CASS Cass Information Systems Inc - 10-K

ITEM 1A. RISK FACTORS

This section highlights specific risks that could affect the Company’s business. Although this section attempts to highlight key factors, please be aware that other risks may prove to be important in the future. New risks may emerge at any time, and Cass cannot predict such risks or estimate the extent to which they may affect the Company’s financial performance. This section describes the Company’s beliefs regarding the factors that could materially and adversely affect the Company and its business, financial condition and results of operations in the future. All references to past events are intended to be examples only rather than a complete listing or a representation regarding whether such events have occurred in the past or whether they are likely to occur in the future.

In addition to the factors discussed elsewhere or incorporated by reference in this report, the identified risks that could cause actual results to differ materially include the following:

Economic and Market Conditions Risk

Risks from fluctuating conditions in the financial markets and economic and political conditions generally affect the Company

The Company's success depends, to a certain extent, upon local, national and global economic and political conditions, as well as governmental monetary policies. A favorable business environment is generally characterized by, among other factors, economic growth, efficient capital markets, low inflation, low unemployment, high business and investor confidence, and strong business earnings. Unfavorable or uncertain economic and market conditions can be caused by a decline in economic growth both in the U.S. and internationally; declines in business activity or investor or business confidence; limitations on the availability of or increases in the cost of credit and capital; increases in inflation or interest rates; high unemployment; oil price volatility; natural disasters; trade policies and tariffs; or a combination of these or other factors. In addition, financial markets and global supply chains may be adversely affected by the current or anticipated impact of global wars/military conflicts, terrorism or other geopolitical events. Current economic conditions are being heavily impacted by recent inflationary conditions and higher interest rates, the effects of which may impact the Company's profitability by negatively impacting its fixed costs and expenses. Economic and inflationary pressure on consumers and uncertainty regarding economic improvement could result in changes in consumer and business spending, borrowing and savings habits. Such conditions could have a material adverse effect on the credit quality of the Company's loans and its business, financial condition and results of operations.

Federal budget deficit concerns and the potential for political conflict over legislation to fund U.S. government operations and raise the U.S. government's debt limit may increase the possibility of a default by the U.S. government on its debt obligations, related credit-rating downgrades, or an economic recession in the United States. Many of the Company's investment securities are issued by the U.S. government and government agencies and sponsored entities. As a result of uncertain domestic political conditions, including potential future federal government shutdowns, the possibility of the federal government defaulting on its obligations for a period of time due to debt ceiling limitations or other unresolved political issues, investments in financial instruments issued or guaranteed by the federal government pose liquidity risks. Most recently, in connection with successive failures by the U.S. government to reverse the trend of large annual fiscal deficits and growing interest costs, Moody's lowered its long-term issuer credit rating on the U.S. from Aaa to Aa1. A further downgrade, or downgrades by other rating agencies, as well as sovereign debt issues facing the governments of

Table of Contents

other countries, could have a material adverse impact on financial markets and economic conditions in the U.S. and worldwide.

Certain events beyond the Company’s control, such as severe weather, natural disasters, terrorist activities or other hostilities, may adversely affect the general economy, financial and capital markets, specific industries, and the Company.

Severe weather, natural disasters, acts of terrorism or other hostilities, and other adverse external events beyond the Company’s control, could have a significant impact on the Company’s ability to conduct business. Such events could disrupt the Company's operations or those of its customers, affect the stability of the Company’s deposit base, impair the ability of borrowers to repay outstanding loans, impair the value of collateral securing loans, cause significant property damage, result in loss of revenue and/or cause the Company to incur additional expenses. The occurrence of any such event in the future could have a material adverse effect on the Company’s business, which, in turn, could have a material adverse effect on the Company’s financial condition and results of operations.

Credit and Interest Rate Risks

Unfavorable developments concerning customer credit quality could affect Cass’ financial results.

Although the Company regularly reviews credit exposure related to its customers and various industry sectors in which it has business relationships, default risk may arise from events or circumstances that are difficult to detect or foresee. Under such circumstances, the Company could experience an increase in the level of provision for credit losses, delinquencies, nonperforming assets, net charge-offs and allowance for credit losses.

The Company’s allowance for credit losses (“ACL”) is subject to continuing evaluation and may be insufficient.

The Company maintains an ACL, which is a reserve established through a provision for credit losses charged to expense. The ACL is a valuation account that is deducted from the amortized cost basis to present the net amount expected to be collected on loans. Management uses a systematic, documented approach in determining the appropriate level of ACL, which represents management’s estimate of losses in loans and off-balance sheet exposures as of the balance sheet date. Management estimated the allowance balance using relevant available information relating to internal and external factors, past events, current conditions and reasonable and supportable forecasts based on economic sources, such as Gross Domestic Product (“GDP”). Historical credit loss experience, of both the Company and similar peer banks, provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for asset quality trends, borrower’s ability to pay, collateral, and other environmental factors. The ACL is measured on a collective pool basis when similar risk characteristics exist. The determination of the appropriate level of the allowance for credit losses inherently involves a high degree of subjectivity and requires management to make estimates based on risks and trends that are subject to material change. A deterioration in economic conditions, including any recession, affecting borrowers and securities issuers; inflation; rising interest rates; new information regarding existing loans, credit commitments and securities holdings; global pandemics; geopolitical and economic conditions; natural disasters and risks related to climate change; and identification of problem loans, ratings down-grades and other factors, both within and outside of the Company’s control, may require an increase in the allowances for credit losses on loans, investment securities and off-balance sheet credit exposures.

The determination and application of the ACL accounting policy involves judgments, estimates, and uncertainties that are subject to change. Changes in these assumptions, estimates or the conditions surrounding them may have a material impact on the Company’s financial condition, liquidity or results of operations. Various regulatory agencies, as an integral part of the examination process, periodically review the ACL. Such agencies may require the Company to recognize additions to the ACL or reserve increases to adversely graded classified loans based on information available to them at the time of their examinations.

The application of the model used to determine the ACL could result in volatility in earnings. Additionally, if charge-offs in future periods exceed the ACL, the Company will need additional provisions to increase the ACL. Any increases in the ACL will result in a decrease in net income and, possibly, capital, and may have a material adverse effect on the Company’s business, financial condition and results of operations.

See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Provision and Allowance for Credit Losses on Loans and Allowance for Unfunded Commitments” and Item 8, “Financial Statements and Supplementary Data—Note 1” for additional information.

Table of Contents

Fluctuations in interest rates could affect Cass’ net interest income and balance sheet.

The operations of financial institutions such as the Company are dependent to a large degree on net interest income, which is the difference between interest income from loans and investments and interest expense on deposits and borrowings. Prevailing economic conditions, the fiscal and monetary policies of the federal government and the policies of various regulatory agencies all affect market rates of interest, which in turn significantly affect financial institutions’ net interest income. Fluctuations in interest rates affect Cass’ financial statements, as they do for all financial institutions. Volatility in interest rates can also result in disintermediation, which is the flow of funds away from financial institutions into direct investments, such as federal government and corporate securities and other investment vehicles, which, because of the absence of federal insurance premiums and reserve requirements, generally pay higher rates of return than financial institutions. Due in part to a higher market interest rate environment in recent years, the Company's net interest margin has increased to 3.83% in 2025 from 3.42% in 2024, 3.25% in 2023 and 2.74% in 2022, therefore increasing net interest income. Notwithstanding these recent increases, as discussed in greater detail in Item 7A, “Quantitative and Qualitative Disclosures about Market Risk,” a decline in market interest rates would be expected to have a negative impact on the Company’s net interest income.

In certain circumstances, Cass remits payment of invoices prior to receiving funds from its customers. As such, Cass could experience losses if such funds are not received from customers after payment is remitted.

Although the Company regularly reviews credit exposure related to its customers and various industry sectors in which it has business relationships, default risk may arise from events or circumstances that are difficult to detect or foresee. Under such circumstances, the Company could experience losses related to funds remitted for payment to freight carriers, utility companies and other such companies, prior to receiving funds from its customers.

The Company has lending concentrations, including, but not limited to, faith-based ministries located in selected cities, franchise restaurants, and privately-held businesses located in or near St. Louis, Missouri, that could suffer a significant decline which could adversely affect the Company.

Cass’ customer base consists, in part, of lending concentrations in several segments and geographical areas. If any of these segments or areas is significantly affected by weak economic conditions, the Company could experience increased credit losses, and its business could be adversely affected.

Rising interest rates have decreased the value of the Company’s available-for-sale investment securities portfolio, and the Company would realize losses if it were required to sell such investment securities to meet liquidity needs.

As a result of inflationary pressures and resulting higher interest rates, the fair value of previously issued government and other fixed income investment securities has declined significantly, resulting in unrealized losses. If the Company were required to sell such investment securities to meet liquidity needs, it may incur losses, which could impair the Company’s capital, financial condition, and results of operations and require the Company to raise additional capital on unfavorable terms, thereby negatively impacting its profitability. While the Company has taken actions to maximize its funding sources, there is no guarantee that such actions will be successful or sufficient in the event of sudden liquidity needs.

