0001206774-21-002004.txt : 20210805 0001206774-21-002004.hdr.sgml : 20210805 20210805151326 ACCESSION NUMBER: 0001206774-21-002004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 78 CONFORMED PERIOD OF REPORT: 20210630 FILED AS OF DATE: 20210805 DATE AS OF CHANGE: 20210805 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CASS INFORMATION SYSTEMS INC CENTRAL INDEX KEY: 0000708781 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 431265338 STATE OF INCORPORATION: MO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-20827 FILM NUMBER: 211147729 BUSINESS ADDRESS: STREET 1: 12444 POWERSCOURT DRIVE CITY: ST. LOUIS STATE: MO ZIP: 63131 BUSINESS PHONE: 314-506-5500 MAIL ADDRESS: STREET 1: 12444 POWERSCOURT DRIVE CITY: ST. LOUIS STATE: MO ZIP: 63131 FORMER COMPANY: FORMER CONFORMED NAME: CASS COMMERCIAL CORP DATE OF NAME CHANGE: 19950518 10-Q 1 cass3937672-10q.htm QUARTERLY REPORT CASS INFORMATION SYSTEMS, INC.
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Table of Contents

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 June 30, 2021

 

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

organization)

(I.R.S. Employer Identification No.)

12444 Powerscourt Drive, Suite 550

St. Louis, Missouri

63131

(Address of principal executive offices)

(Zip Code)

(314) 506-5500

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading symbols

Name of each exchange on which registered

Common stock, par value $.50

CASS

The Nasdaq Global Select Market

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

Yes

No

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

Yes

No

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

Large Accelerated Filer ☐

Accelerated Filer

 

Non-Accelerated Filer ☐

Smaller Reporting Company ☐

Emerging Growth Company ☐

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

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

Yes

No

The number of shares outstanding of the registrant's only class of common stock as of July 23, 2021: Common stock, par value $.50 per share – 14,306,354 shares outstanding.

-1-


Table of Contents

TABLE OF CONTENTS

Item 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

22

Item 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 33
Item 4.CONTROLS AND PROCEDURES 33
PART II – Other Information – Items 1. – 6. 34
SIGNATURES 36
 

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 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.

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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)

 

 

June 30,

2021

(Unaudited)

 

December 31,

2020

Assets

 

 

 

 

 

 

Cash and due from banks

 

$

14,545

 

$

30,985

Interest-bearing deposits in other financial institutions

 

 

424,263

 

 

393,810

Federal funds sold and other short-term investments

 

 

182,773

 

 

245,733

Cash and cash equivalents

 

 

621,581

 

 

670,528

Securities available-for-sale, at fair value

 

 

507,047

 

 

357,726

 

 

 

 

 

 

 

Loans

 

 

871,020

 

 

891,676

Less: Allowance for credit losses

 

 

11,171

 

 

11,944

Loans, net

 

 

859,849

 

 

879,732

Payments in excess of funding

 

 

184,262

 

 

194,563

Premises and equipment, net

 

 

17,741

 

 

18,057

Investment in bank-owned life insurance

 

 

17,758

 

 

18,058

Goodwill

 

 

14,262

 

 

14,262

Other intangible assets, net

 

 

2,993

 

 

3,423

Other assets

 

 

46,840

 

 

46,886

Total assets

 

$

2,272,333

 

$

2,203,235

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

Noninterest-bearing

 

$

422,374

 

$

493,504

Interest-bearing

 

 

593,569

 

 

557,352

Total deposits

 

 

1,015,943

 

 

1,050,856

Accounts and drafts payable

 

 

939,570

 

 

835,386

Other liabilities

 

 

56,053

 

 

55,833

Total liabilities

 

 

2,011,566

 

 

1,942,075

 

 

 

 

 

 

 

Shareholders’ Equity:

 

 

 

 

 

 

Preferred stock, par value $.50 per share; 2,000,000 shares authorized and no shares issued

 

 

 

 

Common stock, par value $.50 per share; 40,000,000 shares authorized and 15,505,772 shares issued at June 30, 2021 and December 31, 2020

 

 

7,753

 

 

7,753

Additional paid-in capital

 

 

203,098

 

 

204,875

Retained earnings

 

 

105,398

 

 

99,062

Common shares in treasury, at cost (1,183,885 shares at June 30, 2021 and 1,113,103 shares at December 31, 2020)

