1
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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 MARCH 31, 1996
COMMISSION FILE NO. 2-80070
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CASS COMMERCIAL CORPORATION
INCORPORATED UNDER THE LAWS OF MISSOURI
I.R.S. EMPLOYER IDENTIFICATION NO. 43-1265338
3636 SOUTH GEYER ROAD, SUNSET HILLS, MISSOURI 63127
TELEPHONE: (314) 821-1500
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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 March 31, 1996: Common stock, par value $2.50 per
share - 1,929,274 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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2
PART I, ITEM 1
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CASS COMMERCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS EXCEPT SHARE
AND PER SHARE DATA)
--------------------------
MARCH 31 DECEMBER 31
1996 1995
ASSETS -------- -----------
- ------
Cash and due from banks $ 22,144 $ 8,529
Federal funds sold and other short-term investments 42,501 81,813
-------- --------
Cash and cash equivalents 64,645 90,342
-------- --------
Investments in debt and equity securities:
Held-to-maturity, estimated market value of
$127,484 and $131,378 at March 31, 1996
and December 31, 1995, respectively 127,795 130,172
Available-for-sale, at estimated market value 28,814 17,688
-------- --------
Total investments in debt and equity securities 156,609 147,860
-------- --------
Loans, net of unearned income 185,976 174,193
Less: Allowance for loan losses 6,377 6,358
-------- --------
Loans, net 179,599 167,835
-------- --------
Premises and equipment, net 8,255 8,267
Accrued interest receivable 3,566 3,788
Other assets 8,435 7,619
-------- --------
Total assets $ 421,109 $ 425,711
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Liabilities:
- -----------
Deposits:
Noninterest-bearing 61,887 64,106
Interest-bearing 94,639 97,620
-------- --------
Total deposits 156,526 161,726
Accounts and drafts payable 208,857 209,029
Securities sold under repurchase agreements and
other short-term borrowings 4,253 4,947
Other liabilities 7,149 6,696
-------- --------
Total liabilities 376,785 382,398
-------- --------
Stockholders' Equity:
- --------------------
Common stock, par value $2.50 per share; 4,000,000
shares authorized and 2,000,000 shares issued 5,000 5,000
Surplus 1,740 1,740
Retained earnings 39,185 38,153
Unamortized stock bonus awards (238) (266)
Unrealized holding loss on investments in debt and equity
securities available-for-sale (79) (30)
Common shares in treasury, at cost (70,726 shares at
March 31, 1996 and December 31, 1995) (1,284) (1,284)
-------- --------
Total stockholders' equity 44,324 43,313
-------- --------
Total liabilities and stockholders' equity $ 421,109 $ 425,711
======== ========
See accompanying notes to consolidated financial statements.
3
CASS COMMERCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS
EXCEPT PER SHARE DATA)
----------------------
THREE MONTHS ENDED
MARCH 31
----------------------
1996 1995
------- -------
INTEREST INCOME:
- ---------------
Interest and fees on loans $ 3,830 $ 3,367
Interest on debt securities:
Taxable 2,211 2,542
Exempt from Federal income taxes 15 9
Interest on Federal funds sold and other
short-term investments 582 636
------- -------
Total interest income 6,638 6,554
------- -------
INTEREST EXPENSE:
- ----------------
Interest on deposits 1,057 824
Interest on short-term borrowings 38 18
------- -------
Total interest expense 1,095 842
------- -------
Net interest income 5,543 5,712
Provision for loan losses -- --
------- -------
Net interest income after provision
for loan losses 5,543 5,712
------- -------
NONINTEREST INCOME:
- ------------------
Information services revenues:
Freight payment and processing revenue 4,542 5,287
Freight rating services income 904 925
Service charges on deposit accounts 127 86
Other 172 185
------- -------
Total noninterest income 5,745 6,483
------- -------
NONINTEREST EXPENSE:
- -------------------
Salaries and employee benefits 6,071 6,405
Occupancy expense 518 513
Equipment expense 622 681
Other 1,856 2,047
------- -------
Total noninterest expense 9,067 9,646
------- -------
Income before income tax expense 2,221 2,549
Income tax expense 746 904
------- -------
Net income $ 1,475 $ 1,645
======= =======
Net income per share $ .76 $ .86
======= =======
See accompanying notes to consolidated financial statements.
