UNITED
STATES
SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, DC 20549
_________________
FORM 10-Q
☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
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For the quarterly period ended
March 31, 2015
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OR |
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☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
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For the transition period from
___________________ to
___________________ |
Commission File No.
000-20827
________________
CASS INFORMATION SYSTEMS,
INC.
(Exact name of registrant
as specified in its charter)
Missouri |
43-1265338 |
(State or other jurisdiction of incorporation or |
(I.R.S. Employer Identification No.) |
organization) |
|
|
12444 Powerscourt Drive, Suite 550 |
63131 |
St. Louis, Missouri |
|
(Address of principal executive offices) |
(Zip
Code) |
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(314)
506-5500 |
(Registrants telephone number, including area
code) ________________
|
Indicate by check mark
whether the registrant: (1) 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 (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes
X No
Indicate by check mark
whether the registrant has submitted electronically and posted on its corporate
Web site, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files).
Yes
X No
Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer or a smaller reporting company. See the definitions of
large accelerated filer, accelerated filer and smaller reporting company
in Rule 12b-2 of the Exchange Act.
(Check one) |
Large Accelerated Filer _____ |
Accelerated Filer X
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|
Non-Accelerated Filer _____ |
Smaller Reporting Company _____ |
|
(Do not check if a smaller reporting
company) |
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 the registrant's only class of common stock as of April 27,
2015: Common stock, par value $.50 per share 11,476,082 shares outstanding.
-1-
TABLE OF CONTENTS
PART I Financial Information
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Item 1.
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FINANCIAL
STATEMENTS |
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Consolidated Balance Sheets |
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March 31, 2015 (unaudited) and
December 31, 2014 |
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3 |
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Consolidated Statements of
Income |
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Three months ended March 31,
2015 and 2014 (unaudited) |
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4 |
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Consolidated Statements of Comprehensive Income |
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Three months ended March 31,
2015 and 2014 (unaudited) |
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5 |
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Consolidated
Statements of Cash Flows |
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Three months ended March 31,
2015 and 2014 (unaudited) |
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6 |
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Notes to
Consolidated Financial Statements (unaudited) |
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7 |
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Item 2. |
MANAGEMENTS DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
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16 |
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Item
3. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK |
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25 |
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Item 4. |
CONTROLS AND
PROCEDURES |
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25 |
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PART II Other Information Items 1. 6. |
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26 |
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SIGNATURES |
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28 |
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. Although we believe that, in making
any such statements, our expectations are based on reasonable assumptions,
forward-looking statements are not guarantees of future performance and involve
risks, uncertainties, and other factors beyond our control, which may cause
future performance to be materially different from expected performance
summarized in the forward-looking statements. These risks, uncertainties and
other factors are discussed in Part I, Item 1A, Risk Factors of the Companys
2014 Annual Report on Form 10-K, filed with the Securities and Exchange
Commission (SEC), which may be updated from time to time in our future filings
with the SEC. 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
(Dollars in
Thousands except Share and Per Share Data)
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March
31, |
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2015 |
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December
31, |
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(Unaudited) |
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2014 |
Assets |
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Cash and due from
banks |
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$ |
11,230 |
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$ |
11,307 |
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Interest-bearing deposits in other financial institutions |
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166,192 |
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200,966 |
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Federal funds sold and
other short-term investments |
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31,093 |
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82,062 |
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Cash and cash equivalents |
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208,515 |
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294,335 |
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Securities
available-for-sale, at fair value |
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322,627 |
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356,141 |
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Loans |
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683,537 |
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669,346 |
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Less: Allowance for loan losses |
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11,898 |
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11,894 |
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Loans, net |
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671,639 |
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657,452 |
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Premises and equipment,
net |
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17,817 |
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16,909 |
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Investment
in bank-owned life insurance |
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15,552 |
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15,429 |
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Payments in excess of
funding |
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125,572 |
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120,227 |
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Goodwill |
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11,590 |
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11,590 |
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Other intangible assets,
net |
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2,661 |
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2,762 |
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Other
assets |
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24,775 |
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25,886 |
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Total assets |
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$ |
1,400,748 |
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$ |
1,500,731 |
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Liabilities and Shareholders Equity |
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Liabilities: |
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Deposits: |
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Noninterest-bearing |
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$ |
160,555 |
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$ |
158,999 |
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Interest-bearing |
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454,523 |
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459,200 |
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Total deposits |
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615,078 |
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618,199 |
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Accounts
and drafts payable |
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556,826 |
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655,428 |
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Other liabilities |
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28,654 |
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26,672 |
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Total liabilities |
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1,200,558 |
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1,300,299 |
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Shareholders
Equity: |
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Preferred
stock, par value $.50 per share; 2,000,000 |
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shares authorized and no
shares issued |
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Common stock, par value
$.50 per share; 40,000,000 |
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shares authorized and
11,931,147 shares issued at March 31, 2015 |
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and December 31,
2014 |
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5,966 |
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5,966 |
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Additional
paid-in capital |
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125,097 |
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126,169 |
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Retained earnings |
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93,762 |
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90,635 |
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Common
shares in treasury, at cost (461,252 shares at March 31, |
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2015 and 428,572 shares at
December 31, 2014) |
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(15,262 |
) |
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(12,707 |
) |
Accumulated other
comprehensive loss |
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(9,373 |
) |
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(9,631 |
) |
Total shareholders equity |
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200,190 |
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200,432 |
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Total liabilities and shareholders equity |
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$ |
1,400,748 |
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$ |
1,500,731 |
|
See accompanying notes to unaudited consolidated
financial statements.
-3-
CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in Thousands except Per Share Data)
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Three Months Ended |
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March 31, |
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2015 |
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2014 |
Fee Revenue and Other
Income: |
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Information services payment and processing
revenue |
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$
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19,418 |
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$
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18,397 |
Bank service fees |
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301 |
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285 |
Gains on sales of securities |
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949 |
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Other |
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164 |
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893 |
Total fee revenue and other income |
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20,832 |
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19,575 |
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Interest
Income: |
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Interest and fees on loans |
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7,086 |
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7,305 |
Interest and dividends on
securities: |
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Taxable |
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3 |
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5 |
Exempt from federal income taxes |
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2,303 |
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2,310 |
Interest on federal funds sold and |
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other
short-term investments |
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160 |
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152 |
Total interest income |
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9,552 |
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9,772 |
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Interest Expense: |
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Interest on
deposits |
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591 |
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|
625 |
Net interest income |
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8,961 |
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9,147 |
Provision for loan
losses |
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Net interest income after provision for loan |
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losses |
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8,961 |
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9,147 |
Total net revenue |
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29,793 |
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28,722 |
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Operating Expense: |
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Salaries and employee
benefits |
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17,326 |
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16,187 |
Occupancy |
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|
837 |
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806 |
Equipment |
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1,071 |
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1,026 |
Amortization of intangible assets |
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101 |
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120 |
Other operating
expense |
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2,973 |
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2,886 |
Total operating expense |
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22,308 |
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21,025 |
Income before income tax expense |
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7,485 |
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7,697 |
Income tax expense |
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1,946 |
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1,886 |
Net income |
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$ |
5,539 |
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$ |
5,811 |
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Basic earnings per share |
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|
.48 |
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|
.51 |
Diluted earnings per
share |
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|
.48 |
|
|
.50 |
See accompanying notes to unaudited consolidated
financial statements.
-4-
CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(Dollars in Thousands)
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Three Months
Ended |
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March 31, |
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2015 |
|
2014 |
Comprehensive income: |
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Net income |
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$ |
5,539 |
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$ |
5,811 |
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Other
comprehensive income: |
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Net unrealized gain (loss) on
securities available-for-sale |
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1,496 |
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3,688 |
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Tax effect |
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(557 |
) |
|
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(1,370 |
) |
Reclassification adjustments
for gains included in net income |
|
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(949 |
) |
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Tax effect |
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|
332 |
|
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Foreign currency translation
adjustments |
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(64 |
) |
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|
(5 |
) |
Total
comprehensive income |
|
$ |
5,797 |
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|
$ |
8,124 |
|
See accompanying notes to unaudited consolidated
financial statements.
-5-
CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
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Three Months Ended |
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March 31, |
|
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2015 |
|
2014 |
Cash Flows From Operating
Activities: |
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Net income |
|
$
|
5,539 |
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$
|
5,811 |
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Adjustments to reconcile net
income to net cash provided |
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by operating
activities: |
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Depreciation and amortization |
|
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2,081 |
|
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|
1,977 |
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Net gains on sales of securities |
|
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(949 |
) |
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Stock-based compensation expense |
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|
517 |
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|
519 |
|
Increase in income tax liability |
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|
31 |
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|
365 |
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Increase in pension liability |
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|
1,210 |
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|
587 |
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Other operating activities, net |
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|
1,475 |
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|
(479 |
) |
Net cash provided by operating activities |
|
|
9,904 |
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|
8,780 |
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Cash Flows From Investing
Activities: |
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Proceeds from sales of securities
available-for-sale |
|
|
45,198 |
|
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|
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|
Proceeds from maturities of
securities available-for-sale |
|
|
7,810 |
|
|
|
4,080 |
|
Purchase of securities
available-for-sale |
|
|
(19,297 |
) |
|
|
(8,954 |
) |
Net increase in
loans |
|
|
(14,187 |
) |
|
|
(12,759 |
) |
Increase in payments in excess of
funding |
|
|
(5,345 |
) |
|
|
(23,022 |
) |
Purchases of premises and
equipment, net |
|
|
(1,624 |
) |
|
|
(907 |
) |
Net cash provided by (used in) investing activities |
|
|
12,555 |
|
|
|
(41,562 |
) |
|
Cash Flows From Financing
Activities: |
|
|
|
|
|
|
|
|
Net increase in noninterest-bearing demand
deposits |
|
|
1,556 |
|
|
|
15,546 |
|
Net decrease in
interest-bearing demand and savings deposits |
|
|
(614 |
) |
|
|
(18,770 |
) |
Net (decrease) increase in time
deposits |
|
|
(4,063 |
) |
|
|
1,931 |
|
Net (decrease) increase in
accounts and drafts payable |
|
|
(98,602 |
) |
|
|
10,742 |
|
Cash dividends paid |
|
|
(2,412 |
) |
|
|
(2,306 |
) |
Purchase of common shares
for treasury |
|
|
(3,358 |
) |
|
|
|
|
Other financing activities, net |
|
|
(786 |
) |
|
|
(462 |
) |
Net cash (used in) provided by financing activities |
|
|
(108,279 |
) |
|
|
6,681 |
|
Net decrease in cash and cash
equivalents |
|
|
(85,820 |
) |
|
|
(26,101 |
) |
Cash and cash equivalents at
beginning of period |
|
|
294,335 |
|
|
|
225,262 |
|
Cash and cash equivalents at end of
period |
|
$ |
208,515 |
|
|
$ |
199,161 |
|
|
Supplemental
information: |
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|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
582 |
|
|
$ |
618 |
|
Cash paid for income taxes |
|
|
1,942 |
|
|
|
1,323 |
|
See accompanying notes to unaudited consolidated
financial statements.
