<PAGE> 1
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 1997
COMMISSION FILE NO. 2-80070
-----------------
CASS COMMERCIAL CORPORATION
INCORPORATED UNDER THE LAWS OF MISSOURI
I.R.S. EMPLOYER IDENTIFICATION NO. 43-1265338
13001 HOLLENBERG DRIVE, BRIDGETON, MISSOURI 63044
TELEPHONE: (314) 506-5500
-----------------
Indicate by check mark whether the registrant has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and has been subject to such filing
requirements for the past 90 days.
Yes X No
------- --------
The number of shares outstanding of registrant's only class of stock
as of November 7, 1997: Common stock, par value $.50 per share - 3,858,548
shares outstanding.
- ------------------------------------------------------------------------------
This document constitutes part of a prospectus covering securities that
have been registered under the Securities Act of 1933.
- ------------------------------------------------------------------------------
<PAGE> 2
PART I, Item 1
- --------------
<TABLE>
CASS COMMERCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<CAPTION>
(IN THOUSANDS EXCEPT SHARE
AND PER SHARE DATA)
-----------------------------
SEPTEMBER 30 DECEMBER 31
1997 1996
------------ -----------
Assets
- ------
<S> <C> <C>
Cash and due from banks $ 25,647 $ 10,256
Federal funds sold and other short-term investments 97,300 56,900
-------- --------
Cash and cash equivalents 122,947 67,156
-------- --------
Investments in debt and equity securities:
Held-to-maturity, estimated market value of
$97,383 and $118,362 at September 30, 1997
and December 31, 1996, respectively 97,252 118,313
Available-for-sale, at estimated market value 36,291 41,354
-------- --------
Total investments in debt and equity securities 133,543 159,667
-------- --------
Loans, net of unearned income 196,531 197,775
Less: Allowance for loan losses 4,467 4,396
-------- --------
Loans, net 192,064 193,379
-------- --------
Premises and equipment, net 10,556 8,079
Accrued interest receivable 3,004 3,366
Other assets 8,990 6,675
-------- --------
Total assets $471,104 $438,322
======== ========
Liabilities and Stockholders' Equity,
- -------------------------------------
Liabilities:
- ------------
Deposits:
Noninterest-bearing 74,960 62,244
Interest-bearing 109,124 115,261
-------- --------
Total deposits 184,084 177,505
Accounts and drafts payable 228,523 204,690
Short-term borrowings 268 2,476
Other liabilities 6,758 5,870
-------- --------
Total liabilities 419,633 390,541
-------- --------
Stockholders' Equity:
- --------------------
Preferred stock, par value $.50 per share; 2,000,000
shares authorized and no shares issued -- --
Common stock, par value $.50 per share and
20,000,000 shares authorized at September 30,
1997 and December 31, 1996; and
4,000,000 shares issued 2,000 2,000
Surplus 4,740 4,740
Retained earnings 45,839 42,376
Common shares in treasury, at cost (141,452 shares) (1,284) (1,284)
Unrealized holding gain on investments in debt and
equity securities available-for-sale, net of tax 249 105
Unamortized stock bonus awards (73) (156)
-------- --------
Total stockholders' equity 51,471 47,781
-------- --------
Total liabilities and stockholders' equity $471,104 $438,322
======== ========
See accompanying notes to consolidated financial statements.
</TABLE>
-1-
<PAGE> 3
<TABLE>
CASS COMMERCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
--------------------- ----------------------
1997 1996 1997 1996
------ ------ ------- -------
(In Thousands Except Per Share Data)
<S> <C> <C> <C> <C>
INTEREST INCOME:
- ----------------
Interest and fees on loans $4,232 $4,168 $12,762 $12,004
Interest on debt securities:
Taxable 2,239 2,519 7,074 7,214
Exempt from federal income taxes 19 19 57 53
Interest on federal funds sold and
other short-term investments 792 442 1,669 1,415
------ ------ ------- -------
Total interest income 7,282 7,148 21,562 20,686
------ ------ ------- -------
Interest Expense:
- -----------------
Interest on deposits 1,065 1,154 3,051 3,324
Interest on short-term borrowings 7 38 64 111
------ ------ ------- -------
Total interest expense 1,072 1,192 3,115 3,435
------ ------ ------- -------
Net interest income 6,210 5,956 18,447 17,251
Provision for loan losses -- -- 300 --
------ ------ ------- -------
Net interest income after provision
for loan losses 6,210 5,956 18,147 17,251
------ ------ ------- -------
Noninterest Income:
- -------------------
Information services revenues:
Freight payment and processing revenue 4,492 4,381 13,156 13,291
Freight rating services income 669 779 1,841 2,474
Service charges on deposit accounts 127 135 398 409
Gain on sale of debt securities 216 -- 216 --
Other 122 138 513 509
------ ------ ------- -------
Total noninterest income 5,626 5,433 16,124 16,683
------ ------ ------- -------
Noninterest Expense:
- --------------------
Salaries and employee benefits 6,067 5,997 17,850 18,122
Occupancy expense 314 548 1,252 1,592
Equipment expense 657 660 1,971 1,894
Other 1,986 1,641 5,623 5,274
------ ------ ------- -------
Total noninterest expense 9,024 8,846 26,696 26,882
------ ------ ------- -------
Income before income tax expense 2,812 2,543 7,575 7,052
Income tax expense 975 829 2,608 2,376
------ ------ ------- -------
Net income $1,837 $1,714 $ 4,967 $ 4,676
====== ====== ======= =======
Net income per share $ .47 $ .44 $ 1.27 $ 1.22
====== ====== ======= =======
See accompanying notes to consolidated financial statements.
