CBCT Bancshares (CBCBE) 10QSB 2001 Q2 Quarterly report (small business)

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC  20549
FORM 10-QSB
[X]    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
          EXCHANGE ACT OF 1934
          For the quarterly period ended June 30, 2001OR[   ]    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 0-31125
CBCT BANCSHARES, INC.(Exact name of small business issuer as specified in its charter)

Maryland(State or other jurisdiction of incorporation
or organization) 74-2957339(I.R.S. Employer Identification or number)

312 Main Street, Smithville, Texas 78957-2035(Address of principal executive offices)

(512) 237-2482(issuer's telephone number)

          Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes [  ]    No [X]

          Transitional Small Business Format (check one):

                 Yes [   ]   No [X]

          State the number of Shares outstanding of each of the issuer's classes of common equity, as of the latest date:

          As of June 30, 2001, there were 281,031 shares of the Registrant's common stock outstanding.

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CBCT BANCSHARES, INC


INDEX

PART I.	FINANCIAL INFORMATION	PAGE NO.
Item 1.	Consolidated Financial Statements
	Consolidated Balance Sheets as of June 30, 2001 and December 31, 2000	1
	Consolidated Statements of Income for the Three Months Ended June 30, 2001 and 2000	2
	Consolidated Statements of Changes in Equity for the Three Months Ended June 30, 2001 and 2000	3
	Consolidated Statements of Cash Flows for the Three Months Ended June 30, 2001 and 2000	4
	Notes to Unaudited Consolidated Financial Statements	5
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	8
PART II.	OTHER INFORMATION
	Signature Page	11

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CBCT Bancshares, Inc.
Consolidated Balance Sheets
(Unaudited)
(dollars in thousands)	At June 30, 2001	At December 31, 2000
ASSETS
Cash and non-interest due from banks	$ 183	$ 213
Interest bearing due from banks	1,829	2,146
Total cash and cash equivalents	2,012	2,359
Investment securities to be held to maturity	3,988	5,647
Investment securities available for sale	9,041	6,087
Federal Home Loan Bank stock	510	513
Loans held for sale	-	121
Loans - net of allowance for loan losses	19,865	22,180
Bank premises and equipment - net	1,292	1,271
Accrued interest receivable	271	291
Prepaid expenses and other assets	23	329
	$ 37,002	$ 38,798
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest bearing	$ 763	$ 707
Interest bearing	26,150	26,878
Total deposits	26,913	27,585
Advances from borrowers for taxes and insurance	197	57
Advances from Federal Home Loan Bank	3,941	5,438
Accrued interest payable and other liabilities	435	359
Total liabilities	31,486	33,439
Stockholders' Equity:
Preferred Stock, par value $0.01 per share;
1,000,000 shares authorized; none issued
and outstanding	-	-
Common Stock, par value $0.01 per share;
4,000,000 shares authorized; 281,031
shares issued and outstanding	3	3
Surplus	2,383	2,383
Retained earnings	3,040	2,868
Unallocated ESOP shares	(199)	(199)
Accumulated other comprehensive income (loss)	289	304
Total equity	5,516	5,359
	$ 37,002	$ 38,798

See Notes to Unaudited Consolidated Financial Statements.



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CBCT Bancshares, Inc.
Consolidated Statements of Income
(Unaudited)
(dollars in thousands, except per share data)
	Three months ended June 30,		Six months ended June 30,
	2001	2000	2001	2000
Interest and dividend income:
Loans	$ 431	$ 502	$ 953	$ 991
Debt securities	172	136	336	361
Deposits in banks	39	89	79	124
Dividends	6	17	13	25
Total interest and dividend income	648	744	1,381	1,501
Interest expense:
Deposits	303	326	612	664
Federal Home Loan Bank advances	55	80	118	179
Total interest expense	358	406	730	843
Net interest income	290	338	651	658
Provision for loan losses	9	9	18	16
Net interest income after loan losses	281	329	633	642
Other operating income (losses):
Service charges and fees	76	25	108	55
Net securities gains (losses)	44	3	63	(863)
Net gains on sales of loans	-	3	-	8
Total other operating income (loss)	120	31	171	(800)
Operating expenses:
Compensation and benefits	131	128	276	266
Occupancy and equipment expense	33	30	74	95
Other operating expenses	118	104	201	223
Total other operating expenses	282	262	551	584
Income (loss) before income taxes	119	98	253	(742)
Income tax expense (benefit)	39	3	81	(290)
Net income (loss)	$ 80	$ 95	$ 172	$ (452)
Basic earnings (loss) per share	$ 0.31	$ 0.37	$ 0.66	$ (1.75)
Weighted average shares outstanding (1)	261,123	258,549	261,123	258,549

____________
(1) CBCT Bancshares' initial public offering closed on September 25, 2000. For purposes of earnings per share calculations, shares issued on September 25, 2000 have been assumed to be outstanding as of January 1, 2000.

