UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
450 5TH STREET, N.W.
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, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________ .
Commission File No. 0-28250
CNS BANCORP, INC.
Delaware 43-1738315
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
427 Monroe Street, Jefferson City, Missouri 65051
Registrant's telephone number, including area code (573) 634-3336
Not applicable
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file
such report), and (2) has been subject to such filing requirements for the
past 90 days. Yes [ X ] No [ ].
Indicate the number of shares outstanding of the issuer's classes of common
stock, as of the latest practicable date.
Class Outstanding September 30, 1996
Common Stock, par value $.01 per share 1,653,125 Shares
CNS BANCORP, INC. AND SUBSIDIARIES
FORM 10-QSB
FOR THE QUARTER ENDED SEPTEMBER 30,1996
INDEX
PAGE NO.
PART I - Financial Information (Unaudited)
Consolidated Balance Sheets 1
Consolidated Statements of Earnings 2
Consolidated Statements of Cash Flows 3
Notes to Consolidated Financial Statements 4
Management's Discussion and Analysis of 5
Financial Condition and Results of Operations
PART II - Other Information 9
CNS BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30, December 31,
ASSETTS 1996 1995
-------- --------
Cash and due from depository institutions $ 1,153,447 $ 2,855,944
Securities available-for-sale $35,599,394 $25,470,739
Stock in Federal Home Loan Bank $ 939,300 $ 939,300
Loans held-for-sale $ 1,268,615 $ 466,131
Loans receivable, net $56,676,017 $52,611,378
Accrued interest receivable $ 639,285 $ 486,060
Real estate owned, net $ 0 $ 161,987
Premises and equipment, net $ 1,686,288 $ 1,759,437
Other assets $ 935,624 $ 639,461
-------- --------
Total assets $98,897,970 $85,390,437
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $73,505,669 $75,930,917
Accrued interest on deposits $ 123,269 $ 123,347
Advances from borrowers for taxes and insurance $ 231,571 $ 63,041
Accrued income taxes $ 54,700 $ 1,719
Accrued expenses and other liabilities $ 854,243 $ 91,542
-------- --------
Total liabilities $74,769,452 $76,210,566
Common stock $ 16,531 $ 0
Additional paid-in-capital $16,024,370 $ 0
Retained earnings, substantially restricted $ 9,981,882 $ 9,697,118
Deferred compensation - ESOP $(1,270,059) $ 0
Unrealized loss on securities available-
for-sale net of deferred taxes $ (624,207) $ (517,247)
-------- --------
Total stockholders' equity $24,128,517 $ 9,179,871
-------- --------
Total liabilities and stockholders' equity $98,897,970 $85,390,437
1
CNS BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Nine Months Ended
September 30 September 30 September 30 September 30,
1996 1995 1996 1995
-------- -------- -------- --------
INTEREST INCOME
Mortgage loans $1,095,274 $ 898,638 $3,191,875 $2,530,079
Consumer and other loans $ 28,860 $ 23,788 $ 73,241 $ 63,683
Investment securities $ 238,833 $ 98,045 $ 370,374 $ 317,724
Mortgage-backed securities 194,181 $ 231,417 $ 612,458 $ 746,625
Other interest-earning
assets $ 180,439 $ 203,060 $ 594,036 $ 531,617
-------- -------- -------- --------
Total interest income $1,737,587 $1,454,948 $4,841,984 $4,189,728
INTEREST EXPENSE
Deposits $ 924,882 $ 950,732 $2,853,553 $2,682,773
Borrowed money $ 222 $ 92 $ 222 $ 92
-------- -------- -------- --------
Total interest expense $ 925,103 $ 950,825 $2,853,774 $2,682,866
-------- -------- -------- --------
Net interest income $ 812,484 $ 504,123 $1,988,210 $1,506,862
PROVISION FOR LOAN LOSSES 40,368 $ 23,024 $ 42,262 $ 101,299
Net interest income after -------- -------- -------- --------
provision for loan losses 772,116 $ 481,099 $1,945,948 $1,405,563
NONINTEREST INCOME
Loan servicing fees $ 13,791 $ 13,892 $ 41,737 $ 42,532
Income from real estate owned 0 $ 14,823 $ 9,925 $ 63,399
Net gain (loss) on sale of assets 0 $ 70,234 $ 196,036 $ (55,560)
