-----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, VcImOi94oUVxPej3vrMkIdLpyG0LClIk6nG/BszFNlX9pBblo/ZIqcFKlxMoNIOH t87S4VhM6xAU+6r65DbkKQ== 0000950114-98-000349.txt : 19980810 0000950114-98-000349.hdr.sgml : 19980810 ACCESSION NUMBER: 0000950114-98-000349 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980807 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CASS COMMERCIAL CORP CENTRAL INDEX KEY: 0000708781 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 431265338 STATE OF INCORPORATION: MO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-20827 FILM NUMBER: 98679646 BUSINESS ADDRESS: STREET 1: 3636 SOUTH GEYER RD CITY: SUNSET HILLS STATE: MO ZIP: 63127 BUSINESS PHONE: 3148211500 MAIL ADDRESS: STREET 1: 3636 S GEYER RD CITY: SUNSET HILLS STATE: MO ZIP: 63127 10-Q 1 1 =============================================================================== SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------------- FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED JUNE 30, 1998 COMMISSION FILE NO. 2-80070 ----------------- CASS COMMERCIAL CORPORATION INCORPORATED UNDER THE LAWS OF MISSOURI I.R.S. EMPLOYER IDENTIFICATION NO. 43-1265338 13001 HOLLENBERG DRIVE, BRIDGETON, MISSOURI 63044 TELEPHONE: (314) 506-5500 ----------------- Indicate by check mark whether the registrant has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and has been subject to such filing requirements for the past 90 days. Yes X No --- --- The number of shares outstanding of registrant's only class of stock as of June 30, 1998: Common stock, par value $.50 per share - 3,862,248 shares outstanding. - ------------------------------------------------------------------------------- This document constitutes part of a prospectus covering securities that have been registered under the Securities Act of 1933. - ------------------------------------------------------------------------------- 2 PART I, ITEM 1 - -------------- CASS COMMERCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA) --------------------------------- JUNE 30 DECEMBER 31 1998 1997 ----------- ------------- ASSETS - ------ Cash and due from banks $ 17,911 $ 10,849 Federal funds sold and other short-term investments 79,000 88,275 -------- -------- Cash and cash equivalents 96,911 99,124 -------- -------- Investment in debt and equity securities: Held-to-maturity, estimated market value of $74,286 and $90,389 at June 30, 1998 and December 31, 1997, respectively 73,976 90,139 Available-for-sale, at estimated market value 34,444 36,112 -------- -------- Total investment in debt and equity securities 108,420 126,251 -------- -------- Loans, net of unearned income 218,979 196,478 Less: Allowance for loan losses 4,569 4,484 -------- -------- Loans, net 214,410 191,994 -------- -------- Premises and equipment, net 9,328 9,957 Accrued interest receivable 2,965 3,137 Other assets 6,610 7,864 -------- -------- Total assets $438,644 $438,327 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Liabilities: - ----------- Deposits: Noninterest-bearing $ 75,493 $ 61,958 Interest-bearing 100,240 103,899 -------- -------- Total deposits 175,733 165,857 Accounts and drafts payable 202,507 213,755 Short-term borrowings 374 406 Other liabilities 5,040 5,656 -------- -------- Total liabilities 383,654 385,674 -------- -------- Stockholders' Equity: - -------------------- Preferred stock, par value $.50 per share; 2,000,000 shares authorized and no shares issued -- -- Common stock, par value $.50 per share; 20,000,000 shares authorized and 4,000,000 shares issued 2,000 2,000 Surplus 4,744 4,740 Retained earnings 49,132 46,879 Common shares in treasury, at cost (137,752 shares at June 30, 1998 and 141,452 shares at December 31, 1997) (1,250) (1,284) Accumulated other comprehensive income - unrealized holding gain on debt and equity securities available-for-sale, net of tax 364 364 Unamortized stock bonus awards -- (46) -------- -------- Total stockholders' equity 54,990 52,653 -------- -------- Total liabilities and stockholders' equity $438,644 $438,327 ======== ======== See accompanying notes to consolidated financial statements.
