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What changed in CASS INFORMATION SYSTEMS INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of CASS INFORMATION SYSTEMS INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+237 added−208 removedSource: 10-K (2024-02-28) vs 10-K (2023-02-28)

Top changes in CASS INFORMATION SYSTEMS INC's 2023 10-K

237 paragraphs added · 208 removed · 170 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

39 edited+26 added−5 removed93 unchanged
Biggest changeRisks and exposures related to cybersecurity attacks, including litigation and enforcement risks, are expected to remain high for the foreseeable future due to the rapidly evolving nature and sophistication of these threats, as well as due to the expanding use of internet banking, mobile banking and other technology-based products and services by the Company and its customers.
Biggest changeBanking organizations are also required to notify each affected customer as soon as possible in the event of an incident that results in actual or potential harm to the integrity or availability of information and systems or that violates or threatens to violate the organization’s security for four or more hours. 8 Table of Contents Risks and exposures related to cybersecurity attacks, including litigation and enforcement risks, are expected to remain high for the foreseeable future due to the rapidly evolving nature and sophistication of these threats, as well as due to the expanding use of internet banking, mobile banking and other technology-based products and services by the Company and its customers.
If a financial holding company ceases to meet these capital and management requirements, the FRB may impose limitations or conditions on the conduct of its 3 Table of Contents activities during the non-compliance period, and the company may not commence any of the broader financial activities permissible for financial holding companies or acquire a company engaged in such financial activities without prior approval of the FRB.
If a financial holding company ceases to meet these capital and management requirements, the FRB may impose limitations or conditions on the conduct of its activities during the non-compliance period, and the company may not commence any of the broader financial activities 3 Table of Contents permissible for financial holding companies or acquire a company engaged in such financial activities without prior approval of the FRB.
Notable amendments include (i) significant changes to the collection of beneficial ownership information and the establishment of a beneficial ownership registry, which requires corporate entities (generally, any corporation, limited liability company or other similar entity with 20 or fewer employees and annual gross income of $5 million or less) to report beneficial ownership information to FinCEN (which information will be maintained by FinCEN and made available upon request to financial institutions); (ii) enhanced whistleblower provisions, which provide that one or more whistleblowers who voluntarily provide original information 8 Table of Contents leading to the successful enforcement of violations of the AML laws in any judicial or administrative action brought by the Secretary of the Treasury or the Attorney General resulting in monetary sanctions exceeding $1 million (including disgorgement and interest but excluding forfeiture, restitution, or compensation to victims) will receive not more than 30 percent of the monetary sanctions collected and will receive increased protections; (iii) increased penalties for violations of the BSA; (iv) improvements to existing information sharing provisions that permit financial institutions to share information relating to suspicious activity reports with foreign branches, subsidiaries, and affiliates (except those located in China, Russia, or certain other jurisdictions) for the purpose of combating illicit finance risks; and (v) expanded duties and powers of FinCEN.
Notable amendments include (i) significant changes to the collection of beneficial ownership information and the establishment of a beneficial ownership registry, which requires corporate entities (generally, any corporation, limited liability company or other similar entity with 20 or fewer employees and annual gross income of $5 million or less) to report beneficial ownership information to FinCEN (which information will be maintained by FinCEN and made available upon request to financial institutions); (ii) enhanced whistleblower provisions, which provide that one or more whistleblowers who voluntarily provide original information leading to the successful enforcement of violations of the AML laws in any judicial or administrative action brought by the Secretary of the Treasury or the Attorney General resulting in monetary sanctions exceeding $1 million (including disgorgement and interest but excluding forfeiture, restitution, or compensation to victims) will receive not more than 30 percent of the monetary sanctions collected and will receive increased protections; (iii) increased penalties for violations of the BSA; (iv) improvements to existing information sharing provisions that permit financial institutions to share information relating to suspicious activity reports with foreign branches, subsidiaries, and affiliates (except those located in China, Russia, or certain other jurisdictions) for the purpose of combating illicit finance risks; and (v) expanded duties and powers of FinCEN.
A depository institution is deemed to be (i) “well-capitalized” if the institution has a total risk-based capital ratio of 10% or greater, a Tier 1 risk-based capital ratio of 8% or greater, a leverage ratio of 5% or greater, a common equity Tier 1 ratio of 6.5% or greater and is not subject to any regulatory order agreement or written directive to meet and maintain a specific capital level for any capital measure; (ii) “adequately capitalized” if the institution has a total risk-based capital ratio of 8% or greater, a Tier 1 risk-based capital ratio of 6% or greater, a leverage ratio of 4% or greater, a common equity Tier 1 ratio of 4.5% or greater and does not meet the definition of “well capitalized”; (iii) “undercapitalized” if the institution has a total risk-based capital ratio that is less than 8%, a Tier 1 risk-based capital ratio of less than 6%, a leverage ratio of less than 4% or a common equity Tier 1 ratio of less than 4.5%; (iv) “significantly undercapitalized” if the institution has a total risk-based capital ratio of less than 6%, a Tier 1 risk-based capital ratio of less than 4%, a leverage ratio of less than 3% or a common equity Tier 1 ratio of less than 3%; and (v) “critically undercapitalized” if the institution has a ratio of tangible equity (as defined in the regulations) to total assets that is equal to or less than 2%.
A depository institution is deemed to be (i) “well-capitalized” if the institution has a total risk-based capital ratio of 10% or greater, a Tier 1 risk-based capital ratio of 8% or greater, a leverage ratio of 5% or greater, a common equity Tier 1 ratio of 6.5% or greater and is not subject to any regulatory order agreement or written directive to meet and maintain a specific capital level for any capital measure; (ii) “adequately capitalized” if the institution has a total risk-based capital ratio of 8% or greater, a Tier 1 risk-based capital ratio of 6% or greater, a leverage ratio of 4% or greater, a common equity Tier 1 ratio of 4.5% or greater and does not meet the definition of “well capitalized”; (iii) “undercapitalized” if the institution has a total risk-based capital ratio that is less than 8%, a Tier 1 risk-based capital ratio of less than 6%, a leverage ratio of less 6 Table of Contents than 4% or a common equity Tier 1 ratio of less than 4.5%; (iv) “significantly undercapitalized” if the institution has a total risk-based capital ratio of less than 6%, a Tier 1 risk-based capital ratio of less than 4%, a leverage ratio of less than 3% or a common equity Tier 1 ratio of less than 3%; and (v) “critically undercapitalized” if the institution has a ratio of tangible equity (as defined in the regulations) to total assets that is equal to or less than 2%.
The Basel III Capital Rules require the Company and the Bank to maintain the following: 4 Table of Contents • a minimum ratio of common equity Tier 1 capital to risk-weighted assets of at least 4.5%, plus a 2.5% capital conservation buffer (resulting in a minimum common equity Tier 1 capital ratio of 7.0%); • a minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus a 2.5% capital conservation buffer (resulting in a minimum Tier 1 capital ratio of 8.5%); • a minimum ratio of total capital (that is, Tier 1 plus Tier 2 capital) to risk-weighted assets of at least 8.0%, plus the 2.5% capital conservation buffer (resulting in a minimum total capital ratio of 10.5%); and • a minimum leverage ratio of 4.0%, calculated as the ratio of Tier 1 capital to adjusted average consolidated assets.
The Basel III Capital Rules require the Company and the Bank to maintain the following: • a minimum ratio of common equity Tier 1 capital to risk-weighted assets of at least 4.5%, plus a 2.5% capital conservation buffer (resulting in a minimum common equity Tier 1 capital ratio of 7.0%); • a minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus a 2.5% capital conservation buffer (resulting in a minimum Tier 1 capital ratio of 8.5%); • a minimum ratio of total capital (that is, Tier 1 plus Tier 2 capital) to risk-weighted assets of at least 8.0%, plus the 2.5% capital conservation buffer (resulting in a minimum total capital ratio of 10.5%); and • a minimum leverage ratio of 4.0%, calculated as the ratio of Tier 1 capital to adjusted average consolidated assets.
The FRB has authority to establish individual minimum capital requirements in appropriate cases upon a determination that an institution’s capital level is or may become inadequate in light of the particular risks or circumstances. As of December 31, 2022, the Company and the Bank met all capital adequacy requirements under the Basel III Capital Rules.
The FRB has authority to establish individual minimum capital requirements in appropriate cases upon a determination that an institution’s capital level is or may become inadequate in light of the particular risks or circumstances. As of December 31, 2023, the Company and the Bank met all capital adequacy requirements under the Basel III Capital Rules.
An additional amount may be loaned, up to 10% of unimpaired capital and surplus, if the loan is secured by readily marketable collateral, which generally does not include real estate. As of December 31, 2022, the Bank was in compliance with the loans-to-one-borrower limitations.
An additional amount may be loaned, up to 10% of unimpaired capital and surplus, if the loan is secured by readily marketable collateral, which generally does not include real estate. As of December 31, 2023, the Bank was in compliance with the loans-to-one-borrower limitations.
Cass will, as soon as reasonably practicable after they are electronically filed with or furnished to the SEC, make available free of charge on its website each of its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, all amendments to those reports, and its definitive proxy statements.
Cass will, as soon as reasonably practicable after they are electronically filed with or furnished to the SEC, make available free of charge 10 Table of Contents on its website each of its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, all amendments to those reports, and its definitive proxy statements.
Among other things, the Inflation Reduction Act imposes a new 1% excise tax on the fair market value of stock repurchased after December 31, 2022 by publicly traded U.S. corporations. With certain exceptions, the value of stock repurchased is determined net of stock issued in the year, including shares issued pursuant to compensatory arrangements.
Among other things, the Inflation Reduction Act imposes a new 1% excise tax on the fair market value of stock repurchased after December 31, 4 Table of Contents 2022 by publicly traded U.S. corporations. With certain exceptions, the value of stock repurchased is determined net of stock issued in the year, including shares issued pursuant to compensatory arrangements.
The calculation of all types of regulatory capital is subject to deductions and adjustments specified in the regulations. For instance, the Basel III Capital Rules and the Capital Simplification Rules provide for a number of deductions from and adjustments to common equity Tier 1 capital.
The calculation of all types of regulatory capital is subject to deductions and adjustments specified in the regulations. For instance, the Basel III Capital Rules and the capital simplification rules enacted in 2019 provide for a number of deductions from and adjustments to common equity Tier 1 capital.
The Company division known as TouchPoint offers a church management software solution and an on-line platform to provide generosity services for faith-based and non-profit organizations, which is a complementary service offering to the Bank’s faith-based customers. Also, the Company, through its CassPay operation, competes with providers of corporate payment solutions.
The Company's TouchPoint division offers a church management software solution and an on-line platform to provide generosity services for faith-based and non-profit organizations, which is a complementary service offering to the Bank’s faith-based customers. Also, the Company, through its CassPay operation, competes with providers of corporate payment solutions.
Other Regulations – The operations of the Company and the Bank are also subject to: • Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers; • Fair Credit Reporting Act, governing the provision of consumer information to credit reporting agencies and the use of consumer information; • Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies; • Electronic Funds Transfer Act, governing automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services. • Real Estate Settlement Procedures Act, requiring that borrowers for mortgage loans for one- to four-family residential real estate receive various disclosures, including good faith estimates of settlement costs, lender servicing and escrow account practices, and prohibiting certain practices that increase the cost of settlement services; • Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit; • Check Clearing for the 21st Century Act (also known as “Check 21”), which gives “substitute checks,” such as digital check images and copies made from that image, the same legal standing as the original paper check.
Other Regulations – The operations of the Company and the Bank are also subject to: • Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers; • Fair Credit Reporting Act, governing the provision of consumer information to credit reporting agencies and the use of consumer information; • Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies; • Electronic Funds Transfer Act, governing automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services. • Fair Housing Act, Home Mortgage Disclosure Act, and Real Estate Settlement Procedures Act, prohibiting discrimination against borrowers seeking housing and mortgages; requiring transparency and public reporting on mortgage and lending activities; and requiring that borrowers for mortgage loans for one- to four-family residential real estate receive various disclosures, including good faith estimates of settlement costs, lender servicing and escrow account practices, and prohibiting certain practices that increase the cost of settlement services; • Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit; • Check Clearing for the 21st Century Act (also known as “Check 21”), which gives “substitute checks,” such as digital check images and copies made from that image, the same legal standing as the original paper check.
In order for a financial holding company to commence any new activity permitted by the BHC Act, or to acquire any company engaged in any new activity permitted by the BHC Act, each insured depository institution subsidiary of the financial holding company must have received a rating of at least “satisfactory” in its most recent examination under the CRA.
