2020 Annual Report
and Form 10-K
Dear Fellow
Shareholders,
A Letter from Cass Chairman, President and
Chief Executive Officer, Eric Brunngraber
worked previously with Cass as outside counsel and
external auditor and are very familiar with our staff,
business, strategy, and culture. These individuals,
working in concert with our current leadership team, will
capably ensure the continuity of our business plan. In
addition, they bring specific new talents and experiences
that will enable us to move more quickly and with a
greater degree of agility in the future we envision.
As we enter 2021 with renewed enthusiasm, and a
great desire to place 2020 behind us, it is gratifying
to reflect upon all the wonderful accomplishments we
Looking forward, we see excellent growth potential in
our markets, through both the addition of new clients
and our ability to continue to develop and market new
achieved during the year. Before we begin however,
services. We also continue to explore new markets
a few words on COVID-19, the global pandemic,
where we can add value. How does Cass create value?
and its effects on the economy and Cass.
We provide the means to accept highly diverse inputs
The pandemic, which greatly affected all of us, had a
substantial impact on Cass beginning in the spring of
2020. Our first priority was the safety of our staff and
customers. We immediately activated our Pandemic
Response Plan which, with some effort and adjustments,
allowed us to continue our daily operations and reliably
serve our customers in a safe manner. We continue
to operate under this plan today. The pandemic and
related shutdowns affected our clients in many ways,
but the net results for the year were significant declines
in items and dollars processed and reduced customer
loan demand. The federal PPP loan program, and the
associated credit we extended to bank customers, did
mitigate some of these negative effects. The final, and
most consequential issue was the drastic decline in
spanning paper, digitized documents, digital data, and
data feeds in multiple formats. We turn unstructured
inputs into structured and actionable information,
typically around financial transactions but also including
supporting data elements for auditing purposes. We
support client/vendor relationships, inserting highly
qualified business experts and industry specialists
into the conversation. We are the trusted third party,
validating pricing and contractual agreements. We are
recognized by the high level of service we provide, while
processing millions of these transactions and billions
of dollars accurately, on time, and in a cost effective,
safe, and secure manner. We also provide payment and
financing solutions in conjunction with these services and
to customers of our subsidiary, Cass Commercial Bank.
interest rates and the related actions taken by the Federal
I am delighted to direct you to the revamped Investor
Reserve that severely reduced our net interest margin.
section of our website. Here you will find highlights
Against this backdrop, we have much to be proud of.
We were able to keep pace with processing volumes
throughout the year in an offsite environment, develop
new solutions on the fly to assist our customers,
continue to invest in new technologies and services,
and maintain a pipeline of new business and customers.
of our recent accomplishments, the initiatives we are
currently undertaking, and our vision for the future.
We will update this information throughout the year
so you can follow our progress. I also encourage
you to read our 2020 Annual Report and Form 10-K
and other filings for further financial information.
We began and continue to reposition our balance
On behalf of the Board of Directors and our leadership
sheet and adjust our service mix and other elements
team, I wish to thank you for your support and belief
to lessen the impact of lower interest rates. Please visit
in the future success of Cass. I am proud and thankful
the Investors section of our website to see more detail,
to work with the outstanding and dedicated Cass team,
by business unit, of many of these accomplishments.
that met all the challenges of 2020 with confidence,
Although the negative impact of the pandemic on the
resourcefulness, and a lot of hard work. I remain humbly
activities of our clients combined with lower interest
grateful for God’s blessings, inspiration, and guidance.
rates reduced revenues and earnings from last year’s
record year, we remain very profitable, liquid, and strong.
Sincerely,
We have also significantly augmented our leadership
team during 2020. Martin Resch joins us in the new
role of Chief Operating Officer. Matt Schuckman joins
us as our first in-house General Counsel. More recently,
Mike Normile has joined Cass and been named Chief
Financial Officer. Steve Appelbaum, our CFO for the past
Eric H. Brunngraber
Chairman, President, and
Chief Executive Officer
15 years, will retire later this year. Matt and Mike have both
Cass Information Systems, Inc.
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, 2020
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
$0.50 per share
Trading Symbol
CASS
Name of each exchange on which registered
The Nasdaq Global Select Market
Securities registered pursuant to Section 12(g) of the Act:
Title of each Class
None
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 every Interactive Data File required to be
submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for
such shorter period that the registrant was required to submit such files).
Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer,
a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,”
“accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange
Act. Large accelerated filer: Accelerated filer: Non-accelerated filer: Smaller reporting company:
Emerging growth company:
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition
period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of
the Exchange Act.
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of
the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15
U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
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
$550,311,000 based on the closing price of the common stock of $39.03 on June 30, 2020, as reported by The Nasdaq
Global Select Market. As of February 17, 2021, the Registrant had 14,394,275 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 2021 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
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8
15
15
15
15
16
18
18
33
35
71
71
73
74
74
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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
Item 16. FORM 10-K SUMMARY
SIGNATURES
Forward-looking Statements - Factors That May Affect Future Results
75
75
76
77
78
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.
[This page intentionally left blank.]
ITEM 1. BUSINESS
Description of Business
PART I.
Cass Information Systems, Inc. (“Cass” or the “Company”) provides payment and information processing services to large
manufacturing, distribution and retail enterprises across the United States. The Company’s services include freight invoice
rating, payment processing, auditing, and the generation of accounting and transportation information. Cass also processes and
pays facility-related invoices, which include electricity and gas as well as waste and telecommunications expenses, and is a
provider of telecom expense management solutions. Cass solutions include a B2B payment platform for clients that require an
agile fintech partner. Additionally, the Company offers an on-line platform to provide generosity services for faith-based and
non-profit organizations. The Company’s bank subsidiary, Cass Commercial Bank (the “Bank”), supports the Company’s
payment operations. The Bank also provides banking services to its target markets, which include privately-owned businesses
and faith-based ministries in the St. Louis metropolitan area as well as other selected cities in the United States.
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.
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
1
with any one energy service provider (“ESP”). Various 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. 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 Company, through its Waste Expense Management business competes against small
expense management companies along with large national account programs of major haulers. The Company division known
as Gyve Generosity Services uses an on-line platform to provide generosity services for faith-based and non-profit
organizations, which is a complementary service offering to the Bank’s faith-based customers. Also, the Company through its
Integrated Financial Services business competes with providers of corporate payment solutions.
The Bank is organized as a Missouri trust company with banking powers and was founded in 1906. The Company was
originally 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 faith-based ministries located in St. Louis, Missouri 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, Ratemaker, Best Rate, Rate Exchange, CassPort, Cass Freight Index, Cass Truckload Linehaul Index,
Cass Intermodal Price Index Expense$mart, ExpenseSmart, WasteVision™ and Direct2Carrier Payments™. The
Company holds patents for methods and systems for managing employee-liable expenses and methods and systems for
communicating expense management information.
The Company and its subsidiaries have a varied client base and are not dependent on any one customer or group of customers
for a significant portion of its business.
Employees and Human Capital Resources
The Company and its subsidiaries had 862 full-time and 239 part-time employees as of February 17, 2021. Of these employees,
the Bank had 63 full-time and one part-time employee.
Cass has long been committed to comprehensive and competitive compensation and benefits programs to attract and retain
talent in a competitive environment. Retention of skilled and highly trained employees is critical as the Company’s future
operating results depend substantially upon the continued service of executive officers and key personnel. Furthering the
philosophy to attract and retain a pool of talented and motivated employees who will continue to advance the Company’s
purpose and contribute to overall success, compensation and benefits programs include: a noncontributory profit sharing
program for most employees; a defined contribution 401(k) plan to provide retirement benefits to eligible employees; a
performance-based equity compensation program for executive officers and key personnel; and incentive programs for loan
and sales personnel. Cass also provides comprehensive health, dental, and vision plans to most employees, as well as free
employee assistance programs to all employees and members of their families.
The Company invests in employees’ future by assisting with tuition reimbursement for continued education throughout the
Company’s employee ranks. Employees are also able to participate in educational seminars run by outside parties to maintain
and expand professional knowledge.
In order to develop a workforce that aligns with the Company’s corporate values, regularly sponsored campaigns and events
occur, such as charitable workplace campaigns, food drives to assist local food banks, and toy drives to support charities during
the holidays. Additionally, the Company supports a number of organizations with annual financial contributions.
Cass strives to place the health and well-being of employees above all else. Never has this been more necessary than during
the novel coronavirus (“COVID-19”) pandemic. In response to the COVID-19 pandemic, the Company has taken significant
steps to protect the health and well-being of employees and clients. These steps include implementing a work-from-home
policy for the majority of employees, establishing safety guidelines in facilities based on guidance from the U.S. Centers for
Disease Control and Prevention (“CDC”), and pausing travel that was routine in the Company’s operations.
2
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 or (ii) 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.
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 its compliance with 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 impact of
the Dodd-Frank Act on the Company and the Bank has been substantial.
Dividends and Stock Repurchases – 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, 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.
3
In July 2019, the federal bank regulators adopted final rules (the “Capital Simplifications Rules”) applicable to banks, like
Cass, that are not subject to the advanced approaches capital framework that applies to large, internationally active banking
organizations with at least $250 billion in total consolidated assets or at least $10 billion in total on-balance sheet foreign
exposure. Among other things, the Capital Simplifications Rules eliminated the standalone Federal Reserve prior approval
requirement in the Basel III Capital Rules for any repurchase of common stock. In certain circumstances, the Company’s
repurchases of its common stock may be subject to a prior approval or notice requirement under other regulations, policies or
supervisory expectations of the Federal Reserve Board.
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.
Effective July 2, 2013, the FRB approved final rules known as the “Basel III Capital Rules” that substantially revised 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 Act.
The Basel III Capital Rules implemented common equity Tier 1 capital as a new capital measure, which is generally defined
as common stockholders’ equity and retained earnings. Tier 1 capital is generally defined as common equity Tier 1 and
Additional Tier 1 capital. Additional Tier 1 capital generally includes certain noncumulative perpetual preferred stock and
related surplus and minority interests in equity accounts of consolidated subsidiaries. Total capital includes Tier 1 capital
(common equity Tier 1 capital plus Additional Tier 1 capital) and Tier 2 capital. Tier 2 capital is comprised of capital
instruments and related surplus meeting specified requirements. Also included in Tier 2 capital is the allowance for credit
losses limited to a maximum of 1.25% of risk-weighted assets and, for non-advanced approaches institutions like Cass that
have exercised a one-time opt-out election regarding the treatment of Accumulated Other Comprehensive Income (“AOCI”),
up to 45% of net unrealized gains on available-for-sale equity securities with readily determinable fair market values.
The calculation of all types of regulatory capital is subject to deductions and adjustments specified in the regulations. For
instance, the Basel III Capital Rules and the Capital Simplification Rules provide for a number of deductions from and
adjustments to common equity Tier 1 capital. These include, for example, the requirement that certain deferred tax assets and
significant investments in non-consolidated financial entities be deducted from Tier 1 capital to the extent that any one such
category exceeds 25% of common equity Tier 1 capital. Prior to the adoption of the Capital Simplification Rules, amounts were
deducted from common equity Tier 1 capital to the extent that any one such category exceeded 10% of common equity Tier 1
capital or all such items, in the aggregate, exceeded 15% of common equity Tier 1 capital. The Capital Simplification Rules
took effect for the Company and the Bank as of January 1, 2020.
In determining the amount of risk-weighted assets for purposes of calculating risk-based capital ratios, all assets, including
certain off-balance sheet assets are multiplied by a risk weight factor assigned by the regulations based on the risks believed
inherent in the type of asset. Higher levels of capital are required for asset categories believed to present greater risk. For
example, a risk weight of 0% is assigned to cash and U.S. government securities, a risk weight of 50% is generally assigned to
prudently underwritten first lien one to four-family residential mortgages, a risk weight of 100% is assigned to commercial and
consumer loans, a risk weight of 150% is assigned to certain past due loans, and a risk weight of between 0% to 600% is
assigned to permissible equity interests, depending on certain specified factors.
Fully phased-in as of January 1, 2019, the Basel III Capital Rules require banking organizations, like Cass, to maintain:
a minimum ratio of common equity Tier 1 capital to risk-weighted assets of at least 4.5%, plus a 2.5% capital
conservation buffer;
a minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus a 2.5% capital conservation buffer;
a minimum ratio of total capital (that is, Tier 1 plus Tier 2 capital) to risk-weighted assets of at least 8.0%, plus the
2.5% capital conservation buffer; and
a minimum leverage ratio of 4.0%, calculated as the ratio of Tier 1 capital to adjusted average consolidated assets.
The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a ratio
of common equity Tier 1 capital to risk-weighted assets above the minimum but below the conservation buffer will face
limitations on the payment of dividends, common stock repurchases and discretionary cash payments to executive officers
based on the amount of the shortfall.
4
The FRB has authority to establish individual minimum capital requirements in appropriate cases upon a determination that an
institution’s capital level is or may become inadequate in light of the particular risks or circumstances. As of December 31,
2020, the Company and the Bank met all capital adequacy requirements under the Basel III Capital Rules.
In December 2017, the Basel Committee published standards that it described as the finalization of the Basel III post-crisis
regulatory reforms (commonly referred to as “Basel IV”). Among other things, these standards revise the Basel Committee's
standardized approach for credit risk (including by recalibrating risk weights and introducing new capital requirements for
certain “unconditionally cancellable commitments,” such as unused credit card lines of credit) and provides a new standardized
approach for operational risk capital. Under the Basel framework, these standards will generally be effective on January 1,
2022, with an aggregate output floor phasing in through January 1, 2027. Under the current U.S. capital rules, operational risk
capital requirements and a capital floor apply only to advanced approaches institutions, and not to the Company or the Bank.
The impact of Basel IV on the Company will depend on the manner in which it is implemented by the federal bank regulators.
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.
FDIC insurance expense totaled approximately $152,500, $108,700 and $222,200 for the years ended December 31, 2020,
2019 and 2018, 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.
A depository institution is deemed to 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 8% or greater, a leverage ratio of 5% or greater, a common equity Tier 1 ratio of
6.5% 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 6% or greater, a leverage ratio of 4% or greater, a common equity Tier 1 ratio of 4.5% or
greater and does not meet the definition of “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 6%, a leverage ratio of less than 4% or a common
equity Tier 1 ratio of less than 4.5%; (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 4%, a leverage ratio of less than 3% or a common equity Tier 1 ratio
of less than 3%; and (v) “critically undercapitalized” if the institution has a ratio of tangible equity (as defined in the regulations)
to total assets that is equal to or less than 2%. 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.
Subject to a narrow exception, a receiver or conservator is required to be appointed for an institution that is “critically
undercapitalized” within specified time frames. The regulations also provide that a capital restoration plan must be filed with
the FRB within 45 days of the date an institution is deemed to have received notice that it is “undercapitalized,” “significantly
undercapitalized” or “critically undercapitalized.” Compliance with the plan must be guaranteed by any parent holding
company up to the lesser of 5% of the institution’s total assets when it was deemed to be undercapitalized or the amount
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necessary to achieve compliance with applicable capital requirements. In addition, numerous mandatory supervisory actions
become immediately applicable to an undercapitalized institution including, but not limited to, increased monitoring by
regulators and restrictions on growth, capital distributions and expansion. The FRB could also take any one of a number of
discretionary supervisory actions, including the issuance of a capital directive and the replacement of senior executive officers
and directors. Significantly and critically undercapitalized institutions are subject to additional mandatory and discretionary
measures.
As of December 31, 2020, 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.
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, 2020, 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.
In December 2019, the FDIC joined the Office of the Comptroller of the Currency (the “OCC”) in proposing rules that would
significantly change existing CRA regulations. The Federal Reserve did not join in the proposed rulemaking. The proposed
rules are intended to increase bank activity in low and moderate income communities where there is significant need for credit,
more responsible lending, greater access to banking services, and improvements to critical infrastructure. The proposals focus
on four improvement areas: (i) clarifying what activities qualify for CRA credit; (ii) updating assessment areas where activities
count for CRA credit; (iii) providing a more objective method for measuring CRA performance; and (iv) improving the
timeliness and transparency of record keeping and reporting. The OCC has adopted these rules as final, but the FDIC and
Federal Reserve have yet to take action that would finalize and implement new CRA regulations. As the Company is not subject
to OCC regulation, it will continue to monitor CRA regulatory changes and evaluate any resulting impact on the Company’s
financial condition and results of operations.
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.
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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 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 negotiable order of withdrawal and demand deposit accounts). A reserve of 3% is to be maintained against
aggregate transaction accounts between $15.2 million and $110.2 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
$110.2 million. The first $15.2 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.
Cybersecurity – In March 2015, federal regulators issued two related statements regarding cybersecurity. One statement
indicates that financial institutions should design multiple layers of security controls to establish lines of defense and to ensure
that their risk management processes address the risk posed by compromised customer credentials, including security measures
to reliably authenticate customers accessing internet-based services of the financial institution. The other statement indicates
that a financial institution’s management is expected to maintain sufficient business continuity planning processes to ensure
the rapid recovery, resumption and maintenance of the institution’s operations after a cyber-attack involving destructive
malware. A financial institution is expected to develop appropriate processes to enable recovery of data and business operations
and address rebuilding network capabilities and restoring data if the institution or its critical service providers fall victim to this
type of cyber-attack. If the Company fails to observe the regulatory guidance, it could be subject to various regulatory sanctions,
including financial penalties.
In the ordinary course of business, the Company relies on electronic communications and information systems to conduct
operations and store sensitive data. The Company employs an in-depth, layered, defensive approach that leverages people,
processes and technology to manage and maintain cybersecurity controls. The Company also employs a variety of preventative
and detective tools to identify, protect, detect, respond, and recover against suspicious activity, as well as to report on any
suspected advanced persistent threats. Notwithstanding the strength of the Company’s defensive measures, the threat from
cyber attacks is severe, attacks are sophisticated and increasing in volume, and attackers respond rapidly to changes in defensive
measures. While the Company has not experienced a significant compromise to date, significant data loss or any material
financial losses related to cybersecurity attacks, the Company’s systems and those of its customers and third-party service
providers are under constant threat and it is possible that the Company could experience a significant event in the future. Risks
and exposures related to cybersecurity attacks are expected to remain high for the foreseeable future due to the rapidly evolving
nature and sophistication of these threats, as well as due to the expanding use of internet banking, mobile banking and other
technology-based products and services by the Company and its customers. See Item 1A, “Risk Factors” for a further discussion
of risks related to cybersecurity.
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;
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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;
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; and
The Bank Secrecy Act, which requires U.S. financial institutions to collaborate with the U.S. government in
cases of suspected money laundering and fraud.
Certain of these laws are consumer protection laws that extensively govern the Company’s relationship with its customers.
Violations of applicable consumer protection laws can result in significant potential liability from litigation brought by
customers, including actual damages, restitution and attorneys’ fees. Federal bank regulators, state attorneys general and state
and local consumer protection agencies may also seek to enforce consumer protection requirements and obtain these and other
remedies, including regulatory sanctions, customer rescission rights, action by the state and local attorneys general in each
jurisdiction in which the Company operates and civil money penalties. Failure to comply with consumer protection
requirements may also result in the Company’s inability to pursue merger or acquisition transactions.
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.
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.
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:
Economic and Market Conditions Risk
The COVID-19 pandemic creates significant risks and uncertainties for the Company’s business and results of operations.
In March 2020, the World Health Organization (“WHO”) declared COVID-19 as a global pandemic. The COVID-19 pandemic
has negatively impacted the global economy, disrupted global supply chains and manufacturing, lowered energy prices, lowered
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equity market valuations, lowered interest rates, created significant volatility and disruption in financial markets, and increased
unemployment levels. In addition, the pandemic has resulted in temporary closures of many businesses and the institution of
social distancing and sheltering in place requirements in many states and communities, including those in major markets in
which Cass Commercial Bank, the Company’s St. Louis, Missouri-based bank subsidiary, is located or does business. Although
in various locations certain activity restrictions have been relaxed with some success, many states and localities are
experiencing further significant increases in the number of COVID-19 cases, prompting a reinstatement of prior activity
restrictions in some locations and the need for additional aid and other forms of relief for affected individuals, businesses and
other entities.
