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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal period from to
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Commission file number 2-80070
CASS COMMERCIAL CORPORATION
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(Exact name of registrant specified in its charter)
Missouri 43-1265338
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
13001 Hollenberg Drive, Bridgeton, Missouri 63044
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (314) 506-5500
Securities registered pursuant to Section 12(b) of the Act:
Title of each Class Name of each exchange on which registered
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None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock par value $.50
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. X
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As of March 5, 2000, 3,642,883 shares of common stock of the registrant
were outstanding; the aggregate market value of the shares of common stock of
the registrant held by non-affiliates was approximately $58,613,026 based
upon the Nasdaq Stock Market closing price of $20.50 for March 5, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of registrant's Annual Report to Shareholders for the year
ended December 31, 1999 are incorporated by reference in Part I and II
hereof.
2. Registrant's Proxy Statement for the Annual Meeting of Shareholders
to be held on April 17, 2000 is incorporated by reference in Part III
hereof.
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PART I.
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ITEM 1. BUSINESS
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CASS COMMERCIAL CORPORATION
Registrant, Cass Commercial Corporation (the "Company"), is a bank holding
corporation organized in 1982 under the laws of Missouri and approved by the
Board of Governors of the Federal Reserve system in February 1983 and is
governed by regulations of the Board of Governors of the Federal Reserve
system applying to bank holding companies. As of December 31, 1999, the
Company owned 100% of the outstanding shares of common stock of Cass
Commercial Bank ("Cass Bank") and Cass Information Systems, Inc. ("CIS"), a
non-banking subsidiary. The business of the Company is providing ownership,
supervision and control of its subsidiaries in the form of consulting
services, strategic planning, policy establishment and centralized
accounting, human resources and internal auditing services.
The Company and its subsidiaries had 582 full-time and 45 part-time employees
as of December 31, 1999.
Total interest income, total net revenue, income (loss) before income tax,
total income tax expense (benefit), identifiable assets, depreciation and
amortization expense and capital expenditures attributable to each business
segment, for the three years ended December 31, 1999 are set forth in Note 12
of the Notes to Consolidated Financial Statements on page 29 of the Cass
Commercial Corporation 1999 Annual Report, which is hereby incorporated by
reference.
CASS COMMERCIAL BANK
Cass Bank was organized as a Missouri Trust Company with banking powers in
1906. Its principal banking office is located at 13001 Hollenberg Drive,
Bridgeton, Missouri and it has five other bank branches in the St. Louis,
Missouri metropolitan area.
Cass Bank provides banking services in the commercial, industrial and
residential areas it serves. Its primary focus is on privately owned
businesses and churches and church-related ministries. Services include
commercial, real estate and personal loans; checking, savings and time
deposit accounts and other cash management services. Although Cass Bank has
trust powers, it does not operate a trust department. Cass Bank had 71
full-time and 5 part-time employees as of December 31, 1999. At December 31,
1999, Cass Bank had total assets of $214,971,000, deposits of $184,303,000
and aggregate capital accounts of $25,883,000 and for the year ended December
31, 1999, had net income of $3,270,000.
Cass Bank encounters substantial competition from other banks located
throughout the St. Louis metropolitan area. Savings and loan associations,
credit unions, other financial institutions and non-bank providers of
financial services also provide competition. The principal competition
however, is represented by bank holding company affiliates, many of which are
larger and have greater resources than Cass Bank, and are able to offer a
wide range of banking and related services through extensive branch networks.
CASS INFORMATION SYSTEMS, INC.
CIS provides information and payment related services. In 1956, Cass Bank
began the operation of a freight payment service to meet the needs of
shippers and receivers of freight and transportation companies in the St.
Louis metropolitan area. This service was well received and, in 1967, its
marketing was expanded to cover the entire United States. The range and
scope of the services have been expanded significantly over the years. Today
many Fortune 500 companies in the United States utilize the broad array of
services provided by CIS. These services now include the processing of
freight, utility and other payments, delivery of management information
through reports, voice response systems and the Internet, and other services
such as auditing, rating and other payment related activities.
The headquarters and main operating location of CIS is at 13001 Hollenberg
Drive, Bridgeton, Missouri. Other operating locations are in Columbus, Ohio;
Chicago, Illinois and Boston, Massachusetts.
CIS's competition comes from within and outside the banking industry.
Many banks which had provided freight payment services in the past,
have ceased providing such services or have sold those operations.
CIS also competes with several non-bank companies located throughout the
United States. The Company believes CIS to be the largest
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firm in the freight bill payment industry in terms of the total dollars of
freight bills paid, the total number of employees on staff, total revenues
and total assets employed. Non-bank competition consists of five primary
competitors and numerous small freight bill audit firms located throughout
the United States. While offering freight payment services, few of these
audit firms compete on a national basis. CIS also competes with several
non-bank companies that pay utility bills and provide extensive management
reporting that are located throughout the United States. Due to the fact
that this is a new market, the competitive environment for utility bill
processing and payment is difficult to access and is changing rapidly.
CIS owns several service marks for the freight payment services and logistics
information software it provides. Those marks deemed the most valuable are
"Freightpay", the basic freight payment service, "Ratemaker", a rate
maintenance software product, and "First Rate", a carrier selection software
product. In addition, CIS either owns or has applied for other service
marks.
CIS is not dependent on any one customer for a large portion of its business.
It has a varied client base with no individual client exceeding 5% of total
revenue. CIS had 501 full-time employees and 40 part-time employees as of
December 31. 1999.
For the year 1999, CIS had net revenues of $36,082,000 and net income of
$3,015,000. Total assets as of December 31, 1999 were $284,412,000.
REGULATION AND SUPERVISION
The Company and Cass Bank are extensively regulated under federal and state
law. These laws and regulations are intended to protect depositors, not
shareholders. To the extent that the following information describes
statutory or regulatory provisions, it is qualified in its entirety by
reference to the particular statutory and regulatory provisions. Any change
in applicable laws or regulations may have a material effect on the business
and prospects of the Company. The operations of the Company may be affected
by legislative changes and by the policies of various regulatory authorities.
The Company is unable to predict the nature or the extent of the effects on
its business and earnings that fiscal or monetary policies, economic control
or new federal or state legislation may have in the future.
Federal Bank Holding Company Regulation
The Company is a bank holding company within the meaning of the Bank Holding
Company Act of 1956, as amended (the "BHC Act"), and as such, it is subject
to regulation, supervision and examination by the Board of Governors of the
Federal Reserve System (the "FRB"). The Company is required to file
quarterly and annual reports with the FRB and to provide to the FRB such
additional information as the FRB may require, and it is subject to regular
inspections by the FRB. The FRB also has extensive enforcement authority
over bank holding companies, including, among other things, the ability to
assess civil money penalties, to issue cease and desist or removal orders and
to require that a holding company divest subsidiaries (including its bank
subsidiaries). In general, enforcement actions may be initiated for
violations of law or regulations or for unsafe or unsound practices.
Under FRB policy, a bank holding company must serve as a source of strength
for its subsidiary banks. Under this policy the FRB may require, and has
required in the past, a bank holding company to contribute additional capital
to an undercapitalized subsidiary bank.
The BHC Act requires every bank holding company to obtain the prior approval
of the FRB before (1) acquiring, directly or indirectly, ownership or control
of any voting shares of another bank or bank holding company if, after such
acquisition, it would own or control 5% or more of such shares (unless it
already owns or controls the majority of such shares); (2) acquiring all or
substantially all of the assets of another bank or bank holding company; or
(3) merging or consolidating with another bank holding company. The FRB will
not approve any acquisition, merger or consolidation that would have a
substantially anticompetitive result, unless the anticompetitive effects of
the proposed transaction are clearly outweighed by a greater public interest
in meeting the convenience and needs of the community to be served. The FRB
also considers capital adequacy and other financial and managerial factors in
reviewing acquisitions or mergers.
With certain exceptions, the BHC Act also prohibits a bank holding company
from acquiring or retaining direct or indirect ownership or control of 5% or
more of the voting shares of any company which is not a bank or bank holding
company, or from engaging directly or indirectly in activities other than
those of banking, managing or controlling banks or providing services for its
subsidiaries. The principal exceptions to these prohibitions involve certain
non-bank activities which, by statute or by FRB regulation or order, have
been identified as activities closely related to the
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business of banking or of managing or controlling banks. In making this
determination, the FRB considers whether the performance of such activities
by a bank holding company can be expected to produce benefits to the public
such as greater convenience, increased competition or gains in efficiency in
resources, which can be expected to outweigh the risks of possible adverse
effects such as decreased or unfair competition, conflicts of interest or
unsound banking practices. The scope of permissible nonbanking activities
may be expanded from time to time by the FRB by regulation or order. Such
activities may also be affected by federal legislation.
The FRB has issued a policy statement on the payment of cash dividends by
bank holding companies, which expresses the FRB's view that a bank holding
company should pay cash dividends only to the extent that its net income for
the past year is sufficient to cover both the cash dividends and a rate of
earning retention that is consistent with the holding company's capital
needs, asset quality and overall financial condition. The FRB also indicated
that it would be inappropriate for a company experiencing serious financial
problems to borrow funds to pay dividends. Furthermore, under the prompt
corrective regulations adopted by the FRB, the FRB may prohibit a bank
holding company from paying any dividends if the holding company's bank
subsidiary is classified as "undercapitalized."
A bank holding company is required to give the FRB prior written notice of
any purchase or redemption of its outstanding equity securities if the gross
consideration for the purchase or redemption, when combined with the net
consideration paid for all such purchases or redemptions during the preceding
12 months, is equal to 10% or more of its consolidated net worth. The FRB
may disapprove such a purchase or redemption if it determines that the
proposal would constitute an unsafe or unsound practice or would violate any
law, regulation, FRB order, written agreement with the FRB, or any condition
imposed by the FRB. This notification requirement does not apply to any
company that is "well-capitalized" and "well-managed" as defined in the
regulation and is not subject to any unresolved supervisory issues.
Additional aspects of the regulation of bank holding companies under federal
law are discussed below.
State Bank Holding Company Regulation
The Company, as a Missouri bank holding company, is also subject to
regulation by the Division of Finance of the State of Missouri (the "Division
of Finance"). Under the Missouri banking laws, prior approval of the
Division of Finance is required before a bank holding company may acquire
control of a Missouri chartered bank or a bank holding company incorporated
in Missouri. In addition, under the Missouri banking laws, it is unlawful
for any bank holding company to obtain control of any bank if the total
deposits in the bank together with the total deposits in all banks in
Missouri controlled by such bank holding company exceed 13% of the total
deposits held by all depository financial institutions in Missouri. In
computing deposits for purposes of this calculation, certificates of deposit
in the face amount of $100,000 or more, deposits from outside the United
States and deposits from banks not controlled by the bank holding company are
excluded. Depository financial institution is defined as any financial
institution which accepts deposits and which can insure such deposits through
an agency of the federal government. As of December 31, 1999, the Company's
consolidated Missouri deposits represented less than 1% of the total deposits
held by all Missouri depository financial institutions.
Federal and State Bank Regulation
Cass Bank is a federally-insured Missouri state-chartered bank and is a
member of the Federal Reserve System. Cass Bank is subject to the
supervision and regulation of the Division of Finance, and to the supervision
and regulation of the FRB. These agencies may prohibit Cass Bank from
engaging in what they believe constitutes unsafe or unsound banking
practices.
The ability of banks and bank holding companies to operate in multiple
locations or in more than one state is regulated by both federal and state
law. Under the Riegle-Neal Interstate Banking and Branching Efficiency Act
of 1994 (the "Riegle-Neal Act"), "adequately capitalized and adequately
managed" bank holding companies may acquire bank subsidiaries located in any
state notwithstanding any state laws to the contrary, and adequately
capitalized and adequately managed national and state-chartered banks may
merge across state lines and keep the branches of the merging banks. The
Riegle-Neal Act permits states to require banks to be in existence for a
specified period of time up to five years before they can be acquired (either
by purchase or through an interstate bank merger) by out-of-state bank
holding companies, and to impose state wide market share limits on
out-of-state bank holding companies after their initial entry into the state.
The Riegle-Neal Act does not authorize interstate branching other than by a
bank merger, such as by opening a new branch in another state or by acquiring
a branch in another state (without acquiring the entire bank); however, any
state may opt to permit out-of-state banks to branch within the state by
those methods.
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The Community Reinvestment Act requires that, in connection with examinations
of financial institutions within its jurisdiction, the FRB shall evaluate the
record of the financial institutions in meeting the credit needs of their
local communities, including low and moderate income neighborhoods,
consistent with the safe and sound operation of those banks. These factors
are also considered in evaluating mergers, acquisitions and applications to
open a branch or facility. Banks having branch offices in two or more states
will receive both an overall CRA performance rating and separate CRA ratings
for each of the states in which they have branches.
Section 23A of the Federal Reserve Act is designed to protect banks from
abuse in financial transactions with companies with which the bank is
affiliated, by (i) limiting a bank's extensions of credit and other covered
transactions with any single affiliate to no more than 10% of the bank's
capital and surplus, and with all affiliates to no more than 20% of the
bank's capital and surplus, (ii) requiring that all of the bank's extensions
of credit to an affiliate be appropriately secured by collateral, (iii)
requiring that all transactions between a bank and its affiliates be on terms
and conditions consistent with safe and sound banking practices, and (iv)
prohibiting a bank or its subsidiaries from purchasing low-quality loans or
other assets from the bank's affiliates.
Under the Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), each federal banking agency has adopted, by regulation,
guidelines on non-capital safety and soundness standards for institutions
under its authority. These cover, among other things, internal controls,
information systems and internal audit systems, loan documentation, credit
underwriting, interest rate exposure, asset growth, compensation, fees and
benefits, such other operational and managerial standards as the agency
determines to be appropriate and standards for asset quality, earnings and
stock valuation. An institution which fails to meet these standards must
develop a plan acceptable to the agency, specifying the steps that the
institution will take to meet the standards. Failure to submit or implement
such a plan may subject the institution to regulatory sanctions. The Company
believes that Cass Bank meets all the standards of FDICIA. FDICIA also
imposed new capital standards on insured depository institutions, all of
which are met by Cass Bank.
Deposit Insurance and Assessments
As a Federal Depository Insurance Corporation ("FDIC") member institution,
the deposits of Cass Bank are currently insured to a maximum of $100,000 per
depositor through the Bank Insurance Fund ("BIF"), administered by the FDIC,
and Cass Bank is required to pay periodic deposit insurance premium
assessments to the FDIC.
The FDIC has adopted a risk-based assessment system. Under the risk-based
assessment system, BIF members pay varying assessment rates depending upon
the level of the institution's capital and the degree of supervisory concern
over the institution. The assessment rates are set by the FDIC semiannually.
The FDIC reduced the assessment rates for 1997 to a range of zero (0) cents
to 27 cents per $100 of insured deposits and this rate remained the same in
1998 and 1999. The Bank qualified for the $0 assessment rate for 1999,
however the Bank paid approximately $30,000 in assessments from the Financing
Corporation (FICO). The FICO debt service assessment became applicable to
all insured institutions as of January 1, 1997, in accordance with the
Deposit Insurance Act of 1996. The FDIC has authority to increase the annual
assessment rate if it determines that a higher assessment rate is necessary
to increase BIF's reserve ratio. There is no cap on the annual assessment
rate which the FDIC may impose.
Under the Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA"), a depository institution insured by the FDIC can be held liable
for any loss incurred by, or reasonably expected to be incurred by, the FDIC
in connection with (i) the default of a commonly controlled FDIC-insured
depository institution or (ii) any assistance provided by the FDIC to a
commonly controlled FDIC-insured depository institution in danger of default
(the "Cross Guarantee"). "Default" is defined generally as the appointment
of a conservator or receiver and "in danger of default" is defined generally
as the existence of certain conditions indicating either that there is no
reasonable prospect that the institution will be able to meet the demands of
its depositors or pay its obligations in the absence of regulatory
assistance, or that its capital has been depleted and there is no reasonable
prospect that it will be replenished in the absence of regulatory assistance.
The Cross Guarantee thus enables the FDIC to assess a holding company's
healthy BIF members for the losses of any of such holding company's failed
BIF members. Cross Guarantee liabilities are generally superior in priority
to obligations of the depository institution to its shareholders, due solely
to their status as shareholders, and obligations to other affiliates. Under
FIRREA, failure to meet applicable capital guidelines could subject a banking
institution to a variety of enforcement remedies available to federal
regulatory authorities, including the termination of deposit insurance by the
FDIC and a prohibition on the taking of "brokered deposits."
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Dividends
The principal source of the Company's cash revenues is dividends received
from Cass Bank and CIS. The Missouri banking laws impose certain limitations
on the payment of dividends by Missouri state chartered banks such as Cass
Bank, as follows: (1) no dividends may be paid which would impair capital;
(2) until the surplus fund of a bank is equal to 40% of its capital, no
dividends may be declared unless there has been carried to the surplus
account no less than one-tenth of its net profits for the dividend period;
and (3) dividends are payable only out of a bank's undivided profits. In
addition, the appropriate regulatory authorities are authorized to prohibit
banks and bank holding companies from paying dividends which would constitute
an unsafe and unsound banking practice.
Capital Adequacy
The federal bank regulatory agencies use capital adequacy guidelines in their
examination and regulation of bank holding companies and banks. If the
capital falls below the minimum levels established by these guidelines, the
bank holding company or bank may be denied approval to acquire or establish
additional banks or non-bank businesses or to open facilities.
The FRB and FDIC have adopted risk-based capital guidelines for banks and
bank holding companies. The risk-based capital guidelines are designed to
make regulatory capital requirements more sensitive to differences in risk
profile among banks and bank holding companies, to account for off-balance
sheet exposure and to minimize disincentives for holding liquid assets.
Assets and off-balance sheet items are assigned to broad risk categories,
each with appropriate weights. The resulting capital ratios represent
capital as a percentage of total risk-weighted assets and off-balance sheet
items. The guidelines are minimums, and the FRB has noted that bank holding
companies contemplating significant expansion programs should not allow
expansion to diminish their capital ratios and should maintain ratios well in
excess of the minimum. The current guidelines require all bank holding
companies and federally-regulated banks to maintain a minimum risk-based
total capital ratio equal to 8%, of which at least 4% must be Tier 1 capital.
Bank holding companies are required under such guidelines to deduct all
intangibles except purchased mortgage servicing rights from capital.
In assessing a bank's capital adequacy, the FRB and FDIC also take into
consideration market risks, i.e., the risk of loss from the change in value
of assets and liabilities due to changes in interest rates, and may require
an institution to increase its capital level to address such risks. These
agencies have also adopted a policy statement that provides guidance to
institutions on the management of interest rate risk.
The FRB also has implemented a leverage ratio, which is Tier 1 capital as a
percentage of total average assets less intangibles, to be used as a
supplement to the risk-based guidelines. The principal objective of the
leverage ratio is to place a constraint on the maximum degree to which a bank
holding company may leverage its equity capital base. The FRB requires a
minimum leverage ratio of 3%. However, for all but the most highly rated
bank holding companies and for bank holding companies seeking to expand, the
FRB expects an additional cushion of at least 100 to 200 basis points.
FDICIA
FDICIA made extensive changes to the federal banking laws and instituted
certain changes to the supervisory process, including provisions that mandate
certain regulatory agency actions against undercapitalized institutions
within specified time limits. FDICIA contains various other provisions that
may affect the operations of banks and savings institutions.
The prompt corrective action provision of FDICIA requires the federal banking
regulators to assign each insured institution to one of five capital
categories ("well capitalized", "adequately capitalized" or one of three
"undercapitalized" categories) and to take progressively more restrictive
actions based on the capital categorization. Under FDICIA, capital
requirements include a leverage limit, a risk-based capital requirement and
any other measure of capital deemed appropriate by the federal banking
regulators for measuring the capital adequacy of an insured depository
institution. All institutions, regardless of their capital levels, are
restricted from making any capital distribution or paying any management fees
that would cause the institution to fail to satisfy the minimum levels for
any relevant capital measure.
FDICIA generally requires annual on-site, full scope examinations by each
bank's primary federal regulator. It also requires management, the
independent audit committee and outside accountants to develop or approve
reports regarding the effectiveness of internal controls, legal compliance
and off-balance-sheet liabilities and assets.
