10-Q 1 cass-20240331.htm 10-Q cass-20240331
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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 March 31, 2024
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 May 3, 2024: Common stock, par value $.50 per share – 13,643,658 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 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.
-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)
March 31, 2024 (Unaudited)
December 31,
2023
Assets  
Cash and due from banks $17,323 $20,908 
Short-term investments175,480 351,560 
Cash and cash equivalents 192,803 372,468 
Securities available-for-sale, at fair value 621,929 627,117 
Loans 1,036,997 1,014,318 
Less: Allowance for credit losses 13,299 13,089 
Loans, net 1,023,698 1,001,229 
Payments in advance of funding 221,552 198,861 
Premises and equipment, net 32,613 30,093 
Investment in bank-owned life insurance 49,496 49,159 
Goodwill 17,309 17,309 
Other intangible assets, net 3,154 3,345 
Accounts and drafts receivable from customers32,856 110,651 
Other assets 98,169 68,390 
Total assets $2,293,579 $2,478,622 
Liabilities and Shareholders’ Equity
Liabilities:
Deposits:
Noninterest-bearing $412,879 $524,359 
Interest-bearing 666,213 616,455 
Total deposits 1,079,092 1,140,814 
Accounts and drafts payable 944,793 1,071,369 
Other liabilities 40,207 36,630 
Total liabilities 2,064,092 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 March 31, 2024 and December 31, 2023; 13,627,848 and 13,582,375 shares outstanding at March 31, 2024 and December 31, 2023, respectively.
7,753 7,753 
Additional paid-in capital 204,361 208,007 
Retained earnings 148,845 145,782 
Common shares in treasury, at cost (1,877,924 shares at March 31, 2024 and 1,923,397 shares at December 31, 2023)
(82,316)(84,264)
Accumulated other comprehensive loss(49,156)(47,469)
Total shareholders’ equity 229,487 229,809 
Total liabilities and shareholders’ equity $2,293,579 $2,478,622 
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
March 31,
20242023
Fee Revenue and Other Income:
Processing fees$21,253 $19,513 
Financial fees10,777 11,259 
Other1,267 1,335 
Total fee revenue and other income 33,297 32,107 
Interest Income:
Interest and fees on loans 12,776 12,235 
Interest and dividends on securities:
Taxable 3,519 3,586 
Exempt from federal income taxes 918 1,208 
Interest on federal funds sold and other short-term investments 4,441 3,113 
Total interest income 21,654 20,142 
Interest Expense:
Interest on deposits 5,178 3,171 
Interest on short-term borrowings  73 
Total interest expense 5,178 3,244 
Net interest income 16,476 16,898 
Provision for (release of) credit losses95 (340)
Net interest income after provision for (release of) credit losses16,381 17,238 
Total net revenue 49,678 49,345 
Operating Expense:
Personnel 30,607 30,026 
Occupancy 861 855 
Equipment 1,881 2,082 
Amortization of intangible assets 191 195 
Other operating expense 7,131 7,214 
Total operating expense 40,671 40,372 
Income before income tax expense 9,007 8,973 
Income tax expense 1,855 1,856 
Net income $7,152 $7,117 
Basic earnings per share $.53 $.52 
Diluted earnings per share .52 .51 
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
March 31,
20242023
Comprehensive Income:
Net income $7,152 $7,117 
Other comprehensive income:
Net unrealized (loss) gain on securities available-for-sale (2,096)9,181 
Tax effect 499 (2,185)
Reclassification adjustments for gains included in net income  (39)
Tax effect  9 
Foreign currency translation adjustments (90)85 
Total comprehensive income $5,465 $14,168 
See accompanying notes to unaudited consolidated financial statements.                                
-5-

CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
Three Months Ended
March 31,
20242023
Cash Flows From Operating Activities:  
Net income $7,152 $7,117 
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of intangible assets191 195 
Net amortization of premium/discount on investment securities1,037 1,219 
Depreciation1,141 945 
Gains on sales of securities  (39)
Stock-based compensation expense 1,226 1,950 
Provision for (release of) for credit losses95 (340)
Increase in current income tax liability1,786 1,704 
Increase in pension liability 212 101 
Increase in accounts receivable (1,601)(1,878)
Other operating activities, net (1,412)(1,681)
Net cash provided by operating activities 9,827 9,293 
Cash Flows From Investing Activities:
Proceeds from sales of securities available-for-sale  61,418 
Proceeds from maturities of securities available-for-sale 14,559 13,164 
Purchase of securities available-for-sale (37,504)(15,190)
Net (increase) decrease in loans (22,679)12,533 
(Increase) decrease in payments in advance of funding(22,691)33,956 
Purchases of premises and equipment, net (3,661)(1,954)
Net cash (used in) provided by investing activities (71,976)103,927 
Cash Flows From Financing Activities:
Net decrease in noninterest-bearing demand deposits (111,480)(57,434)
Net increase (decrease) in interest-bearing demand and savings deposits 51,116 (106,201)
Net (decrease) increase in time deposits (1,358)22,568 
Net decrease in accounts and drafts receivable from customers77,795 58,491 
Net decrease in accounts and drafts payable(126,576)(16,165)
Cash dividends paid (4,089)(3,977)
Purchase of common shares for treasury (1,054) 
Other financing activities, net (1,870)(966)
Net cash used in financing activities (117,516)(103,684)
Net (decrease) increase in cash and cash equivalents (179,665)9,536 
Cash and cash equivalents at beginning of period 372,468 200,942 
Cash and cash equivalents at end of period $192,803 $210,478 
Supplemental information:
Cash paid for interest $5,425 $3,135 
Cash paid for income taxes 61 139 
See accompanying notes to unaudited consolidated financial statements.

-6-

CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
THREE MONTHS ENDED MARCH 31, 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 7,117 7,117 
Cash dividends ($0.29 per share)
(3,977)(3,977)
Issuance of 61,534 common shares pursuant to stock-based compensation plans, net
(2,520)1,670 (850)
Exercise of SARs(238)122 (116)
Stock-based compensation expense 1,950 1,950 
Other comprehensive gain7,051 7,051 
Balance, March 31, 2023
$7,753 $206,614 $134,822 $(79,419)$(52,270)$217,500 
Balance, December 31, 2023
$7,753 $208,007 $145,782 $(84,264)$(47,469)$229,809 
Net income 7,152 7,152 
Cash dividends ($0.30 per share)
(4,089)(4,089)
Issuance of 105,686 common shares pursuant to stock-based compensation plans, net
(4,904)3,034 (1,870)
Stock-based compensation expense 1,258 (32)1,226 
Purchase of 23,271 common shares
(1,054)(1,054)
Other comprehensive loss(1,687)(1,687)
Balance, March 31, 2024
$7,753 $204,361 $148,845 $(82,316)$(49,156)$229,487 
-7-

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:
March 31, 2024December 31, 2023
(In thousands)Gross Carrying
Amount
Accumulated
Amortization
Gross Carrying
Amount
Accumulated
Amortization
Assets eligible for amortization:     
Customer lists $6,470 $(4,919)$6,470 $(4,851)
Patents 72 (37)72 (36)
Software 3,212 (2,040)3,212 (1,933)
Trade name 373 (77)373 (70)
Other 500 (400)500 (392)
Unamortized intangible assets:
Goodwill 17,309 — 17,309 — 
Total intangible assets $27,936 $(7,473)$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 $191,000 and $195,000 for the three-month periods ended March 31, 2024 and 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.
-8-

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,
20242023
Basic
Net income $7,152 $7,117 
Weighted-average common shares outstanding 13,530,228 13,599,472 
Basic earnings per share $0.53 $0.52 
 
Diluted
Net income $7,152 $7,117 
Weighted-average common shares outstanding 13,530,228 13,599,472 
Effect of dilutive restricted stock and stock appreciation rights 255,049 263,926 
Weighted-average common shares outstanding assuming dilution 13,785,277 13,863,398 
Diluted earnings per share $0.52 $0.51 
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 March 31, 2024, the Company had 462,765 shares remaining available for repurchase under the program. The Company repurchased 23,271 and 0 shares during the three-month periods ended March 31, 2024 and 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.
-9-

