Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

___________________________

FORM 10-Q

☒

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

For the quarterly period ended March 31,September 30, 2021

OR

☐

o

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

For the transition period from __________ to __________

Commission File No. 000-20827

____________________

CASS INFORMATION SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

Missouri

43-1265338

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.

Yesx                 No    o

☒

No

☐

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).

Yesx                 No     o

☒

No

☐

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

Large Accelerated Filer ☐

o

Accelerated Filer ☒

x

Non-Accelerated Filer ☐

o

Smaller Reporting Company ☐

o

Emerging Growth Company ☐

o

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     ☐                 No    x

☐

No

☒

The number of shares outstanding of the registrant's only class of common stock as of AprilOctober 22, 2021: Common stock, par value $.50 per share – 14,400,90914,010,148 shares outstanding.

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Table of Contents

TABLE OF CONTENTS

Item 1.

Consolidated Balance Sheets
SMarch 31,eptember 30, 2021 (unaudited) and December 31, 2020

34

Consolidated Statements of Income Three and
NThreeine months ended March 31,September 30, 2021 and 2020 (unaudited)

45

Consolidated Statements of Comprehensive Income
Three and Nine months ended March 31,September 30, 2021 and 2020 (unaudited)

5

Consolidated Statements of Cash Flows
NineThree months ended March 31,September 30, 2021 and 2020 (unaudited)

67

Consolidated Statements of Shareholders’ Equity Three and
NThreeine months ended March 31,September 30, 2021 and 2020 (unaudited)

78

Notes to Consolidated Financial Statements (unaudited)

810

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

2126

Item 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

3139

Item 4.
CONTROLS AND PROCEDURES

3139

3140

SIGNATURES

3442

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 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.

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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)

 

March 31,

2021

(Unaudited)

 

December 31,

2020

September 30, 2021 (Unaudited)December 31,
2020

Assets

 

 

 

 

 

 

Assets  

Cash and due from banks

 

$

25,291

 

$

30,985

Cash and due from banks$25,641 $30,985 

Interest-bearing deposits in other financial institutions

 

 

444,624

 

 

393,810

Interest-bearing deposits in other financial institutions472,786 393,810 

Federal funds sold and other short-term investments

 

 

129,744

 

 

245,733

Federal funds sold and other short-term investments1,882 245,733 

Cash and cash equivalents

 

 

599,659

 

 

670,528

Cash and cash equivalents500,309 670,528 

Securities available-for-sale, at fair value

 

 

427,244

 

 

357,726

Securities available-for-sale, at fair value541,079 357,726 

 

 

 

 

 

 

Loans

 

 

888,575

 

 

891,676

Loans872,905 891,676 

Less: Allowance for credit losses

 

 

11,721

 

 

11,944

Less: Allowance for credit losses11,532 11,944 

Loans, net

 

 

876,854

 

 

879,732

Loans, net861,373 879,732 

Payments in excess of funding

 

 

216,475

 

 

194,563

Payments in excess of funding266,379 194,563 

Premises and equipment, net

 

 

17,825

 

 

18,057

Premises and equipment, net17,499 18,057 

Investment in bank-owned life insurance

 

 

17,646

 

 

18,058

Investment in bank-owned life insurance42,926 18,058 

Goodwill

 

 

14,262

 

 

14,262

Goodwill14,262 14,262 

Other intangible assets, net

 

 

3,208

 

 

3,423

Other intangible assets, net2,779 3,423 

Other assets

 

 

43,400

 

 

46,886

Other assets46,380 46,886 

Total assets

 

$

2,216,573

 

$

2,203,235

Total assets$2,292,986 $2,203,235 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

Liabilities:

 

 

 

 

 

 

Liabilities:

Deposits:

 

 

 

 

 

 

Deposits:

Noninterest-bearing

 

$

424,859

 

$

493,504

Noninterest-bearing$467,320 $493,504 

Interest-bearing

 

 

578,276

 

 

557,352

Interest-bearing619,997 557,352 

Total deposits

 

 

1,003,135

 

 

1,050,856

Total deposits1,087,317 1,050,856 

Accounts and drafts payable

 

 

897,508

 

 

835,386

Accounts and drafts payable905,479 835,386 

Other liabilities

 

 

56,443

 

 

55,833

Other liabilities52,547 55,833 

Total liabilities

 

 

1,957,086

 

 

1,942,075

Total liabilities2,045,343 1,942,075 

 

 

 

 

 

 

Shareholders’ Equity:

 

 

 

 

 

 

Shareholders’ Equity:

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

Preferred stock, par value $.50 per share; 2,000,000 shares authorized and no shares issuedPreferred 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 September 30, 2021 and December 31, 2020Common stock, par value $.50 per share; 40,000,000 shares authorized and 15,505,772 shares issued at September 30, 2021 and December 31, 20207,753 7,753 

Additional paid-in capital

 

 

202,828

 

 

204,875

Additional paid-in capital204,113 204,875 

Retained earnings

 

 

102,247

 

 

99,062

Retained earnings108,388 99,062 

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)

Common shares in treasury, at cost (1,495,624 shares at September 30, 2021 and 1,113,103 shares at December 31, 2020)Common shares in treasury, at cost (1,495,624 shares at September 30, 2021 and 1,113,103 shares at December 31, 2020)(67,018)(50,515)

Accumulated other comprehensive loss

 

 

(3,392)

 

(15)

Accumulated other comprehensive loss(5,593)(15)

Total shareholders’ equity

 

 

259,487

 

 

261,160

Total shareholders’ equity247,643 261,160 

Total liabilities and shareholders’ equity

 

$

2,216,573

 

$

2,203,235

Total liabilities and shareholders’ equity$2,292,986 $2,203,235 

See accompanying notes to unaudited consolidated financial statements.

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Table of Contents

CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(Dollars in Thousands except Per Share Data)

 

Three Months Ended

March 31,

Three Months Ended
September 30,		Nine Months Ended
September 30,

 

2021

 

2020

2021202020212020

Fee Revenue and Other Income:

 

 

 

Fee Revenue and Other Income:

Information services payment and processing revenue

 

$

25,216

 

$

25,503

Information services payment and processing revenue$26,877 $24,376 $78,441 $72,540 

Bank service fees

 

 

494

 

 

410

Bank service fees533 441 1,557 1,249 

Gains on sales of securities

 

 

48

 

 

1,069

(Losses) gains on sales of securities(Losses) gains on sales of securities(1)— 44 1,069 

Other

 

 

417

 

 

113

Other168 115 697 343 

Total fee revenue and other income

 

 

26,175

 

 

27,095

Total fee revenue and other income27,577 24,932 80,739 75,201 

 

 

 

 

Interest Income:

 

 

 

 

Interest Income:

Interest and fees on loans

 

 

8,587

 

 

9,001

Interest and fees on loans8,987 9,067 26,270 27,366 

Interest and dividends on securities:

 

 

 

 

Interest and dividends on securities:

Taxable

 

 

198

 

 

560

Taxable731 373 1,387 1,406 

Exempt from federal income taxes

 

 

1,739

 

 

1,819

Exempt from federal income taxes1,760 1,753 5,331 5,357 

Interest on federal funds sold and other short-term investments

 

 

152

 

 

958

Interest on federal funds sold and other short-term investments241 86 515 1,130 

Total interest income

 

 

10,676

 

 

12,338

Total interest income11,719 11,279 33,503 35,259 

 

 

 

 

Interest Expense:

 

 

 

 

Interest Expense:

Interest on deposits

 

 

331

 

 

963

Interest on deposits287 465 915 1,909 

Interest on short-term borrowings

0─

2

Interest on short-term borrowings— — — 2 

Total interest expense

 

 

331

 

 

965

Total interest expense287 465 915 1,911 

Net interest income

 

 

10,345

 

 

11,373

Net interest income11,432 10,814 32,588 33,348 

(Release of) provision for credit losses

 

 

(600

)

 

325

Net interest income after provision for credit losses

 

 

10,945

 

 

11,048

Provision for (release of) credit losses / loan losses Provision for (release of) credit losses / loan losses340 — (870)725 
Net interest income after provision for (release of) credit losses / loan lossesNet interest income after provision for (release of) credit losses / loan losses11,092 10,814 33,458 32,623 

Total net revenue

 

 

37,120

 

 

38,143

Total net revenue38,669 35,746 114,197 107,824 

 

 

 

 

Operating Expense:

 

 

 

 

Operating Expense:

Personnel

 

 

22,526

 

 

22,427

Personnel23,283 22,521 68,689 65,839 

Occupancy

 

 

947

 

 

941

Occupancy953 930 2,859 2,809 

Equipment

 

 

1,675

 

 

1,635

Equipment1,700 1,648 5,028 4,900 

Amortization of intangible assets

 

 

215

 

 

215

Amortization of intangible assets215 215 644 644 

Other operating expense

 

 

3,162

 

 

3,711

Other operating expense4,539 3,366 11,798 10,774 

Total operating expense

 

 

28,525

 

 

28,929

Total operating expense30,690 28,680 89,018 84,966 

Income before income tax expense

 

 

8,595

 

 

9,214

Income before income tax expense7,979 7,066 25,179 22,858 

Income tax expense

 

 

1,524

 

 

1,669

Income tax expense1,174 1,285 4,277 4,093 

Net income

 

$

7,071

 

$

7,545

Net income$6,805 $5,781 $20,902 $18,765 

 

 

 

 

Basic earnings per share

 

$

.49

 

$

.52

Basic earnings per share$.48 $.40 $1.47 $1.31 

Diluted earnings per share

 

 

.49

 

 

.52

Diluted earnings per share.48 .40 1.45 1.29 

See accompanying notes to unaudited consolidated financial statements.



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Table of Contents

CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(Dollars in Thousands)

Three Months Ended

March 31,

2021

2020

Three Months Ended
September 30,		Nine Months Ended
September 30,

Comprehensive Income:

 

 

2021202020212020
Comprehensive Income:
Comprehensive Income:

Net income

$

7,071

$

7,545

Net income$6,805 $5,781 $20,902 $18,765 

Other comprehensive (loss) income:

 

 

Other comprehensive income (loss):Other comprehensive income (loss):

Net unrealized (loss) gain on securities available-for-sale

 

(4,214)

 

578

Net unrealized (loss) gain on securities available-for-sale(4,438)224 (7,086)7,209 

Tax effect

 

1,003

 

(138)

Tax effect1,057 (53)1,687 (1,716)

Reclassification adjustments for gains included in net income

 

(48)

 

(1,069)

Reclassification adjustments for losses (gains) included in net incomeReclassification adjustments for losses (gains) included in net income1 — (44)(1,069)

Tax effect

 

11

 

254

Tax effect— — 10 254 

Foreign currency translation adjustments

 

(129)

 

(144)

Foreign currency translation adjustments(168)63 (145)(65)

Total comprehensive income

$

3,694

$

7,026

Total comprehensive income$3,257 $6,015 $15,324 $23,378 

See accompanying notes to unaudited consolidated financial statements.

