1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 1997
COMMISSION FILE NO. 2-80070
-----------------
CASS COMMERCIAL CORPORATION
INCORPORATED UNDER THE LAWS OF MISSOURI
I.R.S. EMPLOYER IDENTIFICATION NO. 43-1265338
13001 HOLLENBERG DRIVE, BRIDGETON, MISSOURI 63044
TELEPHONE: (314) 506-5500
-----------------
Indicate by check mark whether the registrant has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and has been subject to such filing
requirements for the past 90 days.
Yes X No
---- ----
The number of shares outstanding of registrant's only class of stock as
of March 31, 1997: Common stock, par value $.50 per share - 3,858,548 shares
outstanding.
- -------------------------------------------------------------------------------
This document constitutes part of a prospectus covering securities that
have been registered under the Securities Act of 1933.
- -------------------------------------------------------------------------------
2
PART I, ITEM 1
- --------------
CASS COMMERCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS EXCEPT SHARE
AND PER SHARE DATA)
----------------------------
MARCH 31 DECEMBER 31
1997 1996
-------- -----------
ASSETS
- ------
Cash and due from banks $ 17,583 $ 10,256
Federal funds sold and other short-term investments 28,000 56,900
-------- --------
Cash and cash equivalents 45,583 67,156
-------- --------
Investments in debt and equity securities:
Held-to-maturity, estimated market value of
$110,551 and $118,362 at March 31, 1997
and December 31, 1996, respectively 111,491 118,313
Available-for-sale, at estimated market value 50,406 41,354
-------- --------
Total investments in debt and equity securities 161,897 159,667
-------- --------
Loans, net of unearned income 208,153 197,775
Less: Allowance for loan losses 4,731 4,396
-------- --------
Loans, net 203,422 193,379
-------- --------
Premises and equipment, net 9,206 8,079
Accrued interest receivable 3,421 3,366
Other assets 11,851 6,675
-------- --------
Total assets $435,380 $438,322
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Liabilities:
- -----------
Deposits:
Noninterest-bearing 79,007 62,244
Interest-bearing 98,789 115,261
-------- --------
Total deposits 177,796 177,505
Accounts and drafts payable 199,080 204,690
Short-term borrowings 3,261 2,476
Other liabilities 6,824 5,870
-------- --------
Total liabilities 386,961 390,541
-------- --------
Stockholders' Equity:
- --------------------
Preferred stock, par value $.50 per share; 2,000,000
shares authorized and no shares issued -- --
Common stock, par value $.50 per share and
20,000,000 shares authorized at March 31,
1997 and December 31, 1996; and
4,000,000 shares issued 2,000 2,000
Surplus 4,740 4,740
Retained earnings 43,297 42,376
Common shares in treasury, at cost (141,452 shares at
March 31,1997 and December 31, 1996) (1,284) (1,284)
Unrealized holding gain (loss) on investments in debt and
equity securities available-for-sale (206) 105
Unamortized stock bonus awards (128) (156)
-------- --------
Total stockholders' equity 48,419 47,781
-------- --------
Total liabilities and stockholders' equity $435,380 $438,322
======== ========
See accompanying notes to consolidated financial statements.
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CASS COMMERCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In Thousands
Except Per Share Data)
------------------------
THREE MONTHS ENDED
MARCH 31
------------------------
1997 1996
------ ------
INTEREST INCOME:
- ---------------
Interest and fees on loans $4,220 $3,830
Interest on debt securities:
Taxable 2,385 2,211
Exempt from federal income taxes 19 15
Interest on federal funds sold and
other short-term investments 427 582
------ ------
Total interest income 7,051 6,638
------ ------
INTEREST EXPENSE:
- ----------------
Interest on deposits 1,003 1,057
Interest on short-term borrowings 25 38
------ ------
Total interest expense 1,028 1,095
------ ------
Net interest income 6,023 5,543
Provision for loan losses 245 --
------ ------
Net interest income after provision
for loan losses 5,778 5,543
------ ------
NONINTEREST INCOME:
- ------------------
Information services revenues:
Freight payment and processing revenue 4,240 4,542
Freight rating services income 592 904
Service charges on deposit accounts 141 127
Other 171 172
------ ------
Total noninterest income 5,144 5,745
------ ------
NONINTEREST EXPENSE:
- -------------------
Salaries and employee benefits 5,814 6,071
Occupancy expense 533 518
Equipment expense 661 622
Other 1,739 1,856
------ ------
Total noninterest expense 8,747 9,067
------ ------
Income before income tax expense 2,175 2,221
Income tax expense 752 746
------ ------
Net income $1,423 $1,475
====== ======
Net income per share $ .36 $ .38
====== ======
See accompanying notes to consolidated financial statements.
