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CASS Cass Information Systems

Filed: 5 Aug 21, 3:13pm

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

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

 

For the quarterly period ended June 30, 2021

 

OR

 

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

 

For the transition period from __________ to __________

Commission File No. 000-20827

 

CASS INFORMATION SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

Missouri

43-1265338

(State or other jurisdiction of incorporation or

organization)

(I.R.S. Employer Identification No.)

12444 Powerscourt Drive, Suite 550

St. Louis, Missouri

63131

(Address of principal executive offices)

(Zip Code)

(314) 506-5500

(Registrant’s telephone number, including area code)

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

Title of each class

Trading symbols

Name of each exchange on which registered

Common stock, par value $.50

CASS

The Nasdaq Global Select Market

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

Yes

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).

Yes

No

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

Large Accelerated Filer ☐

Accelerated Filer ☒

 

Non-Accelerated Filer ☐

Smaller Reporting Company ☐

Emerging Growth Company ☐

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

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

Yes

No

The number of shares outstanding of the registrant's only class of common stock as of July 23, 2021: Common stock, par value $.50 per share – 14,306,354 shares outstanding.

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Table of Contents

TABLE OF CONTENTS

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

22

Item 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK33
Item 4.CONTROLS AND PROCEDURES33
PART II – Other Information – Items 1. – 6.34
SIGNATURES36
 

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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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in Thousands except Share and Per Share Data)

 

 

June 30,

2021

(Unaudited)

 

December 31,

2020

Assets

 

 

 

 

 

 

Cash and due from banks

 

$

14,545

 

$

30,985

Interest-bearing deposits in other financial institutions

 

 

424,263

 

 

393,810

Federal funds sold and other short-term investments

 

 

182,773

 

 

245,733

Cash and cash equivalents

 

 

621,581

 

 

670,528

Securities available-for-sale, at fair value

 

 

507,047

 

 

357,726

 

 

 

 

 

 

 

Loans

 

 

871,020

 

 

891,676

Less: Allowance for credit losses

 

 

11,171

 

 

11,944

Loans, net

 

 

859,849

 

 

879,732

Payments in excess of funding

 

 

184,262

 

 

194,563

Premises and equipment, net

 

 

17,741

 

 

18,057

Investment in bank-owned life insurance

 

 

17,758

 

 

18,058

Goodwill

 

 

14,262

 

 

14,262

Other intangible assets, net

 

 

2,993

 

 

3,423

Other assets

 

 

46,840

 

 

46,886

Total assets

 

$

2,272,333

 

$

2,203,235

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

Noninterest-bearing

 

$

422,374

 

$

493,504

Interest-bearing

 

 

593,569

 

 

557,352

Total deposits

 

 

1,015,943

 

 

1,050,856

Accounts and drafts payable

 

 

939,570

 

 

835,386

Other liabilities

 

 

56,053

 

 

55,833

Total liabilities

 

 

2,011,566

 

 

1,942,075

 

 

 

 

 

 

 

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 June 30, 2021 and December 31, 2020

 

 

7,753

 

 

7,753

Additional paid-in capital

 

 

203,098

 

 

204,875

Retained earnings

 

 

105,398

 

 

99,062

Common shares in treasury, at cost (1,183,885 shares at June 30, 2021 and 1,113,103 shares at December 31, 2020)

 

 

(53,437)

 

(50,515)

Accumulated other comprehensive loss

 

 

(2,045)

 

(15)

Total shareholders’ equity

 

 

260,767

 

 

261,160

Total liabilities and shareholders’ equity

 

$

2,272,333

 

$

2,203,235

See accompanying notes to unaudited consolidated financial statements.

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CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(Dollars in Thousands except Per Share Data)

Three Months Ended

June 30,

Six Months Ended

June 30,

2021

2020

2021

2020

Fee Revenue and Other Income:

Information services payment and processing revenue

$

26,348

$

22,661

$

51,564

$

48,164

Bank service fees

 

530

398

 

1,024

808

(Losses) gains on sales of securities

 

(3)

0—

 

45

1,069

Other

 

112

115

 

529

228

Total fee revenue and other income

 

26,987

23,174

 

53,162

50,269

 

 

 

Interest Income:

 

 

Interest and fees on loans

 

8,696

9,298

 

17,283

18,299

Interest and dividends on securities:

 

 

Taxable

 

458

473

 

656

1,033

Exempt from federal income taxes

 

1,832

1,785

 

3,571

3,604

Interest on federal funds sold and other short-term investments

 

122

86

 

274

1,044

Total interest income

 

11,108

11,642

 

21,784

23,980

 

 

 

Interest Expense:

 

 

Interest on deposits

 

297

481

 

628

1,444

Interest on short-term borrowings

0—

0—

0─

2

Total interest expense

297

481

628

1,446

Net interest income

 

10,811

11,161

 

21,156

22,534

(Release of) provision for credit losses / loan losses

 

(610)

400

 

(1,210)

725

Net interest income after provision for credit losses / loan losses

 

11,421

10,761

 

22,366

21,809

Total net revenue

 

38,408

33,935

 

75,528

72,078

 

 

 

Operating Expense:

 

 

Personnel

 

22,880

20,891

 

45,406

43,318

Occupancy

 

959

938

 

1,906

1,879

Equipment

 

1,653

1,617

 

3,328

3,252

Amortization of intangible assets

 

214

214

 

429

429

Other operating expense

 

4,097

3,697

 

7,259

7,408

Total operating expense

 

29,803

27,357

 

58,328

56,286

Income before income tax expense

 

8,605

6,578

 

17,200

15,792

Income tax expense

 

1,579

1,139

 

3,103

2,808

Net income

$

7,026

$

5,439

$

14,097

$

12,984

 

 

 

Basic earnings per share

$

.49

$

.38

$

.99

$

.90

Diluted earnings per share

 

.48

.37

 

.97

.89

See accompanying notes to unaudited consolidated financial statements.

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CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(Dollars in Thousands)

Three Months Ended

June 30,

Six Months Ended

June 30,

2021

2020

2021

2020

Comprehensive Income:

Net income

$

7,026

$

5,439

$

14,097

$

12,984

Other comprehensive income (loss):

 

 

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

 

1,566

6,407

 

(2,648)

6,985

Tax effect

 

(373)

(1,525)

 

630

(1,663)

Reclassification adjustments for losses (gains) included in net income

 

3

0—

 

(45)

(1,069)

Tax effect

 

(1)

0—

 

10

254

Foreign currency translation adjustments

 

152

16

 

23

(128)

Total comprehensive income

$

8,373

$

10,337

$

12,067

$

17,363

See accompanying notes to unaudited consolidated financial statements.

