1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 2001
COMMISSION FILE NO. 2-80070
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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
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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 October 30, 2001: Common stock, par value $.50 per share - 3,181,815
shares outstanding.
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This document constitutes part of a prospectus covering securities that
have been registered under the Securities Act of 1933.
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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)
SEPTEMBER 30 DECEMBER 31
2001 2000
ASSETS
Cash and due from banks $ 31,758 $ 21,680
Federal funds sold and other short-term investments 56,820 94,251
-------- --------
Cash and cash equivalents 88,579 115,931
-------- --------
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 94,967 62,675
-------- --------
Total investment in debt and equity securities 94,967 69,325
-------- --------
Loans 370,912 372,220
Less: Allowance for loan losses 4,901 4,897
-------- --------
Loans, net 366,011 367,323
-------- --------
Premises and equipment, net 17,394 13,914
Accrued interest receivable 2,905 3,528
Investment in unconsolidated subsidiary 5,000 --
Other assets 9,424 6,865
-------- --------
Total assets $584,280 $576,886
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
-----------
Deposits:
Noninterest-bearing $ 98,338 $ 99,941
Interest-bearing 118,588 112,725
-------- --------
Total deposits 216,926 212,666
Accounts and drafts payable 304,603 302,840
Short-term borrowings 1,000 --
Other liabilities 6,729 7,559
-------- --------
Total liabilities 529,258 523,065
-------- --------
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
Additional paid-in capital 4,997 5,059
Retained earnings 62,653 59,177
Accumulated other comprehensive income 1,009 159
Common shares in treasury, at cost (818,185 shares at
September 30, 2001 and 655,089 shares at December 31, 2000) (15,597) (12,480)
Unamortized stock bonus awards (40) (94)
-------- --------
Total shareholders' equity 55,022 53,821
-------- --------
Total liabilities and shareholders' equity $584,280 $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 NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
====================== ======================
2001 2000 2001 2000
INTEREST INCOME:
Interest and fees on loans $ 7,303 $ 7,164 $22,245 $20,151
Interest and dividends on debt and equity securities:
Taxable 1,186 1,283 2,928 4,039
Exempt from federal income taxes 12 14 39 44
Interest on federal funds sold and
other short-term investments 529 999 2,317 2,575
------- ------- ------- -------
Total interest income 9,030 9,460 27,529 26,809
------- ------- ------- -------
INTEREST EXPENSE:
Interest on deposits 821 1,464 3,218 3,489
Interest on short-term borrowings 4 13 5 20
------- ------- ------- -------
Total interest expense 825 1,477 3,223 3,509
------- ------- ------- -------
Net interest income 8,205 7,983 24,306 23,300
Provision for loan losses 60 100 60 350
------- ------- ------- -------
Net interest income after provision
for loan losses 8,145 7,883 24,246 22,950
------- ------- ------- -------
NONINTEREST INCOME:
Freight and utility payment and processing revenue 5,429 4,651 15,895 14,836
Bank service fees 412 346 1,111 1,054
Other 45 69 275 192
------- ------- ------- -------
Total noninterest income 5,886 5,066 17,281 16,082
------- ------- ------- -------
NONINTEREST EXPENSE:
Salaries and employee benefits 7,514 7,099 22,899 21,106
Occupancy expense 420 457 1,308 1,334
Equipment expense 960 772 2,678 2,291
Other 2,206 1,955 6,340 6,071
------- ------- ------- -------
Total noninterest expense 11,100 10,283 33,225 30,802
------- ------- ------- -------
Income before income tax expense 2,931 2,666 8,302 8,230
Income tax expense 1,035 946 2,881 2,934
------- ------- ------- -------
Net income $ 1,896 $ 1,720 $ 5,421 $ 5,296
======= ======= ======= =======
Earnings per share:
Basic $.60 $.50 $1.67 $1.50
Diluted $.59 $.49 $1.65 $1.48
Weighted average shares outstanding:
Basic 3,184,804 3,435,722 3,245,577 3,526,471
Effect of stock options and awards 37,639 46,556 40,707 46,479
Diluted 3,222,443 3,482,278 3,286,284 3,572,950
