<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 JUNE 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 June 30, 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)
---------------------------
JUNE 30 DECEMBER 31
1997 1996
------- -----------
<S> <C> <C>
ASSETS
- ------
Cash and due from banks $ 20,873 $ 10,256
Federal funds sold and other short-term investments 29,775 56,900
-------- --------
Cash and cash equivalents 50,648 67,156
-------- --------
Investments in debt and equity securities:
Held-to-maturity, estimated market value of
$104,086 and $118,362 at June 30, 1997
and December 31, 1996, respectively 104,251 118,313
Available-for-sale, at estimated market value 50,579 41,354
-------- --------
Total investments in debt and equity securities 154,830 159,667
-------- --------
Loans, net of unearned income 205,947 197,775
Less: Allowance for loan losses 4,447 4,396
-------- --------
Loans, net 201,500 193,379
-------- --------
Premises and equipment, net 10,037 8,079
Accrued interest receivable 3,352 3,366
Other assets 10,453 6,675
-------- --------
Total assets $430,820 $438,322
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY,
- -------------------------------------
Liabilities:
- -----------
Deposits:
Noninterest-bearing 74,213 62,244
Interest-bearing 97,871 115,261
-------- --------
Total deposits 172,084 177,505
Accounts and drafts payable 197,860 204,690
Short-term borrowings 3,378 2,476
Other liabilities 7,483 5,870
-------- --------
Total liabilities 380,805 390,541
-------- --------
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 June 30,
1997 and December 31, 1996; and
4,000,000 shares issued 2,000 2,000
Surplus 4,740 4,740
Retained earnings 44,504 42,376
Common shares in treasury, at cost (141,452 shares at
June 30, 1997 and December 31, 1996) (1,284) (1,284)
Unrealized holding gain on investments in debt and
equity securities available-for-sale 156 105
Unamortized stock bonus awards (101) (156)
-------- --------
Total stockholders' equity 50,015 47,781
-------- --------
Total liabilities and stockholders' equity $430,820 $438,322
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
-1-
<PAGE> 3
<TABLE>
CASS COMMERCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------------------------ ----------------------
1997 1996 1997 1996
------ ------ ------- -------
(In Thousands Except Per Share Data)
<S> <C> <C> <C> <C>
INTEREST INCOME:
- ---------------
Interest and fees on loans $4,309 $4,005 $ 8,529 $ 7,836
Interest on debt securities:
Taxable 2,450 2,484 4,835 4,695
Exempt from federal income taxes 19 19 38 34
Interest on federal funds sold and
other short-term investments 449 391 876 973
------ ------ ------- -------
Total interest income 7,227 6,899 14,278 13,538
------ ------ ------- -------
Interest Expense:
- ----------------
Interest on deposits 989 1,112 1,992 2,169
Interest on short-term borrowings 27 35 52 74
------ ------ ------- -------
Total interest expense 1,016 1,147 2,044 2,243
------ ------ ------- -------
Net interest income 6,211 5,752 12,234 11,295
Provision for loan losses 55 -- 300 --
------ ------ ------- -------
Net interest income after provision
for loan losses 6,156 5,752 11,934 11,295
------ ------ ------- -------
Noninterest Income:
- ------------------
Information services revenues:
Freight payment and processing revenue 4,354 4,368 8,594 8,911
Freight rating services income 580 791 1,172 1,695
Service charges on deposit accounts 131 148 272 274
Other 290 198 461 370
------ ------ ------- -------
Total noninterest income 5,355 5,505 10,499 11,250
------ ------ ------- -------
Noninterest Expense:
- -------------------
Salaries and employee benefits 5,969 6,055 11,783 12,125
Occupancy expense 405 526 938 1,044
Equipment expense 653 612 1,314 1,235
Other 1,895 1,777 3,634 3,633
------ ------ ------- -------
Total noninterest expense 8,922 8,970 17,669 18,037
------ ------ ------- -------
Income before income tax expense 2,589 2,287 4,764 4,508
Income tax expense 882 801 1,634 1,547
------ ------ ------- -------
Net income $1,707 $1,486 $ 3,130 $ 2,961
====== ====== ======= =======
Net income per share $ .44 $ .38 $ .80 $ .77
------ ------ ------- -------
</TABLE>
See accompanying notes to consolidated financial statements.
