1
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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 SEPTEMBER 30, 1996
COMMISSION FILE NO. 2-80070
-----------------
CASS COMMERCIAL CORPORATION
INCORPORATED UNDER THE LAWS OF MISSOURI
I.R.S. EMPLOYER IDENTIFICATION NO. 43-1265338
3636 SOUTH GEYER ROAD, SUNSET HILLS, MISSOURI 63127
TELEPHONE: (314) 821-1500
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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
----- -----
The number of shares outstanding of registrant's only class of stock as
of September 30, 1996: Common stock, par value $.50 per share - 1,929,274
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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2
PART I, ITEM 1
- --------------
CASS COMMERCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS EXCEPT SHARE
AND PER SHARE DATA)
---------------------------------
SEPTEMBER 30 DECEMBER 31
1996 1995
------------ -----------
ASSETS
- ------
Cash and due from banks $ 14,297 $ 8,529
Federal funds sold and other short-term investments 44,177 81,813
--------- ---------
Cash and cash equivalents 58,474 90,342
--------- ---------
Investments in debt and equity securities:
Held-to-maturity, estimated market value of
$124,539 and $131,378 at September 30, 1996
and December 31, 1995, respectively 125,585 130,172
Available-for-sale, at estimated market value 41,100 17,688
--------- ---------
Total investments in debt and equity securities 166,685 147,860
--------- ---------
Loans, net of unearned income 201,284 174,193
Less: Allowance for loan losses 6,342 6,358
--------- ---------
Loans, net 194,942 167,835
--------- ---------
Premises and equipment, net 7,903 8,267
Accrued interest receivable 3,551 3,788
Other assets 7,769 7,619
--------- ---------
Total assets $ 439,324 $ 425,711
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Liabilities:
- -----------
Deposits:
Noninterest-bearing 67,328 64,106
Interest-bearing 112,517 97,620
--------- ---------
Total deposits 179,845 161,726
Accounts and drafts payable 201,825 209,029
Securities sold under repurchase agreements and
other short-term borrowings 4,974 4,947
Other liabilities 6,220 6,696
--------- ---------
Total liabilities 392,864 382,398
--------- ---------
Stockholders' Equity:
- --------------------
Preferred stock, par value $.50 per share; 2,000,000
shares authorized and no shares issued -- --
Common stock, par value $.50 and $2.50 per share and
20,000,000 and 4,000,000 shares authorized at
September 30, 1996 and December 31, 1995,
respectively, and 2,000,000 shares issued 1,000 5,000
Surplus 5,740 1,740
Retained earnings 41,498 38,153
Unamortized stock bonus awards (183) (266)
Unrealized holding loss on investments in debt and equity
securities available-for-sale (311) (30)
Common shares in treasury, at cost (70,726 shares at
September 30, 1996 and December 31, 1995) (1,284) (1,284)
--------- ---------
Total stockholders' equity 46,460 43,313
--------- ---------
Total liabilities and stockholders' equity $ 439,324 $ 425,711
========= =========
See accompanying notes to consolidated financial statements.
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CASS COMMERCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------ ------------------
1996 1995 1996 1995
------ ------ ------- -------
(In Thousands Except Per Share Data)
INTEREST INCOME:
- ----------------
Interest and fees on loans $4,168 $3,532 $12,004 $10,321
Interest on debt securities:
Taxable 2,519 2,418 7,214 7,480
Exempt from Federal income taxes 19 12 53 33
Interest on Federal funds sold and
other short-term investments 442 684 1,415 1,995
------ ------ ------- -------
Total interest income 7,148 6,646 20,686 19,829
------ ------ ------- -------
INTEREST EXPENSE:
- -----------------
Interest on deposits 1,154 1,094 3,324 2,860
Interest on short-term borrowings 38 18 111 54
------ ------ ------- -------
Total interest expense 1,192 1,112 3,435 2,914
------ ------ ------- -------
Net interest income 5,956 5,534 17,251 16,915
Provision for loan losses -- -- -- --
------ ------ ------- -------
Net interest income after provision
for loan losses 5,956 5,534 17,251 16,915
------ ------ ------- -------
NONINTEREST INCOME:
- -------------------
Information services revenues:
Freight payment and processing revenue 4,381 4,453 13,291 14,457
Freight rating services income 779 880 2,474 2,780
Service charges on deposit accounts 135 113 409 299
Other 138 167 509 673
------ ------ ------- -------
Total noninterest income 5,433 5,613 16,683 18,209
------ ------ ------- -------
NONINTEREST EXPENSE:
- --------------------
Salaries and employee benefits 5,997 6,091 18,122 18,780
Occupancy expense 548 544 1,592 1,602
Equipment expense 660 632 1,894 1,974
Other 1,641 1,610 5,274 5,711
------ ------ ------- -------
Total noninterest expense 8,846 8,877 26,882 28,067
------ ------ ------- -------
Income before income tax expense 2,543 2,270 7,052 7,057
Income tax expense 829 798 2,376 2,494
------ ------ ------- -------
Net income $1,714 $1,472 $ 4,676 $ 4,563
====== ====== ======= =======
Net income per share $ .88 $ .76 $ 2.40 $ 2.37
====== ====== ======= =======
See accompanying notes to consolidated financial statements.
