Cass Information Systems Inc: Form 10-Q for the period ended Jun 30, 2025

Overview

Cass Information Systems, Inc. ("Cass" or the "Company") provides payment and information processing services to large manufacturing, distribution, and retail enterprises across the United States. The Company’s services include freight invoice rating, payment processing, auditing, and the generation of accounting and transportation information. Cass also processes and pays facility-related invoices, which include electricity and gas as well as waste and telecommunications expenses. Cass solutions include integrated payments, a B2B payment platform for clients that require an agile fintech partner. Additionally, the Company offers a church management software solution and an on-line platform to provide generosity services for faith-based and non-profit organizations. The Company’s bank subsidiary, Cass Commercial Bank (the “Bank”), supports the Company’s payment operations. The Bank also provides banking services to its target markets, which include privately held businesses in the St. Louis metropolitan area and restaurant franchises and faith-based ministries within the United States.

In general, Cass is compensated for its information processing services through service fees, transactional level payment services, and investment of account balances generated during the payment process. Both the number of transactions processed and the dollar volume processed are therefore key metrics followed by management. The Bank earns most of its revenue from net interest income.

Various factors will influence the Company’s revenue and profitability, such as changes in the general level of interest rates, which has a significant effect on net interest income; industry-wide factors, such as the willingness of large corporations to outsource key business functions, and the general level of transportation and energy costs; and economic factors that include the general level of economic activity, the ability to hire and retain qualified staff, the growth and quality of the Bank’s loan portfolio, and the effects of tariffs or other domestic or international governmental policies. For a more detailed discussion of the Company’s revenue drivers and factors that impact the Company’s results of operation and financial condition generally, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s 2024 Form 10-K.

Recent Industry Developments

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

Recent Items of Note

Net interest income increased $3.5 million, or 22.3%. The increase in net interest income was attributable to the net interest margin improving to 3.78% as compared to 3.32% in the same period last year, in addition to an increase in average interest-earning assets of $131.9 million, or 6.7%. The Company generally benefits from a higher interest rate environment due to a large percentage of its funding sources being non-interest bearing.

On April 7, 2025, the Company signed an Asset Purchase Agreement providing for the sale of its telecom expense management and managed mobility solutions business unit (TEM Business Unit) to Asignet USA Inc for $18.0 million in cash. The sale closed on June 30, 2025 and resulted in a gain on sale of $3.6 million.

The Company sold $34.0 million of corporate investment securities with a weighted-average yield of 2.29% at a pretax loss of $3.6 million in an effort to reposition the investment portfolio and improve the net interest margin in future periods.

On July 4, 2025 the president signed into law the One Big Beautiful Bill Act which makes various changes to the tax law. The most significant impacts relate to the deductibility of interest expense, research and experimentation expenses and accelerated deprecation deductions, among others. The full impact of the bill is being analyzed by the Company and could have an impact on income tax expense in future periods.

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Results of Operations

The following paragraphs more fully discuss the results of operations and changes in financial condition for the three months ended June 30, 2025 (“second quarter of 2025”) compared to the three months ended June 30, 2024 (“second quarter of 2024”) and the six months ended June 30, 2025 ("first half of 2025") compared to the six months ended June 30, 2024 ("first half of 2024"). The following discussion and analysis should be read in conjunction with the unaudited consolidated financial statements and related notes and with the statistical information and financial data appearing in this report, as well as in the Company’s 2024 Form 10-K. Results of operations for the three months ended June 30, 2025 are not necessarily indicative of the results to be attained for any other period.

Discontinued Operations

The Company has applied discontinued operations accounting in accordance with Accounting Standards Codification, or ASC, Topic 205-20, “Presentation of Financial Statements – Discontinued Operations,” to the assets and liabilities being sold related to the Company's TEM Business Unit as of June 30, 2025 and December 31, 2024, and for the three and six months ended June 30, 2025, and 2024, as applicable. All financial information in this Quarterly Report on Form 10-Q is reported on a continuing operations basis, unless otherwise noted. See Note 2 to our consolidated financial statements for further discussion regarding discontinued operations and subsequent events associated with discontinued operations.

