UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the quarterly period ended ~~June 30, 2020~~March 31, 2021

OR

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the transition period from __________ to __________

Commission File No. 000-20827

CASS INFORMATION SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

Missouri	43-1265338
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
12444 Powerscourt Drive, Suite 550 St. Louis, Missouri	63131
(Address of principal executive offices)	(Zip Code)

(314) 506-5500

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading symbols		Name of each exchange on which registered
Common stock, par value $.50		CASS		The Nasdaq Global Select Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes

☒

☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes

☒

☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” a “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer ☒☐	Accelerated Filer ☐☒

Non-Accelerated Filer ☐	Smaller Reporting Company ☐	Emerging Growth Company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes

☐

☒

The number of shares outstanding of the registrant's only class of common stock as of ~~July 24, 2020:~~April 22, 2021: Common stock, par value $.50 per share – ~~14,421,079~~14,400,909 shares outstanding.

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Table of Contents

TABLE OF CONTENTS

PART I – Financial Information
Item 1.FINANCIAL STATEMENTS
Consolidated Balance Sheets ~~June 30, 2020~~March 31, 2021 (unaudited) and December 31, ~~2019~~2020	3
Consolidated Statements of Income Three ~~and six~~ months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~ (unaudited)	4
Consolidated Statements of Comprehensive Income Three ~~and six~~ months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~ (unaudited)	5
Consolidated Statements of Cash Flows ~~Six~~Three months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~ (unaudited)	6
Consolidated Statements of Shareholders’ Equity Three ~~and six~~ months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~ (unaudited)	7
Notes to Consolidated Financial Statements (unaudited)	8
Item 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	2021
Item 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	31
~~Item 4.CONTROLS AND PROCEDURES~~	31
Item 4.CONTROLS AND PROCEDURES	31
PART II – Other Information – Items 1. – 6.	31
SIGNATURES	34

Forward-looking Statements - Factors That May Affect Future Results

This report may contain or incorporate by reference forward-looking statements made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Although we believe that, in making any such statements, our expectations are based on reasonable assumptions, forward-looking statements are not guarantees of future performance and involve risks, uncertainties, and other factors beyond our control, which may cause future performance to be materially different from expected performance summarized in the forward-looking statements. These risks, uncertainties and other factors are discussed in Part I, Item 1A, “Risk Factors” of the Company’s ~~2019~~2020 Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”), which may be updated from time to time in our future filings with the SEC. We undertake no obligation to publicly update or revise any forward-looking statements to reflect changed assumptions, the occurrence of anticipated or unanticipated events, or changes to future results over time.

-2-

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in Thousands except Share and Per Share Data)

	June 30, 2020 (Unaudited)		December 31, 2019		March 31, 2021 (Unaudited)		December 31, 2020
Assets
Cash and due from banks	$	11,861	$	18,076	$	25,291	$	30,985
Interest-bearing deposits in other financial institutions		208,573		172,422		444,624		393,810
Federal funds sold and other short-term investments		11,705		13,456		129,744		245,733
Cash and cash equivalents		232,139		203,954		599,659		670,528
Securities available-for-sale, at fair value		379,971		422,665		427,244		357,726

Loans		963,726		772,638		888,575		891,676
Less: Allowance for loan losses		11,292		10,556
Less: Allowance for credit losses						11,721		11,944
Loans, net		952,434		762,082		876,854		879,732
Payments in excess of funding		162,210		206,158		216,475		194,563
Premises and equipment, net		19,695		20,527		17,825		18,057
Investment in bank-owned life insurance		17,827		17,599		17,646		18,058
Goodwill		14,262		14,262		14,262		14,262
Other intangible assets, net		3,852		4,281		3,208		3,423
Other assets		46,594		112,715		43,400		46,886
Total assets	$	1,828,984	$	1,764,243	$	2,216,573	$	2,203,235

Liabilities and Shareholders’ Equity
Liabilities:
Deposits:
Noninterest-bearing	$	343,567	$	351,091	$	424,859	$	493,504
Interest-bearing		482,389		406,045		578,276		557,352
Total deposits		825,956		757,136		1,003,135		1,050,856
Accounts and drafts payable		687,538		684,295		897,508		835,386
Short-term borrowings		—		18,000
Other liabilities		66,963		60,622		56,443		55,833
Total liabilities		1,580,457		1,520,053		1,957,086		1,942,075

Shareholders’ Equity:
Preferred stock, par value $.50 per share; 2,000,000 shares authorized and no shares issued		—		—
Common stock, par value $.50 per share; 40,000,000 shares authorized and 15,505,772 shares issued at June 30, 2020 and December 31, 2019		7,753		7,753
Preferred stock, par value $.50 per share; 2,000,000 shares authorized and 00no shares issued						0—		0—
Common stock, par value $.50 per share; 40,000,000 shares authorized and 15,505,772 shares issued at March 31, 2021 and December 31, 2020						7,753		7,753
Additional paid-in capital		204,258		205,397		202,828		204,875
Retained earnings		95,514		90,341		102,247		99,062
Common shares in treasury, at cost (1,084,693 shares at June 30, 2020 and 991,406 shares at December 31, 2019)		(49,457)		(45,381)
Common shares in treasury, at cost (1,106,941 shares at March 31, 2021 and 1,113,103 shares at December 31, 2020)						(49,949)		(50,515)
Accumulated other comprehensive loss		(9,541)		(13,920)		(3,392)		(15)
Total shareholders’ equity		248,527		244,190		259,487		261,160
Total liabilities and shareholders’ equity	$	1,828,984	$	1,764,243	$	2,216,573	$	2,203,235

	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended March 31,
	2020		2019		2020		2019		2021			2020
Fee Revenue and Other Income:
Information services payment and processing revenue	$	22,661	$	26,852	$	48,164	$	53,309	$	25,216		$	25,503
Bank service fees		398		301		808		677		494			410
Gains on sales of securities		—		8		1,069		19		48			1,069
Other		115		211		228		380		417			113
Total fee revenue and other income		23,174		27,372		50,269		54,385		26,175			27,095

Interest Income:
Interest and fees on loans		9,298		9,387		18,299		18,016		8,587			9,001
Interest and dividends on securities:
Taxable		473		639		1,033		1,281		198			560
Exempt from federal income taxes		1,785		1,994		3,604		4,031		1,739			1,819
Interest on federal funds sold and other short-term investments		86		1,307		1,044		2,896		152			958
Total interest income		11,642		13,327		23,980		26,224		10,676			12,338

Interest Expense:
Interest on deposits		481		1,305		1,444		2,595		331			963
Interest on short-term borrowings		—		—		2		—		0─			2
Total interest expense		481		1,305		1,446		2,595		331			965
Net interest income		11,161		12,022		22,534		23,629		10,345			11,373
Provision for loan losses		400		—		725		250
Net interest income after provision for loan losses		10,761		12,022		21,809		23,379
(Release of) provision for credit losses										(600	)		325
Net interest income after provision for credit losses										10,945			11,048
Total net revenue		33,935		39,394		72,078		77,764		37,120			38,143

Operating Expense:
Personnel		20,891		22,803		43,318		45,080		22,526			22,427
Occupancy		938		998		1,879		1,957		947			941
Equipment		1,617		1,552		3,252		3,021		1,675			1,635
Amortization of intangible assets		214		102		429		209		215			215
Other operating expense		3,697		4,516		7,408		8,166		3,162			3,711
Total operating expense		27,357		29,971		56,286		58,433		28,525			28,929
Income before income tax expense		6,578		9,423		15,792		19,331		8,595			9,214
Income tax expense		1,139		1,739		2,808		3,484		1,524			1,669
Net income	$	5,439	$	7,684	$	12,984	$	15,847	$	7,071		$	7,545

Basic earnings per share	$	.38	$	.53	$	.90	$	1.10	$	.49		$	.52
Diluted earnings per share		.37		.52		.89		1.08		.49			.52

	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended March 31,
	2020		2019		2020		2019		2021		2020
Comprehensive Income:
Comprehensive Income:
Net income	$	5,439	$	7,684	$	12,984	$	15,847	$	7,071	$	7,545
Other comprehensive income:
Net unrealized gain on securities available-for-sale		6,407		4,609		6,985		11,746
Other comprehensive (loss) income:
Net unrealized (loss) gain on securities available-for-sale										(4,214)		578
Tax effect		(1,525)		(1,097)		(1,663)		(2,796)		1,003		(138)
Reclassification adjustments for gains included in net income		—		(8)		(1,069)		(19)		(48)		(1,069)
Tax effect		—		2		254		5		11		254
Foreign currency translation adjustments		16		18		(128)		4		(129)		(144)
Total comprehensive income	$	10,337	$	11,208	$	17,363	$	24,787	$	3,694	$	7,026

	Six Months Ended June 30,				Three Months Ended March 31,
	2020		2019		2021		2020
Cash Flows From Operating Activities:
Net income	$	12,984	$	15,847	$	7,071	$	7,545
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		5,564		5,366		2,978		2,790
Gains on sales of securities		(1,069)		(19)		(48)		(1,069)
Stock-based compensation expense		1,478		1,417		693		722
Provision for loan losses		725		250
Decrease (increase) in income tax liability		593		(1,054)
(Release of) provision for credit losses						(600)		325
Increase in income tax liability						1,355		1,512
Increase in pension liability		2,167		2,590		336		1,079
Decrease (increase) in accounts receivable		1,472		(1,351)
Increase in accounts receivable						(237)		(105)
Other operating activities, net		8,741		3,327		5,156		5,361
Net cash provided by operating activities		32,655		26,373		16,704		18,160

Cash Flows From Investing Activities:
Proceeds from sales of securities available-for-sale		19,629		4,648		2,991		19,629
Proceeds from maturities of securities available-for-sale		27,130		10,161		47,113		14,148
Net increase in loans		(191,077)		(68,934)
Decrease (increase) in payments in excess of funding		43,948		(13,571)
Purchase of securities available-for-sale						(125,467)		0─
Net decrease (increase) in loans						3,478		(82,134
Increase in payments in excess of funding						(21,912)		(2,687)
Purchases of premises and equipment, net		(1,383)		(1,202)		(900)		(331)
Net cash used in investing activities		(101,753)		(68,898)		(94,697)		(51,375)

Cash Flows From Financing Activities:
Net decrease in noninterest-bearing demand deposits		(7,524)		(54,176)		(68,645)		(62,865)
Net increase (decrease) in interest-bearing demand and savings deposits		79,066		(32,058)
Net increase in interest-bearing demand and savings deposits						21,373		31,761
Net (decrease) increase in time deposits		(2,721)		937		(449)		575
Net increase in accounts and drafts payable		60,966		96,033		60,905		51,639
Net decrease in short-term borrowings		(18,000)		—		0─		(18,000)
Cash dividends paid		(7,811)		(7,548)		(3,886)		(3,918)
Purchase of common shares for treasury		(5,508)		(7,799)		(1,228)		(5,508)
Other financing activities, net		(1,185)		(284)		(946)		(1,229)
Net cash provided by (used in) financing activities		97,283		(4,895)
Net increase (decrease) in cash and cash equivalents		28,185		(47,420)
Net cash provided by (used) in financing activities						7,124		(7,545)
Net decrease in cash and cash equivalents						(70,869)		(40,760)
Cash and cash equivalents at beginning of period		203,954		230,933		670,528		203,954
Cash and cash equivalents at end of period	$	232,139	$	183,513	$	599,659	$	163,194

Supplemental information:
Cash paid for interest	$	1,429	$	2,496	$	311	$	964
Cash paid for income taxes		2,219		4,545		134		142

Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
Treasury
Stock
Accumulated
Other
Comprehensive
(Loss) Income
Total
Balance, March 31, 2019
$
7,753
$
205,310
$
79,558
$
(44,685)
$
(13,456)
$
234,480

Net income

7,684

7,684
Cash dividends ($.26 per share)

(3,772)

(3,772)
Issuance of 8,968 common shares pursuant to stock-based compensation plan, net

(407)

450

43
Stock-based compensation expense

560

560
Purchase of 46,778 common shares

(2,098)

(2,098)
Other comprehensive income

3,524

3,524
Balance, June 30, 2019
$
7,753
$
205,463
$
83,470
$
(46,333)
$
(9,932)
$
240,421

Balance, March 31, 2020
$
7,753
$
203,801
$
93,968
$
(49,800)
$
(14,439)
$
241,283

Net income

5,439

5,439
Cash dividends ($.27 per share)

(3,893)

(3,893)
Issuance of 9,292 common shares pursuant to stock-based compensation plan, net

(299)

343

44
Stock-based compensation expense

756

756
Other comprehensive income

4,898

4,898
Balance, June 30, 2020
$
7,753
$
204,258
$
95,514
$
(49,457)
$
(9,541)
$
248,527

(In thousands except per share data)	Common Stock		Additional Paid-in Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Loss		Total		Common Stock		Additional Paid-in Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Loss		Total
Balance, December 31, 2018	$	7,753	$	205,770	$	75,171	$	(39,974)	$	(18,872)	$	229,848

Net income						15,847						15,847
Cash dividends ($.26 per share)						(7,548)						(7,548)
Issuance of 34,092 common shares pursuant to stock-based compensation plan, net				(1,421)				1,276				(145)
Exercise of SARs				(303)				164				(139)
Stock-based compensation expense				1,417								1,417
Purchase of 154,593 common shares								(7,799)				(7,799)
Other comprehensive income										8,940		8,940
Balance, June 30, 2019	$	7,753	$	205,463	$	83,470	$	(46,333)	$	(9,932)	$	240,421

Balance, December 31, 2019	$	7,753	$	205,397	$	90,341	$	(45,381)	$	(13,920)	$	244,190	$	7,753	$	205,397	$	90,341	$	(45,381)	$	(13,920)	$	244,190

Net income						12,984						12,984						7,545						7,545
Cash dividends ($.27 per share)						(7,811)						(7,811)						(3,918)						(3,918)
Issuance of 66,625 common shares pursuant to stock-based compensation plan, net				(2,374)				1,291				(1,083)
Issuance of 57,333 common shares pursuant to stock-based compensation plan, net																(2,075)				948				(1,127)
Exercise of SARs				(243)				141				(102)				(243)				141				(102)
Stock-based compensation expense				1,478								1,478				722								722
Purchase of 128,779 common shares								(5,508)				(5,508)								(5,508)				(5,508)
Other comprehensive income										4,379		4,379
Balance, June 30, 2020	$	7,753	$	204,258	$	95,514	$	(49,457)	$	(9,541)	$	248,527
Other comprehensive loss																						(519)		(519)
Balance, March 31, 2020													$	7,753	$	203,801	$	93,968	$	(49,800)	$	(14,439)	$	241,283


Balance, December 31, 2020													$	7,753	$	204,875	$	99,062	$	(50,515)	$	(15)	$	261,160

Net income																		7,071						7,071
Cash dividends ($.27 per share)																		(3,886)						(3,886)
Issuance of 69,374 common shares pursuant to stock-based compensation plan, net																(2,426)				1,596				(830)
Exercise of SARs																(314)				198				(116)
Stock-based compensation expense																693								693
Purchase of 31,256 common shares																				(1,228)				(1,228)
Other comprehensive loss																						(3,377)		(3,377)
Balance, March 31, 2021													$	7,753	$	202,828	$	102,247	$	(49,949)	$	(3,392)	$	259,487

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included. Certain amounts in prior-period financial statements have been reclassified to conform to the current period’s presentation. Such reclassifications have no effect on previously reported net income or shareholders’ equity. Results for quarterly reporting periods beginning after December 31, 2020 in the Company’s Form 10-Q will be presented under ASU 2016-13 while prior quarterly period amounts continue to be reported in accordance with previously applicable GAAP. For further information, refer to the audited consolidated financial statements and related footnotes included in Cass Information System, Inc.’s (the “Company” or “Cass”) Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020.