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)
NINE MONTHS ENDED
SEPTEMBER 30
==========================
2001 2000
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,421 $ 5,296
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 2,256 1,950
Provision for loan losses 60 350
Amortization of stock bonus awards 64 60
Decrease (increase) in accrued interest receivable 623 (597)
Decrease (increase) in accounts receivable (2,086) 482
Decrease in deferred income (210) (1,075)
Deferred income tax benefit (117) (366)
Increase (decrease) in income tax liability 633 (126)
Change in other assets (1,224) 23
Change in other liabilities (1,253) 787
Other operating activities, net (433) (30)
-------- --------
Net cash provided by operating activities 3,734 6,754
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of debt and equity securities:
Held-to-maturity -- 15,664
Available-for-sale 26,040 6,664
Purchase of debt and equity securities available-for-sale (50,461) (18,889)
Net increase in loans (2,953) (69,867)
Purchases of premises and equipment, net (5,572) (2,717)
-------- --------
Net cash used in investing activities (32,946) (69,145)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in noninterest-bearing demand deposits (1,603) (10,825)
Net increase (decrease) in interest-bearing demand and savings deposits (504) 17,388
Net increase (decrease) in time deposits 6,367 (358)
Net increase in accounts and drafts payable 1,763 45,245
Net increase (decrease) in short-term borrowings 1,000 (208)
Cash proceeds from exercise of stock options 61 47
Cash dividends paid (1,944) (2,110)
Purchase of common shares for treasury (3,280) (6,715)
-------- --------
Net cash provided by financing activities 1,860 42,464
-------- --------
Net decrease in cash and cash equivalents (27,352) (19,927)
Cash and cash equivalents at beginning of period 115,931 124,217
-------- --------
Cash and cash equivalents at end of period $ 88,579 $104,290
======== ========
Supplemental information:
Cash paid for interest $ 3,200 $ 3,476
Cash paid for income taxes 2,737 3,512
Transfer of securities from held-to-maturity to available-for-sale 6,682 --
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 September 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 Cass Information System,
Inc.'s ("the Company") 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 $23,000 for the year ended December 31, 2000 and the nine months
ended September 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
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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 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
(IN THOUSANDS) SEPTEMBER 30, 2001 DECEMBER 31, 2000
====================================================================================
Commercial and industrial $130,397 $136,482
Real estate:
Mortgage 134,487 117,170
Mortgage - Churches & Related 72,007 65,368
Construction 8,575 9,877
Construction - Churches & Related 12,990 19,587
Industrial revenue bonds 6,401 15,804
Installment 2,455 2,533
Other 3,600 5,399
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Total loans $370,912 $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
261,880 shares. For the nine month period ended September 30, 2001 the
Company has repurchased 161,700 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 nine month periods ended September 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 nine month periods ended
September 30, 2001 and 2000 is summarized as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
================== =================
(IN THOUSANDS) 2001 2000 2001 2000
========================================================================================================
Net Income $1,896 $1,720 $5,421 $5,296
Other comprehensive income:
Net unrealized gain on debt and equity
securities available-for-sale, net of tax 504 194 850 115
--------------------------------------------------------------------------------------------------------
Total comprehensive income $2,400 $1,914 $6,271 $5,411
========================================================================================================
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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.