-6-
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. 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, 2014.
Note 2 Intangible Assets
The Company accounts for intangible assets in
accordance with Financial Accounting Standards Board (FASB) Accounting
Standards Codification (ASC) 350, Goodwill and Other Intangible Assets,
(FASB ASC 350), 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.
Details of the Companys intangible assets are as
follows:
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|
March 31, 2015 |
|
December 31, 2014 |
|
|
Gross
Carrying |
|
Accumulated |
|
Gross
Carrying |
|
Accumulated |
(In thousands) |
|
Amount |
|
Amortization |
|
Amount |
|
Amortization |
Assets
eligible for amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
Customer lists |
|
3,933 |
|
(1,785 |
) |
|
$ |
3,933 |
|
$ |
(1,705 |
) |
Patent |
|
23 |
|
(1 |
) |
|
|
23 |
|
|
(1 |
) |
Non-compete
agreements |
|
261 |
|
(170 |
) |
|
|
261 |
|
|
(157 |
) |
Software |
|
234 |
|
(234 |
) |
|
|
234 |
|
|
(234 |
) |
Other |
|
500 |
|
(100 |
) |
|
|
500 |
|
|
(92 |
) |
Unamortized
intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill1 |
|
11,817 |
|
(227 |
) |
|
|
11,817 |
|
|
(227 |
) |
Total intangible assets |
|
16,768 |
|
(2,517 |
) |
|
$ |
16,768 |
|
$ |
(2,416 |
) |
1Amortization through December 31,
2001 prior to adoption of FASB ASC 350.
The customer lists are amortized over seven and
ten years; the patent over 18 years; the non-compete agreements over five years;
software over three years; and other intangible assets over fifteen years.
Amortization of intangible assets amounted to $101,000 and $120,000 for the
three-month periods ended March 31, 2015 and 2014, respectively. Estimated
future amortization of intangibles is as follows: $405,000 in 2015 and 2016, and
$353,000 in each of 2017, 2018 and 2019.
Note 3 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 by the sum of the
weighted-average number of common shares outstanding and the weighted-average
number of potential common shares outstanding. There were no anti-dilutive
shares in the three months ended March 31, 2015 and 2014. The calculations of
basic and diluted earnings per share are as follows:
|
|
Three Months
Ended |
|
|
March 31, |
(In thousands except share and per share
data) |
|
2015 |
|
2014 |
Basic |
|
|
|
|
|
|
Net income |
|
$ |
5,539 |
|
$ |
5,811 |
Weighted-average common shares
outstanding |
|
|
11,440,356 |
|
|
11,478,116 |
Basic earnings per share |
|
$ |
.48 |
|
$ |
.51 |
Diluted |
|
|
|
|
|
|
Net income |
|
$ |
5,539 |
|
$ |
5,811 |
Weighted-average common shares
outstanding |
|
|
11,440,356 |
|
|
11,478,116 |
Effect of dilutive restricted
stock and stock appreciation rights |
|
|
161,497 |
|
|
194,707 |
Weighted-average common shares
outstanding assuming dilution |
|
|
11,601,853 |
|
|
11,672,823 |
Diluted earnings per share |
|
$ |
.48 |
|
$ |
.50 |
-7-
Note 4 Stock Repurchases
The Company maintains a treasury stock buyback
program pursuant to which the Board of Directors has authorized the repurchase
of up to 500,000 shares of the Companys common stock. The Company repurchased
69,288 and 0 shares during the three-month periods ended March 31, 2015 and
2014, respectively. As of March 31, 2015, 410,752 shares remained available for
repurchase under the program. Repurchases may be made in the open market or
through negotiated transactions from time to time depending on market
conditions.
Note 5 Industry Segment Information
The services provided by the Company are
classified into two reportable segments: Information Services and Banking
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
transportation, energy, telecommunication, and environmental invoice processing
and payment services to large corporations. The Banking Services segment
provides banking services primarily to privately held businesses and churches.
The Companys accounting policies for segments are
the same as those described in the summary of significant accounting policies in
the Companys Annual Report on Form 10-K for the year ended December 31, 2014.
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 fair value.
Substantially 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 Companys consolidated
revenue.
Assets represent actual assets owned by
Information Services and Banking Services and there is no allocation methodology
used. Segment interest from customers is the actual interest earned on the loans
owned by Information Services and Banking Services, respectively.
Summarized information about the Companys
operations in each industry segment is as follows:
|
|
|
|
|
|
|
|
Corporate, |
|
|
|
|
|
Information |
|
Banking |
|
Eliminations |
|
|
|
(In thousands) |
|
Services |
|
Services |
|
and Other |
|
Total |
Quarter
Ended March 31, 2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fee revenue and other
income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from customers |
|
$ |
24,274 |
|
$ |
5,519 |
|
$ |
|
|
|
$ |
29,793 |
Intersegment income (expense) |
|
|
2,194 |
|
|
423 |
|
|
(2,617 |
) |
|
|
|
Net income |
|
|
3,816 |
|
|
1,723 |
|
|
|
|
|
|
5,539 |
Goodwill |
|
|
11,454 |
|
|
136 |
|
|
|
|
|
|
11,590 |
Other intangible assets,
net |
|
|
2,661 |
|
|
|
|
|
|
|
|
|
2,661 |
Total assets |
|
|
686,492 |
|
|
724,292 |
|
|
(10,036 |
) |
|
|
1,400,748 |
Quarter
Ended March 31, 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fee revenue and other
income |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from customers |
|
$ |
23,215 |
|
$ |
5,507 |
|
$ |
|
|
|
$ |
28,722 |
Intersegment income (expense) |
|
|
2,144 |
|
|
354 |
|
|
(2,498 |
) |
|
|
|
Net income |
|
|
4,100 |
|
|
1,711 |
|
|
|
|
|
|
5,811 |
Goodwill |
|
|
11,454 |
|
|
136 |
|
|
|
|
|
|
11,590 |
Other intangible assets,
net |
|
|
3,102 |
|
|
|
|
|
|
|
|
|
3,102 |
Total assets |
|
|
672,248 |
|
|
679,391 |
|
|
(9,712 |
) |
|
|
1,341,927 |
-8-
Note 6 Loans by Type
A summary of loan categories is as
follows:
|
March
31, |
|
December
31, |
(In thousands) |
2015 |
|
2014 |
Commercial
and industrial |
$ |
221,645 |
|
$ |
203,350 |
Real estate |
|
|
|
|
|
Commercial: |
|
|
|
|
|
Mortgage |
|
111,709 |
|
|
117,754 |
Construction |
|
|
|
|
|
Church,
church-related: |
|
|
|
|
|
Mortgage |
|
311,100 |
|
|
305,887 |
Construction |
|
16,424 |
|
|
18,612 |
Industrial
Revenue Bonds |
|
22,582 |
|
|
23,348 |
Other |
|
77 |
|
|
395 |
Total loans |
$ |
683,537 |
|
$ |
669,346 |
The following table presents the aging of loans by
loan categories at March 31, 2015 and December 31, 2014:
|
|
Performing |
|
Nonperforming |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90 Days |
|
|
|
|
|
|
|
|
|
|
|
30-59 |
|
60-89 |
|
and |
|
Non- |
|
Total |
(In
thousands) |
|
Current |
|
Days |
|
Days |
|
Over |
|
accrual |
|
Loans |
March 31,
2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
|
$
|
221,557 |
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
88 |
|
$
|
221,645 |
Real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage |
|
|
108,632 |
|
|
|
|
|
|
|
|
|
|
|
3,077 |
|
|
111,709 |
Construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Church,
church-related: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage |
|
|
310,979 |
|
|
|
|
|
|
|
|
|
|
|
121 |
|
|
311,100 |
Construction |
|
|
16,424 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,424 |
Industrial Revenue Bonds |
|
|
22,582 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,582 |
Other |
|
|
77 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77 |
Total |
|
$ |
680,251 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
3,286 |
|
$ |
683,537 |
December 31,
2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
|
$ |
203,350 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
203,350 |
Real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage |
|
|
117,393 |
|
|
|
|
|
|
|
|
|
|
|
361 |
|
|
117,754 |
Construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Church,
church-related: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage |
|
|
305,760 |
|
|
|
|
|
|
|
|
|
|
|
127 |
|
|
305,887 |
Construction |
|
|
18,612 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,612 |
Industrial Revenue Bonds |
|
|
23,348 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,348 |
Other |
|
|
395 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
395 |
Total |
|
$ |
668,858 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
488 |
|
$ |
669,346 |
-9-
The following table presents the credit exposure
of the loan portfolio as of March 31, 2015 and December 31, 2014:
|
|
Loans |
|
Performing |
|
Nonperforming |
|
|
|
|
|
Subject to |
|
Loans Subject to |
|
Loans Subject |
|
|
|
|
|
Normal |
|
Special |
|
to Special |
|
|
|
(In
thousands) |
|
Monitoring1 |
|
Monitoring2 |
|
Monitoring2 |
|
Total Loans |
March 31,
2015 |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
|
$
|
217,740 |
|
$
|
3,817 |
|
$
|
88 |
|
$
|
221,645 |
Real estate |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage |
|
|
97,709 |
|
|
10,923 |
|
|
3,077 |
|
|
111,709 |
Construction |
|
|
|
|
|
|
|
|
|
|
|
|
Church,
church-related: |
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage |
|
|
309,527 |
|
|
1,452 |
|
|
121 |
|
|
311,100 |
Construction |
|
|
16,424 |
|
|
|
|
|
|
|
|
16,424 |
Industrial Revenue Bonds |
|
|
22,582 |
|
|
|
|
|
|
|
|
22,582 |
Other |
|
|
77 |
|
|
|
|
|
|
|
|
77 |
Total |
|
$ |
664,059 |
|
$ |
16,192 |
|
$ |
3,286 |
|
$ |
683,537 |
December 31,
2014 |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
|
$ |
199,837 |
|
$ |
3,513 |
|
$ |
|
|
$ |
203,350 |
Real estate |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage |
|
|
103,097 |
|
|
14,296 |
|
|
361 |
|
|
117,754 |
Construction |
|
|
|
|
|
|
|
|
|
|
|
|
Church,
church-related: |
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage |
|
|
304,219 |
|
|
1,541 |
|
|
127 |
|
|
305,887 |
Construction |
|
|
18,612 |
|
|
|
|
|
|
|
|
18,612 |
Industrial Revenue Bonds |
|
|
23,348 |
|
|
|
|
|
|
|
|
23,348 |
Other |
|
|
395 |
|
|
|
|
|
|
|
|
395 |
Total |
|
$ |
649,508 |
|
$ |
19,350 |
|
$ |
488 |
|
$ |
669,346 |
1Loans subject to normal monitoring
involve borrowers of acceptable-to-strong credit quality and risk, who have the
apparent ability to satisfy their loan obligations.
