-----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, UlKCVfY67dfS6VoZyBswFQmbTueJLDp6WwwNV0HlByKI4CBnUA9+YYticdBy4uMp oz+3sqyI1iHnInS74Ggmgw== 0000950114-98-000422.txt : 19981106 0000950114-98-000422.hdr.sgml : 19981106 ACCESSION NUMBER: 0000950114-98-000422 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981105 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: 98738195 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 SEPTEMBER 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 September 30, 1998: Common stock, par value $.50 per share - 3,863,648 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) ------------------------------------ SEPTEMBER 30 DECEMBER 31 1998 1997 ------------ ----------- ASSETS - ------ Cash and due from banks $ 17,342 $ 10,849 Federal funds sold and other short-term investments 97,716 88,275 --------- --------- Cash and cash equivalents 115,058 99,124 --------- --------- Investment in debt and equity securities: Held-to-maturity, estimated market value of $64,800 and $90,389 at September 30, 1998 and December 31, 1997, respectively 64,178 90,139 Available-for-sale, at estimated market value 34,417 36,112 --------- --------- Total investment in debt and equity securities 98,595 126,251 --------- --------- Loans, net of unearned income 215,121 196,478 Less: Allowance for loan losses 4,473 4,484 --------- --------- Loans, net 210,648 191,994 --------- --------- Premises and equipment, net 9,247 9,957 Accrued interest receivable 2,833 3,137 Other assets 6,794 7,864 --------- --------- Total assets $ 443,175 $ 438,327 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Liabilities: - ----------- Deposits: Noninterest-bearing $ 72,119 $ 61,958 Interest-bearing 114,142 103,899 --------- --------- Total deposits 186,261 165,857 Accounts and drafts payable 194,911 213,755 Short-term borrowings 211 406 Other liabilities 5,295 5,656 --------- --------- Total liabilities 386,678 385,674 --------- --------- 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 4,746 4,740 Retained earnings 50,327 46,879 Common shares in treasury, at cost (136,352 shares at September 30, 1998 and 141,452 shares at December 31, 1997) (1,238) (1,284) Accumulated other comprehensive income - unrealized gain on debt and equity securities available-for- sale, net of tax 662 364 Unamortized stock bonus awards -- (46) --------- --------- Total stockholders' equity 56,497 52,653 --------- --------- Total liabilities and stockholders' equity $ 443,175 $ 438,327 ========= ========= See accompanying notes to consolidated financial statements.
-1- 3 CASS COMMERCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 ---------------------- ----------------------- 1998 1997 1998 1997 ------- ------- -------- -------- (In Thousands Except Per Share Data) INTEREST INCOME: - --------------- Interest and fees on loans $ 4,525 $ 4,232 $ 13,260 $ 12,762 Interest on debt securities: Taxable 1,563 2,239 5,114 7,074 Exempt from federal income taxes 16 19 53 57 Interest on federal funds sold and other short-term investments 1,367 792 3,932 1,669 ------- ------- -------- -------- Total interest income 7,471 7,282 22,359 21,562 ------- ------- -------- -------- INTEREST EXPENSE: - ---------------- Interest on deposits 1,043 1,065 3,168 3,051 Interest on short-term borrowings 2 7 8 64 ------- ------- -------- -------- Total interest expense 1,045 1,072 3,176 3,115 ------- ------- -------- -------- Net interest income 6,426 6,210 19,183 18,447 Provision for loan losses -- -- -- 300 ------- ------- -------- -------- Net interest income after provision for loan losses 6,426 6,210 19,183 18,147 ------- ------- -------- -------- NONINTEREST INCOME: - ------------------ Information services revenues: Freight and utility payment and processing revenue 4,494 4,492 14,205 13,156 Freight rating services income 680 669 1,896 1,841 Service charges on deposit accounts 173 127 487 398 Gain on sale of debt securities -- 216 -- 216 Other 57 122 230 513 ------- ------- -------- -------- Total noninterest income 5,404 5,626 16,818 16,124 ------- ------- -------- -------- NONINTEREST EXPENSE: - ------------------- Salaries and employee benefits 6,062 6,067 18,923 17,850 Occupancy expense 431 314 1,284 1,252 Equipment expense 627 657 1,916 1,971 Other 1,767 1,986 5,289 5,623 ------- ------- -------- -------- Total noninterest expense 8,887 9,024 27,412 26,696 ------- ------- -------- -------- Income before income tax expense 2,943 2,812 8,589 7,575 Income tax expense 1,052 975 3,055 2,608 ------- ------- -------- -------- Net income $ 1,891 $ 1,837 $ 5,534 $ 4,967 ======= ======= ======== ======== Earnings per share: Basic $ .49 $ .48 $ 1.43 $ 1.29 ------- ------- -------- -------- Diluted $ .48 $ .47 $ 1.41 $ 1.27 ------- ------- -------- -------- See accompanying notes to consolidated financial statements.
