-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VpMKQKKPhybU0qwjGUKoAhNcGhkkdgEkbg5TBT+FSx1RwUzZlfkt2S5qczcgBhgo RoWWas9NIE38l+5JInNT0A== 0001193805-07-002783.txt : 20071108 0001193805-07-002783.hdr.sgml : 20071108 20071108160345 ACCESSION NUMBER: 0001193805-07-002783 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20070930 FILED AS OF DATE: 20071108 DATE AS OF CHANGE: 20071108 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CASS INFORMATION SYSTEMS INC CENTRAL INDEX KEY: 0000708781 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 431265338 STATE OF INCORPORATION: MO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-44497 FILM NUMBER: 071225831 BUSINESS ADDRESS: STREET 1: 13001 HOLLENBERG DR. CITY: BRIDGETON STATE: MO ZIP: 63044 BUSINESS PHONE: 3145055500 MAIL ADDRESS: STREET 1: 13001 HOLLENBERG DR. CITY: BRIDGETON STATE: MO ZIP: 63044 FORMER COMPANY: FORMER CONFORMED NAME: CASS COMMERCIAL CORP DATE OF NAME CHANGE: 19950518 10-Q 1 e602795_10q-cass.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 _________________ FORM 10-Q |X| QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2007 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________ to _____________________ Commission File No. 2-80070 ________________ CASS INFORMATION SYSTEMS, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Missouri 43-1265338 ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 13001 Hollenberg Drive Bridgeton, Missouri 63044 ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) (314) 506-5500 ---------------------------------------------------- (Registrant's telephone number, including area code) _________________ Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one) Large Accelerated Filer |_| Accelerated Filer |X| Non-Accelerated Filer |_| Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X| The number of shares outstanding of registrant's only class of stock as of November 2, 2007: Common stock, par value $.50 per share - 8,371,189 shares outstanding. - -------------------------------------------------------------------------------- TABLE OF CONTENTS PART I - Financial Information Item 1. FINANCIAL STATEMENTS Consolidated Balance Sheets September 30, 2007 (unaudited) and December 31, 2006 ........................ 3 Consolidated Statements of Income Three and Nine months ended September 30, 2007 and 2006 (unaudited) ......... 4 Consolidated Statements of Cash Flows Nine months ended September 30, 2007 and 2006 (unaudited) ................... 5 Notes to Consolidated Financial Statements (unaudited) ........................ 6 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS .................................................... 13 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK .................... 24 Item 4. CONTROLS AND PROCEDURES ....................................................... 24 PART II - Other Information - Items 1. - 6. .............................................. 25 SIGNATURES ............................................................................ 27
Forward-looking Statements - Factors That May Affect Future Results This report may contain or incorporate by reference forward-looking statements made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are not guarantees of future performance and involve risks, uncertainties, and other factors which may cause future performance to vary from expected performance summarized in the forward-looking statements, including those set forth in this paragraph and in the "Risk Factors" section of the Company's Annual Report on Form 10-K, filed with the Securities and Exchange Commission. Important factors that could cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by those statements include, but are not limited to: the failure to successfully execute our corporate plan, the loss of key personnel or inability to attract additional qualified personnel, the loss of key customers, increased competition, the inability to remain current with rapid technological change, risks related to acquisitions, risks associated with business cycles and fluctuations in interest rates, utility and system interruptions or processing errors, rules and regulations governing financial institutions and changes in such rules and regulations, credit risk related to borrowers' ability to repay loans, concentration of loans to certain segments such as commercial enterprises, churches and borrowers in the St. Louis area which creates risks associated with adverse factors that may affect these groups and volatility of the price of our common stock. We undertake no obligation to publicly update or revise any forward-looking statements to reflect changed assumptions, the occurrence of anticipated or unanticipated events, or changes to future results over time. -2- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) (Dollars in Thousands except Share and Per Share Data)
September 30 December 31 2007 2006 Assets Cash and due from banks $ 18,056 $ 26,995 Federal funds sold and other short-term investments 177,563 169,509 --------- --------- Cash and cash equivalents 195,619 196,504 --------- --------- Securities available-for-sale, at fair value 162,379 102,749 Loans 511,207 504,125 Less: Allowance for loan losses 6,045 6,592 --------- --------- Loans, net 505,162 497,533 --------- --------- Premises and equipment, net 12,962 12,898 Investment in bank-owned life insurance 12,407 12,024 Payments in excess of funding 15,965 9,333 Goodwill 7,471 7,471 Other intangible assets, net 946 1,156 Other assets 20,249 18,803 --------- --------- Total assets $ 933,160 $ 858,471 ========= ========= Liabilities and Shareholders' Equity Liabilities: Deposits: Noninterest-bearing $ 86,162 $ 106,587 Interest-bearing 182,203 183,307 --------- --------- Total deposits 268,365 289,894 Accounts and drafts payable 552,837 468,393 Short-term borrowings 210 181 Subordinated convertible debentures 3,700 3,700 Liabilities related to discontinued operations -- 277 Other liabilities 13,682 12,105 --------- --------- Total liabilities 838,794 774,550 --------- --------- Shareholders' Equity: Preferred stock, par value $.50 per share; 2,000,000 shares authorized and no shares issued -- -- Common Stock, par value $.50 per share; 20,000,000 shares authorized and 9,112,484 shares issued at September 30, 2007 and December 31, 2006, respectively 4,556 4,556 Additional paid-in capital 17,501 17,896 Retained earnings 91,645 81,516 Common shares in treasury, at cost (741,295 shares at September 30, 2007 and 784,773 shares at December 31, 2006) (16,131) (17,077) Accumulated other comprehensive loss (3,205) (2,970) --------- --------- Total shareholders' equity 94,366 83,921 --------- --------- Total liabilities and shareholders' equity $ 933,160 $ 858,471 ========= =========
See accompanying notes to unaudited consolidated financial statements. -3- CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (Dollars in Thousands except Per Share Data)
Three Months Ended Nine Months Ended September 30 September 30 -------------------- -------------------- 2007 2006 2007 2006 - -------------------------------------------------------------------------------------------------------------- Fee Revenue and Other Income: Information services payment and processing revenue $ 11,441 $ 10,359 $ 34,089 $ 29,853 Bank service fees 416 341 1,237 1,266 Other 213 228 658 629 -------- -------- -------- -------- Total fee revenue and other income 12,070 10,928 35,984 31,748 -------- -------- -------- -------- Interest Income: Interest and fees on loans 9,224 9,331 27,539 27,169 Interest and dividends on securities: Taxable 212 262 681 800 Exempt from federal income taxes 1,252 636 3,212 1,910 Interest on federal funds sold and other short-term investments 2,030 2,022 5,564 4,702 -------- -------- -------- -------- Total interest income 12,718 12,251 36,996 34,581 -------- -------- -------- -------- Interest Expense: Interest on deposits 1,986 1,729 5,911 4,457 Interest on short-term borrowings and other 7 2 32 5 Interest on subordinated convertible debentures 50 50 148 148 -------- -------- -------- -------- Total interest expense 2,043 1,781 6,091 4,610 -------- -------- -------- -------- Net interest income 10,675 10,470 30,905 29,971 Provision for loan losses 225 200 675 500 -------- -------- -------- -------- Net interest income after provision for loan losses 10,450 10,270 30,230 29,471 -------- -------- -------- -------- Operating Expense: Salaries and employee benefits 11,700 11,136 35,135 31,673 Occupancy 550 522 1,572 1,462 Equipment 876 732 2,565 2,128 Amortization of intangible assets 70 70 210 156 Other operating expense 2,468 2,561 7,447 7,755 -------- -------- -------- -------- Total operating expense 15,664 15,021 46,929 43,174 -------- -------- -------- -------- Income before taxes and discontinued operations 6,856 6,177 19,285 18,045 Income tax expense 2,179 2,205 6,230 6,397 -------- -------- -------- -------- Net income from continuing operations 4,677 3,972 13,055 11,648 -------- -------- -------- -------- Loss from discontinued operations before income tax expense -- (150) -- (475) Income tax benefit -- 62 -- 198 -------- -------- -------- -------- Net loss from discontinued operations -- (88) -- (277) -------- -------- -------- -------- Net Income $ 4,677 $ 3,884 $ 13,055 $ 11,371 ======== ======== ======== ======== Basic Earnings Per Share: From continuing operations $ .56 $ .48 $ 1.57 $ 1.40 From discontinued operations -- (.01) -- (.03) Basic earnings per share .56 .47 1.57 1.37 Diluted Earnings Per Share: From continuing operations $ .55 $ .47 $ 1.53 $ 1.37 From discontinued operations -- (.01) -- (.03) Diluted earnings per share .55 .46 1.53 1.34
See accompanying notes to unaudited consolidated financial statements. -4- CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in Thousands)
Nine Months Ended September 30 ----------------------- 2007 2006 Cash Flows From Operating Activities: Net income from continuing operations $ 13,055 $ 11,648 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,179 1,484 Provision for loan losses 675 500 Stock-based compensation expense 499 159 Deferred income tax expense (benefit) 1,115 (1,031) Increase in income tax liability 578 354 Increase in pension liability 1,593 1,566 Other operating activities, net (2,091) (248) Operating activities of discontinued operations -- (1,562) --------- --------- Net cash provided by operating activities 17,603 12,870 --------- --------- Cash Flows From Investing Activities: Proceeds from maturities of securities available-for-sale 51,000 65,510 Purchase of securities available-for-sale (111,295) (57,860) Net (increase) decrease in loans (9,604) 7,703 Increase in payments in excess of funding (6,632) (5,745) Purchases of premises and equipment, net (1,940) (2,547) Purchase of NTransit, Inc. -- (3,172) --------- --------- Net cash (used in) provided by investing activities (78,471) 3,889 --------- --------- Cash Flows From Financing Activities: Net decrease in noninterest-bearing demand deposits (20,425) (16,261) Net decrease in interest-bearing demand and savings deposits (4,921) (15,829) Net increase in time deposits 3,817 20,280 Net increase in accounts and drafts payable 84,444 68,382 Net increase (decrease) in short-term borrowings 29 (38) Cash proceeds from exercise of stock options 16 330 Tax benefit on stock awards 36 64 Cash dividends paid (3,013) (2,669) Purchase of common shares for treasury -- (870) --------- --------- Net cash provided by financing activities 59,983 53,389 --------- --------- Net (decrease) increase in cash and cash equivalents (885) 70,148 Cash and cash equivalents at beginning of period 196,504 149,692 --------- --------- Cash and cash equivalents at end of period $ 195,619 $ 219,840 ========= ========= Supplemental information: Cash paid for interest $ 6,092 $ 4,287 Cash paid for income taxes 4,500 6,103 Transfer of loans to foreclosed assets 1,300 --
See accompanying notes to unaudited consolidated financial statements. -5- CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1 - Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included. Certain amounts in the 2006 consolidated financial statements have been reclassified to conform to the 2007 presentation. Such reclassifications have no effect on previously reported net income or shareholders' equity. The Company's bank subsidiary sold the assets of Government e-Management Solutions, Inc. ("GEMS"), its wholly owned subsidiary, on December 30, 2005. The assets, liabilities and results of operations of GEMS were presented in the 2006 consolidated financial statements as discontinued operations. There was no discontinued operations activity in the nine-month period ended September 30, 2007. The Company issued a 50% stock dividend on September 15, 2006 and the share and per share information have been restated for all periods presented in the accompanying consolidated financial statements. For further information, refer to the audited consolidated financial statements and related footnotes included in Cass Information System, Inc.'s ("the Company" or "Cass") Annual Report on Form 10-K for the year ended December 31, 2006. Note 2 - Intangible Assets The Company accounts for intangible assets in accordance with Statement of Financial Accounting Standard s("SFAS") 142, "Goodwill and Other Intangible Assets," which requires that intangibles with indefinite useful lives be tested annually for impairment and those with finite useful lives be amortized over their useful lives. Intangible assets for the periods ended September 30, 2007 and December 31, 2006 are as follows:
September 30, 2007 December 31, 2006 =========================================================================================================== Gross Carrying Accumulated Gross Carrying Accumulated (In Thousands) Amount Amortization Amount Amortization =========================================================================================================== Amortized intangible assets: Software $ 862 $ (532) $ 862 $ (402) Customer List 750 (134) 750 (54) - ----------------------------------------------------------------------------------------------------------- Total 1,612 (666) 1,612 (456) Unamortized intangible assets: Goodwill 7,698 (227)* 7,698 (227)* - ----------------------------------------------------------------------------------------------------------- Total unamortized intangibles 7,698 (227) 7,698 (227) - ----------------------------------------------------------------------------------------------------------- Total intangible assets $9,310 $ (893) $9,310 $ (683) - -----------------------------------------------------------------------------------------------------------
* Amortization through December 31, 2001 prior to adoption of SFAS 142. Software is amortized over four to five years and the customer list is amortized over seven years. Amortization of intangible assets amounted to $210,000 and $156,000 for the nine-month periods ended September 30, 2007 and 2006, respectively. Estimated amortization of intangibles over the next five years is as follows: $301,000 in 2007, $280,000 in 2008, $223,000 in 2009, and $107,000 in 2010 and in 2011. Note 3 - Equity Investments in Non-Marketable Securities Non-marketable equity investments in low-income housing projects are included in other assets on the Company's consolidated balance sheets. The total balance of these investments at September 30, 2007 was $ 281,000. Note 4 - Earnings Per Share Basic earnings per share is computed by dividing net income by the weighted-average number of common shares outstanding. Diluted earnings per share is computed by dividing net income, adjusted for the net income effect of the interest expense on the outstanding convertible debentures, by the sum of the weighted-average number of common shares outstanding and the weighted-average number of potential common shares outstanding. The calculations of basic and diluted earnings per share for the periods ended September 30, 2007 and 2006 are as follows: -6-
Three Months Ended Nine Months Ended September 30 September 30 -------------------------- -------------------------- (Dollars in Thousands except Per Share data) 2007 2006 2007 2006 - ------------------------------------------------------------------------------------------------------------------ Basic Net income from continuing operations $ 4,677 $ 3,972 $ 13,055 $ 11,648 Net loss from discontinued operations -- (88) -- (277) - ------------------------------------------------------------------------------------------------------------------ Net income $ 4,677 $ 3,884 $ 13,055 $ 11,371 - ------------------------------------------------------------------------------------------------------------------ Weighted-average common shares outstanding 8,316,328 8,304,441 8,313,291 8,311,861 - ------------------------------------------------------------------------------------------------------------------ Basic earnings per share from continuing operations $ .56 $ .48 $ 1.57 $ 1.40 Basic earnings per share from discontinued operations -- (.01) -- (.03) - ------------------------------------------------------------------------------------------------------------------ Basic earnings per share $ .56 $ .47 $ 1.57 $ 1.37 - ------------------------------------------------------------------------------------------------------------------ Diluted Net income from continuing operations $ 4,677 $ 3,972 $ 13,055 $ 11,648 Net income effect of 5.33% convertible debentures 27 28 81 82 - ------------------------------------------------------------------------------------------------------------------ Net income from continuing operations 4,704 4,000 13,136 11,730 Net loss from discontinued operations -- (88) -- (277) - ------------------------------------------------------------------------------------------------------------------ Net income $ 4,704 $ 3,912 $ 13,136 $ 11,453 - ------------------------------------------------------------------------------------------------------------------ Weighted-average common shares outstanding 8,316,328 8,304,441 8,313,291 8,311,861 Effect of dilutive stock options and awards 102,981 72,504 99,863 65,923 Effect of 5.33% convertible debentures 172,717 172,717 172,717 172,717 - ------------------------------------------------------------------------------------------------------------------ Weighted-average common shares outstanding assuming dilution 8,592,026 8,549,662 8,585,871 8,550,501 - ------------------------------------------------------------------------------------------------------------------ Diluted earnings per share from continuing operations $ .55 $ .47 $ 1.53 $ 1.37 Diluted earnings per share from discontinued operations -- (.01) -- (.03) - ------------------------------------------------------------------------------------------------------------------ Diluted earnings per share $ .55 $ .46 $ 1.53 $ 1.34 - ------------------------------------------------------------------------------------------------------------------
Share and per share data for 2006 in the schedule above have been restated for the 50% stock dividend issued on September 15, 2006. Note 5 - Stock Repurchases The Company maintains a treasury stock buyback program pursuant to which the Board of Directors has authorized the repurchase of up to 150,000 shares of the Company's Common Stock. The Company did not repurchase any shares during the nine-month period ended September 30, 2007 and repurchased 30,000 shares in the comparable period in 2006. As of September 30, 2007, 120,000 shares remained available for repurchase under the program. Repurchases are made in the open market or through negotiated transactions from time to time depending on market conditions. Note 6 - Comprehensive Income For the nine-month periods ended September 30, 2007 and 2006, unrealized gains and losses on debt and equity securities available-for-sale were the Company's only other comprehensive income component. Comprehensive income for the three and nine month periods ended September 30, 2007 and 2006 is summarized as follows:
Three Months Ended Nine Months Ended September 30 September 30 -------------------------- -------------------------- (In Thousands) 2007 2006 2007 2006 - ------------------------------------------------------------------------------------------------------------------ Net income from continuing operations $ 4,677 $ 3,972 $ 13,055 $ 11,648 Other comprehensive income: Net unrealized gain (loss) on securities available-for-sale, net of tax 1,068 793 (235) 307 - ------------------------------------------------------------------------------------------------------------------ Total comprehensive income from continuing operations $ 5,745 $ 4,765 $ 12,820 $ 11,955 - ------------------------------------------------------------------------------------------------------------------
-7- Note 7 - Industry Segment Information The services provided by the Company are classified into two reportable segments: Information Services and Banking Services. Each of these segments provides distinct services that are marketed through different channels. They are managed separately due to their unique service, processing and capital requirements. The Information Services segment provides freight, utility and telecommunication invoice processing and payment services to large corporations. The Banking Services segment provides banking services primarily to privately-held businesses and churches. The Company's accounting policies for segments are the same as those described in the summary of significant accounting policies in the Company's Annual Report on Form 10-K for the year ended December 31, 2006. Management evaluates segment performance based on net income after allocations for corporate expenses and income taxes. Transactions between segments are accounted for at what management believes to be market value. Information for prior periods has been restated to reflect changes in the composition of the Company's segments. All revenue originates from and all long-lived assets are located within the United States and no revenue from any customer of any segment exceeds 10% of the Company's consolidated revenue. Summarized information about the Company's operations in each industry segment for the three and nine-month periods ended September 30, 2007 and 2006, is as follows:
Corporate, Information Banking Eliminations (In Thousands) Services Services and Other Total ================================================================================================================== Quarter Ended September 30, 2007 Total Revenues: Revenue from customers $ 18,675 $ 3,845 $ -- $ 22,520 Intersegment revenue 474 387 (861) -- Net income from continuing operations 3,738 939 -- 4,677 Total assets 623,070 319,640 (9,550) 933,160 Goodwill 7,335 136 -- 7,471 Other intangible assets, net 947 -- -- 947 Assets related to discontinued operations -- -- -- -- Quarter Ended September 30, 2006 Total Revenues: Revenue from customers $ 17,593 $ 3,605 $ -- $ 21,198 Intersegment revenue (109) 921 (812) -- Net income from continuing operations 2,837 1,135 -- 3,972 Total assets 569,760 318,136 (1,482) 886,414 Goodwill 7,035 136 -- 7,171 Other intangible assets, net 1,529 -- -- 1,529 Assets related to discontinued operations -- -- 225 225 - ------------------------------------------------------------------------------------------------------------------ Nine Months Ended September 30, 2007 Total Revenues: Revenue from customers $ 54,754 $ 11,460 $ -- $ 66,214 Intersegment revenue 1,446 1,141 (2,587) -- Net income from continuing operations 10,370 2,685 -- 13,055 Total assets 623,070 319,640 (9,550) 933,160 Goodwill 7,335 136 -- 7,471 Other intangible assets, net 947 -- -- 947 Assets related to discontinued operations -- -- -- -- Nine Months Ended September 30, 2006 Total Revenues: Revenue from customers $ 49,469 $ 11,750 $ -- $ 61,219 Intersegment revenue 778 1,633 (2,411) -- Net income from continuing operations 8,267 3,381 -- 11,648 Total assets 569,760 318,136 (1,482) 886,414 Goodwill 7,035 136 -- 7,171 Other intangible assets, net 1,529 -- -- 1,529 Assets related to discontinued operations -- -- 225 225 - ------------------------------------------------------------------------------------------------------------------
-8- Note 8 - Loans by Type (In Thousands) September 30, 2007 December 31, 2006 ================================================================================ Commercial and industrial $ 113,863 $ 113,162 Real estate: (Commercial and church) Mortgage 361,834 352,044 Construction 28,680 29,779 Industrial revenue bonds 5,514 6,293 Other 1,316 2,847 - -------------------------------------------------------------------------------- Total loans $ 511,207 $ 504,125 ================================================================================ Note 9 - Commitments and Contingencies In the normal course of business, the Company is party to activities that contain credit, market and operational risks that are not reflected in whole or in part in the Company's consolidated financial statements. Such activities include traditional off-balance sheet credit-related financial instruments and commitments under operating and capital leases. These financial instruments include commitments to extend credit, commercial letters of credit and standby letters of credit. The Company's maximum potential exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit, commercial letters of credit and standby letters of credit is represented by the contractual amounts of those instruments. At September 30, 2007, no amounts have been accrued for any estimated losses for these instruments. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commercial and standby letters of credit are conditional commitments issued by the Company or its subsidiaries to guarantee the performance of a customer to a third party. These off-balance sheet financial instruments generally have fixed expiration dates or other termination clauses and may require payment of a fee. At September 30, 2007 the balances of unused loan commitments, standby and commercial letters of credit were $24,000,000, $6,130,000 and $4,310,000, respectively. Since some of the financial instruments may expire without being drawn upon, the total amounts do not necessarily represent future cash requirements. Commitments to extend credit and letters of credit are subject to the same underwriting standards as those financial instruments included on the consolidated balance sheets. The Company evaluates each customer's credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary upon extension of the credit, is based on management's credit evaluation of the borrower. Collateral held varies, but is generally accounts receivable, inventory, residential or income-producing commercial property or equipment. In the event of nonperformance, the Company or its subsidiaries may obtain and liquidate the collateral to recover amounts paid under its guarantees on these financial instruments. The following table summarizes contractual cash obligations of the Company related to operating lease commitments, time deposits and convertible subordinated debentures at September 30, 2007:
Amount of Commitment Expiration per Period ------------------------------------------ Less than 1-3 3-5 Over 5 (Dollars in Thousands) Total 1 Year Years Years Years ======================================================================================================== Operating lease commitments $ 3,947 $ 713 $ 1,069 $ 896 $ 1,269 Time deposits 92,613 89,532 2,491 590 -- Convertible subordinated debentures* 3,700 -- -- -- 3,700 - -------------------------------------------------------------------------------------------------------- Total $100,260 $ 90,245 $ 3,560 $ 1,486 $ 4,969 ========================================================================================================
* Includes principal payments only. The Company and its subsidiaries are involved in various pending legal actions and proceedings in which claims for damages are asserted. Management, after discussion with legal counsel, believes the ultimate resolution of these legal actions and proceedings will not have a material effect upon the Company's consolidated financial position or results of operations. Note 10 - Stock-Based Compensation On January 16, 2007, the Board approved, and on April 16, 2007, the Company's shareholders approved, the 2007 Omnibus Incentive Stock Plan ("the Omnibus Plan") to provide incentive opportunities for key employees and non-employee directors and to align the personal financial interests of such individuals with those of the Company's shareholders. The Omnibus Plan permits the issuance of up to 800,000 shares of the Company's common stock in the form of stock options, stock appreciation rights, restricted stock, restricted stock units and performance awards. As of September 30, 2007, no awards have been granted under the Omnibus Plan. -9- The Company also continues to maintain its other stock-based incentive plans for the restricted common stock previously awarded and the options issued and outstanding. Restricted shares are amortized to expense over the three-year vesting period. Options currently vest and expire over a period not to exceed seven years. The plans authorize the grant of awards in the form of options intended to qualify as incentive stock options under Section 422 of the Internal Revenue Code, options that do not qualify (non-statutory stock options) and grants of restricted shares of common stock. The Company issues shares out of treasury stock for restricted shares and option exercises. These plans have been superseded by the Omnibus Plan and accordingly, any available restricted stock and stock option grants not yet issued have been cancelled. As of September 30, 2007, the total unrecognized compensation expense related to non-vested stock awards was $1,452,000 and the related weighted-average period over which it is expected to be recognized is approximately 2.2 years. There were no grants, vestings or forfeitures of stock awards during the three-month period ending September 30, 2007. Changes in restricted shares outstanding for the nine months ended September 30, 2007 were as follows: Nine Months Ended September 30 ------------------------ Shares Fair Value ================================================================= Balance at December 31, 2006 22,481 $22.88 Granted 43,120 37.03 Vested (10,327) 20.49 Forfeited (600) 29.94 ----------------------------------------------------------------- Balance at September 30, 2007 54,674 $34.41 ----------------------------------------------------------------- As of September 30, 2007, the total unrecognized compensation expense related to non-vested stock options was $110,000 and the related weighted-average period over which it is expected to be recognized is approximately 4.2 years. No stock options were granted, exercised or forfeited during the three month period ended September 30, 2007. A summary of the Company's stock option program for the nine-month period ended September 30, 2007 is shown below.
