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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal period from to
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Commission file number 2-80070
CASS COMMERCIAL CORPORATION
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(Exact name of registrant specified in its charter)
Missouri 43-1265338
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(State or other jurisdiction of (I.R.A. Employer
incorporation or organization) identification No.)
3636 South Geyer Road, Sunset Hills, Missouri 63127
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (314) 821-1500
Securities registered pursuant to Section 12(b) of the Act:
Title of each Class Name of each exchange on which registered
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None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock par value $.50
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(Title of Class)
Indicate by check mark whether the registrant (1) 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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. X
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As of March 15, 1997, 3,858,548 shares of common stock of the
registrant were outstanding; the aggregate market value of the shares of
common stock of the registrant held by non-affiliates was approximately
$59,424,552 based upon the NASDAQ Stock Market closing price of $21.50 for
March 15, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of registrant's Annual Report to Stockholders for the fiscal
year ended December 31, 1996 are incorporated by reference in Part I
and II hereof.
2. Registrant's Proxy Statement for the Annual Meeting of Stockholders to
be held on April 21, 1997 is incorporated by reference in Part III
hereof.
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PART I.
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ITEM 1. BUSINESS
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Cass Commercial Corporation
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Registrant, Cass Commercial Corporation (the "Company"), is a bank
holding corporation organized in 1982 under the laws of Missouri and approved
by the Board of Governors of the Federal Reserve system in February 1983 and
is governed by regulations of the Board of Governors of the Federal Reserve
system applying to bank holding companies. As of December 31, 1996, the
Company owned 100% of the outstanding shares of common stock of Cass Bank &
Trust Company ("Cass Bank") and Cass Information Systems, Inc. ("CIS"), a
nonbanking subsidiary, formerly named Cass Logistics, Inc. The business of
the Company is providing supervisory assistance to its subsidiaries in the
form of centralized accounting, human resources and internal auditing
services.
The Company and its subsidiaries had 558 full-time and 14 part-time
employees as of March 15, 1997.
Total net revenue, income before income tax, identifiable assets,
depreciation and amortization expense and capital expenditures attributable
to each business segment, for the three years ended December 31, 1996 are set
forth in Note Thirteen of the Notes to Consolidated Financial Statements on
page 22 of the Cass Commercial Corporation 1996 Annual Report, which note is
hereby incorporated by reference.
Recent Development
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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 per share data in this report has been
adjusted to reflect such stock dividend.
Cass Bank & Trust Company
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Cass Bank was organized as a Missouri Trust Company with banking powers
in 1906. Its principal banking office is located at 3636 South Geyer Road,
Sunset Hills, Missouri.
Cass Bank provides banking services to the commercial, industrial and
residential areas it serves. However, its primary focus is small, privately
owned businesses. Services include commercial, real estate and personal
loans; checking, savings and time deposit accounts; lockbox operations and
other financial management services. Although Cass Bank has trust powers, it
does not operate a trust department. At December 31, 1996, Cass Bank had
total assets of $212,776,000, deposits of $187,340,000 and aggregate capital
accounts of $21,612,000 and for the year ended December 31, 1996, had net
income of $2,503,000.
Cass Bank encounters substantial competition in its banking business,
both from other banks in St. Louis, Missouri and from banks throughout the
St. Louis metropolitan area. Savings and loan associations, credit unions
and other financial institutions also provide competition. However, the
principal competition is represented by bank holding company affiliates, many
of which are larger and have greater resources than Cass Bank, and are able
to offer a wide range of banking and related services.
Cass Information Systems, Inc.
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CIS, formerly operated as a division of Cass Bank, conducts information
and payment operations. In 1956, Cass Bank began the operation of a freight
payment service to meet the needs of shippers and receivers of freight and
transportation companies in the St. Louis metropolitan area. This service
was well received and, in 1967, its marketing was expanded to cover the
entire United States. The range and scope of the services have been expanded
significantly over the years, and today many Fortune 500 companies in the
United States utilize the broad array of services provided by CIS.
In June 1994, CIS acquired substantially all the assets and assumed
substantially all the liabilities of the Freight Management Division of the
Bank of Boston, which increased CIS's freight payment dollar volume by
approximately 25%.
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The headquarters and operations of CIS are at 13001 Hollenberg Drive,
Bridgeton, Missouri where 41,000 square feet of space is utilized. Other
operating locations are in Columbus, Ohio; Chicago, Illinois and Boston,
Massachusetts.
CIS's competition comes from both within and outside the banking
industry. Many banks, which had provided freight payment services in the
past, have ceased providing such services or have sold those operations
during the last several years. CIS also competes with several nonbanking
companies throughout the United States. The Company believes CIS to be the
largest firm in the freight bill payment industry in terms of the total
dollars of freight bills paid; the total number of employees on staff; total
revenues and total assets employed. Nonbank competition consists of five
primary competitors and numerous small freight bill audit firms located in
cities throughout the United States. While offering freight payment
services, few of these audit firms compete on a national basis.
CIS owns several service marks for the freight payment services and
logistics information software it provides. Those marks deemed the most
valuable are:
Freightpay- The basic freight payment services provided by CIS
Ratemaker- The rate maintenance software product which is
provided to customers on a service basis as well
First Rate- The carrier selection software product which is also
available in a service environment
In addition, CIS either owns or has applied for nine other service
marks.
CIS continues to expand its Electronic Data Interchange ("EDI")
capabilities. CIS currently processes over 40% of its freight payment
transactions via EDI and anticipates a continuing increase in this method of
processing.
CIS is not dependent on any one customer for a large portion of its
business. It has a varied client base with no individual client exceeding 5%
of total revenue.
For the year 1996, CIS had net income of $4,130,000. Total assets at
December 31, 1996 were $237,963,000.
REGULATION AND SUPERVISION
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General
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The Company and Cass Bank are extensively regulated under federal and
state law. These laws and regulations are intended to protect depositors,
not stockholders. To the extent that the following information describes
statutory or regulatory provisions, it is qualified in its entirety by
reference to the particular statutory and regulatory provisions. Any change
in applicable laws or regulations may have a material effect on the business
and prospects of the Company. The operations of the Company may be affected
by legislative changes and by the policies of various regulatory authorities.
The Company is unable to predict the nature or the extent of the effects on
its business and earnings that fiscal or monetary policies, economic control
or new federal or state legislation may have in the future.
Federal Bank Holding Company Regulation
---------------------------------------
The Company is a bank holding company within the meaning of the Bank
Holding Company Act of 1956, as amended (the "BHC Act"), and as such, it is
subject to regulation, supervision and examination by the Federal Reserve
Bank (the "FRB"). The Company is required to file quarterly and annual
reports with the FRB and to provide to the FRB such additional information as
the FRB may require.
The BHC Act requires every bank holding company to obtain the prior
approval of the FRB before (1) acquiring, directly or indirectly, ownership
or control of any voting shares of another bank or bank holding company if,
after such acquisition, it would own or control more than 5% of such shares
(unless it
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already owns or controls the majority of such shares); (2) acquiring all or
substantially all of the assets of another bank or bank holding company; or
(3) merging or consolidating with another bank holding company. The FRB will
not approve any acquisition, merger or consolidation that would have a
substantially anticompetitive result, unless the anticompetitive effects of
the proposed transaction are clearly outweighed by a greater public interest
in meeting the convenience and needs of the community to be served. The FRB
also considers capital adequacy and other financial and managerial factors in
reviewing acquisitions or mergers.
With certain exceptions, the BHC Act also prohibits a bank holding
company from acquiring or retaining direct or indirect ownership or control
of more than 5% of the voting shares of any company which is not a bank or
bank holding company, or from engaging directly or indirectly in activities
other than those of banking, managing or controlling banks or providing
services for its subsidiaries. The principal exceptions to these
prohibitions involve certain non-bank activities which, by statute or by FRB
regulation or order, have been identified as activities closely related to
the business of banking or of managing or controlling banks. In making this
determination, the FRB considers whether the performance of such activities
by a bank holding company can be expected to produce benefits to the public
such as greater convenience, increased competition or gains in efficiency in
resources, which can be expected to outweigh the risks of possible adverse
effects such as decreased or unfair competition, conflicts of interest or
unsound banking practices.
Subsidiary banks of a bank holding company are subject to certain
restrictions imposed by the Federal Reserve Act on extensions of credit to
the bank holding company or its subsidiaries, on investments in their
securities and on the use of their securities as collateral for loans to any
borrower. These regulations and restrictions may limit the Company's ability
to obtain funds from Cass Bank for its cash needs, including funds for
payment of dividends, interest and operating expenses. Further, under the
BHC Act and certain regulations of the FRB, a bank holding company and its
subsidiaries are prohibited from engaging in certain tie-in arrangements in
connection with any extension of credit, lease or sale of property or
furnishing of services. For example, Cass Bank may not generally require a
customer to obtain other services from Cass Bank or the Company, and may not
require that customer to promise not to obtain other services from a
competitor, as a condition to an extension of credit to the customer.
State Bank Holding Company Regulation
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The Company, as a Missouri bank holding company, is also subject to
regulation by the Division of Finance of the State of Missouri (the "Division
of Finance"). Under the Missouri banking laws, prior approval of the
Division of Finance is required before a bank holding company may acquire
control of a Missouri chartered bank or a bank holding company incorporated
in Missouri. In addition, under the Missouri banking laws, it is unlawful
for any bank holding company to obtain control of any bank if the total
deposits in the bank together with the total deposits in all banks in
Missouri controlled by such bank holding company exceed 13% of the total
deposits held by all depository financial institutions in Missouri. In
computing deposits for purposes of this calculation, certificates of deposit
in the face amount of $100,000 or more, deposits from outside the United
States and deposits from banks not controlled by the bank holding company are
excluded. Depository financial institution is defined as any financial
institution which accepts deposits and which can insure such deposits through
an agency of the Federal government. As of December 31, 1996, the Company's
consolidated Missouri deposits represented less than 1% of the total deposits
held by all Missouri depository financial institutions.
Federal and State Bank Regulation
---------------------------------
Cass Bank is a Federally-insured Missouri bank and became a member of
the Federal Reserve System in November 1994. Cass Bank is subject to the
supervision and regulation of the Division of Finance, and to the supervision
and regulation of the FRB. These agencies may prohibit Cass Bank from
engaging in what they believe constitutes unsafe or unsound banking
practices.
The maximum legal rate of interest which Cass Bank may charge on a
particular loan depends on a variety of factors such as the type of borrower,
the purpose of the loan, the amount of the loan and the date the loan is
made. There are several state and federal statutes which set maximum legal
rates of interest for various kinds of loans.
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The Community Reinvestment Act requires that, in connection with
examinations of financial institutions within their jurisdiction, the FRB
shall evaluate the record of the financial institutions in meeting the credit
needs of their local communities, including low and moderate income
neighborhoods, consistent with the safe and sound operation of those banks.
These factors are also considered in evaluating mergers, acquisitions and
applications to open a branch or facility.
On September 23, 1994, the Riegle Community Development and Regulatory
Improvement Act of 1994 (the "CDB Act") was enacted. The CDB Act includes
more than 50 regulatory relief provisions designed to streamline the
regulatory process for banks and thrifts and to eliminate certain duplicative
regulations and paperwork requirements established after, and largely as a
result of, the savings and loan debacle. Well run community banks with less
than $250 million in assets will be examined every 18 months rather than
annually. The application process for forming a bank holding company has
been greatly reduced. Also, the requirement that call report data be
published in local newspapers has been eliminated. The CDB Act establishes
dual programs and provides funding in the amount of $382 million to provide
for development services, lending and investment in distressed urban and
rural areas by community development financial institutions and banks. In
addition, the CDB Act also includes provisions relating to flood insurance
reform, money laundering, regulation of high-cost mortgages, and small
business and commercial real estate securitization.
Cass Bank is also subject to certain restrictions imposed by the
Federal Reserve Act on extensions of credit to executive officers, directors,
principal shareholders or any related interest of such persons. Extensions
of credit (i) must be made on substantially the same terms, including
interest rates and collateral as, and follow credit underwriting procedures
that are not less stringent than, those prevailing at the time for comparable
transactions with persons not covered above and who are not employees, and
(ii) must not involve more than the normal risk of repayment or present other
unfavorable features. Cass Bank is also subject to certain lending limits
and restrictions on overdrafts to such persons. A violation of these
restrictions may result in the assessment of substantial civil monetary
penalties on Cass Bank or any officer, director, employee, agent or other
person participating in the conduct of the affairs of Cass Bank, the
imposition of a cease and desist order and other regulatory sanctions.
Under the Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), each federal banking agency is required to prescribe, by
regulation, non-capital safety and soundness standards for institutions under
its authority. These standards are to cover internal controls, information
systems and internal audit systems, loan documentation, credit underwriting,
interest rate exposure, asset growth, compensation, fees and benefits, such
other operational and managerial standards as the agency determines to be
appropriate and standards for asset quality, earnings and stock valuation.
An institution which fails to meet these standards must develop a plan
acceptable to the agency, specifying the steps that the institution will take
to meet the standards. Failure to submit or implement such a plan may
subject the institution to regulatory sanctions. The Company believes that
Cass Bank meets all the standards of FDICIA. FDICIA also imposed new capital
standards on insured depository institutions, all of which are met by Cass
Bank.
Deposit Insurance and Assessments
---------------------------------
As a Federal Depository Insurance Corporation ("FDIC") member
institution, the deposits of Cass Bank are currently insured to a maximum of
$100,000 per depositor through the Bank Insurance Fund ("BIF"), administered
by the FDIC, and Cass Bank is required to pay semiannual deposit insurance
premium assessments to the FDIC.
The FDIC has adopted a risk-based assessment system. Under the
risk-based assessment system, BIF members pay varying assessment rates depending
upon the level of the institution's capital and the degree of supervisory
concern over the institution. The assessment rates are set by the FDIC
semiannually. The FDIC reduced the assessment rates for 1996 to a range of
zero (0) cents to 31 cents per $100 of insured deposits. The Bank qualified
for the $0 assessment rate for 1996, and was required to pay the statutory
minimum deposit premium of $2,000 for the year. The FDIC has authority to
increase the annual assessment rate if it determines that a higher assessment
rate is necessary to increase BIF's reserve ratio. There is no cap on the
annual assessment rate which the FDIC may impose.
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Under the Financial Institutions Reform, Recovery and Enforcement Act
of 1989 ("FIRREA"), a depository institution insured by the FDIC can be held
liable for any loss incurred by, or reasonably expected to be incurred by,
the FDIC in connection with (i) the default of a commonly controlled
FDIC-insured depository institution or (ii) any assistance provided by the
FDIC to a commonly controlled FDIC-insured depository institution in danger of
default (the "Cross Guarantee"). "Default" is defined generally as the
appointment of a conservator or receiver and "in danger of default" is
defined generally as the existence of certain conditions indicating either
that there is no reasonable prospect that the institution will be able to
meet the demands of its depositors or pay its obligations in the absence of
regulatory assistance, or that its capital has been depleted and there is no
reasonable prospect that it will be replenished in the absence of regulatory
assistance. The Cross Guarantee thus enables the FDIC to assess a holding
company's healthy BIF members for the losses of any of such holding company's
failed BIF members. Cross Guarantee liabilities are generally superior in
priority to obligations of the depository institution to its shareholders,
due solely to their status as shareholders, and obligations to other
affiliates. Under FIRREA, failure to meet applicable capital guidelines
could subject a banking institution to a variety of enforcement remedies
available to federal regulatory authorities, including the termination of
deposit insurance by the FDIC and a prohibition on the taking of "brokered
deposits."
