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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, 2022
OR
oTRANSITION 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)
Missouri43-1265338
(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 o
Accelerated Filer
x
 
Non-Accelerated Filer oSmaller Reporting Company o Emerging Growth Company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes     ☐                 No    x
The number of shares outstanding of the registrant's only class of common stock as of October 22, 2022: Common stock, par value $.50 per share – 13,661,353 shares outstanding.
-1-
TABLE OF CONTENTS
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 2021 Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”), which may be updated from time to time in our future filings with the SEC. We undertake no obligation to publicly update or revise any forward-looking statements to reflect changed assumptions, the occurrence of anticipated or unanticipated events, or changes to future results over time.
-2-
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, 2022 (Unaudited)
December 31,
2021
Assets  
Cash and due from banks $14,799 $12,301 
Short-term investments332,195 502,627 
Cash and cash equivalents 346,994 514,928 
Securities available-for-sale, at fair value 763,789 673,453 
Loans 1,037,101 960,567 
Less: Allowance for credit losses 13,049 12,041 
Loans, net 1,024,052 948,526 
Payments in advance of funding 269,221 291,427 
Premises and equipment, net 19,375 18,113 
Investment in bank-owned life insurance 47,714 43,176 
Goodwill 17,309 14,262 
Other intangible assets, net 4,321 2,564 
Other assets 118,040 48,452 
Total assets $2,610,815 $2,554,901 
Liabilities and Shareholders’ Equity
Liabilities:
Deposits:
Noninterest-bearing $581,731 $582,642 
Interest-bearing 647,990 638,861 
Total deposits 1,229,721 1,221,503 
Accounts and drafts payable 1,146,334 1,050,396 
Other liabilities 43,025 37,204 
Total liabilities 2,419,080 2,309,103 
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, 2022 and December 31, 2021; 13,660,388 and 13,734,295 shares outstanding at September 30, 2022 and December 31, 2021, respectively.
7,753 7,753 
Additional paid-in capital 205,624 204,276 
Retained earnings 126,361 112,220 
Common shares in treasury, at cost (1,845,384 shares at September 30, 2022 and 1,771,477 shares at December 31, 2021)
(81,624)(78,904)
Accumulated other comprehensive (loss) income (66,379)453 
Total shareholders’ equity 191,735 245,798 
Total liabilities and shareholders’ equity $2,610,815 $2,554,901 
See accompanying notes to unaudited consolidated financial statements.
-3-
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,
2022202120222021
Fee Revenue and Other Income:
Processing fees$18,964 $18,461 $57,184 $55,882 
Financial fees11,252 8,624 32,406 23,122 
Other1,568 492 3,275 1,735 
Total fee revenue and other income 31,784 27,577 92,865 80,739 
Interest Income:
Interest and fees on loans 10,006 8,987 27,890 26,270 
Interest and dividends on securities:
Taxable 2,947 731 6,679 1,387 
Exempt from federal income taxes 1,551 1,760 4,867 5,331 
Interest on federal funds sold and other short-term investments 2,249 241 3,423 515 
Total interest income 16,753 11,719 42,859 33,503 
Interest Expense:
Interest on deposits 782 287 1,344 915 
Total interest expense 782 287 1,344 915 
Net interest income 15,971 11,432 41,515 32,588 
 Provision for (release of) credit losses550 340 850 (870)
Net interest income after provision for (release of) credit losses15,421 11,092 40,665 33,458 
Total net revenue 47,205 38,669 133,530 114,197 
Operating Expense:
Personnel 26,999 23,283 77,750 68,689 
Occupancy 970 953 2,801 2,859 
Equipment 1,633 1,700 5,004 5,028 
Amortization of intangible assets 195 215 485 644 
Other operating expense 6,524 4,539 15,748 11,798 
Total operating expense 36,321 30,690 101,788 89,018 
Income before income tax expense 10,884 7,979 31,742 25,179 
Income tax expense 2,085 1,174 6,123 4,277 
Net income $8,799 $6,805 $25,619 $20,902 
Basic earnings per share $.65 $.48 $1.89 $1.47 
Diluted earnings per share .64 .48 1.86 1.45 
See accompanying notes to unaudited consolidated financial statements.
