-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JA9Sc3y8Tcy6R8uPzOXnYBFiigRNz+uED7XH/4rClyjoaWh6JLsEIRYvTE8FfgmG cMAsByV6YpIY/sOEL2zshA== 0000950109-99-000451.txt : 19990215 0000950109-99-000451.hdr.sgml : 19990215 ACCESSION NUMBER: 0000950109-99-000451 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990212 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CBES BANCORP INC CENTRAL INDEX KEY: 0001017308 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 431753244 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-21163 FILM NUMBER: 99534575 BUSINESS ADDRESS: STREET 1: 1001 N JESSE JAMES RD CITY: EXCELSIOR SPRINGS STATE: MI ZIP: 64024 BUSINESS PHONE: 8166306711 MAIL ADDRESS: STREET 1: 1011 N JESSE JAMES RD STREET 2: 1011 N JESSE JAMES RD CITY: EXCELSIOR SPRINGS STATE: MI ZIP: 64024 10QSB 1 FORM 10-QSB 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 DECEMBER 31, 1998 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR15(D) OF THE SECURITIES EXCHANGE ACT OFc 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 fisccal 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 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 February 10, 1999 ---------------- -------------------------------- Common stock, .01 par value 921,127 CBES BANCORP, INC. AND SUBSIDIARIES TABLE OF CONTENTS PART I - FINANCIAL INFORMATION Item 1. Financial Statements:
Consolidated Statements of Financial Condition at December 31, 1998 (unaudited) and June 30, 1998................................. 1 Consolidated Statements of Earnings for the three months and six months ended December 31, 1998 and 1997 (unaudited)................ 2 Consolidated Statements of Stockholders' Equity for the six months ended December 31, 1998 (unaudited)......................... 3 Consolidated Statements of Cash Flows for the six months ended December 31, 1998 and 1997 (unaudited)............................. 4 Notes to Consolidated Financial Statements........................... 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................ 7 PART II - OTHER INFORMATION...............................................13 SIGNATURES................................................................14
1 CBES BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION DECEMBER 31, 1998 AND JUNE 30, 1998
December 31, June 30, Assets 1998 1998 ------ ---- ---- (unaudited) Cash $ 939,570 675,906 Interest-bearing deposits in other financial 4,927,567 2,424,192 institutions Investment securities held-to-maturity 96,000 98,000 Mortgage-backed securities held-to-maturity estimated fair value of $71,381 and $82,000 respectively) 69,457 81,066 Loans held for sale, net 2,752,851 1,579,569 Loans receivable, net 132,215,121 113,242,706 Accrued interest receivable: Loans receivable 992,645 908,793 Investment securities 2,080 2,123 Mortgage-backed securities 930 1,084 Real estate owned 580,960 48,741 Stock in Federal Home Loan Bank (FHLB), at cost 1,775,000 1,025,000 Office property and equipment, net 2,726,167 1,743,503 Current income taxes receivable 171,580 - Deferred income tax benefit - 146,000 Cash surrender value of life insurance & other assets 1,973,076 1,878,936 ------------ ----------- Total assets $149,223,004 123,855,619 ============ =========== Liabilities & Stockholders' Equity ---------------------------------- Liabilities: Deposits $ 97,581,563 85,776,785 FHLB advances 33,950,000 19,500,000 Accrued expenses and other liabilities 780,838 679,789 Accrued interest payable on deposits 125,254 107,761 Advance payments by borrowers for property taxes and insurance 382,007 751,199 Current income taxes payable - 182,978 Deferred income taxes 15,517 - ------------ ----------- Total Liabilities 132,835,179 106,998,512 ------------ ----------- 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 9,964,251 9,912,731 Retained earnings, substantially restricted 9,623,160 9,447,698 Treasury stock, 140,724 and 92,244 shares at (2,267,740) (1,433,157) cost, respectively Unearned employee benefits (942,165) (1,080,484) ------------ ----------- Total stockholders' equity 16,387,825 16,857,107 ------------ ----------- Total liabilities and stockholders' $149,223,004 123,855,619 equity ============ ===========
See accompanying notes to unaudited consolidated financial statements. 2 CBES BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
