Cass Information Systems - 10-Q quarterly report FY2024 Q3

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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

___________________________

FORM 10-Q


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

			For the quarterly period ended September 30, 2024

OR

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

			For the transition period from __________ to __________

Commission File No. 000-20827

____________________

CASS INFORMATION SYSTEMS, INC.

(Exact name of registrant as specified in its charter)


Missouri			43-1265338
(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 x No o

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 x No o

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

Large Accelerated Filer

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 x

The number of shares outstanding of the registrant's only class of common stock as of November 7, 2024: Common stock, par value $.50 per share – 13,569,245 shares outstanding.

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Table of Contents

TABLE OF CONTENTS


PART I – Financial Information
Item 1.	FINANCIAL STATEMENTS
	Consolidated Balance Sheets September 30, 2024 (unaudited) and December 31, 2023	3
	Consolidated Statements of Income Three and Nine Month s Ended September 30, 2024 and 2023 (unaudited)	4
	Consolidated Statements of Comprehensive Income Three and Nine Mont hs Ended September 30, 2024 and 2023 (unaudited)	5
	Consolidated Statements of Cash Flows Nine Month s Ended September 30, 2024 and 2023 (unaudited)	6
	Consolidated Statements of Shareholders’ Equity Three and Nine Month s Ended September 30, 2024 and 2023 (unaudited)	6
	Notes to Consolidated Financial Statements (unaudited)	9
Item 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	22
Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	35
Item 4.	CONTROLS AND PROCEDURES	35
PART II – Other Information – Items 1. – 6.		37
SIGNATURES		39

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 2023 Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”), which may be updated from time to time in our future filings with the SEC. We undertake no obligation to publicly update or revise any forward-looking statements to reflect changed assumptions, the occurrence of anticipated or unanticipated events, or changes to future results over time.

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Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in Thousands except Share and Per Share Data)


	September 30, 2024 (Unaudited)		December 31, 2023
Assets
Cash and due from banks	$	29,125	$	20,908
Short-term investments	201,431		351,560
Cash and cash equivalents	230,556		372,468
Securities available-for-sale, at fair value	550,756		627,117

Loans	1,078,387		1,014,318
Less: Allowance for credit losses	13,447		13,089
Loans, net	1,064,940		1,001,229
Payments in advance of funding	207,202		198,861
Premises and equipment, net	34,295		30,093
Investment in bank-owned life insurance	49,885		49,159
Goodwill	17,309		17,309
Other intangible assets, net	2,789		3,345
Accounts and drafts receivable from customers	30,892		110,651
Other assets	72,136		68,390
Total assets	$	2,260,760	$	2,478,622

Liabilities and Shareholders’ Equity
Liabilities:
Deposits:
Noninterest-bearing	$	392,573	$	524,359
Interest-bearing	654,750		616,455
Total deposits	1,047,323		1,140,814
Accounts and drafts payable	936,463		1,071,369
Other liabilities	39,327		36,630
Total liabilities	2,023,113		2,248,813

Shareholders’ Equity:
Preferred stock, par value $.50 per share; 2,000,000 shares authorized and no shares issued	—		—
Common stock, par value $.50 per share; 40,000,000 shares authorized and 15,505,772 shares issued at September 30, 2024 and December 31, 2023; 13,582,282 and 13,582,375 shares outstanding at September 30, 2024 and December 31, 2023, respectively.	7,753		7,753
Additional paid-in capital	205,026		208,007
Retained earnings	148,092		145,782
Common shares in treasury, at cost (1,923,490 shares at September 30, 2024 and 1,923,397 shares at December 31, 2023)	(84,139)		(84,264)
Accumulated other comprehensive loss	(39,085)		(47,469)
Total shareholders’ equity	237,647		229,809
Total liabilities and shareholders’ equity	$	2,260,760	$	2,478,622

See accompanying notes to unaudited consolidated financial statements.

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Table of Contents

CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(Dollars in Thousands except Per Share Data)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Fee Revenue and Other Income:
Processing fees	$	20,053	$	19,939	$	62,409	$	58,838
Financial fees	11,177		11,597		32,582		34,518
Other	1,562		1,264		4,158		3,624
Total fee revenue and other income	32,792		32,800		99,149		96,980

Interest Income:
Interest and fees on loans	14,567		12,863		40,935		38,029
Interest and dividends on securities:
Taxable	3,114		3,428		10,118		10,702
Exempt from federal income taxes	893		964		2,709		3,161
Interest on federal funds sold and other short-term investments	4,200		3,934		11,908		9,147
Total interest income	22,774		21,189		65,670		61,039

Interest Expense:
Interest on deposits	5,155		4,641		15,645		11,463
Interest on short-term borrowings	1		—		1		116
Total interest expense	5,156		4,641		15,646		11,579
Net interest income	17,618		16,548		50,024		49,460
(Release of) provision for credit losses	(140)		125		355		(335)
Net interest income after (release of) provision for credit losses	17,758		16,423		49,669		49,795
Total net revenue	50,550		49,223		148,818		146,775

Operating Expense:
Personnel	29,867		29,636		90,331		89,094
Occupancy	890		908		2,577		2,670
Equipment	2,107		1,789		5,976		5,188
Bad debt expense	6,559		—		7,847		—
Amortization of intangible assets	183		195		556		585
Other operating expense	7,292		7,535		23,075		22,237
Total operating expense	46,898		40,063		130,362		119,774
Income before income tax expense	3,652		9,160		18,456		27,001
Income tax expense	714		1,766		3,882		5,352
Net income	$	2,938	$	7,394	$	14,574	$	21,649

Basic earnings per share	$	.22	$	.55	$	1.08	$	1.60
Diluted earnings per share	.21		.54		1.06		1.56

See accompanying notes to unaudited consolidated financial statements.

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Table of Contents

CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(Dollars in Thousands)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Comprehensive Income (Loss):
Net income	$	2,938	$	7,394	$	14,574	$	21,649
Other comprehensive income (loss):
Net unrealized gain (loss) on securities available-for-sale	13,624		(13,659)		10,938		(10,105)
Tax effect	(3,243)		3,251		(2,604)		2,405
Reclassification adjustments for losses included in net income	—		—		13		160
Tax effect	—		—		(3)		(38)
Foreign currency translation adjustments	172		(118)		40		(21)
Total comprehensive income (loss)	$	13,491	$	(3,132)	$	22,958	$	14,050

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)


	Nine Months Ended September 30,
	2024		2023
Cash Flows From Operating Activities:
Net income	$	14,574	$	21,649
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of intangible assets	556		585
Net amortization of premium/discount on investment securities	2,916		3,378
Depreciation	3,646		3,061
Losses on sales of securities	13		160
Stock-based compensation expense	2,598		3,797
Provision for (release of) credit losses	355		(335)

Increase (decrease) in current income tax liability	55		(1,496)
Increase in pension liability	635		346
Increase in accounts receivable	(5,193)		(1,234)
Other operating activities, net	164		(545)
Net cash provided by operating activities	20,319		29,366

Cash Flows From Investing Activities:
Proceeds from sales of securities available-for-sale	24,985		111,053
Proceeds from maturities of securities available-for-sale	130,518		29,410
Purchase of securities available-for-sale	(71,121)		(15,332)
Net (increase) decrease in loans	(64,069)		43,286


(Increase) decrease in payments in advance of funding	(8,341)		35,188
Purchases of premises and equipment, net	(7,848)		(9,360)
Net cash provided by investing activities	4,124		194,245

Cash Flows From Financing Activities:
Net decrease in noninterest-bearing demand deposits	(131,786)		(131,465)
Net increase in interest-bearing demand and savings deposits	33,640		15,304
Net increase in time deposits	4,655		36,286
Net decrease in accounts and drafts receivable from customers	79,760		67,069

Net (decrease) increase in accounts and drafts payable	(134,906)		14,624
Cash dividends paid	(12,264)		(11,887)
Purchase of common shares for treasury	(3,705)		(5,212)
Other financing activities, net	(1,749)		(837)
Net cash used in financing activities	(166,355)		(16,118)
Net (decrease) increase in cash and cash equivalents	(141,912)		207,493
Cash and cash equivalents at beginning of period	372,468		200,942
Cash and cash equivalents at end of period	$	230,556	$	408,435

Supplemental information:
Cash paid for interest	$	15,653	$	11,049
Cash paid for income taxes	4,095		6,775

See accompanying notes to unaudited consolidated financial statements.

