent     Amount   Percent
                                                                                                   (Dollars in Thousands)
<S>                                <C>        <C>      <C>       <C>      <C>      <C>       <C>       <C>        <C>         <C>
Real Estate Loans
 One- to four-family...............$71,928    55.7%   $61,992    63.0%   $66,078   72.6%     $62,413   75.3%      $38,944      87.5%
 Commercial........................ 15,216    11.8     10,136    10.3      8,970    9.9        6,877    8.3         2,509       5.7
 Multi-family......................  1,486     1.2      1,179     1.2      1,497    1.6        1,104    1.3           215       0.5
 Construction......................  2,670     2.0      2,513     2.6        426    0.5          832    1.0         1,132       2.5
                                     -----     ---    -------     ---    -------  -----     --------   ----      --------     ------
     Total real estate loans....... 91,300    70.7     75,820    77.1     76,971   84.6       71,226   85.9        42,800      96.2
                                    ------    ----    -------    ----    -------  -----      -------   ----       -------     ------

Other Loans
 Consumer Loans:
  Deposit account..................  1,369     1.1        383     0.4        526    0.6          433    0.5           389       0.9
  Credit Card......................    ---     ---          3     ---        218    0.2          256    0.3           ---       ---
  Installment...................... 12,457(1)  9.6      7,347(1)  7.5      5,380    5.9        5,452    6.6           ---       ---
  Other............................    250     0.2         68     0.1        991    1.1          697    0.8           229       0.5
                                       ---     ---     ------     ----    ------  ------     -------    ---      --------      ----
     Total consumer loans.......... 14,076    10.9      7,801     8.0      7,115    7.8        6,838    8.2           618       1.4
 Commercial business loans......... 23,539    18.3     14,747    14.9      6,942    7.6        4,794    5.9         1,063       2.4
 Commercial agriculture loans......    148     0.1         17     ---        ---    ---          ---    ---           ---       ---
                                       ---     ---    -------    -----    ------  ------      ------   ----     ----------    ------
     Total other loans............. 37,763    29.3     22,565    22.9     14,057   15.4       11,632   14.1         1,681       3.8
                                    ------    ----    -------    ----    -------  ------      ------   ----      --------     ------
     Total loans...................129,063   100.0%    98,385   100.0%    91,028   100.0%     82,858  100.0%       44,481     100.0%
                                   =======   =====    =======   =====    =======   =====      ======  =====       =======     =====


 Loans in process..................    (10)               (23)               (29)                 (6)                (504)
 Deferred fees and discounts.......     44                 26                (68)               (323)                  31
 Allowance for loan losses......... (1,289)              (861)              (831)               (801)                (286)
                                  --------               -----           -------              -------              -------
 Total loans receivable, net......$127,808            $97,527            $90,100             $81,728              $43,722
                                   =======             ======             ======              ======               ======
</TABLE>

     -------------------
1    Includes $6.1 million of  automobile  loans at March 31, 2000 and $3.0
     million of automobile loans at March 31, 1999.

                                                         5

<PAGE>



     The following  table shows the  composition of the Company's loan portfolio
by fixed and adjustable rates at the dates indicated.
<TABLE>


                                                                                       March 31
                                         ------------------------------------------------------------------------------------------
                                               2000               1999              1998              1997             1996
                                          Amount   Percent   Amount   Percent   Amount  Percent   Amount  Percent  Amount   Percent
                                         ------------------------------------------------------------------------------------------
                                                                                  (Dollars in Thousands)
Fixed-Rate Loans:
<S>                                     <C>        <C>       <C>      <C>      <C>      <C>     <C>       <C>      <C>        <C>
 Real estate:
  One- to four-family..................$ 44,377    34.4%     $33,944  34.5%   $33,253   36.5%   $29,730   35.9%    $15,013   33.8%
  Commercial...........................   8,829     6.8        5,329   5.4      3,348    3.7      2,627    3.2         721    1.6
  Multi-family.........................     903      .7          850   0.9      1,278    1.4        781    0.9         138    0.3
 Construction..........................   1,950     1.5        1,815   1.9        426    0.5        814    1.0       1,132    2.5
                                          -----    ----       -------  ---   --------   ----   --------   ----    --------    ---
     Total real estate loans...........  56,059    43.4       41,938  42.7     38,305   42.1     33,952   41.0      17,004   38.2
 Consumer..............................  12,543     9.7        7,053   7.2      6,161    6.8      6,154    7.4         567    1.3
                                         ------    ----      -------  ----    -------   ----    -------   ----    --------    ---
 Commercial business...................   8,861     6.9        8,137   8.2      2,649    2.9      1,395    1.7          51    0.1
 Commercial agriculture................     148      .1           17   ---          ---  ---        ---    ---         ---    ---
                                        -------     ---       ------- ----   ---------- ----   --------   ----    --------    ---
     Total fixed-rate loans............  77,611    60.1       57,145  58.1     47,115   51.8     41,501   50.1      17,622   39.6

Adjustable-Rate Loans:
 Real estate:
  One- to four-family..................  27,551    21.3       28,048  28.5     32,825    36.1    32,683   39.4      23,931   53.8
  Commercial...........................   6,387     4.9        4,807   4.9      5,622     6.2     4,250    5.1       1,788    4.0
  Multi-family.........................     583      .5          329   0.3        219     0.2       323    0.4          77    0.2
  Construction.........................     720      .6          698   0.7        ---     ---        18    ---         ---    ---
                                         ------    ----       -------  ---   --------     ----   ------   ----     -------   ----
     Total real estate loans...........  35,241    27.3       33,882  34.4     38,666     42.5   37,274   44.9      25,796   58.0
                                         ------   -----       ------- ----    -------     ----   ------   ----     -------   ----
 Consumer..............................   1,533     1.2          748   0.8        954      1.0      684    0.8          51    0.1
 Commercial business...................  14,678    11.4        6,610   6.7      4,293      4.7    3,399    4.2       1,012    2.3
                                         ------               ------  ----   --------     ----    -----   ----    --------    ---
     Total adjustable-rate loans.......  51,452    39.9       41,240  41.9     43,913     48.2   41,357   49.9      26,859   60.4
                                        -------    ----       ------  ----    -------     ----   ------   ----     -------   ----
     Total loans....................... 129,063   100.0%      98,385 100.0%    91,028    100.0%  82,858  100.0%     44,481  100.0%
                                                  -----              =====               =====           =====              -----


 Loans in process......................     (10)                 (23)                     (29)              (6)            (504)
 Deferred fees and discounts...........      44                   26                      (68)            (323)              31
 Allowance for loan losses.............  (1,289)                (861)                    (831)            (801)            (286)
                                        -------               -------                 --------          ------          --------
    Total loans receivable, net........$127,808              $97,527                  $90,100          $81,728          $43,722
                                        =======              =======                  =======          =======          ========
</TABLE>



                                        6

<PAGE>



         The following schedule illustrates the interest rate sensitivity of the
Company's loan portfolio at March 31, 2000.  Mortgages  which have adjustable or
renegotiable interest rates are shown as maturing in the period during which the
contract  is due.  The  schedule  does  not  reflect  the  effects  of  possible
prepayments or enforcement of due-on-sale clauses.

<TABLE>



                                     Real Estate                                                         Commercial
                     -------------------------------------------------------                ----------------------------------------
                        One to Four     Multi-family
                          Family        and Commercial    Construction     Consumer         Business         Other         Total
                     --------------------- ----------------------------------------------------------------------------------------
                               Weighted        Weighted        Weighted         Weighted         Weighted       Weighted    Weighted
                               Average         Average         Average          Average          Average        Average      Average
                       Amount  Rate    Amount  Rate    Amount  Rate     Amount  Rate     Amount  Rate    Amount Rate    Amount  Rate
                     --------------------- ------------------------------- ---------------------------------------------------------
                                                                           (Dollars in Thousands)
           Due

<S>                  <C>       <C>     <C>    <C>     <C>      <C>     <C>       <C>   <C>       <C>     <C>    <C>    <C>      <C>
Within one year(1)...$ 1,374   9.1%     891   9.2%    1,181    8.9%    $ 4,256   8.8%  $10,740   9.3%    $235   11.3% $18,677   9.2%
One to two years.....    690   9.5      245   9.2        44   11.0       1,192  11.4     2,021   8.5        1   10.0    4,193   9.6
Two to three years...  1,093   7.7      306   8.3       ---    ---       2,416  10.6       884   8.2       14   8.3     4,713   9.3
Three to five years..  2,227   8.8    2,198   8.1       247    9.5       4,803   9.2     5,967   9.0      ---   ---    15,442   8.9
Five to ten years.... 11,163   8.1    7,306   9.0       270   10.0         568   9.5     2,586   9.3      ---   ---    21,893   8.6
Ten to 15 years...... 22,852   7.9    4,932   9.4       779    9.3         547   9.0     1,489   9.0      ---   ---    30,599   8.3
Over 15 years........ 32,529   7.7      824   8.7       149    9.5          44   7.6       ---   ---      ---   ---    33,546   7.7
                      ------            ---               ---                 --         -----           ----          ------
  Totals.............$71,928        $16,702            $2,670            $13,826       $23,687           $250        $129,063
                     =======        =======            ======            =======       =======           ====        ========
</TABLE>


(1) Includes demand loans, loans having no stated maturity and overdraft loans.

         The  total  amount  of loans  due  after  March  31,  2001  which  have
 predetermined  interest rates is $65.4 million, while the total amount of loans
 due after such date which have floating or adjustable  interest  rates is $45.0
 million.



                                        7

<PAGE>



     Under  Federal  law,  the  aggregate  amount of loans that Classic Bank and
Paintsville Bank are permitted to make to any one borrower is generally  limited
to 15% of unimpaired  capital and surplus (25% if the security for such loan has
a readily  marketable  value).  At March 31, 2000,  based on the above,  Classic
Bank's and  Paintsville  Bank's  regulatory  loans-to-one-borrower  limits  were
approximately 1.2 million and $990,000,  respectively. On the same date, neither
institution  had borrowers with  outstanding  balances in excess of this amount.
When aggregated,  the Company can make loans to one borrower in the total amount
of $2.2 million. The Company's largest dollar amount outstanding to one borrower
or, group of related  borrowers,  was $2.0 million.  This  borrowing  represents
commitments  to a local waste  refusal  development  company with a  substantial
guarantor.

     Both  Classic  Bank's and  Paintsville  Bank's  President  and Senior  Vice
Presidents  have the  authority to approve  loans up to $250,000  and  $200,000,
respectively.  Loans  of  $250,000  or  more  up to 10% of  Classic  Bank's  and
Paintsville  Bank's respective capital require approval of the Loan Committee of
the Board of Directors of the respective  institutions.  Loans in excess of such
amount require approval of the Board of Directors of the institution.

     All of the  Company's  lending  is  subject  to  its  written  underwriting
standards and to loan origination procedures. Decisions on loan applications are
made on the basis of detailed  applications and property valuations  (consistent
with the Board-established appraisal policy). The loan applications are designed
primarily to determine the borrower's  ability to repay and the more significant
items on the application are verified  through use of credit reports,  financial
statements, tax returns or confirmations.

     The  Company  requires a title  opinion or other  evidence  of title on its
mortgage  loans,  as well as fire and extended  coverage  casualty  insurance in
amounts  at least  equal to the  principal  amount  of the loan or the  value of
improvements  on the property,  depending on the type of loan.  The Company also
requires flood insurance to protect the property  securing its interest when the
property is located in a flood plain.

     One- to Four-Family  Residential Real Estate Lending. A significant portion
of the  Company's  lending  program  is the  origination  of  loans  secured  by
mortgages on owner-occupied one- to four-family residences. Substantially all of
the Company's one- to four-family  residential mortgage originations are secured
by  properties  located in its  market  area.  In  addition,  substantially  all
mortgage  loans  originated  by the Company are  retained and serviced by it. At
March  31,  2000,  $71.9  million,  or 55.7% of the  Company's  loan  portfolio,
consisted  of  mortgage  loans on one- to  four-family  residences,  including a
number of loans secured by non-owner occupied properties.

     Since the early 1980s,  Classic Bank has offered  adjustable-rate  mortgage
("ARM") loans at rates and on terms  determined  in  accordance  with market and
competitive factors. Prior to April 1995, Classic Bank utilized a variety of ARM
loan products.  Most of these loans provided for a 1.0% maximum annual cap and a
life-time cap of 5.0% over the initial rate and adjusted to a stated margin over
either the National  Monthly Median Cost of Funds Index or the National  Average
Interest  Contract  Rate on the Purchase of  Previously  Occupied  Homes for All
Major  Types of Lenders  (collectively,  the "Cost of Funds  Indices").  Because
these  indices  generally  react more  slowly to changes  in  interest  rates as
compared to other indices commonly used for ARMs (including those based on rates
paid on U.S. Treasury securities), during a period of rising interest rates, the
use of these lagging  indices  results in Classic Bank's  adjustable-rate  loans
repricing  upward a slower  rate which could  result in a reduction  in interest
rate  spread.  At March 31,  2000,  Classic  Bank had $7.3  million of ARM loans
representing  10.1% of the one- to  four-family  loan  portfolio,  which reprice
based upon one of the Cost of Funds Indices. On the same date, these loans had a
weighted  average  yield  of 6.4% and a  weighted  average  contractual  term to
maturity of 175 months.


                                        8

<PAGE>



     Prior to April 1995,  when  competing  lenders  offered ARMs with  interest
rates during the initial  adjustment  period (i.e.,  typically the first year of
the  loan  term)  below  that  which  would be  indicated  by  reference  to the
applicable  index plus the stated margin (i.e.,  "teaser"  rates),  Classic Bank
would  often  respond  not by  matching  the  discounted  rate  for the  initial
adjustment  period but rather by  discounting  the interest  rate for the entire
life of the loan.  Effective  April 1,  1995,  Classic  Bank  discontinued  this
practice of offering teaser rates for the entire loan term, although it may from
time to time offer ARMs with initial rates below the fully indexed rates.

     In order to increase the interest rate sensitivity of its ARMs, the Company
currently  requires that ARM loans adjust in  accordance  with the one-year U.S.
Treasury  Constant  Maturity  Index.  At March 31,  2000,  the Company had $19.4
million of ARM loans which reprice based upon this index.  However,  since these
loans  generally  provide for a 1.0 - 2.0% maximum annual cap and a lifetime cap
of 5.0 - 6.0% over the initial rate,  the interest  rates on these loans may not
be as rate sensitive as is the Company's cost of funds.  Currently,  none of the
ARM loans  originated  provide for a minimum interest rate or are convertible to
fixed-rate loans.

     ARM loans  decrease  the risk to the  Company  associated  with  changes in
interest rates but may involve other risks,  primarily because as interest rates
rise, the payment by the borrower may rise to the extent  permitted by the terms
of the loan, thereby increasing the potential for default. At the same time, the
market value of the  underlying  property  may be  adversely  affected by higher
interest rates.

     The Company currently offers fixed-rate mortgage loans with maturities from
10 to 30 years.  Interest rates and fees charged on these  fixed-rate  loans are
established   on  a  regular   basis   according  to  market   conditions.   See
"Originations, Purchases and Sales of Loans."

     In  underwriting  one- to four-family  residential  real estate loans,  the
Company  currently  evaluates  both the  borrower's  ability to make  principal,
interest and escrow  payments,  the value of the  property  that will secure the
loan and debt to income  ratios.  In earlier years,  the Company's  underwriting
standards  placed more emphasis on the collateral  securing the loan than on the
borrower's  ability to make principal and interest  payments.  As a result,  the
Company may experience a higher delinquency rate on loans originated during such
periods.

     Currently, the Company will lend up to 90% (or up to 100% on a case-by-case
basis) of the  lesser  of the sales  price or  appraised  value of the  security
property on owner occupied one- to four-family loans. The loan-to-value ratio on
non-owner occupied,  one- to four-family loans is generally 85% of the lesser of
the sales price or appraised value of the security property.

     Residential loans do not include  prepayment  penalties,  are non-assumable
and  do  not  produce  negative   amortization.   Properties  securing  one-  to
four-family  residential  real estate loans made by the Company are appraised by
independent appraisers.

     The  Company's  current  underwriting  policy is based on Federal Home Loan
Mortgage  Corporation  ("FHLMC")  guidelines.  Under current policy, the Company
originates all mortgage loans for its portfolio.

     The Company's  residential  mortgage loans customarily  include due-on-sale
clauses  giving the Company the right to declare  the loan  immediately  due and
payable in the event that,  among other things,  the borrower sells or otherwise
disposes of the property subject to the mortgage and the loan is not repaid.

     Commercial and Multi-Family Real Estate Lending.  The Company has increased
its commercial and multi-family real estate lending in recent years as a part of
its strategy to increase the yield and reduce

                                        9

<PAGE>



the term of its lending portfolio.  The Company generally focuses its commercial
real estate lending efforts on borrowers (such as professionals) who occupy some
or  all of  the  property  securing  the  loan.  The  Company's  commercial  and
multi-family  real estate loan  portfolio  includes  loans  secured by apartment
buildings, office and professional buildings,  medical facilities,  churches and
other  non-residential  properties,  almost  all of  which  are  located  in the
Company's  market  area.  At March 31,  2000,  the Company had $15.2  million in
commercial  real estate loans  representing  11.8% of the  Company's  total loan
portfolio,  and $1.5 million in  multi-family  loans,  or 1.2% of the  Company's
total loan  portfolio.  At March 31, 2000, the Company had two  commercial  real
estate or  multi-family  loans with a book value in excess of  $750,000.  One of
these loans was secured by an owner-occupied  corporate  headquarters and had an
aggregate book value of $900,000 and the remaining loan was secured by a medical
office building and had a total book value of $700,000.

     The Company's  permanent  commercial and multi-family real estate loans are
generally  originated for maximum terms of 10 years and 15 years,  respectively,
and have fixed or  adjustable  rates  which are  generally  based on a specified
index plus a margin.  Commercial and multi-family  real estate loans are written
in amounts of up to 75% and 80%,  respectively,  of the  appraised  value of the
property.

     Appraisals on properties  securing  multi-family and commercial real estate
loans  originated  by the  Company are  generally  performed  by an  independent
appraiser  prior to the time the loan is made.  All appraisals on commercial and
multi-family real estate are reviewed by the Company's management. The Company's
underwriting  procedures require  verification of the borrower's credit history,
income and financial  statements,  banking  relationships  and  references.  The
Company generally requires personal  guarantees on loans secured by multi-family
and commercial real estate.

     Multi-family  and commercial real estate loans  generally  present a higher
level of risk than loans secured by one- to four-family residences. This greater
risk is due to several  factors,  including the  concentration of principal in a
limited  number  of  loans  and  borrowers,  the  effects  of  general  economic
conditions  on income  producing  properties  and the  increased  difficulty  of
evaluating and monitoring  these types of loans.  Furthermore,  the repayment of
loans secured by multi-family and commercial real estate is typically  dependent
upon the successful  operation of the related real estate  project.  If the cash
flow from the project is reduced  (for  example,  if leases are not  obtained or
renewed), the borrower's ability to repay the loan may be impaired. At March 31,
2000, the Company had no multi-family  loans and no commercial real estate loans
which were 90 days or more delinquent.

     Construction  Lending.  The Company  originates  construction loans for the
construction of residential  and commercial real estate.  At March 31, 2000, the
Company's construction loan portfolio totaled $2.7 million, or 2.0% of its total
loan portfolio.

     Construction  loans to individuals for the construction of their residences
are  structured  to convert to  permanent  loans at the end of the  construction
phase, which typically run up to six months. These construction loans have rates
and terms comparable to one- to four-family loans offered by the Company, except
that  during the  construction  phase,  the  borrower  pays  interest  only at a
specified  margin  over the  prime  rate.  The  maximum  loan-to-value  ratio of
owner-occupied,   single-family   construction   loans   is   80%.   Residential
construction  loans are  underwritten  pursuant to the same  guidelines used for
originating  permanent  residential  loans.  At March 31, 2000,  there were $1.2
million gross residential construction loans outstanding.

     From time to time,  subject to market  conditions,  the Company  originates
construction  loans to builders of one- to  four-family  residences.  Such loans
generally  have terms of up to six months and  require  the  payment of interest
only for the loan term. The maximum loan to value ratio on builder loans is 80%.

                                       10

<PAGE>



The Company generally limits loans to builders for the construction of homes for
sale to one home per  builder.  At March 31,  2000,  the Company had $355,000 in
construction loans to builders of one- to four-family residences.

     The Company also originates a limited number of loans for the  construction
of commercial real estate on which the owner is the primary  tenant.  Such loans
typically  carry  adjustable  rates and  convert to  permanent  loans  following
completion of the construction period. Commercial real estate construction loans
are  generally  underwritten  pursuant  to  the  same  guidelines  utilized  for
commercial  real estate loans.  At March 31, 2000, the Company had no commercial
construction loans.

     The  Company's   construction   loan  agreements   generally   provide  for
disbursement  of loan  proceeds in increments as  construction  progresses.  The
Company  reviews  the  progress  of  the  construction  of  the  project  before
disbursements are made.

     Construction  loans are obtained  principally  through  referrals  from the
Company's  and  management's  contacts  in the  business  community  as  well as
existing and walk-in customers. The application process includes a submission to
the Company of  accurate  plans,  specifications  and costs of the project to be
constructed/developed.  These  items  are  used  as a  basis  to  determine  the
appraised  value of the  subject  property.  Loans  are  based on the  lesser of
current appraised value and/or the cost of construction (land plus building).

     Construction  lending is generally  considered to involve a higher level of
credit risk than one- to four-family  residential lending since the risk of loss
on  construction  loans is  dependent  largely  upon the accuracy of the initial
estimate of the individual  property's  value upon completion of the project and
the estimated  cost  (including  interest) of the project.  If the cost estimate
proves to be inaccurate, the Company may be required to advance funds beyond the
amount originally  committed to permit completion of the project.  To the extent
the  Company's  construction  lending  increases in the future,  there can be no
assurance that the Company will not experience an increase in  delinquencies  on
its construction loans.

     Consumer Lending.  At March 31, 2000, consumer loans totaled $14.1 million,
or 10.9% of the Company's total loan  portfolio.  In order to increase the yield
and interest rate sensitivity of its loan portfolio and as part of its community
bank-oriented  strategy,  the Company has sought to increase the type and volume
of its consumer  loans to include  unsecured and secured  consumer  loans,  with
emphasis on direct automobile  financing and home equity lending.  Consumer loan
terms vary according to the type and value of collateral, length of contract and
creditworthiness  of the borrower.  During fiscal 2000, consumer loans increased
by $6.3 million as a result of the implementation of this strategy.

     The  underwriting  standards  employed by the Company  for  consumer  loans
include a determination  of the  applicant's  payment history on other debts and
ability to meet existing obligations and payments on the proposed loan. Although
creditworthiness of the applicant is of primary consideration,  the underwriting
process also  includes a  comparison  of the value of the  security,  if any, in
relation to the proposed loan amount.

     Consumer loans,  other than loans secured by deposit  accounts,  may entail
greater credit risk than residential mortgage loans, particularly in the case of
consumer loans which are unsecured or are secured by rapidly depreciable assets,
such as automobiles.  In such cases, any repossessed  collateral for a defaulted
consumer loan may not provide an adequate source of repayment of the outstanding
loan  balance  as a  result  of  the  greater  likelihood  of  damage,  loss  or
depreciation.  In  addition,  consumer  loan  collections  are  dependent on the
borrower's  continuing  financial  stability,  and thus are  more  likely  to be
affected by adverse  personal  circumstances.  Furthermore,  the  application of
various federal and state laws, including bankruptcy

                                       11

<PAGE>



and insolvency  laws, may limit the amount which can be recovered on such loans.
At March 31, 2000, the Company had $10,000 of non-performing  consumer loans and
$40,000 of consumer  assets  acquired by  foreclosure.  In view of the projected
increase in the amount and scope of the Company's  consumer lending  activities,
there can be no assurance that delinquencies in the consumer loan portfolio will
not increase in the future.

     Commercial  Business  Lending.  The Company also  originates a  significant
volume of secured and unsecured  commercial  business loans to local businesses.
These loans  generally  carry higher  interest  rates and have shorter  terms to
maturity  than the  Company's  residential  loans.  Such loans  also  strengthen
community  ties and  present  attractive  opportunities  for cross  selling  the
Company's  other  financial  products.  The  Company  generally  seeks  to  make
commercial business loans on a "relationship" rather than a "transaction" basis.
At March 31,  2000,  the  Company's  commercial  business  loans  totaled  $23.7
million, or 18.4% of total loans. In addition,  as of such date, the Company had
$9.3 million of unfunded commercial business loan commitments.

     The Company's  commercial  business loans generally have terms of up to ten
years and generally carry  adjustable  rates of interest over the prime rate. If
secured,  such loans generally carry security  interests on inventory,  accounts
receivable and fixed assets located in the Company's  market area. The Company's
commercial business loans are generally personally  guaranteed by one or more of
the  principals of the  borrowers but do not include a lien on such  principal's
personal  residences.  Regardless of whether a commercial business loan includes
collateral,  the Company seeks to require that the borrower meet certain  income
and financial designed to measure its ability to repay the debt.

     Unlike residential mortgage loans, which generally are made on the basis of
the  borrower's  ability to make  repayment from his or her employment and other
income,  and which are secured by real property,  the value of which tends to be
more  easily  ascertainable,  commercial  business  loans are of higher risk and
typically are made on the basis of the borrower's ability to make repayment from
the cash flow of the borrower's business. As a result, the availability of funds
for the repayment of commercial business loans may be substantially dependent on
the success of the business itself.  Further,  the collateral,  if any, securing
the loans may  depreciate  over  time,  may be  difficult  to  appraise  and may
fluctuate in value based on the success of the business.  Accordingly, there can
be no assurance that the Company's non-performing commercial business loans will
not increase in the future.

     The   Company's   commercial   business   lending   volume  has   increased
significantly  in the last several years as a result of  management's  continued
focus on the Company's  commercial  relationships  as well as a reduction in the
number of locally owned  business  lenders.  The Company  intends to continue to
increase its commercial business lending activities in the future.

Originations, Purchases and Sales of Loans

     Loans are  originated  by the  Company's  staff of salaried  loan  officers
through marketing  activities and referrals.  The Company's ability to originate
loans is dependent  upon  customer  demand for loans in its market area and to a
limited extent, various marketing efforts.  Demand is affected by both the local
economy and the interest  rate  environment.  See "Market  Area." Under  current
policy,  all loans  originated  by the  Company are  retained  in the  Company's
portfolio,  other than loans  participated to other financial  institutions as a
result of a  borrower's  total  indebtedness  exceeding  the  Company's  lending
limits.

     The  Company  also  takes  residential  loan  applications  for a  Kentucky
mortgage  banker.  Although  the Company  does not make the subject  loans,  the
Company receives an origination fee on any loan actually

                                       12

<PAGE>



funded by the mortgage banker.  These loans are offered to customers  seeking to
receive "secondary market rates" on their residential loans.

     From time to time, in order to supplement  loan  originations,  the Company
has acquired mortgage-backed and related securities which are held, depending on
the investment intent, in the "available-for-sale"  portfolios.  See "Investment
Activities - Mortgage-Backed  and Related Securities" and Note 3 to the Notes to
Consolidated Financial Statements contained in Exhibit 13.


                                       13

<PAGE>



     The  following  table  shows  the  loan  origination,  purchase,  sale  and
repayment activities for the periods indicated.
<TABLE>

                                                                                        Year Ended March 31,
                                                                             ------------------------------------------
                                                                             2000               1999               1998
                                                                             ----               ----               ----
                                                                                          (In Thousands)
<S>                                                                        <C>               <C>               <C>
Originations by type:
 Adjustable rate:
  Real estate - one- to four-family...........................             $4,451            $ 3,950           $  5,362
                 - multi-family...............................                 61                ---                ---
                 - commercial.................................              5,247              2,174              2,667
                 - construction...............................                 20              1,119                156
  Non-real estate - consumer..................................              1,154                496                690
                 - commercial business........................             17,152              4,060             11,159
                                                                           ------            -------            -------
         Total adjustable-rate loans..........................             28,085             11,799             20,034
                                                                           ------             ------            -------
 Fixed rate:
  Real estate - one- to four-family...........................             14,301             12,275             10,414
                 - multi-family...............................                ---                ---                572
                 - commercial.................................              3,895              2,476              1,465
                 - construction...............................              2,226              1,374              1,462
  Non-real estate - consumer..................................             11,199              7,720              5,376
                 - commercial business........................              6,260              8,831              5,852
                 - commercial agriculture.....................                 17                 17                ---
                                                                          -------            -------           --------
         Total fixed-rate loans...............................             37,898             32,693             25,141
                                                                           ------             ------            -------
         Total loans originated...............................             65,983             44,492             45,175
                                                                           ------             ------            -------

Purchases:
 Real estate - commercial.....................................                ---              1,240                ---
 Non-real estate - commercial.................................                ---                 48                ---
                                                                        --------             -------           --------
         Total purchases......................................                ---              1,288                ---

Participations sold:
 Real estate - commercial.....................................                ---                525                ---
 Non-real estate - commercial business........................                526              1,533                ---
                 - other......................................                ---                ---                ---
                                                                           ------            -------           --------
         Total participations sold............................                526              2,058                ---

Repayments:
  Real estate - one- to four-family...........................             11,432             20,400             12,338
                 - multi-family...............................                134                318                179
                 - commercial.................................              4,670              4,199              2,039
                 - construction...............................              2,197                406              2,024
  Non-real estate - consumer..................................              8,307              6,607              5,789
                 - commercial business........................             16,738              3,601             14,863
                 - other......................................                288                923                ---
                                                                           ------           --------           --------
   Total principal repayments.................................             43,766             36,454             37,232
                                                                           ------             ------           --------
Increase (decrease) in other items, net.......................                 (5)                89                227
  Acquisition of Citizens Bank................................              8,992               ---                 ---
                                                                          -------         ----------           --------
         Net increase (decrease)..............................            $30,678            $ 7,357           $ 8,170
                                                                           ======            =======           ========
</TABLE>
                                       14



<PAGE>
Delinquencies and Non-Performing Assets

     Delinquency Procedures. When a borrower fails to make a required payment on
a loan, the Company attempts to cure the delinquency by contacting the borrower.
The Company  sends late notices on all loans past due (10 to 15 days,  depending
on the type of loan) and imposes  late fees past the grace  periods.  Additional
written and verbal contacts may be made with the borrower between 30 and 90 days
after the due date. If the loan is contractually delinquent 90 days, the Company
initiates  appropriate  legal action for collection.  The decision as to whether
and when to initiate  legal  action is based upon such  factors as the amount of
the outstanding loan in relation to the original indebtedness,  current value of
collateral  (if  secured),  the  extent and  frequency  of  delinquency  and the
borrower's  ability and  willingness  to cooperate in curing  delinquencies.  By
policy,  when a loan becomes  delinquent 90 days or more, the Company will place
the loan on a non-accrual  status and, as a result,  previously accrued interest
income on the loan is taken out of current  income.  Future  interest  income is
recognized on a cash basis although many times any payment  received  during the
non-accrual  period may be applied  directly  to the  principal  balance.  Loans
placed  on  non-accrual  are  not  placed  back  on an  accruing  basis  until a
satisfactory payment history has been established  (normally six payments).  All
commercial  loans made since  January 1, 1997 carry a default  rate clause which
can increase the interest rate by two percent upon default.

     Real estate  acquired by the Company as a result of  foreclosure or by deed
in lieu of foreclosure is classified as real estate owned until it is sold. When
property  is  acquired  by  foreclosure  or deed in lieu of  foreclosure,  it is
recorded  at the  lower  of cost or  estimated  fair  value  (as  determined  by
appraisal) less estimated selling costs. After  acquisition,  all costs incurred
in maintaining the property are expensed.  Costs relating to the development and
improvement of the property are capitalized.

         The following  table sets forth loan  delinquencies  by type, by amount
and by percentage of type at March 31, 2000.
<TABLE>

                                         Loans Delinquent For:
                         -------------------------------------------------------------
                               60 -89 Days                  90 Days and Over                  Total Delinquent Loans
                         -------------------------------------------------------------    ------------------------------
                                             Percent                          Percent                          Percent
                                             of Loan                          of Loan                          of Loan
                         Number    Amount    Category     Number    Amount    Category     Number    Amount    Category
                         ------    ------    --------     ------    ------    --------     ------    ------    --------
                                                            (Dollars in Thousands)
<S>                      <C>       <C>         <C>        <C>       <C>         <C>         <C>      <C>         <C>
Real Estate:
One- to four-family...    4        $72          .1          2       $135         .2          6       $207         .3
Commercial............  ---        ---         ---        ---        ---        ---        ---        ---        ---
Consumer..............    1          1         ---          3         10         .1          4         11         .1

Commercial............  ---        ---         ---        ---        ---        ---        ---        ---        ---
                                   $73          .1                  $145         .1                  $218         .2
                                   ===                              ====                             ====
</TABLE>

     Classification  of Assets.  Federal  regulations  require that each savings
institution  and national  bank classify its own assets on a regular  basis.  In
addition,  in connection with examinations of savings  institutions and national
banks,  examiners of the Office of Thrift  Supervision  (the "OTS") (for savings
institutions),  the Office of the  Comptroller  of the Currency (the "OCC") (for
national  banks) and the Federal  Deposit  Insurance  Corporation  ("FDIC") (for
savings  institutions  and national  banks) have  authority to identify  problem
assets and,  if  appropriate,  require  them to be  classified.  There are three
classifications for problem assets: Substandard,  Doubtful and Loss. Substandard
assets have one or more defined weaknesses and are characterized by the distinct
possibility  that the institution will sustain some loss if the deficiencies are
not corrected.  Doubtful assets have the weaknesses of Substandard  assets, with
the  additional   characteristics   that  the  weaknesses   make  collection  or
liquidation  in full on the basis of currently  existing  facts,  conditions and
values  questionable,  and  there  is a  high  possibility  of  loss.  An  asset
classified  Loss is  considered  uncollectible  and of such  little  value  that
continuance  as an  asset  on  the  balance  sheet  of  the  institution  is not
warranted.  Assets classified as Substandard or Doubtful require the institution
to establish prudent general  allowances for loan losses. If an asset or portion
thereof is classified as a loss, the institution charges off

                                       15

<PAGE>



such  amount  against the loan loss  allowance.  Assets  which do not  currently
expose an  institution  to  sufficient  risk to  warrant  classification  of the
aforementioned  categories, but possess weaknesses are required to be designated
"Special Mention" by the institution's management.

         On the basis of management's  review of its assets,  at March 31, 2000,
the Company had the following classified assets:
<TABLE>


                                                                  March 31, 2000
                                                                  (In Thousands)
<S>                                                                   <C>
Substandard...................................................        $1,575
Doubtful......................................................           202
Loss..........................................................           ---
Special Mention...............................................         1,176
                                                                       -----
     Total....................................................        $2,953
                                                                      ======
</TABLE>


     The  Company's  classified  assets  consist  of  non-performing  loans  and
foreclosed  assets. As of the date of this report,  these asset  classifications
are materially  consistent  with those of the OTS, OCC and FDIC.  When loans are
classified as a "loss," they are charged off against the loan loss allowance.


                                       16

<PAGE>



     Non-Performing  Assets.  The  following  table sets forth the  amounts  and
categories of non-performing  assets in the loan portfolio.  Loans are placed on
non-accrual  status when the  collection  of principal  and/or  interest  become
doubtful.  For  all  years  presented,  the  Company  has had no  troubled  debt
restructurings  (which  involve  forgiving a portion of interest or principal on
any loans or making loans at a rate  materially less than that of market rates).
Foreclosed assets include assets acquired in settlement of loans.
<TABLE>


                                                                                 March 31,
                                                        ----------------------------------------------------------
                                                          2000        1999         1998        1997         1996
                                                        ------------------------ ---------------------------------
                                                                          (Dollars in Thousands)
<S>                                                        <C>        <C>           <C>          <C>         <C>
Non-accruing loans:
  One- to four-family................................      $296       $  97         $296         $465        $552
  Multi-Family.......................................       ---         ---          ---           32         ---
  Commercial real estate.............................       134         ---          ---           62          43
  Consumer...........................................       ---         ---           12          ---         ---
  Commercial business................................       190         218          ---          ---         ---
                                                            ---         ---        -----        -----       -----
     Total...........................................       620         315          308          559         595

Accruing loans delinquent 90 days or more:
  One- to four-family................................       143          86           13           57         ---
  Commercial real estate.............................       ---         ---            7           90         ---
  Consumer...........................................        10           5            5            3         ---
  Credit Card........................................       ---         ---          ---            7         ---

Foreclosed assets:
  One- to four-family................................        62          32           35           92           5
  Commercial real estate.............................       194         194          194          244         ---
  Consumer...........................................        40         ---          ---           24         ---
                                                             --       -----       ------         ----      ------

Total non-performing assets..........................    $1,069        $632         $562       $1,076        $600
                                                         ======        ====         ====       ======        ====
Total as a percentage of total assets................       0.6%        0.4%         0.4%         0.8%        0.9%
                                                            ===         ===          ===          ===         ===
</TABLE>


     For the year ended March 31, 2000,  gross interest  income which would have
been recorded had the  non-accruing  loans been current in accordance with their
original  terms  amounted to $72,000.  The amount that was  included in interest
income on such loans was $5,000 for the year ended March 31,  2000.  The average
balance of non-accrual loans for the year ended March 31, 2000 was $553,000. The
allowance for loan losses on non-accrual  loans amounted to $19,000 at March 31,
2000.