Dividends
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The principal source of the Company's cash revenues is dividends
received from Cass Bank and CIS. The Missouri banking laws impose certain
limitations on the payment of dividends by Missouri state chartered banks
such as Cass Bank, as follows: (1) no dividends may be paid which would
impair capital; (2) until the surplus fund of a bank is equal to 40% of its
capital, no dividends may be declared unless there has been carried to the
surplus account no less than one-tenth of its net profits for the dividend
period; and (3) dividends are payable only out of a bank's undivided profits.
In addition, the appropriate regulatory authorities are authorized to
prohibit banks and bank holding companies from paying dividends which would
constitute an unsafe and unsound banking practice.
Capital Adequacy
----------------
The federal bank regulatory agencies use capital adequacy guidelines in
their examination and regulation of bank holding companies and banks. If the
capital falls below the minimum levels established by these guidelines, the
bank holding company or bank may be denied approval to acquire or establish
additional banks or non-bank businesses or to open facilities.
The FRB and FDIC have adopted risk-based capital guidelines for banks
and bank holding companies. The risk-based capital guidelines are designed
to make regulatory capital requirements more sensitive to differences in risk
profile among banks and bank holding companies, to account for off-balance
sheet exposure and to minimize disincentives for holding liquid assets.
Assets and off-balance sheet items are assigned to broad risk categories,
each with appropriate weights. The resulting capital ratios represent
capital as a percentage of total risk-weighted assets and off-balance sheet
items. The guidelines are minimums, and the FRB has noted that bank holding
companies contemplating significant expansion programs should not allow
expansion to diminish their capital ratios and should maintain ratios well in
excess of the minimum. The current guidelines require all bank holding
companies and federally-regulated banks to maintain a minimum risk-based
total capital ratio equal to 8%, of which at least 4% must be Tier 1 capital
(see description of Tier 1 capital and Tier 2 capital below). Bank holding
companies are required under such guidelines to deduct all intangibles except
purchased mortgage servicing rights from capital.
Tier 1 capital for bank holding companies includes common shareholders'
equity, qualifying perpetual preferred stock (up to 25% of total Tier 1
capital, if cumulative; under a FRB rule, redeemable perpetual preferred
stock may not be counted as Tier 1 capital unless the redemption is subject
to the prior approval of the FRB) and minority interests in equity accounts
of consolidated subsidiaries, less intangibles except as described above.
Tier 2 capital includes: (i) the allowance for loan losses up to 1.25% of
risk-weighted assets; (ii) any qualifying perpetual preferred stock which
exceeds the amount which may be included in Tier 1 capital; (iii) hybrid
capital instruments; (iv) perpetual debt; (v) mandatory convertible
securities and (vi) subordinated debt and intermediate term preferred stock
of up to 50% of Tier 1 capital. Total capital is the sum of Tier 1 and Tier
2 capital less reciprocal holdings of other banking organizations, capital
instruments and investments in unconsolidated subsidiaries.
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Banks' and bank holding companies' assets are given risk-weights of 0%,
20%, 50% or 100%, depending on the type of asset. In addition, certain
off-balance sheet items are given credit conversion factors to convert them
to asset equivalent amounts to which an appropriate risk-weight will apply.
These computations result in the total risk-weighted assets. Most loans are
assigned to the 100% risk-weight category, except for first mortgage loans
fully secured by residential property, which carry a 50% rating. Most
investment securities are assigned to the 20% category, except for municipal
or state revenue bonds, which have a 50% risk-weight, and direct obligations
of or obligations guaranteed by the United States Treasury or United States
Government agencies, which have a 0% risk-weight. In converting off-balance
sheet items, direct credit substitutes, including general guarantees and
standby letters of credit backing financial obligations, are given a 100%
conversion factor. Transaction related contingencies such as bid bonds,
other standby letters of credit and undrawn commitments, including commercial
credit lines with an initial maturity of more than one year, have a 50%
conversion factor. Short-term, self-liquidating trade contingencies are
converted at 20%, and short-term commitments have a 0% factor.
The FRB also has implemented a leverage ratio, which is Tier 1 capital
as a percentage of total average assets less intangibles, to be used as a
supplement to the risk-based guidelines. The principal objective of the
leverage ratio is to place a constraint on the maximum degree to which a bank
holding company may leverage its equity capital base. The FRB requires a
minimum leverage ratio of 3%. However, for all but the most highly rated
bank holding companies and for bank holding companies seeking to expand, the
FRB expects an additional cushion of at least 100 to 200 basis points.
As of December 31, 1996, the Company and the Bank's risk-based Tier 1
Capital and Total Capital ratios, and Leverage ratio, were as follows:
Company Cass
Consolidated Bank
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Tier 1 Capital to Risk-Weighted Assets 19.92% 13.46%
Total Capital to Risk-Weighted Assets 21.17% 14.71%
Leverage Ratio 10.05% 11.06%
FDICIA
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The Federal Deposit Insurance Corporation Improvement Act of 1992
("FDICIA") made extensive changes to the federal banking laws. FDICIA
instituted certain changes to the supervisory process, including provisions
that mandate certain regulatory agency actions against undercapitalized
institutions within specified time limits. FDICIA contains various other
provisions that may affect the operations of banks and savings institutions.
The prompt corrective action provision of FDICIA requires the federal
banking regulators to assign each insured institution to one of five capital
categories ("well capitalized", "adequately capitalized" or one of three
"undercapitalized" categories) and to take progressively more restrictive
actions based on the capital categorization, as specified below. Under
FDICIA, capital requirements would include a leverage limit, a risk-based
capital requirement and any other measure of capital deemed appropriate by
the federal banking regulators for measuring the capital adequacy of an
insured depository institution. All institutions, regardless of their
capital levels, are restricted from making any capital distribution or paying
any management fees that would cause the institution to fail to satisfy the
minimum levels for any relevant capital measure.
The FDIC and the Federal Reserve Board adopted capital-related
regulations under FDICIA. Under those regulations, a bank will be well
capitalized if it: (i) had a risk-based capital ratio of 10% or greater;
(ii) had a ratio of Tier I capital to risk-adjusted assets of 6% or greater;
(iii) had a ratio of Tier I capital to average assets of 5% or
greater; and (iv) was not subject to an order, written agreement, capital
directive, or prompt corrective action directive to meet and maintain a
specific capital for any capital measure. A bank will be adequately
capitalized if it was not "well capitalized" and; (i) had a risk-based
capital ratio of 8% or greater; (ii) had a ratio of Tier I capital to
risk-adjusted assets of 4% or greater; and (iii) had a ratio of Tier I
capital to average assets of 4% or greater (except that certain
associations rated "Composite 1" under the federal banking agencies' CAMEL
rating system may be adequately capitalized if their ratios of core capital
to average assets were 3% or greater). At December 31, 1996 Cass Bank is
categorized as "well capitalized".
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FDICIA makes extensive changes in existing rules regarding audits,
examinations and accounting. It generally requires annual on-site, full
scope examinations by each bank's primary federal regulator. It also imposes
new responsibilities on managment, the independent audit committee and
outside accountants to develop or approve reports regarding the effectiveness
of internal controls, legal compliance and off-balance-sheet liabilities and
assets.
Monetary Policy
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The earnings of a bank holding company are affected by the policies of
regulatory authorities, including the FRB, in connection with the FRB's
regulation of the money supply. Various methods employed by the FRB are open
market operations in United States Government securities, changes in the
discount rate on member bank borrowings and changes in reserve requirements
against member bank deposits. These methods are used in varying combinations
to influence overall growth and distribution of bank loans, investments and
deposits, and their use may also affect interest rates charged on loans or
paid on deposits. The monetary policies of the FRB have had a significant
effect on the operating results of commercial banks in the past and are
expected to continue to do so in the future.
Branching Act
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On September 29, 1994, the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Branching Act") was enacted. Under the
Branching Act, beginning September 29, 1995, adequately capitalized and
adequately managed bank holding companies are allowed to acquire banks
accross state lines, without regard to whether the transaction is prohibited
by state law; however, they are required to maintain the acquired
institutions as separately chartered institutions. Any state law relating to
the minimum age of target banks (not to exceed five years) has been
preserved. Under the Branching Act, the Federal Reserve Board is not
permitted to approve any acquisition if, after the acquisition, the bank
holding company would control more than 10% of the deposits of insured
depository institutions nationwide or 30% or more of the deposits in the
state where the target bank is located. The Federal Reserve Board could
approve an acquisition, notwithstanding the 30% limit, if the state waives
the limit either by statute, regulation or order of the appropriate state
official.
In addition, under the Branching Act beginning on June 1, 1997, banks
will be permitted to merge with one another across state lines and thereby
create a main bank with branches in separate states. After establishing
branches in a state through an interstate merger transaction, the bank could
establish and acquire additional branches at any location in the state where
any bank involved in the merger could have established or acquired branches
under applicable federal or state law.
The responsible federal agency will not be permitted to approve any
merger if, after the merger, the resulting entity would control more than 10%
of the deposits of insured depository institutions nationwide or 30% or more
of the deposits in any state affected by the merger. The responsible agency
could approve a merger, notwithstanding the 30% limit, if home state waives
the limit either by statute, regulation or order of the appropriate state
official.
Under the Branching Act, states may adopt legislation permitting
interstate mergers before June 1, 1997. In contrast, states may adopt
legislation before June 1, 1997, subject to certain conditions, opting-out of
interstate branching. If a state opts-out of interstate branching, no
out-of-state bank may establish a branch in that state through an acquisition
or de novo, and a bank whose home state opts-out may not participate in an
interstate merger.
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I. DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY: INTEREST
RATES 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.
<TABLE>
<CAPTION>
For the year ended December 31
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1996 1995 1994
------------------------- ------------------------ ----------------------------
Interest Interest Interest
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate
------- ------- ------ ------- ------- ------ ------- ------- ------
(Dollars expressed in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS<F1>
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Earning assets:
Loans<F2><F3>:
Taxable $190,634 $16,096 8.44% $157,638 $13,949 8.85% $140,828 $11,412 8.10%
Tax-exempt<F4> 1,462 147 10.05 1,299 141 10.85 1,868 191 10.22
Debt and equity securities<F5>:
Taxable 158,884 9,729 6.12 160,193 9,741 6.08 153,317 8,701 5.68
Tax-exempt<F4> 1,407 110 7.82 854 70 8.20 947 106 11.19
Federal funds sold and other
short-term investments 40,639 2,132 5.25 51,602 2,972 5.76 47,128 1,963 4.17
-------- ------- -------- ------- -------- -------
Total earning assets 393,026 28,214 7.18 371,586 26,873 7.23 344,088 22,373 6.50
-------- ------- ===== -------- ------- ===== -------- ------- =====
Nonearning assets:
Cash and due from banks 17,945 15,645 14,639
Premises and equipment 8,091 7,731 7,428
Other assets 10,196 12,459 9,340
Allowance for loan losses (6,305) (6,504) (6,369)
-------- -------- --------
Total assets $422,953 $400,917 $369,126
======== ======== ========
</TABLE>
(continued)
-8-
<PAGE> 10
AVERAGE BALANCES, INTEREST AND RATES, Continued
<TABLE>
<CAPTION>
For the year ended December 31
-----------------------------------------------------------------
1996 1995 1994
------------------------- ------------------------ ----------------------------
Interest Interest Interest
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate
------- ------- ------ ------- ------- ------ ------- ------- ------
(Dollars expressed in thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY<F1>
- ----------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-bearing liabilities:
Interest-bearing demand
deposits $ 24,895 $ 826 3.32% $ 20,791 $ 639 3.07% $ 23,856 $ 610 2.56%
Savings deposits 68,565 3,139 4.58 57,832 2,858 4.94 49,834 1,685 3.38
Time deposits of
$100,000 or more 4,512 242 5.36 4,715 267 5.66 3,352 127 3.79
Other time deposits 5,790 296 5.11 5,584 272 4.87 6,286 219 3.48
-------- ------- -------- ------- -------- -------
Total interest-
bearing deposits 103,762 4,503 4.34 88,922 4,036 4.54 83,328 2,641 3.17
Short-term borrowings 3,090 139 4.50 2,121 92 4.34 1,147 42 3.66
-------- ------- -------- ------- -------- -------
Total interest-bearing
liabilities 106,852 4,642 4.34 91,043 4,128 4.53 84,475 2,683 3.18
-------- ------- ===== -------- ------- ==== -------- ------- ====
Noninterest-bearing
liabilities:
Demand deposits 57,833 54,079 57,642
Accounts and drafts payable 206,269 207,424 183,113
Other liabilities 6,749 7,447 6,835
-------- -------- --------
Total liabilities 377,703 359,993 332,065
Stockholders' equity 45,250 40,924 37,061
-------- -------- --------
Total liabilities and
stockholders' equity $422,953 $400,917 $369,126
======== ======== ========
Net interest income $23,572 $22,745 $19,690
======= ======= =======
Net interest margin 6.00% 6.12% 5.72%
==== ==== ====
(continued)
-9-
<PAGE> 11
<CAPTION>
AVERAGE BALANCES, INTEREST AND RATES, Continued
<FN>
NOTES:
<F1> Balances shown are daily averages.
<F2> 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 One to the
Company's 1996 Consolidated Financial Statements, incorporated by
reference herein.
<F3> Interest income on loans includes net loan fees of $8,000, $26,000 and
$67,000 for 1996, 1995 and 1994, respectively.
<F4> Income is presented on a tax-equivalent basis assuming a tax rate of 34%
for 1996, 1995 and 1994. The tax-equivalent adjustment was
approximately $88,000, $72,000 and $100,000 for 1996, 1995 and 1994,
respectively.
<F5> For purposes of these computations, yields on investment securities are
computed as interest income divided by the average amortized cost of
the investments.
</TABLE>
-10-
<PAGE> 12
INTEREST VOLUME AND RATE VARIANCE
The following table presents the changes in interest income and expense
between years 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.
<TABLE>
<CAPTION>
For the year ended December 31
----------------------------------
1996 Compared to 1995 1995 Compared to 1994
Increase (Decrease) Due Increase (Decrease) Due
to Change in: to Change in:
----------------------- -----------------------
Net Net
Volume Rate Change Volume Rate Change
------ ---- ------ ------ ---- ------
(Dollars expressed in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest earned on:
Loans <F1><F2>:
Taxable $2,810 $ (663) $2,147 $1,433 $1,104 $2,537
Tax-exempt <F3> 17 (11) 6 (61) 11 (50)
Debt and equity securities:
Taxable (80) 68 (12) 401 639 1,040
Tax-exempt <F3> 43 (3) 40 (10) (26) (36)
Federal funds sold and other
short-term investments (591) (249) (840) 201 808 1,009
------ ------ ------ ------ ------ ------
Total interest income 2,199 (858) 1,341 1,964 2,536 4,500
------ ------ ------ ------ ------ ------
Interest expense on:
Interest-bearing demand deposits 133 54 187 (85) 114 29
Savings deposits 502 (221) 281 304 869 1,173
Time deposits of $100,000 or more (11) (14) (25) 63 77 140
Other time deposits 10 14 24 (27) 80 53
Short-term borrowings 44 3 47 41 9 50
------ ------ ------ ------ ------ ------
Total interest expense 678 (164) 514 296 1,149 1,445
------ ------ ------ ------ ------ ------
Net interest income $1,521 $ (694) $ 827 $1,668 $1,387 $3,055
====== ====== ====== ====== ====== ======
<FN>
<F1> Average balances include nonaccrual loans.
