1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 2001
COMMISSION FILE NO. 2-80070
_________________
CASS INFORMATION SYSTEMS, INC.
INCORPORATED UNDER THE LAWS OF MISSOURI
I.R.S. EMPLOYER IDENTIFICATION NO. 43-1265338
13001 HOLLENBERG DRIVE, BRIDGETON, MISSOURI 63044
TELEPHONE: (314) 506-5500
_________________
Indicate by check mark whether the registrant has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
The number of shares outstanding of registrant's only class of stock as
of April 25, 2001: Common stock, par value $.50 per share - 3,277,449 shares
outstanding.
- -----------------------------------------------------------------------------
This document constitutes part of a prospectus covering securities that
have been registered under the Securities Act of 1933.
- -----------------------------------------------------------------------------
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in Thousands except Per Share Data)
MARCH 31 DECEMBER 31
2001 2000
ASSETS
Cash and due from banks $ 24,910 $ 21,680
Federal funds sold and other short-term investments 56,980 94,251
-------- --------
Cash and cash equivalents 81,890 115,931
-------- --------
Investment in debt and equity securities:
Held-to-maturity, fair value of $6,682
at December 31, 2000 -- 6,650
Available-for-sale, at fair value 57,903 62,675
-------- --------
Total investment in debt and equity securities 57,903 69,325
-------- --------
Loans 373,448 372,220
Less: Allowance for loan losses 4,900 4,897
-------- --------
Loans, net 368,548 367,323
-------- --------
Premises and equipment, net 16,191 13,914
Accrued interest receivable 3,175 3,528
Investment in unconsolidated subsidiary 5,005 --
Other assets 7,998 6,865
-------- --------
Total assets $540,710 $576,886
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
- -----------
Deposits:
Noninterest-bearing $ 77,957 $ 99,941
Interest-bearing 118,468 112,725
-------- --------
Total deposits 196,425 212,666
Accounts and drafts payable 281,070 302,840
Short-term borrowings 25 --
Other liabilities 8,983 7,559
-------- --------
Total liabilities 486,503 523,065
-------- --------
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 5,050 5,059
Retained earnings 60,271 59,177
Accumulated other comprehensive income 550 159
Common shares in treasury, at cost (717,551 shares at
March 31, 2001 and 655,089 shares at December 31, 2000) (13,591) (12,480)
Unamortized stock bonus awards (73) (94)
-------- --------
Total shareholders' equity 54,207 53,821
-------- --------
Total liabilities and shareholders' equity $540,710 $576,886
======== ========
See accompanying notes to consolidated financial statements.
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CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in Thousands except Per Share Data)
THREE MONTHS ENDED
MARCH 31
================================
2001 2000
INTEREST INCOME:
Interest and fees on loans $ 7,547 $ 6,157
Interest and dividends on debt and equity securities:
Taxable 972 1,371
Exempt from federal income taxes 14 15
Interest on federal funds sold and
other short-term investments 915 862
------- -------
Total interest income 9,448 8,405
------- -------
INTEREST EXPENSE:
Interest on deposits 1,446 954
Interest on short-term borrowings -- 2
------- -------
Total interest expense 1,446 956
------- -------
Net interest income 8,002 7,449
Provision for loan losses -- 100
------- -------
Net interest income after provision
for loan losses 8,002 7,349
------- -------
NONINTEREST INCOME:
Payment and processing fees 5,312 5,336
Bank service fees 316 334
Other 112 85
------- -------
Total noninterest income 5,740 5,755
------- -------
NONINTEREST EXPENSE:
Salaries and employee benefits 7,722 7,050
Occupancy expense 461 434
Equipment expense 814 752
Other 2,091 1,943
------- -------
Total noninterest expense 11,088 10,179
------- -------
Income before income tax expense 2,654 2,925
Income tax expense 904 1,069
------- -------
Net income $ 1,750 $ 1,856
======= =======
Earnings per share:
Basic $.53 $.51
Diluted $.53 $.50
Weighted average shares outstanding:
Basic 3,293,614 3,643,604
Effect of stock options and awards 43,407 45,361
Diluted 3,337,021 3,688,965
See accompanying notes to consolidated financial statements.
