<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] 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: 000-21167
------------------------------
Chester Bancorp, Inc.
(Exact name of registrant as specified in its charter)
------------------------------
Delaware 37-1359570
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1112 State Street, Chester, Illinois 62233
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (618) 826-5038
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 [ ]
The number of outstanding shares of the registrant's Common Stock, par value
$.01 per share, was 1,347,518 on May 5, 2000.
================================================================================
<PAGE> 2
FORM 10-Q
Index
<TABLE>
<CAPTION>
Page
Number
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets.......................................................... 4
Consolidated Statements of Income.................................................... 5
Consolidated Statement of Stockholders' Equity....................................... 6
Consolidated Statements of Cash Flows................................................ 7
Consolidated Statements of Comprehensive Income...................................... 8
Notes to Consolidated Financial Statements........................................... 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations........................................ 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................................... 17
Item 2. Changes in Securities................................................................ 17
Item 3. Defaults upon Senior Securities...................................................... 17
Item 4. Submission of Matters to a Vote
of Securities Holders................................................................ 17
Item 5. Other Information.................................................................... 17
Item 6. Exhibits and Reports on Form 8-K..................................................... 17
Signature........................................................................................ 18
Exhibit Index.................................................................................... 19
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
3
<PAGE> 4
CHESTER BANCORP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 2000 and December 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
Assets 2000 1999
------ ---- ----
<S> <C> <C>
Cash $ 1,101,538 $ 1,245,259
Interest-bearing deposits 2,435,827 4,592,041
------------ -----------
Total cash and cash equivalents 3,537,365 5,837,300
Investment securities:
Available for sale, at fair value (cost of $4,757,590 and $5,003,271 at 4,725,601 4,961,045
March 31, 2000 and December 31, 1999, respectively)
Held to maturity, at cost (fair value of $34,368,836 and $34,977,915 at 35,571,552 36,193,546
March 31, 2000 and December 31, 1999, respectively)
Mortgage-backed securities:
Available for sale, at fair value (cost of $6,336,987 and $7,175,687 at 6,125,346 7,009,588
March 31, 2000 and December 31, 1999, respectively)
Held to maturity, at cost (fair value of $13,370,077 and $14,413,424 at 13,708,773 14,724,664
March 31, 2000 and December 31, 1999, respectively)
Loans receivable, net 48,351,406 48,277,319
Accrued interest receivable 860,172 1,151,180
Real estate acquired by foreclosure, net 184,149 186,288
Office property and equipment, net 1,512,920 1,524,196
Deferred tax asset, net 211,927 198,513
Other assets 354,698 328,183
------------ ------------
$115,143,909 $120,391,822
============ ============
Liabilities and Stockholders' Equity
Savings deposits $ 92,074,153 $ 90,752,941
Borrowed money 1,850,000 7,807,000
Accrued interest payable 142,781 139,069
Advance payments by borrowers for taxes and insurance 525,379 376,431
Income taxes payable 132,280 326,001
Accrued expenses and other liabilities 68,241 117,198
------------ ------------
Total liabilities 94,792,834 99,518,640
------------ ------------
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value, 3,000,000 shares authorized, 2,182,125 shares
issued at March 31, 2000 and December 31, 1999 21,821 21,821
Additional paid-in capital 21,531,243 21,521,985
Retained earnings, substantially restricted 14,811,830 14,681,473
Accumulated other comprehensive loss (151,050) (129,165)
Unearned ESOP shares (1,524,300) (1,538,040)
Unearned restricted stock awards (351,931) (393,480)
Treasury stock, at cost: 834,072 and 792,572 shares at
March 31, 2000 and December 31, 1999, respectively (13,986,538) (13,291,412)
------------ ------------
Total stockholders' equity 20,351,075 20,873,182
------------ ------------
$115,143,909 $120,391,822
============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements
4
<PAGE> 5
CHESTER BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Income
Three Months Ended March 31, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
------------------
March 31,
2000 1999
---- ----
<S> <C> <C>
Interest income:
Loans receivable $ 1,003,355 $ 974,715
Mortgage-backed securities 321,059 350,270