<F2> Interest income includes net loan fees.
<F3> Information is presented on a tax-equivalent basis assuming a tax rate
of 34% for 1996, 1995 and 1994.
</TABLE>
-11-
<PAGE> 13
II. INVESTMENT PORTFOLIO
The carrying value of investments in debt and equity securities by category
of securities for each year, is as follows:
<TABLE>
<CAPTION>
December 31
----------------------------
1996 1995 1994
---- ---- ----
(Dollars expressed in thousands)
<S> <C> <C> <C>
U.S. Government Treasury securities $121,461 $102,992 $120,199
Obligations of U.S. Government
corporations and agencies 36,513 43,751 49,794
States and political
subdivisions 1,492 916 566
Stock of the Federal Reserve Bank 201 201 201
======== ======== ========
Total investments $159,667 $147,860 $170,760
</TABLE>
At December 31, 1996, the maturity of investments in debt securities is as
follows:
<TABLE>
<CAPTION>
After After
One Year Five Years
One Through Through After Weighted
Year or Five Ten Ten Average
Less Years Years Years Yield
---- ----- ----- ----- -----
(Dollars expressed in thousands)
<S> <C> <C> <C> <C> <C>
U.S. Government Treasury
securities $24,094 $ 97,367 $ -- $ -- 6.26%
Obligations of U.S. Govern-
ment corporations and
agencies -- 19,414 2,408 14,691 5.92
States and political
subdivisions<F1> -- 448 533 511 5.13
------- -------- ------ -------
Total investments $24,094 $117,229 $2,941 $15,202 6.17%
======= ======== ====== ======= ====
Weighted average yield 6.33% 6.18% 6.19% 5.93%
======= ======== ====== =======
<FN>
<F1> Rates on obligations of states and political subdivisions have been
adjusted to pretax equivalent rates using the incremental statutory
federal income tax rate of 34%. While yields by range of maturity
are routinely provided by the Company's accounting system on a tax
equivalent basis, the individual amounts of adjustments are not so
provided. In total, at an assumed federal income tax rate of 34%,
the adjustment amounted to approximately $38,000.
</TABLE>
There was no single issuer of securities in the investment portfolio at
December 31, 1996 other than the U.S. Government and U.S. Government
corporations and agencies, for which the aggregate amortized cost exceeded
ten percent of total stockholders' equity.
-12-
<PAGE> 14
III. LOAN PORTFOLIO
The composition of the loan portfolio is as follows:
<TABLE>
<CAPTION>
December 31
--------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Dollars expressed in thousands)
<S> <C> <C> <C> <C> <C>
Commercial and industrial $ 94,962 $ 98,641 $ 91,500 $ 88,726 $110,276
Real estate:
Mortgage 85,360 58,746 48,997 51,225 50,352
Construction 9,164 11,057 4,253 6,478 10,426
Industrial revenue bonds 2,851 1,117 1,561 2,208 2,772
Installment, net 3,794 3,954 5,226 4,738 4,996
Other 1,644 678 929 552 913
-------- -------- -------- -------- --------
Total loans $197,775 $174,193 $152,466 $153,927 $179,735
======== ======== ======== ======== ========
</TABLE>
Loans at December 31, 1996 mature as follows:
<TABLE>
<CAPTION>
Over One Year Over
Through Five Years Five Years
------------------- ------------------
One Year Fixed Floating Fixed Floating
or Less Rate Rate Rate Rate Total
------- ---- ---- ---- ---- -----
(Dollars expressed in thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial and industrial $76,049 $16,580 $ 1,960 $373 $ -- $ 94,962
Real estate:
Mortgage 11,293 64,136 9,881 50 -- 85,360
Construction 8,131 1,033 -- -- -- 9,164
Industrial revenue bonds 678 2,173 -- -- -- 2,851
Installment, net 1,702 2,092 -- -- -- 3,794
Other 1,644 -- -- -- -- 1,644
------- ------- ------- ---- ------ --------
Total loans $99,497 $86,014 $11,841 $423 $ -- $197,775
======= ======= ======= ==== ====== ========
</TABLE>
Loans have been classified as having "floating" interest rates if the rate
specified in the loan varies with the prime commercial rate of interest.
-13-
<PAGE> 15
RISK ELEMENTS INCLUDED IN LENDING ACTIVITIES
The following are nonperforming assets:
<TABLE>
<CAPTION>
December 31
----------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Dollars expressed in thousands)
<S> <C> <C> <C> <C> <C>
Commercial, industrial and industrial
revenue bonds:
Nonaccrual $480 $151 $247 $ 810 $3,269
Contractually past due 90 days
or more -- 186 -- -- --
Renegotiated loans -- 278 213 975 472
Real estate-construction contractually
past due 90 days or more -- 15 -- -- --
Real estate-mortgage:
Nonaccrual -- -- -- 43 177
Contractually past due 90 days
or more 306 -- -- -- --
Installment:
Nonaccrual -- -- -- 104 369
Contractually past due 90 days
or more -- -- -- -- 44
---- ---- ---- ------ ------
Total nonperforming loans 786 630 460 1,932 4,331
Other real estate -- -- -- -- 608
---- ---- ---- ------ ------
Total nonperforming assets $786 $630 $460 $1,932 $4,939
==== ==== ==== ====== ======
(1) Nonaccrual Loans
----------------
It is the policy of the Company to continually monitor its loan
portfolio and to discontinue the accrual of interest on any loan on
which payment of principal or interest in a timely manner in the
normal course of business is doubtful. Subsequent payments received
on such loans are applied to principal if there is any doubt as to
the collectibility of such principal; otherwise, these receipts are
recorded as interest income. Interest on nonaccrual loans, which
would have been recorded under the original terms of the loans, was
approximately $299,000 for the year ended December 31, 1996. Of
this amount, approximately $221,000 was actually recorded as
interest income on such loans.
(2) Potential Problem Loans
-----------------------
At December 31, 1996, after review of potential problem loans
identified by management including those noted above, management of
the Company concluded the allowance for loan losses was adequate.
As of December 31, 1996, approximately $2,829,000 of loans not
included in the table above were identified by management as having
potential credit problems which raised doubts as to the ability of
the borrowers to comply with the present loan repayment terms. Of
this balance of potential problem loans, $2,440,000 are deemed to be
impaired as defined by Statement of Financial Accounting Standards
No. 114, Accounting by Creditors for Impairment of a Loan. While
these borrowers are currently meeting all of the terms of the
applicable loan agreements, their financial condition has caused
management to believe that their loans may result in disclosure at
some future time as nonaccrual, past due or restructured.
(3) Foreign Loans
-------------
The Company does not have any foreign loans.
-14-
<PAGE> 16
(4) Loan Concentrations
-------------------
The Company has no concentrations of loans exceeding 10% of total
loans which are not otherwise disclosed in the loan portfolio
composition table. As can be seen in the loan composition table
above and discussed in Note Four to the Company's 1996 Consolidated
Financial Statements (included in the Company's 1996 Annual Report to
Stockholders incorporated herein by reference), the Company's primary
market niche is the small, privately held commercial company. Loans
to these entities are generally secured by the business assets of the
company, including accounts receivable, inventory, machinery and
equipment, and the building(s)/plant(s) from which the company
operates. Operating lines of credit to these companies generally are
secured by accounts receivable and inventory, with specific
percentages of each determined on a customer by customer basis, based
on the business in which the customer operates. Intermediate term
credit for machinery and equipment is generally loaned at some
percentage of the value of the equipment purchased, again depending
on the type of machinery or equipment purchased by the entity (e.g.
less funds would be loaned on restaurant equipment which has a lower
resale value than certain types of machinery which tend to hold their
value). Long term credits are secured by the entity's building(s)/
plant(s) and are generally loaned with a maximum 80% loan to value ratio.
Loans secured exclusively by commercial real estate are generally
made with a maximum 80% loan to value ratio, again depending upon the
Company's estimate of the resale value and ability for the property
to cash flow. The Company's loan policy requires an independent
appraisal for all loans over $250,000 secured by real estate. Company
management monitors the local economy in an attempt to determine
whether it has had a significant deteriorating effect on such
commercial real estate credits. When problems are identified,
appraised values are updated on a continual basis, either internally
or through ordering an updated external appraisal.
The Company's loan portfolio does not include a significant amount of
single family real estate mortgage or installment credits, as the
Company has not concentrated on the consumer side of the business.
(5) Other Interest-Earning Assets
-----------------------------
The Company does not have any other interest-earning assets which
would have been included in nonaccrual, past due or restructured
loans if such assets were loans.
</TABLE>
-15-
<PAGE> 17
IV. SUMMARY OF LOAN LOSS EXPERIENCE
The following is a summary of loan loss experience:
<TABLE>
<CAPTION>
For the year ended December 31
--------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Dollars expressed in thousands)
<S> <C> <C> <C> <C> <C>
Allowance at beginning of year $ 6,358 $ 6,334 $ 6,446 $ 6,953 $ 3,387
Loans charged-off:
Commercial, industrial and IRB's 2,120 183 436 1,179 7,031
Real estate:
Mortgage -- -- -- -- --
Construction -- -- -- -- --
Installment 1 3 24 8 1
-------- -------- -------- -------- --------
Total 2,121 186 460 1,187 7,032
-------- -------- -------- -------- --------
Recoveries of loans previously charged-off:
Commercial, industrial and IRB's 152 708 348 559 341
Real estate:
Mortgage -- -- -- -- --
Construction -- -- -- -- --
Installment 7 2 -- -- --
-------- -------- -------- -------- --------
Total 159 710 348 559 341
-------- -------- -------- -------- --------
Net loans charged-off (recovered) 1,962 (524) 112 628 6,691
-------- -------- -------- -------- --------
Provision charged to expense<F1> -- (500) -- 121 10,257
-------- -------- -------- -------- --------
Allowance at end of year $ 4,396 $ 6,358 $ 6,334 $ 6,446 $ 6,953
======== ======== ======== ======== ========
Loans outstanding:
Average $192,096 $158,937 $142,696 $158,164 $203,166
December 31 197,775 174,193 152,466 153,927 179,735
Ratio of allowance for loan losses to
loans outstanding:
Average 2.29% 4.00% 4.44% 4.08% 3.42%
December 31 2.22% 3.65% 4.15% 4.19% 3.87%
Ratio of net charge-offs to average loans
outstanding 1.02% (.33)% .08% .40% 3.29%
======== ======== ======== ======== ========
Allocation of allowance for loan losses<F2>:
Commercial, industrial and IRB's $ 3,825 $ 5,582 $ 5,485 $ 5,956 $ 6,006
Real estate:
Mortgage 119 502 492 143 284
Construction 173 7 101 -- --
Installment 279 267 256 347 663
-------- -------- -------- -------- --------
Total $ 4,396 $ 6,358 $ 6,334 $ 6,446 $ 6,953
======== ======== ======== ======== ========
Percent of categories to total loans:
Commercial and industrial and IRB's 49.5% 57.3% 61.0% 59.1% 62.9%
Real estate:
Mortgage 43.2 33.7 32.2 33.3 28.0
Construction 4.6 6.3 2.8 4.2 5.8
Installment 1.9 2.3 3.4 3.1 2.8
Other .8 .4 .6 .3 .5
-------- -------- -------- -------- --------
Total 100.0% 100.0% 100.0% 100.0% 100.0%
======== ======== ======== ======== ========
See notes <F1> and <F2> on the following page.
-16-
<PAGE> 18
IV. SUMMARY OF LOAN LOSS EXPERIENCE, Continued
<FN>
<F1> Factors which influence management's determination of the
provision for loan losses charged to expense for each of the years
presented above, 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; an
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 remainder of the
portfolio in light of past loan loss experience.
<F2> The Company allocated its allowance for loan losses to the
various loan categories at December 31, 1996 based on the ratio of
total nonperforming loans over the last 5 years. Management views
the allowance for loan losses as being available for all potential or
presently unidentified loan losses which may occur in the future. The
risk of future losses that is inherent in the loan portfolio is not
precisely attributable to a particular loan or category of loans.
Allocations estimated for the categories do not specifically
represent that loan charge-offs of this magnitude will be required.
The allocation does not restrict future loan losses attributable to
a particular category of loans from being absorbed by the portion of
the allowance attributable to other categories of loans. The risk
factors considered when determining the overall level of the
allowance are the same when estimating the allocation by major
category, as specified in the above summary.
</TABLE>
-17-
<PAGE> 19
V. DEPOSITS
Certificates of deposit and other time deposits of $100,000 and more at
December 31, 1996 mature as follows:
<TABLE>
<CAPTION>
Amount
------
(Dollars expressed
in thousands)
<S> <C>
Three months or less $1,421
Three to six months 506
Six to twelve months 1,638
Over twelve months 229
------
Total $3,794
======
</TABLE>
The composition of average deposits and the average rates paid on those
deposits is represented in Table I included earlier in this discussion. The
Company does not have any significant deposits from foreign depositors.
VI. RETURN ON EQUITY AND ASSETS
The percent of net income to average assets and average stockholders' equity
and other data is presented below.
<TABLE>
<CAPTION>
For the year ended December 31
------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Return on average total assets 1.54% 1.55% 1.51%
Return on average total stockholders' equity 14.41 15.18 15.06
Ratio of average total stockholders' equity
to average total assets 10.70 10.21 10.04
Ratio of total dividends declared
to net income 35.22 33.18 34.65
</TABLE>
-18-
<PAGE> 20
ITEM 2. PROPERTIES
----------
Cass Commercial Corporation
- ---------------------------
The Company is currently headquartered at 3636 South Geyer, Sunset
Hills, Missouri where it shares space leased by Cass Bank. The Company will
move its headquarters in April, 1997 to a new facility being added on to the
CIS headquarters located in Bridgeton, Missouri.
Cass Bank & Trust Company
- -------------------------
Cass Bank currently leases its main banking offices at Geyer & Watson
Roads, Sunset Hills, Missouri consisting of approximately 25,000 square feet,
under an operating lease which expires in 2000. This lease will be taken
over by an unaffiliated major corporation in April, 1997. Cass Bank's
obligation under the lease will be terminated at that time. Cass Bank will
move its headquarters in April, 1997 to a new facility being constructed on
land owned by CIS in Bridgeton, Missouri. The new premises will consist of
approximately 20,500 square feet.
Cass Bank also leases approximately 1,500 square feet of office space
on the first floor of the 1015 Locust Building, St. Louis, Missouri. Cass
Bank owns its facility at 1420 Thirteenth Street, St. Louis, which consists
of approximately 1,600 square feet with adjoining drive-up facilities. Cass
Bank has an additional facility in Maryland Heights, Missouri consisting of
approximately 2,500 square feet of leased space with adjoining drive-up
facilities. Cass Bank will open a new facility in April, 1997 in Fenton,
Missouri under an operating lease expiring in 2002 with two five-year renewal
options. Cass Bank will open a new facility in May, 1997 in Chesterfield,
Missouri under an operating lease expiring in 2007.
Cass Information Systems, Inc.
- ------------------------------
CIS moved its headquarters and operations to 13001 Hollenberg Drive,
Bridgeton, Missouri in April 1993. This property is owned by CIS, and
includes a building with approximately 41,000 square feet of office space.