-1- 3 CASS COMMERCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 ----------------------- ------------------------- 1998 1997 1998 1997 ------ ------ ------ ------ (In Thousands Except Per Share Data) INTEREST INCOME: - --------------- Interest and fees on loans $4,526 $4,309 $ 8,735 $ 8,529 Interest on debt securities: Taxable 1,753 2,450 3,551 4,835 Exempt from federal income taxes 18 19 37 38 Interest on federal funds sold and other short-term investments 1,260 449 2,565 876 ------ ------ ------- ------- Total interest income 7,557 7,227 14,888 14,278 ------ ------ ------- ------- INTEREST EXPENSE: - ---------------- Interest on deposits 1,072 989 2,125 1,992 Interest on short-term borrowings 3 27 6 52 ------ ------ ------- ------- Total interest expense 1,075 1,016 2,131 2,044 ------ ------ ------- ------- Net interest income 6,482 6,211 12,757 12,234 Provision for loan losses -- 55 -- 300 ------ ------ ------- ------- Net interest income after provision for loan losses 6,482 6,156 12,757 11,934 ------ ------ ------- ------- NONINTEREST INCOME: - ------------------ Information services revenues: Freight payment and processing revenue 4,611 4,354 9,371 8,594 Freight rating services income 561 580 1,216 1,172 Service charges on deposit accounts 152 131 314 272 Other 238 290 513 461 ------ ------ ------- ------- Total noninterest income 5,562 5,355 11,414 10,499 ------ ------ ------- ------- NONINTEREST EXPENSE: - ------------------- Salaries and employee benefits 6,267 5,969 12,861 11,783 Occupancy expense 418 405 853 938 Equipment expense 645 653 1,289 1,314 Other 1,659 1,895 3,522 3,634 ------ ------ ------- ------- Total noninterest expense 8,989 8,922 18,525 17,669 ------ ------ ------- ------- Income before income tax expense 3,055 2,589 5,646 4,764 Income tax expense 1,085 882 2,003 1,634 ------ ------ ------- ------- Net income $1,970 $1,707 $ 3,643 $ 3,130 ====== ====== ======= ======= Earnings per share: Basic $ .51 $ .44 $ .94 $ .81 ------ ------ ------- ------- Diluted $ .50 $ .44 $ .93 $ .80 ------ ------ ------- ------- See accompanying notes to consolidated financial statements.
-2- 4 CASS COMMERCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS) SIX MONTHS ENDED JUNE 30 ---------------------------- 1998 1997 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 3,643 $ 3,130 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,144 1,184 Amortization of stock bonus awards 46 55 Provision for loan losses -- 300 Decrease in accrued interest receivable 172 14 Other operating activities, net 586 (1,906) -------- -------- Net cash provided by operating activities 5,591 2,777 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: - ------------------------------------ Proceeds from maturities of debt securities: Held-to-maturity 16,133 14,046 Available-for-sale 1,566 506 Purchases of debt and equity securities available-for-sale -- (9,835) Net increase in loans (22,416) (8,421) Purchases of premises and equipment (331) (3,230) -------- -------- Net cash used in investing activities (5,048) (6,934) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: - ------------------------------------ Net increase (decrease) in noninterest-bearing demand, interest-bearing demand and savings deposits 9,740 (5,303) Net increase (decrease) in time deposits 136 (118) Net decrease in accounts and drafts payable (11,248) (6,830) Net increase (decrease) in short-term borrowings (32) 902 Cash proceeds from exercise of stock options 38 -- Cash dividends paid (1,390) (1,002) -------- -------- Net cash used in financing activities (2,756) (12,351) -------- -------- Net decrease in cash and cash equivalents (2,213) (16,508) Cash and cash equivalents at beginning of period 99,124 67,156 -------- -------- Cash and cash equivalents at end of period $ 96,911 $ 50,648 ======== ======== Supplemental information: Cash paid for interest $ 2,141 $ 2,101 ======== ======== Income taxes paid $ 2,035 $ 1,235 ======== ======== See accompanying notes to consolidated financial statements.
-3- 5 CASS COMMERCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) JUNE 30, 1998 Note 1 - Basis of Presentation Cass Commercial Corporation (the Company) provides a full range of banking services to individual, corporate and institutional customers, with a primary focus on privately held companies and church-related ministries, through its wholly owned subsidiary bank, Cass Bank & Trust Company (the Bank). The Bank is subject to competition from other financial and nonfinancial institutions throughout the metropolitan St. Louis, Missouri area. Additionally, the Company and the Bank are subject to the regulations of certain federal and state agencies and undergo periodic examinations by those regulatory agencies. The Company also provides payment processing and information services through its wholly owned subsidiary, Cass Information Systems, Inc. (CIS). These services include processing and payment of freight and utility charges, preparation of management reports, auditing of freight charges, rating of freight shipments and other payment related activities. CIS is subject to competition from other commercial concerns providing similar services to companies throughout the United States and Canada. The consolidated balance sheet caption, "Accounts and Drafts Payable", consists of obligations related to payment services which are performed for customers. The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation, have been included. Operating results for the period ended June 30, 1998 are not necessarily indicative of the results that may be expected for the year ending December 31, 1998. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. Note 2 - Impact Of New Accounting Pronouncements In February 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 129, Disclosure of Information about Capital Structure (SFAS 129) which establishes standards for disclosing information about an entity's capital structure. SFAS 129 is effective for financial statements for periods ending after December 15, 1997. Since SFAS 129 is a disclosure requirement, it will have no impact on the Company's consolidated financial position and results of operations. In June 1997, the FASB issued Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information (SFAS 131) which establishes standards for the way that public enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim reports issued to shareholders. SFAS 131 is effective for financial statements for periods beginning after December 15, 1997. Since SFAS 131 is a disclosure requirement, it will have no impact on the Company's consolidated financial position and results of operations. In February 1998, the FASB issued Statement of Financial Accounting Standards No. 132, Employers' Disclosures about Pensions and Other Postretirement Benefits (SFAS 132) which standardizes the disclosure requirements for presenting information about pensions and other postretirement benefits. SFAS 132 is effective for the years beginning after December 15, 1997. Since SFAS 132 is a disclosure requirement, it will have no impact on the Company's consolidated financial position and results of operations. -4- 6 In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133) which establishes standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires an entity to recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. SFAS 133 is effective for all fiscal years beginning after June 15, 1999. Earlier application of SFAS 133 is encouraged but should not be applied retroactively to financial statements of prior periods. The Company is currently evaluating the requirements and impact of SFAS 133. Note 3 - Comprehensive Income In June 1997, the FASB issued Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income (SFAS 130) which establishes standards for reporting and display of comprehensive income and its components (revenues, expenses, gains and losses) in a full set of general-purpose financial statements. Under SFAS 130, comprehensive income is divided into net income and other comprehensive income. For the six-month periods ended June 30, 1998 and 1997, unrealized holding gain (loss) on debt and equity securities available-for-sale is the Company's only other comprehensive income component. Comprehensive income for the six-month periods ended June 30, 1998 and 1997 is summarized as follows:
(In Thousands) (In Thousands) Three Months Ended Six Months Ended June 30 June 30 ------- ------- 1998 1997 1998 1997 ---- ---- ---- ---- Net Income $1,970 $1,707 $3,643 $3,130 Other comprehensive income - increase (decrease) in unrealized holding gain (loss) on debt and equity securities available-for-sale, net of tax (58) 362 -- 51 ------ ------ ------ ------ $1,912 $2,069 $3,643 $3,181 ====== ====== ====== ======
Note 4 - Earnings Per Share Average common and common stock equivalents outstanding for the six month periods ended June 30, 1998 and 1997 were 3,861,441 and 3,858,548, respectively. Average common and common stock equivalents outstanding for the three month periods ended June 30, 1998 and 1997 were 3,861,951 and 3,858,548, respectively. The only dilutive instruments are stock options with a dilutive effect of 70,954 and 62,773 for the six month periods ended June 30, 1998 and 1997, respectively, which resulted in weighted average shares and dilutive potential common shares of 3,932,395 and 3,921,321 in 1998 and 1997, respectively. Note 5 - Reclassifications Certain amounts in the 1997 consolidated financial statements have been reclassified to conform with the 1998 presentation. Such reclassifications have no effect on previously reported net income. Note 6 - Supplemental Executive Retirement Plan During June 1998, the Company's Board of Directors established the Supplemental Executive Retirement Plan for key executive officers of the Company. This Plan was adopted to provide key executive employees through the Plan with retirement benefits that are comparable to those of other Company employees. -5- 7 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND --------------------------------------------------------------- RESULTS OF OPERATIONS - --------------------- Net Income - ---------- Cass Commercial Corporation (the Company) operates in two primary business segments through its two wholly owned subsidiaries, Cass Bank and Trust Company, a commercial bank, and Cass Information Systems, Inc., a payment processing and information services company, whose operations include the processing and payment of freight and utility charges, preparation of management reports, auditing of freight charges, rating of freight shipments and other payment related activities. The Company had net income of $3,643,000 for the six-month period ended June 30, 1998 (the "First Six Months of 1998") compared to net income of $3,130,000 for the six-month period ended June 30, 1997 (the "First Six Months of 1997"). The Company had net income of $1,970,000 for the three-month period ended June 30, 1998 ("Second Quarter of 1998") compared to net income of $1,707,000 for the three-month period ended June 30, 1997 ("Second Quarter of 1997"). The following paragraphs more fully discuss the changes in financial condition and results of