Three Months Ended Six Months Ended December 31 December 31 --------------------------------------- ----------------------------------------- 1998 1997 1998 1997 -------------------- ----------------- ---------------------- ----------------- Interest income: Loans receivable $2,824,860 2,234,748 5,544,723 4,351,502 Mortgage-backed securities 1,404 1,961 2,863 3,899 Investment securities 105 8,178 127 19,576 Other 96,615 46,372 168,762 84,248 ---------- ---------- ---------- ---------- Total interest income 2,922,984 2,291,259 5,716,475 4,459,225 ---------- ---------- ---------- ---------- Interest expense: Deposits 1,179,132 945,510 2,258,925 1,828,401 FHLB Advances 524,444 156,319 886,634 291,813 ---------- ---------- ---------- ---------- Total interest expense 1,703,576 1,101,829 3,145,559 2,120,214 ---------- ---------- ---------- ---------- Net interest income 1,219,408 1,189,430 2,570,916 2,339,011 Provision for loan losses 176,615 41,588 251,765 121,566 ---------- ---------- ---------- ---------- Net interest income after provision for loan losses 1,042,793 1,147,842 2,319,151 2,217,445 ---------- ---------- ---------- ---------- Non-interest income: Gain on sale of loans, net 305,094 91,109 445,535 147,844 Customer service charges 57,456 54,461 115,341 116,277 Loan servicing fees 12,113 17,223 24,213 35,003 Other 33,023 29,479 65,496 64,026 ---------- ---------- ---------- ---------- Total non-interest income 407,686 192,272 650,585 363,150 ---------- ---------- ---------- ---------- Non-interest expense: Compensation and benefits 654,858 675,872 1,275,226 1,093,879 Office property and equipment 244,923 86,911 427,912 166,405 Data processing 53,923 43,138 109,143 81,811 Federal insurance premiums 12,666 11,585 25,534 22,998 Advertising 35,111 18,194 54,126 29,161 Real estate owned and repossessed assets 4,954 250 (41,310) 28,181 Other 248,920 171,632 481,172 329,510 ---------- ---------- ---------- ---------- Total non-interest expense 1,255,355 1,007,582 2,331,803 1,751,945 ---------- ---------- ---------- ---------- Earnings before income taxes 195,124 332,532 637,933 828,650 Income tax expense 68,919 121,066 232,958 312,322 ---------- ---------- ---------- ---------- Net earnings $ 126,205 211,466 404,975 516,328 ========== ========== ========== ========== Earnings per share: Basic and diluted $ 0.14 $ 0.22 $ 0.45 $ 0.54 ========== ========== ========== ========== Basic weighted average shares 887,757 975,533 898,694 964,215 Common stock equivalents-stock options - 5,630 - 401 ---------- ---------- ---------- ---------- Diluted weighted average shares 887,757 981,163 898,694 964,616 ========== ========== ========== ==========
See accompanying notes to unaudited consolidated financial statements. 3 CBES BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE SIX MONTHS ENDED DECEMBER 31, 1998 (UNAUDITED)
Additional Unearned Total Issued Common paid-in Retained Treasury employee stockholders' shares stock capital earnings stock benefits equity ------ ----- ------- -------- ----- -------- ------ Balance at June 30, 1998 1,031,851 $10,319 9,912,731 9,447,698 (1,433,157) (1,080,484) 16,857,107 Net earnings - - - 404,975 - - 404,975 Dividends declared - - - (229,513) - - (229,513) ($.14 per share payable January 25, 1999) Purchase of 48,480 shares of - - - - (834,583) - (834,583) treasury stock Amortization of RRP - - - - - 71,019 71,019 Allocation of ESOP shares - - 51,520 - - 67,300 118,820 --------- ------- ---------- --------- ---------- ---------- ---------- Balance at December 31, 1998 1,031,851 $10,319 9,964,251 9,623,160 (2,267,740) (942,165) 16,387,825 ========= ======= ========== ========= ========== ========== ==========
See accompanying notes to unaudited consolidated financial statements. 4 CBES BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED DECEMBER 31, 1998 AND 1997 (UNAUDITED)
1998 1997 ---- ---- Cash flows from operating activities: Net earnings $ 404,975 516,328 Adjustments to reconcile net earnings to net cash provided by operating activities: Provision for loan losses 251,765 121,566 Depreciation 162,201 86,386 Amortization of RRP 71,019 177,547 Allocation of ESOP shares 118,820 131,331 Proceeds from sale of loans held for sale 20,837,028 8,322,405 Origination of loans held for sale (21,564,775) (8,567,446) Gain on sale of loans, net (445,535) (147,844) Premium amortization and accretion of discounts and deferred loan fees (312,871) (235,855) Deferred income taxes 161,517 20,745 Changes in assets and liabilities: Accrued interest receivable (83,655) (85,173) Other assets (94,140) (70,425) Accrued expenses and other liabilities 101,049 27,566 Accrued interest payable on deposits 17,493 (3,321) Current income taxes payable (354,558) (142,025) ------------- ---------- Net cash (used in) provided by operating activities (729,667) 151,785 ------------- ---------- Cash flows from investing activities: Net increase in loans