**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, DC 20549**

 

**FORM 10-QSB**

 

**(Mark One)**

 
|       |   |                                                                                                  |
|------------|--------|-------------------------------------------------------------------------------------------------------|
| **ý** |   | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**          |
|       |   |                                                                                                  |
|       |   | **For the  quarterly period ended September 30, 2001**

                                         |
|       |   | **OR**                                                                                                |
|       |   |                                                                                                  |
| **o**      |   | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

  |
|       |   | **For the  transition period from ____________   to ___________**

                         |
|       |   | **Commission  File Number 0-27170**

                                                            |

 

**CLASSIC BANCSHARES, INC.**

(Exactname of registrant as specified in its charter)

** **

| **Delaware**                                                    |   | **61-1289391**                           |
|-----------------------------------------------------------------|--------|------------------------------------------|
| (State  or other jurisdiction of incorporation or organization) |   | (I.R.S.  Employer Identification Number) |
|                                                            |   |                                     |
| **344 Seventeenth Street, Ashland, Kentucky**                   |   | **41101**                                |
| (Address  of principal executive offices)                       |   | (ZIP  Code)                              |

 

Registrant's telephone number, including areacode:                    **(606) 325-4789**

 

                Checkhere whether the issuer (1) has filed all reports required to be filed bySection 13

or 15 (d) of the Securities Exchange Act of1934 during the preceding 12 months (or for suchshorter period that the registrant wasrequired to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.            Yes ý   No o

 

                Asof November 8, 2001, there were 1,322,500 shares of the Registrant's commonstock

issued and 1,120,336 outstanding.

 

                Transitional Small Disclosure (check one):      Yes o    Noý

 

 

 

**CLASSIC BANCSHARES, INC.**

** **

**INDEX**

 
| PART I.  | FINANCIAL INFORMATION                                                                                                                   |   |
|----------|-----------------------------------------------------------------------------------------------------------------------------------------|--------|
|     |                                                                                                                                    |   |
| Item 1.  | Financial Statements                                                                                                                    |   |
|     |                                                                                                                                    |   |
|     | Consolidated Balance Sheets  as of September 30, 2001 (Unaudited)and March 31, 2001                                                     |   |
|     |                                                                                                                                    |   |
|     | Consolidated  Statements of Income for the three and six months ended September 30, 2001  and 2000                                      |   |
|     |                                                                                                                                    |   |
|     | Consolidated  Statements of Comprehensive Income for the three and six months ended  September 30, 2001 and 2000                        |   |
|     |                                                                                                                                    |   |
|     | Consolidated  Statements of Stockholders' Equity for the six months ended September 30,  2001 (Unaudited) and Year Ended March 31, 2001 |   |
|     |                                                                                                                                    |   |
|     | Consolidated  Statements of Cash Flows for the six months ended September 30, 2001 and 2000                                             |   |
|     |                                                                                                                                    |   |
|     | Notes to  Consolidated Financial Statements                                                                                             |   |
|     |                                                                                                                                    |   |
| Item 2.  | Management's  Discussion and Analysis of Financial Condition and Results of Operations                                                  |   |
|     |                                                                                                                                    |   |
| PART II. | OTHER INFORMATION                                                                                                                       |   |
|     |                                                                                                                                    |   |
|     | Signatures                                                                                                                              |   |
|     |                                                                                                                                    |   |
|     | Index to Exhibits                                                                                                                       |   |

 

 

** **

**CLASSIC BANCSHARES, INC.**

**CONSOLIDATEDBALANCE SHEETS**

 
|                                                                                            |   | **September 30,** |          | **March 31,** |          |
|-------------------------------------------------------------------------------------------------|--------|-------------------|---------------|---------------|---------------|
|                                                                                            |   | **2001**          |          | **2001**      |          |
|                                                                                            |   | **(Unaudited)**   |          |          |          |
| **ASSETS**                                                                                      |   |              |          |          |          |
| Cash and due from bank                                                                          |   | $                 | 6,117,759     |          | $             | 5,555,900 |   |
| Federal funds sold                                                                              |   | -                 |          | 50,491        |          |
| Securities available for sale                                                                   |   | 25,718,204        |          | 24,794,369    |          |
| Mortgage-backed and related securities available for sale                                       |   | 2,861,452         |          | 3,444,603     |          |
| Loans receivable, net                                                                           |   | 147,075,317       |          | 138,861,807   |          |
| Real estate acquired in the settlement of loans                                                 |   | 240,691           |          | 210,745       |          |
| Accrued interest receivable                                                                     |   | 1,210,915         |          | 1,187,242     |          |
| Federal Home Loan Bank and Federal Reserve Bank stock                                           |   | 1,444,100         |          | 1,394,000     |          |
| Premises and equipment, net                                                                     |   | 5,499,108         |          | 5,620,934     |          |
| Cost in excess of fair value of net assets acquired (goodwill),net of accumulated  amortization |   | 5,554,549         |     | 5,554,549     |     |
| Other assets                                                                                    |   | 1,058,480         |          | 1,185,734     |          |
|                                                                                            |   |              |          |          |          |
| **TOTAL ASSETS**                                                                                |   | $                 | 196,780,575   |          | $             | 187,860,374 |   |
|                                                                                            |   |              |          |          |          |
| **LIABILITIES AND STOCKHOLDERS' EQUITY**                                                        |   |              |          |          |          |
| Liabilities                                                                                     |   |              |          |          |          |
| Non-interest bearing demand deposits                                                            |   | $                 | 17,840,700    |          | $             | 17,186,398 |   |
| Savings, NOW, and money market demand deposits                                                  |   | 49,706,637        |          | 48,805,047    |          |
| Other time deposits                                                                             |   | 80,625,605        |          | 79,438,470    |          |
| Total deposits                                                                                  |   | 148,172,942       |          | 145,429,915   |          |
| Federal funds purchased and securities sold underagreements to repurchase                       |   | 4,497,076         |          | 3,179,589     |          |
| Advances from Federal Home Loan Bank                                                            |   | 20,714,673        |          | 16,635,590    |          |
| Other short-term borrowings                                                                     |   | 455,707           |          | 234,319       |          |
| Accrued expenses and other liabilities                                                          |   | 499,738           |          | 736,676       |          |
| Accrued interest payable                                                                        |   | 503,141           |          | 593,353       |          |
| Accrued income taxes                                                                            |   | 49,801            |          | 57,919        |          |
| Deferred income taxes                                                                           |   | 651,880           |          | 532,706       |          |
|                                                                                            |   |              |          |          |          |
| Total Liabilities                                                                               |   | $                 | 175,544,958   |          | $             | 167,400,067 |   |
|                                                                                            |   |              |          |          |          |
| Commitments and contingencies                                                                   |   |              |          |          |          |
|                                                                                            |   |              |          |          |          |
| Stockholders' Equity                                                                            |   |              |          |          |          |
| Common stock, $.01 par value, 1,322,500 sharesissued and 1,120,336 shares  outstanding          |   | $                 | 13,225        |          | $             | 13,225 |   |
| Additional paid-in capital                                                                      |   | 12,830,398        |          | 12,830,398    |          |
| Retained earnings - substantially restricted                                                    |   | 11,548,394        |          | 10,762,703    |          |
| Accumulated other comprehensive income (loss)                                                   |   | 54,479            |          | (171,073      | )             |
| Unearned ESOP shares                                                                            |   | (689,320          | )             | (689,320      | )             |
| Unearned RRP shares                                                                             |   | (17,708           | )             | (58,434       | )             |
| Treasury stock, at cost                                                                         |   | (2,503,851        | )             | (2,227,192    | )             |
|                                                                                            |   |              |          |          |          |
| Total Stockholders' Equity                                                                      |   | $                 | 21,235,617    |          | $             | 20,460,307 |   |
|                                                                                            |   |              |          |          |          |
| **TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY**                                                  |   | $                 | 196,780,575   |          | $             | 187,860,374 |   |

 

See accompanying Accountant's Review Report and notes to consolidatedfinancial statements.