Weighted- Average Aggregate Average Remaining Intrinsic Exercise Contractual Value Shares Price Term Years ($000) -------------------------------------------------- Outstanding at December 31, 2006 87,805 $15.40 Granted -- -- Exercised (958) 16.64 Forfeited or expired -- -- Outstanding at September 30, 2007 86,847 15.39 3.58 $ 1,770 ================================================== Exercisable at September 30, 2007 16,777 $11.27 2.54 $ 411 ==================================================
The total intrinsic value of options exercised was $0 and $105,000 for the three-month periods ended September 30, 2007 and 2006, respectively, and was $16,000 and $1,728,000 for the nine-month periods ended September 30, 2007 and 2006, respectively. There was no non-vested option activity during the three-month period ended September 30, 2007. A summary of the activity of the non-vested options during the nine-month period ended September 30, 2007 is shown below. -10- Weighted- Average Grant Date Shares Fair Value - -------------------------------------------------------------- Nonvested at December 31, 2006 85,406 $ 2.38 Granted -- -- Vested (15,336) 1.75 Forfeited -- -- - -------------------------------------------------------------- Nonvested at September 30, 2007 70,070 $ 2.52 - -------------------------------------------------------------- Note 11 - Defined Pension Plans The Company has a noncontributory defined benefit pension plan, which covers most of its employees. The Company accrues and makes contributions designed to fund normal service costs on a current basis using the projected unit credit with service proration method to amortize prior service costs arising from improvements in pension benefits and qualifying service prior to the establishment of the plan over a period of approximately 30 years. Disclosure information is based on a measurement date of December 31 of the corresponding year. The following table represents the components of the net periodic pension costs for 2006 and an estimate for 2007: Estimated Actual (In Thousands) 2007 2006 ========================================================================= Service cost - benefits earned during the year $ 1,622 $ 1,554 Interest cost on projected benefit obligation 1,771 1,565 Expected return on plan assets (1,865) (1,603) Net amortization 197 270 ------------------------------------------------------------------------- Net periodic pension cost $ 1,725 $ 1,786 ------------------------------------------------------------------------- Pension costs recorded to expense were $431,000 and $586,000 for the three-month periods ended September 30, 2007 and 2006, respectively, and were $1,263,000 and $1,339,000 for the nine-month periods ended September 30, 2007 and 2006, respectively. The Company has not made any contribution to the plan during the nine-month period ended September 30, 2007, but expects to contribute at least $1,800,000 in 2007. In addition to the above funded benefit plan, the Company has an unfunded supplemental executive retirement plan which covers key executives of the Company. This is a noncontributory plan in which the Company and its subsidiaries make accruals designed to fund normal service costs on a current basis using the same method and criteria as its defined benefit plan. The following table represents the components of the net periodic pension costs for 2006 and an estimate for 2007: Estimated Actual (In Thousands) 2007 2006 ========================================================================= Service cost - benefits earned during the year $ 44 $ 43 Interest cost on projected benefit obligation 233 150 Net amortization 249 111 ------------------------------------------------------------------------- Net periodic pension cost $ 526 $ 304 ------------------------------------------------------------------------- Pension costs recorded to expense were $134,000 and $163,000 for the three-month periods ended September 30, 2007 and 2006, respectively, and were $361,000 and $258,000 for the nine-month periods ended September 30, 2007 and 2006, respectively. Note 12 - Income Taxes The Company adopted FASB Interpretation No. 48 ("FIN 48"), "Accounting for Uncertainty in Income Taxes" effective January 1, 2007. FIN 48 clarifies the accounting for uncertainty in income taxes in financial statements and prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken. The Company had unrecognized tax benefits of approximately $655,000 as of January 1, 2007. The total amount of federal and state unrecognized tax benefits at January 1, 2007 that, if recognized, would affect the effective tax rate was $488,000, net of federal tax benefit. There have been no significant changes to -11- the unrecognized tax benefits during the three and nine month periods ended September 30, 2007. The Company expects a reduction of $31,000 in unrecognized tax benefits during the remaining three-month period ending December 31, 2007 as a result of the lapse of federal and state statutes of limitations. Interest and penalties were immaterial at the date of adoption. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. The amount of interest recognized during the three and nine-month periods ended September 30, 2007 was immaterial. The Company is subject to income tax in the U. S. federal jurisdiction and numerous state jurisdictions. U.S. federal income tax returns for tax year 2006 remain subject to examination by the Internal Revenue Service ("IRS"). In addition, the Company is subject to state tax examinations for the tax years 2003 through 2006. -12- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview Cass Information Systems, Inc. provides payment and information processing services to large manufacturing, distribution and retail enterprises from its processing centers in St. Louis, Missouri, Columbus, Ohio, Boston, Massachusetts, Greenville, South Carolina and Wellington, Kansas. The Company's services include freight invoice rating, payment processing, auditing, and the generation of accounting and transportation information. Cass also processes and pays utility invoices, which includes electricity, gas and telecommunications expenses and is a provider of telecom expense management solutions. Cass extracts, stores and presents information from freight, utility and telecommunication invoices, assisting its customers' transportation, energy and information technology managers in making decisions that will enable them to improve operating performance. The Company receives data from multiple sources, electronic and otherwise, and processes the data to accomplish the specific operating requirements of its customers. It then provides the data in a central repository for access and archiving. The data is finally transformed into information through the Company's databases that allow client interaction as required and provide Internet-based tools for analytical processing. The Company also, through Cass Commercial Bank, its St. Louis, Missouri based bank subsidiary (the "Bank"), provides banking services in the St. Louis metropolitan area and Orange County, California. In addition to supporting the Company's payment operations, the Bank provides banking services to its target markets, which include privately owned businesses and churches and church-related ministries. The specific payment and information processing services provided to each customer are developed individually to meet each customer's requirements, which can vary greatly. In addition, the degree of automation such as electronic data interchange ("EDI"), imaging, and web-based solutions varies greatly among customers and industries. These factors combine so that pricing varies greatly among the customer base. In general, however, Cass is compensated for its processing services through service fees and account balances that are 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. Interest income from the balances generated during the payment processing cycle is affected by the amount of time Cass holds the funds prior to payment and the dollar volume processed. Both the number of transactions processed and the dollar volume processed are therefore key metrics followed by management. Other factors will also influence revenue and profitability, such as changes in the general level of interest rates, which have a significant effect on net interest income. The funds generated by these processing activities are invested in overnight investments, investment grade securities and loans generated by the Bank. The Bank earns most of its revenue from net interest income, or the difference between the interest earned on its loans and investments and the interest paid on its deposits. The Bank also assesses fees on other services such as cash management services. Industry-wide factors that impact the Company include the acceptance by large corporations of the outsourcing of key business functions such as freight, utility and telecommunication payment and audit. The benefits that can be achieved by outsourcing transaction processing and the management information generated by Cass' systems can be influenced by factors such as the competitive pressures within industries to improve profitability, the general level of transportation costs, deregulation of energy costs and consolidation of telecommunication providers. Economic factors that impact the Company include the general level of economic activity that can affect the volume and size of invoices processed, the ability to hire and retain qualified staff and the growth and quality of the loan portfolio. The general level of interest rates also has a significant effect on the revenue of the Company. On July 7, 2006, the Company acquired 100% of the stock of NTransit, Inc., a company whose service provides auditing and expense management of parcel shipments. While this acquisition did not meet the Regulation S-X criteria of a significant business combination, it positioned the Company to expand its offerings in the specialized service and expertise in parcel shipping, which is a unique segment of the transportation industry that has experienced tremendous growth in recent years. Currently, management views Cass' major opportunity and challenge as the continued expansion of its payment and information processing service offerings and customer base. Management intends to accomplish this by maintaining the Company's lead in applied technology, which, when combined with the security and processing controls of the Bank, makes Cass unique in the industry. -13- Critical Accounting Policies The Company has prepared all of the consolidated financial information in this report in accordance with U.S. generally accepted accounting principles ("U.S. GAAP"). In preparing the consolidated financial statements in accordance with U.S. GAAP, 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. Certain accounting policies that require significant management estimates and are deemed critical to our results of operations or financial position have been discussed with the Audit Committee of the Board of Directors and are described below. Allowance for Loan Losses. The Company performs periodic and systematic detailed reviews of its loan portfolio to assess overall collectability. The level of the allowance for loan losses reflects management's estimate of the collectability of the loan portfolio. 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 Loan Losses" section of this report. Impairment of Assets. The Company periodically evaluates certain long-term assets such as intangible assets including goodwill, foreclosed assets, internally developed software and investments in private equity securities for impairment. Generally, these assets are initially recorded at cost, and recognition of impairment is required when events and circumstances indicate that the carrying amounts of these assets will not be recoverable in the future. If impairment occurs, various methods of measuring impairment may be called for depending on the circumstances and type of asset, including quoted market prices, estimates based on similar assets, and estimates based on valuation techniques such as discounted projected cash flows. Assets held for sale are carried at the lower of cost or fair value less costs to sell. These policies affect both segments of the Company and require significant management assumptions and estimates that could result in materially different results if conditions or underlying circumstances change. Income Taxes. The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity's financial statements or tax returns. Judgment is required in addressing the future tax consequences of events that have been recognized in the Company's financial statements or tax returns such as the realization of deferred tax assets, changes in tax laws or interpretations thereof. In addition, the Company is subject to the continuous examination of its income tax returns by the Internal Revenue Service and other taxing authorities. Effective January 1, 2007, the Company adopted FIN No. 48, "Accounting for Uncertainty in Income Taxes- an interpretation of FASB Statement No. 109." FIN No. 48 provides guidance for the recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. See Note 12 to the financial statements. Pension Plans. The amounts recognized in the consolidated financial statements related to pension are determined from actuarial valuations. Inherent in these valuations are assumptions including expected return on plan assets, discount rates at which the liabilities could be settled at December 31, 2006, rate of increase in future compensation levels and mortality rates. These assumptions are updated annually and are disclosed in Note 13 to the consolidated financial statements filed with the Company's annual report on Form 10-K for the year ended December 31, 2006. In September 2006, the FASB issued Statement No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans - an amendment of FASB Statements No. 87, 88, 106, and 132(R)" ("SFAS No. 158"). SFAS No. 158 requires companies to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income. The funded status is measured as the difference between the fair value of the plan assets and the benefit obligation as of the date of its fiscal year-end. The Company recognized the required changes and disclosures in its consolidated 2006 financial statements. Results of Operations The following paragraphs more fully discuss the results of operations and changes in financial condition for the three-month period ended September 30, 2007 ("Third Quarter of 2007") compared to the three-month period ended September 30, 2006 ("Third Quarter of 2006") and the nine-month period ended September 30, 2007 ("First Nine Months of 2007") compared to the nine-month period ended September 30, 2006 ("First Nine Months of 2006"). The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes and with the statistical information and financial data appearing in this report as well as the Company's 2006 annual report on Form 10-K. Results of operations for the Third Quarter of 2007 are not necessarily indicative of the results to be attained for any other period. -14- Net Income The following table summarizes the Company's operating results:
Three Months Ended Nine Months Ended September 30 September 30 ------------------------------------ ----------------------------------------- (Dollars in Thousands except Per Share % % Data) 2007 2006 Change 2007 2006 Change - -------------------------------------------------------------------------------- ----------------------------------------- Net income $ 4,677 $ 3,884 20.4% $ 13,055 $ 11,371 14.8% Net income from continuing operations $ 4,677 $ 3,972 17.7% $ 13,055 $ 11,648 12.1% Diluted earnings per share $ .55 $ .46 19.6% $ 1.53 $ 1.34 14.2% Diluted earnings per share from continuing operations $ .55 $ .47 17.0% $ 1.53 $ 1.37 11.7% Return on average assets 2.04% 1.80% -- 1.98% 1.84% -- Return on average equity 20.51% 19.12% -- 19.94% 19.45% -- - -------------------------------------------------------------------------------------------------------------------------------
Fee Revenue and Other Income from Continuing Operations The Company's fee revenue is derived mainly from freight and utility processing and payment 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 and by the accounts and drafts payable balances generated in the payment process which can be used to generate interest income. Processing volumes related to fees and accounts and drafts payable for the three and nine-month periods ended September 30, 2007 and 2006 were as follows:
Three Months Ended Nine Months Ended September 30 September 30 ------------------------------------ ----------------------------------------- % % (In Thousands) 2007 2006 Change 2007 2006 Change - -------------------------------------------------------------------------------- ----------------------------------------- Freight Core Invoice Transaction Volume* 6,470 6,154 5.1% 18,996 18,311 3.7% Freight Invoice Dollar Volume $ 3,669,117 $ 3,648,694 .6% $10,764,558 $10,722,944 .4% Utility Transaction Volume 2,361 1,701 38.8% 6,872 4,797 43.3% Utility Transaction Dollar Volume $ 2,081,529 $ 1,538,628 35.3% $ 5,687,627 $ 4,188,578 35.8% Payment and Processing Fees $ 11,441 $ 10,359 10.4% $ 34,089 $ 29,853 14.2% - -------------------------------------------------------------------------------------------------------------------------------
* Core invoices exclude parcel shipments. Third Quarter of 2007 compared to Third Quarter of 2006: Freight transaction volume and invoice dollar volume for the Third Quarter of 2007 increased slightly compared to the same period in 2006 despite the lack of growth in shipping activity in the United States, particularly in the large manufacturing segments. The increase in transaction and dollar volume from utility transactions increased primarily due to new customers and heightened activity from existing customers as the growth of this division continues. The increase in utility transaction volume drove the increase in payment and processing fees. Bank service fees increased $75,000 or 22% primarily due to higher commercial account fees and check processing volume. Other income decreased $15,000 in the Third Quarter of 2007. First Nine Months of 2007 compared to First Nine Months of 2006: Freight and utility transaction volume and dollar volume increased for the First Nine Months of 2007 compared to 2006 due to the same factors discussed above for the Third Quarter of 2007. Bank service fees decreased $29,000 or 2%. This decrease was due primarily to a penalty charged for the early withdrawal of a certificate of deposit by one large customer in the first quarter of 2006. Other income increased $29,000 in the First Nine Months of 2007. -15- 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 net interest income and related factors for the three and nine-month periods ended September 30, 2007 and 2006:
Three Months Ended Nine Months Ended September 30 September 30 ------------------------------------ ----------------------------------------- % % (Dollars in Thousands) 2007 2006 Change 2007 2006 Change - -------------------------------------------------------------------------------- ----------------------------------------- Average earnings assets $ 827,757 $ 774,293 6.9% $ 799,144 $ 751,769 6.3% Net interest income* 11,385 10,842 5.0% 32,747 31,093 5.3% Net interest margin* 5.46% 5.56% -- 5.48% 5.53% -- Yield on earning assets* 6.44% 6.47% -- 6.50% 6.35% -- Rate on interest bearing liabilities 4.26% 3.83% -- 4.30% 3.44% --
* Presented on a tax-equivalent basis assuming a tax rate of 35%. Third Quarter of 2007 compared to Third Quarter of 2006: The increase in net interest income was primarily due to an increase in earning assets that exceeded the counteracting effect of increases in rates paid on deposit accounts. There was an increase of $64,811,000 or 98% in tax-exempt municipal securities. The increase in earning assets was funded by an increase in accounts and drafts payable due to the increase in dollar volume processed. Yields on earning assets decreased slightly and rates paid on deposit accounts increased. However, as the balances of earning assets greatly exceeded the balances of interest-bearing deposits, the net effect on net interest income was positive. Total average loans decreased $10,334,000 or 2%, to $517,450,000. Total average investment in debt and equity securities increased $60,042,000 or 68% to $148,776,000 as the Company invested a portion of the increase in payables. Total average federal funds sold and other short-term investments increased $3,754,000 or 2% to $161,529,000. This increase provides additional liquidity to the Company. For more information on the changes in net interest income please refer to the tables that follow. First Nine Months of 2007 compared to First Nine Months of 2006: The increase in net interest income was primarily due to an increase in earning assets and an increase in yields on earning assets that exceeded the counteracting effect of increases in rates paid on deposit accounts. There was an increase of $46,818,000 or 71% in tax-exempt municipal securities. The increase in earning assets was funded by an increase in accounts and drafts payable due to the increase in dollar volume processed. Yields on earning assets and rates paid on deposit accounts both increased as the general level of interest rates increased. However, as the balances of earning assets greatly exceeded the balances of interest-bearing deposits, the net effect on net interest income was positive. Total average loans decreased $7,489,000 or 1% to $520,761,000. Total average investment in debt and equity securities increased $40,442,000 or 44% to $132,114,000 as the Company invested a portion of the increase in payables. Total average federal funds sold and other short-term investments increased $14,422,000 or 11% to $146,269,000. This increase provides additional liquidity to the Company. For more information on the changes in net interest income please refer to the tables that follow. The Company is positively affected by increases in the level of interest rates due to the fact that its rate-sensitive assets significantly exceed its rate-sensitive liabilities. This is primarily due to the noninterest-bearing liabilities generated by the Company in the form of accounts and drafts payable. Changes in interest rates will affect some earning assets, such as federal funds sold and floating rate loans, immediately and some earning assets, such as fixed rate loans and municipal bonds, over time. Distribution of Assets, Liabilities and Stockholders' Equity; Interest Rate and Interest Differential The following table shows the 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. -16-
Third Quarter 2007 Third Quarter 2006 -------------------------------------- -------------------------------------- Interest Interest Average Income/ Yield/ Average Income/ Yield/ (Dollars in Thousands) Balance Expense Rate Balance Expense Rate ==================================================================================================================================== Assets (1) Earning assets: Loans (2,3): Taxable $ 511,826 $ 9,158 7.10% $ 522,439 $ 9,273 7.04% Tax-exempt (4) 5,624 102 7.20 5,345 88 6.53 Debt and equity securities (5): Taxable 17,831 212 4.72 22,600 263 4.62 Tax-exempt (4) 130,945 1,926 5.84 66,134 978 5.87 Federal funds sold and other short-term investments 161,529 2,030 4.99 157,775 2,022 5.08 - ------------------------------------------------------------------------------------------------------------------------------------ Total earning assets 827,755 13,428 6.44 774,293 12,624 6.47 Nonearning assets: Cash and due from banks 23,063 29,914 Premises and equipment, net 12,937 12,886 Bank owned life insurance 12,321 11,818 Goodwill and other intangibles 8,463 5,269 Other assets 30,960 26,355 Assets related to discontinued operations -- 396 Allowance for loan losses (6,292) (6,313) - ------------------------------------------------------------------------------------------------------------------------------------ Total assets $ 909,207 $ 854,618 - ------------------------------------------------------------------------------------------------------------------------------------ Liabilities And Shareholders' Equity (1) Interest-bearing liabilities: Interest-bearing demand deposits $ 67,696 $ 555 3.25% $ 63,845 $ 429 2.67% Savings deposits 24,433 213 3.46 26,338 201 3.03 Time deposits of $100 or more 65,596 857 5.18 61,631 762 4.91 Other time deposits 28,338 361 5.05 28,845 338 4.65 - ------------------------------------------------------------------------------------------------------------------------------------ Total interest-bearing deposits 186,063 1,986 4.23 180,659 1,730 3.80 Short-term borrowings & other 611 7 4.55 197 2 4.03 Subordinated debentures 3,700 50 5.36 3,700 50 5.36 - ------------------------------------------------------------------------------------------------------------------------------------ Total interest-bearing liabilities 190,374 2,043 4.26 184,556 1,782 3.83 Noninterest-bearing liabilities: Demand deposits 92,405 98,542 Accounts and drafts payable 521,989 481,988 Other liabilities 13,974 8,664 Liabilities related to discontinued operations -- 242 - ------------------------------------------------------------------------------------------------------------------------------------ Total liabilities 818,742 773,992 Shareholders' equity 90,465 80,626 Total liabilities and shareholders' equity $ 909,207 $ 854,618 - ------------------------------------------------------------------------------------------------------------------------------------ Net interest income $ 11,385 $ 10,842 Interest spread 2.18% 2.64% Net interest margin 5.46 5.56 ====================================================================================================================================
1. Balances shown are daily averages. 2. For purposes of these computations, nonaccrual loans are included in the average loan amounts outstanding. Interest on nonaccrual loans is recorded when received as discussed further in Note 1 to the Company's 2006 Consolidated Financial Statements, filed with the Company's 2006 Annual Report on Form 10-K. 3. Interest income on loans includes net loan fees of $56,000 and $55,000 for the Third Quarter of 2007 and 2006, respectively. 4. Interest income is presented on a tax-equivalent basis assuming a tax rate of 35%. The tax-equivalent adjustment was approximately $710,000 and $373,000 for the Third Quarter of 2007 and 2006, respectively. 5. For purposes of these computations, yields on investment securities are computed as interest income divided by the average amortized cost of the investments. -17-
