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, 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 February 4, 2002
--------------------------- -------------------------------
Common stock, .01 par value 875,805
CBES BANCORP, INC. AND SUBSIDIARIES
Table of Contents
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited):
Consolidated Statements of Financial Condition at December 31,
2001 and June 30, 2001........................................................... 1
Consolidated Statements of Operations for the three months and six
months ended December 31, 2001 and 2000.......................................... 2
Consolidated Statements of Stockholders' Equity and Comprehensive
Income (Loss) for the six months ended December 31, 2001......................... 3
Consolidated Statements of Cash Flows for the six months ended
December 31, 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................................................................. 13
SIGNATURES................................................................................. 14
CBES BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Financial Condition
(Unaudited)
December 31, 2001 and June 30, 2001
December 31, June 30,
Assets 2001 2001
Cash $ 1,174,441 $ 1,222,857
Interest-bearing deposits in other financial institutions 12,160,058 16,885,248
Investment securities available-for-sale 12,351,742 11,966,804
Investment securities held-to-maturity (estimated fair value
of $336,000 and $405,000 respectively) 335,816 404,177
Loans held for sale, net 4,462,064 1,440,429
Loans receivable, net 85,975,066 109,717,025
Accrued interest receivable:
Loans receivable 575,331 746,108
Investment and mortgage-backed securities and interest-bearing deposits 73,685 60,477
Real estate owned 3,090,958 956,165
Stock in Federal Home Loan Bank (FHLB), at cost 2,322,500 2,322,500
Office property and equipment, net 1,126,971 1,229,014
Office property and equipment, held for sale - 850,000
Current income taxes receivable 995,629 244,598
Deferred income tax benefit 470,457 1,324,000
Cash surrender value of life insurance and other assets 2,246,748 2,343,341
-------------- --------------
Total assets $ 127,361,466 $ 151,712,743
============== ==============
Liabilities & Stockholders' Equity
Liabilities:
Deposits $ 102,917,390 $ 124,608,965
FHLB advances 9,000,000 10,150,000
Accrued expenses and other liabilities 478,495 801,211
Accrued interest payable on deposits 150,620 189,222
Advance payments by borrowers for property taxes and insurance 255,623 1,218,622
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Total liabilities 112,802,128 136,968,020
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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 10,047,584 10,030,411
Retained earnings, substantially restricted 7,633,199 8,022,702
Treasury stock, 156,046 shares, at cost (2,987,511) (2,987,511)
Accumulated other comprehensive income (loss) 86,877 (27,132)
Unearned employee benefits (231,130) (304,066)
-------------- --------------
Total stockholders' equity 14,559,338 14,744,723
-------------- --------------
Total liabilities and stockholders' equity $ 127,361,466 $ 151,712,743
============== ==============
See accompanying note to unaudited consolidated financial statements.
1
CBES BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
2001 2000 2001 2000
------------ ------------ ----------- -----------
Interest income:
Loans receivable $ 2,077,427 3,090,679 4,222,118 6,568,428
Investment and mortgage-backed securities 186,147 3,617 381,964 7,105
Other 84,927 218,404 236,711 340,038
------------ ------------ ----------- -----------
Total interest income 2,348,501 3,312,700 4,840,793 6,915,571
------------ ------------ ----------- -----------
Interest expense:
Deposits 1,245,099 1,947,254 2,768,073 3,751,395
FHLB Advances 144,167 183,444 289,526 651,103
------------ ------------ ----------- -----------
Total interest expense 1,389,266 2,130,698 3,057,599 4,402,498
------------ ------------ ----------- -----------
Net interest income 959,235 1,182,002 1,783,194 2,513,073
Provision for loan losses 212,245 594,780 323,379 1,162,649
------------ ------------ ----------- -----------
Net interest income after
provision for loan losses 746,990 587,222 1,459,815 1,350,424
------------ ------------ ----------- -----------
Non-interest income:
Gain on sale of loans, net 86,954 174,753 190,574 231,306
