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 March 31, 2002
[_] 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 May 8, 2002
------------------------ --------------------------
Common stock, .01 par value 875,805
CBES BANCORP, INC. AND SUBSIDIARY
Table of Contents
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited):
Consolidated Statements of Financial Condition at March 31, 2002 and
June 30, 2001 ................................................................... 1
Consolidated Statements of Earnings for the three months and nine months ended
March 31, 2002 and 2001 ......................................................... 2
Consolidated Statements of Stockholders' Equity and Comprehensive Income (Loss)
for the nine months ended March 31, 2002 and 2001 ............................... 3
Consolidated Statements of Cash Flows for the nine months ended March 31,
2002 and 2001 ................................................................... 4
Note 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 ................................................................................. 13
CBES BANCORP, INC. AND SUBSIDIARY
Consolidated Balance Sheets
March 31, 2002 and June 30, 2001
March 31, June 30,
Assets 2002 2001
-------------- --------------
(Unaudited)
Cash $ 960,603 $ 1,222,857
Interest-bearing deposits in other financial institutions 20,483,041 16,885,248
Investment securities available-for-sale 11,842,973 11,966,804
Investment securities held-to-maturity (estimated fair value
of $332,000 and $405,000 respectively) 331,034 404,177
Loans held for sale, net 6,262,096 1,440,429
Loans receivable, net 71,009,630 109,717,025
Accrued interest receivable:
Loans receivable 450,614 746,108
Investment and mortgage-backed securities and interest-bearing deposits 131,372 60,477
Real estate owned 2,988,285 956,165
Stock in Federal Home Loan Bank (FHLB), at cost 2,322,500 2,322,500
Office property and equipment, net 1,078,800 1,229,014
Office property and equipment, held for sale - 850,000
Current income taxes receivable 944,737 244,598
Deferred income tax asset 499,921 1,324,000
Cash surrender value of life insurance 1,848,032 1,788,035
Other assets 381,743 555,306
-------------- --------------
Total assets $ 121,535,381 $ 151,712,743
============== ==============
Liabilities & Stockholders' Equity
Liabilities:
Deposits $ 96,537,225 $ 124,608,965
FHLB advances 9,000,000 10,150,000
Accrued expenses and other liabilities 681,691 801,211
Accrued interest payable on deposits 94,417 189,222
Advance payments by borrowers for property taxes and insurance 735,789 1,218,622
-------------- --------------
Total liabilities 107,049,122 136,968,020
============== ==============
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 10,054,394 10,030,411
Retained earnings, substantially restricted 7,580,956 8,022,702
Unearned employee benefits (211,710) (304,066)
Accumulated other comprehensive income (loss) 39,811 (27,132)
Treasury stock, 156,046 shares, at cost (2,987,511) (2,987,511)
-------------- --------------
Total stockholders' equity 14,486,259 14,744,723
-------------- --------------
Total liabilities and stockholders' equity $ 121,535,381 $ 151,712,743
============== ==============
See accompanying note to unaudited consolidated financial statements.