In order for a financial holding 7 Table of Contents company to commence any new activity permitted by the BHC Act, or to acquire any company engaged in any new activity permitted by the BHC Act, each insured depository institution subsidiary of the financial holding company must have received a rating of at least “satisfactory” in its most recent examination under the CRA.
Among other things, these standards revise the Basel Committee's standardized approach for credit risk (including by recalibrating risk weights and introducing new capital requirements for certain “unconditionally cancellable commitments,” such as unused credit card lines of credit) and provides a new standardized approach for operational risk capital.
Among other things, these standards revise the Basel Committee's standardized approach for credit risk (including by recalibrating risk weights and introducing new capital requirements for certain “unconditionally cancellable commitments,” such as unused credit card lines of credit) and 5 Table of Contents provides a new standardized approach for operational risk capital.
“Covered transactions” include a loan or extension of credit, as 7 Table of Contents well as a purchase of securities issued by an affiliate, certain purchases of assets from the affiliate, certain derivative transactions that create a credit exposure to an affiliate, the acceptance of securities issued by the affiliate as collateral for a loan, and the issuance of a guarantee, acceptance or letter of credit on behalf of an affiliate.
“Covered transactions” include a loan or extension of credit, as well as a purchase of securities issued by an affiliate, certain purchases of assets from the affiliate, certain derivative transactions that create a credit exposure to an affiliate, the acceptance of securities issued by the affiliate as collateral for a loan, and the issuance of a guarantee, acceptance or letter of credit on behalf of an affiliate.
The Company, through its Expense Management business unit, also competes with other companies located throughout the United States that pay energy and waste bills and provide management reporting. Available data indicates that the Company is one of the largest providers of energy information processing and payment services.
The Company, through its Utility Expense Management business unit, also competes with other companies located throughout the United States that pay utility bills and provide management reporting. Available data indicates that the Company is one of the largest providers of utility information processing and payment services.
The DEI initiatives will continue to be supported and promoted to provide all employees a place where they feel welcomed, appreciated and valued. Equal opportunities, anti-harassment, non-discrimination, the health and safety of employees and work-life balance are actively promoted as more fully described in the Company's Environmental, Social, and Governance report.
The DEI initiatives are supported and promoted to provide all employees a place where they feel welcomed, appreciated and valued. Equal opportunities, anti-harassment, non-discrimination, the health and safety of employees and work-life balance are actively promoted as more fully described in the Company's Environmental, Social, and Governance ("ESG") report.
Statistical Disclosure by Bank Holding Companies For the statistical disclosure by bank holding companies, refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” 9 Table of Contents
Statistical Disclosure by Bank Holding Companies For the statistical disclosure by bank holding companies, refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Cass also provides comprehensive health, dental, and vision plans to most employees, as well as free employee assistance programs to all employees and members of their families. 2 Table of Contents The Company invests in employees’ future by assisting with tuition reimbursement for continued education throughout the Company’s employee ranks.
Cass also provides comprehensive health, dental, and vision plans to most employees, as well as free employee assistance programs to all employees and members of their families. 2 Table of Contents The Company invests in its employees’ futures by assisting with tuition reimbursement for continued education.
Over the past year, the Company has continued to support and provide diversity training to all employees. The Company continues its commitment to providing a workplace that is free of harassment and discrimination by taking proactive measures and providing all employees with non-discrimination and sexual harassment prevention training on an annual basis.
The Company continues to support and provide diversity training to all employees. The Company also continues its commitment to providing a workplace that is free of harassment and discrimination by taking proactive measures and providing all employees with non-discrimination and sexual harassment prevention training on an annual basis.
Deposit insurance assessments are based on average consolidated total assets minus average tangible equity. Under the FDIC’s risk-based assessment system, insured institutions with less than $10 billion in assets, such as the Bank, are assigned to one of four risk categories based on supervisory evaluations, regulatory capital level, and certain other factors, with less risky institutions paying lower assessments.
Under the FDIC’s risk-based assessment system, insured institutions with less than $10 billion in assets, such as the Bank, are assigned to one of four risk categories based on supervisory evaluations, regulatory capital level, and certain other factors, with less risky institutions paying lower assessments.
Additionally, the Company supports a number of organizations with annual financial contributions. The Company recognizes the benefits of building a corporate culture that promotes diversity, equity and inclusion ("DEI") to foster unique ideas and ways of thinking.
The Company offers paid time off for charitable endeavors. Additionally, the Company supports a number of organizations with annual financial contributions. The Company recognizes the benefits of building a corporate culture that promotes diversity, equity and inclusion ("DEI") to foster unique ideas and ways of thinking.
The Company continues to promote DEI within its culture and make improvements to human resources programs to support related initiatives. As of December 31, 2022, 70% of the Company's U.S. employees were female, and 23% were ethnically diverse. Within the management group, 47% were female, and 16% were ethnically diverse.
The Company continues to promote DEI within its culture and make improvements to human resources programs to support related initiatives. As of December 31, 2023, 69% of the Company's U.S. employees were female, and 23% were ethnically diverse. Within the management group, 52% were female, and 13% were ethnically diverse.
Employees and Human Capital Resources The Company and its subsidiaries had 940 full-time and 269 part-time employees as of February 15, 2023. Of these employees, the Bank had 70 full-time and no part-time employees. Cass has long been committed to comprehensive and competitive compensation and benefits programs to attract and retain talent in a competitive environment.
Employees and Human Capital Resources The Company and its subsidiaries had 1,061 full-time and 255 part-time employees as of February 15, 2024. Of these employees, the Bank had 66 full-time and no part-time employees. Cass has long been committed to comprehensive and competitive compensation and benefits programs to attract and retain talent in a competitive environment.
The impact of the Dodd-Frank Act on the Company and the Bank has been substantial. Dividends and Stock Repurchases – Both the Company and the Bank are subject to various regulations that restrict their ability to pay dividends and the amount of dividends that they may pay.
Dividends and Stock Repurchases – Both the Company and the Bank are subject to various regulations that restrict their ability to pay dividends and the amount of dividends that they may pay.
In January 2022, the Company created a DEI Committee. The DEI Committee was formed after a thorough process of determining a charter and is actively in the process of expanding the Company's DEI vision. The committee members are passionate about DEI efforts and represent the Company's various business divisions and corporate departments.
The Company's DEI Committee was formed after a thorough process of determining a charter and actively looks to expand the Company's DEI vision. The committee members are passionate about DEI efforts and represent the Company's various business divisions and corporate departments.
The Company, through its Telecom Information Services business unit, is a leader in the growing telecom expense management market and competes with other companies located throughout the United States in this market. The Company, through its Waste Expense Management business competes against small expense management companies along with large national account programs of major haulers.
The Company, through its Telecom Information Services business unit, is a leader in the growing telecom expense management market and competes with other companies located throughout the United States in this market.
On January 1, 2021, Congress enacted the National Defense Authorization Act, which enacted the most significant overhaul of the BSA and related AML laws since the USA PATRIOT Act.
In 2021, Congress passed the Corporate Transparency Act as part of the National Defense Authorization Act, which enacted the most significant overhaul of the BSA and related AML laws since the USA PATRIOT Act.
In October 2022, the FDIC adopted a final rule to increase the initial base deposit insurance assessment rate schedules uniformly by 2 basis points beginning with the first quarterly assessment period of 2023.
An institution’s assessment rate depends upon the category to which it is assigned and certain other factors. In October 2022, the FDIC adopted a final rule to increase the initial base deposit insurance assessment rate schedules uniformly by 2 basis points beginning with the first quarterly assessment period of 2023.
For further information regarding the capital ratios and leverage ratio of the Company and the Bank, see Item 8, Note 2 of this report. 6 Table of Contents Safety and Soundness Regulations – In accordance with the FDIA, the federal banking agencies adopted guidelines establishing general standards relating to internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, asset quality, earnings, compensation, fees and benefits.
Safety and Soundness Regulations – In accordance with the FDIA, the federal banking agencies adopted guidelines establishing general standards relating to internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, asset quality, earnings, compensation, fees and benefits.
Bank Secrecy Act/Anti Money Laundering Regulation, USA PATRIOT Act and National Defense Authorization Act - The Bank Secrecy Act ("BSA"), the USA PATRIOT Act and other laws and regulations require financial institutions, among other duties, to institute and maintain an effective Anti Money Laundering ("AML") program and to file timely reports such as suspicious activity reports and currency transaction reports.
The Bank Secrecy Act (“BSA”), the USA PATRIOT Act of 2021 (the “USA PATRIOT Act”) and other laws and regulations require financial institutions, among other duties, to institute and maintain an effective Anti-Money Laundering (“AML”) program and to file timely reports such as suspicious activity reports and currency transaction reports that assist government agencies in detecting and preventing money laundering.
Significantly and critically undercapitalized institutions are subject to additional mandatory and discretionary measures. As of December 31, 2022, the most recent notification from the regulatory agencies categorized the Company and the Bank as well-capitalized.
Significantly and critically undercapitalized institutions are subject to additional mandatory and discretionary measures. As of December 31, 2023, the most recent notification from the regulatory agencies categorized the Company and the Bank as well-capitalized. For further information regarding the capital ratios and leverage ratio of the Company and the Bank, see Item 8, Note 2 of this report.
Many of the requirements included in the AML amendments will require additional rulemakings, reports and other measures, and the impact of these rules will depend on, among other things, rulemaking and implementation guidance. On December 8, 2021, FinCEN issued proposed regulations that would implement the amendments regarding beneficial ownership if adopted as proposed.
Many of the requirements included in the AML amendments will require additional rulemakings, reports and other measures, and the impact of these rules will depend on, among other things, rulemaking and implementation guidance. FinCEN proposed three rules to implement changes to the beneficial ownership requirements and related amendments set forth in the Corporate Transparency Act.
In the event of a bank holding company’s bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to priority of payment. 5 Table of Contents Deposit Insurance – Substantially all of the deposits of the Bank are insured up to applicable limits by the Deposit Insurance Fund (“DIF”) of the FDIC, and the Bank is subject to deposit insurance assessments to maintain the DIF.
In the event of a bank holding company’s bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to priority of payment.
The Bank is also subject to regulatory guidelines establishing standards for safeguarding customer information and maintaining information security programs.
These limitations require disclosure of privacy policies to consumers and affect how consumer information is transmitted through diversified financial companies and conveyed to outside vendors. The Bank is also subject to regulatory guidelines establishing standards for safeguarding customer information and maintaining information security programs.
The Bank received a rating of “satisfactory” in its most recent CRA exam. On May 5, 2022, federal banking regulators requested comment on a joint notice of proposed rulemaking intended to strengthen and modernize the CRA regulations and framework.
The Bank received a rating of “satisfactory” in its most recent CRA exam. In October 2023, the OCC, together with the Federal Reserve and FDIC, issued a joint final rule to modernize the CRA regulatory framework.
Financial Privacy – Banks and other financial institutions are subject to regulations that limit their ability to disclose non-public information about consumers to nonaffiliated third parties. These limitations require disclosure of privacy policies to consumers and affect how consumer information is transmitted through diversified financial companies and conveyed to outside vendors.
Most provisions of the final rule will become effective on January 1, 2026, and the data reporting requirements will become effective on January 1, 2027. Financial Privacy – Banks and other financial institutions are subject to regulations that limit their ability to disclose non-public information about consumers to nonaffiliated third parties.
An institution’s assessment rate depends upon the category to which it is assigned and certain other factors. FDIC insurance expense totaled $415,700, $300,200 and $152,500 for the years ended December 31, 2022, 2021 and 2020, respectively.
The extent to which any such additional future assessments will impact the Company's future deposit insurance expense is currently uncertain. FDIC insurance expense totaled $603,000, $415,700 and $300,200 for the years ended December 31, 2023, 2022 and 2021, respectively.
See Item 1A, “Risk Factors” for a further discussion of risks related to cybersecurity.
See Item 1A, “Risk Factors” for a further discussion of risks related to cybersecurity. Anti-Money Laundering Regulation and the USA PATRIOT Act - A major focus of governmental policy on financial institutions in recent years has been aimed at combating money laundering and terrorist financing.
Removed
Until the proposed rulemaking is final and effective, the Company and the Bank will continue to operate under the CRA regulations currently in effect. At this time, it is uncertain what effect the impending CRA regulations will have on the Company and the Bank with respect to their CRA activities.
Added
The Company, through its Waste Expense Management business, is one of the largest providers of waste invoice management solutions and competes against small expense management companies along with large national account programs of major haulers.
