Annual Report2014CASS INFORMATION SYSTEMS, INC. 2014 ANNUAL REPORT12444 Powerscourt Drive, Suite 550 Saint Louis, Missouri 63131 314-506-5500www.cassinfo.comDP_283901_Cass-10K-Wrap-Cvr_IMP
Utility Bill Payment
We process and pay invoices for electricity, gas, water
and other facility-related expenses. Through advanced
invoice processing methods, we capture large amounts
of data and develop an energy data warehouse for each
Expense$mart® client.
The Cass Portfolio of SolutionsCass Information Systems, Inc. (NASDAQ: CASS) is a leading provider of transportation, utility, waste and telecom expense management and related business intelligence services, disbursing $38 billion annually on behalf of its clients.With total assets of $1.5 billion, Cass is a business-to-business solutions provider focused on invoice processing, auditing, payment and information services. Cass is uniquely supported by Cass Commercial Bank, founded in 1906. Today, Cass Commercial Bank is a wholly owned subsidiary, providing sophisticated financial exchange services to the parent organization and its clients.ENVIRONMENTALWaste Expense ManagementCass drives durable expense reduction and improves sustainability practices for clients by leveraging its waste expertise, powerful WasteVision™ technology platform and aggregate buying power.FREIGHT/PARCELFreight Audit & PaymentCass offers invoice management for freight and parcel bills, supplier payment management and general ledger account reconciliation, providing full visibility via CassPort,® the industry’s leading Web-based intelligence engine.BANKINGCommercial BankingA Federal Reserve member bank, Cass Commercial Bank provides safety, security and control in moving funds through the Cass electronic payment network. TELECOMCommunications Lifecycle ManagementWe manage our clients’ telecom investments – from source to pay – for both mobile and fixed telecom assets and services. Cass offers “bring your own device” program management for employee-owned equipment.UTILITIESShareholder InformationCORPORATE HEADQUARTERSCass Information Systems, Inc.12444 Powerscourt Drive, Suite 550Saint Louis, Missouri 63131314-506-5500cass@cassinfo.comwww.cassinfo.comCOMMON STOCKThe company’s common stock trades on the NASDAQ stock market under the symbol CASS. ANNUAL MEETINGThe annual meeting of shareholders will be held Monday, April 20, 2015 at 11 a.m. at the Charles F. Knight Executive Education and Conference Center, Olin Business School at Washington University, Saint Louis, Missouri.INVESTOR RELATIONSSecurity analysts, investment managers and others seeking financial information about the Company should contact:Investor Relations DepartmentCass Information Systems, Inc.12444 Powerscourt Drive, Suite 550Saint Louis, Missouri 63131314-506-5500 10-K AND OTHER PUBLICATIONSA copy of the company’s Form 10-K, as filed with the Securities and Exchange Commission, will be furnished with-out charge upon written request to the address above or from the Company’s website at: www.cassinfo.comINDEPENDENT AUDITORSKPMG LLP10 South Broadway, Suite 900Saint Louis, Missouri 63102TRANSFER AGENTShareholder correspondence should be mailed to:ComputershareP.O. Box 30170College Station, Texas 77842-3170Overnight correspondence should be mailed to:Computershare211 Quality Circle, Suite 210College Station, Texas 77845SHAREHOLDER WEBSITE:www.computershare.com/investorSHAREHOLDER ONLINE INQUIRIES:https://www-us.computershare.com/ investor/ContactTOLL-FREE PHONE:866-323-8170Board of DirectorsLawrence A. CollettChairman of the BoardEric H. BrunngraberPresident and Chief Executive OfficerRobert A. EbelChief Executive Officer,Universal Printing CompanyBenjamin F. (Tad) Edwards, IVChairman, Chief ExecutiveOfficer and President,Benjamin F. Edwards & CompanyJohn L. Gillis, Jr.Retired, Armstrong Teasdale LLPWayne J. GraceRetired Managing Director,UHY Advisors MO, Inc.James J. LindemannExecutive Vice President,EmersonRandall L. SchillingPresident and Chief ExecutiveOfficer, BoardPaq LLCFranklin D. Wicks, Jr., Ph. D.Executive Vice President and President,Applied Markets, Sigma-AldrichExecutive OfficersEric H. BrunngraberPresident and Chief Executive OfficerP. Stephen AppelbaumExecutive Vice President and Chief Financial Officer Mark A. CampbellPresident, TransportationInformation ServicesGary B. LangfittPresident, ExpenseManagement ServicesRobert J. MathiasPresident and Chief OperatingOfficer, Cass Commercial BankDP_283901_Cass-10K-Wrap-Cvr_IMP 2014 Year in Review
FOR THE YEAR ENDED DECEMBER 31
2014
2013
% CHANGE
Total Net Revenue
Net Income
Basic Earnings per Common Share
Diluted Earnings per Common Share
Dividends Paid per Common Share
Total Number of Transactions Processed
Total Dollar Volume Paid
$117,206,000
$114,817,000
$24,033,000
$23,497,000
$2.09
$2.06
$0.81
$2.05
$2.02
$0.74
54,741,000
51,397,000
$38,472,500,000
$35,089,708,000
2.08%
2.28%
1.95%
1.98%
9.46%
6.51%
9.64%
Return on Average Total Shareholders’ Equity
Return on Average Assets
12.01%
1.69%
13.39%
1.74%
AS OF DECEMBER 31
Total Assets
Total Shareholders’ Equity
Book Value per Common Share
2014
2013
% CHANGE
$1,500,731,000
$1,326,020,000
$200,432,000
$190,427,000
$17.42
$16.53
13.18%
5.25%
5.38%
TOTAL TRANSACTIONS
TOTAL DOLLAR VOLUME PAID
TOTAL NET REVENUES
in millions
in billions of dollars
in millions of dollars
6
5
.
0
4
0
4
.
5
4
7
0
.
7
4
0
4
.
1
5
4
7
.
4
5
8
.
7
2
9
.
1
3
2
.
3
3
1
.
5
3
5
.
8
3
2
.
6
9
5
.
6
0
1
5
.
1
1
1
8
.
4
1
1
2
.
7
1
1
2010
2011
2012
2013
2014
2010
2011
2012
2013
2014
2010
2011
2012
2013
2014
DILUTED EARNINGS PER
COMMON SHARE
in dollars
NET INCOME
in millions of dollars
BOOK VALUE PER SHARE
in dollars
8
7
1
.
1
0
2
.
2
0
2
.
2
0
2
.
6
0
2
.
1
3
0
2
.
1
0
3
2
.
0
3
3
2
.
0
5
3
2
.
3
0
4
2
.
1
5
2
1
.
9
0
4
1
.
8
1
5
1
.
3
5
6
1
.
2
4
7
1
.
2010
2011
2012
2013
2014
2010
2011
2012
2013
2014
2010
2011
2012
2013
2014
Fellow Shareholders,
I am pleased to report that 2014
– despite the difficult operating
environment – was a very successful
year for Cass. Total processing volume
set an all-time high as transactions
increased 6.5% to 54,741,000 and
total dollars processed increased
9.6% to $38,472,500,000.
Eric H. Brunngraber
President and Chief Executive Officer
Cass Information Systems, Inc.
This increase in payment activity, combined with increases
Our profit margins also remained strong with a return
in deposits, helped expand the Company’s earning assets
on average assets of 1.69% and return on average
3.7% to $1,242,549,000. These increases, which were
shareholders’ equity of 12.01%. These results are very
fueled by both new business and increased activity from
impressive given the low-rate environment, our high level
existing clients, drove a 2.1% increase in total net revenue
of liquidity and the strong capital position we maintain.
to $117,206,000 and a 2.3% increase in net income to
For example, our year-end Tier 1 capital-to-assets ratio
$24,033,000, also both Cass records. On a diluted per
of 13.42% greatly exceeds all regulatory guidelines.
share basis, earnings increased 2% to $2.06.
This strong foundation, combined with the significant
Although we are gratified by these financial results, they
were muted by the protracted impact of six consecutive
years of extraordinarily low interest rates. Although we
were able to increase earning assets during 2014, the
downward pressure placed on our returns as higher-
generation of cash from our operations, not only provides
us the ability to take advantage of strategic investment
opportunities as they arise, but also allows the board of
directors to increase dividends. Dividends paid per share
increased 9.5% to $.81 per share during 2014.
yielding assets amortized, matured, re-priced and were
sold reduced interest income as new investments were
Business Accomplishments
In addition to the financial results achieved in 2014, we
made at currently lower levels. We have responded not
made significant progress on key ongoing initiatives,
only by growing our business, but also by continually
including global expansion, which is applicable to
reviewing all costs and processes to improve our efficiency
nearly all our business lines. In the area of expense
and the effectiveness of the solutions we market.
management, we are steadily increasing our processing
of transactions for facilities outside the United States.
Although these strategic initiatives require major investments
Our transportation group saw demand for global freight
in time, money and other resources, they are just some
payment processing climb dramatically. In order to scale
of the activities we undertake to continually strengthen
our services appropriately, continued investments were
our business and improve our competitive position. I
made in our global footprint, processing systems and
encourage you to visit our website to keep up-to-date on
personnel to keep pace with our customers’ objectives in
Cass business developments and our ongoing progress.
further automating freight payment processing throughout
their global supply chains.
Looking Ahead
As we look to the future, and in spite of the headwinds
As companies compete globally and business becomes
presented by the current rate environment, we commit
more complex, our clients look for opportunities to
to accelerate the execution of our corporate strategy.
outsource non-core activities. Our waste expense
We will continue to develop and enhance our services
management service is growing steadily as customers
to meet the changing requirements in our marketplaces,
engage with Cass to centralize the management of their
expand geographically to meet market demand, and
waste services and decrease their costs.
seek out new markets where we can leverage our
competencies in transaction processing and financial
Likewise, our telecom expense management group
exchange and apply a deep domain expertise. This
continues to benefit from the corporate world’s investment
strategy utilizes our proficiencies, leverages the inherent
in mobile technologies and its desire to outsource non-
competitive advantage in our corporate structure and
core activities – such as managing telecom infrastructure
banking operations, and rewards us for our cultural
and mobility expenses. In 2014, Cass was awarded a U.S.
values of strength, accountability and control.
patent for technology that enables Cass Direct2Carrier
Payments™. This solution makes it much easier for
companies to reimburse their employees for using their
Acknowledgements
As we reflect upon the year’s achievements, we are
personal mobile devices. Through ongoing investment
humbled and thankful for the contributions of so many.
in our systems and the development of new technology
For our shareholders, your loyalty and support remain
partnerships, Cass continues to broaden its suite of
key components of our success. We are proud of our
managed mobility services.
employees for their dedication, talent and desire to serve
our clients. We are thankful for our board of directors and
Finally, our banking group, which supports our payment
each member's support and counsel. We appreciate the
and investing activities corporate-wide, has been
trust bestowed upon us by our clients, which drives us
instrumental in developing new and innovative solutions
to continually enhance and expand our service offerings.
for financing our transportation clients’ supply chains.
Finally, we recognize our ultimate dependence on God
Demand for these solutions remains strong, and we
and express gratitude for His blessings and guidance.
continue to evaluate new financial offerings. Cass Bank,
which markets its own financial services to specific target
markets such as privately held businesses and faith-based
organizations, established a new loan production office
this year in Colorado Springs. This office will allow us to
better serve new and existing customers in Colorado.
Eric H. Brunngraber
President and Chief Executive Officer
Cass Information Systems, Inc.
From His abundance we have all received one gracious blessing after another.
John 1:16
Our profit margins also remained strong with a return
on average assets of 1.69% and return on average
shareholders’ equity of 12.01%. These results are very
impressive given the low-rate environment, our high level
of liquidity and the strong capital position we maintain.
For example, our year-end Tier 1 capital-to-assets ratio
of 13.42% greatly exceeds all regulatory guidelines.
This strong foundation, combined with the significant
generation of cash from our operations, not only provides
us the ability to take advantage of strategic investment
opportunities as they arise, but also allows the board of
directors to increase dividends. Dividends paid per share
increased 9.5% to $.81 per share during 2014.
Business Accomplishments
In addition to the financial results achieved in 2014, we
made significant progress on key ongoing initiatives,
including global expansion, which is applicable to
nearly all our business lines. In the area of expense
management, we are steadily increasing our processing
10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2014
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
Commission file number 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)
(Telephone Number, incl. area code)
(314) 506-5500
Securities registered pursuant to Section 12(b) of the Act:
Title of each Class
Common Stock, par value $.50
Securities registered pursuant to Section 12(g) of the Act:
Title of each Class
None
Name of each exchange on which registered
The Nasdaq Global Select Market
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and posted 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 and post such files).
Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this
chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer
or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting
company” in Rule 12b-2 of the Exchange Act. Large accelerated filer: Accelerated filer:
Non-accelerated filer: Smaller reporting company:
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes No
The aggregate market value of the common stock held by non-affiliates of the Registrant was approximately
$540,000,000 based on the closing price of the common stock of $49.48 on June 30, 2014, as reported by The Nasdaq
Global Select Market. As of March 2, 2015, the Registrant had 11,488,014 shares outstanding of common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information required for Part III of this report is incorporated by reference to the Registrant’s Proxy
Statement for the 2015 Annual Meeting of Shareholders.
CASS INFORMATION SYSTEMS, INC.
FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I.
Item 1.
BUSINESS
Item 1A. RISK FACTORS
Item 1B. UNRESOLVED STAFF COMMENTS
Item 2.
PROPERTIES
Item 3.
LEGAL PROCEEDINGS
Item 4. MINE SAFETY DISCLOSURES
PART II.
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Item 6.
SELECTED FINANCIAL DATA
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Item 9A. CONTROLS AND PROCEDURES
Item 9B. OTHER INFORMATION
PART III.
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 11. EXECUTIVE COMPENSATION
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
1
8
11
12
12
12
13
14
15
27
29
57
57
59
59
59
59
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
PART IV.
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
SIGNATURES
Forward-looking Statements - Factors That May Affect Future Results
60
60
60
62
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 the section Part I, Item 1A, “Risk Factors.” 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.
ITEM 1. BUSINESS
Description of Business
PART I.
Cass Information Systems, Inc. (“Cass” or the “Company”) is a leading provider of payment and information processing
services to large manufacturing, distribution and retail enterprises across the United States. The Company provides
transportation invoice rating, payment processing, auditing, accounting and transportation information to many of the
nation’s largest companies. It is also a processor and payer of energy invoices, including electricity, gas, waste, and other
facility related expenses. Additionally, Cass competes in the telecommunications expense management market which
includes bill processing, audit and payment services for telephone, data line, cellular and communication equipment expense.
The Company, through its wholly owned bank subsidiary, Cass Commercial Bank (the “Bank”), also provides commercial
banking services. The Bank’s primary focus is to support the Company’s payment operations and provide banking services
to its target markets, which include privately-owned businesses and churches and church-related ministries. Services include
commercial and commercial real estate loans, checking, savings and time deposit accounts and other cash management
services. Other operating locations are in Bridgeton, Missouri, Columbus, Ohio, Boston, Massachusetts, Greenville, South
Carolina, Wellington, Kansas, Jacksonville, Florida, and Breda, Netherlands. The Bank operates four branches in the St.
Louis metropolitan area and loan production offices in southern California and Colorado Springs, Colorado. The Company’s
headquarters and the Bank’s headquarters are located in St. Louis County, Missouri.
Company Strategy and Core Competencies
Cass is an information services company with a primary focus on processing payables and payables-related transactions for
large corporations located in the United States. Cass possesses four core competencies that encompass most of its processing
services.
Data acquisition – This refers to the gathering of data elements from diverse, heterogeneous sources and the building of
complete databases for our customers. Data is the raw material of the information economy. Cass gathers vital data from
complex and diverse input documents, electronic media, proprietary databases and data feeds, including data acquired from
vendor invoices as well as customer procurement and sales systems. Through its numerous methods of obtaining streams and
pieces of raw data, Cass is able to assemble vital data into centralized data management systems and warehouses, thus
producing an engine to create the power of information for managing critical corporate functions and processing systems.
Data management – Once data is assembled, Cass is able to utilize the power from derived information to produce significant
savings and benefits for its clients. This information is integrated into customers’ unique financial and accounting systems,
eliminating the need for internal accounting processing and providing internal and external support for these critical systems.
Information is also used to produce management and exception reporting for operational control, feedback, planning
assistance and performance measurement.
Business Intelligence – Receiving information in the right place at the right time and in the required format is paramount for
business survival. Cass’ information delivery solutions provide reports, digital images, data files and retrieval capabilities
through the Internet or directly into customer internal systems. Cass’ proprietary Internet management delivery system is the
foundation for driving these critical functions. Transaction, operational, control, status and processing exception information
are all delivered through this system creating an efficient, accessible and highly reliable asset for Cass customers.
Financial exchange – Since Cass is unique among its competition in that it owns a commercial bank, it is also able to manage
the movement of funds from its customers to their suppliers. This is a distinguishing factor, which clearly requires the
processing capability, operating systems and financial integrity of a banking organization. Cass provides immediate, accurate,
controlled and protected funds management and transfer system capabilities for all of its customers. Old and costly check
processing and delivery mechanisms are replaced with more efficient electronic cash management and funds transfer
systems.
Cass’ core competencies allow it to perform the highest volumes of transaction processing in an integrated, efficient and
systematic approach. Not only is Cass able to process the transaction, it is also able to collect the data defining the transaction
and effect the financial payment governing its terms.
Cass’ shared business processes – accounting, human resources and technology – support its core competencies. Cass’
accounting function provides the internal control systems to ensure the highest levels of accountability and protection for
customers. Cass’ human resources department provides experienced people dedicated to streamlining business procedures
and
safeguard data and
secure the efficiency, speed and timeliness that govern its business is a priority within the organization. The ability to
leverage technology over its strategic units allows Cass the advantage of deploying technology in a proven and reliable
manner without hindering clients’ strategic business and system requirements.
reducing expenses. Cass’
reliable. The need
is proven and
technology
to
1
These core competencies, enhanced through shared business processes, drive Cass’ strategic business units. Building upon
these foundations, Cass continues to explore new business opportunities that leverage these competencies and processes.
Marketing, Customers and Competition
The Company, through its Transportation Information Services business unit, is one of the largest firms in the transportation
bill processing and payment industry in the United States based on the total dollars of transportation bills paid and items
processed. Competition consists of a few primary competitors and numerous small transportation bill audit firms located
throughout the United States. While offering transportation payment services, few of these audit firms compete on a national
basis. These competitors compete mainly on price, functionality and service levels. The Company, through its Expense
Management business unit, also competes with other companies, located throughout the United States, that pay energy and
waste bills and provide management reporting. Available data indicates that the Company is one of the largest providers of
energy information processing and payment services. Cass is unique among these competitors in that it is not exclusively
affiliated with any one energy service provider (“ESP”). The ESPs market the Company’s services adding value with their
unique auditing, consulting and technological capabilities. Many of Cass’ services are customized for the ESPs, providing a
full-featured solution without any development costs to the ESP. Also the Company, through its Telecom Information
Services business unit, is a leader in the growing telecom expense management market, and competes with other companies
located throughout the United States in this market.
The Bank is organized as a Missouri trust company with banking powers and was founded in 1906. The Company is
classified as a bank holding corporation due to its ownership of a federally-insured commercial bank and was originally
organized in 1982 as Cass Commercial Corporation under the laws of Missouri. Approval by the Board of Governors of the
Federal Reserve System was received in February 1983. The Company changed its name to Cass Information Systems, Inc.
in January 2001. In December 2011, the Federal Reserve Bank (“FRB”) of St. Louis approved the election of Cass
Information Systems, Inc. to become a financial holding company. As a financial holding company, Cass may engage in
activities that are financial in nature or incidental to a financial activity. The Bank encounters competition from numerous
banks and financial institutions located throughout the St. Louis, Missouri metropolitan area and other areas in which the
Bank competes. The Bank’s principal competitors, however, are large bank holding companies that are able to offer a wide
range of banking and related services through extensive branch networks. The Bank targets its services to privately held
businesses located in the St. Louis, Missouri area and church and church-related institutions located in St. Louis, Missouri,
Orange County, California, Colorado Springs, Colorado, and other selected cities located throughout the United States.
The Company holds several trademarks for the payment and rating services it provides. These include: FreightPay,
Transdata, TransInq, Ratemaker, Rate Advice, First Rate, Best Rate, Rate Exchange, CassPort and
Expense$mart. The Company and its subsidiaries are not dependent on any one customer for a significant portion of their
businesses. The Company and its subsidiaries have a varied client base with no individual client exceeding 10% of total
revenue.
Employees
The Company and its subsidiaries had 788 full-time and 289 part-time employees as of March 2, 2015. Of these employees,
the Bank had 55 full-time and no part-time employees.
Supervision and Regulation
The Company and its bank subsidiary are extensively regulated under federal and state law. These laws and regulations are
intended to primarily protect depositors, not shareholders. The Bank is subject to regulation and supervision by the Missouri
Division of Finance, the FRB and the Federal Deposit Insurance Corporation (the “FDIC”). The Company is a financial
holding company within the meaning of the Bank Holding Company Act of 1956, as amended (the “BHC Act”), and as such,
it is subject to regulation, supervision and examination by the FRB. Significant elements of the laws and regulations
applicable to the Company and the Bank are described below. The description is qualified in its entirety by reference to the
full text of the statutes, regulations and policies that are described. Also, such statutes, regulations and policies are
continually under review by Congress and state legislatures and federal and state regulatory agencies. A change in statutes,
regulations or regulatory policies applicable to the Company and its subsidiaries could have a material effect on the business,
financial condition and results of operations of the Company.
Bank Holding Company Activities – In general, the BHC Act limits the business of bank holding companies to banking,
managing or controlling banks and other related activities. In addition, bank holding companies that qualify and elect to be
financial holding companies such as the Company, may engage in any activity, or acquire and retain the shares of a company
engaged in any activity, that is either (i) financial in nature or incidental to such financial activity complementary to a
financial activity and does not pose a substantial risk to the safety and soundness of depository institutions or the financial
system generally. Such permitted activities include securities underwriting and dealing, insurance underwriting and making
merchant banking investments.
2
To maintain financial holding company status, a financial holding company and all of its depository institution subsidiaries
must be “well capitalized” and “well managed.” A depository institution subsidiary is considered to be “well capitalized” if it
satisfies the requirements for this status discussed in the section “Prompt Corrective Action” below. A depository institution
subsidiary is considered “well managed” if it received a composite rating and management rating of at least “satisfactory” in
its most recent examination. A financial holding company’s status will also depend upon it maintaining its status as “well
capitalized” and “well managed’ under applicable FRB regulations. If a financial holding company ceases to meet these
capital and management requirements, the FRB may impose limitations or conditions on the conduct of its activities during
the non-compliance period, and the company may not commence any of the broader financial activities permissible for
financial holding companies or acquire a company engaged in such financial activities without prior approval of the FRB. If
the company does not return to compliance within 180 days, the FRB may require divestiture of the holding company’s
depository institutions.
In order for a financial holding company to commence any new activity permitted by the BHC Act or to acquire a company
engaged in any new activity permitted by the BHC Act, each insured depository institution subsidiary of the financial holding
company must have received a rating of at least “satisfactory” in its most recent examination under the Community
Reinvestment Act. See “Community Reinvestment Act” below.
The FRB has the power to order any bank holding company or its subsidiaries to terminate any activity or to terminate its
ownership or control of any subsidiary when the FRB has reasonable grounds to believe that continuation of such activity or
such ownership or control constitutes a serious risk to the financial soundness, safety or stability of any bank subsidiary of
the bank holding company.
The BHC Act, the Bank Merger Act, and other federal and state statutes regulate acquisitions of banks and banking
companies. The BHC Act requires the prior approval of the FRB for the direct or indirect acquisition by the Company of
more than 5% of the voting shares or substantially all of the assets of a bank or bank holding company. Under the Bank
Merger Act, the prior approval of the FRB or other appropriate bank regulatory authority is required for the Bank to merge
with another bank or purchase the assets or assume the deposits of another bank. In reviewing acquisition applications, the
bank regulatory authorities will consider, among other things, the competitive effect and public benefits of the transactions,
the capital position of the combined organization, the risks to the stability of the U.S. banking or financial system, the
applicant’s performance record under the Community Reinvestment Act and fair housing laws.
The Dodd-Frank Act – The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), enacted
in July 2010, significantly restructured the financial regulatory environment in the United States, affecting all bank holding
companies and banks, including the Company and the Bank, some of which are described in more detail below. The scope
and impact of many of the Dodd-Frank Act’s provisions will be determined over time as regulations are issued and become
effective. As a result, we cannot predict the ultimate impact of the Dodd-Frank Act on the Company or the Bank at this time,
including the extent to which it could increase costs or restrict their ability to pursue business opportunities, or otherwise
adversely affect the Company’s business, financial condition and results of operations. However, at a minimum, the
Company expects that the regulations enacted under the Dodd-Frank Act will increase operating and compliance costs.