-2-
<PAGE> 4
<TABLE>
CASS COMMERCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<CAPTION>
(IN THOUSANDS)
SIX MONTHS ENDED
JUNE 30
--------------------------
1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
- ------------------------------------
Net income $ 3,130 $ 2,961
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 1,184 1,265
Amortization of stock bonus awards 55 55
Provision for loan losses 300 --
Decrease (increase) in accrued interest receivable 14 (222)
Other operating activities, net (1,906) (221)
-------- --------
Net cash provided by operating activities 2,777 3,838
-------- --------
Cash Flows From Investing Activities:
- ------------------------------------
Proceeds from maturities of debt securities:
Held-to-maturity 14,046 6,101
Available-for-sale 506 3,683
Purchases of debt and equity securities:
Held-to-maturity -- (10,827)
Available-for-sale (9,835) (18,222)
Net increase in loans (8,421) (20,996)
Purchases of premises and equipment (3,230) (716)
-------- --------
Net cash used in investing activities (6,934) (40,977)
-------- --------
Cash Flows From Financing Activities:
- ------------------------------------
Net increase (decrease) in demand, interest-bearing
demand and savings deposits (5,303) 3,530
Net increase (decrease) in time deposits (118) 410
Net increase (decrease) in accounts and drafts payable (6,830) 10,444
Net increase in short-term borrowings 902 1,307
Dividends paid (1,002) (887)
-------- --------
Net cash provided by (used in) financing activities (12,351) 14,804
-------- --------
Net decrease in cash and cash equivalents (16,508) (22,335)
Cash and cash equivalents at beginning of period 67,156 90,342
-------- --------
Cash and cash equivalents at end of period $ 50,648 $ 68,007
======== ========
Supplemental information:
Cash paid for interest $ 2,101 $ 2,021
======== ========
Net taxes paid $ 1,235 $ 1,415
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
-3-
<PAGE> 5
CASS COMMERCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1996
Note 1 - Basis of Presentation
Cass Commercial Corporation (the Company) provides a full range of
banking services to individual, corporate and institutional customers, with a
primary focus on privately held companies, through its wholly owned subsidiary
bank, Cass Bank & Trust Company (the Bank). The Bank is subject to
competition from other financial and nonfinancial institutions throughout the
metropolitan St. Louis, Missouri area. Additionally, the Company and the Bank
are subject to the regulations of certain Federal and state agencies and
undergo periodic examinations by those regulatory agencies.
The Company also provides information services through its wholly owned
subsidiary, Cass Information Systems, Inc. (CIS). These logistics-related
services include processing and payment of freight charges, preparation of
transportation management reports, auditing of freight charges and rating of
freight shipments. CIS is subject to competition from other commercial
concerns providing similar services to companies throughout the United States
and Canada. The consolidated balance sheet caption, "Accounts and Drafts
Payable", consists of obligations related to freight bill payment services
which are performed for customers.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation, have been included. Operating results for the period
ended June 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 occurrence or anticipated
or unanticipated events or circumstances after the date of such statements.
-4-
<PAGE> 6
Note 2 - Impact Of New Accounting Pronouncements
During June 1996, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 125, Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities (SFAS
125). SFAS 125 provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities based on
consistent application of a financial-components approach that focuses on
control. It distinguishes transfers of financial assets that are sales for
transfers that are secured borrowings. Under the financial-components
approach, after a transfer of financial assets, an entity recognizes all
financial and servicing assets it controls and liabilities it has incurred and
derecognizes financial assets it no longer controls and liabilities that have
been extinguished. The financial-components approach focuses on the assets
and liabilities that exist prior to the transfer. Many of these assets and
liabilities are components of financial assets that existed prior to the
transfer. If a transfer does not meet the criteria for a sale, the transfer
is accounted for as a secured borrowing with pledge of collateral.
