For the quarterly period ended September 30, ~~2020~~2021

Title of each class

Trading symbols

Name of each exchange on which registered

Common stock, par value $.50

CASS

The Nasdaq Global Select Market

____________________

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yesx No o

☒

☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yesx No o

☒

☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,~~” ��smaller~~" “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No x

☐

☒

The number of shares outstanding of the registrant's only class of common stock as of October ~~26, 2020:~~22, 2021: Common stock, par value $.50 per share – ~~14,422,133~~14,010,148 shares outstanding.

Forward-looking Statements - Factors That May Affect Future Results

This report may contain or incorporate by reference forward-looking statements made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Although we believe that, in making any such statements, our expectations are based on reasonable assumptions, forward-looking statements are not guarantees of future performance and involve risks, uncertainties, and other factors beyond our control, which may cause future performance to be materially different from expected performance summarized in the forward-looking statements. These risks, uncertainties and other factors are discussed in Part I, Item 1A, “Risk Factors” of the Company’s ~~2019~~2020 Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”), which may be updated from time to time in our future filings with the SEC. We undertake no obligation to publicly update or revise any forward-looking statements to reflect changed assumptions, the occurrence of anticipated or unanticipated events, or changes to future results over time.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

See accompanying notes to unaudited consolidated financial statements.

CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES

See accompanying notes to unaudited consolidated financial statements.

CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in Thousands)

Comprehensive Income:

See accompanying notes to unaudited consolidated financial statements.

CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in Thousands)

See accompanying notes to unaudited consolidated financial statements.

CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND ~~2019~~

2021

(Dollars in Thousands except ~~Per Share Data)~~

per share data)

Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
Treasury
Stock
Accumulated
Other
Comprehensive
(Loss) Income
Total
Balance, December 31, 2018
$
7,753
$
205,770
$
75,171
$
(39,974)
$
(18,872)
$
229,848

Net income

24,033

24,033
Cash dividends ($.26 per share)

(11,317)

(11,317)
Issuance of 36,062 common shares pursuant to stock-based compensation plan, net

(1,426)

1,324

(102)
Exercise of SARs

(855)

464

(391)
Stock-based compensation expense

2,286

2,286
Purchase of 154,593 common shares

(7,799)

(7,799)
Other comprehensive income

10,059

10,059
Balance, September 30, 2019
$
7,753
$
205,775
$
87,887
$
(45,985)
$
(8,813)
$
246,617

Balance, December 31, 2019
$
7,753
$
205,397
$
90,341
$
(45,381)
$
(13,920)
$
244,190

Net income

18,765

18,765
Cash dividends ($.27 per share)

(11,704)

(11,704)
Issuance of 67,790 common shares pursuant to stock-based compensation plan, net

(2,378)

1,338

(1,040)
Exercise of SARs

(243)

141

(102)
Stock-based compensation expense

2,277

��

2,277
Purchase of 128,779 common shares

(5,508)

(5,508)
Other comprehensive income

4,613

4,613
Balance, September 30, 2020
$
7,753
$
205,053
$
97,402
$
(49,410)
$
(9,307)
$
251,491

CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 –- Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and ~~footnotes~~notes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included. Certain amounts in prior-period financial statements have been reclassified to conform to the current period’s presentation. Such reclassifications have no effect on previously reported net income or shareholders’ equity. Results for quarterly reporting periods beginning after December 31, 2020 in the Company’s Form 10-Q will be presented under ASU 2016-13, as defined in this report, while prior quarterly period amounts continue to be reported in accordance with previously applicable GAAP. For further information, refer to the audited consolidated financial statements and related footnotes included in Cass Information System, Inc.’s (the “Company” or “Cass”) Annual Report on Form 10-K for the year ended December 31, ~~2019.~~

2020.

Risks and Uncertainties

On March 11, 2020, the World Health Organization (“WHO”) declared the outbreak of ~~a novel coronavirus (“COVID-19”)~~COVID-19 as a global ~~pandemic, which continues to spread throughout the United States and around the world.~~pandemic. The declaration of a global pandemic ~~indicates~~meant that almost all public commerce and related business activities ~~must be,~~was, to varying degrees, curtailed with the goal of decreasing the rate of new infections. ~~This response to~~In late fiscal 2020, vaccines for combating COVID-19 were approved by health agencies and have been administered throughout the ~~COVID-19 pandemic has resulted in an unprecedented slow-down in economic activity~~country. Although vaccination efforts have been widespread and continuing, and a ~~related increase~~significant amount of previous business and other restrictions have been lifted, the continued impact of COVID-19, including any increases in ~~unemployment.~~

the infection rates, new variants, and renewed governmental action to slow the spread of COVID-19 cannot be estimated. The ~~Company has evaluated subsequent events after the consolidated balance sheet date~~ongoing impact of ~~September 30, 2020 and the breadth of~~COVID-19, including the impact of ~~the global presence of COVID-19 on the Company’s~~restrictions imposed to combat its spread, could result in additional and prolonged business ~~is currently unknown. Cass~~closures, supply chain disruptions, work restrictions and activity restrictions.

The Company is closely monitoring developments related to COVID-19 checking regularly for updated information and recommendations from the ~~World Health Organization~~WHO and the ~~U.S.~~ Centers for Disease Control and Prevention, 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 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 ~~are having~~and shortages in the labor force, 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~~many restrictions have been relaxed with some success and economic conditions have been improving, many states and localities are still experiencing ~~significant increases in the number~~moderate to high levels of COVID-19 cases, prompting ~~a reinstatement of prior activity~~continued 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~~took action to lower the Federal Funds ~~rate, which has adversely affected interest income and therefore, the Company’s results of operations and financial condition.~~rate. The Federal Reserve has ~~continued its commitment to this approach, indicating~~indicated 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 ~~management~~control actions will be considered. Future asset impairment charges, increases in allowance for ~~loan~~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~~cause 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.

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~~

An 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~~accordance with its federally mandated Pandemic Plan and Business Continuity Plan, ~~Cass has deployed its remote workforce program. Most~~many Cass employees around the globe ~~are now working~~continue to work and ~~conducting~~conduct 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.~~capabilities. 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 – Intangible Assets

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

~~Details~~

September 30, 2020
December 31, 2019
(In thousands)
Gross Carrying
Amount
Accumulated
Amortization
Gross Carrying
Amount
Accumulated
Amortization
Assets eligible for amortization:

Customer lists
$
4,778
$
(3,793)
$
4,778
$
(3,463)
Patents

72

(23)

72

(20)
Non-compete agreements

332

(332)

332

(332)
Software

2,844

(638)

2,844

(358)
Trade Name
190
(10)
190
(3)
Other

500

(283)

500

(259)
Unamortized intangible assets:

Goodwill¹

14,489

(227)

14,489

(227)
Total intangible assets
$
23,205
$
(5,306)
$
23,205
$
(4,662)

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 $644,000 ~~and $359,000~~ for both the nine-month periods ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively. Estimated ~~future~~ amortization of intangibles is $859,000 in ~~both 2020 and~~ 2021, $540,000 in both 2022 and 2023, ~~and~~ $498,000 in ~~2024.~~

2024, and $490,000 in 2025.

Note 3 – Earnings Per Share

Basic earnings per share is computed by dividing net income by the weighted-average number of common shares outstanding. Diluted earnings per share is computed by dividing net income by the sum of the weighted-average number of common shares outstanding and the weighted-average number of potential common shares outstanding. Under the treasury stock method, stock appreciation rights (“SARs”) are dilutive when the average market price of the Company’s common stock, combined with the effect of any unamortized compensation expense, exceeds the SAR price during a period.

The calculations of basic and diluted earnings per share are as follows:

Note 4 – Stock Repurchases

The Company maintains a treasury stock buyback program pursuant to which, in October 2020, the Board of Directors ~~has~~ authorized the repurchase of up to 500,000 shares of the Company’s common ~~stock. The program provides that the Company may repurchase up to an aggregate of 500,000 shares of common~~ stock ~~and has~~with no expiration date. As of September 30, 2021, 30,940 shares remained available for repurchase under the program. The Company ~~did not repurchase~~repurchased 314,672 and zero shares during the three-month periods ended September 30, 2021 and 2020, respectively, and ~~2019~~434,938 and ~~repurchased~~ 128,779 ~~and 154,593 during~~shares for the nine-month periods ended September 30, 2021 and 2020, ~~and 2019,~~ respectively. ~~As of September 30, 2020, 371,221 shares remained available for repurchase under the program.~~ Repurchases may be made in the open market or through negotiated transactions from time to time depending on market conditions.

~~As of March 16, 2020, the Company has temporarily suspended the treasury stock buyback program.~~

On October ~~20, 2020,~~19, 2021, the Board of Directors ~~restored~~authorized the ~~treasury~~repurchase of up to 750,000 shares of the Company's common stock ~~buyback program which authorizes~~under the program. This new authorization replaces the previous authorization of 500,000 shares, and as such, the Company tohas 750,000 shares remaining available for repurchase ~~up to an aggregate of 500,000 shares.~~

in future periods.

Note 5 – Industry Segment Information

The services provided by the Company are classified into ~~two~~2 reportable segments: Information Services and Banking Services. Each of these segments provides distinct services that are marketed through different channels. They are managed separately due to their unique service and processing requirements.

The Information Services segment provides transportation, energy, telecommunication, and environmental invoice processing and payment services to large corporations. The Banking Services segment provides banking services primarily to privately held businesses and faith-based ministries, including on-line generosity services, as well as supporting the banking needs of the Information Services segment.

The Company’s accounting policies for segments are the same as those described in the summary of significant accounting policies in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020. 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:

•

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

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

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

(In thousands)
Information
Services
Banking
Services
Corporate,
Eliminations
and Other
Total
Three Months Ended September 30, 2020
Fee income
$
24,198
$
651
$
83
$
24,932
Interest income*

6,306

7,212

(1,773)

11,745
Interest expense

─

465

─

465
Intersegment income (expense)

─

593

(593)

─
Tax-equivalized pre-tax income*

5,718

3,506

(1,692)

7,532
Goodwill

12,433

1,829

─

14,262
Other intangible assets, net

837

2,800

─

3,637
Total assets

905,158

1,105,845

(10,540)

2,000,463
Average funding sources

751,010

780,217

─

1,531,227
Three Months Ended September 30, 2019

Fee income
$
28,026
$
257
$
(21)
$
28,262
Interest income*

6,760

7,930

(513)

14,177
Interest expense

—

1,392

—

1,392
Intersegment income (expense)

—

533

(533)

—
Tax-equivalized pre-tax income*

7,619

3,399

(534)

10,484
Goodwill

15,758

136

—

15,894
Other intangible assets, net

3,170

—

—

3,170
Total assets

908,946

862,142

9,922

1,781,010
Average funding sources

704,772

588,226

—

1,292,998
Nine Months Ended September 30, 2020:

Fee income
$
72,098
$
1,906
$
1,197
$
75,201
Interest income*

18,153

21,097

(2,567)

36,683
Interest expense

─

1,911

─

1,911
Intersegment income (expense)

─

1,674

(1,674)

─
Tax-equivalized pre-tax income*

16,462

9,190

(1,370)

24,282
Goodwill

12,433

1,829

─

14,262
Other intangible assets, net

837

2,800

─

3,637
Total assets

905,158

1,105,845

(10,540)

2,000,463
Average funding sources

703,142

712,903

─

1,416,045
Nine Months Ended September 30, 2019

Fee income
$
82,049
$
1,040
$
(442)
$
82,647
Interest income*

19,273

23,082

(883)

41,472
Interest expense

—

3,987

—

3,987
Intersegment income (expense)

—

1,587

(1,587)

—
Tax-equivalized pre-tax income*

21,997

10,214

(1,324)

30,887
Goodwill

15,758

136

—

15,894
Other intangible assets, net

3,170

—

—

3,170
Total assets

908,946

862,142

9,922

1,781,010
Average funding sources

667,741

583,458

—

1,251,199

* Presented on a tax-equivalent basis assuming a tax rate of 21% for both 2020 and 2019. The tax-equivalent adjustment was approximately $466,000 and $511,000 for the Three Months Ended 2020 and 2019, respectively, and $1,424,000 and $1,583,000 for the Nine Months Ended 2020 and 2019, respectively.


(In thousands)	Information Services		Banking Services		Corporate, Eliminations and Other		Total
Three Months Ended September 30, 2021:
Fee income	$	26,642	$	596	$	339	$	27,577
Interest income*	6,361		6,187		(361)		12,187
Interest expense	—		287		—		287
Intersegment income (expense)	—		859		(859)		—
Tax-equivalized pre-tax income*	6,753		1,886		(193)		8,446
Goodwill	12,433		1,829		—		14,262
Other intangible assets, net	431		2,348		—		2,779
Total assets	1,018,710		1,279,452		(5,176)		2,292,986
Average funding sources	974,091		875,997		—		1,850,088
Three Months Ended September 30, 2020:
Fee income	$	24,198	$	651	$	83	$	24,932
Interest income*	5,112		7,212		(579)		11,745
Interest expense	—		465		—		465
Intersegment income (expense)	—		593		(593)		—
Tax-equivalized pre-tax income*	4,522		3,506		(496)		7,532
Goodwill	12,433		1,829		—		14,262
Other intangible assets, net	837		2,800		—		3,637
Total assets	905,158		1,105,845		(10,540)		2,000,463
Average funding sources	751,010		780,217		—		1,531,227
Nine Months Ended September 30, 2021:
Fee income	$	77,717	$	1,846	$	1,176	$	80,739
Interest income*	17,754		18,501		(1,335)		34,920
Interest expense	—		915		—		915
Intersegment income (expense)	—		2,170		(2,170)		—
Tax-equivalized pre-tax income*	19,170		8,080		(654)		26,596
Goodwill	12,433		1,829		—		14,262
Other intangible assets, net	431		2,348		—		2,779
Total assets	1,018,710		1,279,452		(5,176)		2,292,986
Average funding sources	906,474		862,142		—		1,768,616
Nine Months Ended September 30, 2020:
Fee income	$	72,098	$	1,906	$	1,197	$	75,201
Interest income*	14,774		21,097		812		36,683
Interest expense	—		1,911		—		1,911
Intersegment income (expense)	—		1,674		(1,674)		—
Tax-equivalized pre-tax income*	13,082		9,190		2,010		24,282
Goodwill	12,433		1,829		—		14,262
Other intangible assets, net	837		2,800		—		3,637
Total assets	905,158		1,105,845		(10,540)		2,000,463
Average funding sources	703,142		712,903		—		1,416,045

* Presented on a tax-equivalent basis assuming a tax rate of 21% for both 2021 and 2020. The tax-equivalent adjustment was approximately $468,000 and $466,000 for the Third Quarter of 2021 and 2020, respectively, and $1,417,000 and $1,424,000 for the Nine Months Ended 2021 and 2020, respectively.