Dividends –Both the Company and the Bank are subject to various regulations that restrict their ability to pay dividends and
the amount of dividends that they may pay. Under the Federal Deposit Insurance Corporation Improvement Act of 1991
(“FDICIA”), a depository institution, such as the Bank, may not pay dividends if payment would cause it to become
undercapitalized or if it is already undercapitalized. The payment of dividends by the Company and the Bank may also be
affected or limited by other factors, such as the requirement to maintain adequate capital and, under certain circumstances,
the ability of federal regulators to prohibit dividend payments as an unsound or unsafe practice.
Capital Requirements – As a bank holding company, the Company and the Bank are subject to capital requirements pursuant
to the FRB’s capital guidelines which include (i) risk-based capital guidelines, which are designed to make capital
requirements more sensitive to various risk profiles and account for off-balance sheet exposure; (ii) guidelines that consider
market risk, which is the risk of loss due to change in value of assets and liabilities due to changes in interest rates; and (iii)
guidelines that use a leverage ratio which places a constraint on the maximum degree of risk to which a financial holding
company may leverage its equity capital base.
Under the requirements, banking organizations are required to maintain minimum ratios for Tier 1 capital and total capital to
risk-weighted assets (including certain off-balance sheet items, such as letters of credit). For purposes of calculating the
ratios, a banking organization’s assets and some of its specified off-balance sheet commitments and obligations are assigned
to various risk categories. A banking organization’s capital, in turn, is classified in tiers, depending on type:
Tier 1 – Currently, Tier 1 capital includes common equity, retained earnings, qualifying noncumulative perpetual
preferred stock, minority interests in equity accounts of consolidated subsidiaries, and, under existing standards, a
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limited amount of qualifying trust preferred securities, and qualifying cumulative perpetual preferred stock at the
holding company level, less goodwill, most intangible assets and certain other assets.
Tier 2 – Currently, Tier 2 capital includes, among other things, perpetual preferred stock not meeting the Tier 1
definition, qualifying mandatory convertible debt securities, qualifying subordinated debt, and allowances for loan
and lease losses, subject to limitations.
Under the existing risk-based capital rules, the Company and the Bank are currently required to maintain Tier 1 capital and
total capital (the sum of Tier 1 and Tier 2 capital) equal to at least 4% and 8%, respectively, of its total risk-weighted assets
(including various off-balance-sheet items). For a depository institution to be considered “well capitalized,” its Tier 1 and
total capital ratios must be at least 6.0% and 10.0% on a risk-adjusted basis, respectively.
Bank holding companies and banks are also required to comply with minimum leverage ratio requirements. The leverage
ratio is the ratio of a banking organization’s Tier 1 capital to its total adjusted quarterly average assets (as defined for
regulatory purposes). The requirements necessitate a minimum leverage ratio of 3% for financial holding companies and
banking organizations that have the highest supervisory rating. All other banking organizations are required to maintain a
minimum leverage ratio of 4%, unless a different minimum is specified by an appropriate regulatory authority. For a
depository institution to be considered “well-capitalized,” its leverage ratio must be at least 5%. As of December 31, 2014
and 2013, the Company and the Bank exceeded all applicable capital requirements and each met the requirements to be
considered well-capitalized.
Basel III Capital Rules – Effective July 2, 2013, the FRB approved final rules known as the “Basel III Capital Rules” that
substantially revise the risk-based capital and leverage capital requirements applicable to bank holding companies and
depository institutions, including the Company and the Bank. The Basel III Capital Rules implement aspects of the Basel III
capital framework agreed upon by the Basel Committee and incorporates changes required by the Dodd-Frank Act. The Basel
III Capital Rules will come into effect for the Company and the Bank on January 1, 2015 (subject to a phase-in period).
Among other things, the Basel III Capital Rules (i) introduce “Common Equity Tier 1” (“CET1”) as a new capital measure
(which is subject to a number of phased-in deductions and adjustments); (ii) specify that Tier 1 capital consists of CET1 and
“Additional Tier 1 capital” instruments meeting certain requirements; (iii) define CET1 narrowly by requiring that most
adjustments to regulatory capital measures be made to CET1 and not to the other components of capital; and (iv) expand the
scope of the adjustments as compared to existing regulations. CET1 capital consists of common stock instruments that meet
criteria set forth in the final rules, retained earnings, accumulated other comprehensive income and common equity Tier 1
minority interests.
When fully phased-in on January 1, 2019, the Basel III Capital Rules require banking organizations to maintain (i) a
minimum ratio of CET1 to risk-weighted assets of at least 4.5%, plus a 2.5% “capital conservation buffer;” (ii) a minimum
ratio of Tier 1 capital to risk-weighted assets of at least 6%, plus the 2.5% capital conservation buffer; (iii) a minimum ratio
of total capital (Tier 1 plus Tier 2 capital) to risk-weighted assets of at least 8%, plus the 2.5% capital conservation buffer;
and (iv) as a newly adopted international standard, a minimum leverage ratio of 4%, calculated as the ratio of Tier 1 capital to
adjusted average consolidated assets. The Basel III Capital Rules also incorporate a countercyclical buffer of 0% to 2.5% of
common equity or other fully loss-absorbing capital that may be implemented according to national circumstances as an
extension of the conservation buffer.
The capital conservation buffer is designed to absorb losses during periods of economic hardship. Institutions with a ratio of
CET1 to risk-weighted assets above the minimum but below the conservation buffer will be subject to limitations on the
payment of dividends, common stock repurchases and discretionary cash payments to executive officers based on the amount
of the shortfall. Implementation of the capital conservation buffer will begin on January 1, 2016 at 0.625% and be phased-in
over a four-year period (increasing by that amount on each subsequent January 1, until it reaches 2.5% on January 1, 2019).
With respect to the Bank, the Basel III Capital Rules also revised the “prompt corrective action” regulations by (i)
introducing a CET1 ratio requirement at each level (other than critically undercapitalized), with the required CET1 ratio
being 6.5% for well-capitalized status; (ii) increasing the minimum Tier 1 capital ratio requirement for each category, with
the minimum Tier 1 risk-based capital ratio for well-capitalized status being 8% (as compared to the current 6%); and (iii)
eliminating the current provision that provides that a bank with a composite supervisory rating of 1 may have a 3% leverage
ratio and still be well-capitalized.
Management believes that, as of December 31, 2014, the Company and the Bank would meet all capital adequacy
requirements under the Basel III Capital Rules on a fully phased-in basis if such requirements were currently effective.
Requirements to maintain higher levels of capital or to maintain higher levels of liquid assets could adversely impact the
Company’s net income.
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Source of Strength Doctrine – FRB and other regulations require bank holding companies to act as a source of financial and
managerial strength to their subsidiary banks. Under this requirement, the Company is expected to commit resources to
support the Bank. Any capital loans by a bank holding company to any of its subsidiary banks are subordinate in right of
payment to depositors and to certain other indebtedness of such subsidiary banks. In the event of a bank holding company’s
bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a
subsidiary bank will be assumed by the bankruptcy trustee and entitled to priority of payment.
Deposit Insurance – Substantially all of the deposits of the Bank are insured up to applicable limits by the Deposit Insurance
Fund (“DIF”) of the FDIC, and the Bank is subject to deposit insurance assessments to maintain the DIF. Deposit insurance
assessments are based on average consolidated total assets minus average tangible equity. Under the FDIC’s risk-based
assessment system, insured institutions with less than $10 billion in assets, such as the Bank, are assigned to one of four risk
categories based on supervisory evaluations, regulatory capital level, and certain other factors, with less risky institutions
paying lower assessments. An institution’s assessment rate depends upon the category to which it is assigned and certain
other factors.
In October 2010, the FDIC adopted a new DIF restoration plan to ensure that the DIF reserve ratio reaches 1.35% by
September 30, 2020, as required by the Dodd-Frank Act. At least semi-annually, the FDIC will update its loss and income
projections for the fund and, if needed, will increase or decrease assessment rates, following notice-and-comment rulemaking
if required. FDIC insurance expense totaled approximately $332,600, $320,700 and $214,400 for the years ended December
31, 2014, 2013 and 2012, respectively.
The FDIC may terminate deposit insurance upon a finding that the institution has engaged in unsafe and unsound practices, is
in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or
condition imposed by the FDIC.
Prompt Corrective Action – The Basel III Capital Rules incorporate new requirements into the prompt correction action
framework, described above. The Federal Deposit Insurance Act (“FDIA”) requires that federal banking agencies take
“prompt corrective action” against depository institutions that do not meet minimum capital requirements and includes the
following five capital tiers: “well-capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized”
and “critically undercapitalized.” A depository institution’s capital tier will depend upon how its capital levels compare with
various relevant capital measures and certain other factors, as established by regulation. The relevant capital measures are the
total capital ratio, the Tier 1 capital ratio and the leverage ratio.
A depository institution will be (i) “well-capitalized” if the institution has a total risk-based capital ratio of 10% or greater, a
Tier 1 risk-based capital ratio of 6% or greater, and a leverage ratio of 5% or greater, and is not subject to any regulatory
order agreement or written directive to meet and maintain a specific capital level for any capital measure; (ii) “adequately
capitalized” if the institution has a total risk-based capital ratio of 8% or greater, a Tier 1 risk-based capital ratio of 4% or
greater, and a leverage ratio of 4% or greater and is not “well capitalized”; (iii) “undercapitalized” if the institution has a total
risk-based capital ratio that is less than 8%, a Tier 1 risk-based capital ratio of less than 4% or a leverage ratio of less than
4%; (iv) “significantly undercapitalized” if the institution has a total risk-based capital ratio of less than 6%, a Tier 1 risk-
based capital ratio of less than 3% or a leverage ratio of less than 3%; and (v) “critically undercapitalized” if the institution’s
tangible equity is equal to or less than 2% of total assets. An institution may be deemed to be in a capital category that is
lower than indicated by its capital ratios if it is determined to be in an unsafe or unsound condition or if it receives an
unsatisfactory examination rating with respect to certain matters. A bank’s capital category is determined solely for the
purpose of applying prompt corrective action regulations, and the capital category may not constitute an accurate
representation of the bank’s overall financial condition or prospects for other purposes.
The FDIA generally prohibits a depository institution from making any capital distributions (including payment of a
dividend) or paying any management fee to its parent holding company if the depository institution would thereafter be
“undercapitalized.” “Undercapitalized” institutions are subject to growth limitations and are required to submit a capital
restoration plan, which must be guaranteed by parent holding companies. Bank holding companies must also provide
appropriate assurances of performance, and are, to a certain extent, liable for the performance of their subsidiary banks. If a
depository institution fails to submit an acceptable plan, it is treated as if it is “significantly undercapitalized.”
“Significantly undercapitalized” depository institutions may be subject to a number of requirements and restrictions,
including orders to sell sufficient voting stock to become “adequately capitalized,” requirements to reduce total assets, and
cessation of receipt of deposits from correspondent banks. “Critically undercapitalized” institutions are subject to the
appointment of a receiver or conservator.
As of December 31, 2014 and 2013, the most recent notification from the regulatory agencies categorized the Company and
the Bank as well-capitalized. For further information regarding the capital ratios and leverage ratio of the Company and the
Bank, see Item 8, Note 2 of this report.
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Safety and Soundness Regulations – In accordance with the FDIA, the federal banking agencies adopted guidelines
establishing general standards relating to internal controls, information systems, internal audit systems, loan documentation,
credit underwriting, interest rate risk exposure, asset growth, asset quality, earnings, compensation, fees and benefits. In
general, the guidelines require that institutions maintain appropriate systems and practices to identify and manage the risks
and exposures specified in the guidelines. The guidelines prohibit excessive compensation as an unsafe and unsound practice
and describe compensation as excessive when the amounts paid are unreasonable or disproportionate to the services
performed by an executive officer, employee, director or principal shareholder. In addition, regulations adopted by the federal
banking agencies authorize the agencies to require that an institution that has been given notice that it is not satisfying any of
such safety and soundness standards to submit a compliance plan. If the institution fails to submit an acceptable compliance
plan or fails in any material respect to implement an accepted compliance plan, the agency must issue an order directing
corrective actions and may issue an order directing other actions of the types to which an undercapitalized institution is
subject under the “prompt corrective action” provisions of FDIA. If the institution fails to comply with such an order, the
agency may seek to enforce such order in judicial proceedings and to impose civil money penalties.
Loans to One Borrower – The Bank generally may not make loans or extend credit to a single or related group of borrowers
in excess of 15% of unimpaired capital and surplus. An additional amount may be loaned, up to 10% of unimpaired capital
and surplus, if the loan is secured by readily marketable collateral, which generally does not include real estate. As of
December 31, 2014, the Bank was in compliance with the loans-to-one-borrower limitations.
Depositor Preference – The FDIA provides that, in the event of the “liquidation or other resolution” of an insured depository
institution, the claims of depositors of the institution, including the claims of the FDIC as subrogee of insured depositors, and
certain claims for administrative expenses of the FDIC as a receiver, will have priority over other general unsecured claims
against the institution. If an insured depository institution fails, insured and uninsured depositors, along with the FDIC, will
have priority in payment ahead of unsecured, non-deposit creditors, including depositors whose deposits are payable only
outside of the United States and the parent bank holding company, with respect to any extensions of credit they have made to
such insured depository institution.
Community Reinvestment Act – The Community Reinvestment Act of 1977 (“CRA”) requires depository institutions to assist
in meeting the credit needs of their market areas consistent with safe and sound banking practice. Under the CRA, each
depository institution is required to help meet the credit needs of its market areas by, among other things, providing credit to
low- and moderate-income individuals and communities. Depository institutions are periodically examined for compliance
with the CRA and are assigned ratings that must be publicly disclosed. In order for a financial holding company to
commence any new activity permitted by the BHC Act, or to acquire any company engaged in any new activity permitted by
the BHC Act, each insured depository institution subsidiary of the financial holding company must have received a rating of
at least “satisfactory” in its most recent examination under the CRA. The Bank received a rating of “satisfactory” in its most
recent CRA exam.
Financial Privacy – Banks and other financial institutions are subject to regulations that limit their ability to disclose non-
public information about consumers to nonaffiliated third parties. These limitations require disclosure of privacy policies to
consumers and affect how consumer information is transmitted through diversified financial companies and conveyed to
outside vendors.
The Bank is also subject to regulatory guidelines establishing standards for safeguarding customer information and
maintaining information security programs. The standards set forth in the guidelines are intended to ensure the security and
confidentiality of customer records and information, protect against any anticipated threats or hazards to the security or
integrity of such records and protect against unauthorized access to or use of such records or information that could result in
substantial harm or inconvenience to any customer.
Transactions with Affiliates – Transactions between the Bank and its affiliates are subject to regulations that limit the types
and amounts of covered transactions engaged in by the Bank and generally require those transactions to be on an arm’s-
length basis. The term “affiliate” is defined to mean any company that controls or is under common control with the Bank
and includes the Company and its non-bank subsidiaries. “Covered transactions” include a loan or extension of credit, as well
as a purchase of securities issued by an affiliate, certain purchases of assets from the affiliate, certain derivative transactions
that create a credit exposure to an affiliate, the acceptance of securities issued by the affiliate as collateral for a loan, and the
issuance of a guarantee, acceptance or letter of credit on behalf of an affiliate. In general, these regulations require that any
such transaction by the Bank (or its subsidiaries) with an affiliate must be secured by designated amounts of specified
collateral and must be limited to certain thresholds on an individual and aggregate basis.
Federal law also limits the Bank’s authority to extend credit to its directors, executive officers and 10% shareholders, as well
as to entities controlled by such persons. Among other things, extensions of credit to insiders are required to be made on
terms that are substantially the same as, and follow credit underwriting procedures that are not less stringent than, those
prevailing for comparable transactions with unaffiliated persons. Also, the terms of such extensions of credit may not involve
more than the normal risk of repayment or present other unfavorable features and may not exceed certain limitations on the
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amount of credit extended to such persons, individually and in the aggregate, which limits are based, in part, on the amount
of the Bank’s capital.
Federal Reserve System – FRB regulations require depository institutions to maintain cash reserves against their transaction
accounts (primarily NOW and demand deposit accounts). A reserve of 3% is to be maintained against aggregate transaction
accounts between $12.4 million and $79.5 million (subject to adjustment by the FRB) plus a reserve of 10% (subject to
adjustment by the FRB between 8% and 14%) against that portion of total transaction accounts in excess of $79.5 million.
The first $12.4 million of otherwise reservable balances (subject to adjustment by the FRB) is exempt from the reserve
requirements. The Bank is in compliance with the foregoing requirements.
Other Regulations – The operations of the Company and the Bank are also subject to:
Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers;
Fair Credit Reporting Act, governing the provision of consumer information to credit reporting agencies
and the use of consumer information;
Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection
agencies;
Electronic Funds Transfer Act, governing automatic deposits to and withdrawals from deposit accounts and
customers’ rights and liabilities arising from the use of automated teller machines and other electronic
banking services.
Real Estate Settlement Procedures Act, requiring that borrowers for mortgage loans for one- to four-family
residential real estate receive various disclosures, including good faith estimates of settlement costs, lender
servicing and escrow account practices, and prohibiting certain practices that increase the cost of settlement
services;
Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited
factors in extending credit;
Check Clearing for the 21st Century Act (also known as “Check 21”), which gives “substitute checks,”
such as digital check images and copies made from that image, the same legal standing as the original
paper check; and
The USA PATRIOT Act, which requires banks and savings institutions to establish broadened anti-money
laundering compliance programs and due diligence policies and controls to ensure the detection and
reporting of money laundering.
Website Availability of SEC Reports
Cass files annual, quarterly and current reports with the Securities and Exchange Commission (the “SEC”). Cass will, as
soon as reasonably practicable after they are electronically filed with or furnished to the SEC, make available free of charge
on its website each of its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, all
amendments to those reports, and its definitive proxy statements. The address of Cass’ website is: www.cassinfo.com. All
reports filed with the SEC are available for reading and copying at the SEC’s Public Reference Room at 100 F Street, NE,
Washington, DC 20549-2736 or for more information call the Public Reference Room at 1-800-SEC-0330. The SEC also
makes all filed reports, proxy statements and information statements available on its website at www.sec.gov.
The reference to the Company’s website address does not constitute incorporation by reference of the information contained
on the website and should not be considered part of this report.
Financial Information about Segments
The services provided by the Company are classified in two reportable segments: Information Services and Banking
Services. The revenues from external customers, net income and total assets by segment as of and for each of the years in the
three-year period ended December 31, 2014, are set forth in Item 8, Note 16 of this report.
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Statistical Disclosure by Bank Holding Companies
For the statistical disclosure by bank holding companies, refer to Item 7 “Management’s Discussion and Analysis of
Financial Condition and Results of Operations.”
ITEM 1A. RISK FACTORS
This section highlights specific risks that could affect the Company’s business. Although this section attempts to highlight
key factors, please be aware that other risks may prove to be important in the future. New risks may emerge at any time, and
Cass cannot predict such risks or estimate the extent to which they may affect the Company’s financial performance. In
addition to the factors discussed elsewhere or incorporated by reference in this report, the identified risks that could cause
actual results to differ materially include the following:
General political, economic or industry conditions may be less favorable than expected.
Local, domestic, and international economic, political and industry-specific conditions and governmental monetary and fiscal
policies affect the industries in which the Company competes, directly and indirectly. Conditions such as inflation, recession,
unemployment, volatile interest rates, tight money supply, real estate values, international conflicts and other factors outside
of Cass’ control may adversely affect the Company. Economic downturns could result in the delinquency of outstanding
loans, which could have a material adverse impact on Cass’ earnings.
Unfavorable developments concerning customer credit quality could affect Cass’ financial results.
Although the Company regularly reviews credit exposure related to its customers and various industry sectors in which it has
business relationships, default risk may arise from events or circumstances that are difficult to detect or foresee. Under such
circumstances, the Company could experience an increase in the level of provision for credit losses, delinquencies,
nonperforming assets, net charge-offs and allowance for credit losses.
The Company has lending concentrations, including, but not limited to, churches and church-related entities located in
selected cities and privately-held businesses located in or near St. Louis, Missouri, that could suffer a significant decline
which could adversely affect the Company.
Cass’ customer base consists, in part, of lending concentrations in several segments and geographical areas. If any of these
segments or areas is significantly affected by weak economic conditions, the Company could experience increased credit
losses, and its business could be adversely affected.
Fluctuations in interest rates could affect Cass’ net interest income and balance sheet.
The operations of financial institutions such as the Company are dependent to a large degree on net interest income, which is
the difference between interest income from loans and investments and interest expense on deposits and borrowings.
Prevailing economic conditions, the fiscal and monetary policies of the federal government and the policies of various
regulatory agencies all affect market rates of interest, which in turn significantly affect financial institutions’ net interest
income. Fluctuations in interest rates affect Cass’ financial statements, as they do for all financial institutions. Volatility in
interest rates can also result in disintermediation, which is the flow of funds away from financial institutions into direct
investments, such as federal government and corporate securities and other investment vehicles, which, because of the
absence of federal insurance premiums and reserve requirements, generally pay higher rates of return than financial
institutions. As discussed in greater detail in Item 7A, “Quantitative and Qualitative Disclosures about Market Risk,” a
continuation of the current low level of interest rates would have a negative impact on the Company’s net interest income.
Methods of reducing risk exposures might not be effective.
Instruments, systems and strategies used to hedge or otherwise manage exposure to various types of credit, interest rate,
market and liquidity, operational, regulatory/compliance, business risks and enterprise-wide risks could be less effective than
anticipated. As a result, the Company may not be able to effectively mitigate its risk exposures in particular market
environments or against particular types of risk.
Customer borrowing, repayment, investment, deposit, and payable processing practices may be different than anticipated.
The Company uses a variety of financial tools, models and other methods to anticipate customer behavior as part of its
strategic and financial planning and to meet certain regulatory requirements. Individual, economic, political and industry-
specific conditions and other factors outside of Cass’ control could alter predicted customer borrowing, repayment,
investment, deposit, and payable processing practices. Such a change in these practices could adversely affect Cass’ ability
to anticipate business needs, including cash flow and its impact on liquidity, and to meet regulatory requirements.
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Cass must respond to rapid technological changes and these changes may be more difficult or expensive than anticipated.
If competitors introduce new products and services embodying new technologies, or if new industry standards and practices
emerge, the Company’s existing product and service offerings, technology and systems may become obsolete. Further, if
Cass fails to adopt or develop new technologies or to adapt its products and services to emerging industry standards, Cass
may lose current and future customers, which could have a material adverse effect on its business, financial condition and
results of operations. The payment processing and financial services industries are changing rapidly and in order to remain
competitive, Cass must continue to enhance and improve the functionality and features of its products, services and
technologies. These changes may be more difficult or expensive than the Company anticipates.
Operational difficulties or cyber-security problems could damage Cass’ reputation and business.
The Company depends on the reliable operation of its computer operations and network connections from its clients to its
systems. Any operational problems or outages in these systems would cause Cass to be unable to process transactions for its
clients, resulting in decreased revenues. In addition, any system delays, failures or loss of data, whatever the cause, could
reduce client satisfaction with the Company’s products and services and harm Cass’ financial results. Cass also depends on
the security of its systems. Company networks may be vulnerable to unauthorized access, computer viruses and other
disruptive problems. A material security problem affecting Cass could damage its reputation, deter prospects from
purchasing its products and services, deter customers from using its products and services or result in liability to Cass.
Cass’ stock price can become volatile and fluctuate widely in response to a variety of factors.
The Company’s stock price can fluctuate based on factors that can include actual or anticipated variations in Cass’ quarterly
results; new technology or services by competitors; unanticipated losses or gains due to unexpected events, including losses
or gains on securities held for investment purposes; significant acquisitions or business combinations, strategic partnerships,
joint ventures or capital commitments by or involving the Company or its competitors; changes in accounting policies or
practices; failure to integrate acquisitions or realize anticipated benefits from acquisitions; or changes in government
regulations.
General market fluctuations, industry factors and general economic and political conditions, such as economic slowdowns or
recessions, governmental intervention, interest rate changes, credit loss trends, low trading volume or currency fluctuations
also could cause Cass’ stock price to decrease regardless of the Company’s operating results.
Competitive product and pricing pressure within Cass’ markets may change.
