SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2000
[_] 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 0-21163
-------
CBES BANCORP, INC.
------------------
(Exact name of small business issuer as specified in its charter)
Delaware 43-1753244
----------------------------------------------------------------------------
(State or other jurisdiction of incorporation or organization)
(IRS Employer Identification No.)
1001 N. JESSE JAMES ROAD, EXCELSIOR SPRINGS, MO 64024
-----------------------------------------------------
(Address of principal executive offices)
(816 630-6711)
--------------
(Issuer's telephone number)
Not Applicable
-------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d)
of the Securities Exchange Act during the past 12 months (or for such shorter
period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No ___
---
Indicate the number of shares outstanding of each of the issuer's classes
of common equity, as of the last practicable date:
Class Outstanding at January 31, 2001
--------------------------- -------------------------------
Common stock, .01 par value 869,864
CBES BANCORP, INC. AND SUBSIDIARIES
Table of Contents
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Statements of Financial Condition at December 31,
2000 (unaudited) and June 30, 2000...................................................... 1
Consolidated Statements of Operations for the three months and six months
ended December 31, 2000 and 1999 (unaudited).......................................... 2
Consolidated Statements of Stockholders' Equity for the six months
ended December 31, 2000 (unaudited)................................................... 3
Consolidated Statements of Cash Flows for the six months ended
December 31, 2000 and 1999 (unaudited)................................................ 4
Notes to Consolidated Financial Statements (unaudited).................................. 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................................................... 6
PART II - OTHER INFORMATION........................................................................ 12
SIGNATURES......................................................................................... 13
1
CBES BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Financial Condition
(Unaudited)
December 31, 2000 and June 30, 2000
December 31 June 30
Assets 2000 2000
Cash $ 1,176,306 $ 1,152,781
Interest-bearing deposits in other financial institutions 12,187,475 6,089,264
------------ ------------
Cash and cash equivalents 13,363,781 7,242,045
Investment securities held-to-maturity (estimated fair value
of $84,000 and $187,000 respectively) 84,000 186,805
Mortgage-backed securities held-to-maturity (estimated fair value
of $32,000 and $39,000 respectively) 31,748 39,093
Loans held for sale, net 511,517 16,863,181
Loans receivable, net 136,797,657 146,935,945
Accrued interest receivable:
Loans receivable 1,146,974 1,118,559
Investment securities 3,654 78,802
Mortgage-backed securities 859 1,006
Real estate owned 355,645 237,061
Stock in Federal Home Loan Bank (FHLB), at cost 2,322,500 2,322,500
Office property and equipment, net 2,393,754 2,583,130
Income taxes receivable 69,377 -
Deferred income tax asset 1,241,330 834,000
Cash surrender value of life insurance and other assets 2,733,354 2,397,469
------------ ------------
Total assets $161,056,150 $180,839,596
============ ============
Liabilities & Stockholders' Equity
Liabilities:
Deposits $133,649,011 $135,630,763
FHLB advances 10,150,000 26,750,000
Accrued expenses and other liabilities 593,989 888,846
Accrued interest payable on deposits 220,010 255,971
Advance payments by borrowers for property taxes and insurance 1,319,526 1,444,288
Income taxes payable - 116,246
------------ ------------
Total liabilities 145,932,536 165,086,114
============ ============
Stockholders' Equity:
Preferred stock, $.01 par, 500,000 shares authorized, none issued
or outstanding - -
Common Stock, $.01 par; 3,500,000 shares authorized and 1,031,851
shares issued 10,319 10,319
