UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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, 2004
Commission File No. 2-80070
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CASS INFORMATION SYSTEMS, INC.
Incorporated under the laws of MISSOURI
I.R.S. Employer Identification No. 43-1265338
13001 HOLLENBERG DRIVE, BRIDGETON, MISSOURI 63044
Telephone: (314) 506-5500
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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 |_|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes |_| No |X|
The number of shares outstanding of registrant's only class of stock as of
July 30, 2004: Common stock, par value $.50 per share - 3,685,111 shares
outstanding.
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This document constitutes part of a prospectus covering securities that
have been registered under the Securities Act of 1933.
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TABLE OF CONTENTS
PART I - Financial Information
Item 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets
June 30, 2004 (unaudited) and December 31, 2003 .................. 3
Consolidated Statements of Income
Three and six months ended June 30, 2004 and 2003 (unaudited) .... 4
Consolidated Statements of Cash Flows
Six months ended June 30, 2004 and 2003 (unaudited) .............. 5
Notes to Consolidated Financial Statements (unaudited) ............. 6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS ................................... 11
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK .... 23
Item 4. CONTROLS AND PROCEDURES ....................................... 23
PART II - Other Information - Items 1. - 6. ................................. 24
SIGNATURES ............................................................ 25
Forward-looking Statements - Factors That May Affect Future Results
This report may contain or incorporate by reference forward-looking statements
made pursuant to the safe harbor provisions of Section 27A of the Securities Act
of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. Forward-looking statements are not guarantees of future performance and
involve risks, uncertainties, and other factors which may cause future
performance to vary from expected performance summarized in the forward-looking
statements, including those set forth in this paragraph. Important factors that
could cause our actual results, performance, or achievements to be materially
different from any future results, performance, or achievements expressed or
implied by those statements include, but are not limited to: the failure to
successfully execute our corporate plan, the loss of key personnel or inability
to attract additional qualified personnel, the loss of key customers, increased
competition, the inability to remain current with rapid technological change,
risks related to acquisitions, risks associated with business cycles and
fluctuations in interest rates, utility and system interruptions or processing
errors, rules and regulations governing financial institutions and changes in
such rules and regulations, credit risk related to borrowers' ability to repay
loans, concentration of loans to certain segments such as commercial
enterprises, churches and borrowers in the St. Louis area which creates risks
associated with adverse factors that may affect these groups and volatility of
the price of our common stock. We undertake no obligation to publicly update or
revise any forward-looking statements to reflect changed assumptions, the
occurrence of anticipated or unanticipated events, or changes to future results
over time.
-2-
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in Thousands except Per Share Data)
June 30 December 31
2004 2003
Assets
Cash and due from banks $ 21,994 $ 17,754
Federal funds sold and other short-term investments 63,095 44,613
--------- ---------
Cash and cash equivalents 85,089 62,367
--------- ---------
Investment in debt and equity securities
available-for-sale, at fair value 87,336 69,147
Loans 474,560 469,032
Less: Allowance for loan losses 5,865 5,506
--------- ---------
Loans, net 468,695 463,526
--------- ---------
Premises and equipment, net 12,710 13,538
Bank owned life insurance 10,860 10,709
Goodwill 3,150 3,150
Other intangible assets, net 1,784 1,940
Other assets 18,538 15,319
--------- ---------
Total assets $ 688,162 $ 639,696
========= =========
Liabilities and Shareholders' Equity
Liabilities:
Deposits:
Noninterest-bearing $ 102,988 $ 114,634
Interest-bearing 194,712 157,794
--------- ---------
Total deposits 297,700 272,428
Accounts and drafts payable 315,773 293,769
Short-term borrowings 107 123
Other liabilities 8,746 8,584
--------- ---------
Total liabilities 622,326 574,904
--------- ---------
Shareholders' 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 4,494,510 and
4,160,110 shares issued at June 30, 2004 and
December 31, 2003, respectively 2,247 2,080
Additional paid-in capital 18,359 8,466
Retained earnings 61,776 69,695
Common shares in treasury, at cost (809,399 shares at
June 30, 2004 and 824,598 shares at December 31, 2003) (16,139) (16,442)
Unamortized stock bonus awards (211) (129)
Accumulated other comprehensive (loss) income (196) 1,122
--------- ---------
Total shareholders' equity 65,836 64,792
--------- ---------
Total liabilities and shareholders' equity $ 688,162 $ 639,696
========= =========
See accompanying notes to unaudited consolidated financial statements.
-3-
CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in Thousands except Per Share Data)
Three Months Ended Six Months Ended
June 30 June 30
------------------------ ------------------------
2004 2003 2004 2003
Fee Revenue and Other Income:
Freight and utility payment and processing revenue $ 7,621 $ 6,870 $ 15,219 $ 13,839
Software revenue 1,134 1,854 2,313 3,650
Bank service fees 430 465 844 891
Gains on sales of investment securities -- 1,362 441 1,362
Other 177 136 312 265
---------- ---------- ---------- ----------
Total fee revenue and other income 9,362 10,687 19,129 20,007
---------- ---------- ---------- ----------
Interest Income:
Interest and fees on loans 6,432 6,319 12,886 12,735
Interest and dividends on debt and equity securities:
Taxable 116 133 213 321
Exempt from federal income taxes 465 351 892 786
Interest on federal funds sold and
other short-term investments 199 126 361 226
---------- ---------- ---------- ----------
Total interest income 7,212 6,929 14,352 14,068
---------- ---------- ---------- ----------
Interest Expense:
Interest on deposits 738 439 1,305 890
Interest on short-term borrowings -- 5 -- 14
---------- ---------- ---------- ----------
Total interest expense 738 444 1,305 904
---------- ---------- ---------- ----------
Net interest income 6,474 6,485 13,047 13,164
Provision for loan losses 150 -- 350 90
---------- ---------- ---------- ----------
Net interest income after provision
for loan losses 6,324 6,485 12,697 13,074
---------- ---------- ---------- ----------
Operating Expense:
Salaries and employee benefits 9,301 9,400 18,458 18,752
Occupancy 436 457 894 893
Equipment 986 1,121 2,011 2,282
Other operating 2,590 2,918 5,432 5,764
---------- ---------- ---------- ----------
Total operating expense 13,313 13,896 26,795 27,691
---------- ---------- ---------- ----------
Income before income tax expense 2,373 3,276 5,031 5,390
Income tax expense 673 1,037 1,484 1,633
---------- ---------- ---------- ----------
Net income $ 1,700 $ 2,239 $ 3,547 $ 3,757
========== ========== ========== ==========
Earnings per share:
Basic $ .47 $ .61 $ .97 $ 1.02
Diluted $ .45 $ .60 $ .95 $ 1.01
Weighted average shares outstanding:
Basic 3,674,409 3,689,165 3,671,401 3,693,683
Effect of dilutive stock options and awards 51,490 33,398 45,758 35,266
Diluted 3,725,899 3,722,563 3,717,159 3,728,949
See accompanying notes to unaudited consolidated financial statements.
-4-
CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
Six Months Ended
June 30
---------------------
2004 2003
Cash Flows From Operating Activities:
Net income $ 3,547 $ 3,757
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 2,071 2,369
Provision for loan losses 350 90
Amortization of stock bonus awards 45 25
Tax benefit from exercise of stock option and bonus awards 99 173
Decrease in accrued interest receivable 159 685
(Decrease) increase in deferred income (100) 1,796
Deferred income tax benefit (1,287) (757)
(Decrease) increase in income tax liability (689) 1,190
Increase in pension liability 697 573
Gains on sales of investment securities (441) (1,362)
Change in other assets (1,221) (113)
Change in other liabilities 288 (1,395)
Other operating activities, net (2) 9
-------- --------
Net cash provided by operating activities 3,516 7,040
-------- --------
Cash Flows From Investing Activities:
Proceeds from sales of debt securities available-for-sale 12,052 24,534
Proceeds from maturities of debt and equity securities
available-for-sale 9,200 7,197
Purchase of debt and equity securities available-for-sale (41,247) (1,038)
Net increase in loans (5,894) (10,922)
Purchases of premises and equipment, net (836) (1,348)
-------- --------
Net cash (used in) provided by investing activities (26,725) 18,423
-------- --------
Cash Flows From Financing Activities:
Net decrease in noninterest-bearing demand deposits (11,646) (5,257)
Net increase (decrease) in interest-bearing demand and savings deposits 24,063 (1,037)
Net increase in time deposits 12,855 16,091
Net increase in accounts and drafts payable 22,004 45,521
Net decrease in short-term borrowings (16) (37,420)
Cash proceeds from exercise of stock options 151 236
Cash paid for stock dividend fractional shares (4) --
Cash dividends paid (1,476) (1,414)
Purchase of common shares for treasury -- (1,764)
-------- --------
Net cash provided by financing activities 45,931 14,956
-------- --------
Net increase in cash and cash equivalents 22,722 40,419
Cash and cash equivalents at beginning of period 62,367 30,006
-------- --------
Cash and cash equivalents at end of period $ 85,089 $ 70,425
======== ========
Supplemental information:
Cash paid for interest $ 1,238 $ 899
Cash paid for income taxes 2,658 695
Transfer of loans to other real estate owned 375 --
Transfer of loans to other equity investments -- 2,000
See accompanying notes to unaudited consolidated financial statements.