See Notes to Unaudited Consolidated Financial Statements.



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CBCT Bancshares, Inc.
Consolidated Statements of Changes in Equity    (Unaudited)    (dollars in thousands)	Common Stock	Surplus	Retained Earnings	Unallocated ESOP Shares	Accumulated Other Comp. Income (Loss)	Total
Six Months Ended June 30, 2001
Balance, beginning of period	$ 3	$ 2,383	$ 2,868	$ (199)	$ 304	$ 5,359
Comprehensive income:
Net income	-	-	172	-	-	172
Change in net unrealized loss on securities
available for sale, net of reclassification
adjustment and tax effect	-	-	-	-	(15)	(15)
Total comprehensive income	-	-	-	-	-	157
Balance, end of period	$ 3	$ 2,383	$ 3,040	$ (199)	$ 289	$ 5,516
Six Months Ended June 30, 2000
Balance, beginning of period	$ -	$ -	$ 3,214	$ -	$ (215)	$ 2,999
Comprehensive income:
Net income (loss)	-	-	(452)	-	-	(452)
Change in net unrealized loss on securities
available for sale, net of reclassification
adjustment and tax effect	-	-	-	-	319	319
Total comprehensive income (loss)	-	-	-	-	-	(133)
Balance, end of period	$ -	$ -	$ 2,762	$ -	$ 104	$ 2,866

See notes to unaudited consolidated financial statements.



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CBCT Bancshares, Inc.
Consolidated Statements of Cash Flows
(Unaudited)	Six months ended
(dollars in thousands)	June 30,
	2001	2000
Cash Flows From Operating Activities
Net income (loss)	$ 172	$ (452)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization	31	42
Net securites losses (gains)	(63)	863
Provision for loan losses	18	16
Deferred income taxes	81	(168)
Stock dividend income	(12)	(23)
Net change in:
Loans held for sale	121	363
Accrued interest receivable and other assets	326	(268)
Accrued interest payable and other liabilities	3	70
Net cash provided by operating activities	677	443
Cash Flows From Investing Activities
Activity in available-for-sale securities:
Sales	2,465	15,209
Maturities and prepayments	317	372
Purchases	(5,681)	(4,054)
Activity in held-to-maturity securities:
Maturities and prepayments	1,659	-
Purchases	-	(6,140)
Loan originations and collections - net	2,297	(846)
Capital expenditures	(52)	(14)
Net cash provided by (used in) investing activities	1,005	4,527
Cash Flows From Financing Activities
Net change in deposits	(532)	(3,130)
Proceeds from Federal Home Loan Bank advances	-	500
Repayment of Federal Home Loan Bank advances	(1,497)	(1,971)
Net cash provided by (used in) financing activities	(2,029)	(4,601)
Net increase in cash and cash equivalents	(347)	369
Cash and cash equivalents - beginning of period	2,359	2,253
Cash and cash equivalents - end of period	$ 2,012	$ 2,622

See Notes to Unaudited Consolidated Financial Statements.



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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. General

CBCT Bancshares, Inc. (the Company) was organized in March 2000 at the direction of Community Bank of Central Texas, Inc. (the Bank) to acquire all of the capital stock that the Bank would issue upon its conversion from the mutual to stock form of ownership. The conversion was completed on September 25, 2000 through the sale and issuance of 281,031 shares of common stock by the Company at a price of $10.00 per share. Information set forth in this report relating to periods prior to the Conversion, including consolidated financial statements and related data, relates to Community Bank of Central Texas, Inc. and its wholly-owned (inactive) subsidiary, Central State Service Corporation.

The accompanying consolidated financial statements of the Company have been prepared in accordance with instructions to Form 10-QSB. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. However, such information reflects all adjustments (consisting solely of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of results for the interim periods.

The results of operations for the six months ended June 30, 2001 are not necessarily indicative of the results to be expected for the year ending December 31, 2001. The consolidated financial statements and notes thereto should be read in conjunction with the Bank's audited financial statements and notes thereto for the year ended December 31, 2000.

