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UNITED STATES
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, 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 April 30, 2001
----- -----------------------------
Common stock, .01 par value 869,864
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CBES BANCORP, INC. AND SUBSIDIARIES
Table of Contents
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Statements of Financial Condition at March 31, 2001
(unaudited) and June 30, 2000........................................ 1
Consolidated Statements of Operations for the three months and nine
months ended March 31, 2001 and 2000 (unaudited)..................... 2
Consolidated Statements of Stockholders' Equity for the nine months
ended March 31, 2001 (unaudited)..................................... 3
Consolidated Statements of Cash Flows for the nine months ended
March 31, 2001 and 2000 (unaudited)................................. 4
Notes to Consolidated Financial Statements (unaudited)................. 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................... 6
PART II - OTHER INFORMATION...................................................... 11
SIGNATURES....................................................................... 12
CBES BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Financial Condition
(Unaudited)
March 31, 2001 and June 30, 2000
March 31 June 30
2001 2000
---- ----
Assets
Cash $ 1,118,310 $ 1,152,781
Interest-bearing deposits in other financial institutions 21,167,318 6,089,264
------------ ------------
Cash and cash equivalents 22,285,628 7,242,045
Investment securities held-to-maturity (estimated fair value
of $405,000 and $226,000 respectively) 404,063 225,898
Loans held for sale, net 512,514 16,863,181
Loans receivable, net 124,680,393 146,935,945
Accrued interest receivable:
Loans receivable 917,114 1,118,559
Investment securities 11,057 79,808
Real estate owned 396,852 237,061
Stock in Federal Home Loan Bank (FHLB), at cost 2,322,500 2,322,500
Office property and equipment, net 2,299,733 2,583,130
Income taxes receivable 156,017 -
Deferred income tax asset 1,241,330 834,000
Cash surrender value of life insurance and other assets 2,304,761 2,397,469
------------ ------------
Total assets $157,531,962 $180,839,596
============ ============
Liabilities and Stockholders' Equity
Liabilities:
Deposits $126,299,973 $135,630,763
FHLB advances 14,150,000 26,750,000
Accrued expenses and other liabilities 622,761 888,846
Accrued interest payable on deposits 206,132 255,971
Advance payments by borrowers for property taxes and insurance 1,186,202 1,444,288
Income taxes payable - 116,246
------------ ------------
Total liabilities 142,465,068 165,086,114
============ ============
Stockholders' Equity:
Preferred stock, $.01 par; 500,000 shares authorized, none issued
or outstanding - -
Common Stock, $.01 par; 3,500,000 shares authorized and 1,031,851
shares issued 10,319 10,319
Additional paid-in capital 10,025,008 10,020,540
Retained earnings, substantially restricted 8,442,457 9,244,208
Treasury stock, 161,987 and 158,789 shares at cost, respectively (3,063,972) (3,009,175)
Unearned employee benefits (346,918) (512,410)
------------ ------------
Total stockholders' equity 15,066,894 15,753,482
------------ ------------
Total liabilities and stockholders' equity $157,531,962 $180,839,596
============ ============
See accompanying note to unaudited consolidated financial statements
1
CBES BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
Three Months Ended Nine Months Ended
March 31 March 31
2001 2000 2001 2000
---- ---- ---- ----
Interest income:
Loans receivable $2,787,824 3,078,973 9,356,251 9,353,527
Mortgage-backed securities 551 846 1,854 2,789
Investment securities 792 30 6,595 70
Other 166,489 223,788 506,527 394,730
---------- --------- ---------- ---------
Total interest income 2,955,656 3,303,637 9,871,227 9,751,116
---------- --------- ---------- ---------
Interest expense:
Deposits 1,720,921 1,569,768 5,472,316 3,910,782
FHLB advances 193,770 502,731 844,873 1,539,866
---------- --------- ---------- ---------
Total interest expense 1,914,691 2,072,499 6,317,189 5,450,648
---------- --------- ---------- ---------
Net interest income 1,040,965 1,231,138 3,554,038 4,300,468
Provision for loan losses 87,007 1,082,233 1,249,656 1,148,537
---------- --------- ---------- ---------
Net interest income after
provision for loan losses 953,958 148,905 2,304,382 3,151,931
---------- --------- ---------- ---------
Non-interest income:
Gain on sale of loans, net 63,786 234,258 295,092 505,531
Customer service charges 71,178 83,678 218,913 236,647
Loan servicing fees 8,124 2,182 22,060 48,363
Other 47,338 38,425 134,196 118,298
---------- --------- ---------- ---------
Total non-interest income 190,426 358,543 670,261 908,839
---------- --------- ---------- ---------
Non-interest expense:
Compensation and benefits 603,396 756,847 1,856,448 2,206,480
Office property and equipment 198,596 212,039 621,400 640,349
Data processing 55,252 63,146 171,039 171,626
