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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 September 30, 2001
[ ] 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
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CBES BANCORP, INC.
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(Exact name of small business issuer as specified in its charter)
Delaware 43-1753244
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(State or other jurisdiction of incorporation or organization)
(IRS Employer Identification No.)
1001 N. JESSE JAMES ROAD, EXCELSIOR SPRINGS, MO 64024
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(Address of principal executive offices)
(816 630-6711)
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(Issuer's telephone number)
Not Applicable
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(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 November 2, 2001
---------------------------------- --------------------------------
Common stock, .01 par value 875,805
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CBES BANCORP, INC. AND SUBSIDIARIES
Table of Contents
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited):
Consolidated Statements of Financial Condition at September 30,
2001 and June 30, 2001......................................................................1
Consolidated Statements of Operations for the three months
ended September 30, 2001 and 2000...........................................................2
Consolidated Statements of Stockholders' Equity and Comprehensive Income
(Loss) for the three months ended September 30, 2001........................................3
Consolidated Statements of Cash Flows for the three months ended
September 30, 2001 and 2000 ................................................................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..............................................................................11
SIGNATURES..............................................................................................12
CBES BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Financial Condition
(Unaudited)
September 30, 2001 and June 30, 2001
September 30, June 30,
Assets 2001 2001
------------- -------------
Cash $ 1,195,966 $ 1,222,857
Interest-bearing deposits in other financial institutions 21,234,123 16,885,248
Investment securities available-for-sale 13,199,594 11,966,804
Investment securities held-to-maturity (estimated fair value
of $101,000 and $405,000 respectively) 100,367 404,177
Loans held for sale, net 1,808,124 1,440,429
Loans receivable, net 99,478,304 109,717,025
Accrued interest receivable:
Loans receivable 598,717 746,108
Investment and mortgage-backed securities and interest-bearing deposits 178,725 60,477
Real estate owned 1,826,022 956,165
Stock in Federal Home Loan Bank (FHLB), at cost 2,322,500 2,322,500
Office property and equipment, net 1,174,508 1,229,014
Office property and equipment, held for sale 850,000 850,000
Current income taxes receivable 704,942 244,598
Deferred income tax assets 774,262 1,324,000
Cash surrender value of life insurance and other assets 2,252,693 2,343,341
------------- -------------
Total Assets $ 147,698,847 $ 151,712,743
============= =============
Liabilities and Stockholders' Equity
Liabilities:
Deposits $ 119,940,091 $ 124,608,965
FHLB advances 10,150,000 10,150,000
Accrued expenses and other liabilities 1,120,675 801,211
Accrued interest payable on deposits 183,396 189,222
Advance payments by borrowers for property taxes and insurance 1,436,338 1,218,622
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Total Liabilities 132,830,500 136,968,020
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Stockholders' Equity:
Common Stock, $.01 par; 3,500,000 shares authorized and 1,031,851
shares issued 10,319 10,319
Additional paid-in capital 10,037,687 10,030,411
Retained earnings, substantially restricted 7,842,684 8,022,702
Unearned employee benefits (261,173) (304,066)
Accumulated other comprehensive income (loss) 226,341 (27,132)
Treasury stock, 156,046 shares at cost (2,987,511) (2,987,511)
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Total stockholders' equity 14,868,347 14,744,723
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Total liabilities and stockholders' equity $ 147,698,847 $ 151,712,743
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See accompanying note to unaudited consolidated financial statements.