SFAS 125 extends the "available-for-sale" or "trading" approach in
Statement of Financial Accounting Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities (SFAS 115) to nonsecurity financial
assets that can contractually be prepaid or otherwise settled in such a way
that the holder of the asset would not recover substantially all of its
recorded investment. Thus, non-security financial assets (no matter how
acquired) such as loans, other receivables, interest-only strips or residual
interests in securitization trusts that are subject to prepayment risk that
could prevent recovery of substantially all of the recorded amount are to be
reported at fair value with the change in fair value accounted for depending
on the asset's classification as "available-for-sale" or "trading". SFAS 125
also amends SFAS 115 to prevent a security from being classified as
held-to-maturity if the security can be prepaid or otherwise settled in such a
way that the holder of the security would not recover substantially all of its
recorded investment.
SFAS 125 is effective for transfers and servicing of financial assets
and extinguishments of liabilities occurring after December 31, 1996, and is
to be applied prospectively. Earlier or retroactive application is not
permitted. Also, the extension of the SFAS 115 approach to certain
nonsecurity financial assets and the amendment to SFAS 115 is effective for
financial assets held on or acquired after January 1, 1997. Reclassifications
that are necessary because of the amendment do not call into question an
entity's intent to hold other debt securities to maturity in the future. The
adoption of SFAS 125 on January 1, 1997 did not have a material impact on the
Company's financial statements.
In February 1997, the FASB issued Statement of Fianacial 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 31, 1997, including interim periods, and requires restatement
of all prior-period EPS data presented. The Company does not believe the
adoption of SFAS 128 will have a material effect on its financial condition or
results of operations.
-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 six
month periods ended June 30, 1997 and 1996 were 3,921,069 and 3,822,506,
respectively. Average common and common stock equivalents outstanding for the
three month periods ended June 30, 1997 and 1996 were 3,922,942 and 3,905,153,
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 June 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 June 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 $3,130,000 for the
six-month period ended June 30, 1997 (the "First Six Months of 1997") compared
to net income of $2,961,000 for the six-month period ended June 30, 1996 (the
"First Six Months of 1996").
The Company had net income of $1,707,000 for the three-month period
ended June 30, 1997 ("Second Quarter of 1997") compared to net income of
$1,486,000 for the three-month period ended June 30, 1996 ("Second Quarter of
1996").
The following paragraphs more fully discuss the changes in financial
condition and results of operations for the First Six Months of 1997 compared
to the First Six Months of 1996 and for the Second Quarter of 1997 compared to
the Second 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 Six Months of 1997 to 6.26% from 6.03% in the First Six
Months of 1996. The prime rate increased from 8.25% in February, 1996 to
8.50% in March, 1997. The Company is positively affected by increases in the
level of interest rates due to the fact that its rate sensitive assets
significantly exceed its rate sensitive liabilities. Conversely, the Company
is adversely affected by decreases in the level of interest rates. This is
primarily due to the noninterest-bearing liabilities generated by CIS in the
form of accounts and drafts payable (See interest sensitivity gap measurement
under the section entitled "Asset/Liability Management Program"), as well as a
significant portion of the Company's loan portfolio bearing a floating rate of
interest.
The increase of $18,512,000 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
$900,000 in the First Six Months of 1997 compared to the First Six Months of
1996. The mix of earning assets changed in the First Six Months of 1997
compared to the First Six Months of 1996 with an increase of $19,565,000 in
the average balance of loans and a decrease of $4,059,000 in federal funds
sold and other short-term investments. See Table 1 on page 8 for further
explanation of the changes in net interest income for the First Six Months of
1997 compared to the First Six Months of 1996.
The Company's tax-equivalent net interest income for the Second Quarter
of 1997 increased $473,000 (8.2%) compared to the Second Quarter of 1996.
This increase resulted mainly from an increase of $11,646,000 in average
earning assets in the Second Quarter of 1997 over the Second Quarter of 1996.
