Great Southern Bancorp 10Q 2023 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 EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2023

☐ 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: 11,795,301 shares of common stock, par value $.01 per share, outstanding at November 3, 2023.

PART I FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

GREAT SOUTHERN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(In Thousands, Except Per Share Data)


	SEPTEMBER 30,		DECEMBER 31,
	2023		2022

	(Unaudited)
ASSETS
Cash	$	92,579	$	105,262
Interest-bearing deposits in other financial institutions		89,736		63,258
Cash and cash equivalents		182,315		168,520
Available-for-sale securities		447,948		490,592
Held-to-maturity securities		196,716		202,495
Mortgage loans held for sale		5,678		4,811
Loans receivable, net of allowance for credit losses of $64,753 – September 2023; $63,480 – December 2022		4,564,567		4,506,836
Interest receivable		19,366		19,107
Prepaid expenses and other assets		103,441		69,461
Other real estate owned and repossessions, net		38		233
Premises and equipment, net		139,893		141,070
Goodwill and other intangible assets		10,585		10,813
Federal Home Loan Bank stock and other interest-earning assets		36,038		30,814
Current and deferred income taxes		41,493		35,950
Total Assets	$	5,748,078	$	5,680,702

LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Deposits	$	4,851,548	$	4,684,910
Securities sold under reverse repurchase agreements with customers		58,172		176,843
Short-term borrowings and other interest-bearing liabilities		84,110		89,583
Subordinated debentures issued to capital trust		25,774		25,774
Subordinated notes		74,504		74,281
Accrued interest payable		6,619		3,010
Advances from borrowers for taxes and insurance		10,227		6,590
Accrued expenses and other liabilities		96,251		73,808
Liability for unfunded commitments		9,176		12,816
Total Liabilities		5,216,381		5,147,615

Stockholders’ Equity:
Capital stock
Serial preferred stock, $.01 par value; authorized 1,000,000 shares; issued and outstanding September 2023 and December 2022 - - 0- shares		—		—
Common stock, $.01 par value; authorized 20,000,000 shares; issued and outstanding September 2023 – 11,864,363 shares; December 2022 – 12,231,290 shares		119		122
Additional paid-in capital		43,701		42,445
Retained earnings		564,658		543,875
Accumulated other comprehensive income (loss)		(76,781)		(53,355)
Total Stockholders’ Equity		531,697		533,087
Total Liabilities and Stockholders’ Equity	$	5,748,078	$	5,680,702

See Notes to Consolidated Financial Statements

GREAT SOUTHERN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In Thousands, Except Per Share Data)


	THREE MONTHS ENDED
	SEPTEMBER 30,
	2023		2022

	(Unaudited)
INTEREST INCOME
Loans	$	68,878	$	54,077
Investment securities and other		6,394		5,580
TOTAL INTEREST INCOME		75,272		59,657

INTEREST EXPENSE
Deposits		25,233		4,984
Securities sold under reverse repurchase agreements		308		45
Short-term borrowings, overnight FHLBank borrowings and other interest-bearing liabilities		1,433		377
Subordinated debentures issued to capital trust		454		248
Subordinated notes		1,106		1,105
TOTAL INTEREST EXPENSE		28,534		6,759

NET INTEREST INCOME		46,738		52,898
PROVISION FOR CREDIT LOSSES ON LOANS		—		2,000
PROVISION (CREDIT) FOR UNFUNDED COMMITMENTS		(1,195)		1,315
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES AND PROVISION (CREDIT) FOR UNFUNDED COMMITMENTS		47,933		49,583

NON-INTEREST INCOME
Commissions		232		226
Overdraft and insufficient funds fees		2,017		2,077
Point-Of-Sale and ATM fee income and service charges		3,724		3,874
Net gains on loan sales		784		601
Net realized gain on sale of available for sale securities		—		31
Late charges and fees on loans		149		206
Gain on derivative interest rate products		55		88
Other income		891		881
TOTAL NON-INTEREST INCOME		7,852		7,984

NON-INTEREST EXPENSE
Salaries and employee benefits		19,673		18,976
Net occupancy and equipment expense		7,729		7,198
Postage		844		860
Insurance		1,301		803
Advertising		950		953
Office supplies and printing		294		236
Telephone		657		832
Legal, audit and other professional fees		1,849		2,239
Expense on other real estate and repossessions		62		84
Acquired intangible asset amortization		59		216
Other operating expenses		2,139		2,361
TOTAL NON-INTEREST EXPENSE		35,557		34,758

INCOME BEFORE INCOME TAXES		20,228		22,809
PROVISION FOR INCOME TAXES		4,349		4,676
NET INCOME	$	15,879	$	18,133

Basic Earnings Per Common Share	$	1.33	$	1.47
Diluted Earnings Per Common Share	$	1.33	$	1.46

Dividends Declared Per Common Share	$	0.40	$	0.40

See Notes to Consolidated Financial Statements

GREAT SOUTHERN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In Thousands, Except Per Share Data)


	NINE MONTHS ENDED
	SEPTEMBER 30,
	2023		2022

	(Unaudited)
INTEREST INCOME
Loans	$	201,758	$	143,906
Investment securities and other		18,595		15,122
TOTAL INTEREST INCOME		220,353		159,028

INTEREST EXPENSE
Deposits		61,668		9,516
Securities sold under reverse repurchase agreements		871		62
Short-term borrowings, overnight FHLBank borrowings and other interest-bearing liabilities		5,156		614
Subordinated debentures issued to capital trust		1,273		525
Subordinated notes		3,317		3,317
TOTAL INTEREST EXPENSE		72,285		14,034

NET INTEREST INCOME		148,068		144,994
PROVISION FOR CREDIT LOSSES ON LOANS		1,500		2,000
PROVISION (CREDIT) FOR UNFUNDED COMMITMENTS		(3,640)		3,345
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES AND PROVISION (CREDIT) FOR UNFUNDED COMMITMENTS		150,208		139,649

NON-INTEREST INCOME
Commissions		887		912
Overdraft and insufficient funds fees		5,902		5,830
Point-Of-Sale and ATM fee income and service charges		11,204		11,942
Net gains on loan sales		1,882		2,234
Net realized gain on sale of available-for-sale securities		—		38
Late charges and fees on loans		454		879
Gain (loss) on derivative interest rate products		(234)		385
Other income		3,415		4,260
TOTAL NON-INTEREST INCOME		23,510		26,480

NON-INTEREST EXPENSE
Salaries and employee benefits		58,554		56,488
Net occupancy and equipment expense		22,858		20,884
Postage		2,586		2,491
Insurance		3,178		2,383
Advertising		2,500		2,383
Office supplies and printing		820		662
Telephone		2,048		2,513
Legal, audit and other professional fees		5,477		4,240
Expense on other real estate and repossessions		263		313
Acquired intangible asset amortization		228		552
Other operating expenses		6,226		6,121
TOTAL NON-INTEREST EXPENSE		104,738		99,030

INCOME BEFORE INCOME TAXES		68,980		67,099
PROVISION FOR INCOME TAXES		14,325		13,755
NET INCOME	$	54,655	$	53,344

Basic Earnings Per Common Share	$	4.53	$	4.23
Diluted Earnings Per Common Share	$	4.52	$	4.20

Dividends Declared Per Common Share	$	1.20	$	1.16

See Notes to Consolidated Financial Statements

GREAT SOUTHERN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In Thousands, Except Per Share Data)


	THREE MONTHS ENDED
	SEPTEMBER 30,
	2023		2022

	(Unaudited)
Net Income	$	15,879	$	18,133

Unrealized appreciation (depreciation) on available-for-sale securities, net of taxes (credit) of $(5,420) and $(6,884), for 2023 and 2022, respectively		(16,606)		(23,305)

Unrealized loss on securities transferred to held-to-maturity, net of taxes of $(13) and $(65) for 2023 and 2022, respectively		(38)		(220)

Less: reclassification adjustment for gains included in net income, net of taxes of $(0) and $(7) for 2023 and 2022, respectively		—		(24)

Amortization of realized gain on termination of cash flow hedge, net of taxes (credit) of $(468) and $(467), for 2023 and 2022, respectively		(1,580)		(1,580)

Change in value of active cash flow hedges, net of taxes (credit) of $(832) and $(5,876) for 2023 and 2022, respectively		(2,547)		(19,898)

Comprehensive Income (Loss)	$	(4,892)	$	(26,894)


	NINE MONTHS ENDED
	SEPTEMBER 30,
	2023		2022

	(Unaudited)
Net Income	$	54,655	$	53,344

Unrealized appreciation (depreciation) on available-for-sale securities, net of taxes (credit) of $(5,327) and $(17,965), for 2023 and 2022, respectively		(16,323)		(60,825)

Unrealized gain (loss) on securities transferred to held-to-maturity, net of taxes (credit) of $(30) and $9 for 2023 and 2022, respectively		(92)		30

Less: reclassification adjustment for gains included in net income, net of taxes of $(0) and $(9) for 2023 and 2022, respectively		—		(29)

Amortization of realized gain on termination of cash flow hedge, net of taxes (credit) of $(1,387) and $(1,385), for 2023 and 2022, respectively		(4,688)		(4,691)

Change in value of active cash flow hedges, net of taxes (credit) of $(758) and $(7,553) for 2023 and 2022, respectively		(2,323)		(25,570)

Comprehensive Income (Loss)	$	31,229	$	(37,741)

See Notes to Consolidated Financial Statements

GREAT SOUTHERN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In Thousands, Except Per Share Data)


	THREE MONTHS ENDED SEPTEMBER 30, 2023
							Accumulated
							Other
	Common		Additional		Retained		Comprehensive		Treasury
	Stock		Paid-in Capital		Earnings		Income (Loss)		Stock		Total

	(Unaudited)
Balance, June 30, 2023	$	120	$	43,292	$	558,927	$	(56,010)	$	—	$	546,329
Net income		—		—		15,879		—		—		15,879
Stock issued under Stock Option Plan		—		409		—		—		45		454
Common cash dividends declared, $0.40 per share		—		—		(4,745)		—		—		(4,745)
Change in fair value of cash flow hedges		—		—		—		(4,127)		—		(4,127)
Change in unrealized gain on held-to-maturity securities		—		—		—		(38)		—		(38)
Change in unrealized loss on available-for-sale securities		—		—		—		(16,606)		—		(16,606)
Purchase of the Company’s common stock		—		—		—		—		(5,449)		(5,449)
Reclassification of treasury stock per Maryland law		(1)		—		(5,403)		—		5,404		—
Balance, September 30, 2023	$	119	$	43,701	$	564,658	$	(76,781)	$	—	$	531,697


	THREE MONTHS ENDED SEPTEMBER 30, 2022
							Accumulated
							Other
	Common		Additional		Retained		Comprehensive		Treasury
	Stock		Paid-in Capital		Earnings		Income (Loss)		Stock		Total

	(Unaudited)
Balance, June 30, 2022	$	123	$	40,565	$	522,255	$	(13,299)	$	—	$	549,644
Net income		—		—		18,133		—		—		18,133
Stock issued under Stock Option Plan		—		950		—		—		1,355		2,305
Common cash dividends declared, $0.40 per share		—		—		(4,906)		—		—		(4,906)
Change in fair value of cash flow hedges		—		—		—		(21,478)		—		(21,478)
Change in unrealized loss on held-to-maturity securities		—		—		—		(220)		—		(220)
Change in unrealized loss on available-for-sale securities		—		—		—		(23,329)		—		(23,329)
Purchase of the Company’s common stock		—		—		—		—		(8,874)		(8,874)
Reclassification of treasury stock per Maryland law		—		—		(7,519)		—		7,519		—
Balance, September 30, 2022	$	123	$	41,515	$	527,963	$	(58,326)	$	—	$	511,275

See Notes to Consolidated Financial Statements

GREAT SOUTHERN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In Thousands, Except Per Share Data)


	NINE MONTHS ENDED SEPTEMBER 30, 2023
							Accumulated
							Other
	Common		Additional		Retained		Comprehensive		Treasury
	Stock		Paid-in Capital		Earnings		Income (Loss)		Stock		Total

	(Unaudited)
Balance, January 1, 2023	$	122	$	42,445	$	543,875	$	(53,355)	$	—	$	533,087
Net income		—		—		54,655		—		—		54,655
Stock issued under Stock Option Plan		—		1,256		—		—		249		1,505
Common cash dividends declared, $1.20 per share		—		—		(14,386)		—		—		(14,386)
Change in fair value of cash flow hedges		—		—		—		(7,011)		—		(7,011)
Change in unrealized gain on held-to-maturity securities		—		—		—		(92)		—		(92)
Change in unrealized loss on available-for-sale securities		—		—		—		(16,323)		—		(16,323)
Purchase of the Company’s common stock		—		—		—		—		(19,738)		(19,738)
Reclassification of treasury stock per Maryland law		(3)		—		(19,486)		—		19,489		—
Balance, September 30, 2023	$	119	$	43,701	$	564,658	$	(76,781)	$	—	$	531,697


	NINE MONTHS ENDED SEPTEMBER 30, 2022
							Accumulated
							Other
	Common		Additional		Retained		Comprehensive		Treasury
	Stock		Paid-in Capital		Earnings		Income (Loss)		Stock		Total

	(Unaudited)
Balance, January 1, 2022	$	131	$	38,314	$	545,548	$	32,759	$	—	$	616,752
Net income		—		—		53,344		—		—		53,344
Stock issued under Stock Option Plan		—		3,201		—		—		2,773		5,974
Common cash dividends declared, $1.16 per share		—		—		(14,455)		—		—		(14,455)
Change in fair value of cash flow hedges		—		—		—		(30,261)		—		(30,261)
Change in unrealized gain on held-to-maturity securities		—		—		—		30		—		30
Change in unrealized loss on available-for-sale securities		—		—		—		(60,854)		—		(60,854)
Purchase of the Company’s common stock		—		—		—		—		(59,255)		(59,255)
Reclassification of treasury stock per Maryland law		(8)		—		(56,474)		—		56,482		—
Balance, September 30, 2022	$	123	$	41,515	$	527,963	$	(58,326)	$	—	$	511,275