 

 

(53,437)

 

(50,515)

Accumulated other comprehensive loss

 

 

(2,045)

 

(15)

Total shareholders’ equity

 

 

260,767

 

 

261,160

Total liabilities and shareholders’ equity

 

$

2,272,333

 

$

2,203,235

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

June 30,

Six Months Ended

June 30,

2021

2020

2021

2020

Fee Revenue and Other Income:

Information services payment and processing revenue

$

26,348

$

22,661

$

51,564

$

48,164

Bank service fees

 

530

398

 

1,024

808

(Losses) gains on sales of securities

 

(3)

 

45

1,069

Other

 

112

115

 

529

228

Total fee revenue and other income

 

26,987

23,174

 

53,162

50,269

 

 

 

Interest Income:

 

 

Interest and fees on loans

 

8,696

9,298

 

17,283

18,299

Interest and dividends on securities:

 

 

Taxable

 

458

473

 

656

1,033

Exempt from federal income taxes

 

1,832

1,785

 

3,571

3,604

Interest on federal funds sold and other short-term investments

 

122

86

 

274

1,044

Total interest income

 

11,108

11,642

 

21,784

23,980

 

 

 

Interest Expense:

 

 

Interest on deposits

 

297

481

 

628

1,444

Interest on short-term borrowings

2

Total interest expense

297

481

628

1,446

Net interest income

 

10,811

11,161

 

21,156

22,534

(Release of) provision for credit losses / loan losses

 

(610)

400

 

(1,210)

725

Net interest income after provision for credit losses / loan losses

 

11,421

10,761

 

22,366

21,809

Total net revenue

 

38,408

33,935

 

75,528

72,078

 

 

 

Operating Expense:

 

 

Personnel

 

22,880

20,891

 

45,406

43,318

Occupancy

 

959

938

 

1,906

1,879

Equipment

 

1,653

1,617

 

3,328

3,252

Amortization of intangible assets

 

214

214

 

429

429

Other operating expense

 

4,097

3,697

 

7,259

7,408

Total operating expense

 

29,803

27,357

 

58,328

56,286

Income before income tax expense

 

8,605

6,578

 

17,200

15,792

Income tax expense

 

1,579

1,139

 

3,103

2,808

Net income

$

7,026

$

5,439

$

14,097

$

12,984

 

 

 

Basic earnings per share

$

.49

$

.38

$

.99

$

.90

Diluted earnings per share

 

.48

.37

 

.97

.89

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

June 30,

Six Months Ended

June 30,

2021

2020

2021

2020

Comprehensive Income:

Net income

$

7,026

$

5,439

$

14,097

$

12,984

Other comprehensive income (loss):

 

 

Net unrealized gain (loss) on securities available-for-sale

 

1,566

6,407

 

(2,648)

6,985

Tax effect

 

(373)

(1,525)

 

630

(1,663)

Reclassification adjustments for losses (gains) included in net income

 

3

 

(45)

(1,069)

Tax effect

 

(1)

 

10

254

Foreign currency translation adjustments

 

152

16

 

23

(128)

Total comprehensive income

$

8,373

$

10,337

$

12,067

$

17,363

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)

 

 

Six Months Ended

June 30,

 

 

2021

 

2020

Cash Flows From Operating Activities:

 

 

 

 

 

 

Net income

 

$

14,097

 

$

12,984

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

6,167

 

 

5,564

Gains on sales of securities

 

 

(45)

 

 

(1,069)

Stock-based compensation expense

 

 

1,519

 

 

1,478

(Release of) provision for credit losses / loan losses

 

 

(1,210)

 

 

725

Decrease in income tax benefit

22

1

(Decrease) increase in income tax liability

 

 

(88)

 

 

592

(Decrease) increase in pension liability

 

 

(294)

 

 

2,167

(Increase) decrease in accounts receivable

 

 

(1,131)

 

 

1,472

Other operating activities, net

 

 

2,722

 

 

8,741

Net cash provided by operating activities

 

 

21,759

 

 

32,655

 

 

 

 

 

 

 

Cash Flows From Investing Activities:

 

 

 

 

 

 

Proceeds from sales of securities available-for-sale

 

 

13,116

 

 

19,629

Proceeds from maturities of securities available-for-sale

 

 

70,209

 

 

