Cass Information Systems (CASS) 10-Q 2015 Q1 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
_________________

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended   March 31, 2015
OR
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from ___________________ to ___________________

Commission File No. 000-20827
________________
CASS INFORMATION SYSTEMS, INC.
(Exact name of registrant as specified in its charter)

Missouri	43-1265338
(State or other jurisdiction of incorporation or	(I.R.S. Employer Identification No.)
organization)
12444 Powerscourt Drive, Suite 550	63131
St. Louis, Missouri
(Address of principal executive offices)	(Zip Code)
(314) 506-5500
(Registrant’s telephone number, including area code) ________________

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

Yes               X                           No          

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

Yes               X                           No          

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

(Check one)	Large Accelerated Filer _____	Accelerated Filer    X
	Non-Accelerated Filer _____	Smaller Reporting Company _____
	(Do not check if a smaller reporting company)

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

Yes                                No               X     

The number of shares outstanding of the registrant's only class of common stock as of April 27, 2015: Common stock, par value $.50 per share – 11,476,082 shares outstanding.

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TABLE OF CONTENTS

PART I – Financial Information
	Item 1.	FINANCIAL STATEMENTS
		Consolidated Balance Sheets
		March 31, 2015 (unaudited) and December 31, 2014	3
		Consolidated Statements of Income
		Three months ended March 31, 2015 and 2014 (unaudited)	4
		Consolidated Statements of Comprehensive Income
		Three months ended March 31, 2015 and 2014 (unaudited)	5
		Consolidated Statements of Cash Flows
		Three months ended March 31, 2015 and 2014 (unaudited)	6
		Notes to Consolidated Financial Statements (unaudited)	7
	Item 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	16
	Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	25
	Item 4.	CONTROLS AND PROCEDURES	25
PART II – Other Information– Items 1. – 6.			26
	SIGNATURES		28

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 2014 Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”), which may be updated from time to time in our future filings with the SEC. We undertake no obligation to publicly update or revise any forward-looking statements to reflect changed assumptions, the occurrence of anticipated or unanticipated events, or changes to future results over time.

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands except Share and Per Share Data)

	March 31,
	2015			December 31,
	(Unaudited)			2014
Assets
Cash and due from banks	$	11,230		$	11,307
Interest-bearing deposits in other financial institutions		166,192			200,966
Federal funds sold and other short-term investments		31,093			82,062
Cash and cash equivalents		208,515			294,335
Securities available-for-sale, at fair value		322,627			356,141
Loans		683,537			669,346
Less: Allowance for loan losses		11,898			11,894
Loans, net		671,639			657,452
Premises and equipment, net		17,817			16,909
Investment in bank-owned life insurance		15,552			15,429
Payments in excess of funding		125,572			120,227
Goodwill		11,590			11,590
Other intangible assets, net		2,661			2,762
Other assets		24,775			25,886
Total assets	$	1,400,748		$	1,500,731
Liabilities and Shareholders’ Equity
Liabilities:
Deposits:
Noninterest-bearing	$	160,555		$	158,999
Interest-bearing		454,523			459,200
Total deposits		615,078			618,199
Accounts and drafts payable		556,826			655,428
Other liabilities		28,654			26,672
Total liabilities		1,200,558			1,300,299
Shareholders’ Equity:
Preferred stock, par value $.50 per share; 2,000,000
shares authorized and no shares issued		—			—
Common stock, par value $.50 per share; 40,000,000
shares authorized and 11,931,147 shares issued at March 31, 2015
and December 31, 2014		5,966			5,966
Additional paid-in capital		125,097			126,169
Retained earnings		93,762			90,635
Common shares in treasury, at cost (461,252 shares at March 31,
2015 and 428,572 shares at December 31, 2014)		(15,262	)		(12,707	)
Accumulated other comprehensive loss		(9,373	)		(9,631	)
Total shareholders’ equity		200,190			200,432
Total liabilities and shareholders’ equity	$	1,400,748		$	1,500,731

See accompanying notes to unaudited consolidated financial statements.

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CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in Thousands except Per Share Data)

	Three Months Ended
	March 31,
	2015		2014
Fee Revenue and Other Income:
Information services payment and processing revenue	$	19,418	$	18,397
Bank service fees		301		285
Gains on sales of securities		949		—
Other		164		893
Total fee revenue and other income		20,832		19,575
Interest Income:
Interest and fees on loans		7,086		7,305
Interest and dividends on securities:
Taxable		3		5
Exempt from federal income taxes		2,303		2,310
Interest on federal funds sold and
other short-term investments		160		152
Total interest income		9,552		9,772
Interest Expense:
Interest on deposits		591		625
Net interest income		8,961		9,147
Provision for loan losses		—		—
Net interest income after provision for loan
losses		8,961		9,147
Total net revenue		29,793		28,722
Operating Expense:
Salaries and employee benefits		17,326		16,187
Occupancy		837		806
Equipment		1,071		1,026
Amortization of intangible assets		101		120
Other operating expense		2,973		2,886
Total operating expense		22,308		21,025
Income before income tax expense		7,485		7,697
Income tax expense		1,946		1,886
Net income	$	5,539	$	5,811
Basic earnings per share		.48		.51
Diluted earnings per share		.48		.50

See accompanying notes to unaudited consolidated financial statements.

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CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(Dollars in Thousands)

	Three Months Ended
	March 31,
	2015			2014
Comprehensive income:
Net income	$	5,539		$	5,811
Other comprehensive income:
Net unrealized gain (loss) on securities available-for-sale		1,496			3,688
Tax effect		(557	)		(1,370	)
Reclassification adjustments for gains included in net income		(949	)		—
Tax effect		332			—
Foreign currency translation adjustments		(64	)		(5	)
Total comprehensive income	$	5,797		$	8,124

See accompanying notes to unaudited consolidated financial statements.

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CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)

	Three Months Ended
	March 31,
	2015			2014
Cash Flows From Operating Activities:
Net income	$	5,539		$	5,811
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization		2,081			1,977
Net gains on sales of securities		(949	)		—
Stock-based compensation expense		517			519
Increase in income tax liability		31			365
Increase in pension liability		1,210			587
Other operating activities, net		1,475			(479	)
Net cash provided by operating activities		9,904			8,780
Cash Flows From Investing Activities:
Proceeds from sales of securities available-for-sale		45,198			—
Proceeds from maturities of securities available-for-sale		7,810			4,080
Purchase of securities available-for-sale		(19,297	)		(8,954	)
Net increase in loans		(14,187	)		(12,759	)
Increase in payments in excess of funding		(5,345	)		(23,022	)
Purchases of premises and equipment, net		(1,624	)		(907	)
Net cash provided by (used in) investing activities		12,555			(41,562	)
Cash Flows From Financing Activities:
Net increase in noninterest-bearing demand deposits		1,556			15,546
Net decrease in interest-bearing demand and savings deposits		(614	)		(18,770	)
Net (decrease) increase in time deposits		(4,063	)		1,931
Net (decrease) increase in accounts and drafts payable		(98,602	)		10,742
Cash dividends paid		(2,412	)		(2,306	)
Purchase of common shares for treasury		(3,358	)		—
Other financing activities, net		(786	)		(462	)
Net cash (used in) provided by financing activities		(108,279	)		6,681
Net decrease in cash and cash equivalents		(85,820	)		(26,101	)
Cash and cash equivalents at beginning of period		294,335			225,262
Cash and cash equivalents at end of period	$	208,515		$	199,161
Supplemental information:
Cash paid for interest	$	582		$	618
Cash paid for income taxes		1,942			1,323

See accompanying notes to unaudited consolidated financial statements.

