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 JUNE 30, 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 July 31, 2001: Common stock, par value $.50 per share - 3,174,849 shares
outstanding.
- ------------------------------------------------------------------------------
This document constitutes part of a prospectus covering securities that
have been registered under the Securities Act of 1933.
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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)
JUNE 30 DECEMBER 31
2001 2000
ASSETS
Cash and due from banks $ 24,454 $ 21,680
Federal funds sold and other short-term investments 80,637 94,251
-------- --------
Cash and cash equivalents 105,091 115,931
-------- --------
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 44,416 62,675
-------- --------
Total investment in debt and equity securities 44,416 69,325
-------- --------
Loans 386,122 372,220
Less: Allowance for loan losses 4,947 4,897
-------- --------
Loans, net 381,175 367,323
-------- --------
Premises and equipment, net 17,133 13,914
Accrued interest receivable 2,527 3,528
Investment in unconsolidated subsidiary 5,355 --
Other assets 7,658 6,865
-------- --------
Total assets $563,355 $576,886
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
- -----------
Deposits:
Noninterest-bearing $ 91,483 $ 99,941
Interest-bearing 111,332 112,725
-------- --------
Total deposits 202,815 212,666
Accounts and drafts payable 298,982 302,840
Short-term borrowings 25 --
Other liabilities 7,165 7,559
-------- --------
Total liabilities 508,987 523,065
-------- --------
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 61,393 59,177
Accumulated other comprehensive income 505 159
Common shares in treasury, at cost (763,951 shares at
June 30, 2001 and 655,089 shares at December 31, 2000) (14,518) (12,480)
Unamortized stock bonus awards (62) (94)
-------- --------
Total shareholders' equity 54,368 53,821
-------- --------
Total liabilities and shareholders' equity $563,355 $576,886
======== ========
See accompanying notes to unaudited 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 SIX MONTHS ENDED
JUNE 30 JUNE 30
====================== ======================
2001 2000 2001 2000
INTEREST INCOME:
Interest and fees on loans $ 7,395 $ 6,830 $14,942 $12,987
Interest and dividends on debt and equity securities:
Taxable 770 1,385 1,742 2,756
Exempt from federal income taxes 13 15 27 30
Interest on federal funds sold and
other short-term investments 873 714 1,788 1,576
------- ------- ------- -------
Total interest income 9,051 8,944 18,499 17,349
------- ------- ------- -------
INTEREST EXPENSE:
Interest on deposits 951 1,071 2,397 2,025
Interest on short-term borrowings 1 5 1 7
------- ------- ------- -------
Total interest expense 952 1,076 2,398 2,032
------- ------- ------- -------
Net interest income 8,099 7,868 16,101 15,317
Provision for loan losses -- 150 -- 250
------- ------- ------- -------
Net interest income after provision
for loan losses 8,099 7,718 16,101 15,067
------- ------- ------- -------
NONINTEREST INCOME:
Freight and utility payment and processing revenue 5,154 4,849 10,466 10,185
Bank service fees 383 374 699 708
Other 118 38 230 123
------- ------- ------- -------
Total noninterest income 5,655 5,261 11,395 11,016
------- ------- ------- -------
NONINTEREST EXPENSE:
Salaries and employee benefits 7,663 6,957 15,385 14,007
Occupancy expense 427 443 888 877
Equipment expense 904 767 1,718 1,519
Other 2,043 2,173 4,134 4,116
------- ------- ------- -------
Total noninterest expense 11,037 10,340 22,125 20,519
------- ------- ------- -------
Income before income tax expense 2,717 2,639 5,371 5,564
Income tax expense 942 919 1,846 1,988
------- ------- ------- -------
Net income $ 1,775 $ 1,720 $ 3,525 $ 3,576
======= ======= ======= =======
Earnings per share:
Basic $.54 $.49 $1.08 $1.00
Diluted $.54 $.48 $1.06 $.99
Weighted average shares outstanding:
Basic 3,259,510 3,501,084 3,276,468 3,572,344
Effect of stock options and awards 41,293 46,932 42,344 46,441
Diluted 3,300,803 3,548,016 3,318,812 3,618,785
See accompanying notes to unaudited consolidated financial statements.