     At March 31, 2000,  the Company's  non-accruing  loans included eight loans
secured by  single-family  real estate  totaling  $208,000,  one loan secured by
residential  undeveloped land totaling $88,000,  one commercial real estate loan
for $134,000  secured by a gas station and convenience  store, and one unsecured
commercial  business  loan for  $190,000.  At March 31, 2000,  real estate owned
included a vacant lot valued at $194,000 and four single  family homes valued at
$62,000.

                                       17

<PAGE>



     Other Assets of Concern. In addition to the non-performing assets set forth
in the table above,  as of March 31,  2000,  there were no loans or other assets
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.

     Management considers non-performing and "of concern" assets in establishing
its allowance for loan losses.

     Allowance for Loan Losses.  The  following  table sets forth an analysis of
the allowance for loan losses.
<TABLE>



                                                                                 Year Ended March 31,
                                                                     -----------------------------------------------
                                                                     2000       1999       1998      1997       1996
                                                                     -----------------------------------------------
                                                                                   (Dollars in Thousands)
<S>                                                                  <C>        <C>        <C>       <C>        <C>
Balance at beginning of period................................       $861       $831       $801      $286       $311
                                                                     ----       ----       ----      ----       ----
Acquisition of Citizens Bank..................................        506        ---        ---       ---        ---
Acquisition of Paintsville Bank...............................        ---        ---        ---       526        ---
Charge-offs:
  One- to four-family.........................................        139         23         49        17         44
  Multi-family................................................        ---        ---        ---       ---        149
  Commercial real estate......................................          4        ---        ---       ---         21
  Commercial business.........................................        155          8          1        45        ---
  Consumer....................................................         71         84        102        76        ---
  Credit cards................................................          2          2         21        15        ---
                                                                    -----     ------      -----      ----      -----
      Total charge-offs.......................................        371        117        173       153        214
                                                                      ---       ----       ----      ----       ----

Recoveries:
  One- to four-family.........................................          8         15        ---         3         12
  Multi-family................................................        ---        ---        ---       ---          9
  Commercial business.........................................         27        ---         26        17        ---
  Consumer....................................................         34         32         16        16        ---
  Credit cards................................................          1        ---          3         1        ---
                                                                     ----     ------      -----     -----      -----
      Total recoveries........................................         70         47         45        37         21
Net charge-offs...............................................        301         70        128       116        193
                                                                      ---      -----       ----      ----       ----
Additions charged to operations...............................        223        100        158       105        168
                                                                      ---       ----       ----      ----       ----
Balance at end of period......................................     $1,289       $861      $ 831      $801       $286
                                                                   ======       ====      =====      ====       ====

Ratio of net charge-offs during the period to average loans
    outstanding during the period.............................      0.2 %       0.1%       0.1%      0.2%       0.5%
                                                                    ====       ====      =====       ===        ===


Ratio of net charge-offs during the period to average non-
    performing assets.........................................     30.0 %       9.3%      15.4%      9.6%      25.4%
                                                                   =====       ====       ====       ===       ====

</TABLE>


                                       18

<PAGE>



     The distribution of the allowance for loan losses at the dates indicated is
summarized as follows:
<TABLE>


                                                                                              March 31,
                                  2000                         1999                           1998                          1997
                      ------------------------------------------------------------------------------------------------------------
                                          Percent                        Percent                       Percent
                                          of Loans                       of Loans                      of Loans
                                 Loan     in Each              Loan      in Each              Loan     in Each              Loan
                      Amount of  Amounts  Category  Amount of  Amounts   Category  Amount of  Amounts  Category  Amount of  Amounts
                      Loan Loss  by       to Total  Loan Loss  by        to Total  Loan Loss  by       to Total  Loan Loss  by
                      Allowance  Category Loans     Allowance  Category  Loans     Allowance  Category Loans     Allowance Category
                      ---------- --------------------------------------------------------------------------------------------------
                                                                                        (Dollars in Thousands)
<S>                     <C>      <C>        <C>      <C>        <C>        <C>      <C>        <C>       <C>      <C>        <C>
One- to four-family...  $185     $71,928    55.7%    $180       $61,992    63.0%    $221        $66,078  72.6%    $88       $62,413
Multi-family..........   ---       1,486     1.2      ---         1,179     1.2        2          1,497   1.6       3         1,104
Commercial real estate    99      15,216    11.8       34        10,136    10.3       45          8,970   9.9      67         6,877
Construction..........   ---       2,670     2.0      ---         2,513     2.6      ---            426   0.5     ---           832
Consumer..............    97      14,076    10.9       60         7,801     8.0       35          7,115   7.8      14         6,838
Commercial business...   431      23,539    18.3       80        14,747    14.9       52          6,942   7.6      22         4,794
Commercial agriculture   ---         148      .1      ---            17     ---      ---            ---   ---     ---           ---
Unallocated...........   477         ---     ---      507           ---     ---      476            ---   ---     607           ---
                         ---         ---     ---     ----       -------    -----    ----        -------  ----    ----       -------
     Total............$1,289    $129,063   100.0%    $861       $98,385   100.0%    $831        $91,028 100.0%   $801       $82,858
                      ======    ========   =====     ====       =======   =====     ====        ======= =====    ====       =======
</TABLE>



<TABLE>

                                               1996
                         -----------------------------------------
                         Percent                        Percent
                         of Loans                       of Loans
                         in Each              Loan      in Each
                         Category  Amount of  Amounts   Category
                         to Total  Loan Loss  by        to Total
                         Loans     Allowance  Category  Loans
                         -------- -----------------------------

<S>                       <C>      <C>        <C>        <C>
One- to four-family...    75.3%    $ 59       $38,944    87.5%
Multi-family..........     1.3      ---           215     0.5
Commercial real estate     8.3        4         2,509     5.7
Construction..........     1.0      ---         1,132     2.5
Consumer..............     8.3      ---           618     1.4
Commercial business...     5.8      ---         1,063     2.4
Commercial agriculture     ---      ---           ---     ---
Unallocated...........     ---      223           ---     ---
                          -----     ----       -------    ----
     Total............   100.0%    $286       $44,481   100.0%
                         =====     ====       =======   =====
</TABLE>




                                       19



<PAGE>



     The allowance for loan losses is  established  through a provision for loan
losses charged to earnings based on management's evaluation of the risk inherent
in its entire  loan  portfolio  and changes in the nature and volume of its loan
activity.  Such  evaluation,  which includes a review of all loans of which full
collectibility may not be reasonably assured,  considers the market value of the
underlying  collateral,  growth  and  composition  of the  loan  portfolio,  the
relationship of the allowance to outstanding loans,  historical loss experience,
delinquency  trends,  prevailing  and projected  economic  conditions  and other
factors that warrant recognition in providing for an adequate allowance for loan
losses.  In determining the general  reserves under these  policies,  historical
charge-offs and  recoveries,  changes in the mix and levels of the various types
of loans, net realizable values, the current loan portfolio and current economic
conditions are considered.

     While management  believes that it uses the best  information  available to
determine  the  allowance  for  loan  losses,  unforeseen  economic  and  market
conditions could result in adjustments to the allowance for loan losses, and net
earnings could be significantly  affected, if circumstances differ substantially
from the assumptions used in making the final determination.

Investment Activities

     General. Generally, the investment policy of the Company is to invest funds
among  categories of investments and maturities  based upon the  asset/liability
management  policies,  investment  quality,  loan and deposit volume,  liquidity
needs and performance  objectives.  The Company's securities are classified into
three categories:  trading, held to maturity and available-for-sale.  Securities
that are bought and held principally for the purpose of selling them in the near
term are  classified as trading  securities  and are reported at fair value with
unrealized  gains and losses  included  in  trading  account  activities  in the
statement of operations. Securities that the Company has the positive intent and
ability to hold to maturity are classified as  held-to-maturity  and reported at
amortized   cost.   All  other   securities   not   classified   as  trading  or
held-to-maturity  are classified as  available-for-sale.  At March 31, 2000, the
Company had no securities  which were classified as trading.  Available-for-sale
securities are reported at fair value with unrealized gains and losses included,
on an after-tax basis, in a separate  component of retained  earnings.  At March
31, 2000, $26.9 million of investment  securities or mortgage-backed and related
securities were classified as available-for-sale.

     The Company must maintain  minimum levels of  investments  and other assets
that qualify as liquid assets. Liquidity may increase or decrease depending upon
the  availability of funds and comparative  yields on investments in relation to
the return on loans. Historically,  Classic Bank has maintained liquid assets at
levels  significantly above the minimum  requirements imposed by the regulations
and  above  levels  believed   adequate  to  meet  the  requirements  of  normal
operations,  including  potential  deposit  outflows.  At March  31,  2000,  the
liquidity ratio (defined as cash and other financial  assets maturing within one
year)  was  4.87%.  See  "Management's  Discussion  and  Analysis  of  Financial
Condition  and  Results  of  Operations  -  Asset/Liability  Management"  and "-
Liquidity and Capital Resources" contained in Exhibit 13.

     Securities.  National banks and federally  chartered  savings  institutions
have the authority to invest in various types of liquid assets, including United
States Treasury  obligations,  securities of various federal  agencies,  certain
certificates  of deposit  of insured  banks and  savings  institutions,  certain
bankers'  acceptances,  repurchase  agreements  and  federal  funds.  Subject to
various   restrictions,   national   banks  and  federally   chartered   savings
institutions may also invest their assets in commercial paper,  investment grade
corporate  debt  securities  and  mutual  funds  whose  assets  conform  to  the
investments  that  a  federally   chartered  savings  institution  is  otherwise
authorized to make directly.

     The  Company   invests  in  liquidity   investments   and  in  high-quality
investments,  such  as  U.S.  Treasury  and  agency  obligations,  in  order  to
supplement  lending volume and provide  collateral for FHLB borrowing and public
funds  deposited  with the Company.  Investment  securities  may also be used to
adjust the term to

                                       20

<PAGE>



repricing of the Company's assets.  At March 31, 2000, the Company's  investment
securities  portfolio totaled $25.1 million.  At March 31, 2000, the Company did
not own any  investment  securities of a single issuer which exceeded 10% of the
Company's  stockholders'  equity,  other  than U.S.  government  securities  and
federal  agency  obligations.  See  Note 3 of  the  Notes  to  the  Consolidated
Financial  Statements  in Exhibit 13 for  additional  information  regarding the
Company's investment securities portfolio.

     The following table sets forth the composition of the Company's  securities
at the dates  indicated.  All  investment  securities  held by the Company  were
classified as available for sale.
<TABLE>


                                                                               March 31,
                                                          2000                   1999                  1998
                                                 ---------------------- ------------------------------------------
                                                   Carrying     % of     Carrying      % of     Carrying     % of
                                                     Value      Total      Value       Total      Value      Total
                                                                        (Dollars in Thousands)
<S>                                               <C>            <C>      <C>          <C>        <C>         <C>
Investment securities:
  U.S. government securities..................... $   995        4.0     $ 1,017        3.8      $1,275        6.5
  Federal agency obligations.....................   3,202       12.7       3,032       11.5       7,826       40.2
  Municipal bonds................................  14,931       59.4      15,872       59.8       8,804       45.2
  Other debt securities..........................   3,987       15.9       4,449       16.8         272        1.4
  Other equity securities........................     558        2.2         771        2.9         ---        ---
FHLB and FRB stock...............................   1,462        5.8       1,385        5.2       1,297        6.7
                                                  -------        ---     -------      -----     -------       ----
     Total securities and FHLB and FRB stock..... $25,135      100.0%    $26,526      100.0%    $19,474      100.0%
                                                  =======      =====     =======      =====     =======      =====

Average remaining life of investment securities..  14 yrs                 12 yrs                 10 yrs

Other interest-earning assets:
  Interest-bearing deposits with banks........... $    60       31.4%    $   133        8.7%    $   410       26.6%
  Federal Funds Sold and securities purchased
   under agreement to resell.....................     131       68.6       1,398       91.3       1,131       73.4
</TABLE>



     The composition and maturities of the securities portfolio,  excluding FHLB
and FRB stock, are indicated in the following table.

<TABLE>

                                                                     March 31, 2000
                                      ---------------------------------------------------------------------------
                                      Less Than      1 to 5       5 to 10        Over
                                       1 Year         Years        Years       10 Years        Total Securities
                                                                                          ---------------------
                                      Carrying      Carrying     Carrying      Carrying     Carrying       Market
                                        Value         Value        Value         Value        Value         Value
                                      ---------------------------------------------------------------------------
                                                                 (Dollars in Thousands)
<S>                                    <C>            <C>        <C>            <C>          <C>          <C>

U.S. government securities..........   $496          $  499      $  ---        $   ---      $   995       $   995
Federal agency obligations..........    ---             ---       3,202            ---        3,202         3,202
Municipal bonds.....................     45           2,092       2,896          9,898       14,931        14,931
Corporate debt securities...........    ---             ---         ---          3,987        3,987         3,987
Corporate equity securities.........    ---             ---         ---            558          558           558
                                       ----          ------      ------         ------      -------      --------
Total securities....................   $541          $2,591      $6,098        $14,443      $23,673       $23,673
                                       ====          ======      ======        =======      =======      ========

Weighted average yield(1)...........    4.8%            6.8%        7.8%           7.6%         7.5%          7.5%
</TABLE>



(1) Yields have been computed on a tax-equivalent basis.


                                       21

<PAGE>



     See Note 3 of the Notes to the Consolidated  Financial Statements contained
in Exhibit 13 for a discussion of the Company's securities portfolio.

     Mortgage-Backed  and Related  Securities.  In order to supplement  loan and
investment  activities,  the Company has invested in mortgage-backed and related
securities.

     Consistent with its asset/liability  management strategy at March 31, 2000,
$1.3 million, or 39.1% of the Company's  mortgage-backed and related securities,
have adjustable  interest rates. For information  regarding the  mortgage-backed
and related  securities  portfolio,  see Note 3 of the Notes to the Consolidated
Financial Statements contained in Exhibit 13.

     As of March 31, 2000,  all of the  mortgage-backed  and related  securities
owned by the Company  were  issued,  insured or  guaranteed  either  directly or
indirectly  by a federal  agency.  As a  result,  the  Company  did not have any
mortgage-backed or related  securities in excess of 10% of stockholders'  equity
except for federal agency obligations.

     In addition to its conventional  mortgage-backed  securities,  from time to
time, the Company invests in collateralized  mortgage  obligations  ("CMOs") and
real  estate  mortgage  investment  conduits  ("REMICs").  CMOs and  REMICs  are
securities   derived  by  reallocating  the  cash  flows  from   mortgage-backed
securities or pools of mortgage loans in order to create  multiple  classes,  or
tranches, of securities with coupon rates and average lives that differ from the
underlying  collateral  as a whole.  The  terms to  maturity  of any  particular
tranche is dependent upon the prepayment  speed of the underlying  collateral as
well as the structure of the particular CMO or REMIC. As a result, the cash flow
and hence the value of CMOs and REMICs are  subject to  substantial  change.  At
March 31, 2000, the Company had $428,000 of CMOs.

     To assess price volatility,  the Federal Financial Institutions Examination
Council  ("FFIEC")  adopted a policy in 1992 which  requires an annual  "stress"
test of mortgage  derivative  securities.  This policy requires Classic Bank and
Paintsville  Bank  to  annually  test  their  CMOs  and  other  mortgage-related
securities to determine  whether they are high-risk or nonhigh-risk  securities.
Mortgage  derivative products with an average life or price volatility in excess
of a benchmark 30-year,  mortgage-backed,  pass-through  security are considered
high-risk  mortgage  securities.  Under the  policy,  savings  institutions  may
generally  only  invest  in  high-risk  mortgage  securities  in order to reduce
interest rate risk.  In addition,  all high-risk  mortgage  securities  acquired
after February 9, 1992 which are classified as high risk at the time of purchase
must be carried in the institution's trading account or as assets held for sale.
At  March  31,  2000,  none of the  Company's  mortgage-backed  securities  were
classified as "high-risk."

     The following table sets forth the contractual  maturities of the Company's
mortgage-backed securities at March 31, 2000.
<TABLE>


                                                                                       March 31, 2000
                                    Over 1 to 5   Over 5 to   Over 10 to     Over 20       Balance
                                       Years      10 Years     20 Years       Years      Outstanding
                                   ------------ ------------ ------------ ------------ -------------
                                                             (in Thousands)
<S>                                  <C>         <C>          <C>            <C>         <C>
Freddie Mac.......................   $  ---      $   694      $   ---        $ ---       $     694
Fannie Mae........................      ---          ---          782          667           1,449
GNMA..............................      ---          ---          ---          486             486
Other.............................      ---          ---          173          ---             173
CMOs and REMICs...................      ---          428          ---          ---             428
                                     ------         ----          ---       ------             ---

     Total........................  $   ---      $ 1,122      $   995       $1,153       $   3,230
                                     ======       ======      =======       =======          =====
</TABLE>



                                       22

<PAGE>



     At March 31, 2000,  the dollar  amount of all  mortgage-backed  and related
securities due after March 31, 2001, which had fixed interest rates and floating
or adjustable rates totaled $1.9 million and $1.3 million, respectively.

     The market values of a portion of the Company's mortgage-backed and related
securities  held-to-  maturity  have  been from time to time  lower  than  their
carrying values.  However,  for financial reporting  purposes,  such declines in
value are  considered  to be  temporary  in nature  since  they have been due to
changes in interest rates rather than credit  concerns.  See Note 3 of the Notes
to the Consolidated Financial Statements contained in Exhibit 13.

     The  following  table sets  forth the  composition  of the  mortgage-backed
securities at the dates indicated.
<TABLE>


                                                                               March 31,
                                                 -----------------------------------------------------------------
                                                          2000                   1999                  1998
                                                 -----------------------------------------------------------------
                                                  Amortized   Market     Amortized   Market    Amortized    Market
                                                    Cost       Value       Cost       Value      Cost        Value
                                                 -----------------------------------------------------------------
                                                                        (Dollars in Thousands)
<S>                                                 <C>       <C>         <C>        <C>          <C>        <C>
Mortgage-backed securities available for sale:
 Freddie Mac.....................................   $1,210     $1,181     $   891    $   904     $2,989      $3,031
 Fannie Mae......................................    1,468      1,449       2,473      2,436      2,546       2,546
  Other..........................................      175        172         712        713        828         826
  CMOs/REMICs....................................      439        428         439        426      1,442       1,428
                                                  --------  ---------    --------    -------     ------      ------
       Total mortgage-backed securities..........   $3,292     $3,230      $4,515     $4,479     $7,805      $7,831
                                                    ======     ======      ======     ======     ======      ======
</TABLE>




     The following table shows  mortgage-backed and related securities purchase,
sale and repayment activities for the periods indicated.
<TABLE>


                                                                                          Year Ended March 31,
                                                               ---------------------------------------------------------------------
                                                                             2000               1999               1998
                                                               ---------------------------------------------------------------------
                                                                                           (In Thousands)
<S>                                                                      <C>              <C>                 <C>
  Purchases:
  Adjustable-rate(1)..........................................           $    ---          $     ---         $      ---
  Fixed-rate(1)...............................................                ---              3,840              1,744
  CMOs and REMICs.............................................                ---                ---                438
                                                                       ----------           --------            -------
         Total purchases......................................                ---              3,840              2,182
                                                                       ----------              -----             ------

Sales:
  Adjustable-rate(1)..........................................                ---                685                ---
  Fixed-rate(1)...............................................                ---              3,387                ---
  CMOs and REMICs.............................................                ---              1,003              1,012
                                                                      -----------             ------             ------
         Total sales..........................................                ---              5,075              1,012
                                                                      -----------              -----              -----

Principal repayments..........................................             (1,176)            (1,982)            (1,285)
Other increases (decreases), net..............................               ( 47)               (73)               (20)
                                                                        ----------         ----------           --------
     Net increase (decrease)..................................            $(1,223)           $(3,290)            $ (135)
                                                                          =======            =======             ======
</TABLE>


(1)  Consists of pass-through securities.

                                       23

<PAGE>



Sources of Funds

     General.  The Company's  primary  sources of funds are  deposits,  payments
(including  prepayments)  of  loan  principal,  interest  earned  on  loans  and
securities,  repayments  of  securities,  borrowings  and  funds  provided  from
operations.  Borrowings  may be used on a  short-term  basis to  compensate  for
seasonal reductions in deposits or deposit inflows at less than projected levels
and may be used on a longer-term basis to support expanded lending activities.

     Deposits.  The  Company  offers  deposit  accounts  having a wide  range of
interest  rates and terms.  The Company's  deposits  consist of passbook,  money
market,  various  certificate and interest- and  noninterest-  bearing  checking
accounts.  The Company  also cross  markets to current  customers  and  utilizes
newspaper and radio  advertisements.  The Company  currently relies primarily on
competitive  pricing  policies  and  customer  service  to  attract  and  retain
deposits.

     The  Company   serves  as  a  depository   for  public  funds  for  various
municipalities  and related  entities.  At March 31, 2000,  the amount of public
funds on deposit with the Company was $11.6 million.  These accounts are subject
to volatility  depending on government funding needs and the Company's desire to
attract such funds.

     The Company  currently  manages the pricing of its deposits in keeping with
its  asset/liability  management,   profitability  and  growth  objectives.  For
additional  information regarding the Company's deposit accounts,  see Note 6 of
the Notes to the Consolidated Financial Statements contained in Exhibit 13.

     The following  table sets forth the savings flows at the Company during the
periods indicated.

<TABLE>

                                                                                     Year Ended March 31,
                                                                      ------------------------------------------------
                                                                         2000              1999               1998
                                                                      ------------------------------------------------
                                                                                    (Dollars in Thousands)

<S>                                                                     <C>               <C>               <C>
Opening balance...............................................          $117,732          $104,927          $100,519
Acquisition of Citizens Bank..................................            11,982               ---               ---
Deposits......................................................         1,080,662           741,087           507,555
Withdrawals...................................................        (1,079,392)         (731,714)         (506,091)
Interest credited.............................................             3,913             3,432             2,944
                                                                      ----------       -----------        ----------

Ending balance................................................          $134,897          $117,732          $104,927
                                                                        ========          ========          ========

Net increase (decrease).......................................           $17,165         $  12,805        $    4,408
                                                                         =======         =========        ==========

Percent increase (decrease)...................................             14.6 %             12.2%              4.4%
                                                                           =====              ====               ===
</TABLE>


                                       24

<PAGE>



     The following table sets forth the dollar amount of savings deposits in the
various types of deposit programs offered as of the dates indicated.
<TABLE>


                                                                          As of March 31,
                                              ---------------------------------------------------------------------
                                                        2000                   1999                    1998
                                              ---------------------------------------------------------------------
                                                            Percent                Percent                 Percent
                                                 Amount     of Total    Amount     of Total     Amount     of Total
                                                                      (Dollars in Thousands)
<S>                                               <C>         <C>        <C>         <C>         <C>          <C>
Deposits:

Non-interest bearing demand deposits..........     $14,749    10.9%      9,600       8.2%      $ 10,152      9.7%
Interest bearing demand deposits - 2.4%(1)....      22,195    16.4      15,919      13.5         10,281      9.8
Savings Accounts - 2.7%(1)....................      12,736     9.4      12,156      10.3         10,722     10.2
Money Market Accounts - 3.3%(1)...............      10,877     8.2       7,599       6.5          9,331      8.9
                                                ----------    ----      ------      ----       --------     ----
     Total Deposits...........................     $60,557    44.9%   $ 45,274      38.5%      $ 40,486     38.6%
                                                 =========    ====     =======      ====       ========     ====

Certificates:

0.00 -  4.00%.................................      $1,055      .8$      1,389       1.2 $        1,128      1.1
4.01 -  6.00%.................................      61,018    45.2      68,356      58.0         50,657     48.2
6.01 -  8.00%.................................      12,267     9.1       2,713       2.3         12,556     12.0
8.01 - 10.00%.................................         ---     ---         ---       ---            100      0.1
                                                 ---------    ----    --------     -----         ------    -----
Total Certificates............................      74,340    55.1      72,458      61.5         64,441     61.4
                                                 ---------    ----    ---------    -----       --------     -----
     Total Deposits...........................    $134,897   100.0%   $117,732     100.0%      $104,927     100.0%
                                                  ========   =====    ========     =====       ========     =====
</TABLE>

(1) Interest rate offered at March 31, 2000.

     The following  table shows rate and maturity  information for the Company's
certificates of deposit as of March 31, 2000.
<TABLE>


                                         0.00-      4.01-         6.01-         8.01-                  Percent
                                         4.00%       6.00%         8.00%      or greater      Total    of Total
                                     ----------------------------------------------------------------------------
                                                                 (Dollars in Thousands)
Certificate accounts maturing in
quarter ending:
<S>                                      <C>        <C>             <C>           <C>          <C>         <C>
June 30, 2000........................   $1,045     $ 16,979        $1,129         $---      $19,153      25.7%
September 30, 2000...................       10       12,965           391          ---       13,366      18.0
December 31, 2000....................      ---       10,873           532          ---       11,405      15.3
March 31, 2001.......................      ---        8,417         5,212          ---       13,629      18.3
June 30, 2001........................      ---        3,827         1,714          ---        5,541       7.5
September 30, 2001...................      ---        3,915         1,180          ---        5,095       6.9
December 31, 2001....................      ---          445         1,252          ---        1,697       2.3
March 31, 2002.......................      ---          734           335          ---        1,069       1.4
June 30, 2002........................      ---          860           ---          ---          860       1.2
September 30, 2002...................      ---          374            56          ---          430        .6
December 31, 2002....................      ---          159            11          ---          170        .2
March 31, 2003.......................      ---          142            72          ---          214        .3
Thereafter...........................      ---        1,328           383          ---        1,711       2.3
                                        ------    ---------    ----------    ----------   ----------      ----
 Total.............................     $1,055      $61,018       $12,267           ---      $74,340     100.0
                                        ======      =======      ========    ==========      =======     =====

   Percent of total..................      1.4%        82.1%         16.5%          ---%       100.0%
</TABLE>



                                       25

<PAGE>



     The following table indicates the amount of the certificates of deposit and
other deposits by time remaining until maturity as of March 31, 2000.

<TABLE>

                                                                           Maturity
                                                       --------------------------------------------------
                                                                       Over         Over
                                                        3 Months      3 to 6       6 to 12       Over
                                                         or Less      Months       Months      12 months      Total
                                                       ---------------------------------------------------------------
                                                                               (In Thousands)
<S>                                                      <C>           <C>         <C>          <C>          <C>

Certificates of deposit less than $100,000...........    $12,690       $9,668      $16,489      $11,332      $50,179
Certificates of deposit of $100,000 or more..........      5,894        2,957        8,096        5,327       22,274
Public funds.........................................        569          741          449          128        1,887
                                                       ---------    ---------  -----------   ----------  -----------
Total certificates of deposit........................    $19,153      $13,366      $25,034      $16,787      $74,340
                                                         =======      =======      =======      =======      =======
</TABLE>




     For  additional  information  regarding  the  composition  of the Company's
deposits,  see Note 6 of the  Notes  to the  Consolidated  Financial  Statements
contained in Exhibit 13.

     Borrowings. Other available sources of funds include advances from the FHLB
of  Cincinnati  and other  borrowings.  As  members  of the FHLB of  Cincinnati,
Classic Bank and Paintsville  Bank are required to own capital stock in the FHLB
of  Cincinnati  and are  authorized  to  apply  for  advances  from  the FHLB of
Cincinnati.  Each FHLB credit  program has its own interest  rate,  which may be
fixed or variable, and range of maturities. The FHLB of Cincinnati may prescribe
the acceptable  uses for these  advances,  as well as limitations on the size of
the advances and repayment provisions.

     FHLB  borrowings  are also used to fund loan  demand  and other  investment
opportunities and to offset deposit outflows. At March 31, 2000, the Company had
$17.1 of FHLB advances outstanding.  See Note 7 of the Notes to the Consolidated
Financial Statements contained in Exhibit 13.


                                       26

<PAGE>



     The following  table sets forth the maximum  month-end  balance and average
balance of the Company's borrowings for the periods indicated.
<TABLE>


                                                                                     Year Ended March 31,
                                                                         ------------------------------------------
                                                                            2000             1999             1998
                                                                         ------------------------------------------
                                                                                        (In Thousands)
<S>                                                                        <C>              <C>              <C>
Maximum Balance:
  Repurchase agreements.........................................           $4,251           $3,516           $3,681
  Federal funds purchased.......................................              749            1,333              ---
Other Borrowings
     Treasury tax and loan note.................................              897              428              704
     Notes payable..............................................              536              550              650
     FHLB advances..............................................          $17,075           $5,520           $8,378

Average Balance:
  Repurchase agreements.........................................            2,989            2,409            3,589
  Federal funds purchased.......................................              263              559              ---
Other Borrowings
     Treasury tax and loan note.................................              468              143              317
     Notes payable..............................................              210              348              613
     FHLB advances..............................................            8,930            1,797            5,813

Weighted average interest rate..................................              4.9%             5.3%             6.0%
</TABLE>




                                       27

<PAGE>



     The  following  table sets forth  certain  information  as to the Company's
borrowings at the dates indicated.
<TABLE>


                                                                                      March 31,
                                                               -----------------------------------------------
                                                                     2000              1999               1998
                                                               ----------------- ----------------- -----------
                                                                                (Dollars in Thousands)
<S>                                                                <C>               <C>                <C>
Repurchase agreements........................................      $2,652            $2,099             $3,522
Federal funds purchased.......................................         36               718                ---
Other Borrowings
Treasury tax and loan note..................................          574                85                274
  Notes payable...............................................        ---               ---                550
  FHLB advances...............................................    $17,075           $   388                ---
                                                                  -------            ------            -------
Total Borrowings..............................................    $20,337            $3,290             $4,346
                                                                  =======            ======             ======

Weighted average interest rate of repurchase
agreements and federal funds purchased........................        5.7%              4.7%               5.4%
Weighted average interest rate of
other borrowings..............................................        6.3%              6.1%               7.5%
</TABLE>


Trust Services

     In order to  generate  fee income and  provide a broad range of services to
its  customers,  Paintsville  Bank  provides a variety of trust  services to its
customers. Such services include managing and investing trust assets, disbursing
funds as required by trust agreements and arranging for maintenance at two local
cemeteries. For fiscal 2000, gross trust fees were less than $1,000.

Subsidiary Activities

     Federal  Savings  Associations.  As a  federally  chartered  savings  bank,
Classic Bank is permitted by OTS regulations to invest up to 2% of its assets in
the stock of, or loans to, service corporation  subsidiaries,  and may invest an
additional 1% of its assets in service  corporations where such additional funds
are used for  inner-city  or  community  development  purposes.  In  addition to
investments  in service  corporations,  federal  institutions  are  permitted to
invest  an  unlimited  amount  in  operating   subsidiaries  engaged  solely  in
activities which a federal savings association may engage in directly.  At March
31, 2000, Classic Bank had no subsidiaries.

     National  Banks.  A national bank may establish an operating  subsidiary to
engage  in  activities  incidental  to the  business  of  banking.  There are no
investment or geographic  limitations  on the  establishment  of a national bank
operating subsidiary. At March 31, 2000, Paintsville Bank had no subsidiaries.

Competition

     The Company  faces  strong  competition  both in  originating  loans and in
attracting  deposits.  Competition  in  originating  loans comes  primarily from
commercial banks, savings institutions, credit unions and mortgage bankers which
also make loans to borrowers  located in the Company's  primary  market area. At
March 31, 2000,  there were seven savings  institutions,  eight commercial banks
and five credit unions located in Boyd,  Johnson,  Greenup and Carter  Counties,
Kentucky.  On that date,  the  Company's  market  share of total  loans in these
counties was approximately 10.2%. The Company competes for loans

                                       28

<PAGE>



principally  on the basis of the  interest  rates and loan fees it charges,  the
types of loans  it  originates  and the  quality  of  services  it  provides  to
borrowers.

     Competition for deposits comes principally from commercial  banks,  savings
institutions,  credit unions,  mutual funds and securities  firms located in the
same  communities.  The ability of the  Company to attract  and retain  deposits
depends on its ability to provide an investment  opportunity  that satisfies the
requirements  of investors  as to rate of return,  liquidity,  risk,  convenient
locations and other factors. The Company competes for these deposits by offering
competitive rates,  convenient  business hours and a customer oriented staff. At
March 31,  2000,  the  Company's  share of deposits in the above market area was
approximately 9%.

Employees

     At March 31,  2000,  the  Company  and its  subsidiaries  had a total of 73
full-time  employees.  None of the Company's  employees are  represented  by any
collective bargaining agreement.  Management considers its employee relations to
be good.

                                   REGULATION

General

     Classic Bank is a federally chartered savings association,  the deposits of
which are  federally  insured  and  backed by the full  faith and  credit of the
United States Government.  Accordingly, Classic Bank is subject to broad federal
regulation  and  oversight  extending to all its  operations.  Classic Bank is a
member of the FHLB of Cincinnati and is subject to certain limited regulation by
the Federal Reserve Board.  Classic Bank is a member of the Savings  Association
Insurance  Fund  ("SAIF")  and the  deposits of Classic  Bank are insured by the
FDIC. As a result,  the FDIC has certain  regulatory and  examination  authority
over Classic Bank.

     Paintsville Bank is a national bank and its deposit accounts are insured by
the Bank  Insurance  Fund ("BIF") of the FDIC. As a national  bank,  Paintsville
Bank is required to file  reports with the OCC  concerning  its  activities  and
financial  condition  and is required to obtain  regulatory  approvals  prior to
entering into certain transactions,  including mergers with, or acquisitions of,
other depository institutions.  As a national bank, Paintsville Bank is required
to be a member of the Federal  Reserve  System.  As the bank holding  company of
Paintsville  Bank,  the  Company  is  subject to  supervision,  examination  and
regulation by the Federal Reserve Board.

     Certain of these  regulatory  requirements  and  restrictions are discussed
below or elsewhere in this document.

Federal Regulation of Savings Associations and National Banks

     The  OTS  has   extensive   authority   over  the   operations  of  savings
associations.  As part of  this  authority,  Classic  Bank is  required  to file
periodic reports with the OTS and is subject to periodic examinations by the OTS
and the FDIC. When these examinations are conducted by the OTS and the FDIC, the
examiners  may require  Classic  Bank to provide for higher  general or specific
loan loss  reserves.  All  savings  associations  are  subject to a  semi-annual
assessment,  based upon the  savings  association's  total  assets,  to fund the
operations of the OTS.  Classic  Bank's OTS assessment for the fiscal year ended
March 31, 2000 was $25,000.


                                       29

<PAGE>



     The  OTS  also  has  extensive   enforcement  authority  over  all  savings
institutions, including Classic Bank. This enforcement authority includes, among
other  things,   the  ability  to  assess  civil  money   penalties,   to  issue
cease-and-desist  or  removal  orders and to  initiate  injunctive  actions.  In
general,  these enforcement  actions may be initiated for violations of laws and
regulations  and unsafe or unsound  practices.  Other  actions or inactions  may
provide  the basis for  enforcement  action,  including  misleading  or untimely
reports  filed  with  the  OTS.  Except  under  certain  circumstances,   public
disclosure of final enforcement actions by the OTS is required.

     In addition,  the  investment,  lending and branching  authority of Classic
Bank is  prescribed  by federal laws and it is  prohibited  from engaging in any
activities not permitted by such laws. For instance,  no savings institution may
invest in  non-investment  grade  corporate debt  securities.  In addition,  the
permissible  level of  investment  by federal  associations  in loans secured by
non-residential real property may not exceed 400% of total capital,  except with
approval of the OTS. Federal savings  associations are also generally authorized
to branch nationwide. Classic Bank is in compliance with the noted restrictions.
Within the  Commonwealth  of Kentucky,  Paintsville  Bank is permitted to branch
only  within  the  county  in  which  its  principal  office  is  located.   See
"--Interstate  Banking and Branching" for restrictions  applicable to interstate
branching by Paintsville Bank.

     The OCC has extensive  authority over the operations of national  banks. As
part of this authority,  Paintsville  Bank is required to file periodic  reports
with the OCC and is subject to periodic  examinations  by the OCC.  All national
banks are  subject to a  semi-annual  assessment,  based  upon the bank's  total
assets, to fund the operations of the OCC. Paintsville Bank's assessment for the
fiscal year ended March 31, 2000 was $30,000.