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 nine month periods ended September 30,
2001 and 2000, is as follows:
TRANSPORTATION UTILITY
INFORMATION INFORMATION BANKING ELIM-
(IN THOUSANDS) SERVICES SERVICES SERVICES CORPORATE INATIONS TOTAL
=======================================================================================================================
Three Months Ended September 30, 2001
Total Revenues $ 8,335 $1,969 $ 3,828 $ 521 $ (622) $14,031
Net Income 816 33 1,060 (13) -- 1,896
Three Months Ended September 30, 2000
Total Revenues $ 8,713 $1,033 $ 3,269 $ 372 $ (438) $12,949
Net Income 880 75 789 (24) -- 1,720
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Nine Months Ended September 30, 2001
Total Revenues $25,290 $5,640 $10,895 $1,451 $(1,749) $41,527
Net Income 2,560 76 2,822 (37) -- 5,421
Nine Months Ended September 30, 2000
Total Revenues $26,492 $2,780 $ 9,989 $1,142 $(1,371) $39,032
Net Income 3,228 (333) 2,473 (72) -- 5,296
=======================================================================================================================
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 September 30, 2001 the investment in this subsidiary was $5,000,000.
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.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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 invoices, preparation of management information, auditing
and rating invoices 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 September 30, 2001 (the "Third Quarter of 2001") compared to the
three-month period ended September 30, 2000 (the "Third Quarter of 2000") and
the nine-month period ended September 30, 2001 ("First Nine Months of 2001")
compared to the nine-month period ended September 30, 2000 ("First Nine
Months 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 Nine Months 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 $1,896,000 for the Third Quarter of
2001, a $176,000 or 10.2% increase compared to net income of $1,720,000 for
the Third Quarter of 2000. The Company's net income was $5,421,000 for the
First Nine Months of 2001, a $125,000 or 2.4% increase compared to net income
of $5,296,000 for the First Nine Months of 2000. Diluted earnings per share
was $.59 for the Third Quarter of 2001, a 20.4% increase compared to $.49 for
the Third Quarter of 2000. Diluted earnings per share was $1.65 for the
First Nine Months of 2001, a 11.5% increase compared to $1.48 for the First
Nine Months of 2000. The increase in net income was primarily a result of an
increase in both fee and net interest income. Return on average assets for
the Third Quarter of 2001 was 1.31% compared to 1.34% for the Third Quarter
of 2000. Return on average assets for the First Nine Months of 2001 was
1.29% compared to 1.41% for the First Nine Months of 2000. Return on average
equity for the Third Quarter of 2001 was 13.70% compared to 12.76% for the
Third Quarter of 2000. Return on average equity for the First Nine Months
of 2001 was 13.24% compared to 12.98% for the First Nine Months of 2000.
NET INTEREST INCOME
Third Quarter of 2001 compared to Third Quarter of 2000:
The Company's tax-equivalent net interest income increased 2.9% or
$234,000 from $8,039,000 to $8,273,000. Average earning assets increased
8.6% or $41,203,000 from $478,840,000 to $520,043,000. The tax-equivalent
net interest margin decreased from 6.68% to 6.33%. The average
tax-equivalent yield on earning assets decreased from 7.91% to 6.96%. The
average rate paid on interest-bearing liabilities decreased from 5.32% to
2.74%.
The average balances of loans increased $45,028,000 from
$334,364,000 to $379,392,000, investment in debt and equity securities
decreased $940,000 from $82,429,000 to $81,489,000, and federal funds sold
and other short-term investments decreased $2,885,000 from $62,047,000 to
$59,162,000. The average balance of noninterest bearing demand deposit
accounts increased $18,685,000 from $74,902,000 to $93,587,000, accounts and
drafts payable increased $30,265,000 from $267,743,000 to $298,008,000, and
interest bearing liabilities increased $9,393,000 from $110,435,000 to
$119,828,000.
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The increase in average loan balances 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 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 demand and interest bearing liabilities have increased
due to the Bank's increased marketing efforts to attract more deposits and
the fact that many bank customers maintain higher noninterest bearing
balances to compensate the Bank for services and to avoid higher services
fees in a lower rate environment. The increase in average accounts and
drafts payable relates to increases in utility dollar volume processed and a
lengthening of the time the Company has funds available to complete payment
of freight invoices.
