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 quarterly period ended September 30, 2005
Commission File No. 2-80070
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CASS INFORMATION SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Missouri 43-1265338
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
13001 Hollenberg Drive
Bridgeton, Missouri 63044
(Address of principal executive offices) (Zip Code)
(314) 506-5500
(Registrant's telephone number, including area code)
-----------------
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 |_|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes |X| No |_|
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X|
The number of shares outstanding of registrant's only class of stock
as of October 31, 2005: Common stock, par value $.50 per share - 5,513,973
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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TABLE OF CONTENTS
PART I - Financial Information
Item 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets
September 30, 2005 and December 31, 2004 .................... 3
Consolidated Statements of Income
Three and nine months ended September 30, 2005 and 2004 ..... 4
Consolidated Statements of Cash Flows
Nine months ended September 30, 2005 and 2004 ............... 5
Notes to Consolidated Financial Statements ..................... 6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS .................................. 11
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ... 22
Item 4. CONTROLS AND PROCEDURES ...................................... 22
PART II - Other Information - Items 1. - 6. ................................ 22
SIGNATURES ........................................................... 24
Forward-looking Statements - Factors That May Affect Future Results
This report may contain or incorporate by reference forward-looking statements
made pursuant to the safe harbor provisions of Section 27A of the Securities Act
of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. Forward-looking statements are not guarantees of future performance and
involve risks, uncertainties, and other factors which may cause future
performance to vary from expected performance summarized in the forward-looking
statements, including those set forth in this paragraph. Important factors that
could cause our actual results, performance, or achievements to be materially
different from any future results, performance, or achievements expressed or
implied by those statements include, but are not limited to: the failure to
successfully execute our corporate plan, the loss of key personnel or inability
to attract additional qualified personnel, the loss of key customers, increased
competition, the inability to remain current with rapid technological change,
risks related to acquisitions, risks associated with business cycles and
fluctuations in interest rates, utility and system interruptions or processing
errors, rules and regulations governing financial institutions and changes in
such rules and regulations, credit risk related to borrowers' ability to repay
loans, concentration of loans to certain segments such as commercial
enterprises, churches and borrowers in the St. Louis area which creates risks
associated with adverse factors that may affect these groups and volatility of
the price of our common stock. We undertake no obligation to publicly update or
revise any forward-looking statements to reflect changed assumptions, the
occurrence of anticipated or unanticipated events, or changes to future results
over time.
-2-
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in Thousands except Share and Per Share Data)
September 30 December 31
2005 2004
Assets
Cash and due from banks $ 29,692 $ 23,131
Federal funds sold and other short-term investments 115,563 64,412
--------- ---------
Cash and cash equivalents 145,255 87,543
--------- ---------
Securities available-for-sale, at fair value 76,111 77,130
Loans 518,792 500,448
Less: Allowance for loan losses 6,237 6,037
--------- ---------
Loans, net 512,555 494,411
--------- ---------
Premises and equipment, net 11,749 12,187
Investment in bank owned life insurance 11,427 11,090
Payments in excess of funding 9,987 6,998
Goodwill 7,342 7,360
Other intangible assets, net 2,021 2,383
Other assets 18,789 17,419
--------- ---------
Total assets $ 795,236 $ 716,521
========= =========
Liabilities and Shareholders' Equity
Liabilities:
Deposits:
Noninterest-bearing $ 100,781 $ 96,362
Interest-bearing 173,255 179,267
--------- ---------
Total deposits 274,036 275,629
Accounts and drafts payable 432,703 358,473
Short-term borrowings 166 127
Subordinated convertible debentures 3,700 3,700
Other liabilities 9,531 9,003
--------- ---------
Total liabilities 720,136 646,932
--------- ---------
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: 6,336,593 and
4,494,510 shares issued at September 30, 2005 and
December 31, 2004, respectively 3,168 2,247
Additional paid-in capital 18,497 18,370
Retained earnings 69,886 64,685
Common shares in treasury, at cost (810,435 shares at
September 30, 2005 and 807,262 shares at December 31, 2004) (16,445) (16,096)
Unamortized stock bonus awards (195) (160)
Accumulated other comprehensive income 189 543
--------- ---------
Total shareholders' equity 75,100 69,589
--------- ---------
Total liabilities and shareholders' equity $ 795,236 $ 716,521
========= =========
See accompanying notes to unaudited consolidated financial statements.
-3-
CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in Thousands except Share and Per Share Data)
Three Months Ended Nine Months Ended
September 30 September 30
------------------------ ------------------------
2005 2004 2005 2004
Fee Revenue and Other Income:
Information services payment and processing $ 9,157 $ 7,654 $ 26,486 $ 22,873
revenue
Software revenue 1,658 1,433 5,258 3,746
Bank service fees 414 392 1,159 1,236
Gains on sales of investment securities -- -- 547 441
Other 149 127 492 439
---------- ---------- ---------- ----------
Total fee revenue and other income 11,378 9,606 33,942 28,735
---------- ---------- ---------- ----------
Interest Income:
Interest and fees on loans 8,236 6,843 23,598 19,729
Interest and dividends on securities:
Taxable 218 122 593 335
Exempt from federal income taxes 347 605 1,069 1,497
Interest on federal funds sold and
other short-term investments 1,012 305 2,260 666
---------- ---------- ---------- ----------
Total interest income 9,813 7,875 27,520 22,227
---------- ---------- ---------- ----------
Interest Expense:
Interest on deposits 1,178 810 3,286 2,115
Interest on short-term borrowings 1 -- 3 --
Interest on subordinated convertible debentures 50 18 148 18
---------- ---------- ---------- ----------
Total interest expense 1,229 828 3,437 2,133
---------- ---------- ---------- ----------
Net interest income 8,584 7,047 24,083 20,094
Provision for loan losses 225 150 625 500
---------- ---------- ---------- ----------
Net interest income after provision
for loan losses 8,359 6,897 23,458 19,594
---------- ---------- ---------- ----------
Operating Expense:
Salaries and employee benefits 10,734 9,579 31,688 28,037
Occupancy 562 460 1,633 1,354
Equipment 834 877 2,501 2,888
Amortization of intangible assets 121 91 362 246
Other operating 2,810 2,789 8,417 8,066
---------- ---------- ---------- ----------
Total operating expense 15,061 13,796 44,601 40,591
---------- ---------- ---------- ----------
Income before income tax expense 4,676 2,707 12,799 7,738
Income tax expense 1,583 734 4,355 2,218
---------- ---------- ---------- ----------
Net income $ 3,093 $ 1,973 $ 8,444 $ 5,520
========== ========== ========== ==========
Earnings per share:
Basic $ .56 $ .35 $ 1.53 $ 1.00
Diluted $ .55 $ .35 $ 1.50 $ .99
Weighted average shares outstanding:
Basic 5,512,261 5,516,213 5,510,130 5,510,162
Effect of dilutive stock options, awards
and debentures 202,259 122,164 192,115 84,030
Diluted 5,714,520 5,638,377 5,702,245 5,594,192
See accompanying notes to unaudited consolidated financial statements.
-4-
CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
Nine Months Ended
September 30
-----------------------
2005 2004
Cash Flows From Operating Activities:
Net income $ 8,444 $ 5,520
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 2,062 3,032
Gains on sales of investment securities (547) (441)
Provision for loan losses 625 500
Amortization of stock bonus awards 99 71
Deferred income tax benefit (760) (441)
Increase (decrease) in income tax liability 98 (922)
Increase in pension liability 1,086 1,015
Increase in other assets (746) (1,272)
Decrease in other liabilities (654) (338)
--------- ---------
Net cash provided by operating activities 9,707 6,724
--------- ---------
Cash Flows From Investing Activities:
Proceeds from sales of securities available-for-sale 12,952 12,052
Proceeds from maturities of securities available-for-sale 57,000 16,200
Purchase of securities available-for-sale (68,854) (51,607)
Net increase in loans (18,769) (27,355)
Increase in payments in excess of funding (2,989) (2,254)
Purchases of premises and equipment, net (1,332) (1,073)
Payment for business acquisitions, net of cash acquired -- (1,098)
--------- ---------
Net cash used in investing activities (21,992) (55,135)
--------- ---------
Cash Flows From Financing Activities:
Net increase (decrease) in noninterest-bearing demand deposits 4,419 (7,639)
Net (decrease) increase in interest-bearing demand and savings (6,430) 16,852
deposits
Net increase in time deposits 418 10,524
Net increase in accounts and drafts payable 74,229 64,407
Net increase (decrease) in short-term borrowings 39 (20)
Cash proceeds from exercise of stock options 175 190
Tax benefit from exercise of stock options and bonuses 55 114
Cash dividends paid (2,319) (2,250)
Cash paid for stock dividend fractional shares (3) (4)
Purchase of common shares for treasury (586) --
--------- ---------
Net cash provided by financing activities 69,997 82,174
--------- ---------
Net increase in cash and cash equivalents 57,712 33,763
Cash and cash equivalents at beginning of period 87,543 62,367
--------- ---------
Cash and cash equivalents at end of period $ 145,255 $ 96,130
========= =========
Supplemental information:
Cash paid for interest $ 3,418 $ 2,031
Cash paid for income taxes 4,446 3,483
Transfer of loans to other real estate owned -- 375
Issuance of subordinated convertible debentures -- 3,700
See accompanying notes to unaudited consolidated financial statements.
