Great Southern Bancorp (GSBC) 10-Q 2021 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934

For the Quarterly Period Ended September 30, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 0-18082

GREAT SOUTHERN BANCORP, INC.

(Exact name of registrant as specified in its charter)

Maryland		43-1524856
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
1451 E. Battlefield, Springfield, Missouri	���	65804
(Address of principal executive offices)		(Zip Code)
(417) 887-4400
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act.

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock,
par value $0.01 per share	GSBC	The NASDAQ Stock Market LLC

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 ☒     No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data file required to be submitted 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 such files). Yes ☒   No ☐

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

Large accelerated filer ☐	Accelerated filer ☒
Non-accelerated filer ☐	Smaller reporting company ☐
	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐   No ☒

The number of shares outstanding of each of the registrant’s classes of common stock: 13,338,563 shares of common stock, par value $.01 per share, outstanding at November 3, 2021.

PART I FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

GREAT SOUTHERN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(In thousands, except number of shares)

	SEPTEMBER 30,		DECEMBER 31,
	2021		2020
	(Unaudited)
ASSETS
Cash	$	89,263	$	92,403
Interest-bearing deposits in other financial institutions		679,929		471,326
Cash and cash equivalents		769,192		563,729
Available-for-sale securities		432,938		414,933
Mortgage loans held for sale		10,809		17,780
Loans receivable, net of allowance for credit losses of $63,629 – September 2021; net of allowance for loan losses of $55,743 - December 2020		4,025,686		4,296,804
Interest receivable		11,290		12,793
Prepaid expenses and other assets		43,120		58,889
Other real estate owned and repossessions, net		1,242		1,877
Premises and equipment, net		134,813		139,170
Goodwill and other intangible assets		6,239		6,944
Federal Home Loan Bank stock and other interest-earning assets		6,655		9,806
Current and deferred income taxes		9,851		3,695
Total Assets	$	5,451,835	$	5,526,420
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Deposits	$	4,510,196	$	4,516,903
Securities sold under reverse repurchase agreements with customers		167,295		164,174
Short-term borrowings and other interest-bearing liabilities		1,673		1,518
Subordinated debentures issued to capital trust		25,774		25,774
Subordinated notes		73,910		148,397
Accrued interest payable		1,730		2,594
Advances from borrowers for taxes and insurance		8,896		7,536
Accrued expenses and other liabilities		29,368		29,783
Liability for unfunded commitments		8,352		—
Total Liabilities		4,827,194		4,896,679
Stockholders’ Equity:
Capital stock
Serial preferred stock - $.01 par value; authorized 1,000,000 shares; issued and outstanding September 2021 and December 2020 - - 0- shares		—		—
Common stock, $.01 par value; authorized 20,000,000 shares; issued and outstanding September 2021 – 13,366,737 shares; December 2020 – 13,752,605 shares		134		138
Additional paid-in capital		37,468		35,004
Retained earnings		549,800		541,448
Accumulated other comprehensive income		37,239		53,151
Total Stockholders’ Equity		624,641		629,741
Total Liabilities and Stockholders’ Equity	$	5,451,835	$	5,526,420

See Notes to Consolidated Financial Statements

1

GREAT SOUTHERN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)

	THREE MONTHS ENDED
	SEPTEMBER 30,
	2021		2020
	(Unaudited)
INTEREST INCOME
Loans	$	46,536	$	50,476
Investment securities and other		3,104		3,123
TOTAL INTEREST INCOME		49,640		53,599
INTEREST EXPENSE
Deposits		2,925		7,094
Short-term borrowings and repurchase agreements		10		8
Subordinated debentures issued to capital trust		111		128
Subordinated notes		1,671		2,201
TOTAL INTEREST EXPENSE		4,717		9,431
NET INTEREST INCOME		44,923		44,168
PROVISION (CREDIT) FOR CREDIT LOSSES ON LOANS		(3,000)		4,500
PROVISION FOR UNFUNDED COMMITMENTS		643		—
NET INTEREST INCOME AFTER PROVISION (CREDIT) FOR CREDIT LOSSES AND PROVISION FOR UNFUNDED COMMITMENTS		47,280		39,668
NON-INTEREST INCOME
Commissions		325		318
Overdraft and insufficient funds fees		1,845		1,635
Point-Of-Sale and ATM fee income and service charges		3,714		3,057
Net gains on loan sales		2,341		2,878
Late charges and fees on loans		481		352
Gain on derivative interest rate products		45		89
Other income		1,047		1,137
TOTAL NON-INTEREST INCOME		9,798		9,466
NON-INTEREST EXPENSE
Salaries and employee benefits		17,834		18,701
Net occupancy and equipment expense		7,244		7,147
Postage		759		748
Insurance		775		753
Advertising		997		757
Office supplies and printing		200		271
Telephone		848		987
Legal, audit and other professional fees		636		582
Expense on other real estate and repossessions		103		199
Acquired deposit intangible asset amortization		158		289
Other operating expenses		1,785		1,554
TOTAL NON-INTEREST EXPENSE		31,339		31,988
INCOME BEFORE INCOME TAXES		25,739		17,146
PROVISION FOR INCOME TAXES		5,375		3,692
NET INCOME AND NET INCOME AVAILABLE TO COMMON STOCKHOLDERS	$	20,364	$	13,454
Basic Earnings Per Common Share	$	1.50	$	0.96
Diluted Earnings Per Common Share	$	1.49	$	0.96
Dividends Declared Per Common Share	$	0.36	$	0.34

See Notes to Consolidated Financial Statements

2

GREAT SOUTHERN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)

	NINE MONTHS ENDED
	SEPTEMBER 30,
	2021		2020
	(Unaudited)
INTEREST INCOME
Loans	$	141,605	$	155,453
Investment securities and other		9,120		9,631
TOTAL INTEREST INCOME		150,725		165,084
INTEREST EXPENSE
Deposits		10,604		26,712
Short-term borrowings and repurchase agreements		29		667
Subordinated debentures issued to capital trust		337		511
Subordinated notes		6,060		4,633
TOTAL INTEREST EXPENSE		17,030		32,523
NET INTEREST INCOME		133,695		132,561
PROVISION (CREDIT) FOR CREDIT LOSSES ON LOANS		(3,700)		14,371
CREDIT FOR UNFUNDED COMMITMENTS		(338)		—
NET INTEREST INCOME AFTER PROVISION (CREDIT) FOR CREDIT LOSSES AND CREDIT FOR UNFUNDED COMMITMENTS		137,733		118,190
NON-INTEREST INCOME
Commissions		977		760
Overdraft and insufficient funds fees		4,817		4,712
Point-Of-Sale and ATM fee income and service charges		11,043		8,878
Net gains on loan sales		7,643		5,308
Late charges and fees on loans		1,141		1,175
Gain (loss) on derivative interest rate products		340		(424)
Net realized gains on sales of available-for-sale securities		—		78
Other income		3,159		4,606
TOTAL NON-INTEREST INCOME		29,120		25,093
NON-INTEREST EXPENSE
Salaries and employee benefits		52,887		53,699
Net occupancy and equipment expense		21,013		20,619
Postage		2,387		2,294
Insurance		2,294		1,668
Advertising		2,187		1,814
Office supplies and printing		639		806
Telephone		2,597		2,904
Legal, audit and other professional fees		1,814		1,844
Expense on other real estate and repossessions		473		946
Acquired deposit intangible asset amortization		705		866
Other operating expenses		4,856		4,691
TOTAL NON-INTEREST EXPENSE		91,852		92,151
INCOME BEFORE INCOME TAXES		75,001		51,132
PROVISION FOR INCOME TAXES		15,655		9,607
NET INCOME AND NET INCOME AVAILABLE TO COMMON STOCKHOLDERS	$	59,346	$	41,525
Basic Earnings Per Common Share	$	4.35	$	2.94
Diluted Earnings Per Common Share	$	4.32	$	2.93
Dividends Declared Per Common Share	$	1.04	$	2.02

See Notes to Consolidated Financial Statements

3

GREAT SOUTHERN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands, except per share data)

	THREE MONTHS ENDED
	SEPTEMBER 30,
	2021		2020
	(Unaudited)
Net Income	$	20,364	$	13,454
Unrealized depreciation on available-for-sale securities, net of taxes (credit) of $(1,011) and $(531), for 2021 and 2020, respectively		(3,420)		(1,796)
Amortization of realized gain on termination of cash flow hedge, net of taxes (credit) of $(468) and $(467), for 2021 and 2020, respectively		(1,580)		(1,581)
Comprehensive Income	$	15,364	$	10,077

	NINE MONTHS ENDED
	SEPTEMBER 30,
	2021		2020
	(Unaudited)
Net Income	$	59,346	$	41,525
Unrealized appreciation (depreciation) on available-for-sale securities, net of taxes (credit) of $(3,314) and $4,482, for 2021 and 2020, respectively		(11,222)		15,177
Reclassification adjustment for gains included in net income, net of taxes of $0 and $18, for 2021 and 2020, respectively		—		(60)
Change in fair value of cash flow hedge, net of taxes of $0 and $3,519, for 2021 and 2020, respectively		—		11,914
Amortization of realized gain on termination of cash flow hedge, net of taxes (credit) of $(1,386) and $(1,075), for 2021 and 2020, respectively		(4,690)		(3,643)
Comprehensive Income	$	43,434	$	64,913

See Notes to Consolidated Financial Statements

4

GREAT SOUTHERN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except per share data)

	THREE MONTHS ENDED SEPTEMBER 30, 2020
							Accumulated
							Other
	Common		Additional		Retained		Comprehensive		Treasury
	Stock		Paid-in Capital		Earnings		Income (Loss)		Stock		Total
	(Unaudited)
Balance, June 30, 2020	$	141	$	34,230	$	533,346	$	59,011	$	—	$	626,728
Net income		—		—		13,454		—		—		13,454
Stock issued under Stock Option Plan		—		309		—		—		37		346
Common dividends declared, $0.34 per share		—		—		(4,790)		—		—		(4,790)
Other comprehensive loss		—		—		—		(3,377)		—		(3,377)
Purchase of the Company’s common stock		—		—		—		—		(7,718)		(7,718)
Reclassification of treasury stock per Maryland law		(2)		—		(7,679)		—		7,681		—
Balance, September 30, 2020	$	139	$	34,539	$	534,331	$	55,634	$	—	$	624,643

	THREE MONTHS ENDED SEPTEMBER 30, 2021
				���			Accumulated
							Other
	Common		Additional		Retained		Comprehensive		Treasury
	Stock		Paid-in Capital		Earnings		Income (Loss)		Stock		Total
	(Unaudited)
Balance, June 30, 2021	$	137	$	36,880	$	550,301	$	42,239	$	—	$	629,557
Net income		—		—		20,364		—		—		20,364
Stock issued under Stock Option Plan		—		588		—		—		257		845
Common dividends declared, $0.36 per share		—		—		(4,812)		—		—		(4,812)
Other comprehensive loss		—		—		—		(5,000)		—		(5,000)
Purchase of the Company’s common stock		—		—		—		—		(16,313)		(16,313)
Reclassification of treasury stock per Maryland law		(3)		—		(16,053)		—		16,056		—
Balance, September 30, 2021	$	134	$	37,468	$	549,800	$	37,239	$	—	$	624,641

See Notes to Consolidated Financial Statements

5

GREAT SOUTHERN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except per share data)

	NINE MONTHS ENDED SEPTEMBER 30, 2020
							Accumulated
							Other
	Common		Additional		Retained		Comprehensive		Treasury
	Stock		Paid-in Capital		Earnings		Income (Loss)		Stock		Total
	(Unaudited)
Balance, January 1, 2020	$	143	$	33,510	$	537,167	$	32,246	$	—	$	603,066
Net income		—		—		41,525		—		—		41,525
Stock issued under Stock Option Plan		—		1,029		—		—		133		1,162
Common dividends declared, $2.02 per share		—		—		(28,631)		—		—		(28,631)
Other comprehensive gain		—		—		—		23,388		—		23,388
Purchase of the Company’s common stock		—		—		—		—		(15,867)		(15,867)
Reclassification of treasury stock per Maryland law		(4)		—		(15,730)		—		15,734		—
Balance, September 30, 2020	$	139	$	34,539	$	534,331	$	55,634	$	—	$	624,643

	NINE MONTHS ENDED SEPTEMBER 30, 2021
							Accumulated
							Other
	Common		Additional		Retained		Comprehensive		Treasury
	Stock		Paid-in Capital		Earnings		Income (Loss)		Stock		Total
	(Unaudited)
Balance, January 1, 2021	$	138	$	35,004	$	541,448	$	53,151	$	—	$	629,741
Net income		—		—		59,346		—		—		59,346
Impact of ASU 2016-13 adoption		—		—		(14,175)		—		—		(14,175)
Stock issued under Stock Option Plan		—		2,464		—		—		1,074		3,538
Common dividends declared, $1.04 per share		—		—		(14,124)		—		—		(14,124)
Other comprehensive loss		—		—		—		(15,912)		—		(15,912)
Purchase of the Company’s common stock		—		—		—		—		(23,773)		(23,773)
Reclassification of treasury stock per Maryland law		(4)		—		(22,695)		—		22,699		—
Balance, September 30, 2021	$	134	$	37,468	$	549,800	$	37,239	$	—	$	624,641

See Notes to Consolidated Financial Statements

6

GREAT SOUTHERN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	NINE MONTHS ENDED
	SEPTEMBER 30,
	2021		2020
	(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	59,346	$	41,525
Proceeds from sales of loans held for sale		280,764		220,910
Originations of loans held for sale		(265,557)		(228,836)
Items not requiring (providing) cash:
Depreciation		7,288		7,478
Amortization		1,330		1,344
Compensation expense for stock option grants		895		837
Provision (credit) for credit losses on loans		(3,700)		14,371
Provision (credit) for unfunded commitments		(338)		—
Net gains on loan sales		(7,643)		(5,308)
Net realized gains on sales of available-for-sale securities		—		(78)
Net (gains) losses on sale of premises and equipment		(7)		19
Net (gains) losses on sale/write-down of other real estate owned and repossessions		(86)		31
Accretion of deferred income, premiums, discounts and other		(7,515)		(4,076)
Loss (gain) on derivative interest rate products		(341)		424
Deferred income taxes		1,998		(12,400)
Changes in:
Interest receivable		1,503		(984)
Prepaid expenses and other assets		8,263		311
Accrued expenses and other liabilities		842		(1,912)
Income taxes refundable/payable		705		2,124
Net cash provided by operating activities		77,747		35,780
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in loans		350,917		(268,313)
Purchase of loans and loan participations		(79,403)		(3,675)
Purchase of premises and equipment		(3,976)		(6,609)
Proceeds from sale of premises and equipment		453		527
Proceeds from sale of other real estate owned and repossessions		1,723		3,461
Capitalized costs on other real estate owned		—		(126)
Proceeds from termination of interest rate derivative		—		45,864
Proceeds from sales of available-for-sale securities		—		19,236
Proceeds from maturities and calls of available-for-sale securities		6,330		26,940
Principal reductions on mortgage-backed securities		41,615		19,650
Purchase of available-for-sale securities		(80,905)		(118,296)
Redemption of Federal Home Loan Bank stock and change in other interest-earning assets		3,151		2,437
Net cash provided by (used in) investing activities		239,905		(278,904)
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in certificates of deposit		(335,031)		(210,626)
Net increase in checking and savings deposits		328,324		694,288
Net increase (decrease) in short-term borrowings		3,276		(156,064)
Advances from borrowers for taxes and insurance		1,360		4,357
Proceeds from issuance of subordinated notes		—		73,513
Redemption of subordinated notes		(75,000)		—
Dividends paid		(13,988)		(28,691)
Purchase of the Company’s common stock		(23,773)		(15,867)
Stock options exercised		2,643		325
Net cash provided by (used in) financing activities		(112,189)		361,235
INCREASES IN CASH AND CASH EQUIVALENTS		205,463		118,111
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		563,729		220,155
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	769,192	$	338,266

See Notes to Consolidated Financial Statements

7

GREAT SOUTHERN BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1: BASIS OF PRESENTATION

The accompanying unaudited interim consolidated financial statements of Great Southern Bancorp, Inc. (the “Company” or “Great Southern”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. The financial statements presented herein reflect all adjustments which are, in the opinion of management, necessary to fairly present the financial condition, results of operations, changes in stockholders’ equity and cash flows of the Company as of the dates and for the periods presented. Those adjustments consist only of normal recurring adjustments. Operating results for the three and nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the full year. The consolidated statement of financial condition of the Company as of December 31, 2020, has been derived from the audited consolidated statement of financial condition of the Company as of that date. Certain prior period amounts have been reclassified to conform to the current period presentation. These reclassifications had no effect on net income.

Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 filed with the Securities and Exchange Commission (the “SEC”).

NOTE 2: NATURE OF OPERATIONS AND OPERATING SEGMENTS

The Company operates as a one-bank holding company. The Company’s business primarily consists of the operations of Great Southern Bank (the “Bank”), which provides a full range of financial services to customers primarily located in Missouri, Iowa, Kansas, Minnesota, Nebraska and Arkansas. The Bank also originates commercial loans from lending offices in Atlanta, Ga., Chicago, Ill., Dallas, Texas, Denver, Colo., Omaha, Neb. and Tulsa, Okla. The Company and the Bank are subject to regulation by certain federal and state agencies and undergo periodic examinations by those regulatory agencies.

The Company’s banking operation is its only reportable segment. The banking operation is principally engaged in the business of originating residential and commercial real estate loans, construction loans, commercial business loans and consumer loans and funding these loans by attracting deposits from the general public, accepting brokered deposits and borrowing from the Federal Home Loan Bank and others. The operating results of this segment are regularly reviewed by management to make decisions about resource allocations and to assess performance. Selected information is not presented separately for the Company’s reportable segment, as there is no material difference between that information and the corresponding information in the consolidated financial statements.

NOTE 3: RECENT ACCOUNTING PRONOUNCEMENTS

In June 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (ASU) No. 2016-13, Financial Instruments – Credit Losses (Topic 326). The Update amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For assets held at amortized cost basis, Topic 326 eliminates the probable initial recognition threshold in GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. The Update affects entities holding financial assets and net investments in leases that are not accounted for at fair value through net income. The Update affects loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. The Update was set to be effective for the Company on January 1, 2020. During March 2020, pursuant to the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) and guidance from the SEC and FASB, we elected to delay adoption of the new accounting standard under the Update, which is referred to as the current expected credit loss (“CECL”) methodology. In December 2020, additional legislation was enacted that amended certain provisions of the CARES Act. One of the provisions that was affected by this additional legislation allowed for the election to further delay the adoption of the CECL accounting standard to January 1, 2022. An adoption date of January 1, 2021, was also an acceptable option and we elected January 1, 2021 as our adoption date for the CECL standard. As a result, our 2020 financial statements were prepared under the incurred loss methodology standard for accounting for loan losses.

8

The adoption of the CECL model during the first quarter of 2021 required us to recognize a one-time cumulative adjustment to our allowance for credit losses and a liability for potential losses related to the unfunded portion of our loans and commitments in order to fully transition from the incurred loss model to the CECL model. Upon initial adoption, we increased the balance of our allowance for credit losses related to outstanding loans by $11.6 million and created a liability for potential losses related to the unfunded portion of our loans and commitments of $8.7 million. The after-tax effect of these adjustments decreased our retained earnings by $14.2 million.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 provides relief for companies preparing for discontinuation of interest rates such as the London Interbank Offered Rate (“LIBOR”). LIBOR is a benchmark interest rate referenced in a variety of agreements that are used by numerous entities. After 2021, certain LIBOR rates may no longer be published. As a result, LIBOR is expected to be discontinued as a reference rate. Other interest rates used globally could also be discontinued for similar reasons. ASU 2020-04 provides optional expedients and exceptions to contracts, hedging relationships and other transactions affected by reference rate reform. The main provisions for contract modifications include optional relief by allowing the modification as a continuation of the existing contract without additional analysis and other optional expedients regarding embedded features. Optional expedients for hedge accounting permits changes to critical terms of hedging relationships and to the designated benchmark interest rate in a fair value hedge and also provides relief for assessing hedge effectiveness for cash flow hedges. Companies are able to apply ASU 2020-04 immediately; however, the guidance will only be available for a limited time (generally through December 31, 2022). The application of ASU 2020-04 has not had, and is not expected to have, a material impact on the Company’s consolidated financial statements.

In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope. ASU 2021-01 clarifies that certain optional expedients and exceptions in ASC 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. ASU 2021-01 also amends the expedients and exceptions in ASC 848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition. ASU 2021-01 was effective upon issuance and generally can be applied through December 31, 2022. ASU 2021-01 has not had, and is not expected to have, a material impact on the Company’s consolidated financial statements.

NOTE 4: EARNINGS PER SHARE

	Three Months Ended September 30,
	2021		2020
	(In Thousands, Except Per Share Data)
Basic:
Average common shares outstanding		13,534		14,053
Net income and net income available to common stockholders	$	20,364	$	13,454
Per common share amount	$	1.50	$	0.96
Diluted:
Average common shares outstanding		13,534		14,053
Net effect of dilutive stock options – based on the treasury stock method using average market price		92		32
Diluted common shares		13,626		14,085
Net income and net income available to common stockholders	$	20,364	$	13,454
Per common share amount	$	1.49	$	0.96

9

	Nine Months Ended September 30,
	2021		2020
	(In Thousands, Except Per Share Data)
Basic:
Average common shares outstanding		13,652		14,119
Net income and net income available to common stockholders	$	59,346	$	41,525
Per common share amount	$	4.35	$	2.94
Diluted:
Average common shares outstanding		13,652		14,119
Net effect of dilutive stock options – based on the treasury stock method using average market price		92		46
Diluted common shares		13,744		14,165
Net income and net income available to common stockholders	$	59,346	$	41,525
Per common share amount	$	4.32	$	2.93

Options outstanding at September 30, 2021 and 2020, to purchase 448,256 and 654,369 shares of common stock, respectively, were not included in the computation of diluted earnings per common share for each of the three month periods because the exercise prices of such options were greater than the average market prices of the common stock for the three months ended September 30, 2021 and 2020, respectively. Options outstanding at September 30, 2021 and 2020, to purchase 448,256 and 650,869 shares of common stock, respectively, were not included in the computation of diluted earnings per common share for the nine month periods because the exercise prices of such options were greater than the average market prices of the common stock for the nine months ended September 30, 2021 and 2020, respectively.

NOTE 5: INVESTMENT SECURITIES

The amortized cost and fair values of securities classified as available-for-sale were as follows:

	September 30, 2021
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
	(In Thousands)
AVAILABLE-FOR-SALE SECURITIES:
Agency mortgage-backed securities	$	157,316	$	12,402	$	898	$	168,820
Agency collateralized mortgage obligations		203,680		3,688		1,637		205,731
States and political subdivisions		38,571		1,582		116		40,037
Small Business Administration securities		17,781		569		—		18,350
	$	417,348	$	18,241	$	2,651	$	432,938

	December 31, 2020
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
	(In Thousands)
AVAILABLE-FOR-SALE SECURITIES:
Agency mortgage-backed securities	$	151,106	$	19,665	$	831	$	169,940
Agency collateralized mortgage obligations		168,472		8,524		375		176,621
States and political subdivisions		45,196		2,135		6		47,325
Small Business Administration securities		20,033		1,014		—		21,047
	$	384,807	$	31,338	$	1,212	$	414,933

10

The amortized cost and fair value of available-for-sale securities at September 30, 2021, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Amortized		Fair
	Cost		Value
	(In Thousands)
One year or less	$	—	$	—
After one through five years		1,002		1,045
After five through ten years		9,202		9,882
After ten years		28,367		29,110
Securities not due on a single maturity date		378,777		392,901
	$	417,348	$	432,938

There were 0 securities classified as held to maturity at September 30, 2021 or December 31, 2020.

Certain investments in debt securities are reported in the financial statements at an amount less than their historical cost. Total fair value of these investments at September 30, 2021 and December 31, 2020, was approximately $99.0 million and $24.2 million, respectively, which is approximately 22.9% and 5.8% of the Company’s available-for-sale investment portfolio, respectively.

Based on an evaluation of available evidence, including recent changes in market interest rates, credit rating information and information obtained from regulatory filings, management believes any declines in fair value for these debt securities are temporary.

The following table shows the Company’s gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2021 and December 31, 2020:

	September 30, 2021
	Less than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
Description of Securities	Value		Losses		Value		Losses		Value		Losses
	(In Thousands)
Agency mortgage-backed securities	$	10,084	$	(898)	$	—	$	—	$	10,084	$	(898)
Agency collateralized mortgage obligations		67,941		(963)		12,418		(674)		80,359		(1,637)
States and political subdivisions securities		8,578		(116)		—		—		8,578		(116)
	$	86,603	$	(1,977)	$	12,418	$	(674)	$	99,021	$	(2,651)

	December 31, 2020
	Less than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
Description of Securities	Value		Losses		Value		Losses		Value		Losses
	(In Thousands)
Agency mortgage-backed securities	$	10,279	$	(831)	$	—	$	—	$	10,279	$	(831)
Agency collateralized mortgage obligations		12,727		(375)		—		—		12,727		(375)
Small Business Administration securities		—		—		—		—		—		—
States and political subdivisions securities		1,164		(6)		—		—		1,164		(6)
	$	24,170	$	(1,212)	$	—	$	—	$	24,170	$	(1,212)

There were 0 sales of available-for-sale securities during the three or nine months ended September 30, 2021. There were 0 sales of available-for-sale securities during the three months ended September 30, 2020.Gross gains of $78,000 resulting from sales of available-for-sale securities were realized during the nine months ended September 30, 2020. Gains and losses on sales of securities are determined on the specific-identification method.

11

Allowance for Credit Losses On January 1, 2021, the Company began evaluating all securities quarterly to determine if any securities in a loss position require a provision for credit losses in accordance with ASC 326, Measurement of Credit Losses on Financial Instruments. All of the mortgage-backed, collateralized mortgage, and SBA securities held by the Company are issued by U.S. government-sponsored entities and agencies. These securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies and have a long history of no credit losses. Likewise, the Company has not experienced historical losses on these types of securities. Accordingly, 0 allowance for credit losses has been recorded for these securities.

Regarding securities issued by state and political subdivisions, management considers the following when evaluating these securities: (i) current issuer bond ratings, (ii) historical loss rates for given bond ratings, (iii) whether issuers continue to make timely principal and interest payments under the contractual terms of the securities, (iv) updated financial information of the issuer, (v) internal forecasts and (vi) whether such securities provide insurance or other credit enhancement or are pre-refunded by the issuers. These securities are highly rated by major rating agencies and have a long history of no credit losses. Likewise, the Company has not experienced historical losses on these types of securities. Accordingly, no allowance for credit losses has been recorded for these securities.

Amounts Reclassified Out of Accumulated Other Comprehensive Income. There were 0 amounts reclassified from accumulated other comprehensive income during the three or nine months ended September 30, 2021 and 2020.

NOTE 6: LOANS AND ALLOWANCE FOR CREDIT LOSSES

The Company adopted ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, effective January 1, 2021. The guidance replaces the incurred loss methodology with an expected loss methodology that is referred to as the CECL methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables. It also applies to off-balance sheet credit exposures not accounted for as insurance, including loan commitments, standby letters of credits, financial guarantees, and other similar instruments. The Company adopted ASC 326 using the modified retrospective method for loans and off-balance sheet credit exposures. The Company recorded a one-time cumulative-effect adjustment to the allowance for credit losses of $11.6 million. This adjustment brought the balance of the allowance for credit losses to $67.3 million as of January 1, 2021. In addition, the Company recorded an $8.7 million liability for unfunded commitments as of January 1, 2021. The after-tax effect decreased retained earnings by $14.2 million. The adjustment was based upon the Company’s analysis of then-current conditions, assumptions and economic forecasts at January 1, 2021.

The Company adopted ASC 326 using the prospective transition approach for financial assets purchased with credit deterioration (PCD) that were previously classified as purchased credit impaired (PCI) and accounted for under ASC 310-30. In accordance with the standard, management did not reassess whether PCI assets met the criteria of PCD assets as of the date of adoption. On January 1, 2021, the amortized cost basis of the PCD assets were adjusted to reflect the addition of $1.9 million of the allowance for credit losses.

Results for reporting periods after December 31, 2020 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP. Under the incurred loss model, the Company delayed recognition of losses until it was probable that a loss was incurred. The allowance for loan losses was established as losses were estimated to have occurred through a provision for loan losses charged to earnings. Loan losses were charged against the allowance when management believed the uncollectability of a loan balance was confirmed. The allowance for loan losses was evaluated on a regular basis by management and was based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. The allowance consisted of allocated and general components. The allocated component relates to loans that are classified as impaired. For loans classified as impaired, an allowance is established when the present value of expected future cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers non-classified loans and is based on historical charge-off experience and expected loss given default derived from the Company’s internal risk rating process. Results for reporting periods after December 31, 2020 include loans acquired and accounted for under ASC 310-30 net of discount within the loan classes, while for reporting periods prior to January 1, 2021 the loans acquired and accounted for under ASC 310-30 are separate.

12

Beginning on January 1, 2021, the allowance for credit losses is measured using an average historical loss model which incorporates relevant information about past events (including historical credit loss experience on loans with similar risk characteristics), current conditions, and reasonable and supportable forecasts that affect the collectability of the remaining cash flows over the contractual term of the loans. The allowance for credit losses is measured on a collective (pool) basis. Loans are aggregated into pools based on similar risk characteristics including borrower type, collateral and repayment types and expected credit loss patterns. Loans that do not share similar risk characteristics, primarily classified and/or TDR loans with a balance greater than or equal to $100,000, are evaluated on an individual basis.