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Table of Contents

CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in Thousands)

Three Months Ended

March 31,

Nine Months Ended
September 30,

2021

2020

20212020

Cash Flows From Operating Activities:

Cash Flows From Operating Activities:  

Net income

$

7,071

$

7,545

Net income$20,902 $18,765 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

 

2,978

 

2,790

Depreciation and amortization9,340 8,391 

Gains on sales of securities

 

(48)

 

(1,069)

Gains on sales of securities(44)(1,069)

Stock-based compensation expense

 

693

 

722

Stock-based compensation expense2,585 2,277 

(Release of) provision for credit losses

 

(600)

 

325

Increase in income tax liability

 

1,355

 

1,512

Increase in pension liability

 

336

 

1,079

Increase in accounts receivable

 

(237)

 

(105)

(Release of) provision for credit losses / loan losses(Release of) provision for credit losses / loan losses(870)725 
Decrease in deferred income tax assetDecrease in deferred income tax asset22 1 
Increase in current income tax liabilityIncrease in current income tax liability79 527 
(Decrease) increase in pension liability(Decrease) increase in pension liability(1,252)3,315 
(Increase) decrease in accounts receivable(Increase) decrease in accounts receivable(628)1,339 

Other operating activities, net

 

5,156

 

5,361

Other operating activities, net546 5,790 

Net cash provided by operating activities

 

16,704

 

18,160

Net cash provided by operating activities30,680 40,061 

Cash Flows From Investing Activities:

 

 

Cash Flows From Investing Activities:

Proceeds from sales of securities available-for-sale

 

2,991

 

19,629

Proceeds from sales of securities available-for-sale43,190 19,629 

Proceeds from maturities of securities available-for-sale

 

47,113

 

14,148

Proceeds from maturities of securities available-for-sale83,265 43,605 

Purchase of securities available-for-sale

 

(125,467)

 

0─

Purchase of securities available-for-sale(322,336)(2,931)

Net decrease (increase) in loans

 

3,478

 

(82,134

Net decrease (increase) in loans19,229 (171,902)

Increase in payments in excess of funding

 

(21,912)

 

(2,687)

Purchase of bank-owned life insurancePurchase of bank-owned life insurance(24,868)— 
(Increase) decrease in payments in excess of funding(Increase) decrease in payments in excess of funding(71,816)44,766 

Purchases of premises and equipment, net

 

(900)

 

(331)

Purchases of premises and equipment, net(2,697)(1,705)

Net cash used in investing activities

 

(94,697)

 

(51,375)

Net cash used in investing activities(276,033)(68,538)

 

 

Cash Flows From Financing Activities:

Cash Flows From Financing Activities:

Net decrease in noninterest-bearing demand deposits

 

(68,645)

 

(62,865)

Net (decrease) increase in noninterest-bearing demand depositsNet (decrease) increase in noninterest-bearing demand deposits(26,184)23,290 

Net increase in interest-bearing demand and savings deposits

 

21,373

 

31,761

Net increase in interest-bearing demand and savings deposits67,930 136,639 

Net (decrease) increase in time deposits

 

(449)

 

575

Net decrease in time depositsNet decrease in time deposits(5,285)(5,881)

Net increase in accounts and drafts payable

 

60,905

 

51,639

Net increase in accounts and drafts payable70,099 146,280 

Net decrease in short-term borrowings

0─

(18,000)

Net decrease in short-term borrowings— (18,000)

Cash dividends paid

 

(3,886)

 

(3,918)

Cash dividends paid(11,576)(11,704)

Purchase of common shares for treasury

 

(1,228)

 

(5,508)

Purchase of common shares for treasury(18,975)(5,508)

Other financing activities, net

 

(946)

 

(1,229)

Other financing activities, net(875)(1,142)

Net cash provided by (used) in financing activities

 

7,124

 

(7,545)

Net decrease in cash and cash equivalents

 

(70,869)

 

(40,760)

Net cash provided by financing activitiesNet cash provided by financing activities75,134 263,974 
Net (decrease) increase in cash and cash equivalentsNet (decrease) increase in cash and cash equivalents(170,219)235,497 

Cash and cash equivalents at beginning of period

 

670,528

 

203,954

Cash and cash equivalents at beginning of period670,528 203,954 

Cash and cash equivalents at end of period

$

599,659

$

163,194

Cash and cash equivalents at end of period$500,309 $439,451 

Supplemental information:

 

Supplemental information:

Cash paid for interest

$

311

$

964

Cash paid for interest$885 $1,889 

Cash paid for income taxes

 

134

 

142

Cash paid for income taxes4,176 3,567 

See accompanying notes to unaudited consolidated financial statements.

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Table of Contents

CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

THREE AND NINE MONTHS ENDED MARCH 31,SEPTEMBER 30, 2020 AND 2021

(Unaudited)

(Dollars in Thousands)

Thousands except per share data)

(In thousands except per share data)

Common

Stock

Additional

Paid-in

Capital

Retained

Earnings

Treasury

Stock

Accumulated

Other

Comprehensive

Loss

Total

Balance, December 31, 2019

$

7,753

$

205,397

$

90,341

$

(45,381)

$

(13,920)

$

244,190

 

Net income

 

 

 

7,545

 

 

7,545

Cash dividends ($.27 per share)

 

 

 

(3,918)

 

 

(3,918)

Issuance of 57,333 common shares pursuant to stock-based compensation plan, net

 

 

(2,075)

 

 

948

 

(1,127)

Exercise of SARs

 

 

(243)

 

 

141

 

(102)

Stock-based compensation expense

 

 

722

 

 

 

722

Purchase of 128,779 common shares

 

 

 

 

(5,508)

 

(5,508)

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

Common
Stock		Additional
Paid-in
Capital		Retained
Earnings		Treasury
Stock		Accumulated
Other
Comprehensive
Loss		Total
Balance, June 30, 2020$7,753 $204,258 $95,514 $(49,457)$(9,541)$248,527 
Net income5,781 5,781 
Cash dividends ($.27 per share)(3,893)(3,893)
Issuance of 1,165 common shares pursuant to stock-based compensation plan, net(4)47 43 
Stock-based compensation expense799 799 
Other comprehensive income234 234 
Balance, September 30, 2020$7,753 $205,053 $97,402 $(49,410)$(9,307)$251,491 
Balance, June 30, 2021$7,753 $203,098 $105,398 $(53,437)$(2,045)$260,767 
Net income6,805 6,805 
Cash dividends ($.27 per share)(3,815)(3,815)
Issuance of 4,412 common shares pursuant to stock-based compensation plan, net(51)134 83 
Exercise of SARs— — — 
Stock-based compensation expense1,066 1,066 
Purchase of 314,672 common shares(13,715)(13,715)
Other comprehensive loss(3,548)(3,548)
Balance, September 30, 2021$7,753 $204,113 $108,388 $(67,018)$(5,593)$247,643 
Common
Stock		Additional
Paid-in
Capital		Retained
Earnings		Treasury
Stock		Accumulated
Other
Comprehensive
Loss		Total
Balance, December 31, 2019$7,753 $205,397 $90,341 $(45,381)$(13,920)$244,190 
Net income18,765 18,765 
Cash dividends ($.81 per share)(11,704)(11,704)
Issuance of 67,790 common shares pursuant to stock-based compensation plan, net(2,378)1,338 (1,040)
Exercise of SARs(243)141 (102)
Stock-based compensation expense2,277 2,277 
Purchase of 128,779 common shares(5,508)(5,508)
Other comprehensive income4,613 4,613 
Balance, September 30, 2020$7,753 $205,053 $97,402 $(49,410)$(9,307)$251,491 
Balance, December 31, 2020$7,753 $204,875 $99,062 $(50,515)$(15)$261,160 
Net income20,902 20,902 
Cash dividends ($.81 per share)(11,576)(11,576)
Issuance of 83,506 common shares pursuant to stock-based compensation plan, net(2,932)2,180 (752)
Exercise of SARs(415)292 (123)
Stock-based compensation expense2,585 2,585 
Purchase of 434,938 common shares(18,975)(18,975)
Other comprehensive loss(5,578)(5,578)
Balance, September 30, 2021$7,753 $204,113 $108,388 $(67,018)$(5,593)$247,643 

See accompanying notes to unaudited consolidated financial statements.

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CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 –- Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with 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 footnotesnotes 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, as defined in this report, 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, 2020.

Risks and Uncertainties

On March 11, 2020, the World Health Organization (“WHO”) declared the outbreak of COVID-19 as a global pandemic, which continues to spread throughout the United States and around the world.pandemic. The declaration of a global pandemic indicatesmeant that almost all public commerce and related business activities must be,was, 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 combattingcombating COVID-19 were approved by health agencies and began to be administered. However, initial quantitieshave been administered throughout the country. Although vaccination efforts have been widespread and continuing, and a significant amount of vaccines are limited and vaccine distributions, controlled by local authorities, are being allocated, generally first to front-line health care workersprevious business and other essential workersrestrictions have been lifted, the continued impact of COVID-19, including any increases in the infection rates, new variants, and nextrenewed governmental action to those membersslow the spread of individual populations believed most susceptible to severe effects from COVID-19.COVID-19 cannot be estimated. The timeline of full administration of the COVID-19 vaccines is uncertain and fluctuating. Theongoing impact of COVID-19, including the impact of restrictions imposed to combat its spread, could result in additional and prolonged business closures, supply chain disruptions, work restrictions and activity restrictions.

The Company is closely monitoring developments related to COVID-19 checking regularly for updated information and recommendations from the WHO and the CDC,Centers for Disease Control and Prevention, 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 and shortages in the labor force, 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 activitymany restrictions have been relaxed with some success and economic conditions have been improving, many states and localities are still experiencing moderate to 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 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 takentook action to lower the Federal Funds rate, which has adversely affected interest income and therefore, the Company’s results of operations and financial condition.rate. The Federal Reserve has continued its commitment to this approach, indicatingindicated that the target Federal Funds rate would remain at current levels until the economy is in a more stable employment and price-stability position.

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

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For payment processing services, business closures 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 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.

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. 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 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

An economic slowdown as a result of COVID-19 could cause a 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 accordaccordance with its federally mandated Pandemic Plan and Business Continuity Plan, many Cass employees around the globe continue to work and 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.capabilities. 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.

Note 2 – Intangible Assets

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.

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DetailsDetails of the Company’s intangible assets are as follows:

March 31, 2021

December 31, 2020

(In thousands)

Gross Carrying

Amount

Accumulated

Amortization

Gross Carrying

Amount

Accumulated

Amortization

Assets eligible for amortization:

 

 

 

 

Customer lists

$

4,778

$

(4,012)

$

4,778

$

(3,902)

Patents

 

72

 

(25)

 

72

 

(24)

Non-compete agreements

 

332

 

(332)

 

332

 

(332)

Software

 

2,844

 

(824)

 

2,844

 

(731)

Trade Name

190

(15)

190

(13)

Other

 

500

 

(300)

 

500

 

(291)

Unamortized intangible assets:

 

 

 

 

 

 

 

 

Goodwill1

 

14,489

 

(227)

 

14,489

 

(227)

Total intangible assets

$

23,205

$

(5,735)

$

23,205

$

(5,520)

1

Amortization through December 31, 2001 prior to adoption of FASB ASC 350.

September 30, 2021December 31, 2020
(In thousands)Gross Carrying
Amount		Accumulated
Amortization		Gross Carrying
Amount		Accumulated
Amortization
Assets eligible for amortization:    
Customer lists$4,778 $(4,231)$4,778 $(3,902)
Patents72 (26)72 (24)
Software2,844 (1,011)2,844 (731)
Trade Name190 (20)190 (13)
Other500 (317)500 (291)
Unamortized intangible assets:
Goodwill14,262 — 14,262 — 
Total intangible assets$22,646 $(5,605)$22,646 $(4,961)

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 $215,000$644,000 for both the three-monthnine-month periods ended March 31,September 30, 2021 and 2020.2020, respectively. Estimated future amortization of intangibles is $859,000 in 2021, $540,000 in both 2022 and 2023, $498,000 in 2024, and $490,000 in 2025.