Customer service charges 62,498 71,080 133,364 147,735
Loan servicing fees 2,344 6,831 4,594 13,937
Other 54,316 41,836 113,958 86,858
------------ ------------ ----------- -----------
Total non-interest income 206,112 294,500 442,490 479,836
------------ ------------ ----------- -----------
Non-interest expense:
Compensation and benefits 632,827 619,829 1,279,017 1,253,052
Office property and equipment 128,411 214,023 274,024 422,805
Data processing 52,646 56,965 106,489 115,786
Federal insurance premiums 15,292 6,989 30,877 13,836
Advertising 16,621 14,004 26,098 29,887
Real estate owned and repossessed assets 103,878 96,851 142,140 177,936
Other 230,489 193,873 452,547 764,109
------------ ------------ ----------- -----------
Total non-interest expense 1,180,164 1,202,534 2,311,192 2,777,411
------------ ------------ ----------- -----------
(Loss) before income taxes (227,062) (320,812) (408,887) (947,151)
Income tax (benefit) (85,055) (129,984) (154,339) (377,952)
------------ ------------ ----------- -----------
Net (loss) $ (142,007) (190,828) (254,548) (569,199)
============ ============ =========== ===========
(Loss) per share-basic and diluted $ (0.17) (0.23) (0.30) (0.68)
============ ============ =========== ===========
Basic weighted average shares 851,634 837,102 850,383 838,184
============ ============ =========== ===========
Diluted weighted average shares 852,507 837,102 851,156 838,184
============ ============ =========== ===========
See accompanying note to unaudited consolidated financial statements.
2
CBES BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity and Comprehensive Income (Loss)
For the six months ended December 31, 2001
(Unaudited)
Accumulated
Additional other Unearned Total
Common paid-in Retained Treasury comprehensive employee stockholders'
stock capital earnings stock income (loss) benefits equity
----- ------- -------- ----- ------------- -------- ------
Balance at June 30, 2001 $ 10,319 10,030,411 8,022,702 (2,987,511) (27,132) (304,066) 14,744,723
Comprehensive income (loss):
Net loss - - (254,548) - - - (254,548)
Other comprehensive income -
unrealized holding gains on debt
and equity securities available-
for-sale, net of tax - - - - 114,009 - 114,009
-------- ---------- --------- ---------- ------- -------- ----------
Total comprehensive income - - (254,548) - 114,009 - (140,539)
-------- ---------- --------- ---------- ------- --------
Allocation of ESOP shares - 17,173 - - - 49,850 67,023
Amortization of RRP - - - - - 23,086 23,086
Dividends declared ($0.32 per share) - - (134,955) - - - (134,955)
-------- ---------- --------- ---------- ------- -------- ----------
Balance at
December 31, 2001 $ 10,319 10,047,584 7,633,199 (2,987,511) 86,877 (231,130) 14,559,338
======== ========== ========= ========== ======= ======== ==========
See accompayning note to unaudited consolidated financial statements.
3
CBES BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the six months ended December 31,
(Unaudited)
2001 2000
------------ ------------
Cash flows from operating activities:
Net (loss) $ (254,548) (569,199)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Provision for loan losses 323,379 1,162,649
Depreciation 112,230 207,182
Amortization of RRP and allocation of ESOP shares 90,109 72,490
(Gain) loss on disposition of real estate owned, net (8,393) 113,625
Proceeds from sale of loans held for sale 11,554,798 20,126,330
Origination of loans held for sale (14,385,859) (3,543,360)
Gain on sale of loans held for sale, net (190,574) (231,306)
Premium amortization and accretion of discounts and deferred fees, net (55,777) (114,159)
Provision for deferred income taxes 790,478 (407,330)
Changes in assets and liabilities:
Accrued interest receivable 157,569 46,880
Other assets 96,593 (335,885)
Accrued expenses and other liabilities (322,716) (245,332)
Accrued interest payable on deposits (38,602) (35,961)
Current income taxes receivable (751,031) (185,623)
------------ ------------
Net cash provided by (used in) operating activities (2,882,344) 16,061,001
------------ ------------
Cash flows from investing activities:
Net decrease in loans receivable 19,178,598 8,855,394
Purchase of investment securities held-to-maturity (340,000) -
Purchase of investment securities available-for-sale (1,005,866) -
Maturity of investment securities held-to-maturity 403,000 104,000
Principal repayments on mortgage-backed securities held-to-maturity 6,026 7,345