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4
CASS COMMERCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31
--------------------
1996 1995
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
- ------------------------------------
Net income $ 1,475 $ 1,645
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 601 614
Decrease in accrued interest receivable 222 717
Amortization of stock bonus awards 28 --
Other operating activities, net (324) 1,102
------- -------
Net cash provided by operating activities 2,002 4,078
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
- ------------------------------------
Proceeds from maturities of and principal
payments made on debt securities 3,760 5,142
Purchases of debt securities (12,727) (147)
Net increase in loans (11,783) (1,425)
Recoveries of loans previously charged off, net 19 85
Purchases of premises and equipment (459) (238)
------- -------
Net cash provided by (used in) investing activities (21,190) 3,417
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
- ------------------------------------
Net decrease in demand, interest-bearing
demand and savings deposits (5,734) (9,316)
Net increase (decrease) in time deposits 534 (22)
Net increase (decrease) in accounts and drafts payable (172) 13,356
Net decrease in securities sold under
repurchase agreements (694) (480)
Treasury stock purchased -- (3)
Dividends paid (443) (402)
------- -------
Net cash provided by (used in) financing activities (6,509) 3,133
------- -------
Net increase (decrease) in cash and cash equivalents (25,697) 10,628
Cash and cash equivalents at beginning of period 90,342 70,806
------- -------
Cash and cash equivalents at end of period $64,645 $81,434
------- -------
Supplemental information:
Cash paid for interest $ 1,097 $ 834
======= =======
Net taxes paid $ 97 $ 84
======= =======
See accompanying notes to consolidated financial statements.
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5
CASS COMMERCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1996
Note 1 - Basis of Presentation
Cass Commercial Corporation (the Company) provides a full
range of banking services to individual, corporate and
institutional customers through its wholly owned subsidiary bank,
Cass Bank & Trust Company (the Bank). The Bank is subject to
competition from other financial and nonfinancial institutions
throughout the metropolitan St. Louis, Missouri area.
Additionally, the Company and the Bank are subject to the
regulations of certain Federal and state agencies and undergo
periodic examinations by those regulatory agencies.
The Company also provides information services through its
wholly owned subsidiary, Cass Information Systems, Inc. (CIS).
These logistics-related services include processing and payment of
freight charges, preparation of transportation management reports,
auditing of freight charges and rating of freight shipments. CIS
is subject to competition from other commercial concerns providing
similar services to companies throughout the United States and
Canada. The consolidated balance sheet caption, 'Accounts and
Drafts Payable', consists of obligations related to freight bill
payment services which are performed for customers.
The accompanying unaudited consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles 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 generally accepted accounting principles for
complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation, have been included. Operating
results for the period ended March 31, 1996 are not necessarily
indicative of the results that may be expected for the year ending
December 31, 1996. For further information, refer to the
consolidated financial statements and footnotes thereto included in
the Company's Annual Report on Form 10-K for the year ended
December 31, 1995.
Note 2 - Impact Of New Accounting Pronouncements
The Company adopted the provisions of Statement of Financial
Accounting Standards No. 114, Accounting by Creditors for
Impairment of a Loan (SFAS 114), as amended by Statement of
Financial Accounting Standards No. 118, Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures (SFAS
118), on January 1, 1995.
SFAS 114 (as amended by SFAS 118) defines the recognition
criterion for loan impairment and the measurement methods for
certain impaired loans and loans for which the terms have been
modified in troubled debt restructurings (a restructured loan).
Specifically, a loan is considered impaired when it is probable a
creditor will be unable to collect all amounts due - both principal
and interest - according to the contractual terms of the loan
agreement. When measuring impairment, the expected future cash
flows of an impaired loan must be discounted at the loan's
effective interest rate. Alternatively, impairment can be measured
by reference to an observable market price, if one exists, or the
fair value of the collateral for a collateral-dependent loan. SFAS
114 requires a creditor to measure impairment based on the fair
value of the collateral when the creditor has determined
foreclosure is probable. Additionally, impairment of a
restructured loan is measured by discounting the total expected
future cash flows at the loan's effective rate of interest as
stated in the original loan agreement.
