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Cass Information Systems Announces Quarterly Earnings Per Share and Revenue Growth of 33.3% and 22.1%, Respectively

Third Quarter Results

(All comparisons refer to the third quarter of 2021, except as noted)

  • Earned record quarterly net income and diluted earnings per share.
  • Increase in diluted earnings per share of 33.3%, to $.64 from $.48.
  • Increase in net income of 29.3%, to $8.8 million from $6.8 million.
  • Increase in return on average equity to 16.84% from 10.83%.
  • Processed record quarterly transportation dollar volumes of $11.5 billion, a 21.1% increase.
  • Increase in financial fees of $2.6 million, or 30.5%.
  • Increase in average payments in advance of funding of $63.8 million, or 29.8%.
  • Increase in average loans, excluding PPP loans, of $147.3 million, or 17.6%.
  • Increase in net interest margin to 2.90% from 2.32%
  • Maintained exceptional credit quality.

Cass Information Systems, Inc. (Nasdaq: CASS), (the Company or Cass) reported third quarter 2022 earnings of $.64 per diluted share, an increase of 33.3% from the $.48 per diluted share it earned in the third quarter of 2021. Net income for the period was $8.8 million, an increase of 29.3% from the $6.8 million earned in the same period in 2021. Diluted earnings per share and net income also increased 3.2% and 2.8%, respectively as compared to the second quarter of 2022.

Eric Brunngraber, the Company’s chairman and chief executive officer, noted, “Experiencing another quarter of record net income and EPS is exciting to see. We are utilizing a large portion of our revenue growth to fund ongoing and new technology initiatives which should allow us to both more efficiently consume data through automation and onboard new customers faster. We believe these technology initiatives will assist our operating leverage beginning in late 2023.”

Third Quarter 2022 Highlights

Processing Fees – Processing fees increased $503,000, or 2.7%, over the same period in the prior year. The increase in processing fee income was largely driven by the increase in facility transaction volumes of 6.8%. Transportation invoice volumes increased 0.6% over the same period.

Financial Fees – Financial fees, earned on a transactional level basis for invoice payment services when making customer payments, increased $2.6 million, or 30.5%, over the same period in the prior year. The increase in financial fee income was largely driven by the increases in transportation and facility dollar volumes in addition to the 29.8% increase in average payments in advance of funding.

Net Interest Income – Net interest income increased $4.5 million, or 39.7%. The Company’s net interest margin increased to 2.90% as compared to 2.32% in the same period last year. The increase in net interest income and margin was largely driven by the rise in market interest rates which are favorable for the Company over the long-term. Our net interest margin has increased from a low of 2.30% during the fourth quarter of 2021 to 2.90% during the third quarter of 2022. Further improvement is expected in future quarters if short-term interest rates continue to increase. The Company was also assisted by the 10.2% increase in average interest-earning assets, specifically an increase in average loans, excluding PPP loans, of 17.6%.

Provision for Credit Losses - The provision for credit losses was $550,000 during the third quarter of 2022 as compared to $340,000 in the third quarter of 2021. The provision for the third quarter of 2022 was primarily driven by the increase in total loans of $77.6 million, or 8.1%, as compared to June 30, 2022.

Operating Expenses - Consolidated operating expenses rose $5.6 million, or 18.3%. Personnel expense increased $3.7 million, or 16.0%. Base salaries increased as a result of merit increases, wage pressures, an increase in average full-time equivalent employees of 7.5% due to the Touchpoint acquisition and strategic investment in various technology initiatives, including improved rating engine capabilities and investment in optical character recognition, artificial intelligence, machine learning and other processes to consume images and produce data. Also driving the increase in personnel expense were increases in stock compensation and profit sharing due to improved Company earnings. Certain other expense categories are also elevated as we invest in, and transition to, improved technology. The Company anticipates this elevated spending will result in improved operating leverage beginning in late 2023.