operations for the First Six Months of 1998 compared to the First Six Months of 1997 and for the Second Quarter of 1998 compared to the Second Quarter of 1997. Such information is provided on a consolidated basis for the Company, the Bank and CIS, with expanded disclosures for specific effects CIS's operations have on particular account captions. Net Interest Income - ------------------- The increase of $24,796,000 in average earning assets, net of interest-bearing liabilities, was the primary contributor of the increase in net tax-equivalent interest income of $519,000 in the First Six Months of 1998 compared to the First Six Months of 1997. The mix of earning assets changed in the First Six Months of 1998 compared to the First Six Months of 1997 with an increase of $61,997,000 in the average balance of federal funds sold and other short-term investments and a decrease of $38,775,000 in debt and equity securities. This change is a result of the Company's ongoing asset/liability management program. The Company's tax-equivalent net interest margin on earning assets decreased in the Second Quarter of 1998 to 6.12% from 6.33% in the Second Quarter of 1997. The Company's tax-equivalent net interest margin on earning assets decreased in the First Six Months of 1998 to 6.08% from 6.26% in the First Six Months of 1997. These decreases are primarily due to the maturity of higher-yielding debt securities and an increased investment in federal funds sold and other short-term investments. See Tables 1 and 2 on pages 7 and 9 for further explanation of the changes in net interest income for the respective periods. -6- 8 TABLE 1: CONSOLIDATED AVERAGE BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (TAX-EQUIVALENT BASIS, IN THOUSANDS)
INCREASE (DECREASE) AVERAGE INTEREST DUE TO AVERAGE BALANCE YIELD/RATE INCOME/EXPENSE CHANGE IN --------------- ------------ -------------- NET -------------- 1998 1997 1998 1997 1998 1997 CHANGE VOLUME RATE ---- ---- ---- ---- ---- ---- ------ ------ ---- ASSETS - ------ Interest-earning assets: Loans $210,177 $204,583 8.42% 8.45% $ 8,775 $ 8,572 $ 203 $ 234 $ (31) Investment in debt and equity securities 119,172 157,947 6.10 6.25 3,606 4,892 (1,286) (1,176) (110) Federal funds sold and other short-term investments 95,321 33,324 5.42 5.30 2,565 876 1,689 1,668 21 -------- -------- ---- ---- ------- ------- ------- ------- ----- Total interest-earning assets 424,670 395,854 7.10 7.31 14,946 14,340 606 726 (120) -------- -------- ---- ---- ------- ------- ------- ------- ----- Nonearning assets: Cash and due from banks 18,995 16,871 Premises and equipment 9,703 9,101 Other assets 11,468 12,334 Allowance for loan losses (4,523) (4,574) -------- -------- Total assets 460,313 429,586 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Interest-bearing liabilities: Interest-bearing demand deposits 34,081 31,362 3.55 3.47 600 540 60 48 12 Savings deposits 60,821 57,676 4.28 4.28 1,290 1,225 65 67 (2) Time deposits of $100,000 or more 3,974 3,488 5.78 5.32 114 92 22 14 8 Other time deposits 4,848 5,431 5.03 5.01 121 135 (14) (15) 1 -------- -------- ---- ---- ------- ------- ------- ------- ----- Total interest-bearing deposits 103,724 97,957 4.13 4.10 2,125 1,992 133 114 19 Short-term borrowings 302 2,049 4.01 5.12 6 52 (46) (37) (9) -------- -------- ---- ---- ------- ------- ------- ------- ----- Total interest-bearing liabilities 104,026 100,006 4.13 4.12 2,131 2,044 87 77 10 -------- -------- ---- ---- ------- ------- ------- ------- ----- Noninterest-bearing liabilities: Demand deposits 68,201 61,589 Accounts and drafts payable 228,545 212,410 Other liabilities 5,871 6,829 -------- -------- Total liabilities 406,643 380,834 Stockholders' equity 53,670 48,752 -------- -------- Total liabilities and stockholders' equity $460,313 $429,586 ======== ======== Net interest income $12,815 $12,296 $ 519 $ 649 $(130) ======= ======= ======= ======= ===== Net yield on interest-earning assets 6.08% 6.26% ==== ====
-7- 9 AVERAGE BALANCES, INTEREST AND RATES, Continued NOTES: (1) For purposes of these computations, nonaccrual loans are included in the average loan amounts outstanding. (2) Interest income on loans includes net fees of $13,000 and $3,000 for the First Six Months of 1998 and 1997, respectively. (3) Income is presented on a tax-equivalent basis assuming a tax rate of 34%. The tax-equivalent adjustment was approximately $58,000 and $62,000 for the First Six Months of 1998 and 1997, respectively. -8- 10 TABLE 2: CONSOLIDATED AVERAGE BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND 1997 (TAX-EQUIVALENT BASIS, IN THOUSANDS)
INCREASE (DECREASE) AVERAGE INTEREST DUE TO AVERAGE BALANCE YIELD/RATE INCOME/EXPENSE CHANGE IN ---------------- ----------- --------------- NET -------------- 1998 1997 1998 1997 1998 1997 CHANGE VOLUME RATE ---- ---- ---- ---- ---- ---- ------ ------ ---- ASSETS - ------ Interest-earning assets: Loans $216,023 $204,459 8.44% 8.50% $4,546 $4,331 $ 215 $ 244 $ (29) Investment in debt and equity securities 117,404 158,032 6.08 6.29 1,780 2,478 (698) (618) (80) Federal funds sold and other short-term investments 93,274 33,184 5.41 5.43 1,260 449 811 812 (1) -------- -------- ---- ---- ------ ------ ----- ----- ----- Total interest-earning assets 426,701 395,675 7.13 7.36 7,586 7,258 328 438 (110) -------- -------- ---- ---- ------ ------ ----- ----- ----- Nonearning assets: Cash and due from banks 20,024 16,727 Premises and equipment 9,570 9,543 Other assets 10,206 11,318 Allowance for loan losses (4,548) (4,556) -------- -------- Total assets 461,953 428,707 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Interest-bearing