-2- 4 CASS COMMERCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS) NINE MONTHS ENDED SEPTEMBER 30 --------------------------- 1998 1997 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: - ------------------------------------ - Net income $ 5,534 $ 4,967 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,728 1,766 Amortization of stock bonus awards 46 83 Provision for loan losses -- 300 Decrease in accrued interest receivable 304 362 Gain on sale of debt securities -- (216) Other operating activities, net 479 (1,555) --------- --------- Net cash provided by operating activities 8,091 5,707 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: - ------------------------------------- Proceeds from maturities of debt securities: Held-to-maturity 25,891 20,995 Available-for-sale 1,999 849 Proceeds from sales of debt securities, available-for-sale -- 14,216 Purchases of debt and equity securities available-for-sale -- (9,835) Net (increase) decrease in loans (18,654) 1,015 Purchases of premises and equipment (724) (3,856) --------- --------- Net cash provided by investing activities 8,512 23,384 --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: - ------------------------------------- Net increase in noninterest-bearing demand, interest-bearing demand and savings deposits 20,724 6,211 Net increase (decrease) in time deposits (320) 368 Net increase (decrease) in accounts and drafts payable (18,844) 23,833 Net decrease in short-term borrowings (195) (2,208) Cash proceeds from exercise of stock options 52 -- Cash dividends paid (2,086) (1,504) --------- --------- Net cash provided by (used in) financing activities (669) 26,700 --------- --------- Net increase in cash and cash equivalents 15,934 55,791 Cash and cash equivalents at beginning of period 99,124 67,156 --------- --------- Cash and cash equivalents at end of period $ 115,058 $ 122,947 ========= ========= Supplemental information: Cash paid for interest $ 3,178 $ 3,165 ========= ========= Income taxes paid $ 2,775 $ 1,735 ========= ========= See accompanying notes to consolidated financial statements.
-3- 5 CASS COMMERCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 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 Commercial Bank (the Bank), formerly known as Cass Bank & Trust Company. 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 September 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 June 1997, the Financial Accounting Standards Board (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. The Company has historically provided selected segment information in its annual consolidated financial statements. 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. In October 1998, the FASB issued Statement of Financial Accounting Standards No. 134, Accounting for Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise (SFAS 134) which conforms the subsequent accounting for securities retained after the securitization of mortgage loans by a mortgage banking enterprise with the subsequent accounting for securities retained after the securitization of other types of assets by a nonmortgage banking enterprise. SFAS 134 is effective for the first fiscal quarter beginning after December 15, 1998. Since the Company has not securitized any mortgage loans, SFAS 134 will have no impact on the Company's consolidated financial position and results of operations. 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 nine-month periods ended September 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 nine-month periods ended September 30, 1998 and 1997 is summarized as follows:
(In Thousands) (In Thousands) Three Months Ended Nine Months Ended September 30 September 30 ------------ ------------ 1998 1997 1998 1997 ------- ------- ------- ------- Net Income $ 1,891 $ 1,837 $ 5,534 $ 4,967 Other comprehensive income: Net unrealized gain on debt and equity securities available-for-sale, net of tax 298 236 298 287 Less: adjustment for gain on sale of debt and equity securities, available-for-sale, net of tax -- 143 -- 143 ------- ------- ------- ------- Total other comprehensive income 298 93 298 144 ------- ------- ------- ------- $ 2,189 $ 1,930 $ 5,832 $ 5,111 ======= ======= ======= =======
