<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, 1998
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____ TO ____
COMMISSION FILE NUMBER 0-21163
---------
CBES BANCORP, INC.
------------------
(Exact name of small business issuer as specified in its charter)
DELAWARE 43-1753244
------------------------------------------------------------------
(State or other jurisdiction of incorporation or organization)
(IRS Employer Identification No.)
1001 N. JESSE JAMES ROAD, EXCELSIOR SPRINGS, MO 64024
-----------------------------------------------------
(Address of principal executive offices)
(816 630-6711)
--------------
(Issuer's telephone number)
NOT APPLICABLE
---------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by
Section13 or 15(d) of the 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, 1998
------------------- --------------------------------
Common stock, .01 par value 969,607
<PAGE>
CBES BANCORP, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Statements of Financial Condition at September 30,
1998 (unaudited) and June 30, 1998................................................................... 1
Consolidated Statements of Earnings for the three months
ended September 30, 1998 and 1997 (unaudited)........................................................ 2
Consolidated Statements of Stockholders' Equity for the three
months ended September 30, 1998 (unaudited)........................................................... 3
Consolidated Statements of Cash Flows for the three months ended
September 30, 1998 and 1997 (unaudited)............................................................... 4
Notes to Consolidated Financial Statements (unaudited)................................................. 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................................................... 7
PART II - OTHER INFORMATION........................................................................................... 12
SIGNATURES............................................................................................................ 13
</TABLE>
<PAGE>
1
CBES BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30, 1998 AND JUNE 30, 1998
<TABLE>
<CAPTION>
September 30, June 30,
Assets 1998 1998
------ ---- ----
(unaudited)
<S> <C> <C>
Cash $ 1,017,129 675,906
Interest-bearing deposits in other financial institutions 6,518,606 2,424,192
Investment securities held-to-maturity 96,000 98,000
Mortgage-backed securities held-to-maturity (estimated fair value
of $75,000 and $82,000 respectively) 73,409 81,066
Loans held-for-sale, net 7,143,916 1,579,569
Loans receivable, net 125,349,134 113,242,706
Accrued interest receivable:
Loans receivable 996,233 908,793
Investment securities 520 2,123
Mortgage-backed securities 983 1,084
Real Estate Owned 293,766 48,741
Stock in Federal Home Loan Bank (FHLB), at cost 1,775,000 1,025,000
Office property and equipment, net 1,750,788 1,743,503
Deferred income tax benefit - 146,000
Cash surrender value of life insurance and other assets 1,868,924 1,878,936
------------ -----------
Total assets $146,884,408 123,855,619
============ ===========
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Deposits $ 90,697,697 85,776,785
FHLB advances 35,500,000 19,500,000
Accrued expenses and other liabilities 1,799,548 679,789
Accrued interest payable on deposits 118,187 107,761
Advance payments by borrowers for property taxes and insurance 1,456,288 751,199
Current income taxes payable 175,501 182,978
Deferred income taxes 15,517 -
------------ -----------
Total liabilities 129,762,738 106,998,512
------------ -----------
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 9,940,701 9,912,731
Retained earnings, substantially restricted 9,618,191 9,447,698
Treasury stock, 92,244 shares at cost (1,433,157) (1,433,157)
Unearned employee benefits (1,014,384) (1,080,484)
------------ -----------
Total stockholders' equity 17,121,670 16,857,107
------------ -----------
Total liabilities and stockholders' equity $146,884,408 123,855,619
============ ===========
</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
------------------------
1998 1997
-------- --------
<S> <C> <C>
Interest income:
Loans receivable $2,719,863 2,116,754
Mortgage-backed securities 1,459 1,938
Investment securities 22 11,398
Other 72,147 37,876
---------- ---------
Total interest income 2,793,491 2,167,966
---------- ---------
Interest expense:
Deposits 1,079,793 882,891
FHLB advances 362,190 135,494
---------- ---------
Total interest expense 1,441,983 1,018,385
---------- ---------
Net interest income 1,351,508 1,149,581
Provision for loan losses 75,150 79,978
---------- ---------
Net interest income after
provision for loan losses 1,276,358 1,069,603
---------- ---------
Non-interest income:
Gain on sale of loans, net 140,441 56,735
Customer service charges 57,885 61,816
Loan servicing fees 12,100 17,780
Other 32,473 34,547
---------- ---------
Total non-interest income 242,899 170,878
---------- ---------
Non-interest expense:
Compensation and benefits 661,021 418,007
