[FORM 10-Q Filing Information](index=1&type=section&id=FORM%2010-Q) This section provides essential details regarding the company's regulatory filing [Registrant Information](index=1&type=section&id=Registrant%20Information) This chapter provides basic information for CASS INFORMATION SYSTEMS, INC. as the registrant, including its state of incorporation, employer identification number, principal executive offices, telephone number, and common stock listed on the Nasdaq Global Select Market, confirming the company has filed all required reports and is an accelerated filer - Company Name: **CASS INFORMATION SYSTEMS, INC.**[4](index=4&type=chunk) - State of Incorporation: **Missouri**[4](index=4&type=chunk) - Securities Registered: Common Stock, par value **$0.50**, trading symbol **CASS**, registered on the Nasdaq Global Select Market[4](index=4&type=chunk) - Filer Status: **Accelerated Filer**[7](index=7&type=chunk) [Shares Outstanding](index=2&type=section&id=Shares%20Outstanding) As of April 22, 2022, the company had 13,652,849 shares of common stock outstanding - As of April 22, 2022, Common Stock Shares Outstanding: **13,652,849 shares**[9](index=9&type=chunk) [Table of Contents](index=3&type=section&id=Table%20of%20Contents) This section outlines the structure and content of the report [Forward-looking Statements - Factors That May Affect Future Results](index=3&type=section&id=Forward-looking%20Statements%20-%20Factors%20That%20May%20Affect%20Future%20Results) This section discusses potential future impacts on the company's performance [Forward-looking Statements Disclaimer](index=3&type=section&id=Forward-looking%20Statements%20Disclaimer) This report contains forward-looking statements subject to risks and uncertainties beyond the company's control, which may cause actual results to differ materially from expectations, and the company undertakes no obligation to update them publicly - Forward-looking statements are not guarantees of future performance and involve risks, uncertainties, and other factors beyond the company's control[13](index=13&type=chunk) - These risks, uncertainties, and other factors are discussed in the "Risk Factors" section of the company's 2021 Form 10-K annual report[13](index=13&type=chunk) - The company undertakes no obligation to publicly update or revise any forward-looking statements[13](index=13&type=chunk) [PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This part presents the company's financial statements and related disclosures [ITEM 1. FINANCIAL STATEMENTS](index=4&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS) This chapter provides the company's unaudited consolidated financial statements as of March 31, 2022, including the balance sheets, income statements, comprehensive income statements, cash flow statements, and statements of shareholders' equity, along with related notes, detailing the company's financial position and operating results [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) As of March 31, 2022, the company's total assets were **$2,422,043 thousand**, a decrease from **$2,554,901 thousand** as of December 31, 2021, primarily due to a significant reduction in cash and cash equivalents, partially offset by increases in investment securities and net loans | Indicator | March 31, 2022 (thousand USD) | December 31, 2021 (thousand USD) | Change (thousand USD) | Change (%) | | :----------------------------------- | :--------------------- | :---------------------- | :------------ | :------- | | **Assets** | | | | | | Cash and Bank Deposits | 22,416 | 12,301 | 10,115 | 82.23% | | Short-term Investments | 169,033 | 502,627 | (333,594) | -66.37% | | Cash and Cash Equivalents | 191,449 | 514,928 | (323,479) | -62.81% | | Available-for-sale Securities, at Fair Value | 774,610 | 673,453 | 101,157 | 15.02% | | Loans, Net | 964,796 | 948,526 | 16,270 | 1.71% | | Prepaid Expenses | 329,622 | 291,427 | 38,195 | 13.11% | | Total Assets | 2,422,043 | 2,554,901 | (132,858) | -5.20% | | **Liabilities** | | | | | | Total Deposits | 1,176,935 | 1,221,503 | (44,568) | -3.65% | | Accounts Payable and Drafts | 989,733 | 1,050,396 | (60,663) | -5.78% | | Total Liabilities | 2,204,965 | 2,309,103 | (104,138) | -4.51% | | **Shareholders' Equity** | | | | | | Total Shareholders' Equity | 217,078 | 245,798 | (28,720) | -11.68% | [Consolidated Statements of Income](index=5&type=section&id=Consolidated%20Statements%20of%20Income) For the three months ended March 31, 2022, the company's net income was **$8,258 thousand**, an increase of **16.8%** from **$7,071 thousand** in the prior-year period, driven by significant growth in fee income and financial service fee income, as well as an increase in net interest income | Indicator | For the three months ended March 31, 2022 (thousand USD) | For the three months ended March 31, 2021 (thousand USD) | Change (thousand USD) | Change (%) | | :----------------------------------- | :----------------------------- | :----------------------------- | :------------ | :------- | | Total Fee and Other Income | 30,430 | 26,175 | 4,255 | 16.26% | | Total Interest Income | 12,126 | 10,676 | 1,450 | 13.58% | | Total Interest Expense | 223 | 331 | (108) | -32.63% | | Net Interest Income | 11,903 | 10,345 | 1,558 | 15.06% | | Provision (Reversal) for Credit Losses | 230 | (600) | 830 | -138.33% | | Net Interest Income after Provision (Reversal) for Credit Losses | 11,673 | 10,945 | 728 | 6.65% | | Total Net Revenue | 42,103 | 37,120 | 4,983 | 13.42% | | Total Operating Expenses | 31,828 | 28,525 | 3,303 | 11.58% | | Income Before Income Taxes | 10,275 | 8,595 | 1,680 | 19.55% | | Income Tax Expense | 2,017 | 1,524 | 493 | 32.35% | | Net Income | 8,258 | 7,071 | 1,187 | 16.79% | | Basic Earnings Per Share | 0.61 | 0.49 | 0.12 | 24.49% | | Diluted Earnings Per Share | 0.60 | 0.49 | 0.11 | 22.45% | [Consolidated Statements of Comprehensive Income](index=6&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) For the three months ended March 31, 2022, the company reported a comprehensive loss of **$20,317 thousand**, compared to comprehensive income of **$3,694 thousand** in the prior-year period, primarily due to a significant increase in unrealized net losses on available-for-sale securities | Indicator | For the three months ended March 31, 2022 (thousand USD) | For the three months ended March 31, 2021 (thousand USD) | | :----------------------------------- | :----------------------------- | :----------------------------- | | Net Income | 8,258 | 7,071 | | Other Comprehensive (Loss) Income: | | | | Unrealized Net Loss on Available-for-sale Securities | (37,499) | (4,214) | | Tax Impact | 8,925 | 1,003 | | Foreign Currency Translation Adjustment | (1) | (129) | | Total Comprehensive (Loss) Income | (20,317) | 3,694 | - In Q1 2022, the **unrealized net loss on available-for-sale securities was $37,499 thousand**, compared to **$4,214 thousand** in Q1 2021, which was the primary driver of the significant decrease in comprehensive income[26](index=26&type=chunk) [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) For the three months ended March 31, 2022, net cash provided by operating activities was **$14,723 thousand**, while investing activities used **$201,087 thousand** and financing activities used **$137,115 thousand**, resulting in a net decrease of **$323,479 thousand** in cash and cash equivalents | Cash Flow Activities | For the three months ended March 31, 2022 (thousand USD) | For the three months ended March 31, 2021 (thousand USD) | | :----------------------------------- | :----------------------------- | :----------------------------- | | Net Cash Provided by Operating Activities | 14,723 | 16,704 | | Net Cash Used in Investing Activities | (201,087) | (94,697) | | Net Cash Used in Financing Activities | (137,115) | 7,124 | | Net Decrease in Cash and Cash Equivalents | (323,479) | (70,869) | | Cash and Cash Equivalents at End of Period | 191,449 | 599,659 | - Cash outflow from investing activities significantly increased, primarily due to **purchases of available-for-sale securities ($156,597 thousand)** and an **increase in prepaid expenses ($38,195 thousand)**[31](index=31&type=chunk) - Cash outflow from financing activities was mainly influenced by a **net increase in non-interest-bearing demand deposits ($39,177 thousand)**, a **net decrease in interest-bearing demand and savings deposits ($80,002 thousand)**, and a **net decrease in accounts payable and drafts ($83,054 thousand)**[31](index=31&type=chunk) [Consolidated Statements of Shareholders' Equity](index=8&type=section&id=Consolidated%20Statements%20of%20Shareholders'%20Equity) As of March 31, 2022, total shareholders' equity was **$217,078 thousand**, a **11.68% decrease** from **$245,798 thousand** as of December 31, 2021, primarily due to other comprehensive loss, stock repurchases, and cash dividend payments, partially offset by net income | Shareholders' Equity Item | December 31, 2021 (thousand USD) | March 31, 2022 (thousand USD) | Change (thousand USD) | | :----------------------------------- | :---------------------- | :--------------------- | :------------ | | Common Stock | 7,753 | 7,753 | 0 | | Additional Paid-in Capital | 204,276 | 203,149 | (1,127) | | Retained Earnings | 112,220 | 116,646 | 4,426 | | Treasury Stock, Common | (78,904) | (82,348) | (3,444) | | Accumulated Other Comprehensive (Loss) Income | 453 | (28,122) | (28,575) | | Total Shareholders' Equity | 245,798 | 217,078 | (28,720) | - In Q1 2022, net income was **$8,258 thousand**, cash dividends paid were **$3,832 thousand**, stock repurchases were **$5,086 thousand**, and other comprehensive loss was **$28,575 thousand**[34](index=34&type=chunk) [Notes to Consolidated Financial Statements (Unaudited)](index=9&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements%20(Unaudited)) This section provides detailed notes to the consolidated financial statements, covering key financial information and accounting policies such as basis of presentation, intangible assets, earnings per share, stock repurchases, segment information, loan types, commitments and contingencies, stock-based compensation, pension plans, income taxes, investment securities, fair value of financial instruments, revenue from contracts with customers, and leases [Note 1 - Basis of Presentation](index=9&type=section&id=Note%201%20-%20Basis%20of%20Presentation) This note explains that the unaudited consolidated financial statements are prepared in accordance with U.S. GAAP and Form 10-Q instructions, and it addresses the ongoing risks and uncertainties related to the COVID-19 pandemic that may affect the company's financial condition and operating results - Financial statements are prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP) and the instructions for Form 10-Q, and do not include all information and notes required for complete financial statements[37](index=37&type=chunk) - The company continues to closely monitor the COVID-19 pandemic and faces business, operational, market, credit, and other risks that could adversely affect its financial condition and operating results[38](index=38&type=chunk) [Note 2 – Intangible Assets](index=9&type=section&id=Note%202%20%E2%80%93%20Intangible%20Assets) This note provides detailed information on the company's intangible assets, including the carrying value and accumulated amortization of customer lists, patents, software, trade names, and other intangibles, with net intangible assets totaling **$2,429 thousand** and goodwill at **$14,262 thousand** as of March 31, 2022 | Intangible Asset Category | March 31, 2022 (thousand USD) | December 31, 2021 (thousand USD) | | :----------------------------------- | :--------------------- | :---------------------- | | Customer Lists | 4,778 | 4,778 | | Patents | 72 | 72 | | Software | 2,844 | 2,844 | | Trade Names | 190 | 190 | | Other | 500 | 500 | | Unamortized Intangible Assets: Goodwill | 14,262 | 14,262 | | Total Intangible Assets | 22,646 | 22,646 | | Total Accumulated Amortization | (5,955) | (5,820) | | Net Intangible Assets (excluding Goodwill) | 2,429 | 2,564 | - As of March 31, 2022, and December 31, 2021, goodwill remained **$14,262 thousand** and was not impaired[41](index=41&type=chunk) - For the three months ended March 31, 2022, intangible asset amortization expense was **$135 thousand**, lower than **$215 thousand** in the prior-year period[41](index=41&type=chunk) [Note 3 – Earnings Per Share](index=9&type=section&id=Note%203%20%E2%80%93%20Earnings%20Per%20Share) This note details the calculation of basic and diluted earnings per share, with basic EPS at **$0.61** and diluted EPS at **$0.60** for the three months ended March 31, 2022, both higher than the prior-year period | Indicator | For the three months ended March 31, 2022 | For the three months ended March 31, 2021 | | :----------------------------------- | :-------------------- | :-------------------- | | **Basic** | | | | Net Income (thousand USD) | 8,258 | 7,071 | | Weighted Average Common Shares Outstanding | 13,577,991 | 14,312,260 | | Basic Earnings Per Share | **$0.61** | **$0.49** | | **Diluted** | | | | Net Income (thousand USD) | 8,258 | 7,071 | | Weighted Average Common Shares Outstanding | 13,577,991 | 14,312,260 | | Effect of Dilutive Restricted Stock and Stock Appreciation Rights | 236,233 | 220,809 | | Assumed Diluted Weighted Average Common Shares Outstanding | 13,814,224 | 14,533,069 | | Diluted Earnings Per Share | **$0.60** | **$0.49** | [Note 4 – Stock Repurchases](index=10&type=section&id=Note%204%20%E2%80%93%20Stock%20Repurchases) This note discloses the company's stock repurchase program, indicating that as of March 31, 2022, the company had repurchased **124,874 shares** of common stock under a board-authorized plan, with **346,207 shares** remaining available for repurchase - The company's Board of Directors authorized the repurchase of up to **750,000 shares** of common stock in October 2021, with no expiration date[44](index=44&type=chunk) - As of March 31, 2022, **346,207 shares** remained available for repurchase under the plan[44](index=44&type=chunk) - For the three months ended March 31, 2022, the company repurchased **124,874 shares** of common stock, compared to **31,256 shares** in the prior-year period[44](index=44&type=chunk) [Note 5 – Industry Segment Information](index=10&type=section&id=Note%205%20%E2%80%93%20Industry%20Segment%20Information) The company operates in two reportable segments: Information Services, which provides transportation, energy, telecom, and environmental invoice processing and payment services, and Banking Services, which offers banking services to privately held businesses and faith-based organizations, with management assessing segment performance based on tax-equivalent income before taxes - The company has two reportable segments: **Information Services** and **Banking Services**[45](index=45&type=chunk) - The Information Services segment provides transportation, energy, telecom, and environmental invoice processing and payment services[46](index=46&type=chunk) - The Banking Services segment primarily provides banking services to privately held businesses and faith-based organizations and supports the banking needs of the Information Services segment[46](index=46&type=chunk) | Indicator (thousand USD) | Information Services (2022) | Banking Services (2022) | Corporate, Eliminations & Other (2022) | Total (2022) | | :----------------------------------- | :---------------- | :---------------- | :------------------------ | :---------- | | Fee Income | 29,234 | 628 | 568 | 30,430 | | Interest Income* | 6,326 | 6,482 | (237) | 12,571 | | Tax-Equivalent Income Before Taxes* | 7,815 | 2,850 | 56 | 10,721 | | Total Assets | 1,090,737 | 1,345,958 | (14,652) | 2,422,043 | | Average Funding Sources | 1,008,928 | 966,820 | — | 1,975,748 | | Indicator (thousand USD) | Information Services (2021) | Banking Services (2021) | Corporate, Eliminations & Other (2021) | Total (2021) | | :----------------------------------- | :---------------- | :---------------- | :------------------------ | :---------- | | Fee Income | 25,298 | 317 | 560 | 26,175 | | Interest Income* | 5,509 | 5,751 | (122) | 11,138 | | Tax-Equivalent Income Before Taxes* | 5,786 | 2,988 | 283 | 9,057 | | Total Assets | 1,023,196 | 1,263,669 | (70,292) | 2,216,573 | | Average Funding Sources | 837,852 | 849,177 | — | 1,687,029 | [Note 6 – Loans by Type](index=11&type=section&id=Note%206%20%E2%80%93%20Loans%20by%20Type) This note provides a detailed classification of the company's loan portfolio, including commercial and industrial, commercial real estate mortgage and construction, faith-based institution mortgage and construction, and PPP loans, totaling **$977,202 thousand** as of March 31, 2022, with all loans performing and no past due or nonaccrual loans, and an Allowance for Credit Losses (ACL) of **$12,406 thousand**, representing **1.27%** of total loans | Loan Type (thousand USD) | March 31, 2022 | December 31, 2021 | | :----------------------------------- | :------------ | :------------- | | Commercial and Industrial | 469,129 | 450,336 | | Real Estate: Commercial Mortgage | 101,018 | 108,759 | | Real Estate: Commercial Construction | 24,757 | 24,797 | | Real Estate: Faith-Based Mortgage | 367,376 | 355,582 | | Real Estate: Faith-Based Construction | 13,512 | 14,664 | | PPP Loans | 1,373 | 6,299 | | Other | 37 | 130 | | **Total Loans** | **977,202** | **960,567** | - As of March 31, 2022, and December 31, 2021, the company had **no past due or nonaccrual loans**[56](index=56&type=chunk) | Allowance for Credit Losses (ACL) (thousand USD) | March 31, 2022 | December 31, 2021 | | :----------------------------------- | :------------ | :------------- | | Beginning Balance | 12,041 | 11,944 | | Provision (Reversal) for Credit Losses | 365 | 70 | | Ending Balance | 12,406 | 12,041 | | ACL as a Percentage of Total Loans | 1.27% | 1.25% | - The increase in the Allowance for Credit Losses during the period ended March 31, 2022, was primarily due to **loan balance growth**[61](index=61&type=chunk) [Note 7 – Commitments and Contingencies](index=14&type=section&id=Note%207%20%E2%80%93%20Commitments%20and%20Contingencies) This note discloses the company's off-balance sheet credit-related financial instruments and commitments in the normal course of business, including credit commitments, commercial letters of credit, and standby letters of credit, with total unused loan commitments of **$200,547 thousand** as of March 31, 2022 - The company is exposed to credit, market, and operating risks in the normal course of business, some of which are not reflected in the consolidated financial statements[62](index=62&type=chunk) - As of March 31, 2022, unused loan commitments, standby letters of credit, and commercial letters of credit balances were **$200,547 thousand**, **$12,297 thousand**, and **$1,208 thousand**, respectively[63](index=63&type=chunk) - For the three months ended March 31, 2022, a **reversal of $135 thousand** for credit losses was recorded, primarily due to a reduction in unfunded commitments[62](index=62&type=chunk) [Note 8 – Stock-Based Compensation](index=14&type=section&id=Note%208%20%E2%80%93%20Stock-Based%20Compensation) This note details the company's stock-based compensation plans, including restricted stock, performance-based restricted stock, and stock appreciation rights (SARs), with stock-based compensation expense totaling **$1,090 thousand** for the three months ended March 31, 2022, an increase from the prior-year period - The company grants stock options, SARs, restricted stock, restricted stock units, and performance awards under its Amended and Restated Omnibus Stock and Performance Compensation Plan[64](index=64&type=chunk) - For the three months ended March 31, 2022, stock-based compensation expense was **$1,090 thousand**, compared to **$693 