Business Operations and Strategic Risk

Cass uses AI in connection with its business and operations, which exposes the Company to inherent risks that may expose it to material harm.

The Company uses AI in connection with its business and operations, including through the models it employs. AI is complex and rapidly evolving, and the introduction of AI, a relatively new and emerging technology in the early stages of commercial use, into the Company's business and operations may subject it to new or heightened legal, regulatory, ethical, operational, reputational, or other risks. The models underlying AI may be incorrectly or inadequately designed or implemented and trained on, or otherwise use, data or algorithms that are, and output that may be, incomplete, inadequate, misleading, biased, poor-quality or otherwise flawed, any of which may not be easily detectable. Further, inappropriate or controversial data practices by developers and end-users or other factors adversely affecting public opinion of AI could impair the acceptance of AI, including those incorporated in the Company's business and operations. If the AI that Cass uses is deficient, inaccurate or controversial, the Company could incur operational inefficiencies, competitive harm, legal and regulatory action, brand or reputational harm, or other adverse impacts on its business and financial results. Further, there can be no assurance that the Company's use of AI will be successful in enhancing its business or operations, be

Table of Contents

successfully adopted and deployed by its colleague base, or otherwise result in its intended outcomes, and the Company's competitors may incorporate AI into their businesses or operations more quickly or more successfully than Cass.

AI and the use thereof is also subject to a variety of existing laws and regulations, including fair lending, consumer protection, intellectual property, cybersecurity, data privacy, and equal opportunity, and is expected to be subject to new laws and regulations or new applications of existing laws and regulations. AI is the subject of evolving review by various governmental and regulatory agencies, and changes in laws and regulations governing AI may adversely affect the Company's ability to use AI. Additionally, various federal, state and foreign governments and regulators have implemented, or are considering implementing, general legal and regulatory frameworks for the appropriate use of AI. It is possible that the Company will not be able to anticipate how to respond to these rapidly developing laws and regulations. Further, if the Company does not have sufficient rights to use the data or algorithms on which its AI solutions rely or the output generated thereby, it also may incur liability through the violation of applicable laws and regulations, such as fair lending laws and regulations, third-party intellectual property, privacy or other rights, or contracts to which the Company is a party. The Company may not be able to sufficiently mitigate or detect any of the foregoing risks or concerns given its and other market participants’ lack of experience with using AI, the pace of technological change, and rapid adoption of AI by its business partners and competitors. Any actual or perceived failure to address risks or concerns relating to the use of AI, whether unfounded or not, could adversely affect the Company's business and operations.

The Company is exposed to risks associated with the handling of customer funds.

The Company makes payments of approximately $94 billion on an annual basis on behalf of its customers. Consequently, at any given time, the Company may be holding or directing funds of transportation, facility, CassPay and Bank customers. This function creates a risk of loss arising from, among other things, fraud by employees or third parties, execution of unauthorized transactions, ACH reversals, or errors relating to transaction processing. The occurrence of any of these types of events could cause the Company financial loss and reputational harm.

The Company may be adversely impacted by changing oil and overall energy prices.

A decline in the cost of oil worldwide can have a negative effect on both the number of freight transactions processed and the dollar amount of invoices processed. For example, lower oil prices can cause a significant drop in drilling supplies being transported to fracking operations by domestic railroads and trucks. Lower oil prices can also result in lower gas and fuel prices, negatively affecting the dollar amounts of the invoices that Cass processes for its freight and facility customers. In addition, a decline in the price of electricity would also result in lower dollars processed for facility customers. As such, a decline in oil and overall energy prices could have an adverse effect on the Company’s revenues in the form of net interest income and financial fees, and significantly impact its results of operations.

The Company may be adversely impacted by changing freight rates.

The Company is exposed to changes in freight rates, which impact the overall level of accounts and drafts payable, payments in advance of funding and resulting interest income and financial fees. Freight rates are highly sensitive to many factors, including carrier capacity, economic conditions, and other factors beyond the Company's control. A decline in freight rates would be expected to have an adverse effect on the Company's revenues and could significantly impact its result of operations.

Interruptions or performance problems associated with the Company's network technology and infrastructure may adversely affect its business and operating results.

The Company has experienced, and may in the future experience, disruptions, outages, and other performance problems related to its payments platform due to a variety of factors, including infrastructure changes, introductions of new functionality (including functionality that incorporates artificial intelligence tools), human or software errors, denial-of-service attacks, actions or inactions attributable to third parties, earthquakes, hurricanes, floods, fires, natural disasters, power losses, disruptions in telecommunications services, fraud, military or political conflicts, terrorist attacks and other geopolitical unrest, computer viruses, ransomware, malware, or other events. The Company's systems also may be subject to break-ins, sabotage, theft, and intentional acts of vandalism, including by its own employees. Some of the Company's systems are not fully redundant and disaster recovery planning may not be sufficient for all eventualities.

Occasionally, the Company may experience limited periods of server downtime due to server failure or other technical difficulties. In some instances, the Company may not be able to identify the cause or causes of these performance problems

Table of Contents

within an acceptable period of time. It may become increasingly difficult to maintain and improve its performance, especially during peak usage times. If the platform is unavailable or if the Company's users are unable to access the Company's platform within a reasonable amount of time, or at all, the Company's business would be adversely affected and its brand could be harmed. In the event of any of the factors described above, or certain other failures of the Company's infrastructure, customer data may be permanently lost and Cass could experience significant losses of revenue.

To the extent that the Company does not effectively address capacity constraints, upgrade systems as needed, and continually develop its payments technology and network architecture to accommodate actual and anticipated changes in technology, the Company's business and operating results may be adversely affected.

Operational difficulties or cybersecurity problems could damage Cass’ reputation and business.

In the ordinary course of business, the Company depends on the reliable operation of its computer operations and network connections from its clients to its systems. Any failure, interruption, or breach in security of these systems would cause Cass to be unable to process transactions for its clients, resulting in decreased revenues. The Company also relies on electronic communications and information systems to store sensitive customer data. Any failure, interruption, breach in security or loss of data, whatever the cause, could reduce client satisfaction with the Company’s products and services, cause reputational harm, and harm Cass’ financial results. These types of threats may derive from human error, fraud or malice on the part of external or internal parties, or may result from accidental technological failure. Further, to access the Company’s products and services, Cass’ customers may use computers and mobile devices that are beyond the Company’s security control systems. The Company’s technologies, systems, networks and software, and those of other financial institutions have been, and are likely to continue to be, the target of cybersecurity threats and attacks, which may range from uncoordinated individual attempts to sophisticated and targeted measures directed at Cass. The risk of a security breach or disruption, particularly through cyber-attack or cyber intrusion, has increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. Criminals continuously adapt their methods to circumvent existing safeguards, and emerging technologies such as artificial intelligence may further enhance their ability to perpetrate fraud. A material security problem affecting Cass could damage its reputation, deter prospects from purchasing its products and services, deter customers from using its products and services or result in liability to Cass.

Cloud technologies are also critical to the operation of the Company's systems, and reliance on cloud technologies is growing. Service disruptions in cloud technologies may lead to delays in accessing, or the loss of, data that is important to the Company's businesses and may hinder customers access to products and services.

Although the Company makes significant efforts to maintain the security and integrity of Cass’ information systems and has implemented various measures to manage the risk of a security breach or disruption, there can be no assurance that Cass’ security efforts and measures will be effective or that attempted security breaches or disruptions would not be successful or damaging. Even the most well protected information, networks, systems and facilities remain potentially vulnerable because attempted security breaches, particularly cyber-attacks and intrusions, or disruptions will occur in the future, and because the techniques used in such attempts are constantly evolving and generally are not recognized until launched against a target, and in some cases are designed not to be detected and, in fact, may not be detected. Accordingly, the Company may be unable to anticipate these techniques or to implement adequate security barriers or other preventative measures, and thus it is virtually impossible to entirely mitigate this risk. While specific “cyber” insurance coverage is maintained, which would apply in the event of various breach scenarios, the amount of coverage may not be adequate in any particular case. Furthermore, because cyber threat scenarios are inherently difficult to predict and can take many forms, some breaches may not be covered under Cass’ cyber insurance coverage. A security breach or other significant disruption of Cass’ information systems or those related to customers, merchants and third-party vendors, including as a result of cyber-attacks, could (i) disrupt the proper functioning of Cass’ networks and systems and therefore operations and/or those of certain customers; (ii) result in the unauthorized access to, and destruction, loss, theft, misappropriation or release of confidential, sensitive or otherwise valuable information of the Company or its customers; (iii) result in a violation of applicable privacy, data breach and other laws, subjecting the Company to additional regulatory scrutiny and expose Cass to civil litigation, governmental fines and possible financial liability; (iv) require significant management attention and resources to remedy the damages that result; or (v) harm Cass’ reputation or cause a decrease in the number of customers that choose to do business with the Company. The occurrence of any of the foregoing could have a material adverse effect on Cass’ business, financial condition and results of operations.

