The following discussion and analysis provides information about the financial condition and results of operations of the Company for the years ended December 31, 2007, 2006 and 2005. All share and per share data have been restated to give effect to the 10%, 50%, 50% and 10% stock dividends issued on March 15, 2004, September 15, 2005, September 15, 2006 and December 17, 2007, respectively. This discussion and analysis should be read in conjunction with the Company's consolidated financial statements and accompanying notes and other selected financial data presented elsewhere in this report.

Executive Overview

Cass Information Systems, Inc. provides payment and information processing services to large manufacturing, distribution and retail enterprises from its processing centers in St. Louis, Missouri, Columbus, Ohio, Boston, Massachusetts, Greenville, South Carolina and Wellington, Kansas. The Company's services include freight invoice rating, payment processing, auditing, and the generation of accounting and transportation information. Cass also processes and pays utility invoices, which includes electricity, gas and telecommunications expenses and is a provider of telecom expense management solutions. Cass extracts, stores and presents information from freight, utility and telecommunication invoices, assisting its customers' transportation, energy and information technology managers in making decisions that will enable them to improve operating performance. The Company receives data from multiple sources, electronic and otherwise, and processes the data to accomplish the specific operating requirements of its customers. It then provides the data in a central repository for access and archiving. The data is finally transformed into information through the Company's databases that allow client interaction as required and provide Internet-based tools for analytical processing. The Company also, through Cass Commercial Bank, its St. Louis, Missouri based bank subsidiary, 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 ("EDI"), imaging, and web-based solutions varies greatly among customers and industries. These factors combine so that pricing varies greatly among the customer base. In general, however, Cass is compensated for its processing services through service fees and account balances that are generated during the payment process. The amount, type and calculation of service fees vary greatly by service offering, but generally follow the volume of transactions processed. Interest income from the balances generated during the payment processing cycle is affected by the amount of time Cass holds the funds prior to payment and the dollar volume processed. Both the number of transactions processed and the dollar volume processed are therefore key metrics followed by management. Other factors will also influence revenue and profitability, such as changes in the general level of interest rates, which have a significant effect on net interest income. The funds generated by these processing activities are invested in overnight investments, investment grade securities and loans generated by the Bank. The Bank earns most of its revenue from net interest income, or the difference between the interest earned on its loans and investments and the interest paid on its deposits. The Bank also assesses fees on other services such as cash management services.

Industry-wide factors that impact the Company include the acceptance by large corporations of the outsourcing of key business functions such as freight, utility and telecommunication payment and audit. The benefits that can be achieved by outsourcing transaction processing and the management information generated by Cass' systems can be influenced by factors such as the competitive pressures within industries to improve profitability, the general level of transportation costs, deregulation of energy costs and consolidation of telecommunication providers. Economic factors that impact the Company include the general level of economic activity that can affect the volume and size of invoices processed, the ability to hire and retain qualified staff and the growth and quality of the loan portfolio. The general level of interest rates also has a significant effect on the revenue of the Company.

On December 30, 2005, the Company's bank subsidiary sold the operating assets of its wholly owned subsidiary, Government e-Management Solutions, Inc. ("GEMS"). The assets, liabilities and operating results of GEMS have been presented as discontinued operations for all periods.

In the fourth quarter 2005, the Company recognized a $3,100,000 impairment charge on its investment in a private imaging company. As of December 31, 2007, the Company had no remaining financial interest in this entity.

On July 7, 2006, the Company acquired 100% of the stock of NTransit, Inc., a company whose service provides auditing and expense management of parcel shipments. While this acquisition did not meet the Regulation S-X criteria of a significant business combination, it positioned the Company to expand its offerings in the specialized service and expertise in parcel shipping, which is a unique segment of the transportation industry that has experienced tremendous growth in recent years.

Total fee revenue and other income from continuing operations in 2007 increased $5,379,000 or 13% and net interest income increased $1,198,000 or 3% while total operating expenses increased $4,462,000 or 8%. These results were driven by a 3,581,000 or 12% increase in items processed, $2,313,908,000 or 12% increase in dollars processed and strong expense control combined with a rise in the general level of interest rates. The asset quality of the Company's loans and investments remains strong.

Currently, management views Cass' major opportunity and challenge as the continued expansion of its payment and information processing service offerings and customer base. Management intends to accomplish this by maintaining the Company's lead in applied technology, which, when combined with the security and processing controls of the Bank, makes Cass unique in the industry.

