CASS INFORMATION SYSTEMS INC - FORM 10-Q

Attached files

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EXCEL - IDEA: XBRL DOCUMENT - CASS INFORMATION SYSTEMS INC	Financial_Report.xls
EX-31.1 - CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - CASS INFORMATION SYSTEMS INC	exhibit31-1.htm
EX-31.2 - CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - CASS INFORMATION SYSTEMS INC	exhibit31-2.htm
EX-32.2 - CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 - CASS INFORMATION SYSTEMS INC	exhibit32-2.htm
EX-32.1 - CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 - CASS INFORMATION SYSTEMS INC	exhibit32-1.htm

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 June 30, 2011

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. 000-20827
____________________
CASS INFORMATION SYSTEMS, INC.
(Exact name of registrant as specified in its charter)

Missouri	43-1265338
(State or other jurisdiction of incorporation or	(I.R.S. Employer Identification No.)
organization)

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes X No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

(Check one)	Large Accelerated Filer	Accelerated Filer X

	Non-Accelerated Filer	Smaller Reporting Company

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 August 1, 2011: Common stock, par value $.50 per share – 9,415,557 shares outstanding.

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TABLE OF CONTENTS

PART I – Financial Information

	Item 1.	FINANCIAL STATEMENTS

		Consolidated Balance Sheets
		June 30, 2011 (unaudited) and December 31, 2010	3

		Consolidated Statements of Income
		Three and Six months ended June 30, 2011 and 2010 (unaudited)	4

		Consolidated Statements of Cash Flows
		Six months ended June 30, 2011 and 2010 (unaudited)	5

		Notes to Consolidated Financial Statements (unaudited)	6

	Item 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
		AND RESULTS OF OPERATIONS	15

	Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	25

	Item 4.	CONTROLS AND PROCEDURES	26

PART II – Other Information – Items 1. – 6.			26

	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. Although we believe that, in making any such statements, our expectations are based on reasonable assumptions, forward-looking statements are not guarantees of future performance and involve risks, uncertainties, and other factors beyond our control, which may cause future performance to be materially different from expected performance summarized in the forward-looking statements. These risks, uncertainties and other factors are discussed in the section Part I, Item 1A, “Risk Factors” of the Company’s 2010 Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”), which may be updated from time to time in our future filings with the SEC. 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.

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands except Share and Per Share Data)

	June 30,
	2011			December 31,
	(Unaudited)			2010
Assets
Cash and due from banks	$	10,489		$	12,277
Interest-bearing deposits in other financial institutions		78,799			67,299
Federal funds sold and other short-term investments		114,844			59,353
Cash and cash equivalents		204,132			138,929
Securities available-for-sale, at fair value		264,218			264,569
Loans		718,786			708,633
Less: Allowance for loan losses		13,228			11,891
Loans, net		705,558			696,742
Premises and equipment, net		9,740			9,617
Investment in bank-owned life insurance		14,347			14,191
Payments in excess of funding		57,003			33,609
Goodwill		7,471			7,471
Other intangible assets, net		214			268
Other assets		25,015			22,639
Total assets	$	1,287,698		$	1,188,035

Liabilities and Shareholders’ Equity
Liabilities:
Deposits:
Noninterest-bearing	$	134,133		$	113,097
Interest-bearing		387,579			405,493
Total deposits		521,712			518,590
Accounts and drafts payable		600,606			516,107
Other liabilities		13,300			11,244
Total liabilities		1,135,618			1,045,941

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 9,949,324 shares issued at June 30, 2011
and December 31, 2010		4,975			4,975
Additional paid-in capital		46,664			46,653
Retained earnings		115,710			107,263
Common shares in treasury, at cost (533,767 shares at June 30, 2011
and 561,533 shares at December 31, 2010)		(12,995	)		(13,549	)
Accumulated other comprehensive loss		(2,274	)		(3,248	)
Total shareholders’ equity		152,080			142,094
Total liabilities and shareholders’ equity	$	1,287,698		$	1,188,035

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				Six Months Ended
	June 30,				June 30,
	2011		2010		2011		2010
Fee Revenue and Other Income:
Information services payment and processing revenue	$	15,219	$	13,533	$	29,566	$	26,278
Bank service fees		382		298		734		639
Gains on sales of securities		48		—		48		—
Other		134		137		267		276
Total fee revenue and other income		15,783		13,968		30,615		27,193

Interest Income:
Interest and fees on loans		10,129		9,871		20,382		19,298
Interest and dividends on securities:
Taxable		13		11		18		25
Exempt from federal income taxes		2,498		2,151		4,975		4,249
Interest on federal funds sold and
other short-term investments		155		98		324		187
Total interest income		12,795		12,131		25,699		23,759

Interest Expense:
Interest on deposits		1,125		1,199		2,331		2,375
Net interest income		11,670		10,932		23,368		21,384
Provision for loan losses		850		1,150		1,300		2,050
Net interest income after provision for loan
losses		10,820		9,782		22,068		19,334
Total net revenue		26,603		23,750		52,683		46,527

Operating Expense:
Salaries and employee benefits		14,146		12,683		27,852		25,173
Occupancy		557		611		1,205		1,183
Equipment		848		916		1,695		1,814
Amortization of intangible assets		27		27		54		54
Other operating		3,057		2,613		5,963		4,823
Total operating expense		18,635		16,850		36,769		33,047

Income before income tax expense		7,968		6,900		15,914		13,480
Income tax expense		2,229		2,000		4,456		3,831
Net Income	$	5,739	$	4,900	$	11,458	$	9,649

Basic Earnings Per Share		.61		.52		1.22		1.03
Diluted Earnings Per Share		.61		.52		1.21		1.02

See accompanying notes to unaudited consolidated financial statements.

-4-

CASS INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)

	Six Months Ended
	June 30,
	2011			2010
Cash Flows From Operating Activities:
Net income	$	11,458		$	9,649
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization		2,228			2,068
Gains on sales of securities		(48	)		—
Provision for loan losses		1,300			2,050
Stock-based compensation expense		700			746
Decrease in income tax liability		(235	)		(1,500	)
Increase in pension liability		231			397
Other operating activities, net		(996	)		24
Net cash provided by operating activities		14,638			13,434

Cash Flows From Investing Activities:
Proceeds from sales of securities available-for-sale		5,405			—
Proceeds from maturities of securities available-for-sale		7,680			1,175
Purchase of securities available-for-sale		(12,342	)		(9,324	)
Net increase in loans		(10,116	)		(38,917	)
Increase in payments in excess of funding		(23,394	)		(12,163	)
Purchases of premises and equipment, net		(1,143	)		(529	)
Net cash used in investing activities		(33,910	)		(59,758	)

Cash Flows From Financing Activities:
Net increase (decrease) in noninterest-bearing demand deposits		21,036			(3,460	)
Net decrease in interest-bearing demand and savings deposits		(5,972	)		(10,912	)
Net (decrease) increase in time deposits		(11,942	)		40,930
Net increase in accounts and drafts payable		84,499			97,027
Cash dividends paid		(3,011	)		(2,629	)
Distribution of stock awards, net		(249	)		(251	)
Other financing activities, net		114			10
Net cash provided by financing activities		84,475			120,715
Net increase in cash and cash equivalents		65,203			74,391
Cash and cash equivalents at beginning of period		138,929			79,294
Cash and cash equivalents at end of period	$	204,132		$	153,685

Supplemental information:
Cash paid for interest	$	2,342		$	2,340
Cash paid for income taxes		4,135			5,350

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 2010 consolidated financial statements have been reclassified to conform to the 2011 presentation. 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, 2010.

