CASS INFORMATION SYSTEMS INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 -Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and notes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included. Certain amounts in prior-period financial statements have been reclassified to conform to the current period’s presentation. Such reclassifications have no effect on previously reported net income or shareholders’ equity. For further information, refer to the audited consolidated financial statements and related footnotes included in Cass Information System, Inc.’s (the “Company” or “Cass”) Annual Report on Form 10-K for the year ended December 31, 2023 ("2023 Form 10-K").

Note 2 –Intangible Assets

The Company accounts for intangible assets in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 350, Goodwill and Other Intangible Assets, which requires that intangibles with indefinite useful lives be tested annually for impairment, or when management deems there is a triggering event, and those with finite useful lives be amortized over their useful lives.

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

The customer lists are amortized over 7 to 10 years; the patents over 18 years; software over 3 to 7 years; the trade names over 10 to 20 years; and other intangible assets over 15 years. Amortization of intangible assets amounted to $191,000 and $195,000 for the three-month periods ended March 31, 2024 and 2023, respectively. Estimated annual amortization of intangibles is $738,000 in 2024, $730,000 in 2025, $582,000 in 2026, $262,000 in 2027, and $254,000 in 2028.

Note 3 –Earnings Per Share

Basic earnings per share is computed by dividing net income by the weighted-average number of common shares outstanding. Diluted earnings per share is computed by dividing net income by the sum of the weighted-average number of common shares outstanding and the weighted-average number of potential common shares outstanding. Under the treasury stock method, stock appreciation rights (“SARs”) are dilutive when the average market price of the Company’s common stock, combined with the effect of any unamortized compensation expense, exceeds the SAR price during a period.

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The calculations of basic and diluted earnings per share are as follows:

Note 4 –Stock Repurchases

The Company maintains a treasury stock buyback program pursuant to which, in October 2023, the Board of Directors authorized the repurchase of up to 500,000 shares of the Company’s common stock with no expiration date. As of March 31, 2024, the Company had 462,765 shares remaining available for repurchase under the program. The Company repurchased 23,271 and 0 shares during the three-month periods ended March 31, 2024 and 2023, respectively. Repurchases may be made in the open market or through negotiated transactions from time to time depending on market conditions.

Note 5 –Industry Segment Information

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

The Information Services segment provides transportation, energy, telecommunication, and environmental invoice processing and payment services to large corporations. In addition, this segment provides church management software and on-line generosity services primarily for faith-based ministries. The Banking Services segment provides banking services primarily to privately held businesses, franchise restaurants, and faith-based ministries, as well as supporting the banking needs of the Information Services segment.

The Company’s accounting policies for segments are the same as those described in the summary of significant accounting policies in the Company’s 2023 Form 10-K. Management evaluates segment performance based on pre-tax income after allocations for corporate expenses. Transactions between segments are accounted for at what management believes to be fair value.

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

Funding sources represent average balances and deposits generated by Information Services and Banking Services and there is no allocation methodology used. Banking Services interest income is determined by actual interest income on loans minus actual interest expense paid on deposits plus/minus an allocation for interest income or expense dependent on the remaining available liquidity of the segment. Information Services interest income is determined by multiplying available liquidity by actual yields on short-term investments and investment securities.

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

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

Note 6 –Loans by Type

A summary of loans is as follows:

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The following table presents the aging of loans past due by category at March 31, 2024 and December 31, 2023:

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The following table presents the credit exposure of the loan portfolio by internally assigned credit grade as of March 31, 2024 and December 31, 2023:

1 Loans subject to normal monitoring involve borrowers of acceptable-to-strong credit quality and risk, who have the apparent ability to satisfy their loan obligations.

2 Loans subject to special monitoring possess some credit deficiency or potential weakness which requires a high level of management attention.

Loan modifications to borrowers experiencing financial difficulty may be in the form of principal forgiveness, an interest rate reduction, an other-than-insignificant payment delay, a term extension, or a combination thereof, among other things. There were no loans modified during the three months ended March 31, 2024. The following table shows the amortized

-12- cost of loans that were both experiencing financial difficulty and modified during the three months ended March 31, 2023, segregated by category and type of modification.

There were two loans modified during the three months ended March 31, 2023. The terms were extended by periods of two and three years and there was not an interest rate reduction associated with the modifications.

The following table shows the payment status of loans that have been modified to borrowers experiencing financial difficulty in the last twelve months:

At March 31, 2024, the Company had no commitments to lend additional funds to borrowers experiencing financial difficulty for which the Company modified the terms of the loans in the form of principal forgiveness, an interest rate reduction, an other-than-insignificant payment delay, or a term extension during the current period.

There were no modified loans that had a payment default during the three months ended March 31, 2024 or 2023 and that had been modified due to the borrower experiencing financial difficulty within the 12 previous months preceding the default.