Summary of Results

The following table summarizes the Company’s operating results:

(In thousands except per share data)

Second quarter of 2025 compared to second quarter of 2024:

The Company recorded net revenue of $44.4 million during the second quarter of 2025, up 1.0% from the second quarter of 2024, primarily driven by an increase in net interest income, partially offset by a loss on the sale of investment securities. Operating expense decreased 0.8% primarily driven by $1.3 million of bad debt expense and an additional $1.3 million of

-28- expense related to late fees incurred on facility transactions in the second quarter of 2024, partially offset by an increase in personnel expenses of $1.5 million and an increase in other expenses related to technology initiatives. Income from discontinued operations was up due to the $3.6 million gain on sale of the TEM business and $1.5 million of other non-recurring fee income. Net income was $8.9 million and diluted EPS was $0.66 per share, increases of 97.5% and 106.3% from the three months period ended June 30, 2024, respectively.

The Company posted a 1.48% return on average assets and 15.35% return on average equity.

First half of 2025 compared to first half of 2024:

The Company recorded net revenue of $90.8 million during the first half of 2025, up 1.9% from the first half of 2024, primarily driven by net interest income, partially offset by a loss on the sale of investment securities. Operating expense decreased 1.3% primarily driven by a bad debt recovery of $2.0 million related to partial consideration received in a litigation settlement. Net income was $17.8 million and diluted EPS was $1.31 per share, increases of 53.2% and 56.0% from the first half of June 30, 2024, respectively.

The Company posted a 1.49% return on average assets and 15.62% return on average equity.

Fee Revenue and Other Income

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

(In thousands)

1. Includes utility and waste.

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Second quarter of 2025 compared to second quarter of 2024:

Processing fees increased $266,000, or 1.6% over the same period in the prior year reflecting flat transportation and facility transaction volumes when comparing the periods.

Financial fees decreased $299,000, or 2.9%, primarily attributable to a decline in average payments in advance of funding of 17.4%.

The Company sold $34.0 million of corporate investment securities with a weighted-average yield of 2.29% at a loss of $3.6 million. These sales occurred at the end of June 2025. The proceeds from these sales will be redeployed into higher yielding interest-earning assets.

First half of 2025 compared to first half of 2024:

Processing fees decreased $124,000, or 0.4% over the same period in the prior year reflecting flat transportation and facility transaction volumes when comparing the periods.

Financial fees decreased $936,000, or 4.4%, primarily attributable to a decline in average payments in advance of funding of 14.2%.

Net Interest Income

Net interest income is the difference between interest earned on loans, investments, and other earning assets and interest expense on deposits and other interest-bearing liabilities. Net interest income is a significant source of the Company’s revenues. The following table summarizes the changes in tax-equivalent net interest income and related factors:

(In thousands)

*Presented on a tax-equivalent basis assuming a tax rate of 21% for both 2025 and 2024.

Second quarter of 2025 compared to second quarter of 2024:

The increase in net interest income is primarily attributable to the net interest margin improving to 3.78% as compared to 3.32% in the same period last year, in addition to an increase in average earning assets of $131.9 million, or 6.7%. The yield on interest-earning assets increased 17 basis points from 4.41% to 4.58% while the cost of interest-bearing liabilities decreased 64 basis points from 3.35% to 2.71%.

Average loans increased $86.4 million, or 8.3%, to $1.13 billion. The increase in average loans was primarily due to growth in the Company's commercial and industrial and faith-based loan portfolios. The average yield on loans increased 38 basis points to 5.64%, primarily due to loan growth at current market interest rates and continued maturing and re-pricing of existing fixed rate loans to current market interest rates.

Average investment securities increased $11.9 million, or 1.8%, to $665.6 million. The average yield on taxable investment securities increased 33 basis points to 3.05% as a result of purchases of new investment securities at current market interest rates, which were higher than the average interest rate in the current investment portfolio. The average yield on tax-exempt investment securities declined 45 basis points to 2.91% driven by maturities of higher rate investment securities.

Average short-term investments, consisting of interest-bearing deposits in other financial institutions and federal funds sold, increased $33.6 million, or 12.7%, to $298.9 million. The increase is primarily a result of the increase in average funding sources, partially offset by the increase in average loans and average investment securities. The average yield on short-term investments decreased 92 basis points to 4.03%, primarily due to the decrease in the Federal Funds rate that

-30- occurred in the last four months of 2024. The majority of these short-term investments are held at the Federal Reserve Bank.