-3-
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CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
THREE MONTHS ENDED
MARCH 31
=================================
2001 2000
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,750 $ 1,856
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 625 650
Provision for loan losses -- 100
Amortization of stock bonus awards 21 19
(Increase) decrease in accrued interest receivable 353 (208)
Increase (decrease) in deferred income 83 (408)
Deferred income tax benefit (554) (78)
Increase in income tax liability 1,028 610
Change in other assets (1,403) 341
Change in other liabilities 396 341
Other operating activities, net (285) 499
-------- --------
Net cash provided by operating activities 2,014 3,722
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of debt and equity securities:
Held-to-maturity -- 2,950
Available-for-sale 12,001 4,323
Purchase of debt and equity securities:
Held-to-maturity -- (2,000)
Available-for-sale -- (16,889)
Net increase in loans (5,430) (42,008)
Purchases of premises and equipment, net (2,864) (676)
-------- --------
Net cash provided by (used in) investing activities 3,707 (54,300)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in noninterest-bearing demand deposits (21,984) (10,969)
Net increase (decrease) in interest-bearing demand and savings deposits 3,422 (5,663)
Net increase (decrease) in time deposits 2,321 (173)
Net increase (decrease) in accounts and drafts payable (21,770) 32,356
Net increase (decrease) in short-term borrowings 25 (8)
Cash proceeds from exercise of stock options 11 47
Cash dividends paid (656) (729)
Purchase of common shares for treasury (1,131) (3,702)
-------- --------
Net cash provided by (used in) financing activities (39,762) 11,159
-------- --------
Net decrease in cash and cash equivalents (34,041) (39,419)
Cash and cash equivalents at beginning of period 115,931 124,217
-------- --------
Cash and cash equivalents at end of period $ 81,890 $ 84,798
======== ========
Supplemental information:
Cash paid for interest $ 1,404 $ 950
Cash paid for income taxes 411 439
Transfer of securites from held-to-maturity to available-for-sale 6,650 --
Transfer of loans to investment in unconsolidated subsidiary 4,205 --
See accompanying notes to consolidated financial statements.
-4-
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CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with accounting principles generally
accepted in the United States of America for interim financial information
and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes
required by accounting principles generally accepted in the United States of
America for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. Operating results for the period
ended March 31, 2001 are not necessarily indicative of the results that may
be expected for the year ending December 31, 2001. For further information,
refer to the consolidated financial statements and related footnotes
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 2000.
Note 2 - Impact of New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities (SFAS 133) which establishes
standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities.
It requires an entity to recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those
instruments at fair value. In June 1999, the FASB issued Statement of
Financial Accounting Standards No. 137, Accounting for Derivative Instruments
and Hedging Activities - Deferral of the Effective Date of FASB No. 133,
which defers the effective date of SFAS 133 from fiscal years beginning after
June 15, 1999 to fiscal years beginning after June 15, 2000. In June 2000,
the FASB issued Statement of Financial Accounting Financial Standards No.
138, Accounting for Certain Derivative Instruments and Certain Hedging
Activities, which addresses certain issues causing implementation
difficulties. The Company has adopted SFAS 133, as amended, effective
January 1, 2001, but since the Company does not participate in any derivative
or hedging activities, SFAS 133, as amended, had no impact on the Company's
consolidated financial position and results of operations, except for the
transfer of all held-to-maturity securities into available-for-sale
securities as of January 1, 2001 as permitted by SFAS 133. At the time of
the transfer the book value of the securities transferred was $6,650,000 and
the market value was $6,682,000. The difference was an unrealized gain
recorded net of tax as other comprehensive income.
Note 3 - Loans by Type
(DOLLARS IN THOUSANDS) MARCH 31, 2001 DECEMBER 31, 2000
====================================================================================
Commercial and industrial $136,795 $136,482
Real estate:
Mortgage 119,740 117,170
Mortgage - Churches & Related 70,861 65,368
Construction 10,111 9,877
Construction - Churches & Related 15,812 19,587
Industrial revenue bonds 15,474 15,804
Installment 2,359 2,533
Other 2,296 5,399
- ------------------------------------------------------------------------------------
Total loans $373,448 $372,220
====================================================================================
Note 4 - Stock Repurchase Program
On December 21, 1999 the Board of Directors authorized a stock
repurchase program that allowed the repurchase of up to 200,000 shares of
common stock through December 31, 2000. On March 21, 2000 the Board of
Directors authorized a 100,000 increase in the number of shares that could
be purchased under the program. Along with the 300,000 shares authorized
under the plan, the Board of Directors approved the repurchase of an
additional 153,680 shares. During the First Quarter of 2001 the Company
repurchased 53,500 shares. Repurchases were made in the open market or
through negotiated transactions from time to time depending on market
conditions.