Removed
Banking organizations are also required to notify each affected customer as soon as possible in the event of an incident that results in actual or potential harm to the integrity or availability of information and systems or that violates or threatens to violate the organization’s security for four or more hours.
Added
The impact of the Dodd-Frank Act on the Company and the Bank has been substantial. Enhanced Prudential Standards – The FRB is required to monitor emerging risks to financial stability and enact enhanced supervision and prudential standards applicable to large bank holding companies and certain non-bank covered companies designated as systemically important by the Financial Stability Oversight Council.
Removed
The Company is required to comply with these and other AML requirements.
Added
The Dodd-Frank Act mandates that certain regulatory requirements applicable to these systemically important financial institutions be more stringent than those applicable to other financial institutions. In 2019, the FRB adopted new rules impacting certain capital and liquidity requirements and other enhanced prudential standards.
Removed
The Company is also subject to increased scrutiny of compliance with the rules enforced by the Office of Foreign Assets Control. The USA PATRIOT Act gives federal agencies additional powers to address terrorist threats through enhanced domestic security measures, expanded surveillance powers, increased information sharing, and broadened AML requirements.
Added
The final rules assign all domestic bank holding companies with $100 billion or more in total consolidated assets to one of four categories of tailored regulatory requirements. The Company and the Bank are generally not impacted by these rules.
Removed
The USA PATRIOT Act mandates that financial service companies implement additional policies and procedures and take heightened measures designed to address any or all of the following matters: customer identification programs, money laundering, terrorist financing, identifying and reporting suspicious activities and currency transactions, currency crimes, and cooperation between financial institutions and law enforcement authorities.
Added
The enhanced prudential standards rules, as amended in 2019, require publicly traded bank holding companies with $50 billion or more in total consolidated assets to establish risk committees. Prior to the amendment, the requirement to establish a risk committee was applicable to publicly traded companies with $10 billion or more in consolidated assets.
Added
Deposit Insurance – Substantially all of the deposits of the Bank are insured up to applicable limits by the Deposit Insurance Fund (“DIF”) of the FDIC, and the Bank is subject to deposit insurance assessments to maintain the DIF. Deposit insurance assessments are based on average consolidated total assets minus average tangible equity.
Added
In November 2023, the FDIC issued a final rule to implement a special assessment to recover losses to the DIF incurred as a result of bank failures in early 2023 and the FDIC's use of the systemic risk exception to cover certain deposits that were otherwise uninsured.
Added
The special assessment was based on estimated uninsured deposits as of December 31, 2022 (excluding the first $5.0 billion) and will be assessed at a quarterly rate of 3.36 basis points, over eight quarterly assessment periods, beginning in the first quarter of 2024.
Added
As a result of this final rule, the Company did not accrue expense related to this assessment based on the amount of uninsured deposits at December 31, 2022 of less than $5.0 billion.
Added
Under the final rule, the estimated loss pursuant to the systemic risk determination will be periodically adjusted, and the FDIC has retained the ability to cease collection early, extend the special assessment collection period, and impose a final shortfall special assessment on a one-time basis.
Added
The final rule is intended, among other things, to adapt to changes in the banking industry, including the expanded role of mobile and online banking, and to tailor performance standards to account for differences in bank size and business models.
Added
The final rule introduces new tests under which the performance of banks with over $2 billion in assets will be assessed.
Added
The new rule also includes data collection and reporting requirements, some of which are applicable only to banks larger than the Bank and updates the definitions of community development and process by which banks can seek approval of qualifying projects.
Added
The USA PATRIOT Act prohibits financial institutions from entering into specified financial transactions and account relationships and requires that the institutions implement customer identification programs, and enhance due diligence procedures for certain high-risk customers. Regulatory authorities routinely examine financial institutions for compliance with these obligations.
Added
The Company is also subject to increased scrutiny of compliance with the rules enforced by the Office of Foreign Assets Control. The Anti-Money Laundering Act of 2020 (“AMLA”) amended the BSA and was intended to be a comprehensive reform and modernization to U.S. bank secrecy and anti-money laundering laws.
Added
Among other things, it codifies a risk-based approach to anti-money laundering compliance for financial institutions; requires the U.S.
Added
Department of the Treasury to promulgate priorities for anti-money laundering and countering the financing of terrorism policy; requires the development of standards for testing technology and internal processes for BSA compliance; expands enforcement- and investigation-related authority, including increasing available sanctions for certain BSA violations; and expands BSA whistleblower incentives and protections.
Added
Many of the statutory provisions in the AMLA will require additional rulemakings, reports and other measures, and the impact of the AMLA will depend on, among other things, rulemaking and implementation guidance.
Added
As of the date of this Form 10-K, two of the three have been finalized. The Beneficial Ownership Reporting Rule took effect on January 1, 2024 and requires certain domestic and foreign companies created, or registered to conduct business, in the United States to report beneficial ownership information to FinCEN.
Added
The Access Rule, effective as of February 20, 2024, sets forth the circumstances under which FinCEN can disclose beneficial ownership information to authorized recipients and how FinCEN and recipients of the data will protect that information.
Added
It is expected that FinCEN will issue a third rule, by January 1, 2025, to revise existing customer due diligence requirements and bring them into conformance with the Corporate Transparency Act and the Access Rule.
Added
Climate-Related Regulation and Guidance - In recent years the federal banking agencies have increased their focus on climate-related risks impacting the operations of banks, the communities they serve and the broader financial system. 9 Table of Contents Accordingly, the agencies have begun to enhance their supervisory expectations regarding the climate risk management practices of larger banking organizations, including by encouraging such banks to: ensure that management of climate-related risk exposures has been incorporated into existing governance structures; evaluate the potential impact of climate-related risks on the bank’s financial condition, operations and business objectives as part of its strategic planning process; account for the effects of climate change in stress testing scenarios and systemic risk assessments; revise expectations for credit portfolio concentrations based on climate-related factors; consider investments in climate-related initiatives and lending to communities disproportionately impacted by the effects of climate change; evaluate the impact of climate change on the bank’s borrowers and consider possible changes to underwriting criteria to account for climate-related risks to mortgaged properties; incorporate climate-related financial risk into the bank’s internal reporting, monitoring and escalation processes; and prepare for the transition risks to the bank associated with the adjustment to a low-carbon economy and related changes in laws, regulations, governmental policies, technology, and consumer behavior and expectations.
Added
In 2021, the OCC issued proposed principles for climate-related financial risk management for national banks with more than $100 billion in total assets. In 2022, the FDIC and FRB issued their own proposed principles for climate risk management by larger banking organizations.
Added
Although these risk management principles, if adopted as proposed, would not apply to the Bank directly based upon its current size, the regulators have indicated that all banks, regardless of their size, may have material exposures to climate-related financial and other risks that require prudent management.
Added
The federal banking agencies are expected to adopt a more formal climate risk management framework for larger banking organizations in the coming months.
Added
As climate-related supervisory guidance is considered and formalized for all banks and financial institutions, the Company may be required to expend significant capital and incur compliance, operating, maintenance and remediation costs in order to conform to such requirements.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeIf 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. 13 Table of Contents In addition, there are risks and uncertainties associated with the introduction of new products and services, including substantial investments of time and resources.
Biggest changeThe 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.
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.
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 17 Table of Contents accounting policies or practices; failure to integrate acquisitions or realize anticipated benefits from acquisitions; or changes in government regulations.
Any failure, interruption, breach in security or loss of data, whatever the cause, could reduce client satisfaction with the Company’s products and services 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.
Any failure, interruption, breach in 12 Table of Contents security or loss of data, whatever the cause, could reduce client satisfaction with the Company’s products and services 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.
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. 11 Table of Contents Cloud technologies are also critical to the operation of the Company's systems, and reliance on cloud technologies is growing.
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.
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. 10 Table of Contents 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.
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.
In the normal course of business, Cass and its affiliates are routinely subject to examinations and challenges from federal and state tax authorities regarding the amount of taxes due in connection with investments it has made and the businesses in 15 Table of Contents which it is engaged.
In the normal course of business, Cass and its affiliates are routinely subject to examinations and challenges from federal and state tax authorities regarding the amount of taxes due in connection with investments it has made and the businesses in which it is engaged.
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. Fluctuations in interest rates could affect Cass’ net interest income and balance sheet.
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. 11 Table of Contents Fluctuations in interest rates could affect Cass’ net interest income and balance sheet.
Continuing deterioration in economic conditions, including the possibility of a recession, affecting borrowers and securities issuers; inflation; rising interest rates; new information regarding existing loans, credit commitments and securities holdings; the lingering effects of the COVID-19 pandemic or other global pandemics; natural disasters and risks related to climate change; and identification of additional 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, securities and off-balance sheet credit exposures.
Continuing deterioration in economic conditions, including the possibility of a recession, affecting borrowers and securities issuers; inflation; rising interest rates; new information regarding existing loans, credit commitments and securities holdings; global pandemics; natural disasters and risks related to climate change; and identification of additional 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, securities and off-balance sheet credit exposures.
Cass has clients who operate in carbon-intensive industries that are exposed to climate risks, such as those risks related to the transition to a less carbon- 16 Table of Contents dependent economy, as well as clients who operate in low-carbon industries that may be subject to risks associated with new technologies.
Cass has clients who operate in carbon-intensive industries that are exposed to climate risks, such as those risks related to the transition to a less carbon-dependent economy, as well as clients who operate in low-carbon industries that may be subject to risks associated with new technologies.
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 Company not only competes for business opportunities with new customers, but also competes to maintain and expand the relationships it has with its existing 14 Table of Contents customers. The Company continues to experience pressures to maintain these relationships as its competitors attempt to capture its customers.
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. Management’s ability to retain key officers and employees may change.
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.
Climate change could have a material negative impact on the Company and its clients The Company's business, as well as the operations and activities of it clients, could be negatively impacted by climate change. Climate change presents both immediate and long-term risks to Cass and its clients and these risks are expected to increase over time.
The Company's business, as well as the operations and activities of it clients, could be negatively impacted by climate change. Climate change presents both immediate and long-term risks to Cass and its clients and these risks are expected to increase over time.
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.
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. Climate change could have a material negative impact on the Company and its clients.
Failure to adequately manage this transition process could adversely impact the Company's reputation. Operations of the Company’s customer base are impacted by macro-economic factors such as a strong dollar and/or volatility in commodity prices. A reduction in its customers’ operations could have a material adverse effect on Cass’ results of operations.
Operations of the Company’s customer base are impacted by macro-economic factors such as a strong dollar and/or volatility in commodity prices. A reduction in its customers’ operations could have a material adverse effect on Cass’ results of operations.
The value of our goodwill and other intangible assets may decline in the future As of December 31, 2022, the Company had $21.4 million of goodwill and other intangible assets.
The value of our goodwill and other intangible assets may decline in the future As of December 31, 2023, the Company had $20.7 million of goodwill and other intangible assets.
Due in part to the increase in the Federal Funds rate throughout 2022, the Company's net interest margin increased to 2.74% in 2022 from 2.31% in 2021, therefore increasing net interest income.
Due in part to the recent increase in the Federal Funds rate, the Company's net interest margin increased to 3.25% in 2023 from 2.74% in 2022, therefore increasing net interest income.
Such capital may not be available on favorable terms, or at all. Fully phased in, the Basel III Capital rules implemented stricter capital requirements and leverage limits and methods for calculating risk-weighted assets, meaning the Company is required to hold more capital against such assets.
Fully phased in, the Basel III Capital rules implemented stricter capital requirements and leverage limits and methods for calculating risk-weighted assets, meaning the Company is required to hold more capital against such assets.
The Company is subject to a variety of risks arising from ESG matters. ESG matters include climate risk, hiring practices, the diversity of the work force, and racial and social justice issues involving the Company’s personnel, customers and third parties with whom it otherwise does business.
ESG matters include climate risk, hiring practices, the diversity of the work force, and racial and social justice issues involving the Company’s personnel, customers and third parties with whom it otherwise does business. Risks arising from ESG matters may adversely affect, among other things, reputation and the market price of the Company’s securities.
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.
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.
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.
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.
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.
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 2 to the consolidated financial statements included elsewhere in this report for additional information.
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 General political, economic or industry conditions may be less favorable than expected.
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 Recent negative developments affecting the banking industry, and resulting media coverage, have eroded customer confidence in the banking system.