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CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

THREE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023

(Unaudited)

(Dollars in Thousands except per share data)


	Common Stock		Additional Paid-in Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Loss		Total
Balance, June 30, 2023	$	7,753	$	206,734	$	137,996	$	(80,943)	$	(56,394)	$	215,146
Net income					7,394						7,394
Cash dividends ($0.29 per share)					(3,946)						(3,946)
Issuance of 1,685 common shares pursuant to stock-based compensation plans, net			(9)				74				65

Stock-based compensation expense			938				—				938
Purchase of 73,272 common shares							(2,835)				(2,835)
Other comprehensive loss									(10,526)		(10,526)
Balance, September 30, 2023	$	7,753	$	207,663	$	141,444	$	(83,704)	$	(66,920)	$	206,236


Balance, June 30, 2024	$	7,753	$	204,128	$	149,236	$	(81,554)	$	(49,638)	$	229,925
Net income					2,938						2,938
Cash dividends ($0.30 per share)					(4,082)						(4,082)
Issuance of 1,505 common shares pursuant to stock-based compensation plans, net			—				66				66

Stock-based compensation expense			898				—				898
Purchase of 64,471 common shares							(2,651)				(2,651)
Other comprehensive gain									10,553		10,553
Balance, September 30, 2024	$	7,753	$	205,026	$	148,092	$	(84,139)	$	(39,085)	$	237,647

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CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023

(Unaudited)

(Dollars in Thousands except per share data)


	Common Stock		Additional Paid-in Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Loss		Total
Balance, December 31, 2022	$	7,753	$	207,422	$	131,682	$	(81,211)	$	(59,321)	$	206,325
Net income					21,649						21,649
Cash dividends ($.87 per share)					(11,887)						(11,887)
Issuance of 82,906 common shares pursuant to stock-based compensation plan, net			(3,336)				2,615				(721)
Exercise of SARs			(238)				122				(116)
Stock-based compensation expense			3,815				(18)				3,797
Purchase of 136,577 common shares							(5,212)				(5,212)
Other comprehensive loss									(7,599)		(7,599)
Balance, September 30, 2023	$	7,753	$	207,663	$	141,444	$	(83,704)	$	(66,920)	$	206,236


Balance, December 31, 2023	$	7,753	$	208,007	$	145,782	$	(84,264)	$	(47,469)	$	229,809
Net income					14,574						14,574
Cash dividends ($.90 per share)					(12,264)						(12,264)
Issuance of 124,801 common shares pursuant to stock-based compensation plans, net			(5,611)				3,862				(1,749)

Stock-based compensation expense			2,630				(32)				2,598
Purchase of 87,742 common shares							(3,705)				(3,705)
Other comprehensive gain									8,384		8,384
Balance, September 30, 2024	$	7,753	$	205,026	$	148,092	$	(84,139)	$	(39,085)	$	237,647

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 notes 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. 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, 2023 ("2023 Form 10-K").

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, 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:


	September 30, 2024				December 31, 2023
(In thousands)	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Assets eligible for amortization:
Customer lists	$	6,470	$	(5,039)	$	6,470	$	(4,851)
Patents	72		(39)		72		(36)
Software	3,212		(2,252)		3,212		(1,933)
Trade name	373		(91)		373		(70)
Other	500		(417)		500		(392)
Unamortized intangible assets:
Goodwill	17,309		—		17,309		—
Total intangible assets	$	27,936	$	(7,838)	$	27,936	$	(7,282)

The customer lists are amortized over 7 to 10 years; the patents over 18 years; software over 3 to 7 years; the trade names over 10 to 20 years; and other intangible assets over 15 years. Amortization of intangible assets amounted to $183,000 and $556,000 for the three and nine months ended September 30, 2024, respectively. Amortization of intangible assets amounted to $195,000 and $585,000 for the three and nine months ended September 30, 2023, respectively. Estimated annual amortization of intangibles is $738,000 in 2024, $730,000 in 2025, $582,000 in 2026, $262,000 in 2027, and $254,000 in 2028.

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.

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


(In thousands except share and per share data)	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Basic
Net income	$	2,938	$	7,394	$	14,574	$	21,649
Weighted-average common shares outstanding	13,504,204		13,501,469		13,524,165		13,551,070
Basic earnings per share	$	0.22	$	0.55	$	1.08	$	1.60

Diluted
Net income	$	2,938	$	7,394	$	14,574	$	21,649
Weighted-average common shares outstanding	13,504,204		13,501,469		13,524,165		13,551,070
Effect of dilutive restricted stock and stock appreciation rights	281,793		291,142		273,575		285,354
Weighted-average common shares outstanding assuming dilution	13,785,997		13,792,611		13,797,740		13,836,424
Diluted earnings per share	$	0.21	$	0.54	$	1.06	$	1.56

Note 4 – Stock Repurchases

The Company maintains a treasury stock buyback program pursuant to which, in October 2023, the Board of Directors authorized the repurchase of up to 500,000 shares of the Company’s common stock with no expiration date. As of September 30, 2024, the Company had 398,294 shares remaining available for repurchase under the program. The Company repurchased 64,471 and 87,742 shares during the three and nine months ended September 30, 2024, respectively and 73,272 and 136,577 shares during the three and nine months ended September 30, 2023, 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. In addition, this segment provides church management software and on-line generosity services primarily for faith-based ministries. The Banking Services segment provides banking services primarily to privately held businesses, franchise restaurants, and faith-based ministries, 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 2023 Form 10-K. Management evaluates segment performance based on pre-tax income after allocations for corporate expenses. Transactions between segments are accounted for at what management believes to be fair value.

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

Funding sources represent average balances and deposits generated by Information Services and Banking Services and there is no allocation methodology used. Banking Services interest income is determined by actual interest income on loans minus actual interest expense paid on deposits plus/minus an allocation for interest income or expense dependent on the remaining available liquidity of the segment. Information Services interest income is determined by multiplying available liquidity by actual yields on short-term investments and investment securities.

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

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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 September 30, 2024:
Fee income	$	31,830	$	614	$	348	$	32,792
Interest income	10,223		15,630		(3,079)		22,774
Interest expense	333		9,005		(4,182)		5,156
Intersegment income (expense)	(938)		938		—		—
Pre-tax income	(352)		2,552		1,452		3,652
Goodwill	17,173		136		—		17,309
Other intangible assets, net	2,789		—		—		2,789
Total assets	1,371,095		1,172,264		(282,599)		2,260,760
Average funding sources	$	1,293,512	$	774,126	$	—	$	2,067,638
Three Months Ended September 30, 2023:
Fee income	$	31,843	$	664	$	293	$	32,800
Interest income	10,143		13,879		(2,833)		21,189
Interest expense	437		7,523		(3,319)		4,641
Intersegment income (expense)	(1,117)		1,117		—		—
Pre-tax income	6,100		2,282		778		9,160
Goodwill	17,173		136		—		17,309
Other intangible assets, net	3,540		—		—		3,540
Total assets	1,648,152		1,130,345		(273,619)		2,504,878
Average funding sources	$	1,347,074	$	795,011	$	—	$	2,142,085
Nine Months Ended September 30, 2024:
Fee income	$	96,214	$	1,919	$	1,016	$	99,149
Interest income	30,166		44,194		(8,690)		65,670
Interest expense	1,245		25,468		(11,067)		15,646
Intersegment income (expense)	(2,992)		2,992		—		—
Pre-tax income	8,733		6,330		3,393		18,456
Goodwill	17,173		136		—		17,309
Other intangible assets, net	2,789		—		—		2,789
Total assets	1,371,095		1,172,264		(282,599)		2,260,760
Average funding sources	$	1,288,546	$	786,541	$	—	$	2,075,087
Nine Months Ended September 30, 2023:
Fee income	$	94,280	$	2,001	$	699	$	96,980
Interest income	29,053		40,885		(8,899)		61,039
Interest expense	604		20,296		(9,321)		11,579
Intersegment income (expense)	(3,093)		3,093		—		—
Pre-tax income	16,964		8,917		1,120		27,001
Goodwill	17,173		136		—		17,309
Other intangible assets, net	3,540		—		—		3,540
Total assets	1,648,152		1,130,345		(273,619)		2,504,878
Average funding sources	$	1,343,750	$	820,335	$	—	$	2,164,085

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Note 6 – Loans by Type

A summary of loans is as follows:


(In thousands)	September 30, 2024		December 31, 2023
Commercial and industrial	$	548,519	$	498,502
Real estate:
Commercial:
Mortgage	119,119		118,371
Construction	9,479		8,233
Faith-based:
Mortgage	376,573		381,368
Construction	24,696		7,790
Other	1		54
Total loans	$	1,078,387	$	1,014,318

The following table presents the aging of loans past due by category at September 30, 2024 and December 31, 2023:


	Performing						Nonperforming
(In thousands)	Current		30-59 Days		60-89 Days		90 Days and Over		Non- accrual		Total Loans
September 30, 2024
Commercial and industrial	$	548,075	$	444	$	—	$	—	$	—	$	548,519
Real estate
Commercial:
Mortgage	119,119		—		—		—		—		119,119
Construction	9,479		—		—		—		—		9,479
Faith-based:
Mortgage	376,573		—		—		—		—		376,573
Construction	24,696		—		—		—		—		24,696

Other	1		—		—		—		—		1
Total	$	1,077,943	$	444	$	—	$	—	$	—	$	1,078,387
December 31, 2023
Commercial and industrial	$	498,502	$	—	$	—	$	—	$	—	$	498,502
Real estate
Commercial:
Mortgage	118,371		—		—		—		—		118,371
Construction	8,233		—		—		—		—		8,233
Faith-based:
Mortgage	381,368		—		—		—		—		381,368
Construction	7,790		—		—		—		—		7,790

Other	54		—		—		—		—		54
Total	$	1,014,318	$	—	$	—	$	—	$	—	$	1,014,318

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The following table presents the credit exposure of the loan portfolio by internally assigned credit grade as of September 30, 2024 and December 31, 2023:


(In thousands)	Loans Subject to Normal Monitoring1		Performing Loans Subject to Special Monitoring2		Nonperforming Loans Subject to Special Monitoring2		Total Loans
September 30, 2024
Commercial and industrial	$	546,975	$	1,544	$	—	$	548,519
Real estate
Commercial:
Mortgage	115,966		3,153		—		119,119
Construction	9,479		—		—		9,479
Faith-based:
Mortgage	359,805		16,768		—		376,573
Construction	24,696		—		—		24,696

Other	1		—		—		1
Total	$	1,056,922	$	21,465	$	—	$	1,078,387
December 31, 2023
Commercial and industrial	$	498,502	$	—	$	—	$	498,502
Real estate
Commercial:
Mortgage	118,371		—		—		118,371
Construction	8,233		—		—		8,233
Faith-based:
Mortgage	375,865		5,503		—		381,368
Construction	7,790		—		—		7,790

Other	54		—		—		54
Total	$	1,008,815	$	5,503	$	—	$	1,014,318


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.

