Cass Information Systems (CASS) came out with quarterly earnings of $0.61 per share, beating the Zacks Consensus Estimate of $0.48 per share. This compares to earnings of $0.67 per share a year ago. These figures are adjusted for non-recurring items.This quarterly report represents an earnings surprise of 27.08%. A quarter ago, it was expected that this invoice and payment management company would post earnings of $0.55 per share when it actually produced earnings of $0.54, delivering a surprise of -1.82%.O ...

[PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section provides the unaudited consolidated financial statements and management's analysis of financial condition [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents unaudited consolidated financial statements including balance sheets, income, comprehensive income, cash flows, and equity [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) Total assets slightly decreased to $2.50 billion, driven by reduced loans and securities, offset by increased cash Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2023 (Unaudited) | Dec 31, 2022 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $408,435 | $200,942 | | Securities available-for-sale | $615,855 | $754,468 | | Loans, net | $1,026,300 | $1,069,367 | | **Total Assets** | **$2,504,878** | **$2,573,023** | | **Liabilities & Equity** | | | | Total deposits | $1,177,342 | $1,257,217 | | Accounts and drafts payable | $1,082,224 | $1,067,600 | | **Total Liabilities** | **$2,298,642** | **$2,366,698** | | **Total Shareholders' Equity** | **$206,236** | **$206,325** | [Consolidated Statements of Income](index=5&type=section&id=Consolidated%20Statements%20of%20Income) Net income declined in Q3 and nine-month periods due to increased operating expenses outpacing revenue growth Income Statement Summary (in thousands, except per share data) | Metric | Q3 2023 | Q3 2022 | 9 Months 2023 | 9 Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Total net revenue | $49,223 | $47,205 | $146,775 | $133,530 | | Total operating expense | $40,063 | $36,321 | $119,774 | $101,788 | | **Net income** | **$7,394** | **$8,799** | **$21,649** | **$25,619** | | **Diluted earnings per share** | **$0.54** | **$0.64** | **$1.56** | **$1.86** | [Consolidated Statements of Comprehensive Income](index=6&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) Total comprehensive income significantly improved for the nine-month period due to smaller unrealized losses on securities Comprehensive Income (Loss) Summary (in thousands) | Metric | Q3 2023 | Q3 2022 | 9 Months 2023 | 9 Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Net income | $7,394 | $8,799 | $21,649 | $25,619 | | Other comprehensive (loss) income | $(10,526) | $(20,114) | $(7,599) | $(66,832) | | **Total comprehensive (loss) income** | **$(3,132)** | **$(11,315)** | **$14,050** | **$(41,213)** | [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash increased by $207.5 million for the nine months, primarily from investing activities and operations Cash Flow Summary for Nine Months Ended Sep 30 (in thousands) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $29,366 | $40,799 | | Net cash provided by (used in) investing activities | $194,245 | $(249,861) | | Net cash (used in) provided by financing activities | $(16,118) | $41,128 | | **Net increase (decrease) in cash** | **$207,493** | **$(167,934)** | [Consolidated Statements of Shareholders' Equity](index=8&type=section&id=Consolidated%20Statements%20of%20Shareholders%27%20Equity) Shareholders' equity remained stable, influenced by dividends, repurchases, and comprehensive loss, offset by net income - For the nine months ended September 30, 2023, the company paid cash dividends of **$0.87 per share**, totaling **$11.9 million**[35](index=35&type=chunk) - The company repurchased **136,577 common shares** for **$5.2 million** during the first nine months of 2023[35](index=35&type=chunk) [Notes to Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Notes detail accounting policies, segment information, loan portfolio, stock repurchase program, and recent accounting standard adoption - The company operates in **two reportable segments**: Information Services (invoice processing for transportation, energy, etc.) and Banking Services (commercial banking)[45](index=45&type=chunk)[76](index=76&type=chunk) - Total loans decreased to **$1.04 billion** at September 30, 2023, from **$1.08 billion** at December 31, 2022. The portfolio consists primarily of commercial & industrial and real estate loans, with **no loans past due** as of September 30, 2023[82](index=82&type=chunk) - The company repurchased **136,577 shares** in the first nine months of 2023. A new repurchase authorization for up to **500,000 shares** was approved by the Board on October 17, 2023, replacing the prior program[75](index=75&type=chunk) - Effective **January 1, 2023**, the company adopted **ASU 2022-02**, which eliminated the accounting guidance for troubled debt restructurings and enhanced disclosure requirements for loan modifications to borrowers experiencing financial difficulty[73](index=73&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=25&type=section&id=Item%202.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) Management discusses revenue growth, net income decline due to expenses, freight recession impact, and strong liquidity [Results of Operations](index=26&type=section&id=Results%20of%20Operations) Net income decreased due to higher operating expenses, despite growth in fee revenue and net interest income Key Performance Metrics | Metric | Q3 2023 vs Q3 2022 | 9M 2023 vs 9M 2022 | | :--- | :--- | :--- | | Net Revenue | +4.3% | +9.9% | | Operating Expense | +10.3% | +17.7% | | Net Income | -16.0% | -15.5% | | Diluted EPS | -15.6% | -16.1% | - Processing fee revenue increased **5.1%** in Q3 2023 vs Q3 2022, driven by a **3.1% increase** in facility-related invoice volumes and ancillary fees, which offset a **4.9% decline** in transportation invoice volumes[235](index=235&type=chunk) - Net interest income for the nine months ended Sep 30, 2023, increased **19.1%** year-over-year, primarily due to the increase in the Federal Funds rate, which expanded the net interest margin to **3.24%** from **2.61%**[114](index=114&type=chunk)[186](index=186&type=chunk) - Personnel expenses, the largest component of operating costs, increased **14.6%** for the nine-month period due to merit increases, an increase in full-time employees for technology initiatives, and higher benefit costs[225](index=225&type=chunk) [Financial Condition](index=35&type=section&id=Financial%20Condition) Total assets decreased, marked by increased cash, decreased investments and loans, and a decline in total deposits - Cash and cash equivalents increased by **$207.5 million (103.3%)** during the first nine months of 2023[228](index=228&type=chunk) - The investment securities portfolio decreased by **$138.6 million (18.4%)**, primarily due to sales and maturities[259](index=259&type=chunk) - Loans decreased by **$43.3 million (4.0%)** as the company became more selective in booking new loans amid declining deposits[248](index=248&type=chunk) - Total deposits decreased by **$79.9 million (6.4%)** from year-end 2022, as commercial clients moved funds to higher-rate alternatives, but balances have shown recent stabilization[249](index=249&type=chunk) [Liquidity and Capital Resources](index=36&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains strong liquidity with substantial cash and borrowing capacity, exceeding all regulatory capital requirements - Primary liquidity is strong, with cash and cash equivalents at **$408.4 million**, representing **16.3% of total assets**[263](index=263&type=chunk) - The company has substantial secondary liquidity, including unsecured lines of credit up to **$83.0 million** and secured lines of credit up to **$457.8 million**, with **no amounts outstanding**[251](index=251&type=chunk) Regulatory Capital Ratios (Consolidated) as of Sep 30, 2023 | Ratio | Actual | Requirement for Well-Capitalized | | :--- | :--- | :--- | | Total capital (to risk-weighted assets) | 15.30% | N/A | | Common Equity Tier I Capital | 14.53% | N/A | | Tier I capital (to risk-weighted assets) | 14.53% | N/A | [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=39&type=section&id=Item%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) The company manages interest rate risk, with simulations indicating asset sensitivity to rate changes Simulated Change in Net Interest Income (Next 12 Months) | Rate Shock | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | +200 basis points | +13.7% | +10.6% | | +100 basis points | +8.2% | +4.2% | | -100 basis points | -3.2% | —% | | -200 basis points | -6.0% | -1.5% | - The company is generally **asset sensitive**, as average interest-earning assets of **$2.06 billion** for Q3 2023 significantly exceeded average interest-bearing liabilities of **$591.6 million**[282](index=282&type=chunk) [Item 4. Controls and Procedures](index=39&type=section&id=Item%204.%20CONTROLS%20AND%20PROCEDURES) Management concluded disclosure controls were effective, with no material changes to internal control over financial reporting - Management concluded that the company's disclosure controls and procedures were **effective** as of September 30, 2023[283](index=283&type=chunk) - **No material changes** in internal control over financial reporting were identified during the third quarter of 2023[270](index=270&type=chunk) [PART II. OTHER INFORMATION](index=40&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section covers legal proceedings, updated risk factors, equity sales, and other miscellaneous information [Item 1. Legal Proceedings](index=40&type=section&id=Item%201.%20Legal%20Proceedings) The company is subject to ordinary course legal actions, not expected to materially affect financial condition - Management does not expect any pending or threatened legal actions to have a **material effect** on the company's business or financial condition[284](index=284&type=chunk) [Item 1A. Risk Factors](index=40&type=page&id=Item%201A.%20Risk%20Factors) Updated risks include liquidity issues from eroded confidence, potential realized losses on securities, and increased regulatory scrutiny - The company identifies a risk of an unexpected inability to obtain liquidity due to **eroded customer confidence** in regional banks following recent high-profile bank failures[274](index=274&type=chunk)[276](index=276&type=chunk) - Rising interest rates have created **significant unrealized losses** in the available-for-sale securities portfolio, which could become realized losses if the company were required to sell them to meet liquidity needs[277](index=277&type=chunk)[287](index=287&type=chunk) - The company anticipates **increased regulatory scrutiny** and new regulations in response to recent banking industry events, which could increase costs and reduce profitability[88](index=88&type=chunk)[296](index=296&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) Details on common stock repurchases during Q3 2023 and a new share repurchase authorization are provided Share Repurchases for Q3 2023 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Jul 2023 | 1,122 | $38.68 | | Aug 2023 | 60,900 | $38.79 | | Sep 2023 | 11,250 | $38.16 | | **Total** | **73,272** | **$38.69** | - On **October 17, 2023**, the Board of Directors authorized a new repurchase program for up to **500,000 shares**, replacing the previous authorization from October 2021[75](index=75&type=chunk)[298](index=298&type=chunk) [Item 3. Defaults Upon Senior Securities](index=41&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This item is not applicable to the company - **Not applicable**[91](index=91&type=chunk) [Item 5. Other Information](index=41&type=section&id=Item%205.%20Other%20Information) No other significant information reported, specifically no Rule 10b5-1 trading arrangements by officers or directors - During Q3 2023, **none** of the company's officers or directors adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements[92](index=92&type=chunk) [Item 6. Exhibits](index=42&type=section&id=Item%206.%20Exhibits) This section lists filed exhibits, including Sarbanes-Oxley certifications and Interactive Data Files (XBRL) - The exhibits filed with this report include **CEO and CFO certifications** (Exhibits 31.1, 31.2, 32.1, 32.2) and **Inline XBRL documents** (Exhibit 101)[93](index=93&type=chunk)[293](index=293&type=chunk) [Signatures](index=43&type=section&id=SIGNATURES) The report was duly signed by the President and CEO, and Executive Vice President and CFO - The report was duly signed on **November 7, 2023**, by Martin H. Resch, President and Chief Executive Officer, and Michael J. Normile, Executive Vice President and Chief Financial Officer[96](index=96&type=chunk)[302](index=302&type=chunk)

PART I. FINANCIAL INFORMATION [Financial Statements](index=4&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS) This section presents the unaudited consolidated financial statements for the quarterly period ended June 30, 2023, revealing a decrease in net income primarily due to higher operating expenses despite increased net interest income [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) As of June 30, 2023, total assets decreased to $2.47 billion from $2.57 billion, primarily due to reduced securities and loans, while total liabilities also fell to $2.26 billion from $2.37 billion, and shareholders' equity increased to $215.1 million from $206.3 million | Account | June 30, 2023 ($ in thousands) | Dec 31, 2022 ($ in thousands) | | :--- | :--- | :--- | | **Total Assets** | **2,470,796** | **2,573,023** | | Cash and cash equivalents | 270,473 | 200,942 | | Loans, net | 1,042,654 | 1,069,367 | | Securities available-for-sale | 637,513 | 754,468 | | **Total Liabilities** | **2,255,650** | **2,366,698** | | Total deposits | 1,191,434 | 1,257,217 | | Accounts and drafts payable | 1,021,524 | 1,067,600 | | **Total Shareholders' Equity** | **215,146** | **206,325** | [Consolidated Statements of Income](index=5&type=section&id=Consolidated%20Statements%20of%20Income) Net income for Q2 2023 decreased to $7.1 million from $8.6 million, and for the first half of 2023, it fell to $14.3 million from $16.8 million, primarily due to a significant increase in operating expenses outpacing revenue growth | Metric | Q2 2023 ($ in thousands) | Q2 2022 ($ in thousands) | H1 2023 ($ in thousands) | H1 2022 ($ in thousands) | | :--- | :--- | :--- | :--- | :--- | | Total net revenue | 48,207 | 44,222 | 97,552 | 86,325 | | Total operating expense | 39,339 | 33,639 | 79,711 | 65,467 | | **Net income** | **7,138** | **8,562** | **14,255** | **16,820** | | **Diluted earnings per share** | **$0.52** | **$0.62** | **$1.03** | **$1.22** | [Consolidated Statements of Comprehensive Income](index=6&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) Total comprehensive income for Q2 2023 significantly improved to $3.0 million from a $9.6 million loss in Q2 2022, driven by a smaller net unrealized loss on available-for-sale securities | Metric | Q2 2023 ($ in thousands) | Q2 2022 ($ in thousands) | H1 2023 ($ in thousands) | H1 2022 ($ in thousands) | | :--- | :--- | :--- | :--- | :--- | | Net income | 7,138 | 8,562 | 14,255 | 16,820 | | Other comprehensive income (loss) | (4,124) | (18,147) | 2,927 | (46,722) | | **Total comprehensive income (loss)** | **3,014** | **(9,585)** | **17,182** | **(29,902)** | [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) For the first half of 2023, net cash from operations decreased to $17.0 million, while investing activities provided $163.5 million, and financing activities used $110.9 million, resulting in a $69.5 million increase in cash and cash equivalents | Cash Flow Activity (Six Months Ended June 30) | 2023 ($ in thousands) | 2022 ($ in thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | 16,973 | 31,062 | | Net cash provided by (used in) investing activities | 163,485 | (163,705) | | Net cash used in financing activities | (110,927) | (121,051) | | **Net increase (decrease) in cash and cash equivalents** | **69,531** | **(253,694)** | [Consolidated Statements of Shareholders' Equity](index=8&type=section&id=Consolidated%20Statements%20of%20Shareholders%27%20Equity) Shareholders' equity increased from $206.3 million at year-end 2022 to $215.1 million by June 30, 2023, driven by net income and positive other comprehensive income, partially offset by dividends and share repurchases - Balance at Dec 31, 2022: **$206,325 thousand**[91](index=91&type=chunk) - Key changes in H1 2023 include: Net income of **$14,255 thousand**, cash dividends of **($7,941) thousand**, share repurchases of **($2,377) thousand**, and other comprehensive gain of **$2,927 thousand**[26](index=26&type=chunk)[91](index=91&type=chunk) - Balance at June 30, 2023: **$215,146 thousand**[26](index=26&type=chunk) [Notes to Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes provide detailed information supporting the financial statements, covering operating segments, loan portfolio quality, stock-based compensation, investment securities fair value, and revenue recognition policies - The Company operates in two reportable segments: Information Services (invoice processing and payment) and Banking Services (commercial banking)[30](index=30&type=chunk)[57](index=57&type=chunk) - Total loans stood at **$1.06 billion** as of June 30, 2023, with the vast majority classified as 'Normal' credit grade and no loans past due[35](index=35&type=chunk)[36](index=36&type=chunk) - The company adopted ASU 2022-02, which eliminated the accounting for troubled debt restructurings and enhanced disclosures for loan modifications for borrowers in financial difficulty[37](index=37&type=chunk) - Stock-based compensation expense was **$2.9 million** for the first six months of 2023, down from **$3.2 million** in the same period of 2022[70](index=70&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=25&type=section&id=ITEM%202.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) Management discusses the company's Q2 2023 performance, noting revenue growth driven by net interest income, but a 16.6% net income decline due to a 16.9% increase in operating expenses from technology investments and personnel costs, alongside impacts of banking industry volatility on deposits and the company's strong liquidity and capital position [Results of Operations](index=26&type=section&id=Results%20of%20Operations) In Q2 2023, net interest income grew 17.4% to $16.0 million and financial fees increased 9.8% to $11.7 million, but a 16.9% rise in operating expenses to $39.3 million, driven by personnel and technology costs, led to a 16.6% decrease in net income to $7.1 million | Metric (Q2 2023 vs Q2 2022) | 2023 ($ in thousands) | 2022 ($ in thousands) | % Change | | :--- | :--- | :--- | :--- | | Net interest income | 16,014 | 13,641 | 17.4% | | Total revenues | 48,207 | 44,222 | 9.0% | | Operating expense | 39,339 | 33,639 | 16.9% | | Net income | 7,138 | 8,562 | (16.6)% | | Diluted EPS | $0.52 | $0.62 | (16.1)% | - The increase in net interest income was primarily due to the rise in the Federal Funds rate, which expanded the net interest margin to **3.25%** from **2.54%** in the prior year[169](index=169&type=chunk) - Operating expenses increased due to merit increases, wage pressures, a **10.9%** increase in average full-time employees for technology initiatives, and higher costs for outside services during a technology platform transition[172](index=172&type=chunk)[196](index=196&type=chunk) [Financial Condition](index=34&type=section&id=Financial%20Condition) Total assets decreased by $102.2 million (4.0%) to $2.5 billion from year-end 2022, primarily due to reduced investment securities and loans, while total liabilities fell by $111.0 million (4.7%) due to lower deposits, and shareholders' equity grew by $8.8 million (4.3%) to $215.1 million - Total assets decreased by **4.0%** to **$2.5 billion** at June 30, 2023[174](index=174&type=chunk) - The investment securities portfolio decreased by **$117.0 million** (**15.5%**) due to sales and maturities[175](index=175&type=chunk) - Total deposits decreased by **$65.8 million** (**5.2%**) as larger clients moved funds to higher-interest alternatives[177](index=177&type=chunk) - Shareholders' equity increased by **4.3%** to **$215.1 million**, driven by earnings and a decrease in accumulated other comprehensive loss[203](index=203&type=chunk) [Liquidity and Capital Resources](index=35&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains a strong liquidity position with cash and cash equivalents increasing to $270.5 million and access to substantial undrawn credit lines, while both the holding company and Cass Commercial Bank exceed all regulatory capital requirements, demonstrating robust capital ratios - Cash and cash equivalents totaled **$270.5 million** at June 30, 2023, representing **10.9%** of total assets[180](index=180&type=chunk) - The company has access to **$83.0 million** in unsecured federal funds lines and **$464.3 million** in secured lines of credit, with no outstanding balances as of June 30, 2023[181](index=181&type=chunk) | Capital Ratios (Cass Commercial Bank) | June 30, 2023 | Well-Capitalized Requirement | | :--- | :--- | :--- | | Total capital (to risk-weighted assets) | 17.06% | 10.00% | | Tier I capital (to risk-weighted assets) | 15.94% | 8.00% | | Common Equity Tier I Capital | 15.94% | 6.50% | | Tier I capital (to average assets) | 12.37% | 5.00% | [Quantitative and Qualitative Disclosures About Market Risk](index=38&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) The company is asset-sensitive, with simulations indicating that a 100 basis point increase in interest rates would boost projected net interest income by 7.4% over 12 months, and a 200 basis point increase by 12.7% - The company is asset sensitive, as average interest-earning assets of **$2.0 billion** greatly exceeded average interest-bearing liabilities of **$512.5 million** in Q2 2023[189](index=189&type=chunk) | Interest Rate Shock | % Change in Projected Net Interest Income (June 30, 2023) | | :--- | :--- | | +200 basis points | 12.7% | | +100 basis points | 7.4% | | -100 basis points | (3.3)% | | -200 basis points | (5.7)% | [Controls and Procedures](index=38&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) The company's principal executive and financial officers concluded that disclosure controls and procedures were effective as of June 30, 2023, with no material changes to internal control over financial reporting identified during Q2 2023 - Management concluded that disclosure controls and procedures were effective as of June 30, 2023[213](index=213&type=chunk) - No changes in internal control over financial reporting were identified in Q2 2023 that materially affected, or are reasonably likely to materially affect, the company's internal controls[190](index=190&type=chunk) PART II. OTHER INFORMATION [Legal Proceedings](index=39&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) The company is subject to various ordinary course legal actions, which management believes will not materially affect its business or financial condition - Management does not expect pending legal actions to have a material effect on the company's businesses or financial conditions[214](index=214&type=chunk) [Risk Factors](index=39&type=section&id=ITEM%201A.%20RISK%20FACTORS) This section outlines material risks, including liquidity concerns from potential deposit outflows due to eroded customer confidence, the negative impact of rising interest rates on the securities portfolio, and increased regulatory scrutiny and costs - A key risk is the potential inability to obtain needed liquidity to satisfy deposit withdrawal requests, which could be accelerated if uninsured depositors lose confidence[216](index=216&type=chunk)[233](index=233&type=chunk) - Recent bank failures have eroded customer confidence, potentially causing customers to move deposits to larger institutions or higher-yielding investments, which could adversely impact liquidity and results[217](index=217&type=chunk)[234](index=234&type=chunk) - Rising interest rates have caused significant unrealized losses in the available-for-sale securities portfolio. A forced sale to meet liquidity needs could result in realized losses, impairing capital[218](index=218&type=chunk)[235](index=235&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=40&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECU RITIES%20AND%20USE%20OF%20PROCEEDS) During Q2 2023, the company repurchased 63,305 shares of common stock at an average price of $37.55 per share under its treasury stock buyback program, with 277,402 shares remaining for repurchase | Period (2023) | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April | 13,678 | $37.10 | | May | 45,921 | $37.56 | | June | 3,706 | $39.13 | | **Total Q2** | **63,305** | **$37.55** | - As of June 30, 2023, a maximum of **277,402 shares** may yet be purchased under the authorized plan[220](index=220&type=chunk)[239](index=239&type=chunk) [Exhibits](index=41&type=section&id=ITEM%206.%20EXHIBITS) This section lists the exhibits filed with the Form 10-Q, including the 2023 Omnibus Stock and Performance Compensation Plan, related award agreements, and CEO and CFO certifications - Filed exhibits include the 2023 Omnibus Stock and Performance Compensation Plan and various award agreements[222](index=222&type=chunk) - Certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are included as exhibits[222](index=222&type=chunk)

____________________ x QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 CASS INFORMATION SYSTEMS, INC. (Exact name of registrant as specified in its charter) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the ...

Investment securities available-for-sale are recorded at fair value on a recurring basis. The Company's investment securities availablefor-sale at December 31, 2022 and 2021 are measured at fair value using Level 2 valuations. The market evaluation utilizes several sources which include "observable inputs" rather than "significant unobservable inputs" and therefore falls into the Level 2 category. The table below presents the balances of securities available-for-sale | --- | --- | --- | --- | --- | --- | -- ...

[FORM 10-Q General Information](index=1&type=section&id=FORM%2010-Q%20General%20Information) This section provides administrative details of the Form 10-Q filing for Cass Information Systems, Inc., for the quarter ended September 30, 2022 [Filing Details](index=1&type=section&id=Filing%20Details) This section details the Form 10-Q filing for Cass Information Systems, Inc., including the period, filer status, and common shares outstanding - The registrant is **CASS INFORMATION SYSTEMS, INC.**, incorporated in Missouri, with Commission File No. 000-20827[4](index=4&type=chunk) - The report covers the quarterly period ended **September 30, 2022**[4](index=4&type=chunk) - The registrant is an **Accelerated Filer** and not a shell company[7](index=7&type=chunk)[9](index=9&type=chunk) Common Stock Outstanding | As of Date | Shares Outstanding | | :--------------- | :----------------- | | October 22, 2022 | 13,661,353 | [Forward-looking Statements](index=3&type=section&id=Forward-looking%20Statements) This section outlines the nature of forward-looking statements, emphasizing they are not guarantees and involve risks discussed in the 2021 Form 10-K - 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 are discussed in Part I, Item 1A, 'Risk Factors' of the Company's 2021 Annual Report on Form 10-K[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 unaudited consolidated financial statements and management's discussion and analysis of the Company's financial condition [ITEM 1. FINANCIAL STATEMENTS](index=4&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS) This section presents the unaudited consolidated financial statements, including balance sheets, income statements, cash flows, and detailed notes [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) This section presents the unaudited consolidated balance sheets, highlighting total assets, liabilities, and shareholders' equity Consolidated Balance Sheet Highlights (Dollars in Thousands) | Metric | Sep 30, 2022 (Unaudited) | Dec 31, 2021 | | :------------------------- | :----------------------- | :----------- | | Total Assets | $2,610,815 | $2,554,901 | | Total Liabilities | $2,419,080 | $2,309,103 | | Total Shareholders' Equity | $191,735 | $245,798 | - Total assets increased by **$55.9 million (2.2%)** from December 31, 2021, to September 30, 2022, primarily driven by increases in loans and investment securities[18](index=18&type=chunk)[162](index=162&type=chunk)[164](index=164&type=chunk)[165](index=165&type=chunk) - Total shareholders' equity decreased by **$54.1 million (22.0%)** due to unrealized losses on investment securities, share repurchases, and dividends paid, partially offset by net income and stock-based compensation[18](index=18&type=chunk)[170](index=170&type=chunk) [Consolidated Statements of Income](index=5&type=section&id=Consolidated%20Statements%20of%20Income) This section presents the unaudited consolidated statements of income, detailing revenue, expenses, net income, and diluted earnings per share Consolidated Statements of Income Highlights (Dollars in Thousands, except Per Share Data) | Metric | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Total fee revenue and other income | $31,784 | $27,577 | $92,865 | $80,739 | | Total interest income | $16,753 | $11,719 | $42,859 | $33,503 | | Total interest expense | $782 | $287 | $1,344 | $915 | | Net interest income | $15,971 | $11,432 | $41,515 | $32,588 | | Total net revenue | $47,205 | $38,669 | $133,530 | $114,197 | | Total operating expense | $36,321 | $30,690 | $101,788 | $89,018 | | Net income | $8,799 | $6,805 | $25,619 | $20,902 | | Diluted earnings per share | $0.64 | $0.48 | $1.86 | $1.45 | - Net income increased by **29.3%** for the three months ended September 30, 2022, and by **22.6%** for the nine months ended September 30, 2022, compared to the prior year periods[21](index=21&type=chunk)[113](index=113&type=chunk) - Diluted EPS increased by **33.3%** for the three months and **28.3%** for the nine months ended September 30, 2022, driven by significant revenue growth in financial fees and net interest income[21](index=21&type=chunk)[113](index=113&type=chunk) [Consolidated Statements of Comprehensive Income](index=6&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) This section presents the unaudited consolidated statements of comprehensive income, focusing on net income and other comprehensive income components Consolidated Statements of Comprehensive Income Highlights (Dollars in Thousands) | Metric | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net income | $8,799 | $6,805 | $25,619 | $20,902 | | Net unrealized loss on securities available-for-sale | $(26,127) | $(4,438) | $(87,159) | $(7,086) | | Foreign currency translation adjustments | $(195) | $(168) | $(405) | $(145) | | Total comprehensive (loss) income | $(11,315) | $3,257 | $(41,213) | $15,324 | - Total comprehensive income shifted from a gain in 2021 to a significant loss in 2022, primarily due to a substantial increase in net unrealized losses on available-for-sale securities[24](index=24&type=chunk) - Net unrealized loss on securities available-for-sale increased significantly to **$(87,159) thousand** for the nine months ended September 30, 2022, compared to $(7,086) thousand in the prior year, reflecting rising interest rates[24](index=24&type=chunk)[170](index=170&type=chunk) [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This section presents the unaudited consolidated statements of cash flows, detailing cash from operating, investing, and financing activities Consolidated Statements of Cash Flows Highlights (Dollars in Thousands) | Metric | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :------------------------------------ | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $40,799 | $30,680 | | Net cash used in investing activities | $(249,861) | $(276,033) | | Net cash provided by financing activities | $41,128 | $75,134 | | Net decrease in cash and cash equivalents | $(167,934) | $(170,219) | | Cash and cash equivalents at end of period | $346,994 | $500,309 | - Net cash provided by operating activities increased by **$10.1 million** for the nine months ended September 30, 2022, compared to the prior year[29](index=29&type=chunk)[177](index=177&type=chunk) - The decrease in cash and cash equivalents was primarily due to growth in loans and investment securities, which utilized cash to fund such growth[29](index=29&type=chunk)[163](index=163&type=chunk) [Consolidated Statements of Shareholders' Equity](index=8&type=section&id=Consolidated%20Statements%20of%20Shareholders%27%20Equity) This section presents the unaudited consolidated statements of shareholders' equity, detailing changes from net income, dividends, and other comprehensive loss Shareholders' Equity Changes (Nine Months Ended September 30, 2022, Dollars in Thousands) | Item | Amount | | :------------------------------------ | :--------- | | Balance, December 31, 2021 | $245,798 | | Net income | $25,619 | | Cash dividends ($.84 per share) | $(11,478) | | Stock-based compensation expense | $4,479 | | Purchase of common shares for treasury | $(5,299) | | Other comprehensive loss | $(66,832) | | Balance, September 30, 2022 | $191,735 | - Total shareholders' equity decreased by **$54.1 million (22.0%)** from December 31, 2021, to September 30, 2022[36](index=36&type=chunk)[170](index=170&type=chunk) - The decrease was primarily driven by a **$66.8 million** accumulated other comprehensive loss due to rising interest rates impacting the fair value of investment securities[36](index=36&type=chunk)[170](index=170&type=chunk) [Notes to Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed notes explaining the basis of presentation, significant accounting policies, and specific financial instrument details [Note 1 - Basis of Presentation](index=10&type=section&id=Note%201%20-%20Basis%20of%20Presentation) These unaudited financial statements adhere to U.S. GAAP for interim reporting, with management confirming all necessary adjustments for fair presentation - Financial statements are prepared in accordance with U.S. GAAP for interim financial information and Form 10-Q/Rule 10-01 of Regulation S-X[39](index=39&type=chunk) - Prior-period financial statements were reclassified to conform to current presentation, with no effect on previously reported net income or shareholders' equity[39](index=39&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 the June 2022 Touchpoint acquisition, which added $5.3 million in goodwill, customer lists, and software - In June 2022, the Company acquired Touchpoint assets for **$4.9 million cash** plus potential contingent consideration up to $2.5 million, adding **$5.289 million** in intangible assets[41](index=41&type=chunk)[42](index=42&type=chunk) Intangible Assets (In thousands) | Asset Type | Sep 30, 2022 Gross Carrying Amount | Dec 31, 2021 Gross Carrying Amount | | :--------------- | :--------------------------------- | :--------------------------------- | | Customer lists | $6,470 | $4,778 | | Software | $3,212 | $2,844 | | Trade name | $373 | $190 | | Goodwill | $17,309 | $14,262 | | Total | $27,936 | $22,646 | - Estimated annual amortization of intangibles is projected to be **$680,000** in 2022, **$780,000** in 2023, **$738,000** in 2024, **$730,000** in 2025, and **$582,000** in 2026[46](index=46&type=chunk) [Note 3 – Earnings Per Share](index=11&type=section&id=Note%203%20%E2%80%93%20Earnings%20Per%20Share) This note details the calculation of basic and diluted earnings per share, showing increases for the three and nine months ended September 30, 2022 Earnings Per Share (EPS) (Per Share Data) | Metric | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :----------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Basic EPS | $0.65 | $0.48 | $1.89 | $1.47 | | Diluted EPS | $0.64 | $0.48 | $1.86 | $1.45 | - Diluted EPS increased by **33.3%** (from $0.48 to $0.64) for the three months and **28.3%** (from $1.45 to $1.86) for the nine months ended September 30, 2022[48](index=48&type=chunk)[113](index=113&type=chunk) [Note 4 – Stock Repurchases](index=11&type=section&id=Note%204%20%E2%80%93%20Stock%20Repurchases) This note details the Company's treasury stock buyback program, authorized for 750,000 shares, with 340,707 shares remaining available as of September 30, 2022 - Board of Directors authorized repurchase of up to **750,000 shares** in October 2021[48](index=48&type=chunk) - As of September 30, 2022, **340,707 shares** remained available for repurchase[48](index=48&type=chunk) Stock Repurchases | Period | Shares Repurchased | | :------------------------------------ | :----------------- | | Three months ended Sep 30, 2022 | 0 | | Three months ended Sep 30, 2021 | 314,672 | | Nine months ended Sep 30, 2022 | 130,374 | | Nine months ended Sep 30, 2021 | 434,938 | [Note 5 – Industry Segment Information](index=11&type=section&id=Note%205%20%E2%80%93%20Industry%20Segment%20Information) The Company operates in two segments: Information Services (invoice processing, church management) and Banking Services (banking for businesses and ministries) - The Company has two reportable segments: **Information Services** and **Banking Services**, managed separately due to distinct service and processing requirements[49](index=49&type=chunk) - Information Services provides transportation, energy, telecom, and environmental invoice processing, plus church management services[50](index=50&type=chunk) - Banking Services provides banking services primarily to privately held businesses, restaurant franchises, and faith-based ministries, and supports the Information Services segment[50](index=50&type=chunk) Segment Performance (Tax-equivalized pre-tax income, In thousands) | Segment | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Information Services | $5,605 | $6,509 | $20,259 | $18,477 | | Banking Services | $4,126 | $2,130 | $10,418 | $8,773 | | Corporate, Eliminations and Other | $1,565 | $(193) | $2,359 | $(654) | | Total | $11,296 | $8,446 | $33,036 | $26,596 | [Note 6 – Loans by Type](index=14&type=section&id=Note%206%20%E2%80%93%20Loans%20by%20Type) This note summarizes the Company's loan portfolio, which increased to $1.037 billion, with commercial and industrial loans showing significant growth Loans by Type (In thousands) | Loan Type | Sep 30, 2022 | Dec 31, 2021 | | :------------------------ | :----------- | :----------- | | Commercial and industrial | $539,272 | $450,336 | | Real estate: Commercial | $124,372 | $133,556 | | Real estate: Faith-based | $373,437 | $370,246 | | PPP | $0 | $6,299 | | Total loans | $1,037,101 | $960,567 | - Total loans increased by **$76.5 million (8.0%)** from December 31, 2021, to September 30, 2022, with significant growth in commercial and industrial loans[59](index=59&type=chunk)[165](index=165&type=chunk) - The Allowance for Credit Losses (ACL) increased to **$13.049 million** at September 30, 2022, from $12.041 million at December 31, 2021, primarily due to loan growth and external economic factors[64](index=64&type=chunk)[151](index=151&type=chunk)[152](index=152&type=chunk) - No nonperforming loans were outstanding at September 30, 2022, or December 31, 2021[152](index=152&type=chunk) [Note 7 – Commitments and Contingencies](index=16&type=section&id=Note%207%20%E2%80%93%20Commitments%20and%20Contingencies) This note details off-balance sheet credit instruments and commitments, with an allowance for unfunded commitments recorded at $222,000 as of September 30, 2022 - Off-balance sheet activities include commitments to extend credit, commercial letters of credit, and standby letters of credit[65](index=65&type=chunk)[66](index=66&type=chunk) Unfunded Commitments and Letters of Credit (In thousands) | Instrument Type | Sep 30, 2022 | | :------------------------------ | :----------- | | Unfunded commitments | $207,883 | | Standby letters of credit | $13,450 | | Commercial letters of credit | $1,633 | | Allowance for unfunded commitments | $222 | [Note 8 – Stock-Based Compensation](index=16&type=section&id=Note%208%20%E2%80%93%20Stock-Based%20Compensation) This note details the Omnibus Plan for stock awards, with stock-based compensation expense increasing due to grants of restricted and performance-based shares - The Omnibus Plan permits issuance of up to **1,500,000 shares** for various stock-based awards[67](index=67&type=chunk) Stock-Based Compensation Expense (In thousands) | Period | Amount | | :------------------------------------ | :----------- | | Three months ended Sep 30, 2022 | $1,307 | | Three months ended Sep 30, 2021 | $1,066 | | Nine months ended Sep 30, 2022 | $4,479 | | Nine months ended Sep 30, 2021 | $2,585 | - During the nine months ended September 30, 2022, **62,375 restricted shares** and **57,542 performance-based restricted shares** were granted[67](index=67&type=chunk) - As of September 30, 2022, total unrecognized compensation expense for non-vested restricted shares was **$2.239 million**, expected to be recognized over approximately **0.74 years**[70](index=70&type=chunk) [Note 9 – Defined Pension Plans](index=18&type=section&id=Note%209%20%E2%80%93%20Defined%20Pension%20Plans) This note details the Company's noncontributory defined-benefit pension plan, frozen in February 2021, and an unfunded supplemental executive retirement plan - The defined-benefit pension plan was closed to new participants in 2016 and benefits were frozen as of **February 28, 2021**[75](index=75&type=chunk) Net Periodic Pension Benefit (In thousands) | Period | Amount | | :------------------------------------ | :----------- | | Three months ended Sep 30, 2022 | $616 | | Nine months ended Sep 30, 2022 | $1,847 | | Three months ended Sep 30, 2021 | $678 | | Nine months ended Sep 30, 2021 | $1,096 | - The net periodic pension benefit increased during the nine-month period ended September 30, 2022, primarily due to the Plan being frozen[75](index=75&type=chunk) [Note 10 – Income Taxes](index=18&type=section&id=Note%2010%20%E2%80%93%20Income%20Taxes) This note details the effective tax rates for the three and nine months ended September 30, 2022, which increased due to higher taxable income Effective Tax Rates | Period | Effective Tax Rate | | :------------------------------------ | :----------------- | | Three months ended Sep 30, 2022 | 19.2% | | Nine months ended Sep 30, 2022 | 19.3% | | Three months ended Sep 30, 2021 | 14.7% | | Nine months ended Sep 30, 2021 | 17.0% | - The effective tax rate differs from the statutory rate of **21%** primarily due to tax-exempt interest from municipal bonds and bank-owned life insurance[77](index=77&type=chunk) - The increase in the effective tax rate for the nine-month period ended September 30, 2022, is primarily a result of higher taxable income[77](index=77&type=chunk) [Note 11 – Investment in Securities](index=18&type=section&id=Note%2011%20%E2%80%93%20Investment%20in%20Securities) This note details the Company's investment securities, with a fair value of $763.8 million and significant unrealized losses due to rising interest rates Investment Securities Available-for-Sale (In thousands) | Security Type | Sep 30, 2022 Fair Value | Dec 31, 2021 Fair Value | | :-------------------------------------------------------------------------- | :---------------------- | :---------------------- | | State and political subdivisions | $298,446 | $371,128 | | Mortgage-backed securities issued or guaranteed by U.S. government agencies | $178,133 | $168,646 | | Corporate bonds | $83,791 | $84,338 | | U.S. treasury bonds | $155,119 | $0 | | Asset backed securities issued or guaranteed by U.S. government agencies | $48,300 | $49,341 | | Total | $763,789 | $673,453 | - Total investment securities increased by **$90.3 million (13.4%)** during the first nine months of 2022[79](index=79&type=chunk)[164](index=164&type=chunk) - As of September 30, 2022, there were **$78.0 million** in gross unrealized losses, primarily due to changes in market interest rates, affecting 326 securities (**93%** of the portfolio)[79](index=79&type=chunk)[81](index=81&type=chunk) - The Company purchased **$155.1 million** in U.S. treasury bonds with maturities between one and two years during the first nine months of 2022[164](index=164&type=chunk) [Note 12 – Fair Value of Financial Instruments](index=21&type=section&id=Note%2012%20%E2%80%93%20Fair%20Value%20of%20Financial%20Instruments) This note summarizes the carrying amounts and fair values of financial instruments, with most approximating fair value or measured using Level 2 valuations Fair Value of Financial Instruments (In thousands) | Instrument Type | Sep 30, 2022 Carrying Amount | Sep 30, 2022 Fair Value | Dec 31, 2021 Carrying Amount | Dec 31, 2021 Fair Value | | :------------------------ | :--------------------------- | :---------------------- | :--------------------------- | :---------------------- | | Cash and cash equivalents | $346,994 | $346,994 | $514,928 | $514,928 | | Investment securities | $763,789 | $763,789 | $673,453 | $673,453 | | Loans, net | $1,024,052 | $972,338 | $948,526 | $948,701 | | Deposits | $1,229,721 | $1,229,721 | $1,221,503 | $1,221,503 | | Accounts and drafts payable | $1,146,334 | $1,146,334 | $1,050,396 | $1,050,396 | - Fair value of investment securities is measured using **Level 2 valuations**[86](index=86&type=chunk) - Fair value of loans is estimated using **Level 3 valuations**, based on present values of future cash flows discounted at risk-adjusted interest rates[87](index=87&type=chunk) [Note 13 – Revenue from Contracts with Customers](index=21&type=section&id=Note%2013%20%E2%80%93%20Revenue%20from%20Contracts%20with%20Customers) This note details revenue recognition from processing, financial, and bank service fees, all recognized when performance obligations are satisfied - Revenue is recognized as the obligation to the customer is satisfied[92](index=92&type=chunk) - Processing fees are recognized at the point in time or over the course of a month[93](index=93&type=chunk) - Financial fees are recognized at the point in time when payment transactions are made[94](index=94&type=chunk) Fee Revenue and Other Income (In thousands) | Revenue Type | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :------------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Processing fees | $18,964 | $18,461 | $57,184 | $55,882 | | Financial fees | $11,252 | $8,624 | $32,406 | $23,122 | | Information services payment and processing revenue | $30,216 | $27,085 | $89,590 | $79,004 | | Bank service fees | $289 | $323 | $1,142 | $991 | | Total fee revenue and other income | $31,784 | $27,577 | $92,865 | $80,739 | [Note 14 – Leases](index=22&type=section&id=Note%2014%20%E2%80%93%20Leases) This note details the Company's operating leases, with liabilities of $9.759 million and right-of-use assets of $9.435 million as of September 30, 2022 Lease Liabilities and Right-of-Use Assets (In thousands) | Metric | Sep 30, 2022 | | :--------------------- | :----------- | | Lease liabilities | $9,759 | | Right-of-use assets | $9,435 | - The weighted-average remaining lease term for operating leases is **8.4 years**, with a weighted-average discount rate of **3.59%**[98](index=98&type=chunk) Operating Lease Costs (In thousands) | Period | Operating Lease Cost | Short-Term Lease Cost | | :------------------------------------ | :------------------- | :-------------------- | | Three months ended Sep 30, 2022 | $386 | $51 | | Nine months ended Sep 30, 2022 | $1,184 | $156 | [Note 15 – Subsequent Events](index=23&type=section&id=Note%2015%20%E2%80%93%20Subsequent%20Events) No subsequent events requiring additional disclosures were identified after September 30, 2022, to prevent misleading financial statements - No subsequent events requiring additional disclosures were identified after September 30, 2022[101](index=101&type=chunk) [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=24&type=section&id=ITEM%202.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) Management discusses the Company's financial performance, condition, key drivers, and critical accounting policies, highlighting revenue and expense trends [Overview](index=24&type=section&id=Overview) Cass Information Systems provides payment and information processing services, generating revenue from service fees and interest income - Cass provides payment and information processing services for freight, energy, telecom, and environmental invoices, and offers church management and online generosity services[103](index=103&type=chunk) - Compensation is primarily through service fees (per-item or monthly) and interest income from account balances generated during the payment process[104](index=104&type=chunk) - Key metrics followed by management include the number of transactions processed and the dollar volume processed, as well as the general level of interest rates[104](index=104&type=chunk) - Management's major opportunity is the continued expansion of payment and information processing service offerings and customer base, leveraging applied technology and banking controls[106](index=106&type=chunk) [Critical Accounting Policies](index=24&type=section&id=Critical%20Accounting%20Policies) The Company's critical accounting policies involve significant management estimates, particularly for the Allowance for Credit Losses (ACL) - The **Allowance for Credit Losses (ACL)** is a critical accounting policy requiring significant management estimates[110](index=110&type=chunk) - Estimates for ACL are based on established methodologies for determining allowance requirements, but actual results can differ significantly[110](index=110&type=chunk) - These policies affect both the Information Services and Banking Services segments[110](index=110&type=chunk) [Results of Operations](index=25&type=section&id=Results%20of%20Operations) This section details the Company's operating results, highlighting growth in net income, fee revenue, and net interest income, alongside rising expenses [Net Income](index=25&type=section&id=Net%20Income) Net income and diluted EPS significantly increased for the three and nine months ended September 30, 2022, driven by strong revenue growth Key Profitability Metrics | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | % Change | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | % Change | | :--------------------------- | :-------------------------- | :-------------------------- | :------- | :-------------------------- | :-------------------------- | :------- | | Net income (in thousands) | $8,799 | $6,805 | 29.3% | $25,619 | $20,902 | 22.6% | | Diluted earnings per share | $0.64 | $0.48 | 33.3% | $1.86 | $1.45 | 28.3% | | Return on average assets | 1.33% | 1.14% | - | 1.32% | 1.23% | - | | Return on average equity | 16.84% | 10.61% | - | 15.80% | 10.84% | - | - Profitability metrics were up, driven by significant revenue growth in financial fees and net interest income, partially offset by increased operating expenses[113](index=113&type=chunk) [Fee Revenue and Other Income](index=25&type=section&id=Fee%20Revenue%20and%20Other%20Income) Fee revenue, especially financial fees, increased significantly due to higher transaction volumes and dollar volumes influenced by inflation and energy costs Fee Revenue and Volume Metrics (In thousands) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | % Change | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | % Change | | :------------------------------------ | :-------------------------- | :-------------------------- | :------- | :-------------------------- | :-------------------------- | :------- | | Transportation invoice volume | 9,385 | 9,333 | 0.6% | 27,633 | 27,581 | 0.2% | | Transportation invoice dollar volume | $11,549,980 | $9,540,408 | 21.1% | $33,818,573 | $26,385,936 | 28.2% | | Facility-related transaction volume | 3,315 | 3,104 | 6.8% | 9,794 | 9,351 | 4.7% | | Facility-related dollar volume | $5,485,783 | $4,215,044 | 30.1% | $14,699,903 | $11,590,437 | 26.8% | | Average payments in advance of funding | $277,683 | $213,922 | 29.8% | $283,431 | $196,492 | 44.2% | | Processing fees | $18,964 | $18,461 | 2.7% | $57,184 | $55,882 | 2.3% | | Financial fees | $11,252 | $8,624 | 30.5% | $32,406 | $23,122 | 40.2% | - Financial fee revenue increased by **30.5%** for the three months and **40.2%** for the nine months ended September 30, 2022, driven by increases in transportation and facility-related dollar volumes[117](index=117&type=chunk)[119](index=119&type=chunk) - Increased dollar volumes contributed to a **29.8%** (three months) and **44.2%** (nine months) increase in average payments in advance of funding, a key driver of financial fee revenue[117](index=117&type=chunk)[119](index=119&type=chunk) [Net Interest Income](index=27&type=section&id=Net%20Interest%20Income) Net interest income increased substantially due to higher average interest-earning assets and an improved net interest margin from rising short-term interest rates Net Interest Income and Related Factors (Tax-equivalent, In thousands) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | % Change | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | % Change | | :------------------------------------ | :-------------------------- | :-------------------------- | :------- | :-------------------------- | :-------------------------- | :------- | | Average earnings assets | $2,243,219 | $2,036,296 | 10.2% | $2,196,704 | $1,965,976 | 11.7% | | Average interest-bearing liabilities | $597,469 | $600,263 | (0.5)% | $598,812 | $583,478 | 2.6% | | Net interest income* | $16,383 | $11,900 | 37.7% | $42,809 | $34,005 | 25.9% | | Net interest margin* | 2.90% | 2.32% | - | 2.61% | 2.31% | - | | Yield on earning assets* | 3.04% | 2.37% | - | 2.69% | 2.37% | - | | Rate on interest-bearing liabilities | 0.52% | 0.19% | - | 0.30% | 0.21% | - | - Tax-equivalent net interest income increased by **37.7%** for the three months and **25.9%** for the nine months ended September 30, 2022, driven by increased average interest-earning assets and a higher net interest margin[130](index=130&type=chunk)[138](index=138&type=chunk) - The net interest margin increased due to rising short-term interest rates, which positively impact the Company given its larger interest-earning assets compared to interest-bearing liabilities[130](index=130&type=chunk)[138](index=138&type=chunk) - Average investment securities increased by **59.9%** (three months) and **70.0%** (nine months), while average loans increased by **12.7%** (three months) and **9.9%** (nine months)[125](index=125&type=chunk)[126](index=126&type=chunk)[133](index=133&type=chunk)[134](index=134&type=chunk) [Provision and Allowance for Credit Losses and Allowance for Unfunded Commitments](index=32&type=section&id=Provision%20and%20Allowance%20for%20Credit%20Losses%20and%20Allowance%20for%20Unfunded%20Commitments) The Company recorded a provision for credit losses of $550,000 for Q3 2022, driven by loan growth and economic factors, increasing ACL to $13.049 million Provision for Credit Losses (In thousands) | Period | Provision for Credit Losses | | :------------------------------------ | :-------------------------- | | Three months ended Sep 30, 2022 | $550 | | Three months ended Sep 30, 2021 | $340 | | Nine months ended Sep 30, 2022 | $850 | | Nine months ended Sep 30, 2021 | $(870) (release) | - The provision for credit losses in 2022 was driven by loan growth and external economic factors, including a reduction in the forecast of Gross Domestic Product[151](index=151&type=chunk) Allowance for Credit Losses (ACL) (In thousands) | Metric | Sep 30, 2022 | Dec 31, 2021 | | :------------------------------------ | :----------- | :----------- | | ACL at end of period | $13,049 | $12,041 | | ACL as % of outstanding loans | 1.26% | 1.25% | | Allowance for unfunded commitments | $222 | $367 | - No nonperforming loans were outstanding at September 30, 2022, or December 31, 2021[152](index=152&type=chunk) [Operating Expenses](index=33&type=section&id=Operating%20Expenses) Total operating expenses increased due to higher personnel costs from merit increases, wage pressures, increased FTEs, and strategic technology investments Operating Expenses (In thousands) | Expense Category | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Personnel | $26,999 | $23,283 | $77,750 | $68,689 | | Other operating expense | $6,524 | $4,539 | $15,748 | $11,798 | | Total operating expense | $36,321 | $30,690 | $101,788 | $89,018 | - Personnel costs increased by **16.0%** (three months) and **13.2%** (nine months) due to merit increases, wage pressures, increased FTEs (**7.5%** for three months, **3.8%** for nine months), and strategic technology investments[158](index=158&type=chunk)[160](index=160&type=chunk) - Other operating expenses increased by **43.7%** (three months) and **33.5%** (nine months) due to higher travel, employee procurement, data processing, and professional fees, including investments in technology platforms[159](index=159&type=chunk)[161](index=161&type=chunk) [Financial Condition](index=33&type=section&id=Financial%20Condition) Total assets increased to $2.611 billion, liabilities rose to $2.419 billion, and shareholders' equity decreased to $191.7 million due to unrealized losses - Total assets increased by **$55.9 million (2.2%)** to **$2.611 billion** at September 30, 2022, from December 31, 2021[162](index=162&type=chunk) - Cash and cash equivalents decreased by **$167.9 million (32.6%)**, primarily due to funding growth in loans and investment securities[163](index=163&type=chunk) - The investment securities portfolio increased by **$90.3 million (13.4%)**, including **$155.1 million** in U.S. treasury bonds[164](index=164&type=chunk) - Loans increased by **$76.5 million (8.0%)**, driven by growth in commercial and industrial loans[165](index=165&type=chunk) - Total liabilities increased by **$109.9 million (4.8%)** to **$2.419 billion**, with accounts and drafts payable increasing by **$95.9 million (9.1%)**[168](index=168&type=chunk)[169](index=169&type=chunk) - Total shareholders' equity decreased by **$54.1 million (22.0%)**, mainly due to a **$66.8 million** accumulated other comprehensive loss from unrealized losses on investment securities[170](index=170&type=chunk) [Liquidity and Capital Resources](index=34&type=section&id=Liquidity%20and%20Capital%20Resources) The Company manages liquidity through liquid assets and borrowing lines, exceeding regulatory capital requirements despite decreasing capital ratios - Primary liquidity is provided by short-term liquid assets (cash and cash equivalents), maturing securities, and external funding sources[171](index=171&type=chunk)[172](index=172&type=chunk) - Cash and cash equivalents totaled **$346.994 million** at September 30, 2022, a decrease of **32.6%** from December 31, 2021[172](index=172&type=chunk) - Secondary liquidity sources include the investment portfolio (**$763.789 million** at Sep 30, 2022) and borrowing lines (unsecured lines of **$83 million**, secured lines of **$228.858 million** with FHLB, and **$150 million** from two banks)[173](index=173&type=chunk)[174](index=174&type=chunk) - Net cash flows from operating activities increased by **$10.1 million** to **$40.799 million** for the nine months ended September 30, 2022[177](index=177&type=chunk) - The Company and the Bank continue to exceed all regulatory capital requirements under **Basel III Capital Rules**[183](index=183&type=chunk)[191](index=191&type=chunk) Regulatory Capital Ratios | Metric | Sep 30, 2022 Ratio | Dec 31, 2021 Ratio | | :------------------------------------ | :----------------- | :----------------- | | Cass Information Systems, Inc. Total Capital | 14.07% | 14.86% | | Cass Commercial Bank Total Capital | 16.08% | 17.21% | | Cass Information Systems, Inc. Common Equity Tier I Capital | 13.33% | 14.11% | | Cass Commercial Bank Common Equity Tier I Capital | 14.96% | 16.07% | | Cass Information Systems, Inc. Tier I Capital (to leverage assets) | 9.08% | 9.21% | | Cass Commercial Bank Tier I Capital (to leverage assets) | 10.44% | 11.05% | [Inflation](index=36&type=section&id=Inflation) The Company's monetary position is net positive; inflation impacts expenses like compensation and influences fee income and accounts payable - The Company holds a **net positive monetary position** (monetary assets exceed monetary liabilities)[192](index=192&type=chunk) - Inflation affects expenses like employee compensation, which may not be readily recoverable in service prices[193](index=193&type=chunk) - Higher levels of interest rates generally allow the Company to earn more net interest income due to its funding structure[179](index=179&type=chunk) - Overall economic activity and energy costs significantly impact fee income and accounts and drafts payable balances[180](index=180&type=chunk)[181](index=181&type=chunk) [Impact of New and Not Yet Adopted Accounting Pronouncements](index=37&type=section&id=Impact%20of%20New%20and%20Not%20Yet%20Adopted%20Accounting%20Pronouncements) No new accounting pronouncements are applicable or materially impact the Company's financial statements - No new accounting pronouncements are applicable or materially impact the Company[194](index=194&type=chunk) [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=37&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) The Company manages interest rate risk using gap analysis and a simulation model, showing decreased projected net interest income in rising rate scenarios - The Company manages interest rate risk using **gap analysis** and a **simulation model**[195](index=195&type=chunk) Simulated Changes in Net Interest Income (Next 12 Months) | Interest Rate Change | Sep 30, 2022 | Dec 31, 2021 | | :------------------- | :----------- | :----------- | | +200 basis points | 13.1% | 20.6% | | +100 basis points | 5.5% | 10.2% | | Flat rates | —% | —% | | -100 basis points | (2.5)% | (2.5)% | | -200 basis points | (11.9)% | N/M | - The decrease in projected net interest income in a rising interest rate environment from 2021 to 2022 is primarily due to the purchase of **$155.119 million** in U.S. treasury bonds[197](index=197&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=37&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) Management concluded the Company's disclosure controls and procedures were effective as of September 30, 2022, with no material changes in internal control - Disclosure controls and procedures were evaluated and concluded to be **effective** as of September 30, 2022[198](index=198&type=chunk) - No material changes in internal control over financial reporting were identified during the Third Quarter of 2022[199](index=199&type=chunk) [PART II. OTHER INFORMATION](index=38&type=section&id=PART%20II.%20OTHER%20INFORMATION) This part covers other information including legal proceedings, risk factors, equity sales, defaults, mine safety, and exhibits [ITEM 1. LEGAL PROCEEDINGS](index=38&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) The Company is involved in various legal actions, but management believes their outcome will not materially affect business or financial conditions - The Company is involved in various pending or threatened legal actions and proceedings[202](index=202&type=chunk) - Management believes the outcome of these proceedings will not materially affect the Company's businesses or financial conditions[202](index=202&type=chunk) [ITEM 1A. RISK FACTORS](index=38&type=section&id=ITEM%201A.%20RISK%20FACTORS) No material changes to the risk factors previously disclosed in the Company's 2021 Annual Report on Form 10-K were identified - No material changes to the Risk Factors as disclosed in the Company's 2021 Annual Report on Form 10-K[203](index=203&type=chunk) [ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS](index=38&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) There were no unregistered sales of equity securities or use of proceeds to report for the period - None[204](index=204&type=chunk) [ITEM 3. DEFAULTS UPON SENIOR SECURITIES](index=38&type=section&id=ITEM%203.%20DEFAULTS%20UPON%20SENIOR%20SECURITIES) There were no defaults upon senior securities to report for the period - None[205](index=205&type=chunk) [ITEM 4. MINE SAFETY DISCLOSURES](index=38&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) Mine safety disclosures are not applicable to the Company - Not applicable[206](index=206&type=chunk) [ITEM 5. OTHER INFORMATION](index=38&type=section&id=ITEM%205.%20OTHER%20INFORMATION) No other material information or changes to procedures for recommending Board of Directors nominees were reported in Q3 2022 - No material changes to procedures for security holders to recommend nominees to the Board of Directors in Q3 2022[207](index=207&type=chunk) [ITEM 6. EXHIBITS](index=38&type=section&id=ITEM%206.%20EXHIBITS) This section lists the exhibits filed with the Form 10-Q, including Sarbanes-Oxley Act certifications and XBRL documents - Includes Certifications Pursuant to Section 302 and 906 of the Sarbanes-Oxley Act of 2002[208](index=208&type=chunk)[209](index=209&type=chunk) - Includes various Inline XBRL Taxonomy Extension documents (Schema, Calculation, Label, Presentation, Definition Linkbase Documents) and the Cover Page Interactive Data File[209](index=209&type=chunk) [SIGNATURES](index=39&type=section&id=SIGNATURES) This section confirms the report's due signing on November 7, 2022, by the Chairman/CEO and EVP/CFO [Signatures](index=39&type=section&id=Signatures) The report was duly signed on November 7, 2022, by the Chairman and CEO, and the Executive Vice President and CFO - The report was signed on **November 7, 2022**[214](index=214&type=chunk) - Signed by **Eric H. Brunngraber**, Chairman and Chief Executive Officer (Principal Executive Officer)[214](index=214&type=chunk) - Signed by **Michael J. Normile**, Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)[214](index=214&type=chunk)

Table of Contents ____________________ ____________________ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ___________________________ FORM 10-Q x QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2022 OR o 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 ...

[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)