MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Cass Information Systems, Inc. ("Cass" or the "Company") provides payment and information processing services to large manufacturing, distribution, and retail enterprises across the United States. The Company's services include freight invoice rating, payment processing, auditing, and the generation of accounting and transportation information. Cass also processes and pays facility-related invoices, which include electricity and gas as well as waste and telecommunications expenses. Cass solutions include integrated payments, a B2B payment platform for clients that require an agile fintech partner. Additionally, the Company offers a church management software solution and an on-line platform to provide generosity services for faith-based and non-profit organizations. The Company's bank subsidiary, Cass Commercial Bank (the "Bank"), supports the Company's payment operations. The Bank also provides banking services to its target markets, which include privately held businesses in the St. Louis metropolitan area and restaurant franchises and faith-based ministries within the United States.
In general, Cass is compensated for its information processing services through service fees, transactional level payment services, and investment of account balances generated during the payment process. Both the number of transactions processed and the dollar volume processed are therefore key metrics followed by management. The Bank earns most of its revenue from net interest income.
Various factors will influence the Company's revenue and profitability, such as changes in the general level of interest rates, which has a significant effect on net interest income; industry-wide factors, such as the willingness of large corporations to outsource key business functions, and the general level of transportation and energy costs; and economic factors that include the general level of economic activity, the ability to hire and retain qualified staff, the growth and quality of the Bank's loan portfolio, and the effects of tariffs or other domestic or international governmental policies. For a more detailed discussion of the Company's revenue drivers and factors that impact the Company's results of operation and financial condition generally, see Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's 2025 Form 10-K.
Recent Industry Developments and Items of Note
While freight rates have recently begun gradually increasing, volumes continue to decline on a year over year basis which continues to put pressure on transportation related processing fees. However, the increase in dollars paid due to rising freight rates and the impact of tariffs, is positively impacting the overall level of average accounts and drafts payable, which results in increased interest income, and average payments in advance of funding, which results in increased financial fees.
The Company has experienced an increase in facility dollar volumes in recent quarters due to higher energy usage and prices. Energy prices are rising due to a number of factors, including an aging power grid, and rising demand for electricity as a result of data center construction to power artificial intelligence and electric vehicles. Rising energy prices are positively impacting the overall level of average accounts and drafts payable, which results in increased interest income.
Results of Operations
The following paragraphs more fully discuss the results of operations and changes in financial condition for the three months ended March 31, 2026 ("first quarter of 2026") compared to the three months ended March 31, 2025 ("first quarter of 2025"). 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 2025 Form 10-K. Results of operations for the three months ended March 31, 2026 are not necessarily indicative of the results to be attained for any other period.
Discontinued Operations
The Company has applied discontinued operations accounting in accordance with Accounting Standards Codification, or ASC, Topic 205-20, "Presentation of Financial Statements - Discontinued Operations," to the assets and liabilities sold related to the Company's TEM Business Unit for the three months ended March 31, 2026, and 2025, as applicable. All financial information in this Quarterly Report on Form 10-Q is reported on a continuing operations basis, unless otherwise noted. See Note 2 to our consolidated financial statements for further discussion regarding discontinued operations.
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Summary of Results
The following table summarizes the Company's operating results:
| (In thousands except per share data) | First Quarter of | ||||||||||||||||
| 2026 | 2025 |
% Change | |||||||||||||||
| Processing fees | $ | 15,728 | $ | 16,469 | (4.5) | % | |||||||||||
| Financial fees | 10,431 | 9,961 | 4.7 | % | |||||||||||||
| Net interest income | 21,216 | 19,274 | 10.1 | % | |||||||||||||
| Provision for credit losses | 61 | 905 | (93.3) | % | |||||||||||||
| Gain (loss) on sale of investment securities | 5 | (18) | N/M | ||||||||||||||
| Other | 1,782 | 1,626 | 9.6 | % | |||||||||||||
| Total net revenue | 49,101 | 46,407 | 5.8 | % | |||||||||||||
| Operating expense | 38,218 | 35,530 | 7.6 | % | |||||||||||||
| Income before income tax expense | 10,883 | 10,877 | 0.1 | % | |||||||||||||
| Income tax expense | 2,144 | 2,326 | (7.8) | % | |||||||||||||
| Net income from continuing operations | $ | 8,739 | $ | 8,551 | 2.2 | % | |||||||||||
| Income from discontinued operations, net of tax | $ | 93 | $ | 415 | (77.6) | % | |||||||||||
| Net income | $ | 8,832 | $ | 8,966 | (1.5) | % | |||||||||||
| Diluted earnings per share from continuing operations | $ | 0.66 | $ | 0.63 | 4.8 | % | |||||||||||
| Diluted earnings per share from discontinued operations | $ | 0.01 | $ | 0.03 | (66.7) | % | |||||||||||
| Diluted earnings per share | $ | 0.67 | $ | 0.66 | 1.5 | % | |||||||||||
| Return on average assets | 1.42 | % | 1.51 | % | (6.0) | % | |||||||||||
| Return on average equity | 14.63 | % | 15.91 | % | (8.0) | % | |||||||||||
The Company recorded net revenue of $49.1 million during the first quarter of 2026, an increase of 5.8% from the first quarter of 2025, primarily driven by an increase in net interest income and financial fees, partially offset by lower processing fees. Operating expense increased 7.6% compared to the first quarter of 2025 as the prior year benefited from a $2.0 million bad debt recovery. Net income was $8.8 million, a decrease of 1.5% and diluted EPS was $0.67 per share, an increase of 1.5% from the three month period ended March 31, 2025.