-12-

Table of Contents

Note 6 – Loans by Type

A summary of loan categories is as follows:


(In thousands)	September 30, 2020		December 31, 2019		(In thousands)	September 30, 2021		December 31, 2020
Commercial and industrial	$	301,886	$	323,857	Commercial and industrial	$	356,532	$	298,984
Paycheck protection program (“PPP”)		172,211		—
Real estate:					Real estate:
Commercial:					Commercial:
Mortgage		94,792		101,654	Mortgage	103,596		100,419
Construction		23,795		25,299	Construction	24,705		25,090
Faith-based:					Faith-based:
Mortgage		331,419		305,826	Mortgage	358,493		333,661
Construction		20,452		15,945	Construction	13,272		23,818
Other		2		57
Paycheck Protection Program (“PPP”)					Paycheck Protection Program (“PPP”)	16,307		109,704
Total loans	$	944,557	$	772,638	Total loans	$	872,905	$	891,676

The following table presents the aging of loans past due by ~~loan categories~~category at September 30, ~~2020~~2021 and December 31, ~~2019:~~

2020:

The following table presents the credit exposure of the loan portfolio by internally assigned credit grade as of September 30, ~~2020~~2021 and December 31, ~~2019:~~

2020:

1 Loans subject to normal monitoring involve borrowers of acceptable-to-strong credit quality and risk, who have the apparent ability to satisfy their loan obligations.

2 Loans subject to special monitoring possess some credit deficiency or potential weakness which requires a high level of management attention.

There were no foreclosed loans recorded as other real estate owned (included in other assets) as of September 30, ~~2020~~2021 or December 31, ~~2019.~~

2020.

There were no loans considered troubled debt restructurings as of September 30, 2021. There were 2 loans that were considered troubled debt restructurings at December 31, 2020 and these loans were removed from troubled debt restructuring status during the first quarter of 2021.

The ~~following table presents the~~ recorded investment ~~and unpaid principal balance~~by category for ~~impaired~~ loans considered a troubled debt restructuring during the year ended December 31, 2020 is as follows:

During the year ended December 31, 2020, 2 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 ~~September 30,~~December 31, 2020. There were no ~~impaired~~ loans atrestructured that subsequently defaulted during the year ended December 31, ~~2019 or September 30, 2019.~~

2020.

(In thousands)
Recorded Investment
Unpaid Principal Balance
Related Allowance for Loan Losses
Commercial and industrial:
$
11,782
$
11,782
$
500
Real estate:

Faith-based:

Mortgage

1,038

1,038

—
Total impaired loans
$
12,820
$
12,820
$
500

The release of credit losses during the ~~activity in~~nine months ended September 30, 2021 is primarily due to improved economic conditions and the ~~allowance~~removal of specific allowances for ~~loan~~credit losses ~~from~~on impaired loans.

The provision for credit losses during the year ended December 31, ~~2018~~2020 was due to ~~September 30, 2019 is as follows:~~

the Company’s forecast of macroeconomic factors, which worsened during 2020, primarily due to the COVID-19 pandemic.

(In thousands)
December 31,
2018
Charge-
Offs
Recoveries
Provision
September 30,
2019
Commercial and industrial
$
4,179
$
—
$
34
$
672
$
4,885
Real estate:

Commercial:

Mortgage

1,417

—

—

(161)

1,256
Construction

89

—

—

91

180
Faith-based:

Mortgage

3,961

—

—

32

3,993
Construction

155

—

—

(38)

117
Other

424

—

—

(346)

78
Total
$
10,225
$
—
$
34
$
250
$
10,509

Note 7 – Commitments and Contingencies

In the normal course of business, the Company is party to activities that contain credit, market and operational risks that are not reflected in whole or in part in the Company’s consolidated financial statements. Such activities include traditional off-balance sheet credit-related financial instruments and commitments under operating leases. These financial instruments include commitments to extend credit, commercial letters of credit and standby letters of credit. The Company’s maximum potential exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit, commercial letters of credit and standby letters of credit is represented by the contractual amounts of those instruments. At A release of credit losses of $430,000 was recorded during the nine months ended

September 30, ~~2020~~2021 due to improved economic conditions and lower line of credit usage. An allowance for unfunded commitments of $137,000 and $567,000 had been recorded at September 30, 2021 and December 31, ~~2019, no amounts have been accrued for any estimated losses for these instruments.~~

2020, respectively.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commercial and standby letters of credit are conditional commitments issued by the Company or its subsidiaries to guarantee the performance of a customer to a third party. These off-balance sheet financial instruments generally have fixed expiration dates or other termination clauses and may require payment of a fee. At September 30, ~~2020,~~2021, the balance of unused loan commitments, ~~and~~ standby and commercial letters of credit were ~~$193,272,000, $10,337,000,~~$194,327,000, $12,061,000, and ~~$1,015,000,~~$235,000, respectively. Since some of the financial instruments may expire without being drawn upon, the total amounts do not necessarily represent future cash requirements. Commitments to extend credit and letters of credit are subject to the same underwriting standards as those financial instruments included on the consolidated balance sheets. The Company evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary upon extension of the credit, is based on management’s credit evaluation of the borrower. Collateral held varies, but is generally accounts receivable, inventory, residential or income-producing commercial property or equipment. In the event of nonperformance, the Company or its subsidiaries may obtain and liquidate the collateral to recover amounts paid under guarantees on these financial instruments.

The Company and its subsidiaries are involved in various pending legal actions and proceedings in which claims for damages are asserted. Management, after discussion with legal counsel, believes the ultimate resolution of these legal actions and proceedings will not have a material effect upon the Company’s consolidated financial position or results of operations.

Note 8 – Stock-Based Compensation

The Amended and Restated Omnibus Stock and Performance Compensation Plan (the “Omnibus Plan”) permits the issuance of up to 1,500,000 shares of the Company’s common stock in the form of stock options, SARs, restricted stock, restricted stock units and performance awards. The Company may issue shares out of treasury stock for these awards. During the nine months ended September 30, ~~2020, 33,568~~2021, 52,356 restricted shares, ~~32,910~~31,150 performance-based restricted shares, and no SARs were granted under the Omnibus Plan. Stock-based compensation expense for the three months ended September 30, 2021 and 2020 was $1,066,000 and ~~2019 was $800,000 and $869,000,~~$799,000, respectively, and ~~$2,277,000~~$2,585,000 and ~~$2,286,000~~$2,277,000 for the nine months ended September 30, 2021 and 2020, ~~and 2019,~~ respectively.

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.

As of September 30, ~~2020,~~2021, the total unrecognized compensation expense related to non-vested restricted shares was ~~$1,674,000,~~$2,060,000, and the related weighted-average period over which it is expected to be recognized is approximately ~~0.69~~0.70 years.

Following is a summary of the activity of the Company's restricted ~~stock:~~

stock for the nine months ended September 30, 2021, with total shares and weighted average fair value:

Nine Months Ended
September 30, 2020
Shares

Fair Value
Balance at December 31, 2019

123,272
$
47.24
Granted
33,568
47.83
Vested
(20,369)
49.32
Forfeited
(4,962)
50.08
Balance at September 30, 2020
131,509
$
46.96

Performance-Based Restricted Stock

The Company has granted three-year ~~performance based~~performance-based restricted stock (“PBRS”) awards which are contingent upon the Company’s achievement of pre-established financial goals over a three-year cliff vest period. The number of shares issued ranges from 0% to 150% of the target opportunity based on the actual achievement of financial goals for the three-year performance period.

The PBRS that vested during the nine months ended September 30, ~~2020 achieved~~2021 were based on the Company's achievement of 94.4% of target financial goals, ~~of 117.3%,~~ resulting in the issuance of ~~34,222~~31,150 shares of common stock. The outstanding PBRS at September 30, ~~2020~~2021 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.

There were no SARs granted and no expense recognized during the ~~three~~nine months ended September 30, ~~2020.~~2021. Following is a summary of the activity of the Company’s SARs program for the ~~nine-month period~~nine months ended September 30, ~~2020:~~

2021:

	Shares	Weighted- Average Exercise Price
Balance at December 31, 2019	155,292	$	32.58	2.92	$	3,908
Exercised	(10,293)		26.72	—		—
Exercisable at September 30, 2020	144,999	$	32.99	2.20	$	1,247

There were 0no non-vested SARs at September 30, ~~2020.~~

2021.

Note 9 – Defined Pension Plans

The Company has a noncontributory defined-benefit pension plan (the “Plan”), which covers eligible employees. Effective December 31, 2016, the ~~plan~~Plan was closed to all new participants. Additionally, the Plan’s benefits were frozen for all remaining participants as of February 28, 2021. 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. Disclosure information is based on a measurement date of December 31 of the corresponding year. The following table represents the components of the net periodic pension costs:

The Company recorded ~~to expense were $1,103,000~~a net periodic benefit of $678,000 and ~~$1,178,000~~$1,096,000 for the ~~three-month~~three and nine-month periods ended September 30, ~~2020~~2021, respectively as compared to net periodic pension cost of $1,103,000 and ~~2019, respectively, and totaled~~ $3,159,000 ~~and $3,543,000~~ for the three and nine-month periods ended September 30, 2020, ~~and 2019,~~ respectively. Pension costs decreased in ~~2020 primarily~~2021 due to ~~improved asset performance and a contribution made during 2019, which were partially offset by a decrease in~~ the ~~discount rate.~~Plan being frozen as of February 28, 2021. The Company made noa contribution of $330,000 to the ~~plan~~Plan during the nine-month period ended September 30, ~~2020~~2021 and is evaluating the amount of additional contributions, if any, infor the remainder of ~~2020.~~

2021.

Supplemental executive retirement plan costs recorded to expense were ~~$145,000~~$160,000 and ~~$195,000~~$145,000 for the three-month periods ended September 30, 2021 and 2020, respectively. Supplemental executive retirement plan costs recorded to expense were $481,000 and ~~2019, respectively, and were~~ $435,000 ~~and $586,000~~ for the nine-month periods ended September 30, 2021 and 2020, ~~and 2019,~~ respectively. Pension costs decreased primarily due to the unrecognized loss being amortized over the remaining expected life of the participants rather than the remaining expected service period as almost all of the plan’s participants are inactive. This was partially offset by a decrease in the discount rate.

Note 10 – Income Taxes

The effective tax rate was ~~18.2%~~14.7% and ~~17.9%~~18.2% for the three-month periods ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively, and ~~17.9%~~17.0% and ~~18.0%~~17.9% for the nine-month periods ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively. The ~~2020 and 2019~~ effective tax ~~rates~~rate for ~~the three and nine-month~~all periods ~~differ~~differs from the statutory rate of 21% primarily due to the tax-exempt interest received from municipal bonds.

Note 11 – Investment in Securities

Investment securities available-for-sale are recorded at fair value on a recurring basis. The Company’s investment securities available-for-sale are measured at fair value using Level 2 valuations. The market evaluation utilizes several sources which include “observable inputs” rather than “significant unobservable inputs” and therefore fall into the Level 2

category. The amortized cost, gross unrealized gains, gross unrealized losses and fair value of investment securities are summarized as follows:

December 31, 2019
Less than 12 months
12 months or more
Total
(In thousands)
Estimated
Fair Value
Unrealized
Losses
Estimated
Fair Value
Unrealized
Losses
Estimated
Fair Value
Unrealized
Losses
U.S. government agencies
$
3,801
$
12
$
17,593
$
157
$
21,394
$
169
Total
$
3,801
$
12
$
17,593
$
157
$
21,394
$
169

The amortized cost and fair value of investment securities by contractual maturity are shown in the following table. Expected maturities may differ from contractual maturities because borrowers have the right to prepay obligations with or without prepayment penalties.

Proceeds from sales of investment securities classified as available-for-sale were $30,074,000 and $0 for ~~each of~~ the three ~~month periods~~months ended September 30, 2021 and 2020, ~~and 2019,~~respectively, and were ~~$19,629,000~~$43,190,000 and ~~$4,648,000~~$19,629,000 for the nine months ended September 30, 2021 and 2020, respectively. Gross realized losses were $1,000 and ~~2019, respectively. There were no gross realized gains~~$0 for the three months ended September 30, 2021 and 2020, ~~or 2019.~~respectively. Gross realized gains were ~~$1,069,000~~$44,000 and ~~$19,000~~$1,069,000 for the nine months ended

September 30, ~~2020~~2021 and ~~2019,~~2020, respectively. There were no securities pledged to secure public deposits and for other purposes at September 30, ~~2019.~~

2021.

Note 12 – Fair Value of Financial Instruments

Following is a summary of the carrying amounts and fair values of the Company’s financial instruments:

Cash and Cash Equivalents –- The carrying amount approximates fair value.

Investment in Securities –- The fair value is measured on a recurring basis using Level 2 valuations. Refer to Note 11, “Investment in Securities,” for fair value and unrealized gains and losses by investment type.

Loans –- The fair value is estimated using present values of future cash flows discounted at risk-adjusted interest rates for each loan category designated by management and is therefore a Level 3 valuation. Management believes that the risk factor embedded in the interest rates along with the allowance for ~~loan~~credit losses result in a fair valuation.

Accrued Interest Receivable –- The carrying amount approximates fair value.

Deposits –- The fair value of demand deposits, savings deposits and certain money market deposits is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities and therefore, is a Level 2 valuation. The fair value estimates above do not include the benefit that results from the low-cost funding provided by the deposit liabilities compared to the cost of borrowing funds in the market or the benefit derived from the customer relationship inherent in existing deposits.