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CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1 - Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes 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. 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, 2014.

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 and those with finite useful lives be amortized over their useful lives.

Details of the Company’s intangible assets are as follows:

	March 31, 2015			December 31, 2014
	Gross Carrying	Accumulated		Gross Carrying		Accumulated
(In thousands)	Amount	Amortization		Amount		Amortization
Assets eligible for amortization:
Customer lists	3,933	(1,785	)	$	3,933	$	(1,705	)
Patent	23	(1	)		23		(1	)
Non-compete agreements	261	(170	)		261		(157	)
Software	234	(234	)		234		(234	)
Other	500	(100	)		500		(92	)
Unamortized intangible assets:
Goodwill1	11,817	(227	)		11,817		(227	)
Total intangible assets	16,768	(2,517	)	$	16,768	$	(2,416	)

¹Amortization through December 31, 2001 prior to adoption of FASB ASC 350.

The customer lists are amortized over seven and ten years; the patent over 18 years; the non-compete agreements over five years; software over three years; and other intangible assets over fifteen years. Amortization of intangible assets amounted to $101,000 and $120,000 for the three-month periods ended March 31, 2015 and 2014, respectively. Estimated future amortization of intangibles is as follows: $405,000 in 2015 and 2016, and $353,000 in each of 2017, 2018 and 2019.

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. There were no anti-dilutive shares in the three months ended March 31, 2015 and 2014. The calculations of basic and diluted earnings per share are as follows:

	Three Months Ended
	March 31,
(In thousands except share and per share data)	2015		2014
Basic
Net income	$	5,539	$	5,811
Weighted-average common shares outstanding		11,440,356		11,478,116
Basic earnings per share	$	.48	$	.51
Diluted
Net income	$	5,539	$	5,811
Weighted-average common shares outstanding		11,440,356		11,478,116
Effect of dilutive restricted stock and stock appreciation rights		161,497		194,707
Weighted-average common shares outstanding assuming dilution		11,601,853		11,672,823
Diluted earnings per share	$	.48	$	.50

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Note 4 – Stock Repurchases

The Company maintains a treasury stock buyback program pursuant to which the Board of Directors has authorized the repurchase of up to 500,000 shares of the Company’s common stock. The Company repurchased 69,288 and 0 shares during the three-month periods ended March 31, 2015 and 2014, respectively. As of March 31, 2015, 410,752 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.

Note 5 – Industry Segment Information

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

The Information Services segment provides transportation, energy, telecommunication, and environmental invoice processing and payment services to large corporations. The Banking Services segment provides banking services primarily to privately held businesses and churches.

The Company’s accounting policies for segments are the same as those described in the summary of significant accounting policies in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014. Management evaluates segment performance based on net income after allocations for corporate expenses and income taxes. Transactions between segments are accounted for at what management believes to be fair value.

Substantially all revenue originates from, and all long-lived assets are located within the United States, and no revenue from any customer of any segment exceeds 10% of the Company’s consolidated revenue.

Assets represent actual assets owned by Information Services and Banking Services and there is no allocation methodology used. Segment interest from customers is the actual interest earned on the loans owned by Information Services and Banking Services, respectively.

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

					Corporate,
	Information		Banking		Eliminations
(In thousands)	Services		Services		and Other			Total
Quarter Ended March 31, 2015
Fee revenue and other income:
Income from customers	$	24,274	$	5,519	$	—		$	29,793
Intersegment income (expense)		2,194		423		(2,617	)		—
Net income		3,816		1,723		—			5,539
Goodwill		11,454		136		—			11,590
Other intangible assets, net		2,661		—		—			2,661
Total assets		686,492		724,292		(10,036	)		1,400,748
Quarter Ended March 31, 2014
Fee revenue and other income
Income from customers	$	23,215	$	5,507	$	—		$	28,722
Intersegment income (expense)		2,144		354		(2,498	)		—
Net income		4,100		1,711		—			5,811
Goodwill		11,454		136		—			11,590
Other intangible assets, net		3,102		—		—			3,102
Total assets		672,248		679,391		(9,712	)		1,341,927

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Note 6 – Loans by Type

A summary of loan categories is as follows:

	March 31,		December 31,
(In thousands)	2015		2014
Commercial and industrial	$	221,645	$	203,350
Real estate
Commercial:
Mortgage		111,709		117,754
Construction		—		—
Church, church-related:
Mortgage		311,100		305,887
Construction		16,424		18,612
Industrial Revenue Bonds		22,582		23,348
Other		77		395
Total loans	$	683,537	$	669,346

The following table presents the aging of loans by loan categories at March 31, 2015 and December 31, 2014:

	Performing						Nonperforming
							90 Days
			30-59		60-89		and		Non-		Total
(In thousands)	Current		Days		Days		Over		accrual		Loans
March 31, 2015
Commercial and industrial	$	221,557	$	—	$	—	$	—	$	88	$	221,645
Real estate
Commercial:
Mortgage		108,632		—		—		—		3,077		111,709
Construction		—		—		—		—		—		—
Church, church-related:
Mortgage		310,979		—		—		—		121		311,100
Construction		16,424		—		—		—		—		16,424
Industrial Revenue Bonds		22,582		—		—		—		—		22,582
Other		77		—		—		—		—		77
Total	$	680,251	$	—	$	—	$	—	$	3,286	$	683,537
December 31, 2014
Commercial and industrial	$	203,350	$	—	$	—	$	—	$	—	$	203,350
Real estate
Commercial:
Mortgage		117,393		—		—		—		361		117,754
Construction		—		—		—		—		—		—
Church, church-related:
Mortgage		305,760		—		—		—		127		305,887
Construction		18,612		—		—		—		—		18,612
Industrial Revenue Bonds		23,348		—		—		—		—		23,348
Other		395		—		—		—		—		395
Total	$	668,858	$	—	$	—	$	—	$	488	$	669,346

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The following table presents the credit exposure of the loan portfolio as of March 31, 2015 and December 31, 2014:

	Loans		Performing		Nonperforming
	Subject to		Loans Subject to		Loans Subject
	Normal		Special		to Special
(In thousands)	Monitoring1		Monitoring2		Monitoring2		Total Loans
March 31, 2015
Commercial and industrial	$	217,740	$	3,817	$	88	$	221,645
Real estate
Commercial:
Mortgage		97,709		10,923		3,077		111,709
Construction		—		—		—		—
Church, church-related:
Mortgage		309,527		1,452		121		311,100
Construction		16,424		—		—		16,424
Industrial Revenue Bonds		22,582		—		—		22,582
Other		77		—		—		77
Total	$	664,059	$	16,192	$	3,286	$	683,537
December 31, 2014
Commercial and industrial	$	199,837	$	3,513	$	—	$	203,350
Real estate
Commercial:
Mortgage		103,097		14,296		361		117,754
Construction		—		—		—		—
Church, church-related:
Mortgage		304,219		1,541		127		305,887
Construction		18,612		—		—		18,612
Industrial Revenue Bonds		23,348		—		—		23,348
Other		395		—		—		395
Total	$	649,508	$	19,350	$	488	$	669,346

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

Impaired loans consist primarily of nonaccrual loans, loans greater than 90 days past due and still accruing interest and troubled debt restructurings, both performing and nonperforming. Troubled debt restructuring involves the granting of a concession to a borrower experiencing financial difficulty resulting in the modification of terms of the loan, such as changes in payment schedule or interest rate. Management measures impairment in accordance with FASB ASC 310, “Allowance for Credit Losses.” At March 31, 2015 and December 31, 2014, all impaired loans were evaluated based on the fair value of the collateral. The fair value of the collateral is based upon an observable market price or current appraised value and therefore, the Company classifies these assets as nonrecurring Level 3. There were no loans delinquent 90 days or more and still accruing interest at March 31, 2015 and December 31, 2014. There were no loans classified as troubled debt restructuring at March 31, 2015 and December 31, 2014.

There were no foreclosed loans recorded as other real estate owned (included in other assets) as of March 31, 2015, and December 31, 2014.

The following table presents the recorded investment and unpaid principal balance for impaired loans at March 31, 2015 and December 31, 2014:

			Unpaid		Related
	Recorded		Principal		Allowance for
(In thousands)	Investment		Balance		Loan Losses
March 31, 2015
Commercial and industrial:
Nonaccrual	$	88	$	88	$	—
Real estate
Commercial – Mortgage:
Nonaccrual		3,077		3,077		1,127
Church – Mortgage:
Nonaccrual		121		121		121
Total impaired loans	$	3,286	$	3,286	$	1,248
December 31, 2014
Commercial and industrial:
Nonaccrual	$	—	$	—	$	—
Real estate
Commercial – Mortgage:
Nonaccrual		361		361		—
Church – Mortgage:
Nonaccrual		127		127		127
Total impaired loans	$	488	$	488	$	127

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A summary of the activity in the allowance for loan losses from December 31, 2014 to March 31, 2015 is as follows:

	December 31,		Charge-							March 31,
(In thousands)	2014		Offs		Recoveries		Provision			2015
Commercial and industrial	$	3,515	$	—	$	3	$	323		$	3,841
Real estate
Commercial:
Mortgage		3,060		—		—		(152	)		2,908
Construction		—		—		—		—			—
Church, church-related:
Mortgage		4,016		—		1		56			4,073
Construction		140		—		—		(17	)		123
Industrial Revenue Bond		394		—		—		(13	)		381
Other		769		—		—		(197	)		572
Total	$	11,894	$	—	$	4	$	—		$	11,898

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 March 31, 2015 and December 31, 2014, no amounts have been accrued for any estimated losses for these instruments.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commercial and standby letters of credit are conditional commitments issued by the Company or its subsidiaries to guarantee the performance of a customer to a third party. These off-balance sheet financial instruments generally have fixed expiration dates or other termination clauses and may require payment of a fee. At March 31, 2015, the balance of unused loan commitments, standby and commercial letters of credit were $12,917,000, $11,754,000, and $2,017,000, 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 following table summarizes contractual cash obligations of the Company related to operating lease commitments and time deposits at March 31, 2015:

	Amount of Commitment Expiration per Period
			Less than		1-3		3-5		Over 5
(In thousands)	Total		1 Year		Years		Years		Years
Operating lease commitments	$	7,161	$	1,343	$	2,409	$	1,545	$	1,864
Time deposits		75,712		60,779		13,486		1,447		—
Total	$	82,873	$	62,122	$	15,895	$	2,992	$	1,864

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, stock appreciation rights (“SARs”), restricted stock, restricted stock units and performance awards. The Company issues shares out of treasury stock for these awards. During the three months ended March 31, 2015, 35,657 restricted shares and 0 SARs were granted under the Omnibus Plan. 

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Restricted Stock
Restricted shares granted prior to April 16, 2013 are amortized to expense over a three-year vesting period. Beginning on April 16, 2013, restricted shares granted to Company employees are amortized to expense over a three-year vesting period whereas restricted shares granted to members of the Board of Directors are amortized to expense over a one-year service period, with the exception of those shares granted in lieu of cash payments for retainer fees which are expensed in the period earned. As of March 31, 2015, the total unrecognized compensation expense related to non-vested restricted shares was $2,578,000, and the related weighted-average period over which it is expected to be recognized is approximately 1.3 years.

Following is a summary of the activity of the restricted stock:

	Three Months Ended
	March 31, 2015
	Shares		Fair Value
Balance at December 31, 2014	51,161		$	48.13
Granted	35,657		$	50.55
Vested	(20,441	)	$	43.97
Balance at March 31, 2015	66,377		$	50.71

SARs
SARs vest over a three-year period, with one-third of the shares vesting and becoming exercisable each year on the anniversary date of the grant, and they expire 10 years from the original grant date. As of March 31, 2015, the total unrecognized compensation expense was $661,000, and the related weighted-average period over which it is expected to be recognized is .8 years. Following is a summary of the activity of the Company’s SARs program for the three-month period ended March 31, 2015:

			Weighted-		Average	Aggregate
			Average		Remaining	Intrinsic
			Exercise		Contractual	Value
	Shares		Price		Term Years	(In thousands)
Outstanding at December 31, 2014	353,955		$	35.52	6.77	$	6,277
Exercised	(35,511	)	$	28.20
Outstanding at March 31, 2015	318,444		$	36.33	6.71	$	6,307
Exercisable at March 31, 2015	264,976		$	33.34	6.37	$	6,043

Following is a summary of the activity of the non-vested SARs during the three-month period ended March 31, 2015:

			Weighted-Average
	Shares		Grant Date Fair Value
Non-vested at December 31, 2014	124,982		$	45.85
Vested	(71,514	)	$	41,87
Non-vested at March 31, 2015	53,468		$	51.19

The Company uses the Black-Scholes pricing model to determine the fair value of the SARs at the date of grant. Following are the assumptions used to estimate the per-share fair value of SARs granted:

	Three Months Ended March 31,
	2015	2014
Risk-free interest rate	N/A	2.38	%
Expected life	N/A	7 yrs.
Expected volatility	N/A	28.11	%
Expected dividend yield	N/A	1.30	%

The risk-free interest rate is based on the zero-coupon U.S. Treasury yield for the period equal to the expected life of the SARs at the time of the grant. The expected life was derived using the historical exercise activity. The Company uses historical volatility for a period equal to the expected life of the rights using average monthly closing market prices of the Company’s stock as reported on The Nasdaq Global Market. The expected dividend yield is based on the Company’s current rate of annual dividends. 