Additional paid-in capital 10,023,347 10,020,540
Retained earnings, substantially restricted 8,541,850 9,244,208
Treasury stock, 161,987 and 158,789 shares at cost, respectively (3,063,972) (3,009,175)
Unearned employee benefits (387,930) (512,410)
------------ ------------
Total stockholders' equity 15,123,614 15,753,482
------------ ------------
Total liabilities and stockholders' equity $161,056,150 $180,839,596
============ ============
See accompanying notes to unaudited consolidated financial statements
2
CBES BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
Three Months Ended Six Months Ended
December 31 December 31
2000 1999 2000 1999
---------- --------- --------- ---------
Interest income:
Loans receivable $3,090,678 3,245,687 6,568,428 6,274,554
Mortgage-backed securities 613 928 1,303 1,943
Investment securities 3,003 32 5,802 40
Other 218,405 90,756 340,038 170,942
---------- --------- --------- ---------
Total interest income 3,312,699 3,337,403 6,915,571 6,447,479
---------- --------- --------- ---------
Interest expense:
Deposits 1,947,254 1,172,509 3,751,395 2,341,014
FHLB Advances 183,444 592,472 651,103 1,037,135
---------- --------- --------- ---------
Total interest expense 2,130,698 1,765,251 4,402,498 3,378,149
---------- --------- --------- ---------
Net interest income 1,182,001 1,572,152 2,513,073 3,069,330
Provision for loan losses 594,780 28,014 1,162,649 66,304
---------- --------- --------- ---------
Net interest income after
provision for loan losses 587,221 1,544,138 1,350,424 3,003,026
---------- --------- --------- ---------
Non-interest income:
Gain on sale of loans, net 174,752 133,931 231,306 271,273
Customer service charges 71,079 81,470 147,735 152,969
Loan servicing fees 6,831 63,973 13,937 46,181
Other 41,838 50,388 86,858 79,873
---------- --------- --------- ---------
Total non-interest income 294,500 329,762 479,836 550,296
---------- --------- --------- ---------
Non-interest expense:
Compensation and benefits 619,829 742,715 1,253,052 1,449,633
Office property and equipment 214,023 211,445 422,805 428,310
Data processing 56,965 47,095 115,786 108,480
Federal insurance premiums 6,989 15,579 13,836 30,369
Advertising 14,004 56,456 29,887 90,080
Real estate owned and repossessed assets 96,851 22,350 177,936 24,928
Other 193,873 266,085 764,109 516,577
---------- --------- --------- ---------
Total non-interest expense 1,202,534 1,361,725 2,777,411 2,648,377
---------- --------- --------- ---------
Earnings (loss) before income taxes (320,813) 512,175 (947,151) 904,945
Income tax expense (benefit) (129,985) 190,307 (377,952) 334,645
---------- --------- --------- ---------
Net earnings (loss) $ (190,828) 321,868 (569,199) 570,300
========== ========= ========= =========
Earnings (loss) per share-basic and diluted (0.23) 0.37 (0.68) 0 .65
========== ========= ========= =========
Basic and diluted weighted average shares 837,102 871,196 838,184 870,954
========== ========= ========= =========
See accompanying notes to unaudited consolidated financial statements
3
CBES BANCORP, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
For the six months ended December 31, 2000
(Unaudited)
Additional Unearned Total
Issued Common paid-in Retained Treasury employee stockholders'
shares stock capital earnings stock benefits equity
--------- -------- ---------- ---------- ----------- --------- --------------
Balance at June 30, 2000 1,031,851 $10,319 10,020,540 9,244,208 (3,009,175) (512,410) 15,753,482
Net earnings (loss) - - - (569,199) - - (569,199)
Dividends - - - (133,159) - - (133,159)
(including $.08 per share
payable January 23, 2001)
Amortization of RRP shares - - - - - 19,463 19,463
Forfeiture of RRP shares - - - - (54,797) 54,797 -
Allocation of ESOP shares - - 2,807 - - 50,220 53,027
--------- -------- ---------- --------- ---------- -------- ----------
Balance at
December 31, 2000 1,031,851 $10,319 10,023,347 8,541,850 (3,063,972) (387,930) 15,123,614
========= ======== ========== ========= ========== ======== ==========
See accompanying notes to unaudited consolidated financial statements.