Loan modifications to borrowers experiencing financial difficulty may be in the form of principal forgiveness, an interest rate reduction, an other-than-insignificant payment delay, a term extension, or a combination thereof, among other things. There were no loans modified during the nine months ended September 30, 2024. The following table shows the amortized

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cost of loans that were both experiencing financial difficulty and modified during the nine months ended September 30, 2023, segregated by category and type of modification.


(In thousands)	Payment Delay		Term Extension		Interest Rate Reduction		Combination Term Extension and Interest Rate Reduction		Percentage of Total Loans Held for Investment












Commercial and industrial	$	—	$	10,709	$	—	$	—	2.07	%








Total	$	—	$	10,709	$	—	$	—	1.03	%

There were two loans modified during the nine months ended September 30, 2023. The terms were extended by periods of two and three years and there was not an interest rate reduction associated with the modifications.

The following table shows the payment status of loans that have been modified to borrowers experiencing financial difficulty in the last twelve months:


(In thousands)	Current		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due

Commercial and industrial	$	10,975	$	—	$	—	$	—	$	—








Total	$	10,975	$	—	$	—	$	—	$	—

At September 30, 2024, the Company had no commitments to lend additional funds to borrowers experiencing financial difficulty for which the Company modified the terms of the loans in the form of principal forgiveness, an interest rate reduction, an other-than-insignificant payment delay, or a term extension during the current period.

There were no modified loans that had a payment default during the nine months ended September 30, 2024 or 2023 and that had been modified due to the borrower experiencing financial difficulty within the 12 previous months preceding the default.

Upon the Company's determination that a modified loan has subsequently been deemed uncollectible, the loan is written off. There were no loans written off during the nine months ended September 30, 2024 or 2023.

The Company had no loans evaluated for expected credit losses on an individual basis as of September 30, 2024, and December 31, 2023, respectively.

There were no foreclosed loans recorded as other real estate owned as of September 30, 2024 or December 31, 2023.

A summary of the activity in the allowance for credit losses (“ACL”) by category for the nine months ended September 30, 2024 and year-ended December 31, 2023 is as follows:


(In thousands)	C&I		CRE		Faith-based CRE		Construction		Total
Balance at December 31, 2022	$	5,978	$	940	$	6,437	$	184	$	13,539
(Release of) provision for credit losses	(566)		153		39		(76)		(450)

Balance at December 31, 2023	$	5,412	$	1,093	$	6,476	$	108	$	13,089

Provision for (release of) credit losses (1)	263		(75)		66		104		358

Balance at September 30, 2024	$	5,675	$	1,018	$	6,542	$	212	$	13,447


(1)			For the nine months ended September 30, 2024 and year-ended December 31, 2023, there was a release of credit losses of $3,000 and $100,000, respectively, for unfunded commitments.

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. As more fully described in the Form

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10-K, such activities include traditional off-balance sheet credit-related financial instruments. 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. 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. An allowance for unfunded commitments of $129,000 and $132,000 had been recorded at September 30, 2024 and December 31, 2023, respectively.

At September 30, 2024, the balances of unfunded commitments, standby and commercial letters of credit were $208.3 million, $13.5 million, and $273,000, respectively. Since some of the financial instruments may expire without being drawn upon, the total amounts do not necessarily represent future cash requirements.

On March 19, 2024, the Company filed a claim against Rubicon Technologies, Inc. ("Rubicon") for failed reimbursement of invoices that were processed and paid by the Company on Rubicon's behalf and unpaid fees for Company services that are due for invoice management services and bill pay services, together with interest and penalties related to the foregoing amounts. At September 30, 2024, Rubicon owes the Company approximately $8.4 million, of which $7.8 million relates to previously accrued service fees and invoices paid by the Company which were not reimbursed by Rubicon. The Company evaluated the receivable from a credit loss perspective, and, based on this evaluation, recorded a write-off to bad debt expense of $6.6 million $6.6 million and $7.8 million $7.8 million for the three and nine months ended September 30, 2024, respectively. The Company strongly believes in the merits of its claim against Rubicon.

On April 22, 2024, Rubicon filed a counterclaim against the Company for failure to perform its obligations under the Master Services Agreement between the Company and Rubicon. The Company believes these claims to be without merit and intends to vigorously defend itself against such claims.

Note 8 – Stock-Based Compensation

On February 16, 2023, the Board of Directors adopted the 2023 Omnibus Stock and Performance Compensation Plan (the "2023 Omnibus Plan"), which was approved by the Company's shareholders on April 18, 2023. The 2023 Omnibus Plan permits the issuance of up to 1.0 million shares of the Company’s common stock in the form of stock options, SARs, restricted stock, restricted stock units, phantom stock, and performance awards. During the nine months ended September 30, 2024, 55,967 time-based restricted shares and 51,261 performance-based restricted shares were granted under the 2023 Omnibus Plan. Stock-based compensation expense was $898,000 and $2.6 million for the three and nine months ended September 30, 2024, respectively, and $938,000 and $3.8 million for the three and nine months ended September 30, 2023, respectively.

Restricted Stock

Restricted shares granted to Company employees are amortized to expense over a three-year cliff vesting period, or until vesting occurs upon retirement. 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 September 30, 2024, the total unrecognized compensation expense related to non-vested restricted shares was $2.1 million, and the related weighted-average period over which it is expected to be recognized is approximately 0.60 years.

Following is a summary of the activity of the Company's restricted stock for the nine months ended September 30, 2024, with total shares and weighted-average fair value:


	Nine Months Ended September 30, 2024
	Shares	Fair Value
Balance at December 31, 2023	237,780	$	42.17
Granted	55,967	44.05
Vested	(39,764)	32.78
Forfeitures	(710)	43.70
Balance at September 30, 2024	253,273	$	42.87

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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 for the nine months ended September 30, 2024, based on 100% of target value:


	Nine Months Ended September 30, 2024
	Shares	Fair Value
Balance at December 31, 2023	159,073	$	42.74
Granted	51,261	44.29
Vested	(50,840)	40.74
Forfeitures	(1,066)	43.70
Balance at September 30, 2024	158,428	$	43.87

The PBRS that vested during the nine months ended September 30, 2024 were based on the Company's achievement of 135.4% of target financial goals for the 2021-2023 performance period, resulting in the issuance of 68,834 shares of common stock. The outstanding PBRS at September 30, 2024 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.

Stock Appreciation Rights

There were no stock appreciation rights ("SARs") granted and no expense recognized during the nine months ended September 30, 2024. Following is a summary of the activity of the Company’s SARs program for the nine months ended September 30, 2024:


	Shares	Weighted- Average Exercise Price		Average Remaining Contractual Term Years	Aggregate Intrinsic Value (In thousands)
Balance at December 31, 2023	30,409	$	46.70	0.08	$	—

Forfeited	(30,409)	46.70		0.00	—
Exercisable at September 30, 2024	—	$	—	0.00	$	—

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.

On July 16, 2024, the Company approved an Amendment providing for the termination of the Plan. The Company expects to record one-time termination expenses of approximately $4.0 million to $6.0 million through operating expense related to

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the termination of the Plan during the fourth quarter of 2024 as the Plan's liabilities are settled via lump sum payments or annuity purchases. The following table represents the components of net periodic pension cost:


(In thousands)	Estimated 2024		Actual 2023

Interest cost on projected benefit obligations	$	4,291	$	4,314
Expected return on plan assets	(3,512)		(3,735)
Net amortization	—		154
Net periodic pension cost	$	779	$	733

The Company recorded net periodic pension cost of $195,000 and $584,000 for the three and nine months ended September 30, 2024, and $100,000 and $299,000 for the three and nine months ended September 30, 2023. The Company made no contributions to the Plan during the nine months ended September 30, 2024. The Company may need to make a contribution to the Plan during the fourth quarter of 2024 depending on the cash needed to fund lump sum payments and annuity purchases versus existing assets in the Plan.

In addition to the above Plan, the Company has an unfunded supplemental executive retirement plan (the "SERP"). There are no current employees earning benefits and therefore, there is no service cost associated with the SERP. The following table represents the components of the net periodic cost for the SERP:


(In thousands)	Estimated 2024		Actual 2023

Interest cost on projected benefit obligation	$	451	$	472

Net periodic pension cost	$	451	$	472

SERP cost recorded to expense was $113,000 and $338,000 for the three and nine months ended September 30, 2024, and was $118,000 and $354,000 for the three and nine months ended September 30, 2023.

