<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarter ended March 31, 1998
Commission File No. 2-80070
-----------------
CASS COMMERCIAL CORPORATION
Incorporated under the laws of MISSOURI
I.R.S. Employer Identification No. 43-1265338
13001 HOLLENBERG DRIVE, BRIDGETON, MISSOURI 63044
Telephone: (314) 506-5500
-----------------
Indicate by check mark whether the registrant has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
The number of shares outstanding of registrant's only class of stock as
of March 31, 1998: Common stock, par value $.50 per share - 3,861,248 shares
outstanding.
- -------------------------------------------------------------------------------
This document constitutes part of a prospectus covering securities that
have been registered under the Securities Act of 1933.
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<PAGE> 2
PART I, Item 1
- --------------
<TABLE>
CASS COMMERCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (unaudited)
<CAPTION>
(In Thousands of Dollars
Exept Per Share Data)
----------------------------------
March 31 December 31
1998 1997
-------- -----------
<S> <C> <C>
Assets
- ------
Cash and due from banks $ 30,070 $ 10,849
Federal funds sold and other short-term investments 88,825 88,275
-------- --------
Cash and cash equivalents 118,895 99,124
-------- --------
Investment in debt and equity securities:
Held-to-maturity, estimated market value of
$83,436 and $90,389 at March 31, 1998
and December 31, 1997, respectively 83,064 90,139
Available-for-sale, at estimated market value 35,158 36,112
-------- --------
Total investment in debt and equity securities 118,222 126,251
-------- --------
Loans, net of unearned income 203,265 196,478
Less: Allowance for loan losses 4,503 4,484
-------- --------
Loans, net 198,762 191,994
-------- --------
Premises and equipment, net 9,587 9,957
Accrued interest receivable 3,064 3,137
Other assets 8,992 7,864
-------- --------
Total assets $457,522 $438,327
======== ========
Liabilities and Stockholders' Equity
- ------------------------------------
Liabilities:
- -----------
Deposits:
Noninterest-bearing $ 74,690 $ 61,958
Interest-bearing 116,912 103,899
-------- --------
Total deposits 191,602 165,857
Accounts and drafts payable 207,082 213,755
Short-term borrowings -- 406
Other liabilities 5,094 5,656
-------- --------
Total liabilities 403,778 385,674
-------- --------
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;
20,000,000 shares authorized and
4,000,000 shares issued 2,000 2,000
Surplus 4,743 4,740
Retained earnings 47,856 46,879
Common shares in treasury, at cost (138,752 shares at
March 31,1998 and 141,452 shares at December 31, 1997) (1,259) (1,284)
Accumulated other comprehensive income - unrealized
holding gain (loss) on debt and equity securities
available-for-sale, net of tax 422 364
Unamortized stock bonus awards (18) (46)
-------- --------
Total stockholders' equity 53,744 52,653
-------- --------
Total liabilities and stockholders' equity $457,522 $438,327
======== ========
See accompanying notes to consolidated financial statements.
</TABLE>
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<PAGE> 3
<TABLE>
CASS COMMERCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
<CAPTION>
(In Thousands of Dollars
Except Per Share Data)
------------------------------
Three Months Ended
March 31
------------------------------
1998 1997
------ ------
<S> <C> <C>
Interest Income:
- ---------------
Interest and fees on loans $4,209 $4,220
Interest on debt securities:
Taxable 1,798 2,385
Exempt from federal income taxes 19 19
Interest on federal funds sold and
other short-term investments 1,305 427
------ ------
Total interest income 7,331 7,051
------ ------
Interest Expense:
- ----------------
Interest on deposits 1,053 1,003
Interest on short-term borrowings 3 25
------ ------
Total interest expense 1,056 1,028
------ ------
Net interest income 6,275 6,023
Provision for loan losses -- 245
------ ------
Net interest income after provision
for loan losses 6,275 5,778
------ ------
Noninterest Income:
- ------------------
Information services revenues:
Freight payment and processing revenue 4,760 4,240
Freight rating services income 655 592
Service charges on deposit accounts 162 141
Other 275 171
------ ------
Total noninterest income 5,852 5,144
------ ------
Noninterest Expense:
- -------------------
Salaries and employee benefits 6,594 5,814
Occupancy expense 435 533
Equipment expense 644 661
Other 1,863 1,739
------ ------
Total noninterest expense 9,536 8,747
------ ------
Income before income tax expense 2,591 2,175
Income tax expense 918 752
------ ------
Net income $1,673 $1,423
====== ======
Earnings per share:
Basic $ .43 $ .37
------ ------
Diluted $ .43 $ .36
------ ------
See accompanying notes to consolidated financial statements.
