CASS INFORMATION SYSTEMS INC [CASS] Filings

10-Q 1 cass-20220331.htm 10-Q cass-20220331

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 March 31, 2022

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 April 22, 2022: Common stock, par value $.50 per share – 13,652,849 shares outstanding.

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TABLE OF CONTENTS


PART I – Financial Information
Item 1.	FINANCIAL STATEMENTS
	Consolidated Balance Sheets March 31, 2022 (unaudited) and December 31, 2021	3
	Consolidated Statements of Income Three months ended March 31, 2022 and 202 1 (unaudited)	4
	Consolidated Statements of Comprehensive Income Three months ended March 31, 2022 and 202 1 (unaudited)	5
	Consolidated Statements of Cash Flows Three months ended March 31, 2022 and 202 1 (unaudited)	6
	Consolidated Statements of Shareholders’ Equity Three months ended March 31, 2022 and 202 1 (unaudited)	7
	Notes to Consolidated Financial Statements (unaudited)	8
Item 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	21
Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	31
Item 4.	CONTROLS AND PROCEDURES	31
PART II – Other Information – Items 1. – 6.		32
SIGNATURES		34

Forward-looking Statements - Factors That May Affect Future Results

This report may contain or incorporate by reference forward-looking statements made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Although we believe that, in making any such statements, our expectations are based on reasonable assumptions, forward-looking statements are not guarantees of future performance and involve risks, uncertainties, and other factors beyond our control, which may cause future performance to be materially different from expected performance summarized in the forward-looking statements. These risks, uncertainties and other factors are discussed in Part I, Item 1A, “Risk Factors” of the Company’s 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.

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in Thousands except Share and Per Share Data)


	March 31, 2022 (Unaudited)		December 31, 2021
Assets
Cash and due from banks	$	22,416	$	12,301
Short-term investments	169,033		502,627
Cash and cash equivalents	191,449		514,928
Securities available-for-sale, at fair value	774,610		673,453

Loans	977,202		960,567
Less: Allowance for credit losses	12,406		12,041
Loans, net	964,796		948,526
Payments in advance of funding	329,622		291,427
Premises and equipment, net	19,086		18,113
Investment in bank-owned life insurance	47,163		43,176
Goodwill	14,262		14,262
Other intangible assets, net	2,429		2,564
Other assets	78,626		48,452
Total assets	$	2,422,043	$	2,554,901

Liabilities and Shareholders’ Equity
Liabilities:
Deposits:
Noninterest-bearing	$	621,819	$	582,642
Interest-bearing	555,116		638,861
Total deposits	1,176,935		1,221,503
Accounts and drafts payable	989,733		1,050,396
Other liabilities	38,297		37,204
Total liabilities	2,204,965		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 March 31, 2022 and December 31, 2021; 13,644,741 and 13,734,295 shares outstanding at March 31, 2022 and December 31, 2021, respectively.	7,753		7,753
Additional paid-in capital	203,149		204,276
Retained earnings	116,646		112,220
Common shares in treasury, at cost (1,861,031 shares at March 31, 2022 and 1,771,477 shares at December 31, 2021)	(82,348)		(78,904)
Accumulated other comprehensive (loss) income	(28,122)		453
Total shareholders’ equity	217,078		245,798
Total liabilities and shareholders’ equity	$	2,422,043	$	2,554,901

See accompanying notes to unaudited consolidated financial statements.

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CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(Dollars in Thousands except Per Share Data)


	Three Months Ended March 31,
	2022		2021
Fee Revenue and Other Income:
Processing fees	$	19,036	$	18,375
Financial fees	10,532		6,997
Other	862		803
Total fee revenue and other income	30,430		26,175

Interest Income:
Interest and fees on loans	8,777		8,587
Interest and dividends on securities:
Taxable	1,456		198
Exempt from federal income taxes	1,677		1,739
Interest on federal funds sold and other short-term investments	216		152
Total interest income	12,126		10,676

Interest Expense:
Interest on deposits	223		331

Total interest expense	223		331
Net interest income	11,903		10,345
Provision for (release of) credit losses	230		(600)
Net interest income after provision for (release of) credit losses	11,673		10,945
Total net revenue	42,103		37,120

Operating Expense:
Personnel	24,718		22,526
Occupancy	915		947
Equipment	1,711		1,675
Amortization of intangible assets	135		215
Other operating expense	4,349		3,162
Total operating expense	31,828		28,525
Income before income tax expense	10,275		8,595
Income tax expense	2,017		1,524
Net income	$	8,258	$	7,071

Basic earnings per share	$	.61	$	.49
Diluted earnings per share	.60		.49

See accompanying notes to unaudited consolidated financial statements.

