<PAGE>





                               Annual Report 1999









                                        i

<PAGE>



                            CLASSIC BANCSHARES, INC.


                 SELECTED CONSOLIDATED FINANCIAL INFORMATION(1)


<TABLE>
<CAPTION>
                                                                                March 31,
                                                      -----------------------------------------------------------
                                                         1999        1998         1997         1996         1995
                                                      --------     --------     --------     ------       -------
                                                                              (In Thousands)
<S>                                                   <C>          <C>          <C>          <C>          <C>
Selected Financial Condition Data:

Total assets......................................... $142,739     $131,121     $131,554     $66,083      $60,911
Loans receivable, net................................   97,527       90,100       81,728      43,722       35,731
Mortgage-backed securities:
 Held for investment.................................      ---          ---          ---         ---        7,746
 Available for sale..................................    4,479        7,831        7,885       2,840          387
Investment securities:
 Held for investment.................................      ---          ---          ---         ---       12,900
 Available for sale..................................   26,526       19,474       24,390      11,059          ---
Interest-earning deposits............................    1,531        1,541        6,020       6,649        3,196
Deposits.............................................  117,732      104,927      100,519      46,200       48,510
FHLB advances........................................      388          ---        4,750         ---        4,800
Stockholders' equity.................................   20,289       20,407       19,370      19,500        7,386


</TABLE>


<TABLE>
<CAPTION>
                                                                           Year Ended March 31,
                                                      ----------------------------------------------------------
                                                          1999        1998         1997        1996         1995
                                                        -------      ------       ------      -------      -----
                                                                              (In Thousands)
<S>                                                    <C>          <C>          <C>          <C>          <C>
Selected Operations Data:

Total interest income................................    $9,822      $9,507       $7,150       $4,414      $3,962
Total interest expense...............................     4,979       4,812        3,603        2,851       2,409
                                                         ------      ------       ------       ------      ------
   Net interest income...............................     4,843       4,695        3,547        1,563       1,553
Provision for loan losses............................       100         158          105          168         133
                                                         ------      ------       ------       ------      ------
   Net interest income after provision for loan
       losses........................................     4,743       4,537        3,442        1,395       1,420
                                                         ------      ------       ------       ------      ------
Fees and service charges.............................       487         344          119           41          31
Gain on sale of securities...........................         4          29           32           36         ---
0ther noninterest income.............................       184         500           68           31           4
                                                         ------      ------       ------       ------      ------
   Total noninterest income..........................       675         873          219          108          35
   Total noninterest expense.........................     4,295       3,994        2,818        1,178         979
                                                         ------      ------       ------       ------      ------
Income before income taxes...........................     1,123       1,416          843          325         476
Income tax expense...................................       238         396          220           32          53
                                                         ------      ------       ------       ------      ------
   Net income........................................    $  885      $1,020       $  623       $  293      $  423
                                                         ======      ======       ======       ======      ======

--------------

</TABLE>

(1)  Classic Bancshares,  Inc. completed its initial public offering on December
     28, 1995 and purchased all of the  outstanding  stock of Classic Bank. As a
     result,  the information  above  represents the Bank only prior to December
     28,  1995.  The  Company  competed  the  acquisition  of First  Paintsville
     Bancshares on September 30, 1996. As a result,  the  information  above for
     the year ended  March 31,  1997  includes  information  for First  National
     beginning September 30, 1996.


                                       ii

<PAGE>


<TABLE>
<CAPTION>

                                                                           Year Ended March 31,
                                                      ----------------------------------------------------------
                                                          1999        1998         1997        1996        1995
                                                        -------      -------      -------    --------     ------

<S>                                                     <C>          <C>          <C>          <C>        <C>
Selected Financial Ratios and Other Data:

Performance Ratios:
  Return on assets (ratio of net income to average
      total assets)..................................        .6%         .8%          .6%          .5%         .7%
  Return on equity (ratio of net income to average
      equity)........................................       4.3         5.2          3.2          2.5         5.8
  Interest rate spread (average during period).......       3.1         3.1          2.9          1.6         2.1
  Net interest margin(1).............................       3.8         3.9          3.8          2.5         2.6
  Ratio of noninterest expense to average total
      assets.........................................       3.1         3.0          2.8          1.8         1.6
  Ratio of average interest-earning assets to
      average interest-bearing liabilities...........     118.7       119.3        124.6        119.9       112.5

Quality Ratios:
 Non-performing assets to total assets, at end of
      year(2)........................................        .4          .4           .8           .9         1.4
 Allowance for loan losses to non-performing
      loans(3).......................................     212.1       249.6        111.9         48.1        38.6
 Allowance for loan losses to loans receivable,
      net............................................        .9          .9          1.0           .7          .9

Capital Ratios:
 Equity to total assets at end of period.............      14.2        15.6         14.7         29.5        12.1
 Average equity to average assets....................      14.6        14.9         19.4         18.0        12.2

Other Data:
 Number of Bank full-service offices.................       5           5            3            1           1

---------------

</TABLE>

(1)  Net interest income divided by average interest-earning assets.

(2)  Non-performing assets include non-accruing loans, accruing loans 90 days or
     more past due, restructured loans and real estate owned.

(3)  Non-performing loans include non-accruing loans,  accruing loans 90 days or
     more past due and restructured loans.


                                       iii

<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.

         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 two branch offices located in
Greenup  and Boyd  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
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 for both counties  remains below the
national  average but exceeds 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 continues to exceed
the national and state unemployment rate.

         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


                                       iv

<PAGE>


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  that are not based
primarily on the current market rate.

         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.

Business Strategy

         The  Company  follows a  "community  bank"  oriented  strategy  that is
designed to provide  planned and profitable  growth and sustained  profitability
while  maintaining  the safety  and  soundness  of the  Company.  The  principal
elements of this strategy  include (i) continued  growth in lower cost deposits,
through the offering of transaction and other non-certificate accounts, (ii) the
offering of different  types of consumer loan  products,  (iii) the expansion of
commercial  business  and  commercial  real  estate  lending  operations,   (iv)
increasing  non-interest  income  through new product  offerings and  aggressive
pricing  structures,  (v) enhancing delivery channels through traditional branch
offices and  non-traditional  channels through ATM networks and on-line banking,
(vi) the acquisition of other financial institutions to the extent opportunities

                                        v

<PAGE>



arise,  (vii)  continuous  review  of loan  underwriting  standards  in order to
maintain asset quality and (viii) maintenance of a capital position that exceeds
regulatory guidelines.

         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 addressed such risks through
product loan  underwriting  standards and the 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.

         Fiscal 1999 represented a year of continued focus on growth,  expansion
and the  development  of a  technological  infrastructure  in  order to adapt to
divergent  customer needs and  preferences.  The  successful  opening of two new
branch  offices in 1998  contributed to a 12.2% increase in deposits and an 8.2%
increase in loans. Non-traditional channels were also enhanced by increasing the
Company's  ATM network  from six  locations  to fourteen  locations  which serve
Classic Bank and First  National  customers in Kentucky  and West  Virginia.  To
further the expansion of alternate delivery  channels,  the Company introduced a
fully  transactional  website which allows customers the ability to access their
bank accounts,  transfer funds, view statement history,  apply for loans and pay
bills. In addition, the site offers shareholders and potential investors current
and relevant information regarding the Company.

         In  addition to these  advances,  the  Company  experienced  growth and
expansion  through an  acquisition.  In January 1999, the Company  announced its
agreement to acquire Citizens Bank, Grayson,  located in Grayson,  Kentucky. The
transaction  was valued at $4.5 million with each  shareholder of Citizens Bank,
Grayson  receiving $75 per share in cash. The  transaction  was completed on May
14, 1999. At the close of the  transaction,  Citizens  Bank,  Grayson 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  $13.4 million
and  total  deposits  of $12.0  million.  Goodwill  created  as a result  of the
acquisition is estimated to be approximately $3.1 million.  The addition of this
location will enhance the deposit gathering  capabilities and lending operations
of the Company and allow the  Company's  franchise to extend in an important and
growing market.

         The implementation of expansion and technological advances has provided
the Company the opportunity to increase  non-certificate,  transaction accounts.
Transaction  accounts  increased  from $29.8  million at March 31, 1998 to $33.2
million at March 31, 1999. The Company also  experienced  growth in non-mortgage
loan   portfolios.   During  the  fiscal  year,   consumer  loans  increased  by
approximately $686,000,  commercial real estate loans increased by approximately
$1.2  million and  commercial  business  loans  increased by $7.8  million.  The
increase  in   non-certificate   accounts  and  non-mortgage   loans  since  the
implementation  of the community bank strategy has resulted in growth in the net
interest margin from 2.5% in 1996 to 3.8% in 1999.

Year 2000

         The advent of the year 2000 brings a  potentially  critical  problem to
all  computers  , software  and  micro-chip  dependent  systems.  Many  computer
programs use only a two-digit  character for the year (1998 would appear only as
"98") and thus the computer is unable to distinguish  between,  for example, the
years 1900 and 2000 or 1901 and 2001.  Left  uncorrected,  this  situation  will
result in erroneous data and reports,  inability to effectuate  electronic funds
transfers, and possibly the shut down of entire systems.

                                       vi

<PAGE>



         The  Company's   operations   are  heavily   dependent  on  information
technology  systems.  As a result, the Company has put much effort in addressing
potential  problems  that could exist with the turn of the century.  The Company
has  also  addressed  all  non-information  technology  systems.  The  following
summarizes the phases of the Company's Y2K plan:

         Awareness Phase. The Company formally  established a Y2K plan and a Y2K
committee  that is  responsible  for  implementing  the  plan,  determining  the
resources (including personnel, time and expense estimates) required to complete
specific procedures, monitoring progress, establishing time lines and developing
contingency plans. This phase is complete.

         Assessment  Phase.  The Company  developed a strategy to determine  the
size and complexity of the Y2K problem as it relates to the Company.  A Y2K risk
assessment was completed on each mission  critical  system to assess the ability
of hardware and software to accurately process date sensitive data,  including a
process specific rating assessing the relative risk of each of these processes.

         The Company's primary lending  relationships are with borrowers for 1-4
family residences.  However, the Company has contacted commercial customers with
a lending relationship  greater than $200,000 to determine Y2K readiness.  Based
on this review,  the Company does not  anticipate  any Y2K issues with regard to
its loan portfolio.

         Renovation  Phase.  The Company's  assessment of each mission  critical
system  revealed  that  new  hardware  purchases  and  software  upgrades  could
adequately address Y2K date sensitive applications. These hardware purchases and
software upgrades have been delivered and placed into production and entered the
validation and testing phase.

         Validation  (Testing)  Phase.  The validation phase is designed to test
the ability of hardware and software to accurately  process date sensitive data.
The Company has completed  validation  testing of each mission  critical system.
The  testing   environment   is  insulated  from   production  and   development
environments, therefore, assuring minimal interruption of current operations. No
significant  Y2K  problems  have been  identified  relating  to any  modified or
upgraded  mission  critical  systems.  The  Company  completed  this phase as of
December 31, 1998.

         Implementation  Phase.  The  Company's  plan requires that all required
hardware  purchases and software  upgrades be installed  and in production  with
respect to all mission critical systems during the validation phase.

         The Company has incurred costs of approximately $21,000 for testing its
data processing  software.  These costs are being amortized  through March 2000.
The  Company  has also spent  costs of  approximately  $10,000  in new  hardware
purchases.  These costs will be capitalized and  depreciated  over the period of
time allowed by accounting guidelines.

         Contingency  Plans.  The  Company  has  developed  a  contingency  plan
outlining  alternative  plans if remediation  efforts are not successful and has
established  trigger dates for activating the remediation  contingency  plan. In
addition,  a business  resumption  contingency plan has been implemented,  which
addresses the potential failure of mission critical systems to achieve Year 2000
readiness. Employee training for contingency plans will be completed by June 30,
1999.




                                       vii

<PAGE>

Financial Condition

         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  signigicant  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 mananging 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.

         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.

         March 31,  1998  compared to March 31,  1997.  Total  assets  decreased
approximately  $500,000, or .2%, from $131.6 million at March 31, 1997 to $131.1
million at March 31, 1998.  Loans increased $8.4 million,  or 10.3%,  from $81.7
million  at March 31,  1997 to $90.1  million  at March 31,  1998 as a result of
aggressive  origination  efforts  and strong loan  demand  within the  Company's
market area.  Investment securities decreased $4.9 million from $24.4 million at
March 31, 1997 to $19.5 million at March 31, 1998 as a result of sales and calls
of $12.7  million  offset by  purchases  of $7.0  million and an increase in the
market value of these  available for sale  securities.  Cash and other  interest
earning  deposits  decreased $5.2 million from $9.1 million at March 31, 1997 to
$3.9 million at March 31, 1998 in order to fund loan growth. Office property and
equipment  increased  approximately $1.2 million as a result of the construction
of two new banking offices.