Upon the Company's determination that a modified loan has subsequently been deemed uncollectible, the loan is written off. There were no loans written off during the three months ended March 31, 2024 or 2023.

The Company had no loans evaluated for expected credit losses on an individual basis as of March 31, 2024, and December 31, 2023, respectively.

There were no foreclosed loans recorded as other real estate owned as of March 31, 2024 or December 31, 2023.

A summary of the activity in the allowance for credit losses (“ACL”) by category for the three-month period ended March 31, 2024 and year-ended December 31, 2023 is as follows:

Note 7 –Commitments and Contingencies

In the normal course of business, the Company is party to activities that contain credit, market and operational risks that are not reflected in whole or in part in the Company’s consolidated financial statements. As more fully described in the Form

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10-K, 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. 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. An allowance for unfunded commitments of $17,000 and $132,000 had been recorded at March 31, 2024 and December 31, 2023, respectively.

At March 31, 2024, the balances of unfunded commitments, standby and commercial letters of credit were $223.6 million, $13.5 million, and $569,000, respectively. Since some of the financial instruments may expire without being drawn upon, the total amounts do not necessarily represent future cash requirements.

On March 19, 2024, the Company filed a claim against Rubicon Technologies, Inc. ("Rubicon") for failed reimbursement of invoices that were processed and paid by the Company on Rubicon's behalf and fees for Company services that are due for invoice management services and bill pay services. The Company has a receivable at March 31, 2024 for $8.1 million related to these amounts. There is uncertainty of the existence, or extent of any loss exposure at March 31, 2024. In addition, the Company evaluated the receivable from a credit loss perspective, and, based on this evaluation, the Company does not have a reserve related to this receivable at March 31, 2024.

Note 8 –Stock-Based Compensation

On February 16, 2023, the Board of Directors adopted the 2023 Omnibus Stock and Performance Compensation Plan (the "2023 Omnibus Plan"), which was approved by the Company's shareholders on April 18, 2023. The 2023 Omnibus Plan permits the issuance of up to 1.0 million shares of the Company’s common stock in the form of stock options, SARs, restricted stock, restricted stock units, phantom stock, and performance awards. During the three months ended March 31, 2024,36,852 time-based restricted shares and 51,261 performance-based restricted shares were granted under the 2023 Omnibus Plan. Stock-based compensation expense for the three months ended March 31, 2024 and 2023 was $1.2 million and $2.0 million, respectively.

Restricted Stock

Restricted shares granted to Company employees are amortized to expense over athree-year cliff vesting period, or until vesting occurs upon retirement. Restricted shares granted to members of the Board of Directors are amortized to expense over aone-year service period, with the exception of those shares granted in lieu of cash payments for retainer fees which are expensed in the period earned.

As of March 31, 2024, the total unrecognized compensation expense related to non-vested restricted shares was $2.4 million, and the related weighted-average period over which it is expected to be recognized is approximately 0.97 years.

Following is a summary of the activity of the Company's restricted stock for the three months ended March 31, 2024, with total shares and weighted-average fair value:

Performance-Based Restricted Stock

The Company has granted three-year performance-based restricted stock (“PBRS”) awards which are contingent upon the Company’s achievement of pre-established financial goals over athree-year cliff vest period. The number of shares issued ranges from 0% to 150% of the target opportunity based on the actual achievement of financial goals for thethree-year performance period.

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Following is a summary of the activity of the PBRS for the three months ended March 31, 2024, based on 100% of target value:

The PBRS that vested during the three months ended March 31, 2024 were based on the Company's achievement of 135.4% of target financial goals for the 2021-2023 performance period, resulting in the issuance of 68,834 shares of common stock. The outstanding PBRS at March 31, 2024 will vest at scheduled vesting dates and the actual number of shares of common stock issued will range from 0% to 150% of the target opportunity based on the actual achievement of financial goals for the respective three-year performance period.

SARs

There were no SARs granted and no expense recognized during the three months ended March 31, 2024. Following is a summary of the activity of the Company’s SARs program for the three months ended March 31, 2024:

Note 9 –Defined Pension Plans

The Company has a noncontributory defined-benefit pension plan (the “Plan”), which covers eligible employees. Effective December 31, 2016, the Plan was closed to all new participants. Additionally, the Plan’s benefits were frozen for all remaining participants as of February 28, 2021. As such, subsequent to February 28, 2021, there is no service cost associated with the Plan. The following table represents the components of net periodic pension cost:

The Company recorded net periodic pension cost of $195,000 and $100,000 for the three-month periods ended March 31, 2024, and March 31, 2023, respectively. The Company madeno contributions to the Plan during the three-month period ended March 31, 2024 and is evaluating the amount of contributions, if any, for the remainder of 2024.