Principal repayments on mortgage-backed securities available-for-sale 786,917 -
Purchase of office property and equipment (10,187) (17,806)
Proceeds from sale of office property and equipment 850,000 -
Proceeds from sale of real estate owned 2,179,779 1,000
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Net cash provided by investing activities 22,048,267 8,949,933
------------ ------------
Cash flows from financing activities:
Decrease in deposits (21,691,575) (1,981,752)
Proceeds from FHLB advances - 60,300,000
Repayments of FHLB advances (1,150,000) (76,900,000)
Decrease in advance payments by borrowers for property taxes and insurance (962,999) (124,762)
Dividends paid (134,955) (182,684)
------------ ------------
Net cash used in investing activities (23,939,529) (18,889,198)
------------ ------------
Net (decrease) increase in cash and cash equivalents (4,773,606) 6,121,736
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 $ 13,334,499 13,363,781
============ ============
Supplemental disclosure of cash flow information
Cash paid during the period for interest $ 2,806,675 $ 4,507,665
============ ============
Supplemental schedule of noncash investing and financing activities
Conversion of loans to real estate owned $ 5,191,735 $ 234,391
============ ============
Loans made to finance sales of real estate owned $ 885,556 $ -
============ ============
Dividends declared and payable $ 67,478 $ 67,008
============ ============
See accompanying note to unaudited consolidated financial statements.
4
CBES BANCORP, INC. AND SUBSIDIARIES
Note to Consolidated Financial Statements
(Unaudited)
December 31, 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 consolidated 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 month and six month periods ended December 31, 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 December 31, 2001 to the
financial condition at June 30, 2001, its fiscal year-end, and the results
of operations for the three month and six month periods ended December 31,
2001 with the same periods 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
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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 office located
in Liberty, Clay County, Missouri. In November 2001, the Bank sold the
Kearney branch office to Kearney Trust Company. 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 $24.4 million, or 16.05%, to $127.4 million at
December 31, 2001 from $151.7 million at June 30, 2001. This was primarily
due to a decrease of $23.7 million in net loans receivable and a decrease
in cash and investments of $4.5 million to $26.0 million at December 31,
2001 from $30.5 million at June 30, 2001 partially offset by an increase of
$3.0 million in loans held for sale, net, and an increase of $2.1 million
in real estate owned.
Net loans decreased by $23.7 million, or 21.64%, to $86.0 million at
December 31, 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 $14.3 million, one-to-four family loans of $9.2 million and consumer
loans of $3.2 million partially offset by an increase in commercial real
estate loans of $3.4 million. Loans held for sale, net, were $4.5 million
at December 31, 2001 compared to $1.4 million at June 30, 2001. Interest
bearing deposits in other financial
6
institutions decreased by $4.7 million to $12.2 million at December 31,
2001. Investment securities available for sale increased $385,000 to $12.4
million at December 31, 2001 from $12.0 million at June 30, 2001.
Deposits decreased $21.7 million, or 17.41%, to $102.9 million at December
31, 2001 from $124.6 million at June 30, 2001. The sale of the Kearney
branch deposits decreased deposits by $9.5 million. Due to decreased
commercial and construction loan demand and loan repayments, the Bank has
not been as aggressive as in prior years in retaining deposits. FHLB
advances were $9.0 million at December 31, a decrease of $1.2 million, or
11.33%, from June 30, 2001. Stockholders' equity decreased $185,000 to
$14.6 million at December 31, 2001 from $14.7 million at June 30, 2001. The
decrease was primarily due to the net loss of $255,000 for the period and
common stock dividends declared of $135,000. That decrease offset the
amortization of unearned employee benefits of $90,000 and the increase in
unrealized gains of $114,000, net of tax, on debt and equity securities
available for sale.