Given that climate change could impose systemic risks upon the financial sector, either via disruptions in economic activity resulting from the physical impacts of climate change or changes in policies as the economy transitions to a less carbon-intensive environment, the Company faces regulatory risk of increasing focus on the resilience to climate-related risks, including in the context of stress testing for various climate stress scenarios.
Given that climate change could impose systemic risks upon the financial sector, either via disruptions in economic activity resulting from the physical impacts of climate change or changes in policies as the economy transitions to a less carbon-intensive environment, the Company faces ongoing legislative and regulatory uncertainties and changes regarding climate risk management and practices that if adopted, may result in higher regulatory, compliance, credit and reputational risks and costs.
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.
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. 16 Table of Contents 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.
The ACL is a valuation account that is deducted from the amortized cost basis to present the net amount expected to be 12 Table of Contents 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 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.
Risks arising from ESG matters may adversely affect, among other things, reputation and the market price of the Company’s securities.
The Company is subject to ESG risks that could adversely affect its reputation and the market price of its securities. The Company is subject to a variety of risks arising from ESG matters.
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 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.
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.
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. The Company’s allowance for credit losses (“ACL”) is subject to continuing evaluation and may be insufficient.
See Item 1, “Business—Supervision and Regulation,” and Item 8, Note 2 to the consolidated financial statements included elsewhere in this report for additional information. 14 Table of Contents 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.
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.
Removed
The Company may be adversely impacted by the replacement of LIBOR as a reference rate. The United Kingdom’s Financial Conduct Authority and the administrator of LIBOR have announced that the publication of the most commonly used U.S. dollar London Interbank Offered Rate (“LIBOR”) settings will cease to be published or cease to be representative after June 30, 2023.
Added
The recent high-profile bank failures have generated significant market volatility among publicly traded bank holding companies. These market developments have negatively impacted customer confidence in the safety and soundness of regional banks.
Removed
The publication of all other LIBOR settings ceased to be published as of December 31, 2021.
Added
As a result, customers may choose to maintain deposits with larger financial institutions or invest in higher yielding short-term fixed income securities, all of which could materially adversely impact the Company’s liquidity, loan funding capacity, net interest margin, capital and results of operations.
Removed
The Adjustable Interest Rate (LIBOR) Act, enacted in March 2022, provides a statutory framework to replace U.S. dollar LIBOR with a benchmark rate based on the Secured Overnight Financing Rate (“SOFR”) for contracts governed by U.S. law that have no or ineffective fallbacks, and in December 2022, the Federal Reserve Board adopted related implementing rules.
Added
While the Department of the Treasury, the Federal Reserve, and the FDIC have made statements ensuring that depositors of these recently failed banks would have access to their deposits, including uninsured deposit accounts, there is no guarantee that such actions will be successful in restoring customer confidence in regional banks and the banking system more broadly.
Removed
Although governmental authorities have endeavored to facilitate an orderly discontinuation of LIBOR, no assurance can be provided that this aim will be achieved or that the use, level, and volatility of LIBOR or other interest rates or the value of LIBOR-based securities will not be adversely affected.
Added
Any regulatory examination scrutiny or new regulatory requirements arising from the recent events in the banking industry could increase the Company’s expenses and affect the Company’s operations.
Removed
As a result, and despite the enactment of the LIBOR Act, for the most commonly used LIBOR settings, the use or selection of a successor rate could expose the Company to risks associated with disputes and litigation with customers and counterparties and other market participants in connection with implementing LIBOR fallback provisions.
Added
The Company anticipates increased regulatory scrutiny and new regulations designed to address the recent negative developments in the banking industry, all of which may increase the Company’s costs of doing business and reduce its profitability. Among other things, there may be an increased focus by regulators on deposit composition and the level of uninsured deposits.
Removed
While the Company does not currently originate loans tied to LIBOR, the Company has five loan relationships originated and/or purchased in prior periods that include attributes that are tied to LIBOR. Since proposed alternative rates are calculated differently, payments under contracts referencing new rates will differ from those referencing LIBOR.
Added
As primarily a commercial bank, the Bank has a higher degree of uninsured deposits compared to larger national banks or smaller community banks with a stronger focus on retail deposits. As a result, the Bank could face increased scrutiny or be viewed as higher risk. General political, economic or industry conditions may be less favorable than expected.
Removed
The Company makes certain projections as a basis for developing plans and strategies for its payment processing and banking products.
Added
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. 13 Table of Contents Customer borrowing, repayment, investment, deposit, and payable processing practices may be different than anticipated.
Removed
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.
Added
In addition, there are risks and uncertainties associated with the introduction of new products and services, including substantial investments of time and resources.
Removed
Ongoing legislative or regulatory uncertainties and changes regarding climate risk management and practices may result in higher regulatory, compliance, credit and reputational risks and costs. The Company is subject to Environmental, Social and Governance (“ESG”) risks that could adversely affect its reputation and the market price of its securities.
Added
The Company could experience an unexpected inability to obtain needed liquidity which could adversely affect the Company's business, profitability, and viability as a going concern. Liquidity measures the ability to meet current and future cash flow needs as they become due.
Added
The liquidity of a financial institution reflects its ability to meet loan requests, to accommodate possible outflows in deposits, and to take advantage of interest rate market opportunities and is essential to a financial institution’s business.
Added
The ability of a financial institution to meet its current financial obligations is a function of its balance sheet structure, its ability to liquidate assets, and its access to alternative sources of funds.
Added
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.
Added
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.
Added
Rising interest rates have decreased the value of the Company’s available-for-sale securities portfolio, and the Company would realize losses if it were required to sell such securities to meet liquidity needs.
Added
As a result of inflationary pressures and the resulting rapid increases in interest rates over the last year, the fair value of previously issued government and other fixed income securities has declined significantly, resulting in unrealized losses.
Added
While the Company does not currently intend to sell these securities, if the Company were required to sell such 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.
Added
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. Furthermore, while the Federal Reserve Board has announced a Bank Term Funding Program available to eligible depository institutions secured by U.S.
Added
Treasuries, agency debt, mortgage-backed securities, and other qualifying assets as collateral at par to mitigate the risk of potential losses on 15 Table of Contents the sale of such instruments, there is no guarantee that such programs will be effective in addressing liquidity needs as they arise. Management’s ability to retain key officers and employees may change.
Added
The OCC, FRB and the U.S. Treasury Department have emphasized that climate-related risks are faced by banking organizations of all types and sizes, specifically including physical and transition risks, and is in the process of enhancing supervisory expectations regarding banks’ risk management practices.
Added
These agencies have indicated increased expectations for larger financial institutions to measure, monitor and manage climate-related risk as part of their enterprise risk management processes.
Added
Although any initial policies may not apply to financial institutions of the Bank’s size, it is likely that regulators will expect all banks to enhance internal control and risk management programs and processes relating to climate change.
Added
To the extent that these 18 Table of Contents initiatives lead to the adoption of new regulations or guidance applicable to the Company and the Bank, compliance costs and risks are expected to increase.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeManagement believes that these facilities are suitable and adequate for the Company’s operations. 17 Table of Contents
Biggest changeManagement believes that these facilities are suitable and adequate for the Company’s operations.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeMINE SAFETY DISCLOSURES Not applicable. 18 Table of Contents PART II
Biggest changeMINE SAFETY DISCLOSURES Not applicable. 21 Table of Contents PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

5 edited+2 added−0 removed4 unchanged
Biggest changeDuring the three months ended December 31, 2022, the Company did not repurchase any shares of its common stock pursuant to its treasury stock buyback program. 19 Table of Contents Performance Quoted on The Nasdaq Stock Market for the Last Five Fiscal Years The following graph compares the cumulative total returns over the last five fiscal years of a hypothetical investment of $100 in shares of common stock of the Company with a hypothetical investment of $100 in The Nasdaq Stock Market (“Nasdaq”), the index of Nasdaq computer and data processing stocks, and the index of Nasdaq bank stocks.
Biggest changeThe program provides that the Company may repurchase up to an aggregate of 500,000 shares of common stock and has no expiration date. 22 Table of Contents Performance Quoted on The Nasdaq Stock Market for the Last Five Fiscal Years The following graph compares the cumulative total returns over the last five fiscal years of a hypothetical investment of $100 in shares of common stock of the Company with a hypothetical investment of $100 in The Nasdaq Stock Market (“Nasdaq”), the index of Nasdaq computer and data processing stocks, and the index of Nasdaq bank stocks.
The graph assumes $100 was invested on December 31, 2017, with dividends reinvested. Returns are based on period end prices. ITEM 6. RESERVED
The graph assumes $100 was invested on December 31, 2018, with dividends reinvested. Returns are based on period end prices. ITEM 6. RESERVED
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES The Company’s common stock is quoted on The Nasdaq Global Select Market® under the symbol “CASS.” As of February 15, 2023, there were approximately 5,405 holders of record of the Company’s common stock.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES The Company’s common stock is quoted on The Nasdaq Global Select Market® under the symbol “CASS.” As of February 15, 2024, there were approximately 5,717 holders of record of the Company’s common stock.
The Company maintains a treasury stock buyback program approved by the Board of Directors in October 2021 pursuant to which the Board of Directors has authorized the repurchase of up to 750,000 shares of the Company’s common stock and has no expiration date.
The Company maintains a treasury stock buyback program approved by the Board of Directors in October 2023 pursuant to which, the Board of Directors has authorized the repurchase of up to 500,000 shares of the Company’s common stock and has no expiration date.
The Company has repurchased 409,293 shares under this treasury stock buyback program and therefore has 340,707 shares remaining for repurchase. The Company repurchased a total of 130,374 shares at an aggregate cost of $5.3 million during the year ended December 31, 2022 and 713,857 shares at an aggregate cost of $31.0 million during the year ended December 31, 2021.
The Company has repurchased 13,964 shares under this treasury stock buyback program and therefore has 486,036 shares remaining for repurchase. The Company repurchased a total of 150,541 shares at an aggregate cost of $5.8 million during the year ended December 31, 2023 and 130,374 shares at an aggregate cost of $5.3 million during the year ended December 31, 2022.
Added
During the three months ended December 31, 2023, the Company repurchased shares of its common stock as follows: Period Total Number of Shares Purchased (1) Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs October 1, 2023 – October 31, 2023 1,650 $ 37.68 1,650 498,350 November 1, 2023 – November 30, 2023 13,295 40.28 11,714 486,636 December 1, 2023 – December 31, 2023 600 41.83 600 486,036 Total 15,545 $ 40.06 13,964 486,036 (1) During the quarter ended December 31, 2023, there were 13,964 shares repurchased pursuant to the Company's publicly announced treasury stock buyback program and 1,581 shares transferred from employees in satisfaction of tax withholding obligations upon the vesting of restricted stock.
Added
(2) The Board of Directors authorized the treasury stock buyback program on October 17, 2023, announced by the Company on October 19, 2023.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeDistribution 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: 24 Table of Contents (In thousands) 2022 2021 2020 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), : $ 992,004 $ 39,460 3.98 % $ 887,662 $ 35,178 3.96 % $ 906,361 $ 37,665 4.16 % Securities (4) : Taxable 509,537 10,083 1.98 192,885 2,547 1.32 75,938 1,686 2.22 Tax-exempt (3) 279,247 8,043 2.88 304,672 8,919 2.93 289,316 8,993 3.11 Certificates of deposit — — — — — — 255 6 2.35 Short-term investments 425,004 6,429 1.51 614,390 726 0.12 402,427 1,226 0.30 Total interest-earning assets 2,205,792 64,015 2.90 1,999,609 47,370 2.37 1,674,297 49,576 2.96 Non-interest-earning assets Cash and due from banks 20,772 21,220 16,979 Premises and equipment, net 19,291 17,846 19,623 Payments in excess of funding 278,185 211,809 160,692 Bank owned life insurance 46,468 26,766 17,817 Goodwill and other intangibles 19,558 17,273 18,132 Unrealized (loss) gain on investment securities (43,147) 15,833 18,368 Other assets 51,686 35,231 37,218 Allowance for credit losses (12,527) (11,595) (11,016) Total assets $ 2,586,078 $ 2,333,992 $ 1,952,110 Liabilities and Shareholders’ Equity (1) Interest-bearing liabilities Interest-bearing demand deposits $ 549,054 $ 3,118 0.57 % $ 521,409 $ 582 0.11 % $ 398,585 $ 1,313 0.33 % Savings deposits 13,288 38 0.29 18,398 9 0.05 13,819 24 0.17 Time deposits >=$250 18,272 181 0.99 14,576 139 0.95 20,036 267 1.33 Other time deposits 22,637 145 0.64 37,676 441 1.17 47,970 756 1.58 Total interest-bearing deposits 603,251 3,482 0.58 592,059 1,171 0.20 480,410 2,360 0.49 Short-term borrowings 11 — — 10 — — 61 2 3.28 Total interest-bearing liabilities 603,262 3,482 0.58 592,069 1,171 0.20 480,471 2,362 0.49 Noninterest-bearing liabilities Demand deposits 588,121 447,880 356,433 Accounts and drafts payable 1,141,329 986,572 803,605 Other liabilities 42,224 54,035 65,513 Total liabilities 2,374,936 2,080,556 1,706,022 Shareholders’ equity 211,142 253,436 246,088 Total liabilities and shareholders’ equity $ 2,586,078 $ 2,333,992 $ 1,952,110 Net interest income (3) $ 60,533 $ 46,199 $ 47,214 Net interest margin (3) 2.74 % 2.31 % 2.82 % Interest spread 2.32 % 2.17 % 2.47 % (1) Balances shown are daily averages.