SFAS 118 amends SFAS 114 to allow a creditor to use existing
methods for recognizing interest income on loans for which the
accrual of income has been discontinued, which the the Company has
opted to do.
The adoption of SFAS 114 and SFAS 118 resulted in no
adjustment to the allowance for loan losses.
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6
During October 1995, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation (SFAS 123). SFAS 123
establishes financial accounting and reporting standards for stock-
based employee compensation plans and also applies to transactions
in which an entity issues its equity instruments to acquire goods
or services from nonemployees. SFAS 123 defines a fair value-based
method of accounting for an employee stock option or similar equity
instruments and encourages all entities to adopt that method of
accounting. However, it also allows an entity to continue to
measure compensation cost for those plans using the intrinsic
value-based method of accounting prescribed by Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees (APB 25). SFAS 123 is effective for transactions entered
into in fiscal years beginning after December 15, 1995. Pro forma
disclosures required for entities that elect to continue to measure
compensation cost using APB 25 must include the effect of all
awards granted in fiscal years that begin after December 15, 1994.
The Company plans to continue to measure compensation cost using
APB 25, therefore the adoption of SFAS No. 123 will not have any
impact on the Company's financial condition or results of
operations.
During May 1995, the FASB issued Statement of Financial
Accounting Standards No. 122, Accounting for Mortgage Servicing
Rights (SFAS 122). SFAS 122 requires that an institution which
sells or securitizes loans it has originated or purchased and
maintains the servicing rights to capitalize the cost of the rights
to service such loans. SFAS 122 also requires that an enterprise
assess its capitalized mortgage servicing rights for impairment
based on the fair value of those rights. SFAS No. 122 should be
applied prospectively for fiscal years beginning after December 15,
1995. As the Company is not currently selling or securitizing any
loans that it has originated or purchased, SFAS 122 will not have
any impact on the Company's financial statements.
During March 1995, the FASB issued Statement of Financial
Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of (SFAS
121). SFAS 121 provides guidance for the recognition and
measurement of impairment of long-lived assets, certain
identifiable intangibles, and goodwill related both to assets to be
held and used and assets to be disposed of. SFAS 121 requires
entities to perform separate calculations for assets to be held and
used to determine whether recognition of an impairment loss is
required and, if so, to measure the impairment. SFAS 121 requires
long-lived assets and certain assets and certain identifiable
intangibles to be disposed of to be reported at the lower of
carrying amount or fair value less costs to sell, except for assets
covered by the provisions of APB Opinion No. 30. SFAS 121 is
effective for financial statements issued for fiscal years
beginning after December 15, 1995, although earlier application is
encouraged. The Company does not anticipate that the adoption of
SFAS 121 will have a significant impact on its financial
statements.
Note 3 - Earnings Per Share
Average common and common stock equivalents outstanding for
the three month periods ended March 31, 1996 and 1995 were
1,929,274 and 1,914,318, respectively.
Note 4 - Stock Option Plan / Stock Bonus Plan
During May 1995, the Company's Board of Directors established
the 1995 Performance-Based Stock Option Plan (the Option Plan) and
the 1995 Restricted Stock Bonus Plan (the Bonus Plan). These plans
were adopted to aid the Company in securing and retaining qualified
personnel. The Option Plan provides for the granting of options on
up to 200,000 shares of the Company's common stock. As of March
31, 1996, options for 60,000 shares had been awarded under the
Option Plan at an option price of $20.63 per share. These options
vest over a period not to exceed seven years, but the vesting
period can be less based on the Company's attainment of certain
financial operating performance criteria. The Bonus Plan provides
for the issuance of up to 50,000 shares of the Company's common
stock. As of March 31, 1996, an aggregate of 16,000 shares of the
Company's common stock had been awarded to five participants.
Interest in the shares of common stock awarded under the Bonus Plan
are subject to forfeiture and vest ratably over a three year
period. Common stock awarded under the Bonus Plan is accounted for
through the establishment of a contra stockholders' equity account.
This contra stockholders' equity account is amortized against
income over the vesting period of the stock awards.