First Nine Months of 2007 First Nine Months of 2006 -------------------------------------- -------------------------------------- Interest Interest Average Income/ Yield/ Average Income/ Yield/ (Dollars in Thousands) Balance Expense Rate Balance Expense Rate ==================================================================================================================================== Assets (1) Earning assets: Loans (2,3): Taxable $ 514,813 $ 27,330 7.10% $ 522,940 $ 26,994 6.90% Tax-exempt (4) 5,948 322 7.24 5,310 268 6.75 Debt and equity securities (5): Taxable 19,130 681 4.76 25,506 800 4.19 Tax-exempt (4) 112,984 4,941 5.85 66,166 2,939 5.94 Federal funds sold and other short-term investments 146,269 5,564 5.09 131,847 4,702 4.77 - ------------------------------------------------------------------------------------------------------------------------------------ Total earning assets 799,144 38,838 6.50 751,769 35,703 6.35 Nonearning assets: Cash and due from banks 24,604 28,921 Premises and equipment, net 12,880 12,506 Bank owned life insurance 12,195 11,702 Goodwill and other intangibles 8,529 5,287 Other assets 29,538 23,067 Assets related to discontinued operations -- 233 Allowance for loan losses (6,622) (6,265) - ------------------------------------------------------------------------------------------------------------------------------------ Total assets $ 880,268 $ 827,220 - ------------------------------------------------------------------------------------------------------------------------------------ Liabilities And Shareholders' Equity (1) Interest-bearing liabilities: Interest-bearing demand deposits $ 65,597 $ 1,592 3.24% $ 71,612 $ 1,282 2.39% Savings deposits 23,235 596 3.43 22,444 420 2.50 Time deposits of $100 or more 67,285 2,620 5.21 50,909 1,778 4.67 Other time deposits 29,401 1,103 5.02 30,551 977 4.28 - ------------------------------------------------------------------------------------------------------------------------------------ Total interest-bearing deposits 185,518 5,911 4.26 175,516 4,457 3.40 Short-term borrowings & other 301 32 14.21 166 5 4.03 Subordinated debentures 3,700 148 5.35 3,700 148 5.35 - ------------------------------------------------------------------------------------------------------------------------------------ Total interest-bearing liabilities 189,519 6,091 4.30 179,382 4,610 3.44 Noninterest-bearing liabilities: Demand deposits 94,376 99,104 Accounts and drafts payable 495,350 462,314 Other liabilities 13,493 7,575 Liabilities related to discontinued operations -- 662 - ------------------------------------------------------------------------------------------------------------------------------------ Total liabilities 792,738 749,037 Shareholders' equity 87,530 78,183 Total liabilities and shareholders' equity $ 880,268 $ 827,220 - ------------------------------------------------------------------------------------------------------------------------------------ Net interest income $ 32,747 $ 31,093 Interest spread 2.20% 2.91% Net interest margin 5.48 5.53 ====================================================================================================================================
1. Balances shown are daily averages. 2. For purposes of these computations, nonaccrual loans are included in the average loan amounts outstanding. Interest on nonaccrual loans is recorded when received as discussed further in Note 1 to the Company's 2006 Consolidated Financial Statements, filed with the Company's 2006 Annual Report on Form 10-K. 3. Interest income on loans includes net loan fees of $150,000 and $164,000 for the First Nine Months of 2007 and 2006, respectively. 4. Interest income is presented on a tax-equivalent basis assuming a tax rate of 35%. The tax-equivalent adjustment was approximately $1,842,000 and $1,122,000 for the First Nine Months of 2007 and 2006, respectively. 5. For purposes of these computations, yields on investment securities are computed as interest income divided by the average amortized cost of the investments. -18- Analysis of Net Interest Income Changes The following table presents 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. Third Quarter 2007 Over 2006 -------------------------- (In Thousands) Volume Rate Total ================================================================================ Increase (decrease) in interest income: Loans (1,2): Taxable $(189) $ 74 $(115) Tax-exempt (3) 5 9 14 Debt and equity securities: Taxable (57) 6 (51) Tax-exempt (3) 953 (5) 948 Federal funds sold and other short-term investments 48 (40) 8 - -------------------------------------------------------------------------------- Total interest income 760 44 804 - -------------------------------------------------------------------------------- Interest expense on: Interest-bearing demand deposits 27 99 126 Savings deposits (15) 27 12 Time deposits of $100 or more 51 44 95 Other time deposits (6) 29 23 Short-term borrowings & other 5 0 5 Subordinated debentures -- -- -- Total interest expense 62 199 261 - -------------------------------------------------------------------------------- Net interest income $ 698 $(155) $ 543 ================================================================================ 1. Average balances include nonaccrual loans. 2. Interest income includes net loan fees. 3. Interest income is presented on a tax-equivalent basis assuming a tax rate of 35%. First Nine Months 2007 Over 2006 -------------------------- (In Thousands) Volume Rate Total ================================================================================ Increase (decrease) in interest income: Loans (1,2): Taxable $(424) $ 760 $ 336 Tax-exempt (3) 34 20 54 Debt and equity securities: Taxable (218) 99 (119) Tax-exempt (3) 2,048 (46) 2,002 Federal funds sold and other short-term investments 536 326 862 - -------------------------------------------------------------------------------- Total interest income 1,976 1,159 3,135 - -------------------------------------------------------------------------------- Interest expense on: Interest-bearing demand deposits (115) 425 310 Savings deposits 15 161 176 Time deposits of $100 or more 620 222 842 Other time deposits (38) 164 126 Short-term borrowings & other 7 20 27 Subordinated debentures -- -- -- Total interest expense 489 992 1,481 - -------------------------------------------------------------------------------- Net interest income $1,487 $ 167 $1,654 ================================================================================ 1. Average balances include nonaccrual loans. 2. Interest income includes net loan fees. 3. Interest income is presented on a tax-equivalent basis assuming a tax rate of 35%. -19- Provision and Allowance for Loan Losses An important determinant of the Company's operating results is the provision for loan losses and the level of loans charged off. There were provisions of $225,000 and $200,000 made for loan losses during the Third Quarter of 2007 and the Third Quarter of 2006, respectively. There were provisions of $675,000 and $500,000 made for loan losses during the First Nine Months of 2007 and the First Nine Months of 2006, respectively. As discussed below, the Company continually analyzes the outstanding loan portfolio based on the performance, financial condition and collateralization of the credits. There were $1,023,000 and $583,000 of net loan charge-offs in the Third Quarter of 2007 and 2006, respectively. There were $1,222,000 of net loan charge-offs in the First Nine Months of 2007 and $855,000 in the First Nine Months 2006. The allowance for loan losses at September 30, 2007 was $6,045,000 and at December 31, 2006 was $6,592,000. The ratio of allowance for loan losses to total loans outstanding at September 30, 2007 was 1.18% compared to 1.31% at December 31, 2006. At September 30, 2007, nonperforming loans, which are also considered impaired, consisted of $310,000 in non-accrual loans as shown in the following table. This total consists of three loans, two of which relate to businesses that have collateral deficiencies. Nonperforming loans at December 31, 2006 consisted of $795,000 in non-accrual loans and relate to one of the same borrowers. Total nonperforming loans decreased $644,000 from September 30, 2006 to September 30, 2007. This decrease was primarily due to the charge-off of two of the loans. In addition to the nonperforming loans discussed above, at September 30, 2007, approximately $6,060,000 of loans not included in the table below have been identified by management as having potential credit problems. They may also be classified for regulatory purposes. These loans are excluded from the table due to the fact they are current under the original terms of the loans, however circumstances have raised doubts as to the ability of the borrowers to comply with the current loan repayment terms. Included in this balance is $2,765,000 related to one borrower that was renegotiated several years ago and, although current under the new terms of the contract, management believes, due to the financial condition of the borrower, there still remains risk as to the collectability of all amounts under the loan agreement. The remaining loans are closely monitored by management and have specific reserves established for the estimated loss exposure. Foreclosed assets and accruing loans 90 days or more past due aggregated $1,300,000 and $1,902,000, respectively, at September 30, 2007. The increase in foreclosed assets and net charge-offs in the three-month period ended September 30, 2007, primarily relates to the foreclosure of one loan which was secured by a commercial real estate building in St. Louis County, Missouri. The increase in accruing loans 90 days or more past due is primarily related to one loan that is past maturity due to an administrative issue with the renewal process. All contractual payments on that loan have been made as required by the loan's terms and management expects it to be renewed in the normal course. The allowance for loan losses has been established and is maintained to absorb probable losses in the loan portfolio. An ongoing assessment of risk of loss is performed to determine if the current balance of the allowance is adequate to cover probable losses in the portfolio. A charge or credit is made to expense to cover any deficiency or reduce any excess. The current methodology employed to determine the appropriate allowance consists of two components, specific and general. The Company develops specific valuation allowances on commercial, real estate, and construction loans based on individual review of these loans and an estimate of the borrower's ability to repay the loan given the availability of collateral, other sources of cash flow and collection options available. The general component relates to all other loans, which are evaluated based on loan grade. The loan grade assigned to each loan is typically evaluated on an annual basis, unless circumstances require interim evaluation. The Company assigns a reserve amount consistent with each loan's rating category. The reserve amount is based on derived loss experience over prescribed periods. In addition to the amounts derived from the loan grades, a portion is added to the general reserve to take into account other factors including national and local economic conditions, downturns in specific industries including loss in collateral value, trends in credit quality at the Company and the banking industry, and trends in risk rating changes. As part of their examination process, federal and state agencies review the Company's methodology for maintaining the allowance for loan losses and the balance in the account. These agencies may require the Company to increase the allowance for loan losses based on their judgments and interpretations about information available to them at the time of their examination. -20- Summary of Asset Quality
Three Months Ended Nine Months Ended September 30 September 30 --------------------- --------------------- (Dollars in Thousands) 2007 2006 2007 2006 =================================================================================================================== Allowance at beginning of period $ 6,843 $ 6,312 $ 6,592 $ 6,284 Provision charged to expense 225 200 675 500 Loans charged off 1,065 586 1,350 864 Recoveries on loans previously charged off 42 3 128 9 - ------------------------------------------------------------------------------------------------------------------- Net loans charged-off 1,023 583 1,222 855 Allowance at end of period $ 6,045 $ 5,929 $ 6,045 $ 5,929 - ------------------------------------------------------------------------------------------------------------------- Loans outstanding: Average $517,450 $527,784 $520,761 $528,250 September 30 511,207 520,748 511,207 520,748 Ratio of allowance for loan losses to loans outstanding: Average 1.17% 1.12% 1.16% 1.12% September 30 1.18 1.14 1.18% 1.14 Nonperforming loans: Nonaccrual loans $ 310 $ 954 $ 310 $ 954 Loans past due 90 days or more -- -- -- -- Renegotiated loans -- -- -- -- - ------------------------------------------------------------------------------------------------------------------- Total non performing loans $ 310 $ 954 $ 310 $ 954 Foreclosed assets 1,300 -- -- -- - ------------------------------------------------------------------------------------------------------------------- Nonperforming loans as percentage of average loans .06% .18% .06% .18% - ------------------------------------------------------------------------------------------------------------------- Accruing loans 90 days or more past due $ 1,902 -- -- -- - -------------------------------------------------------------------------------------------------------------------
As of September 30, 2007, the Bank had one property which it was carrying as other real estate owned at what management believes to be fair value less cost to sell. The property was foreclosed on July 31, 2007 and is recorded at $1,300,000. Nonperforming loans do not include accruing loans 90 days or more past due. Operating Expense from Continuing Operations Total operating expense for the Third Quarter of 2007 increased $643,000 or 4% to $15,664,000 compared to the Third Quarter of 2006 due primarily to expenses related to the growth in processing activity. Total operating expense for the First Nine Months of 2007 increased $3,755,000 or 9% to $46,929,000 compared to the First Nine Months of 2006 also due to expenses related to the growth in processing activity. Salaries and benefits expense for the Third Quarter of 2007 increased $564,000 or 5% to $11,700,000 compared to the Third Quarter of 2006 and increased $3,462,000 or 11% to $35,135,000 for the First Nine Months of 2007 compared to the First Nine Months of 2006 primarily due to additional headcount to service new transaction business and an increase in bonuses related to the earnings increase over the comparable period last year. Occupancy expense for the Third Quarter of 2007 increased $28,000 or 5% to $550,000 from the Third Quarter of 2006 and increased $110,000 or 8% from the First Nine Months of 2006 compared to the First Nine Months of 2007. Equipment expense for the Third Quarter of 2007 increased $144,000 or 20% compared to the Third Quarter of 2006 due to additional depreciation on asset purchases and increased $437,000 or 21% from the First Nine Months of 2006 compared to the First Nine Months of 2007 also due to asset purchases and additional software licenses. Amortization of intangible assets was $70,000 for the Third Quarter of 2007 and in 2006 and $210,000 for the First Nine Months of 2007 compared to $156,000 in 2006. The increase was related to the customer list acquired with the NTransit purchase in July 2006. Other operating expense for the Third Quarter of 2007 decreased $93,000, or 4% compared to the Third Quarter of 2006 and decreased $308,000 from the First Nine Months of 2006 compared to the First Nine Months of 2007. The decreases were due to lower legal and outside services expenses. Income tax expense for the Third Quarter of 2007 decreased $26,000 or 1% compared to the Third Quarter of 2006 and decreased $167,000 for the First Nine Months of 2007 compared to the First Nine Months of 2006. The effective tax rate was 31.8% and 35.7% for the Third Quarters of 2007 and 2006, respectively and was 32.3% and 35.5% for the First Nine Months of 2007 and 2006, respectively. The decreases reflect the impact of the increase in tax-exempt securities. -21- Financial Condition Total assets at September 30, 2007 were $933,160,000, an increase of $74,689,000, or 9% from December 31, 2006. The most significant changes in asset balances during this period were an increase of $8,054,000 or 5% in federal funds sold and other short-term investments and an increase of $59,630,000 in securities available for sale. Changes in federal funds sold and other short-term investments reflect the Company's daily liquidity position and are affected by the changes in the other asset balances and changes in deposit and accounts and draft payable balances. Total liabilities at September 30, 2007 were $838,794,000, an increase of $64,244,000, or 8% from December 31, 2006. Total deposits at September 30, 2007 were $268,365,000, a decrease of $21,529,000 or 7% from December 31, 2006. Accounts and drafts payable at September 30, 2007 were $552,837,000, an increase of $84,444,000 or 18%. Total shareholders' equity at September 30, 2007 was $94,366,000, a $10,445,000 or 12% increase from December 31, 2006. Deposits in the First Nine Months of 2007 decreased as customers moved funds into other higher-yielding investments. 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 checks clear and higher balances on days when checks are issued. For this reason, average balances are a more meaningful measure of accounts and drafts payable (for average balances refer to the tables under the "Distribution of Assets, Liabilities and Stockholders' Equity; Interest Rate and Interest Differential" section of this report). The increase in total shareholders' equity resulted from net income of $13,055,000, cash received on the exercise of stock options of $16,000, $36,000 tax benefit on stock and option awards, $499,000 from stock-based compensation expense and the FIN 48 tax adjustment of $87,000 offset by dividends paid of $3,013,000 ($.12 per share) and an increase in other comprehensive loss of $235,000. Liquidity and Capital Resources The balance of liquid assets consists of cash and cash equivalents, which include cash and due from banks, federal funds sold and money market funds, and was $195,619,000 at September 30, 2007, a decrease of $885,000 or less than 1% from December 31, 2006. At September 30, 2007 these assets represented 21% of total assets. These funds 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 in securities was $162,379,000 at September 30, 2007, an increase of $59,630,000 from December 31, 2006. These assets represented 17% of total assets at September 30, 2007. Of this total, 98% were state and political subdivision securities and 2% were U.S. government agencies. Of the total portfolio, 1% mature in one year, 26% mature in one to five years, and 73% mature in five or more years. During the Third Quarter of 2007 the Company did not sell any securities. The Bank has unsecured lines of credit at correspondent banks to purchase federal funds up to a maximum of $29,000,000. Additionally, the Bank maintains a line of credit at unaffiliated financial institutions in the maximum amount of $63,137,000 collateralized by U.S. Treasury and agency securities and commercial and residential mortgage loans. 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. 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 were $17,603,000 for the First Nine Months of 2007 compared with $12,870,000 for the First Nine Months of 2006. This increase is attributable to the increase in net income of $1,407,000, the increase in taxes deferred and payable of $2,370,000, the absence of a loss of $1,562,000 in operating activities related to discontinued operations and the other normal fluctuations in asset and liability accounts. 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 investments and cash from operations will continue to be sufficient to fund the Company's operations and capital expenditures in 2007. -22- 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". Risk-based capital guidelines require the Company to meet a minimum total capital ratio of 8.0% of which at least 4.0% must consist of Tier 1 capital. Tier 1 capital generally consists of (a) common shareholders' equity (excluding the unrealized market value adjustments on the available-for-sale securities), (b) qualifying perpetual preferred stock and related surplus subject to certain limitations specified by the Federal Deposit Insurance Corporation ("FDIC"), (c) minority interests in the equity accounts of consolidated subsidiaries less (d) goodwill, (e) mortgage servicing rights within certain limits, and (f) any other intangible assets and investments in subsidiaries that the FDIC determines should be deducted from Tier 1 capital. The FDIC also requires a minimum leverage ratio of 3.0%, defined as the ratio of Tier 1 capital less purchased mortgage servicing rights to total assets, for banking organizations deemed the strongest and most highly rated by banking regulators. A higher minimum leverage ratio is required of less highly-rated banking organizations. Total capital, a measure of capital adequacy, includes Tier 1 capital, allowance for loan losses, and debt considered equity for regulatory capital purposes. The Company and the Bank continue to exceed all regulatory capital requirements, as evidenced by the following capital amounts and ratios at September 30, 2007 and December 31, 2006: September 30, 2007 (In Thousands) Amount Ratio =============================================================================== Total capital (to risk-weighted assets) Cass Information Systems, Inc. $ 95,547 14.50% Cass Commercial Bank 41,755 14.66 Tier I capital (to risk-weighted assets) Cass Information Systems, Inc. $ 85,802 13.02% Cass Commercial Bank 38,184 13.41 Tier I capital (to average assets) Cass Information Systems, Inc. $ 85,802 9.53% Cass Commercial Bank 38,184 11.69 =============================================================================== December 31, 2006 (In Thousands) Amount Ratio =============================================================================== Total capital (to risk-weighted assets) Cass Information Systems, Inc. $ 85,205 13.64% Cass Commercial Bank 42,242 14.19 Tier I capital (to risk-weighted assets) Cass Information Systems, Inc. $ 74,913 11.99% Cass Commercial Bank 38,511 12.94 Tier I capital (to average assets) Cass Information Systems, Inc. $ 74,913 8.65% Cass Commercial Bank 38,511 11.25 =============================================================================== Inflation The Company's assets and liabilities are primarily monetary, consisting of cash, cash equivalents, securities, loans, payables and deposits. Monetary assets and liabilities are those that can be converted into a fixed number of dollars. The Company's consolidated balance sheet reflects a net positive monetary position (monetary assets exceed monetary liabilities). During periods of inflation, the holding of a net positive monetary position will result in an overall decline in the purchasing power of a company. Management believes that replacement costs of equipment, furniture, and leasehold improvements will not materially affect operations. The rate of inflation does affect certain expenses, such as those for employee compensation, which may not be readily recoverable in the price of the Company's services. Impact of New Accounting Pronouncements In June 2006, the FASB issued FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes", an Interpretation of SFAS No. 109 "Accounting for Income Taxes". FASB Interpretation No. 48 clarifies the accounting for uncertainty in income taxes in financial statements and prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken. The Interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The FASB Interpretation is effective for fiscal years beginning after December 15, 2006. The Company implemented FASB Interpretation No. 48 on January 1, 2007, which did not have a material impact on the Company's consolidated financial statements. -23- In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements". The objective of SFAS No. 157 is to increase consistency and comparability in fair value measurements and to expand disclosures about fair value measurements. SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements and does not require any new fair value measurements. The provisions of SFAS No. 157 are effective for fair value measurements made in fiscal years beginning after November 15, 2007. The adoption of this statement is not expected to have a material effect on the Company's consolidated financial statements. In September 2006, the FASB issued SFAS No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans - an amendment of FASB Statements No. 87, 88, 106, and 132(R)" ("SFAS No. 158"). SFAS No. 158 requires companies to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income. The funded status is measured as the difference between the fair value of the plan assets and the projected benefit obligation as of the date of its fiscal year-end. The Company recognized the required changes and disclosures in its consolidated 2006 financial statements. In September 2006, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 108, "Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements" ("SAB No. 108"). SAB No. 108 provides interpretive guidance on the consideration of the effects of prior year misstatements in quantifying current year misstatements for the purpose of a materiality assessment. This statement is effective for fiscal years ending after November 15, 2006. This bulletin did not have an impact on the Company's consolidated financial statements. In February 2007, the FASB issued Statement No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities" ("SFAS No. 159"). SFAS No. 159 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The Company is currently assessing the impact of SFAS No. 159 on its financial statements. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As described in the Company's annual report on Form 10-K for the year ended December 31, 2006, 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 policy objective is to limit the change in annualized net interest income to 15% from an immediate and sustained parallel change in interest rates of 200 basis points. Based on the Company's most recent evaluation, management does not believe the Company's risk position at September 30, 2007 has changed materially from that at December 31, 2006. ITEM 4. CONTROLS AND PROCEDURES The Company maintains disclosure controls and procedures designed to ensure that the information it is required to disclose in the reports it files with the SEC is recorded, processed, summarized and reported to management, including the Chief Executive Officer and Principal Financial Officer, within the time periods specified in the rules of the SEC. The Company's Chief Executive Officer and Principal Financial Officer have evaluated 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 September 30, 2007 and based on their evaluation, believe that, as of September 30, 2007, these controls and procedures were effective at the reasonable assurance level to ensure that the Company is able to collect, process and disclose the information it is required to disclose in the reports it files with the SEC within the required time periods. There were no changes in the third quarter of 2007 in the Company's internal control over financial reporting identified by the Chief 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). -24- PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company and its subsidiaries are not involved in any pending proceedings other than ordinary routine litigation incidental to its businesses. Management believes none of these proceedings, if determined adversely, would have a material effect on the business or financial conditions of the Company or its subsidiaries. ITEM 1A. RISK FACTORS The Company has included in Part I, Item 1A of its annual report on Form 10-K for the year ended December 31, 2006, 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 2006 annual report on Form 10-K. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5. OTHER INFORMATION (a) None (b) There have been no material changes to the procedures by which security holders may recommend nominees to the Company's Board of Directors since the filing of the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2007. -25- ITEM 6. EXHIBITS Exhibit 10.1 Amended and Restated 2007 Omnibus Incentive Stock Plan. Exhibit 10.2 Amendment and Restatement of the Supplemental Executive Retirement Plan Exhibit 10.3 Form of Restricted Stock Agreement Award Agreement Exhibit 10.4 Form of Stock Appreciation Rights Award Agreement Exhibit 31.1 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Exhibit 31.2 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Exhibit 32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Exhibit 32.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. -26- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CASS INFORMATION SYSTEMS, INC. DATE: November 7, 2007 By /s/ Lawrence A. Collett ---------------------------------------- Lawrence A. Collett Chairman and Chief Executive Officer DATE: November 7, 2007 By /s/ P. Stephen Appelbaum ---------------------------------------- P. Stephen Appelbaum Chief Financial Officer (Principal Financial and Accounting Officer) -27- EX-10.1 2 e602795_ex10-1.txt Exhibit 10.1 CASS INFORMATION SYSTEMS, INC. 2007 OMNIBUS INCENTIVE STOCK PLAN ARTICLE I PURPOSE The purpose of the Cass Information Systems, Inc. 2007 Omnibus Incentive Stock Plan (the "Plan") is to provide incentive opportunities for Non-Employee Directors and key Employees, and to align their personal financial interest with the Company's stockholders. The Plan includes provisions for stock options, stock appreciation rights, restricted stock, restricted stock units and performance related awards. ARTICLE II DEFINITIONS 2.1 "BOARD" OR "BOARD OF DIRECTORS" means the Board of Directors of the Company. 2.2 "CHANGE OF CONTROL" means one or more of the following occurrences: (a) Any individual, corporation (other than the Company), partnership, trust, association, pool, syndicate, or any other entity or any group of persons acting in concert, becomes a beneficial owner (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934) of securities of the Company possessing more than one-third (1/3) of the voting power for the election of the Board of Directors; (b) The consummation of any consolidation, merger, or other business combination involving the Company in which holders of voting securities of the Company, immediately prior to such consummation, own, as a group, immediately after such consummation, voting securities of the Company (or, if the Company does not survive such transaction, voting securities of the entity surviving such transaction) having less than two-thirds (2/3) of the total voting power in an election of the directors of the Company or such other surviving entity; (c) During any period of two (2) consecutive years, individuals, who at the beginning of such period, constitute members of the Board of Directors cease for any reason to constitute at least a majority thereof, unless the election, or the nomination for election by the Company's stockholders, of each new director of the Company is approved by a vote of at least two-thirds (2/3) of the members of the Board of Directors then still in office who are directors of the Company at the beginning of any such period; or (d) The consummation of any sale, lease, exchange, or other transfer (in one transaction or in a series of related transactions) of all, or substantially all, of the assets of the Company (on a consolidated basis) to a party which is not controlled by or under common control with the Company. In the event that any provision of this definition of Change in Control provides for a smaller degree of change of ownership than that required in the corresponding meaning of change in the ownership or effective control of the Company, or a change in the ownership of a substantial portion of the assets of the Company under Proposed Treasury Regulation 1.409A-3(g)(5) or any successor regulation and the benefit which becomes vested or payable on account of a Change in Control is subject to Code Section 409A, the determination as to whether there has been a Change in Control shall be determined by the provisions of such Proposed Treasury Regulation 1.409A-3(g)(5) or any successor regulation. 2.3 "CODE" means the Internal Revenue Code of 1986, as amended from time to time. 2.4 "COMPANY" means Cass Information Systems, Inc., a Missouri corporation, and any successor corporation by merger or otherwise. When the context so admits or requires, "Company" includes Subsidiaries. 2.5 "COMMITTEE" means a committee of two (2) or more members of the Board appointed by the Board of Directors to administer the Plan pursuant to Article III herein. A person may serve on the Committee only if he or she is a "non-employee director" for purposes of Rule 16b-3 under the Securities Exchange Act of 1934, as amended, and satisfies the requirements of an "outside director" for purposes of Code Section 162(m). 2.6 "EMPLOYEE" means any person employed by the Company or a Subsidiary on a full-time salaried basis. The term "Employee" shall not include a person hired as an independent contractor, leased employee, consultant or a person otherwise designated by the Committee at the time of hire as not eligible to participate in the Plan. 2.7 "FAIR MARKET VALUE" means, as of any given date, the value of Stock determined as follows: (i) the last reported sale price of the Stock as quoted on The NASDAQ Stock Market on such date (or, if such date is not a trading day, the immediately preceding trading day) or, if no such reported sale takes place on any such date, the average of the closing bid and asked prices on such date (or, if such date is not a trading day, the immediately preceding trading day); (ii) if the Stock is then listed on another national securities exchange, the last reported sale price or, if no such reported sale takes place on any such day, the average of the closing bid and asked prices on the principal national securities exchange on which the Stock is listed or admitted to trading; or (iii) if none of the foregoing is applicable, then the Fair Market Value of a share of Stock shall be determined in good faith by the Committee in its discretion. 2.8 "INCENTIVE STOCK OPTION" or "ISO" means an Option grant which meets or complies with the terms and conditions set forth in the Code Section 422 and applicable regulations. 2.9 "INDICATORS OF PERFORMANCE" means the criteria used by the Committee to evaluate the Company's performance with respect to awards under the Plan including: the Company's Pretax Income; Net Income; Earnings Per Share; Revenue; Fee Revenue; Expenses; Return on Assets; Return on Equity; Return on Investment; Net Profit Margin; Operating Profit Margin; Discretionary Cash Flow (net cash provided by operating activities, less estimated total changes in operating assets and liabilities); Total Stockholder Return; Share Price; Lease Operating Expenses; Earnings before Income Tax, Depreciation and Amortization (EBITDA); Capitalization; Liquidity; Reserve Adds or Replacement; Funding and Development Costs; Production Volumes; Results of Customer Satisfaction Surveys and other measures of Quality, Safety, Productivity, Cost Management or Process Improvement or other measures the Committee approves. The Committee has the discretion to select the particular Indicators of Performance to be utilized in determining awards, and such Indicators of Performance may vary between Performance Periods and different awards. In addition, such Indicators of Performance may be determined solely by reference to the performance of the Company, a Subsidiary, or a division or unit of any of the foregoing, or based upon comparisons of any of the performance measures relative to other companies. In establishing an Indicator of Performance, the Committee may exclude the impact of any event or occurrence which the Committee determines should appropriately be excluded such as, for example, a restructuring or other nonrecurring charge, an event either not directly related to the operations of the Company or not within the reasonable control of the Company's management, or a change in accounting standards required by U.S. generally accepted accounting principles. 2.10 "NON-EMPLOYEE DIRECTOR" means any person duly elected a director of the Company who is not an Employee of the Company. 2.11 "OPTION" or "STOCK OPTION" means a right granted under the Plan to an Participant to purchase a stated number of shares of Stock at a stated exercise price. 2.12 "PARTICIPANT" means an Employee or Non-Employee Director who has received or been granted a benefit under the Plan. 2.13 "PERFORMANCE AWARD" means an award established by the Committee pursuant to Article X. 2.14 "PERFORMANCE AWARD PARTICIPANT" means any eligible Employee so designated by the Committee. 2.15 "PERFORMANCE PERIOD" means a period established by the Committee of not less than one year, at the conclusion of which performance-based compensation, subject to the terms of the Performance Award, becomes vested and non-forfeitable or settlement is made with a Performance Award Participant with respect to the Performance Award. 2.16 "RESTRICTED STOCK" means Stock granted pursuant to Article VIII of the Plan. 2.17 "RESTRICTED STOCK UNIT" or "RSU" means Restricted Stock Unit granted pursuant to Article IX of the Plan. RSU's are similar to Restricted Stock except that no shares of stock are actually issued to a Participant. Instead, a Participant is granted units and each unit has a Fair Market Value equal to the Fair Market Value of a share of Stock as of any given date. 2.18 "RESTRICTION PERIOD" is the period of time during which shares of Restricted Stock or RSUs are subject to forfeiture if the restrictions applicable to such shares or RSUs are violated, as determined by the Committee. 2.19 "SPREAD" means, with respect to a SAR, the difference of the Fair Market Value of a share of Stock on the exercise date and the Fair Market Value of a share of Stock on the grant date. 2.20 "STOCK" means the common stock of the Company. 2.21 "STOCK APPRECIATION RIGHT" or "SAR" means a right to receive a payment equal to the excess of the Fair Market Value of Stock as of the exercise date over the exercise price specified in the SAR. 2.22 "SUBSIDIARY" means any corporation or similar legal entity (other than the Company) in which the Company or a Subsidiary of the Company owns fifty percent (50%) or more of the total combined voting power of all classes of stock, provided that, with regard to Incentive Stock Options, "Subsidiary" shall have the meaning provided under Section 424(f) of the Code. 2.23 "TEN PERCENT STOCKHOLDER" means a person who owns (or is deemed to own pursuant to Section 424(d) of the Code) Stock possessing more than ten percent (10%) of the total combined voting power of all classes of Stock of the Company or any of its affiliates. 2.24 "TERMINATED FOR CAUSE" and "TERMINATION FOR CAUSE" means termination by the Company of the Participant's employment or service by reason of: (a) an order of any federal or state regulatory authority having jurisdiction over the Company or any Subsidiary; (b) the willful failure of the Participant substantially to perform his or her duties set forth by his or her employment agreement (other than any such failure due to the Participant's physical or mental illness); (c) a willful breach by the Participant of any material provision of any written agreement with the Company or any Subsidiary; (d) the Participant's commission of a crime that constitutes a felony or other crime of moral turpitude or criminal fraud; (e) chemical or alcohol dependency which materially and adversely affects the Participant's performance of his or her duties to the Company or any Subsidiary; (f) any act of disloyalty or breach of responsibilities to the Company or any Subsidiary, which is intended by the Participant to cause material harm to the Company; (g) misappropriation (or attempted misappropriation) of any of the Company's or any Subsidiary's funds or property by the Participant; or (h) the Participant's material and intentional violation of any Company or Subsidiary policy applicable to the Participant. 2.25 "TOTAL DISABILITY" and "TOTALLY DISABLED" means the permanent and total disability of a person within the meaning of Section 22(e)(3) of the Code, as determined by the Committee in good faith, upon receipt of and reliance on sufficient competent medical advice. ARTICLE III ADMINISTRATION 3.1 THE COMMITTEE. The Plan shall be administered by the Committee. Subject to such approvals and other authority as the Board may reserve to itself from time to time, the Committee shall, consistent with the provisions of the Plan, from time to time establish such rules and regulations and appoint such agents as it deems appropriate for the proper administration of the Plan, and make such determinations under, and such interpretations of, and take such steps in connection with the Plan, Options, SARs, Restricted Stock, RSUs or Performance Awards as it deems necessary or advisable. 3.2 AUTHORITY OF THE COMMITTEE. Subject to the provisions herein, the Committee shall have the full power to determine the size and types of grants of Options, SARs, Restricted Stock, RSUs and Performance Awards; to determine the terms and conditions of such grants and Performance Awards in a manner consistent with the Plan; to construe and interpret the Plan and any agreement or instrument entered into under the Plan; to establish, amend or waive rules and regulations for the Plan's administration; and to amend the terms and conditions of any outstanding Options, SARs, Restricted Stock, RSUs or Performance Awards to the extent such terms and conditions are within the sole discretion of the Committee as provided in the Plan and subject to the limitations and restrictions otherwise applicable under the Plan including those contained in Article XIII. The Committee may not, however, reduce the exercise price of an Option or SAR below the amounts specified in Sections 6.2 and 7.2 and the settlement value of an RSU below the amount specified in Section 9.1, except that such amounts are subject to adjustment under Article XI. Further, the Committee shall make all other determinations which may be necessary or advisable for the administration of the Plan. As permitted by law, the Committee may delegate its authority hereunder. The Committee may take any action consistent with the terms of the Plan which the Committee deems necessary to comply with any government laws or regulatory requirements of a foreign country, including, but not limited to, modifying the terms and conditions governing any Options, SARs, Restricted Stock, RSUs or Performance Awards, or establishing any local country plans as sub-plans to this Plan. 3.3 DECISIONS BINDING. All determinations and decisions of the Committee as to any disputed question arising under the Plan, including questions of construction and interpretation, shall be final, binding and conclusive upon all parties. 3.4 COMMITTEE AWARDS. Award to non-employee directors of the Company who are Committee members shall be made by the Board of Directors except that a Committee member shall not participate in any Board determinations relating to grants of awards to such Committee member. ARTICLE IV ELIGIBILITY Those Employees who, in the judgment of the Committee, may make key contributions to the profitability and growth of the Company shall be eligible to receive Options, SARs, Restricted Stock, RSUs and Performance Awards under the Plan. All Non-Employee Directors shall be eligible to receive Options (other than ISOs), SARs, Restricted Stock and RSUs under the Plan. ARTICLE V MAXIMUM SHARES AVAILABLE 5.1 AUTHORIZED SHARES OF STOCK. The Stock to be distributed under the Plan may be either authorized and issued shares or unissued shares of the Stock, including but not limited to such shares held as treasury shares. Subject to Article XI, the maximum amount of Stock which may be issued under the Plan in satisfaction of exercised award or issued as Restricted Stock shall not exceed, in the aggregate, eight hundred thousand (800,000) shares. 5.2 INDIVIDUAL LIMITS ON GRANTS. Under the Plan, no Employee or Non-Employee Director shall be awarded, during the term of the Plan, Options, SARs, RSUs and Restricted Stock covering more than eighty thousand (80,000) shares of Stock on an annual basis. For purposes of this Section 5.2, a grant of one SAR or RSU shall be treated as a grant of one share of Stock. 5.3 LAPSED AWARDS. Stock subject to an Option which for any reason is cancelled or terminated without having been exercised or Stock awarded as Restricted Stock which is forfeited, shall again be available for grants under the Plan. ARTICLE VI STOCK OPTIONS 6.1 GRANT OF OPTIONS. (a) The Committee may, at any time and from time to time on or after the effective date of the Plan, grant Options under the Plan to eligible Participants, for such numbers of shares of Stock and having such terms as the Committee shall designate, subject however, to the provisions of the Plan. The Committee may also determine the type of Option granted (e.g., ISO, nonstatutory, other statutory Options as from time to time may be permitted by the Code) or a combination of various types of Options. Options designated as ISOs shall comply with all the provisions of Section 422 of the Code and applicable regulations and shall not be granted to Non-Employee Directors (for this purpose only, a Non-Employee Director shall not be considered a Participant). The aggregate Fair Market Value (determined at the time the Option is granted) of Stock with respect to which ISOs are exercisable for the first time by an individual during a calendar year under all plans of the Company, any Subsidiary shall not exceed one hundred thousand dollars ($100,000). Upon determination by the Committee that an Option is to be granted to a Participant, written notice shall be given to such person as soon as practicable, specifying the terms, conditions, rights and duties related thereto. Awards shall be deemed to be granted as of the date specified in the grant resolution of the Committee, which date shall be the date of any related agreement with the Participant. In the event of any inconsistency between the provisions of the Plan and any such agreement entered into hereunder, the provisions of the Plan shall govern. Any individual at any one time and from time to time may hold more than one Option granted under the Plan or under any other Stock plan of the Company. (b) Each Option shall be evidenced by a "Stock Option Agreement" in such form and containing such provisions consistent with the provisions of the Plan as the Committee from time to time shall approve. (c) In the event that an ISO does not comply with all the provisions of Section 422 of the Code and applicable regulations, such Option shall become a nonqualified stock Option on the date of said noncompliance. 6.2 EXERCISE PRICE. The price at which shares of Stock may be purchased under an Option shall not be less than one hundred percent (100%) of the Fair Market Value of the Stock on the date the Option is granted. Notwithstanding the foregoing, a Ten Percent Stockholder shall not be granted an ISO unless the exercise price of such Option is at least one hundred ten percent (110%) of the Fair Market Value of the Stock on the date such Option is granted. 6.3 OPTION PERIOD. The period during which an Option may be exercised shall be determined by the Committee, provided that such period shall not be less than one (1) year from the date on which the Option is granted or longer than: (a) ten (10) years from the date on which the Option is granted in the case an ISO; (b) five (5) years from the date on which the Option is granted with respect to a grant of an ISO to a Ten Percent Stockholder; and (c) ten (10) years and one (1) day from the date on which the Option is granted in the case of other Options. 6.4 VESTING OF OPTIONS. Except as provided in Section 6.5, the date or dates on which installment portions of an Option shall vest and may be exercised during the term of an Option shall be determined by the Committee and may vary from Option to Option, provided that no more than one-third (1/3) of the shares of Stock subject to an Option may vest in any one (1) year. The vesting of any Option may also be conditioned on the achievement of Indicators of Performance established by the Committee. Notwithstanding anything in this Section 6.4 to the contrary but subject to the provisions of this Plan and Board approval, the Committee may, on an individual basis, accelerate the time at which installment portion(s) of an outstanding Option may be exercised. 6.5 TERMINATION OF SERVICE. Subject to the provisions of this Section 6.5, an Option shall terminate at the end of and may be exercised, to the extent the Option is exercisable under the Option Agreement, within the period not to exceed the lesser of (a) ninety (90) days after the Participant ceases to be an Employee or Non-Employee Director for any reason other than Total Disability or death or (b) the remaining term of the Option award. If an Employee's or Non-Employee Director's employment or service is terminated by reason of Total Disability, all Options granted to such Participant will become fully exercisable upon such termination and may be exercised within the period not to exceed the lesser of: (a) one (1) year following such termination; or (b) the remaining term of the Option award. If an Employee or Non-Employee Director of the Company dies while in the employ or service of the Company or a Subsidiary or within ninety days after the termination of such employment or service, Options granted to such Participant shall become fully exercisable on the Participant's death and may, within the lesser of (a) twelve (12) months after the Participant's death or (b) the remaining term of the Option award, be exercised by the person or persons to whom the Participant's rights under the Option shall pass by will or by the applicable laws of descent and distribution. Unless otherwise specifically provided in the Option agreement, no Option may be exercised after a Participant's service with the Company or a Subdivision is Terminated for Cause. In no event may an Option be exercised to any extent by anyone after the expiration or termination of the Option as provided in this Section 6.5 except that the Committee may elect to extend the period of Option exercise and vesting provisions for an Employee or Non-Employee Director whose employment or service with the Company terminates for any reason. 6.6 PAYMENT FOR SHARES. The exercise price of an Option shall be paid to the Company in full at the time of exercise at the election of the Participant: (a) in cash; (b) in shares of Stock having a Fair Market Value equal to the aggregate exercise price of the Option and satisfying such other requirements as may be imposed by the Committee; (c) partly in cash and partly in such shares of Stock; (d) through the withholding of shares of Stock (which would otherwise be delivered to the Participant) with an aggregate Fair Market Value on the exercise date equal to the aggregate exercise price of the Option; or (e) through the delivery of irrevocable instructions to a broker to deliver promptly to the Company an amount equal to the aggregate exercise price of the Option. The Committee may limit the extent to which shares of Stock may be used in exercising Options. No Participant shall have any rights to dividends or other rights of a stockholder with respect to shares of Stock subject to an Option until the Participant has given written notice of exercise of the Option, paid in full for such shares of Stock and, if applicable, has satisfied any other conditions imposed by the Committee pursuant to the Plan. ARTICLE VII STOCK APPRECIATION RIGHTS 7.1 GRANT OF SARs. (a) The Committee may authorize grants to any Participant of Stock Appreciation Rights upon such terms and conditions as it may determine in accordance with this Article VII. A Stock Appreciation Right will be a right of the Participant to receive from the Company upon exercise an amount determined by the Committee at the date of grant and expressed as a percentage of the Spread (not to exceed 100 percent) at the time of exercise. (b) Each grant will specify the number of shares of Stock in respect of which it is made and the term during which it may be exercised. (c) Each SAR shall be evidenced by a "Stock Appreciation Right Agreement" in such form and containing such provisions consistent with the provisions of the Plan as the Committee from time to time shall approve. 