</TABLE>
-2-
<PAGE> 4
<TABLE>
CASS COMMERCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<CAPTION>
(IN THOUSANDS)
NINE MONTHS ENDED
SEPTEMBER 30
---------------------------
1997 1996
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
- -------------------------------------
<S> <C> <C>
Net income $ 4,967 $ 4,676
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 1,766 1,958
Amortization of stock bonus awards 83 83
Provision for loan losses 300 --
Increase in accrued interest receivable 362 237
Gain on sale of debt securities (216) --
Other operating activities, net (1,555) (544)
-------- --------
Net cash provided by operating activities 5,707 6,410
-------- --------
Cash Flows From Investing Activities:
- -------------------------------------
Proceeds from maturities of debt securities:
Held-to-maturity 20,995 13,874
Available-for-sale 849 5,662
Proceeds from sales of debt securities, available-
for-sale 14,216 --
Purchases of debt and equity securities:
Held-to-maturity -- (11,018)
Available-for-sale (9,835) (28,222)
Net (increase) decrease in loans 1,015 (27,107)
Purchases of premises and equipment (3,856) (1,078)
-------- --------
Net cash provided by (used in) investing activities 23,384 (47,889)
-------- --------
Cash Flows From Financing Activities:
- -------------------------------------
Net increase in demand, interest-bearing
demand and savings deposits 6,211 17,652
Net increase in time deposits 368 467
Net increase (decrease) in accounts and drafts payable 23,833 (7,204)
Net increase (decrease) in short-term borrowings (2,208) 27
Dividends paid (1,504) (1,331)
-------- --------
Net cash provided by financing activities 26,700 9,611
-------- --------
Net (increase) decrease in cash and cash equivalents 55,791 (31,868)
Cash and cash equivalents at beginning of period 67,156 90,342
-------- --------
Cash and cash equivalents at end of period $122,947 $ 58,474
======== ========
Supplemental information:
Cash paid for interest $ 3,165 $ 3,482
======== ========
Net taxes paid $ 1,735 $ 2,235
======== ========
See accompanying notes to consolidated financial statements.
</TABLE>
-3-
<PAGE> 5
CASS COMMERCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1997
Note 1 - Basis of Presentation
Cass Commercial Corporation (the Company) provides a full range of
banking services to individual, corporate and institutional customers, with a
primary focus on privately held companies, through its wholly owned
subsidiary bank, Cass Bank & Trust Company (the Bank). The Bank is subject
to competition from other financial and nonfinancial institutions throughout
the metropolitan St. Louis, Missouri area. Additionally, the Company and the
Bank are subject to the regulations of certain Federal and state agencies and
undergo periodic examinations by those regulatory agencies.
The Company also provides information services through its wholly owned
subsidiary, Cass Information Systems, Inc. (CIS). These logistics-related
services include processing and payment of freight charges, preparation of
transportation management reports, auditing of freight charges and rating of
freight shipments. CIS is subject to competition from other commercial
concerns providing similar services to companies throughout the United States
and Canada. The consolidated balance sheet caption, "Accounts and Drafts
Payable", consists of obligations related to freight bill payment services
which are performed for customers.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation, have been included. Operating results for
the period ended September 30, 1997 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1997. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1996.
When used in this Form 10-Q or future filings by the Company with the
Securities and Exchange Commission, in the Company's press releases or other
public or shareholder communications, or in oral statements made with the
approval of an authorized executive officer, the words or phrases "will
likely result", "are expected to", "will continue", "is anticipated",
"estimate", "project" or similar expressions are intended to identify
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. The Company wishes to caution readers not to
place undue reliance on any such forward-looking statements, which speak only
as of the date made, and to advise readers that various factors, including
regional and national economic conditions, substantial changes in levels of
market interest rates, credit and other risks of lending and investment
activities and competitive and regulatory factors could affect the Company's
financial performance and could cause the Company's actual results for future
periods to differ materially from those anticipated or projected.
The Company does not undertake and specifically disclaims any obligation
to update any forward-looking statements to reflect the occurrence of
anticipated or unanticipated events or circumstances after the date of such
statements.
-4-
<PAGE> 6
Note 2 - Impact Of New Accounting Pronouncements
In June 1996, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 125, Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities (SFAS
125). SFAS 125 provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities based on
consistent application of a financial-components approach that focuses on
control. It distinguishes transfers of financial assets that are sales from
transfers that are secured borrowings. Under the financial-components
approach, after a transfer of financial assets, an entity recognizes all
financial and servicing assets it controls and liabilities it has incurred
and derecognizes financial assets it no longer controls and liabilities that
have been extinguished. The financial-components approach focuses on the
assets and liabilities that exist prior to the transfer. Many of these
assets and liabilities are components of financial assets that existed prior
to the transfer. If a transfer does not meet the criteria for a sale, the
transfer is accounted for as a secured borrowing with pledge of collateral.
SFAS 125 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. The adoption of SFAS 125 on January 1, 1997 did not have a
material impact on the Company's financial statements.
In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 128, Earnings per Share (SFAS 128) establishing standards for
computing and presenting earnings per share (EPS). SFAS 128 simplifies
existing standards for computing EPS and makes them comparable to
international standards. It replaces the presentation of primary EPS with a
presentation of basic EPS. It also requires dual presentation of basic and
diluted EPS on the face of the income statement for all entities with complex
capital structures and requires a reconciliation of the components of basic
and diluted EPS. Basic EPS excludes dilution and is computed by dividing
income available to common shareholders by the weighted-average number of
common shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common
stock were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the Company.