Note 4 - Earnings Per Share Average common shares outstanding for the nine month periods ended September 30, 1998 and 1997 were 3,861,903 and 3,858,548, respectively. Average common shares outstanding for the three month periods ended September 30, 1998 and 1997 were 3,862,811 and 3,858,548, respectively. The only dilutive instruments are stock options, which resulted in weighted average shares and dilutive potential common shares of 3,931,427 and 3,924,007 for the nine month periods ended September 30, 1998 and 1997, respectively and 3,927,843 and 3,930,792 for the three month periods ended September 30, 1998 and 1997, respectively. -5- 7 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. Estimated annual costs to the Company for 1998 are $143,000. 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 Commercial Bank (the 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 $5,534,000 for the nine-month period ended September 30, 1998 (the "First Nine Months of 1998") compared to net income of $4,967,000 for the nine-month period ended September 30, 1997 (the "First Nine Months of 1997"). The Company had net income of $1,891,000 for the three-month period ended September 30, 1998 ("Third Quarter of 1998") compared to net income of $1,837,000 for the three-month period ended September 30, 1997 ("Third Quarter of 1997"). The following paragraphs more fully discuss the changes in financial condition and results of operations for the First Nine Months of 1998 compared to the First Nine Months of 1997 and for the Third Quarter of 1998 compared to the Third 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 $22,881,000 in average earning assets, net of interest-bearing liabilities, was the primary contributor of the increase in net tax-equivalent interest income of $727,000 in the First Nine Months of 1998 compared to the First Nine Months of 1997. The mix of earning assets changed in the First Nine Months of 1998 compared to the First Nine Months of 1997 with an increase of $56,437,000 in the average balance of federal funds sold and other short-term investments and a decrease of $40,436,000 in debt and equity securities. The Company's average earning assets, net of interest-bearing liabilities, increased $20,435,000 in the Third Quarter of 1998 compared to the Third Quarter of 1997, which was the primary contributor to an increase in net tax-equivalent interest income of $217,000. These changes are 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 First Nine Months of 1998 to 6.09% from 6.23% in the First Nine Months of 1997. The Company's tax-equivalent net interest margin on earning assets decreased in the Third Quarter of 1998 to 6.07% from 6.15% in the Third Quarter 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 NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (TAX-EQUIVALENT BASIS, IN THOUSANDS)
AVERAGE INCREASE 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 $212,833 $203,518 8.37% 8.43% $13,318 $12,828 $ 490 $ 583 $ (93) Investment in debt and equity securities 113,490 153,926 6.12 6.22 5,194 7,159 (1,965) (1,852) (113) Federal funds sold and other short-term investments 96,896 40,459 5.43 5.52 3,932 1,669 2,263 2,291 (28) -------- -------- ---- ---- ------- ------- ------- ------- ----- Total interest-earning assets 423,219 397,903 7.09 7.28 22,444 21,656 788 1,022 (234) -------- -------- ---- ---- ------- ------- ------- ------- ----- Nonearning assets: Cash and due from banks 19,588 17,258 Premises and equipment 9,576 9,459 Other assets 11,188 12,552 Allowance for loan losses (4,512) (4,534) -------- -------- Total assets 459,059 432,638 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Interest-bearing liabilities: Interest-bearing demand deposits 33,478 31,548 3.55 3.52 888 831 57 51 6 Savings deposits 60,448 58,253 4.28 4.27 1,933 1,862 71 70 1 Time deposits of $100,000 or more 3,982 3,804 5.71 5.52 170 157 13 7 6 Other time deposits 4,733 5,356 5.00 5.04 177 201 (24) (23) (1) -------- -------- ---- ---- ------- ------- ------- ------- ----- Total interest-bearing deposits 102,641 98,961 4.13 4.12 3,168 3,051 117 105 12 Short-term borrowings 289 1,534 3.70 5.58 8 64 (56) (40) (16) -------- -------- ---- ---- ------- ------- ------- ------- ----- Total interest-bearing liabilities 102,930 100,495 4.13 4.15 3,176 3,115 61 65 (4) -------- -------- ---- ---- ------- ------- ------- ------- ----- Noninterest-bearing liabilities: Demand deposits 69,673 62,694 Accounts and drafts payable 226,397 213,186 Other liabilities 5,631 6,863 -------- -------- Total liabilities 404,631 383,238 Stockholders' equity 54,428 49,400 -------- -------- Total liabilities and stockholders' equity $459,059 $432,638 ======== ======== Net interest income $19,268 $18,541 $ 727 $ 957 $(230) ======= ======= ======= ======= ===== Net yield on interest-earning assets 6.09% 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 $15,000 and $4,000 for the First Nine 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 $85,000 and $94,000 for the First Nine Months of 1998 and 1997, respectively.