Table of Contents

Cass must respond to rapid technological changes and these changes may be more difficult or expensive than anticipated.

If competitors introduce new products and services embodying new technologies, such as those related to artificial intelligence, more quickly or more successfully than the Company, or if new industry standards and practices emerge, the Company’s existing product and service offerings, technology and systems may become obsolete. Further, if Cass fails to adopt or develop new technologies or to adapt its products and services to emerging industry standards, Cass may lose current and future customers. Finally, Cass’ ability to adopt these technologies can also be inhibited by intellectual property rights of third parties. Any of these could have a material adverse effect on its business, financial condition and results of operations. The payment processing and financial services industries are changing rapidly and in order to remain competitive, Cass must continue to enhance and improve the functionality and features of its products, services and technologies. These changes may be more difficult or expensive than the Company anticipates.

Methods of reducing risk exposures might not be effective.

Instruments, systems and strategies used to hedge or otherwise manage exposure to various types of credit, interest rate, market and liquidity, operational, regulatory/compliance, business risks and enterprise-wide risks could be less effective than anticipated. As a result, the Company may not be able to effectively mitigate its risk exposures in particular market environments or against particular types of risk.

Customer borrowing, repayment, investment, deposit, and payable processing practices may be different than anticipated.

The Company uses a variety of financial tools, models and other methods to anticipate customer behavior as part of its strategic and financial planning and to meet certain regulatory requirements. Individual, economic, political and industry-specific conditions and other factors outside of Cass’ control could alter predicted customer borrowing, repayment, investment, deposit, and payable processing practices. Such a change in these practices could adversely affect Cass’ ability to anticipate business needs, including cash flow and its impact on liquidity, and to meet regulatory requirements.

Competitive product and pricing pressure within Cass’ markets may change.

The Company operates in a very competitive environment, which is characterized by competition from a number of other vendors and financial institutions in each market in which it operates. The Company competes with large payment processors and national and regional financial institutions and also smaller auditing companies and banks in terms of products and pricing. If the Company is unable to compete effectively in products and pricing in its markets, business could decline.

Management’s ability to maintain and expand customer relationships may differ from expectations.

The industries in which the Company operates are very competitive. The Company not only competes for business opportunities with new customers, but also competes to maintain and expand the relationships it has with its existing customers. The Company continues to experience pressures to maintain these relationships as its competitors attempt to capture its customers.

The introduction, withdrawal, success and timing of business initiatives and strategies, including, but not limited to, the expansion of payment and processing activities to new markets, and the expansion of products and services to existing markets, may be less successful or may be different than anticipated.

The Company makes certain projections as a basis for developing plans and strategies for its payment processing and banking products. If the Company does not accurately determine demand for its products and services, it could result in the Company incurring significant expenses without the anticipated increases in revenue, which could result in an adverse effect on its earnings.

In addition, there are risks and uncertainties associated with the introduction of new products and services, including substantial investments of time and resources. The introduction and development of new products and services may not be achieved along expected timelines, or at all, and may not be successful as a result of factors beyond the Company’s control, including regulatory, competition and external market factors. Failure to successfully manage these risks in the development and implementation of new products or services, and failure to integrate such new products and services into

Table of Contents

the Company's existing system of internal controls, could have a material adverse effect on its business, financial condition and results of operations.

The Company is subject to liquidity risk.

The Company requires liquidity to meet deposit and accounts and drafts payable obligations as they come due. Access to funding sources in amounts adequate to finance the Company’s commitments and business activities or on terms that are acceptable or favorable to the Company could be impaired by risks and uncertainties that are beyond the Company’s control, including those described in this Item 1A, “Risk Factors” section.

The Company’s access to deposits and accounts and drafts payable for liquidity purposes may also be adversely affected by the needs of the Company’s depositors and customers. A failure to maintain adequate liquidity could have a material adverse effect on the Company’s business, financial condition and results of operations.

The bank failures in 2023 exemplify the potential serious results of the unexpected inability of insured depository institutions to obtain needed liquidity to satisfy deposit withdrawal requests, including how quickly such requests can accelerate once uninsured depositors lose confidence in an institution's ability to satisfy its obligations to depositors. The Company seeks to ensure funding needs are met by maintaining a level of liquidity through asset and liability management. If the Company becomes unable to obtain funds when needed, it could have a material adverse effect on its business, financial condition, and results of operations.

Management’s ability to retain key officers and employees may change.

Cass’ future operating results depend substantially upon the continued service of Cass’ executive officers and key personnel. Cass’ future operating results also depend in significant part upon Cass’ ability to attract and retain qualified management, financial, technical (including with AI experience), marketing, sales, and support personnel. Competition for qualified personnel is intense, and the Company cannot ensure success in attracting or retaining qualified personnel. There may be only a limited number of persons with the requisite skills to serve in these positions, and it may be increasingly difficult for the Company to hire personnel over time. Cass’ business, financial condition and results of operations could be materially adversely affected by the loss of any of its key employees, by the failure of any key employee to perform in his or her current position, or by Cass’ inability to attract and retain skilled employees.

Cass’ stock price can become volatile and fluctuate widely in response to a variety of factors.

The Company’s stock price can fluctuate based on factors that can include actual or anticipated variations in Cass’ quarterly results; new technology or services by competitors; unanticipated losses or gains due to unexpected events, including losses or gains on securities held for investment purposes; significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving the Company or its competitors; changes in accounting policies or practices; failure to integrate acquisitions or realize anticipated benefits from acquisitions; or changes in government regulations.

General market fluctuations, industry factors and general economic and political conditions, such as economic slowdowns or recessions, governmental intervention, interest rate changes, credit loss trends, low trading volume or currency fluctuations also could cause Cass’ stock price to decrease regardless of the Company’s operating results.

Regulatory, Legal and Accounting Risk

The Company is subject to extensive government regulation and supervision and possible enforcement or other legal actions that could detrimentally affect Cass’ business.

The Company is subject to extensive federal and state regulation and supervision, the primary focus of which is to protect customers, depositors, the deposit insurance fund and the safety and soundness of the banking system as a whole, and not shareholders. Regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to capital levels, the timing and amount of dividend payments, the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes. Failure to comply with applicable laws, regulations, policies or guidance could result in enforcement and other legal actions by federal and state authorities, including criminal and civil penalties, the loss of FDIC insurance, revocation of a banking

Table of Contents

charter, and other regulatory sanctions, as well as reputational damage, any of which could have a material adverse effect on the Company’s business, financial condition and results of operations.

Congress and federal regulatory agencies continually review banking laws, regulations and policies for possible changes. The substance and impact of pending or future legislation or regulation, or the application thereof, cannot be predicted, although any change could impact the regulatory structure under which the Company or its competitors operate and may significantly increase costs, impede the efficiency of internal business processes, require an increase in regulatory capital, require modifications to the Company’s business strategy, and/or limit its ability to pursue business opportunities in an efficient manner. A change in statutes, regulations or regulatory policies applicable to the Company or any of its subsidiaries could have a material, adverse effect on the Company’s business, financial condition and results of operations.

See Item 1, “Business—Supervision and Regulation,” and Item 8, Note 3 to the consolidated financial statements included elsewhere in this report for additional information.

The Company may need to raise additional capital or sell assets if it fails to meet regulatory capital requirements or meet commitments and liquidity needs. Such capital may not be available on favorable terms, or at all.

Compliance with regulatory capital requirements could result in management modifying its business strategy and could limit the Company’s ability to make distributions, including paying dividends, or buying back shares.

The Company may also need to raise additional capital in the future to provide it with sufficient capital resources and liquidity to meet commitments and business needs. The ability to raise additional capital, if needed, will depend on, among other things, conditions in the capital markets at that time and the Company’s financial condition, as well as the need for other financial institutions to raise capital at the same time. Economic conditions and the loss of confidence in financial institutions may increase the cost of funding and limit access to certain customary sources of capital, including inter-bank borrowings, repurchase agreements and borrowings from the discount window of the Federal Reserve.

An inability to raise additional capital on acceptable terms when needed could have a materially adverse effect on the Company’s business, financial condition and results of operations.

Legal and regulatory proceedings and related matters with respect to the financial services industry, including those directly involving the Company and its subsidiaries, could adversely affect Cass or the financial services industry in general.

The Company is subject to various legal and regulatory proceedings. It is inherently difficult to assess the outcome of these matters, and there can be no assurance that the Company will prevail in any proceeding or litigation. Any such matter could result in substantial cost and diversion of Cass’ efforts, which by itself could have a material adverse effect on Cass’ financial condition and operating results. Further, adverse determinations in such matters could result in actions by Cass’ regulators that could materially adversely affect Cass’ business, financial condition or results of operations. Please refer to Item 3, “Legal Proceedings.”

The Company’s accounting policies and methods are the basis of how Cass reports its financial condition and results of operations, and they require management to make estimates about matters that are inherently uncertain. In addition, changes in accounting policies and practices, as may be adopted by the regulatory agencies, the Financial Accounting Standards Board, or other authoritative bodies, could materially impact Cass’ financial statements.