CIS also operates at an additional production facility located in
Columbus, Ohio where approximately 20,000 square feet are leased through the
year 2000. The space is located at 2545 Farmers Drive, Columbus, Ohio. CIS
also leases approximately 25,800 square feet of space for its Boston facility
located at 900 Chelmsford Street in Lowell, Massachusetts. This lease
expires October 31, 2005. CIS also leases approximately 15,000 square feet
for its rating and software division in Chicago, Illinois. This lease
expires in 1998.
ITEM 3. LEGAL PROCEEDINGS
-----------------
The Company and its subsidiaries are not involved in any pending
proceedings other than ordinary routine litigation incidental to their
business. 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
No matters were submitted to a vote of security holders during the
fourth quarter of 1996.
-19-
<PAGE> 21
PART II.
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
--------------------------------------------------------------------
As of March 15, 1997, there were 314 holders of record of the Company's
common stock.
The Company's common stock was listed on the NASDAQ Stock Market
effective July 1, 1996. The high and low sales prices of the Company's
common stock for the third and fourth quarters of 1996 were as follows:
<TABLE>
<CAPTION>
1996
----
High Low
---- ---
<S> <C> <C>
3rd Quarter $18 7/8 $18
4th Quarter 19 3/4 18 3/4
</TABLE>
Prior to July 1, 1996, shares of the Company's common stock were not
listed or publicly traded on any securities exchange, or actively traded in
the over-the-counter market. However, there were occasional sales of the
Company's stock. High and low bid prices as reported by the National
Association of Securities Dealers' automated system for reporting non-NASDAQ
quotes for each quarterly period during 1995 and the first two quarters of
1996 were as listed below. However, there may have been transactions at
higher or lower prices of which the Company is not aware.
<TABLE>
<CAPTION>
1996 1995
---- ----
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
1st Quarter $16 1/2 $13 3/4 $10 7/8 $ 9 3/4
2nd Quarter 17 1/2 12 1/2 11 3/16 10 1/2
3rd Quarter -- -- 12 1/2 10 5/8
4th Quarter -- -- 13 3/4 10 5/8
</TABLE>
Dividends paid by the Company during the two most recent fiscal years
were as follows:
<TABLE>
<CAPTION>
Dividends Per Share
-------------------
1996 1995
---- ----
<S> <C> <C>
March 15 $.115 $.105
June 15 .115 .105
September 15 .115 .105
December 15 .250 .220
</TABLE>
-20-
<PAGE> 22
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
------------------------------------
The following table sets forth certain selected consolidated financial
information of the Company.
<TABLE>
<CAPTION>
For the year ended December 31
-------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Dollars expressed in thousands)
<S> <C> <C> <C> <C> <C>
Interest income:
Loans <F1> $16,193 $14,042 $11,538 $12,315 $15,939
Investments in debt securities 9,801 9,787 8,772 6,896 4,802
Other 2,132 2,972 1,963 1,462 1,533
------- ------- ------- ------- -------
Total interest
income 28,126 26,801 22,273 20,673 22,274
------- ------- ------- ------- -------
Interest expense:
Deposits 4,503 4,036 2,641 2,392 3,596
Short-term borrowings 139 92 42 48 78
------- ------- ------- ------- -------
Total interest
expense 4,642 4,128 2,683 2,440 3,674
------- ------- ------- ------- -------
Net interest
income 23,484 22,673 19,590 18,233 18,600
Provision for loan losses -- (500) -- 121 10,257
------- ------- ------- ------- -------
Net interest income
after provision
for loan losses 23,484 23,173 19,590 18,112 8,343
Noninterest income 22,091 23,794 21,826 16,892 14,761
Noninterest expense 35,964 37,693 33,325 29,240 27,764
------- ------- ------- ------- -------
Income (loss) before income
tax expense (benefit) 9,611 9,274 8,091 5,764 (4,660)
Income tax expense (benefit) 3,092 3,060 2,509 1,554 (1,943)
------- ------- ------- ------- -------
Income (loss) before
cumulative effect of change
in accounting principle 6,519 6,214 5,582 4,210 (2,717)
Cumulative effect of change
in accounting principle -- -- -- 74 --
------- ------- ------- ------- -------
Net income (loss) $ 6,519 $ 6,214 $ 5,582 $ 4,284 $(2,717)
======= ======= ======= ======= =======
(Continued)
<FN>
<F1> Interest income on loans includes net loan fees.
-21-
<PAGE> 23
<CAPTION>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA, Continued
-----------------------------------------------
For the year ended December 31
-------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Dollars expressed in thousands,
except per share data)
<S> <C> <C> <C> <C> <C>
Per share of common stock:
Income (loss) <F2> $ 1.670 $ 1.615 $ 1.460 $ 1.120 $ (.710)
Dividends .595 .535 .505 .475 .390
Average balances:
Total assets 422,953 400,917 369,126 342,039 338,547
Net loans 185,791 152,433 136,327 151,313 195,401
Investments in debt and
equity securities 160,291 161,047 154,264 110,127 66,528
Total deposits 161,595 143,001 140,970 144,819 158,775
Total stockholders'
equity 45,250 40,924 37,061 34,714 34,358
======== ======== ======== ======== ========
Selected ratios:
Return on average
total assets 1.54% 1.55% 1.51% 1.25% (.80)%
Return on average
total stockholders' equity 14.41 15.18 15.06 12.34 (7.91)
Total stockholders' equity
to total assets at year-end 10.90 10.12 9.52 9.73 9.23
Allowance for loan losses
to loans at year-end 2.22 3.65 4.15 4.19 3.87
Nonperforming assets
to loans and other
real estate at year-end .40 .36 .30 1.26 2.74
Net loan charge-offs to
average loans 1.02 (.33) .08 .40 3.29
<FN>
<F2> 1993 income per share includes $.02 per share relating to the
cumulative effect of a change in accounting principle.
</TABLE>
-22-
<PAGE> 24
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
HIGHLIGHTS
- ----------
Net income for the year ended December 31, 1996 was $6,519,000 or
$1.670 per share. These results compare to net income of $6,214,000 or
$1.615 per share for 1995, and $5,582,000 or $1.460 per share for 1994. At
December 31, 1996 total assets were $438,322,000 compared to $428,058,000 at
December 31, 1995; loans were $197,775,000 compared to $174,193,000 and
deposits were $177,505,000 compared to $161,726,000. The following
paragraphs more fully discuss these highlights and other significant changes
and trends as they relate to the Company's financial condition, results of
operations, capital resources and liquidity during the three-year period
ended December 31, 1996. This discussion should be read in conjunction with
the Company's Consolidated Financial Statements and Notes which are hereby
incorporated by reference from the Company's 1996 Annual Report to
Stockholders.
RESULTS OF OPERATIONS
- ---------------------
Net Income
- ----------
Net income of $6,519,000 in 1996 increased from net income of
$6,214,000 in 1995 and $5,582,000 in 1994. Net income of $1.670 per share in
1996 increased from net income of $1.615 per share for 1995 and $1.460 per
share in 1994. The Company's return on average assets was 1.54% in 1996
compared to 1.55% in 1995 and 1.51% in 1994. Return on average equity was
14.41% in 1996 compared to 15.18% in 1995 and 15.06% in 1994.
The main factor contributing to the increase in net income in 1996 over
1995 was the increase in average earning assets net of interest-bearing
liabilities from $280,543,000 in 1995 to $286,174,000 in 1996. The main
factors contributing to the increase in net income in 1995 over 1994 were the
increase in net average earning assets from $259,613,000 in 1994 to
$280,543,000 in 1995; an improvement in the net interest margin from 5.72% in
1994 to 6.12% in 1995 and a negative provision for loan losses of $500,000 in
1995. See Table I beginning on page 8.
Net Interest Income
- -------------------
The Company's tax-equivalent net interest margin on earning assets
decreased in 1996 to 6.00% from 6.12% in 1995 and was 5.72% in 1994. The
prime rate increased from 6.00% at the beginning of 1994 to 8.75% by the end
of 1994 before climbing to a high of 9.00% in February, 1995, and declined to
8.25% by February 1, 1996 where it remained throughout 1996. The average
yield on earning assets decreased to 7.18% in 1996 from 7.23% in 1995 and was
6.50% in 1994 (See Table I on pages 8 and 9). 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.
The increase of $5,631,000 in average net earning assets was the
primary contributor to the increase in net tax-equivalent interest income of
$827,000 in 1996 over 1995. The increase of nearly $21,000,000 in average
net earning assets coupled with an increase in the net interest margin
resulted in the increase in net tax-equivalent interest income of $3,055,000
in 1995 over 1994. The mix of earning assets changed somewhat in 1996 with
an increase of over $33,000,000 in the average balance of loans and a
decrease of approximately $750,000 in investment securities. The increase in
average total earning assets of over $21,400,000 from $371,586,000 in 1995 to
$393,026,000 in 1996 was funded mainly by an increase of over $15,800,000 in
average interest-bearing liabilities. The interest volume and rate variance
analysis presented on page 11 provides a detailed explanation of the changes
in net interest income for 1996 compared to 1995 and 1995 compared to 1994,
respectively.
-23-
<PAGE> 25
Provision for Loan Losses
- -------------------------
There was no provision for loan loss in 1996. The Company recorded a
negative provision for loan loss of $500,000 in 1995. There was no provision
for loan loss in 1994. Loan charge-offs, net of recoveries, experienced by
the Company were $1,962,000 in 1996, $(524,000) in 1995 and $112,000 in 1994.
Loan charge-offs in 1996 included $2,000,000 in loans to two borrowers, one
in the printing industry and one in the wholesale supply business, which
discontinued operations abruptly in late 1996. Net recoveries of $524,000
recorded in 1995 included $500,000 recovered on one loan which was charged
off in 1992. Based on the existing level of the allowance for loan losses
and the level of nonperforming loans, the Company deemed it appropriate to
make no provision for loan loss in 1996.
The allowance for loan losses was $4,396,000 at December 31, 1996,
compared to $6,358,000 at December 31, 1995 and $6,334,000 at December 31,
1994. The year-end 1996 allowance represents 2.22% of net outstanding loans.
At December 31, 1996, the level of nonperforming assets has increased
slightly from $630,000 at December 31, 1995 to $786,000. The total past due
over 90 days and nonaccrual loans of $786,000 at December 31, 1996 represents
.40% of outstanding loans which is well below industry standards.
Noninterest Income
- ------------------
Noninterest income is derived mainly from service fees generated by
CIS's Payment Systems and Software Systems Groups.
Total noninterest income decreased $1,703,000 (7.2%) in 1996 from 1995.
CIS's Payment Systems Group experienced a decrease in processing revenue of
$1,188,000 (6.3%) in 1996 from 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 $1,350,000 in 1996 compared to 1995. Once again, the Payment Systems
Group had a record processing year in paying over 20 million freight invoices
with a value of over $6.1 billion. CIS has continued to show strong earnings
in this line of business as more companies, particularly large Fortune 500
companies, seek to outsource this process. 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
1997.
CIS's Software Systems Group experienced a decrease in revenue of
$429,000 (11.5%) in 1996 compared to 1995. This decrease resulted primarily
from a decline in software sales. The client server version of the rating
system software was not brought to market until later than anticipated in
1996 which dampened sales revenue.
Total noninterest income increased $1,968,000 (9.0%) in 1995 over 1994.
CIS's Payment Systems Group experienced an increase in processing revenue of
$1,826,000 (10.7%) in 1995 over 1994 which resulted from a combination of new
business added and fee revenue generated by the Boston operation which was
acquired June 1, 1994.
Noninterest Expense
- -------------------
Noninterest expense decreased $1,729,000 (4.6%) in 1996 from 1995.
This decrease 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 $2,019,000 in 1996 compared to 1995.
-24-
<PAGE> 26
Salaries and benefits expense decreased $814,000 (3.3%) in 1996
compared to 1995. CIS's Boston operation accounted for a decrease of
$979,000 resulting from staff attrition and adjustments as account
conversions were completed throughout 1995. The Company experienced an
increase of $165,000 (.8%) in the remainder of its operations in 1996.
Equipment expense decreased $101,000 (3.7%) in 1996 compared to 1995.
CIS's Boston operation accounted for this decrease entirely.
Other noninterest expense decreased $807,000 (9.9%) in 1996 compared to
1995. CIS's Boston operation accounted for a decrease of $832,000 which
included a write-off of approximately $300,000 of systems and equipment in
1995 resulting from the completion of systems conversions.
Noninterest expense increased $4,368,000 (13.1%) in 1995 over 1994.
This increase resulted primarily from CIS's addition of its Boston facility.
Noninterest expense of the Boston facility for 1994 included only 7 months of
expense compared to 12 months in 1995.
Salaries and benefits expense increased $2,944,000 (13.5%) in 1995 over
1994. This increase is largely attributable to the Boston operation. Cass
Bank's salary and benefit expense remained relatively stable increasing less
than 3% over 1994.
Occupancy expense increased $196,000 (10.2%) in 1995 over 1994. This
increase was also due to CIS's Boston facility which had occupancy expense of
$392,000 in 1995 compared to $241,000 in 1994.
Equipment expense increased $151,000 (5.9%) in 1995 over 1994. The
Boston operation's equipment expense increased $199,000 (64.6%) in 1995.
Once again this increase is due primarily to 1994 expense including only 7
months of expense and 1995 including 12 months of expense.
Other noninterest expense increased $1,077,000 (15.2%) in 1995 over
1994. CIS's Boston operation accounted for an increase of approximately
$700,000 which included a write-off of approximately $300,000 of systems and
equipment resulting from systems conversions. CIS's operations, other than
Boston, accounted for an increase of approximately $600,000 which was
consistent with the increase in processing volume. Cass Bank's other
noninterest expenses decreased approximately $220,000 from 1994 which
resulted primarily from reduced FDIC assessment rates.
-25-
<PAGE> 27
Balance Sheet Analysis
- ----------------------
Federal funds sold and other short-term investments decreased from
$81,813,000 at December 31, 1995 to $56,900,000 at December 31, 1996. The
average balance of these accounts decreased $10,963,000 (21.2%) from
$51,602,000 in 1995 to $40,639,000 in 1996. The decrease in the average
balance of these accounts resulted from a deployment of funds to increased
loan balances. See Table I, page 8 for a presentation of average balances.
Total loans increased $23,582,000 (13.5%) from $174,193,000 at December
31, 1995 to $197,775,000 at December 31,1996. The average balances of loans
increased $33,159,000 (20.9%) in 1996 over 1995. Loan demand and new
business volume increased throughout 1996 and should continue into 1997.
Investments in debt and equity securities increased $11,807,000 (8.0%)
from $147,860,000 at December 31, 1995 to $159,667,000 at December 31, 1996.
The average balance of investments in securities decreased $756,000 (.5%)
from $161,047,000 in 1995 to $160,291,000 in 1996.
Total earning assets increased $10,476,000 (2.6%) from $403,866,000 at
December 31, 1995 to $414,342,000 at December 31, 1996. The average balance
of earning assets increased $21,440,000 (5.8%) from $371,586,000 in 1995 to
$393,026,000 in 1996. This increase was largely funded by an increase of
$15,809,000 in the average balance of interest-bearing liabilities.
Noninterest-bearing demand deposits decreased $1,862,000 (2.9%) from
$64,106,000 at December 31, 1995 to $62,244,000 at December 31, 1996. The
average balance of these accounts increased $3,754,000 (6.9%) from
$54,079,000 in 1995 to $57,833,000 in 1996.