     The OCC also has extensive  enforcement  authority over all national banks,
including  Paintsville Bank. This enforcement  authority  includes,  among other
things, the ability to assess civil money penalties,  to issue  cease-and-desist
or  removal  orders  and to  initiate  injunctive  actions.  In  general,  these
enforcement  actions may be initiated for violations of laws and regulations and
unsafe or unsound practices. Other actions or inactions may provide the basis of
enforcement action, including misleading or untimely reports filed with the OCC.
Except under  certain  circumstances,  public  disclosure  of final  enforcement
actions by the OCC is required.

     Classic Bank's and Paintsville  Bank's general  permissible  lending limits
for  loans to one  borrower  are  equal to the  greater  of  $500,000  or 15% of
unimpaired  capital  and  surplus  (except  for loans  fully  secured by certain
readily marketable  collateral,  in which case each limit is increased to 25% of
unimpaired capital and surplus). At March 31, 2000, Classic Bank's lending limit
was  $1.2  million.  On such  date,  Classic  Bank  was in  compliance  with the
loans-to-one-borrower  limitation. At March 31, 2000, Paintsville Bank's lending
limit was $990,000.  On such date,  Paintsville Bank was in compliance with this
limit.

     The OTS, as well as other federal banking agencies,  has adopted guidelines
establishing safety and soundness standards on such matters as loan underwriting
and  documentation,  internal  controls and audit  systems,  interest  rate risk
exposure and compensation  and other employee  benefits.  Any institution  which
fails to comply with these standards must submit a compliance plan. A failure to
submit a plan or to comply with an approved plan will subject the institution to
further  enforcement action. The OTS and the other federal banking agencies have
also proposed additional guidelines on asset quality and earnings standards.  No
assurance  can be given as to whether or in what form the  proposed  regulations
will be adopted. Paintsville Bank is subject to substantially similar guidelines
adopted by the OCC.


                                      30

<PAGE>



Insurance of Accounts and Regulation by the FDIC

     Classic Bank is a member of the SAIF, and  Paintsville  Bank is a member of
the BIF, both of which are administered by the FDIC.  Deposits are insured up to
applicable limits by the FDIC and such insurance is backed by the full faith and
credit of the United States  Government.  As insurer,  the FDIC imposes  deposit
insurance  premiums and is authorized to conduct  examinations of and to require
reporting by FDIC-insured  institutions.  It also may prohibit any  FDIC-insured
institution  from engaging in any activity the FDIC  determines by regulation or
order  to pose a  serious  risk to the SAIF or the  BIF.  The FDIC  also has the
authority to initiate  enforcement  actions  against  savings  associations  and
national  banks,  after  giving  the OTS or the  OCC,  as the  case  may be,  an
opportunity  to take such action,  and may  terminate an  institution's  deposit
insurance if it determines that the institution has engaged in unsafe or unsound
practices or is in an unsafe or unsound condition.

     The FDIC's  deposit  insurance  premiums are assessed  through a risk-based
system under which all insured  depository  institutions  are placed into one of
nine  categories  and  assessed  insurance  premiums  based upon their  level of
capital and supervisory evaluation. Under the system, institutions classified as
well  capitalized  (i.e., a core capital ratio of at least 5%, a ratio of Tier 1
or core capital to  risk-weighted  assets  ("Tier 1  risk-based  capital") of at
least 6% and a risk-based  capital ratio of at least 10%) and considered healthy
pay the  lowest  premium  while  institutions  that  are  less  than  adequately
capitalized (i.e., core or Tier 1 risk-based capital ratios of less than 4% or a
risk-based  capital  ratio  of less  than  8%)  and  considered  of  substantial
supervisory concern pay the highest premium.  Risk classification of all insured
institutions is made by the FDIC for each semi-annual assessment period.

Regulatory Capital Requirements of Federal Savings Associations

     Federally insured savings associations,  such as Classic Bank, are required
to  maintain a minimum  level of  regulatory  capital.  The OTS has  established
capital standards,  including a tangible capital  requirement,  a leverage ratio
(or core capital) requirement and a risk-based capital requirement applicable to
such  savings  associations.  These  capital  requirements  must be generally as
stringent as the comparable capital  requirements for national banks. The OTS is
also  authorized to impose capital  requirements in excess of these standards on
individual associations on a case-by-case basis.

     The  capital  regulations  require  tangible  capital  of at least  1.5% of
adjusted total assets (as defined by  regulation).  Tangible  capital  generally
includes  common   stockholders'   equity  and  retained  income,   and  certain
noncumulative  perpetual  preferred stock and related income.  In addition,  all
intangible  assets,  other than a limited amount of purchased mortgage servicing
rights,  must be deducted from tangible capital for calculating  compliance with
the requirement.  At March 31, 2000,  Classic Bank had intangible assets of $3.1
million which represented goodwill.

     The OTS  regulations  establish  special  capitalization  requirements  for
savings associations that own subsidiaries.  In determining  compliance with the
capital requirements,  all subsidiaries engaged solely in activities permissible
for national  banks or engaged in certain other  activities  solely as agent for
its customers are  "includable"  subsidiaries  that are consolidated for capital
purposes  in  proportion  to  Classic's  level  of  ownership.   For  excludable
subsidiaries the debt and equity  investments in such  subsidiaries are deducted
from assets and capital.

     At March 31, 2000,  Classic Bank had tangible  capital of $7.1 million,  or
7.2% of adjusted  total assets,  which is  approximately  $5.6 million above the
minimum requirement of 1.5% of adjusted total assets in effect on that date.


                                       31

<PAGE>



     The capital  standards  also require  core capital  equal to at least 3% of
adjusted total assets.  Core capital generally consists of tangible capital plus
certain intangible  assets,  including a limited amount of purchased credit card
relationships.  As a result of the prompt corrective action provisions discussed
below,  however, a savings  association must maintain a core capital ratio of at
least  4%  to  be  considered  adequately  capitalized  unless  its  supervisory
condition is such to allow it to maintain a 3% ratio. At March 31, 2000, Classic
Bank had no intangibles which were subject to these tests.

     At March 31, 2000, Classic Bank had core capital equal to $7.1 million,  or
7.2% of adjusted total assets,  which is $4.1 million above the minimum leverage
ratio requirement of 3% as in effect on that date.

     The OTS risk-based  requirement requires savings associations to have total
capital of at least 8% of risk-weighted  assets.  Total capital consists of core
capital,  as defined above, and  supplementary  capital.  Supplementary  capital
consists of certain  permanent  and  maturing  capital  instruments  that do not
qualify as core capital and general  valuation loan and lease loss allowances up
to a maximum of 1.25% of risk-weighted assets. Supplementary capital may be used
to satisfy the risk-based  requirement  only to the extent of core capital.  The
OTS is  also  authorized  to  require  a  savings  association  to  maintain  an
additional  amount of total capital to account for  concentration of credit risk
and the risk of non-traditional  activities. At March 31, 2000, Classic Bank had
no capital  instruments  that qualify as  supplementary  capital and $764,000 of
general loss reserves, which was less than 1.25% of risk-weighted assets.

     Certain  exclusions from capital and assets are required to be made for the
purpose  of  calculating  total  capital.  Such  exclusions  consist  of  equity
investments  (as  defined  by  regulation)  and that  portion  of land loans and
nonresidential  construction  loans in excess of an 80% loan-to-value  ratio and
reciprocal holdings of qualifying capital instruments.

     In determining the amount of risk-weighted  assets,  all assets,  including
certain  off-balance sheet items,  will be multiplied by a risk weight,  ranging
from 0% to 100%,  based on the risk inherent in the type of asset.  For example,
the OTS has assigned a risk weight of 50% for prudently  underwritten  permanent
one- to four-family  first lien mortgage loans not more than 90 days  delinquent
and  having a loan to value  ratio of not more  than 80% at  origination  unless
insured to such ratio by an insurer approved by the FNMA or FHLMC.

     On  March  31,  2000,  Classic  Bank  had  total  capital  of $7.8  million
(including $7.1 million in core capital and $764,000 in qualifying supplementary
capital) and risk-weighted  assets of $66.6 million or total capital of 11.8% of
risk-weighted assets. This amount was $2.5 million above the 8.0% requirement in
effect on that date.

Regulatory Capital Requirements of National Banks

     Paintsville  Bank is subject to the  capital  regulations  of the OCC.  The
OCC's regulations establish two capital standards for national banks: a leverage
requirement and a risk-based capital requirement. In addition, the OCC may, on a
case-by-case  basis,  establish  individual  minimum capital  requirements for a
national bank that vary from the requirements  which would otherwise apply under
OCC regulations.  A national bank that fails to satisfy the capital requirements
established under the OCC's  regulations will be subject to such  administrative
action or sanctions as the OCC deems appropriate.

     The leverage  ratio  adopted by the OCC requires a minimum ratio of "Tier 1
capital" to adjusted  total  assets of 3% for national  banks rated  composite 1
under the CAMELS rating system for banks.  National banks not rated  composite 1
under the CAMELS  rating  system for banks are  required  to  maintain a minimum
ratio of Tier 1 capital to adjusted total assets of 4% to 5%, depending upon the
level  and  nature  of risks of their  operations.  For  purposes  of the  OCC's
leverage requirement, Tier 1 capital generally consists of the

                                       32

<PAGE>



same components as core capital under the OTS's capital regulations, except that
no intangibless,  other than certain purchased  mortgage  servicing rights,  and
purchased credit card receivables may be included in capital.

     The risk-based  capital  requirements  established by the OCC's regulations
require national banks to maintain "total capital" equal to at least 8% of total
risk-weighted assets. For purposes of the risk-based capital requirement, "total
capital"  means Tier 1 capital (as  described  above) plus "Tier 2 capital"  (as
described below),  provided that the amount of Tier 2 capital may not exceed the
amount of Tier 1 capital,  less certain assets. The components of Tier 2 capital
under  the  OCC's  regulations   generally   correspond  to  the  components  of
supplementary   capital  under  OTS  regulations.   Total  risk-weighted  assets
generally are determined under the OCC's regulations in the same manner as under
the OTS's  regulations.  At March 31, 2000,  Paintsville  Bank was in compliance
with its capital  requirements.  See  "Management's  Discussion  and Analysis of
Financial   Condition   and  Results  of  Operations  -  Liquidity  and  Capital
Resources", contained in Exhibit 13 to this Report and incorporated by reference
herein, for additional  information regarding Paintsville Bank's compliance with
its capital requirements.

Prompt Corrective Action

     The OTS and the  FDIC  are  authorized  and,  under  certain  circumstances
required, to take certain actions against savings associations that fail to meet
their  capital  requirements.  The OTS is  generally  required to take action to
restrict the activities of an "undercapitalized  association" (generally defined
to be  one  with  less  than  either  a 4%  core  capital  ratio,  a 4%  Tier  1
risked-based  capital  ratio  or an  8%  risk-based  capital  ratio).  Any  such
association  must  submit a  capital  restoration  plan and  until  such plan is
approved by the OTS may not increase its assets,  acquire  another  institution,
establish a branch or engage in any new  activities,  and generally may not make
capital   distributions.   The  OTS  is  authorized  to  impose  the  additional
restrictions that are applicable to significantly undercapitalized associations.

     As a condition to the approval of the capital restoration plan, any company
controlling an undercapitalized association must agree that it will enter into a
limited  capital  maintenance   guarantee  with  respect  to  the  institution's
achievement of its capital requirements.

     Any savings  association  that fails to comply with its capital  plan or is
"significantly undercapitalized" (i.e., Tier 1 risk-based or core capital ratios
of less  than 3% or a  risk-based  capital  ratio of less  than 6%) must be made
subject  to  one  or  more  of  additional   specified   actions  and  operating
restrictions  which may cover all aspects of its operations and include a forced
merger  or  acquisition  of  the   association.   An  association  that  becomes
"critically  undercapitalized" (i.e., a tangible capital ratio of 2% or less) is
subject to further mandatory restrictions on its activities in addition to those
applicable to significantly  undercapitalized associations. In addition, the OTS
must appoint a receiver (or conservator  with the concurrence of the FDIC) for a
savings  association,  with certain limited exceptions,  within 90 days after it
becomes critically  undercapitalized.  Any undercapitalized  association is also
subject to the general enforcement  authority of the OTS and the FDIC, including
the appointment of a conservator or a receiver.

     The OTS is also generally  authorized to reclassify an  association  into a
lower capital category and impose the  restrictions  applicable to such category
if the institution is engaged in unsafe or unsound  practices or is in an unsafe
or unsound condition.

     The  imposition by the OTS or the FDIC of any of these  measures on Classic
Bank may have a substantial  adverse  effect on Classic  Bank's  operations  and
profitability  and the  value  of the  Company's  common  stock.  The  Company's
shareholders do not have  preemptive  rights,  and therefore,  if the Company is
directed by the OTS or the FDIC to issue additional shares of Common Stock, such
issuance  may result in the dilution in the  percentage  of ownership of current
stockholders of the Company.

                                       33

<PAGE>



         The  OCC  has  the  authority  to  enforce  such  requirements  against
Paintsville Bank.

Limitations on Dividends and Other Capital Distributions

     OTS regulations permit federal savings associations,  such as Classic Bank,
to pay  dividends  in any  calendar  year equal to net income for that year plus
retained earnings for the preceding two years.

     National banks are subject to similar regulatory requirements.

Liquidity

     All savings associations,  including Classic Bank, are required to maintain
an average daily  balance of liquid assets equal to a certain  percentage of the
sum of its  average  daily  balance of net  withdrawable  deposit  accounts  and
borrowings  payable in one year or less. For a discussion of what is included in
liquid assets, see "Management's  Discussion and Analysis of Financial Condition
and Results of Operations Liquidity and Capital Resources", contained in Exhibit
13 to this Report and incorporated by reference herein.  This liquid asset ratio
requirement  may vary from time to time depending  upon economic  conditions and
savings  flows of all savings  associations.  At the present  time,  the minimum
liquid asset ratio is 4%.

     National banks are not subject to any prescribed liquidity requirements.

Accounting

     An OTS policy statement  applicable to all savings  associations  clarifies
and re-emphasizes that the investment  activities of a savings  association must
be  in  compliance  with  approved  and  documented   investment   policies  and
strategies,  and must be accounted for in accordance with GAAP. Under the policy
statement,  management  must support its  classification  of and  accounting for
loans and securities (i.e.,  whether held for investment,  sale or trading) with
appropriate documentation.

     The OTS has adopted an amendment to its accounting  regulations,  which may
be made more  stringent  than GAAP by the OTS, to require that  transactions  be
reported in a manner that best reflects their underlying  economic substance and
inherent risk and that financial  reports must  incorporate any other accounting
regulations or orders  prescribed by the OTS. Classic Bank is in compliance with
these amended rules.

     Paintsville Bank, as a national bank, is subject to similar requirements.

Qualified Thrift Lender Test

     All savings  associations,  including  Classic Bank, are required to meet a
qualified  thrift  lender  ("QTL") test to avoid certain  restrictions  on their
operations. This test requires a savings association to have at least 65% of its
portfolio assets (as defined by regulation) in qualified thrift investments on a
monthly  average  for nine out of every 12  months  on a  rolling  basis.  As an
alternative,  the savings  association  may  maintain 60% of its assets in those
assets  specified in Section  7701(a)(19)  of the Internal  Revenue Code.  Under
either test, such assets primarily consist of residential  housing related loans
and investments. At March 31, 2000, Classic Bank met the test and has always met
the test since its effectiveness.

     Any savings  association  that fails to meet the QTL test must convert to a
national bank charter,  unless it requalifies as a QTL and thereafter  remains a
QTL. If an  association  does not  requalify  and  converts  to a national  bank
charter,  it must remain  SAIF-insured  until the FDIC permits it to transfer to
the BIF.  If such an  association  has not yet  requalified  or  converted  to a
national bank, its new investments and

                                       34

<PAGE>



activities are limited to those permissible for both a savings association and a
national bank,  and it is limited to national bank branching  rights in its home
state. In addition, the association is immediately ineligible to receive any new
FHLB borrowings and is subject to national bank limits for payment of dividends.
If such  association  has not requalified or converted to a national bank within
three years after the failure,  it must divest of all  investments and cease all
activities  not  permissible  for a national  bank.  In addition,  it must repay
promptly  any  outstanding  FHLB  borrowings,  which may  result  in  prepayment
penalties. If any association that fails the QTL test is controlled by a holding
company,  then  within one year after the  failure,  the  holding  company  must
register as a bank holding  company and become  subject to all  restrictions  on
bank holding companies. See "-- Holding Company Regulation."

     The QTL requirements do not apply to national banks.

Community Reinvestment Act

     Under  the  Community   Reinvestment   Act  ("CRA"),   every  FDIC  insured
institution,  including  Classic Bank and Paintsville Bank, has a continuing and
affirmative  obligation consistent with safe and sound banking practices to help
meet  the  credit   needs  of  its   entire   community,   including   low-  and
moderate-income  neighborhoods.  The CRA does  not  establish  specific  lending
requirements  or  programs  for  financial  institutions  nor  does it  limit an
institution's  discretion  to develop the types of products and services that it
believes are best suited to its particular  community,  consistent with the CRA.
The CRA requires the  appropriate  Federal  regulator,  in  connection  with the
examination of an insured  institution,  to assess the  institution's  record of
meeting the credit needs of its  community  and to take such record into account
in its evaluation of certain applications, such as a merger or the establishment
of a branch, by Classic Bank or Paintsville  Bank. An unsatisfactory  rating may
be used as the basis for the denial of an application by the OTS or the OCC.

     Classic Bank was examined  for CRA  compliance  in July 1999 and received a
satisfactory  rating.  Paintsville Bank was examined for CRA compliance in March
1999 and received a satisfactory rating.



                                       35

<PAGE>



Transactions with Affiliates

     Generally,  transactions  between a savings association or its subsidiaries
and its affiliates  are required to be on terms as favorable to the  association
as transactions with non-affiliates. In addition, certain of these transactions,
such  as  loans  to  an  affiliate,  are  restricted  to  a  percentage  of  the
association's   capital.   Affiliates  of  Classic  Bank  include  the  Company,
Paintsville  Bank and any  other  company  which is under  common  control  with
Classic Bank. In addition,  a savings  association may not lend to any affiliate
engaged in activities not  permissible for a bank holding company or acquire the
securities of most affiliates.  The OTS has the discretion to treat a subsidiary
of a savings associations as an affiliate on a case-by-case basis.

     Certain  transactions with directors,  officers or controlling  persons are
also  subject to  conflict of interest  regulations  enforced by the OTS.  These
conflict of interest  regulations and other statutes also impose restrictions on
loans to such persons and their  related  interests.  Among other  things,  such
loans must be made on terms  substantially the same as for loans to unaffiliated
individuals.

     Paintsville  Bank is subject to virtually  identical  rules on transactions
with affiliates and loans to insiders.

Recent Legislation

     On November 12, 1999,  the  Gramm-Leach-Bliley  Act,  which  modernizes the
financial  services  industry  by,  among  other  things,   permitting  banking,
insurance  and  securities  companies  to  combine,  was signed  into law. It is
unclear  what impact this  legislation  will have on the  Company,  although the
anticipated creation of larger and stronger financial services competitors could
materially affect the Company.

Holding Company Regulation

     General.  Upon  consummation of the acquisition of First  Paintsville,  the
Company,  as the sole  shareholder  of Paintsville  Bank,  became a bank holding
company and registered as such with the Federal Reserve Board. Subsequently, the
Company has elected to be treated as a financial  holding company by the Federal
Reserve  Board.   Financial  holding  companies  are  subject  to  comprehensive
regulation by the Federal  Reserve Board under the Bank Holding Company Act, and
the regulations of the Federal Reserve Board.  As a financial  holding  company,
the Company is required to file reports with the Federal  Reserve Board and such
additional  information as the Federal Reserve Board may require, and is subject
to regular  examinations by the Federal Reserve Board. The Federal Reserve Board
also has extensive  enforcement  authority  over  financial  holding  companies,
including,  among other things, the ability to assess civil money penalties,  to
issue cease and desist or removal  orders and to require that a holding  company
divest subsidiaries (including its bank subsidiaries).  In general,  enforcement
actions may be initiated  for  violations of law and  regulations  and unsafe or
unsound practices.

     Under Federal Reserve Board policy, a financial  holding company must serve
as a source of strength for its subsidiary banks.  Under this policy the Federal
Reserve  Board may require,  and has required in the past, a holding  company to
contribute additional capital to an undercapitalized subsidiary bank.

     Under the Bank Holding Company Act, a financial holding company must obtain
Federal Reserve Board approval  before:  (i) acquiring,  directly or indirectly,
ownership  or  control  of any voting  shares of  another  bank or bank  holding
company if, after such acquisition, it would own or control more than 5% of such
shares  (unless it already owns or controls the majority of such  shares);  (ii)
acquiring all or substantially all of the assets of another bank or bank holding
company; or (iii) merging or consolidating with another bank holding company.


                                       36

<PAGE>



     The Bank Holding  Company Act also prohibits a financial  holding  company,
with certain exceptions,  from acquiring direct or indirect ownership or control
of more than 5% of the voting  shares of any company which is not a bank or bank
holding  company,  or from engaging  directly or indirectly in activities  other
than those involving  banking,  securities,  insurance or merchant banking.  The
Company  has no  present  plans  to  engage  in any of the  expanded  activities
permissible for a financial holding company.

     Interstate  Banking and Branching.  On September 29, 1994, the  Riegle-Neal
Interstate  Banking  and  Branching  Act of 1994 (the "Act") was enacted to ease
restrictions on interstate banking. Effective September 29, 1995, the Act allows
the Federal Reserve Board to approve an application of an adequately capitalized
and adequately  managed bank holding  company to acquire  control of, or acquire
all or substantially  all of the assets of, a bank located in a state other than
such holding company's home state,  without regard to whether the transaction is
prohibited by the laws of any state.  The Federal  Reserve Board may not approve
the  acquisition  of a bank that has not been in existence  for the minimum time
period (not  exceeding  five years)  specified by the  statutory law of the host
state.  The Act also  prohibits  the Federal  Reserve  Board from  approving  an
application  if  the  applicant  (and  its  depository  institution  affiliates)
controls or would  control  more than 10% of the insured  deposits in the United
States or 30% or more of the deposits in the target  bank's home state or in any
state in which the target bank  maintains a branch.  The Act does not affect the
authority of states to limit the  percentage  of total  insured  deposits in the
state which may be held or controlled  by a bank or bank holding  company to the
extent such limitation does not discriminate  against out-of-state banks or bank
holding  companies.   Individual  states  may  also  waive  the  30%  state-wide
concentration limit contained in the Act. The Commonwealth of Kentucky currently
provides  for deposit  concentration  limits,  reciprocal  requirements  and age
protection for new banks.

     Effective June 1, 1997, the federal banking  agencies became  authorized to
approve   interstate  merger   transactions   without  regard  to  whether  such
transaction is prohibited by the law of any state,  unless the home state of one
of the  banks  has  opted  out of the Act by  adopting  a law  after the date of
enactment  of the Act and prior to June 1, 1997  which  applies  equally  to all
out-of-state  banks  and  expressly  prohibits  merger  transactions   involving
out-of-state  banks.  Interstate  acquisitions of branches are permitted only if
the law of the state in which the branch is located  permits such  acquisitions.
Interstate  mergers and branch  acquisitions  are also subject to the nationwide
and statewide insured deposit concentration amounts described above.

     The Act authorizes the OCC and FDIC to approve interstate branching de novo
by national and state  banks,  respectively,  only in states which  specifically
allow for such branching.

     Dividends.  The Federal Reserve Board has issued a policy  statement on the
payment of cash dividends by bank holding companies, which expresses the Federal
Reserve  Board's view that a bank holding company should pay cash dividends only
to the extent that the  Company's  net income for the past year is sufficient to
cover both the cash dividends and a rate of earning retention that is consistent
with the Company's capital needs, asset quality and overall financial condition.
The Federal  Reserve Board also indicated that it would be  inappropriate  for a
company   experiencing  serious  financial  problems  to  borrow  funds  to  pay
dividends.  Furthermore,  under the prompt corrective action regulations adopted
by the Federal  Reserve  Board,  the Federal  Reserve  Board may prohibit a bank
holding  company  from  paying  any  dividends  if the  holding  company's  bank
subsidiary  is  classified  as  "undercapitalized".  See "--  Prompt  Corrective
Action."

     Bank holding companies are required to give the Federal Reserve Board prior
written  notice  of  any  purchase  or  redemption  of  its  outstanding  equity
securities  if the gross  consideration  for the  purchase or  redemption,  when
combined with the net  consideration  paid for all such purchases or redemptions
during the  preceding 12 months,  is equal to 10% or more of their  consolidated
net  worth.  The  Federal  Reserve  Board  may  disapprove  such a  purchase  or
redemption if it determines that the proposal would constitute an

                                       37

<PAGE>



unsafe or unsound practice or would violate any law, regulation, Federal Reserve
Board order, or any condition imposed by, or written agreement with, the Federal
Reserve Board. This notification  requirement does not apply to any company that
meets the  well-capitalized  standard  for  commercial  banks,  has a safety and
soundness  examination  rating  of at  least  a "2"  and is not  subject  to any
unresolved supervisory issues.

     Capital  Requirements.  The Federal Reserve Board has  established  capital
requirements  for bank holding  companies  that  generally  parallel the capital
requirements  for national banks. For bank holding  companies with  consolidated
assets of less than $150 million,  compliance is measured on a bank-only  basis.
See "-- Regulatory Capital Requirements of National Banks."

Federal Securities Law

     The Company's  common stock is registered with the SEC under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). The Company is subject to
the  information,  proxy  solicitation,  insider trading  restrictions and other
requirements of the SEC's rules under the Exchange Act.

     Company  stock  held by persons  who are  affiliates  (generally  officers,
directors and principal  stockholders)  of the Company may not be resold without
registration or unless sold in accordance with certain resale  restrictions.  If
the Company  meets  specified  current  public  information  requirements,  each
affiliate  of the  Company  is  able  to  sell  in the  public  market,  without
registration, a limited number of shares in any three-month period.

Federal Reserve System

     The Federal Reserve Board requires all depository  institutions to maintain
noninterest-bearing  reserves at  specified  levels  against  their  transaction
accounts (primarily checking, NOW and Super NOW checking accounts). At March 31,
2000,  Classic Bank and  Paintsville  Bank were in compliance with these reserve
requirements.  The balances maintained to meet the reserve  requirements imposed
by the Federal Reserve Board may be used to satisfy liquidity  requirements that
may be imposed by the OTS. See "-- Liquidity."

     Savings  associations,  such as Classic Bank, are authorized to borrow from
the  Federal   Reserve  Bank  "discount   window,"  but  Federal  Reserve  Board
regulations require associations to exhaust other reasonable alternative sources
of funds,  including FHLB borrowings,  before borrowing from the Federal Reserve
Bank.

     As a national  bank,  Paintsville  Bank is a member of the Federal  Reserve
System and owns stock in the  Federal  Reserve  Bank of  Cleveland  in an amount
equal to 3% of Paintsville  Bank's paid in capital and surplus (an additional 3%
will be subject to call by the Federal Reserve Bank of Cleveland).  At March 31,
2000, Paintsville Bank was in compliance with this requirement.


                                       38

<PAGE>



Federal Home Loan Bank System

     Classic Bank and  Paintsville  Bank are members of the FHLB of  Cincinnati,
which is one of 12 regional  FHLBs that  administer  the home  financing  credit
function of savings associations.  Each FHLB serves as a reserve or central bank
for its members within its assigned region. It is funded primarily from proceeds
derived from the sale of consolidated  obligations of the FHLB System.  It makes
loans to members (i.e.,  advances) in accordance  with policies and  procedures,
established  by the board of  directors  of the FHLB,  which are  subject to the
oversight of the Federal Housing  Finance Board.  All advances from the FHLB are
required to be fully secured by sufficient collateral as determined by the FHLB.
In  addition,   all  long-term  advances  are  required  to  provide  funds  for
residential home financing.

     As members,  Classic Bank and Paintsville Bank are required to purchase and
maintain  stock in the FHLB of Cincinnati.  At March 31, 2000,  Classic Bank had
$822,000 in FHLB stock,  which was in compliance with this  requirement.  On the
same  date,  Paintsville  Bank had  $334,000  in FHLB  stock,  which was also in
compliance  with the  requirement.  In past years,  Classic Bank and Paintsville
Bank have received substantial dividends on their FHLB stock. Over the past five
fiscal years,  such  dividends  paid to Classic Bank and  Paintsville  Bank have
averaged 6.9% to each  institution and were 7.0% to each  institution for fiscal
2000.

     Under  federal  law,  the  FHLBs  are  required  to  provide  funds for the
resolution  of  troubled  savings  associations  and to  contribute  to low- and
moderately priced housing programs through direct loans or interest subsidies on
advances targeted for community investment and low- and moderate-income  housing
projects.  These  contributions  have  affected  adversely  the  level  of  FHLB
dividends  paid and could continue to do so in the future.  These  contributions
could also have an adverse  effect on the value of FHLB stock in the  future.  A
reduction  in value of Classic  Bank's FHLB stock may result in a  corresponding
reduction in Classic Bank's capital.

     For the fiscal year ended  March 31,  2000,  dividends  paid by the FHLB of
Cincinnati  to Classic Bank and  Paintsville  Bank totaled  $56,000 and $23,000,
respectively,  compared  to $52,000  and  $21,000,  respectively,  of  dividends
received in fiscal year 1999.

Change in Control Regulations

     The  Change in Bank  Control  Act,  the Bank  Holding  Company  Act and the
regulations of the Federal Reserve Board promulgated  under those acts,  require
that the consent of the Federal Reserve Board be obtained prior to any person or
company acquiring  "control" of a bank holding company.  Control is conclusively
presumed  to exist if an  individual  or company  acquires  more than 25% of any
class of voting stock of a bank holding company.  Control is rebuttably presumed
to exist if the person  acquires  10% or more of any class of voting  stock of a
bank  holding  company if either (i) the bank  holding  company  has  registered
securities under Section 12 of the Exchange Act or (ii) no other person will own
a greater  percentage of that class of voting  securities  immediately after the
transaction. The regulations provide a procedure to rebut the rebuttable control
presumption.  Since the Company's Common Stock is registered under Section 12 of
the Exchange Act, any  acquisition of 10% or more of the Company's  Common Stock
will give rise to a  rebuttable  presumption  that the  acquiror  of such  stock
controls the Company,  requiring the acquiror, prior to acquiring such stock, to
rebut the  presumption  of control to the  satisfaction  of the Federal  Reserve
Board or obtain Federal Reserve Board approval for the acquisition of control.

Federal and State Taxation

     Federal  Taxation.  In addition to the  regular  income tax,  corporations,
including  savings  associations and national banks,  generally are subject to a
minimum tax. An alternative minimum tax is imposed at a

                                       39

<PAGE>



minimum tax rate of 20% on alternative minimum taxable income,  which is the sum
of a  corporation's  regular taxable income (with certain  adjustments)  and tax
preference items, less any available  exemption.  The alternative minimum tax is
imposed to the extent it exceeds the  corporation's  regular  income tax and net
operating  losses can  offset no more than 90% of  alternative  minimum  taxable
income.

     The Company  and its  subsidiaries  file  consolidated  federal  income tax
returns on a fiscal year basis using the accrual method of  accounting.  Savings
associations, such as Classic Bank, that file federal income tax returns as part
of a  consolidated  group are required by  applicable  Treasury  regulations  to
reduce their taxable  income for purposes of computing the  percentage  bad debt
deduction for losses  attributable to activities of the non-savings  association
members  of  the  consolidated  group  that  are  functionally  related  to  the
activities of the savings association member.

     The Company and its consolidated  subsidiaries have been audited by the IRS
with respect to  consolidated  federal income tax returns  through  December 31,
1993.  With respect to years examined by the IRS, either all  deficiencies  have
been satisfied or sufficient  reserves have been established to satisfy asserted
deficiencies.  In the  opinion  of  management,  any  examination  of still open
returns (including returns of subsidiary and predecessors of, or entities merged
into the Company)  would not result in a deficiency  which could have a material
adverse  effect on the  financial  condition  or  results of  operations  of the
Company and its consolidated subsidiaries.

     Kentucky  Taxation.  The  Commonwealth  of  Kentucky  imposes  no income or
franchise  taxes on savings  institutions.  Classic Bank is subject to an annual
Kentucky ad valorem tax. This tax is .1% of the financial  institution's deposit
accounts,  common stock and retained income, with certain deductions for amounts
borrowed by  depositors  and  securities  guaranteed  by the U.S.  Government or
certain of its agencies.  Paintsville  Bank is subject to a state  franchise tax
equal to 1.1% of Paintsville Bank's average five year equity capital adjusted to
eliminate the effect of certain U.S. Government  obligations held by Paintsville
Bank. The Company is subject to Kentucky  income tax at a rate of 4% - 8.25% and
a Kentucky corporate licensing fee equal to .0021 times capital employed.

     Delaware  Taxation.  As a Delaware holding  company,  the Company is exempt
from Delaware corporate income tax but is required to file an annual report with
and pay an annual fee to the State of  Delaware.  The Company is also subject to
an annual franchise tax imposed by the State of Delaware.

Executive Officers Who Are Not Directors

     The  business  experience  of the  executive  officers  who  are  not  also
directors is set forth below.

     Robert S. Curtis,  age 50, is Executive  Vice  President and Senior Lending
Officer of Classic  Bank, a position he has held since May 1995.  Mr.  Curtis is
also  Senior  Vice  President  of the  Company,  a  position  he has held  since
September  1995.  Mr.  Curtis served as Vice  President and Real Estate  Lending
Division  Manager of First  American  Company,  a $225  million  bank located in
Ashland,  Kentucky from 1990 until May 1995.  As Vice  President and Real Estate
Lending Division Manager,  Mr. Curtis was responsible for the bank's residential
real estate loan portfolio in excess of $35.0  million.  Mr. Curtis was employed
by First American in 1973.

     Lisah M.  Frazier,  age 31, is Senior Vice  President  and Chief  Financial
Officer of Classic Bank, a position she has held since August 1995.  Ms. Frazier
became  Senior Vice  President,  Treasurer  and Chief  Financial  Officer of the
Company in September  1995.  Prior to joining  Classic Bank in August 1995,  Ms.
Frazier  served as  Investment  Coordinator  of Trust  Company  of  Kentucky,  a
subsidiary of Pikeville  National Company, a multi-bank holding company based in
Pikeville,  Kentucky  from June 1995 to August  1995.  Prior to such  time,  Ms.
Frazier served as Audit Specialist in the internal Audit Department of

                                       40

<PAGE>



Pikeville  National  Corporation  from 1993 to 1995.  Ms. Frazier also served as
Senior Auditor with Kelley,  Galloway & Company,  an accounting  firm located in
Ashland,  Kentucky  from  1990  to  1993.  Ms.  Frazier  is a  Certified  Public
Accountant.

Item 2.     Description of Properties

     Classic Bank conducts its business at its office located at 344 Seventeenth
Street, Ashland, Kentucky and at three branch offices located in Greenup, Carter
and Boyd  Counties.  Classic  Bank's 6,000 square foot  headquarters  office was
acquired in 1963 and had a net book value of 348,000 at March 31, 2000. At March
31,  2000,  the total net book value of the  Company's  premises  and  equipment
(including land, building and leasehold  improvements,  and furniture,  fixtures
and equipment) was approximately $5.1 million.

     In June 1994,  Classic Bank acquired the 1,200 square foot office  building
and land located  adjacent to its current office  building at 1737 Carter Avenue
in Ashland,  Kentucky for a purchase  price of $90,000.  At March 31, 2000,  the
current book value of this building was  approximately  $85,000.  Classic Bank's
improvements to this building totaled approximately $8,000. This building, which
is currently rented, is intended to be used for Classic Bank's future expansion.

     The Company's depositor and borrower customer files are maintained in-house
at Paintsville  In-house data  processing and computer  equipment.  The net book
value of the data processing and computer  equipment  utilized by the Company at
March 31, 2000 was approximately $200,000.

     Paintsville Bank's main office is located at 240 Main Street,  Paintsville,
Kentucky.  This 8,400 square foot building was acquired by  Paintsville  Bank in
1933, and had a net book value of $228,000 at March 31, 2000.  Paintsville  Bank
has a branch  office  located at 602 South Mayo  Trail,  Paintsville,  Kentucky,
which is in a 2,200 square foot building  acquired by Paintsville  Bank in 1971.
The administrative office at 404 Euclid Avenue,  Paintsville,  Kentucky, a 6,700
square foot building that was acquired by Paintsville  Bank in 1994, was sold in
October 1999.

Item 3.     Legal Proceedings

     The Company,  Classic Bank and Paintsville Bank are involved,  from time to
time, as plaintiff or defendant in various  legal actions  arising in the normal
course of their  businesses.  While the  ultimate  outcome of these  proceedings
cannot be  predicted  with  certainty,  it is the opinion of  management,  after
consultation with counsel representing the Company, Classic Bank and Paintsville
Bank in the  proceedings,  that the resolution of these  proceedings  should not
have a  material  effect on the  Company's  financial  condition  or  results of
operations on a consolidated basis.