The Company operates in a very competitive environment, which is characterized by competition from a number of other
vendors and financial institutions in each market in which it operates. The Company competes with large payment processors
and national and regional financial institutions and also smaller auditing companies and banks in terms of products and
pricing. If the Company is unable to compete effectively in products and pricing in its markets, business could decline.
Management’s ability to maintain and expand customer relationships may differ from expectations.
The industries in which the Company operates are very competitive. The Company not only competes for business
opportunities with new customers, but also competes to maintain and expand the relationships it has with its existing
customers. The Company continues to experience pressures to maintain these relationships as its competitors attempt to
capture its customers.
The introduction, withdrawal, success and timing of business initiatives and strategies, including, but not limited to, the
expansion of payment and processing activities to new markets, the expansion of products and services to existing markets
and opening of new bank branches, may be less successful or may be different than anticipated. Such a result could
adversely affect Cass’ business.
The Company makes certain projections as a basis for developing plans and strategies for its payment processing and banking
products. If the Company does not accurately determine demand for its products and services, it could result in the Company
incurring significant expenses without the anticipated increases in revenue, which could result in an adverse effect on its
earnings.
Management’s ability to retain key officers and employees may change.
Cass’ future operating results depend substantially upon the continued service of Cass’ executive officers and key personnel.
Cass’ future operating results also depend in significant part upon Cass’ ability to attract and retain qualified management,
financial, technical, marketing, sales, and support personnel. Competition for qualified personnel is intense, and the
9
Company cannot ensure success in attracting or retaining qualified personnel. There may be only a limited number of
persons with the requisite skills to serve in these positions, and it may be increasingly difficult for the Company to hire
personnel over time. Cass’ business, financial condition and results of operations could be materially adversely affected by
the loss of any of its key employees, by the failure of any key employee to perform in his or her current position, or by Cass’
inability to attract and retain skilled employees.
Recent legislative and regulatory initiatives to support the financial services industry have been coupled with numerous
restrictions and requirements that could detrimentally affect the Company’s business.
The Dodd-Frank Act is significantly changing the current bank regulatory structure and affecting the lending, deposit,
investment, trading and operating activities of financial institutions and their holding companies.
The Company and the Bank are supervised and regulated primarily by the FRB. In addition, the Company is subject to
consolidated capital requirements, made more strict by the recent adoptions of the Basel III Capital Rules, and must serve as
a source of strength to the Bank. It is possible such requirements may limit our capacity to pay dividends or repurchase
shares.
The Dodd-Frank Act also broadens the base for FDIC insurance assessments. The FDIC insures deposits at FDIC-insured
financial institutions, including the Bank. The FDIC charges insured financial institutions premiums to maintain the DIF at a
specific level. The Bank’s FDIC insurance premiums increased substantially beginning in 2009, and they expect to pay high
premiums in the future. Economic conditions during the recent recession increased bank failures and decreased the DIF. The
FDIC may increase the assessment rates or impose additional special assessments in the future to keep the DIF at the
statutory target level. Any increase in our FDIC premiums could have an adverse effect on the Bank’s profits and financial
condition.
The scope and impact of many of the Dodd-Frank Act provisions will be determined over time as regulations are issued and
become effective. As a result, the Company cannot predict the ultimate impact of the Dodd-Frank Act at this time, including
the extent to which it could increase costs or limit their ability to pursue business opportunities in an efficient manner, or
otherwise adversely affect the business, financial condition and results of operations. However, it is expected that at a
minimum, they will increase operating and compliance costs.
Cass is subject to extensive regulatory oversight.
The Company is subject to extensive regulation and supervision that is designed primarily for the protection of the DIF and
depositors, and not to the benefit of the shareholders. As a result, the Company is limited in the manner in which it conducts
business, undertakes new investments and activities and obtains financing. This regulatory structure also gives the regulatory
authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies,
including policies with respect to capital levels, the timing and amount of dividend payments, the classification of assets and
the establishment of adequate loan loss reserves for regulatory purposes. Failure to comply with these and other regulatory
requirements can lead to, among other remedies, administrative enforcement actions and other legal proceedings, including
the imposition of civil money penalties.
Changes in regulation or oversight may have a material adverse impact on Cass’ operations.
The Company is subject to extensive regulation, supervision and examination by the Missouri Division of Finance, the FDIC,
the FRB, the SEC and other regulatory bodies. Such regulation and supervision governs the activities in which the Company
may engage. Regulatory authorities have extensive discretion in their supervisory and enforcement activities, including the
imposition of restrictions on Cass’ operations, investigations and limitations related to Cass’ securities, the classification of
Cass’ assets and determination of the level of Cass’ allowance for loan losses. Any change in such regulation and oversight,
whether in the form of regulatory policy, regulations, legislation or supervisory action, may have a material adverse impact
on Cass’ operations.
Legal and regulatory proceedings and related matters with respect to the financial services industry, including those
directly involving the Company and its subsidiaries, could adversely affect Cass or the financial services industry in
general.
The Company is subject to various legal and regulatory proceedings. It is inherently difficult to assess the outcome of these
matters, and there can be no assurance that the Company will prevail in any proceeding or litigation. Any such matter could
result in substantial cost and diversion of Cass’ efforts, which by itself could have a material adverse effect on Cass’ financial
condition and operating results. Further, adverse determinations in such matters could result in actions by Cass’ regulators
that could materially adversely affect Cass’ business, financial condition or results of operations. Please refer to Item 3,
“Legal Proceedings.”
10
The Company’s accounting policies and methods are the basis of how Cass reports its financial condition and results of
operations, and they require management to make estimates about matters that are inherently uncertain. In addition,
changes in accounting policies and practices, as may be adopted by the regulatory agencies, the Financial Accounting
Standards Board, or other authoritative bodies, could materially impact Cass’ financial statements.
The Company’s accounting policies and methods are fundamental to how Cass records and reports its financial condition and
results of operations. Management must exercise judgment in selecting and applying many of these accounting policies and
methods in order to ensure that they comply with generally accepted accounting principles and reflect management’s
judgment as to the most appropriate manner in which to record and report Cass’ financial condition and results of operations.
In some cases, management must select the accounting policy or method to apply from two or more alternatives, any of
which might be reasonable under the circumstances yet might result in the Company reporting materially different amounts
than would have been reported under a different alternative.
Cass has identified four accounting policies as being “critical” to the presentation of its financial condition and results of
operations because they require management to make particularly subjective and/or complex judgments about matters that
are inherently uncertain and because of the likelihood that materially different amounts would be reported under different
conditions or using different assumptions. More information on Cass’ critical accounting policies is contained in Item 7,
“Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
From time to time, the regulatory agencies, the Financial Accounting Standards Board (“FASB”), and other authoritative
bodies change the financial accounting and reporting standards that govern the preparation of the Company’s financial
statements. These changes can be hard to predict and can materially impact how management records and reports the
Company’s financial condition and results of operations.
Cass is subject to examinations and challenges by tax authorities, which, if not resolved in the Company’s favor, could
adversely affect the Company’s financial condition and results of operations.
In the normal course of business, Cass and its affiliates are routinely subject to examinations and challenges from federal and
state tax authorities regarding the amount of taxes due in connection with investments it has made and the businesses in
which it is engaged. Recently, federal and state taxing authorities have become increasingly aggressive in challenging tax
positions taken by financial institutions. These tax positions may relate to tax compliance, sales and use, franchise, gross
receipts, payroll, property and income tax issues, including tax base, apportionment and tax credit planning. The challenges
made by tax authorities may result in adjustments to the timing or amount of taxable income or deductions or the allocation
of income among tax jurisdictions. If any such challenges are made and are not resolved in the Company’s favor, they could
have an adverse effect on Cass’ financial condition and results of operations.
There could be terrorist activities or other hostilities, which may adversely affect the general economy, financial and
capital markets, specific industries, and the Company.
The terrorist attacks in September 2001 in the United States and ensuing events, as well as the resulting decline in consumer
confidence, had a material adverse effect on the economy. Any similar future events may disrupt Cass’ operations or those of
its customers. In addition, these events had and may continue to have an adverse impact on the U.S. and world economy in
general and consumer confidence and spending in particular, which could harm Cass’ operations. Any of these events could
increase volatility in the U.S. and world financial markets, which could harm Cass’ stock price and may limit the capital
resources available to its customers and the Company. This could have a significant impact on Cass’ operating results,
revenues and costs and may result in increased volatility in the market price of Cass’ common stock.
There could be natural disasters, including, but not limited to, hurricanes, tornadoes, earthquakes, fires and floods, which
may adversely affect the general economy, financial and capital markets, specific industries, and the Company.
The Company has significant operations and customer base in Missouri, California, Ohio, Massachusetts, South Carolina,
Kansas, Florida, Colorado and other regions where natural disasters may occur. These regions are known for being
vulnerable to natural disasters and other risks, such as tornadoes, hurricanes, earthquakes, fires and floods. These types of
natural disasters at times have disrupted the local economy, Cass’ business and customers and have posed physical risks to
Cass’ property. A significant natural disaster could materially affect Cass’ operating results.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
11
ITEM 2. PROPERTIES
In September 2012, the Company entered into a 10-year lease for office space in St. Louis County, Missouri, to house the
headquarters of the Company and the Bank. The Company’s headquarters occupy 13,991 square feet in an office center at
12444 Powerscourt Drive, and the Bank’s headquarters occupy 10,564 square feet in the same center at 12412 Powerscourt
Drive.
The Company owns approximately 61,500 square feet of office space at 13001 Hollenberg Drive in Bridgeton, Missouri
where the Company’s transportation processing activities are performed.
The Company owns a production facility of approximately 45,500 square feet located at 2675 Corporate Exchange Drive,
Columbus, Ohio. Additional facilities are located in Lowell, Massachusetts, Greenville, South Carolina, Wellington, Kansas,
Jacksonville, Florida and Columbus, Ohio. The Company has an office in Breda, Netherlands to service its multinational
customers.
In addition, the Bank owns a banking facility near downtown St. Louis, Missouri, has an operating branch in the Bridgeton,
Missouri location, and has additional leased facilities in Fenton, Missouri, Santa Ana, California and Colorado Springs,
Colorado.
Management believes that these facilities are suitable and adequate for the Company’s operations.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are not involved in any pending proceedings other than ordinary routine litigation
incidental to their businesses. Management believes none of these proceedings, if determined adversely, would have a
material effect on the business or financial conditions of the Company or its subsidiaries.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
12
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company’s common stock is quoted on The Nasdaq Global Select Market under the symbol “CASS.” As of March 2,
2015, there were 155 holders of record of the Company’s common stock. High and low sale prices, as reported by The
Nasdaq Global Select Market for each quarter of 2014 and 2013, were as follows:
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
2014
High
$ 67.29
54.17
51.00
54.91
Low
$ 45.74
48.55
41.19
39.00
2013
High
$ 43.97
47.31
62.57
68.81
Low
$ 38.01
39.41
46.23
50.95
The Company has continuously paid regularly scheduled cash dividends since 1934 and expects to continue to pay quarterly
cash dividends in the future. Cash dividends paid per share by the Company during the two most recent fiscal years were as
follows:
March
June
September
December
2014
$ .200
.200
.200
.210
2013
.180
$
.180
.180
.200
Subsidiary dividends can be a significant source of funds for payment of dividends by the Company to its shareholders. Both
the Company and the Bank are subject to various regulations that restrict their ability to pay dividends and the amount of
dividends that they may pay. Under the FDICIA, a depository institution, such as the Bank, may not pay dividends if
payment would cause it to become undercapitalized or if it is already undercapitalized. The payment of dividends by the
Company and the Bank may also be affected or limited by other factors, such as the requirement to maintain adequate capital
and, under certain circumstances, the ability of federal regulators to prohibit dividend payments as an unsound or unsafe
practice. For further information regarding capital ratios and leverage ratio requirements of the Company and the Bank and
the effect on payment of dividends, see Item 8, Note 2 of this report.
During the three months ended December 31, 2014, the Company repurchased a total of 19,960 shares of its
common stock pursuant to its treasury stock buyback program, as follows:
Total Number of
Shares Purchased
1,000
Average Price Paid
per Share
$43.35
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs(1)
1,000
Maximum Number
of Shares that May
Yet Be Purchased
Under the Plans or
Programs
499,000
_
18,960
_
$47.13
_
18,960
499,000
480,040
Period
October 1, 2014 –
October 31, 2014
November 1, 2014 –
November 30, 2014
December 1, 2014 –
December 31, 2014
Total
(1) All repurchases made during the quarter ended December 31, 2014 were made pursuant to the treasury stock buyback program which was
re-authorized by the Board of Directors on October 17, 2011 and announced by the Company on October 20, 2011. The program provides that
the Company may repurchase up to an aggregate of 363,000 shares of common stock (increased to 500,000 shares by the Board of Directors on
October 20, 2014) and has no expiration date.
$46.94
19,960
19,960
480,040
The Company repurchased a total of 39,502 shares at an aggregate cost of $1,848,000 during the year ended December 31,
2014 and 0 during the year ended December 31, 2013. A portion of the repurchased shares may be used for the Company’s
employee benefit plans, and the balance will be available for other general corporate purposes. The stock repurchase
authorization does not have an expiration date and the pace of repurchase activity will depend on factors such as levels of
cash generation from operations, cash requirements for investments, repayment of debt, current stock price, and other factors.
The Company may repurchase shares from time to time on the open market or in private transactions, including structured
transactions. The stock repurchase program may be modified or discontinued at any time.
13
Performance Quoted on The Nasdaq Stock Market for the Last Five Fiscal Years
The following graph compares the cumulative total returns over the last five fiscal years of a hypothetical investment of $100
in shares of common stock of the Company with a hypothetical investment of $100 in The Nasdaq Stock Market (“Nasdaq”)
and in the index of Nasdaq computer and data processing stocks. The graph assumes $100 was invested on December 31,
2009, with dividends reinvested. Returns are based on period end prices.
ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected financial information for each of the five years ended December 31. The selected
financial data should be read in conjunction with the Company’s consolidated financial statements and accompanying notes
included in Item 8 of this report.
(Dollars in thousands except per share data)
Fee revenue and other income
Interest income on loans
Interest income on equity securities
Other interest income
Total interest income
Interest expense on deposits
Provision for loan losses
Net interest income after provision
Operating expense
Income before income tax expense
Income tax expense
Net income
Diluted earnings per share
Dividends per share
Dividend payout ratio
Average total assets
Average net loans
Average investment securities
Average total deposits
Average total shareholders’ equity
Return on average total assets
Return on average equity
Average equity to assets ratio
Equity to assets ratio at year-end
Tangible common equity to tangible assets
Tangible common equity to risk-weighted
assets
$
$
$
2014
79,907 $
29,726
9,441
592
39,759
2,460
—
37,299
85,414
31,792
7,759
24,033 $
2.06 $
.81
38.85 %
2013
76,572 $
32,110
8,915
552
41,577
2,832
500
38,245
84,086
30,731
7,234
23,497 $
2.02 $
.74
36.21 %
2012
71,138 $
35,525
9,938
470
45,933
3,148
2,400
40,385
80,333
31,190
7,887
23,303 $
2.02 $
.64
31.59 %
2011
62,824 $
39,515
10,034
686
50,235
4,374
2,150
43,711
75,029
31,506
8,497
23,009 $
2.01 $
.55
27.29 %
2010
56,146
39,785
8,747
514
49,046
4,875
4,100
40,071
68,284
27,933
7,623
20,310
1.78
.48
26.82 %
$ 1,424,967 $ 1,351,782 $ 1,344,492 $ 1,301,635 $ 1,157,257
666,202
671,900
222,249
313,184
470,096
541,046
137,748
167,867
683,215
263,264
541,337
151,669
651,984
321,836
571,039
200,149
647,827
294,846
550,110
175,441
1.69 %
1.74 %
1.73 %
1.77 %
1.76 %
12.01
14.05
13.36
12.52
13.39
12.98
14.36
13.39
13.88
12.49
13.80
12.47
15.17
11.65
12.17
11.66
14.74
11.90
11.96
11.38
19.65
20.37
17.98
17.47
15.20
14
0.0050.00100.00150.00200.00250.00300.00350.00200920102011201220132014Comparison of 5 Year Cumulative Total ReturnAssumes Initial Investment of $100December 2014Cass Information Systems IncNASDAQ Stock Market (US Companies)NASDAQ Computer and Data Processing Index
Net interest margin
Allowance for loan losses to loans at year-end
Nonperforming assets to loans and foreclosed
assets
Net loan (recoveries) charge-offs to average
loans outstanding
3.43
1.78
.07
(.03)
3.63
1.79
.27
.18
4.00
1.80
1.15*
.44
4.31
1.93
.51
.16
4.61
1.68
.35
.07
*In February 2013, a payment of $4,115,000 was received for one nonaccrual loan with a balance of $4,198,000. $83,000 was charged off.
The percentage, as adjusted, would have been .54%.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis provides information about the financial condition and results of operations of the
Company for the years ended December 31, 2014, 2013 and 2012. This discussion and analysis should be read in
conjunction with the Company’s consolidated financial statements and accompanying notes and other selected financial data
presented elsewhere in this report.
Executive Overview
Cass provides payment and information processing services to large manufacturing, distribution and retail enterprises from its
offices/locations in St. Louis, Missouri, Columbus, Ohio, Boston, Massachusetts, Greenville, South Carolina, Wellington,
Kansas, Jacksonville, Florida, and Breda, Netherlands. The Company’s services include freight invoice rating, payment
processing, auditing, and the generation of accounting and transportation information. Cass also processes and pays energy
invoices, which include electricity and gas as well as waste and telecommunications expenses, and is a provider of telecom
expense management solutions. Cass extracts, stores, and presents information from freight, energy, telecommunication and
environmental invoices, assisting its customers’ transportation, energy, environmental and information technology managers
in making decisions that will enable them to improve operating performance. The Company receives data from multiple
sources, electronic and otherwise, and processes the data to accomplish the specific operating requirements of its customers.
It then provides the data in a central repository for access and archiving. The data is finally transformed into information
through the Company’s databases that allow client interaction as required and provide Internet-based tools for analytical
processing. The Company also, through Cass Commercial Bank, its St. Louis, Missouri-based bank subsidiary, provides
banking services in the St. Louis metropolitan area, Orange County, California, Colorado Springs, Colorado, and other
selected cities in the United States. In addition to supporting the Company’s payment operations, the Bank provides banking
services to its target markets, which include privately-owned businesses and churches and church-related ministries.
The specific payment and information processing services provided to each customer are developed individually to meet each
customer’s requirements, which can vary greatly. In addition, the degree of automation such as electronic data interchange,
imaging, work flow, and web-based solutions varies greatly among customers and industries. These factors combine so that
pricing varies greatly among the customer base. In general, however, Cass is compensated for its processing services through
service fees and investment of account balances generated during the payment process. The amount, type, and calculation of
service fees vary greatly by service offering, but generally follow the volume of transactions processed. Interest income from
the balances generated during the payment processing cycle is affected by the amount of time Cass holds the funds prior to
payment and the dollar volume processed. Both the number of transactions processed and the dollar volume processed are
therefore key metrics followed by management. Other factors will also influence revenue and profitability, such as changes
in the general level of interest rates, which have a significant effect on net interest income. The funds generated by these
processing activities are invested in overnight investments, investment grade securities, and loans generated by the Bank.
The Bank earns most of its revenue from net interest income, or the difference between the interest earned on its loans and
investments and the interest paid on its deposits and other borrowings. The Bank also assesses fees on other services such as
cash management services.
Industry-wide factors that impact the Company include the willingness of large corporations to outsource key business
functions such as freight, energy, telecommunication and environmental payment and audit. The benefits that can be
achieved by outsourcing transaction processing, and the management information generated by Cass’ systems can be
influenced by factors such as the competitive pressures within industries to improve profitability, the general level of
transportation costs, deregulation of energy costs, and consolidation of telecommunication providers. Economic factors that
impact the Company include the general level of economic activity that can affect the volume and size of invoices processed,
the ability to hire and retain qualified staff, and the growth and quality of the loan portfolio. The general level of interest
rates also has a significant effect on the revenue of the Company. As discussed in greater detail in Item 7A, “Quantitative
and Qualitative Disclosures about Market Risk,” a decline in the general level of interest rates can have a negative impact on
net interest income.
On January 6, 2012, the Company acquired the assets of Waste Reduction Consultants, Inc., a provider of environmental
expense management services. This acquisition positions the Company to expand its portfolio of services for controlling
15
facility-related expenses and accelerates Cass’ leadership position as a back-office business processor. The results of
operations for this new service are included in the Information Services business segment.
In 2014, total fee revenue and other income increased $3,335,000, or 4%, net interest income after provision for loan losses
decreased $946,000, or 2%, and total operating expenses increased $1,328,000, or 2%. These results were driven by a
3,344,000, or 7%, increase in items processed and $3,382,792,000, or 10%, increase in dollars processed in 2014. This
positive performance in 2014 was mainly attributed to a large number of new customers in the transportation expense
management operation, driven by both successful marketing efforts and the solid market leadership position held by Cass.
Conversely, performance in the facility expense management operation was hampered, despite a high number of new
customer wins, as competitor consolidation in the energy sector continued to impair customer retention. Gains on sales of
investments securities were down significantly, by $4,001,000, or 99%. The asset quality of the Company’s loans and
investments as of December 31, 2014 remained strong.
Currently, management views Cass’ major opportunity as the continued expansion of its payment and information processing
service offerings and customer base. Management intends to accomplish this by maintaining the Company’s leadership
position in applied technology, which when combined with the security and processing controls of the Bank, makes Cass
unique in the industry.
Impact of New and Not Yet Adopted Accounting Pronouncements
The new accounting pronouncements are not applicable to the Company and/or do not materially impact the Company.
Critical Accounting Policies
The Company has prepared the consolidated financial statements in this report in accordance with the FASB Accounting
Standards Codification (“ASC”). In preparing the consolidated financial statements, management makes estimates and
assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date
of the financial statements, and the reported amounts of revenue and expenses during the reporting period. These estimates
have been generally accurate in the past, have been consistent and have not required any material changes. There can be no
assurances that actual results will not differ from those estimates. Certain accounting policies that require significant
management estimates and are deemed critical to the Company’s results of operations or financial position have been
discussed with the Audit Committee of the Board of Directors and are described below.
Investment in Debt Securities. The Company classifies its debt marketable securities as available-for-sale. Securities
classified as available-for-sale are carried at fair value. Unrealized gains and losses, net of the related tax effect, are excluded
from earnings and reported in accumulated other comprehensive income, a component of shareholders’ equity. A decline in
the fair value of any available-for-sale security below cost that is deemed other than temporary results in a charge to earnings
and the establishment of a new cost basis for the security. To determine whether impairment is other than temporary, the
Company considers guidance provided in FASB ASC Topic 320, Investments –Debt and Equity Securities. When
determining whether a debt security is other-than-temporarily impaired, the Company assesses whether it has the intent to sell
the security and whether it is more likely than not that the Company will be required to sell prior to recovery of the amortized
cost basis. Evidence considered in this assessment includes the reasons for impairment, the severity and duration of the
impairment, changes in value subsequent to year-end and forecasted performance of the investee.
Allowance for Loan Losses. The Company performs periodic and systematic detailed reviews of its loan portfolio to assess
overall collectability. The level of the allowance for loan losses reflects management’s estimate of the collectability of the
loan portfolio. Although these estimates are based on established methodologies for determining allowance requirements,
actual results can differ significantly from estimated results. These policies affect both segments of the Company. The
impact and associated risks related to these policies on the Company’s business operations are discussed in the “Provision
and Allowance for Loan Losses” section of this report. The Company’s estimates have been materially accurate in the past,
and accordingly, the Company expects to continue to utilize the present processes.
Income Taxes. The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for
the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in
an entity's financial statements or tax returns. Judgment is required in addressing the future tax consequences of events that
have been recognized in the Company’s financial statements or tax returns such as the realization of deferred tax assets or
changes in tax laws or interpretations thereof. In addition, the Company is subject to the continuous examination of its
income tax returns by the Internal Revenue Service and other taxing authorities. In accordance with FASB ASC 740,
“Income Taxes,” the Company has unrecognized tax benefits related to tax positions taken or expected to be taken. See Item
8, Note 13 to the consolidated financial statements contained herein.
Pension Plans. The amounts recognized in the consolidated financial statements related to pension plans are determined
from actuarial valuations. Inherent in these valuations are assumptions, including expected return on plan assets, discount
16
rates at which the liabilities could be settled at December 31, 2014, rate of increase in future compensation levels and
mortality rates. These assumptions are updated annually and are disclosed in Item 8, Note 10 to the consolidated financial
statements. Pursuant to FASB ASC 715, “Compensation – Retirement Benefits” (“ASC 715”), the Company has recognized
the funded status of its defined benefit postretirement plan in its balance sheet and has recognized changes in that funded
status through comprehensive income. The funded status is measured as the difference between the fair value of the plan
assets and the projected benefit obligation as of the date of its fiscal year-end.