Interest-bearing deposits increased from $97,620,000 at December 31,
1995 to $115,261,000 at December 31, 1996. The average balances of these
deposits increased $14,840,000 (16.7%) from $88,922,000 in 1995 to
$103,762,000 in 1996. The most significant increase in these deposits
occurred in interest-bearing commercial savings accounts.
Accounts and drafts payable generated by CIS in its freight payment
operations decreased $6,686,000 (3.2%) from $211,376,000 at December 31, 1995
to $204,690,000 at December 31, 1996. The average balances of these funds
decreased $1,155,000 (.6%) from $207,424,000 in 1995 to $206,269,000 in 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 fee
revenue relative to revenue generated from balances in accounts and drafts
payable.
INFLATION
- ---------
Inflation can impact the financial position and results of the
operations of banks because banks 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, reflects 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 bank.
A substantial part of the funds of the Company supporting loans and
investments do not require the payment of interest. Therefore, when market
interest rates decline, the decrease in interest income significantly exceeds
the reduction in interest expense. When interest rates increase, the reverse
effect will be experienced.
It is the policy of the Company to limit fixed rate loans to a maximum
term of five years to limit its exposure to interest rate risk.
-26-
<PAGE> 28
LIQUIDITY
- ---------
At December 31, 1996 approximately 49% of the Company's loan portfolio
was composed of commercial and industrial loans, of which approximately 78%
represented loans maturing within one year. As of the same date, real estate
loans represented approximately 48% of the total and of these, approximately
21% represented balances maturing within one year. Approximately 3% of the
loan portfolio is represented by installment loans.
The liquidity of the Company is further exemplified by cash and due
from banks of $10,256,000 and federal funds sold and other short-term
investments of $56,900,000 at December 31, 1996.
Total investments in debt and equity securities represented
approximately 36% of total assets at year-end. Average total securities as a
percent of average total assets has decreased slightly in 1996 compared to
1995. This occurred as a result of an increase in loan demand. Of the U.S.
Government securities in the Company's investment portfolio, which
represented approximately 76% of the total, approximately 20% have maturities
of less than one year. Obligations of U.S. Government corporations and
agencies comprise approximately 23% of the portfolio. Obligations of states
and political subdivisions and other security investments made up
approximately 1% of the investment portfolio at December 31, 1996. Of the
total portfolio, approximately 89% of the securities had maturities of five
years or less.
The deposits of the Company's banking subsidiary have also been stable,
consisting of a sizable volume of core deposits. Historically, the Company
has been a net provider of federal funds. Net federal funds sold averaged
$10,166,000 in 1996 and $8,252,000 in 1995. Additionally, the Company
averaged $30,473,000 in other short-term investments in 1996 and $43,350,000
in 1995. These investments were in money market funds backed by U.S.
Government and agency issues.
Cass Bank has unsecured lines at correspondent banks to purchase
federal funds up to a maximum of $14,200,000. Additionally, Cass Bank and
CIS have separate lines of credit at an unaffiliated financial institution in
the maximum amounts of $20,000,000 and $30,000,000, respectively.
-27-
<PAGE> 29
Asset/Liability Management Program
- ----------------------------------
The primary goal of the Company's asset/liability management program is
to maintain an appropriate balance between rate-sensitive assets and
liabilities. 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
December 31, 1996 for the various time frames indicated.
<TABLE>
<CAPTION>
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)
<S> <C> <C> <C> <C> <C> <C> <C>
Earning assets:
Loans:
Taxable $ 91,119 $ 5,699 $ 2,633 $ 11,209 $ 83,841 $ 423 $ 194,924
Tax-exempt -- 233 248 197 2,173 -- 2,851
Debt and equity securities:
Taxable -- 5,999 6,018 12,077 116,781 17,099 157,974
Tax-exempt -- -- -- -- 448 1,044 1,492
Other 201 -- -- -- -- -- 201
Federal funds sold and
other short term investments 56,900 -- -- -- -- -- 56,900
--------- -------- -------- -------- --------- --------- ---------
Total earning
assets 148,220 11,931 8,899 23,483 203,243 18,566 414,342
========= ======== ======== ======== ========= ========= =========
Interest-sensitive
liabilities:
Money market deposit
accounts 21,463 -- -- -- -- -- 21,463
Interest-bearing
demand accounts 11,816 -- -- -- -- -- 11,816
Savings deposits 72,589 -- -- -- -- -- 72,589
Time deposits:
$100,000 and more -- 1,421 506 1,638 229 -- 3,794
Less than $100,000 -- 1,604 1,296 1,438 1,261 -- 5,599
Short-term borrowings 2,476 -- -- -- -- -- 2,476
--------- -------- -------- -------- --------- --------- ---------
Total interest-bearing
liabilities $ 108,344 $ 3,025 $ 1,802 $ 3,076 $ 1,490 $ -- $ 117,737
========= ======== ======== ======== ========= ========= =========
Interest sensitivity gap:
Periodic $ 39,876 $ 8,906 $ 7,097 $ 20,407 $ 201,753 $ 18,566 $ 296,605
Cumulative 39,876 48,782 55,879 76,286 278,039 296,605 296,605
Ratio of interest-bearing
assets to interest-bearing
liabilities:
Periodic 1.37x 3.94x 4.94x 7.63x 136.40x -- 3.52x
Cumulative 1.37x 1.44x 1.49x 1.66x 3.36x 3.52x 3.52x
</TABLE>
As can be seen from the above table, the Company's asset/liability mix is
substantially different than most bank holding companies, with positive
"gaps" shown for every time horizon. This phenomenon demonstrates the
dramatic effect CIS, with its growing business and increasing levels of
accounts and drafts payable has on the net interest income of the Company. As
such, the Company is susceptible to changes in interest rates, with a
decreasing net interest margin experienced in periods of declining interest
rates, and correspondingly, an increase in the net interest margin in periods
of rising interest rates. While this situation is largely out of the control
of Company management, it is important to note that the overall net interest
margin of 6.00% for 1996 is still substantially higher than the average
margin experienced by most bank holding companies, due to the higher
percentage of interest earning assets to interest bearing liabilities
maintained by the Company than its bank holding company competitors.
-28-
<PAGE> 30
CAPITAL RESOURCES
- -----------------
Stockholders' equity was $47,781,000 at December 31, 1996, an increase
of $4,468,000 (10.3%) from the amount at the end of 1995. This increase
resulted from net income of $6,519,000, the payment of $2,296,000 in
dividends, the recognition of a net unrealized holding gain on debt and
equity securities available-for-sale of $135,000 and the amortization of
stock bonus plan awards of $110,000.
Total dividends paid to shareholders increased to $.595 per share in
1996 from $.535 per share in 1995.
Subsidiary dividends are the principal source of funds for payment of
dividends by the Company to its stockholders. The Missouri banking laws
impose certain limitations on the payment of dividends by Missouri state
chartered banks such as Cass Bank, as follows: (1) no dividends may be paid
which would impair capital; (2) until the surplus fund of a bank is equal to
40% of its capital, no dividends may be declared unless there has been
carried to the surplus account no less than one-tenth of its net profits for
the dividend period; and (3) dividends are payable only out of a bank's
undivided profits. In addition, the appropriate regulatory authorities are
authorized to prohibit banks and bank holding companies from paying dividends
which would constitute an unsafe and unsound banking practice.
The Company and its banking subsidiary continue to exceed all
regulatory capital requirements, as evidenced by the following capital ratios
at December 31, 1996:
<TABLE>
<CAPTION>
Company Cass
Consolidated Bank
------------ ----
<S> <C> <C>
Leverage Ratio 10.05% 11.06%
Tangible Capital Ratio 11.78 11.11
Primary Capital 11.89 12.06
Risk Based Capital:
Tier I 19.92 13.46
Tier II 21.17 14.71
</TABLE>
EFFECT OF PROSPECTIVE 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 after
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 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, nonsecurity 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.
-29-
<PAGE> 31
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 is not expected to have a material
impact on the Company's financial statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
The consolidated financial statements and related footnotes of the
Company and its subsidiaries on pages 8 through 23 of its Annual Report to
Stockholders and the report thereon of KPMG Peat Marwick LLP on page 23 of
the Annual Report to Stockholders are hereby incorporated by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE
-----------------------------------
NONE
-30-
<PAGE> 32
PART III.
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
---------------------------------------
REGISTRANT
----------
Information concerning directors of the Registrant is incorporated
herein by reference from the Company's definitive Proxy Statement for its
1997 Annual Meeting of Stockholders, a copy of which will be filed no later
than 120 days after the close of the fiscal year.
ITEM 11. EXECUTIVE COMPENSATION
----------------------
Information concerning executive compensation is incorporated herein by
reference from the Company's definitive Proxy Statement for its 1997 Annual
Meeting of Stockholders, a copy of which will be filed not later than 120
days after the close of the fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
-----------------------------------------------
AND MANAGEMENT
--------------
Information concerning security ownership of certain beneficial owners
and management is incorporated herein by reference from the Company's
definitive Proxy Statement for its 1997 Annual Meeting of Stockholders, a
copy of which will be filed not later than 120 days after the close of the
fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
Information concerning certain relationships and transactions is
incorporated herein by reference from the Company's definitive Proxy
Statement for its 1997 Annual Meeting of Stockholders, a copy of which will
be filed not later than 120 days after the close of the fiscal year.
-31-
<PAGE> 33
PART IV.
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
--------------------------------------------
REPORTS ON FORM 8-K
-------------------
(a) The following documents are filed as part of this Report:
(1) Financial Statements:
---------------------
<TABLE>
<CAPTION>
Annual Report
Page Number
-----------
CASS COMMERCIAL CORPORATION AND SUBSIDIARIES
--------------------------------------------
<S> <C>
Consolidated Balance Sheets, December 31,
1996 and 1995 8
Consolidated Statements of Income for the
years ended December 31, 1996, 1995 and
1994 9
Consolidated Statements of Cash Flows for the
years ended December 31, 1996, 1995 and 1994 10
Consolidated Statements of Stockholders'
Equity for the years ended December 31, 1996,
1995 and 1994 11
Notes to Consolidated Financial Statements 12-23
Independent Auditors' Report 23
</TABLE>
(2) Financial Statement Schedules:
-----------------------------
None other than those included as Notes to
Consolidated Financial Statements.
(3) Exhibits
--------
3.1 Articles of Incorporation of Registrant filed as
Exhibit 3 to Registration Statement No. 2-80070
and incorporated herein by reference
3.2 By Laws of Registrant filed as Exhibit 3.2 to the
Company's 1995 Annual Report on Form 10-K and
incorporated herein by reference
10.1 1995 Restricted Stock Bonus Plan filed as Exhibit
10.1 to the Company's 1995 Annual Report on Form 10-K
and incorporated herein by reference
10.2 1995 Performance-Based Stock Option Plan filed as
Exhibit 10.2 to the Company's 1995 Annual Report on
Form 10-K and incorporated herein by reference
13 1996 Annual Report to Stockholders (only those
portions of such Annual Report as are incorporated
by reference in parts I and II hereof shall be
deemed a part of this Report)
21 Subsidiaries of registrant, incorporated
by reference to Item 1, Business
23 Consent of KPMG Peat Marwick LLP
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the
quarter ended December 31, 1996.
-32-
<PAGE> 34
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CASS COMMERCIAL CORPORATION
Date: March 18, 1997 By /s/ Lawrence A. Collett
-----------------------------------------
Lawrence A. Collett
Chairman and Chief Executive Officer
Date: March 18, 1997 By /s/ Lawrence L. Frieben
-----------------------------------------
Lawrence L. Frieben
Vice President-Secretary
(Chief Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below on the dates indicated by the following
persons on behalf of the Company and in their capacity as a member of the
Board of Directors of the Company.
Date: March 18, 1997 By /s/ Lawrence A. Collett
-----------------------------------------
Lawrence A. Collett
Date: March 18, 1997 By /s/ Robert J. Bodine
-----------------------------------------
Bobert J. Bodine
Date: March 18, 1997 By /s/ Thomas J. Fucoloro
-----------------------------------------
Thomas J. Fucoloro
Date: March 18, 1997 By /s/ Harry J. Krieg
-----------------------------------------
Harry J. Krieg
Date: March 18, 1997 By /s/ Jake Nania
-----------------------------------------
Jake Nania
Date: March 18, 1997 By /s/ Irving A. Shepard
-----------------------------------------
Irving A. Shepard
Date: March 18, 1997 By /s/ John J. Vallina
-----------------------------------------
John J. Vallina
-33-
<PAGE> 35
<TABLE>
CASS COMMERCIAL CORPORATION
Exhibit Index
Form 10-K
1996
<CAPTION>
Exhibit
Number Description of Exhibit
- ------- ----------------------
<C> <S>
3.1 Articles of Incorporation of Registrant filed as Exhibit 3 to
Registration Statement No. 2-80070 and incorporated herein by
reference
3.2 By Laws of Registrant filed as Exhibit 3.2 to the Company's 1995
Annual Report on Form 10-K
10.1 1995 Restricted Stock Bonus Plan filed as Exhibit 10.1 to the
Company's 1995 Annual Report on Form 10-K
10.2 1995 Performance-Based Stock Option Plan filed as Exhibit 10.2 to
the Company's 1995 Annual Report on Form 10-K
13 1996 Annual Report to Stockholders (only those portions of such
Annual Report as are incorporated by reference in parts I and II
hereof shall be deemed a part of this Report)
21 Subsidiaries of registrant, incorporated by reference to Item 1,
Business
23 Consent of KPMG Peat Marwick LLP
</TABLE>
-34-
<PAGE> 1
<TABLE>
CONSOLIDATED BALANCE SHEET
<CAPTION>
December 31
---------------------------------
Assets (In Thousands of Dollars, Except per Share Data) 1996 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and due from banks $ 10,256 $ 8,529
Federal funds sold and other short-term investments 56,900 81,813
---------------------------------
Cash and cash equivalents 67,156 90,342
---------------------------------
Investments in debt and equity securities:
Held-to-maturity, estimated market value of $118,362 and
$131,378 at December 31, 1996 and 1995, respectively 118,313 130,172
Available-for-sale, at estimated market value 41,354 17,688
---------------------------------
Total investments in debt and equity securities 159,667 147,860
---------------------------------
Loans, net of unearned income 197,775 174,193
Less: Allowance for loan losses 4,396 6,358
---------------------------------
Loans, net 193,379 167,835
---------------------------------
Premises and equipment, net 8,079 8,267
Accrued interest receivable 3,366 3,788
Other assets 6,675 9,966
---------------------------------
Total assets $438,322 $428,058
=================================
Liabilities and Stockholders' Equity
- -------------------------------------------------------------------------------------------------------
Liabilities:
Deposits:
Noninterest-bearing $ 62,244 $ 64,106
Interest-bearing 115,261 97,620
---------------------------------
Total deposits 177,505 161,726
Accounts and drafts payable 204,690 211,376
Short-term borrowings 2,476 4,947
Other liabilities 5,870 6,696
---------------------------------
Total liabilities 390,541 384,745
---------------------------------
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;
shares authorized 20,000,000 and 4,000,000
at December 31, 1996 and 1995, respectively;
2,000,000 shares issued 1,000 5,000
Surplus 5,740 1,740
Retained earnings 42,376 38,153
Unrealized holding gain (loss) on investments
in debt and equity securities available-for-sale 105 (30)
Common shares in treasury, at cost (70,726 shares
at December 31, 1996 and 1995) (1,284) (1,284)
Unamortized stock bonus awards (156) (266)
---------------------------------
Total stockholders' equity 47,781 43,313
---------------------------------
Total liabilities and stockholders' equity $438,322 $428,058
=================================
See accompanying notes to consolidated financial statements.