         Deposits increased $4.4 million,  or 4.4%, from $100.5 million at March
31, 1997 to $104.9 million at March 31, 1998 as a result of increased  marketing
efforts.  Securities  under agreement to repurchase  decreased $1.5 million from
$5.0 million at March 31, 1997 to $3.5  million at March 31,  1998.  The Company
had no  Federal  Home Loan Bank  Advances  at March 31,  1998  compared  to $4.8
million at March 31, 1997.

         The  allowance  for loan losses  increased  approximately  $30,000 from
$801,000  at March  31,  1997 to  $831,000  at March  31,  1998 as a result of a
provision for fiscal 1998 of $158,000 offset by net charge-offs of $128,000.


                                      viii

<PAGE>



         Stockholder's equity was $20.4 million at March 31, 1998 as compared to
$19.4 million at March 31, 1997 as a result of net income for the period of $1.0
million.


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, 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  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,  1999,  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


                                       ix

<PAGE>



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.


Comparison of Operating Results for the Years Ended March 31, 1998
 and March 31, 1997

         Net Income.  Net income increased by $377,000,  or 63.7%, from $623,000
at March 31, 1997 to $1.0 million at March 31, 1998.  The increase was due to an
increase in net  interest  income of $1.2  million and  increase in  noninterest
income of $654,000 which were  partially  offset by an increase in the provision
for loan losses of $53,000, an increase in noninterest  expenses of $1.2 million
and an increase in income tax expense of $176,000.

         Net Interest  Income.  Net interest income  increased $1.2 million,  or
34.3%, from $3.5 million at March 31, 1997 to $4.7 million at March 31, 1998 due
to an  increase  in  interest  income of $2.4  million  offset by an increase in
interest  expense of $1.2  million.  The  increase in interest  income  resulted
primarily from the inclusion of First National's  earnings for the entire twelve
month period ended March 31, 1998  compared to the  inclusion of only six months
of earnings for the twelve months ended March 31, 1997. The increase in interest

                                        x

<PAGE>



income was also the result of the increase in higher  yielding loans through the
diversification  of the loan portfolio in consumer and commercial  lending.  The
average  balance of  interest-earning  assets  increased  from $93.4 million for
fiscal  1997 to $120.7  million  for fiscal  1998.  The  increase in the average
balance of  interest-earning  assets was due primarily to the inclusion of First
National's  interest-earning  assets for the entire fiscal year 1998 compared to
only six months during fiscal 1997.  Interest-earning  assets also increased due
to an increase in loans. The average yield on interest-earning  assets increased
from  7.7% at March 31,  1997 to 7.9% at March 31,  1998,  due  primarily  to an
increase in higher yielding loans.

         Interest  expense  increased  $1.2 million from $3.6 million for fiscal
1997 to $4.8 million for fiscal 1998  primarily as a result of the  inclusion of
First National's interest expense for the entire twelve month period ended March
31, 1998  compared to the inclusion of only six months of expense for the twelve
months ended March 31, 1997. The average balance of interest-bearing liabilities
increased  from $75.0  million at March 31, 1997 to $101.2  million at March 31,
1998. The increase in the average  balance of  interest-bearing  liabilities was
due primarily to the inclusion of First National's interest-bearing  liabilities
for the entire  fiscal year 1998 compared to only six months during fiscal 1997.
Interest-bearing  liabilities also increased due to an increase in deposits. The
average rate paid on interest-bearing liabilities was 4.8% at March 31, 1998 and
1997.

         Provision for Loan Losses.  The provision for loan losses  increased by
$53,000  from  $105,000  for fiscal  1997 to  $158,000  for fiscal 1998 based on
management's  overall  assessment  of the loan  portfolio.  The increase was due
primarily to the inclusion of First  National's  provision for the entire fiscal
1998  compared  to only six  months of fiscal  1997.  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, 1998, the allowance for loan losses totaled $831,000,  or
 .9% of  total  loans  and  249.6%  of  non-performing  loans.  The  ratio of the
allowance for loan losses to  non-performing  loans  increased at March 31, 1998
from the level of March 31,  1997 as a result of a  decrease  in  non-performing
loans from $565,000 at March 31, 1997 to $333,000 at March 31, 1998.

         Noninterest Income. Noninterest income increased approximately $654,000
from  $219,000  for fiscal 1997 to $873,000  for fiscal 1998 due to increases of
$225,000 in service  charges and other fees on  deposits,  and $431,000 in other
income  offset  by a  decrease  in net  gains  on  sale of  mortgage-backed  and
investment  securities of $3,000. The increase in service charges and other fees
on deposits is the result of the  inclusion of First  National's  income for the
entire  twelve month period for fiscal 1998  compared to the inclusion of income
for  only  six  months  during  fiscal  1997,  as well as,  an  increase  due to
aggressive  pricing  strategies.  The increase in other income is primarily  the
result of a $370,000  gain  recorded  from the  settlement  of First  National's
pension plan.  The settlement of the pension plan is the result of merging First
National's  plan into Classic Bank's plan thereby  creating one pension plan for
the Company.

         Noninterest Expense.  Noninterest expense increased  approximately $1.2
million,  or 42.9%, from approximately $2.8 million for the year ended March 31,
1997  to  approximately  $4.0  million  for  the  year  ended  March  31,  1998.
Compensation and benefit expenses  increased  $780,000 from $1.1 million for the
year ended March 31, 1997 to $1.8  million for the year ended March 31, 1998 due
to the net  increase in the number of  employees  as a result of the  additional
banking  offices and the inclusion of First  National's  expenses for the entire
twelve month period in the current year  compared to only six months of expenses
in the prior year.

                                       xi

<PAGE>



         Occupancy and equipment expense increased  approximately  $269,000 from
$285,000 for 1997 to $554,000 for 1998. The increase was due to the inclusion of
First National's  expense for the entire twelve month period in 1998 compared to
the inclusion of expenses for only six months in 1997. The increase was also due
to an increase in depreciation  expense as a result of improvements  made to the
Company's  facilities,   the  additional  automated  teller  locations  and  the
construction of the additional  banking offices.  Loss on foreclosed real estate
decreased  $25,000  from  $47,000  for 1997 to $22,000 for 1998.  The  reduction
resulted from a significant  write-down  taken on foreclosed  real estate in the
prior year.

         Federal deposit insurance  premiums  decreased  approximately  $368,000
from  $401,000 for 1997 to $34,000 for 1998.  The decrease was due to a one-time
assessment in 1997 of $316,000  charged to savings  associations  insured by the
Savings  Association  Insurance Fund (the SAIF) , which is  administered  by the
Federal Deposit Insurance Corporation.  The remainder of the decrease was due to
a  decrease  on the rate paid on  deposits  from .23% to .06% as a result of the
recapitalization.

         Other  general  and  administrative  expenses  increased  approximately
$500,000,  or 45.5%,  from $1.1 million for 1997 to $1.6  million for 1998.  The
increase primarily resulted from the inclusion of First National's  expenses for
the entire  twelve month  period for 1998  compared to only six months for 1997.
Specific  increases  included are an increase in the amortization of goodwill of
$62,000,  an increase in printing and  supplies of  approximately  $106,000,  an
increase in ATM expense of $31,000 due to the increased number of locations,  an
increase  in  advertising  expense of  $70,000  due to the  introduction  of new
product  lines and the  opening  of the  additional  banking  locations,  and an
increase in  directors  fees of $26,000  due to  inclusion  of First  National's
directors for the entire year.

        Income  Tax  Expense.  Income  tax  expense  increased  $176,000  due to
higher income before income taxes of $573,000.


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.

                                       xii

<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. No tax equivalent adjustments were made.  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  $144,000,
$169,000,  and  $104,000  for the years  ended  March 31,  1999,  1998 and 1997,
respectively.

<TABLE>
<CAPTION>

                                                                           Year Ended March 31,
                                          -----------------------------------------------------------------------------------------
                                                      1999                          1998                             1997
                                          ----------------------------  -----------------------------  ----------------------------
                                            Average   Interest             Average    Interest           Average    Interest
                                          Outstanding  Earned/  Yield/  Outstanding   Earned/  Yield/  Outstanding  Earned/  Yield/
                                            Balance     Paid     Rate      Balance      Paid    Rate     Balance     Paid     Rate
                                          ----------- --------  ------  -----------   -------- ------  -----------  -------  ------
<S>                                       <C>         <C>       <C>      <C>          <C>      <C>     <C>          <C>      <C>
                                                                      (Dollars in Thousands)
Interest-Earning Assets:
 Loans receivable(1)...................... $ 94,501    $7,893     8.4%     $ 88,074    $7,415    8.4%   $63,606     $5,224     8.2%
 Mortgage-backed securities...............    7,021       399     5.7         8,653       550    6.4      4,961        329     6.6
 Investment securities....................   23,186     1,333     5.7        21,388     1,384    6.5     16,910      1,146     6.8
 Interest-earning deposits................      356        12     3.4           405        18    4.4      2,781        170     6.1
 Federal funds sold.......................    1,899        93     4.9         1,029        59    5.7      4,353        223     5.1
 FHLB stock and FRB stock.................    1,345        92     6.8         1,165        81    7.0        813         58     7.1
                                          ---------    ------              --------    ------           -------     ------
  Total interest-earning assets(1)         $128,308     9,822     7.7      $120,714     9,507    7.9    $93,424      7,150     7.7
                                           ========    ------              ========    ------           =======     ------

Interest-Bearing Liabilities:
 Savings accounts and interest-
  bearing demand........                   $ 24,569       713     2.9      $ 20,149       581    2.9    $11,544        331     2.9
 Money market deposits....................    7,419       208     2.8         7,847       235    3.0      6,893        204     3.0
 Certificate accounts.....................   70,778     3,775     5.3        62,876     3,398    5.4     49,382      2,683     5.4
 FHLB advances............................    1,797        85     4.7         5,813       339    5.8      4,079        223     5.5
 Other short-term borrowings..............    3,112       164     5.3         3,906       206    5.3      2,721        134     4.9
 Long-term debt...........................      399        34     8.5           613        53    8.6        340         28     8.2
                                           --------    ------              --------    ------           -------     ------
  Total interest-bearing liabilities...... $108,074     4,979     4.6      $101,195     4,812    4.8    $74,959      3,603     4.8
                                           ========    ------              ========    ------           =======     ------

Net interest income.......................             $4,843                          $4,695                       $3,547
                                                       ======                          ======                       ======
Net interest rate spread..................                        3.1%                           3.1%                          2.9%
                                                                  ===                            ===                           ===
Net earning assets........................  $20,234                         $19,519                     $18,465
                                            =======                         =======                     =======
Net yield on average interest-earning
 assets.........                                                  3.8%                           3.9%                          3.8%
                                                                  ===                            ===                           ===
Average interest-earning assets to
 average interest-bearing liabilities.....               1.19x                          1.19x                        1.25x
                                                         ====                           ====                         ====

</TABLE>

--------------

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

                                      xiii

<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>
<CAPTION>

                                                                           March 31, 1999
                                                                           --------------
<S>                                                                             <C>
Weighted average rate:
 Loans receivable..........................................................       8.4%
 Mortgage-backed securities................................................       6.0
 Investment securities.....................................................       5.8
 FHLB stock and FRB stock..................................................       7.0
 Other interest-earning assets ............................................       4.6
   Combined weighted average yield on interest-earning assets..............       7.8

Weighted average rate paid on:
 Savings accounts and interest-bearing demand..............................       2.6
 Money market accounts.....................................................       3.2
 Certificate accounts......................................................       5.1
 Federal funds purchased and repurchase agreements.........................       4.7
 FHLB borrowings...........................................................       6.4
 Term Treasury Tax & Loan deposits.........................................       4.6
   Combined weighted average rate paid on interest-bearing liabilities.....       4.4

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.


                                       xiv

<PAGE>

<TABLE>
<CAPTION>


                                                                Year Ended March 31,
                                        -------------------------------------------------------------------
                                                  1999 vs. 1998                         1998 vs. 1997
                                        --------------------------------   --------------------------------
                                         Increase (Decrease)                Increase (Decrease)
                                               Due to           Total             Due to           Total
                                         ------------------    Increase     ------------------    Increase
                                           Volume     Rate    (Decrease)      Volume     Rate    (Decrease)
                                           ------     ----    ----------      ------     ----    ----------
                                                               (Dollars in Thousands)
<S>                                       <C>        <C>        <C>          <C>         <C>       <C>
Interest-earning assets:
   Loans receivable.....................   $ 540     $  (62)    $  478       $2,014      $ 177      $2,191
   Mortgage-backed securities...........     (91)       (60)      (151)         238        (17)        221
   Investment securities................     119       (170)       (51)         302        (64)        238
   Other ...............................      56        (17)        39         (290)        (3)       (293)
                                           -----     -------    ------       ------      -----      ------

       Total interest-earning assets....   $ 624     $ (309)    $  315       $2,264      $  93      $2,357
                                           =====     =======    ======       ======      =====      ======

Interest-bearing liabilities:
   Savings accounts and interest bearing
     demand.............................   $ 128     $    4     $  132       $  250      $ ---      $  250
   Money market accounts................     (12)       (15)       (27)          31        ---          31
   Certificate accounts.................     421        (44)       377          715        ---         715
   FHLB advances........................    (200)       (54)      (254)          98         18         116
   Other short-term borrowings..........     (42)        --        (42)          57         15          72
   Long-term debt.......................     (18)        (1)       (19)          22          3          25
                                           ------    -------     -----       ------      -----      ------

      Total interest-bearing liabilities   $ 277     $ (110)     $ 167       $1,173      $  36      $1,209
                                           =====     =======     =====       ======      =====      ======

Net interest income.....................                         $ 148                              $1,148
                                                                 =====                              ======

</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 most of the  Company's  assets  decline in the event of an  increase in
interest  rates  although  management  continues to focus on the  acquisition of
variable rate loans and deposit  products with institution  controlled  interest
rates 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 and
also  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.