The mix of average earning assets also improved with an increase of
$14,611,000 in average loans and a decrease of $6,189,000 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 SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(TAX-EQUIVALENT BASIS, IN THOUSANDS)
<CAPTION>
AVERAGE INTEREST INCREASE (DECREASE)
AVERAGE BALANCE YIELD/RATE INCOME/EXPENSE DUE TO CHANGE IN
--------------- ----------- -------------- NET -------------------
1997 1996 1997 1996 1997 1996 CHANGE VOLUME RATE
---- ---- ---- ---- ---- ---- ------ ------ ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
- ------
Interest-earning assets:
Loans $204,583 $185,018 8.45% 8.58% $ 8,572 $ 7,919 $ 653 $ 784 $(131)
Investment in debt and equity securities 157,947 156,567 6.25 6.08 4,892 4,747 145 36 109
Federal funds sold and other
short-term investments 33,324 37,383 5.30 5.22 876 973 (97) (111) 14
-------- -------- ---- ---- ------- ------- ----- ----- -----
Total interest-earning assets 395,854 378,968 7.31 7.22 14,340 13,639 701 709 (8)
-------- -------- ---- ---- ------- ------- ----- ----- -----
Nonearning assets:
Cash and due from banks 16,871 17,988
Premises and equipment 9,101 8,239
Other assets 12,334 10,224
Allowance for loan losses (4,574) (6,383)
-------- --------
Total assets 429,586 409,036
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Interest-bearing liabilities:
Interest-bearing demand deposits 31,362 22,115 3.47 3.23 540 356 184 156 28
Savings deposits 57,676 65,859 4.28 4.69 1,225 1,540 (315) (186) (129)
Time deposits of $100,000
or more 3,488 4,538 5.32 5.39 92 122 (30) (28) (2)
Other time deposits 5,431 5,885 5.01 5.15 135 151 (16) (12) (4)
-------- -------- ---- ---- ------- ------- ----- ----- -----
Total interest-bearing deposits 97,957 98,397 4.10 4.42 1,992 2,169 (177) (70) (107)
Short-term borrowings 2,049 3,235 5.12 4.59 52 74 (22) (30) 8
-------- -------- ---- ---- ------- ------- ----- ----- -----
Total interest-bearing liabilities 100,006 101,632 4.12 4.43 2,044 2,243 (199) (100) (99)
-------- -------- ---- ---- ------- ------- ----- ----- -----
Noninterest-bearing liabilities:
Demand deposits 61,589 56,368
Accounts and drafts payable 212,410 199,821
Other liabilities 6,829 7,027
-------- --------
Total liabilities 380,834 364,848
Stockholders' equity 48,752 44,188
-------- --------
Total liabilities and
stockholders' equity $429,586 $409,036
======== ========
Net interest income $12,296 $11,396 $900 $809 $91
======= ======= ===== ===== =====
Net yield on interest-earning assets 6.26% 6.03%
==== ====
</TABLE>
(Continued)
-8-
<PAGE> 10
AVERAGE BALANCES, INTEREST AND RATES
For the Six Months Ended June 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 $3,000 and $6,000 for
the First Six 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 $62,000 and
$101,000 for the First Six Months of 1997 and 1996, respectively.
-9-
<PAGE> 11
<TABLE>
TABLE 2: CONSOLIDATED AVERAGE BALANCE SHEETS AND NET INTEREST
INCOME ANALYSIS
FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND 1996
(TAX-EQUIVALENT BASIS, IN THOUSANDS)
<CAPTION>
AVERAGE INTEREST INCREASE (DECREASE)
AVERAGE BALANCE YIELD/RATE INCOME/EXPENSE DUE TO CHANGE IN
--------------- ------------- -------------- NET -------------------
1997 1996 1997 1996 1997 1996 CHANGE VOLUME RATE
---- ---- ---- ---- ---- ---- ------ ------ ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
- ------
Interest-earning assets:
Loans $204,459 $189,848 8.50% 8.48% $4,331 $4,014 $ 317 $ 309 $ 8
Investment in debt and equity securities 158,032 164,221 6.29 6.13 2,478 2,511 (33) (96) 63
Federal funds sold and other
short-term investments 33,184 29,960 5.43 5.23 449 391 58 43 15
-------- -------- ---- ---- ------ ------ ----- ----- ----
Total interest-earning assets 395,675 384,029 7.36 7.22 7,258 6,916 342 256 86
-------- -------- ---- ---- ------ ------ ----- ----- ----
Nonearning assets:
Cash and due from banks 16,727 18,781
Premises and equipment 9,543 8,202
Other assets 11,318 10,222
Allowance for loan losses (4,556) (6,401)
-------- --------
Total assets 428,707 414,833
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Interest-bearing liabilities:
Interest-bearing demand deposits 31,382 22,212 3.57 3.16 279 175 104 79 25
Savings deposits 58,237 69,291 4.10 4.64 595 802 (207) (119) (88)
Time deposits of $100,000
or more 3,398 4,497 5.78 5.35 49 60 (11) (16) 5