Item 4.     Submission of Matters to a Vote of Security Holders

     No  matter  was  submitted  to a vote  of  security  holders,  through  the
solicitation of proxies or otherwise, during the quarter ended March 31, 2000.

                                     PART II

Item 5.     Market for Common Equity and Related Stockholder Matters

     The information  under the caption "Market  Information" in the portions of
the Company's  Annual Report to  Stockholders  for the year ended March 31, 2000
included as Exhibit 13 to this Report, is incorporated herein by reference.

                                       41

<PAGE>




Item 6.     Management's Discussion and Analysis or Plan of Operation

     The information under the caption "Management's  Discussion and Analysis of
Financial  Condition and Results of Operations" in the portions of the Company's
Annual  Report to  Stockholders  for the year ended March 31,  2000  included as
Exhibit 13 to this Report, is incorporated herein by reference.

Item 7.    Financial Statements and Supplementary Data

     The consolidated  financial  statements and notes thereto  contained in the
portions of the Company's Annual Report to Stockholders for the year ended March
31,  2000  included as Exhibit 13 to this  Report,  are  incorporated  herein by
reference.


Item 8.    Changes In and Disagreements With Accountants on Accounting and
           Financial Disclosure

     There has been no changes in the Company's  independent  accountants during
the Company's two most recent fiscal years.

                                    PART III

Item 9.     Directors, Executive Officers, Promoters and Control Persons;
            Compliance with Section 16(a) of the Exchange Act

Directors

     Information  concerning  directors of the Company is incorporated herein by
reference from the Company's  definitive  Proxy Statement for the Annual Meeting
of Stockholders to be held in 2000, which will be filed with the SEC.

Executive Officers

     Information  concerning  the executive  officers of the Company who are not
directors is incorporated by reference from Part I of this Form 10-KSB under the
caption "Executive Officers of the Registrant Who Are Not Directors."

Section 16(a) Beneficial Ownership Reporting Compliance

     Information concerning compliance with Section 16(a) reporting requirements
by the  Company's  directors and executive  officers is  incorporated  herein by
reference from the Company's  definitive  proxy statement for the Annual Meeting
of Stockholders to be held in 2000, which will be filed with the SEC.


Item 10.    Executive Compensation

     Information  concerning  executive  compensation is incorporated  herein by
reference  from  the  definitive  Proxy  Statement  for the  Annual  Meeting  of
Stockholders to be held in 2000, which will be filed with the SEC.


                                       42

<PAGE>



Item 11.    Security Ownership of Certain Beneficial Owners and Management

     Information  concerning security ownership of certain beneficial owners and
management  is  incorporated  herein  by  reference  from the  definitive  Proxy
Statement for the Annual Meeting of Stockholders to be held in 2000,  which will
be filed with the SEC.

Item 12.    Certain Relationships and Related Transactions

     Information  concerning certain  relationships and related  transactions is
incorporated  herein by reference  from the definitive  Proxy  Statement for the
Annual Meeting of Stockholders to be held in 2000,  which will be filed with the
SEC.


                                       43

<PAGE>



Item 13.    Exhibits and Reports on Form 8-K

(a)      Exhibits
<TABLE>

                                                                              Reference to
                                                                             Prior Filing or
   Regulation S-B                                                            Exhibit Number
   Exhibit Number                          Document                          Attached Hereto
<S>      <C>        <C>                                                           <C>
         2          Plan of acquisition, reorganization, arrangement,             None
                    liquidation or succession
        3(a)        Articles of Incorporation                                       *
        3(b)        By-Laws                                                         *
         4          Instruments defining the rights of security holders,            *
                    including debentures
         9          Voting Trust Agreement                                        None
         10         Material contracts:

                       1996 Stock Option and Incentive Plan                        **
                       1996 Recognition and Retention Plan                         **
                       1998 Premium Price Stock Option Growth Plan                 ***
                       Employment Agreement with David B. Barbour                  **
                       Change in Control Severance Agreement with                 10.1
                       Robert L. Bayes
         11         Statement regarding computation of per share earnings         None
         13         Annual Report to Security Holders                              13
         16         Letter regarding change in certifying accountants             None
         18         Letter regarding change in accounting principles              None
         21         Subsidiaries of Registrant                                     21
         22         Published report regarding matters submitted to vote          None
                    of security holders
         23         Consents of Experts and Counsel                                23
         24         Power of Attorney                                             None
         27         Financial Data Schedule                                        27
         99         Additional Exhibits                                           None
</TABLE>



*  Filed as exhibits to the Company's Form S-1  registration  statement filed on
   December 19, 1994 (File No. 33-87580) pursuant to Section 5 of the Securities
   Act of 1933. All of such previously  filed documents are hereby  incorporated
   herein by reference in accordance with Item 601 of Regulation S-B.

**Filed as exhibits to the Company's Annual Report on Form 10-KSB for the fiscal
  year ended March 31, 1996 (File No.  0-27170).  All of such previously  filed
  documents are hereby incorporated herein by reference in accordance with Item
  601 of Regulation S-B.

***Filed as Appendix A to the Company's definitive proxy solicitating  materials
   filed on June 26, 1998 (File No.  0-27170).  Such previously filed document
   is hereby  incorporated  herein by reference in accordance with Item 601 of
   Regulation S-B.

                                       44

<PAGE>



(b)     Reports on Form 8-K

     During the quarter ended March 31, 2000, the Company filed a Current Report
on Form 8-K  dated  January  27,  2000 to  report  under  Item 5 of Form 8-K the
issuance of a press  release  announcing  its  earnings  for the  quarter  ended
December 31, 1999 and the declaration of a cash dividend.




                                       45

<PAGE>



                                   SIGNATURES

     In accordance  with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                            CLASSIC BANCSHARES, INC.


                            By:    /s/ David B. Barbour
                            David B. Barbour, President, Chief Executive Officer
                            and Director (Duly Authorized Representative)

     In  accordance  with the Exchange Act, this report has been signed below by
the following persons in the capacities and on the dates indicated.

/s/ David B. Barbour                    /s/ C. Cyrus Reynolds
----------------------------------      ---------------------------------------
David B. Barbour, President, Chief      C. Cyrus Reynolds, Chairman of the Board
Executive Officer and Director
(Principal Executive and Operating
Officer)


Date:   June 28, 2000                   Date:      June 28, 2000





----------------------------------      ---------------------------------------
A. Bruce Addington, Director            Robert L. Bayes, Executive Vice
                                        President and Director


Date:      June 28, 2000                Date:      June 28, 2000





/s/ John W. Clark                       /s/ Lisah M. Frazier
----------------------------------      ---------------------------------------
John W. Clark, Director                 Lisah M. Frazier, Vice President,
                                        Treasurer and Chief Financial Officer
                                        (Principal Financial and Accounting
                                          Officer)


Date:      June 28, 2000                Date:     June 28, 2000






/s/ E. B. Gevedon, Jr.                  /s/Robert B. Keifer, Jr.
----------------------------------      ---------------------------------------
E. B. Gevedon, Jr., Director            Robert B. Keifer, Jr., Director


Date:      June 28, 2000                Date:      June 28, 2000





/s/ David A. Lang                        /s/ Jeffrey P. Lopez
----------------------------------      ---------------------------------------
David A. Lang, Director                 Jeffrey P. Lopez, Director


Date:   June 28, 2000                   Date:     June 28, 2000




/s/ Robert A. Moyer, Jr.
----------------------------------
Robert A. Moyer, Jr., Director


Date:     June 28, 2000



<PAGE>



                                INDEX TO EXHIBITS



 Number

    10.1        Change in Control Severance Agreement

    13          Portions of Annual Report to Security Holders

    21          Subsidiaries of the Registrant

    23          Consent of Independent Auditors

    27          Financial Data Schedule


<PAGE>

                                  EXHIBIT 10.1

                     CHANGE IN CONTROL SEVERANCE AGREEMENT

<PAGE>
                      CHANGE IN CONTROL SEVERANCE AGREEMENT


     THIS  CHANGE  IN  CONTROL  SEVERANCE  AGREEMENT  ("Agreement")  is made and
entered  into as of this  18th  day of  November,  1996,  by and  between  FIRST
NATIONAL BANK OF  PAINTSVILLE,  PAINTSVILLE,  KENTUCKY,  a national bank (which,
together with any successor  thereto which  executes and delivers the assumption
agreement pro vided for in Section 11(a) hereof or which otherwise becomes bound
by the  terms  and  provisions  of  this  Agreement  by  operation  of  law,  is
hereinafter  referred to as the  "Bank"),  and Robert L. Bayes (the  "Employee")
whose residence address is Box 667, Paintsveile, Kentucky.

     WHEREAS,  the  Employee is  currently  serving as the  President  and Chief
Executive Officer of the Bank; and

     WHEREAS,  the  Bank  has been  acquired  by and  become  the  wholly  owned
subsidiary of Classic Bancshares, Inc. (the "Holding Company"); and

     WHEREAS, the Board of Directors of the Bank recognizes that, as is the case
with  publicly  held  corporations  generally,  the  possibility  of a change in
control of the  Holding  Company  may exist and that such  possibility,  and the
uncertainty and questions which it may raise among management, may result in the
departure or  distraction  of key  management  personnel to the detriment of the
Bank and its stockholder; and

     WHEREAS,  the Board of  Directors  of the Bank  believes  it is in the best
interests of the Bank to enter into this Agreement with the Employee in order to
assure  continuity  of management of the Bank and to reinforce and encourage the
continued  attention  and  dedication  of the  Employee to his  assigned  duties
without distraction in the face of potentially disruptive  circumstances arising
from the possibility of a change in control of the Holding Company,  although no
such change is now contemplated; and

                                        1

<PAGE>



     WHEREAS, the Board of Directors of the Bank has approved and authorized the
execution  of this  Agreement  with the  Employee  to take  effect  as stated in
Section 1 hereof;

     NOW,  THEREFORE,  in  consideration  of the foregoing and of the respective
covenants  and  agreements  of the  parties  herein  contained,  it is AGREED as
follows:

1.  TERM OF AGREEMENT.

     The term of this Agreement shall be deemed to have commenced as of the date
first above written and shall continue for a period of twelve (12) full calendar
months  thereafter.  Commencing  on the first  annual  anniversary  date of this
Agreement  and  continuing  at each annual  anniversary  date  thereafter,  this
Agreement  shall  be  extended  for a  period  of one  year in  addition  to the
then-remaining  term of employment under this Agreement,  unless either the Bank
or the Employee gives contrary written notice to the other not less than 90 days
in advance  of the date on which the term of  employment  under  this  Agreement
would otherwise be extended.

     Notwithstanding  any other  statement or provision in this Agreement to the
contrary, beginning on the first annual anniversary date of the conversion, this
Agreement will not be automatically extended unless, prior thereto, the Board of
Directors of the Bank reviews a formal  performance  evaluation  of the Employee
performed by the disinterested members of the Board of Directors of the Bank and
reflected in the minutes of the Board of Directors.

2.  PAYMENTS TO THE EMPLOYEE UPON CHANGE IN CONTROL.

     (a) Upon the  occurrence of a change in control (as herein  defined) of the
Bank or the  Holding  Company  followed  at any  time  during  the  term of this
Agreement by the  involuntary  termination of the Employee's  employment,  other
than for cause,  as defined in Section 2(d) hereof,  the provisions of Section 3
shall apply.

                                        2

<PAGE>


     (b) A "Change in  Control"  means (1) an event of a nature that (i) results
in a change in control of the Bank or the Holding  Company within the meaning of
the Home  Owners'  Loan Act of 1933 and 12  C.F.R.  Part 574 as in effect on the
date  hereof;  or (ii) would be required to be reported in response to Item 1 of
the  current  report on Form 8-K, as in effect on the date  hereof,  pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act");
(2) any person (as the term is used in Sections  13(d) and 14(d) of the Exchange
Act) is or becomes  the  beneficial  owner (as  defined in Rule 13d-3  under the
Exchange  Act),  directly or indirectly of securities of the Bank or the Holding
Company  representing  20% or  more  of the  Bank's  or  the  Holding  Company's
outstanding  securities;  (3)  individuals  who  are  members  of the  board  of
directors of the Bank or the Holding  Company on the date hereof (the "Incumbent
Board") cease for any reason to constitute at least a majority thereof, provided
that any person becoming a director subsequent to the date hereof whose election
was approved by a vote of at least  three-quarters  of the directors  comprising
the Incumbent Board, or whose  nomination for election by the Holding  Company's
stockholders was approved by the nominating committee serving under an Incumbent
Board,  shall  be  considered  a  member  of  the  Incumbent  Board;  or  (4)  a
reorganization,  merger, consolidation,  sale of all or substantially all of the
assets of the Bank or the Holding Company or a similar  transaction in which the
Bank or the Holding  Company is not the  resulting  entity.  The term "Change in
Control" shall not include an  acquisition of securities by an employee  benefit
plan of the Bank or the Holding  Company.  In the application of 12 C.F.R.  Part
574 to a  determination  of a  Change  in  Control,  determinations  under  such
regulations shall be made by the Board of Directors.

                                        3

<PAGE>



     (c) The Employee's employment under this Agreement may be terminated at any
time by the Board of Directors of the Bank. The terms "involuntary  termination"
or  "involuntarily  terminated" in this Agreement shall refer to the termination
of the employment of Employee without his express written consent.  In addition,
a material diminution of the Employee's benefits or a material adverse change in
the quality of the work environment which would hamper the Employee's ability to
perform his job effectively  shall be deemed and shall constitute an involuntary
termination  of  employment  to the  same  extent  as  express  notice  of  such
involuntary termination.  By way of example and not by way of limitation, any of
the following  actions,  if unreasonable or materially  adverse to the Employee,
shall constitute such diminution or interference  unless consented to in writing
by the  Employee:  (1) change in the  principal  workplace  of the Employee to a
location outside of a 30 mile radius from the Bank's  headquarters  office as of
the date  hereof;  (2) a material  reduction  or adverse  change in the scope or
nature of the secretarial or other administrative  support of the Employee which
would  hamper his ability to perform  his job  effectively;  (3) a reduction  or
adverse  change in the salary,  perquisites,  benefits,  contingent  benefits or
vacation time which had theretofore been provided to the Employee, other than as
part of an overall  program applied  uniformly and with equitable  effect to all
members of the senior  management of the Bank or the Holding Company;  and (4) a
material increase in the required hours of work or the workload of the Employee.

     (d) The Employee shall not have the right to receive  termination  benefits
pursuant to Section 3 hereof upon  termination  for cause.  For purposes of this
Agreement,  termination  for "cause"  shall  include  termination  for  personal
dishonesty,  incompetence,  willful  misconduct,  breach  of  a  fiduciary  duty
involving personal profit, intentional failure to perform stated duties, willful
violation of any material law,  rule,  or regulation  (other than a law, rule or
regulation  relating  to a  traffic  violation  or  similar  offense)  or  final
cease-and-desist  order,  or material breach of any provision of this Agreement.
Notwithstanding the foregoing, the Employee shall

                                        4

<PAGE>



not be deemed to have been  terminated  for cause  unless and until  there shall
have been delivered to the Employee a copy of a resolution,  duly adopted by the
affirmative  vote of not less than a majority  of the entire  membership  of the
Board of  Directors  of the Bank at a meeting  of the Board  called and held for
such purpose (after reasonable notice to the Employee and an opportunity for the
Employee,  together with the Employee's  counsel, to be heard before the Board),
stating  that in the good faith  opinion of the Board the Employee was guilty of
conduct  constituting  "cause" as set forth above and specifying the particulars
thereof in detail.

3.  TERMINATION BENEFITS.

     (a) Upon the occurrence of a change in control, followed by the involuntary
termination of the Employee's  employment,  other than for cause, the Bank shall
pay to the Employee in a lump sum in cash within 25 business days after the date
of severance  of  employment  an amount  equal to 200 percent of the  Employee's
"base amount" of compensation,  as defined in Section 280G(b)(3) of the Internal
Revenue Code of 1986, as amended (the "Code").  At the election of the Employee,
such payment may be made,  on a pro rata basis,  semi-monthly  during the twelve
(12) months following the Employee's termination.

     (b) Upon the  occurrence  of a change in control of the Bank or the Holding
Company  followed by the involuntary  termination of the Employee's  employment,
other than for cause,  the Bank shall cause life and health  insurance  coverage
(substantially  similar to the coverage  maintained by the Bank for the Employee
prior to his  severance) to be  maintained  for a period of 12 months or for the
remaining term of the agreement, whichever is greater.

4.  CERTAIN REDUCTION OF PAYMENTS BY THE ASSOCIATION

     (a) Notwithstanding any other provisions of this Agreement, if payments and
benefits  under this  Agreement,  together with any other  payments and benefits
received or to be received

                                        5

<PAGE>



by the Employee in connection  with a change in control,  would cause any amount
to be  nondeductible  by the Bank or the Holding  Company for federal income tax
purposes  pursuant to Section 280G of the Code, then payments and benefits under
this Agreement shall be reduced (not less than zero) to the extent  necessary so
as to maximize  payments and benefits to the Employee without causing any amount
to become  nondeductible by the Bank or the Holding Company by reason of Section
280G of the Code. The Employee shall  determine the allocation of such reduction
among payments and benefits to the Employee.

     (b) Notwithstanding any other provisions of this Agreement,  payments under
Section 3 of this Agreement shall not exceed three times the Employee's  average
annual compensation based on the most recent five taxable years.

     (c) Any  payments  made to the  Employee  pursuant  to this  Agreement,  or
otherwise,  are subject to and conditioned  upon their compliance with 12 U.S.C.
1828(k) and any regulations promulgated thereunder.

5.  REQUIRED REGULATORY PROVISIONS.

     (a) The Bank may terminate the  Employee's  employment at any time, but any
termination by the Bank, other than a termination for cause, shall not prejudice
the Employee's right to compensation or other benefits under this Agreement. The
Employee shall not have the right to receive  compensation or other benefits for
any period after a termination for cause as defined in Section 2(d) hereinabove.

     (b) If the Employee is suspended from office and/or temporarily  prohibited
from participating in the conduct of the Bank's affairs by a notice served under
Section  8(e)(3) or (g)(1) of the Federal  Deposit  Insurance Act  ("FDIA"),  12
U.S.C. ss.  1818(e)(3) and (g)(1),  the Bank's  obligations under this Agreement
shall be suspended as of the date of service, unless

                                        6

<PAGE>



stayed by appropriate  proceedings.  If the charges in the notice are dismissed,
the  Bank  may in its  discretion  (i)  pay  the  Employee  all or  part  of the
compensation  withheld while its obligations under this Agreement were suspended
and  (ii)  reinstate  in  whole or in part  any of the  obligations  which  were
suspended.

     (c) If the Employee is removed from office  and/or  permanently  prohibited
from participating in the conduct of the Bank's affairs by an order issued under
Section 8(e)(4) or (g)(1) of the FDIA, 12 U.S.C. ss.  1818(e)(4) or (g)(1),  all
obligations  of  the  Bank  under  this  Agreement  shall  terminate,  as of the
effective  date of the order,  but  vested  rights of the  parties  shall not be
affected.

     (d) If the Bank  becomes in default (as  defined in Section  3(x)(1) of the
FDIA),  all  obligations  under this Agreement shall terminate as of the date of
default, but this provision shall not affect any vested rights of the parties.

     (e) All obligations  under this Agreement may be terminated,  except to the
extent  determined  that  continuation  of this  Agreement is necessary  for the
continued operation of the Bank: (i) by the Director or his or her designee,  at
the time the Federal Deposit Insurance Corporation ("FDIC") at the time the FDIC
enters into an agreement to provide assistance to or on behalf of the Bank under
the authority  contained in Section 13(c) of the FDIA. Any rights of the parties
that have already vested, however, shall not be affected by any such action.

6.  REINSTATEMENT OF BENEFITS UNDER Section 5(b).

     In the event the Employee is suspended and/or  temporarily  prohibited from
participating  in the  conduct of the Bank's  affairs by a notice  described  in
Section  5(b)  hereof (the  "Notice")  during the term of this  Agreement  and a
change in control  occurs,  the Bank will assume its  obligation  to pay and the
Employee will be entitled to receive all of the termination benefits

                                        7

<PAGE>



provided  for under  Section 3 of this  Agreement  upon the Bank's  receipt of a
dismissal of charges in the Notice.

7.  EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS.

     This Agreement contains the entire understanding between the parties hereto
and supersedes  any prior  agreement  between the Bank and the Employee,  except
that this  Agreement  shall not  affect or  operate  to reduce  any  benefit  or
compensation inuring to the Employee of a kind elsewhere provided.  No provision
of this  Agreement  shall be interpreted to mean that the Employee is subject to
receiving fewer benefits than those  available to him without  reference to this
Agreement.

8. NO ATTACHMENT.

     (a) Except as  required  by law,  no right to receive  payments  under this
Agreement  shall be  subject to  anticipation,  commutation,  alienation,  sale,
assignment,  encumbrance,  charge,  pledge, or  hypothecation,  or to execution,
attachment,  levy, or similar process or assignment by operation of law, and any
attempt,  voluntary  or  involuntary,  to affect any such action  shall be null,
void, and of no effect.

     (b) This Agreement  shall be binding upon, and inure to the benefit of, the
Employee, the Bank and their respective successors and assigns.

9.  MODIFICATION AND WAIVER.

     (a) This  Agreement may not be modified or amended  except by an instrument
in writing signed by the parties hereto.

     (b) No term or  condition  of this  Agreement  shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement,  except by written  instrument of the party charged with such
waiver or estoppel. No such written

                                        8

<PAGE>



waiver shall be deemed a continuing waiver unless  specifically  stated therein,
and each such waiver shall  operate  only as to the  specific  term or condition
waived  and shall not  constitute  a waiver  of such term or  condition  for the
future or as to any act other than that specifically waived. 10. NO MITIGATION.

     The amount of any payment or benefit  provided for in this Agreement  shall
not be  reduced  by any  compensation  earned by the  Employee  as the result of
employment  by  another  employer,  by  retirement  benefits  after  the date of
termination or otherwise.

11.  NO ASSIGNMENTS.

     (a) This Agreement is personal to each of the parties  hereto,  and neither
party may assign or delegate any of its rights or obligations  hereunder without
first obtaining the written consent of the other party; provided,  however, that
the Bank will require any successor or assign  (whether  direct or indirect,  by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business  and/or  assets of the Bank,  by an  assumption  agreement  in form and
substance satisfactory to the Employee, to expressly assume and agree to perform
this  Agreement in the same manner and to the same extent that the Bank would be
required to perform it if no such  succession  or  assignment  had taken  place.
Failure  of the  Bank  to  obtain  such an  assumption  agreement  prior  to the
effectiveness  of any such  succession or  assignment  shall be a breach of this
Agreement  and shall entitle the Employee to  compensation  from the Bank in the
same  amount and on the same  terms as the  compensation  pursuant  to Section 3
hereof.  For purposes of implementing  the provisions of this Section 11(a), the
date on which any such succession  becomes effective shall be deemed the Date of
Termination.

                                        9

<PAGE>



     (b) This Agreement and all rights of the Employee  hereunder shall inure to
the  benefit  of and  be  enforceable  by  the  Employee's  personal  and  legal
representatives,  executors, admin istrators,  successors,  heirs, distributees,
devisees and legatees.  If the Employee should die while any amounts would still
be payable to the Employee  hereunder if the Employee had continued to live, all
such amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to the Employee's devisee, legatee or other designee
or if there is no such designee, to the Employee's estate.

12. NOTICE.

     For the purposes of this  Agreement,  notices and all other  communications
provided  for in the  Agreement  shall be in writing and shall be deemed to have
been duly given when  personally  delivered  or sent by certified  mail,  return
receipt requested,  postage prepaid,  addressed to the respective  addresses set
forth on the first page of this Agreement (provided that all notices to the Bank
shall be directed to the  attention of the Board of Directors of the Bank with a
copy to the Secretary of the Bank), or to such other address as either party may
have fur nished to the other in writing in accordance herewith.

13. AMENDMENTS.

     No amendments  or additions to this  Agreement  shall be binding  unless in
writing and signed by both parties, except as herein otherwise provided.

14.  PARAGRAPH HEADINGS.

     The  paragraph  headings  used in this  Agreement  are included  solely for
convenience  and  shall  not  affect,   or  be  used  in  connection  with,  the
interpretation of this Agreement.

                                       10

<PAGE>



15.  SEVERABILITY.

     The  provisions  of  this  Agreement  shall  be  deemed  severable  and the
invalidity or unenforceability of any provision shall not affect the validity or
enforceability of the other provisions hereof.

16. GOVERNING LAW.

     This  Agreement  shall be governed by the laws of the United  States to the
extent applicable and otherwise by the laws of the Commonwealth of Kentucky.

17.  ARBITRATION.

     Any  dispute  or  controversy  arising  under or in  connection  with  this
Agreement  shall be settled  exclusively by  arbitration in accordance  with the
rules of the American  Arbitration Bank then in effect.  Judgment may be entered
on the arbitrator's award in any court having jurisdic tion.

18. REIMBURSEMENT.

     In the event the Bank purports to terminate the Employee for cause,  but it
is determined by a court of competent  jurisdiction or by an arbitrator pursuant
to Section 17 that cause did not exist for such termination,  or if in any event
it is  determined  by any such court or  arbitrator  that the Bank has failed to
make timely  payment of any amounts owed to the Employee  under this  Agreement,
the  Employee  shall be  entitled to  reimbursement  for all  reasonable  costs,
including   attorneys'  fees,   incurred  in  challenging  such  termination  or
collecting such amounts.  Such reimbursement  shall be in addition to all rights
to which the Employee is otherwise entitled under this Agreement.

     IN WITNESS WHEREOF,  the parties have executed this Agreement as of the day
and year first above written.

                                       11

<PAGE>


     THIS  AGREEMENT  CONTAINS  A  BINDING  ARBITRATION  PROVISION  WHICH MAY BE
ENFORCED BY THE PARTIES.




ATTEST:                                  THE FIRST NATIONAL BANK OF PAINTSVILLE




/s/ Kelly Shepherd                     By: /s/David B. Barbour
---------------------------                ------------------------------
Vice President                             Chairman of the Board




WITNESS:                                 EMPLOYEE




/s/ Clay D. Spradlin                    /s/ Robert L. Bayes
---------------------------             ----------------------------------
                                        Robert L. Bayes



                                       12

<PAGE>




                                   EXHIBIT 13

                  PORTIONS OF ANNUAL REPORT TO SECURITY HOLDERS


<PAGE>

                               Annual Report 2000


<PAGE>



                            CLASSIC BANCSHARES, INC.


                  TABLE OF CONTENTS

Letter to Stockholders.............................................
Selected Consolidated Financial Information........................
Management's Discussion and Analysis...............................
Report of Independent Auditors.....................................
Consolidated Financial Statements..................................
Stockholder Information............................................
Board of Directors and Officers....................................










                              FINANCIAL HIGHLIGHTS

                                 March 31, 2000
                             (Dollars in Thousands)

          Total Assets.................................................$175,254
          Total Loans.................................................. 127,808
          Mortgage-Backed and Other Securities.........................  28,365
          Deposits..................................................... 134,897
          Net Income...................................................   1,070
          Stockholders' Equity.........................................  18,999
          Stockholders' Equity as a Percent of Assets..................    10.8%









================================================================================
     ANNUAL MEETING The Annual Meeting of  Stockholders  of Classic  Bancshares,
Inc.  will be held on July 25, 2000 at 4:00 p.m.,  Ashland  Kentucky time at the
AEP Kentucky  headquarters  building,  corner of 17th Street and Central Avenue,
Ashland, Kentucky 41101.
================================================================================


                                        i

<PAGE>



                              [CLASSIC LETTERHEAD]

                             LETTER TO STOCKHOLDERS



                                        1

<PAGE>



                            CLASSIC BANCSHARES, INC.


                 SELECTED CONSOLIDATED FINANCIAL INFORMATION(1)
<TABLE>


                                                                                March 31,
                                                          -----------------------------------------------------------
                                                            2000        1999         1998         1997         1996
                                                          -----------------------------------------------------------
                                                                              (In Thousands)
Selected Financial Condition Data:
<S>                                                       <C>          <C>          <C>         <C>           <C>
Total assets.........................................     $175,254     $142,739     $131,121    $131,554      $66,083
Loans receivable, net................................      127,808       97,527       90,100      81,728       43,722
Mortgage-backed securities:
 Available for sale..................................        3,230        4,479        7,831       7,885        2,840
Investment securities:
 Available for sale..................................       25,135       26,526       19,474      24,390       11,059
Interest-earning deposits............................          192        1,531        1,541       6,020        6,649
Deposits.............................................      134,897      117,732      104,927     100,519       46,200
FHLB advances........................................       17,075          388          ---       4,750          ---
Stockholders' equity.................................       18,999       20,289       20,407      19,370       19,500
</TABLE>



<TABLE>
                                                                           Year Ended March 31,
                                                         ----------------------------------------------------------
                                                            2000        1999         1998        1997         1996
                                                         ------------------------ ----------------------------------
                                                                              (In Thousands)
Selected Operations Data:
<S>                                                        <C>          <C>         <C>           <C>         <C>
Total interest income................................      $11,941      $9,822       $9,507       $7,150      $4,414
Total interest expense...............................        5,892       4,979        4,812        3,603       2,851
                                                           -------     -------      -------     --------     -------
   Net interest income...............................        6,049       4,843        4,695        3,547       1,563
Provision for loan losses............................          223         100          158          105         168
                                                          --------    --------     --------     --------    --------
   Net interest income after provision for loan
       losses........................................        5,826       4,743        4,537        3,442       1,395
                                                           -------     -------      -------      -------     -------
Fees and service charges.............................          703         487          344          119          41
(Loss) gain on sale of securities....................           (3)          4           29           32          36
0ther noninterest income.............................          195         184          500           68          31
                                                         ---------   ---------    ---------     --------   ---------
   Total noninterest income..........................          895         675          873          219         108
   Total noninterest expense.........................        5,359       4,295        3,994        2,818       1,178
                                                           -------     -------      -------      -------   ---------
Income before income taxes...........................        1,362       1,123        1,416          843         325
Income tax expense...................................          292         238          396          220          32
                                                          --------    --------     --------     --------    --------
   Net income........................................    $   1,070     $   885      $ 1,020      $   623     $   293
                                                         =========     =======      =======      =======     =======
</TABLE>

(1)      Classic  Bancshares,  Inc.  completed  its initial  public  offering on
         December 28, 1995 and purchased all of the outstanding stock of Classic
         Bank.  The  Company  competed  the  acquisition  of  First  Paintsville
         Bancshares  on  September  30,  1996.  As  a  result,  the  information
         presented above for the year ended March 31, 1997 includes  information
         for First National beginning  September 30, 1996. The Company completed
         the acquisition of Citizens Bank, Grayson on May 14, 1999. Citizens was
         merged with and into Classic  Bank with  Classic Bank as the  surviving
         institution.  As a result, the information presented above for the year
         end March 31, 2000 includes  information for Citizens beginning May 14,
         1999.


                                        2

<PAGE>





<TABLE>

                                                                           Year Ended March 31,
                                                        ----------------------------------------------------------------
                                                                  2000        1999         1998        1997         1996
                                                        ----------------------------- ----------------------------------

Selected Financial Ratios and Other Data:
<S>                                                              <C>         <C>         <C>           <C>          <C>
Performance Ratios:
  Return on assets (ratio of net income to average
      total assets)..................................             .6%         .6%          .8%          .6%         .5%
  Return on equity (ratio of net income to average
      equity)........................................            5.5         4.3          5.2          3.2         2.5
  Interest rate spread (average during period)(TE)...            3.8         3.4          3.3          3.0         1.8
  Net interest margin(2).............................            4.3         4.1          4.1          4.0         2.8
  Ratio of noninterest expense to average total
      assets.........................................            3.2         3.1          3.0          2.8         1.8
  Ratio of average interest-earning assets to
      average interest-bearing liabilities...........          112.5       118.7        119.3        124.6       119.9
  Ratio of adjusted noninterest expense to
      total revenues(3)..............................           69.4        71.2         66.6         73.6        64.7

Quality Ratios:
 Non-performing assets to total assets, at end of
      year(4)........................................             .6          .4           .4           .8          .9
 Allowance for loan losses to non-performing
      loans(5).......................................          168.9       212.1        249.6        111.9        48.1
 Allowance for loan losses to loans receivable,
      net............................................            1.0          .9           .9          1.0          .7

Capital Ratios:
 Equity to total assets at end of period.............           10.8        14.2         15.6         14.7        29.5
 Average equity to average assets....................           11.4        14.6         14.9         19.4        18.0

Other Data:
 Number of Bank full-service offices.................            6           5            5            3           1
</TABLE>

---------------
(2)  Net interest income (TE)divided by average interest-earning assets.
(3)  Adjusted noninterest expense excludes amortization of goodwill.
     Total revenues = net interest income (TE) + noninterest income.
(4)  Non-performing assets include non-accruing loans, accruing loans 90 days or
     more past due, restructured loans and real estate owned.
(5)  Non-performing loans include non-accruing loans, accruing loans 90 days or
     more past due and restructured loans.


                                        3

<PAGE>



                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Introduction

         Classic Bancshares, Inc. (the "Company") is a Delaware corporation. The
Company is a bank holding  company  which has as its  wholly-owned  subsidiaries
Classic Bank and the First National Bank of Paintsville ("First National").  The
Company was  organized  in 1995 for the purpose of becoming the savings and loan
holding  company of Classic Bank in connection  with Classic  Bank's  conversion
from mutual to stock form of organization  on December 28, 1995.  First National
became  a  subsidiary  of  the  Company  upon   consummation  of  the  Company's
acquisition of First Paintsville Bancshares, Inc., the former holding company of
First National, on September 30, 1996. Financial and other information presented
herein after  September  30, 1996  relates to  consolidated  information  of the
Company, Classic Bank and First National.  Financial and other information prior
to September  30, 1996  relates to the Company and Classic Bank only.  Financial
and other information prior to December 28, 1995 relates only to Classic Bank.

         On May 14, 1999,  the Company  completed  the  acquisition  of Citizens
Bank, Grayson ("Citizens"). The transaction was valued at $4.5 million with each
shareholder  of Citizens  receiving  $75 per share in cash.  At the close of the
transaction, Citizens was merged with and into Classic Bank with Classic Bank as
the surviving institution.  On the date of closing, Citizens had total assets of
approximately  $13.7 million and total deposits of $12.0 million.  In connection
with the acquisition,  the Company recorded $3.3 million in goodwill.  Financial
and other  information of Citizens is included in Classic  Bank's  financial and
other information beginning May 14, 1999.

         As community-oriented  financial  institutions,  Classic Bank and First
National seek to serve the financial  needs of communities  in their  respective
market  areas.  Classic  Bank  is  a  federally  chartered  stock  savings  bank
headquartered in Ashland,  Kentucky. Classic Bank currently serves the financial
needs of  communities  in its market  area  through  its  office  located at 344
Seventeenth Street, Ashland,  Kentucky 41101 and three branch offices located in
Boyd, Carter and Greenup Counties. First National is a nationally chartered bank
headquartered  in  Paintsville,  Kentucky.  First National  serves the financial
needs of  communities  in its market area through its main office located at 240
Main Street,  Paintsville,  Kentucky 41240 and one branch office also located in
Paintsville.  The deposits of Classic Bank and First  National are insured up to
applicable limits by the Federal Deposit  Insurance  Corporation  ("FDIC").  The
Company's  business  involves  attracting  deposits from the general  public and
using such deposits, together with other funds, to originate one- to four-family
residential mortgages,  commercial business,  commercial real estate,  consumer,
multi-family  and  construction  loans  primarily  in  the  market  area  of its
subsidiaries.   The  Company  also  invests  in   mortgage-backed   and  related
securities, investment securities and other permissible investments.

         Classic Bank's  primary  market area includes the Kentucky  counties of
Carter, Boyd and Greenup. The economic base in these counties has primarily been
industrial  in  nature  and  previously  relied  upon a small  number  of  large
employers  particularly  in the steel and  petroleum  industries.  Over the last
several  years,  diversification  of the  employment  base to a more  retail and
service  based  economy  has  resulted  in a slowing of  previously  experienced
declines in population.  Per capita income in these  counties  remains below the
national  average.  Boyd County  exceeds the state  average of per capita income
while Carter and Greenup  Counties remain below the state average.  Unemployment
has  continued  to  decline  as a result of a  continued  shifting  of the local
employment  base to the retail and service  sectors,  although the  unemployment
rate for these counties  continues to exceed the national and state unemployment
rate.

                                        4

<PAGE>



         First  National's  market area includes  Johnson County and portions of
Martin, Floyd, Magoffin and Lawrence Counties, Kentucky. Although the economy in
First National's  market area was historically  based on the  manufacturing  and
coal mining  related  industries,  the economy in this area  currently  includes
retail, medical, government sectors and, to a lesser extent, manufacturing.  Per
capita  income for these  counties is below the  national  average and the state
average. The unemployment rate exceeds the national and state unemployment rate.