-8- 10 TABLE 2: CONSOLIDATED AVERAGE BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (TAX-EQUIVALENT BASIS, IN THOUSANDS)
AVERAGE INCREASE 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 $218,057 $201,422 8.27% 8.37% $4,543 $4,250 $ 293 $ 347 $ (54) Investment in debt and equity securities 103,481 145,863 6.09 6.16 1,588 2,266 (678) (651) (27) Federal funds sold and other short-term investments 99,995 54,495 5.42 5.77 1,367 792 575 625 (50) -------- -------- ---- ---- ------ ------ ----- ----- ----- Total interest-earning assets 421,533 401,780 7.06 7.22 7,498 7,308 190 321 (131) -------- -------- ---- ---- ------ ------ ----- ----- ----- Nonearning assets: Cash and due from banks 20,753 18,019 Premises and equipment 9,324 10,127 Other assets 9,465 13,684 Allowance for loan losses (4,491) (4,455) -------- -------- Total assets 456,584 439,155 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Interest-bearing liabilities: Interest-bearing demand deposits 32,293 31,914 3.54 3.61 288 290 (2) 3 (5) Savings deposits 59,714 59,389 4.27 4.30 643 644 (1) 4 (5) Time deposits of $100,000 or more 3,997 4,425 5.56 5.83 56 65 (9) (6) (3) Other time deposits 4,507 5,208 4.93 5.03 56 66 (10) (9) (1) -------- -------- ---- ---- ------ ------ ----- ----- ----- Total interest-bearing deposits 100,511 100,936 4.12 4.19 1,043 1,065 (22) (8) (14) Short-term borrowings 263 520 3.02 5.34 2 7 (5) (3) (2) -------- -------- ---- ---- ------ ------ ----- ----- ----- Total interest-bearing liabilities 100,774 101,456 4.11 4.19 1,045 1,072 (27) (11) (16) -------- -------- ---- ---- ------ ------ ----- ----- ----- Noninterest-bearing liabilities: Demand deposits 72,568 64,868 Accounts and drafts payable 222,173 215,224 Other liabilities 5,152 6,933 -------- -------- Total liabilities 400,667 388,481 Stockholders' equity 55,917 50,674 -------- -------- Total liabilities and stockholders' equity $456,584 $439,155 ======== ======== Net interest income $6,453 $6,236 $ 217 $ 332 $(115) ====== ====== ===== ===== ===== Net yield on interest-earning assets 6.07% 6.15% ==== ==== -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 $2,000 and $1,000 for the Third 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 $27,000 and $26,000 for the Third 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 Nine Months of 1998; however the Company charged $300,000 to earnings to provide for loan losses for the First Nine Months of 1997. Management made the decision to make a provision for loan losses in the First Nine 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 .39% of average loans for the Nine Months ended September 30, 1998, remains well below industry averages. Nonperforming loans are covered over 5 times by the allowance for loan losses at September 30, 1998. The Company experienced net charge-offs of $11,000 in the First Nine 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 September 30, 1998, impaired loans totalled $670,000 which includes $547,000 of nonaccrual loans. The allowance for loan losses on impaired loans was $521,000 at September 30, 1998. The average balance of impaired loans during the First Nine Months of 1998 and the First Nine Months of 1997 was $1,061,000 and $1,063,000, respectively. The allowance for loan losses at September 30, 1998 was $4,473,000 and at December 31, 1997 was $4,484,000. The allowance for loan losses at September 30, 1998 represents 2.08% 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 nine-month periods ended September 30, 1998 and 1997 pertaining to the Company's provision for loan losses and analysis of the allowance for loan losses.
