<PAGE> 1
UNITED STATES
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, 2000
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 May 5, 2000: Common stock, par value $.50 per share - 3,500,937 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. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
CASS COMMERCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in Thousands except Per Share Data)
<CAPTION>
MARCH 31 DECEMBER 31
2000 1999
<S> <C> <C>
ASSETS
Cash and due from banks $ 28,174 $ 18,497
Federal funds sold and other short-term investments 56,624 105,720
-------- --------
Cash and cash equivalents 84,798 124,217
-------- --------
Investment in debt and equity securities:
Held-to-maturity, fair value of $22,353
and $25,381 at March 31, 2000
and December 31, 1999, respectively 22,550 25,554
Available-for-sale, at fair value 71,755 57,442
-------- --------
Total investment in debt and equity securities 94,305 82,996
-------- --------
Loans 320,378 278,343
Less: Allowance for loan losses 4,409 4,282
-------- --------
Loans, net 315,969 274,061
-------- --------
Premises and equipment, net 9,306 9,181
Accrued interest receivable 2,972 2,764
Other assets 7,554 7,626
-------- --------
Total assets $514,904 $500,845
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
- ------------
Deposits:
Noninterest-bearing $ 80,703 $ 91,672
Interest-bearing 91,228 97,064
-------- --------
Total deposits 171,931 188,736
Accounts and drafts payable 282,250 249,894
Short-term borrowings 200 208
Other liabilities 6,610 5,444
-------- --------
Total liabilities 460,991 444,282
-------- --------
Shareholders' 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 5,064 5,087
Retained earnings 55,941 54,814
Accumulated other comprehensive loss (569) (417)
Common shares in treasury, at cost (456,763 shares at
March 31, 2000 and 277,149 shares at December 31, 1999) (8,391) (4,770)
Unamortized stock bonus awards (132) (151)
-------- --------
Total shareholders' equity 53,913 56,563
-------- --------
Total liabilities and shareholders' equity $514,904 $500,845
======== ========
See accompanying notes to consolidated financial statements.
</TABLE>
-2-
<PAGE> 3
<TABLE>
CASS COMMERCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in Thousands except Per Share Data)
<CAPTION>
THREE MONTHS ENDED
MARCH 31
-------------------------------------
2000 1999
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 6,157 $4,332
Interest and dividends on debt and equity securities:
Taxable 1,371 1,177
Exempt from federal income taxes 15 16
Interest on federal funds sold and
other short-term investments 862 1,655
------- ------
Total interest income 8,405 7,180
------- ------
INTEREST EXPENSE:
Interest on deposits 954 1,039
Interest on short-term borrowings 2 2
------- ------
Total interest expense 956 1,041
------- ------
Net interest income 7,449 6,139
Provision for loan losses 100 --
------- ------
Net interest income after provision
for loan losses 7,349 6,139
------- ------
NONINTEREST INCOME:
Freight and utility payment and processing revenue 5,336 5,177
Bank service fees 334 230
Other 85 102
------- ------
Total noninterest income 5,755 5,509
------- ------
NONINTEREST EXPENSE:
Salaries and employee benefits 7,050 6,268
Occupancy expense 434 424
Equipment expense 752 647
Other 1,943 1,953
------- ------
Total noninterest expense 10,179 9,292
------- ------
Income before income tax expense 2,925 2,356
Income tax expense 1,069 837
------- ------
Net income $ 1,856 $1,519
======= ======
Earnings per share:
Basic $.51 $.39
Diluted $.50 $.39
Weighted average shares outstanding:
Basic 3,643,604 3,869,443
Effect of stock options and awards 45,361 55,852
Diluted 3,688,965 3,925,295
See accompanying notes to consolidated financial statements.