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, 2024:
Fee income $32,321 $640 $336 $33,297 
Interest income10,191 13,884 (2,421)21,654 
Interest expense 598 7,890 (3,310)5,178 
Intersegment income (expense) (1,038)1,038  — 
Pre-tax income5,964 1,818 1,225 9,007 
Goodwill 17,173 136  17,309 
Other intangible assets, net 3,154   3,154 
Total assets 1,386,858 1,122,954 (216,233)2,293,579 
Average funding sources $1,315,614 $799,740 $ $2,115,354 
Three Months Ended March 31, 2023:
Fee income $31,077 $711 $319 $32,107 
Interest income9,447 13,177 (2,482)20,142 
Interest expense 98 5,433 (2,287)3,244 
Intersegment income (expense) (914)914  — 
Pre-tax income4,991 3,859 123 8,973 
Goodwill 17,173 136  17,309 
Other intangible assets, net 3,931   3,931 
Total assets 1,526,001 1,167,979 (266,591)2,427,389 
Average funding sources $1,357,035 $882,892 $ $2,239,927 
Note 6 – Loans by Type
A summary of loans is as follows:
(In thousands)March 31,
2024
December 31,
2023
Commercial and industrial $526,486 $498,502 
Real estate:
Commercial:
Mortgage 114,200 118,371 
Construction 8,812 8,233 
Faith-based:
Mortgage 378,158 381,368 
Construction 9,336 7,790 
Other5 54 
Total loans $1,036,997 $1,014,318 
-10-

The following table presents the aging of loans past due by category at March 31, 2024 and December 31, 2023:
PerformingNonperforming
(In thousands)Current30-59
Days
60-89
Days
90
Days
and
Over
Non-
accrual
Total
Loans
March 31, 2024
Commercial and industrial $526,486 $ $ $ $ $526,486 
Real estate
Commercial:
Mortgage 114,200     114,200 
Construction 8,812     8,812 
Faith-based:
Mortgage 378,158     378,158 
Construction 9,336     9,336 
Other5     5 
Total $1,036,997 $ $ $ $ $1,036,997 
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 
Other54     54 
Total $1,014,318 $ $ $ $ $1,014,318 
-11-

The following table presents the credit exposure of the loan portfolio by internally assigned credit grade as of March 31, 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
March 31, 2024
Commercial and industrial $526,486 $ $ $526,486 
Real estate
Commercial:
Mortgage 110,407 3,793  114,200 
Construction 8,812   8,812 
Faith-based:
Mortgage 371,711 6,447  378,158 
Construction 9,336   9,336 
Other5   5 
Total $1,026,757 $10,240 $ $1,036,997 
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 
Other54   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 three months ended March 31, 2024. The following table shows the amortized
-12-

cost of loans that were both experiencing financial difficulty and modified during the three months ended March 31, 2023, segregated by category and type of modification.
(In thousands)Payment DelayTerm ExtensionInterest Rate ReductionCombination Term Extension and Interest Rate ReductionPercentage of Total Loans Held for Investment
Commercial and industrial$ $11,225 $ $ 2.04 %
Total$ $11,225 $ $ 1.05 %
There were two loans modified during the three months ended March 31, 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)Current30-59 Days Past Due60-89 Days Past Due90 Days or More Past DueTotal Past Due
Commercial and industrial$11,686 $ $ $ $ 
Total$11,686 $ $ $ $ 
At March 31, 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 three months ended March 31, 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 three months ended March 31, 2024 or 2023.
The Company had no loans evaluated for expected credit losses on an individual basis as of March 31, 2024, and December 31, 2023, respectively.
There were no foreclosed loans recorded as other real estate owned as of March 31, 2024 or December 31, 2023.
A summary of the activity in the allowance for credit losses (“ACL”) by category for the three-month period ended March 31, 2024 and year-ended December 31, 2023 is as follows:
(In thousands)C&ICREFaith-based
CRE
ConstructionTotal
Balance at December 31, 2022
$5,978 $940 $6,437 $184 $13,539 
Provision for (release of) credit losses (566)153 39 (76)(450)
Balance at December 31, 2023
$5,412 $1,093 $6,476 $108 $13,089 
(Release of) provision for credit losses (1)
215 (58)38 15 210 
Balance at March 31, 2024
$5,627 $1,035 $6,514 $123 $13,299 
(1)
For the three month period ended March 31, 2024 and year-ended December 31, 2023, there was a release of credit losses of $115,000 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
-13-