1
CBES BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
2002 2001 2002 2001
----------- ------------ ----------- -----------
Interest income:
Loans receivable $1,739,857 2,787,824 5,961,975 9,356,251
Investment and mortgage-backed securities 178,858 1,343 560,822 8,449
Other 46,553 166,489 283,264 506,527
----------- ------------ ----------- -----------
Total interest income 1,965,268 2,955,656 6,806,061 9,871,227
----------- ------------ ----------- -----------
Interest expense:
Deposits 947,216 1,720,921 3,715,289 5,472,316
FHLB Advances 126,875 193,770 416,401 844,873
----------- ------------ ----------- -----------
Total interest expense 1,074,091 1,914,691 4,131,690 6,317,189
----------- ------------ ----------- -----------
Net interest income 891,177 1,040,965 2,674,371 3,554,038
Provision for loan losses 216,127 87,007 539,506 1,249,656
----------- ------------ ----------- -----------
Net interest income after
provision for loan losses 675,050 953,958 2,134,865 2,304,382
----------- ------------ ----------- -----------
Non-interest income:
Gain on sale of loans, net 71,328 63,786 261,902 295,092
Customer service charges 53,140 71,178 186,504 218,913
Loan servicing fees 1,673 8,124 6,267 22,060
Other 71,020 47,338 184,978 134,196
----------- ------------ ----------- -----------
Total non-interest income 197,161 190,426 639,651 670,261
----------- ------------ ----------- -----------
Non-interest expense:
Compensation and benefits 484,553 603,396 1,763,570 1,856,448
Office property and equipment 121,668 198,596 395,692 621,400
Data processing 54,661 55,252 161,150 171,039
Federal insurance premiums 14,402 16,669 45,279 30,505
Advertising 15,319 12,271 41,417 42,159
Real estate owned and repossessed assets (38,786) 20,203 103,354 198,138
Other 207,424 302,170 659,971 1,066,279
----------- ------------ ----------- -----------
Total non-interest expense 859,241 1,208,557 3,170,433 3,985,968
----------- ------------ ----------- -----------
Earnings (loss) before income taxes 12,970 (64,173) (395,917) (1,011,325)
Income tax (benefit) (3,003) (31,782) (157,342) (409,734)
----------- ------------ ----------- -----------
Net earnings (loss) $ 15,973 (32,391) (238,575) (601,591)
=========== ============ =========== ===========
Earnings (loss) per share-basic and diluted $ 0.02 (0.04) (0.28) (0.72)
=========== ============ =========== ===========
Basic weighted average shares 853,978 838,890 851,562 837,616
=========== ============ =========== ===========
Diluted weighted average shares 854,898 838,890 852,384 837,616
=========== ============ =========== ===========
See accompanying note to unaudited consolidated financial statements.
2
CBES BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity and Comprehensive Income (Loss)
For the nine months ended March 31, 2002 and March 31, 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 - - (238,575) - - - (238,575)
Other comprehensive income -
unrealized holding gains on
debt and equity securities
available-for-sale, net of tax - - - - 66,943 - 66,943
------- ----------- ---------- --------- --------- ----------- ------------
Total comprehensive income - - (238,575) - 66,943 - (171,632)
------- ----------- ---------- --------- --------- ----------- ------------
Allocation of ESOP shares - 23,983 - 69,270 - - 93,253
Amortization of RRP - - - 23,086 - - 23,086
Dividends declared ($0.24 per share) - - (203,171) - - - (203,171)
------- ----------- ---------- --------- --------- ----------- ------------
Balance at
March 31, 2002 $10,319 10,054,394 7,580,956 (211,710) 39,811 (2,987,511) 14,486,259
======= =========== ========== ========= ========= =========== ============
Balance at June 30, 2000 $10,319 10,020,540 9,244,208 (512,410) - (3,009,175) 15,753,482
Comprehensive income (loss):
Net loss - - (601,590) - - - (601,590)
Other comprehensive income -
unrealized holding gains on
debt and equity securities
available-for-sale, net of tax - - - - - - -
------- ----------- ---------- --------- --------- ----------- ------------
Total comprehensive income - - (601,590) - - - (601,590)
------- ----------- ---------- --------- --------- ----------- ------------
Allocation of ESOP shares - 4,468 - 70,120 - - 74,588
Amortization of RRP - - - 40,575 - - 40,575
Forfeiture of RRP shares - - - 54,797 - (54,797) -
Dividends declared ($0.24 per share) - - (200,161) - - - (200,161)
------- ----------- ---------- --------- --------- ----------- ------------
Balance at
March 31, 2001 $10,319 10,025,008 8,442,457 (346,918) - (3,063,972) 15,066,894
======= =========== ========== ========= ========= =========== ============
See accompayning note to unaudited consolidated financial statements.