Investments 598,899 604,836
Interest-bearing deposits, federal funds sold and bankers' acceptances 29,528 186,444
----------- ---------
Total interest income 1,952,841 2,116,265
----------- ---------
Interest expense:
Savings deposits 959,769 1,048,204
Borrowed money 60,845 179,353
----------- ---------
Total interest expense 1,020,614 1,227,557
----------- ---------
Net interest income 932,227 888,708
Provision for loan losses - -
----------- ---------
Net interest income after provision for loan losses 932,227 888,708
----------- ---------
Noninterest income:
Late charges and other fees 30,252 40,383
Loss on sale of investment securities, net (22,969) -
Gain on sale of mortgage-backed securities, net 1,139 -
Other 4,675 4,290
----------- ---------
Total noninterest income 13,097 44,673
----------- ---------
Noninterest expense:
Compensation and employee benefits 330,965 336,262
Occupancy 65,971 68,412
Data processing 42,973 37,225
Advertising 9,774 16,352
Federal deposit insurance premiums 5,410 14,547
Other 137,893 145,220
----------- ---------
Total noninterest expense 592,986 618,018
----------- ---------
Income before income tax expense 352,338 315,363
Income tax expense 100,016 97,661
----------- ---------
Net income $ 252,322 $ 217,702
=========== =========
Earnings per common share - basic $ .20 $ .17
===== =====
Earnings per common share - diluted $ .20 $ .16
===== =====
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
<PAGE> 6
CHESTER BANCORP, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
Three Months Ended March 31, 2000
(Unaudited)
<TABLE>
<CAPTION>
Retained Accumulated
Common stock Additional earnings, other Unearned
-------------------- paid-in substantially comprehensive ESOP
Shares Amount capital restricted loss shares
------ ------ ------- ---------- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1999 2,182,125 $21,821 $21,521,985 $14,681,473 $(129,165) $(1,538,040)
Net income - - - 252,322 - -
Purchase of treasury stock - - - - - -
Amortization of restricted stock - - - - - -
awards
Amortization of ESOP awards - - 9,258 - - 13,740
Dividends on common stock (121,965)
at $.10 per share
- - - - -
Change in accumulated
other comprehensive loss - - - - (21,885) -
--------- ------- ----------- ----------- ---------- ------------
Balance, March 31, 2000 2,182,125 $21,821 $21,531,243 $14,811,830 $(151,050) $(1,524,300)
========= ======= =========== =========== ========== ============
<CAPTION>
Unamortized Treasury Stock Total
restricted ----------------------- Stockholders'
stock awards Shares Amount equity
------------ ------ ------ ------
<S> <C> <C> <C> <C>
Balance, December 31, 1999 $(393,480) 792,572 $(13,291,412) $20,873,182
Net income - - - 252,322
Purchase of treasury stock - 41,500 (695,126) (695,126)
Amortization of restricted stock 41,549 - - 41,549
awards
Amortization of ESOP awards - - - 22,998
Dividends on common stock
at $.10 per share
- - - (121,965)
Change in accumulated
other comprehensive loss - - - (21,885)
---------- ------- ------------ -----------
Balance, March 31, 2000 $(351,931) 834,072 (13,986,538) $20,351,075
========== ======= ============ ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
6
<PAGE> 7
CHESTER BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Three months ended March 31, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
March 31, March 31,
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 252,322 $ 217,702
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization:
Office properties and equipment 37,095 36,528
Deferred fees, discounts, and premiums (7,226) 68,720
Stock plans 64,547 64,734
Decrease in accrued interest receivable 291,007 101,073
Increase (decrease) in accrued interest payable 3,712 (34,722)
Increase (decrease) in income taxes, net (193,721) -
(Gain)loss on sale of investment securities, net 22,969 -
(Gain)loss on sale of mortgage-backed securities, net (1,139) -
Net change in other assets and other liabilities (75,470) (203,415)
---------- -----------
Net cash provided by operating activities 394,096 250,620
---------- -----------
Cash flows from investing activities:
Principal repayments on:
Loans receivable 2,908,836 3,387,556
Mortgage-backed securities 1,312,630 2,901,531
Proceeds from the maturity of investment securities available for sale 500,000 2,735,673
Proceeds from the maturity of investment securities held to maturity 3,340,000 64,679,760
Proceeds from the sale of investment securities available for sale 1,202,031 147,187
Proceeds from the sale of mortgage-backed securities available for sale 538,389 -
Cash invested in:
Loans receivable (2,988,917) (1,393,249)
Mortgage-backed securities held to maturity - (7,613,685)
Investment securities held to maturity (2,700,000) (60,641,947)
Investment securities available for sale (1,479,389) -
Proceeds from sale of real estate acquired by foreclosure 2,139 113,068
Purchase of office properties and equipment (25,819) (56,413)
---------- -----------
Net cash provided by investing activities 2,609,900 4,259,474
---------- -----------
Cash flows from financing activities:
Increase (decrease) in savings deposits 1,321,212 (29,305)
Increase (decrease) in securities sold under agreements to repurchase - (6,880,389)
Repayments of FHLB advances (5,000,000) -
Repayments of federal funds purchased (957,000) -
Increase in advance payments by borrowers for taxes and insurance 148,948 214,625
Purchase of treasury stock (695,126) (619,712)
Dividends paid (121,965) (91,028)
---------- -----------
Net cash provided by (used in) financing activities (5,303,931) 7,405,809
---------- -----------
Net increase (decrease) in cash and cash equivalents (2,299,935) 2,895,718
Cash and cash equivalents, beginning of period 5,837,300 16,796,839
---------- -----------
Cash and cash equivalents, end of period $3,537,365 $13,901,121
========== ===========
Supplemental information:
Interest paid $1,016,902 $ 1,262,280
Income taxes paid 304,224 2,940
========== ===========
Noncash investing and financing activities:
Loans transferred to real estate acquired by foreclosure $ - $ 168,224
Interest credited to savings deposits $ 635,009 $ 626,101
========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
7
<PAGE> 8
CHESTER BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------
2000 1999
----- ----
<S> <C> <C>
Net income $ 252,322 $ 217,702
Other comprehensive income, net of tax:
Unrealized holding gain (loss) on
securities available for sale $ (8,350) $(116,645)
Less adjustment for realized gains
included in net income $ (13,535) $ -
---------- ----------
Total other comprehensive loss $ (21,885) $(116,645)
---------- ----------
Comprehensive income $ 230,437 $ 101,057
========== ==========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
8
<PAGE> 9
CHESTER BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Three Months Ended March 31, 2000 and 1999
(Unaudited)
(1) Basis of Presentation
The accompanying unaudited consolidated financial statements were
prepared in accordance with instructions for Form 10-Q and, therefore, do not
include all information and notes necessary for a complete presentation of
financial position, results of operations, changes in stockholders' equity, and
cash flows in conformity with generally accepted accounting principles. However,
all adjustments (consisting only of normal recurring accruals) which, in the
opinion of management are necessary for a fair presentation of the unaudited
consolidated financial statements, have been included in the consolidated
financial statements as of March 31, 2000, and for the three months ended March
31, 2000 and 1999.
Operating results for the three months ended March 31, 2000 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2000.
The Company has not included disclosures regarding specific segments
since management makes operating decisions and assesses performance based on the
Company as a whole.
(2) Earnings Per Share (EPS)
Basic EPS excludes dilution and is computed by dividing income
available to common stockholders by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the Company.
The computation of EPS for the three months ended March 31, 2000 and
1999 follows:
<TABLE>
<CAPTION>
March 31, March 31,
2000 1999
---- ----
<S> <C> <C>
Basic EPS:
Net income $ 252,322 $ 217,702
---------- ----------
Average common shares outstanding 1,232,056 1,319,398
---------- ----------
Basic EPS $ 0.20 $ 0.17
---------- ----------
Diluted EPS:
Net income $ 252,322 $ 217,702
---------- ----------
Average common shares outstanding 1,232,056 1,319,398
Dilutive potential due to stock options 33,081 33,031
---------- ----------
Average number of common shares and dilutive potential
common shares outstanding 1,265,137 1,352,429
---------- ----------
Diluted EPS $ 0.20 $ .16
---------- ----------
</TABLE>
(3) Employee Stock Ownership Plan (ESOP)
During 1996, the Company established a tax-qualified ESOP. The plan
covers substantially all employees who have attained the age of 21 and completed
one year of service. In connection with the conversion to a stock corporation,
the ESOP purchased 174,570 shares of the Company's common stock at a
subscription price of $10.00 per share using funds loaned by the Company. All
shares are held in a suspense account for allocation among the participants as
the loan is repaid with level principal payments over 30 years. Shares released
from the
9
<PAGE> 10
(3) Employee Stock Ownership Plan (Continued)
suspense account are allocated among the participants based upon their pro rata
annual compensation. The purchases of the shares by the ESOP were recorded by
the Company as unearned ESOP shares in a contra equity account. As ESOP shares
are committed to be released to compensate employees, the contra equity account
is reduced and the Company recognizes compensation expense equal to the fair
value of the shares committed to be released. Dividends on allocated ESOP shares
are recorded as a reduction of retained earnings; dividends on unallocated ESOP
shares are recorded as a reduction of debt. Compensation expense related to the
ESOP was $22,998 and $23,186 for the three months ended March 31, 2000 and 1999,
respectively.