 

**CLASSIC BANCSHARES, INC.**

**CONSOLIDATEDSTATEMENTS OF INCOME**

**(UNAUDITED)**

 
|                                                       |   | **THREE MONTHS ENDED** |          | **SIX MONTHS ENDED** |          |
|------------------------------------------------------------|--------|------------------------|---------------|----------------------|---------------|
|                                                       |   | **SEPTEMBER 30,**      |          | **SEPTEMBER 30,**    |          |
|                                                       |   | **2001**               |          | **2000**             |          | **2001** |   | **2000** |   |
| **INTEREST INCOME**                                        |   |                   |          |                 |          |   |   |   |   |
| Loans                                                      |   | $                      | 3,083,549     |                 | $             | 2,971,105 |   | $ | 6,097,653 |   | $ | 5,822,318 |   |
| Investment securities                                      |   | 344,400                |          | 397,298              |          | 692,633 |   | 794,965 |   |
| Mortgage-backed securities                                 |   | 45,756                 |          | 58,859               |          | 90,127 |   | 116,774 |   |
| Other interest earning assets                              |   | 3,479                  |          | 4,972                |          | 6,404 |   | 8,437 |   |
| **Total Interest Income**                                  |   | 3,477,184              |          | 3,432,234            |          | 6,886,817 |   | 6,742,494 |   |
|                                                       |   |                   |          |                 |          |   |   |   |   |
| **INTEREST EXPENSE**                                       |   |                   |          |                 |          |   |   |   |   |
| Interest on deposits                                       |   | 1,419,955              |          | 1,477,289            |          | 2,957,229 |   | 2,814,383 |   |
| Interest on FHLB Advances                                  |   | 184,595                |          | 313,366              |          | 382,735 |   | 620,810 |   |
| Interest on other borrowed funds                           |   | 37,454                 |          | 61,265               |          | 76,095 |   | 116,324 |   |
| **Total Interest Expense**                                 |   | 1,642,004              |          | 1,851,920            |          | 3,416,059 |   | 3,551,517 |   |
|                                                       |   |                   |          |                 |          |   |   |   |   |
| **Net Interest Income**                                    |   | 1,835,180              |          | 1,580,314            |          | 3,470,758 |   | 3,190,977 |   |
|                                                       |   |                   |          |                 |          |   |   |   |   |
| Provision for loss on loans                                |   | 70,500                 |          | 55,000               |          | 140,500 |   | 123,500 |   |
|                                                       |   |                   |          |                 |          |   |   |   |   |
| **Net interest income after provision for loss on  loans** |   | 1,764,680              |          | 1,525,314            |          | 3,330,258 |   | 3,067,477 |   |
|                                                       |   |                   |          |                 |          |   |   |   |   |
| **NON-INTEREST INCOME**                                    |   |                   |          |                 |          |   |   |   |   |
| Service charges and other fees                             |   | 292,984                |          | 220,166              |          | 588,666 |   | 437,254 |   |
| Gain on sale of securities available for sale              |   | 775                    |     | -                    |     | 775 |     | - |     |
| Other income                                               |   | 51,215                 |          | 35,504               |          | 88,847 |   | 73,598 |   |
| **Total Non-Interest Income**                              |   | 344,974                |          | 255,670              |          | 678,288 |   | 510,852 |   |
|                                                       |   |                   |          |                 |          |   |   |   |   |
| **NON-INTEREST EXPENSES**                                  |   |                   |          |                 |          |   |   |   |   |
| Employee compensation and benefits                         |   | 673,870                |          | 646,464              |          | 1,332,353 |   | 1,307,350 |   |
| Occupancy and equipment expense                            |   | 238,913                |          | 218,449              |          | 475,415 |   | 411,033 |   |
| Federal deposit insurance premiums                         |   | 3,170                  |          | 6,924                |          | 6,785 |   | 14,006 |   |
| Loss (gain) on foreclosed real estate                      |   | 6,185                  |          | 2,457                |          | (9,266 | ) | 5,588 |   |
| Amortization of goodwill                                   |   | -                      |          | 63,810               |          | - |   | 127,282 |   |
| Other general and administrative expenses                  |   | 451,684                |          | 463,060              |          | 926,161 |   | 961,111 |   |
| **Total Non-Interest Expense**                             |   | 1,373,822              |          | 1,401,164            |          | 2,731,448 |   | 2,826,370 |   |
|                                                       |   |                   |          |                 |          |   |   |   |   |
| **INCOME BEFORE INCOME TAXES**                             |   | 735,832                |          | 379,820              |          | 1,277,098 |   | 751,959 |   |
|                                                       |   |                   |          |                 |          |   |   |   |   |
| Income tax expense                                         |   | 191,937                |          | 84,919               |          | 319,765 |   | 174,436 |   |
|                                                       |   |                   |          |                 |          |   |   |   |   |
| **NET INCOME**                                             |   | 543,895                |          | 294,901              |          | 957,333 |   | 577,523 |   |
|                                                       |   |                   |          |                 |          |   |   |   |   |
| Basic earnings per share                                   |   | $                      | 0.51          |                 | $             | 0.27 |   | $ | 0.90 |   | $ | 0.53 |   |
| Diluted earnings per share                                 |   | $                      | 0.50          |                 | $             | 0.27 |   | $ | 0.88 |   | $ | 0.53 |   |

 

See accompanying Accountant's Review Report and notes to consolidatedfinancial statements.

 

**CLASSIC BANCSHARES, INC.**

**CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME**

**(UNAUDITED)**

 
|                                                                                       |   | **THREE MONTHS ENDED** |          | **SIX MONTHS ENDED** |          |
|--------------------------------------------------------------------------------------------|--------|------------------------|---------------|----------------------|---------------|
|                                                                                       |   | **SEPTEMBER 30,**      |          | **SEPTEMBER 30,**    |          |
|                                                                                       |   | **2001**               |          | **2000**             |          | **2001** |   | **2000** |   |
|                                                                                       |   |                   | ** **    |                 | ** **    |   | ** ** |   | ** ** |
| **Net Income**                                                                             |   | $                      | 543,895       |                 | $             | 294,901 |   | $ | 957,333 |   | $ | 577,523 |   |
| Other comprehensive income, net of tax:                                                    |   |                   |          |                 |          |   |   |   |   |
| Unrealized holding gains (losses) on securities during the period,  net of tax             |   | 259,848                |     | 473,783              |     | 226,063 |     | 375,526 |     |
|                                                                                       |   |                   |          |                 |          |   |   |   |   |
| Reclassification adjustments for realized  gains (losses) included in earnings, net of tax |   | (511                   | )             | -                    |          | (511 | ) | - |   |
|                                                                                       |   |                   |          |                 |          |   |   |   |   |
| Other comprehensive income                                                                 |   | 259,337                |          | 473,783              |          | 225,552 |   | 375,526 |   |
|                                                                                       |   |                   |          |                 |          |   |   |   |   |
| **Comprehensive Income (Loss)**                                                            |   | $                      | 803,232       |                 | $             | 768,684 |   | $ | 1,182,885 |   | $ | 953,049 |   |
|                                                                                       |   |                   |          |                 |          |   |   |   |   |
| **Accumulated Other Comprehensive Income**                                                 |   | $                      | 54,479        |                 | $             | (903,998 | ) | $ | 54,479 |   | $ | (903,998 | ) |

 

See accompanying Accountant's Review Report and notes to consolidatedfinancial statements.