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CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in Thousands)

 

 

Six Months Ended

June 30,

 

 

2021

 

2020

Cash Flows From Operating Activities:

 

 

 

 

 

 

Net income

 

$

14,097

 

$

12,984

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

 

 

 

 

 

 

Depreciation and amortization

 

 

6,167

 

 

5,564

Gains on sales of securities

 

 

(45)

 

 

(1,069)

Stock-based compensation expense

 

 

1,519

 

 

1,478

(Release of) provision for credit losses / loan losses

 

 

(1,210)

 

 

725

Decrease in income tax benefit

22

1

(Decrease) increase in income tax liability

 

 

(88)

 

 

592

(Decrease) increase in pension liability

 

 

(294)

 

 

2,167

(Increase) decrease in accounts receivable

 

 

(1,131)

 

 

1,472

Other operating activities, net

 

 

2,722

 

 

8,741

Net cash provided by operating activities

 

 

21,759

 

 

32,655

 

 

 

 

 

 

 

Cash Flows From Investing Activities:

 

 

 

 

 

 

Proceeds from sales of securities available-for-sale

 

 

13,116

 

 

19,629

Proceeds from maturities of securities available-for-sale

 

 

70,209

 

 

27,130

Purchase of securities available-for-sale

(238,831)

Net decrease (increase) in loans

 

 

21,093

 

 

(191,077)

Decrease in payments in excess of funding

 

 

10,301

 

 

43,948

Purchases of premises and equipment, net

 

 

(1,886)

 

 

(1,383)

Net cash used in investing activities

 

 

(125,998)

 

 

(101,753)

 

 

 

 

 

 

 

Cash Flows From Financing Activities:

Net decrease in noninterest-bearing demand deposits

 

 

(71,130)

 

 

(7,524)

Net increase in interest-bearing demand and savings deposits

 

 

40,759

 

 

79,066

Net decrease in time deposits

 

 

(4,542)

 

 

(2,721)

Net increase in accounts and drafts payable

 

 

104,184

 

 

60,966

Net decrease in short-term borrowings

 

 

0─

 

 

(18,000)

Cash dividends paid

 

 

(7,761)

 

 

(7,811)

Purchase of common shares for treasury

 

 

(5,260)

 

 

(5,508)

Other financing activities, net

 

 

(958)

 

 

(1,185)

Net cash provided by financing activities

 

 

55,292

 

 

97,283

Net (decrease) increase in cash and cash equivalents

 

 

(48,947)

 

 

28,185

Cash and cash equivalents at beginning of period

 

 

670,528

 

 

203,954

Cash and cash equivalents at end of period

 

$

621,581

 

$

232,139

 

 

 

 

 

 

 

Supplemental information:

 

 

 

 

 

 

Cash paid for interest

 

$

608

 

$

1,429

Cash paid for income taxes

 

 

3,164

 

 

2,219

See accompanying notes to unaudited consolidated financial statements.

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CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2021

(Unaudited)

(Dollars in Thousands except per share data)

Common

Stock

Additional

Paid-in

Capital

Retained

Earnings

Treasury

Stock

Accumulated

Other

Comprehensive

Loss

Total

Balance, March 31, 2020

$

7,753

$

203,801

$

93,968

$

(49,800)

$

(14,439)

$

241,283

 

Net income

 

 

 

5,439

 

 

 

5,439

Cash dividends ($.27 per share)

 

 

 

(3,893)

 

 

 

(3,893)

Issuance of 9,292 common shares pursuant to stock-based compensation plan, net

 

 

(299)

 

 

343

 

 

44

Stock-based compensation expense

 

 

756

 

 

 

 

756

Other comprehensive income

 

 

 

 

 

4,898

 

4,898

Balance, June 30, 2020

$

7,753

$

204,258

$

95,514

$

(49,457)

$

(9,541)

$

248,527

 

 

Balance, March 31, 2021

$

7,753

$

202,828

$

102,247

$

(49,949)

$

(3,392)

$

259,487

 

Net income

 

 

 

7,026

 

 

 

7,026

Cash dividends ($.27 per share)

 

 

 

(3,875)

 

 

 

(3,875)

Issuance of 9,720 common shares pursuant to stock-based compensation plan, net

 

 

(455)

 

 

450

 

 

(5)

Exercise of SARs

(101)

94

(7)

Stock-based compensation expense

 

 

826

 

 

 

 

826

Purchase of 89,010 common shares

(4,032)

(4,032)

Other comprehensive income

 

 

 

 

 

1,347

 

1,347

Balance, June 30, 2021

$

7,753

$

203,098

$

105,398

$

(53,437)

$

(2,045)

$

260,767

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

 

 

 

12,984

 

 

12,984

Cash dividends ($.54 per share)

 

 

 

(7,811)

 

 

(7,811)

Issuance of 66,625 common shares pursuant to stock-based compensation plan, net

 

 

(2,374)

 

 

1,291

 

(1,083)

Exercise of SARs

 

 

(243)

 

 

141

 

(102)

Stock-based compensation expense

 

 

1,478

 

 

 

1,478

Purchase of 128,779 common shares

 

 

 

 

(5,508)

 

(5,508)

Other comprehensive income

 

 

 

 

 

4,379

 

4,379

Balance, June 30, 2020

$

7,753

$

204,258

$

95,514

$

(49,457)

$

(9,541)

$

248,527

 

 

Balance, December 31, 2020

$

7,753

$

204,875

$

99,062

$

(50,515)

$

(15)

$

261,160

 

Net income

 

 

 

14,097

 

 

14,097

Cash dividends ($.54 per share)

 

 

 

(7,761)

 

 

(7,761)

Issuance of 79,094 common shares pursuant to stock-based compensation plan, net

 

 

(2,881)

 

 

2,046

 

(835)

Exercise of SARs

 

 

(415)

 

 

292

 

(123)

Stock-based compensation expense

 

 

1,519

 

 

 

1,519

Purchase of 120,266 common shares

 

 

 

 

(5,260)

 

(5,260)

Other comprehensive income

 

 

 

 

 

(2,030)

 

(2,030)

Balance, June 30, 2021

$

7,753

$

203,098

$

105,398

$

(53,437)

$

(2,045)

$

260,767

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 footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included. Certain amounts in prior-period financial statements have been reclassified to conform to the current period’s presentation. Such reclassifications have no effect on previously reported net income or shareholders’ equity. Results for quarterly reporting periods beginning after December 31, 2020 in the Company’s Form 10-Q will be presented under ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, 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. The declaration of a global pandemic meant that almost all public commerce and related business activities was, to varying degrees, curtailed with the goal of decreasing the rate of new infections. In late fiscal 2020, vaccines for combatting COVID-19 were approved by health agencies and have been administered throughout the country. The timeline of full administration of the COVID-19 vaccines is uncertain and fluctuating, however has resulted in a significant amount of previous business and other restrictions being lifted. The ongoing impact of COVID-19, including the impact of restrictions imposed to combat its spread, could result in additional and prolonged business closures, work restrictions and activity restrictions.

The Company is closely monitoring developments related to COVID-19 checking regularly for updated information and recommendations from the WHO and the CDC, from national, state, and local governments, and evaluating courses of action being taken by peers. 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, have had, and continue to have, an adverse impact on the Company’s financial results and are discussed in more detail below. Although many restrictions have been relaxed with some success, many states and localities are still experiencing moderate to high levels of COVID-19 cases, prompting continued restrictions 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 uncertain.

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

To the extent the business disruption continues for an extended period, additional cost 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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Table of Contents

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. 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 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 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 accord 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. 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.