In late fiscal 2020, vaccines for combatting COVID-19 were approved by health agencies within the Company’s operating
markets and began to be administered. However, initial quantities of vaccines are limited and vaccine distributions, controlled
by local authorities, are being allocated, generally first to front-line health care workers and other essential workers and next
to those members of individual populations believed most susceptible to severe effects from COVID-19. The timeline of full
administration of the COVID-19 vaccines is uncertain and fluctuating, but is widely thought to be unlikely to occur in most
jurisdictions until mid to late 2021. The impact of COVID-19, including the impact of restrictions imposed to combat its spread,
could result in additional and prolonged business closures, work restrictions and activity restrictions.
As a result, the demand for the Company’s products and services has been, and will continue to be, significantly impacted.
Demand for payment and information processing services by manufacturing, distribution, and retail enterprises, and loans and
other products and services that the Company and the Bank offer and on which success the Company relies to drive growth, is
highly dependent upon the business environment in the primary markets in which the Company operates and in the United
States as a whole.
Business closures, including constrictions in the manufacturing sector for a portion of the year, have decreased volumes in the
Company’s payment and information processing services due to the decline in customers’ business activity. In addition, the
dampened demand for oil and resulting plummet in oil prices has had, and can continue to have, a negative effect on both the
number of freight transactions processed and the dollar amount of invoices processed.
Furthermore, the pandemic could influence the recognition of credit losses in the Company’s loan and lease portfolios and
increase its allowance for credit losses, as both businesses and consumers are negatively impacted by the economic downturn.
Bank regulatory agencies and various governmental authorities are urging financial institutions to work prudently with
borrowers who are or may be unable to meet their contractual payment obligations because of the effects of COVID-19. In
addition, the Federal Reserve has taken action to lower the Federal Funds rate, which has adversely affected, and could continue
to adversely affect, interest income and therefore, the Company’s results of operations and financial condition.
The Company’s business operations may also be disrupted if significant portions of its workforce are unable to work effectively,
because of quarantines, illness, government actions, or other restrictions in connection with the pandemic, travel restrictions,
technology limitations and/or disruptions, including remote working measures and their attendant cybersecurity risks.
Furthermore, the business operations of the Company and the Bank may be disrupted due to vendors and third-party service
providers being unable to work or provide services effectively, because of quarantines, illness, government actions, or other
restrictions in connection with the pandemic.
The extent to which the COVID-19 pandemic impacts the Company’s business, results of operations, and financial condition,
as well as its regulatory capital and liquidity ratios, will depend on future developments, which are highly uncertain, including
the scope and duration of the pandemic and actions taken by governmental authorities and other third parties in response to the
pandemic. Moreover, the effects of the COVID-19 pandemic may heighten many of the other risks described in this Item 1A,
“Risk Factors” section. including, but not limited to, risks of credit deterioration, interest rate changes, governmental actions,
market volatility, security breaches and technology interruptions.
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.
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In certain circumstances, Cass remits payment of invoices prior to receiving funds from its customers. As such, Cass could
experience losses if such funds are not received from customers after payment is remitted.
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 losses related to funds remitted for payment to freight carriers, utility companies
and other such companies, prior to receiving funds from its customers.
The Company has lending concentrations, including, but not limited to, faith-based ministries 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 low level of interest rates will continue to
have a negative impact on the Company’s net interest income.
The Company may be adversely impacted by the uncertainty regarding LIBOR as a reference rate.
The United Kingdom’s Financial Conduct Authority announced in 2017 that after 2021 it would no longer persuade or require
banks to submit the rates required to calculate the London Interbank Offered Rate (“LIBOR”). This announcement indicates
that the continuation of LIBOR on the current basis could not be guaranteed after 2021 and resulted in uncertainty about the
future of LIBOR and what may become accepted alternatives to LIBOR. Subsequently, the administrator of LIBOR announced
it will consult on its intention to cease the publication of the one week and two month LIBOR settings immediately following
the LIBOR publication on December 31, 2021, and the remaining U.S. Dollar LIBOR settings immediately following the
LIBOR publication on June 30, 2023.
Regulators, industry groups and certain committees (e.g., the Alternative Reference Rates Committee) have, among other
things, published recommended fall-back language for LIBOR-linked financial instruments, identified recommended
alternatives for certain LIBOR rates (e.g., the Secured Overnight Financing Rate as the recommended alternative to U.S. Dollar
LIBOR), and proposed implementations of the recommended alternatives in floating rate instruments. At this time, it is not
possible to predict whether these specific recommendations and proposals will be broadly accepted, whether they will continue
to evolve, and what the effect of their implementation may be on the markets for floating-rate financial instruments.
Certain of Cass’ loans and other financial instruments include attributes that are either directly or indirectly dependent on
LIBOR. The transition from LIBOR could create additional costs and risk. Since proposed alternative rates are calculated
differently, payments under contracts referencing new rates will differ from those referencing LIBOR. The transition will
change Cass’ market risk profiles, requiring changes to risk and pricing models, valuation tools, product design and hedging
strategies. Failure to adequately manage this transition process with our customers could adversely impact the Company’s
reputation.
Operations of the Company’s customer base are impacted by macro-economic factors such as a strong dollar and/or
volatility in commodity prices. A reduction in its customers’ operations could have a material adverse effect on Cass’ results
of operations.
A decline in the cost of oil worldwide can have a negative effect on both the number of freight transactions processed and the
dollar amount of invoices processed. For example, lower oil prices can cause a significant drop in drilling supplies being
transported to fracking operations by domestic railroads and trucks. Lower oil prices can also result in lower gas and fuel prices,
negatively affecting the dollar amounts of the invoices that Cass processes for its freight and shipping customers. A decline in
oil prices could have an adverse effect on the Company’s revenues and could significantly impact its results of operations.
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Business Operations and Strategic Risk
Operational difficulties or cyber-security problems could damage Cass’ reputation and business.
In the ordinary course of business, the Company depends on the reliable operation of its computer operations and network
connections from its clients to its systems. Any failure, interruption, or breach in security of these systems would cause Cass
to be unable to process transactions for its clients, resulting in decreased revenues. The Company also relies on electronic
communications and information systems to store sensitive customer data. Any failure, interruption, breach in security or loss
of data, whatever the cause, could reduce client satisfaction with the Company’s products and services and harm Cass’ financial
results. These types of threats may derive from human error, fraud or malice on the part of external or internal parties, or may
result from accidental technological failure. Further, to access the Company’s products and services, Cass’ customers may use
computers and mobile devices that are beyond the Company’s security control systems. The Company’s technologies, systems,
networks and software, and those of other financial institutions have been, and are likely to continue to be, the target of
cybersecurity threats and attacks, which may range from uncoordinated individual attempts to sophisticated and targeted
measures directed at Cass. The risk of a security breach or disruption, particularly through cyber-attack or cyber intrusion, has
increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased.
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.
Cloud technologies are also critical to the operation of our systems, and our reliance on cloud technologies is growing. Service
disruptions in cloud technologies may lead to delays in accessing, or the loss of, data that is important to our businesses and
may hinder our customers’ access to our products and services.
Although the Company makes significant efforts to maintain the security and integrity of Cass’ information systems and have
implemented various measures to manage the risk of a security breach or disruption, there can be no assurance that Cass’
security efforts and measures will be effective or that attempted security breaches or disruptions would not be successful or
damaging. Even the most well protected information, networks, systems and facilities remain potentially vulnerable because
attempted security breaches, particularly cyber-attacks and intrusions, or disruptions will occur in the future, and because the
techniques used in such attempts are constantly evolving and generally are not recognized until launched against a target, and
in some cases are designed not to be detected and, in fact, may not be detected. Accordingly, the Company may be unable to
anticipate these techniques or to implement adequate security barriers or other preventative measures, and thus it is virtually
impossible to entirely mitigate this risk. While specific “cyber” insurance coverage is maintained, which would apply in the
event of various breach scenarios, the amount of coverage may not be adequate in any particular case. Furthermore, because
cyber threat scenarios are inherently difficult to predict and can take many forms, some breaches may not be covered under
Cass’ cyber insurance coverage. A security breach or other significant disruption of Cass’ information systems or those related
to customers, merchants and third party vendors, including as a result of cyber-attacks, could 1) disrupt the proper functioning
of Cass’ networks and systems and therefore operations and/or those of certain customers; 2) result in the unauthorized access
to, and destruction, loss, theft, misappropriation or release of confidential, sensitive or otherwise valuable information of the
Company or its customers; 3) result in a violation of applicable privacy, data breach and other laws, subjecting the Company
to additional regulatory scrutiny and expose Cass to civil litigation, governmental fines and possible financial liability; 4)
require significant management attention and resources to remedy the damages that result; or 5) harm Cass’ reputation or cause
a decrease in the number of customers that choose to do business with the Company. The occurrence of any of the foregoing
could have a material adverse effect on Cass’ business, financial condition and results of operations.
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. Finally, Cass’ ability to adopt these technologies can also be inhibited by intellectual property
rights of third parties. Any of these 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.
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.
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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.
The Company’s allowance for credit losses (“ACL”) is subject to continuing evaluation and may be insufficient.
The Company maintains an ACL, which is a reserve established through a provision for credit losses charged to expense. The
ACL is a valuation account that is deducted from the amortized cost basis to present the net amount expected to be collected
on loans. Management uses a systematic, documented approach in determining the appropriate level of ACL, which represents
management’s estimate of losses in loans and off-balance sheet exposures as of the balance sheet date. Management estimated
the allowance balance using relevant available information from internal and external factors, relating to past events, current
conditions and reasonable and supportable forecasts based on economic sources, such as Gross Domestic Product (“GDP”).
Historical credit loss experience, of both the Company and similar peer banks, provides the basis for the estimation of expected
credit losses. Adjustments to historical loss information are made for lending management experience, asset quality trends,
borrower’s ability to pay, collateral, and other environmental factors. The ACL is measured on a collective pool basis when
similar risk characteristics exist. The determination of the appropriate level of the allowance for credit losses inherently involves
a high degree of subjectivity and requires management to make estimates based on risks and trends that are subject to material
change.
The determination and application of the ACL accounting policy involves judgments, estimates, and uncertainties that are
subject to change. Changes in these assumptions, estimates or the conditions surrounding them may have a material impact on
the Company’s financial condition, liquidity or results of operations. Various regulatory agencies, as an integral part of the
examination process, periodically review the ACL. Such agencies may require the Company to recognize additions to the ACL
or reserve increases to adversely graded classified loans based on information available to them at the time of their
examinations.
The application of the model used to determine the ACL could result in volatility in earnings. Additionally, if charge-offs in
future periods exceed the ACL, the Company will need additional provisions to increase the ACL. Any increases in the ACL
will result in a decrease in net income and, possibly, capital, and may have a material adverse effect on the Company’s business,
financial condition and results of operations.
See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Provision and
Allowance for Credit Losses and Unfunded Commitments” and Item 8, “Financial Statements and Supplementary Data—Note
1” for additional information.
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.
12
In addition, there are risks and uncertainties associated with the introduction of new products and services, including substantial
investments of time and resources. The introduction and development of new products and services may not be achieved along
expected timelines, or at all, and may not be successful as a result of factors beyond the Company’s control, including
regulatory, competition and external market factors. Failure to successfully manage these risks in the development and
implementation of new products or services, and failure to integrate such new products and services into our existing system
of internal controls, could have a material adverse effect on our business, financial condition and results of operations.
The Company and the Bank are subject to liquidity risk.
The Company requires liquidity to meet deposit and accounts and drafts payable obligations as they come due. Access to
funding sources in amounts adequate to finance the Company’s commitments and business activities or on terms that are
acceptable or favorable to the Company could be impaired by risks and uncertainties that are beyond the Company’s control,
including those described in this Item 1A, “Risk Factors” section.
The Company’s access to deposits and accounts and drafts payable for liquidity purposes may also be adversely affected by
the needs of the Company’s depositors and customers. A failure to maintain adequate liquidity could have a material adverse
effect on the Company’s business, financial condition and results of operations.
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 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.
Regulatory, Legal and Accounting Risk
The Company and the Bank are subject to extensive government regulation and supervision and possible enforcement or
other legal actions that could detrimentally affect Cass’ business.
The Company and the Bank are subject to extensive federal and state regulation and supervision, the primary focus of which
is to protect customers, depositors, the deposit insurance fund and the safety and soundness of the banking system as a whole,
and not shareholders. In addition, since the global financial crisis, financial institutions generally have been subject to increased
scrutiny from regulatory authorities, with an increased focus on risk management and consumer compliance. This regulatory
structure and heightened focus 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 applicable laws, regulations, policies or guidance could result in enforcement and other legal actions
by federal and state authorities, including criminal and civil penalties, the loss of FDIC insurance, revocation of a banking
charter, and other regulatory sanctions, as well as reputational damage, any of which could have a material adverse effect on
the Company’s business, financial condition and results of operations.
Congress and federal regulatory agencies continually review banking laws, regulations and policies for possible changes. The
substance and impact of pending or future legislation or regulation, or the application thereof, cannot be predicted, although
any change could impact the regulatory structure under which the Company or its competitors operate and may significantly
increase costs, impede the efficiency of internal business processes, require an increase in regulatory capital, require
modifications to the Company’s business strategy, and/or limit its ability to pursue business opportunities in an efficient
manner. A change in statutes, regulations or regulatory policies applicable to the Company or any of its subsidiaries could
have a material, adverse effect on the Company’s business, financial condition and results of operations.
See Item 1, “Business—Supervision and Regulation,” and Item 8, Note 2 to the consolidated financial statements included
elsewhere in this report for additional information.
The Company may need to raise additional capital or sell assets if it fails to meet regulatory capital requirements or meet
commitments and liquidity needs. Such capital may not be available on favorable terms, or at all.
Fully phased in, the Basel III Capital rules implemented stricter capital requirements and leverage limits and methods for
calculating risk-weighted assets, meaning the Company is required to hold more capital against such assets. Complying with
13
these more stringent capital requirements could result in management modifying its business strategy and could limit the
Company’s ability to make distributions, including paying dividends, or buying back shares.
The Company may also need to raise additional capital in the future to provide it with sufficient capital resources and liquidity
to meet commitments and business needs. The ability to raise additional capital, if needed, will depend on, among other things,
conditions in the capital markets at that time and the Company’s financial condition, as well as the need for other financial
institutions to raise capital at the same time. Economic conditions and the loss of confidence in financial institutions may
increase the cost of funding and limit access to certain customary sources of capital, including inter-bank borrowings,
repurchase agreements and borrowings from the discount window of the Federal Reserve.
An inability to raise additional capital on acceptable terms when needed could have a materially adverse effect on the
Company’s business, financial condition and results of 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.”
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 one accounting policy 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.
14
General Risk Factors
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.
Certain events beyond the Company’s control, such as severe weather, natural disasters, terrorist activities or other
hostilities, may adversely affect the general economy, financial and capital markets, specific industries, and the Company.
Severe weather, natural disasters, acts of terrorism or other hostilities, and other adverse external events beyond the Company’s
control, could have a significant impact on the Company’s ability to conduct business. Such events could disrupt Cass’
operations or those of its customers, affect the stability of the Bank’s deposit base, impair the ability of borrowers to repay
outstanding loans, impair the value of collateral securing loans, cause significant property damage, result in loss of revenue
and/or cause the Company to incur additional expenses. The occurrence of any such event in the future could have a material
adverse effect on the Company’s business, which, in turn, could have a material adverse effect on the Company’s financial
condition and results of operations.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
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 along with 3,563 square feet in the same center at 12412 Powerscourt Drive. 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 Greenville, South Carolina, Wellington, Kansas, Jacksonville, Florida and
Columbus, Ohio. The Company has offices in Breda, Netherlands, Basingstoke, United Kingdom, and Singapore 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 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.
15
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
The Company’s common stock is quoted on The Nasdaq Global Select Market under the symbol “CASS.” As of February
17, 2021, there were approximately 3,716 holders of record of the Company’s common stock.
The Company has continuously paid regularly scheduled cash dividends since 1934 and expects to continue to pay quarterly
cash dividends in the future. However, future dividend payments will depend on the Company’s earnings, capital requirements,
financial condition, applicable banking regulatory requirements and other factors considered relevant by the Company’s Board
of Directors.
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. As restored by the Board of Directors in October 2020,
the program provides that the Company may repurchase up to an aggregate of 500,000 shares of common stock and has no
expiration date. The Company repurchased a total of 162,901 shares at an aggregate cost of $6,825,000 during the year ended
December 31, 2020 and 154,593 shares at an aggregate cost of $7,779,000 during the year ended December 31, 2019. 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 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, business and market conditions, 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.
During the three months ended December 31, 2020, the Company repurchased a total of 34,122 shares of its common stock
pursuant to its treasury stock buyback program, as follows:
Total
Number of
Shares
Purchased
—
—
34,122
34,122
Average Price
Paid per Share
—
—
$38.62
$38.62
Period
October 1, 2020 –
October 31, 2020
November 1, 2020 –
November 30, 2020
December 1, 2020 –
December 31, 2020
Total
Total Number
of Shares
Purchased as
Part of
Publicly
Announced
Plans or
Programs1
Maximum
Number of
Shares that
May Yet Be
Purchased
Under the
Plans or
Programs
—
—
34,122
34,122
500,000
500,000
465,878
465,878
(1) All repurchases made during the quarter ended December 31, 2020 were made pursuant to the treasury stock buyback program, which was
authorized by the Board of Directors on October 17, 2011 and announced by the Company on October 20, 2011. The program, as
modified by the Board of Directors on October 20, 2014, provides that the Company may repurchase up to an aggregate of 500,000 shares
of common stock and has no expiration date. The program is periodically modified by the Board of Directors and was most recently
modified on October 20, 2020 to restore the aggregate number of shares available for repurchase to 500,000.
16
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”),
the index of Nasdaq computer and data processing stocks, and the index of Nasdaq bank stocks. The graph assumes $100 was
invested on December 31, 2015, with dividends reinvested. Returns are based on period end prices.
Comparison of 5 Year Cumulative Total Return
Assumes Initial Investment of $100
December 2020
350.00
300.00
250.00
200.00
150.00
100.00
50.00
0.00
2015
2016
2017
2018
2019
2020
Cass Information Systems Inc
NASDAQ Stock Market (US Companies)
NASDAQ Computer and Data Processing Index
NASDAQ Banks Index
17
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 and fees on loans
Interest income on debt and equity securities
Other interest income
Total interest income
Interest expense on deposits
Interest on short-term borrowings
Provision for credit/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
Net interest margin
Allowance for credit/loan losses to loans at
year-end
Nonperforming assets to loans and foreclosed
assets
Net loan (recoveries) charge-offs to average
loans outstanding
2020
2018
2019
$ 100,441 $ 110,069 $ 104,076 $
36,461
10,336
5,812
52,609
5,191
2
250
47,166
119,769
37,466
7,062
30,404 $
2.07 $
1.05
50.11 %
32,477
11,167
4,282
47,926
3,736
—
—
44,190
111,919
36,347
6,079
30,268 $
2.03 $
.89
43.53 %
37,665
8,796
1,226
47,687
2,360
2
810
44,515
114,615
30,341
5,165
25,176 $
1.73 $
1.08
61.96 %
2017
95,512 $
28,641
10,993
2,343
41,977
2,187
—
—
39,790
100,403
34,899
9,885 (1)
25,014 $
1.68 $
.72
42.68 %
$
$
2016
86,136
29,063
9,801
1,066
39,930
2,029
—
(1,500)
39,401
93,473
32,064
7,716
24,348
1.63
.68
40.98 %
$ 1,952,110 $ 1,749,574 $ 1,637,876 $ 1,568,112 $ 1,504,474
667,158
700,631
895,345
352,129
448,890
365,254
614,975
624,877
836,843
207,060
223,372
246,088
749,710
423,384
671,144
236,467
653,459
426,657
602,490
216,548
1.29 %
1.74 %
1.85 %
1.60 %
1.62 %
10.23
12.61
11.85
11.14
20.38
2.82
12.86
13.52
13.84
12.93
17.78
3.36
13.55
13.64
13.56
12.83
18.85
3.32
11.55
13.81
14.04
13.25
20.23
3.34
11.76
13.76
13.82
13.04
20.13
3.32
1.34
1.37
1.42
1.49
1.53
—
—
—
(.01)
—
—
—
—
.04
(.01)
(1) Includes one-time, non-cash Tax Cuts and Jobs Act (“TCJA”) charge of $1,824,000.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis provides information about the more significant factors that impacted the financial
condition and results of operations of the Company for the years ended December 31, 2020, 2019 and 2018. 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. Refer to Item 7, “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” included in the Company’s Annual Report on Form 10-K/A filed with the SEC
on March 6, 2020 and incorporated herein by reference for a discussion and analysis of the more significant factors that affected
periods prior to 2019.