Other $ 23,520 $ 81,774 $ 200,148 $ 192,715
-------- -------- -------- --------
Total noninterest income $ 37,311 $ 180,723 $ 447,846 $ 243,086
NONINTEREST EXPENSE
Compensation and benefits 293,122 $ 217,074 $ 790,083 $ 663,388
Occupancy and equipment 96,477 $ 90,298 $ 288,867 $ 271,665
Deposit insurance premiums 554,092 $ 44,886 $ 643,864 $ 135,529
Other 101,684 $ 95,779 $ 317,509 $ 356,651
-------- -------- -------- --------
Total noninterest expense 1,045,374 $ 448,038 $2,040,322 $1,427,234
Net income/(loss) before -------- -------- -------- --------
income taxes $ (235,947) $ 213,785 $ 353,472 $ 221,416
PROVISION/(BENEFIT) FOR
INCOME TAXES $ (64,043) $ 72,800 $ 68,707 $ 75,300
-------- -------- -------- --------
Net income/(loss) $ (171,904) $ 140,985 $ 284,765 $ 146,116
Net (loss) per share $ (0.11) N/A N/A N/A
Weighted average shares
outstanding 1,523,501 N/A N/A N/A
Dividends per share $ 0 N/A N/A N/A
2
CNS BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED
September 30, September 30,
1996 1995
-------- --------
Cash flows from operating activities:
Net Income $ 284,765 $ 146,116
Adjustments to reconcile net income to net
cash flows provided by (used for) operating
activities:
Depreciation $ 96,048 $ 90,811
Provision for loan losses $ 42,262 $ 101,299
(Gain)/loss on sale of real estate owned $ (200,717) $ (65,290)
Amortization of premiums and accretion of
(discounts) on securities available-for-sale $ 26,945 $ 31,671
(Gain)/loss on sale of securities available-
for-sale $ 0 $ 113,845
Proceeds from the sale of loans held-for-sale $ 4,081,012 $ 905,400
Origination of loans held-for-sale $(4,883,496) $(1,498,410)
(Gain)/loss on sales of loans held-for-sale $ (13,332) $ (5,549)
ESOP expenses $ 62,092 $ 0
Decrease (increase) in:
Accrued interest receivable $ (153,225) $ 2,704
Other assets $ (296,163) $ 330,080
Increase (decrease) in:
Accrued interest payable on deposits $ (78) $ 31,117
Accrued expenses and other liabilities $ 728,156 $ 43,371
Accrued income taxes $ 217,217 $ (331,428)
Net cash provided by (used for) operating -------- --------
activities $ (8,514) $ (104,263)
Cash flows from investing activities:
Loans:
Loan (originations) and principal
payments-net $(3,017,575) $(2,729,924)
Purchases of:
Loans receivable $(1,041,450) $(3,499,560)
Securities available-for-sale $(16,014,757) $ 0
Securities held-to-maturity $ 0 $(1,070,971)
Proceeds from maturity or paydown of:
Securities available-for-sale $ 5,437,962 $ 1,232,021
Securities held-to-maturity $ 0 $ 4,500,000
Proceeds from sale or call of securities
available-for-sale $ 150,000 $ 4,245,611
Proceeds from sales of real estate owned $ 362,704 $ 306,332
Cash outflows for premises and equipment $ (22,899) $ (32,442)
-------- --------
Net Cash Provided by Investing Activities $(14,146,015) $ 2,951,067
Cash flows from financing activities:
Net increase (decrease) in:
Deposits $(2,425,248) $(3,103,456)
Advances from borrowers for taxes and
insurance $ 168,530 $ 200,977
Proceeds from sale of common stock $14,708,750 $ 0
-------- --------
Net cash provided by financing activities $12,452,032 $(2,902,479)
Net increase (decrease) in cash and cash
equivalents $(1,702,497) $ (55,675)
Cash and cash equivalents at beginning of
period $ 2,855,944 $ 1,296,596
-------- --------
Cash and cash equivalents at end of period $ 1,153,447 $ 1,240,921
Supplemental schedule of cash flow information:
Cash paid during the period for:
Interest on deposits $ 610,346 $ 566,959
Income taxes $ 102,301 $ 31,340
Non-cash transactions during the period:
Exchange of common stock for ESOP shares $ 1,322,500 $ 0
3
PAGE
CNS BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(1) Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with Generally Accepted Accounting Principles (GAAP)
for interim financial information and with the instructions to Form 10-QSB and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by GAAP for complete financial statements.