         The Company's revenues are derived  principally from interest earned on
loans  and,  to a  lesser  extent,  from  interest  earned  on  investments  and
mortgage-backed  and  related  securities.  The  operations  of the  Company are
influenced  significantly  by general  economic  conditions  and by  policies of
financial  institution  regulatory  agencies,  including the OTS,  OCC,  Federal
Reserve and the FDIC.  The  Company's  cost of funds is  influenced  by interest
rates on  competing  investments  and general  market  interest  rates.  Lending
activities  are  affected by the demand for  financing  of real estate and other
types of loans,  which in turn is affected by the  interest  rates at which such
financings  may be offered.  The Company is focusing less on  traditional  fixed
rate  mortgage  lending  and more on other  types of  lending  with  institution
controlled interest rates.

         The  Company's  net  interest  income is dependent  primarily  upon the
difference or spread between the average yield earned on loans  receivable,  net
and investments and the average rate paid on deposits and borrowings, as well as
the relative amounts of such assets and  liabilities.  The Company is subject to
interest rate risk to the degree that its interest-bearing liabilities mature or
reprice at different times, or on a different basis,  than its  interest-earning
assets.

         Management's discussion and analysis of financial condition and results
of operations are intended to assist in  understanding  the financial  condition
and results of  operations  of the Company.  The  information  contained in this
section  should  be  read in  conjunction  with  the  financial  statements  and
accompanying notes contained elsewhere herein.

Forward-Looking Statements

         When used in this  Annual  Report,  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, changes
in economic  conditions  in the  Company's  market area,  changes in policies by
regulatory  agencies,  fluctuations in interest  rates,  demand for loans in the
Company's  market area and competition that could cause actual results to differ
materially  from  historical   earnings  and  those  presently   anticipated  or
projected.  The Company wishes to caution readers not to place undue reliance on
any such forward-looking  statements,  which speak only as of the date made. The
Company  wishes to advise readers that the factors listed above could affect the
Company's financial performance and could cause the Company's actual results for
future periods to differ  materially  from any opinions or statements  expressed
with respect to future periods in any current statements.

         The  Company  does  not  undertake  -- and  specifically  declines  any
obligation -- to publicly  release the result of any revisions which may be made
to any  forward-looking  statements to reflect events or circumstances after the
date  of  such  statements  or to  reflect  the  occurrence  of  anticipated  or
unanticipated events.


                                        5

<PAGE>



Business Strategy

         Since its  inception,  the  Company  has  operated  under a  "community
banking"  oriented  strategy that is designed to provide  planned and profitable
growth and sustained profitability while maintaining the safety and soundness of
the  Company.   This  strategy  includes  internal  growth  and  growth  through
acquisitions.  The implementation of this strategy has produced positive results
for the Company  during its brief  history.  The continued and future success of
the Company will be accomplished by the ongoing execution of this strategy which
requires (i) continued growth in lower cost transaction deposits, (ii) continued
expansion  of the  Company's  consumer and  commercial  loan  portfolios,  (iii)
continued  increases  in  noninterest  income,  (iv)  continuous  review of loan
underwriting to assure asset quality, and the (v) acquisition of other community
banking  institutions to the extent that  opportunities  arise.  The Company has
expanded its delivery channels through traditional branch offices, ATM locations
and on-line banking systems that allow customers alternative means of banking.

         The Company's  acquisition  strategy  focuses on growth oriented middle
market  community  banks with  management  in place and willing to remain and in
communities  served by  interstate  or major  highways  with strong  educational
systems and government entities.  Additionally, the Company requires acquisition
opportunities  to be  accretive  or neutral to earnings in the  short-term  with
conservative cost savings estimates.

         There are a number of financial and operational implications related to
this business strategy.  First, commercial business,  commercial real estate and
consumer  loans are generally  considered to carry a higher level of credit risk
than residential  loans.  The Company  believes it has adequately  addressed the
financial and operational  implications related to its business strategy through
strong  internal  controls,   loan  underwriting  standards  and  the  extensive
commercial  banking  experience of the Company's senior officers in underwriting
such loans. However,  there can be no assurance that increased provisions to the
loan loss allowance will not be required.  A second implication of this business
strategy is a reduction in  liquidity,  although  based on the  availability  of
borrowings  from the Federal  Home Loan Bank of  Cincinnati  ("FHLB")  and other
sources,  the Company  does not believe  that it will have any  difficulties  in
meeting its liquidity needs.

         During fiscal 2000, the Company  continued to expand its  technological
infrastructure through the acquisition of a cash management and treasury product
to serve its current and future  business  relationships.  The  Company's  fully
transactional   website,   introduced   during  1999,  at   www.classicbank.com,
www.firstnat.com  and  www.bank-anywhere.com  provides the Company's  subsidiary
banks with a  competitive  advantage to its  community  banking peers and on par
with its regional  banking  peers.  The Company's  fourteen ATM locations  serve
Classic Bank and First  National  customers in Kentucky,  Ohio and West Virginia
with cash access and other banking services including postage stamps.

Financial Condition

         March 31,  2000  compared to March 31,  1999.  Total  assets  increased
approximately  $32.6 million, or 22.8%, from $142.7 million at March 31, 1999 to
$175.3  million at March 31, 2000. The increase was due primarily to an increase
in cash and cash equivalents of approximately  $800,000, an increase in loans of
$30.3 million, an increase in premises and equipment of approximately  $500,000,
an  increase in  goodwill  of $3.0  million  and an increase in other  assets of
$600,000 offset by a decrease in mortgage-backed  securities of $1.2 million and
a decrease in investment securities of $1.4 million.


                                        6

<PAGE>



          Loans increased $30.3 million,  or 31.1%,  from $97.5 million at March
31, 1999 to $127.8  million at March 31, 2000 with $21.3 million of the increase
attributable to internal growth and $9.0 million of the increase attributable to
loans  acquired in the  Citizens  transaction.  The strong  internal  growth and
acquisition resulted in an increase in one-to-four family mortgage loans of $9.9
million,  an increase in commercial  business loans of $8.9 million, an increase
in consumer  loans of $6.3  million and an  increase in  commercial  real estate
loans of $5.1 million.

         Mortgage-backed  securities decreased $1.2 million, or 27.3%, from $4.4
million  at March 31,  1999 to $3.2  million  at March  31,  2000 as a result of
principal   repayments  of  $1.2  million.   Investment   securities   decreased
approximately  $1.4  million,  or 5.6%,  from $25.1 million at March 31, 1999 to
$23.7  million  at March 31,  2000 as a result  of $1.2  million  of  securities
acquired due to the  acquisition of Citizens more than offset by sold securities
of  $530,000  and a decrease  in the market  value of these  available  for sale
securities  of $1.9  million.  The decline in market value is due primarily to a
significant increase in interest rates.

         Premises and equipment increased  approximately $500,000 primarily as a
result of the acquisition of Citizens.  Goodwill  increased  approximately  $3.0
million as a result of the goodwill  recorded in connection with the acquisition
of  Citizens.   Other  assets  increased   approximately  $600,000  due  to  the
acquisition of Citizens.

         Deposits  increased  $17.2  million,  or 14.6%,  from $117.7 million at
March 31,  1999 to $134.9  million at March 31,  2000 with $12.0  million of the
increase  attributable to the acquisition of Citizens while the remainder of the
increase was  attributable  to  aggressive  marketing  and sales efforts and the
opening of two new banking  offices  during fiscal 1999.  Federal Home Loan Bank
borrowings  increased  $16.7  million,  from $388,000 at March 31, 1999 to $17.1
million at March 31,  2000.  The  borrowings  were used to fund the  increase in
loans.

         The allowance for loan losses increased from $861,000 at March 31, 1999
to $1.3 million at March 31, 2000 as a result of a provision  for fiscal 2000 of
$223,000,  an allowance of $506,000 from the  acquisition of Citizens  offset by
net charge-offs of $300,000.

         Stockholder's  equity  decreased $1.3 million to $19.0 million at March
31,  2000 as  compared  to $20.3  million  at March 31,  1999 as a result of the
decrease in the market value of available  for sale  securities of $1.2 million,
stock repurchases of approximately  $800,000 and dividends paid of approximately
$400,000 offset by net income for the period of $1.1 million.

         March 31,  1999  compared to March 31,  1998.  Total  assets  increased
approximately  $11.6 million,  or 8.8%, from $131.1 million at March 31, 1998 to
$142.7 million at March 31, 1999.  Loans  increased $7.4 million,  or 8.2%, from
$90.1  million at March 31, 1998 to $97.5  million at March 31, 1999 as a result
of  aggressive  origination  efforts and strong loan demand within the Company's
market  area.  Specifically,  the  Company  experienced  significant  growth  in
commercial  business  loans.  This was the  result of  management's  efforts  to
fulfill the  Company's  strategic  plan of  increasing  net interest  margin and
better managing interest rate risk.  Mortgage-backed  securities  decreased $3.4
million as a result of sales of $5.0 million and  principal  repayments  of $2.0
million  and a  decrease  in these  available  for sale  securities,  offset  by
purchases of $3.8 million.  Investment  securities  increased  $7.0 million from
$19.5  million at March 31, 1998 to $26.5  million at March 31, 1999 as a result
of purchases of $17.5  million  offset by sales,  maturities  and calls of $10.4
million  and a  decrease  in the  market  value  of  these  available  for  sale
securities.  Cash and other interest  earning deposits  increased  approximately
$600,000.


                                        7

<PAGE>



         Deposits  increased  $12.8 million , or 12.2%,  from $104.9  million at
March 31, 1998 to $117.7 million at March 31, 1999 as a result of the opening of
two new banking offices,  new product offerings and increased marketing efforts.
Federal  funds  purchased  and  securities  sold under  agreements to repurchase
decreased  approximately  $700,000  from $3.5  million at March 31, 1998 to $2.8
million  at March 31,  1999.  Federal  Home Loan Bank  borrowings  increased  to
$388,000  at March  31,  1999  compared  to no  borrowings  at March  31,  1998.
Long-term  debt of  $500,000  at March 31,  1998 was repaid  during  fiscal 1999
resulting in no long-term debt at March 31, 1999.

         The  allowance  for loan losses  increased  approximately  $30,000 from
$831,000  at March  31,  1998 to  $861,000  at March  31,  1999 as a result of a
provision for fiscal 1998 of $100,000 offset by net charge-offs of $70,000.

         Stockholder's equity was $20.3 million at March 31, 1999 as compared to
$20.4  million  at March 31,  1998 as a result of net  income  for the period of
$885,000 offset by stock repurchases of $600,000.

Results of Operations

         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
noninterest  income,  including fee income and service charges,  and affected by
the level of its noninterest 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 rate earned or paid on them,
respectively.

Comparison of Operating Results for the Years Ended March 31, 2000 and March 31,
 1999

         Net Income. Net income increased by approximately  $184,000,  or 20.8%,
from $885,000 at March 31, 1999 to $1.1 million at March 31, 2000.  The increase
was due to an increase in net interest  income of $1.2  million,  an increase in
noninterest  income of  approximately  $220,000 which was partially offset by an
increase  in  the  provision  for  loan  losses  of  $123,000,  an  increase  in
noninterest  expenses  of $1.1  million and an increase in income tax expense of
$54,000.

         Net Interest  Income.  Net interest income  increased $1.2 million,  or
24.9%, from $4.8 million at March 31, 1999 to $6.0 million at March 31, 2000 due
to an  increase  in  interest  income of $2.1  million  offset by an increase in
interest expense of $900,000.  The increase in interest income was the result of
the increase in the average balance of  interest-earning  assets,  as well as an
increase in spread.  The average balance of  interest-earning  assets  increased
from  $128.3  million  for  fiscal  1999 to  $151.4  million  for  fiscal  2000.
Interest-earning  assets  increased  primarily due to an increase in the average
balance of loans offset by a decrease in the average balance of  mortgage-backed
securities.  The  increase  in the  average  balance  of loans is the  result of
significant  growth during the period  within the Company's  market area and the
acquisition of Citizens.  The average tax equivalent  yield on  interest-earning
assets  was 8.0% at March  31,  1999  compared  to 8.2% at March 31,  2000.  The
increase  in the  yield  was due to the  continued  diversification  of the loan
portfolio to higher yielding commercial and consumer loans.

         Interest expense increased approximately $900,000 from $5.0 million for
fiscal 1999 to $5.9 million for fiscal 2000 primarily as a result of an increase
in the average balance of interest-bearing  liabilities.  The average balance of
interest-bearing  liabilities increased from $108.1 million at March 31, 1999 to
$134.3  million  at March 31,  2000.  The  increase  in the  average  balance of
interest-bearing

                                        8

<PAGE>



liabilities was due primarily to an increase in the average balance of all types
of deposit  accounts and an increase in the average  balance of FHLB  borrowings
and other  short-term  borrowings.  The  average  rate paid on  interest-bearing
liabilities  actually decreased from 4.6% at March 31, 1999 to 4.4% at March 31,
2000. The decrease in the average rate paid on  interest-bearing  liabilities is
due to the continued increase in interest-bearing transaction accounts which pay
a lower rate of interest than the certificate of deposit accounts.

         Provision for Loan Losses.  The provision for loan losses  increased by
$123,000  from  $100,000  for fiscal 1999 to  $223,000  for fiscal 2000 based on
management's  overall  assessment  of the loan  portfolio.  The  increase in the
provision was due primarily to an increase in net charge-offs during fiscal 2000
compared to fiscal 1999 and significant  growth in commercial and consumer loans
during fiscal 2000.  Management maintains the allowance for loan losses based on
the analysis of various  factors,  including the market value of the  underlying
collateral,  growth and composition of the loan portfolio,  the  relationship of
the allowance for loan losses to outstanding loans,  historical loss experience,
delinquency  trends and prevailing and projected economic  conditions.  Although
the Company  maintains  its  allowance  for loan losses at a level it  considers
adequate to provide for losses,  there can be no assurance that such losses will
not exceed the estimated amounts or that additional  substantial  provisions for
loan  losses  will not be required in future  periods.  At March 31,  2000,  the
allowance for loan losses totaled $1.3 million,  or 1.0% of net loans and 168.9%
of  non-performing  loans.  The  ratio  of the  allowance  for  loan  losses  to
non-performing  loans  decreased  at March 31,  2000 from the level of March 31,
1999 as a result of an increase in  non-performing  loans from $406,000 at March
31, 1999 to $773,000 at March 31, 2000. The increase in non-performing loans was
due to loans acquired in the acquisition of Citizens.

         Noninterest Income. Noninterest income increased approximately $220,000
from  $675,000 for fiscal 1999 to $895,000 for fiscal 2000 due to an increase in
service  charges and other fees on deposits of $216,000 and an increase in other
income of approximately $10,000 offset by a loss on the sale of securities.  The
increase  in service  charges  and other fees on  deposits  is the result of new
product offerings,  an increased deposit base and aggressive pricing strategies.
Other income  increased due to a gain on the disposal of assets of approximately
$28,000  offset  primarily  by a decrease in fees earned on the  origination  of
secondary market loans and other income of approximately  $18,000.  The decrease
in fees was due primarily to a decline in the  origination of one to four family
mortgages as a result of rising interest rates.


         Noninterest Expense.  Noninterest expense increased  approximately $1.1
million,  or 25.6%, from approximately $4.3 million for the year ended March 31,
1999  to  approximately  $5.4  million  for  the  year  ended  March  31,  2000.
Compensation and benefit expenses  increased  $429,000 from $2.0 million for the
year ended March 31, 1999 to $2.4  million for the year ended March 31, 2000 due
primarily  to the net  increase  in the number of  employees  as a result of the
acquisition of Citizens and the addition of employees in order to facilitate the
growth of the Company.  Compensation and benefit expenses also increased due the
rising costs of medical insurance premiums. Effective April 1, 2000, the Company
implemented  a Section  125  Cafeteria  Plan in order to try to  control  rising
medical insurance premiums in future years.

         Occupancy and equipment expense increased  approximately  $160,000 from
$600,000  for 1999 to  $760,000  for 2000.  The  increase  was due to  increased
expenses  as a result an  additional  banking  office  from the  acquisition  of
Citizens  and  additional  repairs  required  during the fiscal year to existing
facilities.  Telephone and other communication expenses increased $31,000 due to
an additional banking office and technological  improvements made by the Company
in order to provide additional delivery channels to the customer.


                                        9

<PAGE>



          Goodwill  amortization   increased   approximately  $115,000  due  the
goodwill recorded in connection with the Citizens acquisition. Professional fees
increased  $46,000  primarily due to the  outsourcing of internal audit and loan
review.

         Other  general  and  administrative  expenses  increased  approximately
$283,000  for fiscal  2000.  Specific  increases  included  are an  increase  in
advertising  expense of $60,000 due to aggressive  marketing efforts in order to
generate  growth,  an increase in  stationary,  printing  and other  supplies of
$75,000,  an increase in ATM  expense of $20,000,  an increase in  correspondent
banking  and other  outside  services  of  $49,000,  an  increase  in postage of
$10,000,  an increase  in state and local taxes based on capital of $11,000,  an
increase in expenses  related to memberships and involvement in community groups
and  projects of $10,000,  and an increase in other  general and  administrative
expenses of $48,000. All of these general and administrative  expenses increased
due to the  significant  growth that the Company  experienced  during the fiscal
year and the costs associated with servicing a larger customer base.

         Income Tax  Expense.  Income tax  expense  increased  $54,000  due to a
higher  income  before  income  taxes of  $239,000  offset by an increase in tax
exempt income during the year.

Comparison of Operating Results for the Years Ended March 31, 1999 and March 31,
 1998

         Net Income.  Net income  decreased  by  $135,000,  or 13.5%,  from $1.0
million at March 31, 1998 to $885,000 at March 31, 1999. The decrease was due to
a decrease  in  noninterest  income of $198,000  and an increase in  noninterest
expenses of $301,000 which were partially  offset by an increase in net interest
income of $148,000,  a decrease in the provision for loan losses of $58,000, and
a decrease in income tax expense of $158,000.

         Net Interest Income. Net interest income increased  $148,000,  or 3.1%,
from $4.7  million at March 31, 1998 to $4.8 million at March 31, 1999 due to an
increase  in  interest  income of  $315,000  offset by an  increase  in interest
expense of $167,000.  The slight  increase in interest  income was the result of
the  increase in the average  balance of  interest-earning  assets.  The average
balance of interest-earning assets increased from $120.7 million for fiscal 1998
to $128.3 million for fiscal 1999.  Interest-earning  assets increased primarily
due to  increases  in loans and  investment  securities.  The  average  yield on
interest-earning assets was 7.9% at March 31, 1998 compared to 7.7% at March 31,
1999.

         Interest expense  increased  $167,000 from $4.8 million for fiscal 1998
to $5.0  million  for fiscal  1999  primarily  as a result of an increase in the
average  balance  of  interest-bearing   liabilities.  The  average  balance  of
interest-bearing  liabilities increased from $101.2 million at March 31, 1998 to
$108.1  million  at March 31,  1999.  The  increase  in the  average  balance of
interest-bearing  liabilities  was due  primarily  to an increase in the average
balance of deposits,  specifically savings accounts and interest-bearing  demand
and  certificate  accounts,  offset by a decrease in the average balance of FHLB
borrowings.  The  average  rate paid on  interest-bearing  liabilities  actually
decreased from 4.8% at March 31, 1998 to 4.6% at March 31, 1999.

         Provision for Loan Losses.  The provision for loan losses  decreased by
$58,000  from  $158,000  for fiscal  1998 to  $100,000  for fiscal 1999 based on
management's  overall  assessment  of the loan  portfolio.  The decrease was due
primarily  to a reduction  in net  charge-offs  during  fiscal 1999  compared to
fiscal 1998.  Management  maintains  the  allowance for loan losses based on the
analysis  of  various  factors,  including  the market  value of the  underlying
collateral,  growth and composition of the loan portfolio,  the  relationship of
the allowance for loan losses to outstanding loans,  historical loss experience,
delinquency  trends and prevailing and projected economic  conditions.  Although
the Company maintains its allowance

                                       10

<PAGE>



for loan losses at a level it  considers  adequate to provide for losses,  there
can be no assurance  that such losses will not exceed the  estimated  amounts or
that additional  substantial  provisions for loan losses will not be required in
future  periods.  At March 31,  1998,  the  allowance  for loan  losses  totaled
$861,000, or .9% of total loans and 212.1% of non-performing loans. The ratio of
the allowance  for loan losses to  non-performing  loans  decreased at March 31,
1999  from  the  level  of  March  31,  1998  as a  result  of  an  increase  in
non-performing  loans from  $333,000  at March 31, 1998 to $406,000 at March 31,
1999.

         Noninterest Income. Noninterest income decreased approximately $198,000
from  $873,000  for fiscal 1998 to $675,000  for fiscal 1999 due to decreases in
the gain on sale of securities of $25,000 and other income of $316,000 partially
offset by an increase of $143,000 in service charges and other fees on deposits.
The  decrease  in other  income was  primarily  the  result of a  $371,000  gain
recorded in 1998 from the settlement of First National's  pension plan offset by
an increase in fees earned on the  origination  of secondary  market loans.  The
increase  in service  charges  and other fees on  deposits  is the result of new
product offerings, an increased deposit base and aggressive pricing strategies.

         Noninterest  Expense.   Noninterest  expense  increased   approximately
$301,000,  or 7.5%, from approximately $4.0 million for the year ended March 31,
1998  to  approximately  $4.3  million  for  the  year  ended  March  31,  1999.
Compensation and benefit expenses  increased  $167,000 from $1.8 million for the
year ended March 31, 1998 to $2.0  million for the year ended March 31, 1999 due
primarily  to the net  increase  in the number of  employees  as a result of the
additional  banking  offices.  During fiscal 1999, the Company  restructured its
Employee Stock  Ownership Plan by extending the term of the loan from 15.5 to 26
years. Partially as a result, ESOP expense decreased from approximately $133,000
for fiscal 1998 to $78,000 for fiscal 1999.  The reduction in these costs offset
in part the increased compensation and benefit costs as a result of staffing the
new banking offices.

         Occupancy and equipment  expense increased  approximately  $46,000 from
$554,000  for 1998 to  $600,000  for 1999.  The  increase  was due to  increased
occupancy expenses as a result of the additional banking offices.

         Other  general  and  administrative  expenses  increased  approximately
$88,000  for  fiscal  1999.  Specific  increases  included  are an  increase  in
telephone  expense  of  $18,000  due  to  the  additional  banking  offices  and
improvements in various technology, an increase in ATM expense of $32,000 due to
the increased number of locations, an increase in advertising expense of $12,000
due to the  introduction  of new product lines and the opening of the additional
banking  locations,  and  increases  in other  expenses  of  $26,000  due to the
introduction of the on-line banking product.

         Income Tax  Expense.  Income tax expense  decreased  $158,000  due to a
lower  income  before  income  taxes of  $293,000  and an increase in tax exempt
income during the year.


Analysis of Net Interest Income

         Net interest income  represents the difference  between interest earned
on interest-earning  assets and interest paid on  interest-bearing  liabilities.
Net  interest  income  depends  on the  volumes of  interest-earning  assets and
interest-bearing liabilities and the interest rates earned or paid on them.

                                       11

<PAGE>



         The following table presents for the periods indicated the total dollar
amount of interest income from average interest-earning assets and the resultant
yields, as well as the interest expense on average interest bearing liabilities,
expressed both in dollars and rates.  All average  balances are monthly  average
balances. Yields are reported on a tax equivalent basis. Non-accruing loans have
been included in the table as loans carrying a zero yield.  Included in interest
income  on loans are loan fees and other  charges  on loans  totaling  $182,000,
$144,000,  and  $169,000  for the years  ended  March 31,  2000,  1999 and 1998,
respectively.
<TABLE>


                                                                                Year Ended March 31,
                                                            2000                          1999                       1998
                                                ------------------------------------------------------------------------------------
                                                Average     Interest        Average      Interest        Average      Interest
                                                Outstanding Earned/  Yield  Outstanding  Earned/  Yield  Outstanding  Earned/  Yield
                                                Balance     Paid     Rate   Balance      Paid     Rate   Balance      Paid     Rate
                                                                               (Dollars in Thousands)
<S>                                              <C>        <C>       <C>   <C>        <C>        <C>    <C>         <C>      <C>
Interest-Earning Assets:
 Loans receivable(1)............................$121,274   $10,099   8.3%  $ 94,501    $7,893     8.4%  $ 88,074     $7,415   8.4%
 Mortgage-backed securities.....................   3,764       223   5.9      7,021       399     5.7      8,653        550   6.4
 Investment securities..........................  24,407     1,917   7.9     23,186     1,750     7.5     21,388      1,610   7.5
 Interest-earning deposits......................     128         6   4.7        356        12     3.4        405         18   4.4
 Federal funds sold.............................     446        25   5.6      1,899        93     4.9      1,029         59   5.7
 FHLB stock and FRB stock.......................   1,420        98   6.9      1,345        92     6.8      1,165         81   7.0
                                                -------- ---------         ----------  --------       ----------   --------
  Total interest-earning assets(1)              $151,439    12,368   8.2   $128,308    10,239     8.0   $120,714      9,733   8.1
                                                 ========   -------         ========   -------           ========     ------

Interest-Bearing Liabilities:
 Savings accounts and interest-bearing demand...$ 33,549     1,081   3.2   $ 24,569       713     2.9   $ 20,149        581   2.9
 Money market deposits..........................  10,596       318   3.0      7,419       208     2.8      7,847        235   3.0
 Certificate accounts...........................  77,312     3,857   5.0     70,778     3,775     5.3     62,876      3,398   5.4
 FHLB advances..................................   8,930       421   4.7      1,797        85     4.7      5,813        339   5.8
 Other short-term borrowings....................   3,930       215   5.5      3,112       164     5.3      3,906        206   5.3
 Long-term debt.................................       -         -   -          399        34     8.5        613         53   8.6
                                                -------- ---------         --------  --------            --------   --------
  Total interest-bearing liabilities............$134,317     5,892   4.4   $108,074     4,979     4.6   $101,204      4,812   4.8
                                                ========    ------         ========    ------           ========     ------

Net interest income.............................            $6,476                     $5,260                         $4,921
                                                             ======                     ======                         ======
Net interest rate spread........................                     3.8%                         3.4%                        3.3%
                                                                     ===                          ===                         ===
Net earning assets..............................$ 17,122                   $20,234                       $19,510
                                                 =======                   =======                       =======
Net yield on average interest-earning assets....                     4.3%                         4.1%                        4.1%
                                                                     ===                          ===                         ===
Average interest-earning assets to average
    intrest-bearing liabilities.................              1.13x                      1.19x                          1.19x
                                                              ====                       ====                           ====
</TABLE>

(1) Calculated net of deferred loan fees, loan  discounts,  loans in process and
loss reserves.

                                       12

<PAGE>



         The following table presents the weighted average rate earned on loans,
investments and other  interest-earning  assets,  and the weighted average rates
paid on deposits and the resultant interest rate spread at the date indicated.
<TABLE>


                                                                        March 31, 2000
                                                                        --------------
<S>                                                                            <C>
Weighted average rate:
 Loans receivable..........................................................     8.5%
 Mortgage-backed securities................................................     6.6
 Investment securities.....................................................     7.5
 FHLB stock and FRB stock..................................................     6.8
 Other interest-earning assets ............................................     5.7
   Combined weighted average yield on interest-earning assets..............     8.2

Weighted average rate paid on:
 Savings accounts and interest-bearing demand..............................     3.4
 Money market accounts.....................................................     3.8
 Certificate accounts......................................................     5.2
 Federal funds purchased and repurchase agreements.........................     5.6
 FHLB borrowings...........................................................     6.3
 Term Treasury Tax & Loan deposits.........................................     6.7
   Combined weighted average rate paid on interest-bearing liabilities.....     4.8

Interest rate spread.......................................................     3.4

</TABLE>

         The following  table  presents the dollar amount of changes in interest
income and interest expense for major components of interest-earning  assets and
interest-bearing  liabilities.  It distinguishes  between the changes related to
outstanding  balances and those due to the changes in interest  rates.  For each
category   of   interest-earning   assets  and   interest-bearing   liabilities,
information is provided on changes  attributable to (i) changes in volume (i.e.,
changes  in  volume  multiplied  by old rate) and (ii)  changes  in rate  (i.e.,
changes in rate multiplied by old volume).  For purposes of this table,  changes
attributable  to both rate and volume,  which  cannot be  segregated,  have been
allocated  proportionately  to the  change  due to volume  and the change due to
rate.


                                       13

<PAGE>




<TABLE>

                                                                   Year Ended March 31,
                                          ----------------------------------------------------------------------
                                                     2000 vs. 1999                        1999 vs. 1998
                                          ----------------------------------------------------------------------
                                                Increase                              Increase
                                               (Decrease)            Total           (Decrease)            Total
                                                 Due to            Increase            Due to            Increase
                                           Volume       Rate      (Decrease)     Volume       Rate      (Decrease)
                                           ------       -----      --------      ------       -----      ---------
                                                                       (Dollars in Thousands)

Interest-earning assets:
   <S>                                     <C>         <C>          <C>            <C>       <C>          <C>
   Loans receivable.....................   $ 2,296     $  (90)      $ 2,206        $ 540     $  (62)      $  478
   Mortgage-backed securities...........      (190)        14          (176)         (91)       (60)        (151)
   Investment securities................        83         84           167          140         --          140
   Other ...............................       (84)        16           (68)          56        (17)          39
                                           --------   -------      ---------     -------    --------     -------

       Total interest-earning assets....   $ 2,105     $   24       $ 2,129        $ 645     $ (139)       $ 506
                                           =======     ======       =======        =====     =======       =====

Interest-bearing liabilities:
   Savings accounts and interest bearing
     demand.............................     $ 287     $   81         $ 368        $ 128     $    4       $  132
   Money market accounts................        94         16           110          (12)       (15)         (27)
   Certificate accounts.................       314       (232)           82          421        (44)         377
   FHLB advances........................       336         --           336         (200)       (54)        (254)
   Other short-term borrowings..........        44          7            51          (42)        --          (42)
   Long-term debt.......................       (34)        --           (34)         (18)        (1)         (19)
                                           --------  --------       --------   ----------  ---------     --------

      Total interest-bearing liabilities   $ 1,041     $ (128)        $ 913        $ 277     $ (110)       $ 167
                                           =======     =======        =====        =====     =======       =====

Net interest income.....................                             $1,216                                $ 339
                                                                     ======                                =====
</TABLE>

Asset/Liability Management

         The Company's profitability,  like that of many financial institutions,
is  dependent  to a large  extent  upon its net  interest  income,  which is the
difference between its interest income on interest-earning assets, such as loans
and investments, and its interest expense on interest-bearing  liabilities, such
as deposits.  When  interest-bearing  liabilities mature or reprice more quickly
than interest-earning assets in a given period, a significant increase in market
rates of interest could adversely  affect net interest income.  Similarly,  when
interest-earning  assets  mature or reprice more  quickly than  interest-bearing
liabilities,  falling  interest rates could result in a decrease in net interest
income.  Finally,  a flattening  of the "yield  curve"  (i.e.,  a decline in the
difference  between long- and short-term  interest rates) could adversely impact
net  interest  income to the  extent  that the  Company's  assets  have a longer
average term than its liabilities.

         The Company is also  subject to  interest  rate risk to the extent that
the value of its net assets  fluctuates  with interest  rates.  In general,  the
value of a large  portion  of the  Company's  assets  decline in the event of an
increase in interest  rates.  However,  management  has been  successful  in and
continues to focus on the acquisition of variable rate loans thereby  decreasing
interest rate risk.

         The  Company  has  an  Asset/Liability  Committee,   comprised  of  the
Company's chief executive  officer,  executive  vice-president,  chief financial
officer,  and two non-employee  directors which meets periodically to review the
Company's   interest   rate  risk   position   and   product  mix  and  to  make
recommendations for adjustments to the Company's Board of Directors.  Management
also  monitors the Company's  interest  rate risk  position on a monthly  basis,
reviews the Company's portfolio,  earnings, liquidity, asset quality, formulates
investment strategies and oversees the timing and implementation of transactions
to assure attainment of the Board's objectives in the most effective manner.

                                       14

<PAGE>



         The Company has an  asset/liability  management  policy.  The principal
goals of this policy are to enhance the  Company's  net  interest  margin  while
managing its interest  rate  position.  Depending  upon market  conditions,  the
Company may place more emphasis on enhancing the net interest margin rather than
matching the interest rate  sensitivity of the Company's assets and liabilities.
Management strives to meet the goals of the policy by continually  enhancing the
net interest  margin  while still trying to  effectively  manage  interest  rate
sensitivity.  Nonetheless, the Company's results of operations and net portfolio
values  remain  vulnerable  to increases  in interest  rates and declines in the
difference between long- and short-term interest rates.

         The principal elements of the asset/liability  management policy are as
follows.  First,  the  Company  requires  that  one-to-four  family ARM loans be
indexed  to  changes in rates  paid on U.S.  Treasury  securities  and all other
adjustable  rate loans be indexed to Prime rate as  published in the Wall Street
Journal.  Management  believes that U.S. Treasury  securities and Prime rate are
significantly  more  interest rate  sensitive  than other indices and provides a
better  opportunity to manage interest rate risk in a changing rate environment.
Second,  management  intends to continue to increase  the  Company's  commercial
business,   consumer  and  commercial  real  estate  loans,  subject  to  market
conditions.  In general,  such loans  carry  shorter  terms to  maturity  and/or
repricing,  and are more  interest  rate  sensitive  than most of the  Company's
current assets.  Third,  management has used marketing and other  initiatives to
increase the Company's transaction and other non-certificate deposit accounts as
evidenced by an increase of $15.3 million from March 31, 1999 to March 31, 2000.
Management  believes that such accounts  generally  carry lower costs,  are more
interest rate resistant than the Company's certificates of deposit. There can be
no  assurance  as to  whether  or  when  any  or  all  of  the  elements  of the
asset/liability management program will be successfully implemented.

         Net  Portfolio  Value ("NPV")  analysis  provides a  quantification  of
interest rate risk. In essence,  this approach calculates the difference between
the present value of liabilities, expected cash flows from assets and cash flows
from off balance sheet contracts under different interest rate environments. The
following table sets forth,  as of March 31, 2000, the estimated  changes in the
Company's  NPV (i.e.,  the  present  value of expected  cash flows from  assets,
liabilities  and  off-balance  sheet  contracts)  in the event of the  specified
instantaneous changes in interest rates.
<TABLE>


                          Net Portfolio Equity
--------------------------------------------------------------------------------
  Change in
  Interest Rates                              Amount of        Percent of
  (Basis Points)      Estimated NPV           Change           Change
--------------------------------------------------------------------------------
                             (Dollars in Thousands)
<S>  <C>                 <C>                     <C>             <C>
    +300                 9,684                -11,275            -54
    +200                13,245                 -7,714            -37
    +100                17,028                 -3,931            -19
       0                20,959
    -100                24,997                  4,038            +19
    -200                28,402                  7,443            +36
    -300                32,265                 11,306            +54
</TABLE>




                                       15

<PAGE>



         Certain  assumptions  were  employed  by the Company in  preparing  the
previous table.  These  assumptions  relate to interest  rates,  loan prepayment
rates varied by the categories and rate environment,  deposit decay rates varied
by the categories and rate  environment  and the market values of certain assets
under the various interest rate scenarios.  It was also assumed that delinquency
rates will not change as a result of changes in interest  rates  although  there
can be no assurance that this will be the case. In the event that interest rates
do  change  in the  designated  amounts,  there  can be no  assurance  that  the
Company's assets and liabilities  would perform as set forth above. In addition,
a change in Treasury rates in the designated amounts  accompanied by a change in
the shape of the  Treasury  yield  curve  would  cause  significantly  different
changes to the NPV than indicated above.

Liquidity and Capital Resources

         The Company's  principal  sources of funds are deposits and borrowings,
amortization  and prepayment of loan principal and  mortgage-backed  securities,
maturities  of  investment  securities  and  operations.  While  scheduled  loan
repayments and maturing  investments are relatively  predictable,  deposit flows
and early loan repayments are more influenced by interest rates, floors and caps
on  loan  rates,  general  economic  conditions  and  competition.  The  Company
generally  manages the pricing of its deposits to be competitive and to increase
core deposit relationships, but has from time to time decided not to pay deposit
rates  that are as high as those of its  competitors  and,  when  necessary,  to
supplement deposits with less expensive alternative sources of funds.

         The primary  investing  activities of the Company are originating loans
and,  to  a  much  lesser  extent,  purchasing  mortgage-backed  and  investment
securities.  During  the  fiscal  years  ended  March 31,  2000,  1999 and 1998,
mortgage  loan  originations  totaled  $66.0  million,  $44.5  million and $45.2
million,  respectively.  Purchases of mortgage-backed and investment  securities
totaled $0, $21.3 million and $9.4 million during each of the fiscal years ended
March 31,  2000,  1999 and 1998,  respectively.  A  substantial  portion of loan
originations and purchases of  mortgage-backed  securities and other investments
were funded by proceeds of loan repayments,  the maturity or sale of securities,
deposits and FHLB advances.