</TABLE>
-3-
<PAGE> 4
<TABLE>
CASS COMMERCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
<CAPTION>
THREE MONTHS ENDED
MARCH 31
--------------------------------------
2000 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,856 $ 1,519
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 650 587
Provision for loan losses 100 --
Amortization of stock bonus awards 19 7
Increase in accrued interest receivable (208) (75)
Increase (decrease) in deferred income (408) 840
Increase in income tax liability 610 810
Other operating activities, net 1,103 808
-------- --------
Net cash provided by operating activities 3,722 4,496
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of debt and equity securities:
Held-to-maturity 2,950 7,470
Available-for-sale 4,323 530
Purchase of debt and equity securities:
Held-to-maturity (2,000) --
Available-for-sale (16,889) --
Net increase in loans (42,008) (6,591)
Purchases of premises and equipment, net (676) (327)
-------- --------
Net cash provided (used) in investing activities (54,300) 1,082
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in noninterest-bearing demand deposits (10,969) (12,422)
Net decrease in interest-bearing demand and savings deposits (5,663) (2)
Net increase (decrease) in time deposits (173) 280
Net increase (decrease) in accounts and drafts payable 32,356 (39,145)
Net decrease in short-term borrowings (8) (56)
Cash proceeds from exercise of stock options 47 48
Cash dividends paid (729) (736)
Purchase of common shares for treasury (3,702) --
-------- --------
Net cash provided by (used in) financing activities 11,159 (52,033)
-------- --------
Net decrease in cash and cash equivalents (39,419) (46,455)
Cash and cash equivalents at beginning of period 124,217 179,385
-------- --------
Cash and cash equivalents at end of period $ 84,798 $132,930
======== ========
Supplemental information:
Cash paid for interest $ 950 $ 1,023
Cash paid for income taxes 439 30
See accompanying notes to consolidated financial statements.
</TABLE>
-4-
<PAGE> 5
CASS COMMERCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Basis of Presentation
The accompanying unaudited condensed 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, 2000 are not necessarily indicative of
the results that may be expected for the year ending December 31, 2000. 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, 1999.
Note 2 - Impact of New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities (SFAS 133) which establishes
standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It
requires an entity to recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those
instruments at fair value. In June 1999, the FASB issued Statement of
Financial Accounting Standards No. 137, Accounting for Derivative Instruments
and Hedging Activities - Deferral of the Effective Date of FASB No. 133, an
amendment of FASB Statement No. 133, which defers the effective date of SFAS
133 from fiscal years beginning after June 15, 1999 to fiscal years beginning
after June 15, 2000. Earlier application of SFAS 133, as amended, is
encouraged but should not be applied retroactively to financial statements of
prior periods. The Company is currently evaluating the requirements and
impact of SFAS 133, as amended.
Note 3 - Loans by Type
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) MARCH 31, 2000 DECEMBER 31, 1999
- ---------------------------------------------------------------------------------
<S> <C> <C>
Commercial and industrial $120,121 $106,444
Real estate:
Mortgage 96,051 86,171
Mortgage - Churches & Related 52,836 43,311
Construction 16,136 6,987
Construction - Churches & Related 22,857 22,646
Industrial revenue bonds 7,202 7,265
Installment 2,553 1,541
Other 2,622 3,978
- ---------------------------------------------------------------------------------
Total loans $320,378 $278,343
- ---------------------------------------------------------------------------------
</TABLE>
Note 4 - Stock Repurchase Program
On December 21, 1999 the Board of Directors authorized a stock repurchase
program that would allow the repurchase of up to 200,000 shares of its common
stock through December 31, 2000. On March 21, 2000 the Board of Directors
authorized a 100,000 increase in the number of shares that can be purchased
under the program. As of March 31, 2000, 190,210 shares were repurchased
under the program. Repurchases can be made in the open market or through
negotiated transactions from time to time depending on market conditions.
The stock, if repurchased, will be held as treasury stock to be used for
general corporate purposes.
-5-
<PAGE> 6
Note 5 - Comprehensive Income
For the three-month periods ended March 31, 2000 and 1999, unrealized
losses on debt and equity securities available-for-sale is the Company's only
other comprehensive income component. Comprehensive income for the periods
ended March 31, 2000 and 1999 is summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
-----------------------
(IN THOUSANDS) 2000 1999
- ----------------------------------------------------------------------------
<S> <C> <C>
Net Income $1,856 $1,519
Other comprehensive income:
Net unrealized loss on debt and equity
securities available-for-sale, net of tax (152) (155)
- ----------------------------------------------------------------------------
Total comprehensive income $1,704 $1,364
- ----------------------------------------------------------------------------
</TABLE>
Note 6 - Industry Segment Information
The services provided by the Company are classified into two industry
segments: Banking Services and Information Services. Total net revenue is
comprised of total interest income and total noninterest income, less
provision for loan losses. There have been no material changes in assets,
changes in the basis of segmentation or changes in the basis of measurement
of segment profits from the amounts disclosed in the Company's Annual Report
on Form 10-K for the year ended December 31, 1999.