Biggest changeDistribution 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: 27 Table of Contents (In thousands) 2023 2022 2021 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) : $ 1,055,668 $ 50,825 4.81 % $ 992,004 $ 39,460 3.98 % $ 887,662 $ 35,178 3.96 % Securities (4) : Taxable 541,159 14,118 2.61 509,537 10,083 1.98 192,885 2,547 1.32 Tax-exempt (3) 192,881 5,186 2.69 279,247 8,043 2.88 304,672 8,919 2.93 Short-term investments 287,243 13,720 4.78 425,004 6,429 1.51 614,390 726 0.12 Total interest-earning assets 2,076,951 83,849 4.04 % 2,205,792 64,015 2.90 % 1,999,609 47,370 2.37 % Non-interest-earning assets Cash and due from banks 24,914 20,772 21,220 Premises and equipment, net 24,445 19,291 17,846 Payments in advance of funding 234,865 278,185 211,809 Bank-owned life insurance 48,540 46,468 26,766 Goodwill and other intangibles 21,060 19,558 17,273 Unrealized (loss) gain on investment securities (68,893) (43,147) 15,833 Other assets 71,050 51,686 35,231 Allowance for credit losses (13,324) (12,527) (11,595) Total assets $ 2,419,608 $ 2,586,078 $ 2,333,992 Liabilities and Shareholders’ Equity (1) Interest-bearing liabilities Interest-bearing demand deposits $ 496,154 $ 14,056 2.83 % $ 549,054 $ 3,118 0.57 % $ 521,409 $ 582 0.11 % Savings deposits 7,162 113 1.58 13,288 38 0.29 18,398 9 0.05 Time deposits >=$250 23,912 705 2.95 18,272 181 0.99 14,576 139 0.95 Other time deposits 43,839 1,276 2.91 22,637 145 0.64 37,676 441 1.17 Total interest-bearing deposits 571,067 16,150 2.83 603,251 3,482 0.58 592,059 1,171 0.20 Short-term borrowings 2,241 116 5.18 11 — — 10 — — Total interest-bearing liabilities 573,308 16,266 2.84 % 603,262 3,482 0.58 % 592,069 1,171 0.20 % Noninterest-bearing liabilities Demand deposits 512,608 588,121 447,880 Accounts and drafts payable 1,081,245 1,141,329 986,572 Other liabilities 41,378 42,224 54,035 Total liabilities 2,208,539 2,374,936 2,080,556 Shareholders’ equity 211,069 211,142 253,436 Total liabilities and shareholders’ equity $ 2,419,608 $ 2,586,078 $ 2,333,992 Net interest income (3) $ 67,583 $ 60,533 $ 46,199 Net interest margin (3) 3.25 % 2.74 % 2.31 % Interest spread 1.20 % 2.32 % 2.17 % (1) Balances shown are daily averages.
Generating new customers allows the Company to leverage existing systems and facilities and grow revenues faster than expenses. During 2022, 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.
Generating new customers allows the Company to leverage existing systems and facilities and grow revenues faster than expenses. During 2023, 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.
(4) For purposes of these computations, yields on investment securities are computed as interest income divided by the average amortized cost of the investments. 25 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.
(4) For purposes of these computations, yields on investment securities are computed as interest income divided by the average amortized cost of the investments. 28 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.
The single nonperforming loan at December 31, 2022 paid off in full during January 2023. The Company does not have any foreign loans. The Company's loan portfolio includes $212,000 of single family real estate mortgages, as the Company does not market its services to retail customers.
The single nonperforming loan at December 31, 2022 paid off in full during January 2023. The Company does not have any foreign loans. The Company's loan portfolio includes $157,000 of single family real estate mortgages, as the Company does not market its services to retail customers.
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 2022 compared to 2021.
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 2023 compared to 2022.
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.” 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 Committee of the Board of Directors and is described below. 21 Table of Contents Allowance for Credit Losses .
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.” 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. 24 Table of Contents Allowance for Credit Losses .
For discussion related to the results of operations and changes in financial condition for 2021 compared to 2020 refer to Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's 2021 Annual Report on Form 10-K filed with the SEC on February 28, 2022.
For discussion related to the results of operations and changes in financial condition for 2022 compared to 2021 refer to Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's 2022 Annual Report on Form 10-K filed with the SEC on February 28, 2023.
There was no interest income recognized on nonaccrual loans for the years ended 2022 and 2021. There was one nonaccrual loan of $1.2 million at December 31, 2022 and no nonaccrual loans at December 31, 2021. There were no foreclosed assets at December 31, 2022 or December 31, 2021.
There was no interest income recognized on nonaccrual loans for the years ended 2023 and 2022. There were no nonaccrual loans at December 31, 2023 and one nonaccrual loan of $1.2 million at December 31, 2022. There were no foreclosed assets at December 31, 2023 or December 31, 2022.
In general, however, Cass is compensated for its processing services through service fees, transactional level payment services, and investment of account balances 20 Table of Contents 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.
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.
Lower levels of economic activity decrease both fee income (as fewer invoices are processed) and balances of accounts and drafts payable generated (as fewer 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 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.
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 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 23 Table of Contents combine so that pricing varies greatly among the customer base.
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, 2022, an allowance for unfunded commitments of $232,000 had been recorded.
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, 2023, an allowance for unfunded commitments of $132,000 had been recorded.
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 $20.7 million in dividend payments and share repurchases during 2022.
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 $21.7 million in dividend payments and share repurchases during 2023.
There were no amounts outstanding at December 31, 2022, and 2021 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.
There were not any amounts outstanding at December 31, 2023 and 2022 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.
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 $1.4 million in 2022 and a release of credit losses of $130,000 in 2021. The amount of the provision for (release of) credit losses was derived from the Company’s CECL model.
Provision and Allowance for Credit Losses on Loans and Allowance for Unfunded Commitments The Company recorded a release of credit losses and off-balance sheet credit exposures of $550,000 in 2023 and a provision for credit losses of $1.4 million in 2022. The amount of the (release of) provision for credit losses was derived from the Company’s CECL model.
There was no single issuer of securities in the investment portfolio at December 31, 2022 for which the aggregate amortized cost exceeded 10% of total shareholders' equity. Investments by Type (In thousands) December 31, 2022 2021 2020 State and political subdivisions $ 295,126 $ 371,128 $ 305,974 Mortgage-backed securities issued or guaranteed by U.S.
There was no single issuer of securities in the investment portfolio at December 31, 2023 for which the aggregate amortized cost exceeded 10% of total shareholders' equity. Investments by Type (In thousands) December 31, 2023 2022 2021 State and political subdivisions $ 219,035 $ 295,126 $ 371,128 Mortgage-backed securities issued or guaranteed by U.S.
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 2023. The Company anticipates the annual capital expenditures for 2023 should range from $8 million to $10 million.
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 2024. The Company anticipates the annual capital expenditures for 2024 should range from $10 million to $12 million.
(2) Interest income on loans includes net loan fees of $684,000, $3.4 million, and $3.6 million for 2022, 2021 and 2020, respectively. Loan fees include $167,000, $2.6 million, and $3.1 million of PPP loan fees for 2022, 2021 and 2020, respectively. (3) Interest income is presented on a tax-equivalent basis assuming a tax rate of 21%.
(2) Interest income on loans includes net loan fees of $686,000, $684,000, and $3.4 million for 2023, 2022 and 2021, respectively. Loan fees include $0, $167,000, and $2.6 million of PPP loan fees for 2023, 2022 and 2021, respectively. (3) Interest income is presented on a tax-equivalent basis assuming a tax rate of 21%.
The Company and its banking subsidiary continue to exceed all regulatory capital requirements, as evidenced by the capital ratios at December 31, 2022 as shown in Item 8, Note 2 of this report. Cash dividends paid were $15.4 million in each of 2022 and 2021.
The Company and its banking subsidiary continue to exceed all regulatory capital requirements, as evidenced by the capital ratios at December 31, 2023 as shown in Item 8, Note 2 of this report. Cash dividends paid were $16.0 million and $15.4 million in 2023 and 2022, respectively.
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 2022, the Bank paid dividends of $15.0 million to the Company.
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 2023, the Bank paid dividends of $7.5 million to the Company.
Summary of Credit Loss Experience (In thousands) December 31, 2022 2021 2020 2019 2018 Allowance at beginning of year $ 12,041 $ 11,944 $ 11,279 $ 10,225 $ 10,205 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 13 12 19 81 20 Real estate (commercial and faith-based): Mortgage — 15 1 — — Construction — — — — — Other — — — — — Total recoveries of loans previously charged-off 13 27 20 81 20 Net loans recovered (13) (27) (20) (81) (20) Provision for credit losses 1,485 70 645 250 — Allowance at end of year $ 13,539 $ 12,041 $ 11,944 $ 10,556 $ 10,225 Cumulative effect of accounting change (ASU 2016-13) — — — 723 — Allowance at beginning of next year $ 13,539 $ 12,041 $ 11,944 $ 11,279 $ 10,225 Allowance for unfunded commitments at beginning of year $ 367 $ 567 $ 402 $ — $ — (Release of) provision for credit losses (135) (200) 165 — — Allowance for unfunded commitments at end of year 232 367 567 — — Cumulative effect of accounting change (ASU 2016-13) — — — 402 — Allowance for unfunded commitments at beginning of next year $ 232 $ 367 $ 567 $ 402 $ — Loans outstanding: Average $ 992,004 $ 887,662 $ 906,631 $ 760,153 $ 710,846 December 31 1,082,906 960,567 891,676 772,638 721,587 Ratio of allowance for credit losses to loans outstanding at December 31 1.25 % 1.25 % 1.34 % 1.37 % 1.42 % Ratio of net recoveries to average loans outstanding — — — (0.01) % — Allocation of allowance for credit losses (1) : Commercial and industrial $ 5,977 $ 5,035 $ 4,635 $ 4,874 $ 4,179 Real estate (commercial and faith-based): Mortgage 7,378 6,714 6,892 5,370 5,378 Construction 184 292 417 312 244 Other — — — — 424 Total $ 13,539 $ 12,041 $ 11,944 $ 10,556 $ 10,225 Percentage of categories to total loans: Commercial and industrial 51.9 % 46.9 % 33.5 % 41.9 % 38.4 % Real estate (commercial and faith-based): Mortgage 45.7 % 48.3 % 48.7 % 52.8 % 57.1 % Construction 2.4 % 4.1 % 5.5 % 5.3 % 4.5 % PPP — % 0.7 % 12.3 % — % — % Other — % — % — % — % — % Total 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % (1) Although specific allocations exist, the entire allowance is available to absorb losses in any particular loan category.