liabilities: Interest-bearing demand deposits 33,671 31,382 3.53 3.57 296 279 17 20 (3) Savings deposits 61,555 58,237 4.28 4.10 657 595 62 35 27 Time deposits of $100,000 or more 4,131 3,398 5.83 5.78 60 49 11 11 -- Other time deposits 4,726 5,473 5.01 4.84 59 66 (7) (9) 2 -------- -------- ---- ---- ------ ------ ----- ----- ----- Total interest-bearing deposits 104,083 98,490 4.13 4.03 1,072 989 83 57 26 Short-term borrowings 337 1,981 3.57 5.47 3 27 (24) (17) (7) -------- -------- ---- ---- ------ ------ ----- ----- ----- Total interest-bearing liabilities 104,420 100,471 4.13 4.06 1,075 1,016 59 40 19 -------- -------- ---- ---- ------ ------ ----- ----- ----- Noninterest-bearing liabilities: Demand deposits 70,564 61,573 Accounts and drafts payable 227,046 211,279 Other liabilities 5,448 6,777 -------- -------- Total liabilities 407,478 380,100 Stockholders' equity 54,475 48,607 -------- -------- Total liabilities and stockholders' equity $461,953 $428,707 ======== ======== Net interest income $6,511 $6,242 $ 269 $ 398 $(129) ====== ====== ===== ===== ===== Net yield on interest-earning assets 6.12% 6.33% ==== ====
-9- 11 AVERAGE BALANCES, INTEREST AND RATES, Continued NOTES: (1) For purposes of these computations, nonaccrual loans are included in the average loan amounts outstanding. (2) Interest income on loans includes net fees of $11,000 and $2,000 for the Second Quarter of 1998 and 1997, respectively. (3) Income is presented on a tax-equivalent basis assuming a tax rate of 34%. The tax-equivalent adjustment was approximately $29,000 and $31,000 for the Second Quarter of 1998 and 1997, respectively. -10- 12 Provision for Loan Losses - ------------------------- A significant determinant of the Company's operating results is the level of loan losses and the provision for loan losses. There was no charge to earnings to provide for loan losses for the First Six Months of 1998; however the Company charged $300,000 to earnings to provide for loan losses for the First Six Months of 1997. Management made the decision to make a provision for loan losses in the First Six Months of 1997 based on the loan growth experienced. The quality of the loan portfolio has continued to remain strong. The level of nonperforming loans, at .79% of average loans, remains well below industry standards. Nonperforming loans are covered over 2 times by the allowance for loan losses at June 30, 1998. The Company experienced net recoveries of $85,000 in the First Six Months of 1998. Factors which influence management's determination of the adequacy of the allowance for loan losses, among other things, include: evaluation of each nonperforming and/or classified loan to determine the estimated loss exposure under existing circumstances known to management; evaluation of all potential problem loans identified in light of possible loss exposure based upon existing circumstances known to management; analysis of the loan portfolio with regard to potential future loss exposure on loans to specific customers and/or industries; current economic conditions; and, an overall review of the loan portfolio in light of past loan loss experience. At June 30, 1998, impaired loans totalled $1,231,000 which includes $657,000 of nonaccrual loans. The allowance for loan losses on impaired loans was $637,000 at June 30, 1998. The average balance of impaired loans during the First Six Months of 1998 and the First Six Months of 1997 was $1,253,000 and $1,088,000, respectively. The allowance for loan losses at June 30, 1998 was $4,569,000 and at December 31, 1997 was $4,484,000. The allowance for loan losses at June 30, 1998 represents 2.09% of total loans outstanding compared to 2.28% at December 31, 1997. -11- 13 The following table presents information as of and for the three and six-month periods ended June 30, 1998 and 1997 pertaining to the Company's provision for loan losses and analysis of the allowance for loan losses.
Three Months Ended Six Months Ended June 30 June 30 ------------------------ -------------------------- 1998 1997 1998 1997 -------- -------- -------- -------- (dollars in thousands) Allowance at beginning of period $ 4,503 $ 4,731 $ 4,484 $ 4,396 Provision for loan losses charged to expense -- 55 -- 300 Loans charged off -- (411) -- (411) Recoveries on loans previously charged off 66 72 85 162 -------- -------- -------- -------- Net loan (charge-offs) recoveries 66 (339) 85 (249) -------- -------- -------- -------- Allowance at end of period $ 4,569 $ 4,447 $ 4,569 $ 4,447 ======== ======== ======== ======== Loans outstanding: Average $216,023 $204,459 $210,177 $204,583 June 30 218,979 205,947 218,979 205,947 Ratio of allowance for loan losses to loans outstanding: Average 2.12% 2.18% 2.17% 2.17% June 30 2.09% 2.16% 2.09% 2.16% Nonperforming loans: Nonaccrual loans $ 657 $ 225 $ 657 $ 225 Loans past due 90 days or more 1,059 166 1,059 166 -------- -------- -------- -------- Total $ 1,716 $ 391 $ 1,716 $ 391 -------- -------- -------- -------- Nonperforming loans as a percent of average loans .79% .19% .82% .19%