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CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(Dollars in Thousands)


	Three Months Ended March 31,
	2022		2021
Comprehensive Income:
Net income	$	8,258	$	7,071
Other comprehensive (loss) income:
Net unrealized loss on securities available-for-sale	(37,499)		(4,214)
Tax effect	8,925		1,003
Reclassification adjustments for gains included in net income	—		(48)
Tax effect	—		11
Foreign currency translation adjustments	(1)		(129)
Total comprehensive (loss) income	$	(20,317)	$	3,694

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)


	Three Months Ended March 31,
	2022		2021
Cash Flows From Operating Activities:
Net income	$	8,258	$	7,071
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	2,912		2,978
Gains on sales of securities	—		(48)
Stock-based compensation expense	1,090		693
Provision for (release of) credit losses	230		(600)

Increase in current income tax liability	1,911		1,355
(Decrease) increase in pension liability	(640)		336
Increase in accounts receivable	(726)		(237)
Other operating activities, net	1,688		5,156
Net cash provided by operating activities	14,723		16,704

Cash Flows From Investing Activities:
Proceeds from sales of securities available-for-sale	—		2,991
Proceeds from maturities of securities available-for-sale	16,194		47,113
Purchase of securities available-for-sale	(156,597)		(125,467)
Net (increase) decrease in loans	(16,500)		3,478
Purchase of bank-owned life insurance	(3,987)		—
Increase in payments in advance of funding	(38,195)		(21,912)
Purchases of premises and equipment, net	(2,002)		(900)
Net cash used in investing activities	(201,087)		(94,697)

Cash Flows From Financing Activities:
Net increase (decrease) in noninterest-bearing demand deposits	39,177		(68,645)
Net (decrease) increase in interest-bearing demand and savings deposits	(80,002)		21,373
Net decrease in time deposits	(3,743)		(449)
Net (decrease) increase in accounts and drafts payable	(83,054)		60,905

Cash dividends paid	(3,832)		(3,886)
Purchase of common shares for treasury	(5,086)		(1,228)
Other financing activities, net	(575)		(946)
Net cash (used in) provided by financing activities	(137,115)		7,124
Net decrease in cash and cash equivalents	(323,479)		(70,869)
Cash and cash equivalents at beginning of period	514,928		670,528
Cash and cash equivalents at end of period	$	191,449	$	599,659

Supplemental information:
Cash paid for interest	$	216	$	311
Cash paid for income taxes	109		134

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


Balance, December 31, 2021	$	7,753	$	204,276	$	112,220	$	(78,904)	$	453	$	245,798
Net income					8,258						8,258
Cash dividends ($.28 per share)					(3,832)						(3,832)
Issuance of 58,272 common shares pursuant to stock-based compensation plan, net			(1,889)				1,399				(490)
Exercise of SARs			(328)				243				(85)
Stock-based compensation expense			1,090								1,090
Purchase of 124,874 common shares							(5,086)				(5,086)
Other comprehensive loss									(28,575)		(28,575)
Balance, March 31, 2022	$	7,753	$	203,149	$	116,646	$	(82,348)	$	(28,122)	$	217,078

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.

Risks and Uncertainties

On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 as a global pandemic. While the impact of COVID-19 is significantly lessened from March 2020, the ongoing impact, including resurgences of the virus and restrictions imposed to combat its spread, could result in additional and prolonged business closures, supply chain disruptions, work restrictions and activity restrictions. The Company continues to closely monitor developments related to COVID-19 and remains subject to heightened business, operational, market, credit and other risks which may have an adverse effect on its financial condition and results of operations.

Note 2 – Intangible Assets

The Company accounts for intangible assets in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 350, Goodwill and Other Intangible Assets, 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:


	March 31, 2022				December 31, 2021
(In thousands)	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Assets eligible for amortization:
Customer lists	$	4,778	$	(4,371)	$	4,778	$	(4,341)
Patents	72		(29)		72		(28)
Software	2,844		(1,197)		2,844		(1,104)
Trade Name	190		(25)		190		(22)
Other	500		(333)		500		(325)
Unamortized intangible assets:
Goodwill	14,262		—		14,262		—
Total intangible assets	$	22,646	$	(5,955)	$	22,646	$	(5,820)

The customer lists are amortized over 7 and 10 years; the patents over 18 years; software over 3 years and 7 years, the trade name over 20 years and other intangible assets over 15 years. Amortization of intangible assets amounted to $135,000 and $215,000 for the three month periods ended March 31, 2022 and 2021, respectively. Estimated annual amortization of intangibles is $540,000 in both 2022 and 2023, $498,000 in 2024, $490,000 in 2025, and $342,000 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