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CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
SIX MONTHS ENDED
JUNE 30
========================
2001 2000
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,525 $ 3,576
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 1,379 1,311
Provision for loan losses -- 250
Amortization of stock bonus awards 43 39
Decrease (increase) in accrued interest receivable 1,001 (143)
Decrease in deferred income (41) (765)
Deferred income tax expense (benefit) (376) 262
Increase (decrease) in income tax liability 236 (157)
Change in other assets (1,615) 403
Change in other liabilities (589) (181)
Other operating activities, net (203) 400
-------- --------
Net cash provided by operating activities 3,360 4,995
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of debt and equity securities:
Held-to-maturity -- 11,167
Available-for-sale 25,410 4,498
Purchase of debt and equity securities available-for-sale -- (18,889)
Net increase in loans (18,057) (49,959)
Purchases of premises and equipment, net (4,502) (1,438)
-------- --------
Net cash provided by (used in) investing activities 2,851 (54,621)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in noninterest-bearing demand deposits (8,458) (16,444)
Net decrease in interest-bearing demand and savings deposits (4,163) (491)
Net increase (decrease) in time deposits 2,770 (294)
Net increase (decrease) in accounts and drafts payable (3,858) 33,281
Net increase (decrease) in short-term borrowings 25 (208)
Cash proceeds from exercise of stock options 11 47
Cash dividends paid (1,309) (1,423)
Purchase of common shares for treasury (2,069) (4,786)
-------- --------
Net cash provided by (used in) financing activities (17,051) 9,682
-------- --------
Net decrease in cash and cash equivalents (10,840) (39,944)
Cash and cash equivalents at beginning of period 115,931 124,217
-------- --------
Cash and cash equivalents at end of period $105,091 $ 84,273
======== ========
Supplemental information:
Cash paid for interest $ 2,425 $ 2,035
Cash paid for income taxes 2,137 2,662
Transfer of securities from held-to-maturity to available-for-sale 6,650 --
Transfer of loans to investment in unconsolidated subsidiary 4,205 --
See accompanying notes to unaudited consolidated financial statements.
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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 June 30, 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 July 2001, the FASB issued SFAS 141, "Business Combinations", and
SFAS 142, "Goodwill and Other Intangible Assets". SFAS 141 requires that the
purchase method of accounting be used for all business combinations initiated
after June 30, 2001 as well as all purchase method business combinations
completed after June 30, 2001. SFAS 141 also specifies criteria which
intangible assets acquired in a purchase method business combination must
meet to be recognized and reported apart from goodwill. SFAS 142 will
require that goodwill and intangible assets with indefinite useful lives no
longer be amortized, but instead tested for impairment at least annually.
SFAS 142 will also require that intangible assets with definite useful lives
be amortized over their respective estimated useful lives to their estimated
residual values, and reviewed for impairment in accordance with SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of".
The Company is required to adopt the provisions of SFAS 141
immediately and SFAS 142 effective January 1, 2002. Furthermore, any
goodwill and any intangible asset determined to have an indefinite useful
life that are acquired in a purchase business combination completed after
June 30, 2001 will not be amortized, but will continue to be evaluated for
impairment in accordance with the appropriate pre-SFAS 142 accounting
literature. Goodwill and intangible assets acquired in business combinations
completed before July 1, 2001 will continue to be amortized prior to the
adoption of SFAS 142.
SFAS 141 will require upon adoption of SFAS 142, that the Company
evaluate its existing intangible assets and goodwill that were acquired
in a prior purchase business combination, and to make any necessary
reclassifications in order to conform with the new criteria in SFAS 141 for
recognition apart from goodwill. Upon adoption of SFAS 142, the Company will
be required to reassess the useful lives and residual values of all
intangible assets acquired in purchase business combinations, and make any
necessary amortization period adjustments by the end of the first interim
period after adoption. In addition, to the extent an intangible asset is
identified as having an indefinite useful life, the Company will be required
to test the intangible asset for impairment in accordance with the provisions
of SFAS 142 within the first interim period. Any impairment loss will be
measured as of the date of adoption and recognized as the cumulative effect
of a change in accounting principle in the first interim period.
As of the date of adoption, the Company expects to have unamortized
goodwill in the amount of $223,000 which will be subject to the transition
provisions of SFAS 141 and 142. Amortization expense related to goodwill was
$30,000 and $15,000 for the year ended December 31, 2000 and the six months
ended June 30, 2001, respectively. Because of the extensive effort needed to
comply with adopting SFAS 141 and 142, it is not practicable to reasonably
estimate the impact of adopting these Statements on the Company's financial
statements at the date of this report, including whether any transitional
impairment losses will be required to be recognized as the cumulative effect
of a change in accounting principle.