Federal insurance premiums 16,669 5,520 30,505 35,889
Advertising 12,271 38,407 42,159 128,487
Real estate owned and repossessed assets 20,203 15,675 198,138 40,603
Other 302,170 235,105 1,066,278 751,682
---------- --------- ---------- ---------
Total non-interest expense 1,208,557 1,326,739 3,985,967 3,975,116
---------- --------- ---------- ---------
Earnings (loss) before income taxes (64,173) (819,291) (1,011,324) 85,654
Income tax expense (benefit) (31,782) (322,161) (409,734) 12,484
---------- --------- ---------- ---------
Net earnings (loss) $ (32,391) (497,130) (601,590) 73,170
========== ========= ========== =========
Earnings (loss) per share-basic and diluted (0.04) (0.60) (0.72) 0 .08
========== ========= ========== =========
Basic and diluted weighted average shares 838,890 834,272 837,616 872,786
========== ========= ========== =========
See accompanying note to unaudited consolidated financial statements
2
CBES BANCORP, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
For the nine months ended March 31, 2001
(Unaudited)
Additional Unearned Total
Issued Common paid-in Retained Treasury employee stockholders'
shares stock capital earnings stock benefits equity
--------- -------- ---------- ---------- ----------- --------- --------------
Balance at June 30, 2000 1,031,851 $10,319 10,020,540 9,244,208 (3,009,175) (512,410) 15,753,482
Net earnings (loss) - - - (601,590) - - (601,590)
Dividends - - - (200,161) - - (200,161)
($.24 per share)
Amortization of RRP shares - - - - - 40,575 40,575
Forfeiture of RRP shares - - - - (54,797) 54,797 -
Allocation of ESOP shares - - 4,468 - - 70,120 74,588
--------- -------- ---------- --------- ---------- -------- ----------
Balance at
March 31, 2001 1,031,851 $10,319 10,025,008 8,442,457 (3,063,972) (346,918) 15,066,894
========= ======== ========== ========= ========== ======== ==========
See accompanying note to unaudited consolidated financial statements.
3
CBES BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the nine months ended March 31, 2001 and 2000
(Unaudited)
2001 2000
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Cash flows from operating activities:
Net earnings (loss) $ (601,590) $ 73,170
Adjustments to reconcile net earnings (loss) to net cash provided by
operating activities:
Provision for loan losses 1,249,656 1,148,537
Depreciation 304,675 303,636
Amortization of RRP 40,575 106,529
Allocation of ESOP shares 74,588 140,981
Proceeds from sale of loans held for sale 24,733,413 27,402,018
Origination of loans held for sale (8,087,654) (36,698,062)
Gain on sale of loans, net (295,092) (505,531)
Loss on sale of real estate owned 126,365 -
Premium amortization and accretion of discounts and
deferred loan fees, net (340,361) (535,811)
Deferred income taxes (407,330) (216,483)
Changes in assets and liabilities:
Accrued interest receivable 270,196 (80,741)
Other assets 92,708 (128,348)
Accrued expenses and other liabilities (216,555) (671,788)
Accrued interest payable on deposits (49,839) 77,513
Current income taxes payable (272,263) (179,022)
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Net cash provided by (used in) operating activities 16,621,492 (9,763,402)
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Cash flows from investing activities:
Purchase of investment securities $ (293,310) (195,115)
Proceeds from maturing investment securities 107,000 105,000
Mortgage-backed securities principal repayments 10,618 13,886
Net decrease (increase) in loans receivable 21,056,628 (11,690,138)
Purchase of FHLB stock - (150,000)
Proceeds from sale of real estate owned 1,000 -
Purchase of office property and equipment (21,278) (327,430)
------------ ------------
Net cash provided by (used in) investing activities 20,860,658 (12,243,797)
------------ ------------
Cash flows from financing activities:
(Decrease) increase in deposits $(9,330,790) 29,372,771
Proceeds from FHLB advances 64,300,000 62,300,000
Repayments of FHLB advances (76,900,000) (64,300,000)
(Decrease) increase in advance payments by borrowers for property
Taxes and insurance (258,086) 156,577
Dividends paid (249,691) (305,677)
Treasury stock purchased - (707,796)
------------ ------------
Net cash (used in) provided by financing activities (22,438,567) 26,515,875
============ ============
Net increase in cash and cash equivalents 15,043,583 4,508,676
Cash and cash equivalents at the beginning of the period 7,242,045 7,462,778
------------ ------------
Cash and cash equivalents at the end of the period 22,285,628 11,971,454
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes - 343,000
============ ============
Cash paid during the period for interest 6,384,664 5,373,135
============ ============
Supplemental schedule of noncash activities:
Conversion of loans to real estate owned 288,338 272,992
============ ============
Conversion of real estate owned to loans - 97,179
============ ============
Loans held for sale transferred to loan portfolio 6,695,491 -
============ ============
See accompanying note to unaudited consolidated financial statements.