                                       xv

<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.
As a result  and in view of the need to  enhance  the  Company's  interest  rate
spread,  and  management's  efforts to more  effectively  manage  the  Company's
interest rate risk in the future,  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 ARM loans be indexed to changes in
rates  paid on U.S.  Treasury  securities  rather  than one of the Cost of Funds
Indices.  Management  believes that U.S.  Treasury  securities are significantly
more interest rate sensitive than the Cost of Funds Indices and that  therefore,
ARMs indexed to such  securities  will be more interest rate  sensitive than ARM
loans  originated  by the  Company in the past.  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, are more interest rate sensitive and
generate higher levels of noninterest  income 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 $3.4 million from March 31, 1998 to March 31, 1999.
Management  believes that such accounts generally carry lower costs and 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, 1999, 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.


                               Net Portfolio Equity
   Change in
Interest Rates                                Amount of         Percent of
(Basis Points)        Estimated NPV            Change             Change
---------------       -------------           ---------         ----------
                              (Dollars in Thousands)

     +400               $11,156               $-11,057              -50%
     +300                13,803                 -8,410              -38
     +200                16,557                 -5,656              -26
     +100                19,383                 -2,830              -13
        0                22,213
     -100                25,185                  2,972              +13
     -200                28,639                  6,426              +29
     -300                33,008                 10,795              +49
     -400                38,017                 15,804              +71




                                       xvi

<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 longer term and/or less expensive  alternative sources
of funds.

         The primary  investing  activities of the Company are originating loans
and, to a lesser extent,  purchasing  mortgage-backed and investment securities.
During the fiscal  years  ended March 31,  1999,  1998 and 1997,  mortgage  loan
originations   totaled  $44.5   million,   $45.2  million  and  $24.5   million,
respectively.  Purchases of  mortgage-backed  and investment  securities totaled
$21.3  million,  $9.4 million and $15.7 million  during each of the fiscal years
ended March 31, 1999, 1998 and 1997, 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,
and FHLB advances.

         The primary financing  activities of the Company are deposits and, to a
lesser extent,  borrowings.  During the fiscal years ended March 31, 1999,  1998
and 1997, the Company experienced an increase in deposits of $12.8 million, $4.4
million  and $54.3  million.  Certificates  of  deposits  as of March  31,  1999
maturing  withing one year total $61.0  million.  During the fiscal  years ended
March 31, 1999,  1998 and 1997, the Company's net financing  activity  (proceeds
less  repayments)  with  the  FHLB  totaled  $388,000,   $0  and  $4.8  million,
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, 1999, cash and cash equivalents totaled $4.5 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

                                      xvii

<PAGE>



ability to  generate  them  internally,  Classic  Bank and First  National  have
additional  borrowing  capacity  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, 1999, the Company had  outstanding
loan commitments totaling $11.0 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,  1999,
Classic and First National exceeded all of their capital requirements on a fully
phased-in  basis.  See  Note  17 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.

                                      xviii

<PAGE>

                           REPORT OF AUDIT

                       CLASSIC BANCSHARES, INC.
                           AND SUBSIDIARIES

                           ASHLAND, KENTUCKY

                            MARCH 31, 1999






                                       1

<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, 1999 AND 1998............................................4

CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS
  ENDED MARCH 31, 1999, 1998 AND 1997......................................5

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
  FOR THE YEARS ENDED MARCH 31, 1999, 1998 AND 1997........................6-7

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'
  EQUITY FOR THE YEARS ENDED MARCH 31, 1999, 1998
  AND 1997.................................................................8

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
  YEARS ENDED MARCH 31, 1999, 1998 AND 1997................................9-10

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.................................11-46


                                        2

<PAGE>



                                             R. MILTON GOOLSBY, C.P.A.
Smith, Goolsby,                                JOHN W. ARTIS, C.P.A.
Artis & Reams, P.S.C.                          C. ALAN REAMS, 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.


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, 1999 and 1998, 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, 1999. 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, 1999 and 1998, and the results of their
operations  and their cash flows for each of the three years in the period ended
March 31, 1999, in conformity with generally accepted accounting principles.



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

Ashland, Kentucky
May 14, 1999

                                        3

<PAGE>

<TABLE>
<CAPTION>
                    CLASSIC BANCSHARES, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                             MARCH 31, 1999 AND 1998


                                                          1999           1998
                                                     ------------    ------------
<S>                                                 <C>             <C>
ASSETS
  Cash and due from banks                            $  2,955,422    $  2,383,995
  Interest-bearing deposits with banks                    132,826         116,846
  Federal funds sold and securities
   purchased under agreements to resell                 1,397,908       1,131,414
  Certificates of deposit in other
   financial institutions                                      --         293,000
  Securities available for sale                        25,141,436      18,176,807
  Mortgage-backed and related securities
   available for sale                                   4,479,136       7,830,714
  Loans, net of allowance for loan losses
   of $860,658 in 1999 and $830,535 in 1998            97,527,492      90,100,000
  Real estate acquired in the settlement
   of loans                                               225,590         229,390
  Accrued interest receivable                             951,877         851,767
  Federal Home Loan Bank and Federal
   Reserve Bank stock                                   1,384,450       1,297,150
  Premises and equipment, net                           4,523,720       4,468,002
  Cost in excess of fair value of net
   assets acquired, net of accumulated
   amortization                                         2,779,349       2,902,869
  Other assets                                          1,239,835       1,338,572
                                                     ------------    ------------

Total assets                                         $142,739,041    $131,120,526
                                                     ============    ============

LIABILITIES
  Non-interest bearing demand deposits               $  9,600,258    $ 10,152,498
  Savings, NOW, and money market demand deposits       35,674,021      30,333,654
  Other time deposits                                  72,457,492      64,440,515
                                                     ------------    ------------
         Total deposits                               117,731,771     104,926,667

  Federal funds purchased and securities
   sold under agreements to repurchase                  2,817,154       3,521,799
  Advances from Federal Home Loan Bank                    387,739              --
  Other short-term borrowings                              84,578         273,697
  Accrued expenses and other liabilities                  428,065         402,090
  Accrued interest payable                                418,642         390,409
  Accrued income taxes                                     45,134              --
  Long-term debt                                               --         550,000
  Deferred income taxes                                   536,978         648,802
                                                     ------------    ------------

Total liabilities                                     122,450,061     110,713,464
                                                     ------------    ------------


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                           12,806,544      12,753,789
  Retained earnings, substantially restricted           9,362,668       8,853,606
  Accumulated other comprehensive income                   83,977         287,171
  Unearned ESOP shares                                   (785,150)       (834,970)
  Unearned RRP shares                                    (294,332)       (371,879)
  Treasury stock, at cost                                (897,952)       (293,880)
                                                     ------------    ------------

Total stockholders' equity                             20,288,980      20,407,062
                                                     ------------    ------------

Total liabilities and stockholders' equity           $142,739,041    $131,120,526
                                                     ============    ============

</TABLE>

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

                                        4

<PAGE>

<TABLE>
<CAPTION>

                    CLASSIC BANCSHARES, INC. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                    YEARS ENDED MARCH 31, 1999, 1998 AND 1997


                                                        1999            1998            1997
                                                     ----------      ----------      ----------
<S>                                                  <C>             <C>             <C>
INTEREST INCOME
   Loans                                             $7,892,250      $7,414,430      $5,223,732
   Securities                                         1,425,360       1,384,484       1,203,541
   Mortgage-backed securities                           399,033         550,442         329,010
   Federal funds sold and securities
     purchased under agreements to resell                93,208          59,425         222,718
   Other interest                                        11,939          98,529         170,645
                                                     ----------      ----------      ----------
     Total interest income                            9,821,790       9,507,310       7,149,646
                                                     ----------      ----------      ----------

INTEREST EXPENSE
   Deposits                                           4,695,839       4,213,728       3,217,704
   Federal Home Loan Bank advances                       84,987         343,630         222,806
   Federal funds purchased and securities
     sold under repurchase agreements                   154,349         194,219         129,751
   Long-term debt                                        33,778          52,955          28,520
   Other short-term borrowings                            9,678           7,454           4,295
                                                     ----------      ----------      ----------
     Total interest expense                           4,978,631       4,811,986       3,603,076
                                                     ----------      ----------      ----------

     Net interest income                              4,843,159       4,695,324       3,546,570

   Provision for loss on loans                          100,000         157,500         105,000
                                                     ----------      ----------      ----------

     Net interest income after
     provision for loss on loans                      4,743,159       4,537,824       3,441,570
                                                     ----------      ----------      ----------

NONINTEREST INCOME
   Service charges                                      486,899         344,295         118,646
   Gain on sale of securities                             3,904          29,167          32,245
  Gain from settlement of pension plan                       --         370,622              --
   Other income                                         184,496         128,731          68,273
                                                     ----------      ----------      ----------
     Total noninterest income                           675,299         872,815         219,164
                                                     ----------      ----------      ----------

NONINTEREST EXPENSES
   Employee compensation and benefits                 1,997,217       1,830,387       1,050,870
   Occupancy and equipment expense                      600,577         554,302         284,893
   Federal deposit insurance premiums                    37,082          33,923         401,430
   Advertising                                          145,180         142,047          71,687
   Data processing                                      153,044         133,715         187,659
   Franchise taxes                                      128,640         137,728          50,822
   Directors fees and benefits                          122,154         116,823          91,724
   Amortization of goodwill                             123,520         123,520          61,590
   Stationary and supplies                              110,193         104,334          63,069
   Other operating expenses                             877,584         817,158         553,978
                                                     ----------      ----------      ----------
     Total noninterest expense                        4,295,191       3,993,937       2,817,722
                                                     ----------      ----------      ----------

INCOME BEFORE INCOME TAXES                            1,123,267       1,416,702         843,012
--------------------------

   Income tax expense                                   237,943         396,216         220,393
                                                     ----------      ----------      ----------

NET INCOME                                           $  885,324      $1,020,486      $  622,619
----------                                           ==========      ==========      ==========

   Basic earnings per share                          $      .75      $      .87      $      .52
                                                      =========       =========      ==========
   Diluted earnings per share                        $      .72      $      .83      $      .51
                                                      =========       =========      ==========

</TABLE>

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


                                        5

<PAGE>

<TABLE>
<CAPTION>
                    CLASSIC BANCSHARES, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                    YEARS ENDED MARCH 31, 1999, 1998 AND 1997


                                                            1999           1998           1997
                                                          --------       ---------      --------
<S>                                                      <C>            <C>            <C>

Net Income                                                $885,324       $1,020,486     $622,619
                                                          --------       ----------     --------

  Other comprehensive income, net of tax:
    Unrealized holding gains (losses) on
       securities during the period, net
       of tax                                             (210,470)         374,939     (123,617)

    Reclassification   adjustments  for
       realized  gains  (losses)  included  in
       earnings, net of tax of
       $1,225, $9,917 and $10,963 for 1999, 1998,
       and 1997, respectively                               (2,678)         (19,200)     (21,282)

    Minimum pension liability adjustment
       net of tax of $5,128, $733 and
       $733 for 1999, 1998, and 1997,
       respectively                                          9,954            1,422        1,422
                                                          --------       ----------     --------
  Other comprehensive income                              (203,194)         357,161     (143,477)
                                                          --------       ----------     --------

Comprehensive income                                      $682,130       $1,377,647     $479,142
                                                          ========       ==========     ========
Accumulated other comprehensive income                    $ 83,977       $  287,171     $(69,990)
                                                          ========       ==========     ========

</TABLE>

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

                                        6

<PAGE>

<TABLE>
<CAPTION>

                    CLASSIC BANCSHARES, INC. AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                FOR THE YEARS ENDED MARCH 31, 1999, 1998 AND 1997

                                                               ADDITIONAL                     UNEARNED
                                                                PAID-IN        RETAINED         ESOP
                                               COMMON STOCK     CAPITAL        EARNINGS        SHARES
                                               ------------   -----------    ----------      -----------

<S>                                            <C>           <C>            <C>              <C>

Balances, April 1, 1996                          $13,225      $12,710,898    $7,707,753      ($1,005,100)

