UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
450 5TH STREET, NW
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
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 65101
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, 1998
Common Stock, par value $.01 per share 1,491,946 Shares
CNS BANCORP, INC. AND SUBSIDIARY
FORM 10-QSB
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
INDEX
PAGE NO.
PART I - Financial Information
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
Financial Condition and Results of Operations 5
PART II - Other Information 9
CNS BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
ASSETS September 30, 1998 December 31,1997
Cash and due from depository institutions
(including interest-bearing accounts
totaling $3,112,633 in 1997 and
$6,435,907 in 1998) $ 8,597,985 $ 4,490,638
Securities available-for-sale $17,662,904 $21,670,913
Stock in Federal Home Loan Bank $ 662,500 $ 939,300
Loans held-for-sale, net $ 996,434 $ 446,748
Loans receivable, net $64,349,572 $66,512,442
Accrued interest receivable $ 541,517 $ 616,075
Real estate owned, net $ 709,227 $ 652,795
Premises and equipment, net $ 1,642,025 $ 1,625,137
Income tax receivable $ 151,113 $ 299,784
Other assets $ 635,665 $ 636,963
Total assets $95,948,942 $97,890,795
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $72,767,893 $72,882,810
Borrowed funds $ 577,383 $ 595,985
Advances from borrowers for taxes and insurance $ 186,313 $ 28,829
Accrued expenses and other liabilities $ 443,259 $ 459,045
Total liabilities $73,974,848 $73,966,669
Common stock, $.01 par value:
Authorized, 6,000,000 shares;
1,653,125 shares issued $ 16,531 $ 16,531
Additional paid-in-capital $16,117,048 $16,023,150
Retained earnings, substantially restricted $10,861,222 $10,544,892
Treasury Stock ($ 2,635,772) $ 0
Deferred compensation - ESOP ($ 984,180) ($ 1,082,640)
Deferred compensation - MRDP ($ 774,902) ($ 929,883)
Investments held in trust for Exec.
Def. Comp. Plan ($ 114,791) ($ 162,396)
Unrealized loss on securities net of
deferred taxes ($ 511,062) ($ 485,528)
Total stockholders' equity $21,974,094 $23,924,126
Total liabilities and stockholders' equity $95,948,942 $97,890,795
CNS BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended Nine Months Ended
Sep. 30 Sep. 30 Sep. 30 Sep. 30
1998 1997 1998 1997
INTEREST INCOME
Mortgage loans $1,251,171 $1,301,575 $3,833,430 $3,738,019
Consumer and other loans $ 53,348 $ 45,008 $ 142,294 $ 160,894
Investment securities $ 83,886 $ 140,919 $ 298,930 $ 511,912
Mortgage-backed securities $ 138,550 $ 171,181 $ 446,443 $ 528,092
Otherinterest-earning assets $ 180,895 $ 107,845 $ 459,785 $ 343,376
Total interest income $1,707,850 $1,766,528 $5,180,882 $5,282,293
INTEREST EXPENSE
Deposits $ 904,243 $ 921,789 $2,687,671 $2,721,120
Borrowed money $ 9,438 $ 0 $ 28,303 $ 890
Total interest expense $ 913,681 $ 921,789 $2,715,974 $2,722,010
Net interest income $ 794,169 $ 844,739 $2,464,908 $2,560,283
PROVISION FOR LOAN LOSSES $ 38,526 $ 15,505 $ 52,536 $ 10,869
Net interest income after
provision for loan losses $ 755,643 $ 829,234 $2,412,372 $2,549,414
NONINTEREST INCOME
Loan servicing fees $ 14,374 $ 11,652 $ 37,865 $ 36,646
Income from real estate owned $ 1,649 $ 1,650 $ 1,246 $ 4,700
Net gain on sale of loans $ 58,179 $ 0 $ 242,488 $ 6,156
Other $ 33,905 $ 31,800 $ 112,015 $ 91,463
Total noninterest income $ 108,107 $ 45,102 $ 393,614 $ 138,965
NONINTEREST EXPENSE
Compensation and benefits $ 344,308 $ 332,840 $1,051,660 $ 884,332
Occupancy and equipment $ 65,361 $ 65,775 $ 191,836 $ 189,745