In the opinion of management, all adjustments necessary for a fair
presentation have been included. The results of operations and other data for
the three months and nine months ended September 30, 1996 are not necessarily
indicative of results that may be expected for the entire fiscal year ending
December 31, 1996.
The unaudited consolidated financial statements include the amounts of CNS
Bancorp, Inc. (the "Company") and its wholly-owned subsidiary, City National
Savings Bank, FSB (the "Saving Bank") and the Savings Bank's wholly-owned
subsidiary, Cinsal Service Corporation for the three and nine months ended
September 30, 1996. The consolidated financial statements for the periods
prior to June 30, 1996 include only the accounts of the Savings Bank and its
subsidiaries. Material intercompany accounts and transactions have been
eliminated in consolidation.
(2) Conversion to Stock Ownership
On December 19, 1995 the Board of Directors of the Savings Bank
unanimously adopted a Plan of Conversion pursuant to which the Savings Bank
converted from a federally chartered mutual savings bank to a federally
chartered stock savings bank, with the concurrent formation of the Company.
The Company, on June 11, 1996, sold 1,653,125 shares of common stock at $10.00
per share to depositors, borrowers and employees of the Savings Bank in a
subscription offering. The proceeds from the conversion, after recognizing
conversion expenses and underwriting costs of $500,000 were $16,031,250 and
are recorded as common stock and additional paid in capital on the
accompanying unaudited consolidated statement of financial condition. The
Company utilized 50% of the net proceeds to purchase all of the capital stock
of the Savings Bank.
The Savings Bank has established for eligible employees an Employee Stock
Ownership Plan ("ESOP") in connection with the conversion. The ESOP borrowed
$1,322,500 from the Company and purchased 132,250 common shares issued in the
conversion. The Savings Bank is expected to make scheduled discretionary cash
contributions to the ESOP sufficient to service the amount borrowed. The
$1,322,500 in stock issued by the Company is reflected in the accompanying
consolidated financial statements as a charge to unearned compensation and a
credit to common stock and paid-in capital. The unamortized balance of
unearned compensation is shown as a deduction of stockholders' equity. The
unpaid balance of the ESOP loan is eliminated in consolidation.
(3) Earnings Per Share
The conversion to stock ownership was effected on June 11, 1996;
therefore, earnings per share for the nine months ended September 30, 1996
have not been computed. The
4
earnings computation for the third quarter is based upon the weighted average
number of shares of common stock outstanding during the three months ended
September 30, 1996 including the ESOP shares which have been released.
(4) Recapitalization of SAIF
Legislation signed into law on September 30, 1996, to recapitalize the
Savings Association Insurance Fund (SAIF) requires SAIF-insured savings
institutions to pay a one-time special assessment of 65.7 cents for every $100
of deposits of record as of March 31, 1995. The amount of the special
assessment for the Savings Bank was $513,000. The special assessment is
expected to reduce industry net income by 28 percent after taxes. The deposit
insurance premiums that SAIF-insured institutions pay will decline from an
average of 23.4 basis points to 6.4 basis points, effective January 1, 1997.
No later than January 1, 2000, deposit insurance premiums are expected to be
further reduced to 2.4 basis points.
5
Management Discussion and Analysis of
Financial Condition and Results of Operation
General
On June 11, 1996, City National Savings Bank, FSB (Savings Bank) converted
from mutual to stock form and became a wholly-owned subsidiary of a newly
formed Delaware holding company, CNS Bancorp, Inc. (Company). The Company
sold 1,653,125 shares of common stock at $10 per share in conjunction with a
subscription offering to the Savings Bank's Employee Stock Ownership Plan
(ESOP) and eligible account holders. Net proceeds of the sale of common stock
in the subscription offering were $16,031,250, after deducting conversion
costs of $500,000. The Company retained 50% of the net conversion proceeds
less the funds used to make the ESOP loan to the Savings Bank for purchase of
shares of common stock for the Savings Bank's ESOP and purchased short term
government securities of approximately $6.6 million. The balance of the net
proceeds were used to purchase all of the stock of the Savings Bank in the
conversion.
The Company's principal business is the business of the Savings Bank.
Therefore, the discussion in the Managements's Discussion and Analysis of
Financial Condition and Results of Operation relates to the Savings Bank and
its operations.
Liquidity and Capital Resources
The Savings Banks's principal sources of funds are cash receipts from
deposits, loan repayments by borrowers and net earnings. The Savings Bank has
an agreement with the Federal Home Loan Bank of Des Moines to provide cash
advances, should the need for additional funds be required. No such advances
were outstanding as of September 30, 1996. In addition, the Company had $35.6
million of securities available for sale at September 30, 1996.