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CASS COMMERCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31
--------------------------
1997 1996
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
- ------------------------------------
Net income $ 1,423 $ 1,475
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 600 601
Amortization of stock bonus awards 28 28
Provision for loan losses 245 --
(Increase) decrease in accrued interest receivable (55) 222
Other operating activities, net (4,098) (324)
-------- --------
Net cash provided by (used in) operating activities (1,857) 2,002
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
- ------------------------------------
Proceeds from maturities of debt securities:
Held-to-maturity 6,766 2,895
Available-for-sale 267 865
Purchases of debt and equity securities:
Held-to-maturity -- (727)
Available-for-sale (9,835) (12,000)
Net increase in loans (10,378) (11,783)
Recoveries of loans previously charged off, net 90 19
Purchases of premises and equipment (1,590) (459)
-------- --------
Net cash used in investing activities (14,680) (21,190)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
- ------------------------------------
Net increase (decrease) in demand, interest-bearing
demand and savings deposits 882 (5,734)
Net increase (decrease) in time deposits (591) 534
Net decrease in accounts and drafts payable (5,610) (172)
Net increase (decrease) in short-term borrowings 785 (694)
Dividends paid (502) (443)
-------- --------
Net cash used in financing activities (5,036) (6,509)
-------- --------
Net decrease in cash and cash equivalents (21,573) (25,697)
Cash and cash equivalents at beginning of period 67,156 90,342
-------- --------
Cash and cash equivalents at end of period $ 45,583 $ 64,645
======== ========
Supplemental information:
Cash paid for interest $ 1,074 $ 1,097
======== ========
Net taxes paid $ 170 $ 97
======== ========
See accompanying notes to consolidated financial statements.
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CASS COMMERCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1997
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 March 31, 1997 are not necessarily indicative of the results
that may be expected for the year ending December 31, 1997. 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, 1996.
Note 2 - Impact Of New Accounting Pronouncements
During June 1996, the Financial Accounting Standards Board (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. Many of these assets and liabilities are components of financial
assets that existed 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
Statement of Financial Accounting Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities (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 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.
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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. The adoption of SFAS
125 on January 1, 1997 did not have a material impact on the Company's
financial statements.
In February 1997, the FASB issued Statement of Financial Accounting
Standards No.128, Earnings per Share (SFAS 128) establishing standards for
computing and presenting earnings per share (EPS). SFAS 128 simplifies
existing standards for computing EPS and makes them comparable to international
standards. It replaces the presentation of primary EPS with a presentation of
basic EPS. It also requires dual presentation of basic and diluted EPS on the
face of the income statement for all entities with complex capital structures
and requires a reconciliation of the components of basic and diluted EPS.
Basic EPS excludes dilution and is computed by dividing income available to
common shareholders by the weighted-average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur
if securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the Company. SFAS 128 is effective for financial
statements issued for periods ending after December 31, 1997, including interim
periods, and requires restatement of all prior-period EPS data presented. The
Company does not believe the adoption of SFAS 128 will have a material effect
on its financial condition or results of operations.
Note 3 - Stock Split
Cass Commercial Corporation announced a two-for-one stock split in the
form of a 100% stock dividend payable March 15, 1997 to stockholders of
record as of March 5, 1997. All share data in this report has been adjusted
to reflect such stock dividend.