27,130

Purchase of securities available-for-sale

(238,831)

Net decrease (increase) in loans

 

 

21,093

 

 

(191,077)

Decrease in payments in excess of funding

 

 

10,301

 

 

43,948

Purchases of premises and equipment, net

 

 

(1,886)

 

 

(1,383)

Net cash used in investing activities

 

 

(125,998)

 

 

(101,753)

 

 

 

 

 

 

 

Cash Flows From Financing Activities:

Net decrease in noninterest-bearing demand deposits

 

 

(71,130)

 

 

(7,524)

Net increase in interest-bearing demand and savings deposits

 

 

40,759

 

 

79,066

Net decrease in time deposits

 

 

(4,542)

 

 

(2,721)

Net increase in accounts and drafts payable

 

 

104,184

 

 

60,966

Net decrease in short-term borrowings

 

 

 

 

(18,000)

Cash dividends paid

 

 

(7,761)

 

 

(7,811)

Purchase of common shares for treasury

 

 

(5,260)

 

 

(5,508)

Other financing activities, net

 

 

(958)

 

 

(1,185)

Net cash provided by financing activities

 

 

55,292

 

 

97,283

Net (decrease) increase in cash and cash equivalents

 

 

(48,947)

 

 

28,185

Cash and cash equivalents at beginning of period

 

 

670,528

 

 

203,954

Cash and cash equivalents at end of period

 

$

621,581

 

$

232,139

 

 

 

 

 

 

 

Supplemental information:

 

 

 

 

 

 

Cash paid for interest

 

$

608

 

$

1,429

Cash paid for income taxes

 

 

3,164

 

 

2,219

See accompanying notes to unaudited consolidated financial statements.

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CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2021

(Unaudited)

(Dollars in Thousands except per share data)

Common

Stock

Additional

Paid-in

Capital

Retained

Earnings

Treasury

Stock

Accumulated

Other

Comprehensive

Loss

Total

Balance, March 31, 2020

$

7,753

$

203,801

$

93,968

$

(49,800)

$

(14,439)

$

241,283

 

Net income

 

 

 

5,439

 

 

 

5,439

Cash dividends ($.27 per share)

 

 

 

(3,893)

 

 

 

(3,893)

Issuance of 9,292 common shares pursuant to stock-based compensation plan, net

 

 

(299)

 

 

343

 

 

44

Stock-based compensation expense

 

 

756

 

 

 

 

756

Other comprehensive income

 

 

 

 

 

4,898

 

4,898

Balance, June 30, 2020

$

7,753

$

204,258

$

95,514

$

(49,457)

$

(9,541)

$

248,527

 

 

Balance, March 31, 2021

$

7,753

$

202,828

$

102,247

$

(49,949)

$

(3,392)

$

259,487

 

Net income

 

 

 

7,026

 

 

 

7,026

Cash dividends ($.27 per share)

 

 

 

(3,875)

 

 

 

(3,875)

Issuance of 9,720 common shares pursuant to stock-based compensation plan, net

 

 

(455)

 

 

450

 

 

(5)

Exercise of SARs

(101)

94

(7)

Stock-based compensation expense

 

 

826

 

 

 

 

826

Purchase of 89,010 common shares

(4,032)

(4,032)

Other comprehensive income

 

 

 

 

 

1,347

 

1,347

Balance, June 30, 2021

$

7,753

$

203,098

$

105,398

$

(53,437)

$

(2,045)

$

260,767

Common

Stock

Additional

Paid-in

Capital

Retained

Earnings

Treasury

Stock

Accumulated

Other

Comprehensive

Loss

Total

Balance, December 31, 2019

$

7,753

$

205,397

$

90,341

$

(45,381)

$

(13,920)

$

244,190

 

Net income

 

 

 

12,984

 

 

12,984

Cash dividends ($.54 per share)

 

 

 

(7,811)

 

 

(7,811)

Issuance of 66,625 common shares pursuant to stock-based compensation plan, net

 

 

(2,374)

 

 

1,291

 

(1,083)

Exercise of SARs

 

 

(243)

 

 

141

 

(102)

Stock-based compensation expense

 

 

1,478

 

 

 

1,478

Purchase of 128,779 common shares

 

 

 

 

(5,508)

 

(5,508)

Other comprehensive income

 

 

 

 

 

4,379

 