See Notes to Consolidated Financial Statements

GREAT SOUTHERN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands, Except Per Share Data)


	NINE MONTHS ENDED
	SEPTEMBER 30,
	2023		2022

	(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	54,655	$	53,344
Proceeds from sales of loans held for sale		126,762		78,776
Originations of loans held for sale		(125,845)		(70,073)
Items not requiring (providing) cash:
Depreciation		6,600		6,369
Amortization		455		861
Compensation expense for stock option grants		1,195		1,054
Provision for credit losses on loans		1,500		2,000
Provision (credit) for unfunded commitments		(3,640)		3,345
Net gain on loan sales		(1,882)		(2,234)
Net (gain) loss on sale of premises and equipment		18		(1,071)
Net (gain) loss on sale/write-down of other real estate owned and repossessions		41		(125)
Net gain on sale of available-for-sale investments		—		(38)
Accretion of deferred income, premiums, discounts and other		(4,379)		(6,208)
(Gain) loss on derivative interest rate products		234		(385)
Deferred income taxes		845		(536)
Changes in:
Interest receivable		(259)		(3,082)
Prepaid expenses and other assets		(40,559)		(16,534)
Accrued expenses and other liabilities		23,250		5,683
Income taxes refundable/payable		1,114		2,800
Net cash provided by operating activities		40,105		53,946

CASH FLOWS FROM INVESTING ACTIVITIES
Net change in loans		(54,526)		(192,105)
Purchase of loans		(400)		(294,762)
Purchase of premises and equipment		(6,171)		(15,876)
Proceeds from sale of premises and equipment		233		3,830
Proceeds from sale of other real estate owned and repossessions		280		2,192
Proceeds from sale of available-for-sale securities		—		10,095
Proceeds from maturities and calls of available-for-sale securities		1,022		750
Principal reductions on mortgage-backed securities		25,674		63,539
Purchase of available-for-sale securities		—		(342,010)
Purchase of Federal Home Loan Bank stock and change in other interest-earning assets		(5,224)		(24,599)
Net cash used in investing activities		(39,112)		(788,946)

CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in certificates of deposit		83,533		399,587
Net increase (decrease) in checking and savings deposits		83,739		(212,570)
Net increase (decrease) in short-term borrowings		(124,144)		84,351
Advances from borrowers for taxes and insurance		3,637		3,987
Dividends paid		(14,535)		(14,281)
Purchase of the Company’s common stock		(19,738)		(59,255)
Stock options exercised		310		4,920
Net cash provided by financing activities		12,802		206,739

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		13,795		(528,261)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		168,520		717,267
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	182,315	$	189,006

See Notes to Consolidated Financial Statements

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, 2023 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, 2022, has been derived from the audited consolidated statement of financial condition of the Company as of that date.

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, 2022 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; Charlotte, North Carolina; Chicago; Dallas; Denver; Omaha, Nebraska; Phoenix; and Tulsa, Oklahoma. 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 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 permit changes to critical terms of hedging relationships and to the designated benchmark interest rate in a fair value hedge and also provide relief for assessing hedge effectiveness for cash flow hedges. ASU 2020-04 was effective upon issuance; however, the guidance was originally only available generally through December 31, 2022. Based upon amendments provided in ASU 2022-06 discussed below, provisions of ASU 2020-04 can now generally be applied through December 31, 2024. 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; however, the guidance was originally only available generally through December 31, 2022. Based upon amendments provided in ASU 2022-06 discussed below, provisions of ASU 2021-01 can now generally be applied through December 31, 2024. ASU 2021-01 has not had, and is not expected to have, a material impact on the Company’s consolidated financial statements.

In March 2022, the FASB issued ASU 2022-01, Derivatives and Hedging (Topic 815): Fair Value Hedging – Portfolio Layer Method. ASU 2022-01 further clarifies certain targeted improvements to the optional hedge accounting model that were made under ASU 2017-12. ASU 2022-01 expands the last-of-layer method and renames this method to portfolio layer method to reflect this expansion, as well as expanding the scope of the portfolio layer method to include nonprepayable financial assets. It also specifies eligible hedging instruments and provides additional guidance on the accounting for and disclosure of hedge basis adjustments that are applicable to the portfolio layer method. ASU 2022-01 permits an entity to apply the same portfolio hedging method to both prepayable and nonprepayable financial assets, thereby allowing consistent accounting for similar hedges. ASU 2022-01 became effective for the Company on January 1, 2023. The adoption of ASU 2022-01 did not have a material impact on the Company’s consolidated financial statements.

In March 2022, the FASB issued ASU 2022-02, Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. ASU 2022-02 eliminates the troubled debt restructuring recognition and measurement guidance and, instead, requires that an entity evaluate whether a loan modification represents a new loan or a continuation of an existing loan. It also enhances existing disclosure requirements and introduces new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. ASU 2022-02 became effective for the Company on January 1, 2023. The adoption of ASU 2022-02 did not have a material impact on the Company’s consolidated financial statements. The adoption of this ASU does, however, require changes in disclosures related to certain loan modifications.

In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848. ASU 2022-06 extends the period of time entities can utilize the reference rate reform relief guidance provided by ASU 2020-04 and ASU 2021-01, which are discussed above. ASU 2022-06 was effective upon issuance and defers the sunset date of this prior guidance to December 31, 2024, after which entities will no longer be permitted to apply the relief guidance in Topic 848. ASU 2022-06 has not had, and is not expected to have, a material impact on the Company’s consolidated financial statements.

In March 2023, the FASB issued ASU 2023-02, Investments – Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method. ASU 2023-02 is intended to improve the accounting and disclosures for investments in tax credit structures. ASU 2023-02 allows entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related income tax credits. Previously, this method was only available for qualifying tax equity investments in low-income housing tax credit structures. The Company is evaluating whether or not to use this method for other tax credit structures in which it invests. Currently, the Company does not have a material amount of tax credit structures, other than low-income housing tax credit structures. ASU 2023-02 will be effective for the Company on January 1, 2024, though early adoption is permitted, and its adoption 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,
	2023		2022

	(In Thousands, Except Per Share Data)
Basic:
Average common shares outstanding		11,935		12,304
Net income	$	15,879	$	18,133
Per common share amount	$	1.33	$	1.47

Diluted:
Average common shares outstanding		11,935		12,304
Net effect of dilutive stock options – based on the treasury stock method using average market price		42		99
Diluted common shares		11,977		12,403
Net income	$	15,879	$	18,133
Per common share amount	$	1.33	$	1.46


	Nine Months Ended September 30,
	2023		2022

	(In Thousands, Except Per Share Data)
Basic:
Average common shares outstanding		12,055		12,616
Net income	$	54,655	$	53,344
Per common share amount	$	4.53	$	4.23

Diluted:
Average common shares outstanding		12,055		12,616
Net effect of dilutive stock options – based on the treasury stock method using average market price		49		94
Diluted common shares		12,104		12,710
Net income	$	54,655	$	53,344
Per common share amount	$	4.52	$	4.20

Options outstanding at September 30, 2023 and 2022, to purchase 758,129 and 364,199 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, 2023 and 2022, respectively. Options outstanding at September 30, 2023 and 2022, to purchase 675,768 and 366,699 shares of common stock, respectively, were not included in the computation of diluted earnings per common share for each of 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, 2023 and 2022, respectively.

NOTE 5: INVESTMENT SECURITIES

Held-to-maturity securities (“HTM”), which include any security for which the Company has both the positive intent and ability to hold until maturity, are carried at historical cost adjusted for amortization of premiums and accretion of discounts. Premiums and discounts are amortized and accreted, respectively, to interest income over the security’s estimated life. Prepayments are anticipated for certain mortgage-backed securities. Premiums on callable securities are amortized to their earliest call date.

Available-for-sale securities (“AFS”), which include any security for which the Company has no immediate plan to sell but which may be sold in the future, are carried at fair value. Realized gains and losses, based on specifically identified amortized cost of the individual security, are included in non-interest income. Unrealized gains and losses are recorded, net of related income tax effects, in stockholders’ equity. Premiums and discounts are amortized and accreted, respectively, to interest income over the estimated life of the security. Prepayments are anticipated for certain mortgage-backed and Small Business Administration (SBA) securities. Premiums on callable securities are amortized to their earliest call date.

The amortized cost and fair values of securities were as follows:


	September 30, 2023
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value

	(In Thousands)
AVAILABLE-FOR-SALE SECURITIES:
Agency mortgage-backed securities	$	314,632	$	—	$	54,143	$	260,489
Agency collateralized mortgage obligations		86,687		—		13,553		73,134
States and political subdivisions		59,273		10		6,893		52,390
Small Business Administration securities		71,628		—		9,693		61,935
	$	532,220	$	10	$	84,282	$	447,948


	September 30, 2023
					Amortized		Gross		Gross
	Amortized		Fair Value		Carrying		Unrealized		Unrealized		Fair
	Cost		Adjustment		Value		Gains		Losses		Value

	(In Thousands)
HELD-TO-MATURITY SECURITIES:
Agency mortgage-backed securities	$	72,927	$	2,581	$	75,508	$	—	$	12,340	$	63,168
Agency collateralized mortgage obligations		117,593		(2,583)		115,010		—		17,195		97,815
States and political subdivisions		6,200		(2)		6,198		—		1,091		5,107
	$	196,720	$	(4)	$	196,716	$	—	$	30,626	$	166,090


	December 31, 2022
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value

	(In Thousands)
AVAILABLE-FOR-SALE SECURITIES:
Agency mortgage-backed securities	$	327,266	$	—	$	40,784	$	286,482
Agency collateralized mortgage obligations		90,205		—		11,731		78,474
States and political subdivisions securities		60,667		119		3,291		57,495
Small Business Administration securities		75,076		—		6,935		68,141
	$	553,214	$	119	$	62,741	$	490,592


	December 31, 2022
					Amortized		Gross		Gross
	Amortized		Fair Value		Carrying		Unrealized		Unrealized		Fair
	Cost		Adjustment		Value		Gains		Losses		Value

	(In Thousands)
HELD-TO-MATURITY SECURITIES:
Agency mortgage-backed securities	$	73,891	$	3,015	$	76,906	$	—	$	9,820	$	67,086
Agency collateralized mortgage obligations		122,247		(2,885)		119,362		—		14,129		105,233
States and political subdivisions		6,239		(12)		6,227		—		781		5,446
	$	202,377	$	118	$	202,495	$	—	$	24,730	$	177,765

The amortized cost and fair value of available-for-sale and held-to-maturity securities at September 30, 2023, 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.


	Available-for-Sale				Held-to-Maturity
	Amortized		Fair		Amortized		Fair
	Cost		Value		Carrying Value		Value

	(In Thousands)
One year or less	$	—	$	—	$	—	$	—
After one through two years		—		—		—		—
After two through three years		—		—		—		—
After three through four years		245		245		—		—
After four through five years		944		929		—		—
After five through fifteen years		9,715		9,087		3,249		2,699
After fifteen years		48,369		42,129		2,949		2,408
Securities not due on a single maturity date		472,947		395,558		190,518		160,983
	$	532,220	$	447,948	$	196,716	$	166,090

Certain available-for-sale investments in debt securities are reported in the financial statements at an amount less than their amortized cost. Total fair value of these investments at September 30, 2023 and December 31, 2022, was approximately $446.7 million and $472.0 million, respectively, which is approximately 99.7% and 96.2% of the Company’s total available-for-sale investment portfolio. A high percentage of the unrealized losses were related to the Company’s mortgage-backed securities, collateralized mortgage obligations and SBA securities, which are issued and guaranteed by U.S. government-sponsored entities and agencies. The Company’s state and political subdivisions securities are investments in insured fixed rate municipal bonds for which the issuers continue to make timely principal and interest payments under the contractual terms of the securities. Held-to-maturity investments in debt securities are reported in the financial statements at their amortized cost at September 30, 2023 and December 31, 2022, which was $196.7 million and $202.5 million, respectively. Total fair value of these investments at September 30, 2023 and December 31, 2022 was approximately $166.1 million and $177.8 million, respectively. Held-to-maturity investment securities are evaluated for potential losses under ASU 2016-13. The Company continually assesses its liquidity sources, both on-balance sheet and off-balance sheet, and believes at September 30, 2023, that it has ample liquidity sources to fund its ongoing operations. The Company has the intent and ability to hold these held-to-maturity securities until they are fully repaid.

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 of these debt securities are not credit-related.