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

June 30, 2021

December 31, 2020

(In thousands)

Gross Carrying

Amount

Accumulated

Amortization

Gross Carrying

Amount

Accumulated

Amortization

Assets eligible for amortization:

 

 

 

 

Customer lists

$

4,778

$

(4,122)

$

4,778

$

(3,902)

Patents

 

72

 

(26)

 

72

 

(24)

Software

 

2,844

 

(918)

 

2,844

 

(731)

Trade Name

190

(17)

190

(13)

Other

 

500

 

(308)

 

500

 

(291)

Unamortized intangible assets:

 

 

 

 

 

 

 

 

Goodwill

 

14,262

 

0─

 

14,262

 

0─

Total intangible assets

$

22,646

$

(5,391)

$

22,646

$

(4,961)

-9-


Table of Contents

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

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.

The calculations of basic and diluted earnings per share are as follows:

(In thousands except share and per

share data)

Three Months Ended

June 30,

Six Months Ended

June 30,

2021

2020

2021

2020

Basic

Net income

$

7,026

$

5,439

$

14,097

$

12,984

Weighted-average common shares outstanding

 

14,267,290

 

14,349,040

 

14,286,362

 

14,385,927

Basic earnings per share

$

.49

$

.38

$

.99

$

.90

 

Diluted

 

 

Net income

$

7,026

$

5,439

$

14,097

$

12,984

Weighted-average common shares outstanding

 

14,267,290

 

14,349,040

 

14,286,362

 

14,385,927

Effect of dilutive restricted stock and stock appreciation rights

 

243,192

 

196,159

 

239,906

 

201,930

Weighted-average common shares outstanding assuming dilution

 

14,510,482

 

14,545,199

 

14,526,268

 

14,587,857

Diluted earnings per share

$

.48

$

.37

$

.97

$

.89

Note 4 – Stock Repurchases

The Company maintains a treasury stock buyback program pursuant to which the Board of Directors has authorized the repurchase of up to 500,000 shares of the Company’s common stock. As restored by the Board of Directors in October 2020, the program provides that the Company may repurchase up to an aggregate of 500,000 shares of common stock and has no expiration date. As of June 30, 2021, 345,612 shares remained available for repurchase under the program. The Company repurchased 89,010 and 0 shares during the three-month periods ended June 30, 2021 and 2020 and 120,266 and 128,779 shares for the six-month periods ended June 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.

Note 5 – Industry Segment Information

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

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

The Company’s accounting policies for segments are the same as those described in the summary of significant accounting policies in the Company’s Annual Report on Form 10-K for the year ended December 31, 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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Table of Contents

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.

-11-


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 June 30, 2021:

Fee income

$

26,098

$

612

$

277

$

26,987

Interest income*

 

5,884

 

6,563

 

(853)

 

11,594

Interest expense

 

0—

 

297

 

0—

 

297

Intersegment income (expense)

 

0—

 

688

 

(688)

 

0—

Tax-equivalized pre-tax income*

 

6,404

 

3,432

 

(743)

 

9,093

Goodwill

 

12,433

 

1,829

 

0—

 

14,262

Other intangible assets, net

 

532

 

2,461

 

0—

 

2,993

Total assets

 

1,062,536

 

1,215,799

 

(6,002)

 

2,272,333

Average funding sources

 

905,983

 

860,956

 

0—

 

1,766,939

Three Months Ended June 30, 2020:

Fee income

$

22,460

$

640

$

74

$

23,174

Interest income*

 

4,955

 

6,601

 

560

 

12,116

Interest expense

 

0—

 

481

 

0—

 

481

Intersegment income (expense)

 

0—

 

556

 

(556)

 

0—

Tax-equivalized pre-tax income*

 

3,437

 

2,981

 

634

 

7,052

Goodwill

 

12,433

 

1,829

 

0—

 

14,262

Other intangible assets, net

 

939

 

2,913

 

0—

 

3,852

Total assets

 

822,684

 

1,109,676

 

(103,376)

 

1,828,984

Average funding sources

 

680,061

 

746,619

 

0—

 

1,426,680

Six Months Ended June 30, 2021:

 

 

 

 

Fee income

$

51,075

$

1,250

$

837

$

53,162

Interest income*

 

11,393

 

12,314

 

(975)

 

22,732

Interest expense

 

0─

 

628

 

0—

 

628

Intersegment income (expense)

 

0—

 

1,311

 

(1,311)

 

0—

Tax-equivalized pre-tax income*

 

12,417

 

6,194

 

461

 

18,150

Goodwill

 

12,433

 

1,829

 

0—

 

14,262

Other intangible assets, net

 

532

 

2,461

 

0—

 

2,993

Total assets

 

1,062,536

 

1,215,799

 

(6,002)

 

2,272,333

Average funding sources

 

872,106

 

855,099

 

0—

 

1,727,205

Six Months Ended June 30, 2020:

 

 

 

 

Fee income

$

47,900

$

1,255

$

1,114

$

50,269

Interest income*

 

9,662

 

13,885

 

1,391

 

24,938

Interest expense

 

0—

 

1,446

 

0—

 

1,446

Intersegment income (expense)

 

0—

 

1,081

 

(1,081)

 

0—

Tax-equivalized pre-tax income*

 

8,560

 

5,684

 

2,506

 

16,750

Goodwill

 

12,433

 

1,829

 

0—

 

14,262

Other intangible assets, net

 

939

 

2,913

 

0—

 

3,852

Total assets

 

822,684

 

1,109,676

 

(103,376)

 

1,828,984

Average funding sources

 

678,945

 

678,877

 

0—

 

1,357,822

* Presented on a tax-equivalent basis assuming a tax rate of 21% for both 2021 and 2020. The tax-equivalent adjustment was approximately $487,000 and $474,000 f for the Second Quarter of 2021 and 2020, respectively, and $949,000 and $958,000 for the First Half of 2021 and 2020, respectively.

-12-


Table of Contents

Note 6 – Loans by Type

A summary of loan categories is as follows:

(In thousands)

June 30,

2021

December 31,

2020

Commercial and industrial

$

330,714

$

298,984

Real estate:

 

 

 

 

Commercial:

 

 

 

 

Mortgage

 

103,878

 

100,419

Construction

 

24,500

 

25,090

Faith-based:

 

 

 

 

Mortgage

 

331,235

 

333,661

Construction

 

24,051

 

23,818

Paycheck Protection Program (“PPP”)

 

56,642

 

109,704

Total loans

$

871,020

$

891,676

In support of the Coronavirus, Aid, Relief, and Economic Security Act (the “CARES Act”), the Bank processed nearly 460 applications for PPP loans of approximately $210,000,000 cumulatively 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 (“SBA”) with no allowance for credit loss allocation. The Company has unaccreted PPP loan fees of $1,312,000 at June 30, 2021.