The Company’s accounting policies and methods are fundamental to how Cass records and reports its financial condition and results of operations. Management must exercise judgment in selecting and applying many of these accounting policies and methods in order to ensure that they comply with generally accepted accounting principles and reflect management’s judgment as to the most appropriate manner in which to record and report Cass’ financial condition and results of operations. In some cases, management must select the accounting policy or method to apply from two or more alternatives, any of which might be reasonable under the circumstances yet might result in the Company reporting materially different amounts than would have been reported under a different alternative.

Cass has identified one accounting policy around the calculation of the allowance for credit losses as being “critical” to the presentation of its financial condition and results of operations because it requires management to make particularly subjective and/or complex judgments about matters that are inherently uncertain and because of the likelihood that materially different amounts would be reported under different conditions or using different assumptions. More

Table of Contents

information on Cass’ critical accounting policies is contained in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

From time to time, the regulatory agencies, the Financial Accounting Standards Board (“FASB”), and other authoritative bodies change the financial accounting and reporting standards that govern the preparation of the Company’s financial statements. These changes can be hard to predict and can materially impact how management records and reports the Company’s financial condition and results of operations.

Cass is subject to examinations and challenges by tax authorities, which, if not resolved in the Company’s favor, could adversely affect the Company’s financial condition and results of operations.

In the normal course of business, Cass and its affiliates are routinely subject to examinations and challenges from federal, state, and foreign tax authorities regarding the amount of taxes due in connection with investments it has made and the businesses in which it is engaged. The challenges made by tax authorities may result in adjustments to the timing or amount of taxable income or deductions or the allocation of income among tax jurisdictions. If any such challenges are made and are not resolved in the Company’s favor, they could have an adverse effect on Cass’ financial condition and results of operations.

General Risks

The value of the Company's goodwill and other intangible assets may decline in the future.

As of December 31, 2025, the Company had $19.9 million of goodwill and other intangible assets. A significant decline in the Company's expected future cash flows, a significant adverse change in the business climate, slower growth rates or a significant and sustained decline in the price of the Company's common stock may necessitate taking charges in the future related to the impairment of goodwill and other intangible assets which could have a material adverse effect on the Company's financial condition and results of operations.

Climate change could have a material negative impact on the Company and its clients.

There is an increasing concern over the risks of climate change and related environmental sustainability matters. The physical risks of climate change include discrete events, such as flooding, hurricanes, and wildfires, and longer-term shifts in climate patterns, such as extreme heat, sea level rise, and more frequent and prolonged drought. Under medium or longer-term scenarios, such events, if uninterrupted or unaddressed, could disrupt the Company's operations or those of its customers or third parties on which it relies, including through direct damage to assets and indirect impacts from supply chain disruption and market volatility. Additionally, transitioning to a low-carbon economy may entail extensive policy, legal, technology, and market initiatives. Transition risks, including changes in consumer preferences and additional regulatory requirements or supervisory expectations or taxes, could increase the Company's expenses and undermine its strategies. In addition, the Company's reputation and client relationships may be damaged as a result of its practices related to climate change, including its involvement, or its customers’ involvement, in certain industries or projects, in the absence of mitigation and/or transition measures, associated with causing or exacerbating climate change, as well as any decisions the Company makes to continue to conduct or change its activities in response to considerations relating to climate change.

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to promote understanding of the results of operations and financial condition. MD&A is provided as a supplement to, and should be read in conjunction with, the consolidated financial statements and the accompanying Notes to Financial Statements (Part II, Item 8 of this Form 10-K). This section generally discusses the results of operations for 2025 compared to 2024. For discussion related to the results of operations and changes in financial condition for 2024 compared to 2023 refer to Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's 2024 Annual Report on Form 10-K filed with the SEC on March 5, 2025.

The Company intends for the discussion of financial condition and results of operations that follows to provide information that will assist the reader in understanding the Consolidated Financial Statements, the changes in certain key items in those financial statements from year to year, and the primary factors that accounted for those changes, as well as how certain accounting principles, policies, and estimates affect the Consolidated Financial Statements. This discussion should be read in conjunction the Consolidated Financial Statements and the related notes that appear in Part II, Item 8 of this document.

Forward-Looking Statements and Factors that Could Affect Future Results

Certain statements contained in this Annual Report on Form 10-K that are not statements of historical fact constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Act”), notwithstanding that such statements are not specifically identified as such. In addition, certain statements may be contained in the Company's future filings with the SEC, in press releases, and in oral and written statements made by the Company or with the Company's approval that are not statements of historical fact and constitute forward-looking statements within the meaning of the Act. Examples of forward-looking statements include, but are not limited to: (i) projections of revenues, expenses, income or loss, earnings or loss per share, the payment or nonpayment of dividends,

Table of Contents

capital structure and other financial items; (ii) statements of plans, objectives and expectations of the Company or its management or Board of Directors, including those relating to products, services or operations; (iii) statements of future economic performance; and (iv) statements of assumptions underlying such statements. Words such as “believes,” “anticipates,” “expects,” “intends,” “targeted,” “continue,” “remain,” “will,” “should,” “may,” and other similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements.

Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those in such statements. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to:

• The effects of and changes in trade and monetary and fiscal policies and laws, including the interest rate policies of the Federal Reserve Board and the implementation of tariffs and other protectionist trade policies.

• Inflation, interest rate, securities market, and monetary fluctuations.

• Changes in energy prices.

• Changes in freight rates.

• Local, regional, national, and international economic conditions and the impact they may have on the Company and its customers and its assessment of that impact.

• Changes in the financial performance and/or condition of the Company's borrowers.

• Changes in the mix of loan sectors and types or the level of non-performing assets and charge-offs.

• Changes in estimates of future allowance for credit losses requirements based upon the periodic review thereof under relevant regulatory and accounting requirements.

• Changes in the Company's liquidity position.

• Impairment of the Company's goodwill or other intangible assets.

• Changes in consumer spending, borrowing, and saving habits.

• Technological changes, including artificial intelligence.

• The cost and effects of cyber incidents or other failures, interruptions, or security breaches of the Company's systems or those of the Company's customers or third-party providers.

• Acquisitions and integration of acquired businesses.

• Changes in the reliability of the Company's vendors, internal control systems or information systems.

• The Company's ability to increase market share and control expenses.

• The Company's ability to attract and retain qualified employees.

• Changes in the Company's organization, compensation, and benefit plans.

• The soundness of other financial institutions.

• Volatility and disruption in national and international financial and commodity markets.

• Government intervention in the U.S. financial system.

• Political or economic instability.

• Acts of God or of war or terrorism.

• The potential impact of climate change.

• The impact of pandemics, epidemics, or any other health-related crisis.

• The costs and effects of legal and regulatory developments, the resolution of legal proceedings or regulatory or other governmental inquiries, the results of regulatory examinations or reviews and the ability to obtain required regulatory approvals.

• The effect of changes in laws and regulations (including laws and regulations concerning taxes, banking, securities, and insurance) and their application with which the Company must comply.

• The effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board and other accounting standard setters.

• The Company's success at managing the risks involved in the foregoing items.

In addition, financial markets, international relations, and global supply chains have been significantly impacted by recent U.S. trade policies and practices. Due to the rapidly evolving and changing state of U.S. trade policies, the amount and duration of any tariffs and their ultimate impact on the Company, its customers, financial markets, and the overall U.S. and global economies is currently uncertain. Nonetheless, prolonged uncertainty, elevated tariff levels or their wide-spread use in U.S. trade policy could weaken economic conditions and adversely impact the ability of borrowers to repay outstanding loans or the value of collateral securing these loans or adversely affect financial markets or the values of securities. To the extent that these risks may have a negative impact on the financial condition of borrowers or financial markets, it could also have a material adverse effect on the Company's business, financial condition and results of operations.

Table of Contents

Forward-looking statements speak only as of the date on which such statements are made.The Company does not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made, or to reflect the occurrence of unanticipated events.

Executive Overview

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, transactional level payment services, 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. Transactional level payment services and interest income from the balances generated during the payment processing cycle are affected by the amount of time Cass holds the funds prior to payment and the dollar volume processed. Both the number of transactions processed and the dollar volume processed are therefore key metrics followed by management. Other factors will also influence revenue and profitability, such as changes in the general level of interest rates, which have a significant effect on net interest income. The funds generated by these processing activities are invested in overnight investments, investment grade securities, advances to payees, and loans generated by the Bank. The Bank earns most of its revenue from net interest income, or the difference between the interest earned on its loans and investments and the interest paid on its deposits and other borrowings. The Bank also assesses fees on other services such as cash management services.