</TABLE>
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<PAGE> 4
<TABLE>
CASS COMMERCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
<CAPTION>
(In Thousands of Dollars)
Three Months Ended
March 31
--------------------------------
1998 1997
-------- --------
<S> <C> <C>
Cash Flows From Operating Activities:
- ------------------------------------
Net income $ 1,673 $ 1,423
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization 589 600
Amortization of stock bonus awards 28 28
Provision for loan losses -- 245
(Increase) decrease in accrued interest receivable 73 (55)
Other operating activities, net (1,741) (4,098)
-------- --------
Net cash provided by (used in) operating activities 622 (1,857)
-------- --------
Cash Flows From Investing Activities:
- ------------------------------------
Proceeds from maturities of debt securities:
Held-to-maturity 7,059 6,766
Available-for-sale 993 267
Purchases of debt and equity securities
available-for-sale -- (9,835)
Net increase in loans (6,768) (10,288)
Purchases of premises and equipment (133) (1,590)
-------- --------
Net cash provided by (used in) investing activities 1,151 (14,680)
-------- --------
Cash Flows From Financing Activities:
- ------------------------------------
Net increase in noninterest-bearing demand,
interest-bearing demand and savings deposits 25,340 882
Net increase (decrease) in time deposits 405 (591)
Net decrease in accounts and drafts payable (6,673) (5,610)
Net increase (decrease) in short-term borrowings (406) 785
Cash proceeds from exercise of stock options 28 --
Cash dividends paid (696) (502)
-------- --------
Net cash provided by (used in) financing activities 17,998 (5,036)
-------- --------
Net increase (decrease) in cash and cash equivalents 19,771 (21,573)
Cash and cash equivalents at beginning of period 99,124 67,156
-------- --------
Cash and cash equivalents at end of period $118,895 $ 45,583
======== ========
Supplemental information:
Cash paid for interest $ 1,044 $ 1,074
======== ========
Income taxes paid $ 935 $ 170
======== ========
See accompanying notes to consolidated financial statements.
</TABLE>
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<PAGE> 5
CASS COMMERCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
March 31, 1998
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 and church-related ministries,
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 payment processing and information services
through its wholly owned subsidiary, Cass Information Systems, Inc. (CIS).
These services include processing and payment of freight and utility charges,
preparation of management reports, auditing of freight charges, rating of
freight shipments and other payment related activities. 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 payment services which are performed for customers.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation, have been included. Operating results for
the period ended March 31, 1998 are not necessarily indicative of the results
that may be expected for the year ending December 31, 1998. 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, 1997.
Note 2 - Impact Of New Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 129, Disclosure of
Information about Capital Structure (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, it will have no impact on
the Company's consolidated financial position and results of operations.
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131, Disclosures about Segments of an Enterprise and Related
Information (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 is a disclosure requirement, it will have no impact
on the Company's consolidated financial position and results of operations.
In February 1998, the FASB issued Statement of Financial Accounting
Standards No. 132, Employers' Disclosures about Pensions and Other
Postretirement Benefits (SFAS 132) which standardizes the disclosure
requirements for presenting information about pensions and other
postretirement benefits. SFAS 132 is effective for the years beginning after
December 15, 1997. Since SFAS 132 is a disclosure requirement, it will have
no impact on the Company's consolidated financial position and results of
operations.