SFAS 128 is effective for financial statements issued for the periods ending
after December 15, 1997, including interim periods, and requires restatement
of all prior-period EPS data presented. The Company does not believe the
adoption of SFAS 128 will have a material effect on its financial condition
or results of operations.
-5-
<PAGE> 7
In February 1997, the FASB issued SFAS 129 which establishes standards
for disclosing information about an entity's capital structure. SFAS 129 is
effective for financial statements for periods ending after December 15,
1997. Since SFAS 129 is a disclosure requirement there will be no impact on
the Company's financial statements.
In June 1997, the FASB issued SFAS 130 which establishes standards for
reporting and display of comprehensive income and its components (revenues,
expenses, gains, and losses) in a full set of general-purpose financial
statements. SFAS is effective for fiscal years beginning after December 15,
1997. SFAS 130 is a reporting and disclosure requirement and, therefore,
will have no impact on the Company's financial statements.
In June 1997, the FASB issued SFAS 131 which establishes standards for
the way that public enterprises report information about operating segments
in annual financial statements and requires that those enterprises report
selected information about operating segments in interim reports issued to
shareholders. SFAS 131 is effective for financial statements for periods
beginning after December 15, 1997. Since SFAS 131 was only recently issued,
the Company has not yet determined the impact of adopting SFAS 131. However,
since SFAS 131 is a disclosure requirement there will be no effect on the
Company's financial position or results of operations.
Note 3 - Earnings Per Share
Average common and common stock equivalents outstanding for the nine
month periods ended September 30, 1997 and 1996 were 3,924,282 and 3,830,131,
respectively. Average common and common stock equivalents outstanding for
the three month periods ended September 30, 1997 and 1996 were 3,929,642 and
3,910,760, respectively. The weighted average number of common stock
equivalents is calculated using the treasury stock method.
Note 4 - Stock Option Plan / Stock Bonus Plan
During May 1995, the Company's Board of Directors established the 1995
Performance-Based Stock Option Plan (the Option Plan) and the 1995 Restricted
Stock Bonus Plan (the Bonus Plan). These plans were adopted to aid the
Company in securing and retaining qualified personnel. The Option Plan
provides for the granting of options on up to 400,000 shares of the Company's
common stock. As of September 30, 1997, options for 120,000 shares had been
awarded under the Option Plan at an option price of $10.31 per share. These
options vest over a period not to exceed seven years, but the vesting period
can be less based on the Company's attainment of certain financial operating
performance criteria.
The Bonus Plan provides for the issuance of up to 100,000 shares of the
Company's common stock. As of September 30, 1997, an aggregate of 32,000
shares of the Company's common stock had been awarded to five participants.
Interest in the shares of common stock awarded under the Bonus Plan are
subject to forfeiture and vest ratably over a three year period. Common
stock awarded under the Bonus Plan is accounted for through the establishment
of a contra stockholders' equity account. This contra stockholders' equity
account is amortized against income over the vesting period of the stock
awards.
Note 5 - Reclassifications
Certain amounts in the 1996 consolidated financial statements have been
reclassified to conform with the 1997 presentation. Such reclassifications
have no effect on previously reported net income.
-6-
<PAGE> 8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
Net Income
- ----------
Cass Commercial Corporation (the Company) operates in two primary
business segments through its two wholly owned subsidiaries, Cass Bank and
Trust Company (Cass Bank), which operates as a commercial bank, and Cass
Information Systems, Inc. (CIS), an information services company, whose
operations include the processing and payment of freight charges, preparation
of transportation management reports, auditing of freight charges and rating
of freight shipments. The Company had net income of $4,967,000 for the
nine-month period ended September 30, 1997 (the "First Nine Months of 1997")
compared to net income of $4,676,000 for the nine-month period ended
September 30, 1996 (the "First Nine Months of 1996").
The Company had net income of $1,837,000 for the three-month period
ended September 30, 1997 ("Third Quarter of 1997") compared to net income of
$1,714,000 for the three-month period ended September 30, 1996 ("Third
Quarter of 1996").
The following paragraphs more fully discuss the changes in financial
condition and results of operations for the First Nine Months of 1997
compared to the First Nine Months of 1996 and for the Third Quarter of 1997
compared to the Third Quarter of 1996. Such information is provided on a
consolidated basis for the Company, Cass Bank and CIS, with expanded
disclosures for specific effects CIS's operations have on particular account
captions.
Net Interest Income
- -------------------
The Company's tax-equivalent net interest margin on earning assets
increased in the First Nine Months of 1997 to 6.23% from 6.01% in the First
Nine Months of 1996. This increase was due to increased balances in earning
assets coupled with decreases in the balances and rates paid by the Bank on
interest-bearing deposits. Prime rate also affected the rates for earning
assets as the prime rate increased from 8.25% in February, 1996 to 8.50% in
March, 1997. The Company is positively affected by increases in the level of
interest rates due to the fact that its rate sensitive assets significantly
exceed its rate sensitive liabilities. Conversely, the Company is adversely
affected by decreases in the level of interest rates. This is primarily due
to the noninterest-bearing liabilities generated by CIS in the form of
accounts and drafts payable (See interest sensitivity gap measurement under
the section entitled "Asset/Liability Management Program"), as well as a
significant portion of the Company's loan portfolio bearing a floating rate
of interest.
The increase of $17,233,000 in average earning assets, net of
interest-bearing liabilities, coupled with an increase in the net interest
margin resulted in an increase in net tax-equivalent interest income of
$1,196,000 in the First Nine Months of 1997 compared to the First Nine Months
of 1996. The mix of earning assets changed in the First Nine Months of 1997
compared to the First Nine Months of 1996 with an increase of $14,587,000 in
the average balance of loans and a decrease of $5,623,000 in investments in
debt and equity securities. See Table 1 on page 8 for further explanation
of the changes in net interest income for the First Nine Months of 1997
compared to the First Nine Months of 1996.