**CLASSIC BANCSHARES, INC.**

**CONSOLIDATED STATEMENTS OF STOCKHOLDERS'EQUITY**

** **
|                                                                                                                    |   | **COMMON STOCK** |   | **ADDITIONAL PAID-IN CAPITAL** |   | **RETAINED EARNINGS** |   | **NET UNREALIZED GAIN (LOSS) ON AVAILABLE FOR SALE SECURITIES** |       | **UNEARNED ESOP SHARES** |   | **UNEARNED RRP SHARES** |   | **TREASURY STOCK** |     | **TOTAL**  |   |
|-------------------------------------------------------------------------------------------------------------------------|--------|------------------|--------|--------------------------------|--------|-----------------------|--------|-----------------------------------------------------------------|------------|--------------------------|--------|-------------------------|--------|--------------------|----------|------------|--------|
|                                                                                                                    |   |             |   |                           |   |                  |   |                                                            |       |
|                                                                                                                    |   |             |   |                           |   |                  |   |                                                            |       |
|                                                                                                                    |   |             |   |                           |   |                  |   |                                                            |       |
| **Balances at April 1, 2000**                                                                                           |   | $                | 13,225 |                           | $      | 12,829,744            |   | $                                                               | 10,062,718 |                     | $      | (1,279,524              | )      | $                  | (736,600 | )          | $      | (174,146 | ) | $ | (1,716,771 | ) | $ | 18,998,646 |   |
| Net income for the year ended March 31, 2001                                                                            |   | -                |   | -                              |   | 1,048,245             |   | -                                                               |       | -                        |   | -                       |   | -                  |     | 1,048,245  |   |
| Dividend paid ($.32 per share)                                                                                          |   | -                |   | -                              |   | (348,260              | )      | -                                                               |       | -                        |   | -                       |   | -                  |     | (348,260   | )      |
| ESOP shares earned                                                                                                      |   | -                |   | 4,797                          |   | -                     |   | -                                                               |       | 47,280                   |   | -                       |   | -                  |     | 52,077     |   |
| RRP shares earned                                                                                                       |   | -                |   | -                              |   | -                     |   | -                                                               |       | -                        |   | 117,167                 |   | -                  |     | 117,167    |   |
| RRPshares granted                                                                                                       |   | -                |   | (450                           | )      | -                     |   | -                                                               |       | -                        |   | (3,075                  | )      | 3,525              |     | -          |   |
| RRPshares forfeited                                                                                                     |   | -                |   | (210                           | )      | -                     |   | -                                                               |       | -                        |   | 1,620                   |   | (1,410             | )        | -          |   |
| Tax expense from RRP                                                                                                    |   | -                |   | (3,483                         | )      | -                     |   | -                                                               |       | -                        |   | -                       |   | -                  |     | (3,483     | )      |
| Purchased 47,800 treasury shares                                                                                        |   | -                |   | -                              |   | -                     |   | -                                                               |       | -                        |   | -                       |   | (512,536           | )        | (512,536   | )      |
| Change in unrealized gain (loss) on available for sale securities,  net of applicable deferred income taxes of $571,019 |   | --               |   | --                             |   | --                    |   |  1,108,451                                                 |       | --                       |   | --                      |   | --                 |     | -1,108,451 |   |
|                                                                                                                    |   |             |   |                           |   |                  |   |                                                            |       |                     |   |                    |   |               |     |       |   |
| **Balances at March 31, 2001**                                                                                          |   | 13,225           |   | 12,830,398                     |   | 10,762,703            |   | (171,073                                                        | )          | (689,320                 | )      | (58,434                 | )      | (2,227,192         | )        | 20,460,307 |   |
|                                                                                                                    |   |             |   |                           |   |                  |   |                                                            |       |                     |   |                    |   |               |     |       |   |
| Net income for the six months ended September 30, 2001                                                                  |   | -                |   | -                              |   | 957,333               |   | -                                                               |       | -                        |   | -                       |   | -                  |     | 957,333    |   |
| Dividend paid ($.08 per share)                                                                                          |   | -                |   | -                              |   | (171,642              | )      | -                                                               |       | -                        |   | -                       |   | -                  |     | (171,642   | )      |
| RRP shares earned                                                                                                       |   | -                |   | -                              |   | -                     |   | -                                                               |       | -                        |   | 40,726                  |   | -                  |     | 40,726     |   |
| Purchased 19,800 treasury shares                                                                                        |   | -                |   | -                              |   | -                     |   | -                                                               |       | -                        |   | -                       |   | (276,659           | )        | (276,659   | )      |
| Change in unrealized gain (loss) on available for sale securities,  net of applicable deferred income taxes of $116,193 |   | --               |   | -                              |   | -                     |   | 225,552                                                         |       | -                        |   | -                       |   | -                  |     | 225,552    |   |
|                                                                                                                    |   |             |   |                           |   |                  |   |                                                            |       |                     |   |                    |   |               |     |       |   |
| **Balances at September 30, 2001**                                                                                      |   | $                | 13,225 |                           | $      | 12,830,398            |   | $                                                               | 11,548,394 |                     | $      | 54,479                  |   | $                  | (689,320 | )          | $      | (17,708 | ) | $ | (2,503,851 | ) | $ | 21,235,617 |   |

 

See accompanying Accountant's Review Report and notes to consolidatedfinancial statements.

 