The following table presents the aging of loans past due by category at June 30, 2021 and December 31, 2020:

Performing

Nonperforming

(In thousands)

Current

30-59

Days

60-89

Days

90

Days

and

Over

Non-

accrual

Total

Loans

June 30, 2021

Commercial and industrial

$

330,714

$

0—

$

0—

$

0—

$

0—

$

330,714

Real estate

 

 

 

 

 

 

 

 

Commercial:

 

 

 

 

 

 

 

 

Mortgage

 

103,878

 

0—

 

0—

 

0—

 

0—

 

103,878

Construction

 

24,500

 

0—

 

0—

 

0—

 

0—

 

24,500

Faith-based:

 

 

 

 

 

 

 

 

Mortgage

 

331,235

 

0—

 

0—

 

0—

 

0—

 

331,235

Construction

 

24,051

 

0—

 

0—

 

0—

 

0—

 

24,051

PPP

 

56,642

 

0—

 

0—

 

0—

 

0—

 

56,642

Total

$

871,020

$

0—

$

0—

$

0—

$

0—

$

871,020

December 31, 2020

 

 

 

 

 

 

Commercial and industrial

$

298,984

$

0—

$

0—

$

0—

$

0—

$

298,984

Real estate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial:

Mortgage

100,419

0—

0—

0—

0—

100,419

Construction

25,090

0—

0—

0—

0—

25,090

Faith-based:

Mortgage

333,661

0—

0—

0—

0—

333,661

Construction

23,818

0—

0—

0—

0—

23,818

PPP

109,704

0—

0—

0—

0—

109,704

Total

$

891,676

$

0—

$

0—

$

0—

$

0—

$

891,676

-13-


Table of Contents

The following table presents the credit exposure of the loan portfolio by internally assigned credit grade as of June 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

June 30, 2021

Commercial and industrial

$

319,477

$

11,237

$

0—

$

330,714

Real estate

 

 

 

 

 

 

 

Commercial:

 

 

 

 

 

 

 

Mortgage

 

103,637

 

241

 

0—

 

103,878

Construction

 

24,500

 

0—

 

0—

 

24,500

Faith-based:

 

 

 

 

 

 

 

Mortgage

 

328,236

 

2,999

 

0—

 

331,235

Construction

 

24,051

 

0—

 

0—

 

24,051

PPP

56,642

0—

0—

56,642

Total

$

856,543

$

14,477

$

0—

$

871,020

December 31, 2020

 

 

 

 

Commercial and industrial

$

284,882

$

14,102

$

0—

$

298,984

Real estate

 

 

 

 

 

 

 

 

 

 

 

Commercial:

Mortgage

99,044

1,375

0—

100,419

Construction

25,090

0—

0—

25,090

Faith-based:

Mortgage

330,554

3,107

0—

333,661

Construction

23,818

0—

0—

23,818

PPP

109,704

0—

0—

109,704

Total

$

873,092

$

18,584

$

0—

$

891,676

1 Loans subject to normal monitoring involve borrowers of acceptable-to-strong credit quality and risk, who have the apparent ability to satisfy their loan obligations.

2 Loans subject to special monitoring possess some credit deficiency or potential weakness which requires a high level of management attention.

The company had no impaired loans as of June 30, 2021. The Company had one loan considered impaired in the amount of $2,500,000 at December 31, 2020 that was individually evaluated for impairment, resulting in a specific allowance for credit loss of $500,000 at December 31, 2020. Due to improvement in borrower conditions, this loan was no longer considered impaired at June 30, 2021.

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

There were no loans considered troubled debt restructurings as of June 30, 2021. There were two loans that were considered troubled debt restructurings at December 31, 2020 and these loans were removed from troubled debt restructuring status during the first quarter of 2021.

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

(In thousands)

Number of

Loans

Pre-Modification

Outstanding

Balance

Post-Modification

Outstanding

Balance

Commercial and industrial

1

$

8,773

$

8,773

Faith-based real estate

1

1,029

1,029

Total

2

$

9,802

$

9,802

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

-14-


Table of Contents

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

(In thousands)

C&I

CRE

Faith-based

CRE

Construction

Total

Allowance for credit losses on loans:

Balance at December 31, 2020

$

4,635

$

1,175

$

5,717

$

417

$

11,944

Charge Offs

0—

0—

0—

0—

0—

(Release of) provision for credit losses

(509)

(54)

(199)

(28)

($790)

Recoveries

2

0—

15

0—

17

Balance at June 30, 2021

$

4,128

$

1,121

$

5,533

$

389

$

11,171

The release of provision for credit losses during the six months ended June 30, 2021 is primarily due to improved economic conditions and the removal of specific allowance for credit loss allocations on impaired loans.

(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 provision for credit losses during the year ended December 31, 2020 was due to the Company’s forecast of macroeconomic factors, which worsened during 2020, primarily due to the COVID-19 pandemic.

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 $420,000 was recorded during the six months ended June 30, 2021 due to lower line of credit usage. An allowance for unfunded commitments of $147,000 and $567,000 had been recorded at June 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 June 30, 2021, the balance of unused loan commitments, standby and commercial letters of credit were $194,669,000, $11,932,000, and $521,000, 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.

-15-


Table of Contents

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

Amount of Commitment Expiration per Period

(In thousands)

Total

Less than

1 Year

1-3

Years

3-5

Years

Over 5

Years

Time deposits

$

51,442

$

36,441

$

14,938

$

63

$

0—

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

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, SARs, restricted stock, restricted stock units and performance awards. The Company may issue shares out of treasury stock for these awards. During the six months ended June 30, 2021, 49,406 restricted shares, 29,688 performance-based restricted shares, and no SARs were granted under the Omnibus Plan. Stock-based compensation expense for the three months ended June 30, 2021 and 2020 was $826,000 and $756,000, respectively, and $1,519,000 and $1,478,000 for the six months ended June 30, 2021 and 2020, respectively.

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 June 30, 2021, the total unrecognized compensation expense related to non-vested restricted shares was $2,638,000, and the related weighted-average period over which it is expected to be recognized is approximately .85 years.

Following is a summary of the activity of the restricted stock:

Six Months Ended

June 30, 2021

Shares

 

Fair Value

Balance at December 31, 2020

 

 

136,167

$

46.78

Granted

49,406

41.54

Vested

(22,750)

47.97

Balance at June 30, 2021

162,823

$

44.99

Performance-Based Restricted Stock

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

Six Months Ended

June 30, 2021

Shares

 

Fair Value

Balance at December 31, 2020

 

 

98,410

$

50.64

Granted

52,240

40.74

Vested

(31,451)

48.63

Balance at June 30, 2021

119,199

$

46.79

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Table of Contents

The PBRS that vested during the six months ended June 30, 2021 achieved financial goals of 94.4%, resulting in the issuance of 29,688 shares of common stock. The outstanding PBRS at June 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 six months ended June 30, 2021. Following is a summary of the activity of the Company’s SARs program for the six-month period ended June 30, 2021:

Shares

Weighted-

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

Exercised

(20,560)

24.12

 

Forfeited

(2,088)

31.92

Exercisable at June 30, 2021

122,351

$

34.50

1.67

$

1,228

There were no non-vested SARs at June 30, 2021.

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 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

Service cost – benefits earned during the year

 

$

963

 

$

4,329

Interest cost on projected benefit obligations

 

 

3,069

 

 

3,908

Expected return on plan assets

 

 

(6,299)

 

 

(6,049)

Net amortization

 

 

360

 

 

1,946

Net periodic pension (benefit) cost

 

$

(1,907)

 

$

4,134

The Company recorded a net periodic benefit of $691,000 and $418,000 for the three and six month periods ended June 30, 2021, respectively as compared to net periodic pension cost of $1,027,000 and $2,056,000 for the three and six month periods ended June 30, 2020, respectively. Pension costs decreased in 2021 due to the Plan being frozen as of February 28, 2021. The Company has not made a contribution to the plan during the six-month period ended June 30, 2021 and is evaluating the amount of additional contributions, if any, in 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 obligation

291

347

Net amortization

203

112

Net periodic pension cost

$

641

$

580

-17-


Table of Contents

Supplemental executive retirement plan costs recorded to expense were $161,000 and $145,000 for the three-month periods ended June 30, 2021 and 2020, respectively. Supplemental executive retirement plan costs recorded to expense were $321,000 and $290,000 for the six-month periods ended June 30, 2021 and 2020, respectively.