Note 5 - Reclassifications
Certain amounts in the 1995 consolidated financial statements
have been reclassified to conform with the 1996 presentation. Such
reclassifications have no effect on previously reported net income.
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7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
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Net Income
- ----------
Cass Commercial Corporation (the Company) operates in two
primary business segments through its two wholly owned
subsidiaries, Cass Bank and Trust Company (Cass Bank), which
operates as a commercial bank, and Cass Information Systems, Inc.
(CIS), an information services company, whose operations include
the processing and payment of freight charges, preparation of
transportation management reports, auditing of freight charges and
rating of freight shipments. The Company had net income of
$1,475,000 for the three-month period ended March 31,1996 (the
"First Three Months of 1996") compared to net income of $1,645,000
for the three-month period ended March 31,1995 (the "First Three
Months of 1995").
The following paragraphs more fully discuss the changes in
financial condition and results of operations for the First Three
Months of 1996 compared to the First Three Months of 1995. Such
information is provided on a consolidated basis for the Company,
Cass Bank and CIS, with expanded disclosures for specific effects
CIS's operations have on particular account captions.
Net Interest Income
- -------------------
The Company's tax-equivalent net interest margin on earning
assets decreased in the First Three Months of 1996 to 5.96 % from
6.34% in the First Three Months of 1995. The prime rate decreased
from 9.00% in February, 1995 to 8.25% in February, 1996. The
Company is adversely affected by decreases in the level of interest
rates due to the fact that its rate sensitive assets significantly
exceed its rate sensitive liabilities. Conversely, the Company is
positively affected by increases in the level of interest rates.
This is primarily due to the noninterest-bearing liabilities
generated by CIS in the form of accounts and drafts payable (See
interest sensitivity gap measurement under the section entitled
"Asset/Liability Management Program"), as well as a significant
portion of the Company's loan portfolio bearing a floating rate of
interest.
The decrease of $9,164,000 in average earning assets, net of
interest-bearing liabilities, coupled with a decrease in the net
interest margin resulted in a decrease in net tax-equivalent
interest income of $173,000 in the First Three Months of 1996
compared to the First Three Months of 1995. The mix of earning
assets changed in the First Three Months of 1996 compared to the
First Three Months of 1995 with an increase of $28,281,000 in the
average balance of loans and a decrease of $21,218,000 in
investment in debt and equity securities. The positive effect of
this change in mix was more than offset by the decrease in average
net earning assets. The interest volume and rate variance analysis
presented on page 7 provides a detailed explanation of the changes
in net interest income for the First Three Months of 1996 compared
to the First Three Months of 1995.
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8
TABLE 1: CONSOLIDATED AVERAGE BALANCE SHEETS AND NET INTEREST
INCOME ANALYSIS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(TAX-EQUIVALENT BASIS, IN THOUSANDS)
AVERAGE INTEREST INCREASE(DECREASE)
AVERAGE BALANCE YIELD/RATE INCOME/EXPENSE DUE TO CHANGE IN
--------------- ---------- -------------- NET ------------------
1996 1995 1996 1995 1996 1995 CHANGE VOLUME RATE
---- ---- ---- ---- ---- ---- ------ ------ ----
ASSETS
- ------
Interest-earning assets:
Loans $180,188 $151,907 8.55% 9.02% $3,838 $3,380 $ 458 $ 638 $(180)
Investment in debt and equity securities 148,913 170,131 6.02 6.10 2,235 2,559 (324) (293) (31)
Federal funds sold and other
short-term investments 44,807 44,858 5.21 5.75 582 636 (54) (1) (53)
-------- -------- ---- ---- ------ ------ ----- ----- -----
Total interest-earning assets 373,908 366,896 7.14 7.27 6,655 6,575 80 344 (264)
-------- -------- ---- ---- ------ ------ ----- ----- -----
Nonearning assets:
Cash and due from banks 17,196 14,548
Premises and equipment 8,278 7,496
Other assets 10,224 10,523
Allowance for loan losses (6,365) (6,403)
-------- --------
Total assets 403,241 393,060
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Interest-bearing liabilities:
Interest-bearing demand deposits 22,019 20,036 3.32 2.85 182 141 41 16 25
Savings deposits 62,427 50,015 4.74 4.52 737 558 179 151 28