Industry-wide factors that impact the Company include the willingness of large corporations to outsource key business functions such as freight, energy, 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 and deregulation of energy costs. Economic factors that impact the Company include the general level of economic activity that can affect the volume and size of invoices processed, the ability to hire and retain qualified staff, and the growth and quality of the loan portfolio. The general level of interest rates also has a significant effect on the revenue of the Company. As discussed in greater detail in Item 7A, “Quantitative and Qualitative Disclosures about Market Risk,” a decline in the general level of interest rates can have a negative impact on net interest income and conversely, a rise in the general level of interest rates can have a positive impact on net interest income. The cost of energy is another factor that has a significant impact on the transportation and facility sectors. As the price of energy goes up or down, the Company’s earnings increase or decrease with the dollar amount of transportation and facility expense invoices.

The Company continues to operate profitably, posting a 1.43% return on average assets and 14.98% return on average equity. The Company’s common equity Tier 1 capital ratio was 15.10% at December 31, 2025, significantly exceeding regulatory requirements. In addition, the Company has maintained exceptional credit quality with no loan charge-offs during the year ended December 31, 2025.

The Company’s solid capital and liquidity positions, combined with ongoing earnings, are expected to continue to allow for investment in strategic opportunities when they become available, in addition to return of capital to shareholders. The Company delivered $16.5 million in dividend payments and $26.0 million in share repurchases during 2025. The Company continues to invest in the technology, processes, and people required to support its multi-national customer base.

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.

Recent Industry Developments

While freight rates have recently begun gradually increasing after a number of quarters of decline since 2023, volumes continue to decline on a year-over-year basis, which continues to put pressure on transportation related processing fees. In addition, carrier consolidation with small and medium-sized trucking companies exiting the market or selling to larger carriers continues to put downward pressure on financial fees as the smaller trucking companies were larger users of our quick pay solutions.

Table of Contents

The Company started to see increased tariff related charges on shipping invoices of its clients beginning in April 2025. The Company estimates that transportation dollar volumes were approximately $600 million higher in 2025 than 2024 due to the impact of tariffs. The Company benefits from higher dollar volumes given the related increases in accounts and drafts payable and interest income.

The Company has experienced an increase in facility dollar volumes in recent quarters due to higher energy usage and prices, in addition to onboarding new clients with high dollar volumes as compared to the related transaction count. 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.

Recent Items of Note

Net interest income increased $13.5 million, or 19.8%, as compared to the same period last year. The increase in net interest income was attributable to the net interest margin improving to 3.83% as compared to 3.42% in the same period last year, in addition to an increase in average interest-earning assets of $136.8 million, or 6.8%. The Company generally benefits from a higher interest rate environment due to a large percentage of its funding sources being non-interest bearing.

The One Big Beautiful Bill Act (“OBBBA”) was enacted on July 4, 2025. Among other things, the new law makes permanent certain expiring business tax provisions of the Tax Cuts and Jobs Act (“TCJA”). These include provisions which allow businesses to immediately expense, for tax purposes, the cost of new investments in certain qualified depreciable assets and the cost of qualified domestic research and development. The OBBBA also imposes a floor on tax deductions taken on charitable contributions. The OBBBA also significantly changes U.S. tax law related to foreign operations and certain tax credits. The impact of the OBBBA is not expected to have a material impact on the Company's consolidated financial statements.

Discontinued Operations

On April 7, 2025, the Company signed an Asset Purchase Agreement providing for the sale of its Telecom Expense Management & Managed Mobility Services (“TEM”) business to Asignet USA Inc. The sale closed on June 30, 2025. We have applied discontinued operations accounting in accordance with FASB Accounting Standards Codification (“ASC”), Topic 205-20, “Presentation of Financial Statements – Discontinued Operations,” to the assets and liabilities sold related to the Company's TEM Business Unit as of and for the years ended December 31, 2025, 2024, and 2023, as applicable. All financial information in this Annual Report on Form 10-K is reported on a continuing operations basis, unless otherwise noted. See Note 2 and Note 20 to the Company's consolidated financial statements for further discussion regarding discontinued operations and subsequent events associated with discontinued operations.

Table of Contents

Summary of Results

(In thousands except per share data)

For the Years Ended December 31,

% Change

Processing fees

Financial fees

Net interest income

Provision for (release of) credit losses

Loss on sale of investment securities

Other

Total revenues

Operating expense

Income before income tax expense

Income tax expense

Net income from continuing operations

Income from discontinued operations, net of tax

Net income

Diluted earnings per share from continuing operations

Diluted earnings per share from discontinued operations

Diluted earnings per share

Return on average assets

Return on average equity

The Company recorded revenue of $190.8 million in 2025, up 5.3% from the prior year, largely due to an increase in net interest income, partially offset by a decrease in financial fees and a loss on sale of investment securities. Operating expense decreased 3.6% in 2025, largely driven by $7.8 million of bad debt expense in 2024 and $2.0 million of bad debt recovery experienced in 2025. Net income was $35.1 million and diluted EPS was $2.61 per share in 2025, increases of 83.2% and 87.8%, respectively, from the prior year.

The Company posted a 1.43% return on average assets and 14.98% return on average equity in 2025.

Further detail about the components of revenue and expenses are explained in the sections following.

Table of Contents

Fee Revenue and Other Income

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

(In thousands)

December 31,

% Change

Transportation invoice volume

Transportation dollar volume

Facility expense invoice volume

Facility expense dollar volume

Average payments in advance of funding

Processing fees

Financial fees

Other income

Loss on sale of investment securities

Processing fees increased $68,000, or 0.1%, during 2025 compared to 2024, due to the AcuAudit acquisition in December 2024, partially offset by decreases in facility and transportation volumes of 0.4% and 3.6%, respectively. The decline in transportation volumes was primarily due to the on-going freight recession and the impact of tariffs. Facility expense invoice volumes were flat in 2025 after experiencing 25.4% growth in 2024.

Financial fees decreased $2.2 million, or 5.1%, in 2025 compared to 2024, which was primarily attributable to a 13.7% decrease in average payments in advance of funding in addition to the changes in the manner in which facility vendors receive payments. Average payments in advance of funding declined in 2025 compared to 2024 due to the consolidation of freight carriers, partially offset by a 0.9% increase in transportation dollar volumes.

Other income increased $1.6 million, or 30.8%, during 2025 compared to 2024 primarily due to higher bank-owned life insurance income as well as growth in TouchPoint related church management software fees.

The Company sold $34.0 million of corporate investment securities with a weighted-average yield of 2.29% at a loss of $3.5 million in June 2025 in an effort to reposition the investment portfolio and improve the net interest margin and net interest income in future periods.

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)

December 31,

% Change

Average earning assets

Average interest-bearing liabilities

Net interest income (1)

Net interest margin (1)

Yield on earning assets (1)

Rate on interest bearing liabilities

(1) Presented on a tax-equivalent basis using a tax rate of 21%.

Table of Contents

The $13.5 million increase in net interest income in 2025 as compared to 2024 was primarily due to an increase in net interest margin to 3.83% as compared to 3.42% in the prior year, in addition to the increase in average earning assets of $136.8 million, or 6.8%. The yield on interest-earning assets increased 16 basis points from 4.43% in 2024 to 4.59% in 2025 while the cost of interest-bearing liabilities decreased 55 basis points from 3.19% in 2024 to 2.64% in 2025.

Average loans increased $54.3 million, or 5.2%, in 2025 compared to 2024, to $1.10 billion. The Company experienced significant loan growth during the first quarter of 2025 and then a subsequent decline in loans during the remainder of the year. The average yield on loans increased 37 basis points to 5.65% in 2025.

Average investment securities increased $58.8 million, or 9.2% in 2025 compared to 2024. The increase was driven by the utilization of available liquidity arising from an increase in average accounts and drafts payable to purchase investment securities. The average yield on taxable investment securities increased 41 basis points to 3.24% and the average yield on tax-exempt investment securities increased 43 basis points to 3.22%.

Average short-term investments, consisting of interest-bearing deposits in other financial institutions and federal funds sold, increased $23.7 million, or 7.3% in 2025 compared to 2024. The increase is primarily a result of the increase in average funding sources, partially offset by the increase in average loans and average investment securities. The average yield on short-term investments decreased 88 basis points to 3.95% 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 decreased $17.5 million, or 2.8% in 2025 compared to 2024. Average non-interest-bearing demand deposits decreased $8.2 million, or 2.0%. The Company has experienced deposit attrition due to a decrease in the overall level of some larger commercial deposits due to client funding needs for acquisitions and other purposes. The average rate paid on interest-bearing deposits decreased 55 basis points to 2.64% in 2025 due to the decrease in the Federal Funds rate.

Average accounts and drafts payable increased $150.3 million, or 14.9%, in 2025 compared to 2024, to $1.16 billion. The increase in average accounts and drafts payable was primarily driven by the increase in facility dollar volumes of 14.7% as well as the increase in transportation dollar volumes of 0.9%.