Note 10 – Income Taxes

The effective tax rate was 19.6% and 21.0% for the three and nine months ended September 30, 2024, and was 19.3% and 19.8% for the three and nine months ended September 30, 2023, respectively. The effective tax rate for all periods differs from the statutory rate of 21% primarily due to tax-exempt interest received from municipal bonds and bank-owned life insurance, partially offset by state related taxes, among other factors.

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 inputs including observable trade data, market data, etc. 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:


	September 30, 2024
(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
State and political subdivisions	$	216,438	$	35	$	(13,368)	$	203,105
Mortgage-backed securities issued or guaranteed by U.S. government agencies or sponsored enterprises	225,749		548		(27,024)		199,273
Corporate bonds	118,923		17		(6,552)		112,388

Asset backed securities issued or guaranteed by U.S. government agencies or sponsored enterprises	36,496		—		(506)		35,990
Total	$	597,606	$	600	$	(47,450)	$	550,756

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	December 31, 2023
(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
State and political subdivisions	$	235,297	$	4	$	(16,266)	$	219,035
Mortgage-backed securities issued or guaranteed by U.S. government agencies or sponsored enterprises	188,307		—		(30,508)		157,799
Corporate bonds	111,109		—		(8,769)		102,340
Treasury securities	109,836		—		(1,115)		108,721
Asset backed securities issued or guaranteed by U.S. government agencies or sponsored enterprises	40,368		—		(1,146)		39,222
Total	$	684,917	$	4	$	(57,804)	$	627,117

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


	September 30, 2024
	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	$	4,971	$	4	$	178,533	$	13,364	$	183,504	$	13,368
Mortgage-backed securities issued or guaranteed by U.S. government agencies or sponsored enterprises	28,995		173		144,309		26,851		173,304		27,024
Corporate bonds	25,682		324		81,671		6,228		107,353		6,552

Asset backed securities issued or guaranteed by U.S. government agencies or sponsored enterprises	—		—		35,990		506		35,990		506
Total	$	59,648	$	501	$	440,503	$	46,949	$	500,151	$	47,450


	December 31, 2023
	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	$	63,198	$	220	$	152,854	$	16,046	$	216,052	$	16,266
Mortgage-backed securities issued or guaranteed by U.S. government agencies or sponsored enterprises	—		—		157,799		30,508		157,799		30,508
Corporate bonds	19,545		455		82,795		8,314		102,340		8,769
Treasury securities	—		—		108,721		1,115		108,721		1,115
Asset backed securities issued or guaranteed by U.S. government agencies or sponsored enterprises	—		—		39,222		1,146		39,222		1,146
Total	$	82,743	$	675	$	541,391	$	57,129	$	624,134	$	57,804

There were 244 securities, or 90.0% (226 of which for greater than 12 months), in an unrealized loss position as of September 30, 2024. The unrealized losses at September 30, 2024 were primarily attributable to changes in market interest rates after the securities were purchased. The Company does not currently intend to sell, and based on current conditions,

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the Company does not believe it will be required to sell these available-for-sale securities before the recovery of the amortized cost basis, which may be the maturity dates of the securities. Therefore, the unrealized losses are recorded in accumulated other comprehensive loss. There were 275 securities, or 98.9% (210 of which for greater than 12 months), in an unrealized loss position as of December 31, 2023. At September 30, 2024 and December 31, 2023, the Company had not recorded an allowance for credit losses on securities.

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


	September 30, 2024
(In thousands)	Amortized Cost		Fair Value
Due in 1 year or less	$	35,699	$	35,639
Due after 1 year through 5 years	125,559		123,939
Due after 5 years through 10 years	200,477		182,058
Due after 10 years	235,871		209,120
Total	$	597,606	$	550,756

Proceeds from sales of investment securities classified as available-for-sale were $0 and $25.0 million for the three and nine months ended September 30, 2024, and $0 and $111.1 million for the three and nine months ended September 30, 2023, respectively. Gross realized losses were $0 and $13,000 for the three and nine months ended September 30, 2024 and $0 and $347,000 for the three and nine months ended September 30, 2023, respectively. There were no gross realized gains for the three and nine months ended September 30, 2024. Gross realized gains were $0 and $187,000 for the three and nine months ended September 30, 2023, respectively. There were no securities pledged to secure public deposits or for other purposes at September 30, 2024.

Note 12 – Fair Value of Financial Instruments

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


	September 30, 2024				December 31, 2023
(In thousands)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Balance sheet assets:
Cash and cash equivalents	$	230,556	$	230,556	$	372,468	$	372,468
Investment securities	550,756		550,756		627,117		627,117
Loans, net	1,064,940		1,037,925		1,001,229		962,223
Accrued interest receivable	8,334		8,334		8,450		8,450
Total	$	1,854,586	$	1,827,571	$	2,009,264	$	1,970,258
Balance sheet liabilities:
Deposits	$	1,047,323	$	1,047,323	$	1,140,814	$	1,140,814
Accounts and drafts payable	936,463		936,463		1,071,369		1,071,369
Accrued interest payable	627		627		635		635
Total	$	1,984,413	$	1,984,413	$	2,212,818	$	2,212,818

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 inputs including observable trade data, market data, etc. Refer to Note 11, “Investment in Securities,” for fair value and unrealized gains and losses by investment type.

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

Accrued Interest Receivable - The carrying amount approximates fair value.

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

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

Accrued Interest Payable - The carrying amount approximates fair value.

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.

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.

Financial 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. The contracts have no significant impact of variable consideration and no significant financing components.

The following table presents non-interest income, segregated by revenue streams in-scope and out-of-scope for the periods ended September 30, 2024 and 2023.


	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)	2024		2023		2024		2023
Fee revenue and other income
In-scope of FASB ASC 606
Processing fees	$	20,053	$	19,939	$	62,409	$	58,838
Financial fees	11,177		11,597		32,582		34,518
Information services payment and processing revenue	31,230		31,536		94,991		93,356
Bank service fees	354		247		954		764
Fee revenue (in-scope of FASB ASC 606)	31,584		31,783		95,945		94,120
Other income (out-of-scope of FASB ASC 606)	1,208		1,017		3,204		2,860
Total fee revenue and other income	$	32,792	$	32,800	$	99,149	$	96,980

Note 14 – Leases

The Company leases certain premises under operating leases. As of September 30, 2024, the Company had lease liabilities of $7.7 million and right-of-use assets of $7.3 million. Lease liabilities and right-of-use assets are reflected in other

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liabilities and other assets, respectively. Presented within occupancy expense on the Consolidated Statements of Income for the three and nine months ended September 30, 2024, operating lease cost was $333,000 and $1.0 million, short-term lease cost was $92,000 and $266,000, and there was no variable lease cost. At September 30, 2024, the weighted-average remaining lease term for the operating leases was 6.6 years and the weighted-average discount rate used in the measurement of operating lease liabilities was 3.55%. 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. See the Company’s 2023 Form 10-K for information regarding these commitments.

A maturity analysis of operating lease liabilities and undiscounted cash flows as of September 30, 2024 is as follows:


(In thousands)	September 30, 2024
Lease payments due
Less than 1 year	$	1,339
1-2 years	1,354
2-3 years	1,350
3-4 years	1,343
4-5 years	1,265
Over 5 years	1,953
Total undiscounted cash flows	8,604
Discount on cash flows	902
Total lease liability	$	7,702

There were no sale and leaseback transactions, leveraged leases, or lease transactions with related parties during the nine months ended September 30, 2024.

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 September 30, 2024. 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

Overview

Cass Information Systems, Inc. ("Cass" or the "Company") provides payment and information processing services to large manufacturing, distribution, and retail enterprises across the United States. The Company’s services include freight invoice rating, payment processing, auditing, and the generation of accounting and transportation information. Cass also processes and pays facility-related invoices, which include electricity and gas as well as waste and telecommunications expenses, and is a provider of telecom expense management solutions. Cass solutions include integrated payments, a B2B payment platform for clients that require an agile fintech partner. Additionally, the Company offers a church management software solution and an on-line platform to provide generosity services for faith-based and non-profit organizations. The Company’s bank subsidiary, Cass Commercial Bank (the “Bank”), supports the Company’s payment operations. The Bank also provides banking services to its target markets, which include privately held businesses in the St. Louis metropolitan area and restaurant franchises and faith-based ministries within the United States.

In general, Cass is compensated for its information processing services through service fees, transactional level payment services, and investment of account balances generated during the payment process. Both the number of transactions processed and the dollar volume processed are therefore key metrics followed by management. The Bank earns most of its revenue from net interest income.

Various factors will influence the Company’s revenue and profitability, such as changes in the general level of interest rates, which has a significant effect on net interest income; industry-wide factors, such as the willingness of large corporations to outsource key business functions, the general level of transportation costs, deregulation of energy costs, and consolidation of telecommunication providers; and economic factors that include the general level of economic activity, the ability to hire and retain qualified staff, and the growth and quality of the Bank’s loan portfolio. For a more detailed discussion of the Company’s revenue drivers and factors that impact the Company’s results of operation and financial condition generally, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s 2023 Form 10-K.

Recent Industry Developments

The transportation industry continues to experience a decline in overall freight rates caused by an ongoing freight recession. The freight recession adversely affects the number of freight transactions and dollar amount of invoices processed. Partially as a result, the Company's transportation invoice and dollar volumes declined 1.5% and 7.3%, respectively during the nine months ended September 30, 2024 as compared to the same period in 2023. Transportation dollar volumes are key to the Company’s revenue as higher volumes generally lead to an increase in payment float, which generates interest income, as well as an increase in payments in advance of funding, which generates financial fees.