4
CBES BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the six months ended December 31, 2000 and 1999
(Unaudited)
2000 1999
------------ ------------
Cash flows from operating activities:
Net earnings (loss) $ (569,199) $ 570,300
Adjustments to reconcile net earnings (loss) to net cash provided by
operating activities:
Provision for loan losses 1,162,649 66,304
Depreciation 207,182 198,808
Amortization of RRP 19,463 71,019
Allocation of ESOP shares 53,027 84,494
Proceeds from sale of loans held for sale 20,126,330 13,529,455
Origination of loans held for sale (3,543,360) (25,596,226)
Gain on sale of loans, net (231,306) (271,273)
Loss on sale of real estate owned 113,625 -
Premium amortization and accretion of discounts and
deferred loan fees, net (114,159) (363,759)
Deferred income taxes (407,330) (216,483)
Changes in assets and liabilities:
Accrued interest receivable 46,880 (237,085)
Other assets (335,885) (167,940)
Accrued expenses and other liabilities (245,332) (126,553)
Accrued interest payable on deposits (35,961) (12,436)
Current income taxes payable (185,623) 401,128
------------ ------------
Net cash provided by (used in) operating activities 16,061,001 (12,070,247)
------------ ------------
Cash flows from investing activities:
Purchase of investment securities $ - (97,779)
Proceeds from maturing investment securities 104,000 2,000
Mortgage-backed securities principal repayments 7,345 9,686
Net decrease (increase) in loans receivable 8,855,394 (3,294,555)
Purchase of FHLB stock - (150,000)
Proceeds from sale of real estate owned 1,000 -
Purchase of office property equipment (17,806) (254,042)
------------ ------------
Net cash provided by (used in) investing activities 8,949,933 $(3,784,690)
------------ ------------
Cash flows from financing activities:
(Decrease) increase in deposits $(1,981,752) 4,530,955
Proceeds from FHLB advances 60,300,000 50,300,000
Repayments of FHLB advances (76,900,000) (34,300,000)
Increase in advance payments by borrowers for property taxes -
and insurance (124,762) (546,499)
Dividends paid (182,684) (303,513)
Treasury stock purchased - (707,796)
------------ ------------
Net cash (used in) provided by financing activities (18,889,198) 18,973,147
------------ ------------
Net increase in cash and cash equivalents 6,121,736 3,118,210
Cash and cash equivalents at the beginning of the period $ 7,242,045 7,462,778
------------ ------------
Cash and cash equivalents at the end of the period $ 13,363,781 10,580,988
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes - 150,000
============ ============
Cash paid during the period for interest 4,507,665 3,353,496
============ ============
Supplemental schedule of noncash activities:
Conversion of loans to real estate owned 234,391 201,876
============ ============
Conversion of real estate owned to loans - 97,179
============ ============
See accompanying notes to unaudited consolidated financial statements.
5
CBES BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
December 31, 2000
(1) Basis of Preparation
--------------------
The accompanying unaudited consolidated financial statements were prepared in
accordance with instructions for Form 10-QSB. To the extent that information
and footnotes required by generally accepted accounting principles for complete
financial statements are contained in or consistent with the audited financial
statements incorporated by reference in the Company's Annual Report on Form 10-
KSB for the year ended June 30, 2000, such information and footnotes have not
been duplicated herein. In the opinion of management, all adjustments,
consisting only of normal recurring accruals, which are necessary for the fair
presentation of the interim financial statements, have been included. The
results of operations for the three month and six month periods ended December
31, 2000 are not necessarily indicative of the results which may be expected for
the entire year. The balance sheet information as of June 30, 2000 has been
derived from the audited balance sheet as of that date.
6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion compares the financial condition of CBES Bancorp, Inc.
(the "Company") and its wholly-owned subsidiary, Community Bank of Excelsior
Springs, a Savings Bank, (the "Bank") at December 31, 2000 to the financial
condition at June 30, 2000, its fiscal year-end, and the results of operations
for the three month and six month periods ended December 31, 2000 with the
similar periods in 1999. This discussion should be read in conjunction with the
interim financial statements and notes, which are included herein. This
Quarterly Report on Form 10-QSB may contain certain forward-looking statements
consisting of estimates with respect to the financial condition, results of
operations and business of the Company that are subject to various factors which
could cause actual results to differ materially from these estimates. These
factors include, but are not limited to, general economic conditions, changes in
interest rates, deposit flows, loan demand, real estate values, and competition;
changes in accounting principles, policies, or guidelines; changes in
legislation or regulation; and other economic, competitive, governmental,
regulatory, and technological factors affecting the Company's operations,
pricing, products and services.
General
- -------
The Company was organized as a Delaware corporation in June 1996 to acquire all
of the capital stock issued by the Bank upon its conversion from the mutual to
stock form of ownership. The Bank was founded in 1931 as a Missouri chartered
savings and loan association located in Excelsior Springs, Missouri. In 1995,
its members voted to convert to a federal charter. The business of the holding
company consists primarily of the business of the Bank. The deposits of the
Bank are presently insured by the Savings Association Insurance Fund ("SAIF"),
which together with the Bank Insurance Fund ("BIF") are the two insurance funds
administered by the FDIC.