-5-
CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with U.S. 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 U.S. 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. Certain amounts in the 2004 consolidated financial statements
have been reclassified to conform to the 2005 presentation. Such
reclassifications have no effect on previously reported net income or
shareholders' equity. For further information, refer to the audited consolidated
financial statements and related footnotes included in Cass Information System,
Inc.'s ("the Company" or "Cass") Annual Report on Form 10-K for the year ended
December 31, 2004.
Note 2 - Intangible Assets
The Company accounts for intangible assets in accordance with SFAS 142,
"Goodwill and Other Intangible Assets," which requires that intangibles with
indefinite useful lives be tested annually for impairment and those with finite
useful lives be amortized over their useful lives. Intangible assets for the
periods ended September 30, 2005 and December 31, 2004 are as follows:
September 30, 2005 December 31, 2004
===========================================================================================================
Gross Carrying Accumulated Gross Carrying Accumulated
(In Thousands) Amount Amortization Amount Amortization
===========================================================================================================
Amortized intangible assets:
Customer list $ 823 $ (151) $ 823 $ (110)
Acquired software 1,886 (890) 1,886 (569)
- -----------------------------------------------------------------------------------------------------------
Total amortized intangibles 2,709 (1,041) 2,709 (679)
- -----------------------------------------------------------------------------------------------------------
Unamortized intangible assets:
Goodwill 7,569 (227)* 7,587 (227)*
Minimum pension liability 353 -- 353 --
- -----------------------------------------------------------------------------------------------------------
Total unamortized intangibles 7,922 (227) 7,940 (227)
- -----------------------------------------------------------------------------------------------------------
Total intangible assets $10,631 $(1,268) $10,649 $ (906)
- -----------------------------------------------------------------------------------------------------------
* Amortization through December 31, 2001 prior to adoption of SFAS 142.
Customer list and software are amortized over 15 years and 4-5 years,
respectively. The minimum pension liability was recorded in accordance with SFAS
87, "Employers' Accounting for Pensions", which requires the Company to record
an additional minimum pension liability by the amount of which the accumulated
benefit obligation exceeds the sum of the fair value of plan assets and accrued
amount previously recorded and offset this liability by an intangible asset to
the extent of previously unrecognized prior service costs. The liability and
corresponding intangible asset are adjusted annually.
Amortization of intangible assets amounted to $121,000 and $91,000 for the
three-month periods and $362,000, and $246,000 for the nine-month periods ended
September 30, 2005 and 2004, respectively. Estimated amortization of intangibles
over the next five years is as follows: $483,000 in 2005 and 2006, $227,000 for
2007 and 2008 and $170,000 in 2009.
Note 3 - Equity Investments in Non-Marketable Securities
The Company has invested $3,100,000 in a private imaging company in return for a
19.99% ownership interest. The remaining 80.01% ownership interest is owned by
another investor. In addition, the Company has extended a $4,000,000 secured
line of credit for working capital purposes to this entity. A 50% interest in
any borrowings under this line of credit has been sold to the other investor. As
of September 30, 2005 the Company's interest in borrowings under this line
amounted to $1,152,000 and all payments are current.
This business has performed poorly during the past few years and has modified
its marketing strategy focusing more on the public sector. Should this business
fail to meet its objectives or the majority owner fail to continue providing
operating funds, the Company's investment could be subject to future impairment.
-6-
This investment, along with $475,000 of other investments in non-marketable
securities, is included in other assets on the Company's consolidated balance
sheets.
Note 4 - Earnings Per Share
Basic earnings per share is computed by dividing net income by the
weighted-average number of common shares outstanding. Diluted earnings per share
is computed by dividing net income, adjusted for the net income effect of the
interest expense on the outstanding convertible debentures, by the sum of the
weighted-average number of common shares outstanding and the weighted-average
number of potential common shares outstanding. The calculations of basic and
diluted earnings per share for the periods ended September 30, 2005 and 2004 are
as follows:
Three Months Ended Nine Months Ended
September 30 September 30
------------------------ ------------------------
(Dollars In Thousands) 2005 2004 2005 2004
===============================================================================================================
Calculation of basic earnings per share:
Net income $ 3,093 $ 1,973 $ 8,444 $ 5,520
Weighted-average number of common shares outstanding 5,512,261 5,516,213 5,510,130 5,510,162
- ---------------------------------------------------------------------------------------------------------------
Basic earnings per share $ .56 $ .35 $ 1.53 $ 1.00
===============================================================================================================
Calculation of diluted earnings per share:
Net income $ 3,093 $ 1,973 $ 8,444 $ 5,520
Net income effect of 5.33% convertible debentures 27 10 81 --
- ---------------------------------------------------------------------------------------------------------------
Net income assuming dilution $ 3,120 $ 1,983 $ 8,525 $ 5,520
- ---------------------------------------------------------------------------------------------------------------
Weighted-average number of common shares outstanding 5,512,261 5,516,213 5,510,130 5,510,162
Effect of dilutive stock options and awards 87,114 74,605 76,970 68,061
Effect of 5.33% convertible debentures 115,145 47,559 115,145 15,969
- ---------------------------------------------------------------------------------------------------------------
Weighted-average number of common shares 5,714,520 5,638,377 5,702,245 5,594,192
assuming dilution
- ---------------------------------------------------------------------------------------------------------------
Diluted earning per share $ .55 $ .35 $ 1.50 $ .99
===============================================================================================================
Note 5 - Stock Repurchases
The following table sets forth information about the Company's purchases of its
$.50 par value Common Stock, its only class of stock registered pursuant to
Section 12 of the Exchange Act.
Total Number of Maximum
Shares Purchased Number that
Total Number Average As part of Publicly May Yet Be
of Shares Price Paid Announced Purchased Under
Period (2005) Purchased per Share Program the Program
- ------------------------------------------------------------------------------------------------------------------
January 1-31 1,545 $34.98 1,545 98,455
February 1 -28 15,000 35.49 15,000 83,455
March 1-September 30 -- -- -- 83,455
- ------------------------------------------------------------------------------------------------------------------
Total 16,545 $35.44 16,545 83,455
- ------------------------------------------------------------------------------------------------------------------
The Company maintains a treasury stock buyback program and repurchases are made
in the open market or through negotiated transactions from time to time
depending on market conditions. The Company did not repurchase any stock during
the nine months ended September 30, 2004.
Note 6 - Comprehensive Income
For the three and nine month periods ended September 30, 2005 and 2004,
unrealized gains and losses on 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, 2005 and 2004 is summarized as
follows:
-7-
Three Months Ended Nine Months Ended
September 30 September 30
------------------- -------------------
(In Thousands) 2005 2004 2005 2004
- ----------------------------------------------------------------------------------------------------------
Net Income $ 3,093 $ 1,973 $ 8,444 $ 5,520
Other comprehensive income:
Net unrealized (loss) gain on securities
available-for-sale, net of tax (34) 1,644 7 617
Less: reclassification adjustment for realized gains on
sales of securities, available-for-sale,
included in net income, net of tax -- -- (361) (291)
- ----------------------------------------------------------------------------------------------------------
Total other comprehensive (loss) income (34) 1,644 (354) 326
- ----------------------------------------------------------------------------------------------------------
Total comprehensive income $ 3,059 $ 3,617 $ 8,090 $ 5,846
- ----------------------------------------------------------------------------------------------------------
Note 7 - Industry Segment Information
The services provided by the Company are classified into three reportable
segments: Information Services, Banking Services and Government Software
Services. Each of these segments provides distinct services that are marketed
through different channels. They are managed separately due to their unique
service, processing and capital requirements.
The Information Services segment provides freight, utility and telecommunication
invoice processing and payment services to large corporations. The Banking
Services segment provides banking services primarily to privately-held
businesses and churches. The Government Software Services segment provides
integrated financial, property and human resource management systems to cities,
counties, and other public entities.