Summary of Results
(In thousands except per share data)
Total processing volume
Total processing dollars
Payment and processing fees
Net interest income after provision for
loan losses
Total net revenue
Average earning assets
Net interest margin*
Net income
Diluted earnings per share
Return on average assets
Return on average equity
*Presented on a tax-equivalent basis
For the Years Ended December 31,
2012
2013
2014
54,741
51,397
$38,472,500 $35,089,708
$70,805
$77,427
$37,299
$117,206
$38,245
$114,817
$1,242,549 $1,198,710
3.63%
$23,497
$2.02
1.74%
13.39%
3.43%
$24,033
$2.06
1.69%
12.01%
47,067
$33,162,412
$66,695
$40,385
$111,523
$1,201,846
4.00%
$23,303
$2.02
1.73%
13.88%
% Change
2014 v. 2013 2013 v. 2012
9.2%
5.8
6.2
6.5%
9.6
9.4
(2.5)
2.1
3.7
2.3
2.0
(5.3)
3.0
(.3)
.8
—
The results of 2014 compared to 2013 include the following significant items:
Payment and processing fee revenue increased as the number of transactions processed increased. This positive
performance in 2014 was mainly attributed to a large number of new customers in the transportation expense
management operation, driven by both successful marketing efforts and the solid market leadership position held by
Cass. Conversely, performance in the facility expense management operation was hampered, despite a high number of
new customer wins, as competitor consolidation in the energy sector continued to impair customer retention.
Net interest income after provision for loan losses decreased $946,000, or 2%, due to the decrease in the net interest
margin on a tax equivalent basis from 3.63% in 2013 to 3.43% in 2014. The increase in average earning assets was the
result of increases in accounts and drafts payable and deposits.
Gains from the sale of securities were $23,000 in 2014 and $4,024,000 in 2013. Bank service fees were down $83,000,
or 7%, and other income was up $797,000. Operating expenses increased $1,328,000, or 2%, primarily due to salary and
technology expense increases.
The results of 2013 compared to 2012 include the following significant items:
Payment and processing fee revenue increased as the number of transactions processed increased. This increase was due
to increased activity from new customers.
Net interest income after provision for loan losses decreased $2,140,000, or 5%, due to the decrease in the net interest
margin on a tax equivalent basis from 4.00% in 2012 to 3.63% in 2013. The decrease in average earning assets was the
result of a decrease in accounts and drafts payable, partially offset by an increase in deposits.
Gains from the sale of securities were $4,024,000 in 2013 and $2,635,000 in 2012. Bank service fees were down
$57,000, or 4%, and other income was approximately the same as last year. Operating expenses increased $3,753,000,
or 5%, primarily in the area of salaries and benefits resulting from the increase in business volume.
Fee Revenue and Other Income
The Company’s fee revenue is derived mainly from transportation and facility payment and processing fees. As the
Company provides its processing and payment services, it is compensated by service fees which are typically calculated on a
per-item basis and by the accounts and drafts payable balances generated in the payment process which can be used to
generate interest income. Processing volumes, fee revenue and other income were as follows:
17
(In thousands)
Transportation invoice transaction volume
Transportation invoice dollar volume
Expense management transaction volume*
Expense management dollar volume*
Payment and processing revenue
Bank service fees
Gains on sales of investment securities
Other
*Includes energy, telecom and environmental
2014
December 31,
2013
20,600
34,141
31,895
$25,993,966 $23,506,097
19,502
$12,478,534 $11,583,611
$70,805
$1,215
$4,024
$528
$77,427
$1,132
$23
$1,325
2012
28,790
$22,263,118
18,277
$10,899,294
$66,695
$1,272
$2,635
$536
7.0%
% Change
2014 v. 2013 2013 v. 2012
10.8%
5.6
6.7
6.3
6.2
(4.5)
52.7
(.1)
10.6
5.6
7.7
9.4
(6.8)
(99.4)
150.9
Fee revenue and other income in 2014 compared to 2013 include the following significant pre-tax components:
Transportation transaction volume increased 7% during the year, primarily due to increased activity from new customers.
Expense management transaction volume increased 6%. Overall, revenues for the year were up primarily due to new
business in the transportation sector. Gains on sales of investment securities were down significantly because the
Company held on to its investments.
Fee revenue and other income in 2013 compared to 2012 include the following significant pre-tax components:
Transportation transaction volume increased 11% during the past year, primarily due to increased activity from new
customers. Expense management transaction volume increased 7%. Overall, revenues for the year were up primarily
due to new business in the transportation sector. Gains on sales of investment securities were up significantly as the
Company took advantage of market gains.
Net Interest Income
Net interest income is the difference between interest earned on loans, investments, and other earning assets and interest
expense on deposits and other interest-bearing liabilities. Net interest income is a significant source of the Company’s
revenues. The following table summarizes the changes in tax-equivalent net interest income and related factors:
December 31,
2013
2014
(In thousands)
Average earning assets
Net interest income*
Net interest margin*
Yield on earning assets*
Rate on interest bearing liabilities
*Presented on a tax-equivalent basis using a tax rate of 35% in all years.
$1,242,549 $1,198,710
$43,468
3.63%
3.86%
.69%
$42,587
3.43%
3.63%
.58%
% Change
2014 v. 2013 2013 v. 2012
(.3%)
(9.6)
3.7%
(2.0)
2012
$1,201,846
$48,086
4.00%
4.26%
.78%
Net interest income in 2014 compared to 2013:
The decrease in net interest income was caused by a decrease in net interest margin. The decrease in net interest
margin was due to the lack of satisfactory investment alternatives in this historically low interest rate environment.
More information is contained in the tables below and in Item 7A of this report.
Total average loans increased $4,402,000, or less than 1%, to $663,824,000. Loans have a positive effect on interest
income and the net interest margin due to the fact that loans are one of the Company’s highest yielding earning
assets for any given maturity.
Total average investment in securities increased $26,990,000, or 9%. The investment portfolio will expand and
contract over time as the Company manages its liquidity and interest rate position. All purchases were made in
accordance with the Company’s investment policy. Interest bearing deposits in other financial institutions increased
$14,591,000, or 12%. Total average federal funds sold and other short-term investments decreased $2,144,000, or
2%.
The Bank’s total average interest-bearing deposits increased $11,019,000, or 3%, compared to the prior year.
Average rates paid on interest-bearing liabilities decreased from .69% to .58% as a result of the continued low
interest rate environment.
Net interest income in 2013 compared to 2012:
18
The decrease in net interest income was caused by a decrease in net interest margin. The decrease in net interest
margin was due to the lack of satisfactory investment alternatives in this historically low interest rate environment.
More information is contained in the tables below and in Item 7A of this report.
Total average loans decreased $25,175,000, or 4%, to $659,422,000. Loans have a positive effect on interest
income and the net interest margin due to the fact that loans are one of the Company’s highest yielding earning
assets for any given maturity.
Total average investment in securities decreased $16,927,000, or 6%. The investment portfolio will expand and
contract over time as the Company manages its liquidity and interest rate position. All purchases were made in
accordance with the Company’s investment policy. Total average federal funds sold and other short-term
investments increased $36,051,000, or 41%.
The Bank’s total average interest-bearing deposits increased $8,712,000, or 2%, compared to the prior year. Average
rates paid on interest-bearing liabilities decreased from .78% to .69% as a result of the continued low interest rate
environment.
Distribution of Assets, Liabilities and Shareholders' Equity; Interest Rate and Interest Differential
The following table contains condensed average balance sheets for each of the periods reported, the tax-equivalent interest
income and expense on each category of interest-earning assets and interest-bearing liabilities, and the average yield on such
categories of interest-earning assets and the average rates paid on such categories of interest-bearing liabilities for each of the
periods reported:
(In thousands)
Assets1
Earning assets
Loans2, 3:
Taxable
Tax-exempt4
Securities5:
Taxable
Tax-exempt4
Certificates of deposit
Interest-bearing deposits in other
financial institutions
Federal funds sold and other
short-term investments
Total earning assets
Non-earning assets
Cash and due from banks
Premise and equipment, net
Bank owned life insurance
Goodwill and other
intangibles
Other assets
Allowance for loan losses
Total assets
Liabilities and Shareholders’ Equity1
Interest-bearing liabilities
Interest-bearing demand
deposits
Savings deposits
Time deposits >=$100
Other time deposits
Total interest-bearing deposits
Short-term borrowings
Total interest bearing liabilities
Non-interest bearing liabilities
Demand deposits
Accounts and drafts payable
Other liabilities
Total liabilities
Shareholders’ equity
2014
Interest
Income/
Expense
Average
Balance
Yield/
Rate
Average
Balance
2013
Interest
Income/
Expense
Yield/
Rate
Average
Balance
2012
Interest
Income/
Expense
Yield/
Rate
$647,896 $29,316
630
15,928
4.52 %
3.96
$657,385 $32,078
49
2,037
4.88 %
2.45
$683,921
676
$35,521
6
5.19 %
.89
1,095
21
316,991 14,480
8
3,750
1.92
4.57
.21
1,068
288,571
5,207
21
13,573
27
1.97
4.70
.52
1,014
305,552
6,618
25
15,177
35
2.47
4.97
.53
135,263
424
.31
120,672
398
.33
116,346
362
.31
121,626
168
1,242,549 45,047
.14
3.63
123,770
1,198,710
154
46,300
.12
3.86
87,719
1,201,846
108
51,234
.12
4.26
12,074
14,793
15,295
14,593
137,503
(11,840)
$1,424,967
12,476
12,258
15,160
15,078
109,695
(11,595)
$1,351,782
12,469
9,649
14,625
14,970
103,630
(12,697)
$1,344,492
$317,120 $1,564
87
337
472
2,460
17,073
29,643
59,628
423,464
6
423,470
.49 %
.51
1.14
.79
.58
— —
.58
2,460
$283,728
20,840
33,703
74,174
412,445
3
412,448
$1,737
138
357
600
2,832
—
2,832
.61 %
.66
1.06
.81
.69
—
.69
147,575
643,077
10,696
1,224,818
200,149
137,665
600,611
25,617
1,176,341
175,441
19
$1,739
169
456
784
3,148
.68 %
.70
1.15
.94
.78
— —
.78
3,148
$256,332
24,261
39,638
83,502
403,733
5
403,738
137,313
616,573
19,001
1,176,625
167,867
$1,424,967
$1,351,782
$42,587
3.43%
3.05%
Total liabilities and share-
holders’ equity
Net interest income
Net interest margin
Interest spread
1Balances shown are daily averages.
2For purposes of these computations, nonaccrual loans are included in the average loan amounts outstanding. Interest on nonaccrual loans
is recorded when received as discussed further in Item 8, Note 1 of this report.
3Interest income on loans includes net loan fees of $325,000, $339,000, and $333,000 for 2014, 2013 and 2012, respectively.
4Interest income is presented on a tax-equivalent basis assuming a tax rate 35% in all years. The tax-equivalent adjustment was
approximately $5,288,000, $4,723,000 and $5,301,000 for 2014, 2013 and 2012, respectively.
5For purposes of these computations, yields on investment securities are computed as interest income divided by the average amortized cost
of the investments.
$43,468
3.63%
3.17%
$48,086
4.00%
3.48%
$1,344,492
Analysis of Net Interest Income Changes
The following table presents the changes in interest income and expense between years due to changes in volume and interest
rates.
(In thousands)
Increase (decrease) in interest income:
Loans2,3:
Taxable
Tax-exempt4
Securities:
Taxable
Tax-exempt4
Certificates of deposit
Interest-bearing deposits in other
financial institutions
Federal funds sold and other short-term
investments
Total interest income
Interest expense on:
Interest-bearing demand deposits
Savings deposits
Time deposits >=$100
Other time deposits
2014 Over 2013
Rate1
Volume1
Total
Volume1 Rate1
Total
2013 Over 2012
$(457)
533
$(2,305)
48
$(2,762)
581
$(1,346) $(2,097) $(3,443)
43
20
23
1
1,307
(6)
(1)
(400)
(13)
46
(20)
0
907
(19)
26
1
(821)
(7)
(5)
(783)
(1)
(4)
(1,604)
(8)
14
22
36
(3)
$1,421
17
$(2,674)
14
$(1,253)
45
46
$(2,091) $(2,843) $(4,934)
1
$189
(22)
(45)
(115)
$(362)
(29)
25
(13)
$(173)
(51)
(20)
(128)
$176
(23)
(65)
(82)
$(178)
(8)
(34)
(102)
$(2)
(31)
(99)
(184)
Total interest expense
(379)
Net interest income
$(2,295)
1The change in interest due to the combined rate/volume variance has been allocated in proportion to the absolute dollar amounts of the
change in each.
2Average balances include nonaccrual loans.
3Interest income includes net loan fees.
4Interest income is presented on a tax-equivalent basis assuming a tax rate 35% in all years.
(316)
$(2,097) $(2,521) $(4,618)
7
$1,414
(372)
$(881)
(322)
6
Loan Portfolio
Interest earned on the loan portfolio is a primary source of income for the Company. The loan portfolio was
$669,346,000 and represented 44.6% of the Company's total assets as of December 31, 2014 and generated $29,726,000 in
revenue during the year then ended. The Company had no sub-prime mortgage loans or residential development loans in its
portfolio for any of the years presented. The following tables show the composition of the loan portfolio at the end of the
periods indicated and remaining maturities for loans as of December 31, 2014.
Loans by Type
(In thousands)
Commercial and industrial
Real estate (commercial and church):
Mortgage
Construction
Industrial Revenue Bond
Other
Total loans
2014
$203,350
423,641
18,612
23,348
395
$669,346
December 31,
2012
$160,862
502,961
23,475
—
435
$687,733
2013
$171,304
455,190
16,449
9,167
67
$652,177
20
2011
$136,916
488,574
45,564
—
511
$671,565
2010
$135,061
517,593
54,752
—
1,227
$708,633
Loans by Maturity
(At December 31, 2014)
(In thousands)
Commercial and industrial
Real Estate:
Mortgage
Construction
One Year
Or Less
Fixed
Rate
Floating
Rate1
Over 1 Year
Through 5 Years
Fixed
Rate
Floating
Rate1
Over
5 Years
Fixed
Rate
Floating
Rate1
Total
$
7,104 $ 77,726 $
31,843 $
48,185 $
4,754 $ 33,738 $ 203,350
50,829
6,982
—
—
15,560
2,641
—
395
$ 64,915 $ 96,322 $ 323,671 $
275,898
2,823
13,107
—
16,246
6,166
—
—
70,597 $
44,674
—
10,241
—
423,641
20,434
18,612
—
23,348
—
395
—
59,669 $ 54,172 $ 669,346
Industrial Revenue Bond
Other
Total loans
1Loans have been classified as having "floating" interest rates if the rate specified in the loan varies with the prime commercial rate of
interest. Note: Due to the historically low interest rates, the Company instituted a 4% floor for its prime lending rate.
The Company has no concentrations of loans exceeding 10% of total loans, which are not otherwise disclosed in the loan
portfolio composition table and as are discussed in Item 8, Note 4, of this report. As can be seen in the loan composition
table above and as discussed in Item 8, Note 4, the Company's primary market niche for banking services is privately held
businesses and churches and church-related ministries.
Loans to commercial entities are generally secured by the business assets of the borrower, including accounts receivable,
inventory, machinery and equipment, and the real estate from which the borrower operates. Operating lines of credit to these
companies generally are secured by accounts receivable and inventory, with specific percentages of each determined on a
customer-by-customer basis based on various factors including the type of business. Intermediate term credit for machinery
and equipment is generally provided at some percentage of the value of the equipment purchased, depending on the type of
machinery or equipment purchased by the entity. Loans secured exclusively by real estate to businesses and churches are
generally made with a maximum 80% loan to value ratio, depending upon the Company's estimate of the resale value and
ability of the property to generate cash. The Company's loan policy requires an independent appraisal for all loans over
$250,000 secured by real estate. Company management monitors the local economy in an attempt to determine whether it has
had a significant deteriorating effect on such real estate loans. When problems are identified, appraised values are updated on
a continual basis, either internally or through an updated external appraisal.
Loan portfolio changes from December 31, 2013 to December 31, 2014:
Total loans increased $17,169,000, or 3%, to $669,346,000. Additional details regarding the types and maturities of
loans in the loan portfolio are contained in the tables above and in Item 8, Note 4.
Loan portfolio changes from December 31, 2012 to December 31, 2013:
Total loans decreased $35,556,000, or 5%, to $652,177,000. Additional details regarding the types and maturities of
loans in the loan portfolio are contained in the tables above and in Item 8, Note 4.
Provision and Allowance for Loan Losses (ALLL)
The Company recorded no provision for loan losses in 2014, $500,000 in 2013 and $2,400,000 in 2012. The amount of the
provisions for loan losses was derived from the Company’s quarterly analysis of the allowance for loan losses. The amount
of the provision will fluctuate as determined by these quarterly analyses. The Company had net loan (recoveries) charge-offs
of ($215,000), $1,178,000, and $2,997,000 in 2014, 2013, and 2012, respectively. The ALLL was $11,894,000 at December
31, 2014 compared to $11,679,000 at December 31, 2013 and $12,357,000 at December 31, 2012. The year-end 2014
allowance represented 1.8% of outstanding loans, the same as at year-end 2013 and 2012. From December 31, 2013 to
December 31, 2014, the level of nonperforming loans decreased $1,309,000 from $1,797,000 to $488,000, which represents
.07% of outstanding loans. Nonperforming loans are more fully explained in the section entitled “Nonperforming Assets.”
The ALLL has been established and is maintained to absorb reasonably estimated and probable losses in the loan portfolio.
An ongoing assessment is performed to determine if the balance is adequate. Charges or credits are made to expense to cover
any deficiency or reduce any excess, as required. The current methodology consists of two components: 1) estimated credit
losses on individually evaluated loans that are determined to be impaired in accordance with FASB ASC 310 and 2)
estimated credit losses inherent in the remainder of the loan portfolio in accordance with FASB ASC 450. Estimated credit
losses is an estimate of the current amount of loans that is probable the Company will be unable to collect according to the
original terms.
For loans that are individually evaluated, the Company uses two impairment measurement methods: 1) the present value of
expected future cash flows and 2) collateral value. For the remainder of the portfolio, the Company groups loans with similar
21
risk characteristics into eight segments and applies historical loss rates to each segment based on a three fiscal-year look-back
period. The historical look-back calculation is additionally risk-weighted with the emphasis on the most-recent charge-off
activity. In addition, qualitative factors including credit concentration risk, national and local economic conditions, nature
and volume of loan portfolio, legal and regulatory factors, downturns in specific industries including losses in collateral
value, trends in credit quality at the Company and in the banking industry and trends in risk-rating agencies are also
considered.
The Company also utilizes ratio analysis to evaluate the overall reasonableness of the ALLL compared to its peers and
required levels of regulatory capital. Federal and state agencies review the Company’s methodology for maintaining the
ALLL. These agencies may require the Company to adjust the ALLL based on their judgments and interpretations about
information available to them at the time of their examinations.
The following schedule summarizes activity in the allowance for loan losses and the allocation of the allowance to the
Company’s loan categories.
Summary of Loan Loss Experience
(In thousands)
Allowance at beginning of year
Loans charged-off:
Commercial and industrial
Real estate (commercial and church):
Mortgage
Construction
Other
Total loans charged-off
Recoveries of loans previously charged-off:
Commercial and industrial
Real estate (commercial and church):
Mortgage
Construction
Other
Total recoveries of loans previously charged-off
Net loans (recovered) charged-off
Provision charged to expense
Allowance at end of year
Loans outstanding:
Average
December 31
Ratio of allowance for loan losses to loans
outstanding:
Average
December 31
Ratio of net charge-offs to average loans
outstanding
Allocation of allowance for loan losses1:
Commercial and industrial
Real estate (commercial and church):
Mortgage
Construction
Industrial Revenue Bond
Other2
Total
Percentage of categories to total loans:
Commercial and industrial
Real estate (commercial and church):
Mortgage
Construction
Industrial Revenue Bond
Other
2014
$11,679
2013
$12,357
December 31,
2012
$12,954
2011
$11,891
2010
$8,284
76
3
79
41
252
1
294
(215)
$11,894
1,307
233
1,540
47
315
362
1,178
500
$11,679
1,546
1,562
3,108
111
111
2,997
2,400
$12,357
1,118
28
1,146
58
1
59
1,087
2,150
$12,954
554
554
60
1
61
493
4,100
$11,891
$663,824
669,346
$659,422
652,177
$684,597
687,733
$695,984
671,565
$675,901
708,633
1.79%
1.78%
1.77%
1.79%
1.81%
1.80%
1.86%
1.93%
1.76%
1.68%
(.03)%
.18%
.44%
.16%
.07%
$3,515
$3,139
$3,192
$2,594
$2,732
7,076
140
394
769
$11,894
7,439
124
155
822
$11,679
8,687
470
8
$12,357
9,573
783
4
$12,954
8,491
656
12
$11,891
30.4%
26.3%
23.4%
20.4%
19.2%
63.3%
2.8%
3.5%
%
100.0%
69.8%
2.5%
1.4%
%
100.0%
73.1%
3.4%
0.1%
100.0%
72.7%
6.8%
0.1%
100.0%
72.9%
7.7%
0.2%
100.0%
22
Total
1Although specific allocations exist, the entire allowance is available to absorb losses in any particular loan category.
2 Includes unallocated of $767,000 and $822,000 in 2014 and 2013, respectively.
Nonperforming Assets
Nonperforming loans are defined as loans on non-accrual status and loans 90 days or more past due but still accruing.
Nonperforming assets include nonperforming loans plus foreclosed real estate. Troubled debt restructurings are not included
in nonperforming loans unless they are on non-accrual status or past due 90 days or more.
It is the policy of the Company to continually monitor its loan portfolio and to discontinue the accrual of interest on any loan
for which collection is not probable. Subsequent payments received on such loans are applied to principal if collection of
principal is not probable; otherwise, these receipts are recorded as interest income. Interest on nonaccrual loans, which
would have been recorded under the original terms of the loans, was approximately $108,000 and $180,000 for the years
ended December 31, 2014 and 2013, respectively. Of this amount, approximately $77,000 and $131,000 was actually
recorded as interest income on such loans during the years ended December 31, 2014 and 2013, respectively.
Total nonaccrual loans at December 31, 2014 consists of two loans totaling $488,000 that relate to businesses/churches that
have weak financial positions and/or are in liquidation. Allocations of the allowance for loan losses have been established for
the estimated loss exposure.
There were no foreclosed assets at December 31, 2014 and December 31, 2013.
The Company does not have any foreign loans. The Company's loan portfolio does not include a significant amount of single
family real estate mortgages, as the Company does not market its services to retail customers. Also, the Company had no
sub-prime mortgage loans or residential development loans in its portfolio in any of the years presented.
The Company does not have any other interest-earning assets which would have been included in nonaccrual, past due or
restructured loans if such assets were loans.
Summary of Nonperforming Assets
(In thousands)
Commercial and industrial:
Nonaccrual
Contractually past due 90 days or more and still
accruing
Real estate – mortgage:
Nonaccrual
Contractually past due 90 days or more and still
accruing
2014
2013
December 31,
2012
2011
2010
$
488
$11
$1,439
$56
1,786
5,133*
1,653
$46
519
Total nonperforming loans
Total foreclosed assets
Total nonperforming assets
*In February 2013, a payment of $4,115,000 was received for one nonaccrual loan with a balance of $4,198,000. $83,000 was charged off.
$6,572
1,322
$7,894
29
$1,738
1,689
$3,427
$565
1,910
$2,475
$1,797
$1,797
$488
$488
Operating Expenses
Operating expenses in 2014 compared to 2013 include the following significant pre-tax components:
Salaries and employee benefits expense increased $378,000, or less than 1%, to $66,100,000. Occupancy expense
increased $298,000, or 10.4%, due to the rent escalation on two properties and additional depreciation on building
improvements. Equipment expense increased $320,000 to $4,130,000 primarily due to depreciation on new
furniture and additional systems software. Amortization of intangibles decreased $52,000 to $483,000. Other
operating expense increased $384,000, or 3.4%, to $11,529,000 primarily due to an increase in outside service fees.