4
CBES BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
March 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 audited financial
statements incorporated by reference in the Company's Annual Report on Form
10-KSB for the year ended June 30, 2000, such information and footnotes have not
been included 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, 2001 are
not necessarily indicative of the results which may be expected for the entire
year. The balance sheet information as of June 30, 2000 has been derived from
the audited balance sheet as of that date.
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, 2001 to the financial
condition at June 30, 2000, its fiscal year-end, and the results of operations
for the three month and nine month periods ended March 31, 2001 with the similar
periods in fiscal 2000. This discussion should be read in conjunction with the
interim financial statements and notes, which are included herein. This
Quarterly Report on Form 10-QSB may contain certain forward-looking statements
consisting of estimates with respect to the financial condition, results of
operations and business of the Company that are subject to various factors which
could cause actual results to differ materially from these estimates. These
factors include, but are not limited to, general economic conditions, changes in
interest rates, deposit flows, loan demand, real estate values, and competition;
changes in accounting principles, policies, or guidelines; changes in
legislation or regulation; and other economic, competitive, governmental,
regulatory, and technological factors affecting the Company's operations,
pricing, products and services.
General
- -------
The Company was organized as a Delaware corporation in June 1996 to acquire all
of the capital stock issued by the Bank upon its conversion from the mutual to
stock form of ownership. The Bank was founded in 1931 as a Missouri chartered
savings and loan association located in Excelsior Springs, Missouri. In 1995,
its members voted to convert to a federal charter. The business of the holding
company consists primarily of the business of the Bank. The deposits of the Bank
are presently insured by the Savings Association Insurance Fund ("SAIF"), which
together with the Bank Insurance Fund ("BIF") are the two insurance funds
administered by the Federal Deposit Insurance Corporation ("FDIC").
The Bank conducts its business through its main office in Excelsior Springs,
Clay County, Missouri and its full service branch offices located in Kearney and
Liberty, both in Clay County, Missouri. The Bank has been, and intends to
continue to be, a community oriented financial institution offering selected
financial services to meet the needs of the communities it serves. The Bank
attracts deposits from the general public and historically has used such
deposits, together with other funds, primarily to originate one-to-four family
residential mortgage loans, construction and land loans for single-family
residential properties, and consumer loans consisting primarily of loans secured
by automobiles. While the Bank's primary business has been that of a
traditional thrift institution, originating loans in its primary market area for
retention in its portfolio, the Bank also has been an active participant in the
secondary market, originating residential mortgage loans for sale.
The most significant outside factors influencing the operations of the Bank and
other financial institutions include general economic conditions, competition in
the local market place and the related monetary and fiscal policies of agencies
that regulate financial institutions. More specifically, the cost of funds
primarily consisting of insured deposits is influenced by interest rates on
competing investments and general market rates of interest, while lending
activities are influenced by the demand for real estate financing and other
types of loans, which in turn is affected by the interest rates at which such
loans may be offered and other factors affecting loan demand and funds
availability.
Financial Condition
- -------------------
Total assets decreased $23.3 million, or 12.9%, to $157.5 million at March 31,
2001 from $180.8 million at June 30, 2000. This was primarily due to a decrease
in net loans receivable of $22.3 million, and a decrease in loans held for sale
of $16.4 million, partially offset by an increase in interest-bearing deposits
of $15.1 million.
