UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2006
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OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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Commission File No. 2-80070
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CASS INFORMATION SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Missouri 43-1265338
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
13001 Hollenberg Drive
Bridgeton, Missouri
63044
(Address of principal executive offices) (Zip Code)
(314) 506-5500
(Registrant's telephone number, including area code)
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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 is a large accelerated filer,
an accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.
(Check one) Large Accelerated Filer _____
Accelerated Filer X Non-Accelerated Filer
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Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).
Yes ___ No X
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The number of shares outstanding of registrant's only class of stock as of
May 5, 2006: Common stock, par value $.50 per share - 5,547,863 shares
outstanding.
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This document constitutes part of a prospectus covering securities that
have been registered under the Securities Act of 1933.
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TABLE OF CONTENTS
PART I - Financial Information
Item 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets
March 31, 2006 (unaudited) and December 31, 2005 3
Consolidated Statements of Income
Three months ended March 31, 2006 and 2005 (unaudited) 4
Consolidated Statements of Cash Flows
Three months ended March 31, 2006 and 2005 (unaudited) 5
Notes to Consolidated Financial Statements (unaudited) 6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 13
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 22
Item 4. CONTROLS AND PROCEDURES 22
PART II - Other Information - Items 1. - 6. 23
SIGNATURES 24
Forward-looking Statements - Factors That May Affect Future Results
This report may contain or incorporate by reference forward-looking statements
made pursuant to the safe harbor provisions of Section 27A of the Securities Act
of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. Forward-looking statements are not guarantees of future performance and
involve risks, uncertainties, and other factors which may cause future
performance to vary from expected performance summarized in the forward-looking
statements, including those set forth in this paragraph and in the "Risk
Factors" section of this report. Important factors that could cause our actual
results, performance, or achievements to be materially different from any future
results, performance, or achievements expressed or implied by those statements
include, but are not limited to: the failure to successfully execute our
corporate plan, the loss of key personnel or inability to attract additional
qualified personnel, the loss of key customers, increased competition, the
inability to remain current with rapid technological change, risks related to
acquisitions, risks associated with business cycles and fluctuations in interest
rates, utility and system interruptions or processing errors, rules and
regulations governing financial institutions and changes in such rules and
regulations, credit risk related to borrowers' ability to repay loans,
concentration of loans to certain segments such as commercial enterprises,
churches and borrowers in the St. Louis area which creates risks associated with
adverse factors that may affect these groups and volatility of the price of our
common stock. We undertake no obligation to publicly update or revise any
forward-looking statements to reflect changed assumptions, the occurrence of
anticipated or unanticipated events, or changes to future results over time.
-2-
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands except Share and Per Share Data)
March 31 December 31
2006 2005
Assets (Unaudited)
Cash and due from banks $ 32,099 $ 29,561
Federal funds sold and other short-term investments 109,333 120,131
-------- ---------
Cash and cash equivalents 141,432 149,692
-------- --------
Securities available-for-sale, at fair value 94,841 94,859
Loans 527,045 529,306
Less: Allowance for loan losses 6,213 6,284
-------- ---------
Loans, net 520,832 523,022
-------- ---------
Premises and equipment, net 12,109 11,987
Investment in bank owned life insurance 11,666 11,545
Payments in excess of funding 8,575 7,665
Goodwill 4,398 4,398
Assets related to discontinued operations 326 400
Other intangible assets, net 892 935
Other assets 15,827 14,195
-------- --------
Total assets $ 810,898 $818,698
========= ========
Liabilities and Shareholders' Equity
Liabilities:
Deposits:
Noninterest-bearing $ 103,009 $ 116,396
Interest-bearing 174,913 170,602
-------- ---------
Total deposits 277,922 286,998
Accounts and drafts payable 441,393 445,811
Short-term borrowings 27 188
Subordinated convertible debentures 3,700 3,700
Liabilities related to discontinued operations 446 1,848
Other liabilities 8,575 4,872
-------- ---------
Total liabilities 732,063 743,417
-------- ---------
Shareholders' Equity:
Preferred stock, par value $.50 per share; 2,000,000
shares authorized and no shares issued -- --
Common Stock, par value $.50 per share;
20,000,000 shares authorized and 6,336,593
shares issued at March 31, 2006 and
December 31, 2005, respectively 3,168 3,168
Additional paid-in capital 18,033 18,486
Retained earnings 74,260 71,346
Common shares in treasury, at cost (771,130 shares at
March 31, 2006 and 836,457 shares at December 31, 2005) (16,318) (17,313)
Accumulated other comprehensive income (308) (406)
-------- ---------
Total shareholders' equity 78,835 75,281
-------- ---------
Total liabilities and shareholders' equity $ 810,898 $ 818,698
========= =========
See accompanying notes to unaudited consolidated financial statements.
-3-
CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in Thousands except Share and Per Share Data)
Three Months Ended
March 31
---------------------------
2006 2005
Fee Revenue and Other Income:
Information services payment and processing revenue $ 9,688 $ 8,592
Bank service fees 577 358
Gains on sales of investment securities -- 547
Other 201 184
-------- ---------
Total fee revenue and other income 10,466 9,681
-------- ---------
Interest Income:
Interest and fees on loans 8,782 7,426
Interest and dividends on debt and equity securities:
Taxable 266 173
Exempt from federal income taxes 636 393
Interest on federal funds sold and
other short-term investments 1,272 526
-------- ---------
Total interest income 10,956 8,518
-------- ---------
Interest Expense:
Interest on deposits 1,264 942
Interest on short-term borrowings 2 1
Interest on subordinated convertible debentures 49 49
-------- ---------
Total interest expense 1,315 992
-------- ---------
Net interest income 9,641 7,526
Provision for loan losses 150 200
-------- ---------
Net interest income after provision for loan losses 9,491 7,326
-------- ---------
Operating Expense:
Salaries and employee benefits 10,270 9,195
Occupancy 455 436
Equipment 653 714
Amortization of intangible assets 43 43
Other operating 2,448 2,199
-------- ---------
Total operating expense 13,869 12,587
-------- ---------
Income before income tax expense and discontinued operations 6,088 4,420
Income tax expense 2,136 1,469
-------- ---------
Net income from continuing operations 3,952 2,951
-------- ---------
Income (loss) from discontinued operations
before income tax expense -- (275)
Income tax expense (benefit) -- (91)
-------- ---------
Net income (loss) from discontinued operations -- (184)
Net Income $ 3,952 $ 2,767
======== =========
Basic Earnings Per Share:
From continuing operations $ .71 $ .53
From discontinued operations -- (.03)
Basic earnings per share .71 .50
Diluted Earnings Per Share:
From continuing operations $ .70 $ .52
From discontinued operations -- (.03)
Diluted earnings per share .70 .49
See accompanying notes to unaudited consolidated financial statements.
-4-
CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
Three Months Ended
March 31
---------------------------
2006 2005
Cash Flows From Operating Activities:
Net income from continuing operations $ 3,952 $ 2,951
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 471 574
Gains on sales of investment securities -- (547)
Provision for loan losses 150 200
Amortization of stock bonus awards 48 29
Tax benefit from exercise of stock options and bonuses -- 43
Deferred income tax benefit (1,031) (260)
Increase in income tax liability 3,551 1,095
Increase in pension liability 375 335
Other operating activities, net (996) 99
Operating activities of discontinued operations (1,327) (220)
-------- ---------
Net cash provided by operating activities 5,193 4,299
-------- ----------
Cash Flows From Investing Activities:
Proceeds from sales of securities available-for-sale -- 12,950
Proceeds from maturities of securities available-for-sale 21,510 19,000
Purchase of securities available-for-sale (21,290) (19,004)
Net decrease (increase) in loans 2,040 (8,980)
Increase in payments in excess of funding (909) (1,430)
Purchases of premises and equipment, net (605) (256)
-------- ---------
Net cash provided by investing activities 746 2,280
-------- ---------
Cash Flows From Financing Activities:
Net (decrease) increase in noninterest-bearing demand deposits (13,387) 862
Net (decrease) increase in interest-bearing demand and savings deposits (4,337) 391
Net increase in time deposits 8,648 15,355
Net (decrease) increase in accounts and drafts payable (4,418) 2,037
Net (decrease) increase in short-term borrowings (161) 38
Cash proceeds from exercise of stock options 322 98
Tax benefit from exercise of stock options and bonuses 24 --
Cash dividends paid (890) (772)
Purchase of common shares for treasury -- (586)
-------- ---------
Net cash (used in) provided by financing activities (14,199) 17,423
-------- ---------
Net (decrease) increase in cash and cash equivalents (8,260) 24,002
Cash and cash equivalents at beginning of period 149,692 87,543
-------- ---------
Cash and cash equivalents at end of period $ 141,432 $ 111,545
======== =========
Supplemental information:
Cash paid for interest $ 1,154 $ 897
Cash (received) paid for income taxes (406) 275
See accompanying notes to unaudited consolidated financial statements.
-5-
CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with U.S. generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by U.S. generally accepted accounting principles for complete
financial statements. In the opinion of management all adjustments, consisting
of normal recurring accruals, considered necessary for a fair presentation have
been included. Certain amounts in the 2005 consolidated financial statements
have been reclassified to conform to the 2006 presentation. Such
reclassifications have no effect on previously reported net income or
shareholders' equity. The Company's bank subsidiary sold the assets of
Government e-Management Solutions, Inc. ("GEMS"), its wholly owned subsidiary,
on December 30, 2005. The assets, liabilities and results of operations of GEMS
have been presented in the accompanying consolidated financial statements as
discontinued operations. The Company issued a 50% stock dividend on September
15, 2005 and the share and per share information have been restated for all
periods presented in the accompanying consolidated financial statements. 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, 2005.
Note 2 - Intangible Assets
The Company accounts for intangible assets in accordance with SFAS 142,
"Goodwill and Other Intangible Assets," which requires that intangibles with
indefinite useful lives be tested annually for impairment and those with finite
useful lives be amortized over their useful lives. Intangible assets for the
periods ended March 31, 2006 and December 31, 2005 are as follows:
March 31, 2006 December 31, 2005
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Gross Carrying Accumulated Gross Carrying Accumulated
(In Thousands) Amount Amortization Amount Amortization
- ------------------------------------------------------------------------------------------------------------
Amortized intangible assets:
Software 862 (273) 862 (230)
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Unamortized intangible assets:
Goodwill 4,625 (227)* 4,625 (227)*
Minimum pension liability 303 -- 303 --
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Total unamortized intangibles 4,928 (227) 4,928 (227)
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Total intangible assets $ 5,790 $ (500) $ 5,790 $ (457)
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*Amortization through December 31, 2001 prior to adoption of SFAS 142.
Software is amortized over 4-5 years. The minimum pension liability was recorded
in accordance with SFAS 87, "Employers' Accounting for Pensions", which requires
the Company to record an additional minimum pension liability by the amount of
which the accumulated benefit obligation exceeds the sum of the fair value of
plan assets and accrued amount previously recorded and offset this liability by
an intangible asset to the extent of previously unrecognized prior service
costs. The liability and corresponding intangible asset are adjusted annually.
Amortization of intangible assets amounted to $43,000 for the three month
periods ended March 31, 2006 and 2005. Estimated amortization of intangibles
over the next five years is as follows: $172,000 in 2006, 2007 and 2008,
$115,000 in 2009 and $0 in 2010.
Note 3 - Equity Investments in Non-Marketable Securities
Non-marketable equity investments in low-income housing projects are included in
other assets on the Company's consolidated balance sheets. The total balance of
these investments at March 31, 2006 was $418,000.
Note 4 - Earnings Per Share
Basic earnings per share is computed by dividing net income by the
weighted-average number of common shares outstanding. Diluted earnings per share
is computed by dividing net income, adjusted for the net income effect of the
interest expense on the outstanding convertible debentures, by the sum of the
weighted-average number of common shares outstanding and the weighted-average
number of potential common shares outstanding. The calculations of basic and
diluted earnings per share for the periods ended March 31, 2006 and 2005 are as
follows:
-6-
Three Months Ended
March 31
---------------------------
(Dollars in thousands, except per share data) 2006 2005
- --------------------------------------------------------------------------------------------------------------
Basic
Net income from continuing operations $ 3,952 $ 2,951
Net income (loss) from discontinued operations -- (184)
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Net income $ 3,952 $ 2,767
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Weighted average common shares outstanding 5,548,913 5,511,822
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Basic earnings per share from continuing operations $ 0.71 $ 0.53
Basic earnings per share from discontinued operations -- (0.03)
- --------------------------------------------------------------------------------------------------------------
Basic earnings per share $ 0.71 $ 0.50
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Diluted
Net income from continuing operations $ 3,952 $ 2,951
- --------------------------------------------------------------------------------------------------------------
Net income effect of 5.33% convertible debentures 27 27
- --------------------------------------------------------------------------------------------------------------
Net income, assuming dilution, from continuing operations 3,979 2,978
Net income (loss) from discontinued operations -- (184)
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Net income $ 3,979 $ 2,794
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Weighted-average common shares outstanding 5,548,913 5,511,822
Effect of dilutive stock options and awards 35,900 68,584
Effect of 5.33% convertible debentures 115,145 115,145
- --------------------------------------------------------------------------------------------------------------
Weighted-average common shares outstanding assuming dilution 5,699,958 5,695,551
- --------------------------------------------------------------------------------------------------------------
Diluted earnings per share from continuing operations $ 0.70 $ 0.52
Diluted earnings per share from discontinued operations -- (0.03)
- --------------------------------------------------------------------------------------------------------------
Diluted earnings per share $ 0.70 $ 0.49
- --------------------------------------------------------------------------------------------------------------
Share and per share data for 2005 in the schedule above have been restated for
the 50% stock dividend issued on September 15, 2005.
Note 5 - Stock Repurchases
The Company maintains a treasury stock buyback program pursuant to which the
Board of Directors has authorized the repurchase of up to 150,000 shares of the
Company's Common Stock. The Company did not repurchase any shares during the
three months ended March 31, 2006 and repurchased 15,000 shares during the
comparable period in 2005. As of March 31, 2006, 48,098 shares remained
available for repurchase under the program. Repurchases are made in the open
market or through negotiated transactions from time to time depending on market
conditions.
Note 6 - Comprehensive Income
For the three-month periods ended March 31, 2006 and 2005, unrealized gains and
losses on debt and equity securities available-for-sale were the Company's only
other comprehensive income component. Comprehensive income for the three-month
periods ended March 31, 2006 and 2005 is summarized as follows:
-7-
Three Months Ended
March 31
--------------------------
(In Thousands) 2006 2005
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Net income from continuing operations $3,952 $2,951
Other comprehensive income:
Net unrealized gain (loss) on debt and equity
securities available-for-sale, net of tax 98 (144)
Less: reclassification adjustment for realized gains on
sales of debt and equity securities, available-for-sale,
included in net income, net of tax -- (361)
---------------------------------------------------------------------------------------------
Total other comprehensive income (loss) 98 (505)
Total comprehensive income from continuing operations $4,050 $2,446
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Note 7 - 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 freight, utility and telecommunication
invoice processing and payment services to large corporations. The Banking
Services segment provides banking services primarily to privately-held
businesses and churches.
The Company's accounting policies for segments are the same as those described
in the summary of significant accounting policies in the Company's Annual Report
on Form 10-K for the year ended December 31, 2005. Management evaluates segment
performance based on net income after allocations for corporate expenses and
income taxes. Transactions between segments are accounted for at what management
believes to be market value. Information for prior periods has been restated to
reflect changes in the composition of the Company's segments.
All revenue originates from and all long-lived assets are located within the
United States and no revenue from any customer of any segment exceeds 10% of the
Company's consolidated revenue.
Summarized information about the Company's operations in each industry segment
for the three-month periods ended March 31, 2006 and 2005, is as follows:
Corporate,
Information Banking Eliminations
(In Thousands) Services Services and Other Total
- --------------------------------------------------------------------------------------------------------------
Quarter Ended March 31, 2006
Total Revenues:
Revenue from customers $ 15,826 $ 4,131 $ -- $ 19,957
Intersegment revenue 354 405 (759) --
Net income from continuing operations 2,761 1,191 -- 3,952
Total assets 505,962 317,864 (12,928) 810,898
Goodwill 4,262 136 -- 4,398
Other intangible assets, net 892 -- -- 892
Assets related to discontinued operations -- -- 326 326
Quarter Ended March 31, 2005
Total Revenues:
Revenue from customers $ 13,488 $ 3,519 $ -- $ 17,007
Intersegment revenue 26 351 (377) --
Net income from continuing operations 1,958 993 -- 2,951
Total assets 412,231 328,913 (4,674) 736,470
Goodwill 4,263 156 -- 4,419
Other intangible assets, net 761 -- 353 1,114
Assets related to discontinued operations -- -- 4,739 4,739
- --------------------------------------------------------------------------------------------------------------
-8-
Note 8 - Loans by Type
(In Thousands) March 31, 2006 December 31, 2005
- --------------------------------------------------------------------------------------------------------------
Commercial and industrial $ 147,506 $ 146,892
Real estate:
Mortgage 154,834 164,590
Mortgage - Churches & related 185,657 183,964
Construction 15,529 13,052
Construction - Churches & related 16,490 15,118
Industrial revenue bonds 5,631 4,514
Installment -- 107
Other 1,398 1,069
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Total loans $ 527,045 $ 529,306
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Note 9 - Commitments and Contingencies
In the normal course of business, the Company is party to activities that
contain credit, market and operational risks that are not reflected in whole or
in part in the Company's consolidated financial statements. Such activities
include traditional off-balance sheet credit-related financial instruments and
commitments under operating and capital leases. These financial instruments
include commitments to extend credit, commercial letters of credit and standby
letters of credit. The Company's maximum potential exposure to credit loss in
the event of nonperformance by the other party to the financial instrument for
commitments to extend credit, commercial letters of credit and standby letters
of credit is represented by the contractual amounts of those instruments. At
March 31, 2006, 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, 2006 the balance of unused loan commitments, standby and commercial letters
of credit were $24,541,000, $6,671,000 and $2,714,000, respectively. Since some
of the financial instruments may expire without being drawn upon, the total
amounts do not necessarily represent future cash requirements. Commitments to
extend credit and letters of credit are subject to the same underwriting
standards as those financial instruments included on the consolidated balance
sheets. The Company evaluates each customer's credit worthiness on a
case-by-case basis. The amount of collateral obtained, if deemed necessary upon
extension of the credit, is based on management's credit evaluation of the
borrower. Collateral held varies, but is generally accounts receivable,
inventory, residential or income-producing commercial property or equipment. In
the event of nonperformance, the Company or its subsidiaries may obtain and
liquidate the collateral to recover amounts paid under its guarantees on these
financial instruments.
The following table summarizes contractual cash obligations of the Company
related to operating and capital lease commitments, time deposits and
convertible subordinated debentures at March 31, 2006:
Amount of Commitment Expiration per Period
---------------------------------------------
Less than 1-3 3-5 Over 5
(Dollars in thousands at March 31, 2006) Total 1 Year Years Years Years
- -------------------------------------------------------------------------------------------------------------------
Operating lease commitments $ 4,456 $ 574 $1,254 $ 771 $ 1,857
Capital lease commitments 4 4 -- -- --
Time deposits* 75,701 66,903 4,108 4,690 --
Convertible subordinated debentures* 3,700 -- -- -- 3,700
- -------------------------------------------------------------------------------------------------------------------
Total $ 83,861 $ 67,481 $5,362 $5,461 $ 5,557
- -------------------------------------------------------------------------------------------------------------------
* Includes principal payments only.
The Company and its subsidiaries are involved in various pending legal actions
and proceedings in which claims for damages are asserted. Management, after
discussion with legal counsel, believes the ultimate resolution of these legal
actions and proceedings will not have a material effect upon the Company's
consolidated financial position or results of operations.
-9-
Note 10 - Stock-Based Compensation
The Company maintains stock-based incentive plans, which permit the awards of
restricted shares of common stock and the granting of options to acquire up to
693,000 shares of stock. Restricted shares are amortized to expense over the
three-year vesting period. Options currently vest and expire over a period not
to exceed seven years. The plans authorize the grant of awards in the form of
options intended to qualify as incentive stock options under Section 422 of the
Internal Revenue Code, options that do not qualify (non-statutory stock options)
and grants of restricted shares of common stock. The Company issues shares out
of Treasury stock for restricted shares and option exercises.
Prior to fiscal 2006, the Company applied the intrinsic value-based method, as
outlined in Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," ("APB No. 25") and related interpretations, in accounting
for stock options granted under these programs. Under the intrinsic value-based
method, no compensation expense was recognized if the exercise price of the
Company's employee stock options equaled the market price of the underlying
stock on the date of the grant. Accordingly, prior to fiscal year 2006, no
compensation cost was recognized in the accompanying consolidated statements of
income on stock options granted to employees, since all options granted under
the Company's share incentive programs had an exercise price equal to the market
value of the underlying common stock on the date of the grant.
Effective January 1, 2006, the Company adopted Statement of Financial Accounting
Standards No. 123R ("SFAS No. 123R") "Share based Payment." This statement
supersedes APB No. 25. SFAS No. 123R requires that all stock-based compensation
be recognized as an expense in the financial statements and that such cost be
measured at the fair value of the award. This statement was adopted using the
modified prospective method of application, which requires the Company to
recognize compensation expense on a prospective basis. Therefore, prior period
financial statements have not been restated. Under this method, in addition to
reflecting compensation expense for new share-based awards, expense is also
recognized to reflect the remaining service period of awards that had been
included in pro forma disclosures in prior periods. SFAS No. 123R also requires
that excess tax benefits related to stock option exercises be reflected as
financing cash inflows instead of operating cash inflows. For the three months
ended March 31, 2006, the only options exercised were incentive stock options,
which did not generate any excess tax benefits for the Company. As of March 31,
2006, the total unrecognized compensation expense related to non-vested stock
options was $197,000 and the related weighted average period over which it is
expected to be recognized is approximately 5.7 years. As of March 31, 2006, the
total unrecognized compensation expense related to non-vested stock awards was
$310,000 and the related weighted average period over which it is expected to be
recognized is approximately 1.6 years.
The required disclosure provisions of SFAS 123 are provided in the table below.
The Company uses the Black-Scholes option-pricing model to determine the fair
value of the stock options at the date of grant. There were 16,819 options
granted in the First Quarter of 2006 and 8,828 options granted in the First
Quarter of 2005. The following table represents the effect on basic and diluted
earnings per share for the period ended March 31, 2005:
Three Months Ended
March 31
(In thousands, except per share data (1)) 2005
- -------------------------------------------------------------------------------------------------------------------
Net income from continuing operations:
As reported $ 2,951
Add: Stock-based compensation expense included in reported
net income, net of tax 19
Less: Stock-based compensation expense determined under the
fair value based method for all awards, net of tax (24)
- -------------------------------------------------------------------------------------------------------------------
Pro forma net income from continuing operations $ 2,946
Net income effect of subordinated convertible debentures 27
- -------------------------------------------------------------------------------------------------------------------
Proforma net income from continuing operations assuming dilution $ 2,973
- -------------------------------------------------------------------------------------------------------------------
Net income from continuing operations per common share: (1)
Basic, as reported $ .53
Basic, proforma .53
Diluted, as reported .52
Diluted, proforma .52
- -------------------------------------------------------------------------------------------------------------------
(1) Per share data has been restated for the 50% stock dividend issued on September 15, 2005.
Disclosures for the three months ended March 31, 2006 are not presented because
stock-based payments were accounted for under SFAS No. 123R's fair-value method
during this period.
-10-
Following are the assumptions used to estimate the fair value of option grants
during the three-month periods ended March 31, 2006 and 2005:
Three Months Ended
March 31
-------------------------------------------------------------------------------------------------
2006 2005
Risk-free interest rate 4.37% 3.97%
Expected life 7 yrs 7 yrs.
Expected volatility 5.00% 15.00%
Expected dividend yield 1.88% 2.32%
-------------------------------------------------------------------------------------------------
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 options 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 options using average monthly closing market prices of the Company's stock.
The expected dividend yield is determined based on the Company's current rate of
annual dividends.
Under the treasury stock method, outstanding stock options are dilutive when the
average market price of the Company's common stock, when combined with the
effect of any unamortized compensation expense, exceeds the option price during
a period. In addition, proceeds from the assumed exercise of dilutive options
along with the related tax benefit are assumed to be used to repurchase common
shares at the average market price of such stock during the period.
Anti-dilutive shares are those option shares with exercise prices in excess of
the current market value.
A summary of the Company's stock option program for the three-month period ended
March 31, 2006 is shown below.
Weighted Average Aggregate
Average Remaining Intrinsic
Exercise Contractual Value
Shares Price Term Years ($000)
-------------------------------------------------------------------------
Outstanding at January 1, 2006 139,901 $ 16.01
Granted 16,819 34.10
Exercised (89,817) 14.58
Forfeited or expired -- --
------- --------
Outstanding at March 31, 2006 66,903 22.55 4.81 $ 814
=======================================================================
Exercisable at March 31, 2006 5,270 $ 14.61 1.51 $ 106
=======================================================================
The total intrinsic value of options exercised was $1,623,000 and $67,000 for
the three-month periods ended March 31, 2006 and 2005, respectively.
A summary of the activity of the non-vested shares during the three-month period
ended March 31, 2006 is shown below.
Weighted
Average
Grant Date
Shares Fair Value
- ------------------------------------------------------------------
Nonvested at January 1, 2006 112,031 $ 2.73
Granted 16,819 $ 4.88
Vested (67,217) $ 2.52
Forfeited - -
- ------------------------------------------------------------------
Nonvested at March 31, 2006 61,633 $ 3.55
==================================================================
Note 11 - 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.
-11-
The following table represents the components of the net periodic pension costs
for 2005 and an estimate for 2006:
Estimated Actual
(In Thousands) 2006 2005
-----------------------------------------------------------------------------------
Service cost - benefits earned during the year $ 1,357 $ 1,292
Interest cost on projected benefit obligation 1,513 1,384
Expected return on plan assets (1,584) (1,312)
Net amortization 199 109
-----------------------------------------------------------------------------------
Net periodic pension cost $ 1,485 $ 1,473
-----------------------------------------------------------------------------------
Pension costs recorded to expense were $338,000 and $312,000 for the First
Quarter of 2006 and 2005, respectively. The Company has not made any
contribution to the plan during the three-month period ended March 31, 2006, but
is expecting to contribute approximately $1,495,000 in 2006.
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
2005 and an estimate for 2006:
Estimated Actual
(In Thousands) 2006 2005
-----------------------------------------------------------------------------------
Service cost - benefits earned during the year $ -- $ (34)
Interest cost on projected benefit obligation 162 161
Net amortization 134 64
-----------------------------------------------------------------------------------
Net periodic pension cost $ 296 $ 191
-----------------------------------------------------------------------------------
Pension costs recorded to expense were $48,000 and $30,000 for the First Quarter
of 2006 and 2005, respectively.
-12-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
Cass Information Systems, Inc. provides payment and information processing
services to large manufacturing, distribution and retail enterprises from its
processing centers in St. Louis, Missouri, Columbus, Ohio, Boston, Massachusetts
and Greenville, South Carolina. The Company's services include freight invoice
rating, payment processing, auditing, and the generation of accounting and
transportation information. Cass also processes and pays utility invoices, which
includes electricity, gas and telecommunications expenses and is a provider of
telecom expense management solutions. Cass extracts, stores and presents
information from freight, utility and telecommunication invoices, assisting its
customers' transportation, energy and information technology managers in making
decisions that will enable them to improve operating performance. The Company
receives data from multiple sources, electronic and otherwise, and processes the
data to accomplish the specific operating requirements of its customers. It then
provides the data in a central repository for access and archiving. The data is
finally transformed into information through the Company's databases that allow
client interaction as required and provide Internet-based tools for analytical
processing. The Company also, through Cass Commercial Bank ("the Bank"), its St.
Louis, Missouri-based bank subsidiary, provides banking services in the St.
Louis metropolitan area, Orange County, California and other selected cities in
the United States. In addition to supporting the Company's 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 customer's requirements which
can vary greatly. In addition, the degree of automation such as electronic data
interchange ("EDI"), imaging, 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 account balances that are generated
during the payment process. The amount, type and calculation of service fees
vary greatly by service offering, but generally follow the volume of
transactions processed. Interest income from the balances generated during the
payment processing cycle is affected by the amount of time Cass holds the funds
prior to payment and the dollar volume processed. Both the number of
transactions processed and the dollar volume processed are therefore key metrics
followed by management. Other factors will also influence revenue and
profitability, such as changes in the general level of interest rates which have
a significant effect on net interest income. The funds generated by these
processing activities are invested in overnight investments, investment grade
securities and loans generated by the Bank. The Bank earns most of its revenue
from net interest income, or the difference between the interest earned on its
loans and investments and the interest expense on its deposits. The Bank also
assesses fees on other services such as cash management services.
Industry-wide factors that impact the Company include the acceptance by large
corporations of the outsourcing of key business functions such as freight,
utility and telecommunication payment and audit. The benefits that can be
achieved by outsourcing transaction processing and the management information
generated by Cass' systems can be influenced by factors such as the competitive
pressures within industries to improve profitability, the general level of
transportation costs, deregulation of energy costs and consolidation of
telecommunication providers. Economic factors that impact the Company include
the general level of economic activity that can affect the volume and size of
invoices processed, the ability to hire and retain qualified staff and the
growth and quality of the loan portfolio. The general level of interest rates
also has a significant effect on the revenue of the Company.
On December 30, 2005, the Company's bank subsidiary sold the operating assets of
its wholly-owned subsidiary, GEMS, to N. Harris Computer Corporation for
$7,000,000 resulting in a pre-tax gain of $1,336,000. The assets, liabilities
and operating results of GEMS have been reclassified as discontinued operations
for all periods. GEMS developed and sold proprietary financial, human resource
and revenue management software to government entities. GEMS was acquired on
January 2, 2001 when the Company's bank subsidiary foreclosed on the operating
assets of a software company in order to protect its financial interests.
Currently, management views Cass' major opportunity and challenge as the
continued expansion of its payment and information processing service offerings
and customer base. Management intends to accomplish this by maintaining the
Company's lead in applied technology, which, when combined with the security and
processing controls of the Bank, makes Cass unique in the industry. This trend
has been positive over the past years and management anticipates that this
should continue in 2006. The general level of interest rates, particularly
short-term interest rates, began to increase in 2004 and continued through the
first three months of 2006. If rates continue to rise, the positive impact on
net interest income and net earnings will continue. Management intends to
continue to refine its
-13-
risk management practices, monitor and manage the quality of the loan portfolio
and maintain a strong financial and liquidity position.
Critical Accounting Policies
The Company has prepared all of the consolidated financial information in this
report in accordance with U.S. generally accepted accounting principles ("U.S.
GAAP"). In preparing the consolidated financial statements in accordance with
U.S. GAAP, management makes estimates and assumptions that affect the reported
amount of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported amounts of
revenue and expenses during the reporting period. These estimates have been
generally accurate 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 our results of operations or
financial position have been discussed with the Audit Committee of the Board of
Directors and are described below.
Allowance for Loan Losses. The Company performs periodic and systematic detailed
reviews of its loan portfolio to assess overall collectability. The level of the
allowance for loan losses reflects management's estimate of the collectability
of the loan portfolio. Although these estimates are based on established
methodologies for determining allowance requirements, actual results can differ
significantly from estimated results. These policies affect both segments of the
Company. The impact and associated risks related to these policies on our
business operations are discussed in the "Allowance and Provision for Loan
Losses" section of this report.
Impairment of Assets. The Company periodically evaluates certain long-term
assets such as intangible assets including goodwill, foreclosed assets,
internally developed software and investments in private equity securities for
impairment. Generally, these assets are initially recorded at cost, and
recognition of impairment is required when events and circumstances indicate
that the carrying amounts of these assets will not be recoverable in the future.
If impairment occurs, various methods of measuring impairment may be called for
depending on the circumstances and type of asset, including quoted market
prices, estimates based on similar assets, and estimates based on valuation
techniques such as discounted projected cash flows. Assets held for sale are
carried at the lower of cost or fair value less costs to sell. These policies
affect both segments of the Company and require significant management
assumptions and estimates that could result in materially different results if
conditions or underlying circumstances change.
Income Taxes. The Company accounts for income taxes in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes," which establishes financial accounting and reporting standards for the
effect of 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 Company's financial statements or tax returns such
as the realization of deferred tax assets, 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. A change in the assessment of the outcomes of such matters
could materially impact its consolidated financial statements.
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, 2006
("First Quarter of 2006") compared to the three-month period ended March 31,
2005 ("First Quarter of 2005"). The following discussion and analysis should be
read in conjunction with the consolidated financial statements and related notes
and with the statistical information and financial data appearing in this report
as well as the Company's 2005 Annual Report on Form 10-K. Results of operations
for the First Quarter of 2006 are not necessarily indicative of the results to
be attained for any other period.
-14-
Net Income
The following table summarizes the Company's operating results:
Three Months Ended
March 31
--------------------------------------
%
(Dollars in thousands, except per share data) 2006 2005 Change
----------------------------------------------------------------------------------------------
Net income $ 3,952 $ 2,767 42.8%
Net income from continuing operations $ 3,952 $ 2,951 33.9%
Diluted earnings per share $ .70 $ .49 42.9%
Diluted earnings per share from continuing operations $ .70 $ .52 34.6%
Return on average assets 1.97% 1.52% --
Return on average equity 21.03% 16.16% --
----------------------------------------------------------------------------------------------
Fee Revenue and Other Income from Continuing Operations
The Company's fee revenue is derived mainly from freight and utility payment and
processing fees. As the Company provides its processing and payment services, it
is compensated by service fees which are typically calculated on a per-item
basis and by the accounts and drafts payable balances generated in the payment
process which can be used to generate interest income. Processing volumes
related to fees and accounts and drafts payable for the First Quarter of 2006
and First Quarter of 2005 were as follows:
Three Months Ended
March 31
---------------------------------------
%
(In Thousands) 2006 2005 Change
------------------------------------------------------------------------------------------
Freight Core Invoice Transaction Volume* 5,994 5,155 16.3%
Freight Invoice Dollar Volume $3,450,076 $2,568,090 34.3%
Utility Transaction Volume 1,503 1,403 7.1%
Utility Transaction Dollar Volume $1,374,215 $1,029,235 33.5%
Payment and Processing Fees $ 9,688 $ 8,592 12.8%
------------------------------------------------------------------------------------------
* Core invoices exclude parcel shipments.
Freight transaction volume for the First Quarter of 2006 increased mainly due to
increased activity with existing accounts and a growing customer base. Total
dollar volume processed by this division also increased during this period due
to the increased activity and larger average freight charges. The increase in
transaction and dollar volume from utility transactions increased primarily due
to new customers as the growth of this division continues. These increases in
transaction volume, combined with the expansion of the customer base in the
telecom division, drove the 12.8% increase in processing fees.
Bank service fees increased $219,000 or 61%. This increase was due primarily to
a penalty charged for the early withdrawal of a certificate of deposit by one
large bank customer. There were no gains from the sale of securities in the
First Quarter of 2006 compared to a net gain of $547,000 during the First
Quarter of 2005. Other income increased $17,000 in the First Quarter of 2006.
Net Interest Income
Net interest income is the difference between interest earned on loans,
investments, and other earning assets and interest expense on deposits and other
interest-bearing liabilities. Net interest income is a significant source of the
Company's revenues. The following table summarizes the changes in net interest
income and related factors for the First Quarter of 2006 and First Quarter of
2005:
Three Months Ended
March 31
--------------------------------------
%
(Dollars In Thousands) 2006 2005 Change
------------------------------------------------------------------------------------------
Average earning assets $743,472 $664,590 11.9%
Net interest income* 10,015 7,755 29.1%
Net interest margin* 5.46% 4.73% --
Yield on earning assets* 6.18% 5.34% --
Rate on interest bearing liabilities 3.03% 2.09% --
*Presented on a tax-equivalent basis assuming a tax rate of 35% in 2006 and 34% in 2005.
-15-
The increase in net interest income was primarily due to a significant increase
in earning assets and an increase in yields on earning assets that exceeded the
counteracting effect of increases in rates paid on deposit accounts. The
increase in earning assets was funded by an increase in accounts and drafts
payable due to the increase in dollar volume processed that exceeded a decrease
in bank deposits. This decrease was caused mainly by management's decision to
reduce the balances of higher-cost funding. Yields on earning assets and rates
paid on deposit accounts both increased as the general level of interest rates
increased. However, as the balances of earning assets greatly exceed the
balances of interest-bearing deposits, the net effect on net interest margin was
positive.
Total average loans increased $27,017,000 or 5% to $529,138,000. This increase
was attributable to new business relationships and was funded by the increase in
accounts and drafts payable. Total average investment in debt and equity
securities increased $24,879,000 or 36% to $94,793,000 as the Company invested a
portion of the increase in payables. Total average federal funds sold and other
short-term investments increased $26,986,000 or 29% to $119,541,000. This
increase provides additional liquidity to the Company. For more information on
the changes in net interest income please refer to the tables that follow.
The Company is positively affected by increases in the level of interest rates
due to the fact that its rate-sensitive assets significantly exceed its
rate-sensitive liabilities. This is primarily due to the noninterest-bearing
liabilities generated by the Company in the form of accounts and drafts payable.
Changes in interest rates will affect some earning assets such as federal funds
sold and floating rate loans immediately and some earning assets, such as fixed
rate loans and municipal bonds, over time.
Distribution of Assets, Liabilities and Stockholders' Equity; Interest Rate and
Interest Differential
The following table shows the condensed average balance sheets for each of the
periods reported, the tax-equivalent interest income and expense on each
category of interest-earning assets and interest-bearing liabilities, and the
average yield on such categories of interest-earning assets and the average
rates paid on such categories of interest-bearing liabilities for each of the
periods reported.
First Quarter 2006 First Quarter 2005
----------------------------------- -----------------------------------
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
(Dollars in thousands) Balance Expense Rate Balance Expense Rate
- ---------------------------------------------------------------------------------------------------------------------
Assets (1)
Earning assets:
Loans (2,3):
Taxable $ 524,121 $ 8,725 6.75% $ 497,194 $ 7,375 6.02%
Tax-exempt (4) 5,017 89 7.19 4,927 78 6.42
Debt and equity securities (5):
Taxable 28,649 266 3.77 28,569 172 2.44
Tax-exempt (4) 66,144 978 6.00 41,345 596 5.85
Federal funds sold and other
short-term investments 119,541 1,272 4.32 92,555 526 2.30
- ---------------------------------------------------------------------------------------------------------------------
Total earning assets 743,472 11,330 6.18 664,590 8,747 5.34
Nonearning assets:
Cash and due from banks 28,947 24,051
Premises and equipment, net 12,049 11,336
Bank owned life insurance 11,587 11,128
Goodwill and other intangibles,
net 5,318 5,598
Other assets 20,530 22,428
Assets related to discontinued
operations -- 5,963
Allowance for loan losses (6,255) (6,067)
- ---------------------------------------------------------------------------------------------------------------------
Total assets $ 815,648 $739,027
- ---------------------------------------------------------------------------------------------------------------------
Liabilities And Shareholders' Equity (1)
Interest-bearing liabilities:
Interest-bearing demand
deposits $ 83,112 $ 471 2.30% $ 84,055 $ 331 1.60%
Savings deposits 19,845 103 2.10 23,711 84 1.44
Time deposits of
$100 or more 37,144 382 4.17 48,556 324 2.71
Other time deposits 31,996 308 3.90 32,203 203 2.56
- ---------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 172,097 1,264 2.98 188,525 942 2.03
-16-
Short-term borrowings 164 2 4.95 220 1 1.84
Subordinated Debentures 3,700 49 5.37 3,700 49 5.37
- ---------------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 175,961 1,315 3.03 192,445 992 2.09
Noninterest-bearing liabilities:
Demand deposits 100,932 97,349
Accounts and drafts payable 455,834 370,652
Other liabilities 5,461 7,438
Liabilities related to
discontinued operations 1,258 1,701
- ---------------------------------------------------------------------------------------------------------------------
Total liabilities 739,446 669,585
Shareholders' equity 76,202 69,442
Total liabilities and
shareholders' equity $ 815,648 $ 739,027
- ---------------------------------------------------------------------------------------------------------------------
Net interest income $ 10,015 $ 7,755
Net interest margin 5.46% 4.73%
Interest spread 3.15% 3.25%
- ---------------------------------------------------------------------------------------------------------------------
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 2005
Consolidated Financial Statements, filed with the Company's 2005 Annual
Report on Form 10-K.
3. Interest income on loans includes net loan fees of $72,000 and $36,000 for
the First Quarter of 2006 and 2005, respectively.
4. Interest income is presented on a tax-equivalent basis assuming a tax rate
of 35% in 2006 and 34% in 2005. The tax-equivalent adjustment was
approximately $374,000 and $229,000 for the First Quarter of 2006 and 2005,
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.
- --------------------------------------------------------------------------------
Analysis of Net Interest Income Changes
The following table presents the changes in interest income and expense between
periods due to changes in volume and interest rates. That portion of the change
in interest attributable to the combined rate/volume variance has been allocated
to rate and volume changes in proportion to the absolute dollar amounts of the
change in each.
First Quarter
2006 Over 2005
-------------------------------
(In Thousands) Volume Rate Total
- -----------------------------------------------------------------------------------------------------------------
Increase (decrease) in interest income:
Loans (1,2):
Taxable $ 414 $ 936 $1,350
Tax-exempt (3) 1 10 11
Debt and equity securities:
Taxable -- 94 94
Tax-exempt (3) 366 16 382
Federal funds sold and other
short-term investments 187 559 746
- -----------------------------------------------------------------------------------------------------------------
Total interest income 968 1,615 2,583
- -----------------------------------------------------------------------------------------------------------------
Interest expense on:
Interest-bearing demand deposits (4) 144 140
Savings deposits (15) 34 19
Time deposits of $100 or more (89) 147 58
Other time deposits (1) 106 105
Short-term borrowings -- 1 1
Subordinated debentures $ -- -- --
--------------------------
Total interest expense $ (109) $ 432 $ 323
- -----------------------------------------------------------------------------------------------------------------
Net interest income $ 1,077 $ 1,183 $ 2,260
=================================================================================================================
-17-
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% in 2006 and 34% in 2005.
Provision and Allowance for Loan Losses
A significant determinant of the Company's operating results is the provision
for loan losses and the level of loans charged off. There was a $150,000 and
$200,000 provision made for loan losses during the First Quarter of 2006 and the
First Quarter of 2005, respectively. As discussed below, the Company continually
analyzes the outstanding loan portfolio based on the performance, financial
condition and collateralization of the credits. There was $221,000 of net loan
charge-offs in the First Quarter of 2006 and $431,000 in the First Quarter 2005.
Of the net amount charged off in 2006, $224,000 was related to one commercial
borrower that ceased operations.
The allowance for loan losses at March 31, 2006 was $6,213,000 and at December
31, 2005 was $6,284,000. The ratio of allowance for loan losses to total loans
outstanding at March 31, 2006 was 1.18% compared to 1.19% at December 31, 2005.
Nonperforming loans were $1,385,000 or .26% of total loans at March 31, 2006
compared to $1,464,000 or .28% of total loans at December 31, 2005.
At March 31, 2006, nonperforming loans, which are also considered impaired,
consisted of $1,385,000 in non-accrual loans as shown in the following table.
This total consists of five loans that relate to businesses that are for sale or
are in process of liquidation. Nonperforming loans at December 31, 2005
consisted of $983,000 in non-accrual loans and $481,000 in loans that were still
accruing interest although past due for over 90 days and relate to these same
five borrowers. Total nonperforming loans increased $716,000 from March 31, 2005
to March 31, 2006. This increase was primarily due to the addition of three of
the loans discussed above that totaled $1,161,000 and offset by charge-offs of
$224,000 plus reductions in principal balances of other nonperforming loans.
In addition to the nonperforming loans discussed above, at March 31, 2006,
approximately $6,874,000 of loans not included in the table below were
identified by management as having potential credit problems. They may also be
classified for regulatory purposes. These loans are excluded from the table due
to the fact they are current under the original terms of the loans, however
circumstances have raised doubts as to the ability of the borrowers to comply
with the current loan repayment terms. Included in this balance is $3,445,000
related to one borrower that was renegotiated several years ago and although
current under the new terms of the contract, management believes, due to the
financial condition of the borrower, there still remains risk as to the
collectability of all amounts under the loan agreement. The remaining loans are
closely monitored by management and have specific reserves established for the
estimated loss exposure.
The allowance for loan losses has been established and is maintained to absorb
probable losses in the loan portfolio. An ongoing assessment of risk of loss is
performed to determine if the current balance of the allowance is adequate to
cover probable losses in the portfolio. A charge or credit is made to expense to
cover any deficiency or reduce any excess. The current methodology employed to
determine the appropriate allowance consists of two components, specific and
general. The Company develops specific valuation allowances on commercial, real
estate, and construction loans based on individual review of these loans and an
estimate of the borrower's ability to repay the loan given the availability of
collateral, other sources of cash flow and collection options available. The
general component relates to all other loans, which are evaluated based on loan
grade. The loan grade assigned to each loan is typically evaluated on an annual
basis, unless circumstances require interim evaluation. The Company assigns a
reserve amount consistent with each loan's rating category. The reserve amount
is based on derived loss experience over prescribed periods. In addition to the
amounts derived from the loan grades, a portion is added to the general reserve
to take into account other factors including national and local economic
conditions, downturns in specific industries including loss in collateral value,
trends in credit quality at the Company and the banking industry, and trends in
risk rating changes. As part of their examination process, federal and state
agencies review the Company's methodology for maintaining the allowance for loan
losses and the balance in the account. These agencies may require the Company to
increase the allowance for loan losses based on their judgments and
interpretations about information available to them at the time of their
examination.
Summary of Asset Quality
The following table presents information as of and for the three-month periods
ended March 31, 2006 and 2005 pertaining to the Company's provision for loan
losses and analysis of the allowance for loan losses.
-18-
Three Months Ended
March 31
----------------------------
(Dollars in Thousands) 2006 2005
- ----------------------------------------------------------------------------------------------------------------
Allowance at beginning of period $ 6,284 $ 6,037
Provision charged to expense 150 200
Loans charged off (224) (448)
Recoveries on loans previously charged off 3 17
- ----------------------------------------------------------------------------------------------------------------
Net loan (charge-offs) (221) (431)
Allowance at end of period $ 6,213 $ 5,806
- ----------------------------------------------------------------------------------------------------------------
Loans outstanding:
Average $ 529,138 $ 502,121
March 31 527,045 508,997
Ratio of allowance for loan losses to loans outstanding:
Average 1.17% 1.16%
March 31 1.18% 1.14%
Nonperforming loans:
Nonaccrual loans $ 1,385 $ 669
Loans past due 90 days or more -- --
Renegotiated loans -- --
- ----------------------------------------------------------------------------------------------------------------
Total non performing loans $ 1,385 $ 669
Foreclosed assets $ -- $ --
- ----------------------------------------------------------------------------------------------------------------
Nonperforming loans as a percent of average loans .26% .13%
- ----------------------------------------------------------------------------------------------------------------
The Bank had no properties carried as other real estate owned as of March 31,
2006 and 2005 and December 31, 2005.
Operating Expense from Continuing Operations
Total operating expense for the First Quarter of 2006 increased $1,282,000 or
10% to $13,869,000 compared to the First Quarter of 2005 due primarily to
expenses related to the 14% growth in processing activity.
Salaries and benefits expense increased $1,075,000 or 12% to $10,270,000 in the
First Quarter of 2006 compared with the First Quarter of 2005 primarily due to
additional headcount to service new transaction business and an increase in
bonuses related to the earnings increase over the comparable period last year.
Occupancy expense for the First Quarter of 2006 increased $19,000 or 4% to
$455,000 from the First Quarter of 2005 primarily due to an increase in rent
expense for the relocation of three bank locations.
Equipment expense for the First Quarter of 2006 decreased $61,000 or 9% compared
to the First Quarter of 2005 mainly due to the amortization of internally
developed software that was fully amortized in the Fourth Quarter of 2005.
Amortization of intangible assets was $43,000 for the First Quarters of 2006 and
2005.
Other operating expense for the First Quarter of 2006 increased $249,000, or 11%
compared to the First Quarter of 2005. The increase for the quarter was due to
increases in postage and telecom expenses related to the additional processing
volume. Promotional expense and other taxes also increased.
Income tax expense for the First Quarter of 2006 increased $667,000 or 45%
compared to the First Quarter of 2005. The effective tax rate for the First
Quarter of 2006 was 35.1% compared with 33.2% in the First Quarter of 2005. The
increase in the effective tax rate was due to an increase in the Company's
federal statutory tax rate in 2006 to 35% vs. 34% in 2005 and the lower relative
effect of tax-exempt investment income to total income.
Financial Condition
Total assets at March 31, 2006 decreased $7,800,000 or less than 1.0% from
December 31, 2005. The most significant changes in asset balances during this
period was a decrease of $10,798,000 or 9% in federal funds sold and other
short-term investments. Changes in federal funds sold and other short-term
investments reflect the Company's daily liquidity position and are affected by
the changes in the other asset balances and changes in deposit and accounts and
draft payable balances.
-19-
Total liabilities were $732,063,000, a decrease of $11,354,000 or 2% from
December 31, 2005. Total deposits at March 31, 2006 were $277,922,000, a
decrease of $9,076,000 or 3%. Accounts and drafts payable were $441,393,000, a
decrease of $4,418,000 or less than 1%. Total shareholders' equity at March 31,
2006 was $78,835,000, a $3,554,000 or 5% increase from December 31, 2005.
The decrease in deposits in the First Quarter of 2006 mainly reflects a seasonal
reduction of demand deposits by customers due to typical cash flow requirements
such as payments for taxes and bonuses. Accounts and drafts payable will
fluctuate from period-end to period-end due to the payment processing cycle,
which results in lower balances on days when checks clear and higher balances on
days when checks are issued. For this reason, average balances are a more
meaningful measure of accounts and drafts payable (for average balances refer to
the tables under the "Distribution of Assets, Liabilities and Stockholders'
Equity; Interest Rate and Interest Differential" section of this report).
The increase in total shareholders' equity resulted from net income of
$3,952,000, cash received on the exercise of stock options of $322,000, $24,000
tax benefit on stock and option awards, $48,000 from the amortization of stock
bonus awards, offset by dividends paid of $890,000 ($.16 per share), and an
increase in other comprehensive income of $98,000.
Liquidity and Capital Resources
The balance of liquid assets consists of cash and cash equivalents, which
include cash and due from banks, federal funds sold and money market funds, and
was $141,432,000 at March 31, 2006, a decrease of $8,260,000 or 6% from December
31, 2005. At March 31, 2006 these assets represented 17% of total assets. These
funds are the Company's and its subsidiaries' primary source of liquidity to
meet future expected and unexpected loan demand, depositor withdrawals or
reductions in accounts and drafts payable.
Secondary sources of liquidity include the investment portfolio and borrowing
lines. Total investment in securities was $94,841,000 at March 31, 2006, a
decrease of $18,000 from December 31, 2005. These assets represented 12% of
total assets at March 31, 2006. Of this total, 70% were state and political
subdivision securities, 25% were U.S. Treasury securities, 4% were U.S.
government agencies and 1% was other securities. Of the total portfolio, 26%
mature in one year, 21% mature in one to five years, and 53% mature in five or
more years. During the First Quarter of 2006 the Company did not sell any
securities.
The Bank has unsecured lines at correspondent banks to purchase federal funds up
to a maximum of $29,000,000. Additionally, the Bank maintains a line of credit
at unaffiliated financial institutions in the maximum amount of $67,437,000
collateralized by U.S. Treasury and agency securities and commercial and
residential mortgage loans.
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.
Net cash flows provided by operating activities were $5,193,000 for the First
Quarter of 2006 compared with $4,299,000 for the First Quarter of 2005. This
increase is attributable to the increase in net income from continuing
operations of $1,001,000, the increase in net income taxes deferred and payable
of $1,685,000, the absence of a gain on sales of investment securities in 2006
compared to $547,000 in 2005, offset by a decrease of $1,107,000 in operating
activities related to discontinued operations and the other normal fluctuations
in asset and liability accounts. Net cash flows from investing and financing
activities fluctuate greatly as the Company actively manages its investment and
loan portfolios and customer activity influences changes in deposit and accounts
and drafts payable balances. 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 Company's operations and
capital expenditures in 2006.
The Company faces market risk to the extent that its net interest income and
fair market value of equity are affected by changes in market interest rates.
For information regarding the market risk of the Company's financial
instruments, see Item 3. "QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK".
Risk-based capital guidelines require the Company to meet a minimum total
capital ratio of 8.0% of which at least 4.0% must consist of Tier 1 capital.
Tier 1 capital generally consists of (a) common shareholders' equity (excluding
the unrealized market value adjustments on the available-for-sale securities),
(b) qualifying perpetual preferred stock and related surplus subject to certain
limitations specified by the FDIC, (c) minority interests in the equity accounts
of consolidated subsidiaries less (d) goodwill, (e) mortgage servicing rights
within certain limits, and (f) any other
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intangible assets and investments in subsidiaries that the FDIC determines
should be deducted from Tier 1 capital. The FDIC also requires a minimum
leverage ratio of 3.0%, defined as the ratio of Tier 1 capital less purchased
mortgage servicing rights to total assets, for banking organizations deemed the
strongest and most highly rated by banking regulators. A higher minimum leverage
ratio is required of less highly rated banking organizations. Total capital, a
measure of capital adequacy, includes Tier 1 capital, allowance for loan losses,
and debt considered equity for regulatory capital purposes.
The Company and the Bank continue to exceed all regulatory capital requirements,
as evidenced by the following capital amounts and ratios at March 31, 2006 and
December 31, 2005:
March 31, 2006 (In Thousands) Amount Ratio
- -------------------------------------------------------------------------------------------------------------------
Total capital (to risk-weighted assets)
Cass Information Systems, Inc. $83,832 13.48%
Cass Commercial Bank 42,837 15.01
Tier I capital (to risk-weighted assets)
Cass Information Systems, Inc. $73,919 11.88%
Cass Commercial Bank 38,562 13.52
Tier I capital (to average assets)
Cass Information Systems, Inc. $73,919 9.12%
Cass Commercial Bank 38,562 11.72
- -------------------------------------------------------------------------------------------------------------------
December 31, 2005 (In Thousands) Amount Ratio
- -------------------------------------------------------------------------------------------------------------------
Total capital (to risk-weighted assets)
Cass Information Systems, Inc. $80,066 12.80%
Cass Commercial Bank 42,597 14.64
Tier I capital (to risk-weighted assets)
Cass Information Systems, Inc. $70,082 11.21%
Cass Commercial Bank 38,251 13.15
Tier I capital (to average assets)
Cass Information Systems, Inc. $70,082 8.52%
Cass Commercial Bank 38,251 11.16
- -------------------------------------------------------------------------------------------------------------------
Inflation
The Company's assets and liabilities are primarily monetary, consisting of cash,
cash equivalents, securities, loans, payables and deposits. Monetary assets and
liabilities are those that can be converted into a fixed number of dollars. The
Company's consolidated balance sheet reflects a net positive monetary position
(monetary assets exceed monetary liabilities). During periods of inflation, the
holding of a net positive monetary position will result in an overall decline in
the purchasing power of a company. Management believes that replacement costs of
equipment, furniture, and leasehold improvements will not materially affect
operations. The rate of inflation does affect certain expenses, such as those
for employee compensation, which may not be readily recoverable in the price of
the Company's services.
Impact of New Accounting Pronouncements
In November 2005, the Financial Accounting Standards Board ("FASB") issued FASB
Staff Position (FSP) FAS 115-1 and 124-1, "The Meaning of Other-Than-Temporary
Impairment and Its Application to Certain Investments." The guidance addresses
the determination of when an investment is considered impaired, whether that
impairment is other than temporary, and the measurement of an impairment loss.
The FSP also includes accounting considerations subsequent to the recognition of
an other-than-temporary impairment and requires certain disclosures about
unrealized losses that have not been recognized as other-than-temporary
impairments. The guidance in this FSP amends FASB Statement No. 115, "Accounting
for Certain Investments in Debt and Equity Securities," and adds a footnote to
APB Opinion No. 18, "The Equity Method of Accounting for Investments in Common
Stock." The guidance in this FSP nullifies certain requirements of EITF Issue
No. 03-1, "The Meaning of Other-Than-Temporary Impairment and Its Application to
Certain Investments," and supersedes EITF Abstracts, Topic D-44, "Recognition of
Other-Than-Temporary Impairment upon the Planned Sale of a Security Whose Cost
Exceeds Fair Value." This Company applied this guidance effective January 1,
2006 and there was no material impact on its consolidated financial statements.
In December 2004, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 (Revised 2004), Share-Based Payment. This
Statement addresses the accounting for transactions in which an entity exchanges
its equity instruments for goods on services. The Statement eliminates the
ability to account for
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share-based compensation transactions using APB Opinion No. 25, Accounting for
Stock Issued to Employees, and generally requires instead that such transactions
be accounted for using a fair-value based method. For public entities, the cost
of employee services received in exchange for an award of equity instruments,
such as stock options, will be measured based on the grant-date fair value of
those instruments, and that cost will be recognized over the period during which
as employee is required to provide service in exchange for the award (usually
the vesting period). This Statement was adopted by the Company on January 1,
2006. The implementation of SFAS No. 123R did not have a material effect on the
Company's financial condition or results of operations. See Note 10 to the
financial statements.
In May 2005, the FASB issue SFAS No. 154 "Accounting Changes and Error
Corrections" as a replacement of APB Opinion No. 20 and FASB Statement No 3.
This Statement applies to all voluntary changes in accounting principles and
changes required by an accounting pronouncement in the unusual instance that the
pronouncement does not include specific transition provisions. This Statement
carries forward without change the guidance contained in APB Opinion No. 20 for
reporting the correction of an error in previously issued financial statements
and a change in accounting estimate. This Statement also carries forward the
guidance in APB Opinion No. 20 requiring justification of a change in accounting
principle on the basis of preferability. This Statement was adopted by the
Company on January 1, 2006 and there was no material impact on its consolidated
financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As described in the Company's Annual Report on Form 10-K for the year ended
December 31, 2005, 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, 2006 has changed materially from that at December 31, 2005.
ITEM 4. CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures designed to ensure that
the information it is required to disclose in the reports it files with the
Securities and Exchange Commission ("SEC") is recorded, processed, summarized
and reported to management, including the Chief Executive Officer and Principal
Financial Officer, within the time periods specified in the rules of the SEC.
The Company's Chief Executive and Principal Financial Officer have evaluated the
Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended) as of March 31,
2006 and based on their evaluation, believe that, as of March 31, 2006, these
procedures were effective at the reasonable assurance level to ensure that the
Company is able to collect, process and disclose the information it is required
to disclose in the reports it files with the SEC within the required time
periods.
There were no changes in the first quarter of 2006 in the Company's internal
control over financial reporting identified by the Chief Executive and Principal
Financial Officer in connection with their evaluation that materially affected
or are reasonably likely to materially affect the Company's 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).
-22-
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company and its subsidiaries are not involved in any
pending proceedings other than ordinary routine litigation
incidental to its businesses. Management believes none of
these proceedings, if determined adversely, would have a
material effect on the business or financial 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, 2005, a
description of certain risks and uncertainties that could
affect the Company's business, future performance or financial
condition (the "Risk Factors"). The Risk Factors are hereby
incorporated in Part II, Item 1A of this form 10-Q. Investors
should consider the Risk Factors prior to making an investment
decision with respect to the Company's stock.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS
Exhibit 31.1 Certification Pursuant to 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.
-23-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CASS INFORMATION SYSTEMS, INC.
DATE: May 5, 2006 By /s/ Lawrence A. Collett
------------------------------------------
Lawrence A. Collett
Chairman and Chief Executive Officer
DATE: May 5, 2006 By /s/ Eric H. Brunngraber
------------------------------------------
Eric H. Brunngraber
Vice President-Secretary
(Principal Financial and Accounting Officer)
Exhibit 31.1
CERTIFICATIONS
I, Lawrence A. Collett, Chairman and Chief Executive Officer of Cass
Information Systems, Inc., 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 registrant's other certifying officer 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 registrant's 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 registrant's internal control
over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant's internal control over
financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's 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 registrant's 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 registrant's internal
control over financial reporting.
Date: May 5, 2006
/s/ Lawrence A. Collett
----------------------------------
Lawrence A. Collett
Chairman and Chief Executive
Officer
-25-
Exhibit 31.2
CERTIFICATIONS
I, Eric H. Brunngraber, Vice President-Secretary of Cass Information Systems,
Inc., 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 registrant's other certifying officer 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 registrant's 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 registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's 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 registrant's 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 registrant's internal
control over financial reporting.
Date: May 5, 2006
/s/ Eric H. Brunngraber
----------------------------------------------
Eric H. Brunngraber
Vice President - Secretary
(Principal Financial and Accounting Officer)
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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, 2006 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I,
Lawrence A. Collett, Chairman and Chief Executive Officer of the Company,
certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 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/ Lawrence A. Collett
--------------------------------
Lawrence A. Collett
Chairman and Chief Executive Officer
(Principal Executive Officer)
May 5, 2006
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.
-27-
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-K for the period ended March 31, 2006 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Eric H.
Brunngraber, Vice President-Secretary of the Company, certify, pursuant to 18
U.S.C. ss. 1350, as adopted pursuant to ss. 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
Vice President - Secretary
(Principal Financial and Accounting Officer)
May 5, 2006
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.
-28-