         The  primary  financing  activities  of the Company  are  deposits  and
borrowings.  During the fiscal  years ended March 31, 2000,  1999 and 1998,  the
Company experienced an increase in deposits of $17.2 million,  $12.8 million and
$4.4 million.  Certificates of deposits as of March 31, 2000 maturing within one
year total $57.6 million. During the fiscal years ended March 31, 2000, 1999 and
1998, the Company's net financing  activity  (proceeds less repayments) with the
FHLB totaled $16.7 million, $388,000 and $0, respectively.

         The Company's most liquid assets are cash and cash  equivalents,  which
consist of short-term highly liquid investments with original maturities of less
than three  months that are  readily  convertible  to known  amounts of cash and
interest-bearing  deposits.  The  level  of these  assets  is  dependent  on the
Company's operating, financing and investing activities during any given period.
At March 31, 2000, cash and cash equivalents totaled $5.3 million.

         Liquidity  management is both a daily and long-term  responsibility  of
management.  The Company  adjusts its  investments  in liquid  assets based upon
management's  assessment  of (i) expected  loan demand,  (ii)  expected  deposit
flows,  (iii) yields  available  on  interest-earning  deposits  and  investment
securities,  and (iv) the objectives of its asset/liability  management program.
Excess liquidity is invested  generally in  interest-earning  overnight deposits
and short- and  intermediate-term  U.S.  Government and agency  obligations  and
mortgage-backed  securities of short  duration.  If the Company  requires  funds
beyond its ability to generate them internally,  Classic Bank and First National
have additional borrowing capacity

                                       16

<PAGE>



with the FHLB of Cincinnati which is, in the opinion of management,  adequate to
provide any funds needed.

         The Company anticipates that it will have sufficient funds available to
meet current loan  commitments.  At March 31, 2000, the Company had  outstanding
loan commitments totaling $12.9 million.

         As a federally  chartered savings bank, Classic is required to maintain
a minimum level of regulatory  capital.  As a nationally  chartered bank,  First
National is subject to the  capital  regulation  of the OCC. At March 31,  2000,
Classic and First National exceeded all of their capital requirements on a fully
phased-in  basis.  See  Note  16 to  the  Notes  to the  Consolidated  Financial
Statements for information  regarding regulatory capital levels and requirements
for each institution.

Impact of New Accounting Standards

         See Note 1 of the Notes to the  Consolidated  Financial  Statements for
information regarding the effect of implementing new accounting standards.

Impact of Inflation and Changing Prices

         The Company's  Consolidated  Financial  Statements  and Notes 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  consideration for changes in the relative purchasing
power of money over time due to inflation.  The impact of inflation can be found
in the  increased  cost of the Company's  operations.  Nearly all the assets and
liabilities of the Company are financial, unlike most industrial companies. As a
result,  the Company's  performance is directly  impacted by changes in interest
rates,  which  are  indirectly  influenced  by  inflationary  expectations.  The
Company's ability to match the financial assets to the financial  liabilities in
its  asset/liability  management  will tend to  minimize  the change of interest
rates on the Company's performance. Changes in interest rates do not necessarily
move to the same extent as changes in the price of goods and services.

                                       17

<PAGE>


                    CLASSIC BANCSHARES, INC. AND SUBSIDIARIES

                   Index to Consolidated Financial Statements




INDEPENDENT AUDITOR'S REPORT..................................................3

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
  AS OF MARCH 31, 2000 AND 1999...............................................4

CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS
  ENDED MARCH 31, 2000, 1999 AND 1998.........................................5

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
  FOR THE YEARS ENDED MARCH 31, 2000, 1999 AND 1998...........................6

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'
  EQUITY FOR THE YEARS ENDED MARCH 31, 2000, 1999
  AND 1998....................................................................7

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
  YEARS ENDED MARCH 31, 2000, 1999 AND 1998.................................8-9

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS................................10-39



<PAGE>



                                             R. MILTON GOOLSBY, C.P.A.
                                               JOHN W. ARTIS, C.P.A.
                                             LARRY J. WITHERS, C.P.A.
                                            STEPHEN W. KANOUSE, C.P.A.
                                             DELMAR H. FRALEY, C.P.A.
                                            RODNEY M. ROBINETTE, C.P.A.
                                                    -----------

                                             G. DALE SWENTZEL, C.P.A.
                                             STUART T. BLEVINS, C.P.A.
                                              DAVID K. WHALEY, C.P.A.
                                             SHARON K. KRETZER, C.P.A.
                                             THERESA C. LYONS, C.P.A.

Smith, Goolsby,
Artis & Reams, P.S.C.



CERTIFIED PUBLIC ACCOUNTANTS
P.O. BOX 551      1330 CARTER AVE.
ASHLAND, KENTUCKY  41105-0551
(606) 329-1171   FAX (606) 325-0590

Board of Directors
Classic Bancshares, Inc. and Subsidiaries
Ashland, Kentucky

                          INDEPENDENT AUDITOR'S REPORT

     We have  audited the  accompanying  consolidated  statements  of  financial
condition of Classic Bancshares,  Inc. and Subsidiaries as of March 31, 2000 and
1999, and the related consolidated  statements of income,  comprehensive income,
changes in  stockholders'  equity and cash flows for each of the three  years in
the  period  ended  March  31,  2000.   These   financial   statements  are  the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

     We conducted  our audits in accordance  with  generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

     In our opinion,  the consolidated  financial  statements  referred to above
present  fairly,  in all material  respects,  the financial  position of Classic
Bancshares,  Inc.  and  Subsidiaries,  as of March 31,  2000 and  1999,  and the
results of their  operations and their cash flows for each of the three years in
the  period  ended  March  31,  2000,  in  conformity  with  generally  accepted
accounting principles.





Ashland, Kentucky
May 26, 2000


<PAGE>



                    CLASSIC BANCSHARES, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                             MARCH 31, 2000 AND 1999

<TABLE>

                                                                                          2000                         1999
                                                                                          ----                         ----
<S>                                                                                  <C>                         <C>
ASSETS
  Cash and due from banks                                                            $ 5,061,670                 $  2,955,422
  Interest-bearing deposits with banks                                                    60,413                      132,826
  Federal funds sold and securities
   purchased under agreements to resell                                                  131,438                    1,397,908
  Securities available for sale                                                       23,672,526                   25,141,436
  Mortgage-backed and related securities
   available for sale                                                                  3,229,952                    4,479,136
  Loans, net of allowance for loan losses
   of $1,289,302 in 2000 and $860,658 in 1999.                                       127,808,325                   97,527,492
  Real estate acquired in the settlement
   of loans                                                                              255,246                      225,590
  Accrued interest receivable                                                          1,139,012                      951,877
  Federal Home Loan Bank and Federal
   Reserve Bank stock                                                                  1,462,350                    1,384,450
  Premises and equipment, net                                                          5,061,929                    4,523,720
  Cost in excess of fair value of net
   assets acquired, net of accumulated
   amortization                                                                        5,808,774                    2,779,349
  Other assets                                                                         1,562,534                    1,239,835
                                                                                     -----------                  -----------

Total assets                                                                        $175,254,169                 $142,739,041
                                                                                     ===========                  ===========

LIABILITIES
  Non-interest bearing demand deposits                                              $ 14,749,044                 $  9,600,258
  Savings, NOW, and money market demand deposits                                      45,807,285                   35,674,021
  Other time deposits                                                                 74,340,467                   72,457,492
                                                                                     -----------                  -----------
         Total deposits                                                              134,896,796                  117,731,771
  Federal funds purchased and securities
   sold under agreements to repurchase                                                 2,687,714                    2,817,154
  Advances from Federal Home Loan Bank                                                17,075,380                      387,739
  Other short-term borrowings                                                            573,751                       84,578
  Accrued expenses and other liabilities                                                 427,998                      428,065
  Accrued interest payable                                                               551,465                      418,642
  Accrued income taxes                                                                    42,419                       45,134
  Deferred income taxes                                                                       --                      536,978
                                                                                     -----------                  -----------

Total liabilities                                                                    156,255,523                  122,450,061
                                                                                     -----------                  -----------


Commitments

STOCKHOLDERS' EQUITY
  Preferred stock $.01 par value; authorized,
   100,000 shares - none issued                                                               --                           --
  Common stock $.01 par value; authorized
   1,700,000 shares; issued and outstanding,
   1,322,500 shares                                                                       13,225                       13,225
  Additional paid-in capital                                                          12,829,744                   12,806,544
  Retained earnings, substantially restricted                                         10,062,718                    9,362,668
  Accumulated other comprehensive income (loss)                                    (   1,279,524)                      83,977
  Unearned ESOP shares                                                             (     736,600)               (     785,150)
  Unearned RRP shares                                                              (     174,146)               (     294,332)
  Treasury stock, at cost                                                          (   1,716,771)               (     897,952)
                                                                                      -----------                  -----------


Total stockholders' equity                                                            18,998,646                   20,288,980
                                                                                     -----------                  -----------


Total liabilities and stockholders' equity                                          $175,254,169                 $142,739,041
                                                                                     ===========                  ===========

</TABLE>



NOTE:     The  accompanying  notes are an integral part of these  consolidated
financial statements.


<PAGE>



                    CLASSIC BANCSHARES, INC. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                    YEARS ENDED MARCH 31, 2000, 1999 AND 1998
<TABLE>


                                                                   2000                         1999                       1998
                                                                   ----                         ----                       ----
<S>                                                            <C>                            <C>                       <C>
INTEREST AND DIVIDEND INCOME
   Loans, including fees                                       $10,099,028                    $7,892,250                $7,414,430
   Securities:
      Taxable                                                      658,106                       681,796                   945,807
      Tax exempt                                                   831,256                       651,715                   438,677
   Mortgage-backed securities                                      223,325                       399,033                   550,442
   Federal funds sold and securities
     purchased under agreements to resell                           25,543                        93,208                    59,425
   Dividends                                                        97,793                        91,849                    80,939
   Other interest                                                    5,749                        11,939                    17,590
                                                                ----------                     ---------                 ---------
     Total interest and dividend income                         11,940,800                     9,821,790                 9,507,310
                                                                ----------                     ---------                 ---------

INTEREST EXPENSE
   Deposits                                                      5,256,203                     4,695,839                 4,213,728
   Federal Home Loan Bank advances                                 421,172                        84,987                   343,630
   Federal funds purchased and securities
     sold under repurchase agreements                              180,504                       154,349                   194,219
   Long-term debt                                                       --                        33,778                    52,955
   Other short-term borrowings                                      34,067                         9,678                     7,454
                                                                ----------                     ---------                 ---------
     Total interest expense                                      5,891,946                     4,978,631                 4,811,986
                                                                ----------                     ---------                 ---------

     Net interest income                                         6,048,854                     4,843,159                 4,695,324
   Provision for loss on loans                                     222,500                       100,000                   157,500
                                                                ----------                     ---------                 ---------

     Net interest income after
    provision for loss on loans                                  5,826,354                     4,743,159                 4,537,824
                                                                ----------                     ---------                 ---------

NONINTEREST INCOME
   Service charges                                                 702,570                       486,899                   344,295
   Gain (loss) on sale of securities                          (      2,500)                        3,904                    29,167
  Gain from settlement of pension plan                                  --                            --                   370,622
   Other income                                                    194,706                       184,496                   128,731
                                                                ----------                     ---------                 ---------
     Total noninterest income                                      894,776                       675,299                   872,815
                                                                ----------                     ---------                 ---------

NONINTEREST EXPENSES
   Employee compensation and benefits                            2,425,898                     1,997,217                 1,830,387
   Occupancy and equipment expense                                 760,911                       600,577                   554,302
   Federal deposit insurance premiums                               41,674                        37,082                    33,923
   Advertising                                                     204,895                       145,180                   142,047
   Data processing                                                  59,244                       153,044                   133,715
   Franchise taxes                                                 167,076                       128,640                   137,728
   Directors fees and benefits                                     110,450                       122,154                   116,823
   Amortization of goodwill                                        238,226                       123,520                   123,520
   Stationary and supplies                                         167,648                       110,193                   104,334
   Other operating expenses                                      1,183,086                       877,584                   817,158
                                                                ----------                     ---------                 ---------
     Total noninterest expense                                   5,359,108                     4,295,191                 3,993,937
                                                                ----------                     ---------                 ---------

INCOME BEFORE INCOME TAXES                                       1,362,022                     1,123,267                 1,416,702
--------------------------

   Income tax expense                                              292,340                       237,943                   396,216
                                                                ----------                     ---------                 ---------

NET INCOME                                                     $ 1,069,682                    $  885,324                $1,020,486
----------                                                      ==========                     =========                 =========


   Basic earnings per share                                    $       .94                    $      .75                $      .87
                                                                ==========                     =========                 =========
   Diluted earnings per share                                  $       .92                    $      .72                $      .83
                                                                ==========                     =========                 =========
</TABLE>


NOTE:     The  accompanying  notes are an integral part of these  consolidated
financial statements.



<PAGE>



                    CLASSIC BANCSHARES, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                    YEARS ENDED MARCH 31, 2000, 1999 AND 1998


<TABLE>

                                                                                 2000             1999                      1998
                                                                                 ----             ----                      ----
<S>                                                                             <C>             <C>                    <C>

Net Income                                                                      $1,069,682      $885,324               $1,020,486
                                                                                 ---------      -------                 ---------

  Other comprehensive income, net of tax:
    Unrealized holding gains (losses) on
       securities during the period, net
       of tax                                                                  ( 1,365,151)    ( 210,470)                 374,939

    Reclassification adjustments for realized gains (losses)included  in
       earnings, net of tax of ($850) $1,225, and $9,917 for 2000, 1999, and
       1998, respectively                                                            1,650     (   2,678)              (   19,200)

    Minimum pension liability adjustment
       net of tax of $5,128, and $733
       for 1999, and 1998,
       respectively                                                                    --          9,954                    1,422
                                                                                 ---------       -------                ---------

  Other comprehensive income (loss)                                            ( 1,363,501)     ( 203,194)                357,161
                                                                                 ---------        -------               ---------

Comprehensive income (loss)                                                    ($  293,819)      $682,130              $1,377,647
                                                                                 =========        =======               =========





Accumulated other comprehensive income (loss)                                  ($1,279,524)      $ 83,977              $  287,171
                                                                                 =========        =======               =========


</TABLE>


NOTE:     The  accompanying  notes are an integral part of these  consolidated
financial statements.


<PAGE>


                    CLASSIC BANCSHARES, INC. AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                FOR THE YEARS ENDED MARCH 31, 2000, 1999 AND 1998
<TABLE>

                                                                                                                   MINIMUM
                                                       ADDITIONAL                    UNEARNED       UNEARNED       PENSION
                                           COMMON      PAID-IN        RETAINED       ESOP           RRP            LIABILITY
                                           STOCK       CAPITAL        EARNINGS       SHARES         SHARES         ADJUSTMENT
                                           ------      -------        --------       ------         ------         ----------

<S>                                       <C>          <C>            <C>            <C>            <C>            <C>
Balances, April 1, 1997                   $13,225      $12,689,158    $8,172,085     ($918,660)     ($486,055)     ($11,376)

 Net income for the year ended March 31,
  1998                                                                 1,020,486
 Cash dividends paid ($.28 per share)                                 (  338,965)
 ESOP shares earned                                         49,796                      83,690
 RRP shares earned                                                                                    110,283
 RRP shares forfeited                                          337                                      3,893
 Tax benefit from RRP                                       14,498
 Purchased 20,000 treasury shares
 Change in minimum pension liability
  adjustment                                                                                            1,422
 Change in unrealized gain (loss) on
  available for sale securities net
  of applicable deferred income taxes of
  $183,259
                                        _______         __________     _________      _________     _________       ________

Balances, March 31, 1998                 13,225         12,753,789     8,853,606     (   834,970)  (  371,879)      ( 9,954)

 Net income for the year ended March 31,
  1999                                                                   885,324
 Cash dividends paid ($.31 per share)                                 (  376,262)
 ESOP shares earned                                        28,198                         49,820
 RRP shares earned                                                                                    114,132
 RRP shares granted                                         4,742                                  (   36,585)
 Tax benefit from RRP                                      19,815
 Purchased 43,894 treasury shares
 Change in minimum pension liability
  adjustment                                                                                                          9,954
 Change in unrealized gain (loss) on
  available for sale securities net
  of applicable deferred income taxes of
  $109,804
                                         ______       __________       ________      _________     ________        _________

Balances, March 31, 1999                 13,225       12,806,544       9,362,668    ( 785,150)     (  294,332)          --

 Net income for the year ended March 31,
  2000                                                                 1,069,682
 Cash dividends paid ($.32 per share)                                    369,632)
 ESOP shares earned                                       14,468                       48,550
 RRP shares earned                                                                                     116,255
 RRP shares granted                                          365                                   (     2,725)
 RRP shares forfeited                                 (      264)                                        6,656
 Tax benefit from RRP                                      8,631
 Purchased 66,106 treasury shares
 Change in unrealized gain (loss) on
  available for sale securities net
  of applicable deferred income taxes of
  $702,410


Balances, March 31, 2000                $13,225      $12,829,744     $10,062,718    ($ 736,600)    ($174,146)      $   --

                                         ======       ==========      ==========      ========       =======         =====
</TABLE>
<PAGE>



                    CLASSIC BANCSHARES, INC. AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                FOR THE YEARS ENDED MARCH 31, 2000, 1999 AND 1998
<TABLE>

                                                                     GAIN (LOSS)ON
                                                                     SECURITIES
                                             TREASURY                AVAILABLE
                                             STOCK                   FOR SALE                 TOTAL
                                             -----                   --------                 -----

<S>                                          <C>                   <C>                      <C>
Balances, April 1, 1997                      ($  29,963)           ($ 58,614)               $ 19,369,800

 Net income for the year ended March 31,
  1998                                                                                         1,020,486
 Cash dividends paid ($.28 per share)                                                      (     338,965)
 ESOP shares earned                                                                              133,486
 RRP shares earned                                                                               110,283
 RRP shares forfeited                                            (     4,230)                        --
 Tax benefit from RRP                                                                             14,498
 Purchased 20,000 treasury shares                                (   259,687)              (     259,687)
 Change in minimum pension liability
  adjustment                                                                                       1,422
 Change in unrealized gain (loss) on
  available for sale securities net
  of applicable deferred income taxes of
  $183,259                                                           355,739                     355,739

                                             ___________          __________               _____________
Balances, March 31, 1998                     (   293,880)            297,125                  20,407,062

 Net income for the year ended March 31,
  1999                                                                                           885,324
 Cash dividends paid ($.31 per share)                                                        (   376,262)
 ESOP shares earned                                                                               78,018
 RRP shares earned                                                                               114,132
 RRP shares granted                                                   31,843                          --
 Tax benefit from RRP                                                                             19,815
 Purchased 43,894 treasury shares                                (   635,915)                (   635,915)
 Change in minimum pension liability
  adjustment                                                                                       9,954
 Change in unrealized gain (loss) on
  available for sale securities net
  of applicable deferred income taxes of
  $109,804                                                       (   213,148)                (   213,148)
                                          ___________              _________                   ___________

Balances, March 31, 1999                  (   897,952)                83,977                  20,288,980

 Net income for the year ended March 31,
  2000                                                                                         1,069,682
 Cash dividends paid ($.32 per share)                                                        (   369,632)
 ESOP shares earned                                                                               63,018
 RRP shares earned                                                                               116,255
 RRP shares granted                                                    2,360                          --
 RRP shares forfeited                                            (     6,392)                         --
 Tax benefit from RRP                                                                              8,631
 Purchased 66,106 treasury shares                                (   814,787)                (   814,787)
 Change in unrealized gain (loss) on
  available for sale securities net
  of applicable deferred income taxes of
  $702,410                               ___________             (1,363,501)                 ( 1,363,501)


Balances, March 31, 2000                ($1,716,771)             ($1,279,524)                 $18,998,646
                                         =========                 =========                   ==========
</TABLE>



NOTE:     The accompanying notes are an integral part of these consolidated
          financial statements.


<PAGE>



                    CLASSIC BANCSHARES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                FOR THE YEARS ENDED MARCH 31, 2000, 1999 AND 1998
<TABLE>


                                                                               2000                  1999                   1998
                                                                               ----                  ----                   ----
<S>                                                                      <C>                   <C>                   <C>
OPERATING ACTIVITIES
  Net income                                                              $ 1,069,682          $    885,324           $ 1,020,486
  Adjustments to reconcile net income
    to net cash provided by operating
    activities:
     Depreciation and amortization                                            522,654               491,818               423,166
     Provision for loan losses                                                222,500               100,000               157,500
     Provision for loss on foreclosed
       real estate                                                                 --                    --                50,000
     Loss (gain) on sale of mortgage-
       backed securities                                                           --                39,396                 7,392
     Loss (gain) on sale of investment
       securities                                                               2,500           (    43,300)          (    36,559)
     Net amortization (accretion) of
       mortgage-backed and investment securities                               76,345                 87,841                27,756
     Federal Home Loan Bank stock
       dividend                                                           (    77,900)          (     73,200)          (    68,200)
     Deferred income tax expense
       (benefit)                                                               42,012                  4,313               181,456
     Loss (gain) on sale of foreclosed
       real estate                                                        (     2,600)          (      7,465)          (    34,354)
     Loss (gain) on disposal of equipment and software                    (    26,821)                   --                 53,053
     Gain on pension plan settlement                                               --                    --            (   370,622)
     ESOP shares earned                                                      C 63,018                 78,018               133,486
     RRP shares earned                                                        116,255                114,132               110,283
     Amortization of goodwill                                                 238,226                123,520               123,520
  Decrease (increase) in:
    Accrued interest receivable                                           (    86,334)          (    100,110)          (   161,581)
    Other assets                                                          (   252,238)                51,692                91,409
  Increase (decrease) in:
    Accrued interest payable                                                   51,249                 28,233               172,678
    Accrued income taxes                                                  (     2,715)                45,134           (    90,588)
    Other liabilities                                                     (   226,429)                19,642               114,254
                                                                            ----------            ----------            ----------

         Net Cash Provided by Operating
          Activities                                                        1,729,404             1,844,988             1,904,535
                                                                           ----------            ----------            ----------

INVESTING ACTIVITIES
  Investment securities:
    Available for sale:
      Proceeds from sales, maturities and calls                               527,500            10,338,714            12,709,539
      Purchased                                                                    --          ( 17,536,505)          ( 7,024,383)
  Mortgage-backed securities:
    Available for sale:
      Proceeds from sale                                                           --             5,035,427             1,004,375
      Principal payments                                                    1,175,825             1,982,271             1,285,360
      Purchased                                                                    --           ( 3,839,845)         (  2,182,572)
  Purchased Federal Home Loan Bank stock                                           --           (    14,100)         (     22,800)
  Purchased Federal Reserve Bank stock                                             --                    --          (    190,750)
  Redemption of Federal Reserve Bank stock                                     45,000                    --                     --
  Loan originations and principal payments, net                          ( 22,063,403)         (  7,610,033)          (  8,581,515)
  Certificates of deposit with other banks:
    Proceeds from maturities                                                       --                293,000                    --
  Proceeds from sale of foreclosed real estate                                 55,500                 93,806               143,000
  Purchased premises and equipment                                       (    306,326)         (    434,960)          (  1,560,273)
  Proceeds from sale of equipment and fixtures                                241,700                    --                 33,950
  Purchased software                                                     (     47,415)         (     35,764)          (     89,838)
  Cash and cash equivalents acquired
    in purchase of Bank subsidiary in
    excess of cash invested                                              (  1,574,538)                  --                    --
                                                                            ----------           ----------            ----------

         Net Cash Used by Investing
          Activities                                                      ( 21,946,157)         ( 11,727,989)         (  4,475,907)
                                                                            ----------            ----------            ----------

</TABLE>



<PAGE>




                    CLASSIC BANCSHARES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                FOR THE YEARS ENDED MARCH 31, 2000, 1999 AND 1998
                                   (Continued)
<TABLE>

                                                                              2000                   1999                   1998
                                                                              ----                   ----                   ----
<S>                                                                     <C>                    <C>                    <C>
FINANCING ACTIVITIES
    Net change in deposits                                              $  5,121,163            $12,805,104            $ 4,407,194
    Federal Home Loan Bank borrowings                                    102,765,000             20,547,000             25,507,000
    Repayment of Federal Home Loan
      Bank borrowings                                                  (  86,077,359)          ( 20,159,261)          ( 30,257,000)
    Repayment of long-term borrowings                                            --            (    550,000)          (    100,000)
    Decrease in federal funds purchased
      and securities sold under
      agreements to repurchase                                         (     129,440)          (    704,645)          (  1,433,967)
    Increase (decrease) in short term treasury
      tax and loan borrowings                                                489,173           (    189,119)          (    155,257)
    Dividends paid                                                     (     369,632)          (    376,262)          (    338,965)
    Treasury shares purchased                                          (     814,787)          (    635,915)          (    259,687)
                                                                          ----------             ----------             ----------

         Net Cash Provided (Used) by Financing
          Activities                                                      20,984,118             10,736,902           (  2,630,682)
                                                                         -----------             ----------              ----------

Net Change in Cash and Cash Equivalents                                      767,365                853,901           (  5,202,054)

Cash and Cash Equivalents, Beginning
    of Year                                                                4,486,156              3,632,255              8,834,309
                                                                         -----------             ----------             ----------
Cash and Cash Equivalents, End of
 Year                                                                   $  5,253,521            $ 4,486,156            $ 3,632,255
                                                                         ===========             ==========             ==========

Additional Cash Flows and Supplementary
 Information
    Cash paid during the year for:
      Interest on deposits and borrowings                               $  1,383,993            $ 1,086,800            $ 1,728,553
      Income taxes                                                      $    254,899            $   140,837            $   321,472
    Assets acquired in settlement of
      loans                                                             $    127,556            $    82,541            $    51,700
    Net unrealized gain (loss) on
      securities available-for-sale                                    ($  1,363,501)           $   213,148            $   355,739
    Liabilities assumed and cash paid in
      acquisition of Citizens Bank                                      $ 17,017,497                     --                     --
    Fair value of assets received                                       $ 13,749,846                     --                     --
    Amount assigned to goodwill                                         $  3,267,651                     --                     --

</TABLE>


NOTE:      The  accompanying  notes are an integral part of these  consolidated
financial statements.



<PAGE>



                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                              --------------------


NOTE 1:           SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------            ------------------------------------------

    A.            Organization

                  Classic Bancshares,  Inc. (the "Corporation") was organized as
                  a savings and loan holding  company  primarily for the purpose
                  of acquiring and owning all of the outstanding common stock of
                  Classic  Bank  (formerly   Ashland   Federal   Savings  Bank).
                  Effective September 30, 1996, Classic Bancshares,  Inc. became
                  a bank  holding  company upon its  acquisition  of 100% of the
                  outstanding common stock of First National Bank of Paintsville
                  (First National).

                  As more fully  described in Note 2, on May 14,  1999,  Classic
                  Bank acquired 100% of the outstanding common stock of Citizens
                  Bank,  Grayson,  Kentucky.  Citizens Bank was  dissolved  upon
                  consummation  of the  merger  and it  assets  and  liabilities
                  merged  into  Classic  Bank  with  the  former  Citizens  Bank
                  continuing in operations as a branch of Classic Bank.

                  Classic  Bank and  First  National  (the  "Banks")  conduct  a
                  general  commercial banking business in eastern Kentucky which
                  consists of attracting  deposits  from the general  public and
                  using those funds,  together  with other  funds,  to originate
                  residential,  consumer and nonresidential loans,  primarily in
                  their market area.

                  The Banks'  revenues  are derived  principally  from  interest
                  earned on loans and to a lesser extent,  from interest  earned
                  on investments and service fees on loans and deposit accounts.
                  The  operations of the Banks are influenced  significantly  by
                  general  economic  conditions  and by  policies  of  financial
                  institutions regulatory agencies. The Banks' cost of funds are
                  influenced  by interest  rates on  competing  investments  and
                  general market rates.  Lending  activities are affected by the
                  demand for  financing  real  estate and other  types of loans,
                  which in turn is affected by the interest  rates at which such
                  financing may be offered.

                  The Banks' net interest income is dependent primarily upon the
                  difference or spread between the average yield earned on loans
                  and investments and the average rate paid on deposits, as well
                  as the relative  amounts of such assets and  liabilities.  The
                  Banks,  like  most  financial  institutions,  are  subject  to
                  interest  rate risk to the degree that their  interest-bearing
                  liabilities  mature or reprice  at  different  times,  or on a
                  different basis, than their interest earning assets.

         B.       Use of Estimates

                  In preparing  consolidated  financial statements in conformity
                  with generally accepted accounting  principles,  management is
                  required to make  estimates  and  assumptions  that affect the
                  reported  amounts of assets and  liabilities as of the date of
                  the  balance  sheet  and  reported  amounts  of  revenues  and
                  expenses  during the reporting  period.  Actual  results could
                  differ  from  those  estimates.  Material  estimates  that are
                  particulary susceptible to significant change in the near term
                  relate to the  determination of the allowance for loan losses,
                  the  valuation  of  foreclosed  real estate and  deferred  tax
                  assets.


<PAGE>



              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
                              --------------------


NOTE 1:           SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
------            ------------------------------------------

     C.           Principles of Consolidation

                  The consolidated  financial statements include the accounts of
                  the  Corporation and the Banks.  All significant  intercompany
                  balances and transactions have been eliminated.

     D.           Investment Securities and Mortgage-Backed and Related
                  Securities

                  The  Corporation  accounts for investment and  mortgage-backed
                  securities   in   accordance   with   Statement  of  Financial
                  Accounting  Standards ("SFAS") No. 115 "Accounting for Certain
                  Investments  in Debt and  Equity  Securities."  SFAS  No.  115
                  requires  that   investment   securities  be   categorized  as
                  held-to-maturity,  trading, or available-for-sale.  Securities
                  classified as  held-to-maturity  are carried at amortized cost
                  only if the Corporation has the positive intent and ability to
                  hold these  securities  to maturity.  Trading  securities  and
                  securities  available-for-sale  are carried at fair value with
                  resulting unrealized gains or losses recorded to operations or
                  stockholders'    equity,    respectively.    Investment    and
                  mortgage-backed   securities  are   classified   according  to
                  management's   intent  upon  acquisition.   The  Corporation's
                  stockholders'  equity reflected net unrealized  (losses) gains
                  of  ($1,279,524)  and  $83,977  at March 31,  2000,  and 1999,
                  respectively. Realized gains and losses on sales of securities
                  are recognized using the specific identification method.

     E.           Loans Receivable and Allowance for Loan Losses

                  Loans receivable, net are stated at unpaid principal balances,
                  less the allowance for loan losses, plus or minus net deferred
                  loan origination costs or fees, and the undisbursed portion of
                  loans in process.

                  Interest is accrued as earned unless the collectibility of the
                  loan is in doubt.  Uncollectible  interest  on loans  that are
                  contractually  past due is charged  off,  or an  allowance  is
                  established  based on management's  periodic  evaluation.  The
                  allowance is established by a charge to interest  income equal
                  to all interest previously accrued, and income is subsequently
                  recognized  only to the extent that cash payments are received
                  until, in  management's  judgment,  the borrower's  ability to
                  make periodic interest and principal  payments has returned to
                  normal, in which case the loan is returned to accrual status.

                  It is the  Corporation's  policy to establish an allowance for
                  loan losses for the  purpose of  absorbing  losses  associated
                  with the loan portfolio. All actual loan losses are charged to
                  the related  allowance and all  recoveries are credited to it.
                  Additions  to the  allowance  for loan losses are  provided by
                  charges to operations based on various factors, including the







<PAGE>



              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
                              --------------------


NOTE 1:           SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
------            ------------------------------------------

     E.           Loans Receivable and Allowance for Loan Losses (Continued)

                  market  value  of  the  underlying   collateral,   growth  and
                  composition of the loan  portfolio,  the  relationship  of the
                  allowance  for loan losses to  outstanding  loans,  historical
                  loss  experience,   delinquency   trends  and  prevailing  and
                  projected  economic   conditions.   Management  evaluates  the
                  carrying value of loans  periodically in order to evaluate the
                  adequacy  of the  allowance.  While  management  uses the best
                  information  available  to  make  these  evaluations,   future
                  adjustments   to  the   allowance  may  be  necessary  if  the
                  assumptions  used in making the evaluations  require  material
                  revision.

                  The Corporation accounts for impaired loans in accordance with
                  SFAS No. 114,  "Accounting  by Creditors  for  Impairment of a
                  Loan".  SFAS No. 114 requires that impaired  loans be measured
                  based upon the  present  value of  expected  future cash flows
                  discounted  at the loan's  effective  interest  rate or, as an
                  alternative,  at the  loans  observable  market  price or fair
                  value of the collateral.

                  Under SFAS No. 114, a loan is defined as impaired when,  based
                  on current  information  and  events,  it is  probable  that a
                  creditor  will be unable to collect all amounts due  according
                  to the contractual  terms of the loan  agreement.  In applying
                  the provisions of SFAS No. 114, the Corporation  considers its
                  investment  in   one-to-four-family   residential   loans  and
                  consumer  installment  loans to be  homogeneous  and therefore
                  excluded  from  separate   identification  for  evaluation  of
                  impairment.  With respect to the  Corporation's  investment in
                  multi-family and  nonresidential  loans, and its evaluation of
                  any impairment  thereon,  such loans are collateral  dependent
                  and as a result are  carried as a practical  expedient  at the
                  lower of cost or fair value.

                  At March 31, 2000 and 1999, the  Corporation had no loans that
                  would be defined as impaired under SFAS No. 114.

     F.           Loan Origination Fees

                  Loan fees are accounted for in  accordance  with  Statement of
                  Financial  Accounting  Standards  ("SFAS") No. 91. SFAS No. 91
                  requires loan origination fees and certain related direct loan
                  origination  costs be offset and the  resulting  net amount be
                  deferred  and  amortized  over  the  contractual  life  of the
                  related  loans as an  adjustment  to the yield on such  loans,
                  using the level yield method.

    G.            Foreclosed Real Estate

                  Real estate properties  acquired through,  or in lieu of, loan
                  foreclosure are to be sold and are initially  recorded at fair
                  value  at the  date of  foreclosure  establishing  a new  cost
                  basis.




<PAGE>



              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
                              --------------------


NOTE 1:           SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
------            ------------------------------------------

     G.           Foreclosed Real Estate (Continued)

                  After  foreclosure,  valuations are periodically  performed by
                  management  and the real  estate  is  carried  at the lower of
                  carrying  amount or fair value less cost to sell.  Revenue and
                  expenses  from   operations   and  changes  in  the  valuation
                  allowance are included in loss on foreclosed real estate.  The
                  historical  average  holding period for such properties is six
                  months.

     H.           Premises and Equipment

                  Land  is  carried  at  cost.  Bank  premises,   furniture  and
                  equipment,  and  leasehold  improvements  are carried at cost,
                  less  accumulated   depreciation  and  amortization   computed
                  principally by the straight-line  method over estimated useful
                  lives of the  assets,  estimated  to be ten to fifty years for
                  buildings  and five to ten years for  furniture,  fixtures and
                  equipment.

     I.           Goodwill and Other Intangibles

                  Goodwill  resulting from the acquisition of First National and
                  Citizens Bank totaled  approximately $6.4 million and is being
                  amortized   over  a   twenty-five   year   period   using  the
                  straight-line method.  Management  periodically  evaluates the
                  carrying value of these  intangible  assets in relation to the
                  continuing  earnings  capacity  of  the  acquired  assets  and
                  assumed liabilities.

     J.           Federal Income Taxes

                  The   Corporation   accounts  for  federal   income  taxes  in
                  accordance  with SFAS No. 109,  "Accounting for Income Taxes."
                  Pursuant to the  provisions  of SFAS No.  109, a deferred  tax
                  liability  or deferred  tax asset is computed by applying  the
                  current  statutory  tax  rates to net  taxable  or  deductible
                  temporary  differences  between  the tax  basis of an asset or
                  liability and its reported amount in the financial  statements
                  that will  result in taxable or  deductible  amounts in future
                  periods.  Deferred tax assets are recorded  only to the extent
                  that the amount of net  deductible  temporary  differences  or
                  carryforward attributes may be utilized against current period
                  earnings,  carried back against prior years' earnings,  offset
                  against  taxable  temporary  differences  reversing  in future
                  periods, or utilized to the extent of management's estimate of
                  future taxable income.  A valuation  allowance is provided for
                  deferred  tax  assets  to the  extent  that  the  value of net
                  deductible temporary  differences and carryforward  attributes
                  exceeds  management's  estimates  of taxes  payable  on future
                  taxable  income.  Deferred tax liabilities are provided on the
                  total  amount  of net  temporary  differences  taxable  in the
                  future.





<PAGE>



              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
                              --------------------


NOTE 1:           SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
------            ------------------------------------------

     J.           Federal Income Taxes (Continued)

                  The  Corporation's  principal  temporary  differences  between
                  pretax  financial  income and taxable income result  primarily
                  from the  different  methods of  accounting  for deferred loan
                  origination fees, Federal Home Loan Bank stock dividends,  the
                  general  loan  loss  allowance,   and  certain  components  of
                  retirement expense. A temporary  difference is also recognized
                  for depreciation  expense computed using  accelerated  methods
                  for federal income tax purposes.

