<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 March 31, 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
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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 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 May 5, 1998
--------------------------- --------------------------
Common stock, .01 par value 969,607
<PAGE>
CBES BANCORP, INC. AND SUBSIDIARIES
Table of Contents
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
<TABLE>
<CAPTION>
<C> <S> <C>
Consolidated Statements of Financial Condition at
March 31, 1998 (unaudited) and June 30, 1997 .....................................1
Consolidated Statements of Earnings for the three
months months ended March 31, 1998 and 1997 (unaudited) ..........................2
Consolidated Statements of Stockholders' Equity for
the nine months ended March 31, 1998 (unaudited) .................................3
Consolidated Statements of Cash Flows for the nine
months ended March 31, 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
March 31, 1998 and June 30, 1997
March 31, June 30,
Assets 1998 1997
------ ---- ----
(unaudited)
Cash $ 703,987 588,056
Interest-bearing deposits in other financial
institutions 5,519,743 3,544,294
Investment securities available-for-sale
(amortized cost of $1,000,750 at June 30, 1997) - 996,320
Investment securities held-to-maturity 98,000 100,000
Mortgage-backed securities held-to-maturity
(estimated fair value of $91,663 and $156,176
respectively) 89,812 154,352
Loans held-for-sale, net 2,072,845 696,617
Loans receivable, net 102,695,984 90,320,430
Accrued interest receivable:
Loans receivable 875,869 688,408
Investment securities 531 20,028
Mortgage-backed securities 1,199 1,697
Real Estate Owned 30,723 168,204
Stock in Federal Home Loan Bank (FHLB), at cost 810,700 810,700
Office property and equipment, net 1,650,685 1,237,823
Deferred income tax benefit - 7,000
Cash surrender value of life insurance and other
assets 1,876,982 1,742,557
------------ -----------
Total assets $116,427,060 101,076,486
============ ===========
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Deposits $ 82,942,951 70,692,900
FHLB advances and other borrowings 15,250,000 10,750,000
Accrued expenses and other liabilities 914,544 741,009
Accrued interest payable on deposits 118,602 97,966
Advance payments by borrowers for property
taxes and insurance 454,039 725,518
Current income taxes payable 162,011 294,604
Deferred income taxes 15,517 -
------------ -----------
Total liabilities 99,857,664 83,301,997
------------ -----------
Stockholders' equity:
Preferred stock, $.01 par, 500,000 shares
authorized, none issued or outstanding - -
Common stock, $.01 par; 3,500,000 shares
authorized, 1,031,851 and 1,024,958 shares
issued, respectively 10,319 10,250
Additional paid-in capital 9,881,061 9,728,357
Retained earnings, substantially restricted 9,255,486 8,777,980
Unrealized losses on available-for-sale
securities, net of tax - (2,658)
Treasury stock, 92,244 shares at cost (1,433,157) -
Unearned employee ESOP shares (647,180) (739,440)
Unearned recognition and retention plan shares (497,133) -
------------ -----------
Total stockholders' equity 16,569,396 17,774,489
------------ -----------
Total liabilities and stockholders' equity $116,427,060 101,076,486
============ ===========
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
2
CBES BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
(Unaudited)
Three Months Ended Nine Months Ended
March 31 March 31
------------------ -----------------
1998 1997 1998 1997
------ ------ ------ ------
Interest income:
Loans receivable $ 2,262,201 1,855,820 6,571,049 5,376,565
Mortgage-backed securities 1,811 3,955 5,710 15,588
Investment securities 135 12,331 19,711 54,793
Loans held-for-sale 36,112 (44,581) 78,766 (21,146)
Other 53,850 29,972 138,098 66,311
--------- --------- --------- ---------
Total interest income 2,354,109 1,857,497 6,813,334 5,492,111
--------- --------- --------- ---------
Interest expense:
Deposits 966,353 760,454 2,794,754 2,251,351
FHLB advances 188,383 98,914 480,196 369,612
--------- --------- - -------- ---------
Total interest expense 1,154,736 859,368 3,274,950 2,620,963
--------- --------- --------- ---------