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

The following table contains condensed average balance sheets for each of the periods reported, the tax-equivalent interest income and expense on each category of interest-earning assets and interest-bearing liabilities, and the average yield on such categories of interest-earning assets and the average rates paid on such categories of interest-bearing liabilities for each of the periods reported:

Table of Contents

(In thousands)

Average

Balance

Interest

Income/

Expense

Yield/ Rate

Average Balance

Interest Income/

Expense

Yield/ Rate

Average Balance

Interest Income/

Expense

Yield/ Rate

Assets (1)

Interest-earning assets

Loans (2) :

Investment securities (4) :

Taxable

Tax-exempt (3)

Short-term investments

Total interest-earning assets

Non-interest-earning assets

Cash and due from banks

Premises and equipment, net

Payments in advance of funding

Bank-owned life insurance

Goodwill and other intangibles

Unrealized loss on investment securities

Other assets

Allowance for credit losses

Assets of discontinued operations

Total assets

Liabilities and Shareholders’ Equity (1)

Interest-bearing liabilities

Interest-bearing demand deposits

Savings deposits

Time deposits >=$250

Other time deposits

Total interest-bearing deposits

Short-term borrowings

Total interest-bearing liabilities

Non-interest bearing liabilities

Demand deposits

Accounts and drafts payable

Other liabilities

Liabilities of discontinued operations

Total liabilities

Shareholders’ equity

Total liabilities and shareholders’ equity

Net interest income (3)

Net interest margin (3)

Interest spread

(1) Balances shown are daily averages.

(2) Interest income on loans includes net loan fees of $744,000, $477,000, and $686,000 for 2025, 2024 and 2023, respectively.

(3) Interest income is presented on a tax-equivalent basis assuming a tax rate of 21%. The tax-equivalent adjustment was approximately $1.1 million, $1.0 million, and $1.1 million for 2025, 2024, and 2023, respectively.

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

Table of Contents

Analysis of Net Interest Income Changes

The following table presents the changes in interest income and expense between years due to changes in volume and interest rates.

(In thousands)

2025 Over 2024

2024 Over 2023

Volume (1)

Rate (1)

Total

Volume (1)

Rate (1)

Total

Increase (decrease) in interest income:

Loans (2) :

Investment securities:

Taxable

Tax-exempt (3)

Short-term investments

Total interest income

Interest expense on:

Interest-bearing demand deposits

Savings deposits

Time deposits >=$250

Other time deposits

Short-term borrowings

Total interest expense

Net interest income

(1) The change in interest due to the combined rate/volume variance has been allocated in proportion to the absolute dollar amounts of the change in each.

(2) Interest income includes net loan fees.

(3) Interest income is presented on a tax-equivalent basis assuming a tax rate of 21%.

Loan Portfolio

Interest earned on the loan portfolio is a primary source of income for the Company. The loan portfolio was $1.06 billion, representing 40.7% of the Company's total assets as of December 31, 2025 and generated $62.3 million in interest income during the year ended December 31, 2025. The following tables show the composition of the loan portfolio at the end of the periods indicated and remaining maturities for loans as of December 31, 2025.

Loans by Type

December 31,

(In thousands)

Commercial and industrial

Real estate (commercial and faith-based):

Mortgage

Construction

Other

Total loans

At December 31, 2025, the Company did not have any foreign loans or single family real estate mortgages, as the Company does not market its services to retail customers. Also, the Company had no sub-prime mortgage loans or residential development loans in its portfolio in any of the years presented.

Table of Contents

Loans by Maturity as of December 31, 2025

(In thousands)

One Year

Or Less

Over 1 Year

Through 5 Years

Over 5 Years

Through 15 Years (1)

Total

Fixed

Rate

Floating

Rate

Fixed

Rate

Floating

Rate

Fixed

Rate

Floating

Rate

Commercial and industrial

Real Estate:

Mortgage

Construction

Other

Total loans

(1) The Company did not have any loans with maturities greater than 15 years.

The Company has no concentrations of loans exceeding 10% of total loans, which are not otherwise disclosed in the loan portfolio composition table and as are discussed in Item 8, Note 5, of this report. The Company's primary market niche for banking services is privately held businesses, franchise restaurants, and faith-based ministries.

Loans to commercial entities are generally secured by the business assets of the borrower, including accounts receivable, inventory, machinery and equipment, and the real estate from which the borrower operates. Operating lines of credit to these companies generally are secured by accounts receivable and inventory, with specific percentages of each determined on a customer-by-customer basis based on various factors including the type of business. Intermediate term credit for machinery and equipment is generally provided at some percentage of the value of the equipment purchased, depending on the type of machinery or equipment purchased by the entity. Loans secured exclusively by real estate to businesses and faith-based ministries are generally made with a maximum 80% loan to value ratio, depending upon the Company's estimate of the resale value and ability of the property to generate cash. The Company's loan policy requires an independent appraisal for all loans over $500,000 secured by real estate. Company management monitors the local economy in an attempt to determine whether it has had a significant deteriorating effect on such real estate loans. When problems are identified, appraised values are updated on a continual basis, either internally or through an updated external appraisal.

Loans decreased $20.8 million, or 1.9%, to $1.06 billion at December 31, 2025 as compared to December 31, 2024. Franchise restaurant loans, which are included in commercial and industrial loans, decreased $22.1 million during 2025. Faith-based loans increased $3.2 million during 2025. Additional details regarding the types and maturities of loans in the loan portfolio are contained in the tables above and in Item 8, Note 5.

Provision and Allowance for Credit Losses on Loans and Allowance for Unfunded Commitments

The Company recorded a provision for credit losses and off-balance sheet credit exposures of $348,000 and $447,000 in 2025 and 2024, respectively. The amount of the provision for credit losses was derived from the Company’s CECL model. The amount of the provision will fluctuate as determined by these analyses. The Company had no loan charge-offs or recoveries in 2025 and 2024. The ACL was $13.6 million at December 31, 2025 compared to $13.4 million at December 31, 2024. The ACL represented 1.28% and 1.24% of outstanding loans at December 31, 2025 and December 31, 2024, respectively. The allowance for unfunded commitments was $419,000 at December 31, 2025 and $273,000 at December 31, 2024. The balance of nonperforming loans outstanding was $7.0 million at December 31, 2025 and $0 at December 31, 2024.

The ACL has been established and is maintained to estimate the lifetime credit losses expected 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 values.

Table of Contents

Federal and state regulatory agencies review the Company’s methodology for maintaining the ACL. These agencies may require the Company to adjust the ACL based on their judgments and interpretations about information available to them at the time of their examinations.

The following schedule summarizes activity in the ACL and the allocation of the allowance to the Company’s loan categories.

Table of Contents

Summary of Credit Loss Experience

(In thousands)

December 31,

Allowance at beginning of year

Loans charged-off:

Commercial and industrial

Real estate (commercial and faith-based):

Mortgage

Construction

Other

Total loans charged-off

Recoveries of loans previously charged-off:

Commercial and industrial

Real estate (commercial and faith-based):

Mortgage

Construction

Other

Total recoveries of loans previously charged-off

Net loans recovered

Provision for (release of) credit losses

Allowance at end of year

Allowance for unfunded commitments at beginning of year

Provision for (release of) credit losses

Allowance for unfunded commitments at end of year

Loans outstanding:

Average

December 31

Ratio of allowance for credit losses to loans outstanding at December 31

Ratio of net recoveries to average loans outstanding

Allocation of allowance for credit losses (1) :

Commercial and industrial

Real estate (commercial and faith-based):

Mortgage

Construction

Total

Percentage of categories to total loans:

Commercial and industrial

Real estate (commercial and faith-based):

Mortgage

Construction

Total

(1) Although specific allocations exist, the entire allowance is available to absorb losses in any particular loan category.

Nonperforming Assets

Nonperforming loans are defined as loans on non-accrual status and loans 90 days or more past due but still accruing. Nonperforming assets include nonperforming loans plus foreclosed real estate. Loans with modifications to borrowers experiencing financial difficulty are not included in nonperforming loans unless they are on non-accrual status or past due 90 days or more.

It is the policy of the Company to continually monitor its loan portfolio and to discontinue the accrual of interest on any loan for which collection is not probable. Subsequent payments received on such loans are applied to principal if collection

Table of Contents

of principal is not probable; otherwise, these receipts are recorded as interest income. There was no interest income recognized on nonaccrual loans for the years ended 2025 and 2024.

There were three nonaccrual loans with a balance of $7.0 million at December 31, 2025 and none at December 31, 2024. There were no foreclosed assets at December 31, 2025 or December 31, 2024.

The Company did not have any other interest-earning assets which would have been included in nonaccrual, past due or restructured loans if such assets were loans.

Summary of Nonperforming Assets

(In thousands)

December 31,

Commercial and industrial:

Nonaccrual

Contractually past due 90 days or more and still accruing

Real estate – mortgage:

Nonaccrual

Contractually past due 90 days or more and still accruing

Total nonperforming loans

Total foreclosed assets

Total nonperforming assets

Operating Expense

Operating expense in 2025 compared to 2024 and 2023 include the following significant pre-tax components:

(In thousands)

December 31,

Salaries and commissions

Share-based compensation

Employee profit sharing

Net periodic pension cost

Other benefits

Total personnel expense

Occupancy

Equipment

Bad debt (recovery) expense

Amortization of intangible assets

Other operating

Total operating expense

Total operating expense decreased 3.6% in 2025 compared to 2024 largely driven by the $2.0 million bad debt recovery in 2025 compared to a $7.8 million bad debt expense on a funding receivable related to a facility client in 2024.