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Note 9 – Defined Pension Plans

The Company has a noncontributory defined-benefit pension plan, which covers most of its employees. The Company accrues and makes contributions designed to fund normal service costs on a current basis using the projected unit credit with service proration method to amortize prior service costs arising from improvements in pension benefits and qualifying service prior to the establishment of the plan over a period of approximately 30 years. 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:

	Estimated			Actual
(In thousands)	2015			2014
Service cost – benefits earned during the year	$	3,977		$	3,003
Interest cost on projected benefit obligations		3,217			3,037
Expected return on plan assets		(4,863	)		(4,711	)
Net amortization		1,605			244
Net periodic pension cost	$	3,936		$	1,573

Pension costs recorded to expense were $991,000 and $410,000 for the three-month periods ended March 31, 2015 and 2014, respectively. Pension costs increased significantly in 2015 due to a decrease in the discount rate assumption and the use of the updated mortality tables. The Company made no contribution to the plan during the three-month period ended March 31, 2015 and is evaluating the amount of additional contributions, if any, in the remainder of 2015.

In addition to the above funded benefit plan, the Company has an unfunded supplemental executive retirement plan which covers key executives of the Company. This is a noncontributory plan in which the Company and its subsidiaries make accruals designed to fund normal service costs on a current basis using the same method and criteria as its defined benefit plan. The following table represents the components of the net periodic pension costs for 2014 and an estimate for 2015:

	Estimated		Actual
(In thousands)	2015		2014
Service cost – benefits earned during the year	$	140	$	136
Interest cost on projected benefit obligation		348		377
Net amortization		654		431
Net periodic pension cost	$	1,142	$	944

Pension costs recorded to expense were $285,000 and $236,000 for the three-month periods ended March 31, 2015 and 2014, respectively.

Note 10 – Income Taxes

As of March 31, 2015, the Company’s unrecognized tax benefits were approximately $1,191,000, of which $876,000 would, if recognized, affect the Company’s effective tax rate. As of December 31, 2014, the Company's unrecognized tax benefits were approximately $1,117,000, of which $819,000 would, if recognized, affect the Company's effective tax rate. During the next 12 months, the Company may realize a reduction of its unrecognized tax benefits of approximately $210,000 due to the lapse of federal and state statutes of limitations.

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. The Company had $54,000 and $45,000 of gross interest accrued as of March 31, 2015 and December 31, 2014, respectively. There were no penalties for unrecognized tax benefits accrued at March 31, 2015 and December 31, 2014.

The Company is subject to income tax in the U.S. federal jurisdiction and numerous state jurisdictions. U.S. federal income tax returns for tax years 2011 through 2013 remain subject to examination by the Internal Revenue Service. In addition, the Company is subject to state tax examinations for the tax years 2011 through 2013.

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Note 11 – Investment in Securities

Investment securities available-for-sale are recorded at fair value on a recurring basis. The Company’s investment securities available-for-sale are measured at fair value using Level 2 valuations. The market evaluation utilizes several sources which include “observable inputs” rather than “significant unobservable inputs” and therefore fall into the Level 2 category. The amortized cost, gross unrealized gains, gross unrealized losses and fair value of investment securities are summarized as follows:

	March 31, 2015
			Gross		Gross
	Amortized		Unrealized		Unrealized
(In thousands)	Cost		Gains		Losses		Fair Value
State and political subdivisions	$	304,441	$	14,497	$	61	$	318,877
Certificates of deposit		3,750		—		—		3,750
Total	$	308,191	$	14,497	$	61	$	322,627

	December 31, 2014
			Gross		Gross
	Amortized		Unrealized		Unrealized
(In thousands)	Cost		Gains		Losses		Fair Value
State and political subdivisions	$	338,469	$	14,120	$	198	$	352,391
Certificates of deposit		3,750		—		—		3,750
Total	$	342,219	$	14,120	$	198	$	356,141

The fair values of securities with unrealized losses are as follows:

	March 31, 2015
	Less than 12 months				12 months or more				Total
	Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
(In thousands)	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
State and political subdivisions	$	8,354	$	40	$	1,220	$	21	$	9,574	$	61
Certificates of deposit		—		—		—		—		—		—
Total	$	8,354	$	40	$	1,220	$	21	$	9,574	$	61

	December 31, 2014
	Less than 12 months				12 months or more				Total
	Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
(In thousands)	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
State and political subdivisions	$	8,700	$	15	$	13,833	$	183	$	22,533	$	198
Certificates of deposit		—		—		—		—		—		—
Total	$	8,700	$	15	$	13,833	$	183	$	22,533	$	198

There were 8 securities, or 2% of the total (one greater than 12 months), in an unrealized loss position as of March 31, 2015. There were 20 securities, or 6% of the total (12 greater than 12 months), in an unrealized loss position as of December 31, 2014. All unrealized losses were reviewed to determine whether the losses were other than temporary. Management believes that all unrealized losses are temporary since they were market driven, the Company does not have the intent to sell the security, and it is more likely than not that the Company will not be required to sell prior to recovery of the amortized basis.

The amortized cost and fair value of 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.

	March 31, 2015
(In thousands)	Amortized Cost		Fair Value
Due in 1 year or less	$	29,318	$	29,603
Due after 1 year through 5 years		88,584		92,912
Due after 5 years through 10 years		130,196		136,890
Due after 10 years		60,093		63,222
Total	$	308,191	$	322,627

Proceeds from sales of investment securities classified as available for sale were $45,198,000 for the three months ended March 31, 2015. Gross realized gains were $949,000 for the three months ended March 31, 2015. There was one security totaling $3,750,000 pledged to secure public deposits and for other purposes at March 31, 2015.

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Note 12 – Fair Value of Financial Instruments

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

	March 31, 2015				December 31, 2014
	Carrying				Carrying
(In thousands)	Amount		Fair Value		Amount		Fair Value
Balance sheet assets:
Cash and cash equivalents	$	208,515	$	208,515	$	294,335	$	294,335
Investment securities		322,627		322,627		356,141		356,141
Loans, net		671,639		679,017		657,452		663,247
Accrued interest receivable		5,117		5,117		6,521		6,521
Total	$	1,207,898	$	1,215,276	$	1,314,449	$	1,320,244
Balance sheet liabilities:
Deposits	$	615,078	$	615,651	$	618,199	$	618,199
Accounts and drafts payable		556,826		556,826		655,428		655,928
Accrued interest payable		66		66		57		57
Total	$	1,171,970	$	1,172,543	$	1,273,684	$	1,274,184

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:

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

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

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

Impaired loans are valued using the fair value of the collateral which is based upon an observable market price or a current appraised value and therefore, the fair value is a nonrecurring Level 3 valuation.