Net interest income 1,199,373 998,129 3,538,384 2,871,148
Provision for loan losses 43,901 18,627 165,467 50,900
--------- --------- --------- ---------
Net interest income after
provision for loan losses 1,155,472 979,502 3,372,917 2,820,248
--------- --------- --------- ---------
Non-interest income:
Gain on sale of loans, net 100,822 38,223 248,666 125,593
Customer service charges 52,115 49,364 168,392 156,530
Loan servicing fees 8,476 39,316 43,479 80,793
Other 33,564 34,681 97,590 95,579
--------- --------- --------- ---------
Total non-interest income 194,977 161,584 558,127 458,495
--------- --------- --------- ---------
Non-interest expense:
Compensation and benefits 551,282 396,373 1,645,161 1,054,570
Office property and equipment 108,263 72,342 274,668 219,774
Data processing 41,150 40,445 122,961 124,714
Federal insurance premiums 12,416 10,904 35,414 522,047
Advertising
Real estate owned and
repossessed assets 38,972 17,472 68,133 51,544
28,485 3,888 56,666 13,207
Other 194,675 164,422 524,275 404,111
--------- --------- --------- ---------
Total non-interest expense 975,333 705,846 2,727,278 2,389,967
--------- --------- --------- ---------
Earnings before income
taxes 375,116 435,240 1,203,766 888,776
Income tax expense 137,691 178,511 450,013 348,740
--------- --------- --------- ---------
Net earnings $ 237,425 256,729 753,753 540,036
========= ========= ========= =========
Earnings per share-basic $ .26 .27 .79 .57
========= ========= ========= =========
Earnings per share-diluted $ .25 .27 .79 .57
========= ========= ========= =========
Basic weighted average shares 927,182 946,877 952,051 944,707
Common stock equivalents-stock
options 17,352 - 4,051 -
--------- --------- --------- ---------
Diluted weighted average shares 944,534 946,877 956,102 944,707
========= ========= ========= =========
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
3
CBES BANCORP, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
For the nine months ended March 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Additional
Issued Common paid-in Retained Treasury
shares stock capital earnings stock
---------- ----------- --------- -------- ------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1997 1,024,958 $10,250 9,728,357 8,777,980 -
Net earnings - - - 753,753 -
Dividends declared - - - (276,247) -
($.10 per share payable
April 24, 1998)
Change in unrealized loss
on securities available-
for-sale, net of tax - - - - -
Purchase of 92,244 shares
of Treasury Stock - - - - (2,090,907)
Adoption of recognition
and retention plan (RRP) 6,893 69 52,371 - 657,750
Amortization of RRP - - - - -
Allocation of ESOP shares - - 100,333 - -
--------- -------- --------- -------- -----------
Balance at
March 31, 1998 1,031,851 $ 10,319 9,881,061 9,255,486 (1,433,157)
========= ======== ========= ======== ===========
<CAPTION>
Unearned Unearned
Net employee recognition
unrealized stock & retention Total
gain (loss) ownership plan stockholders'
on securities shares shares equity
------------- ---------- -------- --------
<S> <C> <C> <C> <C>
Balance at June 30, 1997 (2,658) (739,440) - 17,774,489
Net earnings - - - 753,753
Dividends declared - - - (276,247)
($.10 per share payable
April 24, 1998)
Change in unrealized loss
on securities available-
for-sale, net of tax 2,658 - - 2,658
Purchase of 92,244 shares
of Treasury Stock - - - (2,090,907)
Adoption of recognition
and retention plan (RRP) - - (710,190) -
Amortization of RRP - - 213,057 213,057
Allocation of ESOP shares - 92,260 - 192,593
--------- -------- --------- ----------
Balance at
March 31, 1998 - (647,180) (497,133) 16,569,396
========= ======== ========= ==========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
4
CBES BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the nine months ended March 31, 1998 and 1997
(Unaudited)
1998 1997
---- ----
Cash flows from operating activities:
Net earnings $ 753,753 540,036
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Provision for loan losses 165,467 50,900
Depreciation 138,193 109,545
Amortization of RRP 213,057 -
Allocation of ESOP shares 192,593 76,593
Proceeds from sale of loans held for sale 13,967,050 8,915,671
Originations of loans held for sale (15,094,612) (8,723,678)
Gain on sale of loans, net (248,666) (125,593)