4,379

Balance, June 30, 2020

$

7,753

$

204,258

$

95,514

$

(49,457)

$

(9,541)

$

248,527

 

 

Balance, December 31, 2020

$

7,753

$

204,875

$

99,062

$

(50,515)

$

(15)

$

261,160

 

Net income

 

 

 

14,097

 

 

14,097

Cash dividends ($.54 per share)

 

 

 

(7,761)

 

 

(7,761)

Issuance of 79,094 common shares pursuant to stock-based compensation plan, net

 

 

(2,881)

 

 

2,046

 

(835)

Exercise of SARs

 

 

(415)

 

 

292

 

(123)

Stock-based compensation expense

 

 

1,519

 

 

 

1,519

Purchase of 120,266 common shares

 

 

 

 

(5,260)

 

(5,260)

Other comprehensive income

 

 

 

 

 

(2,030)

 

(2,030)

Balance, June 30, 2021

$

7,753

$

203,098

$

105,398

$

(53,437)

$

(2,045)

$

260,767

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. 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, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, 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, 2020.

Risks and Uncertainties

On March 11, 2020, the World Health Organization (“WHO”) declared the outbreak of COVID-19 as a global pandemic. The declaration of a global pandemic meant that almost all public commerce and related business activities was, to varying degrees, curtailed with the goal of decreasing the rate of new infections. In late fiscal 2020, vaccines for combatting COVID-19 were approved by health agencies and have been administered throughout the country. The timeline of full administration of the COVID-19 vaccines is uncertain and fluctuating, however has resulted in a significant amount of previous business and other restrictions being lifted. The ongoing impact of COVID-19, including the impact of restrictions imposed to combat its spread, could result in additional and prolonged business closures, work restrictions and activity restrictions.

The Company is closely monitoring developments related to COVID-19 checking regularly for updated information and recommendations from the WHO and the CDC, from national, state, and local governments, and evaluating courses of action being taken by peers. At this time, the Company remains subject to heightened business, operational, market, credit and other risks related to the COVID-19 pandemic, including, but not limited to, those discussed below, which may have an adverse effect on business, financial condition and results of operations.

Financial position and results of operations - The global health crisis caused by COVID-19 has and will continue to negatively impact business activity throughout the world. The COVID-19 outbreak and associated counter-acting measures implemented by governments around the world, as well as increased business uncertainty, have had, and continue to have, an adverse impact on the Company’s financial results and are discussed in more detail below. Although many restrictions have been relaxed with some success, many states and localities are still experiencing moderate to high levels of COVID-19 cases, prompting continued restrictions 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 uncertain.

In response to COVID-19, the Federal Reserve has taken action to lower the Federal Funds rate, which has adversely affected interest income and therefore, the Company’s results of operations and financial condition. The Federal Reserve has continued its commitment to this approach, indicating that the target Federal Funds rate would remain at current levels until the economy is in a more stable employment and price-stability position.

To the extent the business disruption continues for an extended period, additional cost control actions will be considered. Future asset impairment charges, increases in allowance for credit losses, or restructuring charges could be more likely and will be dependent on the severity and duration of this crisis and its effect on the Company’s borrowers.

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For payment processing services, business closures cause a decrease in the number of transactions and dollars processed due to the decline in customers’ business activity. Other financial impact could occur though such potential impact is unknown at this time.

Capital and liquidity - While the Company believes that it has sufficient capital to withstand an extended economic recession brought about by COVID-19, its reported and regulatory capital ratios could be adversely impacted by future financial losses.

The Company maintains access to multiple sources of liquidity. If an extended recession caused large numbers of the Bank’s customers to draw down deposits, the Company might become more reliant on more expensive sources of funding.

Asset valuation - Currently, the Company does not expect COVID-19 to affect its ability to fairly value the assets on its balance sheet; however, this could change in future periods. While certain valuation assumptions and judgments will change to account for pandemic-related circumstances such as widening credit spreads, the Company does not anticipate significant changes in methodology used to determine the fair value of assets measured in accordance with GAAP.

The economic slowdown as a result of COVID-19 could cause a decline in the Company’s stock price or the occurrence of what management would deem to be a triggering event that could, under certain circumstances, necessitate a goodwill or intangible asset impairment test and result in an impairment charge being recorded for that period. In the event that the Company concludes that all or a portion of its goodwill is impaired, a non-cash charge for the amount of such impairment would be recorded to earnings. Such a charge would have no impact on tangible capital or regulatory capital.