Operating expenses in 2013 compared to 2012 include the following significant pre-tax components:
Salaries and employee benefits expense increased $3,159,000, or 5%, to $65,722,000. An increase in the number of
employees to support the additional volume primarily drove this increase. Occupancy expense increased $717,000,
or 33%, due to the new Company headquarters and Bank headquarters. Equipment expense increased $294,000 to
$3,810,000 primarily due to depreciation on additional systems software. Amortization of intangibles decreased
$46,000 to $535,000. Other operating expense decreased $371,000, or 3%, to $11,145,000 primarily due to a
decrease in legal fees.
23
Income Tax Expense
Income tax expense in 2014 totaled $7,759,000 compared to $7,234,000 and $7,887,000 in 2013 and 2012, respectively.
When measured as a percent of income, the Company’s effective tax rate was 24% in 2014, 24% in 2013, and 25% in 2012.
The effective tax rate varies from year-to-year primarily due to changes in the Company’s pre-tax income and the amount of
investment in tax-exempt municipal bonds.
Investment Portfolio
Investment portfolio changes from December 31, 2013 to December 31, 2014:
State and political subdivision securities increased $38,374,000, or 12%, to $352,391,000. The investment portfolio
provides the Company with a significant source of earnings, secondary source of liquidity, and mechanisms to
manage the effects of changes in loan demand and interest rates. Therefore, the size, asset allocation and maturity
distribution of the investment portfolio will vary over time depending on management’s assessment of current and
future interest rates, changes in loan demand, changes in the Company’s sources of funds and the economic outlook.
During this period, the Company purchased state and political subdivision securities. These securities all had A or
better credit ratings and maturities approaching 15 years. With the additional liquidity provided by the increase in
deposits and accounts and drafts payable, the Company made these purchases to continue to reduce the level of
short-term rate sensitive assets. All purchases were made in accordance with the Company’s investment policy. As
of December 31, 2014, the Company had no mortgage-backed securities in its portfolio.
There was no single issuer of securities in the investment portfolio at December 31, 2014 for which the aggregate amortized
cost exceeded 10% of total shareholders' equity.
Investments by Type
(In thousands)
State and political subdivisions
Certificates of deposit
Total investments
Investment Securities by Maturity
(At December 31, 2014)
$
$
December 31,
2013
2014
352,391 $
3,750
356,141 $
2012
314,017 $ 335,193
6,742
317,767 $ 341,935
3,750
Within 1
Year
Over 1 to 5
Years
Over 5 to
10 Years
(In thousands)
150,429 $
State and political subdivisions
Certificates of deposit
150,429 $
Total investments
Weighted average yield1
3.82%
1Weighted average yield is presented on a tax-equivalent basis assuming a tax rate of 35%.
24,462 $
3,750
28,212 $
3.85%
84,500 $
84,500 $
4.48%
$
$
Over
10 Years
93,000
93,000
4.06%
Yield
4.09%
.25%
4.04%
4.04%
Deposits and Accounts and Drafts Payable
Noninterest-bearing demand deposits increased 11% from December 31, 2013 to $158,999,000 at December 31, 2014. The
average balances of these deposits increased 7% in 2014 to $147,575,000. These balances are primarily maintained by
commercial customers and churches and can fluctuate on a daily basis.
Interest-bearing deposits increased $20,545,000, or 5%, to $459,200,000 at December 31, 2014. The average balances of
these deposits increased to $423,464,000 in 2014 from $412,445,000 in 2013.
Accounts and drafts payable generated by the Company in its payment processing operations increased $111,475,000, or
20%, at December 31, 2013 to $655,428,000 at December 31, 2014. The average balance of these funds increased
$42,466,000, or 7%, to $643,077,000 in 2014. Due to the Company’s payment processing cycle, average balances are much
more indicative of the underlying activity than period-end balances since point-in-time comparisons can be misleading if the
comparison dates fall on different days of the week.
The composition of average deposits and the average rates paid on those deposits is represented in the table entitled
“Distribution of Assets, Liabilities and Shareholders' Equity; Interest Rate and Interest Differential” which is included earlier
in this discussion. The Company does not have any significant deposits from foreign depositors.
24
Maturities of Certificates of Deposit of $100,000 or More
(In thousands)
Three months or less
Three to six months
Six to twelve months
Over twelve months
Total
Liquidity
December 31, 2014
$
$
37,633
17,929
5,802
11,455
72,819
The discipline of liquidity management as practiced by the Company seeks to ensure that funds are available to fulfill all
payment obligations relating to invoices processed as they become due and meet depositor withdrawal requests and borrower
credit demands while at the same time maximizing profitability. This is accomplished by balancing changes in demand for
funds with changes in supply of funds. Primary liquidity to meet demand is provided by short-term liquid assets that can be
converted to cash, maturing securities and the ability to obtain funds from external sources. The Company's Asset/Liability
Committee (“ALCO”) has direct oversight responsibility for the Company's liquidity position and profile. Management
considers both on-balance sheet and off-balance sheet items in its evaluation of liquidity.
The balances of liquid assets consist of cash and cash equivalents, which include cash and due from banks, interest-bearing
deposits in other financial institutions, federal funds sold, and money market funds, totaled $294,335,000 at December 31,
2014, an increase of $69,073,000, or 31%, from December 31, 2013. At December 31, 2014, these assets represented 20% of
total assets. Cash and cash equivalents are the Company’s and its subsidiaries’ primary source of liquidity to meet future
expected and unexpected loan demand, depositor withdrawals or reductions in accounts and drafts payable.
Secondary sources of liquidity include the investment portfolio and borrowing lines. Total investment in debt securities
available-for-sale at fair value was $356,141,000 at December 31, 2014, an increase of $38,374,000, or 12%, from December
31, 2013. These assets represented 24% of total assets at December 31, 2014 and were primarily state and political
subdivision securities. Of the total portfolio, 8% mature in one year or less, 24% mature after one year through five years
and 68% mature after five years. The Company sold $587,000 in securities available-for-sale during 2014.
As of December 31, 2014, the Bank had unsecured lines of credit at correspondent banks to purchase federal funds up to a
maximum of $88,000,000 at the following banks: Bank of America, $20,000,000; US Bank, $20,000,000; Wells Fargo
Bank, $15,000,000; PNC Bank, $12,000,000; Frost National Bank, $10,000,000; JPM Chase Bank, $6,000,000; and UMB
Bank $5,000,000. As of December 31, 2014, the Bank had secured lines of credit with the Federal Home Loan Bank
(“FHLB”) of $158,247,000 collateralized by commercial mortgage loans. There were no amounts outstanding under any of
the lines of credit discussed above at December 31, 2014 or 2013. At Decemember 31, 2014, the Company had a line of
credit from UMB Bank of $50,000,000 and First Tennessee Bank of $50,000,000 collateralized by state and political
subdivision securities.
The deposits of the Company's banking subsidiary have historically been stable, consisting of a sizable volume of core
deposits related to customers that utilize many other commercial products of the Bank. The accounts and drafts payable
generated by the Company have also historically been a stable source of funds.
Net cash flows provided by operating activities for the years 2014, 2013 and 2012 were $34,843,000, $28,886,000 and
$35,328,000, respectively. Net income plus depreciation and amortization accounts for most of the operating cash provided.
Net cash flows from investing and financing activities fluctuate greatly as the Company actively manages its investment and
loan portfolios and customer activity influences changes in deposit and accounts and drafts payable balances. Further
analysis of the changes in these account balances is discussed earlier in this report. Due to the daily fluctuations in these
account balances, management believes that the analysis of changes in average balances, also discussed earlier in this report,
can be more indicative of underlying activity than the period-end balances used in the statements of cash flows. Management
anticipates that cash and cash equivalents, maturing investments, cash from operations, and borrowing lines will continue to
be sufficient to fund the Company’s operations and capital expenditures in 2014. The Company anticipates the annual capital
expenditures for 2015 should range from $5 million to $7 million. Capital expenditures in 2015 are expected to consist of
equipment and software related to the payment and information processing services business.
There are several trends and uncertainties that may impact the Company’s ability to generate revenues and income at the
levels that it has in the past. In addition, these trends and uncertainties may impact available liquidity. Those that could
significantly impact the Company include the general levels of interest rates, business activity, and energy costs as well as
new business opportunities available to the Company.
As a financial institution, a significant source of the Company’s earnings is generated from net interest income. Therefore,
the prevailing interest rate environment is important to the Company’s performance. A major portion of the Company’s
funding sources are the non-interest bearing accounts and drafts payable generated from its payment and information
25
processing services. Accordingly, higher levels of interest rates will generally allow the Company to earn more net interest
income. Conversely, a lower interest rate environment will generally tend to depress net interest income. The Company
actively manages its balance sheet in an effort to maximize net interest income as the interest rate environment changes. This
balance sheet management impacts the mix of earning assets maintained by the Company at any point in time. For example,
in a low interest rate environment, short-term relatively lower rate liquid investments may be reduced in favor of longer term
relatively higher yielding investments and loans. If the primary source of liquidity is reduced in a low interest rate
environment, a greater reliance would be placed on secondary sources of liquidity including borrowing lines, the ability of
the Bank to generate deposits, and the investment portfolio to ensure overall liquidity remains at acceptable levels.
The overall level of economic activity can have a significant impact on the Company’s ability to generate revenues and
income, as the volume and size of customer invoices processed may increase or decrease. Higher levels of economic activity
increase both fee income (as more invoices are processed) and balances of accounts and drafts payable generated (as more
invoices are processed) from the Company’s transportation customers.
The relative level of energy costs can impact the Company’s earnings and available liquidity. Higher levels of energy costs
will tend to increase transportation and energy invoice amounts resulting in a corresponding increase in accounts and drafts
payable. Increases in accounts and drafts payable generate higher interest income and improve liquidity.
New business opportunities are an important component of the Company’s strategy to grow earnings and improve
performance. Generating new customers allows the Company to leverage existing systems and facilities and grow revenues
faster than expenses. During 2014, new business was added in both the transportation and facility expense management
operations, driven by both successful marketing efforts and the solid market leadership position held by Cass.
Capital Resources
One of management’s primary objectives is to maintain a strong capital base to warrant the confidence of customers,
shareholders, and bank regulatory agencies. A strong capital base is needed to take advantage of profitable growth
opportunities that arise and to provide assurance to depositors and creditors. The Company and its banking subsidiary
continue to exceed all regulatory capital requirements, as evidenced by the capital ratios at December 31, 2014 as shown in
Item 8, Note 2 of this report.
In 2014, cash dividends paid were $.81 per share for a total of $9,337,000, an increase of $827,000, or 9.7%, compared to
$.74 per share for a total of $8,510,000 in 2013. The increase is attributable to the per-share amount paid.
Shareholders’ equity was $200,432,000, or 13.4% of total assets, at December 31, 2014, an increase of $10,005,000 over the
balance at December 31, 2013. This increase resulted primarily from net income of $24,033,000, the available-for-sale net
unrealized gain of $5,237,000 offset by cash dividends of $9,337,000 and the pension adjustment per FASB ASC 715 of
$9,189,000.
Dividends from the Bank are a source of funds for payment of dividends by the Company to its shareholders. The only
restrictions on dividends are those dictated by regulatory capital requirements and prudent and sound banking principles. As
of December 31, 2014, unappropriated retained earnings of $23,801,000 were available at the Bank for the declaration of
dividends to the Company without prior approval from regulatory authorities.
The Company maintains a treasury stock buyback program pursuant to which the Board of Directors has authorized the
repurchase of up to 500,000 shares of the Company’s common stock. The Company repurchased 39,502 shares at an
aggregate cost of $1,848,000 during the year ended December 31, 2014 and 0 during the year ended December 31, 2013. As
of December 31, 2014, 480,040 shares remained available for repurchase under the program. A portion of the repurchased
shares may be used for the Company's employee benefit plans, and the balance will be available for other general corporate
purposes. The stock repurchase authorization does not have an expiration date and the pace of repurchase activity will depend
on factors such as levels of cash generation from operations, cash requirements for investments, repayment of debt, current
stock price, and other factors. The Company may repurchase shares from time to time on the open market or in private
transactions, including structured transactions. The stock repurchase program may be modified or discontinued at any time.
Commitments, Contractual Obligations and Off-Balance Sheet Arrangements
In the normal course of business, the Company is party to activities that involve credit, market and operational risk 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 and capital 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. At December 31, 2014, no amounts have been accrued for any estimated losses for these
instruments.
26
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 December 31, 2014,
the balance of loan commitments, standby and commercial letters of credit were $19,066,000, $12,693,000 and $2,571,000,
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 its
guarantees on these financial instruments.
The following table summarizes contractual cash obligations of the Company related to operating lease commitments and
time deposits at December 31, 2014:
(In thousands)
Operating lease commitments
Time deposits
Total
Amount of Commitment Expiration per Period
1-3
Years
Less than 1
Year
3-5
Years
Over
5 Years
Total
$
$
6,841 $
79,775
86,616 $
1,213 $
66,436
67,649 $
2,121 $
11,907
14,028 $
1,484 $
1,432
2,916 $
2,023
2,023
During 2014, the Company made no contribution to its noncontributory defined benefit pension plan. In determining pension
expense, the Company makes several assumptions, including the discount rate and long-term rate of return on assets. These
assumptions are determined at the beginning of the plan year based on interest rate levels and financial market performance.
For 2014, these assumptions were as follows:
Assumption
Weighted average discount rate
Rate of increase in compensation levels
Expected long-term rate of return on assets
Rate
5.00%
3.75%
6.75%
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Sensitivity
The Company faces market risk to the extent that its net interest income and its fair market value of equity are affected by
changes in market interest rates. The asset/liability management discipline as applied by the Company seeks to limit the
volatility, to the extent possible, of both net interest income and the fair market value of equity that can result from changes
in market interest rates. This is accomplished by limiting the maturities of fixed rate investments, loans, and deposits;
matching fixed rate assets and liabilities to the extent possible; and optimizing the mix of fees and net interest income.
However, as discussed below, the Company's asset/liability position often differs significantly from most other financial
holding companies with significant positive cumulative "gaps" shown for each time horizon presented. This asset sensitive
position is caused primarily by the operations of the Company, which generate large balances of accounts and drafts payable.
These balances, which are noninterest bearing, contribute to the Company’s historical high net interest margin but cause the
Company to become susceptible to changes in interest rates, with a decreasing net interest margin and fair market value of
equity in periods of declining interest rates and an increasing net interest margin and fair market value of equity in periods of
rising interest rates.
The Company’s ALCO measures the Company's interest rate risk sensitivity on a quarterly basis to monitor and manage the
variability of earnings and fair market value of equity in various interest rate environments. The ALCO evaluates the
Company's risk position to determine whether the level of exposure is significant enough to hedge a potential decline in
earnings and value or whether the Company can safely increase risk to enhance returns. The ALCO uses gap reports, 12-
month net interest income simulations, and fair market value of equity analyses as its main analytical tools to provide
management with insight into the Company's exposure to changing interest rates.
Management uses a gap report to review any significant mismatch between the re-pricing points of the Company’s rate
sensitive assets and liabilities in certain time horizons. A negative gap indicates that more liabilities re-price in that particular
time frame and, if rates rise, these liabilities will re-price faster than the assets. A positive gap would indicate the opposite.
Gap reports can be misleading in that they capture only the re-pricing timing within the balance sheet, and fail to capture
27
other significant risks such as basis risk and embedded options risk. Basis risk involves the potential for the spread
relationship between rates to change under different rate environments and embedded options risk relates to the potential for
the alteration of the level and/or timing of cash flows given changes in rates.
Another measurement tool used by management is net interest income simulation, which forecasts net interest income during
the coming 12 months under different interest rate scenarios in order to quantify potential changes in short-term accounting
income. Management has set policy limits specifying acceptable levels of interest rate risk given multiple simulated rate
movements. These simulations are more informative than gap reports because they are able to capture more of the dynamics
within the balance sheet, such as basis risk and embedded options risk. A table containing simulation results as of December
31, 2014, from an immediate and sustained parallel change in interest rates is shown below.
While net interest income simulations do an adequate job of capturing interest rate risk to short term earnings, they do not
capture risk within the current balance sheet beyond 12 months. The Company uses fair market value of equity analyses to
help identify longer-term risk that may reside on the current balance sheet. The fair market value of equity is represented by
the present value of all future income streams generated by the current balance sheet. The Company measures the fair market
value of equity as the net present value of all asset and liability cash flows discounted at forward rates suggested by the
current U.S. Treasury curve plus appropriate credit spreads. This representation of the change in the fair market value of
equity under different rate scenarios gives insight into the magnitude of risk to future earnings due to rate changes.
Management has set policy limits relating to declines in the market value of equity. The table below contains the analysis,
which illustrates the effects of an immediate and sustained parallel change in interest rates as of December 31, 2014:
Change in Interest Rates
+200 basis points
+100 basis points
Stable rates
-100 basis points
-200 basis points
Interest Rate Sensitivity Position
% Change in Net Interest Income % Change in Fair Market Value of Equity
7%
4%
(1%)
(4%)
10%
5%
(4%)
(7%)
The following table presents the Company’s interest rate risk position at December 31, 2014 for the various time periods indicated.
Variable
Rate
0-90
Days
91-180
Days
181-364
Days
1-5
Years
Over
5 Years
Total
(In thousands)
Earning assets:
Loans:
Taxable
Tax-exempt
Securities1:
Tax-exempt
Certificates of deposit
Investments in the FHLB
and FRB
Federal funds sold and other
short-term investments
Total earning assets
Interest-sensitive liabilities:
Money market accounts
Now accounts
Savings deposits
$
$
Time deposits:
$100K and more
Less than $100K
Federal funds purchased and
other short-term borrowing
$
$
Total interest-bearing liabilities
Interest sensitivity gap:
Periodic
Cumulative
Ratio of interest-bearing assets
to interest-bearing liabilities:
Periodic
Cumulative
$
221,091 $ 64,915 $
24,463
1,098
283,028
505,217 $ 89,378 $
274,446 $
80,065
24,914
$
37,633
2,194
379,425 $ 39,827 $
$
$ 310,564 $
13,107
49,428 $
10,241
645,998
23,348
$
$
3,750
84,500
243,428
352,391
3,750
1,098
283,028
3,750 $ 408,171 $ 303,097 $ 1,309,613
$
$
$
274,446
80,065
24,914
17,929
2,228
5,802
650
11,455
1,884
72,819
6,956
20,157 $
6,452 $ 13,339 $
$
459,200
125,792 $ 49,551 $ (20,157) $
125,792
175,343
155,186
(2,702) $ 394,832 $ 303,097 $
152,484
547,316
850,413
772,343
772,343
1.33
1.33
2.24
1.42
1.35
0.58
1.34
30.60
2.19
2.85
2.85
2.85
1Balances shown reflect earliest re-pricing date.
28
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
2014
2013
11,307
200,966
82,062
294,335
356,141
669,346
11,894
657,452
16,909
15,429
120,227
11,590
2,762
25,886
1,500,731
158,999
459,200
618,199
655,428
26,672
1,300,299
$
$
$
11,283
160,316
53,663
225,262
317,767
652,177
11,679
640,498
13,231
15,437
77,650
11,590
3,222
21,363
1,326,020
143,841
438,655
582,496
543,953
9,144
1,135,593
─
─
5,966
126,169
90,635
(12,707)
(9,631)
200,432
1,500,731
5,966
125,062
75,939
(10,980)
(5,560)
190,427
1,326,020
$
$
$
$
$
(In thousands except share and per share data)
Assets
Cash and due from banks
Interest-bearing deposits in other financial institutions
Federal funds sold and other short-term investments
Cash and cash equivalents
Securities available-for-sale, at fair value
Loans
Less allowance for loan losses
Loans, net
Premises and equipment, net
Investments in bank-owned life insurance
Payments in excess of funding
Goodwill
Other intangible assets, net
Other assets
Total assets
Liabilities and Shareholders’ Equity
Liabilities:
Deposits
Noninterest-bearing
Interest-bearing
Total deposits
Accounts and drafts payable
Other liabilities
Total liabilities
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, 11,931,147 shares
issued at December 31, 2014 and 2013
Additional paid-in capital
Retained earnings
Common shares in treasury, at cost (428,572 and 409,667
shares at December 31, 2014 and 2013, respectively)
Accumulated other comprehensive loss
Total shareholders’ equity
Total liabilities and shareholders’ equity
See accompanying notes to consolidated financial statements.
29
CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31,
2013
2014
2012
$
$
77,427
1,132
23
1,325
79,907
$
70,805
1,215
4,024
528
76,572
66,695
1,272
2,635
536
71,138
29,726
32,110
35,525
29
9,412
592
39,759
2,460
2,460
37,299
─
37,299
117,206
66,100
3,172
4,130
483
11,529
85,414
31,792
7,759
24,033
2.09
2.06
$
$
48
8,867
552
41,577
2,832
2,832
38,745
500
38,245
114,817
65,722
2,874
3,810
535
11,145
84,086
30,731
7,234
23,497
2.05
2.02
$
$
60
9,878
470
45,933
3,148
3,148
42,785
2,400
40,385
111,523
62,563
2,157
3,516
581
11,516
80,333
31,190
7,887
23,303
2.05
2.02
$
$
(In thousands except per share data)
Fee Revenue and Other Income:
Information services payment and processing revenue
Bank service fees
Gains on sales of securities
Other
Total fee revenue and other income
Interest Income:
Interest and fees on loans
Interest and dividends on securities:
Taxable
Exempt from federal income taxes
Interest on federal funds sold and
other short-term investments
Total interest income
Interest Expense:
Interest on deposits
Total interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
Total net revenue
Operating Expense:
Salaries and employee benefits
Occupancy
Equipment
Amortization of intangible assets
Other operating
Total operating expense
Income before income tax expense
Income tax expense
Net income
Basic Earnings Per Share
Diluted Earnings Per Share
See accompanying notes to consolidated financial statements.
30
CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Comprehensive income:
Net income
Other comprehensive income:
For the Years Ended December 31,
2014
2013
2012
$
24,033
$
23,497 $
23,303
Net unrealized gain (loss) on securities available-for-sale
Tax effect
Reclassification adjustments for gains included in
net income
Tax effect
FASB ASC 715 adjustment
Tax effect
Foreign currency translation adjustments
Total comprehensive income
$
See accompanying notes to consolidated financial statements.
8,333
(3,096)
(23)
8
(14,621)
5,432
(104)
19,962
$
(10,748)
3,993
(4,024)
1,408
15,674
(5,823)
53
24,030 $
2,702
(946)
(2,635)
923
(5,206)
1,822
—
19,963
31
CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Cash Flows From Operating Activities:
Net income
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization
Net gains on sales of securities
Stock-based compensation expense
Provisions for loan losses
Deferred income tax (benefit) expense
Increase (decrease) in income tax liability
Increase (decrease) in pension liability
Other operating activities, net
Net cash provided by operating activities
Cash Flows From Investing Activities:
Proceeds from sales of securities available-for-sale
Proceeds from maturities of securities available-for-sale
Purchase of securities available-for-sale
Net (increase) decrease in loans
Increase in payments in excess of funding
Purchases of premises and equipment, net
Environmental management acquisition
Net cash (used in) provided by investing activities
Cash Flows From Financing Activities:
Net increase (decrease) in noninterest-bearing demand deposits
Net increase in interest-bearing demand and savings deposits
Net decrease in time deposits
Net increase (decrease) in accounts and drafts payable
Cash dividends paid
Purchase of common shares for treasury
Other financing activities, net
Net cash (used in) provided by financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental information:
Cash paid for interest
Cash paid for income taxes
See accompanying notes to consolidated financial statements.