The following table shows the Company’s available-for-sale and held-to-maturity securities’ 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, 2023 and December 31, 2022:


	September 30, 2023
	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)
AVAILABLE-FOR-SALE SECURITIES:
Agency mortgage-backed securities	$	1	$	—	$	260,488	$	(54,143)	$	260,489	$	(54,143)
Agency collateralized mortgage obligations		8,236		(1,061)		64,898		(12,492)		73,134		(13,553)
States and political subdivisions securities		14,242		(1,387)		36,902		(5,506)		51,144		(6,893)
Small Business Administration securities		7,622		(466)		54,313		(9,227)		61,935		(9,693)
	$	30,101	$	(2,914)	$	416,601	$	(81,368)	$	446,702	$	(84,282)

HELD-TO-MATURITY SECURITIES:
Agency mortgage-backed securities	$	—	$	—	$	63,168	$	(12,340)	$	63,168	$	(12,340)
Agency collateralized mortgage obligations		—		—		97,815		(17,195)		97,815		(17,195)
States and political subdivisions securities		—		—		5,107		(1,091)		5,107		(1,091)
	$	—	$	—	$	166,090	$	(30,626)	$	166,090	$	(30,626)


	December 31, 2022
	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)
AVAILABLE-FOR-SALE SECURITIES:
Agency mortgage-backed securities	$	221,562	$	(27,597)	$	64,918	$	(13,187)	$	286,480	$	(40,784)
Agency collateralized mortgage obligations		28,537		(3,262)		40,642		(8,469)		69,179		(11,731)
States and political subdivisions securities		60,473		(5,224)		7,667		(1,711)		68,140		(6,935)
Small Business Administration securities		44,455		(2,913)		3,753		(378)		48,208		(3,291)
	$	355,027	$	(38,996)	$	116,980	$	(23,745)	$	472,007	$	(62,741)

HELD-TO-MATURITY SECURITIES:
Agency mortgage-backed securities	$	59,218	$	(7,766)	$	7,868	$	(2,054)	$	67,086	$	(9,820)
Agency collateralized mortgage obligations		61,055		(6,411)		44,178		(7,718)		105,233		(14,129)
States and political subdivisions securities		900		(101)		4,546		(680)		5,446		(781)
	$	121,173	$	(14,278)	$	56,592	$	(10,452)	$	177,765	$	(24,730)

There were no sales of available-for-sale securities during the three or nine months ended September 30, 2023. Available-for-sale securities totaling $5.1 million were sold during the three months ended September 30, 2022, resulting in the recognition of a $31,000 gain during the period. Available-for-sale securities totaling $10.2 million were sold during the nine months ended September 30, 2022, resulting in the recognition of a $38,000 gain during the period. Gains and losses on sales of securities are determined on the specific-identification method.

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 as of September 30, 2023 were 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, no 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 historically has not experienced losses on these types of securities. Accordingly, no allowance for credit losses has been recorded for these securities.

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 allowance for credit losses is measured using an average historical loss model that 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 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, gross domestic product (“GDP”), commercial real estate price index, consumer sentiment and construction spending. 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. The forecast-adjusted loss rate is applied to the principal balance over the remaining contractual lives, adjusted for expected prepayments. The contractual term excludes expected extensions, renewals and modifications. 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.

In addition, 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.

Classes of loans at September 30, 2023 and December 31, 2022 were as follows:


	September 30,			December 31,
	2023			2022

	(In Thousands)
One- to four-family residential construction	$	29,383		$	33,849
Subdivision construction		26,412			32,067
Land development		54,633			41,613
Commercial construction		750,818			757,690
Owner occupied one- to four-family residential		773,082			778,533
Non-owner occupied one- to four-family residential		123,750			124,870
Commercial real estate		1,503,915			1,530,663
Other residential		845,373			781,761
Commercial business		343,648			293,228
Industrial revenue bonds		12,292			12,852
Consumer auto		29,329			37,281
Consumer other		32,941			33,732
Home equity lines of credit		111,665			123,242
		4,637,241			4,581,381
Allowance for credit losses on loans		(64,753)			(63,480)
Deferred loan fees and gains, net		(7,921)			(11,065)
	$	4,564,567		$	4,506,836

Weighted average interest rate		6.16	%		5.54	%

The following tables present the classes of loans by aging as of the dates indicated.


	September 30, 2023
													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	$	—	$	12	$	—	$	12	$	29,371	$	29,383	$	—
Subdivision construction		—		—		—		—		26,412		26,412		—
Land development		—		—		384		384		54,249		54,633		—
Commercial construction		—		—		—		—		750,818		750,818		—
Owner occupied one- to four-family residential		122		69		242		433		772,649		773,082		—
Non-owner occupied one- to four-family residential		—		—		—		—		123,750		123,750		—
Commercial real estate		—		191		10,131		10,322		1,493,593		1,503,915		—
Other residential		—		—		—		—		845,373		845,373		—
Commercial business		—		—		—		—		343,648		343,648		—
Industrial revenue bonds		—		—		—		—		12,292		12,292		—
Consumer auto		45		3		9		57		29,272		29,329		—
Consumer other		206		11		33		250		32,691		32,941		—
Home equity lines of credit		123		54		32		209		111,456		111,665		—

Total	$	496	$	340	$	10,831	$	11,667	$	4,625,574	$	4,637,241	$	—


	December 31, 2022
													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	$	—	$	—	$	—	$	—	$	33,849	$	33,849	$	—
Subdivision construction		—		—		—		—		32,067		32,067		—
Land development		—		—		384		384		41,229		41,613		—
Commercial construction		—		—		—		—		757,690		757,690		—
Owner occupied one- to four-family residential		2,568		462		722		3,752		774,781		778,533		—
Non-owner occupied one- to four-family residential		—		63		—		63		124,807		124,870		—
Commercial real estate		196		—		1,579		1,775		1,528,888		1,530,663		—
Other residential		—		—		—		—		781,761		781,761		—
Commercial business		8		—		586		594		292,634		293,228		—
Industrial revenue bonds		—		—		—		—		12,852		12,852		—
Consumer auto		100		34		14		148		37,133		37,281		—
Consumer other		288		114		111		513		33,219		33,732		—
Home equity lines of credit		234		38		274		546		122,696		123,242		—

Total	$	3,394	$	711	$	3,670	$	7,775	$	4,573,606	$	4,581,381	$	—

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 are summarized as follows:


	September 30,		December 31,
	2023		2022

	(In Thousands)
One- to four-family residential construction	$	—	$	—
Subdivision construction		—		—
Land development		384		384
Commercial construction		—		—
Owner occupied one- to four-family residential		242		722
Non-owner occupied one- to four-family residential		—		—
Commercial real estate		10,131		1,579
Other residential		—		—
Commercial business		—		586
Industrial revenue bonds		—		—
Consumer auto		9		14
Consumer other		33		111
Home equity lines of credit		32		274
Total non-accruing loans	$	10,831	$	3,670

No interest income was recorded on these loans for the three and nine months ended September 30, 2023 and 2022, respectively.

Nonaccrual loans for which there is no related allowance for credit losses as of September 30, 2023 totaled $1.7 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 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 primarily by a classified risk rating with 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 table presents the activity in the allowance for credit losses by portfolio segment for the three and nine months ended September 30, 2023 and 2022. During the three months ended September 30, 2023, the Company did not record a provision expense on its portfolio of outstanding loans. During the nine months ended September 30, 2023, the Company recorded provision expense of $1.5 million on its portfolio of outstanding loans. During both the three and nine months ended September 30, 2022, the Company recorded provision expense of $2.0 million on its portfolio of outstanding loans.


	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, 2023	$	11,818	$	13,189	$	25,508	$	2,502	$	7,827	$	4,008	$	64,852
Provision (credit) charged to expense		—		—		—		—		—		—		—
Losses charged off		—		—		—		—		—		(498)		(498)
Recoveries		41		—		—		—		28		330		399
Balance, September 30, 2023	$	11,859	$	13,189	$	25,508	$	2,502	$	7,855	$	3,840	$	64,753

Allowance for credit losses
Balance, June 30, 2022	$	9,434	$	10,612	$	28,604	$	2,797	$	4,365	$	5,246	$	61,058
Provision (credit) charged to expense		1,076		881		(1,105)		265		1,302		(419)		2,000
Losses charged off		—		—		—		—		(50)		(571)		(621)
Recoveries		20		—		1		—		15		288		324
Balance, September 30, 2022	$	10,530	$	11,493	$	27,500	$	3,062	$	5,632	$	4,544	$	62,761


	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, January 1, 2023	$	11,171	$	12,110	$	27,096	$	2,865	$	5,822	$	4,416	$	63,480
Provision (credit) charged to expense		647		1,079		(1,590)		(363)		1,851		(124)		1,500
Losses charged off		(31)		—		—		—		—		(1,409)		(1,440)
Recoveries		72		—		2		—		182		957		1,213
Balance, September 30, 2023	$	11,859	$	13,189	$	25,508	$	2,502	$	7,855	$	3,840	$	64,753

Allowance for credit losses
Balance, January 1, 2022	$	9,364	$	10,502	$	28,604	$	2,797	$	4,142	$	5,345	$	60,754
Provision (credit) charged to expense		1,076		881		(1,105)		265		1,302		(419)		2,000
Losses charged off		(38)		—		—		—		(50)		(1,403)		(1,491)
Recoveries		128		110		1		—		238		1,021		1,498
Balance, September 30, 2022	$	10,530	$	11,493	$	27,500	$	3,062	$	5,632	$	4,544	$	62,761

The following table presents the activity in the allowance for unfunded commitments by portfolio segment for the three and nine months ended September 30, 2023 and 2022. The provision for losses on unfunded commitments for the three months ended September 30, 2023 was a credit (negative expense) of $1.2 million, compared to a provision expense of $1.3 million for the three months ended September 30, 2022. The provision for losses on unfunded commitments for the nine months ended September 30, 2023 was a credit (negative expense) of $3.6 million, compared to a provision expense of $3.3 million for the nine months ended September 30, 2022. The analysis of the level and mix of unfunded commitments resulted in a decrease in the required reserve for such potential losses in the three and nine month periods of 2023 presented below.


	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, 2023	$	758	$	6,791	$	464	$	871	$	987	$	500	$	10,371
Provision (credit) charged to expense		146		(1,412)		33		108		(34)		(36)		(1,195)
Balance, September 30, 2023	$	904	$	5,379	$	497	$	979	$	953	$	464	$	9,176

Allowance for unfunded commitments
Balance, June 30, 2022	$	1,138	$	7,419	$	501	$	695	$	1,406	$	500	$	11,659
Provision (credit) charged to expense		(401)		967		17		553		146		33		1,315
Balance, September 30, 2022	$	737	$	8,386	$	518	$	1,248	$	1,552	$	533	$	12,974


	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, January 1, 2023	$	736	$	8,624	$	416	$	802	$	1,734	$	504	$	12,816
Provision (credit) charged to expense		168		(3,245)		81		177		(781)		(40)		(3,640)
Balance, September 30, 2023	$	904	$	5,379	$	497	$	979	$	953	$	464	$	9,176

Allowance for unfunded commitments
Balance, January 1, 2022	$	687	$	5,703	$	367	$	908	$	1,582	$	382	$	9,629
Provision (credit) charged to expense		50		2,683		151		340		(30)		151		3,345
Balance, September 30, 2022	$	737	$	8,386	$	518	$	1,248	$	1,552	$	533	$	12,974

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 (multi-family) 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.

The following table presents the collateral-dependent loans by class of loans:


	September 30, 2023				December 31, 2022
	Principal		Specific		Principal		Specific
	Balance		Allowance		Balance		Allowance

	(In Thousands)
One- to four-family residential construction	$	—	$	—	$	—	$	—
Subdivision construction		—		—		—		—
Land development		384		192		384		—
Commercial construction		—		—		—		—
Owner occupied one- to four- family residential		151		—		1,637		40
Non-owner occupied one- to four-family residential		—		—		—		—
Commercial real estate		10,126		1,200		1,571		—
Other residential		—		—		—		—
Commercial business		—		—		586		125
Industrial revenue bonds		—		—		—		—
Consumer auto		—		—		—		—
Consumer other		—		—		160		80
Home equity lines of credit		—		—		135		—

Total	$	10,661	$	1,392	$	4,473	$	245

Modified Loans. As indicated in Note 3, in March 2022, the FASB issued ASU 2022-02, Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. ASU 2022-02 eliminates the troubled debt restructuring recognition and measurement guidance and, instead, requires that an entity evaluate whether the loan modification represents a new loan or a continuation of an existing loan. It also enhances existing disclosure requirements and introduces new disclosure requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. ASU 2022-02 became effective for the Company on January 1, 2023.

Adoption of this ASU did not have a material impact on the Company’s results of operations, financial position or liquidity, but resulted in additional disclosure requirements related to gross charge offs by vintage year and the removal of troubled debt restructuring (“TDR”) disclosures, replaced by additional disclosures on the types of modifications of loans to borrowers experiencing financial difficulties. The Corporation has adopted this update prospectively.

Under ASU 2022-02, loan modifications are reported if concessions have been granted to borrowers that are experiencing financial difficulty. Information on these loan modifications originated after the effective date is presented according to the new accounting guidance. Reporting periods prior to the adoption of ASU 2022-02 present information on TDRs under the previous disclosure requirements.

The estimate of lifetime expected losses utilized in the allowance for credit losses model is developed using average historical loss on loans with similar risk characteristics, which includes losses from modifications of loans to borrowers experiencing financial difficulty. As a result, a change to the allowance for credit losses is generally not recorded upon modification. For modifications to loans made to borrowers experiencing financial difficulty that are adversely classified, the Company determines the allowance for credit losses on an individual basis, using the same process that it utilizes for other adversely classified loans. If collection efforts have begun and the modified loan is subsequently deemed collateral-dependent, the loan is placed on non-accrual status and the allowance for credit losses is determined based on an individual evaluation. If necessary, the loan is charged down to fair market value less sales costs.

The following tables show the composition of loan modifications made to borrowers experiencing financial difficulty by the loan portfolio and type of concessions granted during the three and nine months ended September 30, 2023. Each of the types of concessions granted comprised 2% or less of their respective classes of loan portfolios at September 30, 2023. During the three and nine months ended September 30, 2023, principal forgiveness of $13,000 and $52,000, respectively, was completed on consumer loans. A commercial real estate loan modified in the three months ended March 31, 2023, which totaled $21.6 million, was paid in full during the three months ended June 30, 2023. Additionally, a one- to four-family residential loan of $143,000 and a commercial business loan of $16,000 were paid in full during the three months ended September 30, 2023.