7.2 EXERCISE PRICE; PAYMENT ON EXERCISE. Each grant made will specify the exercise price, which will not be less than 100% of the Fair Market Value per share of Stock on the date of grant for each SAR subject to the grant. A grant may provide that the amount payable on exercise of a Stock Appreciation Right may be paid: (a) in cash; (b) in shares of Stock having an aggregate Fair Market Value per Share equal to the Spread (or the designated percentage of the Spread); or (c) in a combination thereof, as determined by the Committee in its discretion. Such payment shall be made no later than March 15 of the year immediately following the last day of the year in which the exercise occurs or by a later date by which such payment may be made so that the payment falls under the short term deferred exception of Code Section 409A. A grant may specify that the amount payable to the Participant on exercise of a SAR may not exceed a maximum amount specified by the Committee at the date of grant. 7.3 SUCCESSIVE GRANTS. Successive grants of SARs may be made to the same Participant whether or not any Stock Appreciation Rights or other award previously granted to such Participant remain unexercised or outstanding. 7.4 EXERCISABILITY OF SARs. (a) Each SAR grant shall specify the required period or periods of continuous service by the Participant with the Company or any Subsidiary that are necessary before the Stock Appreciation Rights or installments thereof become exercisable, and provide that (i) no more than one third of the SARs under a specific grant sale becomes exercisable in one year and (ii) no SAR may be exercised except at a time when the Spread is positive. Notwithstanding anything in this Section 7.4 to the contrary but subject to the provisions of this Plan and Board approval, the Committee may, on an individual basis, accelerate the time at which installment portions of outstanding SARs may be exercised. (b) A grant may specify Indicators of Performance that must be achieved as a condition to the exercise of the Stock Appreciation Rights. (c) No Stock Appreciation Right shall be exercisable prior to one (1) year from the date of grant and more than ten (10) years from the date of grant. (d) An SAR shall terminate at the end of, and may be exercised to the extent the SAR is exercisable under the SAR agreement, within the period not to exceed the lesser of (a) ninety (90) days after the Participant ceases to be an Employee or Non-Employee Director for any reason other than Total Disability or death or (b) the remaining term of the SAR award. If an Employee's or Non-Employee Director's employment or service with the Company or a Subsidiary is terminated by reason of Total Disability, all SARs granted to such Participant will become fully exercisable upon such termination and may be exercised within the period not to exceed the lesser of: (a) one (1) year following such termination; or (b) the remaining term of the SAR award. If an Employee or Non-Employee Director of the Company dies while in the employ or service of the Company or a Subsidiary or within ninety days after the termination of such employment or service, SARs granted to such Participant shall become fully exercisable on the Participant's death and may, within the lesser of (a) twelve (12) months after the Participant's death or (b) the remaining term of the SAR award, be exercised by the person or persons to whom the Participant's rights under the SAR shall pass by will or by the applicable laws of descent and distribution. In no event may an SAR be exercised to any extent by anyone after the expiration or termination of the SAR as provided in this Section 6.5 except that the Committee may elect to extend the period of SAR exercise and vesting provisions for an Employee or Non-Employee Director whose employment or service with the Company terminates for any reason. (e) Unless otherwise specifically provided in the SAR agreement , no Stock Appreciation Right may be exercised after a Participant's service with the Company or a Subsidiary has been Terminated for Cause. 7.5 NO RIGHTS AS STOCKHOLDER. No Participant shall have any rights to dividends or other rights of a stockholder of Stock with respect to an SAR. ARTICLE VIII RESTRICTED STOCK 8.1 TERMS OF GRANT. At the time of making a grant of Restricted Stock to a Participant, the Committee shall establish a Restriction Period during which shares of Restricted Stock are subject to forfeiture if the restrictions applicable to such shares are violated. Except as provided in Section 8.3, forfeiture restrictions on a grant of Restricted Stock shall lapse in a calendar year with respect to no more than one third of the shares subject to such grant except that the Committee may, subject to the provisions of this Plan and Board approval, on an individual basis, accelerate the time at which restrictions on Restricted stock lapse. The Committee shall and assign such terms, conditions and other restrictions to the Restricted Stock as it shall determine. The vesting of any such Restricted Stock may be conditioned on the achievement of Indicators of Performance during a Performance Period established by the Committee. All restrictions imposed with respect to a grant of Restricted Stock must lapse within ten years of such grant. 8.2 RESTRICTED STOCK - RIGHTS. Restricted Stock will be represented by a Stock certificate registered in the name of the Restricted Stock recipient. Such certificate, accompanied by a separate, duly-endorsed stock power, shall be deposited with the Company. Instead of issuing certificates, the Company may elect to have unvested shares of Restricted Stock held in book entry form on the books of the Company depository or another institution designated by the Company if and only to the extent permitted by applicable laws and the Company's Articles of Incorporation and Bylaws. The recipient shall be entitled to receive dividends during the Restriction Period and shall have the right to vote such Restricted Stock and all other stockholder's rights, with the exception that: (a) the recipient will not be entitled to delivery of the Stock certificate during the Restriction Period; (b) the Company will retain custody of the Restricted Stock during the Restriction Period; and (c) the non-fulfillment of the terms and conditions established by the Committee pursuant to the grant shall cause a forfeiture of the Restricted Stock. The Committee may, in addition, prescribe additional restrictions, terms and conditions upon or to the Restricted Stock. 8.3 TERMINATION OF SERVICE. The Committee may establish such rules concerning the termination of service of a recipient of Restricted Stock prior to the expiration of the applicable Restriction Period as it may deem appropriate; provided, however, that if an Employee or Non-Employee Director terminates service by reason of death or Total Disability, the applicable forfeitable restrictions will lapse upon such death or occurrence of Total Disability. Unless otherwise specifically provided in the Restricted Stock Agreement, Restricted Stock will be forfeited immediately upon termination of a Participant's service with the Company or a Subsidiary if the Participant's employment is Terminated for Cause. 8.4 RESTRICTED STOCK AGREEMENT. Each grant of Restricted Stock shall be evidenced by a "Restricted Stock Agreement" in such form and containing such terms and conditions not inconsistent with the provisions of the Plan as the Committee from time to time shall approve. 8.5 LEGEND ON CERTIFICATES. The Committee may legend the certificates representing Restricted Stock to give appropriate notice of such restrictions. For example, the Committee may determine that some or all certificates representing shares of Restricted Stock shall bear the following legend: "THE SALE OR OTHER TRANSFER OF THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE, WHETHER VOLUNTARY, INVOLUNTARY, OR BY OPERATION OF LAW, IS SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AS SET FORTH IN THE CASS INFORMATION SYSTEMS, INC. OMNIBUS 2007 INCENTIVE STOCK PLAN, AND IN A RESTRICTED STOCK AGREEMENT. A COPY OF THE PLAN AND SUCH RESTRICTED STOCK AGREEMENT MAY BE OBTAINED FROM THE SECRETARY OF THE COMPANY." 8.6 RETURN OF RESTRICTED STOCK TO COMPANY. On the date set forth in the applicable Restricted Stock Agreement, the Restricted Stock for which restrictions have not lapsed shall revert to the Company and thereafter shall be available for grant under the Plan. 8.7 SECTION 83(b) ELECTION. The Committee may provide in a Restricted Stock Agreement that the award of Restricted Stock is conditioned upon the Participant making or refraining from making an election with respect to the award under Code Section 83(b). If a Participant makes an election pursuant to Code Section 83(b) with respect to a Restricted Stock award, the Participant shall be required to promptly file a copy of such election with the Company. ARTICLE IX RESTRICTED STOCK UNITS 9.1 GRANT OF RSUs. The Committee may authorize grants to any Participant of RSUs upon such terms and conditions as it may determine in accordance with this Article IX. A RSU is the right of the Participant to receive from the Company, upon vesting of the RSU, an amount or a percentage of the amount not to exceed 100 percent, equal to the number of RSUs becoming vested multiplied by the Fair Market Value of a share of Stock on the vesting date. (a) Each grant will specify the number of RSUs being granted. (b) Each RSU shall be evidenced by a "Restricted Stock Unit Agreement" in such form and containing such provisions consistent with the provisions of the Plan as the Committee from time to time shall approve. (c) Each grant shall be evidenced by a "Restricted Stock Unit Agreement," in such form and containing such provisions consistent with the provisions of the Plan as the Committee from time to time shall approve. 9.2 PAYMENT ON VESTING. A grant may provide that the amount payable on vesting of a RSU may be paid: (a) in cash; (b) in shares of Stock having an aggregate Fair Market Value equal to the amount payable (or the designated percentage of the amount payable); or (c) in a combination thereof, as determined by the Committee in its discretion. Such payment shall be made no later than March 15 of the year immediately following the calendar year in which the vesting occurs or by a later date by which such payment may be made so that the payment falls under the short term deferral exception of Code Section 409A. A grant may specify that the amount payable to the Participant on vesting of an RSU may not exceed a maximum amount specified by the Committee at the date of grant. 9.3 SUCCESSIVE GRANTS. Successive grants of RSUs may be made to the same Participant whether or not any RSUs or other award previously granted to such Participant remain unexercised or outstanding. 9.4 VESTING OF RSUs. At the time of making a grant of RSUs to a Participant, the Committee shall established a Restriction Period during which RSUs are subject to forfeiture if restrictions applicable to such RSUs are violated. (a) The Committee may assign such terms, conditions and other restrictions to the RSUs as it will determine. (b) A grant may specify the Indicators of Performance that must be achieved as a condition to the vesting of an RSU grant. (c) No more than one third of the RSUs in a grant shall become vested in a calendar year except that RSUs shall be fully vested on a Participant's death or Total Disability and the Committee, subject to the provisions of this Plan and Board approval, may accelerate the time, on an individual basis, at which RSUs vest. (d) RSUs subject to a grant must be fully vested within ten (10) years from the date of grant. (e) Unless otherwise specifically provided in the Restricted Stock Unit Agreement, no RSU may vest after a Participant's service with the Company or a Subsidiary has been Terminated for Cause. 9.5 NO RIGHTS AS A STOCKHOLDER. No Participant shall have rights to dividends, vesting, voting or other rights as a shareholder of Stock with respect to RSUs. ARTICLE X PERFORMANCE AWARDS 10.1 PERFORMANCE AWARDS. Performance Awards pursuant to this Article X are based upon achieving established Indicators of Performance over a Performance Period. At the time of making a Performance Award, the Committee shall establish such terms and conditions as it shall determine applicable to such Performance Award. Performance Awards shall be paid not later than March 15 of the calendar year immediately following the calendar year in which the Performance Period ends or by a later date by which such payment may be made so that the payment falls under the short term deferral exception of Code Section 409A. Recipients of Performance Awards are not required to provide consideration for such Awards other than the rendering of service. A Performance Award shall be paid in cash. For avoidance of doubt, a Performance Award under this Article X is not in lieu of any annual bonus plan or other bonus program established and approved by the Board of Directors from time to time. 10.2 ADMINISTRATIVE PROCEDURE. The Committee shall designate Employees as Performance Award Participants to become eligible to receive Performance Awards and shall establish Performance Periods, provided that, as calculated by the Committee: (a) the cash covered by all Awards granted under the Plan during a calendar year shall not exceed five million dollars ($5,000,000); and (b) the cash covered by all awards granted to an individual under the Plan during a calendar year shall not exceed two million five hundred thousand dollars ($2,500,000). 10.3 INDICATORS OF PERFORMANCE. The Committee shall establish Indicators of Performance applicable to the Performance Period. Indicators of Performance are utilized to determine amount and timing of Performance Awards, and may vary between Performance Periods and different Performance Awards. 10.4 AWARD ADJUSTMENT. Subject to the terms of the Performance Award, the Committee may make downward adjustments in Awards to Performance Award Participants. 10.5 PARTIAL PERFORMANCE PERIOD PARTICIPATION. Subject to applicable restrictions under Section 162(m) of the Code, the Committee shall determine the extent to which an Employee shall participate in a partial Performance Period because of becoming eligible to be a Performance Award Participant after the beginning of such Performance Period. In the event a Performance Award Participant's employment with the Company is terminated for any reason, other than after a Change of Control, prior to completing at least fifty (50) percent of the Performance Period for a Performance Award, no payment shall be made pursuant to the Performance Award. In the event a Performance Award Participant's employment with the Company is terminated (i) on account of termination by the Company for other than Termination for Cause, (ii) death or (iii) Total Disability after completing at least fifty (50) percent of the Performance Period for a Performance Award, such Performance Award Participant shall be paid a pro rata portion of the Performance Award, if the Indicators of Performance are met, no later than March 15 of the year immediately following the calendar year in which his or her employment is terminated or by a later date by which such payment may be made so that the payment falls under the short term deferral exception of Code Section 409A. No payment shall be made pursuant to a Performance Award if the Performance Award Participant's employment with the Company is voluntarily terminated by him or her for any reason or is Terminated for Cause prior to the end of the Performance Period. ARTICLE XI ADJUSTMENT UPON CHANGES IN STOCK The number of shares of Stock, including limits under Sections 5.1 and 5.2, which may be issued pursuant to this Plan, the number of shares covered by, and the exercise price per share of, each outstanding Option and SAR, the number of shares granted as Restricted Stock and the number of RSUs, shall be adjusted proportionately, and any other appropriate adjustments shall be made, for any increase or decrease in the total number of issued and outstanding shares of Stock (or change in kind) resulting from any change in the Stock through a merger, consolidation, reorganization, recapitalization, subdivision or consolidation of shares or other capital adjustment or the payment of a Stock dividend or other increase or decrease (or change in kind) in such shares. In the event of any such adjustment, fractional shares shall be eliminated. Except as otherwise determined by the Committee, no change shall be made to an Incentive Stock Option under this Article XI to the extent it would constitute a "modification" under section 424(h)(3) of the Code. ARTICLE XII CHANGE IN CONTROL Notwithstanding anything to the contrary in the Plan, upon a Change in Control of the Company, the following shall apply: (a) If a Change of Control occurs during a Restriction Period(s) applicable to Restricted Stock and RSUs issued under the Plan, all restrictions imposed hereunder on such Restricted Stock and RSUs shall lapse effective as of the date of the Change in Control; (b) If a Change in Control occurs during a Performance Period(s) applicable to an award granted under the Plan, a Performance Award Participant shall earn no less than the award of cash which the Performance Award Participant would have earned if applicable Indicator(s) of Performance had been achieved and the Performance Period(s) had terminated as of the date of the Change in Control; and (c) Any outstanding Options and SARs that are not exercisable shall become exercisable effective as of the date of a Change in Control. If an Participant's employment is terminated within two (2) years after the effective date of a Change in Control for a reason other than a Termination for Cause, to the extent that any Option or SAR was exercisable at the time of the Participant's termination of employment, such Option or SAR, other than an ISO, may be exercised within the lesser of: (a) twelve (12) months following the date of termination of employment, or (b) the term of the Option or SAR. ARTICLE XIII MISCELLANEOUS 13.1 EFFECT ON OTHER PLANS. Except as otherwise required by law, no action taken under the Plan shall be taken into account in determining any benefits under any pension, retirement, thrift, profit sharing, group insurance or other benefit plan maintained by the Company or any Subsidiary, unless such other plan specifically provides for such inclusion. 13.2 TRANSFER RESTRICTIONS. No Option (except as provided in Section 13.2), SAR or RSU, grant of Restricted Stock or Performance Award under this Plan shall be transferable other than by will or the laws of descent and distribution. Any Option or SAR shall be exercisable: (a) during the lifetime of an Participant, only by the Participant or, to the extent permitted by the Code, by an appointed guardian or legal representative of the Participant; and (b) after death of the Participant, only by the Participant's legal representative or by the person who acquired the right to exercise such Option or SAR by bequest or inheritance or by reason of the death of the Participant. The Committee and the Participant may, in any agreement providing for a grant and/or award under this Plan, provide that the Participant may designate a beneficiary or beneficiaries to receive the property granted pursuant to award and/or exercise of the Participant's rights under the grant and/or award as provided in this Plan after the death of the Participant. 13.3 TRANSFER OF OPTIONS. The Committee may, in its discretion, authorize all or a portion of the Options to be granted to an Participant to be on terms which permit transfer by such Participant to an immediate family member of the Participant who acquires the options from the Participant through a gift or a domestic relations order. For purposes of this Article XIII, Section 13.3, "family member" includes any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law, including adoptive relationships, trusts for the exclusive benefit of these persons and any other entity owned solely by these persons, provided that the Stock Option agreement pursuant to which such Options are granted must be approved by the Committee and must expressly provide for transferability in a manner consistent with this Section and provided further that subsequent transfers of transferred Options shall be prohibited except in accordance with Article XIII, Section 13.2. Following transfer, any such Options shall continue to be subject to the same terms and conditions as were applicable immediately prior to transfer. The events of termination of employment of Article VI, Section 6.5 hereof shall continue to be applied with respect to the original Participant, following which the Options shall be exercisable by the transferee only to the extent and for the periods specified in Article VI, Section 6.5. Notwithstanding the foregoing, an ISO may not be transferred to a family member in accordance with this Section 13.3. 13.4 WITHHOLDING TAXES. The Company shall have the right to withhold from any settlement hereunder any federal, state, or local taxes required by law to be withheld, or require payment in the amount of such withholding. If settlement hereunder is in the form of Stock, such withholding may be satisfied by the withholding of shares of Stock by the Company, unless the Participant shall pay to the Company an amount sufficient to cover the amount of taxes required to be withheld, and such withholding of shares does not violate any applicable laws, rules or regulations of federal, state or local authorities. 13.5 TRANSFER OF EMPLOYMENT. Transfer of employment or consulting assignment between the Company and a Subsidiary shall not constitute termination of employment or service for the purpose of the Plan. Whether any leave of absence shall constitute termination of employment for the purposes of the Plan shall be determined in each case by the Committee. 13.6 ADMINISTRATIVE EXPENSES. All administrative expenses associated with the administration of the Plan shall be paid by the Company. 13.7 TITLES AND HEADINGS. The titles and headings of the articles in this Plan are for convenience of reference only and in the event of any conflict, the text of the Plan, rather than such titles or headings, shall control. 13.8 NO GUARANTEE OF CONTINUED EMPLOYMENT OR SERVICE. No grant or award to an Employee under the Plan or any provisions thereof shall constitute any agreement for or guarantee of continued employment by the Company and no grant or award to a Non-Employee Director shall constitute any agreement for or guarantee of continuing as a Non-Employee Director. 13.9 COMMITTEE DUTIES AND POWERS. The Committee shall have such duties and powers as may be necessary to discharge its responsibilities under this Plan, including, but not limited to, the ability to construe and interpret the Plan and resolve any ambiguities with respect to any of the terms and provisions hereof as written and as applied to the operation of the Plan. 13.10 PROCEEDS. The proceeds received by the Company from the sale of Stock under the Plan shall be added to the general funds of the Company and shall be used for corporate purposes as the Board shall direct. 13.11 GOVERNING LAW AND VENUE. This plan shall be governed by and construed and enforced in accordance with the laws of the State of Missouri, excluding conflict of law rules and principles, except to the extent such laws are preempted by Federal law. Courts located in the State of Missouri shall have exclusive jurisdiction to determine all matters relating to the Plan and that venue is proper in such courts. 13.12 FOREIGN JURISDICTIONS. Awards may be granted to employees who are foreign nationals or employed outside the United States, or both, on such terms and conditions different from those specified in the Plan as may, in the judgment of the Committee, be necessary or desirable in order to recognize differences in local law or tax policy. The Committee also may impose conditions on the exercise or vesting of awards in order to minimize the Company's obligation with respect to tax equalization for Participants on assignments outside their home country. 13.13 SUCCESSORS. All obligations of the Company under the Plan, with respect to awards granted hereunder, shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation or otherwise, of all or substantially all of the business or assets of the Company. 13.14 BENEFICIARY DESIGNATIONS. If permitted by the Committee, a Participant under the Plan many name a beneficiary or beneficiaries to whom any vested but unpaid award shall be paid in the event of the Participant's death. Each such designation shall revoke all prior designations by the Participant and shall be effective only if given in a form and manner acceptable to the Committee. In the absence of any such designation, any vested benefits remaining unpaid at the Participant's death shall be paid to the Participant's estate and, subject to the terms of the Plan and of the applicable award agreement, any unexercised vested award may be exercised by the administrator, executor or the personal representative of the Participant's estate. 13.15 INVESTMENT REPRESENTATION. As a condition to the exercise of an award, the Committee may require the person exercising such award to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required. 13.16 FRACTIONAL SHARES. No fractional Shares shall be issued or delivered pursuant to the Plan or any award. The Committee shall determine whether cash, or awards, or other property shall be issued or paid in lieu of fractional Shares or whether such fractional Shares or any rights thereto shall be forfeited or otherwise eliminated. ARTICLE XIV AMENDMENT AND TERMINATION The Board may at any time terminate or amend this Plan in such respect as it shall deem advisable, provided, the Board may not, without further approval of the shareholders of the Company, amend the Plan to: (i) increase the number of shares of Stock which may be issued under the Plan; (ii) change Plan provisions relating to establishment of the exercise prices under Options or SARs granted; (iii) extend the duration of the Plan beyond the date approved by the shareholders; (iv) reprice, replace or regrant Options or SARs through cancellation, or by lowering the exercise price of a previously granted Option or SARs; (v) make any change to the Plan considered material under the listing requirements of The NASDAQ Stock Market or any other exchange on which the Company's Stock is listed; or (vi) increase the maximum dollar amount of ISOs which an individual Participant may exercise during any calendar year beyond that permitted in the Code and applicable rules and regulations of the Treasury Department. No amendment or termination of the Plan shall, without the consent of the Participant, alter or impair any of the rights or obligations under any grants or other rights theretofore granted such person under the Plan. ARTICLE XV DURATION OF THE PLAN This Plan was approved by the Board of Directors on __________, 2007 and will be effective on April ____, 2007, subject to approval by the Company's shareholders at the 2007 annual meeting of shareholders. If not sooner terminated by the Board, this Plan shall terminate on April ____, 2017, but Options, SARs, Restricted Stock, RSUs and Performance Awards and other rights theretofore granted and any Restriction Period may extend beyond that date, and the terms of the Plan shall continue to apply to such grants. IN WITNESS WHEREOF, the undersigned has caused this Cass Information Systems, Inc. 2007 Omnibus Incentive Stock Plan to be adopted on behalf of the Company this ___ day of April, 2007. CASS INFORMATION SYSTEMS, INC. By: -------------------------- President EX-10.2 3 e602795_ex10-2.txt Exhibit 10.2 AMENDMENT AND RESTATEMENT OF THE CASS INFORMATION SYSTEMS, INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN WITNESSETH: WHEREAS, the Plan was adopted June 16, 1998, effective January 1, 1998, to provide Key Executive Employees with retirement benefits which are comparable to those of other Company employees; and WHEREAS, the Plan was amended December 21, 1999 effective January 1, 1998; and WHEREAS, the Company wants to amend and restate the Plan to cause it to comply with Code Section 409A; and WHEREAS, the adoption and execution of this Plan has been approved by the Board: NOW, THEREFORE, the Company adopts this Amended and Restated Plan effective January 1, 2005, to wit: ARTICLE 1. DEFINITIONS 1.1 Affiliated Company. Any corporation which is a member of the same controlled group of corporations, as determined by Code Section 1563(a) [without regard to Code Sections 1563(a)(4) and (e)(3)(C)] of which the Company is a member. 