-----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, GlkVuy/1Ap7GA7CZGTmtA6XjH/HO1R/R2Db9OKlRd9vtcRJccnu0VFJEePFp2NuB zU+Ri5pfQ+cuurWEe7NPOg== 0000950114-98-000230.txt : 19980506 0000950114-98-000230.hdr.sgml : 19980506 ACCESSION NUMBER: 0000950114-98-000230 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980505 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: 98610094 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 CASS COMMERCIAL CORPORATION FORM 10-Q 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 March 31, 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 March 31, 1998: Common stock, par value $.50 per share - 3,861,248 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 of Dollars Exept Per Share Data) ---------------------------------- March 31 December 31 1998 1997 -------- ----------- Assets - ------ Cash and due from banks $ 30,070 $ 10,849 Federal funds sold and other short-term investments 88,825 88,275 -------- -------- Cash and cash equivalents 118,895 99,124 -------- -------- Investment in debt and equity securities: Held-to-maturity, estimated market value of $83,436 and $90,389 at March 31, 1998 and December 31, 1997, respectively 83,064 90,139 Available-for-sale, at estimated market value 35,158 36,112 -------- -------- Total investment in debt and equity securities 118,222 126,251 -------- -------- Loans, net of unearned income 203,265 196,478 Less: Allowance for loan losses 4,503 4,484 -------- -------- Loans, net 198,762 191,994 -------- -------- Premises and equipment, net 9,587 9,957 Accrued interest receivable 3,064 3,137 Other assets 8,992 7,864 -------- -------- Total assets $457,522 $438,327 ======== ======== Liabilities and Stockholders' Equity - ------------------------------------ Liabilities: - ----------- Deposits: Noninterest-bearing $ 74,690 $ 61,958 Interest-bearing 116,912 103,899 -------- -------- Total deposits 191,602 165,857 Accounts and drafts payable 207,082 213,755 Short-term borrowings -- 406 Other liabilities 5,094 5,656 -------- -------- Total liabilities 403,778 385,674 -------- -------- 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 4,743 4,740 Retained earnings 47,856 46,879 Common shares in treasury, at cost (138,752 shares at March 31,1998 and 141,452 shares at December 31, 1997) (1,259) (1,284) Accumulated other comprehensive income - unrealized holding gain (loss) on debt and equity securities available-for-sale, net of tax 422 364 Unamortized stock bonus awards (18) (46) -------- -------- Total stockholders' equity 53,744 52,653 -------- -------- Total liabilities and stockholders' equity $457,522 $438,327 ======== ======== See accompanying notes to consolidated financial statements.
-1- 3 CASS COMMERCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (unaudited)
(In Thousands of Dollars Except Per Share Data) ------------------------------ Three Months Ended March 31 ------------------------------ 1998 1997 ------ ------ Interest Income: - --------------- Interest and fees on loans $4,209 $4,220 Interest on debt securities: Taxable 1,798 2,385 Exempt from federal income taxes 19 19 Interest on federal funds sold and other short-term investments 1,305 427 ------ ------ Total interest income 7,331 7,051 ------ ------ Interest Expense: - ---------------- Interest on deposits 1,053 1,003 Interest on short-term borrowings 3 25 ------ ------ Total interest expense 1,056 1,028 ------ ------ Net interest income 6,275 6,023 Provision for loan losses -- 245 ------ ------ Net interest income after provision for loan losses 6,275 5,778 ------ ------ Noninterest Income: - ------------------ Information services revenues: Freight payment and processing revenue 4,760 4,240 Freight rating services income 655 592 Service charges on deposit accounts 162 141 Other 275 171 ------ ------ Total noninterest income 5,852 5,144 ------ ------ Noninterest Expense: - ------------------- Salaries and employee benefits 6,594 5,814 Occupancy expense 435 533 Equipment expense 644 661 Other 1,863 1,739 ------ ------ Total noninterest expense 9,536 8,747 ------ ------ Income before income tax expense 2,591 2,175 Income tax expense 918 752 ------ ------ Net income $1,673 $1,423 ====== ====== Earnings per share: Basic $ .43 $ .37 ------ ------ Diluted $ .43 $ .36 ------ ------ See accompanying notes to consolidated financial statements.