3
CBES BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the nine months ended March 31,
(Unaudited)
2002 2001
------------ ------------
Cash flows from operating activities:
Net (loss) earnings $ (238,575) (601,590)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Provision for loan losses 539,506 1,249,656
Depreciation 164,099 304,675
Amortization of RRP and allocation of ESOP shares 116,339 115,163
(Gain) loss on disposition of real estate owned, net (128,832) 126,365
Proceeds from sale of loans held for sale 16,171,656 24,733,413
Origination of loans held for sale (20,742,442) (8,087,654)
Gain on sale of loans held for sale, net (261,902) (295,092)
Premium amortization and accretion of discounts and deferred fees, net (99,546) (340,361)
Provision for deferred income taxes 782,172 (407,330)
Changes in assets and liabilities:
Accrued interest receivable 224,599 270,196
Other assets 113,566 92,708
Accrued expenses and other liabilities (119,520) (216,555)
Accrued interest payable on deposits (94,805) (49,839)
Current income taxes receivable (700,139) (272,263)
------------ ------------
Net cash (used in) provided by operating activities (4,273,824) 16,621,492
------------ ------------
Cash flows from investing activities:
Net decrease in loans receivable 32,928,937 21,056,628
Purchase of investment securities held-to-maturity (237,418) (293,310)
Purchase of investment securities available-for-sale (1,006,335) -
Maturity of investment securities held-to-maturity 306,000 107,000
Principal repayments on mortgage-backed securities held-to-maturity 9,091 10,618
Principal repayments on mortgage-backed securities available-for-sale 1,233,337 -
Purchase of office property and equipment (13,885) (21,278)
Proceeds from sale of office property and equipment 850,000 -
Proceeds from sale of real estate owned 3,447,380 1,000
------------ ------------
Net cash provided by investing activities 37,517,107 20,860,658
------------ ------------
Cash flows from financing activities:
Decrease in deposits (28,071,740) (9,330,790)
Proceeds from FHLB advances - 64,300,000
Repayments of FHLB advances (1,150,000) (76,900,000)
Decrease in advance payments by borrowers for property taxes and insurance (482,833) (258,086)
Dividends paid (203,171) (249,691)
------------ ------------
Net cash used in investing activities (29,907,744) (22,438,567)
------------ ------------
Net increase in cash and cash equivalents 3,335,539 15,043,583
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 $ 21,443,644 22,285,628
============ ============
Supplemental disclosure of cash flow information
Cash paid during the period for income taxes $ - $ -
============ ============
Cash paid during the period for interest $ 3,810,094 $ 6,384,664
============ ============
Supplemental schedule of noncash investing and financing activities
Conversion of loans to real estate owned $ 6,236,224 $ 288,338
============ ============
Loans made to finance sales of real estate owned $ 885,556 $ -
============ ============
Dividends declared and payable $ 68,216 $ 67,002
============ ============
See accompanying note to unaudited consolidated financial statements
4
CBES BANCORP, INC. AND SUBSIDIARY
Note to Consolidated Financial Statements
(Unaudited)
March 31, 2002
(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 nine month periods ended March 31,
2002 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 March 31, 2002 to the financial
condition at June 30, 2001, its fiscal year-end, and the results of operations
for the three month and nine month periods ended March 31, 2002 with the same
periods in 2001. 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 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 $30.2 million, or 19.89%, to $121.5 million at March 31,
2002 from $151.7 million at June 30, 2001. This was primarily due to a decrease
of $38.7 million in net loans receivable offset by an increase of $4.8 million
in loans held for sale, an increase of $3.1 million in cash and investments and
an increase of $2.0 million in real estate owned.
Net loans decreased by $38.7 million, or 35.28%, to $71.0 million at March 31,
2002 from $109.7 million at June 30, 2001. The decrease was primarily due to
decreases in construction loans, net of loans in process, of $18.4 million,
one-to-four family loans of $17.4 million, land loans of $2.3 million and
consumer loans of $4.8 million partially offset by an increase in commercial
real estate loans of $2.3 million. Loans held for sale, net, were $6.3 million
at March 31, 2002 compared to $1.4 million at June 30, 2001. Interest bearing
deposits in other financial institutions increased by $3.6 million to $20.5
million at March 31, 2002. Investment securities available for sale decreased
$124,000 to $11.8 million at March 31, 2002 from $12.0 million at June 30, 2001.
6
Deposits decreased $28.1 million, or 22.53%, to $96.5 million at March 31, 2002
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 March 31, a
decrease of $1.2 million, or 11.33%, from June 30, 2001. Stockholders' equity
decreased $258,000 to $14.5 million at March 31, 2002 from $14.7 million at June
30, 2001. The decrease was primarily due to the net loss of $239,000 for the
period and common stock dividends declared of $203,000 offset by the
amortization of unearned employee benefits of $92,000 and the increase in
unrealized gains of $67,000, net of tax, on debt and equity securities available
for sale.