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
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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 fair 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) JUNE 30, 2001 DECEMBER 31, 2000
==============================================================================
Commercial and industrial $149,518 $136,482
Real estate:
Mortgage 118,206 117,170
Mortgage - Churches & Related 72,570 65,368
Construction 11,699 9,877
Construction - Churches & Related 11,776 19,587
Industrial revenue bonds 15,438 15,804
Installment 2,542 2,533
Other 4,373 5,399
- ------------------------------------------------------------------------------
Total loans $386,122 $372,220
==============================================================================
Note 4 - Stock Repurchase Program
On December 21, 1999 the Board of Directors authorized a stock
repurchase program that would allow the repurchase of up to 200,000 shares of
its common stock through December 31, 2000. On March 21, 2000 the Board of
Directors authorized a 100,000 increase in the number of shares that can be
purchased under the program. Along with the 300,000 shares authorized under
the plan, the Board of Directors approved the repurchase of an additional
210,680 shares. During 2001 the Company repurchased 110,500 shares.
Repurchases were made in the open market or through negotiated transactions
from time to time depending on market conditions.
Note 5 - Comprehensive Income
For the three and six month periods ended June 30, 2001 and 2000,
unrealized gains and losses on debt and equity securities available-for-sale
were the Company's only other comprehensive income component. Comprehensive
income for the three and six month periods ended June 30, 2001 and 2000 is
summarized as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
=================== ===================
(IN THOUSANDS) 2001 2000 2001 2000
=============================================================================================================
Net Income $1,775 $1,720 $3,525 $3,576
Other comprehensive income:
Net unrealized gain (loss) on debt and equity
securities available-for-sale, net of tax (45) 73 346 (79)
- -------------------------------------------------------------------------------------------------------------
Total comprehensive income $1,730 $1,793 $3,871 $3,497
=============================================================================================================
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 distinct
services that are marketed through different channels. They are managed
separately due to their unique service, processing and capital requirements.
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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
initiated the reporting of information relating to the Utility Information
Services unit in 2001 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 and six month periods ended June 30, 2001 and
2000, is as follows:
TRANSPORTATION UTILITY
INFORMATION INFORMATION BANKING ELIM-
(IN THOUSANDS) SERVICES SERVICES SERVICES CORPORATE INATIONS TOTAL
=======================================================================================================================
Quarter Ended June 30, 2001
Total Revenues $ 8,251 $1,897 $3,690 $452 $ (536) $13,754
Net Income 784 45 958 (12) -- 1,775
Quarter Ended June 30, 2000
Total Revenues $ 8,816 $ 874 $3,352 $382 $ (445) $12,979
Net Income 1,191 (257) 811 (25) -- 1,720
- -----------------------------------------------------------------------------------------------------------------------
Six Months Ended June 30, 2001
Total Revenues $16,955 $3,671 $7,067 $930 $(1,127) $27,496
Net Income 1,744 43 1,762 (24) -- 3,525
Six Months Ended June 30, 2000
Total Revenues $17,779 $1,747 $6,720 $770 $ (933) $26,083
Net Income 2,348 (408) 1,684 (48) -- 3,576
- -----------------------------------------------------------------------------------------------------------------------
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-Management
Solutions, Inc. It is accounted for as an unconsolidated subsidiary.
At June 30, 2001 the investment in this subsidiary was $5,355,000.
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 charges and other
payment related activities for customers located throughout the United
States. Cass Bank provides specialized banking services to privately held
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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 June 30, 2001 (the "Second Quarter of 2001") compared to the
three-month period ended June 30, 2000 (the "Second Quarter of 2000") and the
six-month period ended June 30, 2001 ("First Half of 2001") compared to the
six-month period ended June 30, 2000 ("First Half 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 Half of 2001
are not necessarily indicative of the results to be attained for any other
period.
RESULTS OF OPERATIONS
NET INCOME
The Company's net income was $1,775,000 for the Second Quarter of
2001, a $55,000 or 3.2% increase compared to net income of $1,720,000 for the
Second Quarter of 2000. The Company's net income was $3,525,000 for the
First Half of 2001, a $51,000 or 1.4% decrease compared to net income of
$3,576,000 for the First Half of 2000. Diluted earnings per share was $.54
for the Second Quarter of 2001, a 12.5% increase compared to $.48 for the
Second Quarter of 2000. Diluted earnings per share was $1.06 for the First
Half of 2001, a 7.1% increase compared to $.99 for the First Half of 2000.
The increase in net income in the Second Quarter of 2001 over the Second
Quarter of 2000 was primarily a result of strong loan demand and an increase
in earning assets. The decrease in net income in the First Half of 2001 from
the First Half of 2000 was due primarily to decreases in the general level of
interest rates and increased expenses related to an increased staff at CIS to
support expanded operations. Return on average assets for the Second Quarter
of 2001 was 1.27% compared to 1.39% for the Second Quarter of 2000. Return
on average assets for the First Half of 2001 was 1.28% compared to 1.44% for
the First Half of 2000. Return on average equity for the Second Quarter of
2001 was 12.89% compared to 12.78% for the Second Quarter of 2000. Return on
average equity for the First Half of 2001 was 13.01% compared to 13.05% for
the First Half of 2000.