For the Years Ended December 31,
2014
2013
2012
$
24,033 $
23,497 $
23,303
8,181
(23)
2,041
─
(679)
34
2,282
(1,026)
34,843
7,346
(4,024)
1,975
500
57
(964)
2,822
(2,323)
28,886
6,916
(2,635)
1,399
2,400
974
1,073
(2,158)
4,056
35,328
587
18,340
(54,054)
(16,954)
(42,577)
(6,291)
─
(100,949)
95,742
18,117
(104,351)
34,378
(14,128)
(4,857)
─
24,901
69,747
11,898
(114,646)
(19,165)
(2,144)
(3,099)
(7,798)
(65,207)
15,158
39,766
(19,221)
111,475
(9,337)
(1,848)
(814)
135,179
69,073
225,262
294,335 $
(302)
32,645
(13,555)
21,192
(8,510)
─
(1,083)
30,387
84,174
141,088
225,262 $
12,187
21,683
(18,530)
(72,440)
(7,361)
─
(534)
(64,995)
(94,874)
235,962
141,088
2,491 $
8,476
2,855 $
8,265
3,196
6,407
$
$
32
CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands except per share data)
Balance, December 31, 2011
Net income
Cash dividends ($.64 per share)
Stock dividend
Issuance of 21,195 common shares pursuant
to stock-based compensation plan, net
Exercise of stock options and SARs
Stock-based compensation expense
Other comprehensive loss
Balance, December 31, 2012
Net income
Cash dividends ($.74 per share)
Stock dividend
Issuance of 30,407 common shares pursuant
to stock-based compensation plan, net
Exercise of stock options and SARs
Stock-based compensation expense
Other comprehensive income
Balance, December 31, 2013
Net income
Cash dividends ($.81 per share)
Issuance of 22,629 common shares pursuant
to stock-based compensation plan, net
Exercise of SARs
Stock-based compensation expense
Purchase of 39,502 shares
Other comprehensive loss
Balance, December 31, 2014
Common
Stock
$ 5,445
Additional
Paid-in
Capital
$ 80,971
521
44,280
Retained
Earnings
$ 89,853
23,303
(7,361)
(44,843)
Treasury
Stock
$ (12,968)
Accumulated
Other
Comprehensive
Loss
$ (2,753)
(310)
(1,254)
1,399
392
680
5,966
125,086
60,952
(11,896)
23,497
(8,510)
(755)
(1,244)
1,975
508
408
5,966
125,062
75,939
(10,980)
(3,340)
(6,093)
533
(5,560)
24,033
(9,337)
(594)
(340)
2,041
(38)
159
(1,848)
$ 5,966
$ 126,169
$ 90,635
$ (12,707)
(4,071)
$ (9,631)
See accompanying notes to consolidated financial statements.
Total
$ 160,548
23,303
(7,361)
(42)
82
(574)
1,399
(3,340)
174,015
23,497
(8,510)
(247)
(836)
1,975
533
190,427
24,033
(9,337)
(632)
(181)
2,041
(1,848)
(4,071)
$ 200,432
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1
Summary of Significant Accounting Policies
Summary of Operations Cass Information Systems, Inc. (the “Company”) provides payment and information services, which
include processing and payment of transportation, energy, telecommunications and environmental invoices. These services
include the acquisition and management of data, information delivery and financial exchange. The consolidated balance sheet
captions, “Accounts and drafts payable” and “Payments in excess of funding,” represent the Company’s resulting financial
position related to the payment services that are performed for customers. The Company also provides a full range of
banking services to individual, corporate and institutional customers through Cass Commercial Bank (the “Bank”), its wholly
owned bank subsidiary.
Basis of Presentation The accounting and reporting policies of the Company and its subsidiaries conform to U.S. generally
accepted accounting principles. The consolidated financial statements include the accounts of the Company and its wholly
owned subsidiaries after elimination of intercompany transactions. Certain amounts in the 2013 and 2012 consolidated
financial statements have been reclassified to conform to the 2014 presentation. Such reclassifications have no effect on
previously reported net income or shareholders’ equity.
Use of Estimates In preparing the consolidated financial statements, Company management is required to make estimates
and assumptions which significantly affect the reported amounts in the consolidated financial statements.
Cash and Cash Equivalents For purposes of the consolidated statements of cash flows, the Company considers cash and due
from banks, interest-bearing deposits in other financial institutions, federal funds sold and other short-term investments as
segregated in the accompanying consolidated balance sheets to be cash equivalents.
Investment in Debt Securities The Company classifies its debt marketable securities as available-for-sale. Securities
classified as available-for-sale are carried at fair value. Unrealized gains and losses, net of the related tax effect, are excluded
from earnings and reported in accumulated other comprehensive income, a component of shareholders’ equity. A decline in
the fair value of any available-for-sale security below cost that is deemed other than temporary results in a charge to earnings
and the establishment of a new cost basis for the security. To determine whether impairment is other than temporary, the
Company considers guidance provided in FASB ASC Topic 320, Investments –Debt and Equity Securities. When
determining whether a debt security is other-than-temporarily impaired, the Company assesses whether it has the intent to sell
the security and whether it is more likely than not that the Company will be required to sell prior to recovery of the amortized
cost basis. Evidence considered in this assessment includes the reasons for impairment, the severity and duration of the
impairment, changes in value subsequent to year-end and forecasted performance of the investee. Premiums and discounts
are amortized or accreted to interest income over the estimated lives of the securities using the level-yield method. Interest
income is recognized when earned. Gains and losses are calculated using the specific identification method.
Allowance for Loan Losses (ALLL) The ALLL is increased by provisions charged to expense and is available to absorb
charge-offs, net of recoveries. Management utilizes a systematic, documented approach in determining the appropriate level
of the allowance for loan losses. Management’s approach provides for estimated credit losses on individually evaluated loans
in accordance with FASB ASC 310 and estimated credit losses inherent in the remainder of the portfolio in accordance with
FASB ASC 450.
Management believes the allowance for loan losses is adequate to absorb probable losses in the loan portfolio. While
management uses all available information to recognize losses on loans, future additions to the allowance may be necessary
based on changes in economic conditions. Additionally, various regulatory agencies, as an integral part of their examination
process, periodically review the Company’s allowance for loan losses. Such agencies may require the Company to increase
the allowance for loan losses based on their judgments and interpretations about information available to them at the time of
their examinations.
Premises and Equipment Premises and equipment are stated at cost less accumulated depreciation and amortization.
Depreciation is computed over the estimated useful lives of the assets, or the respective lease terms for leasehold
improvements, using straight-line and accelerated methods. Estimated useful lives do not exceed 40 years for buildings, the
lesser of 10 years or the life of the lease for leasehold improvements and range from 3 to 7 years for software, equipment,
furniture and fixtures. Maintenance and repairs are charged to expense as incurred.
Intangible Assets Cost in excess of fair value of net assets acquired has resulted from business acquisitions. Goodwill and
intangible assets with indefinite useful lives are not amortized, but instead are tested for impairment at least annually.
Intangible assets with definite useful lives are amortized on a straight-line basis over their respective estimated useful lives.
34
Periodically, the Company reviews intangible assets for events or changes in circumstances that may indicate that the
carrying amount of the assets may not be recoverable. Based on those reviews, adjustments of recorded amounts have not
been required.
Non-marketable Equity Investments The Company accounts for non-marketable equity investments, in which it holds less
than a 20% ownership, under the cost method. Under the cost method of accounting, investments are carried at cost and are
adjusted only for other than temporary declines in fair value, distributions of earnings and additional investments. The
Company periodically evaluates whether any declines in fair value of its investments are other than temporary. In performing
this evaluation, the Company considers various factors including any decline in market price, where available, the investee's
financial condition, results of operations, operating trends and other financial ratios. Non-marketable equity investments are
included in other assets on the consolidated balance sheets.
Foreclosed Assets Real estate acquired as a result of foreclosure is initially recorded at fair value less estimated selling costs.
Fair value is generally determined through the receipt of appraisals. Any write down to fair value at the time the property is
acquired is recorded as a charge-off to the allowance for loan losses. Any decline in the fair value of the property subsequent
to acquisition is recorded as a charge to non-interest expense.
Treasury Stock Purchases of the Company’s common stock are recorded at cost. Upon reissuance, treasury stock is reduced
based upon the average cost basis of shares held.
Comprehensive Income Comprehensive income consists of net income, changes in net unrealized gains (losses) on available-
for-sale securities and pension liability adjustments and is presented in the accompanying consolidated statements of
shareholders' equity and consolidated statements of comprehensive income.
Loans Interest on loans is recognized based upon the principal amounts outstanding. It is the Company’s policy to
discontinue the accrual of interest when there is reasonable doubt as to the collectability of principal or interest. Subsequent
payments received on such loans are applied to principal if there is any doubt as to the collectability of such principal;
otherwise, these receipts are recorded as interest income. The accrual of interest on a loan is resumed when the loan is current
as to payment of both principal and interest and/or the borrower demonstrates the ability to pay and remain current. Loan
origination and commitment fees on originated loans, net of certain direct loan origination costs, are deferred and amortized
to interest income using the level-yield method over the estimated lives of the related loans.
Impairment of Loans A loan is considered impaired when it is probable that a creditor will be unable to collect all amounts
due, both principal and interest, according to the contractual terms of the loan agreement. When measuring impairment, the
expected future cash flows of an impaired loan are discounted at the loan's effective interest rate. Alternatively, impairment
could be measured by reference to an observable market price, if one exists, or the fair value of the collateral for a collateral-
dependent loan. Regardless of the historical measurement method used, the Company measures impairment based on the fair
value of the collateral when the Company determines foreclosure is probable. Additionally, impairment of a restructured loan
is measured by discounting the total expected future cash flows at the loan's effective rate of interest as stated in the original
loan agreement. The Company uses its nonaccrual methods as discussed above for recognizing interest on impaired loans.
Information Services Revenue A majority of the Company’s revenues are attributable to fees for providing services. These
services include transportation invoice rating, payment processing, auditing, and the generation of accounting and
transportation information. The Company also processes, pays and generates management information from electric, gas,
telecommunications, environmental, and other invoices. The specific payment and information processing services provided
to each customer are developed individually to meet each customer’s specific requirements. The Company enters into
service agreements with customers typically for fixed fees per transaction that are invoiced monthly. Revenues are
recognized in the period services are rendered and earned under the service agreements, as long as collection is reasonably
assured.
Income Taxes Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary
if necessary, by a
differences are expected
deferred tax asset valuation allowance. In the event that management determines it is more likely than not that it will not be
able to realize all or part of net deferred tax assets in the future, the Company adjusts the recorded value of deferred tax
assets, which would result in a direct charge to income tax expense in the period that such determination is made. Likewise,
the Company will reverse the valuation allowance when realization of the deferred tax asset is expected. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment
date.
to be recovered or settled.
tax assets are reduced
Deferred
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.
35
Stock-Based Compensation The Company follows Financial Accounting Standards Board (“FASB”) Accounting Standards
Codification (“ASC”), “Accounting for Stock Options and Other Stock-based Compensation” (“ASC 718”), which requires
that all stock-based compensation be recognized as an expense in the financial statements and that such cost be measured at
the fair value of the award. FASB ASC 718 also requires that excess tax benefits related to stock option exercises and
restricted stock awards be reflected as financing cash inflows instead of operating cash inflows.
Pension Plans The amounts recognized in the consolidated financial statements related to pension are determined from
actuarial valuations. Inherent in these valuations are assumptions including expected return on plan assets, discount rates at
which the liabilities could be settled at December 31, 2014, rate of increase in future compensation levels and mortality rates.
These assumptions are updated annually and are disclosed in Note 10. The Company follows FASB ASC 715,
“Compensation – Retirement Benefits” (“ASC 715”), which requires companies to recognize the overfunded or underfunded
status of a defined benefit postretirement plan as an asset or liability in its consolidated balance sheet and to recognize
changes in that funded status in the year in which the changes occur through comprehensive income. The funded status is
measured as the difference between the fair value of the plan assets and the projected benefit obligation as of the date of its
fiscal year-end.
Fair Value Measurements The Company follows the provisions of FASB ASC 820, “Fair Value Measurements and
Disclosures”, which defines fair value, establishes a framework for measuring fair value in generally accepted accounting
principles, and outlines disclosures about fair value measurements. Fair value is defined as the exchange price that would be
received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or
liability in an orderly transaction between market participants on the measurement date. A three-level hierarchy for valuation
techniques is used to measure financial assets and financial liabilities at fair value. This hierarchy is based on whether the
valuation inputs are observable or unobservable. Financial instrument valuations are considered Level 1 when they are based
on quoted prices in active markets for identical assets or liabilities. Level 2 financial instrument valuations use quoted prices
for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be
corroborated by observable market data. Financial instrument valuations are considered Level 3 when they are determined
using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model
assumption or input is unobservable, and when determination of the fair value requires significant management judgment or
estimation. The Company records securities available for sale at their fair values on a recurring basis using Level 2
valuations. Additionally, the Company records impaired loans and other real estate owned at their fair value on a
nonrecurring basis. The nonrecurring fair value adjustments typically involve application of lower-of-cost-or-market
accounting or impairment write-downs of individual assets.
Impact of New and Not Yet Adopted Accounting Pronouncements
The new accounting pronouncements are not applicable to the Company and/or do not materially impact the Company.
Note 2
Capital Requirements and Regulatory Restrictions
The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking
agencies. Failure to meet minimum capital requirements can result in certain mandatory, and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated
financial statements. Under capital adequacy guidelines, the Company and the Bank must meet specific capital guidelines
that involve quantitative measures of assets, liabilities and certain off-balance sheet items as calculated under regulatory
accounting practices. The Company’s and the Bank’s capital amounts and classifications are also subject to qualitative
judgments by the regulators about components, risk weightings and other factors.
Quantitative measures established by regulators to ensure capital adequacy require the Company and the Bank to maintain
minimum amounts and ratios of total and Tier I capital to risk-weighted assets, and of Tier I capital to average assets.
Management believes that as of December 31, 2014 and 2013, the Company and the Bank met all capital adequacy
requirements to which they are subject.
Effective July 2, 2013, the Federal Reserve Board approved final rules known as the “Basel III Capital Rules” that
substantially revise the risk-based capital and leverage capital requirements applicable to bank holding companies and
depository institutions, including the Company and the Bank. The Basel III Capital Rules implement aspects of the Basel III
capital framework agreed upon by the Basel Committee and incorporate changes required by the Dodd-Frank Wall Street
Reform and Consumer Protection Act. Among other things, the Basel III Capital Rules establish stricter capital requirements
and calculation standards, as well as more restrictive risk weightings for certain loans and facilities. The Basel III Capital
Rules will come into effect for the Company and the Bank on January 1, 2015 (subject to a phase-in period).
36
The Bank is also subject to the regulatory framework for prompt corrective action. As of December 31, 2014 and 2013, the
most recent notification from the regulatory agencies categorized the Bank as well-capitalized. To be categorized as well-
capitalized, the Bank must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the
table below. There are no conditions or events since that notification that management believes have changed the Bank’s
category.
Subsidiary dividends can be a significant source of funds for payment of dividends by the Company to its shareholders. At
December 31, 2014, unappropriated retained earnings of $23,801,000 were available at the Bank for the declaration of
dividends to the Company without prior approval from regulatory authorities. However, dividends paid by the Bank to the
Company would be prohibited if the effect thereof would cause the Bank’s capital to be reduced below applicable minimum
capital requirements.
There were no restricted funds on deposit used to meet regulatory reserve requirements at December 31, 2014 and 2013.
The Company’s and the Bank’s actual and required capital amounts and ratios as are as follows:
(In thousands)
At December 31, 2014
Total capital (to risk-weighted assets)
Cass Information Systems, Inc.
Cass Commercial Bank
Tier I capital (to risk-weighted assets)
Cass Information Systems, Inc.
Cass Commercial Bank
Tier I capital (to average assets)
Cass Information Systems, Inc.
Cass Commercial Bank
At December 31, 2013
Total capital (to risk-weighted assets)
Cass Information Systems, Inc.
Cass Commercial Bank
Tier I capital (to risk-weighted assets)
Cass Information Systems, Inc.
Cass Commercial Bank
Tier I capital (to average assets)
Cass Information Systems, Inc.
Cass Commercial Bank
Note 3
Investment in Securities
Actual
Amount Ratio
Capital
Requirements
Amount Ratio
Requirement to be
Well-Capitalized
Amount Ratio
$ 207,468 21.91 %
91,249 15.88
$75,761
45,977
8.00 %
8.00
$ N/A N/A %
57,472 10.00
195,630 20.66
84,049 14.62
195,630 13.42
84,049 11.94
37,880
22,989
43,742
21,124
4.00
4.00
3.00
3.00
N/A N/A
6.00
34,483
N/A N/A
5.00
35,207
$ 191,984 22.27 %
83,168 15.38
$ 68,956
43,256
8.00 %
8.00
$ N/A N/A %
54,071 10.00
181,198 21.02
76,395 14.13
181,198 13.12
76,395 11.37
34,478
21,628
41,438
20,162
4.00
4.00
3.00
3.00
N/A N/A
6.00
32,442
N/A N/A
5.00
33,603
Investment securities available-for-sale are recorded at fair value on a recurring basis. The Company’s investment securities
available-for-sale at December 31, 2014 and 2013 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 falls into the Level 2 category. The table below presents the balances of securities available-for-sale measured at
fair value on a recurring basis. The amortized cost, gross unrealized gains, gross unrealized losses and fair value of debt and
equity securities are summarized as follows:
(In thousands)
State and political subdivisions
Certificates of deposit
Total
(In thousands)
State and political subdivisions
Certificates of deposit
Total
Amortized
Cost
$ 338,469
3,750
$ 342,219
Amortized
Cost
$ 308,403
3,750
$ 312,153
December 31, 2014
Gross
Unrealized
Losses
Gross
Unrealized
Gains
Fair Value
$
$
14,120
─
14,120
$
$
198
─
198
$
$
352,391
3,750
356,141
December 31, 2013
Gross
Unrealized
Losses
Gross
Unrealized
Gains
Fair Value
8,537
─
8,537
$
$
2,923
─
2,923
$
$
314,017
3,750
317,767
$
$
37
The fair values of securities with unrealized losses are as follows:
Less than 12 months
December 31, 2014
12 months or more
(In thousands)
State and political subdivisions
Certificates of deposit
Total
Estimated Unrealized Estimated Unrealized
Fair Value
$
Fair Value
Losses
Losses
8,700 $
─
8,700 $
$
15 $
─
15 $
13,833 $
─
13,833 $
183 $
─
183 $
22,533 $
─
22,533 $
198
─
198
Total
Estimated Unrealized
Fair value
Losses
(In thousands)
State and political subdivisions $
Certificates of deposit
Total
$
Less than 12 months
December 31, 2013
12 months or more
Estimated Unrealized Estimated Unrealized
Fair Value
Fair Value
Losses
Losses
Total
Estimated
Fair value
Unrealized
Losses
101,792 $
─
101,792 $
2,661 $
─
2,661 $
3,554 $
─
3,554 $
262 $
─
262 $
105,346 $
─
105,346 $
2,923
─
2,923
There were 20 securities, or 6% of the total, (12 greater than 12 months) in an unrealized loss position as of December 31,
2014 compared to 102 securities (3 greater than 12 months) in an unrealized loss position as of December 31, 2013. All
unrealized losses are reviewed to determine whether the losses are other than temporary. Management believes that all
unrealized losses are temporary since they are market driven, and the Company does not have the intent to sell the security,
and it is more likely than not that the Company will not be required to sell prior to recovery of the amortized basis.
The amortized cost and fair value of debt and equity 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.
(In thousands)
Due in 1 year or less
Due after 1 year through 5 years
Due after 5 years through 10 years
Due after 10 years
No stated maturity
Total
December 31, 2014
Amortized Cost
Fair Value
$
27,929
80,542
144,350
89,398
$ 342,219
$
$
28,213
84,500
150,428
93,000
356,141
The premium related to the purchase of state and political subdivisions was $5,085,000 and $4,450,000 in 2014 and 2013,
respectively.
The amortized cost of debt securities pledged to secure public deposits, securities sold under agreements to repurchase and
for other purposes at December 31, 2014 and 2013 was $3,750,000 and $3,750,000 respectively.
Proceeds from sales of debt securities classified as available-for-sale were $587,000 in 2014, $95,742,000 in 2013, and
$69,747,000 in 2012. Gross realized gains on the sales in 2014, 2013 and 2012 were $23,000, $4,295,000, and $2,646,000,
respectively. Gross realized losses on sales in 2014, 2013 and 2012 were $0, $271,000, and $11,000, respectively.
Note 4
Loans
The Company originates commercial, industrial and real estate loans to businesses and churches throughout the metropolitan
St. Louis, Missouri area, Orange County, California and other selected cities in the United States. The Company does not
have any particular concentration of credit in any one economic sector; however, a substantial portion of the commercial and
industrial loans is extended to privately-held commercial companies in these market areas, and are generally secured by the
assets of the business. The Company also has a substantial portion of real estate loans secured by mortgages that are extended
to churches in its market area and selected cities in the United States.
38
A summary of loan categories is as follows:
(In thousands)
Commercial and industrial
Real estate
Commercial:
Mortgage
Construction
Church, church-related:
Mortgage
Construction
Industrial Revenue Bond
Other
Total loans
December 31,
2014
203,350
$
$
2013
171,304
117,754
305,887
18,612
23,348
395
669,346
128,358
6,632
326,832
9,817
9,167
67
652,177
$
$
The following table presents the aging of loans by loan categories at December 31, 2014:
(In thousands)
Commercial and industrial
Real estate
Commercial:
Mortgage
Construction
Church, church-related:
Mortgage
Construction
Industrial Revenue Bond
Other
Total
Performing
Nonperforming
30-59
Days
60-89
Days
90 Days
and
Over
Non-
accrual
$
$
$
$
$
Total
Loans
203,350
Current
203,350
$
117,393
305,760
18,612
23,348
395
668,858
$
$
$
$
$
361
127
488 $
117,754
305,887
18,612
23,348
395
669,346
The following table presents the aging of loans by loan categories at December 31, 2013:
(In thousands)
Commercial and industrial
Real estate
Commercial:
Mortgage
Construction
Church, church-related:
Mortgage
Construction
Industrial Revenue Bond
Other
Total
Performing
Nonperforming
30-59
Days
60-89
Days
90 Days
and
Over
Non-
accrual
$
$
$
$
11 $
Total
Loans
171,304
Current
171,293
$
127,879
6,632
325,091
9,817
9,167
67
649,946
$
$
434
434 $
$
$
479
128,358
6,632
1,307
1,797 $
326,832
9,817
9,167
67
652,177
39
The following table presents the credit exposure of the loan portfolio by internally assigned credit grade as of December 31,
2014:
(In thousands)
Commercial and industrial
Real estate
Commercial:
Mortgage
Construction
Church, church-related:
Mortgage
Construction
Industrial Revenue Bond
Other
Total
Loans
Subject to
Normal
Monitoring1
$
199,837 $
Performing
Loans Subject to
Special
Monitoring2
3,513
Nonperforming
Loans Subject
to Special
Monitoring2
$
Total Loans
203,350
$
103,097
304,219
18,612
23,348
395
649,508 $
$
14,296
1,541
19,350
$
361
127
488
$
117,754
305,887
18,612
23,348
395
669,346
1Loans subject to normal monitoring involve borrowers of acceptable-to-strong credit quality and risk, who have the apparent ability to
satisfy their loan obligation.
2Loans subject to special monitoring possess some credit deficiency or potential weakness which requires a high level of management
attention.
The following table presents the credit exposure of the loan portfolio by internally assigned credit grade as of December 31,
2013:
(In thousands)
Commercial and industrial
Real estate
Commercial:
Mortgage
Construction
Church, church-related:
Mortgage
Construction
Industrial Revenue Bond
Other
Total
Loans
Subject to
Normal
Monitoring1
$
167,878 $
Performing
Loans Subject to
Special
Monitoring2
3,415
Nonperforming
Loans Subject to
Special
Monitoring2
$
11 $
119,521
6,632
323,291
9,817
9,167
67
636,373 $
$
8,358
2,234
14,007
$
479
1,307
1,797 $
Total
Loans
171,304
128,358
6,632
326,832
9,817
9,167
67
652,177
1Loans subject to normal monitoring involve borrowers of acceptable-to-strong credit quality and risk, who have the apparent ability to
satisfy their loan obligation.
2Loans subject to special monitoring possess some credit deficiency or potential weakness which requires a high level of management
attention.
Impaired loans consist primarily of nonaccrual loans, loans greater than 90 days past due and still accruing interest and
troubled debt restructurings, both performing and non-performing. Troubled debt restructuring involves the granting of a
concession to a borrower experiencing financial difficulty resulting in the modification of terms of the loan, such as changes
in payment schedule or interest rate. The allowance for loan losses related to impaired loans was $127,000 and $318,000 at
December 31, 2014 and 2013, respectively. Nonaccrual loans were $488,000 and $1,797,000 at December 31, 2014 and
2013, respectively. Loans delinquent 90 days or more and still accruing interest were $0 at December 31, 2014 and 2013. At
December 31, 2014 and 2013, there were no loans classified as troubled debt restructuring. The average balances of impaired
loans during 2014, 2013 and 2012 were $1,262,000, $1,381,000 and $5,451,000, respectively. Income that would have been
recognized on non-accrual loans under the original terms of the contract was $108,000, $180,000 and $381,000 for 2014,
2013 and 2012, respectively. Income that was recognized on nonaccrual loans was $77,000, $131,000 and $141,000 for
2014, 2013 and 2012 respectively. There were no foreclosed assets as of December 31, 2014 and December 31, 2013.