On March 11, 2020, the World Health Organization (“WHO”) declared the outbreak of ~~a novel coronavirus (“COVID-19”)~~COVID-19 as a global pandemic, which continues to spread throughout the United States and around the world. The declaration of a global pandemic indicates that almost all public commerce and related business activities must be, to varying degrees, curtailed with the goal of decreasing the rate of new infections. This response to the COVID-19 pandemic has resulted in an unprecedented slow-down in economic activity and a related increase in unemployment.

In late fiscal 2020, vaccines for combatting COVID-19 were approved by health agencies and began to be administered. However, initial quantities of vaccines are limited and vaccine distributions, controlled by local authorities, are being allocated, generally first to front-line health care workers and other essential workers and next to those members of individual populations believed most susceptible to severe effects from COVID-19. The ~~Company has evaluated subsequent events after~~timeline of full administration of the ~~consolidated balance sheet date~~COVID-19 vaccines is uncertain and fluctuating. The impact of ~~June 30, 2020 and the breadth of~~COVID-19, including the impact of ~~the global emergence of COVID-19 on the Company’s~~restrictions imposed to combat its spread, could result in additional and prolonged business ~~is currently unknown. Cass~~closures, work restrictions and activity restrictions.

The Company is closely monitoring developments related to COVID-19 checking regularly for updated information and recommendations from the ~~World Health Organization~~WHO and the ~~U.S. Centers for Disease Control and Prevention,~~CDC, from national, state, and local governments, and evaluating courses of action being taken by peers. The duration and severity of the effect of COVID-19 on economic, market and business conditions and the timeline and shape of recovery from the pandemic remain uncertain. At this time, the Company remains subject to heightened business, operational, market, credit and other risks related to the COVID-19 pandemic, including, but not limited to, those discussed below, which may have an adverse effect on business, financial condition and results of operations.

Financial position and results of operations - The global health crisis caused by COVID-19 has and will continue to negatively impact business activity throughout the world. The COVID-19 outbreak and associated counter-acting measures implemented by governments around the world, as well as increased business uncertainty, ~~are having~~have had, and continue to have, an adverse impact on the Company’s financial results and are discussed in more detail below. Although in various locations certain activity restrictions have been relaxed with some success, many states and localities are still experiencing high levels of COVID-19 cases, prompting continued restrictions in some locations and the need for additional aid and other forms of relief for affected individuals, businesses and other entities. When and if COVID-19 is demonstrably contained, the Company anticipates a rebound in economic activity; however, any such rebound is contingent upon the rate and effectiveness of the containment efforts deployed by federal, state, and local governments. In light of the evolving health, social, economic and business environment, governmental regulations or mandates, and business disruptions that have occurred and could continue to occur, the ~~potential~~aggregate impact that COVID-19 could have on the Company’s financial condition and operating results remains highly uncertain.

In response to COVID-19, the Federal Reserve has taken action to lower the Federal Funds rate, which has adversely affected interest income and therefore, the Company’s results of operations and financial condition. The Federal Reserve has continued its commitment to this approach, indicating that the target Federal Funds rate would remain at current levels until the economy is in a more stable employment and price-stability position.

To the extent the business disruption continues for an extended period, additional cost ~~management~~control actions will be considered. Future asset impairment charges, increases in allowance for ~~loan~~credit losses, or restructuring charges could be more likely and will be dependent on the severity and duration of this ~~crisis.~~crisis and its effect on the Company’s borrowers.

For payment processing services, business closures ~~including constrictions in the manufacturing sector, have led to~~cause a decrease in the number of transactions and dollars processed due to the decline in customers’ business activity. In addition, the dampened demand for oil and ~~resulting plummet~~volatility in oil prices has had, and can continue to have, a negative effect on both the number of freight transactions processed and the dollar amount of invoices processed. Other financial impact could occur though such potential impact is unknown at this time.

~~Lending operations and credit~~ - Bank regulatory agencies and various governmental authorities are urging financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations because of the effects of COVID-19. Accordingly, and in coordination with its primary regulators, the Company has deferred borrower principal payments on loans, on an as needed basis, for periods of up to six months.

Capital and liquidity - While the Company believes that it has sufficient capital to withstand an extended economic recession brought about by COVID-19, its reported and regulatory capital ratios could be adversely impacted by future financial losses.

The Company maintains access to multiple sources of liquidity. ~~Wholesale funding markets have remained available, but rates for short term funding have recently been volatile.~~ If funding costs are elevated for an extended period of time, it could have an adverse effect on the Company’s net interest margin. If an extended recession caused large numbers of the Bank’s customers to draw down deposits, the Company might become more reliant on ~~volatile or~~ more expensive sources of funding.

Asset valuation - Currently, the Company does not expect COVID-19 to affect its ability to fairly value the assets on its balance sheet; however, this could change in future periods. While certain valuation assumptions and judgments will change to account for pandemic-related circumstances such as widening credit spreads, the Company does not anticipate significant changes in methodology used to determine the fair value of assets measured in accordance with GAAP.

The economic slowdown as a result of COVID-19 could cause a ~~further and sustained~~ decline in the Company’s stock price or the occurrence of what management would deem to be a triggering event that could, under certain circumstances, necessitate a goodwill or intangible asset impairment test and result in an impairment charge being recorded for that period. In the event that the Company concludes that all or a portion of its goodwill is impaired, a non-cash charge for the amount of such impairment would be recorded to earnings. Such a charge would have no impact on tangible capital or regulatory capital.

Processes, controls and business continuity - In accord with its federally mandated Pandemic Plan and Business Continuity Plan, ~~Cass has deployed its remote workforce program. Most~~many Cass employees around the globe ~~are now working~~continue to work and ~~conducting~~conduct business remotely. Employees necessary to oversee certain business coordination activities or to conduct essential physical activities such as mail handling and scanning operations, remain in offices. In addition, employees are now being permitted to return to the offices on a voluntary basis. Employees are required to report any exposure or diagnosis and must adhere to the defined safety protocol to enter the offices.

In the past several years, Cass has invested in sophisticated technology initiatives that enable employees to operate remotely with full system(s) access along with unified and transparent voice and electronic communications capabilities, ensuring seamless service delivery. The Company cannot predict when or how it will fully lift the actions put in place as part of the Business Continuity Plan, including work from home requirements and travel restrictions. Cass does not believe the work from home protocol has materially adversely impacted internal controls, financial reporting systems, or operations.

The Company accounts for intangible assets in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 350, Goodwill and Other Intangible Assets (“FASB ASC 350”), which requires that intangibles with indefinite useful lives be tested annually for impairment, or when management deems there is a triggering event, and those with finite useful lives be amortized over their useful lives.

	June 30, 2020				December 31, 2019				March 31, 2021				December 31, 2020
(In thousands)	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Assets eligible for amortization:
Customer lists	$	4,778	$	(3,682)	$	4,778	$	(3,463)	$	4,778	$	(4,012)	$	4,778	$	(3,902)
Patents		72		(22)		72		(20)		72		(25)		72		(24)
Non-compete agreements		332		(332)		332		(332)		332		(332)		332		(332)
Software		2,844		(545)		2,844		(358)		2,844		(824)		2,844		(731)
Trade Name		190		(8)		190		(3)		190		(15)		190		(13)
Other		500		(275)		500		(259)		500		(300)		500		(291)
Unamortized intangible assets:
Goodwill¹		14,489		(227)		14,489		(227)		14,489		(227)		14,489		(227)
Total intangible assets	$	23,205	$	(5,091)	$	23,205		(4,662)	$	23,205	$	(5,735)	$	23,205	$	(5,520)

The customer lists are amortized over 7 and 10 years; the patents over 18 years; the non-compete agreements over 2 and 5 years; software over 3 years and 7 years, the trade name over 20 years and other intangible assets over 15 years. Amortization of intangible assets amounted to ~~$429,000 and $209,000~~$215,000 for both the ~~six-month~~three-month periods ended ~~June 30, 2020~~March 31, 2021 and ~~2019, respectively.~~2020. Estimated future amortization of intangibles is $859,000 in ~~both 2020 and~~ 2021, $540,000 in both 2022 and 2023, ~~and~~ $498,000 in ~~2024.~~2024, and $490,000 in 2025.

Basic earnings per share is computed by dividing net income by the weighted-average number of common shares outstanding. Diluted earnings per share is computed by dividing net income by the sum of the weighted-average number of common shares outstanding and the weighted-average number of potential common shares outstanding. Under the treasury stock method, stock appreciation rights (“SARs”) are dilutive when the average market price of the Company’s common stock, combined with the effect of any unamortized compensation expense, exceeds the SAR price during a period. Anti-dilutive shares are those SARs with prices in excess of the current market value. The calculations of basic and diluted earnings per share are as follows:

	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended March 31,
(In thousands except share and per share data)	2020		2019		2020		2019		2021		2020
Basic
Net income	$	5,439	$	7,684	$	12,984	$	15,847	$	7,071	$	7,545
Weighted-average common shares outstanding		14,349,040		14,434,232		14,385,927		14,444,821		14,312,260		14,422,813
Basic earnings per share	$	.38	$	.53	$	.90	$	1.10	$	.49	$	.52

Diluted
Net income	$	5,439	$	7,684	$	12,984	$	15,847	$	7,071	$	7,545
Weighted-average common shares outstanding		14,349,040		14,434,232		14,385,927		14,444,821		14,312,260		14,422,813
Effect of dilutive restricted stock and stock appreciation rights		196,159		258,032		201,930		255,613		220,809		207,700
Weighted-average common shares outstanding assuming dilution		14,545,199		14,692,264		14,587,857		14,700,434		14,533,069		14,630,513
Diluted earnings per share	$	.37	$	.52	$	.89	$	1.08	$	.49	$	.52

The Company maintains a treasury stock buyback program pursuant to which the Board of Directors has authorized the repurchase of up to 500,000 shares of the Company’s common stock. As restored by the Board of Directors onin October ~~22, 2019,~~2020, the program provides that the Company may repurchase up to an aggregate of 500,000 shares of common stock and has no expiration date. The Company repurchased 0 and 46,778 shares during the three-month periods ended June 30, 2020 and 2019 and 128,779 and 154,593 shares for the six-month periods ended June 30, 2020 and 2019, respectively. As of ~~June 30, 2020, 371,221~~March 31, 2021, 434,622 shares remained available for repurchase under the program. The Company repurchased 31,256 shares during the three-month period ended March 31, 2021 and 128,779 shares during the three-month period ended March 31, 2020. Repurchases may be made in the open market or through negotiated transactions from time to time depending on market conditions. As

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

The Information Services segment provides transportation, energy, telecommunication, and environmental invoice processing and payment services to large corporations. The Banking Services segment provides banking services primarily to privately held businesses and faith-based ministries, including on-line generosity services, as well as supporting the banking needs of the Information Services segment.

The Company’s accounting policies for segments are the same as those described in the summary of significant accounting policies in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020. Management evaluates segment performance based on tax-equivalized (as defined in the footnote to the chart on the following table) pre-tax income after allocations for corporate expenses. Transactions between segments are accounted for at what management believes to be fair value.

Substantially all revenue originates from, and all long-lived assets are located within the United States, and no revenue from any customer of any segment exceeds 10% of the Company’s consolidated revenue.

Funding sources represent average balances and deposits generated by Information Services and Banking Services and there is no allocation methodology used. Segment interest income is a function of the relative share of average funding sources generated by each segment multiplied by the following rates:

Information Services – one or more fixed rates depending upon the specific characteristics of the funding source, and

Banking Services – a variable rate that is based upon the overall performance of the Company’s earning assets.

Any difference between total segment interest income and overall total Company interest income is included in Corporate, Eliminations, and Other.

Summarized information about the Company’s operations in each industry segment is as follows:

(In thousands)	Information Services		Banking Services		Corporate, Eliminations and Other		Total		Information Services		Banking Services		Corporate, Eliminations and Other		Total
Three Months Ended June 30, 2020:
Three Months Ended March 31, 2021
Fee income	$	22,460	$	640	$	74	$	23,174	$	24,977	$	638	$	560	$	26,175
Interest income*		6,056		6,601		(541)		12,116		5,509		5,751		(122)		11,138
Interest expense		—		481		—		481		0—		331		0—		331
Intersegment income (expense)		—		556		(556)		—		0—		623		(623)		0—
Tax-equivalized pre-tax income*		4,537		2,981		(466)		7,052		6,013		2,762		282		9,057
Goodwill		12,433		1,829		—		14,262		12,433		1,829		0—		14,262
Other intangible assets, net		939		2,913		—		3,852		634		2,574		0—		3,208
Total assets		822,684		1,109,676		(103,376)		1,828,984
Average funding sources		680,061		746,619		—		1,426,680
Three Months Ended June 30, 2019:
Total Assets										1,023,196		1,263,669		(70,292)		2,216,573
Funding Sources										837,852		849,177		0—		1,687,029
Three Months Ended March 31, 2020
Fee income	$	27,227	$	392	$	(247)	$	27,372	$	25,440	$	615	$	1,040	$	27,095
Interest income*		6,336		7,666		(144)		13,858		4,707		7,284		831		12,822
Interest expense		—		1,305		—		1,305		0—		965		0—		965
Intersegment income (expense)		—		535		(535)		—		0—		525		(525)		0—
Tax-equivalized pre-tax income*		6,791		3,555		(392)		9,954		5,123		2,703		1,872		9,698
Goodwill		12,433		136		—		12,569		12,433		1,829		0—		14,262
Other intangible assets, net		1,345		—		—		1,345		1,040		3,026		0—		4,066
Total assets		934,620		816,661		(22,597)		1,728,684
Average funding sources		650,231		570,980		—		1,221,211
Six Months Ended June 30, 2020:
Fee income	$	47,900	$	1,255	$	1,114	$	50,269
Interest income*		11,847		13,885		(794)		24,938
Interest expense		—		1,446		—		1,446
Intersegment income (expense)		—		1,081		(1,081)		—
Tax-equivalized pre-tax income*		10,744		5,684		322		16,750
Goodwill		12,433		1,829		—		14,262
Other intangible assets, net		939		2,913		—		3,852
Total assets		822,684		1,109,676		(103,376)		1,828,984
Average funding sources		678,945		678,877		—		1,357,822
Six Months Ended June 30, 2019:
Fee income	$	54,023	$	783	$	(421)	$	54,385
Interest income*		12,513		15,152		(369)		27,296
Interest expense		—		2,595		—		2,595
Intersegment income (expense)		—		1,054		(1,054)		—
Tax-equivalized pre-tax income*		14,378		6,815		(790)		20,403
Goodwill		12,433		136		—		12,569
Other intangible assets, net		1,345		—		—		1,345
Total assets		934,620		816,661		(22,597)		1,728,684
Average funding sources		648,918		581,034		—		1,229,952
Total Assets										833,774		926,445		(28,237)		1,731,982
Funding Sources										677,829		611,135		0—		1,288,964

In support of the ~~CARES~~Coronavirus, Aid, Relief, and Economic Security Act (the “CARES Act”), the Bank had processed nearly ~~350~~450 applications for PPP loans of approximately ~~$170,000,000~~$210,000,000 to provide much-needed cash to small business and self-employed taxpayers during the COVID-19 crisis. The loans were primarily made to existing bank customers and are 100% guaranteed by the Small Business Administration and no allowance for ~~loan~~credit loss was recorded for these loans.