	Three Months Ended September 30, 2023
	Interest Rate		Term				Total
	Reduction		Extension		Combination		Modifications

		(In Thousands)
Construction and land development	$	—	$	—	$	—	$	—
One- to four-family residential		—		—		—		—
Other residential		—		—		—		—
Commercial real estate		—		—		—		—
Commercial business		—		—		—		—
Consumer		—		8		—		8
	$	—	$	8	$	—	$	8


	Nine Months Ended September 30, 2023
	Interest Rate		Term				Total
	Reduction		Extension		Combination		Modifications

		(In Thousands)
Construction and land development	$	—	$	—	$	1,673	$	1,673
One- to four-family residential		—		—		—		—
Other residential		—		—		—		—
Commercial real estate		—		77		20,895		20,972
Commercial business		—		—		—		—
Consumer		6		8		—		14
	$	6	$	85	$	22,568	$	22,659

The Company closely monitors the performance of loans to borrowers experiencing financial difficulty that are modified to understand the effectiveness of its modification efforts. The following table depicts the performance (under modified terms) at September 30, 2023 of loans that were modified during the nine months ended September 30, 2023:


	September 30, 2023
			30-89 Days		Over 90 Days
	Current		Past Due		Past Due		Total

		(In Thousands)
Construction and land development	$	1,673	$	—	$	—	$	1,673
One- to four-family residential		—		—		—		—
Other residential		—		—		—		—
Commercial real estate		12,433		—		8,539		20,972
Commercial business		—		—		—		—
Consumer		14		—		—		14
	$	14,120	$	—	$	8,539	$	22,659

TDRs by class are presented below as of December 31, 2022.


	December 31, 2022
	Accruing TDR Loans			Non-accruing TDR Loans			Total TDR Loans
	Number	Balance		Number	Balance		Number	Balance

	(In Thousands)
Construction and land development	—	$	—	—	$	—	—	$	—
One- to four-family residential	13		1,028	3		98	16		1,126
Other residential	—		—	—		—	—		—
Commercial real estate	—		—	2		1,571	2		1,571
Commercial business	—		—	—		—	—		—
Consumer	13		210	5		42	18		252
	26	$	1,238	10	$	1,711	36	$	2,949

The following table presents newly restructured loans, which were considered TDRs, during the three and nine months ended September 30, 2022, by type of modification:

Three Months Ended September 30, 2022

Total

Interest Only

Term

Combination

Modifications

(In Thousands)

Commercial real estate

—

Consumer

—


	Nine Months Ended September 30, 2022
							Total
	Interest Only		Term		Combination		Modifications

		(In Thousands)
Commercial real estate	$	—	$	—	$	247	$	247
Consumer		—		4		3		7
	$	—	$	4	$	250	$	254

At December 31, 2022, of the $2.9 million in TDRs, $1.7 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, 2022.

During the three and nine months ended September 30, 2022, $66,000 and $578,000 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.

Loan Risk Ratings. The nature and extent of impairments of modified loans, including those which have experienced a subsequent payment default, are considered in the determination of an appropriate level of the allowance for credit losses. 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, 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. The character and capacity of the borrower are strong, including reasonable project performance, good industry experience, liquidity and/or net worth. The 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 access 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.

The Loss category is used when loans are considered 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.

The following table presents a summary of loans by category and risk rating separated by origination and loan class as of September 30, 2023.


	Term Loans by Origination Year
													Revolving
	2023 YTD		2022		2021		2020		2019		Prior		Loans		Total

	(In Thousands)
One- to four-family residential construction
Satisfactory (1-4)	$	13,022	$	10,877	$	835	$	—	$	—	$	—	$	4,649	$	29,383
Watch (5)		—		—		—		—		—		—		—		—
Special Mention (6)		—		—		—		—		—		—		—		—
Classified (7-9)		—		—		—		—		—		—		—		—
Total		13,022		10,877		835		—		—		—		4,649		29,383

Subdivision construction
Satisfactory (1-4)		363		1,097		24,424		50		65		413		—		26,412
Watch (5)		—		—		—		—		—		—		—		—
Special Mention (6)		—		—		—		—		—		—		—		—
Classified (7-9)		—		—		—		—		—		—		—		—
Total		363		1,097		24,424		50		65		413		—		26,412

Construction and land development
Satisfactory (1-4)		16,283		15,588		5,649		3,693		7,389		4,788		859		54,249
Watch (5)		—		—		—		—		—		—		—		—
Special Mention (6)		—		—		—		—		—		—		—		—
Classified (7-9)		—		—		—		—		—		—		384		384
Total		16,283		15,588		5,649		3,693		7,389		4,788		1,243		54,633

Other construction
Satisfactory (1-4)		35,953		368,118		319,605		27,142		—		—		—		750,818
Watch (5)		—		—		—		—		—		—		—		—
Special Mention (6)		—		—		—		—		—		—		—		—
Classified (7-9)		—		—		—		—		—		—		—		—
Total		35,953		368,118		319,605		27,142		—		—		—		750,818

One- to four-family residential
Satisfactory (1-4)		55,875		335,152		208,093		110,425		62,448		122,613		476		895,082
Watch (5)		—		—		—		—		173		1,050		49		1,272
Special Mention (6)		—		—		—		—		—		—		—		—
Classified (7-9)		—		—		—		150		—		328		—		478
Total		55,875		335,152		208,093		110,575		62,621		123,991		525		896,832

Other residential
Satisfactory (1-4)		13,533		72,663		276,593		218,514		109,017		141,056		3,574		834,950
Watch (5)		—		—		—		—		—		10,423		—		10,423
Special Mention (6)		—		—		—		—		—		—		—		—
Classified (7-9)		—		—		—		—		—		—		—		—
Total		13,533		72,663		276,593		218,514		109,017		151,479		3,574		845,373

Commercial real estate
Satisfactory (1-4)		27,510		253,867		226,811		106,019		162,782		669,086		37,931		1,484,006
Watch (5)		—		—		—		—		—		5,377		—		5,377
Special Mention (6)		—		—		—		—		—		4,400		—		4,400
Classified (7-9)		—		—		—		—		—		10,132		—		10,132
Total		27,510		253,867		226,811		106,019		162,782		688,995		37,931		1,503,915

Commercial business
Satisfactory (1-4)		54,327		85,991		41,400		30,971		10,636		61,420		52,548		337,293
Watch (5)		—		—		—		—		—		1,376		—		1,376
Special Mention (6)		—		1,230		4,841		—		—		—		11,200		17,271
Classified (7-9)		—		—		—		—		—		—		—		—
Total		54,327		87,221		46,241		30,971		10,636		62,796		63,748		355,940

Consumer
Satisfactory (1-4)		14,008		13,726		7,170		3,374		1,161		13,268		120,640		173,347
Watch (5)		—		—		23		—		4		160		227		414
Special Mention (6)		—		—		—		—		—		—		—		—
Classified (7-9)		—		—		1		12		—		129		32		174
Total		14,008		13,726		7,194		3,386		1,165		13,557		120,899		173,935

Combined
Satisfactory (1-4)		230,874		1,157,079		1,110,580		500,188		353,498		1,012,644		220,677		4,585,540
Watch (5)		—		—		23		—		177		18,386		276		18,862
Special Mention (6)		—		1,230		4,841		—		—		4,400		11,200		21,671
Classified (7-9)		—		—		1		162		—		10,589		416		11,168
Total	$	230,874	$	1,158,309	$	1,115,445	$	500,350	$	353,675	$	1,046,019	$	232,569	$	4,637,241

The following table presents a summary of loans by category and risk rating separated by origination and loan class as of December 31, 2022.


	Term Loans by Origination Year
													Revolving
	2022		2021		2020		2019		2018		Prior		Loans		Total

	(In Thousands)
One- to four-family residential construction
Satisfactory (1-4)	$	21,885	$	7,265	$	1,391	$	—	$	—	$	—	$	3,308	$	33,849
Watch (5)		—		—		—		—		—		—		—		—
Special Mention (6)		—		—		—		—		—		—		—		—
Classified (7-9)		—		—		—		—		—		—		—		—
Total		21,885		7,265		1,391		—		—		—		3,308		33,849

Subdivision construction
Satisfactory (1-4)		4,478		25,864		800		203		134		588		—		32,067
Watch (5)		—		—		—		—		—		—		—		—
Special Mention (6)		—		—		—		—		—		—		—		—
Classified (7-9)		—		—		—		—		—		—		—		—
Total		4,478		25,864		800		203		134		588		—		32,067

Construction and land development
Satisfactory (1-4)		16,746		6,914		4,866		7,338		762		3,990		613		41,229
Watch (5)		—		—		—		—		—		—		—		—
Special Mention (6)		—		—		—		—		—		—		—		—
Classified (7-9)		—		—		—		—		—		—		384		384
Total		16,746		6,914		4,866		7,338		762		3,990		997		41,613

Other construction
Satisfactory (1-4)		113,512		446,125		176,340		21,713		—		—		—		757,690
Watch (5)		—		—		—		—		—		—		—		—
Special Mention (6)		—		—		—		—		—		—		—		—
Classified (7-9)		—		—		—		—		—		—		—		—
Total		113,512		446,125		176,340		21,713		—		—		—		757,690

One- to four-family residential
Satisfactory (1-4)		340,886		219,504		128,509		73,162		39,685		97,236		687		899,669
Watch (5)		—		—		—		179		88		1,341		57		1,665
Special Mention (6)		—		—		—		—		—		—		—		—
Classified (7-9)		—		—		158		—		—		1,832		79		2,069
Total		340,886		219,504		128,667		73,341		39,773		100,409		823		903,403

Other residential
Satisfactory (1-4)		83,822		133,648		168,232		142,630		122,614		123,538		3,939		778,423
Watch (5)		—		—		—		—		—		3,338		—		3,338
Special Mention (6)		—		—		—		—		—		—		—		—
Classified (7-9)		—		—		—		—		—		—		—		—
Total		83,822		133,648		168,232		142,630		122,614		126,876		3,939		781,761

Commercial real estate
Satisfactory (1-4)		221,341		171,484		109,939		203,426		185,682		577,216		36,658		1,505,746
Watch (5)		—		—		—		—		—		23,338		—		23,338
Special Mention (6)		—		—		—		—		—		—		—		—
Classified (7-9)		—		—		—		—		—		1,579		—		1,579
Total		221,341		171,484		109,939		203,426		185,682		602,133		36,658		1,530,663

Commercial business
Satisfactory (1-4)		45,349		66,258		39,645		15,505		9,309		65,307		64,088		305,461
Watch (5)		—		—		—		—		—		34		—		34
Special Mention (6)		—		—		—		—		—		—		—		—
Classified (7-9)		—		—		—		—		—		394		191		585
Total		45,349		66,258		39,645		15,505		9,309		65,735		64,279		306,080

Consumer
Satisfactory (1-4)		21,309		11,168		5,711		2,708		3,263		16,380		132,792		193,331
Watch (5)		—		28		—		7		—		160		100		295
Special Mention (6)		—		—		—		—		—		—		—		—
Classified (7-9)		—		11		9		—		2		248		359		629
Total		21,309		11,207		5,720		2,715		3,265		16,788		133,251		194,255

Combined
Satisfactory (1-4)		869,328		1,088,230		635,433		466,685		361,449		884,255		242,085		4,547,465
Watch (5)		—		28		—		186		88		28,211		157		28,670
Special Mention (6)		—		—		—		—		—		—		—		—
Classified (7-9)		—		11		167		—		2		4,053		1,013		5,246
Total	$	869,328	$	1,088,269	$	635,600	$	466,871	$	361,539	$	916,519	$	243,255	$	4,581,381

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, no 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, no 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, no 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, no 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, no goodwill was recorded.

The following table presents the balances of acquired loans related to the various FDIC-assisted transactions at September 30, 2023 and December 31, 2022.


					Sun Security
	TeamBank		Vantus Bank		Bank		InterBank		Valley Bank

	(In Thousands)
September 30, 2023
Carrying value of loans receivable	$	2,225	$	3,188	$	6,417	$	20,804	$	11,139

December 31, 2022
Carrying value of loans receivable	$	2,703	$	3,983	$	7,221	$	24,402	$	12,750

NOTE 8: OTHER REAL ESTATE OWNED AND REPOSSESSIONS

Major classifications of other real estate owned were as follows:


	September 30,		December 31,
	2023		2022

	(In Thousands)
Foreclosed assets held for sale and repossessions
One- to four-family construction	$	—	$	—
Subdivision construction		—		—
Land development		—		—
Commercial construction		—		—
One- to four-family residential		—		—
Other residential		—		—
Commercial real estate		—		—
Commercial business		—		—
Consumer		38		50

Foreclosed assets held for sale and repossessions		38		50

Other real estate owned not acquired through foreclosure		—		183

Other real estate owned and repossessions	$	38	$	233

At September 30, 2023, there was no other real estate owned not acquired through foreclosure, as two properties were sold during the nine months ended September 30, 2023. At December 31, 2022, other real estate owned not acquired through foreclosure included two properties, both of which were branch locations that were closed and held for sale.

At September 30, 2023 and December 31, 2022, residential mortgage loans totaling $27,000 and $173,000, respectively, were in the process of foreclosure.