  Net income for the year ended
   March 31, 1997                                                               622,619
  Cash dividends paid ($.13 per
   share)                                                                      (158,287)
  ESOP shares earned                                               15,213                         86,440
  Shares  repurchased  for  Recognition
   and Retention Plan - 52,900 shares,  of
   which 2,550 shares were unallocated at
   March 31, 1997 ($11.75 per share)                              (36,953)
  RRP shares earned
  Change in minimum pension liability
   adjustment
  Changes in unrealized gain (loss) on
   available for sale securities, net
   of applicable deferred income taxes
   of $74,644                                     ______       __________    __________       __________


Balances, March 31, 1997                          13,225       12,689,158     8,172,085         (918,660)

  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
  RRP shares forfeited                                                337
  Tax benefit from RRP                                             14,498
  Purchased 20,000 treasury shares
  Change in minimum pension liability
   adjustment
  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)

  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
  RRP shares granted                                                4,742
  Tax benefit from RRP                                             19,815
  Purchased 43,894 treasury shares
  Change in minimum pension liability
   adjustment
  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)
                                                 =======      ===========    ==========       =========

</TABLE>

                                       7

<PAGE>


                    CLASSIC BANCSHARES, INC. AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
          FOR THE YEARS ENDED MARCH 31, 1999, 1998 AND 1997 (CONTINUED)

<TABLE>
<CAPTION>
                                                                                                   NET UNREALIZED
                                                                   MINIMUM                         GAIN (LOSS) ON
                                                  UNEARNED         PENSION                           SECURITIES
                                                    RRP           LIABILITY         TREASURY         AVAILABLE
                                                   SHARES        ADJUSTMENT           STOCK           FOR SALE        TOTAL
                                                   ------        ----------           -----       --------------   ----------
<S>                                               <C>            <C>              <C>               <C>           <C>

Balances, April 1, 1996                                           ($12,798)                          $86,285      $19,500,263

  Net income for the year ended
   March 31, 1997                                                                                                     622,619
  Cash dividends paid ($.13 per
   share)                                                                                                            (158,287)
  ESOP shares earned                                                                                                  101,653
  Shares  repurchased  for  Recognition
   and Retention Plan - 52,900 shares,  of
   which 2,550 shares were unallocated at
   March 31, 1997 ($11.75 per share)              (554,659)                          (29,963)                        (621,575)
  RRP shares earned                                 68,604                                                             68,604
  Change in minimum pension liability
   adjustment                                                        1,422                                              1,422
  Changes in unrealized gain (loss) on
   available for sale securities, net
   of applicable deferred income taxes
   of $74,644                                    _________         _______         _________        (144,899)        (144,899)
                                                                                                    --------       ----------

Balances, March 31, 1997                          (486,055)        (11,376)          (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                                                            110,283
  RRP shares forfeited                               3,893                            (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                                              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                          (371,879)         (9,954)         (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                                                            114,132
  RRP shares granted                               (36,585)                           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                                              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                         ($294,332)         $   --         ($897,952)       $ 83,977      $20,288,980
                                                 =========          ======         =========         =======       ==========


</TABLE>


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

                                        8

<PAGE>

<TABLE>
<CAPTION>

                    CLASSIC BANCSHARES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                FOR THE YEARS ENDED MARCH 31, 1999, 1998 AND 1997


                                                              1999           1998           1997
                                                          ------------    -----------    ----------
<S>                                                       <C>             <C>            <C>
OPERATING ACTIVITIES
  Net income                                              $    885,324    $ 1,020,486    $  622,619
  Adjustments to reconcile net income
    to net cash provided by operating
    activities:
     Depreciation and amortization                             491,818        423,166       196,515
     Provision for loan losses                                 100,000        157,500       105,000
     Provision for loss on foreclosed
       real estate                                                  --         50,000        43,500
     Loss (gain) on sale of mortgage-
       backed securities                                        39,396          7,392        22,664
     Loss (gain) on sale of investment
       securities                                              (43,300)       (36,559)      (54,909)
     Net amortization (accretion) of
       mortgage-backed and investment securities                87,841         27,756        31,564
     Federal Home Loan Bank stock
       dividend                                                (73,200)       (68,200)      (52,200)
     Deferred income tax expense
       (benefit)                                                 4,313       181,456         66,942
     Loss (gain) on sale of foreclosed
       real estate                                              (7,465)      (34,354)         1,377
     Loss on disposal of equipment and software                     --        53,053             --
     Gain on pension plan settlement                                --      (370,622)            --
     ESOP shares earned                                         78,018       133,486        101,653
     RRP shares earned                                         114,132       110,283         68,604
     Amortization of goodwill                                  123,520       123,520         61,590
  Decrease (increase) in:
    Accrued interest receivable                               (100,110)     (161,581)        51,406
    Other assets                                                51,692        91,409        141,976
  Increase (decrease) in:
    Accrued interest payable                                    28,233       172,678        (74,269)
    Accrued income taxes                                        45,134       (90,588)        90,588
    Other liabilities                                           19,642       114,254       (175,062)
                                                           -----------    ----------     ----------

         Net Cash Provided by Operating
          Activities                                         1,844,988     1,904,535      1,249,558
                                                           -----------    ----------     ----------

INVESTING ACTIVITIES
  Investment securities:
    Available for sale:
      Proceeds from sales, maturities and calls             10,338,714    12,709,539     14,405,708
      Purchased                                            (17,536,505)   (7,024,383)   (10,606,627)
  Mortgage-backed securities:
    Available for sale:
      Proceeds from sale                                     5,035,427     1,004,375      3,230,925
      Principal payments                                     1,982,271     1,285,360        265,709
      Purchased                                             (3,839,845)   (2,182,572)    (5,044,048)
  Purchased Federal Home Loan Bank stock                       (14,100)      (22,800)            --
  Purchased Federal Reserve Bank stock                              --      (190,750)            --
  Loan originations and principal payments, net             (7,610,033)   (8,581,515)   (10,331,284)
  Certificates of deposit with other banks:
    Proceeds from maturities                                   293,000            --        290,000
  Proceeds from sale of foreclosed real estate                  93,806       143,000         16,000
  Purchased premises and equipment                            (434,960)   (1,560,273)    (1,078,086)
  Proceeds from sale of equipment and fixtures                      --        33,950             --
  Purchased software                                           (35,764)      (89,838)      (131,844)
  Cash and cash equivalents acquired
    in purchase of Bank subsidiary in
    excess of cash invested                                         --            --      4,411,002
                                                           -----------    ----------     ----------

         Net Cash Used by Investing
          Activities                                       (11,727,989)   (4,475,907)    (4,572,545)
                                                           -----------    ----------     ----------
</TABLE>

                                        9

<PAGE>

<TABLE>
<CAPTION>

                    CLASSIC BANCSHARES, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                FOR THE YEARS ENDED MARCH 31, 1999, 1998 AND 1997
                                   (Continued)

                                                              1999           1998            1997
                                                          ------------    -----------    ------------
<S>                                                       <C>             <C>            <C>
FINANCING ACTIVITIES
    Net change in deposits                                $12,805,104      $ 4,407,194    $ 1,479,663
    Federal Home Loan Bank borrowings                      20,547,000       25,507,000     18,200,000
    Repayment of Federal Home Loan
      Bank borrowings                                     (20,159,261)     (30,257,000)   (13,450,000)
    Long-term borrowings                                           --               --        700,000
    Repayment of long-term borrowings                        (550,000)        (100,000)       (50,000)
    Decrease in federal funds purchased
      and securities sold under
      agreements to repurchase                               (704,645)      (1,433,967)      (327,477)
    Decrease in term treasury tax and
      loan borrowings                                        (189,119)        (155,257)      (138,490)
    Shares purchased for RRP                                       --               --       (621,575)
    Dividends paid                                           (376,262)        (338,965)      (158,287)
    Sale of common stock, net of costs                                                             --
    Treasury shares purchased                                (635,915)        (259,687)            --
                                                           ----------       ----------    -----------

         Net Cash Provided (Used) by Financing
          Activities                                       10,736,902       (2,630,682)     5,633,834
                                                           ----------       ----------    -----------

Net Change in Cash and Cash Equivalents                       853,901       (5,202,054)     2,310,847

Cash and Cash Equivalents, Beginning
    of Year                                                 3,632,255        8,834,309      6,523,462
                                                           ----------       ----------    -----------

 Cash and Cash Equivalents, End of Year                   $ 4,486,156       $3,632,255    $ 8,834,309
                                                           ==========       ==========    ===========

Additional Cash Flows and Supplementary
 Information
    Cash paid during the year for:
      Interest on deposits and borrowings                 $ 1,086,800       $1,728,553    $ 1,113,691
      Income taxes                                        $   140,837       $  321,472         62,862
    Assets acquired in settlement of
      loans                                               $    82,541       $   51,700    $    37,904
    Net unrealized gain (loss) on
      securities available-for-sale                       $   213,148       $  355,739    $  (144,899)
    Liabilities assumed and cash paid in
      acquisition of First Paintsville
      Bancshares                                                   --               --    $69,660,895
    Fair value of assets received                                  --               --    $66,572,916
    Amount assigned to goodwill                                    --               --    $ 3,087,979

</TABLE>

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


                                        10

<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).

                  As more fully  described  in Note 2, on  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).

                  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.

                  The  preparation  of financial  statements in conformity  with
                  generally accepted  accounting  principles requires management
                  to make  estimates  and  assumptions  that affect the reported
                  amounts of assets and liabilities and disclosure of contingent
                  assets and liabilities at the date of the financial statements
                  and the reported  amounts of revenues and expenses  during the
                  reporting  period.  Actual  results  could  differ  from those
                  estimates.   On  an  ongoing  basis,  management  reviews  its
                  estimates,   including   those  related  to   litigation   and
                  environmental   liabilities,   based  on  currently  available
                  information.  Changes in facts and circumstances may result in
                  revised estimates.

                  The  following is a summary of the  Corporation's  significant
                  accounting  policies which have been  consistently  applied in
                  the  preparation of the  accompanying  consolidated  financial
                  statements.


                                       11

<PAGE>


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


NOTE 1:           SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

         B.       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.

         C.       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 gains of $83,977
                  and  $297,125  at March  31,  1999,  and  1998,  respectively.
                  Realized   gains  and  losses  on  sales  of  securities   are
                  recognized using the specific identification method.

         D.       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


                                       12

<PAGE>



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


NOTE 1:           SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

         D.       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, 1999 and 1998, the  Corporation had no loans that
                  would be defined as impaired under SFAS No. 114.

         E.       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.

         F.       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.



                                       13

<PAGE>



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


NOTE 1:           SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

         F.       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.

         G.       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.

         H.       Goodwill and Other Intangibles

                  Goodwill  resulting  from the  acquisition  of First  National
                  totaled approximately $3.1 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.

                  In March 1995, the FASB issued SFAS No. 121,  "Accounting  for
                  the Impairment of Long- Lived Assets and for Long-Lived Assets
                  to be Disposed Of." SFAS No. 121 provides  guidance on when to
                  recognize and how to measure  impairment  losses of long-lived
                  assets and certain  identifiable  intangibles and how to value
                  long-lived  assets to be disposed of. The Corporation  adopted
                  SFAS No. 121  effective  April 1, 1996,  as required,  without
                  material effect on consolidated financial condition or results
                  of operations.

         I.       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

                                       14

<PAGE>


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


NOTE 1:           SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

         I.       Federal Income Taxes (Continued)

                  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.

                  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.

         J.       Earnings Per Share

                  Basic  earnings per share is  calculated  based on  1,179,627,
                  1,170,607,  and 1,194,169  weighted  average  number of common
                  shares  outstanding for the years ended March 31, 1999,  1998,
                  and 1997, 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  1,228,567,  1,224,888 and
                  1,206,935  for the years ended March 31, 1999,  1998 and 1997,
                  respectively.  There were 36,270, 38,580 and 5,798 incremental
                  shares related to the assumed  exercise of stock options,  and
                  12,670,  15,701 and 6,968  incremental  shares  related to the
                  assumed  issuance of recognition and retention plan shares for
                  the years ended March 31, 1999, 1998 and 1997, respectively.

                  Options to purchase  5,000  shares of common  stock at $16.295
                  per share  were  outstanding  at March  31,  1999 but were not
                  included in the computation of diluted  earnings per share due
                  to their anti-dilutive effect. The options expire February 15,
                  2009.

