CASS INFORMATION SYSTEMS INC - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

For the quarter ended June 30, 2002
Commission File No. 2-80070

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CASS INFORMATION SYSTEMS, INC.

Incorporated under the laws of MISSOURI
I.R.S. Employer Identification No. 43-1265338

13001 HOLLENBERG DRIVE, BRIDGETON, MISSOURI 63044

Telephone: (314) 506-5500

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Indicate by check mark whether the registrant has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and has been subject to such filing
requirements for the past 90 days.

Yes X No
----- -----

The number of shares outstanding of registrant's only class of stock as
of July 31, 2002: Common stock, par value $.50 per share - 3,203,722 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. CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Balance Sheets
June 30, 2002 (unaudited) and December 31, 2001 ................ 3

Consolidated Statements of Income
Three and six months ended June 30, 2002 and 2001 (unaudited) .. 4

Consolidated Statements of Cash Flows
Six months ended June 30, 2002 and 2001 (unaudited) ............ 5

Notes to Consolidated Financial Statements (unaudited) ............ 6

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS ...................................... 9

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ........ 19

PART II - Other Information - Items 1. - 6. ....................... 20

SIGNATURES ................................................................. 21

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, including those set forth in
this paragraph. Important factors that could cause our actual results,
performance, or achievements to be materially different from any future results,
performance, or achievements expressed or implied by those statements include,
but are not limited to: the failure to successfully execute our corporate plan,
the loss of key personnel or inability to attract additional qualified
personnel, the loss of key customers, increasing competition, the inability to
remain current with rapid technological change, risks related to acquisitions,
risks associated with business cycles, 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 commercial enterprises, churches and
loans in the St. Louis Metropolitan area which creates risks associated with
adverse factors that may affect these groups, risks associated with fluctuations
in interest rates, 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. CONSOLIDATED FINANCIAL STATEMENTS

CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in Thousands except Per Share Data)

June 30 December 31
2002 2001

Assets
Cash and due from banks $ 27,342 $ 31,915
Federal funds sold and other short-term investments 90,060 67,940
-------- --------
Cash and cash equivalents 117,402 99,855
-------- --------
Investment in debt and equity securities
available-for-sale, at fair value 65,641 92,330

Loans 412,628 381,452
Less: Allowance for loan losses 5,109 4,906
-------- --------
Loans, net 407,519 376,546
-------- --------
Premises and equipment, net 16,445 16,798
Accrued interest receivable 2,772 2,627
Foreclosed assets 5,814 5,814
Other assets 7,794 6,905
-------- --------
Total assets $623,387 $600,875
======== ========

Liabilities and Shareholders' Equity
Liabilities:
Deposits:
Noninterest-bearing $101,679 $117,351
Interest-bearing 142,782 130,627
-------- --------
Total deposits 244,461 247,978
Accounts and drafts payable 314,240 291,794
Short-term borrowings -- 200
Other liabilities 6,468 5,383
-------- --------
Total liabilities 565,169 545,355
-------- --------

Shareholders' Equity:
Preferred stock, par value $.50 per share; 2,000,000
shares authorized and no shares issued -- --
Common stock, par value $.50 per share;
20,000,000 shares authorized and
4,000,000 shares issued 2,000 2,000
Additional paid-in capital 4,848 4,997
Retained earnings 65,919 63,623
Accumulated other comprehensive income 760 522
Common shares in treasury, at cost (796,278 shares at
June 30, 2002 and 818,185 shares at December 31, 2001) (15,275) (15,597)
Unamortized stock bonus awards (34) (25)
-------- --------
Total shareholders' equity 58,218 55,520
-------- --------
Total liabilities and shareholders' equity $623,387 $600,875
======== ========

See accompanying notes to unaudited consolidated financial statements.

-3-

CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in Thousands except Per Share Data)

Three Months Ended Six Months Ended
June 30 June 30
------------------------ -------------------------
2002 2001 2002 2001

Interest Income:
Interest and fees on loans $ 6,561 $ 7,395 $ 12,788 $ 14,942
Interest and dividends on debt and equity securities:
Taxable 1,008 770 2,203 1,742
Exempt from federal income taxes 511 13 848 27
Interest on federal funds sold and
other short-term investments 119 873 279 1,788
--------- --------- --------- ---------
Total interest income 8,199 9,051 16,118 18,499
--------- --------- --------- ---------

Interest Expense:
Interest on deposits 563 951 1,111 2,397
Interest on short-term borrowings 22 1 25 1
--------- --------- --------- ---------
Total interest expense 585 952 1,136 2,398
--------- --------- --------- ---------
Net interest income 7,614 8,099 14,982 16,101
Provision for loan losses 180 -- 270 --
--------- --------- --------- ---------
Net interest income after provision
for loan losses 7,434 8,099 14,712 16,101
--------- --------- --------- ---------

Noninterest Income:
Freight and utility payment and processing revenue 6,122 5,154 11,673 10,466
Bank service fees 424 383 836 699
Gains on sales of investment securities 944 -- 944 --
Other 12 118 53 230
--------- --------- --------- ---------
Total noninterest income 7,502 5,655 13,506 11,395
--------- --------- --------- ---------

Noninterest Expense:
Salaries and employee benefits 7,897 7,663 15,503 15,385
Occupancy expense 384 427 748 888
Equipment expense 1,115 904 2,204 1,718
Other 2,317 2,043 4,582 4,134
--------- --------- --------- ---------
Total noninterest expense 11,713 11,037 23,037 22,125
--------- --------- --------- ---------
Income before income tax expense 3,223 2,717 5,181 5,371
Income tax expense 992 942 1,604 1,846
--------- --------- --------- ---------
Net income $ 2,231 $ 1,775 $ 3,577 $ 3,525
========= ========= ========= =========

Earnings per share:
Basic $.70 $.54 $1.12 $1.08
Diluted $.69 $.54 $1.11 $1.06

Weighted average shares outstanding:
Basic 3,201,836 3,259,510 3,201,172 3,276,468
Effect of dilutive stock options and awards 20,949 41,293 20,914 42,344
Diluted 3,222,785 3,300,803 3,222,086 3,318,812

See accompanying notes to unaudited consolidated financial statements.