NET INTEREST INCOME
Second Quarter of 2001 compared to Second Quarter of 2000:
The Company's tax-equivalent net interest income increased
3.4% or $270,000 from $7,946,000 to $8,216,000. Average earning assets
increased 10.6% or $48,979,000 from $460,345,000 to $509,324,000.
The tax-equivalent net interest margin decreased from 6.94% to 6.49%. The
average tax-equivalent yield on earning assets decreased from 7.88% to 7.24%.
The average rate paid on interest-bearing liabilities decreased from 4.60%
to 3.22%.
The average balance of loans increased $55,173,000 from $323,549,000
to $378,722,000, investment in debt and equity securities decreased
$39,860,000 from $90,159,000 to $50,299,000, and federal funds sold and other
short-term investments increased $33,666,000 from $46,637,000 to $80,303,000.
The average balance of noninterest bearing demand deposit accounts increased
$9,682,000 from $80,504,000 to $90,186,000, accounts and drafts payable
increased $25,906,000 from $263,156,000 to $289,062,000, and interest bearing
liabilities increased $24,745,000 from $94,130,000 to $118,875,000.
The increase in average loans during this period was attributable to the
Bank's marketing efforts, both in the commercial and church and
church-related areas. The decrease in debt and equity securities and the
increase in federal funds sold and other short term investments reflects
management's asset allocation decisions given projected liquidity
requirements, market interest rates and the attractiveness of alternative
investments. Noninterest bearing
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demand and interest bearing liabilities have increased due to the Bank's
increased marketing efforts to attract more deposits. The increase in
average accounts and drafts payable relates to an increase in the dollar
volume of transactions processed and lengthening of the payment cycle.
The increases experienced during the Second Quarter of 2001 in
net interest income was caused primarily by increases in the level of
earning assets funded by the increase in accounts and drafts payable and
interest-bearing liabilities and a shift in earning assets to higher yielding
loans. The decrease in net interest margin was due primarily to a decline in
the general level of interest 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 10.
First Half of 2001 compared to the First Half of 2000:
The Company's tax-equivalent net interest income increased
5.9% or $907,000 from $15,434,000 to $16,341,000. Average earning assets
increased 10.5% or $48,175,000 from $458,342,000 to $506,517,000.
The tax-equivalent net interest margin decreased from 6.77% to 6.52%. The
average tax-equivalent yield on earning assets decreased from 7.66% to 7.48%.
The average rate paid on interest-bearing liabilities decreased from 4.24%
to 4.00%.
The average balance of loans increased $61,013,000 from $314,200,000
to $375,213,000, investment in debt and equity securities decreased
$33,273,000 from $90,067,000 to $56,794,000, and federal funds sold and other
short-term investments increased $20,435,000 from $54,075,000 to $74,510,000.
The average balance of noninterest bearing demand deposit accounts increased
$4,259,000 from $81,679,000 to $85,938,000, accounts and drafts payable
increased $25,316,000 from $258,924,000 to $284,240,000, and interest-bearing
liabilities increased $24,906,000 from $96,326,000 to $121,232,000.
The increases and decreases experienced in account balances during
the First Half of 2001 were attributable to the same factors as those
described for the second quarter.
The increases experienced during the First Half of 2001 in net
interest income were also caused primarily by increases in the level of
earning assets funded primarily by the increase in accounts and drafts
payable and interest bearing liabilities and a shift in earning assets to
higher yielding loans. The decrease in net interest margin was due primarily
to a decline in the general level of interest 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 11.
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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.