**CLASSIC BANCSHARES, INC.**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(UNAUDITED)**

 
|                                                                                    |   | **SIX MONTHS ENDED** |          |
|-----------------------------------------------------------------------------------------|--------|----------------------|---------------|
|                                                                                    |   | **SEPTEMBER 30,**    |          |
|                                                                                    |   | **2001**             |          | **2000** |   |
| **OPERATING ACTIVITIES**                                                                |   |                 |          |   |   |
| Net Income                                                                              |   | $                    | 957,333       |   | $ | 577,523 |   |
| Adjustments to reconcile net income to net cashprovided by operating  activities:       |   |                 |          |   |   |
| Depreciation and amortization                                                           |   | 250,971              |          | 253,355 |   |
| Provision for loss on loans                                                             |   | 140,500              |          | 123,500 |   |
| Gain on sale of securities available for sale                                           |   | (775                 | )             | - |   |
| Gain on sale of foreclosed real estate                                                  |   | (11,527              | )             | 273 |   |
| Federal Home Loan Bank stock dividends                                                  |   | (50,100              | )             | (46,000 | ) |
| Deferred income tax (benefit) expense                                                   |   | 2,981                |          | (7,332 | ) |
| Amortization and accretion of invesment securities premiums and  discounts, net         |   | 77,557               |          | 11,592 |   |
| RRP shares earned                                                                       |   | 41,213               |          | 57,999 |   |
| Amortization of goodwill                                                                |   | -                    |          | 127,282 |   |
| Decrease (increase) in:                                                                 |   |                 |          |   |   |
| Accrued interest receivable                                                             |   | (23,673              | )             | (149,518 | ) |
| Other assets                                                                            |   | 112,846              |          | 458,055 |   |
| Increase (decrease) in:                                                                 |   |                 |          |   |   |
| Accrued interest payable                                                                |   | (90,212              | )             | (4,453 | ) |
| Accrued income taxes                                                                    |   | (8,118               | )             | 58,677 |   |
| Accounts payable and accrued expenses                                                   |   | (236,938             | )             | 56,898 |   |
| **Net cash provided by operating activities**                                           |   | 1,162,058            |          | 1,517,851 |   |
|                                                                                    |   |                 |          |   |   |
| **INVESTING ACTIVITIES**                                                                |   |                 |          |   |   |
| Securities:                                                                             |   |                 |          |   |   |
| Proceeds from sale, maturities or calls                                                 |   | 617,300              |          | 45,000 |   |
| Purchased                                                                               |   | (1,348,223           | )             | - |   |
| Mortgage-backed securities:                                                             |   |                 |          |   |   |
| Principal payments                                                                      |   | 642,708              |          | 168,414 |   |
| Redemption of Federal Reserve Bank Stock                                                |   | -                    |          | 86,200 |   |
| Purchase of Federal Home Loan Bank Stock                                                |   | -                    |          | (92,600 | ) |
| Loan originations and principal payments, net                                           |   | (8,580,271           | )             | (6,878,562 | ) |
| Proceeds from sale of foreclosed real estate                                            |   | 224,284              |          | 34,547 |   |
| Purchases of software                                                                   |   | (1,747               | )             | (3,498 | ) |
| Purchases of premises and equipment                                                     |   | (117,425             | )             | (173,345 | ) |
| **Net cash used by investing activities**                                               |   | (8,563,374           | )             | (6,813,844 | ) |
|                                                                                    |   |                 |          |   |   |
| **FINANCING ACTIVITIES**                                                                |   |                 |          |   |   |
| Net increase in deposits                                                                |   | $                    | 2,743,027     |   | $ | 5,084,988 |   |
| Net proceeds (repayments) from FHLB borrowings                                          |   | 4,079,083            |          | (19,562 | ) |
| Increase in federal funds purchased and securities sold under  agreements to repurchase |   | 1,317,487            |     | 525,437 |     |
| Net increase in short-term borrowings                                                   |   | 221,388              |          | 82,620 |   |
| Purchase of treasury stock                                                              |   | (276,659             | )             | (278,245 | ) |
| Dividends paid                                                                          |   | (171,642             | )             | (179,685 | ) |
| **Net cash (used) provided by financing activities**                                    |   | 7,912,684            |          | 5,215,553 |   |
|                                                                                    |   |                 |          |   |   |
| Increase (decrease) in cash and cash equivalents                                        |   | 511,368              |          | (80,440 | ) |
| Cash and cash equivalent at beginning of period                                         |   | 5,606,391            |          | 5,253,521 |   |
|                                                                                    |   |                 |          |   |   |
| **Cash and cash equivalents at end of period**                                          |   | $                    | 6,117,759     |   | $ | 5,173,081 |   |
|                                                                                    |   |                 |          |   |   |
| **Additional cash flows and supplementary information**                                 |   |                 |          |   |   |
| *Cash paid during the period for:*                                                      |   |                 |          |   |   |
| Interest on deposits and borrowings                                                     |   | $                    | 983,257       |   | $ | 1,161,998 |   |
| Taxes                                                                                   |   | $                    | 324,902       |   | $ | 123,091 |   |
| Assets acquired in settlement of loans                                                  |   | $                    | 242,472       |   | $ | - |   |
| Net unrealized loss on securities available for sale                                    |   | $                    | 225,552       |   | $ | 375,526 |   |

 

See accompanying Accountant's Review Report and notes to consolidatedfinancial statements.

 

**CLASSIC BANCSHARES,INC.**

**NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS**

 

**(1)           Principlesof Consolidation**

The financialstatements for 2001 are presented for Classic Bancshares, Inc. (the “Company”)and its wholly owned subsidiary, Classic Bank. The consolidated balance sheets for September 30, 2001 and March 31,2001 are for the Company and Classic Bank. The consolidated statements of income include the operations of theCompany and Classic Bank for the three and six months ended September 30, 2001.

 

                On March 16, 2001, the Company merged its twosubsidiaries, Classic Bank and The First National Bank of Paintsville (“FirstNational”) with Classic Bank as the surviving institution.  The financial statements for 2000 arepresented for the Company, Classic Bank and First National.  The consolidated statements of incomeinclude the operations of the Company, Classic Bank and First National for the threeand six months ended September 30, 2000.

 

**(2)           Basisof Presentation**

                The accompanying Consolidated FinancialStatements have been prepared in accordance with generally accepted accountingprinciples for interim financial information and with the instructions to Form10-QSB and Regulation S-B.  Accordingly,they do not include all the information and footnotes required by generallyaccepted accounting principles for complete financial statements.

 

                In the opinion of management, theConsolidated Financial Statements contain all adjustments (consisting only ofnormal recurring adjustments) necessary to present fairly the financialcondition of Classic Bancshares, Inc. as of September 30, 2001, and the resultsof operations for all interim periods presented.  Operating results for the six months ended September 30, 2001 arenot necessarily indicative of the results that may be expected for the fiscalyear ended March 31, 2002.

 

                Certain financial information and footnotedisclosures normally included in annual financial statements prepared inconformity with generally accepted accounting principles have been omittedpursuant to the rules and regulations of the Securities and ExchangeCommission.  The unaudited interimconsolidated financial statements presented herein should be read inconjunction with the annual consolidated financial statements of the Company asof and for the fiscal year ended March 31, 2001.

 

**(3)           Earningsper Share**

**               **Earningsper share are presented pursuant to the provisions of SFAS No. 128, “EarningsPer Share.”  Basic earnings per shareare calculated based on the weighted average number of common sharesoutstanding during the respective periods.

 

Diluted earnings per share are computed taking intoconsideration common shares outstanding and dilutive potential common shares tobe issued under the Company’s stock option plans and recognition and retentionplan.

 

                The weighted average number of shares used in the basic earnings pershare computations was 1,061,039 and 1,082,116 for the three-month periodsended September 30, 2001 and 2000, respectively and 1,060,440 and 1,085,412 forthe six-month periods ended September 30, 2001 and 2000, respectively.  The weighted average number of shares usedin the diluted earnings per share computations was 1,093,560 and 1,083,779 forthe three-month periods ended September 30, 2001 and 2000, respectively and1,092,961 and 1,087,075 for the six-month periods ended September 30, 2001 and2000.

 

                Options to purchase 180,750 shares of common stock were outstanding atSeptember 30, 2001 but 10,550 of those shares were not included in thecomputation of diluted earnings per share due to their anti-dilutiveeffect.  Options to purchase 168,000shares of common stock were outstanding at September 30, 2000 but were notincluded in the computation of diluted earnings per share due to theiranti-dilutive effect.