-5-
CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with U.S. 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 U.S. 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, 2004 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2004. For further information, refer to the consolidated financial
statements and related footnotes included in the Cass Information System, Inc.'s
("the Company") Annual Report on Form 10-K for the year ended December 31, 2003.
Certain amounts in the 2003 consolidated financial statements have been
reclassified to conform to the 2004 presentation. Such reclassifications have no
effect on previously reported net income or shareholders' equity. All share and
per share data for 2003 has been restated to reflect the 10% stock dividend
issued in March 2004.
Note 2 - Impact of New Accounting Pronouncements
In December 2003, the FASB issued Interpretation No. 46 (revised December 2003),
"Consolidation of Variable Interest Entities" (FIN 46R), which addresses how a
business enterprise should evaluate whether it has controlling financial
interest in an entity through means other than voting rights and accordingly
should consolidate the entity. FIN 46R replaces FIN 46, "Consolidation of
Variable Interest Entities, an interpretation of Accounting Research Bulletin
No. 51," issued in January 2003. Companies are required to apply FIN 46R to
variable interest entities (VIEs) created after December 31, 2003. For variable
interest in VIEs created before January 1, 2004, FIN 46R will be applied
beginning on January 1, 2005. The Company is currently not a primary beneficiary
of a VIE and therefore the adoption of FIN 46R did not have a material impact on
its consolidated financial statements.
In December 2003, the FASB issued SFAS 132 (Revised 2003), "Employers'
Disclosures about Pensions and Other Postretirement Benefits," which increases
the disclosure requirements of the original statement by requiring more details
about pension plan assets, benefit obligations, cash flows, benefit costs and
related information and also requires companies to disclose various elements of
pension and postretirement benefit costs in interim-period financial statements
for quarters beginning after December 15, 2003. Additional disclosures
pertaining to benefit payments are required for fiscal years ending after June
30, 2004. The disclosure requirements of SFAS 132 (Revised 2003) are included in
Note 11 of this report.
Note 3 - Loans by Type
(In Thousands) June 30, 2004 December 31, 2003
- --------------------------------------------------------------------------------
Commercial and industrial $106,716 $103,638
Real estate:
Mortgage 177,525 184,221
Mortgage - churches & related 159,870 145,929
Construction 14,787 2,920
Construction - churches & related 5,957 16,378
Industrial revenue bonds 5,283 5,373
Installment 1,294 1,911
Other 3,128 8,662
- --------------------------------------------------------------------------------
Total loans $474,560 $469,032
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Note 4 - Stock Repurchases
The Company maintains a treasury stock buyback program and as of June 30, 2004
was authorized by the Board of Directors to repurchase up to 100,000 shares of
its common stock. The Company did not repurchase any stock during the six months
ended June 30, 2004 and repurchased 59,237 shares for $1,764,000 during the
first six months ended June 30, 2003. Repurchases are made in the open market or
through negotiated transactions from time to time depending on market
conditions.
-6-
Note 5 - Comprehensive Income
For the three and six month periods ended June 30, 2004 and 2003, unrealized
gains and losses on debt and equity securities available-for-sale were the
Company's only other comprehensive income component. Comprehensive income for
the three and six month periods ended June 30, 2004 and 2003 is summarized as
follows:
Three Months Ended Six Months Ended
June 30 June 30
------------------- ------------------
(In Thousands) 2004 2003 2004 2003
- --------------------------------------------------------------------------------------------------------------
Net Income $ 1,700 $ 2,239 $ 3,547 $ 3,757
Other comprehensive income:
Net unrealized (loss) gain on debt and equity
securities available-for-sale, net of tax (1,579) 575 (1,027) 671
Less: reclassification adjustment for realized gains on
sales of debt and equity securities, available-for-sale,
included in net income, net of tax -- (899) (291) (899)
- --------------------------------------------------------------------------------------------------------------
Total other comprehensive loss (1,579) (324) (1,318) (228)
- --------------------------------------------------------------------------------------------------------------
Total comprehensive income $ 121 $ 1,915 $ 2,229 $ 3,529
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Note 6 - Industry Segment Information
The services provided by the Company are classified into four reportable
segments: Transportation Information Services, Utility Information Services,
Banking Services and Government Software Services. Each of these segments
provides distinct services that are marketed through different channels. They
are managed separately due to their unique service, processing and capital
requirements.
The Transportation Information Services segment provides freight invoice rating,
payment, auditing, cost accounting and transportation information services to
large corporate shippers. The Utility Information Services segment processes and
pays utility invoices, including electricity, gas, water and telecommunications,
for large corporate entities that have many locations or are heavy users of
energy. The Banking Services segment provides banking services primarily to
privately-held businesses and churches. The Government Software Services segment
provides the public sector with integrated financial, property and human
resource management systems through the Bank's wholly-owned subsidiary,
Government e-Management Solutions, Inc. (GEMS).
The Company's accounting policies for segments are the same as those described
in the summary of significant accounting policies in the Company's Annual Report
on Form 10-K for the year ended December 31, 2003. Management evaluates segment
performance based on net income after allocations for corporate expenses and
income taxes. Transactions between segments are accounted for at what management
believes to be fair value.
All four segments market their services within the United States and no revenue
from any customer of any segment exceeds 10% of the Company's consolidated
revenue.
Summarized information about the Company's operations in each industry segment
for the three and six month periods ended June 30, 2004 and 2003, is as follows:
-7-
Transportation Utility Government Corporate
Information Information Banking Software and Elim-
(In Thousands) Services Services Services Services inations Total
- ---------------------------------------------------------------------------------------------------------------------------
Quarter Ended June 30, 2004
Total Revenues:
Revenue from customers $ 8,105 $ 3,354 $ 3,093 $ 1,134 $ -- $ 15,686
Intersegment revenue 9 -- 355 -- (364) --
Net Income (Loss) 838 651 862 (651) -- 1,700
Total Assets 281,699 70,104 334,260 5,980 (3,881) 688,162
Goodwill 223 -- -- 2,927 -- 3,150
Other intangibles, net -- -- -- 1,380 404 1,784
Quarter Ended June 30, 2003
Total Revenues:
Revenue from customers $ 8,658 $ 3,190 $ 3,470 $ 1,854 $ -- $ 17,172
Intersegment revenue 44 12 326 -- (382) --
Net Income (Loss) 812 439 994 (6) -- 2,239
Total Assets 265,783 69,416 298,592 7,013 (47,754) 593,050
Goodwill 223 -- -- 2,927 -- 3,150
Other intangibles, net -- -- -- 1,691 379 2,070
- ---------------------------------------------------------------------------------------------------------------------------
Six Months Ended June 30, 2004
Total Revenues:
Revenue from customers $ 16,275 $ 6,975 $ 6,263 $ 2,313 $ -- $ 31,826
Intersegment revenue 22 6 710 -- (738) --
Net Income (Loss) 1,468 1,435 1,721 (1,077) -- 3,547
Total Assets 281,699 70,104 334,260 5,980 (3,881) 688,162
Goodwill 223 -- -- 2,927 -- 3,150
Other intangible assets, net -- -- -- 1,380 404 1,784
Six Months Ended June 30, 2003
Total Revenues:
Revenue from customers $ 16,556 $ 5,947 $ 6,928 $ 3,650 $ -- $ 33,081
Intersegment revenue 102 27 621 -- (750) --
Net Income (Loss) 989 701 2,041 26 -- 3,757
Total Assets 265,783 69,416 298,592 7,013 (47,754) 593,050
Goodwill 223 -- -- 2,927 -- 3,150
Other intangible assets, net -- -- -- 1,691 379 2,070
- ---------------------------------------------------------------------------------------------------------------------------
Note 7 - Intangible Assets
The Company accounts for intangible assets in accordance with SFAS 142,
"Goodwill and Other Intangible Assets," which requires that intangibles with
indefinite useful lives be tested annually for impairment and those with finite
useful lives be amortized over their useful lives. Intangible assets for the
periods ended June 30, 2004 and December 31, 2003 are as follows:
June 30, 2004 December 31, 2003
- ----------------------------------------------------------------------------------------------------
Gross Carrying Accumulated Gross Carrying Accumulated
(In Thousands) Amount Amortization Amount Amortization
- ----------------------------------------------------------------------------------------------------
Amortized intangible assets:
Customer list $ 823 $ (83) $ 823 $ (55)
Acquired software 1,024 (384) 1,024 (256)
- ----------------------------------------------------------------------------------------------------
Total amortized intangibles 1,847 (467) 1,847 (311)
- ----------------------------------------------------------------------------------------------------
Unamortized intangible assets:
Goodwill 3,377 (227)* 3,377 (227)*
Minimum pension liability 404 -- 404 --
- ----------------------------------------------------------------------------------------------------
Total unamortized intangibles 3,781 (227) 3,781 (227)
- ----------------------------------------------------------------------------------------------------
Total intangible assets $5,628 $ (694) $5,628 $ (538)
- ----------------------------------------------------------------------------------------------------
*Amortization through December 31, 2001 prior to adoption of SFAS 142.