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Note 3 – Earnings Per Share

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

March 31,

(In thousands except share and per share data)

2021

2020

(In thousands except share and per
share data)		Three Months Ended
September 30,		Nine Months Ended
September 30,
2021202020212020

Basic

Basic

Net income

$

7,071

$

7,545

Net income$6,805 $5,781 $20,902 $18,765 

Weighted-average common shares outstanding

 

14,312,260

 

14,422,813

Weighted-average common shares outstanding14,040,089 14,348,151 14,203,369 14,373,243 

Basic earnings per share

$

.49

$

.52

Basic earnings per share$.48 $.40 $1.47 $1.31 

Diluted

 

 

Diluted

Net income

$

7,071

$

7,545

Net income$6,805 $5,781 $20,902 $18,765 

Weighted-average common shares outstanding

 

14,312,260

 

14,422,813

Weighted-average common shares outstanding14,040,089 14,348,151 14,203,369 14,373,243 

Effect of dilutive restricted stock and stock appreciation rights

 

220,809

 

207,700

Effect of dilutive restricted stock and stock appreciation rights237,080 198,336 239,016 200,723 

Weighted-average common shares outstanding assuming dilution

 

14,533,069

 

14,630,513

Weighted-average common shares outstanding assuming dilution14,277,169 14,546,487 14,442,385 14,573,966 

Diluted earnings per share

$

.49

$

.52

Diluted earnings per share$.48 $.40 $1.45 $1.29 

Note 4 – Stock Repurchases

The Company maintains a treasury stock buyback program pursuant to which, in October 2020, 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 in October 2020, the program provides that the Company may repurchase up to an aggregate of 500,000 shares of common stock and haswith no expiration date. As of March 31,September 30, 2021, 434,62230,940 shares remained available for repurchase under the program. The Company repurchased 31,256314,672 and zero shares during the three-month periodperiods ended March 31,September 30, 2021 and 2020, respectively, and 434,938 and 128,779 shares duringfor the three-month periodnine-month periods ended March 31, 2020.September 30, 2021 and 2020, respectively. Repurchases may be made in the open market or through negotiated transactions from time to time depending on market conditions.

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On October 19, 2021, the Board of Directors authorized the repurchase of up to 750,000 shares of the Company's common stock under the program. This new authorization replaces the previous authorization of 500,000 shares, and as such, the Company has 750,000 shares remaining available for repurchase in future periods.

Table of Contents

Note 5 – Industry Segment Information

The services provided by the Company are classified into two2 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, 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.

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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.

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Table of Contents

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

Three Months Ended March 31, 2021

Fee income

$

24,977

$

638

$

560

$

26,175

Interest income*

 

5,509

 

5,751

 

(122)

 

11,138

Interest expense

 

0—

 

331

 

0—

 

331

Intersegment income (expense)

 

0—

 

623

 

(623)

 

0—

Tax-equivalized pre-tax income*

 

6,013

 

2,762

 

282

 

9,057

Goodwill

 

12,433

 

1,829

 

0—

 

14,262

Other intangible assets, net

 

634

 

2,574

 

0—

 

3,208

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

$

25,440

$

615

$

1,040

$

27,095

Interest income*

 

4,707

 

7,284

 

831

 

12,822

Interest expense

 

0—

 

965

 

0—

 

965

Intersegment income (expense)

 

0—

 

525

 

(525)

 

0—

Tax-equivalized pre-tax income*

 

5,123

 

2,703

 

1,872

 

9,698

Goodwill

 

12,433

 

1,829

 

0—

 

14,262

Other intangible assets, net

 

1,040

 

3,026

 

0—

 

4,066

Total Assets

 

833,774

 

926,445

 

(28,237)

 

1,731,982

Funding Sources

 

677,829

 

611,135

 

0—

 

1,288,964

*

Presented on a tax-equivalent basis assuming a tax rate of 21%. The tax-equivalent adjustment was approximately $462,000 and $484,000 for the three months ended March 31, 2021 and 2020, respectively.

(In thousands)Information
Services		Banking
Services		Corporate,
Eliminations
and Other		Total
Three Months Ended September 30, 2021:
Fee income$26,642 $596 $339 $27,577 
Interest income*6,361 6,187 (361)12,187 
Interest expense— 287 — 287 
Intersegment income (expense)— 859 (859)— 
Tax-equivalized pre-tax income*6,753 1,886 (193)8,446 
Goodwill12,433 1,829 — 14,262 
Other intangible assets, net431 2,348 — 2,779 
Total assets1,018,710 1,279,452 (5,176)2,292,986 
Average funding sources974,091 875,997 — 1,850,088 
Three Months Ended September 30, 2020:
Fee income$24,198 $651 $83 $24,932 
Interest income*5,112 7,212 (579)11,745 
Interest expense— 465 — 465 
Intersegment income (expense)— 593 (593)— 
Tax-equivalized pre-tax income*4,522 3,506 (496)7,532 
Goodwill12,433 1,829 — 14,262 
Other intangible assets, net837 2,800 — 3,637 
Total assets905,158 1,105,845 (10,540)2,000,463 
Average funding sources751,010 780,217 — 1,531,227 
Nine Months Ended September 30, 2021:
Fee income$77,717 $1,846 $1,176 $80,739 
Interest income*17,754 18,501 (1,335)34,920 
Interest expense— 915 — 915 
Intersegment income (expense)— 2,170 (2,170)— 
Tax-equivalized pre-tax income*19,170 8,080 (654)26,596 
Goodwill12,433 1,829 — 14,262 
Other intangible assets, net431 2,348 — 2,779 
Total assets1,018,710 1,279,452 (5,176)2,292,986 
Average funding sources906,474 862,142 — 1,768,616 
Nine Months Ended September 30, 2020:
Fee income$72,098 $1,906 $1,197 $75,201 
Interest income*14,774 21,097 812 36,683 
Interest expense— 1,911 — 1,911 
Intersegment income (expense)— 1,674 (1,674)— 
Tax-equivalized pre-tax income*13,082 9,190 2,010 24,282 
Goodwill12,433 1,829 — 14,262 
Other intangible assets, net837 2,800 — 3,637 
Total assets905,158 1,105,845 (10,540)2,000,463 
Average funding sources703,142 712,903 — 1,416,045 

* Presented on a tax-equivalent basis assuming a tax rate of 21% for both 2021 and 2020. The tax-equivalent adjustment was approximately $468,000 and $466,000 for the Third Quarter of 2021 and 2020, respectively, and $1,417,000 and $1,424,000 for the Nine Months Ended 2021 and 2020, respectively.
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Table of Contents
Note 6 – Loans by Type

A summary of loan categories is as follows:

(In thousands)

March 31,

2021

December 31,

2020

(In thousands)September 30,
2021		December 31,
2020

Commercial and industrial

$

302,747

$

298,984

Commercial and industrial$356,532 $298,984 

Real estate:

 

 

 

 

Real estate:

Commercial:

 

 

 

 

Commercial:

Mortgage

 

96,630

 

100,419

Mortgage103,596 100,419 

Construction

 

23,766

 

25,090

Construction24,705 25,090 

Faith-based:

 

 

 

 

Faith-based:

Mortgage

 

331,153

 

333,661

Mortgage358,493 333,661 

Construction

 

20,800

 

23,818

Construction13,272 23,818 

Paycheck Protection Program (“PPP”)

 

113,474

 

109,704

Paycheck Protection Program (“PPP”)16,307 109,704 

Other

 

5

 

0—

Total loans

$

888,575

$

891,676

Total loans$872,905 $891,676 

In support of the Coronavirus, Aid, Relief, and Economic Security Act (the “CARES Act”), the Bank had processed nearly 450460 applications for PPP loans with an aggregate principal balance of approximately $210,000,000 during 2021 and 2020 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(“SBA”) with no allowance for credit loss was recorded for these loans.

allocation. The Company has unaccreted PPP loan fees of $479,000 at September 30, 2021.

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Table of Contents

The following table presents the aging of loans past due by loan categoriescategory at March 31,September 30, 2021 and December 31, 2020:

Performing

Nonperforming

PerformingNonperforming

(In thousands)

Current

30-59

Days

60-89

Days

90

Days

and

Over

Non-

accrual

Total

Loans

(In thousands)Current30-59
Days		60-89
Days		90
Days
and
Over		Non-
accrual		Total
Loans

March 31, 2021

September 30, 2021September 30, 2021

Commercial and industrial

$

302,747

$

0—

$

0—

$

0—

$

0—

$

302,747

Commercial and industrial$356,532 $— $— $— $— $356,532 

Real estate

 

 

 

 

 

 

 

 

Real estate

Commercial:

 

 

 

 

 

 

 

 

Commercial:

Mortgage

 

96,630

 

0—

 

0—

 

0—

 

0—

 

96,630

Mortgage103,596 — — — — 103,596 

Construction

 

23,766

 

0—

 

0—

 

0—

 

0—

 

23,766

Construction24,705 — — — — 24,705 

Faith-based:

 

 

 

 

 

 

 

 

Faith-based:

Mortgage

 

331,153

 

0—

 

0—

 

0—

 

0—

 

331,153

Mortgage358,493 — — — — 358,493 

Construction

 

20,800

 

0—

 

0—

 

0—

 

0—

 

20,800

Construction13,272 — — — — 13,272 

PPP

 

113,474

 

0—

 

0—

 

0—

 

0—

 

113,474

PPP16,307 — — — — 16,307 

Other

 

5

 

0—

 

0—

 

0—

 

0—

 

5

Total

$

888,575

$

0—

$

0—

$

0—

$

0—

$

888,575

Total$872,905 $— $— $— $— $872,905 

December 31, 2020

 

 

 

 

 

 

December 31, 2020

Commercial and industrial

$

298,984

$

0—

$

0—

$

0—

$

0—

$

298,984

Commercial and industrial$298,984 $— $— $— $— $298,984 

Real estate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate

Commercial:

Commercial:

Mortgage

100,419

0—

0—

0—

0—

100,419

Mortgage100,419 — — — — 100,419 

Construction

25,090

0—

0—

0—

0—

25,090

Construction25,090 — — — — 25,090 

Faith-based:

Faith-based:

Mortgage

333,661

0—

0—

0—

0—

333,661

Mortgage333,661 — — — — 333,661 

Construction

23,818

0—

0—

0—

0—

23,818

Construction23,818 — — — — 23,818 

PPP

109,704

0—

0—

0—

0—

109,704

PPP109,704 — — — — 109,704 

Total

$

891,676

$

0—

$

0—

$

0—

$

0—

$

891,676

Total$891,676 $— $— $— $— $891,676 

-14-
Table of Contents
The following table presents the credit exposure of the loan portfolio by internally assigned credit grade as of March 31,September 30, 2021 and December 31, 2020:

(In thousands)

Loans

Subject to

Normal

Monitoring1

Performing

Loans Subject

to Special

Monitoring2

Nonperforming

Loans Subject

to Special

Monitoring2

Total Loans

(In thousands)
Loans
Subject to
Normal
Monitoring1
Performing
Loans Subject
to Special
Monitoring2
Nonperforming
Loans Subject
to Special
Monitoring2
Total Loans

March 31, 2021

September 30, 2021September 30, 2021

Commercial and industrial

$

289,698

$

13,049

$

0—

$

302,747

Commercial and industrial$345,652 $10,880 $— $356,532 

Real estate

 

 

 

 

 

 

 

Real estate

Commercial:

 

 

 

 

 

 

 

Commercial:

Mortgage

 

95,305

 

1,325

 

0—

 

96,630

Mortgage103,596 — — 103,596 

Construction

 

23,766

 

0—

 

0—

 

23,766

Construction24,705 — — 24,705 

Faith-based:

 

 

 

 

 

 

 

Faith-based:

Mortgage

 

328,105

 

3,048

 

0—

 

331,153

Mortgage355,530 2,963 — 358,493 

Construction

 

20,800

 

0—

 

0—

 

20,800

Construction13,272 — — 13,272 

PPP

113,474

0—

0—

113,474

PPP16,307 — — 16,307 

Other

 

5

 

0—

 

0—

 

5

Total

$

871,153

$

17,422

$

0—

$

888,575

Total$859,062 $13,843 $— $872,905 

December 31, 2020

 

 

 

 

December 31, 2020

Commercial and industrial

$

284,882

$

14,102

$

0—

$

298,984

Commercial and industrial$284,882 $14,102 $— $298,984 

Real estate

 

 

 

 

 

 

 

 

 

 

 

Real estate

Commercial:

Commercial:

Mortgage

99,044

1,375

0—

100,419

Mortgage99,044 1,375 — 100,419 

Construction

25,090

0—

0—

25,090

Construction25,090 — — 25,090 

Faith-based:

Faith-based:

Mortgage

330,554

3,107

0—

333,661

Mortgage330,554 3,107 — 333,661 

Construction

23,818

0—

0—

23,818

Construction23,818 — — 23,818 

PPP

109,704

0—

0—

109,704

PPP109,704 — — 109,704 

Total

$

873,092

$

18,584

$

0—

$

891,676

Total$873,092 $18,584 $— $891,676 

1

1Loans 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.