 

**(4)   Impact of Recent Accounting Pronouncements**

                In July 2001,the Financial Accounting Standards Board issued Statement No. 142, Goodwill andOther Intangible Assets.  This Statementaddresses financial accounting and reporting for acquired goodwill and otherintangible assets and how they should be accounted for after they have beeninitially recognized in the financial statements.  This Statement provides specific guidance for testing goodwillfor impairment.  This Statementspecifically relates to the Company in that it changes the accounting forgoodwill that the Company currently has on its balance sheet.  The Statement outlines that goodwill shouldnot be amortized but should be tested for impairment on an annual basis andbetween annual tests in certain circumstances. Impairment is the condition that exists when the carrying amount ofgoodwill exceeds its implied fair value. The annual goodwill impairment test may be performed any time during thefiscal year provided the test is performed at the same time every year.

 

                The Statement is effective for fiscal years beginning after December15, 2001.  However, early application ispermitted for entities with fiscal years beginning after March 15, 2001.  An entity has six months from the date itinitially applies this statement to complete the impairment test.  The Company adopted Statement No. 142effective April 1, 2001, the beginning of the Company’s fiscal year.  As a result of the adoption of Statement No.142, the Company will discontinue the amortization of its goodwill and willonly record impairment losses if deemed necessary in future periods.  The impact of the adoption of Statement No.142 on net income for the Company is as follows:

 
|                                              |   | **For the 3 Months Ended September 30,** |   |
|---------------------------------------------------|--------|------------------------------------------|--------|
| **($000s except for earnings per share amounts)** |   | **2001**                                 |   | **2000** |   |
|                                              |   |                                     |   |   |   |
| Reported net income                               |   | $                                        | 544    |   | $ | 295 |   |
| Add back:   Goodwill amortization            |   | -                                        |   | 64 |   |
| Adjusted net income                               |   | $                                        | 544    |   | $ | 359 |   |
|                                              |   |                                     |   |   |   |
| **Basic earnings per share:**                     |   |                                     |   |   |   |
| Reported net income                               |   | $                                        | .51    |   | $ | .27 |   |
| Goodwill amortization                             |   | -                                        |   | .06 |   |
| Adjusted net income                               |   | $                                        | .51    |   | $ | .33 |   |
|                                              |   |                                     |   |   |   |
| **Diluted earnings per share:**                   |   |                                     |   |   |   |
| Reported net income                               |   | $                                        | .50    |   | $ | .27 |   |
| Goodwill amortization                             |   | -                                        |   | .06 |   |
| Adjusted net income                               |   | $                                        | .50    |   | $ | .33 |   |

 

 
|                                               |   | **For the 6 Months Ended September 30,** |   |
|----------------------------------------------------|--------|------------------------------------------|--------|
| **($000s except for earnings per share  amounts)** |   | **2001**                                 |   | **2000** | ** ** |
|                                               |   |                                     |   |   |   |
| Reported net income                                |   | $                                        | 957    |   | $ | 578 |   |
| Add back:   Goodwill amortization             |   | -                                        |   | 127 |   |
| Adjusted net income                                |   | $                                        | 957    |   | $ | 705 |   |
|                                               |   |                                     |   |   |   |
| **Basic earnings per share:**                      |   |                                     |   |   |   |
| Reported net income                                |   | $                                        | .90    |   | $ | .53 |   |
| Goodwill amortization                              |   | -                                        |   | .12 |   |
| Adjusted net income                                |   | $                                        | .90    |   | $ | .65 |   |
|                                               |   |                                     |   |   |   |
| **Diluted earnings per share:**                    |   |                                     |   |   |   |
| Reported net income                                |   | $                                        | .88    |   | $ | .53 |   |
| Goodwill amortization                              |   | -                                        |   | .12 |   |
| Adjusted net income                                |   | $                                        | .88    |   | $ | .65 |   |

 

 

**(5)           Employee Stock Ownership Plan(ESOP)**

                The Company has an Employee Stock Ownership Plan (ESOP), which coverssubstantially all employees.  The ESOPborrowed $1,058,000 from the Company, and purchased 105,800 common shares,equal to 8% of the total number of shares issued in the conversion.  The loan is for a term of twenty-five years.  The Company’s subsidiary bank makesscheduled discretionary contributions to the ESOP sufficient to service thedebt.  Shares are allocated toparticipants’ accounts under the shares allocated method.  The cost of shares committed to be releasedand unallocated shares is reported as a reduction of stockholders’ equity.  Compensation expense is recorded based onthe average fair market value of the ESOP shares when committed to bereleased.  Furthermore, ESOP shares thathave not been committed to be released are not considered outstanding.  The expense under the ESOP was $16,414 and$11,973 for the three months ended September 30, 2001 and 2000, respectivelyand $32,447 and 24,854 for the six months ended September 30, 2001.  As of September 30, 2001, the Companyconsidered 68,932 shares as unearned ESOP shares with a fair value of $866,475.

 

**(6)           Stock Option and Incentive Planand Recognition and Retention Plan**

                On July 29, 1996, the shareholders of the Company ratified the adoptionof the Company’s 1996 Stock Option and Incentive Plan and the Recognition andRetention Plan (“RRP”).  Pursuant to theStock Option Plan, 132,250 shares of the Company’s common stock are reservedfor issuance, of which the Company has granted options on 106,774 shares at$10.8125 per share, options on 19,300 shares at $13.375 per share, options on 4,500shares at $13.875 per share, options on 626 shares at $13.75 per share, optionson 200 shares at $13.625 per share and options on 450 shares at $12.313 pershare.  Pursuant to the Recognition andRetention Plan, 52,900 shares of the Company’s common stock are reserved forissuance, of which the Company has granted awards on 52,536 shares.  At the end of the quarter, 400 of the stockoptions remain ungranted due to forfeitures and 364 RRP shares remain ungranted.  Ungranted RRP shares are included in treasurystock at cost.

 

                On July 27, 1998, theshareholders of the Company ratified the adoption of the Company’s 1998 PremiumPrice Stock Option Plan.  Pursuant tothe Premium Price Stock Option Plan, 50,000 shares of the Company’s common stockis reserved for issuance of which the Company has granted options on5,000 shares at $16.295 per share, options on 5,550 shares at $14.988 pershare, options on 24,000 shares at $11.275 per share and options on 14,350shares at $13.544 per share.  TheCompany had forfeitures on 500 shares during the quarter.  Therefore, 1,100 stock options under thisplan remain ungranted.

 

                On August 13, 2001, the shareholders of the Company ratified theadoption of the Company’s 2001 Premium Price Stock Option Plan.  Pursuant to the Premium Price Stock OptionPlan, 50,000 shares of the Company’s common stock is reserved forissuance.  No stock options have beengranted under the plan.

 

**(7)           Cash Dividend**

                On October 15, 2001, the Board declared a cash dividend of $.08 pershare payable on November 12, 2001 to shareholders of record on October 29,2001.

 

 

**PART I - ITEM 2**

 

**MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL**

**CONDITIONAND RESULTS OF OPERATIONS**

 

**Financial Condition**

 

                The Company’s total assets increased $8.9million from $187.9 million at March 31, 2001 to $196.8 million at September30, 2001.  The increase was dueprimarily to an increase in loans of $8.2 million, an increase in cash and cashequivalents of approximately $500,000, an increase in investment securities of$900,000 offset by a decrease in mortgage-backed securities of approximately$500,000 and a decrease in other assets of $200,000.