Processes, controls and business continuity - In accord with its federally mandated Pandemic Plan and Business Continuity Plan, many Cass employees around the globe continue to work and 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. 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 of the Company’s intangible assets are as follows:

June 30, 2021

December 31, 2020

(In thousands)

Gross Carrying

Amount

Accumulated

Amortization

Gross Carrying

Amount

Accumulated

Amortization

Assets eligible for amortization:

 

 

 

 

Customer lists

$

4,778

$

(4,122)

$

4,778

$

(3,902)

Patents

 

72

 

(26)

 

72

 

(24)

Software

 

2,844

 

(918)

 

2,844

 

(731)

Trade Name

190

(17)

190

(13)

Other

 

500

 

(308)

 

500

 

(291)

Unamortized intangible assets:

 

 

 

 

 

 

 

 

Goodwill

 

14,262

 

 

14,262

 

Total intangible assets

$

22,646

$

(5,391)

$

22,646

$

(4,961)

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The customer lists are amortized over 7 and 10 years; the patents over 18 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 $429,000 for both for the six-month periods ended June 30, 2021 and 2020, respectively. Estimated amortization of intangibles is $859,000 in 2021, $540,000 in both 2022 and 2023, $498,000 in 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:

(In thousands except share and per

share data)

Three Months Ended

June 30,

Six Months Ended

June 30,

2021

2020

2021

2020

Basic

Net income

$

7,026

$

5,439

$

14,097

$

12,984

Weighted-average common shares outstanding

 

14,267,290

 

14,349,040

 

14,286,362

 

14,385,927

Basic earnings per share

$

.49

$

.38

$

.99

$

.90

 

Diluted

 

 

Net income

$

7,026

$

5,439

$

14,097

$

12,984

Weighted-average common shares outstanding

 

14,267,290

 

14,349,040

 

14,286,362

 

14,385,927

Effect of dilutive restricted stock and stock appreciation rights

 

243,192

 

196,159

 

239,906

 

201,930

Weighted-average common shares outstanding assuming dilution

 

14,510,482

 

14,545,199

 

14,526,268

 

14,587,857

Diluted earnings per share

$

.48

$

.37

$

.97

$

.89

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. As restored by the Board of Directors in October 2020, the program provides that the Company may repurchase up to an aggregate of 500,000 shares of common stock and has no expiration date. As of June 30, 2021, 345,612 shares remained available for repurchase under the program. The Company repurchased 89,010 and zero shares during the three-month periods ended June 30, 2021 and 2020 and 120,266 and 128,779 shares for the six-month periods ended June 30, 2021 and 2020, respectively. Repurchases may be made in the open market or through negotiated transactions from time to time depending on market conditions.

Note 5 – Industry Segment Information

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

The Information Services segment provides transportation, energy, telecommunication, and environmental invoice processing and payment services to large corporations. 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, 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.

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

Funding sources represent average balances and deposits generated by Information Services and Banking Services and there is no allocation methodology used. Segment interest income is a function of the relative share of average funding sources generated by each segment multiplied by the following rates:

Information Services – one or more fixed rates depending upon the specific characteristics of the funding source, and

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

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

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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 June 30, 2021:

Fee income

$

26,098

$

612

$

277

$

26,987

Interest income*

 

5,884

 

6,563

 

(853)

 

11,594

Interest expense

 

 

297

 

 

297

Intersegment income (expense)

 

 

688

 

(688)

 

Tax-equivalized pre-tax income*

 

6,404

 

3,432

 

(743)

 

9,093

Goodwill

 

12,433

 

1,829

 

 

14,262

Other intangible assets, net

 

532

 

2,461

 

 

2,993

Total assets

 

1,062,536

 

1,215,799

 

(6,002)

 

2,272,333

Average funding sources

 

905,983

 

860,956

 

 

1,766,939

Three Months Ended June 30, 2020:

Fee income

$

22,460

$

640

$

74

$

23,174

Interest income*

 

4,955

 

6,601

 

560

 

12,116

Interest expense

 

 

481

 

 

481

Intersegment income (expense)

 

 

556

 

(556)

 

Tax-equivalized pre-tax income*

 

3,437

 

2,981

 