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


	Three Months Ended
	September 30,
	2023		2022

	(In Thousands)
Net gains on sales of other real estate owned and repossessions	$	(22)	$	(5)
Valuation write-downs		—		—
Operating expenses, net of rental income		84		89
	$	62	$	84


	Nine Months Ended
	September 30,
	2023		2022

	(In Thousands)
Net gains on sales of other real estate owned and repossessions	$	(41)	$	(148)
Valuation write-downs		82		23
Operating expenses, net of rental income		222		438
	$	263	$	313

NOTE 9: PREMISES AND EQUIPMENT

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


	September 30,		December 31,
	2023		2022

	(In Thousands)
Land	$	39,617	$	39,622
Buildings and improvements		106,988		105,096
Furniture, fixtures and equipment		70,035		67,505
Operating leases right of use asset		6,900		7,397
		223,540		219,620
Less: accumulated depreciation		83,647		78,550
	$	139,893	$	141,070

Leases. In 2019, the Company adopted ASU 2016-02, Leases (Topic 842). Adoption of this ASU resulted in the Company initially recognizing a right of use asset and corresponding lease liability of $9.5 million. 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, 2023, the lease right of use asset value was $6.9 million and the corresponding lease liability was $7.1 million. As of December 31, 2022, the lease right of use asset value was $7.4 million and the corresponding lease liability was $7.6 million. At September 30, 2023, expected lease terms ranged from 0.6 years to 15.2 years with a weighted-average lease term of 7.0 years. The weighted-average discount rate at September 30, 2023 was 3.76%.

For the three months ended September 30, 2023 and 2022, lease expense was $446,000 and $408,000, respectively. For the nine months ended September 30, 2023 and 2022, lease expense was $1.3 million and $1.2 million, respectively. 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, 2023 and 2022 was $84,000 and $80,000, respectively. The total lease expense related to ATMs for the nine months ended September 30, 2023 and 2022 was $234,000 and $228,000, respectively.

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, 2023 and 2022, income recognized from these lease agreements was $326,000 and $300,000, respectively, and was included in occupancy and equipment expense. In the nine months ended September 30, 2023 and 2022, income recognized from these lease agreements was $975,000 and $890,000, respectively, and was included in occupancy and equipment expense.


	September 30, 2023		December 31, 2022

	(In Thousands)
Statement of Financial Condition
Operating leases right of use asset	$	6,900	$	7,397
Operating leases liability	$	7,146	$	7,599

	For the Three Months Ended
	September 30, 2023		September 30, 2022

	(In Thousands)
Statement of Income
Operating lease costs classified as occupancy and equipment expense (includes short-term lease costs and amortization of right of use asset)	$	446	$	408

Supplemental Cash Flow Information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	439	$	400
Right of use assets obtained in exchange for lease obligations:
Operating leases		—		618


	For the Nine Months Ended
	September 30, 2023		September 30, 2022

	(In Thousands)
Statement of Income
Operating lease costs classified as occupancy and equipment expense (includes short-term lease costs and amortization of right of use asset)	$	1,289	$	1,166

Supplemental Cash Flow Information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	1,234	$	1,141
Right of use assets obtained in exchange for lease obligations:
Operating leases		296		618

At September 30, 2023, future expected lease payments for leases with terms exceeding one year were as follows (In Thousands):


2023	$	356
2024		1,313
2025		1,297
2026		1,241
2027		1,173
2028		900
Thereafter		1,899

Future lease payments expected		8,179

Less: interest portion of lease payments		(1,033)

Lease liability	$	7,146

NOTE 10: DEPOSITS


	September 30,		December 31,
	2023		2022

	(In Thousands)
Time Deposits:
0.00% - 0.99%	$	112,109	$	280,784
1.00% - 1.99%		26,604		125,951
2.00% - 2.99%		48,463		381,547
3.00% - 3.99%		176,880		228,131
4.00% - 4.99%		624,054		4,883
5.00% and above		8,270		—
Total time deposits (weighted average rate 3.53% and 1.93%)		996,380		1,021,296
Non-interest-bearing demand deposits		942,177		1,063,588
Interest-bearing demand and savings deposits (weighted average rate 1.54% and 0.65%)		2,243,684		2,188,535
Brokered deposits (weighted average rate 5.06% and 4.03%)		669,307		411,491
Total Deposits	$	4,851,548	$	4,684,910

The Bank utilizes brokered deposits as an additional funding source. The aggregate amount of brokered deposits was approximately $669.3 million and $411.5 million at September 30, 2023 and December 31, 2022, respectively. At September 30, 2023 and December 31, 2022, brokered deposits included $300.0 million and $150.0 million, respectively, of purchased funds through the IntraFi Financial network. These IntraFi Financial deposits have a rate of interest that floats daily with an index of effective federal funds rate plus a spread. At September 30, 2023, there were additional brokered deposits totaling $133.4 million that had variable rates of interest that reset monthly or quarterly and there were other brokered deposits totaling $185.5 million that had fixed rates of interest but are callable at the Bank’s discretion. At September 30, 2023, approximately 35% of the Company’s total deposits were uninsured, when including deposit accounts of consolidated subsidiaries of the Company and collateralized deposits of unaffiliated entities. Excluding deposit accounts of the Company’s consolidated subsidiaries, approximately 16% of the Company’s total deposits were uninsured at September 30, 2023.

NOTE 11: ADVANCES FROM FEDERAL HOME LOAN BANK

At September 30, 2023 and December 31, 2022, there were no outstanding term advances from the Federal Home Loan Bank of Des Moines. At September 30, 2023 and December 31, 2022, there were outstanding overnight borrowings from the Federal Home Loan Bank of Des Moines, which are included in Short-Term Borrowings below in Note 12.

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


	September 30,		December 31,
	2023		2022

	(In Thousands)
Notes payable – Community Development Equity Funds	$	1,610	$	1,083
Securities sold under reverse repurchase agreements		58,172		176,843
Overnight borrowings from the Federal Home Loan Bank		82,500		88,500
	$	142,282	$	266,426

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, 2023		December 31, 2022
	Overnight and		Overnight and
	Continuous		Continuous

	(In Thousands)
Mortgage-backed securities – GNMA, FNMA, FHLMC	$	58,172	$	176,843

NOTE 13: SUBORDINATED NOTES

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 totaled $74,000 during each of the three months ended September 30, 2023 and 2022. Amortization of the debt issuance costs totaled $223,000 during each of the nine months ended September 30, 2023 and 2022. 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 5.93%.

At September 30, 2023 and December 31, 2022, subordinated notes are summarized as follows:


	September 30, 2023		December 31, 2022

	(In Thousands)
Subordinated notes	$	75,000	$	75,000
Less: unamortized debt issuance costs		496		719
	$	74,504	$	74,281

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,
	2023		2022
Tax at statutory rate	21.0	%	21.0	%
Nontaxable interest and dividends	(0.5)		(0.6)
Tax credits	(2.8)		(1.7)
State taxes	2.5		1.6
Other	1.3		0.2
	21.5	%	20.5	%


	Nine Months Ended September 30,
	2023		2022
Tax at statutory rate	21.0	%	21.0	%
Nontaxable interest and dividends	(0.5)		(0.5)
Tax credits	(2.5)		(1.7)
State taxes	1.9		1.7
Other	0.9		—
	20.8	%	20.5	%

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, 2018 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 (MAHC), 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 a total of $4.0 million for these tax years and additional amounts could be levied for subsequent tax years. The MAHC has received documents from each party but no hearings have occurred to date.

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.

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, 2023 and December 31, 2022:


			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, 2023
Available-for-sale securities
Agency mortgage-backed securities	$	260,489	$	—	$	260,489	$	—
Agency collateralized mortgage obligations		73,134		—		73,134		—
States and political subdivisions securities		52,390		—		52,390		—
Small Business Administration securities		61,935		—		61,935		—
Interest rate derivative asset		10,619		—		10,619		—
Interest rate derivative liability		(45,502)		—		(45,502)		—

December 31, 2022
Available-for-sale securities
Agency mortgage-backed securities	$	286,482	$	—	$	286,482	$	—
Agency collateralized mortgage obligations		78,474		—		78,474		—
States and political subdivisions securities		57,495		—		57,495		—
Small Business Administration securities		68,141		—		68,141		—
Interest rate derivative asset		11,061		—		11,061		—
Interest rate derivative liability		(42,097)		—		(42,097)		—

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, 2023 and December 31, 2022 as well as the general classification of such assets pursuant to the valuation hierarchy. There were no significant changes in the valuation techniques during the nine-month period ended September 30, 2023. 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, SOFR 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 no recurring Level 3 securities at September 30, 2023 or December 31, 2022.

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.

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 hierarchy in which such measurements fell at September 30, 2023 and December 31, 2022:


			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, 2023
Collateral-dependent loans	$	7,531	$	—	$	—	$	7,531

December 31, 2022
Collateral-dependent loans	$	785	$	—	$	—	$	785

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, 2023 and December 31, 2022, 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.

Collateral-Dependent Loans. 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 nine -months ended September 30, 2023 or the year ended December 31, 2022, are shown in the table above (net of reserves).

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.

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.

Held-to-Maturity Securities. Fair values for held-to-maturity securities are estimated based on quoted market prices of similar securities. For these securities, the Company obtains fair value measurements 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, SOFR yield curve, credit spreads and prices from market makers and live trading systems. These securities include U.S. government agency securities, mortgage-backed securities, state and municipal bonds and certain other investments.

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.

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 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, 2023						December 31, 2022
	Carrying		Fair		Hierarchy	Carrying		Fair		Hierarchy
	Amount		Value		Level	Amount		Value		Level

	(In Thousands)
Financial assets
Cash and cash equivalents	$	182,315	$	182,315	1	$	168,520	$	168,520	1
Held-to-maturity securities		196,716		166,090	2		202,495		177,765	2
Mortgage loans held for sale		5,678		5,678	2		4,811		4,811	2
Loans, net of allowance for credit losses		4,564,567		4,388,425	3		4,506,836		4,391,084	3
Interest receivable		19,366		19,366	3		19,107		19,107	3
Investment in FHLBank stock and other assets		36,038		36,038	3		30,814		30,814	3

Financial liabilities
Deposits		4,851,548		4,839,018	3		4,684,910		4,672,913	3
Short-term borrowings		142,282		142,282	3		266,426		266,426	3
Subordinated debentures		25,774		25,774	3		25,774		25,774	3
Subordinated notes		74,504		70,500	2		74,281		72,000	2
Interest payable		6,619		6,619	3		3,010		3,010	3

Unrecognized financial instruments (net of contractual value)
Commitments to originate loans		—		—	3		—		—	3
Letters of credit		79		79	3		73		73	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.

At September 30, 2023, the Company had six interest rate swaps and one interest rate cap totaling $109.9 million in notional amount with commercial customers, and six interest rate swaps and one interest rate cap with the same aggregate notional amount with third parties related to its program. In addition, the Company has one participation loan purchased totaling $8.7 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, 2022, the Company had six interest rate swaps and one interest rate cap totaling $107.0 million in notional amount with commercial customers, and six interest rate swaps and one interest rate cap with the same notional amount with third parties related to its program. In addition, at December 31, 2022, the Company had one participation loan purchased totaling $8.8 million, in which the lead institution has an interest rate swap with their customer and the economics of the counterparty swap are passed along to the Company through the loan participation. During the three months ended September 30, 2023 and 2022, the Company recognized net gains of $55,000 and $88,000, respectively, in non-interest income related to changes in the fair value of these swaps. During the nine months ended September 30, 2023 and 2022, the Company recognized net losses of $234,000 and net gains of $385,000, respectively, in non-interest income related to changes in the fair value of these swaps.

Fair Value Hedges

Interest Rate Swaps. As a strategy to maintain acceptable levels of exposure to the risk of changes in future cash flows due to interest rate fluctuations, in February 2023, the Company entered into interest rate swap transactions as part of its ongoing interest rate management strategies to hedge the risk of certain of its fixed rate brokered deposits. The total notional amount of the swaps was $95 million with a termination date of February 28, 2025. Under the terms of the swaps, the Company receives a fixed rate of interest of 4.65% and pays a floating rate of interest equal to USD-SOFR-COMPOUND plus a spread. The floating rate resets monthly and net settlements of interest due to/from the counterparty also occurs monthly. To the extent that the fixed rate of interest exceeds USD-SOFR-COMPOUND plus the spread, the Company receives net interest settlements which are recorded as a reduction of deposit interest expense. If USD-SOFR-COMPOUND plus the spread exceeds the fixed rate of interest, the Company is required to pay net settlements to the counterparty and record those net payments as interest expense on deposits.

Cash Flow Hedges

Interest Rate Swaps. 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 was 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, 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 was paid $45.9 million 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, is reflected in the Company’s stockholders’ equity as Accumulated Other Comprehensive Income and a portion of it will be 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. At September 30, 2023, the Company expected to have a sufficient amount of eligible variable rate loans to continue to accrete this interest income on the terminated swap 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.

In March 2022, 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 is $300 million, with a termination date of March 1, 2024. Under the terms of the swap, the Company receives a fixed rate of interest of 1.6725% and pays a floating rate of interest equal to one-month USD-LIBOR (or the equivalent replacement rate if USD-LIBOR rate is not available). The floating rate resets monthly and net settlements of interest due to/from the counterparty also occur monthly. The floating rate of interest was 5.431% as of September 30, 2023. To the extent the floating rate of interest exceeds the fixed rate of interest, the Company is required to pay net settlements to the counterparty and records those net payments as a reduction of interest income on loans. If the fixed rate of interest exceeds the floating rate of interest, the Company receives net interest settlements, which are recorded as loan interest income.

In July 2022, the Company entered into two additional interest rate swap transactions as part of its ongoing interest rate management strategies to hedge the risk of its floating rate loans. The notional amount of each swap is $200 million with an effective date of May 1, 2023 and a termination date of May 1, 2028. Under the terms of one swap, beginning in May 2023, the Company receives a fixed rate of interest of 2.628% and pays a floating rate of interest equal to one-month USD-SOFR OIS. Under the terms of the other swap, beginning in May 2023, the Company receives a fixed rate of interest of 5.725% and pays a floating rate of interest equal to one-month USD-Prime. In each case, the floating rate is reset monthly and net settlements of interest due to/from the counterparty also occur monthly. To the extent the fixed rate of interest exceeds the floating rate of interest, the Company receives net interest settlements, which is recorded as loan interest income. If the floating rate of interest exceeds the fixed rate of interest, the Company pays net settlements to the counterparty and records those net payments as a reduction of interest income on loans. At September 30, 2023, the USD-Prime rate was 8.50% and the one-month USD-SOFR OIS rate was 5.31663%.