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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 March 31,
	2022		2021
Basic
Net income	$	8,258	$	7,071
Weighted-average common shares outstanding	13,577,991		14,312,260
Basic earnings per share	$	.61	$	.49

Diluted
Net income	$	8,258	$	7,071
Weighted-average common shares outstanding	13,577,991		14,312,260
Effect of dilutive restricted stock and stock appreciation rights	236,233		220,809
Weighted-average common shares outstanding assuming dilution	13,814,224		14,533,069
Diluted earnings per share	$	.60	$	.49

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 March 31, 2022, 346,207 shares remained available for repurchase under the program. The Company repurchased 124,874 and 31,256 shares during the three-month periods ended March 31, 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. The Banking Services segment provides banking services primarily to privately held businesses and faith-based ministries, including on-line generosity services, as well as supporting the banking needs of the Information Services segment.

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

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

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

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

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


(In thousands)	Information Services		Banking Services		Corporate, Eliminations and Other		Total
Three Months Ended March 31, 2022:
Fee income	$	29,234	$	628	$	568	$	30,430
Interest income*	6,326		6,482		(237)		12,571
Interest expense	—		223		—		223
Intersegment income (expense)	—		1,133		(1,133)		—
Tax-equivalized pre-tax income*	7,815		2,850		56		10,721
Goodwill	12,433		1,829		—		14,262
Other intangible assets, net	307		2,122		—		2,429
Total assets	1,090,737		1,345,958		(14,652)		2,422,043
Average funding sources	1,008,928		966,820		—		1,975,748
Three Months Ended March 31, 2021:
Fee income	$	25,298	$	317	$	560	$	26,175
Interest income*	5,509		5,751		(122)		11,138
Interest expense	—		331		—		331
Intersegment income (expense)	—		623		(623)		—
Tax-equivalized pre-tax income*	5,786		2,988		283		9,057
Goodwill	12,433		1,829		—		14,262
Other intangible assets, net	634		2,574		—		3,208
Total assets	1,023,196		1,263,669		(70,292)		2,216,573
Average funding sources	837,852		849,177		—		1,687,029

* Presented on a tax-equivalent basis assuming a tax rate of 21% for both 2022 and 2021. The tax-equivalent adjustment was approximately $446,000 and $462,000 for the First Quarter of 2022 and 2021, respectively.

Note 6 – Loans by Type

A summary of loans is as follows:


(In thousands)	March 31, 2022		December 31, 2021
Commercial and industrial	$	469,129	$	450,336
Real estate:
Commercial:
Mortgage	101,018		108,759
Construction	24,757		24,797
Faith-based:
Mortgage	367,376		355,582
Construction	13,512		14,664
Paycheck Protection Program (“PPP”)	1,373		6,299
Other	37		130
Total loans	$	977,202	$	960,567

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The following table presents the aging of loans past due by category at March 31, 2022 and December 31, 2021:


	Performing						Nonperforming
(In thousands)	Current		30-59 Days		60-89 Days		90 Days and Over		Non- accrual		Total Loans
March 31, 2022
Commercial and industrial	$	469,129	$	—	$	—	$	—	$	—	$	469,129
Real estate
Commercial:
Mortgage	101,018		—		—		—		—		101,018
Construction	24,757		—		—		—		—		24,757
Faith-based:
Mortgage	367,376		—		—		—		—		367,376
Construction	13,512		—		—		—		—		13,512
PPP	1,373		—		—		—		—		1,373
Other	37		—		—		—		—		37
Total	$	977,202	$	—	$	—	$	—	$	—	$	977,202
December 31, 2021
Commercial and industrial	$	450,336	$	—	$	—	$	—	$	—	$	450,336
Real estate
Commercial:
Mortgage	108,759		—		—		—		—		108,759
Construction	24,797		—		—		—		—		24,797
Faith-based:
Mortgage	355,582		—		—		—		—		355,582
Construction	14,664		—		—		—		—		14,664
PPP	6,299		—		—		—		—		6,299
Other	130		—		—		—		—		130
Total	$	960,567	$	—	$	—	$	—	$	—	$	960,567

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The following table presents the credit exposure of the loan portfolio by internally assigned credit grade as of March 31, 2022 and December 31, 2021:


(In thousands)	Loans Subject to Normal Monitoring1		Performing Loans Subject to Special Monitoring2		Nonperforming Loans Subject to Special Monitoring2		Total Loans
March 31, 2022
Commercial and industrial	$	466,946	$	2,183	$	—	$	469,129
Real estate
Commercial:
Mortgage	100,472		546		—		101,018
Construction	24,757		—		—		24,757
Faith-based:
Mortgage	366,397		979		—		367,376
Construction	13,512		—		—		13,512
PPP	1,373		—		—		1,373
Other	37		—		—		37
Total	$	973,494	$	3,708	$	—	$	977,202
December 31, 2021
Commercial and industrial	$	440,607	$	9,729	$	—	$	450,336
Real estate
Commercial:
Mortgage	108,759		—		—		108,759
Construction	24,797		—		—		24,797
Faith-based:
Mortgage	352,717		2,865		—		355,582
Construction	14,664		—		—		14,664
PPP	6,299		—		—		6,299
Other	130		—		—		130
Total	$	947,973	$	12,594	$	—	$	960,567


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

The Company had no loans evaluated for expected credit losses on an individual basis as of March 31, 2022 or December 31, 2021. There were no foreclosed loans recorded as other real estate owned (included in other assets) as of March 31, 2022 or December 31, 2021. There were no loans considered troubled debt restructurings as of March 31, 2022 or December 31, 2021.

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A summary of the activity in allowance for credit losses (“ACL”) by category for the periods ended March 31, 2022 and December 31, 2021 is as follows:


(In thousands)	C&I		CRE		Faith-based CRE		Construction		Total
Balance at December 31, 2020	$	4,635	$	1,175	$	5,717	$	417	$	11,944
Provision for (release of) credit losses	387		(144)		(48)		(125)		70
Recoveries	12		—		15		—		27
Balance at December 31, 2021	$	5,034	$	1,031	$	5,684	$	292	$	12,041

Provision for (release of) credit losses	245		(55)		180		(5)		365
Recoveries	—		—		—		—		—
Balance at March 31, 2022	$	5,279	$	976	$	5,864	$	287	$	12,406

The provision for credit losses during the period ended March 31, 2022 was primarily due to the increase in loan balances.

Note 7 – Commitments and Contingencies

In the normal course of business, the Company is party to activities that contain credit, market and operational risks that are not reflected in whole or in part in the Company’s consolidated financial statements. Such activities include traditional off-balance sheet credit-related financial instruments and commitments under operating leases. These financial instruments include commitments to extend credit, commercial letters of credit and standby letters of credit. The Company’s maximum potential exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit, commercial letters of credit and standby letters of credit is represented by the contractual amounts of those instruments. A release of credit losses of $135,000 was recorded during the three months ended March 31, 2022 primarily due to a decrease in unfunded commitments. An allowance for unfunded commitments of $232,000 and $367,000 had been recorded at March 31, 2022 and December 31, 2021, respectively.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commercial and standby letters of credit are conditional commitments issued by the Company or its subsidiaries to guarantee the performance of a customer to a third party. These off-balance sheet financial instruments generally have fixed expiration dates or other termination clauses and may require payment of a fee. At March 31, 2022, the balances of unused loan commitments, standby and commercial letters of credit were $200,547,000, $12,297,000, and $1,208,000, respectively. Since some of the financial instruments may expire without being drawn upon, the total amounts do not necessarily represent future cash requirements. Commitments to extend credit and letters of credit are subject to the same underwriting standards as those financial instruments included on the consolidated balance sheets. The Company evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary upon extension of the credit, is based on management’s credit evaluation of the borrower. Collateral held varies, but is generally accounts receivable, inventory, residential or income-producing commercial property or equipment. In the event of nonperformance, the Company or its subsidiaries may obtain and liquidate the collateral to recover amounts paid under guarantees on these financial instruments.

Note 8 – Stock-Based Compensation

The Amended and Restated Omnibus Stock and Performance Compensation Plan (the “Omnibus Plan”) permits the issuance of up to 1,500,000 shares of the Company’s common stock in the form of stock options, SARs, restricted stock, restricted stock units and performance awards. The Company may issue shares out of treasury stock for these awards. During the three months ended March 31, 2022, 40,462 restricted shares, 57,542 performance-based restricted shares, and no SARs were granted under the Omnibus Plan. Stock-based compensation expense for the three months ended March 31, 2022 and 2021 was $1,090,000 and $693,000, respectively.

Restricted Stock

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

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As of March 31, 2022, the total unrecognized compensation expense related to non-vested restricted shares was $2,625,000, and the related weighted-average period over which it is expected to be recognized is approximately 1.01 years.

Following is a summary of the activity of the Company's restricted stock for the three months ended March 31, 2022, with total shares and weighted average fair value:


	Three Months Ended March 31, 2022
	Shares	Fair Value
Balance at December 31, 2021	165,553	$	44.81
Granted