Note 2 – Intangible Assets

The Company accounts for intangible assets in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 350, “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. Details of the Company’s intangible assets are as follows:

	June 30, 2011					December 31, 2010
	Gross Carrying		Accumulated			Gross Carrying		Accumulated
(In thousands)	Amount		Amortization			Amount		Amortization
Assets eligible for amortization:
Customer List	$	750	$	(536	)	$	750	$	(482	)
Unamortized intangible assets:
Goodwill		7,698		(227	)		7,698		(227	)
Total intangible assets	$	8,448	$	(763	)	$	8,448	$	(709	)

The customer list is amortized over seven years. Amortization of intangible assets amounted to $54,000 for both of the six-month periods ended June 30, 2011 and 2010. Estimated amortization of intangibles over the next five years is as follows: $107,000 in 2011 and 2012 and $54,000 in 2013.

Note 3 – 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 by the sum of the weighted-average number of common shares outstanding and the weighted-average number of potential common shares outstanding. There were no anti-dilutive shares in the three-month and six-month periods ended June 30, 2011 and 2010. The calculations of basic and diluted earnings per share are as follows:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
(In thousands except share and per share data)	2011		2010		2011		2010
Basic
Net income	$	5,739	$	4,900	$	11,458	$	9,649
Weighted-average common shares outstanding		9,360,724		9,334,847		9,358,694		9,331,789
Basic earnings per share	$	.61	$	.52	$	1.22	$	1.03
Diluted
Net income	$	5,739	$	4,900	$	11,458	$	9,649
Weighted-average common shares outstanding		9,360,724		9,334,847		9,358,694		9,331,789
Effect of dilutive restricted stock, stock
options and stock appreciation rights		129,376		107,759		128,111		100,165
Weighted-average common shares outstanding
assuming dilution		9,490,100		9,442,606		9,486,805		9,431,954
Diluted earnings per share	$	.61	$	.52	$	1.21	$	1.02

-6-

Note 4 – Stock Repurchases

The Company maintains a treasury stock buyback program pursuant to which the Board of Directors has authorized the repurchase of up to 300,000 shares of the Company’s common stock. The Company did not repurchase any shares during the six-month periods ended June 30, 2011 and 2010. As of June 30, 2011, 168,000 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 5 – Comprehensive Income

For the three and six-month periods ended June 30, 2011 and 2010, unrealized gains and losses on securities available-for-sale and reclassification adjustments for gains included in net income were the Company’s other comprehensive income components. Comprehensive income is summarized as follows:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
(In thousands)	2011			2010			2011			2010
Net income	$	5,739		$	4,900		$	11,458		$	9,649
Other comprehensive income:
Reclassification adjustments for gains included in
net income, net of tax		(31	)		—			(31	)		—
Net unrealized (loss) gain on securities
available-for-sale, net of tax		202			(813	)		1,005			508
Total comprehensive income	$	5,910		$	4,087		$	12,432		$	10,157

Note 6 – 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, 2010. 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 fair value.

All revenue originates from and all long-lived assets are located within North America, and no revenue from any customer of any segment exceeds 10% of the Company’s consolidated revenue.

Assets represent actual assets owned by Information Services and there is no allocation methodology used. Loans are sold by Banking Services to Information Services to create liquidity when the Bank’s loan-to-deposit ratio is greater than 100%. Segment interest from customers is the actual interest earned on the loans owned by Information Services and Banking Services, respectively.

-7-

Summarized information about the Company’s operations in each industry segment is as follows:

					Corporate,
	Information		Banking		Eliminations
(In thousands)	Services		Services		and other			Total
Three Months Ended June 30, 2011
Total Net Revenues:
Revenue from customers	$	20,690	$	5,913	$	—		$	26,603
Intersegment revenue		2,473		484		(2,957	)		—
Net income		3,710		2,029		—			5,739
Goodwill		7,335		136		—			7,471
Other intangible assets, net		214		—		—			214
Total assets		705,956		595,471		(13,729	)		1,287,698
Three Months Ended June 30, 2010
Total Net Revenues:
Revenue from customers	$	18,551	$	5,199	$	—		$	23,750
Intersegment revenue		1,984		413		(2,397	)		—
Net income		3,353		1,547		—			4,900
Goodwill		7,335		136		—			7,471
Other intangible assets, net		321		—		—			321
Total assets		630,555		521,226		(6,613	)		1,145,168
Six Months Ended June 30, 2011
Total Net Revenues:
Revenue from customers	$	40,536	$	12,147	$	—		$	52,683
Intersegment revenue		5,099		941		(6,040	)		—
Net income		7,262		4,196		—			11,458
Goodwill		7,335		136		—			7,471
Other intangible assets, net		214		—		—			214
Total assets		705,956		595,471		(13,729	)		1,287,698
Six Months Ended June 30, 2010
Total Net Revenues:
Revenue from customers	$	35,779	$	10,748	$	—		$	46,527
Intersegment revenue		4,259		793		(5,052	)		—
Net income		6,257		3,392		—			9,649
Goodwill		7,335		136		—			7,471
Other intangible assets, net		321		—		—			321
Total assets		630,555		521,226		(6,613	)		1,145,168

Note 7 – Loans by Type

A summary of loan categories by segment and class is as follows:

(In thousands)	June 30, 2011		December 31, 2010
Commercial and industrial	$	161,099	$	135,061
Real estate:
Mortgage – Commercial		134,787		151,201
Mortgage – Church & related		362,711		365,378
Construction – Commercial		15,454		18,434
Construction – Church & related		43,492		36,318
Industrial revenue bonds		869		1,014
Other		374		1,227
Total loans	$	718,786	$	708,633

The following tables present the aging of loans by loan classification at June 30, 2011 and December 31, 2010:

					90 Days		Total
	30-59		60-89		and		Past				Total
(In thousands)	Days		Days		Over		Due		Current		Loans
June 30, 2011
Commercial and industrial	$	—	$	742	$	—	$	742	$	160,357	$	161,099
Real estate:
Mortgage – Commercial		—		1,059		463		1,522		133,265		134,787
Mortgage – Church & related		656		—		—		656		362,055		362,711
Construction – Commercial		—		—		—		—		15,454		15,454
Construction – Church & related		—		—		—		—		43,492		43,492
Industrial revenue bonds		—		—		—		—		869		869
Other		—		—		—		—		374		374
Total	$	656	$	1,801	$	463	$	2,920	$	715,866	$	718,786
December 31, 2010
Commercial and industrial	$	105	$	—	$	—	$	105	$	134,956	$	135,061
Real estate:
Mortgage – Commercial		145		—		490		635		150,566		151,201
Mortgage – Church & related		1,954		—		—		1,954		363,424		365,378
Construction – Commercial		—		—		—		—		18,434		18,434
Construction – Church & related		—		—		—		—		36,318		36,318
Industrial revenue bonds		—		—		—		—		1,014		1,014
Other		—		—		—		—		1,227		1,227
Total	$	2,204	$	—	$	490	$	2,694	$	705,939	$	708,633