-5-
6
Note 5 - Comprehensive Income
For the three-month periods ended March 31, 2001 and 2000, unrealized
gains and losses on debt and equity securities available-for-sale is the
Company's only other comprehensive income component. Comprehensive income
for the three-month periods ended March 31, 2001 and 2000 is summarized as
follows:
THREE MONTHS ENDED
MARCH 31
=========================
(IN THOUSANDS) 2001 2000
=================================================================================
Net Income $1,750 $1,856
Other comprehensive income:
Net unrealized gain (loss) on debt and equity
securities available-for-sale, net of tax 391 (152)
- ---------------------------------------------------------------------------------
Total comprehensive income $2,141 $1,704
=================================================================================
Note 6 - Industry Segment Information
The services provided by the Company are classified into three reportable
segments: Transportation Information Services, Utility Information Services,
and Banking Services. Each of these segments offers distinctive services
that are marketed through different channels. They are managed separately
due to their unique services, processing and capital requirements.
The Transportation Information Services unit provides freight invoice
rating, payment, auditing, cost accounting and transportation information
services to large corporate shippers. The Utility Information Services unit
processes and pays utility invoices, including electricity, gas, water,
telephone and refuse, for large corporate entities that have many locations
or are heavy users of energy. The Banking Services unit provides banking
services primarily to privately held businesses and churches.
The Company's accounting policies for segments are the same as those
described in the summary of significant accounting policies in the Company's
Annual Report on Form 10-K for the year ended December 31, 2000. Management
evaluates segment performance based on net income after allocations for
corporate expenses and income taxes. Transactions between segments are
accounted for at what management believes to be market value. The Company
has initiated the reporting of information relating to the Utility
Information Services unit due to its growth and formalization of its
existence as an operating unit. Previous period information has been
restated to reflect this addition.
All three segments market their services within the United States and no
revenue from any customer of any segment exceeds 10% of the Company's
consolidated revenue.
Summarized information about the Company's operations in each industry
segment for the three-month periods ended March 31, 2001 and 2000, is as
follows:
TRANSPORTATION UTILITY
INFORMATION INFORMATION BANKING ELIM-
(IN THOUSANDS) SERVICES SERVICES SERVICES CORPORATE INATIONS TOTAL
=======================================================================================================================
Quarter Ended March 31, 2001
Total Revenues $8,704 $1,774 $3,377 $478 $(591) $13,742
Net Income 960 (2) 804 (12) -- 1,750
- -----------------------------------------------------------------------------------------------------------------------
Quarter Ended March 31, 2000
Total Revenues $8,963 $ 873 $3,368 $388 $(488) $13,104
Net Income 1,157 (151) 873 (23) -- 1,856
- -----------------------------------------------------------------------------------------------------------------------
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Note 7 - Investment in Unconsolidated Subsidiary
On January 2, 2001, the Company's Bank subsidiary foreclosed on certain
operating assets relating to one borrower in order to protect the Bank's
financial interest in that borrower. The Bank is currently stabilizing this
business and operating it as Government e-Business, Inc. It is accounted for
as an unconsolidated subsidiary. At March 31, 2001 the investment in this
subsidiary was $5,005,000.
Note 8 - Reclassifications
Certain amounts in the 2000 consolidated financial statements have been
reclassified to conform with the 2001 presentation. Such reclassifications
have no effect on previously reported net income.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Cass Information Systems, Inc. (the "Company") operates in three primary
business segments: Transportation Information Services, Utility Information
Services and through the Company's wholly owned subsidiary, Cass Commercial
Bank ("Cass Bank"), Banking Services. The Company is a payment processing
and information services company, whose operations include the processing
and payment of freight and utility charges, preparation of management
information, auditing and rating of charges and other payment related
activities for customers located throughout the United States. Cass Bank
provides specialized banking services to privately held businesses located
primarily in the St. Louis, Missouri metropolitan area and church and
church-related entities located in the St. Louis metropolitan area and
selected cities throughout the United States.
On January 18, 2001 the Company announced that it acquired substantially
all the utility payment and processing related assets of "The Utility
Navigator(R)" a division of privately held InSITE Services, Inc. These
assets include books and records relating to the business, customer and
vendor lists, customer contracts, reporting history and databases, marketing
and advertising materials, trademarks and other intellectual property, and a
license to the software used to process and pay utility bills.
The following paragraphs more fully discuss the results of operations
and changes in financial condition for the three-month period ended March 31,
2001 (the "First Quarter of 2001") compared to the three-month period ended
March 31, 2000 (the "First Quarter of 2000"). The following discussion and
analysis should be read in conjunction with the consolidated financial
statements and related notes and with the statistical information and
financial data appearing in this report as well as the Company's 2000 Annual
Report on Form 10-K. Results of operations for the First Three Months of 2001
are not necessarily indicative of the results to be attained for any other
period.