The following table presents the aging of loans by loan categories at ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019:~~2020:

	Performing						Nonperforming						Performing						Nonperforming
(In thousands)	Current		30-59 Days		60-89 Days		90 Days and Over		Non- accrual		Total Loans		Current		30-59 Days		60-89 Days		90 Days and Over		Non- accrual		Total Loans
June 30, 2020
March 31, 2021
Commercial and industrial	$	341,888	$	—	$	—	$	—	$	—	$	341,888	$	302,747	$	0—	$	0—	$	0—	$	0—	$	302,747
PPP		172,563		—		—		—		—		172,563
Real estate:
Real estate
Commercial:
Mortgage		95,865		—		—		—		—		95,865		96,630		0—		0—		0—		0—		96,630
Construction		22,219		—		—		—		—		22,219		23,766		0—		0—		0—		0—		23,766
Faith-based:
Mortgage		302,895		—		—		—		—		302,895		331,153		0—		0—		0—		0—		331,153
Construction		28,293		—		—		—		—		28,293		20,800		0—		0—		0—		0—		20,800
PPP														113,474		0—		0—		0—		0—		113,474
Other		3		—		—		—		—		3		5		0—		0—		0—		0—		5
Total	$	963,726	$	—	$	—	$	—	$	—	$	963,726	$	888,575	$	0—	$	0—	$	0—	$	0—	$	888,575
December 31, 2019
December 31, 2020
Commercial and industrial	$	323,857	$	—	$	—	$	—	$	—	$	323,857	$	298,984	$	0—	$	0—	$	0—	$	0—	$	298,984
Real estate:
Real estate
Commercial:
Mortgage		101,654		—		—		—		—		101,654		100,419		0—		0—		0—		0—		100,419
Construction		25,299		—		—		—		—		25,299		25,090		0—		0—		0—		0—		25,090
Faith-based:
Mortgage		305,826		—		—		—		—		305,826		333,661		0—		0—		0—		0—		333,661
Construction		15,945		—		—		—		—		15,945		23,818		0—		0—		0—		0—		23,818
Other		57		—		—		—		—		57
PPP														109,704		0—		0—		0—		0—		109,704
Total	$	772,638	$	—	$	—	$	—	$	—	$	772,638	$	891,676	$	0—	$	0—	$	0—	$	0—	$	891,676

The following table presents the credit exposure of the loan portfolio by internally assigned credit grade as of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019:~~2020:

(In thousands)	Loans Subject to Normal Monitoring¹		Performing Loans Subject to Special Monitoring²		Nonperforming Loans Subject to Special Monitoring²		Total Loans		Loans Subject to Normal Monitoring¹		Performing Loans Subject to Special Monitoring²		Nonperforming Loans Subject to Special Monitoring²		Total Loans
June 30, 2020
March 31, 2021
Commercial and industrial	$	328,740	$	13,148	$	—	$	341,888	$	289,698	$	13,049	$	0—	$	302,747
PPP		172,563		—		—		172,563
Real estate:
Real estate
Commercial:
Mortgage		94,655		1,210		—		95,865		95,305		1,325		0—		96,630
Construction		22,219		—		—		22,219		23,766		0—		0—		23,766
Faith-based:
Mortgage		301,623		1,272		—		302,895		328,105		3,048		0—		331,153
Construction		28,293		—		—		28,293		20,800		0—		0—		20,800
PPP										113,474		0—		0—		113,474
Other		3		—		—		3		5		0—		0—		5
Total	$	948,096	$	15,630	$	—	$	963,726	$	871,153	$	17,422	$	0—	$	888,575
December 31, 2019
December 31, 2020
Commercial and industrial	$	321,554	$	2,303	$	—	$	323,857	$	284,882	$	14,102	$	0—	$	298,984
Real estate:
Real estate
Commercial:
Mortgage		100,346		1,308		—		101,654		99,044		1,375		0—		100,419
Construction		25,299		—		—		25,299		25,090		0—		0—		25,090
Faith-based:
Mortgage		304,513		1,313		—		305,826		330,554		3,107		0—		333,661
Construction		15,945		—		—		15,945		23,818		0—		0—		23,818
Other		57		—		—		57
PPP										109,704		0—		0—		109,704
Total	$	767,714	$	4,924	$	—	$	772,638	$	873,092	$	18,584	$	0—	$	891,676

The Company had two loans that were considered impaired when it is probable that a creditor will be unable to collect all amounts due, both principal and interest, according to the contractual terms of the loan agreement. When measuring impairment, the expected future cash flows of an impaired loan are discounted at the loan's effective interest rate. Alternatively, impairment could be measured by reference to an observable market price, if one exists, or the fair value of the collateral for a collateral-dependent loan. Regardless of the historical measurement method used, the Company measures impairment based on the fair value of the collateral when the Company determines foreclosure is probable. Additionally, impairment of a restructured loan is measured by discounting the total expected future cash flows at the loan's effective rate of interest as stated in the ~~original loan agreement. To measure~~amount of $2,912,000 at March 31, 2021. These loans were individually evaluated for impairment, ~~at June 30, 2020, the optional use~~resulting in a specific allowance for credit loss of ~~the practical expedient to use the fair value of collateral was utilized.~~$750,000. The Company ~~uses its nonaccrual methods as discussed in greater detail in the Company’s 2019 Annual Report on Form 10-K.~~

Impaired loans consist primarily of nonaccrual loans, loans greater than 90 days past due and still accruing interest and troubled debt restructurings, both performing and nonperforming. Troubled debt restructuring involves the granting of a concession to a borrower experiencing financial difficulty resulting in the modification of terms of the loan, such as changes in payment schedule or interest rate. Management measures impairment in accordance with FASB ASC 310, Allowance for Credit Losses. The fair value of the collateral is based upon an observable market price or current appraised value and therefore, the Company classifies these assets as nonrecurring Level 3. There were no non-accrual loans or loans delinquent 90 days or more and still accruing interest at June 30, 2020 or December 31, 2019. There were two loans classified as troubled debt restructurings totaling $9,682,000 andhad one loan that was considered impaired ~~totaling~~in the amount of $2,500,000 ~~at June 30, 2020 and none~~ at December 31, ~~2019.~~ 2020. This loan was individually evaluated for impairment, resulting in a specific allowance for credit loss of $500,000.

There were no foreclosed loans recorded as other real estate owned (included in other assets) as of ~~June 30, 2020~~March 31, 2021 or December 31, ~~2019.~~2020.

There were no loans considered troubled debt restructurings as of March 31, 2021. There were two loans that were considered troubled debt restructurings at December 31, 2020 and these loans were removed from troubled debt restructuring status during the first quarter 2021.

The ~~following table presents the~~ recorded investment ~~and unpaid principal balance~~by category for ~~impaired~~ loans considered as troubled debt restructuring during the year ended December 31, 2020 is as follows:

(In thousands)	Number of Loans	Pre-Modification Outstanding Balance
Commercial and industrial	1	$	8,773	$	8,773
Faith-based real estate	1		1,029		1,029
Total	2	$	9,802	$	9,802

During the year ended December 31, 2020, two loans were restructured to change the amortization schedule to reduce payments from the borrowers while the contractual interest rate remained unchanged. These loans did not have a specific allowance for credit loss allocated to them at ~~June 30,~~December 31, 2020. There were no ~~impaired~~ loans atrestructured that subsequently defaulted during the year ended December 31, ~~2019 or June 30, 2019.~~2020.

A summary of the activity in allowance for credit losses (“ACL”) by category for the period ended March 31, 2021 and December 31, 2020 is as follows:

The decrease in the provision for credit losses on loans during the quarter ended March 31, 2021 is due to the Company’s forecast of macroeconomic factors, which improved during the first quarter 2021.

The increase in the provision for credit losses on loans during the year ended December 31, 2020 is due to the Company’s forecast of macroeconomic factors, which decreased during 2020, primarily due to the COVID-19 pandemic.

A summary of the activity in the allowance for loan losses from December 31, 2019 to ~~June 30,~~March 31, 2020 is as follows:

(In thousands)	December 31, 2019		Charge- Offs		Recoveries		Provision		June 30, 2020		December 31, 2019		Charge- Offs		Recoveries		Provision		March 31, 2020
Commercial and industrial	$	4,874	$	—	$	10	$	686	$	5,570	$	4,874	$	0—	$	7	$	213	$	5,094
Real estate:
Real estate
Commercial:
Mortgage		1,528		—		—		(60)		1,468		1,528		0—		0—		24		1,552
Construction		191		—		—		(21)		170		191		0—		0—		(41)		150
Faith-based:
Mortgage		3,842		—		1		21		3,864		3,842		0—		1		106		3,949
Construction		121		—		—		99		220		121		0—		0—		23		144
Total	$	10,556	$	—	$	11	$	725	$	11,292	$	10,556	$	0—	$	8	$	325	$	10,889

~~A summary of the activity in the allowance for loan losses from December 31, 2018 to June 30, 2019 is as follows:~~

In the normal course of business, the Company is party to activities that contain credit, market and operational risks that are not reflected in whole or in part in the Company’s consolidated financial statements. Such activities include traditional off-balance sheet credit-related financial instruments and commitments under operating leases. These financial instruments include commitments to extend credit, commercial letters of credit and standby letters of credit. The Company’s maximum potential exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit, commercial letters of credit and standby letters of credit is represented by the contractual amounts of those instruments. ~~At June 30, 2020~~A release of credit losses of $360,000 was recorded during the quarter ended March 31, 2021 due to lower line of credit usage. An allowance for unfunded commitments of $207,000 and $567,000 had been recorded at March 31, 2021 and December 31, ~~2019, no amounts have been accrued for any estimated losses for these instruments.~~2020, respectively.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commercial and standby letters of credit are conditional commitments issued by the Company or its subsidiaries to guarantee the performance of a customer to a third party. These off-balance sheet financial instruments generally have fixed expiration dates or other termination clauses and may require payment of a fee. At ~~June 30, 2020,~~March 31, 2021, the balance of unused loan commitments, standby and commercial letters of credit were ~~$197,932,000, $10,710,000,~~$194,737,000, $11,619,000, and ~~$650,000,~~$816,000, respectively. Since some of the financial instruments may expire without being drawn upon, the total amounts do not necessarily represent future cash requirements. Commitments to extend credit and letters of credit are subject to the same underwriting standards as those financial instruments included on the consolidated balance sheets. The Company evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary upon extension of the credit, is based on management’s credit evaluation of the borrower. Collateral held varies, but is generally accounts receivable, inventory, residential or income-producing commercial property or equipment. In the event of nonperformance, the Company or its subsidiaries may obtain and liquidate the collateral to recover amounts paid under guarantees on these financial instruments.

The following table summarizes contractual cash obligations of the Company related to time deposits at ~~June 30, 2020:~~March 31, 2021:

Amount of Commitment Expiration per Period

(In thousands)

Total

Less than

1 Year

1-3

Years

3-5

Years

Over 5

Years

Total

Less than

1 Year

1-3

Years

3-5

Years

Over 5

Years

Time deposits

68,246

46,188

21,922

136

—

55,536

41,390

14,098

0—

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

The Amended and Restated Omnibus Stock and Performance Compensation Plan (the “Omnibus Plan”) permits the issuance of up to 1,500,000 shares of the Company’s common stock in the form of stock options, ~~SARs,~~stock appreciation rights (“SARs”), restricted stock, restricted stock units and performance awards. The Company may issue shares out of treasury stock for these awards. During the ~~six~~three months ended ~~June 30, 2020, 32,403~~March 31, 2021, 39,686 restricted shares, ~~32,910~~52,240 performance-based restricted shares, and no SARs were granted under the Omnibus Plan. Stock-based compensation expense for the three months ended ~~June 30,~~March 31, 2021 and 2020 was $693,000 and ~~2019 was $756,000 and $560,000, respectively, and $1,478,000 and $1,417,000 for the six months ended June 30, 2020 and 2019,~~$722,000, respectively.

Restricted shares granted to Company employees are amortized to expense over the three-year cliff vesting period. Restricted shares granted to members of the Board of Directors are amortized to expense over a one-year service period, with the exception of those shares granted in lieu of cash payments for retainer fees which are expensed in the period earned.

As of ~~June 30, 2020,~~March 31, 2021, the total unrecognized compensation expense related to non-vested restricted shares was ~~$2,023,000,~~$2,642,000, and the related weighted-average period over which it is expected to be recognized is approximately ~~.84~~0.98 years.


Balance at December 31, 2020	136,167	$	46.78
Granted	39,686		40.63
Vested	(21,364)		48.62
Balance at March 31, 2021	154,489	$	44.91

The Company has granted three-year performance based restricted stock (“PBRS”) awards which are contingent upon the Company’s achievement of pre-established financial goals over a ~~three-year~~three year cliff vest period. The number of shares issued ranges from 0% to 150% of the target opportunity based on the actual achievement of financial goals for the three-year performance period.


Balance at December 31, 2020	98,410	$	50.64
Granted	52,240		40.74
Vested	(31,451)		48.63
Balance at March 31, 2021	119,199	$	46.79

The PBRS that vested during the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 achieved financial goals of ~~117.3%~~94.4%, resulting in the issuance of ~~34,222~~29,688 shares of common stock. The outstanding PBRS at ~~June 30, 2020~~March 31, 2021 will vest at scheduled vesting dates and the actual number of shares of common stock issued will range from 0% to 150% of the target opportunity based on the actual achievement of financial goals for the respective three-year performance period.