Comparison of Operating Results for the Three Months Ended December 31,
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2001 and 2000
-------------
Performance Summary. For the three months ended December 31, 2001, the
company had a net loss of $142,000, or $0.17 per basic and diluted share,
compared to a net loss of $191,000, or $0.23 per basic and diluted share
for the three months ended December 31, 2000. The decrease in the net loss
was primarily due to a decrease in the provision for loan losses of
$383,000 and a decrease in non-interest expense of $22,000 offsetting a
decrease in net interest income of $223,000, a decrease in non-interest
income of $88,000 and a decrease in net tax benefit of $45,000.
Net Interest Income. Net interest income was $959,000 for the three months
ended December 31, 2001, a decrease of $223,000 from the $1.2 million for
the three months ended December 31, 2000. Interest income was $2.3 million
for the three months ended December 31, 2001 compared to $3.3 million for
the three months ended December 31, 2000. Interest expense was $1.4 million
for the three months ended December 31, 2001 compared to $2.1 million for
the three months ended December 31, 2000. The average yields on interest
earning assets were 7.26% and 8.33% for the three months ended December 31,
2001 and 2000, respectively. The average rates on interest bearing
liabilities were 4.54% and 5.69% for the same periods, respectively. That
resulted in net interest rate spreads of 2.72% and 2.64% for the three
months ended December 31, 2001 and 2000, respectively. Net interest margins
were 2.97% for both the three months ended December 31, 2001 and 2000.
Interest Income. Total interest income was $2.3 million for the three
months ended December 31, 2001, a decrease of $1.0 million from the $3.3
million for the three months ended December 31, 2000. Interest income from
loans receivable was $2.1 million for the three months ended December 31,
2001, a decrease of $1.0 million from the $3.1 million for the three months
ended December 31, 2000. The decrease was primarily due to decreased
average balances in loans outstanding. The average balance of outstanding
loans was $95.5 million and $144.3 million for the three months ended
December 31 2001 and 2000, respectively. The average yields on loans
outstanding were 8.70% and 8.56%, respectively. Although the balances have
declined significantly, loans on non-accrual status continue to have a
significant negative effect on interest income. Non-accrual loans were $6.3
million at December 31, 2001 compared to $12.3 million at December 31, 2000
and $10.6 million at June 30, 2001. For the three months ended December 31,
2001, gross interest income, which would have been recorded, had the
non-accrual loans been current in accordance with their original terms
amounted to $320,000. Interest income on investment and mortgage-backed
securities and other interest bearing deposits increased to $271,000 for
the three months ended December 31, 2001 compared to $222,000 for the three
months ended December 31, 2000. The increase was due to increased average
balances outstanding in the current period.
Interest Expense. Total interest expense was $1.4 million for the three
months ended December 31, 2001, a decrease of $741,000 from the $2.1
million for the three months ended December 31, 2000. Interest expense on
deposits was $1.2 million for the three months ended December 31, 2001, a
decrease of $702,000 from the $1.9 million for the three months ended
December 31, 2000. Interest expense on FHLB advances decreased $39,000 to
$144,000 for the three months ended December 31, 2001 from $183,000 for the
three months ended December 31, 2000. Decreases for both categories were
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 $212,000 for
the three months ended December 31, 2001 compared to $595,000 for the three
months ended December 31, 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 December 31, 2001 was due to actual net losses in the consumer loan
portfolio. Assets classified as substandard at December 31, 2001 were $9.4
million compared to $15.8 million at June 30, 2001. Net loans charged off
for the three months ended December 31, 2001 and 2000 were $1,374,000 and
$75,000, respectively.
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
allowance for loan losses. 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 December 31, 2001, the Bank had a total allowance for loan losses of
$2.0 million, representing 31.0% of non-performing loans and 2.3% 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 decreased $88,000 to $206,000 for
the three months ended December 31, 2001 from $294,000 for the three months
ended December 31, 2000. Gains on the sale of loans decreased $88,000
primarily due to decreased loan sales in the current period. Proceeds from
loan sales were $5.2 million in the three months ended December 31, 2001,
compared to $14.4 million in the prior year. The prior period included a
loan sale of a $10 million pool. Other non-interest income increased
$12,000 primarily due to increased late charges collected on mortgage
loans. Customer service charges decreased $9,000 due to fewer accounts and
the sale of the Kearney office.. Loan-servicing fees decreased $4,000 due
to fewer accounts.