RESULTS OF OPERATIONS
NET INCOME
The Company had net income of $1,750,000 for the First Quarter of 2001,
a $106,000 or 5.7% decrease compared to net income of $1,856,000 for the First
Quarter of 2000. Diluted earnings per share was $.53 for the First Quarter
of 2001, a 6.0% increase compared to $.50 for the First Quarter of 2000.
Return on average assets for the First Quarter of 2001 was 1.30% compared to
1.50% for the First Quarter of 2000. Return on average equity for the First
Quarter of 2001 was 13.11% compared to 13.35% for the First Quarter of 2000.
NET INTEREST INCOME
First Quarter of 2001 compared to First Quarter 2000:
The Company's tax-equivalent net interest income increased 8.5% or
$637,000 from $7,488,000 to $8,125,000. Average earning assets increased
10.4% or $47,337,000 from $456,340,000 to $503,677,000. The tax-equivalent
net interest margin decreased from 6.60% to 6.56%. The average
tax-equivalent yield on earning assets
-7-
8
increased from 7.44% to 7.73%. The average rate paid on interest-bearing
liabilities increased from 3.90% to 4.76%.
The average balance of loans increased $66,814,000 from $304,850,000 to
$371,664,000, investment in debt and equity securities decreased $26,617,000
from $89,977,000 to $63,360,000, and federal funds sold and other short-term
investments increased $7,140,000 from $61,513,000 to $68,653,000. The
average balance of noninterest bearing demand deposit accounts decreased
$1,213,000 from $82,855,000 to $81,642,000, accounts and drafts payable
increased $24,672,000 from $254,693,000 to $279,365,000, and interest bearing
liabilities increased $25,094,000 from $98,521,000 to $123,615,000 during
this period.
The increase in average loans was attributable to the Bank's marketing
efforts, both in the commercial and church and church-related areas. The
decrease in average noninterest bearing demand deposit accounts and interest
bearing liabilities relates mainly to the transfer of funds by existing
customers from deposit accounts into non-deposit investment accounts. The
increase in average accounts and drafts payable relates to an increase in the
dollar volume of transactions processed.
The increase experienced during the First Quarter of 2001 in net interest
income was caused primarily by increases in the level of average earning
assets funded by the increase in accounts and drafts payable and a shift in
earning assets to higher yielding loans. The decrease in net interest margin
was caused primarily by an increase in rates paid on deposits, which
fluctuate with market rates. The Company is positively affected by increases
in the level of interest rates due to the fact that its rate sensitive assets
significantly exceed its rate sensitive liabilities. Conversely, the Company
is adversely affected by decreases in the level of interest rates. This is
primarily due to the noninterest-bearing liabilities generated by the Company
in the form of accounts and drafts payable. For more information please
refer to the table on page 9 and Item 3 "Quantitative and Qualitative
Disclosures about Market Risk" on page 14.
-8-
9
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY; INTEREST RATE
AND INTEREST DIFFERENTIAL
The following table shows the condensed average balance sheets for each
of the periods reported, the interest income and expense on each category of
interest-earning assets and interest-bearing liabilities, and the average
yield on such categories of interest-earning assets and the average rates
paid on such categories of interest-bearing liabilities for each of the
periods reported.