There were no SARs granted and no expense recognized during the three months ended ~~June 30, 2020.~~March 31, 2021. Following is a summary of the activity of the Company’s SARs program for the three-month period ended ~~June 30, 2020:~~March 31, 2021:

	Shares	Weighted- Average Exercise Price
Balance at December 31, 2019	155,292	$	32.58	2.92	$	3,908
Exercised	(10,293)		26.72	—		—
Exercisable at June 30, 2020	144,999	$	32.99	2.46	$	1,109

	Shares	Weighted- Average Exercise Price
Balance at December 31, 2020	144,999	$	32.99	1.95	$	1,095
Exercised	(20,560)		24.12	─		─
Exercisable at March 31, 2021	124,439	$	34.46	1.92	$	1,483

The Company has a noncontributory defined-benefit pension plan (the “Plan”), which covers eligible employees. Effective December 31, 2016, the ~~plan~~Plan was closed to all new participants. Additionally, the Plan’s benefits were frozen for all remaining participants as of February 28, 2021. The Company accrues and makes contributions designed to fund normal service costs on a current basis using the projected unit credit with service proration method to amortize prior service costs arising from improvements in pension benefits and qualifying service prior to the establishment of the plan over a period of approximately 30 years.

Disclosure information is based on a measurement date of December 31 of the corresponding year. The following table represents the components of the net periodic pension costs:

(In thousands)	Estimated 2020		Actual 2019		Estimated 2021			Actual 2020
Service cost – benefits earned during the year	$	4,312	$	3,555	$	963		$	4,329
Interest cost on projected benefit obligations		3,903		4,103		3,069			3,908
Expected return on plan assets		(6,051)		(4,753)		(6,299)			(6,049)
Net amortization		1,890		1,559		360			1,946
Net periodic pension cost	$	4,054	$	4,464
Net periodic pension (benefit) cost					$	(1,907	)	$	4,134

Pension costs recorded to expense were ~~$1,027,000~~$273,000 and ~~$1,186,000~~$1,029,000 for the three-month periods ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019, respectively and $2,056,000 and $2,365,000 for the six-month periods ended June 30, 2020 and 2019,~~ respectively. Pension costs decreased in ~~2020~~2021 primarily due to ~~improved asset performance and a contribution made during 2019, which were partially offset by a decrease in~~ the ~~discount rate.~~Plan being frozen as of February 28, 2021. The Company made no contribution to the plan during the ~~six-month~~three-month period ended ~~June 30, 2020~~March 31, 2021 and is evaluating the amount of additional contributions, if any, in the remainder of ~~2020.~~2021.

In addition to the above funded benefit plan, the Company has an unfunded supplemental executive retirement plan which covers key executives of the Company. This is a noncontributory plan in which the Company and its subsidiaries make accruals designed to fund normal service costs on a current basis using the same method and criteria as its defined benefit plan. The following table represents the components of the net periodic pension costs for ~~2019~~2020 and an estimate for ~~2020:~~2021:

(In thousands)	Estimated 2020		Actual 2019		Estimated 2021		Actual 2020
Service cost – benefits earned during the year	$	121	$	97	$	147	$	121
Interest cost on projected benefit obligation		347		408		291		347
Net amortization		112		276		203		112
Net periodic pension cost	$	580	$	781	$	641	$	580

~~Pension~~Supplemental executive retirement plan costs recorded to expense were ~~$145,000~~$160,000 and ~~$196,000~~$145,000 for the three-month periods ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019, respectively, and were $290,000 and $391,000 for the six-month periods ended June 30, 2020 and 2019,~~ respectively. Pension costs decreased primarily due to the unrecognized loss being amortized over the remaining expected life of the participants rather than the remaining expected service period as almost all of the plan’s participants are inactive. This was partially offset by a decrease in the discount rate.

The effective tax rate was ~~17.3%~~17.7% and ~~18.5%~~18.1% for the three-month periods ended ~~June 30,~~March 31, 2021 and 2020, respectively. The 2021 and ~~2019, respectively, and 17.8% and 18.0%~~2020 effective tax rate for the ~~six-month periods ended June 30, 2020 and 2019, respectively. The 2020 and 2019 effective tax rates for the three and six-month periods differ~~three-month period differs from the statutory rate of 21% primarily due to the tax-exempt interest received from municipal bonds.

Investment securities available-for-sale are recorded at fair value on a recurring basis. The Company’s investment securities available-for-sale 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 fall into the Level 2 category. The amortized cost, gross unrealized gains, gross unrealized losses and fair value of investment securities are summarized as follows:

	June 30, 2020								March 31, 2021
(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
State and political subdivisions	$	287,151	$	18,615	$	—	$	305,766	$	312,479	$	15,678	$	174	$	327,983
U.S. government agencies		72,589		1,366		—		73,955		99,349		623		711		99,261
Certificates of deposit		250		—		—		250
Total	$	359,990	$	19,981	$	—	$	379,971	$	411,828	$	16,301	$	885	$	427,244

	December 31, 2019
State and political subdivisions	$	310,720	$	13,727	$	—	$	324,447
U.S. government agencies		97,380		507		169		97,718
Certificates of deposit		500		—		—		500
Total	$	408,600	$	14,234	$	169	$	422,665

	December 31, 2020
State and political subdivisions	$	287,059	$	18,915	$	0─	$	305,974
U.S. government agencies		50,988		764		0─		51,752
Total	$	338,047	$	19,679	$	0─	$	357,726

The fair values of securities with unrealized losses ~~at December 31, 2019~~ are as follows:

	December 31, 2019												March 31, 2021
	Less than 12 months				12 months or more				Total				Less than 12 months				12 months or more				Total
(In thousands)	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses
State and political subdivisions	$	—	$	—	$	—	$	—	$	—	$	—	$	36,423	$	174	$	0─	$	0─	$	36,423	$	174
U.S. government agencies		3,801		12		17,593		157		21,394		169		60,491		711		0─		0─		60,491		711
Certificates of deposit		—		—		—		—		—		—
Total	$	3,801	$	12	$	17,593	$	157	$	21,394	$	169	$	96,914	$	885	$	0─	$	0─	$	96,914	$	885

There were 33 securities, or 12%, (0 greater than 12 months) in an unrealized loss position as of March 31, 2021. There were no securities in an unrealized loss position as of ~~June 30, 2020. There were 9 securities, or 3% of the total (7 greater than 12 months), in an unrealized loss position as of~~ December 31, ~~2019.~~2020.

The amortized cost and fair value of investment securities by contractual maturity are shown in the following table. Expected maturities may differ from contractual maturities because borrowers have the right to prepay obligations with or without prepayment penalties.

	June 30, 2020				March 31, 2021
(In thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in 1 year or less	$	54,652	$	55,208	$	70,415	$	70,697
Due after 1 year through 5 years		85,421		89,213		89,351		93,669
Due after 5 years through 10 years		188,475		202,974		161,771		173,009
Due after 10 years		31,442		32,576		90,291		89,869
Total	$	359,990	$	379,971	$	411,828	$	427,244

Proceeds from sales of investment securities classified as ~~available-for-sale~~available for sale were $0$2,991,000 and ~~$3,547,000~~$19,629,000 for the three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019, respectively, and were $19,629,000 and $4,648,000 for the six months ended June 30, 2020 and 2019,~~ respectively. ~~There were no~~Gross realized gains ~~for the 3 months ended June 30, 2020 while there~~ were ~~gross realized gains of $8,000~~$48,000 and $1,069,000 for the three months ended ~~June 30, 2019. Gross realized gains were $1,069,000~~March 31, 2021 and ~~$19,000 for the six months ended June 30,~~ 2020, ~~and 2019,~~ respectively. There were no securities pledged to secure public deposits ~~and~~or for other purposes at ~~June 30, 2020.~~March 31, 2021.

Following is a summary of the carrying amounts and fair values of the Company’s financial instruments:

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:

Investment in Securities – The fair value is measured on a recurring basis using Level 2 valuations. Refer to Note 11, “Investment in Securities,” for fair value and unrealized gains and losses by investment type.

Loans – The fair value is estimated using present values of future cash flows discounted at risk-adjusted interest rates for each loan category designated by management and is therefore a Level 3 valuation. Management believes that the risk factor embedded in the interest rates along with the allowance for ~~loan~~credit losses result in a fair valuation.

Deposits – The fair value of demand deposits, savings deposits and certain money market deposits is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities and therefore, is a Level 2 valuation. The fair value estimates above do not include the benefit that results from the low-cost funding provided by the deposit liabilities compared to the cost of borrowing funds in the market or the benefit derived from the customer relationship inherent in existing deposits.

No financial instruments are measured using Level 3 inputs for the three months ended ~~June 30, 2020~~March 31, 2021 and ~~2019.~~2020.

~~The services that fall within the scope of FASB ASC 606,~~ Revenue ~~from Contracts with Customers~~ ~~(“FASB ASC 606”), are presented within fee revenue and other income in the Consolidated Statements of Income and are~~is recognized ~~as revenue~~ as the obligation to the customer is satisfied. Services within the scope of FASB ASC 606 include invoice processing and payment fees, bank service fees, and other real estate owned (“OREO”). Since interest income on loans and securities are both excluded from this topic, a significant portionThe following is detail of the Company’s ~~revenues are not subject to the guidance.~~revenue from contracts with clients.

Invoice processing fees – The Company earns fees on a per-item or monthly basis for the invoice processing services rendered on behalf of customers. Per-item fees are recognized at the point in time when the performance obligation is satisfied. Monthly fees are earned over the course of a month, representing the period over which the performance obligation is satisfied. The contracts have no significant impact of variable consideration and no significant financing components.

Invoice payment fees – The Company earns fees on a transaction level basis for invoice payment services when making customer payments. Fees are recognized at the point in time when the payment transactions are made, which is when the performance obligation is satisfied. The contracts have no significant impact of variable consideration and no significant financing components.

Bank service fees – Revenue from service fees consists of service charges and fees on deposit accounts under depository agreements with customers to provide access to deposited funds. Service charges on deposit accounts are transaction based fees that are recognized at the point in time when the performance obligation is satisfied. Service charges are recognized on a monthly basis representing the period over which the performance obligation is satisfied. The contracts have no significant impact of variable consideration and no significant financing components.

~~OREO~~ – The Company currently does not have any OREO and has not in recent years. Net gains or losses would be recorded when other real estate is sold to a third party and substantially all of the consideration for the transfer of property is received.

On January 1, 2019, the Company adopted Accounting Standards Update (“ASU”) No. 2016-02 – Leases (ASC Topic 842). The Company leases certain premises under operating leases. As of ~~June 30,~~March 31, 2021, the Company had lease liabilities of $5,799,000 and right-of-use assets of $5,255,000. As of March 31, 2020, the Company had lease liabilities of ~~$6,916,000~~$7,146,000 and right-of-use assets of ~~$6,192,000. As of June 30, 2019, the Company had lease liabilities of $7,290,000 and right-of-use assets of $6,570,000.~~$6,367,000. Lease liabilities and right-of-use assets are reflected in other liabilities and other assets, respectively. Presented within occupancy expense on the Consolidated Statements of Income for the three months ended ~~June 30, 2020,~~March 31, 2021, operating lease cost was ~~$419,000,~~$420,000, short-term lease cost was ~~$33,000, and there was no variable lease cost. For the six months ended June 30, 2020, the operating lease cost was $837,000, short-term lease cost was $57,000,~~$30,000, and there was no variable lease cost. For the three months ended ~~June 30, 2020,~~March 31, 2021, the weighted average remaining lease term for the operating leases was ~~6.5~~6.2 years and the weighted average discount rate used in the measurement of operating lease liabilities was 5.5%. Certain of the Company’s leases contain options to renew the lease; however, these renewal options are not included in the calculation of the lease liabilities as they are not reasonably certain to be exercised. There has been no significant change in the Company’s expected future minimum lease payments since December 31, ~~2019.~~2020. See the Company’s ~~2019~~2020 Annual Report on Form 10-K for information regarding these commitments.

A maturity analysis of operating lease liabilities and undiscounted cash flows for the three months ended ~~June 30, 2020 was~~March 31, 2021 is as follows:

(In thousands)	June 30, 2020		March 31, 2021
Lease payments due
Less than 1 year	$	1,856	$	1,711
1-2 years		1,688		1,558
2-3 years		1,348		628
3-4 years		499		507
4-5 years		509		517
Over 5 years		2,279		1,891
Total undiscounted cash flows		8,179		6,812
Discount on cash flows		1,263		1,013
Total lease liability	$	6,916	$	5,799

There were no sale and leaseback transactions, leveraged leases, or lease transactions with related parties during the ~~six~~three months ended ~~June 30, 2020.~~March 31, 2021. At ~~June 30, 2020,~~March 31, 2021, the Company did not have any leases that had not yet commenced.

In accordance with FASB ASC 855, Subsequent Events, the Company has evaluated subsequent events after the consolidated balance sheet date of ~~June 30, 2020. With the exception of COVID-19 as discussed in Note 1 “Basis of Presentation,” there~~March 31, 2021. There were no events identified that would require additional disclosures to prevent the Company’s unaudited consolidated financial statements from being misleading.

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

~~The breadth~~During the year ended December 31, 2020 and three months ended March 31, 2021, the effects of ~~the impact of~~COVID-19 and related actions to attempt to control its spread significantly impacted the global ~~emergence~~economy and adversely affected the Company’s operating results in both the Information Services and Banking Services segments.

With the spread of COVID-19 ~~on the Company’s business remains unknown. Cass is closely monitoring developments related~~ to ~~COVID-19 checking regularly for updated information and recommendations from the World Health Organization and~~ the U.S. ~~Centers for Disease Control and Prevention, from national,~~in the first quarter of 2020, many state and local governments recommended or mandated limitations on crowd size, closures of businesses and ~~courses~~shelter-in-place orders in order to slow the transmission. The extent and nature of government actions varied during fiscal year 2020 and the first quarter of 2021 based upon the then-current extent and severity of the COVID-19 pandemic within the respective localities. Severe business disruptions, resulting constrictions in the manufacturing sector for most of the year, decreased oil demand and prices and general economic uncertainty, significantly and adversely impacted the Company’s customers’ business operations and had a corresponding negative affect on the Company’s revenue generation in each sector of the Company’s Information Services segment.

The Federal Reserve also took action ~~being taken by peers. Cass remains committed~~ to ~~creating a safe~~lower the Federal Funds rate in connection with COVID-19 relief, adversely affecting the Company’s net interest income and ~~healthy environment for employees while offering assurance~~operating results tied to Banking Services. The Federal Reserve has indicated that it ~~remains a financially strong service provider possessing~~will retain the ~~resources necessary to weather this storm in support of its valued customers.~~current low level interest rates until the economy has stabilized.

Bank regulatory agencies and various governmental authorities are urging financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations because of the effects of COVID-19. Accordingly, and in coordination with its primary regulators, the Company ~~has~~ deferred borrower principal payments on loans during 2020, on an as needed basis, for periods of up to six months. There were no borrowers remaining on deferred terms at March 31, 2021.