-4-
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,
2022202120222021
Comprehensive Income:
Net income $8,799 $6,805 $25,619 $20,902 
Other comprehensive (loss) income:
Net unrealized loss on securities available-for-sale (26,127)(4,438)(87,159)(7,086)
Tax effect 6,218 1,057 20,744 1,687 
Reclassification adjustments for losses (gains) included in net income (13)1 (15)(44)
Tax effect 3 — 3 10 
Foreign currency translation adjustments (195)(168)(405)(145)
Total comprehensive (loss) income $(11,315)$3,257 $(41,213)$15,324 
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,
20222021
Cash Flows From Operating Activities:  
Net income $25,619 $20,902 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 8,311 9,340 
Gains on sales of securities (15)(44)
Stock-based compensation expense 4,479 2,585 
Provision for (release of) credit losses850 (870)
Decrease in deferred income tax asset — 22 
Increase in current income tax liability641 79 
Decrease in pension liability (1,877)(1,252)
Increase in accounts receivable (2,540)(628)
Other operating activities, net 5,331 546 
Net cash provided by operating activities 40,799 30,680 
Cash Flows From Investing Activities:
Proceeds from sales of securities available-for-sale 3,838 43,190 
Proceeds from maturities of securities available-for-sale 45,740 83,265 
Purchase of securities available-for-sale (231,891)(322,336)
Net (increase) decrease in loans (76,521)19,229 
Purchase of bank-owned life insurance(4,538)(24,868)
Asset acquisition of Touchpoint(4,425)— 
Decrease (increase) in payments in advance of funding22,206 (71,816)
Purchases of premises and equipment, net (4,270)(2,697)
Net cash used in investing activities (249,861)(276,033)
Cash Flows From Financing Activities:
Net decrease in noninterest-bearing demand deposits (911)(26,184)
Net increase in interest-bearing demand and savings deposits 20,672 67,930 
Net decrease in time deposits (11,543)(5,285)
Net change in accounts and drafts payable and other customer receivables50,239 70,099 
Cash dividends paid (11,478)(11,576)
Purchase of common shares for treasury (5,299)(18,975)
Other financing activities, net (552)(875)
Net cash provided by financing activities 41,128 75,134 
Net decrease in cash and cash equivalents (167,934)(170,219)
Cash and cash equivalents at beginning of period 514,928 670,528 
Cash and cash equivalents at end of period $346,994 $500,309 
Supplemental information:
Cash paid for interest $1,314 $885 
Cash paid for income taxes 5,531 4,176 
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, 2022 AND 2021
(Unaudited)
(Dollars in Thousands except per share data)
Common
Stock		Additional
Paid-in
Capital		Retained
Earnings		Treasury
Stock		Accumulated
Other
Comprehensive
Loss		Total
Balance, June 30, 2021
$7,753 $203,098 $105,398 $(53,437)$(2,045)$260,767 
Net income 6,805 6,805 
Cash dividends ($0.27 per share)
(3,815)(3,815)
Issuance of 4,412 common shares pursuant to stock-based compensation plan, net
(51)134 83 
Stock-based compensation expense 1,066 1,066 
Purchase of 314,672 common shares
(13,715)(13,715)
Other comprehensive loss(3,548)(3,548)
Balance, September 30, 2021
$7,753 $204,113 $108,388 $(67,018)$(5,593)$247,643 
Balance, June 30, 2022
$7,753 $204,482 $121,386 $(81,742)$(46,265)$205,614 
Net income 8,799 8,799 
Cash dividends ($0.28 per share)
(3,824)(3,824)
Issuance of 3,487 common shares pursuant to stock-based compensation plan, net
(165)118 (47)
Stock-based compensation expense 1,307 1,307 
Other comprehensive loss(20,114)(20,114)
Balance, September 30, 2022
$7,753 $205,624 $126,361 $(81,624)$(66,379)$191,735 
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CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(Unaudited)
(Dollars in Thousands except per share data)
Common
Stock		Additional
Paid-in
Capital		Retained
Earnings		Treasury
Stock		Accumulated
Other
Comprehensive
Loss		Total
Balance, December 31, 2020
$7,753 $204,875 $99,062 $(50,515)$(15)$261,160 
Net income 20,902 20,902 
Cash dividends ($.81 per share)
(11,576)(11,576)
Issuance of 83,506 common shares pursuant to stock-based compensation plan, net
(2,932)2,180 (752)
Exercise of SARs (415)292 (123)
Stock-based compensation expense 2,585 2,585 
Purchase of 434,938 common shares
(18,975)(18,975)
Other comprehensive loss (5,578)(5,578)
Balance, September 30, 2021
$7,753 $204,113 $108,388 $(67,018)$(5,593)$247,643 
Balance, December 31, 2021
$7,753 $204,276 $112,220 $(78,904)$453 $245,798 
Net income 25,619 25,619 
Cash dividends ($.84 per share)
(11,478)(11,478)
Issuance of 80,396 common shares pursuant to stock-based compensation plan, net
(2,803)2,336 (467)
Exercise of SARs (328)243 (85)
Stock-based compensation expense 4,479 4,479 
Purchase of 130,374 common shares
(5,299)(5,299)
Other comprehensive loss(66,832)(66,832)
Balance, September 30, 2022
$7,753 $205,624 $126,361 $(81,624)$(66,379)$191,735 
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, 2021.