Other time deposits 5,473 5,992 4.84 5.02 66 75 (9) (6) (3)
-------- -------- ---- ---- ------ ------ ----- ----- ----
Total interest-bearing deposits 98,490 101,992 4.03 4.37 989 1,112 (123) (62) (61)
Federal funds purchased and securities
sold under repurchase agreements 1,981 3,014 5.47 4.66 27 35 (8) (13) 5
-------- -------- ---- ---- ------ ------ ----- ----- ----
Total interest-bearing liabilities 100,471 105,006 4.06 4.38 1,016 1,147 (131) (75) (56)
-------- -------- ---- ---- ------ ------ ----- ----- ----
Noninterest-bearing liabilities:
Demand deposits 61,573 56,686
Accounts and drafts payable 211,279 201,660
Other liabilities 6,777 6,714
-------- --------
Total liabilities 380,100 370,066
Stockholders' equity 48,607 44,767
-------- --------
Total liabilities and
stockholders' equity $428,707 $414,833
======== ========
Net interest income $6,242 $5,769 $ 473 $ 331 $142
====== ====== ===== ===== ====
Net yield on interest-earning assets 6.33% 6.03%
==== ====
</TABLE>
(Continued)
-10-
<PAGE> 12
AVERAGE BALANCES, INTEREST AND RATES
For the Three Months Ended June 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 $2,000 and $3,000 for the
Second Quarter 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 $31,000 and
$17,000 for the Second 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 Six Months of
1997. There was no charge to earnings to provide for loan losses for the
First Six Months of 1996. The quality of the loan portfolio has continued to
remain strong. The level of nonperforming loans, at .19% of average loans,
remains well below industry standards. Nonperforming loans are covered over
11 times by the allowance for loan losses at June 30, 1997. The Company
experienced net charge offs of $249,000 in the First Six Months of 1997.
Management made the decision to make a provision for loan losses in the First
Six Months of 1997 based on the loan growth experienced.
Factors which influence management's determination of the adequacy of
the allowance for loan losses, among other things, include: evaluation of
each nonperforming and/or classified loan to determine the estimated loss
exposure under existing circumstances known to management; evaluation of all
potential problem loans identified in light of possible loss exposure based
upon existing circumstances known to management; analysis of the loan
portfolio with regard to potential future loss exposure on loans to specific
customers and/or industries; current economic conditions; and, an overall
review of the loan portfolio in light of past loan loss experience.
At June 30, 1997, impaired loans totalled $1,097,000 which includes
$225,000 of nonaccrual loans. The allowance for loan losses on impaired loans
was $388,000 at June 30, 1997. The average balance of impaired loans during
the First Six Months of 1997 was $1,088,000.
The allowance for loan losses at June 30, 1997 was $4,447,000 and at
December 31, 1996 was $4,396,000. The allowance for loan losses at June 30,
1997 represents 2.16% 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 June 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 Six Months Ended
June 30 June 30
-------------------------- --------------------------
1997 1996 1997 1996
-------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C>
Allowance at beginning of period $ 4,731 $ 6,377 $ 4,396 $ 6,358
Provision for loan losses charged to expense 55 -- 300 --
Loans charged off (411) -- (411) (1)
Recoveries on loans previously charged off 72 44 162 64
-------- -------- -------- --------
Net loan (charge-offs) recoveries (339) 44 (249) 63
-------- -------- -------- --------
Allowance at end of period $ 4,447 $ 6,421 $ 4,447 $ 6,421
======== ======== ======== ========
Loans outstanding:
Average $204,459 $189,848 $204,583 $185,018
June 30 205,947 195,252 205,947 195,252
Ratio of allowance for loan losses to
loans outstanding:
Average 2.18% 3.38% 2.17% 3.47%
June 30 2.16% 3.29% 2.16% 3.29%
Nonperforming loans:
Nonaccrual loans $ 225 $ 444 $ 225 $ 444
Loans past due 90 days or more 166 18 166 18
-------- -------- -------- --------
Total $ 391 $ 462 $ 391 $ 462
-------- -------- -------- --------
Nonperforming loans as a percent of
average loans .19% .24% .19% .25%
</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 Second Quarter of 1997 and the First Six Months of 1997
decreased $150,000 (2.7%) and $751,000 (6.7%), respectively, from the
corresponding periods of 1996.