1.2 Beneficiary. An individual, designated in accordance with the terms of the Plan, to receive benefits in the event of the death of the Participant. In the event no Beneficiary is designated or a Beneficiary designation cannot be found, the Participant's estate shall be the Beneficiary. 1.3 Board. The board of directors of the Company. 1.4 Change of Control. Any one or more of the following occurrences: (a) Any individual, corporation (other than the Company), partnership, trust, association, pool, syndicate, or any other entity or any group of persons acting in concert becomes the beneficial owner (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934) of securities of the Company possessing more than one-third of the voting power for the election of directors of the Company; (b) The consummation of any consolidation, merger, or other business combination involving the Company in which holders of voting securities of the Company immediately prior to such consummation own, as a group, immediately after such consummation, voting securities of the Company (or, if the Company does not survive such transaction, voting securities of the entity surviving such transaction) having less than two-thirds of the total voting power in an election of directors of the Company (or such other surviving corporation); (c) During any period of two (2) consecutive years, individuals who at the beginning of such period constitute the directors of the Company cease for any reason to constitute at least a majority thereof unless the election, or the nomination for election by the Company's shareholders, of each new director of the Company was approved by a vote of at least two-thirds (2/3rds) of the directors of the Company then still in office who were directors of the Company at the beginning of any such period; or (d) There shall be consummated any sale, lease, exchange, or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company (on a consolidated basis) to a party which is not controlled by or under common control with the Company. In the event that any provision of this definition of Change of Control provides for a smaller degree of change of ownership than that required in the corresponding meaning of change in the ownership or effective control of a corporation, or change in the ownership of a substantial portion of the assets of a corporation in Treasury Regulation 1.409A-3(i)(5) or any successor regulation, the determination as to whether there has been a Change in Control shall be determined by the provisions of such Treasury Regulation 1.409A-3(i)(5) or such successor regulation. 1.5 Code. The Internal Revenue Code of 1986, as amended. 1.6 Company. Cass Information Systems, Inc., a Missouri corporation. 1.7 401(k) Hypothetical Annuity. shall be determined as follows: (a) For purposes of this Section 1.7, the terms "Elective Deferral Contributions", "Matching Contributions", "Elective Deferral Contributions Account", "Matching Contributions Account" and "Plan Year" have the meanings as provided in the 401(k) Plan. (b) Determine the total value at the Participant's Normal Retirement Date of the Participant's Elective Deferral Contributions and Matching Contributions Accounts assuming, from the first day the Participant is eligible to participate in the 401(k) Plan, that: (i) The Participant makes, for each Plan Year through his Retirement Date, Elective Deferral Contributions in an amount equal to three percent of his Compensation, up to the maximum permitted pursuant to Code Sections 401(a)(17) and 402(g). (ii) Matching Contributions are made on behalf of the Participant, for each Plan Year through his Retirement Date, in an amount equal to one half the Participant's Elective Deferral Contributions. (iii) The Participant's Elective Deferral Contributions and Matching Contributions Accounts realize an annual investment return of eight percent through his Normal Retirement Date. For purposes of this Subsection 1.7(b), the Retirement Date for a Participant described in Section 5.8 means his date of death. (c) Determine the amount of an annual annuity (payable on a monthly basis for the Participant's life with a ten year certain guarantee) which is the Actuarial Equivalent of the amount determined under 1.7(b) using the 1983 Group Annuity Mortality Table and six percent interest. 1.8 401(k) Plan. The Cass Information Systems, Inc. 401(k) Plan. 1.9 Key Executive Employee. A person who serves as a managerial employee of the Company or an Affiliated Company. 1.10 Normal Form. The form of benefit provided under Section 5.2. 1.11 Optional Form of Benefit. Any form of payment, other than the Normal Form, which is permitted under the Pension Plan. 1.12 Participant. A Key Executive Employee recommended and approved to receive the benefits pursuant to this Plan as set forth in Article 3 hereof. 1.13 Pension Plan. The Retirement Plan for Employees of Cass Information Systems, Inc., as amended. 1.14 Pension Plan Benefit. The annual benefit which would be payable to the Participant in the Normal Form under the Pension Plan payment of which would commence on his Normal Retirement Date, assuming that the Participant is not married on his Normal Retirement Date. 1.15 Pension Plan Terms. The following terms have the meanings as defined in the Pension Plan: (a) "Actuarial Equivalent". (b) "Contingent Annuitant Option". (c) "Early Retirement". (d) "Early Retirement Date". (e) "Earnings" except that the limitation of Code Section 401(a)(17) shall not apply and non-cash remuneration, income attributed to the exercise of stock options and expense reimbursements shall not be treated as "Earnings." (f) "Final Average Earnings". (g) "50% Joint and Survivor Annuity". (h) "Life Annuity". (i) "Normal Retirement". (j) "Normal Retirement Date". (k) "Service". (l) "Spouse" 1.16 Plan. The Cass Information Systems, Inc. Supplemental Executive Retirement Plan. 1.17 Primary Social Security Benefit. The annual Social Security benefit to which a Participant is entitled at age sixty five under the Social Security Act determined as of his Retirement Date, multiplied by the result of the Participant's full years of Service divided by twenty-five (not to exceed 100 percent). For purposes of determining the annual Social Security Benefit of a Participant who terminates employment with the Company or an Affiliated Company before his Normal Retirement Date, it shall be assumed that he continues to have the same amount of Earnings he had in the calendar year immediately preceding such termination of employment in each calendar year commencing with the calendar year in which his termination of employment occurs and each subsequent calendar year through the end of the calendar year in which his Normal Retirement Date would occur had he continued to be employed by the Company or an Affiliated Company until his Normal Retirement Date. 1.18 Retirement Date. Except as otherwise provided herein, the first day of the month immediately following a Participant's termination of employment with the Company or an Affiliated Company, for a reason other than death, after he qualifies for Early or Normal Retirement. The Retirement Date of a Participant described under Subsection 5.9(a) shall be his earliest Early Retirement Date assuming he had continued to be an employee of the Company or an Affiliated Company until such date. 1.19 Specified Employee. A Participant who is a Specified Employee within the meaning of Code Section 409A(a)(2)(B)(i). 1.20 Supplemental Pension. The pension benefit payable under Section 5.2. ARTICLE 2. ADMINISTRATION 2.1 The Board shall administer this Plan. The Board shall adopt such uniform and nondiscriminatory regulations as it shall deem necessary or appropriate for the administration of this Plan. The Board shall have the full power and authority to resolve all questions and issues interpreting the terms and conditions of this Plan which may arise hereunder. The Board may delegate one or more of its duties or responsibilities to other individuals. 2.2 The Board shall compute the benefit payable, as provided in this Plan, to Participants, Spouses or Beneficiaries under this Plan. 2.3 The Board shall make all determinations concerning rights to benefits under this Plan. Any decision by the Board denying a claim by a Key Executive Employee, Participant, Spouse or Beneficiary for benefits under this Plan shall be stated in writing and delivered or mailed to the Key Executive Employee, Participant, Spouse or Beneficiary. Such decision shall set forth the specific reasons for the denial, written to the best of Company's ability, in a manner that may be understood without legal or actuarial counsel. In addition, the Company shall afford a reasonable opportunity to the Participant, Spouse or Beneficiary for a full and fair review of the decision denying such claim. 2.4 The Board shall keep a record of all proceedings and shall maintain or cause to be maintained all books of accounts, records or other data as may be necessary or advisable in the Board's judgment for the proper administration of the Plan. ARTICLE 3. ELIGIBILITY FOR PARTICIPATION IN THE PLAN 3.1 A Key Executive Employee, who is recommended by the Chairman and Chief Executive Officer of the Company to the Board to participate in the Plan, shall participate in the Plan if the Board approves such recommendation. The Board may provide that a Key Executive Employee becomes a Participant in the Plan effective as of any date and such Key Executive Employee shall become a Participant as of such date. 3.2 Each Participant shall complete and execute an Agreement Schedule, in the form attached hereto, upon becoming a Participant or at such other time as the Board may require. ARTICLE 4. FUNDING 4.1 The Company and/or an Affiliated Company will fund the Plan in such a manner as shall be approved, from time to time, by the Board. The determination of the Board as to whether to fund the Plan in advance or as benefits are due, and if in advance, the amount thereof, shall be conclusive and binding upon all parties in interest. 4.2 Contributions by Participants are not required nor permitted under this Plan. ARTICLE 5. BENEFITS 5.1 Except as provided in Sections 5.9 and 5.11, a Participant, or his Spouse or Beneficiary, shall not be paid benefits under this Plan until the Participant has qualified for Early or Normal Retirement. Benefits shall not be payable under this Plan and shall be forfeited on account of a Participant who terminates employment with the Company or an Affiliated Company, for a reason other than specified in Sections 5.9 or 5.11, prior to qualifying for Early or Normal Retirement. 5.2 The Company shall pay a Participant, who has qualified for Early or Normal Retirement, a Supplemental Pension pursuant to this Article 5. The monthly amount of the Supplemental Pension shall be one twelfth of the amount determined under Section 5.3. The Supplemental Pension shall be paid monthly commencing on the date payment of the Participant's benefits commences under the Pension Plan and ending on the first day of the month in which the Participant dies, and, if such death occurs within ten years of his Retirement Date, payments shall continue to be made to his Beneficiary until a total of 120 monthly payments shall have been made to the Participant and his Beneficiary. In the event of the death of both the Participant and his Beneficiary before 120 monthly payments have been made, the Actuarial Equivalent of the remaining monthly payments shall be paid in a single sum to the estate of the last to survive of the Participant or his Beneficiary. The form of benefits paid under this Section 5.2 are called the "Normal Form". 5.3 The Supplemental Pension shall be an annual amount equal to seventy percent of the Participant's Final Average Earnings, multiplied by the result of Participant's full years of Service divided by twenty-five (not to exceed 100 percent), less the sum of the Participant's: (a) Pension Plan Benefit; (b) Primary Social Security Benefit; and (c) 401(k) Hypothetical Annuity. The Supplemental Pension shall be reduced by 1/180 for each of the first sixty calendar months and 1/360 for each of the next sixty calendar months by which commencement of payment of the Participant's Supplemental Pension precedes his Normal Retirement Date and shall not be actuarially increased if payment of the Supplemental Pension commences after the Participant's Normal Retirement Date. 5.4 If the Participant has a Spouse on his Retirement Date, the Supplemental Pension shall be paid in the form of a 100 per cent Contingent Annuitant Option with the Spouse being the surviving annuitant, which shall be the Actuarial Equivalent of the Normal Form. 5.5 A Participant who has a Spouse on his Retirement Date may elect to have his Supplemental Pension paid in a Life Annuity or in a Contingent Annuitant Option rather than a form prescribed by Section 5.2 or 5.4. A Participant who does not have a spouse may elect to have his Supplemental Pension paid in a Life Annuity. Any form of benefit paid pursuant to this Section 5.5 shall be the Actuarial Equivalent of the Normal Form. The rules of the Pension Plan, governing the election of a Normal or Optional Form of benefit payment shall apply to such election. 5.6 Notwithstanding anything in this Plan to the contrary, if the single sum, Actuarial Equivalent of a Participant's Supplemental Pension is $15,000 or less at the time payment of such Pension is to commence, the Supplemental Pension shall be paid in an amount equal to the single sum Actuarial Equivalent of such Supplemental Pension and no other benefits shall be paid under the Plan. 5.7 Payment of the benefits of a Participant (who is a Specified Employee on his Retirement Date) under Section 5.2, 5.4, 5.5 or 5.6, shall not commence until the first day of the seventh month immediately following the month in which payment of benefits would otherwise commence but for this Section 5.7. In this event, the total of the monthly benefits, that would have otherwise been paid for the first six months but for this Section 5.7, shall be paid in a single sum, along with the regular monthly payment for the seventh month, as of the first day of said seventh month with interest on such amounts at the Six Month U.S. Treasury Bill rate, compounded annually, as in effect on the first day such benefits would be paid but for this Section 5.7. 5.8 Benefits payable under this Article 5 shall be suspended upon a Participant's return to full employment with the Company or an Affiliated Company. Such benefits shall again commence upon the Participant's subsequent termination of employment and continue as if such benefits had not been suspended upon his return to full employment. In the event of suspension of benefits under this Section 5.8, such benefits, when payment again commences, shall not be actuarially adjusted for the period of suspension. 5.9 In the event of the death of a Participant, who has a Spouse on his date of death, before his Retirement Date, there shall be paid to such Spouse the survivor portion of the annuity to which the Spouse would be entitled under Section 5.4 as if: (a) In the case of a Participant who dies before reaching his earliest possible Early Retirement Date, such Participant: (i) Continued in the employment of the Company or an Affiliated Company until his earliest possible Early Retirement Date; (ii) Retired from the service of the Company or an Affiliated Company on his earliest possible Early Retirement Date and retired with an immediate 100 Percent Contingent Annuity; and (iii) Died immediately after retiring. (b) In the case of a Participant who dies after his Early or Normal Retirement Date, such Participant had retired with an immediate 100 per cent Contingent Annuity on the day before his date of death. The benefit payable to the Spouse of a Participant described in Section 5.9(a) shall commence with what would have been the Participant's earliest Early Retirement Date, assuming he had survived and remained in the employment of the Company or an Affiliated Company to such date. The benefit payable to the Spouse of a Participant described in Section 5.9(b) shall commence with the first day of the month immediately following the month in which the Participant's death occurs. Notwithstanding anything in this Section 5.9 to the contrary, a Participant who dies before his earliest possible Early Retirement Date shall not accrue Service after his death for purposes of determining the amount of his Supplemental Pension under Section 5.3. Other than the benefit provided by this Section 5.9, no other death benefit shall be paid on account of the death of a Participant before his Retirement Date. 5.10 Notwithstanding any provision in the Plan, if a Participant's employment with the Company or an Affiliated Company is terminated for Cause, neither the Participant, his Spouse or Beneficiary shall be entitled to any benefits under this Plan. "Cause" means termination by the Company of the Participant's employment or service by reason of: (a) an order of any federal or state regulatory authority having jurisdiction over the Company or any Affiliated Company; (b) the willful failure of the Participant substantially to perform his duties set forth by his employment agreement (other than any such failure due to the Participant's physical or mental illness); (c) a willful breach by the Participant of any material provision of any written agreement with the Company or any Affiliated Company; (d) the Participant's commission of a crime that constitutes a felony or other crime of moral turpitude or criminal fraud; (e) chemical or alcohol dependency which materially and adversely affects the Participant's performance of his duties to the Company or any Affiliated Company; (f) any act of disloyalty or breach of responsibilities to the Company or any Affiliated Company, which is intended by the Participant to cause material harm to the Company; (g) misappropriation (or attempted misappropriation) of any of the Company's or any Affiliated Company funds or property by the Participant; or (h) the Participant's material and intentional violation of any Company or Affiliated Company policy applicable to the Participant. 5.11 In the event of a Change in Control, each Participant, the payment of whose benefits under the Plan has not yet commenced, and each Participant, Spouse and Beneficiary receiving a Supplemental Pension shall be paid, within sixty days following such Change in Control, in a single sum, the Actuarial Equivalent of the remaining payments to be made to such individual under the Supplemental Pension. In the event of a payment on account of Change in Control, the provisions of Section 5.10 shall not apply. A Participant, Spouse or Beneficiary who receives a payment on account of a Change of Control and the Spouse or Beneficiary of a Participant who receives a payment on account of Change of Control shall not receive further benefits under the Plan. 5.12 Notwithstanding anything in the Plan to the contrary, no benefit shall be paid under the Plan on account of a Participant who has not participated in the Plan for less than thirty-six consecutive, full calendar months following the date the Board provides he becomes a Participant. Notwithstanding anything in this Section 5.12 to the contrary, benefits shall be paid on behalf of a Participant, who has not participated in the Plan for at least thirty-six months, in the event of his death or the occurrence of a Change in Control or in the event such Participant qualifies for Normal Retirement. ARTICLE 6. MISCELLANEOUS PROVISIONS 6.1 The Board reserves the right to amend or terminate this Plan; however, any amendment or termination permitted under this Section 6.1 shall not reduce or cancel the Accrued Benefit of a Participant, which accrued prior to such amendment or termination, or the manner of payment of such benefits which are payable to a Participant, his Spouse or Beneficiary. 6.2 Construction of this Plan shall be governed and construed and enforced with the laws of Missouri, excluding conflict of law rules and principles, except to the extent such laws are preempted by Federal law. Courts located in the State of Missouri shall have exclusive jurisdiction to determine all matters relating to the Plan and venue is proper in such courts. 6.3 The accounting period for the Plan shall be the annual period ending on December 31. 6.4 Nothing in this Plan, or any amendment thereto, shall give a Participant, Key Executive Employee, Spouse, Beneficiary, employee of the Company or an Affiliated Company or other person, a right unless it is specifically provided or is accorded by the Company pursuant to this Plan. Nothing in this Plan or any amendment thereto shall be construed as giving a Participant the right to remain in the employment of the Company or an Affiliated Company and all persons shall remain subject to discharge at any time to the same extent as if this Plan had not been adopted. 6.5 The terms of this Plan shall be binding upon the heirs, executors, administrators, successors and assigns of all parties in interest. 6.6 Terms in the masculine shall be deemed to include the feminine, and terms in the singular shall be deemed to include the plural and vice versa, wherever the context so admits or requires. 6.7 Any amount payable to or for the benefit of a minor, an incompetent person or other person incapable of receipting therefor shall be deemed paid when paid to such person's guardian or to the party providing or reasonably appearing to provide for the care of such person, and such payment shall fully discharge the Company, any Affiliated Company and the Board with respect thereto. 6.8 Neither a Participant nor any other person shall acquire any right, title, or interest in or to any amount outstanding to the Participant's credit under the Plan other than the actual payment of such portions thereof in accordance with the terms of the Plan. This Plan shall not be deemed to constitute or create a trust, or an escrow agreement or any type of fiduciary relationship between the Company and a Participant and his Spouse and Beneficiary; nor shall the benefits provided herein be deemed in any way to be secured by any particular assets of the Company. The Participant's interest and that of his Spouse shall be only the unsecured contractual right to receive the benefits provided for herein. 6.9 No right or benefit under this Plan shall be subject to anticipation, alienation, sale, assignment, pledge, encumbrance or change, and any attempt to anticipate, alienate, sell, assign, pledge encumber or change the same shall be void. No right or benefit hereunder shall in any manner be liable for or subject to the debts, contracts, liabilities or torts of the person entitled to such benefit. If a Participant, his Spouse or Beneficiary shall become bankrupt or attempt to anticipate, alienate, sell, assign, pledge, encumber or change any right or benefit hereunder, then such right or benefit shall, in the discretion of the Board, cease and terminate; and in such event, the Company may hold or apply the same or any part thereof for the benefit of such Participant, his Spouse or Beneficiary at any time and in such proportion as the Board may deem proper. Notwithstanding anything in this Plan to the contrary, a payment may be made to satisfy a domestic relations order within the meaning of Code Section 414(p)(1)(B); provided, however, that no Plan benefits shall be distributed pursuant to such a domestic relations order before they would otherwise be distributed to the Participant or his Beneficiary under the terms of the Plan. 6.10 The cost of administering the Plan shall be paid by the Company. 6.11 This Amendment and Restatement of the Plan shall become operative and in effect as of January 1, 2005. 6.12 The headings have been inserted for convenience only and shall not affect the meaning or interpretation of the Plan. 6.13 The parties hereto agree that the Company shall, without prejudice to any other remedies, be entitled to injunctive relief for any breach of covenant contained in this Plan. 6.14 In the event a Key Executive Employee is also a member of the Board, he shall not be eligible to participate in any determination reserved to the Board under this Plan as it relates such Employee. 6.15 The Participant, his Spouse and any Beneficiary shall submit his current mailing address to the Company. It shall be the duty of the Participant, and his Spouse and any Beneficiary to notify Company promptly of any change of address. In absence of such notice, the Company shall be entitled, for all purposes, to rely on the last known address of the Participant, his Spouse or any Beneficiary. 6.16 If any provision of this Plan is found to be invalid, it will not render the remainder of the Plan invalid. 6.17 The Company shall have the right to withhold from any payment hereunder any federal, state, or local taxes required by law to be withheld, or require payment in the amount of such withholding. 6.18 Subject to the approval by the Board, an Affiliated Company may adopt this Plan for the benefit of one or more of its employees. In this event, reference to the "Company" herein shall be deemed a reference to the Affiliated Company which has adopted this Plan pursuant to this Section 6.18, where the context so admits or requires. 