The ESOP shares as of March 31, 2000 are as follows:
<TABLE>
<S> <C>
Allocated shares 20,766
Committed to be released shares 1,374
Unreleased shares 152,430
----------
Total ESOP shares 174,570
Fair value of unreleased shares $2,534,149
</TABLE>
(4) Restricted Stock Awards
On April 4, 1997, the Company adopted the 1997 Management Recognition
and Development Plan. The plan provides that 82,921 common shares can be issued
to directors and employees in key management positions to encourage such
directors and key employees to remain with the Company. Interest in the plan for
each participant vests in five equal installments beginning April 4, 1998. The
adoption of the plan has been recorded in the consolidated financial statements
through a $1,160,894 credit to additional paid-in capital with a corresponding
charge to a contra equity account for restricted shares. The contra equity
account is amortized to compensation expense over the vesting period.
Compensation expense was $41,549 for both the three months ended March 31, 2000
and 1999.
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The principal business of Chester Bancorp, Inc. and its
subsidiaries (the Company) consists of attracting deposits from the general
public and using these funds to originate mortgage loans secured by one-to
four-family residences and to invest in securities of the U. S. government,
mortgage-backed securities, and other securities. To a lesser extent, the
Company engages in various forms of consumer lending. The Company's
profitability depends primarily on its net interest income, which is the
difference between the interest income it earns on its loans, mortgage-backed
securities and investment portfolio and its cost of funds, which consists mainly
of interest paid on deposits, securities sold under agreements to repurchase,
federal funds purchased and FHLB advances.
The operations of the Company are significantly influenced by
general economic conditions and related monetary and fiscal policies of
financial institutions regulatory agencies. Deposit flows and the cost of funds
are influenced by interest rates on competing investments and general market
rates of interest. Lending activities are affected by the demand for financing
real estate and other types of loans, which in turn is affected by the interest
rates at which such financing may be offered and other factors affecting loan
demand and the availability of funds.
On October 4, 1996, the Company, formerly known as Chester
Savings Bank, FSB (the Bank), completed its conversion from a federal mutual
savings bank to a federal capital stock savings bank and simultaneously formed
Chester Bancorp, Inc., a Delaware corporation, to act as the holding company of
the converted savings bank. Pursuant to the plan of conversion, the Bank
converted to a national bank known as Chester National Bank, and a newly
chartered bank subsidiary was formed by the Company known as Chester National
Bank of Missouri.
In February, 1999, the Company opened a full service branch
facility within a retail store located in Perryville, Missouri. In June, 1999,
the Company closed its loan origination office in Cape Girardeau, Missouri. Loan
originations in the secondary market are now processed through the Perryville,
MO location.
In November, 1999, the Company completed the sale of its
branch in Pinckneyville, Illinois. The purchase and assumption transaction
included the sale of approximately $10,000,000 of deposits at a premium. The
Company believes that based upon the premium obtained in the sale and the
strategic focus of the Company, the sale was in the best interest of the Company
and the shareholders.
When used in this report the words or phrases "will likely
result," "are expected to," "is anticipated," "estimate," "project," or similar
expressions are intended to identify "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such statements
are subject to certain risks and uncertainties, including, among other things,
changes in economic conditions in the Company's market area, changes in policies
by regulatory agencies, fluctuations in interest rates, demand for loans in the
Company's market area and competition, that could cause actual results to differ
materially from the historical earnings and those presently anticipated or
projected. The Company wishes to caution readers not to place undue reliance on
any such forward-looking statements, which speak only as of the date made. The
Company wishes to advise readers that the factors listed above could affect the
Company's financial performance and could cause the Company's actual results for
future periods to differ materially from any opinions or statements expressed
with respect to future periods in any current statements.
The Company does not undertake, and specifically declines any
obligation, to publicly release the results of any revisions which may be made
to any forward-looking statements to reflect events or circumstances after the
date of such statements or to reflect the occurrence of anticipated or
unanticipated events.
11
<PAGE> 12
FINANCIAL CONDITION
ASSETS. The Company's total assets decreased by $5.2 million,
or 4.4%, to $115.1 million at March 31, 2000 from $120.4 million at December 31,
1999. The decrease in the Company's asset size was attributable to a decrease in
interest bearing deposits and investment securities which was attributable to
the $6.0 million decrease in borrowed money during the quarter ended March 31,
2000.
