<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
[ ] 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.
------------------
(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 November 10, 2000
--------------------------- --------------------------------
Common stock, .01 par value 869,864
<PAGE>
CBES BANCORP, INC. AND SUBSIDIARIES
Table of Contents
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Statements of Financial Condition at September 30,
2000 (unaudited) and June 30, 2000..................................1
Consolidated Statements of Earnings for the three months
ended September 30, 2000 and 1999 (unaudited).......................2
Consolidated Statements of Stockholders' Equity for the three
months ended September 30, 2000 (unaudited).........................3
Consolidated Statements of Cash Flows for the three months
ended September 30, 2000 and 1999 (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 ..................................................10
SIGNATURES ...................................................................11
<PAGE>
1
CBES BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Financial Condition
September 30, 2000 and June 30, 2000
<TABLE>
<CAPTION>
September 30 June 30
Assets 2000 2000
(unaudited)
<S> <C> <C>
Cash 1,044,510 1,152,781
Interest-bearing deposits in other financial institutions 10,487,609 6,089,264
Investment securities held-to-maturity 84,000 186,805
Mortgage-backed securities held-to-maturity (estimated fair value
of $36,000 and $39,000 respectively) 35,418 39,093
Loans held for sale, net 18,049,598 16,863,181
Loans receivable, net 138,230,495 146,935,945
Accrued interest receivable:
Loans receivable 1,189,406 1,118,559
Investment securities 651 78,802
Mortgage-backed securities 932 1,006
Real estate owned 553,384 237,061
Stock in Federal Home Loan Bank (FHLB), at cost 2,322,500 2,322,500
Office property and equipment, net 2,485,181 2,583,130
Income taxes receivable 139,593 -
Deferred income tax benefit 1,041,130 834,000
Cash surrender value of life insurance and other assets 2,393,048 2,397,469
------------- -------------
Total Assets $ 178,057,455 $ 180,839,596
============= =============
Liabilities & Stockholders' Equity
Liabilities:
Deposits $ 133,286,697 $ 135,630,763
FHLB advances 26,750,000 26,750,000
Accrued expenses and other liabilities 684,989 888,846
Accrued interest payable on deposits 167,277 255,971
Advance payments by borrowers for property taxes and insurance 1,829,364 1,444,288
Income taxes payable - 116,246
------------- -------------
Total Liabilities: 162,718,327 165,086,114
============= =============
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 10,023,858 10,020,540
Retained earnings, substantially restricted 8,799,686 9,244,208
Treasury stock, 161,987 and 158,579 shares at cost, respectively (3,063,972) (3,009,175)
Unearned employee benefits (430,763) (512,410)
------------- -------------
Total stockholders' equity 15,399,128 15,753,482
------------- -------------
Total liabilities and stockholders' equity $ 178,057,455 $ 180,839,596
============= =============
</TABLE>
See accompanying notes to unaudited consolidated financial statements
<PAGE>
2
CBES BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30
---------------------------
2000 1999
------------ ------------
<S> <C> <C>
Interest income:
Loans receivable 3,477,749 3,028,867
Interest bearing deposits and other 121,634 80,186
Mortgage-backed securities 689 1,015
Investment securities 2,799 8
------------ ------------
Total interest income 3,602,871 3,110,076
------------ ------------
Interest expense:
Deposits 1,804,141 1,168,505
FHLB Advances 467,659 444,393
------------ ------------
Total interest expense 2,271,800 1,612,898
------------ ------------
Net interest income 1,331,071 1,497,178
Provision for loan losses 567,869 38,290
------------ ------------
Net interest income after
provision for loan losses 763,202 1,458,888
------------ ------------
Non-interest income:
Gain on sale of loans, net 56,553 137,342
Customer service charges 76,655 71,499
Loan servicing fees, net of amortization 7,106 (17,792)
Other 45,022 29,485
------------ ------------
Total non-interest income 185,336 220,534
------------ ------------
Non-interest expense:
Compensation and benefits 633,223 706,918
Office property and equipment
208,782 216,865
Data processing 58,821 61,385
Federal insurance premiums
6,847 14,790
Advertising 15,883 33,624
Real estate owned and repossessed assets 81,085 2,578
Other 570,236 250,492
------------ ------------
Total non-interest expense 1,574,877 1,286,652