For loans evaluated for credit losses on a collective basis, average historical loss rates are calculated for each pool using the Company’s historical net charge-offs (combined charge-offs and recoveries by observable historical reporting period) and outstanding loan balances during a lookback period. Lookback periods can be different based on the individual pool and represent management’s credit expectations for the pool of loans over the remaining contractual life. In certain loan pools, if the Company’s own historical loss rate is not reflective of the loss expectations, the historical loss rate is augmented by industry and peer data. The calculated average net charge-off rate is then adjusted for current conditions and reasonable and supportable forecasts. These adjustments increase or decrease the average historical loss rate to reflect expectations of future losses given economic forecasts of key macroeconomic variables including, but not limited to, unemployment rate, GDP, disposable income and market volatility. The adjustments are based on results from various regression models projecting the impact of the macroeconomic variables to loss rates. The forecast is used for a reasonable and supportable period before reverting to historical averages using a straight-line method. The forecast-adjusted loss rate is applied to the amortized cost of loans over the remaining contractual lives, adjusted for expected prepayments. The contractual term excludes expected extensions, renewals and modifications unless there is a reasonable expectation that a troubled debt restructuring (“TDR”) will be executed. Additionally, the allowance for credit losses considers other qualitative factors not included in historical loss rates or macroeconomic forecasts such as changes in portfolio composition, underwriting practices, or significant unique events or conditions.

ASU 2016-13 requires an allowance for off balance sheet credit exposures; unfunded lines of credit, undisbursed portions of loans, written residential and commercial commitments, and letters of credit. To determine the amount needed for allowance purposes, a utilization rate is determined either by the model or internally for each pool. Our loss model calculates the reserve on unfunded commitments based upon the utilization rate multiplied by the average loss rate factors in each pool with unfunded and committed balances. The liability for unfunded lending commitments utilizes the same model as the allowance for credit losses on loans; however, the liability for unfunded lending commitments incorporates assumptions for the portion of unfunded commitments that are expected to be funded.

13

Classes of loans at September 30, 2021 and December 31, 2020 were as follows:

	September 30,			December 31,
	2021			2020
	(In Thousands)
One- to four-family residential construction	$	47,317		$	42,793
Subdivision construction		9,532			30,894
Land development		47,857			54,010
Commercial construction		1,371,227			1,212,837
Owner occupied one- to four-family residential		554,886			470,436
Non-owner occupied one- to four-family residential		120,275			114,569
Commercial real estate		1,528,425			1,553,677
Other residential		794,572			1,021,145
Commercial business		295,696			370,898
Industrial revenue bonds		14,369			14,003
Consumer auto		55,294			86,173
Consumer other		39,012			40,762
Home equity lines of credit		117,977			114,689
Loans acquired and accounted for under ASC 310-30, net of discounts (1)		—			98,643
		4,996,439			5,225,529
Undisbursed portion of loans in process		(898,005)			(863,722)
Allowance for credit losses		(63,629)			(55,743)
Deferred loan fees and gains, net		(9,119)			(9,260)
	$	4,025,686		$	4,296,804
Weighted average interest rate		4.30	%		4.29	%

(1) Loans acquired and accounted for under ASC 310-30 of $79.5 million have been included in the totals by loan class as of September 30, 2021. At the date of CECL adoption, the Company did not reassess whether PCI loans met the criteria of PCD loans.
​

The following tables present the classes of loans by aging. Loans originally acquired and accounted for under ASC 310-30 of $79.5 million have been included in the totals by loan class as of September 30, 2021.

	September 30, 2021
													Total Loans
					Over 90						Total		> 90 Days Past
	30-59 Days		60-89 Days		Days		Total Past				Loans		Due and
	Past Due		Past Due		Past Due		Due		Current		Receivable		Still Accruing
	(In Thousands)
One- to four-family residential construction	$	1	$	—	$	—	$	1	$	47,316	$	47,317	$	—
Subdivision construction		—		—		—		—		9,532		9,532		—
Land development		16		—		468		484		47,373		47,857		—
Commercial construction		—		—		—		—		1,371,227		1,371,227		—
Owner occupied one- to four-family residential		223		49		2,946		3,218		551,668		554,886		—
Non-owner occupied one- to four-family residential		—		—		59		59		120,216		120,275		—
Commercial real estate		—		—		2,598		2,598		1,525,827		1,528,425		—
Other residential		—		—		—		—		794,572		794,572		—
Commercial business		114		—		111		225		295,471		295,696		—
Industrial revenue bonds		—		—		—		—		14,369		14,369		—
Consumer auto		306		45		58		409		54,885		55,294		—
Consumer other		188		19		72		279		38,733		39,012		—
Home equity lines of credit		—		39		669		708		117,269		117,977		—
		848		152		6,981		7,981		4,988,458		4,996,439		—
Less: FDIC-assisted acquired loans		218		41		1,938		2,197		77,336		79,533		—
Total	$	630	$	111	$	5,043	$	5,784	$	4,911,122	$	4,916,906	$	—

14

	December 31, 2020
													Total Loans
					Over 90						Total		> 90 Days Past
	30-59 Days		60-89 Days		Days		Total Past				Loans		Due and
	Past Due		Past Due		Past Due		Due		Current		Receivable		Still Accruing
	(In Thousands)
One- to four-family residential construction	$	1,365	$	—	$	—	$	1,365	$	41,428	$	42,793	$	—
Subdivision construction		—		—		—		—		30,894		30,894		—
Land development		20		—		—		20		53,990		54,010		—
Commercial construction		—		—		—		—		1,212,837		1,212,837		—
Owner occupied one- to four-family residential		1,379		113		1,502		2,994		467,442		470,436		—
Non-owner occupied one- to four-family residential		—		—		69		69		114,500		114,569		—
Commercial real estate		—		79		587		666		1,553,011		1,553,677		—
Other residential		—		—		—		—		1,021,145		1,021,145		—
Commercial business		—		—		114		114		370,784		370,898		—
Industrial revenue bonds		—		—		—		—		14,003		14,003		—
Consumer auto		364		119		169		652		85,521		86,173		—
Consumer other		443		7		94		544		40,218		40,762		—
Home equity lines of credit		153		111		508		772		113,917		114,689		—
Loans acquired and accounted for under ASC 310-30, net of discounts		1,662		641		3,843		6,146		92,497		98,643		—
		5,386		1,070		6,886		13,342		5,212,187		5,225,529		—
Less: Loans acquired and accounted for under ASC 310-30, net of discounts		1,662		641		3,843		6,146		92,497		98,643		—
Total	$	3,724	$	429	$	3,043	$	7,196	$	5,119,690	$	5,126,886	$	—

Loans are placed on nonaccrual status at 90 days past due and interest is considered a loss unless the loan is well secured and in the process of collection. Payments received on nonaccrual loans are applied to principal until the loans are returned to accrual status. Loans are returned to accrual status when all payments contractually due are brought current, payment performance is sustained for a period of time, generally six months, and future payments are reasonably assured. With the exception of consumer loans, charge-offs on loans are recorded when available information indicates a loan is not fully collectible and the loss is reasonably quantifiable. Consumer loans are charged-off at specified delinquency dates consistent with regulatory guidelines.

Non-accruing loans as of December 31, 2020 shown below exclude $3.8 million in loans acquired and accounted for under ASC 310-30, while the non-accruing loans as of September 30, 2021 shown below include $1.9 million in loans acquired through various FDIC-assisted transactions in the loan classes listed.

	September 30,		December 31,
	2021		2020
	(In Thousands)
One- to four-family residential construction	$	—	$	—
Subdivision construction		—		—
Land development		468		—
Commercial construction		—		—
Owner occupied one- to four-family residential		2,946		1,502
Non-owner occupied one- to four-family residential		59		69
Commercial real estate		2,598		587
Other residential		—		—
Commercial business		111		114
Industrial revenue bonds		—		—
Consumer auto		58		169
Consumer other		72		94
Home equity lines of credit		669		508
Total non-accruing loans		6,981
Less: FDIC-assisted acquired loans		1,938
Total non-accruing loans net of FDIC-assisted acquired loans	$	5,043	$	3,043

No interest income was recorded on these loans for the three and nine months ended September 30, 2021 and 2020, respectively.

Nonaccrual loans for which there is no related allowance for credit losses as of September 30, 2021 had an amortized cost of $2.7 million. These loans are individually assessed and do not require an allowance due to being adequately collateralized under the collateral-dependent valuation method. A collateral-dependent loan is a financial asset for which the repayment is expected to be

15

provided substantially through the operation or sale of the collateral when the borrower is experiencing financial difficulty based on the Company’s assessment as of the reporting date. Collateral-dependent loans are identified by either a classified risk rating or TDR status and a loan balance equal to or greater than $100,000, including, but not limited to, any loan in process of foreclosure or repossession.

The following tables present the activity in the allowance for credit losses by portfolio segment for the three and nine months ended September 30, 2021. On January 1, 2021, the Company adopted the CECL methodology, which added $11.6 million to the total Allowance for Credit Loss, including $1.9 million of remaining discount on loans that were previously accounted for as PCI. During the three months ended September 30, 2021, the Company recorded a credit (negative expense) of $3.0 million on its portfolio of outstanding loans, compared to a $4.5 million provision expense recorded for the quarter ended September 30, 2020. During the nine months ended September 30, 2021, the Company recorded a credit (negative expense) of $3.7 million on its portfolio of outstanding loans, compared to a $14.4 million provision expense recorded for the nine months ended September 30, 2020.

	One- to Four-
	Family
	Residential and		Other		Commercial		Commercial		Commercial
	Construction		Residential		Real Estate		Construction		Business		Consumer		Total
	(In Thousands)
Allowance for credit losses
Balance, June 30, 2021	$	9,209	$	15,299	$	30,507	$	2,215	$	3,932	$	5,440	$	66,602
Provision (credit) charged to expense		—		—		(3,000)		—		—		—		(3,000)
Losses charged off		(37)		—		—		—		(3)		(446)		(486)
Recoveries		45		—		6		6		52		404		513
Balance, September 30, 2021	$	9,217	$	15,299	$	27,513	$	2,221	$	3,981	$	5,398	$	63,629
Allowance for credit losses
Balance, December 31, 2020	$	4,536	$	9,375	$	33,707	$	3,521	$	2,390	$	2,214	$	55,743
CECL adoption		4,533		5,832		(2,531)		(1,165)		1,499		3,427		11,595
Balance, January 1, 2021		9,069		15,207		31,176		2,356		3,889		5,641		67,338
Provision (credit) charged to expense		—		—		(3,700)		—		—		—		(3,700)
Losses charged off		(179)		—		—		(154)		(60)		(1,647)		(2,040)
Recoveries		327		92		37		19		152		1,404		2,031
Balance, September 30, 2021	$	9,217	$	15,299	$	27,513	$	2,221	$	3,981	$	5,398	$	63,629

The following table presents the activity in the allowance for unfunded commitments by portfolio segment for the three and nine months ended September 30, 2021. On January 1, 2021, the Company adopted the CECL methodology, which created an $8.7 million allowance for unfunded commitments. The provision for losses on unfunded commitments for the three and nine months ended September 30, 2021 was a provision expense of $643,000 and a credit (negative expense) of $338,000, respectively, as the level and mix of unfunded commitments resulted in a decrease in the required reserve for such potential losses in the nine-month period.

	One- to Four-
	Family
	Residential and		Other		Commercial		Commercial		Commercial
	Construction		Residential		Real Estate		Construction		Business		Consumer		Total
	(In Thousands)
Allowance for unfunded commitments
Balance, June 30, 2021	$	760	$	4,972	$	417	$	354	$	821	$	385	$	7,709
Provision (credit) charged to expense		5		188		(79)		—		534		(5)		643
Balance, September 30, 2021	$	765	$	5,160	$	338	$	354	$	1,355	$	380	$	8,352
Allowance for unfunded commitments
Balance, December 31, 2020	$	—	$	—	$	—	$	—	$	—	$	—	$	—
CECL adoption		917		5,227		354		910		935		347		8,690
Balance, January 1, 2021		917		5,227		354		910		935		347		8,690
Provision (credit) charged to expense		(152)		(67)		(16)		(556)		420		33		(338)
Balance, September 30, 2021	$	765	$	5,160	$	338	$	354	$	1,355	$	380	$	8,352

16

The following table presents the activity in the allowance for loan losses by portfolio segment for the three and nine months ended September 30, 2020, prepared using the previous GAAP incurred loss method prior to the adoption of ASU 2016-13.

	One- to Four-
	Family
	Residential and		Other		Commercial		Commercial		Commercial
	Construction		Residential		Real Estate		Construction		Business		Consumer		Total
	(In Thousands)
Allowance for loan losses
Balance, July 1, 2020	$	4,492	$	9,064	$	28,905	$	2,793	$	1,817	$	2,730	$	49,801
Provision (credit) charged to expense		(127)		(344)		3,686		1,222		55		8		4,500
Losses charged off		—		—		—		—		(1)		(685)		(686)
Recoveries		67		11		2		12		35		496		623
Balance, September 30, 2020	$	4,432	$	8,731	$	32,593	$	4,027	$	1,906	$	2,549	$	54,238
Allowance for loan losses
Balance, January 1, 2020	$	4,339	$	5,153	$	24,334	$	3,076	$	1,355	$	2,037	$	40,294
Provision charged to expense		17		3,401		8,217		918		424		1,394		14,371
Losses charged off		(40)		—		—		(1)		(10)		(2,538)		(2,589)
Recoveries		116		177		42		34		137		1,656		2,162
Balance, September 30, 2020	$	4,432	$	8,731	$	32,593	$	4,027	$	1,906	$	2,549	$	54,238

The following table presents the balance in the allowance for loan losses and the recorded investment in loans based on portfolio segment and impairment method as of December 31, 2020, prepared using the previous GAAP incurred loss method prior to the adoption of ASU 2016-13.

	One- to Four-
	Family
	Residential and		Other		Commercial		Commercial		Commercial
	Construction		Residential		Real Estate		Construction		Business		Consumer		Total
	(In Thousands)
Allowance for loan losses
Individually evaluated for impairment	$	90	$	—	$	445	$	—	$	14	$	164	$	713
Collectively evaluated for impairment	$	4,382	$	9,282	$	32,937	$	3,378	$	2,331	$	2,040	$	54,350
Loans acquired and accounted for under ASC 310-30	$	64	$	93	$	325	$	143	$	45	$	10	$	680
Loans
Individually evaluated for impairment	$	3,546	$	—	$	3,438	$	—	$	167	$	1,897	$	9,048
Collectively evaluated for impairment	$	655,146	$	1,021,145	$	1,550,239	$	1,266,847	$	384,734	$	239,727	$	5,117,838
Loans acquired and accounted for under ASC 310-30	$	57,113	$	6,150	$	24,613	$	2,551	$	2,549	$	5,667	$	98,643

The portfolio segments used in the preceding tables correspond to the loan classes used in all other tables in Note 6 as follows:

● The one- to four-family residential and construction segment includes the one- to four-family residential construction, subdivision construction, owner occupied one- to four-family residential and non-owner occupied one- to four-family residential classes.

● The other residential segment corresponds to the other residential class.

● The commercial real estate segment includes the commercial real estate and industrial revenue bonds classes.

● The commercial construction segment includes the land development and commercial construction classes.

● The commercial business segment corresponds to the commercial business class.

● The consumer segment includes the consumer auto, consumer other and home equity lines of credit classes.

17

The following table presents the amortized cost basis of collateral-dependent loans by class of loans as of September 30, 2021:

	September 30, 2021
	Principal		Specific
	Balance		Allowance
	(In Thousands)
One- to four-family residential construction	$	—	$	—
Subdivision construction		—		—
Land development		468		—
Commercial construction		—		—
Owner occupied one- to four- family residential		2,732		21
Non-owner occupied one- to four-family residential		—		—
Commercial real estate		4,481		1,440
Other residential		—		—
Commercial business		—		—
Industrial revenue bonds		—		—
Consumer auto		—		—
Consumer other		—		—
Home equity lines of credit		381		—
Total	$	8,062	$	1,461

The following table presents information pertaining to impaired loans as of December 31, 2020, in accordance with previous GAAP prior to the adoption of ASU 2016-13. A loan is considered impaired, in accordance with the impairment accounting guidance (FASB ASC 310-10-35-16), when based on current information and events, it is probable the Company will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Impaired loans include not only nonperforming loans or classified loans, but also loans modified in TDRs where concessions have been granted to borrowers experiencing financial difficulties.

	At or for the Year Ended December 31, 2020
							Average
			Unpaid				Investment		Interest
	Recorded		Principal		Specific		in Impaired		Income
	Balance		Balance		Allowance		Loans		Recognized
	(In Thousands)
One- to four-family residential construction	$	—	$	—	$	—	$	—	$	—
Subdivision construction		20		20		—		115		3
Land development		—		—		—		—		—
Commercial construction		—		—		—		—		—
Owner occupied one- to four- family residential		3,457		3,776		90		2,999		169
Non-owner occupied one- to four-family residential		69		106		—		309		18
Commercial real estate		3,438		3,472		445		3,736		135
Other residential		—		—		—		—		—
Commercial business		166		551		14		800		34
Industrial revenue bonds		—		—		—		—		—
Consumer auto		865		964		140		932		91
Consumer other		403		552		19		298		47
Home equity lines of credit		630		668		5		550		36
Total	$	9,048	$	10,109	$	713	$	9,739	$	533

18

	September 30, 2020
			Unpaid
	Recorded		Principal		Specific
	Balance		Balance		Allowance
	(In Thousands)
One- to four-family residential construction	$	—	$	—	$	—
Subdivision construction		22		22		—
Land development		—		—		—
Commercial construction		—		—		—
Owner occupied one- to four- family residential		3,342		3,460		78
Non-owner occupied one- to four-family residential		238		238		—
Commercial real estate		3,056		3,056		466
Other residential		—		—		—
Commercial business		197		210		15
Industrial revenue bonds		—		—		—
Consumer auto		1,024		1,040		166
Consumer other		333		355		17
Home equity lines of credit		553		558		4
Total	$	8,765	$	8,939	$	746

	Three Months Ended				Nine Months Ended
	September 30, 2020				September 30, 2020
	Average				Average
	Investment		Interest		Investment		Interest
	in Impaired		Income		in Impaired		Income
	Loans		Recognized		Loans		Recognized
	(In Thousands)
One- to four-family residential construction	$	—	$	—	$	—	$	—
Subdivision construction		22		—		147		3
Land development		—		—		—		—
Commercial construction		—		—		—		—
Owner occupied one- to four-family residential		3,146		44		2,850		124
Non-owner occupied one- to four-family residential		267		—		372		11
Commercial real estate		3,829		30		3,946		97
Other residential		—		—		—		—
Commercial business		538		5		1,008		30
Industrial revenue bonds		—		—		—		—
Consumer auto		889		37		945		77
Consumer other		293		17		281		33
Home equity lines of credit		528		7		535		26
Total	$	9,512	$	140	$	10,084	$	401

At December 31, 2020, $4.8 million of impaired loans had specific valuation allowances totaling $713,000.

19

TDRs by class are presented below as of September 30, 2021 and December 31, 2020. The December 31, 2020 table excludes $1.7 million of FDIC-assisted acquired loans accounted for under ASC 310-30, while the September 30, 2021 table includes the loans acquired through various FDIC-assisted transactions in the loan classes listed.

	September 30, 2021
	Accruing TDR Loans			Non-accruing TDR Loans			Total TDR Loans
	Number	Balance		Number	Balance		Number	��	Balance
	(In Thousands)
Construction and land development	1	$	16	—	$	—	1		$	16
One- to four-family residential	8		546	10		1,052	18			1,598
Other residential	—		—	—		—	—			—
Commercial real estate	2		1,813	—		—	2			1,813
Commercial business	—		—	1		52	1			52
Consumer	29		212	15		78	44			290
	40	$	2,587	26	$	1,182	66		$	3,769

	December 31, 2020
	Restructured
	Troubled Debt		Accruing		Restructured
	Non-accruing		Interest		Troubled Debt
	(In Thousands)
Commercial real estate	$	—	$	646	$	646
One- to four-family residential		778		1,121		1,899
Other residential		—		—		—
Construction		—		20		20
Commercial		75		52		127
Consumer		118		511		629
	$	971	$	2,350	$	3,321

The following tables present newly restructured loans, which were considered TDRs, during the three and nine months ended September 30, 2021 and 2020, respectively, by type of modification:

	Three Months Ended September 30, 2021
							Total
	Interest Only		Term		Combination		Modification
		(In Thousands)
One- to four-family residential	$	—	$	—	$	134	$	134
Consumer		—		—		10		10
	$	—	$	—	$	144	$	144

20

	Three Months Ended September 30, 2020
							Total
	Interest Only		Term		Combination		Modification
	(In Thousands)
One- to four-family residential	$	—	$	—	$	647	$	647
Commercial real estate		—		—		559		559
Commercial business		—		—		22		22
Consumer		—		—		1,771		1,771
	$	—	$	—	$	2,999	$	2,999

	Nine Months Ended September 30, 2021
							Total
	Interest Only		Term		Combination		Modification
	(In Thousands)
Commercial real estate	$	1,768	$	—	$	—	$	1,768
One- to four-family residential		—		157		134		291
Consumer		—		100		10		110
	$	1,768	$	257	$	144	$	2,169

	Nine Months Ended September 30, 2020
							Total
	Interest Only		Term		Combination		Modification
	(In Thousands)
One- to four-family residential	$	—	$	—	$	777	$	777
Commercial real estate		—		—		559		559
Commercial business		—		—		22		22
Consumer		—		16		1,847		1,863
	$	—	$	16	$	3,205	$	3,221

At September 30, 2021, of the $3.8 million in TDRs, $2.9 million were classified as substandard using the Company’s internal grading system, which is described below. The Company had no TDRs that were modified in the previous 12 months and subsequently defaulted during the nine months ended September 30, 2021.

At December 31, 2020, of the $3.3 million in TDRs, $1.6 million were classified as substandard using the Company’s internal grading system. The Company had no TDRs that were modified in the previous 12 months and subsequently defaulted during the year ended December 31, 2020.

During the three and nine months ended September 30, 2021, $96,000 and $433,000 of loans, respectively, met the criteria for placement back on accrual status. The criteria are generally a minimum of six months of consistent and timely payment performance under original or modified terms. During the three and nine months ended September 30, 2020, one $155,000 one- to four-family loan designated as a TDR met the criteria for placement back on accrual status.

In addition to the above loans considered TDRs, at September 30, 2021, the Company had remaining eight modified commercial loans with an aggregate principal balance outstanding of $38.2 million and 16 modified consumer and mortgage loans with an aggregate principal balance outstanding of $1.6 million. At September 30, 2021, the largest total modified loans by collateral type were in the following categories: healthcare - $11.6 million; hotel/motel - $10.9 million; retail - $7.7 million; office - $6.9 million.

At December 31, 2020, the Company had remaining 65 modified commercial loans with an aggregate principal balance outstanding of $232.4 million and 581 modified consumer and mortgage loans with an aggregate principal balance outstanding of $18.2 million.

The loan modifications discussed in the preceding two paragraphs are within the guidance provided by the CARES Act and subsequent legislation, the federal banking regulatory agencies, the SEC and the FASB; therefore, they are not considered TDRs. A portion of the loans modified at September 30, 2021, may be further modified, and new loans may be modified, within the guidance provided by the CARES Act (and subsequent legislation enacted in December 2020), the federal banking regulatory agencies, the SEC and the FASB if a more severe or lengthier deterioration in economic conditions occurs in future periods.

The Company utilizes an internal risk rating system comprised of a series of grades to categorize loans according to perceived risk associated with the expectation of debt repayment. The analysis of the borrower’s ability to repay considers specific information,

21

including but not limited to current financial information, historical payment experience, industry information, collateral levels and collateral types. A risk rating is assigned at loan origination and then monitored throughout the contractual term for possible risk rating changes.

Satisfactory loans range from Excellent to Moderate Risk, but generally are loans supported by strong recent financial statements. Character and capacity of borrower are strong, including reasonable project performance, good industry experience, liquidity and/or net worth. Probability of financial deterioration seems unlikely. Repayment is expected from approved sources over a reasonable period of time.

Watch loans are identified when the borrower has capacity to perform according to terms; however, elements of uncertainty exist. Margins of debt service coverage may be narrow, historical patterns of financial performance may be erratic, collateral margins may be diminished and the borrower may be a new and/or thinly capitalized company. Some management weakness may also exist, the borrower may have somewhat limited access to other financial institutions, and that ability may diminish in difficult economic times.

Special Mention loans have weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of repayment prospects or the Bank’s credit position at some future date. It is a transitional grade that is closely monitored for improvement or deterioration.

The Substandard rating is applied to loans where the borrower exhibits well-defined weaknesses that jeopardize its continued performance and are of a severity that the distinct possibility of default exists. Loans are placed on “non-accrual” when management does not expect to collect payments consistent with acceptable and agreed upon terms of repayment.

Doubtful loans have all the weaknesses inherent to those classified Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, highly questionable and improbable. Loans considered loss are uncollectable and no longer included as an asset.

All loans are analyzed for risk rating updates regularly. For larger loans, rating assessments may be more frequent if relevant information is obtained earlier through debt covenant monitoring or overall relationship management. Smaller loans are monitored as identified by the loan officer based on the risk profile of the individual borrower or if the loan becomes past due related to credit issues. Loans rated Watch, Special Mention, Substandard or Doubtful are subject to quarterly review and monitoring processes. In addition to the regular monitoring performed by the lending personnel and credit committees, loans are subject to review by the credit review department, which verifies the appropriateness of the risk ratings for the loans chosen as part of its risk-based review plan.

22

The following tables present a summary of loans by risk category and past due status separated by origination and loan class as of September 30, 2021. The first table, which is as of September 30, 2021, was prepared using the CECL methodology and includes $79.5 million in FDIC-assisted acquired loans included in the loan class categories. The remaining accretable discount of $606,000 has not been included in this table. See Note 7 for further discussion of the FDIC-assisted acquired loans and related discount. The undisbursed portions of loans in process have been netted against the gross loan balances for presentation in this table. The second table, which is as of December 31, 2020, was prepared using the previous GAAP incurred loss methodology prior to the adoption of ASU 2016-13. The $98.6 million in FDIC-assisted acquired loans are shown as a total, not within the loan class categories.

	Term Loans by Origination Year
													Revolving
	2021 YTD		2020		2019		2018		2017		Prior		Loans		Total
	(In Thousands)
One- to four-family residential construction
Satisfactory (1-4)	$	16,340	$	6,655	$	724	$	0	$	0	$	5	$	0	$	23,724
Watch (5)		0		0		0		0		0		0		0		0
Special Mention (6)		0		0		0		0		0		0		0		0
Classified (7-9)		0		0		0		0		0		0		0		0
Total		16,340		6,655		724		0		0		5		0		23,724
Subdivision construction
Satisfactory (1-4)		4,928		1,005		237		193		791		1,018		0		8,172
Watch (5)		0		0		0		0		0		0		0		0
Special Mention (6)		0		0		0		0		0		0		0		0
Classified (7-9)		0		0		0		0		0		16		0		16
Total		4,928		1,005		237		193		791		1,034		0		8,188
Land development construction
Satisfactory (1-4)		4,139		19,792		11,203		2,609		3,025		6,069		555		47,392
Watch (5)		0		0		0		0		0		0		0		0
Special Mention (6)		0		0		0		0		0		0		0		0
Classified (7-9)		0		0		0		0		0		0		468		468
Total		4,139		19,792		11,203		2,609		3,025		6,069		1,023		47,860
Other Construction
Satisfactory (1-4)		74,248		304,277		161,445		41,036		0		0		0		581,006
Watch (5)		0		0		0		0		0		0		0		0
Special Mention (6)		0		0		0		0		0		0		0		0
Classified (7-9)		0		0		0		0		0		0		0		0
Total		74,248		304,277		161,445		41,036		0		0		0		581,006
One- to four-family residential
Satisfactory (1-4)		186,774		183,093		104,687		56,016		15,203		123,625		1,745		671,143
Watch (5)		0		0		1,364		132		0		270		72		1,838
Special Mention (6)		0		0		0		0		0		0		0		0
Classified (7-9)		0		0		136		0		195		1,740		89		2,160
Total		186,774		183,093		106,187		56,148		15,398		125,635		1,906		675,141
Other residential
Satisfactory (1-4)		30,316		59,009		174,613		289,348		137,820		80,015		8,707		779,828
Watch (5)		0		0		0		0		0		3,457		0		3,457
Special Mention (6)		0		0		0		0		0		0		0		0
Classified (7-9)		0		0		0		0		0		0		0		0
Total		30,316		59,009		174,613		289,348		137,820		83,472		8,707		783,285
Commercial real estate
Satisfactory (1-4)		48,732		136,508		229,604		233,465		216,067		573,099		27,692		1,465,167
Watch (5)		0		379		582		0		11,555		25,666		0		38,182
Special Mention (6)		0		0		0		0		0		0		0		0
Classified (7-9)		0		0		0		0		0		4,266		0		4,266
Total		48,732		136,887		230,186		233,465		227,622		603,031		27,692		1,507,615
Commercial business
Satisfactory (1-4)		58,592		26,976		27,366		16,937		25,110		58,475		46,223		259,679
Watch (5)		0		0		0		0		0		77		0		77
Special Mention (6)		0		0		0		0		0		0		0		0
Classified (7-9)		0		0		0		0		0		52		59		111
Total		58,592		26,976		27,366		16,937		25,110		58,604		46,282		259,867
Consumer
Satisfactory (1-4)		16,323		13,106		8,724		11,403		5,349		28,451		128,133		211,489
Watch (5)		0		0		0		22		6		15		29		72
Special Mention (6)		0		0		0		0		0		0		0		0
Classified (7-9)		0		17		0		14		59		327		377		794
Total		16,323		13,123		8,724		11,439		5,414		28,793		128,539		212,355
Combined
Satisfactory (1-4)		440,392		750,421		718,603		651,007		403,365		870,757		213,055		4,047,600
Watch (5)		0		379		1,946		154		11,561		29,485		101		43,626
Special Mention (6)		0		0		0		0		0		0		0		0
Classified (7-9)		0		17		136		14		254		6,401		993		7,815
Total	$	440,392	$	750,817	$	720,685	$	651,175	$	415,180	$	906,643	$	214,149	$	4,099,041

23

	December 31, 2020
					Special
	Satisfactory		Watch		Mention		Substandard		Doubtful		Total
	(In Thousands)
One- to four-family residential construction	$	41,428	$	1,365	$	0	$	—	$	0	$	42,793
Subdivision construction		30,874		—		0		20		0		30,894
Land development		54,010		—		0		—		0		54,010
Commercial construction		1,212,837		—		0		—		0		1,212,837
Owner occupied one- to-four-family residential		467,855		216		0		2,365		0		470,436
Non-owner occupied one- to-four-family residential		114,176		324		0		69		0		114,569
Commercial real estate		1,498,031		52,208		0		3,438		0		1,553,677
Other residential		1,017,648		3,497		0		—		0		1,021,145
Commercial business		363,681		7,102		0		115		0		370,898
Industrial revenue bonds		14,003		—		0		—		0		14,003
Consumer auto		85,657		5		0		511		0		86,173
Consumer other		40,514		2		0		246		0		40,762
Home equity lines of credit		114,049		39		0		601		0		114,689
Loans acquired and accounted for under ASC 310‑30, net of discounts		98,633		—		0		10		0		98,643
Total	$	5,153,396	$	64,758	$	0	$	7,375	$	0	$	5,225,529

NOTE 7: FDIC-ASSISTED ACQUIRED LOANS

On March 20, 2009, Great Southern Bank entered into a purchase and assumption agreement with loss share with the Federal Deposit Insurance Corporation (FDIC) to assume all of the deposits (excluding brokered deposits) and acquire certain assets of TeamBank, N.A., a full service commercial bank headquartered in Paola, Kansas. The related loss sharing agreement was terminated early, effective April 26, 2016, by mutual agreement of Great Southern Bank and the FDIC. Based upon the acquisition date fair values of the net assets acquired, 0 goodwill was recorded.