-2- 4 CASS COMMERCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(In Thousands of Dollars) Three Months Ended March 31 -------------------------------- 1998 1997 -------- -------- Cash Flows From Operating Activities: - ------------------------------------ Net income $ 1,673 $ 1,423 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 589 600 Amortization of stock bonus awards 28 28 Provision for loan losses -- 245 (Increase) decrease in accrued interest receivable 73 (55) Other operating activities, net (1,741) (4,098) -------- -------- Net cash provided by (used in) operating activities 622 (1,857) -------- -------- Cash Flows From Investing Activities: - ------------------------------------ Proceeds from maturities of debt securities: Held-to-maturity 7,059 6,766 Available-for-sale 993 267 Purchases of debt and equity securities available-for-sale -- (9,835) Net increase in loans (6,768) (10,288) Purchases of premises and equipment (133) (1,590) -------- -------- Net cash provided by (used in) investing activities 1,151 (14,680) -------- -------- Cash Flows From Financing Activities: - ------------------------------------ Net increase in noninterest-bearing demand, interest-bearing demand and savings deposits 25,340 882 Net increase (decrease) in time deposits 405 (591) Net decrease in accounts and drafts payable (6,673) (5,610) Net increase (decrease) in short-term borrowings (406) 785 Cash proceeds from exercise of stock options 28 -- Cash dividends paid (696) (502) -------- -------- Net cash provided by (used in) financing activities 17,998 (5,036) -------- -------- Net increase (decrease) in cash and cash equivalents 19,771 (21,573) Cash and cash equivalents at beginning of period 99,124 67,156 -------- -------- Cash and cash equivalents at end of period $118,895 $ 45,583 ======== ======== Supplemental information: Cash paid for interest $ 1,044 $ 1,074 ======== ======== Income taxes paid $ 935 $ 170 ======== ======== See accompanying notes to consolidated financial statements.
-3- 5 CASS COMMERCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) March 31, 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 March 31, 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 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 three-month periods ended March 31, 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 three-month periods ended March 31, 1998 and 1997 is summarized as follows:
(In Thousands) Three Months Ended March 31 -------- 1998 1997 ---- ---- Net Income $ 1,673 $ 1,423 Other comprehensive income - unrealized holding gain (loss) on debt and equity securities available-for-sale, net of tax 58 (311) ------- ------- $ 1,731 $ 1,112 ======= =======
Note 4 - Earnings Per Share Average common and common stock equivalents outstanding for the three month periods ended March 31, 1998 and 1997 were 3,860,954 and 3,858,548, respectively. The only dilutive instruments are stock options with a dilutive effect of 73,218 and 60,318 for the three month periods ended March 31, 1998 and 1997, respectively, which resulted in weighted average shares and dilutive potential common shares of 3,934,172 and 3,918,866 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. -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 (Cass Bank), a commercial bank, and Cass Information Systems, Inc. (CIS), 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 $1,673,000 for the three-month period ended March 31,1998 (the "First Three Months of 1998") compared to net income of $1,423,000 for the three-month period ended March 31,1997 (the "First Three Months of 1997"). The following paragraphs more fully discuss the changes in financial condition and results of operations for the First Three Months of 1998 compared to the First Three Months of 1997. Such information is provided on a consolidated basis for the Company, Cass Bank and CIS, with expanded disclosures for specific effects CIS's operations have on particular account captions. Net Interest Income - ------------------- An increase of $25,629,000 in average earning assets, net of interest-bearing liabilities, was the primary contributor of the increase in net tax-equivalent interest income of $248,000 in the First Three Months of 1998 compared to the First Three Months of 1997. The mix of earning assets changed in the First Three Months of 1998 compared to the First Three Months of 1997 with an increase of $63,544,000 in the average balance of federal funds sold and other short-term investments and a decrease of $35,757,000 in debt