Time deposits of $100,000
or more 4,579 4,918 5.43 5.44 62 66 (4) (4) --
Other time deposits 5,777 5,530 5.28 4.33 76 59 17 3 14
-------- -------- ---- ---- ------ ------ ----- ----- -----
Total interest-bearing deposits 94,802 80,499 4.47 4.15 1,057 824 233 166 67
Federal funds purchased and securities
sold under repurchase agreements 3,456 1,583 4.41 4.61 38 18 20 21 (1)
-------- -------- ---- ---- ------ ------ ----- ----- -----
Total interest-bearing liabilites 98,258 82,082 4.47 4.16 1,095 842 253 187 66
-------- -------- ---- ---- ------ ------ ----- ----- -----
Noninterest-bearing liabilities:
Demand deposits 56,051 54,644
Accounts and drafts payable 197,981 210,020
Other liabilities 7,339 7,303
-------- --------
Total liabilities 359,629 354,049
Stockholders' equity 43,612 39,011
-------- --------
Total liabilities and
stockholders' equity $403,241 $393,060
======== ========
Net interest income $5,560 $5,733 $(173) $157 $(330)
====== ====== ===== ===== =====
Net yield on interest-earning assets 5.96% 6.34%
======== ========
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9
Provision for Loan Losses
- -------------------------
A significant determinant of the Company's operating results
is the level of loan losses and the provision for loan losses.
There was no charge to earnings to provide for loan losses for the
First Three Months of 1996 or the First Three Months of 1995.
Management determined there was no need for any provision for loan
losses during these periods. This determination was based on the
low level of nonperforming loans compared to the existing balance
of the allowance for loan losses, and the Company experiencing a
net recovery of $85,000 in the First Three Months of 1995 and a
net recovery of $19,000 in the First Three Months of 1996.
Factors which influence management's determination of the
provision for loan losses charged to expense, among other things,
include: evaluation of each nonperforming and/or classified loan to
determine the estimated loss exposure under existing circumstances
known to management; evaluation of all potential problem loans
identified in light of possible loss exposure based upon existing
circumstances known to management; analysis of the loan portfolio
with regard to potential future loss exposure on loans to specific
customers and/or industries; current economic conditions; and, an
overall review of the loan portfolio in light of past loan loss
experience.
At March 31, 1996, nonperforming loans, including nonaccrual
loans and loans past due 90 days or more, totalled $310,000 which
represents a $77,000 decrease from the level of nonperforming loans
at March 31, 1995. The March 31, 1996 amount of nonperforming
loans represents .17% of total loans, which is below industry
averages.
At March 31, 1996, impaired loans totalled $948,000 which
includes $264,000 nonaccrual loans. The allowance for loan losses
on impaired loans was $602,000 at March 31, 1996. Impaired loans
with no related allowance for loan losses totaled $138,000 at March
31, 1996. The average balance of impaired loans during the First
Three Months of 1996 was $945,000.
The allowance for loan losses at March 31, 1996 was $6,377,000
and at December 31, 1995 was $6,358,000. The allowance for loan
losses at March 31, 1996 represents 3.43% of total loans
outstanding compared to 3.65% at December 31, 1995. The allowance
covers nonperforming loans at March 31, 1996 approximately 20.6
times.
-8-
10
The following table presents information as of and for the
three-month period ended March 31, 1996 and 1995 pertaining to the
Company's provision for loan losses and analysis of the allowance
for loan losses.
Three Months Ended
March 31
------------------
1996 1995
-------- --------
(dollars expressed in thousands)
Allowance at beginning of period $ 6,358 $ 6,334
Provision for loan losses charged to expense -- --
Loans charged off (1) (35)
Recoveries on loans previously charged off 20 120
-------- --------
Net loan recoveries 19 85
-------- --------
Allowance at end of period $ 6,377 $ 6,419
======== ========
Loans outstanding:
Average $180,188 $151,907
March 31 185,976 153,891
Ratio of allowance for loan losses to
loans outstanding:
Average 3.54% 4.23%
March 31 3.43% 4.17%
Nonperforming loans:
Nonaccrual loans $ 264 $ 202
Loans past due 90 days or more 46 185
-------- --------
Total $ 310 $ 387
-------- --------
Nonperforming loans as a percent of
average total loans .17% .25%
-9-
11
Noninterest Income
- ------------------
Noninterest income is principally derived from service fees
generated by CIS's Payment Systems and Software Systems Groups.