         K.       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

                                       15

<PAGE>



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


NOTE 1:           SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

         K.       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.

         L.       Impact of Recent Accounting Pronouncements

                  In June 1996,  the FASB issued SFAS No. 125,  "Accounting  for
                  Transfers  of  Financial   Assets,   Servicing   Rights,   and
                  Extinguishment  of  Liabilities,"  that  provides   accounting
                  guidance  on  transfers  of  financial  assets,  servicing  of
                  financial assets, and extinguishment of liabilities.  SFAS No.
                  125  introduces  an approach to  accounting  for  transfers of
                  financial  assets that  provides a means of dealing  with more
                  complex  transactions  in which the seller  disposes of only a
                  partial interest in the assets, retains rights or obligations,
                  makes use of special purpose entities in the  transaction,  or
                  otherwise  has  continuing  involvement  with the  transferred
                  assets.  The  new  accounting  method,   referred  to  as  the
                  financial  components  approach,  provides  that the  carrying
                  amount of the  financial  assets  transferred  be allocated to
                  components  of the  transaction  based on their  relative fair
                  values. SFAS NO. 125 provides criteria for determining whether
                  control of assets has been relinquished and whether a sale has
                  occurred.  If the transfer  does not qualify as a sale,  it is
                  accounted for as a secured borrowing.  Transactions subject to
                  the  provisions  of  SFAS  No.  125  include,   among  others,
                  transfers involving repurchase agreements,  securitizations of
                  financial assets, loan participations,  factoring arrangements
                  and transfers of receivables with recourse.

                  An entity that  undertakes an obligation to service  financial
                  assets  recognizes  either a servicing  asset or liability for
                  the servicing  contract (unless related to a securitization of
                  assets,  and all  the  securitized  assets  are  retained  and
                  classified  as   held-to-maturity).   A  servicing   asset  or
                  liability that is purchased or assumed is initially recognized
                  at its  fair  value.  Servicing  assets  and  liabilities  are
                  amortized  in  proportion  to and over the period of estimated
                  net servicing  income or net servicing loss and are subject to
                  subsequent assessments for impairment based on fair value.

                  SFAS No. 125  provides  that a liability  is removed  from the
                  balance  sheet only if the debtor either pays the creditor and
                  is relieved of its  obligation for the liability or is legally
                  released from being the primary obligor.



                                       16

<PAGE>



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


NOTE 1:           SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

         L.       Impact of Recent Accounting Pronouncements (Continued)

                  SFAS No. 125 is  effective  for  transfers  and  servicing  of
                  financial assets and  extinguishment of liabilities  occurring
                  after December 31, 1997,  and is to be applied  prospectively.
                  Earlier  or   retroactive   application   is  not   permitted.
                  Management  adopted SFAS No. 125,  effective  January 1, 1998,
                  without   material   adverse   effect  on  the   Corporation's
                  consolidated financial position or results of operations.

                  In June  1997,  the  FASB  issued  SFAS  No.  130,  "Reporting
                  Comprehensive  Income." SFAS No. 130 establishes standards for
                  reporting  and  display  of   comprehensive   income  and  its
                  components (revenue, expenses, gains and losses) in a full set
                  of general-purpose financial statements. SFAS No. 130 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 is displayed with the
                  same  prominence as other  financial  statements.  It does not
                  require a specific  format for that  financial  statement  but
                  requires  that an  enterprise  display an amount  representing
                  total  comprehensive  income for the period in that  financial
                  statement.

                  SFAS No. 130 requires that an enterprise (a) classify items of
                  other  comprehensive  income by their  nature  in a  financial
                  statement  and (b)  display the  accumulated  balance of other
                  comprehensive  income  separately  from retained  earnings and
                  additional   paid-in  capital  in  the  equity  section  of  a
                  statement of financial position. SFAS No. 130 is effective for
                  fiscal   years    beginning    after    December   15,   1997.
                  Reclassification  of financial  statements for earlier periods
                  provided for  comparative  purposes is required.  SFAS No. 130
                  was adopted effective April 1, 1998 without material impact on
                  the Corporation's consolidated financial statements.

                  In June 1997, the FASB issued SFAS No. 131,  "Disclosure about
                  Segments of an Enterprise and Related  Information."  SFAS No.
                  131  significantly   changes  the  way  that  public  business
                  enterprises  report  information  about operating  segments in
                  annual   financial   statements   and   requires   that  those
                  enterprises  report  selected   information  about  reportable
                  segments in interim  financial reports issued to shareholders.
                  It also establishes  standards for related  disclosures  about
                  products and services,  geographic  areas and major customers.
                  SFAS  No.  131  uses  a  "management   approach"  to  disclose
                  financial  and  descriptive  information  about  the way  that
                  management  organizes the segments  within the  enterprise for
                  making operating decisions and assessing performance. For many
                  enterprises,  the  management  approach  will likely result in
                  more  segments  being  reported.  In  addition  SFAS  No.  131
                  requires  significantly  more  information to be disclosed for
                  each  reportable  segment than is presently  being reported in
                  annual  financial  statements  and also requires that selected
                  information be reported in interim financial statements.  SFAS
                  No. 131 is effective for fiscal years beginning after December
                  15,  1997.  SFAS No. 131 was adopted  effective  April 1, 1998
                  without  material  impact  on the  Corporation's  consolidated
                  financial statements.

                                       17

<PAGE>



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


NOTE 1:           SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

         L.       Impact of Recent Accounting Pronouncements (Continued)

                  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 is  effective  for fiscal years  beginning  after
                  June 15, 1999. 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.

         M.       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.

         N.       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


                                       18

<PAGE>



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


NOTE 1:           SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

         N.       Fair Values of Financial Instruments (Continued)

                  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
                  as disclosed in Note 12.

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

                  Certificates  of deposit with other  financial  institutions -
                  For  certificates  of deposit with a remaining term of 90 days
                  or less,  the fair values are based on carrying  amounts.  The
                  fair values for other  certificates  of deposit are  estimated
                  using  discounted cash flow analysis,  based on interest rates
                  currently being offered by financial institutions with similar
                  credit quality.

                  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.

                  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.


                                       19

<PAGE>



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


NOTE 1:           SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

         N.       Fair Values of Financial Instruments (Continued)

                  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.

                  Long-term  debt  -  The  fair  value  of  long-term  debt  was
                  estimated by discounting  the expected future cash flows using
                  current  interest  rates  for  loans  with  similar  terms and
                  remaining maturities.

                  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.

         O.       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.

         P.       Advertising Costs

                  Advertising costs are expensed when incurred.

         Q.       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

                  On September 30, 1996,  the  Corporation  acquired 100% of the
                  common stock of First Paintsville  Bancshares,  Inc. utilizing
                  the  purchase  method of  accounting.  First  Paintsville  was
                  dissolved upon  consummation  of the  transaction,  with First
                  Paintsville's banking




                                       20

<PAGE>



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


NOTE 2:           ACQUISITION (Continued)

                  subsidiary,  First  National Bank of  Paintsville,  continuing
                  operations as a  wholly-owned  subsidiary of the  Corporation.
                  The fair value of First  National's  assets at  September  30,
                  1996 totaled approximately $66.6 million.

                  The  results  of First  National's  operations  subsequent  to
                  September 30, 1996, are included in the consolidated financial
                  statements.  The  Corporation  paid  $10,208,010 in cash, with
                  $3,087,979  excess of the fair  value of  liabilities  assumed
                  over assets received, assigned to goodwill.

                  Presented below are unaudited pro-forma condensed consolidated
                  results  of  operations  for the year  ended  March  31,  1997
                  assuming the  acquisition had occurred at the beginning of the
                  fiscal year ended March 31, 1997.


                                                1997
                                           -------------
                                      (In thousands except
                                        per share amounts)

Net interest income                            $4,772
Net income                                     $  670
Basic earnings per share                       $  .57
Diluted earnings per share                     $  .55


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,
                  1999 and 1998 are as follows:

<TABLE>
<CAPTION>
                                                    GROSS             GROSS         ESTIMATED
                                AMORTIZED        UNREALIZED        UNREALIZED         FAIR
                                  COST              GAINS            LOSSES           VALUE
                               -----------       ----------        ----------      -----------
<S>                            <C>               <C>               <C>             <C>

Available-for-sale

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>


                                       21

<PAGE>



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


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


<TABLE>
<CAPTION>
                                                    GROSS             GROSS         ESTIMATED
                                AMORTIZED        UNREALIZED        UNREALIZED         FAIR
                                  COST              GAINS            LOSSES           VALUE
                               -----------       ----------        ----------      -----------
<S>                            <C>               <C>               <C>             <C>
 March 31, 1998:
 U. S. Treasury securities      $ 1,253,186       $ 21,539          $      --       $ 1,274,725
 U. S. Government Agency
  Securities                      7,754,365         71,772                (30)        7,826,107
 Obligations of state and
  political subdivisions          8,495,245        319,859            (11,629)        8,803,475
 Corporate debt securities          250,000         22,500                 --           272,500
                                -----------       --------           --------       -----------
                                $17,752,796       $435,670           $(11,659)      $18,176,807
                                 ==========       ========           ========       ===========
</TABLE>



                  The amortized cost, gross unrealized  gains,  gross unrealized
                  losses,   and   estimated   fair  values  of   mortgage-backed
                  securities at March 31, 1999 and 1998 are as follows:


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

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

March 31, 1998:
 FNMA                           $2,545,621          $ 4,851         $ (5,292)       $2,545,180
 FHLMC                           2,988,949           45,135           (2,779)        3,031,305
 Other                             827,735              897           (2,488)          826,144
 REMICS:
  FHLMC and FNMA                 1,442,232            6,270          (20,417)        1,428,085
                                 ---------          -------         --------        ----------
                                $7,804,537          $57,153         ($30,976)       $7,830,714
                                 =========          =======         ========        ==========
</TABLE>

                  Gross realized gains and gross realized  losses on the sale of
                  available-for-sale  investment and mortgage-backed  securities
                  were  $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,  and $86,212 and  $53,967,  respectively
                  for the year ended March 31, 1997.

                  The amortized  cost and estimated fair value of investment and
                  mortgage-backed  securities  at  March  31,  1999  and 1998 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.






                                       22

<PAGE>



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


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

<TABLE>
<CAPTION>

                                                           1999                                   1998
                                                --------------------------              ------------------------
                                                                 ESTIMATED                             ESTIMATED
                                                 AMORTIZED         FAIR                  AMORTIZED       FAIR
                                                   COST            VALUE                   COST          VALUE
                                                 ---------       ---------              ----------     ---------
                                                                           (In Thousands)
<S>                                               <C>            <C>                 <C>               <C>
Due in one year or less                            $     5         $     5              $   293         $   293
Due after one year through five years                2,165           2,201                1,564           1,589
Due after five years through ten years               2,156           2,273                2,584           2,613
Due after ten years                                 19,902          19,892               13,312          13,682
                                                   -------         -------              -------         -------
    Total investment securities                     24,228          24,371               17,753          18,177

Corporate equity securities                            750             771                   --              --
Mortgage-backed securities-not
  due at a single maturity date                      4,516           4,479                7,805           7,831
                                                   -------         -------              -------         -------
    TOTAL                                          $29,494         $29,621              $25,558         $26,008
                                                   =======         =======              =======         =======
</TABLE>



               Securities carried at approximately $10,232,444 at March 31, 1999
               and $9,905,321 at March 31, 1998, 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  $131,782  and  $75,778  and  unearned
               discounts  of $35,516  and  $45,348  at March 31,  1999 and 1998,
               respectively.

               Mortgage-backed   securities   with   adjustable   rates  totaled
               $1,804,474   and   $3,317,486   at  March  31,   1999  and  1998,
               respectively.

               Accrued interest  receivable  includes $419,930 and $334,666,  at
               March 31, 1999 and 1998, respectively,  related to investment and
               mortgage-backed securities.






                                       23

<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:

                                                         MARCH 31
                                            ---------------------------------
                                              1999                      1998
                                            -------                   -------
                                                        (In Thousands)
Real estate loans:
  One-to-four family                        $61,992                   $66,078
  Commercial                                 10,136                     8,970
  Multi-family                                1,179                     1,497
  Construction                                2,513                       426
Consumer Loans:
  Secured by deposits                           383                       526
  Credit card                                     3                       218
  Installment                                 7,347                     5,380
  Other                                          68                       991
Commercial loans                             14,764                     6,942
                                             ------                    ------

Total loans receivable                       98,385                    91,028

Less:  Undisbursed loans in process              23                        29
         Unearned discounts and loan
             origination costs                  (26)                       68
         Allowance for loan losses              861                       831
                                            -------                   -------
Total loans receivable, net                 $97,527                   $90,100
                                            =======                   =======


                  Loans with  adjustable  rates  totaled $41.2 million and $43.9
                  million at March 31, 1999 and 1998, respectively.

                  Accrued interest  receivable includes $527,319 and $502,094 at
                  March  31,  1999  and  1998,  respectively,  related  to loans
                  receivable.