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 $17,000 and $132,000 had been recorded at March 31, 2024 and December 31, 2023, respectively.
At March 31, 2024, the balances of unfunded commitments, standby and commercial letters of credit were $223.6 million, $13.5 million, and $569,000, 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 fees for Company services that are due for invoice management services and bill pay services. The Company has a receivable at March 31, 2024 for $8.1 million related to these amounts. There is uncertainty of the existence, or extent of any loss exposure at March 31, 2024. In addition, the Company evaluated the receivable from a credit loss perspective, and, based on this evaluation, the Company does not have a reserve related to this receivable at March 31, 2024.
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 three months ended March 31, 2024, 36,852 time-based restricted shares and 51,261 performance-based restricted shares were granted under the 2023 Omnibus Plan. Stock-based compensation expense for the three months ended March 31, 2024 and 2023 was $1.2 million and $2.0 million, 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 March 31, 2024, the total unrecognized compensation expense related to non-vested restricted shares was $2.4 million, and the related weighted-average period over which it is expected to be recognized is approximately 0.97 years.
Following is a summary of the activity of the Company's restricted stock for the three months ended March 31, 2024, with total shares and weighted-average fair value:
Three Months Ended
March 31, 2024
SharesFair Value
Balance at December 31, 2023
237,780 $42.17 
Granted 36,852 44.39 
Vested (37,577)40.49 
Forfeitures(710)43.70 
Balance at March 31, 2024
236,345 $42.79 
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.
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Following is a summary of the activity of the PBRS for the three months ended March 31, 2024, based on 100% of target value:
Three Months Ended
March 31, 2024
SharesFair Value
Balance at December 31, 2023
159,073 $42.74 
Granted 51,261 48.19 
Vested (50,840)40.74 
Forfeitures(1,066)43.70 
Balance at March 31, 2024
158,428 $43.87 
The PBRS that vested during the three months ended March 31, 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 March 31, 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.
SARs
There were no SARs granted and no expense recognized during the three months ended March 31, 2024. Following is a summary of the activity of the Company’s SARs program for the three months ended March 31, 2024:
SharesWeighted-
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 March 31, 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. As such, subsequent to February 28, 2021, there is no service cost associated with the Plan. 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 $100,000 for the three-month periods ended March 31, 2024, and March 31, 2023, respectively. The Company made no contributions to the Plan during the three-month period ended March 31, 2024 and is evaluating the amount of contributions, if any, for the remainder of 2024.
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In addition to the above funded defined-benefit pension 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 $118,000 for the three month periods ended March 31, 2024, and March 31, 2023, respectively.
Note 10 – Income Taxes
The effective tax rate was 20.6% and 20.7% for the three month periods ended March 31, 2024, and March 31, 2023, respectively. The effective tax rate for all periods differs from the statutory rate of 21% primarily due to the tax-exempt interest received from municipal bonds and bank-owned life insurance, 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 valuations. The market evaluation utilizes several sources which include “observable inputs” rather than “significant unobservable inputs” and therefore fall into the Level 2 category. The amortized cost, gross unrealized gains, gross unrealized losses and fair value of investment securities are summarized as follows:
March 31, 2024
(In thousands)Amortized
Cost
 Gross
Unrealized
Gains
 Gross
Unrealized
Losses
 Fair
Value
State and political subdivisions $227,068 $6 $(17,370)$209,704 
Mortgage-backed securities issued or guaranteed by U.S. government agencies or sponsored enterprises208,586  (32,218)176,368 
Corporate bonds 119,048 27 (9,162)109,913 
Treasury securities84,922  (400)84,522 
Asset backed securities issued or guaranteed by U.S. government agencies or sponsored enterprises42,201  (779)41,422 
Total $681,825 $33 $(59,929)$621,929 
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 enterprises188,307  (30,508)157,799 
Corporate bonds111,109  (8,769)102,340 
Treasury securities109,836  (1,115)108,721 
Asset backed securities issued or guaranteed by U.S. government agencies or sponsored enterprises40,368  (1,146)39,222 
Total $684,917 $4 $(57,804)$627,117 
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The fair values of securities with unrealized losses are as follows:
March 31, 2024
Less than 12 months12 months or moreTotal
(In thousands)Estimated
Fair Value
 Unrealized
Losses
 Estimated
Fair Value
Unrealized
Losses
 Estimated
Fair Value
 Unrealized
Losses
State and political subdivisions $26,244 $164 $175,899 $17,206 $202,143 $17,370 
Mortgage-backed securities issued or guaranteed by U.S. government agencies or sponsored enterprises29,086 92 147,282 32,126 176,368 32,218 
Corporate bonds12,600 401 82,269 8,761 94,869 9,162 
Treasury securities  84,522 400 84,522 400 
Asset backed securities issued or guaranteed by U.S. government agencies or sponsored enterprises  41,422 779 41,422 779 
Total $67,930 $657 $531,394 $59,272 $599,324 $59,929 