Critical Accounting Policies

The Company has prepared all of the consolidated financial information in this report in accordance with U.S. generally accepted accounting principles ("U.S. GAAP"). In preparing the consolidated financial statements in accordance with U.S. GAAP, management makes estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. These estimates have been generally accurate in the past, have been consistent and have not required any material changes. There can be no assurances that actual results will not differ from those estimates. Certain accounting policies that require significant management estimates and are deemed critical to our results of operations or financial position have been discussed with the Audit Committee of the Board of Directors and are described below.

Impairment of Assets. The Company periodically evaluates certain long-term assets such as intangible assets including goodwill, foreclosed assets, internally developed software and investments in private equity securities for impairment. Generally, these assets are initially recorded at cost, and recognition of impairment is required when events and circumstances indicate that the carrying amounts of these assets will not be recoverable in the future. If impairment occurs, various methods of measuring impairment may be called for depending on the circumstances and type of asset, including quoted market prices, estimates based on similar assets, and estimates based on valuation techniques such as discounted projected cash flows. Assets held for sale are carried at the lower of cost or fair value less costs to sell. These policies affect both segments of the Company and require significant management assumptions and estimates that could result in materially different results if conditions or underlying circumstances change.

Pension Plans. The amounts recognized in the consolidated financial statements related to pension are determined from actuarial valuations. Inherent in these valuations are assumptions including expected return on plan assets, discount rates at which the liabilities could be settled at December 31, 2007, rate of increase in future compensation levels and mortality rates. These assumptions are updated annually and are disclosed in Note 12 to the consolidated financial statements. The Company adopted Statement No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans" ("SFAS No. 158") on December 31, 2006. SFAS No. 158 requires companies to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income. The funded status is measured as the difference between the fair value of the plan assets and the benefit obligation as of the date of its fiscal year-end.

Income Taxes. The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity's financial statements or tax returns. Judgment is required in addressing the future tax consequences of events that have been recognized in the Company's financial statements or tax returns such as the realization of deferred tax assets, changes in tax laws or interpretations thereof. In addition, the Company is subject to the continuous examination of its income tax returns by the Internal Revenue Service and other taxing authorities. Effective January 1, 2007, the Company adopted FIN No. 48, "Accounting for Uncertainty in Income Taxes." FIN No. 48 provides guidance for the recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. See Note 15 to the consolidated financial statements.

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.

Summary of Results

                                                        December 31,                           % Change
                                           ----------------------------------------    ----------------------------
(In thousands, except per share data)         2007           2006            2005      2007 v 2006     2006 v 2005
------------------------------------------------------------------------------------------------------------------------------------
Total Processing Volume                      34,466        30,885            28,003           11.6%             10.3%
Total Processing Dollars                $22,185,189   $19,871,281       $16,372,097           11.6%             21.4%
Payment and Processing Fees                 $45,642       $40,343           $35,901           13.1%             12.4%
Net Investment Income                       $40,482       $39,284           $32,789            3.0%             19.8%
Total Net Revenues                          $88,682       $82,105           $71,442            8.0%             14.9%
Average Earning Assets                     $809,739      $762,397          $697,285            6.2%              9.3%
Net Interest Margin*                          5.45%         5.50%             4.95%           (.9)%             11.1%
Impairment of Equity Investment                  --            --            $3,100             N/A              N/A
Net Income from Continuing Operations       $17,795       $15,461           $11,244           15.1%             37.5%
Diluted EPS from Continuing Operations        $1.90         $1.65             $1.21           15.2%             36.4%
Net Income                                  $17,795       $15,066           $10,946           18.1%             37.6%
Diluted Earnings per Share                    $1.90         $1.61             $1.17           18.0%             37.6%
Return on Average Assets                      2.00%         1.80%              1.41%
Return on Average Equity                     19.90%         18.89%            15.23%
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* Presented on a tax-equivalent basis

The results of 2007 compared to 2006 include the following significant items:

Payment and processing fee revenue from continuing operations increased as the number of transactions processed increased. This increase was driven mainly by Utility Information Services processing activity which added a significant amount of new business during 2007. Transportation Information Services also achieved record levels of processing during 2007 and record levels of new customers added.

Net interest income after provision for loan losses increased $1,198,000 due to an increase in average earning assets. The net interest margin on a tax equivalent basis was 5.45% in 2007 compared to 5.50% in 2006. The growth in average earning assets was funded mainly by increases in accounts and drafts payable due to the increase in dollars processed.

There were no gains from the sale of securities in 2007 and 2006. Bank service fees increased $57,000 or 4% to $1,682,000. Other income from continuing operations remained fairly constant, $876,000 in 2007 and $853,000 in 2006. Operating expenses from continuing operations increased $4,462,000 or 8% due mainly to expenses relating to the increase in processing activity.