thousand** in the prior-year period[64](index=64&type=chunk) | Restricted Stock Activity (For the three months ended March 31, 2022) | Shares | Weighted Average Fair Value ($) | | :----------------------------------- | :--- | :------------------- | | Balance at December 31, 2021 | 165,553 | 44.81 | | Granted | 40,462 | 39.45 | | Vested | (21,836) | 49.09 | | Balance at March 31, 2022 | 184,179 | 43.13 | | Performance-Based Restricted Stock Activity (For the three months ended March 31, 2022) | Shares | Weighted Average Fair Value ($) | | :----------------------------------- | :--- | :------------------- | | Balance at December 31, 2021 | 116,543 | 46.79 | | Granted | 57,542 | 39.58 | | Vested | (33,668) | 49.09 | | Balance at March 31, 2022 | 140,417 | 43.20 | - For the three months ended March 31, 2022, **no SARs were granted**, and **no related expense was recognized**[70](index=70&type=chunk) [Note 9 – Defined Pension Plans](index=16&type=section&id=Note%209%20%E2%80%93%20Defined%20Pension%20Plans) This note provides details on the company's defined benefit pension plan and supplemental executive retirement plan, with a net periodic pension benefit of **$618 thousand** in Q1 2022, compared to a net periodic pension cost of **$273 thousand** in the prior-year period, due to the pension plan freeze on February 28, 2021 - The company's non-contributory defined benefit pension plan was frozen for all participants on February 28, 2021, resulting in **no service cost** for Q1 2022[72](index=72&type=chunk) | Components of Net Periodic Pension Cost (thousand USD) | 2022 Estimate | 2021 Actual | | :----------------------------------- | :--------- | :--------- | | Service Cost | — | 1,002 | | Interest Cost on Projected Benefit Obligation | 3,290 | 3,076 | | Expected Return on Plan Assets | (5,860) | (6,310) | | Net Amortization | — | 393 | | Net Periodic Pension Benefit | (2,570) | (1,839) | - In Q1 2022, the company recorded a **net periodic pension benefit of $618 thousand**, compared to a **net periodic pension cost of $273 thousand** in Q1 2021, primarily due to the plan freeze[72](index=72&type=chunk) [Note 10 – Income Taxes](index=16&type=section&id=Note%2010%20%E2%80%93%20Income%20Taxes) This note discloses the company's effective tax rate of **19.6%** for the three months ended March 31, 2022, higher than **17.7%** in the prior-year period, with the difference primarily stemming from tax-exempt interest on municipal bonds and bank-owned life insurance, as well as an increase in current taxable income - For the three months ended March 31, 2022, the effective tax rate was **19.6%**, compared to **17.7%** in the prior-year period[74](index=74&type=chunk) - The difference between the effective tax rate and the statutory rate of **21%** is primarily due to tax-exempt interest from municipal bonds and bank-owned life insurance[74](index=74&type=chunk) - The increase in the 2022 effective tax rate was mainly due to higher current taxable income, which reduced the relative impact of tax-exempt income[74](index=74&type=chunk) [Note 11 – Investment in Securities](index=16&type=section&id=Note%2011%20%E2%80%93%20Investment%20in%20Securities) This note provides information on the fair value, unrealized gains and losses, and contractual maturities of the company's available-for-sale investment securities, with fair value totaling **$774,610 thousand** as of March 31, 2022, and a significant increase in unrealized losses primarily due to changes in market interest rates | Security Type (thousand USD) | March 31, 2022 Fair Value | December 31, 2021 Fair Value | | :----------------------------------- | :-------------------- | :--------------------- | | State and Local Government Bonds | 339,324 | 371,128 | | Mortgage-Backed Securities | 191,759 | 168,646 | | Corporate Bonds | 91,195 | 84,338 | | U.S. Treasury Securities | 99,587 | — | | Asset-Backed Securities | 52,745 | 49,341 | | **Total** | **774,610** | **673,453** | | Unrealized Gains and Losses (thousand USD) | March 31, 2022 Unrealized Gains | March 31, 2022 Unrealized Losses | December 31, 2021 Unrealized Gains | December 31, 2021 Unrealized Losses | | :----------------------------------- | :---------------------- | :---------------------- | :----------------------- | :----------------------- | | State and Local Government Bonds | 2,417 | 10,543 | 12,931 | 990 | | Mortgage-Backed Securities | — | 13,763 | 135 | 2,200 | | Corporate Bonds | — | 5,321 | 72 | 272 | | U.S. Treasury Securities | 132 | — | — | — | | Asset-Backed Securities | — | 1,238 | — | 494 | | **Total** | **2,549** | **30,865** | **13,138** | **3,956** | - As of March 31, 2022, **180 securities (49%)** were in an unrealized loss position, primarily attributable to changes in market interest rates since their purchase[78](index=78&type=chunk) [Note 12 – Fair Value of Financial Instruments](index=19&type=section&id=Note%2012%20%E2%80%93%20Fair%20Value%20of%20Financial%20Instruments) This note outlines the carrying and fair values of the company's financial instruments, describing the methods and assumptions used to estimate these values for items such as cash and cash equivalents, investment securities, loans, accrued interest receivable, deposits, accounts payable and drafts, and accrued interest payable | Financial Instrument (thousand USD) | March 31, 2022 Carrying Value | March 31, 2022 Fair Value | December 31, 2021 Carrying Value | December 31, 2021 Fair Value | | :----------------------------------- | :-------------------- | :-------------------- | :--------------------- | :--------------------- | | Cash and Cash Equivalents | 191,449 | 191,449 | 514,928 | 514,928 | | Investment Securities | 774,610 | 774,610 | 673,453 | 673,453 | | Loans, Net | 964,796 | 961,547 | 948,526 | 948,701 | | Deposits | 1,176,935 | 1,176,935 | 1,221,503 | 1,221,503 | | Accounts Payable and Drafts | 989,733 | 989,733 | 1,050,396 | 1,050,396 | - Investment securities are measured using **Level 2 valuations** for fair value[84](index=84&type=chunk) - The fair value of loans is estimated by discounting future cash flows using risk-adjusted interest rates, categorized as a **Level 3 valuation**[85](index=85&type=chunk) [Note 13 – Revenue from Contracts with Customers](index=19&type=section&id=Note%2013%20%E2%80%93%20Revenue%20from%20Contracts%20with%20Customers) This note explains the company's policy for recognizing revenue from customer contracts under FASB ASC 606, primarily comprising processing fees, financial service fees, and banking service fees, with total fee and other income reaching **$30,430 thousand** for the three months ended March 31, 2022, a **16.26% increase** from the prior-year period - Revenue is recognized when performance obligations to customers are satisfied[90](index=90&type=chunk) - Processing fees are recognized on a per-item or monthly basis, financial service fees are recognized when payment transactions occur, and banking service fees are recognized on a transaction or monthly basis[91](index=91&type=chunk)[92](index=92&type=chunk)[94](index=94&type=chunk) | Revenue Type (thousand USD) | For the three months ended March 31, 2022 | For the three months ended March 31, 2021 | | :----------------------------------- | :-------------------- | :-------------------- | | Processing Fees | 19,036 | 18,375 | | Financial Service Fees | 10,532 | 6,997 | | Information Services Payment and Processing Revenue | 29,568 | 25,372 | | Banking Service Fees | 429 | 337 | | **Fee Income within Scope of FASB ASC 606** | **29,997** | **25,709** | | Other Income (outside scope of FASB ASC 606) | 433 | 466 | | **Total Fee and Other Income** | **30,430** | **26,175** | [Note 14 – Leases](index=20&type=section&id=Note%2014%20%E2%80%93%20Leases) This note provides detailed information on the company's operating leases, with lease liabilities of **$4,516 thousand** and right-of-use assets of **$4,080 thousand** as of March 31, 2022, a weighted-average remaining lease term of **6.0 years**, and a weighted-average discount rate of **5.35%** - As of March 31, 2022, the company's lease liabilities were **$4,516 thousand**, and right-of-use assets were **$4,080 thousand**[96](index=96&type=chunk) - For the three months ended March 31, 2022, operating lease costs were **$400 thousand**, and short-term lease costs were **$51 thousand**[96](index=96&type=chunk) - The weighted-average remaining lease term was **6.0 years**, and the weighted-average discount rate was **5.35%**[96](index=96&type=chunk) - The company has one uncommenced lease expected to begin in June 2022, which will result in approximately **$6,800 thousand** of additional lease liabilities and right-of-use assets[97](index=97&type=chunk) [Note 15 – Subsequent Events](index=21&type=section&id=Note%2015%20%E2%80%93%20Subsequent%20Events) This note states that the company has evaluated subsequent events through the date of the consolidated balance sheet as of March 31, 2022, and found no events requiring additional disclosure to prevent the financial statements from being misleading - The company has evaluated subsequent events and found no events requiring additional disclosure[99](index=99&type=chunk) [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=22&type=section&id=ITEM%202.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This section provides management's perspective on the company's financial performance and position [Impact of COVID-19 on the Company's Business](index=22&type=section&id=Impact%20of%20COVID-19%20on%20the%20Company's%20Business) Despite significant mitigation of COVID-19's impact, the company continues to closely monitor the pandemic's developments and faces ongoing business, operational, market, credit, and other risks that could adversely affect its financial condition and operating results - The ongoing COVID-19 pandemic may lead to additional business closures, supply chain disruptions, work restrictions, and activity limitations[101](index=101&type=chunk) - The company continues to closely monitor COVID-19 related developments and faces heightened business, operational, market, credit, and other risks[101](index=101&type=chunk) [Overview](index=22&type=section&id=Overview) This section outlines Cass Information Systems, Inc.'s business model, primarily providing payment and information processing services for freight, energy, telecom, and environmental invoices, compensated through service fees and investment of account balances, emphasizing its bank subsidiary's role in supporting payment operations and banking services, with management viewing continued expansion of services and customer base as a key opportunity - Cass provides payment and information processing services, including freight invoice rating, payment processing, auditing, and generation of accounting and transportation information[102](index=102&type=chunk) - The company also processes energy, waste, and telecom invoices, and offers telecom expense management solutions and a B2B payment platform[102](index=102&type=chunk) - The company is compensated through service fees and investment of account balances generated during the payment process, with service fees typically based on per-transaction volume, and financial service fees including interchange revenue, foreign exchange fees, and fees for early payment of invoices[103](index=103&type=chunk) - Management believes the company's primary opportunity lies in continuously expanding its payment and information processing service offerings and customer base by maintaining leadership in applied technology combined with the security and processing controls of a bank[105](index=105&type=chunk)[108](index=108&type=chunk) [Critical Accounting Policies](index=23&type=section&id=Critical%20Accounting%20Policies) This section discusses the critical accounting policies used in preparing the consolidated financial statements, particularly the estimation of the Allowance for Credit Losses, which is crucial to the company's operating results and financial position - The company relies on management's estimates and assumptions in preparing financial statements, which have historically been accurate and consistent[109](index=109&type=chunk) - The Allowance for Credit Losses is a critical accounting policy involving estimates of expected credit losses on the loan portfolio, where actual results could differ significantly from estimates[110](index=110&type=chunk) [Results of Operations](index=23&type=section&id=Results%20of%20Operations) This section provides a detailed analysis of the company's operating results for Q1 2022 compared to Q1 2021, covering changes and drivers for key financial metrics such as net income, fee income, net interest income, provision for credit losses, and operating expenses [Net Income](index=23&type=section&id=Net%20Income) The company's net income for Q1 2022 was **$8,258 thousand**, representing a **16.8% increase** from Q1 2021, with significant growth in both basic and diluted earnings per share, and improved return on average assets and return on average equity | Indicator | Q1 2022 | Q1 2021 | Change (%) | | :----------------------------------- | :------------- | :------------- | :------- | | Net Income (thousand USD) | 8,258 | 7,071 | 16.8% | | Diluted Earnings Per Share ($) | 0.60 | 0.49 | 22.4% | | Return on Average Assets | 1.32% | 1.31% | — | | Return on Average Equity | 14.21% | 11.09% | — | [Fee Revenue and Other Income](index=23&type=section&id=Fee%20Revenue%20and%20Other%20Income) The company's fee revenue primarily derives from transportation and facility processing and financial service fees, with fee income growing **3.6%** and financial service fee income increasing **50.5%** in Q1 2022, mainly driven by a substantial increase in transportation and facility-related dollar transaction volume reflecting inflationary pressures, supply chain disruptions, and fuel surcharges | Indicator (thousand USD) | Q1 2022 | Q1 2021 | Change (%) | | :----------------------------------- | :------------- | :------------- | :------- | | Transportation Invoice Volume | 8,958 | 8,787 | 1.9% | | Transportation Invoice Dollar Volume | 10,855,180 | 7,904,639 | 37.3% | | Facility-Related Transaction Volume | 6,640 | 6,996 | (5.1)% | | Facility-Related Dollar Volume | 4,643,942 | 3,717,428 | 24.9% | | Average Prepaid Balances | 279,479 | 177,295 | 57.6% | | Processing Fees | 19,036 | 18,375 | 3.6% | | Financial Service Fees | 10,532 | 6,997 | 50.5% | - The significant increase in **transportation invoice dollar volume (37.3%)** was primarily driven by inflationary pressures, supply chain disruptions, fuel surcharges, and carrier supply scarcity[116](index=116&type=chunk) - The increase in **facility-related dollar volume (24.9%)** was mainly due to reduced pandemic-related restrictions in the restaurant, retail, and hospitality industries, leading to increased utility usage and higher energy prices[116](index=116&type=chunk) [Net Interest Income](index=24&type=section&id=Net%20Interest%20Income) In Q1 2022, tax-equivalent net interest income grew **14.3%** to **$12,349 thousand**, primarily due to a **12.2% increase** in average interest-earning assets and a **4 basis point** rise in net interest margin, with growth in both investment and loan portfolios being the main contributors to the increase in interest-earning assets | Indicator (thousand USD) | Q1 2022 | Q1 2021 | Change (%) | | :----------------------------------- | :------------- | :------------- | :------- | | Average Interest-Earning Assets | 2,122,915 | 1,891,395 | 12.2% | | Average Interest-Bearing Liabilities | 593,057 | 552,906 | 7.3% | | Net Interest Income* | 12,349 | 10,807 | 14.3% | | Net Interest Margin* | 2.36% | 2.32% | — | | Yield on Interest-Earning Assets* | 2.40% | 2.39% | — | | Rate on Interest-Bearing Liabilities | 0.15% | 0.24% | — | - Average interest-earning assets increased by **$231,520 thousand (12.2%)**, primarily due to a **$319,253 thousand (86.0%) increase** in the investment portfolio and a **$78,629 thousand increase** in loans[117](index=117&type=chunk)[118](index=118&type=chunk) - Average accounts payable and drafts increased by **$189,727 thousand (21.1%)**, driven by inflationary pressures, supply chain disruptions, and fuel surcharges[120](index=120&type=chunk) [Distribution of Assets, Liabilities and Shareholders' Equity; Interest Rate and Interest Differential](index=25&type=section&id=Distribution%20of%20Assets,%20Liabilities%20and%20Shareholders'%20Equity%3B%20Interest%20Rate%20and%20Interest%20Differential) This section provides detailed information on the company's average balance sheet, including average balances, interest income/expense, and average yields/rates for various interest-earning assets and interest-bearing liabilities, to analyze the impact of interest rate changes on net interest income | Average Balances (thousand USD) | Q1 2022 | Q1 2021 | | :----------------------------------- | :------------- | :------------- | | **Interest-Earning Assets** | | | | Loans | 959,851 | 881,222 | | Investment Securities | 690,385 | 371,132 | | Short-term Investments | 472,679 | 639,041 | | **Total Interest-Earning Assets** | **2,122,915** | **1,891,395** | | **Interest-Bearing Liabilities** | | | | Interest-Bearing Demand Deposits | 530,491 | 475,212 | | Savings Deposits | 17,488 | 21,800 | | Time Deposits | 45,078 | 55,884 | | **Total Interest-Bearing Liabilities** | **593,057** | **552,896** | | Net Interest Income | 12,349 | 10,807 | | Net Interest Margin | 2.25% | 2.15% | [Analysis of Net Interest Income Changes](index=27&type=section&id=Analysis%20of%20Net%20Interest%20Income%20Changes) This section analyzes the specific impacts of volume and rate changes on net interest income, showing that in Q1 2022, net interest income increased by **$1,542 thousand**, with volume changes contributing **$1,857 thousand** in growth, while rate changes resulted in a **$315 thousand** reduction | Net Interest Income Change (thousand USD) | Volume Impact | Rate Impact | Total | | :----------------------------------- | :--------- | :------- | :--- | | **Increase (Decrease) in Interest Income** | | | | | Loans | 738 | (548) | 190 | | Investment Securities: Taxable | 1,101 | 157 | 1,258 | | Investment Securities: Tax-Exempt | 51 | (129) | (78) | | Short-term Investments | (48) | 112 | 64 | | **Total Interest Income** | **1,842** | **(408)** | **1,434** | | **Interest Expense** | | | | | Interest-Bearing Demand Deposits | 16 | (31) | (15) | | Savings Deposits | (1) | — | (1) | | Time Deposits | (30) | (62) | (92) | | **Total Interest Expense** | **(15)** | **(93)** | **(108)** | | **Net Interest Income** | **1,857** | **(315)** | **1,542** | [Provision and Allowance for Credit Losses and Allowance for Unfunded Commitments](index=27&type=section&id=Provision%20and%20Allowance%20for%20Credit%20Losses%20and%20Allowance%20for%20Unfunded%20Commitments) The company recorded a provision for credit losses of **$230 thousand** in Q1 2022, compared to a reversal of **$600 thousand** in Q1 2021, with the increase primarily due to loan growth, and as of March 31, 2022, the Allowance for Credit Losses (ACL) was **$12,406 thousand**, representing **1.27%** of outstanding loans - In Q1 2022, the company recorded a **provision for credit losses of $230 thousand**, compared to a **reversal of $600 thousand** in Q1 2021[130](index=130&type=chunk) - The increase in the provision for credit losses in Q1 2022 was primarily attributable to **loan growth** and its impact on the CECL model[130](index=130&type=chunk) - As of March 31, 2022, the ACL was **$12,406 thousand**, representing **1.27%** of outstanding loans, and the allowance for unfunded commitments was **$232 thousand**[131](index=131&type=chunk) - As of March 31, 2022, and December 31, 2021, the company had **no nonaccrual loans**[131](index=131&type=chunk) [Summary of Credit Loss Experience](index=28&type=section&id=Summary%20of%20Credit%20Loss%20Experience) This