The Company posted a 1.42% return on average assets and 14.63% return on average equity.
Fee Revenue and Other Income
The Company's fee revenue is derived mainly from transportation and facility processing and financial fees. As the Company provides its processing and payment services, it is compensated by service fees which are typically calculated on a per-item basis, discounts received for services provided to carriers and by the accounts and drafts payable balances
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generated in the payment process which can be used to generate interest income. Processing volumes, average payments in advance of funding, and fee revenue were as follows:
| (In thousands) | First Quarter of | ||||||||||||||||
| 2026 | 2025 |
% Change | |||||||||||||||
| Transportation invoice volume | 8,098 | 8,355 | (3.1) | % | |||||||||||||
| Transportation invoice dollar volume | $ | 9,032,515 | $ | 8,643,138 | 4.5 | % | |||||||||||
| Facility-related transaction volume | 4,038 | 4,225 | (4.4) | % | |||||||||||||
| Facility-related dollar volume | $ | 6,253,208 | $ | 5,822,935 | 7.4 | % | |||||||||||
| Average payments in advance of funding | $ | 176,987 | $ | 173,590 | 2.0 | % | |||||||||||
| Processing fees | $ | 15,728 | $ | 16,469 | (4.5) | % | |||||||||||
| Financial fees | $ | 10,431 | $ | 9,961 | 4.7 | % | |||||||||||
| Other fees | $ | 1,782 | $ | 1,626 | 9.6 | % | |||||||||||
| Gain (loss) on sale of investment securities | $ | 5 | $ | (18) | N/M | ||||||||||||
Processing fees decreased $741,000, or 4.5% over the same period in the prior year reflecting lower transportation and facility transaction volumes.
Financial fees increased $470,000, or 4.7%, primarily attributable to an increase in average payments in advance of funding of 2.0% compared to the prior period. The Company has recently seen increased demand for its quick pay solutions and continues to focus on the rollout of its Amplify working capital solution as well as other opportunities to increase financial fees in future quarters.
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:
| (In thousands) | First Quarter of | ||||||||||||||||
| 2026 | 2025 |
% Change | |||||||||||||||
| Average earning assets | $ | 2,214,838 | $ | 2,104,603 | 5.2 | % | |||||||||||
| Average interest-bearing liabilities | 652,328 | 628,225 | 3.8 | % | |||||||||||||
| Net interest income* | 21,589 | 19,442 | 11.0 | % | |||||||||||||
| Net interest margin* | 3.95 | % | 3.75 | % | |||||||||||||
| Yield on earning assets* | 4.67 | % | 4.54 | % | |||||||||||||
| Cost of interest-bearing liabilities | 2.42 | % | 2.66 | % | |||||||||||||
*Presented on a tax-equivalent basis assuming a tax rate of 21% for both 2026 and 2025.
The increase in net interest income is primarily attributable to the net interest margin improving to 3.95% as compared to 3.75% in the same period last year, in addition to an increase in average earning assets of $110.2 million, or 5.2%. The yield on interest-earning assets increased 13 basis points from 4.54% to 4.67% while the cost of interest-bearing liabilities decreased 24 basis points from 2.66% to 2.42%.
Average loans decreased $43.2 million, or 3.9%, to $1.07 billion. The average yield on loans increased 20 basis points to 5.81%, primarily due to the continued maturity and subsequent re-pricing of fixed rate loans originated in the years 2021 and 2022 to current market interest rates as well as the payoff of a non-performing loan which increased the loan yield by seven basis points during the first quarter of 2026.