-8-

The following tables present the recorded investment and unpaid principal balance for impaired loans at June 30, 2011 and December 31, 2010:

			Unpaid		Related
	Recorded		Principal		Allowance for
(In thousands)	Investment		Balance		Loan Losses
June 30, 2011
Commercial and industrial:
Nonaccrual	$	1,200	$	1,200	$	926
Troubled debt restructurings continuing to accrue interest		90		90		45
Real estate – mortgage:
Nonaccrual		2,178		2,178		130
Troubled debt restructurings continuing to accrue interest		4,396		4,396		766
Total impaired loans	$	7,864	$	7,864	$	1,867
December 31, 2010
Commercial and industrial:
Nonaccrual	$	46	$	46	$	4
Real estate – mortgage:
Nonaccrual		519		519		116
Total impaired loans	$	565	$	565	$	120

Impaired loans consist primarily of nonaccrual loans, loans greater than 90 days past due and still accruing interest, and troubled debt restructurings continuing to accrue interest. Management measures impairment in accordance with FASB ASC 310, “Allowance for Credit Losses.” At June 30, 2011 and December 31, 2010, all impaired loans were evaluated based on the fair value of the collateral. The fair value of the collateral is based upon an observable market price or current appraised value and therefore, the Company classifies these assets as nonrecurring Level 2. There were no loans delinquent 90 days or more and still accruing interest at June 30, 2011 and December 31, 2010. At June 30, 2011 there were two loans totaling $4,486,000 classified as troubled debt restructurings, with a total pre-modification loan balance of $4,486,000. There were no troubled debt restructurings at December 31, 2010. There are two foreclosed loans with a book value of $1,910,000 which have been reclassified as other real estate owned (included in other assets) as of June 30, 2011 and December 31, 2010.

The following table presents the credit exposure of the loan portfolio by internally assigned credit grade as of June 30, 2011 and December 31, 2010:

	Commercial		Real
	and		Estate		Real Estate
(In thousands)	Industrial		Mortgage		Construction		Other		Total
June 30, 2011
Loans subject to normal monitoring1	$	156,629	$	468,047	$	58,946	$	1,243	$	684,865
Loans subject to special monitoring2:
Performing		3,270		27,273		—		—		30,543
Nonperforming		1,200		2,178		—		—		3,378
Total	$	161,099	$	497,498	$	58,946	$	1,243	$	718,786
December 31, 2010
Loans subject to normal monitoring1	$	130,148	$	495,573	$	54,752	$	2,241	$	682,714
Loans subject to special monitoring2:
Performing		4,867		20,487		—		—		25,354
Nonperforming		46		519		—		—		565
Total	$	135,061	$	516,579	$	54,752	$	2,241	$	708,633

1		Loans subject to normal monitoring involve borrowers of acceptable-to-strong credit quality and risk, who have the apparent ability to satisfy their loan obligation.
2		Loans subject to special monitoring possess some credit deficiency or potential weakness which requires a high level of management attention.

-9-

The following table provides information regarding the changes in the allowance for loan losses by segment from December 31, 2010 to June 30, 2011:

	December 31,		Charge						June 30,
(In thousands)	2010		-Offs	Recoveries		Provision			2011
Commercial and industrial	$	2,728	—	$	36	$	1,040		$	3,804
Real estate - mortgage		8,491	—		1		230			8,722
Real estate - construction		656	—		—		40			696
Other		16	—		—		(10	)		6
Total	$	11,891	—	$	37	$	1,300		$	13,228

Note 8 – 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 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 June 30, 2011 and December 31, 2010, 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 June 30, 2011, the balance of unused loan commitments, standby and commercial letters of credit were $16,451,000, $21,752,000 and $4,030,000, 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 and time deposits at June 30, 2011:

	Amount of Commitment Expiration per Period
			Less than		1-3		3-5		Over 5
(In thousands)	Total		1 Year		Years		Years		Years
Operating lease commitments	$	2,579	$	608	$	1,032	$	592	$	347
Time deposits		145,176		126,877		15,678		2,621		—
Total	$	147,755	$	127,485	$	16,710	$	3,213	$	347

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 9 – Stock-Based Compensation

In 2007, the Board and the Company’s shareholders approved the 2007 Omnibus Incentive Stock Plan (the “Omnibus Plan”). The Omnibus Plan permits the issuance of up to 880,000 shares of the Company’s common stock in the form of stock options, stock appreciation rights (“SARs”), restricted stock, restricted stock units and performance awards. The Company issues shares out of treasury stock for these awards. During the six months ended June 30, 2011, 26,017 restricted shares and 75,016 SARs were granted under the Omnibus Plan.

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The Company also maintains its other stock-based incentive plans for the restricted common stock previously awarded and the options previously issued and still outstanding. 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.

Restricted Stock

Restricted shares are amortized to expense over the three-year vesting period. As of June 30, 2011, the total unrecognized compensation expense related to non-vested common stock was $1,287,000 and the related weighted-average period over which it is expected to be recognized is approximately 1.5 years.

Following is a summary of the activity of the restricted stock:

	Six Months Ended
	June 30, 2011
	Shares		Fair Value
Balance at December 31, 2010	50,271		$	28.51
Granted	26,017			36.35
Vested	(28,580	)		28.43
Balance at June 30, 2011	47,708		$	32.84

Stock Options

Stock options vest and expire over a period not to exceed seven years. As of June 30, 2011, the total unrecognized compensation expense related to non-vested stock options was $22,000, and the related weighted-average period over which it is expected to be recognized is approximately 1.6 years. Following is a summary of the activity of the stock options during the six-month period ended June 30, 2011:

			Weighted-		Average	Aggregate
			Average		Remaining	Intrinsic
			Exercise		Contractual	Value
	Shares		Price		Term Years	(In thousands)
Outstanding at December 31, 2010	36,628		$	18.36	1.56	$	717
Exercised	(6,584	)		14.47
Outstanding at June 30, 2011	30,044			19.21	1.29	$	557
Exercisable at June 30, 2011	26,704		$	19.03	1.26	$	500

The total intrinsic value of options exercised was $156,000 and $60,000 for the six-month periods ended June 30, 2011 and 2010, respectively. Following is a summary of the activity of the non-vested stock options during the six-month period ended June 30, 2011:

			Weighted- Average
	Shares		Grant Date Fair Value
Non-vested at December 31, 2010	12,440		$	2.94
Vested	(9,100	)		2.93
Non-vested at June 30, 2011	3,340		$	2.95

SARs

SARs vest over a three-year period, with one-third of the shares vesting and becoming exercisable each year on the anniversary date of the grant, and they expire 10 years from the original grant date. As of June 30, 2011, the total unrecognized compensation expense was $902,000 and the related weighted-average period over which it is expected to be recognized is 1.4 years. Following is a summary of the activity of the Company’s SARs program for the six-month period ended June 30, 2011:

			Weighted-		Average	Aggregate
			Average		Remaining	Intrinsic
			Exercise		Contractual	Value
	Shares		Price		Term Years	(In thousands)
Outstanding at December 31, 2010	241,755		$	27.34	7.38	$	2,562
Granted	75,016			36.24
Exercised	(14,396	)		12.20
Outstanding at June 30, 2011	302,375		$	29.55	7.93	$	2,481
Exercisable at June 30, 2011	171,158		$	27.47	4.07	$	1,762

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Following is a summary of the activity of the non-vested SARs during the six-month period ended June 30, 2011:

			Weighted Average
	Shares		Grant Date Fair Value
Non-vested at December 31, 2010	141,201		$	27.18
Granted	75,016			36.24
Vested	(85,000	)		27.36
Non-vested at June 30, 2011	131,217		$	32.28

The Company uses the Black-Scholes pricing model to determine the fair value of the SARs at the date of grant. Following are the assumptions used to estimate the per-share fair value of SARs granted:

	Six Months Ended June 30,
	2011		2010
Risk free interest rate	2.70	%	3.33	%
Expected life	7 yrs.		7 yrs.
Expected volatility	27.86	%	30.00	%
Expected dividend yield	1.77	%	1.86	%

The risk-free interest rate is based on the zero-coupon U.S. Treasury yield for the period equal to the expected life of the SARs at the time of the grant. The expected life was derived using the historical exercise activity. The Company uses historical volatility for a period equal to the expected life of the rights using average monthly closing market prices of the Company’s stock as reported on The Nasdaq Global Market. The expected dividend yield is based on the Company’s current rate of annual dividends.

Note 10 – 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:

	Estimated			Actual
(In thousands)	2011			2010
Service cost – benefits earned during the year	$	2,079		$	1,771
Interest cost on projected benefit obligation		2,457			2,290
Expected return on plan assets		(3,314	)		(2,440	)
Net amortization		642			616
Net periodic pension cost	$	1,864		$	2,237

Pension costs recorded to expense related to the noncontributory defined benefit pension plan were $466,000 and $542,000 for the three-month periods ended June 30, 2011 and 2010, respectively, and totaled $932,000 and $1,084,000 for the six-month periods ended June 30, 2011 and 2010, respectively. The Company made a contribution of $450,000 to the plan during the three-month period ended June 30, 2011, for a total of $900,000 for the six-month period ending June 30, 2011 and expects to contribute at least an additional $900,000 in 2011.

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 2010 and an estimate for 2011:

	Estimated		Actual
(In thousands)	2011		2010
Service cost – benefits earned during the year	$	90	$	78
Interest cost on projected benefit obligation		295		315
Net amortization		249		258
Net periodic pension cost	$	634	$	651

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Pension costs recorded to expense related to the unfunded supplemental executive retirement plan were $159,000 and $168,000 for the three-month periods ended June 30, 2011 and 2010, respectively, and were $317,000 and $330,000 for the six-month periods ended June 30, 2011 and 2010, respectively.

Note 11 – Income Taxes

As of June 30, 2011, the Company’s unrecognized tax benefits were approximately $2,155,000, of which $1,671,000 would, if recognized, affect the Company’s effective tax rate. As of December 31, 2010, the Company's unrecognized tax benefits were approximately $1,877,000, of which $1,465,000 would, if recognized, affect the Company's effective tax rate. During the next twelve months, the Company may realize a reduction of its unrecognized tax benefits of approximately $451,000 due to the lapse of federal and state statutes of limitations.

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. The Company had $135,000 and $106,000 of gross interest accrued as of June 30, 2011 and December 31, 2010, respectively. There were no penalties for unrecognized tax benefits accrued at June 30, 2011 and December 31, 2010.

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 years 2007 through 2009 remain subject to examination by the Internal Revenue Service. In addition, the Company is subject to state tax examinations for the tax years 2006 through 2009.

Note 12 – Investment Securities Available for Sale

Investment securities available-for-sale are recorded at fair value on a recurring basis. The Company’s investment securities available-for-sale are measured at fair value using Level 2 valuations. The market evaluation utilizes several sources which include “observable inputs” rather than “significant unobservable inputs” and therefore falls into the Level 2 category. The amortized cost, gross unrealized gains, gross unrealized losses and fair value of investment securities are summarized as follows:

	June 30, 2011
			Gross		Gross
	Amortized		Unrealized		Unrealized
(In thousands)	Cost		Gains		Losses		Fair Value
State and political subdivisions	$	254,080	$	10,953	$	815	$	264,218

	December 31, 2010
			Gross		Gross
	Amortized		Unrealized		Unrealized
(In thousands)	Cost		Gains		Losses		Fair Value
State and political subdivisions	$	255,929	$	9,829	$	1,189	$	264,569

The fair values of securities with unrealized losses are as follows:

June 30, 2011

Less than 12 months

12 months or more

Total

Estimated

Unrealized

Estimated

Unrealized

Estimated

Unrealized

(In thousands)

fair value

losses

fair value

losses

Fair value

losses

State and political

subdivisions

40,163

815

—

40,163

815

December 31, 2010

Less than 12 months

12 months or more

Total

Estimated

Unrealized

Estimated

Unrealized

Estimated

Unrealized

(In thousands)

fair value

losses

fair value

losses

Fair value

losses

State and political

subdivisions

53,741

1,189

—

53,741

1,189

-13-

There were 47 securities (none greater than 12 months) in an unrealized loss position as of June 30, 2011. There were 61 securities (none greater than 12 months) in an unrealized loss position as of December 31, 2010. All unrealized losses were reviewed to determine whether the losses were other than temporary. Management believes that all unrealized losses are temporary since they were market driven, and the Company has the ability and intent to hold these securities until recovery.

The amortized cost and fair value of investment securities by contractual maturity are shown in the following table. Expected maturities may differ from contractual maturities because borrowers have the right to prepay obligations with or without prepayment penalties.

	June 30, 2011
(In thousands)	Amortized Cost		Fair Value
Due in 1 year or less	$	14,362	$	14,567
Due after 1 year through 5 years		38,718		41,212
Due after 5 years through 10 years		96,902		104,003
Due after 10 years		104,098		104,436
Total	$	254,080	$	264,218

There were no securities pledged to secure public deposits and for other purposes at June 30, 2011.

Proceeds from sales of investment securities classified as available for sale were $4,904,000 and $0 for the three months ended June 30, 2011 and 2010, respectively, and were $5,405,000 and $0 for the six months ended June 30, 2011 and 2010, respectively. Gross realized gains were $48,000 and $0 for the three months ended June 30, 2011 and 2010, respectively, and were $48,000 and $0 for the six months ended June 30, 2011 and 2010, respectively.