On September 4, 2009, Great Southern Bank entered into a purchase and assumption agreement with loss share with the FDIC to assume all of the deposits and acquire certain assets of Vantus Bank, a full service thrift headquartered in Sioux City, Iowa. The related loss sharing agreement was terminated early, effective April 26, 2016, by mutual agreement of Great Southern Bank and the FDIC. Based upon the acquisition date fair values of the net assets acquired, 0 goodwill was recorded.

On October 7, 2011, Great Southern Bank entered into a purchase and assumption agreement with loss share with the FDIC to assume all of the deposits and acquire certain assets of Sun Security Bank, a full service bank headquartered in Ellington, Missouri. The related loss sharing agreement was terminated early, effective April 26, 2016, by mutual agreement of Great Southern Bank and the FDIC. Based upon the acquisition date fair values of the net assets acquired, 0 goodwill was recorded.

On April 27, 2012, Great Southern Bank entered into a purchase and assumption agreement with loss share with the FDIC to assume all of the deposits and acquire certain assets of Inter Savings Bank, FSB (“InterBank”), a full service bank headquartered in Maple Grove, Minnesota. The related loss sharing agreement was terminated early, effective June 9, 2017, by mutual agreement of Great Southern Bank and the FDIC. Based upon the acquisition date fair values of the net assets acquired, 0 goodwill was recorded.

On June 20, 2014, Great Southern Bank entered into a purchase and assumption agreement with the FDIC to purchase a substantial portion of the loans and investment securities, as well as certain other assets, and assume all of the deposits, as well as certain other liabilities, of Valley Bank, a full-service bank headquartered in Moline, Illinois, with significant operations in Iowa. This transaction did not include a loss sharing agreement. Based upon the acquisition date fair values of the net assets acquired, 0 goodwill was recorded.

24

The following table presents the balances of the acquired loans related to the various FDIC-assisted transactions at September 30, 2021 and December 31, 2020.

					Sun Security
	TeamBank		Vantus Bank		Bank		InterBank		Valley Bank
	(In Thousands)
September 30, 2021
Gross loans receivable	$	4,273	$	5,972	$	9,760	$	34,812	$	25,322
Balance of accretable discount due to change in expected losses		(71)		(22)		(80)		(157)		(276)
Net carrying value of loans receivable	$	4,202	$	5,950	$	9,680	$	34,655	$	25,046
December 31, 2020
Gross loans receivable	$	5,393	$	8,052	$	13,395	$	44,215	$	31,515
Balance of accretable discount due to change in expected losses		(97)		(35)		(180)		(1,079)		(612)
Expected loss remaining		(30)		(13)		(104)		(1,079)		(699)
Net carrying value of loans receivable	$	5,266	$	8,004	$	13,111	$	42,057	$	30,204

Fair Value and Expected Cash Flows. At the times of these acquisitions, the Company determined the fair value of the loan portfolios based on several assumptions. Factors considered in the valuations were projected cash flows for the loans, type of loan and related collateral, classification status, fixed or variable interest rate, term of loan, current discount rates and whether or not the loan was amortizing. Loans were grouped together according to similar characteristics and were treated in the aggregate when applying various valuation techniques. Management also estimated the amount of credit losses that were expected to be realized for the loan portfolios. The discounted cash flow approach was used to value each pool of loans. For non-performing loans, fair value was estimated by calculating the present value of the recoverable cash flows using a discount rate based on comparable corporate bond rates.

The amount of the estimated cash flows expected to be received from the acquired loan pools in excess of the fair values recorded for the loan pools is referred to as the accretable yield. The accretable yield is recognized as interest income over the estimated lives of the loans. Because the balance of these adjustments to accretable yield will be recognized generally over the remaining lives of the loan pools, they will impact future periods as well. As of January 1, 2021, we adopted the new accounting standard related to accounting for credit losses. With the adoption of this standard, discounts are no longer reclassified from non-accretable to accretable. All adjustments made prior to January 1, 2021 will continue to be accreted to interest income. As of September 30, 2021, the remaining accretable yield adjustment that will affect interest income was $606,000. Of the remaining adjustments affecting interest income, we expect to recognize approximately $178,000 of interest income during the remainder of 2021.

The impact of these adjustments on the Company’s financial results is shown below:

	Three Months Ended			Three Months Ended
	September 30, 2021			September 30, 2020
	(In Thousands, Except Per Share Data and Basis Points Data)
Impact on net interest income/
net interest margin (in basis points)	$	279	2 bps	$	1,229	9 bps
Net impact to pre-tax income	$	279		$	1,229
Net impact net of taxes	$	215		$	949
Impact to diluted earnings per share	$	0.02		$	0.07

	Nine Months Ended			Nine Months Ended
	September 30, 2021			September 30, 2020
	(In Thousands, Except Per Share Data and Basis Points Data)
Impact on net interest income/
net interest margin (in basis points)	$	1,398	3 bps	$	4,632	12 bps
Net impact to pre-tax income	$	1,398		$	4,632
Net impact net of taxes	$	1,079		$	3,576
Impact to diluted earnings per share	$	0.08		$	0.25

25

NOTE 8: OTHER REAL ESTATE OWNED AND REPOSSESSIONS

Major classifications of other real estate owned were as follows:

	September 30,		December 31,
	2021		2020
	(In Thousands)
Foreclosed assets held for sale and repossessions
One- to four-family construction	$	—	$	—
Subdivision construction		—		263
Land development		—		250
Commercial construction		—		—
One- to four-family residential		—		111
Other residential		—		—
Commercial real estate		—		—
Commercial business		—		—
Consumer		152		153
		152		777
Foreclosed assets acquired through FDIC-assisted transactions, net of discounts		805		446
Foreclosed assets held for sale and repossessions, net		957		1,223
Other real estate owned not acquired through foreclosure		285		654
Other real estate owned and repossessions	$	1,242	$	1,877

At September 30, 2021 other real estate owned not acquired through foreclosure included 3 properties, all of which were branch locations that were closed and held for sale. At December 31, 2020, other real estate owned not acquired through foreclosure included 7 properties, all of which were branch locations that were closed and held for sale.

At September 30, 2021, residential mortgage loans totaling $39,000 were in the process of foreclosure, none of which were acquired loans related to FDIC-assisted transactions. Pursuant to Section 4022 of the CARES Act, the Company suspended all foreclosure proceedings. Under this provision, no mortgage servicer of any federally-backed mortgage loan was permitted to initiate any foreclosure process, whether judicial or non-judicial, move for a foreclosure judgment or order of sale, or execute a foreclosure- related eviction or foreclosure sale for a 60-day period, beginning March 18, 2020. This provision’s foreclosure moratorium was subsequently extended through July 31, 2021, and its eviction moratorium was subsequently extended through September 30, 2021. At December 31, 2020, residential mortgage loans totaling $602,000 were in the process of foreclosure, $518,000 of which were acquired loans related to FDIC-assisted transactions.

Expenses applicable to other real estate owned and repossessions included the following:

	Three Months Ended
	September 30,
	2021		2020
	(In Thousands)
Net gains on sales of other real estate owned and repossessions	$	(1)	$	(348)
Valuation write-downs		—		269
Operating expenses, net of rental income		104		278
	$	103	$	199

	Nine Months Ended
	September 30,
	2021		2020
	(In Thousands)
Net gains on sales of other real estate owned and repossessions	$	(169)	$	(450)
Valuation write-downs		83		482
Operating expenses, net of rental income		559		914
	$	473	$	946

26

NOTE 9: PREMISES AND EQUIPMENT

Major classifications of premises and equipment, stated at cost, were as follows:

	September 30,		December 31,
	2021		2020
	(In Thousands)
Land	$	40,224	$	40,652
Buildings and improvements		101,318		100,187
Furniture, fixtures and equipment		58,129		59,226
Operating leases right of use asset		7,937		8,536
		207,608		208,601
Less accumulated depreciation		72,795		69,431
	$	134,813	$	139,170

Leases. The Company adopted ASU 2016-02, Leases (Topic 842), on January 1, 2019, using the modified retrospective transition approach whereby comparative periods were not restated. The Company also elected certain relief options under the ASU, including the option not to recognize right of use asset and lease liabilities that arise from short-term leases (leases with terms of twelve months or less). Adoption of this ASU resulted in the Company initially recognizing a right of use asset and corresponding lease liability of $9.5 million as of January 1, 2019. The amount of the right of use asset and corresponding lease liability will fluctuate based on the Company’s lease terminations, new leases and lease modifications and renewals. As of September 30, 2021, the lease right of use asset value was $7.9 million and the corresponding lease liability was $8.1 million. As of December 31, 2020, the lease right of use asset value was $8.5 million and the corresponding lease liability was $8.7 million.

All of our leases are classified as operating leases (as they were prior to January 1, 2019), and therefore were previously not recognized on the Company’s consolidated statements of financial condition. With the adoption of ASU 2016-02, these operating leases are now included as a right of use asset in the premises and equipment line item on the Company’s consolidated statements of financial condition. The corresponding lease liability is included in the accrued expenses and other liabilities line item on the Company’s consolidated statements of financial condition. Because these leases are classified as operating leases, the adoption of the new standard did not have a material effect on lease expense on the Company’s consolidated statements of income.

ASU 2016-02 provides a number of optional practical expedients in transition. The Company has elected the “package of practical expedients,” which permits the Company not to reassess under the new standard the prior conclusions about lease identification, lease classification and initial direct costs. The Company also elected the use of the hindsight, a practical expedient which permits the use of information available after lease inception to determine the lease term via the knowledge of renewal options exercised not available as of the lease’s inception. The practical expedient pertaining to land easements is not applicable to the Company.

ASU 2016-02 also requires certain other accounting elections. The Company elected the short-term lease recognition exemption for all leases that qualify, meaning those with terms under twelve months. Right of use assets or lease liabilities are not to be recognized for short-term leases. The Company also elected the practical expedient to not separate lease and non-lease components for all leases. The Company’s short-term leases related to offsite ATMs have both fixed and variable lease payment components, based on the number of transactions at the various ATMs. The variable portion of these lease payments is not material and the total lease expense related to ATMs for the three months ended September 30, 2021 and 2020 was $79,000 and $76,000, respectively. The total lease expense related to ATMs for the nine months ended September 30, 2021 and 2020, was $230,000 and $202,000, respectively.

27

The calculated amounts of the right of use assets and lease liabilities in the table below are impacted by the length of the lease term and the discount rate used to present value the minimum lease payments. The Company’s lease agreements often include one or more options to renew the extended term in the calculation of the right of use asset and lease liability. Regarding the discount rate, the ASU requires the use of the rate implicit in the lease at the Company’s discretion. If at lease inception, the Company considers the exercising of a renewal option to be reasonably certain, the Company will include the extended term in the calculation of the right of use asset and lease liability. Regarding the discount rate, the ASU requires the use of the rate implicit in the lease whenever this rate is readily determinable. As this rate is rarely determinable, the Company utilizes its incremental borrowing rate at lease inception over a similar term. The discount rate utilized was the FHLBank borrowing rate for the term corresponding to the expected term of the lease. The remaining expected lease terms range from 1.5 years to 17.2 years with a weighted-average lease term of 9.5 years. The weighted-average discount rate was 3.44%.

	At or For the Three Months Ended
	September 30, 2021		September 30, 2020
	(In Thousands)
Statement of Financial Condition
Operating leases right of use asset	$	7,937	$	8,758
Operating leases liability	$	8,098	$	8,869
Statement of Income
Operating lease costs classified as occupancy and equipment expense (includes short-term lease costs and amortization of right of use asset)	$	386	$	397
Supplemental Cash Flow Information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	375	$	391
Right of use assets obtained in exchange for lease obligations:
Operating leases		74		—

	At or For the Nine Months Ended
	September 30, 2021		September 30, 2020
	(In Thousands)
Statement of Financial Condition
Operating leases right of use asset	$	7,937	$	8,758
Operating leases liability	$	8,098	$	8,869
Statement of Income
Operating lease costs classified as occupancy and equipment expense (includes short-term lease costs and amortization of right of use asset)	$	1,153	$	1,182
Supplemental Cash Flow Information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	1,117	$	1,149
Right of use assets obtained in exchange for lease obligations:
Operating leases		74	$	972

28

For the three months ended September 30, 2021 and 2020, lease expense was $386,000 and $397,000, respectively. For both the nine months ended September 30, 2021 and 2020, lease expense was $1.2 million. At September 30, 2021, future expected lease payments for leases with terms exceeding one year were as follows (In Thousands):

2021	$	284
2022		1,116
2023		1,088
2024		1,005
2025		979
2026		912
Thereafter		4,015
Future lease payments expected		9,399
Less interest portion of lease payments		(1,301)
Lease liability	$	8,098

The Company does not sublease any of its leased facilities; however, it does lease to other parties portions of facilities that it owns. In terms of being the lessor in these circumstances, all of these lease agreements are classified as operating leases. In the three months ended September 30, 2021 and 2020, income recognized from these lessor agreements was $323,000 and $294,000, respectively, and was included in occupancy and equipment expense. In the nine months ended September 30, 2021 and 2020, income recognized from these lessor agreements was $903,000 and $864,000, respectively, and was included in occupancy and equipment expense.

NOTE 10: DEPOSITS

	September 30,		December 31,
	2021		2020
	(In Thousands)
Time Deposits:
0.00% - 0.99%	$	881,699	$	803,737
1.00% - 1.99%		97,480		425,061
2.00% - 2.99%		64,392		143,417
3.00% and above		12,189		18,577
Total time deposits (weighted average rate 0.66% and 1.00%)		1,055,760		1,390,792
Non-interest-bearing demand deposits		1,055,640		984,798
Interest-bearing demand and savings deposits (Weighted average rate 0.13% and 0.22%)		2,398,796		2,141,313
Total Deposits	$	4,510,196	$	4,516,903

NOTE 11: ADVANCES FROM FEDERAL HOME LOAN BANK

At September 30, 2021 and December 31, 2020, there were 0 outstanding term advances from the Federal Home Loan Bank of Des Moines (FHLBank advances). There were 0 overnight funds from the Federal Home Loan Bank of Des Moines as of September 30, 2021 or December 31, 2020.

NOTE 12: SECURITIES SOLD UNDER REVERSE REPURCHASE AGREEMENTS AND SHORT-TERM BORROWINGS

	September 30,		December 31,
	2021		2020
	(In Thousands)
Notes payable – Community Development Equity Funds	$	1,183	$	1,518
Other interest bearing liabilities		490		—
Securities sold under reverse repurchase agreements		167,295		164,174
	$	168,968	$	165,692

29

The Bank enters into sales of securities under agreements to repurchase (reverse repurchase agreements). Reverse repurchase agreements are treated as financings, and the obligations to repurchase securities sold are reflected as a liability in the statements of financial condition. The dollar amount of securities underlying the agreements remains in the asset accounts. Securities underlying the agreements are being held by the Bank during the agreement period. All agreements are written on a term of one month or less.

The following table represents the Company’s securities sold under reverse repurchase agreements, by collateral type and remaining contractual maturity.

	September 30, 2021		December 31, 2020
	Overnight and		Overnight and
	Continuous		Continuous
	(In Thousands)
Mortgage-backed securities – GNMA, FNMA, FHLMC	$	167,295	$	164,174

NOTE 13: SUBORDINATED NOTES

On August 8, 2016, the Company completed the public offering and sale of $75.0 million of its subordinated notes. The notes were due August 15, 2026 and had a fixed interest rate of 5.25% until August 15, 2021, at which time the rate was to become floating at a rate equal to three-month LIBOR plus 4.087%. The notes were sold at par, resulting in net proceeds, after underwriting discounts and commissions, legal, accounting and other professional fees, of approximately $73.5 million. Total debt issuance costs of approximately $1.5 million were deferred and amortized over the five-year expected life of the notes.

On August 15, 2021, in accordance with the terms of the notes, the Company redeemed all $75.0 million aggregate principal amount of the notes at a redemption price equal to 100% of their principal amount, plus accrued and unpaid interest.

On June 10, 2020, the Company completed the public offering and sale of $75.0 million of its subordinated notes. The notes are due June 15, 2030, and have a fixed interest rate of 5.50% until June 15, 2025, at which time the rate becomes floating at a rate expected to be equal to three-month term Secured Overnight Financing Rate (SOFR) plus 5.325%. The Company may call the notes at par beginning on June 15, 2025, and on any scheduled interest payment date thereafter. The notes were sold at par, resulting in net proceeds, after underwriting discounts and commissions, legal, accounting and other professional fees, of approximately $73.5 million. Total debt issuance costs of approximately $1.5 million were deferred and are being amortized over the expected life of the notes, which is five years.

Amortization of the debt issuance costs during the three months ended September 30, 2021 and 2020 of both subordinated notes offerings totaled $146,000 and $186,000, respectively. Amortization of the debt issuance costs during the nine months ended September 30, 2021 and 2020 totaled $512,000 and $428,000, respectively. Amortization of the debt issuance costs is included in interest expense on subordinated notes in the consolidated statements of income, resulting in an imputed interest rate of 5.98%.

At September 30, 2021 and December 31, 2020, subordinated notes are summarized as follows:

	September 30, 2021		December 31, 2020
	(In Thousands)
Subordinated notes	$	75,000	$	150,000
Less: unamortized debt issuance costs		1,090		1,603
	$	73,910	$	148,397

30

NOTE 14: INCOME TAXES

Reconciliations of the Company’s effective tax rates to the statutory corporate tax rates were as follows:

	Three Months Ended September 30,
	2021		2020
Tax at statutory rate	21.0	%	21.0	%
Nontaxable interest and dividends	(0.3)		(0.6)
Tax credits	(1.5)		(3.8)
State taxes	1.4		5.0
Other	0.3		0.1
	20.9	%	21.5	%

	Nine Months Ended September 30,
	2021		2020
Tax at statutory rate	21.0	%	21.0	%
Nontaxable interest and dividends	(0.3)		(0.5)
Tax credits	(1.6)		(3.9)
State taxes	1.5		1.6
Other	0.3		0.6
	20.9	%	18.8	%

The Company and its consolidated subsidiaries have not been audited recently by the Internal Revenue Service (IRS). As a result, federal tax years through December 31, 2016 are now closed.

The Company was previously under State of Missouri income and franchise tax examinations for its 2014 and 2015 tax years. The examinations concluded with one unresolved issue related to the exclusion of certain income in the calculation of Missouri income tax. The Missouri Department of Revenue denied the Company’s administrative protest regarding the 2014 and 2015 tax years’ examinations. In June 2021, the Company filed a formal protest with the Missouri Administrative Hearing Commission, which has special jurisdiction to hear tax matters and is similar to a trial court, to continue defending the Company’s rights and associated tax position. The Company has engaged legal and tax advisors and continues to believe it will ultimately prevail on the issue; however, if the Company does not prevail, the tax obligation to the State of Missouri could be up to $4.0 million.

NOTE 15: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

ASC Topic 820, Fair Value Measurements, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Topic 820 also specifies a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

● Quoted prices in active markets for identical assets or liabilities (Level 1): Inputs that are quoted unadjusted prices in active markets for identical assets that the Company has the ability to access at the measurement date. An active market for the asset is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

● Other observable inputs (Level 2): Inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity including quoted prices for similar assets, quoted prices for securities in inactive markets and inputs derived principally from or corroborated by observable market data by correlation or other means.

● Significant unobservable inputs (Level 3): Inputs that reflect assumptions of a source independent of the reporting entity or the reporting entity’s own assumptions that are supported by little or no market activity or observable inputs.

31

Financial instruments are broken down by recurring or nonrecurring measurement status. Recurring assets are initially measured at fair value and are required to be remeasured at fair value in the financial statements at each reporting date. Assets measured on a nonrecurring basis are assets that, due to an event or circumstance, were required to be remeasured at fair value after initial recognition in the financial statements at some time during the reporting period.

Recurring Measurements

The following table presents the fair value measurements of assets recognized in the accompanying statements of financial condition measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fell at September 30, 2021 and December 31, 2020:

			Fair value measurements using
			Quoted prices
			in active
			markets		Other		Significant
			for identical		observable		unobservable
			assets		inputs		inputs
	Fair value		(Level 1)		(Level 2)		(Level 3)
	(In Thousands)
September 30, 2021
Agency mortgage-backed securities	$	168,820	$	—	$	168,820	$	—
Agency collateralized mortgage obligations		205,731		—		205,731		—
States and political subdivisions securities		40,037		—		40,037		—
Small Business Administration securities		18,350		—		18,350		—
Interest rate derivative asset		3,707		—		3,707		—
Interest rate derivative liability		(3,758)		—		(3,758)		—
December 31, 2020
Agency mortgage-backed securities	$	169,940	$	—	$	169,940	$	—
Agency collateralized mortgage obligations		176,621		—		176,621		—
States and political subdivisions securities		47,325		—		47,325		—
Small Business Administration securities		21,047		—		21,047		—
Interest rate derivative asset		5,062		—		5,062		—
Interest rate derivative liability		(5,454)		—		(5,454)		—

The following is a description of inputs and valuation methodologies used for assets recorded at fair value on a recurring basis and recognized in the accompanying statements of financial condition at September 30, 2021 and December 31, 2020, as well as the general classification of such assets pursuant to the valuation hierarchy. There have been no significant changes in the valuation techniques during the nine-month period ended September 30, 2021. For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described below.

Available-for-Sale Securities. Investment securities available for sale are recorded at fair value on a recurring basis. The fair values used by the Company are obtained from an independent pricing service, which represent either quoted market prices for the identical asset or fair values determined by pricing models, or other model-based valuation techniques, that consider observable market data, such as interest rate volatilities, LIBOR yield curve, credit spreads and prices from market makers and live trading systems. Recurring Level 2 securities include U.S. government agency securities, mortgage-backed securities, state and municipal bonds and certain other investments. Inputs used for valuing Level 2 securities include observable data that may include dealer quotes, benchmark yields, market spreads, live trading levels and market consensus prepayment speeds, among other things. Additional inputs include indicative values derived from the independent pricing service’s proprietary computerized models. There were 0 recurring Level 3 securities at September 30, 2021 or December 31, 2020.

Interest Rate Derivatives. The fair value is estimated using forward-looking interest rate curves and is determined using observable market rates and, therefore, are classified within Level 2 of the valuation hierarchy.

32

Nonrecurring Measurements

The following table presents the fair value measurements of assets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at September 30, 2021 and December 31, 2020:

			Fair Value Measurements Using
			Quoted prices
			in active
			markets		Other		Significant
			for identical		observable		unobservable
			assets		inputs		inputs
	Fair value		(Level 1)		(Level 2)		(Level 3)
	(In Thousands)
September 30, 2021
Collateral-dependent loans	$	—	$	—	$	—	$	—
Foreclosed assets held for sale	$	—	$	—	$	—	$	—
December 31, 2020
Impaired loans	$	1,759	$	—	$	—	$	1,759
Foreclosed assets held for sale	$	945	$	—	$	—	$	945

The following is a description of valuation methodologies used for assets measured at fair value on a nonrecurring basis and recognized in the accompanying statements of financial condition, as well as the general classification of such assets pursuant to the valuation hierarchy. For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described below.

Loans Held for Sale. Mortgage loans held for sale are recorded at the lower of carrying value or fair value. The fair value of mortgage loans held for sale is based on what secondary markets are currently offering for portfolios with similar characteristics. As such, the Company classifies mortgage loans held for sale as Nonrecurring Level 2. Write-downs to fair value typically do not occur as the Company generally enters into commitments to sell individual mortgage loans at the time the loan is originated to reduce market risk. The Company typically does not have commercial loans held for sale. At September 30, 2021 and December 31, 2020, the aggregate fair value of mortgage loans held for sale was not materially different than their cost. Accordingly, no mortgage loans held for sale were marked down and reported at fair value.

Impaired Loans. Prior to January 1, 2021, a loan was considered to be impaired when it was probable that all of the principal and interest due may not be collected according to its contractual terms. Generally, when a loan was considered impaired, the amount of reserve required under FASB ASC 310, Receivables, was measured based on the fair value of the underlying collateral. The Company made such measurements on all material loans deemed impaired using the fair value of the collateral for collateral-dependent loans. The fair value of collateral used by the Company was determined by obtaining an observable market price or by obtaining an appraised value from an independent, licensed or certified appraiser, using observable market data. This data included information such as selling price of similar properties and capitalization rates of similar properties sold within the market, expected future cash flows or earnings of the subject property based on current market expectations, and other relevant factors. All appraised values were adjusted for market-related trends based on the Company’s experience in sales and other appraisals of similar property types as well as estimated selling costs. Each quarter, management reviewed all collateral-dependent impaired loans on a loan-by-loan basis to determine whether updated appraisals were necessary based on loan performance, collateral type and guarantor support. At times, the Company measured the fair value of collateral-dependent impaired loans using appraisals with dates more than one year prior to the date of review. These appraisals were discounted by applying current, observable market data about similar property types such as sales contracts, estimations of value by individuals familiar with the market, other appraisals, sales or collateral assessments based on current market activity until updated appraisals are obtained. Depending on the length of time since an appraisal was performed and the data provided through our reviews, these appraisals were typically discounted 10-40%. The policy described above was the same for all types of collateral-dependent impaired loans. Subsequent to December 31, 2020, these loans are no longer considered impaired.

The Company records collateral-dependent loans as Nonrecurring Level 3. If a loan’s fair value as estimated by the Company is less than its carrying value, the Company either records a charge-off of the portion of the loan that exceeds the fair value or establishes a reserve within the allowance for credit losses specific to the loan. Loans for which such charge-offs or reserves were recorded during the year ended December 31, 2020, are shown in the table above (net of reserves).

33

Foreclosed Assets Held for Sale. Foreclosed assets held for sale are initially recorded at fair value less estimated cost to sell at the date of foreclosure. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less estimated cost to sell. Foreclosed assets held for sale are classified within Level 3 of the fair value hierarchy. The foreclosed assets represented in the table above have been re-measured during the nine months ended September 30, 2021 or the year ended December 31, 2020, subsequent to their initial transfer to foreclosed assets.

Fair Value of Financial Instruments

The following methods were used to estimate the fair value of all other financial instruments recognized in the accompanying statements of financial condition at amounts other than fair value.

Cash and Cash Equivalents and Federal Home Loan Bank Stock. The carrying amount approximates fair value.

Loans and Interest Receivable. The fair value of loans is estimated on an exit price basis incorporating contractual cash flows, prepayments, discount spreads, credit losses and liquidity premiums. Loans with similar characteristics were aggregated for purposes of the calculations. The carrying amount of accrued interest receivable approximates its fair value.

Deposits and Accrued Interest Payable. The fair value of demand deposits and savings accounts is the amount payable on demand at the reporting date, i.e., their carrying amounts. The fair value of fixed maturity certificates of deposit is estimated through a discounted cash flow calculation using the average advances yield curve from 11 districts of the FHLB for the as of date. The carrying amount of accrued interest payable approximates its fair value.

Short-Term Borrowings. The carrying amount approximates fair value.

Subordinated Debentures Issued to Capital Trusts. The subordinated debentures have floating rates that reset quarterly. The carrying amount of these debentures approximates their fair value.

Subordinated Notes. The fair values used by the Company are obtained from independent sources and are derived from quoted market prices of the Company’s subordinated notes and quoted market prices of other subordinated debt instruments with similar characteristics.

Commitments to Originate Loans, Letters of Credit and Lines of Credit. The fair value of commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting date.

34

The following table presents estimated fair values of the Company’s financial instruments not recorded at fair value on the statements of financial condition. The fair values of certain of these instruments were calculated by discounting expected cash flows, which method involves significant judgments by management and uncertainties. Fair value is the estimated amount at which financial assets or liabilities could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Because no market exists for certain of these financial instruments and because management does not intend to sell these financial instruments, the Company does not know whether the fair values shown below represent values at which the respective financial instruments could be sold individually or in the aggregate.