Average investment securities increased $197.6 million, or 32.3%, to $808.8 million. The increase was primarily driven by the utilization of available liquidity arising from an increase in average accounts and drafts payable to purchase investment
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securities. The average yield on taxable investment securities increased 68 basis points to 3.63% and the average yield on tax-exempt investment securities increased 136 basis points to 3.90%.
Average short-term investments, consisting of interest-bearing deposits in other financial institutions and federal funds sold, decreased $44.2 million, or 11.5%, to $339.7 million. The decrease is primarily a result of the increase in average investment securities, partially offset by the increase in average funding sources and decrease in average loans. The average yield on short-term investments decreased 73 basis points to 3.38%, primarily due to the decrease in the Federal Funds rate. The majority of these short-term investments are held at the Federal Reserve Bank.
The average balance of interest-bearing deposits increased $20.0 million, or 3.2%, to $648.3 million. Average non-interest-bearing demand deposits increased $16.5 million, or 4.1%, to $421.7 million. The average rate paid on interest-bearing deposits decreased 27 basis points to 2.39% due to the reduction in short-term interest rates.
Average accounts and drafts payable increased $100.1 million, or 9.3%, to $1.17 billion. The increase in average accounts and drafts payable was primarily driven by the increase in facility dollar volumes of 7.4% as well as the increase in transportation dollar volumes of 4.5%.
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 for 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.
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| (In thousands) | First Quarter of 2026 |
First Quarter of 2025 | |||||||||||||||||||||||||||||||||
| Average Balance |
Interest Income/ Expense |
Yield/ Rate |
Average Balance |
Interest Income/ Expense |
Yield/ Rate | ||||||||||||||||||||||||||||||
Assets1 | |||||||||||||||||||||||||||||||||||
| Interest-earning assets | |||||||||||||||||||||||||||||||||||
Loans2: | $ | 1,066,371 | $ | 15,277 | 5.81 | % | $ | 1,109,526 | $ | 15,350 | 5.61 | % | |||||||||||||||||||||||
Investment securities3: | |||||||||||||||||||||||||||||||||||
| Taxable | 624,648 | 5,595 | 3.63 | % | 483,536 | 3,514 | 2.95 | % | |||||||||||||||||||||||||||
Tax-exempt4 | 184,152 | 1,773 | 3.90 | % | 127,705 | 801 | 2.54 | % | |||||||||||||||||||||||||||
| Short-term investments | 339,667 | 2,832 | 3.38 | % | 383,836 | 3,893 | 4.11 | % | |||||||||||||||||||||||||||
| Total interest-earning assets | 2,214,838 | 25,477 | 4.67 | % | 2,104,603 | 23,558 | 4.54 | % | |||||||||||||||||||||||||||
| Non-interest-earning assets | |||||||||||||||||||||||||||||||||||
| Cash and due from banks | 22,342 | 20,610 | |||||||||||||||||||||||||||||||||
| Premises and equipment, net | 29,619 | 30,892 | |||||||||||||||||||||||||||||||||
| Bank-owned life insurance | 52,367 | 50,499 | |||||||||||||||||||||||||||||||||
| Goodwill and other intangibles | 19,741 | 21,060 | |||||||||||||||||||||||||||||||||
| Payments in advance of funding | 176,987 | 173,590 | |||||||||||||||||||||||||||||||||
| Unrealized loss on investment securities | (31,024) | (56,336) | |||||||||||||||||||||||||||||||||
| Other assets | 52,590 | 62,500 | |||||||||||||||||||||||||||||||||
| Allowance for credit losses | (13,600) | (13,405) | |||||||||||||||||||||||||||||||||
| Assets of discontinued operations | - | 14,393 | |||||||||||||||||||||||||||||||||
| Total assets | $ | 2,523,860 | $ | 2,408,406 | |||||||||||||||||||||||||||||||
Liabilities and Shareholders' Equity1 | |||||||||||||||||||||||||||||||||||
| Interest-bearing liabilities | |||||||||||||||||||||||||||||||||||
| Interest-bearing demand deposits | $ | 530,740 | $ | 2,865 | 2.19 | % | $ | 537,938 | $ | 3,373 | 2.54 | % | |||||||||||||||||||||||
| Savings deposits | 6,496 | 19 | 1.19 | % | 7,834 | 25 | 1.29 | % | |||||||||||||||||||||||||||
| Time deposits >= $100 | 34,392 | 297 | 3.50 | % | 25,739 | 212 | 3.34 | % | |||||||||||||||||||||||||||
| Other time deposits | 76,633 | 647 | 3.42 | % | 56,703 | 506 | 3.62 | % | |||||||||||||||||||||||||||