Note 13 – Fair Value of Financial Instruments

Following is a summary of the carrying amounts and fair values of the Company’s financial instruments:

	June 30, 2011				December 31, 2010
	Carrying				Carrying
(In thousands)	Amount		Fair Value		Amount		Fair Value
Balance sheet assets:
Cash and cash equivalents	$	204,132	$	204,132	$	138,929	$	138,929
Investment securities		264,218		264,218		264,569		264,569
Loans, net		705,558		712,111		696,742		710,294
Accrued interest receivable		5,866		5,866		5,857		5,857
Total	$	1,179,774	$	1,186,327	$	1,106,097	$	1,119,649

Balance sheet liabilities:
Deposits	$	521,712	$	521,712	$	518,590	$	518,590
Accounts and drafts payable		600,606		600,606		516,107		516,107
Short-term borrowings		—		—		9		9
Accrued interest payable		197		197		208		208
Total	$	1,122,515	$	1,122,515	$	1,034,914	$	1,034,914

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:

Cash and Other Short-term Instruments – For cash and cash equivalents, accrued interest receivable, accounts and drafts payable, short-term borrowings and accrued interest payable, the carrying amount is a reasonable estimate of fair value because of the demand nature or short maturities of these instruments.

Loans – The fair value of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.

Deposits – The fair value of demand deposits, savings deposits and certain money market deposits is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities. The fair value estimates above do not include the benefit that results from the low-cost funding provided by the deposit liabilities compared to the cost of borrowing funds in the market or the benefit derived from the customer relationship inherent in existing deposits.

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Note 14 – Subsequent Events

In accordance with FASB ASC 855, “Subsequent Events,” the Company has evaluated subsequent events after the consolidated balance sheet date of June 30, 2011 and there were no events identified that would require additional disclosures to prevent the Company’s consolidated financial statements from being misleading.

ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

Cass 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 include 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 provides 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, Orange County, California and other selected cities in the United States. 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, 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 investment of account balances generated during the payment process. The amount, type and calculation of service fees vary greatly by service offering, but generally follow the volume of transactions processed. 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 and other borrowings. The Bank also assesses fees on other services such as cash management services.

Industry-wide factors that impact the Company include the willingness of large corporations to outsource 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. As lower levels of economic activity are encountered the number and total dollar amount of transactions processed by the Company may decline, thereby reducing fee revenue, interest income, and possibly liquidity. Conversely, improving economic conditions will tend to increase fee revenue, interest income and liquidity. The general level of interest rates also has a significant effect on the revenue of the Company. As discussed in greater detail in Item 7A, “Quantitative and Qualitative Disclosures about Market Risk,” in the Company’s 2010 Annual Report on Form 10-K, a decline in the general level of interest rates can have a negative impact on net interest income.

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Currently, management views Cass’ major opportunity as the continued expansion of its payment and information processing service offering 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.

Critical Accounting Policies

The Company has prepared the consolidated financial statements in this report in accordance with the FASB Accounting Standards Codification (“ASC”). In preparing the consolidated financial statements, management makes estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. These estimates have been generally accurate in the past, have been consistent and have not required any material changes. There can be no assurances that actual results will not differ from those estimates. 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. The Company’s estimates have been materially accurate in the past, and accordingly, we expect to continue to utilize the present processes.

Impairment of Assets. The Company periodically evaluates certain long-term assets such as intangible assets including goodwill, foreclosed assets and assets held for sale 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. The Company had no impairment of goodwill and intangible assets for the three or six-month periods ended June 30, 2011 or for the fiscal year ended December 31, 2010, and management does not anticipate any future impairment loss. Investment securities available-for-sale are measured at fair value as calculated by an independent research firm. The market evaluation utilizes several sources which include “observable inputs” rather than “significant unobservable inputs.” 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 or 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. In accordance with FASB ASC 740, “Income Taxes,” the Company has unrecognized tax benefits related to tax positions taken or expected to be taken. See Note 11 to the financial statements.

Pension Plans. The amounts recognized in the consolidated financial statements related to pension plans 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, 2010, rate of increase in future compensation levels and mortality rates. These assumptions are updated annually and are disclosed in Note 10 to the consolidated financial statements filed with the Company’s Annual Report on Form 10-K for the year ended December 31, 2010. There have been no significant changes in the Company’s long-term rate of return assumptions for the past three fiscal years ended December 31 and management believes they are not reasonably likely to change in the future. Pursuant to FASB ASC 715, “Compensation – Retirement Benefits,” the Company has recognized the funded status of its defined benefit postretirement plan in its balance sheet and has recognized changes in that funded status 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.

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Results of Operations

The following paragraphs more fully discuss the results of operations and changes in financial condition for the three-month period ended June 30, 2011 (“Second Quarter of 2011”) compared to the three-month period ended June 30, 2010 (“Second Quarter of 2010”) and the six-month period ended June 30, 2011 (“First Half of 2011”) compared to the six-month period ended June 30, 2010 (“First Half of 2010”). 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 in the Company's 2010 Annual Report on Form 10-K. Results of operations for the Second Quarter of 2011 are not necessarily indicative of the results to be attained for any other period.

Net Income

The following table summarizes the Company’s operating results:

	Second Quarter of								First Half of
							%								%
(In thousands except per share data)	2011			2010			Change		2011			2010			Change
Net income	$	5,739		$	4,900		17.1	%	$	11,458		$	9,649		18.7	%
Diluted earnings per share	$	.61		$	.52		17.3	%	$	1.21		$	1.02		18.6	%
Return on average assets		1.83	%		1.77	%	—			1.85	%		1.78	%	—
Return on average equity		15.53	%		14.62	%	—			15.87	%		14.66	%	—

Fee Revenue and Other Income

The Company’s fee revenue is derived mainly from transportation 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 were as follows:

	Second Quarter of						First Half of
					%						%
(In thousands except per share data)	2011		2010		Change		2011		2010		Change
Freight Core Invoice Transaction
Volume*		7,486		6,716	11.5	%		14,156		12,733	11.2	%
Freight Invoice Dollar Volume	$	5,260,144	$	4,193,903	25.4	%	$	9,829,074	$	7,962,844	23.4	%
Utility Transaction Volume		3,340		3,045	9.7	%		6,698		6,100	9.8	%
Utility Transaction Dollar Volume	$	2,559,095	$	2,451,775	4.4	%	$	5,248,330	$	5,059,874	3.7	%
Payment and Processing Fees	$	15,219	$	13,533	12.5	%	$	29,566	$	26,278	12.5	%

Core invoices exclude parcel shipments.

Second Quarter of 2011 compared to Second Quarter of 2010:

Transportation and utility transaction volumes were up 12% and 10%, respectively, and dollar volumes were up 25% and 4%, respectively, due to new business and improved activity for existing customers.

Bank service fees increased $84,000, or 28%, due to an increase in letter of credit fees offset by a slight decline in account analysis fees. There were $48,000 gains on sales of securities in the Second Quarter of 2011.

First Half of 2011 compared to First Half of 2010:

Transportation and utility transaction volumes were up 11% and 10%, respectively, and dollar volumes were up 23% and 4%, respectively, due to new business and improved activity for existing customers.

Bank service fees increased $95,000, or 15%, due to increased letter of credit fees and commission and exchange fees offset by a decrease in account analysis fees as more customers chose to pay for services with compensating balances rather than fees. There were $48,000 gains on sales of securities in the First Half of 2011.