Accrued Interest Receivable -The carrying amount approximates fair value.

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

Accounts and Drafts Payable -The carrying amount approximates fair value.

Accrued Interest -The carrying amount approximates fair value.

There were no transfers between Levels 1 and 2 of the fair value hierarchy for the three months ended March 31, 2015 and 2014. No financial instruments are measured using Level 3 inputs for the three months ended March 31, 2015 and 2014.

Note 13 – Subsequent Events

In accordance with FASB ASC 855, “Subsequent Events,” the Company has evaluated subsequent events after the consolidated balance sheet date of March 31, 2015, and there were no events identified that would require additional disclosures to prevent the Company’s unaudited consolidated financial statements from being misleading.

-15-

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

Overview

Cass provides payment and information processing services to large manufacturing, distribution and retail enterprises from its offices/locations in St. Louis, Missouri, Columbus, Ohio, Boston, Massachusetts, Greenville, South Carolina, Wellington, Kansas, Jacksonville, Florida, and Breda, Netherlands. The Company’s services include transportation 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 other facility related expenses. Cass is also in the telecommunications expense management market which includes bill processing and expense management solutions. Cass extracts, stores, and presents information from transportation, energy, telecommunication and environmental invoices, assisting its customers’ transportation, energy, environmental and information technology managers in making decisions that will enable them to improve operating performance. The Company receives data from multiple sources, electronic and otherwise, and processes the data to accomplish the specific operating requirements of its customers. It then provides the data in a central repository for access and archiving. The data is finally transformed into information through the Company’s databases that allow client interaction as required and provide Internet-based tools for analytical processing. The Company, through Cass Commercial Bank, its St. Louis, Missouri-based bank subsidiary (the “Bank”), also provides commercial banking services in the St. Louis metropolitan area and has loan production offices in Southern California and Colorado Springs, Colorado. In addition to supporting the Company’s payment operations, the Bank provides banking services to its target markets, which include privately-owned businesses and churches and church-related ministries.

The specific payment and information processing services provided to each customer are developed individually to meet each customer’s requirements, which can vary greatly. In addition, the degree of automation such as electronic data interchange, imaging, work flow, and web-based solutions varies greatly among customers and industries. These factors combine so that pricing varies greatly among the customer base. In general, however, Cass is compensated for its processing services through service fees and investment of account balances generated during the payment process. The amount, type, and calculation of service fees vary greatly by service offering, but generally follow the volume of transactions processed. Interest income from the balances generated during the payment processing cycle is affected by the amount of time Cass holds the funds prior to payment and the dollar volume processed. Both the number of transactions processed and the dollar volume processed are therefore key metrics followed by management. Other factors will also influence revenue and profitability, such as changes in the general level of interest rates which have a significant effect on net interest income. The funds generated by these processing activities are invested in overnight investments, investment grade securities, and loans generated by the Bank. The Bank earns most of its revenue from net interest income, or the difference between the interest earned on its loans and investments and the interest paid on its deposits and other borrowings. The Bank also assesses fees on other services such as cash management services.

Industry-wide factors that impact the Company include the willingness of large corporations to outsource key business functions such as transportation, energy, telecommunication and environmental payment and audit. The benefits that can be achieved by outsourcing transaction processing, and the management information generated by Cass’ systems can be influenced by factors such as the competitive pressures within industries to improve profitability, the general level of transportation costs, deregulation of energy costs, and consolidation of telecommunication providers. Economic factors that impact the Company include the general level of economic activity that can affect the volume and size of invoices processed, the ability to hire and retain qualified staff, and the growth and quality of the loan portfolio. The general level of interest rates also has a significant effect on the revenue of the Company. As discussed in greater detail in Item 7A, “Quantitative and Qualitative Disclosures about Market Risk,” in the Company’s 2014 Annual Report on Form 10-K, a decline in the general level of interest rates can have a negative impact on net interest income.

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 (“ASC”). In preparing the consolidated financial statements, management makes estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. These estimates have been generally accurate in the past, have been consistent and have not required any material changes. There can be no assurances that actual results will not differ from those estimates. Certain accounting policies that require significant management estimates and are deemed critical to the Company’s results of operations or financial position have been discussed with the Audit Committee of the Board of Directors and are described below. 

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Investment in Debt Securities.The Company classifies its debt marketable securities as available-for-sale. Securities classified as available-for-sale are carried at fair value. Unrealized gains and losses, net of the related tax effect, are excluded from earnings and reported in accumulated other comprehensive income, a component of shareholders’ equity. A decline in the fair value of any available-for-sale security below cost that is deemed other than temporary results in a charge to earnings and the establishment of a new cost basis for the security. To determine whether impairment is other than temporary, the Company considers guidance provided in FASB ASC Topic 320, “Investments –Debt and Equity Securities”.When determining whether a debt security is other-than-temporarily impaired, the Company assesses whether it has the intent to sell the security and whether it is more likely than not that the Company will be required to sell prior to recovery of the amortized cost basis. Evidence considered in this assessment includes the reasons for impairment, the severity and duration of the impairment, changes in value subsequent to year-end and forecasted performance of the investee.

Allowance for Loan Losses.The Company performs periodic and systematic detailed reviews of its loan portfolio to assess overall collectability. The level of the allowance for loan losses reflects management’s estimate of the collectability of the loan portfolio. Although these estimates are based on established methodologies for determining allowance requirements, actual results can differ significantly from estimated results. These policies affect both segments of the Company. The impact and associated risks related to these policies on the Company’s business operations are discussed in the “Provision and Allowance for Loan Losses” section of this report. The Company’s estimates have been materially accurate in the past, and accordingly, the Company expects to continue to utilize the present processes.

Income Taxes. The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity's financial statements or tax returns. Judgment is required in addressing the future tax consequences of events that have been recognized in the Company’s financial statements or tax returns such as the realization of deferred tax assets or changes in tax laws or interpretations thereof. In addition, the Company is subject to the continuous examination of its income tax returns by the Internal Revenue Service and other taxing authorities. In accordance with FASB ASC 740, “Income Taxes,” the Company has unrecognized tax benefits related to tax positions taken or expected to be taken. See Note 10 to the unaudited consolidated financial statements contained herein.

Pension Plans.The amounts recognized in the unaudited consolidated financial statements related to pension plans are determined from actuarial valuations. Inherent in these valuations are assumptions, including expected return on plan assets, discount rates at which the liabilities could be settled at December 31, 2014, rate of increase in future compensation levels and mortality rates. These assumptions are updated annually and are disclosed in Item 8, Note 10 to the consolidated financial statements filed with the Company’s Annual Report on Form 10-K for the year ended December 31, 2014. Pursuant to FASB ASC 715, “Compensation – Retirement Benefits,” the Company has recognized the funded status of its defined benefit postretirement plan in its balance sheet and has recognized changes in that funded status through comprehensive income. The funded status is measured as the difference between the fair value of the plan assets and the projected benefit obligation as of the date of its fiscal year-end.