Note 13 – Revenue from Contracts with Customers

~~The services that fall within the scope of FASB ASC 606,~~

Revenue ~~from Contracts with Customers~~ ~~(“FASB ASC 606”), are presented within fee revenue and other income in the Consolidated Statements of Income and are~~is recognized ~~as revenue~~ as the obligation to the customer is satisfied. Services within the scope of FASB ASC 606 include invoice processing and payment fees, bank service fees, and other real estate owned (“OREO”). Since interest income on loans and securities are both excluded from this topic, a significant portionThe following is detail of the Company’s ~~revenues are not subject to the guidance.~~

revenue from contracts with clients.

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 contracts have no significant impact of 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 of variable consideration and no significant financing components.

Bank service fees – Revenue from service fees consists of service charges and fees on deposit accounts under depository agreements with customers to provide access to deposited funds. Service charges on deposit accounts are ~~transaction based~~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 of 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.

~~-18-~~


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
(In thousands)	2021		2020		2021		2020
Fee revenue and other income
In-scope of FASB ASC 606
Invoice processing fees	$	19,230	$	18,650	$	58,047	$	55,697
Invoice payment fees	7,647		5,726		20,394		16,843
Information services payment and processing revenue	26,877		24,376		78,441		72,540
Bank service fees	533		441		1,557		1,249
Fee revenue (in-scope of FASB ASC 606)	27,410		24,817		79,998		73,789
Other income (out-of-scope of FASB ASC 606)	167		115		741		1,412
Total fee revenue and other income	$	27,577	$	24,932	$	80,739	$	75,201

For the Three Months
Ended September 30,

For the Nine Months
Ended September 30,
(In thousands)

2020

2019

2020

2019
Fee revenue and other income

In-scope of FASB ASC 606

Invoice processing fees

$
18,650

$
20,408

$
55,697

$
61,397
Invoice payment fees

5,726

7,333

16,843

19,653
Information services payment and processing revenue

24,376

27,741

72,540

81,050
Bank service fees

441

307

1,249

984
Fee revenue (in-scope of FASB ASC 606)

24,817

28,048

73,789

82,034
Other income (out-of-scope of FASB ASC 606)

115

214

1,412

613
Total fee revenue and other income

24,932

28,262

75,201

82,647

Net interest income after provision for loan losses (out-of-scope of FASB ASC 606)¹

10,814

12,274

32,623

35,653
Total net revenue

$
35,746

$
40,536

$
107,824

$
118,300

¹ The Company earns interest income from the balances generated during the invoice processing and payment cycle and on deposit accounts, which is an integral component of the Company’s revenue, but is out-of-scope of FASB ASC 606.

~~Leases (ASC Topic 842)~~. The Company leases certain premises under operating leases. As of September 30, ~~2020,~~2021, the Company had lease liabilities of ~~$6,553,000~~$5,246,000 and right-of-use assets of ~~$5,887,000. As of September 30, 2019, the Company had lease liabilities of $7,019,000 and right-of-use assets of $6,241,000.~~$4,754,000. Lease liabilities and right-of-use assets are reflected in other liabilities and other assets, respectively. Presented within occupancy expense on the Consolidated Statements of Income for the three months ended September 30, ~~2020,~~2021, operating lease cost was ~~$420,000,~~$416,000, short-term lease cost was ~~$19,000,~~$42,000, and there was no variable lease cost. For the nine months ended September 30, ~~2020, the~~2021, operating lease cost was ~~$1,257,000,~~$1,251,000, short-term lease cost was ~~$76,000,~~$133,000, and there was no variable lease cost. ~~For the three months ended~~At September 30, ~~2020,~~2021, the weighted average remaining lease term for the operating leases was ~~6.4~~6.0 years and the weighted average discount rate used in the measurement of operating lease liabilities was ~~5.5%~~5.35%. 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~~have been no significant ~~change~~changes in the Company’s expected future minimum lease payments since December 31, ~~2019.~~2020. See the Company’s ~~2019~~2020 Annual Report on Form 10-K for information regarding these commitments.

A maturity analysis of operating lease liabilities and undiscounted cash flows as of September 30, ~~2020~~2021 is as follows:

There were no sale and leaseback transactions, leveraged leases, or lease transactions with related parties during the nine months ended September 30, ~~2020.~~2021. At September 30, ~~2020,~~2021, the Company ~~did not have any~~had no leases that had not yet commenced.

Note 15 – Subsequent Events

In accordance with FASB ASC 855, Subsequent Events, the Company has evaluated subsequent events after the consolidated balance sheet date of September 30, ~~2020, and there~~2021. There were no events identified that would require additional disclosures to prevent the Company’s unaudited consolidated financial statements from being misleading.

ITEM 2. ~~MANAGEMENT’S~~MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Impact of COVID-19 on the Company’s Business

~~The breadth~~

During the year ended December 31, 2020 and nine months ended September 30, 2021, 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. Substantial progress has been made to combat the spread of COVID-19, and financial results for the three and nine months ended September 30, 2021 were driven, in part, by the continual improvement in economic conditions as compared to the same periods in 2020, when the negative economic impact of the ~~global presence~~COVID-19 pandemic was most pronounced on Cass and its customers. Though macroeconomic conditions continue to trend positive as of September 30, 2021, the Company could experience future negative effects on its business, financial condition, results of operations, and cash flows if there continue to be significant outbreaks of COVID-19.

With the spread of COVID-19 ~~on the Company’s business remains unknown. Cass is closely monitoring developments related~~ to ~~COVID-19, checking regularly for updated information and recommendations from the World Health Organization and~~ the U.S. ~~Centers for Disease Control and Prevention, from national,~~in the first quarter of 2020, many state and local governments recommended or mandated limitations on crowd size, closures of businesses and ~~evaluating courses~~shelter-in-place orders in order to slow the transmission. The extent and nature of government actions varied during fiscal year 2020 and the Nine Months Ended 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, labor force shortages, 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.

The Federal Reserve also took action ~~being taken by peers. Cass remains committed~~ to ~~creating a safe~~lower the Federal Funds rate in connection with COVID-19 relief, adversely affecting the Company’s net interest income and ~~healthy environment for employees while offering assurance~~operating results tied to Banking Services. The Federal Reserve has indicated that it ~~remains a financially strong service provider possessing~~will retain the ~~resources necessary to weather this storm in support of its valued customers.~~

current low level interest rates until the economy has stabilized.

Bank regulatory agencies and various governmental authorities ~~are urging~~had urged financial institutions to work prudently with borrowers who ~~are~~were or may behave been 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 September 30, 2021.

In response to COVID-19, the ~~end~~CARES Act was adopted on March 27, 2020. The CARES Act provided 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 allowed 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 March 2021, the American Rescue Plan Act of 2021 was enacted, which among other things, provided for additional funding and expansion of the ~~Third Quarter of 2020.~~PPP. 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 and an additional 110 applications for approximately $40,000,000 during the nine months ended September 30, 2021 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.~~

SBA.

The Company 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 for combating COVID-19 were approved by health agencies and have been administered throughout the country. While vaccination efforts are underway and a significant amount of previous business and other restrictions have been lifted, the ongoing impact of COVID-19, including any increases in infection rates, new variants, supply chain disruptions, labor force shortages, and renewed governmental action and business and activity restrictions to combat its spread, cannot be estimated. 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 Note 1 “Basis of Presentation.”

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 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”),~~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.

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.

Critical Accounting Policies

The Company has prepared the consolidated financial statements in this report in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards ~~Codification.~~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 ~~Loan~~Credit Losses. The Company performs periodic and systematic detailed reviews of its loan portfolio to ~~assess overall collectability. The level of the allowance for loan losses reflects~~determine management’s estimate of the ~~collectability of the loan portfolio.~~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 ~~Loan Losses”~~Credit Losses and Allowance for Unfunded Commitments” section of this report. The Company’s estimates have been materially accurate in the past. In accordance with the CARES Act, the Company elected to defer the adoption of the current expected credit losses methodology and expects to continue to utilize the present processes until the earlier of December 31, 2020 or the date the national emergency declaration is terminated.

Results of Operations

The following paragraphs more fully discuss the results of operations and changes in financial condition for the three-month period ended September 30, ~~2020~~2021 (“Third Quarter of ~~2020”~~2021”) compared to the three-month period ended September 30, ~~2019~~2020 (“Third Quarter of ~~2019”~~2020”) and the nine-month period ended September 30, 2021 (“Nine Months Ended 2021”) compared to the nine-month period ended September 30, 2020 (“Nine Months Ended 2020”~~) compared to the nine-month period ended September 30, 2019 (“Nine Months Ended 2019”~~). The following discussion and analysis should be read in conjunction with the unaudited consolidated financial statements and related notes and with the statistical information and financial data appearing in this report, as well as in the Company’s ~~2019~~2020 Annual Report on Form 10-K. Results of operations for the Third Quarter ~~of 2020~~and Nine Months Ended 2021 are not necessarily indicative of the results to be attained for any other period.

The following table summarizes the Company’s operating results:

Fee Revenue and Other Income

The Company’s fee revenue is derived mainly from transportation and facility payment and processing fees. As the Company provides its processing and payment services, it is compensated by service fees which are typically calculated on a per-item basis and by the accounts and drafts payable balances generated in the payment process which can be used to generate interest income. In addition, the Company's fee revenue consists of financial fees which are generated through the payment process. Processing volumes, fee revenue and other income were as follows:

Third Quarter of
Nine Months Ended
(In thousands)
2020
2019
% Change

2020
2019
% Change
Transportation invoice volume

8,660
9,236
(6.2)%

24,234
27,406
(11.6)%
Transportation invoice dollar volume
$
6,822,565
$
7,104,771
(4.0)%
$
18,987,243
$
21,211,746
(10.5)%
Facility Expense transaction volume*

7,117
7,143
(0.4)%

20,330
21,029
(3.3)%
Facility Expense dollar volume*
$
3,595,586
$
4,118,393
(12.7)%
$
10,118,270
$
11,468,896
(11.8)%
Payment and processing revenue
$
24,376
$
27,741
(12.1)%
$
72,540
$
81,050
(10.5)%

* Includes energy, telecom and waste


(In thousands)	Third Quarter of						Nine Months Ended
	2021		2020		% Change		2021		2020		% Change
Transportation invoice volume	9,333		8,660		7.8	%	27,581		24,234		13.8	%
Transportation invoice dollar volume	$	9,540,408	$	6,822,565	39.8	%	$	26,385,936	$	18,987,243	39.0	%
Facility-related transaction volume*	6,675		7,117		(6.2)	%	20,498		20,330		0.8	%
Facility-related dollar volume*	$	4,215,044	$	3,595,586	17.2	%	$	11,590,437	$	10,118,270	14.5	%
Payment and processing revenue	$	26,877	$	24,376	10.3	%	$	78,441	$	72,540	8.1	%

*Includes energy, telecom and environmental

Third Quarter of ~~2020~~2021 compared to Third Quarter of ~~2019:~~

2020:

Payment and processing fee revenue ~~decreased 12%~~increased 10%. Transportation volumes for invoices and dollars ~~declined 6%~~increased 8% and 4%40%, respectively. ~~Volumes are trending to pre-COVID 19 levels led~~The increases were driven by athe stronger performance of the manufacturing sector ~~that has been~~ in ~~expansion territory for~~addition to organic new customer growth. Also contributing to the ~~previous four months. Increased new business enabled facility-related invoice volumes remained virtually unchanged, despite a number~~dramatic increase in dollar volume was scarcity in carrier supply, which continues to drive prices higher. Facility-related invoices decreased 6% while dollar volume increased 17%. The

-26-

Table of ~~COVID-related bankruptcies and location closings. Dollar volumes dipped 13% as governmental~~Contents

increase in dollar volume is primarily due to significantly fewer pandemic-related restrictions in the restaurant, retail, and hospitality sectors, ~~curtailed normal activities which were reflected~~creating higher utility usage in ~~lower utility usage.~~

~~There were no gains on sales of securities~~addition to rising energy prices. The decrease in ~~either the Third Quarter of 2020 or 2019.~~

invoice volume is primarily due to one fewer processing day.

Nine Months Ended ~~2020~~2021 compared to Nine Months Ended ~~2019:~~

2020:

Payment and processing revenue ~~decreased 11%~~increased 8% for the same reasons as the Third Quarter. ~~Transportation~~The growth in transportation invoice and dollar volumes ~~as well as facility-related transaction and dollar volumes, fluctuated~~were the primary reason for the ~~same reasons as the Third Quarter.~~

~~Gains of $1,069,000 on the sales of securities were recognized in the Nine Months Ended 2020, compared to gains of $19,000 in the Nine Months Ended 2019.~~

positive revenue growth.

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:

Third Quarter of
Nine Months Ended
(In thousands)
2020
2019
%
Change
2020
2019
%
Change
Average earnings assets
$
1,734,680
$
1,498,470
15.8%
$
1,616,090
$
1,456,242
11.0%
Average interest-bearing liabilities

507,172
398,992
27.1%

465,128
389,455
19.4%
Net interest income*

11,280
12,785
(11.8)%

34,772
37,485
(7.2)%
Net interest margin*

2.59%
3.38%

2.87%
3.44%
Yield on earning assets*

2.69%
3.75%

3.03%
3.81%
Rate on interest-bearing liabilities

0.36%
1.38%

0.55%
1.37%

*	~~Presented on a tax-equivalent basis assuming a tax rate of 21% for both 2020 and 2019.~~


(In thousands)	Third Quarter of								Nine Months Ended
	2021			2020			% Change		2021			2020			% Change
Average earnings assets	$	2,036,296		$	1,734,680		17.4	%	$	1,965,976		$	1,616,090		21.7	%
Average interest-bearing liabilities	600,263			507,172			18.4	%	583,478			465,128			25.4	%
Net interest income*	11,900			11,280			5.5	%	34,005			34,772			(2.2)	%
Net interest margin*	2.32		%	2.59		%			2.31		%	2.87		%
Yield on earning assets*	2.37		%	2.69		%			2.37		%	3.03		%
Rate on interest-bearing liabilities	.19		%	.36		%			.21		%	.55		%

*Presented on a tax-equivalent basis assuming a tax rate of 21% for both 2021 and 2020.