2024 Items of Note

Average interest-earning assets for the third quarter of 2024 declined $58.1 million, or 2.8%, as compared to the third quarter of 2023. The Company had fewer funds to invest due to the loss of approximately $100.0 million of balances in February 2024 as a result of a cyber attack experienced by large client. CassPay offers solutions such as integrated payments, a B2B payment platform for clients. The loss of CassPay balances was partially offset by an increase in facility dollar volumes of 13.4%, leading to higher average accounts and drafts payable.

Despite the decline in average interest-earning assets during the quarter, the Company’s liquidity position and balance sheet remains strong. The Company maintained average short-term investments of $338.5 million during the third quarter of 2024. In addition, all of the Company's investment securities are classified as available-for-sale and there were no outstanding borrowings at September 30, 2024.

The Company recorded bad debt expense of $6.6 million and $7.8 million for the three and nine months ended September 30, 2024, respectively on a funding receivable related to a facility client. See Note 7, "Commitments and Contingencies" for further information.

Also, on July 16, 2024, the Company approved an Amendment providing for the termination of its noncontributory defined-benefit pension plan. The Company expects to record one-time termination expenses of approximately $4.0 million to $6.0 million through operating expense related to the plan termination during the fourth quarter of 2024 as the plan

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liabilities are settled. The successful termination of the plan is expected to reduce run rate operating expense by approximately $1.0 million on an annual basis.

Results of Operations

The following paragraphs more fully discuss the results of operations and changes in financial condition for the three month period ended September 30, 2024 (“third quarter of 2024”) compared to the three month period ended September 30, 2023 (“third quarter of 2023”) and the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. 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 2023 Form 10-K. Results of operations for the three month period ended September 30, 2024 are not necessarily indicative of the results to be attained for any other period.

Summary of Results

The following table summarizes the Company’s operating results:


(In thousands except per share data)	Third Quarter of								Nine Months Ended September 30,
	2024			2023			% Change		2024			2023			% Change
Processing fees	$	20,053		$	19,939		0.6	%	$	62,409		$	58,838		6.1	%
Financial fees	11,177			11,597			(3.6)	%	32,582			34,518			(5.6)	%
Net interest income	17,618			16,548			6.5	%	50,024			49,460			1.1	%
Provision for (release of) credit loss	(140)			125			(212.0)	%	355			(335)			(206.0)	%
Other	1,562			1,264			23.6	%	4,158			3,624			14.7	%
Total net revenue	50,550			49,223			2.7	%	148,818			146,775			1.4	%
Operating expense	46,898			40,063			17.1	%	130,362			119,774			8.8	%
Income before income tax expense	3,652			9,160			(60.1)	%	18,456			27,001			(31.6)	%
Income tax expense	714			1,766			(59.6)	%	3,882			5,352			(27.5)	%
Net income	$	2,938		$	7,394		(60.3)	%	$	14,574		$	21,649		(32.7)	%
Diluted earnings per share	$	0.21		$	0.54		(61.1)	%	$	1.06		$	1.56		(32.1)	%
Return on average assets	0.50		%	1.22		%	—		0.83		%	1.20		%	—
Return on average equity	5.04		%	13.80		%	—		8.54		%	13.64		%	—

Third quarter of 2024 compared to third quarter of 2023:

The Company recorded net revenue of $50.6 million during the three month period ended September 30, 2024, up 2.7% from the three month period ended September 30, 2023, primarily driven by higher net interest income. Operating expense increased 17.1% primarily driven by $6.6 million of bad debt expense on a funding receivable related to a facility client. Net income was $2.9 million and diluted EPS was $0.21 per share, decreases of 60.3% and 61.1% from the three month period ended September 30, 2023, respectively.

The Company posted a 0.50% return on average assets and 5.04% return on average equity.

Nine months ended September 30, 2024 compared to nine months ended September 30, 2023:

The Company recorded net revenue of $148.8 million during the nine months ended September 30, 2024, up 1.4% from the nine months ended September 30, 2023, primarily driven by higher processing fees. Operating expense increased 8.8% largely driven by $7.9 million of bad debt expense experienced during the first nine months of 2024 on a funding receivable related to a facility client. Net income was $14.6 million and diluted EPS was $1.06 per share, decreases of 32.7% and 32.1% from the nine months ended September 30, 2023, respectively.

The Company posted a 0.83% return on average assets and 8.54% return on average equity.

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Fee Revenue and Other Income

The Company’s fee revenue is derived mainly from transportation and facility processing and financial 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, discounts received for services provided to carriers and by the accounts and drafts payable balances generated in the payment process which can be used to generate interest income. Processing volumes, average payments in advance of funding, and fee revenue were as follows:


(In thousands)	Third Quarter of						Nine Months Ended September 30,
	2024		2023		% Change			2024		2023		% Change
Transportation invoice volume	9,160		8,925		2.6	%		26,810		27,216		(1.5)	%
Transportation invoice dollar volume	$	9,097,739	$	9,263,453	(1.8)	%		$	27,118,728	$	29,243,706	(7.3)	%
Facility-related transaction volume 1	4,316		3,417		26.3	%		12,917		10,352		24.8	%
Facility-related dollar volume 1	$	5,778,291	$	5,096,882	13.4	%		$	16,147,139	$	14,988,757	7.7	%
Average payments in advance of funding	$	202,976	$	234,684	(13.5)	%		$	203,498	$	243,458	(16.4)	%
Processing fees	$	20,053	$	19,939	0.6	%		$	62,409	$	58,838	6.1	%
Financial fees	$	11,177	$	11,597	(3.6)	%		$	32,582	$	34,518	(5.6)	%
Other fees	$	1,562	$	1,264	23.6	%		$	4,158	$	3,624	14.7	%

1.Includes energy, telecom and environmental.

Third quarter of 2024 compared to third quarter of 2023:

Processing fees increased $114,000, or 0.6%, primarily attributable to an increase in facility-related invoice volumes of 26.3%, partially offset by a decrease in ancillary processing fees unrelated to transaction volumes, such as implementation fees. The Company has experienced recent success in adding facility clients with high transaction volumes.

Financial fees decreased $420,000, or 3.6%, primarily attributable to a decline in transportation dollar volumes of 1.8%, in addition to changes in the manner certain vendors receive payments.

Nine months ended September 30, 2024 compared to the nine months ended September 30, 2023:

Processing fees increased $3.6 million, or 6.1%, primarily attributable to an increase in facility-related invoice volumes of 24.8%. Transportation invoice volumes decreased 1.5% over the same period.

Financial fees decreased $1.9 million, or 5.6%, primarily attributable to a decline in transportation dollar volumes of 7.3%, in addition to changes in the manner certain vendors receive payments.

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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)	Third Quarter of								Nine Months Ended September 30,
	2024			2023			% Change			2024			2023			% Change
Average earning assets	$	2,001,741		$	2,059,801		(2.8)	%		$	2,007,780		$	2,077,392		(3.4)	%
Average interest-bearing liabilities	630,215			591,567			6.5	%		633,384			566,987			11.7	%
Net interest income*	17,856			16,805			6.3	%		50,744			50,300			0.9	%
Net interest margin*	3.55		%	3.24		%				3.38		%	3.24		%
Yield on earning assets*	4.57		%	4.13		%				4.42		%	3.98		%
Cost of interest-bearing liabilities	3.25		%	3.11		%				3.30		%	2.73		%

*Presented on a tax-equivalent basis assuming a tax rate of 21% for both 2024 and 2023.

Third quarter of 2024 compared to third quarter of 2023:

The increase in net interest income is primarily due to the increase in the net interest margin to 3.55%, as compared to 3.24% in the same quarter last year, partially offset by the decrease in average earning assets of $58.1 million, or 2.8%. The yield on interest-earning assets increased 44 basis points from 4.13% to 4.57% while the cost of interest-bearing liabilities increased 14 basis points from 3.11% to 3.25%.

Average loans increased $26.9 million, or 2.6%, to $1.07 billion. The increase in average loans was primarily due to growth in the Company's franchise restaurant and faith-based portfolios. The average yield on loans increased 52 basis points to 5.40%.

Average investment securities decreased $112.6 million, or 16.0%, to $590.5 million. The average yield on taxable investment securities increased 26 basis points to 2.88% and the average yield on tax-exempt investment securities increased 18 basis points to 2.81% driven by purchases of investment securities at current market interest rates and maturities and sales of securities at below market interest rates.

Average short-term investments, consisting of interest-bearing deposits in other financial institutions and federal funds sold, increased $27.7 million, or 8.9%, to $338.5 million. The increase is primarily a result of the decline in average investment securities, partially offset by a decrease in average funding sources. The average yield on short-term investments decreased 8 basis points to 4.94%, primarily due to the recent decline in the Federal Funds rate of 50 basis points. The majority of these short-term investments are held at the Federal Reserve Bank.

The average balance of interest-bearing deposits increased $38.6 million, or 6.5%, to $630.2 million. Average non-interest-bearing demand deposits decreased $76.1 million, or 15.8%, to $404.4 million. The Company has experienced a migration of client funds from non-interest bearing to interest-bearing driven by the higher interest rate environment prior to the recent 50 basis point decline in the Federal Funds rate. The average rate paid on interest-bearing deposits increased 14 basis points to 3.25%.