The increases experienced during the Third Quarter of 2001 in net
interest income was caused primarily by increases in the level of earning
assets funded by the increase in demand deposits, accounts and drafts payable
and interest-bearing liabilities and a shift in earning assets to higher
yielding loans and also to a decrease in rates paid on deposits. 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 Nine Months of 2001 compared to the First Nine Months of 2000:
The Company's tax-equivalent net interest income increased 4.9% or
$1,141,000 from $23,473,000 to $24,614,000. Average earning assets increased
9.9% or $45,942,000 from $465,133,000 to $511,075,000. The tax-equivalent
net interest margin decreased from 6.74% to 6.46%. The average
tax-equivalent yield on earning assets decreased from 7.75% to 7.30%. The
average rate paid on interest-bearing liabilities decreased from 4.64% to
3.58%.
The average balances of loans increased $55,713,000 from
$320,908,000 to $376,621,000, investment in debt and equity securities
decreased $22,369,000 from $87,485,000 to $65,116,000, and federal funds sold
and other short-term investments increased $12,598,000 from $56,740,000 to
$69,338,000. The average balance of noninterest bearing demand deposit
accounts increased $9,127,000 from $79,388,000 to $88,515,000, accounts and
drafts payable increased $27,047,000 from $261,833,000 to $288,880,000, and
interest-bearing liabilities increased $19,716,000 from $101,043,000 to
$120,759,000.
The increases and decreases experienced in account balances during
the First Nine Months of 2001 were attributable to the same factors as those
described for the third quarter, except that the average balance of federal
funds sold and other short-term investments was higher for the First Nine
Months of 2001 compared with the corresponding period for 2000. Investments
made during the Third Quarter of 2001 have shifted from these funds to longer
term, higher yielding investment securities.
The increases experienced during the First Nine Months of 2001 in
net interest income were also caused primarily by increases in the level of
earning assets funded primarily by the increase in demand deposits, accounts
and drafts payable and interest bearing liabilities and a shift in earning
assets to higher yielding loans and also to a decrease in rates paid on
deposits. 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.
THIRD QUARTER 2001 THIRD 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 $370,721 $7,185 7.71% $327,283 $7,068 8.59%
Tax-exempt 4 8,671 178 8.17 7,081 145 8.15
Debt and equity securities 5:
Taxable 80,449 1,187 5.87 81,247 1,282 6.28
Tax-exempt 4 1,040 18 6.89 1,182 22 7.40
Federal funds sold and other
short-term investments 59,162 529 3.56 62,047 999 6.41
-----------------------------------------------------------------------------------------------------------------------
Total earning assets 520,043 9,097 6.96 478,840 9,516 7.91
Nonearning assets:
Cash and due from banks 24,764 17,858
Premises and equipment, net 17,498 9,836
Other assets 16,516 10,371
Allowance for loan losses (4,921) (4,476)
-----------------------------------------------------------------------------------------------------------------------
Total assets $573,900 $512,429
-----------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY 1
Interest-bearing liabilities:
Interest-bearing demand
deposits $ 58,593 $ 360 2.44% $ 43,847 $ 544 4.94%
Savings deposits 48,672 322 2.63 59,767 840 5.59
Time deposits of
$100 or more 7,955 92 4.60 2,326 31 5.30
Other time deposits 3,965 46 4.62 3,807 49 5.12
-----------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 119,185 820 2.74 109,747 1,464 5.31
Short-term borrowings 643 4 2.47 688 13 7.52
-----------------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 119,828 824 2.74 110,435 1,477 5.32
Noninterest-bearing liabilities:
Demand deposits 93,587 74,902
Accounts and drafts payable 298,008 267,743
Other liabilities 7,553 5,705
-----------------------------------------------------------------------------------------------------------------------
Total liabilities 518,976 458,785
Shareholders' equity 54,924 53,644
Total liabilities and
shareholders' equity $573,900 $512,429
-----------------------------------------------------------------------------------------------------------------------
Net interest income $8,273 $8,039
Interest spread 4.22% 2.59%
Net interest margin 6.33% 6.68%
=======================================================================================================================
<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 $84,000 and $151,000
for the Third 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 $67,000
and $56,000 for the Third 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 NINE MONTHS OF 2001 FIRST NINE MONTHS 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 $363,371 $21,688 8.00% $313,756 $19,856 8.45%
Tax-exempt 4 13,250 844 8.54 7,152 446 8.33
Debt and equity securities 5:
Taxable 64,046 2,929 6.13 86,288 4,039 6.25
Tax-exempt 4 1,070 58 7.27 1,197 66 7.37
Federal funds sold and other