2Loans subject to special monitoring possess some credit
deficiency or potential weakness which requires a high level of management
attention.
Impaired loans consist primarily of nonaccrual
loans, loans greater than 90 days past due and still accruing interest and
troubled debt restructurings, both performing and nonperforming. Troubled debt
restructuring involves the granting of a concession to a borrower experiencing
financial difficulty resulting in the modification of terms of the loan, such as
changes in payment schedule or interest rate. Management measures impairment in
accordance with FASB ASC 310, Allowance for Credit Losses. At March 31, 2015
and December 31, 2014, all impaired loans were evaluated based on the fair value
of the collateral. The fair value of the collateral is based upon an observable
market price or current appraised value and therefore, the Company classifies
these assets as nonrecurring Level 3. There were no loans delinquent 90 days or
more and still accruing interest at March 31, 2015 and December 31, 2014. There
were no loans classified as troubled debt restructuring at March 31, 2015 and
December 31, 2014.
There were no foreclosed loans recorded as other
real estate owned (included in other assets) as of March 31, 2015, and December
31, 2014.
The following table presents the recorded
investment and unpaid principal balance for impaired loans at March 31, 2015 and
December 31, 2014:
|
|
|
|
|
Unpaid |
|
Related |
|
|
Recorded |
|
Principal |
|
Allowance for |
(In
thousands) |
|
Investment |
|
Balance |
|
Loan Losses |
March 31,
2015 |
|
|
|
|
|
|
|
|
|
Commercial and industrial: |
|
|
|
|
|
|
|
|
|
Nonaccrual |
|
$ |
88 |
|
$ |
88 |
|
$ |
|
Real estate |
|
|
|
|
|
|
|
|
|
Commercial
Mortgage: |
|
|
|
|
|
|
|
|
|
Nonaccrual |
|
|
3,077 |
|
|
3,077 |
|
|
1,127 |
Church Mortgage: |
|
|
|
|
|
|
|
|
|
Nonaccrual |
|
|
121 |
|
|
121 |
|
|
121 |
Total impaired loans |
|
$ |
3,286 |
|
$ |
3,286 |
|
$ |
1,248 |
December 31, 2014 |
|
|
|
|
|
|
|
|
|
Commercial and
industrial: |
|
|
|
|
|
|
|
|
|
Nonaccrual |
|
$ |
|
|
$ |
|
|
$ |
|
Real estate |
|
|
|
|
|
|
|
|
|
Commercial Mortgage: |
|
|
|
|
|
|
|
|
|
Nonaccrual |
|
|
361 |
|
|
361 |
|
|
|
Church
Mortgage: |
|
|
|
|
|
|
|
|
|
Nonaccrual |
|
|
127 |
|
|
127 |
|
|
127 |
Total impaired
loans |
|
$ |
488 |
|
$ |
488 |
|
$ |
127 |
-10-
A summary of the activity in the allowance for
loan losses from December 31, 2014 to March 31, 2015 is as follows:
|
|
December 31, |
|
Charge- |
|
|
|
|
|
|
|
|
March 31, |
(In
thousands) |
|
2014 |
|
Offs |
|
Recoveries |
|
Provision |
|
2015 |
Commercial and industrial |
|
$ |
3,515 |
|
$ |
|
|
$ |
3 |
|
$ |
323 |
|
|
$ |
3,841 |
Real
estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage |
|
|
3,060 |
|
|
|
|
|
|
|
|
(152 |
) |
|
|
2,908 |
Construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Church,
church-related: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage |
|
|
4,016 |
|
|
|
|
|
1 |
|
|
56 |
|
|
|
4,073 |
Construction |
|
|
140 |
|
|
|
|
|
|
|
|
(17 |
) |
|
|
123 |
Industrial Revenue Bond |
|
|
394 |
|
|
|
|
|
|
|
|
(13 |
) |
|
|
381 |
Other |
|
|
769 |
|
|
|
|
|
|
|
|
(197 |
) |
|
|
572 |
Total |
|
$ |
11,894 |
|
$ |
|
|
$ |
4 |
|
$ |
|
|
|
$ |
11,898 |
Note 7 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 Companys
consolidated financial statements. Such activities include traditional
off-balance sheet credit-related financial instruments and commitments under
operating leases. These financial instruments include commitments to extend
credit, commercial letters of credit and standby letters of credit. The
Companys 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 March 31, 2015
and December 31, 2014, 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 March 31, 2015, the
balance of unused loan commitments, standby and commercial letters of credit
were $12,917,000, $11,754,000, and $2,017,000, 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 customers credit worthiness on a case-by-case basis. The amount
of collateral obtained, if deemed necessary upon extension of the credit, is
based on managements 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 guarantees on these financial instruments.
The following table
summarizes contractual cash obligations of the Company related to operating
lease commitments and time deposits at March 31, 2015:
|
|
Amount of Commitment Expiration per
Period |
|
|
|
|
|
Less than |
|
1-3 |
|
3-5 |
|
Over 5 |
(In
thousands) |
|
Total |
|
1 Year |
|
Years |
|
Years |
|
Years |
Operating lease commitments |
|
$ |
7,161 |
|
$ |
1,343 |
|
$ |
2,409 |
|
$ |
1,545 |
|
$ |
1,864 |
Time deposits |
|
|
75,712 |
|
|
60,779 |
|
|
13,486 |
|
|
1,447 |
|
|
|
Total |
|
$ |
82,873 |
|
$ |
62,122 |
|
$ |
15,895 |
|
$ |
2,992 |
|
$ |
1,864 |
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 Companys consolidated financial
position or results of operations.
Note 8 Stock-Based
Compensation
The Amended and Restated
Omnibus Stock and Performance Compensation Plan (the Omnibus Plan) permits the
issuance of up to 1,500,000 shares of the Companys common stock in the form of
stock options, stock appreciation rights (SARs), restricted stock, restricted
stock units and performance awards. The Company issues shares out of treasury
stock for these awards. During the three months ended March 31, 2015, 35,657
restricted shares and 0 SARs were granted under the Omnibus
Plan.
-11-
Restricted
Stock
Restricted shares granted
prior to April 16, 2013 are amortized to expense over a three-year vesting
period. Beginning on April 16, 2013, restricted shares granted to Company
employees are amortized to expense over a three-year vesting period whereas
restricted shares granted to members of the Board of Directors are amortized to
expense over a one-year service period, with the exception of those shares
granted in lieu of cash payments for retainer fees which are expensed in the
period earned. As of March 31, 2015, the total unrecognized compensation expense
related to non-vested restricted shares was $2,578,000, and the related
weighted-average period over which it is expected to be recognized is
approximately 1.3 years.
Following is a summary of
the activity of the restricted stock:
|
|
Three Months Ended |
|
|
March 31,
2015 |
|
|
Shares |
|
Fair
Value |
Balance at December 31, 2014 |
|
51,161 |
|
|
$ |
48.13 |
Granted |
|
35,657 |
|
|
$ |
50.55 |
Vested |
|
(20,441 |
) |
|
$ |
43.97 |
Balance at March 31,
2015 |
|
66,377 |
|
|
$ |
50.71 |
SARs
SARs vest over a three-year period, with one-third
of the shares vesting and becoming exercisable each year on the anniversary date
of the grant, and they expire 10 years from the original grant date. As of March
31, 2015, the total unrecognized compensation expense was $661,000, and the
related weighted-average period over which it is expected to be recognized is .8
years. Following is a summary of the activity of the Companys SARs program for
the three-month period ended March 31, 2015:
|
|
|
|
|
Weighted- |
|
Average |
|
Aggregate |
|
|
|
|
|
Average |
|
Remaining |
|
Intrinsic |
|
|
|
|
|
Exercise |
|
Contractual |
|
Value |
|
|
Shares |
|
Price |
|
Term
Years |
|
(In
thousands) |
Outstanding at December 31, 2014 |
|
353,955 |
|
|
$ |
35.52 |
|
6.77 |
|
$ |
6,277 |
Exercised |
|
(35,511 |
) |
|
$ |
28.20 |
|
|
|
|
|
Outstanding at March 31, 2015 |
|
318,444 |
|
|
$ |
36.33 |
|
6.71 |
|
$ |
6,307 |
Exercisable at March 31,
2015 |
|
264,976 |
|
|
$ |
33.34 |
|
6.37 |
|
$ |
6,043 |
Following is a summary of
the activity of the non-vested SARs during the three-month period ended March
31, 2015:
|
|
|
|
|
Weighted-Average |
|
|
Shares |
|
Grant Date Fair
Value |
Non-vested at December 31, 2014 |
|
124,982 |
|
|
$ |
45.85 |
Vested |
|
(71,514 |
) |
|
$ |
41,87 |
Non-vested at March 31,
2015 |
|
53,468 |
|
|
$ |
51.19 |
The Company uses the
Black-Scholes pricing model to determine the fair value of the SARs at the date
of grant. Following are the assumptions used to estimate the per-share fair
value of SARs granted:
|
|
Three Months Ended March 31, |
|
|
2015 |
|
2014 |
Risk-free interest rate |
|
N/A |
|
2.38 |
% |
Expected life |
|
N/A |
|
7
yrs. |
|
Expected volatility |
|
N/A |
|
28.11 |
% |
Expected dividend yield |
|
N/A |
|
1.30 |
% |
The risk-free interest rate
is based on the zero-coupon U.S. Treasury yield for the period equal to the
expected life of the SARs at the time of the grant. The expected life was
derived using the historical exercise activity. The Company uses historical
volatility for a period equal to the expected life of the rights using average
monthly closing market prices of the Companys stock as reported on The Nasdaq
Global Market. The expected dividend yield is based on the Companys current
rate of annual dividends.
