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,
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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.
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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, 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.
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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.
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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.
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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%.
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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:
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(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.
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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.
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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.
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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.
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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
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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
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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
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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,
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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
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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.
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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.”
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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 , such that in one factor may offset 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 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 and Allowance for 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.