section summarizes the changes in the company's Allowance for Credit Losses (ACL) and Allowance for Unfunded Commitments, with ACL balance at **$12,406 thousand** and Allowance for Unfunded Commitments at **$232 thousand** as of March 31, 2022 | Indicator (thousand USD) | Q1 2022 | Q1 2021 | | :----------------------------------- | :------------- | :------------- | | Beginning Allowance for Credit Losses | 12,041 | 11,944 | | Provision (Reversal) for Credit Losses | 365 | (240) | | Ending Allowance for Credit Losses | 12,406 | 11,721 | | Beginning Allowance for Unfunded Commitments | 367 | 567 | | Reversal of Credit Losses | (135) | (360) | | Ending Allowance for Unfunded Commitments | 232 | 207 | | Total Loans (Average) | 959,851 | 881,222 | | Total Loans (March 31) | 977,203 | 888,575 | | ACL as a Percentage of Total Loans (March 31) | 1.27% | 1.32% | [Operating Expenses](index=28&type=section&id=Operating%20Expenses) In Q1 2022, the company's total operating expenses were **$31,828 thousand**, an **11.6% increase** from Q1 2021, driven by a **9.7% increase** in personnel costs due to higher salaries, increased incentive compensation, and strategic investments in technology initiatives, partially offset by reduced pension expense, while other operating expenses rose due to business development and data processing-related costs | Operating Expenses (thousand USD) | Q1 2022 | Q1 2021 | | :----------------------------------- | :------------- | :------------- | | Personnel | 24,718 | 22,526 | | Occupancy | 915 | 947 | | Equipment | 1,711 | 1,675 | | Intangible Asset Amortization | 135 | 215 | | Other Operating Expenses | 4,349 | 3,162 | | **Total Operating Expenses** | **31,828** | **28,525** | - Personnel costs increased by **9.7%**, primarily due to general salary increases, higher incentive compensation, increased 401(k) matching, and strategic investments in various technology initiatives[136](index=136&type=chunk) - The pension plan freeze resulted in an **$890 thousand reduction** in pension expense, partially offsetting the increase in personnel costs[136](index=136&type=chunk) - Other operating expenses increased primarily due to higher business development and other promotional activities, as well as increased data processing-related expenses[137](index=137&type=chunk) [Financial Condition](index=28&type=section&id=Financial%20Condition) As of March 31, 2022, the company's total assets were **$2,422,043 thousand**, a **5.2% decrease** from December 31, 2021, with a significant reduction in cash and cash equivalents, offset by increases in investment securities and loans, while total liabilities and shareholders' equity also decreased, with the latter primarily impacted by other comprehensive loss and stock repurchases - As of March 31, 2022, total assets were **$2,422,043 thousand**, a decrease of **$132,858 thousand (5.2%)** from December 31, 2021[138](index=138&type=chunk) - Cash and cash equivalents decreased by **$323,479 thousand (62.8%)**, while the investment securities portfolio increased by **$101,157 thousand (15.0%)**, and loans increased by **$16,635 thousand (1.7%)**[138](index=138&type=chunk)[140](index=140&type=chunk) - Total liabilities decreased by **$104,138 thousand (4.5%)**, with total deposits decreasing by **$44,568 thousand (3.6%)** and accounts payable and drafts decreasing by **$60,663 thousand (5.8%)**[141](index=141&type=chunk) - Total shareholders' equity decreased by **$28,720 thousand (11.7%)**, primarily due to an **other comprehensive loss of $28,122 thousand**, **stock repurchases of $5,086 thousand**, and **dividend payments of $3,832 thousand**, partially offset by **net income of $8,258 thousand**[142](index=142&type=chunk) [Liquidity and Capital Resources](index=30&type=section&id=Liquidity%20and%20Capital%20Resources) The company manages liquidity through short-term liquid assets, maturing securities, and external funding capabilities, with cash and cash equivalents at **$191,449 thousand** and investment securities at **$774,610 thousand** as of March 31, 2022, and both the company and its bank subsidiary consistently meet all regulatory capital requirements, including Basel III capital ratios - The company manages liquidity through short-term liquid assets, maturing securities, and external funding capabilities[143](index=143&type=chunk) - As of March 31, 2022, cash and cash equivalents were **$191,449 thousand**, representing **7.9%** of total assets, and investment securities were **$774,610 thousand**, representing **32.0%** of total assets[144](index=144&type=chunk)[145](index=145&type=chunk) - The bank subsidiary has unsecured federal funds purchase credit lines totaling **$83,000 thousand** and Federal Home Loan Bank collateralized credit lines of **$218,049 thousand**[146](index=146&type=chunk) - The company and the bank consistently exceed all regulatory capital requirements, including Basel III Common Equity Tier 1, Tier 1, and Total Capital ratios, as well as the Leverage Ratio[155](index=155&type=chunk)[162](index=162&type=chunk) | Capital Ratios (thousand USD) | March 31, 2022 Amount | March 31, 2022 Ratio | December 31, 2021 Amount | December 31, 2021 Ratio | | :----------------------------------- | :----------------- | :----------------- | :----------------- | :----------------- | | Cass Information Systems, Inc. Total Capital | 240,619 | 13.96% | 240,265 | 14.86% | | Cass Commercial Bank Total Capital | 179,410 | 16.97% | 174,614 | 17.21% | | Cass Information Systems, Inc. Common Equity Tier 1 Capital | 228,213 | 13.24% | 228,224 | 14.11% | | Cass Commercial Bank Common Equity Tier 1 Capital | 167,465 | 15.84% | 163,030 | 16.07% | | Cass Information Systems, Inc. Tier 1 Capital (Risk-Weighted Assets) | 228,213 | 13.24% | 228,224 | 14.11% | | Cass Commercial Bank Tier 1 Capital (Risk-Weighted Assets) | 167,465 | 15.84% | 163,030 | 16.07% | | Cass Information Systems, Inc. Tier 1 Capital (Leverage Assets) | 228,213 | 9.09% | 228,224 | 9.21% | | Cass Commercial Bank Tier 1 Capital (Leverage Assets) | 167,465 | 11.12% | 163,030 | 11.05% | [Inflation](index=32&type=section&id=Inflation) The company's assets and liabilities are primarily monetary, and holding a net monetary long position during inflationary periods may lead to a decrease in purchasing power, while inflation also impacts expenses like employee compensation, which may not be fully recovered through service pricing - The company's assets and liabilities are primarily monetary, and holding a net monetary long position (monetary assets exceeding monetary liabilities) during inflationary periods can lead to a **decrease in purchasing power**[163](index=163&type=chunk) - Inflation rates affect expenses such as employee compensation, which may not be fully recovered through the company's service pricing[163](index=163&type=chunk) [Impact of New and Not Yet Adopted Accounting Pronouncements](index=33&type=section&id=Impact%20of%20New%20and%20Not%20Yet%20Adopted%20Accounting%20Pronouncements) This section indicates that no new accounting pronouncements are applicable to or have a significant impact on the company - No new accounting pronouncements are applicable to and/or have a significant impact on the company[165](index=165&type=chunk) [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=33&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) This section provides insights into the company's exposure to market risks and how they are managed [Market Risk Management](index=33&type=section&id=Market%20Risk%20Management) The company manages interest rate risk using measurement techniques such as gap analysis and simulation models, and by establishing and monitoring asset/liability management policies, with a **200 basis point** increase in interest rates projected to increase net interest income by **10.6%** - The company manages interest rate risk through techniques such as **gap analysis** and **simulation models**[166](index=166&type=chunk) | Interest Rate Change Scenario | Projected Change in Net Interest Income as of March 31, 2022 (%) | | :----------------------------------- | :---------------------------------- | | +200 basis points | 10.6% | | +100 basis points | 4.9% | | Flat | —% | | -100 basis points | (2.1)% | [ITEM 4. CONTROLS AND PROCEDURES](index=33&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) This section addresses the effectiveness of the company's internal controls and procedures [Effectiveness of Controls and Procedures](index=33&type=section&id=Effectiveness%20of%20Controls%20and%20Procedures) Company management assessed the effectiveness of disclosure controls and procedures as of the end of the reporting period and concluded they are effective, with no significant changes in internal control during the quarter - The company's disclosure controls and procedures were assessed as **effective**[167](index=167&type=chunk) - No significant changes in the company's internal control occurred during Q1 2022[168](index=168&type=chunk) [PART II. OTHER INFORMATION](index=34&type=section&id=PART%20II.%20OTHER%20INFORMATION) This part includes additional information not covered in the financial statements [ITEM 1. LEGAL PROCEEDINGS](index=34&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) The company is involved in various ongoing or potential legal proceedings, but management believes the outcome of all such proceedings will not have a material adverse effect on the business or financial condition of the company or its subsidiaries - The company is involved in various ongoing or potential legal proceedings[171](index=171&type=chunk) - Management believes the outcome of all legal proceedings will **not have a material adverse effect** on the company's business or financial condition[171](index=171&type=chunk) [ITEM 1A. RISK FACTORS](index=34&type=section&id=ITEM%201A.%20RISK%20FACTORS) This section states that there have been no material changes to the risk factors disclosed in the company's 2021 Form 10-K annual report - No material changes to the risk factors disclosed in the company's 2021 Form 10-K annual report have occurred[172](index=172&type=chunk) [ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS](index=34&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) In Q1 2022, the company repurchased **124,874 shares** of common stock under its treasury stock repurchase program, at an average price of **$40.73 per share** | Period | Total Number of Shares Purchased | Average Price Paid Per Share ($) | Total Number of Shares Purchased Under Publicly Announced Plans | Maximum Number of Shares That May Yet Be Purchased Under the Plans | | :----------------------------------- | :----------- | :------------------- | :------------------------- | :----------------------- | | January 1, 2022 – January 31, 2022 | 44,404 | 40.05 | 44,404 | 426,677 | | February 1, 2022 – February 28, 2022 | 58,097 | 41.75 | 58,097 | 368,580 | | March 1, 2022 – March 31, 2022 | 22,373 | 39.42 | 22,373 | 346,207 | | **Total** | **124,874** | **40.73** | **124,874** | **346,207** | [ITEM 3. DEFAULTS UPON SENIOR SECURITIES](index=34&type=section&id=ITEM%203.%20DEFAULTS%20UPON%20SENIOR%20SECURITIES) This section states that the company has not experienced any defaults upon senior securities - No defaults upon senior securities[174](index=174&type=chunk) [ITEM 4. MINE SAFETY DISCLOSURES](index=34&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) This section states that mine safety disclosures are not applicable to the company - Not applicable[175](index=175&type=chunk) [ITEM 5. OTHER INFORMATION](index=34&type=section&id=ITEM%205.%20OTHER%20INFORMATION) This section indicates that there were no material changes to the company's board of directors nominee recommendation procedures in Q1 2022 - No material changes to the company's board of directors nominee recommendation procedures occurred in Q1 2022[176](index=176&type=chunk) [ITEM 6. EXHIBITS](index=35&type=section&id=ITEM%206.%20EXHIBITS) This section lists the various exhibits filed with the Form 10-Q report, including certifications required by the Sarbanes-Oxley Act and XBRL data files - Exhibits include certifications required under Sections 302 and 906 of the Sarbanes-Oxley Act[178](index=178&type=chunk) - Exhibits also include XBRL Instance Document, Taxonomy Extension Schema Document, Calculation Linkbase Document, Label Linkbase Document, Presentation Linkbase Document, and Definition Linkbase Document[178](index=178&type=chunk) [SIGNATURES](index=36&type=section&id=SIGNATURES) This section contains the official signatures for the report [Report Signatures](index=36&type=section&id=Report%20Signatures) This report was signed by Eric H. Brunngraber, Chairman and Chief Executive Officer, and Michael J. Normile, Executive Vice President and Chief Financial Officer, on May 6, 2022, as required by the Securities Exchange Act of 1934 - The report was signed by **Eric H. Brunngraber**, Chairman and Chief Executive Officer, and **Michael J. Normile**, Executive Vice President and Chief Financial Officer[183](index=183&type=chunk) - The signing date was **May 6, 2022**[183](index=183&type=chunk)

PART I [Item 1. Business](index=4&type=section&id=Item%201.%20BUSINESS) Cass Information Systems provides payment and information processing services, leveraging its commercial bank subsidiary to serve large enterprises and manage extensive financial regulations - The company's primary services include **freight invoice rating, payment processing, auditing**, and processing facility-related invoices (electricity, gas, waste, telecom)[11](index=11&type=chunk) - Cass's core competencies are **data acquisition, data management, business intelligence, and financial exchange**, enhanced by its ownership of Cass Commercial Bank[12](index=12&type=chunk)[16](index=16&type=chunk) - As of February 15, 2022, the company employed **884 full-time and 232 part-time employees**[24](index=24&type=chunk) - The company and its bank subsidiary are extensively regulated by entities including the **Missouri Division of Finance, the Federal Reserve Board (FRB), and the Federal Deposit Insurance Corporation (FDIC)**[31](index=31&type=chunk) - Under the Basel III Capital Rules, the company and the Bank must maintain minimum capital ratios, including a common equity Tier 1 ratio of **7.0%** (including the capital conservation buffer)[42](index=42&type=chunk) [Item 1A. Risk Factors](index=13&type=section&id=Item%201A.%20RISK%20FACTORS) The company faces significant risks from the COVID-19 pandemic, economic factors, cybersecurity threats, credit loss estimation, evolving regulations, and the LIBOR transition - The **COVID-19 pandemic** poses significant risks, potentially impacting service demand, increasing credit losses, and adversely affecting interest income due to low Federal Funds rates[80](index=80&type=chunk)[81](index=81&type=chunk)[84](index=84&type=chunk) - **Cybersecurity** is a major operational risk, as the company depends on reliable computer systems and stores sensitive data, making it a target for cyber-attacks which could damage its reputation and financial results[103](index=103&type=chunk)[106](index=106&type=chunk) - The determination of the **Allowance for Credit Losses (ACL)** is highly subjective and requires management estimates on risks and trends that are subject to material change, which could impact financial results[110](index=110&type=chunk)[112](index=112&type=chunk) - The company is subject to extensive and evolving government regulation, and failure to comply could result in **enforcement actions, penalties, and reputational damage**[125](index=125&type=chunk)[126](index=126&type=chunk) - The transition away from **LIBOR** to alternative reference rates like SOFR could create additional costs, change market risk profiles, and require modifications to pricing models and hedging strategies[96](index=96&type=chunk)[100](index=100&type=chunk) [Item 1B. Unresolved Staff Comments](index=20&type=section&id=Item%201B.%20UNRESOLVED%20STAFF%20COMMENTS) The company confirms the absence of any unresolved staff comments from the SEC - There are no unresolved staff comments[144](index=144&type=chunk) [Item 2. Properties](index=20&type=section&id=Item%202.%20PROPERTIES) The company's properties include leased headquarters and owned facilities in Missouri and Ohio, with additional locations supporting global operations - The company leases its headquarters in St Louis County, MO[145](index=145&type=chunk) - Key owned properties include a **61,500 sq ft** office for transportation processing in Bridgeton, MO, and a **45,500 sq ft** production facility in Columbus, OH[146](index=146&type=chunk)[147](index=147&type=chunk) [Item 3. Legal Proceedings](index=20&type=section&id=Item%203.%20LEGAL%20PROCEEDINGS) The company is involved in routine litigation not expected to materially impact its financial condition - The company is not involved in any pending legal proceedings other than ordinary routine litigation, which is not expected to have a material impact[150](index=150&type=chunk) [Item 4. Mine Safety Disclosures](index=21&type=section&id=Item%204.%20MINE%20SAFETY%20DISCLOSURES) This disclosure item is not relevant to the company's operations - Not applicable[152](index=152&type=chunk) PART II [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=22&type=section&id=Item%205.%20MARKET%20FOR%20REGISTRANT%27S%20COMMON%20EQUITY%2C%20RELATED%20STOCKHOLDER%20MATTERS%20AND%20ISSUER%20PURCHASES%20OF%20EQUITY%20SECURITIES) The company's common stock trades on Nasdaq under "CASS", maintains a long dividend history, and actively repurchased shares in 2021 - The company's common stock is traded on The Nasdaq Global Select Market under the symbol **"CASS"**[157](index=157&type=chunk) - A treasury stock buyback program authorized in October 2021 allows for the repurchase of up to **750,000 shares**[159](index=159&type=chunk) Share Repurchases in 2021 and 2020 | Year | Shares Repurchased | Aggregate Cost (in thousands) | | :--- | :--- | :--- | | 2021 | 713,857 | $30,997 | | 2020 | 162,901 | $6,825 | Share Repurchases for Q4 2021 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Oct 1 - Oct 31, 2021 | 28,443 | $42.25 | | Nov 1 - Nov 30, 2021 | 135,022 | $44.81 | | Dec 1 - Dec 31, 2021 | 115,454 | $41.50 | | **Total Q4 2021** | **278,919** | **$43.10** | [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=23&type=section&id=Item%207.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) In 2021, the company saw net income increase by **13.6%** to **$28.6 million**, driven by higher fee revenue and transaction volumes, despite a flat net interest income due to margin compression Financial Summary 2021 vs. 2020 | Metric | 2021 (Amount) | 2020 (Amount) | % Change | | :--- | :--- | :--- | :--- | | Fee revenue and other income | $109.7 million | $100.4 million | 9.2% | | Net interest income after provision | $44.5 million | $44.5 million | (0.1)% | | Net income | $28.6 million | $25.2 million | 13.6% | | Diluted earnings per share | $2.00 | $1.73 | 15.6% | | Total invoice dollars processed | $52.7 billion | $40.0 billion | 31.8% | - The **Allowance for Credit Losses (ACL)** is identified as a critical accounting policy due to the high degree of subjectivity and management estimates involved in its calculation[172](index=172&type=chunk)[173](index=173&type=chunk) - The significant **32% increase** in total invoice dollars processed was driven by supply chain disruptions, fuel surcharges, and carrier scarcity in the freight network, leading to a **10% increase** in payment and processing fees[190](index=190&type=chunk)[192](index=192&type=chunk) - Net interest margin declined to **2.31% in 2021 from 2.82% in 2020**, primarily due to the Federal Reserve's actions to lower interest rates, which offset the positive impact of a **19% increase** in average earning assets[193](index=193&type=chunk)[203](index=203&type=chunk) - Total loans increased by **8% to $960.6 million**, driven by a **114% increase** in franchise restaurant loans, while PPP loans decreased by **$103.4 million** due to forgiveness[219](index=219&type=chunk) - The company maintained excellent credit quality, with **zero nonperforming loans or assets** at the end of both 2021 and 2020[220](index=220&type=chunk)[228](index=228&type=chunk) [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](index=40&type=section&id=Item%207A.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) The company's asset-sensitive balance sheet makes net interest income susceptible to interest rate changes, with simulations showing a **12% increase** for a **100 basis point** rate rise - The company has an **asset-sensitive balance sheet**, primarily due to large noninterest-bearing accounts and drafts payable, making its net interest margin susceptible to changes in market interest rates[271](index=271&type=chunk) Projected Impact of Interest Rate Shocks on Net Interest Income (as of Dec 31, 2021) | Change in Interest Rates | % Change in Net Interest Income | | :--- | :--- | | +200 basis points | 24% | | +100 basis points | 12% | | -100 basis points | (3%) | [Item 8. Financial Statements and Supplementary Data](index=42&type=section&id=Item%208.%20FINANCIAL%20STATEMENTS%20AND%20SUPPLEMENTARY%20DATA) This section provides the company's audited consolidated financial statements for 2021 and prior years, including balance sheets, income statements, cash flows, and detailed accounting notes Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2021 (in thousands) | Dec 31, 2020 (in thousands) | | :--- | :--- | :--- | | Total Assets | $2,554,901 | $2,203,235 | | Loans, net | $948,526 | $879,732 | | Total Deposits | $1,221,503 | $1,050,856 | | Total Liabilities | $2,309,103 | $1,942,075 | | Total Shareholders' Equity | $245,798 | $261,160 | Consolidated Statement of Income Highlights (in thousands) | Account | 2021 (in thousands) | 2020 (in thousands) | 2019 (in thousands) | | :--- | :--- | :--- | :--- | | Total fee revenue and other income | $109,691 | $100,441 | $110,069 | | Net interest income | $44,326 | $45,325 | $47,416 | | Total operating expense | $120,326 | $114,615 | $119,769 | | Net income | $28,604 | $25,176 | $30,404 | - The company adopted the new credit loss accounting standard (ASU 2016-13 / CECL) effective January 1, 2020, resulting in a one-time reduction to retained earnings of **$856,000, net of tax**[347](index=347&type=chunk) - As of December 31, 2021, both the company and Cass Commercial Bank were categorized as **"well-capitalized"** and met all regulatory capital adequacy requirements[363](index=363&type=chunk)[364](index=364&type=chunk) [Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=85&type=section&id=Item%209.%20CHANGES%20IN%20AND%20DISAGREEMENTS%20WITH%20ACCOUNTANTS%20ON%20ACCOUNTING%20AND%20FINANCIAL%20DISCLOSURE) The company reports no changes or disagreements with its accountants regarding accounting principles, disclosures, or auditing - None reported[498](index=498&type=chunk) [Item 9A. Controls and Procedures](index=85&type=section&id=Item%209A.%20CONTROLS%20AND%20PROCEDURES) Management and independent auditors concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2021 - Management concluded that the company's disclosure controls and procedures were **effective** as of December 31, 2021[499](index=499&type=chunk) - Management concluded that the company's internal control over financial reporting was **effective** as of December 31, 2021[501](index=501&type=chunk) - KPMG LLP, the independent auditor, provided an **unqualified opinion** on the effectiveness of the company's internal control over financial reporting[503](index=503&type=chunk)[505](index=505&type=chunk) [Item 9B. Other Information](index=87&type=section&id=Item%209B.%20OTHER%20INFORMATION) The company has no additional information to report for this item - None[512](index=512&type=chunk) PART III [Item 10. Directors, Executive Officers and Corporate Governance](index=88&type=section&id=Item%2010.%20DIRECTORS%2C%20EXECUTIVE%20OFFICERS%20AND%20CORPORATE%20GOVERNANCE) Information on directors, executive officers, and corporate governance is incorporated by reference from the 2022 Proxy Statement - Required information is incorporated by reference from the 2022 Proxy Statement[518](index=518&type=chunk) [Item 11. Executive Compensation](index=88&type=section&id=Item%2011.%20EXECUTIVE%20COMPENSATION) Executive compensation details are incorporated by reference from the company's 2022 Proxy Statement - Required information is incorporated by reference from the 2022 Proxy Statement[520](index=520&type=chunk) [Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=88&type=section&id=Item%2012.%20SECURITY%20OWNERSHIP%20OF%20CERTAIN%20BENEFICIAL%20OWNERS%20AND%20MANAGEMENT%20AND%20RELATED%20STOCKHOLDER%20MATTERS) Security ownership information is incorporated by reference from the 2022 Proxy Statement, detailing outstanding and available securities under equity compensation plans Equity Compensation Plan Information (as of Dec 31, 2021) | Plan Category | Number of securities to be issued upon exercise (a) | Weighted-average exercise price (b) | Number of securities remaining available for future issuance (c) | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 398,893 | $42.45 | 249,537 | | Equity compensation plans not approved by security holders | — | — | — | | **Total** | **398,893** | **$42.45** | **249,537** | [Item 13. Certain Relationships and Related Transactions, and Director Independence](index=90&type=section&id=Item%2013.%20CERTAIN%20RELATIONSHIPS%20AND%20RELATED%20TRANSACTIONS%2C%20AND%20DIRECTOR%20INDEPENDENCE) Related party transactions and director independence information are incorporated by reference from the 2022 Proxy Statement - Required information is incorporated by reference from the 2022 Proxy Statement[526](index=526&type=chunk) [Item 14. Principal Accountant Fees and Services](index=90&type=section&id=Item%2014.%20PRINCIPAL%20ACCOUNTANT%20FEES%20AND%20SERVICES) Principal accountant fees and services information is incorporated by reference from the company's 2022 Proxy Statement - Required information is incorporated by reference from the 2022 Proxy Statement[527](index=527&type=chunk) PART IV [Item 15. Exhibits and Financial Statement Schedules](index=91&type=section&id=Item%2015.%20EXHIBITS%20AND%20FINANCIAL%20STATEMENT%20SCHEDULES) This section details all financial statements, schedules, and exhibits filed as part of the Form 10-K report - This section contains a list of all documents filed with the Form 10-K, including financial statements and various exhibits[529](index=529&type=chunk)[530](index=530&type=chunk) [Item 16. Form 10-K Summary](index=92&type=section&id=Item%2016.%20FORM%2010-K%20SUMMARY) The company has not provided a summary for this specific item - None[539](index=539&type=chunk)

FORM 10-Q Filing Information [Registrant Information](index=1&type=section&id=Registrant%20Information) This chapter provides basic registrant information for CASS INFORMATION SYSTEMS, INC., an accelerated filer listed on the Nasdaq Global Select Market, confirming all required reports have been filed - CASS INFORMATION SYSTEMS, INC. is a Missouri-registered company with stock ticker **CASS**, listed on the Nasdaq Global Select Market[4](index=4&type=chunk) - The company is classified as an **Accelerated Filer**[7](index=7&type=chunk) Common Stock Information as of October 22, 2021 | Metric | Data | | :--- | :--- | | Common Stock Par Value | $0.50/share | | Shares of Common Stock Outstanding | 14,010,148 shares | [Forward-looking Statements](index=3&type=section&id=Forward-looking%20Statements) This chapter warns investors that forward-looking statements are not guarantees of future performance and involve risks, uncertainties, and factors beyond the company's control, with no obligation to publicly update or revise them - Forward-looking statements are not guarantees of future performance and involve risks, uncertainties, and factors beyond the company's control[13](index=13&type=chunk) - The company undertakes no obligation to publicly update or revise any forward-looking statements[13](index=13&type=chunk) - These risks, uncertainties, and other factors are discussed in the 'Risk Factors' section of the company's 2020 Form 10-K annual report[13](index=13&type=chunk) PART I. FINANCIAL INFORMATION [ITEM 1. FINANCIAL STATEMENTS](index=4&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS) This chapter presents the company's consolidated financial statements and related notes for periods ending September 30, 2021, and December 31, 2020 [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) As of September 30, 2021, total assets increased by **4.1%** to **$2,292,986 thousand**, driven by changes in cash, available-for-sale securities, and net loans Consolidated Balance Sheet Key Data (in thousands of dollars) | Metric | September 30, 2021 (Unaudited) | December 31, 2020 | | :--- | :--- | :--- | | **Assets** | | | | Cash and Cash Equivalents | $500,309 | $670,528 | | Available-for-Sale Securities, at Fair Value | $541,079 | $357,726 | | Loans, Net | $861,373 | $879,732 | | Total Assets | $2,292,986 | $2,203,235 | | **Liabilities** | | | | Total Deposits | $1,087,317 | $1,050,856 | | Accounts Payable and Drafts | $905,479 | $835,386 | | Total Liabilities | $2,045,343 | $1,942,075 | | **Shareholders' Equity** | | | | Total Shareholders' Equity | $247,643 | $261,160 | | Total Liabilities and Shareholders' Equity | $2,292,986 | $2,203,235 | - Total assets increased by **4.1%** from **$2,203,235 thousand** as of December 31, 2020, to **$2,292,986 thousand** as of September 30, 2021[16](index=16&type=chunk)[19](index=19&type=chunk) - Cash and cash equivalents decreased by **$170,219 thousand**, while available-for-sale securities increased by **$183,353 thousand**[16](index=16&type=chunk) [Consolidated Statements of Income](index=5&type=section&id=Consolidated%20Statements%20of%20Income) Net income grew for both the three and nine months ended September 30, 2021, primarily driven by information services payment and processing revenue, despite a slight decline in net interest income for the nine-month period Consolidated Statements of Income Key Data (in thousands of dollars, except per share data) | Metric | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Information Services Payment and Processing Revenue | $26,877 | $24,376 | $78,441 | $72,540 | | Bank Service Fees | $533 | $441 | $1,557 | $1,249 | | Total Fee Revenue and Other Income | $27,577 | $24,932 | $80,739 | $75,201 | | Total Interest Income | $11,719 | $11,279 | $33,503 | $35,259 | | Total Interest Expense | $287 | $465 | $915 | $1,911 | | Net Interest Income | $11,432 | $10,814 | $32,588 | $33,348 | | Provision (or Release) for Credit Losses | $340 | $0 | ($870) | $725 | | Net Interest Income (after Provision for Credit Losses) | $11,092 | $10,814 | $33,458 | $32,623 | | Total Net Revenue | $38,669 | $35,746 | $114,197 | $107,824 | | Total Operating Expenses | $30,690 | $28,680 | $89,018 | $84,966 | | Net Income | $6,805 | $5,781 | $20,902 | $18,765 | | Basic Earnings Per Share | $0.48 | $0.40 | $1.47 | $1.31 | | Diluted Earnings Per Share | $0.48 | $0.40 | $1.45 | $1.29 | - Third-quarter net income increased by **17.7%** (from **$5,781 thousand** to **$6,805 thousand**) year-over-year, and nine-month net income increased by **11.4%** (from **$18,765 thousand** to **$20,902 thousand**) year-over-year[24](index=24&type=chunk) - Nine-month net interest income decreased by **2.2%** year-over-year (from **$33,348 thousand** to **$32,588 thousand**), primarily due to the low interest rate environment[24](index=24&type=chunk) [Consolidated Statements of Comprehensive Income](index=6&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) Comprehensive income decreased for both the three and nine months ended September 30, 2021, primarily due to changes in net unrealized gains and losses on available-for-sale securities Consolidated Statements of Comprehensive Income Key Data (in thousands of dollars) | Metric | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $6,805 | $5,781 | $20,902 | $18,765 | | Other Comprehensive Income (Loss): | | | | | | Net Unrealized (Loss) Gain on Available-for-Sale Securities | ($4,438) | $224 | ($7,086) | $7,209 | | Tax Impact | $1,057 | ($53) | $1,687 | ($1,716) | | Foreign Currency Translation Adjustment | ($168) | $63 | ($145) | ($65) | | Total Comprehensive Income | $3,257 | $6,015 | $15,324 | $23,378 | - Third-quarter total comprehensive income decreased by **45.8%** year-over-year (from **$6,015 thousand** to **$3,257 thousand**), and nine-month total comprehensive income decreased by **34.5%** year-over-year (from **$23,378 thousand** to **$15,324 thousand**)[27](index=27&type=chunk) - Net unrealized gains and losses on available-for-sale securities, which were **($7,086 thousand)** for the nine months ended September 30, 2021, compared to **$7,209 thousand** in the prior year, were the primary driver of the decrease in comprehensive income[27](index=27&type=chunk) [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) For the nine months ended September 30, 2021, net cash flow from operating activities decreased, cash outflow from investing activities significantly increased, and net cash flow from financing activities substantially reduced, resulting in a net decrease in cash and cash equivalents Consolidated Statements of Cash Flows Key Data (in thousands of dollars) | Metric | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Net Cash Flow from Operating Activities | $30,680 | $40,061 | | Net Cash Flow from Investing Activities | ($276,033) | ($68,538) | | Net Cash Flow from Financing Activities | $75,134 | $263,974 | | Net (Decrease) Increase in Cash and Cash Equivalents | ($170,219) | $235,497 | | Cash and Cash Equivalents at End of Period | $500,309 | $439,451 | - Net cash flow from operating activities decreased from **$40,061 thousand** in the prior year to **$30,680 thousand** for the nine months ended September 30, 2021[34](index=34&type=chunk) - Net cash outflow from investing activities significantly increased from **$68,538 thousand** in the prior year to **$276,033 thousand** for the nine months ended September 30, 2021, primarily due to purchases of available-for-sale securities and bank-owned life insurance[34](index=34&type=chunk) - Net cash flow from financing activities significantly decreased from **$263,974 thousand** in the prior year to **$75,134 thousand** for the nine months ended September 30, 2021, mainly due to increased common stock repurchases and cash dividend payments[34](index=34&type=chunk) [Consolidated Statements of Shareholders' Equity](index=8&type=section&id=Consolidated%20Statements%20of%20Shareholders'%20Equity) As of September 30, 2021, total shareholders' equity decreased from December 31, 2020, primarily due to stock repurchases, cash dividend payments, and other comprehensive losses, partially offset by net income Consolidated Statements of Shareholders' Equity Key Data (in thousands of dollars) | Metric | September 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Common Stock | $7,753 | $7,753 | | Additional Paid-in Capital | $204,113 | $204,875 | | Retained Earnings | $108,388 | $99,062 | | Treasury Stock, at Cost | ($67,018) | ($50,515) | | Accumulated Other Comprehensive Loss | ($5,593) | ($15) | | Total Shareholders' Equity | $247,643 | $261,160 | - Total shareholders' equity decreased by **$13,517 thousand**, or **5.2%**, from **$261,160 thousand** as of December 31, 2020, to **$247,643 thousand** as of September 30, 2021[39](index=39&type=chunk)[186](index=186&type=chunk) - Key factors contributing to the decrease in shareholders' equity include stock repurchases of **$18,975 thousand**, cash dividend payments of **$11,576 thousand**, and other comprehensive losses of **$5,578 thousand**, partially offset by net income of **$20,902 thousand**[39](index=39&type=chunk)[186](index=186&type=chunk) [Notes to Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This chapter provides detailed notes to the consolidated financial statements, covering accounting basis, COVID-19 impact, intangible assets, earnings per share, stock repurchases, segment information, loan types, commitments, contingencies, equity incentives, pension plans, income taxes, investment securities, fair value of financial instruments, revenue from customer contracts, and leases [Note 1 - Basis of Presentation](index=10&type=section&id=Note%201%20-%20Basis%20of%20Presentation) This note explains the basis of financial statement preparation in accordance with GAAP and Form 10-Q requirements, including management's necessary adjustments, and discusses the ongoing impact and risks of the COVID-19 pandemic - Financial statements are prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP) and Form 10-Q requirements, including all adjustments deemed necessary by management[42](index=42&type=chunk) - The COVID-19 pandemic continues to negatively impact global business activities, potentially leading to business closures, supply chain disruptions, and labor shortages, which could adversely affect the company's financial performance[45](index=45&type=chunk)[46](index=46&type=chunk) - The Federal Reserve's reduction of the federal funds rate in response to COVID-19 may impact the company's net interest income, and the company is considering additional cost control measures while potentially facing asset impairment or increased allowance for credit losses[47](index=47&type=chunk)[48](index=48&type=chunk) [Note 2 – Intangible Assets](index=11&type=section&id=Note%202%20%E2%80%93%20Intangible%20Assets) This note provides detailed information on the company's intangible assets, including the carrying value and accumulated amortization for customer lists, patents, software, trademarks, and other intangibles, with goodwill considered to have an indefinite useful life and not amortized Intangible Assets Details (in thousands of dollars) | Intangible Asset Category | Carrying Value as of Sep 30, 2021 | Carrying Value as of Dec 31, 2020 | | :--- | :--- | :--- | | Customer Lists | $4,778 | $4,778 | | Patents | $72 | $72 | | Software | $2,844 | $2,844 | | Trademarks | $190 | $190 | | Other | $500 | $500 | | Goodwill | $14,262 | $14,262 | | Total Intangible Assets | $22,646 | $22,646 | | Accumulated Amortization (Sep 30, 2021) | ($5,605) | | | Accumulated Amortization (Dec 31, 2020) | | ($4,961) | - Goodwill carrying value was **$14,262 thousand** as of both September 30, 2021, and December 31, 2020, and is not amortized[58](index=58&type=chunk) - Intangible asset amortization expense was **$644 thousand** for the nine months ended September 30, 2021, and September 30, 2020[58](index=58&type=chunk) [Note 3 – Earnings Per Share](index=12&type=section&id=Note%203%20%E2%80%93%20Earnings%20Per%20Share) This note details the calculation of basic and diluted earnings per share and provides the EPS data for the three and nine months ended September 30, 2021, and 2020 Basic and Diluted Earnings Per Share (in thousands of dollars, except per share data) | Metric | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | **Basic** | | | | | | Net Income | $6,805 | $5,781 | $20,902 | $18,765 | | Weighted Average Common Shares Outstanding | 14,040,089 | 14,348,151 | 14,203,369 | 14,373,243 | | Basic Earnings Per Share | $0.48 | $0.40 | $1.47 | $1.31 | | **Diluted** | | | | | | Net Income | $6,805 | $5,781 | $20,902 | $18,765 | | Effect of Dilutive Restricted Stock and Stock Appreciation Rights | 237,080 | 198,336 | 239,016 | 200,723 | | Diluted Weighted Average Common Shares Outstanding | 14,277,169 | 14,546,487 | 14,442,385 | 14,573,966 | | Diluted Earnings Per Share | $0.48 | $0.40 | $1.45 | $1.29 | - For the three months ended September 30, 2021, basic and diluted earnings per share were both **$0.48**, up from **$0.40** in the prior year period[61](index=61&type=chunk) - For the nine months ended September 30, 2021, basic earnings per share were **$1.47** and diluted earnings per share were **$1.45**, both higher than **$1.31** and **$1.29**, respectively, in the prior year period[61](index=61&type=chunk) [Note 4 – Stock Repurchases](index=12&type=section&id=Note%204%20%E2%80%93%20Stock%20Repurchases) This note discloses the company's stock repurchase program, including board-authorized shares and actual repurchases, with an updated authorization in October 2021 - The company maintains a treasury stock repurchase program, with the Board of Directors authorizing the repurchase of up to **500,000 shares** of common stock in October 2020, with no expiration date[62](index=62&type=chunk) Stock Repurchase Activity (in shares) | Period | Shares Repurchased | | :--- | :--- | | Three Months Ended Sep 30, 2021 | 314,672 | | Three Months Ended Sep 30, 2020 | 0 | | Nine Months Ended Sep 30, 2021 | 434,938 | | Nine Months Ended Sep 30, 2020 | 128,779 | - On October 19, 2021, the Board of Directors authorized the repurchase of up to **750,000 shares** of common stock, replacing the previous authorization, with **750,000 shares** remaining available for future repurchase[63](index=63&type=chunk) [Note 5 – Industry Segment Information](index=12&type=section&id=Note%205%20%E2%80%93%20Industry%20Segment%20Information) The company operates in two reportable segments, Information Services and Banking Services, each offering distinct services and marketing channels, with this note providing a summary of their financial performance including fee revenue, interest income, and tax-equivalent income before taxes - The company has two reportable segments: Information Services and Banking Services, which are managed independently due to their unique services and processing requirements[64](index=64&type=chunk) - The Information Services segment provides transportation, energy, telecommunications, and environmental invoice processing and payment services, while the Banking Services segment primarily offers banking services to privately held businesses and faith-based organizations, also supporting the banking needs of the Information Services segment[65](index=65&type=chunk) Segment Performance Summary (in thousands of dollars) | Metric | Information Services (Three Months Ended Sep 30, 2021) | Banking Services (Three Months Ended Sep 30, 2021) | Information Services (Three Months Ended Sep 30, 2020) | Banking Services (Three Months Ended Sep 30, 2020) | | :--- | :--- | :--- | :--- | :--- | | Fee Revenue | $26,642 | $596 | $24,198 | $651 | | Interest Income* | $6,361 | $6,187 | $5,112 | $7,212 | | Tax-Equivalent Income Before Taxes* | $6,753 | $1,886 | $4,522 | $3,506 | | Metric | Information Services (Nine Months Ended Sep 30, 2021) | Banking Services (Nine Months Ended Sep 30, 2021) | Information Services (Nine Months Ended Sep 30, 2020) | Banking Services (Nine Months Ended Sep 30, 2020) | | :--- | :--- | :--- | :--- | :--- | | Fee Revenue | $77,717 | $1,846 | $72,098 | $1,906 | | Interest Income* | $17,754 | $18,501 | $14,774 | $21,097 | | Tax-Equivalent Income Before Taxes* | $19,170 | $8,080 | $13,082 | $9,190 | [Note 6 – Loans by Type](index=15&type=section&id=Note%206%20%E2%80%93%20Loans%20by%20Type) This note provides a detailed classification of the company's loan portfolio, including commercial and industrial, real estate (commercial and faith-based), and Paycheck Protection Program (PPP) loans, along with disclosures on loan delinquencies, credit grade distribution, and changes in the allowance for credit losses Loan Category Summary (in thousands of dollars) | Loan Category | September 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Commercial and Industrial | $356,532 | $298,984 | | Commercial Real Estate Mortgage | $103,596 | $100,419 | | Commercial Real Estate Construction | $24,705 | $25,090 | | Faith-Based Real Estate Mortgage | $358,493 | $333,661 | | Faith-Based Real Estate Construction | $13,272 | $23,818 | | Paycheck Protection Program (PPP) | $16,307 | $109,704 | | Total Loans | $872,905 | $891,676 | - As of September 30, 2021, PPP loan balances significantly decreased to **$16,307 thousand** from **$109,704 thousand** as of December 31, 2020, reflecting substantial SBA forgiveness of PPP loans[74](index=74&type=chunk) Allowance for Credit Losses Changes (in thousands of dollars) | Metric | Balance as of Dec 31, 2020 | Balance as of Sep 30, 2021 | | :--- | :--- | :--- | | Total Allowance for Credit Losses | $11,944 | $11,532 | | Provision (Release) for Credit Losses | ($440) | | | Loan Recoveries | $28 | | | As of September 30, 2021, the allowance for credit losses as a percentage of outstanding loans was **1.32%**, compared to **1.34%** as of December 31, 2020 | | | [Note 7 – Commitments and Contingencies](index=18&type=section&id=Note%207%20%E2%80%93%20Commitments%20and%20Contingencies) This note discloses the company's credit, market, and operational risks in the normal course of business, including unused loan commitments, standby, and commercial letters of credit, and the release of allowance for credit losses due to improved economic conditions and reduced credit line utilization - As of September 30, 2021, unused loan commitments, standby letters of credit, and commercial letters of credit balances were **$194,327 thousand**, **$12,061 thousand**, and **$235 thousand**, respectively[91](index=91&type=chunk) - As of September 30, 2021, the company released **$430 thousand** from its allowance for credit losses due to improved economic conditions and reduced utilization of credit lines[90](index=90&type=chunk) Contractual Cash Obligations for Time Deposits (in thousands of dollars) | Term | Total | Less than 1 Year | 1-3 Years | 3-5 Years | More than 5 Years | | :--- | :--- | :--- | :--- | :--- | :--- | | Time Deposits | $50,699 | $34,719 | $15,917 | $63 | $0 | [Note 8 – Stock-Based Compensation](index=19&type=section&id=Note%208%20%E2%80%93%20Stock-Based%20Compensation) This note details the company's stock-based compensation plans, including the grant, vesting, and expense recognition for restricted stock, performance-based restricted stock (PBRS), and stock appreciation rights (SARs) Stock-Based Compensation Expense (in thousands of dollars) | Period | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Stock-Based Compensation Expense | $1,066 | $799 | $2,585 | $2,277 | - As of September 30, 2021, total unrecognized compensation cost related to unvested restricted stock was **$2,060 thousand**, expected to be recognized over approximately **0.70 years**[95](index=95&type=chunk) - For the nine months ended September 30, 2021, **52,356 shares** of restricted stock and **31,150 shares** of performance-based restricted stock were granted[93](index=93&type=chunk)[98](index=98&type=chunk) [Note 9 – Defined Pension Plans](index=20&type=section&id=Note%209%20%E2%80%93%20Defined%20Pension%20Plans) This note provides details on the company's defined benefit pension plan and unfunded executive supplemental retirement plan, including components of net periodic pension cost and reasons for the decrease in pension costs in 2021 - The company's non-contributory defined benefit pension plan was frozen for all participants on February 28, 2021, leading to a decrease in pension costs in 2021[100](index=100&type=chunk)[101](index=101&type=chunk) Net Periodic Pension (Benefit) Cost (in thousands of dollars) | Metric | 2021 Estimate | 2020 Actual | | :--- | :--- | :--- | | Service Cost | $963 | $4,329 | | Interest Cost | $3,069 | $3,908 | | Expected Return on Plan Assets | ($6,299) | ($6,049) | | Net Amortization | $360 | $1,946 | | Net Periodic Pension (Benefit) Cost | ($1,907) | $4,134 | - For the nine months ended September 30, 2021, the company recorded a net periodic benefit of **$1,096 thousand**, compared to a net periodic pension cost of **$3,159 thousand** in the prior year period[101](index=101&type=chunk) [Note 10 – Income Taxes](index=21&type=section&id=Note%2010%20%E2%80%93%20Income%20Taxes) This note discloses the company's effective tax rates and explains the variance from the statutory rate of 21% primarily due to tax-exempt interest from municipal bonds Effective Tax Rates | Period | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Effective Tax Rate | 14.7% | 18.2% | 17.0% | 17.9% | - The effective tax rate for all periods differs from the statutory rate of **21%**, primarily due to tax-exempt interest generated from municipal bonds[103](index=103&type=chunk) [Note 11 – Investment in Securities](index=21&type=section&id=Note%2011%20%E2%80%93%20Investment%20in%20Securities) This note provides detailed information on the company's available-for-sale investment securities, including their amortized cost, unrealized gains/losses, and fair value, categorized by security type and contractual maturity Investment Securities Details (in thousands of dollars) | Security Type | Amortized Cost as of Sep 30, 2021 | Fair Value as of Sep 30, 2021 | Amortized Cost as of Dec 31, 2020 | Fair Value as of Dec 31, 2020 | | :--- | :--- | :--- | :--- | :--- | | State and Political Subdivisions | $345,165 | $358,224 | $287,059 | $305,974 | | U.S. Government Agencies | $112,850 | $112,099 | $50,988 | $51,752 | | Corporate Bonds | $70,516 | $70,756 | | | | Total | $528,531 | $541,079 | $338,047 | $357,726 | - As of September 30, 2021, the company had **66 securities** in an unrealized loss position, representing **20%** of the total, primarily attributable to changes in market interest rates since the securities were purchased[106](index=106&type=chunk) Investment Securities Contractual Maturity (in thousands of dollars) | Maturity Date | Amortized Cost | Fair Value | | :--- | :--- | :--- | | 1 Year or Less | $25,511 | $25,760 | | 1 to 5 Years | $104,620 | $109,737 | | 5 to 10 Years | $210,353 | $219,204 | | More than 10 Years | $188,047 | $186,378 | | Total | $528,531 | $541,079 | [Note 12 – Fair Value of Financial Instruments](index=23&type=section&id=Note%2012%20%E2%80%93%20Fair%20Value%20of%20Financial%20Instruments) This note summarizes the carrying and fair values of the company's financial instruments and explains the methods and assumptions used for their estimation, including cash and cash equivalents, investment securities, loans, accrued interest, and deposits Carrying Value and Fair Value of Financial Instruments (in thousands of dollars) | Financial Instrument | Carrying Value as of Sep 30, 2021 | Fair Value as of Sep 30, 2021 | Carrying Value as of Dec 31, 2020 | Fair Value as of Dec 31, 2020 | | :--- | :--- | :--- | :--- | :--- | | Cash and Cash Equivalents | $500,309 | $500,309 | $670,528 | $670,528 | | Investment Securities | $541,079 | $541,079 | $357,726 | $357,726 | | Loans, Net | $861,373 | $861,828 | $879,732 | $883,461 | | Deposits | $1,087,317 | $1,087,317 | $1,050,856 | $1,050,856 | | Accounts Payable and Drafts | $905,479 | $905,479 | $835,386 | $835,386 | - The fair value of investment securities is measured using Level 2 valuation methods, while the fair value of loans is estimated using discounted present value of future cash flows, categorized as Level 3 valuation[112](index=112&type=chunk)[113](index=113&type=chunk) [Note 13 – Revenue from Contracts with Customers](index=23&type=section&id=Note%2013%20%E2%80%93%20Revenue%20from%20Contracts%20with%20Customers) This note details the company's revenue recognition policies from customer contracts, primarily comprising invoice processing fees, invoice payment fees, and bank service fees, and provides specific amounts for these revenue categories - Company revenue primarily derives from invoice processing fees (recognized per item or monthly), invoice payment fees (recognized when payment transactions occur), and bank service fees (recognized per transaction or monthly)[119](index=119&type=chunk)[121](index=121&type=chunk)[122](index=122&type=chunk) Fee Revenue and Other Income Details (in thousands of dollars) | Revenue Category | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Invoice Processing Fees | $19,230 | $18,650 | $58,047 | $55,697 | | Invoice Payment Fees | $7,647 | $5,726 | $20,394 | $16,843 | | Information Services Payment and Processing Revenue | $26,877 | $24,376 | $78,441 | $72,540 | | Bank Service Fees | $533 | $441 | $1,557 | $1,249 | | Total Fee Revenue and Other Income | $27,577 | $24,932 | $80,739 | $75,201 | [Note 14 – Leases](index=24&type=section&id=Note%2014%20%E2%80%93%20Leases) This note discloses detailed information on the company's operating leases, including lease liabilities, right-of-use assets, operating lease costs, and a maturity analysis of lease liabilities - As of September 30, 2021, the company's lease liabilities were **$5,246 thousand**, and right-of-use assets were **$4,754 thousand**[124](index=124&type=chunk) Operating Lease Liability Maturity Analysis (in thousands of dollars) | Term | September 30, 2021 | | :--- | :--- | | Less than 1 Year | $1,726 | | 1-2 Years | $1,102 | | 2-3 Years | $563 | | 3-4 Years | $553 | | 4-5 Years | $552 | | More than 5 Years | $1,629 | | Total Undiscounted Cash Flows | $6,125 | | Discounting of Cash Flows | $879 | | Total Lease Liabilities | $5,246 | - As of September 30, 2021, the weighted-average remaining lease term for operating leases was **6.0 years**, with a weighted-average discount rate of **5.35%**[124](index=124&type=chunk) [Note 15 – Subsequent Events](index=25&type=section&id=Note%2015%20%E2%80%93%20Subsequent%20Events) This note states that the company has evaluated subsequent events after the consolidated balance sheet date of September 30, 2021, and found no events requiring additional disclosure to prevent the financial statements from being misleading - The company has evaluated subsequent events after September 30, 2021, and found no events requiring additional disclosure[128](index=128&type=chunk) [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=26&type=section&id=ITEM%202.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This chapter provides management's detailed discussion and analysis of the company's financial condition and operating results, covering the impact of COVID-19, business overview, key accounting policies, operating performance, financial condition, liquidity, capital resources, inflation, and new accounting pronouncements [Impact of COVID-19 on the Company's Business](index=26&type=section&id=Impact%20of%20COVID-19%20on%20the%20Company's%20Business) The COVID-19 pandemic and its control measures significantly impacted the company's operating results in 2020 and the first nine months of 2021, with ongoing uncertainty posing risks despite improving economic conditions - The COVID-19 pandemic and its control measures significantly impacted the operating results of the company's Information Services and Banking Services segments in 2020 and the first nine months of 2021[130](index=130&type=chunk) - The Federal Reserve's reduction of the federal funds rate in response to COVID-19 adversely affected the company's net interest income and banking services operating results[132](index=132&type=chunk) - The company actively participated in the Paycheck Protection Program (PPP), processing approximately **$210 million** in PPP loan applications in 2020 and the first nine months of 2021[134](index=134&type=chunk) [Overview](index=27&type=section&id=Overview) The company primarily provides payment and information processing services, supported by its bank subsidiary, with revenue derived from service fees and investment income on account balances, influenced by transaction volumes, interest rates, and fuel costs - The company provides transportation, energy, telecommunications, and environmental invoice processing and payment services to large manufacturing, distribution, and retail enterprises[138](index=138&type=chunk) - The company is compensated through service fees and investment income generated from account balances during the payment process, with revenue and profitability influenced by transaction volumes, interest rate levels, and fuel costs[139](index=139&type=chunk)[140](index=140&type=chunk) - Management believes the company's primary opportunity lies in continuously expanding its payment and information processing service offerings and customer base by maintaining leadership in applied technology[141](index=141&type=chunk) [Critical Accounting Policies](index=27&type=section&id=Critical%20Accounting%20Policies) This chapter discusses the company's critical accounting policies requiring significant estimates and assumptions in preparing consolidated financial statements, particularly the determination of the allowance for credit losses - The allowance for credit losses is a critical accounting policy involving estimates of expected credit losses on the loan portfolio, where actual results may differ significantly from estimates[144](index=144&type=chunk) - These policies impact both the company's Information Services and Banking Services segments, with related risks discussed in the "Provision and Allowance for Credit Losses and Allowance for Unfunded Commitments" section[144](index=144&type=chunk) [Results of Operations](index=28&type=section&id=Results%20of%20Operations) This chapter analyzes the company's operating results for the third quarter and first nine months of 2021 compared to the same periods in 2020, including changes in net income, fee revenue, net interest income, allowance for credit losses, and operating expenses [Net Income](index=28&type=section&id=Net%20Income) The company achieved growth in net income and diluted earnings per share for both the third quarter and first nine months of 2021, though return on average assets and return on average equity experienced some fluctuations Net Income and Earnings Per Share (in thousands of dollars, except per share data) | Metric | Q3 2021 | Q3 2020 | Change % | Nine Months 2021 | Nine Months 2020 | Change % | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Net Income | $6,805 | $5,781 | 17.7% | $20,902 | $18,765 | 11.4% | | Diluted Earnings Per Share | $0.48 | $0.40 | 20.0% | $1.45 | $1.29 | 12.4% | | Return on Average Assets | 1.14% | 1.14% | — | 1.23% | 1.32% | — | | Return on Average Equity | 10.61% | 9.25% | — | 10.84% | 10.25% | — | - Third-quarter 2021 net income increased by **17.7%** year-over-year, with diluted earnings per share growing by **20.0%**[146](index=146&type=chunk) - Nine-month 2021 net income increased by **11.4%** year-over-year, with diluted earnings per share growing by **12.4%**[146](index=146&type=chunk) [Fee Revenue and Other Income](index=28&type=section&id=Fee%20Revenue%20and%20Other%20Income) The company's fee revenue primarily stems from transportation and facilities payment and processing services, with both third-quarter and nine-month payment and processing fee revenue increasing in 2021, driven by strong manufacturing performance, new customer growth, and rising transportation and energy prices Fee Revenue and Other Income Key Data (in thousands of dollars) | Metric | Q3 2021 | Q3 2020 | Change % | Nine Months 2021 | Nine Months 2020 | Change % | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Transportation Invoice Volume | 9,333 | 8,660 | 7.8% | 27,581 | 24,234 | 13.8% | | Transportation Invoice Dollar Volume | $9,540,408 | $6,822,565 | 39.8% | $26,385,936 | $18,987,243 | 39.0% | | Facilities-Related Transaction Volume | 6,675 | 7,117 | (6.2)% | 20,498 | 20,330 | 0.8% | | Facilities-Related Dollar Volume | $4,215,044 | $3,595,586 | 17.2% | $11,590,437 | $10,118,270 | 14.5% | | Payment and Processing Revenue | $26,877 | $24,376 | 10.3% | $78,441 | $72,540 | 8.1% | - Third-quarter 2021 payment and processing fee revenue increased by **10%**, driven by strong manufacturing performance, new customer growth, and rising transportation prices[148](index=148&type=chunk) - Nine-month 2021 payment and processing revenue increased by **8%**, primarily due to growth in transportation invoice volume and dollar volume[153](index=153&type=chunk) [Net Interest Income](index=29&type=section&id=Net%20Interest%20Income) Net interest income is a significant revenue source, showing growth in the third quarter of 2021 but a decline for the first nine months, mainly due to a narrowing net interest margin in a low short-term interest rate environment Net Interest Income and Related Factors (in thousands of dollars) | Metric | Q3 2021 | Q3 2020 | Change % | Nine Months 2021 | Nine Months 2020 | Change % | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Average Earning Assets | $2,036,296 | $1,734,680 | 17.4% | $1,965,976 | $1,616,090 | 21.7% | | Average Interest-Bearing Liabilities | $600,263 | $507,172 | 18.4% | $583,478 | $465,128 | 25.4% | | Net Interest Income* | $11,900 | $11,280 | 5.5% | $34,005 | $34,772 | (2.2)% | | Net Interest Margin* | 2.32% | 2.59% | | 2.31% | 2.87% | | | Yield on Earning Assets* | 2.37% | 2.69% | | 2.37% | 3.03% | | | Rate on Interest-Bearing Liabilities | 0.19% | 0.36% | | 0.21% | 0.55% | | - Third-quarter 2021 tax-equivalent net interest income increased by **5.5%** year-over-year, but the net interest margin decreased from **2.59%** to **2.32%**, reflecting the negative impact of historically low short-term interest rates[158](index=158&type=chunk) - Nine-month 2021 tax-equivalent net interest income decreased by **2.2%** year-over-year, with the net interest margin declining from **2.87%** to **2.31%**, primarily due to the low short-term interest rate environment[163](index=163&type=chunk) [Distribution of Assets, Liabilities and Shareholders' Equity; Interest Rate and Interest Differential](index=31&type=section&id=Distribution%20of%20Assets%2C%20Liabilities%20and%20Shareholders'%20Equity%3B%20Interest%20Rate%20and%20Interest%20Differential) This chapter provides detailed information on the company's average balance sheet, along with tax-equivalent interest income and expense, average yields, and average rates for various earning assets and interest-bearing liabilities Average Balance Sheet and Interest Differential (in thousands of dollars) | Metric | Q3 2021 Average Balance | Q3 2021 Yield/Rate | Q3 2020 Average Balance | Q3 2020 Yield/Rate | | :--- | :--- | :--- | :--- | :--- | | Loans (Taxable) | $873,070 | 4.08% | $949,836 | 3.80% | | Investment Securities (Taxable) | $209,662 | 1.38% | $69,158 | 2.14% | | Investment Securities (Tax-Exempt) | $308,071 | 2.87% | $284,826 | 3.10% | | Interest-Bearing Demand Deposits | $531,541 | 0.11% | $425,192 | 0.21% | | Net Interest Income | $11,900 | | $11,280 | | | Net Interest Margin | | 2.32% | | 2.59% | | Metric | Nine Months 2021 Average Balance | Nine Months 2021 Yield/Rate | Nine Months 2020 Average Balance | Nine Months 2020 Yield/Rate | | :--- | :--- | :--- | :--- | :--- | | Loans (Taxable) | $885,274 | 3.97% | $904,632 | 4.04% | | Investment Securities (Taxable) | $149,953 | 1.24% | $82,271 | 2.27% | | Investment Securities (Tax-Exempt) | $304,348 | 2.96% | $289,964 | 3.12% | | Interest-Bearing Demand Deposits | $510,886 | 0.11% | $382,424 | 0.37% | | Net Interest Income | $34,005 | | $34,772 | | | Net Interest Margin | | 2.31% | | 2.87% | - In the third quarter of 2021, average earning assets increased by **17.4%**, primarily driven by significant increases in deposits and accounts payable[155](index=155&type=chunk) - For the nine months ended September 30, 2021, average earning assets increased by **21.7%**, and average interest-bearing liabilities increased by **25.4%**[159](index=159&type=chunk)[160](index=160&type=chunk) [Analysis of Net Interest Income Changes](index=34&type=section&id=Analysis%20of%20Net%20Interest%20Income%20Changes) This chapter analyzes the specific impacts of volume and rate changes on the company's net interest income across different periods Analysis of Net Interest Income Changes (in thousands of dollars) | Source of Change | Q3 2021 (Volume) | Q3 2021 (Rate) | Q3 2021 (Total) | | :--- | :--- | :--- | :--- | | Increase (Decrease) in Interest Income: | | | | | Loans (Taxable) | ($751) | $671 | ($80) | | Investment Securities (Taxable) | $530 | ($171) | $359 | | Investment Securities (Tax-Exempt) | $178 | ($169) | $9 | | Total Interest Income | $35 | $407 | $442 | | Interest Expense: | | | | | Interest-Bearing Demand Deposits | $48 | ($130) | ($82) | | Total Interest Expense | ($2) | ($176) | ($178) | | Net Interest Income | $37 | $583 | $620 | | Source of Change | Nine Months 2021 (Volume) | Nine Months 2021 (Rate) | Nine Months 2021 (Total) | | :--- | :--- | :--- | :--- | | Increase (Decrease) in Interest Income: | | | | | Loans (Taxable) | ($593) | ($503) | ($1,096) | | Investment Securities (Taxable) | $812 | ($825) | ($13) | | Investment Securities (Tax-Exempt) | $325 | ($358) | ($33) | | Total Interest Income | $811 | ($2,574) | ($1,763) | | Interest Expense: | | | | | Interest-Bearing Demand Deposits | $275 | ($906) | ($631) | | Total Interest Expense | $105 | ($1,101) | ($996) | | Net Interest Income | $706 | ($1,473) | ($767) | - In the third quarter of 2021, the increase in net interest income was primarily driven by a **$583 thousand** contribution from rate changes, with volume changes contributing **$37 thousand**[173](index=173&type=chunk) - For the nine months ended September 30, 2021, the decrease in net interest income was mainly due to a **($1,473 thousand)** reduction from rate changes, partially offset by a **$706 thousand** contribution from volume changes[175](index=175&type=chunk) [Provision and Allowance for Credit Losses and Allowance for Unfunded Commitments](index=35&type=section&id=Provision%20and%20Allowance%20for%20Credit%20Losses%20and%20Allowance%20for%20Unfunded%20Commitments) This chapter discusses changes in the company's allowance for credit losses and unfunded commitments, including provisions or releases for the third quarter and first nine months of 2021, and their relationship to the loan portfolio and economic conditions - In the third quarter of 2021, the company recorded a **$340 thousand** provision for credit losses, primarily due to loan growth[176](index=176&type=chunk) - For the nine months ended September 30, 2021, the company released **$870 thousand** from its allowance for credit losses, mainly due to improved economic conditions and the release of specific allowances for problem loans[176](index=176&type=chunk) Allowance for Credit Losses and Unfunded Commitments Analysis (in thousands of dollars) | Metric | Q3 2021 | Q3 2020 | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Beginning Allowance for Credit/Loan Losses | $11,171 | $11,292 | $11,944 | $10,556 | | Provision (Release) for Credit/Loan Losses | $350 | $0 | ($440) | $725 | | Ending Allowance for Credit/Loan Losses | $11,532 | $11,298 | $11,532 | $11,298 | | Ending Allowance for Unfunded Commitments | $137 | $0 | $137 | $0 | | Allowance for Credit Losses as % of Outstanding Loans (End of Period) | 1.32% | 1.20% | 1.32% | 1.20% | [Operating Expenses](index=36&type=section&id=Operating%20Expenses) The company's operating expenses increased in both the third quarter and first nine months of 2021, primarily due to higher personnel and external service costs driven by increased payment processing volumes - Third-quarter 2021 total operating expenses increased by **7.0%** (**$2,010 thousand**) year-over-year, primarily due to higher personnel and external service costs from increased payment processing volumes[183](index=183&type=chunk) - Nine-month 2021 total operating expenses increased by **4.8%** (**$4,052 thousand**) year-over-year, also due to increased payment processing volumes[183](index=183&type=chunk) [Financial Condition](index=36&type=section&id=Financial%20Condition) As of September 30, 2021, total assets and total liabilities increased, while total shareholders' equity decreased, with asset growth driven by investment securities and excess payments, and liability growth by deposits and accounts payable - As of September 30, 2021, total assets were **$2,292,986 thousand**, an increase of **$89,751 thousand** (**4.1%**) from December 31, 2020[184](index=184&type=chunk) - Asset growth was primarily driven by a **$183,353 thousand** (**51.3%**) increase in the investment securities portfolio and a **$71,816 thousand** (**36.9%**) increase in excess payments, partially offset by a **$170,219 thousand** decrease in cash and cash equivalents[184](index=184&type=chunk) - As of September 30, 2021, total liabilities were **$2,045,343 thousand**, an increase of **$103,268 thousand** (**5.3%**) from December 31, 2020, primarily driven by a **$36,461 thousand** increase in deposits and a **$70,093 thousand** increase in accounts payable[185](index=185&type=chunk) - As of September 30, 2021, total shareholders' equity was **$247,643 thousand**, a decrease of **$13,517 thousand** (**5.2%**) from December 31, 2020, primarily due to stock repurchases, cash dividend payments, and other comprehensive losses[186](index=186&type=chunk) [Liquidity and Capital Resources](index=37&type=section&id=Liquidity%20and%20Capital%20Resources) This chapter discusses the company's liquidity sources and capital adequacy, highlighting ample liquid assets and various secondary liquidity sources, while consistently meeting all regulatory capital requirements - As of September 30, 2021, liquid assets (cash and cash equivalents) were **$500,309 thousand**, representing **21.8%** of total assets, serving as the company's primary source of liquidity[189](index=189&type=chunk) - Secondary liquidity sources include the investment portfolio (**$541,079 thousand**) and the bank's unsecured and secured lines of credit (totaling **$373,048 thousand**)[190](index=190&type=chunk)[191](index=191&type=chunk) - The company and the bank consistently exceed all regulatory capital requirements, including Common Equity Tier 1, Tier 1, and Total Capital to risk-weighted assets ratios, as well as the Tier 1 Capital to leverage assets ratio[205](index=205&type=chunk) Regulatory Capital Ratios (in thousands of dollars) | Metric | Amount as of Sep 30, 2021 | Ratio as of Sep 30, 2021 | Amount as of Dec 31, 2020 | Ratio as of Dec 31, 2020 | | :--- | :--- | :--- | :--- | :--- | | **Total Capital (to Risk-Weighted Assets)** | | | | | | Cass Information Systems, Inc. | $247,480 | 17.04% | $255,332 | 21.41% | | Cass Commercial Bank | $184,869 | 21.45% | $171,298 | 21.46% | | **Common Equity Tier 1 Capital (to Risk-Weighted Assets)** | | | | | | Cass Information Systems, Inc. | $235,949 | 16.24% | $243,388 | 20.41% | | Cass Commercial Bank | $174,093 | 20.20% | $161,300 | 20.21% | | **Tier 1 Capital (to Risk-Weighted Assets)** | | | | | | Cass Information Systems, Inc. | $235,949 | 16.24% | $243,388 | 20.41% | | Cass Commercial Bank | $174,093 | 20.20% | $161,300 | 20.21% | | **Tier 1 Capital (to Leverage Assets)** | | | | | | Cass Information Systems, Inc. | $235,949 | 10.01% | $243,388 | 11.52% | | Cass Commercial Bank | $174,093 | 12.32% | $161,300 | 14.48% | [Inflation](index=39&type=section&id=Inflation) This chapter discusses the potential impact of inflation on the company's financial condition and operating results, noting that holding a net monetary asset position during inflationary periods may lead to a decrease in purchasing power - The company's assets and liabilities are primarily monetary, and holding a net monetary asset position during inflationary periods may lead to a decrease in purchasing power[206](index=206&type=chunk) - Inflation rates affect certain expenses, such as employee compensation, which may not be fully offset by adjustments in the company's service prices[206](index=206&type=chunk) [Impact of New and Not Yet Adopted Accounting Pronouncements](index=39&type=section&id=Impact%20of%20New%20and%20Not%20Yet%20Adopted%20Accounting%20Pronouncements) This chapter discusses the adoption of ASU 2016-13 (Financial Instruments – Credit Losses) and its impact on the company's financial statements, including increases in the allowance for credit losses and unfunded commitments - The company has adopted ASU 2016-13, which requires measuring and recognizing expected credit losses for financial instruments rather than incurred losses[208](index=208&type=chunk) - The company adopted ASU 2016-13 on January 1, 2020, resulting in an increase of **$723 thousand** in the allowance for credit losses, **$402 thousand** in the allowance for unfunded commitments, and a corresponding **$856 thousand** (net of tax) reduction in retained earnings[211](index=211&type=chunk)[212](index=212&type=chunk) Impact of Adopting ASU 2016-13 (in thousands of dollars) | Metric | December 31, 2019 | Impact of ASU 2016-13 Adoption | Reported under ASU 2016-13 | | :--- | :--- | :--- | :--- | | Allowance for Loan/Credit Losses | $10,556 | $723 | $11,279 | | Deferred Tax Assets | $2,298 | $269 | $2,567 | | Allowance for Unfunded Commitments | $0 | $402 | $402 | | Retained Earnings | $90,341 | ($856) | $89,485 | [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=39&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) This chapter discloses quantitative and qualitative information about the company's market risk, particularly interest rate risk, which is managed through gap analysis and simulation models, and assesses the potential impact of interest rate changes on net interest income - The company manages interest rate risk through gap analysis and simulation models, with asset/liability management policies established and monitored by management[213](index=213&type=chunk) - The economic impact of the COVID-19 pandemic has introduced significant uncertainty and market volatility, potentially exacerbating the company's risk profile[213](index=213&type=chunk) Impact of Interest Rate Changes on Estimated Net Interest Income | Interest Rate Change | Estimated Net Interest Income Change % as of Sep 30, 2021 | Estimated Net Interest Income Change % as of Dec 31, 2020 | | :--- | :--- | :--- | | +200 basis points | 21.7% | 33.0% | | +100 basis points | 10.9% | 16.3% | | Flat | —% | —% | | -100 basis points | (2.6)% | (2.5)% | [ITEM 4. CONTROLS AND PROCEDURES](index=39&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) This chapter confirms that the company's management has evaluated the effectiveness of disclosure controls and procedures, concluding they are effective as of the end of the reporting period, with no significant changes to internal controls during the period - The company's management has evaluated the effectiveness of disclosure controls and procedures and concluded they are effective as of the end of the reporting period[215](index=215&type=chunk) - There were no significant changes in the company's internal controls during the third quarter of 2021 that materially affected internal control over financial reporting[216](index=216&type=chunk) PART II. OTHER INFORMATION [ITEM 1. LEGAL PROCEEDINGS](index=41&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) This chapter states that the company is involved in various ongoing or potential legal actions and proceedings, but management believes their ultimate resolution will not materially affect the business or financial condition of the company or its subsidiaries - The company is involved in various ongoing or potential legal actions and proceedings arising in the normal course of business[218](index=218&type=chunk) - Management believes the ultimate resolution of these legal proceedings will not materially affect the business or financial condition of the company or its subsidiaries[218](index=218&type=chunk) [ITEM 1A. RISK FACTORS](index=41&type=section&id=ITEM%201A.%20RISK%20FACTORS) This chapter notes that the company disclosed risk factors in its 2020 Form 10-K annual report that could affect its business, future performance, or financial condition, and these factors have not materially changed since that report - The company disclosed risk factors in its 2020 Form 10-K annual report that could affect its business, future performance, or financial condition[219](index=219&type=chunk) - There have been no material changes to the risk factors since the 2020 Form 10-K annual report disclosure[219](index=219&type=chunk) [ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS](index=41&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) This chapter discloses the company's common stock repurchases during the third quarter of 2021 under its treasury stock repurchase program, including the number of shares repurchased, average price, and remaining shares available for repurchase - In the third quarter of 2021, the company repurchased **314,672 shares** of common stock under its treasury stock repurchase program[220](index=220&type=chunk) Q3 2021 Stock Repurchase Details | Period | Total Number of Shares Purchased | Average Price Paid/Share | Total Number of Shares Purchased Under Publicly Announced Plans | Maximum Number of Shares That May Yet Be Purchased Under the Plans | | :--- | :--- | :--- | :--- | :--- | | July 1 – July 31, 2021 | 42,938 | $41.10 | 42,938 | 302,674 | | August 1 – August 31, 2021 | 170,700 | $43.85 | 170,700 | 131,974 | | September 1 – September 30, 2021 | 101,034 | $44.21 | 101,034 | 30,940 | | Total | 314,672 | $43.59 | 314,672 | 30,940 | - On October 19, 2021, the Board of Directors authorized the repurchase of up to **750,000 shares** of common stock, replacing the previous authorization[220](index=220&type=chunk) [ITEM 3. DEFAULTS UPON SENIOR SECURITIES](index=41&type=section&id=ITEM%203.%20DEFAULTS%20UPON%20SENIOR%20SECURITIES) This chapter states that the company has not experienced any defaults upon senior securities - The company has not experienced any defaults upon senior securities[221](index=221&type=chunk) [ITEM 4. MINE SAFETY DISCLOSURES](index=41&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) This chapter states that mine safety disclosures are not applicable to the company's business - Mine safety disclosures are not applicable to the company[222](index=222&type=chunk) [ITEM 5. OTHER INFORMATION](index=41&type=section&id=ITEM%205.%20OTHER%20INFORMATION) This chapter states that no other material information requires disclosure, and there were no significant changes in the procedures for security holders to recommend director nominees during the third quarter of 2021 - There were no significant changes in the procedures by which security holders may recommend nominees to the Board of Directors during the third quarter of 2021[223](index=223&type=chunk) [ITEM 6. EXHIBITS](index=42&type=section&id=ITEM%206.%20EXHIBITS) This chapter lists the exhibits filed with the report, including certifications required by the Sarbanes-Oxley Act and XBRL data files - Exhibits include certifications required under Sections 302 and 906 of the Sarbanes-Oxley Act[225](index=225&type=chunk) - Exhibits also include XBRL Instance Document, Taxonomy Extension Schema Document, Calculation Linkbase Document, Label Linkbase Document, Presentation Linkbase Document, and Definition Linkbase Document[225](index=225&type=chunk) SIGNATURES [Signatures](index=43&type=section&id=Signatures) This chapter contains the report's signatures by authorized representatives of the company, as required by the Securities Exchange Act of 1934 - The report was signed on November 5, 2021, by Eric H. Brunngraber, Chairman, President, and Chief Executive Officer, and Michael J. Normile, Executive Vice President and Chief Financial Officer[230](index=230&type=chunk)

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission File No. 000-20827 CASS INFORMATION SYSTEMS, INC. (Exact name of registrant as specified in its charter) Missouri 43-1 ...

PART I – Financial Information This section presents the unaudited consolidated financial statements and management's discussion and analysis for the reporting period [Item 1. FINANCIAL STATEMENTS](index=3&type=section&id=Item%201.%20FINANCIAL%20STATEMENTS) This section presents the unaudited consolidated financial statements for Cass Information Systems, Inc. and its subsidiaries, including balance sheets, statements of income, comprehensive income, cash flows, and shareholders' equity, along with detailed notes explaining the basis of presentation, significant accounting policies, and specific financial instrument details [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) This section details the company's financial position, including assets, liabilities, and shareholders' equity at specific dates - Total assets increased by **$13.338 million (0.6%)** from December 31, 2020, to March 31, 2021[154](index=154&type=chunk) - Cash and cash equivalents decreased by **$70.869 million**, while securities available-for-sale increased by **$69.518 million**[154](index=154&type=chunk) - Total liabilities increased by **$15.011 million (0.8%)**, driven by a **$62.122 million (7.4%) increase** in accounts and drafts payable, partially offset by a **$47.721 million (4.5%) decrease** in total deposits[155](index=155&type=chunk) Consolidated Balance Sheet Summary (In thousands) | Metric | March 31, 2021 (Unaudited) | December 31, 2020 | | :---------------------------------- | :------------------------- | :---------------- | | Total Assets | $2,216,573 | $2,203,235 | | Cash and cash equivalents | $599,659 | $670,528 | | Securities available-for-sale | $427,244 | $357,726 | | Loans, net | $876,854 | $879,732 | | Total Liabilities | $1,957,086 | $1,942,075 | | Total Deposits | $1,003,135 | $1,050,856 | | Accounts and drafts payable | $897,508 | $835,386 | | Total Shareholders' Equity | $259,487 | $261,160 | [Consolidated Statements of Income](index=5&type=section&id=Consolidated%20Statements%20of%20Income) This section presents the company's revenues, expenses, and net income over a specific period - Net income decreased by **6.3% year-over-year to $7.071 million** for the three months ended March 31, 2021[132](index=132&type=chunk) - Diluted earnings per share decreased by **5.8% year-over-year to $0.49**[132](index=132&type=chunk) - Total fee revenue and other income decreased by **3.4% to $26.175 million**, and total interest income decreased by **13.5% to $10.676 million**[17](index=17&type=chunk)[19](index=19&type=chunk) Consolidated Statements of Income Summary (In thousands) | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | Change (YoY) | | :---------------------------------- | :-------------------------------- | :-------------------------------- | :------------------- | | Net Income | $7,071 | $7,545 | -$474 (-6.3%) | | Diluted Earnings Per Share | $0.49 | $0.52 | -$0.03 (-5.8%) | | Total Fee Revenue and Other Income | $26,175 | $27,095 | -$920 (-3.4%) | | Total Interest Income | $10,676 | $12,338 | -$1,662 (-13.5%) | | Net Interest Income | $10,345 | $11,373 | -$1,028 (-9.0%) | | Total Operating Expense | $28,525 | $28,929 | -$404 (-1.4%) | [Consolidated Statements of Comprehensive Income](index=6&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) This section reports net income and other comprehensive income, reflecting changes in equity from non-owner sources - Total comprehensive income decreased significantly by **47.4% year-over-year to $3.694 million** for the three months ended March 31, 2021[22](index=22&type=chunk) - The company recorded a net unrealized loss on securities available-for-sale of **$4.214 million** in Q1 2021, a notable shift from a gain of **$578,000** in Q1 2020[22](index=22&type=chunk) Consolidated Statements of Comprehensive Income Summary (In thousands) | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | Change (YoY) | | :-------------------------------------------------- | :-------------------------------- | :-------------------------------- | :------------------- | | Net Income | $7,071 | $7,545 | -$474 (-6.3%) | | Net Unrealized (Loss) Gain on Securities Available-for-Sale | ($4,214) | $578 | -$4,792 | | Total Comprehensive Income | $3,694 | $7,026 | -$3,332 (-47.4%) | [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This section details cash inflows and outflows from operating, investing, and financing activities - Net cash provided by operating activities decreased by **8.0% year-over-year to $16.704 million** for the three months ended March 31, 2021[164](index=164&type=chunk) - Net cash used in investing activities increased significantly to **$94.697 million** in Q1 2021, primarily due to increased purchases of securities available-for-sale[25](index=25&type=chunk) - Net cash provided by financing activities was **$7.124 million** in Q1 2021, a reversal from net cash used of **$7.545 million** in Q1 2020, driven by an increase in accounts and drafts payable[25](index=25&type=chunk) Consolidated Statements of Cash Flows Summary (In thousands) | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | Change (YoY) | | :------------------------------------------ | :-------------------------------- | :-------------------------------- | :------------------- | | Net Cash Provided by Operating Activities | $16,704 | $18,160 | -$1,456 (-8.0%) | | Net Cash Used in Investing Activities | ($94,697) | ($51,375) | -$43,322 (+84.3%) | | Net Cash Provided by (Used in) Financing Activities | $7,124 | ($7,545) | +$14,669 | | Net Decrease in Cash and Cash Equivalents | ($70,869) | ($40,760) | -$30,109 (+73.9%) | | Cash and Cash Equivalents at End of Period | $599,659 | $163,194 | +$436,465 (+267.4%) | [Consolidated Statements of Shareholders' Equity](index=8&type=section&id=Consolidated%20Statements%20of%20Shareholders'%20Equity) This section outlines changes in shareholders' equity, including net income, dividends, and share repurchases - Total shareholders' equity decreased by **$1.673 million (0.6%)** from December 31, 2020, to March 31, 2021[156](index=156&type=chunk) - Key factors contributing to the decrease include cash dividends paid (**$3.886 million**), purchase of common shares for treasury (**$1.228 million**), and an increase in accumulated other comprehensive loss (**$3.377 million**), partially offset by net income (**$7.071 million**)[30](index=30&type=chunk)[156](index=156&type=chunk) Consolidated Statements of Shareholders' Equity Summary (In thousands) | Metric | March 31, 2021 | December 31, 2020 | Change | | :---------------------------------- | :------------- | :---------------- | :------- | | Total Shareholders' Equity | $259,487 | $261,160 | -$1,673 | | Net Income | $7,071 | N/A | N/A | | Cash Dividends Paid | ($3,886) | N/A | N/A | | Purchase of Common Shares for Treasury | ($1,228) | N/A | N/A | | Accumulated Other Comprehensive Loss | ($3,392) | ($15) | -$3,377 | [Notes to Consolidated Financial Statements (unaudited)](index=9&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements%20(unaudited)) This section provides detailed disclosures on the company's accounting policies, financial instruments, and other relevant financial information, including the impact of COVID-19, intangible assets, earnings per share, stock repurchases, segment information, loan portfolio details, commitments, stock-based compensation, pension plans, income taxes, investment securities, fair value measurements, revenue recognition, and leases [Note 1 – Basis of Presentation](index=9&type=section&id=Note%201%20%E2%80%93%20Basis%20of%20Presentation) This note describes the accounting principles and significant events impacting the financial statement preparation - The unaudited consolidated financial statements are prepared in accordance with U.S. GAAP for interim financial information and Form 10-Q instructions[33](index=33&type=chunk) - The Company is closely monitoring COVID-19 developments, which have led to an unprecedented economic slowdown and increased unemployment, negatively impacting business activity and financial results[34](index=34&type=chunk)[36](index=36&type=chunk)[37](index=37&type=chunk) - The Federal Reserve's actions to lower the Federal Funds rate in response to COVID-19 have adversely affected the Company's interest income[38](index=38&type=chunk) - The aggregate impact of COVID-19 on the Company's financial condition and operating results remains highly uncertain[37](index=37&type=chunk) [Note 2 – Intangible Assets](index=10&type=section&id=Note%202%20%E2%80%93%20Intangible%20Assets) This note details the company's intangible assets, including amortization schedules and carrying amounts - Intangible assets include customer lists, patents, non-compete agreements, software, trade name, and goodwill[50](index=50&type=chunk) - Amortization of intangible assets was **$215,000** for both the three-month periods ended March 31, 2021 and 2020[50](index=50&type=chunk) - Estimated future amortization of intangibles is **$859,000 in 2021**, **$540,000 in both 2022 and 2023**, **$498,000 in 2024**, and **$490,000 in 2025**[50](index=50&type=chunk) Intangible Assets Summary (In thousands) | Intangible Asset | March 31, 2021 Gross Carrying Amount | March 31, 2021 Accumulated Amortization | December 31, 2020 Gross Carrying Amount | December 31, 2020 Accumulated Amortization | | :------------------------------ | :----------------------------------- | :-------------------------------------- | :-------------------------------------- | :----------------------------------------- | | Customer lists | $4,778 | ($4,012) | $4,778 | ($3,902) | | Patents | $72 | ($25) | $72 | ($24) | | Software | $2,844 | ($824) | $2,844 | ($731) | | Goodwill | $14,489 | ($227) | $14,489 | ($227) | | Total Intangible Assets | $23,205 | ($5,735) | $23,205 | ($5,520) | [Note 3 – Earnings Per Share](index=11&type=section&id=Note%203%20%E2%80%93%20Earnings%20Per%20Share) This note provides basic and diluted earnings per share calculations and related share counts - Basic earnings per share was **$0.49** for the three months ended March 31, 2021, down from **$0.52** in the prior year period[51](index=51&type=chunk) - Diluted earnings per share was **$0.49** for the three months ended March 31, 2021, also down from **$0.52** in the prior year period[51](index=51&type=chunk) Earnings Per Share Calculation (In thousands, except per share data) | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :---------------------------------- | :-------------------------------- | :-------------------------------- | | Net Income | $7,071 | $7,545 | | Weighted-average common shares outstanding | 14,312,260 | 14,422,813 | | Basic Earnings Per Share | $0.49 | $0.52 | | Diluted Earnings Per Share | $0.49 | $0.52 | [Note 4 – Stock Repurchases](index=11&type=section&id=Note%204%20%E2%80%93%20Stock%20Repurchases) This note outlines the company's stock repurchase activities and remaining authorization under the program - The Company repurchased **31,256 shares** during the three-month period ended March 31, 2021, compared to **128,779 shares** in the prior year period[52](index=52&type=chunk) - As of March 31, 2021, **434,622 shares** remained available for repurchase under the program, which has no expiration date[52](index=52&type=chunk) - The treasury stock buyback program was restored by the Board of Directors in October 2020, authorizing the repurchase of up to an aggregate of **500,000 shares**[52](index=52&type=chunk) [Note 5 – Industry Segment Information](index=12&type=section&id=Note%205%20%E2%80%93%20Industry%20Segment%20Information) This note provides financial data for the company's distinct operating segments: Information Services and Banking Services - The Company operates in two reportable segments: Information Services and Banking Services, each providing distinct services and managed separately[54](index=54&type=chunk) - Information Services provides transportation, energy, telecommunication, and environmental invoice processing and payment services[55](index=55&type=chunk) - Banking Services provides banking services primarily to privately held businesses and faith-based ministries, and supports the Information Services segment[55](index=55&type=chunk) Segment Performance (In thousands) | Segment Performance | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--------------------------------- | :-------------------------------- | :-------------------------------- | | **Information Services:** | | | | Fee income | $24,977 | $25,440 | | Interest income* | $5,509 | $4,707 | | Tax-equivalized pre-tax income* | $6,013 | $5,123 | | **Banking Services:** | | | | Fee income | $638 | $615 | | Interest income* | $5,751 | $7,284 | | Tax-equivalized pre-tax income* | $2,762 | $2,703 | | **Total Company:** | | | | Total Assets | $2,216,573 | $1,731,982 | | Funding Sources | $1,687,029 | $1,288,964 | [Note 6 – Loans by Type](index=13&type=section&id=Note%206%20%E2%80%93%20Loans%20by%20Type) This note details the composition of the loan portfolio and the allowance for credit losses - Total loans decreased slightly to **$888.575 million** at March 31, 2021, from **$891.676 million** at December 31, 2020[62](index=62&type=chunk) - Paycheck Protection Program (PPP) loans increased to **$113.474 million** at March 31, 2021, from **$109.704 million** at December 31, 2020[62](index=62&type=chunk) - The allowance for credit losses (ACL) decreased to **$11.721 million** at March 31, 2021, from **$11.944 million** at December 31, 2020, primarily due to an improved forecast of macroeconomic factors[70](index=70&type=chunk) Loans by Category (In thousands) | Loan Category | March 31, 2021 | December 31, 2020 | | :--------------------------- | :------------- | :---------------- | | Commercial and industrial | $302,747 | $298,984 | | Commercial Real Estate Mortgage | $96,630 | $100,419 | | Faith-based Real Estate Mortgage | $331,153 | $333,661 | | Paycheck Protection Program ("PPP") | $113,474 | $109,704 | | Total Loans | $888,575 | $891,676 | Allowance for Credit Losses (In thousands) | Allowance for Credit Losses | March 31, 2021 | December 31, 2020 | | :--------------------------------------- | :------------- | :---------------- | | Balance at Period End | $11,721 | $11,944 | | (Release of) Provision for Credit Losses | ($240) | $645 (for year ended Dec 31, 2020) | | Net Recoveries | $17 | $20 (for year ended Dec 31, 2020) | [Note 7 – Commitments and Contingencies](index=18&type=section&id=Note%207%20%E2%80%93%20Commitments%20and%20Contingencies) This note discloses the company's off-balance sheet commitments and potential contingent liabilities - Unused loan commitments totaled **$194.737 million**, standby letters of credit **$11.619 million**, and commercial letters of credit **$816,000** at March 31, 2021[77](index=77&type=chunk) - A release of credit losses of **$360,000** was recorded during Q1 2021 due to lower line of credit usage[76](index=76&type=chunk) - The allowance for unfunded commitments decreased to **$207,000** at March 31, 2021, from **$567,000** at December 31, 2020[76](index=76&type=chunk) Time Deposits Contractual Cash Obligations (In thousands) | Time Deposits Contractual Cash Obligations | Amount Total | | :---------------------------------------- | :----------- | | Less than 1 Year | $41,390 | | 1-3 Years | $14,098 | | 3-5 Years | $48 | | Over 5 Years | $0 | | Total | $55,536 | [Note 8 – Stock-Based Compensation](index=18&type=section&id=Note%208%20%E2%80%93%20Stock-Based%20Compensation) This note details the expense and unrecognized cost related to stock-based compensation plans - Stock-based compensation expense for the three months ended March 31, 2021, was **$693,000**, a decrease from **$722,000** in the prior year period[79](index=79&type=chunk) - Total unrecognized compensation expense related to non-vested restricted shares was **$2.642 million** as of March 31, 2021, with a weighted-average recognition period of approximately **0.98 years**[82](index=82&type=chunk) - During Q1 2021, **39,686 restricted shares** and **52,240 performance-based restricted shares** were granted under the Omnibus Plan, with no SARs granted[79](index=79&type=chunk)[86](index=86&type=chunk) [Note 9 – Defined Pension Plans](index=20&type=section&id=Note%209%20%E2%80%93%20Defined%20Pension%20Plans) This note outlines the status and costs associated with the company's defined-benefit pension plans - The noncontributory defined-benefit pension plan was closed to new participants in December 2016 and its benefits were frozen for all remaining participants as of February 28, 2021[88](index=88&type=chunk) - Pension costs recorded to expense decreased significantly to **$273,000** for Q1 2021 from **$1.029 million** for Q1 2020, primarily due to the plan freeze[89](index=89&type=chunk) - Supplemental executive retirement plan costs increased to **$160,000** for Q1 2021 from **$145,000** for Q1 2020[90](index=90&type=chunk) [Note 10 – Income Taxes](index=20&type=section&id=Note%2010%20%E2%80%93%20Income%20Taxes) This note provides information on the company's effective tax rate and factors influencing it - The effective tax rate was **17.7%** for the three-month period ended March 31, 2021, down from **18.1%** in the prior year period[91](index=91&type=chunk) - The difference from the statutory rate of **21%** is primarily due to tax-exempt interest received from municipal bonds[91](index=91&type=chunk) [Note 11 – Investment in Securities](index=21&type=section&id=Note%2011%20%E2%80%93%20Investment%20in%20Securities) This note details the composition, fair value, and unrealized gains/losses of investment securities - Total investment securities available-for-sale at fair value increased to **$427.244 million** at March 31, 2021, from **$357.726 million** at December 31, 2020[93](index=93&type=chunk) - At March 31, 2021, gross unrealized gains were **$16.301 million** and gross unrealized losses were **$885,000**, with **33 securities (12% of portfolio)** in an unrealized loss position, compared to none at December 31, 2020[93](index=93&type=chunk) - Proceeds from sales of available-for-sale securities decreased significantly to **$2.991 million** in Q1 2021 from **$19.629 million** in Q1 2020, resulting in gross realized gains of **$48,000** (vs. **$1.069 million** in Q1 2020)[95](index=95&type=chunk) Investment Securities Fair Value (In thousands) | Investment Securities | March 31, 2021 Fair Value | December 31, 2020 Fair Value | | :--------------------------------- | :------------------------ | :--------------------------- | | State and political subdivisions | $327,983 | $305,974 | | U.S. government agencies | $99,261 | $51,752 | | Total | $427,244 | $357,726 | [Note 12 – Fair Value of Financial Instruments](index=22&type=section&id=Note%2012%20%E2%80%93%20Fair%20Value%20of%20Financial%20Instruments) This note provides fair value measurements for financial instruments using a three-level hierarchy - The carrying amounts of cash and cash equivalents, investment securities, accrued interest receivable, deposits, accounts and drafts payable, and accrued interest approximate their fair values[97](index=97&type=chunk)[98](index=98&type=chunk)[100](index=100&type=chunk)[101](index=101&type=chunk)[102](index=102&type=chunk)[103](index=103&type=chunk) - Loans are valued using **Level 3 inputs** (present value of future cash flows discounted at risk-adjusted interest rates), while fixed-maturity certificates of deposit are valued using **Level 2 inputs** (current rates for similar maturities)[99](index=99&type=chunk)[101](index=101&type=chunk) Fair Value of Financial Instruments (In thousands) | Financial Instrument | March 31, 2021 Carrying Amount | March 31, 2021 Fair Value | December 31, 2020 Carrying Amount | December 31, 2020 Fair Value | | :-------------------------------- | :----------------------------- | :------------------------ | :-------------------------------- | :--------------------------- | | Cash and cash equivalents | $599,659 | $599,659 | $670,528 | $670,528 | | Investment securities | $427,244 | $427,244 | $357,726 | $357,726 | | Loans, net | $876,854 | $880,231 | $879,732 | $883,461 | | Deposits | $1,003,135 | $1,003,135 | $1,050,856 | $1,050,856 | | Accounts and drafts payable | $897,508 | $897,508 | $835,386 | $835,386 | [Note 13 – Revenue from Contracts with Customers](index=22&type=section&id=Note%2013%20%E2%80%93%20Revenue%20from%20Contracts%20with%20Customers) This note details the recognition of revenue from customer contracts across different service categories - Revenue is recognized as the obligation to the customer is satisfied, either at a point in time (per-item fees, payment transactions) or over the course of a month (monthly fees, service charges)[106](index=106&type=chunk)[107](index=107&type=chunk)[108](index=108&type=chunk) - Information services payment and processing revenue decreased by **1.1% to $25.216 million** in Q1 2021 compared to Q1 2020[111](index=111&type=chunk) - Bank service fees increased to **$494,000** in Q1 2021 from **$410,000** in Q1 2020[111](index=111&type=chunk) Fee Revenue from Contracts with Customers (In thousands) | Fee Revenue | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :------------------------------------------ | :-------------------------------- | :-------------------------------- | | Invoice processing fees | $19,064 | $19,124 | | Invoice payment fees | $6,152 | $6,379 | | Information services payment and processing revenue | $25,216 | $25,503 | | Bank service fees | $494 | $410 | | Total fee revenue (in-scope of FASB ASC 606) | $25,710 | $25,913 | [Note 14 – Leases](index=24&type=section&id=Note%2014%20%E2%80%93%20Leases) This note provides information on the company's lease liabilities, right-of-use assets, and lease costs - As of March 31, 2021, the Company had lease liabilities of **$5.799 million** and right-of-use assets of **$5.255 million**[112](index=112&type=chunk) - Operating lease cost was **$420,000** and short-term lease cost was **$30,000** for the three months ended March 31, 2021[112](index=112&type=chunk) - The weighted average remaining lease term for operating leases was **6.2 years**, and the weighted average discount rate was **5.5%**[112](index=112&type=chunk) Lease Payments Due (In thousands) | Lease Payments Due | March 31, 2021 | | :-------------------------------- | :------------- | | Less than 1 year | $1,711 | | 1-2 years | $1,558 | | 2-3 years | $628 | | 3-4 years | $507 | | 4-5 years | $517 | | Over 5 years | $1,891 | | Total Lease Liability | $5,799 | [Note 15 – Subsequent Events](index=24&type=section&id=Note%2015%20%E2%80%93%20Subsequent%20Events) This note discloses any significant events occurring after the balance sheet date that require reporting - No events were identified after the consolidated balance sheet date of March 31, 2021, that would require additional disclosures[114](index=114&type=chunk) [Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=25&type=section&id=Item%202.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This section discusses the company's financial performance and condition, highlighting the ongoing impact of COVID-19 on its business segments, critical accounting policies, detailed results of operations including revenue, net interest income, and expenses, as well as liquidity, capital resources, and the adoption of new accounting pronouncements [Impact of COVID-19 on the Company's Business](index=25&type=section&id=Impact%20of%20COVID-19%20on%20the%20Company's%20Business) This section analyzes the significant and uncertain effects of the COVID-19 pandemic on the company's operations and financial performance - COVID-19 significantly impacted the global economy and adversely affected the Company's operating results in both Information Services and Banking Services segments[116](index=116&type=chunk) - Business disruptions, manufacturing constrictions, decreased oil demand, and general economic uncertainty negatively impacted revenue generation in the Information Services segment[117](index=117&type=chunk) - The Federal Reserve's actions to lower the Federal Funds rate in connection with COVID-19 relief adversely affected the Company's net interest income and Banking Services operating results[118](index=118&type=chunk) - The Bank processed approximately **$170 million** in PPP loans in 2020 and an additional **$37 million** in Q1 2021, which are **100% guaranteed** by the Small Business Administration[120](index=120&type=chunk) - The aggregate impact of COVID-19 on the Company's financial condition and operating results remains unknown due to uncertainties in vaccine administration and containment efforts[122](index=122&type=chunk) [Overview](index=26&type=section&id=Overview) This section provides a general description of the company's business model, service offerings, and strategic focus - Cass provides payment and information processing services for transportation, energy, telecommunication, and environmental invoices to large corporations, and offers a B2B payment platform[124](index=124&type=chunk) - The Company's bank subsidiary supports payment operations and provides banking services to privately-owned businesses and faith-based ministries[124](index=124&type=chunk) - Compensation for processing services is derived from service fees (typically per-item) and investment of account balances generated during the payment process, with transaction volume and dollar volume being key metrics[125](index=125&type=chunk) - Management's primary opportunity is the continued expansion of service offerings and customer base by leveraging applied technology and the security of its banking controls[127](index=127&type=chunk) [Critical Accounting Policies](index=26&type=section&id=Critical%20Accounting%20Policies) This section highlights key accounting policies requiring significant management judgment and estimates, such as the Allowance for Credit Losses - The Allowance for Credit Losses (ACL) is identified as a critical accounting policy, requiring significant management estimates for lifetime expected credit losses[130](index=130&type=chunk) - These estimates are based on established methodologies, but actual results can differ significantly from estimated results[130](index=130&type=chunk) [Results of Operations](index=27&type=section&id=Results%20of%20Operations) The company experienced a decrease in net income and diluted EPS in Q1 2021 compared to Q1 2020, primarily due to lower net interest income and fee revenue, despite increased transaction volumes in information services [Net Income](index=27&type=section&id=Net%20Income) This section details the company's net income and diluted earnings per share performance for the period - Net income decreased by **6.3% to $7.071 million** in Q1 2021 from **$7.545 million** in Q1 2020[132](index=132&type=chunk) - Diluted earnings per share decreased by **5.8% to $0.49** in Q1 2021 from **$0.52** in Q1 2020[132](index=132&type=chunk) Net Income and EPS Performance (In thousands, except per share data) | Metric | Q1 2021 | Q1 2020 | % Change | | :----------------------- | :------ | :------ | :------- | | Net income | $7,071 | $7,545 | (6.3)% | | Diluted earnings per share | $0.49 | $0.52 | (5.8)% | | Return on average assets | 1.31% | 1.70% | — | | Return on average equity | 11.09% | 12.50% | — | [Fee Revenue and Other Income](index=27&type=section&id=Fee%20Revenue%20and%20Other%20Income) This section analyzes trends in fee revenue, including transaction volumes and their impact on income - Transportation invoice volume and dollar volume improved by **6.1%** and **22.2%** respectively in Q1 2021, driven by a stronger manufacturing sector and new customer wins[134](index=134&type=chunk) - Facility-related invoice and dollar volumes both increased by **7.5%** due to new business wins[134](index=134&type=chunk) - Payment and processing fee revenue decreased by **1.1% to $25.216 million**, attributed to changes in client mix and a decline in certain non-transaction-based revenue sources like late fees[134](index=134&type=chunk) Fee Revenue and Transaction Volume (In thousands, except volume) | Metric | Q1 2021 | Q1 2020 | % Change | | :-------------------------------- | :-------- | :-------- | :------- | | Transportation invoice volume | 8,787 | 8,280 | 6.1% | | Transportation invoice dollar volume | $7,904,639 | $6,467,051 | 22.2% | | Facility expense transaction volume* | 6,996 | 6,509 | 7.5% | | Facility expense dollar volume | $3,717,428 | $3,458,646 | 7.5% | | Payment and processing revenue | $25,216 | $25,503 | (1.1)% | [Net Interest Income](index=28&type=section&id=Net%20Interest%20Income) This section examines changes in net interest income, margin, and the impact of interest rate environments - Tax-equivalized net interest income decreased by **8.9% to $10.807 million** in Q1 2021 compared to Q1 2020[138](index=138&type=chunk) - Net interest margin declined by **89 basis points from 3.21% to 2.32%** year-over-year, reflecting the negative impact of the historically low short-term interest rate environment[138](index=138&type=chunk) - Average earning assets increased by **27.1% to $1.891 billion**, primarily driven by a **345.7% increase** in interest-bearing deposits in other financial institutions and a **10.2% increase** in average loans (due to PPP loans)[136](index=136&type=chunk) Net Interest Income and Margin Analysis (In thousands, except percentages) | Metric | Q1 2021 | Q1 2020 | % Change | | :--------------------------------- | :------------ | :------------ | :------- | | Average earning assets | $1,891,395 | $1,487,873 | 27.12% | | Average interest-bearing liabilities | $552,906 | $409,376 | 35.06% | | Net interest income* | $10,807 | $11,857 | (8.86)% | | Net interest margin* | 2.32% | 3.21% | — | | Yield on earning assets* | 2.39% | 3.47% | — | | Rate on interest-bearing liabilities | 0.24% | 0.95% | — | [Distribution of Assets, Liabilities and Shareholders' Equity; Interest Rate and Interest Differential](index=29&type=section&id=Distribution%20of%20Assets%2C%20Liabilities%20and%20Shareholders'%20Equity%3B%20Interest%20Rate%20and%20Interest%20Differential) This section provides a detailed breakdown of average asset and liability balances and their associated interest rates - Average interest-bearing deposits in other financial institutions surged to **$582.104 million** in Q1 2021 (from **$130.611 million** in Q1 2020), but with a significantly lower yield of **0.10%** (vs. **1.18%**)[143](index=143&type=chunk) - Average taxable loans increased to **$881.222 million** (from **$799.502 million**), but their yield decreased to **3.95%** (from **4.53%**)[143](index=143&type=chunk) - Average interest-bearing demand deposits increased to **$475.212 million** (from **$326.852 million**), with a lower average rate of **0.13%** (vs. **0.78%**)[143](index=143&type=chunk) [Analysis of Net Interest Income Changes](index=30&type=section&id=Analysis%20of%20Net%20Interest%20Income%20Changes) This section quantifies the impact of volume and rate changes on total interest income and expense - Total interest income decreased by **$1.684 million** year-over-year, primarily due to a negative rate variance of **$2.482 million**, partially offset by a positive volume variance of **$798,000**[146](index=146&type=chunk) - Total interest expense decreased by **$634,000** year-over-year, mainly driven by a negative rate variance of **$773,000**, despite a positive volume variance of **$139,000**[146](index=146&type=chunk) - The net interest income decrease of **$1.050 million** was primarily due to a **$1.709 million** negative impact from rate changes, partially offset by a **$659,000** positive impact from volume changes[146](index=146&type=chunk) Analysis of Net Interest Income Changes (In thousands) | Change in Interest Income/Expense | Volume Impact | Rate Impact | Total Change | | :----------------------------------------------- | :------------ | :---------- | :----------- | | Total Interest Income | $798 | ($2,482) | ($1,684) | | Total Interest Expense | $139 | ($773) | ($634) | | Net Interest Income | $659 | ($1,709) | ($1,050) | [Provision and Allowance for Credit Losses and Allowance for Unfunded Commitments](index=30&type=section&id=Provision%20and%20Allowance%20for%20Credit%20Losses%20and%20Allowance%20for%20Unfunded%20Commitments) This section discusses the company's credit loss provisions, allowance for credit losses, and unfunded commitments - The Company recorded a release of credit losses and off-balance sheet credit exposures of **$600,000** in Q1 2021, compared to a provision for credit losses of **$325,000** in Q1 2020[147](index=147&type=chunk) - The Allowance for Credit Losses (ACL) was **$11.721 million** at March 31, 2021 (**1.32% of outstanding loans**), slightly down from **$11.944 million** at December 31, 2020 (**1.34%**)[148](index=148&type=chunk) - Excluding PPP loans, the ACL represented **1.51%** of total loans at March 31, 2021[148](index=148&type=chunk) - The allowance for unfunded commitments was **$207,000** at March 31, 2021, down from **$567,000** at December 31, 2020[148](index=148&type=chunk) - There were **no nonperforming loans** outstanding at March 31, 2021, or December 31, 2020[148](index=148&type=chunk) [Summary of Credit Loss Experience](index=31&type=section&id=Summary%20of%20Credit%20Loss%20Experience) This section provides a summary of the company's credit loss experience, including allowances and net recoveries - The Allowance for Credit Losses at the end of Q1 2021 was **$11.721 million**, reflecting a release of **$240,000** during the quarter[152](index=152&type=chunk) - Net recoveries on loans were **$17,000** in Q1 2021, compared to **$8,000** in Q1 2020[152](index=152&type=chunk) - The allowance for unfunded commitments at the end of Q1 2021 was **$207,000**, following a release of **$360,000**[152](index=152&type=chunk) Credit Loss Experience Summary (In thousands) | Metric | Q1 2021 | Q1 2020 | | :------------------------------------------ | :------ | :------ | | Allowance for credit losses at beginning of period | $11,944 | $10,556 | | (Release of) provision for credit losses | ($240) | $325 | | Net recoveries | $17 | $8 | | Allowance for credit losses at end of period | $11,721 | $10,889 | | Allowance for unfunded commitments at beginning of Period | $567 | $0 | | (Release of) provision for credit losses | ($360) | $0 | | Allowance for unfunded commitments at end of period | $207 | $0 | [Operating Expenses](index=31&type=section&id=Operating%20Expenses) This section analyzes the trends and drivers of the company's total operating expenses - Total operating expenses decreased by **1.4% ($404,000)** in Q1 2021 compared to Q1 2020[153](index=153&type=chunk) - This decrease was primarily a result of pandemic-related declines in travel and other business development activities[153](index=153&type=chunk) [Financial Condition](index=31&type=section&id=Financial%20Condition) This section reviews the company's overall financial position, including changes in assets, liabilities, and equity - Total assets increased by **$13.338 million (0.6%) to $2.216 billion** at March 31, 2021, from December 31, 2020[154](index=154&type=chunk) - Significant asset changes included increases in securities (**$69.518 million**) and payments in excess of funding (**$21.912 million**), partially offset by a decrease in cash and cash equivalents (**$70.869 million**)[154](index=154&type=chunk) - Total liabilities increased by **$15.011 million (0.8%) to $1.957 billion**, with accounts and drafts payable increasing by **$62.122 million (7.4%)** and total deposits decreasing by **$47.721 million (4.5%)**[155](index=155&type=chunk) - Total shareholders' equity decreased by **$1.673 million (0.6%)** due to share repurchases, dividends paid, and an increase in accumulated other comprehensive loss, partially offset by net income[156](index=156&type=chunk) [Liquidity and Capital Resources](index=32&type=section&id=Liquidity%20and%20Capital%20Resources) This section assesses the company's ability to meet its financial obligations and maintain adequate capital levels - Cash and cash equivalents decreased by **10.6% to $599.659 million** at March 31, 2021, representing **27.1% of total assets**[159](index=159&type=chunk) - Total investment in securities increased by **$69.518 million to $427.244 million**, representing **19.3% of total assets**[160](index=160&type=chunk) - The Bank has unsecured lines of credit totaling **$83 million** and secured lines of credit totaling **$272.258 million**, with **no amounts outstanding** as of March 31, 2021[161](index=161&type=chunk) - The Company and the Bank continue to exceed all **Basel III regulatory capital requirements**[175](index=175&type=chunk) Capital Ratios (March 31, 2021) | Capital Ratios (March 31, 2021) | Cass Information Systems, Inc. | Cass Commercial Bank | Minimum Requirement (incl. buffer) | | :-------------------------------------- | :----------------------------- | :------------------- | :-------------------------------- | | Total capital (to risk-weighted assets) | 21.13% | 22.48% | 10.5% | | Common equity tier I capital (to risk-weighted assets) | 20.17% | 21.22% | 7.0% | | Tier I capital (to risk-weighted assets) | 20.17% | 21.22% | 8.5% | | Tier I capital (to leverage assets) | 11.31% | 11.81% | 4.0% | [Inflation](index=34&type=section&id=Inflation) This section discusses the potential impact of inflation on the company's monetary position and operating expenses - The Company's assets and liabilities are primarily monetary, resulting in a **net positive monetary position**[176](index=176&type=chunk) - During periods of inflation, holding a net positive monetary position will result in an **overall decline in the purchasing power** of the company[176](index=176&type=chunk) - Inflation affects certain expenses, such as employee compensation, which may not be readily recoverable in the price of the Company's services[176](index=176&type=chunk) [Impact of New and Not Yet Adopted Accounting Pronouncements](index=34&type=section&id=Impact%20of%20New%20and%20Not%20Yet%20Adopted%20Accounting%20Pronouncements) This section outlines the effects of recently adopted and future accounting standards on the company's financial reporting - The Company adopted ASU 2016-13 (CECL) using a modified retrospective approach on January 1, 2020, after deferring implementation due to the CARES Act[177](index=177&type=chunk)[179](index=179&type=chunk) - Upon adoption, the Company recognized increases of **$723,000** in the allowance for credit losses and **$402,000** in the reserve for unfunded commitments, with a corresponding **$856,000 reduction to retained earnings** (net of tax)[179](index=179&type=chunk) - The ASU requires measurement and recognition of expected credit losses over the life of the portfolio, rather than incurred losses[178](index=178&type=chunk) Impact of ASU 2016-13 Adoption (In thousands) | Impact of ASU 2016-13 Adoption | December 31, 2019 | ASU 2016-13 Adoption | Under ASU 2016-13 | | :------------------------------------------ | :---------------- | :------------------- | :---------------- | | Allowance for credit/loan losses on loans | $10,556 | $723 | $11,279 | | Reserve for unfunded commitments | $0 | $402 | $402 | | Retained earnings | $90,341 | ($856) | $89,485 | [Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=35&type=section&id=Item%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) The Company manages interest rate risk through gap analysis and simulation models, aiming to limit changes in annualized net interest income to 15% from a 200 basis point interest rate shift. The COVID-19 pandemic has introduced significant uncertainty and market volatility, potentially deteriorating the Company's risk position - The Company manages its interest rate risk through measurement techniques including gap analysis and a simulation model[183](index=183&type=chunk) - 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**[183](index=183&type=chunk) - The economic impact of the COVID-19 pandemic has introduced significant uncertainty and market volatility, which may result in the deterioration of the Company's risk position since December 31, 2020[183](index=183&type=chunk) [Item 4. CONTROLS AND PROCEDURES](index=35&type=section&id=Item%204.%20CONTROLS%20AND%20PROCEDURES) Management, under the supervision of the principal executive and financial officers, evaluated the effectiveness of the Company's disclosure controls and procedures as of March 31, 2021, and concluded they were effective. No material changes to internal control over financial reporting were identified during Q1 2021 - The Company's management concluded that its disclosure controls and procedures were **effective** as of March 31, 2021[184](index=184&type=chunk) - No changes in the Company's internal control over financial reporting were identified in Q1 2021 that materially affected or are reasonably likely to materially affect these controls[185](index=185&type=chunk) PART II – Other Information This section provides additional information on legal proceedings, risk factors, equity sales, and other disclosures [Item 1. LEGAL PROCEEDINGS](index=35&type=section&id=Item%201.%20LEGAL%20PROCEEDINGS) The Company is involved in various pending or threatened legal actions and proceedings in the ordinary course of business, but management believes their ultimate resolution will not materially affect the Company's financial position or results of operations - The Company is the subject of various pending or threatened legal actions and proceedings that arise in the ordinary course of business[186](index=186&type=chunk) - Management 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[186](index=186&type=chunk) [Item 1A. RISK FACTORS](index=35&type=section&id=Item%201A.%20RISK%20FACTORS) There are no material changes to the risk factors previously disclosed in the Company's 2020 Annual Report on Form 10-K - There are **no material changes** to the Risk Factors as disclosed in the Company's 2020 Annual Report on Form 10-K[187](index=187&type=chunk) [Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS](index=36&type=section&id=Item%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) During Q1 2021, the Company repurchased 31,256 shares of its common stock at an average price of $39.29 per share under its treasury stock buyback program. As of March 31, 2021, 434,622 shares remained available for repurchase - The Company repurchased **31,256 shares** of its common stock during January 2021 at an average price of **$39.29 per share**[189](index=189&type=chunk) - As of March 31, 2021, **434,622 shares** remained available for repurchase under the treasury stock buyback program[189](index=189&type=chunk) - The program, last modified in October 2020, authorizes the repurchase of up to an aggregate of **500,000 shares** of common stock and has no expiration date[189](index=189&type=chunk) Common Stock Repurchase Activity (Shares and Dollars) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs | | :--------------------------------- | :----------------------------- | :--------------------------- | :--------------------------------------------------------------------------- | | January 1, 2021 – January 31, 2021 | 31,256 | $39.29 | 434,622 | | February 1, 2021 – February 29, 2021 | — | — | 434,622 | | March 1, 2021 – March 31, 2021 | — | — | 434,622 | | Total | 31,256 | $39.29 | 434,622 | [Item 3. DEFAULTS UPON SENIOR SECURITIES](index=36&type=section&id=Item%203.%20DEFAULTS%20UPON%20SENIOR%20SECURITIES) No defaults upon senior securities were reported for the period - No defaults upon senior securities were reported[190](index=190&type=chunk) [Item 4. MINE SAFETY DISCLOSURES](index=36&type=section&id=Item%204.%20MINE%20SAFETY%20DISCLOSURES) This item is not applicable to the Company - This item is not applicable[191](index=191&type=chunk) [Item 5. OTHER INFORMATION](index=36&type=section&id=Item%205.%20OTHER%20INFORMATION) No other material information or changes to procedures for security holders to recommend Board nominees were reported in Q1 2021 - There have been **no material changes** to the procedures by which security holders may recommend nominees to the Company's Board of Directors implemented in the First Quarter of 2021[192](index=192&type=chunk) [Item 6. EXHIBITS](index=37&type=section&id=Item%206.%20EXHIBITS) This section lists the exhibits filed with the Form 10-Q, including certifications under the Sarbanes-Oxley Act and XBRL-related documents - Includes Certifications Pursuant to Section 302 and 906 of the Sarbanes-Oxley Act of 2002 (Exhibits 31.1, 31.2, 32.1, 32.2)[194](index=194&type=chunk)[195](index=195&type=chunk) - Includes various Inline XBRL Taxonomy Extension documents (Exhibits 101.SCH, 101.CAL, 101.LAB, 101.PRE, 101.DEF) and the Cover Page Interactive Data File (Exhibit 104)[197](index=197&type=chunk)[198](index=198&type=chunk)[199](index=199&type=chunk)[200](index=200&type=chunk)[201](index=201&type=chunk)[202](index=202&type=chunk) SIGNATURES This section includes the required signatures of the company's principal executive and financial officers - The report is signed by Eric H. Brunngraber, Chairman, President, and Chief Executive Officer, and Michael J. Normile, Executive Vice President and Chief Financial Officer[207](index=207&type=chunk) - The signing date for the report is May 6, 2021[207](index=207&type=chunk)

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2020 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______ to _______ Commission file number 000-20827 CASS INFORMATION SYSTEMS, INC. (Exact name of registrant as specified in its charter) | --- | -- ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission File No. 000-20827 CASS INFORMATION SYSTEMS, INC. (Exact name of registrant as specified in its charter) Missouri 43-1265338 (State ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission File No. 000-20827 CASS INFORMATION SYSTEMS, INC. (Exact name of registrant as specified in its charter) Missouri 43-1265338 (State or o ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission File No. 000-20827 CASS INFORMATION SYSTEMS, INC. (Exact name of registrant as specified in its charter) Missouri 43-1265338 (State or ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2019 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______ to _______ Commission file number 000-20827 CASS INFORMATION SYSTEMS, INC. | --- | --- | --- | |-------------------------------------------- ...