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, 2004. 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. Information for prior periods has been restated to
reflect changes in the composition of the Company's segments.
All revenue originates from and all long-lived assets are located 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, 2005 and 2004, is as
follows:
Government Corporate
Information Banking Software And
(In Thousands) Services Services Services Elim-inations Total
- --------------------------------------------------------------------------------------------------------------------
Quarter Ended September 30, 2005
Total Revenues:
Revenue from customers $ 14,277 $ 3,802 $ 1,658 $ -- $ 19,737
Intersegment revenue 40 323 -- (363) --
Net Income (Loss) 2,250 1,015 (172) -- 3,093
Total Assets 478,215 322,065 4,453 (9,497) 795,236
Goodwill, net 4,262 153 2,927 -- 7,342
Other intangibles, net 675 -- 993 353 2,021
Quarter Ended September 30, 2004
Total Revenues:
Revenue from customers $ 11,580 $ 3,369 $ 1,433 $ 121 $ 16,503
Intersegment revenue 15 338 -- (353) --
Net Income (Loss) 1,456 982 (371) (94) 1,973
Total Assets 401,048 326,151 5,466 5,031 737,696
Goodwill, net 223 -- 2,927 4,097 7,247
Other intangibles, net -- -- 1,303 1,191 2,494
- --------------------------------------------------------------------------------------------------------------------
Nine Months Ended September 30, 2005
Total Revenues:
Revenue from customers $ 41,251 $ 10,891 $ 5,258 $ -- $ 57,400
Intersegment revenue 80 1,103 -- (1,183) --
Net Income (Loss) 5,772 3,054 (382) -- 8,444
Nine Months Ended September 30, 2004
Total Revenues:
Revenue from customers $ 34,830 $ 9,632 $ 3,746 $ 121 $ 48,329
Intersegment revenue 43 1,048 -- (1,091) --
Net Income (Loss) 4,359 2,703 (1,448) (94) 5,520
- --------------------------------------------------------------------------------------------------------------------
-8-
Note 8 - Loans by Type
(In Thousands) September 30, 2005 December 31, 2004
======================================================================================
Commercial and industrial $126,548 $117,777
Real estate:
Mortgage 173,185 182,476
Mortgage - churches & related 180,789 164,235
Construction 12,682 16,694
Construction - churches & related 15,489 9,144
Industrial revenue bonds 4,812 4,955
Installment 1,225 1,741
Other 4,062 3,426
- --------------------------------------------------------------------------------------
Total loans $518,792 $500,448
======================================================================================
Note 9 - Commitments and Contingencies
In the normal course of business, the Company is party to activities that
contain credit, market and operational risks that are not reflected in whole or
in part in the Company's consolidated financial statements. Such activities
include traditional off-balance sheet credit-related financial instruments and
commitments under operating and capital leases. These financial instruments
include commitments to extend credit, commercial letters of credit and standby
letters of credit. The Company's maximum potential exposure to credit loss in
the event of nonperformance by the other party to the financial instrument for
commitments to extend credit, commercial letters of credit and standby letters
of credit is represented by the contractual amounts of those instruments. At
September 30, 2005, no amounts have been accrued for any estimated losses for
these instruments.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commercial
and standby letters of credit are conditional commitments issued by the Company
or its subsidiaries to guarantee the performance of a customer to a third party.
These off-balance sheet financial instruments generally have fixed expiration
dates or other termination clauses and may require payment of a fee. At
September 30, 2005 the balances of unused loan commitments, standby and
commercial letters of credit were $24,229,000, $6,256,000, and $1,963,000,
respectively. Since some of the financial instruments may expire without being
drawn upon, the total amounts do not necessarily represent future cash
requirements. Commitments to extend credit and letters of credit are subject to
the same underwriting standards as those financial instruments included on the
consolidated balance sheets. The Company evaluates each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained, if deemed
necessary upon extension of the credit, is based on management's credit
evaluation of the borrower. Collateral held varies, but is generally accounts
receivable, inventory, residential or income-producing commercial property or
equipment. In the event of nonperformance, the Company or its subsidiaries may
obtain and liquidate the collateral to recover amounts paid under its guarantees
on these financial instruments.
The following table summarizes contractual cash obligations of the Company
related to operating and capital lease commitments and convertible subordinated
debentures at September 30, 2005:
-9-
Amount of Commitment Expiration per Period
------------------------------------------
Less than 1-3 3-5 Over 5
(Dollars in thousands) Total 1 Year Years Years Years
======================================================================================
Operating lease commitments $3,889 $ 613 $1,024 $ 630 $1,622
Capital lease commitments 12 12 -- -- --
Convertible subordinated debentures* 3,700 -- -- -- 3,700
- --------------------------------------------------------------------------------------
Total $7,601 $ 625 $1,024 $ 630 $5,322
======================================================================================
* Includes principal payments only.
The Company and its subsidiaries are involved in various pending legal actions
and proceedings in which claims for damages are asserted. Management, after
discussion with legal counsel, believes the ultimate resolution of these legal
actions and proceedings will not have a material effect upon the Company's
consolidated financial position or results of operations.
Note 10 - Stock-Based Compensation
The Company maintains stock bonus and stock option plans. Upon issuance of
shares in the stock bonus plan a contra shareholders' equity amount is recorded
for the fair value of the shares at the time of issuance and this amount is
amortized to expense over the three-year vesting period. The stock option plan
is accounted for under APB 25, "Accounting for Stock Issued to Employees", and
accordingly the Company recognizes no compensation expense as the price of the
Company's employee stock options equals the market price of the underlying stock
on the date of grant. The Company elected not to adopt the recognition
provisions of SFAS 123, "Accounting for Stock-Based Compensation", as amended.
An entity that continues to apply APB 25 must disclose certain pro forma
information as if the fair value-based accounting method in SFAS 123 had been
used to account for all stock-based compensation costs. The required disclosure
provisions of SFAS 123 are provided in the table below. The Company uses the
Black-Scholes option pricing model to determine the fair value of the stock
options at the date of grant. There were no options granted in the Third Quarter
of 2005 and 1,500 options granted in the Third Quarter of 2004. There were 5,885
options granted in the First Nine Months of 2005 and 10,130 options granted in
the First Nine Months of 2004. The following table represents the effect on
basic and diluted earnings per share and weighted average assumptions used for
the periods ended September 30, 2005 and 2004:
Three Months Ended Nine Months Ended
September 30 September 30
--------------------- ---------------------
(In Thousands, except per share data) 2005 2004 2005 2004
==================================================================================================================
Net income:
As reported $ 3,093 $ 1,973 $ 8,444 $ 5,520
Add: Stock based compensation expense
included in reported net income, net of tax 22 18 63 47
Less: Stock based compensation expense
determined under the fair value based method
for all awards, net of tax (27) (30) (80) (81)
- ------------------------------------------------------------------------------------------------------------------
Pro forma net income $ 3,088 $ 1,961 $ 8,427 $ 5,486
- ------------------------------------------------------------------------------------------------------------------
Net income per common share:
Basic, as reported $ .56 $ .35 $ 1.53 $ 1.00
Basic, proforma .56 .35 1.53 .99
Diluted, as reported .55 .35 1.50 .99
Diluted, proforma .54 .35 1.49 .98
- ------------------------------------------------------------------------------------------------------------------
Weighted average assumptions:
Risk-free interest rate -- 3.88% 3.97% 3.61%
Expected life -- 7 yrs. 7 yrs. 7 yrs.
Expected volatility -- 15% 15% 15%
Dividend yield -- 2.21% 2.32% 2.42%
- ------------------------------------------------------------------------------------------------------------------
-10-
Note 11 - Defined Benefit Pension Plans
The Company has a noncontributory defined benefit pension plan, which covers
most of its employees. The Company accrues and makes contributions designed to
fund normal service costs on a current basis using the projected unit credit
with service proration method to amortize prior service costs arising from
improvements in pension benefits and qualifying service prior to the
establishment of the plan over a period of approximately 30 years. Disclosure
information is based on a measurement date of December 31 of the corresponding
year.
The following table represents the components of the net periodic pension costs
for 2004 and an estimate for 2005:
Estimated Actual
(In Thousands) 2005 2004
=========================================================================
Service cost - benefits earned during the year $ 1,292 $ 1,186
Interest cost on projected benefit obligation 1,384 1,237
Expected return on plan assets (1,399) (1,233)
Net amortization 109 60
-------------------------------------------------------------------------
Net periodic pension cost $ 1,386 $ 1,250
-------------------------------------------------------------------------
Pension costs recorded to expense were $346,000 and $312,000 for the three-month
period ended September 30, 2005 and 2004, respectively. Pension costs recorded
to expense were $1,039,000 and $937,000 for the nine-month period ended
September 30, 2005 and 2004, respectively. The Company has not made any
contribution to the plan during the nine month period ended September 30, 2005,
but expects to contribute approximately $1,360,000 in 2005.