In response to COVID-19, the CARES Act was adopted on March 27, 2020. The CARES Act provides for an estimated $2.2 trillion to fight the COVID-19 pandemic and stimulate the economy by supporting individuals and businesses through loans, grants, tax changes, and other types of relief. Among other things, the CARES Act established the Paycheck Protection Program (“PPP”), which allows entities to apply for low-interest private loans to fund payroll and other costs which, subject to certain conditions and qualifications, are partially or fully forgivable. In support of the CARES Act, the Bank ~~had~~ processed nearly 350 applications for PPP loans of approximately $170,000,000 during the year ended December 31, 2020 and an additional 100 applications for approximately $37,000,000 during the three months ended March 31, 2021 to provide much-needed cash to small business and self-employed taxpayers during the COVID-19 crisis. The loans were primarily made to existing bank customers and are 100% guaranteed by the Small Business Administration.

Cass remains committed to creating a safe and healthy environment for employees while offering assurance that it remains a financially strong service provider possessing the resources necessary to weather this pandemic in support of its valued customers.

In late fiscal 2020, vaccines for combatting COVID-19 were approved by health agencies and began to be administered. However, initial quantities of vaccines are limited and vaccine distributions, controlled by local authorities, are being allocated, generally first to front-line health care workers and other essential workers and next to those members of individual populations believed most susceptible to severe effects from COVID-19. The timeline of full administration of the COVID-19 vaccines is uncertain and fluctuating. The impact of COVID-19, including the impact of restrictions imposed to combat its spread, could result in additional and prolonged business closures, work restrictions and activity restrictions. Given these and other uncertainties discussed throughout this report, the Company remains subject to heightened risk, and the aggregate impact that COVID-19 could have on the Company’s financial condition and operating results is presently unknown.

For further discussion on COVID-19, refer to Note 1 “Basis of Presentation.”

Cass provides payment and information processing services to large manufacturing, distribution and retail enterprises from its offices/locations in St. Louis, Missouri, Columbus, Ohio, Greenville, South Carolina, Wellington, Kansas, Jacksonville, Florida, Breda, Netherlands, Basingstoke, United Kingdom, and Singapore. The Company’s services include freight invoice rating, payment processing, auditing, and the generation of accounting and transportation information. Cass also processes and pays energy invoices, which include electricity and gas as well as waste and telecommunications expenses, and is a provider of telecom expense management solutions. Cass solutions include a B2B payment platform for clients that require an agile fintech partner. Additionally, the Company offers an on-line platform to provide generosity services for faith-based and non-profit organizations. The Company’s bank subsidiary, ~~Cass Commercial Bank (the “Bank”),~~the “Bank,” supports the Company’s payment operations. The Bank also provides banking services to its target markets, which include privately-owned businesses and faith-based ministries in the St. Louis metropolitan area as well as other selected cities in the United States.

The specific payment and information processing services provided to each customer are developed individually to meet each customer’s requirements, which can vary greatly. In addition, the degree of automation such as electronic data interchange, imaging, work flow, and web-based solutions varies greatly among customers and industries. These factors combine so that pricing varies greatly among the customer base. In general, however, Cass is compensated for its processing services through service fees and investment of account balances generated during the payment process. The amount, type, and calculation of service fees vary greatly by service offering, but generally follow the volume of transactions processed. Interest income from the balances generated during the payment processing cycle is affected by the amount of time Cass holds the funds prior to payment and the dollar volume processed. Both the number of transactions processed and the dollar volume processed are therefore key metrics followed by management. Other factors will also influence revenue and profitability, such as changes in the general level of interest rates, which have a significant effect on net interest income. The funds generated by these processing activities are invested in overnight investments, investment grade securities, advances to payees, and loans generated by the Bank. The Bank earns most of its revenue from net interest income, or the difference between the interest earned on its loans and investments and the interest paid on its deposits and other borrowings. The Bank also assesses fees on other services such as cash management services.

Industry-wide factors that impact the Company include the willingness of large corporations to outsource key business functions such as freight, energy, telecommunication and environmental payment and audit. The benefits that can be achieved by outsourcing transaction processing, and the management information generated by Cass’ systems can be influenced by factors such as the competitive pressures within industries to improve profitability, the general level of transportation costs, deregulation of energy costs, and consolidation of telecommunication providers. Economic factors that impact the Company include the general level of economic activity that can affect the volume and size of invoices processed, the ability to hire and retain qualified staff, and the growth and quality of the loan portfolio. The general level of interest rates also has a significant effect on the revenue of the Company. As discussed in greater detail in Item 7A, “Quantitative and Qualitative Disclosures about Market ~~Risk,”~~Risk” in the Company’s ~~2019~~2020 Annual Report on Form 10-K, a decline in the general level of interest rates can have a negative impact on net interest income and conversely, a rise in the general level of interest rates can have a positive impact on net interest income. The cost of fuel is another factor that has a significant impact on the transportation sector. As the price of fuel goes up or down, the Company’s earnings increase or decrease with the dollar amount of transportation invoices.

Currently, management views Cass’ major opportunity as the continued expansion of its payment and information processing service offerings and customer base. Management intends to accomplish this by maintaining the Company’s leadership position in applied technology, which when combined with the security and processing controls of the Bank, makes Cass unique in the industry.

The Company has prepared the consolidated financial statements in this report in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”). In preparing the consolidated financial statements, management makes estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. These estimates have been generally accurate in the past, have been consistent and have not required any material changes. There can be no assurances that actual results will not differ from those estimates. The accounting policy that requires significant management estimates and is deemed critical to the Company’s results of operations or financial position has been discussed with the Audit Committee of the Board of Directors and is described below.

Allowance for ~~Loan~~Credit Losses.The Company performs periodic and systematic detailed reviews of its loan portfolio to ~~assess overall collectability. The level of the allowance for loan losses reflects~~determine management’s estimate of the ~~collectability of the loan portfolio.~~lifetime expected credit losses. Although these estimates are based on established methodologies for determining allowance requirements, actual results can differ significantly from estimated results. These policies affect both segments of the Company. The impact and associated risks related to these policies on the Company’s business operations are discussed in the “Provision and Allowance for ~~Loan Losses”~~Credit Losses and Allowance for Unfunded Commitments” section of this report. The Company’s estimates have been materially accurate in the past. In accordance with the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, the Company elected to defer the adoption of the current expected credit losses methodology and expects to continue to utilize the present processes until the earlier of December 31, 2020 or the date the national emergency declaration is terminated.

The following paragraphs more fully discuss the results of operations and changes in financial condition for the three-month period ended ~~June 30, 2020~~March 31, 2021 (“~~Second~~First Quarter of ~~2020”~~2021”) compared to the three-month period ended ~~June 30, 2019~~March 31, 2020 (“~~Second~~First Quarter of ~~2019”) and the six-month period ended June 30, 2020 (“First Half of~~ 2020”~~) compared to the six-month period ended June 30, 2019 (“First Half of 2019”~~). The following discussion and analysis should be read in conjunction with the unaudited consolidated financial statements and related notes and with the statistical information and financial data appearing in this report, as well as in the ~~Company’s 2019~~Company's 2020 Annual Report on Form 10-K. Results of operations for the ~~Second~~First Quarter ~~and First Half~~ of ~~2020~~2021 are not necessarily indicative of the results to be attained for any other period.

The Company’s fee revenue is derived mainly from transportation and facility payment and processing fees. As the Company provides its processing and payment services, it is compensated by service fees which are typically calculated on a per-item basis and by the accounts and drafts payable balances generated in the payment process which can be used to generate interest income. Processing volumes, fee revenue and other income were as follows:

		Second Quarter of				First Half of					First Quarter of
(In thousands)	2020		2019		% Change	2020		2019		% Change	2021		2020		% Change
Transportation invoice volume		7,294		9,222	(20.9)%		15,574		18,170	(14.3)%		8,787		8,280	6.1%
Transportation invoice dollar volume	$	5,697,627	$	7,121,202	(20.0)%	$	12,164,678	$	14,106,975	(13.8)%	$	7,904,639	$	6,467,051	22.2%
Facility Expense transaction volume*		6,704		6,892	(2.7)%		13,213		13,886	(4.8)%
Facility Expense dollar volume*	$	3,064,038	$	3,733,075	(17.9)%	$	6,522,684	$	7,350,503	(11.3)%
Facility expense transaction volume*												6,996		6,509	7.5%
Facility expense dollar volume											$	3,717,428	$	3,458,646	7.5%
Payment and processing revenue	$	22,661	$	26,852	(15.6)%	$	48,164	$	53,309	(9.7)%	$	25,216	$	25,503	(1.1)%

~~Second~~First Quarter of ~~2020~~2021 compared to ~~Second~~First Quarter of ~~2019:~~2020:

Transportation invoice and dollar volumes improved 6.1% and 22.2%, respectively. Fueling the increases were the stronger performance of the manufacturing sector quarter over quarter and new customer wins over the past 12 months. Further improvement in dollar volume resulted from scarcity in carrier supply, which drove prices higher. Facility-related invoice and dollar volumes both increased 7.5% with the increases attributable, in part, to new business wins. Payment and processing fee revenue decreased ~~16%. Transportation~~1% due to changes in client mix and the decline in certain revenue sources not directly tied to transaction volumes ~~for invoices and dollars declined 21% and 20%, respectively. With manufacturing companies representing an important component~~such as late fees. In light of the ~~transportation customer base, the previously reported contraction in the sector, combined with the effects of~~ COVID-19 ~~created significant challenges. Facility-related invoice~~pandemic and ~~dollar volume declined 3% and 18%, respectively, as~~ the impact on certain of ~~COVID-19 spawned~~its customers, the Company made a risk management decision not to advance payments to customer ~~bankruptcies or significant loss~~vendors until payment is received from the customer, thereby reducing the level of ~~dollar volume in the restaurant, retail and hospitality sectors as customers either temporarily closed locations or operated with minimal services.~~late fee revenue.

Net interest income is the difference between interest earned on loans, investments, and other earning assets and interest expense on deposits and other interest-bearing liabilities. Net interest income is a significant source of the Company’s revenues. The following table summarizes the changes in tax-equivalent net interest income and related factors:

	Second Quarter of					First Half of					First Quarter of
(In thousands)	2020		2019		% Change	2020		2019		% Change	2021			2020			% Change
Average earnings assets	$	1,624,415	$	1,430,983	13.5%	$	1,556,144	$	1,434,777	8.5%	$	1,891,395		$	1,487,873		27.12%
Average interest-bearing liabilities		478,370		379,422	26.1%		443,873		384,607	15.4%		552,906			409,376		35.06%
Net interest income*		11,635		12,553	(7.3)%		23,492		24,701	(4.9)%		10,807			11,857		(8.86)%
Net interest margin*		2.88%		3.52%			3.04%		3.47%			2.32	%		3.21	%	—
Yield on earning assets*		3.00%		3.88%			3.22%		3.84%			2.39	%		3.47	%	—
Rate on interest-bearing liabilities		.40%		1.38%			.66%		1.36%			0.24	%		0.95	%	—

~~Second Quarter of 2020~~2021 average earning assets increased ~~$193,432,000,~~$403,522,000, or ~~13.5%~~27.1%, compared to the same period in the prior year. ~~Average loans increased $194,666,000, or 25.3%, due to the PPP loans and federal funds sold and interest-bearing~~Interest-bearing deposits in other financial institutions increased ~~$185,404,000,~~$451,493,000, or ~~211.0%~~345.7%. ~~These were partially offset as~~This increase was primarily driven by a significant increase in deposits and accounts and drafts payable driven by government stimulus programs and organic growth. Average loans increased $81,720,000, or 10.2%, primarily driven by the origination of PPP loans beginning in the second quarter of 2020, continuing through the first quarter of 2021. Federal funds sold and other short-term investments decreased ~~$128,193,000,~~$107,588,000, or ~~88.6%,~~65.4% and average investment securities decreased ~~$56,763,000,~~$21,603,000, or ~~13.3%,~~16.4% in the ~~Second~~First Quarter of ~~2020~~2021 compared to the ~~Second Quarter~~first quarter of ~~2019.~~2020. The decrease in federal funds sold and other short-term investments was driven by funds migration into interest-bearing deposits in other financial institutions. The decrease in investment securities was driven by maturities.

Total ~~non-interest-bearing~~average interest-bearing liabilities for the ~~Second~~First Quarter of ~~2020~~2021 increased ~~$100,431,000,~~$143,530,000, or ~~38.7% and average interest-bearing liabilities increased $98,948,000, or 26.1%~~35.1%, compared to the ~~Second~~First Quarter of ~~2019 as the funds from the PPP loans largely remained in deposit accounts.~~2020. Average accounts and drafts payable ~~decreased $33,076,000,~~increased $130,380,000, or ~~4.3%~~17.0%, in the ~~Second~~First Quarter of ~~2020~~2021 compared to the ~~Second~~First Quarter of ~~2019.~~2020.

~~The changes to the interest rate environment led to decreases in~~First Quarter of 2021 tax-equivalized net interest income ~~and the net interest margin. The impact of this was partially offset by higher average earning assets.~~

~~First Half of 2020 average earning assets increased $121,367,000,~~decreased $1,050,000, or ~~8.5%~~8.9%, compared to the same period in the prior year. ~~Loans increased $136,189,000, or 18.3% due~~While average interest-earning assets were up 27.1% quarter over quarter, the Company’s net interest margin declined 89 basis points from 3.21% to 2.32% quarter over quarter, reflecting the ~~PPP loans and~~negative impact of the historically low short-term interest rate environment. Specifically, the average balance of interest-bearing deposits in other financial institutions increased $87,635,000, or 76.7%. These were offset by a decrease in average investment securities of $50,618,000, or 11.7%, and a decrease in average federal funds sold and short-term investments of $50,251,000, or 35.7%, forwas $582,104,000 during the First ~~Half~~Quarter of 2021 earning a yield of 0.10% compared to an average balance of $130,611,000 during the First Quarter of 2020 ~~as compared to the First Half~~earning a yield of ~~2019.~~

Non-interest-bearing demand deposits increased $62,743,000, or 23.7%, and total average interest-bearing liabilities increased $59,266,000, or 15.4%, compared to the First Half of 2019 as the funds from the PPP loans largely remained in deposit accounts and higher time deposits. These were partially offset by a decrease in the average accounts and drafts payable balances for the First Half of 2020 of $7,643,000, or 1.0%, Net interest income and net interest margin were impacted by the same factors as the Second Quarter.1.18%.

For more information on the changes in net interest income, please refer to the tables that follow.