------------ ------------
Earnings (loss) before income taxes (626,339) 392,770
Income taxes (247,968) 144,338
------------ ------------
Net earnings (loss) (378,371) 248,432
============ ============
Earnings (loss) per share-basic (loss) $ (0.45) .28
============ ============
Earnings (loss) per share-diluted (loss) $ (0.45) .28
============ ============
Basic and diluted weighted average shares 836,868 873,140
============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
3
CBES BANCORP, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
For the three months ended September 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Additional Unearned Total
Issued Common paid-in Retained Treasury employee stockholders'
shares stock capital earnings stock benefits equity
------ ----- ------- -------- ----- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
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) - - - (378,371) - - (378,371)
Dividends - - - (66,151) - - (66,151)
($.08 per share payable
October 25, 2000)
Amortization of RRP shares - - - - - (1,650) (1,650)
Forfeiture of RRP shares - - - - (54,797) 54,797
Allocation of ESOP shares - - 3,318 - - 28,500 31,818
---------- -------- ----------- ---------- ---------- --------- -----------
Balance at
September 30, 2000 1,031,851 $ 10,319 10,023,858 8,799,686 (3,063,972) (430,763) 15,339,128
========== ======== =========== ========== ========== ========= ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
4
CBES BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the three months ended September 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (378,371) 248,432
Adjustments to reconcile net earnings (loss) to net cash provided
by operating activities:
Provision for loan losses 567,869 38,290
Depreciation 109,661 96,338.00
Amortization of RRP (1,650) 35,510
Allocation of ESOP shares 31,818 42,665
Proceeds from sale of loans held for sale 5,765,167 7,176,483
Origination of loans held for sale (6,895,031) (11,950,439)
Gain on sale of loans, net (56,553) (137,342)
Loss on sale of real estate owned 65,392 -
Premium amortization and accretion of discounts and
deferred loan fees, net (159,974) (173,045)
Deferred income taxes (207,130)
Changes in assets and liabilities:
Accrued interest receivable 7,378 (117,901)
Other assets 4,421 531,915
Accrued expenses and other liabilities (153,474) (896,333)
Accrued interest payable on deposits (88,694) (6,401)
Current income taxes payable (255,839) 144,339
--------------- ---------------
Net cash (used in) operating activities (1,645,010) (4,967,489)
--------------- ---------------
Cash flows from investing activities:
Net decrease (increase) in loans receivable $ 7,913,645 (3,791,390)
Proceeds from sale of real estate owned 1,000 -
Mortgage-backed securities principal repayments 3,675 5,141
Proceeds from maturing investment 104,000 2,000
Purchase of office property equipment (11,712) (121,847)
Purchase of securities - (97,779)
--------------- ---------------
Net cash provided by (used in) investing activities 8,010,608 (4,003,875)
--------------- ---------------
Cash flows from financing activities:
Decrease in deposits $ (2,344,066) (788,813)
Proceeds from FHLB advances 51,800,000 13,000,000
Repayments of FHLB advances (51,800,000) (5,000,000)
Increase in advance payments by borrowers for property taxes
and insurance 385,076 302,569
Dividends paid (116,534) (155,902)
--------------- ---------------
Net cash (used in) provided by financing activities (2,075,524) 7,357,854
--------------- ---------------
Net increase in cash and cash equivalents 4,290,074 (1,613,510)
Cash and cash equivalents at the beginning of the period 7,242,045 7,784,760
--------------- ---------------
Cash and cash equivalents at the end of the period 11,532,119 6,171,250
--------------- ---------------
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes $ 225,000 -
=============== ===============
Cash paid during the period for interest $ 1,892,835 1,619,299
=============== ===============
Supplemental schedule of noncash activities:
Conversion of loans to real estate owned $ 383,897 35,990
=============== ===============
Conversion of real estate owned to loans $ - 28,183
=============== ===============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
5
CBES BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
September 30, 2000
(1) CBES Bancorp, Inc. and Subsidiaries
-----------------------------------
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 technical factors affecting the
Company's operations, pricing, products and services.