The average balance of interest-bearing deposits decreased $22.4 million, or 3.5%, to $615.9 million. Average non-interest-bearing demand deposits decreased $14.0 million, or 3.4%, to $393.1 million. The Company has experienced deposit attrition due to a decrease in the overall level of some larger commercial deposits due to client funding needs for acquisitions and other purposes. The average rate paid on interest-bearing deposits decreased 64 basis points to 2.71% due to the reduction in short-term interest rates in the last four months of 2024.

Average accounts and drafts payable increased $129.7 million, or 13.3%, to $1.11 billion. The increase in average accounts and drafts payable was primarily driven by the increase in facility dollar volumes of 16.1%.

First half of 2025 compared to first half of 2024:

The increase in net interest income is primarily attributable to the net interest margin improving to 3.76% as compared to 3.29% in the same period last year, in addition to an increase in average earning assets of $86.6 million, or 4.3%. The yield on interest-earning assets increased 22 basis points from 4.34% to 4.56% while the cost of interest-bearing liabilities decreased 64 basis points from 3.32% to 2.68%.

Average loans increased $89.9 million, or 8.7%, to $1.12 billion. The increase in average loans was primarily due to growth in the Company's commercial and industrial and faith-based loan portfolios. The average yield on loans increased 47 basis points to 5.63%, primarily due to loan growth at current market interest rates and continued maturing and re-pricing of existing fixed rate loans to current market interest rates.

Average investment securities decreased $35.7 million, or 5.3%, to $638.6 million due to the sale and maturity of investment securities throughout 2024 and the first half of 2025 exceeding new purchases. The average yield on taxable investment securities increased 36 basis points to 3.00% as a result of purchases of new investment securities at current market interest rates, which were higher than the average interest rate in the current investment portfolio. The average yield on tax-exempt investment securities declined 56 basis points to 2.74% driven by maturities of higher rate investment securities.

Average short-term investments, consisting of interest-bearing deposits in other financial institutions and federal funds sold, increased $32.4 million, or 10.5%, to $341.1 million. The increase is primarily a result of the decrease in average investment securities and the increase in average funding sources, partially offset by the increase in average loans. The average yield on short-term investments decreased 94 basis points to 4.08%, primarily due to the decrease in the Federal Funds rate that occurred in the last four months of 2024. The majority of these short-term investments are held at the Federal Reserve Bank.

The average balance of interest-bearing deposits decreased $12.9 million, or 2.0%, to $622.0 million. Average non-interest-bearing demand deposits decreased $28.4 million, or 6.6%, to $399.1 million. The Company has experienced deposit attrition due to a decrease in the overall level of some larger commercial deposits due to client funding needs for acquisitions and other purposes. The average rate paid on interest-bearing deposits decreased 64 basis points to 2.68% due to the reduction in short-term interest rates in the last four months of 2024.

Average accounts and drafts payable increased $94.0 million, or 9.4%, to $1.09 billion. The increase in average accounts and drafts payable was primarily driven by the increase in facility dollar volumes of 16.1%.

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

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

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(In thousands)

1. Balances shown are daily averages.

2. Interest income on loans includes net loan fees of $118,000 and $146,000 for the second quarter of 2025 and 2024, respectively.

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

4. Interest income is presented on a tax-equivalent basis assuming a tax rate of 21% for both 2025 and 2024. The tax-equivalent adjustment was approximately $215,000 and $239,000 for the second quarter of 2025 and 2024, respectively.

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(In thousands)

1. Balances shown are daily averages.

2. Interest income on loans includes net loan fees of $485,000 and $229,000 for the six months ended June 30, 2025 and 2024, respectively.

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

4. Interest income is presented on a tax-equivalent basis assuming a tax rate of 21% for both the six months ended June 30, 2025 and 2024. The tax-equivalent adjustment was approximately $383,000 and $483,000 for the six months ended June 30, 2025 and 2024, respectively.

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Analysis of Net Interest Income Changes

The following tables present the changes in interest income and expense between periods due to changes in volume and interest rates. That portion of the change in interest attributable to the combined rate/volume variance has been allocated to rate and volume changes in proportion to the absolute dollar amounts of the change in each.