2. Investment Securities

The amortized cost and approximate fair values of investment securities to be held to maturity and available for sale at June 30, 2001 and December 31, 2000 are as follows:
(dollars in thousands):

Investment securities to be held to maturity:

	June 30, 2001
	Amortized Cost	Unrealized Gain (Loss)	Approximate Fair Value
Debt securities:
Government agencies	$ 1,993	$ 51	$ 2,044
Collateralized mortgage obligations	1,995	34	2,029
	$ 3,988	$ 85	$ 4,073

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

	December 31, 2000
	Amortized Cost	Unrealized Gain (Loss)	Approximate Fair Value
Debt securities:
Government agencies	$ 2,991	$ 26	$ 3,017
Collateralized mortgage obligations	2,656	14	2,670
	$ 5,647	$ 40	$ 5,687

Investment securities available for sale:

	June 30, 2001
	Amortized	Unrealized	Approximate
	Cost	Gain (Loss)	Fair Value
Debt securities:
Government agencies	$ 1,408	$ 43	$ 1,451
State and municipal	110	4	114
Mortgage-backed	6,688	77	6,765
Collateralized mortgage obligations	393	-	393
Marketable equity securities	4	314	318
	$ 8,603	$ 438	$ 9,041

	December 31, 2000
	Amortized	Unrealized	Approximate
	Cost	Gain (Loss)	Fair Value
Debt securities:
Government agencies	$ 3,277	$ 79	$ 3,356
State and municipal	110	4	114
Mortgage-backed	2,235	44	2,279
Marketable equity securities	4	334	338
	$ 5,626	$ 461	$ 6,087

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

3. Other Cash Flow Information

Other cash flow information for the three months ended June 30, 2001 and 2000 is as
follows (dollars in thousands):

	2001	2000
Interest paid in cash	$ 682	$ 856
Income taxes paid in cash	$ -	$ -

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CBCT BANCSHARES, INC.
Management's Discussion and Analysis of FinancialCondition and Results of Operation

General

The following discussion is intended to assist in understanding the financial condition and results of operations of CBCT Bancshares, Inc. The information contained in this section should be read in conjunction with the consolidated financial statements and the accompanying notes to consolidated financial statements contained in this Form 10-QSB.

CBCT Bancshares, Inc.'s results of operations depend primarily on its net interest income, which is the difference between interest income on interest-earning assets, which principally consists of loans and mortgage-backed and investment securities, and interest expense on interest bearing liabilities, which principally consists of deposits and borrowings. CBCT Bancshares, Inc.'s results of operations also are affected by the level of its non-interest income and expenses and income tax expense.

Forward-Looking Statements

When used in this Form 10-QSB and in future filings by us with the Securities and Exchange Commission, in our press releases or other public or shareholder communications, and in oral statements made with the approval of an authorized executive officer, or the words "believe," expect," "intend," "anticipate," "estimate," "project," or similar words are intended to identify forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is uncertain. Factors which could have a material adverse effect on our operations include, but are not limited to, changes in interest rates, general economic conditions, legislative/regulatory changes, monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board, the quality or composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in our market areas and accounting principles and guidelines. These risks and uncertainties should be considered in evaluating forward-looking statements and you should not rely too much on these statements.

Changes in Financial Condition from December 31, 2000, to June 30, 2001

General

Total assets decreased by approximately $1.8 million to $37 million at June 30, 2001 from $38.8 million at December 31, 2000. The decrease in total assets resulted primarily from a reduction in the loan balance which allowed for a reduction in Federal Home Loan Bank advances.

The decrease in loans, to $19.9 million at June 30, 2001 from $22.2 million at December 31, 2000 was attributed to a decrease in loan demand and adjustable rate mortgages being refinanced in the secondary market to obtain the benefit of a fixed rate loan as a result of a lower market rate of interest.



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The allowance for loan losses at June 30, 2001 increased to $248,000 or 1.23% of total loans, from the December 31, 2000 amount of $228,000, or 1.02% of total loans. The increase was due to loan loss provisions exceeding loan charge-offs during the period. Non-performing loans were $37,000 at June 30, 2001 compared to $12,000 at December 31, 2000.

Total deposits decreased by approximately $.7 million, to $26.9 million at June 30, 2001 from $27.6 million at December 31, 2000.