and equity securities. The Company's tax-equivalent net interest margin on earning assets decreased in the First Three Months of 1998 to 6.05% from 6.23% in the First Three Months of 1997. This decrease is primarily due to the maturity of higher-yielding debt securities and an increased investment in federal funds sold and other short-term investments. See Table 1 on page 7 for further explanation of the changes in net interest income for the First Three Months of 1998 compared to the First Three Months of 1997. -6- 8 TABLE 1: CONSOLIDATED AVERAGE BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS For the Three Months Ended March 31, 1998 and 1997 (tax-equivalent basis, in thousands)
Average Interest Increase(Decrease) Average Balance Yield/Rate Income/Expense Due to Change in --------------- ---------- -------------- Net ---------------- 1998 1997 1998 1997 1998 1997 Change Volume Rate ---- ---- ---- ---- ---- ---- ------ ------ ---- ASSETS - ------ Interest-earning assets: Loans $204,268 $203,814 8.40% 8.44% $4,229 $4,243 $ (14) $ 9 $(23) Investment in debt and equity securities 120,960 156,717 6.12 6.25 1,826 2,414 (588) (541) (47) Federal funds sold and other short-term investments 97,391 33,847 5.43 5.12 1,305 427 878 850 28 -------- -------- ---- ---- ------ ------ ----- ----- ---- Total interest-earning assets 422,619 394,378 7.06 7.28 7,360 7,084 276 318 (42) -------- -------- ---- ---- ------ ------ ----- ----- ---- Nonearning assets: Cash and due from banks 17,954 16,517 Premises and equipment 9,838 8,893 Other assets 12,746 10,202 Allowance for loan losses (4,498) (4,447) -------- -------- Total assets 458,659 425,543 ======== ======== LIABILITIES AND STOCKHOLDERS' - ---------------------------- EQUITY ------ Interest-bearing liabilities: Interest-bearing demand deposits 34,494 30,861 3.57 3.43 304 261 43 32 11 Savings deposits 60,080 59,219 4.27 4.31 633 629 4 9 (5) Time deposits of $100,000 or more 3,821 3,385 5.73 5.27 54 44 10 6 4 Other time deposits 4,965 5,569 5.06 5.02 62 69 (7) (8) 1 -------- -------- ---- ---- ------ ------ ----- ----- ---- Total interest-bearing deposits 103,360 99,034 4.13 4.11 1,053 1,003 50 39 11 Short-term borrowings 266 1,980 4.57 5.12 3 25 (22) (20) (2) -------- -------- ---- ---- ------ ------ ----- ----- ---- Total interest-bearing liabilities 103,626 101,014 4.13 4.13 1,056 1,028 28 19 9 -------- -------- ---- ---- ------ ------ ----- ----- ---- Noninterest-bearing liabilities: Demand deposits 65,811 62,173 Accounts and drafts payable 230,059 207,300 Other liabilities 6,299 6,652 -------- -------- Total liabilities 405,795 377,139 Stockholders' equity 52,864 48,404 -------- -------- Total liabilities and stockholders' equity $458,659 $425,543 ======== ======== Net interest income $6,304 $6,056 $ 248 $ 299 $(51) ====== ====== ===== ===== ==== Net yield on interest- earning assets 6.05% 6.23% ==== ====
-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 $2,000 and $1,000 for the First Three 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 $29,000 and $33,000 for the First Three Months of 1998 and 1997, respectively. -8- 10 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 Three Months of 1998; however the Company charged $245,000 to the provision for loan losses in the First Three Months of 1997. The quality of the loan portfolio has continued to remain strong. The level of nonperforming loans, at .39% of average loans, remains well below industry standards. Nonperforming loans are covered over 5 times by the allowance for loan losses at March 31, 1998. The Company experienced a net recovery of $19,000 in the First Three Months of 1998. Management made the decision to make a provision for loan losses in the First Three Months of 1997 based on loan growth experienced. 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 March 31, 1998, impaired loans totalled $1,401,000 which includes $746,000 of nonaccrual loans. The allowance for loan losses on impaired loans was $722,000 at March 31, 1998. The average balance of impaired loans during the First Three Months of 1998 was $1,412,000. The allowance for loan losses at March 31, 1998 was $4,503,000 and at December 31, 1997 was $4,484,000. The allowance for loan losses at March 31, 1998 represents 2.22% of total loans outstanding compared to 2.28% at December 31, 1997. -9- 11 The following table presents information as of and for the three-month period ended March 31, 1998 and 1997 pertaining to the Company's provision for loan losses and analysis of the allowance for loan losses.