CIS's Payment Systems Group experienced a decrease in processing
revenues of $317,000 (3.6%) in the First Six Months of 1997 compared to the
First Six Months of 1996. This decrease resulted primarily from termination
fees of $265,000 received from three clients in the First Six Months of 1996.
The volume of accepted new business proposals remains strong and should result
in increasing revenues in CIS's Payment Systems Group as new accounts are
placed in service throughout the remainder of 1997.
CIS's Software Systems Group experienced a decrease in revenues of
$523,000 (30.9%) and $211,000 (26.7%) in the First Six Months of 1997 and the
Second Quarter of 1997, respectively, compared to the corresponding periods of
1996. This decrease resulted mainly from a decline in software sales. Sales
revenue from the AS400 version of the rating system software has been in a
declining stage as the product is being migrated to the new client server
technology.
Other noninterest income increased $91,000 (24.6%) in the First Six
Months of 1997 and $92,000 (46.5%) in the Second Quarter of 1997 compared to
the corresponding periods of 1996. The Bank received a buyout of its
headquarters lease in the Second Quarter of 1997 in excess of the remaining
net book value of leasehold improvements which resulted in a one-time gain of
$95,000.
Noninterest Expense
- -------------------
Total noninterest expense for the First Six Months of 1997 decreased
$368,000 (2.0%) from the First Six Months of 1996. Total noninterest expense
for the Second Quarter of 1997 decreased $48,000 (0.5%) from the Second
Quarter of 1996.
Salaries and benefits expense decreased $342,000 (2.8%) in the First
Six Months of 1997 compared to the First Six Months of 1996. Salaries and
benefits expense decreased $86,000 (1.4%) in the Second Quarter of 1997
compared to the Second Quarter of 1996. Systems development costs of nearly
$400,000 and $154,000, related to the client server technology, were
capitalized in the First Six Months of 1997 and in the Second Quarter of 1997,
respectively.
Occupancy expense decreased $106,000 (10.2%) in the First Six Months of
1997 compared to the First Six Months of 1996. This decrease occurred in the
Second Quarter of 1997. The Company and the Bank moved 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.
Equipment expense increased $79,000 (6.4%) in the First Six Months of
1997 compared to the First Six Months of 1996 and $41,000 (6.7%) in the Second
Quarter of 1997 compared to the Second Quarter of 1996. These increases
resulted from expansion of processing systems in CIS's Payment Systems Group.
Other noninterest expense increased $118,000 (6.6%) in the Second
Quarter of 1997 compared to the Second Quarter of 1996. Expenses incurred for
contract programming in CIS's Payment Systems Group accounted for $67,000 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 decreased from
$56,900,000 at December 31, 1996 to $29,775,000 at June 30, 1997. The average
balance of these accounts was $33,324,000 in the First Six Months of 1997
compared to $37,383,000 in the First Six Months of 1996. The decrease in the
average balance of these accounts has resulted from a deployment of funds to
increased loan balances. See Table 1 and Table 2 on pages 8 and 10 for a
presentation of average balances.
Total loans increased $8,172,000 (4.1%) from $197,775,000 at December
31, 1996 to $205,947,000 at June 30, 1997. The average balances of loans
increased $19,565,000 (10.6%) from $185,018,000 in the First Six Months of
1996 to $204,583,000 in the First Six Months of 1997. Loan demand and new
business volume increased throughout 1996 and has continued into the First Six
Months of 1997
Investments in debt and equity securities decreased $4,837,000 (3.0%)
from $159,667,000 at December 31, 1996 to $154,830,000 at June 30, 1997. The
average balance of investment securities increased $1,380,000 (0.9%) from
$156,567,000 in the First Six Months of 1996 to $157,947,000 in the First Six
Months of 1997.