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, Greenville, South Carolina, Wellington, Kansas, Jacksonville,
Florida, Breda, Netherlands, Basingstoke, United Kingdom, and Singapore. 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 solutions include a B2B payment platform for clients that require an agile
18
fintech partner. Additionally, the Company offers an on-line platform to provide generosity services for faith-based and non-
profit organizations. The Company’s bank subsidiary, the “Bank,” supports the Company’s payment operations. The Bank also
provides banking services to its target markets, which include privately-owned businesses and faith-based ministries in the St.
Louis metropolitan area as well as other selected cities in the United States.
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, advances to payees, 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 and
conversely, a rise in the general level of interest rates can have a positive impact on net interest income. The cost of fuel is
another factor that has a significant impact on the transportation sector. As the price of fuel goes up or down, the Company’s
earnings increase or decrease with the dollar amount of transportation invoices.
In 2020, total fee revenue and other income decreased $9,628,000, or 9%, net interest income after provision for credit losses
decreased $2,651,000, or 6%, total operating expenses decreased $5,154,000, or 4%, and net income decreased $5,228,000, or
17%. This performance in 2020 was negatively impacted by the COVID-19 global pandemic. For payment processing
services, business closures have led to a decrease in the number of transactions and dollars processed due to the decline in
customers’ business activity, which resulted in a negative effect on total fee revenue and other income. Additionally, the
Federal Reserve’s actions to lower the Federal Funds rate adversely impacted net interest income. Total operating expenses
decreased as the lower number of transactions processed had a corresponding reduction in personnel expense and COVID-19
limited employee travel-related expenses. The asset quality of the Company’s loans and investments as of December 31, 2020
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
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit
Losses on Financial Instruments (“ASU 2016-13”). The standard is effective for fiscal periods beginning after December 15,
2019. The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was signed into law on March 27, 2020 and
included provisions that temporarily delayed the required implementation date of ASU 2016-13 to the earlier of the end of the
national pandemic or December 31, 2020. The Consolidated Appropriations Act (“CAA”) was signed into law on December
27, 2020 and extended the deferral of required implementation of ASU 2016-13 to the earlier of the first day of a company’s
fiscal year that begins after the date the COVID-19 national emergency comes to an end or January 1, 2022. The Company
elected to defer the adoption of ASU 2016-13 until December 31, 2020 with an effective date of January 1, 2020.
The ASU required measurement and recognition of expected credit losses for financial instruments held, as applicable, which
include allowances for credit losses expected over the life of the portfolio, rather than incurred losses, which include allowances
for current probable and estimable losses within the portfolio. Under this standard, the Company is required to hold an
allowance equal to the expected life-of-loan losses on the loan portfolio. It also applies to off-balance sheet credit exposures
19
such as loan commitments, standby letters of credit and other similar instruments. In addition, ASU 2016-13 made changes to
the accounting for available-for-sale debt securities.
The Company adopted ASU 2016-13 using a modified retrospective approach. Results for annual reporting periods beginning
after January 1, 2020 are presented under ASU 2016-13 while prior period amounts continue to be reported in accordance with
previously applicable GAAP. Results for quarterly reporting periods beginning after December 31, 2020 in the Company’s
Form 10-Q will be presented under ASU 2016-13 while prior quarterly period amounts continue to be reported in accordance
with previously applicable GAAP. The Company recognized increases of $723,000 in the allowance for credit losses and
$402,000 in the reserve for unfunded commitments, with a corresponding reduction to retained earnings, net of tax, of $856,000.
No credit loss allowance was required upon adoption for the investment securities portfolio.
The following table illustrates the impact of the adoption of ASU 2016-13:
(In thousands)
Assets:
Allowance for credit/loan losses on
loans
Deferred tax asset
Liabilities:
Reserve for unfunded commitments
Shareholders’ equity:
Retained earnings
Critical Accounting Policies
December
31, 2019
Impact of
ASU 2016-13
Adoption
As Reported
Under ASU
2016-13
$
10,556
$
723
$
11,279
2,298
─
269
402
2,567
402
90,341
(856)
89,485
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. The accounting policy that requires significant management
estimates and is deemed critical to the Company’s results of operations or financial position has been discussed with the Audit
Committee of the Board of Directors and is described below.
Allowance for Credit Losses. The Company performs periodic and systematic detailed reviews of its loan portfolio to determine
management’s estimate of the lifetime expected credit losses. Although these estimates are based on established methodologies
for determining allowance requirements, actual results can differ significantly from estimated results. These policies affect
both segments of the Company. The impact and associated risks related to these policies on the Company’s business operations
are discussed in the “Provision and Allowance for Credit Losses and Allowance for Unfunded Commitments” section of this
report.
See Item 8, “Financial Statements and Supplementary Data—Note 1” for additional information on the adoption of ASU 2016-
13.
Impact of COVID-19 on the Company’s Business
During the year ended December 31, 2020, the effects of COVID-19 and related actions to attempt to control its spread
significantly impacted the global economy and adversely affected the Company’s operating results in both the Information
Services and Banking Services segments.
With the spread of COVID-19 to the U.S. in the first quarter of 2020, many state and local governments recommended or
mandated limitations on crowd size, closures of businesses and shelter-in-place orders in order to slow the transmission. The
extent and nature of government actions varied during fiscal year 2020 and in early fiscal year 2021 based upon the then-current
extent and severity of the COVID-19 pandemic within the respective localities. Severe business disruptions, resulting
constrictions in the manufacturing sector for most of the year, decreased oil demand and prices and general economic
uncertainty, significantly and adversely impacted the Company’s customers’ business operations and had a corresponding
negative affect on the Company’s revenue generation in each sector of the Company’s Information Services segment.
20
The Federal Reserve also took action to lower the Federal Funds rate in connection with COVID-19 relief, adversely affecting
the Company’s net interest income and operating results for fiscal 2020 tied to Banking Services. The Federal Reserve has
indicated that it will retain the current low level interest rates until the economy has stabilized.
Bank regulatory agencies and various governmental authorities are urging financial institutions to work prudently with
borrowers who are or may be unable to meet their contractual payment obligations because of the effects of COVID-19.
Accordingly, and in coordination with its primary regulators, the Company deferred borrower principal payments on loans
during the second quarter of 2020, on an as needed basis, for periods of up to six months. There were no borrowers remaining
on deferred terms at the end of the third quarter of 2020.
In response to COVID-19, the CARES Act was adopted on March 27, 2020. The CARES Act provides for an estimated $2.2
trillion to fight the COVID-19 pandemic and stimulate the economy by supporting individuals and businesses through loans,
grants, tax changes, and other types of relief. Among other things, the CARES Act established the Paycheck Protection Program
(“PPP”), which allows entities to apply for low-interest private loans to fund payroll and other costs which, subject to certain
conditions and qualifications, are partially or fully forgivable. In support of the CARES Act, the Bank had processed nearly
350 applications for PPP loans of approximately $170,000,000 during the year ended December 31, 2020 to provide much-
needed cash to small business and self-employed taxpayers during the COVID-19 crisis. The loans were primarily made to
existing bank customers and are 100% guaranteed by the Small Business Administration and helped offset the near-zero interest
rate environment.
Cass remains committed to creating a safe and healthy environment for employees while offering assurance that it remains a
financially strong service provider possessing the resources necessary to weather this pandemic in support of its valued
customers.
In late fiscal 2020, vaccines effective in combatting COVID-19 were approved by health agencies and began to be administered.
However, initial quantities of vaccines are limited and full administration of the COVID-19 vaccines is unlikely to occur in
most jurisdictions until mid- to late-2021. The timeline and outlook of economic recovery from COVID-19 is unknown at this
time, and prolonged, extensive business interruptions would continue to adversely affect the Company’s operations and
financial results. Given these and other uncertainties discussed throughout this report, the Company remains subject to
heightened risk, and the aggregate impact that COVID-19 could have on the Company’s financial condition and operating
results is presently unknown.
For further discussion on COVID-19 and its impact on the Company, refer to Item 8, “Financial Statements and Supplementary
Data—Note 1
Summary of Results
(In thousands except per share data)
Total processing volume
Total invoice dollars processed and paid
Payment and processing fees
Net interest income after provision for
credit/loan losses
Total net revenue
Average earning assets
Net interest margin(1)
Net income
Diluted earnings per share
Return on average assets
Return on average equity
(1) Presented on a tax-equivalent basis.
For the Years Ended December 31,
2019
2020
2018
60,476
63,567
$39,975,033 $42,973,242
$107,953
$97,204
$44,515
$144,956
$47,166
$157,235
$1,674,297 $1,472,399
3.36%
$30,404
$2.07
1.74%
12.86%
2.82%
$25,176
$1.73
1.29%
10.23%
66,255
$42,380,453
$102,181
$44,190
$148,266
$1,403,748
3.32%
$30,268
$2.03
1.85%
13.55%
% Change
2020 v. 2019 2019 v. 2018
(4.1)%
1.4
5.6
(4.9)%
(7.0)
(10.0)
(5.6)
(7.8)
13.7
—
(17.2)
(16.4)
—
—
6.7
6.0
4.9
—
0.4
2.0
—
—
The results of 2020 compared to 2019 include the following significant items:
Overall, the Company’s revenue and profitability declined, primarily as a result of the COVID-19 global pandemic. For
payment processing services, business closures have led to a decrease in the number of transactions and dollars processed
due to the decline in customers’ business activity. COVID-19, along with a constriction in manufacturing activity for a
portion of the year, had a negative effect on payment processing fees, processing volume, and invoice dollars processed
and paid which decreased 10%, 5%, and 7%, respectively.
Average earning assets increased 14% and net interest income after provision for credit losses decreased 6% year over
year. The Federal Reserve’s actions to lower the Federal Funds rate adversely impacted net interest income after provision
21
for credit losses and the net interest rate margin. The increase in average earning assets, driven by government stimulus
programs, partially offset the impact of the near-zero interest rate environment on the Company’s net interest margin.
There was a provision for credit losses recorded of $810,000 in 2020 compared to $250,000 in 2019.
There were gains from the sale of securities of $1,075,000 and $19,000 in 2020 and 2019, respectively. Operating expenses
decreased $5,154,000 or 4%, as the decrease in the number of transactions processed had a corresponding decrease in
personnel expense. In addition, COVID-19 limited employee travel-related expenses.
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, discounts received for services provided to carriers and by the accounts and drafts payable balances generated in the
payment process which can be used to generate interest income. Processing volumes, fee revenue and other income were as
follows:
(In thousands)
Transportation invoice transaction volume
Transportation invoice dollar volume
Expense management transaction volume(1)
Expense management dollar volume(1)
Payment and processing revenue
Bank service fees
Gains (losses) on sales of investment
securities
Other
(1)Includes energy, telecom and environmental
2020
December 31,
2019
27,292
33,184
36,042
$26,516,803 $28,090,514
27,525
$13,458,230 $14,882,728
$107,953
$1,386
$97,204
$1,704
2018
37,542
$28,549,225
28,713
$13,831,228
$102,181
$1,335
% Change
2020 v. 2019 2019 v. 2018
(4.0)%
(7.9)%
(5.6)
(0.8)
(9.6)
(10.0)
22.9
(1.6)
(4.1)
7.6
5.6
3.8
$1,075
$458
$19
$711
$(42)
$602
5,557.9
(35.6)
(145.2)
18.1
Fee revenue and other income in 2020 compared to 2019 include the following significant pre-tax components:
In the transportation sector, invoice transaction and dollar volume decreased 8% and 6%, respectively, as the global
pandemic reduced customers’ business activities. The manufacturing industry, which represents an important component
of the transportation customer base, was constricted for a portion of the year before slowly opening back up towards the
latter half of 2020. Expense management transaction volume decreased 1% and dollar volume decreased 10% as
governmental restrictions in the restaurant, retail, and hospitality sectors curtailed business hours and consumers continued
to be cautious about travel and entertainment, both creating lower utility usage. There were gains from the sale of securities
in 2020 and 2019 of $1,075,000 and $19,000, respectively.
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,
(In thousands)
Average earning assets
Net interest income (1)
Net interest margin (1)
Yield on earning assets (1)
Rate on interest bearing liabilities
2020
$1,674,297
$47,214
2.82%
2.96%
0.49%
2018
2019
$1,472,399 $1,403,748
$46,612
3.32%
3.59%
1.00%
$49,501
3.36%
3.71%
1.32%
% Change
2020 v. 2019
13.7%
(4.6)%
2019 v. 2018
4.9%
6.2%
(1) Presented on a tax-equivalent basis using a tax rate of 21% in 2020, 2019 and 2018.
The decrease in net interest income in 2020 compared to 2019 is primarily due to the Federal Reserve’s actions to lower the
Federal Funds rate to near-zero levels, which adversely impacted net interest income and the net interest rate margin. The yield
on interest-earning assets declined 75 basis points from 3.71% in 2019 to 2.96% in 2020 while the cost of interest-bearing
liabilities declined 83 basis points from 1.32% in 2019 to 0.49% in 2020. However, the Company also had average balances of
demand deposits and accounts and drafts payable of $356,400,000 and $803,600,000 in 2020, respectively that do not pay any
interest. As such, when interest rates decline, interest income on assets funded by these balances decline but the cost paid on
these balances remains at zero.
22
Total average loans increased $146,208,000, or 19%, to $906,361,000 largely due to the funding of PPP loans in addition to
organic loan growth. 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 and certificates of deposit decreased $59,448,000, or 14%. The investment portfolio
will expand and contract over time as the Company manages its liquidity and interest rate position.
Average interest bearing deposits in other financial institutions increased $94,532,000, or 82%. Average federal funds sold and
other short-term investments increased $20,606,000, or 12%. These balances increased considerably in 2020 as governmental
stimulus activity boosted deposit balances which contributed to the rise in federal funds sold and other short-term investments.
Total average interest-bearing deposits increased $85,567,000, or 22%, largely due to the impact of government stimulus and
resulting cash deposits.
Average non-interest bearing demand deposits increased $80,132,000, or 29%, also largely due to the impact of government
stimulus and resulting cash deposits.
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:
23
(In thousands)
Assets (1)
Earning assets
Loans (2), (3):
Taxable
Tax-exempt (4)
Securities (5):
Taxable
Tax-exempt (4)
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
Premises and equipment, net
Bank owned life insurance
Goodwill and other
intangibles
Other assets
Allowance for credit/loan
losses
Total assets
Liabilities and Shareholders’
Equity (1)
Interest-bearing liabilities
Interest-bearing demand
deposits
Savings deposits
Time deposits >=$250
Other time deposits
Total interest-bearing deposits
Short-term borrowings
Total interest-bearing liabilities
Noninterest-bearing liabilities
Demand deposits
Accounts and drafts payable
Other liabilities
Total liabilities
Shareholders’ equity
Total liabilities and share-
holders’ equity
Net interest income (4)
Net interest margin (4)
Interest spread
2020
Average
Balance
Interest
Income/
Expense
Yield/
Rate
Average
Balance
2019
Interest
Income/
Expense
Yield/
Rate
Average
Balance
2018
Interest
Income/
Expense
Yield/
Rate
$906,361 $37,665
—
—
4.16 % $760,153 $36,461
—
—
—
4.80 % $709,280 $32,429
60
1,566
—
4.57 %
3.83
75,938
289,316
255
1,686
8,993
6
2.22
3.11
2.35
103,473
319,911
1,573
2,465
9,924
32
2.38
3.10
2.03
86,164
362,726
6,236
2,007
11,473
97
2.33
3.16
1.56
210,441
554
0.26
115,909
2,286
1.97
124,101
2,338
1.88
191,986
1,674,297
672
49,576
0.35
2.96
171,380
1,472,399
3,526
54,694
2.06
3.71
113,675
1,403,748
1,944
50,348
1.71
3.59
16,979
19,623
17,817
18,132
216,278
(11,016)
$1,952,110
15,455
21,319
17,489
15,433
217,922
(10,443)
$1,749,574
13,336
22,355
17,142
14,354
177,156
(10,215)
$1,637,876
$398,585
13,819
20,036
47,970
480,410
61
480,471
$1,313
24
267
756
2,360
2
2,362
0.33 %
0.17
1.33
1.58
0.49
3.28
0.49
$311,434
10,285
17,634
55,490
394,843
61
394,904
$3,686
103
281
1,121
5,191
2
5,193
1.18 % $302,816
11,451
1.00
16,639
1.59
41,045
2.02
371,951
1.31
10
3.28
371,961
1.32
356,433
803,605
65,513
1,706,022
246,088
276,301
785,202
56,700
1,513,107
236,467
252,926
745,713
43,904
1,414,504
223,372
$2,832
109
210
585
3,736
.94 %
.95
1.26
1.43
1.00
— —
1.00
3,736
$1,952,110
$47,214
2.82%
2.47%
$1,749,574
$49,501
3.36%
2.39%
$1,637,876
$46,612
3.32%
2.59%
(1) Balances shown are daily averages.
(2) For 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.
(3) Interest income on loans includes net loan fees of $3,608,000, $650,000, and $393,000 for 2020, 2019 and 2018, respectively. 2020 loan
fees include $3,057,000 of PPP loan fees.
(4) Interest income is presented on a tax-equivalent basis assuming a tax rate of 21% in 2020, 2019 and 2018. The tax-
equivalent adjustment was approximately $1,889,000, $2,085,000, and $2,422,000 for 2020, 2019, and 2018, respectively.
(5) For purposes of these computations, yields on investment securities are computed as interest income divided by the average amortized
cost of the investments.
24
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:
Loans (2), (3):
Taxable
Tax-exempt
Securities:
Taxable
Tax-exempt (4)
Certificates of deposit
Interest-bearing deposits in other
financial institutions
Federal funds sold and other short-term
investments
Total interest income
Interest expense on:
2020 Over 2019
2019 Over 2018
Volume (1) Rate (1)
Total
Volume(1) Rate (1)
Total
$6,476
—
$(5,272)
—
$1,204
—
$2,394
(60)
$1,638
—
$4,032
(60)
(620)
(951)
(30)
(159)
20
4
(779)
(931)
(26)
411
(1,332)
(88)
47
(217)
23
458
(1,549)
(65)
1,086
(2,818)
(1,732)
(159)
107
(52)
381
(3,235)
$6,342 $(11,460)
(2,854)
$(5,118)
1,130
$2,296
452
$2,050
1,582
$4,346
Interest-bearing demand deposits
Savings deposits
Time deposits >=$250
Other time deposits
Short-term borrowings
Total interest expense
Net interest income
$(3,201)
(106)
(50)
(226)
—
(3,583)
$(7,877)
(1) The 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.
(2) Average balances include nonaccrual loans.
(3) Interest income includes net loan fees.
(4) Interest income is presented on a tax-equivalent basis assuming a tax rate of 21% in 2020, 2019 and 2018.
$83
(11)
13
245
—
330
$1,966
$(2,373)
(79)
(14)
(365)
—
(2,831)
$(2,287)
$854
(6)
71
536
2
1,457
$2,889
$828
27
36
(139)
—
752
$5,590
$771
5
58
291
2
1,127
$923
Loan Portfolio
Interest earned on the loan portfolio is a primary source of income for the Company. The loan portfolio was
$891,676,000 representing 40% of the Company's total assets as of December 31, 2020 and generated $37,665,000 in revenue
during the year then ended. 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, 2020.