short-term investments 69,338 2,317 4.48 56,740 2,575 6.06
-----------------------------------------------------------------------------------------------------------------------
Total earning assets 511,075 27,836 7.30 465,133 26,982 7.75
Nonearning assets:
Cash and due from banks 22,672 22,395
Premises and equipment, net 16,318 9,617
Other assets 15,752 9,954
Allowance for loan losses (4,910) (4,406)
-----------------------------------------------------------------------------------------------------------------------
Total assets $560,907 $502,693
-----------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY 1
Interest-bearing liabilities:
Interest-bearing demand
deposits $ 55,629 $ 1,315 3.17% $ 43,227 $ 1,367 4.22%
Savings deposits 55,076 1,533 3.73 51,169 1,892 4.94
Time deposits of
$100 or more 5,976 222 4.98 2,456 95 5.17
Other time deposits 3,839 147 5.13 3,828 135 4.71
-----------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 120,520 3,217 3.58 100,680 3,489 4.63
Short-term borrowings 239 5 2.80 363 20 7.36
-----------------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 120,759 3,222 3.58 101,043 3,509 4.64
Noninterest-bearing liabilities:
Demand deposits 88,515 79,388
Accounts and drafts payable 288,880 261,833
Other liabilities 8,023 5,922
-----------------------------------------------------------------------------------------------------------------------
Total liabilities 506,177 448,186
Shareholders' equity 54,730 54,507
Total liabilities and
shareholders' equity $560,907 $502,693
-----------------------------------------------------------------------------------------------------------------------
Net interest income $24,614 $23,473
Interest spread 3.72% 3.11%
Net interest margin 6.46% 6.74%
=======================================================================================================================
-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 $95,000 and $230,000
for the First Nine Months 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 $307,000
and $173,000 for the First Nine Months 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.
THIRD QUARTER
2001 OVER 2000
=================================
(IN THOUSANDS) VOLUME RATE TOTAL
====================================================================================================
Increase (decrease) in interest income:
Loans 1,2:
Taxable $ 886 $ (769) $ 117
Tax-exempt 3 33 -- 33
Debt and equity securities:
Taxable (12) (83) (95)
Tax-exempt 3 (3) (1) (4)
Federal funds sold and other
short-term investments (44) (426) (470)
----------------------------------------------------------------------------------------------------
Total interest income 860 (1,279) (419)
----------------------------------------------------------------------------------------------------
Interest expense on:
Interest-bearing demand deposits 147 (331) (184)
Savings deposits (135) (383) (518)
Time deposits of $100 or more 66 (5) 61
Other time deposits 2 (5) (3)
Short-term borrowings (1) (8) (9)
----------------------------------------------------------------------------------------------------
Total interest expense 79 (732) (653)
----------------------------------------------------------------------------------------------------
Net interest income $ 781 $ (547) $ 234
====================================================================================================
<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 NINE MONTHS
2001 OVER 2000
=================================
(IN THOUSANDS) VOLUME RATE TOTAL
====================================================================================================
Increase (decrease) in interest income:
Loans(1,2):
Taxable $ 2,954 $(1,122) $ 1,832
Tax-exempt(3) 387 11 398
Debt and equity securities:
Taxable (1,032) (78) (1,110)
Tax-exempt(3) (7) (1) (8)
Federal funds sold and other
short-term investments 499 (757) (258)
----------------------------------------------------------------------------------------------------
Total interest income 2,801 (1,947) 854
----------------------------------------------------------------------------------------------------
-12-
13
Interest expense on:
Interest-bearing demand deposits 337 (389) (52)
Savings deposits 135 (494) (359)
Time deposits of $100 or more 131 (4) 127
Other time deposits -- 12 12
Short-term borrowings (5) (10) (15)
----------------------------------------------------------------------------------------------------
Total interest expense 598 (885) (287)
----------------------------------------------------------------------------------------------------
Net interest income $ 2,203 $(1,062) $ 1,141
====================================================================================================
<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>
ALLOWANCE AND PROVISION FOR LOAN LOSSES
A significant determinant of the Company's operating results is the
provision for loan losses and the level of loans charged off. There was a
$60,000 provision made for loan losses during the Third Quarter of 2001
compared with a $100,000 provision made during the Third Quarter of 2000.