Third Quarter of ~~2020~~2021 compared to Third Quarter of ~~2019:~~

2020:

Average earning assets increased $301,616,000, or 17.4%. The overall increase in average interest-earning asset balances was funded by a significant increase in deposits and accounts and drafts payable driven by government stimulus programs, higher payments processing volumes and organic growth.

Average investment securities increased $163,540,000, or 46.2%, as cash provided by increases in funding sources were utilized to purchase investment securities. The combined average of federal funds sold and interest-bearing deposits in other financial institutions increased $214,842,000, or 49.9%, also due to increasing funding sources. Average loans decreased $76,766,000 as a significant amount of the PPP loans originated in 2020 were forgiven by the SBA in 2021.

Average accounts and drafts payable increased $194,609,000, or 23.8%, for the Third Quarter of ~~2020~~2021 and average interest-bearing liabilities increased $93,091,000, or 18.4%, compared to the Third Quarter of 2020. The increase in average accounts and drafts payable was primarily driven by the stronger performance of the manufacturing sector, new customer growth and scarcity in carrier supply, which continues to drive prices higher. The increase in deposits was driven by significant liquidity in the economy resulting in higher deposit balances.

Tax-equivalent net interest income increased $620,000, or 5.5%, compared to the same period in the prior year. While average interest-earning assets were up 17.4%, the Company’s net interest margin declined 27 basis points from 2.59% to 2.32%, reflecting the negative impact of the historically low short-term interest rate environment.

Nine Months Ended 2021 compared to Nine Months Ended 2020:

Average earning assets increased ~~$236,210,000,~~$349,885,000, or ~~15.8%~~21.7%, compared to the same period in the prior year. Average ~~loans increased $175,347,000, or 22.6%, due to the PPP loans,~~ interest-bearing deposits in other financial institutions increased ~~$87,589,000~~$340,058,000, or ~~85.5%~~171.8%, and ~~federal funds sold and short-term investments increased $38,613,000, or 19.1%. These were partially offset by a decrease in~~ average investment securities ~~of $63,904,000,~~increased $81,726,000, or ~~15.3%~~21.9%, infor the ~~Third Quarter of 2020~~Nine Months Ended 2021 compared to the ~~Third Quarter of 2019.~~

~~Total average interest-bearing liabilities for~~Nine Months Ended 2020. These variances were driven by the same factors as the Third Quarter of 2020 increased $108,180,000, or 27.1%, non-interest bearing demand deposits increased $99,311,000, or 36.4%, as the funds from the PPP loans largely remained in deposit accounts, and averageQuarter.

Average accounts and drafts payable increased ~~$6,954,000,~~$177,406,000, or ~~0.9%~~22.9%, inand average interest-bearing liabilities increased $118,350,000, or 25.4%, for the ~~Third Quarter of 2020~~Nine Months Ended 2021 compared to the ~~Third Quarter~~Nine Months Ended 2020.

-27-

Table of ~~2019.~~

~~The overall decline in the interest rate environment led to decreases in~~Contents

Tax-equivalent net interest income ~~and the net interest margin. The impact of this was partially offset by higher average earning assets.~~

~~Nine Months Ended 2020 compared to Nine Months Ended 2019:~~

~~Nine Months Ended 2020 average earning assets increased $159,849,000,~~decreased $767,000, or ~~11.0%~~2.2%, compared to the same period in the prior year. ~~Loans increased $149,301,000, or 19.8% due to~~While average interest-earning assets were up 21.7%, the PPP loans, and interest-bearing deposits in other financial institutions increased $87,635,000, or 79.5%. These were offset by a decrease in average investment securities of $55,061,000, or 12.9%, and a decrease in average federal funds sold and short-term investments of $20,489,000, or 12.7%, for the Nine Months Ended 2020 as compared to the Nine Months Ended 2019.

Total average interest-bearing liabilities increased $75,674,000, or 19.4%, and non-interest-bearing demand deposits increased $75,012,000, or 28.1%, compared to the Nine Months Ended 2019 as the funds from the PPP loans largely remained in deposit accounts. These were partially offset by a decrease in the average accounts and drafts payable balances for the Nine Months Ended 2020 of $2,800,000, or 0.4%.

~~Net interest income and~~Company’s net interest margin ~~were impacted by~~declined 56 basis points from 2.87% to 2.31%, reflecting the ~~same factors as~~negative impact of the ~~Third Quarter.~~

historically low short-term interest rate environment.

For more information on the changes in net interest income, please refer to the tables that follow.

~~-22-~~

Distribution of Assets, Liabilities and ~~Shareholders’~~Shareholders' Equity; Interest Rate and Interest Differential

The following tables show the condensed average balance sheets for each of the periods reported, the tax-equivalent interest income and expense onfor 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.

Third Quarter of 2020
Third Quarter of 2019
(In thousands)
Average Balance
Interest Income/ Expense
Yield/Rate
Average Balance
Interest Income/ Expense
Yield/Rate
Assets¹

Interest-earning assets

Loans²:

Taxable
$
949,836
$
9,067
3.80
%
$
774,489
$
9,549
4.89
%
Investment securities⁴:

Taxable

69,158

372
2.14
102,507
603
2.33

Tax-exempt³

284,826

2,219
3.10
315,381
2,436
3.06

Certificates of deposit

209

1
1.90
1,644
8
1.93

Interest-bearing deposits in other financial institutions

189,975

36
0.08
102,386
502
1.95

Federal funds sold and other short-term investments

240,676

50
0.08
202,063
1,079
2.12

Total interest-earning assets

1,734,680

11,745
2.69
1,498,470
14,177
3.75

Non-interest-earning assets:

Cash and due from banks

16,993

16,307

Premises and equipment, net

19,507

20,981

Bank-owned life insurance

17,875

17,456

Goodwill and other intangibles

18,027

14,669

Other assets

215,633

222,449

Allowance for loan losses

(11,295
)

(10,507)

Total assets
$
2,011,420

$
1,779,825

Liabilities and Shareholders’ Equity¹

Interest-bearing liabilities:

Interest-bearing demand Deposits
$
425,192
$
227
0.21
%
$
315,341
$
996
1.25
%
Savings deposits

14,675

3
0.08
9,612
24
0.99

Time deposits >= $100

26,335

104
1.57
25,978
133
2.03

Other time deposits

40,959

131
1.27
48,051
239
1.97

Total interest-bearing deposits

507,161
465
0.36
398,982
1,392
1.38

Short-term borrowings

11

—
—
10
—
—

Total interest-bearing liabilities

507,172

465
0.36
398,992
1,392
1.38

Non-interest bearing liabilities:

Demand deposits

371,862

272,551

Accounts and drafts payable

816,032

809,078

Other liabilities

67,829

57,636

Total liabilities

1,762,895

1,538,257

Shareholders’ equity

248,525

241,568

Total liabilities and shareholders’ equity
$
2,011,420

$
1,779,825

Net interest income

$
11,280
$
12,785

Net interest margin

2.59
%
3.38
%
Interest spread

2.33
2.37

1.	~~Balances shown are daily averages.~~
2.	~~Interest income on loans includes net loan fees of $678,000 and $127,000 for the Third Quarter of 2020 and 2019, respectively due to higher PPP loan fees.~~
3.	Interest income is presented on a tax-equivalent basis assuming a tax rate of 21% for both 2020 and 2019. The tax-equivalent adjustment was approximately $466,000 and $511,000 for the Third Quarter of 2020 and 2019, respectively.
4.	~~For purposes of these computations, yields on investment securities are computed as interest income divided by the average amortized cost of the investments.~~

~~-23-~~

-28-

Table of Contents

Nine Months Ended 2020
Nine Months Ended 2019
(In thousands)
Average Balance
Interest Income/ Expense
Yield/Rate
Average Balance
Interest Income/ Expense
Yield/Rate
Assets¹

Interest-earning assets

Loans²:

Taxable
$
904,632
$
27,366
4.04
%
$
755,331
$
27,564
4.88
%
Investment securities⁴:

Taxable

82,271

1,400
2.27
104,614
1,865
2.38

Tax-exempt³

289,964

6,781
3.12
322,682
7,538
3.12

Certificates of deposit

340

6
2.36
1,877
28
1.99

Interest-bearing deposits in other financial institutions

197,929

492
0.33
110,294
1,789
2.17

Federal funds sold and other short-term investments

140,955

638
0.60
161,444
2,688
2.23

Total interest-earning assets

1,616,091

36,683
3.03
1,456,242
41,472
3.81

Non-interest-earning assets:

Cash and due from banks

16,765

14,292

Premises and equipment, net

19,955

21,522

Bank-owned life insurance

17,761

17,475

Goodwill and other intangibles

18,240

14,243

Other assets

214,331

210,200

Allowance for loan losses

(10,919
)

(10,413)

Total assets
$
1,892,224

$
1,723,561

Liabilities and Shareholders’ Equity¹

Interest-bearing liabilities:

Interest-bearing demand deposits
$
382,424
$
1,062
0.37
%
$
305,454
$
2,841
1.24
%
Savings deposits

12,010

19
0.21
10,487
83
1.06

Time deposits >= $100

28,134

383
1.82
24,728
364
1.97

Other time deposits

42,483

445
1.40
48,774
699
1.92

Total interest-bearing deposits

465,051

1,909
0.55
389,443
3,987
1.37

Short-term borrowings

77

2
3.47
12
—
—

Total interest-bearing liabilities

465,128

1,911
0.55
389,455
3,987
1.37

Non-interest bearing liabilities:

Demand deposits

342,386

267,374

Accounts and drafts payable

775,341

778,141

Other liabilities

64,859

54,995

Total liabilities

1,647,714

1,489,965

Shareholders’ equity

244,510

233,596

Total liabilities and shareholders’ equity
$
1,892,224

$
1,723,561

Net interest income

$
34,772
$
37,485

Net interest margin

2.87
%
3.44
%
Interest spread

2.48
2.44

1.	~~Balances shown are daily averages.~~
2.	~~Interest income on loans includes net loan fees of $1,399,000 and $369,000 for the Nine Months Ended 2020 and 2019, respectively due to higher PPP loan fees.~~
3.	Interest income is presented on a tax-equivalent basis assuming a tax rate of 21% for both 2020 and 2019. The tax-equivalent adjustment was approximately $1,424,000 and $1,583,000 for the Nine Months Ended 2020 and 2019, respectively.
4.	~~For purposes of these computations, yields on investment securities are computed as interest income divided by the average amortized cost of the investments.~~


(In thousands)	Third Quarter of 2021						Third Quarter of 2020
	Average Balance		Interest Income/ Expense		Yield/ Rate		Average Balance		Interest Income/ Expense		Yield/ Rate
Assets1
Interest-earning assets
Loans2:
Taxable	$	873,070	$	8,987	4.08	%	$	949,836	$	9,067	3.80	%
Investment securities3:
Taxable	209,662		731		1.38		69,158		372		2.14
Tax-exempt4	308,071		2,228		2.87		284,826		2,219		3.10
Certificates of deposit	—		—		—		209		1		1.90
Interest-bearing deposits in other financial institutions	612,053		231		0.15		189,975		36		0.08
Federal funds sold and other short-term investments	33,440		10		0.12		240,676		50		0.08
Total interest-earning assets	2,036,296		12,187		2.37		1,734,680		11,745		2.69
Non-interest-earning assets
Cash and due from banks	18,778						16,993
Premises and equipment, net	17,718						19,507
Bank-owned life insurance	28,134						17,875
Goodwill and other intangibles	17,167						18,027
Other assets	266,334						215,633
Allowance for credit losses	(11,183)						(11,295)
Total assets	$	2,373,244					$	2,011,420
Liabilities and Shareholders’ Equity1
Interest-bearing liabilities
Interest-bearing demand deposits	$	531,541	$	145	0.11	%	$	425,192	$	227	0.21	%
Savings deposits	17,767		2		0.04		14,675		3		0.08
Time deposits >= $100	19,403		49		1.00		26,335		104		1.57
Other time deposits	31,542		91		1.14		40,959		131		1.27
Total interest-bearing deposits	600,253		287		0.19		507,161		465		0.36
Short-term borrowings	10		—		—		11		—		—
Total interest-bearing liabilities	600,263		287		0.19		507,172		465		0.36
Non-interest bearing liabilities
Demand deposits	453,116						371,862
Accounts and drafts payable	1,010,641						816,032
Other liabilities	54,703						67,829
Total liabilities	2,118,723						1,762,895
Shareholders’ equity	254,521						248,525
Total liabilities and shareholders’ equity	$	2,373,244					$	2,011,420
Net interest income			$	11,900					$	11,280
Net interest margin					2.32	%					2.59	%
Interest spread					2.18						2.33

1.Balances shown are daily averages.

2.Interest income on loans includes net loan fees of $969,000 and $678,000 for the Third Quarter of 2021 and 2020, respectively. The increase in net loan fees is due to higher PPP fees.

3.For purposes of these computations, yields on investment securities are computed as interest income divided by the average amortized cost of the investments.

4.Interest income is presented on a tax-equivalent basis assuming a tax rate of 21% for both 2021 and 2020. The tax-equivalent adjustment was approximately $468,000 and $466,000 for the Third Quarter of 2021 and 2020, respectively.