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<PAGE> 6
Note 3 - Comprehensive Income
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income (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. Under SFAS 130, comprehensive income
is divided into net income and other comprehensive income. For the three-month
periods ended March 31, 1998 and 1997, unrealized holding gain (loss) on debt
and equity securities available-for-sale is the Company's only other
comprehensive income component. Comprehensive income for the three-month
periods ended March 31, 1998 and 1997 is summarized as follows:
<TABLE>
<CAPTION>
(In Thousands)
Three Months Ended
March 31
--------
1998 1997
---- ----
<S> <C> <C>
Net Income $ 1,673 $ 1,423
Other comprehensive income - unrealized holding
gain (loss) on debt and equity securities available-for-sale,
net of tax 58 (311)
------- -------
$ 1,731 $ 1,112
======= =======
</TABLE>
Note 4 - Earnings Per Share
Average common and common stock equivalents outstanding for the three
month periods ended March 31, 1998 and 1997 were 3,860,954 and 3,858,548,
respectively. The only dilutive instruments are stock options with a
dilutive effect of 73,218 and 60,318 for the three month periods ended March
31, 1998 and 1997, respectively, which resulted in weighted average shares
and dilutive potential common shares of 3,934,172 and 3,918,866 in 1998 and
1997, respectively.
Note 5 - Reclassifications
Certain amounts in the 1997 consolidated financial statements have been
reclassified to conform with the 1998 presentation. Such reclassifications
have no effect on previously reported net income.
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<PAGE> 7
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), a commercial bank, and Cass Information Systems,
Inc. (CIS), a payment processing and information services company, whose
operations include the processing and payment of freight and utility charges,
preparation of management reports, auditing of freight charges, rating of
freight shipments and other payment related activities. The Company had net
income of $1,673,000 for the three-month period ended March 31,1998 (the
"First Three Months of 1998") compared to net income of $1,423,000 for the
three-month period ended March 31,1997 (the "First Three Months of 1997").
The following paragraphs more fully discuss the changes in financial
condition and results of operations for the First Three Months of 1998
compared to the First Three Months of 1997. 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
- -------------------
An increase of $25,629,000 in average earning assets, net of
interest-bearing liabilities, was the primary contributor of the increase in
net tax-equivalent interest income of $248,000 in the First Three Months of
1998 compared to the First Three Months of 1997. The mix of earning assets
changed in the First Three Months of 1998 compared to the First Three Months
of 1997 with an increase of $63,544,000 in the average balance of federal
funds sold and other short-term investments and a decrease of $35,757,000 in
debt and equity securities.
The Company's tax-equivalent net interest margin on earning assets
decreased in the First Three Months of 1998 to 6.05% from 6.23% in the First
Three Months of 1997. This decrease is primarily due to the maturity of
higher-yielding debt securities and an increased investment in federal funds
sold and other short-term investments. See Table 1 on page 7 for further
explanation of the changes in net interest income for the First Three Months of
1998 compared to the First Three Months of 1997.