Office property and equipment 142,336 79,494
Data processing 55,220 38,673
Federal insurance premiums 12,868 11,413
Advertising 19,015 10,967
Real estate owned and repossessed assets (46,264) 27,931
Other 232,252 157,878
---------- ---------
Total non-interest expense 1,076,448 744,363
---------- ---------
Earnings before income taxes 442,809 496,118
Income tax expense 164,039 191,256
---------- ---------
Net earnings $ 278,770 304,862
========== =========
Earnings per share:
Basic and Diluted $ .31 .32
========== =========
Basic weighted average shares 910,394 952,357
Common stock equivalents-stock options 287 -
---------- ---------
Diluted weighted average shares 910,681 952,357
========== =========
</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, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Unearned Unearned
employee recognition
Additional stock & retention Total
Issued Common paid-in Retained Treasury ownership plan stockholders'
shares stock capital earnings stock shares shares equity
--------- ----------- --------- ---------- ----------- ---------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1998 1,031,851 $10,319 9,912,731 9,447,698 (1,433,157) (618,860) (461,624) 16,857,107
Net earnings - - - 278,770 - - - 278,770
Dividends declared - - - (108,277) - - - (108,277)
($.12 per share payable
October 24, 1998)
Amortization of RRP - - - - - - 35,510 35,510
Allocation of ESOP shares - - 27,970 - - 30,590 - 58,560
--------- ------- --------- --------- ---------- -------- -------- ----------
Balance at
September 30, 1998 1,031,851 $10,319 9,940,701 9,618,191 (1,433,157) (588,270) (426,114) 17,121,670
========= ======= ========= ========= ========== ======== ======== ==========
</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, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 278,770 304,862
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Provision for loan losses 75,150 79,978
Depreciation 77,557 41,050
Amortization of RRP 35,510 -
Allocation of ESOP shares 58,560 53,421
Proceeds from sale of loans held for sale 5,205,505 3,098,557
Originations of loans held for sale (10,629,411) (3,190,877)
Gain on sale of loans, net (140,441) (56,735)
Premium amortization and accretion of discounts and
deferred loan fees (152,591) (108,706)
Deferred income taxes 161,517 20,745
Changes in assets and liabilities:
Accrued interest receivable (85,736) (24,573)
Other assets 10,012 53,981
Accrued expenses and other liabilities 1,119,759 66,782
Accrued interest payable on deposits 10,426 (272)
Current income taxes payable (7,477) 85,511
------------ ----------
Net cash (used in) provided by operating activities (3,982,890) 423,724
------------ ----------
Cash flows from investing activities:
Net increase in loans receivable (12,274,012) (4,992,108)
Purchase of FHLB Stock (750,000) -
Mortgage-backed securities principal repayments 7,657 49,156
Maturing securities 2,000 -
Purchase of office property equipment (84,842) (77,728)
------------ ----------
Net cash used in investing activities $(13,099,197) (5,020,680)
------------ ----------
Cash flows from financing activities:
Increase in deposits $ 4,920,912 5,888,046
Proceeds from FHLB advances 16,000,000 2,500,000
Repayments of FHLB advances - (3,500,000)
Increase in advance payments by borrowers for property taxes
and insurance 705,089 238,969
Dividends paid (108,277) (94,559)
------------ ----------
Net cash provided by financing activities 21,517,724 5,032,456
------------ ----------
Net increase in cash and cash equivalents 4,435,637 435,500
Cash and cash equivalents at the beginning of the period 3,100,098 4,132,350
------------ ----------
Cash and cash equivalents at the end of the period $ 7,535,735 4,567,850
============ ==========
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes $ 10,000 85,000
============ ==========
Cash paid during the period for interest $ 1,431,557 1,018,113
============ ==========
Supplemental schedule of noncash activities:
Conversion of loans to real estate owned $ 645,244 99,724
============ ==========
Conversion of real estate owned to loans $ 400,219 -
============ ==========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
5
CBES BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1998
(1) CBES BANCORP, INC. AND SUBSIDIARIES
-----------------------------------
CBES Bancorp, Inc. (the Company) was incorporated under the laws of the state of
Delaware for the purpose of becoming the savings and loan holding company of
Community Bank of Excelsior Springs, a Savings Bank (the Bank) in connection
with the Bank's conversion from a federally chartered mutual savings bank to a
federally chartered stock savings bank, pursuant to its Plan of Conversion. On
August 12, 1996, the Company commenced a Subscription and Community Offering of
its shares in connection with the conversion of the Bank (the Offering). The
Offering was consummated and the Company acquired the Bank on September 27,
1996. The Company had no assets prior to the conversion and acquisition on
September 27, 1996.