Customer list and software are amortized over 15 years and 4 years,
respectively. The minimum pension liability was recorded in accordance with SFAS
87, "Employers' Accounting for Pensions", which requires the Company to record
an additional minimum pension liability by the amount of which the accumulated
benefit obligation exceeds the sum of the fair value of plan assets and accrued
amount previously recorded and offset this liability by an intangible asset to
the extent of previously unrecognized prior service costs. The liability and
corresponding intangible asset are adjusted annually.
-8-
Amortization of intangible assets amounted to $77,000 for both the three-month
periods ended June 30, 2004 and 2003 and $155,000 for both the six-month periods
ended June 30, 2004 and 2003. Estimated amortization of intangibles over the
next five years is as follows: $311,000 in 2004, 2005 and 2006 and $55,000 in
2007 and 2008.
Note 8 - Equity Investments in Non-Marketable Securities
During 2003, the Company converted a $2,000,000 investment in a private imaging
company from a convertible debenture into common stock. As part of the
conversion, the Company committed to invest an additional $1,100,000 if certain
conditions were met. The total investment of the Company in this entity was
$3,100,000 at June 30, 2004 and $2,908,000 at December 31, 2003. At June 30,
2004 the Company had a 19.93% ownership interest in this entity and the Chairman
and CEO of the Company was a member of the entity's Board of Directors. In
addition, the Company has committed to a $2,400,000 line of credit to this
entity, with a 50% interest sold to the new majority owner, for working capital
purposes. As of June 30, 2004 the Company's interest in this line amounted to
$933,000.
This business has performed poorly during the past few years and during 2003
received an additional $3,000,000 equity investment from the new non-affiliated
majority owner, in addition to the Company's additional commitment. The new
majority owner is currently in the process of stabilizing the business and
improving its financial performance. Operations have recently become profitable.
However, should this business fail to meet its objectives, the Company's
investment could be subject to future impairment.
This investment, along with $543,000 of other investments in non-marketable
securities, is included in other assets on the Company's consolidated balance
sheets.
Note 9 - Commitments and Contingencies
In the normal course of business, the Company is party to activities that
contain credit, market and operational risk that are not reflected in whole or
in part in the Company's consolidated financial statements. Such activities
include traditional off-balance sheet credit-related financial instruments and
commitments under operating leases. These financial instruments include
commitments to extend credit, commercial letters of credit and standby letters
of credit. The Company's maximum potential exposure to credit loss in the event
of nonperformance by the other party to the financial instrument for commitments
to extend credit, commercial letters of credit and standby letters of credit is
represented by the contractual amounts of those instruments. At June 30, 2004,
no amounts have been accrued for any estimated losses for these instruments.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commercial
and standby letters of credit are conditional commitments issued by the Company
or its subsidiaries to guarantee the performance of a customer to a third party.
These off-balance sheet financial instruments generally have fixed expiration
dates or other termination clauses and may require payment of a fee. The
approximate remaining term of commercial and standby letters of credit range
from less than 1 to 3 years. Since some of the financial instruments may expire
without being drawn upon, the total amounts do not necessarily represent future
cash requirements. Commitments to extend credit and letters of credit are
subject to the same underwriting standards as those financial instruments
included on the consolidated balance sheets. The Company evaluates each
customer's credit worthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary upon extension of the credit, is based on
management's credit evaluation of the borrower. Collateral held varies, but is
generally accounts receivable, inventory, residential or income-producing
commercial property or equipment. In the event of nonperformance, the Company or
its subsidiaries may obtain and liquidate the collateral to recover amounts paid
under its guarantees on these financial instruments.
Summarized credit-related financial instruments, including both commitments to
extend credit and letters of credit and operating lease commitments at June 30,
2004 are as follows:
Amount of Commitment Expiration per Period
------------------------------------------
Less than 1-3
(In Thousands) Total 1 year Years
---------------------------------------------------------------------------
Unused loan commitments $21,670 $19,054 $ 2,616
Standby letters of credit 3,754 3,137 617
Commercial letters of credit 554 554 --
Operating lease commitments 463 366 97
-9-
The Company and its subsidiaries are involved in various pending legal actions
and proceedings in which claims for damages are asserted. Management, after
discussion with legal counsel, believes the ultimate resolution of these legal
actions and proceedings will not have a material effect upon the Company's
consolidated financial position or results of operations.
Note 10 - Stock-Based Compensation
The Company maintains two stock-based compensation plans, a stock bonus plan and
a stock option plan. Upon issuance of shares in the stock bonus plan a contra
shareholders' equity amount is recorded for the fair value of the shares at the
time of issuance and this amount is amortized to expense over the three-year
vesting period. The stock option plan is accounted for under APB 25, "Accounting
for Stock Issued to Employees", and accordingly the Company recognizes no
compensation expense as the price of the Company's employee stock options equals
the market price of the underlying stock on the date of grant. The Company
elected not to adopt the recognition provisions of SFAS 123, "Accounting for
Stock-Based Compensation", as amended by SFAS 148. An entity that continues to
apply APB 25 shall disclose certain pro forma information as if the fair
value-based accounting method in SFAS 123 had been used to account for
stock-based compensation costs. The required disclosure provisions of SFAS 123,
as amended by SFAS 148, are provided in the table below. The Company uses the
Black-Scholes option-pricing model to determine the fair value of the stock
options at the date of grant. There were 2,759 and 3,543 options granted in the
Second Quarter of 2004 and 2003, respectively. For the First Half of 2004 and
2003 there were 8,630 and 15,543 options granted, respectively. The following
table represents the effect on basic and diluted earnings per share and weighted
average assumptions used for the periods ended June 30, 2004 and 2003:
Three Months Ended Six Months Ended
June 30 June 30
--------------------------- ---------------------------
(In Thousands, except per share data) 2004 2003 2004 2003
- -------------------------------------------------------------------------------------------------------------------------
Net income:
As reported $ 1,700 $ 2,239 $ 3,547 $ 3,757
Add: Stock based compensation expense
included in reported net income, net of tax 16 9 29 16
Less: Stock based compensation expense
determined under the fair value based method
for all awards, net of tax (23) (20) (43) (38)
- -------------------------------------------------------------------------------------------------------------------------
Pro forma net income $ 1,693 $ 2,228 $ 3,533 $ 3,735
- -------------------------------------------------------------------------------------------------------------------------
Net income per common share:
Basic, as reported $ .47 $ .61 $ .97 $ 1.02
Basic, proforma .46 .60 .96 1.01
Diluted, as reported .45 .60 .95 1.01
Diluted, proforma .45 .60 .95 1.00
- -------------------------------------------------------------------------------------------------------------------------
Weighted average assumptions:
Risk-free interest rate 4.11% 2.84% 3.58% 3.22%
Expected life 7 yrs. 7 yrs. 7 yrs. 7 yrs.
Expected volatility 15% 15% 15% 15%
Dividend yield 2.34% 3.09% 2.46% 3.32%
- -------------------------------------------------------------------------------------------------------------------------
Note 11 - Defined Pension Plans
The Company has a noncontributory defined benefit pension plan, which covers
most of its employees. The Company accrues and makes contributions designed to
fund normal service costs on a current basis using the projected unit credit
with service proration method to amortize prior service costs arising from
improvements in pension benefits and qualifying service prior to the
establishment of the plan over a period of approximately 30 years. Disclosure
information is based on a measurement date of December 31 of the corresponding
year.
-10-
The following table represents the components of the net periodic pension costs
for the three and six-month periods ended June 30, 2004 and 2003:
Estimated Actual
(In Thousands, except per share data) 2004 2003
-------------------------------------------------------------------------
Service cost - benefits earned during the year $ 1,186 $ 979
Interest cost on projected benefit obligation 1,238 1,105
Expected return on plan assets (1,234) (1,055)
Net amortization 60 13
-------------------------------------------------------------------------
Net periodic pension cost - annual 1,250 1,042
-------------------------------------------------------------------------
Pension costs recorded to expense were $365,000 and $237,000 for the Second
Quarter of 2004 and 2003, respectively. Pension costs recorded to expense were
$625,000 and $474,000 for the First Half of 2004 and 2003, respectively. The
Company has not made any contribution to the plan during the six-month period
ended June 30, 2004, but is expecting to contribute approximately $1,083,000 in
2004.
In addition to the above funded benefit plan, the Company has an unfunded
supplemental executive retirement plan which covers key executives of the
Company. This is a noncontributory plan in which the Company and its
subsidiaries make accruals designed to fund normal service costs on a current
basis using the same method and criteria as its defined benefit plan.