Non-interest Expense. Non-interest expense decreased $22,000 to $1.18
million for the three months ended December 31, 2001 from $1.2 million for
the three months ended December 31, 2000. Compensation and benefit expense
increased $13,000 in the current period. Cash compensation paid increased
$24,000 due to payments made to terminated employees. ESOP expenses
increased $22,000 due to a higher average price of the Company's common
stock during the current period. Expenses for the RRP decreased $19,000 in
the current period. Vesting for the majority of awards was completed in
September 2001. Due to more loan originations in the current period,
$11,000 more in expenses was deferred in accordance with SFAS No. 91.
Occupancy expense decreased $86,000 in the current period primarily due to
decreased depreciation because of the sale of the Kearney branch location.
Federal insurance premiums increased $9,000 primarily due to higher rates.
Advertising expense increased $3,000 to $17,000 for the current period
primarily due to increased advertising in the current period. Real estate
owned expense increased $7,000 to $104,000 for the current period primarily
due to the increased number of properties in real estate owned and
repossessed assets in the current period. Other expense increased $37,000
to $230,000 for the current period. During the current period, expenses for
OTS assessments increased $16,000, FHLB charges increased $12,000, fees for
professional services increased $6,000, the provision for loss on sale of
real estate owned increased $16,000 and repossessed asset expense increased
$7,000. Loan related expenses decreased $3,000. Expenses for office
supplies, telephones and postage decreased $11,000, $4,000, and $6,000,
respectively, in the current period.
Income Taxes. The income tax benefit was $85,000 for the three months ended
December 31, 2001 compared to $130,000 for the three months ended December
31, 2000. The reduction in benefit was due to the decrease in
8
net operating loss for the current period. The effective tax rates were
37.46% and 40.52% for the three months ended December 31, 2001 and 2000,
respectively.
Comparison of Operating Results for the Six Months Ended December 31,
---------------------------------------------------------------------
2001 and 2000
-------------
Performance Summary. For the six months ended December 31, 2001, the
Company had a net loss of $255,000, or $0.30 per basic and diluted share,
compared to a net loss of $569,000, or $0.68 per basic and diluted share
for the six months ended December 31, 2000. The decrease in the net loss
was primarily due to a decrease in the provision for loan losses of
$839,000 and a decrease in non-interest expense of $466,000 offsetting a
decrease in net interest income of $730,000, a decrease in non-interest
income of $37,000 and a decrease in net tax benefit of $224,000.
Net Interest Income. Net interest income was $1.8 million for the six
months ended December 31, 2001, a decrease of $730,000 from the $2.5
million for the six months ended December 31, 2000. Interest income was
$4.8 million for the six months ended December 31, 2001, compared to $6.9
million for the six months ended December 31, 2000. Interest expense was
$3.1 million for the six months ended December 31, 2001 compared to $4.4
million for the six months ended December 31, 2000. The average yields on
interest earning assets were 7.22% and 8.40% for the six months ended
December 31, 2001 and 2000, respectively. The average rates paid on
interest bearing liabilities were 4.83% and 5.68% for the same periods,
respectively. That resulted in average net interest rate spreads of 2.39%
and 2.72% for the six months ended December 31, 2001 and 2000 respectively.
The net interest margins were 2.66% and 3.05% for the six months ended
December 31, 2001 and 2000, respectively.
Interest Income. Total interest income was $4.8 million for the six months
ended December 31, 2001, a decrease of $2.1 million from the $6.9 million
for the six months ended December 31, 2000. Interest income from loans
receivable was $4.2 million for the six months ended December 31, 2001, a
decrease of $2.3 million from the $6.6 million for the six months ended
December 31, 2000. The decrease was primarily due to decreased average
balances outstanding during the two periods and decreased average yields
earned. The average balances of loans receivable were $100.6 million and
$152.5 million for the six months ended December 31, 2001 and 2000,
respectively. The average yields on loans outstanding during the periods
were 8.39% and 8.62% for the same periods, respectively. Interest income on
investment and mortgage-backed securities was $382,000 and $7,000 for the
six months ended December 31, 2001 and 2000, respectively. The increase is
primarily due to increased average balances in the current period. Interest
income on other interest bearing deposits was $237,000 and $340,000 for the
six months ended December 31, 2001 and 2000, respectively. The decrease was
primarily due to decreased average yields on those investment in the
current period.