6.19 All notices, demands or other communications to be given or delivered under or by reason of the provisions of this Plan shall be in writing and shall be deemed to have been given when delivered personally; mailed by certified or registered mail, return receipt requested and postage prepaid; delivered by a nationally recognized overnight delivery service or sent by facsimile and confirmed by first class mail, to the recipient. Such notices, demands and other communications shall be sent to the parties at the addresses indicated below: (a) If to a Participant: At the last known address of such person. his Spouse or Beneficiary (b) If to the Company: Vice President - Human Resources Cass Information Systems, Inc. 13001 Hollenberg Drive Bridgeton, Missouri 63044 or to such other address or to the attention of such other party as the recipient party has specified by prior written notice to the sending party. IN WITNESS WHEREOF, the Company has caused this Cass Information Systems, Inc. Supplemental Executive Retirement Plan to be executed by its President and attested by its Secretary thereto duly authorized as of the day and year first above written. ATTEST: CASS INFORMATION SYSTEMS, INC. By: - -------------------------------- -------------------------------- Secretary President AGREEMENT SCHEDULE Cass Information Systems, Inc. Supplemental Executive Retirement Plan __________________________________________, (the "Participant"), an employee of Cass Information Systems, Inc. (the "Company"), has been selected and is hereby designated pursuant to a resolution adopted by the Board of Directors of the Company to participate in the Cass Information Systems, Inc. Supplemental Executive Retirement Plan ("Plan") effective ____________________, 200____. I have been furnished a copy of and have read and understand the Plan. I hereby acknowledge my designation as a Participant in the Plan and agree to its terms and elect to have my Plan benefits distributed as provided above. If you wish to accept the benefits of the Plan, please complete and execute a copy of this schedule at the place indicated below. Dated this ______ day of ____________________, 200____. _______________________________________ Participant Received this ____ day of __________ on behalf of the Company. By ____________________________________ Title: ________________________________ CASS INFORMATION SYSTEMS, INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN BENEFIT ELECTION FORM I, ________________________ (the "Participant"), qualify for Early or Normal Retirement under the Cass Information Systems, Inc. Supplemental Executive Retirement Plan (the "Plan"). I hereby elect the following form of benefit payments: A. Complete this section if you are not married: 1. ______ Normal Form (10 year certain, life annuity) 2. ______ Straight Life Annuity If A.1.is selected, complete the following information regarding the contingent beneficiary: __________________________________________ Name __________________________________________ Street Address __________________________________________ City, State and Zip Code B. Complete this section if you are married: 1. ______ Normal Form - 100% joint and survivor annuity with your spouse 2. ______ Straight Life Annuity 3. ______ Contingent Annuity with _______ [50%, 75% or 100%] to beneficiary If B.3. is selected, complete the following information regarding the contingent beneficiary: __________________________________________ Name __________________________________________ Street Address __________________________________________ City, State and Zip Code If you do not complete this form, your benefits will be paid in the Normal Form. All sums payable under the Plan by reason of your death shall be paid to your beneficiary if he or she survives you. I have completed this election form this ______ day of _________________, 20__. _______________________________________ Signature _______________________________________ Print Name CONSENT OF SPOUSE: I am the spouse of the Participant. I hereby consent to the Participant's above elections of form of benefits under the Plan and the Participant's designation of beneficiary. _______________________________________ Signature _______________________________________ Print Name _______________________________________ Date STATE OF MISSOURI ) ) SS: COUNTY OF ST. LOUIS ) Before me, the undersigned, a Notary Public, personally appeared __________________, who executed the above Consent of Spouse as a free and voluntary act. IN WITNESS WHEREOF, I have signed my name and affixed my official notary seal this _______ day of __________________, 20__. _______________________________________ Notary Public My Commission Expires: Accepted on behalf of Cass Information Systems, Inc. this ____ day of _______________, 20__. _______________________________________ Signature _______________________________________ Print Name _______________________________________ Title EX-10.3 4 e602795_ex10-3.txt Exhibit 10.3 CASS INFORMATION SYSTEMS, INC. 2007 OMNIBUS INCENTIVE STOCK PLAN RESTRICTED STOCK AGREEMENT Participant Name: ______________________________________________________________ Date of Grant: _________________________________________________________________ Number of Shares of Restricted Stock subject to this Award: ____________________ We are pleased to inform you that, as an employee or director of Cass Information Systems, Inc. ("Cass") or one of its Subsidiaries, you are granted an Award of Shares of Restricted Stock under the Cass Information Systems, Inc. 2007 Omnibus Incentive Stock Plan (the "Plan"). The shares of common stock of Cass Information Systems, Inc. granted pursuant to this Agreement are hereinafter called "Shares". Each Share under this Award is composed of one share of Cass common stock, $0.50 par value per share. This Award is subject to your acceptance as provided in Section 1 below and the terms and conditions that follow in this Agreement. The date of the Award evidenced by the Agreement (the "Date of Grant") is set forth above. The terms and conditions of this Award, including non-standard provisions permitted by the Plan, are set forth below. 1. Acceptance of Award. This Award is to be accepted by signing your name on the signature page of two copies of this Agreement and causing them to be delivered to the Vice President - Human Resources of Cass, 13001 Hollenberg Drive, Bridgeton, MO 63044, before 4:30 p.m. Central time on the 30th day after the Date of Grant. If the Vice President - Human Resources does not receive your properly signed copies of this Agreement before the time and date specified in the previous sentence, then, despite anything else provided in this Agreement, this Award will be void as if it was never awarded to you and will be of no effect. Your signing and timely delivering the copies of this Agreement will evidence your acceptance on the terms and conditions stated in this Agreement. 2. Issuance of Restricted Stock. (a) Subject to the provisions of this Agreement and except as any of the Shares may be issued in book entry form, Cass shall issue and register on its books and records in your name a certificate (certificates) evidencing the number of Shares subject to this Award as set forth above. Each certificate shall bear a legend, substantially in the following form: "THE SALE OR OTHER TRANSFER OF THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE, WHETHER VOLUNTARY, INVOLUNTARY, OR BY OPERATION OF LAW, IS SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AS SET FORTH IN THE CASS INFORMATION SYSTEMS, INC. 2007 OMNIBUS INCENTIVE STOCK PLAN AND IN THE RESTRICTED STOCK AGREEMENT. A COPY OF THE PLAN AND SUCH RESTRICTED STOCK AGREEMENT MAY BE OBTAINED FROM THE VICE PRESIDENT - HUMAN RESOURCES OF CASS INFORMATION SYSTEMS, INC." The certificate(s) shall be retained by Cass (or its designee) until the time that all restrictions or conditions applicable to the Shares have been satisfied or lapsed. You agree to (i) deliver to Cass, as a precondition to the issuance of any certificate or certificates with respect to Unvested Shares, one or more stock powers, endorsed in blank, with respect to such Shares, (ii) sign such other powers, take such other actions as Cass may reasonably request to accomplish the transfer or forfeiture of any Unvested Shares that are forfeited under this Agreement and (iii) authorize Cass to cause such Unvested Shares to be cancelled or transferred in the event they are forfeited pursuant to this Agreement. As used in this Agreement, "Unvested Shares" means Shares which are subject to forfeiture under this Agreement. (b) If Unvested Shares are held in book entry form, Subsection 2(a) shall not be applicable and you agree that Cass may give stop transfer instructions to the depository of such Shares to ensure compliance with the provisions of this Agreement. You hereby (i) acknowledge that the Unvested Shares may be held in book entry form on the books of Cass's depository (or another institution specified by Cass), (ii) irrevocably authorize Cass to take such actions as may be necessary or appropriate to effect a transfer or cancellation of the record ownership of any such Unvested Shares that are forfeited in accordance with this Agreement, (iii) agree to take such other actions as Cass may reasonably request to accomplish the forfeiture of any Unvested Shares that are forfeited under this Agreement, and (iv) authorize Cass to cause such Shares to be cancelled or transferred in the event they are forfeited pursuant to this Agreement. 3. Restrictions. In association with the other terms of this Agreement and in accordance with the Plan, the Shares shall be subject to the following restrictions: (a) Neither (i) the Shares or any interest in them, (ii) the right to vote the Shares, (iii) the right to receive dividends on the Shares, or (iv) any other rights under this Agreement may be sold, transferred, donated, exchanged, pledged, hypothecated, assigned, or otherwise transferred, alienated or encumbered, by operation of law or otherwise, until (and then only to the extent of) the Shares are delivered to you or, in the event of your death, your Designated Beneficiary or Beneficiaries or testamentary transferee or transferees. (b) You shall have, with respect to the Shares, all of the rights of a holder of Shares, including the right to vote such Shares and to receive any cash dividends thereon, except as otherwise provided in the Plan. Additional Shares of Cass common stock resulting from adjustments under Section XI of the Plan with respect to Shares subject to this Agreement shall be treated as additional Shares subject to the same restrictions and other terms of this Award and you shall comply with the provisions of Sections 2(a) or (b), as appropriate, with respect to such additional Shares. Cash dividends paid on Unvested Shares are taxable to you as compensation income, and not dividend income, and are deductible by Cass or its Subsidiaries for income tax purposes as compensation income. Such dividends shall be paid to you at the time they are paid to other holders of shares of Cass Common Stock. (c) During your lifetime, Shares shall only be delivered to you. Any Shares transferred in accordance with this Agreement shall continue to be subject to the terms and conditions of this Agreement. Any transfer permitted under this Agreement shall be promptly reported in writing to Cass's Vice President - Human Resources. (d) You may designate a beneficiary or beneficiaries ("Designated Beneficiary or Beneficiaries") on the Designated Beneficiary form attached to this Agreement to receive Shares which vest on your death. If you do not complete the Beneficiary Designation form or if, after your death, your Designated Beneficiary or Beneficiaries has or have died or cannot be located, Shares which become vested on your death shall be transferred in accordance with your will or, if you have no will, in accordance with applicable state laws of descent and distribution. 4. Lapse of Restrictions and Delivery of Shares of Restricted Stock. Unless previously forfeited or transferred on account of your death, Retirement, Total Disability or a Change in Control, the Restriction Period will lapse with respect to applicable Shares, and Cass shall deliver the Shares subject to this Award to you, as follows: (a) Restrictions shall lapse with respect to one-third of the Shares and such Shares shall be delivered one year from the Date of Grant; (b) Restrictions shall lapse with respect to the next one-third of the Shares and such Shares shall be delivered two years from the Date of Grant; and (c) Restrictions shall lapse with respect to the remaining one-third of the Shares and such Shares shall be delivered three years from the Date of Grant. Cass shall deliver the Shares to you by transferring certificates to you evidencing your ownership of the Shares without the legend provided by Section 2(a) but with any legend required by federal and state securities laws. The appropriate officers of Cass may, in their discretion, cause the Shares as described in this Section 4 to instead be held in book entry form in your name without the restrictions imposed by this Agreement. For purposes of this Agreement, "Retirement" or "Retire" means normal or postponed retirement under the Retirement Plan for Employees of Cass Information Systems, Inc. 5. Effect of Death, Retirement, Total Disability or Change of Control. Notwithstanding anything in this Agreement to the contrary, if you die while in the employment or service of Cass or its Subsidiaries, all Shares granted pursuant to this Agreement, to the extent not forfeited or previously transferred prior to your death, shall be transferred as provided in Section 4 and shall not be subject to forfeiture after your death. If you Retire or become Totally Disabled or a Change of Control occurs while you are employed by or in the service of Cass or its Subsidiaries, all Shares granted pursuant to the Agreement, to the extent not forfeited or previously transferred prior to your Retirement, Total Disability or occurrence of the Change of Control, shall, notwithstanding anything in this Agreement to the contrary, be transferred to you at the time your Retirement, Total Disability or a Change of Control occurs and shall not be subject to forfeiture after the occurrence of your Retirement, Total Disability or a Change of Control. Shares transferred pursuant to this Section 5 shall be delivered in the same manner as provided in Section 4. 6. Effect of Other Causes of Termination of Employment. (a) If your employment or service with Cass or any of its Subsidiaries terminates prior to the lapse of restrictions on Shares in accordance with Section 4 other than by reason of your death, Retirement, or Total Disability or after a Change of Control, you shall forfeit all such Shares. (b) For the purposes of this Agreement, your employment or service by a Subsidiary of Cass shall be considered terminated on the date that the company for which you are employed or serve is no longer a Subsidiary of Cass. (c) Notwithstanding anything in this Agreement to the contrary, no Shares shall be delivered to you under this Agreement if your employment or service with Cass or a Subsidiary is Terminated for Cause including Termination for Cause. 7. Transfer of Employment; Leave of Absence. A transfer of your employment from Cass to a Subsidiary or vice versa, or from one Subsidiary to another, without an intervening period, shall not be deemed a termination of employment. If you are granted an authorized leave of absence, you shall be deemed to have remained in the employ or service of the company by which you are employed or of which you serve as a director during such leave of absence. 8. Tax Matters. (a) Federal Income tax withholding (and state and local income tax withholding, if applicable) may be required with respect to the taxation of income realized when restrictions are removed from the Shares or in the event you make the election described in Section 18. You agree to deliver to Cass only the amounts the Committee determines should be withheld, provided, however, that you may pay a portion or all of such withholding taxes by electing to have (i) Cass withhold a portion of the Shares that would otherwise be delivered to you or (ii) you can deliver to Cass Shares that you have owned for at least six months, in either case, having a Fair Market Value (as of the date that the amount of taxes is to be withheld) in the sum of the amount to be withheld plus reasonable expenses of selling such Shares, and provided further that your election shall be irrevocable and subject to the approval of the Committee. (b) You should consult with your tax advisor regarding the tax consequences of receiving shares and making the election described in Section 18. 9. Employment and Service. Nothing contained in this Agreement or the Plan shall confer any right to continue in the employ or other service of Cass or any of its Subsidiaries or limit in any way the right of Cass or a Subsidiary to change your compensation or other benefits or to terminate your employment or other service with or without Cause. 10. Listing: Securities Considerations. Despite anything else in this Agreement, if at any time the Board determines, in its sole discretion, the listing, registration or qualification (or an updating of any such document) of the Shares issuable under this Agreement is necessary on any securities exchange or under any federal or state securities or blue sky law, or that the consent or approval of any governmental regulatory body is necessary or desirable as a condition of, or in connection with the issuance of the Shares, or the removal of any restrictions imposed on such Shares, such Shares shall not be issued, in whole or in part, or the restrictions on the Shares removed, unless such listing, registration, qualifications, consent or approval shall have been effected or obtained free of any conditions not acceptable to Cass. 11. Binding Effect. This Agreement shall inure to the benefit of and be binding on the parties to this Agreement and their respective heirs, executors, administrators, legal representatives and successors. Without limiting the generality of the foregoing, whenever the term "you" is used in any provision of this Agreement under circumstances where the provision appropriately applies to the heirs, executors, administrators, or legal representatives to whom Shares may be transferred by the Beneficiary Designation, will or the laws of descent and distribution, the term "you" shall be deemed to include such person or persons. 12. Plan Provisions Govern. (a) This Award is subject to the terms, conditions, restrictions and other provisions of the Plan as if all those provisions were set forth in their entirety in this Agreement. If any provision of this Agreement conflicts with a provision of the Plan, the Plan provision shall control. (b) You acknowledge that a copy of the Plan and a prospectus summarizing the Plan was distributed or made available to you and that you were advised to review that material before entering into this Agreement. You waive the right to claim that the provisions of the Plan are not binding on you and your heirs, executors, administrators, legal representatives and successors. (c) Capitalized terms used but not defined in this Agreement have the meanings given those terms in the Plan. (d) By your signature below, you represent that you are familiar with the terms and provisions of the Plan, and hereby accept this Agreement subject to all of the terms and provisions of the Plan. You have reviewed the Plan and this Agreement in their entirety and fully understand all provisions of the Plan and this Agreement. You agree to accept as binding, conclusive and final all decisions or interpretations of the Committee on any questions arising under the Plan or this Agreement. 13. Governing Law and Venue. This Agreement shall be governed by and construed in accordance with the laws of the State of Missouri despite any laws of that state that would apply the laws of a different state. In the event of litigation arising in connection with this Agreement and/or the Plan, the parties hereto agree to submit to the jurisdiction of state and Federal courts located in Missouri. 14. Severability. If any term or provision of this Agreement, or the application of this Agreement to any person or circumstance, shall at any time or to any extent be invalid, illegal or unenforceable in any respect as written, both parties intend for any court construing this Agreement to modify or limit that provision so as to render it valid and enforceable to the fullest extent allowed by law. Any provision that is not susceptible of reformation shall be ignored so as to not affect any other term or provision of this Agreement, and the remainder of this Agreement, or the application of that term or provision to persons of circumstances other than those as to which it is held invalid, illegal or unenforceable, shall not be affected thereby and each term and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law. 15. Entire Agreement; Modification. The Plan and this Agreement contain the entire agreement between the parties with respect to the subject matter contained in this Agreement and it may not be modified, except as provided in the Plan, as it may be amended from time to time in the manner provided in the Plan, or in this Agreement, as it may be amended from time to time by a written document signed by each of the parties to this Agreement. Any oral or written agreements, representations, warranties, written inducements, or other communications with respect to the subject matter contained in this Agreement made before the signing of this Agreement shall be void and ineffective for all purposes. 16. Counterparts. This Agreement may be executed simultaneously in two or more counterparts, each of which shall constitute an original, but all of which taken together shall constitute one and the same Agreement. 17. Descriptive Headings. The descriptive headings of this Agreement are inserted for convenience only and do not constitute a part of this Agreement. 18. Notices; Electronic Delivery. All notices, demands or other communications to be given or delivered under or by reason of the provisions of this Agreement shall be in writing and shall be deemed to have been given when delivered personally; mailed by certified or registered mail, return receipt requested and postage prepaid; delivered by a nationally recognized overnight delivery service or sent by facsimile and confirmed by first class mail, to the recipient. Such notices, demands and other communications shall be sent to the parties at the addresses indicated below: (a) If to you: ____________________________________ ____________________________________ ____________________________________ (b) If to the Company: Vice President - Human Resources Cass Information Systems, Inc. 13001 Hollenberg Drive Bridgeton, Missouri 63044 or to such other address or to the attention of such other party as the recipient party has specified by prior written notice to the sending party. You agree during the term of this Agreement to keep Cass informed of your current mailing address and of receiving written notice from Cass in accordance with this Section 18. In lieu of receiving documents in paper format, you agree, to the fullest extent permitted by law, to accept electronic delivery of any documents that may be required to be delivered to you (including, but not limited to, prospectuses, prospectus supplements, grant or award notifications and agreements, account statements, annual and quarterly reports, and all other forms of communications) in connection with this and any other award made or offered by Cass. Electronic delivery may be via electronic mail system or by reference to a location on a Cass intranet to which you have access. You hereby consent to any and all procedures Cass has established or may establish for an electronic signature system for delivery and acceptance of any such documents that may be required to be delivered to you, and agree that your electronic signature is the same as, and shall have the same force and effect as, your manual signature. 19. Section 83(b) Election. In the event you make an election under Section 83(b) of the Internal Revenue Code of 1986, as amended, with respect to Shares, the parties hereto shall cooperate to insure such election is effective. 