SECOND QUARTER 2001 SECOND 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 $363,270 $7,181 7.95% $316,393 $6,730 8.56%
Tax-exempt 4 15,452 325 8.46 7,156 168 9.44
Debt and equity securities 5:
Taxable 49,259 770 6.29 88,977 1,386 6.27
Tax-exempt 4 1,040 19 7.35 1,182 24 8.17
Federal funds sold and other
short-term investments 80,303 873 4.37 46,637 714 6.16
- -------------------------------------------------------------------------------------------------------------------------
Total earning assets 509,324 9,168 7.24 460,345 9,022 7.88
Nonearning assets:
Cash and due from banks 24,805 22,494
Premises and equipment, net 16,936 9,580
Other assets 15,596 9,977
Allowance for loan losses (4,910) (4,420)
- -------------------------------------------------------------------------------------------------------------------------
Total assets $561,751 $497,976
- -------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY 1
Interest-bearing liabilities:
Interest-bearing demand
deposits $ 57,093 $ 433 3.05% $ 42,367 $ 440 4.18%
Savings deposits 52,278 397 3.05 45,290 556 4.94
Time deposits of
$100 or more 5,827 72 4.97 2,424 32 5.31
Other time deposits 3,628 49 5.43 3,853 43 4.49
- -------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 118,826 951 3.22 93,934 1,071 4.59
Short-term borrowings 49 1 8.21 196 5 10.26
- -------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 118,875 952 3.22 94,130 1,076 4.60
Noninterest-bearing liabilities:
Demand deposits 90,186 80,504
Accounts and drafts payable 289,062 263,156
Other liabilities 8,409 6,187
- -------------------------------------------------------------------------------------------------------------------------
Total liabilities 506,532 443,977
Shareholders' equity 55,219 53,999
Total liabilities and
shareholders' equity $561,751 $497,976
- -------------------------------------------------------------------------------------------------------------------------
Net interest income $8,216 $7,946
Interest spread 4.02% 3.28%
Net interest margin 6.49% 6.94%
=========================================================================================================================
<FN>
1. Balances shown are daily averages.
-10-
11
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 $7,000 and $67,000
for the Second 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 $117,000
and $78,000 for the Second 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
investments.
</FN>
FIRST HALF OF 2001 FIRST HALF OF 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 $359,636 $14,503 8.15% $307,010 $12,788 8.38%
Tax-exempt 4 15,577 666 8.65 7,190 301 8.42
Debt and equity securities 5:
Taxable 55,708 1,742 6.32 88,862 2,757 6.24
Tax-exempt 4 1,086 40 7.45 1,205 44 7.34
Federal funds sold and other
short-term investments 74,510 1,788 4.85 54,075 1,576 5.86
- -------------------------------------------------------------------------------------------------------------------------
Total earning assets 506,517 18,739 7.48 458,342 17,466 7.66
Nonearning assets:
Cash and due from banks 21,608 24,695
Premises and equipment, net 15,719 9,510
Other assets 15,363 9,746
Allowance for loan losses (4,904) (4,372)
- -------------------------------------------------------------------------------------------------------------------------
Total assets $554,303 $497,921
- -------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY 1
Interest-bearing liabilities:
Interest-bearing demand
deposits $ 54,121 $ 955 3.57% $ 42,927 $ 823 3.86%
Savings deposits 58,331 1,211 4.20 46,838 1,052 4.52
Time deposits of
$100 or more 4,971 130 5.29 2,522 64 5.10
Other time deposits 3,775 101 5.41 3,841 86 4.50
- -------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 121,198 2,397 4.00 96,128 2,025 4.24
Short-term borrowings 34 1 5.95 198 7 7.11
- -------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 121,232 2,398 4.00 96,326 2,032 4.24
Noninterest-bearing liabilities:
Demand deposits 85,938 81,679
Accounts and drafts payable 284,240 258,924
Other liabilities 8,262 6,032
- -------------------------------------------------------------------------------------------------------------------------
Total liabilities 499,672 442,961
Shareholders' equity 54,631 54,960
Total liabilities and
shareholders' equity $554,303 $497,921
- -------------------------------------------------------------------------------------------------------------------------
Net interest income $16,341 $15,434
Interest spread 3.48% 3.42%
Net interest margin 6.52% 6.77%
=========================================================================================================================
-11-
12
<FN>
1. Balances shown are daily averages.
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 $11,000 and $79,000
for the First Half 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 $240,000
and $117,000 for the First Half 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 investments.
</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.
SECOND QUARTER
2001 OVER 2000
==========================================
(DOLLARS IN THOUSANDS) VOLUME RATE TOTAL
=========================================================================================================================
Increase (decrease) in interest income:
Loans 1,2:
Taxable $ 951 $(500) $ 451
Tax-exempt 3 176 (19) 157
Debt and equity securities:
Taxable (621) 5 (616)
Tax-exempt 3 (3) (2) (5)
Federal funds sold and other
short-term investments 410 (251) 159
- -------------------------------------------------------------------------------------------------------------------------
Total interest income 913 (767) 146
- -------------------------------------------------------------------------------------------------------------------------
Interest expense on:
Interest-bearing demand deposits 130 (137) (7)
Savings deposits 77 (236) (159)
Time deposits of $100 or more 42 (2) 40
Other time deposits (3) 9 6
Short-term borrowings (3) (1) (4)
- -------------------------------------------------------------------------------------------------------------------------
Total interest expense 243 (367) (124)
- -------------------------------------------------------------------------------------------------------------------------
Net interest income $ 670 $(400) $ 270
=========================================================================================================================
<FN>
1. Average balances include nonaccrual loans.
2. Interest income includes net loan fees.
3. Interest income is presented on a tax-equivalent basis assuming a tax
rate of 34%.