For regulatory purposes, liquidity is measured as a ratio of cash and certain
investments to withdrawable deposits. The minimum level of liquidity required
by regulation is presently 5%. The Savings Bank's liquidity ratio was
approximately 20.31% at September 30, 1996.
Commitments to originate adjustable-rate mortgage loans at September 30, 1996
were approximately $101,000. Commitments to originate fixed-rate mortgage
loans at September 30, 1996 were approximately $947,640.
The Savings Bank is required to meet certain tangible, core and risk-based
capital requirements. The following table presents the Savings Bank's capital
position relative to its regulatory capital requirements at September 30,
1996:
6
Percent of Adjusted
Amount Total Assets
(Unaudited)
(Dollars in Thousands)
------- ------------
Tangible capital $16,655 17.97%
Tangible capital requirement $1,391 1.50%
Excess $15,264 16.47%
Core capital $16,655 17.97%
Core capital requirement $2,781 3.00%
Excess $13,874 14.97%
Risk-based capital $17,000 40.35%
Risk-based capital requirement $3,371 8.00%
Excess $13,629 32.35%
Financial Condition
Assets increased from $85.4 million at December 31, 1995 to $98.9 million at
September 30, 1996. Securities available-for-sale increased from $25.5
million at December 31, 1995 to $35.6 million at September 30, 1996 as a
result of proceeds from the sale of common stock since the cash was used to
purchase short-term government securities. The Company expects to use the
funds as they mature for loan originations or purchases in order to increase
interest income. Loans held-for-sale and loans receivable, net increased from
$53.1 million at December 31, 1995 to $57.9 million due primarily to the
favorable interest rate environment during the period. Accrued interest
receivable increased because of the larger asset base in securities and loans.
Real estate owned, net decreased due to the sale of all of the real estate
during the first six months of 1996. Deposits decreased from $75.9 million at
December 31, 1995 to $73.5 million at September 30, 1996. The primary reason
for the decrease in deposits during the first nine months of 1996 was the use
of $2.7 million of deposits to purchase stock in the conversion.
Accrued expenses and other liabilities increased from $92,000 at December 31,
1995 to $854,000 at September 30, 1996. The primary reason for the increase
is the $513,000 accrued expense for the special SAIF assessment. It is the
policy of the Savings Bank to cease accruing interest on loans 90 days or more
past due. Nonaccrual loans increased from $88,000 at December 31, 1995 to
$319,000 at September 30, 1996 due primarily to a past due purchased loan of
$167,000.
Results of Operations
Net earnings decreased from $141,000 for the three months ended September 30,
1995 to ($172,000) for the three months ended September 30, 1996. The primary
reason for the decrease in net earnings during the current quarter is the
one-time special assessment and expense of $513,000 to recapitalize the
Savings Association Insurance Fund (SAIF). Net earnings increased from
$146,000 for the nine months ended September 30, 1995 to $285,000
for the nine months ended September 30, 1996.
7
Net Interest Income
Net interest income increased from $504,000 for the three months ended
September 30, 1995 to $813,000 for the three months ended September 30, 1996
and from $1,507,000 for the nine months ended September 30, 1995 to $1,988,000
for the same period in 1996. Total interest income increased from $1,455,000
for the three months ended September 30, 1995 to $1,738,000 for the three
months ended September 30, 1996. Total interest income increased from
$4,190,000 for the nine months ended September 30, 1995 to $4,842,000 for the
comparable 1996 period. The increase in interest income stemmed from an
increase in average earning assets and higher yields on those assets. The
weighted-average yield on the loan portfolio is 8.02% as of September 30,
1996. The weighted average yield at December 31, 1995 was 7.75%. The
outstanding balance of loans held-for-sale and loans receivable, net has
increased by $4.9 million during the first nine months of 1996. Interest
income from investment securities increased from $98,000 for the three months
ended September 30, 1995 to $239,000 for the three months ended September 30,
1996. Interest income from investment securities increased from $318,000 for
the nine months ended September 30, 1995 to $370,000 for the same time period
in 1996. This increase is primarily due to an increase in the securities
balance in 1996 after the stock conversion. Interest income from
mortgage-backed securities decreased from $231,000 for the three months ended
September 30, 1995 to $194,000 for the three months ended September 30, 1996.