(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, 1998, 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
statement of earnings for the three month period ended September 30, 1998 are
not necessarily indicative of the results which may be expected for the entire
year. The balance sheet information as of June 30, 1998 has been derived from
the audited balance sheet as of that date. The Company adopted the provisions of
Statement of Financial Accounting Standards Number 130 (Comprehensive Income),
effective July 1, 1998. The Company anticipates that the only component of other
comprehensive income will be the unrealized gain/loss on Available-For-Sale
securities. The Company had no securities classified as Available-For-Sale
during the quarter ended September 30, 1998.
(3) EARNINGS PER SHARE
------------------
The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 128 (Earnings Per Share). Under this statement, basic earnings per
share 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 earnings per share 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. Per share information for the
quarter ended September 30, 1997 has been restated to conform to SFAS 128.
(4) STOCK OPTION AND RECOGNITION AND RETENTION PLAN
-----------------------------------------------
The shareholders approved the adoption of a stock option plan and a recognition
and retention plan (RRP) in October 1997. Under the RRP, common stock
aggregating 40,998 shares may be awarded to certain officers and directors of
the Company. In October 1997, the Company awarded 36,893 shares with a market
value of $710,190. These shares have been reflected as unearned employee
benefits in the accompanying consolidated balance sheet. Under the provisions of
the RRP, the participants immediately vested in twenty percent of the shares and
vest in the remaining shares in twenty percent increments over the next four
years. As the awards vest, they are reflected as compensation expense. The
amortization of the RRP awards for the three months ended September 30, 1998 was
$35,510. The unamortized cost of the RRP awards at September 30, 1998 was
$426,114.
<PAGE>
6
Under the stock option plan, options to acquire 102,495 shares of the Company's
common stock may be granted to certain officers and directors of the Company.
In October 1997, the Company awarded options to acquire 92,247 shares of stock.
The options enable the recipients to purchase stock at an exercise price equal
to the fair market value of the stock at the date of grant ($19.25). Under
provisions of the stock option plan, the participants immediately vested in
twenty percent of the options and vest in the remaining shares in twenty percent
increments over the next four years. No stock options have been exercised by the
recipients during the quarter ended September 30, 1998.
<PAGE>
7
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, 1998 to the financial
condition at June 30, 1998, its fiscal year-end, and the results of operations
for the three months ended September 30, 1998, with the same period in 1997.
This discussion should be read in conjunction with the interim financial
statements and notes which are included herein.
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 Liberty office opened on March 16,
1998. 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.
<PAGE>
8
FINANCIAL CONDITION
- -------------------
Total assets increased $23.0 million, or 18.6%, to $146.9 at September 30, 1998
from $123.9 million at June 30, 1998. This was primarily due to an increase in
net loans receivable and loans held for sale of $17.7 million, which were funded
primarily with FHLB advances.
Net loans receivable and loans held for sale increased by $17.7 million, or
15.4%, to $132.5 million at September 30, 1998 from $114.8 million at June 30,
1998 primarily due to increases in one-to-four family portfolio loans of $11.9
million and loans held for sale of $5.6 million. Loans held for sale are loans
that have been sold in the secondary market but have not been funded. The
increase in net loans receivable is attributable to increased loan originations
since the opening of the Liberty branch office. Quarterly mortgage loan
originations have increased to $43.8 million during the quarter ended September
30, 1998, compared to $20.5 million for the corresponding quarter of 1997. Of
the $11.9 million increase in one-to-four family portfolio loans, approximately
$5.7 million were a special 5/1 adjustable rate loan primarily available to
first time home buyers, approximately $4.7 million in one year adjustable rate
loans that had a minor variance from conforming standards, such as, the number
of acres on the loan or a minor credit requirement variance, and approximately
$1.7 million in one year adjustable rate loans that have a loan-to-value ratio
greater than 80%, with no private mortgage insurance, to facilitate other short
term loans to investors and builders.