Premium amortization and accretion of
discounts and deferred loan fees (350,178) (245,616)
Deferred income taxes 20,745 27,417
Changes in assets and liabilities:
Accrued interest receivable (167,466) (56,540)
Other assets (134,425) 114,119
Accrued expenses and other liabilities 173,535 4,546
Accrued interest payable on deposits 20,636 5,157
Current income taxes payable (132,593) 231,473
----------- -----------
Net cash (used in) provided by
operating activities (482,911) 924,030
----------- -----------
Cash flows from investing activities:
Net increase in loans receivable (12,052,612) (5,971,792)
Mortgage-backed securities principal repayments 64,540 192,495
Maturing securities 1,002,000 1,000,000
Purchase of office property equipment (551,055) (78,565)
----------- -----------
Net cash used in investing activities $(11,537,127) (4,857,862)
----------- -----------
Cash flows from financing activities:
Increase in deposits $ 12,250,051 2,819,806
Proceeds from FHLB advances 9,000,000 20,000,000
Repayments of FHLB advances (4,500,000) (27,000,000)
Decrease in advance payments by borrowers
for property taxes and insurance (271,479) (230,633)
Issuance of common stock, net of issuance
costs of $512,500 - 8,917,120
Dividends paid (276,247) -
Treasury stock purchased (2,090,907) -
----------- -----------
Net cash provided by financing activities 14,111,418 4,506,293
----------- -----------
Net increase (decrease) in cash and
cash equivalents 2,091,380 572,461
Cash and cash equivalents at the beginning of
the period 4,132,350 3,459,359
----------- -----------
Cash and cash equivalents at the end of the period $ 6,223,730 4,031,820
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes $ 561,861 89,850
=========== ===========
Cash paid during the period for interest $ 3,254,314 2,615,806
=========== ===========
Supplemental schedule of noncash activities:
Conversion of loans to real estate owned $ 166,684 19,671
=========== ===========
Conversion of real estate owned to loans $ 304,165 -
=========== ===========
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
5
CBES BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
March 31, 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, 1997, 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 and nine month periods ended March 31,
1998 are not necessarily indicative of the results which may be expected for the
entire year.
The Company plans to adopt 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.
(3) Earnings Per Share
------------------
Effective for the quarter ending December 31, 1997, the Company 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.
(5) Employee Stock Ownership Plan
-----------------------------
All employees meeting age and service requirements are eligible to participate
in an ESOP established on September 27, 1996. Contributions made by the Bank to
the ESOP are allocated to participants by a formula based on compensation.
Participant benefits become 100% vested after five years. The ESOP purchased
81,996 shares in the Bank's conversion. The ESOP expense for the three months
and nine months ended March 31, 1998 was $61,262 and $192,593 respectively.
(6) Capital Stock Transactions
--------------------------
The Company completed the purchase of 40,000 shares of Treasury stock for
$875,750 in December 1997, 9,000 shares of Treasury stock for $195,750 in
January 1998, 41,000 shares of Treasury stock for 961,344 in February 1998, and
2,444 shares of Treasury stock for $58,063 in March 1998. These purchases
complete the Company's plan to acquire 92,244 shares in a buyback program.
<PAGE>
6
(7) 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
and the nine months ended March 31, 1998 was $35,510 and 213,057 respectively.
The unamortized cost of the RRP awards at March 31, 1998 was $497,133.
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 March 31, 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 March 31, 1998 to the financial condition
at June 30, 1997, its fiscal year-end, and the results of operations for the
three months and nine months ended March 31, 1998, with the same periods in
1997. This discussion should be read in conjunction with the interim financial
statements and notes which are included herein.