Three Months Ended Nine Months Ended September 30 September 30 ------------------------ ------------------------ 1998 1997 1998 1997 --------- --------- --------- --------- (dollars in thousands) Allowance at beginning of period $ 4,569 $ 4,447 $ 4,484 $ 4,396 Provision for loan losses charged to expense -- -- -- 300 Loans charged off (105) (1) (105) (412) Recoveries on loans previously charged off 9 21 94 183 --------- --------- --------- --------- Net loan (charge-offs) recoveries (96) 20 (11) (229) --------- --------- --------- --------- Allowance at end of period $ 4,473 $ 4,467 $ 4,473 $ 4,467 ========= ========= ========= ========= Loans outstanding: Average $ 218,057 $ 201,422 $ 212,833 $ 203,518 September 30 215,121 196,531 215,121 196,531 Ratio of allowance for loan losses to loans outstanding: Average 2.05% 2.22% 2.10% 2.19% September 30 2.08% 2.27% 2.08% 2.27% Nonperforming loans: Nonaccrual loans $ 547 $ 360 $ 547 $ 360 Loans past due 90 days or more 274 -- 274 -- --------- --------- --------- --------- Total $ 821 $ 360 $ 821 $ 360 --------- --------- --------- --------- Nonperforming loans as a percent of average loans .38% .18% .39% .18%
-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 First Nine Months of 1998 increased $694,000 (4.3%) compared to the First Nine Months of 1997. Total noninterest income for the Third Quarter of 1998 decreased $222,000 (3.9%) from the Third Quarter of 1997. CIS's Payment Systems Group experienced an increase in processing revenues of $1,049,000 (8.0%) in the First Nine Months of 1998 compared to the First Nine Months of 1997. This increase includes CIS's utility processing revenue, which increased $377,000 (253.0%) in the First Nine Months of 1998 compared to the First Nine Months of 1997. Freight processing revenue increased $672,000 (5.2%) in the First Nine Months of 1998 compared to the First Nine 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 an increase in revenues of $55,000 (3.0%) in the First Nine Months and an increase in revenues of $11,000 (1.6%) in the Third Quarter of 1998 compared to the corresponding periods of 1997. Other noninterest income decreased $283,000 (55.2%) in the First Nine Months of 1998 and decreased $65,000 (53.3%) in the Third Quarter of 1998 compared to the corresponding periods of 1997. The Bank received a buyout of its headquarters lease in the First Nine Months of 1997 in excess of the remaining net book value of leasehold improvements which resulted in a one-time gain of $95,000. Amortization of negative goodwill, relating to a prior acquisition made by CIS, was fully amortized in 1997 which contributed $217,000 to noninterest income for the First Nine Months of 1997 and $72,000 in the Third Quarter of 1997. Noninterest Expense - ------------------- Total noninterest expense for the First Nine Months of 1998 increased $716,000 (2.7%) from the First Nine Months of 1997. Total noninterest expense for the Third Quarter of 1998 decreased $137,000 (1.5%) from the Third Quarter of 1997. Salaries and benefits expense increased $1,073,000 (6.0%) in the First Nine Months of 1998 compared to the First Nine 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 Nine months of 1998, combined with annual pay increases. Occupancy expense increased $32,000 (2.6%) in the First Nine Months of 1998 compared to the First Nine Months of 1997. In the First Nine Months of 1997 CIS's Chicago location received a $72,000 reimbursement for rent expense to vacate their building by the end of 1997, which was offset with a reduction in rent paid for the new location in the First Nine Months of 1998 compared with the First Nine Months of 1997. Other noninterest expense decreased $334,000 (5.9%) in the First Nine Months of 1998 compared to the First Nine Months of 1997. Other noninterest expense decreased $219,000 (11.0%) in the Third Quarter of 1998 compared to the Third Quarter 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 $17,342,000 at September 30, 1998. The average balance of cash and due from banks increased $2,330,000 (13.5%) from $17,258,000 in the First Nine Months of 1997 to $19,588,000 in the First Nine Months of 1998. Federal funds sold and other short-term investments increased from $88,275,000 at December 31, 1997 to $97,716,000 at September 30, 1998. The average balance of these accounts was $96,896,000 in the First Nine Months of 1998 compared to $40,459,000 in the First Nine 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 $18,643,000 (9.5%) from $196,478,000 at December 31, 1997 to $215,121,000 at September 30, 1998. The average balances of loans increased $9,315,000 (4.6%) from $203,518,000 in the First Nine Months of 1997 to $212,833,000 in the First Nine Months of 1998. Loan demand and new business volume increased throughout 1997 and has continued into the First Nine 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 $27,656,000 (21.9%) from $126,251,000 at December 31, 1997 to $98,595,000 at September 30, 1998. The average balance of investment securities decreased $40,436,000 (26.3%) from $153,926,000 in the First Nine Months of 1997 to $113,490,000 in the