Comparison of Operating Results for the Three Months Ended March 31, 2002 and
- -----------------------------------------------------------------------------
2001
- ----
Performance Summary. For the three months ended March 31, 2002, the company had
net earnings of $16,000, or $0.02 per basic and diluted share, compared to a net
loss of $32,000, or $0.04 per basic and diluted share for the three months ended
March 31, 2001. The increase in earnings was primarily due to a decrease in
non-interest expense of $349,000 and an increase in non-interest income of
$7,000 offsetting a decrease in net interest income of $150,000, an increase in
the provision for loan losses of $129,000 and a decrease in net tax benefit of
$29,000.
Net Interest Income. Net interest income was $891,000 for the three months ended
March 31, 2002, a decrease of $150,000 from the $1.0 million for the three
months ended March 31, 2001. Interest income was $2.0 million for the three
months ended March 31, 2002 compared to $3.0 million for the three months ended
March 31, 2001. Interest expense was $1.1 million for the three months ended
March 31, 2002 compared to $1.9 million for the three months ended March 31,
2001. The average yields on interest earning assets were 6.91% and 8.00% for the
three months ended March 31, 2002 and 2001, respectively. The average rates on
interest bearing liabilities were 4.00% and 5.50% for the same periods,
respectively. That resulted in net interest rate spreads of 2.91% and 2.50% for
the three months ended March 31, 2002 and 2001, respectively. Net interest
margins for the three months ended March 31, 2002 and 2001 were 3.13% and 2.82%,
respectively.
Interest Income. Total interest income was $2.0 million for the three months
ended March 31, 2002, a decrease of $1.0 million from the $3.0 million for the
three months ended March 31, 2001. Interest income from loans receivable was
$1.7 million for the three months ended March 31, 2002, a decrease of $1.1
million from the $2.8 million for the three months ended March 31, 2001. The
decrease was primarily due to decreased average balances in loans outstanding
and lower average yields on those balances. The average balance of outstanding
loans was $83.8 million and $131.2 million for the three months ended March 31
2002 and 2001, respectively. The average yields on loans outstanding were 8.30%
and 8.50%, 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 $3.0 million at March 31, 2002 compared
to $12.1 million at March 31, 2001 and $10.6 million at June 30, 2001. For the
three months ended March 31, 2002, gross interest income, which would have been
recorded, had the non-accrual loans been current in accordance with their
original terms amounted to $147,000. Interest income on investment and
mortgage-backed securities and other interest bearing deposits increased to
$225,000 for the three months ended March 31, 2002 compared to $168,000 for the
three months ended March 31, 2001. The increase was due to increased average
balances outstanding in the current period.
Interest Expense. Total interest expense was $1.1 million for the three months
ended March 31, 2002, a decrease of $841,000 from the $1.9 million for the three
months ended March 31, 2001. Interest expense on deposits was $947,000 for the
three months ended March 31, 2002, a decrease of $774,000 from the $1.7 million
for the three months ended March 31, 2001. Interest expense on FHLB advances
decreased $67,000 to $127,000 for the three months ended March 31, 2002 from
$194,000 for the three months ended March 31, 2001. Decreases for both
categories were due to decreased average balances outstanding and decreased
average rates paid on those balances.
Provision for Loan Losses. The provision for loan losses was $216,000 for the
three months ended March 31, 2002 compared to $87,000 for the three months ended
March 31, 2001. The increase in the provision for loan losses in the current
period was due to increased consumer loan charge-offs. Assets classified as
substandard at March 31, 2002 were $5.4 million compared to $15.8 million at
June 30, 2001 and $18.7 million at March 31,
7
2001. Net loans charged off for the three months ended March 31, 2002 and 2001
were $527,000 and $87,000, 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 March 31, 2002, the Bank had a total allowance for loan losses of $1.7
million, representing 56.7% of non-performing loans and 2.2% of loans
receivable, net and loans held for sale.
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 $7,000 to $197,000 for the
three months ended March 31, 2002 from $190,000 for the three months ended March
31, 2001. Gains on the sale of loans increased $8,000 primarily due to increased
profit margins on loan sales in the current period. Proceeds from loan sales
were $4.6 million in the three months ended March 31, 2002 and 2001. Other
non-interest income increased $24,000 primarily due to increased late charges
collected on mortgage loans and increased income from real estate owned.