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<PAGE> 8
<TABLE>
TABLE 1: CONSOLIDATED AVERAGE BALANCE SHEETS AND NET INTEREST
INCOME ANALYSIS
For the Three Months Ended March 31, 1998 and 1997
(tax-equivalent basis, in thousands)
<CAPTION>
Average Interest Increase(Decrease)
Average Balance Yield/Rate Income/Expense Due to Change in
--------------- ---------- -------------- Net ----------------
1998 1997 1998 1997 1998 1997 Change Volume Rate
---- ---- ---- ---- ---- ---- ------ ------ ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
- ------
Interest-earning assets:
Loans $204,268 $203,814 8.40% 8.44% $4,229 $4,243 $ (14) $ 9 $(23)
Investment in debt and
equity securities 120,960 156,717 6.12 6.25 1,826 2,414 (588) (541) (47)
Federal funds sold and other
short-term investments 97,391 33,847 5.43 5.12 1,305 427 878 850 28
-------- -------- ---- ---- ------ ------ ----- ----- ----
Total interest-earning assets 422,619 394,378 7.06 7.28 7,360 7,084 276 318 (42)
-------- -------- ---- ---- ------ ------ ----- ----- ----
Nonearning assets:
Cash and due from banks 17,954 16,517
Premises and equipment 9,838 8,893
Other assets 12,746 10,202
Allowance for loan losses (4,498) (4,447)
-------- --------
Total assets 458,659 425,543
======== ========
LIABILITIES AND STOCKHOLDERS'
- ----------------------------
EQUITY
------
Interest-bearing liabilities:
Interest-bearing demand deposits 34,494 30,861 3.57 3.43 304 261 43 32 11
Savings deposits 60,080 59,219 4.27 4.31 633 629 4 9 (5)
Time deposits of $100,000
or more 3,821 3,385 5.73 5.27 54 44 10 6 4
Other time deposits 4,965 5,569 5.06 5.02 62 69 (7) (8) 1
-------- -------- ---- ---- ------ ------ ----- ----- ----
Total interest-bearing
deposits 103,360 99,034 4.13 4.11 1,053 1,003 50 39 11
Short-term borrowings 266 1,980 4.57 5.12 3 25 (22) (20) (2)
-------- -------- ---- ---- ------ ------ ----- ----- ----
Total interest-bearing
liabilities 103,626 101,014 4.13 4.13 1,056 1,028 28 19 9
-------- -------- ---- ---- ------ ------ ----- ----- ----
Noninterest-bearing liabilities:
Demand deposits 65,811 62,173
Accounts and drafts payable 230,059 207,300
Other liabilities 6,299 6,652
-------- --------
Total liabilities 405,795 377,139
Stockholders' equity 52,864 48,404
-------- --------
Total liabilities and
stockholders' equity $458,659 $425,543
======== ========
Net interest income $6,304 $6,056 $ 248 $ 299 $(51)
====== ====== ===== ===== ====
Net yield on interest-
earning assets 6.05% 6.23%
==== ====
</TABLE>
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<PAGE> 9
AVERAGE BALANCES, INTEREST AND RATES, Continued
NOTES:
(1) For purposes of these computations, nonaccrual loans are included in the
average loan amounts outstanding.
(2) Interest income on loans includes net fees of $2,000 and $1,000 for the
First Three Months of 1998 and 1997, respectively.
(3) Income is presented on a tax-equivalent basis assuming a tax rate of 34%.
The tax-equivalent adjustment was approximately $29,000 and $33,000 for
the First Three Months of 1998 and 1997, respectively.
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<PAGE> 10
Provision for Loan Losses
- -------------------------
A significant determinant of the Company's operating results is the
level of loan losses and the provision for loan losses. There was no charge
to earnings to provide for loan losses for the First Three Months of 1998;
however the Company charged $245,000 to the provision for loan losses in the
First Three Months of 1997. The quality of the loan portfolio has continued
to remain strong. The level of nonperforming loans, at .39% of average
loans, remains well below industry standards. Nonperforming loans are
covered over 5 times by the allowance for loan losses at March 31, 1998. The
Company experienced a net recovery of $19,000 in the First Three Months of
1998. Management made the decision to make a provision for loan losses in
the First Three Months of 1997 based on loan growth experienced.
Factors which influence management's determination of the adequacy of
the allowance for loan losses, among other things, include: evaluation of
each nonperforming and/or classified loan to determine the estimated loss
exposure under existing circumstances known to management; evaluation of all
potential problem loans identified in light of possible loss exposure based
upon existing circumstances known to management; analysis of the loan
portfolio with regard to potential future loss exposure on loans to specific
customers and/or industries; current economic conditions; and, an overall
review of the loan portfolio in light of past loan loss experience.
At March 31, 1998, impaired loans totalled $1,401,000 which includes
$746,000 of nonaccrual loans. The allowance for loan losses on impaired
loans was $722,000 at March 31, 1998. The average balance of impaired loans
during the First Three Months of 1998 was $1,412,000.