Results of Operations

The following paragraphs more fully discuss the results of operations and changes in financial condition for the three-month period ended March 31, 2015 (“First Quarter of 2015”) compared to the three-month period ended March 31, 2014 (“First Quarter of 2014”). 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 2014 Annual Report on Form 10-K. Results of operations for the First Quarter of 2015 are not necessarily indicative of the results to be attained for any other period.

-17-

Net Income

The following table summarizes the Company’s operating results:

	First Quarter of
							%
(In thousands except per share data)	2015			2014			Change
Net income	$	5,539		$	5,811		(4.7	)%
Diluted earnings per share	$	.48		$	.50		(4.0	)%
Return on average assets		1.54	%		1.70	%	—
Return on average equity		11.31	%		12.26	%	—

Fee Revenue and Other Income

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

	First Quarter of
					%
(In thousands)	2015		2014		Change
Transportation invoice transaction volume		8,125		7,759	4.7	%
Transportation invoice dollar volume	$	6,056,711	$	5,892,571	2.8	%
Expense management transaction volume*		5,041		5,095	(1.1	)%
Expense management dollar volume	$	2,983,190	$	3,274,553	(8.9	)%
Payment and processing revenue	$	19,418	$	18,397	5.5	%
*Includes energy, telecom and environmental

First Quarter of 2015 compared to First Quarter of 2014:

The growth of 5.5% in payment and processing fee revenue was driven mainly by a large number of new customers added during the past year. Transportation volume increased despite softening activity from existing accounts. Expense management dollar volume declined as on-going competitor consolidation in the energy sector continued to impact client retention.

Bank service fees were slightly higher than last year. There were $949,000 gains on sales of securities in the First Quarter of 2015, compared to $0 in the First Quarter of 2014.

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:

	First Quarter of
							%
(In thousands)	2015			2014			Change
Average earnings assets	$	1,262,085		$	1,235,622		2.14	%
Average interest-bearing liabilities		454,027			422,004		7.59	%
Net interest income*		10,286			10,413		(1.22	)%
Net interest margin*		3.31	%		3.42	%	—
Yield on earning assets*		3.50	%		3.62	%	—
Rate on interest-bearing liabilities		.53	%		.60	%	—
*Presented on a tax-equivalent basis assuming a tax rate of 35%.

First Quarter of 2015 compared to First Quarter of 2014:

First Quarter of 2015 average earning assets increased $26,463,000, or 2%, compared to the same period in the prior year (see discussion in the following paragraphs). The yield on earning assets and the tax equivalent net interest margin both decreased in 2015 as the general level of interest rates remains low and the impact becomes more pronounced as longer-term, higher-yielding assets re-price, mature or are sold.

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Total average loans increased $20,301,000, or 3.1%, for the First Quarter of 2015 as compared to the First Quarter of 2014 due to continuing competition from other lenders. Average investment securities increased $2,410,000, or less than 1%, for the First Quarter of 2015.

Total average interest-bearing deposits for the First Quarter of 2015 increased $32,023,000, or 7.6%, compared to the First Quarter of 2014. Average accounts and drafts payable increased $6,439,000, or 1.1%, for the First Quarter of 2015 due to the increase in processing activity.

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

Distribution of Assets, Liabilities and 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 on each category of interest-earning assets and interest-bearing liabilities, and the average yield on such categories of interest-earning assets and the average rates paid on such categories of interest-bearing liabilities for each of the periods reported.

-19-

	First Quarter of 2015							First Quarter of 2014
				Interest							Interest
	Average			Income/		Yield/		Average			Income/		Yield/
(Dollars in thousands)	Balance			Expense		Rate		Balance			Expense		Rate
Assets1
Earning assets
Loans2, 3:
Taxable	$	645,929		$	6,927	4.35	%	$	639,604		$	7,263	4.61	%
Tax-exempt4		22,844			244	4.33			8,868			64	2.93
Investment securities5:
Taxable		1,103			1	.37			1,085			1	.37
Tax-exempt4		310,986			3,543	4.62			308,594			3,554	4.67
Certificates of deposit		3,750			2	.22			3,750			4	.43
Interest-bearing deposits in
other financial institutions		177,713			126	.29			151,394			114	.31
Federal funds sold and other
short-term investments		99,760			34	.14			122,327			38	.13
Total earning assets		1,262,085			10,877	3.50			1,235,622			11,038	3.62
Non-earning assets
Cash and due from banks		13,068							11,970
Premises and equipment, net		17,504							13,375
Bank-owned life insurance		15,479							15,367
Goodwill and other
intangibles		14,311							14,763
Other assets		149,682							105,637
Allowance for loan losses		(11,896	)						(11,770	)
Total assets	$	1,460,233						$	1,384,964
Liabilities and Shareholders’ Equity1
Interest-bearing liabilities
Interest-bearing demand
deposits	$	359,426		$	388	.44	%	$	304,717		$	380	.51	%
Savings deposits		17,203			19	.45			16,431			23	.57
Time deposits >= $100		26,886			81	1.22			36,945			89	.98
Other time deposits		50,512			103	.83			63,910			133	.84
Federal Funds purchased		—			—	—			1			—	—
Total interest-bearing deposits		454,027			591	.53			422,004			625	.60
Non-interest bearing liabilities
Demand deposits		162,256							150,160
Accounts and drafts payable		617,560							611,121
Other liabilities		27,693							9,463
Total liabilities		1,261,536							1,192,748
Shareholders’ equity		198,697							192,216
Total liabilities and
shareholders’ equity	$	1,460,233						$	1,384,964
Net interest income				$	10,286						$	10,413
Net interest margin						3.31	%						3.42	%
Interest spread						2.97							3.02

1.	Balances shown are daily averages.
2.	For purposes of these computations, nonaccrual loans are included in the average loan amounts outstanding. Interest on nonaccrual loans is recorded when received as discussed further in Note 1 to the Company's 2014 consolidated financial statements, filed with the Company’s 2014 Annual Report on Form 10-K.
3.	Interest income on loans includes net loan fees of $59,000 and $50,000 for the First Quarter of 2015 and 2014, respectively.
4.	Interest income is presented on a tax-equivalent basis assuming a tax rate of 35%. The tax-equivalent adjustment was approximately $1,325,000 and $1,266,000 for the First Quarter of 2015 and 2014, respectively.
5.	For purposes of these computations, yields on investment securities are computed as interest income divided by the average amortized cost of the investments.

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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.