Customer service charges decreased $18,000 due to fewer accounts and the sale of
the Kearney office Loan-servicing fees decreased $6,000 due to fewer loans
serviced.
Non-interest Expense. Non-interest expense decreased $349,000 to $859,000 for
the three months ended March 31, 2002 from $1.2 million for the three months
ended March 31, 2001. Compensation and benefit expense decreased $119,000 in the
current period. Cash compensation paid decreased $87,000 primarily due to fewer
employees. ESOP expenses increased $5,000 due to a higher average price of the
Company's common stock during the current period. Expenses for the RRP decreased
$21,000 in the current period. All RRP vesting was completed in December 2001.
Due to more loan originations in the current period, $12,000 more in expenses
was deferred in accordance with SFAS No. 91. Occupancy expense decreased $77,000
in the current period primarily due to decreased depreciation because of the
sale of the Kearney branch location. Federal insurance premiums decreased $2,000
primarily due to lower deposit balances. Advertising expense increased $3,000 to
$15,000 for the current period primarily due to increased advertising in the
current period. Real estate owned expense decreased $59,000. Real estate owned
expenses were $20,000 for the three months ended March 31, 2001. The three
months ended March 31, 2002 reflected income of $39,000, primarily due to
increased profit on the sale of real estate owned in the current period. Other
expense decreased $95,000 to $207,000 for the current period. During the current
period, the provision for loss on real estate owned decreased $32,000, other
mortgage loan expense decreased $26,000, supervisory examination charges
decreased $12,000, postage expense decreased $9,000, repossessed asset expense
decreased $9,000, supplies expense decreased $6,000, telephone expense decreased
$6,000 and dues and subscription expense decreased $3,000. Federal Home Loan
Bank charges increased $10,000 and surety bond premiums increased $4,000.
Income Taxes. The income tax benefit was $3,000 for the three months ended March
31, 2002 compared to $32,000 for the three months ended March 31, 2001. The
reduction in benefit was due to the decrease in net operating loss for the
current period. The effective tax rates were -23.15% and 49.53% for the three
months ended March 31, 2002 and 2001, respectively. The change in the effective
tax rates was primarily due to the non-taxable benefit of company owned life
insurance comprising such a large percentage of net income before tax in the
current period.
8
Comparison of Operating Results for the Nine Months Ended March 31, 2002 and
- ----------------------------------------------------------------------------
2001
- ----
Performance Summary. For the nine months ended March 31, 2002, the Company had a
net loss of $239,000, or $0.28 per basic and diluted share, compared to a net
loss of $602,000, or $0.72 per basic and diluted share for the nine months ended
March 31, 2001. The decrease in the net loss was primarily due to a decrease in
the provision for loan losses of $710,000 and a decrease in non-interest expense
of $816,000 offsetting a decrease in net interest income of $880,000, a decrease
in non-interest income of $31,000 and a decrease in net tax benefit of $252,000.
Net Interest Income. Net interest income was $2.7 million for the nine months
ended March 31, 2002, a decrease of $880,000 from the $3.6 million for the nine
months ended March 31, 2001. Interest income was $6.8 million for the nine
months ended March 31, 2002, compared to $9.9 million for the nine months ended
March 31, 2001. Interest expense was $4.1 million for the nine months ended
March 31, 2002 compared to $6.3 million for the nine months ended March 31,
2001. The average yields on interest earning assets were 7.09% and 8.27% for the
nine months ended March 31, 2002 and 2001, respectively. The average rates paid
on interest bearing liabilities were 4.57% and 5.62% for the same periods,
respectively. That resulted in average net interest rate spreads of 2.52% and
2.65% for the nine months ended March 31, 2002 and 2001, respectively. The net
interest margins were 2.79% and 2.98% for the nine months ended March 31, 2002
and 2001, respectively.