(In thousands)

1. Interest income includes net loan fees.

2. Interest income is presented on a tax-equivalent basis assuming a tax rate of 21% for the three months ended June 30, 2025 and 2024.

(In thousands)

1. Interest income includes net loan fees.

2. Interest income is presented on a tax-equivalent basis assuming a tax rate of 21% for the six months ended June 30, 2025 and 2024.

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Provision and Allowance for Credit Losses and Allowance for Unfunded Commitments

The Company recorded a provision for credit losses and off-balance sheet credit exposures of $25,000 and $400,000 for the second quarter of 2025 and 2024, respectively. The Company recorded a provision for credit losses and off-balance sheet credit exposures of $930,000 and $495,000 for the first half of 2025 and 2024, respectively. The amount of the provision for credit losses is derived from the Company’s quarterly Current Expected Credit Loss (“CECL”) model. The amount of the provision for credit losses will fluctuate as determined by these quarterly analyses. The provision for credit losses in the second quarter of 2025 was driven by an increase in nonaccrual loans of $3.4 million, partially offset by the decrease in total loans of $24.9 million, or 2.2%, as compared to March, 31, 2025.

The Company experienced no loan charge-offs in the second quarter of 2025 and 2024. The ACL was $14.3 million at June 30, 2025 and $13.4 million at December 31, 2024. The ACL represented 1.28% of outstanding loans at June 30, 2025 and 1.24% of outstanding loans at December 31, 2024. The allowance for unfunded commitments was $302,000 at June 30, 2025 and $273,000 at December 31, 2024. There were $3.4 million of nonperforming loans outstanding at June 30, 2025 and $0 at December 31, 2024. The Company has a specific allowance for credit losses of $160,000 allocated to its nonaccrual loans at June 30, 2025.

The ACL has been established and is maintained to estimate the lifetime expected credit losses in the loan portfolio. An ongoing assessment is performed to determine if the balance is adequate. Charges or credits are made to expense based on changes in the economic forecast, qualitative risk factors, loan volume, and individual loans. For loans that are individually evaluated, the Company uses two impairment measurement methods: 1) the present value of expected future cash flows and 2) collateral value.

The Company also utilizes ratio analyses to evaluate the overall reasonableness of the ACL compared to its peers and required levels of regulatory capital. Federal and state regulatory agencies review the Company’s methodology for maintaining the ACL. These agencies may require the Company to adjust the ACL based on their judgments and interpretations about information available to them at the time of their examinations.

Summary of Credit Loss Experience

The following table presents information on the Company's provision for (release of) credit losses and analysis of the ACL:

(In thousands)

Operating Expenses

Total operating expenses for the second quarter of 2025 decreased $290,000, or 0.8%, as compared to the second quarter of 2024. Total operating expenses for the first half of 2025 decreased $968,000, or 1.3%, as compared to the first half of 2024. The following table details the components of operating expenses:

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(In thousands)

Second quarter of 2025 compared to second quarter of 2024:

Personnel expenses increased $1.5 million, or 5.7%. Salaries and commissions increased $245,000, or 1.2%, as a result of merit increases and the December 2024 acquisition of AcuAudit, partially offset by a decrease in average full-time equivalent employees of 5.9% due to strategic investments in various technology initiatives. Share-based compensation and employee profit sharing increased $468,000 and $682,000, respectively, due to the improvement in earnings. Other benefits increased $304,000, or 7.1%, due to higher health insurance costs, partially offset by the decline in average FTEs.

Equipment expense increased $626,000, primarily due to an increase in depreciation expense on software related to recently completed technology initiatives.

The Company incurred bad debt expense of $1.3 million during the second quarter of 2024 and $0 in the second quarter of 2025.

Other operating expense declined $1.3 million as a result of $1.3 million of expense related to late fees incurred on facility transactions during the second quarter of 2024.

First half of 2025 compared to first half of 2024:

Personnel expenses increased $1.9 million, or 3.5%. Salaries and commissions increased $386,000, or 1.0%, as a result of merit increases and the December 2024 acquisition of AcuAudit, partially offset by a decrease in average full-time equivalent employees of 4.7% due to strategic investments in various technology initiatives. Share-based compensation and employee profit sharing increased $514,000 and $734,000, respectively, due to the improvement in earnings. Other benefits increased $632,000, or 7.1%, due to higher health insurance costs, partially offset by the decline in average FTEs.