Deposits increased $4.9 million, or 5.7%, to $90.7 million at September 30, 1998
from $85.8 million at June 30, 1998. The increase in deposits is primarily due
to $6.3 million in new certificates of deposit.
FHLB advances increased $16.0 million, or 82.1%, to $35.5 million at September
30, 1998 from $19.5 million at June 30, 1998. The increase in FHLB advances was
primarily used to fund loans.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998
- -----------------------------------------------------------------------------
AND 1997
- --------
Performance Summary. In the three months ended September 30, 1998, the Company
had net earnings of $279,000 compared to net earnings of $305,000 for the three
months ended September 30, 1997. The most significant items causing the decrease
in earnings were an increase in interest income of $626,000 offset by an
increase in interest expense of $424,000, and an increase in non-interest
expense of $332,000.
Net Interest Income. For the three months ended September 30, 1998, net interest
income increased by $202,000, or 17.6%, to $1,352,000 from $1,150,000 for the
three months ended September 30, 1997. The increase reflected an increase of
$625,000 in interest income, to $2,793,000 from $2,168,000 and an increase of
$424,000 in interest expense to $1,442,000 from $1,018,000.
Provision for Loan Losses. During the three months ended September 30, 1998, the
Bank charged $75,000 against earnings as a provision for loan losses compared to
a provision of $80,000 for the three months ended September 30, 1997. This
provision resulted in an allowance for loan losses of $719,000 or .54% of loans
receivable, net at September 30, 1998 compared to $669,000, or .58% of loans
receivable, net at June 30, 1998. The allowance for loan losses is based on a
detailed review of nonperforming and other problem loans, prevailing economic
conditions, actual loss experience and other factors which, in management's
view, recognizes the changing composition of the Bank's loan portfolio and the
inherent risk associated with different types of loans.
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.
<PAGE>
9
Non-Interest Income. For the three months ended September 30, 1998, non-interest
income increased $72,000 to $243,000 from $171,000 for the prior year period
primarily due to an increase in gain on the sale of loans of $84,000, offset by
a decrease in loan servicing fees of $6,000 and a decrease in customer service
charges of $4,000.
Non-Interest Expense. Non-interest expense increased by $332,000 to $1,076,000
for the three months ended September 30, 1998 from $744,000 for the three months
ended September 30, 1997. Of this increase, $243,000 was attributable to
compensation, of which $5,000 was due to the ESOP plan, $ 36,000 was due to the
adoption of the Recognition and Retention plan, and $157,000 was due to an
increase in the number of employees and general wage increases, $63,000 was due
to office property and equipment expense, $8,000 was due to advertising, and
$74,000 was due to other non-interest expense, primarily due to office supplies,
professional fees and other areas, offset by a decrease in real estate owned and
repossessed asset expense of $74,000, primarily due to a gain on the sale of
real estate owned of $53,000 for the quarter ended September 30, 1998, compared
to a $2,000 gain on the sale of real estate owned for the quarter ended
September 30, 1997. The increase in Non-interest expense is primarily due to the
Company pursuing its plan of controlled growth, part of that being the opening
of the branch office in Liberty, Missouri.
NON-PERFORMING ASSETS
- ---------------------
On September 30, 1998, nonperforming assets were $1,276,000 compared to $732,000
on June 30, 1998. The balance of the Bank's allowance for loan losses was
$701,000 at September 30, 1998, or 54.9% 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.
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,
1998:
<TABLE>
<CAPTION>
Actual Required Excess
amount/percent amount/percent amount/percent
-------------- -------------- --------------
(Dollars in thousands)
FIRREA REQUIREMENTS
-------------------
<S> <C> <C> <C> <C> <C> <C>
Tangible capital $13,397 9.12% 2,203 1.50% 11,194 7.62%
Core leverage capital $13,397 9.12% 5,875 4.00% 7,522 5.12%
Risk-based capital $13,373 10.74% 9,964 8.00% 3,409 2.74%
</TABLE>
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 early loan prepayments are more 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, 1998 and June 30, 1998 were 4.74% and 4.01%,
respectively.