-4-

CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)

Six Months Ended
June 30
--------------------
2002 2001

Cash Flows From Operating Activities:
Net income $ 3,577 $ 3,525
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 1,943 1,379
Provision for loan losses 270 --
Amortization of stock bonus awards 13 43
Tax benefit from exercise of stock options and bonuses 186 2
(Increase) decrease in accrued interest receivable (145) 1,001
Increase (decrease) in deferred income 506 (41)
Deferred income tax expense (benefit) 554 (376)
(Decrease) increase in income tax liability (26) 234
Gains on sales of investment securities (944) --
Change in other assets (1,567) (1,615)
Change in other liabilities 605 (589)
Other operating activities, net 5 (203)
-------- ---------
Net cash provided by operating activities 4,977 3,360
-------- --------

Cash Flows From Investing Activities:
Proceeds from sales of debt securities available-for-sale 52,238 --
Proceeds from maturities of debt and equity securities
available-for-sale 20,275 25,410
Purchase of debt and equity securities available-for-sale (44,637) --
Net increase in loans (31,243) (18,057)
Purchases of premises and equipment, net (1,476) (4,502)
--------- ---------
Net cash (used in) provided by investing activities (4,843) 2,851
--------- --------

Cash Flows From Financing Activities:
Net decrease in noninterest-bearing demand deposits (15,672) (8,458)
Net decrease in interest-bearing demand and savings deposits (9,272) (4,163)
Net increase in time deposits 21,427 2,770
Net increase (decrease) in accounts and drafts payable 22,446 (3,858)
Net (decrease) increase in short-term borrowings (200) 25
Cash proceeds from exercise of stock options 348 11
Cash dividends paid (1,281) (1,309)
Purchase of common shares for treasury (383) (2,069)
--------- --------
Net cash provided by (used in) financing activities 17,413 (17,051)
-------- ---------
Net increase (decrease) in cash and cash equivalents 17,547 (10,840)
Cash and cash equivalents at beginning of period 99,855 115,931
-------- --------
Cash and cash equivalents at end of period $117,402 $105,091
======== ========

Supplemental information:

Cash paid for interest $ 1,087 $ 2,425
Cash paid for income taxes 1,012 2,137
Transfer of securites from held-to-maturity to available-for-sale -- 6,650
Transfer of loans to foreclosed assets -- 4,205

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 accounting principles generally accepted in the
United States of America for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by accounting
principles generally accepted in the United States of America for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the period ended June 30, 2002 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2002. For further information, refer to the consolidated financial
statements and related footnotes included in the Cass Information System, Inc.'s
("the Company") Annual Report on Form 10-K for the year ended December 31, 2001.

Note 2 - Impact of New Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities", which establishes standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. It requires an entity to recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. In June 1999, the FASB
issued SFAS 137, "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB No. 133", which defers the effective date
of SFAS 133 from fiscal years beginning after June 15, 1999 to fiscal years
beginning after June 15, 2000. In June 2000, the FASB issued SFAS 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities",
which addresses certain issues causing implementation difficulties. The Company
has adopted SFAS 133, as amended, effective January 1, 2001, but since the
Company does not participate in any derivative or hedging activities, SFAS 133,
as amended, had no impact on the Company's consolidated financial position and
results of operations, except for the transfer of all held-to-maturity
securities into available-for-sale securities as of January 1, 2001 as permitted
by SFAS 133. At the time of the transfer the book value of the securities
transferred was $6,650,000 and the fair value was $6,682,000. The difference was
an unrealized gain recorded net of tax as other comprehensive income.

In June 2001, the FASB issued SFAS 142, "Goodwill and Other Intangible
Assets", that supersedes Accounting Principles Board (APB) Opinion No. 17. Under
SFAS 142, goodwill and intangible assets deemed to have indefinite lives are no
longer amortized, but are to be reviewed at least annually for impairment under
impairment guidelines established in the statement. SFAS 142 also changes the
amortization methodology in intangible assets that are deemed to have finite
lives. Finally, SFAS 142 adds to required disclosures regarding goodwill and
intangible assets. SFAS 142 is effective for fiscal years beginning after
December 15, 2001. The adoption of SFAS 142 on January 1, 2002 did not have a
material impact on the consolidated financial statements. In addition,
amortization of goodwill previously reported in net income is not material.

In August 2001, the FASB issued SFAS 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets", that superseded SFAS 121 and APB
Opinion No. 30. SFAS 144 provides guidance on differentiating between assets
held and used, held for sale, and held for disposal other than by sale, and the
required valuation of such assets. SFAS 144 is effective for fiscal years
beginning after December 15, 2001. The provisions of SFAS 144 have been adopted
by the Company as of January 1, 2002 and will require that the foreclosed assets
of the Company be reclassified from held for sale to held for use as of December
31, 2002 if certain conditions are not met. The Company is evaluating the new
statement, as it relates to these foreclosed assets, to determine the full
effect it may have on the consolidated financial statements.

-6-

Note 3 - Loans by Type

(In Thousands) June 30, 2002 December 31, 2001
- ------------------------------------------------------------------------------------------------------------

Commercial and industrial $101,623 $115,316
Real estate:
Mortgage 166,480 128,651
Mortgage - Churches & Related 91,560 86,853
Construction 4,963 16,041
Construction - Churches & Related 28,702 16,674
Industrial revenue bonds 6,073 6,155
Installment 1,845 1,787
Other 11,382 9,975
- ------------------------------------------------------------------------------------------------------------
Total loans $412,628 $381,452
- ------------------------------------------------------------------------------------------------------------

Note 4 - Stock Repurchase Program

On December 21, 1999 the Board of Directors authorized a stock
repurchase program that would allow the repurchase of up to 200,000 shares of
its common stock through December 31, 2000. On March 21, 2000 the Board of
Directors authorized a 100,000 increase in the number of shares that can be
purchased under the program. Along with the 300,000 shares authorized under the
plan, the Board of Directors has subsequently approved the repurchase of an
additional 277,874 shares. The Company repurchased 15,664 shares for $383,000
and repurchased 100,500 shares for $2,069,000 for the six months ended June 30,
2002 and 2001, respectively. Repurchases were made in the open market or through
negotiated transactions from time to time depending on market conditions.

Note 5 - Comprehensive Income

For the three and six month periods ended June 30, 2002 and 2001,
unrealized gains and losses on debt and equity securities available-for-sale
were the Company's only other comprehensive income component. Comprehensive
income for the three and six month periods ended June 30, 2002 and 2001 is
summarized as follows:

Three Months Ended Six Months Ended
June 30 June 30
----------------- ----------------
(In Thousands) 2002 2001 2002 2001
- -----------------------------------------------------------------------------------------------------------------

Net Income $ 2,231 $ 1,775 $ 3,577 $ 3,525

Other comprehensive income:

Net unrealized gain (loss) on debt and equity
securities available-for-sale, net of tax 1,366 (45) 861 346

Less: reclassification adjustment for realized gains on
sales of debt and equity securities, available-for-sale,
included in net income, net of tax (623) -- (623) --
- -----------------------------------------------------------------------------------------------------------------
Total other comprehensive income (loss) 743 (45) 238 346
- -----------------------------------------------------------------------------------------------------------------
Total comprehensive income $ 2,974 $ 1,730 $ 3,815 $ 3,871
- -----------------------------------------------------------------------------------------------------------------

Note 6 - Industry Segment Information

The services provided by the Company are classified into three
reportable segments: Transportation Information Services, Utility Information
Services, and Banking Services. Each of these segments offers distinct services
that are marketed through different channels. They are managed separately due to
their unique service, processing and capital requirements.