	September 30, 2021						December 31, 2020
	Carrying		Fair		Hierarchy	Carrying		Fair		Hierarchy
	Amount		Value		Level	Amount		Value		Level
	(In Thousands)
Financial assets
Cash and cash equivalents	$	769,192	$	769,192	1	$	563,729	$	563,729	1
Mortgage loans held for sale		10,809		10,809	2		17,780		17,780	2
Loans, net of allowance for credit losses		4,025,686		4,023,358	3		4,296,804		4,303,909	3
Interest receivable		11,290		11,290	3		12,793		12,793	3
Investment in FHLBank stock and other interest-earning assets		6,655		6,655	3		9,806		9,806	3
Financial liabilities
Deposits		4,510,196		4,512,586	3		4,516,903		4,523,586	3
Short-term borrowings		168,968		168,968	3		165,692		165,692	3
Subordinated debentures		25,774		25,774	3		25,774		25,774	3
Subordinated notes		73,910		81,563	2		148,397		157,032	2
Interest payable		1,730		1,730	3		2,594		2,594	3
Unrecognized financial instruments (net of contractual value)
Commitments to originate loans		—		—	3		—		—	3
Letters of credit		64		64	3		84		84	3
Lines of credit		—		—	3		—		—	3

NOTE 16: DERIVATIVES AND HEDGING ACTIVITIES

Risk Management Objective of Using Derivatives

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity and credit risk, primarily by managing the amount, sources and duration of its assets and liabilities. In the normal course of business, the Company may use derivative financial instruments (primarily interest rate swaps) from time to time to assist in its interest rate risk management. The Company has interest rate derivatives that result from a service provided to certain qualifying loan customers that are not used to manage interest rate risk in the Company’s assets or liabilities and are not designated in a qualifying hedging relationship. The Company manages a matched book with respect to its derivative instruments in order to minimize its net risk exposure resulting from such transactions. In addition, the Company has interest rate derivatives that are designated in a qualified hedging relationship.

Nondesignated Hedges

The Company has interest rate swaps that are not designated as qualifying hedging relationships. Derivatives not designated as hedges are not speculative and result from a service the Company provides to certain loan customers, which the Company began offering during 2011. The Company executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting interest rate swaps that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. As the interest rate swaps associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings.

35

As part of the Valley Bank FDIC-assisted acquisition, the Company acquired 7 loans with related interest rate swaps. Valley’s swap program differed from the Company’s in that Valley did not have back to back swaps with the customer and a counterparty. NaN of the 7 acquired loans with interest rate swaps have paid off. The aggregate notional amount of the 2 remaining Valley swaps was $508,000 and $584,000 at September 30, 2021 and December 31, 2020, respectively. At September 30, 2021, excluding the Valley Bank swaps, the Company had 15 interest rate swaps totaling $124.0 million in notional amount with commercial customers, and 15 interest rate swaps with the same aggregate notional amount with third parties related to its program. In addition, the Company has 4 participation loans purchased totaling $27.3 million, in which the lead institution has an interest rate swap with its customer and the economics of the counterparty swap are passed along to the Company through the loan participation. At December 31, 2020, excluding the Valley Bank swaps, the Company had 19 interest rate swaps totaling $142.8 million in notional amount with commercial customers, and 19 interest rate swaps with the same notional amount with third parties related to its program. During the three months ended September 30, 2021, the Company recognized net gains of $45,000, compared to net gains of $89,000 during the three months ended September 30, 2020, in noninterest income related to changes in the fair value of these swaps. During the nine months ended September 30, 2021, the Company recognized net gains of $340,000, compared to net losses of $424,000 during the nine months ended September 30, 2020, in noninterest income related to changes in the fair value of these swaps.

Cash Flow Hedges

Interest Rate Swap. As a strategy to maintain acceptable levels of exposure to the risk of changes in future cash flows due to interest rate fluctuations, in October 2018, the Company entered into an interest rate swap transaction as part of its ongoing interest rate management strategies to hedge the risk of its floating rate loans. The notional amount of the swap was $400 million with a termination date of October 6, 2025. Under the terms of the swap, the Company received a fixed rate of interest of 3.018% and paid a floating rate of interest equal to one-month USD-LIBOR. The floating rate reset monthly and net settlements of interest due to/from the counterparty also occurred monthly. To the extent that the fixed rate of interest exceeded one-month USD-LIBOR, the Company received net interest settlements which were recorded as loan interest income. If USD-LIBOR exceeded the fixed rate of interest in future periods, the Company was required to pay net settlements to the counterparty and recorded those net payments as a reduction of interest income on loans.

On March 2, 2020, the Company and its swap counterparty mutually agreed to terminate the swap, effective on that date. The Company received a payment of $45.9 million, including accrued but unpaid interest, from its swap counterparty as a result of this termination. This $45.9 million, less the accrued interest portion and net of deferred income taxes, was reflected in the Company’s stockholders’ equity as Accumulated Other Comprehensive Income and a portion of it is being accreted to interest income on loans monthly through the original contractual termination date of October 6, 2025. This has the effect of reducing Accumulated Other Comprehensive Income and increasing Net Interest Income and Retained Earnings over the period. In each quarterly period, commencing with the quarter ended June 30, 2020, until the original contract termination date, the Company expects to record loan interest income related to this swap transaction of approximately $2.0 million, based on the termination value of the swap. As such, the Company recorded loan interest income of $2.0 million and $2.0 million on this interest rate swap during the three months ended September 30, 2021 and 2020, respectively. The Company recorded loan interest income of $6.1 million and $5.6 million on this interest rate swap during the nine months ended September 30, 2021 and 2020, respectively. The effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affected earnings. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings. During each of the three and nine months ended September 30, 2021 and 2020, the Company recognized 0 noninterest income related to changes in the fair value of this derivative. The Company currently expects to have an amount of eligible variable rate loans to continue to accrete this interest income in future periods. If this expectation changes and the amount of eligible variable rate loans decreases significantly, the Company may be required to recognize this interest income more rapidly.

36

The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the Consolidated Statements of Financial Condition:

	Location in	Fair Value
	Consolidated Statements	September 30,		December 31,
	of Financial Condition	2021		2020
			(In Thousands)
Derivatives not designated as hedging instruments
Asset Derivatives
Interest rate products	Prepaid expenses and other assets	$	3,707	$	5,062
Total derivatives not designated as hedging instruments		$	3,707	$	5,062
Liability Derivatives
Interest rate products	Accrued expenses and other liabilities	$	3,758	$	5,454
Total derivatives not designated as hedging instruments		$	3,758	$	5,454

The following table presents the effect of cash flow hedge accounting on the statements of comprehensive income:

	Amount of Gain (Loss)
	Recognized in AOCI
	Three Months Ended September 30,
Cash Flow Hedges	2021		2020
	(In Thousands)
Interest rate swap, net of income taxes	$	(1,580)	$	(1,581)

	Amount of Gain (Loss)
	Recognized in AOCI
	Nine Months Ended September 30,
Cash Flow Hedges	2021		2020
	(In Thousands)
Interest rate swap, net of income taxes	$	(4,690)	$	8,271

The following table presents the effect of cash flow hedge accounting on the statements of income:

	Three Months Ended September 30,
Cash Flow Hedges	2021				2020
	Interest		Interest		Interest		Interest
	Income		Expense		Income		Expense
	(In Thousands)
Interest rate swap	$	2,048	$	—	$	2,047	$	—

	Nine Months Ended September 30,
Cash Flow Hedges	2021				2020
	Interest		Interest		Interest		Interest
	Income		Expense		Income		Expense
	(In Thousands)
Interest rate swap	$	6,076	$	—	$	5,629	$	—

Agreements with Derivative Counterparties

The Company has agreements with its derivative counterparties. If the Company defaults on any of its indebtedness, including a default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its derivative obligations. If the Bank fails to maintain its status as a well-capitalized institution, then the counterparty could terminate the derivative positions and the Company would be required to settle its obligations under the agreements. Similarly, the Company could be required to settle its obligations under certain of its agreements if certain regulatory events occurred, such as the issuance of a formal directive, or if the Company’s credit rating is downgraded below a specified level.

37

At September 30, 2021, the termination value of derivatives with our derivative dealer counterparties (related to loan level swaps with commercial lending customers) in an overall net liability position, which included accrued interest but excluded any adjustment for nonperformance risk, related to these agreements was $689,000. The Company has minimum collateral posting thresholds with its derivative dealer counterparties. At September 30, 2021, the Company’s activity with one of its derivative counterparties met the level at which the minimum collateral posting thresholds take effect (collateral to be given by the Company) and the Company had posted collateral totaling $1.2 million to the derivative counterparty to satisfy the loan level agreements. In addition, as of September 30, 2021, the activity with one of its derivative counterparties met the level at which the minimum collateral posting thresholds take effect (collateral to be received by the Company) and the derivative counterparty had given cash collateral of $490,000 to the Company to satisfy the loan level agreements.

At December 31, 2020, the termination value of derivatives with our derivative dealer counterparties (related to loan level swaps with commercial lending customers) in a net liability position, which included accrued interest but excluded any adjustment for nonperformance risk, related to these agreements was $391,000. Additionally, the Company’s activity with two of its derivative counterparties met the level at which the minimum collateral posting thresholds take effect (collateral to be given by the Company) and the Company had posted collateral of $5.3 million to the derivative counterparties to satisfy the loan level agreements.

If the Company had breached any of these provisions at September 30, 2021 or December 31, 2020, it could have been required to settle its obligations under the agreements at the termination value.

38

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

Forward-looking Statements

When used in this Quarterly Report and in other documents filed or furnished by Great Southern Bancorp, Inc. (the “Company”) with the Securities and Exchange Commission (the “SEC”), in the Company’s press releases or other public or stockholder communications, and in oral statements made with the approval of an authorized executive officer, the words or phrases “may,” “might,” “could,” “should,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “believe,” “estimate,” “project,” “intends” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements also include, but are not limited to, statements regarding plans, objectives, expectations or consequences of announced transactions, known trends and statements about future performance, operations, products and services of the Company. The Company’s ability to predict results or the actual effects of future plans or strategies is inherently uncertain, and the Company’s actual results could differ materially from those contained in the forward-looking statements. The novel coronavirus disease, or COVID-19, pandemic has adversely affected the Company, its customers, counterparties, employees, and third-party service providers, and the ultimate extent of the impacts on the Company’s business, financial position, results of operations, liquidity, and prospects is uncertain. While general business and economic conditions have recently improved, increases in unemployment rates, or turbulence in domestic or global financial markets could adversely affect the Company’s revenues and the values of its assets and liabilities, reduce the availability of funding, lead to a tightening of credit, and further increase stock price volatility. In addition, changes to statutes, regulations, or regulatory policies or practices as a result of, or in response to, COVID-19, could affect the Company in substantial and unpredictable ways.

Other factors that could cause or contribute to such differences include, but are not limited to: (i) expected revenues, cost savings, earnings accretion, synergies and other benefits from the Company’s merger and acquisition activities might not be realized within the anticipated time frames or at all, and costs or difficulties relating to integration matters, including but not limited to customer and employee retention, might be greater than expected; (ii) changes in economic conditions, either nationally or in the Company’s market areas; (iii) fluctuations in interest rates; (iv) the risks of lending and investing activities, including changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for credit losses; (v) the possibility of realized or unrealized losses on securities held in the Company's investment portfolio; (vi) the Company’s ability to access cost-effective funding; (vii) fluctuations in real estate values and both residential and commercial real estate market conditions; (viii) the ability to adapt successfully to technological changes to meet customers’ needs and developments in the marketplace; (ix) the possibility that security measures implemented might not be sufficient to mitigate the risk of a cyber-attack or cyber theft, and that such security measures might not protect against systems failures or interruptions; (x) legislative or regulatory changes that adversely affect the Company’s business, including, without limitation, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and its implementing regulations, the overdraft protection regulations and customers’ responses thereto and the Tax Cut and Jobs Act; (xi) changes in accounting policies and practices or accounting standards; (xii) monetary and fiscal policies of the Federal Reserve Board and the U.S. Government and other governmental initiatives affecting the financial services industry; (xiii) results of examinations of the Company and Great Southern Bank by their regulators, including the possibility that the regulators may, among other things, require the Company to limit its business activities, change its business mix, increase its allowance for credit losses, write-down assets or increase its capital levels, or affect its ability to borrow funds or maintain or increase deposits, which could adversely affect its liquidity and earnings; (xiv) costs and effects of litigation, including settlements and judgments; (xv) competition; (xvi) uncertainty regarding the future of LIBOR and potential replacement indexes; and (xvii) natural disasters, war, terrorist activities or civil unrest and their effects on economic and business environments in which the Company operates. The Company wishes to advise readers that the factors listed above and other risks described from time to time in documents filed or furnished by the Company with the SEC could affect the Company’s financial performance and could cause the Company’s actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements.

The Company does not undertake-and specifically declines any obligation- to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

39

Critical Accounting Policies, Judgments and Estimates

The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America and general practices within the financial services industry. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates.

Allowance for Credit Losses and Valuation of Foreclosed Assets

The Company believes that the determination of the allowance for credit losses involves a higher degree of judgment and complexity than its other significant accounting policies. The allowance for credit losses is calculated with the objective of maintaining an allowance level believed by management to be sufficient to absorb estimated credit losses. The allowance for credit losses is measured using an average historical loss model which incorporates relevant information about past events (including historical credit loss experience on loans with similar risk characteristics), current conditions, and reasonable and supportable forecasts that affect the collectability of the remaining cash flows over the contractual term of the loans. The allowance for credit losses is measured on a collective (pool) basis. Loans are aggregated into pools based on similar risk characteristics including borrower type, collateral and repayment types and expected credit loss patterns. Loans that do not share similar risk characteristics, primarily classified and/or TDR loans with a balance greater than or equal to $100,000 which are classified or restructured troubled debt, are evaluated on an individual basis.

For loans evaluated for credit losses on a collective basis, average historical loss rates are calculated for each pool using the Company’s historical net charge-offs (combined charge-offs and recoveries by observable historical reporting period) and outstanding loan balances during a lookback period. Lookback periods can be different based on the individual pool and represent management’s credit expectations for the pool of loans over the remaining contractual life. In certain loan pools, if the Company’s own historical loss rate is not reflective of the loss expectations, the historical loss rate is augmented by industry and peer data. The calculated average net charge-off rate is then adjusted for current conditions and reasonable and supportable forecasts. These adjustments increase or decrease the average historical loss rate to reflect expectations of future losses given economic forecasts of key macroeconomic variables including, but not limited to, unemployment rate, GDP, disposable income and market volatility. The adjustments are based on results from various regression models projecting the impact of the macroeconomic variables to loss rates. The forecast is used for a reasonable and supportable period before reverting back to historical averages using a straight-line method. The forecast adjusted loss rate is applied to the amortized cost of loans over the remaining contractual lives, adjusted for expected prepayments. The contractual term excludes expected extensions, renewals and modifications unless there is a reasonable expectation that a troubled debt restructuring will be executed. Additionally, the allowance for credit losses considers other qualitative factors not included in historical loss rates or macroeconomic forecast such as changes in portfolio composition, underwriting practices, or significant unique events or conditions.

See Note 6 “Loans and Allowance for Credit Losses” included in Item 1 for additional information regarding the allowance for credit losses. Inherent in this process is the evaluation of individual significant credit relationships. From time to time certain credit relationships may deteriorate due to payment performance, cash flow of the borrower, value of collateral, or other factors. In these instances, management may revise its loss estimates and assumptions for these specific credits due to changing circumstances. In some cases, additional losses may be realized; in other instances, the factors that led to the deterioration may improve or the credit may be refinanced elsewhere and allocated allowances may be released from the particular credit. Significant changes were made to management’s overall methodology for evaluating the allowance for credit losses during the periods presented in the financial statements of this report due to the adoption of ASU 2016-13.

On January 1, 2021, the Company adopted the new accounting standard related to the Allowance for Credit Losses. For assets held at amortized cost basis, this standard eliminates the probable initial recognition threshold in GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. See Note 6 of the accompanying financial statements for additional information.

In addition, the Company considers that the determination of the valuations of foreclosed assets held for sale involves a high degree of judgment and complexity. The carrying value of foreclosed assets reflects management’s best estimate of the amount to be realized from the sales of the assets. While the estimate is generally based on a valuation by an independent appraiser or recent sales of similar properties, the amount that the Company realizes from the sales of the assets could differ materially from the carrying value reflected in the financial statements, resulting in losses that could adversely impact earnings in future periods.

40

Goodwill and Intangible Assets

Goodwill and intangible assets that have indefinite useful lives are subject to an impairment test at least annually and more frequently if circumstances indicate their value may not be recoverable. Goodwill is tested for impairment using a process that estimates the fair value of each of the Company’s reporting units compared with its carrying value. The Company defines reporting units as a level below each of its operating segments for which there is discrete financial information that is regularly reviewed. As of September 30, 2021, the Company had one reporting unit to which goodwill has been allocated – the Bank. If the fair value of a reporting unit exceeds its carrying value, then no impairment is recorded. If the carrying value exceeds the fair value of a reporting unit, further testing is completed comparing the implied fair value of the reporting unit’s goodwill to its carrying value to measure the amount of impairment, if any. Intangible assets that are not amortized will be tested for impairment at least annually by comparing the fair values of those assets to their carrying values. At September 30, 2021, goodwill consisted of $5.4 million at the Bank reporting unit, which included goodwill of $4.2 million that was recorded during 2016 related to the acquisition of 12 branches and related deposits in the St. Louis, Mo., market. Other identifiable intangible assets that are subject to amortization are amortized on a straight-line basis over a period of seven years. At September 30, 2021, the amortizable intangible assets consisted of core deposit intangibles of $843,000, which are reflected in the table below. These amortizable intangible assets are reviewed for impairment if circumstances indicate their value may not be recoverable based on a comparison of fair value.

Our regular annual impairment assessment occurs in the third quarter of each year. At September 30, 2021, the Company performed this annual review and concluded that no impairment of its goodwill or intangible assets had occurred at September 30, 2021. While the Company believes no impairment of its goodwill or other intangible assets existed at September 30, 2021, different conditions or assumptions used to measure fair value of reporting units, or changes in cash flows or profitability, if significantly negative or unfavorable, could have a material adverse effect on the outcome of the Company’s impairment evaluation in the future.

For purposes of testing goodwill for impairment, the Company used a market approach to value its reporting unit. The market approach applies a market multiple, based on observed purchase transactions for each reporting unit, to the metrics appropriate for the valuation of the operating unit. Significant judgment is applied when goodwill is assessed for impairment. This judgment may include developing cash flow projections, selecting appropriate discount rates, identifying relevant market comparables and incorporating general economic and market conditions.

A summary of goodwill and intangible assets is as follows:

	September 30,		December 31,
	2021		2020
	(In Thousands)
Goodwill – Branch acquisitions	$	5,396	$	5,396
Deposit intangibles
Boulevard Bank (March 2014)		—		31
Valley Bank (June 2014)		—		200
Fifth Third Bank (January 2016)		843		1,317
		843		1,548
	$	6,239	$	6,944

Current Economic Conditions

Changes in economic conditions could cause the values of assets and liabilities recorded in the financial statements to change rapidly, resulting in material future adjustments in asset values, the allowance for credit losses, or capital that could negatively impact the Company’s ability to meet regulatory capital requirements and maintain sufficient liquidity. Following the housing and mortgage crisis and correction beginning in mid-2007, the United States entered an economic downturn. Unemployment rose from 4.7% in November 2007 to peak at 10.0% in October 2009. Economic conditions improved in the subsequent years, as indicated by higher consumer confidence levels, increased economic activity and lower unemployment levels. The U.S. economy continued to operate at historically strong levels until the impact of the COVID-19 pandemic began to take its toll in March 2020. While U.S. economic trends later rebounded, a new COVID variant emerged and the severity and extent of the coronavirus on the global, national and regional economies is still uncertain. Any long-term impact on the performance of the financial sector remains indeterminable.

The economy plunged into recession in the first quarter of 2020, as efforts to contain the spread of the coronavirus forced all but essential business activity, or any work that could not be done from home, to stop, shuttering factories, restaurants, entertainment, sports events, retail shops, hotels, personal services, and more.

41

More than 22 million jobs were lost in March and April 2020, as businesses closed their doors or reduced their operations, sending employees home on furlough or layoffs. Hunkered down at home with uncertain incomes and limited buying opportunities, consumer spending plummeted. As a result, gross domestic product (GDP), the broadest measure of the nation's economic output, plunged. Improvements in consumer spending, GDP, and employment have occurred since then, significantly supported by the actions discussed below.

The CARES Act, a fiscal relief bill passed by Congress in March 2020, injected approximately $3 trillion into the economy through direct payments to individuals and grants to small businesses that would keep employees on their payrolls, fueling a historic bounce-back in economic activity.

The “American Rescue Plan,” an economic relief fiscal measure of approximately $1.9 trillion with an emphasis on vaccination, individual and small business relief, was passed early in 2021. The “Build Back Better” recovery package is being pursued with an emphasis on infrastructure, research and development, education and green energy transition.

Also, as the crisis unfolded, the Federal Reserve acted decisively, employing a wide arsenal of tools including slashing its benchmark interest rate to zero and ensuring credit availability to businesses, households, and municipal governments. The Fed’s efforts have largely insulated the financial system from the problems in the economy, a significant difference from the financial crisis of 2007-2008. The Federal Reserve continues to maintain a highly accommodative monetary policy by maintaining short-term rates firmly at the zero lower bound and purchasing Treasury and agency mortgage-backed securities to keep long-term interest rates down. With consumer interest rates at record lows and 30-year fixed-rate mortgages below 3%, the housing market has boomed. Home sales have been above their pre-pandemic levels, and construction activity has picked up in response.

The Fed's quantitative easing is expected to begin tapering in early 2022, while the zero-interest-rate policy is expected to remain in place until the economy is near full employment and inflation is firmly above the Fed's 2% inflation target, which is currently not expected until early 2023.

To help our customers navigate through the pandemic situation, we offered and supplied Paycheck Protection Program (PPP) loans and short-term modifications to loan terms. PPP loans and modifications were made in accordance with guidance from banking regulatory authorities. These modifications did not result in loans being classified as troubled debt restructurings, potential problem loans or non-performing loans. More severely impacted industries in our loan portfolio included retail, hotel and restaurants.

While the U.S. economic recovery began with a robust rebound from the pandemic-induced recession, challenges remain with the emergence of the new COVID-19 variant, which caused a resurgence of cases and renewed pressure on the healthcare industry. With the increase in cases, the re-instatement of mask mandates and social distancing occurred in a number of areas of the country.

Employment

September 2021 saw just 194,000 jobs added in the U.S., down from 366,000 in August 2021 and far below the increase of more than one million in July 2021, before the Delta variant led to a spike in COVID-19 cases across much of the country. Leisure and hospitality business, added fewer than 100,000 jobs for the second straight month. The national unemployment rate edged down to 4.8%, or 7.7 million unemployed individuals. These measures are down considerably from their highs in April 2020 but remain well above their levels prior to the COVID-19 pandemic (3.5% unemployment rate and 5.7 million unemployed individuals in February 2020).

42

Employment in professional and business services, retail trade, transportation and warehousing, information, social assistance, manufacturing, construction, mining, and wholesale trade industries rose as well; however, the employment rates in these industries are still below February 2020 levels with the exception of transportation and warehousing, which is up 72,000 from its pre-pandemic level. The number of persons not in the labor force who currently want a job was 6.0 million in September 2021, little changed from previous numbers.

In September 2021, the U.S. labor force participation rate (the share of working-age Americans employed or actively looking for a job) was unchanged from the previous quarter at 61.6% and has remained within a range of 61.4% to 61.7% since September 2020. The unemployment rate for the Midwest, where the Company conducts most of its business, decreased from 5.7% in December 2020 to 4.7% in September 2021. Unemployment rates for September 2021 in the states where the Company has branch or loan production offices were Arkansas at 4.0%, Colorado at 5.9%, Georgia at 3.2%, Illinois at 6.8%, Iowa at 4.0%, Kansas at 3.9%, Minnesota at 3.7%, Missouri at 3.8%, Nebraska at 2.0%, Oklahoma at 3.0%, and Texas at 5.6%. Of the metropolitan areas in which the Company does business, most are below the national unemployment rate of 4.8% for September 2021. Chicago leads our markets with a higher unemployment rate of 7.1%, followed by Denver and Dallas at 5.6% and 4.7% respectively as of the end of August 2021.

Housing

Sales of new single-family homes in September 2021 were at a seasonally adjusted annual rate of 800,000, according to U.S. Census Bureau and Department of Housing and Urban Development estimates. This is 17.6 percent below the September 2020 estimate of 971,000. The median sales price of new houses sold in September 2021 was $408,800, up from $344,400 a year earlier, and the average sales price of $451,700 was up from $405,100 a year ago in September 2020. The inventory of new homes for sale, at an estimate of 379,000 at the end of September 2021, would support a 5.7 months’ supply at the current sales rate, up from 3.5 months at the end of September 2020.

Existing-home sales rebounded in September 2021 after seeing sales wane the previous month, according to the National Association of Realtors. Total existing-home sales grew 7% from August 2021 to a seasonally adjusted annual rate of 6.29 million in September 2021.

The median existing home price for all housing types in September 2021 was $352,800, up 13.3% from $311,500 in September 2020, as prices increased in every region of the U.S. September’s national price jump marks the 115th straight month of year-over-year increases. Existing home sales in the Midwest rose 5.1% to an annual rate of 1,440,000 in September 2021, a 2.7% drop from a year ago. The median price in the Midwest in September 2021 was $265,300, a 9.1% increase from September 2020. First-time buyers accounted for 28% of sales in September 2021, down from 29% in August 2021 and 31% in September 2020.

Nationally, the inventory of homes actively for sale in September 2021 decreased by 22.2% over the past year, Homes are being quickly snapped up as demand remains elevated. Underbuilding over the last 20 years and a shrinking inventory of existing homes for sales has led to a significant housing shortage. At the same time, industry-wide materials scarcity, price increases and labor shortages have hit builders hard and made them struggle to finish projects on time and as planned.

According to Freddie Mac, the average commitment rate for a 30-year, conventional, fixed-rate mortgage was 2.90% in September 2021, up slightly from 2.84% in August 2021. The average commitment rate for all of 2020 was 3.11%, down from 4.54% for 2018.

Commercial Real Estate Other Than Housing

CoStar indicates demand for apartments totaled roughly 600,000 units through the first nine months of 2021, nearly matching full-year totals for both 2020 and 2019 with the national apartment vacancy rate plummeting to a two-decade low of 4.5%. Both suburban and downtown areas are recording strong gains across a wide range of diverse markets. Apartment rents rose nearly 7% in the first half of the year. The use of concessions has come back down to normal levels, although many downtown properties continue to utilize them to attract tenants. With demand and rent growth indicators surging, investors have renewed confidence in the sector, and sales volume has returned to more normal levels. Values are back on the rise with investors gravitating toward Sun Belt markets and increased sales volume observed in metros like Dallas-Fort Worth, Atlanta, and Phoenix.

As of the end of September 2021, national apartment vacancy rates had recovered to pre-COVID levels at 4.6% compared to 6.2% as of December 2019. Our market areas reflected the following vacancy levels as of September 30, 2021: Springfield, Mo. at 3.0%, St. Louis at 6.4%, Kansas City at 6.1%, Minneapolis at 5.2%, Tulsa, Okla. at 5.8%, Dallas-Fort Worth at 5.7%, Chicago at 5.6%, Atlanta at 5.2%, and Denver at 5.4%.

43

Even before the disruption caused by the COVID-19 pandemic, the trend of slowing growth in the market for office space was expected to continue in 2020 and linger throughout 2021. The office demand losses that characterized much of last year have carried into 2021. Office-using employment remained nearly one million jobs lower than the peak level in the first quarter of 2020. Even though tenants continue to downsize and adopt hybrid work models, typical office-using job sectors are projected to regain their pre-pandemic peak by the end of 2021.

As of the end of September 2021, national office vacancy rates remained about the same at 12.2% quarter-over-quarter while our market areas reflected the following vacancy levels: Springfield, Mo. at 3.8%, St. Louis at 8.3%, Kansas City at 9.4%, Minneapolis at 9.9%, Tulsa, Okla. at 12.0%, Dallas-Fort Worth at 17.8%, Chicago at 14.6%, Atlanta at 13.8% and Denver at 14.3%.

Retail sales activity surged in the first nine months of 2021 as focus on coordinated vaccine distribution and supporting strong consumer confidence bolstered leasing activity and overall economic growth. While e-commerce continues to expand, consumers have continued to visit physical stores for both their basic needs and discretionary purchases. Pockets of strength in the retail industry include discounters such as Dollar General, Dollar Tree, TJ Maxx, and Ross Dress for Less; general merchandisers such as Target and Walmart; pharmacies such as Walgreens; pet stores; and home improvement/tool retailers.

While these essential-oriented tenant types remain a positive source of demand, several areas of the retail sector remain under financial strain. Mall vacancy rates rose most significantly throughout 2020. In addition, ongoing capacity restraints for service-oriented retailers such as restaurants, together with reduced foot traffic for various indoor malls and retailers, continues to contribute to both bankruptcies and store closure announcements particularly concentrated throughout the restaurant, apparel and department store subtypes.

At September 30, 2021, national retail vacancy rates remained level at 4.7% while our market areas reflected the following vacancy levels: Springfield, Mo. at 3.7%, St. Louis at 4.8%, Kansas City at 5.5%, Minneapolis at 3.3%, Tulsa, Okla. at 3.7%, Dallas-Fort Worth at 5.6%, Chicago at 6.0%, Atlanta at 4.7% and Denver at 5.0%.

The unprecedented rise in online shopping and quick delivery demands brought on by the pandemic have propelled industrial demand to all-time highs.

Leasing activity in the industrial sector improved throughout the first nine months of 2021, primarily led by commitments from Amazon, power-grocers Walmart and Target, smaller healthcare and medical-oriented supply companies, food and beverage producers and manufacturers.

Strong demand from a wide variety of business types and segments was enough to offset new supply and decreased vacancy rates. Persistent demand from e-commerce and third-party logistics (3PLs) companies continues to drive demand. Investors continue to aggressively pursue industrial acquisitions.

At September 30, 2021, national industrial vacancy rates decreased slightly to 4.6% while our market areas reflected the following vacancy levels: Springfield, Mo. at 1.9%, St. Louis at 3.8%, Kansas City at 4.6%, Minneapolis at 3.5%, Tulsa, Okla. at 3.1%, Dallas-Fort Worth at 5.7%, Chicago at 5.2%, Atlanta at 3.9% and Denver at 6.4%.

Our management will continue to monitor regional, national, and global economic indicators such as unemployment, GDP, housing starts and prices, commercial real estate occupancy, absorption and rental rates, as these could significantly affect customers in each of our market areas.