The Company's tax-equivalent net interest income for the Third Quarter
of 1997 increased $261,000 (4.4%) compared to the Third Quarter of 1996.
This increase resulted mainly from an increase of $5,822,000 in average
earning assets and a decrease of $8,862,000 in interest-paying liabilities in
the Third Quarter of 1997 over the Third Quarter of 1996. The mix of average
earning assets also improved with an increase of $4,752,000 in average loans
and a decrease of $19,434,000 in average investments in debt and equity
securities. See Table 2 on page 10 for further explanation of the changes in
net interest income.
-7-
<PAGE> 9
<TABLE>
TABLE 1: CONSOLIDATED AVERAGE BALANCE SHEETS AND NET INTEREST
INCOME ANALYSIS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(TAX-EQUIVALENT BASIS, IN THOUSANDS)
<CAPTION>
AVERAGE
AVERAGE BALANCE YIELD/RATE
--------------- ----------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
ASSETS
- ------
Interest-earning assets:
Loans $203,518 $188,931 8.43% 8.51%
Investment in debt and equity securities 153,955 159,578 6.22 6.11
Federal funds sold and other
short-term investments 40,459 36,244 5.52 5.22
-------- -------- ---- ----
Total interest-earning assets 397,932 384,753 7.28 7.21
-------- -------- ---- ----
Nonearning assets:
Cash and due from banks 17,258 17,893
Premises and equipment 9,459 8,180
Other assets 12,523 10,166
Allowance for loan losses (4,534) (6,397)
-------- --------
Total assets 432,638 414,595
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Interest-bearing liabilities:
Interest-bearing demand deposits 31,548 23,141 3.52 3.29
Savings deposits 58,253 67,783 4.27 4.63
Time deposits of $100,000
or more 3,804 4,545 5.52 5.35
Other time deposits 5,356 5,841 5.04 5.13
-------- -------- ---- ----
Total interest-bearing deposits 98,961 101,310 4.12 4.39
Short-term borrowings 1,534 3,239 5.58 4.58
-------- -------- ---- ----
Total interest-bearing liabilities 100,495 104,549 4.15 4.39
-------- -------- ---- ----
Noninterest-bearing liabilities:
Demand deposits 62,694 56,671
Accounts and drafts payable 213,186 201,898
Other liabilities 6,863 6,779
-------- --------
Total liabilities 383,238 369,897
Stockholders' equity 49,400 44,698
-------- --------
Total liabilities and
stockholders' equity $432,638 $414,595
======== ========
Net interest income
Net yield on interest-earning assets 6.23% 6.01%
==== ====
<CAPTION>
INTEREST INCREASE(DECREASE)
INCOME/EXPENSE DUE TO CHANGE IN
--------------------- NET -----------------
1997 1996 CHANGE VOLUME RATE
---- ---- ------ ------ ----
<S> <C> <C> <C> <C> <C>
ASSETS
- ------
Interest-earning assets:
Loans $12,828 $12,030 $ 798 $ 921 $(123)
Investment in debt and equity securities 7,159 7,294 (135) (260) 125
Federal funds sold and other
short-term investments 1,669 1,415 254 171 83
------- ------- ------ ------ -----
Total interest-earning assets 21,656 20,739 917 832 85
------- ------- ------ ------ -----
Nonearning assets:
Cash and due from banks
Premises and equipment
Other assets
Allowance for loan losses
Total assets
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Interest-bearing liabilities:
Interest-bearing demand deposits 831 569 262 219 43
Savings deposits 1,862 2,349 (487) (314) (173)
Time deposits of $100,000
or more 157 182 (25) (30) 5
Other time deposits 201 224 (23) (18) (5)
------- ------- ------ ------ -----
Total interest-bearing deposits 3,051 3,324 (273) (143) (130)
Short-term borrowings 64 111 (47) (67) 20
------- ------- ------ ------ -----
Total interest-bearing liabilities 3,115 3,435 (320) (210) (110)
------- ------- ------ ------ -----
Noninterest-bearing liabilities:
Demand deposits
Accounts and drafts payable
Other liabilities
Total liabilities
Stockholders' equity
Total liabilities and
stockholders' equity
Net interest income $18,541 $17,304 $1,237 $1,042 $ 195
======= ======= ====== ====== =====
Net yield on interest-earning assets
</TABLE>
-8-
<PAGE> 10
AVERAGE BALANCES, INTEREST AND RATES
For the Nine Months Ended September 30, 1997 and 1996, Continued
NOTES:
1) For purposes of these computations, non-accrual loans are included in the
average loan amounts outstanding.
2) Interest income on loans includes net fees of $4,000 and $7,000 for the
First Nine Months of 1997 and 1996, respectively.
3) Income is presented on a tax-equivalent basis assuming a tax rate of 34%.
The tax-equivalent adjustment was approximately $94,000 for the First Nine
Months of 1997 and $53,000 for the First Nine Months of 1996.