-12- 14 Noninterest Income - ------------------ Noninterest income is principally derived from service fees generated by CIS's Payment Systems and Software Systems Groups. Total noninterest income for the Second Quarter of 1998 and the First Six Months of 1998 increased $207,000 (3.9%) and $915,000 (8.7%), respectively, from the corresponding periods of 1997. CIS's Payment Systems Group experienced an increase in processing revenues of $777,000 (9.0%) in the First Six Months of 1998 compared to the First Six Months of 1997. The volume of accepted new business proposals remains strong and should result in increasing revenues in CIS's Payment Systems Group as new accounts are placed in service throughout the remainder of 1998. CIS's Freight Rating Services Group experienced a decrease in revenues of $19,000 (3.3%) in the Second Quarter of 1998 and an increase in revenues of $44,000 (3.8%) in the First Six Months of 1998 compared to the corresponding periods of 1997. Other noninterest income decreased $52,000 (17.9%) in the Second Quarter of 1998 and increased $52,000 (11.3%) in the First Six Months of 1998 compared to the corresponding periods of 1997. The Bank received a buyout of its headquarters lease in the Second Quarter of 1997 in excess of the remaining net book value of leasehold improvements which resulted in a one-time gain of $95,000. Noninterest Expense - ------------------- Total noninterest expense for the Second Quarter of 1998 increased $67,000 (0.8%) from the Second Quarter of 1997. Total noninterest expense for the First Six Months of 1998 increased $856,000 (4.8%) from the First Six Months of 1997. Salaries and benefits expense decreased $298,000 (5.0%) in the Second Quarter of 1998 compared to the Second Quarter of 1997. Salaries and benefits expense increased $1,078,000 (9.1%) in the First Six Months of 1998 compared to the First Six Months of 1997. The increase relates primarily to separation costs associated with the streamlining and integration of operations in the freight rating services group which were expensed in the First Six months of 1998, combined with annual pay increases. Occupancy expense decreased $85,000 (9.1%) in the First Six Months of 1998 compared to the First Six Months of 1997. This decrease was primarily due to the Company and the Bank moving their headquarters in April 1997 to a new facility which was added on to the property owned by CIS in Bridgeton, Missouri. This consolidation of facilities resulted in occupancy expense savings. Additionally, CIS's Chicago location also relocated in 1997 resulting in reduced rental expense in the First Six Months of 1998. Other noninterest expense decreased $236,000 (12.5%) in the Second Quarter of 1998 compared to the Second Quarter of 1997. Other noninterest expense decreased $112,000 (3.1%) in the First Six Months of 1998 compared to the First Six Months of 1997. These decreases are attributable to several items including decreases in both outside service fees and professional fees. -13- 15 Balance Sheet Analysis - ---------------------- Cash and due from banks increased from $10,849,000 at December 31, 1997 to $17,911,000 at June 30, 1998. The average balance of cash and due from banks increased $2,124,000 (12.6%) from $16,871,000 in the First Six Months of 1997 to $18,995,000 in the First Six Months of 1998. Federal funds sold and other short-term investments decreased from $88,275,000 at December 31, 1997 to $79,000,000 at June 30, 1998. The average balance of these accounts was $95,321,000 in the First Six Months of 1998 compared to $33,324,000 in the First Six Months of 1997. The increase in the average balance of these accounts resulted primarily from maturities of debt securities and increased average balances in accounts and drafts payable. See Table 1 and Table 2 on pages 7 and 9 for a presentation of average balances. Total loans increased $22,501,000 (11.5%) from $196,478,000 at December 31, 1997 to $218,979,000 at June 30, 1998. The average balances of loans increased $5,594,000 (2.7%) from $204,583,000 in the First Six Months of 1997 to $210,177,000 in the First Six Months of 1998. Loan demand and new business volume increased throughout 1997 and has continued into the First Six Months of 1998. Outstanding loans remained at relatively similar levels in 1997 due to loan repayments resulting from several loan customers selling their businesses or requesting credit extensions higher than the Company could provide. Investments in debt and equity securities decreased $17,831,000 (14.1%) from $126,251,000 at December 31, 1997 to $108,420,000 at June 30, 1998. The average balance of investment securities decreased $38,775,000 (24.5%) from $157,947,000 in the First Six Months of 1997 to $119,172,000 in the First Six Months of 1998 as a result of the Company's ongoing asset/liability management program. Total earning assets decreased $4,605,000 (1.1%) from $411,004,000 at December 31, 1997 to $406,399,000 at June 30, 1998. The average balance of earning assets increased $28,816,000 (7.3%) from $395,854,000 in the First Six Months of 1997 to $424,670,000 in the First Six Months of 1998. This increase was funded primarily by an increase of $16,135,000 in the average balance of accounts and drafts payable. Interest-bearing deposits decreased from $103,899,000 at December 31, 1997 to $100,240,000 at June 30, 1998. The average balances of these deposits decreased $5,767,000 (5.9%) from $97,957,000 in the First Six Months of 1997 to $103,724,000 in the First Six Months of 1998. Noninterest-bearing deposits increased $13,535,000 (21.8%) from $61,958,000 at December 31, 1997 to $75,493,000 at June 30, 1998. The average balance of these accounts increased $6,612,000 (10.7%) from $61,589,000 in the First Six Months of 1997 to $68,201,000 in the First Six Months of 1998 which reflects increased business development efforts at the Bank. Accounts and drafts payable generated by CIS in its freight payment operations decreased $11,248,000 (5.3%) from $213,755,000 at December 31, 1997 to $202,507,000 at June 30, 1998. The average balances of these funds increased $16,135,000 (7.6%) from $212,410,000 for the