In addition to the above funded benefit plan, the Company has an unfunded
supplemental executive retirement plan which covers key executives of the
Company. This is a noncontributory plan in which the Company and its
subsidiaries make accruals designed to fund normal service costs on a current
basis using the same method and criteria as its defined benefit plan. The
following table represents the components of the net periodic pension costs for
2004 and an estimate for 2005:
Estimated Actual
(In Thousands) 2005 2004
=========================================================================
Service cost - benefits earned during the year $ (34) $ (57)
Interest cost on projected benefit obligation 161 117
Net amortization 62 50
-------------------------------------------------------------------------
Net periodic pension cost $ 189 $ 110
-------------------------------------------------------------------------
Pension costs recorded to expense were $49,000 and $9,000 for the three-month
period ended September 30, 2005 and 2004, respectively and were $143,000 and
$82,000 for the nine-month period ended September 30, 2005 and 2004,
respectively.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
Cass Information Systems, Inc. (the "Company" or "Cass") provides payment and
information processing services to national manufacturing, distribution and
retail enterprises from its processing centers in St. Louis, Missouri, Columbus,
Ohio, Boston, Massachusetts and Greenville, South Carolina. The Company's
services include freight invoice rating, payment processing, auditing, and the
generation of cost accounting and transportation information. Cass also
processes and pays utility invoices, including electricity, gas and
telecommunications. The Company significantly enhanced its telecommunication
payment processing and audit capabilities with the acquisition of its Telecom
Information Services division located in Greenville, South Carolina in August
2004. Cass extracts, stores and presents information from freight, utility and
telecommunication invoices, assisting its customers' transportation, energy and
information technology managers in making decisions that will enable them to
improve operating performance. The Company receives data from multiple sources,
electronic and otherwise, and processes the data to accomplish the specific
operating requirements of its customers. It then provides the data in a central
repository for access and archiving. The data is finally transformed into
information through the Company's databases that allow client interaction as
required and provide Internet-based tools for analytical processing. The Company
also, through its St. Louis, Missouri based bank subsidiary, Cass Commercial
Bank (the "Bank"), provides banking services in the St. Louis metropolitan area
and other selected cities in the United States. The Company acquired Franklin
Bancorp located in Orange County, California in November 2004 and merged its
subsidiary bank, Franklin Bank of California into the Bank. This acquisition
-11-
will allow the Company to better serve existing customers in California and
expand the Bank's customer base. In addition to supporting the Company's payment
operations, the Bank also provides banking services to its target markets, which
include privately owned businesses and churches and church-related ministries.
The Company, through the Bank's subsidiary, Government e-Management Solutions,
Inc. ("GEMS"), also develops and licenses integrated financial, property and
human resource management systems to the public sector.
The specific payment and information processing services provided to each
customer are developed individually to meet each customer's specific
requirements. These requirements can vary greatly from customer to customer. In
addition, the degree of automation such as electronic data interchange ("EDI"),
imaging, and web-enhanced solutions varies greatly among customers and
industries. These factors combine so that pricing varies greatly among the
customer base. In general however, Cass is compensated for its processing
services through service fees and account balances that are generated during the
payment process. The amount, type and calculation of service fees vary greatly
by service offering, but generally follow the volume of transactions processed.
Interest income from the balances generated during the payment processing cycle
is affected by the amount of time Cass holds the funds prior to payment and the
dollar volume processed. Both the number of transactions processed and the
dollar volume processed are therefore key metrics followed by management. Other
factors will also influence revenue and profitability, such as changes in the
general level of interest rates which have a significant effect on net interest
income. The funds generated by these processing activities are invested in
overnight investments, investment grade securities and loans generated by the
Bank. The Bank earns most of its revenue from net interest income, or the
difference between the interest earned on its loans and investments and the
interest expense on its deposits. The Bank also assesses fees on other services
such as cash management services. GEMS earns most of its revenue from the
licensing of its enterprise software solutions and its installation and
maintenance services.
Industry-wide factors that impact the Company include the acceptance by large
corporations of the outsourcing of key business functions such as freight,
utility and telecommunication payment and audit. The benefits that can be
achieved by outsourcing transaction processing and the management information
generated by Cass' systems can be influenced by factors such as the competitive
pressures within industries to improve profitability, the general level of
transportation costs, deregulation of energy costs and consolidation of
telecommunication providers. Economic factors that impact the Company include
the general level of economic activity that can affect the volume and size of
invoices processed, the ability to hire and retain qualified staff and the
growth and quality of the Company's loan portfolio. The general level of
interest rates has a significant effect on the revenue of the Company. Finally,
the general fiscal condition of the counties and municipalities that can benefit
from GEMS' enterprise software can impact licenses sold and related revenue.
Currently, management views Cass' most significant opportunity as the continued
expansion of its payment and information processing service offerings and
customer base. Management intends to accomplish this by maintaining the
Company's lead in applied technology, which, when combined with the security and
processing controls of the Bank, makes Cass unique in the industry. This trend
has been positive over the past years and management anticipates that this
should continue through 2005. The low level of interest rates has had a
significant negative impact on net income over the past few years. The general
level of interest rates, particularly short term interest rates, began to
increase during 2004 and this has had a positive effect on net interest income.
If these rates continue to rise, this positive impact on net interest income and
net earnings should continue. Management had been pleased prior to 2004 with the
growth in revenue generated by GEMS. However, during 2004 the sales of new
systems declined sharply due mainly to a sluggish marketplace. In the
three-month and nine month periods ended September 30, 2005, revenues for GEMS
increased 16% or $225,000 and 40% or $1,512,000, respectively. The Company
continues to invest in GEMS through system improvements and product enhancements
and anticipates that the remainder of 2005 should continue to reflect improved
results.
Critical Accounting Policies
The Company has prepared all of the consolidated financial information in this
report in accordance with U.S. generally accepted accounting principles ("U.S.
GAAP"). In preparing the consolidated financial statements in accordance with
U.S. GAAP, management makes estimates and assumptions that affect the reported
amount of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported amounts of
revenue and expenses during the reporting period. These estimates have been
generally accurate and consistent in the past and have not required any material
changes. There can be no assurances that actual results will not differ from
those estimates. Certain accounting policies that require significant management
estimates and are deemed critical to our results of operations or financial
position have been discussed with the Audit Committee of the Board of Directors
and are described below.
-12-
Allowance for Loan Losses. The Company performs periodic and systematic detailed
reviews of its loan portfolio to assess overall collectability. The level of the
allowance for loan losses reflects management's estimate of the collectability
of the loan portfolio. Although these estimates are based on established
methodologies for determining allowance requirements, actual results can differ
significantly from estimated results. These policies affect all segments of the
Company with the exception of governmental software services. The impact and
associated risks related to these policies on our business operations are
discussed in the "Allowance and Provision for Loan Losses" section of this
report.
Impairment of Assets. Management periodically evaluates certain long-term assets
such as intangible assets including goodwill, foreclosed assets, internally
developed software and investments in private equity securities for impairment.
Generally, these assets are initially recorded at cost, and recognition of
impairment is required when events and circumstances indicate that the carrying
amounts of these assets will not be recoverable in the future. If impairment
occurs, various methods of measuring impairment may be called for depending on
the circumstances and type of asset, including quoted market prices, estimates
based on similar assets, and estimates based on valuation techniques such as
discounted projected cash flows. Assets held for sale are carried at the lower
of cost or fair value less costs to sell. These policies affect all segments of
the Company and require significant management assumptions and estimates that
could result in materially different results if conditions or underlying
circumstances change.
Results of Operations
The following paragraphs more fully discuss the results of operations and
changes in financial condition for the three-month period ended September 30,
2005 (the "Third Quarter 2005") compared to the three-month period ended
September 30, 2004 (the "Third Quarter 2004") and the nine-month period ended
September 30, 2005 (the "First Nine Months of 2005") compared to the nine-month
period ended September 30, 2004 (the "First Nine Months of 2004"). 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 2004 Annual
Report on Form 10-K. Results of operations for the Third Quarter of 2005 are not
necessarily indicative of the results to be attained for any other period.