Equipment expense increased $1.1 million primarily due to an increase in depreciation expense on software related to recently completed technology initiatives.

The Company recorded a bad debt recovery during the first half of 2025 of $2.0 million related to partial consideration received in a litigation settlement as more fully described in Note 8 to the consolidated financial statements. The Company incurred $1.3 million of bad debt expense in the first half of 2024 related to the same matter.

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Net Income from Discontinued Operations

(In thousands except per share data)

Second quarter of 2025 compared to second quarter of 2024:

Net income from discontinued operations was $3.7 million, an increase of $3.5 million over the same period in the prior year. The increase is primarily due to the gain on sale of the TEM Business Unit of $3.6 million in the second quarter of 2025 in addition to $1.5 million of other non-recurring fee income during the second quarter of 2025 as compared to $503,000 in the same quarter in 2024.

First half of 2025 compared to first half of 2024:

Net income from discontinued operations was $4.1 million, an increase of $3.8 million over the same period in the prior year. The increase is primarily due to the gain on sale of the TEM Business Unit of $3.6 million in the second quarter of 2025 in addition to $1.8 million of other non-recurring fee income during the first half of 2025 as compared to $660,000 in the same period in 2024.

Financial Condition

Total assets at June 30, 2025 were $2.32 billion, a decrease of $79.1 million, or 3.3%, from December 31, 2024.

The Company experienced a decrease in cash and cash equivalents of $131.6 million, or 37.6%, during the first half of 2025. The change in cash and cash equivalents reflects the Company’s daily liquidity position and is primarily affected by changes in funding sources, mainly accounts and drafts payable and deposits, cash flows in and out of loans, investment securities and payments in advance of funding.

The investment securities portfolio increased $71.5 million, or 13.5%, during the first half of 2025. The increase is due to purchases of $153.2 million and a decrease in unrealized losses of $15.8 million, partially offset by sales of $53.1 million and maturities of $40.0 million.

Loans increased $35.0 million, or 3.2%, from December 31, 2024. The Company experienced growth in its commercial and industrial and faith-based loan portfolios during the first half of 2025.

Payments in advance of funding decreased $30.9 million, or 14.8%, primarily due to the continued consolidation of freight carriers, partially offset by the 3.2% increase in transportation dollar volumes.

Accounts and drafts receivable from customers increased $4.4 million, or 7.8%, from December 31, 2024. The increase is solely due to timing of customer funding.

Assets of discontinued operations declined $14.4 million due to the sale of the TEM business on June 30, 2025.

Total deposits at June 30, 2025 were $1.00 billion, an increase of $35.9 million, or 3.7%, from December 31, 2024. The increase is primarily due to the increase in noninterest-bearing deposits of $119.4 million.

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Accounts and drafts payable at June 30, 2025 were $1.04 billion, a decrease of $92.8 million, or 8.2%, from December 31, 2024. Accounts and drafts payable are a stable source of funding generated by payment float from transportation and facility clients. Accounts and drafts payable will fluctuate from period-end to period-end due to the payment processing cycle, which results in lower balances on days when payments clear and higher balances on days when payments are issued. For this reason, average balances are generally a more meaningful measure of accounts and drafts payable.

Liabilities of discontinued operations declined $22.3 million due to the sale of the TEM business on June 30, 2025.

Total liabilities at June 30, 2025 were $2.08 billion, a decrease of $90.9 million, or 4.2%, from December 31, 2024, reflective of the decrease in accounts and drafts payable, partially offset by the increase in deposits.

Total shareholders’ equity at June 30, 2025 was $240.8 million, an $11.8 million increase from December 31, 2024. The increase in shareholders’ equity is a result of first half of 2025 earnings of $17.8 million, and a decrease in accumulated other comprehensive loss of $12.5 million primarily related to the fair value of available-for-sale investment securities, partially offset by the repurchase of Company stock of $11.0 million, and dividends paid of $8.3 million.

Liquidity and Capital Resources

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

The balance of liquid assets consists of cash and cash equivalents, which include cash and due from banks, interest-bearing deposits in other financial institutions, federal funds sold and money market funds. Cash and cash equivalents totaled $218.2 million at June 30, 2025, a decrease of $131.6 million, or 37.6%, from December 31, 2024. At June 30, 2025, these assets represented 9.4% of total assets and are the Company’s and its subsidiaries’ primary source of liquidity to meet future expected and unexpected loan demand, depositor withdrawals or reductions in accounts and drafts payable.