Personnel expenses increased $729,000, or 0.7% in 2025 compared to 2024 . Salaries and commissions increased $339,000, or 0.4%, as a result of the AcuAudit acquisition and merit increases, partially offset by a decrease in average full-time equivalent employees ("FTEs") of 5.4% due to strategic investments in various technology initiatives. Share-based

Table of Contents

compensation increased $1.1 million due to the improvement in earnings. Other benefits increased $1.6 million, or 9.2%, due to higher health insurance costs, partially offset by the decline in average FTEs.

Net periodic pension cost decreased $4.2 million in 2025 compared to 2024. The Company recorded a one-time non-cash expense of $3.5 million in the fourth quarter of 2024 related to the termination of its noncontributory defined-benefit pension plan.

Equipment expense increased $1.8 million, or 22.4%, in 2025 compared to 2024, primarily due to an increase in depreciation expense on software related to recently completed technology initiatives.

The $480,000 increase in amortization of intangible assets in 2025 compared to 2024 was driven by the AcuAudit acquisition in December 2024.

The $1.0 million increase in other operating expense for 2025 includes a $1.1 million restructuring charge primarily related to the consolidation of the Company's non-transportation invoice and payment processing activities into a single Facilities division.

Income Tax Expense

Income tax expense in 2025 totaled $7.6 million, compared to $4.9 million in 2024. When measured as a percent of pre-tax income, the Company’s effective tax rate was 19.70% and 20.80% in 2025 and 2024, respectively. The decrease in the effective tax rate in 2025 compared to 2024 is reflective of purchases of tax-exempt municipal investment securities during 2025 and the impact of certain tax credits.

Summary of Discontinued Operations

(In thousands except per share data)

For the Years Ended December 31,

% Change

Processing fees

Financial fees

Other

Gain on sale of TEM business

Total revenues

Operating expense

Income before income tax expense

Income tax expense

Net income from discontinued operations

Facility transaction volume

Facility dollar volume

Net income from discontinued operations for 2025 was $4.0 million, as compared to $610,000 in 2024, primarily reflecting a $3.6 million gain on the sale of the TEM business in June 2025.

Investment Portfolio

Investment securities available-for-sale increased $242.8 million, or 46.0%, during 2025 to $770.8 million at December 31, 2025. State and political securities increased $68.2 million, or 39.7%, to $240.2 million at December 31, 2025. Mortgage-backed securities increased $245.4 million to $478.7 million at December 31, 2025. Corporate bonds decreased $58.9 million to $28.9 million at December 31, 2025. The investment portfolio provides the Company with a significant source of earnings, secondary source of liquidity, and mechanisms to manage the effects of changes in loan demand and interest rates. Therefore, the size, asset allocation and maturity distribution of the investment portfolio will vary over time depending on management’s assessment of current and future interest rates, changes in loan demand, changes in the Company’s sources of funds and the economic outlook. During 2025, the Company purchased investment securities totaling $435.2 million and sold investment securities totaling $129.9 million, including the sale of $34.0 million of

Table of Contents

corporate bonds in June 2025 to reposition the investment portfolio. The growth in the investment portfolio was primarily due to utilization of cash proceeds from an increase in funding sources.

There was no single issuer of securities in the investment portfolio at December 31, 2025 for which the aggregate amortized cost exceeded 10% of total shareholders' equity.

Investments by Type

(In thousands)

December 31,

State and political subdivisions

Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored enterprises

Corporate bonds

Asset-backed securities issued or guaranteed by U.S. Government agencies or sponsored enterprises

Treasury securities

Total investments

Investment Securities by Maturity

(At December 31, 2025)

(In thousands)

Within 1

Year

Over 1 to 5

Years

Over 5 to

10 Years

Over

10 Years

Yield (1)

State and political subdivisions

Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored enterprises

Corporate bonds

Asset-backed securities issued or guaranteed by U.S. Government agencies or sponsored enterprises

Total investments

Weighted average yield (1)

(1) Yields are presented on a tax-equivalent basis assuming a tax rate of 21%.

Deposits and Accounts and Drafts Payable

(In thousands)

December 31,

Noninterest-bearing demand deposits

Interest-bearing deposits

Total deposits

Accounts and drafts payable

Total deposits increased $232.1 million, or 24.0% during 2025 compared to 2024. Noninterest-bearing demand deposits increased $262.2 million, or 104.4%, to $513.4 million at December 31, 2025 and interest-bearing deposits decreased $30.1 million, or 4.2%, to $686.6 million at December 31, 2025. The increase in total deposits between the periods was driven by timing of customer funds. The average balance of deposits is more indicative of trends period to period.

Accounts and drafts payable generated by the Company in its payment processing operations decreased $4.8 million, or 0.4%, from the prior year to $1.12 billion, at December 31, 2025. Due to the Company’s payment processing cycle,

Table of Contents

average balances are much more indicative of the underlying activity than period-end balances since point-in-time comparisons can be misleading if the comparison dates fall on different days of the week. Average accounts and drafts payable increased $150.3 million, or 14.9%, to $1.16 billion during 2025. The increase in these balances, which are non-interest bearing, are primarily reflective of the increase in transportation and facility dollar volumes of 0.9%, and 14.7%, respectively.

The composition of average deposits and the average rates paid on those deposits is represented in the table entitled “Distribution of Assets, Liabilities and Shareholders' Equity; Interest Rate and Interest Differential” which is included earlier in this discussion. The Company does not have any significant deposits from foreign depositors.

Maturities of Certificates of Deposit as of December 31, 2025

(In thousands)

$100 or Less

$100 to Less

Than $250

More

Total

Three months or less

Three to six months

Six to twelve months

Over twelve months

Total

Liquidity

The discipline of liquidity management as practiced by the Company seeks to ensure that funds are available to fulfill all payment obligations relating to invoices processed as they become due and meet depositor withdrawal requests and borrower credit demands while at the same time maximizing profitability. This is accomplished by balancing changes in demand for funds with changes in supply of funds. Primary liquidity to meet demand is provided by short-term liquid assets that can be converted to cash, maturing securities and the ability to obtain funds from external sources. The Company's Asset/Liability Committee (“ALCO”) has direct oversight responsibility for the Company's liquidity position and profile. Management considers both on-balance sheet and off-balance sheet items in its evaluation of liquidity.

The balance of liquid assets consists of cash and cash equivalents, which includes cash and due from banks, interest-bearing deposits in other financial institutions, federal funds sold, and money market funds. These balances totaled $392.3 million at December 31, 2025, an increase of $42.5 million, or 12.2%, from December 31, 2024. The increase during 2025 is primarily attributed to an increase in deposits and a decrease in loans, partially offset by increases in securities available-for-sale and accounts and drafts receivable from customers. At December 31, 2025, cash and cash equivalents represented 15.1% of total assets and were 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 available-for-sale at fair value were $770.8 million at December 31, 2025, an increase of $242.8 million, or 46.0%, from December 31, 2024. Investment securities represented 29.6% of total assets at December 31, 2025. Of the total portfolio, 0.9% mature in one year or less, 9.2% mature after one year through five years and 89.9% mature after five years.

As of December 31, 2025, the Bank had unsecured lines of credit at six correspondent banks to purchase federal funds up to a maximum of $83.0 million in aggregate. As of December 31, 2025, the Bank had secured lines of credit with the Federal Home Loan Bank of $239.9 million collateralized by commercial mortgage loans. At December 31, 2025, the Company had lines of credit from three banks up to a maximum of $225.0 million in aggregate collateralized by state and political subdivision securities. There were no amounts outstanding at December 31, 2025 and 2024 under any of the lines of credit.

The deposits of the Company's banking subsidiary have historically been stable, consisting of a sizable volume of core deposits related to customers that utilize many other commercial products of the Bank. The accounts and drafts payable generated by the Company have also historically been a stable source of funds.

Net cash flows provided by operating activities for the years 2025, 2024 and 2023 were $37.4 million, $38.9 million, and $36.9 million, respectively. Net income plus depreciation and amortization accounts for most of the operating cash provided. Net cash flows from investing and financing activities fluctuate greatly as the Company actively manages its

Table of Contents

investment and loan portfolios and customer activity influences changes in deposit and accounts and drafts payable balances. Further analysis of the changes in these account balances is discussed earlier in this report. Due to the daily fluctuations in these account balances, management believes that the analysis of changes in average balances, also discussed earlier in this report, can be more indicative of underlying activity than the period-end balances used in the statements of cash flows. Management anticipates that cash and cash equivalents, maturing investments, cash from operations, and borrowing lines will continue to be sufficient to fund the Company’s operations and capital expenditures in 2025. The Company estimates that capital expenditures for 2026 should range from $4.0 million to $6.0 million. Capital expenditures in 2026 are 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 $43.3 million and $28.5 million for the years ended December 31, 2025 and December 31, 2024, respectively, an increase of $14.8 million year over year. The increase was due to the increase in net income of $15.9 million, an increase in amortization of intangible assets of $480,000, and an increase in depreciation of $1.0 million, partially offset by lower net amortization of premium/discount on investment securities of $2.6 million. 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 $1.5 million decrease in net cash provided by operating activities include:

• A decrease in other operating activities, net of $15.9 million, primarily due to changes in various accounts receivable and payable;

• A decrease in the ASC 718 pension adjustment of $5.2 million; and

• A decrease in net cash used from discontinued operations of $3.6 million; partially offset by

• A smaller increase in accounts receivable, representing a positive variance of $3.5 million; and

• An increase in the current income tax liability of $4.4 million.