The Bank conducts its business through its main office in Excelsior Springs,
Clay County, Missouri and its full service branch offices located in Kearney and
Liberty, both in Clay County, Missouri. The Bank has been, and intends to
continue to be, a community oriented financial institution offering selected
financial services to meet the needs of the communities it serves. The Bank
attracts deposits from the general public and historically has used such
deposits, together with other funds, primarily to originate one-to-four family
residential mortgage loans, construction and land loans for single-family
residential properties, and consumer loans consisting primarily of loans secured
by automobiles. While the Bank's primary business has been that of a
traditional thrift institution, originating loans in its primary market area for
retention in its portfolio, the Bank also has been an active participant in the
secondary market, originating residential mortgage loans for sale.
The most significant outside factors influencing the operations of the Bank and
other financial institutions include general economic conditions, competition in
the local market place and the related monetary and fiscal policies of agencies
that regulate financial institutions. More specifically, the cost of funds
primarily consisting of insured deposits is influenced by interest rates on
competing investments and general market rates of interest, while lending
activities are influenced by the demand for real estate financing and other
types of loans, which in turn is affected by the interest rates at which such
loans may be offered and other factors affecting loan demand and funds
availability.
Congress may consider legislation requiring all federal thrift institutions,
such as the Bank, to either convert to a national bank or a state depository
institution. In addition, the Company might no longer be regulated as a thrift
holding company, but rather as a bank holding company. The Office of Thrift
Supervision ("OTS") also might be abolished and its functions transferred among
the federal banking regulators. There can be no assurance as to whether or in
what form such legislation will be enacted or, if enacted, its effect on the
Company and the Bank.
Financial Condition
- -------------------
Total assets decreased $19.8 million, or 10.9%, to $161.1 million at December
31, 2000 from $180.8 million at June 30, 2000. This was primarily due to a
decrease in net loans receivable of $10.1 million, and a decrease in loans held
for sale of $16.4 million, partially offset by an increase in interest-bearing
deposits of $6.1 million.
Net loans receivable decreased by $10.1 million, or 6.9%, to $136.8 million at
December 31, 2000 from $146.9 million at June 30, 2000, and loans held for sale
decreased by $16.4 million, or 97.0%, from $16.9 million at June 30, 2000 to
$0.5 million at December 31, 2000. The decrease in net loans receivable was
primarily due to decreases in
7
construction loans of $9.2 million, multi-family loans of $0.8 million, land
loans of $0.7 million and consumer loans of $2.7 million, partially offset by an
increase in one-to-four family loans of $3.0 million. The decrease in loans held
for sale was primarily due to a sale on October 11, 2000 of $9.9 million of one-
to-four family adjustable rate loans and the return to portfolio of $6.7 million
of one-to-four family adjustable rate loans. At December 31, 2000 the Bank had
fixed rate loans held for sale of $512,000 that are contracted to be sold in the
secondary market
Deposits decreased $2.0 million, or 1.5%, to $133.6 million at December 31, 2000
from $135.6 million at June 30, 2000. The decrease in deposits is primarily due
to a decrease of $3.6 million in brokered deposits. FHLB advances decreased
$16.6 million, or 62.1%, from $26.8 million at June 30, 2000 to $10.2 million at
December 31, 2000, primarily from the sale of $9.9 million of one-to-four family
adjustable rate loans. The FHLB advances range in terms from three to ten
years, of which 88.7% are callable advances.
Comparison of Operating Results for the Three Months Ended December 31, 2000 and
- --------------------------------------------------------------------------------
1999
- ----
Performance Summary. For the three months ended December 31, 2000, the Company
had a net loss of $191,000 compared to net earnings of $322,000 for the three
months ended December 31, 1999. The most significant items causing the decrease
in earnings were a decrease in net interest income of $390,000, an increase in
the provision for loan loss of $567,000, and a decrease in non-interest income
of $35,000, partially offset by a decrease in non-interest expense of $159,000,
and a decrease in income taxes of $320,000.
Net Interest Income. For the three months ended December 31, 2000, net interest
income decreased $390,000, or 24.8%, to $1.2 million from $1.6 million for the
three months ended December 31, 1999. The decrease resulted from an increase of
$365,000 in interest expense to $2.1 million from $1.8 million. Loans on non-
accrual status significantly affected the interest income recorded in the three
months ended December 31, 2000. In the three months ended December 31, 2000
there was a decrease in loans on non-accrual status. The non-accrual interest
which would have otherwise been recorded, aggregating approximately $120,000,
was not recognized during the current quarter. The decrease in interest income
was also due to a decrease in the average balance of net loans receivable, and
FHLB checking. The increase in interest expense was primarily due to an
increase in interest rates, offset by a decrease in the average balances of
certificates of deposit.
Provision for Loan Losses. During the three months ended December 31, 2000, the
Bank recorded a $595,000 provision for loan losses, compared to a provision of
$28,000 for the three months ended December 31, 1999. Of the $595,000 provision
for loan loss, $501,000 was primarily attributable to an increase in the Bank's
classified assets of $3.9 million from $18.5 million at September 30, 2000 to
$22.4 million at December 31, 2000 and additional provision related to
previously classified assets. The $22.4 million in classified assets consisted
of single family construction loans of $12.2 million, two-to-four family
construction loans of $3.0 million, multi-family construction loans of $1.6
million, single family permanent loans of $3.1 million, two-to-four family
permanent loans of $0.2 million, land loans of $0.7 million, consumer loans of
$0.5 million, commercial loans of $0.7 million and other real estate owned of
$0.4 million. Included in classified assets at December 31, 2000 are non-
accruing loans of $12.3 million. In addition, $94,000 of the $595,000 provision
for loan loss was primarily attributable to an increase in general reserves for
consumer loans.
The Bank's methodology for determining general allowance for loan losses focuses
primarily on the application of specific reserve percentages to the various
categories of loans. Those percentages are based upon management's estimate of
the risk of loss in the various categories. The reserve factors are subject to
change from time to time based on management's assessment of the relative credit
risk within the portfolio. Management continually reviews specifically
identified problem, or potential problem loans. On a case by case basis, where
considered necessary, specific reserves are increased. For this purpose,
problem loans include non-accruing loans and accruing loans delinquent more than
90 days and classified assets. In addition, pursuant to the Bank's methodology,
the reserve is replenished for net charge-offs, which are charged against the
reserve. Pursuant to the supervisory agreement entered into with the OTS, the
Bank may not reduce the allowance for loan losses without prior notice of no
objection from the Office of Thrift Supervision.
In accordance with the supervisory agreement, the Bank has examined a
significant portion of its higher risk mortgage loans, including its
construction, land, and commercial real estate loans. As of December 31, 2000,
these reviews are substantially complete with approximately $3.9 million of such
loans remaining to be reviewed. The Bank expects to complete this review
process prior to February 28, 2001. In establishing its loan loss reserves, the
Bank has taken into consideration the risk that a percentage of such higher risk
mortgage loans left to review might
8
be classified. Depending upon the actual results of the Bank's review of the
remainder of its higher risk portfolio, the Bank may determine that upward or
downward adjustments to the Bank's allowance for loan losses are appropriate.
As a result of the provision for loan losses during the quarter, at December 31,
2000, the Bank had a total allowance for loan losses of $4.0 million,
representing 31.4% of total non-performing assets and 2.9% of the Bank's loans
receivable, net. The amount of net loans charged off was $75,000 during the
three months ended December 31, 2000 compared to $55,000 for the three months
ended December 31, 1999.
Management will continue to monitor its allowance for loan losses and make
future additions to the allowance through the provision for loan losses as
economic conditions dictate. Although the Bank maintains its allowance for loan
losses at a level which it considers to be adequate to provide for potential
losses, there can be no assurance that future losses will not exceed estimated
amounts or that additional provisions for loan losses will not be required in
future periods
Non-Interest Income. For the three months ended December 31, 2000, non-interest
income decreased $35,000 to $295,000 from $330,000 for the prior year period
primarily due to a decrease in loan servicing fees of $57,000, a decrease in
customer service charges of $10,000, and a decrease in other non-interest income
of $9,000, offset by an increase in gain on sale of loans of $41,000. The
increase in the gain on sale of loans was primarily due to an increase in loan
sales to $14.2 million for the three months ended December 31, 2000 from loan
sales of $6.2 million for the three months ended December 31, 1999.
Non-Interest Expense. Non-interest expense decreased by $159,000 to $1.2
million for the three months ended December 31, 2000 from $1.4 million for the
three months ended December 31, 1999. Of this decrease, $123,000 was due to
compensation expense, primarily due to a decrease in the number of employees, a
decrease in the ESOP plan expense of $21,000, and a decrease in the Recognition
and Retention plan expense of $14,000. Other factors contributing to the
decrease were a decrease in federal insurance premiums of $9,000, advertising of
$42,000, and other non-interest expense of $72,000, consisting of mortgage loan
expenses, expense accounts, and meals and entertainment expense. Real estate
owned expense increased $75,000, primarily due to the loss on sale of real
estate owned of $45,000 and the loss on sale of repossessed assets of $27,000.
The decreases were partially offset by increases in data processing expense of
$10,000, and office property and equipment expense of $3,000.
Comparison of Operating Results for the Six Months Ended December 31, 2000 and
- ------------------------------------------------------------------------------
1999
- ----
Performance Summary. For the six months ended December 31, 2000, the Company
had a net loss of $569,000 compared to net earnings of $570,000 for the six
months ended December 31, 1999. The most significant items causing the decrease
in earnings were a decrease in net interest income of $556,000, an increase in
the provision for loan loss of $1.1 million, a decrease in non-interest income
of $70,000, and an increase in non-interest expense of $129,000, offset by a
decrease in income tax expense of $713,000.
Net Interest Income. For the six months ended December 31, 2000, net interest
income decreased by $556,000, or 18.1%, to $2.5 million from $3.1 million for
the six months ended December 31, 1999. The decrease reflected an increase of
$1.0 million in interest expense, to $4.4 million from $3.4 million, offset by
an increase of $468,000 in interest income to $6.9 million from $6.4 million.
Loans on non-accrual status significantly affected the interest income recorded
in the six months ended December 31, 2000. In the six months ended December 31,
2000 there was an increase in loans on non-accrual status. The non-accrual
interest which would have otherwise been recorded, aggregating approximately
$266,000, was not recognized during the six month period, compared to $5,000
that was not recorded during the six months ended December 31, 1999. The
increase in interest income was primarily due to an increase in interest rates,
and an increase in average balances of loans receivable, net, FHLB daily time
and FHLB checking. The increase in interest expense was primarily due to an
increase in the average balances of certificates of deposit and an increase in
interest rates.
Provision for Loan Losses. During the six months ended December 31, 2000, the
Company recorded a $1.2 million provision for loan loss against earnings
compared to a provision of $66,000 for the six months ended December 31, 1999.
Of the $1.2 million provision for loan loss, $839,000 was primarily attributable
to an increase in the Bank's classified assets of $8.2 million from $14.2
million at June 30, 2000 to $22.4 million at December 31, 2000 and additional
provision related to previously classified assets. In addition, $324,000 of the
$1.2 million provision for loan loss was primarily attributable to an increase
in general reserves for consumer loans.
9
Non-Interest Income. For the six months ended December 31, 2000, non-interest
income decreased $70,000 to $480,000 from $550,000 for the prior year period,
primarily due to a decrease in gain on sale of loans of $40,000, a decrease in
customer service charges of $5,000, and a decrease in loan servicing fees of
$32,000, offset by an increase in other non-interest income of $7,000.
Non-Interest Expense. Non-interest expense increased by $129,000 to $2.8
million for the six months ended December 31, 2000 from $2.6 million for the
six months ended December 31, 1999. Of this increase, $248,000 was attributable
to other non-interest expense, primarily due to the write off of $320,000 on
one depositor in possible bad check losses. The Bank is trying to recover all
or part of that amount, but because of uncertainty over the likelihood of
recovery, has expensed the entire amount. Real estate owned expense increased
$153,000, primarily due to the loss on sale of real estate owned of $114,000 and
the loss on sale of repossessed assets of $51,000. In addition an increase of
$7,000 was due to data processing expense. These increases were partially
offset by a decrease of $197,000 in compensation expense, due to a decrease in
the number of employees, a decrease in the ESOP plan expense of $26,000 and a
decrease in the Recognition and Retention plan expense of $52,000. There were
also decreases in office property and equipment expense of $6,000, federal
insurance premiums of $17,000, and a decrease in advertising of $60,000.
Non-performing Assets
- ---------------------
On December 31, 2000, nonperforming assets were $12.7 million compared to $8.8
million on June 30, 2000. The balance of the Bank's allowance for loan losses
was $4.0 million at December 31, 2000 or 31.4% of nonperforming assets compared
to $2.9 million at June 30, 2000 or 33.3% of nonperforming assets. Loans are
considered nonperforming when the collection of principal and/or interest is not
probable, or in the event payments are more than sixty days delinquent.
The $3.9 million increase in nonperforming assets, from June 30, 2000 to
December 31, 2000, was primarily due to an increase in one-to-four family non-
accruing construction loans of $2.1 million, and an increase in one-to-four
family non-accruing loans of $1.7 million, an increase in non-accruing consumer
loans of $141,000, and an increase in foreclosed assets of $112,000, offset by a
decrease in non-accruing land loans of $105,000.
Capital Resources
- -----------------
The Bank is subject to capital to asset requirements in accordance with Office
of Thrift Supervision regulations. The following table is a summary of the
Bank's regulatory capital requirements versus actual capital as of December 31,
2000:
Actual Required Excess
amount/percent amount/percent amount/percent
---------------- -------------- --------------
(Dollars in thousands)
FIRREA REQUIREMENTS
-------------------
Tangible capital $13,151 8.17% 2,415 1.50% 10,846 6.67%
Core leverage capital $13,151 8.17% 6,441 4.00% 6,710 4.17%
Risk-based capital $14,642 12.53% 9,348 8.00% 5,294 4.53%
Liquidity
- ---------
The Bank's principal sources of funds are deposits, principal and interest
payments on loans, and deposits in other insured institutions. While scheduled
loan repayments and maturing investments are relatively predictable, deposit
flows and loan prepayments are influenced by interest rates, general economic
conditions and competition. Additional sources of funds may be obtained from
the Federal Home Loan Bank of Des Moines by utilizing numerous available
products to meet funding needs.
The Bank is required to maintain levels of liquid assets as defined by
regulations. The required percentage is currently 4% of net withdrawable
savings deposits and borrowings payable on demand or in one year or less. The
eligible liquidity ratios at December 31, 2000 and June 30, 2000 were 8.50% and
6.22%, respectively.
10
In light of the competition for deposits, the Bank may utilize the funding
sources of the Federal Home Loan Bank to meet demand in accordance with the
Bank's growth plans. The wholesale funding sources may allow the Bank to obtain
a lower cost of funding and create a more efficient liability match to the
respective assets being funded.
For purposes of the cash flow statements, all short-term investments with a
maturity of three months or less at date of purchase are considered cash
equivalents. Cash and cash equivalents at December 31, 2000 and June 30, 2000
were $13.4 million and $7.2 million, respectively.
Cash flows from operating activities. Net cash provided by operating activities
was $16.1 million during the six months ended December 31, 2000 compared to net
cash used in operating activities of $12.1 million during the same period in
1999. The change was primarily due to a decrease in the origination of loans
held for sale of $22.1 million, and an increase in the proceeds from the sale of
loans of $6.5 million, offset by a decrease in current income taxes payable of
$587,000.
Cash flows from investing activities. Net cash of $8.9 million was provided by
investing activities for the six months ended December 31, 2000 compared to net
cash used in investing activities of $3.8 million for the six months ended
December 31, 1999. The increase in cash provided was primarily due to a
decrease in loans receivable of $8.9 million during the six months ended
December 31, 2000 compared to a $3.3 million increase during the same period in
1999.
Cash flows from financing activities. Net cash used in financing activities was
$18.9 million for the six months ended December 31, 2000 compared to net cash
provided by financing activities of $19.0 million during the same period in
1999. The decrease in cash flows from financing activities is primarily due to
an increase in repayments of FHLB advances of $76.9 million for the six months
ended December 31, 2000 versus an increase of $34.3 million for the same period
in 1999, and a decrease in deposits of $2.0 million for the six months ended
December 31, 2000 versus an increase of $4.5 million for the same period in
1999, and an increase in the proceeds from FHLB advances of $60.3 million for
the six months ended December 31, 2000 versus an increase of $50.3 million for
the same period in 1999.