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

                                 1999                1998                1997
                               --------            --------            --------

Balance at beginning of year   $830,535            $801,180            $286,384
Provision for losses            100,000             157,500             105,000
Allowance resulting from
 acquisition                         --                  --             525,887
Charge-offs                    (117,273)           (174,874)           (154,610)
Recoveries                       47,396              46,729              38,519
                               --------             -------            --------
Balance at end of year         $860,658            $830,535            $801,180
                               ========            ========            ========

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


                                       24

<PAGE>



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


NOTE 4:           LOANS RECEIVABLE (Continued)


                                       1999              1998             1997
                                       ----              ----             ----
                                                    (In Thousands)
Accruing loans past due 90 days
  or more                             $ 91              $ 25              $157
Nonaccrual loans                       315               308               559
                                       ---               ---               ---

Total non-performing loan
     balances at year end             $406              $333              $716
                                       ===               ===               ===

    Non-performing loans as a
     percentage of loans               .41%              .37%              .88%
                                       ===               ===               ===


                  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, 1999 and 1998, the balances of loans to such parties
                  were as follows:

                                            1999                     1998
                                            ----                     ----

Aggregate amount of indebtedness
 at beginning of year                  $ 4,739,926              $ 3,717,313
New loans                               12,972,146               12,107,872
Repayments                             (13,690,140)             (11,085,259)
                                       -----------              -----------
Aggregate amount of indebtedness
 at end of year                        $ 4,021,932              $ 4,739,926
                                       ===========              ===========


NOTE 5:           PREMISES AND EQUIPMENT

                  Premises  and  equipment  at March 31,  1999 and 1998 by major
                  classifications are as follows:

                                           1999                     1998
                                        ----------              ----------

    Land                                $  947,198              $  912,037
    Buildings and improvements           3,145,300               3,015,646
    Furniture and equipment              2,685,546               2,424,504
                                         ---------               ---------

         TOTAL                           6,778,044               6,352,187
         -----
    Less: Accumulated depreciation       2,254,324               1,884,185
                                         ---------               ---------
                                        $4,523,720              $4,468,002
                                         =========               =========

                  Depreciation expense charged to operations for the years ended
                  March 31, 1999, 1998 and 1997 totaled $379,242,  $309,267, and
                  $167,378, respectively.



                                       25

<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  $21,087,520  and  $18,445,335 at March 31,
                  1999 and 1998, respectively.

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

                        1999                              $61,000,900
                        2000                                9,016,094
                        2001                                1,210,751
                        2002                                  420,288
                        2003 and thereafter                   809,459
                                                          -----------
                                                          $72,457,492
                                                          ===========

                  Interest  expense on deposits is summarized as follows for the
                  years ended March 31:

                                    1999                1998              1997
                                    ----                ----              ----
                                                   (In Thousands)

Certificates of deposit           $3,773              $3,398            $2,683
NOW accounts and money
  market demand accounts             534                 387               169
Passbook and club accounts           389                 429               366
                                  ------              ------            ------
                                  $4,696              $4,214            $3,218
                                   =====               =====             =====

NOTE 7:           LONG-TERM DEBT

                  Long-term  debt at March 31, 1998 consisted of a note payable,
                  due in quarterly  installments  of $25,000,  plus  interest at
                  prime. The note dated September 30, 1996 was  uncollateralized
                  and scheduled  maturity was  September 30, 2003.  The interest
                  rate at March 31, 1998 was 8.50%.

NOTE 8:           ADVANCES FROM FEDERAL HOME LOAN BANK

                  Advances  from  the  Federal  Home  Loan  Bank  of  Cincinnati
                  consists  of a  monthly  reduction  loan  collateralized  with
                  Federal Home Loan Bank stock with a carrying value of $766,600
                  and  certain  residential  mortgage  loans  in the  amount  of
                  $583,695.  The advance  originated June 5, 1998, in the amount
                  of $400,000,  and the interest rate is fixed at 6.36%. Monthly
                  payments are based on a 20 year  amortization  with the entire
                  balance due July 1, 2003.

                  Scheduled principal payments are due as follows:





                                       26

<PAGE>



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


NOTE 8:           ADVANCES FROM FEDERAL HOME LOAN BANK (Continued)

                  Due in fiscal year ending:
                           March 31, 2000                        $  17,282
                           March 31, 2001                           18,414
                           March 31, 2002                           19,620
                           March 31, 2003                           20,905
                           March 31, 2004                          311,518
                                                                  --------
                                                                  $387,739
                                                                  ========

NOTE 9:           SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

                  Securities  sold under  agreements  to repurchase at March 31,
                  1999 and 1998 totaled $2,098,887 and $3,521,799, respectively.

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

                                                1999                   1998
                                                ----                   ----

Average balance during the year              $2,408,878             $3,623,720
Average interest rate during the year             5.15%                  5.36%
Maximum month-end balance during the year    $3,515,612             $4,250,304

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

                      Carrying value         $2,201,115             $4,107,866
                      Estimated fair value   $2,297,277             $4,161,067

                  Securities  sold under  agreements  to repurchase at March 31,
                  1999 and 1998 had a maturity of one day.

NOTE 10:          OTHER BORROWINGS

                  Other short-term borrowings at March 31, 1999 and 1998 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 a carrying  value of $2,206,533
                  and   $1,846,100   and  a  market  value  of  $2,241,620   and
                  $1,884,230,   were   pledged  at  March  31,  1999  and  1998,
                  respectively,   as  collateral   for  treasury  tax  and  loan
                  deposits.



                                       27

<PAGE>



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


NOTE 11:          INCOME TAXES

                  The provision for income taxes consists of:

                                            YEARS ENDED MARCH 31
                                    ---------------------------------------
                                      1999           1998            1997
                                    --------       --------        --------

Currently payable    - Federal      $214,921       $200,262        $152,626
                     - State              --             --             825
Deferred             - Federal         4,313        181,456          66,942
                                    --------       --------        --------
                                    $219,234       $381,718        $220,393

Federal tax benefit from RRP
  Credited to paid in capital         18,709         14,498              --
                                    --------       --------        --------
                                    $237,943       $396,216        $220,393
                                    ========       ========        ========

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

                                                 YEARS ENDED MARCH 31
                                         1999          1998             1997
                                         ----          ----             ----

Tax at statutory rate                    34.0%         34.0%            34.0%
Tax exempt income                       (20.0)        (10.6)           (12.5)
Non-deductible expenses                   5.4           4.6              4.6
Other                                     1.8            --               --
                                        -----        ------            -----
                                         21.2%         28.0%            26.1%

                  The  components  of the  Corporation's  net deferred tax asset
                  (liability)  as of March 31, 1999 and 1998,  are summarized as
                  follows:

                                                 1999               1998
                                                 ----               ----
Deferred tax assets:
 Loans and loan loss allowance               $ 179,123             $174,090
 AMT credit carryforward                        75,819               53,202
 Retirement and incentive programs              42,602               41,041
 Foreclosed real estate                         37,501               37,501
 Other assets                                   20,050               15,251
                                             ---------             --------
                                               355,095              321,085
                                             ---------             --------
Deferred tax liabilities:
 Federal Home Loan Bank stock dividends       (202,742)            (177,854)
 Premises and equipment                       (353,950)            (348,995)
 Retirement and incentive programs            (264,195)            (264,195)
 Accretion on securities                       (10,377)             (10,736)
 Deferred loan origination costs               (17,547)             (12,303)
 Net unrealized gain on available-
  for-sale securities                          (43,262)            (153,064)
 Other liabilities                                  --               (2,740)
                                             ---------            ---------
                                              (892,073)            (969,887)
                                             ---------            ---------

Net deferred tax asset (liability)           $(536,978)           $(648,802)
                                             =========            =========


                                       28

<PAGE>



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


NOTE 11:          INCOME TAXES (Continued)

                  The Corporation  had available at March 31, 1999,  alternative
                  minimum  tax  credit   carryforwards   for  tax   purposes  of
                  approximately   $75,819   which   may   be   carried   forward
                  indefinitely and used to reduce federal income taxes.

                  In computing federal income taxes, savings institutions,  such
                  as Classic Bank, are allowed a statutory bad debt deduction of
                  otherwise  taxable income of 8%, subject to limitations  based
                  on aggregate loans and savings balances. Due to the limitation
                  based  on the  level  of  deposits  outstanding  and  retained
                  earnings,  the Bank's bad debt  deduction  for the years 1999,
                  1998  and  1997  was  limited  to net  charge-offs  under  the
                  experience  method.  As of March 31, 1999,  appropriations  of
                  retained  earnings   representing  bad  debt  deductions  were
                  approximately $1,867,800. If these tax bad debt deductions are
                  used for purposes other than loan losses, the amount used will
                  be subject to Federal income taxes at the prevailing corporate
                  rates.

                  The provisions of SFAS No. 109 require the Bank to establish a
                  deferred tax  liability for the tax effect of the tax bad debt
                  reserves over the base year amounts.  The Bank's base year tax
                  bad debt reserves are approximately $1,867,800.  The estimated
                  deferred  tax  liability  on  such  amount  is   approximately
                  $635,000  which  has not  been  recorded  in the  accompanying
                  consolidated financial statements.

NOTE 12:          FINANCIAL INSTRUMENTS

                  The  Banks  are   parties  to   financial   instruments   with
                  off-balance-sheet  risk in the normal  course of  business  to
                  meet the financing needs of their  customers.  These financial
                  instruments  include  commitments to extend credit and standby
                  letters  of  credit.  Those  instruments  involve,  to varying
                  degrees,  elements of credit and interest-rate  risk in excess
                  of the amount  recognized  in the  consolidated  statements of
                  financial condition. The contract or notional amounts of those
                  instruments  reflect the extent of the Banks'  involvement  in
                  particular classes of financial instruments.

                  The  Banks'   exposure   to  credit   loss  in  the  event  of
                  nonperformance by the other party to the financial  instrument
                  for  commitments to extend credit,  standby letters of credit,
                  and  financial   guarantees  written  is  represented  by  the
                  contractual  notional amount of those  instruments.  The Banks
                  use  the  same  credit  policies  in  making  commitments  and
                  conditional   obligations  as  they  do  for  on-balance-sheet
                  instruments.

                  Commitments   to  Extend  Credit  and  Financial   Guarantees.
                  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. Since many of the  commitments  are expected
                  to expire  without  being  drawn  upon,  the total  commitment
                  amounts do not necessarily represent future cash requirements.
                  The Banks'  experience has been that  approximately 80 percent
                  of loan  commitments  are drawn  upon by  customers. The Banks

                                       29

<PAGE>



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


NOTE 12:          FINANCIAL INSTRUMENTS (Continued)


                  evaluate each customer's  credit  worthiness on a case-by-case
                  basis.  The  amount of  collateral  obtained,  if it is deemed
                  necessary by the Banks upon  extension of credit,  is based on
                  management's   credit   evaluation   of   the   counter-party.
                  Collateral held varies but may include certificates of deposit
                  and  accounts  receivable;  inventory,  property,  plant,  and
                  equipment; and income-producing commercial properties.

                  Standby letters of credit and financial guarantees written are
                  conditional  commitments  issued by the Banks to guarantee the
                  performance of a customer to a third party.  Those  guarantees
                  are primarily  issued to support public and private  borrowing
                  arrangements,  including commercial paper, bond financing, and
                  similar transactions. Standby letters of credit extend for one
                  year and are  automatically  renewed  unless  notification  is
                  given to the third party of the Banks'  intent to cancel.  The
                  credit  risk   involved  in  issuing   letters  of  credit  is
                  essentially  the  same  as that  involved  in  extending  loan
                  facilities to customers.  The Banks hold pledged  certificates
                  of deposit and personal  guarantees as  collateral  supporting
                  those  letters  of  credit  for  which  collateral  is  deemed
                  necessary. The extent of collateral held for letters of credit
                  at March 31,  1999,  varies from zero  percent to 100.0%;  the
                  average amount collateralized is 80.0 percent.

                  The Banks have not been  required to perform on any  financial
                  guarantees  during  the past three  years.  The Banks have not
                  incurred any losses on their  commitments in either 1999, 1998
                  or 1997.



                                       30

<PAGE>



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


NOTE 12:          FINANCIAL INSTRUMENTS (Continued)

                  Based on the methods and  assumptions set forth in Note 1, the
                  estimated   fair   value   of  the   Corporation's   financial
                  instruments as of March 31, 1999 and 1998 are as follows:

<TABLE>
<CAPTION>
                                                        1999                                1998
                                            ---------------------------          -------------------------
                                            CARRYING             FAIR            CARRYING          FAIR
                                             VALUE               VALUE            VALUE            VALUE
                                            --------            -------          --------         -------
                                                                      (In thousands)
<S>                                         <C>                <C>               <C>              <C>

Financial Assets:
  Cash and due from banks                    $3,088             $3,088            $2,501           $2,501
  Federal funds sold and
    securities purchased under
    agreements to resell                       1,398             1,398             1,131            1,131
  Certificates of deposit with
    other financial institutions                  --                --               293              293
  Securities available-for-sale               25,141            25,141            18,177           18,177
  Mortgage-backed securities
    available-for-sale                         4,479             4,479             7,831            7,831
  Federal Home Loan Bank and
    Federal Reserve Bank stock                 1,384             1,384             1,297            1,297
  Loans receivable, net                       97,527            97,714            90,100           87,897
  Accrued interest receivable                    952               952               852              852
Financial Liabilities:
  Certificates of deposit                    $72,333           $72,723           $64,441          $64,618
  Other deposit accounts                      45,399            45,399            40,486           40,486
  Federal funds purchased and
    securities sold under
    agreements to repurchase                   2,817             2,817             3,522            3,522
  Advances from the Federal
    Home Loan Bank                               388               392                --               --
  Other short-term borrowings                     85                85               274              274
  Accrued interest payable                       419               419               390              390
  Long-term debt                                  --                --               550              550

</TABLE>

                  A summary of the  notional  amounts  of the  Banks'  financial
                  instruments  with  off-balance-sheet  risk  at March 31, 1999,
                  follows:
                                                              NOTIONAL
                                                               AMOUNT
                                                              --------
                                                           (In thousands)

                  Commitments to extend credit                $10,820
                  Credit card arrangements                          3
                  Standby letters of credit                       185
                                                              -------
                                                              $11,008

                  Commitments  to  extend  credit  at March  31,  1999  included
                  $8,471,000  of  adjustable  rate loan  commitments  and unused
                  credit lines.