Total noninterest income for the First Three Months of 1996
decreased $738,000 (11.4%) from the First Three Months of 1995.
CIS's Payment Systems Group experienced a decrease in
processing revenues of $745,000 (14.1%), in the First Three Months
of 1996 compared to The First Three Months of 1995. CIS acquired
the Freight Management Division of The First National Bank of
Boston effective June 1, 1994. The accounts of this division were
converted to CIS's processing systems in two phases. The first
phase of conversion was completed in May, 1995, and the second
phase was completed in December, 1995. These conversions resulted
in a number of lost accounts which were generally expected and
generally represented accounts which were previously processed on
an unprofitable basis. The Boston operation accounted for a
decrease in processing revenues of $887,000 in the First Three
Months of 1996 compared to the First Three Months of 1995. The
remainder of CIS's Payment Systems Group experienced an increase in
processing revenues of $142,000 in the First Three Months of 1996
compared to the First Three Months of 1995. The volume of accepted
new business proposals remains strong and should result in
increasing revenues in CIS's Payment Systems Group as new accounts
are placed in service throughout 1996.
Noninterest Expense
- -------------------
Total noninterest expense for the First Three Months of 1996
decreased $579,000 (6.0%) from the First Three Months of 1995
resulting primarily from decreased operating expenses at CIS's
operation in Boston. Total noninterest operating expense excluding
intercompany charges of the Boston facility decreased $753,000 in
the First Three Months of 1996 compared to the First Three Months
of 1995.
Salaries and benefits expense decreased $334,000 (5.2%) in the
First Three Months of 1996 compared to the First Three Months of
1995. CIS's Boston operation accounted for a decrease of $498,000
resulting from staff attrition and adjustments as account
conversions were completed after the First Three Months of 1995.
The Company experienced an increase of $164,000 (3.3%) in salary
and benefits expense in the remainder of its operations resulting
from salary increases effective January 1, 1996.
Equipment expense decreased $59,000 (8.7%) in the First Three
Months of 1996 from the First Three Months of 1995. Data processing
system changes in CIS's Payment Systems Group late in 1995
accounted for the decrease during the First Three Months of 1996.
Other noninterest expense decreased $191,000 (9.3%) in the
First Three Months of 1996 compared to the First Three Months of
1995. Cass Bank experienced a decrease of $74,000 in FDIC
insurance expense in the First Three Months of 1996 compared to the
First Three Months of 1995 resulting from a reduction in Cass
Bank's assessment rate to a minimum of $2,000 per year. The
remainder of the decrease in the First Three Months of 1996 largely
resulted from a decrease in expenses in the CIS Boston operation as
accounts have been converted to CIS's processing systems.
Balance Sheet Analysis
- ----------------------
Federal funds sold and other short-term investments decreased
from $81,813,000 at December 31, 1995 to $42,501,000 at March 31,
1996. The average balance of these accounts was $44,807,000 in the
First Three Months of 1996 compared to $44,858,000 in the First
Three Months of 1995. See Table I, page 7 for a presentation of
average balances.
Total loans increased $11,783,000 (6.8%) from $174,193,000 at
December 31, 1995 to $185,976,000 at March 31, 1996. The average
balances of loans increased $28,281,000 (18.6%) from $151,907,000
in the First Three Months of 1995 to $180,188,000 in the First
Three Months of 1996. Loan demand and new business volume
increased throughout 1995 and has continued into the First Three
Months of 1996.
-10-
12
Investments in debt and equity securities increased $8,749,000
(5.9%) from $147,860,000 at December 31, 1995 to $156,609,000 at
March 31, 1996. The average balance of investment securities
decreased $21,218,000 (12.5%) from $170,131,000 in the First Three
Months of 1995 to $148,913,000 in the First Three Months of 1996.