| Total interest-bearing deposits | 648,261 | 3,828 | 2.39 | % | 628,214 | 4,116 | 2.66 | % | |||||||||||||||||||||||||||
| Short-term borrowings | 4,067 | 60 | 5.98 | % | 11 | - | - | % | |||||||||||||||||||||||||||
| Total interest-bearing liabilities | 652,328 | 3,888 | 2.42 | % | 628,225 | 4,116 | 2.66 | % | |||||||||||||||||||||||||||
| Non-interest bearing liabilities | |||||||||||||||||||||||||||||||||||
| Demand deposits | 421,702 | 405,183 | |||||||||||||||||||||||||||||||||
| Accounts and drafts payable | 1,172,102 | 1,072,013 | |||||||||||||||||||||||||||||||||
| Other liabilities | 32,878 | 52,717 | |||||||||||||||||||||||||||||||||
| Liabilities of discontinued operations | - | 21,653 | |||||||||||||||||||||||||||||||||
| Total liabilities | 2,279,010 | 2,179,791 | |||||||||||||||||||||||||||||||||
| Shareholders' equity | 244,850 | 228,615 | |||||||||||||||||||||||||||||||||
| Total liabilities and shareholders' equity | $ | 2,523,860 | $ | 2,408,406 | |||||||||||||||||||||||||||||||
| Net interest income | $ | 21,589 | $ | 19,442 | |||||||||||||||||||||||||||||||
| Net interest margin | 3.95 | % | 3.75 | % | |||||||||||||||||||||||||||||||
| Interest spread | 2.25 | % | 1.88 | % | |||||||||||||||||||||||||||||||
1.Balances shown are daily averages.
2.Interest income on loans includes net loan fees of $102,000 and $367,000 for the first quarter of 2026 and 2025, respectively.
3.For purposes of these computations, yields on investment securities are computed as interest income divided by the average amortized cost of the investments.
4.Interest income is presented on a tax-equivalent basis assuming a tax rate of 21% for both 2026 and 2025. The tax-equivalent adjustment was approximately $372,000 and $168,000 for the first quarter of 2026 and 2025, respectively.
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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.
| (In thousands) | First Quarter of 2026 Compared to First Quarter of 2025 | ||||||||||||||||
| Volume | Rate | Total | |||||||||||||||
| Increase (decrease) in interest income: | |||||||||||||||||
Loans1: | $ | (608) | $ | 535 | $ | (73) | |||||||||||
| Investment securities: | |||||||||||||||||
| Taxable | 1,158 | 923 | 2,081 | ||||||||||||||
Tax-exempt2 | 440 | 532 | 972 | ||||||||||||||
| Short-term investments | (417) | (644) | (1,061) | ||||||||||||||
| Total interest income | 573 | 1,346 | 1,919 | ||||||||||||||
| Increase (decrease) in interest expense: | |||||||||||||||||
| Interest-bearing demand deposits | (45) | (463) | (508) | ||||||||||||||
| Savings deposits | (4) | (2) | (6) | ||||||||||||||
| Time deposits >=$100 | 74 | 11 | 85 | ||||||||||||||
| Other time deposits | 170 | (29) | 141 | ||||||||||||||
| Short-term borrowings | - | 60 | 60 | ||||||||||||||
| Total interest expense | 195 | (423) | (228) | ||||||||||||||
| Net interest income | $ | 378 | $ | 1,769 | $ | 2,147 | |||||||||||
1.Interest income includes net loan fees.
2.Interest income is presented on a tax-equivalent basis assuming a tax rate of 21% for the three months ended March 31, 2026 and 2025.
Provision and Allowance for Credit Losses and Allowance for Unfunded Commitments
The Company recorded a provision for credit losses and off-balance sheet credit exposures of $61,000 and $905,000 for the first quarter of 2026 and 2025, respectively. The amount of the provision for (release of) credit losses is derived from the Company's quarterly Current Expected Credit Loss ("CECL") model. The amount of the provision for (release of) credit losses will fluctuate as determined by these quarterly analyses. The provision for credit losses in the first quarter of 2026 was driven by the increase in total loans of $27.5 million, or 2.6%, as compared to December 31, 2025.
The Company experienced no loan charge-offs in the first quarter of 2026 or 2025. The ACL was $13.9 million at March 31, 2026 and $13.6 million at December 31, 2025. The ACL represented 1.27% of outstanding loans at March 31, 2026 and 1.28% of outstanding loans at December 31, 2025. The allowance for unfunded commitments was $216,000 at March 31, 2026 and $419,000 at December 31, 2025. There were $3.1 million of nonperforming loans outstanding at March 31, 2026 and $7.0 million at December 31, 2025. The Company has a specific allowance for credit losses of $101,000 allocated to its non-accrual loans at March 31, 2026.