</FN>
FIRST HALF
2001 OVER 2000
===========================================
(DOLLARS IN THOUSANDS) VOLUME RATE TOTAL
=========================================================================================================================
Increase (decrease) in interest income:
Loans 1,2:
Taxable $ 2,038 $(323) $ 1,715
Tax-exempt 3 356 9 365
Debt and equity securities:
Taxable (1,058) 43 (1,015)
Tax-exempt 3 (5) 1 (4)
Federal funds sold and other
short-term investments 514 (302) 212
- -------------------------------------------------------------------------------------------------------------------------
Total interest income 1,845 (572) 1,273
- -------------------------------------------------------------------------------------------------------------------------
Interest expense on:
Interest-bearing demand deposits 196 (64) 132
Savings deposits 236 (77) 159
Time deposits of $100 or more 63 3 66
Other time deposits (2) 17 15
Short-term borrowings (5) (1) (6)
- -------------------------------------------------------------------------------------------------------------------------
Total interest expense 488 (122) 366
- -------------------------------------------------------------------------------------------------------------------------
Net interest income $ 1,357 $(450) $ 907
=========================================================================================================================
<FN>
1. Average balances include nonaccrual loans.
2. Interest income includes net loan fees.
3. Interest income is presented on a tax-equivalent basis assuming a tax
rate of 34%.
</FN>
-12-
13
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 Second Quarter of 2001 compared
with a $150,000 provision made during the Second Quarter of 2000. There was
no provision made for loan losses during the First Half of 2001 compared with
a $250,000 provision made during the First Half of 2000. Net loan recoveries
for the Second Quarter of 2001 were $47,000 compared to net loans charged off
of $79,000 for the Second Quarter of 2000. Net loan recoveries for the First
Half of 2001 were $50,000 compared to net loans charged off of $52,000 for
the First Half of 2000. This, along with a reduction in the balance of
potential problem loans from December 31, 2000 to June 30, 2001, resulted in a
decrease in the provision made during 2001. Potential problem loans consist
of nonperforming loans and other impaired loans.
The allowance for loan losses at June 30, 2001 was $4,947,000 and at
December 31, 2000 was $4,897,000. The allowance for loan losses at June 30,
2001 represented 1.28% of total loans outstanding compared to 1.32% at
December 31, 2000. Nonperforming loans were $1,757,000 or .47% of average
loans at June 30, 2001 compared to $1,131,000 or .34% of average loans at
December 31, 2000.
At June 30, 2001, impaired loans totaled $1,815,000 which included
$1,757,000 of nonaccrual loans compared with impaired loans at December 31,
2000 of $5,394,000 which included $1,127,000 of nonaccrual loans. The
allowance for loan losses on impaired loans was $329,000 at June 30, 2001.
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 and
six month periods ended June 30, 2001 and 2000 pertaining to the Company's
provision for loan losses and analysis of the allowance for loan losses.
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
=========================== =========================
(DOLLARS IN THOUSANDS) 2001 2000 2001 2000
=======================================================================================================================
Allowance at beginning of period $ 4,900 $ 4,409 $ 4,897 $ 4,282
Provision charged to expense -- 150 -- 250
Loans charged off -- 82 -- 82
Recoveries on loans previously charged off 47 3 50 30
- -----------------------------------------------------------------------------------------------------------------------
Net loans charged-off (recovered) (47) 79 (50) 52
Allowance at end of period $ 4,947 $ 4,480 $ 4,947 $ 4,480
- -----------------------------------------------------------------------------------------------------------------------
Loans outstanding:
Average $378,722 $323,549 $375,213 $314,200
June 30 386,122 328,250 386,122 328,250
Ratio of allowance for loan losses to loans outstanding:
Average 1.31% 1.38% 1.32% 1.43%
June 30 1.28 1.36 1.28 1.36
Nonperforming loans:
Nonaccrual loans $ 1,757 $ 989 $ 1,757 $ 989
Loans past due 90 days or more -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------
Total $ 1,757 $ 989 $ 1,757 $ 989
- -----------------------------------------------------------------------------------------------------------------------
Nonperforming loans as a percent of average loans .46% .31% .47% .31%
=======================================================================================================================
-13-
14
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-Management Solutions. As of June 30, 2001 the investment
in this subsidiary was $5,355,000. During the First Half of 2001, this
subsidiary had a loss of $487,000, which includes depreciation and
amortization of $738,000.