The allowance for loan losses at March 31, 1998 was $4,503,000 and at
December 31, 1997 was $4,484,000. The allowance for loan losses at March 31,
1998 represents 2.22% of total loans outstanding compared to 2.28% at
December 31, 1997.
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<PAGE> 11
The following table presents information as of and for the three-month
period ended March 31, 1998 and 1997 pertaining to the Company's provision
for loan losses and analysis of the allowance for loan losses.
<TABLE>
<CAPTION>
Three Months Ended
March 31
--------------------------------
1998 1997
-------- --------
(dollars expressed in thousands)
<S> <C> <C>
Allowance at beginning of period $ 4,484 $ 4,396
Provision for loan losses charged to expense -- 245
Loans charged off -- --
Recoveries on loans previously charged off 19 90
-------- --------
Net loan recoveries 19 90
-------- --------
Allowance at end of period $ 4,503 $ 4,731
======== ========
Loans outstanding:
Average $204,268 $203,814
March 31 203,265 208,153
Ratio of allowance for loan losses to
loans outstanding:
Average 2.20% 2.32%
March 31 2.22% 2.27%
Nonperforming loans:
Nonaccrual loans $ 746 $ 294
Loans past due 90 days or more 45 --
-------- --------
Total $ 791 $ 294
======== ========
Nonperforming loans as a percent of
average loans .39% .14%
</TABLE>
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<PAGE> 12
Noninterest Income
- ------------------
Noninterest income is principally derived from service fees generated
by CIS's Payment Systems and Software Systems Groups. Total noninterest
income for the the First Three Months of 1998 increased $708,000 (13.8%)
from the First Three Months of 1997.
CIS's Payment Systems Group experienced an increase in processing
revenues of $520,000 (12.3%) in the First Three Months of 1998 compared to
the First Three Months of 1997. This increase resulted primarily from
increased processing volume in the First Three Months of 1998. The volume of
accepted new business proposals should result in increasing revenues in CIS's
Payment Systems Group as new accounts are placed in service throughout the
remainder of 1998.
CIS's Freight Rating Services Group experienced an increase in revenues
of $63,000 (10.6%) in the First Three Months of 1998 compared to the First
Three Months of 1997. This increase resulted primarily from price increases
charged to rating customers in the First Three Months of 1998.
Noninterest Expense
- -------------------
Total noninterest expense for the First Three Months of 1998 increased
$789,000 (9.0%) from the First Three Months of 1997.
Salaries and benefits expense increased $780,000 (13.4%) in the First
Three Months of 1998 compared to the First Three Months of 1997. The
increase relates primarily to separation costs associated with streamlining
and integration of operations in the freight rating services group which were
expensed in the First Three Months of 1998, combined with annual pay
increases.
Occupancy expense decreased $98,000 (18.4%) in the First Three Months
of 1998 compared to the First Three Months of 1997. 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, CIS's Chicago location also relocated in 1997
which resulted in reduced rental expense in the First Three Months of 1998.
Other noninterest expense increased $124,000 (7.1%) in the First Three
Months of 1998 compared to the First Three Months of 1997. This increase is
attributable to several items including an increase of $60,000 in
advertising, $61,000 in postage expense, $50,000 in printing and supply
expense and is partially offset by a decrease of $46,000 in professional
expenses.
-11-
<PAGE> 13
Balance Sheet Analysis
- ----------------------
Cash and due from banks increased from $10,849,000 at December 31, 1997
to $30,070,000 at March 31, 1998. The average balance of cash and due from
banks increased $1,437,000 (8.7%) from $16,517,000 in the First Three Months
of 1997 to $17,954,000 in the First Three Months of 1998.
Federal funds sold and other short-term investments increased from
$88,275,000 at December 31, 1997 to $88,825,000 at March 31, 1998. The
average balance of these accounts was $97,391,000 in the First Three Months
of 1998 compared to $33,847,000 in the First Three Months of 1997. The
increase in the average balance of these accounts resulted from maturities of
debt securities and increased average balances in accounts and drafts
payable. See Table 1 on page 7 for a presentation of average balances.