The Company recorded loan interest income of $2.0 million on the terminated interest rate swap during each of the three months ended September 30, 2023 and 2022. The Company recorded loan interest income of $6.1 million on the terminated interest rate swap during each of the nine months ended September 30, 2023 and 2022. The Company recorded negative loan interest income related to the March 2022 interest rate swap of $2.8 million in the three months ended September 30, 2023 and recorded negative loan interest income of $428,000 in the three months ended September 30, 2022. The Company recorded negative loan interest income related to the March 2022 interest rate swap of $7.5 million in the nine months ended September 30, 2023 and recorded loan interest income of $610,000 in the nine months ended September 30, 2022. The Company recorded negative loan interest income related to the two July 2022 interest rate swaps of $2.7 million and $4.4 million in the three and nine months ended September 30, 2023, respectively. Net settlements on these two interest rate swaps began in May 2023.

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, 2023 and 2022, the Company recognized no non-interest income related to changes in the fair value of these derivatives.

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	2023		2022

		(In Thousands)
Derivatives designated as hedging instruments
Active interest rate swaps	Accrued expenses and other liabilities	$	34,357	$	31,277

Total derivatives designated as hedging instruments		$	34,357	$	31,277

Derivatives not designated as hedging instruments
Asset Derivatives
Interest rate products	Prepaid expenses and other assets	$	10,619	$	11,061

Total derivatives not designated as hedging instruments		$	10,619	$	11,061

Liability Derivatives
Interest rate products	Accrued expenses and other liabilities	$	11,145	$	10,820

Total derivatives not designated as hedging instruments		$	11,145	$	10,820

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


	Amount of Gain (Loss)
	Recognized in AOCI
	Three Months Ended September 30,
Cash Flow Hedges	2023		2022

	(In Thousands)
Terminated interest rate swap, net of income taxes	$	(1,580)	$	(1,580)
Active interest rate swaps, net of income taxes		(2,547)		(19,898)
	$	(4,127)	$	(21,478)


	Amount of Gain (Loss)
	Recognized in AOCI
	Nine Months Ended September 30,
Cash Flow Hedges	2023		2022

	(In Thousands)
Terminated interest rate swap, net of income taxes	$	(4,688)	$	(4,691)
Active interest rate swaps, net of income taxes		(2,323)		(25,570)
	$	(7,011)	$	(30,261)

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


	Three Months Ended September 30,
Cash Flow Hedges	2023				2022
	Interest		Interest		Interest		Interest
	Income		Expense		Income		Expense

	(In Thousands)
Total Interest Income	$	75,272	$	—	$	59,657	$	—
Total Interest Expense		—		28,534		—		6,759
	$	75,272	$	28,534	$	59,657	$	6,759

Terminated interest rate swap	$	2,047	$	—	$	2,047	$	—
Active interest rate swaps		(5,545)		—		(428)		—
	$	(3,498)	$	—	$	1,619	$	—


	Nine Months Ended September 30,
Cash Flow Hedges	2023				2022
	Interest		Interest		Interest		Interest
	Income		Expense		Income		Expense

	(In Thousands)
Total Interest Income	$	220,353	$	—	$	159,028	$	—
Total Interest Expense		—		72,285		—		14,034
	$	220,353	$	72,285	$	159,028	$	14,034

Terminated interest rate swap	$	6,076	$	—	$	6,076	$	—
Active interest rate swaps		(11,925)		—		610		—
	$	(5,849)	$	—	$	6,686	$	—

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 occur, such as the issuance of a formal directive, or if the Company’s credit rating is downgraded below a specified level.

At September 30, 2023, the termination value of derivatives with our derivative dealer counterparties (related to loan level swaps with commercial lending customers and an active interest rate swap to hedge risk related to the Company’s variable rate loans) in an overall net asset position, which included accrued interest but excluded any adjustment for nonperformance risk, related to these agreements was $240,000. The Company has minimum collateral posting thresholds with its derivative dealer counterparties. At September 30, 2023, the Company had given cash collateral to one derivative counterparty of $25.9 million to cover its net fair value position. This counterparty position included collateral from the counterparty of $11.3 million for commercial lending swaps, collateral from the Company of $36.2 million for interest rate swaps related to variable rate loans and collateral from the Company of $834,000 for swaps related to brokered deposits.

At December 31, 2022, the termination value of derivatives with our derivative dealer counterparties (related to loan level swaps with commercial lending customers) in a net asset position, which included accrued interest but excluded any adjustment for nonperformance risk, related to these agreements was $242,000. Additionally, 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 of $20.7 million to the derivative counterparty.

If the Company had breached any of these provisions at September 30, 2023 or December 31, 2022, it could have been required to settle its obligations under the agreements at the termination value. Under the collateral agreements between the parties, either party may choose to provide cash or securities to satisfy its collateral requirements.

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.

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) the remaining effects of the COVID-19 pandemic on general economic and financial market conditions and on public health; (iv) fluctuations in interest rates, the effects of inflation or a potential recession, whether caused by Federal Reserve actions or otherwise; (v) the impact of bank failures or adverse developments at other banks and related negative press about the banking industry in general on investor and depositor sentiment; (vi) slower economic growth caused by changes in energy prices, supply chain disruptions or other factors; (vii) 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; (viii) the possibility of realized or unrealized losses on securities held in the Company’s investment portfolio; (ix) the Company’s ability to access cost-effective funding and maintain sufficient liquidity; (x) fluctuations in real estate values and both residential and commercial real estate market conditions; (xi) the ability to adapt successfully to technological changes to meet customers’ needs and developments in the marketplace; (xii) 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; (xiii) legislative or regulatory changes that adversely affect the Company’s business; (xiv) changes in accounting policies and practices or accounting standards; (xv) 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; (xvi) costs and effects of litigation, including settlements and judgments; (xvii) competition; (xviii) the transition from LIBOR to new interest rate benchmarks; and (xix) 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 in the Company’s most recent Annual Report on Form 10-K, including, without limitation, those described under “Item 1A. Risk Factors,” subsequent Quarterly Reports on Form 10-Q and other documents filed or furnished from time to time by the Company with the SEC (which are available on our website at www.greatsouthernbank.com and the SEC’s website at www.sec.gov), could affect the Company’s financial performance and 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.

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

On January 1, 2021, the Company adopted the new accounting standard related to the allowance for credit losses. 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.

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 that 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 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 back to historical averages using a straight-line method. The forecast-adjusted loss rate is applied to the principal balance over the remaining contractual lives, adjusted for expected prepayments. The contractual term excludes expected extensions, renewals and modifications. 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.

See Note 6 “Loans and Allowance for Credit Losses” of the accompanying financial statements 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.

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.

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, 2023, 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, 2023, 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 the assumption of related deposits in the St. Louis market from Fifth Third Bank. Other identifiable deposit intangible assets that are subject to amortization are amortized on a straight-line basis over a period of seven years.

In April 2022, the Company, through its subsidiary Great Southern Bank, entered into a naming rights agreement with Missouri State University related to the main arena on the university’s campus in Springfield, Missouri. The terms of the agreement provide the naming rights to Great Southern Bank for a total cost of $5.5 million, to be paid over a period of seven years. The Company expects to amortize the intangible asset through non-interest expense over a period not to exceed 15 years.

At September 30, 2023, the amortizable intangible assets included the arena naming rights of $5.2 million, 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.

For purposes of testing goodwill for impairment, the Company uses 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.

Our regular annual impairment assessment occurs in the third quarter of each year. At September 30, 2023, the Company performed this annual review and concluded that no impairment of its goodwill or other intangible assets had occurred at September 30, 2023. While the Company believes no impairment of its goodwill or other intangible assets existed at September 30, 2023, 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.

A summary of goodwill and intangible assets is as follows:


	September 30,		December 31,
	2023		2022

	(In Thousands)
Goodwill – Branch acquisitions	$	5,396	$	5,396
Deposit intangibles
Fifth Third Bank (January 2016)		—		53
Arena Naming Rights (April 2022)		5,189		5,364
Intangibles		5,189		5,417
	$	10,585	$	10,813

Current Economic Conditions

Changes in economic conditions could cause the values of assets and liabilities recorded in the Company’s financial statements to change rapidly, resulting in material future adjustments to asset values, the allowance for credit losses, or capital that could negatively affect 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 low unemployment levels. The U.S. economy continued to operate at historically strong levels until the COVID-19 pandemic in March 2020, which severely affected tourism, labor markets, business travel, immigration and the global supply chain, among other areas. 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, sporting events, retail shops, personal services, and more. The pandemic is now less disruptive to the U.S. and global economies, with governments, households and businesses becoming increasingly adept at making adjustments for the virus.

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. The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), a fiscal relief bill passed by Congress and signed by the President in March 2020, injected approximately $3 trillion into the economy through direct payments to individuals and loans to small businesses intended to help keep employees on their payroll, fueling a historic bounce-back in economic activity.

Total fiscal support to the economy throughout the pandemic, including the CARES Act, the American Rescue Plan of March 2021, and several smaller fiscal packages, totaled well over $5 trillion. The amount of this support was equal to almost 25% of pre-pandemic 2019 GDP and approximately three times that provided during the global financial crisis of 2007-2008.

Additionally, the Federal Reserve acted decisively by slashing its benchmark interest rate to near zero and ensuring credit availability to businesses, households, and municipal governments. The Federal Reserve’s efforts largely insulated the financial system from the problems in the economy, a significant difference from the financial crisis of 2007-2008. Purchases of Treasury and agency mortgage-backed securities totaling $120 billion each month by the Federal Reserve commenced shortly after the pandemic began. In November 2021, the Federal Reserve began to taper its quantitative easing (QE), winding down its bond purchases with its final open market purchase conducted on March 9, 2022. The federal government deficit was $2.8 trillion in fiscal 2021, close to $1.38 trillion in fiscal 2022, and is expected to increase slightly to $1.4 trillion in fiscal 2023.

The Federal Reserve has been aggressively raising interest rates since early 2022, pushing the federal funds rate to more than 5.25%, its highest level in 22 years. The Fed's actions were motivated by surging inflation in 2021 caused by pandemic-fueled spending, which outpaced the ability of producers to supply goods and services after having been impacted by COVID-related shutdowns and clogged transportation systems. The Fed has made some headway in its attempt to tamp inflation down. The personal consumption expenditures (PCE) price index, the Federal Reserve's preferred measure of inflation, eased from its peak of 7.1% in June 2022 to 3.5% in August 2023, but core PCE, which excludes food and energy prices, has been slower to retreat and still sits at 3.9%, almost twice the Federal Reserve's target.

Overall, the U.S. economy strengthened in the third quarter of 2023, with estimates of real GDP growth ranging from 3% to close to 5% (on a seasonally adjusted annual rate). Economists have pushed back expectations of a mild recession but expect GDP growth to slow later this year or early next year, as consumers and businesses slow purchases and investments in the face of higher borrowing costs brought about by the Fed's rate hiking program. On an average annual basis, Moody’s projects growth to be 2.1% in 2023 and 1.3% in 2024 with growth returning to trend in 2025.

Recent data confirms a slowdown in some activity. Manufacturers report new orders for their products have fallen and the housing market has seen sales plummet over the past year as higher borrowing costs and still elevated prices erode affordability. The services sector, with increased demand for travel, entertainment, and dining out has been persistently solid, however, recent revisions to economic data show that households have been spending at a slower pace than previously reported. Additionally, real disposable income has slowed meaningfully during the past two months. These trends are expected to continue, slowing the economy in coming months.

Employment

The national unemployment rate remained unchanged for the month at 3.8% as of September 2023, ranging from 3.4% to 3.8% since March 2022. The number of unemployed individuals also increase slightly to 6.4 million as of September 2023, compared to 6.0 million in June 2023, with total employment increasing by 336,000 in September 2023, compared with the average monthly gain of 267,000 over the prior 12 months. In September 2023, employment gains occurred in leisure and hospitality; government; health care; professional, scientific, technical services; and social assistance. While the labor market remains strong, there are signs of softening. Wage growth has been moderating and, while layoffs are not rising yet, departure rates are down to pre-pandemic levels. Employers are cutting back on hours and are hiring fewer temporary workers, possibly an early sign that demand for labor is pulling back.

As of September 2023, the labor force participation rate (the share of working-age Americans employed or actively looking for a job) remained stable at 62.8%. Based on September 2023 information, the unemployment rate for the Midwest, where the Company conducts most of its business, has decreased from 3.6% in September 2022 to 3.4% in September 2023. Unemployment rates for

September 2023 in the states where the Company has branches or loan production offices were: Arizona at 4.0%, Arkansas at 2.9%, Colorado at 3.2%, Georgia at 3.4%, Illinois at 4.4%, Iowa at 3.0%, Kansas at 2.8%, Minnesota at 3.1%, Missouri at 2.9%, Nebraska at 2.1%, North Carolina at 3.4%, Oklahoma at 3.0%, and Texas at 4.1%. Of the metropolitan areas in which the Company does business, most are below the national unemployment rate of 3.8% for September 2023.

Single Family Housing

Existing home sales slipped to a seasonally adjusted annual rate of 3.96 million in September 2023, down 2% from 4 million in August 2023 and down 15.4% from 4.68 million in September 2022. In the Midwest, existing-home sales declined by 4.1% from the previous month to an annual rate of 930,000 in September 2023, and down 18.4% from one year ago.