COVID-19 Impact to Our Business and Response

Great Southern is actively monitoring and responding to the effects of the COVID-19 pandemic, including the administration of vaccines in our local markets. As always, the health, safety and well-being of our customers, associates and communities, while maintaining uninterrupted service, are the Company’s top priorities. Centers for Disease Control and Prevention (CDC) guidelines, as well as directives from federal, state and local officials, are being closely followed to make informed operational decisions.

The Company continues to work diligently with its nearly 1,200 associates to enforce the most current health, hygiene and social distancing practices. Teams in nearly every operational department have been split, with part of each team working at an off-site disaster recovery facility to promote social distancing and to avoid service disruptions. To date, there have been no service disruptions or reductions in staffing. With the advent of COVID-19 vaccinations in the Company’s markets, plans are being considered to allow associates working from home or other sites to return to their normal workplace beginning in the fourth quarter of 2021, dependent on health and safety conditions.

44

As always, customers can conduct their banking business using the banking center network, online and mobile banking services, ATMs, Telephone Banking, and online account opening services. As health conditions in local markets dictate, Great Southern banking center lobbies are open following social distancing and health protocols. Great Southern continues to work with customers experiencing hardships caused by the pandemic. As a resource to customers, a COVID-19 information center continues to be available on the Company’s website, www.GreatSouthernBank.com. General information about the Company’s pandemic response, how to receive assistance, and how to avoid COVID-19 scams and fraud are included.

Impacts to Our Business Going Forward: The magnitude of the impact on the Company of the COVID-19 pandemic continues to evolve and will ultimately depend on the remaining length and severity of the economic downturn brought on by the pandemic. Some positive economic signs have occurred in 2021, such as lower unemployment rates, improving gross domestic product (“GDP”) levels and other measures of the economy and increased vaccination rates. The Company expects that the COVID-19 pandemic could still impact our business in one or more of the following ways, among others. Each of these factors could, individually or collectively, result in reduced net income in future periods.

● Consistently low market interest rates for a significant period of time may have a negative impact on our variable and fixed rate loans, resulting in reduced net interest income

● Certain fees for deposit and loan products may be waived or reduced

● Non-interest expenses may increase as we continue to deal with the effects of the COVID-19 pandemic, including cleaning costs, supplies, equipment and other items

● Banking center lobbies have been closed at various times, and may close again in future periods if the pandemic situation worsens again

● Additional loan modifications may occur and borrowers may default on their loans, which may necessitate further increases to the allowance for credit losses

● A contraction in economic activity may reduce demand for our loans and for our other products and services

Paycheck Protection Program Loans

Great Southern has actively participated in the PPP through the SBA. The PPP has been met with very high demand throughout the country, resulting in a second round of funding in 2021 through an amendment to the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). In the first round of the PPP, we originated approximately 1,600 PPP loans, totaling approximately $121 million. As of September 30, 2021, full forgiveness proceeds have been received from the SBA for almost all of these PPP loans.

On December 27, 2020, the Economic Aid to Hard-Hit Small Businesses, Nonprofits and Venues Act authorized the reopening of the PPP for eligible first-draw and second-draw borrowers which began on January 19, 2021, and had an original expiration date of March 31, 2021. On March 30, 2021, the PPP Extension Act of 2021 was signed, extending the PPP an additional two months to May 31, 2021, along with an additional 30-day period for the SBA to process applications that were still pending as of May 31, 2021. In the second round of the PPP, we funded approximately 1,650 PPP loans, totaling approximately $58 million. As of October 25, 2021, full forgiveness proceeds have been received from the SBA for 911 of these PPP loans, totaling approximately $28 million.

Great Southern receives fees from the SBA for originating PPP loans based on the amount of each loan. At September 30, 2021, remaining net deferred fees related to PPP loans totaled $2.1 million. The fees, net of origination costs, are deferred in accordance with standard accounting practices and will be accreted to interest income on loans over the contractual life of each loan. These remaining loans generally have a contractual maturity of up to five years from origination date, but may be repaid or forgiven (by the SBA) sooner. If these loans are repaid or forgiven prior to their contractual maturity date, the remaining deferred fee for such loans will be accreted to interest income immediately. We expect a significant portion of these remaining net deferred fees will accrete to interest income during the remainder of 2021, with little of this income being recognized in 2022 or beyond. In the three and nine months ended September 30, 2021, Great Southern recorded approximately $1.6 million and $3.9 million, respectively, of net deferred fees in interest income on PPP loans.

Loan Modifications

At September 30, 2021, the Company had remaining eight modified commercial loans with an aggregate principal balance outstanding of $38.2 million and 16 modified consumer and mortgage loans with an aggregate principal balance outstanding of $1.6 million. These balances have decreased from $232.4 million and $18.2 million, respectively, for these loan categories at December 31, 2020. The loan modifications are within the guidance provided by the CARES Act, the federal banking regulatory agencies, the SEC and the FASB; therefore, they are not considered TDRs. At September 30, 2021, the largest total modified loans by collateral type were in the following categories: healthcare - $11.6 million; hotel/motel - $10.9 million; retail - $7.7 million; office - $6.9 million.

45

A portion of the loans modified at September 30, 2021, may be further modified, and new loans may be modified, within the guidance provided by the CARES Act (and subsequent legislation enacted in December 2020), the federal banking regulatory agencies, the SEC and the FASB if a more severe or lengthier deterioration in economic conditions occurs in future periods.

General

The profitability of the Company and, more specifically, the profitability of its primary subsidiary, the Bank, depend primarily on net interest income, as well as provisions for credit losses and the level of non-interest income and non-interest expense. Net interest income is the difference between the interest income the Bank earns on its loans and investment portfolios, and the interest it pays on interest-bearing liabilities, which consists mainly of interest paid on deposits and borrowings. Net interest income is affected by the relative amounts of interest-earning assets and interest-bearing liabilities and the interest rates earned or paid on these balances. When interest-earning assets approximate or exceed interest-bearing liabilities, any positive interest rate spread will generate net interest income.

Great Southern’s total assets decreased $74.6 million, or 1.3%, from $5.53 billion at December 31, 2020, to $5.45 billion at September 30, 2021. Details of the current period changes in total assets are provided in the “Comparison of Financial Condition at September 30, 2021 and December 31, 2020” section of this Quarterly Report on Form 10-Q.

Loans. Net outstanding loans decreased $271.1 million, or 6.3%, from $4.30 billion at December 31, 2020, to $4.03 billion at September 30, 2021. The net decrease in loans included reductions of $19.1 million in the FDIC-assisted acquired loan portfolios. The decrease was primarily in other residential (multi-family) loans, commercial business loans, commercial real estate loans and consumer auto loans. These decreases were partially offset by increases in one- to four family residential loans and construction loans. Excluding FDIC-assisted acquired loans and mortgage loans held for sale, total gross loans decreased $210.0 million, or 4.1%, from December 31, 2020 to September 30, 2021. As loan demand is affected by a variety of factors, including general economic conditions, and because of the competition we face and our focus on pricing discipline and credit quality, no assurances can be made regarding our future loan growth. We currently expect minimal net loan growth for the foreseeable future due to uncertainty resulting from the higher level of loan repayments we have experienced in 2021. New loan origination volumes have been strong and are consistent with levels seen in the past couple of years. The Company’s strategy continues to be focused on maintaining credit risk and interest rate risk at appropriate levels.

Recent growth has occurred in some loan types, primarily construction loans, and in most of Great Southern’s primary lending locations, including Springfield, St. Louis, Kansas City, Des Moines and Minneapolis, as well as our loan production offices in Atlanta, Chicago, Dallas, Denver, Omaha and Tulsa. Certain minimum underwriting standards and monitoring help assure the Company’s portfolio quality. Great Southern’s loan committee reviews and approves all new loan originations in excess of lender approval authorities. Generally, the Company considers commercial construction, consumer, and commercial real estate loans to involve a higher degree of risk compared to some other types of loans, such as first mortgage loans on one- to four-family, owner-occupied residential properties. For commercial real estate, commercial business and construction loans, the credits are subject to an analysis of the borrower’s and guarantor’s financial condition, credit history, verification of liquid assets, collateral, market analysis and repayment ability. It has been, and continues to be, Great Southern’s practice to verify information from potential borrowers regarding assets, income or payment ability and credit ratings as applicable and as required by the authority approving the loan. To minimize construction risk, projects are monitored as construction draws are requested by comparison to budget and with progress verified through property inspections. The geographic and product diversity of collateral, equity requirements and limitations on speculative construction projects help to mitigate overall risk in these loans. Underwriting standards for all loans also include loan-to-value ratio limitations, which vary depending on collateral type, debt service coverage ratios or debt payment to income ratio guidelines, where applicable, credit histories, use of guaranties and other recommended terms relating to equity requirements, amortization, and maturity. Consumer loans are primarily secured by new and used motor vehicles and these loans are also subject to certain minimum underwriting standards to assure portfolio quality. In 2019, the Company made the decision to discontinue indirect auto loan originations.

While our policy allows us to lend up to 95% of the appraised value on one-to four-family residential properties, originations of loans with loan-to-value ratios at that level are minimal. Private mortgage insurance is typically required for loan amounts above the 80% level. Few exceptions occur and would be based on analyses which determined minimal transactional risk to be involved. We consider these lending practices to be consistent with or more conservative than what we believe to be the norm for banks our size. At September 30, 2021, 0.3% of our owner occupied one-to four-family residential loans had loan-to-value ratios above 100% at origination. At December 31, 2020, none of our owner occupied one- to four-family residential loans had loan-to-value ratios above 100% at origination. At September 30, 2021 and December 31, 2020, an estimated 0.6% of total non-owner occupied one- to four-family residential loans had loan-to-value ratios above 100% at origination.

46

At September 30, 2021, TDRs, including FDIC-assisted acquired loans, totaled $3.8 million, or 0.09% of total loans, an increase of $448,000 from $3.3 million, or 0.08% of total loans, at December 31, 2020. The December 31, 2020 amount excludes $1.7 million of FDIC-assisted acquired loans accounted for under ASC 310-30. Concessions granted to borrowers experiencing financial difficulties may include a reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize collection. For TDRs occurring during the nine months ended September 30, 2021, none were restructured into multiple new loans. For TDRs occurring during the year ended December 31, 2020, five loans totaling $107,000 were restructured into multiple new loans. For further information on TDRs, see Note 6 of the Notes to Consolidated Financial Statements contained in this report. In accordance with the CARES Act and guidance from the banking regulatory agencies, we made certain short-term modifications to loan terms to help our customers navigate through the current pandemic situation. Although loan modifications were made, they did not result in these loans being classified as TDRs, potential problem loans or non-performing loans. As of September 30, 2021, $38.2 million of commercial loans and $1.6 million of residential and consumer loans were subject to such modifications. If more severe or lengthier negative impacts of the COVID-19 pandemic occur or the effects of the SBA loan programs and other loan and stimulus programs do not enable companies and individuals to completely recover financially, this could result in more and/or longer-term modifications, which may be deemed to be TDRs, additional potential problem loans and/or additional non-performing loans.

The level of non-performing loans and foreclosed assets affects our net interest income and net income. We generally do not accrue interest income on these loans and do not recognize interest income until the loans are repaid or interest payments have been made for a period of time sufficient to provide evidence of performance on the loans. Generally, the higher the level of non-performing assets, the greater the negative impact on interest income and net income.

The Company continues its preparation for discontinuation of use of interest rates such as LIBOR. LIBOR is a benchmark interest rate referenced in a variety of agreements used by the Company, but by far the most significant area impacted by LIBOR is related to commercial and residential mortgage loans. After 2021, certain LIBOR rates may no longer be published and it is expected to eventually be discontinued as a reference rate. Other interest rates used globally could also be discontinued for similar reasons.

The Company has been regularly monitoring its portfolio of loans tied to LIBOR since 2019, with specific groups of loans identified. The Company implemented robust LIBOR fallback language for all commercial loan transactions beginning near the end of 2018, with such language utilized for all new originations and renewed/modified commercial loans since that time. The Company is particularly monitoring the remaining group of loans that were originated prior to the fourth quarter of 2018, have not been renewed or modified, and do not mature prior to December 31, 2021. This represented approximately 70 commercial loans totaling approximately $249 million; however, only 31 of those loans, totaling $39 million, mature after June 2023 (the date upon which the LIBOR indices used by the Company are expected to no longer be available). The Company also has a portfolio of residential mortgage loans tied to LIBOR indices with standard index replacement language included (approximately $430 million), and that portfolio is being monitored for potential changes that may be facilitated by the mortgage industry. As described, the vast majority of the loan portfolio tied to LIBOR now includes robust LIBOR replacement language which identifies appropriate “trigger” events for the cessation of LIBOR and the steps that the Company will take upon the occurrence of one or more of those events, including adjustments to any rate margin to ensure that the replacement interest rate on the loan is substantially similar to the previous LIBOR-based rate.

Available-for-sale Securities. In the nine months ended September 30, 2021, available-for-sale securities increased $18.0 million, or 4.3%, from $414.9 million at December 31, 2020, to $432.9 million at September 30, 2021. The increase was primarily due to the purchase of U.S. Government agency fixed-rate multi-family mortgage-backed securities and collateralized mortgage obligation securities, partially offset by calls of municipal securities and normal monthly payments received related to the portfolio of these U.S. Government agency securities. The Company used increased deposits and loan repayments to fund this increase in investment securities.

47

Deposits. The Company attracts deposit accounts through its retail branch network, correspondent banking and corporate services areas, and brokered deposits. The Company then utilizes these deposit funds, along with FHLBank advances and other borrowings, to meet loan demand or otherwise fund its activities. In the nine months ended September 30, 2021, total deposit balances decreased $6.7 million, or 0.1%. Transaction account balances increased $328.3 million, or 10.5%, to $3.45 billion at September 30, 2021, while retail certificates of deposit decreased $243.7 million, or 19.8%, to $988.4 million at September 30, 2021. The increases in transaction accounts were primarily a result of increases in various money market accounts and NOW deposit accounts. Retail certificates of deposit decreased due to a decrease in retail certificates generated through the banking center network and decreases in national CDs initiated through internet channels. CDs initiated through internet channels experienced a planned decrease due to increases in overall liquidity levels and to reduce the Company’s cost of funds. Customer deposits at September 30, 2021 and December 31, 2020, totaling $41.5 million and $39.4 million, respectively, were part of the IntraFi Network Deposits program, which allows customers to maintain balances in an insured manner that would otherwise exceed the FDIC deposit insurance limit. Brokered deposits, including IntraFi Funding deposits, were $67.4 million at September 30, 2021, a decrease of $91.3 million from $158.7 million at December 31, 2020. The brokered deposits were allowed to mature without replacement as other deposit categories increased and to reduce the Company’s cost of funds.

Our deposit balances may fluctuate depending on customer preferences and our relative need for funding. We do not consider our retail certificates of deposit to be guaranteed long-term funding because customers can withdraw their funds at any time with minimal interest penalty. When loan demand trends upward, we can increase rates paid on deposits to attract more deposits and utilize brokered deposits to provide additional funding. The level of competition for deposits in our markets is high. It is our goal to gain deposit market share, particularly checking accounts, in our branch footprint. To accomplish this goal, increasing rates to attract deposits may be necessary, which could negatively impact the Company’s net interest margin.

Our ability to fund growth in future periods may also depend on our ability to continue to access brokered deposits and FHLBank advances. In times when our loan demand has outpaced our generation of new deposits, we have utilized brokered deposits and FHLBank advances to fund these loans. These funding sources have been attractive to us because we can create either fixed or variable rate funding, as desired, which more closely matches the interest rate nature of much of our loan portfolio. It also gives us greater flexibility in increasing or decreasing the duration of our funding. While we do not currently anticipate that our ability to access these sources will be reduced or eliminated in future periods, if this should happen, the limitation on our ability to fund additional loans could have a material adverse effect on our business, financial condition and results of operations.

Securities sold under reverse repurchase agreements with customers. Securities sold under reverse repurchase agreements with customers increased $3.1 million from $164.2 million at December 31, 2020 to $167.3 million at September 30, 2021. These balances fluctuate over time based on customer demand for this product.

Net Interest Income and Interest Rate Risk Management. Our net interest income may be affected positively or negatively by changes in market interest rates. A large portion of our loan portfolio is tied to one-month LIBOR, three-month LIBOR or the “prime rate” and adjusts immediately or shortly after the index rate adjusts (subject to the effect of contractual interest rate floors on some of the loans, which are discussed below). We monitor our sensitivity to interest rate changes on an ongoing basis (see “Item 3. Quantitative and Qualitative Disclosures About Market Risk”). In addition, our net interest income has been impacted by changes in the cash flows expected to be received from acquired loan pools. As described in Note 7 of the Notes to the Consolidated Financial Statements contained in this report, the Company’s evaluation of cash flows expected to be received from acquired loan pools has been on-going and increases in cash flow expectations have been recognized as increases in accretable yield through interest income. Decreases in cash flow expectations have been recognized as impairments through the allowance for credit losses.

The current level and shape of the interest rate yield curve poses challenges for interest rate risk management. Prior to its increase of 0.25% on December 16, 2015, the FRB had last changed interest rates on December 16, 2008. This was the first rate increase since September 29, 2006. The FRB also implemented rate change increases of 0.25% on eight additional occasions beginning December 14, 2016 and through December 31, 2018, with the Federal Funds rate reaching as high as 2.50%. After December 2018, the FRB paused its rate increases and, in July, September and October 2019, implemented rate change decreases of 0.25% on each of those occasions. At December 31, 2019, the Federal Funds rate stood at 1.75%. In response to the COVID-19 pandemic, the FRB decreased interest rates on two occasions in March 2020, a 0.50% decrease on March 3 and a 1.00% decrease on March 16. At September 30, 2021, the Federal Funds rate stood at 0.25%. The FRB met in September 2021 and indicated they plan to keep the rates steady. A substantial portion of Great Southern’s loan portfolio ($1.80 billion at September 30, 2021) is tied to the one-month or three-month LIBOR index and will be subject to adjustment at least once within 90 days after September 30, 2021. Of these loans, $1.78 billion had interest rate floors. Great Southern also has a portfolio of loans ($533.8 million at September 30, 2021) tied to a “prime rate” of interest and will adjust immediately with changes to the “prime rate” of interest. Of these loans, $503.6 million had interest rate floors at various rates. At September 30, 2021, $1.3 billion in LIBOR and “prime rate” loans were at their floor rate. If interest rates were to

48

increase 25 basis points, loans of $284.6 million would move above their floor rate. If interest rates were to increase 50 basis points, an additional $344.8 million in loans would move above their floor rate.

A rate cut by the FRB generally would have an anticipated immediate negative impact on the Company’s net interest income due to the large total balance of loans tied to the one-month or three-month LIBOR index and will be subject to adjustment at least once within 90 days or loans which generally adjust immediately as the Federal Funds rate adjusts. Interest rate floors may at least partially mitigate the negative impact of interest rate decreases. Loans at their floor rates are, however, subject to the risk that borrowers will seek to refinance elsewhere at the lower market rate. Because the Federal Funds rate is again very low, there may also be a negative impact on the Company’s net interest income due to the Company’s inability to significantly lower its funding costs in the current competitive rate environment, although interest rates on assets may decline further. Conversely, interest rate increases would normally result in increased interest rates on our LIBOR-based and prime-based loans.

As of September 30, 2021, Great Southern’s interest rate risk models indicate that, generally, rising interest rates are expected to have a positive impact on the Company's net interest income, while declining interest rates are expected to have a negative impact on net interest income. We model various interest rate scenarios for rising and falling rates, including both parallel and non-parallel shifts in rates. The results of our modeling indicate that net interest income is not likely to be significantly affected either positively or negatively in the first twelve months following a rate change, regardless of any changes in interest rates, because our portfolios are relatively well-matched in a twelve-month horizon. In a situation where market interest rates decrease significantly in a short period of time, as they did in March 2020, our net interest margin decrease may be more pronounced in the very near term (first one to three months), due to fairly rapid decreases in LIBOR interest rates. In the subsequent months we expect that the net interest margin would stabilize and begin to improve, as renewal interest rates on maturing time deposits are expected to decrease compared to the current rates paid on those products. During 2020, we did experience some compression of our net interest margin due to Federal Fund rate cuts totaling 2.25% during the nine month period of July 2019 through March 2020. Margin compression primarily resulted from changes in the asset mix, mainly the addition of lower-yielding assets and the issuance of subordinated notes during 2020. LIBOR interest rates decreased significantly in 2020 and have remained very low so far in 2021, putting pressure on loan yields, and strong pricing competition for loans and deposits remains in most of our markets. For further discussion of the processes used to manage our exposure to interest rate risk, see “Item 3. Quantitative and Qualitative Disclosures About Market Risk – How We Measure the Risks to Us Associated with Interest Rate Changes.”

Non-Interest Income and Non-Interest (Operating) Expenses. The Company's profitability is also affected by the level of its non-interest income and operating expenses. Non-interest income consists primarily of service charges and ATM fees/POS interchange fees, late charges and prepayment fees on loans, gains on sales of loans and available-for-sale investments and other general operating income. Non-interest income may also be affected by the Company's interest rate derivative activities, if the Company chooses to implement derivatives. See Note 16 “Derivatives and Hedging Activities” in the Notes to Consolidated Financial Statements included in this report.

Operating expenses consist primarily of salaries and employee benefits, occupancy-related expenses, expenses related to foreclosed assets, postage, FDIC deposit insurance, advertising and public relations, telephone, professional fees, office expenses and other general operating expenses. Details of the current period changes in non-interest income and non-interest expense are provided in the “Results of Operations and Comparison for the Three and Nine Months Ended September 30, 2021 and 2020” section of this report.

Effect of Federal Laws and Regulations

General. Federal legislation and regulation significantly affect the operations of the Company and the Bank, and have increased competition among commercial banks, savings institutions, mortgage banking enterprises and other financial institutions. In particular, the capital requirements and operations of regulated banking organizations such as the Company and the Bank have been and will be subject to changes in applicable statutes and regulations from time to time, which changes could, under certain circumstances, adversely affect the Company or the Bank.

Dodd-Frank Act. In 2010, sweeping financial regulatory reform legislation entitled the “Dodd-Frank Wall Street Reform and Consumer Protection Act” (the “Dodd-Frank Act”) was signed into law. The Dodd-Frank Act implemented far-reaching changes across the financial regulatory landscape. Certain aspects of the Dodd-Frank Act have been affected by the more recently enacted Economic Growth Act, as defined and discussed below under “-Economic Growth Act.”

Capital Rules. The federal banking agencies have adopted regulatory capital rules that substantially amend the risk-based capital rules applicable to the Bank and the Company. The rules implement the “Basel III” regulatory capital reforms and changes required by the Dodd-Frank Act. “Basel III” refers to various documents released by the Basel Committee on Banking Supervision. For the

49

Company and the Bank, the general effective date of the rules was January 1, 2015, and, for certain provisions, various phase-in periods and later effective dates apply. The chief features of these rules are summarized below.

The rules refine the definitions of what constitutes regulatory capital and add a new regulatory capital element, common equity Tier 1 capital. The minimum capital ratios are (i) a common equity Tier 1 (“CET1”) risk-based capital ratio of 4.5%; (ii) a Tier 1 risk-based capital ratio of 6%; (iii) a total risk-based capital ratio of 8%; and (iv) a Tier 1 leverage ratio of 4%. In addition to the minimum capital ratios, the rules include a capital conservation buffer, under which a banking organization must have CET1 more than 2.5% above each of its minimum risk-based capital ratios in order to avoid restrictions on paying dividends, repurchasing shares, and paying certain discretionary bonuses. The capital conservation buffer requirement began phasing in on January 1, 2016 when a buffer greater than 0.625% of risk-weighted assets was required, which amount increased an equal amount each year until the buffer requirement of greater than 2.5% of risk-weighted assets became fully implemented on January 1, 2019.

Effective January 1, 2015, these rules also revised the prompt corrective action framework, which is designed to place restrictions on insured depository institutions if their capital levels show signs of weakness. Under the revised prompt corrective action requirements, insured depository institutions are required to meet the following in order to qualify as “well capitalized:” (i) a common equity Tier 1 risk-based capital ratio of at least 6.5%, (ii) a Tier 1 risk-based capital ratio of at least 8%, (iii) a total risk-based capital ratio of at least 10% and (iv) a Tier 1 leverage ratio of 5%, and must not be subject to an order, agreement or directive mandating a specific capital level.

Economic Growth Act. In May 2018, the Economic Growth, Regulatory Relief, and Consumer Protection Act (the “Economic Growth Act”), was enacted to modify or eliminate certain financial reform rules and regulations, including some implemented under the Dodd-Frank Act. While the Economic Growth Act maintains most of the regulatory structure established by the Dodd-Frank Act, it amends certain aspects of the regulatory framework for small depository institutions with assets of less than $10 billion and for large banks with assets of more than $50 billion. Many of these amendments could result in meaningful regulatory changes.

The Economic Growth Act, among other matters, expands the definition of qualified mortgages which may be held by a financial institution and simplifies the regulatory capital rules for financial institutions and their holding companies with total consolidated assets of less than $10 billion by instructing the federal banking regulators to establish a single “Community Bank Leverage Ratio” of between 8 and 10 percent. Any qualifying depository institution or its holding company that exceeds the “Community Bank Leverage Ratio” will be considered to have met generally applicable leverage and risk-based regulatory capital requirements and any qualifying depository institution that exceeds the new ratio will be considered “well-capitalized” under the prompt corrective action rules. Effective January 1, 2020, the Community Bank Leverage Ratio was 9.0%. In April 2020, pursuant to the CARES Act, the federal bank regulatory agencies announced the issuance of two interim final rules, effective immediately, to provide temporary relief to community banking organizations. Under the interim final rules, the Community Bank Leverage Ratio requirement is a minimum of 8.5% for calendar year 2021, and 9% thereafter. The Company and the Bank have chosen to not utilize the new Community Bank Leverage Ratio due to the Company’s size and complexity, including its commercial real estate and construction lending concentrations and significant off-balance sheet funding commitments.

In addition, the Economic Growth Act includes regulatory relief in the areas of examination cycles, call reports, mortgage disclosures and risk weights for certain high-risk commercial real estate loans.

50

Business Initiatives

The Company’s banking center network continues to evolve. In late September 2021 in the Joplin, Missouri, market, the Company opened a new banking center at 2801 E. 32nd Street, replacing a nearby leased office. The new office provides customers more convenient access and has a fresh, modern design facilitating an enhanced customer experience. The Company currently has two banking centers serving the Joplin market.

After a thorough evaluation, the Company announced that it will consolidate one banking center in the St. Louis region. The Westfall Plaza banking center located at 8013 W. Florissant is expected to be consolidated into a nearby Great Southern office at 10385 W. Florissant, less than three miles away. The Westfall Plaza office is scheduled to close after business hours on November 5, 2021, which will leave the Company with 18 banking centers serving the greater St. Louis area.

Linton J. Thomason, Vice President and Chief Information Officer, intends to retire at the end of 2021. Mr. Thomason is primarily responsible for information services and technology for Great Southern. He announced his intention to retire more than a year in advance to assure an orderly leadership transition. A succession plan is in place. With more than 40 years in the banking industry, Mr. Thomason joined Great Southern in 1997. He has been an integral part of the Bank’s growth and success for the last 24 years.

Comparison of Financial Condition at September 30, 2021 and December 31, 2020

During the nine months ended September 30, 2021, the Company’s total assets decreased by $74.6 million to $5.45 billion. The decrease was primarily in net loans, and was partially offset by an increase in cash equivalents.

Cash and cash equivalents were $769.2 million at September 30, 2021, an increase of $205.5 million, or 36.4%, from $563.7 million at December 31, 2020. These additional funds were held at the Federal Reserve Bank and primarily were the result of increases in net loan repayments throughout 2021.

The Company's available-for-sale securities increased $18.0 million, or 4.3%, compared to December 31, 2020. The increase was primarily due to the purchase of U.S. Government agency fixed-rate multi-family mortgage-backed securities and collateralized mortgage obligation securities, partially offset by calls of municipal securities and normal monthly payments received related to the portfolio of these U.S. Government agency securities. The available-for-sale securities portfolio was 7.9% and 7.5% of total assets at September 30, 2021 and December 31, 2020, respectively.

Net loans decreased $271.1 million from December 31, 2020, to $4.03 billion at September 30, 2021. Excluding FDIC-assisted acquired loans and mortgage loans held for sale, total gross loans (including the undisbursed portion of loans) decreased $210.0 million, or 4.1%, from December 31, 2020 to September 30, 2021. This decrease was primarily in other residential (multi-family) loans ($233 million decrease), commercial business loans ($77 million decrease), commercial real estate loans ($45 million decrease) and consumer auto loans ($31 million decrease). These decreases were partially offset by increases in construction loans ($135 million increase) and one- to four-family residential loans ($44 million increase).

Total liabilities decreased $69.5 million, from $4.90 billion at December 31, 2020 to $4.83 billion at September 30, 2021. The decrease was primarily attributable to the redemption of $75 million of subordinated notes during the 2021 period.

Total deposits decreased $6.7 million, or 0.1%, to $4.51 billion at September 30, 2021. Transaction account balances increased $328.3 million to $3.45 billion at September 30, 2021, while retail certificates of deposit decreased $243.7 million compared to December 31, 2020, to $988.4 million at September 30, 2021. The increase in transaction accounts was primarily a result of increases in NOW deposit accounts, money market accounts and IntraFi Network Deposits. Total interest-bearing checking accounts increased $257.5 million while demand deposit accounts increased $70.8 million. Customer retail certificates of deposit initiated through our banking center network decreased $111.8 million and certificates of deposit initiated through our national internet network decreased $134.0 million. Customer deposits at September 30, 2021 and December 31, 2020 totaling $41.5 million and $39.4 million, respectively, were part of the IntraFi Network Deposits program, which allows customers to maintain balances in an insured manner that would otherwise exceed the FDIC deposit insurance limit. Brokered deposits, including IntraFi Funding deposits, were $67.4 million at September 30, 2021, a decrease of $91.3 million from $158.7 million at December 31, 2020. The brokered deposits were allowed to mature without replacement as other deposit categories increased.