-9-
<PAGE> 11
<TABLE>
TABLE 2: CONSOLIDATED AVERAGE BALANCE SHEETS AND NET INTEREST
INCOME ANALYSIS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(TAX-EQUIVALENT BASIS, IN THOUSANDS)
<CAPTION>
AVERAGE
AVERAGE BALANCE YIELD/RATE
---------------------- ------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
ASSETS
- ------
Interest-earning assets:
Loans $201,422 $196,670 8.37% 8.43%
Investment in debt and equity securities 146,102 165,536 6.15 6.11
Federal funds sold and other
short-term investments 54,495 33,991 5.77 5.16
-------- -------- ---- ----
Total interest-earning assets 402,019 396,197 7.21 7.18
-------- -------- ---- ----
Nonearning assets:
Cash and due from banks 18,019 17,705
Premises and equipment 10,127 8,063
Other assets 13,445 10,052
Allowance for loan losses (4,455) (6,426)
-------- --------
Total assets 439,155 425,591
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Interest-bearing liabilities:
Interest-bearing demand deposits 31,914 24,105 3.61 3.49
Savings deposits 59,389 72,654 4.30 4.42
Time deposits of $100,000
or more 4,425 4,558 5.83 5.14
Other time deposits 5,208 5,756 5.03 5.03
-------- -------- ---- ----
Total interest-bearing deposits 100,936 107,073 4.19 4.28
Short-term borrowings 520 3,245 5.34 4.65
-------- -------- ---- ----
Total interest-bearing liabilities 101,456 110,318 4.19 4.29
-------- -------- ---- ----
Noninterest-bearing liabilities:
Demand deposits 64,868 57,185
Accounts and drafts payable 215,224 206,007
Other liabilities 6,933 6,375
-------- --------
Total liabilities 388,481 379,885
Stockholders' equity 50,674 45,706
-------- --------
Total liabilities and
stockholders' equity $439,155 $425,591
======== ========
Net interest income
Net yield on interest-earning assets 6.15% 5.98%
==== ====
<CAPTION>
INTEREST INCREASE(DECREASE)
INCOME/EXPENSE DUE TO CHANGE IN
-------------------- NET -----------------
1997 1996 CHANGE VOLUME RATE
---- ---- ------ ------ ----
<S> <C> <C> <C> <C> <C>
ASSETS
- ------
Interest-earning assets:
Loans $4,250 $4,177 $ 73 $ 100 $(27)
Investment in debt and equity securities 2,266 2,548 (282) (301) 19
Federal funds sold and other
short-term investments 792 442 350 293 57
------ ------ ----- ----- ----
Total interest-earning assets 7,308 7,167 141 92 49
------ ------ ----- ----- ----
Nonearning assets:
Cash and due from banks
Premises and equipment
Other assets
Allowance for loan losses
Total assets
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Interest-bearing liabilities:
Interest-bearing demand deposits 290 212 78 71 7
Savings deposits 644 810 (166) (144) (22)
Time deposits of $100,000
or more 65 59 6 (2) 8
Other time deposits 66 73 (7) (7) --
------ ------ ----- ----- ----
Total interest-bearing deposits 1,065 1,154 (89) (82) (7)
Short-term borrowings 7 38 (31) (36) 5
------ ------ ----- ----- ----
Total interest-bearing liabilities 1,072 1,192 (120) (118) (2)
------ ------ ----- ----- ----
Noninterest-bearing liabilities:
Demand deposits
Accounts and drafts payable
Other liabilities
Total liabilities
Stockholders' equity
Total liabilities and
stockholders' equity
Net interest income $6,236 $5,975 $ 261 $ 210 $ 51
====== ====== ===== ===== ====
Net yield on interest-earning assets
</TABLE>
-10-
<PAGE> 12
AVERAGE BALANCES, INTEREST AND RATES
For the Three Months Ended September 30, 1997 and 1996, Continued
NOTES:
1) For purposes of these computations, non-accrual loans are included in the
average loan amounts outstanding.
2) Interest income on loans includes net fees of $1,000 and $1,000 for both
the Third Quarter of 1997 and 1996.
3) Income is presented on a tax-equivalent basis assuming a tax rate of 34%.
The tax-equivalent adjustment was approximately $26,000 and $19,000 for
the Third Quarter of 1997 and 1996, respectively.
-11-
<PAGE> 13
Provision for Loan Losses
- -------------------------
A significant determinant of the Company's operating results is the
level of loan losses and the provision for loan losses. The Company charged
$300,000 to earnings to provide for loan losses for the First Nine Months of
1997. There was no charge to earnings to provide for loan losses for the
First Nine Months of 1996. The quality of the loan portfolio has continued
to remain strong. The level of nonperforming loans, at .18% of average
loans, remains well below industry standards. Nonperforming loans are
covered over 12 times by the allowance for loan losses at September 30, 1997.
The Company experienced net charge offs of $229,000 in the First Nine Months
of 1997.
Factors which influence management's determination of the adequacy of
the allowance for loan losses, among other things, include: evaluation of
each nonperforming and/or classified loan to determine the estimated loss
exposure under existing circumstances known to management; evaluation of all
potential problem loans identified in light of possible loss exposure based
upon existing circumstances known to management; analysis of the loan
portfolio with regard to potential future loss exposure on loans to specific
customers and/or industries; current economic conditions; and an overall
review of the loan portfolio in light of past loan loss experience.
At September 30, 1997, impaired loans totalled $1,030,000 which includes
$350,000 of nonaccrual loans. The allowance for loan losses on impaired
loans was $365,000 at September 30, 1997. The average balance of impaired
loans during the First Nine Months of 1997 was $1,063,000.
The allowance for loan losses at September 30, 1997 was $4,467,000 and
at December 31, 1996 was $4,396,000. The allowance for loan losses at
September 30, 1997 represents 2.27% of total loans outstanding compared to
2.22% at December 31, 1996.