-12-
Note 9 Defined 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:
|
|
Estimated |
|
Actual |
(In
thousands) |
|
2015 |
|
2014 |
Service cost benefits earned during the year |
|
$ |
3,977 |
|
|
$ |
3,003 |
|
Interest cost on projected benefit obligations |
|
|
3,217 |
|
|
|
3,037 |
|
Expected return on plan assets |
|
|
(4,863 |
) |
|
|
(4,711 |
) |
Net amortization |
|
|
1,605 |
|
|
|
244 |
|
Net periodic
pension cost |
|
$ |
3,936 |
|
|
$ |
1,573 |
|
Pension costs recorded to
expense were $991,000 and $410,000 for the three-month periods ended March 31,
2015 and 2014, respectively. Pension costs increased significantly in 2015 due
to a decrease in the discount rate assumption and the use of the updated
mortality tables. The Company made no contribution to the plan during the
three-month period ended March 31, 2015 and is evaluating the amount of
additional contributions, if any, in the remainder of 2015.
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 2014 and an estimate for
2015:
|
|
Estimated |
|
Actual |
(In
thousands) |
|
2015 |
|
2014 |
Service cost benefits earned during the year |
|
$ |
140 |
|
$ |
136 |
Interest cost on projected benefit obligation |
|
|
348 |
|
|
377 |
Net amortization |
|
|
654 |
|
|
431 |
Net periodic
pension cost |
|
$ |
1,142 |
|
$ |
944 |
Pension costs recorded to
expense were $285,000 and $236,000 for the three-month periods ended March 31,
2015 and 2014, respectively.
Note 10 Income Taxes
As of March 31, 2015, the
Companys unrecognized tax benefits were approximately $1,191,000, of which
$876,000 would, if recognized, affect the Companys effective tax rate. As of
December 31, 2014, the Company's unrecognized tax benefits were approximately
$1,117,000, of which $819,000 would, if recognized, affect the Company's
effective tax rate. During the next 12 months, the Company may realize a
reduction of its unrecognized tax benefits of approximately $210,000 due to the
lapse of federal and state statutes of limitations.
The Company recognizes
interest and penalties related to uncertain tax positions in income tax expense.
The Company had $54,000 and $45,000 of gross interest accrued as of March 31,
2015 and December 31, 2014, respectively. There were no penalties for
unrecognized tax benefits accrued at March 31, 2015 and December 31, 2014.
The Company is subject to
income tax in the U.S. federal jurisdiction and numerous state jurisdictions.
U.S. federal income tax returns for tax years 2011 through 2013 remain subject
to examination by the Internal Revenue Service. In addition, the Company is
subject to state tax examinations for the tax years 2011 through 2013.
-13-
Note 11 Investment in
Securities
Investment securities
available-for-sale are recorded at fair value on a recurring basis. The
Companys investment securities available-for-sale are measured at fair value
using Level 2 valuations. The market evaluation utilizes several sources which
include observable inputs rather than significant unobservable inputs and
therefore fall into the Level 2 category. The amortized cost, gross unrealized
gains, gross unrealized losses and fair value of investment securities are
summarized as follows:
|
|
March 31,
2015 |
|
|
|
|
|
Gross |
|
Gross |
|
|
|
|
|
Amortized |
|
Unrealized |
|
Unrealized |
|
|
|
(In
thousands) |
|
Cost |
|
Gains |
|
Losses |
|
Fair
Value |
State and political subdivisions |
|
$ |
304,441 |
|
$ |
14,497 |
|
$ |
61 |
|
$ |
318,877 |
Certificates of deposit |
|
|
3,750 |
|
|
|
|
|
|
|
|
3,750 |
Total |
|
$ |
308,191 |
|
$ |
14,497 |
|
$ |
61 |
|
$ |
322,627 |
|
|
December 31,
2014 |
|
|
|
|
|
Gross |
|
Gross |
|
|
|
|
|
Amortized |
|
Unrealized |
|
Unrealized |
|
|
|
(In
thousands) |
|
Cost |
|
Gains |
|
Losses |
|
Fair
Value |
State and political subdivisions |
|
$ |
338,469 |
|
$ |
14,120 |
|
$ |
198 |
|
$ |
352,391 |
Certificates of deposit |
|
|
3,750 |
|
|
|
|
|
|
|
|
3,750 |
Total |
|
$ |
342,219 |
|
$ |
14,120 |
|
$ |
198 |
|
$ |
356,141 |
The fair values of
securities with unrealized losses are as follows:
|
|
March 31,
2015 |
|
|
Less than 12
months |
|
12 months or
more |
|
Total |
|
|
Estimated |
|
Unrealized |
|
Estimated |
|
Unrealized |
|
Estimated |
|
Unrealized |
(In
thousands) |
|
Fair
Value |
|
Losses |
|
Fair
Value |
|
Losses |
|
Fair
Value |
|
Losses |
State and political subdivisions |
|
$ |
8,354 |
|
$ |
40 |
|
$ |
1,220 |
|
$ |
21 |
|
$ |
9,574 |
|
$ |
61 |
Certificates of deposit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
8,354 |
|
$ |
40 |
|
$ |
1,220 |
|
$ |
21 |
|
$ |
9,574 |
|
$ |
61 |
|
|
December 31,
2014 |
|
|
Less than 12
months |
|
12 months or
more |
|
Total |
|
|
Estimated |
|
Unrealized |
|
Estimated |
|
Unrealized |
|
Estimated |
|
Unrealized |
(In
thousands) |
|
Fair
Value |
|
Losses |
|
Fair
Value |
|
Losses |
|
Fair
Value |
|
Losses |
State and political subdivisions |
|
$ |
8,700 |
|
$ |
15 |
|
$ |
13,833 |
|
$ |
183 |
|
$ |
22,533 |
|
$ |
198 |
Certificates of deposit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
8,700 |
|
$ |
15 |
|
$ |
13,833 |
|
$ |
183 |
|
$ |
22,533 |
|
$ |
198 |
There were 8 securities, or
2% of the total (one greater than 12 months), in an unrealized loss position as
of March 31, 2015. There were 20 securities, or 6% of the total (12 greater than
12 months), in an unrealized loss position as of December 31, 2014. All
unrealized losses were reviewed to determine whether the losses were other than
temporary. Management believes that all unrealized losses are temporary since
they were market driven, the Company does not have the intent to sell the
security, and it is more likely than not that the Company will not be required
to sell prior to recovery of the amortized basis.
The amortized cost and fair
value of investment securities by contractual maturity are shown in the
following table. Expected maturities may differ from contractual maturities
because borrowers have the right to prepay obligations with or without
prepayment penalties.
|
|
March 31,
2015 |
(In
thousands) |
|
Amortized
Cost |
|
Fair
Value |
Due
in 1 year or less |
|
$ |
29,318 |
|
$ |
29,603 |
Due
after 1 year through 5 years |
|
|
88,584 |
|
|
92,912 |
Due
after 5 years through 10 years |
|
|
130,196 |
|
|
136,890 |
Due after 10 years |
|
|
60,093 |
|
|
63,222 |
Total |
|
$ |
308,191 |
|
$ |
322,627 |
Proceeds from sales of
investment securities classified as available for sale were $45,198,000 for the
three months ended March 31, 2015. Gross realized gains were $949,000 for the
three months ended March 31, 2015. There was one security totaling $3,750,000
pledged to secure public deposits and for other purposes at March 31, 2015.
-14-
Note 12 Fair Value of
Financial Instruments
Following is a summary of
the carrying amounts and fair values of the Companys financial instruments:
|
|
March 31,
2015 |
|
December 31,
2014 |
|
|
Carrying |
|
|
|
|
Carrying |
|
|
|
(In
thousands) |
|
Amount |
|
Fair
Value |
|
Amount |
|
Fair
Value |
Balance sheet assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents |
|
$ |
208,515 |
|
$ |
208,515 |
|
$ |
294,335 |
|
$ |
294,335 |
Investment
securities |
|
|
322,627 |
|
|
322,627 |
|
|
356,141 |
|
|
356,141 |
Loans,
net |
|
|
671,639 |
|
|
679,017 |
|
|
657,452 |
|
|
663,247 |
Accrued
interest receivable |
|
|
5,117 |
|
|
5,117 |
|
|
6,521 |
|
|
6,521 |
Total |
|
$ |
1,207,898 |
|
$ |
1,215,276 |
|
$ |
1,314,449 |
|
$ |
1,320,244 |
Balance sheet liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
$ |
615,078 |
|
$ |
615,651 |
|
$ |
618,199 |
|
$ |
618,199 |
Accounts
and drafts payable |
|
|
556,826 |
|
|
556,826 |
|
|
655,428 |
|
|
655,928 |
Accrued
interest payable |
|
|
66 |
|
|
66 |
|
|
57 |
|
|
57 |
Total |
|
$ |
1,171,970 |
|
$ |
1,172,543 |
|
$ |
1,273,684 |
|
$ |
1,274,184 |
The following methods and
assumptions were used to estimate the fair value of each class of financial
instruments for which it is practicable to estimate that value:
Cash and Cash
Equivalents - The carrying amount
approximates fair value.
Investment in Securities
- The fair value is measured on a
recurring basis using Level 2 valuations. Refer to Note 11, Investment in
Securities, for fair value and unrealized gains and losses by investment type.
Loans - The fair value is estimated using present values
of future cash flows discounted at risk-adjusted interest rates for each loan
category designated by management and is therefore a Level 3 valuation.
Management believes that the risk factor embedded in the interest rates along
with the allowance for loan losses results in a fair valuation.
Impaired loans are valued
using the fair value of the collateral which is based upon an observable market
price or a current appraised value and therefore, the fair value is a
nonrecurring Level 3 valuation.
Accrued Interest
Receivable - The carrying amount
approximates fair value.
Deposits
- The fair value of demand
deposits, savings deposits and certain money market deposits is the amount
payable on demand at the reporting date. The fair value of fixed-maturity
certificates of deposit is estimated using the rates currently offered for
deposits of similar remaining maturities and therefore, is a Level 2 valuation.
The fair value estimates above do not include the benefit that results from the
low-cost funding provided by the deposit liabilities compared to the cost of
borrowing funds in the market or the benefit derived from the customer
relationship inherent in existing deposits.
Accounts and Drafts
Payable - The carrying amount
approximates fair value.
Accrued Interest -
The carrying amount approximates
fair value.
There were no transfers
between Levels 1 and 2 of the fair value hierarchy for the three months ended
March 31, 2015 and 2014. No financial instruments are measured using Level 3
inputs for the three months ended March 31, 2015 and 2014.
Note 13 Subsequent Events
In accordance with FASB ASC
855, Subsequent Events, the Company has evaluated subsequent events after the
consolidated balance sheet date of March 31, 2015, and there were no events
identified that would require additional disclosures to prevent the Companys
unaudited consolidated financial statements from being misleading.
-15-
ITEM 2. |
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS |
Overview
Cass provides payment and
information processing services to large manufacturing, distribution and retail
enterprises from its offices/locations in St. Louis, Missouri, Columbus, Ohio,
Boston, Massachusetts, Greenville, South Carolina, Wellington, Kansas,
Jacksonville, Florida, and Breda, Netherlands. The Companys services include
transportation invoice rating, payment processing, auditing, and the generation
of accounting and transportation information. Cass also processes and pays
energy invoices, which include electricity and gas as well as waste and other
facility related expenses. Cass is also in the telecommunications expense
management market which includes bill processing and expense management
solutions. Cass extracts, stores, and presents information from transportation,
energy, telecommunication and environmental invoices, assisting its customers
transportation, energy, environmental 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
Companys databases that allow client interaction as required and provide
Internet-based tools for analytical processing. The Company, through Cass
Commercial Bank, its St. Louis, Missouri-based bank subsidiary (the Bank),
also provides commercial banking services in the St. Louis metropolitan area and
has loan production offices in Southern California and Colorado Springs,
Colorado. In addition to supporting the Companys payment operations, the Bank
provides banking services to its target markets, which include privately-owned
businesses and churches and church-related ministries.
The specific payment and
information processing services provided to each customer are developed
individually to meet each customers requirements, which can vary greatly. In
addition, the degree of automation such as electronic data interchange, imaging,
work flow, and web-based 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 investment of account balances 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 paid on its deposits and other
borrowings. The Bank also assesses fees on other services such as cash
management services.
Industry-wide factors that
impact the Company include the willingness of large corporations to outsource
key business functions such as transportation, energy, telecommunication and
environmental 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
loan portfolio. The general level of interest rates also has a significant
effect on the revenue of the Company. As discussed in greater detail in Item 7A,
Quantitative and Qualitative Disclosures about Market Risk, in the Companys
2014 Annual Report on Form 10-K, a decline in the general level of interest
rates can have a negative impact on net interest income.
Currently, management views
Cass major opportunity as the continued expansion of its payment and
information processing service offerings and customer base. Management intends
to accomplish this by maintaining the Companys leadership position in applied
technology, which when combined with the security and processing controls of the
Bank, makes Cass unique in the industry.
Critical Accounting
Policies
The Company has prepared
the consolidated financial statements in this report in accordance with the
Financial Accounting Standards Board (FASB) Accounting Standards Codification
(ASC). In preparing the consolidated financial statements, 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 in the past,
have been consistent 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 the Companys results of operations or financial position have been
discussed with the Audit Committee of the Board of Directors and are described
below.
-16-
Investment in Debt Securities.
The Company classifies its debt marketable
securities as available-for-sale. Securities classified as available-for-sale
are carried at fair value. Unrealized gains and losses, net of the related tax
effect, are excluded from earnings and reported in accumulated other
comprehensive income, a component of shareholders equity. A decline in the fair
value of any available-for-sale security below cost that is deemed other than
temporary results in a charge to earnings and the establishment of a new cost
basis for the security. To determine whether impairment is other than temporary,
the Company considers guidance provided in FASB ASC Topic 320, Investments
Debt and Equity Securities. When determining whether a debt security is
other-than-temporarily impaired, the Company assesses whether it has the intent
to sell the security and whether it is more likely than not that the Company
will be required to sell prior to recovery of the amortized cost basis. Evidence
considered in this assessment includes the reasons for impairment, the severity
and duration of the impairment, changes in value subsequent to year-end and
forecasted performance of the investee.
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 managements 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 both
segments of the Company. The impact and associated risks related to these
policies on the Companys business operations are discussed in the Provision
and Allowance for Loan Losses section of this report. The Companys estimates
have been materially accurate in the past, and accordingly, the Company expects
to continue to utilize the present processes.
Income Taxes. The objectives of accounting for income taxes are to
recognize the amount of taxes payable or refundable for the current year and
deferred tax liabilities and assets for the future tax consequences of events
that have been recognized in an entity's financial statements or tax returns.
Judgment is required in addressing the future tax consequences of events that
have been recognized in the Companys financial statements or tax returns such
as the realization of deferred tax assets or changes in tax laws or
interpretations thereof. In addition, the Company is subject to the continuous
examination of its income tax returns by the Internal Revenue Service and other
taxing authorities. In accordance with FASB ASC 740, Income Taxes, the Company
has unrecognized tax benefits related to tax positions taken or expected to be
taken. See Note 10 to the unaudited consolidated financial statements contained
herein.
Pension Plans. The amounts recognized in the unaudited consolidated financial
statements related to pension plans are determined from actuarial valuations.
Inherent in these valuations are assumptions, including expected return on plan
assets, discount rates at which the liabilities could be settled at December 31,
2014, rate of increase in future compensation levels and mortality rates. These
assumptions are updated annually and are disclosed in Item 8, Note 10 to the
consolidated financial statements filed with the Companys Annual Report on Form
10-K for the year ended December 31, 2014. Pursuant to FASB ASC 715,
Compensation Retirement Benefits, the Company has recognized the funded
status of its defined benefit postretirement plan in its balance sheet and has
recognized changes in that funded status through comprehensive income. The
funded status is measured as the difference between the fair value of the plan
assets and the projected benefit obligation as of the date of its fiscal
year-end.
Results of Operations
The following paragraphs more fully
discuss the results of operations and changes in financial condition for the
three-month period ended March 31, 2015 (First Quarter of 2015) compared to
the three-month period ended March 31, 2014 (First Quarter of 2014). The
following discussion and analysis should be read in conjunction with the
unaudited consolidated financial statements and related notes and with the
statistical information and financial data appearing in this report, as well as
in the Company's 2014 Annual Report on Form 10-K. Results of operations for the
First Quarter of 2015 are not necessarily indicative of the results to be
attained for any other period.
-17-
Net Income
The following table
summarizes the Companys operating results:
|
|
First Quarter
of |
|
|
|
|
|
|
|
|
|
|
% |
(In thousands
except per share data) |
|
2015 |
|
2014 |
|
Change |
Net
income |
|
$ |
5,539 |
|
|
$ |
5,811 |
|
|
(4.7 |
)% |
Diluted earnings per share |
|
$ |
.48 |
|
|
$ |
.50 |
|
|
(4.0 |
)% |
Return on average assets |
|
|
1.54 |
% |
|
|
1.70 |
% |
|
|
|
Return on average equity |
|
|
11.31 |
% |
|
|
12.26 |
% |
|
|
|
Fee Revenue and Other
Income
The Companys fee revenue
is derived mainly from transportation and facility 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, fee revenue and other
income were as follows:
|
|
First Quarter
of |
|
|
|
|
|
|
|
|
% |
(In
thousands) |
|
2015 |
|
2014 |
|
Change |
Transportation invoice transaction
volume |
|
|
8,125 |
|
|
7,759 |
|
4.7 |
% |
Transportation invoice dollar volume |
|
$ |
6,056,711 |
|
$ |
5,892,571 |
|
2.8 |
% |
Expense management transaction
volume* |
|
|
5,041 |
|
|
5,095 |
|
(1.1 |
)% |
Expense management dollar volume |
|
$ |
2,983,190 |
|
$ |
3,274,553 |
|
(8.9 |
)% |
Payment and processing
revenue |
|
$ |
19,418 |
|
$ |
18,397 |
|
5.5 |
% |
*Includes
energy, telecom and environmental |
|
|
|
|
|
|
|
|
|
First Quarter of 2015
compared to First Quarter of 2014:
The growth of 5.5% in
payment and processing fee revenue was driven mainly by a large number of new
customers added during the past year. Transportation volume increased despite
softening activity from existing accounts. Expense management dollar volume
declined as on-going competitor consolidation in the energy sector continued to
impact client retention.
Bank service fees were
slightly higher than last year. There were $949,000 gains on sales of securities
in the First Quarter of 2015, compared to $0 in the First Quarter of 2014.
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 Companys revenues. The
following table summarizes the changes in tax-equivalent net interest income and
related factors:
|
|
First Quarter
of |
|
|
|
|
|
|
|
|
|
|
% |
(In
thousands) |
|
2015 |
|
2014 |
|
Change |
Average earnings assets |
|
$ |
1,262,085 |
|
|
$ |
1,235,622 |
|
|
2.14 |
% |
Average interest-bearing liabilities |
|
|
454,027 |
|
|
|
422,004 |
|
|
7.59 |
% |
Net
interest income* |
|
|
10,286 |
|
|
|
10,413 |
|
|
(1.22 |
)% |
Net
interest margin* |
|
|
3.31 |
% |
|
|
3.42 |
% |
|
|
|
Yield on earning assets* |
|
|
3.50 |
% |
|
|
3.62 |
% |
|
|
|
Rate on interest-bearing liabilities |
|
|
.53 |
% |
|
|
.60 |
% |
|
|
|
*Presented
on a tax-equivalent basis assuming a tax rate of 35%. |
|
|
|
|
|
|
|
|
|
|
|
First Quarter of 2015
compared to First Quarter of 2014:
First Quarter of 2015
average earning assets increased $26,463,000, or 2%, compared to the same period
in the prior year (see discussion in the following paragraphs). The yield on
earning assets and the tax equivalent net interest margin both decreased in 2015
as the general level of interest rates remains low and the impact becomes more
pronounced as longer-term, higher-yielding assets re-price, mature or are
sold.
-18-
Total average loans increased
$20,301,000, or 3.1%, for the First Quarter of 2015 as compared to the First
Quarter of 2014 due to continuing competition from other lenders. Average
investment securities increased $2,410,000, or less than 1%, for the First
Quarter of 2015.
Total average interest-bearing deposits
for the First Quarter of 2015 increased $32,023,000, or 7.6%, compared to the
First Quarter of 2014. Average accounts and drafts payable increased $6,439,000,
or 1.1%, for the First Quarter of 2015 due to the increase in processing
activity.
For more information on the changes in
net interest income, please refer to the tables that follow.
Distribution of Assets, Liabilities
and Shareholders' Equity; Interest Rate and Interest Differential
The following tables show 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.
-19-
|
|
First Quarter of
2015 |
|
First Quarter of
2014 |
|
|
|
|
|
|
Interest |
|
|
|
|
|
|
|
|
Interest |
|
|
|
|
|
Average |
|
Income/ |
|
Yield/ |
|
Average |
|
Income/ |
|
Yield/ |
(Dollars in
thousands) |
|
Balance |
|
Expense |
|
Rate |
|
Balance |
|
Expense |
|
Rate |
Assets1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earning assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans2, 3: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
$ |
645,929 |
|
|
$ |
6,927 |
|
4.35 |
% |
|
$ |
639,604 |
|
|
$ |
7,263 |
|
4.61 |
% |
Tax-exempt4 |
|
|
22,844 |
|
|
|
244 |
|
4.33 |
|
|
|
8,868 |
|
|
|
64 |
|
2.93 |
|
Investment securities5: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
|
1,103 |
|
|
|
1 |
|
.37 |
|
|
|
1,085 |
|
|
|
1 |
|
.37 |
|
Tax-exempt4 |
|
|
310,986 |
|
|
|
3,543 |
|
4.62 |
|
|
|
308,594 |
|
|
|
3,554 |
|
4.67 |
|
Certificates of deposit |
|
|
3,750 |
|
|
|
2 |
|
.22 |
|
|
|
3,750 |
|
|
|
4 |
|
.43 |
|
Interest-bearing deposits in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other
financial institutions |
|
|
177,713 |
|
|
|
126 |
|
.29 |
|
|
|
151,394 |
|
|
|
114 |
|
.31 |
|
Federal funds sold and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
short-term
investments |
|
|
99,760 |
|
|
|
34 |
|
.14 |
|
|
|
122,327 |
|
|
|
38 |
|
.13 |
|
Total earning assets |
|
|
1,262,085 |
|
|
|
10,877 |
|
3.50 |
|
|
|
1,235,622 |
|
|
|
11,038 |
|
3.62 |
|
Non-earning assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and due from banks |
|
|
13,068 |
|
|
|
|
|
|
|
|
|
11,970 |
|
|
|
|
|
|
|
Premises
and equipment, net |
|
|
17,504 |
|
|
|
|
|
|
|
|
|
13,375 |
|
|
|
|
|
|
|
Bank-owned
life insurance |
|
|
15,479 |
|
|
|
|
|
|
|
|
|
15,367 |
|
|
|
|
|
|
|
Goodwill
and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
intangibles |
|
|
14,311 |
|
|
|
|
|
|
|
|
|
14,763 |
|
|
|
|
|
|
|
Other
assets |
|
|
149,682 |
|
|
|
|
|
|
|
|
|
105,637 |
|
|
|
|
|
|
|
Allowance
for loan losses |
|
|
(11,896 |
) |
|
|
|
|
|
|
|
|
(11,770 |
) |
|
|
|
|
|
|
Total assets |
|
$ |
1,460,233 |
|
|
|
|
|
|
|
|
$ |
1,384,964 |
|
|
|
|
|
|
|
Liabilities and Shareholders
Equity1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
demand |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
deposits |
|
$ |
359,426 |
|
|
$ |
388 |
|
.44 |
% |
|
$ |
304,717 |
|
|
$ |
380 |
|
.51 |
% |
Savings
deposits |
|
|
17,203 |
|
|
|
19 |
|
.45 |
|
|
|
16,431 |
|
|
|
23 |
|
.57 |
|
Time
deposits >= $100 |
|
|
26,886 |
|
|
|
81 |
|
1.22 |
|
|
|
36,945 |
|
|
|
89 |
|
.98 |
|
Other
time deposits |
|
|
50,512 |
|
|
|
103 |
|
.83 |
|
|
|
63,910 |
|
|
|
133 |
|
.84 |
|
Federal
Funds purchased |
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
Total interest-bearing deposits |
|
|
454,027 |
|
|
|
591 |
|
.53 |
|
|
|
422,004 |
|
|
|
625 |
|
.60 |
|
Non-interest bearing liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand
deposits |
|
|
162,256 |
|
|
|
|
|
|
|
|
|
150,160 |
|
|
|
|
|
|
|
Accounts
and drafts payable |
|
|
617,560 |
|
|
|
|
|
|
|
|
|
611,121 |
|
|
|
|
|
|
|
Other
liabilities |
|
|
27,693 |
|
|
|
|
|
|
|
|
|
9,463 |
|
|
|
|
|
|
|
Total liabilities |
|
|
1,261,536 |
|
|
|
|
|
|
|
|
|
1,192,748 |
|
|
|
|
|
|
|
Shareholders equity |
|
|
198,697 |
|
|
|
|
|
|
|
|
|
192,216 |
|
|
|
|
|
|
|
Total liabilities and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shareholders
equity |
|
$ |
1,460,233 |
|
|
|
|
|
|
|
|
$ |
1,384,964 |
|
|
|
|
|
|
|
Net
interest income |
|
|
|
|
|
$ |
10,286 |
|
|
|
|
|
|
|
|
$ |
10,413 |
|
|
|
Net
interest margin |
|
|
|
|
|
|
|
|
3.31 |
% |
|
|
|
|
|
|
|
|
3.42 |
% |
Interest spread |
|
|
|
|
|
|
|
|
2.97 |
|
|
|
|
|
|
|
|
|
3.02 |
|
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 2014
consolidated financial statements, filed with the Companys 2014 Annual
Report on Form 10-K. |
3. |
|
Interest
income on loans includes net loan fees of $59,000 and $50,000 for the
First Quarter of 2015 and 2014, respectively. |
4. |
|
Interest
income is presented on a tax-equivalent basis assuming a tax rate of 35%.
The tax-equivalent adjustment was approximately $1,325,000 and $1,266,000
for the First Quarter of 2015 and 2014, 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. |
-20-
Analysis of Net Interest
Income Changes
The following tables
present the changes in interest income and expense between periods due to
changes in volume and interest rates. That portion of the change in interest
attributable to the combined rate/volume variance has been allocated to rate and
volume changes in proportion to the absolute dollar amounts of the change in
each.
|
|
First Quarter of 2015 Over |
|
|
First Quarter of
2014 |
(In
thousands) |
|
Volume |
|
Rate |
|
Total |
Increase (decrease) in interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
Loans1,
2: |
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
$ |
71 |
|
|
$ |
(407 |
) |
|
$ |
(336 |
) |
Tax-exempt3 |
|
|
138 |
|
|
|
42 |
|
|
|
180 |
|
Investment
securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
|
|
|
|
|
|
|
|
|
|
|
Tax-exempt3 |
|
|
27 |
|
|
|
(38 |
) |
|
|
(11 |
) |
Certificates of
deposit |
|
|
|
|
|
|
(2 |
) |
|
|
(2 |
) |
Interest-bearing
deposits in other financial institutions |
|
|
19 |
|
|
|
(7 |
) |
|
|
12 |
|
Federal funds sold
and other short-term investments |
|
|
(7 |
) |
|
|
3 |
|
|
|
(4 |
) |
Total interest income |
|
|
248 |
|
|
|
(409 |
) |
|
|
(161 |
) |
Interest expense on: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
demand deposits |
|
|
63 |
|
|
|
(55 |
) |
|
|
8 |
|
Savings
deposits |
|
|
1 |
|
|
|
(5 |
) |
|
|
(4 |
) |
Time deposits of
>=$100 |
|
|
(27 |
) |
|
|
19 |
|
|
|
(8 |
) |
Other time
deposits |
|
|
(27 |
) |
|
|
(3 |
) |
|
|
(30 |
) |
Total interest expense |
|
|
10 |
|
|
|
(44 |
) |
|
|
(34 |
) |
Net interest income |
|
$ |
238 |
|
|
$ |
(365 |
) |
|
$ |
(127 |
) |
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%. |
Provision and Allowance
for Loan Losses (ALLL)
A significant determinant
of the Company's operating results can be the provision for loan losses.
Provision for loan losses were $0 and $0 during the First Quarter of 2015 and
the First Quarter of 2014, respectively. As discussed below, the Company
continually analyzes the outstanding loan portfolio based on the performance,
financial condition and collateralization of the credits. Net loan
recoveries during the First Quarter of 2015 were $4,000, and net loan recoveries
during the First Quarter of 2014 were $165,000.
The ALLL at March 31, 2015
was $11,898,000 and at December 31, 2014 was $11,894,000. The ratio of ALLL to
total loans outstanding at March 31, 2015 was 1.74% compared to 1.78% at
December 31, 2014. Nonperforming loans were $3,286,000, or .48%, of total loans
at March 31, 2015 compared to $488,000, or .07%, of total loans at December 31,
2014. These loans, which are also considered impaired, consisted of four
nonaccrual loans at March 31, 2015. Total nonaccrual loans increased $1,712,000
from March 31, 2014 to March 31, 2015, primarily due to the addition of two
loans.
The ALLL has been
established and is maintained to absorb reasonably estimated and probable losses
in the loan portfolio. An ongoing assessment is performed to determine if the
balance is adequate. Charges or credits are made to expense to cover any
deficiency or reduce any excess, as required. The current methodology consists
of two components: 1) estimated credit losses on individually evaluated loans
that are determined to be impaired in accordance with FASB ASC 310 Allowance
for Credit Losses, and 2) estimated credit losses inherent in the remainder of
the loan portfolio in accordance with FASB ASC 450, Contingencies. Estimated
credit losses is an estimate of the current amount of loans that is probable the
Company will be unable to collect according to the original terms.
For loans that are
individually evaluated, the Company uses two impairment measurement methods: 1)
the present value of expected future cash flows and 2) collateral value. For the
remainder of the portfolio, the Company groups loans with similar risk
characteristics into eight segments and applies historical loss rates to each
segment based on a three fiscal-year look-back period. The historical look-back
calculation is additionally risk-weighted with the emphasis on the most-recent
charge-off activity. In addition, qualitative factors including credit
concentration risk, national and local economic conditions, nature and volume of
loan portfolio, legal and regulatory factors, downturns in specific industries
including losses in collateral value, trends in credit quality at the Company
and in the banking industry and trends in risk-rating agencies are also
considered.
-21-
The Company also utilizes
ratio analysis to evaluate the overall reasonableness of the ALLL compared to
its peers and required levels of regulatory capital. Federal and state agencies
review the Companys methodology for maintaining the ALLL. These agencies may
require the Company to adjust the ALLL based on their judgments and
interpretations about information available to them at the time of their
examinations.
Summary of Asset Quality
The following table
presents information on the Company's provision for loan losses and analysis of
the ALLL:
|
|
First Quarter of |
(In
thousands) |
|
2015 |
|
2014 |
Allowance at beginning of period |
|
$
|
11,894 |
|
|
$
|
11,679 |
|
Provision charged to expense |
|
|
|
|
|
|
|
|
Loans
charged off |
|
|
|
|
|
|
(76 |
) |
Recoveries on loans previously
charged off |
|
|
4 |
|
|
|
241 |
|
Net recoveries (loans charged off) |
|
|
4 |
|
|
|
165 |
|
Allowance at end of
period |
|
$ |
11,898 |
|
|
$ |
11,844 |
|
Loans outstanding: |
|
|
|
|
|
|
|
|
Average |
|
$ |
668,773 |
|
|
$ |
648,472 |
|
March
31 |
|
|
683,537 |
|
|
|
665,101 |
|
Ratio of ALLL outstanding: |
|
|
|
|
|
|
|
|
Average |
|
|
1.78 |
% |
|
|
1.83 |
% |
March 31 |
|
|
1.74 |
|
|
|
1.78 |
|
Impaired loans: |
|
|
|
|
|
|
|
|
Nonaccrual loans |
|
$ |
3,286 |
|
|
$ |
1,574 |
|
Loans
past due 90 days or more |
|
|
|
|
|
|
|
|
Troubled debt
restructurings |
|
|
|
|
|
|
|
|
Total impaired loans |
|
$ |
3,286 |
|
|
$ |
1,574 |
|
Foreclosed
assets |
|
$ |
|
|
|
|
|
|
Impaired loans as
percentage of average loans |
|
|
.49 |
% |
|
|
.24 |
% |
The Bank had no property
carried as other real estate owned as of March 31, 2015 and March 31, 2014.
Operating Expenses
Total operating expenses
for the First Quarter of 2015 were up 6.1%, or $1,283,000, compared to the First
Quarter of 2014.
Salaries and benefits
expense for the First Quarter of 2015 increased 7% to $17,326,000 compared to
the First Quarter of 2014 due to several factors, including a significant
increase in retirement plan expense related to the use of new mortality tables
and a decline in the discount rate, annual merit salary increases, increased
headcount to support growth in the telecom and environmental expense groups and
higher health insurance costs.
Occupancy expense for the
First Quarter of 2015 increased $31,000 to $837,000 from the First Quarter of
2014 due to the expansion of the Companys operating facilities for its
transportation and waste management operations.
Equipment expense for the
First Quarter of 2015 increased $45,000, or 4.4%, compared to the First Quarter
of 2014 due to depreciation on building improvements at the transportation
processing facility.
Amortization of intangible
assets decreased $19,000 in the First Quarter of 2015 as compared to the prior
year period.
Other operating expenses
for the First Quarter of 2015 increased $87,000, or 3.0%, compared to the First
Quarter of 2014 due to an increase in legal fees.
Income tax expense for the
First Quarter of 2015 increased $60,000 compared to the First Quarter of 2014.
The effective tax rate was 26.0% and 24.5% for the First Quarters of 2015 and
2014, respectively.
-22-
Financial Condition
Total assets at March 31,
2015 were $1,400,748,000, a decrease of $99,983,000, or 6.7%, from December 31,
2014. The most significant changes in asset balances during this period were an
decrease in payment in cash and cash equivalents of $85,820,000 and a decrease
in securities of $33,514,000 offset by an increase of $14,191,000 in loans.
Changes in cash and cash equivalents reflect the Companys daily liquidity
position and are affected by the changes in the other asset balances and changes
in deposit and accounts and drafts payable balances.
Total liabilities at March
31, 2015 were $1,200,558,000, a decrease of $99,741,000, or 7.7%, from December
31, 2014. Accounts and drafts payable at March 31, 2015 were $556,826,000, a
decrease of $98,602,000, or 15.0%, from December 31, 2014. Total shareholders
equity at March 31, 2015 was $200,190,000, a $242,000, or .1%, decrease from
December 31, 2014.
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
Shareholders Equity; Interest Rate and Interest Differential section of this
report).
The decrease in total
shareholders equity of $242,000 resulted primarily from net income of
$5,539,000 offset by a increase of $2,555,000 in shares purchased for treasury
and dividends paid of $2,412,000.
Liquidity and Capital
Resources
The balance of liquid
assets consists of cash and cash equivalents, which include cash and due from
banks, interest-bearing deposits in other financial institutions, federal funds
sold and money market funds, and was $208,515,000 at March 31, 2015, a decrease
of $85,820,000, or 29.2%, from December 31, 2014. At March 31, 2015, these
assets represented 14.9% of total assets. These funds are the Companys 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 securities was $322,627,000 at March 31, 2015, a decrease of $33,514,000 from
December 31, 2014. These assets represented 23.0% of total assets at March 31,
2015. Of this total, 99% were state and political subdivision securities. Of the
total portfolio, 9.2% mature in one year, 28.8% mature in one to five years, and
62.0% mature in five or more years.
The Bank has unsecured
lines of credit at correspondent banks to purchase federal funds up to a maximum
of $88,000,000 at the following banks: Bank of America, $20,000,000; US Bank,
$20,000,000; Wells Fargo Bank, $15,000,000; Frost National Bank, $10,000,000;
PNC Bank, $12,000,000; UMB Bank, $5,000,000; and JPM Chase Bank, $6,000,000. The
Bank also has secured lines of credit with the Federal Home Loan Bank of
$160,968,000 collateralized by commercial mortgage loans. The Company also has
secured lines of credit with UMB Bank of $50,000,000 and First Tennessee Bank of
$50,000,000 collateralized by state and political subdivision securities. There
were no amounts outstanding under any line of credit as of March 31, 2015 or
December 31, 2014.
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 other
commercial products of the Bank. The accounts and drafts payable generated by
the Company has also historically been a stable source of funds. The Company is
part of the Certificate of Deposit Account Registry Service (CDARS) and
Insured Cash Sweep (ICS) deposit placement programs. Time deposits include
$49,248,000 of CDARS deposits and interest-bearing demand deposits include
$101,747,000 of ICS deposits. These programs offer the Banks customers the
ability to maximize Federal Deposit Insurance Corporation (FDIC) insurance
coverage. The Company uses these programs to retain or attract deposits from
existing customers.
Net cash flows provided by
operating activities were $9,904,000 for the three months ended March 31, 2015,
compared to $8,780,000 for the three months ended March 31, 2014, an increase of
$1,126,000. 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. Other causes for the changes in these account balances are 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 Companys operations and capital
expenditures in 2015, which are estimated to range from $5 million to $7
million.
-23-
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 Companys financial instruments, see Item 3, Quantitative
and Qualitative Disclosures about Market Risk.
There are several trends
and uncertainties that may impact the Companys ability to generate revenues and
income at the levels that it has in the past. In addition, these trends and
uncertainties may impact available liquidity. Those that could significantly
impact the Company include the general levels of interest rates, business
activity, and energy costs as well as new business opportunities available to
the Company.
As a financial institution,
a significant source of the Companys earnings is generated from net interest
income. Therefore, the prevailing interest rate environment is important to the
Companys performance. A major portion of the Companys funding sources are the
non-interest bearing accounts and drafts payable generated from its payment and
information processing services. Accordingly, higher levels of interest rates
will generally allow the Company to earn more net interest income. Conversely, a
lower interest rate environment will generally tend to depress net interest
income. The Company actively manages its balance sheet in an effort to maximize
net interest income as the interest rate environment changes. This balance sheet
management impacts the mix of earning assets maintained by the Company at any
point in time. For example, in the lower interest rate environment currently
faced by the Company, short-term, relatively lower rate liquid investments are
reduced in favor of longer-term relatively higher yielding investments and
loans.
The overall level of
economic activity can have a significant impact on the Companys ability to
generate revenues and income, as the volume and size of customer invoices
processed may increase or decrease. Higher levels of economic activity increase
both fee income (as more invoices are processed) and balances of accounts and
drafts payable.
The relative level of
energy costs can impact the Companys earnings and available liquidity. Higher
levels of energy costs will tend to increase transportation and energy invoice
amounts resulting in a corresponding increase in accounts and drafts payable.
Increases in accounts and drafts payable generate higher interest income and
improve liquidity.
New business opportunities
are an important component of the Companys strategy to grow earnings and
improve performance. Generating new customers allows the Company to leverage
existing systems and facilities and grow revenues faster than
expenses.
Risk-based capital
guidelines require the Company to meet a minimum total capital ratio of 8.0%, of
which at least 6.0% 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, ALLL, and debt considered equity for regulatory capital
purposes.
-24-
The Company and the Bank
continue to exceed all regulatory capital requirements, as evidenced by the
following capital amounts and ratios:
|
March 31,
2015 |
|
December 31,
2014 |
(Dollars in
thousands) |
Amount |
|
Ratio |
|
Amount |
|
Ratio |
Total capital (to risk-weighted
assets) |
|
|
|
|
|
|
|
|
|
Cass Information Systems,
Inc. |
$ |
208,626 |
|
21.98% |
|
$ |
207,468 |
|
21.91% |
Cass
Commercial Bank |
|
92,919 |
|
16.25% |
|
|
91,249 |
|
15.88% |
Common Equity Tier I capital (to risk-weighted assets) |
|
|
|
|
|
|
|
|
|
Cass
Information Systems, Inc. |
$ |
196,763 |
|
20.73% |
|
$ |
195,630 |
|
20.66% |
Cass Commercial Bank |
|
85,772 |
|
15.00% |
|
|
84,049 |
|
14.62% |
Tier I capital (to risk-weighted
assets) |
|
|
|
|
|
|
|
|
|
Cass Information Systems,
Inc. |
$ |
196,763 |
|
20.73% |
|
$ |
195,630 |
|
20.66% |
Cass
Commercial Bank |
|
85,772 |
|
15.00% |
|
|
84,049 |
|
14.62% |
Tier
I capital (to leverage assets) |
|
|
|
|
|
|
|
|
|
Cass
Information Systems, Inc. |
$ |
196,763 |
|
13.59% |
|
$ |
195,630 |
|
13.42% |
Cass Commercial Bank |
|
85,772 |
|
11.78% |
|
|
84,049 |
|
11.94% |
Effective July 2, 2013, the
Federal Reserve Board approved final rules known as the Basel III Capital
Rules that substantially revise the risk-based capital and leverage capital
requirements applicable to bank holding companies and depository institutions,
including the Company and the Bank. The Basel III Capital Rules implement
aspects of the Basel III capital framework agreed upon by the Basel Committee
and incorporates changes required by the Dodd-Frank Wall Street Reform and
Consumer Protection Act. Among other things, the Basel III Capital Rules
establish stricter capital requirements and calculation standards, as well as
more restrictive risk weightings for certain loans and facilities. The Basel III
Capital Rules were effective for the Company and the Bank on January 1, 2015
(subject to a phase-in period) and had no material impact on the Companys
consolidated financial statements.