FIRST QUARTER 2001 FIRST QUARTER 2000
====================================== ======================================
INTEREST INTEREST
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
(DOLLARS IN THOUSANDS) BALANCE EXPENSE RATE BALANCE EXPENSE RATE
======================================================================================================================
ASSETS 1
Earning assets:
Loans 2,3:
Taxable $355,960 $7,322 8.37% $297,627 $6,058 8.19%
Tax-exempt 4 15,704 341 8.83 7,223 133 7.41
Debt and equity securities 5:
Taxable 62,228 972 6.35 88,748 1,371 6.21
Tax-exempt 4 1,132 21 7.54 1,229 20 6.55
Federal funds sold and other
short-term investments 68,653 915 5.42 61,513 862 5.64
- ----------------------------------------------------------------------------------------------------------------------
Total earning assets 503,677 9,571 7.73 456,340 8,444 7.44
Nonearning assets:
Cash and due from banks 18,375 26,896
Premises and equipment, net 14,488 9,440
Investment in unconsolidated
subsidiary 4,466 --
Other assets 10,664 9,515
Allowance for loan losses (4,898) (4,325)
- ----------------------------------------------------------------------------------------------------------------------
Total assets $546,772 $497,866
- ----------------------------------------------------------------------------------------------------------------------
LIABILITIES AND
SHAREHOLDERS' EQUITY 1
Interest-bearing liabilities:
Interest-bearing demand
deposits $ 51,117 $ 522 4.15% $ 43,486 $ 383 3.54%
Savings deposits 64,451 814 5.14 48,387 496 4.12
Time deposits of
$100 or more 4,105 59 5.84 2,622 32 4.91
Other time deposits 3,923 51 5.29 3,826 43 4.52
- ----------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 123,596 1,446 4.76 98,321 954 3.90
Short-term borrowings 19 -- -- 200 2 4.02
- ----------------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 123,615 1,446 4.76 98,521 956 3.90
Noninterest-bearing liabilities:
Demand deposits 81,642 82,855
Accounts and drafts payable 279,365 254,693
Other liabilities 8,010 5,877
- ----------------------------------------------------------------------------------------------------------------------
Total liabilities 492,632 441,946
Shareholders' equity 54,140 55,920
Total liabilities and
shareholders' equity $546,772 $497,866
- ----------------------------------------------------------------------------------------------------------------------
Net interest income $8,125 $7,488
Interest spread 2.97% 3.54%
Net interest margin 6.56% 6.60%
======================================================================================================================
<FN>
1. Balances shown are daily averages.
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2. For purposes of these computations, nonaccrual loans are included in the
average loan amounts outstanding. Interest on nonaccrual loans is
recorded when received as discussed further in Note 1 to the Company's
2000 Consolidated Financial Statements.
3. Interest income on loans includes net loan fees of $4,000 and $12,000 for
the First Quarter of 2001 and 2000, respectively.
4. Interest income is presented on a tax-equivalent basis assuming a tax
rate of 34%. The tax-equivalent adjustment was approximately $123,000
and $39,000 for the First Quarter of 2001 and 2000, respectively.
5. For purposes of these computations, yields on investment securities are
computed as interest income divided by the average amortized cost of the
investment securities.
</FN>
ANALYSIS OF NET INTEREST INCOME CHANGES
The following table presents the changes in interest income and expense
between periods due to changes in volume and interest rates. That portion of
the change in interest attributable to the combined rate/volume variance has
been allocated to rate and volume changes in proportion to the absolute
dollar amounts of the change in each.
FIRST QUARTER
2001 OVER 2000
====================================
(DOLLARS IN THOUSANDS) VOLUME1 RATE1 TOTAL
=======================================================================================
Increase (decrease) in interest income:
Loans 2,3:
Taxable $1,137 $127 $1,264
Tax-exempt 4 179 29 208
Debt and equity securities:
Taxable (428) 29 (399)
Tax-exempt 4 (2) 3 1
Federal funds sold and other
short-term investments 89 (36) 53
- ---------------------------------------------------------------------------------------
Total interest income 975 152 1,127
- ---------------------------------------------------------------------------------------
Interest expense on:
Interest-bearing demand deposits 70 69 139
Savings deposits 183 135 318
Time deposits of $100 or more 20 7 27
Other time deposits 1 7 8
Short-term borrowings (1) (1) (2)
- ---------------------------------------------------------------------------------------
Total interest expense 273 217 490
- ---------------------------------------------------------------------------------------
Net interest income $ 702 $(65) $ 637
=======================================================================================
<FN>
1. The change in interest due to both volume and rate has been allocated
proportionately.
2. Average balances include nonaccrual loans.
3. Interest income includes net loan fees.
4. Interest income is presented on a tax-equivalent basis assuming a tax
rate of 34%.
</FN>
ALLOWANCE AND PROVISION FOR LOAN LOSSES
A significant determinant of the Company's operating results is the
provision for loan losses and the level of loans charged off. There was no
provision made for loan losses during the First Quarter of 2001 compared to a
$100,000 provision during the First Quarter of 2000. Net loan recoveries
were $3,000 compared to $27,000. The decrease in the provision made during
2001 relates to a reduction in the balance of potential problem loans from
December 31, 2000 to March 31, 2001.
The allowance for loan losses at March 31, 2001 was $4,900,000 and at
December 31, 2000 was $4,897,000. The allowance for loan losses at March 31,
2001 and December 31, 2000 represented 1.32% of total loans outstanding.
Nonperforming loans were $1,488,000 or .40% of average loans at March 31,
2001 compared to $1,131,000 or .30% of average loans for the year ended
December 31, 2000.