40
The following table presents the recorded investment and unpaid principal balance for impaired loans at December 31, 2014:
(In thousands)
Commercial and industrial:
Nonaccrual
Real estate
Commercial – Mortgage:
Nonaccrual
Church – Mortgage:
Nonaccrual
Total impaired loans
Recorded
Investment
Unpaid
Principal
Balance
Related
Allowance
for Loan
Losses
$
$
361
127
488
$
361
127
488
$
127
127
$
$
The following table presents the recorded investment and unpaid principal balance for impaired loans at December 31, 2013:
(In thousands)
Commercial and industrial:
Nonaccrual
Real estate
Commercial – Mortgage:
Nonaccrual
Church – Mortgage:
Nonaccrual
Total impaired loans
Recorded
Investment
Unpaid
Principal
Balance
Related
Allowance
for Loan
Losses
11
$
11
$
6
479
479
1,307
1,797
$
1,307
1,797
$
89
223
318
$
$
The Company does not record loans at fair value on a recurring basis. Once a loan is identified as impaired, management
measures impairment in accordance with FASB ASC 310, “Allowance for Credit Losses.” At December 31, 2014, all
impaired loans were evaluated based on the fair value of the collateral or present value of expected future cash flow. The fair
value of the collateral is based upon an observable market price or current appraised value and therefore, the Company
classifies these assets as nonrecurring Level 3.
A summary of the activity in the allowance for loan losses is as follows:
(In thousands)
Commercial and industrial
Real estate
Commercial:
Mortgage
Construction
Church, church-related:
Mortgage
Construction
Industrial Revenue Bond
Other
Total
December 31,
2013
Charge-
Offs
Recoveries
$
3,139 $
$
41
$
Provision
335
December 31,
2014
$
3,515
3,064
4,375
124
155
822
11,679 $
76
3
79 $
222
30
1
294
(226)
(313)
16
239
(51)
$
$
3,060
4,016
140
394
769
11,894
$
As of December 31, 2014 there were no loans to affiliates of executive officers or directors.
41
Note 5
Premises and Equipment
A summary of premises and equipment is as follows:
(In thousands)
Land
Buildings
Leasehold improvements
Furniture, fixtures and equipment
Purchased software
Internally developed software
Less accumulated depreciation
Total
$
$
December 31,
2014
873
12,541
2,112
10,762
10,274
2,527
39,089
22,180
$ 16,909
$
2013
873
10,801
2,086
12,081
9,328
2,650
37,819
24,588
13,231
Total depreciation charged to expense in 2014, 2013 and 2012 amounted to $2,613,000, $2,361,000 and $1,951,000,
respectively.
The Company and its subsidiaries lease various premises and equipment under operating lease agreements which expire at
various dates through 2023. Rental expense for 2014, 2013 and 2012 was $1,405,000, $1,222,000 and $547,000,
respectively. The following is a schedule, by year, of future minimum rental payments required under operating leases that
have initial or remaining non-cancelable lease terms in excess of one year as of December 31, 2014:
(In thousands)
2015
2016
2017
2018
2019
2020-2023
Total
Note 6
Acquired Intangible Assets
Amount
1,213
1,071
1,050
861
624
2,022
6,841
$
$
The Company accounts for intangible assets in accordance with FASB ASC 350, “Goodwill and Other Intangible Assets”
(“ASC 350”), which requires that intangibles with indefinite useful lives be tested annually for impairment and those with
finite useful lives be amortized over their useful lives.
In January 2012, the Company acquired the assets of Waste Reduction Consultants, Inc., and recorded intangible assets of
$3,183,000 for the customer list, $261,000 for two non-compete agreements and software of $234,000. Details of the
Company’s intangible assets are as follows:
(In thousands)
Assets eligible for amortization:
Customer Lists
December 31, 2014
December 31, 2013
Gross Carrying
Amount
Accumulated
Amortization
Gross Carrying
Amount
Accumulated
Amortization
$
3,933
$
(1,705)
$
3,933
$
(1,387)
Patent
Non-compete agreements
Software
Other
Unamortized intangible assets:
Goodwill1
(227)
Total intangible assets
(2,416)
1Amortization through December 31, 2001 prior to adoption of FASB ASC 350.
(1)
(157)
(234)
(92)
23
261
234
500
11,817
16,768
$
$
261
234
500
(105)
(156)
(58)
11,817
16,745
$
(227)
(1,933)
$
The customer lists are amortized over seven and ten years; the non-compete agreements over five years, software over three
years and other intangible assets over fifteen years. Amortization of intangible assets amounted to $483,000, $535,000 and
42
$581,000 for the years ended December 31, 2014, 2013 and 2012, respectively. Estimated future amortization of intangibles
is as follows: $405,000 in 2015, $405,000 in 2016, $353,000 in 2017, $353,000 in 2018, and $353,000 in 2019.
Note 7
Interest-Bearing Deposits
Interest-bearing deposits consist of the following:
(In thousands)
Interest-bearing demand deposits
Savings deposits
Time deposits:
Less than $100
$100 or more
Total
Interest on deposits consists of the following:
(In thousands)
Interest-bearing demand deposits
Savings deposits
Time deposits:
Less than $100
$100 or more
Total
December 31,
2014
2013
Weighted
Average
Interest
Rate
.49% $
.51
Amounts
316,743
20
1.14
.79
.58% $
7,777
91,219
438,655
Weighted
Average
Interest
Rate
.61%
.66
1.09
.81
.69%
Amounts
354,511
24,914
6,956
72,819
459,200
$
$
December 31,
2013
1,737 $
138
$
600
357
2,832 $
$
2014
1,564
87
472
337
2,460
$
$
2012
1,739
169
784
456
3,148
The scheduled maturities of time deposits are summarized as follows:
December 31,
2014
2013
Amount
$
$
66,436
10,759
1,148
1,250
182
79,775
Percent
of Total
83.3%
13.5
1.4
1.6
.2
100.0%
Amount
$
$
84,088
12,690
594
459
1,165
98,996
Percent
of Total
84.9%
12.8
.6
.5
1.2
100.0%
(In thousands)
Due within:
One year
Two years
Three years
Four years
Five years
Total
Note 8
Unused Available Lines of Credit
As of December 31, 2014, the Bank had unsecured lines of credit at correspondent banks to purchase federal funds up to a
maximum of $88,000,000 at the following banks: Bank of America, $20,000,000; US Bank, $20,000,000; Wells Fargo
Bank, $15,000,000; PNC Bank, $12,000,000; Frost National Bank, $10,000,000; JPM Chase Bank, $6,000,000; and UMB
Bank $5,000,000. As of December 31, 2014, the Bank had secured lines of credit with the FHLB of $158,247,000
collateralized by commercial mortgage loans. There were no amounts outstanding under any of the lines of credit discussed
above at December 31, 2014 or 2013. At December 31, 2014, the Company had secured lines of credit with UMB Bank of
$50,000,000 and First Tennessee Bank of $50,000,000 collateralized by state and political subdivision securities.
Note 9
Common Stock and Earnings per Share
The table below shows activity in the outstanding shares of the Company’s common stock during 2014.
43
Shares outstanding at January 1
Issuance of common stock:
Employee restricted stock grants
Employee SARs exercised
Directors’ compensation
Shares repurchased
Shares outstanding at December 31
2014
11,521,480
6,007
8,066
6,524
(39,502)
11,502,575
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. Anti-
dilutive shares are those SARs with prices in excess of the current market value.
The calculations of basic and diluted earnings per share are as follows:
(In thousands except share and per share data)
Basic
Net income
Weighted average common shares outstanding
Basic earnings per share
Diluted
Net income
Weighted average common shares outstanding
$
$
$
Effect of dilutive restricted stock and SARs
Weighted average common shares outstanding
assuming dilution
Diluted earnings per share
$
Note 10
Employee Benefit Plans
2014
24,033
11,479,025
2.09
24,033
11,479,025
164,954
11,643,979
2.06
December 31,
2013
$
$
$
23,497
11,441,158
2.05
23,497
11,441,158
199,581
$
$
$
2012
23,303
11,378,216
2.05
23,303
11,378,216
178,998
11,640,739
2.02
11,557,214
2.02
$
$
Defined Benefit Plan
The Company has a noncontributory defined-benefit pension plan (the “Plan”), which covers most of its employees. The
Company accrues and makes contributions designed to fund normal service costs on a current basis using the projected unit
credit with service proration method to amortize prior service costs arising from improvements in pension benefits and
qualifying service prior to the establishment of the Plan over a period of approximately 30 years.
A summary of the activity in the Plan’s projected benefit obligation, assets, funded status and amounts recognized in the
Company’s consolidated balance sheets is as follows:
(In thousands)
Projected benefit obligation:
Balance, January 1
Service cost
Interest cost
Actuarial loss (gain)
Benefits paid
Balance, December 31
Plan assets:
Fair value, January 1
Actual return
Employer contribution
Benefits paid
Fair value, December 31
Funded status:
Accrued pension asset (liability)
2014
2013
$
$
$
$
$
63,439 $
3,003
3,037
13,349
(1,486)
81,342 $
70,627 $
3,831
―
(1,486)
72,972 $
67,087
3,452
2,819
(8,496)
(1,423)
63,439
61,384
9,166
1,500
(1,423)
70,627
(8,370) $
7,188
44
The following represent the major assumptions used to determine the projected benefit obligation of the Plan. For 2014,
2013 and 2012, the Plan’s expected benefit cash flows were discounted using the Citibank Above Median Curve. Also, for
2014, 2013, and 2012, the RP-2014 Mortality Tables were used.
Weighted average discount rate
Rate of increase in compensation levels
2014
4.00%
(a)
2013
5.00%
3.75%
2012
4.25%
3.75%
(a) 6.0% graded down to 3.25% over the first seven years of service
The accumulated benefit obligation was $69,420,000 and $52,187,000 as of December 31, 2014 and 2013, respectively. The
Company does not expect to make a contribution to the Plan in 2015. The following pension benefit payments, which reflect
expected future service, as appropriate, are expected to be paid by the Plan:
2015
2016
2017
2018
2019
2020-2024
Amount
$
1,842,000
2,065,000
2,305,000
2,649,000
2,822,000
18,649,000
The Plan’s pension cost included the following components:
(In thousands)
Service cost – benefits earned during the year
Interest cost on projected benefit obligations
Expected return on plan assets
Net amortization and deferral
Net periodic pension cost
For the Year Ended
December 31,
2013
3,452 $
2,819
(4,469)
1,729
3,531 $
2014
3,003 $
3,037
(4,711)
244
1,573 $
$
$
The following represent the major assumptions used to determine the net pension cost of the Plan:
Weighted average discount rate
Rate of increase in compensation levels
Expected long-term rate of return on assets
2014
5.00%
3.75%
6.75%
2013
4.25%
3.75%
7.25%
2012
2,799
2,570
(3,967)
1,473
2,875
2012
4.75%
4.00%
7.25%
For 2014, 2013, and 2012, the RP-2000 Employees Mortality Table, RP-2000 Healthy Annuitant Mortality Table, and RP-
2000 Disabled Mortality Table were used.
The investment objective for the Plan is to maximize total return with a tolerance for average risk. Asset allocation is a
balance between fixed income and equity investments, with a target allocation of approximately 50% fixed income, 34% U.S.
equity and 16% non-U.S. equity. Due to volatility in the market, this target allocation is not always desirable and asset
allocations can fluctuate between acceptable ranges. The fixed income component is invested in pooled investment grade
securities. The equity components are invested in pooled large cap, small/mid cap and non-U.S. stocks. The expected one-
year nominal returns and annual standard deviations are shown by asset class below:
Asset Class
% of Total Portfolio
One-Year Nominal
Return
Annual Standard
Deviation
Core Fixed Income
Large Cap U.S. Equities
Large Cap U.S. Growth Equities
Large Cap U.S. Value Equities
Small Cap U.S. Equities
International (Developed)
International (Emerging)
49%
9%
9%
9%
8%
15%
1%
4.79%
7.67%
8.42%
7.53%
8.70%
8.98%
10.77%
4.68%
16.65%
19.20%
16.73%
20.53%
19.79%
28.45%
45
Applying appropriate correlation factors between each of the asset classes the long-term rate of return on assets is estimated
to be 6.75%.
A summary of the fair value measurements by type of asset is as follows:
Fair Value Measurements as of December 31,
2013
2014
(In thousands)
Cash
Equity securities
U.S. Large Cap Growth
U.S. Large Cap Value
U.S. Small/Mid Cap Growth
U.S. Small/Mid Cap Value
Non-U. S. Core
U.S. Large Cap Passive
Emerging Markets
Fixed Income
U.S. Core
U.S. Passive
Opportunistic
Total
Total
$268
7,165
7,066
2,950
2,721
10,317
7,192
703
24,019
9,275
1,296
$72,972
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Observable
Inputs
(Level 2)
$268
$ ―
Total
$245
6,650
6,835
2,825
2,784
10,840
6,929
711
7,165
7,066
2,950
2,721
10,317
7,192
703
24,019
9,275
1,296
$72,704
22,720
8,747
1,341
$70,627
―
―
―
―
―
―
―
―
―
―
$268
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Observable
Inputs
(Level 2)
$245
$ ―
―
―
―
―
―
―
―
―
―
―
$245
6,650
6,835
2,825
2,784
10,840
6,929
711
22,720
8,747
1,341
$70,382
Supplemental Executive Retirement Plan
The Company also has an unfunded supplemental executive retirement plan (“SERP”) which covers key executives of the
Company. The SERP is a noncontributory plan in which the Company’s subsidiaries make accruals designed to fund normal
service costs on a current basis using the same method and criteria as the Plan.
A summary of the activity in the SERP’s projected benefit obligation, funded status and amounts recognized in the
Company’s consolidated balance sheets is as follows:
(In thousands)
Benefit obligation:
Balance, January 1
Service cost
Interest cost
Benefits paid
Actuarial (gain) loss
Balance, December 31
December 31,
2014
2013
$
$
8,048 $
136
377
(236)
1,078
9,403 $
8,482
144
335
(236)
(677)
8,048
The following represent the major assumptions used to determine the projected benefit obligation of the SERP. For 2014,
2013 and 2012, the SERP’s expected benefit cash flows were discounted using the Citigroup Above Median Curve.
Weighted average discount rate
Rate of increase in compensation levels
2014
3.75%
(a)
2013
4.75%
3.75%
2012
4.00%
3.75%
(a) 6.00% graded down to 3.25% over the first seven years of service.
The accumulated benefit obligation was $7,622,000 and $5,917,000 as of December 31, 2014 and 2013, respectively. Since
this is an unfunded plan there are no plan assets. Benefits paid were $236,000 in 2014, $236,000 in 2013 and $236,000 in
2012. Expected future benefits payable by the Company over the next ten years are as follows:
46
2015
2016
2017
2018
2019
2020-2024
Amount
236,000
$
244,000
258,000
324,000
323,000
2,852,000
The SERP’s pension cost included the following components:
(In thousands)
Service cost – benefits earned during the year
Interest cost on projected benefit obligations
Net amortization and deferral
Net periodic pension cost
For the Year Ended December 31,
2014
136 $
377
431
944 $
2013
144 $
335
551
1,030 $
2012
115
307
360
782
$
$
The pretax amounts in accumulated other comprehensive loss as of December 31 were as follows:
(In thousands)
Prior service cost
Net actuarial loss
Total
The Plan
SERP
2014
$
25,464
$ 25,464
2013
8
$
11,471
$ 11,479
2014
$
3,723
$ 3,723
2013
$
3,075
$ 3,075
The estimated pretax prior service cost and net actuarial loss in accumulated other comprehensive loss at December 31, 2014
expected to be recognized as components of net periodic benefit cost in 2015 for the Plan are $0 and $1,606,000,
respectively. The estimated pretax prior service cost and net actuarial loss in accumulated other comprehensive loss at
December 31, 2014 expected to be recognized as components of net periodic benefit cost in 2015 for the SERP are $0 and
$654,000 respectively.
The Company also maintains a noncontributory profit sharing program, which covers most of its employees. Employer
contributions are calculated based upon formulas which relate to current operating results and other factors. Profit sharing
expense recognized in the consolidated statements of income in 2014, 2013 and 2012 was $5,298,000, $5,065,000, and
$5,213,000, respectively.
The Company also sponsors a defined contribution 401(k) plan to provide additional retirement benefits to substantially all
employees. Contributions under the 401(k) plan for 2014, 2013 and 2012 were $584,000, $591,000, and $537,000,
respectively.
Note 11
Stock-based Compensation
The Amended and Restated Omnibus Stock and Performance Compensation Plan (the “Omnibus Plan”) provides incentive
opportunities for key employees and non-employee directors and to align the personal financial interests of such individuals
with those of the Company’s shareholders. 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.
Restricted Stock
Restricted shares granted prior to April 16, 2013 are amortized to expense over the three-year vesting period. Beginning on
April 16, 2013, restricted shares granted to Company employees are amortized to expense over the three-year vesting period
whereas 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 payment for retainer fees which are expensed in the period
earned. Changes in restricted shares outstanding for the year ended December 31, 2014 were as follows:
Balance at December 31, 2013
Granted
Vested
Balance at December 31, 2014
Weighted Average
Grant Date
Fair Value
$37.45
$58.89
$35.41
$48.13
Shares
58,649
22,629
(30,117)
51,161
47
During 2013 and 2012, 30,407 and 28,370 shares, respectively, were granted with weighted average per share market values
at date of grant of $42.21 in 2013 and $34.03 in 2012. The fair value of such shares, which is based on the market price on
the date of grant, is amortized to expense over the three-year vesting period whereas restricted shares granted to members of
the Board of Directors are amortized to expense over a one-year period. Amortization of the restricted stock bonus awards
totaled $1,250,000 for 2014, $1,176,000 for 2013 and $788,000 for 2012. As of December 31, 2014, the total unrecognized
compensation expense related to non-vested restricted stock awards was $1,154,000 and the related weighted average period
over which it is expected to be recognized is approximately 0.55 years. The total fair value of shares vested during the years
ended December 2014, 2013, and 2012 was $1,066,000, $822,000, and $788,000 respectively.
SARs
There were 37,213 SARs granted during the year ended December 31, 2014. The Company uses the Black-Scholes option-
pricing model to determine the fair value of the SARs at the date of grant. Following are the assumptions used to estimate
the $17.84 per share fair value.
Risk-free interest rate
Expected life
Expected volatility
Expected dividend yield
Year Ended December 31, 2014
2.38%
7 years
28.11%
1.30%
The risk-free interest rate is based on the zero-coupon U.S. Treasury yield for the period equal to the expected life of the
SARs at the time of the grant. The expected life was derived using the historical exercise activity. The Company uses
historical volatility for a period equal to the expected life of the SARs using average monthly closing market prices of the
Company’s stock. The expected dividend yield is determined based on the Company’s current rate of annual dividends.
During 2014, the Company recognized SARs expense of $792,000. As of December 31, 2014, the total unrecognized
compensation expense related to SARs was $815,000, and the related weighted average period over which it is expected to be
recognized is 1.03 years. Changes in SARs outstanding for the year ended December 31, 2014 were as follows:
Balance at December 31, 2013
Granted
Exercised
Balance at December 31, 2014
Exercisable at December 31, 2014
SARs
343,445
37,213
(26,703)
353,955
228,973
Weighted Average Exercise Price
$32.01
$61.64
$26.83
$35.52
$29.87
The total intrinsic value of SARs exercised during 2014 and 2013 was $716,000 and $2,328,000, respectively. The average
remaining contractual term for SARs outstanding as of December 31, 2014 was 6.77 years, and the aggregate intrinsic value
was $6,277,000. The average remaining contractual term for SARs exercisable as of December 31, 2013 was 7.33 years, and
the aggregate intrinsic value was $12,137,000.
The total compensation cost for share-based payment arrangements was $2,042,000, $1,976,000, and $1,398,000 in 2014,
2013, and 2012, respectively.
Note 12
Other Operating Expense
Details of other operating expense are as follows:
(In thousands)
Postage and supplies
Promotional expense
Professional fees
Outside service fees
Data processing services
Telecommunications
Other
Total other operating expense
For the Years Ended December 31,
2014
2,008 $
2,049
1,566
2,876
338
1,045
1,647
11,529 $
2013
2,066 $
2,024
1,340
3,046
367
955
1,347
11,145 $
2012
2,052
2,345
2,183
2,729
373
754
1,080
11,516
$
$
48
Note 13
Income Taxes
The components of income tax expense (benefit) are as follows:
(In thousands)
Current:
Federal
State
Deferred:
Federal
State
Total income tax expense
For the Years Ended December 31,
2014
2013
2012
$
$
7,189 $
1,191
6,729 $
448
(585)
(36)
7,759
$
39
18
7,234
$
6,195
718
933
41
7,887
A reconciliation of expected income tax expense (benefit), computed by applying the effective federal statutory rate of 35%
for each of 2014, 2013 and 2012 to income before income tax expense is as follows:
(In thousands)
Expected income tax expense
(Reductions) increases resulting from:
Tax-exempt income
State taxes, net of federal benefit
Other, net
Total income tax expense
For the Years Ended December 31,
2014
11,127 $
2013
10,756 $
2012
10,917
(3,896)
751
(223)
7,759 $
(3,297)
303
(528)
7,234 $
(3,633)
493
110
7,887
$
$
The tax effects of temporary differences which give rise to significant portions of the deferred tax assets and deferred tax
liabilities are presented below:
(In thousands)
Deferred tax assets:
Allowance for loan losses
ASC 715 pension funding liability
Net operating loss carryforward1
Stock compensation
Supplemental executive retirement plan accrual
Other
Total deferred tax assets
Deferred tax liabilities:
Premises and equipment
Pension
Stock compensation
Intangible/assets
Unrealized gain on investment in securities available-for-sale
Other
Total deferred tax liabilities
December 31,
2014
$
$
4,441
10,887
255
1,392
509
17,484
$
$
(976)
(5,636)
(394)
(1,153)
(5,172)
(407)
(13,738)
3,746
$
$
$
$
2013
4,368
5,444
298
337
1,130
569
12,146
(1,767)
(6,233)
(996)
(2,086)
(353)
(11,435)
711
Net deferred tax assets
1As of December 31, 2014, the Company had approximately $729,000 of net operating loss carry forwards as a result of the
acquisition of Franklin Bancorp. The utilization of the net operating loss carry forward is subject to Section 382 of the
Internal Revenue Code and limits the Company’s use to approximately $122,000 per year during the carry forward period,
which expires in 2020.
A valuation allowance would be provided on deferred tax assets when it is more likely than not that some portion of the
assets will not be realized. The Company has not established a valuation allowance at December 31, 2014 or 2013, due to
management’s belief that all criteria for recognition have been met, including the existence of a history of taxes paid
sufficient to support the realization of deferred tax assets.
The reconciliation of the beginning unrecognized tax benefits balance to the ending balance is presented in the following
table:
49
(In thousands)
Balance at January 1
Changes in unrecognized tax benefits as a result of tax
positions taken during a prior year
Changes in unrecognized tax benefits as a result of tax
position taken during the current year
Decreases in unrecognized tax benefits relating to
settlements with taxing authorities
Reductions to unrecognized tax benefits as a result of a
lapse of the applicable statute of limitations
Balance at December 31
2014
$1,208
2013
$1,885
2012
$2,069
(107)
(666)
(140)
267
374
419
(251)
$1,117
(385)
$1,208
(463)
$1,885
At December 31, 2014, 2013 and 2012, the balance of the Company’s unrecognized tax benefits which would, if recognized,
affect the Company’s effective tax rate was $819,000, $861,000 and $1,357,000, respectively. These amounts are net of the
offsetting benefits from other taxing jurisdictions.
As of December 31, 2014, 2013 and 2012, the Company had $45,000, $41,000 and $89,000, respectively, in accrued interest
related to unrecognized tax benefits. During 2014 and 2013, the Company recorded a net increase (reduction) in accrued
interest of $4,000 and ($48,000), respectively, as a result of settlements with taxing authorities and other prior-year
adjustments.
The Company believes it is reasonably possible that the total amount of tax benefits will decrease by approximately $210,000
over the next twelve months. The reduction primarily relates to the anticipated lapse in the statute of limitations. The
unrecognized tax benefits relate primarily to apportionment of taxable income among various state tax jurisdictions.
The Company is subject to income tax in the U.S. federal jurisdiction, numerous state jurisdictions, and a foreign jurisdiction.
The Company’s federal income tax returns for tax years 2011 through 2013 remain subject to examination by the Internal
Revenue Service. In addition, the Company is subject to state tax examinations for the tax years 2010 through 2013.
Note 14
Contingencies
The Company and its subsidiaries are not involved in any pending proceedings other than ordinary routine litigation
incidental to their businesses. Management believes none of these proceedings, if determined adversely, would have a
material effect on the business or financial condition of the Company or its subsidiaries.