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CASS COMMERCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(IN THOUSANDS)
NINE MONTHS ENDED
SEPTEMBER 30
-----------------------
1996 1995
-------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
- -------------------------------------
Net income $ 4,676 $ 4,563
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 1,958 1,835
Decrease in accrued interest receivable 237 275
Amortization of stock bonus awards 83 32
Other operating activities, net (544) 415
-------- -------
Net cash provided by operating activities 6,410 7,120
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
- -------------------------------------
Proceeds from maturities of and principal
payments made on debt securities 19,536 14,472
Purchases of debt securities (39,240) (347)
Net increase in loans (27,091) (7,975)
Net loan (charge-offs) recoveries (16) 156
Purchases of premises and equipment (1,078) (1,982)
-------- -------
Net cash provided by (used in) investing activities (47,889) 4,324
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
- -------------------------------------
Net increase in demand, interest-bearing
demand and savings deposits 17,652 9,020
Net increase (decrease) in time deposits 467 (421)
Net increase (decrease) in accounts and drafts payable (7,204) 3,520
Net increase in securities sold under repurchase
agreements and other short-term borrowings 27 200
Treasury stock purchased -- (24)
Dividends paid (1,331) (1,212)
-------- -------
Net cash provided by financing activities 9,611 11,083
-------- -------
Net increase (decrease) in cash and cash equivalents (31,868) 22,527
Cash and cash equivalents at beginning of period 90,342 70,806
-------- -------
Cash and cash equivalents at end of period $ 58,474 $93,333
======== =======
Supplemental information:
Cash paid for interest $ 3,482 $ 2,854
======== =======
Net taxes paid $ 2,235 $ 2,426
======== =======
See accompanying notes to consolidated financial statements.
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CASS COMMERCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1996
Note 1 - Basis of Presentation
Cass Commercial Corporation (the Company) provides a full range of
banking services to individual, corporate and institutional customers, with a
primary focus on privately held companies, through its wholly owned
subsidiary bank, Cass Bank & Trust Company (the Bank). The Bank is subject
to competition from other financial and nonfinancial institutions throughout
the metropolitan St. Louis, Missouri area. Additionally, the Company and the
Bank are subject to the regulations of certain Federal and state agencies and
undergo periodic examinations by those regulatory agencies.
The Company also provides information services through its wholly owned
subsidiary, Cass Information Systems, Inc. (CIS). These logistics-related
services include processing and payment of freight charges, preparation of
transportation management reports, auditing of freight charges and rating of
freight shipments. CIS is subject to competition from other commercial
concerns providing similar services to companies throughout the United States
and Canada. The consolidated balance sheet caption, "Accounts and Drafts
Payable", consists of obligations related to freight bill payment services
which are performed for customers.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation, have been included. Operating results for
the period ended September 30, 1996 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1996. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1995.
Note 2 - Impact Of New Accounting Pronouncements
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 114, Accounting by Creditors for Impairment of a Loan (SFAS
114), as amended by Statement of Financial Accounting Standards No. 118,
Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosures (SFAS 118), on January 1, 1995.
SFAS 114 (as amended by SFAS 118) defines the recognition criterion for
loan impairment and the measurement methods for certain impaired loans and
loans for which the terms have been modified in troubled debt restructurings
(a restructured loan). Specifically, a loan is considered impaired when it
is probable a creditor will be unable to collect all amounts due - both
principal and interest - according to the contractual terms of the loan
agreement. When measuring impairment, the expected future cash flows of an
impaired loan must be discounted at the loan's effective interest rate.
Alternatively, impairment can be measured by reference to an observable
market price, if one exists, or the fair value of the collateral for a
collateral-dependent loan. SFAS 114 requires a creditor to measure
impairment based on the fair value of the collateral when the creditor has
determined foreclosure is probable. Additionally, impairment of a
restructured loan is measured by discounting the total expected future cash
flows at the loan's effective rate of interest as stated in the original loan
agreement.
SFAS 118 amends SFAS 114 to allow a creditor to use existing methods
for recognizing interest income on loans for which the accrual of income has
been discontinued, which the the Company has opted to do.
The adoption of SFAS 114 and SFAS 118 resulted in no adjustment to the
allowance for loan losses.
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During March 1995, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of (SFAS 121). SFAS 121 provides guidance for the recognition and
measurement of impairment of long-lived assets, certain identifiable
intangibles and goodwill related both to assets to be held and used and
assets to be disposed of. SFAS 121 requires entities to perform separate
calculations for assets to be held and used to determine whether recognition
of an impairment loss is required and, if so, to measure the impairment.
SFAS 121 requires long-lived assets and certain assets and certain
identifiable intangibles to be disposed of to be reported at the lower of
carrying amount or fair value less costs to sell, except for assets covered
by the provisions of APB Opinion No. 30. SFAS 121 is effective for financial
statements issued for fiscal years beginning after December 15, 1995,
although earlier application is encouraged. The Company does not anticipate
that the adoption of SFAS 121 will have a significant impact on its financial
statements.
During May 1995, the FASB issued Statement of Financial Accounting
Standards No. 122, Accounting for Mortgage Servicing Rights (SFAS 122). SFAS
122 requires that an institution which sells or securitizes loans it has
originated or purchased and maintains the servicing rights to capitalize the
cost of the rights to service such loans. SFAS 122 also requires that an
enterprise assess its capitalized mortgage servicing rights for impairment
based on the fair value of those rights. SFAS No. 122 should be applied
prospectively for fiscal years beginning after December 15, 1995. As the
Company is not currently selling or securitizing any loans that it has
originated or purchased, SFAS 122 will not have any impact on the Company's
financial statements.