-10-
11
At March 31, 2001, impaired loans totaled $1,537,000 which includes
$1,441,000 of nonaccrual loans. The allowance for loan losses on impaired
loans was $333,000 at March 31, 2001. The average balance of impaired loans
during the First Quarter of 2001 and the First Quarter of 2000 was $1,563,000
and $179,000, respectively. This increase relates to the addition of several
problem credits over the past year.
Factors which influence management's determination of the adequacy of the
allowance for loan losses, among other things, include: evaluation of each
nonperforming and/or classified loan to determine the estimated loss exposure
under existing circumstances known to management; evaluation of all potential
problem loans identified in light of loss exposure based upon existing
circumstances known to management; analysis of the loan portfolio with regard
to future loss exposure on loans to specific customers and/or industries;
current economic conditions; and, an overall review of the loan portfolio in
light of past loan loss experience. In management's judgment, the allowance
for loan losses is considered adequate to absorb probable losses in the loan
portfolio.
SUMMARY OF ASSET QUALITY
The following table presents information as of and for the three month
periods ended March 31, 2001 and 2000 pertaining to the Company's provision
for loan losses and analysis of the allowance for loan losses.
THREE MONTHS ENDED
MARCH 31
============================
(DOLLARS IN THOUSANDS) 2001 2000
===========================================================================================
Allowance at beginning of period $ 4,897 $ 4,282
Provision charged to expense -- 100
Loans charged off -- --
Recoveries on loans previously charged off 3 27
- -------------------------------------------------------------------------------------------
Net loan recoveries 3 27
Allowance at end of period $ 4,900 $ 4,409
- -------------------------------------------------------------------------------------------
Loans outstanding:
Average $371,664 $304,850
March 31 373,448 320,378
Ratio of allowance for loan losses to loans outstanding:
Average 1.32% 1.45%
March 31 1.31% 1.38%
Nonperforming loans:
Nonaccrual loans $ 1,441 $ 167
Loans past due 90 days or more 47 6
- -------------------------------------------------------------------------------------------
Total $ 1,488 $ 173
- -------------------------------------------------------------------------------------------
Nonperforming loans as a percent of average loans .40% .06%
===========================================================================================
On January 2, 2001 the Bank foreclosed on certain operating assets
relating to one borrower in order to protect the Bank's financial interest in
that borrower. At the time of foreclosure, loans to this borrower amounted
to $4,205,000. The Bank is currently stabilizing this business and operating
it as Government e-Business. As of March 31, 2001 the investment in this
subsidiary was $5,005,000. During the First Quarter of 2001, this subsidiary
had a pre-tax loss of $263,000, which includes depreciation and amortization
of $196,000.
NONINTEREST INCOME
Noninterest income is principally derived from payment and processing
fees. Total invoices processed by the Transportation Information Services
unit were 4,858,000 for the First Quarter of 2001, a decrease of 16,000 or
.3% compared to the First Quarter of 2000. Total dollar volume of invoices
processed by the Transportation Information Services unit was $1,858,633,000,
an increase of $56,695,000 or 3.1%. Total invoices processed by the Utility
Information Services unit were 557,000, an increase of 166,000 or 42.5%.
Total dollars processed by the Utility Information Services was $380,290,000,
an increase of $157,341,000 or 70.6%. This excludes volume related to the
Utility Navigator(R) purchase, which was processed under an interim agreement
in the First Quarter of 2001. These figures also exclude any volume related
to history data loading. The Company believes the inclusion of such data
distorts processing volumes since it relates to one-time, non-repetitive
processing and does not involve payment of any invoices.
Total noninterest income was $5,740,000, a $15,000 or .3% decrease.
Payment and processing revenue for the First Quarter of 2001 was $5,312,000,
a $24,000 or .4% decrease compared to the First Quarter of 2000. Several
factors caused this decrease. Although the dollar value of invoices
processed increased, the Company
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continues to see decreases in invoices processed due to general economic
conditions. Freight rating services revenue also decreased due to a change
in strategic direction from selling rating software to a new Internet-based
delivery system of carrier rates that offers expanded features and
capabilities.
Bank service fees for the First Quarter of 2001 were $316,000, a $18,000
or 5.4% decrease compared to the First Quarter of 2000. This decrease was
attributable to a decrease in the fees received on credit card sales made by
Bank customers.
NONINTEREST EXPENSE
Total noninterest expense for the First Quarter of 2001 was $11,088,000,
a $909,000 or 8.9% increase compared to the First Quarter of 2000.
Salaries and benefits expense for the First Quarter of 2001 was
$7,722,000, a $672,000 or 9.5% increase compared to the First Quarter of 2000.