 

                Net loans receivable increased $8.2 millionfrom $138.9 million at March 31, 2001 to $147.1 million at September 30,2001.  Consistent with the Company’sstrategic plan, the growth in loans was primarily in the areas of commercialbusiness and consumer loans.  Consumerloans increased approximately $3.2 million, commercial business loans increasedapproximately $3.1 million, 1-4 family mortgage loans increased approximately$1.1 million and commercial real estate loans increased approximately $800,000.

 

                Investment securities increased approximately$900,000 from $24.8 million at March 31, 2001 to $25.7 million at September 30,2001 primarily due to purchases of  $1.3million and an increase in the market value of these available for salesecurities offset by sales and calls of approximately $600,000.  Mortgage-backed securities decreasedapproximately $500,000 from $3.4 million at March 31, 2001 to $2.9 million atSeptember 30, 2001.  The decrease wasprimarily the result of principal repayments during the period.

 

                Net deposits increased $2.8 million from$145.4 million at March 31, 2001 to $148.2 million at September 30, 2001.  Non-interest bearing demand depositsincreased approximately $700,000, savings, NOW and money market accountsincreased approximately $900,000 and other time deposits consisting primarilyof certificates of deposit increased approximately $1.2 million.  The Company also utilized Federal Home LoanBank advances, which increased $4.1 million from $16.6 million at March 31,2001 to $20.7 million at September 30, 2001, to fund loan growth.  The advances are primarily short-term,variable rate advances with an average term of 90 days.

 

                Total stockholders’ equity was $20.5 millionat March 31, 2001 compared to $21.2 million at September 30, 2001.  The increase was due to net income recordedfor the period and an increase in the market value of available for sale securitiespartially offset by the purchase of treasury stock and cash dividends paid.

 

**Forward-LookingStatements**

 

                When used in this Form 10-QSB and in futurefilings by the Company with the Securities and Exchange Commission (the “SEC”),in the Company’s press releases or other public or shareholder communications,and in oral statements made with the approval of an authorized executiveofficer, the words or phrases “will likely result”, “are expected to”, “willcontinue”, “is anticipated”, “estimate”, “project” or similar expressions areintended to identify “forward-looking statements” within the meaning of thePrivate Securities Litigation Reform Act of 1995.  Such statements are subject to certain risks and uncertainties,including changes in economic conditions in the Company’s market area, changesin policies by regulatory agencies, fluctuations in interest rates, demand forloans in the Company’s market area and competition, that could cause actualresults to differ materially from historical earnings and those presentlyanticipated or projected.  The Companywishes to caution readers not to place undue reliance on any suchforward-looking statements, which speak only as of the date made.  The Company wishes to advise readers thatthe factors listed above could affect the Company’s financial performance andcould cause the Company’s actual results for future periods to differmaterially from any opinions or statements expressed with respect to futureperiods in any current statements.

 

                The Company does not undertake - andspecifically declines any obligation - to publicly release the result of anyrevisions, which may be made to any forward-looking statements to reflectevents or circumstances after the date of such statements or to reflect the occurrenceof anticipated or unanticipated events.

 

**RESULTS OF OPERATIONS - COMPARISON OFOPERATING RESULTS FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2001 AND2000**

 

                **General**.  The Company’s results of operations dependprimarily upon the level of net interest income, which is the differencebetween the interest income earned on its interest-earning assets such as loansand 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’snon-interest income, including fee income and service charges, and affected bythe level of its non-interest expenses, including its general andadministrative expenses.  Net interestincome depends upon the volume of interest-earning assets and interest-bearingliabilities and the interest rates earned or paid on them, respectively.

 

                The Company reported net income of $544,000for the three months ended September 30, 2001 compared to net income of$295,000 for the three months ended September 30, 2000.  The increase in income of $249,000 betweenthe two periods was primarily the result of an increase in net interest incomeof $255,000, an increase in non-interest income of $89,000 and a decrease innon-interest expenses of $27,000 partially offset by an increase in provisionfor loss on loans of $15,000, and an increase in income taxes of $107,000.

 

                The Company reported net income of $957,000for the six months ended September 30, 2001 compared to net income of $578,000for the six months ended September 30, 2000. The increase in income of $379,000 between the two periods was primarilythe result of an increase in net interest income of $280,000, an increase innon-interest income of $167,000 and a decrease in non-interest expenses of$95,000 partially offset by an increase in provision for loss on loans of$17,000, and an increase in income taxes of $146,000.

 

                **InterestIncome**.  Total interestincome increased $45,000 and $145,000 for the three and six months endedSeptember 30, 2001 as compared to the three and six months ended September 30,2000.  The increase in interest incomefor the three and six-month periods was due to an increase in the averagebalance of interest-earning assets partially offset by a decrease in the yieldearned on interest-earning assets.  Theaverage balance of interest-earning assets increased $12.3 million for thethree-month period from $164.3 million for the three months ended September 30,2000 to $176.6 million for the three months ended September 30, 2001.  The average balance of interest-earningassets increased $11.1 million for the six-month period from $163.5 million forthe six months ended September 30, 2000 to $174.6 million for the six monthsended September 30, 2001.   The increasein the average balance of interest-earning assets was due primarily to theincrease in the average balance of loans.

 

The average yield on interest-earning assets decreasedto 8.1% for the three and six months ended September 30, 2001 comparedto 8.6% and 8.5% for the three and six months ended September 30, 2000.  The decrease in the yield oninterest-earning assets was due to a decline in interest rates during theperiod.  Tax equivalent adjustments weremade to the yield.

 

                **InterestExpense**.  Interestexpense decreased $210,000 and $135,000 for the three and six months endedSeptember 30, 2001 as compared to the same period in 2000.  Interest expense decreased for the periodsprimarily due to a decrease in the average rate paid on interest-bearingliabilities offset by an increase in the average balance of interest-bearingliabilities.  The average rate paid oninterest-bearing liabilities was 4.3% and 4.5% for the three and six monthsended September 30, 2001 compared to 5.1% and 5.0% for the three and six monthsended September 30, 2001.  The decreasein the average rate paid on interest-bearing liabilities was due to asignificant decline in interest rates in the past six months.  The Company’s FHLB borrowings are primarilyvariable rate borrowings that reprice daily and a significant portion of theCompany’s other interest-bearing liabilities, primarily certificates of deposithave repriced since rates have declined.

 

The averagebalance of interest-bearing liabilities increased $8.3 million for the threeand six months ended September 30, 2001 from $143.9 million and $143.3 millionfor the three months and six months ended September 30, 2000 to $152.2 millionand $151.6 million for the three and six months ended June 30, 2001.  The increase in these balances is the resultof an increase in the average balance of interest-bearing transaction accountsand an increase in the average balance of certificate of deposit accounts.