Note 4 - Earnings Per Share
Average common and common stock equivalents outstanding for the three
month periods ended March 31, 1997 and 1996 were 3,919,096 and 3,893,182,
respectively. The weighted average number of common stock equivalents is
calculated using the treasury stock method.
Note 5 - 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 400,000 shares of the Company's
common stock. As of March 31, 1997, options for 120,000 shares had been
awarded under the Option Plan at an option price of $10.31 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
100,000 shares of the Company's common stock. As of March 31, 1997, an
aggregate of 32,000 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 6 - Reclassifications
Certain amounts in the 1996 consolidated financial statements have been
reclassified to conform with the 1997 presentation. Such reclassifications
have no effect on previously reported net income.
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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 $1,423,000 for the
three-month period ended March 31,1997 (the "First Three Months of 1997")
compared to net income of $1,475,000 for the three-month period ended March
31,1996 (the "First Three Months of 1996").
The following paragraphs more fully discuss the changes in financial
condition and results of operations for the First Three Months of 1997
compared to the First Three Months of 1996. 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
increased in the First Three Months of 1997 to 6.23% from 5.96% in the First
Three Months of 1996. The prime rate increased from 8.25% in February 1996
to 8.50% in March 1997. The Company is positively affected by increases 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 adversely affected by decreases 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.
The increase of $17,714,000 in average earning assets, net of
interest-bearing liabilities, coupled with an increase in the net interest
margin resulted in an increase in net tax-equivalent interest income of
$496,000 in the First Three Months of 1997 compared to the First Three Months
of 1996. The mix of earning assets changed in the First Three Months of 1997
compared to the First Three Months of 1996 with an increase of $23,626,000 in
the average balance of loans and a decrease of $10,960,000 in federal funds
sold and other short-term investments. See Table 1 on page 7 for further
explanation of the changes in net interest income for the First Three Months
of 1997 compared to the First Three Months of 1996.
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TABLE 1: CONSOLIDATED AVERAGE BALANCE SHEETS AND NET INTEREST
INCOME ANALYSIS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(TAX-EQUIVALENT BASIS, IN THOUSANDS)
AVERAGE INTEREST INCREASE(DECREASE)
AVERAGE BALANCE YIELD/RATE INCOME/EXPENSE DUE TO CHANGE IN
-------------------- -------------- ----------------- NET ------------------
1997 1996 1997 1996 1997 1996 CHANGE VOLUME RATE
---- ---- ---- ---- ---- ---- ------ ------ ----
ASSETS
- ------
Interest-earning assets:
Loans $203,814 $180,188 8.44% 8.55% $4,243 $3,838 $ 405 $ 454 $ (49)
Investment in debt and
equity securities 156,717 148,913 6.25 6.02 2,414 2,235 179 104 75
Federal funds sold and other
short-term investments 33,847 44,807 5.12 5.21 427 582 (155) (144) (11)
-------- -------- ---- ---- ------ ------ ----- ----- -----
Total interest-earning
assets 394,378 373,908 7.28 7.14 7,084 6,655 429 414 15
-------- -------- ---- ---- ------ ------ ----- ----- -----
Nonearning assets:
Cash and due from banks 16,517 17,196
Premises and equipment 8,893 8,278
Other assets 10,202 10,224
Allowance for loan losses (4,447) (6,365)
-------- --------
Total assets 425,543 403,241
======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
- -----------------------------
Interest-bearing liabilities:
Interest-bearing demand
deposits 30,861 22,019 3.43 3.32 261 182 79 73 6
Savings deposits 59,219 62,427 4.31 4.74 629 737 (108) (39) (69)
Time deposits of $100,000
or more 3,385 4,579 5.27 5.43 44 62 (18) (16) (2)
Other time deposits 5,569 5,777 5.02 5.28 69 76 (7) (3) (4)
-------- -------- ---- ---- ------ ------ ----- ----- -----
Total interest-bearing
deposits 99,034 94,802 4.11 4.47 1,003 1,057 (54) 15 (69)
Short-term borrowings 1,980 3,456 5.12 4.41 25 38 (13) (18) 5
-------- -------- ---- ---- ------ ------ ----- ------ -----
Total interest-bearing
liabilities 101,014 98,258 4.13 4.47 1,028 1,095 (67) (3) (64)
-------- -------- ---- ---- ------ ------ ----- ------ -----
Noninterest-bearing liabilities:
Demand deposits 62,173 56,051
Accounts and drafts payable 207,300 197,981
Other liabilities 6,652 7,339
-------- --------
Total liabilities 377,139 359,629
Stockholders' equity 48,404 43,612
-------- --------
Total liabilities and
stockholders' equity $425,543 $403,241
======== ========
Net interest income $6,056 $5,560 $ 496 $ 417 $ 79
====== ====== ===== ====== =====
Net yield on interest-
earning assets 6.23% 5.96%
==== ====
(CONTINUED)
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AVERAGE BALANCES, INTEREST AND RATES, Continued
NOTES:
For purposes of these computations, nonaccrual loans are included in the average loan amounts outstanding.