Interest Expense. Total interest expense was $3.1 million for the six
months ended December 31, 2001, a decrease of $1.3 million from the $4.4
million for the six months ended December 31, 2000. Interest expense on
deposits was $2.8 million for the six months ended December 31, 2001, a
decrease of $983,000 from the $3.8 million for the six months ended
December 31, 2000. Interest on FHLB advances was $290,000 for the six
months ended December 31, 2001, a decrease of $362,000 from the $651,000
for the six months ended December 31, 2000. The decrease for both are
primarily due to decreased average balances outstanding and a decrease in
the average rates paid on those balances.
Provision for Loan Losses. The provision for loan losses was $323,000 for
the six months ended December 31, 2001 compared to $1.2 million for the six
months ended December 31, 2000. The large provision in the 2000 period was
primarily due to large increases in classified assets and increases in
general reserves. Assets classified as substandard at December 31, 2001
were $9.4 million, compared to $15.8 million and $22.4 million at June 30,
2001 and December 31, 2000, respectively. At December 31, 2001, the Company
had a total allowance for loan losses of $2.0 million, representing 31.0%
of non-performing loans and 2.3% of loans receivable, net.
Non-interest Income. Non-interest income was $442,000 for the six months
ended December 31, 2001, a $38,000 decrease from the $480,000 for the six
months ended December 31, 2000. Gains on the sale of loans decreased
$40,000 to $191,000 for the six months ended December 31, 2001 from
$231,000 for the six months ended December 31, 2000. The decrease was
primarily due to reduced levels of loan sales in the current period.
Proceeds from the sale of loans were $11.6 million in the six months ended
December 31, 2001, compared to
9
$20.1 million in the six months ended December 31, 2000. The 2000 period
included a sale of a $10 million pool of loans. For the six months ended
December 31, 2001, customer service charges decreased $14,000 to $133,000 due to
fewer accounts and the sale of the Kearney office. Loan servicing fees decreased
$9,000 to $5,000 primarily due to fewer accounts. Other non-interest income
increased $27,000 to $114,000 for the six months ended December 31, 2001. The
increase was primarily due to increased late charges collected on loans.
Non-interest Expense. Non-interest expense decreased $466,000 to $2.3 million
for the six months ended December 31, 2001 from $2.8 million for the six months
ended December 31, 2000. Compensation and related expenses increased $26,000 to
$1.3 million for the current period. Cash compensation increased $15,000
primarily due to payments to terminated and other employees for unused leave.
ESOP expenses increased $9,000 in the current period primarily due to a higher
average stock price for the Company's common stock. RRP expenses increased
$4,000 in the current period because of forfeitures in the prior period. All RRP
vesting was completed at December 31, 2001. As a result, no future expenses will
be incurred for RRP. Expenses for salary continuation plans increased $16,000 in
the current period due to forfeitures in the prior period. Director's fees
decreased $6,000 in the current period primarily due to reduced fees paid to
directors. Office property and equipment expense decreased $149,000 to $274,000
for the six months ended December 31, 2001 from $423,000 for the prior period.