     K.           Earnings Per Share

                  Basic  earnings per share is  calculated  based on  1,132,025,
                  1,179,627,  and 1,170,607  weighted  average  number of common
                  shares  outstanding for the years ended March 31, 2000,  1999,
                  and 1998, respectively.

                  Diluted   earnings   per  share  is   computed   taking   into
                  consideration common shares outstanding and dilutive potential
                  common  shares to be  issued  under  the  Corporation's  stock
                  option and recognition and retention  plan.  Weighted  average
                  common  shares  deemed  outstanding  for purpose of  computing
                  diluted earnings per share totaled 1,157,567,  1,228,567,  and
                  1,224,888 for the years ended March 31, 2000,  1999, and 1998,
                  respectively.   There   were   17,830,   36,270,   and  38,580
                  incremental  shares  related to the assumed  exercise of stock
                  options,  and 7,712,  12,670,  and 15,701  incremental  shares
                  related to the assumed  issuance of recognition  and retention
                  plan  shares for the years  ended March 31,  2000,  1999,  and
                  1998, respectively.

                  Options to purchase  36,326 and 5,000  shares of common  stock
                  with a  weighted-average  exercise price of $14.13 and $16.295
                  per  share  were  outstanding  at March  31,  2000  and  1999,
                  respectively,  but were not  included  in the  computation  of
                  diluted earnings per share due to their anti-dilutive  effect.
                  These options  expire  between  February 1, 2007 and April 19,
                  2009.

     L.           Comprehensive Income

                  The Corporation adopted SFAS No. 130, "Reporting Comprehensive
                  Income",  as of  April  1,  1998.  The  Statement  establishes
                  standards  for  reporting and  presentation  of  comprehensive
                  income  and its  components  in a full set of  general-purpose
                  financial  statements.  It  requires  that all items  that are
                  required  to  be  recognized  under  accounting  standards  as
                  components of comprehensive  income be reported in a financial
                  statement that







<PAGE>



              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
                              --------------------


NOTE 1:           SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
------            ------------------------------------------

     L.           Comprehensive Income (Continued)

                  is  presented  with the  same  prominence  as other  financial
                  statements.  SFAS No. 130 requires that companies (i) classify
                  items of other  comprehensive  income  by  their  nature  in a
                  financial statement,  and (ii) display the accumulated balance
                  of  other   comprehensive   income  separately  from  retained
                  earnings and additional paid-in capital.  Financial statements
                  for  earlier   periods  have  been  restated  for  comparative
                  purposes.  Accumulated  comprehensive  income  consists of the
                  change in unrealized  gains/losses on securities designated as
                  available  for sale in  accordance  with SFAS No. 115, and the
                  minimum pension liability adjustment.

     M.           Impact of Recent Accounting Pronouncements

                  In June 1998,  the FASB issued SFAS No. 133,  "Accounting  for
                  Derivative Instruments and Hedging Activities", which requires
                  entities  to  recognize  all  derivatives  in their  financial
                  statements  as either assets or  liabilities  measured at fair
                  value.  SFAS No. 133 also  specifies new methods of accounting
                  for   hedging   transactions,   prescribes   the   items   and
                  transactions  that  may  be  hedged,  and  specifies  detailed
                  criteria to be met to qualify for hedge accounting.

                  The  definition  of  a  derivative   financial  instrument  is
                  complex,  but in general, it is an instrument with one or more
                  underlyings,  such as an  interest  rate or  foreign  exchange
                  rate, that is applied to a notional amount,  such as an amount
                  of  currency,  to  determine  the  settlement  amount(s).   It
                  generally  requires no significant  initial investment and can
                  be  settled  net or by  delivery  of an asset  that is readily
                  convertible  to cash.  SFAS No.  133  applies  to  derivatives
                  embedded  in other  contracts,  unless the  underlying  of the
                  embedded derivative is clearly and closely related to the host
                  contract.

                  SFAS No.  133 as  amended  by SFAS No.  137 is  effective  for
                  fiscal  years  beginning  after June 15,  2000.  On  adoption,
                  entities  are  permitted  to  transfer  held-to-maturity  debt
                  securities  to  the  available-for-sale  or  trading  category
                  without  calling into question their intent to hold other debt
                  securities  to  maturity  in the  future.  SFAS No. 133 is not
                  expected  to  have a  material  impact  on  the  Corporation's
                  financial statements.

     N.           Financial Instruments

                  Other off-balance-sheet instruments. In the ordinary course of
                  business  the  Banks  have   entered  into   off-balance-sheet
                  financial  instruments  consisting  of  commitments  to extend
                  credit,   commitments  under  credit-card  arrangements,   and
                  standby  letters of credit.  Such  financial  instruments  are
                  recorded in the financial  statements  when they are funded or
                  related fees are incurred or received.




<PAGE>



              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
                              --------------------


NOTE 1:           SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
------            ------------------------------------------

     O.           Fair Values of Financial Instruments

                  SFAS No.  107,  "Disclosures  about  Fair  Value of  Financial
                  Instruments", requires that the Corporation disclose estimated
                  fair values for its financial instruments.  In accordance with
                  SFAS No. 107, fair values are based on estimates using present
                  value and other valuation techniques in instances where quoted
                  prices are not available.  These techniques are  significantly
                  affected by the assumptions used, including discount rates and
                  estimates  of future cash  flows.  As such,  the derived  fair
                  value  estimates  cannot be  substantiated  by  comparison  to
                  independent markets and, further,  may not be realizable in an
                  immediate  settlement  of the  instruments.  SFAS No. 107 also
                  excludes  certain  items  from  its  disclosure  requirements.
                  Accordingly, the aggregate fair value amounts presented do not
                  represent,  and  should not be  construed  to  represent,  the
                  underlying value of the Corporation.

                  The  following  methods  and  assumptions  were  used  by  the
                  Corporation   in   estimating   fair   values   of   financial
                  instruments.

                  Cash and cash  equivalents - The carrying  amounts of cash and
                  short-term instruments approximate their fair value.

                  Securities  available  for sale - Fair  values for  investment
                  securities,  excluding restricted equity securities, are based
                  on quoted  market  prices.  The carrying  values of restricted
                  equity securities  (Federal Home Loan Bank and Federal Reserve
                  Bank stock) represents  redemption value and approximates fair
                  value.

                  Mortgage-backed  and related  securities  available for sale -
                  Fair values for  mortgage-backed  and related  securities  are
                  based on quoted market prices or dealer quotes.

                  Loans  -  The  fair  values  for  loans  are  estimated  using
                  discounted  cash  flow  analysis,   based  on  interest  rates
                  currently  being  offered  for  loans  with  similar  terms to
                  borrowers of similar credit quality. Loan fair value estimates
                  include  judgments  regarding  future expected loss experience
                  and risk  characteristics.  Fair values for impaired loans are
                  estimated  using  discounted  cash flow analysis or underlying
                  collateral values, where applicable.

                  Accrued interest receivable and payable - The carrying amounts
                  of accrued interest approximate their fair values.








<PAGE>



              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
                              --------------------

NOTE 1:           SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
------            ------------------------------------------

     O.           Fair Values of Financial Instruments (Continued)

                  Deposit  liabilities  - The fair values  disclosed  for demand
                  deposits are, by  definition,  equal to the amount  payable on
                  demand  at  the  reporting   date  (that  is,  their  carrying
                  amounts).  The carrying  amount of  variable-rate,  fixed-term
                  money market accounts and certificates of deposit  approximate
                  their  fair  values at the  reporting  date.  Fair  values for
                  fixed-rate  certificates  of  deposit  are  estimated  using a
                  discounted cash flow  calculation  that applies interest rates
                  currently  being  offered on  certificates  to a  schedule  of
                  aggregated expected monthly maturities on time deposits.

                  Federal  Home  Loan  Bank  advances  - The fair  value of FHLB
                  advances was estimated by discounting the expected future cash
                  flows using current  interest  rates for advances with similar
                  terms and remaining maturities.

                  Short-term  borrowings  - The carrying  amounts of  borrowings
                  under repurchase  agreements and other  short-term  borrowings
                  approximates their fair value.

                  Off-balance-sheet  instruments  - Fair values for  off-balance
                  sheet lending  commitments are based on fees currently charged
                  to enter into  similar  agreements,  taking  into  account the
                  remaining  terms  of the  agreements  and  the  counterparties
                  credit  standing.  The fair  value  of such  off-balance-sheet
                  instruments are immaterial and, therefore, not disclosed.

                  Based on the  methods and  assumptions  set forth  above,  the
                  estimated   fair   value   of  the   Corporation's   financial
                  instruments as of March 31, 2000 and 1999 are as follows:
<TABLE>

                                                                        2000                                 1999
                                                          --------------------------------      -------------------------------
                                                          CARRYING VALUE        FAIR VALUE      CARRYING VALUE       FAIR VALUE
                                                          --------------        ----------      --------------       ----------
                                                                                       (In thousands)
                  <S>                                      <C>                 <C>                <C>               <C>
                  Financial Assets:
                   Cash and due from banks                  $   5,122          $  5,122           $ 3,088           $ 3,088
                   Federal funds sold and securities
                    purchased under agreements to resell          131               131             1,398             1,398
                   Securities available-for-sale               23,673            23,673            25,141            25,141
                   Mortgage-backed securities
                    available-for-sale                          3,230             3,230             4,479             4,479
                   Federal Home Loan Bank and
                   Federal Reserve Bank stock                   1,462             1,462             1,384             1,384
                   Loans receivable, net                      127,808           122,946            97,527            97,714
                   Accrued interest receivable                  1,139             1,139               952               952

                  Financial Liabilities:
                   Certificates of deposit                   $ 74,340          $ 74,243           $72,333           $72,723
                   Other deposit accounts                      60,557            60,557            45,399            45,399
                   Federal funds purchased and securities
                    sold under agreements to repurchase         2,688             2,688             2,817             2,817
                   Advances from the Federal Home Loan Bank    17,075            17,055               388               392
                   Other short-term borrowings                    574               574                85                85
                   Accrued interest payable                       533               533               419               419
</TABLE>


<PAGE>



              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
                              --------------------

NOTE 1:           SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
------            ------------------------------------------

     P.           Cash and Cash Equivalents

                  For the purposes of  reporting  consolidated  cash flows,  the
                  Corporation considers cash, balances with banks, federal funds
                  sold,  securities  purchased  under  agreements  to resell and
                  interest-bearing    cash   deposits   in   other    depository
                  institutions  with initial  maturities of three months or less
                  to be cash equivalents.

     Q.           Advertising Costs

                  Advertising costs are expensed when incurred.

     R.           Reclassifications

                  Certain  presentations  of accounts  previously  reported have
                  been reclassified in these consolidated  financial statements.
                  Such reclassifications had no effect on net income or retained
                  income as previously reported.

NOTE 2:           ACQUISITION
------            ------------------------------------------

                  Effective  May 14,  1999,  Classic Bank  acquired  100% of the
                  outstanding common stock of Citizens Bank, Grayson,  Kentucky,
                  utilizing the purchase method of accounting. Citizens Bank was
                  dissolved upon consummation of the transaction with the assets
                  and  liabilities of Citizens  merged into Classic Bank and the
                  former  Citizens Bank  continuing in operations as a branch of
                  Classic Bank.

                  The total  acquisition  cost was  $4,581,777  cash. At May 14,
                  1999,  the fair value of  Citizens  assets  were  $13,749,847,
                  liabilities were $12,435,720,  and net assets were $1,314,127.
                  Goodwill  recorded  in  connection  with the  transaction  was
                  $3,267,650.

                  The results of Citizens operations subsequent to May 14, 1999,
                  are  included  in  the  consolidated   financial   statements.
                  Presented below are unaudited pro-forma condensed consolidated
                  results of  operations  for the years ended March 31, 2000 and
                  1999,  assuming the  transaction  occurred at the beginning of
                  the fiscal year ended March 31, 1999.
<TABLE>

                                                                 2000                   1999
                                                              ------------          ------------
                                                           (In thousands except per share amounts)

                  <S>                                            <C>                 <C>
                  Net interest income                            $6,054               $ 5,156
                  Net income                                     $  743               $   683
                  Basic earnings per share                       $ 0.66               $  0.58
                  Diluted earnings per share                     $ 0.64               $  0.56

</TABLE>




<PAGE>



              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
                              --------------------


NOTE 3:           INVESTMENT AND MORTGAGE-BACKED SECURITIES
------            ------------------------------------------

                  Investment securities and mortgage-backed securities have been
                  classified  in  the   consolidated   statements  of  financial
                  condition  according to  management's  intent.  The  amortized
                  cost, gross  unrealized  gains,  gross  unrealized  losses and
                  estimated  fair values of  investment  securities at March 31,
                  2000 and 1999 are as follows:
<TABLE>

                                                                                GROSS             GROSS           ESTIMATED
                                                              AMORTIZED        UNREALIZED        UNREALIZED        FAIR
                                                              COST              GAINS            LOSSES            VALUE
                  <S>                                     <C>              <C>                <C>               <C>
                  Available-for-sale

                  March 31, 2000:
                   U. S. Treasury securities              $ 1,004,413      $         --      ($      9,851)     $    994,562
                   U. S. Government Agency
                    Securities                              3,297,432                --      (      95,608)        3,201,824
                   Obligations of state and
                     political subdivisions                16,070,475           107,803      (   1,247,522)       14,930,756
                   Corporate debt securities                4,551,251                --      (     563,679)        3,987,572
                   Corporate equity securities                625,000                --      (      67,188)          557,812
                                                         ------------       -----------        -----------       -----------
                                                          $25,548,571          $107,803      (  $1,983,848)      $23,672,526
                                                           ==========           =======          =========        ==========


                  March 31, 1999:
                   U. S. Treasury securities              $ 1,008,747        $  12,084        ($     3,453)      $ 1,017,378
                   U. S. Government Agency
                    Securities                              3,000,753           31,048                  --         3,031,801
                   Obligations of state and
                     political subdivisions                15,644,724          444,991         (   217,444)       15,872,271
                   Corporate debt securities                4,573,450           12,500         (   136,589)        4,449,361
                   Corporate equity securities                750,000           20,625                 --            770,625
                                                          -----------         --------         -----------       -----------
                                                          $24,977,674         $521,248         ($  357,486)      $25,141,436
                                                           ==========          =======             =======        ==========
</TABLE>

                  The amortized cost, gross unrealized  gains,  gross unrealized
                  losses,   and   estimated   fair  values  of   mortgage-backed
                  securities at March 31, 2000 and 1999 are as follows:

<TABLE>
                                                                                GROSS             GROSS           ESTIMATED
                                                             AMORTIZED         UNREALIZED        UNREALIZED         FAIR
                                                             COST               GAINS              LOSSES           VALUE
                  <S>                                       <C>              <C>                 <C>               <C>
                  Available-for-sale

                  March 31, 2000:
                   FNMA                                     $1,467,428       $       --           ($18,745)        $1,448,683
                   FHLMC                                     1,210,178              813           ( 30,368)         1,180,623
                   Other
                   REMICS:                                     175,475               --           (  2,994)           172,481
                    FHLMC                                      439,497               --           ( 11,332)           428,165
                                                            ----------        ---------             ------         ----------
                                                            $3,292,578         $    813           ($63,439)        $3,229,952
                                                             =========          =======             ======          =========

                  March 31, 1999:
                   FNMA                                     $2,473,396       $       --           ($37,103)        $2,436,293
                   FHLMC                                       891,100           12,739                 --            903,839
                   Other                                       711,784            1,545                 --            713,329
                   REMICS:
                    FHLMC                                      439,380               --           ( 13,705)           425,675
                                                            ----------        ---------             ------         ----------
                                                            $4,515,660          $14,284           ($50,808)        $4,479,136
                                                             =========           ======             ======          =========
</TABLE>


<PAGE>



              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
                              --------------------


NOTE 3:           INVESTMENT AND MORTGAGE-BACKED SECURITIES (Continued)
------            ------------------------------------------

                  Gross realized gains and gross realized  losses on the sale of
                  available-for-sale  investment and mortgage-backed  securities
                  were $0 and $2,500,  respectively for the year ended March 31,
                  2000,  $54,797 and  $50,893,  respectively  for the year ended
                  March 31, 1999, $39,859 and $10,692, respectively for the year
                  ended March 31, 1998.

                  The amortized  cost and estimated fair value of investment and
                  mortgage-backed  securities  at  March  31,  2000  and 1999 by
                  contractual   term  to  maturity  are  shown   below.   Actual
                  maturities  may differ  from  contractual  maturities  because
                  borrowers  may have the  right to call or  prepay  obligations
                  with or without call or prepayment penalties.
<TABLE>

                                                                       2000                                1999
                                                             ---------------------------      ------------------------------
                                                                              ESTIMATED                           ESTIMATED
                                                               AMORTIZED      FAIR              AMORTIZED         FAIR
                                                               COST           VALUE             COST              VALUE
                                                                                   (In Thousands)
               <S>                                            <C>            <C>               <C>                <C>

               Due in one year or less                        $    548       $    541          $        5         $        5
               Due after one year through five years             2,612          2,590               2,165              2,201
               Due after five years through ten years            6,167          6,098               2,156              2,273
               Due after ten years                              15,597         13,886              19,902             19,892
                                                                ------         ------              ------             ------
                                                                24,924         23,115              24,228             24,371

               Corporate equity securities                         625            558                 750                771
               Mortgage-backed securities-not
                 due at a single maturity date                   3,292          3,230               4,516              4,479
                                                                ------         ------             -------            -------
                   TOTAL                                       $28,841        $26,903             $29,494            $29,621
                                                                ======         ======              ======             ======
</TABLE>



               Securities  carried  at  approximately  $20,603,105  at March 31,
               2000, and  $10,232,444 at March 31, 1999,  were pledged to secure
               deposits  of  public  funds and for other  purposes  required  or
               permitted by law.

               The  amortized  cost  of  mortgage-backed   securities   includes
               unamortized   premiums  of  $65,438  and  $131,782  and  unearned
               discounts  of $26,074  and  $35,516  at March 31,  2000 and 1999,
               respectively.

               Mortgage-backed   securities   with   adjustable   rates  totaled
               $1,267,302   and   $1,804,474   at  March  31,   2000  and  1999,
               respectively.

               Accrued interest  receivable  includes $422,998 and $419,930,  at
               March 31, 2000 and 1999, respectively,  related to investment and
               mortgage-backed securities.




<PAGE>



              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
                              --------------------


NOTE 4:           LOANS RECEIVABLE
------            ------------------------------------------

                  The  components  of loans in the  consolidated  statements  of
                  financial condition were as follows:

<TABLE>
                                                                                                 MARCH 31
                                                                                       2000                     1999
                                                                                       ----                     ----
                                                                                              (In Thousands)
                  <S>                                                              <C>                        <C>
                  Real estate loans:
                   One-to-four family                                              $  71,928                  $61,992
                   Commercial                                                         15,216                   10,136
                   Multi-family                                                        1,486                    1,179
                   Construction                                                        2,670                    2,513
                  Consumer Loans:
                   Secured by deposits                                                 1,369                      383
                   Credit card                                                            --                        3
                   Installment                                                         9,598                    7,347
                   Other                                                               3,109                       68
                  Commercial loans                                                    23,687                   14,764
                                                                                    --------                   ------

                  Total loans receivable                                             129,063                   98,385

                  Less:  Undisbursed loans in process                                     10                       23
                         Unearned discounts and loan
                          origination costs                                      (        44)             (        26)
                         Allowance for loan losses                                     1,289                      861
                                                                                    --------                   -------
                  Total loans receivable, net                                       $127,808                   $97,527
                                                                                     =======                    ======
</TABLE>


                  Loans with  adjustable  rates  totaled $51.5 million and $41.2
                  million at March 31, 2000 and 1999, respectively.

                  Accrued interest  receivable includes $711,395 and $527,319 at
                  March  31,  2000  and  1999,  respectively,  related  to loans
                  receivable.

                  Activity in the  allowance  for loan losses is  summarized  as
                  follows for the years ended March 31:

<TABLE>

                                                                        2000                1999                1998
                                                                        ----                ----                ----

                  <S>                                              <C>                   <C>                 <C>
                  Balance at beginning of year                     $  860,658            $830,535            $801,180
                  Provision for losses                                222,500             100,000             157,500
                  Allowance resulting from
                   acquisition                                        505,989                 - -                 - -
                  Charge-offs                                     (   370,712)          ( 117,273)          ( 174,874)
                  Recoveries                                           70,867              47,396              46,729
                                                                   ----------            --------             -------
                  Balance at end of year                           $1,289,302            $860,658            $830,535
                                                                    =========             =======             =======
</TABLE>

                  The  following is a summary of non-performing loans at March
31:



<PAGE>



              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
                              --------------------


NOTE 4:        LOANS RECEIVABLE (Continued)
------            ------------------------------------------
<TABLE>

                                                                          2000        1999        1998
                                                                          ----        ----        ----
                                                                                (In Thousands)
               <S>                                                        <C>         <C>        <C>
               Accruing loans past due 90 days
                or more                                                   $153        $ 91        $ 25
               Nonaccrual loans                                            620         315         308
                                                                           ---         ---         ---

               Total non-performing loan
                balances at year end                                      $773        $406        $333
                                                                           ===         ===         ===

               Non-performing loans as a
                percentage of loans                                        .60%        .41%        .37%
                                                                          ====        ====         ===
</TABLE>


                  In the normal  course of business and subject to normal credit
                  policies, the Banks make loans to officers,  directors,  their
                  immediate  family and business  interests of such persons.  At
                  March 31, 2000 and 1999, the balances of loans to such parties
                  were as follows:
<TABLE>

                                                                                      2000                     1999
                                                                                      ----                     ----
                      <S>                                                           <C>                     <C>
                      Aggregate amount of indebtedness
                       at beginning of year                                         $4,021,932              $ 4,739,926
                      New loans                                                      5,820,796               12,972,146
                      Repayments                                                   ( 3,967,632)            ( 13,690,140)
                                                                                     ---------               ----------
                      Aggregate amount of indebtedness
                       at end of year                                               $5,875,096              $ 4,021,932
                                                                                     =========               ==========
</TABLE>


NOTE 5:           PREMISES AND EQUIPMENT
------            ----------------------

                  Premises  and  equipment  at March 31,  2000 and 1999 by major
                  classifications are as follows:
<TABLE>

                                                                                        2000                     1999
                                                                                        ----                     ----
                      <S>                                                            <C>                      <C>
                      Land                                                           $1,267,198               $  947,198
                      Buildings and improvements                                      3,468,032                3,145,300
                      Furniture and equipment                                         2,954,576                2,685,546
                                                                                      ---------                ---------

                           TOTAL                                                      7,689,806                6,778,044
                           -----
                      Less: Accumulated depreciation                                  2,627,877                2,254,324
                                                                                      ---------                ---------
                                                                                     $5,061,929               $4,523,720
                                                                                      =========                =========
</TABLE>

                  Depreciation expense charged to operations for the years ended
                  March 31, 2000, 1999, and 1998 totaled $426,917, $379,242, and
                  $309,267, respectively.


<PAGE>



              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
                              --------------------


NOTE 6:           DEPOSITS
------            --------

                  The  aggregate  amount of  short-term  jumbo  certificates  of
                  deposit each with a minimum  denomination  of $100,000 or more
                  was  approximately  $23,623,029  and  $21,087,520 at March 31,
                  2000 and 1999, respectively.

                  At March 31, 1999, the scheduled maturities of certificates of
                  deposit were as follows for the years ending March 31:

<TABLE>

                              <S>                                                              <C>
                              2001                                                            $57,553,623
                              2002                                                             13,401,887
                              2003                                                              1,674,046
                              2004                                                                566,370
                              2005 and thereafter                                               1,144,541
                                                                                              -----------
                                                                                              $74,340,467
</TABLE>
                  Interest  expense on deposits is summarized as follows for the
                  years ended March 31:

<TABLE>
                                                                         2000                1999              1998
                                                                         ----                ----              ----
                                                                                        (In Thousands)

                    <S>                                               <C>                  <C>               <C>
                      Certificates of deposit                          $3,856              $3,773            $3,398
                      NOW accounts and money
                        market demand accounts                            996                 534               387
                      Passbook and club accounts                          404                 389               429
                                                                       ------              ------            ------
                                                                       $5,256              $4,696            $4,214
                                                                        =====               =====             =====
</TABLE>


NOTE 7:           ADVANCES FROM FEDERAL HOME LOAN BANK
------            ------------------------------------

                  Advances from the Federal Home Loan Bank of Cincinnati totaled
                  $17,075,380  at March 31, 2000. In addition,  the Federal Home
                  Loan  Bank  had  issued  for  the  account  of  Classic  Bank,
                  $5,250,000  in standby  letters  of credit for the  benefit of
                  depositors of public funds. The advances and letters of credit
                  are  collateralized  with the Bank  subsidiaries  Federal Home
                  Loan  Bank  stock  with a  carrying  value of  $1,156,100  and
                  certain  residential  real estate mortgage loans in the amount
                  of $33,492,865.

                  At March 31, 2000,  advances  with an original term of 90 days
                  or less, and a weighted  average interest rate of 6.5% totaled
                  $16,200,000.  Advances requiring monthly principal  reductions
                  with a weighted  average  maturity of 6.7 years and a weighted
                  average interest rate of 6.75% totaled $875,380.




<PAGE>



              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
                              --------------------

NOTE 7:           ADVANCES FROM FEDERAL HOME LOAN BANK (Continued)
------            ------------------------------------

                  Scheduled principal payments are due as follows:
<TABLE>

                  <S>                                                                 <C>
                  Due in fiscal year ending:
                      March 31, 2001                                                  $16,239,790
                      March 31, 2002                                                       42,548
                      March 31, 2003                                                       45,497
                      March 31, 2004                                                      337,895
                      March 31, 2005                                                       28,293
                      After March 31, 2005                                                381,357
                                                                                     ------------
                                                                                      $17,075,380
</TABLE>

                  At March 31, 2000, the Banks had unused borrowing capacity for
                  advances  with the Federal Home Loan Bank of Cincinnati in the
                  amount of approximately $6.0 million,  and the Corporation had
                  an  unsecured,  unused  line of credit  with  other  financial
                  institutions totaling $600,000.

NOTE 8:           SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
------            ----------------------------------------------

                  Securities  sold under  agreements  to repurchase at March 31,
                  2000 and 1999 totaled $2,651,834 and $2,098,887, respectively.

                  Information  concerning  securities  sold under  agreements to
                  repurchase is summarized as follows:
<TABLE>

                                                                                           2000                   1999
                                                                                           ----                   ----
                  <S>                                                                   <C>                    <C>
                  Average balance during the year                                       $3,200,242             $2,408,878
                  Average interest rate during the year                                       5.13%                  5.15%
                  Maximum month-end balance during the year                             $4,251,218             $3,515,612
</TABLE>


                  U.S. Government Agency and municipal securities underlying the
                  agreements at year-end:
<TABLE>

                      <S>                                                               <C>                    <C>
                      Amortized cost                                                    $5,198,082             $2,201,115

                      Estimated fair value                                              $5,076,147             $2,297,277
</TABLE>
                  Securities  sold under  agreements  to repurchase at March 31,
                  2000 and 1999 had a maturity of one day.

NOTE 9:           OTHER BORROWINGS
------            ----------------

                  Other short-term borrowings at March 31, 2000 and 1999 consist
                  of term  treasury  tax and  loan  deposits  and are  generally
                  repaid  within  one  to  twenty  days  from  the  date  of the
                  transaction.  Securities  with an amortized cost of $2,197,432
                  and  $2,206,533  and an estimated fair value of $2,165,041 and
                  $2,241,620,   were   pledged  at  March  31,  2000  and  1999,
                  respectively,   as  collateral   for  treasury  tax  and  loan
                  deposits.


<PAGE>



              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
                              --------------------


NOTE 10:          INCOME TAXES
------            ------------
                  The provision for income taxes consists of:
<TABLE>

                                                                                    YEARS ENDED MARCH 31
                                                                           2000              1999                  1998
                                                                           ----              ----                  ----
                  <S>                                                    <C>                <C>                  <C>
                  Currently payable - Federal                            $241,698           $214,921             $200,262
                  Deferred             - Federal                           42,012              4,313              181,456
                                                                         --------           --------              -------
                                                                         $283,710           $219,234             $381,718

                  Federal tax benefit from RRP
                    credited to paid in capital                             8,630             18,709               14,498
                                                                         --------           --------              -------
                                                                         $292,340           $237,943             $396,216
                                                                          =======            =======              =======
</TABLE>

                  The following tabulation  reconciles the federal statutory tax
                  rate to the effective rate of taxes provided for income taxes:
<TABLE>


                                                                                     YEARS ENDED MARCH 31
                                                                        2000                 1999               1998
                                                                        ----                 ----               ----
                  <S>                                                 <C>                   <C>                <C>
                  Tax at statutory rate                                 34.0%                34.0%              34.0%
                  Tax exempt income                                    (20.3)               (20.0)             (10.6)
                  Non-deductible expenses                                9.1                  5.4                4.6
                  Other                                               (  1.3)                 1.8                - -
                                                                       -----                -----             ------
                                                                        21.5%                21.2%              28.0%
                                                                        ====                 ====               ====
</TABLE>

                  The  components  of the  Corporation's  net deferred tax asset
                  (liability)  as of March 31, 2000 and 1999,  are summarized as
                  follows:
<TABLE>

                                                                                              2000               1999
                                                                                              ----               ----
                      <S>                                                                  <C>                 <C>
                      Deferred tax assets:
                       Loans and loan loss allowance                                       $104,036             $179,123
                       AMT credit carryforward                                               85,717               75,819
                       Retirement and incentive programs                                     52,303               42,602
                       Foreclosed real estate                                                37,501               37,501
                       Net unrealized loss on available for sale securities                 659,148                   --
                       Other assets                                                           9,416               20,050
                                                                                           --------            ---------
                                                                                            948,121              355,095
                                                                                            -------             --------
                      Deferred tax liabilities:
                       Federal Home Loan Bank stock dividends                              ( 229,228)          (  202,742)
                       Premises and equipment                                              ( 369,946)          (  353,950)
                       Retirement and incentive programs                                   ( 264,195)          (  264,195)
                       Accretion on securities                                             (  13,356)          (   10,377)
                       Deferred loan origination costs                                     (  26,091)          (   17,547)
                       Net unrealized gain on available-
                        for-sale securities                                                      --            (   43,262)
                                                                                         -----------             --------
                                                                                           ( 902,816)          (  892,073)
                                                                                             -------              -------

                      Net deferred tax asset (liability)                                  $  45,305             ($536,978)
                                                                                           ========               =======
</TABLE>




<PAGE>



              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
                              --------------------


NOTE 10:          INCOME TAXES (Continued)
-------           ------------

                  The Corporation  had available at March 31, 2000,  alternative
                  minimum  tax  credit   carryforwards   for  tax   purposes  of
                  approximately   $85,717   which   may   be   carried   forward
                  indefinitely and used to reduce federal income taxes.

                  In computing federal income taxes, savings institutions,  such
                  as Classic Bank,  were allowed a statutory bad debt  deduction
                  of  otherwise  taxable  income of 8%,  subject to  limitations
                  based on aggregate loans and savings balances.  If the amounts
                  that qualify as deductions  for federal income taxes are later
                  used for purposes  other than for bad debt  losses,  including
                  distributions  in  liquidation,  such  distributions  will  be
                  subject to federal income taxes at the then current  corporate
                  income  tax  rate.   The   percentage  of  earnings  bad  debt
                  deductions had  accumulated to  approximately  $1.9 million at
                  March 31, 2000.  The estimated  deferred tax liability on such
                  amount is approximately $635,000,  which has not been recorded
                  in the accompanying  consolidated  financial  statements.  The
                  Banks do not have any  significant  post 1987 increases in the
                  percentage   of  earnings  bad  debt   deduction   subject  to
                  recapture.  Banks  can no longer  utilize  the  percentage  of
                  earnings method to compute their bad debt deduction.

NOTE 11:          OFF BALANCE SHEET ACTIVITIES

                  Credit-Related  Financial  Instruments.  The  Corporation is a
                  party   to   credit   related   financial   instruments   with
                  off-balance-sheet  risk in the normal  course of  business  to
                  meet the financing  needs of its  customers.  These  financial
                  instruments  include  commitments  to extend  credit,  standby
                  letters of credit  and  commercial  letters  of  credit.  Such
                  commitments  involve,  to varying degrees,  elements of credit
                  and interest  rate risk in excess of the amount  recognized in
                  the consolidated balance sheets.

                  The  Corporation's  exposure to credit loss is  represented by
                  the contractual amount of these  commitments.  The Corporation
                  follows the same crtedit policies in making  commitments as it
                  does for on-balance-sheet instruments.

                  At  March  31,  2000  and  1999,   the   following   financial
                  instruments were outstanding  whose contract amounts represent
                  credit risk:
<TABLE>


                                                                                                Contract Amount
                                                                                         March 31              March 31
                                                                                         2000                   1999
                                                                                    -------------           -----------
                                                                                                 (In thousands)

                     <S>                                                               <C>                     <C>
                     Commitments to grant loans                                        $4,381                  $1,475
                     Unfunded commitments under lines of credit                         8,319                   9,348
                     Commercial and standby letters of credit                             191                     185
</TABLE>

<PAGE>



              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
                              --------------------


NOTE 11:          OFF BALANCE SHEET ACTIVITIES (Continued)
-------           ----------------------------
                  Commitments  to  extend  credit  are  agreements  to lend to a
                  customer  as long as there is no  violation  of any  condition
                  established in the contract.  Commitments generally have fixed
                  expiration dates or other termination  clauses and may require
                  payment of a fee. The  commitments  for equity lines of credit
                  may expire  without  being  drawn upon.  Therefore,  the total
                  commitment  amounts do not necessarily  represent  future cash
                  requirements.  The  amount of  collateral  obtained,  if it is
                  deemed necessary by the Corporation,  is based on management's
                  credit evaluation of the customer.

                  Unfunded   commitments   under   commercial   lines-of-credit,
                  revolving credit lines and overdraft protection agreements are
                  commitments  for  possible  future  extensions  of  credit  to
                  existing customers. These lines-of-credit are uncollateralized
                  and usually do not contain a specified  maturity  date and may
                  not be drawn upon to the total extent to which the Corporation
                  is committed.

                  Commercial  and  standby   letters-of-credit  are  conditional
                  commitments   issued  by  the  Corporation  to  guarantee  the
                  performance   of  a   customer   to  a  third   party.   Those
                  letters-of-credit  are primarily  issued to support public and
                  private  borrowing  arrangements.  Essentially  all letters of
                  credit  issued  have  expiration  dates  within one year.  The
                  credit   risk   involved  in  issuing   letters-of-credit   is
                  essentially  the  same  as that  involved  in  extending  loan
                  facilities  to  customers.  The  Corporation  generally  holds
                  collateral supporting those commitments if deemed necessary.

NOTE 12:          LEGAL CONTINGENCIES
-------           -------------------

                  Various  legal  claims  arise  from time to time in the normal
                  course of business which,  in the opinion of management,  will
                  have  no  material  effect  on the  Corporatin's  consolidated
                  financial statements.

NOTE 13:          SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT
-------           ------------------------------------------

                  All of the Banks' loans,  commitments  and standby  letters of
                  credit have been  granted to  customers  in the Banks'  market
                  area.  Investments in state and municipal securities primarily
                  involve government entities within the Banks' market area. The
                  concentration  of credit by type of loan are set forth in Note
                  4.

                  The distribution of commitments to extend credit  approximates
                  the  distribution  of loans  outstanding.  Standby  letters of
                  credit were granted primarily to commercial borrowers.

                  The   contractual   amounts   of   credit-related    financial
                  instruments  such as  commitments to extend credit and letters
                  of credit  represent the amounts of potential  accounting loss
                  should the contract be fully drawn upon, the customer  default
                  and the value of any existing collateral become worthless.



<PAGE>



              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
                              --------------------


NOTE 13:          SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT (Continued)
-------           ------------------------------------------

                  The  Banks'  credit   policies  and   procedures   for  credit
                  commitments and financial guarantees are the same as those for
                  extension  of credit  that are  recorded  on the  consolidated
                  statements of financial  condition.  Because these instruments
                  have fixed  maturity  dates and  because  many of them  expire
                  without being drawn upon,  they do not  generally  present any
                  significant liquidity risk to the Bank.

                  The Corporation had deposits with other financial institutions
                  which exceeded the federally  insured limits at March 31, 2000
                  by  approximately  $613,850.  The Corporation  does not have a
                  policy for requiring collateral on such deposits.