Average accounts and drafts payable decreased $37.0 million, or 3.5%, to $1.03 billion. The decrease in average accounts and drafts payable was primarily reflective of a cyber event at a client during the first quarter of 2024, which decreased average balances by approximately $100.0 million as well as the decrease in transportation dollar volumes of 1.8%, partially offset by an increase in facility dollar volume of 13.4%.

Nine months ended September 30, 2024 compared to nine months ended September 30, 2023:

The increase in net interest income is primarily due to the increase in the net interest margin to 3.38%, as compared to 3.24% in the prior year, partially offset by the decrease in average earning assets of $69.6 million, or 3.4%. The yield on

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interest-earning assets increased 44 basis points from 3.98% to 4.42% while the cost of interest-bearing liabilities increased 57 basis points from 2.73% to 3.30%.

Average loans decreased $23.0 million, or 2.2%, to $1.04 billion. The decrease in average loans was primarily due to the Company opting to be more selective in booking new loans as a result of a decline in average deposits. The average yield on loans increased 47 basis points to 5.24%.

Average investment securities decreased $101.6 million, or 13.6%, to $646.1 million. The average yield on taxable investment securities increased 22 basis points to 2.82% and the average yield on tax-exempt investment securities increased 3 basis points to 2.75%. The increase in the average yield on taxable investment securities was driven by purchases of investment securities at current market interest rates and maturities and sales of securities at below market interest rates.

Average short-term investments, consisting of interest-bearing deposits in other financial institutions and federal funds sold, increased $54.9 million, or 20.8%, to $318.7 million. The increase is primarily a result of the decline in average investment securities and loans, partially offset by a decrease in average funding sources. The average yield on short-term investments increased 35 basis points to 4.99%, primarily due to higher average short-term interest rates when comparing the periods. The majority of these short-term investments are held at the Federal Reserve Bank.

The average balance of interest-bearing deposits increased $69.4 million, or 12.3%, to $633.4 million. Average non-interest-bearing demand deposits decreased $109.0 million, or 20.6%, to $419.7 million. The Company has experienced a migration of client funds from non-interest bearing to interest-bearing driven by the higher interest rate environment prior to the recent 50 basis point decline in the Federal Funds rate. The average rate paid on interest-bearing deposits increased 58 basis points to 3.30% due to higher average short-term interest rates when comparing the periods.

Average accounts and drafts payable decreased $49.4 million, or 4.6%, to $1.02 billion. The decrease in average accounts and drafts payable was primarily reflective of a cyber event experienced by a client during the first quarter of 2024, which decreased average balances approximately $100.0 million as well as the decrease in transportation dollar volumes of 7.3%, partially offset by an increase in facility dollar volumes of 7.7%.

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 for each category of interest-earning assets and interest-bearing liabilities, and the average yield on such categories of interest-earning assets and the average rates paid on such categories of interest-bearing liabilities for each of the periods reported.

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(In thousands)	Third Quarter of 2024						Third Quarter of 2023
	Average Balance		Interest Income/ Expense		Yield/ Rate		Average Balance		Interest Income/ Expense		Yield/ Rate
Assets1
Interest-earning assets
Loans2:	$	1,072,824	$	14,567	5.40	%	$	1,045,967	$	12,863	4.88	%
Investment securities3:
Taxable	430,242		3,114		2.88	%	518,954		3,429		2.62	%
Tax-exempt4	160,211		1,131		2.81	%	184,110		1,220		2.63	%

Short-term investments	338,464		4,200		4.94	%	310,770		3,934		5.02	%
Total interest-earning assets	2,001,741		23,012		4.57	%	2,059,801		21,446		4.13	%
Non-interest-earning assets
Cash and due from banks	22,473						24,786
Premises and equipment, net	34,054						25,531
Bank-owned life insurance	49,899						48,677
Goodwill and other intangibles	20,206						20,966
Payments in advance of funding	202,976						234,684
Unrealized loss on investment securities	(55,029)						(68,230)
Other assets	78,182						62,244
Allowance for credit losses	(13,632)						(13,195)
Total assets	$	2,340,870					$	2,395,264
Liabilities and Shareholders’ Equity1
Interest-bearing liabilities
Interest-bearing demand deposits	$	543,845	$	4,314	3.16	%	$	508,554	$	4,007	3.13	%
Savings deposits	6,921		29		1.67	%	7,716		33		1.70	%
Time deposits >= $100	27,884		270		3.85	%	23,610		203		3.41	%
Other time deposits	51,554		543		4.19	%	51,676		398		3.06	%
Total interest-bearing deposits	630,204		5,156		3.25	%	591,556		4,641		3.11	%
Short-term borrowings	11		—		—	%	11		—		—	%
Total interest-bearing liabilities	630,215		5,156		3.25	%	591,567		4,641		3.11	%
Non-interest bearing liabilities
Demand deposits	404,364						480,472
Accounts and drafts payable	1,033,070						1,070,057
Other liabilities	41,436						40,578
Total liabilities	2,109,085						2,182,674
Shareholders’ equity	231,785						212,590
Total liabilities and shareholders’ equity	$	2,340,870					$	2,395,264
Net interest income			$	17,856					$	16,805
Net interest margin					3.55	%					3.24	%
Interest spread					1.32	%					1.02	%

1.Balances shown are daily averages.

2.Interest income on loans includes net loan fees of $154,000 and $98,000 for the third quarter of 2024 and 2023, respectively.

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 2024 and 2023. The tax-equivalent adjustment was approximately $237,000 and $256,000 for the third quarter of 2024 and 2023, respectively.

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(In thousands)	Nine Months Ended 2024						Nine Months Ended 2023
	Average Balance		Interest Income/ Expense		Yield/ Rate		Average Balance		Interest Income/ Expense		Yield/ Rate
Assets1
Interest-earning assets
Loans2:
Taxable	$	1,042,953	$	40,935	5.24	%	$	1,065,915	$	38,029	4.77	%
Investment securities3:
Taxable	479,337		10,118		2.82	%	550,680		10,702		2.60	%
Tax-exempt4	166,778		3,429		2.75	%	197,023		4,001		2.72	%

Short-term investments	318,712		11,908		4.99	%	263,774		9,147		4.64	%
Total interest-earning assets	2,007,780		66,390		4.42	%	2,077,392		61,879		3.98	%
Non-interest-earning assets:
Cash and due from banks	22,631						23,774
Premises and equipment, net	32,972						22,984
Bank-owned life insurance	49,603						48,395
Goodwill and other intangibles	20,389						21,159
Payments in advance of funding	203,498						243,458
Unrealized loss on investment securities	(59,528)						(65,882)
Other assets	79,487						63,321
Allowance for credit losses	(13,343)						(13,327)
Total assets	$	2,343,489					$	2,421,274
Liabilities and Shareholders’ Equity1
Interest-bearing liabilities:
Interest-bearing demand deposits	$	548,891	$	13,244	3.22	%	$	491,495	$	10,060	2.74	%
Savings deposits	7,134		92		1.72	%	7,094		82		1.55	%
Time deposits >= $100	27,492		773		3.76	%	23,115		463		2.68	%
Other time deposits	49,856		1,536		4.12	%	42,290		858		2.71	%
Total interest-bearing deposits	633,373		15,645		3.30	%	563,994		11,463		2.72	%
Short-term borrowings	11		1		12.14	%	2,993		116		5.18	%
Total interest-bearing liabilities	633,384		15,646		3.30	%	566,987		11,579		2.73	%
Non-interest bearing liabilities:
Demand deposits	419,724						528,677
Accounts and drafts payable	1,021,989						1,071,414
Other liabilities	40,472						42,037
Total liabilities	2,115,569						2,209,115
Shareholders’ equity	227,920						212,159
Total liabilities and shareholders’ equity	$	2,343,489					$	2,421,274
Net interest income			$	50,744					$	50,300
Net interest margin					3.38	%					3.24	%
Interest spread					1.12	%					1.25	%

1.Balances shown are daily averages.

2.Interest income on loans includes net loan fees of $383,000 and $609,000 for the nine months ended September 30, 2024 and 2023, respectively.

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 the nine months ended September 30, 2024 and 2023. The tax-equivalent adjustment was approximately $720,000 and $840,000 for the nine months ended September 30, 2024 and 2023, 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)	Third Quarter of 2024 Compared to Third Quarter of 2023
	Volume		Rate		Total
Increase (decrease) in interest income:
Loans1:	$	329	$	1,375	$	1,704
Investment securities:
Taxable	(628)		313		(315)
Tax-exempt2	(167)		78		(89)

Short-term investments	336		(70)		266
Total interest income	(130)		1,696		1,566
Increase (decrease) in interest expense:
Interest-bearing demand deposits	270		37		307
Savings deposits	(3)		(1)		(4)
Time deposits >=$100	39		28		67
Other time deposits	(1)		146		145
Short-term borrowings	—		—		—
Total interest expense	305		210		515
Net interest income	$	(435)	$	1,486	$	1,051

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 three months ended September 30, 2024 and 2023.