Depreciation expenses decreased $95,000 in the current period. Expenses for
maintenance agreements and repairs and maintenance decreased $17,000 in the
current period. Tax expenses decreased $3,000 in the current period. Data
processing expenses decreased $10,000 to $106,000 for the six months ended
December 31, 2001 from $116,000 for the prior period. The decrease was primarily
due to fewer accounts processed. Federal insurance premiums increased $17,000 to
$31,000 for the six months ended December 31, 2001 from $14,000 for the prior
period. The increase was primarily due to increased assessment rates in the
current period. Advertising expenses decreased $4,000 to $26,000 for the six
months ended December 31, 2001 from $30,000 for the prior period. The decrease
was primarily due to reduced levels of advertising in the current period. Real
estate owned and repossessed asset expense decreased $36,000 to $142,000 for the
six months ended December 31, 2001 from $178,000 for the prior period. The
decrease was primarily due to increased profits on the sale of real estate owned
in the current period compared to the prior year. Other expenses decreased
$311,000 to $453,000 for the six months ended December 31, 2001 from $764,000
for the prior period. The 2000 period included a charge for bad checks from one
customer of $320,000. During the current period, expenses for audit and
accounting services increased $17,000, FHLB charges increased $15,000, OTS
charges and assessments increased $8,000, provision for losses on real estate
owned increased $25,000 and expenses for repossessed assets increased
$15,000.Also during the current period, expenses for office supplies decreased
$8,000, telephone expenses decreased $3,000, postage expense decreased $7,000,
other professional fees decreased $14,000 and loan expenses decreased $21,000.
Income Taxes. The income tax benefit was $154,000 for the six months ended
December 31, 2001 compared to $378,000 for the six months ended December 31,
2000. The reduction in benefit was due to the decrease in the net operating loss
for the current period. The effective tax rates were 37.75% and 39.90% for the
six months ended December 31, 2001 and 2000, respectively.
Non-performing Assets
- ---------------------
Non-performing assets were $9.4 million at December 31, 2001 compared to $11.6
million at June 30, 2001. Non-performing assets consist of the following at
December 31, 2001 and June 30, 2001, respectively; real estate owned $3.1
million and $1.0 million; non-accrual loans $6.3 million and $10.6 million; and
other repossessed assets $50,000 and $51,000. The Bank's allowance for loan
losses was $2.0 million at December 31, 2001, or 20.69% 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
charge-offs on three commercial construction projects. 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 decrease in non-performing assets from June 30, 2001 to December 31, 2001
was primarily due to decreases in non-accruing one-to-four family construction
loans of $3.4 million, one-to-four family loans of $393,000, multifamily and
commercial loans of $13,000, land loans of $280,000 and consumer loans of
$161,000 offsetting an increase in real estate owned and repossessed assets of
$2.1 million. The increase in foreclosed assets was primarily due to
foreclosures on one-to-four family construction loans.
10
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,
2001:
Actual Required Excess
amount/percent amount/percent amount/percent
-------------- -------------- --------------
(Dollars in Thousands)
FIRREA Requirements
Tangible capital $ 12,791 10.15% 1,891 1.50% 10,900 8.65%
Core leverage capital $ 12,791 10.15% 5,042 4.00% 7,749 6.15%
Risk-based capital $ 13,871 16.13% 6,879 8.00% 6,992 8.13%
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 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 22.34% and
21.61% at December 31, 2001 and June 30, 2001, respectively. The Company's most
liquid assets are cash and cash equivalents, which include short-term
investments. At December 31, 2001 and June 30, 2001, cash and cash equivalents
were $13.3 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
11
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 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 developments 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.
12
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
---------------------------------------------------
On October 25, 2001 the Company held its annual meeting of stockholders
to consider the election of three 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, 2002. The results of the meeting were as
follows:
Paul L. Thomas was elected to serve as a director of the Company with
554,870 votes for and 68,307 votes withheld.
Robert L. Lalumondier was elected to serve as a director of the Company
with 548,470 votes for and 74,707 votes withheld.
Cecil E. Lamb was elected to serve as a director of the Company with
513,860 votes for and 109,317 votes withheld.
The appointment of KPMG LLP to act as the Company's auditor for the
fiscal year ending June 30, 2002 was ratified with 603,836 votes for,
14,315 votes against and 5,026 votes withheld.
Item 5. Other Information
-----------------
None.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
None.
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.
-----------------------
(Registrant)
Date: February 14, 2002 By: /s/ Paul L. Thomas
---------------------------------------
Paul L. Thomas, Chief Executive Officer
(Duly Authorized Officer)
Date: February 14, 2002 By: /s/ Ronald W. Hill
---------------------------------------
Ronald W. Hill, Chief Financial Officer
(Principal Financial Officer)
14