During October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation (SFAS 123). SFAS
123 establishes financial accounting and reporting standards for stock-based
employee compensation plans and also applies to transactions in which an
entity issues its equity instruments to acquire goods or services from
nonemployees. SFAS 123 defines a fair value-based method of accounting for
an employee stock option or similar equity instrument and encourages all
entities to adopt that method of accounting. However, it also allows an
entity to continue to measure compensation cost for those plans using the
intrinsic value-based method of accounting prescribed by Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees
(APB 25). SFAS 123 is effective for transactions entered into in fiscal
years beginning after December 15, 1995. Pro forma disclosures required for
entities that elect to continue to measure compensation cost using APB 25
must include the effect of all awards granted in fiscal years that begin
after December 15, 1994. The Company plans to continue to measure
compensation cost using APB 25, therefore the adoption of SFAS No. 123 will
not have any impact on the Company's statements.
On June 28, 1996, the FASB issued Statement of Financial Accounting
Standards No. 125, Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities (SFAS 125). SFAS 125 provides accounting
and reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities based on consistent application of a
financial-components approach that focuses on control. It distinguishes
transfers of financial assets that are sales from transfers that are secured
borrowings. Under the financial-components approach, after a transfer of
financial assets, an entity recognizes all financial and servicing assets it
controls and liabilities it has incurred and derecognizes financial assets it
no longer controls and liabilities that have been extinguished. The
financial-components approach focuses on the assets and liabilities that
exist prior to the transfer. If a transfer does not meet the criteria for a
sale, the transfer is accounted for as a secured borrowing with pledge of
collateral.
SFAS 125 extends the "available-for-sale" or "trading" approach in SFAS
115 to nonsecurity financial assets that can contractually be prepaid or
otherwise settled in such a way that the holder of the asset would not
recover substantially all of its recorded investment. Thus, non-security
financial assets (no matter how acquired) such as loans, other receivables,
interest-only strips or residual interests in securitization trusts (for
example, tranches subordinate to other tranches, cash reserve accounts or
rights to future interest from serviced assets that exceed contractually
specified servicing fees) that are subject to prepayment risk that could
prevent recovery of substantially all of the recorded amount are to be
reported at fair value with the change in fair value accounted for depending
on the asset's classification as "available-for-sale" or "trading". SFAS 125
also amends SFAS 115 to prevent a security from being classified as
held-to-maturity if the security can be prepaid or otherwise settled in such
a way that the holder of the security would not recover substantially all of its
recorded investment.
SFAS 125 requires that a liability be derecognized if and only if
either (a) the debtor pays the creditor and is relieved of its obligation for
the liability or (b) the debtor is legally released from being the primary
obligor under the liability either judicially or by the creditor. Therefore,
a liability is not considered extinguished by an in-substance defeasance.
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SFAS 125 provides implementation guidance for accounting for (1)
securitizations, (2) transfers of partial interests, (3) servicing of
financial assets, (4) securities lending transactions, (5) repurchase
agreements including "dollar rolls", (5) "wash sales," (6) loan syndications
and participations, (7) risk participations in banker's acceptances, (8)
factoring arrangements, (9) transfers of receivables with recourse, (10)
transfers of sales-type and direct financing lease receivables and (11)
extinguishments of liabilities.
SFAS 125 is effective for transfers and servicing of financial assets
and extinguishments of liabilities occurring after December 31, 1996, and is
to be applied prospectively. Earlier or retroactive application is not
permitted. Also, the extension of the SFAS 115 approach to certain
nonsecurity financial assets and the amendment to SFAS 115 is effective for
financial assets held on or acquired after January 1, 1997.
Reclassifications that are necessary because of the amendment do not call
into question an entity's intent to hold other debt securities to maturity in
the future. Management is currently reviewing SFAS 125 to determine the
effect it will have on the Company's financial statements.
Note 3 - Earnings Per Share
Average common and common stock equivalents outstanding for the nine
month periods ended September 30, 1996 and 1995 were 1,949,822 and 1,925,522,
respectively. Average common and common stock equivalents outstanding for
the three month periods ended September 30, 1996 and 1995 were 1,955,378 and
1,935,748, respectively. The weighted average number of common stock
equivalents is calculated using the treasury stock method.
Note 4 - Stock Option Plan / Stock Bonus Plan
During May 1995, the Company's Board of Directors established the 1995
Performance-Based Stock Option Plan (the Option Plan) and the 1995 Restricted
Stock Bonus Plan (the Bonus Plan). These plans were adopted to aid the
Company in securing and retaining qualified personnel. The Option Plan
provides for the granting of options on up to 200,000 shares of the Company's
common stock. As of September 30, 1996, options for 60,000 shares had been
awarded under the Option Plan at an option price of $20.63 per share. These
options vest over a period not to exceed seven years, but the vesting period
can be less based on the Company's attainment of certain financial operating
performance criteria. The Bonus Plan provides for the issuance of up to
50,000 shares of the Company's common stock. As of September 30, 1996, an
aggregate of 16,000 shares of the Company's common stock had been awarded to
five participants. Interest in the shares of common stock awarded under the
Bonus Plan are subject to forfeiture and vest ratably over a three year
period. Common stock awarded under the Bonus Plan is accounted for through
the establishment of a contra stockholders' equity account. This contra
stockholders' equity account is amortized against income over the vesting
period of the stock awards.
Note 5 - Reclassifications
Certain amounts in the 1995 consolidated financial statements have been
reclassified to conform with the 1996 presentation. Such reclassifications
have no effect on previously reported net income.