-13-

TableThe company had no loans evaluated for expected credit losses on an individual basis as of Contents

September 30, 2021. The Company had two loans that were considered impaired1 loan in the amount of $2,912,000$2,500,000 at MarchDecember 31, 2021. These loans were2020 that was individually evaluated for impairment,credit losses, resulting in a specific allowance for credit loss of $750,000. The Company had one loan that was considered impaired in the amount of $2,500,000$500,000 at December 31, 2020. ThisDue to improvement in borrower conditions, this loan was individuallyno longer evaluated for impairment, resulting in a specific allowanceindividually for credit loss of $500,000.

losses at September 30, 2021.

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

There were no loans considered troubled debt restructurings as of March 31,September 30, 2021. There were two2 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 of 2021.

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Table of Contents
The recorded investment by category for loans considered asa troubled debt restructuring during the year ended December 31, 2020 is as follows:

(In thousands)Number of
Loans		Pre-Modification
Outstanding
Balance		Post-Modification
Outstanding
Balance
Commercial and industrial1$8,773 $8,773 
Faith-based real estate11,029 1,029 
Total2$9,802 $9,802 

During the year ended December 31, 2020, two2 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 December 31, 2020. There were no loans restructured that subsequently defaulted during the year ended December 31, 2020.

A summary of the activity in allowance for credit losses (“ACL”) by category for the periodperiods ended March 31,September 30, 2021 and December 31, 2020 is as follows:

(In thousands)

C&I

CRE

Faith-based

CRE

Construction

Total

(In thousands)C&ICREFaith-based
CRE		ConstructionTotal

Allowance for credit losses on loans:

Allowance for credit losses on loans:

Balance at December 31, 2020

$

4,635

$

1,175

$

5,717

$

417

$

11,944

Balance at December 31, 2020$4,635 $1,175 $5,717 $417 $11,944 

Charge Offs

0—

0—

0—

0—

0—

Charge Offs— — — — — 

(Release of) provision for credit losses

54

(65)

(200)

(29)

(240)

(Release of) provision for credit losses(289)(99)76 (128)(440)

Recoveries

2

0—

15

0—

17

Recoveries13 — 15 — 28 

Balance at March 31, 2021

$

4,691

$

1,110

$

5,532

$

388

$

11,721

Balance at September 30, 2021Balance at September 30, 2021$4,359 $1,076 $5,808 $289 $11,532 

The decrease inrelease of credit losses during the nine months ended September 30, 2021 is primarily due to improved economic conditions and the removal of specific allowances for credit losses on impaired loans.
(In thousands)C&ICREFaith-based
CRE		ConstructionTotal
Allowance for credit losses on loans:
Balance at December 31, 2019$4,874 $1,528 $3,842 $312 $10,556 
Cumulative effect of accounting change (ASU 2016-13)(526)(401)1,636 14 723 
Balance at January 1, 20204,348 1,127 5,478 326 11,279 
Provision for credit losses268 48 238 91 645 
Recoveries19 — 1 — 20 
Balance at December 31, 2020$4,635 $1,175 $5,717 $417 $11,944 
The provision for credit losses on loans during the quarteryear ended MarchDecember 31, 2021 is2020 was due to the Company’s forecast of macroeconomic factors, which improved during the first quarter 2021.

(In thousands)

C&I

CRE

Faith-based

CRE

Construction

Total

Allowance for credit losses on loans:

Balance at December 31, 2019

$

4,874

$

1,528

$

3,842

$

312

$

10,556

Cumulative effect of accounting change (ASU 2016-13)

(526)

(401)

1,636

14

723

Balance at January 1, 2020

4,348

1,127

5,478

326

11,279

Provision for credit losses

268

48

238

91

645

Recoveries

19

0—

1

0—

20

Balance at December 31, 2020

$

4,635

$

1,175

$

5,717

$

417

$

11,944

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 decreasedworsened 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 March 31, 2020 is as follows:

(In thousands)

December 31,

2019

Charge-

Offs

Recoveries

Provision

March 31,

2020

Commercial and industrial

$

4,874

$

0—

$

7

$

213

$

5,094

Real estate

 

 

 

 

 

Commercial:

 

 

 

 

 

Mortgage

 

1,528

 

0—

 

0—

 

24

 

1,552

Construction

 

191

 

0—

 

0—

 

(41)

 

150

Faith-based:

 

 

 

 

 

Mortgage

 

3,842

 

0—

 

1

 

106

 

3,949

Construction

 

121

 

0—

 

0—

 

23

 

144

Total

$

10,556

$

0—

$

8

$

325

$

10,889

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Table of Contents

Note 7 – Commitments and Contingencies

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. A release of credit losses of $360,000$430,000 was recorded during the quarternine months ended March 31,
-16-
Table of Contents
September 30, 2021 due to improved economic conditions and lower line of credit usage. An allowance for unfunded commitments of $207,000$137,000 and $567,000 had been recorded at March 31,September 30, 2021 and December 31, 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 March 31,September 30, 2021, the balance of unused loan commitments, standby and commercial letters of credit were $194,737,000, $11,619,000,$194,327,000, $12,061,000, and $816,000,$235,000, 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 March 31,September 30, 2021:

Amount of Commitment Expiration per Period

Amount of Commitment Expiration per Period

(In thousands)

Total

Less than

1 Year

1-3

Years

3-5

Years

Over 5

Years

(In thousands)TotalLess than
1 Year		1-3
Years		3-5
Years		Over 5
Years

Time deposits

$

55,536

$

41,390

$

14,098

$

48

$

0—

Time deposits$50,699 $34,719 $15,917 $63 $— 

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

Note 8 – Stock-Based Compensation

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, stock appreciation rights (“SARs”),SARs, restricted stock, restricted stock units and performance awards. The Company may issue shares out of treasury stock for these awards. During the threenine months ended March 31,September 30, 2021, 39,68652,356 restricted shares, 52,24031,150 performance-based restricted shares, and no SARs were granted under the Omnibus Plan. Stock-based compensation expense for the three months ended March 31,September 30, 2021 and 2020 was $693,000$1,066,000 and $722,000,$799,000, respectively, and $2,585,000 and $2,277,000 for the nine months ended September 30, 2021 and 2020, respectively.

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Table of Contents

Restricted Stock

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 March 31,September 30, 2021, the total unrecognized compensation expense related to non-vested restricted shares was $2,642,000,$2,060,000, and the related weighted-average period over which it is expected to be recognized is approximately 0.980.70 years.

Following is a summary of the activity of the Company's restricted stock:

stock for the nine months ended September 30, 2021, with total shares and weighted average fair value:

Three Months Ended

March 31, 2021

Shares

 

Fair Value

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




-17-
Table of Contents
Nine Months Ended
September 30, 2021
SharesFair Value
Balance at December 31, 2020136,167 $46.78 
Granted52,356 41.59 
Vested(23,782)48.43 
Forfeitures(738)46.07 
Balance at September 30, 2021164,003 $46.69 
Performance-Based Restricted Stock

The Company has granted three-year performance basedperformance-based restricted stock (“PBRS”) awards which are contingent upon the Company’s achievement of pre-established financial goals over a three yearthree-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.

Following is a summary of the activity of the PBRS for the nine months ended September 30, 2021, based on 100% of target value:

Three Months Ended

March 31, 2021

Nine Months Ended
September 30, 2021

Shares

 

Fair Value

SharesFair Value

Balance at December 31, 2020

 

 

98,410

$

50.64

Balance at December 31, 202098,410 $50.64 

Granted

52,240

40.74

Granted52,240 40.74 

Vested

(31,451)

48.63

Vested(33,000)49.07 

Balance at March 31, 2021

119,199

$

46.79

ForfeituresForfeitures(1,107)46.07 
Balance at September 30, 2021Balance at September 30, 2021116,543 $46.79 

The PBRS that vested during the threenine months ended March 31,September 30, 2021 achievedwere based on the Company's achievement of 94.4% of target financial goals, of 94.4%, resulting in the issuance of 29,68831,150 shares of common stock. The outstanding PBRS at March 31,September 30, 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.

SARs

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

Shares

Weighted-

Average

Exercise

Price

Average

Remaining

Contractual

Term Years

Aggregate

Intrinsic

Value

(In thousands)

SharesWeighted-
Average
Exercise
Price		Average
Remaining
Contractual
Term Years
Aggregate
Intrinsic
Value
(In thousands)

Balance at December 31, 2020

144,999

$

32.99

1.95

$

1,095

Balance at December 31, 2020144,999 $32.99 1.95$1,095 

Exercised

(20,560)

24.12

─

 

─

Exercised(20,560)24.12 — — 

Exercisable at March 31, 2021

124,439

$

34.46

1.92

$

1,483

ForfeitedForfeited(2,088)31.92 — — 
Exercisable at September 30, 2021Exercisable at September 30, 2021122,351 $34.50 1.41$1,046 

There were no non-vested SARs at March 31,September 30, 2021.

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Note 9 – Defined Pension Plans

The Company has a noncontributory defined-benefit pension plan (the “Plan”), which covers eligible employees. Effective December 31, 2016, the 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
-18-
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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

2021

Actual

2020

(In thousands)Estimated
2021		Actual
2020

Service cost – benefits earned during the year

$

963

$

4,329

Service cost – benefits earned during the year$963 $4,329 

Interest cost on projected benefit obligations

3,069

3,908

Interest cost on projected benefit obligations3,069 3,908 

Expected return on plan assets

(6,299)

(6,049)

Expected return on plan assets(6,299)(6,049)

Net amortization

360

1,946

Net amortization360 1,946 

Net periodic pension (benefit) cost

$

(1,907

)

$

4,134

Net periodic pension (benefit) cost$(1,907)$4,134 

Pension costs

The Company recorded to expense were $273,000a net periodic benefit of $678,000 and $1,029,000$1,096,000 for the three-monththree and nine-month periods ended March 31,September 30, 2021, respectively as compared to net periodic pension cost of $1,103,000 and $3,159,000 for the three and nine-month periods ended September 30, 2020, respectively. Pension costs decreased in 2021 primarily due to the Plan being frozen as of February 28, 2021. The Company made noa contribution of $330,000 to the planPlan during the three-monthnine-month period ended March 31,September 30, 2021 and is evaluating the amount of additional contributions, if any, infor the remainder of 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 2020 and an estimate for 2021:

(In thousands)
Estimated
2021
Actual
2020
Service cost – benefits earned during the year$147 $121 
Interest cost on projected benefit obligation291 347 
Net amortization203 112 
Net periodic pension cost$641 $580 

Supplemental executive retirement plan costs recorded to expense were $160,000 and $145,000 for the three-month periods ended March 31,September 30, 2021 and 2020, respectively.