Distribution of Assets, Liabilities and Shareholders’ Equity; Interest Rate and Interest Differential

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

	Second Quarter of 2020							Second Quarter of 2019							First Quarter of 2021							First Quarter of 2020
(In thousands)	Average Balance			Interest Income/ Expense		Yield/Rate		Average Balance			Interest Income/ Expense		Yield/Rate		Average Balance			Interest Income/ Expense		Yield/ Rate		Average Balance		Interest Income/ Expense		Yield/ Rate
Assets¹
Interest-earning assets
Earning assets
Loans²:
Taxable	$	964,060		$	9,298	3.88	%	$	769,394		$	9,387	4.89	%	$	881,222		$	8,587	3.95	%	$	799,502	$	9,001	4.53	%
Investment securities⁴:									—			—	—
Taxable		82,107			471	2.31			104,740			630	2.41			82,746			198	0.97			95,691		557	2.34
Tax-exempt³		288,078			2,260	3.16			322,208			2,524	3.14			288,386			2,201	3.10			297,044		2,303	3.12
Certificates of deposit		313			2	2.57			1,995			10	2.01			—			—	—			500		3	2.41
Interest-bearing deposits in other financial institutions		273,287			73	0.11			87,883			477	2.18			582,104			139	0.10			130,611		382	1.18
Federal funds sold and other short-term investments		16,570			12	0.29			144,763			830	2.30			56,937			13	0.09			164,525		576	1.41
Total interest-earning assets		1,624,415			12,116	3.00			1,430,983			13,858	3.88
Non-interest-earning assets
Total earning assets																1,891,395			11,138	2.39			1,487,873		12,822	3.47
Non-earning assets
Cash and due from banks		15,948							12,726							20,344							17,351
Premises and equipment, net		20,069							21,580							18,070							20,295
Bank-owned life insurance		17,760							17,540							17,920							17,646
Goodwill and other intangibles		18,239							13,975							17,598							18,456
Other assets		200,779							216,337							231,196							226,568
Allowance for loan losses		(10,895	)						(10,498	)
Allowance for credit losses																(11,956	)						(10,562)
Total assets	$	1,886,315						$	1,702,643						$	2,184,567						$	1,777,627
Liabilities and Shareholders’ Equity¹
Interest-bearing liabilities
Interest-bearing demand Deposits	$	394,756		$	202	0.21	%	$	296,017		$	923	1.25	%	$	475,212		$	151	0.13	%	$	326,852	$	633	0.78	%
Savings deposits		12,921			3	0.09			9,867			26	1.06			21,800			3	0.06			8,403		13	0.62
Time deposits >= $100		28,268			138	1.96			24,954			120	1.93			24,505			83	1.37			29,820		142	1.92
Other time deposits		42,414			138	1.31			48,559			236	1.95			31,379			94	1.21			44,092		175	1.60
Total interest-bearing deposits		478,359			481	0.40			379,397			1,305	1.38			552,896			331	0.24			409,167		963	0.95
Short-term borrowings		11			—	—			25			—	—			10			—	—			209		2	3.85
Total interest-bearing liabilities		478,370			481	0.40			379,422			1,305	1.38			552,906			331	0.24			409,376		965	0.95
Non-interest bearing liabilities
Demand deposits		359,808							259,377							417,942							295,165
Accounts and drafts payable		741,547							774,623							898,378							767,998
Other liabilities		64,489							55,854							56,646							62,228
Total liabilities		1,644,214							1,469,276							1,925,872							1,534,767
Shareholders’ equity		242,101							233,367							258,695							242,860
Total liabilities and shareholders’ equity	$	1,886,315						$	1,702,643						$	2,184,567						$	1,777,627
Net interest income				$	11,635						$	12,553						$	10,807					$	11,857
Net interest margin						2.88	%						3.52	%						2.32	%					3.21	%
Interest spread						2.60							2.50							2.15						2.52

First Half of 2020
First Half of 2019
(In thousands)
Average Balance
Interest Income/ Expense
Yield/Rate
Average Balance
Interest Income/ Expense
Yield/Rate
Assets¹

Interest-earning assets

Loans^{2, 3}:

Taxable
$
881,781
$
18,299
4.17
%
$
745,592
$
18,016
4.87
%
Investment securities⁴:

Taxable

88,899

1,028
2.33

105,685

1,262
2.41

Tax-exempt³

292,561

4,562
3.14

326,393

5,103
3.15

Certificates of deposit

407

5
2.47

1,995

20
2.02

Interest-bearing deposits in other financial institutions

201,949

456
0.45

114,314

1,286
2.27

Federal funds sold and other short-term investments

90,547

588
1.31

140,798

1,609
2.30

Total interest-earning assets

1,556,144

24,938
3.22

1,434,777

27,296
3.84

Non-interest-earning assets:

Cash and due from banks

16,649

13,268

Premises and equipment, net

20,182

21,796

Bank-owned life insurance

17,703

17,485

Goodwill and other intangibles

18,347

14,027

Other assets

213,674

203,974

Allowance for loan losses

(10,728
)

(10,365
)

Total assets
$
1,831,971

$
1,694,962

Liabilities and Shareholders’ Equity¹

Interest-bearing liabilities:

Interest-bearing demand deposits
$
360,804
$
835
0.47
%
$
300,429
$
1,845
1.24
%
Savings deposits

10,662

16
0.30

10,932

59
1.09

Time deposits >= $100

29,044

279
1.93

24,092

231
1.93

Other time deposits

43,253

314
1.46

49,141

460
1.89

Total interest-bearing deposits

443,763

1,444
0.65

384,594

2,595
1.36

Short-term borrowings

110

2
3.66

13

—
—

Total interest-bearing liabilities

443,873

1,446
0.66

384,607

Non-interest bearing liabilities:

Demand deposits

327,486

264,743

Accounts and drafts payable

754,773

762,416

Other liabilities

63,359

53,653

Total liabilities

1,589,491

1,465,419

Shareholders’ equity

242,480

229,543

Total liabilities and shareholders’ equity
$
1,831,971

$
1,694,962

Net interest income

$
23,492

$
24,701

Net interest margin

3.04
%

3.47
%
Interest spread

2.56

2.48

The following tables present the changes in interest income and expense between periods due to changes in volume and interest rates. That portion of the change in interest attributable to the combined rate/volume variance has been allocated to rate and volume changes in proportion to the absolute dollar amounts of the change in each.

	Second Quarter of 2020 Over Second Quarter of 2019									First Quarter of 2021 Over First Quarter of 2020
(In thousands)	Volume			Rate			Total			Volume			Rate			Total
Increase (decrease) in interest income:
Loans¹:
Taxable	$	2,090		$	(2,179	)	$	(89	)	$	825		$	(1,239	)	$	(414	)
Investment securities:
Taxable		(132	)		(27	)		(159	)		(67	)		(292	)		(359	)
Tax-exempt²		(274	)		10			(264	)		(81	)		(21	)		(102	)
Certificates of deposit		(10	)		2			(8	)		(3	)		—			(3	)
Interest-bearing deposits in other financial institutions		347			(751	)		(404	)		356			(599	)		(243	)
Federal funds sold and other short-term investments		(412	)		(406	)		(818	)		(232	)		(331	)		(563	)
Total interest income		1,609			(3,351	)		(1,742	)		798			(2,482	)		(1,684	)
Interest expense on:
Interest-bearing demand deposits		234			(955	)		(721	)		198			(680	)		(482	)
Savings deposits		6			(29	)		(23	)		9			(19	)		(10	)
Time deposits >=$100		16			2			18
Time deposits of >=$100											(23	)		(36	)		(59	)
Other time deposits		(27	)		(71	)		(98	)		(44	)		(37	)		(81	)
Short-term borrowings											(1	)		(1	)		(2	)
Total interest expense		229			(1,053	)		(824	)		139			(773	)		(634	)
Net interest income	$	1,380		$	(2,298	)	$	(918	)	$	659		$	(1,709	)	$	(1,050	)

Provision and Allowance for ~~Loan~~Credit Losses ~~(“ALLL”)~~and Allowance for Unfunded Commitments

~~A significant determinant~~The Company recorded a release of credit losses and off-balance sheet credit exposures of $600,000 in the First Quarter of 2021 and a provision for credit losses of $325,000 in the First Quarter of 2020. The amount of the ~~Company’s operating results can be the~~(release of) provision for credit losses was derived from the Company’s quarterly Current Expected Credit Loss (“CECL”) model. The amount of the (release of) provision for credit losses will fluctuate as determined by these quarterly analyses. The Company had net loan ~~losses. There was a loan loss provision~~recoveries of ~~$400,000 recorded~~$17,000 and $8,000 in the ~~Second~~First Quarter of 2021 and First Quarter of 2020, to support the growth in the loan portfolio and as a result of the impact of COVID-19 while no loan loss provision was recorded in the Second Quarter of 2019. There was a loan loss provision of $725,000 recorded in the First Half of 2020 to support the growth in the loan portfolio and as a result of the impact of COVID-19 while there was a loan loss provision of $250,000 in the First Half of 2019. As discussed below, the Company continually analyzes the outstanding loan portfolio based on the performance, financial condition and collateralization of the credits. Net loan recoveries were $3,000 during the Second Quarter of 2020 and $20,000 during the Second Quarter of 2019. Net loan recoveries were $11,000 in the First Half of 2020 and $31,000 during the First Half of 2019.respectively.

The ~~ALLL~~ACL was $11,721,000 at ~~June 30, 2020 was $11,292,000 and~~March 31, 2021 compared to $11,944,000 at December 31, ~~2019 was $10,556,000.~~2020. The ~~ratio~~ACL represented 1.32% of ~~ALLL to~~outstanding loans at March 31, 2021 and 1.34% of outstanding loans at year-end 2020. Excluding PPP loans, the ACL represented 1.51% of total loans ~~outstanding was 1.17%~~at March 31, 2021 and ~~1.37%~~1.53% of total loans at ~~June 30, 2020 and~~ December 31, 2019, respectively. In support of the CARES Act, the Bank had processed nearly 350 applications for PPP loans of approximately $170,000,000 to provide much-needed cash to small business and self-employed taxpayers during the COVID-19 crisis.2020. The ~~loans were primarily made to existing bank customers and are 100% guaranteed by the Small Business Administration and no~~ allowance for ~~loan loss~~unfunded commitments was ~~recorded for these loans.~~$207,000 at March 31, 2021 and $567,000 at December 31, 2020. There were no nonperforming loans outstanding at ~~June 30, 2020~~March 31, 2021 or December 31, ~~2019.~~2020.

The ~~ALLL~~ACL has been established and is maintained to ~~absorb reasonably estimated and probable~~estimate the lifetime credit losses inherent in the loan portfolio. An ongoing assessment is performed to determine if the balance is adequate. Charges or credits are made to expense ~~to cover any deficiency or reduce any excess, as required. The current methodology consists of two components: 1) estimated credit losses~~based on ~~individually evaluated loans that are determined to be impaired in accordance with FASB ASC 310, “Allowance for Credit Losses,” and 2) estimated credit losses inherent~~changes in the ~~remainder of the~~economic forecast, qualitative risk factors, loan ~~portfolio in accordance with FASB ASC 450, “Contingencies.” Estimated credit losses is an estimate of the current amount of loans that is probable the Company will be unable to collect according to the original terms.~~

volume, and individual loans. For loans that are individually evaluated, the Company uses two impairment measurement methods: 1) the present value of expected future cash flows and 2) collateral value. For the remainder of the portfolio, the Company groups loans with similar risk characteristics into eight segments and applies historical loss rates to each segment based on a five fiscal-year look-back period. In addition, qualitative factors including credit concentration risk, national and local economic conditions, nature and volume of loan portfolio, legal and regulatory factors, downturns in specific industries including losses in collateral value, trends in credit quality at the Company and in the banking industry and trends in risk-rating agencies are also considered.

The Company also utilizes ratio analysis to evaluate the overall reasonableness of the ~~ALLL~~ACL compared to its peers and required levels of regulatory capital. Federal and state regulatory agencies review the Company’s methodology for maintaining the ~~ALLL.~~ACL. These agencies may require the Company to adjust the ~~ALLL~~ACL based on their judgments and interpretations about information available to them at the time of their examinations.

The following table presents information on the ~~Company’s~~Company's (release of) provision for ~~loan~~credit losses and analysis of the ~~ALLL:~~ACL:

Second Quarter of
First Half of
(In thousands)
2020
2019
2020
2019
Allowance at beginning of period
$
10,889
$
10,486
$
10,556
$
10,225
Provision

400

—

725

250
Loans charged off

—

—

—

—
Recoveries on loans previously charged off

3

20

11

31
Net recoveries

3

20

11

31
Allowance at end of period
$
11,292
$
10,506
$
11,292
$
10,506
Loans outstanding:

Average
$
964,060
$
769,394
$
881,781
$
745,592
June 30

963,726

790,552

963,726

790,552
Ratio of ALLL to loans outstanding:

Average

1.17
%

1.37
%

1.28
%

1.41
%
June 30

1.17
%

1.33
%

1.17
%

1.33
%
Non-performing loans:

Nonaccrual loans
$
—
$
—
$
—
$
—
Loans past due 90 days or more

—

—

—

—
Total non-performing loans
$
—
$
—
$
—
$
—
Foreclosed assets
$
—
$
—
$
—
$
—
Non-performing loans as percentage of average loans

—

—

—

—

	First Quarter of
(In thousands)	2021			2020
Allowance for credit losses at beginning of period	$	11,944		$	10,556
(Release of) provision for credit losses		(240	)		325
Loans charged off		—			—
Recoveries on loans previously charged off		17			8
Net recoveries		17			8
Allowance for credit losses at end of period	$	11,721		$	10,889
Allowance for unfunded commitments at beginning of Period	$	567		$	—
(Release of) provision for credit losses		(360	)		—
Allowance for unfunded commitments at end of period		207			—
Loans outstanding:
Average	$	881,222		$	799,502
March 31		888,575			854,780
Ratio of ACL to loans outstanding:
Average		1.33	%		1.36	%
March 31		1.32	%		1.27	%

The Bank had no property carried as other real estate owned as of ~~June 30, 2020~~March 31, 2021 and ~~June 30, 2019.~~March 31, 2020.

Total operating expenses for the ~~Second~~First Quarter of ~~2020~~2021 were down ~~8.7%~~1.4%, or ~~$2,614,000, compared to the Second Quarter of 2019~~$404,000, as ~~personnel expense decreased due to the decline in transportation and facility-related transaction volumes. Total operating expenses for the First Half of 2020 were down $2,147,000, or 3.7%,~~ compared to the First ~~Half~~Quarter of ~~2019 for~~2020, primarily as a result of the ~~same reason as the Second Quarter.~~pandemic-related decline in travel and other business development activities.

Total assets at ~~June 30, 2020~~March 31, 2021 were ~~$1,828,984,000,~~$2,216,573,000, an increase of ~~$64,741,000,~~$13,338,000, or ~~3.7%~~0.6%, from December 31, ~~2019.~~2020. The most significant changes in asset balances during this period were increases in ~~loans~~securities of ~~$191,088,000 due~~$69,518,000 and payments in excess of funding of $21,912,000. The increase in securities was driven by purchases in an effort to ~~the PPP loans~~obtain a higher yield on our interest-earning assets. The increase in payments in excess of funding was driven by an increase in transportation dollar volumes and ~~cash and cash equivalents of $28,185,000.~~strategic efforts to increase these balances. These increases were partially offset by a decrease in ~~other assets~~cash and cash equivalents of ~~$66,121,000, payments in excess of funding of $43,948,000, and in security investments of $42,694,000.~~$70,869,000. Changes in cash and cash equivalents reflect the Company’s daily liquidity position and are ~~affected~~influenced by ~~the changes in the other asset balances~~funding inflows and ~~changes in deposit and accounts and drafts payable balances.~~outflows.