Note 15
Disclosures about Fair Value of Financial Instruments
The Company is party to financial instruments with off-balance sheet risk in the normal course of business to meet the
financing needs of its customers. 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. At December 31, 2014 and 2013,
no amounts have been accrued for any estimated losses for these instruments.
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 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. The approximate remaining terms of commercial and standby letters of
credit range from less than one to five years. Since these 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 may obtain and liquidate the collateral to recover amounts paid under its guarantees on these financial instruments.
The following table shows conditional commitments to extend credit, standby letters of credit and commercial letters:
50
(In thousands)
Conditional commitments to extend credit
Standby letters of credit
Commercial letters of credit
December 31,
2014
2013
$
19,066 $
12,693
2,571
5,596
13,168
3,325
The fair value of commitments to extend credit and standby letters of credit is estimated using the fees currently charged to
enter into similar agreements, taking into account the remaining terms of the agreements, the likelihood of the counterparties
drawing on such financial instruments and the present credit worthiness of such counterparties. The Company believes such
commitments have been made at terms which are competitive in the markets in which it operates; however, no premium or
discount is offered thereon.
Following is a summary of the carrying amounts and fair values of the Company’s financial instruments:
(In thousands)
Balance sheet assets:
Cash and cash equivalents
Investment in securities
Loans, net
Accrued interest receivable
Total
Balance sheet liabilities:
Deposits
Accounts and drafts payable
Accrued interest payable
Total
December 31,
2014
Carrying
Amount
$
294,335
356,141
657,452
6,521
$ 1,314,449
Fair Value
$
294,335
356,141
663,247
6,521
$ 1,320,244
2013
Carrying
Amount
Fair Value
$
225,262
317,767
640,498
6,030
$ 1,189,557
$
225,262
317,767
642,543
6,030
$ 1,191,602
$
618,199
655,428
57
$ 1,273,684
$
618,199
655,428
57
$ 1,273,684
$
582,496
543,953
88
$ 1,126,537
$
583,989
543,953
88
$ 1,128,030
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 3,
“Investment in Securities,” for fair value and unrealized gains and losses by investment type.
Loans The fair value is estimated using present values of future cash flows discounted at risk-adjusted interest rates for each
loan category designated by management and is therefore a Level 3 valuation. Management believes that the risk factor
embedded in the interest rates along with the allowance for loan losses results in a fair valuation.
Impaired loans are valued using the fair value of the collateral which is based upon an observable market price or current
appraised value and therefore, the fair value is a nonrecurring Level 3 valuation.
Accrued Interest Receivable The carrying amount approximates fair value.
Deposits The fair value of demand deposits, savings deposits and certain money market deposits is the amount payable on
demand at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated using the rates currently
offered for deposits of similar remaining maturities and therefore, is a Level 2 valuation. The fair value estimates above do
not include the benefit that results from the low-cost funding provided by the deposit liabilities compared to the cost of
borrowing funds in the market or the benefit derived from the customer relationship inherent in existing deposits.
Accounts and Drafts Payable The carrying amount approximates fair value.
Accrued Interest The carrying amount approximates fair value.
Limitations Fair value estimates are based on existing on- and off-balance sheet financial instruments without attempting to
estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial
instruments. Other significant assets or liabilities that are not considered financial assets or liabilities include premises and
51
equipment and the benefit that results from the low-cost funding provided by the deposit liabilities compared to the cost of
borrowing funds in the market (core deposit intangible). In addition, tax ramifications related to the realization of the
unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of the
estimates.
Note 16
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, processing and capital 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 churches.
The Company’s accounting policies for segments are the same as those described in Note 1 of this report. Management
evaluates segment performance based on net income after allocations for corporate expenses and income taxes. 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. Assets represent actual assets owned by
Information Services and Banking Services and there is no allocation methodology used. Loans are sold by Banking
Services to Information Services to create liquidity when the Bank’s loan to deposit ratio is greater than 100%. Segment
interest from customers is the actual interest earned on the loans owned by Information Services and Banking Services,
respectively.
Summarized information about the Company’s operations in each industry segment for the years ended December 31, 2014,
2013 and 2012, is as follows:
(In thousands)
2014
Fee revenue and other income:
Income from customers
Intersegment income (expense)
Net interest income (expense) after provision
for loan losses:
Income from customers
Intersegment income (expense)
Depreciation and amortization
Income taxes
Net income
Goodwill
Other intangible assets, net
Total assets
2013
Fee revenue and other income:
Income from customers
Intersegment income (expense)
Net interest income (expense) after provision
for loan losses:
Income from customers
Intersegment income (expense)
Depreciation and amortization
Income taxes
Net income
Goodwill
Other intangible assets, net
Total assets
2012
Fee revenue and other income:
Income from customers
Intersegment income (expense)
Net interest income (expense) after provision
for loan losses:
Income from customers
Information
Services
Banking
Services
Corporate,
Eliminations
and Other
Total
$
78,773
9,210
$
1,134
1,504
$
─
(10,714)
$
79,907
─
15,678
12
2,795
3,006
16,379
11,454
2,762
782,844
75,010
9,637
15,986
11
2,638
2,232
15,237
11,454
3,222
657,604
70,376
9,478
$
$
$
$
21,621
(12)
182
4,753
7,654
136
─
755,400
1,216
1,479
22,259
(11)
143
5,002
8,133
136
─
679,357
1,272
1,663
$
$
$
$
$
$
$
$
─
─
119
─
─
─
─
(37,513)
346
(11,116)
─
─
115
─
127
─
─
(10,941)
(510)
(11,141)
$
$
$
$
37,299
─
3,096
7,759
24,033
11,590
2,762
1,500,731
76,572
─
38,245
─
2,896
7,234
23,497
11,590
3,222
1,326,020
71,138
─
18,547
21,838
─
40,385
52
Intersegment income (expense)
Depreciation and amortization
Income taxes
Net income
Goodwill
Other intangible assets, net
Total assets
24
2,392
2,802
15,761
11,454
3,757
642,623
(24)
101
5,085
8,014
136
─
668,648
$
─
39
─
(472)
─
─
(23,884)
$
$
$
─
2,532
7,887
23,303
11,590
3,757
1,287,387
Note 17
Subsequent Events
In accordance with FASB ASC 855, “Subsequent Events,” the Company has evaluated subsequent events after the
consolidated balance sheet date of December 31, 2014, and there were no events identified that would require additional
disclosures to prevent the Company’s consolidated financial statements from being misleading.
Note 18
Condensed Financial Information of Parent Company
Following are the condensed balance sheets of the Company (parent company only) and the related condensed statements of
income and cash flows.
(In thousands)
Assets
Cash and due from banks
Short-term investments
Securities available-for-sale, at fair value
Loans, net
Investments in subsidiaries
Premises and equipment, net
Other assets
Total assets
Liabilities and Shareholders’ Equity
Liabilities:
Accounts and drafts payable
Other liabilities
Total liabilities
Total shareholders’ equity
Total liabilities and shareholders’ equity
Condensed Balance Sheets
December 31,
2014
2013
$
$
$
$
32,399
107,932
356,141
115,958
82,688
16,030
166,235
877,383
655,358
21,511
676,869
200,514
877,383
$
$
$
$
24,519
63,063
317,767
125,316
76,500
12,276
120,438
739,879
543,953
5,521
549,474
190,405
739,879
53
(In thousands)
Income from subsidiaries:
Interest
Management fees
Income from subsidiaries
Information services revenue
Net interest income after provision
Gain on sales of investment securities
Other income
Total income
Expenses:
Salaries and employee benefits
Other expenses
Total expenses
Income before income tax and equity in undistributed income
of subsidiaries
Income tax expense
Income before undistributed income of subsidiaries
Equity in undistributed income of subsidiaries
Intercompany elimination
Net income
Condensed Statements of Income
For the Years Ended December 31,
2014
2013
2012
$
$
12
2,058
2,070
77,064
14,986
23
1,323
95,466
59,885
15,587
75,472
19,994
3,125
16,869
7,164
—
24,033
$
$
12
2,119
2,131
70,503
15,069
3,677
527
91,907
59,004
15,027
74,031
17,876
2,381
15,495
7,530
472
23,497
$
$
24
1,955
1,979
66,417
17,563
3,145
535
89,639
55,981
14,492
70,473
19,166
2,914
16,252
7,523
(472)
23,303
(In thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Equity in undistributed income of subsidiaries
Net change in other assets
Net change in other liabilities
Amortization of stock-based awards
Other, net
Net cash (used in) provided by operating activities
Cash flows from investing activities:
Net increase in securities
Net decrease in loans
Purchases of premises and equipment, net
Net cash (used in) provided by investing activities
Cash flows from financing activities:
Net increase (decrease) in accounts and drafts payable
Cash dividends paid
Other financing activities
Net cash provided by (used in) financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Condensed Statements of Cash Flows
For the Years Ended December 31,
2014
2013
2012
$
24,033
$
23,497
$
23,303
(7,164)
(44,879)
534
1,250
13,487
(12,739)
(35,128)
9,358
(8,941)
(34,711)
111,405
(9,337)
(1,869)
100,199
52,749
87,582
140,331
$
(7,530)
(8,420)
(2,729)
1,177
(4,180)
1,815
(15,385)
31,619
(4,050)
12,184
21,192
(8,510)
(513)
12,169
26,168
61,414
87,582
$
(7,523)
(3,338)
5,603
1,201
(2,673)
16,573
(7,697)
16,319
(3,555)
5,067
(72,440)
(7,361)
(2,454)
(82,255)
(60,615)
122,029
61,414
$
54
Note 19
SUPPLEMENTARY FINANCIAL INFORMATION
(Unaudited)
(In thousands except per share data)
2014
Fee revenue and other income
Interest income
Interest expense
Net interest income
Provision for loan losses
Operating expense
Income tax expense
Net income
Net income per share:
Basic earnings per share
Diluted earnings per share
2013
Fee revenue and other income
Interest income
Interest expense
Net interest income
Provision for loan losses
Operating expense
Income tax expense
Net income
Net income per share:
Basic earnings per share
Diluted earnings per share
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
YTD
$
$
$
$
$
$
19,575 $
9,772
625
9,147
—
21,025
1,886
5,811 $
19,952 $
9,975
628
9,347
—
21,306
1,958
6,035 $
20,223 $
9,991
604
9,387
—
21,196
2,013
6,401 $
20,157 $
10,021
603
9,418
—
21,887
1,902
5,786 $
.51 $
.50
.52 $
.52
.56 $
.55
.50 $
.49
18,465 $
10,856
687
10,169
200
20,389
2,013
6,032 $
19,567 $
10,623
694
9,929
300
21,017
2,106
6,073 $
19,695 $
10,082
722
9,360
—
21,384
1,533
6,138 $
18,845 $
10,016
729
9,287
—
21,296
1,582
5,254 $
.53 $
.52
.53 $
.52
.54 $
.53
.45 $
.45
79,907
39,759
2,460
37,299
—
85,414
7,759
24,033
2.09
2.06
76,572
41,577
2,832
38,745
500
84,086
7,234
23,497
2.05
2.02
55
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Cass Information Systems, Inc.:
We have audited the accompanying consolidated balance sheets of Cass Information Systems, Inc. and subsidiaries (the
Company) as of December 31, 2014 and 2013, and the related consolidated statements of income, comprehensive income,
cash flows, and shareholders’ equity for each of the years in the three year period ended December 31, 2014. These
consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of Cass Information Systems, Inc. and subsidiaries as of December 31, 2014 and 2013, and the results of their
operations and their cash flows for each of the years in the three year period ended December 31, 2014, in conformity with
U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
the Company’s internal control over financial reporting as of December 31, 2014, based on criteria established in Internal
Control – Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO), and our report dated March 9, 2015 expressed an unqualified opinion on the effectiveness of the Company’s
internal control over financial reporting.
/s/ KPMG LLP
St. Louis, Missouri
March 9, 2015
56
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and principal
financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined in Rules 13a-
15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of December 31, 2014.
Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure
controls and procedures were effective as of December 31, 2014.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such
term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). All internal control systems, no matter how well designed,
have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance
with respect to financial statement preparation and presentations.
Under the supervision and with the participation of our management, including our principal executive officer and principal
financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the
framework in Internal Control – Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on our evaluation under this framework, our management concluded that our internal control
over financial reporting was effective as of December 31, 2014.
There have not been changes in our internal control over financial reporting that occurred during our fourth fiscal quarter that
have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
The effectiveness of our internal control over financial reporting as of December 31, 2014 has been audited by KPMG LLP,
our independent registered public accounting firm. KPMG LLP’s report, which expresses an unqualified opinion on the
effectiveness of our internal control over financial reporting as of December 31, 2014, is included below.
57
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Cass Information Systems, Inc.:
We have audited Cass Information Systems, Inc. and subsidiaries’ (the Company) internal control over financial reporting as
of December 31, 2014, based on criteria established in Internal Control – Integrated Framework (1992) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible
for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial
Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on
our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2014, based on criteria established in Internal Control – Integrated Framework (1992) issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO).
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
the consolidated balance sheets of Cass Information Systems, Inc. and subsidiaries as of December 31, 2014 and 2013, and
the related consolidated statements of income, comprehensive income, cash flows, and shareholders’ equity for each of the
years in the three-year period ended December 31, 2014, and our report dated March 9, 2015 expressed an unqualified
opinion on those consolidated financial statements..
/s/ KPMG LLP
St. Louis, Missouri
March 9, 2015
58
ITEM 9B. OTHER INFORMATION
None.
PART III.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Certain information required by this Item 10 is incorporated herein by reference to the following sections of the Company’s
definitive Proxy Statement for its 2015 Annual Meeting of Shareholders (“2015 Proxy Statement”), a copy of which will be
filed with the SEC no later than 120 days after the close of the fiscal year: “Election of Directors – Proposal 1,” “Executive
Compensation and Related Information,” and “Beneficial Ownership of Securities.”
The Company has adopted a Code of Conduct and Business Ethics policy, applicable to all Company directors, executive
officers and employees. The policy is publicly available and can be viewed on the Company’s website at www.cassinfo.com.
The Company intends to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding the amendment to, or a
waiver of, a provision of this policy that applies to the Company’s principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing similar functions, and that relates to any element of the code
of ethics definition enumerated in Item 406(b) of Regulation S-K by posting such information on its website.
There were no material changes to the procedures by which shareholders may recommend nominees to the Board during the
fourth quarter of fiscal 2014.
ITEM 11. EXECUTIVE COMPENSATION
Certain information required pursuant to this Item 11 is incorporated herein by reference to the sections entitled “Election of
Directors – Proposal 1” and “Executive Compensation and Related Information” of the Company’s 2015 Proxy Statement, a
copy of which will be filed with the SEC no later than 120 days after the close of the fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
Information required pursuant to this Item 12 is incorporated herein by reference to the section entitled “Beneficial
Ownership of Securities” of the Company’s 2015 Proxy Statement, a copy of which will be filed with the SEC no later than
120 days after the close of the fiscal year.
Securities Authorized for Issuance under Equity Compensation Plans
The following information is as of December 31, 2014:
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
(a)
Weighted-average
exercise price of
outstanding
options, warrants
and rights
(b)
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))
(c)
405,124
$37.11
668,159
_
_
_
405,124
$37.11
668,159
Plan Category
Equity compensation plans
approved by security
holders (1)
Equity compensation plans
not approved by security
holders
Total
(1)
Amount disclosed relates to the Amended and Restated Omnibus Stock and Performance Compensation Plan (the “Omnibus
Plan”).
Refer to Note 11 to the consolidated financial statements for information concerning the Omnibus Plan.
59
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
Information required by this Item 13 is incorporated herein by reference to the section entitled “Election of Directors –
Proposal 1” of the Company’s 2015 Proxy Statement, a copy of which will be filed with the SEC no later than 120 days after
the close of the fiscal year.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information concerning our principal accountant’s fees and services is incorporated herein by reference to the section entitled
“Ratification of Appointment of Independent Registered Public Accounting Firm – Proposal 2” of the Company’s 2015
Proxy Statement, a copy of which will be filed with the SEC no later than 120 days after the close of the fiscal year.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
PART IV.
(a)
The following documents are incorporated by reference in or filed as an exhibit to this Report:
(1) and (2)
Financial Statements and Financial Statement Schedules
Included in Item 8 of this report.
(3)
Exhibits listed under (b) of this Item 15.
(b)
Exhibits
3.1
Restated Articles of Incorporation of Registrant, incorporated by reference
to Exhibit 4.1 to Form S-8 Registration Statement No. 333-44499, filed
with the SEC on January 20, 1998.
3.2 Amendment to Restated Articles of Incorporation, incorporated by reference to Exhibit 3.1
to the current report on Form 8-K, filed with the SEC on April 19, 2013.
3.3 Articles of Merger of Cass Commercial Corporation, incorporated by reference to
Exhibit 3.1 to the quarterly report on Form 10-Q for the quarter ended
September 30, 2006.
3.4 Second Amended and Restated Bylaws of Registrant, incorporated by reference to Exhibit
3.1 to the current report on Form 8-K, filed with the SEC on April 18, 2007.
10.1
10.2
10.3
10.4
10.5
1995 Restricted Stock Bonus Plan, as amended on January 19, 1999,
including form of Restriction Agreement, incorporated by reference to
Exhibit 4.3 to Post-Effective Amendment No. 2 to Form S-8 Registration Statement No.
33-91456, filed with the SEC on February 16, 1999.*
1995 Performance-Based Stock Option Plan, as amended on January 19,
1999, including forms of Option Agreements, incorporated by reference to
Exhibit 4.3 to Post-Effective Amendment No. 2 to Form S-8 Registration Statement No.
33-91568, filed with the SEC on February 16, 1999.*
Form of Directors’ Indemnification Agreement, incorporated by reference to Exhibit 10.1
to the quarterly report on Form 10-Q for the quarter ended March 31, 2003.*
Amended and Restated Omnibus Stock and Performance Compensation Plan, incorporated
by reference to Exhibit 10.1 to the current report on Form 8-K, filed with the SEC on April
19, 2013.*
Amendment and Restatement of the Supplemental Executive Retirement Plan, incorporated
by reference to Exhibit 10.2 to the quarterly report on Form 10-Q for the quarter ended
September 30, 2007.*
10.6
Form of Restricted Stock Agreement, incorporated by reference to Exhibit 10.1 to the
quarterly report on Form 10-Q for the quarter ended March 31, 2013.*
60
10.7
10.8
Form of Stock Appreciation Rights Award Agreement, incorporated by reference to Exhibit
10.4 to the quarterly report on Form 10-Q for the quarter ended September 30, 2007.*
Description of Cass Information Systems, Inc. Profit Sharing Program, incorporated by
reference to Exhibit 10.8 to the annual report on Form 10-K for the year ended December
31, 2012.*
21
Subsidiaries of registrant.
23
Consent of Independent Registered Public Accounting Firm.
31.1
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32 .1
32 .2
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
* Management contract or compensatory plan or arrangement.
(c) None.
61
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
CASS INFORMATION SYSTEMS, INC.
Date: March 9, 2015
By
/s/ Eric H. Brunngraber
Eric H. Brunngraber
President and Chief Executive Officer
(Principal Executive Officer)
Date: March 9, 2015
By
/s/ P. Stephen Appelbaum
P. Stephen Appelbaum
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on the dates indicated
by the following persons on behalf of the registrant and in their capacity as a member of the Board of Directors of the
Company.
Date: March 9, 2015
Date: March 9, 2015
Date: March 9, 2015
Date: March 9, 2015
Date: March 9, 2015
Date: March 9, 2015
Date: March 9, 2015
Date: March 9, 2015
Date: March 9, 2015
/s/ Eric H. Brunngraber
Eric H. Brunngraber
/s/ Lawrence A. Collett
Lawrence A. Collett
/s/ Robert A. Ebel
Robert A. Ebel
/s/ Benjamin F. Edwards, IV
Benjamin F. Edwards, IV
/s/ John L. Gillis, Jr.
John L. Gillis, Jr.
/s/ Wayne J. Grace
Wayne J. Grace
/s/ James J. Lindemann
James J. Lindemann
/s/ Randall L. Schilling
Randall L. Schilling
/s/ Franklin D. Wicks, Jr.
Franklin D. Wicks, Jr.
By
By
By
By
By
By
By
By
By
62
Utility Bill Payment
We process and pay invoices for electricity, gas, water
and other facility-related expenses. Through advanced
invoice processing methods, we capture large amounts
of data and develop an energy data warehouse for each
Expense$mart® client.
The Cass Portfolio of SolutionsCass Information Systems, Inc. (NASDAQ: CASS) is a leading provider of transportation, utility, waste and telecom expense management and related business intelligence services, disbursing $38 billion annually on behalf of its clients.With total assets of $1.5 billion, Cass is a business-to-business solutions provider focused on invoice processing, auditing, payment and information services. Cass is uniquely supported by Cass Commercial Bank, founded in 1906. Today, Cass Commercial Bank is a wholly owned subsidiary, providing sophisticated financial exchange services to the parent organization and its clients.ENVIRONMENTALWaste Expense ManagementCass drives durable expense reduction and improves sustainability practices for clients by leveraging its waste expertise, powerful WasteVision™ technology platform and aggregate buying power.FREIGHT/PARCELFreight Audit & PaymentCass offers invoice management for freight and parcel bills, supplier payment management and general ledger account reconciliation, providing full visibility via CassPort,® the industry’s leading Web-based intelligence engine.BANKINGCommercial BankingA Federal Reserve member bank, Cass Commercial Bank provides safety, security and control in moving funds through the Cass electronic payment network. TELECOMCommunications Lifecycle ManagementWe manage our clients’ telecom investments – from source to pay – for both mobile and fixed telecom assets and services. Cass offers “bring your own device” program management for employee-owned equipment.UTILITIESShareholder InformationCORPORATE HEADQUARTERSCass Information Systems, Inc.12444 Powerscourt Drive, Suite 550Saint Louis, Missouri 63131314-506-5500cass@cassinfo.comwww.cassinfo.comCOMMON STOCKThe company’s common stock trades on the NASDAQ stock market under the symbol CASS. ANNUAL MEETINGThe annual meeting of shareholders will be held Monday, April 20, 2015 at 11 a.m. at the Charles F. Knight Executive Education and Conference Center, Olin Business School at Washington University, Saint Louis, Missouri.INVESTOR RELATIONSSecurity analysts, investment managers and others seeking financial information about the Company should contact:Investor Relations DepartmentCass Information Systems, Inc.12444 Powerscourt Drive, Suite 550Saint Louis, Missouri 63131314-506-5500 10-K AND OTHER PUBLICATIONSA copy of the company’s Form 10-K, as filed with the Securities and Exchange Commission, will be furnished with-out charge upon written request to the address above or from the Company’s website at: www.cassinfo.comINDEPENDENT AUDITORSKPMG LLP10 South Broadway, Suite 900Saint Louis, Missouri 63102TRANSFER AGENTShareholder correspondence should be mailed to:ComputershareP.O. Box 30170College Station, Texas 77842-3170Overnight correspondence should be mailed to:Computershare211 Quality Circle, Suite 210College Station, Texas 77845SHAREHOLDER WEBSITE:www.computershare.com/investorSHAREHOLDER ONLINE INQUIRIES:https://www-us.computershare.com/ investor/ContactTOLL-FREE PHONE:866-323-8170Board of DirectorsLawrence A. CollettChairman of the BoardEric H. BrunngraberPresident and Chief Executive OfficerRobert A. EbelChief Executive Officer,Universal Printing CompanyBenjamin F. (Tad) Edwards, IVChairman, Chief ExecutiveOfficer and President,Benjamin F. Edwards & CompanyJohn L. Gillis, Jr.Retired, Armstrong Teasdale LLPWayne J. GraceRetired Managing Director,UHY Advisors MO, Inc.James J. LindemannExecutive Vice President,EmersonRandall L. SchillingPresident and Chief ExecutiveOfficer, BoardPaq LLCFranklin D. Wicks, Jr., Ph. D.Executive Vice President and President,Applied Markets, Sigma-AldrichExecutive OfficersEric H. BrunngraberPresident and Chief Executive OfficerP. Stephen AppelbaumExecutive Vice President and Chief Financial Officer Mark A. CampbellPresident, TransportationInformation ServicesGary B. LangfittPresident, ExpenseManagement ServicesRobert J. MathiasPresident and Chief OperatingOfficer, Cass Commercial BankDP_283901_Cass-10K-Wrap-Cvr_IMP Annual Report2014CASS INFORMATION SYSTEMS, INC. 2014 ANNUAL REPORT12444 Powerscourt Drive, Suite 550 Saint Louis, Missouri 63131 314-506-5500www.cassinfo.comDP_283901_Cass-10K-Wrap-Cvr_IMP