Net loans receivable decreased by $22.3 million, or 15.1%, to $124.7 million at
March 31, 2001 from $146.9 million at June 30, 2000, and loans held for sale
decreased by $16.4 million, or 97.0%, from $16.9 million at June 30, 2000 to
$0.5 million at March 31, 2001. The decrease in net loans receivable was
primarily due to decreases in construction loans of $13.7 million, multi-family
loans of $0.8 million, land loans of $1.3 million, consumer loans of $5.7
million, and one-to-four family loans of $1.8 million. The decrease in loans
held for sale was primarily due to a sale on October 11, 2000 of $9.9 million of
one-to-four family adjustable rate loans and the return to the net loans
receivable portfolio of $6.7 million of one-to-four family adjustable rate
loans. At March 31, 2001 the Bank had fixed rate loans held for sale of $513,000
that are contracted to be sold in the secondary market.
6
Deposits decreased $9.3 million, or 6.9%, to $126.3 million at March 31, 2001
from $135.6 million at June 30, 2000. The decrease in deposits is primarily due
to a decrease of $14.5 million in brokered deposits. FHLB advances decreased
$12.6 million, or 47.1%, from $26.8 million at June 30, 2000 to $14.2 million at
March 31, 2001, primarily from the sale of $9.9 million of one-to-four family
adjustable rate loans at March 31, 2001. The FHLB advances range in terms from
thirty-one days to ten years, of which 63.6% are callable advances.
Comparison of Operating Results for the Three Months Ended March 31, 2001 and
- -----------------------------------------------------------------------------
2000
- ----
Performance Summary. For the three months ended March 31, 2001, the Company had
a net loss of $32,000 compared to a net loss of $497,000 for the three months
ended March 31, 2000. The most significant items causing the decrease in the net
loss were a decrease in the provision for loan loss of $995,000, and a decrease
in non-interest expense of $118,000, offset by a decrease in the income tax
benefit of $290,000, a decrease in net interest income of $190,000, and a
decrease in non-interest income of $168,000.
Net Interest Income. For the three months ended March 31, 2001, net interest
income decreased $190,000, or 15.4%, to $1.0 million from $1.2 million for the
three months ended March 31, 2000. The decrease resulted from a decrease of
$348,000 in interest income to $3.0 million from $3.3 million, offset by a
decrease of $158,000 in interest expense to $1.9 million from $2.1 million.
Loans on non-accrual status significantly affected the interest income recorded
in the three months ended March 31, 2001. The non-accrual interest which would
have otherwise been recorded, aggregating approximately $184,000, was not
recognized during the current quarter, compared to $131,000 that was not
recorded during the three month ended March 31, 2000. The decrease in interest
income was also due to a decrease in the average balance of net loans
receivable, FHLB investments and a decrease in interest rates. The decrease in
interest expense was primarily due to a decrease in FHLB advances and a decrease
in interest rates.
Provision for Loan Losses. During the three months ended March 31, 2001, the
Bank recorded an $87,000 provision for loan losses, compared to a provision of
$1.1 million for the three months ended March 31, 2000. The $87,000 provision
for loan losses was attributable to actual consumer loan losses. The Bank's
classified assets decreased $3.7 million from $22.4 million at December 31,
2000 to $18.7 million at March 31, 2001. The $18.7 million in classified assets
consisted of single family construction loans of $8.2 million, two-to-four
family construction loans of $4.0 million, multi-family construction loans of
$1.4 million, single family permanent loans of $3.2 million, two-to-four family
permanent loans of $0.2 million, land loans of $0.5 million, consumer loans of
$0.5 million, commercial loans of $0.3 million and other real estate owned of
$0.4 million. Included in classified assets at March 31, 2001 are non-accruing
loans of $12.1 million
The Bank's methodology for determining general allowance for loan losses focuses
primarily on the application of specific reserve percentages to the various
categories of loans. Those percentages are based upon management's estimate of
the risk of loss in the various categories. The reserve factors are subject to
change from time to time based on management's assessment of the relative credit
risk within the portfolio. Management continually reviews specifically
identified problem, or potential problem loans. On a case by case basis, where
considered necessary, specific reserves are increased. For this purpose,
problem loans include non-accruing loans and accruing loans delinquent more than
90 days and classified assets. In addition, pursuant to the Bank's methodology,
the allowance for loan loss is replenished for net charge-offs, which are
charged against the reserve. Pursuant to the supervisory agreement entered into
with the OTS, the Bank may not reduce the allowance for loan losses without
prior notice of no objection from the Office of Thrift Supervision.