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Recent Developments: The Gramm-Leach-Bliley Act ("GLBA") was signed into law
on November 12, 1999. This major banking legislation now permits affiliation
among depository institutions and entities whose activities are considered
"financial in nature" or incidental or complementary to such activities.
Activities which are expressly considered financial in nature include, among
other things, securities and insurance underwriting and agency, investment
management and merchant banking. With certain exceptions, GLBA similarly
expanded the authorized activities of subsidiaries of national banks (and
indirectly through the wild card powers provisions of state law, Missouri
banks). These provisions become effective March 11, 2000.
In general, these expanded powers are reserved to bank holding companies, to
be known as financial holding companies ("FHC") and banks, where all
depository institutions affiliated with them are well capitalized and well
managed based on applicable banking regulations and meet specified Community
Reinvestment Act ratings. GLBA authorizes the Federal Reserve and the United
States Treasury, in cooperation with one another, to determine what
additional activities are permissible as financial in nature. Maintenance of
activities which are financial in nature will require FHC's and banks to
continue to satisfy applicable well capitalized and well managed
requirements. Bank holding companies which do not qualify for FHC status are
limited to non-banking activities deemed closely related to banking prior to
adoption of GLBA.
To become an FHC, the Company would file a declaration with the Federal
Reserve electing to engage in activities permissible for an FHC and
certifying that it is eligible to do so because it meets the requirements
outlined above. The Company currently meets the requirements to make an
election to become a FHC; however, the Company's management has not
determined at this time whether it will seek such an election. The Company
is examining its strategic business plan to determine whether, based on
market conditions, the relative financial conditions of Company and its
subsidiaries, regulatory capital requirements, general economic conditions,
and other factors, Company desires to utilize any of its expanded powers
provided in GLBA.
In addition to the creation of FHC's, GLBA establishes a scheme of
"functional regulation" of financial services businesses which is intended to
reflect the primacy of regulation over activities and entities by regulators
routinely responsible for such activities and entities and with the
appropriate expertise in the area of regulation. This applies both in
allocating responsibility for supervising different companies within an FHC
and in supervising different activities within the same company. In this
connection, GLBA clarifies the regulation by states of insurance products
sold by depository institutions, repeals some of the exemptions enjoyed by
banks under federal securities laws relating to securities offered by banks
and licensing of broker-dealers and investment advisors.
GLBA also adopts restrictions on financial institutions regarding the sharing
of customer non-public personal information with non-affiliated third parties
unless the customer has had an opportunity to opt out of the disclosure. GLBA
also imposes periodic disclosure requirements concerning the financial
institution's policies and practices regarding data sharing with affiliated
and non-affiliated parties.
This act will be the subject of extensive rule making by federal banking
regulators and others. The effects of this legislation will only begin to be
understood over the next several years and at this time cannot be predicted
with any certainty.
Monetary Policy
The earnings of a bank holding company are affected by the policies of
regulatory authorities, including the FRB, in connection with the FRB's
regulation of the money supply. Various methods employed by the FRB are open
market operations in United States Government securities, changes in the
discount rate on member bank borrowings and changes in reserve requirements
against member bank deposits. These methods are used in varying combinations
to influence overall growth and distribution of bank loans, investments and
deposits, and their use may also affect interest rates charged on loans or
paid on deposits. The monetary policies of the FRB have had a significant
effect on the operating results of commercial banks in the past and are
expected to continue to do so in the future.
STATISTICAL DISCLOSURE BY BANK HOLDING COMPANIES
For the statistical disclosure by bank holding companies see Part II. Item 7
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
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ITEM 2. PROPERTIES
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CASS COMMERCIAL CORPORATION
The Company's headquarters are located in office facilities leased from CIS
at 13001 Hollenberg Drive, Bridgeton, Missouri, 63044.
CASS COMMERCIAL BANK
Cass Bank's headquarters are located at 13001 Hollenberg Drive, Bridgeton,
Missouri, 63044. Cass Bank leases approximately 20,500 square feet of a
61,500 square feet building owned by CIS. In addition, Cass Bank owns a
banking facility near downtown St. Louis that consists of approximately 1,600
square feet with adjoining drive-up facilities. Cass Bank has additional
leased facilities in Maryland Heights, Missouri (2,500 square feet); Fenton,
Missouri (1,250 square feet); Chesterfield, Missouri (2,850 square feet) and
downtown St. Louis, Missouri (1,500 square feet).
CASS INFORMATION SYSTEMS, INC.
CIS' headquarters are located at 13001 Hollenberg Drive, Bridgeton, Missouri,
63044. This location is owned by CIS, and includes a building with
approximately 61,500 square feet of office space, 20,500 of which is occupied
by Cass Bank. CIS also operates a production facility in Columbus, Ohio
where approximately 20,000 square feet are leased through the year 2000.
This space is located at 2545 Farmers Drive, Columbus, Ohio. CIS operates an
additional production facility in Lowell, Massachusetts where approximately
25,800 square feet of office space is leased through October 31, 2005. CIS
also leases a facility for its rating and software group in Chicago, Illinois
where approximately 10,000 square feet of office space is leased through the
year 2004.
ITEM 3. LEGAL PROCEEDINGS
-----------------
The Company and its subsidiaries are not involved in any pending proceedings
other than ordinary routine litigation incidental to their businesses.
Management believes none of these proceedings, if determined adversely, would
have a material effect on the business or financial condition of the Company
or its subsidiaries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
No matters were submitted to a vote of security holders during the fourth
quarter of 1999.
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PART II.
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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
-------------------------------------------------
STOCKHOLDER MATTERS
-------------------
As of March 5, 2000, there were 259 holders of record of the Company's common
stock. The Company's common stock was listed on the Nasdaq Stock Market
effective July 1, 1996. High and low bid prices for each quarter of 1999 and
1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
1st Quarter $25-1/8 $24-1/2 $35-1/4 $24-3/4
2nd Quarter 25 24-1/4 34-3/4 30
3rd Quarter 25-1/2 23-1/2 30-3/4 23-7/8
4th Quarter 25-3/4 18-5/8 26-3/4 24-5/8
</TABLE>
Dividends paid per share by the Company during the two most recent fiscal
years were as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
March 15 $ .19 $ .18
June 15 .19 .18
September 15 .19 .18
December 15 .19 .18
</TABLE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
------------------------------------
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data) 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income on loans <F1> $20,371 $17,579 $16,951 $16,193 $14,042
Interest income on debt and equity securities 4,722 6,607 9,151 9,801 9,787
Other interest income 5,782 5,858 3,181 2,132 2,972
Total interest income 30,875 30,044 29,283 28,126 26,801
Interest expense on deposits 4,357 4,271 4,181 4,503 4,036
Interest expense on short-term borrowings 9 10 67 139 92
Total interest expense 4,366 4,281 4,248 4,642 4,128
Net interest income 26,509 25,763 25,035 23,484 22,673
Provision for loan losses -- -- 300 -- (500)
Net interest income after provision 26,509 25,763 24,735 23,484 23,173
Noninterest income 21,444 22,447 21,813 22,091 23,794
Noninterest expense 38,344 36,625 35,911 35,811 37,366
Income before income tax expense 9,609 11,585 10,637 9,764 9,601
Income tax expense 3,411 4,177 3,626 3,245 3,387
- ----------------------------------------------------------------------------------------------------------------------
Net income $6,198 $7,408 $7,011 $6,519 $6,214
- ----------------------------------------------------------------------------------------------------------------------
Basic earnings per share $1.63 $1.92 $1.82 $1.69 $1.62
Diluted earnings per share 1.61 1.89 1.79 1.66 1.61
Dividends per share .760 .720 .650 .595 .535
- ----------------------------------------------------------------------------------------------------------------------
Average total assets $491,450 $469,606 $443,900 $422,953 $400,197
Average net loans 254,353 208,603 197,761 185,791 152,433
Average debt and equity securities 78,903 109,275 148,027 160,291 161,047
Average total deposits 190,661 176,784 161,778 161,595 143,001
Average total shareholders' equity 57,118 55,246 49,965 45,250 40,924
- ----------------------------------------------------------------------------------------------------------------------
Return on average total assets 1.26% 1.58% 1.58% 1.54% 1.55%
Return on average total shareholders' equity 10.85 13.41 14.03 14.41 15.18
Total shareholders' equity to
total assets at year-end 11.29 11.39 12.01 10.90 10.12
Allowance for loan losses to loans at year-end 1.54 1.97 2.28 2.22 3.65
Nonperforming assets to loans and other
real estate at year-end .15 .35 .39 .40 .36
Net loan charge-offs (recoveries) to
average loans outstanding .06 .03 .10 1.02 (.33)
- ----------------------------------------------------------------------------------------------------------------------
<FN>
<F1> Interest income on loans includes net loan fees.
</TABLE>
9
<PAGE> 10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
RESULTS OF OPERATIONS
The following discussion and analysis provides information about the
financial condition and results of operations of the Company for the years
ended December 31, 1999, 1998 and 1997. This discussion and analysis should
be read in conjunction with the Company's consolidated financial statements
and notes thereto, which are hereby incorporated by reference from the
Company's 1999 Annual Report to Shareholders.
NET INCOME
The Company's consolidated net income, earnings per share and selected ratios
for 1999, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $6,198,000 $7,408,000 $7,011,000
Basic earnings per share $1.63 $1.92 $1.82
Diluted earnings per share $1.61 $1.89 $1.79
Return on average assets 1.26% 1.58% 1.58%
Return on average equity 10.85% 13.41% 14.03%
Ratio of average total shareholders' equity
to average total assets 11.62% 11.77% 11.26%
Ratio of total dividends declared
to net income 46.61% 37.55% 35.77%
- ---------------------------------------------------------------------------------------------------------
</TABLE>
The 1999 results compared to 1998 include the following significant pre-tax
components:
Net interest income increased $746,000 or 2.9% due to a $45,667,000
increase in average loans and a $22,032,000 increase in average
earning assets, which were partially offset by a decline in the
general level of interest rates that caused the net interest margin to
decrease from 5.98% to 5.87%.
Total noninterest income decreased $1,003,000 or 4.5% due to several
factors. Total freight and utility payment and processing revenue
decreased $583,000 or 3.1% despite a $726,000 increase in revenue from
utility payment and processing services. The decrease in revenue from
freight payment and processing services was due to several factors.
First, there was a decrease in the volume of freight transactions due
largely to the growth in competition for electronic data interchange
(EDI) processing of parcel and air shipments. Second, there were
continued anticipated decreases of some freight payment services that
were part of a prior acquisition. Finally, the implementation of new
prospects, which typically exceed lost business, appeared to be
delayed by our prospect's Y2K remediation programs. Freight rating
services revenue decreased $346,000 or 16.1% due to a change in
Company direction from selling rating software to Internet-based
systems. Finally, the Company recognized a $285,000 gain on the sale
of securities in 1998.
Total noninterest expense increased $1,719,000 or 4.7% due to several
factors. The most significant was the Company's investment in the
utility processing area and in new freight processing capabilities.
Due to the rapid growth in the utility processing area, CIS was unable
to leverage freight processing resources to the extent that was
initially envisioned. As a result, a much larger investment in staff
and processing support had to be made to accommodate the fast rate of
growth. It is estimated that the pre-tax loss on utility payment
processing services exceeded $1,000,000. In addition, CIS invested
heavily in Internet system capabilities and internal system
development in the freight processing area that will allow greater
growth in this area in the future. Finally, annual salary increases
and higher benefit expenses accounted for a significant part of the
increase.
The 1998 results compared to 1997 include the following significant pre-tax
components:
Net interest income increased $1,028,000 or 4.2% due to a $24,948,000
increase in average earning assets and a decrease in the provision for
loan losses from $300,000 to $0. These factors more than offset the
decrease in net interest margin that was caused by a decline in the
general level of interest rates.
Total noninterest income increased $634,000 or 2.9% due largely to an
increase in CIS processing revenue of $946,000 as CIS experienced a
record processing year. Some of this increase was offset by a
decrease in the negative goodwill related to a prior acquisition by
CIS that was fully amortized in 1997. Also in 1997,
10
<PAGE> 11
the Bank received a buyout of its headquarters lease in excess of the
remaining net book value of leasehold improvements that resulted in a
one-time gain of $95,000.
Total noninterest expenses increased $714,000 or 2.0% due mainly to
increased salaries and benefits expense that related to separation
costs associated with the streamlining and integration of operations
in the freight rating software service and sales group combined with
annual salary increases.
NET INTEREST INCOME
Net interest income is the difference between interest earned on loans,
investments, and other earning assets and interest paid on deposits and other
interest-bearing liabilities. Net interest income is a significant source of
the Company's revenues.
Net interest income in 1999 compared to 1998:
On a tax-equivalent basis, net interest income for 1999 totaled $26,721,000,
an increase of $833,000 or 3.2% over 1998. The net interest margin for 1999
was 5.87% compared to 5.98% in 1998. The following factors account for this
increase in net interest income and decrease in net interest margin:
Total average earning assets increased $22,032,000 or 5.1% to
$455,187,000. This increase was due to an increase in non-interest
bearing demand and interest bearing deposits at Cass Bank resulting
from new business development efforts and an increase in accounts and
drafts payable at CIS from an increase in dollars processed. This
increase contributed to the increase in net interest income.
Total average loans increased $45,667,000 or 21.4% to $258,742,000.
This increase was funded by the increase in deposits and payables
along with the maturity of debt securities. This increase in loans
increased interest income and had a positive effect on the net
interest margin due to the fact that loans are the Company's highest
earning asset.
Total average federal funds sold and other short-term investments
increased $6,737,000 or 6.1% to $117,542,000. This increase was also
funded by the increase in deposits and payables and maturities of debt
securities. Since these are the lowest yielding earning assets,
increases in average balances outstanding can increase interest
income, but reduce the average yield on earning assets and therefore
the net interest margin.
Although net interest income increased, the net interest margin
decreased primarily because of the decline in the general level of
interest rates. The average yield on earning assets decreased to
6.83% in 1999 from 6.96% in 1998. The Company is adversely affected
by decreases in the level of interest rates due to the fact that its
rate sensitive assets significantly exceed its rate sensitive
liabilities. Conversely, the Company is positively affected by
increases in the level of interest rates. This is primarily due to
the noninterest-bearing liabilities generated by CIS in the form of
accounts and drafts payable. More information is contained in the
tables that follow.
Net interest income in 1998 compared to 1997:
On a tax-equivalent basis, net interest income for 1998 totaled $25,888,000,
an increase of $729,000 or 2.9% over 1997. The net interest margin for 1998
was 5.98% compared to 6.16% in 1997. The following factors account for this
increase in net interest income and decrease in net interest margin:
Total average earning assets increased $24,948,000 or 6.1% to
$433,155,000. This increase was due to an increase in non-interest
bearing demand and interest bearing deposits at Cass Bank resulting
from new business development efforts and an increase in accounts and
drafts payable at CIS from an increase in dollars processed. This
increase contributed to the increase in net interest income.
Total average loans increased $10,795,000 or 5.3% to $210,168,000.
This increase was funded by the increase in deposits and payables
along with the maturity of debt securities. This increase in loans
increased interest income and had a positive effect on the net
interest margin due to the fact that loans are the Company's highest
earning asset.
Total average federal funds sold and other short-term investments
increased $52,905,000 or 91.4% to $110,805,000. This increase was
also funded by the increase in deposits and payables and the
maturities of
11
<PAGE> 12
debt securities. Since these are the lowest yielding earning assets,
increases in average balances outstanding can increase interest
income, but reduce the average yield on earning assets and therefore
the net interest margin.
Although net interest income increased, the net interest margin
decreased due primarily to the decline in the general level of
interest rates. The average yield on earning assets decreased to 6.96%
in 1998 from 7.20% in 1997. The Company is adversely affected by
decreases in the level of interest rates due to the fact that its rate
sensitive assets significantly exceed its rate sensitive liabilities.
Conversely, the Company is positively affected by increases in the
level of interest rates. This is primarily due to the
noninterest-bearing liabilities generated by CIS in the form of
accounts and drafts payable. More information is contained in the
tables that follow.
12
<PAGE> 13
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>
1999 1998 1997
--------------------------- --------------------------- -------------------------------
INTEREST INTEREST INTEREST
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
(DOLLARS IN THOUSANDS) BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE RATE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS <F1>
Earning assets:
Loans <F2><F3>:
Taxable $252,340 $20,022 7.93% $210,168 $17,404 8.28% $199,633 $16,781 8.41%
Tax-exempt <F4> 6,402 529 8.26 2,907 266 9.15 2,647 257 9.71
Debt and equity
securities <F5>:
Taxable 77,646 4,659 6.00 107,924 6,538 6.06 146,534 9,074 6.19
Tax-exempt <F4> 1,257 95 7.56 1,351 103 7.62 1,493 114 7.64
Federal funds sold and
other short-term
investments 117,542 5,782 4.92 110,805 5,858 5.29 57,900 3,181 5.49
- --------------------------------------------------------------------------------------------------------------------------
Total earning assets 455,187 31,087 6.83 433,155 30,169 6.96 408,207 29,407 7.20
Nonearning assets:
Cash and due from banks 22,616 21,124 17,665
Premises and equipment,
net 9,265 9,516 7,902
Other assets 8,771 10,283 14,645
Allowance for loan
losses (4,389) (4,472) (4,519)
- --------------------------------------------------------------------------------------------------------------------------
Total assets $491,450 $469,606 $443,900
- --------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND
SHAREHOLDERS' EQUITY <F1>
Interest-bearing liabilities:
Interest-bearing demand
deposits $42,207 $1,431 3.39% $34,296 $1,198 3.49% $31,873 $1,130 3.55%
Savings deposits 63,164 2,539 4.02 62,246 2,624 4.22 59,918 2,562 4.28
Time deposits of
$100,000 or more 3,479 232 6.67 3,928 222 5.65 3,984 222 5.57
Other time deposits 4,641 155 3.34 4,665 227 4.87 5,296 267 5.04
- --------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
deposits 113,491 4,357 3.84 105,135 4,271 4.06 101,071 4,181 4.14
Short-term borrowings 275 9 3.27 280 10 3.57 1,241 67 5.40
- --------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 113,766 4,366 3.84 105,415 4,281 4.06 102,312 4,248 4.15
Noninterest-bearing
liabilities:
Demand deposits 77,170 71,649 60,707
Accounts and drafts
payable 238,007 231,655 223,990
Other liabilities 5,389 5,641 6,926
- --------------------------------------------------------------------------------------------------------------------------
Total liabilities 434,332 414,360 393,935
Shareholders' equity 57,118 55,246 49,965
Total liabilities and
shareholders' equity $491,450 $469,606 $443,900
- --------------------------------------------------------------------------------------------------------------------------
Net interest income $26,721 $25,888 $25,159
Net interest margin 5.87% 5.98% 6.16%
Interest spread 2.99% 2.90% 3.05%
- --------------------------------------------------------------------------------------------------------------------------
<FN>
<F1> Balances shown are daily averages.
<F2> For purposes of these computations, nonaccrual loans are included in the
average loan amounts outstanding. Interest on nonaccrual loans is
recorded when received as discussed further in Note 1 to the Company's
1999 Consolidated Financial Statements, incorporated by reference herein.
<F3> Interest income on loans includes net loan fees of $91,000, $27,000 and
$6,000 for 1999, 1998 and 1997, respectively.
<F4> Interest income is presented on a tax-equivalent basis assuming a tax
rate of 34% for 1999, 1998 and 1997. The tax-equivalent adjustment was
approximately $212,000, $125,000 and $124,000 for 1999, 1998 and 1997,
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>
13
<PAGE> 14
ANALYSIS OF NET INTEREST INCOME CHANGES
The following table presents the changes in interest income and expense
between years due to changes in volume and interest rates. That portion of
the change in interest attributable to the combined rate/volume variance has
been allocated to rate and volume changes in proportion to the absolute
dollar amounts of the change in each.