Total liabilities at ~~June 30, 2020~~March 31, 2021 were ~~$1,580,457,000~~$1,957,086,000, an increase of ~~$60,404,000,~~$15,011,000, or ~~4.0%~~0.8%, from December 31, ~~2019.~~2020. Total deposits at ~~June 30, 2020~~March 31, 2021 were ~~$825,956,000, an increase~~$1,003,135,000, a decrease of ~~$68,820,000,~~$47,721,000, or ~~9.1%~~4.5%, from December 31, ~~2019 as the funds from the PPP loans largely remained in deposit accounts.~~2020. Accounts and drafts payable at ~~June 30, 2020~~March 31, 2021 were ~~$687,538,000,~~$897,508,000, an increase of ~~$3,243,000,~~$62,122,000, or ~~0.5%~~7.4%, from December 31, ~~2019.~~2020, reflecting an increase in transportation dollar volumes.

Total shareholders’ equity at ~~June 30,~~March 31, 2020 was ~~$248,527,000,~~$259,487,000, a ~~$4,337,000,~~$1,673,000, or ~~1.8%~~0.6%, ~~increase~~decrease from December 31, ~~2019.~~2020. Total shareholders’ equity ~~increased due to net income~~decreased as a result of ~~$12,984,000~~share repurchases of $1,228,000, dividends paid of $3,886,000 and ~~a decrease~~an increase in accumulated other comprehensive loss of ~~$4,379,000.~~$3,377,000. These were partially offset by ~~dividends paid~~net income of ~~$7,811,000 and share repurchases of $5,508,000.~~$7,071,000.

Accounts and drafts payable will fluctuate from period-end to period-end due to the payment processing cycle, which results in lower balances on days when payments clear and higher balances on days when payments are issued. For this reason, average balances are a more meaningful measure of accounts and drafts ~~payable (for~~payable. For average balances refer to the tables under the “Distribution of Assets, Liabilities and Shareholders’ Equity; Interest Rate and Interest Differential” section of this ~~report).~~report.

The balance ~~of liquid assets consists~~ of cash and cash equivalents, which include cash and due from banks, interest-bearing deposits in other financial institutions, federal funds sold and money market funds ~~and~~ was ~~$232,139,000~~$599,659,000 at ~~June 30, 2020, an increase~~March 31, 2021, a decrease of ~~$28,185,000,~~$70,869,000, or ~~13.8%~~10.6%, from December 31, ~~2019.~~2020. At ~~June 30, 2020,~~March 31, 2021, these assets represented ~~12.7%~~27.1% of total assets. These funds are the Company’s and its subsidiaries’ primary source of liquidity to meet future expected and unexpected loan demand, depositor withdrawals or reductions in accounts and drafts payable.

Secondary sources of liquidity include the investment portfolio and borrowing lines. Total investment in securities was ~~$379,971,000~~$427,244,000 at ~~June 30, 2020, a decrease~~March 31, 2021, an increase of ~~$42,694,000~~$69,518,000 from December 31, ~~2019.~~2020. These assets represented ~~20.8%~~19.3% of total assets at ~~June 30, 2020.~~March 31, 2021. Of this total, ~~80%~~77% were state and political subdivision securities. Of the total portfolio, ~~14.5%~~16.5% mature in one year, ~~23.5%~~21.9% mature in one to five years, and ~~62.0%~~61.6% mature in five or more years.

The Bank has unsecured lines of credit at correspondent banks to purchase federal funds up to a maximum of $83,000,000 at the following banks: US Bank, $20,000,000; UMB Bank, $20,000,000; Wells Fargo Bank, $15,000,000; PNC Bank, $12,000,000; Frost National Bank, $10,000,000; and JPM Chase Bank, $6,000,000. The Bank also has secured lines of credit with the Federal Home Loan Bank of ~~$193,362,000~~$197,258,000 collateralized by commercial mortgage loans. The Company also has secured lines of credit with UMB Bank of $75,000,000 and First Horizon Bank of $75,000,000 collateralized by state and political subdivision securities. There were no amounts outstanding under any line of credit as of ~~June 30, 2020. There was $18,000,000 outstanding under the lines of credit discussed above at~~March 31, 2021 or December ~~31, 2019. The amount outstanding at the end of the 2019 was borrowed on December 31, 2019 and repaid on January 2,~~21, 2020.

In addition to the lines of credit discussed above, as of April 21, 2020 the Bank was approved for the Federal Reserve’s Paycheck Protection Program Lending Facility. The Bank can receive non-recourse loans with the previously mentioned PPP loans pledged as collateral. The Bank can borrow an amount up to 100% of the amount of the PPP loans, which was ~~$172,563,000~~approximately $113,000,000 as of ~~June 30, 2020.~~March 31, 2021.

The deposits of the Company's banking subsidiary have historically been stable, consisting of a sizable volume of core deposits related to customers that utilize other commercial products of the Bank. The accounts and drafts payable generated by the Company has also historically been a stable source of funds. The Company is part of the Certificate of Deposit Account Registry Service (“CDARS”) and Insured Cash Sweep (“ICS”) deposit placement programs. Time deposits include ~~$41,521,000~~$32,160,000 of CDARS deposits and interest-bearing demand deposits include ~~$88,323,000~~$157,841,000 of ICS deposits. These programs offer the Bank’s customers the ability to maximize Federal Deposit Insurance Corporation (“FDIC”) insurance coverage. The Company uses these programs to retain or attract deposits from existing customers.

Net cash flows provided by operating activities were ~~$32,655,000~~$16,704,000 for the ~~First Half of 2020,~~three months ended March 31, 2021, compared to ~~$26,373,000~~$18,160,000 for the ~~First Half~~three months ended March 31, 2020, a decrease of ~~2019, an increase of $6,282,000.~~$1,456,000. Net cash flows from investing and financing activities fluctuate greatly as the Company actively manages its investment and loan portfolios and customer activity influences changes in deposit and accounts and drafts payable balances. Other causes for the changes in these account balances are discussed earlier in this report. Due to the daily fluctuations in these account balances, the analysis of changes in average balances, also discussed earlier in this report, can be more indicative of underlying activity than the period-end balances used in the statements of cash flows. Management anticipates that cash and cash equivalents, maturing investments and cash from operations will continue to be sufficient to fund the Company’s operations and capital expenditures in ~~2020,~~2021, which are estimated to range from $4 million to $6 million.

The Company faces market risk to the extent that its net interest income and fair market value of equity are affected by changes in market interest rates. For information regarding the market risk of the Company’s financial instruments, see Item 3, “Quantitative and Qualitative Disclosures about Market Risk.”

There are several trends and uncertainties that may impact the Company’s ability to generate revenues and income at the levels that it has in the past. In addition, these trends and uncertainties may impact available liquidity. Those that could significantly impact the Company include the general levels of interest rates, business activity, and energy costs as well as new business opportunities available to the Company.

As a financial institution, a significant source of the Company’s earnings is generated from net interest income. Therefore, the prevailing interest rate environment is important to the Company’s performance. A major portion of the Company’s funding sources are the non-interest bearing accounts and drafts payable generated from its payment and information processing services. Accordingly, higher levels of interest rates will generally allow the Company to earn more net interest income. Conversely, a lower interest rate environment will generally tend to depress net interest income. The Company actively manages its balance sheet in an effort to maximize net interest income as the interest rate environment changes. This balance sheet management impacts the mix of earning assets maintained by the Company at any point in time. For example, in a low interest rate environment, short-term relatively lower rate liquid investments may be reduced in favor of longer term relatively higher yielding investments and loans. If the primary source of liquidity is reduced in a low interest rate environment, a greater reliance would be placed on secondary sources of liquidity including borrowing lines, the ability of the Bank to generate deposits, and the investment portfolio to ensure overall liquidity remains at acceptable levels. For afurther discussion ~~of trends and impacts relating to~~on COVID-19, refer to Note 1 “Basis of Presentation.”

The overall level of economic activity can have a significant impact on the Company’s ability to generate revenues and income, as the volume and size of customer invoices processed may increase or decrease. Higher levels of economic activity increase both fee income (as more invoices are processed) and balances of accounts and drafts payable. For afurther discussion ~~of trends and impacts relating to~~on COVID-19, refer to Note 1 “Basis of Presentation.” Lower levels of economic activity, such as those experienced by the Company as a result of COVID-19 and governmental actions related thereto, decrease both fee income and balances of accounts and drafts payable.

The relative level of energy costs can impact the Company’s earnings and available liquidity. Lower levels of energy costs will tend to decrease transportation and energy invoice amounts resulting in a corresponding decrease in accounts and drafts payable. Decreases in accounts and drafts payable generate lower interest income. For afurther discussion ~~of trends and impacts relating to~~on COVID-19, refer to Note 1 “Basis of Presentation.”

New business opportunities are an important component of the Company’s strategy to grow earnings and improve performance. Generating new customers allows the Company to leverage existing systems and facilities and grow revenues faster than expenses.

The Basel III Capital Rules require FDIC insured depository institutions to meet and maintain several minimum capital standards: a common equity Tier 1 capital to risk-based assets ratio of 4.5%, a Tier 1 capital to risk-based assets ratio of 6.0%, a total capital to risk-based assets of 8.0%, and a 4.0% Tier 1 capital to total assets leverage ratio.

Common equity Tier 1 capital is generally defined as common stockholders’ equity and retained earnings. Tier 1 capital is generally defined as common equity Tier 1 and Additional Tier 1 capital. Additional Tier 1 capital generally includes certain noncumulative perpetual preferred stock and related surplus and minority interests in equity accounts of consolidated subsidiaries. Total capital includes Tier 1 capital (common equity Tier 1 capital plus Additional Tier 1 capital) and Tier 2 capital. Tier 2 capital is comprised of capital instruments and related surplus meeting specified requirements. Also included in Tier 2 capital is the allowance for loan losses limited to a maximum of 1.25% of risk-weighted assets and, for non-advanced approaches institutions like Cass that have exercised a one-time opt-out election regarding the treatment of Accumulated Other Comprehensive Income, up to 45% of net unrealized gains on available-for-sale equity securities with readily determinable fair market values. The calculation of all types of regulatory capital is subject to deductions and adjustments specified in applicable regulations.

In determining the amount of risk-weighted assets for purposes of calculating risk-based capital ratios, all assets, including certain off-balance sheet assets are multiplied by a risk weight factor assigned by the regulations based on the risks believed inherent in the type of asset. Higher levels of capital are required for asset categories believed to present greater risk. For example, a risk weight of 0% is assigned to cash and U.S. government securities, a risk weight of 50% is generally assigned to prudently underwritten first lien one to four-family residential mortgages, a risk weight of 100% is assigned to commercial and consumer loans, a risk weight of 150% is assigned to certain past due loans, and a risk weight of between 0% to 600% is assigned to permissible equity interests, depending on certain specified factors.

~~Fully phased-in as of January 1, 2019, the~~The Basel III Capital Rules require banking organizations, like Cass, to maintain:

a minimum ratio of common equity Tier 1 capital to risk-weighted assets of at least 4.5%, plus a 2.5% capital conservation buffer;

a minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus a 2.5% capital conservation buffer;

a minimum ratio of total capital (that is, Tier 1 plus Tier 2 capital) to risk-weighted assets of at least 8.0%, plus the 2.5% capital conservation buffer; ~~and~~and

a minimum leverage ratio of 4.0%, calculated as the ratio of Tier 1 capital to adjusted average consolidated assets.

The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of common equity Tier 1 capital to risk-weighted assets above the minimum but below the conservation buffer will face limitations on the payment of dividends, common stock repurchases and discretionary cash payments to executive officers based on the amount of the shortfall.

The Company and the Bank continue to exceed all regulatory capital requirements, as evidenced by the following capital amounts and ratios:

	June 30, 2020				December 31, 2019				March 31, 2021				December 31, 2020
(Dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
Total capital (to risk-weighted assets)
Cass Information Systems, Inc.	$	250,949		21.32%	$	249,954		19.70%	$	256,899		21.13%	$	255,332		21.41%
Cass Commercial Bank		162,782		20.08%		154,011		19.32%		175,574		22.48%		171,298		21.46%
Common equity tier I capital (to risk-weighted assets)
Cass Information Systems, Inc.	$	239,657		20.36%	$	239,398		18.86%	$	245,178		20.17%	$	243,388		20.41%
Cass Commercial Bank		153,708		18.96%		145,673		18.27%		165,791		21.22%		161,300		20.21%
Tier I capital (to risk-weighted assets)
Cass Information Systems, Inc.	$	239,657		20.36%	$	239,398		18.86%	$	245,178		20.17%	$	243,388		20.41%
Cass Commercial Bank		153,708		18.96%		145,673		18.27%		165,791		21.22%		161,300		20.21%
Tier I capital (to leverage assets)
Cass Information Systems, Inc.	$	239,657		12.83%	$	239,398		13.24%	$	245,178		11.31%	$	243,388		11.52%
Cass Commercial Bank		153,708		13.13%		145,673		16.64%		165,791		11.81%		161,300		14.48%

The Company’s assets and liabilities are primarily monetary, consisting of cash, cash equivalents, securities, loans, payables and deposits. Monetary assets and liabilities are those that can be converted into a fixed number of dollars. The Company's consolidated balance sheet reflects a net positive monetary position (monetary assets exceed monetary liabilities). During periods of inflation, the holding of a net positive monetary position will result in an overall decline in the purchasing power of a company. Management believes that replacement costs of equipment, furniture, and leasehold improvements will not materially affect operations. The rate of inflation does affect certain expenses, such as those for employee compensation, which may not be readily recoverable in the price of the Company’s services.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). The standard is effective for fiscal periods beginning after December 15, 2019. The CARES Act was signed into law on March 27, 2020 and included provisions that temporarily delayed the required implementation date of ASU ~~requires~~2016-13 to the earlier of the end of the national pandemic or December 31, 2020. The Consolidated Appropriations Act was signed into law on December 27, 2020 and extended the deferral of required implementation of ASU 2016-13 to the earlier of the first day of a company’s fiscal year that begins after the date the COVID-19 national emergency comes to an end or January 1, 2022. The Company elected to defer the adoption of ASU 2016-13 until December 31, 2020 with an effective date of January 1, 2020.