<PAGE>
10
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. Given the current strong loan demand, it may be
necessary for the Bank to continue to use advances.
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, 1998 and 1997 were
$7,535,735 and $4,567,850 respectively.
Cash flows from operating activities. Net cash used in operating activities was
$3,983,000 during the three months ended September 30, 1998 compared to $424,000
provided by operating activities during the same period in 1997. The change was
primarily due to an increase in the proceeds from the sale of loans held for
sale of $2,107,000, and an increase in the change in accrued expenses and other
liabilities of $1,053,000, offset by an increase in the originations of loans
held for sale of $7,439,000.
Cash flows from investing activities. Net cash of $13.1 million was used in
investing activities for the three months ended September 30, 1998 versus $5.0
million for the three months ended September 30, 1997. The increase was
primarily due to an increase in loans receivable of $12.3 million during the
three months ended September 30, 1998 versus a $5.0 million increase during the
same period in 1997.
Cash flows from financing activities. Net cash provided by financing activities
was $21.5 million for the three months ended September 30, 1998 compared to $5.0
million during the same period in 1997. The increase in cash flows from
financing activities is primarily due to an increase in FHLB advances of $16.0
million for the three months ended September 30, 1998 versus a decrease of
$1,000,000 for the same period in 1997, and an increase in deposits of $4.9
million for the three months ended September 30, 1998 versus an increase of $5.9
million for the same period in 1997.
IMPACT OF 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. This Statement is
effective for all fiscal quarters of fiscal years beginning after June 15, 1999.
Management believes adoption of SFAS No. 133 will not have a material effect on
the Company's financial position or results of operations, nor will adoption
require additional capital resources.
YEAR 2000 ISSUE
Like many financial institutions the Bank relies upon computers for the daily
conduct of its business and for data processing generally. There is concern
among industry experts that on January 1, 2000 computers will be unable to
"read" the new year and there may be widespread computer malfunctions.
The Bank's year 2000 implementation process was established using a standard
framework set forth by the Office of Thrift Supervision. The process includes
separate phases for awareness, assessment, renovation, validation, and
implementation. The Bank's year 2000 plan also includes the development and
implementation of a contingency plan for each of the Bank's critical automated
systems if they should fail to become year 2000 compliant by certain target
dates. Such contingency plans should be completed by the end of the fourth
calendar quarter in 1998. Since the Bank does not develop any of the software
programs that are utilized, the process is focused on follow-up and testing of
software provided by third party vendors and data centers to ensure their
renovation. Also, the process attends to pre-packaged computer software,
personal computer and server hardware, and other electronic equipment.
The data processing of the Bank's core operations is provided by a third party
service bureau. Management has received assurances from the Bank's service
bureau that it is progressing toward its goal of making their software and data
center hardware year 2000 compliant. The Bank is participating in testing
procedures and it continues to prudently monitor the progress reports received
from the vendor. In the year 2000 process, the Bank has evaluated the hardware
and software on its wide-area network ("WAN"). To date, the Bank has completed
the awareness and
<PAGE>
11
assessment phases of the year 2000 process. The plan's renovation was started in
the third calendar quarter of 1998 and will be finished in the fourth calendar
quarter of 1998, with validation and implementation phases to occur by March 31,
1999. Management estimates that the year 2000 implementation process will cost
between $100,000 and $150,000, which includes the cost of capitalized computer
hardware for the WAN and other costs to perform testing and validation of
services provided by the Bank's service bureau and other third parties.
<PAGE>
12
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.
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
<PAGE>
13
SIGNATURES
----------
Pursuant to the requirement of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned there unto duly authorized.
CBES Bancorp, Inc. and Subsidiaries
-----------------------------------
(Registrant)
Date: 11-10-98
---------------------------------------------
By: /s/ Larry E. Hermreck
-----------------------------------------------
Larry E. Hermreck, Chief Executive Officer
and Secretary (Duly Authorized Officer)
Date: 11-10-98
---------------------------------------------
By: /s/ Dennis D. Hartman
-----------------------------------------------
Dennis D. Hartman, Controller and Chief
Financial Officer (Principal Financial Officer)
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