Supplemental executive retirement plan costs recorded to expense were $481,000 and $435,000 for the nine-month periods ended September 30, 2021 and 2020, respectively.

Note 10 – Income Taxes

The effective tax rate was 17.7%14.7% and 18.1%18.2% for the three-month periods ended March 31,September 30, 2021 and 2020, respectively, and 17.0% and 17.9% for the nine-month periods ended September 30, 2021 and 2020, respectively. The 2021 and 2020 effective tax rate for the three-month periodall periods differs from the statutory rate of 21% primarily due to the tax-exempt interest received from municipal bonds.

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Table of Contents

Note 11 – Investment in Securities

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
-19-
Table of Contents
category. The amortized cost, gross unrealized gains, gross unrealized losses and fair value of investment securities are summarized as follows:

March 31, 2021

September 30, 2021

(In thousands)

 

Amortized

Cost

 

Gross

Unrealized

Gains

 

Gross

Unrealized

Losses

 

Fair

Value

(In thousands)Amortized
Cost		 Gross
Unrealized
Gains		 Gross
Unrealized
Losses		 Fair
Value

State and political subdivisions

$

312,479

$

15,678

$

174

$

327,983

State and political subdivisions$345,165 $13,880 $821 $358,224 

U.S. government agencies

99,349

623

711

99,261

U.S. government agencies112,850 537 1,288 112,099 
Corporate BondsCorporate Bonds70,516 281 41 70,756 

Total

$

411,828

$

16,301

$

885

$

427,244

Total$528,531 $14,698 $2,150 $541,079 

 

December 31, 2020

December 31, 2020

(In thousands)

 

Amortized

Cost

 

Gross

Unrealized

Gains

 

Gross

Unrealized

Losses

 

Fair Value

(In thousands)Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Fair Value

State and political subdivisions

 

$

287,059

$

18,915

$

0─

$

305,974

State and political subdivisions$287,059 $18,915 $— $305,974 

U.S. government agencies

 

50,988

764

0─

51,752

U.S. government agencies50,988 764 — 51,752 

Total

 

$

338,047

$

19,679

$

0─

$

357,726

Total$338,047 $19,679 $— $357,726 

The fair values of securities with unrealized losses are as follows:

March 31, 2021

September 30, 2021

Less than 12 months

12 months or more

Total

Less than 12 months12 months or moreTotal

(In thousands)

 

Estimated

Fair Value

 

Unrealized

Losses

 

Estimated

Fair Value

 

Unrealized

Losses

 

Estimated

Fair Value

 

Unrealized

Losses

(In thousands)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

State and political subdivisions$68,399 $821 $— $— $68,399 $821 

U.S. government agencies

60,491

711

0─

0─

60,491

711

U.S. government agencies88,386 1,288 — — 88,386 1,288 
Corporate BondsCorporate Bonds10,940 41 — — 10,940 41 

Total

$

96,914

$

885

$

0─

$

0─

$

96,914

$

885

Total$167,725 $2,150 $— $— $167,725 $2,150 

There were 3366 securities, or 12%,20% (0 greater than 12 months), in an unrealized loss position as of March 31,September 30, 2021. The unrealized losses at September 30, 2021 were primarily attributable to changes in market interest rates after the securities were purchased. There were no securities in an unrealized loss position as of December 31, 2020.

At September 30, 2021 and December 31, 2020, the Company had not recorded an allowance for credit losses on securities.

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.

March 31, 2021

September 30, 2021

(In thousands)

Amortized Cost

Fair Value

(In thousands)Amortized CostFair Value

Due in 1 year or less

$

70,415

$

70,697

Due in 1 year or less$25,511 $25,760 

Due after 1 year through 5 years

89,351

93,669

Due after 1 year through 5 years104,620 109,737 

Due after 5 years through 10 years

161,771

173,009

Due after 5 years through 10 years210,353 219,204 

Due after 10 years

90,291

89,869

Due after 10 years188,047 186,378 

Total

$

411,828

$

427,244

Total$528,531 $541,079 

Proceeds from sales of investment securities classified as available for saleavailable-for-sale were $2,991,000$30,074,000 and $19,629,000$0 for the three months ended March 31,September 30, 2021 and 2020, respectively, and were $43,190,000 and $19,629,000 for the nine months ended September 30, 2021 and 2020, respectively. Gross realized losses were $1,000 and $0 for the three months ended September 30, 2021 and 2020, respectively. Gross realized gains were $48,000$44,000 and $1,069,000 for the threenine months ended March 31,
-20-
Table of Contents
September 30, 2021 and 2020, respectively. There were no securities pledged to secure public deposits orand for other purposes at March 31,September 30, 2021.

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Table of Contents

Note 12 – Fair Value of Financial Instruments

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

March 31, 2021

December 31, 2020

September 30, 2021December 31, 2020

(In thousands)

Carrying

Amount

Fair Value

Carrying

Amount

Fair Value

(In thousands)Carrying
Amount		Fair ValueCarrying
Amount		Fair Value

Balance sheet assets:

Balance sheet assets:

Cash and cash equivalents

$

599,659

$

599,659

$

670,528

$

670,528

Cash and cash equivalents$500,309 $500,309 $670,528 $670,528 

Investment securities

427,244

427,244

357,726

357,726

Investment securities541,079 541,079 357,726 357,726 

Loans, net

876,854

880,231

879,732

883,461

Loans, net861,373 861,828 879,732 883,461 

Accrued interest receivable

6,458

6,458

6,850

6,850

Accrued interest receivable6,332 6,332 6,850 6,850 

Total

$

1,910,215

$

1,913,592

$

1,914,836

$

1,918,565

Total$1,909,093 $1,909,548 $1,914,836 $1,918,565 

Balance sheet liabilities:

 

 

 

Balance sheet liabilities:

Deposits

$

1,003,135

$

1,003,135

$

1,050,856

$

1,050,856

Deposits$1,087,317 $1,087,317 $1,050,856 $1,050,856 

Accounts and drafts payable

897,508

897,508

835,386

835,386

Accounts and drafts payable905,479 905,479 835,386 835,386 

Accrued interest payable

58

58

38

38

Accrued interest payable68 68 38 38 

Total

$

1,900,701

$

1,900,701

$

1,886,280

$

1,886,280

Total$1,992,864 $1,992,864 $1,886,280 $1,886,280 

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:

Cash and Cash Equivalents –- The carrying amount approximates fair 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 credit losses result in a fair valuation.

Accrued Interest Receivable –- The carrying amount approximates fair value.

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.

Accounts and Drafts Payable –- The carrying amount approximates fair value.

Accrued Interest Payable –- The carrying amount approximates fair value.

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

Note 13 – Revenue from Contracts with Customers

Revenue is recognized as the obligation to the customer is satisfied. The following is detail of the Company’s 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.

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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 basedtransaction-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.

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For the Three Months Ended September 30,For the Nine Months Ended September 30,
(In thousands)2021202020212020
Fee revenue and other income
In-scope of FASB ASC 606
Invoice processing fees$19,230 $18,650 $58,047 $55,697 
Invoice payment fees7,647 5,726 20,394 16,843 
Information services payment and processing revenue26,877 24,376 78,441 72,540 
Bank service fees533 441 1,557 1,249 
Fee revenue (in-scope of FASB ASC 606)27,410 24,817 79,998 73,789 
Other income (out-of-scope of FASB ASC 606)167 115 741 1,412 
Total fee revenue and other income$27,577 $24,932 $80,739 $75,201 

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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

Note 14 – Leases

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 March 31,September 30, 2021, the Company had lease liabilities of $5,799,000$5,246,000 and right-of-use assets of $5,255,000. As of March 31, 2020, the Company had lease liabilities of $7,146,000 and right-of-use assets of $6,367,000.$4,754,000. 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 March 31,September 30, 2021, operating lease cost was $420,000,$416,000, short-term lease cost was $30,000,$42,000, and there was no variable lease cost. For the threenine months ended March 31,September 30, 2021, operating lease cost was $1,251,000, short-term lease cost was $133,000, and there was no variable lease cost. At September 30, 2021, the weighted average remaining lease term for the operating leases was 6.26.0 years and the weighted average discount rate used in the measurement of operating lease liabilities was 5.5%5.35%. 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 hashave been no significant changechanges in the Company’s expected future minimum lease payments since December 31, 2020. See the Company’s 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 March 31,as of September 30, 2021 is as follows:

(In thousands)

March 31,

2021

Lease payments due

Less than 1 year

$

1,711

1-2 years

1,558

2-3 years

628

3-4 years

507

4-5 years

517

Over 5 years

1,891

Total undiscounted cash flows

6,812

Discount on cash flows

1,013

Total lease liability

$

5,799

(In thousands)September 30,
2021
Lease payments due
Less than 1 year$1,726 
1-2 years1,102 
2-3 years563 
3-4 years553 
4-5 years552 
Over 5 years1,629 
Total undiscounted cash flows6,125 
Discount on cash flows879 
Total lease liability$5,246 

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There were no sale and leaseback transactions, leveraged leases, or lease transactions with related parties during the threenine months ended March 31,September 30, 2021. At March 31,September 30, 2021, the Company did not have anyhad no leases that had not yet commenced.

Note 15 – Subsequent Events

In accordance with FASB ASC 855, Subsequent Events, the Company has evaluated subsequent events after the consolidated balance sheet date of March 31,September 30, 2021. There were no events identified that would require additional disclosures to prevent the Company’s unaudited consolidated financial statements from being misleading.

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

Impact of COVID-19 on the Company’s Business

During the year ended December 31, 2020 and threenine months ended March 31,September 30, 2021, the effects of COVID-19 and related actions to attempt to control its spread significantly impacted the global economy and adversely affected the Company’s operating results in both the Information Services and Banking Services segments.

Substantial progress has been made to combat the spread of COVID-19, and financial results for the three and nine months ended September 30, 2021 were driven, in part, by the continual improvement in economic conditions as compared to the same periods in 2020, when the negative economic impact of the COVID-19 pandemic was most pronounced on Cass and its customers. Though macroeconomic conditions continue to trend positive as of September 30, 2021, the Company could experience future negative effects on its business, financial condition, results of operations, and cash flows if there continue to be significant outbreaks of COVID-19.

With the spread of COVID-19 to the U.S. in the first quarter of 2020, many state and local governments recommended or mandated limitations on crowd size, closures of businesses and 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 ofNine Months Ended 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, labor force shortages, 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 to lower the Federal Funds rate in connection with COVID-19 relief, adversely affecting the Company’s net interest income and operating results tied to Banking Services. The Federal Reserve has indicated that it will retain the current low level interest rates until the economy has stabilized.

Bank regulatory agencies and various governmental authorities are urginghad urged financial institutions to work prudently with borrowers who arewere or may behave been unable to meet their contractual payment obligations because of the effects of COVID-19. Accordingly, and in coordination with its primary regulators, the Company 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,September 30, 2021.

In response to COVID-19, the CARES Act was adopted on March 27, 2020. The CARES Act providesprovided 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 allowsallowed 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 March 2021, the American Rescue Plan Act of 2021 was enacted, which among other things, provided for additional funding and expansion of the PPP. In support of the CARES Act, the Bank processed nearly 350 applications for PPP loans of approximately $170,000,000 during the year ended December 31, 2020 and an additional 100110 applications for approximately $37,000,000$40,000,000 during the threenine months ended March 31,September 30, 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.

CassSBA.