1
CBES BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
Three Months Ended
September 30
2001 2000
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Interest income:
Loans receivable $ 2,144,691 3,477,749
Investment and mortgage-backed securities 195,817 3,488
Other 151,784 121,634
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Total interest income 2,492,292 3,602,871
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Interest expense:
Deposits 1,522,974 1,804,141
FHLB advances 145,359 467,659
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Total interest expense 1,668,333 2,271,800
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Net interest income 823,959 1,331,071
Provision for loan losses 111,134 567,869
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Net interest income after
provision for loan losses 712,825 763,202
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Non-interest income:
Gain on sale of loans, net 103,620 56,553
Customer service charges 70,866 76,655
Loan servicing fees 2,250 7,106
Other 59,642 45,022
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Total non-interest income 236,378 185,336
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Non-interest expense:
Compensation and benefits 646,190 633,223
Office property and equipment 145,613 208,782
Data processing 53,843 58,821
Federal insurance premiums 15,585 6,847
Advertising 9,477 15,883
Real estate owned and repossessed assets 38,262 81,085
Other 222,058 570,236
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Total non-interest expense 1,131,028 1,574,877
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(Loss) before income taxes (181,825) (626,339)
Income tax (benefit) (69,284) (247,968)
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Net (loss) $ (112,541) (378,371)
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(Loss) per share-basic $ (0.13) (0.45)
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(Loss) per share-diluted $ (0.13) (0.45)
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Basic weighted average shares 849,131 836,868
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Diluted weighted average shares 849,685 836,868
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See accompanying note to unaudited consolidated fiancial statements.
2
CBES BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity and Comprehensive Income (Loss)
For the three months ended September 30, 2001
(Unaudited)
Accumulated
Additional Unearned other Total
Common paid-in Retained employee comprehensive Treasury stockholders'
stock capital earnings benefits income (loss) stock equity
--------- ----------- --------- -------- ------------- ---------- ----------
Balance at June 30, 2001 $ 10,319 10,030,411 8,022,702 (304,066) (27,132) (2,987,511) 14,744,723
Comprehensive income (loss):
Net loss - - (112,541) - - - (112,541)
Other comprehensive income -
unrealized holding gains on debt
and equity securities available-
for-sale, net of tax - - - - 253,473 - 253,473
--------- ---------- --------- -------- ------- ---------- ----------
Total comprehensive income - - (112,541) - 253,473 - 140,932
Allocation of ESOP shares - 7,276 - 21,780 - - 29,056
Amortization of RRP - - - 21,113 - - 21,113
Dividends declared
($.08 per share payable
October 23, 2001) - - (67,477) - - - (67,477)
--------- ---------- --------- -------- ------- ---------- ----------
Balance at
September 30, 2001 $ 10,319 10,037,687 7,842,684 (261,173) 226,341 (2,987,511) 14,868,347
========= ========== ========= ======== ======= ========== ==========
See accompayning note to unaudited consolidated financial statements.
CBES BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Three months ended September 30,
(Unaudited)
2001 2000
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Cash flows from operating activities:
Net (loss) $ (112,541) $ (378,371)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Provision for loan losses 111,134 567,869
Depreciation 57,993 109,661
Amortization of RRP and allocation of ESOP shares 50,169 30,168
Loss (gain) on disposition of real estate owned, net (15,000) 65,392
Proceeds from sale of loans held for sale 6,384,088 5,765,167
Origination of loans held for sale (6,648,163) (6,895,031)
Gain on sale of loans held for sale, net (103,620) (56,553)
Premium amortization and accretion of discounts and deferred fees, net (25,670) (159,974)
Provision for deferred income taxes 391,060 (207,130)
Changes in assets and liabilities:
Accrued interest receivable 29,143 7,378
Other assets 90,648 4,421
Accrued expenses and other liabilities 319,464 (153,474)
Accrued interest payable on deposits (5,826) (88,694)
Current income taxes receivable (460,344) (255,839)
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Net cash provided by (used in) operating activities 62,535 (1,645,010)
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Cash flows from investing activities
Net decrease in loans receivable 9,050,370 7,913,645
Purchase of investment securities available-for-sale (1,006,335) -
Maturity of investment securities held-to-maturity 303,000 104,000
Principal repayments on mortgage-backed securities held-to-maturity 2,801 3,675
Principal repayments on mortgage-backed securities available-for-sale 181,735 -
Purchase of office property and equipment (3,487) (11,712)
Proceeds from sale of real estate owned 250,000 1,000
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Net cash provided by investing activities 8,778,084 8,010,608
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Cash flows from financing activities:
(Decrease) in deposits (4,668,874) (2,344,066)
Proceeds from FHLB advances - 51,800,000
Repayments of FHLB advances - (51,800,000)
Increase in advance payments by borrowers for property taxes and insurance 217,716 385,076
Dividends paid (67,477) (116,534)
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Net cash used in investing activities (4,518,635) (2,075,524)
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Net increase in cash and cash equivalents 4,321,984 4,290,074
Cash and cash equivalents at the beginning of the period 18,108,105 7,242,045
------------ ------------
Cash and cash equivalents at the end of the period $ 22,430,089 11,532,119
============ ============
Supplemental disclosure of cash flow information
Cash paid during the period for income taxes $ - $ 225,000
============ ============
Cash paid during the period for interest $ 1,528,800 $ 1,892,835
============ ============
Supplemental schedule of noncash investing and financing activities
Conversion of loans to real estate owned $ 1,104,857 $ 383,897
============ ============
Loans made to finance sales of real estate owned $ 115,000 $ -
============ ============
Dividends declared and payable $ 67,477 $ 66,151
============ ============
See accompanying note to unaudited consolidated financial statements.