As a result of the provision for loan losses during the quarter, at March 31,
2001, the Bank had a general allowance for loan losses of $3.6 million, and a
specific allowance for loan losses of $400,000 for a total allowance for loan
losses of $4.0 million, representing 31.8% of total non-performing assets and
3.2% of the Bank's loans receivable, net, compared to a general allowance for
loan loss of $2.3 million at June 30, 2000. The amount of net loans charged off
was $87,000 during the three months ended March 31, 2001 compared to $105,000
for the three months ended March 31, 2000.
Management will continue to monitor its allowance for loan losses and make
future additions to the allowance through the provision for loan losses as
economic conditions dictate. Although the Bank maintains its allowance for loan
losses at a level which it considers to be adequate to provide for potential
losses, there can be no assurance that future losses will not exceed estimated
amounts or that additional provisions for loan losses will not be required in
future periods
Non-Interest Income. For the three months ended March 31, 2001, non-interest
income decreased $168,000 to $190,000 from $359,000 for the prior year period
primarily due to a decrease in gain on sale of loans of $170,000, and a decrease
in customer service charges of $13,000, offset by an increase in loan servicing
fees of $6,000, and an
7
increase in other non-interest income of $9,000. The decrease in the gain on
sale of loans was primarily due to a decrease in loan sales to $4.5 million for
the three months ended March 31, 2001 from loan sales of $13.6 million for the
three months ended March 31, 2000. The decrease in loan sales was primarily
attributed to the sale of a pool of adjustable rate mortgage loans in February
2000, of $10.3 million.
Non-Interest Expense. Non-interest expense decreased by $118,000 to $1.2
million for the three months ended March 31, 2001 from $1.3 million for the
three months ended March 31, 2000. Of this decrease, $153,000 was due to
compensation expense, primarily due to a decrease in the number of employees, a
decrease in the ESOP plan expense of $35,000, and a decrease in the Recognition
and Retention plan expense of $14,000. Other factors contributing to the
decrease were a decrease in office property and equipment expense of $13,000,
data processing expense of $8,000, and advertising expense of $26,000, offset by
an increase in federal insurance premiums of $11,000, and other non-interest
expense of $67,000, consisting of mortgage loan expenses, provision for loss on
real estate owned, and audit and tax expense. Real estate owned and repossessed
asset expense increased $5,000, primarily due to the loss on sale of repossessed
assets of $6,000, offset by recoveries on real estate owned of $2,000.
Comparison of Operating Results for the Nine Months Ended March 31, 2001 and
- ----------------------------------------------------------------------------
2000
- ----
Performance Summary. For the nine months ended March 31, 2001, the Company had
a net loss of $602,000 compared to net earnings of $73,000 for the nine months
ended March 31, 2000. The most significant items causing the decrease in
earnings were a decrease in net interest income of $746,000, an increase in the
provision for loan loss of $101,000, a decrease in non-interest income of
$239,000, and an increase in non-interest expense of $11,000, offset by a
decrease in income tax expense of $422,000.
Net Interest Income. For the nine months ended March 31, 2001, net interest
income decreased by $746,000, or 17.4%, to $3.6 million from $4.3 million for
the nine months ended March 31, 2000. The decrease reflected an increase of
$867,000 in interest expense, to $6.3 million from $5.5 million, offset by an
increase of $120,000 in interest income to $9.9 million from $9.8 million.
Loans on non-accrual status significantly affected the interest income recorded
in the nine months ended March 31, 2001. The non-accrual interest which would
have otherwise been recorded, aggregating approximately $450,000, was not
recognized during the nine month period ended March 31, 2001, compared to
$126,000 that was not recorded during the nine months ended March 31, 2000.
The increase in interest income was primarily due to an increase in average
balances of FHLB daily time and FHLB checking. The increase in interest expense
was primarily due to an increase in the average balances of certificates of
deposit and an increase in interest rates.
Provision for Loan Losses. During the nine months ended March 31, 2001, the
Company recorded a $1.3 million provision for loan losses compared to a
provision of $1.1 million for the nine months ended March 31, 2000. Of the $1.3
million provision for loan loss, $1.1 million was primarily attributable to an
increase in the Bank's classified assets of $4.5 million from $14.2 million at
June 30, 2000 to $18.7 million at March 31, 2001 and additional provision
related to previously classified assets. In addition, $324,000 of the $1.3
million provision for loan losses was primarily attributable to an increase in
general reserves for consumer loans.