Interest Income. Total interest income was $6.8 million for the nine months
ended March 31, 2002, a decrease of $3.1 million from the $9.9 million for the
nine months ended March 31, 2001. Interest income from loans receivable was $6.0
million for the nine months ended March 31, 2002, a decrease of $3.4 million
from the $9.4 million for the nine months ended March 31, 2001. 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 $95.0 million and $145.5 million for the nine months ended March 31, 2002
and 2001, respectively. The average yields on loans outstanding during the
periods were 8.35% and 8.58% for the same periods, respectively. Interest income
on investment and mortgage-backed securities was $561,000 and $8,000 for the
nine months ended March 31, 2002 and 2001, respectively. The increase is
primarily due to increased average balances in the current period. Interest
income on other interest bearing deposits was $283,000 and $507,000 for the nine
months ended March 31, 2002 and 2001, respectively. The decrease was primarily
due to decreased average yields on those investment in the current period.
Interest Expense. Total interest expense was $4.1 million for the nine months
ended March 31, 2002, a decrease of $2.2 million from the $6.3 million for the
nine months ended March 31, 2001. Interest expense on deposits was $3.7 million
for the nine months ended March 31, 2002, a decrease of $1.8 million from the
$5.5 million for the nine months ended March 31, 2001. Interest on FHLB advances
was $416,000 for the nine months ended March 31, 2002, a decrease of $429,000
from the $845,000 for the nine months ended March 31, 2001. 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 $540,000 for the
nine months ended March 31, 2002 compared to $1.2 million for the nine months
ended March 31, 2001. The decrease in the current period was primarily due to
large decreases in classified assets and increases in general reserves in the
prior period. Assets classified as substandard at March 31, 2002 were $5.4
million, compared to $15.8 million and $18.7 million at June 30, 2001 and March
31, 2001, respectively. At March 31, 2002, the Company had a total allowance for
loan losses of $1.7 million, representing 56.7% of non-performing loans and 2.2%
of loans receivable, net and loans held for sale.
Non-interest Income. Non-interest income was $640,000 for the nine months ended
March 31, 2002, a $30,000 decrease from the $670,000 for the nine months ended
March 31, 2001. Gains on the sale of loans decreased $33,000 to $262,000 for the
nine months ended March 31, 2002 from $295,000 for the nine months ended March
31, 2001. The decrease was primarily due to reduced levels of loan sales in the
current period. Proceeds from the sale of loans were $16.2 million in the nine
months ended March 31, 2002, compared to $24.7 million in the nine months ended
March 31, 2001. The 2001 period included a sale of a $10 million pool of loans.
For the nine months ended March 31, 2002, customer service charges decreased
$32,000 to $187,000 due to fewer accounts and the sale of the Kearney office.
Loan servicing fees decreased $16,000 to $6,000 primarily due to
9
fewer accounts. Other non-interest income increased $51,000 to $185,000 for
the nine months ended March 31, 2002. The increase was primarily due to
increased late charges collected on loans and increased income on real
estate owned.
Non-interest Expense. Non-interest expense decreased $816,000 to $3.2
million for the nine months ended March 31, 2002 from $4.0 million for the
nine months ended March 31, 2001. Compensation and related expenses
decreased $93,000 to $1.8 million for the current period. Cash compensation
decreased $72,000 primarily due to fewer employees. ESOP expenses increased
$14,000 in the current period primarily due to a higher average stock price
for the Company's common stock. RRP expenses decreased $17,000 in the
current 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 $4,000 in the
current period primarily due to reduced fees paid to directors. Office
property and equipment expense decreased $226,000 to $396,000 for the nine
months ended March 31, 2002 from $621,000 for the prior period.
Depreciation expenses decreased $137,000 in the current period. Expenses
for maintenance agreements and repairs and maintenance decreased $36,000 in
the current period. Tax expenses decreased $6,000 in the current period.
Expenses for utilities decreased $8,000 in the current period. Data
processing expenses decreased $10,000 to $161,000 for the nine months ended
March 31, 2002 from $171,000 for the prior period. The decrease was
primarily due to fewer accounts processed. Federal insurance premiums
increased $14,000 to $45,000 for the nine months ended March 31, 2002 from
$31,000 for the prior period. The increase was primarily due to increased
assessment rates in the current period. Advertising expenses decreased
$1,000 to $41,000 for the nine months ended March 31, 2002 from $42,000 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 $95,000 to $103,000 for the nine months ended March 31,
2002 from $198,000 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 $406,000 to $660,000
for the nine months ended March 31, 2002 from $1.1 million for the prior
period. The 2001 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 $25,000, and expenses
for repossessed assets increased $7,000. Also during the current period,
expenses for office supplies decreased $15,000, telephone expenses
decreased $9,000, postage expense decreased $16,000 and loan expenses
decreased $34,000.