The following table represents the components of the net periodic pension costs
of the unfunded plan for the three and six-month periods ended June 30, 2004 and
2003:
Estimated Actual
(In Thousands, except per share data) 2004 2003
--------------------------------------------------------------------------
Service cost - benefits earned during the year $ (57) $ (24)
Interest cost on projected benefit obligation 116 107
Net amortization 51 62
--------------------------------------------------------------------------
Net periodic pension cost - annual 110 145
--------------------------------------------------------------------------
Pension costs recorded to expense were $37,000 and $46,000 for the Second
Quarter of 2004 and 2003, respectively and were $73,000 and $93,000 for the
First Half of 2004 and 2003, respectively.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
Cass Information Systems, Inc. provides payment and information processing
services to national manufacturing, distribution and retail enterprises from its
processing centers in St. Louis, Missouri, Columbus, Ohio, and Boston,
Massachusetts. The Company's services include freight invoice rating, payment
processing, auditing, and the generation of cost accounting and transportation
information. Cass also processes and pays utility invoices, including
electricity, gas and telecommunications. Cass extracts, stores and presents
information from freight and utility invoices, assisting our customers'
transportation and energy managers in making decisions that will enable them to
improve their operating performance. The Company receives data from multiple
sources, electronic and otherwise, and processes the data to accomplish the
specific operating requirements of its customers. It then provides the data in a
central repository for access and archiving. The data is finally transformed
into information through the Company's databases that allow client interaction
with the data and provide Internet-based tools for analytical processing. The
Company also, through its St. Louis, Missouri based bank subsidiary, provides
banking services in the St. Louis metropolitan area and other selected cities in
the United States. In addition to supporting the Company's payment operations,
it also provides banking services to its target markets, which include privately
owned businesses and churches. The Company, through the Bank's subsidiary,
Government e-Management Solutions, Inc. (GEMS), also develops and licenses
integrated financial, property and human resource management systems to the
public sector.
The specific payment and information processing services provided to each
customer are developed individually to meet each customer's specific
requirements. These requirements can vary greatly from customer to customer. In
addition, the degree of automation such as electronic data interchange (EDI),
imaging, and web-enhanced solutions varies greatly among customers and
industries. These factors combine so that pricing varies greatly among the
customer base. In general however, Cass is compensated for its processing
services through service fees and account balances that are generated during the
payment process. The amount, type and calculation of service fees vary greatly
-11-
by service offering, but generally follow the volume of transactions processed.
Interest income from the balances generated during the payment processing cycle
is affected by the amount of time Cass holds the funds prior to payment and the
dollar volume processed. Both the number of transactions processed and the
dollar volume processed are therefore key metrics followed by management. Other
factors have a significant influence on revenue and profitability however, such
as changes in the general level of interest rates which has a significant affect
on net interest income. The funds generated by these processing activities are
invested in overnight investments, investment grade securities and loans
generated by the Bank. The Bank earns most of its revenue from net interest
income, or the difference between the interest earned on its loans and
investments and the interest expense on its deposits. The Bank also assesses
fees on other services such as cash management services. GEMS earns its revenue
from the license of its enterprise software solutions and fees for its
installation and maintenance.
Industry-wide factors that impact the Company include the acceptance by large
corporations of the outsourcing of key business functions such as freight and
utility payment. The benefits that can be achieved by outsourcing transaction
processing and the management information generated by Cass' systems can be
influenced by factors such as the competitive pressures within industries to
improve profitability, the general level of transportation costs and the
deregulation of energy costs. Economic factors that impact the Company include
the general level of economic activity that can affect the volume and size of
invoices processed, the ability to hire and retain qualified staff and the
growth and quality of our loan portfolio. The general level of interest rates
has a significant affect on the revenue of the Company. Finally, the general
fiscal condition of the counties and municipalities that can benefit from GEMS'
enterprise software can impact licenses sold and related revenue.
Currently, management views Cass' major opportunity and challenge as the
continued expansion of its payment and information processing service offerings
and customer base. Management intends to accomplish this by maintaining Cass'
lead in applied technology, which, when combined with the security and
processing controls of the Company's Bank, makes Cass unique in the industry.
This trend has been positive over the past years and management anticipates that
this should continue during 2004 and beyond. In addition, management is
exploring possible strategic alliances and potential acquisitions to accelerate
this growth. In July 2004, the Company announced that it had reached an
agreement to acquire the operating assets and selected liabilities of ProfitLab,
Inc. ProfitLab is a leading provider of telecom auditing and application
services. This acquisition should further strengthen and expand Cass' payment
and data analysis services and tools for Fortune 1000 customers. The acquisition
is expected to close in the third quarter of 2004. Should the acquisition close,
the initial impact on the Company's earnings would be negative. Based on recent
performance the annualized, after tax, loss of ProfitLab is anticipated to be in
the area of $500,000 to $650,000 or $.13 to $.17 diluted earnings per share.
While benefits are expected to occur from integrating certain operational areas,
it may take some time before such benefits are achieved. As part of the
acquisition, Cass has agreed to provide employment for certain staff members and
to maintain operations in Greenville, South Carolina for periods of two and
three years, respectively.
The low level of interest rates has had a significant negative impact on net
income during the past few years. Although management doesn't anticipate when
and how quickly these rates may increase, the Company is positioned to take
advantage of rising rates should they occur. Management had been pleased with
the growth in software revenue generated by GEMS during the last three years,
but is disappointed with software sales this year. It appears that lack of
activity in the marketplace has negatively impacted sales but active interest,
as measured by the number of requests for proposals received, seems to be
improving.
Critical Accounting Policies
The Company has prepared all of the consolidated financial information in this
report in accordance with U.S. generally accepted accounting principles (U.S.
GAAP). In preparing the consolidated financial statements in accordance with
U.S. GAAP, management makes estimates and assumptions that affect the reported
amount of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported amounts of
revenue and expenses during the reporting period. These estimates have been
generally accurate in the past, they have been consistent and have not required
any material changes. There can be no assurances that actual results will not
differ from those estimates. Certain accounting policies that require
significant management estimates and are deemed critical to our results of
operations or financial position have been discussed with the Audit Committee of
the Board of Directors and are described below.
-12-
Allowance for Loan Losses. The Company performs periodic and systematic detailed
reviews of its loan portfolio to assess overall collectability. The level of the
allowance for loan losses reflects management's estimate of the collectability
of the loan portfolio. Although these estimates are based on established
methodologies for determining allowance requirements, actual results can differ
significantly from estimated results. These policies affect all segments of the
Company with the exception of governmental software services. The impact and
associated risks related to these policies on our business operations are
discussed in the " Allowance and Provision for Loan Losses" section of this
report.
Impairment of Assets. Management periodically evaluates certain long-term assets
such as intangible assets including goodwill, foreclosed assets, internally
developed software and investments in private equity securities for impairment.
Generally, these assets are initially recorded at cost, and recognition of
impairment is required when events and circumstances indicate that the carrying
amounts of these assets will not be recoverable in the future. If impairment
occurs, various methods of measuring impairment may be called for depending on
the circumstances and type of asset, including quoted market prices, estimates
based on similar assets, and estimates based on valuation techniques such as
discounted projected cash flows. Assets held for sale are carried at the lower
of cost or fair value less costs to sell. These policies affect all segments of
the Company and require significant management assumptions and estimates that
could result in materially different results if conditions or underlying
circumstances change.
Results of Operations
The following paragraphs more fully discuss the results of operations and
changes in financial condition for the three-month period ended June 30, 2004
(the "Second Quarter of 2004") compared to the three-month period ended June 30,
2003 (the "Second Quarter of 2003") and the six-month period ended June 30, 2004
(the "First Half of 2004") compared to the six-month period ended June 30, 2003
(the "First Half of 2003"). The following discussion and analysis should be read
in conjunction with the consolidated financial statements and related notes and
with the statistical information and financial data appearing in this report as
well as the Company's 2003 Annual Report on Form 10-K. Results of operations for
the Second Quarter of 2004 are not necessarily indicative of the results to be
attained for any other period.
Net Income
The Company's net income was $1,700,000 for the Second Quarter of 2004, a
$539,000 or 24.1% decrease compared to net income of $2,239,000 for the Second
Quarter of 2003. The Company's net income for the First Half of 2004 was
$3,547,000, a $210,000 or 5.6% decrease compared to net income of $3,757,000 for
the First Half of 2003. Diluted earnings per share were $.45 for the Second
Quarter of 2004, a 25.0% decrease compared to $.60 for the Second Quarter of
2003. Diluted earnings per share were $.95 for the First Half of 2004, a 5.9%
decrease compared with $1.01 for the First Half of 2003. The decrease in net
income in the Second Quarter of 2004 over the Second Quarter of 2003 was
primarily a result of gains on the sales of equity securities recognized in the
Second Quarter of 2003 with no gains recognized in the Second Quarter of 2004,
compounded by a decrease in software revenue recorded by the Company's software
subsidiary, GEMS. This was partially offset by an increase in payment and
processing revenue and a decrease in operating expenses. The decrease in net
income in the First Half of 2004 was the result of more gains recognized in the
First Half of 2003 compared with the First Half of 2004 and a decrease in
software revenue, offset by increased revenue from payment and processing fees
and a decrease in operating expenses. Return on average assets for the Second
Quarter of 2004 was .99% compared to 1.51% for the Second Quarter of 2003.
Return on average assets for the First Half of 2004 was 1.06% compared to 1.28%
for the First Half of 2003. Return on average equity for the Second Quarter of
2004 was 10.60% compared to 14.74% for the Second Quarter of 2003. Return on
average equity for the First Half of 2004 was 11.06% compared to 12.45% for the
First Half of 2003.