This increase was caused by expenses related to increased staff to support
expanded operations of the Utility Information Services unit and to higher
levels of overall technology staff.
Occupancy expense for the First Quarter of 2001 was $461,000, a $27,000
or 6.2% increase compared to the First Quarter of 2000. This increase was
caused mainly by increases in utility expenses and real estate taxes related
to the purchase of the new facility in Columbus, Ohio.
Equipment expense for the First Quarter of 2001 was $814,000, an increase
of $62,000 or 8.2% compared to the First Quarter of 2000. This increase was
due primarily to increased investments in information technology.
Other noninterest expense for the First Quarter of 2001 was $2,091,000,
an increase of $148,000 or 7.6% compared to the First Quarter of 2000. This
increase was due primarily to increases in legal fees, telecommunication
expenses, and travel expenses.
FINANCIAL CONDITION
Total assets at March 31, 2001 were $540,710,000, a decrease of
$36,176,000 or 6.3% from December 31, 2000. Loans, net of the allowance for
loan losses, were $368,548,000, an increase of $1,225,000 or .3%. Total
investments in debt and equity securities were $57,903,000, a $11,422,000 or
16.5% decrease. Federal Funds sold and other short-term investments were
$56,980,000 a $37,271,000 or 39.5% decrease.
Total deposits at March 31, 2001 were $196,425,000, a $16,241,000
or 7.6% decrease from December 31, 2000. Accounts and drafts payable were
$281,070,000, a $21,770,000 or 7.2% decrease. Total shareholders' equity was
$54,207,000, a $386,000 or .7% increase.
The decrease in debt and equity securities is primarily due to the
maturity of several large investments during the First Quarter of 2001.
The decrease in federal funds sold and other short-term investments relates
primarily to the decrease in balances generated from deposits and accounts
and drafts payable. The ending balances of accounts and drafts payable will
fluctuate from period end to period end due to the payment processing cycle,
which results in lower balances on days when checks clear and higher balances
on days when checks are issued. For this reason, average balances are a more
meaningful measure of accounts and drafts payable. The average balance of
accounts and drafts payable increased $24,672,000 or 9.7%, from $254,693,000
to $279,365,000. The increase in total shareholders' equity resulted from
net income of $1,750,000; an increase in other comprehensive income of
$391,000; cash received from the exercise of stock options of $11,000 and
the amortization of the stock bonus plan of $21,000; offset by the purchase
of treasury shares for $1,131,000 (53,500 shares) and dividends paid of
$656,000 ($.20 per share).
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents, which consist of cash and due from banks,
federal funds sold, and money market funds, were $81,890,000 or 15.1% of
total assets at March 31, 2001. These funds represent the Company's and its
subsidiaries' primary source of liquidity to meet future expected and
unexpected loan demand, depositor withdrawals or reductions in accounts and
drafts payable.
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Secondary sources of liquidity include the investment portfolio and
borrowing lines. Total investment in debt and equity securities represented
approximately $57,903,000 or 10.7% of total assets at March 31, 2001. Of
this total, 42% were U.S. treasury securities, 55% were U.S. government
agencies, and 3% were other securities. Of the total portfolio, 28% matures
in one year, 60% matures in one to five years, and 12% matures in five or
more years. At January 1, 2001 the Company transferred the remaining balance
of held-to-maturity securities into available-for-sale securities upon
adoption of SFAS 133. The investment portfolio provides secondary liquidity
through regularly scheduled maturities, the ability to sell securities out of
the available-for-sale portfolio, and the ability to use these securities in
conjunction with its reverse repurchase lines of credit.
Cass Bank has unsecured lines at correspondent banks to purchase federal
funds up to a maximum of $20,320,000. Additionally, Cass Bank has a line of
credit at an unaffiliated financial institution in the maximum amount of
$60,000,000 in reverse repurchase agreement lines with unaffiliated financial
institutions.
The deposits of the Company's banking subsidiary have historically been
stable, consisting of a sizable volume of core deposits related to customers
that utilize many other commercial products of the bank. The accounts and
drafts payable generated by the Company has also historically been a stable
source of funds.
The Company faces market risk to the extent that its net interest income
and fair market value of equity are affected by changes in market interest
rates. For information regarding the market risk of the Company's financial
instruments, see Item 3. "QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK".
Risk-based capital guidelines require the Company to meet a minimum total
capital ratio of 8.0% of which at least 4.0% must consist of Tier 1 capital.