(In thousands)	Nine Months Ended 2024 Compared to Nine Months Ended 2023
	Volume		Rate		Total
Increase (decrease) in interest income:
Loans1:
Taxable	$	(832)	$	3,738	$	2,906
Investment securities:
Taxable	(1,456)		872		(584)
Tax-exempt2	(618)		46		(572)

Short-term investments	2,020		741		2,761
Total interest income	(886)		5,397		4,511
Interest expense on:
Interest-bearing demand deposits	1,262		1,922		3,184
Savings deposits	—		10		10
Time deposits >=$100	99		211		310
Other time deposits	174		504		678
Short-term borrowings	(182)		67		(115)
Total interest expense	1,353		2,714		4,067
Net interest income	$	(2,239)	$	2,683	$	444

1.Interest income includes net loan fees.

2.Interest income is presented on a tax-equivalent basis assuming a tax rate of 21% for the nine months ended September 30, 2024 and 2023.

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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 $140,000 for the third quarter of 2024 and a provision for credit losses of $125,000 in third quarter of 2023. The Company recorded a provision for credit losses and off-balance sheet credit exposures of $355,000 for the nine months ended of September 30, 2024 and a release of credit losses of $335,000 for the nine months ended September 30, 2023. The amount of the (release of) provision for credit losses is derived from the Company’s quarterly Current Expected Credit Loss (“CECL”) model. The amount of the (release of) provision for credit losses will fluctuate as determined by these quarterly analyses. The provision for credit losses for the nine months ended September 30, 2024 was driven by an increase in total loans of $64.1 million, or 6.3%, as compared to December 31, 2023.

The Company experienced no loan charge-offs in the third quarters of 2024 and 2023. The ACL was $13.4 million at September 30, 2024 and $13.1 million at December 31, 2023. The ACL represented 1.25% of outstanding loans at September 30, 2024 and 1.29% of outstanding loans at December 31, 2023. The allowance for unfunded commitments was $129,000 at September 30, 2024 and $132,000 at December 31, 2023. There were no nonperforming loans outstanding at September 30, 2024 and December 31, 2023.

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 analyses 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 provision for (release of) credit losses and analysis of the ACL:


	Third Quarter of						Nine Months Ended September 30,
(In thousands)	2024			2023			2024			2023
Allowance for credit losses at beginning of period	$	13,634		$	13,194		$	13,089		$	13,539
(Release of) provision for credit losses	(187)			125			358			(220)

Allowance for credit losses at end of period	$	13,447		$	13,319		$	13,447		$	13,319

Allowance for unfunded commitments at beginning of period	$	82		$	177		$	132		$	232
Provision for (release of) credit losses	47			—			(3)			(115)
Allowance for unfunded commitments at end of period	$	129		$	177		$	129		$	117


Loans outstanding:
Average	$	1,072,824		$	1,045,967		$	1,042,953		$	1,065,915
September 30	$	1,078,387		$	1,039,619		$	1,078,387		$	1,039,619
Ratio of allowance for credit losses to loans outstanding at September 30	1.25		%	1.28		%	1.25		%	1.28		%

Operating Expenses

Total operating expenses for the third quarter of 2024 increased $6.8 million, or 17.1%, compared to the third quarter of 2023. Total operating expenses for the nine months ended September 30, 2024 increased $10.6 million, or 8.8%, compared to the nine months ended September 30, 2023. The following table details the components of operating expenses:

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(In thousands)	Third Quarter of				Nine Months Ended September 30,
	2024		2023		2024		2023
Salaries and commissions	$	23,850	$	23,391	$	72,085	$	69,613
Share-based compensation	898		938		2,598		3,796
Net periodic pension cost	195		100		584		299
Other benefits	4,924		5,207		15,064		15,386
Personnel	$	29,867	$	29,636	$	90,331	$	89,094
Occupancy	890		908		2,577		2,670
Equipment	2,107		1,789		5,976		5,188
Amortization of intangible assets	183		195		556		585
Bad debt expense	6,559		—		7,847		—
Other operating	7,292		7,535		23,075		22,237
Total operating expense	$	46,898	$	40,063	$	130,362	$	119,774

Third quarter of 2024 compared to third quarter of 2023:

Personnel expense increased $231,000, or 0.8%. Salaries and commissions increased $459,000, or 2.0%, primarily as a result of merit increases and $280,000 severance recorded during the third quarter of 2024, partially offset by a decrease in employee profit sharing due to the decline in net income. Share-based compensation decreased $40,000, reflecting the Company's financial performance and the impact on performance-based restricted stock between the periods.

Equipment expense increased $318,000, or 17.8%, primarily due to an increase in depreciation expense related to technology initiatives throughout the Company's lines of business.

The Company recorded bad debt expense of $6.6 million on a funding receivable related to a facility client. While the Company is in the process of litigation to collect the receivable, a full write-off to bad debt expense was recorded as a result of a credit analysis.

Nine months ended September 30, 2024 compared to nine months ended September 30, 2023:

Personnel expense increased $1.2 million, or 1.4%. Salaries and commissions increased $2.5 million, or 3.6%, primarily as a result of merit increases. Share-based compensation decreased $1.2 million, reflecting the Company's financial performance and the impact on performance-based restricted stock between the periods.

Equipment expense increased $788,000, or 15.2%, primarily due to an increase in depreciation expense related to technology initiatives throughout the Company's lines of business.

The Company recorded bad debt expense of $7.8 million on a funding receivable related to a facility client. While the Company is in the process of litigation to collect the receivable, a full write-off to bad debt expense was recorded as a result of a credit analysis.

Financial Condition

Total assets at September 30, 2024 were $2.26 billion, a decrease of $217.9 million, or 8.8%, from December 31, 2023.

The Company experienced a decrease in cash and cash equivalents of $141.9 million, or 38.1%, during the nine months ended September 30, 2024. The change in cash and cash equivalents reflects the Company’s daily liquidity position and is primarily affected by changes in funding sources, mainly accounts and drafts payable and deposits, cash flows in and out of loans, investments securities and payments in advance of funding.

The investment securities portfolio decreased $76.4 million, or 12.2%, during the nine months ended September 30, 2024. The decrease is due to sales of $25.0 million and maturities of $130.5 million, partially offset by purchases of $71.1 million.

Loans increased $64.1 million, or 6.3%, from December 31, 2023. The Company experienced growth in its franchise restaurant, faith-based and commercial and industrial loan portfolios during the nine months ended September 30, 2024.

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Payments in advance of funding increased $8.3 million, or 4.2%. from December 31, 2023 due to timing of funding.

Accounts and drafts receivable from customers decreased $79.8 million, or 72.1%, from December 31, 2023. The decrease is solely due to timing of customer funding.

Total deposits at September 30, 2024 were $1.05 billion, a decrease of $93.5 million, or 8.2%, from December 31, 2023. The decrease is primarily due to timing as well as a migration of non-interest bearing deposits into interest-bearing deposits within the Bank and other alternatives outside the banking system.

Accounts and drafts payable at September 30, 2024 were $936.5 million, a decrease of $134.9 million, or 12.6%, from December 31, 2023. The decrease in accounts and drafts payable was primarily reflective of a cyber event at a client during the first quarter of 2024 which decreased average balances approximately $100.0 million. 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 generally a more meaningful measure of accounts and drafts payable.

Total liabilities at September 30, 2024 were $2.02 billion, a decrease of $225.7 million, or 10.0%, from December 31, 2023, reflective of the decrease in deposits and accounts and drafts payable.

Total shareholders’ equity at September 30, 2024 was $237.6 million, a $7.8 million increase from December 31, 2023. The increase in shareholders’ equity is a result of net income for the nine months ended September 30, 2024 of $14.6 million, and a decrease in accumulated other comprehensive loss of $8.4 million primarily related to the fair value of available-for-sale investment securities, partially offset by dividends paid of $12.3 million and the repurchase of Company stock of $3.7 million.

Liquidity and Capital Resources

The discipline of liquidity management as practiced by the Company seeks to ensure that funds are available to fulfill all payment obligations relating to invoices processed as they become due and meet depositor withdrawal requests and borrower credit demands while at the same time maximizing profitability. This is accomplished by balancing changes in demand for funds with changes in supply of funds. Primary liquidity to meet demand is provided by short-term liquid assets that can be converted to cash, maturing securities and the ability to obtain funds from external sources. The Company's Asset/Liability Committee has direct oversight responsibility for the Company's liquidity position and profile. Management considers both on-balance sheet and off-balance sheet items in its evaluation of liquidity.

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. Cash and cash equivalents totaled $230.6 million at September 30, 2024, a decrease of $141.9 million, or 38.1%, from December 31, 2023. At September 30, 2024, these assets represented 10.2% of total assets and 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 securities were $550.8 million at September 30, 2024, a decrease of $76.4 million from December 31, 2023. These assets represented 24.4% of total assets at September 30, 2024. Of the total portfolio, 6.5% mature in one year, 22.5% mature in one to five years, and 71.0% mature in five or more years.

The Bank has unsecured lines of credit at six correspondent banks to purchase federal funds up to a maximum of $83.0 million in aggregate. As of September 30, 2024, the Bank also has secured lines of credit with the Federal Home Loan Bank of $191.0 million collateralized by mortgage loans. The Company also has secured lines of credit from three banks up to a maximum of $250.0 million in aggregate collateralized by investment securities. There were no amounts outstanding under any line of credit as of September 30, 2024 or December 31, 2023.