-13-
Fee Revenue and Other Income
Fee revenue is principally derived from freight and utility payment and
processing fees. Processing volumes related to these fees for the three and
six-month periods ended June 30, 2004 and 2003 are as follows:
Three Months Ended Six Months Ended
June 30 June 30
---------------------------------- ---------------------------------
% %
(In Thousands) 2004 2003 Change 2004 2003 Change
- --------------------------------------------------------------------------------------------------------------
Transportation Information Services:
Invoice Bill Volume 5,921 5,810 1.9% 11,350 11,476 (1.1%)
Invoice Dollar Volume $2,416,168 $2,154,256 12.2% $4,637,814 $4,208,168 10.2%
Payment and processing fees $ 5,049 $ 4,670 8.1% $ 9,995 $ 9,639 3.7%
Utility Information Services:
Invoice Transaction Volume 1,286 1,116 15.2% 2,570 2,149 19.6%
Invoice Dollar Volume $ 895,730 $ 788,714 13.6% $1,830,091 $1,614,075 13.4%
Payment and processing fees $ 2,572 $ 2,200 16.9% $ 5,224 $ 4,200 24.4%
Second Quarter of 2004 compared to Second Quarter of 2003:
Transaction volume from the Transportation Information Services division for the
Second Quarter of 2004 increased mainly due to increased activity from existing
clients which more than offset the loss of some high transaction/low dollar
volume parcel business. Total dollar volume processed from this division
increased during this period. Fees for the period grew due to the increased
volume and additional services provided. The increase in volume and fees from
the Utility Information Services division increased primarily due to new
customers as the growth of this segment continues. Software revenue was down
$720,000 or 39% from the Second Quarter of 2003 primarily due to reduced license
fee revenue generated from new customers. Although revenue generated by GEMS
increased in each of the past three years, sales were off significantly this
year to date. Demand for software in the governmental sector appears to have
softened from last year. At this time management feels that this is a temporary
condition. Bank service fees decreased $35,000 or 8% due to the decrease in
miscellaneous services provided to other banks. Net gains of $1,362,000 were
recognized on the sales of securities during the Second Quarter of 2003 with no
gains recognized in the Second Quarter of 2004. Other income increased $41,000
or 30% primarily due to income recognized from death proceeds from company owned
life insurance.
First Half of 2004 compared to First Half of 2003:
Transportation transaction volume for the First Half of 2004 decreased slightly
from 2003 due to the same loss of high transaction/low dollar parcel business
mentioned above. Most of this volume was replaced by larger dollar transactions
that required a higher level of processing and produced greater fees.
Transaction dollar volume was up and fee revenue increased during the first
half. Utility volume and fees increased due to new customers as this segment
continues to grow. Software revenue from GEMS was down $1,337,000 or 37% during
the First Half of 2004 due to the same factors discussed above for the second
quarter. Bank service fees decreased $47,000 or 5% due to the decrease in
miscellaneous services provided to other banks. Gains on the sales of securities
for the First Half of 2004 were $441,000 compared to gains of $1,362,000 for the
First Half of 2003. Other income increased $47,000 or 18% due to the death
proceeds from company owned life insurance.
Net Interest Income
Second Quarter of 2004 compared to Second Quarter of 2003:
The Company's tax-equivalent net interest income increased 1% or $49,000 from
$6,700,000 to $6,749,000. The tax-equivalent net interest margin decreased from
5.02% to 4.33%. The decline in the general level of interest rates from the
beginning of 2001 continues to have a negative impact on the Company's net
interest income and margin. The average yield on earning assets decreased to
4.80% in the Second Quarter of 2004 from 5.36% in 2003. The Company is
negatively affected by decreases in the level of interest rates due to the fact
that its rate sensitive assets significantly exceed its rate sensitive
liabilities. Conversely, the Company is positively affected by increases in the
level of interest rates. This is primarily due to the noninterest-bearing
liabilities generated by the Company in the form of accounts and drafts payable.
Changes in interest rates will affect some earning assets such as federal funds
sold and floating rate loans immediately and some earning assets, such as fixed
rate loans and municipal bonds, over time.
-14-
The Company was able to offset the decrease in net interest income due to the
decline in the general level of interest rates through an increase in earning
assets. Total average earning assets increased $92,643,000 or 17% to
$627,453,000. This increase was funded by both an increase in accounts and
drafts payable due to the increase in dollar volume processed and an increase in
bank deposits due to the expansion of the Banks' customer base.
Total average loans increased $31,840,000 or 7% to $467,292,000. This increase
was attributable to new business relationships and was funded by the increase in
accounts and drafts payable and growth in bank deposits. Although not enough to
offset the decline in the level of interest rates, this increase in loans had a
positive effect on interest income and the net interest margin due to the fact
that loans are one of the Company's highest yielding earning assets for any
given maturity.
Total average investment in debt and equity securities increased $18,531,000 or
34% to $73,170,000. Total average federal funds sold and other short-term
investments increased $42,272,000 or 95% to $86,991,000. This increase provides
additional liquidity and positions the Company to take advantage of higher
interest rates should they occur. For more information on the changes in net
interest income please refer to the tables on the pages that follow.
First Half of 2004 compared to First Half of 2003:
The Company's tax-equivalent net interest income decreased $64,000 from
$13,639,000 to $13,575,000. The tax-equivalent net interest margin decreased
from 5.15% to 4.45% as the decline in the general level of interest rates from
the beginning of 2001 continues to have an impact on the Company's net interest
income and margin. The average yield on earning assets decreased to 4.88% in the
First Half of 2004 from 5.49% in 2003.
The Company partially offset the decrease in net interest income through an
increase in earning assets. Total average earning assets increased $78,774,000
or 15% to $613,338,000. This increase was funded by both an increase in accounts
and drafts payable due to the increase in dollars processed and an increase in
bank deposits due to the expansion of the Banks' customer base.
Total average loans increased $30,595,000 or 7% to $465,375,000. This increase
was attributable to new business relationships and was funded by the increase in
accounts and drafts payable and growth in bank deposits. Although not enough to
offset the decline in the level of interest rates, this increase in loans had a
positive effect on interest income and the net interest margin due to the fact
that loans are one of the Company's highest yielding earning assets for any
given maturity.
Total average investment in debt and equity securities increased $8,544,000 or
14% to $68,904,000. Total average federal funds sold and other short-term
investments increased $39,635,000 or 101% to $79,059,000. This increase provides
additional liquidity and positions the Company to take advantage of higher
interest rates should they occur. For more information on the changes in net
interest income please refer to the tables on the pages that follow.
Distribution of Assets, Liabilities and Stockholders' Equity; Interest Rate and
Interest Differential
The following table shows the condensed average balance sheets for each of the
periods reported, the interest income and expense on each category of
interest-earning assets and interest-bearing liabilities, and the average yield
on such categories of interest-earning assets and the average rates paid on such
categories of interest-bearing liabilities for each of the periods reported.
-15-
Second Quarter 2004 Second Quarter 2003
---------------------------------- ------------------------------------
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
(Dollars in thousands) Balance Expense Rate Balance Expense Rate
- -------------------------------------------------------------------------------------------------------------------
Assets 1
Earning assets:
Loans (2),(3):
Taxable $ 461,990 $ 6,366 5.54% $ 429,749 $ 6,248 5.83%
Tax-exempt (4) 5,302 100 7.59 5,703 108 7.60
Debt and equity securities (5):
Taxable 26,621 116 1.75 22,806 133 2.34
Tax-exempt (4) 46,549 705 6.09 31,833 529 6.67
Federal funds sold and other
short-term investments 86,991 200 .92 44,719 126 1.13
- ------------------------------------------------------------------------------------------------------------------
Total earning assets 627,453 7,487 4.80 534,810 7,144 5.36
Nonearning assets:
Cash and due from banks 25,601 20,398
Premises and equipment, net 13,108 15,236
Goodwill and other intangibles 4,985 5,271
Other assets 25,511 23,377
Allowance for loan losses (5,764) (5,390)
- ------------------------------------------------------------------------------------------------------------------
Total assets $ 690,894 $ 593,702
- ------------------------------------------------------------------------------------------------------------------
Liabilities And Shareholders' Equity (1)
Interest-bearing liabilities:
Interest-bearing demand
deposits $ 64,755 $ 165 1.02% $ 51,014 $ 104 .82%
Savings deposits 29,507 77 1.05 35,962 81 .90
Time deposits of
$100 or more 55,083 304 2.22 42,913 203 1.90
Other time deposits 37,231 192 2.07 8,184 51 2.50
- ------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 186,576 738 1.59 138,073 439 1.28
Short-term borrowings 94 -- -- 1,101 5 1.82
- ------------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 186,670 738 1.59 139,174 444 1.28
Noninterest-bearing liabilities:
Demand deposits 104,913 95,418
Accounts and drafts payable 326,380 290,158
Other liabilities 8,422 8,029
- ------------------------------------------------------------------------------------------------------------------
Total liabilities 626,385 532,779
Shareholders' equity 64,509 60,923
Total liabilities and
shareholders' equity $ 690,894 $ 593,702
- ------------------------------------------------------------------------------------------------------------------
Net interest income $ 6,749 $ 6,700
Interest spread 3.21% 4.08%
Net interest margin 4.33% 5.02%
- ------------------------------------------------------------------------------------------------------------------
1. Balances shown are daily averages.
2. For purposes of these computations, nonaccrual loans are included in the
average loan amounts outstanding. Interest on nonaccrual loans is recorded
when received as discussed further in Note 1 to the Company's 2003
Consolidated Financial Statements.
3. Interest income on loans includes net loan fees of $49,000 and $24,000 for
the Second Quarter of 2004 and 2003, respectively.