Non-Interest Income. For the nine months ended March 31, 2001, non-interest
income decreased $239,000 to $670,000 from $909,000 for the prior year period,
primarily due to a decrease in gain on sale of loans of $210,000, a decrease in
customer service charges of 18,000, and a decrease in loan servicing fees of
$26,000, offset by an increase in other non-interest income of $16,000.
Non-Interest Expense. Non-interest expense increased by $11,000 to $4.0 million
for the nine months ended March 31, 2001 from $4.0 million for the nine months
ended March 31, 2000. Of this increase, $315,000 was attributable to other non-
interest expense, primarily due to the write off of $320,000 on one depositor in
possible bad check losses. The Bank is trying to recover all or part of that
amount, but because of uncertainty over the likelihood of recovery, has expensed
the entire amount. Real estate owned expense increased $157,000, primarily due
to the loss on sale of real estate owned of $126,000 and the loss on sale of
repossessed assets of $32,000. These increases were partially offset by a
decrease of $350,000 in compensation expense, due to a decrease in the number of
employees, a decrease in the ESOP plan expense of $61,000 and a decrease in the
Recognition and Retention plan expense of $66,000. There were also decreases in
office property and equipment expense of $18,000, federal insurance premiums of
$5,000, and advertising expense of $86,000.
8
Non-performing Assets
- ---------------------
On March 31, 2001, nonperforming assets were $12.5 million compared to $8.8
million on June 30, 2000. The balance of the Bank's allowance for loan losses
was $4.0 million at March 31, 2001 or 31.8% of nonperforming assets compared to
$2.9 million at June 30, 2000 or 33.3% of nonperforming assets. Loans are
considered nonperforming when the collection of principal and/or interest is not
probable, or in the event payments are more than ninety days delinquent.
The $3.7 million increase in nonperforming assets, from June 30, 2000 to March
31, 2001, was primarily due to an increase in one-to-four family non-accruing
construction loans of $2.2 million, an increase in one-to-four family non-
accruing loans of $1.0 million, an increase in non-accruing land loans of
$232,000, an increase in non-accruing consumer loans of $123,000, and an
increase in foreclosed assets of $154,000, offset by a decrease in non-accruing
commercial loans of $24,000.
Capital Resources
- -----------------
The Bank is subject to capital to asset requirements in accordance with Office
of Thrift Supervision regulations. The following table is a summary of the
Bank's regulatory capital requirements versus actual capital as of March 31,
2001:
Actual Required Excess
amount/percent amount/percent amount/percent
---------------- -------------- --------------
(Dollars in thousands)
FIRREA REQUIREMENTS
- -------------------
Tangible capital $13,175 8.36% 2,363 1.50% 10,812 6.86%
Core leverage capital $13,175 8.36% 6,300 4.00% 6,875 4.36%
Risk-based capital $14,566 13.35% 8,727 8.00% 5,839 5.35%
Liquidity
- ---------
The Bank's principal sources of funds are deposits, principal and interest
payments on loans, and deposits in other insured institutions. While scheduled
loan repayments and maturing investments are relatively predictable, deposit
flows and loan prepayments are influenced by interest rates, general economic
conditions and competition. Additional sources of funds may be obtained from
the Federal Home Loan Bank of Des Moines by utilizing numerous available
products to meet funding needs.
The Bank is required to maintain levels of liquid assets as defined by
regulations. The required percentage is currently 4% of net withdrawable
savings deposits and borrowings payable on demand or in one year or less. The
eligible liquidity ratios at March 31, 2001 and June 30, 2000 were 8.79% and
6.22%, respectively.
In light of the competition for deposits, the Bank may utilize the funding
sources of the Federal Home Loan Bank to meet demand in accordance with the
Bank's plans. The wholesale funding sources may allow the Bank to obtain a
lower cost of funding and create a more efficient liability match to the
respective assets being funded.
For purposes of the cash flow statements, all short-term investments with a
maturity of three months or less at date of purchase are considered cash
equivalents. Cash and cash equivalents at March 31, 2001 and June 30, 2000 were
$22.3 million and $7.2 million, respectively.
Cash flows from operating activities. Net cash provided by operating activities
was $16.6 million during the nine months ended March 31, 2001 compared to net
cash used in operating activities of $9.8 million during the same period in
2000. The change was primarily due to a decrease in the origination of loans
held for sale of $28.6 million, and a decrease in accrued expenses and other
liabilities of $455,000, offset by a decrease in proceeds from the sale of loans
held for sale of $2.7 million.