NONINTEREST INCOME
Noninterest income is principally derived from payment and processing
fees. Processing volumes related to these fees for the three and six month
periods ended June 30, 2001 and 2000 are as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
======================================== ========================================
% %
(IN THOUSANDS) 2001 2000 CHANGE 2001 2000 CHANGE
================================================================================= ========================================
Transportation Information Services:
Invoice Bill Volume 5,140 4,729 8.7% 9,998 9,603 4.1%
Invoice Dollar Volume $1,808,533 $1,816,185 (.4%) $3,667,166 $3,618,123 1.4%
Utility Information Services:
Invoice Bill Volume 604 408 48.0% 1,235 799 54.6%
Invoice Dollar Volume $ 387,949 $ 232,889 66.6% $ 830,429 $ 455,838 82.2%
These figures 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 for the Second Quarter of 2001 was $5,655,000,
a $394,000 or 7.5% increase compared with the Second Quarter of 2000. Total
noninterest income for the First Half of 2001 was $11,395,000, a $379,000 or
3.4% increase compared to the First Half of 2000. CIS payment and processing
revenue for the Second Quarter of 2001 was $5,154,000, a $305,000 or 6.3%
increase compared to the Second Quarter of 2000. CIS payment and processing
revenue for the First Half of 2001 was $10,466,000, a $281,000 or 2.8%
increase compared to the First Half of 2000. These increases were primarily
derived from the growth in fee income from utility payment services and were
partially offset by decreases in freight payment services. The decrease in
freight payment fees was due to a slowing of the economy and a change in the
fee mix of items processed with a greater percentage of EDI (Electronic Data
Interchange) transactions processed in 2001. EDI transactions have lower
processing requirements and therefore lower fees. 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 Second Quarter of 2001 were $383,000, a
$9,000 or 2.4% increase compared to the Second Quarter of 2000. During the
First Half of 2001 these fees were $699,000, a $9,000 or 1.3% decrease
compared to the First Half of 2000.
-14-
15
NONINTEREST EXPENSE
Total noninterest expense for the Second Quarter of 2001 was
$11,037,000, a $697,000 or 6.7% increase compared to the Second Quarter of
2000. Total noninterest expense for the First Half of 2001 was $22,125,000,
a $1,606,000 or 7.8% increase compared to the First Half of 2000.
Salaries and benefits expense for the Second Quarter of 2001 was
$7,663,000, a $706,000 or 10.1% increase compared to the Second Quarter of
2000. Salaries and benefits expense for the First Half of 2001 was
$15,385,000, a $1,378,000 or 9.8% increase compared to the First Half of
2000. These increases in expense were caused by annual pay increases and
expenses related to an increased staff at the Company's new utility
processing facility in Columbus, Ohio.
Occupancy expense for the Second Quarter of 2001 was $427,000, a
$16,000 or 3.6% decrease compared to the Second Quarter of 2000. Occupancy
expense for the First Half of 2001 was $888,000, a $11,000 or 1.3% increase
compared to the First Half of 2000. The decrease in the Second Quarter of
2001 relates primarily to a decrease in rent expense the Company experienced
after moving its Columbus operations from leased space to a newly acquired
building. The increase in the First Half of 2001 compared to the First Half
of 2000 was primarily due to expenses related to moving the Columbus
operations to the new building.
Equipment expense for the Second Quarter of 2001 was $904,000, an
increase of $137,000 or 17.9% compared to the Second Quarter of 2000.
Equipment expense for the First Half of 2001 was $1,718,000, an increase of
$199,000 or 13.1% compared to the First Half of 2000. These increases were
due primarily to increased investments in information technology.
Other noninterest expense for the Second Quarter of 2001 was
$2,043,000, a decrease of $130,000 or 6.0% compared to the Second Quarter of
2000. Other noninterest expense for the First Half of 2001 was $4,134,000, a
slight increase of $18,000 or .4% compared to the First Half of 2000. The
decrease experienced in the Second Quarter of 2001 compared to the Second
Quarter of 2000 was due primarily to decreases in consulting fees and
telecommunication costs.
FINANCIAL CONDITION
Total assets at June 30, 2001 were $563,355,000, a decrease of
$13,531,000 or 2.4% from December 31, 2000. Loans, net of the allowance for
loan losses, at June 30, 2001 were $381,175,000, an increase of $13,852,000
or 3.8% from December 31, 2000. Total investments in debt and equity
securities at June 30, 2001 were $44,416,000, a $24,909,000 or 35.9% decrease
from December 31, 2000. Federal Funds sold and other short-term investments
at June 30, 2001 were $80,637,000 a $13,614,000 or 14.4% decrease from
December 31, 2000.