The ACL has been established and is maintained to estimate the lifetime expected credit losses in the loan portfolio. An ongoing assessment is performed to determine if the balance is adequate. Charges or credits are made to expense based on changes in the economic forecast, qualitative risk factors, loan volume, and individual loans. For loans that are individually evaluated, the Company uses two impairment measurement methods: 1) the present value of expected future cash flows and 2) collateral value.
The Company also utilizes ratio analyses to evaluate the overall reasonableness of the ACL compared to its peers and required levels of regulatory capital. Federal and state regulatory agencies review the Company's methodology for maintaining the ACL. These agencies may require the Company to adjust the ACL based on their judgments and interpretations about information available to them at the time of their examinations.
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Summary of Credit Loss Experience
The following table presents information on the Company's provision for (release of) credit losses and analysis of the ACL:
First Quarter of | |||||||||||
| (In thousands) | 2026 |
2025 | |||||||||
| Allowance for credit losses at beginning of period | $ | 13,597 | $ | 13,395 | |||||||
| Provision for credit losses | 264 | 891 | |||||||||
| Allowance for credit losses at end of period | $ | 13,861 | $ | 14,286 | |||||||
| Allowance for unfunded commitments at beginning of period | $ | 419 | $ | 273 | |||||||
| (Release of) provision for credit losses | (203) | 14 | |||||||||
| Allowance for unfunded commitments at end of period | $ | 216 | $ | 287 | |||||||
| Loans outstanding: | |||||||||||
| Average | $ | 1,066,371 | $ | 1,109,526 | |||||||
March 31 | $ | 1,088,730 | $ | 1,141,874 | |||||||
Ratio of allowance for credit losses to loans outstanding at March 31 | 1.27 | % | 1.25 | % | |||||||
Operating Expenses
Total operating expenses for the first quarter of 2026 increased $2.7 million, or 7.6%, as compared to the first quarter of 2025. The following table details the components of operating expenses:
| (In thousands) | First Quarter of | ||||||||||
| 2026 | 2025 | ||||||||||
| Salaries and commissions | $ | 19,268 | $ | 19,663 | |||||||
| Share-based compensation | 1,439 | 1,241 | |||||||||
| Employee profit sharing | 1,634 | 1,502 | |||||||||
| Other benefits | 4,938 | 4,873 | |||||||||
| Personnel | $ | 27,279 | $ | 27,279 | |||||||
| Occupancy | 681 | 721 | |||||||||
| Equipment | 2,432 | 2,294 | |||||||||
| Bad debt recovery | - | (2,000) | |||||||||
| Amortization of intangible assets | 293 | 293 | |||||||||
| Other operating expense | 7,533 | 6,943 | |||||||||
| Total operating expense | $ | 38,218 | $ | 35,530 | |||||||
Salaries and commissions decreased $395,000, or 2.0%, as a result of a decrease in average full-time equivalent employees ("FTEs") of 7.9% due to automation and the ongoing consolidation within the Company's Facilities division, partially offset by merit increases. Share-based compensation and employee profit sharing increased $198,000 and $132,000, respectively, due to the improvement in net income from continuing operations. Other benefits increased $65,000, or 1.3%, due to higher health insurance costs, partially offset by the decline in average FTEs.
Equipment expense increased $138,000, primarily due to an increase in depreciation expense on software related to recently completed technology initiatives.
The Company recorded a bad debt recovery of $2.0 million during the first quarter of 2025 related to a settlement agreement with a third party.
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Net Income from Discontinued Operations
| (In thousands except per share data) | First Quarter of | ||||||||||||||||
| 2026 | 2025 | % Change | |||||||||||||||
| Processing fees | $ | - | $ | 3,823 | N/M | ||||||||||||
| Financial fees | - | 413 | N/M | ||||||||||||||
| Other fees | 733 | 382 | 91.9 | % | |||||||||||||
| Total revenues | 733 | 4,618 | (84.1) | % | |||||||||||||
| Operating expense | 609 | 4,090 | (85.1) | % | |||||||||||||
| Income before income tax expense | 124 | 528 | (76.5) | % | |||||||||||||
| Income tax expense | 31 | 113 | (72.6) | % | |||||||||||||
| Net income from discontinued operations | $ | 93 | $ | 415 | (77.6) | % | |||||||||||
| Facility transaction volume | - | 133 | N/M | ||||||||||||||
| Facility dollar volume | $ | - | $ | 256,844 | N/M | ||||||||||||
| Average full-time equivalent employees | 23 | 135 | N/M | ||||||||||||||
Net income from discontinued operations was $93,000, a decrease of 322,000, or 77.6% over the same period in the prior year.