Net Income
The following table summarizes the Company's operating results:
Three Months Ended Nine Months Ended
September 30 September 30
----------------------------------- -----------------------------------
% %
2005 2004 Change 2005 2004 Change
- ------------------------------------------------------------------------------ -----------------------------------
Net income (In thousands) $ 3,093 $ 1,973 56.8% $ 8,444 $ 5,520 53.0%
Diluted earnings per share .55 .35 57.1% 1.50 .99 51.5%
Return on average assets 1.57% 1.06% -- 1.49% 1.06% --
Return on average equity 16.88% 11.94% -- 15.91% 11.36% --
Fee Revenue and Other Income
The Company's fee revenue is derived mainly from payment and processing fees. As
the Company provides its processing and payment services, it is compensated by
service fees which are typically calculated on a per-item basis and by the
accounts and drafts payable balances generated in the payment process which can
be used to generate interest income. Processing volumes related to fees and
accounts and drafts payable for the three and nine-month periods ended September
30, 2005 and 2004 are as follows:
Three Months Ended Nine Months Ended
September 30 September 30
----------------------------------- -----------------------------------
% %
(In Thousands) 2005 2004 Change 2005 2004 Change
- ------------------------------------------------------------------------------ -----------------------------------
Freight Transaction Volume 6,846 6,104 12.2% 19,911 17,454 14.1%
Freight Dollar Volume $3,111,175 $2,535,799 22.7% $8,548,554 $7,173,613 19.2%
Utility Transaction Volume 1,419 1,304 8.8% 4,225 3,874 9.1%
Utility Dollar Volume $1,148,449 $ 985,369 16.6% $3,166,864 $2,815,469 12.5%
Payment and processing fees $ 9,157 $ 7,654 19.6% $ 26,486 $ 22,873 15.8%
-13-
Third Quarter of 2005 compared to Third Quarter of 2004:
Freight transaction volume and total dollar volume processed increased for the
Third Quarter of 2005 mainly due to increased activity from existing clients and
new accounts. The increase in volume and processing dollars from Utility
invoices increased primarily due to new customers as the growth of this division
continues. Fees for the period grew due to the increased volume and additional
services provided in both segments. Revenues from the Telecom Information
Services division, acquired in August 2004, were $783,000.
Software revenue from GEMS was up $225,000 or 16% primarily due to additional
licenses sold. Bank service fees increased $22,000 or 6% as processing service
fees and ATM fees grew offsetting the decrease in bank account analysis fees.
First Nine Months of 2005 compared to First Nine Months of 2004:
Freight and Utility transaction volume and dollar volume were up and fee revenue
increased for the First Nine Months of 2005 compared to 2004 due to the same
factors discussed above for the Third Quarter. Revenues from the Telecom
Information Services division acquired in August 2004 were $1,772,000 compared
to $139,000 last year.
Software revenue from GEMS was up $1,512,000 or 40% during the First Nine Months
of 2005 primarily due to additional licenses sold. Bank service fees decreased
$77,000 or 6% primarily due to the reduction in bank account analysis fees.
Net Interest Income
Net interest income is the difference between interest earned on loans,
investments, and other earning assets and interest expense on deposits and other
interest-bearing liabilities. Net interest income is a significant source of the
Company's revenues. The following table summarizes the changes in net interest
income and related factors for the three and nine-month periods ended September
30, 2005 compared with September 30, 2004:
Three Months Ended Nine Months Ended
September 30 September 30
----------------------------------- -----------------------------------
% %
(In Thousands) 2005 2004 Change 2005 2004 Change
- ------------------------------------------------------------------------------ -----------------------------------
Average earning assets $ 700,442 $ 665,105 5.3% $ 682,092 $ 630,719 8.1%
Net interest income* $ 8,798 $ 7,390 19.1% $ 24,738 $ 20,965 18.0%
Net interest margin* 4.98% 4.42% -- 4.85% 4.44% --
Yield on earning assets* 5.68% 4.92% -- 5.52% 4.89% --
Rate on interest bearing liabilities 2.61% 1.66% -- 2.37% 1.54% --
* Presented on a tax-equivalent basis assuming a tax rate of 35%.
Third Quarter of 2005 compared to Third Quarter of 2004:
The increase in net interest income was primarily due to an increase in the
yields on earning assets and the balances of earning assets that exceeded the
counteracting effect of increases in rates paid on deposit accounts. The
increase in earning assets was funded by an increase in accounts and drafts
payable due to the increase in dollar volume processed. Yields on earning assets
and rates paid on deposit accounts both increased as the general level of
interest rates increased. However, as the balances of earning assets greatly
exceed the balances of interest-bearing deposits, the net effect on net interest
margin was positive.
Total average loans increased $29,533,000 or 6% to $513,096,000. This increase
was attributable to new business relationships and was funded by the increase in
accounts and drafts payable. Total average investment in securities decreased
$23,280,000 or 26% to $65,722,000. Total average federal funds sold and other
short-term investments increased $29,084,000 or 31% to $121,624,000. This
increase provides additional liquidity to the Company for future loan growth or
investment activity. For more information on the changes in net interest income
please refer to the tables on the pages that follow.
-14-
First Nine Months of 2005 compared to First Nine Months of 2004:
The increase in net interest income was primarily due to an increase in the
yields on earning assets and the balances of earning assets that exceeded the
counteracting effect of increases in rates paid on deposit accounts. The
increase in earning assets was funded by an increase in accounts and drafts
payable due to the increase in dollar volume processed. Yields on earning assets
and rates paid on deposit accounts both increased as the general level of
interest rates increased. However, as the balances of earning assets greatly
exceed the balances of interest-bearing deposits, the net effect on net interest
margin was positive.
Total average loans increased $38,471,000 or 8% to $509,953,000. As discussed
above, this increase was attributable to new business relationships and was
funded by the increase in accounts and drafts payable. Total average investment
in debt and equity securities decreased $9,236,000 or 12% to $66,416,000. Total
average federal funds sold and other short-term investments increased
$22,138,000 or 26% to $105,723,000. For more information on the changes in net
interest income please refer to the tables on the pages that follow.
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. This is primarily due to the noninterest-bearing
liabilities generated by the Company in the form of accounts and drafts payable.
Changes in interest rates will affect some earning assets such as federal funds
sold and floating rate loans immediately and some earning assets, such as fixed
rate loans and municipal bonds, over time.
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 tax-equivalent 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 2005 Third Quarter 2004
----------------------------------- -----------------------------------
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 $ 508,263 $ 8,185 6.39% $ 478,307 $ 6,781 5.64%
Tax-exempt (4) 4,833 78 6.40 5,256 94 7.11
Securities (5):
Taxable 28,724 218 3.00 27,297 122 1.78
Tax-exempt (4) 36,998 534 5.74 61,705 916 5.91
Federal funds sold and other
short-term investments 121,624 1,012 3.30 92,540 305 1.31
- -------------------------------------------------------------------------------------------------------------------------
Total earning assets 700,442 10,027 5.68 665,105 8,218 4.92
Nonearning assets:
Cash and due from banks 30,398 24,931
Premises and equipment, net 11,890 12,650
Bank owned life insurance 11,351 10,900
Goodwill and other intangibles 9,449 6,918
Other assets 24,140 22,673
Allowance for loan losses (6,063) (5,919)
- -------------------------------------------------------------------------------------------------------------------------
Total assets $ 781,607 $ 737,258
- -------------------------------------------------------------------------------------------------------------------------
Liabilities And Shareholders' Equity (1)
Interest-bearing liabilities:
Interest-bearing demand
deposits $ 74,360 $ 355 1.89% $ 84,757 $ 254 1.19%
Savings deposits 29,602 135 1.81 29,793 80 1.07
Time deposits of
$100 or more 42,697 369 3.43 48,405 295 2.42
Other time deposits 36,497 319 3.47 33,572 181 2.14
- -------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 183,156 1,178 2.55 196,527 810 1.64
Short-term borrowings 134 1 2.96 55 -- --
Subordinated debentures 3,700 50 5.36 1,528 18 4.69
- -------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 186,990 1,229 2.61 198,110 828 1.66
Non-interest-bearing liabilities:
Demand deposits 103,996 104,297
Accounts and drafts payable 409,026 360,324
Other liabilities 8,928 8,785
- -------------------------------------------------------------------------------------------------------------------------
Total liabilities 708,940 671,516
Shareholders' equity 72,667 65,742
Total liabilities and
shareholders' equity 781,607 $ 737,258
- -------------------------------------------------------------------------------------------------------------------------
Net interest income $ 8,798 $ 7,390
Interest spread 3.07% 3.26%
Net interest margin 4.98% 4.42%
- -------------------------------------------------------------------------------------------------------------------------
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 2004
Consolidated Financial Statements, filed with the Company's 2004 Annual
Report on Form 10-K.