Note 6 - Change in Authorized Capital Stock
The authorized common stock was increased from 4,000,000 shares to
20,000,000 shares by a majority vote of stockholders at the Shareholders'
Annual Meeting on April 15, 1996. As a result, the par value of common stock
has been changed from $2.50 per share to $.50 per share. The common stock
and surplus amounts presented in the Consolidated Balance Sheet at September
30, 1996 reflect the above noted change. Additionally, the shareholders
authorized 2,000,000 shares of preferred stock with a par value of $.50 per
share. No shares of preferred stock have been issued as of September 30,
1996.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
----------------------------------------------------------------
RESULTS OF OPERATIONS
- ---------------------
Net Income
- ----------
Cass Commercial Corporation (the Company) operates in two primary
business segments through its two wholly owned subsidiaries, Cass Bank and
Trust Company (Cass Bank), which operates as a commercial bank, and Cass
Information Systems, Inc. (CIS), an information services company, whose
operations include the processing and payment of freight charges, preparation
of transportation management reports, auditing of freight charges and rating
of freight shipments. The Company had net income of $4,676,000 for the
nine-month period ended September 30, 1996 (the "First Nine Months of 1996")
compared to net income of $4,563,000 for the nine-month period ended
September 30, 1995 (the "First Nine Months of 1995").
The Company had net income of $1,714,000 for the three-month period
ended September 30, 1996 ("Third Quarter of 1996") compared to net income of
$1,472,000 for the three-month period ended September 30, 1995 ("Third
Quarter of 1995").
The following paragraphs more fully discuss the changes in financial
condition and results of operations for the First Nine Months of 1996
compared to the First Nine Months of 1995 and for the Third Quarter of 1996
compared to the Third Quarter of 1995. Such information is provided on a
consolidated basis for the Company, Cass Bank and CIS, with expanded
disclosures for specific effects CIS's operations have on particular account
captions.
Net Interest Income
- -------------------
The Company's tax-equivalent net interest margin on earning assets
decreased in the First Nine Months of 1996 to 6.01% from 6.19% in the First
Nine Months of 1995. The prime rate decreased from 9.00% in February, 1995
to 8.25% in February, 1996. The Company is adversely 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 CIS in the
form of accounts and drafts payable (See interest sensitivity gap measurement
under the section entitled "Asset/Liability Management Program"), as well as
a significant portion of the Company's loan portfolio bearing a floating rate
of interest.
Average earning assets increased $18,398,000 in the First Nine Months
of 1996 compared to the First Nine Months of 1995; however, average
interest-bearing liabilities increased $17,376,000 over the same period
compared to 1995 resulting in an increase in net earning assets of $1,022,000.
The mix of earning assets changed in the First Nine Months of 1996 compared to
the First Nine Months of 1995 with an increase of $33,563,000 in the average
balance of loans and a decrease of $5,356,000 in debt and equity securities.
These improvements more than offset the decrease in the net interest margin.
See Table 1 on page 8 for further explanation of the changes in net interest
income.
The Company's tax-equivalent net interest income for the Third Quarter
of 1996 increased $427,000 (7.7%) compared to the Third Quarter of 1995.
Average earning assets increased $29,042,000 in the Third Quarter of 1996
compared to the Third Quarter of 1995, while average interest-bearing
liabilities increased $15,847,000. The mix of average earning assets also
improved with an increase of $36,880,000 in average loans and a decrease of
$13,933,000 in average Federal funds sold and short-term investments. These
improvements more than offset the decrease in the net interest margin from
6.00% in the Third Quarter of 1995 to 5.98% in the Third Quarter of 1996.
See Table 2 on page 9 for further explanation of the changes in net interest
income.
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TABLE 1: CONSOLIDATED AVERAGE BALANCE SHEETS AND NET INTEREST
INCOME ANALYSIS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(TAX-EQUIVALENT BASIS, IN THOUSANDS)
AVERAGE INTEREST INCREASE(DECREASE)
AVERAGE BALANCE YIELD/RATE INCOME/EXPENSE DUE TO CHANGE IN
-------------------- ------------ ---------------- NET ------------------
1996 1995 1996 1995 1996 1995 CHANGE VOLUME RATE
---- ---- ---- ---- ---- ---- ------ ------ ----
ASSETS
- ------
Interest-earning assets:
Loans $188,931 $155,368 8.51% 8.91% $12,030 $10,358 $1,672 $2,154 $(482)
Investment in debt and equity securities 159,578 164,934 6.11 6.09 7,295 7,514 (219) (245) 26
Federal funds sold and other
short-term investments 36,244 46,053 5.22 5.79 1,415 1,995 (580) (396) (184)
-------- -------- ----- ----- ------- ------- ------ ------ -----
Total interest-earning assets 384,753 366,355 7.21 7.25 20,740 19,867 873 1,513 (640)
-------- -------- ----- ----- ------- ------- ------ ------ -----
Nonearning assets:
Cash and due from banks 17,893 15,288
Premises and equipment 8,180 7,522
Other assets 10,166 10,201
Allowance for loan losses (6,397) (6,441)
-------- --------
Total assets 414,595 392,925
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Interest-bearing liabilities:
Interest-bearing demand deposits 23,141 20,504 3.29 3.01 569 461 108 63 45
Savings deposits 67,783 54,716 4.63 4.88 2,349 1,996 353 457 (104)
Time deposits of $100,000
or more 4,545 4,841 5.35 5.66 182 205 (23) (12) (11)
Other time deposits 5,841 5,588 5.13 4.74 224 198 26 9 17
-------- -------- ----- ----- ------- ------- ------ ------ -----
Total interest-bearing deposits 101,310 85,649 4.39 4.46 3,324 2,860 464 517 (53)
Federal funds purchased and securities
sold under repurchase agreements 3,239 1,524 4.58 4.74 111 54 57 59 (2)
-------- -------- ----- ----- ------- ------- ------ ------ -----
Total interest-bearing liabilities 104,549 87,173 4.39 4.47 3,435 2,914 521 576 (55)
-------- -------- ----- ----- ------- ------- ------ ------ -----
Noninterest-bearing liabilities:
Demand deposits 56,671 52,618
Accounts and drafts payable 201,898 205,677
Other liabilities 6,779 7,157
-------- --------
Total liabilities 369,897 352,625
Stockholders' equity 44,698 40,300
-------- --------
Total liabilities and
stockholders' equity $414,595 $392,925
======== ========
Net interest income $17,305 $16,953 $ 352 $ 937 $(585)
======= ======= ====== ====== =====
Net yield on interest-earning assets 6.01% 6.19%
===== =====
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10
TABLE 2: CONSOLIDATED AVERAGE BALANCE SHEETS AND NET INTEREST
INCOME ANALYSIS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(TAX-EQUIVALENT BASIS, IN THOUSANDS)
AVERAGE INTEREST INCREASE(DECREASE)
AVERAGE BALANCE YIELD/RATE INCOME/EXPENSE DUE TO CHANGE IN
-------------------- ------------ ---------------- NET ------------------
1996 1995 1996 1995 1996 1995 CHANGE VOLUME RATE
---- ---- ---- ---- ---- ---- ------ ------ ----
ASSETS
- ------
Interest-earning assets:
Loans $196,670 $159,790 8.43% 8.80% $ 4,177 $ 3,544 $ 633 $ 789 $(156)
Investment in debt and equity securities 165,536 159,441 6.11 6.05 2,548 2,432 116 94 22
Federal funds sold and other
short-term investments 33,991 47,924 5.16 5.66 442 684 (242) (185) (57)
-------- -------- ----- ----- ------- ------- ------ ------ -----
Total interest-earning assets 396,197 367,155 7.18 7.20 7,167 6,660 507 698 (191)
-------- -------- ----- ----- ------- ------- ------ ------ -----
Nonearning assets:
Cash and due from banks 17,705 16,056
Premises and equipment 8,063 7,742
Other assets 10,052 9,897
Allowance for loan losses (6,426) (6,483)
-------- --------
Total assets 425,591 394,367
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Interest-bearing liabilities:
Interest-bearing demand deposits 24,105 21,846 3.49 2.98 212 164 48 18 30
Savings deposits 72,654 60,624 4.42 5.16 810 788 22 143 (121)
Time deposits of $100,000
or more 4,558 4,722 5.14 5.71 59 68 (9) (2) (7)
Other time deposits 5,756 5,687 5.03 5.16 73 74 (1) 1 (2)
-------- -------- ----- ----- ------- ------- ------ ------ -----
Total interest-bearing deposits 107,073 92,879 4.28 4.67 1,154 1,094 60 160 (100)
Federal funds purchased and securities
sold under repurchase agreements 3,245 1,592 4.65 4.49 38 18 20 19 1
-------- -------- ----- ----- ------- ------- ------ ------ -----
Total interest-bearing liabilities 110,318 94,471 4.29 4.67 1,192 1,112 80 179 (99)
-------- -------- ----- ----- ------- ------- ------ ------ -----
Noninterest-bearing liabilities:
Demand deposits 57,185 51,953
Accounts and drafts payable 206,007 199,390
Other liabilities 6,375 6,947
-------- --------
Total liabilities 379,885 352,761
Stockholders' equity 45,706 41,606
-------- --------
Total liabilities and
stockholders' equity $425,591 $394,367
======== ========
Net interest income $ 5,975 $ 5,548 $ 427 $ 519 $ (92)
======= ======= ====== ====== =====
Net yield on interest-earning assets 5.98% 6.00%
===== =====
-9-
11
Provision for Loan Losses
- -------------------------
A significant determinant of the Company's operating results is the
level of loan losses and the provision for loan losses. There was no charge
to earnings to provide for loan losses for the First Nine Months of 1996 or
the First Nine Months of 1995. Management determined there was no need for
any provision for loan losses during these periods. This determination was
based on the low level of nonperforming loans compared to the existing
balance of the allowance for loan losses, and the Company experiencing a net
loss of only $16,000 in the First Nine Months of 1996 and a net recovery of
$156,000 in the First Nine Months of 1995.
Factors which influence management's determination of the provision for
loan losses charged to expense, among other things, include: evaluation of
each nonperforming and/or classified loan to determine the estimated loss
exposure under existing circumstances known to management; evaluation of all
potential problem loans identified in light of possible loss exposure based
upon existing circumstances known to management; analysis of the loan
portfolio with regard to potential future loss exposure on loans to specific
customers and/or industries; current economic conditions; and, an overall
review of the loan portfolio in light of past loan loss experience.
At September 30, 1996, nonperforming loans, including nonaccrual loans
and loans past due 90 days or more, totalled $310,000. This represents .16%
of average total loans, which is below industry averages.
At September 30, 1996, impaired loans totalled $1,292,000 which
includes $296,000 of nonaccrual loans. The allowance for loan losses on
impaired loans was $795,000 at September 30, 1996. The average balance of
impaired loans during the First Nine Months of 1996 was $1,304,000.