Total loans increased $6,787,000 (3.5%) from $196,478,000 at December
31, 1997 to $203,265,000 at March 31, 1998. The average balances of loans
in the First Three Months of 1998 remained relatively unchanged from the First
Three Months of 1997. Loan demand and new business volume increased throughout
1997 and has continued into the First Three Months of 1998. Outstanding loans
remained at relatively similar levels in 1997 as a result of several loan
customers selling their businesses or requesting credit extensions higher
than the Company could provide.
Investment in debt and equity securities decreased $8,029,000 (6.4%)
from $126,251,000 at December 31, 1997 to $118,222,000 at March 31, 1998.
The average balance of investment securities decreased $35,757,000 (22.8%)
from $156,717,000 in the First Three Months of 1997 to $120,960,000 in the
First Three Months of 1998 as a result of the Company's ongoing asset/liability
management program.
Total earning assets decreased $692,000 (0.2%) from $411,004,000 at
December 31, 1997 to $410,312,000 at March 31, 1998. The average balance of
earning assets increased $28,241,000 (7.2%) from $394,378,000 in the First
Three Months of 1997 to $422,619,000 in the First Three Months of 1998. This
increase was funded primarily by an increase of $22,759,000 in the average
balance of accounts and drafts payable.
Interest-bearing deposits increased from $103,899,000 at December 31,
1997 to $116,912,000 at March 31, 1998. The average balances of these
deposits increased $4,326,000 (4.4%) from $99,034,000 in the First Three
Months of 1997 to $103,360,000 in the First Three Months of 1998. The most
significant increase in these deposits occurred in interest-bearing
commercial money market accounts.
Noninterest-bearing deposits increased $12,732,000 (20.5%) from
$61,958,000 at December 31, 1997 to $74,690,000 at March 31, 1998. The
average balance of these accounts increased $3,638,000 (5.9%) from
$62,173,000 in the First Three Months of 1997 to $65,811,000 in the First
Three Months of 1998 which reflects the results of increased business
development efforts at Cass Bank.
Accounts and drafts payable generated by CIS in its freight payment
operations decreased $6,673,000 (3.1%) from $213,755,000 at December 31, 1997
to $207,082,000 at March 31, 1998. The average balances of these funds
increased $22,759,000 (11.0%) from $207,300,000 for the First Three Months of
1997 to $230,059,000 in the First Three Months of 1998. This increase has
resulted from successful sales efforts leading to the addition of new
processing volume.
-12-
<PAGE> 14
Liquidity
- ---------
As of March 31, 1998, approximately 51% of the Company's loan portfolio
was composed of commercial loans, of which 72% represented loans maturing
within one year. As of the same date, real estate loans, primarily
commercial, represented approximately 48% 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 $30,070,000 and federal funds sold and other short-term
investments of $88,825,000 at March 31, 1998. Included in this caption are
$65,000,000 invested in money market funds consisting of short-term U.S.
Government and agency issues.
Debt and equity securities represented approximately 26% of total
assets at March 31, 1998. Of the U.S. Government securities in the Company's
investment portfolio, which represented 74% of the total, 24% 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 March 31, 1998. There were no
sales of debt securities in the First Three Months of 1998. Of the total
portfolio, over 87% of the securities have maturities of five years or less.
These securities provide the Company longer term liquidity than its primary
sources, cash and due from banks and other short-term instruments.
Additionally, short-term liquidity could be satisfied, if necessary, by the
sale of certain debt securities maintained as available-for-sale; however,
the Company does not foresee any such short-term liquidity needs.
The funds provided by Cass Bank consist of a sizable volume of core
deposits. Historically, the Company has been a net provider of federal
funds. During the First Three Months of 1998, the Company was a net provider
of federal funds, averaging nearly $22,918,000 in net funds sold. The
Company was able to meet its liquidity requirements in the First Three Months
of 1998 through the growth of deposit accounts and the liquid nature of
federal funds sold and other short-term investments.