4
CBES BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
September 30, 2001
(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, 2001, 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 months ended September 30, 2001 are not
necessarily indicative of the results which may be expected for the entire year.
The balance sheet information as of June 30, 2001 has been derived from the
audited balance sheet as of that date.
5
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 September 30, 2001 to the financial
condition at June 30, 2001, its fiscal year-end, and the results of operations
for the three months ended September 30, 2001 with the same period in 2000. This
discussion should be read in conjunction with the interim financial statements
and notes, which are included herein. This Quarterly Report of 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 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. In August 2001, the Bank announced its
intention to sell the Kearney branch office to Kearney Trust Company, subject to
regulatory approval. Permission has been received from the OTS to sell the
branch. 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 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 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 the
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.
Financial Condition
- -------------------
Total assets decreased $2.8 million, or 2.65%, to $147.7 million at September
30, 2001 from $151.7 million at June 30, 2001. This was primarily due to a
decrease of $10.2 million in net loans receivable offset by an increase of $4.4
million in other interest-bearing deposits and an increase of $1.2 million in
investment securities.
Net loans decreased by $10.2 million, or 9.33%, to $99.5 million at September
30, 2001 from $109.7 million at June 30, 2001. The decrease was primarily due to
decreases in construction loans, net of loans in process, of $6.5 million, one-
to-four family loans of $2.9 million and consumer loans of $1.6 million
offsetting an increase in commercial real estate loans of $1.6 million. Loans
held for sale, net, were $1.8 million at September 30,
6
2001 compared to $1.4 million at June 30, 2001. Due to fewer loan originations
in the three months ended September 30, 2001, interest-bearing deposits in other
financial institutions increased by $4.3 million and investment securities
available for sale increased by $1.2 million. Investment securities held-to-
maturity decreased to $100,000 at September 30, 2001 from $404,000 at June 30,
2001.
Deposits decreased $4.7 million, or 3.75%, to $119.9 million at September 30,
2001 from $124.6 million at June 30, 2001. Due to decreased loan demand, the
Bank has not been as aggressive as in prior years in retaining deposits. FHLB
advances were $10.2 million at both September 30 and June 30, 2001.
Stockholders' equity increased $124,000 to $14.9 million at September 30, 2001
from $14.7 million at June 30, 2001. The increase was primarily due to the
increase in unrealized gains of $253,000, net of tax, on debt and equity
securities held for sale. That increase and the amortization of unearned
employee benefits offset the net loss of $113,000 and common stock dividend
declared of $67,000.
Comparison of Operating Results for the Three Months Ended September 30, 2001
- -----------------------------------------------------------------------------
and 2000
- --------
Performance Summary. For the three months ended September 30, 2001, the company
had a net loss of $113,000, or $0.13 per basic and diluted share, compared to a
net loss of $378,000, or $0.45 per basic and diluted share for the three months
ended September 30, 2000. The decrease in the net loss was primarily due to a
decrease in the provision for loan losses of $457,000, a decrease in non-
interest expense of $444,000 and an increase in non-interest income of $51,000
offsetting a decrease in net interest income of $507,000.