Total earning assets decreased $5,165,000 (1.3%) from
$412,395,000 at December 31, 1995 to $407,230,000 at March 31,
1996. The average balance of earning assets increased $7,012,000
(1.9%) from $366,896,000 in the First Three Months of 1995 to
$373,908,000 in the First Three Months of 1996. This increase was
funded by an increase of $16,176,000 in the average balance of
interest-bearing liabilities.
Interest-bearing deposits decreased from $97,620,000 at
December 31, 1995 to $94,639,000 at March 31, 1996. The average
balances of these deposits increased $14,303,000 (17.8%) from
$80,499,000 in the First Three Months of 1995 to $94,802,000 in the
First Three Months of 1996. The most significant increase in these
deposits occurred in interest-bearing commercial savings accounts.
Noninterest-bearing deposits decreased $2,219,000 (3.5%) from
$64,106,000 at December 31, 1995 to $61,887,000 at March 31, 1996.
The average balance of these accounts increased $1,407,000 (2.6%)
from $54,644,000 in the First Three Months of 1995 to $56,051,000
in the First Three Months of 1996.
Accounts and drafts payable generated by CIS in its freight
payment operations decreased slightly from $209,029,000 at December
31, 1995 to $208,857,000 at March 31, 1996. The average balances
of these funds decreased from $210,020,000 for the First Three
Months of 1995 to $197,981,000 in the First Three Months of 1996.
This decrease resulted mainly from lost business associated with
the conversion of CIS's Boston operation as discussed on page 10.
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13
Liquidity
- ---------
As of March 31, 1996, approximately 59% of the Company's loan
portfolio was composed of commercial loans, of which 78%
represented loans maturing within one year. As of the same date,
real estate loans represented approximately 39% of the total and of
these, 32% represented balances maturing within one year.
Approximately 2% of the loan portfolio is represented by
installment loans.
The liquidity of the Company is primarily represented by cash
and due from banks of $22,144,000 and Federal funds sold and other
short-term investments of $42,501,000 at March 31, 1996. Included
in this caption are $30,751,000 invested in money market funds
consisting of short-term U.S. Government and agency issues.
Investments in debt and equity securities represented
approximately 37% of total assets at March 31, 1996. Of the U.S.
Government securities in the Company's investment portfolio, which
represented 72% of the total, 21% have maturities of less than one
year. U.S. Government Agencies and Corporations represented 27% of
the total. Obligations of states and political subdivisions
constituted 1% of the investment portfolio at March 31, 1996.
There were no sales of debt securities in the First Three Months of
1996. Of the total portfolio, over 87% of the securities have
maturities of five years or less. These securities provide the
Company longer term liquidity than its primary sources, cash and
due from banks and other short-term instruments. Additionally,
short-term liquidity could be satisfied, if necessary, by the sale
of certain debt securities maintained as available-for-sale;
however, the Company does not foresee any such short-term liquidity
needs.
The deposits of Cass Bank consist of a sizable volume of core
deposits. Historically, the Company has been a net provider of
Federal funds. During the First Three Months of 1996, the Company
was a net provider of Federal funds, averaging nearly $9,200,000 in
net funds sold. Additionally, the Company averaged over
$35,500,000 in short-term money market funds during the First Three
Months of 1996. The Company was able to meet its liquidity
requirements in the First Three Months of 1996 through the growth
of deposit accounts and the liquid nature of Federal funds sold and
other short-term investments.
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14
Asset/Liability Management Program
- ----------------------------------
The Company's earning assets significantly exceed its interest-bearing
liabilities. This is primarily due to the noninterest-bearing liabilities
generated by CIS in the form of accounts and drafts payable. Within this
framework, the Company's asset/liability management program strives to
maintain an appropriate balance between rate-sensitive assets and
liabilities. The primary goal of the Company is to maintain a level of
earning assets net of interest-bearing liabilities which will produce a
relatively high net interest margin compared to other financial
institutions. The Company's Investment Committee monitors the sensitivity
of its subsidiaries' assets and liabilities with respect to changes in
interest rates and repricing opportunities, and directs the overall
acquisition and allocation of funds.
The following table presents the Company's rate sensitive position at
March 31, 1996 for the various time frames indicated.