Loans by Type
(In thousands)
Commercial and industrial
Real estate (commercial and faith-based):
Mortgage
Construction
PPP
Industrial Revenue Bond
Other
Total loans
2020
$298,984
434,080
48,908
109,704
—
—
$891,676
2019
$323,857
407,480
41,244
—
—
57
$772,638
December 31,
2018
$277,091
411,752
32,434
—
—
310
$721,587
2017
$236,394
410,748
35,307
—
3,374
408
$686,231
2016
$214,767
425,947
17,477
—
6,639
36
$664,866
25
Loans by Maturity as of December 31, 2020
One Year
Or Less
Fixed
Rate
Floating
Rate (1)
Over 1 Year
Through 5 Years
Fixed
Rate
Floating
Rate (1)
Over
5 Years
Fixed
Rate
Floating
Rate (1)
$
33,534 $ 80,035 $
(In thousands)
Commercial and industrial
Real Estate:
Mortgage
Construction
PPP
Total loans
(1) Loans have been classified as having "floating" interest rates if the rate specified in the loan varies with the prime commercial rate of
interest.
434,080
48,908
109,704
31,410 $ 117,701 $ 31,894 $ 891,676
2,944
17,520
—
85,294 $ 100,499 $ 524,878 $
66,226 $ 17,772 $ 298,984
320,700
989
109,694
33,373
18,377
10
51,475
—
—
12,103
11,385
—
13,485
637
—
93,495 $
7,922 $
Total
$
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,
franchises, and faith-based 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 faith-based
ministries 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 $500,000 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.
Loans increased $119,038,000, or 15%, to $891,676,000 during the year-ended December 31, 2020 compared to December 31,
2019, largely due to the funding of PPP loans in addition to organic loan growth. 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 Credit Losses on Loans and Allowance for Unfunded Commitments
The Company recorded a provision for credit/loan losses and off-balance sheet credit exposures of $810,000 in 2020 and
$250,000 in 2019. There was no provision for loan losses in 2018. The amount of the provisions for credit losses was derived
from the Company’s quarterly Current Expected Credit Loss (“CECL”) model. The amount of the provision will fluctuate as
determined by these quarterly analyses. The Company had net loan recoveries of $20,000 and $81,000 in 2020 and 2019,
respectively. The ACL was $11,944,000 at December 31, 2020 compared to an allowance for loan losses (“ALLL”) of
$10,556,000 at December 31, 2019. The ACL represented 1.34% of outstanding loans at year-end 2020 and the ALLL
represented 1.37% of outstanding loans at year-end 2019. Excluding PPP loans, the ACL represented 1.53% of total loans at
December 31, 2020. The allowance for unfunded commitments was $567,000 at December 31, 2020 and there was no
allowance for unfunded commitments at December 31, 2019. There were no nonperforming loans outstanding at December
31, 2020, 2019 or 2018.
The ACL has been established and is maintained to estimate the lifetime credit losses inherent in the loan portfolio. An ongoing
assessment is performed to determine if the balance is adequate. Charges or credits are made to expense based on changes in
the economic forecast, qualitative risk factors, loan volume, and individual loans. For loans that are individually evaluated,
the Company uses two impairment measurement methods: 1) the present value of expected future cash flows and 2) collateral
value.
The Company also utilizes ratio analysis to evaluate the overall reasonableness of the ACL compared to its peers and required
levels of regulatory capital. Federal and state regulatory agencies review the Company’s methodology for maintaining the
ACL. These agencies may require the Company to adjust the ACL based on their judgments and interpretations about
information available to them at the time of their examinations.
The following schedule summarizes activity in the ACL and the allocation of the allowance to the Company’s loan categories.
26
Summary of Credit Loss Experience
(In thousands)
Allowance at beginning of year
Loans charged-off:
Commercial and industrial
Real estate (commercial and faith-based):
Mortgage
Construction
Other
Total loans charged-off
Recoveries of loans previously charged-off:
Commercial and industrial
Real estate (commercial and faith-based):
Mortgage
Construction
Other
Total recoveries of loans previously charged-off
Net loans recovered
Provision charged (credited) to expense
Allowance at end of year
Cumulative effect of accounting change
(ASU 2016-13)
Allowance at beginning of next year
Allowance for unfunded commitments at
beginning of year
Provision charged to expense
Allowance for unfunded commitments at end
of year
Cumulative effect of accounting change
(ASU 2016-13)
Allowance for unfunded commitments at
beginning of next year
Loans outstanding:
Average
December 31
Ratio of allowance for credit/loan losses to loans
outstanding:
Average
December 31
Ratio of net recoveries to average loans
outstanding
Allocation of allowance for credit/loan losses (1):
Commercial and industrial
Real estate (commercial and faith-based):
Mortgage
Construction
Industrial Revenue Bond
Other
Total
Percentage of categories to total loans:
Commercial and industrial
Real estate (commercial and faith-based):
Mortgage
Construction
PPP
Industrial Revenue Bond
Other
Total
2020
$11,279
2019
$10,225
December 31,
2018
$10,205
2017
$10,175
2016
$11,635
—
—
—
—
—
19
1
—
—
20
(20)
645
$11,944
—
$11,944
$402
165
567
—
—
—
—
—
—
81
—
—
—
81
(81)
250
$10,556
723
$11,279
$ —
—
—
402
—
—
—
—
—
20
—
—
—
20
(20)
—
$10,225
—
$10,225
$ —
—
—
—
—
—
—
—
—
30
—
—
—
30
(30)
—
$10,205
—
$10,205
$ —
—
—
—
—
—
—
—
—
39
1
—
—
40
(40)
(1,500)
$10,175
—
$10,175
$ —
—
—
—
$567
$402
$ —
$ —
$ —
$906,631
891,676
$760,153
772,638
$710,846
721,587
$663,653
686,231
$678,061
664,866
1.32%
1.34%
1.39%
1.37%
—
(.01)%
1.44%
1.42%
—
1.54%
1.49%
1.50%
1.53%
—
(.01)%
$4,635
$4,874
$4,179
$3,652
$3,261
6,892
417
—
—
$11,944
5,370
312
—
—
$10,556
5,378
244
—
424
$10,225
5,356
266
52
879
$10,205
5,689
132
101
992
$10,175
33.5%
41.9%
38.4%
34.4%
32.3%
48.7%
5.5%
12.3%
—%
—%
100.0%
52.8%
5.3%
—%
—%
—%
100.0%
57.1%
4.5%
—%
—%
—%
100.0%
59.9%
5.1%
—%
.59%
.01%
100.0%
64.1%
2.6%
—%
1.0%
%
100.0%
(1) Although specific allocations exist, the entire allowance is available to absorb losses in any particular loan category.
27
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. There was no interest on nonaccrual loans
for the years ended December 31, 2020 and 2019, respectively.
There were no nonaccrual loans or foreclosed assets at December 31, 2020 or December 31, 2019.
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(1)
Contractually past due 90 days or more and still
accruing
Total nonperforming loans
Total foreclosed assets
Total nonperforming assets
2020
$ —
—
—
—
$ —
—
$ —
2019
$ —
—
—
—
$ —
—
$ —
December 31,
2018
$ —
—
—
—
$ —
—
$ —
2017
$ —
—
—
—
$ —
—
$ —
2016
$ —
—
245
—
$245
—
$245
(1) In October 2017, one nonaccrual loan with a balance of $215,000 was paid in full. In February 2016, one nonaccrual loan with a
balance of $2,727,000 was paid in full.
Operating Expenses
Operating expenses in 2020 compared to 2019 include the following significant pre-tax components:
Personnel expense decreased $3,021,000, or 3%, to $88,062,000 as COVID-19 caused a decrease in invoice processing
volumes and a corresponding decrease in personnel expense. Promotional expense decreased $1,654,000, or 43%, as
employee travel-related expenses were limited throughout the year.
Income Tax Expense
Income tax expense in 2020 totaled $5,165,000 compared to $7,062,000 in 2019. When measured as a percent of pre-tax
income, the Company’s effective tax rate was 17% in 2020 and 19% in 2019. The decrease in the effective tax rate in 2020
compared to 2019 was primarily due to tax-exempt income from municipal bonds being a larger percentage of total pretax
income, in addition to the eligibility of additional tax credits.
Investment Portfolio
Investment portfolio changes from December 31, 2019 to December 31, 2020:
State and political subdivision securities decreased $18,473,000, or 6%, to $305,974,000. U.S. government agency
securities decreased $45,966,000 to $51,752,000. 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
28
Company’s sources of funds and the economic outlook. During this period, the Company purchased securities totaling
$20,043,000.
There was no single issuer of securities in the investment portfolio at December 31, 2020 for which the aggregate amortized
cost exceeded 10% of total shareholders' equity.
Investments by Type
(In thousands)
State and political subdivisions
U.S. government agencies
Certificates of deposit
Total investments
Investment Securities by Maturity
(At December 31, 2020)
$
$
December 31,
2019
2020
305,974 $
51,752
357,726 $
2018
324,447 $ 334,717
104,822
1,995
422,665 $ 441,534
97,718
500
Within 1
Year
1 to 5 Years
5 to 10
Years
Over
10 Years
(In thousands)
State and political subdivisions
U.S. government agencies
Total investments
Weighted average yield (1)
176,572 $
2.90%
(1) Yields are presented on a tax-equivalent basis assuming a tax rate of 21% for 2020, 2019 and 2018.
$
$
26,244 $
25,018
51,262 $
2.25%
98,677 $
709
99,386 $
3.18%
166,157 $
10,415
14,896
15,610
30,506
1.91%
Yield
2.99%(1)
1.68%
2.79%
2.79%
Deposits and Accounts and Drafts Payable
Noninterest-bearing demand deposits increased 41% from December 31, 2019 to $493,504,000 at December 31, 2020. The
average balances of these deposits increased 29% in 2020 to $356,433,000. The increase in deposits during 2020 is primarily
attributed to government related stimulus activity and the resulting increase in cash deposits. These balances are primarily
maintained by commercial customers, faith-based ministries, and new payment and information processing relationships and
can fluctuate on a daily basis.
Interest-bearing deposits increased $151,307,000, or 37%, to $557,352,000 at December 31, 2020. The average balances of
these deposits increased 22% to $480,410,000 in 2020 from $394,843,000 in 2019. The increase in deposits during 2020 is
primarily attributed to government related stimulus activity and the resulting increase in cash deposits.
Accounts and drafts payable generated by the Company in its payment processing operations increased $151,091,000, or 22%,
to $835,386,000 at December 31, 2020. The average balance of these funds increased $18,403,000, or 2%, to $803,605,000 in
2020. This increase was the result of continued growth in the customer base. 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.
Maturities of Certificates of Deposit as of December 31, 2020
(In thousands)
Three months or less
Three to six months
Six to twelve months
Over twelve months
Total
Liquidity
$100 or Less
$100 to Less
Than $250
$250 or
More
$
$
1,013 $
355
1,428
1,295
4,091 $
16,302
434
9,362
8,900
34,998
$
$
1,187 $
7,168
2,326
6,215
16,896 $
Total
18,502
7,957
13,116
16,410
55,985
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
29
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 $670,528,000 at December 31,
2020, an increase of $466,574,000, or 229%, from December 31, 2019. The increase during 2020 is primarily attributed to
government related stimulus activity and the resulting increase in cash deposits. At December 31, 2020, these assets represented
30% 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 $357,726,000 at December 31, 2020, a decrease of $64,939,000, or 15%, from December
31, 2019. These assets represented 16% of total assets at December 31, 2020 and were primarily state and political subdivision
and treasury securities. Of the total portfolio, 14% mature in one year or less, 28% mature after one year through five years
and 58% mature after five years.
As of December 31, 2020, the Bank had unsecured lines of credit at correspondent banks to purchase federal funds up to a
maximum of $83,000,000 at the following banks: US Bank, $20,000,000; UMB Bank $20,000,000; Wells Fargo Bank,
$15,000,000; PNC Bank, $12,000,000; Frost National Bank, $10,000,000; and JPM Chase Bank, $6,000,000. As of December
31, 2020, the Bank had secured lines of credit with the Federal Home Loan Bank (“FHLB”) of $191,992,000 collateralized by
commercial mortgage loans. At December 31, 2020, the Company had lines of credit from UMB Bank of $75,000,000 and
First Tennessee Bank of $75,000,000 collateralized by state and political subdivision securities. Under the lines of credit
discussed above, there were no amounts outstanding at December 31, 2020 and $18,000,000 outstanding at December 31, 2019.
The amount outstanding at the end of the 2019 was borrowed on December 31, 2019 and repaid on January 2, 2020.
In addition to the lines of credit discussed above, as of April 21, 2020 the Bank was approved for the Federal Reserve’s
Paycheck Protection Program Lending Facility. The Bank can receive non-recourse loans with the previously mentioned PPP
loans pledged as collateral. The Bank can borrow an amount up to 100% of the amount of the PPP loans, which was
$109,704,000 as of December 31, 2020. There was no amount outstanding at December 31, 2020 for this line of credit.
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 2020, 2019 and 2018 were $47,781,000, $42,126,000, and
$48,335,000, 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 2021. The Company anticipates the annual capital
expenditures for 2021 should range from $5 million to $7 million. Capital expenditures in 2021 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 noninterest-bearing accounts and drafts payable generated from its payment and information 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.
30
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. Lower levels of economic activity decrease
both fee income (as fewer invoices are processed) and balances of accounts and drafts payable generated (as fewer invoices are
processed) from the Company’s transportation customers.
The relative level of energy costs can impact the Company’s earnings and available liquidity. Lower levels of energy costs
will tend to decrease transportation and energy invoice amounts resulting in a corresponding decrease in accounts and drafts
payable. Decreases in accounts and drafts payable generate lower interest income and reduce 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 2020, 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.
During fiscal 2020, the actions taken by state and local governments to reduce the spread of the COVID-19 pandemic impacted
the Company’s financial condition. For a discussion of trends and impacts to liquidity relating to COVID-19, refer to Note 1
“Basis of Presentation.”
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, 2020 as shown in Item 8, Note 2 of this
report.
In 2020, cash dividends paid were $1.08 per share for a total of $15,599,000, an increase of $365,000, or 2%, compared to
$1.05 per share for a total of $15,234,000 in 2019. The increase is attributable to the per-share amount paid.
Shareholders’ equity was $261,160,000, or 12% of total assets, at December 31, 2020, an increase of $16,970,000 over the
balance at December 31, 2019. This increase resulted primarily from net income of $25,176,000 and a decrease in other
comprehensive loss of $13,905,000. This increase was partially offset by cash dividends of $15,599,000 and the repurchase of
treasury shares of $6,825,000.
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, state corporate laws and prudent and sound
banking principles. As of December 31, 2020, unappropriated retained earnings of $48,680,000 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 162,901 shares at an aggregate
cost of $6,825,000 during the year ended December 31, 2020 and 154,593 shares at an aggregate cost of $7,799,000 during the
year ended December 31, 2019. As of December 31, 2020, 465,878 shares remained available for repurchase under the
program. In October 2020, the Board restored the capacity of the buyback program to 500,000 shares. 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, business and market conditions, 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. 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, 2020, an
allowance for unfunded commitments of $567,000 had been recorded. See Item 7, “Management’s Discussion and Analysis
of Financial Condition and Results of Operations—Provision and Allowance for Credit Losses and Unfunded Commitments”
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
31
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, 2020, the balance of loan
commitments, standby and commercial letters of credit were $192,916,000, $10,609,000 and $955,000, 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.
See Note 14 – Disclosures about Fair Value of Financial Instruments for more information.
The following table summarizes contractual cash obligations of the Company related to time deposits at December 31, 2020:
(In thousands)
Time deposits
Total
Amount of Commitment Expiration per Period
1-3
Years
Less than 1
Year
3-5
Years
Over
5 Years
Total
$
$
55,985 $
55,985 $
39,575 $
39,575 $
16,362 $
16,362 $
48 $
48 $
During 2020, 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 2020, 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
3.30%
(a)
6.50%
(a) 6.00% graded down to 3.25% over the first seven years of service.
32
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 concentration of 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, like the Company is currently experiencing, 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 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, 2020, 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 economic impact of the COVID-19 pandemic has introduced
significant uncertainty and market volatility. The table below contains the analysis, which illustrates the effects of an immediate
and sustained parallel change in interest rates as of December 31, 2020:
Change in Interest Rates
+200 basis points
+100 basis points
Stable rates
-100 basis points
-200 basis points
% Change in Net Interest Income % Change in Fair Market Value of Equity
32%
17%
(14%)
(11%)
33%
16%
(3%)
(3%)
33
Interest Rate Sensitivity Position
The following table presents the Company’s interest rate risk position at December 31, 2020 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)
Interest-earning assets:
Loans:
Taxable
Tax-exempt
Investment securities (1):
Tax-exempt
U.S. government agencies
Treasuries
Investments in the FHLB
and FRB
Federal funds sold and other
short-term investments
Total interest-earning assets
Interest-sensitive liabilities:
$ 164,783 $
1,381
639,543
$ 805,707 $
Time deposits:
$250K and more
Less than $250K
Total interest-sensitive liabilities $ 501,367 $
Interest sensitivity gap:
Periodic
Cumulative
$ 304,340 $
304,340
Ratio of interest-earning assets
to interest-sensitive liabilities:
Periodic
Cumulative
1.61
1.61
(1) Balances shown reflect earliest re-pricing date.
Money market accounts
Now accounts
Savings deposits
$ 372,751 $
107,532
21,084
$
$
$
$
23,068 $
7,024 $
54,221 $ 524,879 $
117,701 $
891,676
6,457
25,018
3,158
15,049
100,257
709
181,053
26,025
305,974
26,734
25,018
1,381
324,779 $
639,543
1,890,326
54,543 $ 10,182 $
69,270 $ 625,845 $
1,187
17,315
18,502 $
7,168
789
7,957 $
2,326
10,790
13,116 $
6,215
10,195
16,410 $
36,041 $
340,381
2,224 $
56,154 $ 609,435 $
324,780 $
342,605
398,759
1,008,194
1,332,974
$
$
372,751
107,532
21,084
16,896
39,089
557,352
1,332,974
1,332,974
2.95
1.65
1.28
1.65
5.28
1.74
38.14
2.81
3.39
3.39
3.39
34
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
2020
2019
30,985
393,810
245,733
670,528
357,726
891,676
11,944
879,732
194,563
18,057
18,058
14,262
3,423
46,886
2,203,235
493,504
557,352
1,050,856
835,386
─
55,833
1,942,075
$
$
$
18,076
172,422
13,456
203,954
422,665
772,638
10,556
762,082
206,158
20,527
17,599
14,262
4,281
112,715
1,764,243
351,091
406,045
757,136
684,295
18,000
60,622
1,520,053
─
─
7,753
204,875
99,062
(50,515)
(15)
261,160
2,203,235
7,753
205,397
90,341
(45,381)
(13,920)
244,190
1,764,243
$
$
$
$
$
(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 credit/loan losses
Loans, net
Payments in advance of funding
Premises and equipment, net
Investments in bank-owned life insurance
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
Short-term borrowings
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, 15,505,772 shares issued at
December 31, 2020 and 2019.
Additional paid-in capital
Retained earnings
Common shares in treasury, at cost (1,113,103 and 991,406
shares at December 31, 2020 and 2019, respectively)
Accumulated other comprehensive loss
Total shareholders’ equity
Total liabilities and shareholders’ equity
See accompanying notes to consolidated financial statements.
35
CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31,
2019
2020
2018
$
$
97,204
1,704
1,075
458
100,441
$
107,953
1,386
19
711
110,069
102,181
1,335
(42)
602
104,076
37,665
36,461
32,477
1,692
7,104
1,226
47,687
2,360
2
2,362
45,325
810
2,497
7,839
5,812
52,609
5,191
2
5,193
47,416
250
44,515
144,956
47,166
157,235
88,062
3,739
6,568
859
15,387
114,615
30,341
5,165
25,176
1.75
1.73
$
$
91,083
3,918
6,140
563
18,065
119,769
37,466
7,062
30,404
2.11
2.07
$
$
2,104
9,063
4,282
47,926
3,736
─
3,736
44,190
─
44,190
148,266
85,881
3,723
5,610
442
16,263
111,919
36,347
6,079
30,268
2.06
2.03
$
$
(In thousands except per share data)
Fee Revenue and Other Income:
Information services payment and processing revenue
Bank service fees
Gains (losses) 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
Interest on short-term borrowings
Total interest expense
Net interest income
Provision for credit/loan losses
Net interest income after provision for credit/loan
losses
Total net revenue
Operating Expense:
Personnel
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.