</TABLE>
8
<PAGE> 2
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
Year Ended December 31
------------------------------------------------
(In Thousands of Dollars, Except per Share Data) 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $16,193 $14,042 $11,538
Interest on debt securities:
Taxable 9,729 9,741 8,701
Exempt from federal income taxes 72 46 71
Interest on federal funds sold and other short-term investments 2,132 2,972 1,963
------------------------------------------------
Total interest income 28,126 26,801 22,273
------------------------------------------------
Interest expense:
Interest on deposits 4,503 4,036 2,641
Interest on short-term borrowings 139 92 42
------------------------------------------------
Total interest expense 4,642 4,128 2,683
------------------------------------------------
Net interest income 23,484 22,673 19,590
Provision for loan losses -- (500) --
------------------------------------------------
Net interest income after provision for loan losses 23,484 23,173 19,590
------------------------------------------------
Noninterest income:
Information services revenue:
Freight payment and processing revenue 17,698 18,886 17,060
Freight rating services income 3,297 3,726 3,447
Service charges on deposit accounts 532 431 387
Other 564 751 932
------------------------------------------------
Total noninterest income 22,091 23,794 21,826
------------------------------------------------
Noninterest expense:
Salaries and employee benefits 23,887 24,701 21,757
Occupancy expense 2,115 2,122 1,926
Equipment expense 2,611 2,712 2,561
Other 7,351 8,158 7,081
------------------------------------------------
Total noninterest expense 35,964 37,693 33,325
------------------------------------------------
Income before income tax expense 9,611 9,274 8,091
Income tax expense 3,092 3,060 2,509
------------------------------------------------
Net income $ 6,519 $ 6,214 $ 5,582
================================================
Net income per share:
Net income $ 3.34 $ 3.23 $ 2.92
================================================
See accompanying notes to consolidated financial statements.
</TABLE>
9
<PAGE> 3
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Year Ended December 31
--------------------------------------------------
(In Thousands of Dollars) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 6,519 $ 6,214 $ 5,582
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 2,583 2,544 2,529
Amortization of stock bonus awards 110 64 --
Provision for loan losses -- (500) --
Deferred income tax expense (benefit) 854 (111) (66)
Decrease (increase) in accrued interest receivable (422) 72 (1,232)
Other operating activities, net (82) 1,020 (105)
--------------------------------------------------
Net cash provided by operating activities 9,562 9,303 6,708
--------------------------------------------------
Cash flows from investing activities:
Acquisition of freight management business -- -- (1,250)
Proceeds from sales of debt securities
available-for-sale -- -- 152
Proceeds from maturities of debt securities:
Held-to-maturity 20,192 16,197 25,071
Available-for-sale 6,918 7,175 --
Purchases of debt and equity securities:
Held-to-maturity (8,608) (347) (60,693)
Available-for-sale (30,632) -- --
Net (increase) decrease in loans (25,544) (21,203) 1,349
Purchases of premises and equipment, net (1,747) (3,004) (1,542)
--------------------------------------------------
Net cash used in investing activities (39,421) (1,182) (36,913)
--------------------------------------------------
Cash flows from financing activities:
Net increase (decrease) in noninterest-bearing demand,
interest-bearing demand and savings deposits 16,277 16,267 (385)
Net increase (decrease) in time deposits (498) (481) 328
Net increase (decrease) in accounts and drafts payable, net (4,339) (4,720) 40,234
Net increase (decrease) in short-term borrowings (2,471) 2,435 (395)
Purchases of treasury stock -- (24) (14)
Cash dividends paid (2,296) (2,062) (1,934)
--------------------------------------------------
Net cash provided by financing activities 6,673 11,415 37,834
--------------------------------------------------
Net increase (decrease) in cash and cash equivalents (23,186) 19,536 7,629
Cash and cash equivalents at beginning of year 90,342 70,806 63,177
--------------------------------------------------
Cash and cash equivalents at end of year $ 67,156 $ 90,342 $ 70,806
==================================================
Supplemental information:
Interest paid $ 4,669 $ 4,043 $ 2,665
Income taxes paid 2,295 3,221 3,035
Debt securities transferred from held-to-maturity to
available-for-sale -- 3,993 37,230
==================================================
See accompanying notes to consolidated financial statements.
</TABLE>
10
<PAGE> 4
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<CAPTION>
Unrealized
Holding Gain (Loss) Unamortized
on Securities Stock
Common Retained Available- Treasury Bonus
(In Thousands of Dollars, Except per Share Data) Stock Surplus Earnings for-Sale Stock Awards Total
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 $ 5,000 $1,700 $30,353 $ -- $(1,536) $ -- $35,517
Net income -- -- 5,582 -- -- -- 5,582
Change in accounting
for investments in
debt and equity securities,
net of tax effect of $18 -- -- -- 36 -- -- 36
Cash dividends ($1.01 per share) -- -- (1,934) -- -- -- (1,934)
Purchase of 693 common shares
for Treasury -- -- -- -- (14) -- (14)
Change in unrealized holding
gains and losses on investments
in debt and equity securities
available-for-sale -- -- -- (441) -- -- (441)
- -------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 5,000 1,700 34,001 (405) (1,550) -- 38,746
Net income -- -- 6,214 -- -- -- 6,214
Cash dividends ($1.07 per share) -- -- (2,062) -- -- -- (2,062)
Purchase of 1,133 common shares
for Treasury -- -- -- -- (24) -- (24)
Change in unrealized holding
gains and losses on investments
in debt and equity securities
available-for-sale -- -- -- 375 -- -- 375
Issuance of 16,000 common shares
pursuant to Stock Bonus Plan -- 40 -- -- 290 (330) --
Amortization of Stock Bonus
Plan awards -- -- -- -- -- 64 64
- -------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 5,000 1,740 38,153 (30) (1,284) (266) 43,313
Net income -- -- 6,519 -- -- -- 6,519
Cash dividends ($1.19 per share) -- -- (2,296) -- -- -- (2,296)
Change in unrealized holding
gains and losses on investments
in debt and equity securities
available-for-sale -- -- -- 135 -- -- 135
Reduction in par value of common
stock (4,000) 4,000 -- -- -- -- --
Amortization of Stock Bonus
Plan awards -- -- -- -- -- 110 110
- -------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 $ 1,000 $5,740 $42,376 $ 105 $(1,284) $(156) $47,781
======================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
11
<PAGE> 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note One
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cass Commercial Corporation (the Company) provides a full range of banking
services to individual, corporate and institutional customers 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 accounting and reporting policies of the Company and its
subsidiaries conform to generally accepted accounting principles. The
following is a description of the more significant of those policies:
Basis of Presentation The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries after elimination
of intercompany transactions.
In preparing the consolidated financial statements, Company management
is required to make estimates and assumptions which significantly affect the
reported amounts in the consolidated financial statements. A significant
estimate which is particularly susceptible to change in a short period of
time is the determination of the allowance for loan losses.
Investments in Debt and Equity Securities At the time of purchase, debt
securities are classified into one of two categories: available-for-sale or
held-to-maturity. Held-to-maturity securities are those securities which the
Company has the ability and intent to hold until maturity. All equity
securities, and debt securities not classified as held-to-maturity, are
classified as available-for-sale.
Available-for-sale securities are recorded at fair value.
Held-to-maturity securities are recorded at amortized cost, adjusted for the
amortization of premiums or discounts. Unrealized gains and losses, net of
the related tax effect, on available-for-sale securities are excluded from
earnings and reported as a separate component of stockholders' equity until
realized. Gains and losses on the sale of available-for-sale securities are
determined using the specific identification method.
A decline in the market value of any available-for-sale or
held-to-maturity security below cost that is deemed other than temporary is
charged to earnings and results in the establishment of a new cost basis for the
security.
The Bank is required to maintain an investment in the capital stock of
the Federal Reserve Bank. The stock is recorded at cost, which represents
redemption value.
Interest on Loans Interest on loans is recognized based upon the principal
amounts outstanding. It is the Company's policy to discontinue the accrual of
interest when there is reasonable doubt as to the collectibility of principal
or interest. Subsequent payments received on such loans are applied to
principal if there is any doubt as to the collectibility of such principal;
otherwise, these receipts are recorded as interest income. The accrual of
interest on a loan is resumed when the loan is current as to payment of both
principal and interest and/or the borrower demonstrates the ability to pay
and remain current.
Information Services Revenue Revenue from logistics-related services is
recognized when fees are billed to customers, generally monthly.
Allowance for Loan Losses The allowance for loan losses is increased by
provisions charged to expense and reduced by net charge-offs. The provisions
charged to expense are based on economic conditions, past losses, collection
experience, risk characteristics of the portfolio and such other factors
which, in management's judgment, deserve current recognition.
Management believes the allowance for loan losses is adequate to absorb
losses in the loan portfolio. While management uses all available information
to recognize losses on loans, future additions to the allowance may be
necessary based on changes in economic conditions. Additionally, various
regulatory agencies, as an integral part of their examination process,
periodically review the Bank's allowance for loan losses. Such agencies may
require the Bank to increase the allowance for loan losses based on their judg-
12
<PAGE> 6
ments and interpretations about information available to them at the time of
their examination.
Premises and Equipment Premises and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation is computed over the
estimated useful lives of the assets, or the respective lease terms for
leasehold improvements, using straight-line and accelerated methods.
Estimated useful lives are 31 1/2 years for buildings, 8 to 10 years for
leasehold improvements and 3 to 10 years for furniture, fixtures and
equipment. Maintenance and repairs are charged to expense as incurred.
Intangible Assets Cost in excess of fair value of net assets acquired and
fair value in excess of cost of net assets acquired have resulted from
business acquisitions which were accounted for using the purchase method.
Cost in excess of fair value of net assets acquired and fair value in
excess of cost of net assets acquired are amortized on a straight-line basis
over 3 to 15 years.
Assets and liabilities acquired in business acquisitions accounted for
by the purchase method were recorded at their estimated fair value at date of
acquisition. The premiums and discounts related to the fair value adjustments
are amortized using a method which approximates the level-yield method.
Lines of Credit At December 31, 1996, the Bank has $14,200,000 of unsecured
federal funds lines of credit in place with unaffiliated financial
institutions. Additionally, at December 31, 1996, the Bank and CIS have
separate lines of credit of $20,000,000 and $30,000,000, respectively, under
securities sold under repurchase agreements with an unaffiliated financial
institution.
Income Taxes Deferred tax assets and liabilities are recognized for the
estimated future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates in effect for the year in which those temporary
differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date.
Net Income Per Share Net income per share is computed based upon the weighted
average number of shares of common stock outstanding during each year. The
weighted average number of shares was 1,951,906, 1,922,982 and 1,914,861 in
1996, 1995 and 1994, respectively.
Cash Flows For purposes of the consolidated statements of cash flows, the
Company considers due from banks, federal funds sold and other short-term
investments to be cash equivalents.
Reclassifications Certain amounts in the 1995 and 1994 consolidated financial
statements have been reclassified to conform with the 1996 presentation. Such
reclassifications have no effect on previously reported net income.
Note Two
CAPITAL REQUIREMENTS
The Company and the Bank are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory, and possibly
additional discretionary actions, by regulators that, if undertaken, could
have a direct material effect on the Company's consolidated financial
statements. Under capital adequacy guidelines, the Company and the Bank must
meet specific capital guidelines that involve quantitative measures of
assets, liabilities and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Company and the Bank's capital amounts
and classifications are also subject to qualitative judgments by the
regulators about components, risk weightings and other factors.
Quantitative measures established by regulators to ensure capital
adequacy require the Company and the Bank to maintain minimum amounts and
ratios (set forth in the table below) of total and Tier I capital (as defined
in the regulations) to risk-weighted assets (as defined), and of Tier I
capital (as defined) to average assets (as defined). Management believes, as
of December 31, 1996, the Company and the Bank meet all capital adequacy
requirements to which they are subject.
The Bank is also subject to the regulatory framework for prompt
corrective action. The most recent notification from the regulatory agencies,
dated December 11, 1996, categorized the Bank as well capitalized. To be
categorized as well capitalized, the Bank must maintain minimum total
risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the
table. There are no conditions or events since that notification that
management believes have changed the Bank's category.
13
<PAGE> 7
Note Two continued
The Company and the Bank's actual and required capital amounts and
ratios as of December 31, 1996 are as follows:
<TABLE>
<CAPTION>
Requirement
To Be Well-Capitalized
Capital Under Prompt Corrective
Actual Requirements Action Provisions
--------------------------------------------------------------------------
(Dollars In Thousands) Amount Ratio Amount Ratio Amount Ratio
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total capital (to risk-weighted assets):
Cass Commercial Corporation $49,920 21.17% $18,864 8.00% $ N/A N/A%
Cass Bank & Trust Company 23,505 14.71 12,783 8.00 15,978 10.00
- ------------------------------------------------------------------------------------------------------------------------
Tier I capital (to risk-weighted assets):
Cass Commercial Corporation $46,955 19.92% $ 9,428 4.00% $ N/A N/A%
Cass Bank & Trust Company 21,505 13.46 6,390 4.00 9,586 6.00
- ------------------------------------------------------------------------------------------------------------------------
Tier I capital (to average assets):
Cass Commercial Corporation $46,955 10.05% $14,016 3.00% $ N/A N/A%
Cass Bank & Trust Company 21,505 11.06 5,833 3.00 9,721 5.00
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note Three
INVESTMENTS IN DEBT AND EQUITY SECURITIES
Debt and equity securities have been classified in the consolidated
balance sheets according to management's intent.
The amortized cost and estimated market values of debt securities
classified as held-to-maturity at December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996
----------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
(In Thousands) Cost Gains Losses Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government
Treasury
securities $ 90,646 $761 $(218) $ 91,189
Obligations of
U.S. Government
corporations
and agencies 26,175 -- (520) 25,655
States and political
subdivisions 1,492 33 (7) 1,518
----------------------------------------------
$118,313 $794 $(745) $118,362
==============================================
<CAPTION>
1995
----------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
(In Thousands) Cost Gains Losses Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government
Treasury
securities $ 98,988 $1,809 $(107) $100,690
Obligations of
U.S. Government
corporations
and agencies 30,268 4 (535) 29,737
States and political
subdivisions 916 35 -- 951
----------------------------------------------
$130,172 $1,848 $(642) $131,378
==============================================
</TABLE>
The amortized cost and estimated market value of investments in debt
securities classified as held-to-maturity at December 31, 1996 by contractual
maturity are shown below. Expected maturities may differ from contractual
maturities because borrowers have the right to prepay obligations with or
without prepayment penalties.