General
- -------
CBES Bancorp, Inc. was organized as a Delaware corporation in June 1996 to
acquire all of the capital stock issued by Community Bank of Excelsior Springs,
a Savings Bank upon its conversion from the mutual to stock form of ownership.
Community Bank of Excelsior Springs, a Savings 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 Bank conducts its business through its main office in Excelsior Springs,
Clay County, Missouri and its full service branch office located in Kearney,
Clay County, Missouri. The Bank opened a full service branch in Liberty,
Missouri 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.
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. Legislation enacted on
September 30, 1996 provided for a one-time special assessment of .657% of the
Bank's SAIF insured deposits at March 31, 1995. The purpose of the assessment
was to bring the SAIF to its statutory reserve ratio. Based on the above
formula, the Bank charged $441,000 against earnings for the quarter ended
September 30, 1996. Although the special one-time assessment significantly
increased noninterest expense for that quarter, the reduction in the premium
schedule is reducing the Bank's federal insurance premiums for the future
periods.
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 by January 1, 1999. 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. Certain aspects of the
legislation remain to be resolved and, therefore, no assurance can be given as
to whether or in what form the legislation will be enacted or its effect on the
Company and the Bank.
<PAGE>
8
Financial Condition
- -------------------
Total assets increased $15.3 million, or 15.1%, to $116.4 at March 31, 1998 from
$101.1 million at June 30, 1997. This was primarily due to an increase in net
loans receivable and loans held for sale of $13.8 million, which were funded
primarily with deposits.
Net loans receivable and loans held for sale increased by $13.8 million, or
15.2%, to $104.8 million at March 31, 1998 from $91.0 million at June 30, 1997
primarily due to increases in one-to-four family portfolio loans of $2.3
million, one-to-four family construction loans of $8.5 million, non-residential
loans of $1.2 million, and land loans of $1.5 million.
Deposits increased $12.2 million, or 17.3%, to $82.9 million at March 31, 1998
from $70.7 million at June 30, 1997. The increase in deposits is primarily due
to $11.3 million in new certificates of deposit.
FHLB advances increased $4.5 million, or 41.7%, to $15.3 million at March 31,
1998 from $10.8 million at June 30, 1997. The increase in FHLB advances was
primarily used to increase liquidity.
Comparison of Operating Results for the Three Months Ended March 31, 1998 and
- -----------------------------------------------------------------------------
1997
- ----
Performance Summary. In the three months ended March 31, 1998, the Company had
net earnings of $237,000 compared to net earnings of $257,000 for the three
months ended March 31, 1997. The most significant items causing the decrease
in earnings were an increase in interest income of $497,000 offset by an
increase in interest expense of $295,000, and an increase in non-interest
expense of $269,000.
Net Interest Income. For the three months ended March 31, 1998, net interest
income increased by $201,000, or 20.1%, to $1,199,000 from $998,000 for the
three months ended March 31, 1997. The increase reflected an increase of
$497,000 in interest income, to $2,354,000 from $1,857,000 and an increase of
$295,000 in interest expense to $1,155,000 from $860,000.
Provision for Loan Losses. During the three months ended March 31, 1998, the
Bank charged $44,000 against earnings as a provision for loan losses compared to
a provision of $19,000 for the three months ended March 31, 1997. The increase
in provision for loan losses is a result of an overall increase in the loan
portfolio, and in particular one-to-four family construction loans, and one-to-
four family portfolio loans. This provision resulted in an allowance for loan
losses of $569,000 or .55% of loans receivable, net at March 31, 1998 compared
to $436,000, or .48% of loans receivable, net at June 30, 1997. 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.
Non-Interest Income. For the three months ended March 31, 1998, non-interest
income increased $33,000 to $195,000 from $162,000 for the prior year period
primarily due to an increase in gain on the sale of loans of $63,000, offset by
a decrease in loan servicing fees of $31,000.