Summary of Credit Loss Experience (In thousands) December 31, 2023 2022 2021 2020 2019 Allowance at beginning of year $ 13,539 $ 12,041 $ 11,944 $ 11,279 $ 10,225 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 — 13 12 19 81 Real estate (commercial and faith-based): Mortgage — — 15 1 — Construction — — — — — Other — — — — — Total recoveries of loans previously charged-off — 13 27 20 81 Net loans recovered — (13) (27) (20) (81) (Release of) provision for credit losses (450) 1,485 70 645 250 Allowance at end of year $ 13,089 $ 13,539 $ 12,041 $ 11,944 $ 10,556 Cumulative effect of accounting change (ASU 2016-13) — — — — 723 Allowance at beginning of next year $ 13,089 $ 13,539 $ 12,041 $ 11,944 $ 11,279 Allowance for unfunded commitments at beginning of year $ 232 $ 367 $ 567 $ 402 $ — (Release of) provision for credit losses (100) (135) (200) 165 — Allowance for unfunded commitments at end of year 132 232 367 567 — Cumulative effect of accounting change (ASU 2016-13) — — — — 402 Allowance for unfunded commitments at beginning of next year $ 132 $ 232 $ 367 $ 567 $ 402 Loans outstanding: Average $ 1,055,668 $ 992,004 $ 887,662 $ 906,631 $ 760,153 December 31 1,014,318 1,082,906 960,567 891,676 772,638 Ratio of allowance for credit losses to loans outstanding at December 31 1.29 % 1.25 % 1.25 % 1.34 % 1.37 % Ratio of net recoveries to average loans outstanding — % — % — % — % (0.01) % Allocation of allowance for credit losses (1) : Commercial and industrial $ 5,412 $ 5,977 $ 5,035 $ 4,635 $ 4,874 Real estate (commercial and faith-based): Mortgage 7,569 7,378 6,714 6,892 5,370 Construction 108 184 292 417 312 Other — — — — — Total $ 13,089 $ 13,539 $ 12,041 $ 11,944 $ 10,556 Percentage of categories to total loans: Commercial and industrial 49.1 % 51.9 % 46.9 % 33.5 % 41.9 % Real estate (commercial and faith-based): Mortgage 49.3 45.7 48.3 48.7 52.8 Construction 1.6 2.4 4.1 5.5 5.3 PPP — — 0.7 12.3 — Other — — — — — Total 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % (1) Although specific allocations exist, the entire allowance is available to absorb losses in any particular loan category.
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.
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.
As of December 31, 2022, the Bank had secured lines of credit with the Federal Home Loan Bank of $237.8 million collateralized by commercial mortgage loans. At December 31, 2022, the Company had lines of credit from three banks up to a maximum of $200.0 million in aggregate collateralized by state and political subdivision securities.
As of December 31, 2023, the Bank had secured lines of credit with the Federal Home Loan Bank of $228.3 million collateralized by commercial mortgage loans. At December 31, 2023, the Company had lines of credit from three banks up to a maximum of $250.0 million in aggregate collateralized by state and political subdivision securities.
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.
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.
Capital expenditures in 2023 are expected to consist of equipment and software related to the payment and information processing services business.
Capital expenditures in 2024 are expected to primarily consist of purchases of equipment and software related to the payment and information processing services business.
At December 31, 2022, cash and cash equivalents represented 7.8% of total assets and are the Company’s and its subsidiaries’ primary source of liquidity to meet future expected and unexpected loan demand, depositor withdrawals or reductions in accounts and drafts payable. Secondary sources of liquidity include the investment portfolio and borrowing lines.
At December 31, 2023, cash and cash equivalents represented 15.0% of total assets and are the Company’s and its subsidiaries’ primary source of liquidity to meet future expected and unexpected loan demand, depositor withdrawals or reductions in accounts and drafts payable. 34 Table of Contents Secondary sources of liquidity include the investment portfolio and borrowing lines.
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 2022, 2021 and 2020 were $51.6 million, $34.5 million, and $47.8 million, respectively. Net income plus depreciation and amortization accounts for most of the operating cash 31 Table of Contents provided.
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 2023, 2022 and 2021 were $36.9 million, $51.6 million, and $34.5 million, respectively. Net income plus depreciation and amortization accounts for most of the operating cash provided.
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.
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.
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 increased $122.3 million, or 12.7%, to $1.08 billion at December 31, 2022.
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 $68.6 million, or 6.3%, to $1.01 billion at December 31, 2023.
Those that could significantly impact the Company include the general levels of interest rates, business activity, inflation, and energy costs as well as new business opportunities available to the Company. 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.
Those that could significantly impact the Company include the general levels of interest rates, business activity, inflation, and energy costs as well as new business opportunities available to the Company. 35 Table of Contents As a financial institution, a significant source of the Company’s earnings is generated from net interest income.
The Company maintains a treasury stock buyback program approved by the Board of Directors in October 2021 pursuant to which the Board of Directors has authorized the repurchase of up to 750,000 shares of the Company’s common stock and has no expiration date. A total of 340,707 shares remain under the buyback program at December 31, 2022.
The Company maintains a treasury stock buyback program approved by the Board of Directors in October 2023 pursuant to which the Board of Directors has authorized the repurchase of up to 500,000 shares of the Company’s common stock and has no expiration date. A total of 486,036 shares remain under the buyback program at December 31, 2023.
Of the total portfolio, 8.8% mature in one year or less, 34.6% mature after one year through five years and 56.6% mature after five years. As of December 31, 2022, 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.
Of the total portfolio, 20.6% mature in one year or less, 21.5% mature after one year through five years and 57.9% mature after five years. As of December 31, 2023, 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.
Government agencies or sponsored enterprises 173,939 168,646 51,752 Corporate bonds 85,097 84,338 — Asset-backed securities issued or guaranteed by U.S.
Government agencies or sponsored enterprises 157,799 173,939 168,646 Corporate bonds 102,340 85,097 84,338 Asset-backed securities issued or guaranteed by U.S.
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.
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 14 "Disclosures about Fair Value of Financial Instruments" for more information.
The amount of the provision will fluctuate as determined by these analyses. The Company had net loan recoveries of $13,000 and $27,000 in 2022 and 2021, respectively. The ACL was $13.5 million at December 31, 2022 compared to $12.0 million at December 31, 2021. The ACL represented 1.25% of outstanding loans at both December 31, 2022 and December 31, 2021.
The amount of the provision will fluctuate as determined by these analyses. The Company had net loan recoveries of $0 and $13,000 in 2023 and 2022, respectively. The ACL was $13.1 million at December 31, 2023 compared to $13.5 million at December 31, 2022.
The increase in net interest income in 2022 compared to 2021 is primarily due to the Federal Reserve’s actions to increase the Federal Funds rate throughout the year of 2022, positively affecting the net interest rate margin which increased to 2.74% as compared to 2.31% in the prior year.
The increase in net interest income in 2023 compared to 2022 is primarily due to the Federal Reserve’s actions to increase the Federal Funds rate throughout 2022 and into 2023, positively affecting the net interest rate margin which increased to 3.25% as compared to 2.74% in the prior year.
In addition, the Company has maintained exceptional credit quality with non-performing loans to total loans of 0.11% at December 31, 2022 and no loan charge-offs during the year ended December 31, 2022.
In addition, the Company has maintained exceptional credit quality with no non-performing loans at December 31, 2023, and no loan charge-offs during the year ended December 31, 2023.
Due to the Company’s payment processing cycle, 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 $154.8 million, or 15.7%, to $1.14 billion during 2022.
Due to the Company’s payment processing cycle, 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 decreased $60.1 million, or 5.3%, to $1.08 billion during 2023.
The loan portfolio was $1.08 billion, representing 42.1% of the Company's total assets as of December 31, 2022 and generated $39.5 million in interest income during the year then ended. 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, 2022.
The loan portfolio was $1.01 billion, representing 40.9% of the Company's total assets as of December 31, 2023 and generated $50.8 million in interest income during the year then ended. 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, 2023.
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 2022, the Company's purchase of investment securities totaled $232.1 million.
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 2023, the Company purchased investment securities totaling $15.3 million.
As a result of rising inflation, the Federal Reserve has increased the Federal Funds rate over the course of 2022 and into the first quarter of 2023. The increase in the Federal Funds rate has contributed to the increase in the Company's net interest margin to 2.74% in 2022 from 2.31% in 2021, therefore positively impacting net interest income.
As a result of rising inflation, the Federal Reserve increased the Federal Funds rate throughout 2022 and 2023. The increase in the Federal Funds rate has contributed to the increase in the Company's net interest margin to 3.25% in 2023 from 2.74% in 2022, therefore positively impacting net interest income.
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. Troubled debt restructurings are not included in nonperforming loans unless they are on non-accrual status or past due 90 days or more.
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.
At December 31, 2022, the balance of loan commitments, standby and commercial letters of credit were $237.0 million, $14.5 million and $354,000, respectively. Since some of the financial instruments may expire without being drawn upon, the total amounts do not necessarily represent future cash requirements.
At December 31, 2023, the balance of loan commitments, standby and commercial letters of credit were $196.1 million, $13.6 million and $353,000, respectively. Since some of the financial instruments may expire without being drawn upon, the total amounts do not necessarily represent future cash requirements.
The Company repurchased a total of 130,374 shares at an aggregate cost of $5.3 million during the year ended December 31, 2022 and 713,857 shares at an aggregate cost of $31.0 million during the year ended December 31, 2021.
The Company repurchased a total of 150,541 shares at an aggregate cost of $5.8 million during the year ended December 31, 2023 and 130,374 shares at an aggregate cost of $5.3 million during the year ended December 31, 2022.
The tax-equivalent adjustment was approximately $1.7 million for 2022 and $1.9 million for each of 2021 and 2020.
The tax-equivalent adjustment was approximately $1.1 million, $1.7 million and $1.9 million for 2023, 2022, and 2021, respectively.
The increase was due to the increase in net income of $6.3 million, partially offset by a decrease in net amortization of premium/discount on investment securities of $1.1 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.
The decrease was due to the decrease in net income of $4.8 million and lower net amortization of premium/discount on investment securities of $1.8 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.
As of December 31, 2022, 33 Table of Contents unappropriated retained earnings of $29.2 million were available at the Bank for the declaration of dividends to the Company without prior approval from regulatory authorities.
As of December 31, 2023, unappropriated retained earnings of $30.8 million were available at the Bank for the declaration of dividends to the Company without prior approval from regulatory authorities.
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 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.
Net income plus amortization of intangible assets, net amortization of premium/discount on investment securities and depreciation of premises and equipment was $45.9 million and $41.1 million for the years ended December 31, 2022 and 2021, respectively, an increase of $4.8 million year over year.
Net income plus amortization of intangible assets, net amortization of premium/discount on investment securities and depreciation of premises and equipment was $39.5 million and $45.9 million for the years ended December 31, 2023 and December 31, 2022, respectively, a decrease of $6.4 million year over year.
The increase in net interest income in 2022 compared to 2021 is primarily due to the Federal Reserve’s actions to increase the Federal Funds rate throughout the year of 2022, positively affecting the net interest rate margin which increased to 2.74% as compared to 2.31% in the prior year.
The increase in net interest income in 2023 compared to 2022 is primarily due to an increase in the Federal Funds rate throughout 2022 and into 2023, positively affecting the net interest rate margin which increased to 3.25% as compared to 2.74% in the prior year.
The decrease was primarily a result of an increase in accumulated other comprehensive loss of $59.8 million due to the change in market values on investment securities as a result of the rising interest rate environment, the payment of cash dividends of $15.4 million, and the repurchase of treasury shares of $5.3 million, partially offset by net income of $34.9 million.
The increase was primarily a result of net income of $30.1 million and the decrease in accumulated other comprehensive loss of $11.9 million due to the change in market values on investment securities, partially offset by the payment of cash dividends of $16.0 million, and the repurchase of treasury shares of $5.8 million.
The cost of fuel is another factor that has a significant impact on the transportation sector. As the price of fuel goes up or down, the Company’s earnings increase or decrease with the dollar amount of transportation invoices.
The cost of fuel is another factor that has a significant impact on the transportation sector. As the price of fuel goes up or down, the Company’s earnings increase or decrease with the dollar amount of transportation invoices. The Company recorded revenue of $197.5 million in 2023, up 8.2% from the prior year.
Further detail about the components of revenue and expenses are explained in the sections following. 22 Table of Contents Fee Revenue and Other Income The Company’s fee revenue is derived mainly from transportation and facility payment and processing fees.
The Company posted a 1.24% return on average assets and 14.24% return on average equity. Further detail about the components of revenue and expenses are explained in the sections following. 25 Table of Contents Fee Revenue and Other Income The Company’s fee revenue is derived mainly from transportation and facility payment and processing fees.
The balances of liquid assets consist of cash and cash equivalents, which include cash and due from banks, interest-bearing deposits in other financial institutions, federal funds sold, and money market funds, totaled $200.9 million at December 31, 2022, a decrease of $314.0 million, or 61.0%, from December 31, 2021.
The balances of liquid assets consist of cash and cash equivalents, which include cash and due from banks, interest-bearing deposits in other financial institutions, federal funds sold, and money market funds, totaled $372.5 million at December 31, 2023, an increase of $171.5 million, or 85.4%, from December 31, 2022.