<TABLE>
<CAPTION>
1996
--------------------
Estimated
Amortized Market
(In Thousands) Cost Value
- ------------------------------------------------------
<S> <C> <C>
Due in 1 year or less $ 24,094 $ 24,208
Due after 1 year through
5 years 86,414 86,365
Due after 5 years through
10 years 532 530
Due after 10 years 7,273 7,259
--------------------
$118,313 $118,362
====================
</TABLE>
14
<PAGE> 8
The amortized cost and estimated market values of debt and equity
securities classified as available-for-sale at December 31, 1996 and 1995 are
summarized as follows:
<TABLE>
<CAPTION>
1996
----------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
(In Thousands) Cost Gains Losses Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government
Treasury
securities $30,558 $287 $ (30) $30,815
Obligations of
U.S. Government
corporations
and agencies 10,437 40 (139) 10,338
----------------------------------------------
Total debt
securities 40,995 327 (169) 41,153
Stock of the
Federal
Reserve Bank 201 -- -- 201
----------------------------------------------
$41,196 $327 $(169) $41,354
==============================================
<CAPTION>
1995
----------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
(In Thousands) Cost Gains Losses Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government
Treasury
securities $ 3,993 $11 $ -- $ 4,004
Obligations of
U.S. Government
corporations
and agencies 13,541 16 (74) 13,483
----------------------------------------------
Total debt
securities 17,534 27 (74) 17,487
Stock of the
Federal
Reserve Bank 201 -- -- 201
----------------------------------------------
$17,735 $27 $(74) $17,688
==============================================
</TABLE>
The amortized cost and estimated market value of debt securities
classified as available-for-sale at December 31, 1996 by contractual maturity
are shown below. Expected maturities may differ from contractual maturities
because borrowers have the right to prepay obligations with or without
prepayment penalties.
<TABLE>
<CAPTION>
1996
--------------------
Estimated
Amortized Market
(In Thousands) Cost Value
- ------------------------------------------------------
<S> <C> <C>
Due in 1 year or less $ -- $ --
Due after 1 year through
5 years 30,558 30,815
Due after 5 years through
10 years 2,408 2,409
Due after 10 years 8,029 7,929
--------------------
$40,995 $41,153
====================
</TABLE>
The amortized cost of debt securities pledged to secure public
deposits, securities sold under agreements to repurchase and for other
purposes was approximately $18,026,000 and $17,908,000 at December 31, 1996
and 1995, respectively.
No debt or equity securities were sold in 1996 or 1995. Proceeds from
the sales of debt securities classified as available-for-sale during 1994
were $152,000. Gross gains of $5,100 and gross losses of $6,900 were realized
on those sales.
Note Four
LOANS
A summary of loan categories at December 31, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
(In Thousands) 1996 1995
- ------------------------------------------------------
<S> <C> <C>
Commercial and industrial $ 94,962 $ 98,641
Real estate:
Mortgage 85,360 58,746
Construction 9,164 11,057
Industrial revenue bonds 2,851 1,117
Installment, net 3,794 3,954
Other 1,644 678
--------------------
$197,775 $174,193
====================
</TABLE>
The Company grants commercial, industrial, residential and consumer
loans to customers throughout the metropolitan St. Louis area. The Company
does not have any particular concentration of credit in any one economic
sector; however, a substantial portion of the commercial and industrial loans
are extended to small- and medium-sized, closely held commercial companies in
this market area, and are generally secured by the assets of the business.
Such loans are subject to the economic changes inherent in the St. Louis
marketplace.
15
<PAGE> 9
Note Four continued
Aggregate loan transactions involving executive officers and directors
of the Company and its subsidiaries and loans to associates of executive
officers and directors for the year ended December 31, 1996 are summarized
below. Such loans were made in the normal course of business on substantially
the same terms, including interest rates and collateral, as those prevailing
at the same time for comparable transactions with other persons, and did not
involve more than the normal risk of collectibility.
<TABLE>
<CAPTION>
(In Thousands)
- ------------------------------------------------------
<S> <C>
Aggregate balance, January 1, 1996 $3,234
New loans --
Payments (597)
------
Aggregate balance, December 31, 1996 $2,637
======
</TABLE>
A summary of the activity in the allowance for loan losses for 1996,
1995 and 1994 is as follows:
<TABLE>
<CAPTION>
(In Thousands) 1996 1995 1994
- -------------------------------------------------------------------
<S> <C> <C> <C>
Balance, January 1 $ 6,358 $6,334 $6,446
Provision charged
to expense -- (500) --
Loans charged off (2,121) (186) (460)
Recoveries of loans
previously charged off 159 710 348
--------------------------------
Net loan recoveries
(charge offs) (1,962) 524 (112)
--------------------------------
Balance, December 31 $ 4,396 $6,358 $6,334
================================
</TABLE>
A summary of impaired loans at December 31, 1996 and 1995 is as
follows:
<TABLE>
<CAPTION>
(In Thousands) 1996 1995
- -------------------------------------------------------
<S> <C> <C>
Nonaccrual loans $ 480 $ 151
Impaired loans continuing
to accrue interest 2,746 1,161
-------------------
Total impaired loans $3,226 $1,312
===================
</TABLE>
The allowance for loan losses on impaired loans was $892,000 and
$505,000 at December 31, 1996 and 1995, respectively. Impaired loans with no
related allowance for loan losses totaled $2,243,000 and $132,000 at December
31, 1996 and 1995, respectively. The average balance of impaired loans during
1996 and 1995 was $1,157,000 and $1,486,000, respectively.
A summary of interest income on impaired loans for 1996 and 1995 is as
follows:
<TABLE>
<CAPTION>
1996
---------------------------------------------
Impaired Loans
Nonaccrual Continuing to
(In Thousands) Loans Accrue Interest Total
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Income recognized $221 $260 $481
Interest income if
interest had accrued 299 279 578
<CAPTION>
1995
---------------------------------------------
Impaired Loans
Nonaccrual Continuing to
(In Thousands) Loans Accrue Interest Total
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Income recognized $ 4 $109 $113
Interest income if
interest had accrued 18 112 130
</TABLE>
Note Five
PREMISES AND EQUIPMENT
A summary of premises and equipment at December 31, 1996 and 1995 is as
follows:
<TABLE>
<CAPTION>
(In Thousands) 1996 1995
- ------------------------------------------------------
<S> <C> <C>
Land $ 367 $ 367
Buildings 3,082 3,084
Leasehold improvements 2,025 2,371
Furniture, fixtures
and equipment 15,709 15,867
Construction in progress 435 --
-------------------
21,618 21,689
Less accumulated depreciation
and amortization 13,539 13,422
-------------------
$ 8,079 $ 8,267
===================
</TABLE>
Construction in progress relates to improvements to the CIS facility in
Bridgeton, Missouri due to the pending move of the Company and the Bank's
headquarters to this location. The facility is expected to be completed in
April 1997 with an anticipated total cost of $2,800,000.
Depreciation charged to expense in 1996, 1995 and 1994 amounted to
$1,913,000, $1,960,000 and $1,907,000, respectively.
The Company's subsidiaries lease various premises and equipment under
operating lease agreements which expire at various dates through 2005. The
following is a schedule, by years, of future minimum
16
<PAGE> 10
rental payments required under operating leases that have initial or
remaining noncancelable lease terms in excess of one year as of December 31,
1996:
<TABLE>
<CAPTION>
(In Thousands)
- -------------------
<S> <C>
1997 $1,018
1998 595
1999 564
2000 568
2001 271
2002 and thereafter 981
------
$3,997
======
</TABLE>
Rental expenses for 1996, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
(In Thousands) 1996 1995 1994
- ------------------------------------------------------------------
<S> <C> <C> <C>
Minimum rentals $1,712 $1,725 $1,590
Less sublease rentals -- (16) (23)
------------------------------
Net rental expense $1,712 $1,709 $1,567
==============================
</TABLE>
Note Six
INTEREST-BEARING DEPOSITS
Interest-bearing deposits consist of the following at December 31, 1996 and
1995:
<TABLE>
<CAPTION>
(In Thousands) 1996 1995
- ------------------------------------------------------
<S> <C> <C>
NOW and Money Market
Demand Accounts $ 33,279 $23,896
Savings deposits 72,589 63,833
Time deposits:
Less than $100,000 5,599 5,541
$100,000 and more 3,794 4,350
--------------------
$115,261 $97,620
====================
</TABLE>
Interest on deposits consists of the following for 1996, 1995 and 1994:
<TABLE>
<CAPTION>
(In Thousands) 1996 1995 1994
- ------------------------------------------------------------------
<S> <C> <C> <C>
NOW and Money Market
Demand Accounts $ 826 $ 639 $ 610
Savings deposits 3,139 2,858 1,685
Time deposits:
Less than $100,000 296 272 219
$100,000 and more 242 267 127
------------------------------
$4,503 $4,036 $2,641
==============================
</TABLE>
The scheduled maturities of certificates of deposit are summarized as
follows:
<TABLE>
<CAPTION>
December 31
--------------------------------------------
1996 1995
--------------------------------------------
Percent Percent
Amount of Total Amount of Total
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Due within:
One year $7,903 84.1% $8,899 90.0%
Two years 893 9.5 757 7.6
Three years 413 4.4 66 0.7
Four years 184 2.0 107 1.1
Five years -- -- 62 0.6
--------------------------------------------
$9,393 100.0% $9,891 100.0%
============================================
</TABLE>
Note Seven
EMPLOYEE BENEFITS
The Company has a noncontributory defined benefit pension plan which covers
substantially all of its employees. The Company's subsidiaries accrue and
make 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.
17
<PAGE> 11
Note Seven continued
The pension cost for 1996, 1995 and 1994 was $478,000, $616,000 and
$570,000, respectively, and included the following components:
<TABLE>
<CAPTION>
(In Thousands) 1996 1995 1994
- -------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits
earned during the year $ 682 $ 675 $ 682
Interest cost on projected
benefit obligations 492 432 372
Actual (return) loss on
plan assets (656) (1,076) 212
]et amortization
and deferral (40) 585 (696)
------------------------------
Net periodic
pension cost $ 478 $ 616 $ 570
==============================
</TABLE>
The plan's funded status and amounts recognized in the Company's
consolidated balance sheets at December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
(In Thousands) 1996 1995
- ------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of
benefit obligations:
Accumulated benefit obligation,
including vested benefits
of $4,818 in 1996 and
$3,575 in 1995 $(4,942) $(3,729)
Effect of increase in
compensation levels (3,034) (2,423)
--------------------------
Projected benefit obligation
for service rendered through
December 31 (7,976) (6,152)
Plan assets at fair value 7,487 6,241
--------------------------
Plan assets greater (less) than
projected benefit obligation (489) 89
==========================
Unfunded projected
benefit obligation (489) --
Unrecognized prior service cost 155 162
Unrecognized net gains (1,354) (2,001)
Unrecognized net assets -- (98)
--------------------------
Accrued pension cost $(1,688) $(1,937)
==========================
</TABLE>
The weighted-average discount rate and the rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligation were 7.50% and 5.00% in 1996, 8.00% and 5.00% in
1995 and 7.50% and 5.00% in 1994. The expected long-term rate of return on
assets was 8.00% in 1996 and 1995 and 7.25% in 1994.
The Company maintains a noncontributory profit sharing plan which
covers substantially all of its employees. Employer contributions are
calculated based upon formulas which relate to current operating results and
other factors. Profit sharing expense recognized in the consolidated
statements of income in 1996, 1995 and 1994 was $1,433,000, $1,377,000 and
$1,187,000, respectively.
The Company sponsors a defined contribution 401(k) plan to provide
additional retirement benefits to substantially all employees. Contributions
under the 401(k) plan for 1996, 1995 and 1994 were $227,000, $220,000 and
$190,000, respectively.
During May 1995, the Company implemented a restricted stock bonus plan
which provides for the issuance of up to 50,000 shares of the Company's
common stock. During 1995, 16,000 shares of common stock were awarded to five
officers of the Company. At the time of the awards, the price per share of
Company common stock was $20.63, which resulted in the establishment of a
contra stockholders' equity account with a balance of $330,000. Amortization
of the restricted stock bonus awards totaled $110,000 and $64,000 for 1996
and 1995, respectively. The shares of common stock awarded vest over a
three-year period.
Also during May 1995, the Company implemented a performance-based stock
option plan which provides for the granting of options on up to 200,000
shares of Company common stock. During 1995, options for 60,000 shares of
common stock were awarded 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. No options have vested or been exercised at December
31, 1996.
The Company accounts for stock-based compensation under the plan in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" (APB 25) and, accordingly, recognizes no
compensation expense as the exercise price of the Company's employee stock
options equals the market price of the underlying stock on the date of grant.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123). The Company elected not to adopt the recognition
provisions of SFAS 123. However, under the provisions of SFAS 123, 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 pro forma effects were
calculated and are immaterial to the results of operations of the Company.
18
<PAGE> 12
Note Eight
OTHER NONINTEREST EXPENSE
Details of other noninterest expense for 1996, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
(In Thousands) 1996 1995 1994
- ------------------------------------------------------------------
<S> <C> <C> <C>
Postage, printing
and supplies $2,114 $2,340 $1,899
Advertising and business
development 1,441 1,392 1,170
Professional fees 903 918 1,381
Data processing services 655 741 787
FDIC insurance premiums 2 155 309
Other 2,236 2,612 1,535
------------------------------
Total other noninterest
expense $7,351 $8,158 $7,081
==============================
</TABLE>
Note Nine
REGULATORY RESTRICTIONS
Subsidiary dividends are the principal source of funds for payment of
dividends by the Company to its stockholders. The Company's subsidiary bank
is subject to regulations which require the maintenance of minimum capital
levels. At December 31, 1996, unappropriated retained earnings of $12,023,000
were available for the declaration of dividends to the Company without prior
approval from regulatory authorities.
Restricted funds on deposit used to meet regulatory reserve
requirements amounted to approximately $2,719,000 and $2,004,000 at December
31, 1996 and 1995, respectively.
Note Ten
INCOME TAXES
The components of income tax expense for 1996, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
(In Thousands) 1996 1995 1994
- ------------------------------------------------------------------
<S> <C> <C> <C>
Current $2,238 $3,171 $2,575
Deferred 854 (111) (66)
------------------------------
$3,092 $3,060 $2,509
==============================
</TABLE>
A reconciliation of expected income tax expense, computed by applying
the effective federal statutory rate of 34% for 1996, 1995 and 1994 to income
before income tax expense, to reported income tax expense, is as follows:
<TABLE>
<CAPTION>
(In Thousands) 1996 1995 1994
- ------------------------------------------------------------------
<S> <C> <C> <C>
Expected income
tax expense $3,268 $3,153 $2,751
(Reductions) increases
resulting from:
Tax-exempt interest (53) (43) (64)
Amortization of
intangibles (98) (98) (98)
Other, net (25) 48 (80)
------------------------------
Income tax expense $3,092 $3,060 $2,509
==============================
</TABLE>
The tax effects of temporary differences which give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1996 and 1995 are presented below:
<TABLE>
<CAPTION>
(In Thousands) 1996 1995
- ------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $1,011 $1,720
Accrued pension cost 581 665
Premises and equipment 123 64
Unrealized loss on investments
in debt and equity securities
available-for-sale -- 17
Other 141 117
------------------
Total deferred tax assets 1,856 2,583
------------------
Deferred tax liabilities:
Unrealized gain on investments
in debt and equity securities
available-for-sale (53) --
Discount accretion (271) (164)
Other (56) (18)
------------------
Total deferred tax liabilities (380) (182)
------------------
Net deferred tax asset $1,476 $2,401
==================
</TABLE>
A valuation allowance would be provided on deferred tax assets when it
is more likely than not that some portion of the assets will not be realized.
The Company has not established a valuation allowance as of December 31, 1996
or 1995, due to management's belief that all criteria for recognition have
been met, including the existence of a history of taxes paid sufficient to
support the realization of deferred tax assets.
