1
Cass Commercial Corporation 1999 Annual Report
INVESTING IN
...................................................
STRATEGIC RESOURCES
Strengthening Our Foundation
[CASS LOGO]
2
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2 CHAIRMAN'S LETTER
TO SHAREHOLDERS
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6 PRIVATELY HELD
BUSINESSES BANKING
SERVICES
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8 CHURCHES AND
CHURCH-RELATED
BANKING SERVICES
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10 FREIGHT PAYMENT
PROCESSING SERVICES
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12 UTILITIES PAYMENT
PROCESSING SERVICES
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14 FINANCIAL
STATEMENTS
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18 NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
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32 BOARD OF DIRECTORS,
OFFICERS AND SHAREHOLDER
INFORMATION
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33 BUSINESS UNIT
OFFICERS
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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
4
CHAIRMAN'S LETTER
TO SHAREHOLDERS
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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
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
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CHAIRMAN'S LETTER
(continued)
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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
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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
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PRIVATELY HELD
BUSINESSES BANKING
SERVICES
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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
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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
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CHURCHES AND
CHURCH-RELATED
BANKING SERVICES
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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]
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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
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[PHOTO]
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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
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FREIGHT PAYMENT
PROCESSING SERVICES
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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]
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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
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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]
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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
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UTILITIES PAYMENT
PROCESSING SERVICES
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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
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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
16
CONSOLIDATED
BALANCE SHEETS
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DECEMBER 31
-------------------------------
(In Thousands of Dollars, Except Share and per Share Data) 1999 1998
-------------------------------------------------------------------------------------------------------------------
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
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Total investment in debt and equity securities 82,996 83,974
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Loans 278,343 224,888
Less: Allowance for loan losses 4,282 4,428
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Loans, net 274,061 220,460
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Premises and equipment, net 9,181 9,249
Accrued interest receivable 2,764 2,764
Other assets 7,626 8,080
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Total assets $500,845 $503,912
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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
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Total liabilities 444,282 446,508
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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
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Total liabilities and shareholders' equity $500,845 $503,912
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See accompanying notes to consolidated financial statements.
14 Cass Commercial Corporation
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CONSOLIDATED
STATEMENTS
OF INCOME
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YEAR ENDED DECEMBER 31
-----------------------------------------
(In Thousands of Dollars, Except Share and per Share Data) 1999 1998 1997
--------------------------------------------------------------------------------------------------------------------
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.
1999 Annual Report 15
18
CONSOLIDATED
STATEMENTS OF
CASH FLOWS
- -------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31
-------------------------------------------
(In Thousands of Dollars) 1999 1998 1997
--------------------------------------------------------------------------------------------------------------------
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.
16 Cass Commercial Corporation
19
STATEMENTS OF
SHAREHOLDERS' EQUITY AND
COMPREHENSIVE INCOME
- -------------------------------------------------------------------------------
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
------------------------------------------------------------------------------------------------------------------------
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.
1999 Annual Report 17
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
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
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:
REQUIREMENT
TO BE WELL
CAPITALIZED UNDER
CAPITAL PROMPT CORRECTIVE
ACTUAL REQUIREMENTS ACTION PROVISIONS
-------------------------------------------------------------------------
(Dollars In Thousands) Amount Ratio Amount Ratio Amount Ratio
- ---------------------------------------------------------------------------------------------------------------------
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
20 Cass Commercial Corporation
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:
1999
---------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
(In Thousands) Cost Gains Losses Value
- -------------------------------------------------------------------------
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
------- ------ ------ -------
1998
---------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
(In Thousands) Cost Gains Losses Value
- -------------------------------------------------------------------------
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
------- ------ ------ -------
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.
1999
---------------------------
Amortized Fair
(In Thousands) Cost Value
- --------------------------------------------------------------------
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
------- -------
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:
1999
---------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
(In Thousands) Cost Gains Losses Value
- -------------------------------------------------------------------------
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
------- ----- ------ -------
1998
---------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
(In Thousands) Cost Gains Losses Value
- -------------------------------------------------------------------------
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
------- ----- ------ -------
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
24
1999
-------------------------
Amortized Fair
(In Thousands) Cost Value
- ------------------------------------------------------------------------
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
------- -------
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:
(In Thousands) 1999 1998
- ------------------------------------------------------------------------
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
-------- --------
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.