<PAGE>
9
Non-Interest Expense. Non-interest expense increased by $269,000 to $975,000
for the three months ended March 31, 1998 from $706,000 for the three months
ended March 31, 1997. Of this increase, $155,000 was attributable to
compensation, of which $22,000 was due to the ESOP plan, $ 39,000 was due to the
adoption of the Recognition and Retention plan, and $102,000 was due to an
increase in the number of employees and general wage increases, $36,000 was due
to office property and equipment expense, $22,000 was due to advertising, and
$25,000 was due to REO and Repossessed Asset expense. The increase 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.
Comparison of Operating Results for the Nine Months Ended March 31, 1998 and
- ----------------------------------------------------------------------------
1997
- ----
Performance Summary. In the nine months ended March 31, 1998, the Company had
net income of $754,000 compared to net earnings of $540,000 for the nine months
ended March 31, 1997. The most significant items causing the increase in
earnings were an increase in interest income of $1,321,000 and a decrease in
Federal Insurance premiums of $487,000, primarily due to the one-time special
assessment of $441,000 to recapitalize SAIF charged in September of 1996, offset
by an increase in interest expense of $654,000, and an increase in non-interest
expense of $337,000.
Net Interest Income. For the nine months ended March 31, 1998, net interest
income increased by $667,000, or 23.2%, to $3,538,000 from $2,871,000 for the
nine months ended March 31, 1997. The increase reflected an increase of
$1,321,000 in interest income, to $6,813,000 from $5,492,000, offset by an
increase of $654,000 in interest expense to $3,275,000 from $2,621,000.
Provision for Loan Losses. During the nine months ended March 31, 1998, the
Bank charged $165,000 against earnings as a provision for loan losses compared
to a provision of $51,000 for the nine months ended March 31, 1997. The
increase in provision for loan losses is a result of an overall increase in the
loan portfolio, and in particular one-to-four family construction loans, and
one-to-four family portfolio loans. This provision resulted in an allowance
for loan losses of $569,000 or .55% of loans receivable, net at March 31, 1998
compared to $436,000, or .48% of loans receivable, net at June 30, 1997.
Non-interest Income. For the nine months ended March 31, 1998, non-interest
income increased $100,000 to $558,000 from $458,000 for the prior year period
primarily due to an increase in gain on the sale of loans of $123,000, and an
increase in customer service charges of $12,000, offset by a decrease in loan
servicing fees of $37,000.
Non-interest Expense. Non-interest expense increased by $337,000 to $2,727,000
for the nine months ended March 31, 1998 from $2,390,000 for the nine months
ended March 31, 1997. Of this increase, $591,000 was attributable to
compensation, of which $121,000 was due to the ESOP plan, $222,000 was due to
the adoption of the Recognition and Retention plan, and $253,000 was due to an
increase in the number of employees and general wage increases, $55,000 was due
to office property and equipment expense, $17,000 was due to advertising,
$43,000 was due to REO and Repossessed Asset expense, and $120,000 was due to
other non-interest expense, offset by a decrease in federal insurance premiums
of $487,000. The increase 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 March 31, 1998, nonperforming assets were $618,000 compared to $1,157,000 on
June 30, 1997. The balance of the Bank's allowance for loan losses was $569,000
at March 31, 1998, or 92.1% 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.
<PAGE>
10
Capital Resources
- -----------------
The Bank is subject to capital to asset requirements in accordance with Office
of Thrift Supervision regulations. The following table is a summary of the
Bank's regulatory capital requirements versus actual capital as of March 31,
1998:
<TABLE>
<CAPTION>
Actual Required Excess
amount/percent amount/percent amount/percent
-------------- -------------- --------------
(Dollars in thousands)
<S> <C> <C> <C>
FIRREA REQUIREMENTS
-------------------
Tangible capital $13,675 11.75% 1,746 1.50% 11,929 10.25%
Core leverage capital $13,675 11.75% 4,656 4.00% 9,019 7.75%
Risk-based capital $14,065 14.32% 7,859 8.00% 6,206 6.32%
</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 March 31, 1998 and June 30, 1997 were 6.48% and
6.37%, 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. 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 March 31, 1998 and 1997 were
$6,223,730 and $4,031,820 respectively.
