What changed in this filing

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Item 1A. Risk Factors

2025-03-05 compared with 2024-02-28 · 24 added, 29 removed, 211 unchanged (20% of the section changed)

4 unchanged sentences

Economic and Market Conditions Risk

Recent negative developments affecting the banking industry, and resulting media coverage, have eroded customer confidence in the banking system.

The recent high-profile bank failures have generated significant market volatility among publicly traded bank holding companies.

These market developments have negatively impacted customer confidence in the safety and soundness of regional banks.

Negative developments affecting the banking industry, and resulting media coverage, can erode customer confidence in the banking system.

The high-profile bank failures during 2023 generated significant market volatility among publicly traded bank holding companies.

These market developments negatively impacted customer confidence in the safety and soundness of regional banks.

As a result, customers may choose to maintain deposits with larger financial institutions or invest in higher yielding short-term fixed income securities, all of which could materially adversely impact the Company’s liquidity, loan funding capacity, net interest margin, capital and results of operations.

While the Department of the Treasury, the Federal Reserve, and the FDIC have made statements ensuring that depositors of these recently failed banks would have access to their deposits, including uninsured deposit accounts, there is no guarantee that such actions will be successful in restoring customer confidence in regional banks and the banking system more broadly.

Any regulatory examination scrutiny or new regulatory requirements arising from the recent events in the banking industry could increase the Company’s expenses and affect the Company’s operations.

The Company anticipates increased regulatory scrutiny and new regulations designed to address the recent negative developments in the banking industry, all of which may increase the Company’s costs of doing business and reduce its profitability.

Increased regulatory examination scrutiny or new regulatory requirements arising from the recent events in the banking industry could increase the Company’s expenses and affect the Company’s operations.

Increased regulatory scrutiny and new regulations designed to address the high profile bank failures in 2023 may increase the Company’s costs of doing business and reduce its profitability.

Among other things, there may be an increased focus by regulators on deposit composition and the level of uninsured deposits.

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Fluctuations in interest rates affect Cass’ financial statements, as they do for all financial institutions.

Volatility in interest rates can also result in disintermediation, which is the flow of funds away from financial institutions into direct investments, such as federal government and corporate securities and other investment vehicles, which, because of the absence of federal insurance premiums and reserve requirements, generally pay higher rates of return than financial institutions.

Due in part to the recent increase in the Federal Funds rate, the Company's net interest margin increased to 3.25% in 2023 from 2.74% in 2022, therefore increasing net interest income.

institutions.

Due in part to a higher market interest rate environment in recent periods, the Company's net interest margin has increased to 3.42% in 2024 from 3.25% in 2023, 2.74% in 2022 and 2.31% in 2021, therefore increasing net interest income.

As discussed in greater detail in Item 7A, “Quantitative and Qualitative Disclosures about Market Risk,” a decline in market interest rates would be expected to have a negative impact on the Company’s net interest income.

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The Company also relies on electronic communications and information systems to store sensitive customer data.

Any failure, interruption, breach in

security or loss of data, whatever the cause, could reduce client satisfaction with the Company’s products and services and harm Cass’ financial results.

Any failure, interruption, breach in security or loss of data, whatever the cause, could reduce client satisfaction with the Company’s products and services and harm Cass’ financial results.

These types of threats may derive from human error, fraud or malice on the part of external or internal parties, or may result from accidental technological failure.

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The Company’s technologies, systems, networks and software, and those of other financial institutions have been, and are likely to continue to be, the target of cybersecurity threats and attacks, which may range from uncoordinated individual attempts to sophisticated and targeted measures directed at Cass.

The risk of a security breach or disruption, particularly through cyber-attack or cyber intrusion, has increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased.

In addition, the rapid evolution of artificial intelligence technologies may intensify our cybersecurity risks.

The risk of a security breach or disruption, particularly through cyber-attack or cyber intrusion, has increased as the number, intensity and sophistication of attempted attacks and intrusions from

around the world have increased.

A material security problem affecting Cass could damage its reputation, deter prospects from purchasing its products and services, deter customers from using its products and services or result in liability to Cass.

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Cass must respond to rapid technological changes and these changes may be more difficult or expensive than anticipated.

If competitors introduce new products and services embodying new technologies, or if new industry standards and practices emerge, the Company’s existing product and service offerings, technology and systems may become obsolete.

Further, if Cass fails to adopt or develop new technologies or to adapt its products and services to emerging industry standards, Cass may lose current and future customers.

If competitors introduce new products and services embodying new technologies, including those supported by artificial intelligence, or if new industry standards and practices emerge, the Company’s existing product and service offerings, technology and systems may become obsolete.

Further, if Cass fails to adopt or develop new technologies, including those supported by artificial intelligence, or to adapt its products and services to emerging industry standards, Cass may lose current and future customers.

Finally, Cass’ ability to adopt these technologies can also be inhibited by intellectual property rights of third parties.

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natural disasters and risks related to climate change;

and identification of additional problem loans, ratings down-grades and other factors, both within and outside of the Company’s control, may require an increase in the allowances for credit losses on loans, securities and off-balance sheet credit exposures.

and identification of problem loans, ratings down-grades and other factors, both within and outside of the Company’s control, may require an increase in the allowances for credit losses on loans, securities and off-balance sheet credit exposures.