There was a $60,000 provision made for loan losses during the First Nine
Months of 2001 compared with a $350,000 provision made during the First Nine
Months of 2000. Net loans charged off for the Third Quarter of 2001 were
$106,000 compared to $68,000 for the Third Quarter of 2000. Net loans
charged off for the First Nine Months of 2001 were $56,000 compared to
$120,000 for the First Nine Months of 2000. This, along with a reduction in
the balance of potential problem loans from December 31, 2000 to September
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 September 30, 2001 was $4,901,000
and at December 31, 2000 was $4,897,000. The allowance for loan losses at
September 30, 2001 and December 31, 2001 represented 1.32% of total loans
outstanding. Nonperforming loans were $836,000 or .22% of average loans at
September 30, 2001 compared to $1,131,000 or .34% of average loans at
December 31, 2000.
At September 30, 2001, impaired loans totaled $890,000 which
included $790,000 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 $219,000 at
September 30, 2001. The decrease in impaired loans from December 31, 2000
relates primarily to one borrower. On January 2, 2001 the Bank foreclosed on
certain assets of this borrower as explained in the Summary of Asset Quality
section below.
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
nine month periods ended September 30, 2001 and 2000 pertaining to the
Company's provision for loan losses and analysis of the allowance for loan
losses.
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
======================== =======================
(DOLLARS IN THOUSANDS) 2001 2000 2001 2000
====================================================================================================================
Allowance at beginning of period $ 4,947 $ 4,480 $ 4,897 $ 4,282
Provision charged to expense 60 100 60 350
Loans charged off 110 71 110 153
-13-
14
Recoveries on loans previously charged off 4 3 54 33
--------------------------------------------------------------------------------------------------------------------
Net loans charged-off (recovered) 106 68 56 120
Allowance at end of period $ 4,901 $ 4,512 $ 4,901 $ 4,512
--------------------------------------------------------------------------------------------------------------------
Loans outstanding:
Average $379,392 $334,364 $376,621 $320,908
September 30 370,912 348,090 370,912 384,090
Ratio of allowance for loan losses to loans outstanding:
Average 1.29% 1.35% 1.30% 1.41%
September 30 1.32 1.30 1.32 1.30
Nonperforming loans:
Nonaccrual loans $ 790 $ 980 $ 790 $ 980
Loans past due 90 days or more 46 4 46 4
--------------------------------------------------------------------------------------------------------------------
Total nonperforming loans $ 836 $ 984 $ 836 $ 984
Other real estate owned 600 -- 600 --
--------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $ 1,436 $ 984 $ 1,436 $ 984
--------------------------------------------------------------------------------------------------------------------
Nonperforming loans as a percent of average loans .22% .29% .22% .31%
====================================================================================================================
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 and will continue to operate the
business until it can be sold or merged into another entity. As of September
30, 2001 the investment in this subsidiary was $5,000,000. During the First
Nine Months of 2001, this subsidiary had a loss of $826,000, which includes
depreciation and amortization of $1,123,000.