Loans - Average loans increased $111.0 million, or 12.7%. Excluding the reduction in average PPP loans of $36.3 million, average loans increased $147.3 million, or 17.6%. The Company has been successful in achieving organic growth in its franchise, faith-based and other commercial and industrial loans. When compared to December 31, 2021, ending loans, excluding PPP loans, increased $82.8 million, or 8.7%, during the first nine months of 2022.

Payments in Advance of Funding – Average payments in advance of funding increased $63.8 million, or 29.8%, primarily due to an increase in transportation dollar volumes, which led to higher dollars advanced to freight carriers.

Deposits – Average deposits increased $131.0 million, or 12.4%, when compared to the third quarter of 2021. However, average deposits declined $45.4 million or 3.7%, as compared to the second quarter of 2022, partially due to tightening monetary policy.

Accounts and Drafts Payable - Average accounts and drafts payable increased $171.7 million, or 17.0%. The increase in these balances, which are non-interest bearing, are primarily reflective of the increase in transportation and facility expense dollar volumes.

Transportation Dollar Volumes – Transportation dollar volumes hit a record level of $11.5 billion during the third quarter of 2022. The 21.1% increase in dollar volumes was largely due to inflationary pressures, supply chain disruptions and fuel surcharges, among other factors. The increase in dollar volumes is positively impacting the balance of our interest-earning assets which is helping generate interest income. In addition, higher dollar volumes are having a positive impact on financial fees.

Facility Expense Dollar Volumes – Facility dollar volumes totaled $5.5 billion during the third quarter of 2022. The 30.1% increase in dollar volumes was largely due to an increase in energy prices.

Capital - The Company’s common equity tier 1, total risk-based capital and leverage ratios were 13.33%, 14.07% and 9.08% at September 30, 2022, respectively. Total shareholders’ equity has declined $54.1 million since December 31, 2021 primarily as a result of an increase in accumulated other comprehensive loss due to the rise in market interest rates and resulting negative impact on the fair value of available-for-sale investment securities.

About Cass Information Systems

Cass Information Systems, Inc. is a leading provider of integrated information and payment management solutions. Cass enables enterprises to achieve visibility, control and efficiency in their supply chains, communications networks, facilities and other operations. Disbursing over $80 billion annually on behalf of clients, and with total assets in excess of $2.6 billion, Cass is uniquely supported by Cass Commercial Bank. Founded in 1906 and a wholly owned subsidiary, Cass Commercial Bank provides sophisticated financial exchange services to the parent organization and its clients. Cass is part of the Russell 2000®. More information is available at www.cassinfo.com.

Note to Investors

Certain matters set forth in this news release may contain forward-looking statements that are provided to assist in the understanding of anticipated future financial performance. However, such performance involves risks and uncertainties that may cause actual results to differ materially from those in such statements. These risks and uncertainties include the impact of the COVID-19 pandemic as well as economic and market conditions, inflationary pressures, risks of credit deterioration, interest rate changes, governmental actions, market volatility, security breaches and technology interruptions, energy prices and competitive factors, among others, as set forth in the Company’s most recent Annual Report on Form 10-K and subsequent reports filed with the Securities and Exchange Commission. The Company has used, and intends to continue using, the Investors portion of its website to disclose material non-public information and to comply with its disclosure obligations under Regulation FD. Accordingly, investors are encouraged to monitor Cass’s website in addition to following press releases, SEC filings, and public conference calls and webcasts.

Consolidated Statements of Income (unaudited)

 

($ and numbers in thousands, except per share data)

 

Quarter

Ended

September 30, 2022

 

Quarter

Ended

June 30, 2022

 

Quarter

Ended

September 30, 2021

 

Nine-Months

Ended

September 30, 2022

 

Nine-Months

Ended

September 30, 2021

Processing fees

$

18,964

 

 

$

19,186

 

 

$

18,461

 

 

$

57,184

 

 

$

55,882

Financial fees

 

11,252

 

 

 

10,623

 

 

 

8,624

 

 

 

32,406

 

 

 

23,122

 

Net interest income

 

15,971

 

 

 

13,641

 

 

 

11,432

 

 

 

41,515

 

 

 

32,588

 

(Provision for) release of credit losses

 