Note 10 – Income Taxes

The effective tax rate was 18.4% and 17.3% for the three-month periods ended June 30, 2021 and 2020, respectively, and 18.0% and 17.8% for the six-month periods ended June 30, 2021 and 2020, respectively. The effective tax rate for all periods differs from the statutory rate of 21% primarily due to the tax-exempt interest received from municipal bonds.

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

June 30, 2021

(In thousands)

 

Amortized

Cost

 

Gross

Unrealized

Gains

 

Gross

Unrealized

Losses

 

Fair

Value

State and political subdivisions

$

335,739

$

16,004

$

48

$

351,695

U.S. government agencies

90,756

601

424

90,933

Corporate Bonds

63,567

852

0─

64,419

Total

$

490,062

$

17,457

$

472

$

507,047

 

 

December 31, 2020

(In thousands)

 

Amortized

Cost

 

Gross

Unrealized

Gains

 

Gross

Unrealized

Losses

 

Fair Value

State and political subdivisions

 

$

287,059

$

18,915

$

0─

$

305,974

U.S. government agencies

 

50,988

764

0─

51,752

Total

 

$

338,047

$

19,679

$

0─

$

357,726

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

June 30, 2021

Less than 12 months

12 months or more

Total

(In thousands)

 

Estimated

Fair Value

 

Unrealized

Losses

 

Estimated

Fair Value

 

Unrealized

Losses

 

Estimated

Fair Value

 

Unrealized

Losses

State and political subdivisions

$

8,184

$

48

$

0─

$

0─

$

8,184

$

48

U.S. government agencies

59,998

424

0─

0─

59,998

424

Total

$

68,182

$

472

$

0─

$

0─

$

68,182

$

472

There were 15 securities, or 5%, (0 greater than 12 months) in an unrealized loss position as of June 30, 2021. There were no securities in an unrealized loss position as of December 31, 2020.

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

June 30, 2021

(In thousands)

Amortized Cost

Fair Value

Due in 1 year or less

$

58,144

$

58,412

Due after 1 year through 5 years

95,443

100,135

Due after 5 years through 10 years

216,180

227,682

Due after 10 years

120,295

120,818

Total

$

490,062

$

507,047

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Proceeds from sales of investment securities classified as available-for-sale were $10,125,000 and $0 for the three months ended June 30, 2021 and 2020, respectively, and were $13,116,000 and $19,629,000 for the six months ended June 30, 2021 and 2020, respectively. Gross realized losses were $3,000 and $0 for the three months ended June 30, 2021 and 2020, respectively. Gross realized gains were $45,000 and $1,069,000 for the six months ended June 30, 2021 and 2020, respectively. There were no securities pledged to secure public deposits and for other purposes at June 30, 2021.

Note 12 – Fair Value of Financial Instruments

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

June 30, 2021

December 31, 2020

(In thousands)

Carrying

Amount

Fair Value

Carrying

Amount

Fair Value

Balance sheet assets:

Cash and cash equivalents

$

621,581

$

621,581

$

670,528

$

670,528

Investment securities

507,047

507,047

357,726

357,726

Loans, net

859,849

861,911

879,732

883,461

Accrued interest receivable

6,802

6,802

6,850

6,850

Total

$

1,995,279

$

1,997,341

$

1,914,836

$

1,918,565

Balance sheet liabilities:

 

 

 

Deposits

$

1,015,943

$

1,015,943

$

1,050,856

$

1,050,856

Accounts and drafts payable

939,570

939,570

835,386

835,386

Accrued interest payable

58

58

38

38

Total

$

1,955,571

$

1,955,571

$

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 loan 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 - The carrying amount approximates fair value.

No financial instruments are measured using Level 3 inputs for the three months ended June 30, 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 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.

 

 

For the Three Months

Ended June 30,

 

For the Six Months

Ended June 30,

(In thousands)

 

2021

 

2020

 

2021

 

2020

Fee revenue and other income

 

 

 

 

 

 

 

 

 

 

 

 

In-scope of FASB ASC 606

 

 

 

 

 

 

 

 

 

 

 

 

Invoice processing fees

 

$

19,753

 

$

17,923

 

$

38,817

 

$

37,047

Invoice payment fees

 

 

6,595

 

 

4,738

 

 

12,747

 

 

11,117

Information services payment and processing revenue

 

 

26,348

 

 

22,661

 

 

51,564

 

 

48,164

Bank service fees

 

 

530

 

 

398

 

 

1,024

 

 

808

Fee revenue (in-scope of FASB ASC 606)

 

 

26,878

 

 

23,059

 

 

52,588

 

 

48,972

Other income (out-of-scope of FASB ASC 606)

 

 

109

 

 

115

 

 

574

 

 

1,297

Total fee revenue and other income

 

 

26,987

 

 

23,174

 

 

53,162

 

 

50,269

Note 14 – Leases

The Company leases certain premises under operating leases. As of June 30, 2021, the Company had lease liabilities of $5,429,000 and right-of-use assets of $4,912,000. Lease liabilities and right-of-use assets are reflected in other liabilities and other assets, respectively. Presented within occupancy expense on the Consolidated Statements of Income for the three months ended June 30, 2021, operating lease cost was $415,000, short-term lease cost was $61,000, and there was no variable lease cost. For the six months ended June 30, 2021, operating lease cost was $835,000, short-term lease cost was $91,000, and there was no variable lease cost. At June 30, 2021, the weighted average remaining lease term for the operating leases was 6.1 years and the weighted average discount rate used in the measurement of operating lease liabilities was 5.5%. Certain of the Company’s leases contain options to renew the lease; however, these renewal options are not included in the calculation of the lease liabilities as they are not reasonably certain to be exercised. There has been no significant changes 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 as of June 30, 2021 is as follows:

(In thousands)

June 30,

2021

Lease payments due

Less than 1 year

$

1,695

1-2 years

1,351

2-3 years

532

3-4 years

509

4-5 years

519

Over 5 years

1,760

Total undiscounted cash flows

6,366

Discount on cash flows

937

Total lease liability

$

5,429

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There were no sale and leaseback transactions, leveraged leases, or lease transactions with related parties during the six months ended June 30, 2021. At June 30, 2021, the Company had one lease that had not yet commenced, creating approximately $200,000 of additional lease liabilities and right-of-use assets for the Company. This lease will commence in July 2021.

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 June 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'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 six months ended June 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.

 

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 half of 2021 based upon the then-current extent and severity of the COVID-19 pandemic within the respective localities. Severe business disruptions, resulting constrictions in the manufacturing sector for most of the year, decreased oil demand and prices and general economic uncertainty, significantly and adversely impacted the Company’s customers’ business operations and had a corresponding negative affect on the Company’s revenue generation in each sector of the Company’s Information Services segment.