Deposit insurance premiums $ 11,067 $ 11,931 $ 33,907 $ 35,793
Other $ 139,898 $ 144,413 $ 475,121 $ 516,041
Total noninterest expense $ 560,634 $ 554,959 $1,752,524 $1,625,911
Net income before income taxes $ 303,116 $ 319,377 $1,053,462 $1,062,468
PROVISION FOR INCOME TAXES $ 122,698 $ 127,745 $ 421,370 $ 424,967
Net income $ 180,418 $ 191,632 $ 632,092 $ 637,501
Other comprehensive income
(loss), net of income taxes:
Unrealized gains (losses)
on securities ($ 20,084) $ 25,934 ($ 25,534) $ 4,176
Comprehensive income $ 160,334 $ 217,566 $ 606,558 $ 641,677
Basic net income per share $ 0.12 $ 0.12 $ 0.41 $ 0.42
Diluted net income per share $ 0.11 $ 0.12 $ 0.38 $ 0.38
Weighted average shares
outstanding 1,514,288 1,537,848 1,533,595 1,534,402
Dividends paid per share $ 0.075 $ 0.060 $ 0.195 $ 0.160
CNS BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
Sep. 30, 1998 Sep. 30, 1997
Cash flows from operating activities:
Net Income $ 632,092 $ 637,502
Adjustments to reconcile net income to net cash
flows provided by (used for) operating activities:
Depreciation $ 92,624 $ 101,701
Provision for loan losses $ 52,537 $ 10,869
Amortization of premiums and accretion of
(discounts) on securities available-for-sale $ 81,977 $ 23,288
Proceeds from the sale of loans held-for-sale $12,662,790 $ 607,641
Origination of loans held-for-sale ($12,969,988) ($ 113,110)
(Gain) on sales of loans held-for-sale ($ 242,488) $ 0
Compensation expense - ESOP $ 192,358 $ 115,967
Compensation expense - MRDP $ 154,981 $ 51,660
Decrease (increase) in:
Accrued interest receivable $ 74,558 $ 21,565
Other assets $ 301,183 ($ 785,430)
Income tax receivable $ 165,887 $ 197,480
Increase (decrease) in:
Accrued expenses and other liabilities $ 8,542 $ 173,338
Net cash provided by operating activities $ 1,207,053 $ 1,042,471
Cash flows from investing activities:
Loan (originations) and principal payments - net $ 8,283,841 ($ 2,791,213)
Purchases of:
Loans receivable ($ 6,173,508) ($ 3,647,320)
Securities available-for-sale ($ 1,050,000) ($ 1,800,483)
Proceeds from maturity or repayment of:
Securities available-for-sale $ 4,933.475 $ 7,436,047
Investment in MRDP trust $ 0 ($ 1,033,203)
Proceeds from sales of real estate owned ($ 56,432) ($ 694,632)
Cash outflows for premises and equipment ($ 109,512) ($ 94,810)
Net cash provided by investing activities $ 5,827,864 ($ 2,625,614)
Cash flows from financing activities:
Net increase (decrease) in:
Deposits ($ 114,917) $ 85,086
Advances from borrowers for taxes and insurance $ 157,484 $ 171,885
Borrowed funds ($ 18,602) $ 0
Treasury stock purchased ($ 2,635,772) $ 0
Executive deferred compensation trust $ 0 ($ 23,914)
Dividends paid to shareholders ($ 315,763) ($ 253,123)
Net cash provided by financing activities ($ 2,927,570) ($ 20,066)
Net increase in cash and cash equivalents $ 4,107,347 ($ 1,603,208)
Cash and cash equivalents at beginning of period $ 4,490,638 $ 4,572,026
Cash and cash equivalents at end of period $ 8,597,985 $ 2,968,818
Supplemental schedule of cash flow information:
Cash paid during the period for:
Interest on deposits $ 2,681,394 $ 2,683,381
Income taxes $ 344,604 $ 142,269
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, 1998 are not necessarily
indicative of results that may be expected for the entire fiscal year
ending December 31, 1998.
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, Parity
Insurance Agency, Inc., and its wholly-owned subsidiary, City
National Real Estate, Inc., for the three months and nine months
ended September 30, 1998. Material intercompany accounts and
transactions have been eliminated in consolidation.