(550

)

 

 

(70

)

 

 

(340

)

 

 

(850

)

 

 

870

 

Other

 

1,568

 

 

 

842

 

 

 

492

 

 

 

3,275

 

 

 

1,735

 

Total revenues

$

47,205

 

 

$

44,222

 

 

$

38,669

 

 

$

133,530

 

 

$

114,197

 

Personnel

$

26,999

 

 

$

26,033

 

 

$

23,283

 

 

$

77,750

 

 

$

68,689

 

Occupancy

 

970

 

 

 

916

 

 

 

953

 

 

 

2,801

 

 

 

2,859

 

Equipment

 

1,633

 

 

 

1,660

 

 

 

1,700

 

 

 

5,004

 

 

 

5,028

 

Other

 

6,719

 

 

 

5,030

 

 

 

4,754

 

 

 

16,233

 

 

 

12,442

 

Total operating expenses

$

36,321

 

 

$

33,639

 

 

$

30,690

 

 

$

101,788

 

 

$

89,018

 

Income from operations before income taxes

$

10,884

 

 

$

10,583

 

 

$

7,979

 

 

$

31,742

 

 

$

25,179

 

Income tax expense

 

2,085

 

 

 

2,021

 

 

 

1,174

 

 

 

6,123

 

 

 

4,277

 

Net income

$

8,799

 

 

$

8,562

 

 

$

6,805

 

 

$

25,619

 

 

$

20,902

 

Basic earnings per share

$

.65

 

 

$

.63

 

 

$

.48

 

 

$

1.89

 

 

$

1.47

 

Diluted earnings per share

$

.64

 

 

$

.62

 

 

$

.48

 

 

$

1.86

 

 

$

1.45

 

 

 

 

 

 

 

 

 

 

 

Share data:

 

 

 

 

 

 

 

 

 

Weighted-average common shares

outstanding

 

13,542

 

 

 

13,543

 

 

 

14,040

 

 

 

13,554

 

 

 

14,203

 

Weighted-average common shares

outstanding assuming dilution

 

13,804

 

 

 

13,802

 

 

 

14,277

 

 

 

13,807

 

 

 

14,442

 

 

Consolidated Balance Sheets

 

($ in thousands)

 

(unaudited)

September 30, 2022

 

(unaudited)

June 30, 2022

 

December 31, 2021

Assets:

 

 

 

 

 

Cash and cash equivalents

$

346,994

 

 

$

261,234

 

 

$

514,928

 

Investment securities

 

763,789

 

 

 

740,074

 

 

 

673,453

 

Loans, excluding PPP loans

 

1,037,101

 

 

 

958,491

 

 

 

954,268

 

PPP loans

 

 

 

 

996

 

 

 

6,299

 

Allowance for credit losses

 

(13,049

)

 

 

(12,573

)

 

 

(12,041

)

Payments in advance of funding

 

269,221

 

 

 

313,172

 

 

 

291,427

 

Premises and equipment, net

 

19,375

 

 

 

19,470

 

 

 

18,113

 

Investments in bank-owned life insurance

 

47,714

 

 

 

47,435

 

 

 

43,176

 

Goodwill and other intangible assets

 

21,630

 

 

 

21,825

 

 

 

16,826

 

Other assets

 

118,040

 

 

 

93,864

 

 

 

48,452

 

Total assets

$

2,610,815

 

 

$

2,443,988

 

 

$

2,554,901

 

 

 

 

 

 

 

Liabilities and shareholders’ equity:

 

 

 

 

 

Deposits

 

 

 

 

 

Non-interest bearing

$

581,731

 

 

$

604,492

 

 

$

582,642

 

Interest bearing

 

647,990

 

 

 

585,083

 

 

 

638,861

 

Total deposits

 

1,229,721

 

 

 

1,189,575

 

 

 

1,221,503

 

Accounts and drafts payable

 

1,146,334

 

 

 

998,870

 

 

 

1,050,396

 

Other liabilities

 

43,025

 

 

 

49,929

 

 

 

37,204

 