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.
In June 2022, the Company acquired the assets of mobile church management software developer Touchpoint, a division of the Pursuant Group, Inc., and recorded intangible assets of $5,289,000. Those intangible assets were valued at $3,046,000 for goodwill, $1,692,000 for the customer list, $368,000 for software, and $183,000 for the trade name. The goodwill is deductible for tax purposes over 15 years, starting in 2022. The intangible assets and results of Touchpoint are included in the Information Services operating segment.
The purchase price of the acquisition consisted of a cash payment of $4,900,000 and potential contingent consideration in the form of an earn out up to $2,500,000. The Company valued the contingent earn out component at $389,000. The fair value of the contingent consideration was estimated on the acquisition date as the present value of the expected future contingent payments which were determined using a Monte Carlo simulation. The contingent consideration is based upon four years of earnings before interest, taxes, depreciation and amortization (EBITDA) subsequent to the acquisition date. Any changes in the estimated fair value of the contingent earn out consideration, up to the contracted amount, will be reflected in the results of operations in future periods as they are identified.
Details of the Company’s intangible assets are as follows:
September 30, 2022December 31, 2021
(In thousands)Gross Carrying
Amount		Accumulated
Amortization		Gross Carrying
Amount		Accumulated
Amortization
Assets eligible for amortization:     
Customer lists $6,470 $(4,489)$4,778 $(4,341)
Patents 72 (31)72 (28)
Software 3,212 (1,401)2,844 (1,104)
Trade name 373 (35)190 (22)
Other 500 (350)500 (325)
Unamortized intangible assets:
Goodwill 17,309 — 14,262 — 
Total intangible assets $27,936 $(6,306)$22,646 $(5,820)
The customer lists are amortized over 7 to 10 years; the patents over 18 years; software over 3 to 7 years, the trade name over 10 to 20 years and other intangible assets over 15 years. Amortization of intangible assets amounted to $195,000 and $215,000 for the three month periods ended September 30, 2022 and 2021, respectively. Amortization of intangible assets amounted to $485,000 and $644,000 for the nine-month periods ended September 30, 2022 and 2021, respectively.
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Estimated annual amortization of intangibles is $680,000 in 2022, $780,000 in 2023, $738,000 in 2024, $730,000 in 2025, and $582,000 in 2026.
Note 3 – Earnings Per Share
Basic earnings per share is computed by dividing net income by the weighted-average number of common shares outstanding. Diluted earnings per share is computed by dividing net income by the sum of the weighted-average number of common shares outstanding and the weighted-average number of potential common shares outstanding. Under the treasury stock method, stock appreciation rights (“SARs”) are dilutive when the average market price of the Company’s common stock, combined with the effect of any unamortized compensation expense, exceeds the SAR price during a period.
The calculations of basic and diluted earnings per share are as follows:
(In thousands except share and per
share data)		Three Months Ended
September 30,		Nine Months Ended
September 30,
2022202120222021
Basic
Net income $8,799 $6,805 $25,619 $20,902 
Weighted-average common shares outstanding 13,542,231 14,040,089 13,554,169 14,203,369 
Basic earnings per share $0.65 $0.48 $1.89 $1.47 
 
Diluted
Net income $8,799 $6,805 $25,619 $20,902 
Weighted-average common shares outstanding 13,542,231 14,040,089 13,554,169 14,203,369 
Effect of dilutive restricted stock and stock appreciation rights 262,106 237,080 252,496 239,016 
Weighted-average common shares outstanding assuming dilution 13,804,337 14,277,169 13,806,665 14,442,385 
Diluted earnings per share $0.64 $0.48 $1.86 $1.45 
Note 4 – Stock Repurchases
The Company maintains a treasury stock buyback program pursuant to which, in October 2021, the Board of Directors authorized the repurchase of up to 750,000 shares of the Company’s common stock with no expiration date. As of September 30, 2022, 340,707 shares remained available for repurchase under the program. The Company repurchased 0 and 314,672 shares during the three-month periods ended September 30, 2022 and 2021, and 130,374 and 434,938 shares during the nine-month periods ended September 30, 2022 and 2021, 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 as well as church management and on-line generosity services to faith-based ministries. The Banking Services segment provides banking services primarily to privately held businesses, restaurant franchises, and faith-based ministries and supports the banking needs of the Information Services segment.