NOTE 13:          COMMITMENTS AND CONTINGENCIES

                  In the  ordinary  course of  business,  the Banks have various
                  outstanding  commitments and contingent  liabilities  that are
                  not  reflected  in  the  accompanying  consolidated  financial
                  statements.

                                       31

<PAGE>



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

NOTE 13:          COMMITMENTS AND CONTINGENCIES (Continued)

                  The  Corporation is a defendant in legal action arising in the
                  ordinary  course of  business.  In the opinion of  management,
                  after   consultation   with  legal   counsel,   the   ultimate
                  disposition  of this matter is not expected to have a material
                  adverse effect on the consolidated  financial condition of the
                  Corporation.

NOTE 14:          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
                  5.

                  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.

                  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, 1999
                  by approximately  $1,396,000.  The Corporation does not have a
                  policy for requiring collateral on such deposits.

NOTE 15:          BENEFIT PLANS

                  Classic  Bank  participates  in  the  Pentegra  multi-employer
                  pension  plan.  This  non-contributory  defined  benefit  plan
                  covers all eligible  employees meeting certain service and age
                  requirements.  The plan  operates on a fiscal year ending June
                  30, and it is the  policy of the Bank to fund the normal  cost
                  of the plan.  Contributions  to the plan for the  years  ended
                  March 31, 1999,  1998 and 1997 were $0,  $6,185,  and $15,055,
                  respectively.  The data available from the plan administrators
                  is not sufficient to determine the Bank's share of the pension
                  plan's  accumulated  benefit  obligation  or  the  net  assets
                  attributable to the Bank.





                                       32

<PAGE>



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

NOTE 15:          BENEFIT PLANS (Continued)

                  For the year ended March 31, 1997,  First  National Bank had a
                  non-contributory  defined  benefit  pension plan  covering all
                  eligible First National employees.  The plan's benefit formula
                  was the  projected  unit credit cost method which  encompassed
                  future  salary  levels  and  participants  years  of  service.
                  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,
                  1999  and  1998.  First  National  was  not  required  to make
                  contribution  to the  multi-employer  plan for the years ended
                  March 31, 1999 and 1998.

                  Net pension costs for First  National  Bank's  single-employer
                  plan  include the  following  components  from the date of its
                  acquisition (September 30, 1996) through March 31, 1997.

                  Service cost                                 $       0
                  Interest cost                                   25,630
                  Actual return on assets                        (89,133)
                  Net amortization, deferral and other            48,554
                                                               ---------

                  Net pension cost (gain)                      $ (14,949)
                                                               =========

                  The following  table sets forth the First National Bank's plan
                  funded  status  and  amounts  recognized  in the  consolidated
                  statements of financial condition at March 31, 1997:

                          Actuarial present value of benefit
                           obligations:
                               Vested                          $  572,654
                               Non-vested                          10,421
                                                               ----------

                          Accumulated benefit obligation       $  583,075
                                                               =========

                          Projected benefit obligation         $  747,425
                          Plan assets at fair value             1,240,286

                          Projected benefit obligation less
                           than plan assets                       492,861

                          Unrecognized net gain                   (86,438)
                                                               ----------

                          Prepaid pension cost recognized
                           in the consolidated statement
                           of financial condition              $  406,423
                                                               ==========

                                       33

<PAGE>



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


NOTE 15:          BENEFIT PLANS (Continued)

                  The unrecognized gains were being amortized on a straight-line
                  basis over the career working lifetimes of all participants. A
                  discount  rate  of 7.0%  was  used to  compute  the  actuarial
                  present  value  of  the  accumulated  and  projected   benefit
                  obligations.  The  assumed  rate of return on plan  assets was
                  7.0%.  The assumed  rate of  increase  in future  compensation
                  levels was 4.0%.

                  For the  years  ended  March 31,  1998 and 1997,  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
                  $10,304 for the year ended March 31, 1999.

                  The  following  table  sets  forth the  directors'  retirement
                  plan's   funded   status  and   amounts   recognized   in  the
                  consolidated financial statements at March 31, 1998 and 1997:

<TABLE>
<CAPTION>
                                                            1998             1997
                                                         ----------       ----------
<S>                                                      <C>              <C>
Actuarial present value of benefit obligations:
  Vested accumulated benefits                             $(50,460)        $(62,684)
  Non-vested accumulated benefits                           57,356)         (40,204)
                                                          --------         --------
    Total accumulated benefits                            (107,816)        (102,888)
Unrecognized prior service cost
 being recognized over 10 years                             35,056           40,899
Unrecognized net obligation being
 recognized over 10 years                                    9,954           11,376
Unrecognized net loss being
 recognized over 10 years                                   36,393           40,437
Adjustment to recognize minimum
 liability                                                 (81,403)         (92,712)
                                                         ---------        ---------
    Accrued pension cost                                 $(107,816)       $(102,888)
                                                         =========        =========

Net pension cost includes the following components:
  Service costs - benefits earned
   during year                                           $   5,626        $   5,739
  Interest cost on benefit obligation                        7,202            6,071
  Amortization of prior service cost,
   net obligation and net loss                               5,843            5,843
  Other                                                     (2,248)            (179)
                                                         ---------        ---------
    Net pension cost                                     $  16,423        $  17,474
                                                         =========        =========

</TABLE>

                  A discount rate of 7% was used in determining net pension cost
                  for 1998 and 1997.

                                       34

<PAGE>



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


NOTE 15:          BENEFIT PLANS (Continued)

                  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.

                  The  following  table  sets forth the  supplemental  executive
                  retirement plan's funded status and amounts  recognized in the
                  consolidated  financial statements at March 31, 1999 and 1998,
                  and 1997:

<TABLE>
<CAPTION>

                                                           1999              1998             1997
                                                           ----              ----             ----

<S>                                                      <C>               <C>             <C>

Accumulated vested benefit obligation                     $(23,449)        $(14,758)        $ (8,405)
                                                          ========         ========         ========

Projected benefit obligation                              $(50,012)        $(36,007)        $(20,756)
Overaccrual                                                   (122)          (3,601)          (8,236)
                                                          --------         --------         --------

Accrued retirement cost                                   $(50,134)        $(39,608)        $(28,992)
                                                          ========         ========         ========

Net retirement cost includes the following components:

Service cost - benefits earned
 during the year                                          $ 11,685         $ 11,217         $  9,699
Interest cost                                                2,293            1,468              635
Other                                                       (3,452)          (2,069)             723
                                                          --------         --------         --------

Net retirement cost                                       $ 10,526         $ 10,616         $ 11,057
                                                          ========         ========         ========

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 26 years.  This change in the ESOP loan terms reduced
                  ESOP   expense  for  the  year   ended   March  31,  1999,  by
                  approximately $48,500.

                                       35

<PAGE>



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


NOTE 15:          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,  1999,  1998 and 1997 was
                  $78,018, $133,485, and $101,653, respectively.

                  The ESOP shares at March 31, 1999 and 1998 are as follows:

                                         1999                    1998
                                      ----------              ----------

 Allocated shares                         27,285                  22,303
 Unearned shares                          78,515                  83,497
                                      ----------               ---------
   Total ESOP shares                     105,800                 105,800
                                       =========               =========

 Fair value of unearned shares        $1,128,653              $1,669,940
                                       =========               =========


                  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.  An initial  award of 48,798  restricted
                  shares was granted on July 29,  1996,  of which  2,808  shares
                  were  subsequently  forfeited  under  terms of the plan due to
                  termination  of service.  On February 1, 1997,  an  additional
                  award of 4,000 restricted  shares was granted,  and on October
                  12, 1998, an award of 2,910 restricted shares was granted,  of
                  which 200 shares were  subsequently  forfeited.  Ungranted RRP
                  shares (200) are included in treasury stock at cost.

                  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  $114,133,
                  $110,284,  and $68,604 was  recorded for the years ended March
                  31, 1999, 1998, and 1997 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 Banks match
                  50.0%  of  the  employee's  contribution  up to  3.0%  of  the
                  employee's  salary.  Total expense under this plan was $37,555
                  and  $9,058  for the years  ended  March 31,  1999,  and 1998,
                  respectively.

                                       36

<PAGE>



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


NOTE 16:          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. During the year ended March 31, 1997, options to
                  purchase  112,447 and 19,750  shares were awarded to officers,
                  directors and key employees at $10.8125 and $13.375 per share,
                  respectively,  and  during  the year  ended  March  31,  1999,
                  options to purchase  4,500 and 1,226  shares  were  awarded to
                  officers  at $13.875  and  $13.750,  respectively.  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, 1999,  1998, and 1997, and changes during
                  the periods ending on those dates is presented below:

<TABLE>
<CAPTION>
                                         1999                       1998                       1997
                               -----------------------     ---------------------      ----------------------
                                              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             126,524        $11.21       126,524      $11.21              0           --
Granted                           5,726         13.85             0          --        132,197        11.20
Exercised                             0            --             0          --              0           --
Forfeited                          (200)        13.85             0          --         (5,673)       10.81
                                -------                     -------                   --------
Options outstanding at
  end of year                   132,050         11.32       126,524       11.21        126,524        11.21
                                =======                     =======                   ========

Eligible for exercise at
  year end                       50,610        $11.32        25,305      $11.21              0
                                =======                     =======                   =========

Weighted average fair value
  of options granted during
  the year                                     $ 3.06                       N/A                      $ 3.60


</TABLE>

                  The  following  information  applies to options outstanding at
                  March 31, 1999:

                                                 AVERAGE               AVERAGE
   RANGE OF                                     REMAINING             EXERCISE
 EXERCISE PRICE          OUTSTANDING           LIFE (YEARS)             PRICE
----------------         -----------           ------------           --------

$10.81 TO $13.88           132,050                 7.8                 $11.32

                  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 year  ended  March  31,  1999,
                  options to purchase  5,000  shares were awarded to officers at
                  $16.295 per share, which represents 110.0% of the stock's fair
                  market  value on the date of the grants.  The 1999 grants vest
                  immediately with the grantees and may be exercised at any time
                  up to ten (10) years from the grant dates.

                                       37

<PAGE>



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


NOTE 16:          STOCK OPTION PLAN (Continued)

                  A summary of the Corporation's 1998 Premium Price Stock Option
                  Growth  Plan as of March 31,  1999,  and  changes  during  the
                  period ending on that date is presented below:

                                                                  WEIGHTED
                                                                  AVERAGE
                                                                  EXERCISE
                                               SHARES              PRICE

Options outstanding at beginning of year           0                   --
Granted during the year                        5,000               $16.30
Exercised                                          0                   --
Forfeited                                          0                   --
                                               -----               ------
Options outstanding at end of year             5,000               $16.30
                                               =====

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

Weighted-average fair value of
  options granted during the year              $2.91


                  The following  information  applies to options  outstanding at
                  March 31, 1999:

                                            AVERAGE               AVERAGE
                                           REMAINING             EXERCISE
EXERCISE PRICE       OUTSTANDING         LIFE (YEARS)              PRICE
--------------      ------------         ------------              -----

    16.30               5,000                9.5                  $16.30

                  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:



                                       38

<PAGE>




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


NOTE 16:          STOCK OPTION PLAN (Continued)

                                               MARCH 31
                         ------------------------------------------------------
                            1999                  1998                 1997
                            ----                  ----                 ----
Net earnings
  As reported              $885,324              $1,020,486            $622,619
  Pro forma                $814,513              $  960,365            $587,783

Earnings per share
  Basic:
      As reported          $    .75              $      .87            $    .52
      Pro forma            $    .69              $      .82            $    .49
  Diluted:
      As reported          $    .72              $      .83            $    .51
      Pro forma            $    .66              $      .78            $    .49


                  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 29.1%;
                  risk free  interest  rate of 6.51%;  and  expected  lives of 7
                  years.

NOTE 17:          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  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).





                                       39

<PAGE>



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


NOTE 17:          REGULATORY CAPITAL REQUIREMENTS (Continued)

                  As of March 31, 1999 and 1998,  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, 1999 and 1998,  management believes that First
                  National met all capital  adequacy  requirements  to which the
                  Bank is subject.