<TABLE>
<CAPTION>
1999 Over 1998 1998 Over 1997
------------------------------------ ------------------------------------
(Dollars in thousands) Volume <F1> Rate <F1> Total Volume <F1> Rate <F1> Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in interest income:
Loans <F2><F3>:
Taxable $3,371 $(753) $2,618 $875 $(252) $623
Tax-exempt <F4> 291 (28) 263 24 (15) 9
Debt and equity securities:
Taxable (1,817) (62) (1,879) (2,343) (193) (2,536)
Tax-exempt <F4> (7) (1) (8) (11) -- (11)
Federal funds sold and other
short-term investments 345 (421) (76) 2,801 (124) 2,677
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest income 2,183 (1,265) 918 1,346 (584) 762
- ------------------------------------------------------------------------------------------------------------------------------------
Interest expense on:
Interest-bearing demand deposits 269 (36) 233 85 (17) 68
Savings deposits 38 (123) (85) 99 (37) 62
Time deposits of $100,000 or more (27) 37 10 (3) 3
Other time deposits (1) (71) (72) (31) (9) (40)
Short-term borrowings -- (1) (1) (40) (17) (57)
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest expense 279 (194) 85 110 (77) 33
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income $1,904 $(1,071) $833 $1,236 $(507) $729
- ------------------------------------------------------------------------------------------------------------------------------------
<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 1999, 1998 and 1997.
</TABLE>
ALLOWANCE AND PROVISION FOR LOAN LOSSES
The Company recorded no provision for loan losses in 1999 or 1998 and
recorded a provision of $300,000 in 1997. Loan charge-offs, net of
recoveries, experienced by the Company were $146,000 in 1999, $56,000 in 1998
and $212,000 in 1997. The allowance for loan losses was $4,282,000 at
December 31, 1999, compared to $4,428,000 at December 31, 1998 and $4,484,000
at December 31, 1997. The year-end 1999 allowance represents 1.54% of net
outstanding loans, compared to 1.97% at year-end 1998. This decrease relates
to the increase in total loans experienced during 1999. From December 31,
1998 to December 31, 1999 the level of nonperforming assets decreased
$383,000 or 48.5% to $407,000, which represents .15% of outstanding loans and
is well below industry averages.
SUMMARY OF LOAN LOSS EXPERIENCE
<TABLE>
<CAPTION>
(Dollars expressed in thousands) 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance at beginning of year $4,428 $4,484 $4,396 $6,358 $6,334
- ------------------------------------------------------------------------------------------------------------
Loans charged-off:
Commercial, industrial and IRB's 255 365 412 2,120 183
Real estate:
Mortgage -- -- -- -- --
Construction -- -- -- -- --
Installment 1 -- -- 1 3
- ------------------------------------------------------------------------------------------------------------
Total loans charged-off 256 365 412 2,121 186
- ------------------------------------------------------------------------------------------------------------
Recoveries of loans previously charged-off:
Commercial, industrial and IRB's 109 309 200 152 708
Real estate:
Mortgage -- -- -- -- --
Construction -- -- -- -- --
Installment 1 -- -- 7 2
14
<PAGE> 15
- ------------------------------------------------------------------------------------------------------------
Total recoveries of loans previously charged-off 110 309 200 159 710
- ------------------------------------------------------------------------------------------------------------
Net loans charged-off (recovered) 146 56 212 1,962 (524)
Provision charged to expense <F1> -- -- 300 -- (500)
- ------------------------------------------------------------------------------------------------------------
Allowance at end of year 4,282 4,428 4,484 4,396 6,358
- ------------------------------------------------------------------------------------------------------------
Loans outstanding:
Average $258,742 $213,075 $202,280 $192,096 $158,937
December 31 278,343 224,888 196,478 197,775 174,193
Ratio of allowance for loan losses to
loans outstanding:
Average 1.65% 2.08% 2.22% 2.29% 4.00%
December 31 1.54% 1.97% 2.28% 2.22% 3.65%
Ratio of net charge-offs (recoveries) to
Average loans outstanding .06% .03% .10% 1.02% (.33)%
- ------------------------------------------------------------------------------------------------------------
Allocation of allowance for loan losses <F2>:
Commercial, industrial and IRB's $3,844 $3,982 $4,001 $3,825 $5,582
Real estate:
Mortgage 19 19 366 119 502
Construction 419 427 15 173 7
Installment 0 0 102 279 267
- ------------------------------------------------------------------------------------------------------------
Total $4,282 $4,428 $4,484 $4,396 $6,358
- ------------------------------------------------------------------------------------------------------------
Percent of categories to total loans:
Commercial and industrial and IRB's 40.9% 45.2% 48.9% 49.5% 57.3%
Real estate:
Mortgage 46.5 45.1 44.6 43.2 33.7
Construction 10.6 7.4 4.0 4.6 6.3
Installment .6 1.1 1.6 1.9 2.3
Other 1.4 1.2 .9 .8 .4
- ------------------------------------------------------------------------------------------------------------
Total 100.0% 100.0% 100.0% 100.0% 100.0%
- ------------------------------------------------------------------------------------------------------------
<FN>
<F1> Factors which influence management's determination of the provision for
loan losses charged to expense for each of the years presented above,
among other things, include evaluation of each nonperforming and/or
classified loan to determine the estimated loss exposure under existing
circumstances known to management; evaluation of all potential problem
loans identified in light of possible loss exposure based upon existing
circumstances known to management; an analysis of the loan portfolio with
regard to potential future loss exposure on loans to specific customers
and/or industries; current economic conditions and an overall review
of the remainder of the portfolio in light of past loan loss experience.
<F2> The Company allocated its allowance for loan losses to the various loan
categories at December 31, 1999 based on the ratio of total nonperforming
loans over the last 5 years. Management views the allowance for loan
losses as being available for all potential or presently unidentified
loan losses that may occur in the future. The risk of future losses that
is inherent in the loan portfolio is not precisely attributable to a
particular loan or category of loans. Allocations estimated for the
categories do not specifically represent that loan charge-offs of this
magnitude will be required. The allocation does not restrict future loan
losses attributable to a particular category of loans from being absorbed
by the portion of the allowance attributable to other categories of
loans. The risk factors considered when determining the overall level of
the alllowance are the same when estimating the allocation by major
category, as specified in the above summary.
</TABLE>
NONPERFORMING ASSETS
It is the policy of the Company to continually monitor its loan portfolio and
to discontinue the accrual of interest on any loan on which payment of
principal or interest in a timely manner in the normal course of business is
doubtful. Subsequent payments received on such loans are applied to
principal if there is any doubt as to the collectibility of such principal;
otherwise, these receipts are recorded as interest income. Interest on
nonaccrual loans, which would have been recorded under the original terms of
the loans, was approximately $44,000 for the year ended December 31, 1999.
Of this amount, approximately $1,000 Was actually recorded as interest income
on such loans.
At December 31, 1999, after review of potential problem loans identified by
management including those noted above, management of the Company concluded
the allowance for loan losses was adequate. As of December 31, 1999,
approximately $1,310,000 of loans not included in the table below were
identified by management as having potential credit problems which raised
doubts as to the ability of the borrowers to comply with the present loan
15
<PAGE> 16
repayment terms. Of this balance of potential problem loans, $5,000 are
deemed to be impaired. While these borrowers are currently meeting all of
the terms of the applicable loan agreements, their financial condition has
caused management to believe that their loans may result in disclosure at
some future time as nonaccrual, past due or restructured.
The Company has no concentrations of loans exceeding 10% of total loans which
are not otherwise disclosed in the loan portfolio composition table. As can
be seen in the loan composition table above and discussed in Note 4 to the
Company's 1999 Consolidated Financial Statements (included in the Company's
1999 Annual Report to Shareholders incorporated herein by reference), the
Company's primary market niche for banking services is the privately held
commercial company and churches and church-related ministries. Loans to the
commercial entities are generally secured by the business assets of the
company, including accounts receivable, inventory, machinery and equipment,
and the building(s)/plant(s) from which the company operates. Operating lines
of credit to these companies generally are secured by accounts receivable and
inventory, with specific percentages of each determined on a customer by
customer basis, based on the business in which the customer operates.
Intermediate term credit for machinery and equipment is generally loaned at
some percentage of the value of the equipment purchased, again depending on
the type of machinery or equipment purchased by the entity (e.g. less funds
would be loaned on restaurant equipment which has a lower resale value than
certain types of machinery which tend to hold their value). Long term credits
are secured by the entities' building(s)/plant(s) and are generally loaned
with a maximum 80% loan to value ratio.
Loans secured exclusively by real estate to businesses and churches are
generally made with a maximum 80% loan to value ratio, again depending upon
the Company's estimate of the resale value and ability for the property to
cash flow. The Company's loan policy requires an independent appraisal for
all loans over $250,000 Secured by real estate. Company management monitors
the local economy in an attempt to determine whether it has had a significant
deteriorating effect on such real estate credits. When problems are
identified, appraised values are updated on a continual basis, either
internally or through ordering an updated external appraisal.
The Company does not have any foreign loans. The Company's loan portfolio
does not include a significant amount of single family real estate mortgage
or installment credits, as the Company has not concentrated on the consumer
side of the banking business.
The Company does not have any other interest-earning assets which would have
been included in nonaccrual, past due or restructured loans if such assets
were loans.
SUMMARY OF NONPERFORMING ASSETS
<TABLE>
<CAPTION>
(Dollars expressed in thousands) 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial, industrial and industrial
revenue bonds:
Nonaccrual $170 $477 $285 $480 $151
Contractually past due 90 days
or more and still accruing 167 179 3 -- 186
Renegotiated loans 70 134 449 -- 278
Real estate-construction contractually
past due 90 days or more and still accruing -- -- -- -- 15
Real estate-mortgage contractually
past due 90 days or more and still accruing -- -- 24 306 --
- ------------------------------------------------------------------------------------------------------------
Total nonperforming loans 407 790 761 786 630
- ------------------------------------------------------------------------------------------------------------
Other real estate -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------
Total nonperforming assets $407 $790 $761 $786 $630
- ------------------------------------------------------------------------------------------------------------
</TABLE>
NONINTEREST INCOME
The Company's noninterest income is derived mainly from fee revenue generated
by CIS. As CIS provides its freight and utility processing and payment
services, it is compensated by service fees which are typically calculated on
a per-item basis and by the accounts and drafts payable generated in the
payment process which can be used to generate interest income. In addition
to CIS payment processing revenue, CIS also receives fees from the sale,
maintenance, and service bureau operations relating to freight rating
software. Other noninterest revenue is generated by Cass Bank in the form of
fees that relate to the credit, depository, and cash management products of
the Bank. Bank customers compensate the bank through these fees, the
maintenance of demand deposit balances, or both.
16
<PAGE> 17
Noninterest income in 1999 compared to 1998 include the following significant
pre-tax components:
CIS freight and utility payment and processing revenue decreased
$583,000 or 3.1% to $18,226,000. Of the total payment and processing
revenue, fees related to utility payment and processing increased
$726,000 and fees relating to freight payment and processing services
decreased $1,309,000. The increase in utility payment and processing
fees relates the rapid expansion of our customer base. At the end of
1999 CIS was processing 1.5 million utility invoices representing over
a billion dollars of invoice value on an annualized basis. The
decrease in revenue from freight payment and processing services was
due to several factors. First, there was a decrease in the volume of
freight transactions due largely to the growth in competition for
electronic data interchange (EDI) processing of parcel and air
shipments. The entrance in the marketplace of niche companies formed
to process the increasing volume of overnight package shipments was
caused in part by the increase in e-commerce transactions.
Historically, this has not been a strategic market for CIS. A number
of customers, while retained by CIS, moved this type of transaction to
these new competitors. CIS has since reengineered its processes to
handle these transactions more effectively and it is anticipated that
these transactions will provide significant growth in the future.
Second, there were continued anticipated decreases relating to some
freight payment services that were part of a prior acquisition.
Finally, the implementation of new prospects, which typically exceed
lost business, appeared to be delayed by our prospect's Y2K
remediation programs.
Freight rating services revenue decreased $346,000 or 16.1% due to a
change in the strategic direction of the company 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 to reach the more than
2,000 shipper and 12,000 carrier business partners.
Service charges generated by Cass Bank increased $38,000 or 5.9% to
$680,000. This increase was due primarily to the growth of Cass
Bank's customer base.
Other variances in total noninterest revenue include the fact that
their was a $285,000 gain on the sale of securities in 1998 and that
other miscellaneous noninterest income increased $173,000 or 30.6% to
$738,000.
Noninterest income in 1998 compared to 1997 include the following significant
pre-tax components:
CIS freight and utility payment and processing revenue increased
$946,000 or 5.3% to $18,809,000. CIS had a record processing year in
paying over 25,000,000 freight invoices with a value of over $7
billion.
Freight rating services revenue decreased $39,000 or 1.9% to
$2,146,000 due to declining use of CIS' rating software and related
maintenance services.
Service charges generated by Cass Bank increased $118,000 or 22.5% to
$642,000. This increase was due primarily to the growth of Cass
Bank's customer base.
Other changes in noninterest revenue include the fact that there was a
$285,000 gain on the sale of securities in 1998 compared to a $216,000
gain in 1997, and a $538,000 or 48.8% decrease to $565,000 in other
miscellaneous noninterest income. This decrease was due primarily to
the negative goodwill related to a prior acquisition by CIS that
became fully amortized in 1997. Also in 1997, the Bank received a
buyout of its headquarters lease in excess of the remaining net book
value of leasehold improvements that resulted in a one-time gain of
$95,000.
NONINTEREST EXPENSE
Noninterest expense in 1999 compared to 1998 include the following
significant pre-tax components:
Salaries and employee benefits increased $979,000 or 3.9% to
$25,974,000. This increase was caused by several factors. First,
additional staff was hired in utility payment processing in order to
keep pace with the growth in this area. Second, employee benefits
expense increased 15.1% due to increased pension accruals and health
insurance costs. Finally, annual salary increases accounted for the
remainder.
Occupancy expense increased $82,000 or 4.8% to $1,780,000. Equipment
expense increased $65,000 or 2.5% to $2,714,000. Other noninterest
expenses increased $593,000 or 8.1% to $7,876,000. These
17
<PAGE> 18
increases can be attributed mainly to expansion of our utility payment
processing capabilities, increased investment in our freight payment
processing and Internet capabilities and other normal operating
expense fluctuations. More details on the components of other
noninterest operating expenses are contained on the table below.
Noninterest expense in 1998 compared to 1997 include the following
significant pre-tax components:
Salaries and employee benefits increased $902,000 or 3.7% to
$24,995,000. This increase relates primarily to separation costs
associated with the streamlining and integration of operations in the
freight rating software service and sales group combined with annual
pay increases.
Occupancy expense increased $79,000 or 4.9% to $1,698,000. This
increase was due primarily to CIS's Chicago location receiving a
$72,000 reimbursement for rent expense to vacate their building by the
end of 1997.
Equipment expense remained relatively constant at $2,649,000 compared
to $2,654,000 in 1997. Other noninterest expense decreased $262,000
or 3.5% to $7,283,000. More details on the components of other
noninterest operating expenses are contained on the table below.
Details of other noninterest expense for 1999, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1999 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Postage, printing and supplies $2,261 $2,161 $2,129
Advertising and business development 1,509 1,392 1,437
Professional fees 1,064 1,056 1,320
Outside service fees 655 383 353
Data processing services 570 590 652
Telecommunications 612 531 518
Other 1,205 1,170 1,136
- ------------------------------------------------------------------------------
Total other noninterest expense $7,876 $7,283 $7,545
- ------------------------------------------------------------------------------
</TABLE>
INCOME TAX EXPENSE
Income taxes in 1999 totaled $3,411,000 compared to $4,177,000 in 1998 and
$3,626,000 in 1997. When measured as a percent of income before income
taxes, the Company's effective tax rate was 35.5% in 1999, 36.1% in 1998 and
34.1% in 1997. The effective tax rate increase from 1997 to 1998 was largely
attributable to the full amortization of intangibles during 1997 that related
to a prior acquisition.
FINANCIAL CONDITION
LIQUIDITY
Cash and cash equivalents, which consist of cash and due from banks, federal
funds sold, and money market funds, were $124,217,000 or 24.8% of total
assets at December 31, 1999. 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 $82,996,000 or 17% of total assets at December 31, 1999. Of
this total, 51% were U.S. treasury securities, 47% were U.S. government
agencies, and 2% were other securities. Of the total portfolio, 35% matures
in one year, 54% matures in one to five years, and 11% matures in five or
more years. Of the total portfolio, 69% is designated available for sale and
31% 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 $14,820,000. 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.
18
<PAGE> 19
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 proven to be a stable source of
funds.
INTEREST RATE SENSITIVITY
The Company faces market risk to the extent that its net interest income and
its fair market value of equity are affected by changes in market interest
rates. The asset/liability management discipline as applied at the Company
seeks to limit the volatility, to the extent possible, of both net interest
income and the fair market value of equity that can result from changes in
market interest rates. This is accomplished by limiting the maturities of
fixed rate investments, loans, and deposits; matching fixed rate assets and
liabilities to the extent possible; and optimizing the mix of noninterest fee
and net interest income. However, as discussed below, the Company's
asset/liability position differs significantly from most other bank holding
companies with positive "gaps" shown for each time horizon presented. This
asset sensitive position is caused primarily by the operations of CIS, which
generates large balances of accounts and drafts payable. These balances,
which are noninterest bearing, contribute to the Company's high net interest
margin but causes the Company to become susceptible to changes in interest
rates, with a decreasing net interest margin and fair market value of equity
in periods of declining interest rates and an increasing net interest margin
and fair market value of equity in periods of rising interest rates.
The Company's Asset/Liability Management Committee (ALCO) measures the
Company's interest rate risk sensitivity on a Quarterly basis to monitor and
manage the variability of earnings and fair market value of equity in various
interest rate environments. The ALCO evaluates the Company's risk position to
determine whether the level of exposure is significant enough to hedge a
potential decline in earnings and value or whether the Company can safely
increase risk to enhance returns. The ALCO uses gap reports, twelve-month net
interest income simulations, and fair market value of equity analyses as its
main analytical tools to provide management with insight into the Company's
exposure to changing interest rates.
A gap report is used by management to review any significant mismatch between
the reproaching points of the Company's rate sensitive assets and liabilities
in certain time horizons. A negative gap indicates that more liabilities
reprice in that particular time frame and, if rates rise, these liabilities
will reprice faster than the assets. A positive gap would indicate the
opposite. Management has set policy limits specifying acceptable levels of
interest rate risk as measured by the gap report. Gap reports can be
misleading in that they capture only the repricing timing within the balance
sheet, and fail to capture other significant risks such as basis risk and
embedded options risk. Basis risk involves the potential for the spread
relationship between rates to change under different rate environments and
embedded options risk relates to the potential for the alteration of the
level and/or timing of cash flows given changes in rates.
Another measurement tool used by management is net interest income
simulation, which forecasts net interest income during the coming twelve
months under different interest rate scenarios in order to quantify potential
changes in short term accounting income. Management has set policy limits
specifying acceptable levels of interest rate risk given multiple simulated
rate movements. These simulations are more informative than gap reports
because they are able to capture more of the dynamics within the balance
sheet, such as basis risk and embedded options risk. Simulation results
illustrate that the Company's net interest income over the next twelve months
would decrease 5% from an immediate and sustained parallel decrease in
interest rates of 100 basis points and increase 5% from a corresponding
increase in interest rates.
While net interest income simulations do a good job of capturing interest
rate risk to short term earnings, they do not capture risk within the current
balance sheet beyond twelve months. The Company uses fair market value of
equity analyses to help identify longer-term risk that may reside on the
current balance sheet. The fair market value of equity is represented by the
present value of all future income streams generated by the current balance
sheet. The Company measures the fair market value of equity as the net
present value of all asset and liability cash flows discounted at forward
rates suggested by the current Treasury curve plus appropriate credit
spreads. This representation of the change in the fair market value of
equity under different rate scenarios gives insight into the magnitude of
risk to future earnings due to rate changes. Management has set policy limits
relating to declines in the market value of equity. The results of these
analyses indicate that the Company's fair market value of equity would
decrease 3.5% from an immediate and sustained parallel decrease in interest
rates of 100 basis points and increase 3% from a corresponding increase in
interest rates.
19
<PAGE> 20
INTEREST RATE SENSITIVE POSITION
The following table presents the Company's gap or interest rate risk position
at December 31, 1999 for the various time periods indicated.