OVER OVER
THREE SIX OVER ONE
THREE THROUGH THROUGH THROUGH OVER
VARIABLE MONTHS SIX TWELVE FIVE FIVE
RATE OR LESS MONTHS MONTHS YEARS YEARS TOTAL
-------- ------- ------- ------- -------- ----- -----
(Dollars expressed in thousands)
Interest-earning assets:
Loans $ 91,618 $ 4,451 $ 5,659 $ 9,347 $ 74,570 $ 331 $185,976
Investment in debt and
equity securities -- 6,283 6,006 12,118 111,313 20,889 156,609
Federal funds sold and other
short-term investments 42,501 -- -- -- -- -- 42,501
-------- ------- ------- ------- -------- -------- --------
Total interest-earning
assets $134,119 $10,734 $11,665 $21,465 $185,883 $ 21,220 $385,086
======== ======= ======= ======= ======== ======== ========
Interest-bearing liabilities:
Interest-bearing
transaction accounts $ 84,215 $ -- $ -- $ -- $ -- $ -- $ 84,215
Time deposits-$100,000
or more -- 1,409 1,191 1,917 -- -- 4,517
Other time deposits -- 1,669 1,886 1,472 880 -- 5,907
Federal funds purchased
and securities sold under
repurchase agreements 4,253 -- -- -- -- -- 4,253
-------- ------- ------- ------- -------- -------- --------
Total interest-bearing
liabilities $ 88,468 $ 3,078 $ 3,077 $ 3,389 $ 880 $ -- $ 98,892
======== ======= ======= ======= ======== ======== ========
Interest sensitivity gap:
Periodic $ 45,651 $ 7,656 $ 8,588 $18,076 $185,003 $ 21,220 $286,194
Cumulative 45,651 53,307 61,895 79,971 264,974 286,194
Ratio of interest-sensitive
assets to interest-sensitive
liabilities:
Periodic 1.52x 3.49x 3.79x 6.33x 211.23x -- 3.89x
Cumulative 1.52x 1.58x 1.65x 1.82x 3.68x 3.89x 3.89x
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15
Capital Resources
- -----------------
Stockholders' equity was $44,324,000 or 10.53% of total assets
at March 31, 1996, an increase of $1,011,000 over the amount
outstanding at December 31, 1995. This increase resulted from net
income of $1,475,000; dividends paid of $443,000 ($.23 per share);
decrease in unrealized holding losses of $49,000; and the
amortization of the stock bonus plan of $28,000. Primary capital,
including the allowance for loan losses, reached $50,701,000 at
March 31, 1996 or 12.04% of total assets compared to $49,671,000 or
11.60% of total assets at December 31, 1995.
Subsidiary dividends are the principal source of funds for
payment of dividends by the Company to its stockholders. The only
restrictions on dividends are those dictated by regulatory capital
requirements and prudent and sound banking principles.
The Company and its banking subsidiary continue to
significantly exceed all regulatory capital requirements, as
evidenced by the following capital ratios at March 31, 1996:
Company Cass
Consolidated Bank
------------ ------
Leverage Ratio 10.45% 11.20%
Tangible Capital Ratio 11.96 13.30
Primary Capital 12.04 13.30
Risk Based Capital:
Tier I 17.76 15.53
Tier II 19.01 16.78
Inflation
- ---------
Inflation can impact the financial position and results of the
operations of financial institutions because financial institutions
hold monetary assets and monetary liabilities. Monetary assets and
liabilities are those which can be converted into a fixed number of
dollars, and include cash, investments, loans and deposits. The
Company's consolidated balance sheets, as is typical of financial
institutions, 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 financial
institution.
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16
PART II
- -------
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) Exhibits
Number Description
------ -----------
3.1.a Amendment dated April 15, 1996 to Registrant's
Articles of Incorporation
(b) Cass Commercial Corporation did not file any reports
on Form 8-K during the three months ended March 31, 1996.
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17
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 COMMERCIAL CORPORATION
DATE: May 10, 1996 By Lawrence A. Collett
----------------------------------------
Lawrence A. Collett
Chairman and Chief Executive Officer
DATE: May 10, 1996 By Lawrence L. Frieben
----------------------------------------
Lawrence L. Frieben
Vice President-Secretary
(Chief Financial and Accounting Officer)
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