NONINTEREST INCOME
Noninterest income is principally derived from payment and
processing fees. Processing volumes related to these fees for the three and
nine month periods ended September 30, 2001 and 2000 are as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
================================== ====================================
% %
(IN THOUSANDS) 2001 2000 CHANGE 2001 2000 CHANGE
======================================================================================================================
Transportation Information Services:
Invoice Bill Volume 4,969 4,641 7.1% 14,967 14,244 5.1%
Invoice Dollar Volume $1,808,261 $1,840,447 (1.7%) $5,475,427 $5,458,570 .3%
Utility Information Services:
Invoice Bill Volume 606 445 36.2% 1,841 1,244 48.0%
Invoice Dollar Volume $ 495,629 $ 309,747 60.0% $1,326,058 $ 765,585 73.2%
Total noninterest income for the Third Quarter of 2001 was
$5,886,000, a $820,000 or 16.2% increase compared with the Third Quarter
of 2000. Total noninterest income for the First Nine Months of 2001 was
$17,281,000, a $1,199,000 or 7.5% increase compared to the First Nine Months
of 2000. The Company's payment and processing revenue for the Third Quarter
of 2001 was $5,429,000, a $778,000 or 16.7% increase compared to the Third
Quarter of 2000. CIS payment and processing revenue for the First Nine
Months of 2001 was $15,895,000, a $1,059,000 or 7.1% increase compared to the
First Nine Months of 2000. These increases were primarily derived from the
growth in fee income from both the freight and utility processing segments.
The increase in freight fees was due to increases in new customer- and
service-related fees, which offset a decrease in shipments resulting from a
slowing of the economy. The increase in utility fees relates primarily to
the addition of new customers from marketing efforts and through the
acquisition of "The Utility Navigator(R)".
Bank service fees for the Third Quarter of 2001 were $412,000,
a $66,000 or 19.1% increase compared to the Third Quarter of 2000. During
the First Nine Months of 2001 these fees were $1,111,000, a $57,000 or 5.4%
increase compared to the First Nine Months of 2000. These increases are due
to an expansion of the Bank's
-14-
15
customer base and the fact that service fees increase as the value of
noninterest bearing deposits used to compensate the Bank decrease as the
general level of interest rates decrease.
NONINTEREST EXPENSE
Total noninterest expense for the Third Quarter of 2001 was
$11,100,000, a $817,000 or 7.9% increase compared to the Third Quarter of
2000. Total noninterest expense for the First Nine Months of 2001 was
$33,225,000, a $2,423,000 or 7.9% increase compared to the First Nine Months
of 2000.
Salaries and benefits expense for the Third Quarter of 2001 was
$7,514,000, a $415,000 or 5.8% increase compared to the Third Quarter of
2000. Salaries and benefits expense for the First Nine Months of 2001 was
$22,899,000, a $1,793,000 or 8.5% increase compared to the First Nine Months
of 2000. These increases were primarily related to an increased staff at the
Company's new utility processing facility in Columbus, Ohio.
Occupancy expense for the Third Quarter of 2001 was $420,000, a
$37,000 or 8.1% decrease compared to the Third Quarter of 2000. Occupancy
expense for the First Nine Months of 2001 was $1,308,000, a $26,000 or 1.9%
decrease compared to the First Nine Months of 2000. The decrease in the
Third 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 decrease in the First Nine Months of 2001
compared to the First Nine Months of 2000 was also due to a decrease in rent
expense, which offset expenses related to moving the Columbus operations to
the new building.
Equipment expense for the Third Quarter of 2001 was $960,000,
an increase of $188,000 or 24.4% compared to the Third Quarter of 2000.
Equipment expense for the First Nine Months of 2001 was $2,678,000, an
increase of $387,000 or 16.9% compared to the First Nine Months of 2000.
These increases were due primarily to increased investments in information
technology.
Other noninterest expense for the Third Quarter of 2001 was
$2,206,000, an increase of $251,000 or 12.8% compared to the Third Quarter of
2000. Other noninterest expense for the First Nine Months of 2001 was
$6,340,000, an increase of $269,000 or 4.4% compared to the First Nine Months
of 2000. These increases were due primarily to increases in postage expense
and outside service fees.