NOTE 14:          BENEFIT PLANS
-------           -------------

                  The  Corporation  and  its  subsidiaries  participates  in the
                  Pentegra  multi-employer  pension plan. This  non-contributory
                  defined  benefit  plan covers all  eligible  employees  of the
                  Corporation and its  subsidiaries  meeting certain service and
                  age  requirements.  The plan  operates on a fiscal year ending
                  June 30, and it is the policy of the  Corporation  to fund the
                  normal  cost of the  plan.  Contributions  to the plan for the
                  years  ended  March 31,  2000,  1999 and 1998 were $0, $0, and
                  $6,185,  respectively.   The  data  available  from  the  plan
                  administrators    is   not   sufficient   to   determine   the
                  Corporation's  share of the pension plan's accumulated benefit
                  obligation or the net assets attributable to the Corporation.

                  Effective July 1, 1997, First National's  defined benefit plan
                  was  terminated  and its  plan  assets  were  merged  into the
                  Corporation's  Pentegra  multi-employer pension plan resulting
                  in a  settlement  gain of $370,622 or $244,611  after tax. All
                  eligible  employees of First National  became  participants in
                  the Corporation's multi-employer pension plan. Prepaid pension
                  expense of $777,045, representing the excess of the fair value
                  of pension  plan  assets over the  accrued  actuarial  pension
                  liability at July 1, 1998,  is included in other assets in the
                  consolidated  statement  of  financial  condition at March 31,
                  2000 and 1999.

                  For the year ended March 31, 1998,  non-employee  directors of
                  Classic Bank and Classic  Bancshares,  Inc.  were  eligible to
                  participate in a retirement plan that provided  benefits equal
                  to approximately  one-half of the monthly compensation paid to
                  active directors for a period not to exceed the earlier of the
                  number of months a  participant  served  as  director,  or the
                  participant's  death.  Effective  April 1, 1998, this plan was
                  amended to exclude  from  eligibility,  all  currently  active
                  directors.  Directors  that  retired  prior to April 1,  1998,
                  continue to receive  benefits  which are funded  annually from
                  current  operations,  and totaled  $10,200 and $10,304 for the
                  years ended March 31, 2000 and 1999, respectively.




<PAGE>



              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
                              --------------------


NOTE 14:          BENEFIT PLANS (Continued)
-------           -------------

                  The  following  table  sets  forth the  directors'  retirement
                  plan's   funded   status  and   amounts   recognized   in  the
                  consolidated financial statements at March 31, 1998:
<TABLE>

                                                                                                                    1998
                           <S>                                                                                   <C>
                           Actuarial present value of benefit obligations:
                             Vested accumulated benefits                                                         ($ 50,460)
                             Non-vested accumulated benefits                                                     (  57,356)
                                                                                                                   -------
                               Total accumulated benefits                                                        ( 107,816)
                           Unrecognized prior service cost
                            being recognized over 10 years                                                          35,056
                           Unrecognized net obligation being
                            recognized over 10 years                                                                 9,954
                           Unrecognized net loss being
                            recognized over 10 years                                                                36,393
                           Adjustment to recognize minimum
                            liability                                                                            (  81,403)
                               Accrued pension cost                                                              ($107,816)

                           Net pension cost includes the following components:
                             Service costs - benefits earned
                              during year                                                                         $ 5,626
                             Interest cost on benefit obligation                                                    7,202
                             Amortization of prior service cost,
                              net obligation and net loss                                                           5,843
                             Other
                                                                                                                (   2,248)
                                                                                                                  -------
                               Net pension cost                                                                  $ 16,423
                                                                                                                  =======
</TABLE>


                  A discount  rate of 7.0% was used in  determining  net pension
                  cost for 1998.

                  Effective  September  30,  1995,  Classic  Bank entered into a
                  non-qualified   supplemental  executive  retirement  agreement
                  (agreement)  with the Bank's  chief  executive  officer  which
                  provides for the payment of a monthly supplemental  retirement
                  benefit equal to up to 24% of his average monthly compensation
                  during  the three  highest  12-month  periods in the ten years
                  prior to retirement. Such benefit shall be payable upon normal
                  retirement at age 65 or under certain circumstances, after age
                  55, if his  termination is without  cause.  Upon the officer's
                  death,  50% of the amount payable under the agreement shall be
                  payable to his spouse until her death.



<PAGE>



              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
                              --------------------


NOTE 14:          BENEFIT PLANS (Continued)
-------           -------------

                  The  following  table  sets forth the  supplemental  executive
                  retirement plan's funded status and amounts  recognized in the
                  consolidated  financial statements at March 31, 2000 and 1999,
                  and 1998:
<TABLE>


                                                                                 2000              1999             1998
                                                                                 ----              ----             ----
                      <S>                                                       <C>               <C>             <C>
                      Accumulated vested benefit obligation                     ($34,231)        ($23,449)        ($14,758)
                                                                                  ======           ======           ======

                      Projected benefit obligation                              ($71,462)        ($50,012)        ($36,007)
                      Under (over) accrual                                        10,449         (    122)        (  3,601)
                                                                                 ------           -------          -------

                      Accrued retirement cost                                   ($61,013)        ($50,134)        ($39,608)
                                                                                  ======           ======           ======

                      Net retirement cost includes the following components:

                      Service cost - benefits earned
                       during the year                                           $13,357          $11,685          $11,217
                      Interest cost                                                3,740            2,293            1,468
                      Other                                                     (  6,218)       (   3,452)       (   2,069)
                                                                                  ------           ------          -------

                      Net retirement cost                                        $10,879          $10,526          $10,616
                                                                                  ======           ======           ======

                      Discount rate                                                  7.0%             7.0%             7.0%
                                                                                   =====            =====             ====
                      Rate of increase in future
                       compensation levels                                           5.0%             5.0%             5.0%
                                                                                   =====            =====             ====
</TABLE>

                  In  conjunction  with the stock  conversion,  the  Corporation
                  established  an Employee  Stock  Ownership  Plan (ESOP)  which
                  covers   substantially   all  employees.   The  ESOP  borrowed
                  $1,058,000 from the  Corporation and purchased  105,800 common
                  shares,  equal to 8% of the total  number of shares  issued in
                  the  conversion.   The  Banks  make  scheduled   discretionary
                  contributions  to the ESOP  sufficient  to  service  the debt.
                  Shares  are  allocated  to  participants'  accounts  under the
                  shares allocated  method.  The cost of shares not committed to
                  be released and unallocated  shares is reported as a reduction
                  of  stockholders'  equity.  Effective  April 1, 1998, the ESOP
                  loan terms were amended to extend the loan  maturity from 15.5
                  years  to 23.5  years.  This  change  in the ESOP  loan  terms
                  reduced  ESOP  expense  for the years ended March 31, 2000 and
                  1999, by approximately $38,250 and $48,500, respectively.





<PAGE>



             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
                              --------------------


NOTE 14:          BENEFIT PLANS (Continued)
-------           -------------

                  Dividends  on  unallocated  ESOP  shares  are  recorded  as  a
                  reduction of debt and accrued interest; dividends on allocated
                  ESOP shares are recorded as a reduction of retained  earnings.
                  Allocated     ESOP    shares    become     outstanding     for
                  earnings-per-share   computations.   Compensation  expense  is
                  recorded  based on the average  fair market  value of the ESOP
                  shares when  committed to be released.  The expense  under the
                  ESOP for the years ended March 31,  2000,  1999,  and 1998 was
                  $63,080, $78,018, and $133,485, respectively.

                  The ESOP shares at March 31, 2000 and 1999 are as follows:
<TABLE>


                                                                                            2000                    1999
                                                                                            ----                    ----

                      <S>                                                             <C>                     <C>
                      Allocated shares                                                     32,140                  27,285
                      Unearned shares                                                      73,660                  78,515
                                                                                       ----------              ----------
                        Total ESOP shares                                                 105,800                 105,800
                                                                                        =========               =========

                      Fair value of unearned shares                                    $  773,430              $1,128,653
                                                                                        =========               =========
</TABLE>


                  On July 29, 1996, stockholders of the Corporation approved the
                  1996  Recognition  and Retention Plan ("RRP").  Under the RRP,
                  restricted  stock  awards of up to 4% of the common stock sold
                  in the conversion  may be awarded to the  directors,  officers
                  and key employees of the Corporation and its subsidiaries. The
                  Corporation  completed  the  funding of the plan in  September
                  1996 by  purchasing  52,900 shares of common stock in the open
                  market at a total cost of $621,575, which reduced consolidated
                  stockholders  equity. At March 31, 2000, vested,  unvested and
                  unawarded  RRP  shares   totaled   30,563,   21,793  and  544,
                  respectively.

                  The holders of the restricted shares have all of the rights of
                  a shareholder, except that they cannot sell, assign, pledge or
                  transfer any of the  restricted  shares during the  restricted
                  period.  The  restricted  shares vest at a rate of 20% on each
                  anniversary  of the  grant  date.  RRP  expense  of  $116,255,
                  $114,133,  and $110,284 was recorded for the years ended March
                  31, 2000, 1999, and 1998 respectively.

                  During the fiscal year ended March 31, 1998,  the  Corporation
                  adopted a 401(k)  Savings  and Profit  Sharing  Plan  covering
                  substantially  all employees.  Under the plan, the Corporation
                  matches 50.0% of the employee's contribution up to 3.0% of the
                  employee's salary.  Total expense under this plan was $47,842,
                  $37,555 and $9,058 for the years ended March 31,  2000,  1999,
                  and 1998, respectively.



<PAGE>



              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
                              --------------------


NOTE 15:          STOCK OPTION PLAN
-------           -----------------

                  On July 29, 1996, stockholders of the Corporation approved the
                  1996 Stock Option and Incentive  Plan ("SOP").  Under the 1996
                  SOP 132,250  shares were  reserved  for  issuance to officers,
                  directors,  and  key  employees  of the  Corporation  and  its
                  subsidiaries.

                  The  following  tabulation  shows the number of shares and the
                  exercise price of options awarded to officers,  directors, and
                  key  employees  by fiscal  year of grants,  net of  subsequent
                  forfeitures:
<TABLE>

                                                                            Shares Granted              Exercise Price
                                                                            --------------              --------------
                      <S>                                                      <C>                          <C>
                      July 29, 1996                                            106,774                      $10.8125
                      February 1, 1997                                          19,300                      $13.3750
                      September 14, 1998                                         4,500                      $13.8750
                      October 12, 1998                                           1,026                      $13.7500
                      April 19, 1999                                               200                      $13.6250
</TABLE>

                  All grants  under the 1996 "SOP" are  exercisable  at the fair
                  market value at the date of the grants.  The options vest with
                  the  grantees at the rate of 20% per year on each  anniversary
                  date of the grants and are available for exercise,  subject to
                  the vesting schedule, for up to ten years from the grant date.

                  A summary of the status of the Corporation's 1996 stock option
                  plan as of March 31, 2000,  1999, and 1998, and changes during
                  the periods ending on those dates is presented below:
<TABLE>

                                               2000                         1999                         1998
                                          -----------------        ---------------------          -------------------
                                                     WEIGHTED                   WEIGHTED                    WEIGHTED
                                                     AVERAGE                    AVERAGE                     AVERAGE
                                                     EXERCISE                   EXERCISE                    EXERCISE
                                          SHARES     PRICE         SHARES       PRICE          SHARES       PRICE
          <S>                             <C>        <C>          <C>           <C>            <C>          <C>
          Options outstanding at
            beginning of year             132,050     $11.32      126,524       $11.21         126,524      $11.21
          Granted                             200      13.63        5,726        13.85               0         - -
          Exercised                             0        --             0           --               0         - -
          Forfeited                      (    450)     13.38     (    200)       13.85               0         - -
                                         ---------                -------                      -------
          Options outstanding at
            end of year                   131,800      11.28      132,050        11.32         126,524       11.21
                                          =======                 =======                      =======

          Eligible for exercise at
            year end                       76,749      11.28       50,610       $11.32          25,305      $11.21
                                          =======                 =======                      =======

          Weighted average fair value
            of options granted during
            the year                                   $3.98                    $ 3.06                         N/A
</TABLE>



<PAGE>



              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
                              --------------------


NOTE 15:          STOCK OPTION PLAN (Continued)
-------           -----------------

                  The following  information applies to options outstanding
                  at March 31, 2000:
<TABLE>

                                                                                       AVERAGE                  AVERAGE
                          RANGE OF                                                     REMAINING                EXERCISE
                          EXERCISE PRICE                   OUTSTANDING                LIFE (YEARS)              PRICE
<S>                       <C>                               <C>                           <C>                   <C>
                          $10.8125 to $13.875                131,800                      6.5                   $11.28
</TABLE>


                  On July 27, 1998, the stockholders of the Corporation approved
                  the 1998  Premium  Price Stock Option  Growth Plan.  Under the
                  1998  SOP,   50,000  shares  were  reserved  for  issuance  to
                  officers,  directors, and key employees of the Corporation and
                  its  subsidiaries.  During the years  ended March 31, 1999 and
                  2000,  options to purchase 5,000 shares and 6,300 shares at an
                  exercise price of $16.295 and $14.988 per share, respectively,
                  were  awarded.  The exercise  price  represents  110.0% of the
                  stocks'  fair market  value on the date of the  grants.  These
                  grants vest immediately with the grantees and may be exercised
                  at any time up to ten years.

                  A summary of the Corporation's 1998 Premium Price Stock Option
                  Growth Plan as of March 31, 2000 and 1999,  and changes during
                  the periods ending on those dates is presented below:
<TABLE>

                                                                              2000                        1999
                                                                     -------------------------          ------------------------
                                                                                     WEIGHTED                          WEIGHTED
                                                                                     AVERAGE                           AVERAGE
                                                                                     EXERCISE                          EXERCISE
                                                                     SHARES          PRICE              SHARES         PRICE

                  <S>                                                <C>             <C>                 <C>            <C>
                  Options outstanding at beginning of year           5,000           $16.30                  0             --
                  Granted during the year                            6,300           $14.99              5,000          $16.30
                  Exercised                                              0              --                   0             --
                  Forfeited                                              0              --                   0             --
                                                                    ------                               -----
                  Options outstanding at end of year                11,300           $15.57              5,000          $16.30
                                                                    ======                               =====

                  Eligible for exercise at year end                 11,300           $15.57              5,000          $16.30
                                                                    ======                               =====

                  Weighted-average fair value of
                    options granted during the year                  $3.55                               $2.91
</TABLE>


                  The following  information  applies to options  outstanding at
                  March 31, 2000:
<TABLE>

                                                                         AVERAGE                   AVERAGE
                    RANGE OF                                             REMAINING                 EXERCISE
                  EXERCISE PRICE                  OUTSTANDING            LIFE (YEARS)              PRICE
                  --------------                 ------------            ------------              -----
<S>                <C>                            <C>                       <C>                    <C>
                  $14.988 to $16.295               11,300                     9.0                  $15.57
</TABLE>


<PAGE>



              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
                              --------------------


NOTE 15:          STOCK OPTION PLAN (Continued)
-------           -----------------

                  During the fiscal year ended March 31, 1997,  the  Corporation
                  adopted   SFAS   No.   123,    "Accounting   for   Stock-Based
                  Compensation,"  which  contains a fair-value  based method for
                  valuing stock-based  compensation that entities may use, which
                  measures compensation cost at the grant date based on the fair
                  value of the award.  Compensation  is then recognized over the
                  service   period,   which  is  usually  the  vesting   period.
                  Alternatively,  SFAS No. 123  permits  entities to continue to
                  account for stock options and similar equity instruments under
                  Accounting   Principles   Board   ("APB")   Opinion   No.  25,
                  "Accounting  for Stock  Issued to  Employees."  Entities  that
                  continue to account for stock options using APB Opinion No. 25
                  are required to make pro forma disclosures of net earnings and
                  earnings  per  share,  as if the  fair-value  based  method of
                  accounting defined in SFAS No. 123 had been applied.

                  The  Corporation  utilizes  APB  Opinion  No.  25 and  related
                  interpretations  in  accounting  for its stock  option  plans.
                  Accordingly,  no compensation cost has been recognized for the
                  plan. Had compensation cost for the Corporation's stock option
                  plans  been  determined  based on the fair  value at the grant
                  dates  for  awards  under  the  plans   consistent   with  the
                  accounting  method utilized in SFAS No. 123, the Corporation's
                  net earnings and earnings per share would have been reduced to
                  the pro forma amounts indicated below:

<TABLE>

                                                                               MARCH 31
                                                                    2000             1999               1998
                                                                    ----             ----               ----
                   <S>                                           <C>                <C>              <C>
                   Net earnings
                   As reported                                   $1,069,682         $885,324         $1,020,486
                   Pro forma                                     $  983,115         $814,513         $  960,365

                  Earnings per share
                   Basic:
                    As reported                                  $      .94         $    .75         $      .87
                    Pro forma                                    $      .86         $    .69         $      .82
                   Diluted:
                    As reported                                  $      .92         $    .72         $      .83
                    Pro forma                                    $      .85         $    .66         $      .78
</TABLE>

                  The fair value of each option  grant is  estimated on the date
                  of grant using the modified Black-Scholes option-pricing model
                  with  the  following  weighted  average  assumptions  used for
                  grants:  dividend  yield 3.0%;  expected  volatility of 28.9%;
                  risk free  interest  rate of 6.52%;  and  expected  lives of 7
                  years.

NOTE 16:          REGULATORY CAPITAL REQUIREMENTS
-------           -------------------------------

                  Classic  Bank  is  subject  to  minimum   regulatory   capital
                  standards promulgated by the Office of Thrift Supervision (the
                  "OTS").  First  National  Bank is  subject  to the  regulatory
                  capital   requirements  of  the  Federal   Deposit   Insurance
                  Corporation (the "FDIC"). Failure to meet


<PAGE>


              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
                              --------------------

NOTE 16:          REGULATORY CAPITAL REQUIREMENTS  (Continued)
-------           -------------------------------

                  minimum capital  requirements can initiate certain mandatory -
                  and possibly additional  discretionary - actions by regulators
                  that, if undertaken,  could have a direct  material  effect on
                  each  of  the  Bank's  financial  statements.   Under  capital
                  adequacy  guidelines and the  regulatory  framework for prompt
                  corrective  action,  the  Banks  must  meet  specific  capital
                  guidelines  that involve  quantitative  measures of the Banks'
                  assets,  liabilities,  and certain  off-balance-sheet items as
                  calculated under regulatory accounting  practices.  The Banks'
                  capital  amounts  and   classification  are  also  subject  to
                  qualitative judgments by the regulators about components, risk
                  weightings, and other factors.

                  Quantitative  measures  established  by  regulation  to ensure
                  capital  adequacy  require First National to maintain  minimum
                  amounts and ratios (set forth in the table below) of total and
                  Tier  I  capital   (as   defined   in  the   regulations)   to
                  risk-weighted  assets (as defined),  and of Tier I capital (as
                  defined) to adjusted total assets (as defined).

                  As of March 31, 2000 and 1999,  the most  recent  notification
                  from regulatory  agencies  categorized  First National as well
                  capitalized   under  the   regulatory   framework  for  prompt
                  corrective  action.  To be categorized as well capitalized the
                  Bank  must   maintain   minimum  total   risk-based,   Tier  I
                  risk-based,  and Tier I  leverage  ratios  as set forth in the
                  table.  There are no  conditions  or events  since those dates
                  that management believes have changed the bank's category.

                  As of March 31, 2000 and 1999,  management believes that First
                  National met all capital  adequacy  requirements  to which the
                  Bank is subject.
<TABLE>

                                                                                                            TO BE WELL
                                                                                                         CAPITALIZED UNDER
                                                                            FOR CAPITAL                  PROMPT CORRECTIVE
                                                     ACTUAL               ADEQUACY PURPOSES              ACTION PROVISIONS
                                               AMOUNT       RATIO         AMOUNT       RATIO            AMOUNT         RATIO
                                               ------       -----         ------       -----            ------         -----
        FIRST NATIONAL BANK                                           (Dollars in thousands)
         <S>                                   <C>          <C>           <C>         <C>                <C>           <C>
        As of March 31, 2000

         Total Capital
          (to Risk Weighted Assets)            $6,602       12.9%        >=$4,084     >=8.0%          >=$5,105      >=10.0%
         Tier I Capital
          (to Risk Weighted Assets)            $6,077       11.9%        >=$2,042     >=4.0%          >=$3,063      >= 6.0%
         Tier I Capital
          (to Adjusted Total Assets)           $6,077        8.2%        >=$2,955     >=4.0%          >=$3,694      >= 5.0%


        As of March 31, 1999:

         Total Capital
          (to Risk Weighted Assets)            $8,199       17.6%        >=$3,728     >=8.0%          >=$4,660      >=10.0%
         Tier I Capital
          (to Risk Weighted Assets)            $7,698       16.5%        >=$1,864     >=4.0%          >=$2,796      >= 6.0%
         Tier I Capital
          (to Adjusted Total Assets)           $7,698       11.1%        >=$2,776     >=4.0%          >=$3,470      >= 5.0%
</TABLE>

<PAGE>



              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
                              --------------------


NOTE 16:          REGULATORY CAPITAL REQUIREMENTS (Continued)
-------           -------------------------------

                  The minimum capital standards of the OTS generally require the
                  maintenance of regulatory  capital  sufficient to meet each of
                  three tests,  hereinafter  described  as the tangible  capital
                  requirement,  the core capital  requirement and the risk-based
                  capital requirement. The tangible capital requirement provides
                  for minimum tangible capital (defined as stockholders'  equity
                  less all  intangible  assets) equal to 1.5% of adjusted  total
                  assets. The core capital requirement provides for minimum core
                  capital  (tangible  capital plus certain forms of  supervisory
                  goodwill and other qualifying intangible assets) equal to 4.0%
                  of adjusted total assets. The risk-based  capital  requirement
                  currently  provides for the  maintenance  of core capital plus
                  general loss allowances equal to 8.0% of risk-weighted assets.
                  In computing risk-weighted assets, Classic Bank multiplies the
                  value of each asset on its statement of financial condition by
                  a defined  risk-weighting  factor,  e.g.,  one-to-four  family
                  residential loans carry a risk-weighted factor of 50%.

                  As of March 31, 2000 and 1999,  the most  recent  notification
                  from  regulatory  agencies  categorized  Classic  Bank as well
                  capitalized under the framework for prompt corrective  action.
                  To be  categorized  as  "well-capitalized",  Classic Bank must
                  maintain  minimum capital ratios as set forth in the following
                  table.  There are no  conditions  or events  since those dates
                  that management believes have changed the Bank's category.

                  As of  March  31,  2000 and  1999,  management  believes  that
                  Classic Bank met all capital  adequacy  requirements  to which
                  the Bank is subject.
<TABLE>

                                                                                                               TO BE WELL
                                                                                                          CAPITALIZED UNDER
                                                                          FOR CAPITAL                    PROMPT CORRECTIVE
                                                    ACTUAL              ADEQUACY PURPOSES                ACTION PROVISIONS
                                              AMOUNT        RATIO       AMOUNT         RATIO            AMOUNT         RATIO
                                              ------        -----       ------         -----            ------         -----
                                                                         (Dollars in thousands)

                  CLASSIC BANK
                  <S>                        <C>             <C>         <C>           <C>              <C>           <C>
                  March 31, 2000

                  Tangible capital            $7,074          7.2%      >=$1,480       >=1.5%          >=$4,934      >= 5.0%
                  Core capital                $7,074          7.2%      >=$3,947       >=4.0%          >=$5,921      >= 6.0%
                  Risk-based capital          $7,838         11.8%      >=$5,327       >=8.0%          >=$6,658      >=10.0%

                  March 31, 1999

                  Tangible capital            $8,335         11.8%      >=$1,057       >=1.5%          >=$3,522      >= 5.0%
                  Core capital                $8,335         11.8%      >=$2,818       >=4.0%          >=$4,226      >= 6.0%
                  Risk-based capital          $8,695         21.1%      >=$3,302       >=8.0%          >=$4,127      >=10.0%
</TABLE>



<PAGE>



              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
                              --------------------

NOTE 16:          REGULATORY CAPITAL REQUIREMENTS (Continued)
-------           -------------------------------

                  The Corporation is not subject to any regulatory  restrictions
                  on the payment of dividends to its stockholders. The Office of
                  Thrift Supervision  ("OTS") regulations provide that a savings
                  institution, such as Classic Bank, which meets fully phased-in
                  capital   requirements   and  is   subject   only  to  "normal
                  supervision"  may pay out, as a  dividend,  100 percent of net
                  income  to date  over  the  calendar  year and 50  percent  of
                  surplus capital existing at the beginning of the calendar year
                  without supervisory approval, but with 30 days prior notice to
                  the OTS. Any additional amount of capital  distributions would
                  require  prior  regulatory  approval.  A  savings  institution
                  failing  to  meet  current  capital  standards  may  only  pay
                  dividends with supervisory approval.

                  First National is also subject to regulatory  restrictions  on
                  the  payment of  dividends  to the  Corporation.  At March 31,
                  2000,  approximately  $171,000  of First  National's  retained
                  earnings was  potentially  available for  distribution  to the
                  Corporation.

NOTE 17:          CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY
-------           -----------------------------------------------------

                  The following  condensed  financial  statements  summarize the
                  financial position of the Corporation as of March 31, 2000 and
                  1999 and the results of its  operations and its cash flows for
                  each of the years ended March 31, 2000, 1999, and 1998:
<TABLE>


                  Statements of Financial Condition                              March 31, 2000            March 31, 1999
                  ---------------------------------                              --------------            --------------
                  <S>                                                           <C>                        <C>
                  Assets
                   Cash and temporary investments                               $    150,078               $    123,340
                   Securities available for sale                                     245,000                    262,500
                   Accrued interest receivable                                         5,625                      5,625
                   Note receivable - ESOP                                            786,465                    823,045
                   Equity in net assets of Bank
                    Subsidiaries                                                  11,318,917                 11,195,645
                   Other assets                                                      119,053                    286,412
                                                                                  ----------                -----------
                  Total Assets                                                  $ 12,625,138                $12,696,567
                                                                                   ==========                ==========

                  Liabilities
                   Accounts payable and accrued expenses                        $     51,500               $     96,966
                   Deferred income taxes                                                  --                      4,784
                                                                                ------------                -----------
                  Total Liabilities                                                   51,500                    101,750
                                                                                ------------                 ----------

                  Stockholders' Equity
                   Common stock                                                       13,225                     13,225
                   Additional paid-in capital                                     12,676,485                 12,675,092
                   Retained earnings                                               2,575,733                  1,875,684
                   Net unrealized gain (loss) on available
                    for sale securities                                        (       3,300)                     8,250
                   Treasury stock                                              (   1,716,771)             (     897,952)
                   Unearned ESOP shares                                        (     736,600)             (     785,150)
                   Unearned RRP shares                                         (     235,134)             (     294,332)
                                                                                  ----------               -----------
                  Total Stockholders' Equity                                    $ 12,573,638               $ 12,594,817
                                                                                  ----------                ----------

                  Total Liabilities and Stockholders' Equity                    $ 12,625,138               $ 12,696,567

                                                                                  ==========                 ==========

</TABLE>
<PAGE>


              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
                              --------------------


NOTE 17:  CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY (Continued)
-------   -----------------------------------------------------
<TABLE>

                                                                                      YEARS ENDED MARCH 31,
    Statements of Income                                                 2000                  1999                   1998
    --------------------                                                 ----                  ----                   ----
    <S>                                                               <C>                    <C>                   <C>
    Income
     Equity in undistributed earnings
      of bank subsidiaries                                            $  674,722             $  296,143           $1,101,757
     Dividends from bank subsidiaries                                    600,000                803,910               45,000
     Other income                                                         12,652                     --                   --
     Interest and dividend income                                         77,512                 80,198               89,902
                                                                      ----------             ----------            ---------

    Total Income                                                       1,364,886              1,180,251            1,236,659
                                                                       ---------              ---------            ---------

    Expenses
     Salaries and benefits                                                66,426                 44,184               16,189
     Interest expense                                                     18,139                 33,829               53,012
     Legal and accounting fees                                            66,765                 61,210               49,525
     Corporate management fees                                           103,140                104,674               57,360
     Printing and supplies                                                18,636                 29,498               24,633
     Other professional services                                          36,975                 28,853               35,363
     Directors fees                                                      64,800                  64,800               19,200
     Other expenses                                                       36,235                 37,619               25,137
                                                                      ----------             ----------            ---------

    Total Expenses                                                       411,116                404,667              280,419
                                                                      ----------             ----------            ---------

    Income Before Income Taxes                                           953,770                775,584              956,240
     Federal and state income
      tax benefit (expense)                                             115,912                 109,740               64,246
                                                                      ----------              ----------            ---------

    Net Income                                                        $1,069,682             $  885,324           $1,020,486
                                                                       =========              =========            =========
</TABLE>

<PAGE>


              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
                                -----------------

NOTE 17:  CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY (Continued)
--------  -----------------------------------------------------
<TABLE>

                                                                                         YEARS ENDED MARCH 31,
    Statements of Cash Flows                                             2000                   1999                 1998
    ------------------------                                             ----                   ----                 ----
    <S>                                                               <C>                    <C>                  <C>
    Operating Activities
     Net income                                                       $1,069,682             $ 885,324            $1,020,486
      Adjustments to reconcile net income
       to net cash provided by operating activities:
       Depreciation                                                        1,326                 1,326                   553
       Equity in undistributed net income
       of subsidiary                                                 (   674,722)           (  296,143)          ( 1,101,757)
       Earned RRP shares                                                  59,198               114,133               110,283
       Deferred income taxes                                         (        18)                  271                   263
     Decrease (increase) in:
      Accrued interest receivable                                            --                     --                 7,070
      Other assets                                                       165,925            (  127,844)               82,835
     Increase (decrease)
      Accounts payable and accrued expenses                          (    46,814)               61,530           (    86,610)
      Accrued income taxes                                                  --                     --            (    90,588)
                                                                      ----------             ---------              ---------

    Net Cash Provided (Used) by Operating Activities                     574,577               638,597            (   57,465)
                                                                      ----------              --------              ---------

    Investing Activities:
      Repayment on loan receivable from ESOP                              36,580                36,580                66,125
      Purchased equipment                                                     --                    --            (    6,632)
      Nondividend distribution from First National Bank                2,000,000                    --                    --
       Additional capital invested in Classic Bank                   ( 1,400,000)                   --                    --
      Dividend distribution from subsidiary in
        excess of current year's earnings                                     --               871,090                    --
      Purchased securities available for sale                                 --                    --            (   250,000)
                                                                      ----------               -------              ---------

    Net Cash Provided (Used) by Investing Activities                     636,580               907,670            (   190,507)
                                                                      ----------               -------              ---------

    Financing Activities
      Repayment of borrowings                                                 --            (  550,000)          (   100,000)
      Dividends paid                                                 (   369,632)           (  376,262)          (   338,965)
      Treasury shares purchased                                      (   814,787)           (  635,915)          (   259,687)
                                                                      ----------               --------             ---------

    Net Cash Used by Financing Activities                            ( 1,184,419)           ( 1,562,177)          (   698,652)
                                                                       ---------              ---------             ---------

    Net Increase (Decrease) in Cash
     and Cash Equivalents                                                 26,738            (    15,910)          (   946,624)

    Cash and Cash Equivalents at
     Beginning of Year                                                   123,340                 139,250            1,085,874
                                                                      ----------              ----------            ---------

    Cash and Cash Equivalents at
     End of Year                                                     $   150,078             $   123,340           $  139,250
                                                                       =========              ==========             =========
</TABLE>





<PAGE>


                             STOCKHOLDER INFORMATION


                                Corporate Office

                             344 Seventeenth Street
                                Ashland, KY 41101

                                 Annual Meeting

         The Annual Meeting of Stockholders  will be held at 4:00 p.m.,  Ashland
Kentucky time on July 25, 1999 at the AEP Kentucky headquarters building, corner
of 17th Street and Central Avenue, Ashland, Kentucky 41101.

                          Annual Report on Form 10-KSB

         A copy of the Company's  Annual Report on Form 10-KSB as filed with the
Securities and Exchange  Commission may be obtained  without charge upon written
request to Lisah M. Frazier,  Senior Vice President and Chief Financial Officer,
Classic Bancshares,  Inc., 344 Seventeenth Street Ashland, Kentucky 41101, or by
calling (606) 325-4789, or by e-mail at lfrazier@classicbank.com. The report may
also be obtained from EDGAR via the Internet.

                            Registrar/Transfer Agent

         Communications regarding change of address,  transfer of stock and lost
certificates should be sent to:

                     American Stock Transfer & Trust Company
                                 40 Wall Street
                            New York, New York 10005
                                 (212) 936-5100
                                 www.amstock.com
                            E-mail: info@amstock.com


                             Independent Accountants

                      Smith, Goolsby, Artis & Reams, P.S.C.
                               1330 Carter Avenue
                                Ashland, KY 41101


     General Counsel                              Special Counsel

      Rose, Short & Pitt                   Silver, Freedman & Taff, L.L.P.
 Community Trust Bank Building                1100 New York Avenue, NW
    1544 Winchester Avenue                      Washington, DC  20005
      Ashland, KY 41101








<PAGE>



                                  Stock Listing

         The Company's  common stock is traded over the counter and is listed on
the Nasdaq  Small-Cap  Market under the symbol  "CLAS." At June 13, 2000,  there
were 1,176,356  shares of the Company's  common stock issued and outstanding and
there were 215 holders of record and approximately 475 beneficial  holders.  The
Company's  common stock began  trading on December 28, 1995.  The price range of
the Company's common stock for each quarter for fiscal 1999 and fiscal 2000:
<TABLE>


             FISCAL 1999                   HIGH         LOW         DIVIDENDS
------------------------------------------ ------------------------------------
<S>                                        <C>          <C>           <C>
First Quarter............................. $21.000      $14.875       $.08

Second Quarter............................ $17.375      $12.000       $.08

Third Quarter............................. $15.875      $13.125       $.08

Fourth Quarter............................ $15.500      $13.875       $.08
</TABLE>


<TABLE>

                     FISCAL 2000           HIGH         LOW         DIVIDENDS
------------------------------------------ ------------------------------------
<S>                                        <C>          <C>           <C>
First Quarter............................  $14.438      $13.313       $.08

Second Quarter...........................  $15.313      $13.000       $.08

Third Quarter............................  $14.250      $11.250       $.08

Fourth Quarter...........................  $11.813      $10.000       $.08
</TABLE>



The stock price  information  set forth in the table  above was  provided by the
National  Association of Securities  Dealers,  Inc. High, low and closing prices
and daily  trading  volume are  reported in most major  newspapers.  The closing
price of the Company's common stock on March 31, 2000 was $10.50.

         The Company  declared and paid cash  dividends  totaling $.32 per share
during  fiscal 2000.  The Board of Directors  intends to continue the payment of
quarterly cash  dividends,  dependent on the results of operations and financial
condition of the  Company,  tax  considerations,  industry  standards,  economic
conditions,  regulatory  restrictions,  general  business  practices  and  other
factors.  The  Company's  ability to pay  dividends is dependent on the dividend
payments it receives  from its  subsidiaries,  Classic Bank and First  National,
which are subject to regulations  and continued  compliance  with all regulatory
capital  requirements.  See Note 16 of the Notes to the  Consolidated  Financial
Statements for information  regarding limitations of the subsidiaries ability to
pay dividends to the Company.


                                  Market Makers

                          J.J.B. Hilliard , W.L. Lyons

                             Knight Securities, L.P.

                              Spear, Leeds & Kellog


<PAGE>



                            Sherwood Securities Corp.

                        Friedman, Billings, Ramsey & Co.





<PAGE>

                                   EXHIBIT 21

                           SUBSIDIARIES OF REGISTRANT


<PAGE>



                         SUBSIDIARIES OF THE REGISTRANT
<TABLE>


                                                                                                     State of
                                                                                   Percentage      Incorporation
                                                                                       of               or
                Parent                                Subsidiary                   Ownership      Organization
        ---------------------------------------------------------------------------------------------------------
<S>       <C>                           <C>                                          <C>            <C>
        Classic Bancshares, Inc.                      Classic Bank                    100%           Federal
        Classic Bancshares, Inc.         The First National Bank of Paintsville       100%           Federal
</TABLE>




<PAGE>



                                   EXHIBIT 23

                         CONSENT OF INDEPENDENT AUDITORS



<PAGE>



                          INDEPENDENT AUDITORS' CONSENT



The Board of Directors
Classic Bancshares, Inc.
Ashland, Kentucky

We hereby consent to incorporation  by reference in the Registration  Statements
on Form S-8 (Nos.  333-09385,  and 333-09409 and  333-43481) of our report dated
May 26,  2000,  relating to the  consolidated  financial  statements  of Classic
Bancshares,  Inc. and subsidiaries as of March 31, 2000 and 1999 and for each of
the years in the three-year period ended March 31, 2000, which report appears in
the Annual Report on Form 10-KSB of Classic Bancshares, Inc. for the fiscal year
ended March 31, 2000.





                                        /s/SMITH, GOOLSBY, ARTIS & REAMS, P.S.C.



Ashland, Kentucky
June 26, 2000


<PAGE>


                                   EXHIBIT 27

                             FINANCIAL DATA SCHEDULE