20. Authority to Receive Payments. Any amount payable to or for the benefit of a minor, an incompetent person or other person incapable of receiving such payment shall be deemed paid when paid to the conservator of such person's estate or to the party providing or reasonably appearing to provide for the care of such person, and such payment shall fully discharge Cass and Members of the Committee and the Board with respect thereto. In Witness Whereof, the parties have caused this Agreement to be signed and delivered as of the day and year first above written. CASS INFORMATION SYSTEMS, INC. PARTICIPANT: ______________________________ ______________________________ Signature Signature ______________________________ ______________________________ By: Date: ______________________________ Title: ______________________________ Date: CASS INFORMATION SYSTEMS, INC. 2007 OMNIBUS INCENTIVE STOCK PLAN RESTRICTED STOCK AGREEMENT BENEFICIARY DESIGNATION To the Vice President - Human Resources of Cass Information Systems, Inc. ("Cass") Pursuant to the provisions of the Cass Information Systems, Inc. 2007 Omnibus Incentive Stock Plan ("Plan"), permitting the designation of a Beneficiary or Beneficiaries by a Participant, I hereby designate the following person, persons or trust as Primary and Secondary Designated Beneficiaries of my benefits under the Plan and the Cass Information Systems, Inc. 2007 Omnibus Incentive Stock Plan Restricted Stock Agreement ("Agreement") between Cass and me dated __________, 20____ payable by reason of my death: Primary Beneficiary [include address and relationship]: Secondary Beneficiary [include address and relationship]: I RESERVE THE RIGHT TO REVOKE OR CHANGE ANY BENEFICIARY DESIGNATION. I HEREBY REVOKE ALL PRIOR DESIGNATIONS (IF ANY) OF PRIMARY BENEFICIARIES AND SECONDARY BENEFICIARIES. Cass shall cause all Shares of Cass stock to be transferred by reason of my death pursuant to the Agreement to the Primary Beneficiary, if he, she or it survives me, and if no Primary Designated Beneficiary shall survive me, then to my Secondary Designated Beneficiary, and if no named Designated Beneficiary survives me, then all Shares shall be transferred in accordance with the terms of the Agreement. _________________________________ _________________________________ Date of this Designation Signature of Participant NOTE: Unless the Participant provides otherwise in completing this Beneficiary Designation, Cass shall transfer all Shares of Cass stock to be transferred to more than one Designated Beneficiary equally to the living Designated Beneficiaries. * * * * * This Beneficiary Designation was received on behalf of Cass this _____ day of ____________, 20____. By: _________________________________ Title: ______________________________ CASS INFORMATION SYSTEMS, INC. 2007 OMNIBUS INCENTIVE STOCK PLAN RESTRICTED STOCK AGREEMENT BENEFICIARY DESIGNATION To the Vice President - Human Resources of Cass Information Systems, Inc. ("Cass") Pursuant to the provisions of the Cass Information Systems, Inc. 2007 Omnibus Incentive Stock Plan ("Plan") and the Cass Information Systems, Inc. 2007 Omnibus Incentive Stock Plan Restricted Stock Agreement ("Agreement") between Cass and me dated __________, 20____, permitting the designation of a Beneficiary or Beneficiaries by a Participant, I hereby designate the following person, persons or trust as primary and secondary Designated Beneficiaries of my benefits under the Agreement payable by reason of my death: Primary Beneficiary [include address and relationship]: Secondary Beneficiary [include address and relationship]: I RESERVE THE RIGHT TO REVOKE OR CHANGE ANY BENEFICIARY DESIGNATION. I HEREBY REVOKE ALL PRIOR DESIGNATIONS (IF ANY) OF PRIMARY BENEFICIARIES AND SECONDARY BENEFICIARIES. Cass shall cause all Shares of Cass stock to be transferred by reason of my death pursuant to the Agreement to and by my Primary Beneficiary, if he, she or it survives me, and if no Primary Designated Beneficiary shall survive me, then to my Secondary Designated Beneficiary, and if no named Designated Beneficiary survives me, then all Shares of Cass stock shall be transferred in accordance with the terms of the Agreement. _________________________________ _________________________________ Date of this Designation Signature of Participant NOTE: Unless the Participant provides otherwise in completing this Beneficiary Designation, Cass shall transfer all Shares of Cass stock to be transferred to more than one Designated Beneficiary equally to the living Designated Beneficiaries. * * * * * This Beneficiary Designation was received on behalf of Cass this _____ day of ____________, 20____. By: _________________________________ Title: ______________________________ EX-10.4 5 e602795_ex10-4.txt Exhibit 10.4 CASS INFORMATION SYSTEMS, INC. 2007 OMNIBUS INCENTIVE STOCK PLAN STOCK APPRECIATION RIGHTS AGREEMENT [STOCK SETTLEMENT FORM] Participant Name........................................................... Date of Grant.............................................................. Grant Price ("Grant Price") per Stock Appreciation Right................... Number of Share equivalents subject to this Award.......................... Expiration Date............................................................ We are pleased to inform you that, as an employee or director of Cass Information Systems, Inc. ("Cass") or one of its Subsidiaries, you have been granted an Award of Stock Appreciation Rights (also referred to as a "SARs") under the Cass Information Systems, Inc. 2007 Omnibus Incentive Stock Plan (the "Plan"). The SARs give you the opportunity to receive a stock settlement at the time of exercise of the SARs equal to the result of multiplying (a) the excess of the Fair Market Value of a share of Cass common stock on the date of exercise date over the Grant Price by (b) the number of Share equivalents with respect to which the SAR or SARs is or are exercised. This Award is subject to your acceptance of this Award as provided in Section 1 below and the terms and conditions that follow in this Agreement. The date of the Award evidenced by this Agreement (the "Date of Grant") and the date the SARs expire (the "Expiration Date") are set forth above. The terms and conditions of this Award, including non-standard provisions permitted by the Plan, are set forth below. 1. Acceptance of SARs. This Award is to be accepted by signing your name on the signature page of two copies of this Agreement and cause them to be delivered to the Vice President - Human Resources of Cass, 13001 Hollenberg Drive, Bridgeton, MO 63044, before 4:30 p.m. Central time on the 30th day after the Date of Grant. If the Vice President - Human Resources does not timely receive your properly signed copies of this Agreement, then, despite anything else provided in this Agreement, this Agreement will be void as if it was never awarded to you and will be of no effect. Your signing and timely delivering the copies of this Agreement will evidence your acceptance of the SARs on the terms and conditions stated in this Agreement. 2. When You Can Exercise the SARs; What You Will Receive Upon Exercise. (a) Unless previously forfeited or subject to the other provisions of this Agreement, one third of the SARs subject to this grant shall first be exercisable after the first anniversary of the Date of Grant; the next one third of the SARs shall first become exercisable after the second anniversary of the Date of Grant and the remaining one third of the SARs shall first become exercisable after the third anniversary of the Date of Grant. For purposes of this Agreement, a SAR is "vested" when it becomes exercisable. (b) Except as otherwise provided in Sections 5 and 6, the SARs shall lapse on the earlier of (i) the Expiration Date or (ii) the tenth anniversary of the Date of Grant. (c) SARs shall not become exercisable unless you remain continuously in the employ or service of Cass or of one of its Subsidiaries, except as provided in Sections 5 and 6. (d) The right to exercise shall be cumulative. If the full number of SARs available for exercise for a period, as provided in Section 2(a), are not exercised, the balance may be exercised at any time or from time to time thereafter prior to the termination of the SARs. The SARs shall not, however, be exercisable after their expiration as provided in Section 2(b). (e) Upon exercise of a SAR evidenced by this Agreement, you shall receive a number of shares of common stock of Cass determined as follows: (i) Subtract the Grant Price from the Fair Market Value of a share of Cass common stock on the exercise date. (ii) Multiply the amount determined under Subsection 2(e)(i) by the number of SARs being exercised. (iii) Divide the product determined under Subsection 2(e)(ii) by the Fair Market Value of a share of Cass common stock on the date of exercise. (iv) A number of shares of Cass common stock equal to the result under Subsection 2(e)(iii) shall be transferred to you no later than March 15 of the calendar year immediately following the calendar year in which the SAR is exercised. (v) If this computation results in a fractional share of Cass common stock, you shall not receive cash or Cass common stock in lieu of the fractional share. 3. Notice of Exercise. SARs are exercised by delivering a signed Notice of Exercise in the form attached to this Agreement to Cass's Vice President - Human Resources at the office specified in Section 21 below. Delivery of a signed Notice of Exercise constitutes your legally binding irrevocable exercise of the SARs. In the case of any delivery by facsimile transmission, the original Notice of Exercise form shall be promptly forwarded by you by hand delivery or mail to the Vice President - Human Resources of Cass following such facsimile transmission. If a properly signed Notice of Exercise form is not received by Cass's Vice President - Human Resources by the applicable expiration date specified in Sections 2(b), 5 or 6, the notice will be deemed void and of no effect. If notice of exercise of the SARs is given by a person other than you, Cass may require as a condition to exercise of the SARs the submission to Cass of appropriate proof of the right of such person to exercise the SARs. A SAR is deemed to have been exercised on the date on which the Notice of Exercise is received by Cass's Vice President - Human Resources as described above. 4. Transferability of Your SARs. The SARs shall not be transferable by you other than upon your death pursuant to Beneficiary Designation, your will or the laws of descent and distribution. During your lifetime the SARs shall be exercisable only by you. Any transferred SARs shall continue to be subject to the terms and conditions of this Agreement, including, without limitation, the provisions of Sections 2(b), 5 and 6. Any transfer permitted under this Agreement shall be promptly reported in writing to Cass's Vice President - Human Resources. You may designate a beneficiary or beneficiaries ("Designated Beneficiary or Beneficiaries") on the Designated Beneficiary form attached to this Agreement to receive SARs which are exercisable at the time of your death and which become exercisable on your death. If you do not complete the Beneficiary Designation form or if, after your death, your Designated Beneficiary or Beneficiaries has or have died or cannot be located, your SARs shall be transferred in accordance with your will or, if you have no will, in accordance with the applicable state laws of descent and distribution. 5. Effect of Death, Retirement or Total Disability. If your employment by or service with Cass or one of its Subsidiaries terminates by reason of your death, Retirement or Total Disability or if you die within ninety days of your termination of employment for other than Retirement or Total Disability, all of the SARs, to the extent not previously forfeited, become immediately exercisable in full and non-forfeitable on your death, Retirement or Total Disability and such SARs, including SARs which became exercisable prior to your death, Retirement or Total Disability but are not exercised as of the date of your death, Retirement or Total Disability, shall continue to be exercisable for the lesser of (i) one year from the date of your termination of service or employment on account of your death, Retirement or Total Disability, (ii) one year from your death after termination of employment for a reason other than Retirement or Total Disability or (iii) the remaining term of the SAR. For purposes of this Agreement, "Retirement" or "Retire" means normal or postponed retirement under the Retirement Plan for Employees of Cass Information Systems, Inc. 6. Effect of Other Causes of Termination of Employment or Service. (a) If your employment or service with Cass or a Subsidiary terminates other than by reason of your death, Retirement or Total Disability, the SARs shall be exercisable only with respect to the number of Share equivalents which are exercisable on the date of your termination of employment or service and then must be exercised, if at all, within the lesser of (i) ninety days after such severance of employment or (ii) the remaining term of the SAR. (b) Notwithstanding anything in this Agreement to the contrary, no SARs, including SARs which become exercisable but are not exercised prior to such termination of service of employment, shall be exercisable after your employment or service with Cass or any Subsidiary is Terminated for Cause, including Termination for Cause after a Change of Control. 7. Transfer of Employment; Leave of Absence. A transfer of your employment from Cass to a Subsidiary or vice versa, or from one Subsidiary to another, without an intervening period, shall not be deemed a termination of employment. If you are granted an authorized leave of absence, you shall be deemed to have remained in (i) the employ of the company by which you are employed or (ii) service as a director of Cass during such leave of absence. Your employment by a Subsidiary shall be considered terminated on the date the company for which you are employed is no longer a Subsidiary of Cass. 8. Change in Control. Except as provided in Section 6(b), all SARs subject to this Agreement shall become fully exercisable on and after a Change in Control. 9. Tax Matters. (a) You should consult your tax advisor regarding the tax consequences of receiving the SARs, SARs becoming exercisable and exercising the SARs. (b) On exercise of a SAR, Federal income tax withholding (and state and local income tax withholding, if applicable) may be required in respect of taxes on income realized. You agree to deliver to Cass only the amounts the Committee determines should be withheld, provided, however, that you may pay a portion or all of such withholding taxes by (i) electing to have Cass withhold a portion of the shares of Cass stock that would otherwise be delivered to you upon exercise of a SAR or (ii) delivering shares of Cass stock that you have owned for at least six months, in either case, having a Fair Market Value (as of the date that the amount of taxes is to be withheld) in the sum of the amount to be withheld plus reasonable expenses of selling such shares, and provided further that your election shall be irrevocable and subject to the approval of the Committee. 10. Employment and Service Nothing in this Agreement shall confer any right to continue in the employ or other service of Cass or any of its Subsidiaries or limit in any way the right of your employer to change your compensation or other benefits or to terminate your employment or other service with or without cause. 11. Time of Essence. Time is of the essence regarding the delivery of notices under this Agreement. There is no grace period. 12. Binding Effect. This Agreement shall inure to the benefit of and be binding on the parties to this Agreement and their respective heirs, executors, administrators, legal representatives and successors. Without limiting the generality of the foregoing, whenever the term "you" is used in any provision of this Agreement under circumstances where the provision appropriately applies to the heirs, executors, administrators, or legal representatives to whom this Award may be transferred by will or by the laws of descent and distribution, the term "you" shall be deemed to include such person or persons. 13. Plan Provisions Govern. (a) This Award is subject to the terms, conditions, restrictions and other provisions of the Plan as if all those provisions were set forth in their entirety in the Agreement. If any provision of this Agreement conflicts with a provision of the Plan, the Plan provision shall control. (b) You acknowledge that a copy of the Plan and a prospectus summarizing the Plan was distributed or made available to you and that you were advised to review that material before entering into this Agreement. You waive the right to claim that the provisions of the Plan are not binding on you and your heirs, executors, administrators, legal representatives and successors. (c) Capitalized terms used but not defined in this Agreement have the meanings given those terms in the Plan. (d) By your signature below, you represent that you are familiar with the terms and provisions of the Plan and hereby accept this Agreement subject to all of the terms and provisions of the Plan. You have reviewed the Plan and this Agreement in their entirety and fully understand all provisions of the Plan and this Agreement. You agree to accept as binding, conclusive and final all decisions and interpretations of the Committee on any questions arising under the Plan or this Agreement. 14. Governing Law and Venue. This Agreement shall be governed by and construed in accordance with the laws of the state of Missouri despite any laws of that state that would apply the laws of a different state. In the event of litigation arising in connection with this Agreement and/or the Plan, the parties hereto agree to submit to the jurisdiction of state and Federal courts located in the state of Missouri. 15. Severability. If any term or provision of this Agreement, or the application of this Agreement to any person or circumstance, shall at any time or to any extent be invalid, illegal or unenforceable in any respect as written, both parties intend for any court construing this Agreement to modify or limit that provision so as to render it valid and enforceable to the fullest extent allowed by law. Any provision that is not susceptible of reformation shall be ignored so as to not affect any other term or provision of this Agreement, and the remainder of this Agreement, or the application of that term or provision to persons or circumstances other than those as to which it is held invalid, illegal or unenforceable, shall not be affected thereby and each term and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law. 16. Entire Agreement; Modification. The Plan and this Agreement contain the entire agreement between the parties with respect to the subject matter contained in this Agreement and may not be modified, except as provided in the Plan, as it may be amended from time to time in the manner provided in the Plan, or in this Agreement, as it may be amended from time to time by a written document signed by each of the parties to this Agreement. Any oral or written agreements, representations, warranties, written inducements, or other communications with the respect to the subject matter contained in this Agreement made before the signing of this Agreement shall be void and ineffective for all purposes. 17. Listing: Securities Considerations. Despite anything else in this Agreement, if at any time the Board determines, in its sole discretion, the listing, registration or qualification (or an updating of any such document) of the SARs issuable under this Agreement is necessary on any securities exchange or under any federal or state securities or blue sky law, or that the consent or approval of any governmental regulatory body is necessary or desirable as a condition of, or in connection with the issuance of the SARs, or the removal of any restrictions imposed on such SAR, such SAR shall not be exercisable, in whole or in part, nor the restrictions on the SARs removed, unless such listing, registration, qualifications, consent or approval shall have been effected or obtained free of any conditions not acceptable to Cass. 18. Authority to Receive Payments. Any amount payable to or for the benefit of a minor, an incompetent person or other person incapable of receiving such payments therefore shall be deemed paid when paid to the conservator of such person's estate or to the party providing or reasonably appearing to provide for the care of such person, and such payment shall fully discharge Cass and members of the Committee and the Board with respect thereto. 19. Counterparts. This Agreement may be executed simultaneously in two or more counterparts, each of which shall constitute an original, but all of which taken together shall constitute one and the same Agreement. 20. Descriptive Headings. The descriptive headings of this Agreement are inserted for convenience only and do not constitute a part of this Agreement. 21. Notices; Electronic Delivery. All notices, demands or other communications to be given or delivered under or by reason of the provisions of this Agreement shall be in writing and shall be deemed to have been given when delivered personally; mailed by certified or registered mail, return receipt requested and postage prepaid; delivered by a nationally recognized overnight delivery service or sent by facsimile and confirmed by first class mail, to the recipient. Such notices, demands and other communications shall be sent to the parties at the addresses indicated below: (a) If to you: ____________________________________ ____________________________________ ____________________________________ (b) If to the Company: Vice President - Human Resources Cass Information Systems, Inc. 13001 Hollenberg Drive Bridgeton, Missouri 63044 or to such other address or to the attention of such other party as the recipient party has specified by prior written notice to the sending party. You agree, during the term of this Agreement to keep Cass informed of your current mailing address and of receiving written notice from Cass in accordance with this Section 21. In lieu of receiving documents in paper format, you agree, to the fullest extent permitted by law, to accept electronic delivery of any documents that may be required to be delivered to you (including, but not limited to, prospectuses, prospectus supplements, grant or award notifications and agreements, account statements, annual and quarterly reports, and all other forms of communications) in connection with this and any other award made or offered by Cass. Electronic delivery may be via electronic mail system or by reference to a location on a Cass intranet to which you have access. You hereby consent to any and all procedures Cass has established or may establish for an electronic signature system for delivery and acceptance of any such documents that may be required to be delivered to you, and agree that your electronic signature is the same as, and shall have the same force and effect as, your manual signature. In Witness Whereof, the parties have caused this Agreement to be signed and delivered as of the day and year first above written. CASS INFORMATION SYSTEMS, INC. PARTICIPANT: ______________________________ ______________________________ Signature Signature ______________________________ ______________________________ By: By: ______________________________ ______________________________ Title: Title: ______________________________ ______________________________ Date: Date: NOTICE OF EXERCISE To: Vice President - Human Resources Cass Information Systems, Inc. ("Cass") 13001 Hollenberg Dr. Bridgeton, MO 63044 Date of Exercise: _____________ This constitutes notice that I elect to exercise my Stock Appreciation Right Award under the Cass Information Systems, Inc. 2007 Omnibus Incentive Stock Plan ("Plan") as follows: Stock Appreciation Right dated: ..................... __________________________ Number of SARs which are exercised: ................. __________________________ Certificates to be issued in the name of: ........... __________________________ By this exercise, I agree (i) to provide such additional documents as you may require under the terms of the Plan and the Cass Information Systems, Inc. 2007 Omnibus Incentive Stock Plan Stock Appreciation Rights Agreement between Cass and me dated __________, 20____, and (ii) to provide for the payment by me to you (in the manner designated by you) of your withholding obligation, if any, relating to the exercise of this Stock Appreciation Right. Very truly yours, ____________________________________________ Signature ____________________________________________ Print your name CASS INFORMATION SYSTEMS, INC. 2007 OMNIBUS INCENTIVE STOCK PLAN STOCK APPRECIATION RIGHTS AGREEMENT BENEFICIARY DESIGNATION To the Vice President - Human Resources of Cass Information Systems, Inc. ("Cass") Pursuant to the provisions of the Cass Information Systems, Inc. 2007 Omnibus Incentive Stock Plan ("Plan") and the Cass Information Systems, Inc. 2007 Omnibus Incentive Stock Plan Stock Appreciation Rights Agreement ("Agreement") between Cass and me dated __________, 20____, permitting the designation of a Beneficiary or Beneficiaries by a Participant, I hereby designate the following person, persons or trust as primary and secondary Designated Beneficiaries of my benefits under the Agreement payable by reason of my death: Primary Beneficiary [include address and relationship]: Secondary Beneficiary [include address and relationship]: I RESERVE THE RIGHT TO REVOKE OR CHANGE ANY BENEFICIARY DESIGNATION. I HEREBY REVOKE ALL PRIOR DESIGNATIONS (IF ANY) OF PRIMARY BENEFICIARIES AND SECONDARY BENEFICIARIES. Cass shall cause all SARs to be transferred and exercisable by reason of my death pursuant to the Agreement to and by my Primary Beneficiary, if he, she or it survives me, and if no Primary Designated Beneficiary shall survive me, then to my Secondary Designated Beneficiary, and if no named Designated Beneficiary survives me, then all SARs shall be transferred and be exercisable in accordance with the terms of the Agreement. _________________________________ _________________________________ Date of this Designation Signature of Participant NOTE: Unless the Participant provides otherwise in completing this Beneficiary Designation, Cass shall transfer, and permit to be exercised, all SARs to be transferred to and exercisable by more than one Designated Beneficiary equally to the living Designated Beneficiaries. * * * * * This Beneficiary Designation was received on behalf of Cass this _____ day of ____________, 20____. By: _________________________________ Title: ______________________________ EX-31.1 6 e602795_ex31-1.txt Exhibit 31.1 CERTIFICATIONS I, Lawrence A. Collett, Chairman and Chief Executive Officer of Cass Information Systems, Inc., certify that: 1. I have reviewed this quarterly report on Form 10-Q of Cass Information Systems, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 7, 2007 /s/ Lawrence A. Collett -------------------------------------------- Lawrence A. Collett Chairman and Chief Executive Officer EX-31.2 7 e602795_ex31-2.txt Exhibit 31.2 CERTIFICATIONS I, P. Stephen Appelbaum, Chief Financial Officer of Cass Information Systems, Inc., certify that: 1. I have reviewed this quarterly report on Form 10-Q of Cass Information Systems, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 7, 2007 /s/ P. Stephen Appelbaum -------------------------------------------- P. Stephen Appelbaum Chief Financial Officer (Principal Financial and Accounting Officer) EX-32.1 8 e602795_ex32-1.txt Exhibit 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Cass Information Systems, Inc. ("the Company") on Form 10-Q for the period ended September 30, 2007 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Lawrence A. Collett, Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Lawrence A. Collett -------------------------------------------- Lawrence A. Collett Chairman and Chief Executive Officer (Principal Executive Officer) November 7, 2007 A signed original of this written statement required by Section 906 has been provided to Cass Information Systems, Inc. and will be retained by Cass Information Systems, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. EX-32.2 9 e602795_ex32-2.txt Exhibit 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Cass Information Systems, Inc. ("the Company") on Form 10-Q for the period ended September 30, 2007 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, P. Stephen Appelbaum, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ P. Stephen Appelbaum -------------------------------------------- P. Stephen Appelbaum Chief Financial Officer (Principal Financial and Accounting Officer) November 7, 2007 A signed original of this written statement required by Section 906 has been provided to Cass Information Systems, Inc. and will be retained by Cass Information Systems, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----