Tier 1 capital generally consists of (a) common shareholders' equity
(excluding the unrealized market value adjustments on the available-for-sale
securities), (b) qualifying perpetual preferred stock and related surplus
subject to certain limitations specified by the FDIC, (c) minority interests
in the equity accounts of consolidated subsidiaries less (d) goodwill, (e)
mortgage servicing rights within certain limits, and (f) any other intangible
assets and investments in subsidiaries that the FDIC determines should be
deducted from Tier 1 capital. The FDIC also requires a minimum leverage
ratio of 3.0%, defined as the ratio of Tier 1 capital less purchased mortgage
servicing rights to total assets, for banking organizations deemed the
strongest and most highly rated by banking regulators. A higher minimum
leverage ratio is required of less highly rated banking organizations. Total
capital, a measure of capital adequacy, includes Tier 1 capital, allowance
for loan losses, and debt considered equity for regulatory capital purposes.
The Company and the Bank continue to significantly exceed all regulatory
capital requirements, as evidenced by the following capital amounts and
ratios at March 31, 2001 and December 31, 2000:
MARCH 31, 2001 AMOUNT RATIO
=====================================================================================
Total capital (to risk-weighted assets)
Cass Information Systems, Inc. $53,829,000 12.81%
Cass Commercial Bank 21,696,000 11.96
Tier I capital (to risk-weighted assets)
Cass Information Systems, Inc. $48,929,000 11.65%
Cass Commercial Bank 19,422,000 10.70
Tier I capital (to average assets)
Cass Information Systems, Inc. $48,929,000 9.04%
Cass Commercial Bank 19,422,000 8.31
=====================================================================================
DECEMBER 31, 2000 AMOUNT RATIO
=====================================================================================
Total capital (to risk-weighted assets)
Cass Information Systems, Inc. $57,712,000 13.55%
Cass Commercial Bank 26,064,000 13.38
Tier I capital (to risk-weighted assets)
Cass Information Systems, Inc. $52,815,000 12.40%
Cass Commercial Bank 23,624,000 12.13
Tier I capital (to average assets)
Cass Information Systems, Inc. $52,815,000 10.26%
Cass Commercial Bank 23,624,000 10.52
=====================================================================================
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INFLATION
Inflation can impact the financial position and results of the operations
of banks and bank holding companies because these companies hold monetary
assets and monetary liabilities. Monetary assets and liabilities are those
which can be converted into a fixed number of dollars, and include cash,
investments, loans and deposits. The Company's consolidated balance sheets,
reflect a net positive monetary position (monetary assets exceeding monetary
liabilities). During periods of inflation, the holding of a net positive
monetary position will result in an overall decline in the purchasing power
of a company.
FORWARD-LOOKING STATEMENTS - FACTORS THAT MAY AFFECT FUTURE RESULTS
Statements in Management's Discussion and Analysis of Financial Condition
and Results of Operations and the other sections of this Report that are not
statements of historical fact are forward-looking statements. Such
statements are subject to important risks and uncertainties which could cause
the Company's actual results to differ materially from those expressed in any
such forward-looking statements made herein. The aforesaid uncertainties
include, but are not limited to: burdens imposed by federal and state
regulators, credit risk related to borrowers' ability to repay loans,
concentration of loans in the St. Louis Metropolitan area which subjects the
Company to risks associated with changes in the local economy, risks
associated with fluctuations in interest rates, competition from other banks
and other financial institutions, some of which are not as heavily regulated
as the Company and risks associated with breakdowns in data processing
systems and competition from other providers of similar services.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As described in the Company's Annual Report on Form 10-K for the year
ended December 31, 2000, the Company manages its interest rate risk through
measurement techniques that include gap analysis and a simulation model. As
part of the risk management process, asset/liability management policies are
established and monitored by management. The policy objective is to limit the
change in annualized net interest income to 15% from an immediate and
sustained parallel change in interest rates of 200 basis points. Based on the
Company's most recent evaluation, management does not believe the Company's
risk position at March 31, 2001 has changed materially from that at December
31, 2000.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS IN SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) None
(b) Cass Information Systems, Inc. did not file any reports on
Form 8-K during the three-month period ended March 31,
2001.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CASS INFORMATION SYSTEMS, INC.
DATE: April 30, 2001 By /s/Lawrence A. Collett
--------------------------------------
Lawrence A. Collett
Chairman and Chief Executive Officer
DATE: April 30, 2001 By /s/Eric H. Brunngraber
--------------------------------------
Eric H. Brunngraber
Vice President-Secretary
(Chief Financial and Accounting Officer)
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