The Company 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 combattingcombating COVID-19 were approved by health agencies and began to be administered. However, initial quantitieshave been administered throughout the country. While vaccination efforts are underway and a significant amount of vaccines are limited and vaccine distributions, controlled by local authorities, are being allocated, generally first to front-line health care workersprevious business 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 ofrestrictions have been lifted, the COVID-19 vaccines is uncertain and fluctuating. Theongoing impact of COVID-19, including the impact ofany increases in infection rates, new variants, supply chain disruptions, labor force shortages, and renewed governmental action and business and activity restrictions imposed to combat its spread, could result in additional and prolonged business closures, work restrictions and activity restrictions.cannot be estimated. 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.

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

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Overview

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, 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” in the Company’s 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.

Critical Accounting Policies

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.

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Allowance for Credit Losses.The Company performs periodic and systematic detailed reviews of its loan portfolio to determine management’s estimate of the 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 Credit Losses and Allowance for Unfunded Commitments” section of this report.

Results of Operations

The following paragraphs more fully discuss the results of operations and changes in financial condition for the three-month period ended March 31,September 30, 2021 (“FirstThird Quarter of 2021”) compared to the three-month period ended March 31,September 30, 2020 (“FirstThird Quarter of 2020”) and the nine-month period ended September 30, 2021 (“Nine Months Ended 2021”) compared to the nine-month period ended September 30, 2020 (“Nine Months Ended 2020”). 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'sCompany’s 2020 Annual Report on Form 10-K. Results of operations for the FirstThird Quarter ofand Nine Months Ended 2021 are not necessarily indicative of the results to be attained for any other period.

Net Income

The following table summarizes the Company’s operating results:

First Quarter of

(Dollars in thousands except per share data)

2021

2020

% Change

(In thousands except per share data)(In thousands except per share data)Third Quarter ofNine Months Ended
20212020%
Change		20212020%
Change

Net income

$

7,071

$

7,545

(6.3)%

Net income$6,805 $5,781 17.7 %$20,902 $18,765 11.4 %

Diluted earnings per share

$

.49

$

.52

(5.8)%

Diluted earnings per share$.48 $.40 20.0 %$1.45 $1.29 12.4 %

Return on average assets

1.31

%

1.70

%

—

Return on average assets1.14 %1.14 %—1.23 %1.32 %— %

Return on average equity

11.09

%

12.50

%

—

Return on average equity10.61 %9.25 %—10.84 %10.25 %— %

Fee Revenue and Other Income

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. In addition, the Company's fee revenue consists of financial fees which are generated through the payment process. Processing volumes, fee revenue and other income were as follows:

First Quarter of

(In thousands)

2021

2020

% Change

Transportation invoice volume

8,787

8,280

6.1%

Transportation invoice dollar volume

$

7,904,639

$

6,467,051

22.2%

Facility expense transaction volume*

6,996

6,509

7.5%

Facility expense dollar volume

$

3,717,428

$

3,458,646

7.5%

Payment and processing revenue

$

25,216

$

25,503

(1.1)%

* Includes energy, telecom and environmental

(In thousands)Third Quarter ofNine Months Ended
20212020%
Change		20212020%
Change
Transportation invoice volume9,333 8,660 7.8 %27,581 24,234 13.8 %
Transportation invoice dollar volume$9,540,408 $6,822,565 39.8 %$26,385,936 $18,987,243 39.0 %
Facility-related transaction volume*6,675 7,117 (6.2)%20,498 20,330 0.8 %
Facility-related dollar volume*$4,215,044 $3,595,586 17.2 %$11,590,437 $10,118,270 14.5 %
Payment and processing revenue$26,877 $24,376 10.3 %$78,441 $72,540 8.1 %

First

*Includes energy, telecom and environmental
Third Quarter of 2021 compared to FirstThird Quarter of 2020:

Payment and processing fee revenue increased 10%. Transportation invoicevolumes for invoices and dollar volumes improved 6.1%dollars increased 8% and 22.2%40%, respectively. Fueling theThe increases were driven by the stronger performance of the manufacturing sector quarter over quarter andin addition to organic new customer wins overgrowth. Also contributing to the past 12 months. Further improvementdramatic increase in dollar volume resulted fromwas scarcity in carrier supply, which drovecontinues to drive prices higher. Facility-related invoices decreased 6% while dollar volume increased 17%. The
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increase in dollar volume is primarily due to significantly fewer pandemic-related restrictions in the restaurant, retail, and hospitality sectors, creating higher utility usage in addition to rising energy prices. The decrease in invoice volume is primarily due to one fewer processing day.
Nine Months Ended 2021 compared to Nine Months Ended 2020:
Payment and processing revenue increased 8% for the same reasons as the Third Quarter. The growth in transportation invoice and dollar volumes both increased 7.5% withwere the increases attributable, in part, to new business wins. Payment and processing feeprimary reason for the positive revenue decreased 1% due to changes in client mix and the decline in certain revenue sources not directly tied to transaction volumes such as late fees. In light of the COVID-19 pandemic and the impact on certain of its customers, the Company made a risk management decision not to advance payments to customer vendors until payment is received from the customer, thereby reducing the level of late fee revenue.

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Net Interest Income

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:

First Quarter of

(In thousands)

2021

2020

%

Change

Average earnings assets

$

1,891,395

$

1,487,873

27.12%

Average interest-bearing liabilities

552,906

409,376

35.06%

Net interest income*

10,807

11,857

(8.86)%

Net interest margin*

2.32

%

3.21

%

—

Yield on earning assets*

2.39

%

3.47

%

—

Rate on interest-bearing liabilities

0.24

%

0.95

%

—

* Presented on a tax-equivalent basis assuming a tax rate of 21% for both 2021 and 2020.

(In thousands)Third Quarter ofNine Months Ended
20212020%
Change		20212020%
Change
Average earnings assets$2,036,296 $1,734,680 17.4 %$1,965,976 $1,616,090 21.7 %
Average interest-bearing liabilities600,263 507,172 18.4 %583,478 465,128 25.4 %
Net interest income*11,900 11,280 5.5 %34,005 34,772 (2.2)%
Net interest margin*2.32 %2.59 %2.31 %2.87 %
Yield on earning assets*2.37 %2.69 %2.37 %3.03 %
Rate on interest-bearing liabilities.19 %.36 %.21 %.55 %

First

*Presented on a tax-equivalent basis assuming a tax rate of 21% for both 2021 and 2020.
Third Quarter of 2021 averagecompared to Third Quarter of 2020:
Average earning assets increased $403,522,000,$301,616,000, or 27.1%, compared to the same period17.4%. The overall increase in the prior year. Interest-bearing deposits in other financial institutions increased $451,493,000, or 345.7%. This increaseaverage interest-earning asset balances was primarily drivenfunded by a significant increase in deposits and accounts and drafts payable driven by government stimulus programs, higher payments processing volumes 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 $107,588,000, or 65.4% and average investment securities decreased $21,603,000,increased $163,540,000, or 16.4%46.2%, as cash provided by increases in the First Quarterfunding sources were utilized to purchase investment securities. The combined average of 2021 compared to the first quarter of 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 decreaseinstitutions increased $214,842,000, or 49.9%, also due to increasing funding sources. Average loans decreased $76,766,000 as a significant amount of the PPP loans originated in investment securities was driven2020 were forgiven by maturities.

Total average interest-bearing liabilities for the First Quarter of 2021 increased $143,530,000, or 35.1%, compared to the First Quarter of 2020. SBA in 2021.

Average accounts and drafts payable increased $130,380,000,$194,609,000, or 17.0%23.8%, infor the FirstThird Quarter of 2021 and average interest-bearing liabilities increased $93,091,000, or 18.4%, compared to the FirstThird Quarter of 2020.

First Quarter The increase in average accounts and drafts payable was primarily driven by the stronger performance of 2021 tax-equivalizedthe manufacturing sector, new customer growth and scarcity in carrier supply, which continues to drive prices higher. The increase in deposits was driven by significant liquidity in the economy resulting in higher deposit balances.

Tax-equivalent net interest income decreased $1,050,000,increased $620,000, or 8.9%5.5%, compared to the same period in the prior year. While average interest-earning assets were up 27.1% quarter over quarter,17.4%, the Company’s net interest margin declined 8927 basis points from 3.21%2.59% to 2.32% quarter over quarter,, reflecting the negative impact of the historically low short-term interest rate environment. Specifically,
Nine Months Ended 2021 compared to Nine Months Ended 2020:
Average earning assets increased $349,885,000, or 21.7%, compared to the average balance ofsame period in the prior year. Average interest-bearing deposits in other financial institutions was $582,104,000 duringincreased $340,058,000, or 171.8%, and average investment securities increased $81,726,000, or 21.9%, for the First Quarter ofNine Months Ended 2021 earning a yield of 0.10% compared to anthe Nine Months Ended 2020. These variances were driven by the same factors as the Third Quarter.
Average accounts and drafts payable increased $177,406,000, or 22.9%, and average balanceinterest-bearing liabilities increased $118,350,000, or 25.4%, for the Nine Months Ended 2021 compared to the Nine Months Ended 2020.
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Table of $130,611,000 duringContents
Tax-equivalent net interest income decreased $767,000, or 2.2%, compared to the First Quartersame period in the prior year. While average interest-earning assets were up 21.7%, the Company’s net interest margin declined 56 basis points from 2.87% to 2.31%, reflecting the negative impact of 2020 earning a yield of 1.18%.

the historically low short-term interest rate environment.

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

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Distribution of Assets, Liabilities and Shareholders’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 onfor 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.

First Quarter of 2021

First Quarter of 2020

(In thousands)

Average Balance

Interest Income/ Expense

Yield/ Rate

Average Balance

Interest Income/ Expense

Yield/ Rate

Assets1

Earning assets

Loans2:

Taxable

$

881,222

$

8,587

3.95

%

$

799,502

$

9,001

4.53

%

Investment securities4:

Taxable

82,746

198

0.97

95,691

557

2.34

Tax-exempt3

288,386

2,201

3.10

297,044

2,303

3.12

Certificates of deposit

—

—

—

500

3

2.41

Interest-bearing deposits in other financial institutions

582,104

139

0.10

130,611

382

1.18

Federal funds sold and other short-term investments

56,937

13

0.09

164,525

576

1.41

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

20,344

17,351

Premises and equipment, net

18,070

20,295

Bank-owned life insurance

17,920

17,646

Goodwill and other intangibles

17,598

18,456

Other assets

231,196

226,568

Allowance for credit losses

(11,956

)

(10,562)

Total assets

$

2,184,567

$

1,777,627

Liabilities and Shareholders’ Equity1

Interest-bearing liabilities

Interest-bearing demand Deposits

$

475,212

$

151

0.13

%

$

326,852

$

633

0.78

%

Savings deposits

21,800

3

0.06

8,403

13

0.62

Time deposits >= $100

24,505

83

1.37

29,820

142

1.92

Other time deposits

31,379

94

1.21

44,092

175

1.60

Total interest-bearing deposits

552,896

331

0.24

409,167

963

0.95

Short-term borrowings

10

—

—

209

2

3.85

Total interest-bearing liabilities

552,906

331

0.24

409,376

965

0.95

Non-interest bearing liabilities

Demand deposits

417,942

295,165

Accounts and drafts payable

898,378

767,998

Other liabilities

56,646

62,228

Total liabilities

1,925,872

1,534,767

Shareholders’ equity

258,695

242,860

Total liabilities and shareholders’ equity

$

2,184,567

$

1,777,627

Net interest income

$

10,807

$

11,857

Net interest margin

2.32

%

3.21

%

Interest spread

2.15

2.52

1.

Balances shown are daily averages.

2.