Securities sold under reverse repurchase agreements with customers increased $3.1 million from $164.2 million at December 31, 2020 to $167.3 million at September 30, 2021. These balances fluctuate over time based on customer demand for this product.

51

Total stockholders' equity decreased $5.1 million from $629.7 million at December 31, 2020 to $624.6 million at September 30, 2021. The Company recorded net income of $59.3 million for the nine months ended September 30, 2021. In addition, stockholders’ equity increased $3.5 million due to stock option exercises. Accumulated other comprehensive income decreased $15.9 million due to decreases in the fair value of available-for-sale investment securities and the termination value of the cash flow interest rate swap. Stockholders’ equity also decreased due to dividends declared on common stock of $14.1 million and repurchases of the Company’s common stock totaling $23.8 million. In addition, the initial adoption of the CECL accounting standard for credit losses on January 1, 2021, resulted in a decrease in stockholders’ equity of $14.2 million.

Results of Operations and Comparison for the Three and Nine Months Ended September 30, 2021 and 2020

General

Net income was $20.4 million for the three months ended September 30, 2021 compared to $13.5 million for the three months ended September 30, 2020. This increase of $6.9 million, or 51.4%, was primarily due to a decrease in the provision for credit losses on loans and unfunded commitments of $6.9 million, or 152.4%, an increase in net interest income of $755,000, or 1.7%, an increase in noninterest income of $332,000, or 3.5%, and a decrease in noninterest expense of $649,000, or 2.0%, partially offset by an increase in income tax expense of $1.7 million, or 45.6%.

Net income was $59.3 million for the nine months ended September 30, 2021 compared to $41.5 million for the nine months ended September 30, 2020. This increase of $17.8 million, or 42.9%, was primarily due to a decrease in the provision for credit losses on loans and unfunded commitments of $18.4 million, or 128.1%, an increase in net interest income of $1.1 million, or 0.9%, an increase in noninterest income of $4.0 million, or 16.0%, and a decrease in noninterest expense of $299,000, or 0.3%, partially offset by an increase in income tax expense of $6.0 million, or 63.0%.

Total Interest Income

Total interest income decreased $4.0 million, or 7.4%, during the three months ended September 30, 2021 compared to the three months ended September 30, 2020. The decrease was due to a $3.9 million decrease in interest income on loans and a $19,000 decrease in interest income on investment securities and other interest-earning assets. Interest income on loans decreased for the three months ended September 30, 2021 compared to the same period in 2020, primarily due to lower average loan balances, but also due to lower average rates of interest. Interest income from investment securities and other interest-earning assets decreased during the three months ended September 30, 2021 compared to the same period in 2020 primarily due to lower average rates of interest, partially offset by higher average balances of investment securities and other interest-earning assets.

Total interest income decreased $14.4 million, or 8.7%, during the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. The decrease was due to a $13.8 million decrease in interest income on loans and a $511,000 decrease in interest income on investment securities and other interest-earning assets. Interest income on loans decreased for the nine months ended September 30, 2021 compared to the same period in 2020, due primarily to lower average rates of interest on loans. Interest income from investment securities and other interest-earning assets decreased during the nine months ended September 30, 2021 compared to the same period in 2020 primarily due to lower average rates of interest, partially offset by higher average balances of investment securities and other interest-earning assets.

52

Interest Income – Loans

During the three months ended September 30, 2021 compared to the three months ended September 30, 2020, interest income on loans decreased $2.8 million as the result of lower average loan balances, which decreased from $4.51 billion during the three months ended September 30, 2020, to $4.24 billion during the three months ended September 30, 2021. The lower average balances were primarily due to higher loan repayments during the 2021 period. Interest income on loans also decreased $1.1 million as a result of lower average interest rates on loans. The average yield on loans decreased from 4.46% during the three months ended September 30, 2020, to 4.35% during the three months ended September 30, 2021. This decrease was primarily due to decreased yields in most loan categories as a result of decreased LIBOR and Federal Funds interest rates. In addition, new loans (excluding one- to four-family mortgage loans) originated in the three months ended September 30, 2021, had an average contractual interest rate of 3.87%, compared to an average contractual interest rate of about 3.89% for the portfolio (excluding one- to four-family mortgage loans) at September 30, 2021. Commercial real estate loans (including multifamily loans and construction loans) originated in the three months ended September 30, 2021, had contractual interest rates averaging 3.65-3.75%, compared to an average contractual interest rate of about 3.85% for the portfolio of these loan types at September 30, 2021.

During the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, interest income on loans decreased $12.6 million as a result of lower average interest rates on loans. The average yield on loans decreased from 4.74% during the nine months ended September 30, 2020, to 4.36% during the nine months ended September 30, 2021. This decrease was primarily due to decreased yields in most loan categories as a result of decreased LIBOR and Federal Funds interest rates. Interest income on loans also decreased $1.3 million as the result of lower average loan balances, which decreased from $4.38 billion during the nine months ended September 30, 2020, to $4.34 billion during the nine months ended September 30, 2021. The lower average balances were primarily due to higher loan repayments during the 2021 period.

On an on-going basis, the Company has estimated the cash flows expected to be collected from FDIC-assisted acquired loan pools. For each of the loan portfolios acquired, the cash flow estimates have increased, based on the payment histories and the collection of certain loans, thereby reducing loss expectations of certain loan pools, resulting in adjustments to be spread on a level-yield basis over the remaining expected lives of the loan pools. The entire amount of the discount adjustment has been and will be accreted to interest income over time. For the three months ended September 30, 2021 and 2020, the adjustments increased interest income by $279,000 and $1.2 million, respectively. For the nine months ended September 30, 2021 and 2020, the adjustments increased interest income by $1.4 million and $4.6 million, respectively.

As of September 30, 2021, the remaining accretable yield adjustment that will affect interest income was $606,000. Of the remaining adjustments affecting interest income, we expect to recognize approximately $178,000 of interest income during the fourth quarter of 2021. As discussed in Note 6 of the Notes to Consolidated Financial Statements contained in this report, we adopted the new accounting standard related to accounting for credit losses as of January 1, 2021. With the adoption of this standard, there is no further reclassification of discounts from non-accretable to accretable subsequent to December 31, 2020. All adjustments made prior to January 1, 2021, will continue to be accreted to interest income. Apart from the yield accretion, the average yield on loans was 4.33% during the three months ended September 30, 2021, compared to 4.35% during the three months ended September 30, 2020. Apart from the yield accretion, the average yield on loans was 4.32% during the nine months ended September 30, 2021, compared to 4.60% during the nine months ended September 30, 2020, as a result of lower current market rates on adjustable rate loans and new loans originated during the past year.

In October 2018, the Company entered into an interest rate swap transaction as part of its ongoing interest rate management strategies to hedge the risk of its floating rate loans. The notional amount of the swap was $400 million with a contractual termination date in October 2025. Under the terms of the swap, the Company received a fixed rate of interest of 3.018% and paid a floating rate of interest equal to one-month USD-LIBOR. The floating rate reset monthly and net settlements of interest due to/from the counterparty also occurred monthly. To the extent that the fixed rate exceeded one-month USD-LIBOR, the Company received net interest settlements, which were recorded as interest income on loans. If one-month USD-LIBOR exceeded the fixed rate of interest, the Company was required to pay net settlements to the counterparty and record those net payments as a reduction of interest income on loans.

In March 2020, the Company and its swap counterparty mutually agreed to terminate the $400 million interest rate swap prior to its contractual maturity. The Company received a payment of $45.9 million from its swap counterparty as a result of this termination. This $45.9 million, less the accrued to date interest portion and net of deferred income taxes, is reflected in the Company’s stockholders’ equity as Accumulated Other Comprehensive Income and is being accreted to interest income on loans monthly through the original contractual termination date of October 6, 2025. This has the effect of reducing Accumulated Other Comprehensive Income and increasing Net Interest Income and Retained Earnings over the period. In each quarterly period, until the original contract termination date, the Company expects to record loan interest income related to this swap transaction of approximately $2.0 million,

53

based on the termination values of the swap. The Company recorded interest income related to the interest rate swap of $2.0 million and $2.0 million, respectively, in the three months ended September 30, 2021 and 2020. The Company recorded interest income related to the interest rate swap of $6.1 million and $5.6 million, respectively, in the nine months ended September 30, 2021 and 2020. The Company currently expects to have a sufficient amount of eligible variable rate loans to continue to accrete this interest income in future periods. If this expectation changes and the amount of eligible variable rate loans decreases significantly, the Company may be required to recognize this interest income more rapidly.

Interest Income – Investments and Other Interest-earning Assets

Interest income on investments decreased $183,000 in the three months ended September 30, 2021 compared to the three months ended September 30, 2020. Interest income decreased $210,000 as a result of lower average interest rates from 2.71% during the three months ended September 30, 2020, to 2.52% during the three month period ended September 30, 2021. Partially offsetting that decrease was an increase in interest income of $27,000 as a result of an increase in average balances from $449.4 million during the three months ended September 30, 2020, to $453.3 million during the three months ended September 30, 2021. Average balances of securities increased primarily due to purchases of agency multi-family mortgage-backed securities which have a fixed rate of interest with expected lives of four to ten years. These purchased securities fit with the Company’s current asset/liability management strategies.

Interest income on investments decreased $571,000 in the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. Interest income decreased $992,000 as a result of lower average interest rates from 2.92% during the nine months ended September 30, 2020, to 2.61% during the nine month period ended September 30, 2021. Partially offsetting that decrease was an increase in interest income of $421,000 as a result of an increase in average balances from $422.7 million during the nine months ended September 30, 2020, to $442.8 million during the nine months ended September 30, 2021. Average balances of securities increased primarily due to the investment purchases described above.

Interest income on other interest-earning assets increased $164,000 in the three months ended September 30, 2021 compared to the three months ended September 30, 2020. Interest income increased $110,000 as a result of an increase in average balances from $270.5 million during the three months ended September 30, 2020, to $604.0 million during the three months ended September 30, 2021. Excess liquidity, after repayment of FHLBank borrowings, has been maintained at the Federal Reserve Bank as a result of the significant increase in deposits since March 31, 2020 and significant loan repayments in 2021. Interest income increased $54,000 as a result of higher average interest rates from 0.09% during the three months ended September 30, 2020, to 0.15% during the three month period ended September 30, 2021.

Interest income on other interest-earning assets increased $60,000 in the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. Interest income increased $329,000 as a result of an increase in average balances from $227.5 million during the nine months ended September 30, 2020, to $513.4 million during the nine months ended September 30, 2021. Excess liquidity, after repayment of FHLBank borrowings, has been maintained at the Federal Reserve Bank as a result of the significant increase in deposits since March 31, 2020 and significant loan repayments in 2021. Partially offsetting this increase, interest income decreased $269,000 as a result of a decrease in average interest rates to 0.12% during the nine months ended September 30, 2021 compared to 0.24% during the nine months ended September 30, 2020. Market interest rates earned on balances held at the Federal Reserve Bank were significantly lower in the 2021 period due to significant reductions in the federal funds rate of interest.

Total Interest Expense

Total interest expense decreased $4.7 million, or 50.0%, during the three months ended September 30, 2021, when compared with the three months ended September 30, 2020, due to a decrease in interest expense on deposits of $4.2 million, or 58.8%, a decrease in interest expense on subordinated notes of $530,000, or 24.1% and a decrease in interest expense on subordinated debentures issued to capital trust of $17,000, or 13.3%.

Total interest expense decreased $15.5 million, or 47.6%, during the nine months ended September 30, 2021, when compared with the nine months ended September 30, 2020, due to a decrease in interest expense on deposits of $16.1 million, or 60.3%, a decrease in interest expense on short-term borrowings and repurchase agreements of $638,000, or 95.7%, and a decrease in interest expense on subordinated debentures issued to capital trust of $174,000, or 34.1%, partially offset by an increase in interest expense on subordinated notes of $1.4 million, or 30.8%.

54

Interest Expense – Deposits

Interest expense on demand deposits decreased $1.0 million due to average rates of interest that decreased from 0.33% in the three months ended September 30, 2020 to 0.15% in the three months ended September 30, 2021. Interest rates paid on demand deposits were significantly lower in the 2021 period due to significant reductions in the federal funds rate of interest and other market interest rates. Partially offsetting this decrease, interest expense on demand deposits increased $288,000, due to an increase in average balances from $1.96 billion during the three months ended September 30, 2020 to $2.36 billion during the three months ended September 30, 2021. The Company experienced increased balances in various types of money market accounts and certain types of NOW accounts.

Interest expense on demand deposits decreased $3.7 million due to average rates of interest that decreased from 0.42% in the nine months ended September 30, 2020 to 0.18% in the nine months ended September 30, 2021. Interest rates paid on demand deposits were significantly lower in the 2021 period due to significant reductions in the federal funds rate of interest and other market interest rates. Partially offsetting this decrease, interest expense on demand deposits increased $1.3 million due to an increase in average balances from $1.79 billion during the nine months ended September 30, 2020 to $2.29 billion during the nine months ended September 30, 2021. The Company experienced increased balances in various types of money market accounts and certain types of NOW accounts.

Interest expense on time deposits decreased $2.1 million as a result of a decrease in average rates of interest from 1.35% during the three months ended September 30, 2020, to 0.71% during the three months ended September 30, 2021. Interest expense on time deposits also decreased $1.3 million due to a decrease in average balances of time deposits from $1.60 billion during the three months ended September 30, 2020 to $1.11 billion in the three months ended September 30, 2021. A large portion of the Company’s certificate of deposit portfolio matures within six to twelve months and therefore reprices fairly quickly; this is consistent with the portfolio over the past several years. Older certificates of deposit that renewed or were replaced with new deposits generally resulted in the Company paying a lower rate of interest due to market interest rate decreases throughout 2020. Market interest rates remained low during the first nine months of 2021. The decrease in average balances of time deposits was a result of decreases in retail customer time deposits obtained through the banking center network, retail customer time deposits obtained through on-line channels and decreases in brokered deposits. Brokered and on-line channel deposits were actively reduced by the Company as other deposit sources increased.

Interest expense on time deposits decreased $8.6 million as a result of a decrease in average rates of interest from 1.66% during the nine months ended September 30, 2020, to 0.82% during the nine months ended September 30, 2021. Interest expense on time deposits also decreased $5.0 million due to a decrease in average balances of time deposits from $1.70 billion during the nine months ended September 30, 2020 to $1.21 billion in the nine months ended September 30, 2021.

Interest Expense – FHLBank Advances, Short-term Borrowings and Repurchase Agreements, Subordinated Debentures Issued to Capital Trusts and Subordinated Notes

FHLBank advances and overnight borrowings from the FHLBank were not utilized during the three or nine months ended September 30, 2021 and 2020.

Interest expense on short-term borrowings and repurchase agreements increased $2,000 during the three months ended September 30, 2021 when compared to the three months ended September 30, 2020. The average rate of interest was 0.02% for both the three months ended September 30, 2021 and September 30, 2020. The average balance of short-term borrowings and repurchase agreements decreased $8.1 million from $159.4 million in the three months ended September 30, 2020 to $151.3 million in the three months ended September 30, 2021, which was primarily due to changes in the Company’s funding needs and the mix of funding, which can fluctuate.

Interest expense on short-term borrowings and repurchase agreements decreased $638,000 during the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. Interest expense decreased $505,000 due to a decrease in average rates from 0.46% in the nine months ended September 30, 2020 to 0.03% in the nine months ended September 30, 2021. The decrease was due to a decrease in market interest rates during the period. Interest expense on short-term borrowings and repurchase agreements also decreased $133,000 due to a decrease in average balances from $195.5 million during the nine months ended September 30, 2020 to $147.0 million during the nine months ended September 30, 2021, which was primarily due to changes in the Company’s funding needs and the mix of funding.

During the three months ended September 30, 2021, compared to the three months ended September 30, 2020, interest expense on subordinated debentures issued to capital trusts decreased $17,000 due to lower average interest rates. The average interest rate was

55

1.71% in the three months ended September 30, 2021 compared to 1.98% in the three months ended September 30, 2020. The subordinated debentures are variable-rate debentures which bear interest at an average rate of three-month LIBOR plus 1.60%, adjusting quarterly, which was 1.73% at September 30, 2021. There was no change in the average balance of the subordinated debentures between the 2020 and 2021 periods.

During the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020, interest expense on subordinated debentures issued to capital trusts decreased $174,000 due to lower average interest rates. The average interest rate was 1.75% in the nine months ended September 30, 2021 compared to 2.65% in the nine months ended September 30, 2020. There was no change in the average balance of the subordinated debentures between the 2020 and 2021 periods.

In August 2016, the Company issued $75.0 million of 5.25% fixed-to-floating rate subordinated notes due August 15, 2026. The notes were sold at par, resulting in net proceeds, after underwriting discounts and commissions and other issuance costs, of approximately $73.5 million. In June 2020, the Company issued $75.0 million of 5.50% fixed-to-floating rate subordinated notes due June 15, 2030. The notes were sold at par, resulting in net proceeds, after underwriting discounts and commissions and other issuance costs, of approximately $73.5 million. In both cases, these issuance costs are amortized over the expected life of the notes, which is five years from the issuance date, impacting the overall interest expense on the notes. On August 15, 2021, the Company completed the redemption of $75.0 million aggregate principal amount of its 5.25% subordinated notes due August 15, 2026. The notes were redeemed for cash by the Company at 100% of their principal amount, plus accrued and unpaid interest. During the three months ended September 30, 2021, compared to the three months ended September 30, 2020, interest expense on subordinated notes decreased $597,000 due to lower average balances during the three months ended September 30, 2021 resulting from the redemption of the 5.25% subordinated notes due August 15, 2026. The average balance of subordinated notes was $148.1 million in the three months ended September 30, 2020 compared to $108.9 million in the three months ended September 30, 2021. Interest expense on subordinated notes increased $67,000 due to slightly higher weighted average interest rates. The average interest rate was 6.09% in the three months ended September 30, 2021 compared to 5.91% in the three months ended September 30, 2020.

During the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020, interest expense on subordinated notes increased $1.4 million due to higher average balances resulting from the issuance of new notes in the three months ended June 30, 2020, slightly offset by the redemption of the subordinated notes maturing in 2026 during the three months ended September 30, 2021. The average interest rate increased slightly from 5.94% in the nine months ended September 30, 2020 to 5.99% in the nine months ended September 30, 2021. Interest expense on subordinated notes increased $44,000 due to higher average balances. The average balance was $104.3 million in the nine months ended September 30, 2020 compared to $135.2 million in the nine months ended September 30, 2021.

Net Interest Income

Net interest income for the three months ended September 30, 2021 increased $755,000 to $44.9 million compared to $44.2 million for the three months ended September 30, 2020. Net interest margin was 3.36% in both the three months ended September 30, 2021 and the three months ended September 30, 2020. In both three month periods, the Company’s net interest income and margin were positively impacted by the increases in expected cash flows from the FDIC-assisted acquired loan pools and the resulting increase to accretable yield, which were previously discussed in Note 7 of the Notes to Consolidated Financial Statements. The positive impact of these changes in the three months ended September 30, 2021 and 2020 were increases in interest income of $279,000 and $1.2 million, respectively, and increases in net interest margin of two basis points and nine basis points, respectively. Excluding the positive impact of the additional yield accretion, net interest margin was 3.34% in the three months ended September 30, 2021 compared to 3.27% in the three months ended September 30, 2020.

Net interest income for the nine months ended September 30, 2021 increased $1.1 million to $133.7 million compared to $132.6 million for the nine months ended September 30, 2020. Net interest margin was 3.37% in the nine months ended September 30, 2021, compared to 3.52% in the nine months ended September 30, 2020, a decrease of 15 basis points, or 4.3%. In both nine month periods, the Company’s net interest income and margin were positively impacted by the increases in expected cash flows from the FDIC-assisted acquired loan pools and the resulting increase to accretable yield, which were previously discussed in Note 7 of the Notes to Consolidated Financial Statements. The positive impact of these changes in the nine months ended September 30, 2021 and 2020 were increases in interest income of $1.4 million and $4.6 million, respectively, and increases in net interest margin of three basis points and 12 basis points, respectively. Excluding the positive impact of the additional yield accretion, in the nine months ended September 30, 2021, net interest margin decreased six basis points when compared to the year-ago nine-month period. Excluding the positive impact of the additional yield accretion, net interest margin was 3.34% in the nine months ended September 30, 2021 compared to 3.40% in the nine months ended September 30, 2020. Most of the net interest margin decrease resulted from changes in the asset mix, with average other interest earning assets increasing $286 million and average investment securities increasing $20 million. The average yield on other interest earning assets decreased 12 basis points between the 2021 and 2020 nine-month periods. Also in

56

comparing the 2021 and 2020 nine-month periods, the average yield on loans decreased 38 basis points while the average rate on deposits declined 61 basis points.

The Company's overall average interest rate spread increased 10 basis points, or 3.2%, from 3.12% during the three months ended September 30, 2020 to 3.22% during the three months ended September 30, 2021. The increase was due to a 46 basis point decrease in the weighted average rate paid on interest-bearing liabilities, partially offset by a 36 basis point decrease in the weighted average yield on interest-earning assets. In comparing the two periods, the yield on loans decreased 11 basis points and the yield on investment securities decreased 19 basis points. The rate paid on deposits decreased 46 basis points, the rate paid on subordinated debentures issued to capital trusts decreased 27 basis points, and the rate paid on subordinated notes increased 18 basis points.

The Company's overall average interest rate spread decreased four basis points, or 1.2%, from 3.24% during the nine months ended September 30, 2020 to 3.20% during the nine months ended September 30, 2021. The decrease was due to a 58 basis point decrease in the weighted average yield on interest-earning assets, partially offset by a 54 basis point decrease in the weighted average rate paid on interest-bearing liabilities. In comparing the two periods, the yield on loans decreased 38 basis points, the yield on investment securities decreased 31 basis points and the yield on other interest-earning assets decreased 12 basis points. The rate paid on deposits decreased 61 basis points, the rate paid on short-term borrowings and repurchase agreements decreased 43 basis points, and the rate paid on subordinated debentures issued to capital trusts decreased 90 basis points.

For additional information on net interest income components, refer to the “Average Balances, Interest Rates and Yields” tables in this Quarterly Report on Form 10-Q.

Provision for and Allowance for Credit Losses

The Company adopted ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, effective January 1, 2021. The CECL methodology replaces the incurred loss methodology with a lifetime “expected credit loss” measurement objective for loans, held-to-maturity debt securities and other receivables measured at amortized cost at the time the financial asset is originated or acquired. This standard requires the consideration of historical loss experience and current conditions adjusted for reasonable and supportable economic forecasts. Our 2020 financial statements were prepared under the incurred loss methodology standard. Upon adoption of the CECL accounting standard, we increased the balance of our allowance for credit losses related to outstanding loans by $11.6 million and created a liability for potential losses related to the unfunded portion of our loans and commitments of approximately $8.7 million. The after-tax effect reduced our retained earnings by approximately $14.2 million. The adjustment was based upon the Company’s analysis of current conditions, assumptions and economic forecasts at January 1, 2021. ASC 326 requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses as well as the credit quality and underwriting standards of a company’s portfolio.

Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in environmental conditions, such as changes in the national unemployment rate, commercial real estate price index, housing price index and national retail sales index.

Worsening economic conditions from the COVID-19 pandemic, higher inflation or interest rates, or other factors may lead to increased losses in the portfolio and/or requirements for an increase in provision expense. Management maintains various controls in an attempt to limit future losses, such as a watch list of problem loans and potential problem loans, documented loan administration policies and loan review staff to review the quality and anticipated collectability of the portfolio. Additional procedures provide for frequent management review of the loan portfolio based on loan size, loan type, delinquencies, financial analysis, on-going correspondence with borrowers and problem loan work-outs. Management determines which loans are potentially uncollectible, or represent a greater risk of loss, and makes additional provisions to expense, if necessary, to maintain the allowance at a satisfactory level.

During the three months ended September 30, 2021, the Company recorded a negative provision expense of $3.0 million on its portfolio of outstanding loans, compared to a $4.5 million provision expense recorded for the three months ended September 30, 2020. During the nine months ended September 30, 2021, the Company recorded a negative provision expense of $3.7 million on its portfolio of outstanding loans, compared to a $14.4 million provision expense recorded for the nine months ended September 30, 2020. The negative provision for credit losses in the 2021 periods reflected decreased outstanding total loans and continued positive trends in asset quality metrics, combined with an improved economic forecast. During the three months ended September 30, 2021, the national unemployment rate continued to decrease and many measures of economic growth improved. In the three months ended

57

September 30, 2021 and 2020, the Company experienced net recoveries of $27,000 and net charge-offs of $63,000, respectively. Total net charge-offs were $9,000 and $427,000 for the nine months ended September 30, 2021 and 2020, respectively. The provision for losses on unfunded commitments for the three months ended September 30, 2021 was $643,000 compared to a negative provision expense of $338,000 for the nine months ended September 30, 2021. In the nine-month period, the level and mix of unfunded commitments resulted in a decrease in the required reserve for such potential losses. General market conditions and unique circumstances related to specific industries and individual projects contributed to the level of provisions and charge-offs. Collateral and repayment evaluations of all assets categorized as potential problem loans, non-performing loans or foreclosed assets were completed with corresponding charge-offs or reserve allocations made as appropriate. In 2020, due to the COVID-19 pandemic and its effects on the overall economy and unemployment, the Company increased its provision for credit losses and increased its allowance for credit losses, even though actual realized net charge-offs were very low.

All FDIC-assisted acquired loans were grouped into pools based on common characteristics and were recorded at their estimated fair values, which incorporated estimated credit losses at the acquisition date. These loan pools have been systematically reviewed by the Company to determine the risk of losses that may exceed those identified at the time of the acquisition. Techniques used in determining risk of loss are similar to those used to determine the risk of loss for the legacy Great Southern Bank portfolio, with most focus being placed on those loan pools which include the larger loan relationships and those loan pools which exhibit higher risk characteristics. Review of the acquired loan portfolio also includes review of financial information, collateral valuations and customer interaction to determine if additional reserves are warranted.

The Bank’s allowance for credit losses as a percentage of total loans was 1.56% and 1.32% at September 30, 2021 and December 31, 2020, respectively. Prior to January 1, 2021, the ratio excluded the FDIC-assisted acquired loans. Management considers the allowance for credit losses adequate to cover losses inherent in the Bank’s loan portfolio at September 30, 2021, based on recent reviews of the Bank’s loan portfolio and current economic conditions. If challenging economic conditions were to last longer than anticipated or deteriorate further or management’s assessment of the loan portfolio were to change, additional loan loss provisions could be required, thereby adversely affecting the Company’s future results of operations and financial condition.

Non-performing Assets

As a result of changes in balances and composition of the loan portfolio, changes in economic and market conditions and other factors specific to a borrower’s circumstances, the level of non-performing assets will fluctuate.

Prior to adoption of the CECL accounting standard on January 1, 2021, FDIC-assisted acquired non-performing assets, including foreclosed assets and potential problem loans, were not included in the totals or in the discussion of non-performing loans, potential problem loans and foreclosed assets. These assets were initially recorded at their estimated fair values as of their acquisition dates and accounted for in pools. The loan pools were analyzed rather than the individual loans. The performance of the loan pools acquired in each of the Company’s five FDIC-assisted transactions has been better than expectations as of the acquisition dates. In the tables below, FDIC-assisted acquired assets are included in their particular collateral categories and then the total FDIC-assisted acquired assets are subtracted from the total balances.

At September 30, 2021, non-performing assets, including FDIC-assisted acquired assets, were $7.9 million, a decrease of $171,000 from $8.1 million at December 31, 2020. Non-performing assets as a percentage of total assets were 0.15% at both September 30, 2021 and December 31, 2020. At September 30, 2021, non-performing assets, excluding all FDIC-assisted acquired assets, were $5.2 million, an increase of $1.4 million from $3.8 million at December 31, 2020. Excluding all FDIC-assisted acquired assets, non-performing assets as a percentage of total assets were 0.10% at September 30, 2021, compared to 0.07% at December 31, 2020.

Compared to December 31, 2020, and excluding all FDIC-assisted acquired loans, non-performing loans increased $2.0 million, to $5.0 million at September 30, 2021, and foreclosed and repossessed assets decreased $625,000, to $152,000 at September 30, 2021. Including all FDIC-assisted acquired loans, when compared to December 31, 2020, non-performing loans increased $95,000, to $7.0 million at September 30, 2021, and foreclosed and repossessed assets decreased $266,000, to $957,000 at September 30, 2021. Non-performing one- to four-family residential loans comprised $3.0 million, or 43.0%, of the total non-performing loans at September 30, 2021, a decrease of $1.5 million from December 31, 2020. The majority of the non-performing FDIC-assisted acquired loans are in the one- to four-family category. Non-performing commercial real estate loans comprised $2.6 million, or 37.2%, of the total non-performing loans at September 30, 2021, an increase of $1.7 million from December 31, 2020. Non-performing consumer loans comprised $799,000, or 11.5%, of the total non-performing loans at September 30, 2021, a decrease of $469,000 from December 31, 2020. Non-performing construction and land development loans comprised $468,000, or 6.7%, of the total non-performing loans at September 30, 2021, an increase of $468,000 from December 31, 2020. Non-performing commercial business loans comprised $111,000, or 1.6%, of the total non-performing loans at September 30, 2021, a decrease of $3,000 from December 31, 2020.