The allowance for loan losses at September 30, 1996 was $6,342,000 and
at December 31, 1995 was $6,358,000. The allowance for loan losses at
September 30, 1996 represents 3.15% of total loans outstanding compared to
3.65% at December 31, 1995. The allowance covers nonperforming loans at
September 30, 1996 approximately 20.5 times compared to 10.1 times at
December 31, 1995.
-10-
12
The following table presents information as of and for the three- and
nine-month periods ended September 30, 1996 and 1995 pertaining to the
Company's provision for loan losses and analysis of the allowance for loan
losses.
Three Months Ended Nine Months Ended
September 30 September 30
--------------------- --------------------
1996 1995 1996 1995
-------- -------- -------- --------
(dollars in thousands)
Allowance at beginning of period $ 6,421 $ 6,473 $ 6,358 $ 6,334
Provision for loan losses charged to expense -- -- -- --
Loans charged off (119) -- (121) (35)
Recoveries on loans previously charged off 40 17 105 191
-------- -------- -------- --------
Net loan (charge-offs) recoveries (79) 17 (16) 156
-------- -------- -------- --------
Allowance at end of period $ 6,342 $ 6,490 $ 6,342 $ 6,490
======== ======== ======== ========
Loans outstanding:
Average $196,670 $159,790 $188,931 $155,368
September 30 201,284 160,441 201,284 160,441
Ratio of allowance for loan losses to
loans outstanding:
Average 3.22% 4.06% 3.36% 4.18%
September 30 3.15% 4.05% 3.15% 4.05%
Nonperforming loans:
Nonaccrual loans $ 296 $ 217 $ 296 $ 217
Loans past due 90 days or more 14 776 14 776
-------- -------- -------- --------
Total $ 310 $ 993 $ 310 $ 993
-------- -------- -------- --------
Nonperforming loans as a percent of
average loans .16% .62% .16% .64%
-11-
13
Noninterest Income
- ------------------
Noninterest income is principally derived from service fees generated
by CIS's Payment Systems and Software Systems Groups. Total noninterest
income for the the First Nine Months of 1996 and the Third Quarter of 1996
decreased $1,526,000 (8.4%) and $180,000 (3.2%), respectively, from the
corresponding periods of 1995.
CIS's Payment Systems Group experienced a decrease in processing
revenues of $1,166,000 (8.1%) and $72,000 (1.6%) in the First Nine Months of
1996 and the Third Quarter of 1996, respectively, compared to the
corresponding periods of 1995. CIS acquired the Freight Management Division
of The First National Bank of Boston effective June 1, 1994. The accounts of
this division were converted to CIS's processing systems in two phases. The
first phase of conversion was completed in May, 1995 and the second phase was
completed in December, 1995. These conversions resulted in a number of lost
accounts which were generally expected and generally represented accounts
which were previously processed on an unprofitable basis. The Boston
operation accounted for a decrease in processing revenues of $1,363,000 in
the First Nine Months of 1996 compared to the First Nine Months of 1995. The
Boston operation accounted for a decrease in processing revenues of $138,000
in the Third Quarter of 1996 compared to the Third Quarter of 1995. The
volume of accepted new business proposals remains strong and should result in
increasing revenues in CIS's Payment Systems Group as new accounts are placed
in service throughout the remainder of 1996.
CIS's Software Systems Group experienced a decrease in freight rating
services income of $306,000 (11.0%) and $101,000 (11.5%) in the First Nine
Months of 1996 and the Third Quarter of 1996, respectively, compared to the
corresponding periods of 1995. This decrease resulted mainly from a decline
in software package sales.
Noninterest Expense
- -------------------
Total noninterest expense for the First Nine Months of 1996 decreased
$1,185,000 (4.2%) from the First Nine Months of 1995. Total noninterest
expense for the Third Quarter of 1996 decreased $31,000 (.3%) from the Third
Quarter of 1995. These decreases resulted primarily from decreased operating
expenses at CIS's operation in Boston upon completion of account conversions
as described above. Total noninterest operating expense excluding
intercompany charges of the Boston facility decreased $1,373,000 in the First
Nine Months of 1996 and decreased $112,000 in the Third Quarter of 1996
compared to the corresponding periods of 1995.
Salaries and benefits expense decreased $658,000 (3.5%) in the First
Nine Months of 1996 compared to the First Nine Months of 1995. CIS's Boston
operation accounted for a decrease of $931,000 resulting from staff attrition
and adjustments as account conversions were completed throughout 1995. The
Company experienced an increase of $273,000 (1.8%) in salary and benefits
expense in the remainder of its operations resulting from salary increases
effective January 1, 1996. Salaries and benefits expense decreased $94,000
(1.5%) in the Third Quarter of 1996 compared to the Third Quarter of 1995.
CIS's Boston operation accounted for a decrease of $162,000. The Company
experienced an increase of $68,000 (1.4%) in salary and benefits expense in
the remainder of its operations in the Third Quarter of 1996 compared to the
same period in 1995.
Equipment expense decreased $80,000 (4.1%) in the First Nine Months of
1996 and increased $28,000 (4.4%) in the Third Quarter of 1996, respectively,
compared to the corresponding periods of 1995. CIS's Boston operation
accounted for a decrease of $50,000 in the First Nine Months of 1996 compared
to the same period in 1995.