~~-24-~~

-29-

Table of Contents


(In thousands)	Nine Months Ended 2021						Nine Months Ended 2020
	Average Balance		Interest Income/ Expense		Yield/ Rate		Average Balance		Interest Income/ Expense		Yield/ Rate
Assets1
Interest-earning assets
Loans2:
Taxable	$	885,274	$	26,270	3.97	%	$	904,632	$	27,366	4.04	%
Investment securities3:
Taxable	149,953		1,387		1.24		82,271		1,400		2.27
Tax-exempt4	304,348		6,748		2.96		289,964		6,781		3.12
Certificates of deposit	—		—		—		340		6		2.36
Interest-bearing deposits in other financial institutions	537,987		473		.12		197,929		492		.33
Federal funds sold and other short-term investments	88,414		42		.06		140,955		638		.60
Total interest-earning assets	1,965,976		34,920		2.37		1,616,091		36,683		3.03
Non-interest-earning assets:
Cash and due from banks	19,890						16,765
Premises and equipment, net	17,877						19,955
Bank-owned life insurance	21,286						17,761
Goodwill and other intangibles	17,381						18,240
Other assets	248,634						214,331
Allowance for credit losses	(11,615)						(10,919)
Total assets	$	2,279,429					$	1,892,224
Liabilities and Shareholders’ Equity1
Interest-bearing liabilities:
Interest-bearing demand deposits	$	510,886	$	431	.11	%	$	382,424	$	1,062	.37	%
Savings deposits	19,098		7		.05		12,010		19		.21
Time deposits >= $100	22,231		200		1.20		28,134		383		1.82
Other time deposits	31,253		277		1.18		42,483		445		1.40
Total interest-bearing deposits	583,468		915		.21		465,051		1,909		.55
Short-term borrowings	10		—		—		77		2		3.47
Total interest-bearing liabilities	583,478		915		.21		465,128		1,911		.55
Non-interest bearing liabilities:
Demand deposits	430,506						342,386
Accounts and drafts payable	952,747						775,341
Other liabilities	54,935						64,859
Total liabilities	2,021,666						1,647,714
Shareholders’ equity	257,763						244,510
Total liabilities and shareholders’ equity	$	2,279,429					$	1,892,224
Net interest income			$	34,005					$	34,772
Net interest margin					2.31	%					2.87	%
Interest spread					2.17						2.48

1.Balances shown are daily averages.

2.Interest income on loans includes net loan fees of $2,738,000 and $1,399,000 for the Nine Months Ended 2021 and 2020, respectively. The increase in net loan fees is due to higher PPP fees.

3.For purposes of these computations, yields on investment securities are computed as interest income divided by the average amortized cost of the investments.

4.Interest income is presented on a tax-equivalent basis assuming a tax rate of 21% for both 2021 and 2020. The tax-equivalent adjustment was approximately $1,417,000 and $1,424,000 for the Nine Months Ended 2021 and 2020, respectively.

-30-

Table of Contents

Analysis of Net Interest Income Changes

The following tables present the changes in interest income and expense between periods due to changes in volume and interest rates. That portion of the change in interest attributable to the combined rate/volume variance has been allocated to rate and volume changes in proportion to the absolute dollar amounts of the change in each.

Third Quarter of 2020 Over
Third Quarter of 2019
(In thousands)
Volume
Rate
Total
Increase (decrease) in interest income:

Loans¹:

Taxable
$
1,906
$
(2,388
)
$
(482
)
Investment securities:

Taxable

(184
)

(47
)

(231
)
Tax-exempt²

(244
)

27

(217
)
Certificates of deposit

(7
)

—

(7
)
Interest-bearing deposits in other financial institutions

235

(701
)

(466
)
Federal funds sold and other short-term investments

173

(1,202
)

(1,029
)
Total interest income

1,879

(4,311
)

(2,432
)
Interest expense on:

Interest-bearing demand deposits

262

(1,031
)

(769
)
Savings deposits

8

(29
)

(21
)
Time deposits >=$100

2

(31
)

(29
)
Other time deposits

(32
)

(76
)

(108
)
Total interest expense

240

(1,167
)

(927
)
Net interest income
$
1,639
$
(3,144
)
$
(1,505
)

1.	~~Interest income includes net loan fees.~~
2.	~~Interest income is presented on a tax-equivalent basis assuming a tax rate of 21% for the Third Quarter of 2020 and 2019.~~

	Nine Months Ended 2020 Over Nine Months Ended 2019
(In thousands)										(In thousands)	Third Quarter of 2021 Compared to Third Quarter of 2020
	Volume			Rate			Total				Volume		Rate		Total
Increase (decrease) in interest income:										Increase (decrease) in interest income:
Loans¹:										Loans1:
Taxable	$	4,980		$	(5,178	)	$	(198	)	Taxable	$	(751)	$	671	$	(80)
Investment securities:										Investment securities:
Taxable		(382	)		(83	)		(465	)	Taxable	530		(171)		359
Tax-exempt²		(758	)		1			(757	)	Tax-exempt2	178		(169)		9
Certificates of deposit		(26	)		4			(22	)	Certificates of deposit	(1)		—		(1)
Interest-bearing deposits in other financial institutions		844			(2,141	)		(1,297	)	Interest-bearing deposits in other financial institutions	135		60		195
Federal funds sold and other short-term investments		(304	)		(1,746	)		(2,050	)	Federal funds sold and other short-term investments	(56)		16		(40)
Total interest income		4,354			(9,143	)		(4,789	)	Total interest income	35		407		442
Interest expense on:										Interest expense on:
Interest-bearing demand deposits		587			(2,366	)		(1,779	)	Interest-bearing demand deposits	48		(130)		(82)
Savings deposits		11			(75	)		(64	)	Savings deposits	1		(2)		(1)
Time deposits >=$100		48			(29	)		19		Time deposits >=$100	(23)		(32)		(55)
Other time deposits		(82	)		(172	)		(254	)	Other time deposits	(28)		(12)		(40)
Short-term borrowings		—			2			2
Total interest expense		564			(2,640	)		(2,076	)	Total interest expense	(2)		(176)		(178)
Net interest income	$	3,790		$	(6,503	)	$	(2,713	)	Net interest income	$	37	$	583	$	620

1.	~~Interest income includes net loan fees.~~
2.	~~Interest income is presented on a tax-equivalent basis assuming a tax rate of 21% for the Nine Months Ended 2020 and 2019.~~

1.Interest income includes net loan fees.

2.Interest income is presented on a tax-equivalent basis assuming a tax rate of 21% for the Third Quarter of 2021 and 2020.

-31-

Table of Contents


(In thousands)	Nine Months Ended 2021 Compared to Nine Months Ended 2020
	Volume		Rate		Total
Increase (decrease) in interest income:
Loans1:
Taxable	$	(593)	$	(503)	$	(1,096)
Investment securities:
Taxable	812		(825)		(13)
Tax-exempt2	325		(358)		(33)
Certificates of deposit	(6)		—		(6)
Interest-bearing deposits in other financial institutions	448		(467)		(19)
Federal funds sold and other short-term investments	(175)		(421)		(596)
Total interest income	811		(2,574)		(1,763)
Interest expense on:
Interest-bearing demand deposits	275		(906)		(631)
Savings deposits	7		(19)		(12)
Time deposits >=$100	(70)		(113)		(183)
Other time deposits	(106)		(62)		(168)
Short-term borrowings	(1)		(1)		(2)
Total interest expense	105		(1,101)		(996)
Net interest income	$	706	$	(1,473)	$	(767)

1.Interest income includes net loan fees.

2.Interest income is presented on a tax-equivalent basis assuming a tax rate of 21% for the Nine Months Ended 2021 and 2020.

Provision and Allowance for ~~Loan~~Credit Losses ~~(“ALLL”)~~

~~A significant determinant of the Company’s operating results can be the~~and Allowance for Unfunded Commitments

The Company recorded a provision for ~~loan losses. There was no provision for loan loss recorded during~~credit losses and off-balance sheet credit exposures of $340,000, and $0 in the Third Quarter of 2021 and 2020, ~~or the Third Quarter~~respectively. The Company recorded a release of ~~2019. There was a loan loss provision~~credit losses and off-balance sheet credit exposures of ~~$725,000 recorded~~$870,000 in the Nine Months Ended ~~2020 to support the growth in the~~2021 and a provision for loan ~~portfolio and as a result~~losses of ~~the impact of COVID-19 while there was a loan loss provision of $250,000~~$725,000 in the Nine Months Ended ~~2019. As discussed below, the Company continually analyzes the outstanding loan portfolio based on the performance, financial condition and collateralization~~2020. The amount of the ~~credits. Net~~provision for (release of) credit losses is derived from the Company’s quarterly Current Expected Credit Loss (“CECL”) model. The amount of the provision for (release of) credit losses will fluctuate as determined by these quarterly analyses. The provision for credit losses in the Third Quarter of 2021 was primarily due to loan growth and the related impact in the CECL model. The release of credit losses in the Nine Months Ended 2021 was primarily due to improved economic conditions and the removal of specific allowance for credit loss allocations on two impaired loans.

The Company had net loan recoveries ~~were~~of $11,000 in the Third Quarter of 2021 and $6,000 in the Third Quarter of ~~2020 and $3,000 in the Third Quarter of 2019. Net~~2020. The Company had net loan recoveries ~~were~~of $28,000 and $17,000 in the Nine Months Ended ~~2020~~2021 and ~~$34,000 during~~ the Nine Months Ended ~~2019.~~

2020, respectively.

The ~~ALLL~~ACL was $11,532,000 at September 30, ~~2020 was $11,298,000 and~~2021 compared to $11,944,000 at December 31, ~~2019~~2020. The ACL represented 1.32% of outstanding loans at September 30, 2021 and 1.34% of outstanding loans at December 31, 2020. Excluding PPP loans, the ACL represented 1.35% of total loans at September 30, 2021 and 1.53% of total loans at December 31, 2020. The allowance for unfunded commitments was ~~$10,556,000. The ratio of ALLL to total~~$137,000 at September 30, 2021 and $567,000 at December 31, 2020. There were no nonperforming loans outstanding at September 30, 2020 was 1.20% compared to 1.37% at December 31, 2019. In support of the CARES Act, the Bank has processed nearly 350 applications for PPP loans of approximately $170,000,000 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 no allowance for loan loss was recorded for these loans. There were no nonperforming loans at September 30, 20202021 or December 31, ~~2019.~~

2020.

The ~~ALLL~~ACL has been established and is maintained to ~~absorb reasonably estimated and probable~~estimate the lifetime expected credit losses in the loan portfolio. An ongoing assessment is performed to determine if the balance is adequate. Charges or credits are made to expense ~~to cover any deficiency or reduce any excess, as required. The current methodology consists of two components: 1) estimated credit losses~~based on ~~individually evaluated loans that are determined to be impaired in accordance with FASB ASC 310,~~ ~~Allowance for Credit Losses, and 2) estimated credit losses inherent~~changes in the ~~remainder of the~~economic forecast, qualitative risk factors, loan ~~portfolio in accordance with FASB ASC 450,~~ ~~Contingencies. Estimated credit losses is an estimate of the current amount of loans that is probable the Company will be unable to collect according to the original terms.~~

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. For the remainder of the portfolio, the Company groups loans with similar risk characteristics into eight segments and applies historical loss rates to each segment based on a five fiscal-year look-back period. In addition, qualitative factors including credit concentration risk, national and local economic conditions, nature and volume of loan portfolio, legal and regulatory factors, downturns in specific industries including losses in collateral value, trends in credit quality at the Company and in the banking industry and trends in risk-rating agencies are also considered.

~~-25-~~

The Company also utilizes ratio ~~analysis~~analyses to evaluate the overall reasonableness of the ~~ALLL~~ACL compared to its peers and required levels of regulatory capital. Federal and state regulatory agencies review the Company’s methodology for

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maintaining the ~~ALLL.~~ACL. These agencies may require the Company to adjust the ~~ALLL~~ACL based on their judgments and interpretations about information available to them at the time of their examinations.

Summary of ~~Asset Quality~~

Credit Loss Experience

The following table presents information on the ~~Company’s~~Company's provision for ~~loan~~(release of) credit losses and analysis of the ~~ALLL:~~

ACL:

Third Quarter of
Nine Months Ended
(In thousands)
2020
2019
2020
2019
Allowance at beginning of period
$
11,292
$
10,506
$
10,556
$
10,225
Provision

—
—

725
250
Loans charged off

—
—

—
—
Recoveries on loans previously charged off

6
3

17
34
Net recoveries

6
3

17
34
Allowance at end of period
$
11,298
$
10,509
$
11,298
$
10,509
Loans outstanding:

Average
$
949,836
$
774,489
$
904,632
$
755,331
September 30

944,557
767,384

944,557
767,384
Ratio of ALLL to loans outstanding:

Average

1.19
%
1.36
%

1.25
%
1.39
%
September 30

1.20
%
1.37
%

1.20
%
1.37
%
Non-performing loans:

Nonaccrual loans
$
—
$
—
$
—
$
—
Loans past due 90 days or more

—
—

—
—
Total non-performing loans
$
—
$
—
$
—
$
—
Foreclosed assets
$
—
—
$
—
—
Non-performing loans as percentage of average loans

—
—

—
—


	Third Quarter of						Nine Months Ended
(In thousands)	2021			2020			2021			2020
Allowance for credit/loan losses at beginning of period	$	11,171		$	11,292		$	11,944		$	10,556
Provision for (release of) credit/loan losses	350			—			(440)			725
Loans charged off	—			—			—			—
Recoveries on loans previously charged off	11			6			28			17
Net recoveries	11			6			28			17
Allowance for credit/loan losses at end of period	$	11,532		$	11,298		$	11,532		$	11,298
Allowance for unfunded commitments at beginning of Period	$	147		$	—		$	567		$	—
(Release of) provision for credit losses	(10)			—			(430)			—
Allowance for unfunded commitments at end of period	137			—			137			—
Loans outstanding:
Average	$	873,070		$	949,836		$	885,274		$	904,632
September 30	872,905			944,557			872,905			944,557
Ratio of ACL to loans outstanding:
Average	1.32		%	1.19		%	1.30		%	1.25		%
September 30	1.32		%	1.20		%	1.32		%	1.20		%

The ~~Bank~~Company had no property carried as other real estate owned as of September 30, ~~2020 or~~2021 and September 30, ~~2019.~~

~~-26-~~

2020.

Operating Expenses

Total operating expenses for the Third Quarter of ~~2020~~2021 were ~~down 6.2%~~up 7.0%, or ~~$1,883,000,~~$2,010,000, compared to the Third Quarter of ~~2019~~2020 as personnel ~~expense decreased due to~~and outside service expenses increased as a result of the ~~decline~~increase in ~~transportation and facility-related transaction~~payment processing volumes.

Total operating expenses for the Nine Months Ended ~~2020~~2021 were ~~down $4,030,000,~~up $4,052,000, or ~~4.5%~~4.8%, compared to the Nine Months Ended ~~2019 for~~2020, also due to the ~~same reason as the Third Quarter.~~

increase in payment processing volumes.