Summary of Results (In thousands except per share data) For the Years Ended December 31, % Change 2022 2021 2020 2022 v. 2021 2021 v. 2020 Processing fees $ 76,470 $ 74,589 $ 74,638 2.5 % (0.1) % Financial fees 43,757 32,733 23,107 33.7 41.7 Net interest income 58,844 44,326 45,325 32.8 (2.2) Provision for (release of) credit losses 1,350 (130) 810 (1138.5) (116.0) Other 4,755 2,369 2,696 100.7 (12.1) Total revenues 182,476 154,147 144,956 18.4 6.3 Operating expense 139,576 120,326 114,615 16.0 5.0 Income before income tax expense 42,900 33,821 30,341 26.8 11.5 Income tax expense 7,996 5,217 5,165 53.3 1.0 Net income $ 34,904 $ 28,604 $ 25,176 22.0 13.6 Diluted earnings per share $ 2.53 $ 2.00 $ 1.73 26.5 15.6 Return on average assets 1.35 % 1.23 % 1.29 % — — Return on average equity 16.53 % 11.29 % 10.23 % — — The Company recorded revenue of $182.5 million in 2022, up 18.4% from the prior year, primarily due to an increase in transportation and facility dollar volumes processed and rising interest rates.
Summary of Results (In thousands except per share data) For the Years Ended December 31, % Change 2023 2022 2021 2023 v. 2022 2022 v. 2021 Processing fees $ 79,566 $ 76,470 $ 74,589 4.0 % 2.5 % Financial fees 45,985 43,757 32,733 5.1 % 33.7 % Net interest income 66,494 58,844 44,326 13.0 % 32.8 % (Release of) provision for credit losses (550) 1,350 (130) (140.7) % (1138.5) % Other 4,916 4,755 2,369 3.4 % 100.7 % Total revenues 197,511 182,476 154,147 8.2 % 18.4 % Operating expense 160,155 139,576 120,326 14.7 % 16.0 % Income before income tax expense 37,356 42,900 33,821 (12.9) % 26.8 % Income tax expense 7,297 7,996 5,217 (8.7) % 53.3 % Net income $ 30,059 $ 34,904 $ 28,604 (13.9) % 22.0 % Diluted earnings per share $ 2.18 $ 2.53 $ 2.00 (13.8) % 26.5 % Return on average assets 1.24 % 1.35 % 1.23 % — — Return on average equity 14.24 % 16.53 % 11.29 % — — The Company recorded revenue of $197.5 million in 2023, up 8.2% from the prior year, due to increases in processing fees, financial fees, net interest income and a positive variance in the (release of) provision for credit losses.
The following table summarizes the changes in tax-equivalent net interest income and related factors: (In thousands) December 31, % Change 2022 2021 2020 2022 v. 2021 2021 v. 2020 Average earning assets $ 2,205,792 $ 1,999,609 $ 1,674,297 10.3 % 19.4 % Net interest income (1) $ 60,533 $ 46,199 $ 47,214 31.0 (2.1) Net interest margin (1) 2.74 % 2.31 % 2.82 % — — Yield on earning assets (1) 2.90 % 2.37 % 2.96 % — — Rate on interest bearing liabilities 0.58 % 0.20 % 0.49 % — — (1) Presented on a tax-equivalent basis using a tax rate of 21%.
The following table summarizes the changes in tax-equivalent net interest income and related factors: (In thousands) December 31, % Change 2023 2022 2021 2023 v. 2022 2022 v. 2021 Average earning assets $ 2,076,951 $ 2,205,792 $ 1,999,609 (5.8) % 10.3 % Average interest-bearing liabilities $ 573,308 $ 603,262 $ 592,069 (5.0) % 1.9 % Net interest income (1) $ 67,583 $ 60,533 $ 46,199 11.6 % 31.0 % Net interest margin (1) 3.25 % 2.74 % 2.31 % — — Yield on earning assets (1) 4.04 % 2.90 % 2.37 % — — Rate on interest bearing liabilities 2.84 % 0.58 % 0.20 % — — (1) Presented on a tax-equivalent basis using a tax rate of 21%.
Government agencies or sponsored enterprises 45,023 49,341 — Treasury securities 155,283 — — Total investments $ 754,468 $ 673,453 $ 357,726 Investment Securities by Maturity (At December 31, 2022) (In thousands) Within 1 Year Over 1 to 5 Years Over 5 to 10 Years Over 10 Years Yield State and political subdivisions $ 16,197 $ 117,515 $ 109,509 $ 51,905 2.77 % (1) Mortgage-backed securities issued or guaranteed by U.S.
Government agencies or sponsored enterprises 39,222 45,023 49,341 Treasury securities 108,721 155,283 — Total investments $ 627,117 $ 754,468 $ 673,453 Investment Securities by Maturity (At December 31, 2023) (In thousands) Within 1 Year Over 1 to 5 Years Over 5 to 10 Years Over 10 Years Yield State and political subdivisions $ 20,492 $ 78,179 $ 91,789 $ 28,575 2.49 % (1) Mortgage-backed securities issued or guaranteed by U.S.
Other factors impacting the $17.1 million increase in net cash provided by operating activities include: • An increase in other operating activities, net of $9.4 million, primarily due to changes in various accounts receivable and payable; • An increase in stock-based compensation expense of $3.9 million due to improved Company earnings and the impact on performance based stock; and • A change in the provision for (release of) credit losses of $1.5 million due to loan growth in 2022.
Other factors impacting the $14.7 million decrease in net cash provided by operating activities include: • A decrease in other operating activities, net of $4.6 million, primarily due to changes in various accounts receivable and payable; • A decrease in stock-based compensation expense of $2.6 million due to lower Company earnings and the impact on performance based stock; • A decrease in current income tax liability of $2.2 million; and • A change in the (release of) provision for credit losses of $1.9 million primarily due to changes in loans outstanding during the respective periods.
The Company does not have any other interest-earning assets which would have been included in nonaccrual, past due or restructured loans if such assets were loans. 28 Table of Contents Summary of Nonperforming Assets (In thousands) December 31, 2022 2021 2020 2019 2018 Commercial and industrial: Nonaccrual $ 1,150 $ — $ — $ — $ — 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 $ 1,150 $ — $ — $ — $ — Total foreclosed assets — — — — — Total nonperforming assets $ 1,150 $ — $ — $ — $ — Operating Expenses Operating expenses in 2022 compared to 2021 and 2020 include the following significant pre-tax components: (In thousands) December 31, 2022 2021 2020 Personnel $ 106,474 $ 92,155 $ 88,062 Occupancy 3,676 3,824 3,739 Equipment 6,668 6,745 6,568 Amortization of intangible assets 680 859 859 Other operating 22,078 16,743 15,387 Total operating expense $ 139,576 $ 120,326 $ 114,615 Total operating expenses increased 16.0% in 2022 compared to 2021, primarily as a result of higher personnel and other operating expenses.
The Company does not have any other interest-earning assets which would have been included in nonaccrual, past due or restructured loans if such assets were loans. 31 Table of Contents Summary of Nonperforming Assets (In thousands) December 31, 2023 2022 2021 2020 2019 Commercial and industrial: Nonaccrual $ — $ 1,150 $ — $ — $ — 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 $ — $ 1,150 $ — $ — $ — Total foreclosed assets — — — — — Total nonperforming assets $ — $ 1,150 $ — $ — $ — Operating Expenses Operating expenses in 2023 compared to 2022 and 2021 include the following significant pre-tax components: (In thousands) December 31, 2023 2022 2021 Salaries and commissions $ 93,474 $ 85,489 $ 75,641 Share-based compensation 4,139 6,732 2,859 Net periodic pension cost (benefit) 733 (2,564) (1,839) Other benefits 20,348 16,817 15,494 Total personnel expense $ 118,694 $ 106,474 $ 92,155 Occupancy 3,560 3,676 3,824 Equipment 7,138 6,668 6,745 Amortization of intangible assets 780 680 859 Other operating 29,983 22,078 16,743 Total operating expense $ 160,155 $ 139,576 $ 120,326 Total operating expenses increased 14.7% in 2023 compared to 2022.
Shareholders’ equity was $206.3 million, or 8.0% of total assets, at December 31, 2022, a decrease of $39.5 million as compared to December 31, 2021.
Shareholders’ equity was $229.8 million, or 9.3% of total assets, at December 31, 2023, an increase of $23.5 million as compared to December 31, 2022.
The average yield on short-term investments increased 139 basis points to 1.51% in 2022 due to the increase in short-term market interest rates. The vast majority of these short-term investments are held at the Federal Reserve Bank. Average interest-bearing deposits increased $11.2 million, or 1.9%, and average non-interest-bearing demand deposits increased $140.2 million, or 31.3%.
The average yield on short-term investments increased 327 basis points to 4.78% in 2023 primarily due to the increase in short-term market interest rates that began in March 2022. The majority of these short-term investments are held at the Federal Reserve Bank. The average balance of interest-bearing deposits decreased $32.2 million, or 5.3%.
The allowance for unfunded commitments was $232,000 at December 31, 2022 and $367,000 at December 31, 2021. There was one nonperforming loan outstanding with an outstanding balance of $1.2 million, or 0.11% of total loans, at December 31, 2022 and no nonperforming loans outstanding at December 31, 2021.
There were no nonperforming loans outstanding at December 31, 2023 and one nonperforming loan outstanding with an outstanding balance of $1.2 million, or 0.11% of total loans at December 31, 2022. The single nonperforming loan at December 31, 2022 paid off in full during January 2023.
Interest-bearing deposits decreased $24.4 million, or 3.8%, to $614.5 million at December 31, 2022. 30 Table of Contents Accounts and drafts payable generated by the Company in its payment processing operations increased $17.2 million, or 1.6%, to $1.07 billion, at December 31, 2022.
The Company also incurred a shift from non-interest bearing to interest-bearing deposits from current customers. Accounts and drafts payable generated by the Company in its payment processing operations increased $3.8 million, or 0.4%, to $1.07 billion, at December 31, 2023.
The decrease is primarily a result of the increase in the average balances of investment securities, loans, payments in advance of funding and bank owned life insurance, partially offset by the increase in the average balances of deposits and accounts and drafts payable.
The increase during 2023 is primarily attributed to decreases in investment securities, loans and payments in advance of funding, partially offset by a decrease in deposits.
Maturities of Certificates of Deposit as of December 31, 2022 (In thousands) $100 or Less $100 to Less Than $250 $250 or More Total Three months or less $ 789 $ 10,230 $ 5,281 $ 16,300 Three to six months 249 704 9,312 10,265 Six to twelve months 756 7,503 3,101 11,360 Over twelve months 732 1,700 264 2,696 Total $ 2,526 $ 20,137 $ 17,958 $ 40,621 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.
Maturities of Certificates of Deposit as of December 31, 2023 (In thousands) $100 or Less $100 to Less Than $250 $250 or More Total Three months or less $ 3,466 $ 34,607 $ 7,576 $ 45,649 Three to six months 349 2,233 4,276 6,858 Six to twelve months 923 9,175 10,011 20,109 Over twelve months 528 2,525 1,053 4,106 Total $ 5,266 $ 48,540 $ 22,916 $ 76,722 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.
(In thousands) 2022 Over 2021 2021 Over 2020 Volume (1) Rate (1) Total Volume (1) Rate (1) Total Increase (decrease) in interest income: Loans (2), : $ 4,150 $ 132 $ 4,282 $ (766) $ (1,721) $ (2,487) Securities: Taxable 5,780 1,756 7,536 1,761 (900) 861 Tax-exempt (3) (734) (142) (876) 463 (537) (74) Certificates of deposit — — — (6) — (6) Short-term investments (291) 5,994 5,703 256 (756) (500) Total interest income $ 8,905 $ 7,740 $ 16,645 $ 1,708 $ (3,914) $ (2,206) Interest expense on: Interest-bearing demand deposits $ 32 $ 2,504 $ 2,536 $ 318 $ (1,049) $ (731) Savings deposits (3) 32 29 6 (21) (15) Time deposits >=$250 36 6 42 (63) (65) (128) Other time deposits (139) (157) (296) (143) (172) (315) Short-term borrowings — — — (1) (1) (2) Total interest expense (74) 2,385 2,311 117 (1,308) (1,191) Net interest income $ 8,979 $ 5,355 $ 14,334 $ 1,591 $ (2,606) $ (1,015) (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.