receivable (19,443,528) (8,230,714) Purchase FHLB Stock (750,000) - Mortgage-backed securities principal repayments 11,609 57,341 Maturing investment securities 2,000 1,000,000 Purchase of office property equipment (1,144,865) (253,661) ------------- ---------- Net cash used in investing activities $(21,324,784) (7,427,034) ------------- ---------- Cash flows from financing activities: Increase in deposits $ 11,804,778 9,401,960 Proceeds from FHLB advances 24,950,000 6,000,000 Repayments of FHLB advances (10,500,000) (4,500,000) Increase in advance payments by borrowers for property taxes and insurance (369,192) (512,146) Dividends Paid (229,513) (188,809) Treasury stock purchased (834,583) (875,750) ------------- ---------- Net cash provided by financing activities 24,821,490 9,325,255 ------------- ---------- Net increase in cash and cash equivalents 2,767,039 2,050,006 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 $ 5,867,137 6,182,356 ============= ========== Supplemental disclosure of cash flow information: Cash paid during the period for income taxes $ 426,000 433,602 ============= ========== Cash paid during the period for interest $ 3,128,066 2,123,535 ============= ========== Supplemental schedule of noncash activities: Conversion of loans to real estate owned $ (940,527) - ============= ========== Loans made to finance sale of real estate owned $ 408,308 - ============= ==========
See accompanying notes to unaudited consolidated financial statements. 5 CBES BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) DECEMBER 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. This Quarterly Report on Form 10-Q 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 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 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 had no components of comprehensive income other than net income. (3) 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 as of the date of the award . 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 and six month periods ended December 31, 1998 was $35,509 and $71,019 respectively. 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. 6 No stock options have been exercised by the recipients during the quarter ended December 31, 1998. (4) CAPITAL STOCK TRANSACTIONS -------------------------- In November 1998, the Company completed the purchase of 48,480 shares of the Company's common stock, in a previously announced stock repurchase plan, for an aggregate purchase price of $834,583. 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 December 31, 1998 to the financial condition at June 30, 1998, its fiscal year-end, and the results of operations for the three months and six months ended December 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. This Quarterly Report on Form 10-Q 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 Liberty office opened on March 16, 1998. On December 30, 1998 the Bank purchased a building in Kearney, Missouri from another financial institution. The Bank intends to relocate its Kearney office from the current leased facility to the new location in March 1999. The purchase price of the building, together with furniture, fixtures, and equipment, was $1.0 million. 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. 8 FINANCIAL CONDITION - ------------------- Total assets increased $25.3 million, or 20.4%, to $149.2 at December 31, 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 $20.2 million, which were funded primarily with FHLB advances and deposit accounts. Net loans receivable and loans held for sale increased by $20.2 million, or 17.6%, to $135.0 million at December 31, 1998 from $114.8 million at June 30, 1998 primarily due to increases in one-to-four family portfolio loans of $13.9 million, land loans of $2.2 million, consumer loans of $1.5 million, and loans held for sale of $1.1 million. Loans held for sale are loans that are contracted to be 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. Mortgage loan originations have increased to $75.2 million during the six months ended December 31, 1998, compared to $38.3 million for the corresponding six months of 1997. Of the $13.9 million increase in one-to-four family portfolio loans, approximately $6.4 million were a special 5/1 adjustable rate loan primarily available to first time home buyers, approximately $2.0 million were 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 $0.8 million were one year adjustable rate loans that have a loan-to-value ratio greater than 80%, with no private mortgage insurance. Deposits increased $11.8 million, or 13.8%, to $97.6 million at December 31, 