The median existing-home sales price nationally as of September 2023 was $394,300, up 2.8% from the September 2022 median of $383,500. All four U.S. regions posted price increases with the median price in the Midwest recorded at $293,300, up 4.7% from September 2022. For the third consecutive month, home prices are up from a year ago, confirming the pressing need for more housing supply.

The inventory of unsold existing homes climbed 2.7% from the prior month to 1.13 million at the end of September 2023 but down 8.1% from one year ago of 1.23 million. Unsold inventory sits at a 3.4-month supply at the current sales pace, up from 3.3 months in August 2023 and 3.2 months in September 2022. A 5 to 6 month supply is typically required for a more balanced market.

Nationally, properties on average remained on the market for 21 days in September 2023, up from 20 days in August 2023 and 19 days in September 2022. Sixty-nine percent of homes sold in September were on the market for less than a month.

New home construction dropped precipitously after the financial crisis of 2007-2008 and has yet to fully recover. Issues contributing to the country’s current housing shortage include increasing labor and materials costs, availability of building materials, increased interest rates and tighter lending underwriting standards.

Sales of new single‐family houses in September 2023 were at a seasonally adjusted annual rate of 759,000, according to the U.S. Census Bureau and the Department of Housing and Urban Development. This is 12.3% above the revised August 2023 rate of 676,000 and 33.9% above the September 2022 estimate of 567,000.

The median sales price of new houses sold in September 2023 was $418,800, down from $477,700 in September 2022. The average sales price in September 2023 of $503,900 was down from $530,100 in September 2022. The seasonally‐adjusted estimate of new houses for sale at the end of September 2023 was 435,000. This represents a supply of 6.9 months at the current sales rate.

First-time buyers accounted for 27% of sales in September 2023, down from 29% in August 2023 and September 2022.

According to Freddie Mac, the average commitment rate for a 30-year, fixed-rate mortgage was 7.57% as of October 12, 2023 which is up from 7.49% the previous week and 6.92% one year ago.

Other Residential (Multi-Family) Housing and Commercial Real Estate

When demand in the multi-family market spiked in the first year of the pandemic, developers accelerated plans for new projects. Three years later, a good number of those developments are set to deliver this year. The national forecast sits at 554,000 new units to be delivered in 2023, the most new supply to hit the market since the mid-1980s. In addition, 15 markets are projected to hit new record deliveries in 2023 and Sun Belt locations make up 12 of those markets. These record deliveries are hitting at a time when demand remains weak, putting several of these 15 markets at significant risk of worsening fundamentals by the end of the year.

The supply/demand imbalance has pushed the national vacancy rate up 200 basis points from an all-time low of 4.7% in the third quarter of 2021 to 7.1% in the third quarter of 2023. The national vacancy rate is forecasted to finish 2023 in the mid 7% range, which would be 100 basis points higher than pre-pandemic levels. Our market areas reflected the following apartment vacancy levels as of September 2023: Springfield, Missouri at 4.4%, St. Louis at 10.0%, Kansas City at 7.6%, Minneapolis at 7.1%, Tulsa, Oklahoma at 8.4%, Dallas-Fort Worth at 9.4%, Chicago at 5.5%, Atlanta at 11.4%, Phoenix at 10.2%, Denver at 8.1% and Charlotte, North Carolina at 10.6%.

More than 1 million units were under construction at the end of the third quarter of 2023, with almost 450,000 units expected to deliver in 2024. However, the rising interest rate environment combined with a pullback in construction lending has seen some

developers unable to move forward on proposed projects, suggesting the beginning of a meaningful pause in deliveries towards the end of 2024 and into 2025. This pause could allow many overbuilt markets to absorb their current supply overhang and return to equilibrium more quickly.

The Midwest region now leads the nation in terms of rent growth and is projected to hold that lead throughout 2023. Midwest markets have avoided the sharp reversal of rent growth seen in Sun Belt locations as their construction pipelines remained modest during the pandemic. Deliveries in the Midwest in 2022 were only 5,500 units higher than what was delivered in 2019. That limited increase in new supply for the Midwest allowed those markets to be better balanced and avoid the dramatic surge and now pullback in rent growth as was experienced in Sun Belt locations.

Economic uncertainty continues to hold back household formation, which is dampening middle market demand. Conversion of office buildings to multi-family units has been a trending topic in commercial real estate circles as hybrid work arrangements have diminished office utilization. However, the number of conversion projects that are actually moving forward at this time remains very low.

Although factors such as declining household formations, rising supply deliveries, and weakening demand may present temporary obstacles, the long-term issue of a major housing shortage remains in our nation. Thus, rent growth is anticipated to rebound above historical averages, and multi-family should maintain its place as investors’ choice.

The Office sector remains weak in 2023 with office vacancy rates continuing their climb to a record 13.4% nationally, compared to 12.5% at September 30, 2022, while our market areas reflected the following vacancy levels at September 30, 2023: Springfield, Missouri at 4.1%, St. Louis at 10.5%, Kansas City at 11.8%, Minneapolis at 11.2%, Tulsa, Oklahoma at 11.0%, Dallas-Fort Worth at 17.8%, Chicago at 16.2%, Atlanta at 15%, Denver at 16.1%, Phoenix at 15.9% and Charlotte, North Carolina at 12.8%. So far in 2023, tenants have vacated nearly 60 million square feet (SF), putting 2023 on pace for the largest amount of negative net absorption on record. Total occupancy is now at its lowest level since the first quarter of 2017, despite office-using employment being over 11% higher. To add to this, the quantity of space that is formally occupied but nevertheless available for lease has risen by more than 40 million SF since mid-2020. Recent market trends suggest that stagnant demand is likely to linger and that space-per-worker requirements could shrink even further. Leasing data for the most recent four quarters shows the volume of new leasing activity to be 15-20% below pre-pandemic norms, with the average size of a new lease shrinking by a similar amount. Two factors contributing to this trend are large tenants moving into smaller spaces when their existing leases expire and smaller tenants choosing to relocate rather than renew, pushing the market toward projects with smaller lease space requirements.

Through the first three quarters of 2023, about 30 million SF in net new office inventory has come online, further exacerbating vacancy. Another 20 million SF is expected before the end of 2023, though construction delays associated with rising costs have already pushed a number of projects into 2024. The total of just over 50 million SF would be in line with net annual deliveries since 2015. Another 45 million SF is expected in 2024, most of it in the first half of the year. By 2025, however, supply pressure should moderate quickly. Construction starts have been modest throughout the pandemic era and are now slowing rapidly, due in part to a difficult lending environment.

Despite growing concerns surrounding rising costs and a potential recession, resilient demand from a diverse array of sectors, coupled with a below-average pace of store closures, resulted in another period of positive expansion for the U.S. retail sector in the third quarter 2023.

Although a pullback in leasing activity has occurred, a significant slowdown in move-outs has contributed to consistent demand growth across the U.S. retail sector, which has now recorded 11 consecutive quarters of positive net absorption. Approximately 53.9 million square feet of retail space has been absorbed across the U.S. over the past year, about 90% of which has flowed into the general retail or neighborhood center segments.

Availabilities are now at record-low levels within small to mid-sized centers and freestanding single-tenant properties. On the other hand, availabilities within the mall segment (which consists of regional and super-regional malls as well as lifestyle centers) have continued to increase since the pandemic. However, there is significant variation in performance across the mall segment, with 4 & 5 Star malls and lifestyle centers seeing fundamentals improve over the past year, while malls rated 3 Star and below continue to see vacancies rise. This difference is likely to persist, as numerous mall-based retailers such as Bath and Body Works, Victoria's Secret, and Macy's have announced plans to move more stores out of malls and into open-air neighborhood and community centers with stronger foot traffic.

Despite longstanding concerns of a softening economy and eventual pullback in consumer spending, U.S. retail space markets have remained resilient through the first three quarters of the year thanks to steady demand from a diverse array of sectors, a significant pullback in store closures, and minimal new supply.

On a cautionary note, U.S. consumer spending will potentially take center stage over the next few months following the depletion of $2.1 trillion in excess economic relief savings and increased consumer credit card debt. As consumers increasingly rely on credit and contend with higher interest rates, the consumer's financial health appears to be deteriorating. Since their spending contributes to roughly two-thirds of the U.S. GDP, instability here could send reverberations across the retail sector in 2024.

During the third quarter of 2023, national retail vacancy rates remained steady at 4.1% while our market areas reflected the following vacancy levels: Springfield, Missouri at 3.3%, St. Louis at 4.6%, Kansas City at 4.3%, Minneapolis at 2.9%, Tulsa, Oklahoma at 2.7%, Dallas-Fort Worth at 4.4%, Chicago at 4.9%, Atlanta at 3.6%, Phoenix at 4.6%, Denver at 4.1%, and Charlotte, North Carolina at 2.9%.

U.S. industrial market performance continues to downshift as 2024 approaches. Accelerating completions of new industrial developments have caused the U.S. industrial vacancy rate to inch up from a record low of 3.9% in mid-2022, to 5.3% as of 3^rd quarter 2023. While that is still comfortably below the market's average vacancy rate of 7.3% over the past 20 years, U.S. industrial net absorption has also slowed to a crawl in 2023 with the slowdown broad-based across most market areas. Not only was 3^rd quarter absorption down more than 75% from the booming levels recorded in 2021 and 2022, it was the weakest third-quarter recorded since 2012. Our market areas reflected the following vacancy levels: Springfield, Missouri at 1.1%, St. Louis at 4.1%, Kansas City at 4.7%, Minneapolis at 3.6%, Tulsa, Oklahoma at 3.1%, Dallas-Fort Worth at 7.8%, Chicago at 4.6%, Atlanta at 5.4%, Phoenix at 7.2%, Denver at 6.9% and Charlotte, North Carolina at 5.5%.

After rebuilding inventories during 2022, tenant retailers and wholesalers are pausing further inventory accumulation out of caution over the economic outlook, causing U.S. imports to decline from record highs. A swift recovery appears unlikely, with higher interest rates still weighing on the economy and posing downside risks for net absorption through 2024. As higher interest rates keep home sales depressed, companies with sales tied to the housing market have shed the most space. Tenants including Bed Bath & Beyond, Ashley Furniture, American Building Supply, and Big Lots have all closed distribution centers larger than 500,000 SF since the beginning of 2023. In June 2023, The Home Depot announced plans to cut supply chain costs by $500 million throughout 2024. However, on net, the industrial tenant base is still growing.

Amazon sales have been rising by double digits, and the company is slowing the distribution center closures it began in early 2022. The recent slowdown in imports has also helped major retailers including Walmart, Target, and Costco clear excess inventories accumulated last year. Drags on household finances including elevated gas prices, and multi-decade highs in credit card interest rates may need to abate before consumer goods spending can reaccelerate and give retailers the confidence to resume distribution network expansions. Regardless, large distribution center expansions by companies that sell necessities consumers still generally purchase in high volume despite inflation, including Dollar General, Sam's Club, and auto parts suppliers, may continue to help offset distribution center closures and keep net absorption positive in the remainder of 2023.

Higher interest rates have also caused construction starts on new industrial projects to plummet this year. Given the average construction time of 14 months for large industrial projects, this recent pullback in starts signals that by late 2024, the number of new projects completing construction will begin to rapidly decline. This may well set the stage for vacancies to stabilize or begin tightening again in late 2024, and for rent growth to accelerate thereafter.

Our management will continue to monitor regional, national, and global economic indicators such as unemployment, GDP, housing starts and prices, consumer sentiment, commercial real estate price indices and 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 continues to monitor and respond to the effects of the COVID-19 pandemic. 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 closely monitored to make informed operational decisions, if necessary. COVID-19 infection rates currently are low in our markets and the CDC has removed restrictions that were previously in place.

Our business is currently operating normally, similar to operations prior to the onset of the COVID-19 pandemic. Customers can conduct their banking business using our banking center network, online and mobile banking services, ATMs, Telephone Banking, and online account opening services.

General

The profitability of the Company and, more specifically, the profitability of its primary subsidiary, the Bank, depends primarily on its 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 increased $67.4 million, or 1.2%, from $5.68 billion at December 31, 2022, to $5.75 billion at September 30, 2023. Details of the current period changes in total assets are provided below, under “Comparison of Financial Condition at September 30, 2023 and December 31, 2022.”

Loans. Net outstanding loans increased $57.7 million, or 1.3%, from $4.51 billion at December 31, 2022, to $4.56 billion at September 30, 2023. The increase was primarily in other residential (multi-family) loans and commercial business loans. This increase was partially offset by a decrease in commercial real estate loans. 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, we cannot be assured that our loan growth will match or exceed the average level of growth achieved in prior 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 other residential (multi-family) and commercial business, 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, Charlotte, Chicago, Dallas, Denver, Omaha, Phoenix and Tulsa. Stringent underwriting standards and monitoring help assure the Company’s portfolio quality. All new loan originations that exceed lender approval authorities are subject to review and approval by Great Southern’s loan committee. Generally, the Company considers commercial construction, consumer, other residential (multi-family) 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 other residential (multi-family), 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, other than home equity loans, are primarily secured by new or used motor vehicles and these loans are also subject to certain underwriting standards to assure portfolio quality. In 2019, the Company discontinued 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 both September 30, 2023 and December 31, 2022, 0.2% of our owner occupied one-to four-family residential loans had loan-to-value ratios above 100% at origination. At September 30, 2023 and December 31, 2022, an estimated 0.1% and 0.2%, respectively, of our non-owner occupied one- to four-family residential loans had loan-to-value ratios above 100% at origination.