(In Thousands)
- ------------------------------------------------------------
Aggregate balance, January 1, 1999 $ 3,418
New loans 59
Payments (2,247)
--------
Aggregate balance, December 31, 1999 $ 1,230
-------
A summary of the activity in the allowance for loan losses for 1999, 1998
and 1997 is as follows:
(In Thousands) 1999 1998 1997
- ------------------------------------------------------------------------
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
------- ------- -------
A summary of impaired loans at December 31, 1999 and 1998, is as follows:
(In Thousands) 1999 1998
- ------------------------------------------------------------------------
Nonaccrual loans $170 $477
Impaired loans continuing
to accrue interest 173 273
---- ----
Total impaired loans $343 $750
---- ----
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
25
A summary of interest income on impaired loans for 1999, 1998 and 1997 is
as follows:
1999
--------------------------------------
Impaired
Loans
Continuing
Nonaccrual to Accrue
(In Thousands) Loans Interest Total
- -------------------------------------------------------------------------
Income recognized $ 1 $ -- $ 1
Interest income if interest
had accrued 44 1 45
1998
--------------------------------------
Impaired
Loans
Continuing
Nonaccrual to Accrue
(In Thousands) Loans Interest Total
- -------------------------------------------------------------------------
Income recognized $ 17 $ 25 $ 42
Interest income if
interest had accrued 78 26 104
1997
--------------------------------------
Impaired
Loans
Continuing
Nonaccrual to Accrue
(In Thousands) Loans Interest Total
- -------------------------------------------------------------------------
Income recognized $ 1 $ 45 $ 46
Interest income if
interest had accrued 27 53 80
Note 5
PREMISES AND EQUIPMENT
A summary of premises and equipment at December 31, 1999 and 1998, is as
follows:
(In Thousands) 1999 1998
- ------------------------------------------------------------------------
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
------- -------
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:
(In Thousands)
- ------------------------------------------------------------------------
2000 $ 704
2001 385
2002 342
2003 345
2004 259
2005 and thereafter 275
------
$2,310
------
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:
(In Thousands) 1999 1998
- ------------------------------------------------------------------------
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
------- --------
Interest on deposits consists of the following for 1999, 1998 and 1997:
(In Thousands) 1999 1998 1997
- ------------------------------------------------------------------------
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
------ ------ ------
1999 Annual Report 23
26
The scheduled maturities of certificates of deposit at December 31, 1999
and 1998, are summarized as follows:
1999 1998
--------------------------------------------
Percent Percent
(Dollars In Thousands) Amount of Total Amount of Total
- --------------------------------------------------------------------------
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%
------ ------ ------ ------
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:
(In Thousands) 1999 1998 1997
- --------------------------------------------------------------------------
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
------ ------ ------
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:
(In Thousands) 1999 1998 1997
- ------------------------------------------------------------------------
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)
-------- -------- --------
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
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:
(In Thousands) 1999 1998
- ------------------------------------------------------------------------
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
---- ----
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:
(In Thousands) 1999 1998
- ------------------------------------------------------------------------
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)
-------- ------
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:
Weighted Average
Exercise Options Remaining
Price Outstanding Contractual Life
- ------------------------------------------------------------------------------
$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
Changes in options outstanding were as follows:
Weighted
Average
Exercise
Shares Price
- --------------------------------------------------------------------------
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
--------
1999 Annual Report 25
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:
(In Thousands) 1999 1998 1997
- ----------------------------------------------------------------------------
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
------ ------ ------
Note 9
INCOME TAXES
The components of income tax expense for 1999, 1998 and 1997 are as follows:
(In Thousands) 1999 1998 1997
- ----------------------------------------------------------------------------
Current:
Federal $3,560 $3,654 $3,114
State 343 392 241
Deferred (492) 131 271
------ ------ ------
$3,411 $4,177 $3,626
------ ------ ------
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:
(In Thousands) 1999 1998 1997
- ----------------------------------------------------------------------------
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
------ ------ ------
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:
(In Thousands) 1999 1998
- ---------------------------------------------------------------------------
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
------- -------
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
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:
1999
--------------------------
Carrying Fair
(In Thousands) Amount Value
- ---------------------------------------------------------------------------
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
-------- --------
1998
--------------------------
Carrying Fair
(In Thousands) Amount Value
- ---------------------------------------------------------------------------
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
-------- --------
1999 Annual Report 27
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
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:
TOTAL INTEREST INCOME
---------------------------------
(In Thousands) 1999 1998 1997
- ---------------------------------------------------------------------------
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
--------- --------- ---------
TOTAL NET REVENUE
---------------------------------
(In Thousands) 1999 1998 1997
- ---------------------------------------------------------------------------
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
--------- --------- ---------
INCOME (LOSS) BEFORE
INCOME TAX
---------------------------------
(In Thousands) 1999 1998 1997
- ---------------------------------------------------------------------------
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
--------- --------- ---------
TOTAL INCOME TAX
EXPENSE (BENEFIT)
---------------------------------
(In Thousands) 1999 1998 1997
- ---------------------------------------------------------------------------
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
--------- --------- ---------
IDENTIFIABLE ASSETS
---------------------------------
(In Thousands) 1999 1998 1997
- ---------------------------------------------------------------------------
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
--------- --------- ---------
DEPRECIATION AND
AMORTIZATION EXPENSE
---------------------------------
(In Thousands) 1999 1998 1997
- ---------------------------------------------------------------------------
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
--------- --------- ---------
CAPITAL EXPENDITURES
---------------------------------
(In Thousands) 1999 1998 1997
- ---------------------------------------------------------------------------
Information Services $ 1,425 $ 907 $ 3,427
Banking Services 454 294 468
Corporate Items 60 49 6
--------- --------- ---------
Total $ 1,938 $ 1,250 $ 3,901
--------- --------- ---------
1999 Annual Report 29
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.
CONDENSED
BALANCE SHEETS
DECEMBER 31
-------------------------
(In Thousands) 1999 1998
- ---------------------------------------------------------------------------
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
------- -------
CONDENSED SCHEDULES
OF INCOME
DECEMBER 31
--------------------------------
(In Thousands) 1999 1998 1997
- ----------------------------------------------------------------------------
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
------- ------- -------
CONDENSED SCHEDULES
OF CASH FLOWS
DECEMBER 31
--------------------------------
(In Thousands) 1999 1998 1997
- ----------------------------------------------------------------------------
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
------- ------- -------
30 Cass Commercial Corporation
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
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
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
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