Three Months Ended March 31 -------------------------------- 1998 1997 -------- -------- (dollars expressed in thousands) Allowance at beginning of period $ 4,484 $ 4,396 Provision for loan losses charged to expense -- 245 Loans charged off -- -- Recoveries on loans previously charged off 19 90 -------- -------- Net loan recoveries 19 90 -------- -------- Allowance at end of period $ 4,503 $ 4,731 ======== ======== Loans outstanding: Average $204,268 $203,814 March 31 203,265 208,153 Ratio of allowance for loan losses to loans outstanding: Average 2.20% 2.32% March 31 2.22% 2.27% Nonperforming loans: Nonaccrual loans $ 746 $ 294 Loans past due 90 days or more 45 -- -------- -------- Total $ 791 $ 294 ======== ======== Nonperforming loans as a percent of average loans .39% .14%
-10- 12 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 the First Three Months of 1998 increased $708,000 (13.8%) from the First Three Months of 1997. CIS's Payment Systems Group experienced an increase in processing revenues of $520,000 (12.3%) in the First Three Months of 1998 compared to the First Three Months of 1997. This increase resulted primarily from increased processing volume in the First Three Months of 1998. The volume of accepted new business proposals 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 an increase in revenues of $63,000 (10.6%) in the First Three Months of 1998 compared to the First Three Months of 1997. This increase resulted primarily from price increases charged to rating customers in the First Three Months of 1998. Noninterest Expense - ------------------- Total noninterest expense for the First Three Months of 1998 increased $789,000 (9.0%) from the First Three Months of 1997. Salaries and benefits expense increased $780,000 (13.4%) in the First Three Months of 1998 compared to the First Three Months of 1997. The increase relates primarily to separation costs associated with streamlining and integration of operations in the freight rating services group which were expensed in the First Three Months of 1998, combined with annual pay increases. Occupancy expense decreased $98,000 (18.4%) in the First Three Months of 1998 compared to the First Three Months of 1997. The decrease was due primarily 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 which resulted in reduced rental expense in the First Three Months of 1998. Other noninterest expense increased $124,000 (7.1%) in the First Three Months of 1998 compared to the First Three Months of 1997. This increase is attributable to several items including an increase of $60,000 in advertising, $61,000 in postage expense, $50,000 in printing and supply expense and is partially offset by a decrease of $46,000 in professional expenses. -11- 13 Balance Sheet Analysis - ---------------------- Cash and due from banks increased from $10,849,000 at December 31, 1997 to $30,070,000 at March 31, 1998. The average balance of cash and due from banks increased $1,437,000 (8.7%) from $16,517,000 in the First Three Months of 1997 to $17,954,000 in the First Three Months of 1998. Federal funds sold and other short-term investments increased from $88,275,000 at December 31, 1997 to $88,825,000 at March 31, 1998. The average balance of these accounts was $97,391,000 in the First Three Months of 1998 compared to $33,847,000 in the First Three Months of 1997. The increase in the average balance of these accounts resulted from maturities of debt securities and increased average balances in accounts and drafts payable. See Table 1 on page 7 for a presentation of average balances. Total loans increased $6,787,000 (3.5%) from $196,478,000 at December 31, 1997 to $203,265,000 at March 31, 1998. The average balances of loans in the First Three Months of 1998 remained relatively unchanged from the First Three Months of 1997. Loan demand and new business volume increased throughout 1997 and has continued into the First Three Months of 1998. Outstanding loans remained at relatively similar levels in 1997 as a result of several loan customers selling their businesses or requesting credit extensions higher than the Company could provide. Investment in debt and equity securities decreased $8,029,000 (6.4%) from $126,251,000 at December 31, 1997 to $118,222,000 at March 31, 1998. The average balance of investment securities decreased $35,757,000 (22.8%) from $156,717,000 in the First Three Months of 1997 to $120,960,000 in the First Three Months of 1998 as a result of the Company's ongoing asset/liability management program. Total earning assets decreased $692,000 (0.2%) from $411,004,000 at December 31, 1997 to $410,312,000 at March 31, 1998. The average balance of earning assets increased $28,241,000 (7.2%) from $394,378,000 in the First Three Months of 1997 to $422,619,000 in the First Three Months of 1998. This increase was funded primarily by an increase of $22,759,000 in the average balance of accounts and drafts payable. Interest-bearing deposits increased from $103,899,000 at December 31, 1997 to $116,912,000 at March 31, 1998. The average balances of these deposits increased $4,326,000 (4.4%) from $99,034,000 in the First Three Months of 1997 to $103,360,000 in the First Three Months of 1998. The most significant increase in these deposits occurred in interest-bearing commercial money market accounts. Noninterest-bearing deposits increased $12,732,000 (20.5%) from $61,958,000 at December 31, 1997 to $74,690,000 at March 31, 1998. The average balance of these accounts increased $3,638,000 (5.9%) from $62,173,000 in the First Three Months of 1997 to $65,811,000 in the First Three Months of 1998 which reflects the results of increased business development efforts at Cass Bank. Accounts and drafts payable generated by CIS in its freight