Secondary sources of liquidity include the investment portfolio and borrowing lines. Total investment securities were $599.5 million at June 30, 2025, an increase of $71.5 million from December 31, 2024. These assets represented 25.9% of total assets at June 30, 2025. Of the total portfolio, 1.2% mature in one year, 13.8% mature in one to five years, and 85.0% mature in five or more years.

The Bank has unsecured lines of credit at six correspondent banks to purchase federal funds up to a maximum of $83.0 million in aggregate. As of June 30, 2025, the Bank also has secured lines of credit with the Federal Home Loan Bank of $228.5 million collateralized by mortgage loans. The Company also has secured lines of credit from three banks up to a maximum of $225.0 million in aggregate collateralized by investment securities. There were no amounts outstanding under any line of credit as of June 30, 2025 or December 31, 2024.

The deposits of the Company's banking subsidiary have historically been stable, consisting of a sizable volume of core deposits related to customers that utilize other commercial products of the Bank, including CassPay and faith-based customers. The accounts and drafts payable generated by the Company has also historically been a stable source of funds. The Company is part of the Certificate of Deposit Account Registry Service (“CDARS”) and Insured Cash Sweep (“ICS”) deposit placement programs. Time deposits include $58.3 million of CDARS deposits and interest-bearing demand deposits include $161.8 million of ICS deposits. These programs offer the Bank’s customers the ability to maximize Federal Deposit Insurance Corporation (“FDIC”) insurance coverage. The Company uses these programs to retain or attract deposits from existing customers.

Net cash flows provided by operating activities were $20.3 million for the first half of June 30, 2025, compared to $20.5 million for the first half of June 30, 2024, a decrease of $243,000. Net cash flows from investing and financing activities fluctuate greatly as the Company actively manages its investment and loan portfolios and customer activity influences changes in deposit and accounts and drafts payable balances. Other causes for the changes in these account balances are discussed earlier in this report. Due to the daily fluctuations in these account balances, the analysis of changes in average balances, also discussed earlier in this report, can be more indicative of underlying activity than the period-end balances used in the statements of cash flows. Management anticipates that cash and cash equivalents, maturing

-38- investments and cash from operations will continue to be sufficient to fund the Company’s operations and capital expenditures in 2025, which are estimated to range from $6 million to $8 million.

Net income plus amortization of intangible assets, net amortization of premium/discount on investment securities and depreciation of premises and equipment was $22.2 million and $16.2 million for the first half of 2025 and 2024, respectively. The first half of 2025 reflected higher net income of $6.2 million and higher depreciation of $811,000, partially offset by a decrease in net amortization of premium/discount on investment securities of $1.2 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 loss on sale of investment securities of $3.6 million also had a positive impact on net cash provided by operating activities. These factors positively impacting net cash provided by operating activities were partially offset by:

• A change in other operating activities, net of $2.9 million, primarily due to changes in various other assets and liabilities related to client funding and reimbursements;
• An change in accounts receivable of $1.5 million; and
• A decrease in net cash (used in) provided by discontinued operations of $2.0 million.

The Company faces market risk to the extent that its net interest income and fair market value of equity are affected by changes in market interest rates. For information regarding the market risk of the Company’s financial instruments, see Item 3, “Quantitative and Qualitative Disclosures about Market Risk.”

There are several trends and uncertainties that may impact the Company’s ability to generate revenues and income at the levels that it has in the past. Those that could significantly impact the Company include the general levels of interest rates, business activity, inflation, and energy costs as well as new business opportunities available to the Company. For more detailed information on these trends and uncertainties and how they can generally affect the Company’s available liquidity, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity” in the Company’s 2024 Form 10-K.

As a bank holding company, the Company and the Bank are subject to capital requirements administered by state and federal banking agencies. Capital adequacy guidelines, and, for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are subject to qualitative judgments by regulators about components, risk weighting, and other factors. In addition, the calculation of all types of regulatory capital is subject to deductions and adjustments specified in the regulations. For example, as allowed under the Basel III Capital Rules, the Company has elected to opt-out of the requirement to include most components of accumulated other comprehensive income in common equity Tier 1 capital. For more information on these regulatory requirements, including the Basel III Capital Rules and capital classifications, see Item 1, "Business-Supervision and Regulation" and Item 8, Note 2, "Financial Statements and Supplementary Data" of the Company's 2024 Form 10-K.