Summarized information about the Company's operations in each industry
segment for the periods ended March 31, 2000 and 1999, is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
------------------------
(IN THOUSANDS) 2000 1999
- -----------------------------------------------------------------------------
<S> <C> <C>
Total Net Revenue:
Information Services $ 9,835 $ 8,907
Banking Services 4,484 3,856
Eliminations (259) (74)
- -----------------------------------------------------------------------------
Total $14,060 $12,689
- -----------------------------------------------------------------------------
Income (Loss) Before Income Tax:
Information Services $ 1,569 $ 1,277
Banking Services 1,392 1,100
Corporate Items (36) (21)
- -----------------------------------------------------------------------------
Total $ 2,925 $ 2,356
- -----------------------------------------------------------------------------
Income Tax Expense (Benefit):
Information Services $ 563 $ 438
Banking Services 518 406
Corporate Items (12) (7)
- -----------------------------------------------------------------------------
Total $ 1,069 $ 837
- -----------------------------------------------------------------------------
Net Income (Loss):
Information Services $ 1,006 $ 839
Banking Services 874 694
Corporate Items (24) (14)
- -----------------------------------------------------------------------------
Total $ 1,856 $ 1,519
- -----------------------------------------------------------------------------
</TABLE>
-6-
<PAGE> 7
Note 7 - Reclassifications
Certain amounts in the 1999 consolidated financial statements have been
reclassified to conform with the 2000 presentation. Such reclassifications
have no effect on previously reported net income.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Cass Commercial Corporation (the "Company") operates in two primary
business segments through two wholly owned subsidiaries, Cass Commercial Bank
("Cass Bank"), a commercial bank, and Cass Information Systems, Inc. ("CIS"),
a payment processing company. Cass Bank provides specialized banking services
to privately held businesses located primarily in the St. Louis, Missouri
metropolitan area and church and church-related entities located in the St.
Louis metropolitan area and selected cities throughout the United States.
CIS is a payment processing and information services company, whose
operations include the processing and payment of freight and utility charges,
preparation of transportation management reports, auditing of freight
charges, rating of freight shipments and other payment related activities for
customers located throughout the United States.
The following paragraphs more fully discuss the results of operations and
changes in financial condition for the three-month period ended March 31,
2000 (the "First Quarter of 2000") compared to the three-month period ended
March 31, 1999 (the "First Quarter of 1999"). Most information is provided
on a consolidated basis for the Company, Cass Bank and CIS, with expanded
disclosures for the specific effects CIS's operations have on particular
account captions.
The following discussion and analysis should be read in conjunction with
the consolidated financial statements and related notes and with the
statistical information and financial data appearing in this report as well
as the Company's 1999 Annual Report on Form 10-K. Results of operations for
the First Quarter of 2000 are not necessarily indicative of the results to be
attained for any other period.
RESULTS OF OPERATIONS
NET INCOME
The Company had net income of $1,856,000 for the First Quarter of 2000, a
$337,000 or 22.2% increase compared to net income of $1,519,000 for the First
Quarter of 1999. Diluted earnings per share was $.50 for the First Quarter
of 2000, a 28.2% increase compared to $.39 for the First Quarter of 1999.
The increase in net income was primarily a result of strong loan demand,
combined with increases in service fees and a general increase in the level
of interest rates. Return on average assets for the First Quarter of 2000
was 1.50% compared to 1.28% for the First Quarter of 1999. Return on average
equity for the First Quarter of 2000 was 13.35% compared to 10.55% for the
First Quarter of 1999.
NET INTEREST INCOME
The Company's tax-equivalent net interest income increased 21.0% or
$1,300,000 from $6,188,000 in the First Quarter of 1999 to $7,488,000 in the
First Quarter of 2000. The average tax-equivalent yield on earning assets
increased from 6.59% in the First Quarter of 1999 to 7.44% in the First
Quarter of 2000. The average rate paid on interest-bearing liabilities
increased from 3.85% in the First Quarter of 1999 to 3.90% in the First
Quarter of 2000. The interest spread increased from 2.74% in the First
Quarter of 1999 to 3.54% in the First Quarter of 2000. The net interest
margin increased from 5.64% in the First Quarter of 1999 to 6.60% in the
First Quarter of 2000.