 

The Federal Reserve also took action 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 urging financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations because of the effects of COVID-19. Accordingly, and in coordination with its primary regulators, the Company 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 June 30, 2021.

 

In response to COVID-19, the CARES Act was adopted on March 27, 2020. The CARES Act provided 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 allowed entities to apply for low-interest private loans to fund payroll and other costs which, subject to certain conditions and qualifications, are partially or fully forgivable. In support of the CARES Act, the Bank processed nearly 350 applications for PPP loans of approximately $170,000,000 during the year ended December 31, 2020 and an additional 110 applications for approximately $40,000,000 during the six months ended June 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 SBA.

 

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 combatting COVID-19 were approved by health agencies and have been administered throughout the country. The timeline of full administration of the COVID-19 vaccines is uncertain and fluctuating, however has resulted in a significant amount of previous business and other restrictions being lifted. The ongoing impact of COVID-19, including the impact of restrictions imposed to combat its spread, could result in additional and prolonged business closures, work restrictions and activity restrictions. Given these and other uncertainties discussed throughout this report, the Company remains subject to heightened risk, and the aggregate impact that COVID-19 could have on the Company’s financial condition and operating results is presently unknown.

 

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

 

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

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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.

 

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.

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Results of Operations

 

The following paragraphs more fully discuss the results of operations and changes in financial condition for the three-month period ended June 30, 2021 (“Second Quarter of 2021”) compared to the three-month period ended June 30, 2020 (“Second Quarter of 2020”) and the six-month period ended June 30, 2021 (“First Half of 2021”) compared to the six-month period ended June 30, 2020 (“First Half of 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’s 2020 Annual Report on Form 10-K. Results of operations for the Second Quarter and First Half of 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:

(In thousands except per share data)

Second Quarter of First Half of
20212020

%

Change

 20212020

%

Change

Net income$7,026 $5,439 29.2% $14,097 $12,984 8.6%
Diluted earnings per share$.48 $.37 29.7% $.97 $.89 9.0%
Return on average assets 1.24% 1.16%       1.27%        1.43%
Return on average equity 10.83% 9.04%  10.96% 10.77%
                 

 

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. Processing volumes, fee revenue and other income were as follows:

(In thousands)

Second Quarter of First Half of
 2021 2020

%

Change

 2021 2020

%

Change

Transportation invoice volume 9,461 7,29429.7% 18,248 15,57417.2%
Transportation invoice dollar volume

$

8,940,889

$

5,697,62756.9%

$

16,845,528

$

12,164,67838.5%
Facility-related transaction volume* 6,827 6,7041.8% 13,823 13,2134.6%
Facility-related dollar volume*

$

3,657,965$3,064,03819.4%$7,375,393$6,522,68413.1%
Payment and processing revenue

$

26,348$22,66116.3%$51,564$48,1647.1%

*Includes energy, telecom and environmental

 

Second Quarter of 2021 compared to Second Quarter of 2020:

 

Payment and processing fee revenue increased 16%. Transportation volumes for invoices and dollars increased 30% and 57%, respectively. The increases were driven by the stronger performance of the manufacturing sector in addition to new customer wins. A factor contributing to the dramatic increase in dollar volume was scarcity in carrier supply, which drove prices higher. Facility-related invoice and dollar volume increased 2% and 19%, respectively, with the increases attributable, in part, to new business wins in the telecom division. Dollar volumes also improved due to significantly fewer pandemic-related restrictions in the restaurant, retail and hospitality sectors, creating higher utility usage.

 

First Half of 2021 compared to First Half of 2020:

 

Payment and processing revenue increased 7% for the same reasons as the Second Quarter. Transportation invoice and dollar volumes, as well as expense management transaction and dollar volumes, fluctuated for the same reasons as the Second Quarter.

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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:

 

(In thousands)

Second Quarter of First Half of
2021 2020 

%

Change

 2021 2020 

%

Change

Average earnings assets$1,968,646      $1,624,415 21.2% $1,930,234 $1,556,144 24.0%
Average interest-bearing liabilities596,744 478,370 24.7% 574,947 443,873 29.5%
Net interest income*11,298 11,635 (2.9)% 22,105 23,492 (5.9)%
Net interest margin*2.30%2.88%  2.31%3.04% 
Yield on earning assets*2.36%3.00%  2.37%3.22% 
Rate on interest-bearing liabilities

.20

%

.40

%

  

.22

%

.66

%

 

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

 

Second Quarter of 2021 compared to Second Quarter of 2020:

 

Second Quarter of 2021 average earning assets increased $344,231,000, or 21.2%, compared to the same period in the prior year. Average federal funds sold increased $158,554,000, or 956.9%, interest-bearing deposits in other financial institutions increased $146,188,000, or 53.5%, and average investment securities increased $102,243,000, or 27.6%. Average loans decreased $62,441,000 as a significant amount of the PPP loans originated in 2020 were forgiven by the SBA in 2021. The overall increase in average interest-earning asset balances was funded by a significant increase in deposits and accounts and drafts payable driven by government stimulus programs, higher payments processing volumes and organic growth.

 

Average accounts and drafts payable increased $206,440,000, or 27.8% for the Second Quarter of 2021 and average interest-bearing liabilities increased $118,374,000, or 24.7%, compared to the Second Quarter of 2020.

 

Second Quarter of 2021 tax-equivalized net interest income decreased $337,000, or 2.9%, compared to the same period in the prior year. While average interest-earning assets were up 21.2%, the Company’s net interest margin declined 58 basis points from 2.88% to 2.30%, reflecting the negative impact of the historically low short-term interest rate environment.

 

First Half of 2021 compared to First Half of 2020:

 

First Half of 2021 average earning assets increased $374,090,000, or 24.0%, compared to the same period in the prior year. Average interest-bearing deposits in other financial institutions increased $298,391,000, or 147.8%, and average federal funds sold and other short-term investments increased $25,810,000, or 28.5% for the First Half of 2021 compared to the First Half of 2020. These variances were driven by the same factors as the Second Quarter.

 

Average accounts and draft payable increased $168,547,000, or 22.3%, and average interest-bearing liabilities increased $131,074,000, or 29.5% for the First Half of 2021 compared to the First Half of 2020.

 

First Half of 2021 tax-equivalized net interest income decreased $1,387,000, or 5.9%, compared to the same period in the prior year. While average interest-earning assets were up 24.0%, the Company’s net interest margin declined 73 basis points from 3.04% to 2.31%, reflecting the negative impact of 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.

 

 

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

 

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

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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.