Financial Condition
Total assets at March 31, 2026 were $2.53 billion, a decrease of $72.2 million, or 2.8%, from December 31, 2025.
The Company experienced a decrease in cash and cash equivalents of $147.9 million, or 37.7%, during the first quarter of 2026. The change in cash and cash equivalents reflects the Company's daily liquidity position and is primarily affected by changes in funding sources, mainly accounts and drafts payable, deposits and short-term borrowings, cash flows in and out of loans, investment securities, accounts and drafts receivable, and payments in advance of funding.
The investment securities portfolio increased $14.6 million, or 1.9%, during the first quarter of 2026. The increase is primarily due to purchases of $42.3 million, partially offset by sales of $3.5 million, maturities of $19.5 million, and an increase in unrealized losses of $12.7 million
Loans increased $27.5 million, or 2.6%, from December 31, 2025. The Company experienced growth in its commercial and industrial loan portfolio during the first quarter of 2026.
Payments in advance of funding increased $96.1 million, or 58.4%, primarily due to a higher level of demand for the Company's quick pay solutions as well as timing of quarter end advances.
Accounts and drafts receivable from customers decreased $64.5 million, or 92.9%, from December 31, 2025. The decrease is solely due to timing of customer funding.
Total deposits at March 31, 2026 were $1.11 billion, a decrease of $94.4 million, or 7.9%, from December 31, 2025. Given the nature of the Company's deposit base being larger commercial clients, the ending balance of deposits will fluctuate from period end to period end due to liquidity needs of these clients. Average balances are generally a more meaningful measure of deposits.
Accounts and drafts payable at March 31, 2026 were $1.00 billion, a decrease of $124.7 million, or 11.1%, from December 31, 2025. Accounts and drafts payable are a stable source of funding generated by payment float from transportation and facility clients. The ending balance of accounts and drafts payable will fluctuate from period to period due to the payment processing cycle, which results in lower balances on days when payments clear and higher balances on days when payments are issued. For this reason, average balances are generally a more meaningful measure of accounts and drafts payable.
Short-term borrowings were $145.0 million at March 31, 2026. The Company borrowed on its lines of credit primarily to fund the $96.1 million increase in payments in advance of funding.
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Total liabilities at March 31, 2026 were $2.29 billion, a decrease of $71.0 million, or 3.0%, from December 31, 2025, reflective of the decrease in accounts and drafts payable and total deposits, partially offset by the increase in short-term borrowings.
Total shareholders' equity at March 31, 2026 was $241.8 million, a $1.2 million decrease from December 31, 2025. The decrease in shareholders' equity is a result of an increase in accumulated other comprehensive loss of $3.4 million, the repurchase of Company stock of $2.9 million, and dividends paid of $4.1 million, partially offset net income of $8.8 million.
Liquidity and Capital Resources
The Company's liquidity management discipline seeks to ensure funds are available to meet all obligations as they come due. These obligations include processing invoice payments, satisfying depositor withdrawal requests, and funding borrower credit demands. A primary goal of this practice is to achieve these objectives while maximizing profitability. This is accomplished by balancing changes in demand for funds with changes in supply of funds. Primary liquidity to meet demand is provided by short-term liquid assets that can be converted to cash, maturing investment securities and the ability to obtain funds from external sources. The Company's Asset/Liability Committee has direct oversight responsibility for the Company's liquidity position and profile. Management considers both on-balance sheet and off-balance sheet items in its evaluation of liquidity.
The 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. Cash and cash equivalents totaled $244.3 million at March 31, 2026, a decrease of $147.9 million, or 37.7%, from December 31, 2025. At March 31, 2026, these assets represented 9.6% of total assets and 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 securities were $785.3 million at March 31, 2026, an increase of $14.6 million from December 31, 2025. These assets represented 31.0% of total assets at March 31, 2026. Of the total portfolio, 1.2% mature in one year, 8.1% mature in one to five years, and 90.7% mature in five or more years. The Company maintains a weighted average duration of its investment securities portfolio of approximately five years given the Company's asset sensitivity with approximately 70% of its funding sources being non-interest bearing.