<TABLE>
<CAPTION>
                                                                                                   TO BE WELL
                                                                                                CAPITALIZED UNDER
                                                                      FOR CAPITAL               PROMPT CORRECTIVE
                                             ACTUAL                ADEQUACY PURPOSES            ACTION PROVISIONS
                                       ------------------        --------------------         -------------------
                                       AMOUNT       RATIO         AMOUNT       RATIO           AMOUNT       RATIO
                                       ------       -----         ------       -----           ------       -----
                                                                 (Dollars in thousands)
<S>                                    <C>          <C>          <C>          <C>             <C>          <C>
FIRST NATIONAL BANK

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%
                                                                 =            =               =             =

As of March 31, 1998:

 Total Capital
 (to Risk Weighted Assets)             $8,925       23.2%        >$3,077      >8.0%           >$3,847       >10.0%
                                                                 =            =               =             =
 Tier I Capital
  (to Risk Weighted Assets)            $8,444       22.0%        >$1,539      >4.0%           >$2,308       >6.0%
                                                                 =            =               =             =
 Tier I Capital
  (to Adjusted Total Assets)           $8,444       12.4%        >$2,726      >4.0%           >$3,408       >5.0%
                                                                 =            =               =             =
</TABLE>

                  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 3.0%
                  of adjusted total assets,  for savings banks that meet certain
                  specified  criteria,  including  that  they  have the  highest
                  regulatory  rating.  All other  savings  banks are required to
                  maintain  a Tier 1  leverage  ratio  of 4.0%.  The  risk-based
                  capital requirement  currently provides for the maintenance of
                  core capital plus  general  loss  allowances  equal to 8.0% of




                                       40

<PAGE>



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


NOTE 17:          REGULATORY CAPITAL REQUIREMENTS (Continued)

                  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, 1999 and 1998,  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,  1999 and  1998,  management  believes  that
                  Classic Bank met all capital  adequacy  requirements  to which
                  the Bank is subject.

<TABLE>
<CAPTION>
                                                                                                   TO BE WELL
                                                                                                CAPITALIZED UNDER
                                                                      FOR CAPITAL               PROMPT CORRECTIVE
                                             ACTUAL                ADEQUACY PURPOSES            ACTION PROVISIONS
                                       ------------------        --------------------         ---------------------
                                       AMOUNT       RATIO         AMOUNT       RATIO           AMOUNT         RATIO
                                       ------       -----         ------       -----           ------         -----
                                                                 (Dollars in thousands)
<S>                                    <C>          <C>          <C>          <C>             <C>          <C>

 CLASSIC BANK

 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%
                                                                 =             =               =            =
 March 31, 1998

 Tangible capital                      $7,936         11.5%      >$1,034       >1.5%           >$3,447      >5.0%
                                                                 =             =               =            =
 Core capital                          $7,936         11.5%      >$2,757       >4.0%           >$4,136      >6.0%
                                                                 =             =               =            =
 Risk-based capital                    $8,255         22.4%      >$2,942       >8.0%           >$3,677      >10.0%
                                                                 =             =               =            =
</TABLE>

                  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,
                  1999,  approximately  $267,600  of First  National's  retained
                  earnings was  potentially  available for  distribution  to the
                  Corporation.


                                       41

<PAGE>




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


NOTE 18:          LEGISLATIVE DEVELOPMENTS

                  The deposit  accounts  for Classic  Bank and of other  savings
                  associations  are  insured  by the FDIC  through  the  Savings
                  Association Insurance Fund ("SAIF").  The reserves of the SAIF
                  were below the level  required by law,  because a  significant
                  portion of the assessments paid into the fund were used to pay
                  the cost of prior  thrift  failures.  The deposit  accounts of
                  commercial  banks such as First  National  are  insured by the
                  FDIC through the Bank  Insurance  Fund ("BIF"),  except to the
                  extent such banks have acquired SAIF deposits. The reserves of
                  the BIF met the level required by law in May 1995. As a result
                  of  the  respective   reserve  levels  of  the  fund,  deposit
                  insurance  assessments  paid by healthy  savings  associations
                  exceeded   those   paid  by   healthy   commercial   banks  by
                  approximately  $.19 per $100 in deposits in 1995.  In 1996, no
                  BIF  assessments  were required for healthy  commercial  banks
                  except for a $2,000 minimum fee.

                  Legislation was enacted to recapitalize the SAIF that provided
                  for a  special  assessment  totaling  $.657  per  $100 of SAIF
                  deposits  held at March 31,  1995,  in order to increase  SAIF
                  reserves to the level required by law. Classic Bank held $48.1
                  million  in  deposits  at  March  31,  1995,  resulting  in an
                  assessment of approximately  $316,258,  or $208,730 after tax,
                  which was  charged to  operations  in the year ended March 31,
                  1997.

                  A component  of the  recapitalization  plan  provides  for the
                  merger of the SAIF and BIF on January 1,  2000.  However,  the
                  SAIF  recapitalization  legislation  currently provides for an
                  elimination of the thrift  charter or of the separate  federal
                  regulations  of  thrifts  prior to the  merger of the  deposit
                  insurance funds. As a result,  Classic Bank would be regulated
                  as a bank under  federal  laws which  would  subject it to the
                  more restrictive activity limits imposed on national banks.

NOTE 19:          CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY
-------           -----------------------------------------------------

                  The following  condensed  financial  statements  summarize the
                  financial  position of the  Corporation  as of March 31, 1999,
                  1998,  and 1997 and the results of its operations and its cash
                  flows for each of the years ended March 31,  1999,  1998,  and
                  1997:




                                       42

<PAGE>



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


NOTE 19:      CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY (Continued)
-------       -----------------------------------------------------


Statements of Financial Condition      March 31, 1999            March 31, 1998
---------------------------------      --------------            --------------

Assets
  Cash and temporary investments       $    123,340                $   139,250
  Securities available for sale             262,500                    272,500
  Accrued interest receivable                 5,625                      5,625
  Note receivable - ESOP                    823,045                    859,625
  Equity in net assets of Bank
   Subsidiaries                          11,195,645                 11,720,771
  Other assets                              286,412                    157,058
                                        -----------                -----------
Total Assets                            $12,696,567                $13,154,829
                                        ===========                ===========

Liabilities
  Notes payable                                 --                 $   550,000
  Accounts payable and accrued
   expenses                                  96,966                     35,436
  Deferred income taxes                       4,784                      7,913
                                        -----------                -----------
Total Liabilities                           101,750                    593,349
                                        -----------                -----------


Stockholders' Equity
  Common stock                               13,225                     13,225
  Additional paid-in capital             12,675,092                 12,667,512
  Retained earnings                       1,875,684                  1,366,622
  Net unrealized gain on
   available for sale securities              8,250                     14,850
  Treasury stock                           (897,952)                  (293,880)
  Unearned ESOP shares                     (785,150)                  (834,970)
  Unearned RRP shares                      (294,332)                  (371,879)
                                        -----------                 ----------

Total Stockholders' Equity              $12,594,817                $12,561,480
                                        -----------                -----------

Total Liabilities and Stock-
  holders' Equity                       $12,696,567                $13,154,829
                                        ===========                ===========



                                       43

<PAGE>



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


NOTE 19:  CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY (Continued)

<TABLE>
<CAPTION>

                                                              YEARS ENDED MARCH 31,
                                             -----------------------------------------------------
    Statements of Income                        1999                 1998                   1997
    --------------------                     ----------           ----------             ---------
    <S>                                      <C>                  <C>                   <C>
    Income
      Equity in undistributed earnings
        of bank subsidiaries                 $  296,143            $1,101,757            $  222,881
      Dividends from bank subsidiaries          803,910                45,000               387,018
      Interest and dividend income               80,198                89,902               204,633
                                             ----------            ----------            ----------

    Total Income                              1,180,251             1,236,659               814,532
                                             ----------            ----------            ----------

    Expenses
      Salaries and benefits                      44,184                16,189                    --
      Interest expense                           33,829                53,012                28,520
      Legal and accounting fees                  61,210                49,525                47,315
      Corporate management fees                 104,674                57,360                30,420
      Printing and supplies                      29,498                24,633                29,462
      Other professional services                28,853                35,363                22,088
       Directors fees                            64,800                19,200                    --
      Other expenses                             37,619                25,137                26,206
                                             ----------            ----------            ----------

    Total Expenses                              404,667               280,419               184,011
                                             ----------            ----------            ----------

    Income Before Income Taxes                  775,584               956,240               630,521
      Federal and state income
        tax benefit (expense)                   109,740                64,246                (7,902)
                                             ----------            ----------            ----------

    Net Income                               $  885,324            $1,020,486            $  622,619
                                             ==========            ==========            ==========
</TABLE>

                                       44

<PAGE>



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

NOTE 19:  CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY (Continued)

<TABLE>
<CAPTION>

                                                                           YEARS ENDED MARCH 31,
                                                         -------------------------------------------------------
Statements of Cash Flows                                    1999                   1998                 1997
------------------------                                 ----------             ----------           -----------
<S>                                                      <C>                    <C>                  <C>
Operating Activities
  Net income                                              $ 885,324             $1,020,486           $   622,619
    Adjustments to reconcile net income
      to net cash provided by operating activities:
       Depreciation                                           1,326                    553                    --
       Equity in undistributed net income
        of subsidiary                                      (296,143)            (1,101,757)             (222,882)
       Earned RRP shares                                    114,133                110,283                68,604
       Deferred income taxes                                    271                    263                 9,494
  Decrease (increase) in:
    Accrued interest receivable                                  --                  7,070                 6,821
    Other assets                                           (127,844)                82,835              (134,048)
  Increase (decrease) in:
    Accounts payable and accrued expenses                    61,530                (86,610)               51,944
    Accrued income taxes                                         --                (90,588)               65,628
                                                          ---------              ---------           -----------

Net Cash Provided (Used) by Operating Activities            638,597                (57,465)              468,180
                                                          ---------              ---------           -----------

Investing Activities:
  Repayment on loan receivable from ESOP                     36,580                 66,125                66,125
  Purchased equipment                                            --                 (6,632)                  --
  Purchased First National Bank                                  --                     --           (10,208,010)
  Dividend distribution from subsidiary in
    excess of current year's earnings                       871,090                     --             5,523,982
  Purchased securities available for sale                        --               (250,000)                   --
                                                          ---------              ---------           -----------

Net Cash Provided (Used) by Investing Activities            907,670               (190,507)           (4,617,903)
                                                          ---------              ---------           -----------

Financing Activities
  Proceeds from borrowings                                       --                     --               700,000
  Repayment of borrowings                                  (550,000)              (100,000)              (50,000)
  RRP shares purchased                                           --                     --              (621,575)
  Dividends paid                                           (376,262)              (338,965)             (158,287)
  Treasury shares purchased                                (635,915)              (259,687)                   --
                                                          ---------              ---------           -----------

Net Cash Used by Financing Activities                    (1,562,177)              (698,652)             (129,862)
                                                          ---------              ---------           -----------

Net Increase (Decrease) in Cash
  and Cash Equivalents                                      (15,910)              (946,624)           (4,279,585)

Cash and Cash Equivalents at
  Beginning of Year                                         139,250              1,085,874             5,365,459
                                                         ----------              ---------           -----------

Cash and Cash Equivalents at
  End of Year                                            $  123,340              $ 139,250           $ 1,085,874
                                                         ==========              =========           ===========

</TABLE>



                                       45

<PAGE>


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


NOTE 20:          SUBSEQUENT EVENTS

                  Effective with the close of business on May 14, 1999,  Classic
                  Bank acquired 100% of the outstanding  stock of Citizens Bank,
                  Grayson, Grayson, Kentucky in a cash transaction accounted for
                  as a purchase. Citizens Bank was simultaneously liquidated and
                  its assets, deposits and other liabilities merged into Classic
                  Bank.

                  The total  purchase  price of Citizens  Bank was $4.5 million.
                  The estimated fair value of total assets and deposits acquired
                  was   approximately   $13.4   million,   and  $12.0   million,
                  respectively.  Goodwill is  estimated to be approximately $3.1
                  million.




                                       46


<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 14, 1999,  there
were 1,227,500  shares of the Company's  common stock issued and outstanding and
there were 233 holders of record and approximately 795 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 1998 and fiscal 1999:


     FISCAL 1998

                          HIGH              LOW         DIVIDENDS

     First Quarter       $15.000         $12.250           $.07
     Second Quarter      $16.250         $13.750           $.07
     Third Quarter       $17.250         $15.000           $.07
     Fourth Quarter      $21.500         $16.063           $.07


     FISCAL 1999
                          HIGH              LOW         DIVIDENDS

     First Quarter       $21.000         $14.875           $.07
     Second Quarter      $17.375         $12.000           $.08
     Third Quarter       $15.875         $13.125           $.08
     Fourth Quarter      $15.500         $13.875           $.08




         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, 1999 was $14.375.

         The Company  declared and paid cash  dividends  totaling $.31 per share
during  fiscal 1999.  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 17 of the Notes to the  Consolidated  Financial
Statements for information  regarding limitations of the subsidiaries ability to
pay dividends to the Company.


                                       47