Financial Condition

Total assets at September 30, ~~2020~~2021 were ~~$2,000,463,000,~~$2,292,986,000, an increase of ~~$236,220,000,~~$89,751,000, or ~~13.4%~~4.1%, from December 31, ~~2019.~~2020. The ~~most significant changes~~Company increased the investment securities portfolio $183,353,000, or 51.3%, during the period in ~~asset balances during this period were increases~~an effort to increase the yield on interest-earning assets. Payment in ~~loans~~excess of ~~$171,919,000~~funding increased $71,816,000, or 36.9%, due to an increase in transportation dollars processed. In addition, the ~~PPP loans and cash and cash equivalents~~Company purchased $24,868,000 of ~~$235,497,000.~~bank-owned life insurance policies during the Three Months Ended September 30, 2021. These increases were partially offset by ~~decreases~~a decrease in ~~other assets~~cash and cash equivalents of ~~$66,250,000, security investments~~$170,219,000, or 25.4%, and a decrease in loans of ~~$57,500,000, and payments in excess of funding of $44,766,000.~~$18,772,000. Changes in cash and cash equivalents reflect the Company’s daily liquidity position and are affected by the changes in the other asset balances and changes in deposit and accounts and drafts payable balances.

Total liabilities at September 30, ~~2020~~2021 were ~~$1,748,972,000,~~$2,045,343,000, an increase of ~~$228,919,000,~~$103,268,000, or ~~15.1%~~5.3%, from December 31, ~~2019.~~2020. Total deposits at September 30, ~~2020~~2021 were ~~$911,185,000,~~$1,087,317,000, an increase of ~~$154,049,000,~~$36,461,000, or ~~20.3%~~3.5%, from December 31, ~~2019 as the funds from the PPP loans largely remained in deposit accounts.~~2020. Accounts and drafts payable at September 30, ~~2020~~2021 were ~~$771,607,000,~~$905,479,000, an increase of ~~$87,312,000,~~$70,093,000, or ~~12.8%~~8.4%, from December 31, ~~2019.~~

2020, reflecting an increase in both transportation and facility-related dollar volumes.

Total shareholders’ equity at September 30, ~~2020~~2021 was ~~$251,491,000,~~$247,643,000, a ~~$7,301,000,~~$13,517,000, or ~~3.0%~~5.2%, ~~increase~~decrease from December 31, ~~2019.~~2020. Total shareholders’ equity ~~increased~~decreased primarily due to ~~net income~~share repurchases of ~~$18,765,000~~$18,975,000, dividends paid of $11,576,000, and ~~a decrease in accumulated~~an other comprehensive loss of ~~$4,613,000. These were~~$5,578,000, partially offset by ~~dividends paid~~net income of ~~$11,704,000 and share repurchases~~$20,902,000.

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Table of ~~$5,508,000.~~

Contents

Accounts and drafts payable will fluctuate from period-end to period-end due to the payment processing cycle, which results in lower balances on days when payments clear and higher balances on days when payments are issued. For this reason, average balances are a more meaningful measure of accounts and drafts payable (for average balances refer to the tables under the “Distribution of Assets, Liabilities and Shareholders’ Equity; Interest Rate and Interest Differential” section of this report).

~~-27-~~

Liquidity and Capital Resources

The balance of liquid assets ~~consisting~~consists of cash and cash equivalents, which include cash and due from banks, interest-bearing deposits in other financial institutions, federal funds sold and ~~other short-term investments,~~money market funds, and was ~~$439,451,000~~$500,309,000 at September 30, ~~2020, an increase~~2021, a decrease of ~~$235,497,000,~~$170,219,000, or ~~115.5%~~25.4%, from December 31, ~~2019.~~2020. At September 30, ~~2020,~~2021, these assets represented ~~22.0%~~21.8% of total assets. These funds 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 securities was ~~$365,165,000~~$541,079,000 at September 30, ~~2020, a decrease~~2021, an increase of ~~$57,500,000~~$183,353,000 from December 31, ~~2019.~~2020. These assets represented ~~18.3%~~23.6% of total assets at September 30, ~~2020.~~2021. Of this total, ~~83%~~66% were state and political subdivision securities. Of the total portfolio, ~~13.7%~~4.8% mature in one year, ~~or less, 26.9%~~20.3% mature in one to five years, and ~~59.4%~~74.9% mature in five or more ~~years.~~

years.

The Bank has 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. The Bank also has secured lines of credit with the Federal Home Loan Bank of ~~$181,948,000~~$215,048,000 collateralized by commercial mortgage loans. The Company also has secured lines of credit with UMB Bank of $75,000,000 and First ~~Tennessee~~Horizon Bank of $75,000,000 collateralized by state and political subdivision securities. There were no amounts outstanding under any line of credit as of September 30, ~~2020. There was $18,000,000 outstanding under the lines of credit discussed above at~~2021 or 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 ~~$172,211,000~~$16,307,000 as of September 30, ~~2020.~~

2021.

The deposits of the ~~Company’s~~Company's banking subsidiary have historically been stable, consisting of a sizable volume of core deposits related to customers that utilize other commercial products of the Bank. The accounts and drafts payable generated by the Company has also historically been a stable source of funds. The Company is part of the Certificate of Deposit Account Registry Service (“CDARS”) and Insured Cash Sweep (“ICS”) deposit placement programs. Time deposits include ~~$41,015,000~~$31,998,000 of CDARS deposits and interest-bearing demand deposits include ~~$97,397,000~~$153,175,000 of ICS deposits. These programs offer the Bank’s customers the ability to maximize Federal Deposit Insurance Corporation (“FDIC”) insurance coverage. The Company uses these programs to retain or attract deposits from existing customers.

Net cash flows provided by operating activities were $30,680,000 for the Nine Months Ended 2021, compared to $40,061,000 for the Nine Months Ended 2020, ~~compared with $39,774,000 for the Nine Months ended 2019, an increase~~a decrease of ~~$287,000.~~$34,249,000. 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. Other causes for the changes in these account balances are discussed earlier in this report. Due to the daily fluctuations in these account balances, 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 and cash from operations will continue to be sufficient to fund the Company’s operations and capital expenditures in ~~2020,~~2021, which are estimated to range from $4 million to $6 million.

The Company faces market risk to the extent that its net interest income and fair market value of equity are affected by changes in market interest rates. For information regarding the market risk of the Company’s financial instruments, see Item 3, “Quantitative and Qualitative Disclosures about Market Risk.”

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.

~~-28-~~

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As a financial institution, a significant source of the Company’s earnings is generated from net interest income. Therefore, the prevailing interest rate environment is important to the Company’s performance. A major portion of the Company’s funding sources are the non-interest bearing accounts and drafts payable generated from its payment and information 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. For a discussion of trends and impacts relating to COVID-19, refer to Note 1 “Basis of Presentation.”

The overall level of economic activity can have a significant impact on the Company’s ability to generate revenues and income, as the volume and size of customer invoices processed may increase or decrease. Higher levels of economic activity increase both fee income (as more invoices are processed) and balances of accounts and drafts payable. For a discussion of trends and impacts relating to COVID-19, refer to Note 1 “Basis of Presentation.” Lower levels of economic activity, such as those experienced by the Company as a result of COVID-19 and governmental actions related thereto, decrease both fee income and balances of accounts and drafts payable.

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. For a discussion of trends and impacts relating to COVID-19, refer to Note 1 “Basis of Presentation.”

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.

The Basel III Capital Rules require FDIC insured depository institutions to meet and maintain several minimum capital standards: a common equity Tier 1 capital to risk-based assets ratio of 4.5%, a Tier 1 capital to risk-based assets ratio of 6.0%, a total capital to risk-based assets of 8.0%, and a 4.0% Tier 1 capital to total assets leverage ratio.

Common equity Tier 1 capital 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 ~~loan~~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, 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 applicable regulations.

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.

~~-29-~~

~~Fully phased-in as of January 1, 2019, the~~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.

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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.

The Company and the Bank continue to exceed all regulatory capital requirements, as evidenced by the following capital amounts and ratios:


	September 30, 2020				December 31, 2019					September 30, 2021				December 31, 2020
(Dollars in thousands)	Amount		Ratio		Amount		Ratio		(Dollars in thousands)	Amount		Ratio		Amount		Ratio
Total capital (to risk-weighted assets):
Total capital (to risk-weighted assets)									Total capital (to risk-weighted assets)
Cass Information Systems, Inc.	$	253,964		22.09%	$	249,954		19.70%	Cass Information Systems, Inc.	$	247,480	17.04	%	$	255,332	21.41	%
Cass Commercial Bank		167,005		21.17%		154,011		19.32%	Cass Commercial Bank	184,869		21.45	%	171,298		21.46	%
Common Equity Tier I Capital (to risk-weighted assets):
Common equity tier I capital (to risk-weighted assets)									Common equity tier I capital (to risk-weighted assets)
Cass Information Systems, Inc.	$	242,666		21.11%	$	239,398		18.86%	Cass Information Systems, Inc.	$	235,949	16.24	%	$	243,388	20.41	%
Cass Commercial Bank		157,925		20.02%		145,673		18.27%	Cass Commercial Bank	174,093		20.20	%	161,300		20.21	%
Tier I capital (to risk-weighted assets):
Tier I capital (to risk-weighted assets)									Tier I capital (to risk-weighted assets)
Cass Information Systems, Inc.	$	242,666		21.11%	$	239,398		18.86%	Cass Information Systems, Inc.	$	235,949	16.24	%	$	243,388	20.41	%
Cass Commercial Bank		157,925		20.02%		145,673		18.27%	Cass Commercial Bank	174,093		20.20	%	161,300		20.21	%
Tier I capital (to average assets):
Tier I capital (to leverage assets)									Tier I capital (to leverage assets)
Cass Information Systems, Inc.	$	242,666		12.17%	$	239,398		13.24%	Cass Information Systems, Inc.	$	235,949	10.01	%	$	243,388	11.52	%
Cass Commercial Bank		157,925		14.51%		145,673		16.64%	Cass Commercial Bank	174,093		12.32	%	161,300		14.48	%

Inflation

The Company’s assets and liabilities are primarily monetary, consisting of cash, cash equivalents, securities, loans, payables and deposits. Monetary assets and liabilities are those that can be converted into a fixed number of dollars. The Company's consolidated balance sheet reflects a net positive monetary position (monetary assets exceed monetary liabilities). During periods of inflation, the holding of a net positive monetary position will result in an overall decline in the purchasing power of a company. Management believes that replacement costs of equipment, furniture, and leasehold improvements will not materially affect operations. The rate of inflation does affect certain expenses, such as those for employee compensation, which may not be readily recoverable in the price of the Company’s services.

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 ~~requires~~2016-13 to the earlier of the end of the national pandemic or December 31, 2020. The Consolidated Appropriations Act 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 ~~assets~~instruments held, as applicable, which include allowances for credit losses expected ~~to be incurred~~ over the life of the portfolio, rather than incurred losses, which include allowances for current ~~known~~probable and ~~inherent~~estimable losses within the portfolio. Under this standard, the Company ~~will be~~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 ~~standard is effective~~Company adopted ASU 2016-13 using a modified retrospective approach. Results for ~~fiscal~~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 ~~15, 2019 and was adopted~~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. Upon adoption on January 1, ~~2020.~~ 2020, the Company recognized

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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 ~~CARES Act was signed into law on March 27, 2020 and includes provisions that temporarily delay~~following table illustrates the ~~required implementation date~~impact of ~~ASU 2016-13. The Company has elected to defer~~ the adoption of ASU ~~2016-13 until the earlier of December 31, 2020 or the date the national emergency declaration is terminated as permitted by the CARES Act.~~

The Company formed a cross-functional working group under the direction of the Chief Financial Officer comprised of individuals from various functional areas including credit, risk management, finance, and accounting that addressed the adoption and implementation of the ASU. The Company currently expects the adoption of ASU 2016-13 will result in a one-time cumulative effect adjustment to retained earnings and an increase of approximately 10% of the allowance for loan losses and the reserves for unfunded commitments. The expected increase is a result of changing from an incurred loss model, which encompasses allowances for current known and inherent losses within the portfolio, to an expected loss model, which encompasses allowances for losses expected to be incurred over the life of the portfolio based upon reasonable and supportable forecasts of economic conditions. The ASU also requires an allowance to be established for expected credit losses for certain debt securities and other financial assets, however the Company does not expect these allowances to be significant.

2016-13:

~~-30-~~


(In thousands)	December 31, 2019		Impact of ASU 2016-13 Adoption		As Reported Under ASU 2016-13
Assets:
Allowance for credit/loan losses on loans	$	10,556	$	723	$	11,279
Deferred tax asset	2,298		269		2,567
Liabilities:
Reserve for unfunded commitments	─		402		402
Shareholders’ equity:
Retained earnings	90,341		(856)		89,485

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As described in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020, the Company manages its interest rate risk through measurement techniques that include gap analysis and a simulation model. As part of the risk management process, asset/liability management policies are established and monitored by management. The ~~policy objective is to limit the change in annualized net interest income to 15% from an immediate and sustained parallel change in interest rates of 200 basis points. The~~ economic impact of the COVID-19 pandemic has introduced significant uncertainty and market volatility, which may result in the deterioration of the Company’s risk position since December 31, ~~2019.~~

2020.


	% change in projected net interest income
		September 30, 2021		December 31, 2020
+200 basis points		21.7	%	33.0	%
+100 basis points		10.9	%	16.3	%
Flat rates		—	%	—	%
-100 basis points		(2.6)	%	(2.5)	%

ITEM 4. CONTROLS AND PROCEDURES

The Company’s management, under the supervision and with the participation of the principal executive officer and the principal financial officer, evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report and concluded that, as of such date, these controls and procedures were effective.

There were no changes in the Third Quarter of ~~2020~~2021 in the Company's internal control over financial reporting identified by the Company’s principal executive officer and principal financial officer in connection with their evaluation that materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended).