 

 

 

 

(In thousands)

Second Quarter of 2021 Second Quarter of 2020 
Average
Balance
Interest
Income/
Expense
Yield/
Rate
 Average
Balance
Interest
Income/
Expense
Yield/
Rate
 
Assets1            
Interest-earning assets            
Loans2:            
Taxable$901,619$8,6963.87%$964,060$9,2983.88%
Investment securities3:            
Taxable 156,057 4581.18  82,107 4712.31 
Tax-exempt4 316,371 2,3192.94  288,078 2,2603.16 
Certificates of deposit    313 22.57 
Interest-bearing deposits in other financial institutions 419,475 1040.10  273,287 730.11 
Federal funds sold and other short-term investments 175,124 180.04  16,570 120.29 
Total interest-earning assets 1,968,646 11,5952.36  1,624,415 12,1163.00 
Non-interest-earning assets            
Cash and due from banks 20,565     15,948    
Premises and equipment, net 17,848     20,069    
Bank-owned life insurance 17,693     17,760    
Goodwill and other intangibles 17,382     18,239    
Other assets 247,983     200,779    
Allowance for loan losses (11,715)     (10,895)    
Total assets$2,278,402    $1,886,315    
Liabilities and Shareholders’ Equity1          
Interest-bearing liabilities            
Interest-bearing demand deposits$525,286$1360.10%$394,756$2020.21%
Savings deposits 17,772 20.05  12,921 30.09 
Time deposits >= $100 22,841 681.19  28,268 1381.96 
Other time deposits 30,835 911.18  42,414 1381.31 
Total interest-bearing deposits596,734 2970.20  478,359 4810.40 
Short-term borrowings10              11  
Total interest-bearing liabilities596,744 2970.20  478,370 4810.40 
Non-interest bearing liabilities           
Demand deposits 420,072     359,808    
Accounts and drafts payable947,987     741,547    
Other liabilities 53,482     64,489    
Total liabilities 2,018,285     1,644,214    
Shareholders’ equity 260,117     242,101    
Total liabilities and shareholders’ equity$2,278,402    $1,886,315    
Net interest income  $11,298    $11,635  
Net interest margin    2.30%    2.88%
Interest spread    2.16     2.60 
1.Balances shown are daily averages.
2.Interest income on loans includes net loan fees of $868,000 and $565,000 for the Second 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 $487,000 and $474,000 for the Second Quarter of 2021 and 2020, respectively.

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(In thousands)

First Half of 2021 First Half of 2020 
Average
Balance
Interest
Income/
Expense
Yield/
Rate
 Average
Balance
Interest
Income/
Expense
Yield/
Rate
 
Assets1            
Interest-earning assets            
Loans2:            
Taxable$891,477$   17,2833.91%$881,781$   18,2994.17%
Investment securities3:            
Taxable 119,604 6561.11  88,899 1,0282.33 
Tax-exempt4 302,456 4,5203.01  292,561 4,5623.14 
Certificates of deposit    407 52.47 
Interest-bearing deposits in other financial institutions 500,340 2420.10  201,949 4560.45 
Federal funds sold and other short-term investments 116,357 320.06  90,547 5881.31 
Total interest-earning assets 1,930,234 22,7332.37  1,556,144 24,9383.22 
Non-interest-earning assets:            
Cash and due from banks 20,455     16,649    
Premises and equipment, net 17,958     20,182    
Bank-owned life insurance 17,806     17,703    
Goodwill and other intangibles 17,490     18,347    
Other assets 239,636     213,674    
Allowance for loan losses (11,835)     (10,728)    
Total assets$2,231,744    $1,831,971    
Liabilities and Shareholders’ Equity1          
Interest-bearing liabilities:            
Interest-bearing demand deposits$500,388$2870.12%$360,804$8350.47%
Savings deposits 19,775 50.05  10,662 160.30 
Time deposits >= $100 23,668 1851.58  29,044 2791.93 
Other time deposits 31,106 1510.98  43,253 3141.46 
Total interest-bearing deposits 574,937 6280.22  443,763 1,4440.65 
Short-term borrowings 10   110 23.66 
Total interest-bearing liabilities 574,947 6280.22  443,873 1,4460.66 
Non-interest bearing liabilities:            
Demand deposits 419,013     327,486    
Accounts and drafts payable 923,320     754,773    
Other liabilities 55,054     63,359    
Total liabilities 1,972,334     1,589,491    
Shareholders’ equity 259,410     242,480    
Total liabilities and shareholders’ equity$2,231,744    $1,831,971    
Net interest income  $22,105    $23,492  
Net interest margin    2.31%    3.04%
Interest spread    2.15     2.56 
1.Balances shown are daily averages.
2.Interest income on loans includes net loan fees of $1,769,000 and $721,000 for the First Half 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 $949,000 and $958,000 for the First Half of 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.

 

 

 

(In thousands)

Second Quarter of 2021 Over

Second Quarter of 2020

VolumeRateTotal 
Increase (decrease) in interest income:       
Loans1:       
Taxable$(578)$(24)$(602) 
Investment securities:       
Taxable 290 (303) (13) 
Tax-exempt2 217 (158) 59 
Certificates of deposit (2)  (2) 
Interest-bearing deposits in other financial institutions 37 (6) 31 
Federal funds sold and other short-term investments 24 18) 6 
Total interest income (12) (509) (521) 
Interest expense on:       
Interest-bearing demand deposits 54 (120) (66) 
Savings deposits 1 (2) (1) 
Time deposits >=$100 (23) (47) (70) 
Other time deposits (35) (12) (47) 
Total interest expense (3) (181) (184) 
Net interest income$(9)$(328)$(337) 
1.Interest income includes net loan fees.
2.Interest income is presented on a tax-equivalent basis assuming a tax rate of 21% for the Second Quarter of 2021 and 2020.

 

 

 

(In thousands)

First Half of 2021 Over

First Half of 2020

VolumeRateTotal 
Increase (decrease) in interest income:       
Loans1:       
Taxable$190$(1,206)$(1,016) 
Investment securities:       
Taxable 278 (650) (372) 
Tax-exempt2 145 (187) (42) 
Certificates of deposit (5)  (5) 
Interest-bearing deposits in other financial institutions 325 (539) (214) 
Federal funds sold and other short-term investments 129 (685) (556) 
Total interest income 1,062 (3,267) (2,205) 
Interest expense on:       
Interest-bearing demand deposits 238 (786) (548) 
Savings deposits 8 (19) (11) 
Time deposits >=$100 (47) (47) (94) 
Other time deposits (75) (88) (163) 
Short-term borrowings (1) (1) (2) 
Total interest expense 123 (941) (818) 
Net interest income$939$(2,326)$(1,387) 
1.Interest income includes net loan fees.
2.Interest income is presented on a tax-equivalent basis assuming a tax rate of 21% for the First Half of 2021 and 2020.

 

Provision and Allowance for Credit Losses and Allowance for Unfunded Commitments

 

The Company recorded a release of credit losses and off-balance sheet credit exposures of $610,000 in the Second Quarter of 2021 and a provision for loan losses of $400,000 in the Second Quarter of 2020. The Company recorded a release of credit losses and off-balance sheet credit exposures of $1,210,000 in the First Half of 2021 and a provision for loan losses of $725,000 in the First Half of 2020. The release of credit losses in the First Half of 2021 was primarily due to improved economic conditions and the removal of specific allowance for credit loss allocations on two impaired loans, The amount of the (release of) provision for credit losses was derived from the Company’s

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quarterly Current Expected Credit Loss (“CECL”) model. The amount of the (release of) provision for credit losses will fluctuate as determined by these quarterly analyses. The Company had no net loan recoveries in the Second Quarter of 2021 and $3,000 in the Second Quarter of 2020. The Company had net loan recoveries of $17,000 and $11,000 in the First Half of 2021 and the First Half of 2020, respectively.