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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:

	Second Quarter of								First Half of
							%								%
(In thousands)	2011			2010			Change		2011			2010			Change
Average earnings assets	$	1,146,708		$	1,017,818		12.7	%	$	1,148,130		$	1,001,350		14.7	%
Average interest-bearing
liabilities		395,590			334,879		18.1	%		402,293			329,098		22.2	%
Net interest income*		13,018			12,103		7.6	%		26,051			23,698		9.9	%
Net interest margin*		4.55	%		4.77	%				4.58	%		4.77	%
Yield on earning assets*		4.95	%		5.24	%				4.99	%		5.25	%
Rate on interest-bearing liabilities		1.14	%		1.44	%				1.17	%		1.46	%

Presented on a tax-equivalent basis assuming a tax rate of 35%.

Second Quarter of 2011 compared to Second Quarter of 2010:

Second Quarter 2011 average earning assets increased 13% compared to the same period in the prior year (see discussion in the following paragraphs). The yield on earning assets and the tax equivalent net interest margin both decreased in 2011 as the general level of interest rates declined; however, the significant increase in average earning assets caused net interest income to increase 8% on a tax equivalent basis.

Total average loans increased $35,385,000, or 5%, to $710,399,000 for the Second Quarter of 2011 as compared to the Second Quarter of 2010. This increase was attributable to the continuing successful marketing efforts by the Company’s lending staff. Average investment securities increased $40,291,000, or 18%, to $258,653,000, as the Company took advantage of buying opportunities in the market.

Total average interest-bearing deposits for the Second Quarter of 2011 increased $60,725,000, or 18%, to $395,590,000 compared to the Second Quarter of 2010, primarily due to customers transferring funds from lower-yielding investments at other institutions. Average accounts and drafts payable increased $56,546,000, or 11%, as freight and utility payment processing activities increased.

First Half of 2011 compared to First Half of 2010:

First Half of 2011 average earning assets increased 15% compared to the same period in the prior year (see discussion in the following paragraphs). The yield on earning assets and the tax equivalent net interest margin both decreased in 2011 as the general level of interest rates declined; however, the significant increase in average earning assets caused net interest income to increase 10% on a tax equivalent basis.

Total average loans increased $46,259,000, or 7%, to $708,064,000 for the First Half of 2011 as compared to the First Half of 2010. This increase was attributable to the continuing successful marketing efforts by the Company’s lending staff. Average investment securities increased $42,188,000, or 20%, to $258,025,000, as the Company took advantage of buying opportunities in the market.

Total average interest-bearing deposits for the First Half of 2011 increased $73,221,000, or 22%, to $402,292,000 compared to the First Half of 2010, primarily due to customers transferring funds from lower-yielding investments at other institutions. Average accounts and drafts payable increased $57,182,000, or 11%, as freight and utility payment processing activities increased.

For more information on the changes in net interest income, please refer to the tables that follow.

-18-

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

The following tables show the condensed average balance sheets for each of the periods reported, the tax-equivalent interest income and expense 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.

	Second Quarter of 2011							Second Quarter of 2010
				Interest							Interest
	Average			Income/		Yield/		Average			Income/		Yield/
(In thousands)	Balance			Expense		Rate		Balance			Expense		Rate
Assets1
Earning assets
Loans2, 3:
Taxable	$	709,509		$	10,126	5.72	%	$	672,465		$	9,848	5.87	%
Tax-exempt4		890			5	2.25			2,549			36	5.66
Investment securities5:
Taxable		1,002			13	5.20			890			11	4.96
Tax-exempt4		257,651			3,844	5.98			217,472			3,309	6.10
Interest-bearing deposits in
other financial institutions		87,364			83	.38			16,770			13	.31
Federal funds sold and other
short-term investments		90,292			72	.32			107,672			85	.32
Total earning assets		1,146,708			14,143	4.95			1,017,818			13,302	5.24
Non-earning assets
Cash and due from banks		12,755							10,394
Premise and equipment, net		9,743							10,039
Bank owned life insurance		14,376							13,857
Goodwill and other
intangibles		7,701							7,808
Other assets		80,353							62,031
Allowance for loan losses		(12,537	)						(9,116	)
Total assets	$	1,259,099						$	1,112,831
Liabilities and Shareholders’ Equity1
Interest-bearing liabilities
Interest-bearing demand
deposits	$	219,745		$	552	1.01	%	$	162,721		$	495	1.22	%
Savings deposits		23,584			58	.99			23,996			71	1.19
Time deposits >= $100		53,045			177	1.34			55,682			215	1.55
Other time deposits		99,216			338	1.37			92,466			418	1.81
Total interest-bearing deposits		395,590			1,125	1.14			334,865			1,199	1.44
Short-term borrowings & other		—			—	—			14			—	—
Total interest bearing liabilities		395,590			1,125	1.14			334,879			1,199	1.44
Non-interest bearing liabilities
Demand deposits		127,383							110,343
Accounts and drafts payable		573,659							517,113
Other liabilities		14,204							16,025
Total liabilities		1,110,836							978,360
Shareholders’ equity		148,263							134,471
Total liabilities and
shareholders’ equity	$	1,259,099						$	1,112,831
Net interest income				$	13,018						$	12,103
Net interest margin						4.55	%						4.77	%
Interest spread						3.81							3.80

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 2010 consolidated financial statements, filed with the Company’s 2010 Annual Report on Form 10-K.
3.		Interest income on loans includes net loan fees of $140,000 and $92,000 for the Second Quarter of 2011 and 2010, respectively.
4.		Interest income is presented on a tax-equivalent basis assuming a tax rate of 35%. The tax-equivalent adjustment was approximately $1,348,000 and $1,171,000 for the Second Quarter of 2011 and 2010, 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.

-19-

	First Half of 2011							First Half of 2010
				Interest							Interest
	Average			Income/		Yield/		Average			Income/		Yield/
(In thousands)	Balance			Expense		Rate		Balance			Expense		Rate
Assets1
Earning assets
Loans2, 3:
Taxable	$	707,136		$	20,375	5.81	%	$	659,216		$	19,250	5.89	%
Tax-exempt4		928			11	2.39			2,589			74	5.76
Investment securities5:
Taxable		965			18	3.76			841			25	5.99
Tax-exempt4		257,060			7,654	6.00			214,996			6,537	6.13
Interest-bearing deposits in
other financial institutions		74,821			149	.40			19,075			26	.27
Federal funds sold and other
short-term investments		107,220			175	.33			104,633			161	.31
Total earning assets		1,148,130			28,382	4.99			1,001,350			26,073	5.25
Non-earning assets
Cash and due from banks		12,113							9,906
Premise and equipment, net		9,711							10,181
Bank owned life insurance		14,322							13,784
Goodwill and other
intangibles		7,715							7,822
Other assets		71,699							58,436
Allowance for loan losses		(12,307	)						(8,753	)
Total assets	$	1,251,383						$	1,092,726
Liabilities and Shareholders’ Equity1
Interest-bearing liabilities
Interest-bearing demand
deposits	$	219,138		$	1,108	1.02	%	$	166,085		$	1,005	1.22	%
Savings deposits		24,204			122	1.02			24,479			143	1.18
Time deposits >= $100		53,325			361	1.37			52,833			419	1.60
Other time deposits		105,625			740	1.41			85,674			808	1.90
Total interest-bearing deposits		402,292			2,331	1.17			329,071			2,375	1.46
Short-term borrowings & other		1			—	—			27			—	.75
Total interest bearing liabilities		402,293			2,331	1.17			329,098			2,375	1.46
Non-interest bearing liabilities
Demand deposits		128,886							110,532
Accounts and drafts payable		561,719							504,537
Other liabilities		12,875							15,844
Total liabilities		1,105,773							960,011
Shareholders’ equity		145,610							132,715
Total liabilities and
shareholders’ equity	$	1,251,383						$	1,092,726
Net interest income				$	26,051						$	23,698
Net interest margin						4.58	%						4.77	%
Interest spread						3.82							3.79

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 2010 consolidated financial statements, filed with the Company’s 2010 Annual Report on Form 10-K.
3.		Interest income on loans includes net loan fees of $378,000 and $166,000 for the First Half of 2011 and 2010, respectively.
4.		Interest income is presented on a tax-equivalent basis assuming a tax rate of 35%. The tax-equivalent adjustment was approximately $2,683,000 and $2,314,000 for the First Half of 2011 and 2010, 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.