Net Interest Income. Net interest income was $824,000 for the three months ended
September 30, 2001, a decrease of $507,000 from the $1.3 million for the three
months ended September 30, 2000. Interest income was $2.5 million for the three
months ended September 30, 2001 compared to $3.6 million for the three months
ended September 30, 2000. Interest expense was $1.7 million for the three months
ended September 30, 2001 compared to $2.3 million for the three months ended
September 30, 2000. The average yields on interest earning assets were 7.13% and
8.41% for the three months ended September 30, 2001 and 2000, respectively. The
average rates on interest bearing liabilities were 5.07% and 5.62% for the same
periods, respectively. That resulted in average net interest rate spreads of
2.06% and 2.79% for the three months ended September 30, 2001 and 2000,
respectively. The average net interest margins were 2.36% and 3.11% for the
three months ended September 30, 2001 and 2000, respectively.
Interest Income. Total interest income was $2.5 million for the three months
ended September 30, 2001, a decrease of $1.1 million from the $3.6 million for
the three months ended September 30, 2000. Interest income from loans receivable
was $2.1 million for the three months ended September 30, 2001, a decrease of
$1.3 million from the $3.5 million for the three months ended September 30,
2000. The decrease was primarily due to decreased average balances in loans
outstanding and a decrease in the average yields on those loans. The average
balance of outstanding loans was $105.9 million and $161.5 million for the three
months ended September 30 2001 and 2000, respectively. The average yields were
8.10% and 8.61%, respectively. Loans on non-accrual status continue to have a
significant negative effect on interest income. Non-accrual loans were $11.6
million at September 30, 2001 compared to $13.4 million at September 30, 2000.
For the three months ended September 30, 2001, gross interest income which would
have been recorded had the non-accrual loans been current in accordance with
their original terms amounted to $512,000. Interest income on investment and
mortgage-backed securities and other interest bearing deposits increased to
$348,000 for the three months ended September 30, 2001 compared to $125,000 for
the three months ended September 30, 2000. The increase was primarily due to
increased average balances outstanding in the current period.
Interest Expense. Total interest expense was $1.7 million for the three months
ended September 30, 2001, a decrease of $603,000 from the $2.3 million for the
three months ended September 30, 2000. Interest expense on deposits was $1.5
million for the three months ended September 30, 2001, a decrease of $281,000
from the $1.8 million for the three months ended September 30, 2000. Interest
expense on FHLB advances decreased $322,000 to $145,000 for the three months
ended September 30, 2001 from $468,000 for the three months ended September 30,
2000. Decreases for both categories were primarily due to decreased average
balances outstanding and decreased average rates paid on those balances.
7
Provision for Loan Losses. The provision for loan losses was $111,000 for the
three months ended September 30, 2001 compared to $568,000 for the three months
ended September 30, 2000. The provision in the 2000 period was primarily due to
an increase in classified assets and an increase in general reserves for
consumer loans. The provision for the three months ended September 30, 2001 was
due to actual net losses in the consumer loan portfolio. Assets classified as
substandard at September 30, 2001 were $14.3 million compared to $15.8 million
and $18.5 million at June 30, 2001 and September 30, 2000, respectively. Charge-
offs and recoveries for the three months ended September 30, 2001 were $481,000
and $10,000, respectively. Net loans charged off were $30,000 for the three
months ended September 30, 2000.
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. These percentages are based upon management's estimate of
the exposure to loss in the various categories. The reserve factors are subject
to change from time to time based upon management's assessment of the relative
credit risk within the portfolio. Percentages generally range from 0.5% for
single-family residential loans to 6.0% for some consumer loans; higher
percentages may be applied to problem loans. 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 more than
90 days delinquent 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, the Bank may not
reduce the allowance for loan losses without prior notice of no objection from
the Office of Thrift Supervision.
At September 30, 2001, the Bank had a total allowance for loan losses of $3.1
million, representing 26.9% of non-performing loans and 3.1% of loans
receivable, net.
Management will continue to monitor its allowance for loan losses and make
future additions to the allowance through the provision for loan losses as
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 assurances 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. Non-interest income increased $51,000 to $236,000 for the
three months ended September 30, 2001 from $185,000 for the three months ended
September 30, 2000. Gains on the sale of loans increased $47,000 primarily due
to increased loan sales in the current period. Proceeds from loan sales were
$6.6 million in the three months ended September 30, 2001, compared to $5.8
million in the prior year. Other non-interest income increased $15,000 primarily
due to increased late charges collected on mortgage loans. Customer service
charges decreased $6,000 and loan-servicing fees decreased $5,000. Both
decreased due to fewer accounts.
Non-interest Expense. Non-interest expense decreased $444,000 to $1.1 million
for the three months ended September 30, 2001 from $1.6 million for the three
months ended September 30, 2000. Compensation and benefit expense increased
$13,000 in the current period. Cash compensation paid decreased $9,000 due to
fewer employees. ESOP expenses decreased $8,000 due to a lower average price of
the Company's common stock during the current period. Expenses for the RRP and
salary continuation plans increased $38,000 in the current period. In the prior
year, employee terminations resulted in the reversal of previous expenses.
Occupancy expense decreased $63,000 in the current period primarily due to
decreased depreciation due to the classification of the Kearney branch fixed
assets as held for sale. Federal insurance premiums increased $9,000 primarily
due to higher rates. Advertising expense decreased $6,000 to $9,000 for the
current period primarily due to reduced advertising in the current period. Real
estate owned expense decreased $43,000 to $38,000 for the current period
primarily due to reduced losses on the sale of real estate owned and repossessed
assets in the current period. Other expense decreased $348,000 to $222,000 for
the current period. The prior year included $320,000 in possible bad check
losses with no comparable expense in the current period. Loan related expenses
decreased $19,000 in the current period primarily due to reduced loan
originations in the current period.
Income Taxes. The income tax benefit was $69,000 for the three months ended
September 30, 2001 compared to $248,000 for the three months ended September 30,
2000. The reduction in benefit was due to the decrease
8
in net operating loss for the current period. The effective tax rates were
38.10% and 39.59% for the three months ended September 30, 2001 and 2000,
respectively.
Non-performing Assets
- ---------------------
Non-performing assets were $13.4 million at September 30, 2001 compared to $11.6
million at June 30, 2001. The Bank's allowance for loan losses was $3.1 million
at September 30, 2001, or 23.15% of non-performing assets, compared to $3.5
million at June 30, 2001, or 30.01% of non-performing assets. The decrease in
the allowance for loan losses was primarily due to a charge-off of $360,000 on
six duplex construction loans. Loans are considered non-performing when the
collection of principal and/or interest is not probable, or in the event
payments are more than ninety days delinquent.
The increase in non-performing assets from June 30, 2001 to September 30, 2001
was primarily due to an increase in non-accruing one-to-four family construction
loans of $1.2 million, an increase in foreclosed assets of $856,000, and an
increase in multifamily and commercial real estate loans of $523,000 offsetting
a decrease in one-to-four family loans of $487,000, a decrease in land loans of
$253,000 and a decrease in consumer loans of $5,000. The increase in foreclosed
assets was primarily due to foreclosures on one-to-four family construction
loans.
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 September 30,
2001:
Actual Required Excess
amount/percent amount/percent amount/percent
-------------- -------------- ---------------
(Dollars in Thousands)
FIRREA Requirements
Tangible capital $ 12,860 8.88% 2,172 1.50% 10,688 7.38%
Core leverage capital $ 12,860 8.88% 5,791 4.00% 7,069 4.88%
Risk-based capital $ 14,096 14.29% 7,894 8.00% 6,202 6.29%
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 relative predictable, deposit flows
and loan prepayments are influenced by levels of 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 adequate levels of liquid assets under OTS
regulations. Savings institutions were previously required to maintain an
average daily balance of liquid assets (including cash, certain time deposits,
and specified U. S. government, state, or federal obligations) of not less than
4.0% of its average daily balance of net withdrawable accounts plus short-term
borrowings.
It is the Bank's policy to maintain its liquidity portfolio in excess of
regulatory requirements. The Bank's eligible liquidity ratios were 22.15% and
21.61% at September 30, 2001 and June 30, 2001, respectively.
9
The Company's most liquid assets are cash and cash equivalents, which include
short-term investments. At September 30, 2001 and June 30, 2001, cash and cash
equivalents were $22.4 million and $18.1 million, respectively.
Liquidity management for the Company is both an ongoing and long-term component
of the Company's asset liability management strategy. Excess funds generally are
invested in overnight deposits at the FHLB and held for sale mortgage-backed and
U. S. government agency securities. Should the Company require funds beyond its
ability to generate them internally, additional sources of funds are available
through advances from the FHLB. The Company would pledge its FHLB stock or
certain other assets as collateral for such advances.
Supervisory Agreement
- ---------------------
On August 4, 2000 the Bank entered into a Supervisory Agreement with the OTS. By
signing the Supervisory Agreement, the Bank agreed to take certain actions in
response to concerns raised by the OTS. The Supervisory Agreement provided that
the Bank shall take the necessary and appropriate actions to achieve compliance
with various OTS regulations related to the lending standards, lending
limitations, classification of assets, appraisal standards and other matters.
The Supervisory Agreement provided that the Bank take certain corrective steps
to improve its internal asset review program. The Supervisory Agreement required
the Bank to establish adequate allowance for loan losses and not to reduce the
balance of the allowance for loan losses without prior notice of no objection
from the OTS. The Supervisory Agreement also provided that the Bank refrain from
making any new loan commitments with the new builders or subdivision
developments without prior OTS approval. The Bank was also prohibited from
increasing the number of loans to current builders or subdivision development
without prior OTS approval.
In addition, the Supervisory Agreement provided that the Board of Directors of
the Bank 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 provided that the Bank
revise its internal audit procedures, update its contingency disaster recovery
plan, establish and implement certain budgetary procedures and revise its bonus
program. The Supervisory Agreement also provided that the Bank 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 has completed the necessary steps to comply with
the Supervisory Agreement and remains in compliance with the Supervisory
Agreement. The Supervisory Agreement will remain in effect until terminated by
the OTS.
Impact of Recently Adopted Accounting Standards
- -----------------------------------------------
In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS No.
141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible
Assets. SFAS No. 141 requires that the purchase method of accounting be used for
all business combinations initiated after June 30, 2001, as well as all purchase
method business combinations completed after June 30, 2001. SFAS No. 141 also
specifies criteria intangible assets acquired in a purchase method business
combination must meet to be recognized and reported apart from goodwill.
SFAS No. 142 will require that goodwill and intangible assets with indefinite
useful lives no longer be amortized, but instead be tested for impairment at
least annually in accordance with the provisions of SFAS No. 142. SFAS No. 142
will also require intangible assets with definite useful lives be amortized over
their respective estimated useful lives to their estimated residual values, and
reviewed for impairment in accordance with SFAS No. 121, Accounting for
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. The
adoption of these standards will not have an impact on the consolidated
financial statements due to the Company not having any goodwill or other
intangible assets recorded. The Company will adopt these standards on July 1,
2002.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
The Company and the Bank are not involved in any pending legal proceedings
incident to the business of the Company and the Bank, which involve amounts in
the aggregate which management believes are material to the financial conditions
and results of operations. 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
---------------------------------------------------
None.
Item 5. Other Information
-----------------
None.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
Form 8-K filed August 20, 2001 reporting the sale of the Kearney branch
office and recent management changes.
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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 there unto duly authorized.
CBES Bancorp, Inc.
-----------------------
(Registrant)
Date: November 14, 2001 By: /s/ Paul L. Thomas
-----------------------
Paul L. Thomas, Chief Executive Officer
(Duly Authorized Officer)
Date: November 14, 2001 By: /s/ Ronald W. Hill
-----------------------
Ronald W. Hill, Chief Financial Officer
(Principal Financial Officer)
12