December 31, 2023
Less than 12 months12 months or moreTotal
(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 bonds19,545 455 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 267 securities, or 96.0% (228 of which for greater than 12 months), in an unrealized loss position as of March 31, 2024. The unrealized losses at March 31, 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, 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 March 31, 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.
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March 31, 2024
(In thousands)Amortized CostFair Value
Due in 1 year or less
$199,175 $197,437 
Due after 1 year through 5 years
94,092 92,440 
Due after 5 years through 10 years
208,628 183,284 
Due after 10 years
179,930 148,768 
Total $681,825 $621,929 
Proceeds from sales of investment securities classified as available-for-sale were $0 and $61.4 million for the three months ended March 31, 2024, and 2023, respectively. Gross realized losses were $0 and $148,000 for the three months ended March 31, 2024 and 2023, respectively. Gross realized gains were $0 and $187,000 for the three months ended March 31, 2024, and 2023, respectively. There were no securities pledged to secure public deposits or for other purposes at March 31, 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:
March 31, 2024December 31, 2023
(In thousands)Carrying
Amount
Fair ValueCarrying
Amount
Fair Value
Balance sheet assets:
Cash and cash equivalents $192,803 $192,803 $372,468 $372,468 
Investment securities 621,929 621,929 627,117 627,117 
Loans, net 1,023,698 987,496 1,001,229 962,223 
Accrued interest receivable 8,965 8,965 8,450 8,450 
Total $1,847,395 $1,811,193 $2,009,264 $1,970,258 
Balance sheet liabilities:
Deposits $1,079,092 $1,079,092 $1,140,814 $1,140,814 
Accounts and drafts payable 944,793 944,793 1,071,369 1,071,369 
Accrued interest payable 387 387 635 635 
Total $2,024,272 $2,024,272 $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 valuations. Refer to Note 11, “Investment in Securities,” for fair value and unrealized gains and losses by investment type.
Loans - The fair value is estimated using present values of future cash flows discounted at risk-adjusted interest rates for each loan category designated by management and is therefore a Level 3 valuation. Management believes that the risk factor embedded in the interest rates along with the allowance for credit losses result in a fair valuation.
Accrued Interest Receivable - The carrying amount approximates fair value.
Deposits - The fair value of demand deposits, savings deposits and certain money market deposits is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities and therefore, is a Level 2 valuation. The fair value estimates above do not include the benefit that results from the low-cost funding provided by the deposit liabilities compared to the cost of borrowing funds in the market or the benefit derived from the customer relationship inherent in existing deposits.
Accounts and Drafts Payable - The carrying amount approximates fair value.
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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 March 31, 2024 and 2023.
For the Three Months Ended March 31,
(In thousands)20242023
Fee revenue and other income
In-scope of FASB ASC 606
Processing fees $21,253 $19,513 
Financial fees10,777 11,259 
Information services payment and processing revenue 32,030 30,772 
Bank service fees 281 264 
Fee revenue (in-scope of FASB ASC 606) 32,311 31,036 
Other income (out-of-scope of FASB ASC 606) 986 1,071 
Total fee revenue and other income $33,297 $32,107 
Note 14 – Leases
The Company leases certain premises under operating leases. As of March 31, 2024, the Company had lease liabilities of $8.2 million and right-of-use assets of $7.8 million. Lease liabilities and right-of-use assets are reflected in other liabilities and other assets, respectively. Presented within occupancy expense on the Consolidated Statements of Income for the three months ended March 31, 2024, operating lease cost was $341,000, short-term lease cost was $81,000, and there was no variable lease cost. At March 31, 2024, the weighted-average remaining lease term for the operating leases was 7.1 years and the weighted-average discount rate used in the measurement of operating lease liabilities was 3.56%. 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.
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A maturity analysis of operating lease liabilities and undiscounted cash flows as of March 31, 2024 is as follows:
(In thousands)March 31,
2024
Lease payments due
Less than 1 year
$