Loans receivable increased $74,000, or .2%, to $48.4 million
at March 31, 2000 from $48.3 million at December 31, 1999. The increase in loans
receivable resulted from a combined impact of increased loan origination volume
of $1.6 million, and a reduction in principal repayments on loans receivable.
The reduction in repayments is primarily due to the increasing interest rate
environment that has been experienced during the last half of 1999 and first
quarter of 2000.
Mortgage-backed securities at March 31, 2000 were $19.8
million compared to $21.7 million at December 31, 1999. Investment securities
decreased $857,000, or 2.1%, to $40.3 million at March 31, 2000, from $41.2
million at December 31, 1999. During the three months ended March 31, 2000,
management used funds to purchase additional shares of treasury stock and fund
the repayment of borrowed money with the proceeds from the maturity of
investment securities and mortgage-backed securities.
Cash, interest-bearing deposits, federal funds sold and
bankers' acceptances, on a combined basis, decreased $2.3 million, or 39.4%, to
$3.5 million at March 31, 2000 from $5.8 million at December 31, 1999. During
the three months ended March 31, 2000, management used funds to purchase
additional shares of treasury stock and fund the decline in borrowed money.
LIABILITIES. Savings deposits increased $1.3 million, or 1.5%
during the three months ended March 31, 2000. Borrowed money decreased $6.0
million, or 76.3%, from $7.8 million at December 31, 1999 to $1.9 million at
March 31, 2000. The decrease was the result of a $5.0 million decrease FHLB
advances and a $957,000 decrease in federal funds purchased. There were no
securities sold under agreements to repurchase as of March 31, 2000 and December
31, 1999, respectively.
Over the last several years, the Company has maintained a
deposit relationship with Gilster-Mary Lee Corporation, (Gilster-Mary Lee), a
food manufacturing and packaging company headquartered in Chester, Illinois. The
Chairman of the Board of the Company is also the Executive Vice President,
Treasurer and Secretary of Gilster-Mary Lee. Over the last several years, the
Company has maintained a deposit relationship with Gilster-Mary Lee, which at
times has had as much as $25 million in funds on deposit, typically with short
terms. At March 31, 2000 and 1999, the balance of funds on deposit with the
Company was $ 15.6 million, and $12.3 million, respectively, which included
securities sold under agreements to repurchase.
RESULTS OF OPERATIONS
The Company's operating results depend primarily on its level
of net interest income, which is the difference between the interest income
earned on its interest-earning assets (loans, mortgage-backed securities,
investment securities, and interest-bearing deposits) and the interest expense
paid on its interest-bearing liabilities (deposits and borrowings). Operating
results are also significantly affected by provisions for losses on loans,
noninterest income, and noninterest expense. Each of these factors is
significantly affected not only by the Company's policies, but, to varying
degrees, by general economic and competitive conditions and by policies of
federal regulatory authorities.
NET INCOME. The Company's net income for the three months
ended March 31, 2000 was $252,322, compared to $217,702 for the three months
ended March 31, 1999. Net income for the three months ended March 31, 2000 was
positively impacted by an increase in net interest income, combined with a
decline in noninterest expense. The increase was partially offset by the
negative impact of a decline in noninterest income.
12
<PAGE> 13
NET INTEREST INCOME. Net interest income totaled $932,000 for
the three months ended March 31, 2000 compared to $889,000 for the three months
ended March 31, 1999. The $44,000, or 4.9%, increase in net interest income was
the result of an increase in the ratio of average interest-earning assets to
average interest-bearing liabilities of 118.3% for the three months ended March
31, 2000 compared to 115.1% for the three months ended March 31, 1999. The
increase was positively impacted by a 59 basis point increase in the average
yield on interest-earning assets for the three months ended March 31, 2000.
INTEREST INCOME. Interest income on loans receivable increased
$29,000, or 2.9%, for the three months ended March 31, 2000. The increase in
interest income on loans receivable was the result of a $1.2 million, or 2.9%,
increase in the average balance of loans receivable. The average yield on loans
receivable was 8.27% and 8.29% for the three months ended March 31, 2000 and
March 31, 1999, respectively.
Interest income on mortgage-backed securities decreased
$29,000, or 8.3%, for the three months ended March 31, 2000. The decrease in
interest income on mortgage-backed securities for the three months ended March
31, 2000 was the result of a $2.9 million, or 12.2%, decrease in the average
balance of mortgage-backed securities, partially offset by an increase in the
average yield of 6.12% for the three months ended March 31, 2000 from 5.86% for
the three months ended March 31, 1999.