 

**                Provision for LoanLosses. **The Company’sprovision for loan losses totaled $71,000 and $141,000 for the three and sixmonths ended September 30, 2001 compared to $55,000 and $124,000 for the threeand six months ended September 30, 2000 based on management’s overallassessment of the loan portfolio.  Theprovision recorded for the three and six-month period was based on management’sevaluation of the Company’s current portfolio including factors such as thequality of the portfolio, the increase in non-residential loans and overallgrowth in the loan portfolio.  Managementcontinually monitors the Company’s allowance for loan losses and makesadjustments as economic conditions, portfolio quality and portfolio diversitydictates.  Although the Companymaintains its allowance for loan losses at a level which the Board considers tobe adequate to provide for probable incurred losses on existing loans, therecan be no assurance that future losses will not exceed estimated amounts orthat additional provisions for loan losses will not be required for futureperiods.

 

                **Non-interestIncome**.  Non-interestincome increased approximately $89,000 and $167,000 for the three and sixmonths ended September 30, 2001 compared to the same period in 2000.  The increase for the three and six-monthperiod is primarily the result of an increase in service charges and other feeson deposits of $73,000 and $151,000, respectively.  The increase in service charges and other fees on deposits forthe three and six-month period is the result of an increased core deposit baseand a focus on fee preservation through a stringent waiver policy.

 

                Non-interestincome also increased due an increase in other income of $16,000 and $15,000for the three and six months ended September 30, 2001.  The increase is due to increased fees earnedon the origination of secondary market loans and an increase incommissions earned on credit life and accident and health insurance sold inconnection with the origination of consumer loans.

 

                **Non-interestExpense**.  Non-interestexpenses decreased $27,000 and $95,000 for the three and six months endedSeptember 30, 2001 compared to the same period in 2000.  Non-interest expenses decreased $27,000 forthe three-month period due to a decrease in professional fees of $10,000, adecrease in FDIC premiums of $4,000, a decrease in the amortization of goodwillof $64,000 partially offset by an increase in employee compensation andbenefits of $27,000, an increase in occupancy and equipment expense of $20,000and an increase in the loss on foreclosed real estate of $4,000.

 

                Non-interest expenses decreased $95,000 forthe six-month period due to a decrease in stationary, printing and supplies of$21,000, a reduction in professional fees of $14,000, a decrease in FDICpremiums of $7,000, a decrease in the amortization of goodwill of $127,000 andan increase in the gain on foreclosed real estate of $15,000 offset by anincrease in employee compensation and benefits of $25,000 and an increase inoccupancy and equipment expense of $64,000.

 

Employeecompensation and benefits increased primarily due to the implementation of anincentive-based compensation plan that compensates employees based onproduction levels.  Employeecompensation and benefits also increased due to an increase in ESOP expense asa result of an increase in the average market value of the Company’sstock.  Amortization of goodwill waseliminated due to the implementation of the Financial Accounting StandardsBoard Statement No. 142, Goodwill and Other Intangibles.  The statement was applied effective April 1,2001 and resulted in the discontinuance of the amortization of goodwill.  Occupancy and equipment expense increaseddue primarily to the opening of an additional branch office in the Paintsvillemarket, which opened in March 2001.

 

**Income Tax Expense**.  Income tax expense increased $107,000 and$146,000 for the three and six months ended September 30, 2001 primarily due toan increase in income before income taxes for each period.

 

                **Non-PerformingAssets and Allowance for Loan Losses**. The allowance for loanlosses is calculated based upon an evaluation and assessment of pertinentfactors underlying the types and qualities of the Company’s loans.  Management considers such factors as thepayment status of a loan, the borrower’s ability to repay the loan, theestimated fair value of the underlying collateral, anticipated economicconditions that may affect the borrower’s repayment ability and the Company’shistorical charge-offs.  The Company’sallowance for loan losses as of September 30, 2001 was $1.5 million or 1.0% ofthe total loans.  The March 31, 2001allowance for loan loss was $1.4 million, or 1.0% of total loans.  The Company recorded a provision for loanlosses of $141,000 for the six-month period, and had net charge-offs of $71,000for the six-month period.  The allowancefor loan losses at September 30, 2001 was allocated as follows:  $209,000 to one-to-four family real estateloans, $95,000 to commercial real estate, $29,000 to commercial business loans,$26,000 to consumer loans and $1.1 million remained unallocated.

 

                The ratio ofnon-performing assets to total assets is one indicator of other exposure tocredit risk.  Non-performing assets ofthe Company consist of non-accruing loans, accruing loans delinquent 90 days ormore, and foreclosed assets, which have been acquired as a result offoreclosure or deed-in-lieu of foreclosure. For all periods presented the Company had no troubled debtrestructurings.  The following tablesets forth the amount of non-performing assets at the periods indicated.

 
|                                                         |   | **September 30, 2001**     |   | **March 31, 2001** |   |
|--------------------------------------------------------------|--------|----------------------------|--------|--------------------|--------|
|                                                         |   | **(Dollars in Thousands)** |   |
| Non-Accruing Loans                                           |   | $                          | 272    |               | $      | 662 |   |
| Accruing Loans Delinquent 90 Days or More                    |   | 418                        |   | 124                |   |
| Foreclosed Assets                                            |   | 241                        |   | 228                |   |
| Total Non-Performing Assets                                  |   | $                          | 931    |               | $      | 1,014 |   |
| Total Non-Performing Assets as a Percentage  of Total Assets |   | .5                         | %      | .5                 | %      |

 

                Total non-performing assets decreased $83,000from March 31, 2001 to September 30, 2001 due to management’s strategic focuson maintaining asset quality and adhering to stringent underwritingstandards.  Management continuallypursues collection of these loans in order to decrease the level ofnon-performing assets.

 

                **OtherAssets of Concern**.  Otherthan the non-performing assets set forth in the table above, as of September30, 2001, there were no loans with respect to which known information about thepossible credit problems of the borrowers or the cash flows of the securityproperties have caused management to have concerns as to the ability of theborrowers to comply with present loan repayment terms and which may result inthe future inclusion of such items in the non-performing asset categories.

 

                **Liquidityand Capital Resources**. The Company’s most liquid assets are cash and cash equivalents.  The levels of these assets are dependent onthe Company’s operating, financing, and investing activities.  At September 30, 2001 and March 31, 2001,cash and cash equivalents totaled $6.1 million and $5.6 million,respectively.  The Company’s primarysources of funds include principal and interest payments on loans (bothscheduled and prepayments), maturities of investment securities and principalpayments from mortgage-backed securities, deposits and Federal Home Loan Bankof Cincinnati advances.  While scheduledloan repayments and proceeds from maturing investment securities and principalpayments on mortgage-backed securities are relatively predictable, depositflows and early repayments are more influenced by interest rates, generaleconomic conditions and competition. Certificates of deposit as of September 30, 2001 maturing within oneyear totaled $70.6 million.

 

                Liquidity management is both a short- andlong-term responsibility of management. The Company adjusts its investments in liquid assets based uponmanagement’s assessment of expected loan demand, projected purchases ofinvestment and mortgage-backed securities, expected deposit flows, yieldsavailable on interest-bearing deposits, and liquidity of its asset/liabilitymanagement program.  Excess liquidity isgenerally invested in interest-bearing overnight deposits and other short-termliquid asset funds.  If funds arerequired beyond the funds generated internally, the subsidiaries of the Companyhave the ability to borrow funds from the FHLB.  At September 30, 2001, the Company had $20.7 million in borrowingsoutstanding with the FHLB.