Total liabilities

$

2,419,080

 

 

$

2,238,374

 

 

$

2,309,103

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

Common stock

$

7,753

 

 

$

7,753

 

 

$

7,753

 

Additional paid-in capital

 

205,624

 

 

 

204,482

 

 

 

204,276

 

Retained earnings

 

126,361

 

 

 

121,386

 

 

 

112,220

 

Common shares in treasury, at cost

 

(81,624

)

 

 

(81,742

)

 

 

(78,904

)

Accumulated other comprehensive (loss) income

 

(66,379

)

 

 

(46,265

)

 

 

453

 

Total shareholders’ equity

$

191,735

 

 

$

205,614

 

 

$

245,798

 

Total liabilities and shareholders’ equity

$

2,610,815

 

 

$

2,443,988

 

 

$

2,554,901

 

 

Average Balances (unaudited)

 

($ in thousands)

 

Quarter

Ended

September 30, 2022

 

Quarter

Ended

June 30, 2022

 

Quarter

Ended

September 30, 2021

 

Nine-Months

Ended

September 30, 2022

 

Nine-Months

Ended

September 30, 2021

Average interest-earning assets

$

2,243,219

 

$

2,222,655

 

$

2,036,297

 

$

2,196,704

 

$

1,965,977

Average loans, excluding PPP loans

 

983,953

 

 

972,756

 

 

836,664

 

 

971,307

 

 

801,205

Average PPP loans

 

152

 

 

1,115

 

 

36,406

 

 

1,391

 

 

84,069

Average payments in advance of funding

 

277,683

 

 

293,150

 

 

213,922

 

 

283,431

 

 

196,492

Average assets

 

2,617,814

 

 

2,616,220

 

 

2,373,244

 

 

2,587,760

 

 

2,279,429

Average deposits

 

1,184,330

 

 

1,229,744

 

 

1,053,369

 

 

1,193,795

 

 

1,013,974

Average accounts and drafts payable

 

1,182,373

 

 

1,135,504

 

 

1,010,641

 

 

1,135,673

 

 

952,747

Average shareholders’ equity

$

207,247

 

$

207,828

 

$

254,521

 

$

216,827

 

$

257,763

Consolidated Financial Highlights (unaudited)

($ and numbers in thousands, except ratios)

 

Quarter

Ended

September 30, 2022

 

Quarter

Ended

June 30, 2022

 

Quarter

Ended

September 30, 2021

 

Nine-Months

Ended

September 30, 2022

 

Nine-Months

Ended

September 30, 2021

Return on average equity

 

16.84

%

 

 

16.53

%

 

10.61

%

 

 

15.80

%

 

 

10.84

%

Net interest margin

 

2.90

%

 

 

2.54

%

 

 

2.32

%

 

 

2.61

%

 

 

2.31

%

Allowance for credit losses to loans

 

1.26

%

 

 

1.31

%

 

 

1.32

%

 

 

1.26

%

 

 

1.32

%

Non-performing loans to total loans

 

%

 

 

%

 

 

%

 

 

%

 

 

%

Net loan charge-offs (recoveries) to loans

 

%

 

 

%

 

 

%

 

 

%

 

 

%

 

 

 

 

 

 

 

 

 

 

Transportation invoice volume

 

9,385

 

 

 

9,289

 

 

 

9,333

 

 

 

27,633

 

 

 

27,581

 

Transportation dollar volume

$

11,549,980

 

 

$

11,413,414

 

 

$

9,540,408

 

 

$

33,818,573

 

 

$

26,385,936

 

Facility expense transaction volume (1)

 

3,315

 

 

 

3,186

 

 

 

3,104

 

 

 

9,794

 

 

 

9,351

 

Facility expense dollar volume

$

5,485,783

 

 

$

4,570,178

 

 

$

4,215,044

 

 

$

14,699,903

 

 

$

11,590,437

 

 

(1) Facility expense transaction volumes have been restated for the current and prior periods to reflect total invoices processed. In prior periods, we utilized billing account numbers in our Telecom division as a proxy for transactions.

 

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