Interest earned on investment securities was $599,000 for the
three months ended March 31, 2000, compared to $605,000 for the three months
ended March 31, 1999. The $6,000, or 1.0% decrease in interest income on
investment securities was the result of a decrease in the average balance of
investment securities of $4.2 million, or 9.4%, positively offset by an increase
in the average yield on investment securities of 6.27% for the three months
ended March 31, 2000 from 5.59% for the three months ended March 31, 1999. The
decrease in the average balance on investment securities was due to the decline
in borrowed money.
Interest income on interest-bearing deposits decreased
$151,000, or 83.7%, during the three months ended March 31, 2000. The decrease
resulted from a decrease in the average balance of interest-bearing deposits of
$13.5 million, or 82.2%, for the three months ended March 31, 2000. The decrease
in the average balance on interest-bearing deposits was due to the decline in
borrowed money.
INTEREST EXPENSE. Interest expense on savings deposits was
$960,000 for the three months ended March 31, 2000 compared to $1.0 million for
the three months ended March 31, 1999. The average balance of deposits decreased
$8.4 million, or 8.4%. The decrease in the average balance of deposits reflects
a $9.3 million decrease in savings deposits from the sale of the Company's
Pinckneyville, Illinois branch, which occurred in November, 1999.
Interest expense on borrowed money decreased $119,000 for the
three months ended March 31, 2000. Interest expense on securities sold under
agreements to repurchase was $60,000 for the three months ended March 31, 1999,
whereas there was no interest expense on securities sold under agreements to
repurchase during the period ended March 31, 2000. Interest expense on FHLB
advances decreased $88,000, or 73.9%, to $31,000 for the three months ended
March 31, 2000. The decrease in interest expense on FHLB advances was due to
repayment of $5.0 million of these borrowing during February, 2000. Interest
expense on federal funds purchased was $30,000 for the three months ended March
31, 2000, whereas there was no interest expense on federal funds purchased
during the comparable period ended March 31, 1999.
PROVISION FOR LOAN LOSSES. The allowance for loan losses is
established through a provision for loan losses charged to expense based on
management's evaluation of the risk inherent in its loan portfolio and the
general economy. Such evaluation considers numerous factors including general
economic conditions, loan portfolio composition, prior loss experience, the
estimated fair value of the underlying collateral, and other factors that
warrant recognition in providing for an adequate loan loss allowance.
During the quarters ended March 31, 2000 and 1999, the
provision for loan losses was zero as no significant problem loans were
identified and the allowance for loan losses was deemed by management to be
adequate.
13
<PAGE> 14
The Company's allowance for loan losses was $610,000, or 1.3%,
of loans outstanding at March 31, 2000, compared to $605,000, or 1.3%, of loans
outstanding at December 31, 1999. The Company's level of recoveries on net loans
charged-off during the quarter ended March 31, 2000 was $5,000. Based on current
levels in the allowance for loan losses in relation to loans receivable and
delinquent loans, management's continued effort to favorably resolve problem
loan situations, and the low level of charge-offs in recent years, management
believes the allowance is adequate at March 31, 2000.
The breakdown of general loss allowances and specific loss
allowances is made for regulatory accounting purposes only. General loan loss
allowances are added back to capital to the extent permitted in computing
risk-based capital. Both general and specific loss allowances are charged to
expense. The financial statements of the Company are prepared in accordance with
generally accepted accounting principles (GAAP) and, accordingly, provisions for
loan losses are based on management's assessment of the factors set forth above.
The Company regularly reviews its loan portfolio, including problem loans, to
determine whether any loans are impaired, require classification and/or the
establishment of appropriate reserves. Management believes it has established
its existing allowance for loan losses in accordance with GAAP, however, future
additions may be necessary if economic conditions or other circumstances differ
substantially from the assumptions used in making the initial determination.
NONINTEREST INCOME. Noninterest income was $13,000 for the
three months ended March 31, 2000 compared to $45,000 for the three months ended
March 31, 1999. The $32,000 decrease in noninterest income was attributable to a
$22,000 net loss realized on the sale of available for sale investment
securities and mortgage-backed securities, combined with a $10,000 decrease in
other fee income.
NONINTEREST EXPENSE. Noninterest expense decreased $25,000, or
4.1%, for the three months ended March 31, 2000. The decrease in noninterest
expense for the three months ended March 31, 2000 resulted from a $6,000
decrease in compensation expense, a $7,000 decrease in advertising expense, a
$9,000 decrease in federal insurance premiums and a $7,000 decrease in other
expense, partially offset by an $6,000 increase in data processing expense.