4. Interest income is presented on a tax-equivalent basis assuming a tax rate
of 34%. The tax-equivalent adjustment was approximately $275,000 and
$215,000 for the Second Quarter of 2004 and 2003, respectively.
5. For purposes of these computations, yields on investment securities are
computed as interest income divided by the average amortized cost of the
investments.
-16-
First Half of 2004 First Half of 2003
---------------------------------- ------------------------------------
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
(Dollars in thousands) Balance Expense Rate Balance Expense Rate
- ------------------------------------------------------------------------------------------------------------------
Assets 1
Earning assets:
Loans (2),(3):
Taxable $ 460,052 $ 12,753 5.57% $ 429,054 $ 12,593 5.92%
Tax-exempt (4) 5,323 201 7.59 5,726 216 7.61
Debt and equity securities (5):
Taxable 25,203 213 1.70 24,685 321 2.62
Tax-exempt (4) 43,701 1,351 6.22 35,675 1,187 6.71
Federal funds sold and other
short-term investments 79,059 362 .92 39,424 226 1.16
- ------------------------------------------------------------------------------------------------------------------
Total earning assets 613,338 14,880 4.88 534,564 14,543 5.49
Nonearning assets:
Cash and due from banks 22,229 19,691
Premises and equipment, net 13,291 15,533
Goodwill and other intangibles 5,024 5,310
Other assets 25,764 22,762
Allowance for loan losses (5,662) (5,359)
- ------------------------------------------------------------------------------------------------------------------
Total assets $ 673,984 $ 592,501
- ------------------------------------------------------------------------------------------------------------------
Liabilities And Shareholders' Equity (1)
Interest-bearing liabilities:
Interest-bearing demand
deposits $ 60,683 $ 244 .81% $ 52,885 $ 221 .84%
Savings deposits 29,947 128 .86 35,868 163 .92
Time deposits of
$100 or more 51,768 571 2.22 42,790 416 1.96
Other time deposits 35,951 362 2.02 6,957 90 2.61
- ------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 178,349 1,305 1.47 138,500 890 1.30
Short-term borrowings 106 -- -- 1,833 14 1.54
- ------------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 178,455 1,305 1.47 140,333 904 1.30
Noninterest-bearing liabilities:
Demand deposits 102,675 95,151
Accounts and drafts payable 319,985 288,936
Other liabilities 8,383 7,225
- ------------------------------------------------------------------------------------------------------------------
Total liabilities 609,498 531,645
Shareholders' equity 64,486 60,856
Total liabilities and
shareholders' equity $ 673,984 $ 592,501
- ------------------------------------------------------------------------------------------------------------------
Net interest income $ 13,575 $ 13,639
Interest spread 3.41% 4.19%
Net interest margin 4.45% 5.15%
- ------------------------------------------------------------------------------------------------------------------
1. Balances shown are daily averages.
2. For purposes of these computations, nonaccrual loans are included in the
average loan amounts outstanding. Interest on nonaccrual loans is recorded
when received as discussed further in Note 1 to the Company's 2003
Consolidated Financial Statements.
3. Interest income on loans includes net loan fees of $90,000 and $35,000 for
the First Half of 2004 and 2003, respectively.
4. Interest income is presented on a tax-equivalent basis assuming a tax rate
of 34%. The tax-equivalent adjustment was approximately $528,000 and
$475,000 for the First Half of 2004 and 2003, respectively.
5. For purposes of these computations, yields on investment securities are
computed as interest income divided by the average amortized cost of the
investments.
-17-
Analysis of Net Interest Income Changes
The following table presents the changes in interest income and expense between
periods due to changes in volume and interest rates. That portion of the change
in interest attributable to the combined rate/volume variance has been allocated
to rate and volume changes in proportion to the absolute dollar amounts of the
change in each.
Second Quarter
2004 Over 2003
-------------------------
(In Thousands) Volume Rate Total
- -------------------------------------------------------------------------------
Increase (decrease) in interest income:
Loans (1),(2):
Taxable $ 444 $(326) $ 118
Tax-exempt (3) (8) -- (8)
Debt and equity securities:
Taxable 20 (37) (17)
Tax-exempt (3) 225 (49) 176
Federal funds sold and other
short-term investments 100 (26) 74
- -------------------------------------------------------------------------------
Total interest income 781 (438) 343
- -------------------------------------------------------------------------------
Interest expense on:
Interest-bearing demand deposits 31 30 61
Savings deposits (16) 12 (4)
Time deposits of $100 or more 63 38 101
Other time deposits 151 (10) 141
Short-term borrowings (2) (3) (5)
- -------------------------------------------------------------------------------
Total interest expense 227 67 294
- -------------------------------------------------------------------------------
Net interest income $ 554 $(505) $ 49
- -------------------------------------------------------------------------------
1. Average balances include nonaccrual loans.
2. Interest income includes net loan fees.
3. Interest income is presented on a tax-equivalent basis assuming a tax rate
of 34%.
First Half
2004 Over 2003
-------------------------
(In Thousands) Volume Rate Total
- -------------------------------------------------------------------------------
Increase (decrease) in interest income:
Loans (1),(2):
Taxable $ 905 $(745) $ 160
Tax-exempt (3) (15) -- (15)
Debt and equity securities:
Taxable 7 (115) (108)
Tax-exempt (3) 256 (92) 164
Federal funds sold and other
short-term investments 190 (54) 136
- -------------------------------------------------------------------------------
Total interest income 1,343 (1,006) 337
- -------------------------------------------------------------------------------
Interest expense on:
Interest-bearing demand deposits 32 (9) 23
Savings deposits (25) (10) (35)
Time deposits of $100 or more 95 60 155
Other time deposits 297 (25) 272
Short-term borrowings (7) (7) (14)
- -------------------------------------------------------------------------------
Total interest expense 392 9 401
- -------------------------------------------------------------------------------
Net interest income $ 951 $(1,015) $ (64)
- -------------------------------------------------------------------------------
1. Average balances include nonaccrual loans.
2. Interest income includes net loan fees.
3. Interest income is presented on a tax-equivalent basis assuming a tax rate
of 34%.
-18-
Allowance and Provision for Loan Losses
A significant determinant of the Company's operating results is the provision
for loan losses and the level of loans charged off. There was a $150,000
provision made for loan losses during the Second Quarter of 2004 and no
provision made in the Second Quarter of 2003. There was a $350,000 provision
made for the First Half of 2004 compared with a $90,000 provision for the First
Half of 2003. Net loans recovered for both the Second Quarter of 2004 and 2003
were $6,000. Net loans recovered for the First Half of 2004 were $9,000 compared
to $10,000 for the First Half of 2003. The provision for loan losses can vary
over time based on an ongoing assessment of the adequacy of the allowance for
loan losses.
The allowance for loan losses at June 30, 2004 was $5,865,000 and at December
31, 2003 was $5,506,000. The ratio of allowance for loan losses to total loans
outstanding at June 30, 2004 was 1.24% compared to 1.17% at December 31, 2003.
Nonperforming loans were $3,467,000 or .73% of total loans at June 30, 2004
compared to $4,393,000 or .94% of total loans at December 31, 2003. The decrease
from December 31, 2003 is primarily due to two loans; one for $481,000 that was
renegotiated in First Quarter of 2003 and is now current under the new terms of
the agreement and a second loan for $376,000 that was foreclosed in the First
Quarter of 2004 and is now being carried as other real estate owned.
At June 30, 2004, impaired loans totaled $3,627,000, which included $1,057,000
of nonaccrual loans and $2,410,000 of renegotiated loans compared with impaired
loans at December 31, 2003 of $4,393,000, which included $1,525,000 of
nonaccrual loans and $2,721,000 of renegotiated loans. The allowance for loan
losses on impaired loans was $960,000 at June 30, 2004 and there were no
impaired loans without an allowance. The decrease in impaired loans from
December 31, 2003 relates primarily to the decrease in nonperforming loans as
explained in the previous paragraph.
Total impaired loans decreased $2,330,000 from June 30, 2003 to June 30, 2004.
Of this decrease $4,070,000 relates to other impaired loans consisting primarily
of two loans totaling $4,229,000 at June 30, 2003 that were renegotiated in 2002
and are now currently performing. This decrease was partially offset by an
increase of $1,929,000 in renegotiated loans, which relates primarily to one
borrower with a balance of $2,240,000 as of June 30, 2004 and although currently
performing, is still considered impaired by management. The balance of
nonaccrual loans at June 30, 2004 consists primarily of two loans, one with a
balance of $713,000 that is collateralized by real estate and has a SBA
guarantee and a second loan with a balance of $265,000 relates to a business
that is no longer operating, although payments are being made as the inventory
of the business is being sold.