The average balance of loans increased $80,790,000 from $224,060,000 to
$304,850,000, investment in debt and equity securities increased $10,192,000
from $79,785,000 to $89,977,000, and federal funds sold and other short-term
investments decreased $79,241,000 from $140,754,000 to $61,513,000 from the
First Quarter of 1999 to the First Quarter of 2000. The average balance of
noninterest bearing demand deposit accounts increased $11,031,000 from
$71,824,000 to $82,855,000, accounts and drafts payable increased $20,263,000
from $234,430,000 to $254,693,000, and interest bearing liabilities decreased
$11,176,000 from $109,697,000 to $98,521,000 from the First Quarter of 1999
to the First Quarter of 2000.
-7-
<PAGE> 8
The increases experienced during the First Quarter in net interest margin
and interest spread were caused primarily by the shift in earning assets from
lower-yielding investments into higher-yielding loans. Loans increased
significantly due to strong loan demand for both commercial loans and church
and church-related loans. Increases in the general level of interest rates,
specifically, the federal fund, short term government, and prime rates also
contributed to these increases. 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. The significant
balances of the Company's noninterest-bearing liabilities cause the net
interest margin to be a more meaningful figure than the interest spread in
explaining the influence of interest rates and balances on the results of
operations.
Net interest income also increased due to the increase in earning assets
that were funded primarily by increases in accounts and drafts payable
generated by CIS. The increases experienced during the First Quarter in
accounts and drafts payable were attributable mainly to an increase in the
dollar value of items processed at CIS. Increases in noninterest bearing
demand deposits were attributable mainly to the addition of new business at
Cass Bank. The decreases in interest-bearing deposits were caused mainly by
the transfer of balances by several large customers from bank deposits into
investment products. Please refer to the following tables for more information
regarding the affect of interest rates and account balances on the Company's
net interest income.
-8-
<PAGE> 9
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY; INTEREST RATE
AND INTEREST DIFFERENTIAL
The following table shows the condensed average balance sheets for each
of the periods reported, the interest income and expense on each category of
interest-earning assets and interest-bearing liabilities, and the average
yield on such categories of interest-earning assets and the average rates
paid on such categories of interest-bearing liabilities for each of the
periods reported.
<TABLE>
<CAPTION>
FIRST QUARTER 2000 FIRST QUARTER 1999
------------------------------------- ------------------------------------
INTEREST INTEREST
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
(DOLLARS IN THOUSANDS) BALANCE EXPENSE RATE BALANCE EXPENSE RATE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS <F1>
Earning assets:
Loans <F2><F3>:
Taxable $297,627 $6,058 8.19% $218,132 $4,252 7.91%
Tax-exempt <F4> 7,223 133 7.41 5,928 121 8.28
Debt and equity securities <F5>:
Taxable 88,748 1,371 6.21 78,516 1,177 6.08
Tax-exempt <F4> 1,229 20 6.55 1,269 24 7.67
Federal funds sold and other
short-term investments 61,513 862 5.64 140,754 1,655 4.77
- -----------------------------------------------------------------------------------------------------------------------------
Total earning assets 456,340 8,444 7.44 444,599 7,229 6.59
Nonearning assets:
Cash and due from banks 26,896 20,808
Premises and equipment, net 9,440 9,217
Other assets 9,515 9,946
Allowance for loan losses (4,325) (4,432)
- -----------------------------------------------------------------------------------------------------------------------------
Total assets $497,866 $480,138
- -----------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY <F1>
Interest-bearing liabilities:
Interest-bearing demand
deposits $ 43,486 $ 383 3.54% $ 37,423 $ 308 3.34%
Savings deposits 48,387 496 4.12 63,982 633 4.01
Time deposits of
$100,000 or more 2,622 32 4.91 3,646 47 5.23
Other time deposits 3,826 43 4.52 4,362 51 4.74
- -----------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 98,321 954 3.90 109,413 1,039 3.85
Short-term borrowings 200 2 4.02 284 2 2.86
- -----------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 98,521 956 3.90 109,697 1,041 3.85
Noninterest-bearing liabilities:
Demand deposits 82,855 71,824
Accounts and drafts payable 254,693 234,430
Other liabilities 5,877 5,775
- -----------------------------------------------------------------------------------------------------------------------------
Total liabilities 441,946 421,726
Shareholders' equity 55,920 58,412
Total liabilities and
shareholders' equity $497,866 $480,138
- -----------------------------------------------------------------------------------------------------------------------------
Net interest income $7,488 $6,188
Interest spread 3.54% 2.74%
Net interest margin 6.60% 5.64%
- -----------------------------------------------------------------------------------------------------------------------------
<FN>
<F1> Balances shown are daily averages.