Cash flows from operating activities. Net cash used in operating activities was
$483,000 during the nine months ended March 31, 1998 compared to $924,000
provided by operating activities during the same period in 1997. The change was
primarily due to an increase in net earnings of $214,000, an increase in the
proceeds from the sale of loans held for sale of $5,051,000, and amortization of
the recognition and retention plan of $213,000 adopted October 28, 1998, offset
by an increase in the originations of loans held for sale of $6,371,000, a
decrease in the change in other assets of $249,000, and a decrease in the change
in current income taxes payable of $364,000.
Cash flows from investing activities. Net cash of $11.5 million was used in
investing activities for the nine months ended March 31, 1998 versus $4.9
million for the nine months ended March 31, 1997. The decrease was primarily due
to an increase in loans receivable of $12.1 million during the nine months ended
March 31, 1998 versus a $6.0 million increase during the same period in 1997.
Cash flows from financing activities. Net cash provided by financing activities
was $14.1 million for the nine months ended March 31, 1998 compared to $4.5
million during the same period in 1997. The increase in cash flows from
financing activities is primarily due to an increase in deposits of $12.3
million for the nine months ended March 31, 1998 versus an increase of $2.8
million for the same period in 1997.
<PAGE>
11
Capability of the Bank's Data Processing Hardware to Accommodate the Year 2000
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
generally relies on independent third parties to provide data processing
services to the Bank, and has been advised by its data processing service center
that the issue has been addressed. The Bank recognized that a comprehensive and
coordinated plan of action was needed to ensure complete readiness to perform
Year 2000 processing. A Year 2000 Committee has been formed to initiate and
implement the Year 2000 project, policies, document readiness of the Bank to
accommodate Year 2000 processing, and to track and test progress towards full
compliance. The Bank contracts with service bureaus to provide the majority of
its data processing. The Bank is in the process of ensuring that external
vendors and servicers are adequately addressing the system and software issues
related to the Year 2000 by obtaining written system certifications that the
system is fully Year 2000 compliant or that the vendor has a plan to become
fully compliant in the very near future. In the evaluation, the Bank will
ensure that critical operations will continue if servicers or vendors are unable
to achieve the Year 2000 requirements. Any changes are scheduled to be
implemented by December 31, 1998.
<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: May 12, 1998
----------------------------------
By: /s/ Larry E. Hermreck
----------------------------------------------
Larry E. Hermreck, Chief Executive Officer
and Secretary (Duly Authorized Officer)
Date: May 12, 1998
---------------------------------
By: /s/ Dennis D. Hartman
-----------------------------------------------
Dennis Hartman, Controller and Chief
Financial Officer (Principal Financial Officer)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 703,987
<INT-BEARING-DEPOSITS> 5,519,743
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 187,812
<INVESTMENTS-MARKET> 189,663
<LOANS> 104,768,829
<ALLOWANCE> 569,000
<TOTAL-ASSETS> 116,427,060
<DEPOSITS> 82,942,951
<SHORT-TERM> 15,250,000
<LIABILITIES-OTHER> 914,544
<LONG-TERM> 0
0
0
<COMMON> 10,319
<OTHER-SE> 16,559,077
<TOTAL-LIABILITIES-AND-EQUITY> 116,427,060
<INTEREST-LOAN> 6,649,815
<INTEREST-INVEST> 25,421
<INTEREST-OTHER> 138,098
<INTEREST-TOTAL> 6,813,334
<INTEREST-DEPOSIT> 2,794,754
<INTEREST-EXPENSE> 3,274,950
<INTEREST-INCOME-NET> 3,538,384
<LOAN-LOSSES> 165,467
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 524,275
<INCOME-PRETAX> 1,203,766
<INCOME-PRE-EXTRAORDINARY> 753,753
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 753,753
<EPS-PRIMARY> 0.79
<EPS-DILUTED> 0.79
<YIELD-ACTUAL> 8.73
<LOANS-NON> 587,176
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 436,000
<CHARGE-OFFS> 60,023
<RECOVERIES> 27,556
<ALLOWANCE-CLOSE> 569,000
<ALLOWANCE-DOMESTIC> 569,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