36
CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Years Ended December 31,
2020
2019
2018
$
25,176
$
30,404 $
30,268
6,689
(1,592)
(1,075)
256
12,548
(2,987)
66
13,905
39,081
$
13,429
(3,196)
(19)
5
(6,903)
1,643
(7)
4,952
$
35,356 $
(7,534)
1,793
42
(10)
341
(81)
(103)
(5,552)
24,716
(In thousands)
Comprehensive Income:
Net income
Other comprehensive income (loss):
Net unrealized gain (loss) on securities available-for-sale
Tax effect
Reclassification adjustments for (gains) losses included in
net income
Tax effect
FASB ASC 715 pension adjustment
Tax effect
Foreign currency translation adjustments
Other comprehensive income (loss)
Total comprehensive income
See accompanying notes to consolidated financial statements.
37
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) losses on sales of securities
Stock-based compensation expense
Provision for credit/loan losses
Deferred income tax (benefit) expense
Increase (decrease) in current income tax liability
Increase (decrease) in pension liability
Decrease in accounts receivable
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 in loans
Decrease (increase) in payments in advance of funding
Purchases of premises and equipment, net
Asset acquisition of Gateway Giving, LLC
Net cash used in investing activities
For the Years Ended December 31,
2020
2019
2018
$
25,176 $
30,404 $
30,268
11,269
(1,075)
2,267
810
(874)
1,237
4,423
756
3,792
47,781
21,943
63,789
(20,043)
(119,183)
11,595
(2,001)
─
(43,900)
10,939
(19)
3,144
250
1,247
(1,838)
(1,916)
988
(1,073)
42,126
4,648
21,502
─
(50,970)
(45,381)
(2,723)
(2,833)
(75,757)
11,238
42
3,006
─
(3,521)
3,746
4,641
4,709
(5,794)
48,335
58,520
38,116
(82,022)
(35,336)
(21,674)
(4,399)
─
(46,795)
Cash Flows From Financing Activities:
Net increase in noninterest-bearing demand deposits
Net increase (decrease) in interest-bearing demand and savings
deposits
Net (decrease) increase in time deposits
Net increase (decrease) in accounts and drafts payable
Net (decrease) increase in short-term borrowings
Cash dividends paid
Purchase of common shares for treasury
Other financing activities, net
Net cash 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
142,413
37,833
31,717
166,289
(14,982)
210,495
(18,000)
(15,599)
(6,825)
(1,098)
462,693
466,574
203,954
670,528 $
(1,133)
(1,490)
(22,400)
18,000
(15,234)
(7,799)
(1,125)
6,652
(26,979)
230,933
203,954 $
(7,838)
19,959
(19,595)
─
(13,177)
(8,838)
(945)
1,283
2,823
228,110
230,933
2,426 $
4,732
5,181 $
7,604
3,701
6,723
$
$
See accompanying notes to consolidated financial statements.
38
CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands except per share data)
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
Treasury
Stock
Accumulated
Other
Comprehensive
Income (Loss)
Total
Balance, December 31, 2017
$ 6,524
$ 204,631
$ 59,314
$ (32,061)
$ (13,320)
$ 225,088
Net income
Cash dividends ($.89 per share)
Stock dividend
Issuance of 33,039 common shares pursuant
to stock-based compensation plan, net
Exercise of SARs
Stock-based compensation expense
Purchase of 169,143 common shares
Other comprehensive loss
Balance, December 31, 2018
Net income
Cash dividends ($1.05 per share)
Issuance of 34,810 common shares pursuant
to stock-based compensation plan, net
Exercise of SARs
Stock-based compensation expense
Purchase of 154,593 common shares
Other comprehensive income
Balance, December 31, 2019
Cumulative effect of accounting change
(ASU 2016-13), net of tax
Balance, January 1, 2020
Net income
Cash dividends ($1.08 per share)
Issuance of 72,448 common shares pursuant
to stock-based compensation plan, net
Exercise of SARs
Stock-based compensation expense
Purchase of 162,901 common shares
Other comprehensive income
Balance, December 31, 2020
1,229
30,268
(13,177)
(1,234)
(991)
(876)
3,006
624
301
(8,838)
$ 7,753
$ 205,770
$ 75,171
$ (39,974)
(5,552)
$ (18,872)
30,404
(15,234)
(1,417)
(2,100)
3,144
1,358
1,034
(7,799)
$ 7,753
$ 205,397
$ 90,341
$ (45,381)
4,952
$ (13,920)
(856)
30,268
(13,177)
(5)
(367)
(575)
3,006
(8,838)
(5,552)
$ 229,848
30,404
(15,234)
(59)
(1,066)
3,144
(7,799)
4,952
$ 244,190
(856)
$ 7,753
$ 205,397
$ 89,485
$ (45,381)
$ (13,920)
$ 243,334
25,176
(15,599)
(2,546)
(243)
2,267
1,550
141
(6,825)
$ 7,753
$ 204,875
$ 99,062
$ (50,515)
13,905
$ (15)
25,176
(15,599)
(996)
(102)
2,267
(6,825)
13,905
$ 261,160
See accompanying notes to consolidated financial statements.
39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1
Summary of Significant Accounting Policies
Summary of Operations 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 advance 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 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. GAAP. The
consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries after elimination of
intercompany transactions. Certain amounts in the 2019 and 2018 consolidated financial statements have been reclassified to
conform to the 2020 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. Securities are
periodically evaluated for credit losses in accordance with the guidance provided in FASB ASC Topic 326, Financial
Instruments – Credit Losses.
For available for sale debt securities in an unrealized loss position, the entire loss in fair value is required to be recognized in
current earnings if the Company intends to sell the securities or believes it likely that it will be required to sell the security
before the anticipated recovery. If neither condition is met, and the Company does not expect to recover the amortized cost
basis, the Company determines whether the decline in fair value resulted from credit losses or other factors. If the assessment
indicates that a credit loss exists, the present value of cash flows expected to be collected is compared to the amortized cost
basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit
loss has occurred, and an allowance for credit losses is recorded. The allowance for credit losses is limited by the amount that
the fair value is less than the amortized cost basis. Any impairment not recorded through the provision for credit losses would
be recognized in other comprehensive income.
Changes in the allowance for credit losses would be recorded as a provision for credit losses on the consolidated statements of
income. Losses would be charged against the allowance for credit losses on securities when management believes the
uncollectibility of an available for sale security is confirmed or when either of the conditions regarding intent or requirement
to sell is met.
Prior to the adoption of ASU 2016 -13 as of January 1, 2020, the Company evaluated a decline in the fair value of any available-
for-sale security below cost to determine whether the decline was deemed other than temporary and, if so, would result in a
charge to earnings and the establishment of a new cost basis for the security. To determine whether impairment was other than
temporary, the Company considered guidance provided in the FASB ASC Topic 320, Investments – Debt and Equity Securities.
When determining whether a debt security was other-than-temporarily impaired, the Company assessed whether it had the
intent to sell the security and whether it was more likely than not that the Company would be required to sell prior to recovery
of the amortized cost basis. Evidence considered in this assessment included 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.
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
40
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.
Allowance for Credit Losses The ACL 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 ACL.
Management’s approach provides for estimated credit losses on loans in accordance with ASU No. 2016-13, Financial
Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. These estimates are based
upon a number of factors, such as payment history, financial condition of the borrower, expected future cash flows and collateral
exposure.
The ACL is a valuation account that is deducted from the amortized cost basis to present the net amount expected to be collected
on the loans. Loans are charged off against the ACL when management believes the uncollectibility of a loan balance is
confirmed. Expected recoveries for amounts previously charged off and expected to be charged off do not exceed the aggregate
of amounts previously charged off and expected to be charged off.
Management estimated the allowance balance using relevant available information from internal and external sources, relating
to past events, current conditions and reasonable and supportable forecasts based on economic factors, such as GDP. Historical
credit loss experience, of both the Company and similar peer banks, provides the basis for the estimation of expected credit
losses. Adjustments to historical loss information are made for lending management experience, asset quality trends, borrower’s
ability to pay, collateral, and other environmental factors. The ACL is measured on a collective pool basis when similar risk
characteristics exist. Management believes the ACL is adequate to absorb expected losses in the loan portfolio.
Loans
The ACL is measured on a collective pool basis when similar risk characteristics exist. The Company has identified the
following portfolio segments:
Commercial & Industrial (“C&I”) – C&I loans consist of loans to small and medium-sized businesses in a wide variety of
industries, franchise lending, and equipment financing to companies of all sizes. These loans are generally collateralized by
inventory, accounts receivable, equipment, and other commercial assets, and may be supported by other credit enhancements
such as personal guarantees. Risk arises primarily due to a difference between expected and actual cash flows of the borrower.
However, the recoverability of these loans is also dependent on other factors primarily dictated by the type of collateral securing
these loans. The fair value of the collateral securing these loans may fluctuate as market conditions change. Included within
C&I are revolving loans supported by borrowing bases that fluctuate depending on the amount of underlying collateral.
Commercial Real Estate (“CRE”) – CRE loans include various types of loans for which the Company holds real property as
collateral. Commercial real estate lending activity is typically restricted to owner-occupied properties or to investor properties
that are owned by customers with a current banking relationship. The primary risks of CRE loans include the borrower’s
inability to pay and material decreases in the value of the real estate being held as collateral.
Faith-based CRE – Faith-based CRE loans include loans to faith-based ministries for which the Company holds real property
as collateral. The primary risks of faith-based CRE loans include the borrower’s inability to pay and material decreases in the
value of the real estate being held as collateral.
Construction and Land Development – The Company originates loans to finance construction projects including faith-based
and commercial projects. Construction loans are generally collateralized by first liens on the real estate and have floating
interest rates. The primary risks of construction loans are construction completion and timing risk. Adverse economic
conditions may negatively impact the borrowers’ ability to complete the project. Additionally, the fair value of the underlying
collateral may fluctuate as market conditions change.
The ACL is calculated as the difference between the amortized cost basis and the projections from the weighted-average
remaining maturity ("WARM") model that the Company developed. The WARM model utilizes an attrition analysis, including
events such as payoffs, matured loans, and renewals in the borrowers’ control, to anticipate the length of time it would take for
each portfolio segment to runoff. Management incorporates a one year GDP forecast and an immediate reversion to peer
historical loss rates to determine the annual charge off rates over the estimated life of the loans. After the reasonable and
supportable forecast period, the model reverts to long-run historical average loss rates of its peers. However, for the faith-based
CRE ACL, beyond the reasonable and supportable forecast period, loss rates are reverted immediately to the Company’s long-
run historical averages, as this represents a unique loan segment to the peer portfolios. The economic forecast is based on
management’s assessment of the length and pattern of the current economic cycle. The resulting annual charge off rate
determined for each year in the WARM model is applied to the loan balances estimated in the attrition analysis.
Management accounts for the inherent uncertainty of the underlying economic forecast by reviewing forecast scenarios.
Additionally, the ACL calculation includes subjective adjustments for qualitative risk factors that are likely to cause estimated
41
credit losses to differ from historical experience. These qualitative adjustments may increase or reduce reserve levels and
include adjustments for lending management experience and risk tolerance, loan review and audit results, asset quality and
portfolio trends, loan portfolio growth and loan concentrations. The Company has elected to exclude accrued interest receivable
("AIR") from the allowance for credit losses calculation. When a loan is placed on non-accrual, any recorded AIR is reversed
against interest income.
The determination and application of the ACL accounting policy involves judgments, estimates, and uncertainties that are
subject to change. Changes in these assumptions, estimates or the conditions surrounding them may have a material impact on
the Company’s financial condition, liquidity or results of operations. Various regulatory agencies, as an integral part of the
examination process, periodically review the ACL. Such agencies may require the Company to recognize additions to the ACL
or reserve increases to adversely graded classified loans based on information available to them at the time of their
examinations.
The ACL is decreased by net charge-offs and is increased by provisions for credit losses that are charged to the consolidated
statements of operations. Charge-offs, if any, are typically measured for each loan based on a thorough analysis of the most
probable source of repayment, such as the present value of the loan’s expected future cash flows, the loan’s estimated fair
value, or the estimated fair value of the underlying collateral less costs of disposition for collateral-dependent loans. When it
is determined that specific loans, or portions thereof, are uncollectible, these amounts are charged off against the ACL.
Unfunded loan commitments
In addition to the ACL for funded loans, the Company maintains reserves to cover the risk of loss associated with off-balance
sheet unfunded loan commitments. The allowance for off-balance sheet credit losses is maintained within other liabilities in
the statements of financial condition. Under the CECL framework, adjustments to this liability are recorded as provision for
credit losses in the consolidated statements of operations. Unfunded loan commitment balances are evaluated by loan segment.
In order to establish the required level of reserve, the Company applies average historical utilization rates and ACL loan model
loss rates for each loan segment to the outstanding unfunded commitment balances.
Investment securities
Management evaluates all investments in an unrealized loss position on a quarterly basis, and more frequently when economic
or market conditions warrant such evaluation. If the Company has the intent to sell the security or it is more likely than not that
the Company will be required to sell the security, the security is written down to fair value and the entire loss is recorded in
earnings. If either of the above criteria is not met, the Company will evaluate whether the decline in fair value is the result of
credit losses or other factors. In making the assessment, the Company may consider various factors including the extent to
which fair value is less than amortized cost, performance on any underlying collateral, downgrades in the ratings of the security
by a rating agency, the failure of the issuer to make scheduled interest or principal payments and adverse conditions specifically
related to the security. If the assessment indicates that a credit loss exists, the present value of cash flows expected to be
collected are compared to the amortized cost basis of the security and any excess is recorded as an allowance for credit loss.
For U.S. agency-backed securities where the risk of nonpayment of the amortized cost basis is zero, the Company will not
measure expected credit losses on these securities. When the loss is not considered a result of credit loss, the cost basis of the
security is written down to fair value, with the loss charge recognized in AOCI. Credit losses are not estimated for AIR from
investment securities as interest deemed uncollectible is written off through interest income.
Allowance for Loan Losses Prior to the adoption of ASU 2016-13 as of January 1, 2020, the Company determined reserves
for losses on the loan portfolio in the ALLL. The ALLL was increased by provisions charged to expense and was available to
absorb charge-offs, net of recoveries. Management utilized a systematic, documented approach in determining the appropriate
level of the ALLL. Management’s approach provided for estimated credit losses on individually evaluated loans in accordance
with FASB ASC 310, Allowance for Credit Losses (“ASC 310”). These estimates were based upon a number of factors, such
as payment history, financial condition of the borrower, expected future cash flows and discounted collateral exposure.
Estimated credit losses inherent in the remainder of the portfolio were estimated in accordance with FASB ASC 450,
Contingencies. These loans were segmented into groups based on similar risk characteristics. Historical loss rates for each risk
group, which were updated quarterly, were generally quantified using all recorded loan charge-offs and recoveries over a
prescribed look-back period. These historical loss rates for each risk group were used as the starting point to determine the
level of the allowance. The Company’s methodology incorporated an estimated loss emergence period for each risk group. The
loss emergence period was the period of time from when a borrower experienced a loss event and when the actual loss was
recognized in the financial statements, generally at the time of initial charge-off of the loan balance. The Company’s
methodology also included qualitative risk factors that allowed management to adjust its estimates of losses based on the most
recent information available and to address other limitations in the quantitative component that was based on historical loss
rates. Such risk factors were generally reviewed and updated quarterly, as appropriate, and were adjusted to reflect changes in
national and local economic conditions and developments, the volume and severity of delinquent and internally classified loans,
loan concentrations, assessment of trends in collateral values, assessment of changes in borrowers’ financial stability, and
changes in lending policies and procedures, including underwriting standards and collections, charge-off and recovery
practices.
42
Management believed the ALLL was adequate to absorb probable losses in the loan portfolio. Additionally, various regulatory
agencies, as an integral part of their examination process, periodically reviewed the Company’s ALLL. Such agencies may
have required the Company to increase the ALLL based on information available to them at the time of their examinations.
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.
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 credit losses. Any decline in the fair value of the property subsequent
to acquisition is recorded as a charge to non-interest expense.
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.
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, as equity investments without readily determinable fair values. As a result, the carrying value of the
investment is determined under the measurement alternative of cost, less impairment (if any), adjusted for fair value changes
when observable prices are available. The Company periodically evaluates for impairment of these investments. In performing
this evaluation, the Company considers various factors including 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.
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.
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. The
to be recovered or settled.
tax assets are reduced
Deferred
43
Company and its subsidiaries file U.S. federal and certain state income tax returns on a consolidated basis. In addition, certain
state jurisdictions are filed on a separate company basis by the Company or its subsidiaries.
The Company recognizes and measures income tax benefits using a two-step model: 1) a tax position must be more likely than
not to be sustained based solely on its technical merits in order to be recognized; and 2) the benefit must be measured as the
largest dollar amount of that position that is more likely than not to be sustained upon settlement. The difference between the
benefit recognized for a tax position in this model and the tax benefit claimed on a tax return is treated as an unrecognized tax
benefit. The Company recognizes income tax related interest and penalties in income tax expense.
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.
Stock-Based Compensation The Company follows FASB ASC 718, 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. 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, 2020, 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 GAAP, 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
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit
Losses on Financial Instruments (“ASU 2016-13”). The standard is effective for fiscal periods beginning after December 15,
2019. The CARES Act was signed into law on March 27, 2020 and included provisions that temporarily delayed the required
implementation date of ASU 2016-13 to the earlier of the end of the national pandemic or December 31, 2020. The CAA was
signed into law on December 27, 2020 and extended the deferral of required implementation of ASU 2016-13 to the earlier of
the first day of a company’s fiscal year that begins after the date the COVID-19 national emergency comes to an end or January
1, 2022. The Company elected to defer the adoption of ASU 2016-13 until December 31, 2020 with an effective date of January
1, 2020.
The ASU required measurement and recognition of expected credit losses for financial instruments held at amortized cost,
which include allowances for credit losses expected over the life of the portfolio, rather than incurred losses, which include
allowances for current known and inherent losses within the portfolio. Under this standard, the Company is required to hold
an allowance equal to the expected life-of-loan losses on the loan portfolio. It also applies to off-balance sheet credit exposures
such as loan commitments, standby letters of credit and other similar instruments. In addition, ASU 2016-13 made changes to
the accounting for available-for-sale debt securities.
The Company adopted ASU 2016-13 using a modified retrospective approach. Results for annual reporting periods beginning
after January 1, 2020 are presented under ASU 2016-13 while prior period amounts continue to be reported in accordance with
44
previously applicable GAAP. Upon adoption, the Company recognized increases of $723,000 in the allowance for credit losses
and $402,000 in the reserve for unfunded commitments, with a corresponding reduction to retained earnings, net of tax, of
$856,000. No credit loss allowance was required upon adoption for the investment securities portfolio. Consistent with the
provisions of the CARES Act, results for quarterly reporting periods beginning after December 31, 2020 in the Company’s
Form 10-Q will be presented under ASU 2016-13 while prior quarterly period amounts continue to be reported in accordance
with previously applicable GAAP.
The following table illustrates the impact of the adoption of ASU 2016-13:
(In thousands)
Assets:
Allowance for loan/credit losses on
loans
Deferred tax asset
Liabilities:
Reserve for unfunded commitments
Shareholders’ equity:
Retained earnings
Risks and Uncertainties
December
31, 2019
Impact of
ASU 2016-13
Adoption
As Reported
Under ASU
2016-13
$
10,556
2,298
$
─
$
723
269
402
11,279
2,567
402
90,341
(856)
89,485
On March 11, 2020, the WHO declared the outbreak of COVID-19 as a global pandemic, which continues to spread throughout
the United States and around the world. The declaration of a global pandemic indicates that almost all public commerce and
related business activities must be, to varying degrees, curtailed with the goal of decreasing the rate of new infections. This
response to the COVID-19 pandemic has resulted in an unprecedented slow-down in economic activity and a related increase
in unemployment.
In late fiscal 2020, vaccines for combatting COVID-19 were approved by health agencies and began to be administered.
However, initial quantities of vaccines are limited and vaccine distributions, controlled by local authorities, are being allocated,
generally first to front-line health care workers and other essential workers and next to those members of individual populations
believed most susceptible to severe effects from COVID-19. The timeline of full administration of the COVID-19 vaccines is
uncertain and fluctuating, but is widely thought to be unlikely to occur in most jurisdictions until mid to late 2021. The impact
of COVID-19, including the impact of restrictions imposed to combat its spread, could result in additional and prolonged
business closures, work restrictions and activity restrictions.