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, including CassPay and faith-based customers. 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 $52.8 million of CDARS deposits and interest-bearing demand deposits include $150.5 million 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.

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Net cash flows provided by operating activities were $20.3 million for the nine months ended September 30, 2024, compared to $29.4 million for the nine months ended September 30, 2023, an decrease of $9.0 million. Net cash flows from investing and financing activities fluctuate greatly as the Company actively manages its investment and loan portfolios and customer activity influences changes in deposit and accounts and drafts payable balances. Other causes for the changes in these account balances are discussed earlier in this report. Due to the daily fluctuations in these account balances, the analysis of changes in average balances, also discussed earlier in this report, can be more indicative of underlying activity than the period-end balances used in the statements of cash flows. Management anticipates that cash and cash equivalents, maturing investments and cash from operations will continue to be sufficient to fund the Company’s operations and capital expenditures in 2024, which are estimated to range from $10 million to $12 million.

Net income plus amortization of intangible assets, net amortization of premium/discount on investment securities and depreciation of premises and equipment was $21.7 million and $28.7 million for the nine months ended September 30, 2024 and 2023, respectively, a decrease of $7.0 million. The nine months ended September 30, 2024 reflected lower net income of $7.1 million and a decrease in net amortization of premium/discount on investment securities of $462,000, partially offset by higher depreciation of $585,000. The net amortization of premium/discount on investment securities is dependent on the type of securities purchased and changes in the prevailing market interest rate environment. Depreciation expense has increased as a result of capital expenditures related to technology initiatives.

Other factors impacting the $9.0 million decrease in net cash provided by operating activities include:

•An increase in accounts receivable of $4.0 million; and

•A decrease in stock compensation expense of $1.2 million

These factors were partially offset by a decrease in income tax liability $1.6 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. Those that could significantly impact the Company include the general levels of interest rates, business activity, inflation, and energy costs as well as new business opportunities available to the Company. For more detailed information on these trends and uncertainties and how they can generally affect the Company’s available liquidity, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity” in the Company’s 2023 Form 10-K.

As a bank holding company, the Company and the Bank are subject to capital requirements administered by state and federal banking agencies. Capital adequacy guidelines, and, for banks, prompt correct action regulations, involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are subject to qualitative judgments by regulators about components, risk weighting, and other factors. In addition, the calculation of all types of regulatory capital is subject to deductions and adjustments specified in the regulations. For example, as allowed under the Basel III Capital Rules, the Company has elected to opt-out of the requirement to include most components of accumulated other comprehensive income in common equity Tier 1 capital. For more information on these regulatory requirements, including the Basel III Capital Rules and capital classifications, see Item 1, "Business-Supervision and Regulation" and Item 8, Note 2, "Financial Statements and Supplementary Data" of the Company's 2023 Form 10-K.

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


	Actual				Capital Requirements				Requirement to be Well-Capitalized
(In thousands)	Amount		Ratio		Amount		Ratio		Amount	Ratio
At September 30, 2024
Total capital (to risk-weighted assets)
Cass Information Systems, Inc.	$	269,984	15.31	%	$	141,096	8.00	%	$ N/A	N/A %
Cass Commercial Bank	208,838		18.06		92,498		8.00		115,623	10.00
Common Equity Tier I Capital (to risk-weighted assets)
Cass Information Systems, Inc.	256,408		14.54		79,366		4.50		N/A	N/A
Cass Commercial Bank	195,915		16.94		52,030		4.50		75,155	6.50
Tier I capital (to risk-weighted assets)
Cass Information Systems, Inc.	256,408		14.54		105,822		6.00		N/A	N/A
Cass Commercial Bank	195,915		16.94		69,374		6.00		92,498	8.00
Tier I capital (to average assets)
Cass Information Systems, Inc.	256,408		11.05		92,831		4.00		N/A	N/A
Cass Commercial Bank	195,915		13.61		57,571		4.00		71,964	5.00
At December 31, 2023
Total capital (to risk-weighted assets)
Cass Information Systems, Inc.	$	269,580	15.49	%	$	139,266	8.00	%	$ N/A	N/A %
Cass Commercial Bank	204,584		19.04		85,964		8.00		107,455	10.00
Common Equity Tier I Capital (to risk-weighted assets)
Cass Information Systems, Inc.	256,359		14.73		78,337		4.50		N/A	N/A
Cass Commercial Bank	192,104		17.88		48,355		4.50		69,846	6.50
Tier I capital (to risk-weighted assets)
Cass Information Systems, Inc.	256,359		14.73		104,449		6.00		N/A	N/A
Cass Commercial Bank	192,104		17.88		64,473		6.00		85,964	8.00
Tier I capital (to average assets)
Cass Information Systems, Inc.	256,359		10.71		95,760		4.00		N/A	N/A
Cass Commercial Bank	192,104		12.49		61,526		4.00		76,908	5.00

Impact of New and Not Yet Adopted Accounting Pronouncements

In October 2023, the FASB issued 2023-06, Disclosure Improvements - Codification Amendments in Response to the SEC's Disclosure Update and Simplification Initiative ("ASU 2023-06"). This ASU amends the ASC to incorporate certain disclosure requirements from SEC Release No. 33-10532 - Disclosure Update and Simplification that was issued in 2018.

The effective date for each amendment will be the date on which the SEC's removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited. ASU 2023-06 is not expected to have a significant impact on the Company's financial statements.

In November 2023, the FASB issued 2023-07, Segment Reporting (Topic 820): Improvements to Reportable Segment Disclosures ("ASU 2023-07"). This ASU expands segment disclosure requirements for public entities to require disclosure of significant segment expenses and other segment items on an annual and interim basis and to provide in interim periods all disclosures about a reportable segment's profit or loss and assets that are currently required annually. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after

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December 15, 2024. Early adoption is permitted. ASU 2023-07 is not expected to have a significant impact on the Company's financial statements.

In December 2023, the FASB issued 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures ("ASU 2023-09"). This ASU requires public business entities to disclose in their rate reconciliation table additional categories of information about federal, state, and foreign income taxes and to provide more details about the reconciling items in some categories if items meet a quantitative threshold. It also requires all entities to disclose income taxes paid, net of refunds, disaggregated by federal, state, and foreign taxes for annual periods and to disaggregate the information by jurisdiction based on a quantitative threshold, among other things. ASU 2023-09 is effective for annual periods beginning after December 15, 2024, though early adoption is permitted. ASU 2023-09 is not expected to have a significant impact on the Company's financial statements.

Critical Accounting Policies

The Company has prepared the consolidated financial statements in this report in accordance with the Financial Accounting Standards Board Accounting Standards Codification. 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 and Risk 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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As described in the Company’s 2023 Form 10-K for the year ended December 31, 2023, 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 following table summarizes simulated changes in net interest income versus unchanged rates over the next 12 months as of September 30, 2024 and December 31, 2023.


	% change in projected net interest income
		September 30, 2024		December 31, 2023
+200 basis points		8.8	%	14.7	%
+100 basis points		4.1	%	6.5	%
Flat rates		—	%	—	%
-100 basis points		0.4	%	(3.2)	%
-200 basis points		(0.2)	%	(6.0)	%

The Company is generally asset sensitive as average interest-earning assets of $2.00 billion for the third quarter of 2024 greatly exceeded average interest-bearing liabilities of $630.2 million. The table above on the projected impact of interest rate shocks results from a static balance sheet at September 30, 2024.

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.

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There were no changes in the third quarter of 2024 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 2023 Form 10-K, 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 2023 Form 10-K.

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

During the three month period ended September 30, 2024, the Company repurchased shares of its common stock as follows:


Period	Total Number of Shares Purchased(1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(2)	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
July 1, 2024–July 31, 2024	6,557	$	40.09	6,557	456,208
August 1, 2024–August 31, 2024	32,600	40.71		32,600	423,608
September 1, 2024–September 30, 2024	25,314	41.89		25,314	398,294
Total	64,471	$	41.11	64,471	398,294

(1)During the quarter ended September 30, 2024, there were 64,471 shares repurchased pursuant to the Company's publicly announced treasury stock buyback program and no shares transferred from employees in satisfaction of tax withholding obligations upon the vesting of restricted stock.

(2)The Board of Directors authorized the treasury stock buyback program on October 17, 2023, announced by the Company on October 19, 2023. The program provides that the Company may repurchase up to an aggregate of 500,000 shares of common stock and has no expiration date.

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 third quarter of 2024.

(c)During the three month period ended September 30, 2024, none of the Company's officers or directors adopted or terminated any "Rule 10b5-1 trading arrangement" or any “non-Rule 10b5-1 trading arrangement,” as such terms are defined under Item 408 of Regulation S-K.

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ITEM 6. EXHIBITS


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

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

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

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

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

Exhibit 101.SCH Inline XBRL Taxonomy Extension Schema Document.

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

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

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

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

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

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SIGNATURES

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


	CASS INFORMATION SYSTEMS, INC.

DATE: November 7, 2024	By	/s/ Martin H. Resch
		Martin H. Resch
		President and Chief Executive Officer
		(Principal Executive Officer)



DATE: November 7, 2024	By	/s/ Michael J. Normile
		Michael J. Normile
		Executive Vice President and Chief Financial Officer
		(Principal Financial and Accounting Officer)

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Cass Information Systems - 10-Q quarterly report FY2024 Q3

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