-9-
<PAGE> 10
<F2> For purposes of these computations, nonaccrual loans are included in the
average loan amounts outstanding. Interest on nonaccrual loans is
recorded when received as discussed further in Note 1 to the Company's
1999 Consolidated Financial Statements, incorporated by reference herein.
<F3> Interest income on loans includes net loan fees of $12,000 and $7,000 for
the First Quarter of 2000 and 1999, respectively.
<F4> Interest income is presented on a tax-equivalent basis assuming a tax
rate of 34%. The tax-equivalent adjustment was approximately $39,000 and
$49,000 for the First Quarter of 2000 and 1999, respectively.
<F5> For purposes of these computations, yields on investment securities are
computed as interest income divided by the average amortized cost of the
investments.
</TABLE>
ANALYSIS OF NET INTEREST INCOME CHANGES
The following table presents the changes in interest income and expense
between periods due to changes in volume and interest rates. That portion of
the change in interest attributable to the combined rate/volume variance has
been allocated to rate and volume changes in proportion to the absolute
dollar amounts of the change in each.
<TABLE>
<CAPTION>
2000 OVER 1999
------------------------------------------------
(DOLLARS IN THOUSANDS) VOLUME<F1> RATE<F1> TOTAL
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Increase (decrease) in interest income:
Loans <F2><F3>:
Taxable $ 1,645 $161 $1,806
Tax-exempt <F4> 25 (13) 12
Debt and equity securities:
Taxable 166 28 194
Tax-exempt <F4> (1) (3) (4)
Federal funds sold and other
short-term investments (1,059) 266 (793)
- ---------------------------------------------------------------------------------------------------------------------
Total interest income 776 439 1,215
- ---------------------------------------------------------------------------------------------------------------------
Interest expense on:
Interest-bearing demand deposits 54 21 75
Savings deposits (155) 18 (137)
Time deposits of $100,000 or more (12) (3) (15)
Other time deposits (6) (2) (8)
Short-term borrowings (1) 1 --
- ---------------------------------------------------------------------------------------------------------------------
Total interest expense (120) 35 (85)
- ---------------------------------------------------------------------------------------------------------------------
Net interest income $ 896 $404 $1,300
- ---------------------------------------------------------------------------------------------------------------------
<FN>
<F1> The change in interest due to both volume and rate has been allocated
proportionately.
<F2> Average balances include nonaccrual loans.
<F3> Interest income includes net loan fees.
<F4> Interest income is presented on a tax-equivalent basis assuming a tax
rate of 34% for the First Quarter of 2000 and 1999.
</TABLE>
ALLOWANCE AND PROVISION FOR LOAN LOSSES
A significant determinant of the Company's operating results is the
provision for loan losses and the level of loans charged off. There was a
$100,000 provision made for loan losses during the First Quarter of 2000, due
to the loan growth experienced and there was no provision made during the
First Quarter of 1999. Net loan recoveries for the First Quarter of 2000
were $27,000 compared to $10,000 for the First Quarter of 1999.
The allowance for loan losses at March 31, 2000 was $4,409,000 and at
December 31, 1999 was $4,282,000. The allowance for loan losses at March 31,
2000 represented 1.38% of total loans outstanding compared to 1.54% at
December 31, 1999.
The ratio of allowance for loan losses as of March 31 to average loans
outstanding during the First Quarter was 1.45% in 2000 compared to 1.98% in
1999. The ratio of nonperforming loans as of March 31 to average loans
during the First Quarter was .06% in 2000 compared to .29% in 1999.
-10-
<PAGE> 11
At March 31, 2000, impaired loans totaled $178,000 which includes
$167,000 of nonaccrual loans. The allowance for loan losses on impaired
loans was $172,000 at March 31, 2000. The average balance of impaired loans
during the First Quarter of 2000 and the First Quarter of 1999 was $179,000
and $693,000, respectively.
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 loss exposure based upon existing
circumstances known to management; analysis of the loan portfolio with regard
to 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. In management's judgment, the allowance
for loan losses is considered adequate to absorb losses in the loan
portfolio.