The allowance for loan losses has been established and is maintained to absorb
losses inherent in the loan portfolio. An ongoing assessment of risk of loss is
performed to determine if the current balance of the allowance is adequate to
cover probable losses in the portfolio. A charge or credit is made to expense to
cover any deficiency or reduce any excess. The current methodology employed to
determine the appropriate allowance consists of two components, specific and
general. The Company develops specific valuation allowances on commercial,
commercial real estate, and construction loans based on individual review of
these loans and our estimate of the borrower's ability to repay the loan given
the availability of collateral, other sources of cash flow and collection
options available to us. The general component relates to all other loans, which
are evaluated based on loan grade. The loan grade assigned to each loan is
typically evaluated on an annual basis, unless circumstances require interim
evaluation. The Company assigns a reserve amount consistent with each loan's
rating category. The reserve amount is based on derived loss experience over
prescribed periods. In addition to the amounts derived from the loan grades, a
portion is added to the general reserve to take into account other factors
including national and local economic conditions, downturns in specific
industries including loss in collateral value, trends in credit quality at the
Company and the banking industry, and trends in risk rating changes. As part of
their examination process, federal and state agencies review the Company's
methodology for maintaining the allowance for loan losses and the balance in the
account. These agencies may require the Company to increase the allowance for
loan losses based on their judgments and interpretations about information
available to them at the time of their examination.
-19-
Summary of Asset Quality
The following table presents information as of and for the three and six-month
periods ended June 30, 2004 and 2003 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
------------------------ ------------------------
(Dollars in Thousands) 2004 2003 2004 2003
- ------------------------------------------------------------------------------------------------------------------
Allowance at beginning of period $ 5,709 $ 5,387 $ 5,506 $ 5,293
Provision charged to expense 150 -- 350 90
Loans charged off -- -- 1 2
Recoveries on loans previously charged off 6 6 10 12
- ------------------------------------------------------------------------------------------------------------------
Net loans (recovered) charged-off (6) (6) (9) (10)
Allowance at end of period $ 5,865 $ 5,393 $ 5,865 $ 5,393
- ------------------------------------------------------------------------------------------------------------------
Loans outstanding:
Average $ 467,292 $ 435,452 $ 465,375 $ 434,780
June 30 474,560 443,621 474,560 443,621
Ratio of allowance for loan losses to loans outstanding:
Average 1.26% 1.24% 1.26% 1.24%
June 30 1.24 1.22 1.24 1.22
Nonperforming loans:
Nonaccrual loans $ 1,057 $ 1,206 $ 1,057 $ 1,206
Loans past due 90 days or more -- 40 -- 40
Renegotiated loans 2,410 481 2,410 481
- ------------------------------------------------------------------------------------------------------------------
Total non performing loans $ 3,467 $ 1,727 $ 3,467 $ 1,727
Other impaired loans 160 $ 4,230 $ 160 $ 4,230
Foreclosed assets 1,234 $ 1,154 $ 1,234 $ 1,154
- ------------------------------------------------------------------------------------------------------------------
Nonperforming loans as percentage of average loans .74% .40% .74% .40%
- ------------------------------------------------------------------------------------------------------------------
The Bank currently has two properties which it is carrying as other real estate
owned at what management believes to be fair value less cost to sell. The first
property was foreclosed on August 8, 2001 and is recorded at $859,000 and the
second property was foreclosed on March 2, 2004 and is recorded at $375,000.
Operating Expense
Total operating expense for the Second Quarter of 2004 decreased $583,000 or 4%
to $13,313,000 compared to the Second Quarter of 2003. Total operating expense
for the First Half of 2004 decreased $896,000 or 3% to $26,795,000 from the
First Half of 2003.
Salaries and benefits expense decreased $99,000 or 1% to $9,301,000 in the
Second Quarter of 2004 compared with the Second Quarter of 2003 and decreased
$294,000 or 2% for the First Half of 2004 compared with the First Half of 2003.
These decreases are primarily related to a reduction in the number of employees
attributable to a series of technology initiatives put into place by the
Information Services divisions. The decrease in salaries expense was partially
offset by annual salary increases and an increase in benefits expense related to
pension costs.
Occupancy expense for the Second Quarter of 2004 decreased $21,000 or 5% to
$436,000 from the Second Quarter of 2003 and increased a modest $1,000 in the
First Half of 2004 compared with the First Half of 2003. The decrease for the
quarter relates primarily to a decrease in utility expense and premise
maintenance and repairs.
Equipment expense for the Second Quarter of 2004 decreased $135,000 or 12%
compared to the Second Quarter of 2003 and decreased $271,000 or 12% for the
First Half of 2004 compared with the First Half of 2003. These decreases relate
primarily to a decrease in software amortization in both the Information
Services divisions and a decrease in hardware depreciation and computer
equipment maintenance expense from the consolidation of equipment within the
Transportation Information Services division.
Other operating expense for the Second Quarter of 2004 decreased $328,000 or 11%
compared to the Second Quarter of 2003 and decreased $332,000 or 6% for the
First Half of 2004 compared with the First Half of 2003. The decreases for the
quarter and half were primarily from decreases in postage and supply expense in
-20-
the Transportation Information Services division related to technology
initiatives put into place over the past two years. These decreases were offset
by an increase in outsourced programming services primarily in the Company's
government software division.
Income tax expense for the Second Quarter of 2004 decreased $364,000 or 35%
compared to the Second Quarter of 2003 and decreased $149,000 or 9% for the
First Half of 2004 compared with the First Half of 2003. The effective tax rate
for the Second Quarter of 2004 was 28% compared with 32% in the Second Quarter
of 2003 and was 29% for the First Half of 2004 compared with 30% in 2003. The
decrease in the effective tax rate was due to higher balances of tax-exempt
investments in 2004.
Financial Condition
Total assets at June 30, 2004 increased $48,466,000 or 8% from December 31,
2003. The majority of this increase relates to the Company's earning assets that
experienced an increase of $18,482,000 or 41% in federal funds sold and other
short-term investments, $18,189,000 or 26% increase in investments in debt and
equity securities and $5,169,000 or 1% increase in loans, net of the allowance
for loan losses.
Total liabilities were $622,326,000, an increase of $47,422,000 or 8% from
December 31, 2003. Total deposits at June 30, 2004 were $297,700,000, an
increase of $25,272,000 or 9%. Accounts and drafts payable were $315,773,000, an
increase of $22,004,000 or 7%. Total shareholders' equity at June 30, 2004 was
$65,836,000 a $1,044,000 or 2% increase from December 31, 2003.
The increase in loans relates to the normal fluctuations of the loan portfolio.
The increase in debt and equity securities relates to the purchase of
$41,247,000 in securities, primarily of tax-exempt municipal securities. These
purchases were partially offset by the sale of securities earlier in the year
and the normal maturity of securities throughout the year. Federal funds sold
and other short-term investments increased due to the increase in deposits and
accounts and drafts payable from December 31, 2003 to June 30, 2004. The
increase in deposits reflects the Bank's ongoing marketing efforts to attract
deposits and increase in accounts and drafts payable was due the increase in the
dollar volume of invoices processed. Accounts and drafts payable will fluctuate
from period-end to period-end due to the payment processing cycle, which results
in lower balances on days when checks clear and higher balances on days when
checks are issued. For this reason, average balances are a more meaningful
measure of accounts and drafts payable. The increase in total shareholders'
equity resulted from net income of $3,547,000; cash received on the exercise of
stock options of $151,000; a $99,000 tax benefit on stock awards and the
amortization of the stock bonus plan of $45,000; offset by dividends paid of
$1,476,000 ($.42 per share); a decrease in other comprehensive income of
$1,318,000 and $4,000 of cash paid for stock dividend fractional shares.
Liquidity and Capital Resources
The balances of liquid assets consists of cash and cash equivalents, which
include cash and due from banks, federal funds sold and money market funds, and
were $85,089,000 at June 30, 2004, an increase of $22,722,000 or 36% from
December 31, 2003. At June 30, 2004 these assets represented 12% of total
assets. These funds are the Company's and its subsidiaries' primary source of
liquidity to meet future expected and unexpected loan demand, depositor
withdrawals or reductions in accounts and drafts payable.
Secondary sources of liquidity include the investment portfolio and borrowing
lines. Total investment in debt and equity securities was $87,336,000 at June
30, 2004, an increase of $18,189,000 from December 31, 2003. These assets
represented 13% of total assets at June 30, 2004. Of this total, 69% were state
and political subdivision securities, 23% were U.S. Treasury securities, 7% were
U.S. government agencies and 1% were other securities. Of the total portfolio,
19% mature in one year, 14% matures in one to five years, and 67% matures in
five or more years. During the year the Company sold securities with a market
value of $12,052,000 and a portion of these funds were reinvested in U.S.
Treasury and agency securities.
The Bank has unsecured lines at correspondent banks to purchase federal funds up
to a maximum of $29,000,000. Additionally, the Bank maintains a line of credit
at an unaffiliated financial institution in the maximum amount of $85,418,000
collateralized by securities sold under repurchase agreements.
-21-
The deposits of the Company's banking subsidiary have historically been stable,
consisting of a sizable volume of core deposits related to customers that
utilize many other commercial products of the Bank. The accounts and drafts
payable generated by the Company has also historically been a stable source of
funds.
Net cash flows provided by operating activities were $3,516,000 for the First
Half of 2004 compared with $7,040,000 for the First Half of 2003. This decrease
is attributable to an additional $1,963,000 paid in corporate income taxes, a
$100,000 decrease in deferred income versus a $1,796,000 increase in the First
Half of 2003 and other normal fluctuations in other asset and liability
accounts. Net cash flows from investing and financing activities fluctuate
greatly as the Company actively manages its investment and loan portfolios and
customer activity influences changes in deposit and accounts and drafts payable
balances. Further analysis of the changes in these account balances is discussed
earlier in this report. Due to the daily fluctuations in these account balances,
the analysis of changes in average balances, also discussed earlier in this
report, can be more indicative of underlying activity than the period-end
balances used in the statements of cash flows. Management anticipates that cash
and cash equivalents, maturing investments and cash from operations will
continue to be sufficient to fund the Company's operations and capital
expenditures in 2004.