Other noninterest expense decreased $437,000 (7.7%) in the First Nine
Months of 1996 compared to the First Nine Months of 1995. Other noninterest
expense increased $31,000 (1.9%) in the Third Quarter of 1996 over the Third
Quarter of 1995. Cass Bank experienced a decrease of $141,000 in FDIC
insurance expense in the First Nine Months of 1996 compared to the First Nine
Months of 1995 resulting from a reduction in Cass Bank's assessment rate to a
minimum of $2,000 per year for 1996. CIS's Boston operation expenses
decreased $428,000 in the First Nine Months of 1996 compared to the First
Nine Months of 1995.
-12-
14
Balance Sheet Analysis
- ----------------------
Federal funds sold and other short-term investments decreased from
$81,813,000 at December 31, 1995 to $44,177,000 at September 30, 1996. The
average balance of these accounts was $36,244,000 in the First Nine Months of
1996 compared to $46,053,000 in the First Nine Months of 1995. The decrease
in the average balance of these accounts has resulted from a deployment of
funds to increased loan balances. See Table 1 and Table 2 on pages 8 and 9
for a presentation of average balances.
Total loans increased $27,091,000 (15.6%) from $174,193,000 at December
31, 1995 to $201,284,000 at September 30, 1996. The average balances of
loans increased $33,563,000 (21.6%) from $155,368,000 in the First Nine
Months of 1995 to $188,931,000 in the First Nine Months of 1996. Loan demand
and new business volume increased throughout 1995 and has continued into the
First Nine Months of 1996.
Investments in debt and equity securities increased $18,825,000 (12.7%)
from $147,860,000 at December 31, 1995 to $166,685,000 at September 30, 1996.
The average balance of investment securities decreased $5,356,000 (3.2%) from
$164,934,000 in the First Nine Months of 1995 to $159,578,000 in the First
Nine Months of 1996.
Total earning assets increased $8,280,000 (2.1%) from $403,866,000 at
December 31, 1995 to $412,146,000 at September, 1996. The average balance of
earning assets increased $18,398,000 (5.0%) from $366,355,000 in the First
Nine Months of 1995 to $384,753,000 in the First Nine Months of 1996. This
increase was funded by an increase of $17,376,000 in the average balance of
interest-bearing liabilities.
Interest-bearing deposits increased from $97,620,000 at December 31,
1995 to $112,517,000 at September 30, 1996. The average balances of these
deposits increased $15,661,000 (18.3%) from $85,649,000 in the First Nine
Months of 1995 to $101,310,000 in the First Nine Months of 1996. The most
significant increase in these deposits occurred in interest-bearing
commercial savings accounts.
Noninterest-bearing deposits increased $3,222,000 (5.0%) from
$64,106,000 at December 31, 1995 to $67,328,000 at September 30, 1996. The
average balance of these accounts increased $4,053,000 (7.7%) from
$52,618,000 in the First Nine Months of 1995 to $56,671,000 in the First Nine
Months of 1996.
Accounts and drafts payable generated by CIS in its freight payment
operations decreased $7,204,000 (3.4%) from $209,029,000 at December 31, 1995
to $201,825,000 at September 30, 1996. The average balances of these funds
decreased $3,779,000 (1.8%) from $205,677,000 for the First Nine Months of
1995 to $201,898,000 in the First Nine Months of 1996. This decrease has
resulted from a change in the mix of accounts with a greater number of
accounts being priced with a higher component of revenue generated from fees
relative to revenue generated from balances in accounts and drafts payable.
-13-
15
Liquidity
- ---------
As of September 30, 1996, approximately 58% of the Company's loan
portfolio was composed of commercial loans, of which 78% represented loans
maturing within one year. As of the same date, real estate loans, primarily
commercial, represented approximately 40% of the total and of these, 26%
represented balances maturing within one year. Approximately 2% of the loan
portfolio is represented by installment loans.
The liquidity of the Company is primarily represented by cash and due
from banks of $14,297,000 and Federal funds sold and other short-term
investments of $44,177,000 at September 30, 1996. Included in this caption
are $24,000,000 invested in money market funds consisting of short-term U.S.
Government and agency issues.
Investments in debt and equity securities represented approximately 38%
of total assets at September 30, 1996. Of the U.S. Government securities in
the Company's investment portfolio, which represented 76% of the total, 19%
have maturities of less than one year. U.S. Government Agencies and
Corporations represented 23% of the total. Obligations of states and
political subdivisions constituted 1% of the investment portfolio at
September 30, 1996. There were no sales of debt securities in the First Nine
Months of 1996. Of the total portfolio, over 87% of the securities have
maturities of five years or less. These securities provide the Company
longer term liquidity than its primary sources, cash and due from banks and
other short-term instruments. Additionally, short-term liquidity could be
satisfied, if necessary, by the sale of certain debt securities maintained as
available-for-sale; however, the Company does not foresee any such short-term
liquidity needs.
The funds provided by Cass Bank consist of a sizable volume of core
deposits. Historically, the Company has been a net provider of Federal
funds. During the First Nine Months of 1996, the Company was a net provider
of Federal funds, averaging nearly $9,285,000 in net funds sold. The Company
was able to meet its liquidity requirements in the First Nine Months of 1996
through the growth of deposit accounts and the liquid nature of Federal funds
sold and other short-term investments.
-14-
16
Asset/Liability Management Program
- ----------------------------------
The Company's earning assets significantly exceed its interest-bearing
liabilities. This is primarily due to the noninterest-bearing liabilities
generated by CIS in the form of accounts and drafts payable. Within this
framework, the Company's asset/liability management program strives to
maintain an appropriate balance between rate-sensitive assets and
liabilities. The primary goal of the Company is to maintain a level of
earning assets net of interest-bearing liabilities which will produce a
relatively high net interest margin compared to other financial
institutions. The Company's Investment Committee monitors the sensitivity
of its subsidiaries' assets and liabilities with respect to changes in
interest rates and repricing opportunities, and directs the overall
acquisition and allocation of funds.