(2) Employee Stock Ownership Plan (ESOP)
The Savings Bank has established for eligible employees an
Employee Stock Ownership Plan ("ESOP"). The ESOP
borrowed $1,322,500 from the Company and purchased 132,250
common shares. 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.
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.
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 Bank's principal sources of funds are cash receipts from deposits,
loan repayments by borrowers and net earnings. The Savings Bank had
$578,000 borrowed from the Federal Home Loan Bank of Des Moines (FHLB)
at September 30, 1998 and an agreement with the FHLB to provide additional
cash advances should the need arise.
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 4%. The Savings Bank's liquidity ratio was
approximately 20.36% at September 30, 1998.
Commitments to originate mortgage loans at September 30, 1998 were
approximately $457,000.
The thrift industry historically has accepted interest rate risk as a part
of its operating philosophy. Long-term, fixed-rate loans were funded with
deposits which adjust to market interest rates more frequently. From the
early 1980's up until 1996, the Savings Bank has originated primarily
adjustable-rate mortgage loans for it's loan portfolio. In early 1996 the
Savings Bank began keeping some of the fixed rate loans it originates. As
of September 30, 1998 the Savings Bank held adjustable-rate mortgage loans
of $45.9 million or 72.84% of the total mortgage loans.
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,
1998:
Percent of Adjusted
Amount Total Assets
(Unaudited)
(Dollars in Thousands)
Tangible capital $19,158 20.32%
Tangible capital requirement $ 1,406 1.50%
Excess $17,752 18.82%
Core capital $19,158 20.32%
Core capital requirement $ 2,812 3.00%
Excess $16,346 17.32%
Risk-based capital $19,546 41.15%
Risk-based capital requirement $ 3,800 8.00%
Excess $15,746 33.15%
Financial Condition
Total assets decreased $2 million, or 1.98%, from $97.9 million at December
31, 1997 to $95.9 million at September 30, 1998. The decrease is primarily
due to a $1.6 million decrease in loans receivable and a $277,000 decrease in
FHLB stock.
Cash and due from depository institutions increased $4.1 million from $4.5
million at December 31, 1997 to $8.6 million at September 30, 1998. The
increase in cash and due from depository institutions is due to the sale of
$12.4 million of fixed rate loans, a large number of which were refinanced
loans held for sale and the maturity of securities which was partially off
set by the purchase of $2.6 million of treasury stock. Securities
available-for-sale decreased $4.0 million from $21.7 million at December
31, 1997 to $17.7 million at September 30, 1998. The decrease in secur-
ities available-for-sale is primarily due to the maturity of securities.
Stock in FHLB decreased by $277,000 due to the redemption of excess stock
by the FHLB. Net loans receivable decreased from $67.0 million at December
31, 1997 to $65.3 million at September 30, 1998 due primarily to refi-
nancing and loan sales during the period.
It is the policy of the Savings Bank to cease accruing interest on loans 90
days or more past due. Nonaccrual loans increased from $132,000 at Decem-
ber 31, 1997 to $170,000 at September 30, 1998 as a result of a commercial
real estate loan with a balance of $157,000 which became delinquent.
Treasury stock increased by $2.6 million during the first nine months of 1998
as a result of the purchase of 161,179 shares at an average price of $16.35
per share.
Results of Operations
Net income decreased $11,000, or 5.85%, from $192,000 for the three months
ended September 30, 1997 to $181,000 for the three months ended September
30, 1998. Net income decreased $5,000, or 1.21%, from $637,000 for the nine
months ended September 30, 1997 to $632,000 for the nine months ended
September 30, 1998.
Net Interest Income
Net interest income decreased $51,000, or 5.99%, from $845,000 for the three
months ended September 30, 1997 to $794,000 for the three months ended
September 30, 1998 and $95,000, or 5.56%, from $2.6 million for the nine
months ended September 30, 1997 to $2.5 million for the nine months ended
September 30, 1998. Total interest income decreased $59,000, or 3.32%,
from $1.8 million for the three months ended September 30, 1997 to $1.7
million for the three months ended September 30, 1998 and $101,000, or
2.88%, from $5.3 million for the nine months ended September 30, 1997 to
$5.2 million for the nine months ended September 30, 1998. The decrease in
total interest income for the quarter is due primarily to decreases in inter-
estincome from mortgage loans, investment securities and mortgage-backed
securities which was partially offset by increases in interest income from
consumer and other loans and other interest earnings assets. Interest income
from mortgage loans decreased by $50,000 for the three months ended
September 30, 1998 compared to the same time period last year and increased
$95,000 for the nine months ended September 30, 1998 compared to last year.