1998 from $85.8 million at June 30, 1998. The increase in deposits is primarily due to $12.1 million in new certificates of deposit. FHLB advances increased $14.5 million, or 74.4%, to $34.0 million at December 31, 1998 from $19.5 million at June 30, 1998. These advances ranged in term from one to three years, and approximately half were callable advances. The FHLB advances were primarily used to fund loans. COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED DECEMBER 31, 1998 AND - -------------------------------------------------------------------------------- 1997 - ---- Performance Summary. In the three months ended December 31, 1998, the Company had net earnings of $126,000 compared to net earnings of $211,000 for the three months ended December 31, 1997. The most significant items causing the decrease in earnings were an increase in net interest income of $30,000 an increase in non-interest income of $215,000, offset by an increase in non-interest expense of $248,000, and an increase in the provision for loan loss of $135,000. Net Interest Income. For the three months ended December 31, 1998, net interest income increased $30,000, or 2.5%, to $1,219,000 from $1,189,000 for the three months ended December 31, 1997. The increase reflected an increase of $632,000 in interest income, to $2,923,000 from $2,291,000 offset by an increase of $602,000 in interest expense to $1,704,000 from $1,102,000. Provision for Loan Losses. During the three months ended December 31, 1998, the Bank charged $177,000 against earnings as a provision for loan losses compared to a provision of $42,000 for the three months ended December 31, 1997. This provision resulted in an allowance for loan losses of $876,000 or .64% of loans receivable, net at December 31, 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. Approximately $100,000 of the increased provision was due to increased loans receivable. The remainder of the increase was attributable to specific multifamily and construction loans which, based upon analysis by management and application of the Company's methodology for establishing the allowance, required additional reserves. 9 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 December 31, 1998, non-interest income increased $215,000 to $408,000 from $192,000 for the prior year period primarily due to an increase in gain on the sale of loans of $214,000. Non-Interest Expense. Non-interest expense increased by $248,000 to $1,255,000 for the three months ended December 31, 1998 from $1,008,000 for the three months ended December 31, 1997. Of this increase, $158,000 was due to office property and equipment expense, of which $166,000 was attributable to Year 2000 expenses, including capitalized computer hardware of $63,000, $17,000 was due to advertising, and $77,000 was due to other non-interest expense, consisting of mortgage loan expenses, professional fees and telephone expense. The increase in non-interest expense is primarily due to Year 2000 costs and 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 SIX MONTHS ENDED DECEMBER 31, 1998 AND - ------------------------------------------------------------------------------ 1997 - ---- Performance Summary. In the six months ended December 31, 1998, the Company had net earnings of $405,000 compared to net earnings of $516,000 for the six months ended December 31, 1997. The most significant items causing the decrease in earnings were an increase in net interest income of $232,000 and an increase in non-interest income of $287,000, offset by an increase in non-interest expense of $580,000, and an increase in provision for loan loss of $130,000. Net Interest Income. For the six months ended December 31, 1998, net interest income increased by $232,000, or 9.9%, to $2,571,000 from $2,339,000 for the six months ended December 31, 1997. The increase reflected an increase of $1,257,000 in interest income, to $5,716,000 from $4,459,000 and an increase of $1,025,000 in interest expense to $3,145,000 from $2,120,000. Provision for Loan Losses. During the six months ended December 31, 1998, the Bank charged $252,000 against earnings as a provision for loan losses compared to a provision of $122,000 for the six months ended December 31, 1997. Non-Interest Income. For the six months ended December 31, 1998, non-interest income increased $288,000 to $651,000 from $363,000 for the prior year period primarily due to an increase in gain on the sale of loans of $298,000. Non-Interest Expense. Non-interest expense increased by $580,000 to $2,332,000 for the six months ended December 31, 1998 from $1,752,000 for the six months ended December 