These fluctuations are the result of normal operating procedures. The decrease
in federal insurance premiums reflects the adjustment made in accordance with
the terms of the assessment imposed by Congress in 1996. In addition to the
assessment the Federal Deposit Insurance Corporation ("FDIC") collects for
federal deposit insurance, they also collect a separate assessment on behalf of
the Financing Corporation ("FICO"). Prior to January 1, 2000, deposits insured
by the Bank Insurance Fund ("BIF") were assessed by FICO at one-fifth the rate
applicable to deposits by the Savings Association Insurance Fund ("SAIF"). When
Congress imposed this rate differential in 1996, it also provided that the
differential would terminate at the end of 1999 calender year. Accordingly, the
assessments paid for the period starting January 1, 2000, were assessed at the
same FICO rate for both BIF and SAIF insured deposits. As a result, the
Company's SAIF FICO assessment was lower.
INCOME TAX EXPENSE. Income tax expense for the three months
ended March 31, 2000 was $100,000, compared to income tax expense of $98,000 for
the three months ended March 31, 1999. The Company's effective tax rate for the
three months ended March 31, 2000 was 28.4%, compared to 31.0% for the three
months ended March 31, 1999. The effective tax rate for each period was below
the statutory rate of 34% due to the Company's investment in tax exempt
securities.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds consist of deposits,
securities sold under agreements to repurchase, federal funds purchased, FHLB
advances, repayments and prepayments of loans and mortgage-backed securities,
maturities of investments and interest-bearing deposits, and funds provided from
operations. While scheduled repayments of loans and mortgage-backed securities
and maturities of investment securities are predictable sources of funds,
deposit flows and loan prepayments are greatly influenced by general interest
rates, economic conditions and competition. The Company manages the pricing of
its deposits to maintain a steady deposit base. The Company uses its liquidity
resources principally to fund existing and future loan commitments, to fund
maturing certificates of deposit and deposit withdrawals, to invest in other
14
<PAGE> 15
interest-bearing assets, to maintain liquidity, and to meet operating expenses.
Management believes that loan repayments and other sources of funds will be
adequate to meet the Company's liquidity needs for the remainder of 2000.
A major portion of the Company's liquidity consists of cash
and cash equivalents, which include investments in highly liquid, short-term
deposits. The level of these assets is dependent on the Company's operating,
investing, lending and financing activities during any given period. At March
31, 2000, cash and cash equivalents totaled $3.5 million.
The primary investing activities of the Company include
origination of loans and purchase of mortgage-backed securities and investment
securities. During the three months ended March 31, 2000, purchases of
investment securities totaled $4.2 million while loan originations totaled $3.0
million. These investments were funded primarily from loan and mortgage-backed
security repayments of $4.2 million and investment securities sales and
maturities of $5.6 million.
Liquidity management is both a daily and long-term function of
business management. If the Company requires funds beyond its ability to
generate them internally, the Company believes that it could borrow by
purchasing federal funds or borrow funds from the Federal Home Loan Bank (FHLB).
At March 31, 2000, the Company had no outstanding advances from the FHLB, and
had $1.9 million of federal funds purchased.
At March 31, 2000, the Company exceeded all of its regulatory
capital requirements. The Company and the Company's subsidiary banks actual and
required capital amounts and ratios as of March 31, 2000 are as follows:
<TABLE>
<CAPTION>
Actual Capital Requirements
---------------------------------------------------------
(Dollars in thousands) Amount Ratio Amount Ratio
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total capital
(to risk-weighted assets):
Company $21,076 43.8% 3,846 8.00%
Chester National Bank $17,022 41.7% 3,265 8.00%
Chester National Bank of Missouri 3,378 50.3% 537 8.00%
Tier 1 capital
(to risk-weighted assets):
Company $20,502 42.7% 1,923 4.00%
Chester National Bank $16,532 40.5% 1,632 4.00%
Chester National Bank of Missouri 3,294 49.0% 269 4.00%
Tier 1 capital
(to average assets):
Company $20,502 16.9% 3,636 3.00%
Chester National Bank $16,532 15.4% 3,216 3.00%
Chester National Bank of Missouri 3,294 26.1% 378 3.00%
</TABLE>
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements and related data
presented herein have been prepared in accordance with generally accepted
accounting principles, which require the measurement of financial position and
results of operations in terms of historical dollars without considering changes
in the relative purchasing power of money over time because of inflation. Unlike
most industrial companies, virtually all of the assets and liabilities of the
Company are monetary in nature. As a result, interest rates have a more
significant impact on the Company's performance than the effects of general
levels of inflation. Interest rates do not necessarily move in the same
direction or in the same magnitude as the prices of goods and services.