-37-

Table of Contents

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company is the subject of various pending or threatened legal actions and proceedings, including those that arise in the ordinary course of business. Management believes the outcome of all such proceedings will not have a material effect on the businesses or financial conditions of the Company or its subsidiaries.

ITEM 1A. RISK FACTORS

The Company has included in Part I, Item 1A of its Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020, a description of certain risks and uncertainties that could affect the Company’s business, future performance or financial condition (the “Risk Factors”). There are no material changes to the Risk Factors as disclosed in the Company’s ~~2019~~2020 Annual Report on Form ~~10-K, other than the risks described below.~~

~~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 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 equity market valuations, 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 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.

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.

~~-31-~~

10-K.

Business closures, including constrictions in the manufacturing sector, 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 response to the pandemic and in coordination with its primary regulators, the Company has deferred borrower principle payments on loans, on an as needed basis, for periods of up to six months. 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, including 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, including 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 the section entitled “Risk Factors” in the Company’s most recent Annual Report on Form 10-K and any subsequent Quarterly Report on Form 10-Q or Current Report on Form 8-K including, but not limited to, risks of credit deterioration, interest rate changes, governmental actions, market volatility, security breaches and technology interruptions.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During the three months ended September 30, 2021, the Company repurchased a total of 314,672 shares of its common stock pursuant to its treasury stock buyback program, as follows:


Period	Total Number of Shares Purchased	Average Price Paid per Share		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
July 1, 2021 – July 31, 2021	42,938	$	41.10	42,938	302,674
August 1, 2021– August 31, 2021	170,700	43.85		170,700	131,974
September 1, 2021 – September 30, 2021	101,034	44.21		101,034	30,940
Total	314,672	$	43.59	314,672	30,940

(1)

~~None.~~

All repurchases made during the quarter ended September 30, 2021 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, which has no expiration date, is periodically modified by the Board of Directors and was most recently modified on October 19, 2021 to authorize 750,000 shares for repurchase under the terms of the program.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

~~-32-~~

ITEM 5. OTHER INFORMATION

(a)

~~(a)~~

None.

(b)

There have been no material changes to the procedures by which security holders may recommend nominees to the Company’s Board of Directors implemented in the Third Quarter of ~~2020.~~

2021.

-38-

Table of Contents

ITEM 6. EXHIBITS

~~Exhibit 31.1 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.~~

~~Exhibit 31.2 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.~~

~~Exhibit 32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.~~

~~Exhibit 32.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.~~

~~Exhibit 101.INS XBRL Instance Document. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.~~

~~Exhibit 101.SCH Inline XBRL Taxonomy Extension Schema Document.~~

~~Exhibit 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document.~~

~~Exhibit 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document.~~

~~Exhibit 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document.~~

~~Exhibit 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document.~~

~~Exhibit 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).~~


Exhibit 31.1 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit 31.2 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit 32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Exhibit 32.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Exhibit 101.INS XBRL Instance Document. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

Exhibit 101.SCH Inline XBRL Taxonomy Extension Schema Document.

Exhibit 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document.

Exhibit 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document.

Exhibit 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document.

Exhibit 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document.

Exhibit 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

~~-33-~~

-39-

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		CASS INFORMATION SYSTEMS, INC.


DATE: November 5, ~~2020~~ 2021	By		/s/ Eric H. Brunngraber
				Eric H. Brunngraber
				Chairman, President, and Chief Executive Officer
				(Principal Executive Officer)



DATE: November 5, ~~2020~~ 2021		By		/s/ ~~P. Stephen Appelbaum~~ Michael J. Normile
				~~P. Stephen Appelbaum~~ Michael J. Normile
				Executive Vice President and Chief Financial Officer
				(Principal Financial and Accounting Officer)

~~-34-~~

-40-

☒
x			QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

			For the quarterly period ended September 30, ~~2020~~2021

OR

☐ o			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

			For the transition period from __________ to __________

~~Missouri~~	~~43-1265338~~
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)


PART I – Financial Information
Item 1.	FINANCIAL STATEMENTS
	Consolidated Balance Sheets ~~September~~S eptember 30, ~~2020~~2021 (unaudited) and December 31, ~~2019~~ 2020	3 4
	Consolidated Statements of Income Three and ~~nine~~N ine months ended September 30, 2021 and 2020 ~~and 2019~~ (unaudited)	4 5
	Consolidated Statements of Comprehensive Income Three and ~~nine~~ N ine months ended September 30, 2021 and 2020 ~~and 2019~~ (unaudited)	5
	Consolidated Statements of Cash Flows Nine months ended September 30, 2021 and 2020 ~~and 2019~~ (unaudited)	6 7
	Consolidated Statements of Shareholders’ Equity Three and ~~nine~~N ine months ended September 30, 2021 and 2020 ~~and 2019~~ (unaudited)	7 8
	Notes to Consolidated Financial Statements (unaudited)	8 10
Item 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	20 26
Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	31 39
Item 4.	CONTROLS AND PROCEDURES	31 39
PART II – Other Information – Items 1. – 6.		31 40
SIGNATURES		34 42


	September 30, 2020 (Unaudited)		December 31, 2019			September 30, 2021 (Unaudited)		December 31, 2020
Assets					Assets
Cash and due from banks	$	15,950	$	18,076	Cash and due from banks	$	25,641	$	30,985
Interest-bearing deposits in other financial institutions		208,783		172,422	Interest-bearing deposits in other financial institutions	472,786		393,810
Federal funds sold and other short-term investments		214,718		13,456	Federal funds sold and other short-term investments	1,882		245,733
Cash and cash equivalents		439,451		203,954	Cash and cash equivalents	500,309		670,528
Securities available-for-sale, at fair value		365,165		422,665	Securities available-for-sale, at fair value	541,079		357,726

Loans		944,557		772,638	Loans	872,905		891,676
Less: Allowance for loan losses		11,298		10,556
Less: Allowance for credit losses					Less: Allowance for credit losses	11,532		11,944
Loans, net		933,259		762,082	Loans, net	861,373		879,732
Payments in excess of funding		161,392		206,158	Payments in excess of funding	266,379		194,563
Premises and equipment, net		18,890		20,527	Premises and equipment, net	17,499		18,057
Investment in bank-owned life insurance		17,942		17,599	Investment in bank-owned life insurance	42,926		18,058
Goodwill		14,262		14,262	Goodwill	14,262		14,262
Other intangible assets, net		3,637		4,281	Other intangible assets, net	2,779		3,423
Other assets		46,465		112,715	Other assets	46,380		46,886
Total assets	$	2,000,463	$	1,764,243	Total assets	$	2,292,986	$	2,203,235

Liabilities and Shareholders’ Equity					Liabilities and Shareholders’ Equity
Liabilities:					Liabilities:
Deposits:					Deposits:
Noninterest-bearing	$	374,382	$	351,091	Noninterest-bearing	$	467,320	$	493,504
Interest-bearing		536,803		406,045	Interest-bearing	619,997		557,352
Total deposits		911,185		757,136	Total deposits	1,087,317		1,050,856
Accounts and drafts payable		771,607		684,295	Accounts and drafts payable	905,479		835,386
Short-term borrowings		─		18,000
Other liabilities		66,180		60,622	Other liabilities	52,547		55,833
Total liabilities		1,748,972		1,520,053	Total liabilities	2,045,343		1,942,075

Shareholders’ Equity:					Shareholders’ Equity:
Preferred stock, par value $.50 per share; 2,000,000 shares authorized and no shares issued		—		—	Preferred stock, par value $.50 per share; 2,000,000 shares authorized and no shares issued	—		—
Common stock, par value $.50 per share; 40,000,000 shares authorized and 15,505,772 shares issued at September 30, 2020 and December 31, 2019		7,753		7,753
Common stock, par value $.50 per share; 40,000,000 shares authorized and 15,505,772 shares issued at September 30, 2021 and December 31, 2020					Common stock, par value $.50 per share; 40,000,000 shares authorized and 15,505,772 shares issued at September 30, 2021 and December 31, 2020	7,753		7,753
Additional paid-in capital		205,053		205,397	Additional paid-in capital	204,113		204,875
Retained earnings		97,402		90,341	Retained earnings	108,388		99,062
Common shares in treasury, at cost (1,083,639 shares at September 30, 2020 and 991,406 shares at December 31, 2019)		(49,410)		(45,381)
Common shares in treasury, at cost (1,495,624 shares at September 30, 2021 and 1,113,103 shares at December 31, 2020)					Common shares in treasury, at cost (1,495,624 shares at September 30, 2021 and 1,113,103 shares at December 31, 2020)	(67,018)		(50,515)
Accumulated other comprehensive loss		(9,307)		(13,920)	Accumulated other comprehensive loss	(5,593)		(15)
Total shareholders’ equity		251,491		244,190	Total shareholders’ equity	247,643		261,160
Total liabilities and shareholders’ equity	$	2,000,463	$	1,764,243	Total liabilities and shareholders’ equity	$	2,292,986	$	2,203,235

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019			Three Months Ended September 30,				Nine Months Ended September 30,
Comprehensive income:
										2021		2020		2021		2020
Comprehensive Income:									Comprehensive Income:
Net income	$	5,781	$	8,186	$	18,765	$	24,033	Net income	$	6,805	$	5,781	$	20,902	$	18,765
Other comprehensive income:
Net unrealized gain on securities available-for-sale		224		1,571		7,209		13,317
Other comprehensive income (loss):									Other comprehensive income (loss):
Net unrealized (loss) gain on securities available-for-sale									Net unrealized (loss) gain on securities available-for-sale	(4,438)		224		(7,086)		7,209
Tax effect		(53)		(374)		(1,716)		(3,170)	Tax effect	1,057		(53)		1,687		(1,716)
Reclassification adjustments for gains included in net income		—		—		(1,069)		(19)
Reclassification adjustments for losses (gains) included in net income									Reclassification adjustments for losses (gains) included in net income	1		—		(44)		(1,069)
Tax effect		—		—		254		5	Tax effect	—		—		10		254
Foreign currency translation adjustments		63		(78)		(65)		(74)	Foreign currency translation adjustments	(168)		63		(145)		(65)
Total comprehensive income	$	6,015	$	9,305	$	23,378	$	34,092	Total comprehensive income	$	3,257	$	6,015	$	15,324	$	23,378

	Common Stock		Additional Paid-in Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive (Loss) Income		Total
Balance, June 30, 2019	$	7,753	$	205,463	$	83,470	$	(46,333)	$	(9,932)	$	240,421

Net income						8,186						8,186
Cash dividends ($.26 per share)						(3,769)						(3,769)
Issuance of 795 common shares pursuant to stock-based compensation plan, net				(5)				48				43
Exercise of SARs				(552)				300				(252)
Stock-based compensation expense				869								869
Other comprehensive income										1,119		1,119
Balance, September 30, 2019	$	7,753	$	205,775	$	87,887	$	(45,985)	$	(8,813)	$	246,617

Balance, June 30, 2020	$	7,753	$	204,258	$	95,514	$	(49,457)	$	(9,541)	$	248,527

Net income						5,781						5,781
Cash dividends ($.27 per share)						(3,893)						(3,893)
Issuance of 1,165 common shares pursuant to stock-based compensation plan, net				(4)				47				43
Stock-based compensation expense				799								799
Other comprehensive income										234		234
Balance, September 30, 2020	$	7,753	$	205,053	$	97,402	$	(49,410)	$	(9,307)	$	251,491

	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands except share and per share data)	2020		2019		2020		2019		(In thousands except share and per share data)	Three Months Ended September 30,				Nine Months Ended September 30,
Basic:
										2021		2020		2021		2020
Basic									Basic
Net income	$	5,781	$	8,186	$	18,765	$	24,033	Net income	$	6,805	$	5,781	$	20,902	$	18,765
Weighted-average common shares outstanding		14,348,151		14,417,725		14,373,243		14,435,670	Weighted-average common shares outstanding	14,040,089		14,348,151		14,203,369		14,373,243
Basic earnings per share	$	.40	$	.57	$	1.31	$	1.66	Basic earnings per share	$	.48	$	.40	$	1.47	$	1.31

Diluted:
Diluted									Diluted
Net income	$	5,781	$	8,186	$	18,765	$	24,033	Net income	$	6,805	$	5,781	$	20,902	$	18,765
Weighted-average common shares outstanding		14,348,151		14,417,725		14,373,243		14,435,670	Weighted-average common shares outstanding	14,040,089		14,348,151		14,203,369		14,373,243
Effect of dilutive restricted stock and stock appreciation rights		198,336		262,917		200,723		258,123	Effect of dilutive restricted stock and stock appreciation rights	237,080		198,336		239,016		200,723
Weighted-average common shares outstanding assuming dilution		14,546,487		14,680,642		14,573,966		14,693,793	Weighted-average common shares outstanding assuming dilution	14,277,169		14,546,487		14,442,385		14,573,966
Diluted earnings per share	$	.40	$	.56	$	1.29	$	1.64	Diluted earnings per share	$	.48	$	.40	$	1.45	$	1.29


	Performing						Nonperforming							Performing						Nonperforming
(In thousands)	Current		30-59 Days		60-89 Days		90 Days and Over		Non- accrual		Total Loans		(In thousands)	Current		30-59 Days		60-89 Days		90 Days and Over		Non- accrual		Total Loans
September 30, 2020
September 30, 2021													September 30, 2021
Commercial and industrial	$	301,886	$	—	$	—	$	—	$	—	$	301,886	Commercial and industrial	$	356,532	$	—	$	—	$	—	$	—	$	356,532
PPP		172,211		—		—		—		—		172,211
Real estate:
Real estate													Real estate
Commercial:													Commercial:
Mortgage		94,792		—		—		—		—		94,792	Mortgage	103,596		—		—		—		—		103,596
Construction		23,795		—		—		—		—		23,795	Construction	24,705		—		—		—		—		24,705
Faith-based:													Faith-based:
Mortgage		331,419		—		—		—		—		331,419	Mortgage	358,493		—		—		—		—		358,493
Construction		20,452		—		—		—		—		20,452	Construction	13,272		—		—		—		—		13,272
Other		2		—		—		—		—		2
PPP													PPP	16,307		—		—		—		—		16,307
Total	$	944,557	$	—	$	—	$	—	$	—	$	944,557	Total	$	872,905	$	—	$	—	$	—	$	—	$	872,905
December 31, 2019
December 31, 2020													December 31, 2020
Commercial and industrial	$	323,857	$	—	$	—	$	—	$	—	$	323,857	Commercial and industrial	$	298,984	$	—	$	—	$	—	$	—	$	298,984
Real estate:
Real estate													Real estate
Commercial:													Commercial:
Mortgage		101,654		—		—		—		—		101,654	Mortgage	100,419		—		—		—		—		100,419
Construction		25,299		—		—		—		—		25,299	Construction	25,090		—		—		—		—		25,090
Faith-based:													Faith-based:
Mortgage		305,826		—		—		—		—		305,826	Mortgage	333,661		—		—		—		—		333,661
Construction		15,945		—		—		—		—		15,945	Construction	23,818		—		—		—		—		23,818
Other		57		—		—		—		—		57
PPP													PPP	109,704		—		—		—		—		109,704
Total	$	772,638	$	—	$	—	$	—	$	—	$	772,638	Total	$	891,676	$	—	$	—	$	—	$	—	$	891,676