Interest income on loans includes net loan fees of $901,000 and $156,000 for the First Quarter of 2021 and 2020, respectively due to higher PPP fees.

3.

Interest income is presented on a tax-equivalent basis assuming a tax rate of 21%. The tax-equivalent adjustment was approximately $462,000 and $484,000 for the First Quarter of 2021 and 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.

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(In thousands)
Third Quarter of 2021
Third Quarter of 2020
Average
 Balance		Interest
 Income/
 Expense		Yield/
 Rate		Average
 Balance		Interest
 Income/
 Expense		Yield/
 Rate
Assets1
Interest-earning assets
Loans2:
Taxable$873,070 $8,987 4.08 %$949,836 $9,067 3.80 %
Investment securities3:
Taxable209,662 731 1.38 69,158 372 2.14 
Tax-exempt4
308,071 2,228 2.87 284,826 2,219 3.10 
Certificates of deposit— — — 209 1 1.90 
Interest-bearing deposits in other financial institutions612,053 231 0.15 189,975 36 0.08 
Federal funds sold and other short-term investments33,440 10 0.12 240,676 50 0.08 
Total interest-earning assets2,036,296 12,187 2.37 1,734,680 11,745 2.69 
Non-interest-earning assets 
Cash and due from banks18,778 16,993 
Premises and equipment, net17,718 19,507 
Bank-owned life insurance28,134 17,875 
Goodwill and other intangibles17,167 18,027 
Other assets266,334 215,633 
Allowance for credit losses(11,183)(11,295)
Total assets$2,373,244 $2,011,420 
Liabilities and Shareholders’ Equity1
Interest-bearing liabilities 
Interest-bearing demand deposits$531,541 $145 0.11 %$425,192 $227 0.21 %
Savings deposits17,767 2 0.04 14,675 3 0.08 
Time deposits >= $10019,403 49 1.00 26,335 104 1.57 
Other time deposits31,542 91 1.14 40,959 131 1.27 
Total interest-bearing deposits600,253 287 0.19 507,161 465 0.36 
Short-term borrowings10 — — 11 — — 
Total interest-bearing liabilities600,263 287 0.19 507,172 465 0.36 
Non-interest bearing liabilities
Demand deposits453,116 371,862 
Accounts and drafts payable1,010,641 816,032 
Other liabilities54,703 67,829 
Total liabilities2,118,723 1,762,895 
Shareholders’ equity254,521 248,525 
Total liabilities and shareholders’ equity$2,373,244 $2,011,420 
Net interest income$11,900 $11,280  
Net interest margin2.32 %2.59 %
Interest spread2.18 2.33 
1.Balances shown are daily averages.
2.Interest income on loans includes net loan fees of $969,000 and $678,000 for the Third Quarter of 2021 and 2020, respectively. The increase in net loan fees is due to higher PPP fees.
3.For purposes of these computations, yields on investment securities are computed as interest income divided by the average amortized cost of the investments.
4.Interest income is presented on a tax-equivalent basis assuming a tax rate of 21% for both 2021 and 2020. The tax-equivalent adjustment was approximately $468,000 and $466,000 for the Third Quarter of 2021 and 2020, respectively.
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(In thousands)
Nine Months Ended 2021
Nine Months Ended 2020
Average
 Balance		Interest
 Income/
 Expense		Yield/
 Rate		Average
 Balance		Interest
 Income/
 Expense		Yield/
 Rate
Assets1
Interest-earning assets
Loans2:
Taxable$885,274 $26,270 3.97 %$904,632 $27,366 4.04 %
Investment securities3:
Taxable149,953 1,387 1.24 82,271 1,400 2.27 
Tax-exempt4
304,348 6,748 2.96 289,964 6,781 3.12 
Certificates of deposit— — — 340 6 2.36 
Interest-bearing deposits in other financial institutions537,987 473 .12 197,929 492 .33 
Federal funds sold and other short-term investments88,414 42 .06 140,955 638 .60 
Total interest-earning assets1,965,976 34,920 2.37 1,616,091 36,683 3.03 
Non-interest-earning assets:
Cash and due from banks19,890 16,765 
Premises and equipment, net17,877 19,955 
Bank-owned life insurance21,286 17,761 
Goodwill and other intangibles17,381 18,240 
Other assets248,634 214,331 
Allowance for credit losses(11,615)(10,919)
Total assets$2,279,429 $1,892,224 
Liabilities and Shareholders’ Equity1
Interest-bearing liabilities:
Interest-bearing demand deposits$510,886 $431 .11 %$382,424 $1,062 .37 %
Savings deposits19,098 7 .05 12,010 19 .21 
Time deposits >= $10022,231 200 1.20 28,134 383 1.82 
Other time deposits31,253 277 1.18 42,483 445 1.40 
Total interest-bearing deposits583,468 915 .21 465,051 1,909 .55 
Short-term borrowings10 — — 77 2 3.47 
Total interest-bearing liabilities583,478 915 .21 465,128 1,911 .55 
Non-interest bearing liabilities:
Demand deposits430,506 342,386 
Accounts and drafts payable952,747 775,341 
Other liabilities54,935 64,859 
Total liabilities2,021,666 1,647,714 
Shareholders’ equity257,763 244,510 
Total liabilities and shareholders’ equity$2,279,429 $1,892,224 
Net interest income$34,005 $34,772 
Net interest margin2.31 %2.87 %
Interest spread2.17 2.48 
1.Balances shown are daily averages.
2.Interest income on loans includes net loan fees of $2,738,000 and $1,399,000 for the Nine Months Ended 2021 and 2020, respectively. The increase in net loan fees is due to higher PPP fees.
3.For purposes of these computations, yields on investment securities are computed as interest income divided by the average amortized cost of the investments.
4.Interest income is presented on a tax-equivalent basis assuming a tax rate of 21% for both 2021 and 2020. The tax-equivalent adjustment was approximately $1,417,000 and $1,424,000 for the Nine Months Ended 2021 and 2020, respectively.
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Analysis of Net Interest Income Changes

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.

First Quarter of 2021 Over

First Quarter of 2020

(In thousands)

Volume

Rate

Total

Increase (decrease) in interest income:

Loans1:

Taxable

$

825

$

(1,239

)

$

(414

)

Investment securities:

Taxable

(67

)

(292

)

(359

)

Tax-exempt2

(81

)

(21

)

(102

)

Certificates of deposit

(3

)

—

(3

)

Interest-bearing deposits in other financial institutions

356

 

(599

)

(243

)

Federal funds sold and other short-term investments

(232

)

(331

)

(563

)

Total interest income

798

(2,482

)

(1,684

)

Interest expense on:

Interest-bearing demand deposits

198

 

(680

)

(482

)

Savings deposits

9

 

(19

)

(10

)

Time deposits of >=$100

(23

)

(36

)

(59

)

Other time deposits

(44

)

(37

)

(81

)

Short-term borrowings

(1

)

(1

)

(2

)

Total interest expense

139

(773

)

(634

)

Net interest income

$

659

$

(1,709

)

$

(1,050

)

1.

Interest income includes net loan fees.

2.

Interest income is presented on a tax-equivalent basis assuming a tax rate of 21%.

(In thousands)Third Quarter of 2021 Compared to
Third Quarter of 2020
VolumeRateTotal
Increase (decrease) in interest income:
Loans1:
Taxable$(751)$671 $(80)
Investment securities:
Taxable530 (171)359 
Tax-exempt2
178 (169)9 
Certificates of deposit(1)— (1)
Interest-bearing deposits in other financial institutions135 60 195 
Federal funds sold and other short-term investments(56)16 (40)
Total interest income35 407 442 
Interest expense on:
Interest-bearing demand deposits48 (130)(82)
Savings deposits1 (2)(1)
Time deposits >=$100(23)(32)(55)
Other time deposits(28)(12)(40)
Total interest expense(2)(176)(178)
Net interest income$37 $583 $620 

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 Third Quarter of 2021 and 2020.
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(In thousands)Nine Months Ended 2021 Compared to
Nine Months Ended 2020
VolumeRateTotal
Increase (decrease) in interest income:
Loans1:
Taxable$(593)$(503)$(1,096)
Investment securities:
Taxable812 (825)(13)
Tax-exempt2
325 (358)(33)
Certificates of deposit(6)— (6)
Interest-bearing deposits in other financial institutions448 (467)(19)
Federal funds sold and other short-term investments(175)(421)(596)
Total interest income811 (2,574)(1,763)
Interest expense on:   
Interest-bearing demand deposits275 (906)(631)
Savings deposits7 (19)(12)
Time deposits >=$100(70)(113)(183)
Other time deposits(106)(62)(168)
Short-term borrowings(1)(1)(2)
Total interest expense105 (1,101)(996)
Net interest income$706 $(1,473)$(767)
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 Nine Months Ended 2021 and 2020.
Provision and Allowance for Credit Losses and Allowance for Unfunded Commitments

The Company recorded a provision for credit losses and off-balance sheet credit exposures of $340,000, and $0 in the Third Quarter of 2021 and 2020, respectively. The Company recorded a release of credit losses and off-balance sheet credit exposures of $600,000$870,000 in the First Quarter ofNine Months Ended 2021 and a provision for creditloan losses of $325,000$725,000 in the First Quarter ofNine Months Ended 2020. The amount of the provision for (release of) provision for credit losses wasis derived from the Company’s quarterly Current Expected Credit Loss (“CECL”) model. The amount of the provision for (release of) provision for credit losses will fluctuate as determined by these quarterly analyses. The provision for credit losses in the Third Quarter of 2021 was primarily due to loan growth and the related impact in the CECL model. The release of credit losses in the Nine Months Ended 2021 was primarily due to improved economic conditions and the removal of specific allowance for credit loss allocations on two impaired loans.
The Company had net loan recoveries of $17,000 and $8,000$11,000 in the FirstThird Quarter of 2021 and First$6,000 in the Third Quarter of 2020. The Company had net loan recoveries of $28,000 and $17,000 in the Nine Months Ended 2021 and the Nine Months Ended 2020, respectively.

The ACL was $11,721,000$11,532,000 at March 31,September 30, 2021 compared to $11,944,000 at December 31, 2020. The ACL represented 1.32% of outstanding loans at March 31,September 30, 2021 and 1.34% of outstanding loans at year-endDecember 31, 2020. Excluding PPP loans, the ACL represented 1.51%1.35% of total loans at March 31,September 30, 2021 and 1.53% of total loans at December 31, 2020. The allowance for unfunded commitments was $207,000$137,000 at March 31,September 30, 2021 and $567,000 at December 31, 2020. There were no nonperforming loans outstanding at March 31,September 30, 2021 or December 31, 2020.

The ACL has been established and is maintained to estimate the lifetime expected 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 based on changes in the economic forecast, qualitative risk factors, loan 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.