The Bank has unsecured lines of credit at six correspondent banks to purchase federal funds up to a maximum of $83.0 million in aggregate. As of March 31, 2026, the Bank also has secured lines of credit with the Federal Home Loan Bank of $232.7 million collateralized by mortgage loans. The Bank had no amounts outstanding under any line of credit as of December 31, 2025.
The Company also has secured lines of credit from three banks up to a maximum of $225.0 million in aggregate collateralized by investment securities. There was $145.0 million total outstanding on the Company's lines of credit as of March 31, 2026.
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, including CassPay and faith-based customers. 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 $78.0 million of CDARS deposits and interest-bearing demand deposits include $219.9 million 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 $14.5 million for the three months ended March 31, 2026, compared to $21.6 million for the three months ended March 31, 2025, a decrease of $7.0 million. 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 2026, which are estimated to range from $4.0 million to $6.0 million. Capital expenditures in 2026 are
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expected to primarily consist of purchases of equipment and software related to the payment and information processing services business.
Net income plus amortization of intangible assets, net amortization of premium/discount on investment securities and depreciation of premises and equipment was $10.4 million and $11.1 million for the three months ended March 31, 2026 and 2025, respectively. The decrease was primarily due to lower net amortization of premiums/discounts on investment securities of $644,000 and lower net income of $134,000, partially offset by higher depreciation of $40,000. The net amortization of premium/discount on investment securities is dependent on the type of securities purchased and changes in the prevailing market interest rate environment.
Other factors impacting the $7.0 million decrease in net cash provided by operating activities include:
•A change in accounts receivable of $1.5 million;
•A decrease in the provision for credit losses of $844,000; and
•A change in the current income tax liability of $665,000.
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. Those that could significantly impact the Company include the general levels of interest rates, business activity, inflation, and energy costs as well as new business opportunities available to the Company. For more detailed information on these trends and uncertainties and how they can generally affect the Company's available liquidity, see Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations-Liquidity" in the Company's 2025 Form 10-K.
As a bank holding company, the Company and the Bank are subject to capital requirements administered by state and federal banking agencies. Capital adequacy guidelines, and, for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are subject to qualitative judgments by regulators about components, risk weighting, and other factors. In addition, the calculation of all types of regulatory capital is subject to deductions and adjustments specified in the regulations. For example, as allowed under the Basel III Capital Rules, the Company has elected to opt-out of the requirement to include most components of accumulated other comprehensive income in common equity Tier 1 capital. For more information on these regulatory requirements, including the Basel III Capital Rules and capital classifications, see Item 1, "Business-Supervision and Regulation" and Item 8, Note 2, "Financial Statements and Supplementary Data" of the Company's 2025 Form 10-K.
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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:
| Actual |
Capital Requirements |
Requirement to be Well-Capitalized | |||||||||||||||||||||||||||||||||
| (In thousands) | Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||||||||||||
At March 31, 2026 | |||||||||||||||||||||||||||||||||||
| Total capital (to risk-weighted assets) | |||||||||||||||||||||||||||||||||||
| Cass Information Systems, Inc. | $ | 265,864 | 15.63 | % | $ | 136,104 | 8.00 | % | $ N/A | N/A % | |||||||||||||||||||||||||
| Cass Commercial Bank | 217,649 | 19.31 | 90,154 | 8.00 | 112,692 | 10.00 | |||||||||||||||||||||||||||||
| Common Equity Tier I Capital (to risk-weighted assets) | |||||||||||||||||||||||||||||||||||
| Cass Information Systems, Inc. | 251,787 | 14.80 | 76,558 | 4.50 | N/A | N/A | |||||||||||||||||||||||||||||
| Cass Commercial Bank | 204,068 | 18.11 | 50,711 | 4.50 | 73,250 | 6.50 | |||||||||||||||||||||||||||||
| Tier I capital (to risk-weighted assets) | |||||||||||||||||||||||||||||||||||
| Cass Information Systems, Inc. | 251,787 | 14.80 | 102,078 | 6.00 | N/A | N/A | |||||||||||||||||||||||||||||
| Cass Commercial Bank | 204,068 | 18.11 | 67,615 | 6.00 | 90,154 | 8.00 | |||||||||||||||||||||||||||||
| Tier I capital (to average assets) | |||||||||||||||||||||||||||||||||||
| Cass Information Systems, Inc. | 251,787 | 10.05 | 100,170 | 4.00 | N/A | N/A | |||||||||||||||||||||||||||||