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In addition to the above funded defined-benefit pension plan, the Company has an unfunded supplemental executive retirement plan (the "SERP"). There are no current employees earning benefits and therefore, there is no service cost associated with the SERP. The following table represents the components of the net periodic cost for the SERP:

SERP cost recorded to expense was $113,000 and $118,000 for the three month periods ended March 31, 2024, and March 31, 2023, respectively.

Note 10 –Income Taxes

The effective tax rate was 20.6% and 20.7% for the three month periods ended March 31, 2024, and March 31, 2023, respectively. The effective tax rate for all periods differs from the statutory rate of 21% primarily due to the tax-exempt interest received from municipal bonds and bank-owned life insurance, among other factors.

Note 11 –Investment in Securities

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

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

There were 267 securities, or 96.0% (228 of which for greater than 12 months), in an unrealized loss position as of March 31, 2024. The unrealized losses at March 31, 2024 were primarily attributable to changes in market interest rates after the securities were purchased. The Company does not currently intend to sell, and based on current conditions, the Company does not believe it will be required to sell these available-for-sale securities before the recovery of the amortized cost basis, which may be the maturity dates of the securities. Therefore, the unrealized losses are recorded in accumulated other comprehensive loss. There were 275 securities, or 98.9% (210 of which for greater than 12 months), in an unrealized loss position as of December 31, 2023. At March 31, 2024 and December 31, 2023, the Company had not recorded an allowance for credit losses on securities.

The amortized cost and fair value of investment securities by contractual maturity are shown in the following table. Expected maturities may differ from contractual maturities because borrowers have the right to prepay obligations with or without prepayment penalties.

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Proceeds from sales of investment securities classified as available-for-sale were $0 and $61.4 million for the three months ended March 31, 2024, and 2023, respectively. Gross realized losses were $0 and $148,000 for the three months ended March 31, 2024 and 2023, respectively. Gross realized gains were $0 and $187,000 for the three months ended March 31, 2024, and 2023, respectively. There were no securities pledged to secure public deposits or for other purposes at March 31, 2024.

Note 12 –Fair Value of Financial Instruments

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

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

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

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

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

Accrued Interest Receivable- The carrying amount approximates fair value.

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

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

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Accrued Interest Payable- The carrying amount approximates fair value.

Note 13 –Revenue from Contracts with Customers

Revenue is recognized as the obligation to the customer is satisfied. The following is detail of the Company’s revenue from contracts with clients.

Processing fees– The Company earns fees on a per-item or monthly basis for the invoice processing services rendered on behalf of customers. Per-item fees are recognized at the point in time when the performance obligation is satisfied. Monthly fees are earned over the course of a month, representing the period over which the performance obligation is satisfied. The contracts have no significant impact of variable consideration and no significant financing components.

Financial fees– The Company earns fees on a transaction level basis for invoice payment services when making customer payments. Fees are recognized at the point in time when the payment transactions are made, which is when the performance obligation is satisfied. The contracts have no significant impact of variable consideration and no significant financing components.

Bank service fees– Revenue from service fees consists of service charges and fees on deposit accounts under depository agreements with customers to provide access to deposited funds. Service charges on deposit accounts are transaction-based fees that are recognized at the point in time when the performance obligation is satisfied. The contracts have no significant impact of variable consideration and no significant financing components.

The following table presents non-interest income, segregated by revenue streams in-scope and out-of-scope for the periods ended March 31, 2024 and 2023.

Note 14 –Leases

The Company leases certain premises under operating leases. As of March 31, 2024, the Company had lease liabilities of $8.2 million and right-of-use assets of $7.8 million. Lease liabilities and right-of-use assets are reflected inother liabilities andother assets, respectively. Presented within occupancy expense on the Consolidated Statements of Income for the three months ended March 31, 2024, operating lease cost was $341,000, short-term lease cost was $81,000, and there wasno variable lease cost. At March 31, 2024, the weighted-average remaining lease term for the operating leases was 7.1 years and the weighted-average discount rate used in the measurement of operating lease liabilities was 3.56%. Certain of the Company’s leases contain options to renew the lease; however, these renewal options are not included in the calculation of the lease liabilities as they are not reasonably certain to be exercised. See the Company’s 2023 Form 10-K for information regarding these commitments.

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A maturity analysis of operating lease liabilities and undiscounted cash flows as of March 31, 2024 is as follows:

There were no sale and leaseback transactions, leveraged leases, or lease transactions with related parties during the three months ended March 31, 2024.

Note 15 – Subsequent Events

In accordance with FASB ASC 855, Subsequent Events, the Company has evaluated subsequent events after the consolidated balance sheet date of March 31, 2024. There were no events identified that would require additional disclosures to prevent the Company’s unaudited consolidated financial statements from being misleading.

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