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

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Summary of Credit Loss Experience

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

First Quarter of

 

Third Quarter ofNine Months Ended

(In thousands)

 

2021

 

2020

(In thousands)2021202020212020

Allowance for credit losses at beginning of period

$

11,944

$

10,556

(Release of) provision for credit losses

(240

)

325

Allowance for credit/loan losses at beginning of periodAllowance for credit/loan losses at beginning of period$11,171 $11,292 $11,944 $10,556 
Provision for (release of) credit/loan lossesProvision for (release of) credit/loan losses350 — (440)725 

Loans charged off

—

—

Loans charged off— — — — 

Recoveries on loans previously charged off

17

8

Recoveries on loans previously charged off11 6 28 17 

Net recoveries

17

8

Net recoveries11 6 28 17 

Allowance for credit losses at end of period

$

11,721

$

10,889

Allowance for credit/loan losses at end of periodAllowance for credit/loan losses at end of period$11,532 $11,298 $11,532 $11,298 

Allowance for unfunded commitments at beginning of Period

$

567

$

—

Allowance for unfunded commitments at beginning of Period$147 $— $567 $— 

(Release of) provision for credit losses

(360

)

—

(Release of) provision for credit losses(10)— (430)— 

Allowance for unfunded commitments at end of period

207

—

Allowance for unfunded commitments at end of period137 — 137 — 

Loans outstanding:

Loans outstanding:    

Average

$

881,222

$

799,502

Average$873,070 $949,836 $885,274 $904,632 

March 31

888,575

854,780

September 30September 30872,905 944,557 872,905 944,557 

Ratio of ACL to loans outstanding:

Ratio of ACL to loans outstanding:    

Average

1.33

%

1.36

%

Average1.32 %1.19 %1.30 %1.25 %

March 31

1.32

%

1.27

%

September 30September 301.32 %1.20 %1.32 %1.20 %

The BankCompany had no property carried as other real estate owned as of March 31,September 30, 2021 and March 31,September 30, 2020.

Operating Expenses

Total operating expenses for the FirstThird Quarter of 2021 were down 1.4%up 7.0%, or $404,000, as$2,010,000, compared to the FirstThird Quarter of 2020 primarilyas personnel and outside service expenses increased as a result of the pandemic-related declineincrease in travel and other business development activities.

payment processing volumes.

Total operating expenses for the Nine Months Ended 2021 were up $4,052,000, or 4.8%, compared to the Nine Months Ended 2020, also due to the increase in payment processing volumes.
Financial Condition

Total assets at March 31,September 30, 2021 were $2,216,573,000,$2,292,986,000, an increase of $13,338,000,$89,751,000, or 0.6%4.1%, from December 31, 2020. The most significant changesCompany increased the investment securities portfolio $183,353,000, or 51.3%, during the period in asset balances during this period were increases in securities of $69,518,000 and paymentsan effort to increase the yield on interest-earning assets. Payment in excess of funding of $21,912,000. The increase in securities was driven by purchases in an effortincreased $71,816,000, or 36.9%, due to 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 strategic efforts to increase these balances.dollars processed. In addition, the Company purchased $24,868,000 of bank-owned life insurance policies during the Three Months Ended September 30, 2021. These increases were partially offset by a decrease in cash and cash equivalents of $70,869,000.$170,219,000, or 25.4%, and a decrease in loans of $18,772,000. Changes in cash and cash equivalents reflect the Company’s daily liquidity position and are influencedaffected by funding inflowsthe changes in the other asset balances and outflows.

changes in deposit and accounts and drafts payable balances.

Total liabilities at March 31,September 30, 2021 were $1,957,086,000,$2,045,343,000, an increase of $15,011,000,$103,268,000, or 0.8%5.3%, from December 31, 2020. Total deposits at March 31,September 30, 2021 were $1,003,135,000, a decrease$1,087,317,000, an increase of $47,721,000,$36,461,000, or 4.5%3.5%, from December 31, 2020. Accounts and drafts payable at March 31,September 30, 2021 were $897,508,000,$905,479,000, an increase of $62,122,000,$70,093,000, or 7.4%8.4%, from December 31, 2020, reflecting an increase in both transportation and facility-related dollar volumes.

Total shareholders’ equity at March 31, 2020September 30, 2021 was $259,487,000,$247,643,000, a $1,673,000,$13,517,000, or 0.6%5.2%, decrease from December 31, 2020. Total shareholders’ equity decreased as a result ofprimarily due to share repurchases of $1,228,000,$18,975,000, dividends paid of $3,886,000$11,576,000, and an increase in accumulated other comprehensive loss of $3,377,000. These were$5,578,000, partially offset by net income of $7,071,000.

$20,902,000.

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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. Forpayable (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.

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Liquidity and Capital Resources

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 $599,659,000$500,309,000 at March 31,September 30, 2021, a decrease of $70,869,000,$170,219,000, or 10.6%25.4%, from December 31, 2020. At March 31,September 30, 2021, these assets represented 27.1%21.8% of total assets. These funds are the Company’s and its subsidiaries’ primary source of liquidity to meet future expected and unexpected loan demand, depositor withdrawals or reductions in accounts and drafts payable.

Secondary sources of liquidity include the investment portfolio and borrowing lines. Total investment in securities was $427,244,000$541,079,000 at March 31,September 30, 2021, an increase of $69,518,000$183,353,000 from December 31, 2020. These assets represented 19.3%23.6% of total assets at March 31,September 30, 2021. Of this total, 77%66% were state and political subdivision securities. Of the total portfolio, 16.5%4.8% mature in one year, 21.9%20.3% mature in one to five years, and 61.6%74.9% mature in five or more years.

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 $197,258,000$215,048,000 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 March 31,September 30, 2021 or December 21,31, 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 approximately $113,000,000$16,307,000 as of March 31,September 30, 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 $32,160,000$31,998,000 of CDARS deposits and interest-bearing demand deposits include $157,841,000$153,175,000 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 $16,704,000$30,680,000 for the three months ended March 31,Nine Months Ended 2021, compared to $18,160,000$40,061,000 for the three months ended March 31,Nine Months Ended 2020, a decrease of $1,456,000.$34,249,000. 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 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.

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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 furthera discussion onof trends and impacts relating to 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 furthera discussion onof trends and impacts relating to 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 furthera discussion onof trends and impacts relating to 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 loancredit 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.

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.​​

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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:

March 31, 2021

December 31, 2020

 September 30, 2021December 31, 2020

(Dollars in thousands)

Amount

Ratio

Amount

Ratio

(Dollars in thousands)AmountRatioAmountRatio

Total capital (to risk-weighted assets)

Total capital (to risk-weighted assets)

Cass Information Systems, Inc.

$

256,899

21.13%

$

255,332

21.41%

Cass Information Systems, Inc.$247,480 17.04 %$255,332 21.41 %

Cass Commercial Bank

175,574

22.48%

171,298

21.46%

Cass Commercial Bank184,869 21.45 %171,298 21.46 %

Common equity tier I capital (to risk-weighted assets)

Common equity tier I capital (to risk-weighted assets)    

Cass Information Systems, Inc.

$

245,178

20.17%

$

243,388

20.41%

Cass Information Systems, Inc.$235,949 16.24 %$243,388 20.41 %

Cass Commercial Bank

165,791

21.22%

161,300

20.21%

Cass Commercial Bank174,093 20.20 %161,300 20.21 %

Tier I capital (to risk-weighted assets)

Tier I capital (to risk-weighted assets)    

Cass Information Systems, Inc.

$

245,178

20.17%

$

243,388

20.41%

Cass Information Systems, Inc.$235,949 16.24 %$243,388 20.41 %

Cass Commercial Bank

165,791

21.22%

161,300

20.21%

Cass Commercial Bank174,093 20.20 %161,300 20.21 %

Tier I capital (to leverage assets)

Tier I capital (to leverage assets)    

Cass Information Systems, Inc.

$

245,178

11.31%

$

243,388

11.52%

Cass Information Systems, Inc.$235,949 10.01 %$243,388 11.52 %

Cass Commercial Bank

165,791

11.81%

161,300

14.48%

Cass Commercial Bank174,093 12.32 %161,300 14.48 %

Inflation

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

Impact of New and Not Yet Adopted Accounting Pronouncements

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 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 instruments held, as applicable, which include allowances for credit losses expected over the life of the portfolio, rather than incurred losses, which include allowances for current probable and estimable losses within the portfolio. Under this standard, the Company 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 Company adopted ASU 2016-13 using a modified retrospective approach. Results for 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 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 Company recognized
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increases of $723,000 in the allowance for credit losses and $402,000 in the reserve for unfunded commitments, with a corresponding reduction to retained earnings, net of tax, of $856,000. No credit loss allowance was required upon adoption for the investment securities portfolio.

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The following table illustrates the impact of the adoption of ASU 2016-13:

(In thousands)

December

31, 2019

Impact of

ASU 2016-13

Adoption

As Reported

Under ASU

2016-13

(In thousands)December 31, 2019Impact of
 ASU 2016-13
 Adoption		As Reported
 Under ASU
 2016-13

Assets:

Assets:  

Allowance for credit/loan losses on loans

$

10,556

$

723

$

11,279

Allowance for credit/loan losses on loans$10,556 $723 $11,279 

Deferred tax asset

2,298

269

2,567

Deferred tax asset2,298 269 2,567 

Liabilities:

Liabilities:   

Reserve for unfunded commitments

—

402

402

Reserve for unfunded commitments ─402 402 

Shareholders’ equity:

Shareholders’ equity:   

Retained earnings

90,341

(856

)

89,485

Retained earnings90,341 (856)89,485 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As described in the Company’s Annual Report on Form 10-K for the year ended December 31, 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, 2020.

% change in projected net interest income
September 30, 2021December 31, 2020
+200 basis points21.7 %33.0 %
+100 basis points10.9 %16.3 %
Flat rates— %— %
-100 basis points(2.6)%(2.5)%

ITEM 4. CONTROLS AND PROCEDURES

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 FirstThird Quarter of 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).

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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.

ITEM 1A. RISK FACTORS

The Company has included in Part I, Item 1A of its Annual Report on Form 10-K for the year ended December 31, 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 2020 Annual Report on Form 10-K.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During the three months ended March 31,September 30, 2021, the Company repurchased a total of 31,256314,672 shares of its common stock pursuant to its treasury stock buyback program, as follows:

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

(1)

All repurchases made during the quarter ended March 31, 2021 were made pursuant to the treasury stock buyback program, which was authorized by the Board of Directors on October 17, 2011 and announced by the Company on October 20, 2011. The program, as modified by the Board of Directors on October 20, 2014, provides that the Company may repurchase up to an aggregate of 500,000 shares of common stock and has no expiration date. The program is periodically modified by the Board of Directors and was most recently modified on October 20, 2020 to restore the aggregate number of shares available for repurchase to 500,000.

PeriodTotal
 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
July 1, 2021 – July 31, 202142,938 $41.10 42,938 302,674 
August 1, 2021– August 31, 2021170,700 43.85 170,700 131,974 
September 1, 2021 – September 30, 2021101,034 44.21 101,034 30,940 
Total314,672 $43.59 314,672 30,940 
(1)All repurchases made during the quarter ended September 30, 2021 were made pursuant to the treasury stock buyback program, which was authorized by the Board of Directors on October 17, 2011 and announced by the Company on October 20, 2011. The program, which has no expiration date, is periodically modified by the Board of Directors and was most recently modified on October 19, 2021 to authorize 750,000 shares for repurchase under the terms of the program.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION
(a)

(a)

None.

(b)

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 FirstThird Quarter of 2021.

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ITEM 6. EXHIBITS

Exhibit 31.1 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit 31.2 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit 32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Exhibit 32.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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 101.SCH Inline XBRL Taxonomy Extension Schema Document.

Exhibit 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document.

Exhibit 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document.

Exhibit 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document.

Exhibit 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document.

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

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 101.SCH Inline XBRL Taxonomy Extension Schema Document.
Exhibit 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document.
Exhibit 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document.
Exhibit 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document.
Exhibit 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document.
Exhibit 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

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SIGNATURES

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

CASS INFORMATION SYSTEMS, INC.

DATE: November 5, 2021

By

DATE: May 6, 2021

By

/s/ Eric H. Brunngraber

Eric H. Brunngraber

Chairman, President, and Chief Executive Officer

(Principal Executive Officer)

DATE: May 6,November 5, 2021

By

/s/ Michael J. Normile

Michael J. Normile

Executive Vice President and Chief Financial Officer

(Principal Financial and Accounting Officer)

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