-13-
<PAGE> 15
Asset/Liability Management Program
- ----------------------------------
The Company's earning assets significantly exceed its interest-bearing
liabilities. This is primarily due to the noninterest-bearing liabilities
generated by CIS in the form of accounts and drafts payable. Within this
framework, the Company's asset/liability management program strives to
maintain an appropriate balance between rate-sensitive assets and
liabilities. The primary goal of the Company is to maintain a level of
earning assets net of interest-bearing liabilities which will produce a
relatively high net interest margin compared to other financial institutions.
The Company's Investment Committee monitors the sensitivity of its
subsidiaries' assets and liabilities with respect to changes in interest
rates and repricing opportunities, and directs the overall acquisition and
allocation of funds.
The following table presents the Company's rate sensitive position at
March 31, 1998 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 $ 85,187 $ 6,927 $10,330 $ 14,331 $ 85,125 $ 1,365 $203,265
Investment in debt and
equity securities -- 8,068 8,062 11,985 74,757 15,350 118,222
Federal funds sold and other
short-term investments 88,825 -- -- -- -- -- 88,825
-------- ------- ------- -------- -------- -------- --------
Total interest-earning assets $174,012 $14,995 $18,392 $ 26,316 $159,882 $ 16,715 $410,312
======== ======= ======= ======== ======== ======== ========
Interest-bearing liabilities:
Interest-bearing
transaction accounts $107,883 $ -- $ -- $ -- $ -- $ -- $107,883
Time deposits-$100,000
or more -- 2,030 851 1,100 117 -- 4,098
Other time deposits -- 1,345 1,339 1,049 1,198 -- 4,931
Short-term borrowings -- -- -- -- -- -- --
-------- ------- ------- -------- -------- -------- --------
Total interest-bearing
liabilities $107,883 $ 3,375 $ 2,190 $ 2,149 $ 1,315 $ -- $116,912
======== ======= ======= ======== ======== ======== ========
Interest sensitivity gap:
Periodic $ 66,129 $11,620 $16,202 $ 24,167 $158,567 $ 16,715 $293,400
Cumulative 66,129 77,749 93,951 118,118 276,685 293,400
Ratio of interest-sensitive
assets to interest-sensitive
liabilities:
Periodic 1.61x 4.44x 8.40x 12.25x 121.58x -- 3.51x
Cumulative 1.61x 1.70x 1.83x 2.02x 3.37x 3.51x 3.51x
</TABLE>
-14-
<PAGE> 16
Capital Resources
- -----------------
Stockholders' equity was $53,744,000 or 11.75% of total assets at March
31, 1998, an increase of $1,091,000 over the amount at December 31, 1997.
This increase resulted from net income of $1,673,000; dividends paid of
$696,000 ($.18 per share); unrealized holding gains of $58,000; the
amortization of the stock bonus plan of $28,000; and cash received from the
exercise of stock options of $28,000. Primary capital, including the
allowance for loan losses, reached $58,247,000 at March 31, 1998 or 12.73% of
total assets compared to $57,137,000 or 13.04% of total assets at December
31, 1997.
Subsidiary dividends are the principal source of funds for payment of
dividends by the Company to its stockholders. The only restrictions on
dividends are those dictated by regulatory capital requirements and prudent
and sound banking principles.