The determination and application of the ACL accounting policy involves judgments, estimates, and uncertainties that are subject to change.

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The industries in which the Company operates are very competitive.

The Company not only competes for business opportunities with new customers, but also competes to maintain and expand the relationships it has with its existing

The Company not only competes for business opportunities with new customers, but also competes to maintain and expand the relationships it has with its existing customers.

The Company continues to experience pressures to maintain these relationships as its competitors attempt to capture its customers.

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The Company makes certain projections as a basis for developing plans and strategies for its payment processing and banking products.

If the Company does not accurately determine demand for its products and services, it could result in the Company incurring significant expenses without the anticipated increases in revenue, which could result in an adverse effect on its earnings.

If the Company does not accurately determine demand for its products and services, it could result in the

Company incurring significant expenses without the anticipated increases in revenue, which could result in an adverse effect on its earnings.

In addition, there are risks and uncertainties associated with the introduction of new products and services, including substantial investments of time and resources.

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As a result of inflationary pressures and the resulting rapid increases in interest rates over the last year, the fair value of previously issued government and other fixed income securities has declined significantly, resulting in unrealized losses.

While the Company does not currently intend to sell these securities, if the Company were required to sell such securities to meet liquidity needs, it may incur losses, which could impair the Company’s capital, financial condition, and results of operations and require the Company to raise additional capital on unfavorable terms, thereby negatively impacting its profitability.

If the Company were required to sell such securities to meet liquidity needs, it may incur losses, which could impair the Company’s capital, financial condition, and results of operations and require the Company to raise additional capital on unfavorable terms, thereby negatively impacting its profitability.

While the Company has taken actions to maximize its funding sources, there is no guarantee that such actions will be successful or sufficient in the event of sudden liquidity needs.

Furthermore, while the Federal Reserve Board has announced a Bank Term Funding Program available to eligible depository institutions secured by U.S.

Treasuries, agency debt, mortgage-backed securities, and other qualifying assets as collateral at par to mitigate the risk of potential losses on

the sale of such instruments, there is no guarantee that such programs will be effective in addressing liquidity needs as they arise.

Management’s ability to retain key officers and employees may change.

49 unchanged sentences

significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving the Company or its competitors;

accounting policies or practices;

changes in accounting policies or practices;

failure to integrate acquisitions or realize anticipated benefits from acquisitions;

3 unchanged sentences

Severe weather, natural disasters, acts of terrorism or other hostilities, and other adverse external events beyond the Company’s control, could have a significant impact on the Company’s ability to conduct business.

Such events could disrupt Cass’ operations or those of its customers, affect the stability of the Bank’s deposit base, impair the ability of borrowers to repay outstanding loans, impair the value of collateral securing loans, cause significant property damage, result in loss of revenue and/or cause the Company to incur additional expenses.

Such events could disrupt Cass’ operations or those of its customers, affect the stability of the Bank’s deposit base, impair the ability of

borrowers to repay outstanding loans, impair the value of collateral securing loans, cause significant property damage, result in loss of revenue and/or cause the Company to incur additional expenses.

The occurrence of any such event in the future could have a material adverse effect on the Company’s business, which, in turn, could have a material adverse effect on the Company’s financial condition and results of operations.

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Although any initial policies may not apply to financial institutions of the Bank’s size, it is likely that regulators will expect all banks to enhance internal control and risk management programs and processes relating to climate change.

To the extent that these

initiatives lead to the adoption of new regulations or guidance applicable to the Company and the Bank, compliance costs and risks are expected to increase.

To the extent that these initiatives lead to the adoption of new regulations or guidance applicable to the Company and the Bank, compliance costs and risks are expected to increase.

Given that climate change could impose systemic risks upon the financial sector, either via disruptions in economic activity resulting from the physical impacts of climate change or changes in policies as the economy transitions to a less carbon-intensive environment, the Company faces ongoing legislative and regulatory uncertainties and changes regarding climate risk management and practices that if adopted, may result in higher regulatory, compliance, credit and reputational risks and costs.

1 unchanged sentence

The Company is subject to a variety of risks arising from ESG matters.

ESG matters include climate risk, hiring practices, the diversity of the work force, and racial and social justice issues involving the Company’s personnel, customers and third parties with whom it otherwise does business.

Risks arising from ESG matters may adversely affect, among other things, reputation and the market price of the Company’s securities.

Further, the Company may be exposed to negative publicity based on the identity and activities of those to whom it lends and with which it otherwise does business and the public’s view of the approach and performance of its customers and business partners with respect to ESG matters.

Any such negative publicity could arise from adverse news coverage in traditional media and could also spread through the use of social media platforms.

1 unchanged sentence

This, in turn, could have an adverse effect on the Company’s ability to attract and retain customers and employees and could have a negative impact on the market price for securities.

Investors have begun to consider the steps taken and resources allocated by financial institutions and other commercial organizations to address ESG matters when making investment and operational decisions.

Certain investors are beginning to incorporate the business risks of climate change and the adequacy of companies’ responses to the risks posed by climate change and other ESG matters into their investment theses.

These shifts in investing priorities may result in adverse effects on the market price of the Company’s securities to the extent that investors determine that the Company has not made sufficient progress on ESG matters.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors