Cass Information Systems(CASS) - 2025 Q2 - Quarterly Results

Financial Highlights & CEO Commentary Cass Information Systems reported a significant increase in Q2 2025 net income to $8.9 million, driven by expanded net interest income and strategic TEM business divestiture Q2 2025 Key Financial Metrics | Metric | Q2 2025 | Q2 2024 | Change | | :--- | :--- | :--- | :--- | | Net Income ($) | $8.9 million | $4.5 million | +97.6% | | Diluted EPS ($) | $0.66 | $0.32 | +106.3% | | Return on Average Equity (%) | 15.35% | 8.01% | +7.34 p.p. | | Net Interest Margin (%) | 3.78% | 3.32% | +0.46 p.p. | - The CEO attributed the strong quarterly performance to growth in interest-earning assets, improved net interest margin, and ongoing efficiency initiatives; the successful sale of the TEM business is expected to provide capital for other purposes and allow for greater focus on core operations[1] - Key strategic actions in the quarter included: closing the sale of the TEM business, resulting in a $3.6 million gain; selling $34.0 million of low-yield corporate investment securities at a loss to reposition the portfolio for better future returns; and repurchasing 140,269 shares of company stock[3] Operational and Financial Performance Analysis Profitability was primarily driven by a 22.3% YoY increase in net interest income, despite mixed transaction volumes and higher personnel expenses Business Volume Analysis Transportation invoice volume was flat YoY, with dollar volumes up 3.2%, while facility expense dollar volumes surged 16.1% YoY Q2 2025 Transportation Volume | Metric | Q2 2025 | Q2 2024 | YoY Change | Q1 2025 | QoQ Change | | :--- | :--- | :--- | :--- | :--- | :--- | | Invoice Volume (millions) | 8.84 | 8.88 | -0.5% | 8.36 | +5.7% | | Dollar Volume (billions) | $9.4 | $9.1 | +3.2% | $8.6 | +8.4% | Q2 2025 Facility Expense Volume | Metric | Q2 2025 | Q2 2024 | YoY Change | | :--- | :--- | :--- | | Invoice Volume (millions) | 4.1 | 4.2 | -1.4% | | Dollar Volume (billions) | $5.5 | $4.8 | +16.1% | Revenue Analysis Net interest income significantly increased by $3.5 million (22.3%) due to margin expansion and asset growth, while fee-based revenues were mixed - Processing fees increased by $266,000 (1.6%) over Q2 2024, reflecting flat transaction volumes[7] - Financial fees decreased by $299,000 (2.9%) compared to Q2 2024, primarily due to a 17.4% decline in average payments in advance of funding[7] - Net interest income grew by $3.5 million (22.3%) YoY, attributed to the net interest margin improving to 3.78% from 3.32% and a $131.9 million increase in average interest-earning assets[8] Expense and Other Items Analysis The company recorded a minimal provision for credit losses, realized a strategic loss on securities sale, and saw personnel expenses rise despite reduced headcount - The provision for credit losses was only $25,000 in Q2 2025, compared to $400,000 in Q2 2024[10] - A loss of $3.6 million was taken on the sale of $34.0 million of corporate investment securities yielding 2.29%; proceeds will be redeployed into higher-yielding assets[11] - Personnel expenses increased by $1.5 million (5.7%) YoY, driven by merit increases, acquisition-related costs, and higher profit-sharing due to improved earnings, despite a 5.9% decrease in average full-time employees[12] Balance Sheet and Capital Management Ending loans decreased sequentially but increased YoY, average deposits declined, and the company actively managed capital through repurchases and dividend approvals - Ending loans decreased by $24.9 million (2.2%) compared to March 31, 2025, but increased by $35.0 million (3.2%) since December 31, 2024[14] - Average deposits decreased by $36.4 million (3.5%) compared to Q2 2024, partly due to larger commercial clients using funds for acquisitions[16] - The Board of Directors approved a quarterly dividend of $0.31 per share and authorized a new repurchase program for up to 500,000 shares of common stock[19] Discontinued Operations (TEM Business Sale) The company finalized the sale of its TEM business, resulting in a $3.6 million gain and $3.7 million income from discontinued operations, with future earnings expected to be neutral - The sale of the TEM business closed on June 30, 2025, and has been accounted for as a discontinued operation[2] - The sale generated a gain of $3.6 million and was part of a total income from discontinued operations of $3.7 million (net of tax) for Q2 2025[14][24] - Management expects future consolidated earnings to be neutral from the sale, as the projected net income of the TEM business will be offset by increased interest income from deploying the $18.0 million purchase price[14] Consolidated Financial Statements This section presents the unaudited consolidated financial statements, including the Statement of Income, Balance Sheet, Average Balances, and discontinued operations financials Consolidated Statements of Income Total revenues from continuing operations were $44.4 million, with total net income reaching $8.9 million, or $0.66 per diluted share, significantly up from Q2 2024 Q2 Income Statement Summary ($ in thousands) | Line Item | Q2 2025 | Q2 2024 | YoY Change | | :--- | :--- | :--- | :--- | | Total Fee Revenue | $27,243 | $27,276 | -0.1% | | Net Interest Income | $19,475 | $15,929 | +22.3% | | Net Income from Continuing Ops | $5,160 | $4,308 | +19.8% | | Income from Discontinued Ops | $3,695 | $176 | +2000% | | Net Income | $8,855 | $4,484 | +97.5% | Consolidated Balance Sheets Total assets were $2.32 billion, reflecting TEM divestiture, with loans at $1.10 billion, deposits at $1.00 billion, and shareholders' equity growing to $240.8 million Balance Sheet Highlights ($ in thousands) | Account | June 30, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | Total Assets | $2,316,018 | $2,395,081 | | Loans, net | $1,102,708 | $1,068,594 | | Total Deposits | $1,003,795 | $967,916 | | Total Shareholders' Equity | $240,822 | $229,030 | Average Balances and Key Ratios Average interest-earning assets increased to $2.09 billion, with ROE rising to 15.35% and NIM expanding to 3.78%, reflecting improved efficiency and reduced headcount Key Performance Ratios (Q2 2025 vs. Q2 2024) | Ratio | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Return on average equity | 15.35% | 8.01% | | Return on average assets | 1.48% | 0.78% | | Net interest margin | 3.78% | 3.32% | - Average interest-earning assets grew to $2.09 billion in Q2 2025, an increase from $1.96 billion in Q2 2024[28] - Average full-time equivalent employees decreased to 989 in Q2 2025 from 1,051 in Q2 2024, reflecting efficiency gains[30] Discontinued Operations Financials The sold TEM business generated $9.3 million in Q2 2025 total revenue, including a $3.6 million gain on sale, resulting in $3.7 million net income, with all related assets and liabilities removed - Total revenue from discontinued operations in Q2 2025 was $9.3 million, which includes a $3.6 million gain on the sale of the TEM business[34] - Net income from discontinued operations for Q2 2025 was $3.7 million, net of tax[34] - As of June 30, 2025, all assets and liabilities of the discontinued operations have been removed from the balance sheet, showing a zero balance[32]