The results of 2006 compared to 2005 include the following significant items:

Payment and processing fee revenue from continuing operations increased as the number of transactions processed increased. This increase was driven mainly by the expansion of the Company's customer base and number of services offered. It is the Company's strategy to expand processing revenue by 1) actively marketing the Company's existing product lines in freight, utility, and telecom payment and processing, 2) expanding the Company's service offerings to the markets currently served and 3) expanding into new markets by leveraging its payment and processing capabilities. The July 2006 acquisition of NTransit, Inc. was part of this strategy.

Net interest income after provision for loan losses increased $6,495,000 due to an increase in the general level of interest rates and a $65,112,000 increase in average earning assets. The net interest margin on a tax equivalent basis was 5.50% in 2006 compared to 4.95% in 2005. The growth in average earning assets was funded mainly by increases in accounts and drafts payable due to the increase in dollars processed.

There were no gains from the sale of securities in 2006 compared to gains of $547,000 in 2005. Bank service fees increased $90,000 or 6% to $1,625,000. Other income from continuing operations remained fairly constant, $853,000 in 2006 and $670,000 in 2005. Operating expenses from continuing operations increased $3,061,000 due mainly to expenses relating to the increase in processing activity.

Fee Revenue and Other Income from Continuing Operations

The Company's fee revenue is derived mainly from freight and utility payment and
processing 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, fee
revenue and other income for the years ended December 31, 2007, 2006 and 2005
were as follows:

                                                        December 31,                           % Change
                                         -----------------------------------------    --------------------------------
(In thousands)                                2007           2006            2005      2007 v 2006     2006 v 2005
------------------------------------------------------------------------------------------------------------------------------------
Freight Invoice Transaction Volume           25,206         24,220          22,348         4.1%           8.4%
Freight Invoice Dollar Volume           $14,519,906    $14,199,389     $11,949,052         2.3%          18.8%
Utility Transaction Volume                    9,260          6,665           5,655        38.9%          17.9%
Utility Transaction Dollar Volume        $7,665,283     $5,671,892      $4,423,045        35.1%          28.2%
Payment and processing revenue              $45,642        $40,343         $35,901        13.1%          12.4%
Bank service fees                            $1,682         $1,625          $1,535         3.5%           5.9%
Gains on sales of investment securities          --             --            $547         N/A             N/A
Other                                          $876           $853            $670         2.7%          27.3%
------------------------------------------------------------------------------------------------------------------------------------

Fee revenue and other income in 2007 compared to 2006 include the following significant pre-tax components:

Freight volume increased by 986,000 transactions during the past year. This increase was due mainly to new business in 2007. Utility volume experienced significant growth, adding more than 2,595,000 transactions in 2007. This growth was due mainly to new business. These transaction volume increases drove most of the $5,299,000 increase in payment and processing revenue.

Fee revenue and other income in 2006 compared to 2005 include the following significant pre-tax components:

Freight volume increased by 1,872,000 transactions during the past year. This increase was due mainly to a significant amount of new business in 2006. In addition to these factors, higher dollar volume during the last three years has been affected by higher dollars processed per shipment due to escalating fuel costs and an increase in general economic activity. Utility volume also experienced solid growth, adding more than 1,010,000 transactions in 2006. This growth was due mainly to new business. These transaction volume increases drove most of the $4,442,000 increase in payment and processing revenue.

Net Interest Income

Net interest income is the difference between interest earned on loans,
investments, and other earning assets and interest expense on deposits and other
interest-bearing liabilities. Net interest income is a significant source of the
Company's revenues. The following table summarizes the changes in tax-equivalent
net interest income and related factors for the three periods ended December 31,
2007, 2006 and 2005:

                                                                                  % Change          % Change
(In Thousands)                             2007          2006         2005      2007 v. 2006      2006 v. 2005
-------------------------------------------------------------------------------------------------------------------
Average earning assets                   $809,739     $762,397     $697,285          6.2%              9.3%
Net interest income                        44,115       41,950       34,534          5.2%             21.4%
Net interest margin*                        5.45%        5.50%        4.95%          (.9)%            11.1%
Yield on earning assets                     6.43%        6.37%        5.62%           .9%             13.3%
Rate on interest bearing liabilities        4.20%        3.62%        2.45%         16.0%             47.8%
------------------------------------------------------------------------------------------------------------------

* Presented on a tax-equivalent basis Net interest income in 2007 compared to 2006:

The increase in net interest income was caused by the increase in earning assets partially offset by a slight decrease in net interest margin. The increase in earning assets was funded mainly by the increase in accounts and drafts payable due to the increased dollars processed. The decrease in net interest margin was due mainly to the reduction in the general level of interest rates. The Company is negatively affected by decreases in the level of interest rates. Conversely, the Company is positively affected by increases in the level of interest rates due to the fact that its rate sensitive assets significantly exceed its rate sensitive liabilities. This is primarily due to the non-interest-bearing liabilities generated by the Company in the form of accounts and drafts payable. More information is contained in the tables below and in Item 7A of this report.