The Company has evaluated subsequent events after the consolidated balance sheet date of December 31, 2020 and the breadth
of the impact of the global presence of COVID-19 on the Company’s business is currently unknown. The Company is closely
monitoring developments related to COVID-19 checking regularly for updated information and recommendations from the
WHO and the CDC, from national, state, and local governments, and evaluating courses of action being taken by peers. The
duration and severity of the effect of COVID-19 on economic, market and business conditions and the timeline and shape of
recovery from the pandemic remain uncertain. At this time, the Company remains subject to heightened business, operational,
market, credit and other risks related to the COVID-19 pandemic, including, but not limited to, those discussed below, which
may have an adverse effect on business, financial condition and results of operations.
Financial position and results of operations - The global health crisis caused by COVID-19 has and will continue to negatively
impact business activity throughout the world. The COVID-19 outbreak and associated counter-acting measures implemented
by governments around the world, as well as increased business uncertainty, have had, and continue to have, an adverse impact
on the Company’s financial results and are discussed in more detail below. Although in various locations certain activity
restrictions have been relaxed with some success, many states and localities are experiencing significant increases in the number
of COVID-19 cases, prompting a reinstatement of prior activity restrictions in some locations and the need for additional aid
and other forms of relief for affected individuals, businesses and other entities. When and if COVID-19 is demonstrably
contained, the Company anticipates a rebound in economic activity; however, any such rebound is contingent upon the rate
and effectiveness of the containment efforts deployed by federal, state, and local governments. In light of the evolving health,
social, economic and business environment, governmental regulations or mandates, and business disruptions that have occurred
and could continue to occur, the aggregate impact that COVID-19 could have on the Company’s financial condition and
operating results remains highly uncertain.
In response to COVID-19, the Federal Reserve has taken action to lower the Federal Funds rate, which has adversely affected
interest income and therefore, the Company’s results of operations and financial condition. The Federal Reserve has continued
45
its commitment to this approach, indicating that the target Federal Funds rate would remain at current levels until the economy
is in a more stable employment and price-stability position.
To the extent the business disruption continues for an extended period, additional cost control actions will be considered. Future
asset impairment charges, increases in allowance for credit losses, or restructuring charges could be more likely and will be
dependent on the severity and duration of this crisis and its effect on the Company’s borrowers.
For payment processing services, business closures, including constrictions in the manufacturing sector, have led to a decrease
in the number of transactions and dollars processed due to the decline in customers’ business activity. In addition, the dampened
demand for oil and resulting plummet in oil prices has had, and can continue to have, a negative effect on both the number of
freight transactions processed and the dollar amount of invoices processed. Other financial impact could occur though such
potential impact is unknown at this time.
Capital and liquidity - While the Company believes that it has sufficient capital to withstand an extended economic recession
brought about by COVID-19, its reported and regulatory capital ratios could be adversely impacted by future financial losses.
The Company maintains access to multiple sources of liquidity. If funding costs are elevated for an extended period of time,
it could have an adverse effect on the Company’s net interest margin. If an extended recession caused large numbers of the
Bank’s customers to draw down deposits, the Company might become more reliant on more expensive sources of funding.
Asset valuation - Currently, the Company does not expect COVID-19 to affect its ability to fairly value the assets on its balance
sheet; however, this could change in future periods. While certain valuation assumptions and judgments will change to account
for pandemic-related circumstances such as widening credit spreads, the Company does not anticipate significant changes in
methodology used to determine the fair value of assets measured in accordance with GAAP.
The economic slowdown as a result of COVID-19 could cause a further and sustained decline in the Company’s stock price or
the occurrence of what management would deem to be a triggering event that could, under certain circumstances, necessitate a
goodwill or intangible asset impairment test and result in an impairment charge being recorded for that period. In the event that
the Company concludes that all or a portion of its goodwill is impaired, a non-cash charge for the amount of such impairment
would be recorded to earnings. Such a charge would have no impact on tangible capital or regulatory capital.
Processes, controls and business continuity - In accord with its federally mandated Pandemic Plan and Business Continuity
Plan, Cass has deployed its remote workforce program. Most Cass employees around the globe are now working and conducting
business remotely. Employees necessary to oversee certain business coordination activities or to conduct essential physical
activities such as mail handling and scanning operations, remain in offices. In addition, employees are now being permitted to
return to the offices on a voluntary basis. Employees are required to report any exposure or diagnosis and must adhere to the
defined safety protocol to enter the offices.
In the past several years, Cass has invested in sophisticated technology initiatives that enable employees to operate remotely
with full system(s) access along with unified and transparent voice and electronic communications capabilities, ensuring
seamless service delivery. The Company cannot predict when or how it will fully lift the actions put in place as part of the
Business Continuity Plan, including work from home requirements and travel restrictions. Cass does not believe the work from
home protocol has materially adversely impacted internal controls, financial reporting systems, or operations.
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 and common equity Tier I capital to risk-weighted assets, and of Tier I
capital to average assets. Management believes that as of December 31, 2020 and 2019, 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
revised 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
46
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 were effective
for the Company and the Bank on January 1, 2015, subject to a phase-in period that ended on January 1, 2019.
The Bank is also subject to the regulatory framework for prompt corrective action. As of December 31, 2020, 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, common equity Tier I 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.
The Company has traditionally paid a quarterly cash dividend to its shareholders. Subsidiary dividends can be a significant
source of funds for payment of dividends by the Company to its shareholders. Banking regulations may limit the amount of
dividends that may be paid. Approval by regulatory authorities is required if the effect of dividends declared would cause the
regulatory capital of the Bank to fall below specified minimum levels. Approval is also required if dividends declared exceed
the net profits for that year combined with the retained net profits for the preceding two years. Under the foregoing dividend
restrictions and while maintaining its “well capitalized” status, at December 31, 2020, unappropriated retained earnings of
$48,680,000 were available at the Bank for the declaration of dividends to the Company without prior approval from regulatory
authorities. In addition to regulatory requirements and considerations, any payment of dividends in the future will depend on
the Company’s earnings, financial condition and other factors considered relevant by the Company’s Board of Directors.
There were no restricted funds on deposit used to meet regulatory reserve requirements at December 31, 2020 and 2019.
The Company’s and the Bank’s actual and required capital amounts and ratios are as follows:
(In thousands)
At December 31, 2020
Total capital (to risk-weighted assets)
Cass Information Systems, Inc.
Cass Commercial Bank
Common Equity Tier I 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, 2019
Total capital (to risk-weighted assets)
Cass Information Systems, Inc.
Cass Commercial Bank
Common Equity Tier I 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
$ 255,332
171,298
21.41 %
21.46
$ 95,388
63,855
8.00 %
8.00
$ N/A N/A %
79,819 10.00
243,388
161,300
243,388
161,300
243,388
161,300
20.41
20.21
20.41
20.21
11.52
14.48
53,656
35,918
4.50
4.50
71,541
47,891
6.00
6.00
84,511
44,543
4.00
4.00
N/A N/A
6.50
51,882
N/A N/A
8.00
63,855
N/A N/A
5.00
55,679
$ 249,954
154,011
19.70 % $ 101,530
63,778
19.32
8.00 %
8.00
$ N/A N/A %
79,722 10.00
239,398
145,673
239,398
145,673
239,398
145,673
18.86
18.27
18.86
18.27
13.24
16.64
57,110
35,875
4.50
4.50
76,147
47,833
6.00
6.00
72,329
35,012
4.00
4.00
N/A N/A
6.50
51,819
N/A N/A
8.00
63,778
N/A N/A
5.00
43,765
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, 2020 and 2019 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:
47
(In thousands)
State and political subdivisions
U.S. government agencies
Total
(In thousands)
State and political subdivisions
U.S. government agencies
Certificates of deposit
Total
December 31, 2020
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
$
$
18,915
764
19,679
$
$
─
─
─
$
$
305,974
51,752
357,726
December 31, 2019
Gross
Unrealized
Losses
Gross
Unrealized
Gains
Fair Value
$
$
13,727
507
─
14,234
$
$
─
169
─
169
$
$
324,447
97,718
500
422,665
Amortized
Cost
$ 287,059
50,988
$ 338,047
Amortized
Cost
$ 310,720
97,380
500
$ 408,600
The fair values of securities with unrealized losses are as follows:
Less than 12 months
December 31, 2019
12 months or more
Total
(In thousands)
U.S. government agencies
Total
Estimated Unrealized Estimated Unrealized Estimated
Fair value
Fair Value
Fair Value
21,394
17,593
3,801
21,394 $
17,593 $
3,801 $
157
157 $
12
12 $
Losses
Losses
$
Unrealized
Losses
169
169
There were no securities in an unrealized loss position as of December 31, 2020 compared to 9 securities, or 3% (7 greater than
12 months), in an unrealized loss position as of December 31, 2019.
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
Total
December 31, 2020
Amortized Cost
Fair Value
$
49,384
96,118
163,035
29,510
$ 338,047
$
$
49,681
100,966
176,573
30,506
357,726
The premium related to the purchase of state and political subdivisions was $6,013,000 and $6,408,000 in 2020 and 2019,
respectively.
There were no securities pledged to secure public deposits and for other purposes at December 31, 2020.
Proceeds from sales of debt securities classified as available-for-sale were $21,943,000 in 2020, $4,648,000 in 2019, and
$58,520,000 in 2018. Gross realized gains on the sales in 2020, 2019, and 2018 were $1,075,000, $19,000, and $180,000,
respectively. There were no gross realized losses on sales in 2020 or 2019 and gross realized losses of $222,000 in 2018.
As described in Note 1, the Company adopted ASU 2016-13 effective January 1, 2020. The adoption of ASU 2016-13 had no
impact to the Company's available for sale securities reported in its consolidated financial statements at January 1, 2020. For
2020, the Company did not recognize a credit loss expense on any available for sale debt securities.
Loans
Note 4
The Company originates commercial, industrial and real estate loans to businesses and faith-based ministries throughout the
metropolitan St. Louis, Missouri area, Orange County, California, Colorado Springs, Colorado 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 and franchises
in these market areas and are generally secured by the assets of the business. The Company also has a substantial portion of
48
real estate loans secured by mortgages that are extended to faith-based ministries in its market area and selected cities in the
United States.
A summary of loan categories is as follows:
(In thousands)
Commercial and industrial
Real estate:
Commercial:
Mortgage
Construction
Faith-based:
Mortgage
Construction
PPP
Other
Total loans
December 31,
2020
298,984
$
$
2019
323,857
100,419
25,090
333,661
23,818
109,704
891,676
$
$
101,654
25,299
305,826
15,945
57
772,638
The following table presents the aging of loans by loan categories at December 31, 2020:
(In thousands)
Commercial and industrial
Real estate
Commercial:
Mortgage
Construction
Faith-based:
Mortgage
Construction
PPP
Total
Performing
Nonperforming
30-59
Days
60-89
Days
90 Days
and
Over
Non-
accrual
$
$
$
$
$
Current
298,984
$
100,419
25,090
333,661
23,818
109,704
891,676
$
$
$
$
$
$
The following table presents the aging of loans by loan categories at December 31, 2019:
(In thousands)
Commercial and industrial
Real estate
Commercial:
Mortgage
Construction
Faith-based:
Mortgage
Construction
Other
Total
Performing
Nonperforming
30-59
Days
60-89
Days
90 Days
and
Over
Non-
accrual
$
$
$
$
$
Current
323,857
$
101,654
25,299
305,826
15,945
57
772,638
$
$
$
$
$
$
Total
Loans
298,984
100,419
25,090
333,661
23,818
109,704
891,676
Total
Loans
323,857
101,654
25,299
305,826
15,945
57
772,638
49
The following table presents the credit exposure of the loan portfolio by internally assigned credit grade as of December 31,
2020:
Loans
Subject to
Normal
Monitoring(1)
$
284,882 $
Performing
Loans Subject to
Special
Monitoring(2)
14,102
$
Nonperforming
Loans Subject
to Special
Monitoring(2)
Total Loans
298,984
$
99,044
25,090
1,375
100,419
25,090
(In thousands)
Commercial and industrial
Real estate
Commercial:
Mortgage
Construction
Faith-based:
Mortgage
Construction
330,554
23,818
109,704
873,092 $
3,107
18,584
$
333,661
23,818
109,704
891,676
PPP
Total
(1) Loans subject to normal monitoring involve borrowers of acceptable-to-strong credit quality and risk, who have the apparent ability to
satisfy their loan obligation.
(2) Loans subject to special monitoring possess some credit deficiency or potential weakness which requires a high level of management
attention.
$
$
The Company had one loan that was considered impaired in the amount of $2,500,000 at December 31, 2020. This loan was
individually evaluated for impairment, resulting in a specific allowance for credit loss of $500,000.
The following table presents the credit exposure of the loan portfolio by internally assigned credit grade as of December 31,
2019:
Loans
Subject to
Normal
Monitoring(1)
$
321,554 $
Performing
Loans Subject to
Special
Monitoring (2)
2,303
Nonperforming
Loans Subject to
Special
Monitoring (2)
$
Total Loans
323,857
$
100,346
25,299
1,308
101,654
25,299
(In thousands)
Commercial and industrial
Real estate
Commercial:
Mortgage
Construction
Faith-based:
Mortgage
Construction
304,513
15,945
57
767,714 $
1,313
4,924
305,826
15,945
57
772,638
Other
Total
(1) Loans subject to normal monitoring involve borrowers of acceptable-to-strong credit quality and risk, who have the apparent ability to
satisfy their loan obligation.
(2) Loans subject to special monitoring possess some credit deficiency or potential weakness which requires a high level of management
attention.
$
$
$
The recorded investment by category for loans considered as troubled debt restructuring during the year ended December 31,
2020 is as follows:
(In thousands)
Commercial and industrial
Faith-based real estate
Total
Number of
Loans
Pre-Modification
Outstanding
Balance
Post-Modification
Outstanding
Balance
1 $
1
2 $
8,773
1,029
9,802
$
$
8,773
1,029
9,802
During the year ended December 31, 2020, two loans were restructured to change the amortization schedule to reduce payments
from the borrowers while the contractual interest rate remained unchanged. These loans did not have a specific allowance for
credit loss allocated to them at December 31, 2020. There were no loans restructured for the year ended December 31, 2019.
There were no loans restructured that subsequently defaulted during the years ended December 31, 2020 or 2019.
50
A summary of the ACL by category for the period ended December 31, 2020 is as follows:
(In thousands)
Allowance for credit losses on loans:
Balance at December 31, 2019
Cumulative effect of accounting
change (ASU 2016-13)
Balance at January 1, 2020
Provision for credit losses
Recoveries
Balance at December 31, 2020
C&I
CRE
Faith-based
CRE
Construction
Total
$
4,874 $
1,528 $
3,842 $
312
$
10,556
(526)
4,348
268
19
4,635 $
(401)
1,127
48
1,175 $
1,636
5,478
238
1
5,717 $
$
14
326
91
417
$
723
11,279
645
20
11,944
The increase in the provision for credit losses on loans during the year ended December 31, 2020 is due to the Company’s
forecast of macroeconomic factors, which decreased during 2020, primarily due to the COVID-19 pandemic.
A summary of the activity in the allowance for loan losses for the period ended December 31, 2019 is as follows:
(In thousands)
Commercial and industrial
Real estate
Commercial:
Mortgage
Construction
Faith-based:
Mortgage
Construction
Total
December 31,
2018
Charge-
Offs
Recoveries
$
4,360 $
$
81
$
Provision
433
December 31,
2019
$
4,874
1,478
93
4,132
162
10,225 $
$
$
81
$
50
98
(290)
(41)
250
$
1,528
191
3,842
121
10,556
As of December 31, 2020 and 2019, there were loans totaling $161,475 and $167,429, respectively, to affiliates of executive
officers or directors.
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,
$
2020
873
14,763
1,953
12,897
4,278
19,538
54,302
36,245
$ 18,057
2019
873
14,763
1,843
12,104
3,973
18,780
52,336
31,809
20,527
$
$
Total depreciation charged to expense in 2020, 2019 and 2018 amounted to $4,471,000, $4,227,000, and $3,954,000,
respectively.
Note 6
Acquired Intangible Assets
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, or when management
deems there is a triggering event, and those with finite useful lives be amortized over their useful lives.
In September 2019, the Company acquired the assets of Gateway Giving, LLC and recorded intangible assets of $4,983,000.
Those intangible assets were valued at $2,610,000 for software, $1,693,000 for goodwill, $490,000 for the customer list, and
51
$190,000 for the trade name. The amounts for these intangible assets were originally recorded on a provisional basis and have
been adjusted upon the completion of a valuation. The goodwill is deductible for tax purposes over 15 years, starting in 2019.
The intangible assets and results of Gyve are included in the Banking Services operating segment.
The purchase price of the acquisition consisted of a cash payment of $3,000,000 and a potential earnout of $4,000,000. The
Company recorded the earnout component to be $1,983,000. The fair value of the contingent consideration was estimated on
the acquisition date as the present value of the expected future contingent payments which were determined using a scenario-
based model. Any changes in the estimated fair value of the contingent earn-out consideration, up to the contracted amount,
will be reflected in the results of operations in future periods as they are identified.
Details of the Company’s intangible assets are as follows:
(In thousands)
Assets eligible for amortization:
Customer lists
Patent
Non-compete agreements
Software
Trade Name
Other
Unamortized intangible assets:
Goodwill (1)
December 31, 2020
December 31, 2019
Gross Carrying
Amount
Accumulated
Amortization
Gross Carrying
Amount
Accumulated
Amortization
$
$
4,778
72
332
2,844
190
500
$
(3,902)
(24)
(332)
(731)
(13)
(291)
$
4,778
72
332
2,844
190
500
(3,463)
(20)
(332)
(358)
(3)
(259)
(227)
(4,662)
Total intangible assets
(1)Amortization through December 31, 2001 prior to adoption of ASC 350.
$
$
14,489
23,205
(227)
(5,520)
14,489
23,205
$
$
The customer lists are amortized over 7 and 10 years; the patents over 18 years, the non-compete agreements over 2 and 5
years, software over 3 years and 7 years, the trade name over 20 years and other intangible assets over 15 years. Amortization
of intangible assets amounted to $859,000, $563,000, and $442,000 for the years ended December 31, 2020, 2019 and 2018,
respectively. Estimated future amortization of intangibles is $859,000 in 2021, $540,000 in both 2022 and 2023, $498,000 in
2024 and $489,000 in 2025.
Note 7
Interest-Bearing Deposits
Interest-bearing deposits consist of the following:
December 31,
(In thousands)
Interest-bearing demand deposits
Savings deposits
Time deposits:
Less than $100
$100 to less than $250
$250 or more
Total
Weighted average interest rate
Interest on deposits consists of the following:
(In thousands)
Interest-bearing demand deposits
Savings deposits
Time deposits:
Less than $100
$100 to less than $250
$250 or more
Total
$
$
2020
480,283 $
21,084
4,091
34,998
16,896
557,352 $
0.49%
2019
322,027
13,051
4,927
48,353
17,687
406,045
1.32%
December 31,
2019
3,686 $
103
$
905
216
281
5,191 $
$
2020
1,313
24
550
206
267
2,360
$
$
2018
2,832
109
433
152
210
3,736
52
The scheduled maturities of time deposits are summarized as follows:
December 31,
2020
2019
Amount
$
$
39,575
10,470
5,892
48
55,985
Percent
of Total
70.7%
18.7
10.5
0.1
100.0%
Amount
$
$
47,881
15,813
5,584
1,689
70,967
Percent
of Total
67.5%
22.3
7.8
2.4
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, 2020, the Bank had unsecured lines of credit at correspondent banks to purchase federal funds up to a
maximum of $83,000,000 at the following banks: US Bank, $20,000,000; UMB Bank $20,000,000; Wells Fargo Bank,
$15,000,000; PNC Bank, $12,000,000; Frost National Bank, $10,000,000; and JPM Chase Bank, $6,000,000. As of December
31, 2020, the Bank had secured lines of credit with the Federal Home Loan Bank of $191,992,000 collateralized by commercial
mortgage loans. At December 31, 2020, the Company had lines of credit from UMB Bank of $75,000,000 and First Tennessee
Bank of $75,000,000 collateralized by state and political subdivision securities. Under the lines of credit discussed above,
there were no amounts outstanding at December 31, 2020 and $18,000,000 outstanding at December 31, 2019. The amount
outstanding at the end of the 2019 was borrowed on December 31, 2019 and repaid on January 2, 2020.
In addition to the lines of credit discussed above, as of April 21, 2020 the Bank was approved for the Federal Reserve’s
Paycheck Protection Program Lending Facility. The Bank can receive non-recourse loans with the previously mentioned PPP
loans pledged as collateral. The Bank can borrow an amount up to 100% of the amount of the PPP loans, which was
$109,704,000 as of December 31, 2020. There was no amount outstanding at December 31, 2020 for this line of credit.
Note 9
Common Stock and Earnings per Share
The table below shows activity in the outstanding shares of the Company’s common stock during 2020.
Shares outstanding at January 1
Issuance of common stock:
Employee restricted stock grants
Employee restricted stock unit vests
Performance-based stock
Employee SARs exercised
Directors’ compensation
Shares repurchased
Shares forfeited
Shares outstanding at December 31
2020
14,514,366
7,748
1,890
20,287
3,484
12,757
(162,901)
(4,962)
14,392,669
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.
53
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, performance
based restricted stock (“PBRS”), and SARs
Weighted average common shares outstanding
assuming dilution
Diluted earnings per share
2020
25,176
14,364,406
1.75
25,176
14,364,406
$
$
$
December 31,
2019
2018
$
$
$
30,404
14,434,445
2.11
30,404
14,434,445
$
$
$
30,268
14,675,136
2.06
30,268
14,675,136
202,541
257,480
239,066
14,566,947
1.73
$
14,691,925
2.07
14,914,202
2.03
$
$
Note 10
Employee Benefit Plans
Defined Benefit Plan
The Company has a noncontributory defined-benefit pension plan (the “Plan”), which covers eligible employees. Effective
December 31, 2016, the Plan was closed to all new participants. Additionally, prior to the end of 2020, the Company notified
existing participants that benefits would be frozen as of February 28, 2021. The freezing of the benefits reduced the projected
benefit obligation by $18,322,000 at December 31, 2020. 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
Plan amendments
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 liability
2020
2019
$
$
$
$
$
119,827 $
4,329
3,908
15,087
(18,322)
(2,794)
122,035 $
94,634 $
14,826
(2,793)
106,667 $
96,401
3,554
4,103
18,334
(2,565)
119,827
74,580
15,719
6,900
(2,565)
94,634
(15,368) $
(25,192)
The following represent the major assumptions used to determine the projected benefit obligation of the Plan. For 2020, 2019
and 2018, the Plan’s expected benefit cash flows were discounted using the FTSE Above Median Double-A Curve. For 2020,
the Pri-2012 Mortality Table and MP-2020 Mortality Improvement Scale were used. For 2019, the Pri-2012 Mortality Table
and MP-2019 Mortality Improvement Scale were used. For 2018, the RP-2014 Mortality Table and the MP-2018 Mortality
Improvement Scale were used.
Weighted average discount rate
Rate of increase in compensation levels
2020
2.55%
(a)
2019
3.30%
(a)
2018
4.30%
(a)
(a) 6.0% graded down to 3.25% over the first seven years of service.
54
The accumulated benefit obligation was $121,095,000 and $103,736,000 as of December 31, 2020 and 2019, respectively. The
Company did not make a contribution during 2020, while in 2019 a contribution of $6,900,000 was made to the Plan. The
Company has not determined if it will make a contribution to the Plan in 2021. The following pension benefit payments, which
reflect expected future service, as appropriate, are expected to be paid by the Plan:
2021
2022
2023
2024
2025
2026-2030
Amount
$3,357,000
3,735,000
4,118,000
4,340,000
4,534,000
25,820,000
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,
2019
3,555 $
4,103
(4,753)
1,559
4,464 $
2020
4,329 $
3,908
(6,049)
1,946
4,134 $
$
$
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
2020
3.30%
(a)
6.50%
2019
4.30%
(a)
6.50%
(a)
6.0% graded down to 3.25% over the first seven years of service
2018
4,017
3,703
(5,202)
1,522
4,040
2018
3.75%
(a)
6.50%
For 2020, the Pri-2012 Mortality Table and the MP-2019 Mortality Improvement Table were used. For 2019, the RP-2014
Mortality Table and the MP-2018 Mortality Improvement Table were used. For 2018, the RP-2014 Mortality Table and the
MP-2017 Mortality Improvement 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 51% fixed income, 19% U.S. equity
and 30% 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
Small Cap U.S. Equities
International (Developed)
International (Emerging)
51%
14%
5%
25%
5%
3.04%
6.45%
7.45%
7.95%
10.14%
3.85%
16.00%
20.15%
17.83%
25.40%
Applying appropriate correlation factors between each of the asset classes the long-term rate of return on assets is estimated
to be 6.50%.
55
A summary of the fair value measurements by type of asset is as follows:
Fair Value Measurements as of December 31,
2020
2019
(In thousands)
Cash
Equity securities
U.S. Small/Mid Cap Growth
Non-U. S. Core
U.S. Large Cap Passive
Emerging Markets
Fixed Income
U.S. Core
U.S. Passive
Opportunistic
Total
Total
$484
5,530
26,342
17,520
5,882
23,467
21,680
5,762
$106,667
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Observable
Inputs
(Level 2)
$484
$ ―
Total
$462
4,491
23,975
13,523
4,559
5,530
26,342
17,520
5,882
23,467
21,680
5,762
27,046
15,255
5,323
$106,183 $94,634
―
―
―
―
―
―
―
$484
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Observable
Inputs
(Level 2)
$462
$ ―
―
―
―
―
―
―
―
$462
4,491
23,975
13,523
4,559
27,046
15,255
5,323
$94,172
Supplemental Executive Retirement Plan
The Company also has an unfunded supplemental executive retirement plan (“SERP”) which covers key executives of the
Company whose benefits are limited by the Internal Revenue Service under the Company’s qualified retirement plan. 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 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 loss
Balance, December 31
December 31,
2020
2019
$
$
11,712 $
121
347
(291)
1,523
13,412 $
10,097
97
408
(262)
1,372
11,712
The following represent the major assumptions used to determine the projected benefit obligation of the SERP. For 2020, 2019
and 2018, the SERP’s expected benefit cash flows were discounted using the FTSE Above Median Double-A Curve.
Weighted average discount rate
Rate of increase in compensation levels
2020
2.20%
(a)
(a) 6.00% graded down to 3.25% over the first seven years of service.
2019
3.00%
(a)
2018
4.10%
(a)
The accumulated benefit obligation was $12,492,000 and $10,485,000 as of December 31, 2020 and 2019, respectively. Since
this is an unfunded plan, there are no plan assets. Benefits paid were $291,000 in 2020, $262,000 in 2019, and $260,000 in
2018. Expected future benefits payable by the Company over the next ten years are as follows:
2021
2022
2023
2024
2025
2026-2030
Amount
$343,000
764,000
851,000
849,000
846,000
4,150,000
56
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,
2020
121 $
347
112
580 $
2019
97 $
408
276
781 $
2018
92
348
581
1,021
$
$
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
2020
$
15,429
$ 15,429
2019
$
29,387
$ 29,387
2020
$
4,135
$ 4,135
2019
$
2,724
$ 2,724
The estimated pretax prior service cost and net actuarial loss in accumulated other comprehensive loss at December 31, 2020
expected to be recognized as components of net periodic benefit cost in 2021 for the Plan are $0 and $360,000, respectively.
The estimated pretax prior service cost and net actuarial loss in accumulated other comprehensive loss at December 31, 2020
expected to be recognized as components of net periodic benefit cost in 2021 for the SERP are $0 and $203,000, 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 personnel expense in the consolidated statements of income in 2020, 2019, and 2018 was $5,665,000,
$6,841,000, and $6,810,000, 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 2020, 2019 and 2018 were $1,508,000, $1,378,000, and $1,109,000,
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 to Company employees are amortized to expense over the three-year cliff vesting period. Restricted
shares granted to members of the Board of Directors are amortized to expense over a one-year service period, with the exception
of those shares granted in lieu of cash payments for retainer fees which are expensed in the period earned.
Changes in restricted shares outstanding for the year ended December 31, 2020 were as follows:
Balance at December 31, 2019
Granted
Vested
Forfeited
Balance at December 31, 2020
Weighted Average
Grant Date
Fair Value
$47.24
47.07
49.32
50.08
$46.78
Shares
123,272
38,226
(20,369)
(4,962)
136,167
During 2019 and 2018, 36,812 and 35,000 shares, respectively, were granted with weighted average per share market values
at date of grant of $49.30 in 2019 and $49.79 in 2018. The fair value of such shares are based on the market price on the date
of grant. Amortization of the restricted stock bonus awards totaled $1,463,000 for 2020, $1,551,000 for 2019 and $1,571,000
for 2018. As of December 31, 2020, the total unrecognized compensation expense related to non-vested restricted stock awards
was $1,466,000 and the related weighted average period over which it is expected to be recognized is approximately 0.61 years.
The total fair value of shares vested during the years ended December 2020, 2019, and 2018 was $1,005,000, $527,000, and
$1,112,000, respectively.
57
Performance-Based Restricted Stock
The Company has granted three-year PBRS awards which are contingent upon the Company’s achievement of pre-established
financial goals over a three-year cliff vest period. The number of shares issued ranges from 0% to 150% of the target
opportunity based on the actual achievement of financial goals for the three-year performance period.
Following is a summary of the activity of the PBRS, based on target value:
Balance at December 31, 2019
Granted
Vested
Forfeited
Balance at December 31, 2020
For the Years Ended
December 31, 2020
Shares
102,116
32,910
(29,175)
(7,441)
98,410
Fair Value
$49.13
54.02
49.33
50.08
$50.64
The PBRS that vested during the year ended December 31, 2020 achieved financial goals of 117.3%, resulting in the issuance
of 34,222 shares of common stock. The outstanding PBRS at December 31, 2020 will vest at scheduled vesting dates and the
actual number of shares of common stock issued will range from 0% to 150% of the target opportunity based on the actual
achievement of financial goals for the respective three-year performance period.
SARs
During 2020, there were no SARs granted and no expense recognized. As of December 31, 2020, there was no unrecognized
compensation expense related to SARs.
Changes in SARs outstanding for the year ended December 31, 2020 were as follows:
Balance at December 31, 2019
Exercised
Forfeited
Balance at December 31, 2020
Exercisable at December 31, 2020
SARs
155,292
(10,293)
144,999
144,999
Weighted Average Exercise Price
$32.58
26.72
32.99
$32.99
The total intrinsic value of SARs exercised during 2020 and 2019 was $275,000 and $2,022,000, respectively. The average
remaining contractual term for SARs outstanding as of December 31, 2020 was 1.95 years, and the aggregate intrinsic value
was $1,095,000. The average remaining contractual term for SARs outstanding as of December 31, 2019 was 2.92 years, and
the aggregate intrinsic value was $3,908,000.
The total compensation cost for share-based payment arrangements was $2,267,000, $3,144,000, and $3,006,000, in 2020,
2019, and 2018, 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,
2020
1,465 $
2,184
2,140
5,845
1,900
765
1,088
15,387 $
2019
1,875 $
3,838
2,388
5,529
1,283
748
2,404
18,065 $
2018
2,180
3,344
2,170
4,909
919
778
1,963
16,263
$
$
58
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,
2020
2019
2018
$
$
5,350 $
671
4,423 $
1,392
8,557
1,043
(636)
(220)
5,165
$
1,097
150
7,062
(3,404)
(117)
6,079
$
A reconciliation of expected income tax expense (benefit), computed by applying the effective federal statutory rate of 21%
for each year 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
Share-based compensation adjustment
Adjustment of deferred tax asset or liability for TCJA
Other, net
Total income tax expense
For the Years Ended December 31,
2020
6,385 $
$
2019
7,868 $
(1,588)
356
70
(58)
$
5,165 $
(1,755)
1,218
(281)
12
7,062 $
2018
7,633
(2,009)
732
(286)
(74)
83
6,079
Income tax expense in 2020 totaled $5,165,000 compared to $7,062,000 and $6,079,000 in 2019 and 2018, respectively. When
measured as a percent of pre-tax income, the Company’s effective tax rate was 17% in 2020, 19% in 2019, and 17% in 2018.
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 credit/loan losses
ASC 715 pension funding liability
Net operating loss carryforward (1)
Supplemental executive retirement plan accrual
Stock compensation
Total deferred tax assets
Deferred tax liabilities:
Premises and equipment
Pension
Intangible assets
Unrealized gain on investment in securities available-for-sale
Other
Total deferred tax liabilities
December 31,
2020
$
$
2,858
4,656
2,220
1,794
11,528
$
$
2019
2,452
7,642
27
2,087
1,987
14,195
(2,693)
(14)
(1,761)
(4,684)
(79)
(9,231)
2,297
$
$
(2,821)
(974)
(1,379)
(3,348)
(196)
(8,718)
5,477
$
$
Net deferred tax assets
(1) As of December 31, 2020, the Company had no remaining net operating loss carry forwards as a result of the acquisition of
Franklin Bancorp.
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, 2020 or 2019, due to
management’s belief that it is more likely than not that the DTA is realizable.
59
The reconciliation of the beginning unrecognized tax benefits balance to the ending balance is presented in the following
table:
(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
Reductions to unrecognized tax benefits as a result of a
lapse of the applicable statute of limitations
Decreases in unrecognized tax benefits as a result of
settlements with taxing authorities
Balance at December 31
2020
$1,299
62
233
2019
$1,403
2018
$1,632
56
171
(135)
192
(315)
(331)
(286)
(48)
$1,231
$1,299
$1,403
At December 31, 2020, 2019 and 2018, the balances of the Company’s unrecognized tax benefits which would, if recognized,
affect the Company’s effective tax rate were $1,096,000, $1,184,000 and $1,272,000, respectively. These amounts are net of
the offsetting benefits from other taxing jurisdictions.
As of December 31, 2020, 2019 and 2018, the Company had $114,000, $151,000 and $136,000, respectively, in accrued interest
related to unrecognized tax benefits.
The Company believes it is reasonably possible that the total amount of unrecognized tax benefits will decrease by
approximately $230,000 over the next 12 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 2018 and 2019 remain subject to examination by the Internal Revenue
Service. In addition, the Company is subject to state tax examinations for the tax years 2016 through 2019.
Note 14
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, 2020, an allowance for unfunded
commitments of $567,000 had been recorded compared to zero at December 31, 2019. See “Financial Statements and
Supplementary Data—Note 1” for information related to CECL adoption.
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:
(In thousands)
Conditional commitments to extend credit
Standby letters of credit
Commercial letters of credit
December 31,
2020
192,916 $
$
10,609
955
2019
197,799
13,288
2,755
60
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,
2020
2019
Carrying
Amount
Fair Value
Carrying
Amount
Fair Value
$
670,528
357,726
879,732
6,850
$ 1,914,836
$
670,528
357,726
883,461
6,850
$ 1,918,565
$
203,954
422,665
762,082
6,706
$ 1,395,407
$
203,954
422,665
776,653
6,706
$ 1,409,978
$ 1,050,856
835,386
38
$ 1,886,280
$ 1,050,856
835,386
38
$ 1,886,280
$
757,136
684,295
103
$ 1,441,534
$
757,790
684,295
103
$ 1,442,188
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 credit 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
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.
61
Note 15
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 16
Revenue from Contracts with Customers
On January 1, 2018, the Company adopted FASB ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU
2014-09”) and selected the modified retrospective transition method. The adoption of this new standard did not impact the
Company’s results of operations or balance sheet and there was no cumulative effect of initially applying this new revenue
standard to the opening balance of retained earnings. Since interest income on loans and securities are both excluded from this
topic, a significant portion of the Company’s revenues are not subject to the new guidance. The services that fall within the
scope of ASU 2014-09 are presented within fee revenue and other income in the consolidated statements of income and are
recognized as revenue as the performance obligation to the customer is satisfied. Services within the scope of ASU 2014-09
include invoice processing and payment fees, bank service fees, and other real estate owned (“OREO”).
Invoice processing fees – The Company earns fees on a per-item or monthly basis for the invoice processing services rendered
on behalf of customers. Per-item fees are recognized at the point in time when the performance obligation is satisfied. Monthly
fees are earned over the course of a month, representing the period over which the performance obligation is satisfied. The
Company also earns interest income from the balances generated during the payment cycle for the invoices processed, which
is an integral component of the Company’s compensation for invoice processing services but is out-of-scope of ASU 2014-09.
The contracts have no significant impact related to variable consideration and no significant financing components.
Invoice payment fees – The Company earns fees on a transaction level basis for invoice payment services when making
customer payments. Fees are recognized at the point in time when the payment transactions are made, which is when the
performance obligation is satisfied. The contracts have no significant impact related to variable consideration and no significant
financing components.
Bank service fees – Revenue from service fees consists of service charges and fees on deposit accounts under depository
agreements with customers to provide access to deposited funds. Service charges on deposit accounts are transaction based
fees that are recognized at the point in time when the performance obligation is satisfied. Service charges are recognized on a
monthly basis representing the period over which the performance obligation is satisfied. The contracts have no significant
impact related to variable consideration and no significant financing components.
OREO – The Company currently does not have any OREO and has not in recent years. Net gains or losses would be recorded
when other real estate is sold to a third party and substantially all of the consideration for the transfer of property is received.
(In thousands)
Fee revenue and other income
In-scope of ASU 2014-09
Invoice processing fees
Invoice payment fees
Information services payment and processing revenue
Bank service fees
Fee revenue (in-scope of ASU 2014-09)
Other income (out-of-scope of ASU 2014-09)
Total fee revenue and other income
Net interest income after provision for credit/loan losses
(out-of-scope of ASU 2014-09)
Total net revenue
For the Years Ended December 31,
2018
2019
2020
$
$
$
74,674
22,530
97,204
1,704
98,908
1,533
100,441
81,329
26,624
107,953
1,386
109,339
730
110,069
78,461
23,720
102,181
1,335
103,516
560
104,076
44,515
144,956
$
47,166
157,235
44,190
148,266
$
$
62
Note 17
Industry Segment Information
The services provided by the Company are classified into two reportable segments: Information Services and Banking Services.
Each of these segments provides distinct services that are marketed through different channels. They are managed separately
due to their unique service and processing requirements.
The Information Services segment provides transportation, energy, telecommunication, and environmental invoice processing
and payment services to large corporations. The Banking Services segment provides banking services primarily to privately
held businesses and faith-based ministries, including on-line generosity services, as well as supporting the banking needs of
the Information Services segment.
The Company’s accounting policies for segments are the same as those described in Note 1 of this report. Management
evaluates segment performance based on tax-equivalized (as defined in the footnote to the chart on the following table) pre-tax
income after allocations for corporate expenses. Transactions between segments are accounted for at what management
believes to be fair value.
Substantially all revenue originates from, and all long-lived assets are located within the United States, and no revenue from
any customer of any segment exceeds 10% of the Company’s consolidated revenue.
Funding sources represent average balances and deposits generated by Information Services and Banking Services and there is
no allocation methodology used. Segment interest income is a function of the relative share of average funding sources
generated by each segment multiplied by the following rates:
Information Services – one or more fixed rates depending upon the specific characteristics of the funding source, and
Banking Services – a variable rate that is based upon the overall performance of the Company’s earning assets.
Any difference between total segment interest income and overall total Company interest income is included in Corporate,
Eliminations, and Other.
63
Summarized information about the Company’s operations in each industry segment for the years ended December 31, 2020,
2019 and 2018 is as follows:
(In thousands)
2020
Fee income from customers
Interest income*
Interest expense
Intersegment income (expense)
Depreciation and amortization
Tax-equivalized pre-tax income*
Goodwill
Other intangible assets, net
Total Assets
Funding Sources
2019
Fee income from customers
Interest income*
Interest expense
Intersegment income (expense)
Depreciation and amortization
Tax-equivalized pre-tax income*
Goodwill
Other intangible assets, net
Total Assets
Funding Sources
2018
Fee income from customers
Interest income*
Interest expense
Intersegment income (expense)
Depreciation and amortization
Tax-equivalized pre-tax income*
Goodwill
Other intangible assets, net
Total Assets
Funding Sources
Information
Services
Banking
Services
Corporate,
Eliminations
and Other
Total
$
96,548 $
2,607 $
1,286 $
100,441
25,067
─
─
5,194
21,902
12,433
735
967,702
734,999
29,494
2,362
2,315
135
14,025
1,829
2,688
1,242,688
738,165
(4,985)
─
(2,315)
─
(3,697)
─
─
(7,155)
─
49,576
2,362
─
5,329
32,230
14,262
3,423
2,203,235
1,473,164
$
108,882 $
1,660 $
(473) $
110,069
25,616
─
─
4,659
28,542
12,433
1,142
844,483
676,068
30,646
5,193
2,107
131
13,048
1,829
3,139
915,341
592,905
(1,568)
─
(2,107)
─
(2,040)
─
─
4,419
─
54,694
5,193
─
4,790
39,550
14,262
4,281
1,764,243
1,268,973
$
102,839 $
1,307 $
(70) $
104,076
25,074
─
─
4,254
27,763
12,433
1,554
826,201
642,733
27,770
3,736
1,880
142
13,571
136
─
886,291
572,653
(2,496)
─
(1,880)
─
(2,566)
─
─
(17,316)
─
50,348
3,736
─
4,396
38,768
12,569
1,554
1,695,176
1,215,386
* Presented on a tax-equivalent basis assuming a tax rate of 21% for 2020, 2019, and 2018. The tax-equivalent adjustment was approximately $1,888,000
for 2020, $2,084,000 for 2019, and $2,422,000 for 2018.
Note 18
Leases
On January 1, 2019, the Company adopted ASU 2016-02, Leases (ASC Topic 842). The Company leases certain premises
under operating leases. As of December 31, 2020, the Company had lease liabilities of $6,185,000 and right-of-use assets of
$5,578,000. Lease liabilities and right-of-use assets are reflected in other liabilities and other assets, respectively. Included in
occupancy expense on the consolidated statements of income for 2020 was operating lease cost of $1,677,000, short-term lease
cost of $120,000, and there was no variable lease cost. The Company paid cash of $1,832,000 for operating lease amounts
included in the measurement of lease liabilities for the year ended December 31, 2020. No right-of-use assets were obtained
in exchange for lease liabilities during the year ended December 31, 2020.
64
For the year ended December 31, 2020, the weighted average remaining lease term for the operating leases was 6.3 years and
the weighted average discount rate used in the measurement of operating lease liabilities was 5.5%. Certain of the Company’s
leases contain options to renew the lease; however, these renewal options are not included in the calculation of the lease
liabilities as they are not reasonably certain to be exercised. There has been no significant change in the Company’s expected
future minimum lease payments since December 31, 2019.
A maturity analysis of operating lease liabilities and undiscounted cash flows as of December 31, 2020 was as follows:
(In thousands)
Lease payments due
Less than 1 year
1-2 years
2-3 years
3-4 years
4-5 years
Over 5 years
Total undiscounted cash flows
Discount on cash flows
Total lease liability
December 31,
2020
$
$
1,767
1,696
774
504
514
2,022
7,277
1,092
6,185
There were no sale and leaseback transactions, leveraged leases, or lease transactions with related parties during the year ended
December 31, 2020. At December 31, 2020, the Company did not have any leases that had not yet commenced.
Note 19
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, 2020, and there were no events identified that would require additional disclosures to prevent
the Company’s consolidated financial statements from being misleading.
Note 20
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
Payments in advance of funding
Investments in subsidiaries
Premises and equipment, net
Other assets
Total assets
Liabilities and Shareholders’ Equity
Liabilities:
Accounts and drafts payable
Short-term borrowings
Other liabilities
Total liabilities
Total shareholders’ equity
$
$
$
Total liabilities and shareholders’ equity
$
65
Condensed Balance Sheets
December 31,
2020
2019
51,714
235,452
357,726
49,314
194,563
162,444
17,459
69,162
1,137,834
832,420
—
44,151
876,571
261,263
1,137,834
$
$
$
$
17,032
3,223
422,665
45,187
206,158
145,400
19,940
137,226
996,831
683,485
18,000
50,987
752,472
244,359
996,831
Condensed Statements of Income
For the Years Ended December 31,
2019
2018
2020
$
$
2,854
95,078
10,932
1,075
458
110,397
77,577
25,347
102,924
7,473
340
7,133
18,043
25,176
$
$
2,599
106,198
15,713
19
518
125,047
81,432
26,136
107,568
17,479
2,860
14,619
15,785
30,404
$
$
2,668
100,628
14,159
(42)
456
117,869
77,946
23,442
101,388
16,481
1,788
14,693
15,575
30,268
Condensed Statements of Cash Flows
For the Years Ended December 31,
2020
2019
2018
$
25,176
$
30,404
$
30,268
(18,043)
6,054
(6,525)
2,267
18,236
27,165
65,689
(2,545)
11,595
(1,810)
—
72,929
208,339
(18,000)
(15,599)
(6,825)
(1,098)
166,817
266,911
20,255
287,166
$
(15,785)
(6,289)
9,474
3,144
6,104
27,052
26,150
(24,999)
(45,381)
(2,637)
(2,833)
(49,700)
(21,875)
18,000
(15,234)
(7,799)
(1,125)
(28,033)
(50,681)
70,936
20,255
$
(15,575)
(1,012)
3,829
2,583
10,242
30,335
14,615
(7,949)
(21,674)
(4,211)
—
(19,219)
(22,316)
—
(13,177)
(8,838)
(635)
(44,966)
(33,850)
104,786
70,936
(In thousands)
Income from subsidiaries – management fees
Information services revenue
Net interest income after provision
Gain (loss) 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
Net income
(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
Stock-based compensation expense
Other, net
Net cash provided by operating activities
Cash flows from investing activities:
Net decrease in securities
Net increase in loans
Net decrease (increase) in payments in advance of funding
Purchases of premises and equipment, net
Asset acquisition of Gateway Giving, LLC
Net cash provided by (used in) investing activities
Cash flows from financing activities:
Net increase (decrease) in accounts and drafts payable
Short-term borrowings
Cash dividends paid
Purchase of common shares for treasury
Other financing activities, net
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
$
66
Note 21
SUPPLEMENTARY FINANCIAL INFORMATION
(Unaudited)
(In thousands except per share data)
2020
Fee revenue and other income
Interest income
Interest expense
Net interest income
Provision for credit/loan losses
Operating expense
Income tax expense
Net income
Net income per share:
Basic earnings per share
Diluted earnings per share
2019
Fee revenue and other income
Interest income
Interest expense
Net interest income
Provision for credit/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
27,095 $
12,338
965
11,373
325
28,929
1,669
7,545 $
23,174 $
11,642
481
11,161
400
27,357
1,139
5,439 $
24,932 $
11,279
465
10,814
—
28,680
1,285
5,781 $
25,240 $
12,428
451
11,977
85
29,649
1,072
6,411 $
YTD
100,441
47,687
2,362
45,325
810
114,615
5,165
25,176
.52 $
.52
.38 $
.37
.40 $
.40
.45 $
.44
1.75
1.73
27,013 $
12,897
1,290
11,607
250
28,462
1,745
8,163 $
27,372 $
13,327
1,305
12,022
—
29,971
1,739
7,684 $
28,262 $
13,666
1,392
12,274
—
30,563
1,787
8,186 $
27,422 $
12,719
1,206
11,513
—
30,773
1,791
6,371 $
110,069
52,609
5,193
47,416
250
119,769
7,062
30,404
.56 $
.55
.53 $
.52
.57 $
.56
.44 $
.43
2.11
2.07
67
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Cass Information Systems, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Cass Information Systems, Inc. and subsidiaries (the
Company) as of December 31, 2020 and 2019, 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, 2020, and the related notes
(collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations
and its cash flows for each of the years in the three year period ended December 31, 2020, 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)
(PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in
Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission, and our report dated February 26, 2021 expressed an unqualified opinion on the effectiveness of the Company’s
internal control over financial reporting.
Adoption of New Accounting Standard
As discussed in Note 1 to the consolidated financial statements, the Company adopted ASU No. 2016-13, Financial Instruments
– Credit Losses (ASC Topic 326) effective as of January 1, 2020. As explained below, auditing the Company’s allowance for
credit losses on loans, including adoption of the new accounting guidance related to the estimate of allowance for credit losses
on loans, was a critical audit matter.
Basis for Opinion
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 are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws
and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,
whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the
consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management,
as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a
reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial
statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or
disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or
complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate
opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Assessment of the allowance for credit losses on loans evaluated on a collective basis
As discussed in Note 1 to the consolidated financial statements, the Company adopted ASU No. 2016-13, Financial
Instruments — Credit Losses (ASC Topic 326) (“ASU 2016-13”), as of December 31, 2020 with an effective date of
January 1, 2020. The total allowance for credit losses on loans as of January 1, 2020 was $11.3 million, of which $11.3
million related to the allowance for credit losses on loans evaluated on a collective basis (the January 1, 2020 collective
ACL). As discussed in Notes 1 and 4 to the consolidated financial statements, the Company’s allowance for credit losses
on loans collectively evaluated for impairment as of December 31, 2020 was $11.9 million, of which $11.4 million was
related to the allowance for credit losses on loans evaluated on a collective basis (the December 31, 2020 collective
ACL). The January 1, 2020 collective ACL and December 31, 2020 collective ACL (together, the “collective ACL”)
include the measure of expected credit losses on a collective (pooled) basis for those loans and leases that share similar
68
risk characteristics. The Company estimated the collective ACL using a weighted-average remaining maturity
(“WARM”) model that utilizes an attrition analysis to determine expected annual remaining loan balance, including
events such as payoffs, matured loans, and renewals in the borrowers’ control to anticipate the length of time it would
take for each portfolio segment to runoff. The Company applies its historical loss rates for each portfolio segment to the
resulting balances. Management then incorporates a reasonable and supportable forecast into the WARM model a one
year single economic forecast scenario of GDP, and subsequent to the reasonable and supportable forecast period an
immediate reversion to the Company’s historical loss rates for faith-based commercial real estate loans and to peer
historical loss rates for the remaining segments. Additionally, the collective ACL includes subjective qualitative risk
factors that are likely to cause estimated credit losses to differ from historical experience.
We identified the assessment of the January 1, 2020 collective ACL and the December 31, 2020 collective ACL as a
critical audit matter. A high degree of audit effort, including specialized skills and knowledge, and subjective and
complex auditor judgment was involved in the assessment due to significant measurement uncertainty. Specifically, the
assessment encompassed the evaluation of the collective ACL methodology, including the WARM model and its
significant assumptions: portfolio segmentation, the GDP forecast scenario, the reasonable and supportable forecast
period, the composition of the peer group, and the historical credit loss experience of the Company and the peer group.
In addition, the assessment included the evaluation of qualitative risk factors. Such significant assumptions and
qualitative risk factors are sensitive to variation, such that minor changes in the assumption can cause significant changes
in the estimates. The assessment also included an evaluation of the conceptual soundness and performance of the
WARM model. In addition, auditor judgment was required to evaluate the sufficiency of the audit evidence obtained.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design
and tested the operating effectiveness of certain internal controls related to the Company’s measurement of the collective
ACL estimates, including controls over the:
‒ development of the collective ACL methodology
‒ development of the WARM model
‒
‒ development of the qualitative framework, including the judgments used in the measurement of the qualitative
identification and determination of the significant assumptions used in the WARM model
factors
analysis of the collective ACL results, trends, and ratios.
‒
We evaluated the Company’s process to develop the collective ACL estimates by testing certain sources of data, factors,
and assumptions that the Company used, and considered the relevance and reliability of such data, factors, and
assumptions. In addition, we involved credit risk professionals with specialized skills and knowledge, who assisted in:
‒
‒
‒
‒
‒
‒
evaluating the Company’s collective ACL methodology for compliance with U.S. generally accepted accounting
principles
evaluating judgments made by the Company relative to the development of the WARM model by comparing it to
relevant Company-specific metrics and trends and the applicable industry and regulatory practices
assessing the conceptual soundness of the WARM model by inspecting the model documentation to determine
whether the model is suitable for its intended use
evaluating the determination of the single economic forecast scenario of GDP and underlying assumptions by
comparing it to the Company’s business environment and relevant industry practices
assessing the economic forecast scenario of GDP through comparison to publicly available forecasts
evaluating the length of the historical observation period of peer group data and reasonable and supportable forecast
period by comparing them to specific portfolio risk characteristics and trends
‒ determining whether the loan portfolio is segmented by similar risk characteristics by comparing to the Company’s
‒
‒
business environment and relevant industry practices
assessing the composition of the peer group by comparing to specific portfolio risk characteristics
evaluating the qualitative framework used to develop the qualitative risk factors and the effect of those factors on the
collective ACL compared with relevant credit risk factors and consistency with credit trends and identified
limitations of the underlying quantitative models.
We also assessed the sufficiency of the audit evidence obtained related to the January 1, 2020 collective ACL and the
December 31, 2020 collective ACL by evaluating the:
cumulative results of the audit procedures
‒
‒ qualitative aspects of the Company’s accounting practices
‒ potential bias in the accounting estimates.
69
/s/ KPMG LLP
We have served as the Company’s auditor since 1983.
St. Louis, Missouri
February 26, 2021
70
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, 2020.
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, 2020.
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 (2013) 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, 2020.
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, 2020 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, 2020, is included below.
71
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Cass Information Systems, Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited Cass Information Systems, Inc. and subsidiaries’ (the Company) internal control over financial reporting as
of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control –
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, 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, 2020, and the related notes (collectively, the consolidated financial statements), and our report dated
February 26, 2021 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
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 are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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 of internal control over financial reporting 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.
Definition and Limitations of Internal Control Over Financial Reporting
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.
/s/ KPMG LLP
St. Louis, Missouri
February 26, 2021
72
ITEM 9B. OTHER INFORMATION
None.
73
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 2021 Annual Meeting of Shareholders (“2021 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 2020.
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 2021 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 2021 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, 2020:
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)
379,576
$42.51
352,060
_
_
_
379,576
$42.51
352,060
Plan Category
Equity compensation plans
approved by security
holders (1)(2)
Equity compensation plans
not approved by security
holders
Total
(1) Amount disclosed relates to awards issued under the Amended and Restated Omnibus Stock and Performance Compensation Plan
(the “Omnibus Plan”).
(2) Includes restricted stock units, restricted stock, SARs, and performance-based stock. Performance-based stock is included assuming
100% attainment of the targets. The actual number of shares of performance-based stock to be awarded at the end of applicable
performance periods ranges from 0% to 150% of the target amount awarded depending on the Company’s achievement of pre-
established financial goals.
Refer to Note 11 to the consolidated financial statements for information concerning the Omnibus Plan.
74
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 2021 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 3” of the Company’s 2021 Proxy
Statement, a copy of which will be filed with the SEC no later than 120 days after the close of the fiscal year.
75
PART IV.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(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 July 21, 2016.
4.1
10.1
10.2
10.3
10.4
10.5
10.6
10.7
Description of the Registrant’s securities, incorporated by reference to Exhibit 4.1 to the
Annual report on Form 10-K filed with the SEC on February 28, 2020.
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.*
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.*
Form of Restricted Stock Award Agreement, incorporated by reference to Exhibit 10.8 to
the annual report on Form 10-K for the year ended December 31, 2016.*
Form of Restricted Stock Unit Agreement, incorporated by reference to Exhibit 10.9 to the
annual report on Form 10-K for the year ended December 31, 2016.*
Description of Cass Information Systems, Inc. Profit Sharing Program, incorporated by
reference to Exhibit 10.7 to the annual report on For 10-K for the year ended December 31,
2018.*
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.
76
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.
101.INS XBRL Instance Document.
101.SCH XBRL Taxonomy Extension Schema Document.
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB XBRL Taxonomy Extension Label Linkbase Document.
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document.
101.DEF XBRL Taxonomy Extension Definition Linkbase Document.
104
Cover Page Interactive Data File
*Management contract or compensatory plan arrangement
(c) None.
ITEM 16. FORM 10-K SUMMARY
None.
77
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.
SIGNATURES
Date: February 26, 2021
Date: February 26, 2021
CASS INFORMATION SYSTEMS, INC.
By
/s/ Eric H. Brunngraber
Eric H. Brunngraber
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
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: February 26, 2021
Date: February 26, 2021
Date: February 26, 2021
Date: February 26, 2021
Date: February 26, 2021
Date: February 26, 2021
Date: February 26, 2021
Date: February 26, 2021
Date: February 26, 2021
/s/ Eric H. Brunngraber
Eric H. Brunngraber
/s/ Ralph W. Clermont
Ralph W. Clermont
/s/ Robert A. Ebel
Robert A. Ebel
/s/ Benjamin F. Edwards, IV
Benjamin F. Edwards, IV
/s/ James J. Lindemann
James J. Lindemann
/s/ Sally H. Roth
Sally H. Roth
/s/ Joseph D. Rupp
Joseph D. Rupp
/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
78
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Shareholder Information
CORPORATE HEADQUARTERS
Cass Information Systems, Inc.
12444 Powerscourt Drive, Suite 550
Saint Louis, Missouri 63131
314-506-5500
cass@cassinfo.com
www.cassinfo.com
COMMON STOCK
The company’s common stock trades
on the NASDAQ stock market under
the symbol CASS.
ANNUAL MEETING
The annual meeting of shareholders
will be held April 20, 2021 at 8:30 a.m.
at the Cass office at 13001 Hollenberg
Drive, Bridgeton, Missouri 63044.
No presentations are planned.
Board of Directors
Eric H. Brunngraber
Chairman, President, and
Chief Executive Officer
Ralph W. Clermont
Retired Managing Partner,
KPMG LLP, Saint Louis,
Missouri
INVESTOR RELATIONS
Security analysts, investment man-
TRANSFER AGENT
Shareholder correspondence should
agers and others seeking financial
be mailed to:
information about the Company
should contact:
Investor Relations Department
Cass Information Systems, Inc.
12444 Powerscourt Drive, Suite 550
Saint Louis, Missouri 63131
314-506-5500
INDEPENDENT AUDITORS
KPMG LLP
10 South Broadway, Suite 900
Saint Louis, Missouri 63102
Computershare
P.O. Box 505000
Louisville, KY 40233
Overnight correspondence should
be mailed to:
Computershare
462 South 4th Street, Suite 1600
Louisville, KY 40202
SHAREHOLDER WEBSITE:
www.computershare.com/investor
SHAREHOLDER ONLINE INQUIRIES:
https://www-us.computershare.com
/investor/Contact
TOLL-FREE PHONE:
866-323-8170
Benjamin F. (Tad) Edwards, IV
Chairman, Chief Executive
Joseph D. Rupp
Lead Director and Retired Chairman,
Officer, and President,
President, and Chief Executive Officer,
Benjamin F. Edwards & Company
Olin Corporation
James J. Lindemann
Retired Executive Vice President,
Emerson
Randall L. Schilling
Chief Executive Officer,
OPO Startups, LLC
Robert A. Ebel
Retired Chief Executive Officer,
Sally H. Roth
Retired Area President — Upper
Universal Printing Company
Midwest, Regions Bank
Franklin D. Wicks, Jr., Ph.D.
Retired Executive Vice President
and President, Applied Markets,
Sigma-Aldrich
Executive Officers
Eric H. Brunngraber
Chairman, President, and
Chief Executive Officer
Mark A. Campbell
President, Transportation
Information Services
Dwight D. Erdbruegger
President, Cass
Commercial Bank
Gary B. Langfitt
President, Expense
Management Services
Martin H. Resch
Executive Vice President
and Chief Operating Officer
Matthew S. Schuckman
Executive Vice President,
General Counsel, and
Corporate Secretary
James M. Cavellier
Executive Vice President and
Chief Information Officer
Michael J. Normile
Executive Vice President
and Chief Financial Officer
Cass Information Systems 10-K
12444 Powerscourt Drive, Suite 550
Saint Louis, Missouri 63131
314-506-5500
www.cassinfo.com