-20-

Analysis of Net Interest Income Changes

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

	Second Quarter of 2011 Over
	Second Quarter of 2010
(In thousands)	Volume			Rate			Total
Increase (decrease) in interest income:
Loans1, 2:
Taxable	$	533		$	(255	)	$	278
Tax-exempt3		(16	)		(15	)		(31	)
Investment securities:
Taxable		1			1			2
Tax-exempt3		601			(66	)		535
Interest-bearing deposits in other financial institutions		66			4			70
Federal funds sold and other short-term investments		(14	)		1			(13	)
Total interest income		1,171			(330	)		841
Interest expense on:
Interest-bearing demand deposits		153			(96	)		57
Savings deposits		(1	)		(12	)		(13	)
Time deposits of >=$100		(10	)		(28	)		(38	)
Other time deposits		29			(109	)		(80	)
Total interest expense		171			(245	)		(74	)
Net interest income	$	1,000		$	(85	)	$	915

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 Half of 2011 Over
	First Half of 2010
(In thousands)	Volume			Rate			Total
Increase (decrease) in interest income:
Loans1, 2:
Taxable	$	1,384		$	(259	)	$	1,125
Tax-exempt3		(33	)		(30	)		(63	)
Investment securities:
Taxable		3			(10	)		(7	)
Tax-exempt3		1,255			(138	)		1,117
Interest-bearing deposits in other financial institutions		106			17			123
Federal funds sold and other short-term investments		4			10			14
Total interest income		2,719			(410	)		2,309
Interest expense on:
Interest-bearing demand deposits		286			(183	)		103
Savings deposits		(2	)		(19	)		(21	)
Time deposits of >= $100		4			(62	)		(58	)
Other time deposits		165			(233	)		(68	)
Total interest expense		453			(497	)		(44	)
Net interest income	$	2,266		$	87		$	2,353

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%.

-21-

Provision and Allowance for Loan Losses

A significant determinant of the Company's operating results is the provision for loan losses. There was an $850,000 and $1,150,000 provision for loan losses during the Second Quarter of 2011 and the Second Quarter of 2010, respectively. There was a $1,300,000 and $2,050,000 provision for loan losses during the First Half of 2011 and the First Half of 2010, 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 net loan recoveries of $1,000 in the Second Quarter of 2011 compared to $12,000 for the same period in 2010. There were $37,000 net loan recoveries in the First Half of 2011 and $173,000 in net loan charge-offs in the First Half of 2010.

The allowance for loan losses at June 30, 2011 was $13,228,000 and at December 31, 2010 was $11,891,000. The ratio of allowance for loan losses to total loans outstanding at June 30, 2011 was 1.84% compared to 1.68% at December 31, 2010. Impaired loans were $7,864,000, or 1.09%, of total loans at June 30, 2011 compared to $565,000, or .08%, of total loans at December 31, 2010, and consisted of six nonaccrual loans to borrowers totaling $3,378,000 and two troubled debt restructurings totaling $4,486,000. Impaired loans at December 31, 2010 consisted of four non-accrual loans. Total impaired loans increased $6,336,000 from June 30, 2010 to June 30, 2011, primarily due to the deterioration in the financial condition of these borrowers.

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 allowances on commercial, 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 an allowance amount consistent with each loan's rating category. The allowance 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 allowance 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 in 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 related balance. 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.

Summary of Asset Quality

The following table presents information on the Company's provision for loan losses and analysis of the allowance for loan losses:

	Second Quarter of						First Half of
(In thousands)	2011			2010			2011			2010
Allowance at beginning of period	$	12,377		$	8,999		$	11,891		$	8,284
Provision charged to expense		850			1,150			1,300			2,050
Loans (charged off)/recovered:
Loans charged off		—			—			—			(200	)
Recoveries on loans previously charged off		1			12			37			27
Net loans recovered (charged off)		1			12			37			(173	)
Allowance at end of period	$	13,228		$	10,161		$	13,228		$	10,161
Loans outstanding:
Average	$	710,399		$	675,014		$	708,064		$	661,805
June 30		718,786			680,701			718,786			680,701
Ratio of allowance for loan losses to loans outstanding:
Average		1.86	%		1.51	%		1.87	%		1.54	%
June 30		1.84			1.49			1.84			1.49
Impaired loans:
Nonaccrual loans	$	3,378		$	1,528		$	3,378		$	1,528
Loans past due 90 days or more		—			—			—			—
Troubled debt restructurings		4,486			—			4,486			—
Total impaired loans	$	7,864		$	1,528		$	7,864		$	1,528
Foreclosed assets		1,910			1,910			1,910			1,910
Impaired loans as percentage of average loans		1.11	%		.23	%		1.11	%		.23	%

-22-

The Bank had two properties carried as other real estate owned of $1,910,000 as of June 30, 2011 and 2010.

Operating Expenses

Total operating expenses for the Second Quarter of 2011 were up 11%, or $1,785,000 compared to the Second Quarter of 2010. Total operating expenses for the First Half of 2011 were up 11%, or $3,722,000 from the First Half of 2010.

Salaries and benefits expense for the Second Quarter of 2011 increased $1,463,000 to $14,146,000 compared to the Second Quarter of 2010 and increased $2,679,000 to $27,852,000 for the First Half of 2011 compared to the First Half of 2010 to support the growth in business volume.

Occupancy expense for the Second Quarter of 2011 decreased $54,000, or 9%, to $557,000 from the Second Quarter of 2010 due to lower rent expenses and increased $22,000, or 2%, from the First Half of 2010 due to higher maintenance and repairs expenses.

Equipment expense for the Second Quarter of 2011 decreased $68,000, or 7%, compared to the Second Quarter of 2010 and decreased $119,000, or 7%, from the First Half of 2010 due to decreased software license expenses.

Amortization of intangible assets was $27,000 for both the Second Quarter of 2011 and 2010, and $54,000 for both the First Half of 2011 and 2010.

Other operating expenses for the Second Quarter of 2011 increased $444,000, or 17%, compared to the Second Quarter of 2010. Primary increases were in promotional expenses and outside service and consulting fees. Other operating expense increased $1,140,000 for the First Half of 2011 compared to the First Half of 2010, due to increases in professional fees.