First Six Months of 1997 to $228,545,000 in the First Six Months of 1998. This increase has resulted from successful sales efforts leading to the addition of new processing volume. -14- 16 Liquidity - --------- As of June 30, 1998, approximately 52% of the Company's loan portfolio was composed of commercial loans, of which 77% represented loans maturing within one year. As of the same date, real estate loans, primarily commercial, represented approximately 46% of the total and of these, 43% represented balances maturing within one year. Approximately 2% of the loan portfolio is represented by installment loans. The liquidity of the Company is primarily represented by cash and due from banks of $17,911,000 and Federal funds sold and other short-term investments of $79,000,000 at June 30, 1998. Included in this caption are $52,000,000 invested in money market funds consisting of short-term U.S. Government and agency issues. Investments in debt and equity securities represented approximately 25% of total assets at June 30, 1998. Of the U.S. Government securities in the Company's investment portfolio, which represented 73% of the total, 32% have maturities of less than one year. U.S. Government Agencies and Corporations represented 26% of the total. Obligations of states and political subdivisions constituted 1% of the investment portfolio at June 30, 1998. There were no sales of debt securities in the First Six Months of 1998. Of the total portfolio, over 87% of the securities have maturities of five years or less. These securities provide the Company longer term liquidity than its primary sources, cash and due from banks and other short-term instruments. Additionally, short-term liquidity could be satisfied, if necessary, by the sale of certain debt securities maintained as available-for-sale; however, the Company does not foresee any such short-term liquidity needs. The funds provided by the Bank consist of a sizable volume of core deposits. Historically, the Company has been a net provider of Federal funds. During the First Six Months of 1998, the Company was a net provider of Federal funds, averaging over $18,950,000 in net funds sold. Additionally, the Company averaged over $76,371,000 in short-term money market funds during the First Six Months of 1998. The Company was able to meet its liquidity requirements in the First Six Months of 1998 through the growth of deposit accounts and the liquid nature of Federal funds sold and other short-term investments. -15- 17 Asset/Liability Management Program - ---------------------------------- The Company's earning assets significantly exceed its interest-bearing liabilities. This is primarily due to the noninterest-bearing liabilities generated by CIS in the form of accounts and drafts payable. Within this framework, the Company's asset/liability management program strives to maintain an appropriate balance between rate-sensitive assets and liabilities. The primary goal of the Company is to maintain a level of earning assets net of interest-bearing liabilities which will produce a relatively high net interest margin compared to other financial institutions. The Company's Investment Committee monitors the sensitivity of its subsidiaries' assets and liabilities with respect to changes in interest rates and repricing opportunities, and directs the overall acquisition and allocation of funds. The following table presents the Company's rate sensitive position at June 30, 1998 for the various time frames indicated.
OVER OVER THREE SIX OVER ONE THREE THROUGH THROUGH THROUGH OVER VARIABLE MONTHS SIX TWELVE FIVE FIVE RATE OR LESS MONTHS MONTHS YEARS YEARS TOTAL ---- ------- ------ ------ ----- ----- ----- (Dollars expressed in thousands) Interest-earning assets: Loans $ 93,660 $12,925 $ 7,281 $ 19,097 $ 84,720 $ 1,296 $218,979 Investment in debt and equity securities -- 3,180 6,995 15,009 68,764 14,472 108,420 Federal funds sold and other short-term investments 79,000 -- -- -- -- -- 79,000 -------- ------- -------- -------- -------- -------- -------- Total interest-earning assets $172,660 $16,105 $ 14,276 $ 34,106 $153,484 $ 15,768 $406,399 ======== ======= ======== ======== ======== ======== ======== Interest-bearing liabilities: Interest-bearing transaction accounts $ 91,481 $ -- $ -- $ -- $ -- $ -- $ 91,481 Time deposits-$100,000 or more -- 1,786 850 1,050 491 -- 4,177 Other time deposits -- 1,433 679 666 1,804 -- 4,582 Short-term borrowings 374 -- -- -- -- -- 374 -------- ------- -------- -------- -------- -------- -------- Total interest-bearing liabilities $ 91,855 $ 3,219 $ 1,529 $ 1,716 $ 2,295 $ -- $100,614 ======== ======= ======== ======== ======== ======== ======== Interest sensitivity gap: Periodic $ 80,805 $12,886 $ 12,747 $ 32,390 $151,189 $ 15,768 $305,785 Cumulative 88,805 93,691 106,438 138,828 290,017 305,785 Ratio of interest-sensitive assets to interest-sensitive liabilities: Periodic 1.88x 5.00x 9.34x 19.88x 66.88x -- 4.04x Cumulative 1.88x 1.99x 2.10x 2.41x 3.88x 4.04x 4.04x
-16- 18 Capital Resources - ----------------- Stockholders' equity was $54,990,000 or 12.54% of total assets at June 30, 1998, an increase of $2,337,000 over the amount outstanding at December 31, 1997. This increase resulted from net income of $3,643,000; dividends paid of $1,390,000 ($.36 per share); the amortization of the stock bonus plan of $46,000; and cash received from the exercise of stock options of $38,000. Subsidiary dividends are the principal source of funds for payment of dividends by the Company to its stockholders. The only restrictions on dividends are those dictated by regulatory capital requirements and prudent and sound banking principles. The Company and its banking subsidiary continue to significantly exceed all regulatory capital requirements, as evidenced by the following capital ratios at June 30, 1998: Company Cass Consolidated Bank ------------ ---- Total capital (to risk-weighted assets) 22.36% 15.32% Tier I capital (to risk-weighted assets) 21.10 16.58 Tier I capital (to average assets) 11.76 11.75