Interest income on loans includes net fees of $1,000 and $8,000 for the First Three Months of 1997 and 1996,
respectively.
Income is presented on a tax-equivalent basis assuming a tax rate of 34%. The tax-equivalent adjustment was
approximately $33,000 and $17,000 for the First Three Months of 1997 and 1996, respectively.
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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. The Company charged
$245,000 to earnings to provide for loan losses for the First Three Months of
1997. There was no charge to earnings to provide for loan losses for the
First Three Months of 1996. The quality of the loan portfolio has continued
to remain strong. The level of nonperforming loans, at .14% of average
loans, remains well below industry standards. Nonperforming loans are
covered over 16 times by the allowance for loan losses at March 31, 1997. The
Company experienced a net recovery of $90,000 in the First Three Months of
1997. Management made the decision to make a provision for loan losses in
the First Three Months of 1997 based on the loan growth experienced.
Factors which influence management's determination of the adequacy of
the allowance for loan losses, among other things, include: evaluation of
each nonperforming and/or classified loan to determine the estimated loss
exposure under existing circumstances known to management; evaluation of all
potential problem loans identified in light of possible loss exposure based
upon existing circumstances known to management; analysis of the loan
portfolio with regard to potential future loss exposure on loans to specific
customers and/or industries; current economic conditions; and, an overall
review of the loan portfolio in light of past loan loss experience.
At March 31, 1997, impaired loans totalled $1,617,000 which includes
$294,000 of nonaccrual loans. The allowance for loan losses on impaired
loans was $830,000 at March 31, 1997. The average balance of impaired loans
during the First Three Months of 1997 was $1,739,000.
The allowance for loan losses at March 31, 1997 was $4,731,000 and at
December 31, 1996 was $4,396,000. The allowance for loan losses at March 31,
1997 represents 2.27% of total loans outstanding compared to 2.22% at
December 31, 1996.
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The following table presents information as of and for the three-month
period ended March 31, 1997 and 1996 pertaining to the Company's provision
for loan losses and analysis of the allowance for loan losses.
Three Months Ended
March 31
--------------------------
1997 1996
-------- --------
(dollars expressed in thousands)
Allowance at beginning of period $ 4,396 $ 6,358
Provision for loan losses charged to expense 245 --
Loans charged off -- (1)
Recoveries on loans previously charged off 90 20
-------- --------
Net loan recoveries 90 19
-------- --------
Allowance at end of period $ 4,731 $ 6,377
======== ========
Loans outstanding:
Average $203,814 $180,188
March 31 208,153 185,976
Ratio of allowance for loan losses to
loans outstanding:
Average 2.32% 3.54%
March 31 2.27% 3.43%
Nonperforming loans:
Nonaccrual loans $ 294 $ 264
Loans past due 90 days or more -- 46
-------- --------
Total $ 294 $ 310
-------- --------
Nonperforming loans as a percent of
average loans .14% .17%
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Noninterest Income
- ------------------
Noninterest income is principally derived from service fees generated
by CIS's Payment Systems and Software Systems Groups. Total noninterest
income for the the First Three Months of 1997 decreased $601,000 (10.5%)
from the First Three Months of 1996.