15
<PAGE> 16
NONPERFORMING ASSETS
The following table sets forth information with respect to the Company's
nonperforming assets at the dates indicated.
<TABLE>
<CAPTION>
At March 31, At December 31,
------------ ---------------
2000 1999
---- ----
(Dollars in Thousands)
-------------------------------------------------
<S> <C> <C>
Non-performing loans:
Loans accounted for on a non-accrual basis:
Real estate
Residential real estate $78 $276
Commercial ------ ------
Consumer 5 5
------ ------
Total 84 281
------ ------
Accruing loans which are contractually past due 90 days or more:
Residential real estate -- --
Commercial -- --
Consumer -- --
------ ------
Total -- --
------ ------
Total non-performing loans 84 281
Real estate acquired by foreclosure, net 184 153
------ ------
Total non-performing assets $268 $434
====== ======
Total non-performing loans to net loans 0.17% 0.61%
====== ======
Total allowance for loan losses to
non-performing loans 728.58% 148.05%
====== ======
Total non-performing assets to total assets 0.23% 0.32%
====== ======
</TABLE>
16
<PAGE> 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Neither the Company nor the Banks are a party to any material legal
proceedings at this time. From time to time, the Banks are involved in
various claims and legal actions arising in the ordinary course of
business.
Item 2. Changes in Securities.
None
Item 3. Defaults upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
On March 10, 2000, the Company solicited proxies for the annual meeting
of stockholders of the Company held on April 7, 2000. The meeting
involved the election of three directors and the adoption of the 2000
Stock Option Plan. The directors up for election were elected by the
vote of 1,067,993 shares for John R. Beck, M.D., 1,067,993 for Thomas
E. Welch, Jr. and 1,067,868 shares for James C. McDonald out of
1,071,193 shares present at the meeting, either in person or by proxy.
The 2000 Stock Option Plan was approved by the vote of 1,053,493 shares
out of 1,064,593 shares present at the meeting, either in person or by
proxy.
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
A. Exhibits
See Exhibit Index
B. Reports on Form 8-K
None
17
<PAGE> 18
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report on Form 10-Q to be signed on its behalf
by the undersigned, thereunto duly authorized.
Chester Bancorp, Inc.
By: /s/ Michael W. Welge
--------------------------------------
Michael W. Welge
Chairman of the Board, President and
Chief Financial Officer
(Duly Authorized Officer)
Dated: May 11, 2000
18
<PAGE> 19
EXHIBIT INDEX
Exhibit No. Description
- ----------- ------------------------------------------------------------------
3(i) Certificate of Incorporation of the Company (incorporated herein
by reference to Exhibit 3.1 to the Company's Registration Statement
on Form S-1 (File No. 333-2470)
3(ii) Bylaws of the Company (incorporated herein by reference to Exhibit
3.2 to the Company's Registration Statement on Form S-1 (File No.
333-2470)
27.1 Financial Data Schedule
19
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF CHESTER BANCORP, INC. AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001010838
<NAME> CHESTER BANKCORP, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,102
<INT-BEARING-DEPOSITS> 2,436
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 10,851
<INVESTMENTS-CARRYING> 49,280
<INVESTMENTS-MARKET> 47,739
<LOANS> 48,961
<ALLOWANCE> 610
<TOTAL-ASSETS> 115,144
<DEPOSITS> 92,074
<SHORT-TERM> 1,850
<LIABILITIES-OTHER> 800
<LONG-TERM> 0
0
0
<COMMON> 22
<OTHER-SE> 20,351
<TOTAL-LIABILITIES-AND-EQUITY> 115,144
<INTEREST-LOAN> 1,103
<INTEREST-INVEST> 1,923
<INTEREST-OTHER> 30
<INTEREST-TOTAL> 1,953
<INTEREST-DEPOSIT> 960
<INTEREST-EXPENSE> 1,021
<INTEREST-INCOME-NET> 932
<LOAN-LOSSES> 0
<SECURITIES-GAINS> (22)
<EXPENSE-OTHER> 593
<INCOME-PRETAX> 352
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 252
<EPS-BASIC> .20
<EPS-DILUTED> .20
<YIELD-ACTUAL> 0
<LOANS-NON> 84
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 605
<CHARGE-OFFS> 2
<RECOVERIES> 7
<ALLOWANCE-CLOSE> 610
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