SUMMARY OF ASSET QUALITY
The following table presents information as of and for the three-month
periods ended March 31, 2000 and 1999 pertaining to the Company's provision
for loan losses and analysis of the allowance for loan losses.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
-------------------------------
(DOLLARS IN THOUSANDS) 2000 1999
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Allowance at beginning of period $ 4,282 $ 4,428
Provision charged to expense 100 --
Loans charged off -- --
Recoveries on loans previously charged off 27 10
- ----------------------------------------------------------------------------------------------------
Net loan recoveries 27 10
Allowance at end of period $ 4,409 $ 4,438
- ----------------------------------------------------------------------------------------------------
Loans outstanding:
Average $304,850 $224,059
March 31 320,378 231,489
Ratio of allowance for loan losses to loans outstanding:
Average 1.45% 1.98%
March 31 1.38% 1.92%
Nonperforming loans:
Nonaccrual loans $ 167 $ 503
Loans past due 90 days or more 6 139
- ----------------------------------------------------------------------------------------------------
Total $ 173 $ 642
- ----------------------------------------------------------------------------------------------------
Nonperforming loans as a percent of average loans .06% .29%
- ----------------------------------------------------------------------------------------------------
</TABLE>
NONINTEREST INCOME
Noninterest income is principally derived from service fees generated by
CIS. Total noninterest income for the First Quarter of 2000 was $5,755,000,
a $246,000 or 4.5% increase compared to the First Quarter of 1999. CIS
payment and processing revenue for the First Quarter of 2000 was $5,336,000,
a $159,000 or 3.1% increase compared to the First Quarter of 1999. Several
factors influenced this increase. First, fees relating to the processing and
payment of utility invoices increased significantly due to an increase in the
number of customers serviced. Second, fees relating to the processing and
payment of freight invoices increased primarily due to increased activity
with existing customers, but was largely offset by non-recurring fees
experienced during the First Quarter of 1999 and continued anticipated
decreases relating to some freight payment services that were part of a prior
acquisition. Freight rating services revenue also decreased due to a change
in the strategic direction from selling rating software to a new
Internet-based delivery system of carrier rates to the shipping community
that is being developed and will offer an expanded level of features and
capabilities.
Bank service charges for the First Quarter of 2000 were $334,000, a
$104,000 or 45.2% increase compared to the First Quarter of 1999. This
increase was attributable to increases in the number of customer
relationships developed by the Bank.
-11-
<PAGE> 12
NONINTEREST EXPENSE
Total noninterest expense for the First Quarter of 2000 was $10,179,000,
a $887,000 or 9.6% increase compared to the First Quarter of 1999.
Salaries and benefits expense for the First Quarter of 2000 was
$7,050,000, a $782,000 or 12.5% increase compared to the First Quarter of
1999. This increase in expense was caused by annual pay increases and
expenses related to an increased staff at CIS to support expanded utility
operations.
Occupancy expense for the First Quarter of 2000 was $434,000, a $10,000
or 2.4% increase compared to the First Quarter of 1999. This increase was
caused by increases in rental expense, which was partially offset by
decreases in utility expense.
Equipment expense for the First Quarter of 2000 was $752,000, an increase
of $105,000 or 16.2% compared to the First Quarter of 1999. This increase
was due primarily to increased investments in information technology.
Other noninterest expense for the First Quarter of 2000 was $1,943,000, a
decrease of $10,000 or .5% compared to the First Quarter of 1999. This
decrease was primarily attributable to decreases in advertising and
telecommunications expense, which was partially offset by increases in
correspondent bank charges, postage and delivery expense and training and
development expense.
FINANCIAL CONDITION
Total assets at March 31, 2000 were $514,904,000, an increase of
$14,059,000 or 2.8% from December 31, 1999. Loans, net of the allowance for
loan losses, at March 31, 2000 were $315,969,000, an increase of $41,908,000
or 15.3% from December 31, 1999. Total investments in debt and equity
securities at March 31, 2000 were $94,305,000, a $11,309,000 or 13.6%
increase from December 31, 1999. Federal Funds sold and other short-term
investments at March 31, 2000 were $56,624,000 a $49,096,000 or 46.4%
decrease from December 31, 1999.
Total deposits at March 31, 2000 were $171,931,000, a $16,805,000 or 8.9%
decrease from December 31, 1999. Accounts and drafts payable were
$282,250,000, a $32,356,000 or 13.0% increase from December 31, 1999. Total
shareholders' equity at March 31, 2000 was $53,913,000, a $2,650,000 or 4.7%
decrease from December 31, 1999.
The increase in loans is related to the successful expansion of the
church and church-related ministries unit, along with increases in loans to
privately held businesses from Cass Bank's ongoing marketing efforts. The
decrease in federal funds sold and other short-term investments relates
primarily to this increase in loans and also to the purchase of investment
securities. The ending balances of accounts and drafts payable will
fluctuate from period end to period end due to the payment processing cycle,
which results in lower balances on days when checks clear and higher balances
on days when checks are issued. For this reason, average balances are a more
meaningful measure of accounts and drafts payable. The decrease in total
shareholders' equity resulted from the purchase of treasury shares for
$3,702,000 (184,210 shares); dividends paid of $729,000 ($.20 per share);
decrease in other comprehensive income of $152,000 offset by net income of
$1,856,000; cash received from the exercise of stock options of $47,000, a
tax benefit of $11,000 on stock options exercised and the amortization of the
stock bonus plan of $19,000.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents, which consist of cash and due from banks,
federal funds sold, and money market funds, were $84,798,000 or 16.5% of total
assets at March 31, 2000. These funds represent the Company's and its
subsidiaries' primary source of liquidity to meet future expected and
unexpected loan demand, depositor withdrawls or reductions in accounts and
drafts payable.
Secondary sources of liquidity include the investment portfolio and
borrowing lines. Total investment in debt and equity securities represented
approximately $94,305,000 or 18% of total assets at March 31, 2000. Of this
-12-
<PAGE> 13
total, 51% were U.S. treasury securities, 48% were U.S. government agencies,
and 1% were other securities. Of the total portfolio, 32% matures in one
year, 59% matures in one to five years, and 9% matures in five or more years.
Of the total portfolio, 76% is designated available-for-sale and 24% is
designated held-to-maturity. The investment portfolio provides secondary
liquidity through regularly scheduled maturities, the ability to sell
securities out of the available-for-sale portfolio, and the ability to use
these securities in conjunction with its reverse repurchase lines of credit.
Cass Bank has unsecured lines at correspondent banks to purchase federal
funds up to a maximum of $19,820,000. Additionally, Cass Bank has a line of
credit at an unaffiliated financial institution in the maximum amount of
$50,000,000 collateralized by securities sold under repurchase agreements.
The deposits of the Company's banking subsidiary have historically been
stable, consisting of a sizable volume of core deposits related to customers
that utilize many other commercial products of the bank. The accounts and
drafts payable generated by CIS has also historically been a stable source of
funds.
The Company faces market risk to the extent that its net interest income
and fair market value of equity are affected by changes in market interest
rates. For information regarding the market risk of the Company's financial
instruments, see Item 3. "QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK".
Risk-based capital guidelines require the Company to meet a minimum total
capital ratio of 8.0% of which at least 4.0% must consist of Tier 1 capital.
Tier 1 capital generally consists of (a) common shareholders' equity
(excluding the unrealized market value adjustments on the available-for-sale
securities), (b) qualifying perpetual preferred stock and related surplus
subject to certain limitations specified by the FDIC, (c) minority interests
in the equity accounts of consolidated subsidiaries less (d) goodwill, (e)
mortgage servicing rights within certain limits, and (f) any other intangible
assets and investments in subsidiaries that the FDIC determines should be
deducted from Tier 1 capital. The FDIC also requires a minimum leverage
ratio of 3.0%, defined as the ratio of Tier 1 capital less purchased mortgage
servicing rights to total assets, for banking organizations deemed the
strongest and most highly rated by banking regulators. A higher minimum
leverage ratio is required of less highly rated banking organizations. Total
capital, a measure of capital adequacy, includes Tier 1 capital, allowance
for loan losses, and debt considered equity for regulatory capital purposes.
The Company and the Bank continue to significantly exceed all regulatory
capital requirements, as evidenced by the following capital amounts and
ratios at March 31, 2000 and December 31, 1999:
<TABLE>
<CAPTION>
MARCH 31, 2000 AMOUNT RATIO
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Total capital (to risk-weighted assets)
Cass Commercial Corporation $58,505,000 15.92%
Cass Commercial Bank 27,796,000 15.54
Tier I capital (to risk-weighted assets)
Cass Commercial Corporation $54,096,000 14.72%
Cass Commercial Bank 25,558,000 14.29
Tier I capital (to average assets)
Cass Commercial Corporation $54,096,000 10.88%
Cass Commercial Bank 25,558,000 11.54
- ----------------------------------------------------------------------------------------
<CAPTION>
DECEMBER 31, 1999 AMOUNT RATIO
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Total capital (to risk-weighted assets)
Cass Commercial Corporation $60,736,000 18.23%
Cass Commercial Bank 28,014,000 16.39
Tier I capital (to risk-weighted assets)
Cass Commercial Corporation $56,570,000 16.98%
Cass Commercial Bank 25,873,000 15.14
Tier I capital (to average assets)
Cass Commercial Corporation $56,570,000 11.53%
Cass Commercial Bank 25,873,000 11.54
- ----------------------------------------------------------------------------------------
</TABLE>
-13-
<PAGE> 14
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.
FORWARD-LOOKING STATEMENTS - FACTORS THAT MAY AFFECT FUTURE RESULTS
Statements in Management's Discussion and Analysis of Financial Condition
and Results of Operations and the other sections of this Report that are not
statements of historical fact are "forward-looking statements". Such
statements are subject to important risks and uncertainties which could cause
the Company's actual results to differ materially from those expressed in any
such forward-looking statements made herein. The aforesaid uncertainties
include, but are not limited to: burdens imposed by federal and state
regulators, credit risk related to borrowers' ability to repay loans,
concentration of loans in the St. Louis Metropolitan area which subjects the
Company to risks associated with changes in the local economy, risks
associated with fluctuations in interest rates, competition from other banks
and other financial institutions, some of which are not as heavily regulated
as the Company and, particularly in the case of CIS, risks associated with
breakdowns in data processing systems and competition from other providers of
similar services.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As described in the Company's Annual Report on Form 10-K for the year
ended December 31, 1999, the Company manages its interest rate risk through
measurement techniques that include gap analysis and a simulation model. As
part of the risk management process, asset/liability management policies are
established and monitored by management. The policy objective is to limit the
change in annualized net interest income to 15% from an immediate and sustained
parallel change in interest rates of 200 basis points. Based on the Company's
most recent evaluation, management does not believe the Company's risk
position at March 31, 2000 has changed materially from that at December 31,
1999.
-14-
<PAGE> 15
PART II. OTHER INFORMATION
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-month period ended March 31, 2000.
-15-
<PAGE> 16
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: March 11, 2000 By /s/ Lawrence A. Collett
----------------------------------------
Lawrence A. Collett
Chairman and Chief Executive Officer
DATE: March 11, 2000 By /s/ Eric H. Brunngraber
----------------------------------------
Eric H. Brunngraber
Vice President-Secretary
(Chief Financial and Accounting Officer)
-16-
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 28,174
<INT-BEARING-DEPOSITS> 51,000
<FED-FUNDS-SOLD> 5,624
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 71,755
<INVESTMENTS-CARRYING> 22,550
<INVESTMENTS-MARKET> 22,353
<LOANS> 320,378
<ALLOWANCE> 4,409
<TOTAL-ASSETS> 514,904
<DEPOSITS> 171,931
<SHORT-TERM> 200
<LIABILITIES-OTHER> 288,860
<LONG-TERM> 0
0
0
<COMMON> 2,000
<OTHER-SE> 51,913
<TOTAL-LIABILITIES-AND-EQUITY> 514,904
<INTEREST-LOAN> 6,157
<INTEREST-INVEST> 1,386
<INTEREST-OTHER> 862
<INTEREST-TOTAL> 8,405
<INTEREST-DEPOSIT> 954
<INTEREST-EXPENSE> 956
<INTEREST-INCOME-NET> 7,449
<LOAN-LOSSES> 100
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 10,179
<INCOME-PRETAX> 2,925
<INCOME-PRE-EXTRAORDINARY> 2,925
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,856
<EPS-BASIC> .51
<EPS-DILUTED> .50
<YIELD-ACTUAL> 6.60
<LOANS-NON> 167
<LOANS-PAST> 6
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 178
<ALLOWANCE-OPEN> 4,282
<CHARGE-OFFS> 0
<RECOVERIES> 27
<ALLOWANCE-CLOSE> 4,409
<ALLOWANCE-DOMESTIC> 0<F1>
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0<F1>
<FN>
<F1>TO BE DOCUMENTED IN THE DEC-31-2000 STATEMENTS.
</TABLE>