Supervisory Agreement
On August 4, 2000 the Bank entered into a Supervisory Agreement with the OTS.
By signing the Supervisory Agreement, the Bank has agreed to take certain
actions in response to concerns raised by the OTS. The Supervisory Agreement
provides that the Bank shall take necessary and appropriate actions to achieve
compliance with various OTS regulations related to lending standards, lending
limitations, classification of assets, appraisal standards and other matters.
The Supervisory Agreement provides that the Bank take certain corrective steps
to improve its internal asset review program. The Supervisory Agreement
requires the Bank to establish adequate allowances for loan losses, consistent
with generally accepted accounting principles, and not reduce the balance for
the allowance for loan losses without prior notice of no objection from the OTS.
The Supervisory Agreement also provides that the Bank refrain from making any
new loan commitments with the new builders or subdivision developments without
prior OTS approval. The Bank is also prohibited from increasing the number of
loans to current builders or subdivision developments without prior OTS
approval.
In addition, the Supervisory Agreement provides that the Board of Directors of
the Bank must develop or revise its written policies and procedures relating to
real estate appraisals, loan underwriting and credit administration, lending
limits and related matters. The Supervisory Agreement also provides that the
Bank revise its internal audit procedures, shall update its contingency disaster
recovery plan, shall establish and implement certain budgetary procedures and
shall revise its bonus program. The Supervisory Agreement also provides that
the Bank shall refrain from making capital distributions without OTS approval.
The Company relies in part upon dividends from the Bank to satisfy its cash
needs.
The Supervisory Agreement is considered a formal written agreement with the OTS.
Failure to comply with the Supervisory Agreement can lead to further enforcement
actions by the OTS. The Bank believes that it can comply with the Supervisory
Agreement and is currently taking the necessary steps to do so. Compliance with
the Supervisory Agreement is not expected to have a materially adverse impact on
the operations or the financial condition of the Bank. However, the
restrictions imposed in the Bank's construction and commercial real estate
lending activities may cause a significant decrease in the Bank's activities in
these areas. The Supervisory Agreement will remain in effect until terminated
by the OTS.
11
Impact of Recently Adopted Accounting Standards
The Financial Accounting Standards Board ("FASB") issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities", in June 1998.
SFAS No. 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. SFAS No. 137 was issued
in June 1999 and delayed the effective date of SFAS No. 133 until June 15, 2000.
Effective July 1, 2000 the Company adopted SFAS No. 133. The adoption of SFAS
No. 133 did not have a material effect on the Company's financial position or
results of operations.
12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
The holding company and the Bank are not involved in any pending legal
proceedings incident to the business of the holding company and the
Bank, which involve amounts in the aggregate which management believes
are material to the financial condition and results of operation. For a
discussion of the Supervisory Agreement entered into by the Bank, see
the section "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Supervisory Agreement."
Item 2. Changes in Securities
---------------------
Not applicable.
Item 3. Defaults Upon Senior Securities
-------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
On October 26, 2000 the Company held its annual meeting of stockholders
to consider the election of two directors of the Company and to ratify
the appointment of KPMG LLP as the auditors of the Company for the
fiscal year ending June 30, 2001. The results of the meeting were as
follows:
Dennis D. Hartman was elected to serve as a director of the Company
with 501,698 votes for and 56,414 votes withheld.
Rodney G. Rounkles was elected to serve as a director of the Company
with 503,698 votes for and 54,414 votes withheld.
The appointment of KPMG LLP to act as the Company's auditors for the
fiscal year ending June 30, 2001 was ratified with 546,712 votes for,
11,000 votes against, and 400 votes withheld.
Item 5. Other Information
-----------------
None.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
Exhibits
27-Financial Data Schedule
13
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 there unto duly authorized.
CBES Bancorp, Inc. and Subsidiaries
-----------------------------------
(Registrant)
Date: February 12, 2001
------------------------------
By: __________________________________________
Dennis D. Hartman, Chief Executive Officer
and President (Duly Authorized Officer)
Date: February 12, 2001
------------------------------
By: _______________________________________
Robert F. Kirk, Chief Financial Officer
and Secretary (Principal Financial Officer)