 

                At September 30,2001, the Company had outstanding commitments to originate loans of $17.0million.  The Company anticipates thatit will have sufficient funds available to meet its current commitmentsprincipally through the use of current liquid assets and through itsborrowing capacity with the FHLB.

 

                Classic Bank is subject to the regulatorycapital requirements of the Federal Deposit Insurance Corporation (the“FDIC”).  The following tablesummarizes, as of September 30, 2001, the capital requirements applicable toClassic Bank and its actual capital ratios. As of September 30, 2001, Classic Bank was in compliance with itscapital requirements.

 
|                                     |   | **Regulatory**             |   |        | **Actual Capital** |   |
|------------------------------------------|--------|----------------------------|--------|-------------|--------------------|--------|
|                                     |   | **Capital Requirement**    |   |        | **Classic Bank**   |   |
|                                     |   | **Amount**                 |   | **Percent** |               |   | **Amount** |   | **Percent** |   |
|                                     |   | **(Dollars in Thousands)** |   |
| Total Capital(to Risk Weighted Assets)   |   | $                          | 11,132 |        | 8.0                | %      |   | $ | 15,379 |   | 11.1 | % |
| Tier 1 Capital(to Adjusted Total Assets) |   | 7,577                      |   | 4.0         |               |   | 13,887 |   | 7.3 |   |
|                                          |        |                            |        |             |                    |        |  |  |  |  |  |  |

 

                The Company is subject to the regulatory capitalrequirements of the Federal Reserve Board that generally parallels the capitalrequirements for FDIC insured banks. The following table summarizes, as of September 30, 2001, the capitalrequirements applicable to the Company and its actual capital ratios.  As of September 30, 2001, the Company was incompliance with its capital requirements.

 
|                                     |   | **Regulatory**             |   |        | **Actual Capital**           |   |
|------------------------------------------|--------|----------------------------|--------|-------------|------------------------------|--------|
|                                     |   | **Capital Requirement**    |   |        | **Classic Bancshares, Inc.** |   |
|                                     |   | **Amount**                 |   | **Percent** |                         |   | **Amount** |   | **Percent** |   |
|                                     |   | **(Dollars in Thousands)** |   |
| Total Capital(to Risk Weighted Assets)   |   | $                          | 10,977 |        | 8.0                          | %      |   | $ | 17,118 |   | 12.5 | % |
| Tier 1 Capital(to Adjusted Total Assets) |   | 7,590                      |   | 4.0         |                         |   | 15,626 |   | 8.2 |   |
|                                          |        |                            |        |             |                              |        |  |  |  |  |  |  |

 

**Impact of Inflation and Changing Prices**

 

                The consolidated financial statements andrelated data presented herein have been prepared in accordance with generallyaccepted accounting principles which require the measurement of financialposition and operating results in terms of historical dollars withoutconsidering changes in the relative purchasing power of money over time due toinflation.  The primary impact ofinflation on the operations of the Company is reflected in increased operatingcosts.  Unlike most industrialcompanies, virtually all of the assets and liabilities of a financialinstitution are monetary in nature.  Asa result, interest rates, generally, have a more significant impact on afinancial institution’s performance than does inflation.  Interest rates do not necessarily move inthe same direction or to the same extent as the prices of goods and services.

 

**PARTII.  OTHER INFORMATION**

 
| Item 1.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   | **Legal  Proceedings**                                                                                                                                                                                                                                                                                                                         |   |   |   |   |   |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|
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| Item 2.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   | **Changes  in Securities**                                                                                                                                                                                                                                                                                                                     |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   | None.                                                                                                                                                                                                                                                                                                                                          |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                                                                                                                                                                                                                                                                                                                                           |   |   |   |   |   |   |
| Item 3.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   | **Defaults  Upon Senior Securities**                                                                                                                                                                                                                                                                                                           |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   | None.                                                                                                                                                                                                                                                                                                                                          |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                                                                                                                                                                                                                                                                                                                                           |   |   |   |   |   |   |
| Item 4.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   | **Submission  of Matters to a Vote of Security Holders**                                                                                                                                                                                                                                                                                       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |      The  annual meeting of Shareholders (the "Meeting") of Classic  Bancshares, Inc. was held onAugust 13, 2001.  The matters approved by shareholders at the Meeting and the  number of votescast for,  against or withheld (as well as the number of abstentions) as to each matter  are asfollows: |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                                                                                                                                                                                                                                                                                                                                           |
|  
**PROPOSAL**

 

**NUMBER OF VOTES**

 
 

 

 

 

 

 

**Broker**

 
 

 

**For**

 

**Withheld**

 

**Non-votes**

 
Election of the following  directorsfor the  terms indicated:

 

 

 

 

 

 

 
 

 

 

 

 

 

 

 
C. Cyrus Reynolds (three  years)

 

825,251

 

87,697

 

0

 
David B. Barbour (three  years)

 

825,251

 

87,697

 

0

 
Jeffery P. Lopez, M.D.  (three years)

 

825,251

 

87,697

 

0

 
 

 

 

 

 

 

 

 
 

 

 

 

 

 

**Broker**

 
 

**For**

 

**Against**

 

**Abstain**

 

**Non-votes**

 
The ratification of the  adoption of the Company's 2001 Premium Stock Option Growth Plan

 

812,224

 

106,724

 

4,000

 

0

 
 

 

 

 

 

 

 

 
The ratification of the  appointment of Smith,Goolsby, Artis & Reams, P.S.C. as the Company's auditors for the  fiscal year ending March 31, 2002

 

921,651

 

0

 

1,297

 

0

 
 

 

 

 

 

 

 

 
 

 

 

 

 

 

 

 
**Other  Information**

 

 

 

 

 

 

 
None.

 

 

 

 

 

 

 
 

 

 

 

 

 

 

 
**Exhibits  and Reports on Form 8-K**

 

 

 

 

 

 

 
a.

Exhibits

 

 

 

 

 

 

 
 

Exhibit 27 Financial Data  Schedule

 

 

 

 

 

 

 
 

 

 

 

 

 

 

 
b.

Reports on Form 8-K

 

 

 

 

 

 

 
 

The Registrant filed the  following current reports on Form 8-K during the three months endedSeptember 30, 2001:

 
 

 

 

 

 

 

 

 
 

Press release, dated  August 2, 2001 announcing earnings for the quarter ending June 30, 2001 anddeclaring a cash dividend.

 

 

**SIGNATURES**

 

 

                Pursuantto the requirement of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on itsbehalf by the undersigned thereunto duly authorized.

 

 

 

 

 

**CLASSIC  BANCSHARES, INC.**

 

 

 

 

 

REGISTRANT

 
 

 

 

 

 

 
 

 

 

 

 

 
 

 

 

 

 
Date:

November 13, 2001

 

/s/ David B. Barbour

 
 

 

 

David B. Barbour,  President, Chief Executive Officer

 
 

 

 

and Director (Duly  Authorized Officer)

 
 

 

 

 

 

 
Date:

November 13, 2001

 

/s/ Lisah M. Frazier

 
 

 

 

Lisah M. Frazier, Chief  Operating Officer, Treasurer and

 
 

 

 

Chief Financial Officer  (Principal Financial Officer)

 
 

 

**INDEX TOEXHIBITS**

 

Exhibit

 

 

 

 

 

 

 

Number

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  28

Accountant's Review Report

 

 

 

 

 

 

 

 

 

 

 

 

 

  |