The Year 2000 Issue - ------------------- Management has initiated a company-wide program to prepare the Company and its subsidiaries' systems for Year 2000 compliance. The Year 2000 issue relates to systems that were designed to use two digits rather than four to define the applicable year. The Company and its subsidiaries have budgeted and will incur charges for testing and correcting its computer systems to be Year 2000 compliant. These charges relate to internal staff costs as well as outside service fees and other expenses. It is estimated that these costs will total $2.9 million during the period 1997 through 2000. This includes internal and external costs that will be expensed, as well as new hardware and software which will be capitalized. These expenses are not expected to have a material effect on the Company's results of operations. Programming changes and testing of systems and software packages are scheduled to be substantially completed by December 31, 1998. In addition, the Company's credit risk assessment is being modified to include the consideration of incremental risk that may be posed by customers' inability, if any, to address Year 2000 issues. If modifications to existing systems and conversions to new systems proceed as scheduled, management presently believes that the Year 2000 issue will not pose a substantial internal operating risk to the Company. Assessments of the readiness of internal systems is ongoing. There can be no guarantee, however, that the systems of customers, vendors and other third parties on which the Company relies will be remediated on a timely basis. The Company continues to monitor the progress of third-party vendors for critical areas. There is no assurance that a failure to remediate by one of these parties would not have a material adverse effect on the Company. Inflation - --------- Inflation can impact the financial position and results of the operations of financial institutions because financial institutions hold monetary assets and monetary liabilities. Monetary assets and liabilities are those which can be converted into a fixed number of dollars, and include cash, investments, loans and deposits. The Company's consolidated balance sheets, as is typical of financial institutions, reflect a net positive monetary position (monetary assets exceeding monetary liabilities). During periods of inflation, the holding of a net positive monetary position will result in an overall decline in the purchasing power of a financial institution. -17- 19 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ---------------------------------------------------------- There have been no material changes in market risk exposures that affect the "Quantitative and Qualitative Disclosures" presented in the Company's annual report on 10K for the year ended December 31, 1997. PART II - ------- Item 1. LEGAL PROCEEDINGS ----------------- None Item 2. CHANGES IN SECURITIES --------------------- None Item 3. DEFAULTS IN SENIOR SECURITIES ----------------------------- None Item 4. SUBMISSION OF MATTERS TO A VOTE OF ---------------------------------- SECURITY HOLDERS ---------------- At the annual meeting of the shareholders of Cass Commercial Corporation held on April 20, 1998, the following proposals were voted on and approved: The following is a summary of votes cast. No broker non-votes were received.
Withheld Authority/ For Against Abstentions --------- ----------- ----------- 1. Proposal to elect four Directors for a term of three years ending 2001; Lawrence A. Collett 3,109,796 886 750,566 Irving A. Shepard 3,097,298 13,384 750,566 Andrew J. Signorelli 3,108,626 2,056 750,566 2. Proposal to ratify the selection of KPMG Peat 3,107,092 3,590 750,566 Marwick LLP as independent accountants for 1998.
Item 5. OTHER INFORMATION ----------------- None Item 6. EXHIBITS AND REPORTS ON FORM 8-K -------------------------------- (a) None (b) Cass Commercial Corporation did not file any reports on Form 8-K during the three months ended June 30, 1998. -18- 20 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. CASS COMMERCIAL CORPORATION DATE: August 7, 1998 By Lawrence A. Collett ---------------------------- Lawrence A. Collett Chairman and Chief Executive Officer DATE: August 7, 1998 By Eric H. Brunngraber ---------------------------- Eric H. Brunngraber Vice President-Secretary (Chief Financial and Accounting Officer) -19- EX-27.1 2 MARCH 31, 1998 10Q
9 1,000 3-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 17,911 52,000 27,000 0 34,444 73,976 74,286 218,979 4,569 438,644 175,733 0 207,921 0 0 0 2,000 52,990 438,644 4,526 1,771 1,260 7,557 1,072 1,075 6,482 0 0 8,989 3,055 3,055 0 0 1,970 .51 .50 6.12 657 1,059 602 1,231 0 0 0 0 0 0 0 TO BE DOCUMENTED IN THE DEC-31-1998 STATEMENTS.
EX-27.2 3 JUNE 30, 1998 10Q
9 1,000 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 17,911 52,000 27,000 0 34,444 73,976 74,286 218,979 4,569 438,644 175,733 0 207,921 0 0 0 2,000 52,990 438,644 8,735 3,588 2,565 14,888 2,125 2,131 12,757 0 0 18,525 5,646 5,646 0 0 3,643 .94 .93 6.08 657 1,059 602 1,231 4,484 0 85 4,569 0 0 0 TO BE DOCUMENTED IN THE DEC-31-1998 STATEMENTS.
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