3. Interest income on loans includes net loan fees of $45,000 and $39,000 for
the Third Quarter of 2005 and 2004, respectively.
4. Interest income is presented on a tax-equivalent basis assuming a tax rate
of 35%. The tax-equivalent adjustment was approximately $214,000 and
$344,000 for the Third Quarter of 2005 and 2004, 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.
-15-
First Nine Months of 2005 First Nine Months of 2004
----------------------------------- -----------------------------------
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 $ 505,072 $ 23,445 6.21% $ 466,181 $ 19,534 5.60%
Tax-exempt (4) 4,881 235 6.44 5,301 296 7.46
Securities (5):
Taxable 28,681 593 2.76 25,906 335 1.73
Tax-exempt (4) 37,735 1,642 5.82 49,746 2,267 6.09
Federal funds sold and other
short-term investments 105,723 2,260 2.86 83,585 666 1.06
- -------------------------------------------------------------------------------------------------------------------------
Total earning assets 682,092 28,175 5.52 630,719 23,098 4.89
Nonearning assets:
Cash and due from banks 27,144 21,635
Premises and equipment, net 11,962 13,076
Bank owned life insurance 11,240 10,827
Goodwill and other intangibles 9,572 5,660
Other assets 23,638 21,719
Allowance for loan losses (5,996) (5,749)
- -------------------------------------------------------------------------------------------------------------------------
Total assets $ 759,652 $ 697,887
- -------------------------------------------------------------------------------------------------------------------------
Liabilities And Shareholders' Equity (1)
Interest-bearing liabilities:
Interest-bearing demand
deposits $ 81,150 $ 1,071 1.76% $ 68,766 $ 498 .97%
Savings deposits 25,948 320 1.65 29,895 208 .93
Time deposits of
$100 or more 45,825 1,053 3.07 50,639 866 2.28
Other time deposits 36,717 842 3.07 35,152 543 2.06
- -------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 189,640 3,286 2.32 184,452 2,115 1.53
Short-term borrowings 166 3 2.42 89 -- --
Subordinated debentures 3,700 148 5.35 513 18 4.69
- -------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 193,506 3,437 2.37 185,054 2,133 1.54
Non-interest-bearing liabilities:
Demand deposits 100,049 103,219
Accounts and drafts payable 386,097 336,189
Other liabilities 9,028 8,517
- -------------------------------------------------------------------------------------------------------------------------
Total liabilities 688,680 632,979
Shareholders' equity 70,972 64,908
Total liabilities and
shareholders' equity 759,652 $ 697,887
- -------------------------------------------------------------------------------------------------------------------------
Net interest income 24,738 $ 20,965
Interest spread 3.15% 3.35%
Net interest margin 4.85% 4.44%
- -------------------------------------------------------------------------------------------------------------------------
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 2004
Consolidated Financial Statements, filed with the Company's 2004 Annual
Report on Form 10-K.
3. Interest income on loans includes net loan fees of $113,000 and $129,000
for the First Nine Months of 2005 and 2004, respectively.
4. Interest income is presented on a tax-equivalent basis assuming a tax rate
of 35%. The tax-equivalent adjustment was approximately $655,000 and
$871,000 for the First Nine Months of 2005 and 2004, respectively.
6. For purposes of these computations, yields on investment securities are
computed as interest income divided by the average amortized cost of the
investments.
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
2005 Over 2004
-------------------------------
(In Thousands) Volume Rate Total
- -------------------------------------------------------------------------------
Increase (decrease) in interest income:
Loans (1), (2):
Taxable $ 450 $ 954 $ 1,404
Tax-exempt (3) (7) (9) (16)
Securities:
Taxable 7 89 96
Tax-exempt (3) (356) (26) (382)
Federal funds sold and other
short-term investments 121 586 707
- -------------------------------------------------------------------------------
Total interest income 215 1,594 1,809
- -------------------------------------------------------------------------------
Interest expense on:
Interest-bearing demand deposits (34) 135 101
Savings deposits (1) 56 55
Time deposits of $100 or more (38) 112 74
Other time deposits 17 121 138
Short-term borrowings 0 1 1
Subordinated debentures 29 3 32
- -------------------------------------------------------------------------------
Total interest expense (27) 428 401
- -------------------------------------------------------------------------------
Net interest income $ 242 $ 1,166 $ 1,408
- -------------------------------------------------------------------------------
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 35%.
-16-
First Nine Months
2005 Over 2004
-------------------------------
(In Thousands) Volume Rate Total
- -------------------------------------------------------------------------------
Increase (decrease) in interest income:
Loans (1), (2):
Taxable $ 1,697 $ 2,214 $ 3,911
Tax-exempt (3) (22) (39) (61)
Securities:
Taxable 39 219 258
Tax-exempt (3) (528) (97) (625)
Federal funds sold and other
short-term investments 216 1,378 1,594
- -------------------------------------------------------------------------------
Total interest income 1,402 3,675 5,077
- -------------------------------------------------------------------------------
Interest expense on:
Interest-bearing demand deposits 103 470 573
Savings deposits (30) 142 112
Time deposits of $100 or more (88) 275 187
Other time deposits 25 274 299
Short-term borrowings 0 3 3
Subordinated debentures 127 3 130
- -------------------------------------------------------------------------------
Total interest expense 137 1,167 1,304
- -------------------------------------------------------------------------------
Net interest income $ 1,265 $ 2,508 $ 3,773
- -------------------------------------------------------------------------------
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 35%.
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 $225,000
provision made for loan losses during the Third Quarter of 2005 and a $150,000
provision made in the Third Quarter of 2004. There was a $625,000 provision made
for the First Nine Months of 2005 compared with a $500,000 provision for the
First Nine Months of 2004. Net loans recovered for the Third Quarter of 2005 and
2004 were $3,000 and $6,000 respectively. Net loans charged off for the First
Nine Months of 2005 were $425,000 compared to net loans recovered of $15,000 for
the First Nine Months of 2004. Of the amount charged off in 2005, $425,000 was
related to one commercial borrower that ceased operations. The provision for
loan losses can vary over time based on an ongoing assessment of the adequacy of
the allowance for loan losses.
The allowance for loan losses at September 30, 2005 was $6,237,000 and at
December 31, 2004 was $6,037,000. The ratio of allowance for loan losses to
total loans outstanding at September 30, 2005 was 1.20% compared to 1.21% at
December 31, 2004. Nonperforming loans were $1,134,000 or .22% of total loans at
September 30, 2005 compared to $538,000 or .11% of total loans at December 31,
2004.
At September 30, 2005, impaired loans totaled $3,244,000, which included
$1,134,000 of nonperforming loans and one other loan with a balance of
$2,110,000 that was renegotiated in 2003. Although current under the new terms
of the agreement, due to the financial condition of the borrower there still
remains risk as to the collectability of all amounts due under the renegotiated
agreement. Impaired loans at December 31, 2004 were $2,718,000, which included
$538,000 of nonperforming loans and $2,180,000 related to the loan renegotiated
in 2003 mentioned above. The allowance for loan losses on impaired loans was
$1,617,000 as of September 30, 2005 and there were no impaired loans without an
allowance for loan losses.
Total impaired loans decreased $377,000 from September 30, 2004 to September 30,
2005. This decrease was primarily due to one loan that had a balance of $692,000
last year that is now current under the terms of the loan agreement plus two
loans that have been charged off totaling $160,000. A loan of $535,000 was added
to the impaired list because the borrower has ceased operations and a specific
reserve has been set up for the amount of the expected shortfall.
The allowance for loan losses has been established and is maintained to absorb
losses inherent in the loan portfolio. An ongoing assessment of risk of loss is
performed to determine if the current balance of the allowance is adequate to
cover probable losses in the portfolio. A charge or credit is made to expense to
cover any deficiency or reduce any excess. The current methodology employed to
determine the appropriate allowance consists of two components, specific and
general. The Company develops specific valuation allowances on commercial,
commercial real estate, and construction loans based on individual review of
these loans and our estimate of the borrower's ability to repay the loan given
the availability of collateral, other sources of cash flow and collection
-17-
options available to us. The general component relates to all other loans, which
are evaluated based on loan grade. The loan grade assigned to each loan is
typically evaluated on an annual basis, unless circumstances require interim
evaluation. The Company assigns a reserve amount consistent with each loan's
rating category. The reserve amount is based on derived loss experience over
prescribed periods. In addition to the amounts derived from the loan grades, a
portion is added to the general reserve to take into account other factors
including national and local economic conditions, downturns in specific
industries including loss in collateral value, trends in credit quality at the
Company and the banking industry, and trends in risk rating changes. As part of
their examination process, federal and state agencies review the Company's
methodology for maintaining the allowance for loan losses and the balance in the
account. These agencies may require the Company to increase the allowance for
loan losses based on their judgments and interpretations about information
available to them at the time of their examination.