The decrease for the quarter was due to a lower average loan balance this
quarter this year compared to the same quarter last year. The increase for
the year was a result of higher average balances during the first nine
months 1998 compared to the same time period in 1997. Total interest
expense decreased from $922,000 for the three months ended September 30,
1997 to $914,000 for the three months ended September 30, 1998 and remained
unchanged at $2.7 million for the nine months ended September 30, 1997 and
September 30, 1998.
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 their
loans. Management also reviews individual loans for which collection 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 $16,000 for the
three months ended September 30, 1997 to $39,000 for the three months ended
September 30, 1998. Provision for loan losses increased from $11,000 for
the nine months ended September 30, 1997 to a $53,000 for the nine months
ended September 30, 1998. The increase in loan loss provision is a result
of an increase in classified assets. Classified assets increased this
quarter when a commercial real estate loan with a balance of $157,000
became delinquent.
Non-interest Income
Non-interest income increased from $45,000 for the three months ended
September 30, 1997 to $108,000 for the three months ended September 30,
1998 and from $139,000 for the nine months ended September 30, 1997 to
$394,000 for the nine months ended September 30, 1998. The primary reason
that non-interest income increased in 1998 was the increased gain on sale of
loans with servicing released. The Company sold $2.2 million of loans in the
second quarter and $12.4 million in the nine months ended September 30, 1998
and none in the first nine months of 1997.
Non-interest Expense
Non-interest expense increased from $555,000 for the three months ended
September 30, 1997 to $561,000 for the three months ended September 30,
1998 and from $1.6 million for the nine months ended September 30, 1997 to
$1.8 million for the nine months ended September 30, 1998. The increase in
non-interest expense during 1998 is primarily due to increases in compensation
and benefits and is partially offset by a decrease in deposit insurance and
other non-interest expense. The increase in compensation and benefits is due
primarily to the recognition of MRDP compensation during the first nine
months of 1998 and none during the first six months of 1997. Other non-
interest expenses decreased primarily due to first time expenses in 1997
resulting from operating as a public company.
Provision for Income Taxes
Provision for income taxes decreased from $128,000 for the three months
ended September 30, 1997 to $123,000 for the three months ended September
30, 1998 and decreased from $425,000 for the nine months ended September
30, 1997 to $421,000 for the nine months ended September 30, 1998.
Year 2000 Considerations
The Company has a Year 2000 Action Plan which management is using to
identify and correct Year 2000 compliance issues. The Company has
reviewed all services and operation components to identify technical and non-
technical issues. Having identified internal components and external
components, the Company has replaced its computer hardware with Y2K
compliant equipment. The Company has requested third party providers to
insure Y2K compliance with software and services and has required testing of
these services to assure compliance. All third party providers have
identified Year 2000 issues and are completing revisions to systems and
software to become Year 2000 compliant. Testing schedules are being
established with each provider. The primary service provider for the
Company is Fiserv who provides data processing.
The cost incurred by the Company for Year 2000 compliance as of September
30, 1998 is $70,000. Fiserv will bill for the testing costs of the data
processing system at an expected cost is $7,000. Minimal other expense is
projected to be incurred.
The Company is currently in the testing phase of the Year 2000 Action Plan.
This requires the testing of systems and software to insure continued
service to customers until and beyond the Year 2000. Failure to remedy
Year 2000 issues could result in an interruption of service to customers.
The Company is preparing for the event of different systems not being Year
2000 capable as of June 30, 1999. Any system not tested or found to not be
Year 2000 compliant will be handled manually or by another provider that is
Year 2000 compliant. Currently the Company is on target to have testing
completed during the first quarter of 1999.
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-Subsequent Events None
Item 6 - Exhibits and Reports on Form 8-K.
(a) Exhibit 27 Financial Data Schedule
(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 6, 1998 BY:
Robert E. Chiles, President and
Duly Authorized Officer
BY:
David L. Jobe, Treasurer and
Chief Financial Officer