	First Quarter of 2015 Over
	First Quarter of 2014
(In thousands)	Volume			Rate			Total
Increase (decrease) in interest income:
Loans1, 2:
Taxable	$	71		$	(407	)	$	(336	)
Tax-exempt3		138			42			180
Investment securities:
Taxable		—			—			—
Tax-exempt3		27			(38	)		(11	)
Certificates of deposit		—			(2	)		(2	)
Interest-bearing deposits in other financial institutions		19			(7	)		12
Federal funds sold and other short-term investments		(7	)		3			(4	)
Total interest income		248			(409	)		(161	)
Interest expense on:
Interest-bearing demand deposits		63			(55	)		8
Savings deposits		1			(5	)		(4	)
Time deposits of >=$100		(27	)		19			(8	)
Other time deposits		(27	)		(3	)		(30	)
Total interest expense		10			(44	)		(34	)
Net interest income	$	238		$	(365	)	$	(127	)

1.	Average balances include nonaccrual loans.
2.	Interest income includes net loan fees.
3.	Interest income is presented on a tax-equivalent basis assuming a tax rate of 35%.

Provision and Allowance for Loan Losses (“ALLL”)

A significant determinant of the Company's operating results can be the provision for loan losses. Provision for loan losses were $0 and $0 during the First Quarter of 2015 and the First Quarter of 2014, respectively. As discussed below, the Company continually analyzes the outstanding loan portfolio based on the performance, financial condition and collateralizationof the credits. Net loan recoveries during the First Quarter of 2015 were $4,000, and net loan recoveries during the First Quarter of 2014 were $165,000.

The ALLL at March 31, 2015 was $11,898,000 and at December 31, 2014 was $11,894,000. The ratio of ALLL to total loans outstanding at March 31, 2015 was 1.74% compared to 1.78% at December 31, 2014. Nonperforming loans were $3,286,000, or .48%, of total loans at March 31, 2015 compared to $488,000, or .07%, of total loans at December 31, 2014. These loans, which are also considered impaired, consisted of four nonaccrual loans at March 31, 2015. Total nonaccrual loans increased $1,712,000 from March 31, 2014 to March 31, 2015, primarily due to the addition of two loans.

The ALLL has been established and is maintained to absorb reasonably estimated and probable losses in the loan portfolio. An ongoing assessment is performed to determine if the balance is adequate. Charges or credits are made to expense to cover any deficiency or reduce any excess, as required. The current methodology consists of two components: 1) estimated credit losses on individually evaluated loans that are determined to be impaired in accordance with FASB ASC 310 “Allowance for Credit Losses,” and 2) estimated credit losses inherent in the remainder of the 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.

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 three fiscal-year look-back period. The historical look-back calculation is additionally risk-weighted with the emphasis on the most-recent charge-off activity. In addition, qualitative factors including credit concentration risk, national and local economic conditions, nature and volume of loan portfolio, legal and regulatory factors, downturns in specific industries including losses in collateral value, trends in credit quality at the Company and in the banking industry and trends in risk-rating agencies are also considered.

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The Company also utilizes ratio analysis to evaluate the overall reasonableness of the ALLL compared to its peers and required levels of regulatory capital. Federal and state agencies review the Company’s methodology for maintaining the ALLL. These agencies may require the Company to adjust the ALLL based on their judgments and interpretations about information available to them at the time of their examinations.

Summary of Asset Quality

The following table presents information on the Company's provision for loan losses and analysis of the ALLL:

	First Quarter of
(In thousands)	2015			2014
Allowance at beginning of period	$	11,894		$	11,679
Provision charged to expense		—			—
Loans charged off		—			(76	)
Recoveries on loans previously charged off		4			241
Net recoveries (loans charged off)		4			165
Allowance at end of period	$	11,898		$	11,844
Loans outstanding:
Average	$	668,773		$	648,472
March 31		683,537			665,101
Ratio of ALLL outstanding:
Average		1.78	%		1.83	%
March 31		1.74			1.78
Impaired loans:
Nonaccrual loans	$	3,286		$	1,574
Loans past due 90 days or more		—			—
Troubled debt restructurings		—			—
Total impaired loans	$	3,286		$	1,574
Foreclosed assets	$	—			—
Impaired loans as percentage of average loans		.49	%		.24	%

The Bank had no property carried as other real estate owned as of March 31, 2015 and March 31, 2014.

Operating Expenses

Total operating expenses for the First Quarter of 2015 were up 6.1%, or $1,283,000, compared to the First Quarter of 2014.

Salaries and benefits expense for the First Quarter of 2015 increased 7% to $17,326,000 compared to the First Quarter of 2014 due to several factors, including a significant increase in retirement plan expense related to the use of new mortality tables and a decline in the discount rate, annual merit salary increases, increased headcount to support growth in the telecom and environmental expense groups and higher health insurance costs.

Occupancy expense for the First Quarter of 2015 increased $31,000 to $837,000 from the First Quarter of 2014 due to the expansion of the Company’s operating facilities for its transportation and waste management operations.

Equipment expense for the First Quarter of 2015 increased $45,000, or 4.4%, compared to the First Quarter of 2014 due to depreciation on building improvements at the transportation processing facility.

Amortization of intangible assets decreased $19,000 in the First Quarter of 2015 as compared to the prior year period.

Other operating expenses for the First Quarter of 2015 increased $87,000, or 3.0%, compared to the First Quarter of 2014 due to an increase in legal fees.

Income tax expense for the First Quarter of 2015 increased $60,000 compared to the First Quarter of 2014. The effective tax rate was 26.0% and 24.5% for the First Quarters of 2015 and 2014, respectively.

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Financial Condition

Total assets at March 31, 2015 were $1,400,748,000, a decrease of $99,983,000, or 6.7%, from December 31, 2014. The most significant changes in asset balances during this period were an decrease in payment in cash and cash equivalents of $85,820,000 and a decrease in securities of $33,514,000 offset by an increase of $14,191,000 in loans. 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 March 31, 2015 were $1,200,558,000, a decrease of $99,741,000, or 7.7%, from December 31, 2014. Accounts and drafts payable at March 31, 2015 were $556,826,000, a decrease of $98,602,000, or 15.0%, from December 31, 2014. Total shareholders’ equity at March 31, 2015 was $200,190,000, a $242,000, or .1%, decrease from December 31, 2014.

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 checks clear and higher balances on days when checks 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).

The decrease in total shareholders’ equity of $242,000 resulted primarily from net income of $5,539,000 offset by a increase of $2,555,000 in shares purchased for treasury and dividends paid of $2,412,000.

Liquidity and Capital Resources

The balance of liquid assets consists of cash and cash equivalents, which include cash and due from banks, interest-bearing deposits in other financial institutions, federal funds sold and money market funds, and was $208,515,000 at March 31, 2015, a decrease of $85,820,000, or 29.2%, from December 31, 2014. At March 31, 2015, these assets represented 14.9% 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 $322,627,000 at March 31, 2015, a decrease of $33,514,000 from December 31, 2014. These assets represented 23.0% of total assets at March 31, 2015. Of this total, 99% were state and political subdivision securities. Of the total portfolio, 9.2% mature in one year, 28.8% mature in one to five years, and 62.0% mature in five or more years.