Summary of Asset Quality
The following table presents information as of and for the three and nine-month
periods ended September 30, 2005 and 2004 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) 2005 2004 2005 2004
- -----------------------------------------------------------------------------------------------------------------
Allowance at beginning of period $ 6,009 $ 5,865 $ 6,037 $ 5,506
Provision charged to expense 225 150 625 500
Loans charged off -- -- 448 1
Recoveries on loans previously charged off 3 6 23 16
- -----------------------------------------------------------------------------------------------------------------
Net loans (recovered) charged-off (3) (6) 425 (15)
Allowance at end of period $ 6,237 $ 6,021 $ 6,237 $ 6,021
- -----------------------------------------------------------------------------------------------------------------
Loans outstanding:
Average $ 513,096 $ 483,563 $ 509,953 $ 471,482
September 30 518,792 496,027 518,792 496,027
Ratio of allowance for loan losses to loans outstanding:
Average 1.22% 1.25% 1.22% 1.28%
September 30 1.20 1.21 1.20 1.21
Nonperforming loans:
Nonaccrual loans $ 1,111 $ 1,120 $ 1,111 $ 1,120
Loans past due 90 days or more 23 -- 23 --
Renegotiated loans 0 169 0 169
- -----------------------------------------------------------------------------------------------------------------
Total non performing loans $ 1,134 $ 1,289 $ 1,134 $ 1,289
Other impaired loans $ 2,110 $ 2,332 2,110 $ 2,332
Foreclosed assets -- $ 1,234 -- $ 1,234
- -----------------------------------------------------------------------------------------------------------------
Nonperforming loans as percentage of average loans .22% .27% .22% .27%
- -----------------------------------------------------------------------------------------------------------------
The Bank sold the two properties it had been carrying as other real estate owned
as of September 30, 2004. One property with a balance of $859,000 was sold in
December 2004 at a net loss of $59,000. The second property with a balance of
$375,000 was sold during the First Quarter of 2005 at a net gain of $38,000.
Operating Expense
Total operating expense for the Third Quarter of 2005 increased $1,265,000 or 9%
to $15,061,000 compared to the Third Quarter of 2004. Total operating expense
for the First Nine Months of 2005 increased $4,010,000 or 10% to $44,601,000
from the First Nine Months of 2004. The increases were due primarily to
operating expenses of the Telecom Information Services division which was
acquired in August 2004 and expenses related to the growth in processing
activity. Operating expenses of the Telecom division were $806,000 and
$2,398,000 for the Third Quarter of 2005 and the First Nine Months of 2005,
respectively, compared to $263,000 for both periods in 2004.
-18-
Salaries and benefits expense increased $1,155,000 or 12% to $10,734,000 in the
Third Quarter of 2005 compared with the Third Quarter of 2004 and increased
$3,651,000 or 13% for the First Nine Months of 2005 compared with the First Nine
Months of 2004. Salaries and benefits expense related to the Telecom division
were $508,000 and $1,438,000 for the Third Quarter of 2005 and the First Nine
Months of 2005, respectively, compared to $185,00 for both periods in 2004. The
balance of the increase was primarily due to increases in performance bonuses
and additional salaries and benefits necessary to support the increase in
processing volume.
Occupancy expense for the Third Quarter of 2005 increased $102,000 or 22% to
$562,000 from the Third Quarter of 2004 and increased $279,000 or 21% in the
First Nine Months of 2005 compared with the First Nine Months of 2004. Occupancy
expense related to the Telecom division was $21,000 and $62,000 for the Third
Quarter of 2005 and the First Nine Months of 2005, respectively, compared to
$7,000 for both periods in 2004. The remaining increase is due primarily to an
increase in rent expense from the Bank expansion into Southern California and
moving of two of its existing bank branches to new locations in Missouri.
Equipment expense for the Third Quarter of 2005 decreased $43,000 or 5% compared
to the Third Quarter of 2004 and decreased $387,000 or 13% for the First Nine
Months of 2005 compared with the First Nine Months of 2004. Equipment expense
related to the Telecom division was $21,000 and $59,000 for the Third Quarter of
2005 and the First Nine Months of 2005, respectively, compared to $5,000 for
both periods in 2004. The decreases relate primarily to software that was
capitalized in 2000 and 2001 that is now fully amortized.
Amortization of intangible assets increased $30,000 or 33% to $121,000 for the
Third Quarter of 2005 and increased $116,000 or 47% to $362,000 for the First
Nine Months of 2005. This increase related to the software acquired from the
acquisition of the Telecom division.
Other operating expense for the Third Quarter of 2005 increased $21,000 or 1%
compared to the Third Quarter of 2004 and increased $351,000 or 4% for the First
Nine Months of 2005 compared with the First Nine Months of 2004. Other operating
expenses of the Telecom division were $160,000 for the Third Quarter of 2005 and
$554,000 for the First Nine Months of 2005, respectively, compared to $41,000
for both periods in 2004. Outside services and supplies increased during the
Third Quarter of 2005 and for the First Nine Months of 2005 offsetting
reductions in postage.
Income tax expense for the Third Quarter of 2005 increased $849,000 or 116%
compared to the Third Quarter of 2004 and increased $2,137,000 or 96% for the
First Nine Months of 2005 compared with the First Nine Months of 2004. The
effective tax rate for the Third Quarter of 2005 was 34% compared with 27% in
the Third Quarter of 2004 and was 34% for the First Nine Months of 2005 compared
with 29% in 2004. The increase in the effective tax rate was primarily due to
the lower relative effect of tax-exempt investment income to total income.
Financial Condition
Total assets at September 30, 2005 increased $78,715,000 or 11% from December
31, 2004. The most significant change in asset balances during this period was
federal funds sold and other short-term investments that increased $51,151,000
or 79%. Changes in federal funds sold and other short-term investments reflect
the Company's daily liquidity position and are affected by changes in other
asset balances and also by changes in deposit and accounts and drafts payable
balances detailed below. Loans also increased as the Bank continues to expand
its customer base.
Total liabilities were $720,136,000, an increase of $73,204,000 or 11% from
December 31, 2004. Total deposits at September 30, 2005 were $274,036,000, a
decrease of $1,593,000 or 1%. Accounts and drafts payable were $432,703,000, an
increase of $74,230,000 or 21%. Total shareholders' equity at September 30, 2005
was $75,100,000 a $5,511,000 or 8% increase from December 31, 2004.
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 under the "Distribution of
Assets, Liabilities and Stockholders' Equity; Interest Rate and Interest
Differential" section of this report).
-19-
The increase in total shareholders' equity resulted from net income of
$8,444,000; cash received on the exercise of stock options of $175,000; a
$55,000 tax benefit on stock awards, $99,000 from the amortization of stock
bonus awards offset by dividends paid of $2,319,000 ($.63 per share), the
repurchase of 16,545 shares of treasury stock for $586,000, a decrease in other
comprehensive income of $354,000 and cash paid for stock dividend fractional
shares of $3,000.
Liquidity and Capital Resources
The balance of liquid assets, or cash and cash equivalents, which include cash
and due from banks, federal funds sold and money market funds, was $145,255,000
at September 30, 2005, an increase of $57,712,000 or 66% from December 31, 2004.
At September 30, 2005 these assets represented 18% 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 $76,111,000 at
September 30, 2005, a decrease of $1,019,000 or 1% from December 31, 2004. These
assets represented 10% of total assets at September 30, 2005. Of this total, 63%
were state and political subdivision securities, 29% were U.S. Treasury
securities and 8% were U.S. government agencies. Of the total portfolio, 32%
matures in one year, 25% matures in one to five years and 43% matures in five or
more years. During the First Nine Months of 2005 the Company sold securities
with a market value of $12,952,000 and a portion of these funds were reinvested
in U.S. Treasury and agency securities.
The Bank has unsecured lines at correspondent banks to purchase federal funds up
to a maximum of $29,000,000. Additionally, the Bank maintains a line of credit
at an unaffiliated financial institution in the maximum amount of $75,149,000
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 the Company has also historically been a stable source of
funds.
Net cash flows provided by operating activities were $9,707,000 for the First
Nine Months of 2005 compared with $6,724,000 for the First Nine Months of 2004.