Income tax expense for the Second Quarter of 2011 increased $229,000, or 11%, compared to the Second Quarter of 2010 and increased $625,000 for the First Half of 2011 compared to the First Half of 2010. The effective tax rate was 28.0% and 29.0% for the Second Quarters of 2011 and 2010, respectively, and was 28.0% and 28.4% for the First Halves of 2011 and 2010, respectively.

Financial Condition

Total assets at June 30, 2011 were $1,287,698,000, an increase of $99,663,000, or 8%, from December 31, 2010. The most significant changes in asset balances during this period were an increase of $55,491,000, or 93%, in federal funds sold and other short-term investments plus an increase of $23,394,000 in payments in excess of funding. 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 drafts payable balances.

Total liabilities at June 30, 2011 were $1,135,618,000, an increase of $89,677,000, or 9%, from December 31, 2010. Total deposits at June 30, 2011 were $521,712,000, an increase of $3,122,000, or less than 1%, from December 31, 2010. Accounts and drafts payable at June 30, 2011 were $600,606,000, an increase of $84,499,000, or 16%, from December 31, 2010. Total shareholders’ equity at June 30, 2011 was $152,080,000, a $9,986,000, or 7%, increase from December 31, 2010.

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 Shareholders’ Equity; Interest Rate and Interest Differential” section of this report).

The increase in total shareholders’ equity resulted from net income of $11,458,000, $700,000 from stock-based compensation expense, a decrease in other comprehensive loss of $974,000 offset by dividends paid of $3,011,000 ($.16 per share) and other miscellaneous activity of $135,000.

-23-

Liquidity and Capital Resources

The balance of liquid assets consists of cash and cash equivalents, which include cash and due from banks, interest-bearing deposits in other financial institutions, federal funds sold and money market funds, and was $204,132,000 at June 30, 2011, an increase of $65,203,000, or 47%, from December 31, 2010. At June 30, 2011, these assets represented 16% 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 $264,218,000 at June 30, 2011, a decrease of only $351,000 from December 31, 2010. These assets represented 21% of total assets at June 30, 2011. Of this total, 100% were state and political subdivision securities. Of the total portfolio, 6% mature in one year, 16% mature in one to five years, and 79% mature in five or more years.

The Bank has unsecured lines of credit at correspondent banks to purchase federal funds up to a maximum of $88,000,000 at the following banks: Bank of America, $20,000,000; US Bank, $20,000,000; Wells Fargo Bank, $15,000,000; Frost National Bank, $10,000,000; PNC Bank, $12,000,000; UMB Bank, $5,000,000; and JPM Chase Bank, $6,000,000. The Company had secured lines of credit with the Federal Home Loan Bank of $121,537,000 collateralized by commercial mortgage loans. The Company also had a secured federal funds line of credit of $10,000,000 with the UMB Bank. There were no amounts outstanding under any line of credit as of June 30, 2011 or December 31, 2010.

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 has also historically been a stable source of funds. The Company is part of the Certificate of Deposit Account Registry Service (“CDARS”). Time deposits include $86,046,000 of CDARS deposits which offer the Bank’s customers the ability to maximize FDIC insurance coverage. The Company uses this program to retain or attract deposits from existing customers.

Net cash flows provided by operating activities were $14,638,000 for the First Half of 2011, compared with $13,434,000 for the First Half of 2010, for an increase of $1,204,000. This increase is attributable to the increase in net income of $1,809,000, the reduction in income tax liability of $1,265,000 offset by a lower provision for loan losses of $750,000, 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 2011, which are estimated to be less than $3,000,000.

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

There are several trends and uncertainties that may impact the Company’s ability to generate revenues and income at the levels that it has in the past. In addition, these trends and uncertainties may impact available liquidity. Those that could significantly impact the Company include the general levels of interest rates, business activity, and energy costs as well as new business opportunities available to the Company.

As a financial institution, a significant source of the Company’s earnings is generated from net interest income. Therefore, the prevailing interest rate environment is important to the Company’s performance. A major portion of the Company’s funding sources are the non-interest bearing accounts and drafts payable generated from its payment and information processing services. Accordingly, higher levels of interest rates will generally allow the Company to earn more net interest income. Conversely, a lower interest rate environment will generally tend to depress net interest income. The Company actively manages its balance sheet in an effort to maximize net interest income as the interest rate environment changes. This balance sheet management impacts the mix of earning assets maintained by the Company at any point in time. For example, in the lower interest rate environment currently faced by the Company, short-term relatively lower rate liquid investments are reduced in favor of longer term relatively higher yielding investments and loans.

-24-

The overall level of economic activity can have a significant impact on the Company’s ability to generate revenues and income, as the volume and size of customer invoices processed may increase or decrease. Higher levels of economic activity increase both fee income (as more invoices are processed) and balances of accounts and drafts payable.

The relative level of energy costs can impact the Company’s earnings and available liquidity. Higher levels of energy costs will tend to increase transportation and utility invoice amounts resulting in a corresponding increase in accounts and drafts payable. Increases in accounts and drafts payable generate higher interest income and improve liquidity.

New business opportunities are an important component of the Company’s strategy to grow earnings and improve performance. Generating new customers allows the Company to leverage existing systems and facilities and grow revenues faster than expenses.

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 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:

	June 30, 2011				December 31, 2010
(In thousands)	Amount		Ratio		Amount		Ratio
Total capital (to risk-weighted assets)
Cass Information Systems, Inc.	$	158,184	17.20	%	$	148,659	16.82	%
Cass Commercial Bank		62,975	11.59	%		58,838	10.72	%
Tier I capital (to risk-weighted assets)
Cass Information Systems, Inc.	$	146,670	15.95	%	$	137,603	15.57	%
Cass Commercial Bank		56,150	10.34	%		51,955	9.46	%
Tier I capital (to average assets)
Cass Information Systems, Inc.	$	146,670	11.72	%	$	137,603	11.18	%
Cass Commercial Bank		56,150	9.43	%		51,955	8.92	%

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 and Not Yet Adopted Accounting Pronouncements

None.

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, 2010, 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 June 30, 2011 has changed materially from that at December 31, 2010.

-25-

ITEM 4. CONTROLS AND PROCEDURES

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

There were no changes in the Second Quarter of 2011 in the Company's internal control over financial reporting identified by the Company’s principal executive officer and principal financial officer in connection with their evaluation that materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended).

PART II.	OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS
	The Company has included in Part I, Item 3 of its Annual Report on Form 10-K for the year ended December 31, 2010 disclosure regarding certain legal proceedings. There were no material developments with regard to these proceedings during the three-month period ended June 30, 2011. All other legal proceedings and actions involving the Company are of an ordinary and routine nature and are incidental to the operations of the Company. Management believes the outcome of these proceedings, including proceedings discussed in the Annual Report on Form 10-K for the year ended December 31, 2010, will not have a material effect on the businesses 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, 2010, 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 2010 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.	[REMOVED AND RESERVED]

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 implemented in the Second Quarter of 2011.

ITEM 6.	EXHIBITS
	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.

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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: August 4, 2011	By	/s/ Eric H. Brunngraber
		Eric H. Brunngraber
		President and Chief Executive Officer
		(Principal Executive Officer)


DATE: August 4, 2011	By	/s/ P. Stephen Appelbaum
		P. Stephen Appelbaum
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

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