Total deposits at June 30, 2001 were $202,815,000, a $9,851,000 or 4.6%
decrease from December 31, 2000. Accounts and drafts payable were
$298,982,000, a $3,858,000 or 1.3% decrease from December 31, 2000. Total
shareholders' equity at June 30, 2001 was $54,368,000, a $547,000 or 1.0%
increase from December 31, 2000.
The increase in loans is related to the successful expansion of the
church and church-related ministries unit and increases in loans to privately
held businesses from Cass Bank's ongoing marketing efforts. The decrease in
federal funds sold and other short-term investments relate to the increase in
loans and decrease in deposits and accounts and drafts payable. The decrease
in deposits reflects normal daily and seasonal fluctuations. 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 increase in total shareholders' equity
resulted from net income of $3,525,000; an increase in other comprehensive
income of $346,000; the amortization of the stock bonus plan of $43,000; and
cash received from the exercise of stock options of $11,000; offset by the
purchase of treasury shares for $2,069,000 (100,500 shares); and dividends
paid of $1,309,000 ($.40 per share).
-15-
16
LIQUIDITY AND CAPITAL RESOURCES
The balances of liquid assets consists of cash and cash equivalents,
which include cash and due from banks, federal funds sold, and money market
funds, and were $105,091,000 at June 30, 2001, a decrease of $10,840,000 or
9.4% from December 31, 2001. At June 30, 2001 these assets represented 18.7%
of total assets. These funds are 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.
Secondary sources of liquidity include the investment portfolio and
borrowing lines. Total investment in debt and equity securities were
$44,416,000 at June 30, 2001, a decrease of $24,909,000 or 35.9% from
December 31, 2001. These assets represented 7.9% of total assets at June 30,
2001. Of this total, 46% were U.S. treasury securities, 50% were U.S.
government agencies, and 4% were other securities. Of the total portfolio,
41% matures in one year, 43% matures in one to five years, and 16% 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.
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 collateralized by securities sold under repurchase agreements.
The deposits of the Company's banking subsidiary have historically been
stable, consisting of a sizable volume of core deposits related to customers
that utilize many other commercial products of the bank. The accounts and
drafts payable generated by CIS has also historically been a stable source of
funds.
Net cash provided by operating activities totaled $3,360,000 for the
First Half of 2001, compared to $4,995,000 for the First Half of 2000. Net
cash provided by investing activities was $2,851,000 for the First Half of
2001, compared with net cash used in investing activities of $54,621,000 for
the First Half of 2000. Net cash used in financing activities for the First
Half of 2001 was $17,051,000, compared with net cash provided in financing
activities of $9,682,000 for the First Half of 2000. The increase in net
cash provided by investing activities relates primarily to the maturity of
available-for-sale debt securities in the First Half of 2001 and a greater
increase in loans in the First Half of 2000. The increase in net cash used
in financing activities relates primarily to the decrease in deposits and
accounts and drafts payable along with the Company's repurchase of common
shares for treasury.
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.
-16-
17
The Company and the Bank continue to significantly exceed all
regulatory capital requirements, as evidenced by the following capital
amounts and ratios at June 30, 2001 and December 31, 2000:
JUNE 30, 2001 AMOUNT RATIO
=================================================================================================
Total capital (to risk-weighted assets)
Cass Information Systems, Inc. $52,657,000 12.06%
Cass Commercial Bank 22,446,000 11.59
Tier I capital (to risk-weighted assets)
Cass Information Systems, Inc. $47,710,000 10.93%
Cass Commercial Bank 20,030,000 10.34
Tier I capital (to average assets)
Cass Information Systems, Inc. $47,710,000 8.70%
Cass Commercial Bank 20,030,000 8.51
=================================================================================================
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
=================================================================================================
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 June 30, 2001 has changed materially from that at December
31, 2000.
-17-
18
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
At the annual meeting of the shareholders of Cass Information
Systems, Inc. held on April 16, 2001, the following proposals
were voted on and approved:
The following is a summary of votes cast. No broker non-votes
were received.
Withheld
Authority /
For Against Abstentions
---------------- ------------- -------------
1. Proposal to elect three Directors for a term
of three years ending 2004;
Lawrence A. Collett 2,604,936 5,970 671,543
Irving A. Shepard 2,585,338 25,568 671,543
Andrew J. Signorelli 2,585,738 25,168 671,543
2. Proposal to ratify the selection of KPMG LLP
as independent accountants for 2001. 2,560,367 1,953 720,129
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 June 30, 2001.
-18-
19
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: August 8, 2001 By Lawrence A. Collett
---------------------------------------
Lawrence A. Collett
Chairman and Chief Executive Officer
DATE: August 8, 2001 By Eric H. Brunngraber
---------------------------------------
Eric H. Brunngraber
Vice President-Secretary
(Chief Financial and Accounting Officer)
-19-