(In thousands) 2023 Over 2022 2022 Over 2021 Volume (1) Rate (1) Total Volume (1) Rate (1) Total Increase (decrease) in interest income: Loans (2) : $ 2,657 $ 8,708 $ 11,365 $ 4,150 $ 132 $ 4,282 Securities: Taxable 658 3,377 4,035 5,780 1,756 7,536 Tax-exempt (3) (2,351) (506) (2,857) (734) (142) (876) Short-term investments (2,671) 9,962 7,291 (291) 5,994 5,703 Total interest income $ (1,707) $ 21,541 $ 19,834 $ 8,905 $ 7,740 $ 16,645 Interest expense on: Interest-bearing demand deposits $ (329) $ 11,267 $ 10,938 $ 32 $ 2,504 $ 2,536 Savings deposits (25) 100 75 (3) 32 29 Time deposits >=$250 71 453 524 36 6 42 Other time deposits 236 895 1,131 (139) (157) (296) Short-term borrowings — 116 116 — — — Total interest expense (47) 12,831 12,784 (74) 2,385 2,311 Net interest income $ (1,660) $ 8,710 $ 7,050 $ 8,979 $ 5,355 $ 14,334 (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.
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.
State and political securities decreased $76.1 million, or 25.8%, to $219.0 million at December 31, 2023 as a result of maturities and sales. 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.
See Note 14 "Disclosures about Fair Value of Financial Instruments" for more information. 34 Table of Contents During 2022, the Company did not make a contribution to its noncontributory defined benefit pension plan. In determining pension expense, the Company makes several assumptions, including the discount rate and long-term rate of return on assets.
During 2023, the Company did not make a contribution to its noncontributory defined benefit pension plan. In determining pension expense, the Company makes several assumptions, including the discount rate and long-term rate of return on assets. These assumptions are determined at the beginning of the plan year based on interest rate levels and financial market performance.
Processing volumes, fee revenue and other income were as follows: (In thousands) December 31, % Change 2022 2021 2020 2022 v. 2021 2021 v. 2020 Transportation invoice transaction volume 36,807 36,783 33,184 0.1 % 10.8 % Transportation invoice dollar volume $ 44,749,359 $ 36,829,841 $ 26,516,803 21.5 38.9 Facility transaction volume (1) 12,990 12,499 12,572 3.9 (0.6) Facility dollar volume (1) $ 19,514,049 $ 15,867,556 $ 13,458,231 23.0 17.9 Processing fees $ 76,470 $ 74,589 $ 74,638 2.5 (0.1) Financial fees $ 43,757 $ 32,733 $ 23,107 33.7 41.7 Other fees $ 4,755 $ 2,369 $ 2,696 100.7 (12.1) (1) Includes energy, telecom and environmental Financial fees increased $11.0 million, or 33.7%, in 2022 as a result of the increases in total invoice dollars processed and paid and a higher interest rate environment as compared to the prior year.
Processing volumes, average payments in advance of funding, fee revenue and other income were as follows: (In thousands) December 31, % Change 2023 2022 2021 2023 v. 2022 2022 v. 2021 Transportation invoice transaction volume 35,949 36,807 36,783 (2.3) % 0.1 % Transportation invoice dollar volume $ 38,288,478 $ 44,749,359 $ 36,829,841 (14.4) % 21.5 % Facility transaction volume (1) 13,857 12,990 12,499 6.7 % 3.9 % Facility dollar volume (1) $ 19,836,821 $ 19,514,049 $ 15,867,556 1.7 % 23.0 % Average payments in advance of funding $ 234,865 $ 278,185 $ 211,809 (15.6) % 31.3 % Processing fees $ 79,566 $ 76,470 $ 74,589 4.0 % 2.5 % Financial fees $ 45,985 $ 43,757 $ 32,733 5.1 % 33.7 % Other income $ 4,916 $ 4,755 $ 2,369 3.4 % 100.7 % (1) Includes utility, telecom and waste Processing fees increased $3.1 million, or 4.0%, during 2023 largely driven by a 6.7% increase in facility transaction volumes as well as an increase in fees received for ancillary processing services.
Total investment securities available-for-sale at fair value were $754.5 million at December 31, 2022, an increase of $81.0 million, or 12.0%, from December 31, 2021. Investment securities represented 29.3% of total assets at December 31, 2022.
Total investment securities available-for-sale at fair value were $627.1 million at December 31, 2023, a decrease of $127.4 million, or 16.9%, from December 31, 2022. Investment securities represented 25.3% of total assets at December 31, 2023.
The stock repurchase program may be modified or discontinued at any time. Impact of Inflation Inflation could have the impact of increasing our 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.
The Company may repurchase shares from time to time on the 36 Table of Contents 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 our operating expenses, such as compensation expense.
Income Tax Expense Income tax expense in 2022 totaled $8.0 million, compared to $5.2 million in 2021. When measured as a percent of pre-tax income, the Company’s effective tax rate was 18.6% and 15.4% in 2022 and 2021, respectively.
When measured as a percent of pre-tax income, the Company’s effective tax rate was 19.5% and 18.6% in 2023 and 2022, respectively. The increase in the effective tax rate in 2023 compared to 2022 was primarily due to a lower level of tax-free interest income on municipal securities in the current year.
The Company continues to operate profitably, posting a 1.35% return on average assets and 16.53% return on average equity. The Company’s common equity Tier 1 capital ratio was 12.80% at December 31, 2022, significantly exceeding regulatory requirements.
Net income was $30.1 million and diluted EPS was $2.18 per share, decreases of 13.9% and 13.8% from the prior year, respectively. The Company continues to operate profitably, posting a 1.24% return on average assets and 14.24% return on average equity. The Company’s common equity Tier 1 capital ratio was 14.73% at December 31, 2023, significantly exceeding regulatory requirements.
The Company purchased investment securities throughout 2021 and 2022 in an effort to deploy short-term investments into investment securities to enhance the yield on interest-earning assets. The investment portfolio will expand and contract over time as the Company manages its liquidity and interest rate position. The average tax-equivalent yield on investment securities in 2022 was consistent with 2021 at 2.30%.
The investment portfolio will expand and contract over time as the Company manages its liquidity and interest rate position. The average tax-equivalent yield on investment securities increased 33 basis point to 2.63% in 2023 as a result of the increase in short and long-term interest rates.
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 27 Table of Contents evaluated, the Company uses two impairment measurement methods: 1) the present value of expected future cash flows and 2) collateral values.
For loans that are individually 30 Table of Contents evaluated, the Company uses two impairment measurement methods: 1) the present value of expected future cash flows and 2) collateral values. Federal and state regulatory agencies review the Company’s methodology for maintaining the ACL.
Loans by Type December 31, (In thousands) 2022 2021 2020 Commercial and industrial $ 561,616 $ 450,336 $ 298,984 Real estate (commercial and faith-based): Mortgage 495,280 464,341 434,080 Construction 25,968 39,461 48,908 PPP — 6,299 109,704 Other 42 130 — Total loans $ 1,082,906 $ 960,567 $ 891,676 26 Table of Contents Loans by Maturity as of December 31, 2022 (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 $ 13,708 $ 42,342 $ 256,197 $ 24,189 $ 221,287 $ 3,893 $ 561,616 Real Estate: Mortgage 20,904 7,142 304,823 15,915 133,617 12,879 495,280 Construction 8,096 13,136 950 3,786 — — 25,968 PPP — — — — — — — Other — 42 — — — — 42 Total loans $ 42,708 $ 62,662 $ 561,970 $ 43,890 $ 354,904 $ 16,772 $ 1,082,906 (1) The Company did not have any loans with maturities greater than 15 years.
Loans by Type December 31, (In thousands) 2023 2022 2021 Commercial and industrial $ 498,502 $ 561,616 $ 450,336 Real estate (commercial and faith-based): Mortgage 499,739 495,280 464,341 Construction 16,023 25,968 39,461 PPP — — 6,299 Other 54 42 130 Total loans $ 1,014,318 $ 1,082,906 $ 960,567 29 Table of Contents Loans by Maturity as of December 31, 2023 (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 $ 19,711 $ 54,318 $ 200,726 $ 29,778 $ 179,335 $ 14,634 $ 498,502 Real Estate: Mortgage 68,144 13,175 311,474 1,741 93,587 11,618 499,739 Construction 7,784 5 838 7,396 — — 16,023 Other — 54 — — — — 54 Total loans $ 95,639 $ 67,552 $ 513,038 $ 38,915 $ 272,922 $ 26,252 $ 1,014,318 (1) The Company did not have any loans with maturities greater than 15 years.
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 decline in transportation dollar volumes had a direct effect on the 15.6% decrease in average payments in advance of funding, which is the primary generator of financial fees. 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.
Average short-term investments, consisting of interest-bearing deposits in other financial institutions and federal funds sold, decreased $189.3 million, or 30.8%.
Average short-term investments, consisting of interest-bearing deposits in other financial institutions and federal funds sold, decreased $137.8 million, or 32.4%. The decrease is primarily a result of the increase in the average balance of loans, coupled with the decrease in average funding sources, partially offset by the decrease in average investment securities.
These assumptions are determined at the beginning of the plan year based on interest rate levels and financial market performance. For 2022, these assumptions were as follows: Assumption Rate Weighted average discount rate 2.85 % Expected long-term rate of return on assets 6.00 %
For 2023, these assumptions were as follows: Assumption Rate Weighted average discount rate 5.25 % Expected long-term rate of return on assets 6.00 % 37 Table of Contents
The single nonperforming loan at December 31, 2022 paid off in full during January 2023. 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.
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.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeThe table below illustrates the projected impact of interest rate shocks on net interest income as of December 31, 2022: Change in Interest Rates % Change in Net Interest Income +200 basis points 10.6% +100 basis points 4.2 -100 basis points — -200 basis points (1.5) The Company is generally asset sensitive as average interest-earning assets of $2.21 billion for 2022 greatly exceeded average interest-bearing liabilities of $603.3 million.
Biggest changeThe table below illustrates the projected impact of interest rate shocks on net interest income as of December 31, 2023: Change in Interest Rates % Change in Net Interest Income +200 basis points 14.7% +100 basis points 6.5 Flat rates — -100 basis points (3.2) -200 basis points (6.0)% 38 Table of Contents The Company is generally asset sensitive as average interest-earning assets of $2.08 billion for 2023 greatly exceeded average interest-bearing liabilities of $573.3 million.
These simulations are more informative than gap reports because they are able to capture more of the dynamics within the balance sheet, such as basis risk and embedded options risk. A table containing simulation results as of December 31, 2022, from an immediate and sustained parallel change in interest rates in three varying scenarios is shown below.
These simulations are more informative than gap reports because they are able to capture more of the dynamics within the balance sheet, such as basis risk and embedded options risk. A table containing simulation results as of December 31, 2023, from an immediate and sustained parallel change in interest rates in three varying scenarios is shown below.
The table above on the projected impact of interest rate shocks results from a static balance sheet at December 31, 2022. On an average balance basis, the percent change in net interest income generally is higher to the positive for a rising interest rate environment and more negative for a declining interest rate environment.
The table above on the projected impact of interest rate shocks results from a static balance sheet at December 31, 2023. On an average balance basis, the percent change in net interest income generally is higher to the positive for a rising interest rate environment and more negative for a declining interest rate environment.
This representation of the change in the fair market value 35 Table of Contents of equity under different rate scenarios gives insight into the magnitude of risk to future earnings due to rate changes. Management has set policy limits relating to declines in the market value of equity.
This representation of the change in the fair market value of equity under different rate scenarios gives insight into the magnitude of risk to future earnings due to rate changes. Management has set policy limits relating to declines in the market value of equity.
The Company's cash position can vary significantly on a day to day basis. 36 Table of Contents
The Company's cash position can vary significantly on a day to day basis. 39 Table of Contents
These balances, which are noninterest bearing, can cause the Company to become susceptible to changes in interest rates, with a decreasing net interest margin in periods of declining interest rates and an increasing net interest margin in periods of rising interest rates, like the Company is currently experiencing.
These balances, which are noninterest bearing, can cause the Company to become susceptible to changes in interest rates, with a decreasing net interest margin in periods of declining interest rates and an increasing net interest margin in periods of rising interest rates, like the Company experienced in 2023.
Since the Company held fewer short-term investments ($179.9 million) on its ending balance sheet at December 31, 2022 than its average balance for full year 2022 of $425.0 million, the percent changes in net interest income are not necessarily representative of what would occur in a changing interest rate environment as these short-term investments are floating rate assets.
Since the Company held more short-term investments ($351.6 million) on its ending balance sheet at December 31, 2023 than its average balance for full year 2023 of $287.2 million, the percent changes in net interest income are not necessarily representative of what would occur in a changing interest rate environment as these short-term investments are floating rate assets.

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