634

 

7,052

Goodwill

 

12,433

 

1,829

 

 

14,262

Other intangible assets, net

 

939

 

2,913

 

 

3,852

Total assets

 

822,684

 

1,109,676

 

(103,376)

 

1,828,984

Average funding sources

 

680,061

 

746,619

 

 

1,426,680

Six Months Ended June 30, 2021:

 

 

 

 

Fee income

$

51,075

$

1,250

$

837

$

53,162

Interest income*

 

11,393

 

12,314

 

(975)

 

22,732

Interest expense

 

 

628

 

 

628

Intersegment income (expense)

 

 

1,311

 

(1,311)

 

Tax-equivalized pre-tax income*

 

12,417

 

6,194

 

461

 

18,150

Goodwill

 

12,433

 

1,829

 

 

14,262

Other intangible assets, net

 

532

 

2,461

 

 

2,993

Total assets

 

1,062,536

 

1,215,799

 

(6,002)

 

2,272,333

Average funding sources

 

872,106

 

855,099

 

 

1,727,205

Six Months Ended June 30, 2020:

 

 

 

 

Fee income

$

47,900

$

1,255

$

1,114

$

50,269

Interest income*

 

9,662

 

13,885

 

1,391

 

24,938

Interest expense

 

 

1,446

 

 

1,446

Intersegment income (expense)

 

 

1,081

 

(1,081)

 

Tax-equivalized pre-tax income*

 

8,560

 

5,684

 

2,506

 

16,750

Goodwill

 

12,433

 

1,829

 

 

14,262

Other intangible assets, net

 

939

 

2,913

 

 

3,852

Total assets

 

822,684

 

1,109,676

 

(103,376)

 

1,828,984

Average funding sources

 

678,945

 

678,877

 

 

1,357,822

* Presented on a tax-equivalent basis assuming a tax rate of 21% for both 2021 and 2020. The tax-equivalent adjustment was approximately $487,000 and $474,000 f for the Second Quarter of 2021 and 2020, respectively, and $949,000 and $958,000 for the First Half of 2021 and 2020, respectively.

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Note 6 – Loans by Type

A summary of loan categories is as follows:

(In thousands)

June 30,

2021

December 31,

2020

Commercial and industrial

$

330,714

$

298,984

Real estate:

 

 

 

 

Commercial:

 

 

 

 

Mortgage

 

103,878

 

100,419

Construction

 

24,500

 

25,090

Faith-based:

 

 

 

 

Mortgage

 

331,235

 

333,661

Construction

 

24,051

 

23,818

Paycheck Protection Program (“PPP”)

 

56,642

 

109,704

Total loans

$

871,020

$

891,676

In support of the Coronavirus, Aid, Relief, and Economic Security Act (the “CARES Act”), the Bank processed nearly 460 applications for PPP loans of approximately $210,000,000 cumulatively during 2021 and 2020 to provide much-needed cash to small business and self-employed taxpayers during the COVID-19 crisis. The loans were primarily made to existing bank customers and are 100% guaranteed by the Small Business Administration (“SBA”) with no allowance for credit loss allocation. The Company has unaccreted PPP loan fees of $1,312,000 at June 30, 2021.

The following table presents the aging of loans past due by category at June 30, 2021 and December 31, 2020:

Performing

Nonperforming

(In thousands)

Current

30-59

Days

60-89

Days

90

Days

and

Over

Non-

accrual

Total

Loans

June 30, 2021

Commercial and industrial

$

330,714

$

$

$

$

$

330,714

Real estate

 

 

 

 

 

 

 

 

Commercial:

 

 

 

 

 

 

 

 

Mortgage

 

103,878

 

 

 

 

 

103,878

Construction

 

24,500

 

 

 

 

 

24,500

Faith-based:

 

 

 

 

 

 

 

 

Mortgage

 

331,235

 

 

 

 

 

331,235

Construction

 

24,051

 

 

 

 

 

24,051

PPP

 

56,642

 

 

 

 

 

56,642

Total

$

871,020

$

$

$

$

$

871,020

December 31, 2020

 

 

 

 

 

 

Commercial and industrial

$

298,984

$

$

$

$

$

298,984

Real estate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial:

Mortgage

100,419

100,419

Construction

25,090

25,090

Faith-based:

Mortgage

333,661

333,661

Construction

23,818