Total average loans decreased $7,244,000 or 1% to $515,123,000. Loans have a positive effect on interest income and the net interest margin due to the fact that loans are one of the Company's highest yielding earning assets for any given maturity.

Total average investment in securities increased $49,808,000 or 54% to $141,363,000. The investment portfolio will expand and contract over time as the interest rate environment changes and the Company manages its liquidity and interest rate position. The increase in 2007 was due to the purchase of state and political subdivision securities with AA or better credit ratings and maturities approaching ten years. With the expectations of a declining interest rate environment, the Company made these purchases to reduce the level of short-term rate sensitive assets. All purchases were made in accordance with the Company's investment policy. Total average federal funds sold and other short-term investments increased $4,778,000 or 3% to $153,253,000. This increase was funded by the increase in accounts and drafts payable.

The Bank's average interest-bearing deposits remained relatively flat with a $6,450,000 or 4% increase compared to the prior year. Average demand deposits decreased $5,165,000 or 5% as customers moved their deposited funds into higher yielding off-balance sheet investment products. Average rates paid on interest-bearing liabilities increased from 3.62% to 4.20% as a result of increased rate competition for savings deposits and certificates of deposit in the markets served by the Bank.

Net interest income in 2006 compared to 2005:

The increase in net interest income was caused by the combination of a significant increase in earning assets combined with a significant increase in net interest margin. The increase in earning assets was funded mainly by the increase in accounts and drafts payable due to the increased dollars processed. The increase in net interest margin was due mainly to the rise in the general level of interest rates and also the increase in the amount of earning assets. The Company is positively affected by increases in the level of interest rates due to the fact that its rate sensitive assets significantly exceed its rate sensitive liabilities. Conversely, the Company is negatively affected by decreases in the level of interest rates. This is primarily due to the non-interest-bearing liabilities generated by the Company in the form of accounts and drafts payable. More information is contained in the tables below and in Item 7A of this report.

Total average loans increased $9,401,000 or 2% to $522,367,000. This increase was attributable to new business relationships. Loans have a positive effect on interest income and the net interest margin due to the fact that loans are one of the Company's highest yielding earning assets for any given maturity.

Total average investment in securities decreased $20,518,000 or 29% to $91,555,000. The investment portfolio will expand and contract over time as the interest rate environment changes and the Company manages its liquidity and interest rate position. Total average federal funds sold and other short-term

investments increased $35,193,000 or 31% to $148,475,000. This increase was funded by the increase in accounts and drafts payable.

The Bank's average interest-bearing deposits remained relatively flat with a $8,027,000 or 4% decrease compared to the prior year due to the Company's increase in liquidity and resulting decreased need for higher-cost funding. Average demand deposits decreased $3,982,000 or 4% due to the fact that balances and service fees associated with these deposits decrease as the credit allowance for non-interest bearing deposits increases due to the general level of interest rate increases. Average rates paid on interest-bearing liabilities increased from 2.45% to 3.62% as the general level of interest rates increased. This represents increased rate competition for savings deposits and certificates of deposit in the markets served by the Bank.

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

The following table contains 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:

                                      2007                           2006                              2005
                           -------------------------       ------------------------         ------------------------
                                   Interest                        Interest                          Interest
                             Average Income/ Yield/        Average  Income/ Yield/          Average  Income/ Yield/
(Dollars in thousands)       Balance Expense   Rate        Balance  Expense   Rate          Balance  Expense   Rate
--------------------------------------------------------------------------------------------------------------------
Assets(1)
Earning assets:
   Loans (2,3):
     Taxable                $509,409 $36,021    7.07%     $516,958  $35,923    6.95%       $508,151  $32,012   6.30%
     Tax-exempt (4)            5,714     411    7.19         5,409      371    6.86           4,815      310   6.44
   Securities (5):
     Taxable                  15,309     722    4.72        24,506    1,052    4.29          28,610      831   2.90
     Tax-exempt (4)          126,054   7,398    5.87        67,049    3,961    5.91          42,427    2,472   5.83
   Federal funds sold
     and other short-term
     investments             153,253   7,527    4.91       148,475    7,262    4.89         113,282    3,596   3.17
--------------------------------------------------------------------------------------------------------------------
Total earning assets         809,739  52,079    6.43       762,397   48,569    6.37         697,285   39,221   5.62
Nonearning assets:
   Cash and due from banks    24,313                        28,645                           28,874
   Premises and equipment,
. . .