First Nine Months of 1998 as a result of the Company's ongoing asset/liability management program. Total earning assets increased $428,000 (0.1%) From $411,004,000 at December 31, 1997 to $411,432,000 at September 30, 1998. The average balance of earning assets increased $25,316,000 (6.4%) from $397,903,000 in the First Nine Months of 1997 to $423,219,000 in the First Nine Months of 1998. This increase was funded by an increase of $13,211,000 in the average balance of accounts and drafts payable and an increase of $10,659,000 in average total deposits. Interest-bearing deposits increased from $103,899,000 at December 31, 1997 to $114,142,000 at September 30, 1998. The average balances of these deposits increased $3,680,000 (3.7%) from $98,961,000 in the First Nine Months of 1997 to $102,641,000 in the First Nine Months of 1998. Noninterest-bearing deposits increased $10,161,000 (16.4%) from $61,958,000 at December 31, 1997 to $72,119,000 at September 30, 1998. The average balance of these accounts increased $6,979,000 (11.1%) from $62,694,000 in the First Nine Months of 1997 to $69,673,000 in the First Nine Months of 1998 which reflects increased business development efforts at the Bank. Accounts and drafts payable generated by CIS in its payment operations decreased $18,844,000 (8.8%) from $213,755,000 at December 31, 1997 to $194,911,000 at September 30, 1998. The average balances of these funds increased $13,211,000 (6.2%) from $213,186,000 for the First Nine Months of 1997 to $226,397,000 in the First Nine Months of 1998. This increase has resulted from successful sales efforts leading to the addition of new processing volume. -14- 16 Liquidity - --------- As of September 30, 1998, approximately 49% of the Company's loan portfolio was composed of commercial loans, of which 75% represented loans maturing within one year. As of the same date, real estate loans, primarily commercial, represented approximately 50% of the total and of these, 37% 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 $17,342,000 and federal funds sold and other short-term investments of $97,716,000 at September 30, 1998. Included in this caption are $63,000,000 invested in money market funds consisting of short-term U.S. Government and agency issues. Investments in debt and equity securities represented approximately 22% of total assets at September 30, 1998. Of the U.S. Government securities in the Company's investment portfolio, which represented 73% of the total, 34% 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 September 30, 1998. There were no sales of debt securities in the First Nine Months of 1998. Of the total portfolio, over 86% 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 Nine Months of 1998, the Company was a net provider of federal funds, averaging over $19,384,000 in net funds sold. Additionally, the Company averaged over $77,512,000 in short-term money market funds during the First Nine Months of 1998. The Company was able to meet its liquidity requirements in the First Nine 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 over time will produce a relatively high net interest margin compared to other financial institutions. This asset-sensitive position does mean that net interest income could be reduced in a declining rate environment. 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 September 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 $ 85,055 $13,206 $ 7,939 $ 13,982 $ 93,479 $ 1,460 $215,121 Investment in debt and equity securities -- 6,081 6,016 12,018 61,247 13,233 98,595 Federal funds sold and other short-term investments 97,716 -- -- -- -- -- 97,716 -------- ------- -------- -------- -------- -------- -------- Total interest-earning assets $182,771 $19,287 $ 13,955 $ 26,000 $154,726 $ 14,693 $411,432 ======== ======= ======== ======== ======== ======== ======== Interest-bearing liabilities: Interest-bearing transaction accounts $105,840 $ -- $ -- $ -- $ -- $ -- $105,840 Time deposits-$100,000 or more -- 1,384 1,050 1,359 -- -- 3,793 Other time deposits -- 926 1,220 1,682 681 -- 4,509 Short-term borrowings 211 -- -- -- -- -- 211 -------- ------- -------- -------- -------- -------- -------- Total interest-bearing liabilities $106,051 $ 2,310 $ 2,270 $ 3,041 $ 681 $ -- $114,353 ======== ======= ======== ======== ======== ======== ======== Interest sensitivity gap: Periodic $ 76,720 $16,977 $ 11,685 $ 22,959 $154,045 $ 14,693 $297,079 Cumulative 76,720 93,697 105,382 128,341 282,386 297,079 Ratio of interest-sensitive assets to interest-sensitive liabilities: Periodic 1.72x 8.35x 6.15x 8.55x 227.20x -- 3.60x Cumulative 1.72x 1.86x 1.95x 2.13x 3.47x 3.60x 3.60x
-16- 18 Capital Resources - ----------------- Stockholders' equity was $56,497,000 or 12.75% of total assets at September 30, 1998, an increase of $3,844,000 over the balance at December 31, 1997. This increase resulted from net income of $5,534,000; the amortization of the stock bonus plan of $46,000; increase in unrealized holding gains of $298,000; cash received from the exercise of stock options of $52,000; and offset by dividends paid of $2,086,000 ($.54 per share). 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 September 30, 1998:
Company Cass Consolidated Bank ------------ ---- Total capital (to risk-weighted assets) 22.84% 16.20% Tier I capital (to risk-weighted assets) 21.58 14.95 Tier I capital (to average assets) 12.13 11.38
The Year 2000 Issue - ------------------- The Year 2000 issue relates to systems that have used a two-digit format rather than a four-digit format to represent the year. The risk of system failure and data processing errors may be the result of this programming logic. Management has implemented a company-wide initiative for preparing its systems, applications and equipment for functionality in the Year 2000 and beyond. The Company's Year 2000 project consists of five phases including awareness, assessment, renovation, testing and implementation. The awareness and assessment phases are substantially complete; renovation, testing and implementation are well underway. The Company continues to monitor efforts to ready internal systems for the Year 2000. Highest priority has been assigned to those systems determined to be critical to the ongoing operations of the Company. Programming changes and testing of critical systems, applications, and equipment are scheduled to be substantially complete by December 31, 1998. 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. The Company modified its credit risk assessment to include the consideration of incremental risk that may be posed by customer's inability, if any, to address Year 2000 issues. Management presently believes this risk to be manageable, and continues to monitor customer's efforts to prepare for the Year 2000. Additionally, the Company has implemented a process for assessing the readiness of its major vendors, suppliers and business partners. There can be no guarantee, however, that the systems of these outside parties will be remediated on a timely basis. To that end, there is no assurance that a failure to remediate by one of these parties would not have a material adverse effect on the Company. The Company believes it will substantially complete the implementation of its Year 2000 program prior to the commencement of the Year 2000. However, the risk of system failures, either internal or external, cannot be eliminated. Therefore, the Company intends to assess the worst case scenario caused by the Year 2000 issue and address the possible effects thereof. The Company will assess the types and nature of contingency plans that will be required to maintain the Company's operational capacity after January 1, 2000. This assessment will cover all critical areas of the Company, as well as customers, suppliers and business partners. To date, the Company and its subsidiaries have incurred approximately $1.3 million in both direct and indirect costs associated with Year 2000 readiness efforts. The Company estimates that $2.9 million will approximate total expenditures through the Year 2000. This includes internal and external costs that will be expensed, as well as new hardware and software which will be capitalized. Funding for costs associated with Year 2000 efforts will be derived from normal operating cash flow. As a result, Year 2000 expenses are not expected to have a material effect on the Company's results of operations. -17- 19 The foregoing discussion of Year 2000 issues is based on management's most current estimates. These estimates utilize multiple assumptions of future events, including, but not limited to, the continued availability of certain resources, third party efforts, and other factors. However, there can be no guarantee that these estimates will be achieved, and actual costs and results could differ materially from the estimates currently anticipated by 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. -18- 20 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 ---------------- None 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 September 30, 1998. -19- 21 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: November 5, 1998 By /s/ Lawrence A. Collett ------------------------------------ Lawrence A. Collett Chairman and Chief Executive Officer DATE: November 5, 1998 By /s/ Eric H. Brunngraber ------------------------------------ Eric H. Brunngraber Vice President-Secretary (Chief Financial and Accounting Officer) -20- EX-27.1 2 FINANCIAL DATA SCHEDULE
9 1,000 3-MOS DEC-31-1998 JUL-01-1998 SEP-30-1998 17,342 63,000 34,716 0 34,417 64,178 64,800 215,121 4,473 443,175 186,261 211 200,206 0 0 0 2,000 54,497 443,175 4,525 1,579 1,367 7,471 1,043 1,045 6,426 0 0 8,887 2,943 2,943 0 0 1,891 .49 .48 6.07 547 274 150 670 4,569 105 9 4,473 0 0 0 TO BE DOCUMENTED IN THE DEC-31-1998 STATEMENTS.
EX-27.2 3 SEPTEMBER 30, 1998 10Q
9 1,000 9-MOS DEC-31-1998 JAN-01-1998 SEP-30-1998 17,342 63,000 34,716 0 34,417 64,178 64,800 215,121 4,473 443,175 186,261 211 200,206 0 0 0 2,000 54,497 443,175 13,260 5,167 3,932 22,359 3,168 3,176 19,183 0 0 27,412 8,589 8,589 0 0 5,534 1.43 1.41 6.09 547 274 150 670 4,484 105 94 4,473 0 0 0 TO BE DOCUMENTED IN THE DEC-31-1998 STATEMENTS.
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