| Cass Commercial Bank | 204,068 | 14.54 | 56,136 | 4.00 | 70,170 | 5.00 | |||||||||||||||||||||||||||||
At December 31, 2025 | |||||||||||||||||||||||||||||||||||
| Total capital (to risk-weighted assets) | |||||||||||||||||||||||||||||||||||
| Cass Information Systems, Inc. | $ | 262,792 | 15.95 | % | $ | 131,837 | 8.00 | % | $ N/A | N/A % | |||||||||||||||||||||||||
| Cass Commercial Bank | 217,409 | 19.61 | 88,677 | 8.00 | 110,847 | 10.00 | |||||||||||||||||||||||||||||
| Common Equity Tier I Capital (to risk-weighted assets) | |||||||||||||||||||||||||||||||||||
| Cass Information Systems, Inc. | 248,776 | 15.10 | 74,158 | 4.50 | N/A | N/A | |||||||||||||||||||||||||||||
| Cass Commercial Bank | 203,943 | 18.40 | 49,881 | 4.50 | 72,050 | 6.50 | |||||||||||||||||||||||||||||
| Tier I capital (to risk-weighted assets) | |||||||||||||||||||||||||||||||||||
| Cass Information Systems, Inc. | 248,776 | 15.10 | 98,878 | 6.00 | N/A | N/A | |||||||||||||||||||||||||||||
| Cass Commercial Bank | 203,943 | 18.40 | 66,508 | 6.00 | 88,677 | 8.00 | |||||||||||||||||||||||||||||
| Tier I capital (to average assets) | |||||||||||||||||||||||||||||||||||
| Cass Information Systems, Inc. | 248,776 | 9.91 | 100,367 | 4.00 | N/A | N/A | |||||||||||||||||||||||||||||
| Cass Commercial Bank | 203,943 | 14.48 | 56,357 | 4.00 | 70,446 | 5.00 | |||||||||||||||||||||||||||||
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Impact of New or Not Yet Adopted Accounting Pronouncements
In July 2025, the FASB issued Accounting Standards Update 2025-05, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets ("ASU 2025-05"). ASU 2025-05 provides the option to elect a practical expedient to assume that the current conditions as of the balance sheet date will remain unchanged for the remaining life of the asset when developing a reasonable and supportable forecast as part of estimating expected credit losses on these assets. ASU 2025-05 was effective for the Company on January 1, 2026 and did not have a material impact on its consolidated financial statements.
In September 2025, the FASB issued Accounting Standards Update 2025-06, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40), Targeted Improvements to the Accounting for Internal-Use Software ("ASU 2025-06"). ASU 2025-06 clarified and modernizes the accounting for costs related to internal-use software. The amendments in ASU 2025-06 remove all references to project stages throughout Subtopic 350-40 and clarify the threshold entities apply to begin capitalizing costs. ASU 2025-06 is effective for the Company for fiscal years beginning after December 15, 2027 and interim periods within those fiscal years. The Company is currently evaluating the impact of adoption of ASU 2025-06 on its consolidated financial statements.
In December 2025, the FASB issued Accounting Standards Update 2025-11, Interim Reporting (Topic 720): Narrow-Scope Improvements ("ASU 2025-11"). ASU 2025-11 clarifies and enhances guidance under ASC 720 on interim financial reporting by (i) clarifying the scope of ASC 270 such that it now explicitly applies only to entities that issue complete interim financial statements and related notes under U.S. GAAP, (ii) establishing clear guidance on the form of interim statements and notes, incorporating a comprehensive list of required interim disclosures drawn from across the ASC, and (iii) introducing a requirement to disclose material events and changes occurring after the end of the last annual period that could impact interim results. ASU 2025-11 will be effective for the Company for interim periods beginning in 2028, though early adoption is permitted. The Company does not expect the adoption of 2025-11 to have a material impact on its consolidated financial statements.
Critical Accounting Policies
The Company has prepared the consolidated financial statements in this report in accordance with the Financial Accounting Standards Board Accounting Standards Codification. In preparing the consolidated financial statements, management makes estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. These estimates have been generally accurate in the past, have been consistent and have not required any material changes. There can be no assurances that actual results will not differ from those estimates. The accounting policy that requires significant management estimates and is deemed critical to the Company's results of operations or financial position has been discussed with the Audit and Risk Committee of the Board of Directors and is described below.
Allowance for Credit Losses. The Company performs periodic and systematic detailed reviews of its loan portfolio to determine management's estimate of the lifetime expected credit losses. Although these estimates are based on established methodologies for determining allowance requirements, actual results can differ significantly from estimated results. These policies affect both segments of the Company. The impact and associated risks related to these policies on the Company's business operations are discussed in the "Provision and Allowance for Credit Losses and Allowance for Unfunded Commitments" section of this report.
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