<TABLE>
<CAPTION>
Variable 0-90 91-180 181-364 1-5 Over 5
(Dollars in thousands) Rate days days days years Years Total
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Earning assets:
Loans:
Taxable $98,394 $7,736 $7,885 $15,104 $136,946 $5,013 $271,078
Tax-exempt -- 34 63 141 3,212 3,815 7,265
Debt and equity securities:
Taxable -- 9,987 7,292 16,139 44,257 3,867 81,542
Tax-exempt -- 70 -- -- 243 940 1,253
Other 201 -- -- -- -- -- 201
Federal funds sold and other
short term investments 105,720 -- -- -- -- -- 105,720
- -----------------------------------------------------------------------------------------------------------------------
Total earning assets 204,315 17,827 15,240 31,384 184,658 13,635 467,059
- -----------------------------------------------------------------------------------------------------------------------
Interest-sensitive liabilities:
Money market accounts 32,185 -- -- -- -- -- 32,185
Now accounts 10,907 -- -- -- -- -- 10,907
Savings deposits 47,498 -- -- -- -- -- 47,498
Time deposits:
$100,000 and more -- 581 336 1,265 429 -- 2,611
Less than $100,000 -- 1,090 851 891 1,031 -- 3,863
Short-term borrowings 208 -- -- -- -- -- 208
- -----------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities $90,798 $1,671 $1,187 $2,156 $1,460 -- $97,272
- -----------------------------------------------------------------------------------------------------------------------
Interest sensitivity gap:
Periodic $113,517 $16,156 $14,053 $29,228 $183,198 $13,635 $369,787
Cumulative 113,517 129,673 143,726 172,954 356,152 369,787 369,787
Ratio of interest-bearing
assets to interest-bearing
liabilities:
Periodic 2.25x 10.67x 12.84x 14.56x 126.48x -- 4.80x
Cumulative 2.25x 2.40x 2.53x 2.80x 4.66x 4.80x 4.80x
- -----------------------------------------------------------------------------------------------------------------------
Balances shown reflect earliest repricing date.
</TABLE>
INVESTMENT SECURITIES
Investment portfolio changes from December 31, 1998 to December 31, 1999:
U.S. Government Treasury securities decreased $16,703,000 or 28.3% to
$42,273,000. This decrease was caused by the decision to allow
maturities to exceed reinvestment in this sector in order to improve
the yield of the portfolio.
U.S. Government corporations and agencies increased $15,750,000 or
67.0% to $39,269,000. This increase was funded by maturities of U.S.
Government Treasury securities.
Investment portfolio changes from December 31, 1997 to December 31, 1998:
U.S. Government Treasury securities decreased $34,172,000 or 36.7% to
$58,976,000. This decrease was caused by the decision to increase the
Company's current liquidity given expected loan growth and the
interest rate environment.
U.S. Government corporations and agencies decreased $7,891,000 or
25.1% to $23,519,000. This decrease was also caused by the decision to
increase the Company's current liquidity given expected loan growth
and the interest rate environment.
There was no single issuer of securities in the investment portfolio at
December 31, 1999 other than the U.S. Government and U.S. Government
corporations and agencies, for which the aggregate amortized cost exceeded
ten percent of total shareholders' equity.
20
<PAGE> 21
INVESTMENT BY TYPE (AT BOOK VALUE)
<TABLE>
<CAPTION>
(Dollars in thousands at December 31, 1999) 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury securities $42,273 $58,976 $93,148
Obligations of U.S. Government corporations and agencies 39,269 23,519 31,410
States and political subdivisions 1,253 1,278 1,492
Stock of the Federal Reserve Bank 201 201 201
- --------------------------------------------------------------------------------------------------------------
Total investments $82,996 $83,974 $126,251
- --------------------------------------------------------------------------------------------------------------
</TABLE>
INVESTMENT BY MATURITY
<TABLE>
<CAPTION>
Within Over 1 to Over 5 to Over
(Dollars in thousands at December 31, 1999) 1 Year 5 Years 10 Years 10 Years Yield
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. Treasury securities $24,106 $18,167 $-- $-- 6.05%
U.S. Government corporations and
agencies 5,040 26,090 4,986 3,153 5.86%
States and political subdivisions<F1> 70 243 940 -- 7.62%
Total investments $29,216 $44,500 $5,926 $3,153 5.98%
- --------------------------------------------------------------------------------------------------------------
Weighted average yield 5.78% 6.09% 7.09% 5.91%
- --------------------------------------------------------------------------------------------------------------
<FN>
<F1> Interest income is presented on a tax-equivalent basis assuming a tax
rate of 34%.
</TABLE>
LOAN PORTFOLIO
Loan portfolio changes from December 31, 1998 to December 31, 1999:
Total loans increased $53,455,000 or 23.7% to $278,343,000. This
increase was due mainly to the addition of new lending relationships
in Cass Bank's privately held business banking services group and the
expansion of church and church-related loans in the St. Louis
metropolitan area and selected areas across the United States. At
year-end church and church-related credits totaled $65,956,000, which
represented a 90% increase over 1998. Additional details regarding
the types and maturities of the loan portfolio are contained in the
tables below.
Loan portfolio changes from December 31, 1997 to December 31, 1998:
Total loans increased $28,410,000 or 14.5% to $224,888,000. This
increase was fueled mainly by the addition of new lending
relationships in Cass Bank's privately held business banking services
group and the expansion of church and church-related loans in the St.
Louis metropolitan area. Additional details regarding the types and
maturities of the loan portfolio are contained in the tables below.
LOANS BY TYPE
<TABLE>
<CAPTION>
(Dollars in thousands at December 31) 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial and industrial $106,444 $95,663 $93,633 $94,962 $98,641
Real estate:
Mortgage 129,482 101,468 87,573 85,360 58,746
Construction 29,633 16,547 7,893 9,164 11,057
Industrial revenue bonds 7,265 5,951 2,520 2,851 1,117
Installment 1,541 2,458 3,066 3,794 3,954
Other 3,978 2,801 1,793 1,644 678
- ------------------------------------------------------------------------------------------------------------
Total loans $278,343 $224,888 $196,478 $197,775 $174,193
- ------------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 22
LOANS BY MATURITY
<TABLE>
<CAPTION>
OVER ONE YEAR OVER
THROUGH FIVE YEARS FIVE YEARS
------------------ ----------
ONE YEAR FIXED FLOATING FIXED FLOATING
(Dollars in thousands at December 31, 1999) OR LESS RATE RATE RATE RATE TOTAL
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial and industrial $76,907 $24,293 $3,973 $1,271 $ -- $106,444
Real estate:
Mortgage 17,483 108,257 -- 3,742 -- 129,482
Construction 22,610 3,611 2,151 -- 1,261 29,633
Industrial revenue bonds 238 3,212 -- 3,815 -- 7,265
Installment 756 785 -- -- -- 1,541
Other 3,978 -- -- -- -- 3,978
- ------------------------------------------------------------------------------------------------------------------
Total loans $121,972 $140,158 $6,124 $8,828 $1,261 $278,343
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Loans have been classified as having "floating" interest rates if the rate
specified in the loan varies with the prime commercial rate of interest.
DEPOSITS AND ACCOUNTS AND DRAFTS PAYABLE
Noninterest-bearing demand deposits increased $8,761,000 or 10.6% from
$82,911,000 at December 31, 1998 to $91,672,000 at December 31, 1999.
The average balance of these accounts increased $5,521,000 or 7.7% from
$71,649,000 in 1998 to $77,170,000 in 1999. New business volume increased
throughout 1999 and should continue into 2000.
Interest-bearing deposits decreased from $108,071,000 at December 31, 1998 to
$97,064,000 at December 31, 1999. The average balances of these deposits,
however, increased $8,356,000 or 7.9% from $105,135,000 in 1998 to
$113,491,000 in 1999. During the later part of 1999 the account balances of
several large depositors were moved into non-depository products in order to
assist them in maximizing the return on their funds.
Accounts and drafts payable generated by CIS in its payment processing
operations decreased $624,000 or .2% from $250,518,000 at December 31, 1998
to $249,894,000 at December 31, 1999. The average balances of these funds
increased $6,352,000 or 2.7% from $231,655,000 in 1998 to $238,007,000 in
1999. Due to CIS' payment processing cycle, average balances are much more
indicative of the underlying activity than period-end balances since
point-in-time comparisons can be misleading if the comparison dates fall on
different days of the week. The increase in average balances can be
attributed to the fact that the dollar amount of invoices processed and the
amount of time checks were outstanding increased.
The composition of average deposits and the average rates paid on those
deposits is represented in the Table entitled "Distribution of Assets,
Liabilities and Stockholders' Equity; Interest Rate and Interest
Differential" which is included earlier in this discussion. The Company does
not have any significant deposits from foreign depositors.
MATURITIES OF CERTIFICATES OF DEPOSITS OF $100,000 OR MORE
<TABLE>
<CAPTION>
(Dollars in thousands at December 31, 1999)
- ------------------------------------------------------------------------------
<S> <C>
Three months or less $581
Three to six months 336
Six to twelve months 1,265
Over twelve months 429
- ------------------------------------------------------------------------------
Total $2,611
- ------------------------------------------------------------------------------
</TABLE>
22
<PAGE> 23
CAPITAL RESOURCES
One of the Company's primary objectives is to maintain a strong capital base
to warrant the confidence of our customers, shareholders, and bank regulatory
agencies. A strong capital base is needed to take advantage of profitable
growth opportunities that arise and to provide assurance to depositors and
creditors. The Company and its banking subsidiary continue to significantly
exceed all regulatory capital requirements, as evidenced by the following
capital ratios at December 31, 1999:
<TABLE>
<CAPTION>
Company Cass
Consolidated Bank
- ----------------------------------------------------------------------------
<S> <C> <C>
Total capital (to risk-weighted assets) 18.23% 16.39%
Tier I capital (to risk-weighted assets) 16.98 15.14
Tier I capital (to average assets) 11.53 11.54
- ----------------------------------------------------------------------------
</TABLE>
In 1999, cash dividends declared totaled $2,889,000 or $.76 per share, a $.04
or 5.6% increase over the prior year. During 1999 the Company repurchased
160,000 shares of its stock for general corporate purposes. 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. 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.
Shareholders' equity was $56,563,000 or 11.3% of total assets at December 31,
1999, a decrease of $841,000 over the balance at December 31, 1998. This
decrease resulted from cash dividends paid of $2,889,000, a repurchase of
stock of $3,711,000, and a net unrealized loss on available for sale
securities of $804,000 which was partially offset by net income of $6,198,000
and other items of $365,000.
Subsidiary dividends are the principal source of funds for payment of
dividends by the Company to its shareholders. The only restrictions on
dividends are those dictated by regulatory capital requirements and prudent
and sound banking principles.
THE YEAR 2000 ISSUE
The Year 2000 issue relates to the ability of computer systems to distinguish
date data between the twentieth and twenty-first centuries. The Company's
operations are heavily dependent on the use of computer systems. For this
reason, the Company implemented a Year 2000 project consisting of five
segments or phases: Awareness, Assessment, Renovation, Testing and
Implementation. The Company fully completed all phases of the plan for
systems considered mission-critical.
Subsequent to the Year 2000 rollover, the Company performed a series of
quality control checks on its mission-critical systems. All systems operated
as planned, and there were no significant interruptions on the Company's
operations. As of the date of this report the Company has not experienced any
material difficulties due to Year 2000 issues. Further, there have been no
notifications from major vendors, suppliers, customers and business partners
indicating any disruptions resulting from Year 2000 issues.
The Company does not expect any future material Year 2000 issues. However,
there can be no assurance that a Year 2000 issue will not occur. The Company
is prepared to address any Year 2000 issue with contingency plans established
during its Year 2000 project.
Through December 31, 1999, the Company's total Year 2000 costs were
approximately $2.4 million. This includes internal and external costs
expensed, as well as capital expenditures that were capitalized. Costs
include, but are not limited to salary expenses, outside service fees (i.e.,
legal, audit, consulting), hardware and software expenditures, and equipment
costs. Funding for Year 2000 costs have been derived from normal operating
cash flow and the deployment of internal resources. The Company expects that
Year 2000 costs for 2000 will be immaterial.
23
<PAGE> 24
EFFECT OF RECENT AND PROSPECTIVE 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.
INFLATION
Inflation can impact the financial position and results of the operations of
banks because banks hold monetary assets and monetary liabilities. Monetary
assets and liabilities are those which can be converted into a fixed number
of dollars, and include cash, investments, loans and deposits. The Company's
consolidated balance sheets, as is typical of financial institutions,
reflects a net positive monetary position (monetary assets exceeding monetary
liabilities). During periods of inflation, the holding of a net positive
monetary position will result in an overall decline in the purchasing power
of a bank.
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 from
Cass Bank, concentration of loans in the St. Louis Metropolitan area which
subjects Cass Bank 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 Cass Bank and, particularly in the case of CIS, risks associated
with breakdowns in data processing systems and competition from other
providers of similar services.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
For information regarding the market risk of the Company's financial
instruments, see Part II, Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations". The Company's primary market
risk exposure is to interest rate risk.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
The consolidated financial statements and related footnotes of the Company
and its subsidiaries on pages 14 through 30 of its Annual Report to
Shareholders and the report thereon of KPMG LLP on page 31 of the Annual
Report to Shareholders are hereby incorporated by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE
-----------------------------------
NONE
24
<PAGE> 25
PART III.
---------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
Information concerning directors and executive officers of the Registrant is
incorporated herein by reference from the Company's definitive Proxy
Statement for its 2000 Annual Meeting of Shareholders, a copy of which will
be filed no later than 120 days after the close of the fiscal year.
ITEM 11. EXECUTIVE COMPENSATION
----------------------
Information concerning executive compensation is incorporated herein by
reference from the Company's definitive Proxy Statement for its 2000 Annual
Meeting of Shareholders, a copy of which will be filed not later than 120
days after the close of the fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
-----------------------------------------------
AND MANAGEMENT
--------------
Information concerning security ownership of certain beneficial owners and
management is incorporated herein by reference from the Company's definitive
Proxy Statement for its 2000 Annual Meeting of Shareholders, a copy of which
will be filed not later than 120 days after the close of the fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
Information concerning certain relationships and transactions is incorporated
herein by reference from the Company's definitive Proxy Statement for its
2000 Annual Meeting of Shareholders, a copy of which will be filed not later
than 120 days after the close of the fiscal year.
25
<PAGE> 26
PART IV.
--------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
--------------------------------------------
REPORTS ON FORM 8-K
-------------------
(a) The following documents are incorporated by reference in or
filed as an exhibit to this Report:
(1) Financial Statements:
---------------------
<TABLE>
<CAPTION>
Annual Report
Page Number
----------
<S> <C>
CASS COMMERCIAL CORPORATION AND SUBSIDIARIES
--------------------------------------------
Consolidated Balance Sheets, December 31,
1999 and 1998 14
Consolidated Statements of Income for the
years ended December 31, 1999, 1998 and
1997 15
Consolidated Statements of Cash Flows for the
years ended December 31, 1999, 1998 and
1997 16
Consolidated Statements of Shareholders' Equity
And Comprehensive Income for the years
ended December 31, 1999, 1998 and 1997 17
Notes to Consolidated Financial Statements 18-30
Independent Auditors' Report 31
</TABLE>
(2) Financial Statement Schedules:
------------------------------
None other than those included as Notes to
Consolidated Financial Statements.
(3) Exhibits
--------
3.1 Restated Articles of Incorporation of Registrant,
incorporated by reference to Exhibit 4.1 to Form
S-8 Registration Statement No. 333-44499, filed
with the SEC on January 20, 1998
3.2 By Laws of Registrant, incorporated by reference
to Exhibit 4.2 to Form S-8 Registration Statement
No. 333-44499, filed with the SEC on January 20,
1998
10.1 1995 Restricted Stock Bonus Plan, as amended to
January 19, 1999, including form of Restriction
Agreement, incorporated by reference to Exhibit
4.3 to Post-Effective Amendment No. 2 to Form S-8
Registration Statement No. 33-91456, filed with
the SEC on February 16, 1999
10.2 1995 Performance-Based Stock Option Plan, as
amended to January 19, 1999, including forms of
Option Agreements, incorporated by reference to
Exhibit 4.3 to Post-Effective Amendment No. 2 to
Form S-8 Registration Statement No. 33-91568,
filed with the SEC on February 16, 1999
13 1999 Annual Report to Shareholders (only
those portions of such Annual Report as are
incorporated by reference in parts I and II
hereof shall be deemed a part of this Report)
21 Subsidiaries of registrant
23 Consent of KPMG LLP
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the
quarter ended December 31, 1999.
26
<PAGE> 27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CASS COMMERCIAL CORPORATION
Date: March 17, 2000 By
/s/ Lawrence A. Collett
-----------------------------------------
Lawrence A. Collett
Chairman and Chief Executive Officer
Date: March 17, 2000 By /s/ Eric H. Brunngraber
-----------------------------------------
Eric H. Brunngraber
Vice President-Secretary
(Chief Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below on the dates indicated by the following
persons on behalf of the Company and in their capacity as a member of the
Board of Directors of the Company.
Date: March 17, 2000 By
/s/ Bryan S. Chappel
-----------------------------------------
Bryan S. Chappel
Date: March 17, 2000 By
/s/ Lawrence A. Collett
-----------------------------------------
Lawrence A. Collett
Date: March 17, 2000 By
/s/ Thomas J. Fucoloro
-----------------------------------------
Thomas J. Fucoloro
Date: March 17, 2000 By
/s/ Harry J. Krieg
-----------------------------------------
Harry J. Krieg
Date: March 17, 2000 By
/s/ A.J. Signorelli
-----------------------------------------
A.J. Signorelli
Date: March 17, 2000 By
/s/ John J. Vallina
-----------------------------------------
John J. Vallina
Date: March 17, 2000 By
/s/ Irving A. Shepard
-----------------------------------------
Irving A. Shepard
27
<PAGE> 1
Cass Commercial Corporation 1999 Annual Report
INVESTING IN
...................................................
STRATEGIC RESOURCES
Strengthening Our Foundation
[CASS LOGO]
<PAGE> 2
.........
2 CHAIRMAN'S LETTER
TO SHAREHOLDERS
- ------------------------------------------
6 PRIVATELY HELD
BUSINESSES BANKING
SERVICES
- -----------------------
8 CHURCHES AND
CHURCH-RELATED
BANKING SERVICES
- --------------------------------------------------------------------------
10 FREIGHT PAYMENT
PROCESSING SERVICES
- -----------------------------------------------------------------
12 UTILITIES PAYMENT
PROCESSING SERVICES
.........
14 FINANCIAL
STATEMENTS
.........
18 NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
.........
32 BOARD OF DIRECTORS,
OFFICERS AND SHAREHOLDER
INFORMATION
.........
33 BUSINESS UNIT
OFFICERS
<PAGE> 3
Cass Commercial Corporation 1999 Annual Report
INVESTING IN
...................................................
STRATEGIC RESOURCES
Strengthening Our Foundation
THE CASS ORGANIZATION OFFICIALLY
BEGAN WITH THE INCORPORATION OF
CASS AVENUE BANK IN 1906. SINCE THAT
TIME,THE ORGANIZATION HAS BEEN
CHARACTERIZED BY ITS CONTINUITY,
GROWTH, STABILITY, AND PERFORMANCE.
IN 1999, SIGNIFICANT FUNDS WERE
EXPENDED TO EXPAND EMERGING
MARKETS, OBTAIN NEW TECHNOLOGY,
INVEST IN NEW AND IMPROVED SYSTEMS,
AND EXPAND OUR PRESENCE IN MARKETS
SERVED. THE COSTS OF THESE ACTIVITIES
WERE SIGNIFICANT. HOWEVER, WE
BELIEVE THE LONG-TERM BENEFITS
TO BE CRITICAL AND THAT THE NEED
TO CONTINUE INVESTMENTS OF THIS
NATURE WILL NOT DIMINISH.
1999 Annual Report 1
<PAGE> 4
CHAIRMAN'S LETTER
TO SHAREHOLDERS
- -------------------------------------------------------------------------------
As indicated by the headings in this year's Annual Report, 1999 was a year
of transitioning for the Cass organization. While a financial price was
paid for this, in many ways, 1999 may be remembered as one of the most
crucial years in our history. This is due primarily to the many
significant events that occurred and will have a major impact on the
company's future results.
I. OVERALL RESULTS
Financially, 1999 was a disappointing year for the company. Net income was
$6,198,000 representing a decrease of 16.3% from corresponding 1998
results. This represented a 14.8% decrease in diluted earnings per share
from $1.89 to $1.61 in the same corresponding period.
Total assets for the company were $500,845,000 representing a 0.6%
decrease from the same levels of the previous year.