CIS's Payment Systems Group experienced a decrease in processing
revenues of $302,000 (6.6%) in the First Three Months of 1997 compared to the
First Three Months of 1996. This decrease resulted primarily from termination
fees of $265,000 received from three clients in the First Three Months of
1996. 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 1997.
CIS's Freight Rating Services Group experienced a decrease in revenues
of $312,000 (34.5%) in the First Three Months of 1997 compared to the First
Three Months of 1996. This decrease resulted primarily from a decline in
software sales. Sales revenue from the AS400 version of the rating system
software has been in a declining stage as the product is being migrated to
the new client server technology.
Noninterest Expense
- -------------------
Total noninterest expense for the First Three Months of 1997 decreased
$320,000 (3.5%) from the First Three Months of 1996.
Salaries and benefits expense decreased $257,000 (4.2%) in the First
Three Months of 1997 compared to the First Three Months of 1996. Systems
development costs of nearly $250,000, related to the client server
technology, were capitalized in the First Three Months of 1997.
Equipment expense increased $39,000 (6.3%) in the First Three Months of
1997 compared to the First Three Months of 1996. CIS's Payment Systems Group
experienced an increase of $30,000 in the First Three Months of 1997 which
resulted from expansion of its processing system.
Other noninterest expense decreased $117,000 (6.3%) in the First Three
Months of 1997 compared to the First Three Months of 1996. This decrease is
attributable to several items including a decrease of $46,000 in travel and
entertainment, a decrease of $45,000 in printing and supply expense and a
decrease of $36,000 in telecommunication expense.
-11-
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Balance Sheet Analysis
- ----------------------
Federal funds sold and other short-term investments decreased from
$56,900,000 at December 31, 1996 to $28,000,000 at March 31, 1997. The
average balance of these accounts was $33,847,000 in the First Threee Months
of 1997 compared to $44,807,000 in the First Three Months of 1996. The
decrease in the average balance of these accounts has resulted from a
deployment of funds to increased loan balances. See Table 1 on page 7 for a
presentation of average balances.
Total loans increased $10,378,000 (5.2%) from $197,775,000 at December
31, 1996 to $208,153,000 at March 31, 1997. The average balances of loans
increased $23,626,000 (13.1%) from $180,188,000 in the First Three Months of
1996 to $203,814,000 in the First Three Months of 1997. Loan demand and new
business volume increased throughout 1996 and has continued into the First
Three Months of 1997.
Investments in debt and equity securities increased $2,230,000 (1.4%)
from $159,667,000 at December 31, 1996 to $161,897,000 at March 31, 1997.
The average balance of investment securities increased $7,804,000 (5.2%) from
$148,913,000 in the First Three Months of 1996 to $156,717,000 in the First
Three Months of 1997.
Total earning assets decreased $8,965,000 (2.1%) from $424,598,000 at
December 31, 1996 to $415,633,000 at March 31, 1997. The average balance of
earning assets increased $20,470,000 (5.5%) from $373,908,000 in the First
Three Months of 1996 to $394,378,000 in the First Three Months of 1997. This
increase was funded by an increase of $9,319,000 in the average balance of
accounts and drafts payable and an increase of $8,842,000 in interest-bearing
demand deposits.
Other assets increased from $6,675,000 at December 31, 1996 to
$11,851,000 at March 31,1997. The average balance of other assets remained
relatively unchanged from the First Three Months of 1996. The increase at
March 31, 1997 resulted from an increase in freight funds receivable.
Interest-bearing deposits decreased from $115,261,000 at December 31,
1996 to $98,789,000 at March 31, 1997. The average balances of these
deposits increased $4,232,000 (4.5%) from $94,802,000 in the First Three
Months of 1996 to $99,034,000 in the First Three Months of 1997. The most
significant increase in these deposits occurred in interest-bearing
commercial money market accounts.
Noninterest-bearing deposits increased $16,763,000 (26.9%) from
$62,244,000 at December 31, 1996 to $79,007,000 at March 31, 1997. The
average balance of these accounts increased $6,122,000 (10.9%) from
$56,051,000 in the First Three Months of 1996 to $62,173,000 in the First
Three Months of 1997 which reflects the results of increased business
development efforts at Cass Bank.