Total earning assets decreased $23,790,000 (5.7%) From $414,342,000 at
December 31, 1996 to $390,552,000 at June 30, 1997. The average balance of
earning assets increased $16,886,000 (4.5%) from $378,968,000 in the First Six
Months of 1996 to $395,854,000 in the First Six Months of 1997. This increase
was mainly funded by an increase of $12,589,000 in the average balance of
accounts and drafts payable.
Other assets increased from $6,675,000 at December 31, 1996 to
$10,453,000 at June 30, 1997. The average balance of other assets increased
$2,110,000 (20.6%) from $10,224,000 in the First Six Months of 1996 to
$12,334,000 in the First Six Months of 1997. These increases resulted from
increases in CIS's freight funds receivables.
Interest-bearing deposits decreased from $115,261,000 at December 31,
1996 to $97,871,000 at June 30, 1997. The average balances of these deposits
decreased $440,000 (0.4%) from $98,397,000 in the First Six Months of 1996 to
$97,957,000 in the First Six Months of 1997.
Noninterest-bearing deposits increased $11,969,000 (19.2%) from
$62,244,000 at December 31, 1996 to $74,213,000 at June 30, 1997. The average
balance of these accounts increased $5,221,000 (9.3%) from $56,368,000 in the
First Six Months of 1996 to $61,589,000 in the First Six Months of 1997 which
reflects increased business development efforts at Cass Bank.
Accounts and drafts payable generated by CIS in its freight payment
operations decreased $6,830,000 (3.3%) from $204,690,000 at December 31, 1996
to $197,860,000 at June 30, 1997. The average balances of these funds
increased $12,589,000 (6.3%) from $199,821,000 for the First Six Months of
1996 to $212,410,000 in the First Six Months of 1997. This increase has
resulted from new business placed in service in the latter half of 1996 and in
the First Six Months of 1997.
-15-
<PAGE> 17
Liquidity
- ---------
As of June 30, 1997, approximately 57% of the Company's loan portfolio
was composed of commercial loans, of which 74% represented loans maturing
within one year. As of the same date, real estate loans, primarily
commercial, represented approximately 41% of the total and of these, 34%
represented balances maturing within one year. Approximately 2% of the loan
portfolio is represented by installment loans.
The liquidity of the Company is primarily represented by cash and due
from banks of $20,873,000 and Federal funds sold and other short-term
investments of $29,775,000 at June 30, 1997. Included in this caption are
$2,600,000 invested in money market funds consisting of short-term U.S.
Government and agency issues.
Investments in debt and equity securities represented approximately 36%
of total assets at June 30, 1997. Of the U.S. Government securities in the
Company's investment portfolio, which represented 77% of the total, 22% have
maturities of less than one year. U.S. Government Agencies and Corporations
represented 22% of the total. Obligations of states and political
subdivisions constituted 1% of the investment portfolio at June 30, 1997.
There were no sales of debt securities in the First Six Months of 1997. Of
the total portfolio, over 89% 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 Six Months of 1997, the Company was a net provider of Federal
funds, averaging over $12,800,000 in net funds sold. Additionally, the
Company averaged over $20,500,000 in short-term money market funds during the
First Six Months of 1997. The Company was able to meet its liquidity
requirements in the First Six 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 June 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 $ 88,812 $ 4,258 $ 8,512 $15,214 $ 88,542 $ 609 $205,947
Investment in debt and
equity securities -- 6,000 6,032 14,056 111,183 17,559 154,830
Federal funds sold and other
short-term investments 29,775 -- -- -- -- -- 29,775
-------- ------- ------- ------- -------- --------
Total interest-earning assets $118,587 $10,258 $14,544 $29,270 $199,725 $ 18,168 $390,552
======== ======= ======= ======= ======== ======== ========
Interest-bearing liabilities:
Interest-bearing
transaction accounts $ 88,597 $ -- $ -- $ -- $ -- $ -- $ 88,597
Time deposits-$100,000 or more -- 2,185 518 1,284 112 -- 4,099
Other time deposits -- 1,829 784 1,500 1,062 -- 5,175
Short-term borrowings 3,378 -- -- -- -- -- 3,378
-------- ------- ------- ------- -------- --------
Total interest-bearing
liabilities $ 91,975 $ 4,014 $ 1,302 $ 2,784 $ 1,174 $ -- $101,249
======== ======= ======= ======= ======== ======== ========
Interest sensitivity gap:
Periodic $ 26,612 $ 6,244 $13,242 $26,486 $198,551 $ 18,168 $289,303
Cumulative 26,612 32,856 46,098 72,584 271,135 289,303
Ratio of interest-sensitive
assets to interest-sensitive
liabilities:
Periodic 1.29x 2.56x 11.17x 10.51x 170.12x -- 3.86x
Cumulative 1.29x 1.34x 1.47x 1.73x 3.68x 3.86x 3.86x
</TABLE>
-17-
<PAGE> 19
Capital Resources
- -----------------
Stockholders' equity was $50,015,000 or 11.61% of total assets at June
30, 1997, an increase of $2,234,000 over the amount outstanding at December
31, 1996. This increase resulted from net income of $3,130,000; dividends
paid of $1,002,000 ($.26 per share); increase in unrealized holding gains of
$51,000; and the amortization of the stock bonus plan of $55,000.