The Company and its banking subsidiary continue to significantly exceed
all regulatory capital requirements, as evidenced by the following capital
ratios at March 31, 1998:
<TABLE>
<CAPTION>
Company Cass
Consolidated Bank
------------ ----
<S> <C> <C>
Total capital (to risk-weighted assets) 21.54% 14.86%
Tier I capital (to risk-weighted assets) 20.28 13.60
Tier I capital (to average assets) 11.61 11.54
</TABLE>
The Year 2000 Issue
- -------------------
Management has initiated a company-wide program to prepare the Company
and its subsidiaries' systems for Year 2000 compliance. The Year 2000 issue
relates to systems that were designed to use two digits rather than four to
define the applicable year. The Company and its subsidiaries have budgeted,
and will incur charges for testing and correcting its computer systems to be
Year 2000 compliant. These charges relate to internal staff costs as well as
outside service fees and other expenses. Programming changes and testing of
systems and software packages are scheduled to be substantially completed by
December 31, 1998. In addition, the Company's credit risk assessment is being
modified to include the consideration of incremental risk that may be posed by
customers' inability, if any, to address Year 2000 issues. If modifications to
existing systems and conversions to new systems proceed as scheduled,
management presently believes that the Year 2000 issue will not pose a
substantial internal operating risk to the Company. Assessments of the
readiness of internal systems is ongoing. There can be no guarantee, however,
that the systems of customers, vendors and other third parties on which the
Company relies, will be remediated on a timely basis. There is also no assurance
that a failure to remediate by one of these parties, would not have a material
adverse effect on the corporation.
Inflation
- ---------
Inflation can impact the financial position and results of the
operations of financial institutions because financial institutions hold
monetary assets and monetary liabilities. Monetary assets and liabilities
are those which can be converted into a fixed number of dollars, and include
cash, investments, loans and deposits. The Company's consolidated balance
sheets, as is typical of financial institutions, reflect a net positive
monetary position (monetary assets exceeding monetary liabilities). During
periods of inflation, the holding of a net positive monetary position will
result in an overall decline in the purchasing power of a financial
institution.
-15-
<PAGE> 17
PART II
- -------
Item 1. LEGAL PROCEEDINGS
-----------------
None
Item 2. CHANGES IN SECURITIES
---------------------
None
Item 3. DEFAULTS IN SENIOR SECURITIES
-----------------------------
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF
----------------------------------
SECURITY HOLDERS
----------------
None
Item 5. OTHER INFORMATION
-----------------
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) None
-16-
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CASS COMMERCIAL CORPORATION
DATE: May 7, 1997 By /s/ Lawrence A. Collett
------------------------------------------
Lawrence A. Collett
Chairman and Chief Executive Officer
DATE: May 7, 1997 By /s/ Eric H. Brunngraber
------------------------------------------
Eric H. Brunngraber
Vice President-Secretary
(Chief Financial and Accounting Officer)
-17-
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 30,070
<INT-BEARING-DEPOSITS> 65,000
<FED-FUNDS-SOLD> 23,825
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 35,158
<INVESTMENTS-CARRYING> 83,064
<INVESTMENTS-MARKET> 83,436
<LOANS> 203,265
<ALLOWANCE> 4,503
<TOTAL-ASSETS> 457,522
<DEPOSITS> 191,602
<SHORT-TERM> 0
<LIABILITIES-OTHER> 212,176
<LONG-TERM> 0
0
0
<COMMON> 2,000
<OTHER-SE> 51,744
<TOTAL-LIABILITIES-AND-EQUITY> 457,522
<INTEREST-LOAN> 4,209
<INTEREST-INVEST> 1,817
<INTEREST-OTHER> 1,305
<INTEREST-TOTAL> 7,331
<INTEREST-DEPOSIT> 1,053
<INTEREST-EXPENSE> 1,056
<INTEREST-INCOME-NET> 6,275
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 9,536
<INCOME-PRETAX> 2,591
<INCOME-PRE-EXTRAORDINARY> 2,591
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,673
<EPS-PRIMARY> .43
<EPS-DILUTED> .43
<YIELD-ACTUAL> 6.05
<LOANS-NON> 746
<LOANS-PAST> 45
<LOANS-TROUBLED> 533
<LOANS-PROBLEM> 1,401
<ALLOWANCE-OPEN> 4,484
<CHARGE-OFFS> 0
<RECOVERIES> 19
<ALLOWANCE-CLOSE> 4,503
<ALLOWANCE-DOMESTIC> 0<F1>
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0<F1>
<FN>
<F1>To be documented in the Dec-31-1998 statements.
</TABLE>