This increase is primarily attributable to $2,924,000 additional net income and
other normal fluctuations in other asset and liability accounts. Net cash flows
from investing and financing activities fluctuate greatly as the Company
actively manages its investment and loan portfolios and customer activity
influences changes in deposit and accounts and drafts payable balances. Further
analysis of the changes in these account balances is discussed earlier in this
report. Due to the daily fluctuations in these account balances, the analysis of
changes in average balances, also discussed earlier in this report, can be more
indicative of underlying activity than the period-end balances used in the
statements of cash flows. Management anticipates that cash and cash equivalents,
maturing investments and cash from operations will continue to be sufficient to
fund the Company's operations and capital expenditures in 2005.
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 and the Bank to meet a minimum
total capital ratio of 8.0% of which at least 4.0% must consist of Tier 1
capital. Tier 1 capital generally consists of (a) common shareholders' equity
(excluding the unrealized market value adjustments on the available-for-sale
securities), (b) qualifying perpetual preferred stock and related surplus
subject to certain limitations specified by the FDIC, (c) minority interests in
the equity accounts of consolidated subsidiaries less (d) goodwill, (e) mortgage
servicing rights within certain limits, and (f) any other intangible assets and
investments in subsidiaries that the FDIC determines should be deducted from
Tier 1 capital. The FDIC also requires a minimum leverage ratio of 3.0%, defined
as the ratio of Tier 1 capital less purchased mortgage servicing rights to total
assets, for banking organizations deemed the strongest and most highly rated by
banking regulators. A higher minimum leverage ratio is required of less highly
rated banking organizations. Total capital, a measure of capital adequacy,
includes Tier 1 capital, allowance for loan losses, and debt considered equity
for regulatory capital purposes.
The Company and the Bank continue to exceed all regulatory capital requirements,
as evidenced by the following capital amounts and ratios at September 30, 2005
and December 31, 2004:
-20-
September 30, 2005 (In Thousands) Amount Ratio
- -------------------------------------------------------------------------------
Total capital (to risk-weighted assets)
Cass Information Systems, Inc. $ 75,678 12.29%
Cass Commercial Bank 37,720 12.80
Tier I capital (to risk-weighted assets)
Cass Information Systems, Inc. $ 65,741 10.68%
Cass Commercial Bank 33,421 11.34
Tier I capital (to average assets)
Cass Information Systems, Inc. $ 65,741 8.51%
Cass Commercial Bank 33,421 10.06
- -------------------------------------------------------------------------------
December 31, 2004 (In Thousands) Amount Ratio
- -------------------------------------------------------------------------------
Total capital (to risk-weighted assets)
Cass Information Systems, Inc. $ 69,238 11.86%
Cass Commercial Bank 36,634 12.01
Tier I capital (to risk-weighted assets)
Cass Information Systems, Inc. $ 59,501 10.19%
Cass Commercial Bank 32,817 10.76
Tier I capital (to average assets)
Cass Information Systems, Inc. $ 59,501 7.91%
Cass Commercial Bank 32,817 9.46
- -------------------------------------------------------------------------------
Inflation
The Company's assets and liabilities are primarily monetary, consisting of cash,
cash equivalents, securities, loans, payables and deposits. Monetary assets and
liabilities are those that can be converted into a fixed number of dollars. The
Company's consolidated balance sheet reflects a net positive monetary position
(monetary assets exceed 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. Management believes that replacement costs of
equipment, furniture, and leasehold improvements will not materially affect
operations. The rate of inflation does affect certain expenses, such as those
for employee compensation, which may not be readily recoverable in the price of
the Company's services.
Impact of New Accounting Pronouncements
In November 2005, the FASB issued FASB Staff Position (FSP) FAS 115-1 and 124-1,
"The Meaning of Other-Than-Temporary Impairment and Its Application to Certain
Investments." The guidance addresses the determination of when an investment is
considered impaired, whether that impairment is other than temporary, and the
measurement of an impairment loss. The FSP also includes accounting
considerations subsequent to the recognition of an other-than-temporary
impairment and requires certain disclosures about unrealized losses that have
not been recognized as other-than-temporary impairments. The guidance in this
FSP amends FASB Statement No. 115, "Accounting for Certain Investments in Debt
and Equity Securities," and adds a footnote to APB Opinion No. 18, "The Equity
Method of Accounting for Investments in Common Stock." The guidance in this FSP
nullifies certain requirements of EITF Issue No. 03-1, "The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments," and
supersedes EITF Abstracts, Topic D-44, "Recognition of Other-Than-Temporary
Impairment upon the Planned Sale of a Security Whose Cost Exceeds Fair Value."
The guidance is required to be applied to reporting periods beginning after
December 15, 2005. The Company does not anticipate this FSP will have a material
impact on its consolidated financial statements.
In December 2004, the FASB issued SFAS 123 (revised 2004), "Share-Based Payment"
("SFAS 123R"), which replaced, "Accounting for Stock-Based Compensation" ("SFAS
123") and supersedes Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB 25"). SFAS 123R requires the measurement of all
employee share-based payments to employees, including grants of employee stock
options, using a fair-value-based method and the recording of such expense in
our consolidated statements of income. The accounting provisions of SFAS 123R
are effective for fiscal years beginning after June 15, 2005. The pro forma
disclosures previously permitted under SFAS 123 will no longer be an alternative
to financial statement recognition. See Note 10 of this report for the pro forma
net income and net income per share amounts, for Third Quarter 2005 and 2004, as
if we had used a fair-value-based method similar to the methods required under
SFAS 123R to measure compensation expense for employee stock incentive awards.
Although we have not yet determined whether the adoption of SFAS 123R will
result in amounts that are similar to the current pro forma disclosures under
SFAS 123, we are evaluating the requirements under SFAS 123R and do not expect
the adoption to have a significant adverse impact on our consolidated statements
of income and net income per share.
-21-
In May 2005, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 154 "Accounting Changes and Error
Corrections" as a replacement of APB Opinion No. 20 and FASB Statement No 3.
This Statement applies to all voluntary changes in accounting principles and
changes required by an accounting pronouncement in the unusual instance that the
pronouncement does not include specific transition provisions. This Statement
carries forward without change the guidance contained in APB Opinion No. 20 for
reporting the correction of an error in previously issued financial statements
and a change in accounting estimate. This Statement also carries forward the
guidance in APB Opinion No. 20 requiring justification of a change in accounting
principle on the basis of preferability. This Statement shall be effective for
accounting changes and corrections of errors made in fiscal years beginning
after December 15, 2005. The Company is not currently aware of any accounting
changes or errors to which the provisions of this Statement will apply.
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, 2004, 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, 2005 has changed materially from that at December 31, 2004.
ITEM 4. CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures designed to provide
reasonable assurance that the information it is required to disclose in the
reports it files with the Securities and Exchange Commission ("SEC") is fairly
recorded, processed, summarized and reported to management, including the Chief
Executive Officer and Principal Financial Officer, within the time periods
specified in the rules of the SEC. The Company's Chief Executive and Principal
Financial Officers have reviewed and evaluated the Company's disclosure controls
and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended) as of September 30, 2005 and based on their
evaluation, believe that these procedures are adequate and effective to ensure
that the Company is able to collect, process and disclose the information it is
required to disclose in the reports it files with the SEC within the required
time periods.
There were no changes in the Third Quarter of 2005 in the Company's internal
controls identified by the Chief Executive and Principal Financial Officers in
connection with their evaluation that materially affected or are reasonably
likely to materially affect the Company's internal controls over financial
reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities
Exchange Act of 1934, as amended).
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company and its subsidiaries are not involved in any pending
proceedings other than ordinary routine litigation incidental to its
businesses. Management believes none of these proceedings, if determined
adversely, would have a material effect on the business or financial
condition of the Company or its subsidiaries.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The Company maintains a treasury stock buyback program and as of
September 30, 2005 was authorized by the Board of Directors to
repurchase up to 83,455 shares of its Common Stock. No shares of the
Company's Common Stock were repurchased in the Third Quarter of 2005.
-22-
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS
Exhibit 31.1 Certification pursuant to Rules 13a-14 and 15d-14 under the
Securities Exchange Act of 1934, as amended, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 31.2 Certification pursuant to Rules 13a-14 and 15d-14 under the
Securities Exchange Act of 1934, as amended, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.1 Certification pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.2 Certification pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
-23-
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: November 4, 2005 By /s/ Lawrence A. Collett
-----------------------------------------
Lawrence A. Collett
Chairman and Chief Executive Officer
DATE: November 4, 2005 By /s/ Eric H. Brunngraber
-----------------------------------------
Eric H. Brunngraber
Vice President-Secretary
(Principal Financial and Accounting Officer)
-24-