Accounts and drafts payable generated by CIS in its freight payment
operations decreased $5,610,000 (2.7%) from $204,690,000 at December 31, 1996
to $199,080,000 at March 31, 1997. The average balances of these funds
increased $9,319,000 (4.7%) from $197,981,000 for the First Three Months of
1996 to $207,300,000 in the First Three Months of 1997. This increase has
resulted from new business placed in service in the latter half of 1996 and
in the First Three Months of 1997.
-12-
14
Liquidity
- ---------
As of March 31, 1997, approximately 57% of the Company's loan portfolio
was composed of commercial loans, of which 75% represented loans maturing
within one year. As of the same date, real estate loans, primarily
commercial, represented approximately 41% of the total and of these, 22%
represented balances maturing within one year. Approximately 2% of the loan
portfolio is represented by installment loans.
The liquidity of the Company is primarily represented by cash and due
from banks of $17,583,000 and federal funds sold and other short-term
investments of $28,000,000 at March 31, 1997. Included in this caption are
$3,000,000 invested in money market funds consisting of short-term U.S.
Government and agency issues.
Investments in debt and equity securities represented approximately 37%
of total assets at March 31, 1997. Of the U.S. Government securities in the
Company's investment portfolio, which represented 77% of the total, 14% have
maturities of less than one year. U.S. Government Agencies and Corporations
represented 22% of the total. Obligations of states and political
subdivisions constituted 1% of the investment portfolio at March 31, 1997.
There were no sales of debt securities in the First Three Months of 1997. Of
the total portfolio, over 85% of the securities have maturities of five years
or less. These securities provide the Company longer term liquidity than its
primary sources, cash and due from banks and other short-term instruments.
Additionally, short-term liquidity could be satisfied, if necessary, by the
sale of certain debt securities maintained as available-for-sale; however,
the Company does not foresee any such short-term liquidity needs.
The funds provided by Cass Bank consist of a sizable volume of core
deposits. Historically, the Company has been a net provider of federal
funds. During the First Three Months of 1997, the Company was a net provider
of federal funds, averaging nearly $8,832,000 in net funds sold. The Company
was able to meet its liquidity requirements in the First Three Months of 1997
through the growth of deposit accounts and the liquid nature of federal funds
sold and other short-term investments.
-13-
15
Asset/Liability Management Program
- ----------------------------------
The Company's earning assets significantly exceed its interest-bearing
liabilities. This is primarily due to the noninterest-bearing liabilities
generated by CIS in the form of accounts and drafts payable. Within this
framework, the Company's asset/liability management program strives to
maintain an appropriate balance between rate-sensitive assets and
liabilities. The primary goal of the Company is to maintain a level of
earning assets net of interest-bearing liabilities which will produce a
relatively high net interest margin compared to other financial institutions.
The Company's Investment Committee monitors the sensitivity of its
subsidiaries' assets and liabilities with respect to changes in interest
rates and repricing opportunities, and directs the overall acquisition and
allocation of funds.
The following table presents the Company's rate sensitive position at
March 31, 1997 for the various time frames indicated.