31, 1997. Of this increase, $307,000 was attributable to compensation expense due to an increase in the number of employees and general wage increases, offset by a decrease in the ESOP plan expense of $13,000, and a decrease in the Recognition and Retention Plan expense of $107,000. $262,000 was due to office property and equipment expense, of which $227,000 was attributable to Year 2000 expenses, including capitalized computer hardware of $97,000, $25,000 was due to advertising, and $152,000 was due to other non- interest expense, consisting of mortgage loan expenses, professional fees and telephone expense. The six months ended December 31, 1997 included $146,000 expense due to the immediate vesting of one year of the RRP. NON-PERFORMING ASSETS - --------------------- On December 31, 1998, nonperforming assets were $3,436,000 compared to $732,000 on June 30, 1998. The balance of the Bank's allowance for loan losses was $876,000 at December 31, 1998, or 25.5% of nonperforming assets. Loans are considered nonperforming when the collection of principal and/or interest is not probable, or in the event payments 10 are more than ninety days delinquent. The $2,704,000 increase in nonperforming assets was primarily due to an increase in one-to-four family non-accruing construction loans of $763,000, an increase in non-accruing land loans of $535,000, an increase in accruing construction loans greater than ninety days delinquent of $921,000, and an increase in foreclosed assets of $297,000. Part of the increase is due to the Bank having shifted to monthly interest payments on construction loans, $1,684,000 of which were delinquent at December 31, 1998. The Bank has increased its collection efforts on these loans, and such efforts have resulted in seven construction loans with balances of $921,000 being current as of February 2, 1999. 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 December 31, 1998:
Actual Required Excess amount/percent amount/percent amount/percent -------------- -------------- -------------- (Dollars in thousands) FIRREA EQUIREMENTS ------------------- Tanible capital $13,629 9.13% 2,238 1.50% 11,391 7.63% Core leverage capital $13,629 9.13% 5,968 4.00% 7,661 5.13% Risk-based capital $14,452 13.82% 8,367 8.00% 6,085 5.82%
- --------- 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 December 31, 1998 and June 30, 1998 were 4.90% and 4.01%, 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 December 31, 1998 and 1997 were $5,867,137 and $6,182,356 respectively. Cash flows from operating activities. Net cash used in operating activities was $730,000 during the six months ended December 31, 1998 compared to $152,000 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 $12,515,000, and an increase in the gain on sale of loans, net of $298,000, offset by an increase in the originations of loans held for sale of $12,997,000. 11 Cash flows from investing activities. Net cash of $21.3 million was used in investing activities for the six months ended December 31, 1998 versus $7.4 million for the six months ended December 31, 1997. The increase was primarily due to an increase in loans receivable of $19.4 million during the six months ended December 31, 1998 versus a $8.2 million increase during the same period in 1997. Cash flows from financing activities. Net cash provided by financing activities was $24.8 million for the six months ended December 31, 1998 compared to $9.3 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 $14.5 million for the six months ended December 31, 1998 versus an increase of $1.5 million for the same period in 1997, and an increase in deposits of $11.8 million for the six months ended December 31, 1998 versus an increase of $9.4 million for the same period in 1997. IMPACT OF RECENTLY ISSUED 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 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 The Board of Directors and the Management of the Bank have established a formal process for the implementation of a plan to evaluate and correct the problems that the Year 2000 could cause to the Bank's critical automated systems. The Year 2000 problem exists because many automated systems use only two digit fields to represent the year, such as "98" representing 1998. However, with the two digit format, the Year 2000 is indistinguishable from 1900, 2001 from 1901, and so on. Should these critical systems fail in the year 2000, the Bank would have difficulty in processing transactions for loans and deposit customers, which could cause significant damage to the Bank's important customer relationships. 