Inflation
The Companys 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 Companys services.
Impact of New and Not
Yet Adopted Accounting Pronouncements
The new accounting
pronouncements are not applicable to the Company and/or do not materially impact
the Company.
ITEM 3. QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As described in the
Companys Annual Report on Form 10-K for the year ended December 31, 2014, the
Company manages its interest rate risk through measurement techniques that
include gap analysis and a simulation model. As part of the risk management
process, asset/liability management policies are established and monitored by
management. The policy objective is to limit the change in annualized net
interest income to 15% from an immediate and sustained parallel change in
interest rates of 200 basis points. Based on the Company's most recent
evaluation, management does not believe the Company's risk position at March 31,
2015 has changed materially from that at December 31, 2014.
ITEM 4. CONTROLS AND
PROCEDURES
The Companys management,
under the supervision and with the participation of the principal executive
officer and the principal financial officer, evaluated the effectiveness of the
Companys 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 the end
of the period covered by this report and concluded that, as of such date, these
controls and procedures were effective.
-25-
There were no changes in
the First Quarter of 2015 in the Company's internal control over financial
reporting identified by the Companys principal executive officer and principal
financial officer in connection with their evaluation that materially affected
or are reasonably likely to materially affect the Companys internal control
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
is the subject of various pending or threatened legal actions and
proceedings, including those that arise in the ordinary course of
business. Management believes the outcome of all such proceedings will not
have a material effect on the businesses or financial conditions of the
Company or its subsidiaries. |
|
|
ITEM 1A. |
RISK
FACTORS |
|
The Company
has included in Part I, Item 1A of its Annual Report on Form 10-K for the
year ended December 31, 2014, a description of certain risks and
uncertainties that could affect the Companys business, future performance
or financial condition (the Risk Factors). There are no material changes
to the Risk Factors as disclosed in the Companys 2014 Annual Report on
Form 10-K. |
|
|
ITEM 2. |
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS |
|
During the
three months ended March 31, 2015, the Company repurchased a total of
69,288 shares of its common stock pursuant to its treasury stock buyback
program, as follows: |
|
|
|
|
|
|
Total Number |
|
Maximum |
|
|
|
|
|
|
of Shares |
|
Number of |
|
|
|
|
|
|
Purchased as |
|
Shares that |
|
|
|
|
|
|
Part of |
|
May Yet Be |
|
Total |
|
|
|
|
Publicly |
|
Purchased |
|
Number of |
|
|
|
|
Announced |
|
Under the |
|
Shares |
|
Average Price |
|
Plans or |
|
Plans or |
Period |
Purchased |
|
Paid per
Share |
|
Programs1 |
|
Programs |
January 1, 2015 |
|
|
|
|
|
|
|
480,040 |
January 31, 2015 |
|
|
|
|
February 1, 2015 |
42,182 |
|
$ |
47.63 |
|
42,182 |
|
437,858 |
February 28, 2015 |
|
|
|
March 1, 2015 |
27,106 |
|
$ |
49.78 |
|
27,106 |
|
410,752 |
March 31,
2015 |
|
|
|
Total |
69,288 |
|
$ |
48.47 |
|
69,288 |
|
410,752 |
1. |
All
repurchases made during the quarter ended March 31, 2015 were made
pursuant to the treasury stock buyback program, which was authorized by
the Board of Directors on October 17, 2011 and announced by the Company on
October 20, 2011. The program, as modified by the Board of Directors on
October 20, 2014, provides that the Company may repurchase up to an
aggregate of 500,000 shares of common stock and has no expiration
date. |
|
ITEM 3. |
DEFAULTS UPON SENIOR
SECURITIES |
|
None. |
|
ITEM 4. |
MINE SAFETY DISCLOSURES |
|
Not applicable. |
|
|
|
ITEM 5. |
OTHER INFORMATION |
|
(a) |
None. |
|
(b) |
There have
been no material changes to the procedures by which security holders may
recommend nominees to the Companys Board of Directors implemented in the
First Quarter of 2015. |
-26-
ITEM 6. |
EXHIBITS |
|
|
Exhibit 31.1 Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
|
Exhibit 31.2
Certification 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.
Exhibit 101.INS XBRL
Instance Document.
Exhibit 101.SCH XBRL
Taxonomy Extension Schema Document.
Exhibit 101.CAL XBRL
Taxonomy Extension Calculation Linkbase Document.
Exhibit 101.LAB XBRL Taxonomy Extension Label
Linkbase Document.
Exhibit 101.PRE XBRL Taxonomy Extension Presentation
Linkbase Document.
Exhibit 101.DEF XBRL
Taxonomy Extension Definition Linkbase
Document. |
-27-
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: May 4, 2015 |
By |
/s/ Eric H.
Brunngraber |
|
|
Eric H. Brunngraber |
|
Chairman, President, and Chief Executive Officer |
|
|
(Principal Executive Officer) |
|
|
|
DATE: May 4, 2015 |
By |
/s/ P. Stephen
Appelbaum |
|
|
P.
Stephen Appelbaum |
|
Executive Vice President and Chief Financial Officer |
|
(Principal Financial and Accounting
Officer) |
-28-
Exhibit 31.1
CERTIFICATIONS
I, Eric H. Brunngraber,
certify that:
1.
|
I have reviewed this quarterly report on Form 10-Q of Cass
Information Systems, Inc.; |
|
2. |
Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this report; |
|
3. |
Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
report; |
|
4. |
The registrants other certifying officer(s) and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have: |
|
|
(a)
|
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared; |
|
|
(b) |
Designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles; |
|
|
(c) |
Evaluated
the effectiveness of the registrants disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and |
|
|
(d) |
Disclosed
in this report any change in the registrants internal control over
financial reporting that occurred during the registrants most recent
fiscal quarter (the registrants fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrants internal control over financial
reporting; and |
|
5. |
The registrants other certifying officer(s) and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrants auditors and the audit committee of the
registrants board of directors (or persons performing the equivalent
functions): |
|
|
(a) |
All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrants ability to record,
process, summarize and report financial information; and |
|
|
(b) |
Any fraud,
whether or not material, that involves management or other employees who
have a significant role in the registrants internal control over
financial reporting. |
Date: May 4, 2015 |
|
|
/s/ Eric H.
Brunngraber |
|
|
Eric H. Brunngraber
|
|
Chairman, President,
and Chief
Executive Officer (Principal Executive Officer)
|
-29-
Exhibit 31.2
CERTIFICATIONS
I, P. Stephen Appelbaum,
certify that:
1.
|
I have reviewed this quarterly report on Form 10-Q of Cass
Information Systems, Inc.; |
|
2. |
Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this report; |
|
3. |
Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
report; |
|
4. |
The registrants other certifying officer(s) and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have: |
|
|
(a)
|
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared; |
|
|
(b) |
Designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles; |
|
|
(c) |
Evaluated
the effectiveness of the registrants disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and |
|
|
(d) |
Disclosed
in this report any change in the registrants internal control over
financial reporting that occurred during the registrants most recent
fiscal quarter (the registrants fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrants internal control over financial
reporting; and |
|
5. |
The registrants other certifying officer(s) and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrants auditors and the audit committee of the
registrants board of directors (or persons performing the equivalent
functions): |
|
|
(a) |
All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrants ability to record,
process, summarize and report financial information; and |
|
|
(b) |
Any fraud,
whether or not material, that involves management or other employees who
have a significant role in the registrants internal control over
financial reporting. |
|
Date: May 4, 2015 |
|
|
/s/
P. Stephen Appelbaum |
|
|
P. Stephen
Appelbaum |
|
Executive Vice President and Chief |
|
Financial Officer |
|
(Principal Financial and Accounting
Officer) |
-30-
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
In connection with the
Quarterly Report of Cass Information Systems, Inc. (the Company) on Form 10-Q
for the period ended March 31, 2015 as filed with the Securities and Exchange
Commission on the date hereof (the Report), I, Eric H. Brunngraber, President
and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §
1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
|
(1)
|
The Report fully
complies with the requirements of section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and |
|
|
|
(2) |
The information
contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company. |
|
|
/s/ Eric
H. Brunngraber |
|
Eric H.
Brunngraber |
Chairman, President, and Chief Executive |
Officer |
(Principal Executive Officer) |
May
4, 2015 |
A signed original of this
written statement required by Section 906 has been provided to Cass Information
Systems, Inc. and will be retained by Cass Information Systems, Inc. and
furnished to the Securities and Exchange Commission or its staff upon request.
-31-
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
In connection with the
Quarterly Report of Cass Information Systems, Inc. (the Company) on Form 10-Q
for the period ended March 31, 2015 as filed with the Securities and Exchange
Commission on the date hereof (the Report), I, P. Stephen Appelbaum, Executive
Vice President and Chief Financial Officer of the Company, certify, pursuant to
18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of
2002, that:
|
(1)
|
The Report
fully complies with the requirements of section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and |
|
|
|
(2) |
The
information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company. |
|
|
/s/ P.
Stephen Appelbaum |
|
P. Stephen
Appelbaum |
Executive Vice President and Chief |
Financial Officer |
(Principal Financial and Accounting Officer) |
May
4, 2015 |
A signed original of this
written statement required by Section 906 has been provided to Cass Information
Systems, Inc. and will be retained by Cass Information Systems, Inc. and
furnished to the Securities and Exchange Commission or its staff upon request.
-32-
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