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 June 30, 1997:
<TABLE>
<CAPTION>
Company Cass
Consolidated Bank
------------ ----
<S> <C> <C>
Leverage Ratio 11.51% 11.69%
Tangible Capital Ratio 12.53 13.03
Primary Capital 12.64 13.07
Risk Based Capital:
Tier I 19.66 15.30
Tier II 20.91 16.56
</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
----------------
At the annual meeting of the shareholders of Cass Commercial
Corporation held on April 21, 1997, the following proposals were
voted on and approved:
The following is a summary of votes cast. No broker
non-votes were received.
<TABLE>
<CAPTION>
Withheld
Authority /
For Against Abstentions
--------- --------- -----------
<S> <C> <C> <C>
1. Proposal to elect four Directors for a term
of three years ending 2000;
Robert J. Bodine 2,212,480 1,646,068
Thomas J. Fucoloro 2,210,480 2,000 1,646,068
Harry J. Krieg 2,212,480 1,646,068
Howard A. Kuehner 2,212,480 1,646,068
2. Proposal to ratify the selection of KPMG Peat 2,202,360 1,656,188
Marwick LLP as independent accountants for 1997.
</TABLE>
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 June 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: August 12, 1997 By Lawrence A. Collett
-----------------------------------
Lawrence A. Collett
Chairman and Chief Executive Officer
DATE: August 12, 1997 By Lawrence L. Frieben
-----------------------------------
Lawrence L. Frieben
Vice President-Secretary
(Chief Financial and Accounting Officer)
-20-
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 20,873
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 29,775
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 50,579
<INVESTMENTS-CARRYING> 104,251
<INVESTMENTS-MARKET> 104,086
<LOANS> 205,947
<ALLOWANCE> 4,447
<TOTAL-ASSETS> 430,820
<DEPOSITS> 172,084
<SHORT-TERM> 3,378
<LIABILITIES-OTHER> 7,483
<LONG-TERM> 0
0
0
<COMMON> 2,000
<OTHER-SE> 4,740
<TOTAL-LIABILITIES-AND-EQUITY> 430,820
<INTEREST-LOAN> 8,529
<INTEREST-INVEST> 4,873
<INTEREST-OTHER> 876
<INTEREST-TOTAL> 14,278
<INTEREST-DEPOSIT> 1,992
<INTEREST-EXPENSE> 2,044
<INTEREST-INCOME-NET> 12,234
<LOAN-LOSSES> 300
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 17,669
<INCOME-PRETAX> 4,764
<INCOME-PRE-EXTRAORDINARY> 4,764
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,130
<EPS-PRIMARY> .80
<EPS-DILUTED> .80
<YIELD-ACTUAL> 6.26
<LOANS-NON> 225
<LOANS-PAST> 166
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0<F1>
<ALLOWANCE-OPEN> 4,396
<CHARGE-OFFS> 411
<RECOVERIES> 162
<ALLOWANCE-CLOSE> 4,447
<ALLOWANCE-DOMESTIC> 4,447
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>Provided in the December 31, 1997 10-K.
</TABLE>