The ASU required measurement and recognition of expected credit losses for financial ~~assets~~instruments held, as applicable, which include allowances for credit losses expected ~~to be incurred~~ over the life of the portfolio, rather than incurred losses, which include allowances for current ~~known~~probable and ~~inherent~~estimable losses within the portfolio. Under this standard, the Company ~~will be~~is required to hold an allowance equal to the expected life-of-loan losses on the loan portfolio. It also applies to off-balance sheet credit exposures such as loan commitments, standby letters of credit and other similar instruments. In addition, ASU 2016-13 made changes to the accounting for available-for-sale debt securities.

The ~~standard is effective~~Company adopted ASU 2016-13 using a modified retrospective approach. Results for ~~fiscal~~annual reporting periods beginning after January 1, 2020 are presented under ASU 2016-13 while prior period amounts continue to be reported in accordance with previously applicable GAAP. Results for quarterly reporting periods beginning after December ~~15, 2019 and was adopted~~31, 2020 in the Company’s Form 10-Q will be presented under ASU 2016-13 while prior quarterly period amounts continue to be reported in accordance with previously applicable GAAP. Upon adoption on January 1, ~~2020. The CARES Act was signed into law on March 27,~~ 2020, the Company recognized increases of $723,000 in the allowance for credit losses and ~~includes provisions that temporarily delay~~$402,000 in the required implementation date of ASU 2016-13. The Company has elected to defer the adoption of ASU 2016-13 until the earlier of December 31, 2020 or the date the national emergency declaration is terminated as permitted by the CARES Act.

~~The Company formed~~reserve for unfunded commitments, with a cross-functional working group under the direction of the Chief Financial Officer comprised of individuals from various functional areas including credit, risk management, finance, and accounting that addressed the adoption and implementation of the ASU. The Company currently expects the adoption of ASU 2016-13 will result in a one-time cumulative effect adjustmentcorresponding reduction to retained earnings, ~~and an increase~~net of ~~up to 25%~~tax, of $856,000. No credit loss allowance was required upon adoption for the allowance for loan losses and the reserves for unfunded commitments. The expected increase is a result of changing from an incurred loss model, which encompasses allowances for current known and inherent losses within the portfolio, to an expected loss model, which encompasses allowances for losses expected to be incurred over the life of the portfolio based upon reasonable and supportable forecasts of economic conditions. The ASU also requires an allowance to be established for expected credit losses for certain debtinvestment securities ~~and other financial assets, however the Company does not expect these allowances to be significant.~~portfolio.

As described in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020, the Company manages its interest rate risk through measurement techniques that include gap analysis and a simulation model. As part of the risk management process, asset/liability management policies are established and monitored by management. The policy objective is to limit the change in annualized net interest income to 15% from an immediate and sustained parallel change in interest rates of 200 basis points. The economic impact of the COVID-19 pandemic has introduced significant uncertainty and market volatility, which may result in the deterioration of the Company’s risk position since December 31, ~~2019.~~2020.

The Company’s management, under the supervision and with the participation of the principal executive officer and the principal financial officer, evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report and concluded that, as of such date, these controls and procedures were effective.

There were no changes in the ~~Second~~First Quarter of ~~2020~~2021 in the Company's internal control over financial reporting identified by the Company’s principal executive officer and principal financial officer in connection with their evaluation that materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended).

The Company is the subject of various pending or threatened legal actions and proceedings, including those that arise in the ordinary course of business. Management believes the outcome of all such proceedings will not have a material effect on the businesses or financial conditions of the Company or its subsidiaries.

The Company has included in Part I, Item 1A of its Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020, a description of certain risks and uncertainties that could affect the Company’s business, future performance or financial condition (the “Risk Factors”). There are no material changes to the Risk Factors as disclosed in the Company’s ~~2019~~2020 Annual Report on Form ~~10-K, other than the risks described below.~~

~~The COVID-19 pandemic creates significant risks and uncertainties for the Company’s business and results of operations.~~

In March 2020, the World Health Organization declared COVID-19 as a global pandemic. The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and manufacturing, lowered energy prices, lowered equity market valuations, created significant volatility and disruption in financial markets, and increased unemployment levels. In addition, the pandemic has resulted in temporary closures of many businesses and the institution of social distancing and sheltering in place requirements in many states and communities, including those in major markets in which Cass Commercial Bank, the Company’s St. Louis, Missouri-based bank subsidiary, is located or does business.

As a result, the demand for the Company’s products and services has been, and will continue to be, significantly impacted. Demand for payment and information processing services by manufacturing, distribution, and retail enterprises, and loans and other products and services that the Company and the Bank offer and on which success the Company relies to drive growth, is highly dependent upon the business environment in the primary markets in which the Company operates and in the United States as a whole.10-K.

Business closures, including constrictions in the manufacturing sector, have decreased volumes in the Company’s payment and information processing services due to the decline in customers’ business activity. In addition, the dampened demand for oil and resulting plummet in oil prices has had, and can continue to have, a negative effect on both the numberTable of ~~freight transactions processed and the dollar amount of invoices processed.~~

~~None.~~During the three months ended March 31, 2021, the Company repurchased a total of 31,256 shares of its common stock pursuant to its treasury stock buyback program, as follows:

There have been no material changes to the procedures by which security holders may recommend nominees to the Company’s Board of Directors implemented in the ~~Second~~First Quarter of ~~2020.~~2021.

Exhibit 101.INS XBRL Instance Document. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

Exhibit 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Six Months Ended June 30, 2020
	Shares		Fair Value
Balance at December 31, 2019		123,272	$	47.24
Granted		32,403		48.21
Vested		(20,369)		49.32
Forfeited		(4,962)		50.08
Balance at June 30, 2020		130,344	$	47.05

¹	Loans subject to normal monitoring involve borrowers of acceptable-to-strong credit quality and risk, who have the apparent ability to satisfy their loan obligations.
²	Loans subject to special monitoring possess some credit deficiency or potential weakness which requires a high level of management attention.

(In thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance for Loan Losses
Commercial and industrial:	$	11,135	$	11,135	$	500
Real estate:
Faith-based:
Mortgage		1,047		1,047		—
Total impaired loans	$	12,182	$	12,182	$	500

(In thousands)	C&I		CRE		Faith-based CRE		Construction		Total
Allowance for credit losses on loans:
Balance at December 31, 2020	$	4,635	$	1,175	$	5,717	$	417	$	11,944
Charge Offs		0—		0—		0—		0—		0—
(Release of) provision for credit losses		54		(65)		(200)		(29)		(240)
Recoveries		2		0—		15		0—		17
Balance at March 31, 2021	$	4,691	$	1,110	$	5,532	$	388	$	11,721

(In thousands)	December 31, 2018		Charge- Offs		Recoveries		Provision		June 30, 2019
Commercial and industrial	$	4,179	$	—	$	31	$	1,058	$	5,268
Real estate:
Commercial:
Mortgage		1,417		—		—		(148)		1,269
Construction		89		—		—		51		140
Faith-based:
Mortgage		3,961		—		—		36		3,997
Construction		155		—		—		(24)		131
Other		424		—		—		(723)		(299)
Total	$	10,225	$	—	$	31	$	250	$	10,506

	Three Months Ended June 30, 2020
	Shares		Fair Value
Balance at December 31, 2019		102,116	$	49.13
Granted		32,910		54.02
Vested		(29,175)		49.33
Forfeited		(7,441)		50.08
Balance at June 30, 2020		98,410	$	50.64

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
(In thousands)	2020		2019		2020		2019
Fee revenue and other income
In-scope of FASB ASC 606
Invoice processing fees	$	17,923	$	20,447	$	37,047	$	40,989
Invoice payment fees		4,738		6,405		11,117		12,320
Information services payment and processing revenue		22,661		26,852		48,164		53,309
Bank service fees		398		301		808		677
Fee revenue (in-scope of FASB ASC 606)		23,059		27,153		48,972		53,986
Other income (out-of-scope of FASB ASC 606)		115		219		1,297		399
Total fee revenue and other income		23,174		27,372		50,269		54,385

Net interest income after provision for loan losses (out-of-scope of FASB ASC 606)¹		10,761		12,022		21,809		23,379
Total net revenue	$	33,935	$	39,394	$	72,078	$	77,764

	For the Three Months Ended March 31,
(In thousands)	2021		2020
Fee revenue and other income
In-scope of FASB ASC 606
Invoice processing fees	$	19,064	$	19,124
Invoice payment fees		6,152		6,379
Information services payment and processing revenue		25,216		25,503
Bank service fees		494		410
Fee revenue (in-scope of FASB ASC 606)		25,710		25,913
Other income (out-of-scope of FASB ASC 606)		465		1,182
Total fee revenue and other income		26,175		27,095

	First Quarter of
(Dollars in thousands except per share data)	2021			2020			% Change
Net income	$	7,071		$	7,545		(6.3)%
Diluted earnings per share	$	.49		$	.52		(5.8)%
Return on average assets		1.31	%		1.70	%	—
Return on average equity		11.09	%		12.50	%	—

1.	Balances shown are daily averages.
2.	Interest income on loans includes net loan fees of ~~$565,000~~$901,000 and ~~$77,000~~$156,000 for the ~~Second~~First Quarter of ~~2020~~2021 and ~~2019,~~2020, respectively due to higher PPP ~~loan~~ fees.
3.	Interest income is presented on a tax-equivalent basis assuming a tax rate of 21% ~~for both 2020 and 2019.~~. The tax-equivalent adjustment was approximately ~~$474,000~~$462,000 and ~~$531,000~~$484,000 for the ~~Second~~First Quarter of ~~2020~~2021 and ~~2019,~~2020, respectively.
4.	For purposes of these computations, yields on investment securities are computed as interest income divided by the average amortized cost of the investments.

	First Half of 2020							First Half of 2019
(In thousands)	Average Balance			Interest Income/ Expense		Yield/Rate		Average Balance			Interest Income/ Expense		Yield/Rate
Assets¹
Interest-earning assets
Loans^{2, 3}:
Taxable	$	881,781		$	18,299	4.17	%	$	745,592		$	18,016	4.87	%
Investment securities⁴:
Taxable		88,899			1,028	2.33			105,685			1,262	2.41
Tax-exempt³		292,561			4,562	3.14			326,393			5,103	3.15
Certificates of deposit		407			5	2.47			1,995			20	2.02
Interest-bearing deposits in other financial institutions		201,949			456	0.45			114,314			1,286	2.27
Federal funds sold and other short-term investments		90,547			588	1.31			140,798			1,609	2.30
Total interest-earning assets		1,556,144			24,938	3.22			1,434,777			27,296	3.84
Non-interest-earning assets:
Cash and due from banks		16,649							13,268
Premises and equipment, net		20,182							21,796
Bank-owned life insurance		17,703							17,485
Goodwill and other intangibles		18,347							14,027
Other assets		213,674							203,974
Allowance for loan losses		(10,728	)						(10,365	)
Total assets	$	1,831,971						$	1,694,962
Liabilities and Shareholders’ Equity¹
Interest-bearing liabilities:
Interest-bearing demand deposits	$	360,804		$	835	0.47	%	$	300,429		$	1,845	1.24	%
Savings deposits		10,662			16	0.30			10,932			59	1.09
Time deposits >= $100		29,044			279	1.93			24,092			231	1.93
Other time deposits		43,253			314	1.46			49,141			460	1.89
Total interest-bearing deposits		443,763			1,444	0.65			384,594			2,595	1.36
Short-term borrowings		110			2	3.66			13			—	—
Total interest-bearing liabilities		443,873			1,446	0.66			384,607
Non-interest bearing liabilities:
Demand deposits		327,486							264,743
Accounts and drafts payable		754,773							762,416
Other liabilities		63,359							53,653
Total liabilities		1,589,491							1,465,419
Shareholders’ equity		242,480							229,543
Total liabilities and shareholders’ equity	$	1,831,971						$	1,694,962
Net interest income				$	23,492						$	24,701
Net interest margin						3.04	%						3.47	%
Interest spread						2.56							2.48

1.	~~Balances shown are daily averages.~~
2.	~~Interest income on loans includes net loan fees of $721,000 and $242,000 for the First Half of 2020 and 2019, respectively due to higher PPP loan fees.~~
3.	Interest income is presented on a tax-equivalent basis assuming a tax rate of 21% for both 2020 and 2019. The tax-equivalent adjustment was approximately $958,000 and $1,072,000 for the First Half of 2020 and 2019, respectively.
4.	~~For purposes of these computations, yields on investment securities are computed as interest income divided by the average amortized cost of the investments.~~

1.	Interest income includes net loan fees.
2.	Interest income is presented on a tax-equivalent basis assuming a tax rate of 21% ~~for the Second Quarter of 2020 and 2019.~~

	First Half of 2020 Over First Half of 2019
(In thousands)	Volume			Rate			Total
Increase (decrease) in interest income:
Loans¹:
Taxable	$	3,071		$	(2,788	)	$	283
Investment securities:
Taxable		(192	)		(42	)		(234	)
Tax-exempt²		(514	)		(27	)		(541	)
Certificates of deposit		(19	)		4			(15	)
Interest-bearing deposits in other financial institutions		606			(1,436	)		(830	)
Federal funds sold and other short-term investments		(461	)		(560	)		(1,021	)
Total interest income		2,490			(4,849	)		(2,358	)
Interest expense on:
Interest-bearing demand deposits		318			(1,328	)		(1,010	)
Savings deposits		(1	)		(42	)		(43	)
Time deposits >=$100		48			(0	)		48
Other time deposits		(50	)		(96	)		(146	)
Short-term borrowings		—			2			2
Total interest expense		315			(1,464	)		(1,149	)
Net interest income	$	2,176		$	(3,385	)	$	(1,209	)

1.	~~Interest income includes net loan fees.~~
2.	~~Interest income is presented on a tax-equivalent basis assuming a tax rate of 21% for the First Half of 2020 and 2019.~~.

(In thousands)	December 31, 2019		Impact of ASU 2016-13 Adoption			As Reported Under ASU 2016-13
Assets:
Allowance for credit/loan losses on loans	$	10,556	$	723		$	11,279
Deferred tax asset		2,298		269			2,567
Liabilities:
Reserve for unfunded commitments		—		402			402
Shareholders’ equity:
Retained earnings		90,341		(856	)		89,485

Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs¹	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
January 1, 2021 – January 31, 2021	31,256		39.29	31,256	434,622
February 1, 2021 – February 29, 2021	—		—	—	434,622
March 1, 2021 – March 31, 2021	—		—	—	434,622
Total	31,256		39.29	31,256	434,622

	CASS INFORMATION SYSTEMS, INC.


DATE: ~~August~~May 6, ~~2020~~2021	By	/s/ Eric H. Brunngraber
		Eric H. Brunngraber
		Chairman, President, and Chief Executive Officer
		(Principal Executive Officer)


DATE: ~~August~~May 6, ~~2020~~2021	By	/s/ ~~P. Stephen Appelbaum~~Michael J. Normile
		~~P. Stephen Appelbaum~~Michael J. Normile
		Executive Vice President and Chief Financial Officer
		(Principal Financial and Accounting Officer)