Income Taxes. The income tax benefit was $157,000 for the nine months ended
March 31, 2002 compared to $410,000 for the nine months ended March 31,
2001. The reduction in benefit was due to the decrease in the net operating
loss for the current period. The effective tax rates were 39.74% and 40.51%
for the nine months ended March 31, 2002 and 2001, respectively.
Asset Quality
-------------
Non-performing assets were $6.0 million at March 31, 2002 compared to $11.6
million at June 30, 2001. Non-performing assets consist of the following at
March 31, 2002 and June 30, 2001, respectively; real estate owned of $3.0
million and $1.0 million; non-accrual loans of $3.0 million and $10.6
million; and other repossessed assets of $44,000 and $51,000. There were no
loans 90 days or more delinquent accruing interest at March 31, 2002 and
June 30, 2001. The Bank's allowance for loan losses was $1.7 million at
March 31, 2002, representing 28.02% of non-performing assets, 56.73 % of
non-performing loans and 2.17% of loans receivable. The allowance at June
30, 2001 was $3.5 million, representing 30.01% of non-performing assets,
32.87% of non-performing loans and 3.12% of loans receivable. The decrease
in the allowance for loan losses was primarily due to charge-offs on three
commercial construction projects and several one-to-four family 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. Restructured loans were $1.2 million and $915,000 at March
31, 2002 and June 30, 2001, respectively.
The decrease in non-performing assets from June 30, 2001 to March 31, 2002
was primarily due to decreases in non-accruing one-to-four family
construction loans of $4.7 million, one-to-four family loans of $1.9
million, multifamily and commercial loans of $227,000, land loans of
$515,000 and consumer loans of $273,000 offsetting an increase in real
estate owned and repossessed assets of $3.0 million. The increase in
foreclosed assets was primarily due to foreclosures on one-to-four family
construction loans and one-to-four family loans.
10
Assets classified as substandard were $5.4 million and $15.8 million at
March 31, 2002 and June 30, 2001, respectively. One commercial real estate
loan of $1.8 million is in non-accrual status at March 31, 2002 but is not
classified as substandard due to the value of the collateral.
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
March 31, 2002:
Actual Required Excess
amount/percent amount/percent amount/percent
-------------- -------------- --------------
(Dollars in Thousands)
Tangible capital $ 12,846 10.68% 1,804 1.50% 11,042 9.18%
Core leverage capital $ 12,846 10.68% 4,810 4.00% 8,036 6.68%
Risk-based capital $ 13,798 16.92% 6,076 8.00% 7,722 8.92%
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 26.41%
and 21.61% at March 31, 2002 and June 30, 2001, respectively. The Company's
most liquid assets are cash and cash equivalents, which include short-term
investments. At March 31, 2002 and June 30, 2001, cash and cash equivalents
were $21.4 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, 2001 the Bank entered into a Supervisory Agreement with the
OTS. The Supervisory Agreement was required by the OTS primarily due to
non-compliance with OTS regulations concerning lending standards, lending
limitations, classification of assets and appraisal standards. The OTS also
identified weaknesses in the allowance for loan losses and in various
policies and procedures such as; real estate appraisals, loan
11
underwriting, credit administration, lending limits, internal audit
procedures, contingency disaster recovery plan and budgetary processes. 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 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 requires 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 also requires 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.
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets (SFAS No. 144), which supersedes SFAS No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of (SFAS No. 121). SFAS 144 retains many of the
fundamental provisions of SFAS 121, but resolves certain implementation
issues associated with that Statement. SFAS 144 will be adopted by the
Company effective July 1, 2002. The adoption of this standard is not
expected to have an impact on the Company's financial position or results
of operations.
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
---------------------------------------------------
None.
Item 5. Other Information
-----------------
None.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
None.
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: May 14, 2002 By: /s/ Paul L. Thomas
----------------------------------
Paul L. Thomas, Chief Executive Officer
(Duly Authorized Officer)
Date: May 14, 2002 By: /s/ Ronald W. Hill
---------------------------------
Ronald W. Hill, Chief Financial Officer
(Principal Financial Officer)
13