58

Non-performing Loans. Activity in the non-performing loans category during the nine months ended September 30, 2021 was as follows:

							Transfers to		Transfers to
	Beginning		Additions		Removed		Potential		Foreclosed						Ending
	Balance,		to Non-		from Non-		Problem		Assets and		Charge-				Balance,
	January 1		Performing		Performing		Loans		Repossessions		Offs		Payments		September 30
	(In Thousands)
One- to four-family construction	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Subdivision construction		—		—		—		—		—		—		—		—
Land development		—		622		—		—		—		(154)		—		468
Commercial construction		—		—		—		—		—		—		—		—
One- to four-family residential		4,465		908		(876)		—		(182)		(71)		(1,239)		3,005
Other residential		190		—		(185)		—		—		—		(5)		—
Commercial real estate		849		2,556		(88)		—		(191)		—		(528)		2,598
Commercial business		114		20		—		—		—		—		(23)		111
Consumer		1,268		321		(232)		—		(69)		(184)		(305)		799
Total non-performing loans		6,886		4,427		(1,381)		—		(442)		(409)		(2,100)		6,981
Less: FDIC-assisted acquired loans		3,843		85		(934)		—		(373)		(94)		(589)		1,938
Total non-performing loans net of FDIC-assisted acquired loans	$	3,043	$	4,342	$	(447)	$	—	$	(69)	$	(315)	$	(1,511)	$	5,043

At September 30, 2021, the non-performing one- to four-family residential category included 45 loans, four of which were added during 2021. The largest relationship in the category was added during 2021 and totaled $351,000, or 11.7% of the total category. The non-performing commercial real estate category included three loans, two of which were added during 2021. The largest relationship in the category was added during 2021 and totaled $2.4 million, or 90.7% of the total category. It is collateralized by an office building in the Chicago, Ill., area. The non-performing consumer category included 38 loans, nine of which were added in 2021. The non-performing land development category consisted of one loan added during 2021, which totaled $468,000 and is collateralized by unimproved zoned vacant ground in southern Illinois.

In the table above, loans that were modified under the guidance provided by the CARES Act are not non-performing loans as they are current under their modified terms. For additional information about these loan modifications, see the “Loan Modifications” section of this report.

Potential Problem Loans. Compared to December 31, 2020, and excluding all FDIC-assisted acquired loans, potential problem loans decreased $1.6 million, to $2.8 million at September 30, 2021. Compared to December 31, 2020, potential problem loans, including the FDIC-assisted acquired loans, decreased $2.0 million, or 35.1%, to $3.8 million at September 30, 2021. Potential problem loans are loans which management has identified through routine internal review procedures as having possible credit problems that may cause the borrowers difficulty in complying with the current repayment terms. These loans are not reflected in non-performing assets.

Due to the impact on economic conditions from COVID-19, it is possible that we could experience an increase in potential problem loans in the remainder of 2021. As noted, we experienced an increased level of loan modifications in late March through June 2020; however, total loan modifications were much lower at December 31, 2020, and decreased further through September 30, 2021. In accordance with the CARES Act and guidance from the banking regulatory agencies, we made certain short-term modifications to loan terms to help our customers navigate through the current pandemic situation. Although loan modifications were made, they did not automatically result in these loans being classified as TDRs, potential problem loans or non-performing loans. If more severe or lengthier negative impacts of the COVID-19 pandemic occur or the effects of the SBA loan programs and other loan and stimulus programs do not enable companies and individuals to completely recover financially, this could result in longer-term modifications, which may be deemed to be TDRs, additional potential problem loans and/or additional non-performing loans. Further actions on our part, including additions to the allowance for credit losses, could result.

59

Activity in the potential problem loans categories during the nine months ended September 30, 2021, was as follows:

					Removed				Transfers to
	Beginning		Additions		from		Transfers to		Foreclosed						Ending
	Balance,		to Potential		Potential		Non-		Assets and		Charge-				Balance,
	January 1		Problem		Problem		Performing		Repossessions		Offs		Payments		September 30
	(In Thousands)
One- to four-family construction	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Subdivision construction		21		—		—		—		—		—		(5)		16
Land development		—		—		—		—		—		—		—		—
Commercial construction		—		—		—		—		—		—		—		—
One- to four-family residential		2,157		—		(314)		(52)		—		—		(330)		1,461
Other residential		—		—		—		—		—		—		—		—
Commercial real estate		3,080		—		(1,070)		—		—		—		(69)		1,941
Commercial business		—		—		—		—		—		—		—		—
Consumer		588		134		(22)		(1)		(74)		(67)		(181)		377
Total potential problem loans		5,846		134		(1,406)		(53)		(74)		(67)		(585)		3,795
Less: FDIC-assisted acquired loans		1,523		—		(314)		—		—		—		(186)		1,023
Total potential problem loans net of FDIC-assisted acquired loans	$	4,323	$	134	$	(1,092)	$	(53)	$	(74)	$	(67)	$	(399)	$	2,772

At September 30, 2021, the commercial real estate category of potential problem loans included two loans, neither of which were added during 2021. The largest relationship in this category (added during 2018), which totaled $1.7 million, or 88.9% of the total category, is collateralized by a mixed use commercial retail building in St. Louis, Mo. Payments under the original loan term were current on this relationship at September 30, 2021. Two loans that totaled $1.1 million in the commercial real estate category of potential problem loans (both added during 2020) were upgraded and removed from the potential problem loans category after six months of consecutive payments. The one- to four-family residential category of potential problem loans included 27 loans, none of which were added during 2021. The largest relationship in this category totaled $173,000, or 11.9% of the total category. A single loan of $314,000 in the one- to four- family residential category of potential problem loans was upgraded and removed from the potential problem loans. The consumer category of potential problem loans included 31 loans, six of which were added during 2021.

Other Real Estate Owned and Repossessions. Of the total $1.2 million of other real estate owned and repossessions at September 30, 2021, $285,000 represents properties which were not acquired through foreclosure.

Activity in other real estate owned and repossessions during the nine months ended September 30, 2021, was as follows:

	Beginning										Ending
	Balance,						Capitalized		Write-		Balance,
	January 1		Additions		Sales		Costs		Downs		September 30
	(In Thousands)
One- to four-family construction	$	—	$	—	$	—	$	—	$	—	$	—
Subdivision construction		263		—		(169)		—		(94)		—
Land development		682		—		(250)		—		—		432
Commercial construction		—		—		—		—		—		—
One- to four-family residential		125		183		(125)		—		—		183
Other residential		—		—		—		—		—		—
Commercial real estate		—		190		—		—		—		190
Commercial business		—		—		—		—		—		—
Consumer		153		611		(612)		—		—		152
Total foreclosed assets and repossessions		1,223		984		(1,156)		—		(94)		957
Less: FDIC-assisted acquired assets		446		373		(14)		—		—		805
Total foreclosed assets and repossessions net of FDIC-assisted acquired assets	$	777	$	611	$	(1,142)	$	—	$	(94)	$	152

60

At September 30, 2021, the land development category of foreclosed assets consisted of one property in central Iowa (this was an FDIC-assisted acquired asset), which was added prior to 2021. The one- to four-family residential category of foreclosed assets consisted of two properties (both of which were FDIC-assisted acquired assets), both of which were added during 2021. The amount of additions and sales in the consumer category are due to the volume of repossessions of automobiles, which generally are subject to a shorter repossession process.

Loans Classified “Watch”

The Company reviews the credit quality of its loan portfolio using an internal grading system that classifies loans as “Satisfactory,” “Watch,” “Special Mention,” “Substandard” and “Doubtful.” Loans classified as “Watch” are being monitored because of indications of potential weaknesses or deficiencies that may require future classification as special mention or substandard. In the nine months ended September 30, 2021, loans classified as “Watch” decreased $21.2 million, from $64.8 million at December 31, 2020 to $43.6 million at September 30, 2021. This decrease was primarily due to loans being upgraded out of the “watch” category, which primarily included one $14.3 million relationship collateralized by a shopping center, one $10.6 million relationship collateralized by recreational facilities and other real estate and business assets, and one $3.9 million relationship collateralized by a shopping center and other real estate and business assets. One $10.3 million relationship collateralized by a healthcare facility in the Dallas, Texas area was downgraded and added to the “Watch” category. See Note 6 for further discussion of the Company’s loan grading system.

Non-interest Income

For the three months ended September 30, 2021, non-interest income increased $332,000 to $9.8 million when compared to the three months ended September 30, 2020, primarily as a result of the following items:

Point-of-sale and ATM fees: Point-of-sale and ATM fees increased $657,000 compared to the prior year period. This increase was primarily due to a reduction in customer usage in the three months ended September 30, 2020 as the COVID-19 pandemic caused many businesses to close and large portions of the U.S. population were required to stay at home for a period of time. In the three months ended September 30, 2021, debit card and ATM usage by customers was back to normal levels, and in some cases, saw increased levels of activity.

Overdraft and insufficient funds fees: Overdraft and insufficient funds fees increased $210,000 compared to the prior year period. This increase was primarily due to reduced fees in the 2020 period. This was due to both a reduction in usage by customers and a decision in March 2020 to waive (through August 31, 2020) certain fees for customers in response to the COVID-19 pandemic. The effects of that decision were felt during March through September 2020.

Net gains on loan sales: Net gains on loan sales decreased $537,000 compared to the prior year period. The decrease was due to a decrease in originations of fixed-rate single-family mortgage loans during the 2021 period compared to the 2020 period. Fixed-rate single-family mortgage loans originated are generally subsequently sold in the secondary market. These loan originations increased substantially when market interest rates decreased to historically low levels in 2020. As a result of the significant volume of refinance activity in recent periods, and as market interest rates have moved a bit higher in the three months ended September 30, 2021, mortgage refinance volume has decreased and loan originations and related gains on sales of these loans have returned to levels more similar to historic averages.

For the nine months ended September 30, 2021, non-interest income increased $4.0 million to $29.1 million when compared to the nine months ended September 30, 2020, primarily as a result of the following items:

61

Net gains on loan sales: Net gains on loan sales increased $2.3 million compared to the prior year period. The increase was due to an increase in originations of fixed-rate single-family mortgage loans during the 2021 period compared to the 2020 period. As noted above, these loan originations increased substantially when market interest rates decreased to historically low levels in the latter half of 2020 and the first half of 2021.

Point-of-sale and ATM fees: Point-of-sale and ATM fees increased $2.2 million compared to the prior year period. This increase was due to the same conditions as noted above.

Gain (loss) on derivative interest rate products: In the 2021 period, the Company recognized a gain of $340,000 on the change in fair value of its back-to-back interest rate swaps related to commercial loans. In the 2020 period, the Company recognized a loss of $424,000 on the change in fair value of its back-to-back interest rate swaps related to commercial loans. Generally, as market interest rates increase, this creates a net increase in the fair value of these instruments. This is a non-cash item as there was no required settlement of this amount between the Company and its swap counterparties.

Other income: Other income decreased $1.4 million compared to the prior year period. In the 2020 period, the Company recognized approximately $1.2 million of fee income related to newly-originated interest rate swaps in the Company’s back-to-back swap program with loan customers and swap counterparties, with fewer of these transactions and related fee income generated in the current period. The Company also recognized approximately $541,000 in income related to the exit of certain tax credit partnerships during the nine months ended September 30, 2020, with no similar activity during the 2021 period.

Non-interest Expense

For the three months ended September 30, 2021, non-interest expense decreased $649,000 to $31.3 million when compared to the three months ended September 30, 2020, primarily as a result of the following item:

Salaries and employee benefits: Salaries and employee benefits decreased $867,000 from the prior year period. In the 2020 period, the Company paid a special cash bonus to all employees totaling $1.1 million in response to the ongoing impacts of the COVID-19 pandemic. This bonus was not repeated in the third quarter of 2021.

For the nine months ended September 30, 2021, non-interest expense decreased $299,000 to $91.9 million when compared to the nine months ended September 30, 2020, primarily as a result of the following items:

Salaries and employee benefits: Salaries and employee benefits decreased $812,000 in the nine months ended September 30, 2021 compared to the prior year period. In 2020, the Company approved two special cash bonuses to all employees totaling $2.2 million in response to the COVID-19 pandemic. These bonuses were not repeated in the nine months ended September 30, 2021.

Expense on other real estate owned and repossessions: Expense on other real estate owned and repossessions decreased $473,000 compared to the prior year period primarily due to sales of most foreclosed assets and a smaller amount of repossessed automobiles in the current period, plus higher valuation write-downs of certain foreclosed assets during the prior year period. During the 2020 period, sales and valuation write-downs of certain foreclosed assets totaled a net expense of $136,000, while sales and valuation write-downs in the 2021 period totaled a net gain of $29,000.

Insurance: Insurance expense increased $626,000 compared to the prior year period. This increase was primarily due to an increase in FDIC deposit insurance premiums. In 2020, the Company had a credit with the FDIC for a portion of premiums previously paid to the deposit insurance fund. The remaining deposit insurance fund credit was utilized in 2020 in addition to $522,000 in premiums being due for the nine months ended September 30, 2020, while the premium expense was $1.1 million in the nine months ended September 30, 2021.

The Company’s efficiency ratio for the three months ended September 30, 2021, was 57.27% compared to 59.64% for the same period in 2020. The Company’s efficiency ratio for the nine months ended September 30, 2021, was 56.42% compared to 58.45% for the same period in 2020. In the three- and nine-month periods ended September 30, 2021, the improved efficiency ratio was due to an increase in net interest income, an increase in non-interest income and a decrease in non-interest expense. The Company’s ratio of non-interest expense to average assets was 2.27% and 2.34% for the three months ended September 30, 2021 and 2020, respectively. The Company’s ratio of non-interest expense to average assets was 2.22% and 2.33% for the nine months ended September 30, 2021 and 2020, respectively. Average assets for the three months ended September 30, 2021, increased $62.8 million, or 1.1%, from the three months ended September 30, 2020, primarily due to increases in investment securities and interest bearing cash equivalents, offset by a decrease in net loans receivable. Average assets for the nine months ended September 30, 2021, increased $249.3 million,

62

or 4.7%, from the nine months ended September 30, 2020, primarily due to increases in investment securities and interest bearing cash equivalents, offset by a decrease in net loans receivable.

Provision for Income Taxes

For the three months ended September 30, 2021 and 2020, the Company's effective tax rate was 20.9% and 21.5%, respectively. For the nine months ended September 30, 2021 and 2020, the Company's effective tax rate was 20.9% and 18.8%, respectively. These effective rates were at or below the statutory federal tax rate of 21%, due primarily to the utilization of certain investment tax credits and to tax-exempt investments and tax-exempt loans, which reduced the Company’s effective tax rate. The Company’s effective tax rate may fluctuate in future periods as it is impacted by the level and timing of the Company’s utilization of tax credits, the level of tax-exempt investments and loans, the amount of taxable income in various state jurisdictions and the overall level of pre-tax income. In 2020, the Company’s state income tax expenses were higher than normal in various states due to the recognition of income for tax purposes related to the gain recognized on the termination of the interest rate swap. State tax expense estimates have evolved throughout 2021 as taxable income and apportionment between states have been analyzed. Higher effective tax rates in the 2021 periods were due to higher overall income, lower levels of low income housing tax credits and less tax-exempt interest income compared to prior periods. The Company's effective income tax rate is currently generally expected to remain at or below the statutory federal tax rate due primarily to the factors noted above. The Company currently expects its effective tax rate (combined federal and state) will be approximately 20.0% to 21.0% in future periods.

63

Average Balances, Interest Rates and Yields

The following tables present, for the periods indicated, the total dollar amount of interest income from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates, and the net interest margin. Average balances of loans receivable include the average balances of non-accrual loans for each period. Interest income on loans includes interest received on non-accrual loans on a cash basis. Interest income on loans includes the amortization of net loan fees which were deferred in accordance with accounting standards. Net fees included in interest income were $2.9 million and $1.7 million for the three months ended September 30, 2021 and 2020, respectively. Net fees included in interest income were $7.9 million and $4.4 million for the nine months ended September 30, 2021 and 2020, respectively. Tax-exempt income was not calculated on a tax equivalent basis. The table does not reflect any effect of income taxes.

	September 30,		Three Months Ended							Three Months Ended
	2021(2)		September 30, 2021							September 30, 2020
	Yield/		Average					Yield/		Average					Yield/
	Rate		Balance			Interest		Rate		Balance			Interest		Rate
	(Dollars in Thousands)
Interest-earning assets:
Loans receivable:
One- to four-family residential	3.35	%	$	687,899		$	6,333	3.65	%	$	680,452		$	7,379	4.31	%
Other residential	4.20			934,727			10,456	4.44			989,574			11,301	4.54
Commercial real estate	4.14			1,537,874			16,477	4.25			1,545,358			16,850	4.34
Construction	4.02			596,747			6,686	4.44			649,985			7,450	4.56
Commercial business	4.36			257,324			3,932	6.06			356,505			3,663	4.09
Other loans	4.78			212,828			2,484	4.63			270,136			3,645	5.37
Industrial revenue bonds(1)	4.43			14,402			168	4.63			15,345			188	4.87
Total loans receivable	4.30			4,241,801			46,536	4.35			4,507,355			50,476	4.46
Investment securities(1)	2.64			453,304			2,877	2.52			449,383			3,060	2.71
Other interest-earning assets	0.15			603,956			227	0.15			270,509			63	0.09
Total interest-earning assets	3.61			5,299,061			49,640	3.72			5,227,247			53,599	4.08
Non-interest-earning assets:
Cash and cash equivalents				101,818							92,244
Other non-earning assets				128,448							147,084
Total assets			$	5,529,327						$	5,466,575
Interest-bearing liabilities:
Interest-bearing demand and savings	0.13		$	2,360,755			922	0.15		$	1,962,023			1,650	0.33
Time deposits	0.66			1,114,995			2,003	0.71			1,602,981			5,444	1.35
Total deposits	0.29			3,475,750			2,925	0.33			3,565,004			7,094	0.79
Short-term borrowings, repurchase agreements and other interest-bearing liabilities	0.02			151,260			10	0.02			159,373			8	0.02
Subordinated debentures issued to capital trusts	1.73			25,774			111	1.71			25,774			128	1.98
Subordinated notes	5.98			108,913			1,671	6.09			148,113			2,201	5.91
Total interest-bearing liabilities	0.40			3,761,697			4,717	0.50			3,898,264			9,431	0.96
Non-interest-bearing liabilities:
Demand deposits				1,085,781							888,568
Other liabilities				46,319							45,123
Total liabilities				4,893,797							4,831,955
Stockholders’ equity				635,530							634,620
Total liabilities and stockholders’ equity			$	5,529,327						$	5,466,575
Net interest income:
Interest rate spread	3.21	%				$	44,923	3.22	%				$	44,168	3.12	%
Net interest margin*								3.36	%						3.36	%
Average interest-earning assets to average interest- bearing liabilities				140.9	%						134.1	%

*    Defined as the Company’s net interest income divided by total average interest-earning assets.

(1) Of the total average balances of investment securities, average tax-exempt investment securities were $40.8 million and $67.8 million for the three months ended September 30, 2021 and 2020, respectively. In addition, average tax-exempt loans and industrial revenue bonds were $17.6 million and $19.8 million for the three months ended September 30, 2021 and 2020, respectively. Interest income on tax-exempt assets included in this table was $397,000 and $570,000 for the three months ended September 30, 2021 and 2020, respectively. Interest income net of disallowed interest expense related to tax-exempt assets was $389,000 and $537,000 for the three months ended September 30, 2021 and 2020, respectively.

(2) The yield on loans at September 30, 2021 does not include the impact of the accretable yield (income) on loans acquired in the FDIC-assisted transactions. See “Net Interest Income” for a discussion of the effect on results of operations for the three months ended September 30, 2021.

64

	September 30,		Nine Months Ended							Nine Months Ended
	2021(2)		September 30, 2021							September 30, 2020
	Yield/		Average					Yield/		Average					Yield/
	Rate		Balance			Interest		Rate		Balance			Interest		Rate
	(Dollars in Thousands)
Interest-earning assets:
Loans receivable:
One- to four-family residential	3.35	%	$	676,093		$	19,211	3.80	%	$	645,662		$	21,949	4.54	%
Other residential	4.20			983,564			32,599	4.43			917,778			32,997	4.80
Commercial real estate	4.14			1,560,208			49,917	4.28			1,522,825			52,820	4.63
Construction	4.02			593,774			19,946	4.49			665,567			24,785	4.97
Commercial business	4.36			290,643			11,365	5.23			318,657			10,215	4.28
Other loans	4.78			224,020			8,019	4.79			293,582			12,068	5.49
Industrial revenue bonds(1)	4.43			14,610			548	5.02			15,453			619	5.35
Total loans receivable	4.30			4,342,912			141,605	4.36			4,379,524			155,453	4.74
Investment securities(1)	2.64			442,794			8,655	2.61			422,696			9,226	2.92
Other interest-earning assets	0.15			513,364			465	0.12			227,506			405	0.24
Total interest-earning assets	3.61			5,299,070			150,725	3.80			5,029,726			165,084	4.38
Non-interest-earning assets:
Cash and cash equivalents				98,482							93,493
Other non-earning assets				130,179							155,233
Total assets			$	5,527,731						$	5,278,452
Interest-bearing liabilities:
Interest-bearing demand and savings	0.13		$	2,287,969			3,154	0.18		$	1,792,492			5,629	0.42
Time deposits	0.66			1,212,605			7,450	0.82			1,701,383			21,083	1.66
Total deposits	0.29			3,500,574			10,604	0.41			3,493,875			26,712	1.02
Short-term borrowings, repurchase agreements and other interest-bearing liabilities	0.02			147,012			29	0.03			195,459			667	0.46
Subordinated debentures issued to capital trusts	1.73			25,774			337	1.75			25,774			511	2.65
Subordinated notes	5.98			135,223			6,060	5.99			104,256			4,633	5.94
Total interest-bearing liabilities	0.40			3,808,583			17,030	0.60			3,819,364			32,523	1.14
Non-interest-bearing liabilities:
Demand deposits				1,047,157							799,594
Other liabilities				44,545							39,983
Total liabilities				4,900,285							4,658,941
Stockholders’ equity				627,446							619,511
Total liabilities and stockholders’ equity			$	5,527,731						$	5,278,452
Net interest income:
Interest rate spread	3.21	%				$	133,695	3.20	%				$	132,561	3.24	%
Net interest margin*								3.37	%						3.52	%
Average interest-earning assets to average interest- bearing liabilities				139.1	%						131.7	%

*    Defined as the Company’s net interest income divided by total average interest-earning assets.

(1) Of the total average balances of investment securities, average tax-exempt investment securities were $42.3 million and $54.8 million for the nine months ended September 30, 2021 and 2020, respectively. In addition, average tax-exempt loans and industrial revenue bonds were $18.1 million and $20.4 million for the nine months ended September 30, 2021 and 2020, respectively. Interest income on tax-exempt assets included in this table was $1.2 million and $1.6 million for the nine months ended September 30, 2021 and 2020, respectively. Interest income net of disallowed interest expense related to tax-exempt assets was $1.2 million and $1.5 million for the nine months ended September 30, 2021 and 2020, respectively.

(2) The yield on loans at September 30, 2021 does not include the impact of the accretable yield (income) on loans acquired in the FDIC-assisted transactions. See “Net Interest Income” for a discussion of the effect on results of operations for the nine months ended September 30, 2021.

Rate/Volume Analysis

The following tables present the dollar amounts of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities for the periods shown. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in rate (i.e., changes in rate multiplied by old volume) and (ii) changes in volume (i.e., changes in volume multiplied by old rate). For purposes of this table, changes attributable to both rate and

65

volume, which cannot be segregated, have been allocated proportionately to volume and rate. Tax-exempt income was not calculated on a tax equivalent basis.

	Three Months Ended September 30,
	2021 vs. 2020
	Increase (Decrease)				Total
	Due to				Increase
	Rate		Volume		(Decrease)
	(Dollars in Thousands)
Interest-earning assets:
Loans receivable	$	(1,107)	$	(2,833)	$	(3,940)
Investment securities		(210)		27		(183)
Other interest-earning assets		54		110		164
Total interest-earning assets		(1,263)		(2,696)		(3,959)
Interest-bearing liabilities:
Demand deposits		(1,016)		288		(728)
Time deposits		(2,093)		(1,348)		(3,441)
Total deposits		(3,109)		(1,060)		(4,169)
Short-term borrowings		2		—		2
Subordinated debentures issued to capital trust		(17)		—		(17)
Subordinated notes		67		(597)		(530)
Total interest-bearing liabilities		(3,057)		(1,657)		(4,714)
Net interest income	$	1,794	$	(1,039)	$	755

	Nine Months Ended September 30,
	2021 vs. 2020
	Increase (Decrease)				Total
	Due to				Increase
	Rate		Volume		(Decrease)
	(Dollars in Thousands)
Interest-earning assets:
Loans receivable	$	(12,546)	$	(1,302)	$	(13,848)
Investment securities		(992)		421		(571)
Other interest-earning assets		(269)		329		60
Total interest-earning assets		(13,807)		(552)		(14,359)
Interest-bearing liabilities:
Demand deposits		(3,740)		1,265		(2,475)
Time deposits		(8,682)		(4,951)		(13,633)
Total deposits		(12,422)		(3,686)		(16,108)
Short-term borrowings		(505)		(133)		(638)
Subordinated debentures issued to capital trust		(174)		—		(174)
Subordinated notes		44		1,383		1,427
Total interest-bearing liabilities		(13,057)		(2,436)		(15,493)
Net interest income	$	(750)	$	1,884	$	1,134

Liquidity

Liquidity is a measure of the Company's ability to generate sufficient cash to meet present and future financial obligations in a timely manner through either the sale or maturity of existing assets or the acquisition of additional funds through liability management. These obligations include the credit needs of customers, funding deposit withdrawals, and the day-to-day operations of the Company. Liquid assets include cash, interest-bearing deposits with financial institutions and certain investment securities and loans. As a result of the Company’s management of the ability to generate liquidity primarily through liability funding, management believes that the Company maintains overall liquidity sufficient to satisfy its depositors' requirements and meet its borrowers’ credit needs. At

66

September 30, 2021, the Company had commitments of approximately $191.9 million to fund loan originations, $1.26 billion of unused lines of credit and unadvanced loans, and $15.9 million of outstanding letters of credit.

Loan commitments and the unfunded portion of loans at the dates indicated were as follows (in thousands):

	September 30,		June 30,		March 31,		December 31,		December 31,		December 31,
	2021		2021		2021		2020		2019		2018
Closed non-construction loans with unused available lines
Secured by real estate (one- to four-family)	$	173,758	$	173,644	$	170,353	$	164,480	$	155,831	$	150,948
Secured by real estate (not one- to four-family)		23,870		20,269		25,754		22,273		19,512		11,063
Not secured by real estate - commercial business		76,885		75,476		71,132		77,411		83,782		87,480
Closed construction loans with unused available lines
Secured by real estate (one-to four-family)		68,441		63,471		52,653		42,162		48,213		37,162
Secured by real estate (not one-to four-family)		866,185		847,486		812,111		823,106		798,810		906,006
Loan commitments not closed
Secured by real estate (one-to four-family)		62,096		66,037		93,229		85,917		69,295		24,253
Secured by real estate (not one-to four-family)		126,815		55,216		50,883		45,860		92,434		104,871
Not secured by real estate - commercial business		3,000		—		3,119		699		—		405
	$	1,401,050	$	1,301,599	$	1,279,234	$	1,261,908	$	1,267,877	$	1,322,188

The Company’s primary sources of funds are customer deposits, FHLBank advances, other borrowings, loan repayments, unpledged securities, proceeds from sales of loans and available-for-sale securities and funds provided from operations. The Company utilizes particular sources of funds based on the comparative costs and availability at the time. The Company has from time to time chosen not to pay rates on deposits as high as the rates paid by certain of its competitors and, when believed to be appropriate, supplements deposits with less expensive alternative sources of funds.

At September 30, 2021, the Company had these available secured lines and on-balance sheet liquidity:

Federal Home Loan Bank line	$	905.7 million
Federal Reserve Bank line	$	396.6 million
Cash and cash equivalents	$	769.2 million
Unpledged securities	$	236.4 million

67

Statements of Cash Flows. During the nine months ended September 30, 2021 and 2020, the Company had positive cash flows from operating activities. The Company had positive cash flows from investing activities during the nine months ended September 30, 2021 and negative cash flows from investing activities during the nine months ended September 30, 2020. The Company had negative cash flows from financing activities during the nine months ended September 30, 2021 and positive cash flows from financing activities during the nine months ended September 30, 2020.

Cash flows from operating activities for the periods covered by the Statements of Cash Flows have been primarily related to changes in accrued and deferred assets, credits and other liabilities, the provision for credit losses, depreciation and amortization, realized gains on sales of loans and the amortization of deferred loan origination fees and discounts (premiums) on loans and investments, all of which are non-cash or non-operating adjustments to operating cash flows. Net income adjusted for non-cash and non-operating items and the origination and sale of loans held for sale were the primary source of cash flows from operating activities. Operating activities provided cash flows of $77.7 million and $35.8 million during the nine months ended September 30, 2021 and 2020, respectively.

During the nine months ended September 30, 2021, investing activities provided cash of $239.9 million, primarily due to the net repayment of loans and payments received on investment securities, partially offset by the purchase of investment securities and the purchase of loans. Investing activities in the 2020 period used cash of $278.9 million, primarily due to the net origination of loans, the purchase of investment securities and the purchase of equipment, partially offset by cash proceeds from the termination of interest rate derivatives, the sale of other real estate owned and payments received on investment securities.

Changes in cash flows from financing activities during the periods covered by the Statements of Cash Flows were due to changes in deposits after interest credited and changes in short-term borrowings, as well as advances from borrowers for taxes and insurance, dividend payments to stockholders, repurchases of the Company’s common stock and the exercise of common stock options. Financing activities used cash of $112.2 million during the nine months ended September 30, 2021 and provided cash of $361.2 million during the nine months ended September 30, 2020. In the 2021 nine-month period, financing activities used cash primarily as a result of decreases in time deposits, redemption of subordinated notes, dividends paid to stockholders and the repurchase of the Company’s common stock, partially offset by net increases in checking account balances. In the 2020 nine-month period, financing activities provided cash primarily as a result of net increases in checking account balances, partially offset by decreases in short-term borrowings, decreases in time deposits, dividends paid to stockholders and the purchase of the Company’s common stock. Also in the 2020 period, cash was provided by the issuance of subordinated notes.

Capital Resources

Management continuously reviews the capital position of the Company and the Bank to ensure compliance with minimum regulatory requirements, as well as to explore ways to increase capital either by retained earnings or other means.