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, freight rates, inflation, and energy costs as well as new business opportunities available to the Company.

As a financial institution, a significant source of the Company’s earnings is generated from net interest income. Therefore, the prevailing interest rate environment is important to the Company’s performance. A major portion of the Company’s funding sources are the noninterest-bearing accounts and drafts payable generated from its payment and information processing services. Accordingly, higher levels of interest rates will generally allow the Company to earn more net interest income. Conversely, a lower interest rate environment will generally tend to depress net interest income. The Company actively manages its balance sheet in an effort to maximize net interest income as the interest rate environment changes. This balance sheet management impacts the mix of earning assets maintained by the Company at any point in time. For example, in a low interest rate environment, short-term relatively lower rate liquid investments may be reduced in favor of longer term relatively higher yielding investments and loans. If the primary source of liquidity is reduced in a low interest rate environment, a greater reliance would be placed on secondary sources of liquidity including borrowing lines, the ability of the Bank to generate deposits, and the investment portfolio to ensure overall liquidity remains at acceptable levels.

The overall level of economic activity can have a significant impact on the Company’s ability to generate revenues and income, as the volume and size of customer invoices processed may increase or decrease. Lower levels of economic activity decrease both fee income (as fewer invoices are processed) and balances of accounts and drafts payable generated (as fewer or lower average dollar invoices are processed) from the Company’s transportation customers.

The relative level of energy costs can impact the Company’s earnings and available liquidity. Lower levels of energy costs will tend to decrease transportation and facility expense invoice amounts resulting in a corresponding decrease in accounts and drafts payable. Decreases in accounts and drafts payable generate lower interest income and reduce liquidity.

New business opportunities are an important component of the Company’s strategy to grow earnings and improve performance. Generating new customers allows the Company to leverage existing systems and facilities and grow revenues faster than expenses. During 2025, new business was added in both the transportation and facility expense management operations, driven by both successful marketing efforts and the solid market leadership position held by Cass.

Table of Contents

Capital Resources

One of management’s primary objectives is to maintain a strong capital base to warrant the confidence of customers, shareholders, and bank regulatory agencies. A strong capital base is needed to take advantage of profitable growth opportunities that arise and to provide assurance to depositors and creditors. The Company and its banking subsidiary continue to exceed all regulatory capital requirements, as evidenced by the capital ratios at December 31, 2025 as shown in Item 8, Note 3 of this report.

Cash dividends paid were $16.5 million for both 2025 and 2024.

Shareholders’ equity was $243.0 million, or 9.3% of total assets, at December 31, 2025, an increase of $14.0 million as compared to December 31, 2024. The increase was primarily a result of net income of $35.1 million and the decrease in accumulated other comprehensive loss of $18.4 million, partially offset by the payment of cash dividends of $16.5 million, and the repurchase of treasury shares of $26.0 million.

Dividends from the Bank are a source of funds for payment of dividends by the Company to its shareholders. The only restrictions on dividends are those dictated by regulatory capital requirements, state corporate laws and prudent and sound banking principles. During 2025, the Bank paid dividends of $20.0 million to the Company. As of December 31, 2025, unappropriated retained earnings of $31.1 million were available at the Bank for the declaration of dividends to the Company without prior approval from regulatory authorities.

The Company maintains a treasury stock buyback program approved by the Board of Directors in November 2025 pursuant to which the Board of Directors has authorized the repurchase of up to 1,000,000 shares of the Company’s common stock and has no expiration date. A total of 874,970 shares remain under the buyback program at December 31, 2025.

The Company repurchased a total of 617,415 shares at an aggregate cost of $26.0 million during the year ended December 31, 2025 and 167,455 shares at an aggregate cost of $7.2 million during the year ended December 31, 2024. A portion of the repurchased shares may be used for the Company’s employee benefit plans and the balance will be available for other general corporate purposes. The pace of future repurchase activity will depend on factors such as levels of regulatory capital, cash generation from operations, cash requirements for investments, repayment of debt, current stock price, business and market conditions, and other factors. The Company may repurchase shares from time to time on the open market or in private transactions, including structured transactions. The stock repurchase program may be modified or discontinued at any time.

Impact of Inflation

Inflation could have the impact of increasing the Company's operating expenses, such as compensation expense. Inflationary pressures may also have an impact on total assets, earnings and capital, which could impact the Company's ability to grow. An increase in total assets could have the impact of decreasing regulatory capital ratios if earnings and total regulatory capital do not increase at the same rate.

As a result of rising inflation, the Federal Reserve increased the Federal Funds rate throughout 2023 and 2024. The increase in the Federal Funds rate contributed to the increase in the Company's net interest margin to 3.83% in 2025 from 3.42% in 2024 and 3.25% in 2023, therefore positively impacting net interest income. The Federal Reserve began to decrease the Federal Funds rate during the last four months of 2024 by a cumulative 100 basis points and by another 75 basis points during the last four months of 2025. Further decreases in the Federal Funds rate resulting from softening inflation or other reasons could negatively impact the Company's net interest margin and income in 2026.

Critical Accounting Policies

The Company has prepared the consolidated financial statements in this report in accordance with the FASB Accounting Standards Codification (“ASC”). In preparing the consolidated financial statements, management makes estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. These estimates have been generally accurate in the past, have been consistent and have not required any material changes. There can be no assurances that actual results will not differ from those estimates. A summary of significant accounting policies and a summary of recent accounting pronouncements applicable to the Company's Consolidated Financial Statements are included in Item 8, "Financial Statements and Supplementary Data—Note 1.”

Table of Contents

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. The process combines many factors: economic factors, historical credit loss experience, of both the Company and similar peer banks, loan portfolio growth and concentrations, asset quality, and other qualitative and quantitative factors which could affect future credit loss. Given the Company's recent historical loss experience, the impact of the qualitative risk factors related to the collective ACL is a substantial percentage of the overall ACL. Because current economic conditions and forecasts can change and future events are inherently difficult to predict, the anticipated amount of estimated credit losses, and therefore the appropriateness of the ACL, could change significantly. It is difficult to estimate how potential changes in any one economic factor or input might affect the overall allowance because a wide variety of factors and inputs are considered in estimating the ACL and changes in those factors and inputs considered may not occur at the same rate and may not be consistent across all loan types. Additionally, changes in factors and inputs may be directionally inconsistent, such that improvement in one factor may offset deterioration in others. Various regulatory agencies, as an integral part of the examination process, periodically review the ACL. Such agencies may require the Company to recognize additions to the ACL or reserve increases to adversely graded classified loans based on information available to them at the time of their examinations. The Company believes the level of ACL is appropriate. 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 Note 1 "Summary of Significant Accounting Policies" and Note 5 "Loans," as well as the “Provision and Allowance for Credit Losses and Allowance for Unfunded Commitments” section of this report.

Commitments, Contractual Obligations and Off-Balance Sheet Arrangements

In the normal course of business, the Company is party to activities that involve credit, market and operational risk that are not reflected in whole or in part in the Company’s consolidated financial statements. Such activities include traditional off-balance sheet credit-related financial instruments. These financial instruments include commitments to extend credit, commercial letters of credit and standby letters of credit. The Company’s maximum potential exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit, commercial letters of credit and standby letters of credit is represented by the contractual amounts of those instruments. At December 31, 2025, an allowance for unfunded commitments of $419,000 had been recorded. See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Provision and Allowance for Credit Losses and Unfunded Commitments.”

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commercial and standby letters of credit are 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 December 31, 2025, the balance of loan commitments, standby and commercial letters of credit were $172.7 million, $12.8 million and $782,000, respectively. Since some of the financial instruments may expire without being drawn upon, the total amounts do not necessarily represent future cash requirements. Commitments to extend credit and letters of credit are subject to the same underwriting standards as those financial instruments included on the consolidated balance sheets. The Company evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary upon extension of the credit, is based on management’s credit evaluation of the borrower. Collateral held varies, but is generally accounts receivable, inventory, residential or income-producing commercial property or equipment. In the event of nonperformance, the Company or its subsidiaries may obtain and liquidate the collateral to recover amounts paid under its guarantees on these financial instruments. See Note 15 "Disclosures about Fair Value of Financial Instruments" for more information.