19
<PAGE> 13
Note Eleven
CONTINGENCIES
The Company's 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 Twelve
DISCLOSURES ABOUT FINANCIAL INSTRUMENTS
The Company is party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit, commercial
letters of credit and standby letters of credit. The Company's 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.
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 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. 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.
Conditional commitments to extend credit, commercial letters of credit
and standby letters of credit totaled approximately $76,575,000, $233,000 and
$4,353,000, respectively, at December 31, 1996.
Following is a summary of the carrying amounts and estimated fair
values of the Company's financial instruments at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996
-----------------------
Estimated
Carrying Fair
(In Thousands) Amount Value
- ------------------------------------------------------------------
<S> <C> <C>
Balance sheet assets:
Cash and cash equivalents $ 67,156 $ 67,156
Investments in debt and
equity securities 159,667 159,716
Loans, net 193,379 193,726
Accrued interest receivable 3,366 3,366
-----------------------
$423,568 $423,964
=======================
Balance sheet liabilities:
Deposits $177,505 $177,509
Accounts and drafts payable 204,690 204,690
Short-term borrowings 2,476 2,476
Accrued interest payable 146 146
-----------------------
$384,817 $384,821
=======================
</TABLE>
<TABLE>
<CAPTION>
1995
-----------------------
Estimated
Carrying Fair
(In Thousands) Amount Value
- ------------------------------------------------------------------
<S> <C> <C>
Balance sheet assets:
Cash and cash equivalents $ 90,342 $ 90,342
Investments in debt and
equity securities 147,860 149,066
Loans, net 167,835 170,794
Accrued interest receivable 3,788 3,788
-----------------------
$409,825 $413,990
=======================
Balance sheet liabilities:
Deposits $161,726 $161,754
Accounts and drafts payable 211,376 211,376
Short-term borrowings 4,947 4,947
Accrued interest payable 173 173
-----------------------
$378,222 $378,250
=======================
</TABLE>
20
<PAGE> 14
The following methods and assumptions were used to estimate the fair
value of each class of financial instrument for which it is practicable to
estimate that value:
Cash and Other Short-Term Instruments For cash and due from banks, federal
funds sold, short-term investments, accrued interest receivable, short-term
borrowings, accounts and drafts payable and accrued interest payable, the
carrying amount is a reasonable estimate of fair value because of the demand
nature or short maturities of these instruments.
Investments in Debt and Equity Securities Fair values are based on quoted
market prices or dealer quotes.
Loans The fair value of loans is estimated by discounting the future cash
flows using the current rates at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining maturities.
Deposits The fair value of demand deposits, savings accounts and certain
money market deposits is the amount payable on demand at the reporting date.
The fair value of fixed-maturity certificates of deposit is estimated using
the rates currently offered for deposits of similar remaining maturities. The
fair value estimates above do not include the benefit that results from the
low-cost funding provided by the depositliabilities compared to the cost of
borrowing funds in the market nor the benefit derived from the customer
relationship inherent in existing deposits.
Commitments to Extend Credit and Standby Letters of Credit The fair value of
commitments to extend credit and standby letters of credit are estimated
using the fees currently charged to enter into similar agreements, taking
into account the remaining terms of the agreements, the likelihood of the
counterparties drawing on such financial instruments and the present
credit-worthiness of such counterparties. The Company believes such
commitments have been made at terms which are competitive in the markets in
which it operates; however, no premium or discount is offered thereon and,
accordingly, the Company has not assigned a value to such instruments for
purposes of this disclosure.
Limitations Fair value estimates are based on existing on- and
off-balance-sheet financial instruments without attempting to estimate the
value of anticipated future business and the value of assets and liabilities
that are not considered financial instruments. Other significant assets or
liabilities that are not considered financial assets or liabilities include
premises and equipment and the benefit that results from the low-cost
funding provided by the deposit liabilities compared to the cost of
borrowing funds in the market (core deposit intangible). In addition, tax
ramifications related to the realization of the unrealized gains and losses
can have a significant effect on fair value estimates and have not been
considered in any of the estimates.
Management is concerned that reasonable comparability between financial
institutions may not be likely due to the wide range of permitted valuation
techniques and numerous estimates which must be made given the absence of
active secondary markets for many of the financial instruments. This lack of
uniform valuation methodologies also introduces a greater degree of
subjectivity to these estimated fair values.
Fair value estimates are made as of a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates do not reflect any premium or discount that could result from
offering for sale at one time the Company's entire holdings of a particular
financial instrument. Because no market exists for a significant portion of
the Company's financial instruments, fair value estimates are based on
management's judgments regarding future expected loss experience, current
economic conditions, risk characteristics of various financial instruments
and other factors. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and, therefore, cannot be
determined with precision. Changes in assumptions could significantly affect
the estimates.
21
<PAGE> 15
Note Thirteen
INDUSTRY SEGMENT INFORMATION
The services provided by the Company are classified into two industry
segments: Information Services and Banking Services which are more fully
discussed in note one. Total net revenue is comprised of total interest
income and total noninterest income, less provision for loan losses.
Intersegment revenues or transfers were not significant.
Summarized information about the Company's operations in each industry
as of and for the years ended December 31, 1996, 1995 and 1994 is
as follows:
<TABLE>
<CAPTION>
Total Net Revenue
---------------------------------
(In Thousands) 1996 1995 1994
- -------------------------------------------------------------------
<S> <C> <C> <C>
Information Services $ 35,501 $ 37,226 $ 31,881
Banking Services 14,823 13,995 12,301
Eliminations (107) (126) (83)
---------------------------------
Total $ 50,217 $ 51,095 $ 44,099
=================================
<CAPTION>
Income (Loss) Before Income Tax
---------------------------------
(In Thousands) 1996 1995 1994
- -------------------------------------------------------------------
<S> <C> <C> <C>
Information Services $ 6,044 $ 6,134 $ 5,314
Banking Services 3,740 3,280 2,843
Corporate Items (173) (140) (66)
---------------------------------
Total $ 9,611 $ 9,274 $ 8,091
=================================
<CAPTION>
Identifiable Assets
---------------------------------
(In Thousands) 1996 1995 1994
- -------------------------------------------------------------------
<S> <C> <C> <C>
Information Services $237,963 $238,762 $239,723
Banking Services 212,776 195,562 165,516
Corporate Items 47,909 43,505 39,012
Eliminations (60,326) (49,771) (37,155)
---------------------------------
Total $438,322 $428,058 $407,096
=================================
<CAPTION>
Depreciation and
Amortization Expense
---------------------------------
(In Thousands) 1996 1995 1994
- -------------------------------------------------------------------
<S> <C> <C> <C>
Information Services $ 2,057 $ 2,120 $ 1,990
Banking Services 494 395 517
Corporate Items 32 29 22
---------------------------------
Total $ 2,583 $ 2,544 $ 2,529
=================================
<CAPTION>
Capital Expenditures
---------------------------------
(In Thousands) 1996 1995 1994
- -------------------------------------------------------------------
<S> <C> <C> <C>
Information Services $ 1,509 $ 2,888 $ 1,815
Banking Services 249 251 166
Corporate Items 21 56 11
---------------------------------
Total $ 1,779 $ 3,195 $ 1,992
=================================
</TABLE>
Note Fourteen
CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY
Following are the condensed balance sheets of the Company (parent company
only) as of December 31, 1996 and 1995 and the related condensed schedules of
income and cash flows for each of the years in the three-year period ended
December 31, 1996.
<TABLE>
<CAPTION>
Condensed Balance Sheets
-------------------------
December 31
-------------------------
(In Thousands) 1996 1995
- ------------------------------------------------------------------
<S> <C> <C>
Assets:
Cash $ 130 $ 250
Investment in Cass Bank &
Trust Company 21,612 20,889
Investment in Cass Information
Systems, Inc. 25,617 21,952
Other assets 550 414
-------------------------
Total assets $47,909 $43,505
=========================
Liabilities and Stockholders' Equity:
Total liabilities $ 128 $ 192
Total stockholders' equity 47,781 43,313
-------------------------
Total liabilities and
stockholders' equity $47,909 $43,505
=========================
</TABLE>
<TABLE>
<CAPTION>
Condensed Schedules of Income
-------------------------------------
December 31
-------------------------------------
(In Thousands) 1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Dividends received from
subsidiaries $2,380 $2,140 $1,980
Management fees from
subsidiaries 954 949 1,008
-------------------------------------
Total income 3,334 3,089 2,988
-------------------------------------
Expenses:
Salaries and employee
benefits 835 883 915
Other expenses 292 206 159
-------------------------------------
Total expenses 1,127 1,089 1,074
-------------------------------------
Income before income
taxes and equity in
undistributed income
of subsidiaries 2,207 2,000 1,914
Income tax benefit (59) (48) (22)
-------------------------------------
2,266 2,048 1,936
Equity in undistributed
income of subsidiaries 4,253 4,166 3,646
-------------------------------------
Net income $6,519 $6,214 $5,582
=====================================
</TABLE>
22
<PAGE> 16
<TABLE>
<CAPTION>
Condensed Schedules of Cash Flows
--------------------------------------
December 31
--------------------------------------
(In Thousands) 1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from
operating activities:
Net income $ 6,519 $ 6,214 $ 5,582
Adjustments to reconcile
net income to net
cash provided by
operating activities:
Net income of
subsidiaries exclusive
of management fees (7,587) (7,255) (6,634)
Dividends from
subsidiaries 2,380 2,140 1,980
Management fees from
subsidiaries 954 949 1,008
Amortization of stock
bonus plan 110 64 --
Other, net (200) (192) 32
--------------------------------------
Net cash provided by
operating activities 2,176 1,920 1,968
--------------------------------------
Cash flows from
financing activities:
Cash dividends paid (2,296) (2,062) (1,934)
Purchases of treasury stock -- (24) (14)
--------------------------------------
Net cash used in
financing activities (2,296) (2,086) (1,948)
--------------------------------------
Net increase (decrease) in
cash and cash equivalents (120) (166) 20
Cash and cash equivalents
at beginning of year 250 416 396
--------------------------------------
Cash and cash equivalents
at end of year $ 130 $ 250 $ 416
======================================
</TABLE>
Note Fifteen
EVENT SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS' REPORT (UNAUDITED)
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.
Independent Auditors' Report
THE BOARD OF DIRECTORS AND STOCKHOLDERS
CASS COMMERCIAL CORPORATION:
We have audited the accompanying consolidated balance sheets of Cass
Commercial Corporation and subsidiaries (the Company) as of December 31, 1996
and 1995, and the related consolidated statements of income, cash flows and
stockholders' equity for each of the years in the three-year period ended
December 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Cass
Commercial Corporation and subsidiaries as of December 31, 1996 and 1995, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1996, in conformity with generally
accepted accounting principles.
/s/ KPMG Peat Marwick LLP
St. Louis, Missouri
January 24, 1997
23
<PAGE> 17
- ----------------------------------------------------
BOARD OF DIRECTORS AND SHAREHOLDER INFORMATION
- ----------------------------------------------------
Directors
Cass Commercial
Corporation, Cass Bank
& Trust Company and
Cass Information
Systems, Inc.
Lawrence A. Collett
Chairman of the Board -
Chief Executive Officer,
Cass Commercial Corporation
John J. Vallina
President, Cass Bank &
Trust Company
Robert J. Bodine
Chairman Emeritus,
Bodine Aluminum, Inc.
Thomas J. Fucoloro
Consultant
Harry J. Krieg
Chairman Emeritus
Howard A. Kuehner
Investor
Jake Nania
Investor
Irving A. Shepard
President, Venture
Consultants, Inc.
A. J. Signorelli
Founder, Andrews Educational &
Research Center and
Hope Educational & Research Center
Bruce E. Woodruff
Attorney; of counsel to
Armstrong, Teasdale,
Schlafly & Davis
Officers
Cass Commercial
Corporation
Lawrence A. Collett
Chairman of the Board-
Chief Executive Officer
Lawrence L. Frieben
Vice President-Secretary-
Chief Financial Officer
William C. Bouchein
Vice President-Treasurer
Wayne D. Muskopf
Vice President-
Human Resources
Locations
Cass Commercial
Corporation
3636 South Geyer
Sunset Hills, Missouri 63127
(314) 821-1500
Cass Bank & Trust
Company
Main Bank
3636 South Geyer
Sunset Hills, Missouri 63127
(314) 821-1500
Downtown Facilities
1015 Locust Street
St. Louis, Missouri 63101
(314) 621-5999
1420 N. 13th Street
St. Louis, Missouri 63106
(314) 421-4943
West Port Facility
11657 Adie Road
Maryland Heights,
Missouri 63043
(314) 569-2277
Cass Information
Systems Inc.
Payment Systems Group
13001 Hollenberg Drive
Bridgeton, Missouri 63044
(314) 770-2231
2545 Farmers Drive
Columbus, Ohio 43235
(614) 766-2277
900 Chelmsford Street
Lowell, Massachusetts 10151
(508) 446-0101
Software Systems Group
One Northwestern Center
Suite 900
165 North Canal Street
Chicago, Illinois 60606
(312) 454-9000
10-K
A copy of the Company's 1996 Annual Report filed with the Securities and
Exchange Commission on Form 10-K is available to stockholders without charge.
To obtain a copy, direct your request to Investor Relations, 3636 South
Geyer, Sunset Hills, Missouri 63127.
24
<PAGE> 1
Independent Auditors' Consent
-----------------------------
The Board of Directors
Cass Commercial Corporation:
We consent to incorporation by reference in the registration statements
No. 33-91456 and No. 33-91568 on Form S-8 of Cass Commercial Corporation
(Cass) of our report dated January 24, 1997, relating to the consolidated
balance sheets of Cass Commercial Corporation and subsidiaries as of
December 31, 1996 and 1995, and the related consolidated statements of
income, stockholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1996, which report appears in the
December 31, 1996 annual report on Form 10-K of Cass.
/s/ KPMG Peat Marwick LLP
St. Louis, Missouri
March 26, 1997
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 10,256
<INT-BEARING-DEPOSITS> 32,000
<FED-FUNDS-SOLD> 24,900
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 41,354
<INVESTMENTS-CARRYING> 118,313
<INVESTMENTS-MARKET> 118,362
<LOANS> 197,775
<ALLOWANCE> 4,396
<TOTAL-ASSETS> 438,322
<DEPOSITS> 177,505
<SHORT-TERM> 2,476
<LIABILITIES-OTHER> 5,870
<LONG-TERM> 0
0
0
<COMMON> 1,000
<OTHER-SE> 46,781
<TOTAL-LIABILITIES-AND-EQUITY> 438,322
<INTEREST-LOAN> 16,193
<INTEREST-INVEST> 9,801
<INTEREST-OTHER> 2,132
<INTEREST-TOTAL> 28,126
<INTEREST-DEPOSIT> 4,503
<INTEREST-EXPENSE> 4,642
<INTEREST-INCOME-NET> 23,484
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 35,964
<INCOME-PRETAX> 9,611
<INCOME-PRE-EXTRAORDINARY> 9,611
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,519
<EPS-PRIMARY> 1.67
<EPS-DILUTED> 1.67
<YIELD-ACTUAL> .066
<LOANS-NON> 480
<LOANS-PAST> 306
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0<F1>
<ALLOWANCE-OPEN> 6,358
<CHARGE-OFFS> 2,121
<RECOVERIES> 159
<ALLOWANCE-CLOSE> 4,396
<ALLOWANCE-DOMESTIC> 4,396
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1> Information available only at year-end.
</TABLE>