payment operations decreased $6,673,000 (3.1%) from $213,755,000 at December 31, 1997 to $207,082,000 at March 31, 1998. The average balances of these funds increased $22,759,000 (11.0%) from $207,300,000 for the First Three Months of 1997 to $230,059,000 in the First Three Months of 1998. This increase has resulted from successful sales efforts leading to the addition of new processing volume. -12- 14 Liquidity - --------- As of March 31, 1998, approximately 51% of the Company's loan portfolio was composed of commercial loans, of which 72% represented loans maturing within one year. As of the same date, real estate loans, primarily commercial, represented approximately 48% of the total and of these, 40% represented balances maturing within one year. Approximately 1% of the loan portfolio is represented by installment loans. The liquidity of the Company is primarily represented by cash and due from banks of $30,070,000 and federal funds sold and other short-term investments of $88,825,000 at March 31, 1998. Included in this caption are $65,000,000 invested in money market funds consisting of short-term U.S. Government and agency issues. Debt and equity securities represented approximately 26% of total assets at March 31, 1998. Of the U.S. Government securities in the Company's investment portfolio, which represented 74% of the total, 24% have maturities of less than one year. U.S. Government Agencies and Corporations represented 25% of the total. Obligations of states and political subdivisions constituted 1% of the investment portfolio at March 31, 1998. There were no sales of debt securities in the First Three 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 Cass Bank consist of a sizable volume of core deposits. Historically, the Company has been a net provider of federal funds. During the First Three Months of 1998, the Company was a net provider of federal funds, averaging nearly $22,918,000 in net funds sold. The Company was able to meet its liquidity requirements in the First Three Months of 1998 through the growth of deposit accounts and the liquid nature of federal funds sold and other short-term investments. -13- 15 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 March 31, 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 $ 85,187 $ 6,927 $10,330 $ 14,331 $ 85,125 $ 1,365 $203,265 Investment in debt and equity securities -- 8,068 8,062 11,985 74,757 15,350 118,222 Federal funds sold and other short-term investments 88,825 -- -- -- -- -- 88,825 -------- ------- ------- -------- -------- -------- -------- Total interest-earning assets $174,012 $14,995 $18,392 $ 26,316 $159,882 $ 16,715 $410,312 ======== ======= ======= ======== ======== ======== ======== Interest-bearing liabilities: Interest-bearing transaction accounts $107,883 $ -- $ -- $ -- $ -- $ -- $107,883 Time deposits-$100,000 or more -- 2,030 851 1,100 117 -- 4,098 Other time deposits -- 1,345 1,339 1,049 1,198 -- 4,931 Short-term borrowings -- -- -- -- -- -- -- -------- ------- ------- -------- -------- -------- -------- Total interest-bearing liabilities $107,883 $ 3,375 $ 2,190 $ 2,149 $ 1,315 $ -- $116,912 ======== ======= ======= ======== ======== ======== ======== Interest sensitivity gap: Periodic $ 66,129 $11,620 $16,202 $ 24,167 $158,567 $ 16,715 $293,400 Cumulative 66,129 77,749 93,951 118,118 276,685 293,400 Ratio of interest-sensitive assets to interest-sensitive liabilities: Periodic 1.61x 4.44x 8.40x 12.25x 121.58x -- 3.51x Cumulative 1.61x 1.70x 1.83x 2.02x 3.37x 3.51x 3.51x
-14- 16 Capital Resources - ----------------- Stockholders' equity was $53,744,000 or 11.75% of total assets at March 31, 1998, an increase of $1,091,000 over the amount at December 31, 1997. This increase resulted from net income of $1,673,000; dividends paid of $696,000 ($.18 per share); unrealized holding gains of $58,000; the amortization of the stock bonus plan of $28,000; and cash received from the exercise of stock options of $28,000. Primary capital, including the allowance for loan losses, reached $58,247,000 at March 31, 1998 or 12.73% of total assets compared to $57,137,000 or 13.04% of total assets at December 31, 1997. 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 March 31, 1998:
Company Cass Consolidated Bank ------------ ---- Total capital (to risk-weighted assets) 21.54% 14.86% Tier I capital (to risk-weighted assets) 20.28 13.60 Tier I capital (to average assets) 11.61 11.54
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. 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. There is also no assurance that a failure to remediate by one of these parties, would not have a material adverse effect on the corporation. 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. -15- 17 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 ---------------- None Item 5. OTHER INFORMATION ----------------- None Item 6. EXHIBITS AND REPORTS ON FORM 8-K -------------------------------- (a) None -16- 18 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: May 7, 1997 By /s/ Lawrence A. Collett ------------------------------------------ Lawrence A. Collett Chairman and Chief Executive Officer DATE: May 7, 1997 By /s/ Eric H. Brunngraber ------------------------------------------ Eric H. Brunngraber Vice President-Secretary (Chief Financial and Accounting Officer) -17- EX-27 2 ARTICLE 9 FINANCIAL DATA SCHEDULE
9 1,000 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 30,070 65,000 23,825 0 35,158 83,064 83,436 203,265 4,503 457,522 191,602 0 212,176 0 0 0 2,000 51,744 457,522 4,209 1,817 1,305 7,331 1,053 1,056 6,275 0 0 9,536 2,591 2,591 0 0 1,673 .43 .43 6.05 746 45 533 1,401 4,484 0 19 4,503 0 0 0 To be documented in the Dec-31-1998 statements.
-----END PRIVACY-ENHANCED MESSAGE-----