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 compliance with the Year 2000 issue. In calendar year 1997, Management implemented a Year 2000 process using the standard framework set forth by the Federal Financial Institutions Examination Council, which includes separate phases for awareness, assessment, renovation, validation, and implementation. In the awareness phase, Management committed resources and established a Year 2000 committee consisting of managers from all departments of the Bank. This committee proceeded through the assessment phase, which included an analysis of the Year 2000 impact on all hardware, software, electronic equipment; identifying the Bank's critical business processes; developing priorities by risk; gaining commitment from vendors and service providers; and evaluating the impact on the Bank's customers. The renovation phase is currently underway and will include the replacement or elimination of non-compliant software, hardware, and vendors. In the validation phase, the committee will test all renovated systems and test all data exchanges with outside organizations. In the implementation phase, all renovated systems will be put into service. To date, the Bank has completed the awareness and assessment phases, and is nearing the end of the renovation phase. The validation and implementation phases are scheduled to be complete by March 31, 1999. For the six months ended December 31, 1998 Year 2000 costs are $227,000, including $97,000 in capitalized computer hardware. Management estimates additional Year 2000 costs of $80,000, including $30,000 in capitalized computer hardware. Data processing of the Bank's core operations is provided by a third party service bureau. The Bank has actively participated in testing procedures, and it continues to prudently monitor the progress reports from the vendor. The Bank's Year 2000 process also includes the evaluation of phone systems, alarm systems, funds transfer providers, and all hardware and software on its wide- area network ("WAN"). 12 The company is in the process of finalizing its Year 2000 contingency plan for each of the Bank's critical automated systems. The contingency plan will be implemented if any of the critical systems should fail to become Year 2000 compliant by certain target dates. Management expects the plan to be completed by February 28, 1999, but it also plans to make updates to the contingency plans on an ongoing basis. The third party service bureau has also formulated a contingency plan, which Management is incorporating into the Bank's overall contingency plan. The Board of Directors is updated on the status of the Year 2000 process on regular intervals. Management believes that the Bank's Year 2000 process is adequate to ensure that all mission critical systems will be Year 2000 compliant. 13 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 --------------------------------------------------- On October 22, 1998 the Company held its annual meeting of stockholders to consider the election of two directors of the Company and to ratify the appointment of KPMG LLP as the auditors of the Company for the fiscal year ending June 30, 1999. The results of the meeting were as follows: Robert L. Lalumondier was elected to serve as a director of the Company with 806,818 votes for and 8,050 votes withheld. Cecil E. Lamb was elected to serve as a director of the Company with 806,793 votes for and 8,075 votes withheld. The appointment of KPMG LLP to act as the Company's auditors for the fiscal year ending June 30, 1999 was ratified with 799,618 votes for, 14,200 votes against, and 1,050 votes withheld. Item 5. Other Information ----------------- None. Item 6. Exhibits and Reports on Form 8-K -------------------------------- Exhibits 27-Financial Data Schedule 14 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: 2/12/99 -------------------------------- By: /s/ Larrey E. Hermreck ---------------------------------- Larry E. Hermreck, Chief Executive Officer and Secretary (Duly Authorized Officer) Date: 2/12/99 -------------------------------- By: /s/ Dennis D. Hartman ---------------------------------- Dennis D. Hartman, Controller and Chief Financial Officer (Principal Financial Officer) EX-27 2 FINANCIAL DATA SCHEDULE
9 6-MOS JUN-30-1999 DEC-31-1998 939,570 4,927,567 0 0 0 69,457 71,381 134,967,972 876,000 149,223,004 97,581,563 10,800,000 780,838 0 0 0 10,319 16,387,825 149,223,004 5,544,723 2,990 168,762 5,716,475 2,258,925 3,145,559 2,570,916 251,765 0 481,172 637,933 404,975 0 0 404,975 0.45 0.45 8.13 1,912,322 921,000 0 0 669,000 59,682 14,917 876,000 876,000 0 0
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