-12-
<PAGE> 14
The following table presents information as of and for the three and
six-month periods ended September 30, 1997 and 1996 pertaining to the
Company's provision for loan losses and analysis of the allowance for loan
losses.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
-------------------------- -----------------------
1997 1996 1997 1996
-------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C>
Allowance at beginning of period $ 4,447 $ 6,421 $ 4,396 $ 6,358
Provision for loan losses charged to expense -- -- 300 --
Loans charged off (1) (119) (412) (121)
Recoveries on loans previously charged off 21 40 183 105
-------- -------- -------- --------
Net loan (charge-offs) recoveries 20 (79) (229) (16)
-------- -------- -------- --------
Allowance at end of period $ 4,467 $ 6,342 $ 4,467 $ 6,342
======== ======== ======== ========
Loans outstanding:
Average $201,422 $196,670 $203,518 $188,931
September 30 196,531 201,284 196,531 201,284
Ratio of allowance for loan losses to
loans outstanding:
Average 2.22% 3.22% 2.19% 3.36%
September 30 2.27% 3.15% 2.27% 3.15%
Nonperforming loans:
Nonaccrual loans $ 360 $ 296 $ 360 $ 296
Loans past due 90 days or more -- 14 -- 14
-------- -------- -------- --------
Total $ 360 $ 310 $ 360 $ 310
-------- -------- -------- --------
Nonperforming loans as a percent of
average loans .18% .16% .18% .16%
</TABLE>
-13-
<PAGE> 15
Noninterest Income
- ------------------
Noninterest income is principally derived from service fees generated by
CIS's Payment Systems and Software Systems Groups. Total noninterest income
for the Third Quarter of 1997 and the First Nine Months of 1997 increased
$193,000 (3.6%) and decreased $559,000 (3.4%), respectively, from the
corresponding periods of 1996.
CIS's Payment Systems Group experienced a decrease in processing
revenues of $135,000 (1.0%) in the First Nine Months of 1997 compared to the
First Nine Months of 1996. This decrease resulted primarily from termination
fees of $265,000 received from three clients in the First Nine Months of 1996
partially offset by an increase in processing volume in The First Nine Months
of 1997. The volume of accepted new business proposals remains strong and
should result in increasing revenues in CIS's Payment Systems Group as new
accounts are placed in service throughout the remainder of 1997.
CIS's Software Systems Group experienced a decrease in revenues of
$633,000 (25.6%) and $110,000 (14.1%) in the First Nine Months of 1997 and
the Third Quarter of 1997, respectively, compared to the corresponding
periods of 1996. This decrease resulted mainly from a decline in software
sales due to increased competition from broad based providers of logistics
software in the marketplace.
A gain of $216,000 was recognized on the sale of $14,216,000 in debt
securities available-for-sale in the Third Quarter of 1997. This sale was
transacted as part of the Company's overall asset/liability management
program. This transaction also increased the Company's capability to meet
expected future loan demand.
Noninterest Expense
- -------------------
Total noninterest expense for the First Nine Months of 1997 decreased
$186,000 (.7%) from the First Nine Months of 1996. Total noninterest expense
for the Third Quarter of 1997 increased $178,000 (2.0%) from the Third
Quarter of 1996.
Salaries and benefits expense decreased $272,000 (1.5%) in the First
Nine Months of 1997 compared to the First Nine Months of 1996. Salaries and
benefits expense increased $70,000 (1.2%) in the Third Quarter of 1997
compared to the Third Quarter of 1996. Systems development costs of over
$450,000 and $175,000, related to new client server technology, were
capitalized in the First Nine Months of 1997 and in the Third Quarter of
1997, respectively.
Occupancy expense decreased $340,000 (21.4%) in the First Nine Months of
1997 compared to the First Nine Months of 1996. Occupancy expense decreased
$234,000 (42.7%) in the Third Quarter of 1997 compared to the Third Quarter
of 1996. The decrease was due primarily to the Company and the Bank moving
their headquarters in April, 1997 to a new facility which was added on to the
property owned by CIS in Bridgeton, Missouri. This consolidation of
facilities resulted in occupancy expense savings. Additionally, under
arrangements with building management, CIS's Chicago location received
$72,000 reimbursement for rent expense to vacate the building by the end of
1997, which is prior to the terms of their lease. Rent payments for the last
four months of 1997 have also been abated, resulting in decreased rent expense
of $94,000 for the Third Quarter of 1997 for the CIS Chicago location.
Equipment expense increased $77,000 (4.1%) in the First Nine Months of
1997 compared to the First Nine Months of 1996. This increase resulted from
expansion of processing systems in CIS's Payment Systems Group.
Other noninterest expense increased $349,000 (6.6%)in the First Nine
Months of 1997 compared to the First Nine Months of 1996. Other noninterest
expense increased $345,000 (21.0%) in the Third Quarter of 1997 compared to
the Third Quarter of 1996. Expenses incurred for contract programming in
CIS's Payment Systems Group accounted for $145,000 of the increase.
Consulting expense for product development incurred by CIS's Software Systems
Group accounted for $95,000 of the increase. Expenses associated with the
headquarters move of the Company and the Bank in April, 1997 accounted for an
increase of approximately $40,000.
-14-
<PAGE> 16
Balance Sheet Analysis
- ----------------------
Federal funds sold and other short-term investments increased from
$56,900,000 at December 31, 1996 to $97,300,000 at September 30, 1997. The
average balance of these accounts was $40,459,000 in the First Nine Months of
1997 compared to $36,244,000 in the First Nine Months of 1996. The increase
in the average balance of these accounts has resulted from decreased debt and
equity securities balances. See Table 1 and Table 2 on pages 8 and 10 for a
presentation of average balances.