The Company’s accounting policies for segments are the same as those described in the summary of significant accounting policies in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. Management evaluates segment performance based on tax-equivalized (as defined in the footnote to the chart on the following table) pre-tax income after allocations for corporate expenses. Transactions between segments are accounted for at what management believes to be fair value.
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Substantially all revenue originates from, and all long-lived assets are located within, the United States and no revenue from any customer of any segment exceeds 10% of the Company’s consolidated revenue.
Funding sources represent average balances and deposits generated by Information Services and Banking Services and there is no allocation methodology used. Segment interest income is a function of the relative share of average funding sources generated by each segment multiplied by the following rates:
•Information Services – one or more fixed rates depending upon the specific characteristics of the funding source, and
•Banking Services – a variable rate that is based upon the overall performance of the Company’s earning assets.
Any difference between total segment interest income and overall total Company interest income is included in Corporate, Eliminations, and Other.
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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, 2022:
Fee income $30,418 $811 $555 $31,784 
Interest income* 7,158 8,733 1,273 17,164 
Interest expense — 782 — 782 
Intersegment income (expense) — 1,124 (1,124)— 
Tax-equivalized pre-tax income* 5,605 4,126 1,565 11,296 
Goodwill 17,173 136 — 17,309 
Other intangible assets, net 4,321 — — 4,321 
Total assets 1,196,399 1,598,519 (184,103)2,610,815 
Average funding sources 1,139,568 949,454 — 2,089,022 
Three Months Ended September 30, 2021:
Fee income $26,174 $1,065 $338 $27,577 
Interest income* 7,108 5,440 (361)12,187 
Interest expense — 287 — 287 
Intersegment income (expense) — 859 (859)— 
Tax-equivalized pre-tax income* 6,509 2,130 (193)8,446 
Goodwill 14,126 136 — 14,262 
Other intangible assets, net 2,779 — — 2,779 
Total assets 1,018,710 1,279,452 (5,176)2,292,986 
Average funding sources 974,091 875,997 — 1,850,088 
Nine Months Ended September 30, 2022:
Fee income $89,329 $1,847 $1,689 $92,865 
Interest income* 20,175 22,478 1,500 44,153 
Interest expense — 1,344 — 1,344 
Intersegment income (expense) — 3,549 (3,549)— 
Tax-equivalized pre-tax income* 20,259 10,418 2,359 33,036 
Goodwill 17,173 136 — 17,309 
Other intangible assets, net 4,321 — — 4,321 
Total assets 1,196,399 1,598,519 (184,103)2,610,815 
Average funding sources 1,082,449 963,588 — 2,046,037 
Nine Months Ended September 30, 2021:
Fee income $77,863 $1,701 $1,175 $80,739 
Interest income* 18,501 17,754 (1,335)34,920 
Interest expense — 915 — 915 
Intersegment income (expense) — 2,170 (2,170)— 
Tax-equivalized pre-tax income* 18,477 8,773 (654)26,596 
Goodwill 14,126 136 — 14,262 
Other intangible assets, net 2,779 — — 2,779 
Total assets 1,018,710 1,279,452 (5,176)2,292,986 
Average funding sources 906,474 862,142 — 1,768,616 
* Presented on a tax-equivalent basis assuming a tax rate of 21% for both 2022 and 2021. The tax-equivalent adjustment was approximately $412,000 and $468,000 for the third quarter of 2022 and 2021, respectively and $1,294,000 and $1,417,000 for the nine months ended September 30, 2022 and 2021, respectively.
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Note 6 – Loans by Type
A summary of loans is as follows:
(In thousands)September 30,
2022		December 31,
2021
Commercial and industrial $539,272 $450,336 
Real estate:
Commercial:
Mortgage 98,088 108,759 
Construction 26,284 24,797 
Faith-based:
Mortgage 365,584 355,582 
Construction 7,853 14,664 
Paycheck Protection Program (“PPP”) — 6,299 
Other20 130 
Total loans $1,037,101 $960,567 
The following table presents the aging of loans past due by category at September 30, 2022 and December 31, 2021:
PerformingNonperforming
(In thousands)Current30-59
Days		60-89
Days		90
Days
and
Over		Non-
accrual		Total
Loans
September 30, 2022
Commercial and industrial $539,272 $— $— $— $— $539,272 
Real estate
Commercial:
Mortgage 98,088 — — — — 98,088 
Construction 26,284 — — —