The Bank has unsecured lines of credit at correspondent banks to purchase federal funds up to a maximum of $88,000,000 at the following banks: Bank of America, $20,000,000; US Bank, $20,000,000; Wells Fargo Bank, $15,000,000; Frost National Bank, $10,000,000; PNC Bank, $12,000,000; UMB Bank, $5,000,000; and JPM Chase Bank, $6,000,000. The Bank also has secured lines of credit with the Federal Home Loan Bank of $160,968,000 collateralized by commercial mortgage loans. The Company also has secured lines of credit with UMB Bank of $50,000,000 and First Tennessee Bank of $50,000,000 collateralized by state and political subdivision securities. There were no amounts outstanding under any line of credit as of March 31, 2015 or December 31, 2014.

The deposits of the Company's banking subsidiary have historically been stable, consisting of a sizable volume of core deposits related to customers that utilize 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 $49,248,000 of CDARS deposits and interest-bearing demand deposits include $101,747,000 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 $9,904,000 for the three months ended March 31, 2015, compared to $8,780,000 for the three months ended March 31, 2014, an increase of $1,126,000. 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 2015, which are estimated to range from $5 million to $7 million.

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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.

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 the lower interest rate environment currently faced by the Company, short-term, relatively lower rate liquid investments are reduced in favor of longer-term relatively higher yielding investments and loans.

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.

The relative level of energy costs can impact the Company’s earnings and available liquidity. Higher levels of energy costs will tend to increase transportation and energy invoice amounts resulting in a corresponding increase in accounts and drafts payable. Increases in accounts and drafts payable generate higher interest income and improve liquidity.

New business opportunities are an important component of the Company’s strategy to grow earnings and improve performance. Generating new customers allows the Company to leverage existing systems and facilities and grow revenues faster than expenses.

Risk-based capital guidelines require the Company to meet a minimum total capital ratio of 8.0%, of which at least 6.0% must consist of Tier 1 capital. Tier 1 capital generally consists of (a) common shareholders' equity (excluding the unrealized market value adjustments on the available-for-sale securities), (b) qualifying perpetual preferred stock and related surplus subject to certain limitations specified by the FDIC, (c) minority interests in the equity accounts of consolidated subsidiaries less (d) goodwill, (e) mortgage servicing rights within certain limits, and (f) any other intangible assets and investments in subsidiaries that the FDIC determines should be deducted from Tier 1 capital. The FDIC also requires a minimum leverage ratio of 3.0%, defined as the ratio of Tier 1 capital less purchased mortgage servicing rights to total assets, for banking organizations deemed the strongest and most highly rated by banking regulators. A higher minimum leverage ratio is required of less highly-rated banking organizations. Total capital, a measure of capital adequacy, includes Tier 1 capital, ALLL, and debt considered equity for regulatory capital purposes.

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

	March 31, 2015			December 31, 2014
(Dollars in thousands)	Amount		Ratio	Amount		Ratio
Total capital (to risk-weighted assets)
Cass Information Systems, Inc.	$	208,626	21.98%	$	207,468	21.91%
Cass Commercial Bank		92,919	16.25%		91,249	15.88%
Common Equity Tier I capital (to risk-weighted assets)
Cass Information Systems, Inc.	$	196,763	20.73%	$	195,630	20.66%
Cass Commercial Bank		85,772	15.00%		84,049	14.62%
Tier I capital (to risk-weighted assets)
Cass Information Systems, Inc.	$	196,763	20.73%	$	195,630	20.66%
Cass Commercial Bank		85,772	15.00%		84,049	14.62%
Tier I capital (to leverage assets)
Cass Information Systems, Inc.	$	196,763	13.59%	$	195,630	13.42%
Cass Commercial Bank		85,772	11.78%		84,049	11.94%

Effective July 2, 2013, the Federal Reserve Board approved final rules known as the “Basel III Capital Rules” that substantially revise the risk-based capital and leverage capital requirements applicable to bank holding companies and depository institutions, including the Company and the Bank. The Basel III Capital Rules implement aspects of the Basel III capital framework agreed upon by the Basel Committee and incorporates changes required by the Dodd-Frank Wall Street Reform and Consumer Protection Act. Among other things, the Basel III Capital Rules establish stricter capital requirements and calculation standards, as well as more restrictive risk weightings for certain loans and facilities. The Basel III Capital Rules were effective for the Company and the Bank on January 1, 2015 (subject to a phase-in period) and had no material impact on the Company’s consolidated financial statements.

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

The new accounting pronouncements are not applicable to the Company and/or do not materially impact the Company.

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, 2014, 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. Based on the Company's most recent evaluation, management does not believe the Company's risk position at March 31, 2015 has changed materially from that at December 31, 2014.

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. 

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There were no changes in the First Quarter of 2015 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).

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, 2014, 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 2014 Annual Report on Form 10-K.
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
	During the three months ended March 31, 2015, the Company repurchased a total of 69,288 shares of its common stock pursuant to its treasury stock buyback program, as follows:

				Total Number	Maximum
				of Shares	Number of
				Purchased as	Shares that
				Part of	May Yet Be
	Total			Publicly	Purchased
	Number of			Announced	Under the
	Shares	Average Price		Plans or	Plans or
Period	Purchased	Paid per Share		Programs1	Programs
January 1, 2015 –	—		—	—	480,040
January 31, 2015
February 1, 2015 –	42,182	$	47.63	42,182	437,858
February 28, 2015
March 1, 2015 –	27,106	$	49.78	27,106	410,752
March 31, 2015
Total	69,288	$	48.47	69,288	410,752

1.       All repurchases made during the quarter ended March 31, 2015 were made pursuant to the treasury stock buyback program, which was authorized by the Board of Directors on October 17, 2011 and announced by the Company on October 20, 2011. The program, as modified by the Board of Directors on October 20, 2014, provides that the Company may repurchase up to an aggregate of 500,000 shares of common stock and has no expiration date.

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES
	None.
ITEM 4.	MINE SAFETY DISCLOSURES
	Not applicable.
ITEM 5.	OTHER INFORMATION
	(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 First Quarter of 2015.

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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. Exhibit 101.SCH XBRL Taxonomy Extension Schema Document. Exhibit 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document. Exhibit101.LAB XBRL Taxonomy Extension Label Linkbase Document. Exhibit101.PRE XBRL Taxonomy Extension Presentation Linkbase Document. Exhibit 101.DEF XBRL Taxonomy Extension Definition Linkbase Document.

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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: May 4, 2015	By	/s/ Eric H. Brunngraber
		Eric H. Brunngraber
	Chairman, President, and Chief Executive Officer
		(Principal Executive Officer)
DATE: May 4, 2015	By	/s/ P. Stephen Appelbaum
		P. Stephen Appelbaum
	Executive Vice President and Chief Financial Officer
	(Principal Financial and Accounting Officer)

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