OVER OVER
THREE SIX OVER ONE
THREE THROUGH THROUGH THROUGH OVER
VARIABLE MONTHS SIX TWELVE FIVE FIVE
RATE OR LESS MONTHS MONTHS YEARS YEARS TOTAL
---- ------- ------ ------ ----- ----- -----
(Dollars expressed in thousands)
Interest-earning assets:
Loans $ 93,636 $ 4,082 $ 3,971 $16,389 $ 89,440 $ 635 $208,153
Investment in debt and
equity securities -- -- 6,008 12,153 120,171 23,565 161,897
Federal funds sold and other
short-term investments 28,000 -- -- -- -- -- 28,000
-------- ------- ------- ------- -------- -------- --------
Total interest-earning assets $121,636 $ 4,082 $ 9,979 $28,542 $209,611 $ 24,200 $398,050
======== ======= ======= ======= ======== ======== ========
Interest-bearing liabilities:
Interest-bearing
transaction accounts $ 89,988 $ -- $ -- $ -- $ -- $ -- $ 89,988
Time deposits-$100,000
or more -- 859 1,205 1,138 110 -- 3,312
Other time deposits -- 1,392 1,557 1,390 1,150 -- 5,489
Short-term borrowings 3,261 -- -- -- -- -- 3,261
-------- ------- ------- ------- -------- -------- --------
Total interest-bearing
liabilities $ 93,249 $ 2,251 $ 2,762 $ 2,528 $ 1,260 $ -- $102,050
======== ======= ======= ======= ======== ======== ========
Interest sensitivity gap:
Periodic $ 28,387 $ 1,831 $ 7,217 $26,014 $208,351 $ 24,200 $296,000
Cumulative 28,387 30,218 37,435 63,449 271,800 296,000
Ratio of interest-sensitive
assets to interest-sensitive
liabilities:
Periodic 1.30x 1.81x 3.61x 11.29x 166.36x -- 3.90x
Cumulative 1.30x 1.32x 1.38x 1.63x 3.66x 3.90x 3.90x
-14-
16
Capital Resources
- -----------------
Stockholders' equity was $48,419,000 or 11.10% of total assets at March
31, 1997, an increase of $638,000 over the amount at December 31, 1996. This
increase resulted from net income of $1,423,000; dividends paid of $502,000
($.13 per share); unrealized holding losses of $311,000; and the amortization
of the stock bonus plan of $28,000. Primary capital, including the allowance
for loan losses, reached $53,150,000 at March 31, 1997 or 12.02% of total
assets compared to $52,177,000 or 11.90% of total assets at December 31,
1996.
Subsidiary dividends are the principal source of funds for payment of
dividends by the Company to its stockholders. The only restrictions on
dividends are those dictated by regulatory capital requirements and prudent
and sound banking principles.
The Company and its banking subsidiary continue to significantly exceed
all regulatory capital requirements, as evidenced by the following capital
ratios at March 31, 1997:
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 18.43 14.96
Tier II 19.63 15.73
Inflation
- ---------
Inflation can impact the financial position and results of the
operations of financial institutions because financial institutions hold
monetary assets and monetary liabilities. Monetary assets and liabilities
are those which can be converted into a fixed number of dollars, and include
cash, investments, loans and deposits. The Company's consolidated balance
sheets, as is typical of financial institutions, reflect a net positive
monetary position (monetary assets exceeding monetary liabilities). During
periods of inflation, the holding of a net positive monetary position will
result in an overall decline in the purchasing power of a financial
institution.
-15-
17
PART II
- -------
Item 1. LEGAL PROCEEDINGS
-----------------
None
Item 2. CHANGES IN SECURITIES
---------------------
None
Item 3. DEFAULTS IN SENIOR SECURITIES
-----------------------------
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF
----------------------------------
SECURITY HOLDERS
----------------
None
Item 5. OTHER INFORMATION
-----------------
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) None
(b) Cass Commercial Corporation filed Form 8-K on February 18,
1997 which announced the stock split in the form of a 100%
stock dividend on March 15, 1997.
-16-
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CASS COMMERCIAL CORPORATION
DATE: May 7, 1997 By Lawrence A. Collett
---------------------------------------------
Lawrence A. Collett
Chairman and Chief Executive Officer
DATE: May 7, 1997 By Lawrence L. Frieben
---------------------------------------------
Lawrence L. Frieben
Vice President-Secretary
(Chief Financial and Accounting Officer)
-17-
9
1,000
3-MOS
DEC-31-1997
JAN-01-1997
MAR-31-1997
17,583
8,000
25,000
0
50,406
111,491
110,551
208,153
4,731
440,380
182,796
3,261
6,824
0
0
0
2,000
46,419
440,380
4,220
2,404
427
7,051
1,003
1,028
6,023
245
0
8,747
2,175
2,175
0
0
1,423
.36
.36
6.23
294
0
0
0
4,396
0
90
4,731
4,731
0
0
Amount available at year end only.