Total loans decreased $1,244,000 (.6%) from $197,775,000 at December 31,
1996 to $196,531,000 at September 30, 1997. The average balances of loans
increased $14,587,000 (7.7%) from $188,931,000 in the First Nine Months of
1996 to $203,518,000 in the First Nine Months of 1997. Loan demand and new
business volume increased throughout 1996 and has continued into the First
Nine Months of 1997
Investments in debt and equity securities decreased $26,124,000 (16.4%)
from $159,667,000 at December 31, 1996 to $133,543,000 at September 30,
1997. The average balance of investment securities decreased $5,623,000
(3.5%) from $159,578,000 in the First Nine Months of 1996 to $153,955,000 in
the First Nine Months of 1997.
Total earning assets increased $13,032,000 (3.1%) From $414,342,000 at
December 31, 1996 to $427,374,000 at September 30, 1997. The average balance
of earning assets increased $13,179,000 (3.4%) from $384,753,000 in the First
Nine Months of 1996 to $397,932,000 in the First Nine Months of 1997. This
increase was mainly funded by an increase of $11,288,000 in the average
balance of accounts and drafts payable.
Other assets increased from $6,675,000 at December 31, 1996 to
$8,990,000 at September 30, 1997. The average balance of other assets
increased $2,357,000 (23.2%) from $10,166,000 in the First Nine Months of
1996 to $12,523,000 in the First Nine Months of 1997. These increases
are attributed to increases in prepaid assets and accounts receivable.
Interest-bearing deposits decreased from $115,261,000 at December 31,
1996 to $109,124,000 at September 30, 1997. The average balances of these
deposits decreased $2,349,000 (2.3%) from $101,310,000 in the First Nine
Months of 1996 to $98,961,000 in the First Nine Months of 1997.
Noninterest-bearing deposits increased $12,716,000 (20.4%) from
$62,244,000 at December 31, 1996 to $74,960,000 at September 30, 1997. The
average balance of these accounts increased $6,023,000 (10.6%) from
$56,671,000 in the First Nine Months of 1996 to $62,694,000 in the First Nine
Months of 1997 which reflects increased business development efforts at Cass
Bank.
Accounts and drafts payable generated by CIS in its freight payment
operations increased $23,833,000 (11.6%) from $204,690,000 at December 31,
1996 to $228,523,000 at September 30, 1997. The average balances of these
funds increased $11,288,000 (5.6%) from $201,898,000 for the First Nine
Months of 1996 to $213,186,000 in the First Nine Months of 1997. This
increase has resulted from new business placed in service in the latter half
of 1996 and in the First Nine Months of 1997.
-15-
<PAGE> 17
Liquidity
- ---------
As of September 30, 1997, approximately 63% of the Company's loan
portfolio was composed of commercial loans, of which 64% represented loans
maturing within one year. As of the same date, real estate loans, primarily
commercial, represented approximately 36% of the total and of these, 40%
represented balances maturing within one year. Approximately 1% of the loan
portfolio is represented by installment loans.
The liquidity of the Company is primarily represented by cash and due
from banks of $25,647,000 and Federal funds sold and other short-term
investments of $97,300,000 at September 30, 1997. Included in this caption
are $64,000,000 invested in money market funds consisting of short-term U.S.
Government and agency issues.
Investments in debt and equity securities represented approximately 28%
of total assets at September 30, 1997. Of the U.S. Government securities in
the Company's investment portfolio, which represented 74% of the total, 28%
have maturities of less than one year. U.S. Government Agencies and
Corporations represented 25% of the total. Obligations of states and
political subdivisions constituted 1% of the investment portfolio at
September 30, 1997. The Company sold $14,216,000 in debt securities in the
Third Quarter of 1997 recognizing a gain on the sale of $216,000. Of the
total portfolio, over 88% of the securities have maturities of five years or
less. These securities provide the Company longer term liquidity than its
primary sources, cash and due from banks and other short-term instruments.
Additionally, short-term liquidity could be satisfied, if necessary, by the
sale of certain debt securities maintained as available-for-sale; however,
the Company does not foresee any such short-term liquidity needs.
The funds provided by Cass Bank consist of a sizable volume of core
deposits. Historically, the Company has been a net provider of Federal
funds. During the First Nine Months of 1997, the Company was a net provider
of Federal funds, averaging over $16,500,000 in net funds sold.
Additionally, the Company averaged $23,900,000 in short-term money market
funds during the First Nine Months of 1997. The Company was able to meet its
liquidity requirements in the First Nine Months of 1997 through the growth of
deposit accounts and the liquid nature of Federal funds sold and other
short-term investments.
-16-
<PAGE> 18
Asset/Liability Management Program
- ----------------------------------
The Company's earning assets significantly exceed its interest-bearing
liabilities. This is primarily due to the noninterest-bearing liabilities
generated by CIS in the form of accounts and drafts payable. Within this
framework, the Company's asset/liability management program strives to
maintain an appropriate balance between rate-sensitive assets and
liabilities. The primary goal of the Company is to maintain a level of
earning assets net of interest-bearing liabilities which will produce a
relatively high net interest margin compared to other financial institutions.
The Company's Investment Committee monitors the sensitivity of its
subsidiaries' assets and liabilities with respect to changes in interest
rates and repricing opportunities, and directs the overall acquisition and
allocation of funds.
The following table presents the Company's rate sensitive position at
September 30, 1997 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>
Interest-earning assets:
Loans $ 78,883 $ 8,518 $ 9,762 $ 10,723 $ 87,077 $ 1,568 $196,531
Investment in debt and
equity securities -- 6,009 6,121 15,963 88,609 16,841 133,543
Federal funds sold and other
short-term investments 97,300 -- -- -- -- -- 97,300
-------- ------- -------- -------- -------- -------- --------
Total interest-earning assets $176,183 $14,527 $ 15,883 $ 26,686 $175,686 $ 18,409 $427,374
======== ======= ======== ======== ======== ======== ========
Interest-bearing liabilities:
Interest-bearing
transaction accounts $ 99,363 $ -- $ -- $ -- $ -- $ -- $ 99,363
Time deposits-$100,000
or more -- 2,558 423 1,594 114 -- 4,689
Other time deposits -- 1,077 1,386 1,535 1,074 -- 5,072
Short-term borrowings 268 -- -- -- -- -- 268
-------- ------- -------- -------- -------- -------- --------
Total interest-bearing
liabilities $ 99,631 $ 3,635 $ 1,809 $ 3,129 $ 1,188 $ -- $109,392
======== ======= ======== ======== ======== ======== ========
Interest sensitivity gap:
Periodic $ 76,552 $10,892 $ 14,074 $ 23,557 $174,498 $ 18,409 $317,982
Cumulative 76,552 87,444 101,518 125,075 299,573 317,982
Ratio of interest-sensitive
assets to interest-sensitive
liabilities:
Periodic 1.77x 4.00x 8.78x 8.53x 147.88x -- 3.91x
Cumulative 1.77x 1.85x 1.97x 2.16x 3.74x 3.91x 3.91x
</TABLE>
-17-
<PAGE> 19
Capital Resources
- -----------------
Stockholders' equity was $51,471,000 or 11.03% of total assets at
September 30, 1997, an increase of $3,690,000 over the amount outstanding at
December 31, 1996. This increase resulted from net income of $4,967,000;
dividends paid of $1,504,000 ($.39 per share); increase in unrealized holding
gains of $144,000; and the amortization of the stock bonus plan of $83,000.
Subsidiary dividends are the principal source of funds for payment of
dividends by the Company to its stockholders. The only restrictions on
dividends are those dictated by regulatory capital requirements and prudent
and sound banking principles.
The Company and its banking subsidiary continue to significantly exceed
all regulatory capital requirements, as evidenced by the following capital
ratios at September 30, 1997:
<TABLE>
<CAPTION>
Company Cass
Consolidated Bank
------------ ----
<S> <C> <C>
Leverage Ratio 11.77% 11.82%
Tangible Capital Ratio 11.86 12.24
Primary Capital 11.99 12.26
Risk Based Capital:
Tier I 16.67 15.15
Tier II 17.92 16.40
</TABLE>
Inflation
- ---------
Inflation can impact the financial position and results of the
operations of financial institutions because financial institutions hold
monetary assets and monetary liabilities. Monetary assets and liabilities
are those which can be converted into a fixed number of dollars, and include
cash, investments, loans and deposits. The Company's consolidated balance
sheets, as is typical of financial institutions, reflect a net positive
monetary position (monetary assets exceeding monetary liabilities). During
periods of inflation, the holding of a net positive monetary position will
result in an overall decline in the purchasing power of a financial
institution.
-18-
<PAGE> 20
PART II
- -------
Item 1. LEGAL PROCEEDINGS
-----------------
None
Item 2. CHANGES IN SECURITIES
---------------------
None
Item 3. DEFAULTS IN SENIOR SECURITIES
-----------------------------
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF
----------------------------------
SECURITY HOLDERS
----------------
None
Item 5. OTHER INFORMATION
-----------------
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) None
(b) Cass Commercial Corporation did not file any reports on Form
8-K during the three months ended September 30, 1997.
-19-
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CASS COMMERCIAL CORPORATION
DATE: November 5, 1997 By Lawrence A. Collett
-----------------------------------
Lawrence A. Collett
Chairman and Chief Executive Officer
DATE: November 5, 1997 By Eric H. Brunngraber
-----------------------------------
Eric H. Brunngraber
Vice President-Secretary
(Chief Financial and Accounting Officer)
-20-
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 25,647
<INT-BEARING-DEPOSITS> 64,000
<FED-FUNDS-SOLD> 33,300
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 36,291
<INVESTMENTS-CARRYING> 97,252
<INVESTMENTS-MARKET> 97,383
<LOANS> 196,531
<ALLOWANCE> 4,467
<TOTAL-ASSETS> 471,104
<DEPOSITS> 184,084
<SHORT-TERM> 268
<LIABILITIES-OTHER> 6,758
<LONG-TERM> 0
0
0
<COMMON> 2,000
<OTHER-SE> 49,471
<TOTAL-LIABILITIES-AND-EQUITY> 471,104
<INTEREST-LOAN> 12,762
<INTEREST-INVEST> 7,131
<INTEREST-OTHER> 1,669
<INTEREST-TOTAL> 21,562
<INTEREST-DEPOSIT> 3,051
<INTEREST-EXPENSE> 3,115
<INTEREST-INCOME-NET> 18,447
<LOAN-LOSSES> 300
<SECURITIES-GAINS> 216
<EXPENSE-OTHER> 26,696
<INCOME-PRETAX> 7,575
<INCOME-PRE-EXTRAORDINARY> 7,575
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,967
<EPS-PRIMARY> 1.27
<EPS-DILUTED> 1.27
<YIELD-ACTUAL> 6.23
<LOANS-NON> 360
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0<F1>
<ALLOWANCE-OPEN> 4,396
<CHARGE-OFFS> 412
<RECOVERIES> 183
<ALLOWANCE-CLOSE> 4,467
<ALLOWANCE-DOMESTIC> 0<F1>
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>To be provided at December 31, 1997 in the Annual Report.
</TABLE>