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The Company and the Bank continue to exceed all regulatory capital requirements, as evidenced by the following capital amounts and ratios:

(In thousands)

Impact of New or Not Yet Adopted Accounting Pronouncements

In October 2023, the FASB issued 2023-06, Disclosure Improvements - Codification Amendments in Response to the SEC's Disclosure Update and Simplification Initiative ("ASU 2023-06"). This ASU amends the ASC to incorporate certain disclosure requirements from SEC Release No. 33-10532 - Disclosure Update and Simplification that was issued in 2018. The effective date for each amendment will be the date on which the SEC's removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited. ASU 2023-06 is not expected to have a significant impact on the Company's financial statements.

In November 2023, the FASB issued 2023-07, Segment Reporting (Topic 820): Improvements to Reportable Segment Disclosures ("ASU 2023-07"). This ASU expands segment disclosure requirements for public entities to require disclosure of significant segment expenses and other segment items on an annual and interim basis and to provide in interim periods all disclosures about a reportable segment's profit or loss and assets that are currently required annually. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after

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December 15, 2024. The adoption of ASU 2023-07 did not have a significant impact on the Company's financial statements. See Note 6 to our financial statements.

In December 2023, the FASB issued 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures ("ASU 2023-09"). This ASU requires public business entities to disclose in their rate reconciliation table additional categories of information about federal, state, and foreign income taxes and to provide more details about the reconciling items in some categories if items meet a quantitative threshold. It also requires all entities to disclose income taxes paid, net of refunds, disaggregated by federal, state, and foreign taxes for annual periods and to disaggregate the information by jurisdiction based on a quantitative threshold, among other things. ASU 2023-09 is effective for annual periods beginning after December 15, 2024, though early adoption is permitted. ASU 2023-09 is not expected to have a significant impact on the Company's financial statements.

Critical Accounting Policies

The Company has prepared the consolidated financial statements in this report in accordance with the Financial Accounting Standards Board Accounting Standards Codification. In preparing the consolidated financial statements, management makes estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. These estimates have been generally accurate in the past, have been consistent and have not required any material changes. There can be no assurances that actual results will not differ from those estimates. The accounting policy that requires significant management estimates and is deemed critical to the Company’s results of operations or financial position has been discussed with the Audit and Risk Committee of the Board of Directors and is described below.

Allowance for Credit Losses. The Company performs periodic and systematic detailed reviews of its loan portfolio to determine management’s estimate of the lifetime expected credit losses. Although these estimates are based on established methodologies for determining allowance requirements, actual results can differ significantly from estimated results. These policies affect both segments of the Company. The impact and associated risks related to these policies on the Company’s business operations are discussed in the “Provision and Allowance for Credit Losses and Allowance for Unfunded Commitments” section of this report.

As described in the Company’s 2024 Form 10-K for the year ended December 31, 2024, the Company manages its interest rate risk through measurement techniques that include gap analysis and a simulation model. As part of the risk management process, asset/liability management policies are established and monitored by management.

The following table summarizes simulated changes in net interest income versus unchanged rates over the next 12 months as of June 30, 2025 and December 31, 2024.

The Company is generally asset sensitive as average interest-earning assets of $2.09 billion for the second quarter of 2025 greatly exceeded average interest-bearing liabilities of $615.9 million. The table above on the projected impact of interest rate shocks results from a static balance sheet at June 30, 2025.

The Company’s management, under the supervision and with the participation of the principal executive officer and the principal financial officer, evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report and concluded that, as of such date, these controls and procedures were effective.

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There were no changes in the second quarter of 2025 in the Company's internal control over financial reporting identified by the Company’s principal executive officer and principal financial officer in connection with their evaluation that materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended).

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The Company has included in Part I, Item 1A of its 2024 Form 10-K, a description of certain risks and uncertainties that could affect the Company’s business, future performance or financial condition (the “Risk Factors”). There are no material changes to the Risk Factors as disclosed in the Company’s 2024 Form 10-K.