At September 30, 2021, the Company's total stockholders' equity and common stockholders’ equity were each $624.6 million, or 11.5% of total assets, equivalent to a book value of $46.73 per common share. As of December 31, 2020, total stockholders’ equity and common stockholders’ equity were each $629.7 million, or 11.4% of total assets, equivalent to a book value of $45.79 per common share. At September 30, 2021, the Company’s tangible common equity to tangible assets ratio was 11.4%, compared to 11.3% at December 31, 2020 (See Non-GAAP Financial Measures below).

Included in stockholders’ equity at September 30, 2021 and December 31, 2020, were unrealized gains (net of taxes) on the Company’s available-for-sale investment securities totaling $12.0 million and $23.3 million, respectively. This decrease in unrealized gains primarily resulted from rising market interest rates, which decreased the fair value of investment securities.

Also included in stockholders’ equity at September 30, 2021, were realized gains (net of taxes) on the Company’s cash flow hedge (interest rate swap), which was terminated in March 2020, totaling $25.2 million. This amount, plus associated deferred taxes, is expected to be accreted to interest income over the remaining term of the original interest rate swap contract, which was to end in October 2025. At September 30, 2021, the remaining pre-tax amount to be recorded in interest income was $32.6 million. The net effect on total stockholders’ equity over time will be no impact as the reduction of this realized gain will be offset by an increase in retained earnings (as the interest income flows through pre-tax income).

Banks are required to maintain minimum risk-based capital ratios. These ratios compare capital, as defined by the risk-based regulations, to assets adjusted for their relative risk as defined by the regulations. Under current guidelines banks must have a minimum common equity Tier 1 capital ratio of 4.50%, a minimum Tier 1 risk-based capital ratio of 6.00%, a minimum total risk-based capital ratio of 8.00%, and a minimum Tier 1 leverage ratio of 4.00%. To be considered “well capitalized,” banks must have a minimum common equity Tier 1 capital ratio of 6.50%, a minimum Tier 1 risk-based capital ratio of 8.00%, a minimum total risk-based capital ratio of 10.00%, and a minimum Tier 1 leverage ratio of 5.00%. On September 30, 2021, the Bank's common equity Tier

68

1 capital ratio was 14.7%, its Tier 1 capital ratio was 14.7%, its total capital ratio was 15.9% and its Tier 1 leverage ratio was 11.7%. As a result, as of September 30, 2021, the Bank was well capitalized, with capital ratios in excess of those required to qualify as such. On December 31, 2020, the Bank's common equity Tier 1 capital ratio was 13.7%, its Tier 1 capital ratio was 13.7%, its total capital ratio was 14.9% and its Tier 1 leverage ratio was 11.8%. As a result, as of December 31, 2020, the Bank was well capitalized, with capital ratios in excess of those required to qualify as such.

The FRB has established capital regulations for bank holding companies that generally parallel the capital regulations for banks. On September 30, 2021, the Company's common equity Tier 1 capital ratio was 13.4%, its Tier 1 capital ratio was 14.0%, its total capital ratio was 16.9% and its Tier 1 leverage ratio was 11.1%. To be considered well capitalized, a bank holding company must have a Tier 1 risk-based capital ratio of at least 6.00% and a total risk-based capital ratio of at least 10.00%. As of September 30, 2021, the Company was considered well capitalized, with capital ratios in excess of those required to qualify as such. On December 31, 2020, the Company's common equity Tier 1 capital ratio was 12.2%, its Tier 1 capital ratio was 12.7%, its total capital ratio was 17.2% and its Tier 1 leverage ratio was 10.9%. As of December 31, 2020, the Company was considered well capitalized, with capital ratios in excess of those required to qualify as such.

In addition to the minimum common equity Tier 1 capital ratio, Tier 1 risk-based capital ratio and total risk-based capital ratio, the Company and the Bank have to maintain a capital conservation buffer consisting of additional common equity Tier 1 capital greater than 2.5% of risk-weighted assets above the required minimum levels in order to avoid limitations on paying dividends, repurchasing shares, and paying discretionary bonuses. At September 30, 2021, the Company and the Bank both had additional common equity Tier 1 capital in excess of the buffer amount.

On August 15, 2021, the Company completed the redemption, at par, of all $75.0 million aggregate principal amount of its 5.25% subordinated notes due August 15, 2026. The Company utilized cash on hand for the redemption payment. The annual combined interest expense and amortization of deferred issuance costs on these subordinated notes was approximately $4.3 million. These subordinated notes were included as capital in the Company’s calculation of its total capital ratio.

For additional information, see “Item 1. Business--Government Supervision and Regulation-Capital” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

Dividends. During the three months ended September 30, 2021, the Company declared a common stock cash dividend of $0.36 per share, or 24% of net income per diluted common share for that three month period, and paid a common stock cash dividend of $0.34 per share (which was declared in June 2021). During the three months ended September 30, 2020, the Company declared a common stock cash dividend of $0.34 per share, or 35% of net income per diluted common share for that three month period, and paid a common stock cash dividend of $0.34 per share (which was declared in June 2020). During the nine months ended September 30, 2021, the Company declared common stock cash dividends of $1.04 per share, or 24% of net income per diluted common share for that nine month period, and paid common stock cash dividends of $1.02 per share ($0.34 of which was declared in December 2020). During the nine months ended September 30, 2020, the Company declared common stock cash dividends of $2.02 per share, or 69% of net income per diluted common share for that nine month period, and paid common stock cash dividends of $2.02 per share ($0.34 of which was declared in December 2019). The total dividends declared during the nine months ended September 30, 2020, consisted of regular cash dividends of $1.02 per share and a special cash dividend of $1.00 per share. The Board of Directors meets regularly to consider the level and the timing of dividend payments. The $0.36 per share dividend declared but unpaid as of September 30, 2021, was paid to stockholders in October 2021.

Common Stock Repurchases and Issuances. The Company has been in various buy-back programs since May 1990. During the three months ended September 30, 2021, the Company issued 14,439 shares of stock at an average price of $37.87 per share to cover stock option exercises and repurchased 307,059 shares of its common stock at an average price of $53.13 per share. During the three months ended September 30, 2020, the Company issued 2,550 shares of stock at an average price of $26.53 per share to cover stock option exercises and repurchased 206,400 shares of its common stock at an average price of $37.39 per share. During the nine months ended September 30, 2021, the Company issued 63,570 shares of stock at an average price of $41.57 per share to cover stock option exercises and repurchased 449,438 shares of its common stock at an average price of $52.89 per share. During the nine months ended September 30, 2020, the Company issued 9,625 shares of stock at an average price of $33.76 per share to cover stock option exercises and repurchased 390,107 shares of its common stock at an average price of $40.67 per share.

Management has historically utilized stock buy-back programs from time to time as long as management believed that repurchasing the Company’s stock would contribute to the overall growth of shareholder value. The number of shares of stock that will be repurchased at any particular time and the prices that will be paid are subject to many factors, several of which are outside of the control of the Company. The primary factors typically include the number of shares available in the market from sellers at any given time, the market price of the stock and the projected impact on the Company’s earnings per share and capital.

69

On October 21, 2020, the Company’s Board of Directors authorized management to repurchase up to one million additional shares of the Company’s common stock under a program of open market purchases or privately negotiated transactions. The authorization of this program became effective in November 2020 and does not have an expiration date.

Non-GAAP Financial Measures

This document contains certain financial information determined by methods other than in accordance with accounting principles generally accepted in the United States (“GAAP”). These non-GAAP financial measures include the ratio of tangible common equity to tangible assets.

In calculating the ratio of tangible common equity to tangible assets, we subtract period-end intangible assets from common equity and from total assets. Management believes that the presentation of this measure excluding the impact of intangible assets provides useful supplemental information that is helpful in understanding our financial condition and results of operations, as it provides a method to assess management’s success in utilizing our tangible capital as well as our capital strength. Management also believes that providing a measure that excludes balances of intangible assets, which are subjective components of valuation, facilitates the comparison of our performance with the performance of our peers. In addition, management believes that this is a standard financial measure used in the banking industry to evaluate performance.

These non-GAAP financial measures are supplemental and are not a substitute for any analysis based on GAAP financial measures. Because not all companies use the same calculation of non-GAAP measures, this presentation may not be comparable to similarly titled measures as calculated by other companies.

Non-GAAP Reconciliation: Ratio of Tangible Common Equity to Tangible Assets

	September 30, 2021			December 31, 2020
	(Dollars in Thousands)
Common equity at period end	$	624,641		$	629,741
Less: Intangible assets at period end		6,239			6,944
Tangible common equity at period end (a)	$	618,402		$	622,797
Total assets at period end	$	5,451,835		$	5,526,420
Less: Intangible assets at period end		6,239			6,944
Tangible assets at period end (b)	$	5,445,596		$	5,519,476
Tangible common equity to tangible assets (a) / (b)		11.36	%		11.28	%

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Asset and Liability Management and Market Risk

A principal operating objective of the Company is to produce stable earnings by achieving a favorable interest rate spread that can be sustained during fluctuations in prevailing interest rates. The Company has sought to reduce its exposure to adverse changes in interest rates by attempting to achieve a closer match between the periods in which its interest-bearing liabilities and interest-earning assets can be expected to reprice through the origination of adjustable-rate mortgages and loans with shorter terms to maturity and the purchase of other shorter term interest-earning assets.

Our Risk When Interest Rates Change

The rates of interest we earn on assets and pay on liabilities generally are established contractually for a period of time. Market interest rates change over time. Accordingly, our results of operations, like those of other financial institutions, are impacted by changes in interest rates and the interest rate sensitivity of our assets and liabilities. The risk associated with changes in interest rates and our ability to adapt to these changes is known as interest rate risk and is our most significant market risk.

70

How We Measure the Risk to Us Associated with Interest Rate Changes

In an attempt to manage our exposure to changes in interest rates and comply with applicable regulations, we monitor Great Southern’s interest rate risk. In monitoring interest rate risk, we regularly analyze and manage assets and liabilities based on their payment streams and interest rates, the timing of their maturities and their sensitivity to actual or potential changes in market interest rates.

The ability to maximize net interest income is largely dependent upon the achievement of a positive interest rate spread that can be sustained despite fluctuations in prevailing interest rates. Interest rate sensitivity is a measure of the difference between amounts of interest-earning assets and interest-bearing liabilities which either reprice or mature within a given period of time. The difference, or the interest rate repricing “gap,” provides an indication of the extent to which an institution's interest rate spread will be affected by changes in interest rates. A gap is considered positive when the amount of interest-rate sensitive assets exceeds the amount of interest-rate sensitive liabilities repricing during the same period, and is considered negative when the amount of interest-rate sensitive liabilities exceeds the amount of interest-rate sensitive assets during the same period. Generally, during a period of rising interest rates, a negative gap within shorter repricing periods would adversely affect net interest income, while a positive gap within shorter repricing periods would result in an increase in net interest income. During a period of falling interest rates, the opposite would be true. As of September 30, 2021, Great Southern's interest rate risk models indicate that, generally, rising interest rates are expected to have a positive impact on the Company's net interest income, while declining interest rates are expected to have a negative impact on net interest income. We model various interest rate scenarios for rising and falling rates, including both parallel and non-parallel shifts in rates. The results of our modeling indicate that net interest income is not likely to be significantly affected either positively or negatively in the first twelve months following a rate change, regardless of any changes in interest rates, because our portfolios are relatively well matched in a twelve-month horizon. In a situation where market interest rates decrease significantly in a short period of time, as they did in March 2020, our net interest margin decrease may be more pronounced in the very near term (first one to three months), due to fairly rapid decreases in LIBOR interest rates. In the subsequent months we expect that the net interest margin would stabilize and begin to improve, as renewal interest rates on maturing time deposits are expected to decrease compared to the current rates paid on those products. Subsequent to September 30, 2021, cumulative time deposit maturities are as follows: within three months --$274 million; within six months -- $438 million; and within twelve months -- $795 million. At September 30, 2021, the weighted average interest rates on these various cumulative maturities were 0.61%, 0.61% and 0.60%, respectively.

The current level and shape of the interest rate yield curve poses challenges for interest rate risk management. Prior to its increase of 0.25% on December 16, 2015, the FRB had last changed interest rates on December 16, 2008. This was the first rate increase since September 29, 2006. The FRB also implemented rate change increases of 0.25% on eight additional occasions beginning December 14, 2016 and through December 31, 2018, with the Federal Funds rate reaching as high as 2.50%. After December 2018, the FRB paused its rate increases and, in July, September and October 2019, implemented rate decreases of 0.25% on each of those occasions. At December 31, 2019, the Federal Funds rate stood at 1.75%. In response to the COVID-19 pandemic, the FRB decreased interest rates on two occasions in March 2020, a 0.50% decrease on March 3rd and a 1.00% decrease on March 16th. At September 30, 2021, the Federal Funds rate stood at 0.25%. A substantial portion of Great Southern’s loan portfolio ($1.80 billion at September 30, 2021) is tied to the one-month or three-month LIBOR index and will be subject to adjustment at least once within 90 days after September 30, 2021. Of these loans, $1.78 billion had interest rate floors at various rates. Great Southern also has a portfolio of loans ($533.8 million at September 30, 2021) tied to a “prime rate” of interest and will adjust immediately with changes to the “prime rate” of interest. Of these loans, $503.6 million had interest rate floors at various rates. At September 30, 2021, $1.3 billion in LIBOR and “prime rate” loans were at their floor rate. If rates were to increase 25 basis points, loans of $284.6 million would move above their floor rate. If rates were to increase 50 basis points, an additional $344.8 million in loans would move above their floor rate. During 2020, we experienced some compression of our net interest margin due to Federal Fund rate cuts totaling 1.50%. Margin compression primarily resulted from generally slower changing average interest rates on deposits and borrowings and lower yields on loans and other interest-earning assets. LIBOR interest rates decreased further in April and May of 2020, putting pressure on loan yields during most of 2020 and 2021, and strong pricing competition for loans and deposits remains in most of our markets.

Interest rate risk exposure estimates (the sensitivity gap) are not exact measures of an institution’s actual interest rate risk. They are only indicators of interest rate risk exposure produced in a simplified modeling environment designed to allow management to gauge the Bank’s sensitivity to changes in interest rates. They do not necessarily indicate the impact of general interest rate movements on the Bank’s net interest income because the repricing of certain categories of assets and liabilities is subject to competitive and other factors beyond the Bank’s control. As a result, certain assets and liabilities indicated as maturing or otherwise repricing within a stated period may in fact mature or reprice at different times and in different amounts and cause a change, which potentially could be material, in the Bank’s interest rate risk.

71

In order to minimize the potential for adverse effects of material and prolonged increases and decreases in interest rates on Great Southern’s results of operations, Great Southern has adopted asset and liability management policies to better match the maturities and repricing terms of Great Southern’s interest-earning assets and interest-bearing liabilities. Management recommends and the Board of Directors sets the asset and liability policies of Great Southern which are implemented by the Asset and Liability Committee. The Asset and Liability Committee is chaired by the Chief Financial Officer and is comprised of members of Great Southern’s senior management. The purpose of the Asset and Liability Committee is to communicate, coordinate and control asset/liability management consistent with Great Southern’s business plan and board-approved policies. The Asset and Liability Committee establishes and monitors the volume and mix of assets and funding sources, taking into account relative costs and spreads, interest rate sensitivity and liquidity needs. The objectives are to manage assets and funding sources to produce results that are consistent with liquidity, capital adequacy, growth, risk, and profitability goals. The Asset and Liability Committee meets on a monthly basis to review, among other things, economic conditions and interest rate outlook, current and projected liquidity needs and capital positions and anticipated changes in the volume and mix of assets and liabilities. At each meeting, the Asset and Liability Committee recommends appropriate strategy changes based on this review. The Chief Financial Officer or his designee is responsible for reviewing and reporting on the effects of the policy implementations and strategies to the Board of Directors at their monthly meetings.

In order to manage its assets and liabilities and achieve the desired liquidity, credit quality, interest rate risk, profitability and capital targets, Great Southern has focused its strategies on originating adjustable rate loans or loans with fixed rates that mature in less than five years, and managing its deposits and borrowings to establish stable relationships with both retail customers and wholesale funding sources.

At times, depending on the level of general interest rates, the relationship between long- and short-term interest rates, market conditions and competitive factors, we may determine to increase our interest rate risk position somewhat in order to maintain or increase our net interest margin.

The Asset and Liability Committee regularly reviews interest rate risk by forecasting the impact of alternative interest rate environments on net interest income and market value of portfolio equity, which is defined as the net present value of an institution’s existing assets, liabilities and off-balance sheet instruments, and evaluating such impacts against the maximum potential changes in net interest income and market value of portfolio equity that are authorized by the Board of Directors of Great Southern.

In the normal course of business, the Company may use derivative financial instruments (primarily interest rate swaps) from time to time to assist in its interest rate risk management. In 2011, the Company began executing interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting interest rate swaps that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. Because the interest rate swaps associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings. These interest rate derivatives result from a service provided to certain qualifying customers and, therefore, are not used to manage interest rate risk in the Company’s assets or liabilities. The Company manages a matched book with respect to its derivative instruments in order to minimize its net risk exposure resulting from such transactions.

In October 2018, the Company entered into an interest rate swap transaction as part of its ongoing interest rate management strategies to hedge the risk of its floating rate loans. The notional amount of the swap was $400 million with a contractual termination date of October 6, 2025. Under the terms of the swap, the Company received a fixed rate of interest of 3.018% and paid a floating rate of interest equal to one-month USD-LIBOR. The floating rate reset monthly and net settlements of interest due to/from the counterparty also occurred monthly. Due to lower market interest rates, the Company received net interest settlements which were recorded as loan interest income. If USD-LIBOR exceeded the fixed rate of interest, the Company was required to pay net settlements to the counterparty and record those net payments as a reduction of interest income on loans. The effective portion of the gain or loss on the derivative was reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affected earnings. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings.

In March 2020, the Company and its swap counterparty mutually agreed to terminate the $400 million interest rate swap prior to its contractual maturity. The Company received a payment of $45.9 million from its swap counterparty as a result of this termination.

The Company’s interest rate derivatives and hedging activities are discussed further in Note 16 of the Notes to Consolidated Financial Statements contained in this report.

72

ITEM 4. CONTROLS AND PROCEDURES

We maintain a system of disclosure controls and procedures (as defined in Rule 13(a)-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) that is designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file under the Exchange Act is recorded, processed, summarized and reported accurately and within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate. An evaluation of our disclosure controls and procedures was carried out as of September 30, 2021, under the supervision and with the participation of our principal executive officer, principal financial officer and several other members of our senior management. Our principal executive officer and principal financial officer concluded that, as of September 30,2021, our disclosure controls and procedures were effective in ensuring that the information we are required to disclose in the reports we file or submit under the Act is (i) accumulated and communicated to our management (including the principal executive officer and principal financial officer) to allow timely decisions regarding required disclosure, and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Act) that occurred during the quarter ended September 30, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

We do not expect that our internal control over financial reporting will prevent all errors and all fraud. A control procedure, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control procedure are met. Because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns in controls or procedures can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any control procedure also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control procedure, misstatements due to error or fraud may occur and not be detected.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

In the normal course of business, the Company and its subsidiaries are subject to pending and threatened legal actions, some of which seek substantial relief or damages. While the ultimate outcome of such legal proceedings cannot be predicted with certainty, after reviewing pending and threatened litigation with counsel, management believes at this time that the outcome of such litigation will not have a material adverse effect on the Company’s business, financial condition or results of operations.

Item 1A. Risk Factors

There have been no material changes to the risk factors set forth in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On October 21, 2020, the Company’s Board of Directors authorized management to repurchase up to 1,000,000 shares of the Company’s outstanding common stock, under a program of open market purchases or privately negotiated transactions. This program became effective in November 2020 and does not have an expiration date.

From time to time, the Company may utilize a pre-arranged trading plan pursuant to Rule 10b5-1 under the Securities Exchange Act of 1934 to repurchase its shares under its repurchase programs.

73

The following table reflects the Company’s repurchase activity during the three months ended September 30, 2021.

				Total Number of	Maximum Number
	Total Number	Average		Shares Purchased	of Shares that May
	of Shares	Price		as Part of Publicly	Yet Be Purchased
	Purchased	Per Share		Announced Plan	Under the Plan(1)
July 1, 2021 – July 31, 2021	65,986	$	52.86	65,986	728,170
August 1, 2021 – August 31, 2021	111,473		53.22	111,473	616,697
September 1, 2021 – September 30, 2021	129,600		53.18	129,600	487,097
	307,059	$	53.13	307,059

(1) Amount represents the number of shares available to be repurchased under the current program as of the last calendar day of the month shown.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable

Item 5. Other Information

None.

74

Item 6. Exhibits

a) Exhibits

Exhibit No.	Description
(2)	Plan of acquisition, reorganization, arrangement, liquidation, or succession
	(i)	The Purchase and Assumption Agreement, dated as of March 20, 2009, among Federal Deposit Insurance Corporation, Receiver of TeamBank, N.A., Paola, Kansas, Federal Deposit Insurance Corporation and Great Southern Bank, previously filed with the Commission (File no. 000-18082) as Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed on March 26, 2009 is incorporated herein by reference as Exhibit 2.1(i).
	(ii)	The Purchase and Assumption Agreement, dated as of September 4, 2009, among Federal Deposit Insurance Corporation, Receiver of Vantus Bank, Sioux City, Iowa, Federal Deposit Insurance Corporation and Great Southern Bank, previously filed with the Commission (File no. 000-18082) as Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed on September 11, 2009 is incorporated herein by reference as Exhibit 2.1(ii).
	(iii)	The Purchase and Assumption Agreement, dated as of October 7, 2011, among Federal Deposit Insurance Corporation, Receiver of Sun Security Bank, Ellington, Missouri, Federal Deposit Insurance Corporation and Great Southern Bank, previously filed with the Commission (File no. 000-18082) as Exhibit 2.1(iii) to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011 is incorporated herein by reference as Exhibit 2(iii).
	(iv)	The Purchase and Assumption Agreement, dated as of April 27, 2012, among Federal Deposit Insurance Corporation, Receiver of Inter Savings Bank, FSB, Maple Grove, Minnesota, Federal Deposit Insurance Corporation and Great Southern Bank, previously filed with the Commission (File no. 000-18082) as Exhibit 2.1(iv) to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012 is incorporated herein by reference as Exhibit 2(iv).
	(v)	The Purchase and Assumption Agreement All Deposits, dated as of June 20, 2014, among Federal Deposit Insurance Corporation, Receiver of Valley Bank, Moline, Illinois, Federal Deposit Insurance Corporation and Great Southern Bank, previously filed with the Commission (File no. 000-18082) as Exhibit 2.1(v) to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 20, 2014 is incorporated herein by reference as Exhibit 2(v).
(3)	Articles of incorporation and Bylaws
	(i)	The Registrant’s Charter previously filed with the Commission as Appendix D to the Registrant’s Definitive Proxy Statement on Schedule 14A filed on March 31, 2004 (File No. 000-18082), is incorporated herein by reference as Exhibit 3.1.
	(iA)	The Articles Supplementary to the Registrant’s Charter setting forth the terms of the Registrant’s Senior Non-Cumulative Perpetual Preferred Stock, Series A, previously filed with the Commission as Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on August 18, 2011, are incorporated herein by reference as Exhibit 3(i).
	(ii)	The Registrant’s Bylaws, previously filed with the Commission (File no. 000-18082) as Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed on October 19, 2007, are incorporated herein by reference as Exhibit 3.2.
(4)	Instruments defining the rights of security holders, including indentures
	The Indenture, dated June 12, 2020, between the Registrant and U.S. Bank National Association, as Trustee, previously filed with the Commission (File no. 000-18082) as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on June 12, 2020, is incorporated herein by reference as Exhibit 4.1.

75

	The First Supplemental Indenture, dated June 12, 2020, between the Registrant and U.S. Bank National Association, as Trustee (relating to the Registrant’s 5.50% Fixed-to-Floating Rate Subordinated Notes due June 15, 2030), including the form of subordinated note included therein, previously filed with the Commission (File no. 000-18082) as Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed on June 12, 2020, is incorporated herein by reference as Exhibit 4.2.
	The Subordinated Indenture, dated as of August 12, 2016, between the Registrant and Wilmington Trust, National Association, as Trustee, previously filed with the Commission (File no. 000-18082) as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on August 12, 2016, is incorporated herein by reference as Exhibit 4.3.
	The First Supplemental Indenture, dated as of August 12, 2016, between the Registrant and Wilmington Trust, National Association, as Trustee (relating to the Registrant’s 5.25% Fixed-to-Floating Rate Subordinated Notes due August 15, 2026), including the form of subordinated note included therein, previously filed with the Commission (File no. 000-18082) as Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed on August 12, 2016, is incorporated herein by reference as Exhibit 4.4.
	The Company hereby agrees to furnish the SEC upon request, copies of the instruments defining the rights of the holders of each other issue of the Registrant’s long-term debt.
(9)	Voting trust agreement
	Inapplicable.
(10)	Material contracts
	The Registrant’s 2003 Stock Option and Incentive Plan previously filed with the Commission (File No. 000-18082) as Annex A to the Registrant’s Definitive Proxy Statement on Schedule 14A filed on April 14, 2003, is incorporated herein by reference as Exhibit 10.2.*
	The Amended and Restated Employment Agreement, dated November 4, 2019, between the Registrant and William V. Turner previously filed with the Commission (File no. 000-18082) as Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2019, is incorporated herein by reference as Exhibit 10.3.*
	The Amended and Restated Employment Agreement, dated November 4, 2019, between the Registrant and Joseph W. Turner previously filed with the Commission (File no. 000-18082) as Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period fiscal year ended September 30, 2019, is incorporated herein by reference as Exhibit 10.4.*
	Amendment No. 1, dated as of March 5, 2020, to the Amended and Restated Employment Agreement with Joseph W. Turner previously filed with the Commission (File no. 000-18082) as Exhibit 10.4A to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2020 is incorporated herein by reference as Exhibit 10.4A.*
	The form of incentive stock option agreement under the Registrant’s 2003 Stock Option and Incentive Plan previously filed with the Commission as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File no. 000-18082) filed on February 24, 2005 is incorporated herein by reference as Exhibit 10.5.*
	The form of non-qualified stock option agreement under the Registrant’s 2003 Stock Option and Incentive Plan previously filed with the Commission as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K (File no. 000-18082) filed on February 24, 2005 is incorporated herein by reference as Exhibit 10.6.*
	A description of the current salary and bonus arrangements for 2021 for the Registrant’s executive officers previously filed with the Commission as Exhibit 10.7 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 is incorporated herein by reference as Exhibit 10.7.*
	A description of the current fee arrangements for the Registrant’s directors previously filed with the Commission as Exhibit 10.8 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 is incorporated herein by reference as Exhibit 10.8.*

76

	Small Business Lending Fund – Securities Purchase Agreement, dated August 18, 2011, between the Registrant and the Secretary of the United States Department of the Treasury, previously filed with the Commission as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on August 18, 2011, is incorporated herein by reference as Exhibit 10.9.
	The Registrant’s 2013 Equity Incentive Plan previously filed with the Commission (File No. 000-18082) as Annex A to the Registrant’s Definitive Proxy Statement on Schedule 14A filed on April 4, 2013, is incorporated herein by reference as Exhibit 10.10.*
	The form of incentive stock option award agreement under the Registrant’s 2013 Equity Incentive Plan previously filed with the Commission as Exhibit 10.2 to the Registrant’s Registration Statement on Form S-8 (File no. 333-189497) filed on June 20, 2013 is incorporated herein by reference as Exhibit 10.11.*
	The form of non-qualified stock option award agreement under the Registrant’s 2013 Equity Incentive Plan previously filed with the Commission as Exhibit 10.3 to the Registrant’s Registration Statement on Form S-8 (File no. 333-189497) filed on June 20, 2013 is incorporated herein by reference as Exhibit 10.12.*
	The Registrant’s 2018 Omnibus Incentive Plan previously filed with the Commission (File No. 000-18082) as Appendix A to the Registrant’s Definitive Proxy Statement on Schedule 14A filed on March 27, 2018, is incorporated herein by reference as Exhibit 10.15.*
	The form of incentive stock option award agreement under the Registrant’s 2018 Omnibus Incentive Plan previously filed with the Commission as Exhibit 10.2 to the Registrant’s Registration Statement on Form S-8 (File no. 333-225665) filed on June 15, 2018 is incorporated herein by reference as Exhibit 10.16.*
	The form of non-qualified stock option award agreement under the Registrant’s 2018 Omnibus Incentive Plan previously filed with the Commission as Exhibit 10.3 to the Registrant’s Registration Statement on Form S-8 (File no. 333-225665) filed on June 15, 2018 is incorporated herein by reference as Exhibit 10.17.*
(15)	Letter re unaudited interim financial information
	Inapplicable.
(18)	Letter re change in accounting principles
	Inapplicable.
(23)	Consents of experts and counsel
	Inapplicable.
(24)	Power of attorney
	None.
(31.1)	Rule 13a-14(a) Certification of Chief Executive Officer
	Attached as Exhibit 31.1
(31.2)	Rule 13a-14(a) Certification of Treasurer
	Attached as Exhibit 31.2
(32)	Certification pursuant to Section 906 of Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)
	Attached as Exhibit 32.
(99)	Additional Exhibits

77

	None.
(101)	Attached as Exhibit 101 are the following financial statements from the Great Southern Bancorp, Inc. Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, formatted in Extensive Business Reporting Language (XBRL): (i) consolidated statements of financial condition, (ii) consolidated statements of income, (iii) consolidated statements of comprehensive income, (iv) consolidated statements of cash flows and (v) notes to consolidated financial statements.
(104)	Cover Page Interactive Data File formatted in Inline XBRL (contained in Exhibit 101).
	* Management contract or compensatory plan or arrangement.

78

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.

	Great Southern Bancorp, Inc.
Date: November 5, 2021	/s/ Joseph W. Turner
	Joseph W. Turner President and Chief Executive Officer (Principal Executive Officer)
Date: November 5, 2021	/s/ Rex A. Copeland
	Rex A. Copeland Treasurer (Principal Financial and Accounting Officer)

79