(2) 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 duplicated herein. In the opinion of management, all adjustments,
consisting only of normal recurring accruals, which are necessary for the fair
presentation of the interim financial statements, have been included. The
results of operations for the three months ended September 30, 2000 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.
<PAGE>
6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion compares the financial condition of CBES Bancorp, Inc.
(the "Company") and its wholly-owned subsidiary, Community Bank of Excelsior
Springs, a Savings Bank, (the "Bank") at September 30, 2000 to the financial
condition at June 30, 2000, its fiscal year-end, and the results of operations
for the three months ended September 30, 2000 with the same period in 1999. 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 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.
Congress may consider legislation requiring all federal thrift institutions,
such as the Bank, to either convert to a national bank or a state depository
institution. In addition, the Company might no longer be regulated as a thrift
holding company, but rather as a bank holding company. The Office of Thrift
Supervision ("OTS") also might be abolished and its functions transferred among
the federal banking regulators. There can be no assurance as to whether or in
what form such legislation will be enacted or, if enacted, its effect on the
Company and the Bank.
Financial Condition
-------------------
Total assets decreased $2.8 million, or 1.5%, to $178.1 at September 30, 2000
from $180.8 million at June 30, 2000. This was primarily due to a decrease in
net loans receivable of $8.7 million, offset by an increase in interest-bearing
deposits of $4.4 million.
Net loans receivable decreased by $8.7 million, or 5.9%, to $138.2 million at
September 30, 2000 from $146.9 million at June 30, 2000 primarily due to
decreases in one-to-four family loans of $1.9 million, construction loans of
$5.1 million, multi-family loans of $0.6 million, land loans of $0.4 and
consumer loans of $0.5 million. At September 30, 2000 the Bank had fixed rate
loans held for sale of $1.0 million that are contracted to be sold in the
secondary market. At September 30, 2000 the Bank also had adjustable rate loans
held for sale of $17.0 million,
<PAGE>
7
which had not yet been contracted to be sold to investors. On October 11, 2000
the Bank sold $9.9 million in adjustable rate arms held for sale.
Deposits decreased $2.3 million, or 1.7%, to $133.3 million at September 30,
2000 from $135.6 million at June 30, 2000. The decrease in deposits is primarily
due to a decrease of $2.2 million in brokered deposits. FHLB advances remained
$26.8 million at September 30, 2000 and June 30, 2000. These advances range in
terms from one to ten years, and approximately one-third are callable advances.
Comparison of Operating Results for the Three Months Ended September 30, 2000
-----------------------------------------------------------------------------
and 1999
--------
Performance Summary. For the three months ended September 30, 2000, the Company
had a net loss of $378,000 compared to net earnings of $248,000 for the three
months ended September 30, 1999. The most significant items causing the decrease
in earnings were a decrease in net interest income of $166,000, an increase in
the provision for loan loss of $530,000, a decrease in non-interest income of
$35,000, and an increase in non-interest expense of $288,000, offset by a
decrease in income taxes of $392,000.
Interest Income. For the three months ended September 30, 2000, net interest
income decreased $166,000, or 11.1%, to $1.3 million from $1.5 million for the
three months ended September 30, 1999. The decrease reflected an increase of
$659,000 in interest expense, to $2.3 million from $1.6 million, partially
offset by an increase of $493,000 in interest income to $3.6 million from $3.1
million. Loans on non-accrual status significantly effected the interest income
recorded in the three months ended September 30, 2000. In the three months ended
September 30, 2000 there was a substantial increase in loans on non-accrual
status. As a result, interest which would have otherwise been recorded,
aggregating approximately $146,000, was not recognized during the current
quarter, compared to $17,000 that was not recorded during the three months ended
September 30, 1999. The increase in interest income was primarily due to an
increase in the average balance of net loans receivable, and interest bearing
deposits in other financial institutions. 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 three months ended September 30, 2000, the
Bank recorded a $568,000 provision for loan losses, compared to a provision of
$38,000 for the three months ended September 30, 1999. Of the $568,000 provision
for loan loss, $308,000 was primarily attributable to an increase in the Bank's
classified assets of $4.3 million from $14.2 million at June 30, 2000 to $18.5
million at September 30, 2000. The $18.5 million in classified assets consisted
of single family construction loans of $10.3 million, two-to-four family
construction loans of $2.2 million, multi-family construction loans of $2.2
million, single family permanent loans of $2.3 million, two-to-four family
permanent loans of $0.2 million, land loans of $0.1 million, land development
loans of $0.1 million, consumer loans of $0.2 million, permanent commercial real
estate loans of 0.3 million, commercial loans of $0.1 million and other real
estate owned of $0.5 million. In addition, $230,000 of the $568,000 provision
for loan loss was primarily attributable to an increase in general reserves for
consumer loans.
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 exposure to 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. During the three month period ended September
30, 2000, management determined to increase certain of the factors based upon a
more conservative analysis of the risks inherent in the portfolio. Percentages
generally range from 0.05% for single family residential loans to 6.00% 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 delinquent more than 90 days and classified assets. In addition,
pursuant to the Bank's methodology, the reserve is replenished for net
charge-offs, which are charged against the reserve. Pursuant to the supervisory
agreement, the Bank may not reduce the allowance for loan losses without prior
notice of no objection from the Office of Thrift Supervision.
In accordance with the supervisory agreement, the Bank has been examining a
significant portion of its higher risk mortgage loans, including its
construction, land, and commercial real estate loans. As of September 30, 2000,
a majority of such loans have been reviewed, and approximately $12 million of
such loans remain to be reviewed. The Bank expects to complete this review
process prior to December 31, 2000. In establishing its loan loss reserves, the
Bank has taken into consideration the risk that a percentage of such higher risk
mortgage loans left to review might be classified. Depending upon the actual
results of the Bank's review of the remainder of its high risk portfolio, the
Bank may determine that upward or downward adjustments to the Bank's allowance
for loan losses are appropriate. In addition, the Bank has performed an initial
review of its consumer loan portfolio and will be undertaking a more
comprehensive review of this portfolio in the immediate future. Based on the
results of its initial review, the Bank, as indicated above, determined to
increase certain of the reserve factors applicable to portions of its consumer
loan portfolio. The Bank will determine whether any further adjustments are
appropriate based upon its more complete analysis of the consumer loan
portfolio.
As a result of the provision for loan losses during the quarter, at September
30, 2000, the Bank had a total allowance for loan losses of $3.5 million,
representing 24.6% of total non-performing assets and 2.2% of the Bank's loans
receivable, net. The amount of net loans charged off was $30,000 during the
three months ended September 30, 2000 compared to $38,000 for the three months
ended September 30, 1999.
<PAGE>
8
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 September 30, 2000, non-interest
income decreased $35,000 to $185,000 from $220,000 for the prior year period
primarily due to a decrease in gain on the sale of loans of $81,000, offset by
increases in customer service charges of $5,000, loan servicing fees of $25,000,
and other non-interest income of $16,000. The decrease in the gain on sale of
loans was primarily due to a decrease in loan sales to $5.7 million for the
three months ended September 30, 2000 from loan sales of $7.0 million for the
three months ended September 30, 1999.
Non-Interest Expense. Non-interest expense increased by $288,000 to $1.6 million
for the three months ended September 30, 2000 from $1.3 million for the three
months ended September 30, 1999. Of this increase, $320,000 was due 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 primarily
due to the provision for losses on specific parcels of $50,000 and the loss on
sale of repossessed assets of $23,000. The increases are offset by a decrease in
compensation expense, due to a decrease in the number of employees, a decrease
in the ESOP plan expense of $8,000 and a decrease in the Recognition and
Retention plan expense of $32,000, decreases in advertising of $18,000, data
processing expense of $3,000, federal insurance premiums of $8,000 and office
property and equipment expense of $8,000.
Non-performing Assets
---------------------
On September 30, 2000, nonperforming assets were $14.1 million compared to $8.8
million on June 30, 2000. The balance of the Bank's allowance for loan losses
was $3.5 million at September 30, 2000 or 24.6% of nonperforming assets compared
to $2.9 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 $5.3 million increase in nonperforming assets, from June 30, 2000 to
September 30, 2000, was primarily due to an increase in one-to-four family
non-accruing construction loans of $4.0 million, and an increase in one-to-four
family non-accruing loans of $923,000, an increase in non-accruing consumer
loans of $119,000, and an increase in foreclosed assets of $380,000, offset by a
decrease in non-accruing land loans of $95,000.
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 September 30,
2000:
Actual Required Excess
amount/percent amount/percent amount/percent
-------------- -------------- --------------
(Dollars in thousands)
FIRREA REQUIREMENTS
-------------------
Tangible capital $13,293 7.47% 2,670 1.50% 10,623 5.97%
Core leverage capital $13,293 7.47% 7,121 4.00% 6,172 3.47%
Risk-based capital $14,927 11.58% 10,316 8.00% 4,611 3.58%
<PAGE>
9
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 September 30, 2000 and June 30, 2000 were 4.79% 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 growth 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 September 30, 2000 and 1999 were $11.5
million and $7.2 million respectively.
Cash flows from operating activities. Net cash used in operating activities was
$1.6 million during the three months ended September 30, 2000 compared to $5.0
million during the same period in 1999. The change was primarily due to a
decrease in the origination of loans held for sale of $5.1 million, offset by a
decrease in the proceeds from the sale of loans of $1.4.million, and a decrease
in accrued expenses and other liabilities of $743,000.
Cash flows from investing activities. Net cash of $8.0 million was provided by
investing activities for the three months ended September 30, 2000 compared to
net cash used in investing activities of $4.0 million for the three months ended
September 30, 1999. The decrease in cash used was primarily due to an decrease
in loans receivable of $7.9 million during the three months ended September 30,
2000 compared to a $3.8 million increase during the same period in 1999.
Cash flows from financing activities. Net cash used in financing activities was
$2.1 million for the three months ended September 30, 2000 compared to net cash
provided by financing activities of $7.4 million during the same period in 1999.
The decrease in cash flows from financing activities is primarily due to an
increase in repayments of FHLB advances of $51.8 million for the three months
ended September 30, 2000 versus an increase of $5.0 million for the same period
in 1999, and a decrease in deposits of $2.3 million for the three months ended
September 30, 2000 versus a decrease of $800,000 for the same period in 1999,
and an increase in the proceeds from FHLB advances of $51.8 million for the
three months ended September 30, 2000 versus an increase of $13.0 million for
the same period in 1999.
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
<PAGE>
10
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.
Impact of Recently Adopted Accounting Standards
The Financial Accounting Standards Board ("FASB") issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities", in June 1998.
SFAS No. 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. SFAS No. 137 was issued in
June 1999 and delayed the effective date of SFAS No. 133 until June 15, 2000.
Effective July 1, 2000 the Company adopted SFAS No. 133. The adoption of SFAS
No. 133 did not have a material effect on the Company's financial position or
results of operations.
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11
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
"Management's Discussion and Analysis of Financial Conditions 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
--------------------------------
Exhibits
27-Financial Data Schedule
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12
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: November 17, 2000
-----------------------------------------
By: /s/ Dennis D. Hartman
------------------------------------------
Dennis D. Hartman, Chief Executive Officer
and Secretary (Duly Authorized Officer)
Date November 17, 2000
-----------------------------------------
By: /s/ Robert F. Kirk
-------------------------------------------
Robert F. Kirk, Chief Financial Officer
(Principal Financial Officer)