The Company faces market risk to the extent that its net interest income and
fair market value of equity are affected by changes in market interest rates.
For information regarding the market risk of the Company's financial
instruments, see Item 3. "QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK".
Risk-based capital guidelines require the Company to meet a minimum total
capital ratio of 8.0% of which at least 4.0% must consist of Tier 1 capital.
Tier 1 capital generally consists of (a) common shareholders' equity (excluding
the unrealized market value adjustments on the available-for-sale securities),
(b) qualifying perpetual preferred stock and related surplus subject to certain
limitations specified by the FDIC, (c) minority interests in the equity accounts
of consolidated subsidiaries less (d) goodwill, (e) mortgage servicing rights
within certain limits, and (f) any other intangible assets and investments in
subsidiaries that the FDIC determines should be deducted from Tier 1 capital.
The FDIC also requires a minimum leverage ratio of 3.0%, defined as the ratio of
Tier 1 capital less purchased mortgage servicing rights to total assets, for
banking organizations deemed the strongest and most highly rated by banking
regulators. A higher minimum leverage ratio is required of less highly rated
banking organizations. Total capital, a measure of capital adequacy, includes
Tier 1 capital, allowance for loan losses, and debt considered equity for
regulatory capital purposes.
The Company and the Bank continue to exceed all regulatory capital requirements,
as evidenced by the following capital amounts and ratios at June 30, 2004 and
December 31, 2003:
June 30, 2004 Amount Ratio
- -------------------------------------------------------------------------------
Total capital (to risk-weighted assets)
Cass Information Systems, Inc. $67,357,000 12.30%
Cass Commercial Bank 32,669,000 11.11
Tier I capital (to risk-weighted assets)
Cass Information Systems, Inc. $61,492,000 11.22%
Cass Commercial Bank 28,990,000 9.86
Tier I capital (to average assets)
Cass Information Systems, Inc. $61,492,000 9.42%
Cass Commercial Bank 28,990,000 9.00
- -------------------------------------------------------------------------------
December 31, 2003 Amount Ratio
- -------------------------------------------------------------------------------
Total capital (to risk-weighted assets)
Cass Information Systems, Inc. $64,480,000 12.07%
Cass Commercial Bank 31,741,000 11.17
Tier I capital (to risk-weighted assets)
Cass Information Systems, Inc. $58,974,000 11.04%
Cass Commercial Bank 28,190,000 9.92
Tier I capital (to average assets)
Cass Information Systems, Inc. $58,974,000 9.57%
Cass Commercial Bank 28,190,000 9.49
- -------------------------------------------------------------------------------
-22-
Inflation
The Company's assets and liabilities are primarily monetary, consisting of cash,
cash equivalents, securities, loans, payables and deposits. Monetary assets and
liabilities are those that can be converted into a fixed number of dollars. The
Company's consolidated balance sheet reflects a net positive monetary position
(monetary assets exceed 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 company. Management believes that replacement costs of
equipment, furniture, and leasehold improvements will not materially affect
operations. The rate of inflation does affect certain expenses, such as those
for employee compensation, which may not be readily recoverable in the price of
the Company's services.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As described in the Company's Annual Report on Form 10-K for the year ended
December 31, 2003, the Company manages its interest rate risk through
measurement techniques that include gap analysis and a simulation model. As part
of the risk management process, asset/liability management policies are
established and monitored by management. The policy objective is to limit the
change in annualized net interest income to 15% from an immediate and sustained
parallel change in interest rates of 200 basis points. Based on the Company's
most recent evaluation, management does not believe the Company's risk position
at June 30, 2004 has changed materially from that at December 31, 2003.
ITEM 4. CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures designed to ensure that
the information it is required to disclose in the reports it files with the SEC
is recorded, processed, summarized and reported to management, including the
Chief Executive Officer and Principal Financial Officer, within the time periods
specified in the rules of the SEC. The Company's Chief Executive and Principal
Financial Officers have reviewed and evaluated the Company's disclosure controls
and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange
Act) as of June 30, 2004 and based on their evaluation believe that these
procedures are effective to ensure that the Company is able to collect, process
and disclose the information it is required to disclose in the reports it files
with the SEC within the required time periods.
There were no changes in the second quarter of 2004 in the Company's internal
controls identified by the Chief Executive and Principal Financial Officers in
connection with their evaluation that materially affected or are reasonably
likely to materially affect the Company's internal controls over financial
reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act).
-23-
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company and its subsidiaries are not involved in any pending
proceedings other than ordinary routine litigation incidental to their
businesses. Management believes none of these proceedings, if determined
adversely, would have a material effect on the business or financial
condition of the Company or its subsidiaries.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The Company maintains a treasury stock buyback program and as of June
30, 2004 was authorized by the Board of Directors to repurchase up to
100,000 shares of its common stock. The Company did not repurchase any
stock during the six months ended June 30, 2004 and repurchased 59,237
shares for $1,764,000 during the first six months ended June 30, 2003.
Repurchases are made in the open market or through negotiated
transactions from time to time depending on market conditions.
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 Information Systems,
Inc. held on April 19, 2004, the following proposal was voted on and
approved:
The following is a summary of votes cast. No broker non-votes were
received.
Proposal to elect four Directors for a term
of three years ending 2007; Withheld
For Authority
--------- ---------
Lawrence A. Collett 2,610,553 46,184
Wayne J. Grace 2,611,040 45,697
Irving A. Shepard 2,537,201 119,536
Andrew J. Signorelli 2,589,835 66,902
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 3.2 Amended and Restated Bylaws of Registrant.
Exhibit 10.1 Form of Directors' Indemnification Agreement.
Exhibit 31.1 Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Exhibit 31.2 Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Exhibit 32.1 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.2 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports of Form 8-K
The Company filed a report on Form 8-K under Items 7 and 12 dated
April 19, 2004, reporting the announcement of the Company's earnings
for the first quarter of 2004.
-24-
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 INFORMATION SYSTEMS, INC.
DATE: August 6, 2004 By /s/ Lawrence A. Collett
---------------------------
Lawrence A. Collett
Chairman and Chief Executive Officer
DATE: August 6, 2004 By /s/ Eric H. Brunngraber
Eric H. Brunngraber
---------------------------
Vice President-Secretary
(Principal Financial and Accounting Officer)
-25-
Exhibit 31.1
CERTIFICATION
I, Lawrence A. Collett, Chairman and Chief Executive Officer of Cass Information
Systems, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Cass Information
Systems, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the consolidated financial statements, and other
financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
and have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the
period in which this report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about
the effectiveness of the disclosure, controls and procedures, as of
the end of the period covered by this report based on such
evaluation; and
c) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting,
to the registrant's auditors and the audit committee of registrant's board
of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls over financial reporting which are reasonably likely to
adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
/s/ Lawrence A. Collett
- ------------------------------------
Lawrence A. Collett
Chairman and Chief Executive Officer
August 6, 2004
Exhibit 31.2
CERTIFICATION
I, Eric H. Brunngraber, Principal Financial and Accounting Officer of Cass
Information Systems, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Cass Information
Systems, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the consolidated financial statements, and other
financial information included in this annual report, fairly present in
all material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in this
report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
and have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the
period in which this report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about
the effectiveness of the disclosure, controls and procedures, as of
the end of the period covered by this report based on such
evaluation; and
c) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting,
to the registrant's auditors and the audit committee of registrant's board
of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls over financial reporting are reasonably likely to adversely
affect the registrant's ability to record, process, summarize and
report financial information; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
/s/ Eric H. Brunngraber
- ------------------------------
Eric H. Brunngraber
Vice President - Secretary
(Principal Financial and Accounting Officer)
August 6, 2004
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Cass Information Systems, Inc. ("the
Company") on Form 10-Q for the period ended June 30, 2004 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I,
Lawrence A. Collett, Chairman and Chief Executive Officer of the Company,
certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations
of the Company.
/s/ Lawrence A. Collett
- ------------------------------------
Lawrence A. Collett
Chairman and Chief Executive Officer
August 6, 2004
A signed original of this written statement required by Section 906 has been
provided to Cass Information Systems, Inc. and will be retained by Cass
Information Systems, Inc. and furnished to the Securities and Exchange
Commission or its staff upon request.
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Cass Information Systems, Inc. ("the
Company") on Form 10-Q for the period ended June 30, 2004 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Eric H.
Brunngraber, Principal Financial and Accounting Officer of the Company, certify,
pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations
of the Company.
/s/ Eric H. Brunngraber
- ------------------------------------------
Eric H. Brunngraber
Principal Financial and Accounting Officer
August 6, 2004
A signed original of this written statement required by Section 906 has been
provided to Cass Information Systems, Inc. and will be retained by Cass
Information Systems, Inc. and furnished to the Securities and Exchange
Commission or its staff upon request.