The Transportation Information Services unit provides freight invoice
rating, payment, auditing, cost accounting and transportation information
services to large corporate shippers. The Utility Information Services unit
processes and pays utility invoices, including electricity, gas, water,
telephone and refuse, for large corporate

-7-

entities that have many locations or are heavy users of energy. The Banking
Services unit provides banking services primarily to privately-held businesses
and churches.

The Company's accounting policies for segments are the same as those
described in the summary of significant accounting policies in the Company's
Annual Report on Form 10-K for the year ended December 31, 2001. 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.

All three segments market their services within the United States and
no revenue from any customer of any segment exceeds 10% of the Company's
consolidated revenue.

Summarized information about the Company's operations in each industry
segment for the three and six month periods ended June 30, 2002 and 2001, is as
follows:

Transportation Utility
Information Information Banking Elim-
(In Thousands) Services Services Services Corporate inations Total
- ---------------------------------------------------------------------------------------------------------------

Quarter Ended June 30, 2002
Total Revenues $ 8,596 $ 2,599 $ 3,873 $ 554 $ (686) $14,936
Net Income 851 337 1,043 -- -- 2,231
Quarter Ended June 30, 2001
Total Revenues $ 8,251 $ 1,897 $ 3,690 $ 452 $ (536) $13,754
Net Income 784 45 958 (12) -- 1,775
- ---------------------------------------------------------------------------------------------------------------
Six Months Ended June 30, 2002
Total Revenues $16,149 $ 4,803 $ 7,542 $ 1,107 $ (1,383) $28,218
Net Income 1,070 457 2,050 -- -- 3,577
Six Months Ended June 30, 2001
Total Revenues $16,955 $ 3,671 $ 7,067 $ 930 $ (1,127) $27,496
Net Income 1,744 43 1,762 (24) -- 3,525
- ---------------------------------------------------------------------------------------------------------------

Note 7 - Foreclosed assets

On January 2, 2001, the Company's bank subsidiary foreclosed on certain
operating assets relating to one borrower in order to protect the financial
interest in that borrower. It is accounted for as a foreclosed asset that is
held for sale. At June 30, 2002 the investment in this entity was $5,218,000. On
August 8, 2001 the Company's bank subsidiary foreclosed on a loan to one
borrower and is now carrying the property as a foreclosed asset at what
management believes to be fair value less cost to sell of $596,000. For more
information on these foreclosed assets see "Summary of Asset Quality" on page 15
of this report.

Note 8 - Commitments and Contingencies

The Company provides customers with off-balance sheet credit support
through unused loan commitments to extend credit, standby letters of credit and
commercial letters of credit. At June 30, 2002 conditional commitments to extend
credit, commercial letters of credit and standby letters of credit totaled
approximately $27,320,000, $9,000 and $5,620,000, respectively. Since many of
the unused commitments are expected to expire or be only partially used, the
total amount of commitments does not necessarily represent future cash
requirements.

The Company and its subsidiaries are involved in various pending legal
actions and proceedings in which claims for damages are asserted. Management,
after discussion with legal counsel, believes the ultimate resolution of these
legal actions and proceedings will not have a material effect upon the Company's
consolidated financial position or results of operations.

Note 9 - Reclassifications

Certain amounts in the 2001 consolidated financial statements have been
reclassified to conform to the 2002 presentation. Such reclassifications have no
effect on previously reported net income or shareholders' equity.

-8-

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The Company operates in three primary business segments: Transportation
Information Services, Utility Information Services and through the Company's
wholly owned subsidiary, Cass Commercial Bank ("the Bank"), Banking Services.
The Company is a payment processing and information services company, whose
operations include the processing and payment of freight and utility invoices,
preparation of management information, auditing and rating of invoices and other
payment-related activities for customers located throughout the United States.
The Bank provides specialized banking services to privately-held businesses
located primarily in the St. Louis, Missouri metropolitan area and church and
church-related entities located in the St. Louis metropolitan area and selected
cities throughout the United States.

On January 18, 2001 the Company acquired substantially all the utility
payment and processing assets of "The Utility Navigator(R)", a division of
privately-held InSITE Services, Inc., for $750,000. These assets include books
and records relating to the business, customer and vendor lists, customer
contracts, reporting history and databases, marketing and advertising materials,
trademarks and other intellectual property, and a license to the software used
to process and pay utility bills.

Critical Accounting Policies

The Company has prepared all of the consolidated financial information
in this report in accordance with accounting principles generally accepted in
the United States of America (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 consolidated
financial statements, and the reported amounts of revenue and expenses during
the reporting period. There can be no assurances that actual results will not
differ from those estimates.

Management has identified the accounting policy related to the
allowance for loan losses as critical to the understanding of the Company's
results of operations, since the application of this policy requires significant
management assumptions and estimates that could result in materially different
amounts to be reported if conditions or underlying circumstances were to change.
The impact and any associated risks related to these policies on our business
operations are discussed in the " Allowance and Provision for Loan Losses"
section of this report.

In addition, management evaluates certain long-term assets such as
premises and equipment, goodwill, and foreclosed assets for impairment.
Generally, 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. The
application of this policy also requires significant management assumptions and
estimates that could result in materially different results if conditions or
underlying circumstances change.

Results of Operations

The following paragraphs more fully discuss the results of operations
and changes in financial condition for the three-month period ended June 30,
2002 (the "Second Quarter of 2002") compared to the three-month period ended
June 30, 2001 (the "Second Quarter of 2001") and the six-month period ended June
30, 2002 ("First Half of 2002") compared to the six-month period ended June 30,
2001 ("First Half of 2001"). 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 2001 Annual Report on Form 10-K. Results of operations
for the First Half of 2002 are not necessarily indicative of the results to be
attained for any other period.

Net Income

The Company's net income was $2,231,000 for the Second Quarter of 2002,
a $456,000 or 25.7% increase compared to net income of $1,775,000 for the Second
Quarter of 2001. The Company's net income was $3,577,000

-9-

for the First Half of 2002, a $52,000 or 1.5% increase compared to net income of
$3,525,000 for the First Half of 2001. Diluted earnings per share was $.69 for
the Second Quarter of 2002, a 27.8% increase compared to $.54 for the Second
Quarter of 2001. Diluted earnings per share was $1.11 for the First Half of
2002, a 4.7% increase compared to $1.06 for the First Half of 2001. The increase
in net income in the Second Quarter of 2002 over the Second Quarter of 2001 was
primarily a result of increased freight and utility processing fee revenue and
gains on the sales of securities, that more than offset the decline in interest
income due to the decrease in the general level of interest rates. The increase
in net income in the First Half of 2002 from the First Half of 2001 was due
primarily to the same factors as the increases in the Second Quarter of 2002
from the Second Quarter of 2001. Return on average assets for the Second Quarter
of 2002 was 1.51% compared to 1.27% for the Second Quarter of 2001. Return on
average assets for the First Half of 2001 was 1.22% compared to 1.28% for the
First Half of 2001. Return on average equity for the Second Quarter of 2002 was
16.00% compared to 12.89% for the Second Quarter of 2001. Return on average
equity for the First Half of 2002 was 12.96% compared to 13.01% for the First
Half of 2001.

Net Interest Income

Second Quarter of 2002 compared to Second Quarter of 2001:

The Company's tax-equivalent net interest income decreased 3.7% or
$302,000 from $8,216,000 to $7,914,000. Average earning assets increased 6.8% or
$34,515,000 from $508,491,000 to $543,006,000. The tax-equivalent net interest
margin decreased from 6.48% to 5.85%. The average tax-equivalent yield on
earning assets decreased from 7.23% to 6.28%. The average rate paid on
interest-bearing liabilities decreased from 3.21% to 1.61%.

The average balances of loans increased $18,205,000 from $378,722,000
to $396,927,000, investment in debt and equity securities, at amortized cost,
increased $68,650,000 from $49,466,000 to $118,116,000, and federal funds sold
and other short-term investments decreased $52,340,000 from $80,303,000 to
$27,963,000. The average balance of noninterest-bearing demand deposit accounts
increased $8,994,000 from $90,186,000 to $99,180,000, accounts and drafts
payable decreased $2,783,000 from $289,062,000 to $286,279,000, and
interest-bearing liabilities increased $26,749,000 from $118,875,000 to
$145,624,000.

The increase in average loan balances during this period was primarily
attributable to the Bank's marketing efforts, both in the commercial and church
and church-related areas. The increase in debt and equity securities and
decrease in federal funds sold and other short term investments reflects
management's asset allocation decisions given projected liquidity requirements,
market interest rates and the attractiveness of alternative investments.
Noninterest-bearing demand deposits have increased due to the fact that
customers maintain higher noninterest-bearing balances to compensate the Bank
for services and to avoid higher service fees in a lower rate environment and
the Bank's marketing efforts to attract more deposits. Interest-bearing
liabilities increased due to increased deposits by existing customers and new
deposit accounts. The moderate decrease in average accounts and drafts payable
relates to normal fluctuations in these balances.

The decreases experienced during the Second Quarter of 2002 in net
interest income and the net interest margin was due primarily to the decline in
the general level of interest rates. The Company partially mitigated the effects
of this decline in interest rates by adjusting the allocation of assets in its
portfolio to longer-term, higher-yielding assets, increasing the size of the
loan portfolio and increasing earning assets by increasing deposits.
Nonetheless, the dramatic decline in interest rates adversely affected the
Company's net interest income and margin. The Company is positively affected by
increases in the level of interest rates due to the fact that its rate sensitive
assets significantly exceed its rate sensitive liabilities. Conversely, the
Company is adversely affected by decreases in the level of interest rates. This
is primarily due to the noninterest-bearing liabilities generated by the Company
in the form of accounts and drafts payable. For more information please refer to
the table on pages 11 and 12.

First Half of 2002 compared to the First Half of 2001:

The Company's tax-equivalent net interest income decreased 5.2% or
$848,000 from $16,341,000 to $15,493,000. Average earning assets increased 6.7%
or $33,956,000 from $505,975,000 to $539,931,000. The tax-equivalent net
interest margin decreased from 6.51% to 5.79%. The average tax-equivalent yield
on earning assets decreased from 7.47% to 6.21%. The average rate paid on
interest-bearing liabilities decreased from 3.99% to 1.64%.

The average balances of loans increased $14,985,000 from $375,213,000
to $390,198,000, investment in debt and equity securities, at amortized cost,
increased $60,762,000 from $56,252,000 to $117,014,000, and federal

-10-

funds sold and other short-term investments decreased $41,791,000 from
$74,510,000 to $32,719,000. The average balance of noninterest bearing demand
deposit accounts increased $15,826,000 from $85,938,000 to $101,764,000,
accounts and drafts payable increased $2,325,000 from $284,240,000 to
$286,565,000, and interest-bearing liabilities increased $18,816,000 from
$121,232,000 to $140,048,000.

The increases and decreases experienced in account balances during the
First Half of 2001 were attributable to the same factors as those described for
the second quarter, except that the average balance of accounts and drafts
payable increased slightly in the First Half of 2002 compared with the First
Half of 2001 which was also due to normal fluctuations in these balances.

The decreases experienced during the First Half of 2002 in net interest
income and the net interest margin were also caused primarily by decreases in
the general level of interest rates. For more information please refer to the
table on page 12 and 13.

Distribution of Assets, Liabilities and Stockholders' Equity; Interest Rate and
Interest Differential

The following table shows the condensed average balance sheets for each
of the periods reported, the interest income and expense on each category of
interest-earning assets and interest-bearing liabilities, and the average yield
on such categories of interest-earning assets and the average rates paid on such
categories of interest-bearing liabilities for each of the periods reported.

Second Quarter 2002 Second Quarter 2001
------------------------------ -----------------------------
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 $ 390,838 $ 6,485 6.66% $363,270 $ 7,181 7.93%
Tax-exempt (4) 6,089 115 7.58 15,452 325 8.44
Debt and equity securities (5):
Taxable 73,035 1,008 5.54 48,426 770 6.38
Tax-exempt (4) 45,081 772 6.87 1,040 19 7.33
Federal funds sold and other
short-term investments 27,963 119 1.71 80,303 873 4.36
- -----------------------------------------------------------------------------------------------------
Total earning assets 543,006 8,499 6.28 508,491 9,168 7.23
Nonearning assets:
Cash and due from banks 24,245 24,805
Premises and equipment, net 16,399 16,936
Foreclosed assets 5,499 5,256
Other assets 8,559 11,173
Allowance for loan losses (5,002) (4,910)
- -----------------------------------------------------------------------------------------------------
Total assets $ 592,706 $561,751
- -----------------------------------------------------------------------------------------------------

Liabilities And Shareholders' Equity (1)
Interest-bearing liabilities:
Interest-bearing demand
deposits $ 59,356 $ 166 1.12% $ 57,093 $ 433 3.04%
Savings deposits 46,406 151 1.31 52,278 397 3.05
Time deposits of
$100 or more 30,410 200 2.64 5,827 72 4.96
Other time deposits 5,543 46 3.33 3,628 49 5.42
- -----------------------------------------------------------------------------------------------------
Total interest-bearing deposits 141,715 563 1.59 118,826 951 3.21
Short-term borrowings 3,909 22 2.26 49 1 8.19
- -----------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 145,624 585 1.61 118,875 952 3.21

-11-

Noninterest-bearing liabilities:
Demand deposits 99,180 90,186
Accounts and drafts payable 286,279 289,062
Other liabilities 5,708 8,409
- -----------------------------------------------------------------------------------------------------
Total liabilities 536,791 506,532
Shareholders' equity 55,915 55,219
Total liabilities and
shareholders' equity $ 592,706 $561,751
- -----------------------------------------------------------------------------------------------------
Net interest income $ 7,914 $ 8,216
Interest spread 4.67% 4.02%
Net interest margin 5.85% 6.48%
- -----------------------------------------------------------------------------------------------------

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
2001 Consolidated Financial Statements.
3. Interest income on loans includes net loan fees of $202,000 and $7,000
for the Second Quarter of 2002 and 2001, respectively.
4. Interest income is presented on a tax-equivalent basis assuming a tax
rate of 34%. The tax-equivalent adjustment was approximately $300,000
and $117,000 for the Second Quarter of 2002 and 2001, 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.

First Half of 2002 First Half of 2001
----------------------------------- -----------------------------------
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 $ 384,087 $ 12,636 6.63% $ 359,636 $ 14,503 8.13%
Tax-exempt (4) 6,111 230 7.59 15,577 666 8.62
Debt and equity securities (5):
Taxable 79,585 2,203 5.58 55,166 1,742 6.37
Tax-exempt (4) 37,429 1,281 6.90 1,086 40 7.43
Federal funds sold and other
short-term investments 32,719 279 1.72 74,510 1,788 4.84
- -----------------------------------------------------------------------------------------------------------------
Total earning assets 539,931 16,629 6.21 505,975 18,739 7.47
Nonearning assets:
Cash and due from banks 23,662 21,608
Premises and equipment, net 16,497 15,719
Foreclosed assets 5,453 4,863
Other assets 9,002 11,042
Allowance for loan losses (4,972) (4,904)
- -----------------------------------------------------------------------------------------------------------------
Total assets $ 589,573 $ 554,303
- -----------------------------------------------------------------------------------------------------------------

Liabilities And Shareholders' Equity (1)
Interest-bearing liabilities:
Interest-bearing demand
deposits $ 59,623 $ 344 1.16% $ 54,121 $ 955 3.56%
Savings deposits 45,929 307 1.35 58,331 1,211 4.19
Time deposits of
$100 or more 27,026 366 2.73 4,971 130 5.27
Other time deposits 5,198 94 3.65 3,775 101 5.40
- -----------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 137,776 1,111 1.63 121,198 2,397 3.99

-12-

Short-term borrowings 2,272 25 2.22 34 1 5.93
- -----------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 140,048 1,136 1.64 121,232 2,398 3.99
Noninterest-bearing liabilities:
Demand deposits 101,764 85,938
Accounts and drafts payable 286,565 284,240
Other liabilities 5,540 8,262
- -----------------------------------------------------------------------------------------------------------------
Total liabilities 533,917 499,672
Shareholders' equity 55,656 54,631
Total liabilities and
shareholders' equity $ 589,573 $ 554,303
- -----------------------------------------------------------------------------------------------------------------
Net interest income $ 15,493 $ 16,341
Interest spread 4.57% 3.48%
Net interest margin 5.79% 6.51%
- -----------------------------------------------------------------------------------------------------------------

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 2001
Consolidated Financial Statements.
3. Interest income on loans includes net loan fees of $258,000 and $11,000 for
the First Half of 2002 and 2001, respectively.
4. Interest income is presented on a tax-equivalent basis assuming a tax rate
of 34%. The tax-equivalent adjustment was approximately $511,000 and
$240,000 for the First Half of 2002 and 2001, 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.

Second Quarter
2002 Over 2001
------------------------------
(Dollars in thousands) Volume Rate Total
- -------------------------------------------------------------------------------------------------------------------

Increase (decrease) in interest income:
Loans (1,2):
Taxable $ 517 $ (1,213) $ (696)
Tax-exempt (3) (180) (30) (210)
Debt and equity securities:
Taxable 350 (112) 238
Tax-exempt (3) 754 (1) 753
Federal funds sold and other
short-term investments (390) (364) (754)
- -------------------------------------------------------------------------------------------------------------------
Total interest income 1,051 (1,720) (669)
- -------------------------------------------------------------------------------------------------------------------
Interest expense on:
Interest-bearing demand deposits 17 (284) (267)
Savings deposits (40) (206) (246)
Time deposits of $100 or more 176 (48) 128
Other time deposits 20 (23) (3)
Short-term borrowings 22 (1) 21
- -------------------------------------------------------------------------------------------------------------------
Total interest expense 195 (562) (367)
- -------------------------------------------------------------------------------------------------------------------
Net interest income $ 856 $ (1,158) $ (302)
- -------------------------------------------------------------------------------------------------------------------

1. Average balances include nonaccrual loans.
2. Interest income includes net loan fees.
3. Interest income is presented on a tax-equivalent basis assuming a tax rate
of 34%.

-13-

First Half
2002 Over 2001
------------------------------
(Dollars in thousands) Volume Rate Total
- --------------------------------------------------------------------------------------------------------------------

Increase (decrease) in interest income:
Loans (1,2):
Taxable $ 937 $ (2,804) $(1,867)
Tax-exempt (3) (364) (72) (436)
Debt and equity securities:
Taxable 697 (236) 461
Tax-exempt (3) 1,244 (3) 1,241
Federal funds sold and other
short-term investments (702) (807) (1,509)
- --------------------------------------------------------------------------------------------------------------------
Total interest income 1,812 (3,922) (2,110)
- --------------------------------------------------------------------------------------------------------------------

Interest expense on:
Interest-bearing demand deposits 89 (700) (611)
Savings deposits (216) (688) (904)
Time deposits of $100 or more 326 (90) 236
Other time deposits 31 (38) (7)
Short-term borrowings 25 (1) 24
- --------------------------------------------------------------------------------------------------------------------
Total interest expense 255 (1,517) (1,262)
- --------------------------------------------------------------------------------------------------------------------
Net interest income $ 1,557 $ (2,405) $ (848)
- --------------------------------------------------------------------------------------------------------------------

1. Average balances include nonaccrual loans.
2. Interest income includes net loan fees.
3. Interest income is presented on a tax-equivalent basis assuming a tax rate
of 34%.

Allowance and Provision for Loan Losses

A significant determinant of the Company's operating results is the
provision for loan losses and the level of loans charged off. There was a
$180,000 provision made for loan losses during the Second Quarter of 2002
compared with no provision made during the Second Quarter of 2001. There was a
$270,000 provision made during the First Half of 2002 compared with no provision
made during the First Half of 2001. Net loans charged off for the Second Quarter
of 2002 were $77,000 compared to net loan recoveries of $47,000 for the Second
Quarter of 2001. Net loans charged off during the First Half of 2002 were
$67,000 compared with net loan recoveries of $50,000 during the First Half of
2001. The provision for loan losses varies over time based on an ongoing
assessment of the adequacy of the allowance for loan losses. The increase in the
provision made for loan losses during the Second Quarter and First Half of 2002
compared to the corresponding periods in 2001 were due to many factors, the most
significant being the increase in the size of the loan portfolio.

The allowance for loan losses at June 30, 2002 was $5,109,000 and at
December 31, 2001 was $4,906,000. The ratio of allowance for loan losses to
total loans outstanding at June 30, 2002 was 1.24% compared to 1.29% at December
31, 2001. Nonperforming loans were $476,000 or .12% of total loans at June 30,
2002 compared to $472,000 or .12% of total loans at December 31, 2001.

At June 30, 2002, impaired loans totaled $5,054,000, which included
$454,000 of nonaccrual loans compared with impaired loans at December 31, 2001
of $525,000, which included $454,000 of nonaccrual loans. The allowance for loan
losses on impaired loans was $542,000 at June 30, 2002. The increase in impaired
loans from December 31, 2001 relates primarily to one borrower, with an
outstanding balance of $4,108,000. The borrower has been making payments on the
related loans, but such payments have been consistently sixty days past due. The
loans to this borrower are collateralized by real estate.

The allowance for loan losses has been established and is maintained to
absorb losses inherent in the loan portfolio. An ongoing assessment of risk of
loss is performed to determine if the current balance of the allowance is
adequate to cover potential losses in the portfolio. A charge or credit is made
to the provision for loan losses 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 specific component includes a
review of each loan on the Company's classified or watch list in terms of
collateral and possible loss exposure based on existing

-14-

circumstances known to management and under current economic conditions. The
general component relates to all other loans which are evaluated based on the
loan grade assigned to the credit with a percentage of each grade allocated to
the allowance for loan losses. The percentages are based on historical
standards. The loan grades assigned to each credit are evaluated on an annual
basis, unless circumstances require interim evaluation. Finally, 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.

Summary of Asset Quality

The following table presents information as of and for the three and
six month periods ended June 30, 2002 and 2001 pertaining to the Company's
provision for loan losses and analysis of the allowance for loan losses.

Three Months Ended Six Months Ended
June 30 June 30
---------------------- ----------------------
(Dollars in Thousands) 2002 2001 2002 2001
- -------------------------------------------------------------------------------------------------------------------------

Allowance at beginning of period $ 5,006 $ 4,900 $ 4,906 $ 4,897

Provision charged to expense 180 -- 270 --

Loans charged off 95 -- 95 --
Recoveries on loans previously charged off 18 47 28 50
- -------------------------------------------------------------------------------------------------------------------------
Net loans charged-off (recovered) 77 (47) 67 (50)
Allowance at end of period $ 5,109 $ 4,947 $ 5,109 $ 4,947
- -------------------------------------------------------------------------------------------------------------------------
Loans outstanding:
Average $ 396,927 $ 378,722 $ 390,198 $ 375,213
June 30 412,628 386,122 412,628 386,122
Ratio of allowance for loan losses to loans outstanding:
Average 1.29% 1.31% 1.31% 1.32%
June 30 1.24 1.28 1.24 1.28
Nonperforming loans:
Nonaccrual loans $ 454 $ 1,757 $ 454 $ 1,757
Loans past due 90 days or more 22 -- 22 --
- -------------------------------------------------------------------------------------------------------------------------
Total nonperforming loans 476 1,757 476 1,757
Foreclosed assets 5,814 5,690 5,814 5,690
- -------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $ 6,290 $ 7,447 $ 6,290 $ 7,447
- -------------------------------------------------------------------------------------------------------------------------
Nonperforming loans to total loans .12% .46% .12% .46%
Nonperforming assets to total assets 1.01% 1.32% 1.01% 1.32%
- -------------------------------------------------------------------------------------------------------------------------

On January 2, 2001, the Bank foreclosed on certain operating assets
relating to one borrower in order to protect the Bank's financial interest in
that borrower. The Bank is currently in the process of stabilizing this business
and intends to operate the business until it can be merged into another entity
or sold. This entity, Government e-Management Solutions, Inc., is a software
company that provides the public sector with integrated financial, property and
human resource management systems. At June 30, 2002, the Bank's investment in
this entity was $5,218,000. This investment is shown on the Company's
consolidated balance sheets as "Foreclosed assets". Based on unaudited financial
statements, this company generated $1,279,000 in revenues and incurred
$1,347,000 in operating expenses during the Second Quarter of 2002. The $68,000
pre-tax loss for the Second Quarter of 2002 includes $72,000 of depreciation and
amortization. For the First Half of 2002 revenues were $2,512,000 and operating
expenses were $2,595,000. The $83,000 pre-tax loss for the First Half of 2002
includes $144,000 of depreciation and amortization. The value of this entity is
predicated on its ability to become profitable or to be sold at an amount equal
to or in excess of the Bank's investment. Should one of these not occur, the
Company may face a charge against earnings representing a diminished value on
its investment.

On August 8, 2001, the Bank foreclosed on a loan to one borrower and is
now carrying the property as other real estate owned at what management believes
to be the fair value less cost to sell of the property of $596,000. The
remaining balance of the loan of $110,000 was charged against the allowance for
loan losses at the time of foreclosure.

-15-

Noninterest Income

Noninterest income is principally derived from payment and processing
fees. Processing volumes related to these fees for the three and six month
periods ended June 30, 2002 and 2001 are as follows:

Three Months Ended Six Months Ended
June 30 June 30
------------------------------------- --------------------------------------
% %
(In Thousands) 2002 2001 Change 2002 2001 Change
- --------------------------------------------------------------------------- --------------------------------------

Transportation Information Services:
Invoice Bill Volume 5,316 5,140 3.4% 10,275 9,998 2.8%
Invoice Dollar Volume $1,886,067 $1,808,533 4.3% $3,727,704 $3,667,166 1.7%

Utility Information Services:
Invoice Transaction Volume 845 668 26.5% 1,607 1,354 18.7%
Invoice Dollar Volume $589,295 $562,945 4.7% $1,193,662 $1,159,071 3.0%

Total noninterest income for the Second Quarter of 2002 was $7,502,000,
a $1,847,000 or 32.7% increase compared with the Second Quarter of 2001. Total
noninterest income for the First Half of 2002 was $13,506,000, a 18.5% increase
compared with the First Half of 2001. The Company's payment and processing
revenue for the Second Quarter of 2002 was $6,122,000, a $968,000 or 18.8%
increase compared to the Second Quarter of 2001. Fees generated from the
Transportation Information Services Division in the Second Quarter of 2002 were
$4,422,000, a $375,000 or 9.3% increase compared to the Second Quarter of 2001.
Processing fees from the Utility Information Services Division in the Second
Quarter of 2002 were $1,700,000, a $593,000 or 53.6% increase compared to the
Second Quarter of 2001. Payment and processing revenue for the First Half of
2002 was $11,673,000, a $1,207,000 or 11.5% increase compared to the First Half
of 2001. Fees generated from the Transportation Information Services Division
for the First Half of 2002 were $8,555,000, a $181,000 or 2.2% increase compared
to the First Half of 2001. Processing fees from the Utility Information Services
Division for the First Half of 2002 were $3,118,000, a $1,026,000 or 49.0%
increase compared to the First Half of 2001. The increases in fees from the
Transportation Information Services Division during the Second Quarter of 2002
and the First Half of 2002 were due to new customers and new services. The new
customers and services more than offset the effects of a dramatic drop in
national freight activity over last year's levels. The increases in fees from
the Utility Information Services Division were primarily due to the addition of
new customers from marketing efforts and through the acquisition of "The Utility
Navigator(R)".

Bank service fees for the Second Quarter of 2002 were $424,000, a
$41,000 or 10.7% increase compared to the Second Quarter of 2001. Bank service
fees for the First Half of 2002 were $836,000, a $137,000 or 19.6% increase
compared to the First Half of 2001. These increases are due to the fact that
service fees increase as the value of noninterest-bearing deposits, used to
compensate the Bank, decrease as the general level of interest rates decrease
and to an expansion of the Bank's customer base.

In the Second Quarter of 2002 the Company recorded gains of $944,000 on
the sales of securities with a fair value of $52,238,000. The sales of
securities were transacted to adjust the portfolio to reflect the changes in the
interest rate environment and growth in the loan portfolio during the past year
and to offset the loss in interest income due to the dramatic decline in the
general level of interest rates.

Noninterest Expense

Total noninterest expense for the Second Quarter of 2002 was
$11,713,000, a $676,000 or 6.1% increase compared to the Second Quarter of 2001.
Total noninterest expense for the First Half of 2002 was $23,037,000, a $912,000
or 4.1% increase compared to the First Half of 2001.

Salaries and benefits expense for the Second Quarter of 2002 was
$7,897,000, a $234,000 or 3.1% increase compared to the Second Quarter of 2001.
Salaries and benefits expense for the First Half of 2002 was $15,503,000, a
$118,000 or .8% increase compared to the First Half of 2001. The most
significant influence on these increases were benefit expenses, which increased
$123,000 in the Second Quarter of 2002 and $180,000 in the First Half of 2002
primarily due to increases in health insurance and pension expense.

-16-

Occupancy expense for the Second Quarter of 2002 was $384,000, a
$43,000 or 10.1% decrease compared to the Second Quarter of 2001. Occupancy
expense for the First Half of 2002 was $748,000, a $140,000 or 15.8% decrease
compared to the First Half of 2001. These decreases relate primarily to reduced
rent and related expenses from the closing of the Company's office in Chicago
and one of its bank branches located in St. Louis, Missouri. The decrease in the
First Half of 2002 also included a decrease in rent expense the Company
experienced after moving its Columbus operations from leased space to a newly
acquired building.

Equipment expense for the Second Quarter of 2002 was $1,115,000, an
increase of $211,000 or 23.3% compared to the Second Quarter of 2001. Equipment
expense for the First Half of 2002 was $2,204,000, an increase of $486,000 or
28.3% compared to the First Half of 2001. These increases were due primarily to
increased investments in information technology.

Other noninterest expense for the Second Quarter of 2002 was
$2,317,000, an increase of $274,000 or 13.4% compared to the Second Quarter of
2001. Other noninterest expense for the First Half of 2002 was $4,582,000, an
increase of $448,000 or 10.8% compared to the First Half of 2001. These
increases were due primarily to increases in production expenses such as postage
and outside service fees.

Financial Condition

Total assets at June 30, 2002 were $623,387,000, an increase of
$22,512,000 or 3.7% from December 31, 2001. Loans, net of the allowance for loan
losses, at June 30, 2002 were $407,519,000, an increase of $30,973,000 or 8.2%
from December 31, 2001. Total investments in debt and equity securities at June
30, 2002 were $65,641,000, a $26,689,000 or 28.9% decrease from December 31,
2001. Federal funds sold and other short-term investments at June 30, 2002 were
$90,060,000 a $22,120,000 or 32.6% increase from December 31, 2001.

Total deposits at June 30, 2002 were $244,461,000, a $3,517,000 or 1.4%
decrease from December 31, 2001. Accounts and drafts payable were $314,240,000,
a $22,446,000 or 7.7% increase from December 31, 2001. Total shareholders'
equity at June 30, 2002 was $58,218,000, a $2,698,000 or 4.9% increase from
December 31, 2001.

The increase in loans relates primarily to the Bank's marketing
efforts, both in the commercial and church and church-related areas. The
decrease in debt and equity securities relates to the sale of $52,238,000 of
securities in the Second Quarter of 2002, which was partially offset by the
purchase of securities during the First Quarter of 2002. The selling of these
securities also resulted in an increase in federal funds sold and other
short-term investments that will be used to fund expected future loan growth as
well as other investment opportunities. The decrease in deposits reflects normal
daily and seasonal fluctuations. The ending balances of accounts and drafts
payable increased due to the fact that these balances will fluctuate from
period-end to period-end due to the payment processing cycle, which results in
lower balances on days when checks clear and higher balances on days when checks
are issued. For this reason, average balances are a more meaningful measure of
accounts and drafts payable (for average balances refer to the tables on page 11
to 13). The increase in total shareholders' equity resulted from net income of
$3,577,000; cash received from the exercise of stock options of $348,000; the
amortization of the stock bonus plan of $13,000 and the tax benefit received
from the exercise of stock awards of $186,000; the increase in other
comprehensive income of $238,000; offset by dividends paid of $1,281,000 ($.40
per share) and the purchase of treasury shares for $383,000 (15,664 shares).

Liquidity and Capital Resources

The balances of liquid assets consists of cash and cash equivalents,
which include cash and due from banks, federal funds sold, and money market
funds were $117,402,000 at June 30, 2002, an increase of $17,547,000 or 17.6%
from December 31, 2001. At June 30, 2002 these assets represented 18.8% 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.

-17-

Secondary sources of liquidity include the investment portfolio and
borrowing lines. Total investment in debt and equity securities was $65,641,000
at June 30, 2002, a decrease of $26,689,000 or 28.9% from December 31, 2001.
These assets represented 10.5% of total assets at June 30, 2002. Of this total,
71% were state and municipal securities, 20% were U.S. government agencies, 6%
were U.S. treasury securities, 1% were mortgage-backed securities and 2% were
other securities. Of the total portfolio, 6% matures in one year, 21% matures in
one to five years, and 73% matures in five or more years. At January 1, 2001 the
Company transferred the remaining balance of held-to-maturity securities into
available-for-sale securities. The investment portfolio provides secondary
liquidity through regularly scheduled maturities, the ability to sell securities
out of the available-for-sale portfolio, and the ability to use these securities
in conjunction with repurchase lines of credit.

The Bank has unsecured lines at correspondent banks to purchase federal
funds up to a maximum of $24,000,000. Additionally, The Company maintains
secured lines of credit at unaffiliated financial institutions in the maximum
amount of $43,000,000.

The deposits of the Company's banking subsidiary have historically been
stable, consisting of a sizable volume of core deposits related to customers
that utilize many other commercial products of the bank. The accounts and drafts
payable generated by the Company has also historically been a stable source of
funds.

Net cash provided by operating activities totaled $4,791,000 for the
First Half of 2002, compared to $3,358,000 for the First Half of 2001. Net cash
used in investing activities was $4,843,000 for the First Half of 2002, compared
with net cash provided of $2,851,000 for the First Half of 2001. Net cash
provided by financing activities for the First Half of 2002 was $17,599,000,
compared with net cash used of $17,049,000 for the First Half of 2001. The
increase in net cash used in investing activities relates primarily to the
increase in outstanding loans, which was partially offset by the net amount of
securities sold over securities purchased during the First Half of 2002. The
increase in net cash provided by financing activities relates primarily to an
increase in deposits and accounts and drafts payable during the First Half of
2002.

The Company faces market risk to the extent that its net interest
income and fair market value of equity are affected by changes in market
interest rates. For information regarding the market risk of the Company's
financial instruments, see Item 3. "QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK".

Risk-based capital guidelines require the Company to meet a minimum
total capital ratio of 8.0% of which at least 4.0% must consist of Tier 1
capital. Tier 1 capital generally consists of (a) common shareholders' equity
(excluding the unrealized market value adjustments on the available-for-sale
securities), (b) qualifying perpetual preferred stock and related surplus
subject to certain limitations specified by the FDIC, (c) minority interests in
the equity accounts of consolidated subsidiaries less (d) goodwill, (e) mortgage
servicing rights within certain limits, and (f) any other intangible assets and
investments in subsidiaries that the FDIC determines should be deducted from
Tier 1 capital. The FDIC also requires a minimum leverage ratio of 3.0%, defined
as the ratio of Tier 1 capital less purchased mortgage servicing rights to total
assets, for banking organizations deemed the strongest and most highly rated by
banking regulators. A higher minimum leverage ratio is required of less highly
rated banking organizations. Total capital, a measure of capital adequacy,
includes Tier 1 capital, allowance for loan losses, and debt considered equity
for regulatory capital purposes.

The Company and the Bank continue to significantly exceed all
regulatory capital requirements, as evidenced by the following capital amounts
and ratios at June 30, 2002 and December 31, 2001:

June 30, 2002 Amount Ratio
- -----------------------------------------------------------------------------------------------------------------------

Total capital (to risk-weighted assets)
Cass Information Systems, Inc. $57,093,000 11.94%
Cass Commercial Bank 26,561,000 11.13
Tier I capital (to risk-weighted assets)
Cass Information Systems, Inc. $51,984,000 10.87%
Cass Commercial Bank 23,650,000 9.91
Tier I capital (to average assets)
Cass Information Systems, Inc. $51,984,000 8.90%
Cass Commercial Bank 23,650,000 8.76
- -----------------------------------------------------------------------------------------------------------------------

-18-

December 31, 2001 Amount Ratio
- -----------------------------------------------------------------------------------------------------------------------
Total capital (to risk-weighted assets)
Cass Information Systems, Inc. $54,537,000 12.22%
Cass Commercial Bank 25,363,000 11.41
Tier I capital (to risk-weighted assets)
Cass Information Systems, Inc. $49,631,000 11.12%
Cass Commercial Bank 22,608,000 10.17
Tier I capital (to average assets)
Cass Information Systems, Inc. $49,631,000 8.75%
Cass Commercial Bank 22,608,000 9.20
- -----------------------------------------------------------------------------------------------------------------------

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.

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, 2001, 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 June 30, 2002 has changed materially from that at December 31, 2001.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS
None

ITEM 2. CHANGES IN SECURITIES
None

ITEM 3. DEFAULTS IN SENIOR SECURITIES
None

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the annual meeting of the shareholders of Cass Information Systems,
Inc. held on April 15, 2002, the following proposals were voted on and
approved:

The following is a summary of votes cast. No broker non-votes were
received.

Withheld
Authority /
For Against Abstentions
-------------- ------------- --------------

1.Proposal to elect three Directors for a term
of three years ending 2005;

Bryan S. Chapell 2,578,090 12,520 612,212
Jake Nania 2,573,240 17,370 612,212
John J. Vallina 2,562,910 27,700 612,212
Bruce E. Woodruff 2,570,340 20,270 612,212

2.Proposal to ratify the selection of KPMG LLP
as independent accountants for 2005. 2,578,710 2,400 621,700

ITEM 5. OTHER INFORMATION
None

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 99.1 Certification Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.

Exhibit 99.2 Certification Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.

(b) Cass Information Systems, Inc. did not file any reports on
Form 8-K during the three-month period ended June 30, 2002.

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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: August 8, 2002 By /s/ Lawrence A. Collett
--------------------------------
Lawrence A. Collett
Chairman and Chief Executive Officer

DATE: August 8, 2002 By /s/ Eric H. Brunngraber
--------------------------------
Eric H. Brunngraber
Vice President-Secretary
(Chief Financial and Accounting Officer)

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