The following table presents the Company's rate sensitive position at
September 30, 1996 for the various time frames indicated.
OVER OVER
THREE SIX OVER ONE
THREE THROUGH THROUGH THROUGH OVER
VARIABLE MONTHS SIX TWELVE FIVE FIVE
RATE OR LESS MONTHS MONTHS YEARS YEARS TOTAL
---- ------- ------ ------ ----- ----- -----
(Dollars expressed in thousands)
Interest-earning assets:
Loans $ 94,679 $ 7,779 $ 6,256 $ 5,467 $ 84,827 $ 2,276 $201,284
Investment in debt and
equity securities -- 6,003 5,998 12,029 122,030 20,625 166,685
Federal funds sold and other
short-term investments 44,177 -- -- -- -- -- 44,177
-------- ------- ------- ------- -------- -------- --------
Total interest-earning assets $138,856 $13,782 $12,254 $17,496 $206,857 $ 22,901 $412,146
======== ======= ======= ======= ======== ======== ========
Interest-bearing liabilities:
Interest-bearing
transaction accounts $102,158 $ -- $ -- $ -- $ -- $ -- $102,158
Time deposits-$100,000
or more -- 2,334 803 1,423 107 -- 4,667
Other time deposits -- 1,290 1,467 1,760 1,175 -- 5,692
Federal funds purchased
and securities sold under
repurchase agreements 4,974 -- -- -- -- -- 4,974
-------- ------- ------- ------- -------- -------- --------
Total interest-bearing
liabilities $107,132 $ 3,624 $ 2,270 $ 3,183 $ 1,282 $ -- $117,491
======== ======= ======= ======= ======== ======== ========
Interest sensitivity gap:
Periodic $ 31,724 $10,158 $ 9,984 $14,313 $205,575 $ 22,901 $294,655
Cumulative 31,724 41,882 51,866 66,179 271,754 294,655
Ratio of interest-sensitive
assets to interest-sensitive
liabilities:
Periodic 1.30x 3.80x 5.40x 5.50x 161.35x -- 3.51x
Cumulative 1.30x 1.38x 1.46x 1.57x 3.31x 3.51x 3.51x
-15-
17
Capital Resources
- -----------------
Stockholders' equity was $46,460,000 or 10.58% of total assets at
September 30, 1996, an increase of $3,147,000 over the amount outstanding at
December 31, 1995. This increase resulted from net income of $4,676,000;
dividends paid of $1,331,000 ($.69 per share); increase in unrealized holding
losses of $281,000; and the amortization of the stock bonus plan of $83,000.
Primary capital, including the allowance for loan losses, reached $52,802,000
at September 30, 1996 or 12.02% of total assets compared to $49,671,000 or
11.67% of total assets at December 31, 1995.
Subsidiary dividends are the principal source of funds for payment of
dividends by the Company to its stockholders. The only restrictions on
dividends are those dictated by regulatory capital requirements and prudent
and sound banking principles.
The Company and its banking subsidiary continue to significantly exceed
all regulatory capital requirements, as evidenced by the following capital
ratios at September 30, 1996:
Company Cass
Consolidated Bank
------------ ----
Leverage Ratio 11.11% 11.20%
Tangible Capital Ratio 12.00 11.90
Primary Capital 12.02 11.90
Risk Based Capital:
Tier I 19.47 13.68
Tier II 20.73 14.38
Inflation
- ---------
Inflation can impact the financial position and results of the
operations of financial institutions because financial institutions hold
monetary assets and monetary liabilities. Monetary assets and liabilities
are those which can be converted into a fixed number of dollars, and include
cash, investments, loans and deposits. The Company's consolidated balance
sheets, as is typical of financial institutions, reflect a net positive
monetary position (monetary assets exceeding monetary liabilities). During
periods of inflation, the holding of a net positive monetary position will
result in an overall decline in the purchasing power of a financial
institution.
-16-
18
PART II
- -------
Item 1. LEGAL PROCEEDINGS
-----------------
None
Item 2. CHANGES IN SECURITIES
---------------------
None
Item 3. DEFAULTS IN SENIOR SECURITIES
-----------------------------
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF
----------------------------------
SECURITY HOLDERS
----------------
None
Item 5. OTHER INFORMATION
-----------------
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) None
(b) Cass Commercial Corporation did not file any reports on
Form 8-K during the three months ended September 30, 1996.
-17-
19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CASS COMMERCIAL CORPORATION
DATE: October 31, 1996 By Lawrence A. Collett
-------------------------------------
Lawrence A. Collett
Chairman and Chief Executive Officer
DATE: October 31, 1996 By Lawrence L. Frieben
-------------------------------------
Lawrence L. Frieben
Vice President-Secretary
(Chief Financial and Accounting Officer)
-18-
9
1,000
9-MOS
DEC-31-1996
JAN-01-1996
SEP-30-1996
14,297
24,177
20,000
0
41,100
125,585
124,539
201,284
6,342
439,324
179,845
4,974
6,220
0
0
0
1,000
45,460
439,324
12,004
7,267
1,415
20,686
3,324
3,435
17,251
0
0
26,882
7,052
7,052
0
0
4,676
2.40
2.40
.060
296
14
0
0
6,358
121
105
6,342
6,342
0
0
Information available only at year-end.