FINANCIAL CONDITION
Total assets at September 30, 2001 were $584,280,000, an increase
of $7,394,000 or 1.3% from December 31, 2000. Loans, net of the allowance
for loan losses, at September 30, 2001 were $366,011,000, a decrease of
$1,312,000 or .4% from December 31, 2000. Total investments in debt and
equity securities at September 30, 2001 were $94,967,000, a $25,642,000
or 37.0% increase from December 31, 2000. Federal Funds sold and other
short-term investments at September 30, 2001 were $56,821,000 a $37,430,000
or 39.7% decrease from December 31, 2000.
Total deposits at September 30, 2001 were $216,926,000, a $4,260,000
or 2.0% increase from December 31, 2000. Accounts and drafts payable were
$304,603,000, a $1,763,000 or .6% increase from December 31, 2000. Total
shareholders' equity at September 30, 2001 was $55,022,000, a $1,201,000 or
2.2% increase from December 31, 2000.
Although the ending balances of loans have decreased slightly from
December 31, 2000, on average loans have increased over the last year with
a large number of loans booked in the last quarter of 2000, offset by loan
payoffs and refinancing in the First Nine Months of 2001. The decrease in
federal funds sold and other short-term investments relate to the increase
in investments in debt and equity securities as funds were shifted to longer
term higher yielding investments. The increase in deposits and accounts and
drafts payable 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 (for average balances refer to the tables on
pages 10 and 11). The increase in total shareholders' equity resulted from
net income of $5,421,000; an increase in other comprehensive income of
$850,000; the amortization of the stock bonus plan of $64,000; cash received
from the exercise of stock options of
-15-
16
$61,000 and the tax benefit received from the exercise of stock awards of
$29,000; offset by the purchase of treasury shares for $3,280,000 (161,700
shares); and dividends paid of $1,944,000 ($.60 per share).
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 $88,579,000 at September 30, 2001, a decrease of $27,352,000
or 23.6% from December 31, 2001. At September 30, 2001 these assets
represented 15.2% 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 was
$94,967,000 at September 30, 2001, an increase of $25,642,000 or 37.0% from
December 31, 2001. These assets represented 16.3% of total assets at
September 30, 2001. Of this total, 22% were U.S. treasury securities,
18% were U.S. government agencies, 58% were mortgage-backed securities and
2% were other securities. Of the total portfolio, 24% matures in one year,
16% matures in one to five years, and 60% 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 $20,341,000. 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 $3,734,000 for the
First Nine Months of 2001, compared to $6,754,000 for the First Nine Months
of 2000. Net cash used in investing activities was $32,946,000 for the First
Nine Months of 2001, compared with $69,145,000 for the First Nine Months of
2000. Net cash provided by financing activities for the First Nine Months
of 2001 was $1,860,000, compared with $42,464,000 for the First Nine Months
of 2000. The decrease in net cash used in investing activities relates
primarily to the greater increase in loans during the First Nine Months of
2000, which was partially offset by the purchase of more debt and equity
securities in the First Nine Months of 2001. The decrease in net cash
provided by financing activities relates primarily to a greater increase in
accounts and drafts payable during the First Nine Months of 2000.
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 September 30, 2001 and December 31, 2000:
SEPTEMBER 30, 2001 AMOUNT RATIO
========================================================================================
Total capital (to risk-weighted assets)
Cass Information Systems, Inc. $53,140,000 12.42%
Cass Commercial Bank 23,924,000 12.05
Tier I capital (to risk-weighted assets)
Cass Information Systems, Inc. $48,239,000 11.27%
Cass Commercial Bank 21,445,000 10.80
Tier I capital (to average assets)
Cass Information Systems, Inc. $48,239,000 8.69%
Cass Commercial Bank 21,445,000 8.96
========================================================================================
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 September 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
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 September 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: October 31, 2001 By Lawrence A. Collett
----------------------------------------
Lawrence A. Collett
Chairman and Chief Executive Officer
DATE: October 31, 2001 By Eric H. Brunngraber
----------------------------------------
Eric H. Brunngraber
Vice President-Secretary
(Chief Financial and Accounting Officer)
-19-