II. 1999 HIGHLIGHTS
There were two key areas where Cass achieved significant growth in its
business segments.
Total loans for the organization were $278,343,000 compared to
$224,888,000 at year-end 1998. This represented a 23.8% increase from
previous levels. This loan growth occurred in both our church and business
divisions. Our church and related ministry efforts provided an increase of
$31,168,000 during this year. This represents our continued expansion to
this very important community and a movement of our lending activities to
churches in other parts of the country. Business loans increased
$22,287,000 representing another strong showing. This resulted from
continued expansion of our business relationships and from the
consolidation of other financial institutions in the St. Louis region. We
are extremely pleased with the level of loan growth achieved during 1999.
This growth did not adversely affect the outstanding asset quality
ratios of the organization. Loan losses for the year were only 0.09% of
outstanding loans. Additionally, nonaccrual assets were only 0.06% of
total loans as of year-end. The company's loan loss reserve was a healthy
1.54% to total loans outstanding at year-end.
The company's financial strength is further reflected by the level of
its tangible net worth. The company's leverage ratio was 11.53%, far
above the standards required by regulatory institutions.
1999 was a year of
transitioning for the
Cass organization.
2 Cass Commercial Corporation
<PAGE> 5
We are extremely pleased with
the level of loan growth
achieved during 1999.
There were also several significant accomplishments that occurred during
the year. Initially, the company's sizeable investment in Y2K preparation was
obviously a success. Both Cass Commercial Bank and Cass Information Systems,
Inc. utilized large amounts of time and resources in preparing for the
millennium change. In addition to program changes, equipment purchases and
systems replacements, a significant amount of time was spent in system
testing and contingency planning. We were not surprised that the smooth
transition into the new year occurred because we had properly and adequately
prepared.
Also, our investment in Internet freight processing systems continued
during 1999. A large amount of effort was utilized for our e-Cass systems for
freight processing. We are very encouraged by the response of the marketplace
to these systems and by the impact they are having on the freight payment
processing market.
Our utility processing services experienced a doubling of growth during
1999. Our desire to establish a presence in this marketplace was achieved.
At year-end, we were processing an annualized volume of some $1.3 billion per
year. This response has been helpful in assessing the future potential of the
utility processing market and our ability to grow this business.
III. DISAPPOINTMENTS
While the utility processing business grew at a rapid pace, the growth did
not come without its corresponding setbacks. Because of the rapid growth,
we were unable to leverage our freight processing resources to the extent
initially envisioned. As a result, a much larger investment in staff and
processing support had to be made in order to accommodate the fast pace of
growth. This had a negative consequence on the profits of the company. It is
estimated that the before tax loss from this operation exceeded $1 million
for the year. While we are hopeful that positive financial returns will
emanate, nevertheless, this did have an adverse impact on our income results
for 1999. We are currently evaluating the additional investment which must be
made in this operation and its long-term financial benefit to Cass.
Interest rate levels also played a role in the profit picture for 1999.
Until the middle of November, interest rates were significantly lower than
for the corresponding levels in 1998. Due to the company's asset sensitivity,
this also had a negative impact on earnings. While much of this was overcome
by loan growth, nevertheless, earnings results were negatively impacted.
As profits from our freight processing business decreased for the year,
overall volume also did not increase significantly. This was due primarily
to two factors: a growth in the competition for EDI (Electronic Data
Interchange) processing of parcel and air shipments, and a delay in the
decisions of new companies to begin utilizing outsourced services. New and
emerging competition initially
1999 Annual Report 3
<PAGE> 6
CHAIRMAN'S LETTER
(continued)
- -------------------------------------------------------------------------------
attacked the market for parcel and air EDI shipments. Corporations using
this type of transportation were targeted. As a result, Cass lost
significant volume in the early part of the year to this competition. Due
to modified system changes and more competitive pricing, we were able to
negate any further loss and anticipate growth in this business in the
future. However, it did have a negative effect on our fee income in 1999.
Additionally, as a result of Y2K systems changes and the lack of
resources for technology integration, many companies delayed decisions to
utilize outsourced services, such as Cass, until the end of the year or
shortly thereafter. While Cass' sales pipeline remained extremely high
throughout the year and continues to be at record levels, the number of
new customers did not materialize as quickly as expected. We have begun
to see a change as more customers have started to make the decision to
utilize Cass' services. It is our anticipation that significant growth in
new business will once again occur and the freight processing market will
grow faster than previously. However, the growth was much slower in 1999.
IV. SEGMENT GROWTH
We are extremely encouraged with the growth potential in all of our
business divisions.
Our freight processing business will be off to a great start in 2000.
With a strong sales pipeline and Y2K concerns behind us, we anticipate a
new challenge of expansion and resource procurement to handle the new
business. We are well positioned for this with our multiple processing
centers in Boston, Massachusetts; Columbus, Ohio; and St. Louis,
Missouri.
The utility processing market appears poised for continued growth.
Our challenge will be to convert this volume into profitable processing.
This will require new system processing improvements, production
facilities focused only on utility processing and better processing
efficiency enhancements for this business to perform better in the
future. While we are encouraged by the fact that companies have become
aware of the need to obtain information to allow them to seize
opportunities to reduce utility costs, we are concerned about the
increasing investment required to sustain this business and the
lengthening time it may take to produce the desired level of
profitability.
Our church business division continues to grow significantly. At
year-end, over $65,956,000 in loans were outstanding to churches and
church related organizations. This business has been so successful that
Cass has begun to develop relationships with organizations across the
United States. Our reception has been encouraging, and we are optimistic
about the future growth of this business division.
4 Cass Commercial Corporation
<PAGE> 7
It is our desire to have the organization's
past performance and strong
growth opportunities reflected
in the value of its underlying securities.
Our business division also continues to expand. This core banking
division is known as one of the leading providers of loans to privately
held companies in the St. Louis area. With continuing consolidation in
the financial services arena, we expect this growth to continue. The
relationships established by Cass over the years, along with our experience
and track record with these clients, continues to support our ability to be
a strong financial partner for these businesses.
We feel an improved interest rate environment and continued growth in our
business divisions should provide a return to the strong consistent earnings
trend characteristic of the organization since its inception in 1906. While
we are disappointed with last year's results and the impact on the company's
stock price, nevertheless, it is our feeling that the core markets and
opportunities for the company remain strong and that the future will be
a positive one for Cass Commercial Corporation.
V. CREDITS
1999 was a year of great stress for the staff of our organization. Not only
did we have to overcome the interest rate issues faced at the beginning of
the year, we also had to ensure that our systems were Y2K compliant and try
to grow our businesses at the same time. The performance of our staff under
such conditions was outstanding. They remain our most valuable asset, and we
are thankful for their commitment, support and productivity during this time
of transition.
We are also grateful for our shareholder community, which despite a loss
in the value of their holdings, nevertheless, has been very supportive of our
objectives and strategy. Cass was not alone in this regard, as the market did
not treat most financial institutions very politely in 1999. Nevertheless, it
is our desire to have the organization's past performance and strong growth
opportunities reflected in the underlying value of its securities. We want
to deeply thank our shareholders for their encouragement and long-term
commitment to the organization.
Finally, we cannot end this report without our recognition of the role
that God has played in 1999. It is very misleading to associate God's
blessings only with improved net earnings. That would be a great mistake!
We have seen His blessings and His grace, perhaps more clearly in 1999 than
ever. Without such, we could never have handled all the major activities and
changes that occurred. We are so thankful for His watchfulness and guidance.
/s/ Lawrence A. Collett
Lawrence A. Collett
Chairman and Chief Executive Officer
1999 Annual Report 5
<PAGE> 8
PRIVATELY HELD
BUSINESSES BANKING
SERVICES
- -------------------------------------------------------------------------------
1999 BUSINESS RESULTS
Cass' oldest line of business, providing commercial banking services to
privately held companies, recorded a strong year in 1999. Net loans grew
by $22 million, representing a solid growth of 12%. As of December 31,
1999, loans outstanding to privately held businesses totaled $212
million, representing 76% of Cass' total loan portfolio. Credit quality
remains excellent as demonstrated by the ratio of non-performing loans to
total loans, representing only 0.09%. This compares very favorably to the
industry average of 0.58% for peer banks.
Total average deposit balances were up for the year by $14 million,
representing an increase of 8%. Fee income from depository and treasury
management products grew by $188,000 or 16%.
We are pleased to report that 72.5% of the increases in business
volumes are the result of new clients, with the remainder representing
growth from existing clients. Approximately 46% of these new clients came
to us from larger banks going through mergers, with 54% coming from other
traditional middle market competitors. We believe this demonstrates how
Cass Commercial Bank is meeting a real need in the St. Louis middle
market business community and differentiating itself across a broad
spectrum of banking competition.
BUSINESS STRATEGY
Focus - Cass remains committed to our core strategy of focusing on
commercial middle market banking services. We believe this is more than
just a choice of business activity preference and constitutes a sound
marketing strategy. This strategy allows all of our bankers and executive
management to develop an in-depth understanding of the preferences of
private business owners, which benefits our clients and is an attraction
to our prospects. In 1999 we introduced two direct contact campaigns to
communicate our understanding of this niche and to build awareness with
our target audience. Through these programs along with the traditional
calling by our bankers, we have presented a clear and consistent formula
of combining excellence in service quality with new technology in the
delivery of our banking services.
Service - Our service quality is extremely high due largely to our
structure of utilizing banking teams to surround our clients. Team members
with strong functional expertise work together serving the same group of
clients on a repetitive basis. This structure ensures quick response,
relationship continuity, strong functional specialization, and quality
assurance by the team leadership. This personal attention is particularly
important to our clients and prospects, as larger banks have continued to
reduce the level of available local service support.
Unique services offered by Cass include our Cass Client Circle
discussion groups. These are groups of clients, which meet quarterly to
share business management ideas and general knowledge resources,
facilitated by Cass personnel.
6 Cass Commercial Corporation
<PAGE> 9
- ----------------------------------------------------------------------------
This year's direct mail campaign reiterated our
commitment to providing excellence in service and
maintaining dependable fiscal conservatism.
[PHOTO]
We have received excellent feedback from the clients participating in these
voluntary groups, and will continue to expand the program. We also provide
information resources to our clients through our Cass Breakfast Series. This
provides expert speakers addressing pertinent business topics on a quarterly
basis in a breakfast seminar format.
Technology - In 1999 Cass invested substantially in our backroom
operations. We are adding new state-of-the-art tools using digital
technology, which allows us to provide several new banking products. One
example is Positive Account Reconciliation, which enables our clients to
minimize check fraud by reconciling their bank accounts on a daily basis.
It gives the client the ability to make pay/return decisions on the day
checks are presented, greatly reducing the risk of check fraud.
Additionally, Cass now offers compact disc based check images. This
offers our clients a more convenient and secure method of storing and
retrieving check images. With this banking product, our clients receive a
compact disc in conjunction with their monthly bank statement. Our clients
find that this significantly reduces both their reconciliation time and check
storage space needed. Finally, with this service, images of checks can be
retrieved via our new Internet access systems. Additional capabilities are
being planned for these systems, including enhanced information reporting and
the ability to complete more transaction types online.
Providing St. Louis privately owned companies with thoughtful and sincere
personal service has been a hallmark of Cass since 1906. As we enter the 21st
century, our objective is to maintain that level of service. We are further
committed to combining this commitment to service excellence with
technological innovation. We believe this combination has made and will
continue to make us extremely attractive to the markets we serve.
1999 Annual Report 7
<PAGE> 10
CHURCHES AND
CHURCH-RELATED
BANKING SERVICES
- -------------------------------------------------------------------------------
1999 was another year of outstanding growth for the church business
division of Cass Commercial Corporation.
Our church & ministry relationships reached their highest level in
1999 with more than one hundred and fifty customers with loan
outstandings exceeding $65 million, a 90% increase over 1998. Our church
& ministry depository, cash management and investment relationships are
also larger than any prior year.
Additionally, our church & ministry new business pipeline including
church refinancing, church expansion and new construction projects is
currently stronger than we have ever experienced.
As our church & ministry relationships continue to increase in number,
they also continue to diversify among small, medium and large-sized
churches, representing an even wider variety of denominations and
ministries.
We also continued to widen the scope of our church & ministry
activities, seeking to further establish Cass Commercial Bank as a
nationwide church & ministry lender. We have church & ministry
relationships in Missouri, Illinois, Indiana, Texas, Oklahoma, Colorado
and California.
We have found that lending to churches has indeed been solid business.
To date, every one of our church customers has managed its financial
responsibilities in an appropriate manner, and we have experienced no
defaults or foreclosures.
Cass' approach to providing financial services to churches and
ministries is to work as if we are a member of the finance committee. We
invest our time to partner with a church, helping analyze its overall
financial capabilities, including reviewing various project affordability
models, and evaluating expansion and new construction alternatives.
Cass' underwriting approach has been created to reflect the uniqueness
of churches and their approach to fiscal stewardship. We have developed
a financial analysis system that is specifically geared toward evaluating
a church's overall
[PHOTO]
- -------------------------------------------------------------------------------
Cass' commitment to working with churches & ministries nationwide is an
important part of our culture as an organization. We believe this work has
both philosophical and practical benefits to the community as a whole.
8 Cass Commercial Corporation
<PAGE> 11
[PHOTO]
- ------------------------------------------------------------------------------
Our church & ministry division provides building refinancing, expansion and
new construction loans for churches and ministries nationwide.
financial condition and how it compares with other churches. Further, we
focus in depth on historical and projected cash flow, revenue growth rate and
the ability to manage various debt alternatives.
One of our guiding principles is to recommend a financial plan that is
affordable and reasonable allowing a church to achieve its objectives in a
prudent and rational manner.
Another dimension of our comprehensive relationship with a church &
ministry is our counselor approach to a church's depository needs, both short
and longer term. As we work closely with each church in understanding its
fiscal philosophy and operating approach, we also initiate a comprehensive
analysis comparing various operating, savings and investment alternatives to
determine the best fit for our customer.
We approach every church with a "team" of experienced bankers. This team
includes officers from lending, depository, cash management, customer
service, and executive management, and it provides relationship continuity
and consistency for our church & ministry customers.
Our church business vision further describes the underlying reasons why
Cass is involved with churches and ministries above and beyond our business
objectives ... first, to produce results that will provide Kingdom value;
second, to integrate an eternal perspective into the organization; and third,
to improve our communities.
Cass seeks to accomplish this mission by providing funds to churches &
ministry-related organizations, by using funds deposited by these
organizations to assist similar institutions, by our corporate contributions,
and by our involvement with the church community.
These are some of the key reasons why Cass is involved in churches and
ministries. These reasons are philosophical, foundational, and practical ...
and these are an important part of our Cass culture.
At Cass, this work is far more than just a business activity. It extends
to all aspects of our lives, not just work. We are indeed thrilled that God
has provided us the opportunity to serve this important part of our
community.
1999 Annual Report 9
<PAGE> 12
FREIGHT PAYMENT
PROCESSING SERVICES
- -------------------------------------------------------------------------------
Our business is providing freight bill payment, audit, cost accounting
and transportation information services to many of the nation's largest
manufacturing, chemical, food and personal products companies. We continue
to develop our strategy of focusing on processing automation and
Internet-based information delivery systems that create an electronic
commerce model unmatched in the industry.
In 1999 we began the most significant transformation of our business
since the development of on-line processing in the early 1980s. There are
three components to our strategy:
Processing Automation
Processing System Enhancement
Information Delivery on the Internet
PROCESSING AUTOMATION
Electronic invoice receipt has been a major part of Cass Information
System's (CIS) processing model for many years. We are expanding our
electronic processing using traditional Electronic Data Interchange (EDI)
protocols but recognize that our market will require flexibility and
information that has heretofore been unavailable to CIS's customers. In
1999 we began reengineering our electronic processing system to prepare
us for accelerated expansion and new data transfer protocols such as XML.
In addition, the explosive growth in electronic commerce has created a
demand for information that will help e-commerce companies select the
most cost effective routing of its packages. Cass is devoting a separate
processing and information database to respond to this market.
More of our customers have or will be developing more sophisticated
purchasing and order entry systems that can feed the freight bill payment
process. CIS receives payment authorization files from most of its large
customers today. As more companies adopt integrated business systems, the
opportunities for increased automation such as transaction rating and
automatic carrier payment will become more prevalent.
Last year we experienced our largest increase in automated (ACH)
carrier payments. We believe that in the next few years the traditional
method of paying by check will become outmoded. With the support of Cass
Commercial
[PHOTO]
- ------------------------------------------------------------------------------
We believe that increased automation in the future, coupled with the growing
demand for Internet-based information delivery systems, will provide numerous
opportunities for Cass to expand its business.
10 Cass Commercial Corporation
<PAGE> 13
Bank, CIS is aggressively working with the carrier community to convert to
the more efficient and less costly method of electronic payment.
In the first quarter of 2000, CIS will allow its customers access to
freight bill exceptions for review and approval. Freight bill images will be
available by accessing our Internet system where customers will see an image
of the paper document or an electronic transaction to review and approve for
payment. The costly and inefficient receipt of documents and telephone
approvals will be eliminated.
PROCESSING SYSTEM ENHANCEMENT
While our industry migrates from paper to electronic processing, Cass will
continue its record of excellence for paying paper invoices. Over the years,
CIS has perfected its processing system to ensure data integrity and on-time,
daily processing. In 1999 we began the development of a system that will take
advantage of the latest technology and provide more operating efficiency and
flexibility without disrupting our core payment application.
The freight bill authorization and Internet system provide our
constituencies with more timely and extensive information about processing
transactions, allowing our support staff to focus on enhancing the delivery
of transportation and accounting information.
E-CASS
Several years ago Cass developed its first Internet application: payment
inquiry for our customers and their carriers. Last year over 3.5 million
inquiries were made over the Internet. In June of 1999, our standard payment
report displays were placed on the Internet. In October, the carriers our
customers patronize could access their receivables records and the billing
requirements of our customers.
Scheduled for the first or early second quarter of 2000, Cass will launch
the linchpin of its Internet information delivery system. The fourth phase is
a comprehensive database of transportation and accounting information. The
system will use an OLAP (On-Line Analytical Processing) design that displays
key metrics used to manage a company's transportation network. These
components can be analyzed by using data mining features. Our objective is to
develop Internet-based information systems that display data in ways that
exceed traditional methods and help our customers manage their supply chain
business.
Since introducing our business model to companies, we are experiencing
tremendous growth opportunities. We believe that our focus will solidify Cass
as the leader in our market and will allow us to expand our business as we
enter a new century.
[PHOTO]
- ------------------------------------------------------------------------------
Our objective is to develop Internet-based information systems that display
data in ways which help our customers better manage their supply chain
business.
1999 Annual Report 11
<PAGE> 14
UTILITIES PAYMENT
PROCESSING SERVICES
- -------------------------------------------------------------------------------
1999 was the second year of existence for the Utility Payments Division of
Cass Information Systems. The new division experienced sizable growth in
1999 by marketing the two main values of our outsourced utility payables
product: transaction cost reduction by leveraging Cass' economies of
scale; and expanded energy information to provide an energy information
data warehouse.
The clear trend in 1999 was the market's recognition of the
ever-increasing value of information contained in utility bills. With the
Cass Utility Payable solution, our customers get comprehensive energy and
payment information from every bill - information that proves invaluable
in auditing the bills and developing an energy consumption profile.
Whether our customers use in-house resources or take advantage of our
energy services partners, they are seeing returns on investment
attributable to detection of overcharges, rate analysis and negotiation,
competitive commodity bids and decreased processing costs.
It is worth noting that energy deregulation, while already a primary
driver in the market, is still in its infancy. Although only a handful of
states have fully opened competitive markets, dozens more have initiatives
underway.
We are helping some of the nation's largest retail, commercial and
industrial corporations find savings. Cass increased the number of store
locations we support in this market to over 30,000. The types of invoices
that Cass pays include electric, gas, water, sewer, telephone, trash and
other facility-related repetitive payables.
DOLLAR VALUE/2000 EST INVOICES PROCESSED/2000 EST
[GRAPHIC] [GRAPHIC]
12 Cass Commercial Corporation
<PAGE> 15
The clear trend in 1999
was the market's recognition
of the ever-increasing value of
information contained in utility bills.
On an annualized basis at the end of 1999, Cass Information Systems was
processing 1.5 million invoices with over a billion dollars in invoice value.
Going into 2000, we have committed business scheduled for implementation that
will add $200 million in invoice value and 250,000 additional invoices per
year.
Much of 1999 was spent developing systems and infrastructure necessary to
enable Cass to compete aggressively in this marketplace. During the year, an
expanded Sales & Marketing structure was designed and implemented. Cass
markets its products with a direct sales force, with a Web site tuned to
attract inquiries based on expected key words, and through a combination of
direct mail and telemarketing follow-up. Cass sells its services directly to
end-user companies and in conjunction with affiliations with some of the
industry's largest providers of Energy Information and Utility Auditing
services.
During 1999, the scope of our data capture was expanded in order to
accommodate a broader base of energy service types. In November, we brought
the first customers on-line for in-house imaging, a move that will bring
significant cost savings and, more importantly, provide better service to our
customers.
For 2000, we will continue to focus on process improvement. Significant
improvements are needed and will require that we invest in new technologies
and systems to support continued growth.
We anticipate continued growth in our utility processing services. As
this market expands, we expect both client demand and processing volume to
also increase. It is our feeling that the difficulties associated with rapid
growth and system enhancements must be overcome to allow us to be better
positioned to profitably sustain this growth into the future.
1999 Annual Report 13
<PAGE> 16
CONSOLIDATED
BALANCE SHEETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------
(In Thousands of Dollars, Except Share and per Share Data) 1999 1998
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 18,497 $ 22,558
Federal funds sold and other short-term investments 105,720 156,827
------------- ------------
Cash and cash equivalents 124,217 179,385
------------- ------------
Investment in debt and equity securities:
Held-to-maturity, fair value of $25,381 and $57,191
at December 31, 1999 and 1998, respectively 25,554 56,605
Available-for-sale, at fair value 57,442 27,369
------------- ------------
Total investment in debt and equity securities 82,996 83,974
------------- ------------
Loans 278,343 224,888
Less: Allowance for loan losses 4,282 4,428
------------- ------------
Loans, net 274,061 220,460
------------- ------------
Premises and equipment, net 9,181 9,249
Accrued interest receivable 2,764 2,764
Other assets 7,626 8,080
------------- ------------
Total assets $500,845 $503,912
------------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits:
Noninterest-bearing $ 91,672 $ 82,911
Interest-bearing 97,064 108,071
------------- ------------
Total deposits 188,736 190,982
Accounts and drafts payable 249,894 250,518
Short-term borrowings 208 323
Other liabilities 5,444 4,685
------------- ------------
Total liabilities 444,282 446,508
------------- ------------
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 5,087 4,796
Retained earnings 54,814 51,505
Accumulated other comprehensive income (loss) (417) 387
Common shares in treasury, at cost (277,149 and 132,123 shares
at December 31, 1999 and 1998, respectively) (4,770) (1,213)
Unamortized stock bonus awards (151) (71)
------------- ------------
Total shareholders' equity 56,563 57,404
------------- ------------
Total liabilities and shareholders' equity $500,845 $503,912
------------- ------------
See accompanying notes to consolidated financial statements.
</TABLE>
14 Cass Commercial Corporation
<PAGE> 17
CONSOLIDATED
STATEMENTS
OF INCOME
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------
(In Thousands of Dollars, Except Share and per Share Data) 1999 1998 1997
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $20,371 $17,579 $16,951
Interest and dividends on debt and equity securities:
Taxable 4,659 6,538 9,074
Exempt from federal income taxes 63 69 77
Interest on federal funds sold and other short-term investments 5,782 5,858 3,181
----------- ----------- -----------
Total interest income 30,875 30,044 29,283
----------- ----------- -----------
INTEREST EXPENSE:
Interest on deposits 4,357 4,271 4,181
Interest on short-term borrowings 9 10 67
----------- ----------- -----------
Total interest expense 4,366 4,281 4,248
----------- ----------- -----------
Net interest income 26,509 25,763 25,035
Provision for loan losses -- -- 300
----------- ----------- -----------
Net interest income after provision for loan losses 26,509 25,763 24,735
----------- ----------- -----------
NONINTEREST INCOME:
Information services revenue:
Freight and utility payment and processing revenue 18,226 18,809 17,863
Freight rating services revenue 1,800 2,146 2,107
Service charges on deposit accounts 680 642 524
Gain on sale of debt securities -- 285 216
Other 738 565 1,103
----------- ----------- -----------
Total noninterest income 21,444 22,447 21,813
----------- ----------- -----------
NONINTEREST EXPENSE:
Salaries and employee benefits 25,974 24,995 24,093
Occupancy expense 1,780 1,698 1,619
Equipment expense 2,714 2,649 2,654
Other 7,876 7,283 7,545
----------- ----------- -----------
Total noninterest expense 38,344 36,625 35,911
----------- ----------- -----------
Income before income tax expense 9,609 11,585 10,637
Income tax expense 3,411 4,177 3,626
----------- ----------- -----------
Net income $ 6,198 $ 7,408 $ 7,011
----------- ----------- -----------
EARNINGS PER SHARE:
Basic $ 1.63 $ 1.92 $ 1.82
----------- ----------- -----------
Diluted $ 1.61 $ 1.89 $ 1.79
----------- ----------- -----------
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 3,791,250 3,862,393 3,858,548
Effect of stock options and awards 57,182 67,281 59,000
Diluted 3,848,432 3,929,674 3,917,548
See accompanying notes to consolidated financial statements.
</TABLE>
1999 Annual Report 15
<PAGE> 18
CONSOLIDATED
STATEMENTS OF
CASH FLOWS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------------
(In Thousands of Dollars) 1999 1998 1997
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,198 $ 7,408 $ 7,011
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 2,433 2,359 2,470
Amortization of stock bonus awards 68 50 110
Provision for loan losses -- -- 300
Deferred income tax expense (benefit) (492) 131 271
Increase in accrued interest receivable -- 373 229
Gain on sale of debt securities -- (285) (216)
Increase (decrease) in pension liability 834 (203) (219)
Other operating activities, net 1,401 (1,219) (1,665)
------------ ----------- -----------
Net cash provided by operating activities 10,442 8,614 8,291
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of debt securities available-for-sale -- 6,409 14,235
Proceeds from prepayments and maturities of debt securities:
Held-to-maturity 30,819 32,974 28,076
Available-for-sale 1,690 2,905 1,178
Purchases of debt and equity securities available-for-sale (33,091) -- (9,835)
Net decrease (increase) in loans (53,601) (28,466) 1,085
Purchases of premises and equipment, net (1,923) (1,250) (3,901)
----------- ----------- -----------
Net cash provided by (used in) investing activities (56,106) 12,572 30,838
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in noninterest-bearing demand,
interest-bearing demand and savings deposits (918) 25,945 (10,878)
Net decrease in time deposits (1,328) (820) (770)
Net increase (decrease) in accounts and drafts payable, net (624) 36,763 9,065
Net decrease in short-term borrowings (115) (83) (2,070)
Proceeds from exercise of stock options 81 52 --
Cash dividends paid (2,889) (2,782) (2,508)
Purchase of common shares for treasury (3,711) -- --
----------- ----------- -----------
Net cash provided by (used in) financing activities (9,504) 59,075 (7,161)
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents (55,168) 80,261 31,968
Cash and cash equivalents at beginning of year 179,385 99,124 67,156
----------- ----------- -----------
Cash and cash equivalents at end of year $124,217 $179,385 $ 99,124
----------- ----------- -----------
SUPPLEMENTAL INFORMATION:
Interest paid $ 4,375 $ 4,314 $ 4,301
Income taxes paid 3,536 3,712 2,785
See accompanying notes to consolidated financial statements.
</TABLE>
16 Cass Commercial Corporation
<PAGE> 19
STATEMENTS OF
SHAREHOLDERS' EQUITY AND
COMPREHENSIVE INCOME
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Accumulated
Other
Compre- Unamortized
hensive Stock Compre-
(In Thousands of Dollars, Common Retained Income Treasury Bonus hensive
Except per Share Data) Stock Surplus Earnings (Loss) Stock Awards Total Income
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $2,000 $4,740 $42,376 $ 105 $(1,284) $(156) $47,781
Comprehensive income for 1996 $6,654
-------
Net income -- -- 7,011 -- -- -- 7,011 7,011
Cash dividends ($.65 per share) -- -- (2,508) -- -- -- (2,508)
Other comprehensive income:
Net unrealized gain on debt
and equity securities
available-for-sale,
net of tax 402
Adjustment for gain on sale
of debt and equity
securities, available-for-
sale, net of tax (143)
-------
Total other comprehensive
income -- -- -- 259 -- -- 259 259
Amortization of Stock Bonus
Plan awards -- -- -- -- -- 110 110
------- ------- -------- ------ -------- ------ -------- -------
Balance, December 31, 1997 2,000 4,740 46,879 364 (1,284) (46) 52,653
Comprehensive income for 1997 7,270
-------
Net income -- -- 7,408 -- -- -- 7,408 7,408
Cash dividends ($.72 per share) -- -- (2,782) -- -- -- (2,782)
Other comprehensive income:
Net unrealized gain on debt
and equity securities
available-for-sale,
net of tax 211
Adjustment for gain on sale
of debt and equity
securities, available-for-
sale, net of tax (188)
-------
Total other comprehensive
income -- -- -- 23 -- -- 23 23
Issuance of 3,000 common
shares pursuant to
Stock Bonus Plan -- 48 -- -- 27 (75) --
Amortization of Stock Bonus
Plan awards -- -- -- -- -- 50 50
Exercise of Stock Options -- 8 -- -- 44 -- 52
------- ------- -------- ------ -------- ------ -------- -------
Balance, December 31, 1998 2,000 4,796 51,505 387 (1,213) (71) 57,404
Comprehensive income for 1998 7,431
-------
Net income -- -- 6,198 -- -- -- 6,198 6,198
Cash dividends ($.76 per share) -- -- (2,889) -- -- -- (2,889)
Purchase of 160,000
common shares for Treasury -- -- -- -- (3,711) -- (3,711)
Other comprehensive
income (loss):
Net unrealized loss on debt
and equity securities
available-for-sale,
net of tax -- -- -- (804) -- -- (804) (804)
Issuance of 5,900 common
shares pursuant to
Stock Bonus Plan -- 87 -- -- 61 (148) --
Amortization of Stock Bonus
Plan awards -- -- -- -- -- 68 68
Exercise of Stock Options -- (12) -- -- 93 -- 81
Tax benefit on stock awards -- 216 -- -- -- -- 216
------- ------- -------- ------ -------- ------ -------- -------
Balance, December 31, 1999 $2,000 $5,087 $54,814 $(417) $(4,770) $(151) $56,563
------- ------- -------- ------ -------- ------ --------
Comprehensive income for 1999 $5,394
-------
See accompanying notes to consolidated financial statements.
</TABLE>
1999 Annual Report 17
<PAGE> 20
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
- -------------------------------------------------------------------------------
Note 1
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Cass Commercial Corporation (the Company) provides a full range of
banking services to individual, corporate and institutional customers
through its wholly owned subsidiary bank, Cass Commercial Bank (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
services include processing and payment of freight and utility
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 bill payment services which are
performed for customers.
The accounting and reporting policies of the Company and its
subsidiaries conform to generally accepted accounting principles. The
following is a description of the more significant of those policies:
Basis of Presentation The consolidated financial statements
include the accounts of the Company and its wholly owned subsidiaries
after elimination of intercompany transactions.
In preparing the consolidated financial statements, Company
management is required to make estimates and assumptions which
significantly affect the reported amounts in the consolidated
financial statements. A significant estimate which is particularly
susceptible to change in a short period of time is the determination
of the allowance for loan losses.
Investment in Debt and Equity Securities At the time of purchase,
debt securities are classified into one of two categories:
available-for-sale or held-to-maturity. Held-to-maturity securities
are those securities which the Company has the ability and intent to
hold until maturity. All equity securities, and debt securities not
classified as held-to-maturity, are classified as available-for-sale.
Available-for-sale securities are recorded at fair value.
Held-to-maturity securities are recorded at amortized cost, adjusted
for the amortization of premiums or discounts. Unrealized gains and
losses, net of the related tax effect, on available-for-sale
securities are excluded from earnings and reported as accumulated
other comprehensive income. Gains and losses on the sale of
available-for-sale securities are determined using the specific
identification method.
A decline in the fair value of any available-for-sale or
held-to-maturity security below cost that is deemed other than
temporary is charged to earnings and results in the establishment of
a new cost basis for the security.
The Bank is required to maintain an investment in the capital
stock of the Federal Reserve Bank. The stock is recorded at cost,
which represents redemption value.
Interest on Loans Interest on loans is recognized based upon the
principal amounts outstanding. It is the Company's policy to
discontinue the accrual of interest when there is reasonable doubt as
to the collectibility of principal or interest. Subsequent payments
received on such loans are applied to principal if there is any doubt
as to the collectibility of such principal; otherwise, these receipts
are recorded as interest income. The accrual of interest on a loan is
resumed when the loan is current as to payment of both principal and
interest and/or the borrower demonstrates the ability to pay and
remain current.
18 Cass Commercial Corporation
<PAGE> 21
Allowance for Loan Losses The allowance for loan losses is increased by
provisions charged to expense and reduced by net charge-offs. The provisions
charged to expense are based on economic conditions, past losses, collection
experience, risk characteristics of the portfolio and such other factors which,
in management's judgment, deserve current recognition.
Management believes the allowance for loan losses is adequate to absorb
losses in the loan portfolio. While management uses all available information
to recognize losses on loans, future additions to the allowance may be
necessary based on changes in economic conditions. Additionally, various
regulatory agencies, as an integral part of their examination process,
periodically review the Company's allowance for loan losses. Such agencies
may require the Company to increase the allowance for loan losses based on
their judgments and interpretations about information available to them at
the time of their examination.
Information Services Revenue Revenue from freight and utility related
services is recognized when fees are billed to customers, generally monthly.
Premises and Equipment Premises and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation is computed over the
estimated useful lives of the assets, or the respective lease terms for
leasehold improvements, using straight-line and accelerated methods.
Estimated useful lives are 31-1/2 to 39 years for buildings, 8 to 10 years for
leasehold improvements and 3 to 10 years for furniture, fixtures and
equipment. Maintenance and repairs are charged to expense as incurred.
Intangible Assets Cost in excess of fair value of net assets acquired and
fair value in excess of cost of net assets acquired have resulted from
business acquisitions which were accounted for using the purchase method.
Cost in excess of fair value of net assets acquired and fair value in
excess of cost of net assets acquired are amortized on a straight-line basis
over 3 to 15 years.
Assets and liabilities acquired in business acquisitions accounted for by
the purchase method were recorded at their fair value at the date of
acquisition. The premiums and discounts related to the fair value adjustments
are amortized using the level-yield method.
Management reviews goodwill periodically for impairment.
Lines of Credit At December 31, 1999, the Bank has $14,820,000 of unsecured
federal funds lines of credit in place with unaffiliated financial
institutions. Additionally, at December 31, 1999, the Bank has a line of
credit of $50,000,000 under securities sold under repurchase agreements with
an unaffiliated financial institution.
Income Taxes Deferred tax assets and liabilities are recognized for the
estimated future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates in effect for the year in which those temporary
differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date.
Cash Flows For purposes of the consolidated statements of cash flows, the
Company considers due from banks, federal funds sold and other short-term
investments to be cash equivalents.
Reclassifications Certain amounts in the 1998 and 1997 consolidated
financial statements have been reclassified to conform with the 1999
presentation. Such reclassifications have no effect on previously reported
net income.
Note 2
CAPITAL REQUIREMENTS AND
REGULATORY RESTRICTIONS
The Company and the Bank are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can result in certain mandatory, and possibly
additional discretionary, actions by regulators that, if undertaken, could
have a direct material effect on the Company's consolidated financial
statements. Under capital adequacy guidelines, the Company and the Bank must
meet specific capital guidelines that involve quantitative measures of
assets, liabilities and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Company and the Bank's capital amounts
and classifications are also subject to qualitative judgments by the
regulators about components, risk weightings and other factors.
1999 Annual Report 19
<PAGE> 22
Quantitative measures established by regulators to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios of
total and Tier I capital to risk-weighted assets, and of Tier I capital to
average assets. Management believes as of December 31, 1999, the Company and
the Bank meet all capital adequacy requirements to which they are subject.
The Bank is also subject to the regulatory framework for prompt corrective
action. The most recent notification from the regulatory agencies, dated
November 30, 1999, categorized the Bank as well capitalized. To be
categorized as well capitalized, the Bank must maintain minimum total
risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the
table below. There are no conditions or events since that notification that
management believes have changed the Bank's category.
Subsidiary dividends are the principal source of funds for payment of
dividends by the Company to its shareholders. The Bank is subject to
regulations which require the maintenance of minimum capital levels. At
December 31, 1999, unappropriated retained earnings of $12,438,000 were
available at the Bank for the declaration of dividends to the Company without
prior approval from regulatory authorities.
Restricted funds on deposit used to meet regulatory reserve requirements
amounted to approximately $4,522,000 and $3,763,000 at December 31, 1999 and
1998, respectively.
The Company and the Bank's actual and required capital amounts and ratios
as of December 31, 1999 and 1998, are as follows:
<TABLE>
<CAPTION>
REQUIREMENT
TO BE WELL
CAPITALIZED UNDER
CAPITAL PROMPT CORRECTIVE
ACTUAL REQUIREMENTS ACTION PROVISIONS
-------------------------------------------------------------------------
(Dollars In Thousands) Amount Ratio Amount Ratio Amount Ratio
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
At December 31, 1999
Total capital (to risk-weighted assets):
Cass Commercial Corporation $60,736 18.23% $26,654 8.00% $ N/A N/A%
Cass Commercial Bank 28,014 16.39 13,676 8.00 17,095 10.00
Tier I capital (to risk-weighted assets):
Cass Commercial Corporation $56,570 16.98% $13,327 4.00% $ N/A N/A%
Cass Commercial Bank 25,873 15.14 6,838 4.00 10,257 6.00
Tier I capital (to average assets):
Cass Commercial Corporation $56,570 11.53% $14,717 3.00% $ N/A N/A%
Cass Commercial Bank 25,873 11.54 6,725 3.00 11,208 5.00
At December 31, 1998
Total capital (to risk-weighted assets):
Cass Commercial Corporation $60,073 21.14% $22,732 8.00% $ N/A N/A%
Cass Commercial Bank 27,526 15.12 14,568 8.00 18,211 10.00
Tier I capital (to risk-weighted assets):
Cass Commercial Corporation $56,510 19.89% $11,366 4.00% $ N/A N/A%
Cass Commercial Bank 25,246 13.86 7,284 4.00 10,926 6.00
Tier I capital (to average assets):
Cass Commercial Corporation $56,510 12.05% $14,073 3.00% $ N/A N/A%
Cass Commercial Bank 25,246 12.04 6,291 3.00 10,485 5.00
</TABLE>
20 Cass Commercial Corporation
<PAGE> 23
Note 3
INVESTMENT IN DEBT AND
EQUITY SECURITIES
Debt and equity securities have been classified in the consolidated balance
sheets according to management's intent.
The amortized cost and fair values of debt securities classified as
held-to-maturity at December 31, 1999 and 1998, are as follows:
<TABLE>
<CAPTION>
1999
---------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
(In Thousands) Cost Gains Losses Value
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government
Treasury securities $14,146 $ 15 $ (7) $14,154
Obligations of
U.S. Government
corporations
and agencies 10,155 -- (186) 9,969
States and political
subdivisions 1,253 19 (14) 1,258
------- ------ ------ -------
$25,554 $ 34 $(207) $25,381
------- ------ ------ -------
<CAPTION>
1998
---------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
(In Thousands) Cost Gains Losses Value
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government
Treasury securities $38,369 $ 484 $ -- $38,853
Obligations of
U.S. Government
corporations
and agencies 16,958 72 (28) 17,002
States and political
subdivisions 1,278 60 (2) 1,336
------- ------ ------ -------
$56,605 $ 616 $(30) $57,191
------- ------ ------ -------
</TABLE>
The amortized cost and fair value of debt securities classified as
held-to-maturity at December 31, 1999, by contractual maturity, are as
follows. Expected maturities may differ from contractual maturities because
borrowers have the right to prepay obligations with or without prepayment
penalties.
<TABLE>
<CAPTION>
1999
---------------------------
Amortized Fair
(In Thousands) Cost Value
- --------------------------------------------------------------------
<S> <C> <C>
Due in 1 year or less $17,088 $17,030
Due after 1 year through 5 years 3,979 3,929
Due after 5 years through 10 years 4,487 4,422
------- -------
$25,554 $25,381
------- -------
</TABLE>
The amortized cost and fair values of debt and equity securities
classified as available-for-sale at December 31, 1999 and 1998, are summarized
as follows:
<TABLE>
<CAPTION>
1999
---------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
(In Thousands) Cost Gains Losses Value
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government
Treasury securities $28,107 $ 37 $ (17) $28,127
Obligations of
U.S. Government
corporations
and agencies 29,765 11 (662) 29,114
------- ----- ------ -------
Total debt securities 57,872 48 (679) 57,241
Stock of the Federal
Reserve Bank 201 -- -- 201
------- ----- ------ -------
$58,073 $ 48 $(679) $57,442
------- ----- ------ -------
<CAPTION>
1998
---------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
(In Thousands) Cost Gains Losses Value
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government
Treasury securities $20,055 $ 552 $ -- $20,607
Obligations of
U.S. Government
corporations
and agencies 6,527 51 (17) 6,561
------- ----- ------ -------
Total debt securities 26,582 603 (17) 27,168
Stock of the Federal
Reserve Bank 201 -- -- 201
------- ----- ------ -------
$26,783 $ 603 $ (17) $27,369
------- ----- ------ -------
</TABLE>
The amortized cost and fair value of debt securities classified as
available-for-sale at December 31, 1999, by contractual maturity, are shown
in the following table. Expected maturities may differ from contractual
maturities because borrowers have the right to prepay obligations with or
without prepayment penalties.
1999 Annual Report 21
<PAGE> 24
<TABLE>
<CAPTION>
1999
-------------------------
Amortized Fair
(In Thousands) Cost Value
- ------------------------------------------------------------------------
<S> <C> <C>
Due in 1 year or less $12,118 $12,128
Due after 1 year through 5 years 41,104 40,521
Due after 5 years through 10 years 1,446 1,439
Due after 10 years 3,204 3,153
------- -------
$57,872 $57,241
------- -------
</TABLE>
The amortized cost of debt securities pledged to secure public deposits,
securities sold under agreements to repurchase and for other purposes was
approximately $55,899,000 and $49,813,000 at December 31, 1999 and 1998,
respectively.
There were no sales of debt and equity securities classified as
available-for-sale in 1999. In 1998 and 1997, proceeds from the sale of debt
securities classified as available-for-sale were $6,409,000 and $14,235,000,
respectively, with gross gains realized on those sales of $285,000 and
$216,000, respectively.
Note 4
LOANS
A summary of loan categories at December 31, 1999 and 1998, is as follows:
<TABLE>
<CAPTION>
(In Thousands) 1999 1998
- ------------------------------------------------------------------------
<S> <C> <C>
Commercial and industrial $106,444 $ 95,663
Real estate:
Mortgage 129,482 101,468
Construction 29,633 16,547
Industrial revenue bonds 7,265 5,951
Installment 1,541 2,458
Other 3,978 2,801
-------- --------
$278,343 $224,888
-------- --------
</TABLE>
The Company originates commercial, industrial, real estate and installment
loans to businesses, churches and consumers throughout the metropolitan St.
Louis area. The Company also originates church and church-related loans
outside the metropolitan St. Louis area. The Company does not have any
particular concentration of credit in any one economic sector; however, a
substantial portion of the commercial and industrial loans are extended to
privately held commercial companies in this market area, and are generally
secured by the assets of the business. The Company also has a substantial
portion of real estate loans that are extended to churches, in this market
area and throughout the United States, which are secured by mortgages.
Loan transactions involving executive officers and directors of the
Company and its subsidiaries and loans to associates of executive officers and
directors for the year ended December 31, 1999, are summarized below. Such
loans were made in the normal course of business on substantially the same
terms, including interest rates and collateral, as those prevailing at the
same time for comparable transactions with other persons, and did not involve
more than the normal risk of collectibility.
<TABLE>
<CAPTION>
(In Thousands)
- ------------------------------------------------------------
<S> <C>
Aggregate balance, January 1, 1999 $ 3,418
New loans 59
Payments (2,247)
--------
Aggregate balance, December 31, 1999 $ 1,230
-------
</TABLE>
A summary of the activity in the allowance for loan losses for 1999, 1998
and 1997 is as follows:
<TABLE>
<CAPTION>
(In Thousands) 1999 1998 1997
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, January 1 $4,428 $4,484 $4,396
Provision charged to expense -- -- 300
Loans charged off (256) (365) (412)
Recoveries of loans previously
charged off 110 309 200
------- ------- -------
Net loan charge-offs (146) (56) (212)
------- ------- -------
Balance, December 31 $4,282 $4,428 $4,484
------- ------- -------
</TABLE>
A summary of impaired loans at December 31, 1999 and 1998, is as follows:
<TABLE>
<CAPTION>
(In Thousands) 1999 1998
- ------------------------------------------------------------------------
<S> <C> <C>
Nonaccrual loans $170 $477
Impaired loans continuing
to accrue interest 173 273
---- ----
Total impaired loans $343 $750
---- ----
</TABLE>
The allowance for loan losses on impaired loans was $175,000 and $397,000
at December 31, 1999 and 1998, respectively. Impaired loans with no related
allowance for loan losses totaled $168,000 and $309,000 at December 31, 1999
and 1998, respectively. The average balance of impaired loans during 1999 and
1998 was $517,000 and $972,000, respectively.
22 Cass Commercial Corporation
<PAGE> 25
A summary of interest income on impaired loans for 1999, 1998 and 1997 is
as follows:
<TABLE>
<CAPTION>
1999
--------------------------------------
Impaired
Loans
Continuing
Nonaccrual to Accrue
(In Thousands) Loans Interest Total
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Income recognized $ 1 $ -- $ 1
Interest income if interest
had accrued 44 1 45
<CAPTION>
1998
--------------------------------------
Impaired
Loans
Continuing
Nonaccrual to Accrue
(In Thousands) Loans Interest Total
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Income recognized $ 17 $ 25 $ 42
Interest income if
interest had accrued 78 26 104
<CAPTION>
1997
--------------------------------------
Impaired
Loans
Continuing
Nonaccrual to Accrue
(In Thousands) Loans Interest Total
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Income recognized $ 1 $ 45 $ 46
Interest income if
interest had accrued 27 53 80
</TABLE>
Note 5
PREMISES AND EQUIPMENT
A summary of premises and equipment at December 31, 1999 and 1998, is as
follows:
<TABLE>
<CAPTION>
(In Thousands) 1999 1998
- ------------------------------------------------------------------------
<S> <C> <C>
Land $ 367 $ 367
Buildings 6,341 6,250
Leasehold improvements 1,264 1,268
Furniture, fixtures and equipment 19,392 17,558
------- -------
27,364 25,443
Less accumulated depreciation
and amortization 18,183 16,194
------- -------
$ 9,181 $ 9,249
------- -------
</TABLE>
Depreciation charged to expense in 1999, 1998 and 1997 amounted to
$1,993,000, $1,953,000 and $1,932,000, respectively.
The Company's subsidiaries lease various premises and equipment under
operating lease agreements which expire at various dates through 2007. The
following is a schedule, by year, of future minimum rental payments required
under operating leases that have initial or remaining noncancelable lease
terms in excess of one year as of December 31, 1999:
<TABLE>
<CAPTION>
(In Thousands)
- ------------------------------------------------------------------------
<S> <C>
2000 $ 704
2001 385
2002 342
2003 345
2004 259
2005 and thereafter 275
------
$2,310
------
</TABLE>
Rental expense for 1999, 1998 and 1997 was $1,271,000, $1,161,000 and
$1,205,000, respectively.
Note 6
INTEREST-BEARING DEPOSITS
Interest-bearing deposits consist of the following at December 31, 1999 and
1998:
<TABLE>
<CAPTION>
(In Thousands) 1999 1998
- ------------------------------------------------------------------------
<S> <C> <C>
NOW and Money Market
Demand Accounts $43,092 $ 37,699
Savings deposits 47,498 62,569
Time deposits:
Less than $100 3,863 4,369
$100 and more 2,611 3,434
------- --------
$97,064 $108,071
------- --------
</TABLE>
Interest on deposits consists of the following for 1999, 1998 and 1997:
<TABLE>
<CAPTION>
(In Thousands) 1999 1998 1997
- ------------------------------------------------------------------------
<S> <C> <C> <C>
NOW and Money Market
Demand Accounts $1,431 $1,198 $1,130
Savings deposits 2,539 2,624 2,562
Time deposits:
Less than $100 207 227 267
$100 and more 180 222 222
------ ------ ------
$4,357 $4,271 $4,181
------ ------ ------
</TABLE>
1999 Annual Report 23
<PAGE> 26
The scheduled maturities of certificates of deposit at December 31, 1999
and 1998, are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
--------------------------------------------
Percent Percent
(Dollars In Thousands) Amount of Total Amount of Total
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Due within:
One year $5,014 77.4% $6,863 88.0%
Two years 938 14.5 921 11.8
Three years 382 5.9 19 .2
Four years -- -- -- --
Five years 140 2.2 -- --
------ ------ ------ ------
$6,474 100.0% $7,803 100.0%
------ ------ ------ ------
</TABLE>
Note 7
EMPLOYEE BENEFITS
The Company has a noncontributory defined benefit pension plan which covers
substantially all of its employees. The Company's subsidiaries accrue and
make contributions designed to fund normal service costs on a current basis
using the projected unit credit with service proration method to amortize
prior service costs arising from improvements in pension benefits and
qualifying service prior to the establishment of the plan over a period of
approximately 30 years.
The pension cost for 1999, 1998 and 1997 was $784,000, $517,000 and
$538,000, respectively, and included the following components:
<TABLE>
<CAPTION>
(In Thousands) 1999 1998 1997
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned
during the year $ 929 $ 763 $ 706
Interest cost on projected
benefit obligations 747 617 544
Expected return on plan assets (899) (765) (622)
Net amortization and deferral (7) (98) (90)
------ ------ ------
Net periodic pension cost $ 784 $ 517 $ 538
------ ------ ------
</TABLE>
A summary of the activity in the defined benefit pension plan's benefit
obligation, assets, funded status and amounts recognized in the Company's
consolidated balance sheets at December 31, 1999, 1998 and 1997, is as
follows:
<TABLE>
<CAPTION>
(In Thousands) 1999 1998 1997
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Benefit obligation:
Balance, January 1 $10,771 $ 7,976 $ 7,322
Service cost 929 763 706
Interest cost 747 617 544
Actuarial loss (gain) (1,733) 1,548 503
Benefits paid (152) (133) (105)
-------- -------- --------
Balance, December 31 $10,562 $10,771 $ 7,976
-------- -------- --------
Plan assets:
Fair value, January 1 $10,886 $ 9,232 $ 7,487
Actual return 1,017 953 1,076
Employer contribution 207 834 774
Benefits paid (152) (133) (105)
-------- -------- --------
Fair value, December 31 $11,958 $10,886 $ 9,232
-------- -------- --------
Funded status:
Unfunded projected
benefits obligation $ 1,396 $ 115 $ 262
Unrecognized prior
service cost 134 141 148
Unrecognized net gains (3,241) (1,390) (1,861)
-------- -------- --------
Accrued pension cost $(1,711) $(1,134) $(1,451)
-------- -------- --------
</TABLE>
The weighted average discount rate and the rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligation were 7.75% and 4.00% in 1999, 6.75% and 4.00% in
1998 and 7.25% and 4.00% in 1997. The expected long-term rate of return on
assets was 8.00% in 1999, 1998 and 1997.
In addition to the above funded benefit plan, in 1998 the Company developed
an unfunded supplemental executive retirement plan which covers key
executives of the Company. This is a noncontributory plan in which the
Company's subsidiaries make accruals designed to fund normal service costs on
a current basis using the same method and criteria as its defined benefit
plan.
24 Cass Commercial Corporation
<PAGE> 27
The pension cost for 1999 and 1998 for the supplemental executive
retirement plan was $257,000 and $143,000, respectively, and included the
following components:
<TABLE>
<CAPTION>
(In Thousands) 1999 1998
- ------------------------------------------------------------------------
<S> <C> <C>
Service cost - benefits earned
during the year $ 38 $ 25
Interest cost on projected
benefit obligation 113 59
Net amortization and deferral 106 59
---- ----
Net periodic pension costs $257 $143
---- ----
</TABLE>
A summary of the activity in the supplemental executive retirement plan's
benefit obligation, funded status and amounts recognized in the Company's
consolidated balance sheets at December 31, 1999 and 1998, is as follows:
<TABLE>
<CAPTION>
(In Thousands) 1999 1998
- ------------------------------------------------------------------------
<S> <C> <C>
Benefit obligation:
Balance, January 1 $ 972 $ 822
Service cost 38 25
Interest cost 113 59
Actuarial loss (gain) 443 66
-------- ------
Balance, December 31 $ 1,566 $ 972
-------- ------
Funded Status:
Unfunded projected benefits obligation $(1,566) $(972)
Unrecognized prior service cost 704 763
Unrecognized actuarial loss 462 66
-------- ------
Accrued pension cost (400) (143)
Minimum liability adjustment (581) (451)
-------- ------
Accrued pension cost $ (981) $(594)
-------- ------
</TABLE>
The weighted average discount rate and the rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligation were 7.75% and 4.00% in 1999, and 6.75% and
5.00% in 1998.
The Company maintains a noncontributory profit sharing plan which covers
substantially all of its employees. Employer contributions are calculated
based upon formulas which relate to current operating results and other
factors. Profit sharing expense recognized in the consolidated statements of
income in 1999, 1998 and 1997 was $1,413,000, $1,679,000 and $1,564,000,
respectively.
The Company sponsors a defined contribution 401(k) plan to provide
additional retirement benefits to substantially all employees. Contributions
under the 401(k) plan for 1999, 1998 and 1997 were $234,000, $199,000 and
$220,000, respectively.
The Company maintains a restricted stock bonus plan which provides for the
issuance of up to 100,000 shares of the Company's common stock. During 1999,
1998 and 1995, the Company awarded 5,900, 3,000 and 32,000 shares of common
stock, respectively. The fair value of such shares has been recorded in the
consolidated financial statements through the establishment of a contra
shareholders' equity account which is amortized over the three-year vesting
period. Amortization of the restricted stock bonus awards totaled $68,000,
$50,000 and $110,000 for 1999, 1998 and 1997, respectively.
The Company also maintains a performance-based stock option plan which
provides for the granting of options to acquire up to 400,000 shares of
Company common stock. 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 following table summarizes stock options outstanding as of December
31, 1999:
<TABLE>
<CAPTION>
Weighted Average
Exercise Options Remaining
Price Outstanding Contractual Life
- ------------------------------------------------------------------------------
<S> <C> <C>
$10.32 85,440 3.47 years
20.36 6,000 4.00
23.00 3,500 6.00
24.63 2,000 6.00
25.25 61,350 6.00
25.45 8,500 4.00
</TABLE>
Changes in options outstanding were as follows:
<TABLE>
<CAPTION>
Weighted
Average
Exercise
Shares Price
- --------------------------------------------------------------------------
<S> <C> <C>
Balance at December 31, 1996 120,000 $10.32
Granted 14,500 23.34
Forfeited (16,000) 10.32
--------
Balance at December 31, 1997 118,500 11.91
Exercised (7,200) 10.32
Forfeited (1,400) 10.32
--------
Balance at December 31, 1998 109,900 12.04
Granted 67,100 25.11
Exercised (9,960) 10.32
Forfeited (250) 10.32
--------
Balance at December 31, 1999 166,790 17.38
--------
</TABLE>
1999 Annual Report 25
<PAGE> 28
At December 31, 1999, 41,756 shares were exercisable with a weighted
average exercise price of $10.32.
The Company accounts for stock-based compensation under the stock option
plan in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25), and accordingly,
recognizes no compensation expense as the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant. The Company elected not to adopt the recognition provisions of
the Financial Accounting Standards Board Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 123). An
entity that continues to apply APB 25 shall disclose certain pro forma
information as if the fair value-based accounting method in SFAS 123 had been
used to account for stock-based compensation costs. The pro forma effects
were calculated and are immaterial to the results of operations of the
Company.
Note 8
OTHER NONINTEREST EXPENSE
Details of other noninterest expense for 1999, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
(In Thousands) 1999 1998 1997
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Postage, printing and supplies $2,261 $2,161 $2,129
Advertising and business
development 1,509 1,392 1,437
Professional fees 1,064 1,056 1,320
Outside service fees 655 383 353
Data processing services 570 590 652
Telecommunications 612 531 518
Other 1,205 1,170 1,136
------ ------ ------
Total other noninterest expense $7,876 $7,283 $7,545
------ ------ ------
</TABLE>
Note 9
INCOME TAXES
The components of income tax expense for 1999, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
(In Thousands) 1999 1998 1997
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $3,560 $3,654 $3,114
State 343 392 241
Deferred (492) 131 271
------ ------ ------
$3,411 $4,177 $3,626
------ ------ ------
</TABLE>
A reconciliation of expected income tax expense, computed by applying the
effective federal statutory rate of 34% for 1999, 1998 and 1997 to income
before income tax expense, to reported income tax expense is as follows:
<TABLE>
<CAPTION>
(In Thousands) 1999 1998 1997
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Expected income tax expense $3,267 $3,939 $3,617
(Reductions) increases
resulting from:
Tax-exempt interest (136) (79) (78)
State taxes,
net of federal benefit 226 259 159
Amortization of intangibles -- -- (98)
Other, net 54 58 26
------ ------ ------
Income tax expense $3,411 $4,177 $3,626
------ ------ ------
</TABLE>
The tax effects of temporary differences which give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1999 and 1998, are presented below:
<TABLE>
<CAPTION>
(In Thousands) 1999 1998
- ---------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Unrealized loss on investment
in debt and equity securities
available-for-sale $ 215 $ --
Allowance for loan losses 898 920
Accrued pension cost 590 390
Premises and equipment 39 13
Other 292 188
------- -------
Total deferred tax assets 2,034 1,511
------- -------
Deferred tax liabilities:
Unrealized gain on investment
in debt and equity securities
available-for-sale -- (199)
Discount accretion (57) (165)
Other (143) (219)
------- -------
Total deferred tax liabilities (200) (583)
------- -------
Net deferred tax asset $1,834 $ 928
------- -------
</TABLE>
A valuation allowance would be provided on deferred tax assets when it is
more likely than not that some portion of the assets will not be realized.
The Company has not established a valuation allowance at December 31, 1999 or
1998, due to management's belief that all criteria for recognition have been
met, including the existence of a history of taxes paid sufficient to support
the realization of deferred tax assets.
26 Cass Commercial Corporation
<PAGE> 29
Note 10
CONTINGENCIES
The Company's subsidiaries are involved in various pending legal actions and
proceedings in which claims for damages are asserted. Management, after
discussion with legal counsel, believes the ultimate resolution of these
legal actions and proceedings will not have a material effect upon the
Company's consolidated financial position or results of operations.
Note 11
DISCLOSURES ABOUT
FINANCIAL INSTRUMENTS
The Company is party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit, commercial
letters of credit and standby letters of credit. The Company's exposure to
credit loss in the event of nonperformance by the other party to the
financial instrument for commitments to extend credit, commercial letters of
credit and standby letters of credit is represented by the contractual
amounts of those instruments.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commercial and standby letters of credit are conditional commitments issued
by the Company to guarantee the performance of a customer to a third party.
These off-balance-sheet financial instruments generally have fixed expiration
dates or other termination clauses and may require payment of a fee. Since
some of the financial instruments may expire without being drawn upon, the
total amounts do not necessarily represent future cash requirements.
Commitments to extend credit and letters of credit are subject to the same
underwriting standards as those financial instruments included on the
consolidated balance sheets. The Company evaluates each customer's
credit-worthiness on a case-by-case basis. The amount of collateral obtained,
if deemed necessary upon extension of the credit, is based on management's
credit evaluation of the borrower. Collateral held varies, but is generally
accounts receivable, inventory, residential or income-producing commercial
property or equipment.
Conditional commitments to extend credit, commercial letters of credit
and standby letters of credit totaled approximately $24,438,000, $99,000 and
$4,756,000, respectively, at December 31, 1999.