Total equity increased by approximately $.157 million to $5.516 million at June 30, 2001, from $5.359 million at December 31, 2000. The increase in equity was due to the net income for the first two quarters 2001.

Comparison of Results of Operations for the Three and Six Months Ended June 30, 2001 and 2000

Net Interest Income

Net interest income for the quarter ended June 30, 2001 was $290,000, compared to $338,000 for the quarter ended June 30, 2000, a decrease of $48,000. The decrease in net interest income was attributed to declining rates earned on loans and a decrease in loan demand. In addition, approximately $2.5 million in securities were called with the proceeds being reinvested at lower yields due to current market conditions. The decrease was also due to approximately $2.0 million in Community Bank's portfolio of loans being refinanced in the secondary market to obtain the benefit of fixed rate mortgages in this declining rate environment. Net interest income for the six months ended June 2001 was $651,000 compared to $658,000 for the six months ended June 2000.

Other Operating Income

Other operating income for the quarter ended June 30, 2001 was $120,000, compared to $31,000 for the quarter ended June 30, 2000. The increase in 2001 was primarily attributed to an increase in demand deposit accounts resulting in more service charge and fee income along with $44,000 in gains on securities called during the second quarter of 2001. Other operating income for the six months ended June 2001 was $171,000 compared to ($800,000) for the same period 2000. The increase is primarily due to the one time loss of $865,000 due to the liquidation of the securities portfolio along with an increase in service charge and fee income, and a gain on the called securities.

Other Operating Expenses

Other operating expenses for the quarter ended June 30, 2001 were $282,000, compared to $262,000 for the quarter ended June 30, 2000. The increase is primarily attributed to corporate expenses associated with our conversion to a stock-based company. Other operating expense for the six months ended June 2001 was $551,000 compared to $584,000 for the six months ended


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June 2000. The decrease is primarily attributed to a one-time write down of fixed assets, including obsolete computer equipment and other assets of approximately $32,000 during the first quarter 2000.

Liquidity and Capital Resources

We are required to maintain minimum levels of investments that qualify as liquid assets under government regulations. Liquidity may increase or decrease depending upon the availability of funds and comparative yields on investments in relation to the return on loans. Historically, we have maintained liquid assets at levels above the minimum requirements and above levels believed to be adequate to meet the requirements of normal operations, including potential deposit outflows. Cash flow projections are regularly reviewed and updated to assure that adequate liquidity is maintained. At June 30, 2001, our regulatory liquidity ratio, which is our liquid assets as a percentage of deposits and current borrowings, was 49.68%.

Consistent with our goal to operate a sound and profitable financial organization, we actively seek to maintain a "well capitalized" institution in accordance with regulatory standards. Total equity was $5.5 million at June 30, 2001 or 14.91% of total assets on that date. As of June 30, 2001, we exceeded all capital requirements of the FDIC and the Texas Savings and Loan Department. Our consolidated regulatory capital ratios at June 30, 2001 were as follows: core capital 14.01%; Tier I risk-based capital, 28.94%; and total risk-based capital, 31.01%. The regulatory capital requirements to be considered well capitalized are 5.0%, 6.0%, and 10.0%, respectively.

Quantitative and Qualitative Disclosures About Market Risk

The rates of interest we earn on assets and pay on liabilities generally are established contractually for a period of time. Market interest rates change over time. Our loans generally have longer maturities than our deposits. Accordingly, our results of operations, like those of other financial institutions, are impacted by changes in interest rates and the interest rate sensitivity of our assets and liabilities. The risk associated with changes in interest rates and our ability to adapt to these changes is known as interest rate risk and is our most significant market risk. As of June 30, 2001, our one-year cumulative interest rate sensitivity gap as a percentage of total assets was a negative 12.86%, which generally means if interest rates rise, our net interest income could be reduced because interest paid on interest-bearing liabilities, including deposits and borrowings, could increase more quickly than interest received on interest-earning assets, including loans and mortgage-backed and investment securities. In addition, rising interest rates may hurt our income because they may reduce the demand for loans and the value of our mortgage-related and investment securities. In the alternative, if interest rates decrease, our net interest income would increase.



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SIGNATURES

Pursuant to the requirement of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		CBCT BANCSHARES, INC. Registrant
Date:	August 10, 2001	/s/ Brad M. HurtaBrad M. Hurta President and Chief Executive Officer
Date:	August 10, 2001	/s/ Lynn FrerichLynn Frerich Vice President, Chief Operating    Officer and Secretary

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