Cash flows from investing activities. Net cash of $20.9 million was provided by
investing activities for the nine months ended March 31, 2001 compared to net
cash used in investing activities of $12.2 million for the nine months ended
March 31, 2000. The increase in cash provided was primarily due to a decrease
in loans receivable of $21.0 million during the nine months ended March 31, 2001
compared to a $11.7 million increase during the same period in 2000.
9
Cash flows from financing activities. Net cash used in financing activities was
$22.4 million for the nine months ended March 31, 2001 compared to net cash
provided by financing activities of $26.5 million during the same period in
2000. The decrease in cash flows from financing activities is primarily due to
an increase in repayments of FHLB advances of $76.9 million for the nine months
ended March 31, 2001 versus an increase of $64.3 million for the same period in
2000, and a decrease in deposits of $9.3 million for the nine months ended March
31, 2001 versus an increase of $29.4 million for the same period in 2000, and an
increase in the proceeds from FHLB advances of $64.3 million for the nine months
ended March 31, 2001 versus an increase of $62.3 million for the same period in
2000.
Supervisory Agreement
On August 4, 2000 the Bank entered into a Supervisory Agreement with the OTS.
By signing the Supervisory Agreement, the Bank has agreed to take certain
actions in response to concerns raised by the OTS. The Supervisory Agreement
provides that the Bank shall take necessary and appropriate actions to achieve
compliance with various OTS regulations related to lending standards, lending
limitations, classification of assets, appraisal standards and other matters.
The Supervisory Agreement provides that the Bank take certain corrective steps
to improve its internal asset review program. The Supervisory Agreement
requires the Bank to establish adequate allowances for loan losses, consistent
with generally accepted accounting principles, and not reduce the balance for
the allowance for loan losses without prior notice of no objection from the OTS.
The Supervisory Agreement also provides that the Bank refrain from making any
new loan commitments with the new builders or subdivision developments without
prior OTS approval. The Bank is also prohibited from increasing the number of
loans to current builders or subdivision developments without prior OTS
approval.
In addition, the Supervisory Agreement provides that the Board of Directors of
the Bank must develop or revise its written policies and procedures relating to
real estate appraisals, loan underwriting and credit administration, lending
limits and related matters. The Supervisory Agreement also provides that the
Bank revise its internal audit procedures, shall update its contingency disaster
recovery plan, shall establish and implement certain budgetary procedures and
shall revise its bonus program. The Supervisory Agreement also provides that
the Bank shall refrain from making capital distributions without OTS approval.
The Company relies in part upon dividends from the Bank to satisfy its cash
needs.
The Supervisory Agreement is considered a formal written agreement with the OTS.
Failure to comply with the Supervisory Agreement can lead to further enforcement
actions by the OTS. The Bank believes that it can comply with the Supervisory
Agreement and is currently taking the necessary steps to do so. Compliance with
the Supervisory Agreement is not expected to have a materially adverse impact on
the operations or the financial condition of the Bank. However, the
restrictions imposed in the Bank's construction and commercial real estate
lending activities may cause a significant decrease in the Bank's activities in
these areas. The Supervisory Agreement will remain in effect until terminated
by the OTS.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
The holding company and the Bank are not involved in any pending legal
proceedings incident to the business of the holding company and the Bank,
which involve amounts in the aggregate which management believes are
material to the financial condition and results of operation. For a
discussion of the Supervisory Agreement entered into by the Bank, see the
section "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Supervisory Agreement."
Item 2. Changes in Securities
---------------------
Not applicable.
Item 3. Defaults Upon Senior Securities
-------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None.
Item 5. Other Information
-----------------
None.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
None.
11
SIGNATURES
----------
Pursuant to the requirement of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned there unto duly authorized.
CBES Bancorp, Inc. and Subsidiaries
-----------------------------------
(Registrant)
Date: May 11, 2001
-----------------------------------------
By: /s/ Dennis D. Hartman
------------------------------------------
Dennis D. Hartman, Chief Executive Officer
and President (Duly Authorized Officer)
Date: May 11, 2001
----------------------------------------
By: /s/ Robert F. Kirk
-----------------------------------------
Robert F. Kirk, Chief Financial Officer
and Secretary (Principal Financial Officer)
12