 

The ACL was $11,171,000 at June 30, 2021 compared to $11,944,000 at December 31, 2020. The ACL represented 1.28% of outstanding loans at June 30, 2021 and 1.34% of outstanding loans at December 31, 2020. Excluding PPP loans, the ACL represented 1.37% of total loans at June 30, 2021 and 1.53% of total loans at December 31, 2020. The allowance for unfunded commitments was $147,000 at June 30, 2021 and $567,000 at December 31, 2020. There were no nonperforming loans outstanding at June 30, 2021 or December 31, 2020.

 

The ACL has been established and is maintained to estimate the lifetime expected credit losses 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 analysis 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 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.

 

Summary of Credit Loss Experience

 

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

(In thousands) Second Quarter of First Half of
 2021  2020 2021  2020
Allowance for credit/loan losses at beginning of period$11,721 $10,889$11,944 $10,556
(Release of) provision for credit/loan losses (550)  400 (790)  725
Loans charged off      
Recoveries on loans previously charged off   3 17  11
Net recoveries   3 17  11
Allowance for credit/loan losses at end of period$11,171 $11,292$11,171 $11,292
Allowance for unfunded commitments at beginning of Period

$

207

 

$

$

567

 

$

(Release of) provision for credit losses (60)   (420)  
Allowance for unfunded commitments at end of period 147   147  

 

Loans outstanding:

          
Average$901,619 $964,060$891,477 $881,781
June 30 871,020  963,726 871,020  963,726
Ratio of ACL to loans outstanding:          
Average 1.24%  1.17% 1.25%  1.28%
June 30 1.28%  1.17% 1.28%  1.17%

 

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

 

Operating Expenses

 

Total operating expenses for the Second Quarter of 2021 were up 8.9%, or $2,446,000, compared to the Second Quarter of 2020 as personnel expense increased as a result of the increase in payment processing volumes.

Total operating expenses for the First Half of 2021 were up $2,042,000, or 3.6%, compared to the First Half of 2020, also due to the increase in payment processing volumes.

 

Financial Condition

 

Total assets at June 30, 2021 were $2,272,333,000, an increase of $69,098,000, or 3.1%, from December 31, 2020. The Company increased the investment securities portfolio $149,321,000, or 41.7%, during the period in an effort to increase the yield on interest-earning assets. The increase in investment securities was partially offset by decreases

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in cash and cash equivalents of $48,947,000, and payments in excess of funding of $10,301,000. Changes in cash and cash equivalents reflect the Company’s daily liquidity position and are affected by the changes in the other asset balances and changes in deposit and accounts and drafts payable balances.

 

Total liabilities at June 30, 2021 were $2,011,566,000, an increase of $69,491,000, or 3.6%, from December 31, 2020. Total deposits at June 30, 2021 were $1,015,943,000, a decrease of $34,913,000, or 3.3%, from December 31, 2020. Accounts and drafts payable at June 30, 2021 were $939,570,000, an increase of $104,184,000, or 12.5%, from December 31, 2020, reflecting an increase in both transportation and facility-related dollar volumes.

 

Total shareholders’ equity at June 30, 2021 was $260,767,000, a $393,000, or 0.2%, decrease from December 31, 2020. Total shareholders’ equity decreased primarily due to dividends paid of $7,761,000, share repurchases of $5,260,000 and an other comprehensive loss of $2,030,000, partially offset by net income of $14,097,000.

 

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

 

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 $621,581,000 at June 30, 2021, a decrease of $48,947,000, or 7.3%, from December 31, 2020. At June 30, 2021, these assets represented 27.4% 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 $507,047,000 at June 30, 2021, an increase of $149,321,000 from December 31, 2020. These assets represented 22.3% of total assets at June 30, 2021. Of this total, 69% were state and political subdivision securities. Of the total portfolio, 11.5% mature in one year, 19.8% mature in one to five years, and 68.7% mature in five or more years.

 

The Bank has unsecured lines of credit at correspondent banks to purchase federal funds up to a maximum of $83,000,000 at the following banks: US Bank, $20,000,000; UMB Bank, $20,000,000; Wells Fargo Bank, $15,000,000; PNC Bank, $12,000,000; Frost National Bank, $10,000,000; and JPM Chase Bank, $6,000,000. The Bank also has secured lines of credit with the Federal Home Loan Bank of $208,132,000 collateralized by commercial mortgage loans. The Company also has secured lines of credit with UMB Bank of $75,000,000 and First Horizon Bank of $75,000,000 collateralized by state and political subdivision securities. There were no amounts outstanding under any line of credit as of June 30, 2021 or December 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 $56,642,000 as of June 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 $31,779,000 of CDARS deposits and interest-bearing demand deposits include $142,344,000 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 $21,759,000 for the First Half of 2021, compared to $32,655,000 for the First Half of 2020, a decrease of $10,896,000. 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

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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.

 

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 a discussion of 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 a discussion of 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 a discussion of 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 credit 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.

 

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

 

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

 

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

 June 30, 2021 December 31, 2020
(Dollars in thousands)Amount Ratio Amount Ratio
Total capital (to risk-weighted assets)         
Cass Information Systems, Inc.$256,648 19.90% $255,332 21.41%
Cass Commercial Bank 180,343 22.22%  171,298 21.46%
Common equity tier I capital (to risk-weighted assets)         
Cass Information Systems, Inc.$245,477 19.04% $243,388 20.41%
Cass Commercial Bank 170,195 20.97%  161,300 20.21%
Tier I capital (to risk-weighted assets)         
Cass Information Systems, Inc.$245,477 19.04% $243,388 20.41%
Cass Commercial Bank 170,195 20.97%  161,300 20.21%
Tier I capital (to leverage assets)         
Cass Information Systems, Inc.$245,477 10.86% $243,388 11.52%
Cass Commercial Bank 170,195 13.60%  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

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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 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.

 

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
Assets:        
     Allowance for credit/loan losses on
         loans
$10,556 $723 $11,279
     Deferred tax asset 2,298  269  2,567
Liabilities:        
     Reserve for unfunded commitments   402  402
Shareholders’ equity:        
     Retained earnings 90,341  (856)  89,485

 

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.

 

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 Second Quarter of 2020 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.

 

 

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

During the three months ended June 30, 2021, the Company repurchased a total of 89,010 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

April 1, 2021 – April 30, 2021

    434,622
May 1, 2021– May 31, 2021 59,092 44.78 59,092 375,530

June 1, 2021 – June 30, 2021

 29,918 45.25 29,918 345,612
Total 89,010 44.94 89,010 345,612
(1)All repurchases made during the quarter ended June 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, 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.

 

ITEM 3.DEFAULTS UPON SENIOR SECURITIES

None.

 

ITEM 4.MINE SAFETY DISCLOSURES

Not applicable.

 

ITEM 5.OTHER INFORMATION

 (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 Second Quarter of 2021.

 

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.

 

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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).

 

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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:  August 5, 2021By/s/ Eric H. Brunngraber
  Eric H. Brunngraber
  Chairman, President, and Chief Executive Officer
  (Principal Executive Officer)
   
   
   
DATE:  August 5, 2021By/s/ Michael J. Normile
  Michael J. Normile
  Executive Vice President and Chief Financial Officer
  (Principal Financial and Accounting Officer)

 

 

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