(In thousands)	Loans Subject to Normal Monitoring¹		Performing Loans Subject to Special Monitoring²		Nonperforming Loans Subject to Special Monitoring²		Total Loans		(In thousands)	Loans Subject to Normal Monitoring1		Performing Loans Subject to Special Monitoring2		Nonperforming Loans Subject to Special Monitoring2		Total Loans
September 30, 2020
September 30, 2021									September 30, 2021
Commercial and industrial	$	288,060	$	13,826	$	—	$	301,886	Commercial and industrial	$	345,652	$	10,880	$	—	$	356,532
PPP		172,211		—		—		172,211
Real estate:
Real estate									Real estate
Commercial:									Commercial:
Mortgage		93,370		1,422		—		94,792	Mortgage	103,596		—		—		103,596
Construction		23,795		—		—		23,795	Construction	24,705		—		—		24,705
Faith-based:									Faith-based:
Mortgage		328,285		3,134		—		331,419	Mortgage	355,530		2,963		—		358,493
Construction		20,452		—		—		20,452	Construction	13,272		—		—		13,272
Other		2		—		—		2
PPP									PPP	16,307		—		—		16,307
Total	$	926,175	$	18,382	$	—	$	944,557	Total	$	859,062	$	13,843	$	—	$	872,905
December 31, 2019
December 31, 2020									December 31, 2020
Commercial and industrial	$	321,554	$	2,303	$	—	$	323,857	Commercial and industrial	$	284,882	$	14,102	$	—	$	298,984
Real estate:
Real estate									Real estate
Commercial:									Commercial:
Mortgage		100,346		1,308		—		101,654	Mortgage	99,044		1,375		—		100,419
Construction		25,299		—		—		25,299	Construction	25,090		—		—		25,090
Faith-based:									Faith-based:
Mortgage		304,513		1,313		—		305,826	Mortgage	330,554		3,107		—		333,661
Construction		15,945		—		—		15,945	Construction	23,818		—		—		23,818
Other		57		—		—		57
PPP									PPP	109,704		—		—		109,704
Total	$	767,714	$	4,924	$	—	$	772,638	Total	$	873,092	$	18,584	$	—	$	891,676


(In thousands)	Number of Loans	Pre-Modification Outstanding Balance		Post-Modification Outstanding Balance
Commercial and industrial	1	$	8,773	$	8,773
Faith-based real estate	1	1,029		1,029
Total	2	$	9,802	$	9,802

(In thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance for Loan Losses
Commercial and industrial:	$	11,782	$	11,782	$	500
Real estate:
Faith-based:
Mortgage		1,038		1,038		—
Total impaired loans	$	12,820	$	12,820	$	500

(In thousands)	December 31, 2019		Charge- Offs		Recoveries		Provision		September 30, 2020
Commercial and industrial	$	4,874	$	—	$	16	$	211	$	5,101
Real estate:
Commercial:
Mortgage		1,528		—		—		(34)		1,494
Construction		191		—		—		(2)		189
Faith-based:
Mortgage		3,842		—		1		510		4,353
Construction		121		—		—		40		161
Total	$	10,556	$	—	$	17	$	725	$	11,298


(In thousands)	C&I		CRE		Faith-based CRE		Construction		Total
Allowance for credit losses on loans:
Balance at December 31, 2020	$	4,635	$	1,175	$	5,717	$	417	$	11,944
Charge Offs	—		—		—		—		—
(Release of) provision for credit losses	(289)		(99)		76		(128)		(440)
Recoveries	13		—		15		—		28
Balance at September 30, 2021	$	4,359	$	1,076	$	5,808	$	289	$	11,532

(In thousands)	December 31, 2018		Charge- Offs		Recoveries		Provision		September 30, 2019
Commercial and industrial	$	4,179	$	—	$	34	$	672	$	4,885
Real estate:
Commercial:
Mortgage		1,417		—		—		(161)		1,256
Construction		89		—		—		91		180
Faith-based:
Mortgage		3,961		—		—		32		3,993
Construction		155		—		—		(38)		117
Other		424		—		—		(346)		78
Total	$	10,225	$	—	$	34	$	250	$	10,509


	Amount of Commitment Expiration per Period											Amount of Commitment Expiration per Period
(In thousands)	Total		Less than 1 Year		1-3 Years		3-5 Years		Over 5 Years		(In thousands)	Total		Less than 1 Year		1-3 Years		3-5 Years		Over 5 Years
Time deposits	$	65,086	$	45,574	$	19,438	$	74	$	—	Time deposits	$	50,699	$	34,719	$	15,917	$	63	$	—

	Nine Months Ended September 30, 2020
	Shares		Fair Value
Balance at December 31, 2019		123,272	$	47.24
Granted		33,568		47.83
Vested		(20,369)		49.32
Forfeited		(4,962)		50.08
Balance at September 30, 2020		131,509	$	46.96


	Nine Months Ended September 30, 2021
	Shares	Fair Value
Balance at December 31, 2020	136,167	$	46.78
Granted	52,356	41.59
Vested	(23,782)	48.43
Forfeitures	(738)	46.07
Balance at September 30, 2021	164,003	$	46.69


(In thousands)	Estimated 2020		Actual 2019		(In thousands)	Estimated 2021		Actual 2020
Service cost – benefits earned during the year	$	4,329	$	3,555	Service cost – benefits earned during the year	$	963	$	4,329
Interest cost on projected benefit obligations		3,908		4,103	Interest cost on projected benefit obligations	3,069		3,908
Expected return on plan assets		(6,049)		(4,753)	Expected return on plan assets	(6,299)		(6,049)
Net amortization		1,946		1,559	Net amortization	360		1,946
Net periodic pension cost	$	4,134	$	4,464
Net periodic pension (benefit) cost					Net periodic pension (benefit) cost	$	(1,907)	$	4,134


	September 30, 2020													September 30, 2021
	Less than 12 months				12 months or more				Total					Less than 12 months				12 months or more				Total
(In thousands)	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses		(In thousands)	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses
State and political subdivisions													State and political subdivisions	$	68,399	$	821	$	—	$	—	$	68,399	$	821
U.S. government agencies	$	1,793	$	22	$	—	$	—	$	1,793	$	22	U.S. government agencies	88,386		1,288		—		—		88,386		1,288
Corporate Bonds													Corporate Bonds	10,940		41		—		—		10,940		41
Total	$	1,793		22		—		—		1,793		22	Total	$	167,725	$	2,150	$	—	$	—	$	167,725	$	2,150

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
(In thousands)	2020		2019		2020		2019
Fee revenue and other income
In-scope of FASB ASC 606
Invoice processing fees	$	18,650	$	20,408	$	55,697	$	61,397
Invoice payment fees		5,726		7,333		16,843		19,653
Information services payment and processing revenue		24,376		27,741		72,540		81,050
Bank service fees		441		307		1,249		984
Fee revenue (in-scope of FASB ASC 606)		24,817		28,048		73,789		82,034
Other income (out-of-scope of FASB ASC 606)		115		214		1,412		613
Total fee revenue and other income		24,932		28,262		75,201		82,647

Net interest income after provision for loan losses (out-of-scope of FASB ASC 606)¹		10,814		12,274		32,623		35,653
Total net revenue	$	35,746	$	40,536	$	107,824	$	118,300

(In thousands)	September 30, 2020
Lease payments due
Less than 1 year	$	1,819
1-2 years		1,683
2-3 years		1,062
3-4 years		502
4-5 years		512
Over 5 years		2,150
Total undiscounted cash flows		7,728
Discount on cash flows		1,175
Total lease liability	$	6,553

	Third Quarter of					Nine Months Ended
(In thousands except per share data)											(In thousands except per share data)	Third Quarter of								Nine Months Ended
	2020		2019		% Change	2020		2019		% Change		2021			2020			% Change		2021			2020			% Change
Net income	$	5,781	$	8,186	(29.4)	$	18,765	$	24,033	(21.9)	Net income	$	6,805		$	5,781		17.7	%	$	20,902		$	18,765		11.4	%
Diluted earnings per share	$	.40	$	.56	(28.6)	$	1.29	$	1.64	(21.3)	Diluted earnings per share	$	.48		$	.40		20.0	%	$	1.45		$	1.29		12.4	%
Return on average assets		1.14%		1.82%	—		1.32%		1.86%	—	Return on average assets	1.14		%	1.14		%	—		1.23		%	1.32		%	—	%
Return on average equity		9.25%		13.44%	—		10.25%		13.76%	—	Return on average equity	10.61		%	9.25		%	—		10.84		%	10.25		%	—	%

	Third Quarter of 2020							Third Quarter of 2019
(In thousands)	Average Balance			Interest Income/ Expense		Yield/Rate		Average Balance		Interest Income/ Expense		Yield/Rate
Assets¹
Interest-earning assets
Loans²:
Taxable	$	949,836		$	9,067	3.80	%	$	774,489	$	9,549	4.89	%
Investment securities⁴:
Taxable		69,158			372	2.14			102,507		603	2.33
Tax-exempt³		284,826			2,219	3.10			315,381		2,436	3.06
Certificates of deposit		209			1	1.90			1,644		8	1.93
Interest-bearing deposits in other financial institutions		189,975			36	0.08			102,386		502	1.95
Federal funds sold and other short-term investments		240,676			50	0.08			202,063		1,079	2.12
Total interest-earning assets		1,734,680			11,745	2.69			1,498,470		14,177	3.75
Non-interest-earning assets:
Cash and due from banks		16,993							16,307
Premises and equipment, net		19,507							20,981
Bank-owned life insurance		17,875							17,456
Goodwill and other intangibles		18,027							14,669
Other assets		215,633							222,449
Allowance for loan losses		(11,295	)						(10,507)
Total assets	$	2,011,420						$	1,779,825
Liabilities and Shareholders’ Equity¹
Interest-bearing liabilities:
Interest-bearing demand Deposits	$	425,192		$	227	0.21	%	$	315,341	$	996	1.25	%
Savings deposits		14,675			3	0.08			9,612		24	0.99
Time deposits >= $100		26,335			104	1.57			25,978		133	2.03
Other time deposits		40,959			131	1.27			48,051		239	1.97
Total interest-bearing deposits		507,161			465	0.36			398,982		1,392	1.38
Short-term borrowings		11			—	—			10		—	—
Total interest-bearing liabilities		507,172			465	0.36			398,992		1,392	1.38
Non-interest bearing liabilities:
Demand deposits		371,862							272,551
Accounts and drafts payable		816,032							809,078
Other liabilities		67,829							57,636
Total liabilities		1,762,895							1,538,257
Shareholders’ equity		248,525							241,568
Total liabilities and shareholders’ equity	$	2,011,420						$	1,779,825
Net interest income				$	11,280					$	12,785
Net interest margin						2.59	%					3.38	%
Interest spread						2.33						2.37

	Nine Months Ended 2020							Nine Months Ended 2019
(In thousands)	Average Balance			Interest Income/ Expense		Yield/Rate		Average Balance		Interest Income/ Expense		Yield/Rate
Assets¹
Interest-earning assets
Loans²:
Taxable	$	904,632		$	27,366	4.04	%	$	755,331	$	27,564	4.88	%
Investment securities⁴:
Taxable		82,271			1,400	2.27			104,614		1,865	2.38
Tax-exempt³		289,964			6,781	3.12			322,682		7,538	3.12
Certificates of deposit		340			6	2.36			1,877		28	1.99
Interest-bearing deposits in other financial institutions		197,929			492	0.33			110,294		1,789	2.17
Federal funds sold and other short-term investments		140,955			638	0.60			161,444		2,688	2.23
Total interest-earning assets		1,616,091			36,683	3.03			1,456,242		41,472	3.81
Non-interest-earning assets:
Cash and due from banks		16,765							14,292
Premises and equipment, net		19,955							21,522
Bank-owned life insurance		17,761							17,475
Goodwill and other intangibles		18,240							14,243
Other assets		214,331							210,200
Allowance for loan losses		(10,919	)						(10,413)
Total assets	$	1,892,224						$	1,723,561
Liabilities and Shareholders’ Equity¹
Interest-bearing liabilities:
Interest-bearing demand deposits	$	382,424		$	1,062	0.37	%	$	305,454	$	2,841	1.24	%
Savings deposits		12,010			19	0.21			10,487		83	1.06
Time deposits >= $100		28,134			383	1.82			24,728		364	1.97
Other time deposits		42,483			445	1.40			48,774		699	1.92
Total interest-bearing deposits		465,051			1,909	0.55			389,443		3,987	1.37
Short-term borrowings		77			2	3.47			12		—	—
Total interest-bearing liabilities		465,128			1,911	0.55			389,455		3,987	1.37
Non-interest bearing liabilities:
Demand deposits		342,386							267,374
Accounts and drafts payable		775,341							778,141
Other liabilities		64,859							54,995
Total liabilities		1,647,714							1,489,965
Shareholders’ equity		244,510							233,596
Total liabilities and shareholders’ equity	$	1,892,224						$	1,723,561
Net interest income				$	34,772					$	37,485
Net interest margin						2.87	%					3.44	%
Interest spread						2.48						2.44