Following is a summary of the carrying amounts and fair values of the
Company's financial instruments at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999
--------------------------
Carrying Fair
(In Thousands) Amount Value
- ---------------------------------------------------------------------------
<S> <C> <C>
Balance sheet assets:
Cash and cash equivalents $124,217 $124,217
Investment in debt
and equity securities 82,996 82,823
Loans, net 274,061 270,712
Accrued interest receivable 2,764 2,764
-------- --------
$480,038 $480,516
-------- --------
Balance sheet liabilities:
Deposits $188,736 $189,052
Accounts and drafts payable 249,894 249,894
Short-term borrowings 208 208
Accrued interest payable 51 51
-------- --------
$438,889 $439,205
-------- --------
<CAPTION>
1998
--------------------------
Carrying Fair
(In Thousands) Amount Value
- ---------------------------------------------------------------------------
<S> <C> <C>
Balance sheet assets:
Cash and cash equivalents $179,385 $179,385
Investment in debt and
equity securities 83,974 84,560
Loans, net 220,460 222,877
Accrued interest receivable 2,764 2,764
-------- --------
$486,583 $489,586
-------- --------
Balance sheet liabilities:
Deposits $190,982 $191,035
Accounts and drafts payable 250,518 250,518
Short-term borrowings 323 323
Accrued interest payable 60 60
-------- --------
$441,883 $441,936
-------- --------
</TABLE>
1999 Annual Report 27
<PAGE> 30
The following methods and assumptions were used to estimate the fair
value of each class of financial instrument for which it is practicable to
estimate that value:
Cash and Other Short-term Instruments For cash and cash equivalents,
accrued interest receivable, accounts and drafts payable, short-term
borrowings and accrued interest payable, the carrying amount is a reasonable
estimate of fair value because of the demand nature or short maturities of
these instruments.
Investment in Debt and Equity Securities Fair values are based on
quoted market prices or dealer quotes.
Loans The fair value of loans is estimated by discounting the future
cash flows using the current rates at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining maturities.
Deposits The fair value of demand deposits, savings deposits and
certain money market deposits is the amount payable on demand at the
reporting date. The fair value of fixed-maturity certificates of deposit is
estimated using the rates currently offered for deposits of similar remaining
maturities. The fair value estimates above do not include the benefit that
results from the low-cost funding provided by the deposit liabilities
compared to the cost of borrowing funds in the market nor the benefit derived
from the customer relationship inherent in existing deposits.
Commitments to Extend Credit and Standby Letters of Credit The fair
value of commitments to extend credit and standby letters of credit are
estimated using the fees currently charged to enter into similar agreements,
taking into account the remaining terms of the agreements, the likelihood of
the counterparties drawing on such financial instruments and the present
credit-worthiness of such counterparties. The Company believes such
commitments have been made at terms which are competitive in the markets in
which it operates; however, no premium or discount is offered thereon and,
accordingly, the Company has not assigned a value to such instruments for
purposes of this disclosure.
Limitations Fair value estimates are based on existing on- and
off-balance-sheet financial instruments without attempting to estimate the
value of anticipated future business and the value of assets and liabilities
that are not considered financial instruments. Other significant assets or
liabilities that are not considered financial assets or liabilities include
premises and equipment and the benefit that results from the low-cost funding
provided by the deposit liabilities compared to the cost of borrowing funds
in the market (core deposit intangible). In addition, tax ramifications
related to the realization of the unrealized gains and losses can have a
significant effect on fair value estimates and have not been considered in
any of the estimates.
Because no market exists for a significant portion of the Company's
financial instruments, fair value estimates are based on management's
judgments regarding future expected loss experience, current economic
conditions, risk characteristics of various financial instruments and other
factors. These estimates are subjective in nature and involve uncertainties
and matters of significant judgment and, therefore, cannot be determined with
precision. Changes in assumptions could significantly affect the estimates.
28 Cass Commercial Corporation
<PAGE> 31
Note 12
INDUSTRY SEGMENT INFORMATION
The services provided by the Company are classified into two industry
segments: Information Services and Banking Services which are more fully
discussed in Note One. The Company maintains separate financial statements
for each of these segments which identify each segment's assets and net
income. Revenue from the Banking Services segment is derived primarily from
net interest revenue, which includes both interest income and interest
expense, and revenue from the Information Services segment is derived
primarily from interest income and fees from its freight and utility payment,
rating and processing services. Total net revenue is comprised of total net
interest income and total noninterest income, less provision for loan losses.
Summarized information about the Company's operations in each industry as
of and for the years ended December 31, 1999, 1998 and 1997, is as follows:
<TABLE>
<CAPTION>
TOTAL INTEREST INCOME
---------------------------------
(In Thousands) 1999 1998 1997
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Information Services $ 15,808 $ 15,306 $ 15,353
Banking Services 15,215 14,910 14,087
Eliminations (148) (172) (157)
--------- --------- ---------
Total $ 30,875 $ 30,044 $ 29,283
--------- --------- ---------
<CAPTION>
TOTAL NET REVENUE
---------------------------------
(In Thousands) 1999 1998 1997
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Information Services $ 36,082 $ 36,878 $ 35,918
Banking Services 12,187 11,779 10,987
Eliminations (316) (447) (357)
--------- --------- ---------
Total $ 47,953 $ 48,210 $ 46,548
--------- --------- ---------
<CAPTION>
INCOME (LOSS) BEFORE
INCOME TAX
---------------------------------
(In Thousands) 1999 1998 1997
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Information Services $ 4,585 $ 6,694 $ 6,352
Banking Services 5,156 5,014 4,464
Corporate Items (132) (123) (179)
--------- --------- ---------
Total $ 9,609 $ 11,585 $ 10,637
--------- --------- ---------
<CAPTION>
TOTAL INCOME TAX
EXPENSE (BENEFIT)
---------------------------------
(In Thousands) 1999 1998 1997
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Information Services $ 1,570 $ 2,403 $ 2,157
Banking Services 1,886 1,815 1,530
Corporate Items (45) (41) (61)
--------- --------- ---------
Total $ 3,411 $ 4,177 $ 3,626
--------- --------- ---------
<CAPTION>
IDENTIFIABLE ASSETS
---------------------------------
(In Thousands) 1999 1998 1997
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Information Services $284,412 $285,397 $246,488
Banking Services 214,971 228,032 209,485
Corporate Items 56,702 57,809 52,882
Eliminations (55,240) (67,326) (70,528)
--------- --------- ---------
Total $500,845 $503,912 $438,327
--------- --------- ---------
<CAPTION>
DEPRECIATION AND
AMORTIZATION EXPENSE
---------------------------------
(In Thousands) 1999 1998 1997
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Information Services $ 2,102 $ 2,056 $ 2,024
Banking Services 301 283 420
Corporate Items 30 20 26
--------- --------- ---------
Total $ 2,433 $ 2,359 $ 2,470
--------- --------- ---------
<CAPTION>
CAPITAL EXPENDITURES
---------------------------------
(In Thousands) 1999 1998 1997
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Information Services $ 1,425 $ 907 $ 3,427
Banking Services 454 294 468
Corporate Items 60 49 6
--------- --------- ---------
Total $ 1,938 $ 1,250 $ 3,901
--------- --------- ---------
</TABLE>
1999 Annual Report 29
<PAGE> 32
Note 13
CONDENSED FINANCIAL INFORMATION OF
PARENT COMPANY
Following are the condensed balance sheets of the Company (parent company
only) as of December 31, 1999 and 1998, and the related condensed schedules
of income and cash flows for each of the years in the three-year period ended
December 31, 1999.
<TABLE>
<CAPTION>
CONDENSED
BALANCE SHEETS
DECEMBER 31
-------------------------
(In Thousands) 1999 1998
- ---------------------------------------------------------------------------
<S> <C> <C>
Assets:
Cash $ 280 $ 694
Investment in Cass Commercial Bank 25,883 25,364
Investment in Cass Information
Systems, Inc. 30,027 31,207
Other assets 512 544
------- -------
Total assets $56,702 $57,809
------- -------
Liabilities and Shareholders' Equity:
Total liabilities $ 139 $ 405
Total shareholders' equity 56,563 57,404
------- -------
Total liabilities and shareholders' equity $56,702 $57,809
------- -------
</TABLE>
<TABLE>
<CAPTION>
CONDENSED SCHEDULES
OF INCOME
DECEMBER 31
--------------------------------
(In Thousands) 1999 1998 1997
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Dividends received from
subsidiaries $6,142 $2,880 $2,680
Management fees from
subsidiaries 1,473 1,328 1,282
------- ------- -------
Total income 7,615 4,208 3,962
------- ------- -------
Expenses:
Salaries and employee benefits 1,252 1,092 1,130
Other expenses 352 359 331
------- ------- -------
Total expenses 1,604 1,451 1,461
------- ------- -------
Income before income taxes and
equity in undistributed income
of subsidiaries 6,011 2,757 2,501
Income tax benefit (45) (41) (61)
------- ------- -------
6,056 2,798 2,562
Equity in undistributed
income of subsidiaries 142 4,610 4,449
------- ------- -------
Net income $6,198 $7,408 $7,011
------- ------- -------
<CAPTION>
CONDENSED SCHEDULES
OF CASH FLOWS
DECEMBER 31
--------------------------------
(In Thousands) 1999 1998 1997
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating
activities:
Net income $6,198 $7,408 $7,011
Adjustments to reconcile net
income to net cash provided
by operating activities:
Net income of subsidiaries
exclusive of
management fees (7,758) (8,818) (8,411)
Dividends from subsidiaries 6,142 2,880 2,680
Management fees from
subsidiaries 1,473 1,328 1,282
Amortization of stock
bonus plan 68 50 110
Other, net 63 157 177
------- ------- -------
Net cash provided by
operating activities 6,186 3,005 2,849
------- ------- -------
Cash flows from financing
activities:
Cash dividends paid (2,889) (2,782) (2,508)
Purchase of common shares
for treasury (3,711) -- --
------- ------- -------
Net cash used in
financing activities (6,600) (2,782) (2,508)
------- ------- -------
Net increase (decrease) in
cash and cash equivalents (414) 223 341
Cash and cash equivalents
at beginning of year 694 471 130
------- ------- -------
Cash and cash equivalents
at end of year $ 280 $ 694 $ 471
------- ------- -------
</TABLE>
30 Cass Commercial Corporation
<PAGE> 33
Independent Auditors' Report
THE BOARD OF DIRECTORS
AND SHAREHOLDERS
CASS COMMERCIAL CORPORATION:
We have audited the accompanying consolidated balance sheets of Cass
Commercial Corporation and subsidiaries (the Company) as of December 31, 1999
and 1998, and the related consolidated statements of income, cash flows and
shareholders' equity and comprehensive income for each of the years in the
three-year period ended December 31, 1999. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Cass
Commercial Corporation and subsidiaries as of December 31, 1999 and 1998, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1999, in conformity with generally
accepted accounting principles.
/s/ KPMG LLP
St. Louis, Missouri
February 11, 2000
1999 Annual Report 31
<PAGE> 34
BOARD OF DIRECTORS,
OFFICERS AND SHAREHOLDER
INFORMATION
- -------------------------------------------
DIRECTORS
Cass Commercial Corporation,
Cass Commercial Bank and
Cass Information Systems, Inc.
Lawrence A. Collett
Chairman of the Board, Chief
Executive Officer,
Cass Commercial Corporation
John J. Vallina
President, Cass Commercial
Bank
Robert J. Bodine
Chairman Emeritus, Bodine
Aluminum, Inc.
Bryan S. Chapell
President, Covenant
Theological Seminary
Thomas J. Fucoloro
Consultant
Harry J. Krieg
Chairman Emeritus
Howard A. Kuehner
Investor
Jake Nania
Investor
Irving A. Shepard
President, Venture
Consultants, Inc.
A.J. Signorelli
Founder, Andrews Educational
& Research Center
and Hope Educational &
Research Center
Bruce E. Woodruff
Attorney; of counsel to
Armstrong Teasdale LLP
OFFICERS
Cass Commercial Corporation
Lawrence A. Collett
Chairman of the Board,
Chief Executive Officer
Eric H. Brunngraber
Vice President, Secretary
& Chief Financial Officer
William C. Bouchein
Vice President, Treasurer
Wayne D. Muskopf
Vice President, Human
Resources
Barbara J. Netherton
Controller
Karen L. Lowry
Human Resources Officer
CORPORATE HEADQUARTERS
Cass Commercial Corporation
13001 Hollenberg Drive
Bridgeton, Missouri 63044
(314) 506-5500
COMMON STOCK
The common stock of Cass
Commercial Corporation is
listed on the over-the-counter
market and quoted on the
NASDAQ National Market
System under the symbol
"CASS." The stock generally
appears as "CassCo" or
"CassCommrcl" in the newspa-
per stock tables.
ANNUAL MEETING
The annual meeting of share-
holders of Cass Commercial
Corporation will be held at the
corporate headquarters on
April 17, 2000, at 11:00 a.m.
TRANSFER AGENT
Shareholders with inquiries
regarding stock accounts,
dividends, change of ownership
or address, lost certificates
or consolidation of accounts
should contact:
ChaseMellon Shareholder
Services, L.L.C.
Overpeck Centre
85 Challenger Road
Ridgefield Park, New Jersey
07660
(888) 213-0965
www.chasemellon.com
INDEPENDENT AUDITORS
KPMG LLP
10 South Broadway
Suite 900
St. Louis, Missouri 63102
INVESTOR RELATIONS
Analysts and others seeking
financial information about
Cass Commercial Corporation
should contact:
Cass Commercial Corporation
Investor Relations Department
13001 Hollenberg Drive
Bridgeton, Missouri 63044
(314) 506-5500
10K AND OTHER PUBLICATIONS
For additional copies of this
annual report and Form 10K
and other financial information,
please contact the Investor
Relations Department at the
address and phone number
above.
32 Cass Commercial Corporation
<PAGE> 35
BUSINESS UNIT
OFFICERS
- -------------------------------------------
Cass Commercial Bank
OFFICERS
Lawrence A. Collett
Chairman of the Board, Chief
Executive Officer
John J. Vallina
President
Eric H. Brunngraber
Vice President, Secretary
& Chief Financial Officer
BANKING SERVICES
Ray E. McCormick
Vice President
Douglas J. Hoffman
Vice President, Treasurer
Patsy J. Moffitt
Assistant Vice President
Dana L. Pannett
Assistance Vice President,
Compliance
Dorothy M. Smith
Assistant Vice President
Nancy Elliott
Assistant Vice President
Sandra L. Hatchett
Assistant Vice President
Karen McGrew
Operations Officer
LOAN ADMINISTRATION
Emory A. Jackson
Vice President
Michelle L. Gottlieb
Assistant Vice President,
Credit Administration
Roberta L. Harrington
Assistant Vice President,
Loan Administration
BUSINESS DIVISION
Kenneth A. Witbrodt, Jr.
Executive Vice President
Mark A. Benten
Vice President, Team Leader
Edward L. Campbell, Jr.
Vice President
David A. Lucks
Vice President
Jeanne M. Scannell
Vice President
Robert J. Garagiola
Vice President, Team Leader
H. Ely Britton
Senior Vice President
Thomas Dickson
Vice President
Donald P. Doherty
Vice President
John J. Scherer
Vice President, Team Leader
Robert C. Hockney
Vice President
Rebeckah L. Kenney
Vice President
Francis J. Sommer
Vice President
Alex D. Fennoy
Assistant Vice President
CHURCH DIVISION
Theodore F. Winters
Senior Vice President
Dorothy M. Jones
Assistant Vice President
Albert Buck
Vice President
Chris R. Dimond
Vice President, Team Leader
Cass Information Systems, Inc.
Lawrence A. Collett
Chairman of the Board,
Chief Executive Officer
Eric H. Brunngraber
Vice President, Secretary
& Chief Financial Officer
FREIGHT PAYMENT SERVICES
OFFICERS
John F. Pickering
President, Chief
Operating Officer
Gus A. Nelson
Senior Vice President
Terrence J. Cowee
Senior Vice President,
Marketing & Sales
Jeffrey J. Thurston
Vice President, Information
Technology
Robert V. Delaney
Vice President
Mark A. Campbell
Vice President, General
Manager, St. Louis Facility
Jeffrey A. Nini
Vice President, General
Manager, Columbus Facility
Anthony J. Rubico
Vice President, General
Manager, Boston Facility
OPERATIONS
Kim A. Acsay
Steven W. Aylward
Donna W. Bartley
James P. Crowley
Gunars A. Dunskis
James M. Dwyer
Sheila D. Foston
Joe A. Getz
Emilia Girvids
Gail M. Hart
Barry L. Kitson
Vickie L. Maloney
Nancy L. Moon
Carol A. Reynolds
JoAnn Ross
Thomas G. Schaper
Jerry A. Young
Kevin B. Weston
David L. Zike
MARKETING
AND SALES
Richard E. Dekostic
Stephen W. Johnson
Gregg R. Klein
Louis V. Nowak
Thomas M. Zygmunt
UTILITY PAYMENT
SERVICES
OFFICERS
Harry M. Murray
Executive Vice President
OPERATIONS
John D. McKissack
Susan P. Millman
MARKETING AND SALES
Gary B. Langfitt
Vice President
Mary A. Shaw
Phyllis J. Higgins
Edward F. Clark
1999 Annual Report 33
<PAGE> 36
SEE, I LAY A STONE IN ZION, A TESTED STONE, A PRECIOUS CORNERSTONE FOR A SURE
FOUNDATION, THE ONE WHO TRUSTS WILL NEVER BE DISMAYED.
ISAIAH 28:16
[CASS LOGO]
Cass Commercial Corporation
13001 Hollenberg Drive
Bridgeton, Missouri 63044
<PAGE> 1
SUBSIDIARIES OF CASS COMMERCIAL CORPORATION
-------------------------------------------
<TABLE>
<CAPTION>
Name & Address State of Incorporation
- -------------- ----------------------
<S> <C>
Cass Commercial Bank Missouri
13001 Hollenberg Drive
Bridgeton, Missouri 63044
Cass Information Systems, Inc. Missouri
13001 Hollenberg Drive
Bridgeton, Missouri 63044
</TABLE>
<PAGE> 1
INDEPENDENT AUDITORS' CONSENT
-----------------------------
The Board of Directors
Cass Commercial Corporation:
We consent to the incorporation by reference in the registration statements
No. 33-91456, No. 33-91568, and No. 333-44499 on Form S-8 of Cass Commercial
Corporation (Cass) of our report dated February 11, 2000, relating to the
consolidated balance sheets of Cass Commercial Corporation and subsidiaries
as of December 31, 1999 and 1998, and the related consolidated statements of
income, shareholders' equity and comprehensive income, and cash flows for
each of the years in the three-year period ended December 31, 1999, which
report appears in the December 31, 1999 annual report on Form 10-K of Cass.
/s/ KPMG LLP
St. Louis, Missouri
March 17, 2000
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 18,497
<INT-BEARING-DEPOSITS> 81,000
<FED-FUNDS-SOLD> 24,720
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 57,442
<INVESTMENTS-CARRYING> 25,554
<INVESTMENTS-MARKET> 25,381
<LOANS> 278,343
<ALLOWANCE> 4,282
<TOTAL-ASSETS> 500,845
<DEPOSITS> 188,736
<SHORT-TERM> 208
<LIABILITIES-OTHER> 255,338
<LONG-TERM> 0
0
0
<COMMON> 2,000
<OTHER-SE> 54,563
<TOTAL-LIABILITIES-AND-EQUITY> 500,845
<INTEREST-LOAN> 20,371
<INTEREST-INVEST> 4,722
<INTEREST-OTHER> 5,782
<INTEREST-TOTAL> 26,509
<INTEREST-DEPOSIT> 4,357
<INTEREST-EXPENSE> 4,366
<INTEREST-INCOME-NET> 26,509
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 38,344
<INCOME-PRETAX> 9,609
<INCOME-PRE-EXTRAORDINARY> 9,609
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,198
<EPS-BASIC> 1.63
<EPS-DILUTED> 1.61
<YIELD-ACTUAL> 5.87
<LOANS-NON> 170
<LOANS-PAST> 167
<LOANS-TROUBLED> 70
<LOANS-PROBLEM> 1,310
<ALLOWANCE-OPEN> 4,428
<CHARGE-OFFS> 256
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