Interest income from mortgage-backed securities decreased from $747,000 for
the nine months ended September 30, 1995 to $612,000 for the same time period
in 1996. The decreases are due primarily to the principal repayment of the
mortgage-backed securities. Interest income from other interest-earning
assets decreased from $203,000 for the three months ended September 30, 1995
to $180,000 for the three months ended September 30, 1996. The decrease in
interest income is primarily due to a lower balance on deposit at the
FHLB during the third quarter of 1996 as compared to the third quarter of
1995. Interest income from other interest-earning assets increased from
$532,000 for the nine months ended September 30, 1995 to $594,000 for the nine
months ended September 30, 1996. The year-to-date increase in interest income
from other interest-earning assets is primarily due to the earnings from the
larger than normal balance on deposit at the FHLB during the stock conversion.
Interest expense decreased from $951,000 for the three months ended September
30, 1995 to $925,000 for the same time period in 1996. The decrease in
interest expense for the third quarter is due primarily to lower deposit
balances. Interest expense increased from $2,683,000 for the nine months ended
September 30, 1995 to $2,854,000 for the same time period in 1996. The
increase is primarily due to an increase in the weighted-average rate on
deposits. The weighted-average rate on deposits for the nine months ended
September 30, 1996 was 5.09%. The weighted-average rate on deposits for the
nine months ended September 30, 1995 was 4.59%.
Provision for Loan Losses
Provision for loan losses is based upon management's consideration of economic
conditions which may affect the ability of borrowers to repay the loans.
Management also reviews individual loans for which full collectibility may not
be reasonably assured and considers, among other matters, the risks inherent
in the Savings Bank's portfolio and the estimated fair value of the underlying
collateral. This evaluation is ongoing and results in variations in the
Savings Bank's provision for loan losses. As a result of this evaluation, the
Savings Bank's provision for loan losses increased from $23,000 for the three
months ended September 30, 1995 to $40,000 for the three months ended
September 30, 1996. The loan loss provision reduced from $101,000 for the
nine months ended September 30, 1995 to $42,000 for the same period in 1996.
8
Noninterest Income
Noninterest income decreased from $181,000 for the three months ended
September 30, 1995 to $37,000 for the three months ended September 30, 1996.
The primary reason that noninterest income decreased was the existences of
several non-recurring items in 1995. During the third quarter of 1995 the
Savings Bank had a $52,000 profit from the sale of real estate, a $15,000
profit from the sale of investments and received $49,000 in patronage
dividends from the Financial Information Trust. Noninterest income increased
from $243,000 for the nine months ended September 30, 1995 to $448,000 for the
nine months ended September 30, 1996. The primary reasons for the increase
was the profit on sale of real estate owned of $183,000 and profit on the sale
of cooperative ownership of a data center of $38,000, both received during the
first six months of 1996, and the loss of $128,000 on sale of CMO taken in
early 1995.
Noninterest Expense
Noninterest expense increased from $448,000 for the three months ended
September 30, 1995 to $1,045,000 for the three months ended September 30,
1996. Noninterest expense increased from $1,427,000 for the nine months ended
September 30, 1995 to $2,040,000 for the nine months ended September 30, 1996.
The primary reason for the increase in noninterest expense is the $513,000
expense for the special assessment to recapitalize SAIF.
Income Taxes
Income taxes decreased from $73,000 for the three months ended September 30,
1995 to ($64,000) for the same time period in 1996. Income taxes reduced from
$75,000 for the nine months ended September 30, 1995 to $69,000 for the nine
months ended September 30, 1996. The reduction is primarily due the tax
effect of the SAIF assessment The effective income tax rates are less than
the statutory rates due primarily to non-taxable income which includes gains
on sale of real estate owned.
9
CNS BANCORP, INC. AND SUBSIDIARIES
PART II - Other Information
Item 1 - Legal Proceeding
There are no material legal proceedings to which the Company or the
Savings Bank is a party or of which any of their property is subject.
From time to time, the Savings Bank is a party to various legal
proceedings incident to its business.
Item 2 - Changes in Securities
None.
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.
(a) Exhibits: none
(b) Reports on Form 8-K: No reports on Form 8-K have been filed during
the quarter for which this report is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CNS BANCORP, INC.
(Registrant)
DATE: November 7, 1996 BY: /s/Robert E. Chiles
---------------------
Robert E. Chiles, President and
Duly Authorized Officer
BY: /s/David L. Jobe
------------------
David L. Jobe, Treasurer and
Chief Financial Officer
10