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 improved repayment ability 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 has prepared for discontinuation of the 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. With the cessation of all remaining LIBOR indices as of June 30, 2023, the Company implemented its LIBOR fallback plan for all remaining LIBOR-based loans, replacing the LIBOR indices with various SOFR-based indices consistent with the regulations of the Board of Governors of the Federal Reserve System implementing the Adjustable Interest Rate (LIBOR) Act. All impacted customers were notified and the Company’s systems were updated with the applicable indices as of July 1, 2023.

Available-for-sale Securities. In the nine months ended September 30, 2023, available-for-sale securities decreased $42.6 million, or 8.7%, from $490.6 million at December 31, 2022, to $447.9 million at September 30, 2023. A decrease in the market value of these securities accounted for $22.0 million of this balance decrease while the rest of the decrease related to normal monthly payments on mortgage-backed securities and collateralized mortgage obligations. The available-for-sale securities portfolio had a gross unrealized loss of $84.3 million at September 30, 2023. As of that date, the portfolio had a tax-equivalent yield of approximately 2.70% and an estimated effective duration of five to six years.

Held-to-maturity Securities. In the nine months ended September 30, 2023, held-to-maturity securities decreased $5.8 million, or 2.9%, from $202.5 million at December 31, 2022, to $196.7 million at September 30, 2023. The held-to-maturity securities portfolio had a gross unrealized loss of $30.6 million at September 30, 2023, that was not included in the Company’s total capital balance. As of September 30, 2023, the portfolio had a tax-equivalent yield of approximately 2.63% and an estimated effective duration of five to six years. If these held-to-maturity unrealized losses were included in capital (net of taxes), this would have decreased total stockholder’s equity by $23.1 million at September 30, 2023. This amount was equal to 4.3% of total stockholders’ equity of $531.7 million.

Deposits. The Company attracts deposit accounts through its retail branch network, correspondent banking and corporate services areas, internet channels 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, 2023, total deposit balances increased $166.6 million, or 3.6%. Compared to December 31, 2022, transaction account balances decreased $66.3 million, or 2.0%, to $3.19 billion at September 30, 2023, and retail certificates of deposit decreased $24.9 million, or 2.4%, to $996.4 million at September 30, 2023. The decrease in transaction accounts was primarily a result of a decrease in non-interest-bearing accounts and various NOW accounts, as small businesses and individuals appear to be drawing down their balances to pay for goods and services, or are seeking a higher-yielding alternative. Retail time deposits decreased due to decreases in national time deposits initiated through internet channels and also a decrease in retail certificates generated through the Company’s banking center network. Time deposits initiated through internet channels are no longer a significant part of the Company’s total deposits. Brokered deposits, including IntraFi program purchased funds, were $669.3 million and $411.5 million at September 30, 2023 and December 31, 2022, respectively. The Company uses brokered deposits of select maturities from time to time to supplement its various funding channels and to manage interest rate risk.

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 obtain 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. See “Results of Operations and Comparison for the Three and Nine Months Ended September 30, 2023 and 2022 – Liquidity” below for further information on funding sources.

Securities sold under reverse repurchase agreements with customers. Securities sold under reverse repurchase agreements with customers decreased $118.6 million from $176.8 million at December 31, 2022 to $58.2 million at September 30, 2023. These balances fluctuate over time based on customer demand for this product.

Short-term borrowings and other interest-bearing liabilities. The Company’s FHLBank term advances were $-0- at both September 30, 2023 and December 31, 2022. At September 30, 2023 and December 31, 2022, overnight borrowings from the FHLBank were $82.5 million and $88.5 million, respectively, which are included in short term borrowings.

Short term borrowings and other interest-bearing liabilities decreased $5.5 million from $89.6 million at December 31, 2022 to $84.1 million at September 30, 2023. The Company may utilize both overnight and other short-term borrowings depending on relative interest rates.

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 SOFR, three-month SOFR 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”).

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 3 and a 1.00% decrease on March 16. At December 31, 2021, the Federal Funds rate was 0.25%. In 2022, the FRB implemented rate increases of 0.25%, 0.50%, 0.75%, 0.75%, 0.75%, 0.75% and 0.50% in March, May, June, July, September, November and December 2022, respectively. At December 31, 2022, the Federal Funds rate was 4.50%. In 2023, the FRB implemented rate increases of 0.25%, 0.25%, 0.25% and 0.25% in February, March, May and July 2023, respectively. At September 30, 2023 the Federal Funds rate was 5.50%. Financial markets now expect the possibility of significant further increases in Federal Funds interest rates in the latter months of 2023 and into 2024 to be less likely, with interest rate decisions being made at each FRB meeting based on economic data available at the time. However, the FRB has further indicated, and financial markets now have begun to price in, that it is likely that the Federal Funds interest rate will remain near this peak level for many months before any rate cuts occur. Great Southern’s loan portfolio includes loans ($1.27 billion at September 30, 2023) tied to various SOFR indices that will be subject to adjustment at least once within 90 days after September 30, 2023. All of these loans had interest rate floors at various rates. Great Southern also has a portfolio of loans ($790.9 million at September 30, 2023) tied to a “prime rate” of interest that will adjust immediately or within 90 days of a change to the “prime rate” of interest. All of these loans had interest rate floors at various rates. Great Southern also has a portfolio of loans ($6.7 million at September 30, 2023) tied to an AMERIBOR index that will adjust immediately or within 90 days of a change to the “prime rate” of interest. All of these loans had interest rate floors at various rates. At September 30, 2023, nearly all of these SOFR and “prime rate” loans had fully-indexed rates that were at or above their floor rate and so are expected to move fully with future market interest rate increases.

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 SOFR indices or the “prime rate” 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. There may also be a negative impact on the Company’s net interest income if the Company is unable to significantly lower its funding costs due to a highly competitive rate environment, although interest rates on assets may decline further. Conversely, market interest rate increases would normally result in increased interest rates on our SOFR-based, AMERIBOR-based and prime-based loans.

As of September 30, 2023, Great Southern’s interest rate risk models indicate that, generally, rising interest rates are expected to have a slightly positive impact on the Company’s net interest income within the next twelve months, while declining interest rates are expected to have a slightly negative impact on net interest income within the next twelve months. The negative impact of a falling Federal Funds rate and other market interest rates also falling could be more pronounced if we are not able to decrease non-maturity deposit rates accordingly. 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 relatively minor changes in market interest rates because our portfolios are relatively well-matched in a twelve-month horizon.

In a situation where market interest rates increase significantly in a short period of time, our net interest margin increase may be more pronounced in the very near term (first one to three months), due to fairly rapid increases in SOFR interest rates and “prime” interest rates. 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 SOFR interest rates and “prime” interest rates. In the subsequent months, we expect that net interest margin would stabilize and begin to improve, as renewal interest rates on maturing time deposits would be expected to decrease compared to the then-current rates paid on those products.

During 2020, we did experience some compression of our net interest margin percentage due to Federal Fund rate cuts 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, and net interest margin remained lower than our historical average in 2021. LIBOR interest rates decreased significantly in 2020 and remained very low in 2021, putting pressure on loan yields, and strong pricing competition for loans and deposits remained in most of our markets.

Beginning in March 2022, market interest rates, including LIBOR interest rates, SOFR interest rates and “prime” interest rates, began to increase rapidly. This resulted in increasing loan yields and expansion of our net interest income and net interest margin throughout 2022 and into the first three months of 2023. In 2023, market interest rate increases have moderated and loan yield increases have also moderated in line with market rates. However, there has been increased competition for deposits and other sources of funding, resulting in higher costs for those funds. This has been especially true since early March 2023. 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 below, under “Results of Operations and Comparison for the Three and Nine Months Ended September 30, 2023 and 2022.”

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 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 became fully implemented on January 1, 2019.

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.

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” (“CBLR”) of between 8 and 10 percent. Any qualifying depository institution or its holding company that exceeds the CBLR 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. Currently, the CBLR is 9.0%. The Company and the Bank have chosen not to utilize the new CBLR 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.

Business Initiatives

Since early 2022, Great Southern has been preparing to convert to a new core banking platform (New System) to be delivered by a third-party vendor. As previously disclosed, the migration to the New System, originally scheduled for the third quarter of 2023, has been delayed to mid-2024. Certain contractual disputes have arisen between Great Southern and the third-party vendor. While discussions are ongoing between the parties, there is no assurance that a resolution will be achieved. In the meantime, Great Southern expects to continue operations with its current core banking provider, which will allow Great Southern to offer its full array of products and services.

In September 2023, in Springfield, Missouri, the Company opened Great Southern Express, a modern four-lane drive-through center using only interactive teller machine (ITM) technology to serve customers. ITMs, also known as video remote tellers, offer an ATM-like interface, but with the enhancement of a video screen that allows customers to speak directly to a service representative in real time and in a highly personal manner during extended business hours seven days a week. Nearly any teller transaction that can be performed in the traditional drive-thru can be performed at an ITM, including cashing a check to the penny. ITMs provide convenience and enhanced access for customers, while creating greater operational efficiencies for the Bank.

Also in the Springfield market, after a thorough evaluation, at the close of business on January 12, 2024, the banking center at 600 West Republic Road will be consolidated into the Great Southern banking center located at 2945 W. Republic Road, a short distance away. After the West Republic Road location closes, an on-site ITM will be available there indefinitely for customers’ convenience.

Headquartered in Springfield, Missouri, Great Southern offers a broad range of banking services to customers. The Company operates 90 retail banking centers in Missouri, Iowa, Kansas, Minnesota, Arkansas and Nebraska and commercial lending offices in Atlanta; Charlotte, North Carolina; Chicago; Dallas; Denver; Omaha, Nebraska; Phoenix and Tulsa, Oklahoma. The common stock of Great Southern Bancorp, Inc. is listed on the Nasdaq Global Select Market under the symbol "GSBC."

Comparison of Financial Condition at September 30, 2023 and December 31, 2022

During the nine months ended September 30, 2023, the Company’s total assets increased by $67.4 million to $5.75 billion. The increase was primarily in interest-bearing deposits in other financial institutions and loans.

Cash and cash equivalents were $182.3 million at September 30, 2023, an increase of $13.8 million, or 8.2%, from $168.5 million at December 31, 2022. This increase was primarily due to a $26.5 million increase in interest-bearing deposits in the Federal Reserve Bank.

The Company’s available-for-sale securities decreased $42.6 million, or 8.7%, compared to December 31, 2022. The decrease was primarily due to a decrease in the market value of these available-for-sale securities as a result of increases in market interest rates and by normal monthly payments received related to the portfolio of mortgage-backed securities and collateralized mortgage obligations. The available-for-sale securities portfolio was 7.8% of total assets at September 30, 2023 compared to 8.6% at December 31, 2022.

Held-to-maturity securities were $196.7 million at September 30, 2023, a decrease of $5.8 million, or 2.9%, from $202.5 million at December 31, 2022. The held-to-maturity securities portfolio was 3.4% and 3.6% of total assets at September 30, 2023 and December 31, 2022, respectively.

Net loans increased $57.7 million from December 31, 2022, to $4.56 billion at September 30, 2023. This increase was primarily in other residential (multi-family) loans ($64 million increase) and commercial business loans ($50 million increase), which was partially offset by a decrease in commercial real estate loans ($27 million decrease). Loan origination volume in the nine months ended September 30, 2023 significantly decreased compared to the origination volume that occurred in 2021 and most of 2022 due to the increase in market interest rates that began in late 2022 and continued into 2023. In addition, the pace of loan payoffs prior to maturity has slowed in the latter half of 2022 and into 2023 due to the significant increase in market rates of interest. The Company did experience a few large loan payoffs in the three months ended September 30, 2023, as completed projects were sold or the borrower paid off our loan by refinancing the debt elsewhere with long-term financing.

Total liabilities increased $68.8 million, from $5.15 billion at December 31, 2022 to $5.22 billion at September 30, 2023. This increase was primarily due to an increase in deposits ($167 million increase), which was partially offset by a reduction in securities sold under reverse repurchase agreements with customers ($119 million decrease).

Total deposits increased $166.6 million, or 3.6%, to $4.85 billion at September 30, 2023. Total checking account balances decreased $66.3 million, from $3.25 billion at December 31, 2022 to $3.19 billion at September 30, 2023. Total interest-bearing checking accounts increased $55.1 million while non-interest-bearing checking accounts decreased $121.4 million. Retail certificates of deposit decreased $24.9 million compared to December 31, 2022, to $996.4 million at September 30, 2023. Customer retail time deposits initiated through our banking center network increased $8.6 million and time deposits initiated through our national internet network decreased $31.9 million. Brokered deposits increased $257.8 million to $669.3 million at September 30, 2023, compared to $411.5 million at December 31, 2022. Brokered deposits were utilized to fund growth in outstanding loans and to offset reductions in balances in other deposit categories. The Company has the capacity to further expand its use of brokered deposits if it chooses to do so. The market remains extremely competitive for both time deposits and non-time deposits. The Company attempts to retain its non-brokered deposits, but at times will utilize more brokered deposits and overnight FHLBank borrowings when market rates paid on non-brokered deposits are very high.

Securities sold under reverse repurchase agreements with customers decreased $118.6 million from $176.8 million at December 31, 2022 to $58.2 million at September 30, 2023. These balances fluctuate over time based on customer demand for this product. In 2023, some customers elected to move funds from these repurchase accounts into other types of deposit accounts offered by the Bank that included deposit insurance coverage through the IntraFi deposit program.

Short-term borrowings and other interest-bearing liabilities decreased $5.5 million from $89.6 million at December 31, 2022 to $84.1 million at September 30, 2023. At September 30, 2023, $82.5 million of this total was overnight borrowings from the FHLBank, which was used to fund increases in outstanding loans.

Total stockholders’ equity decreased $1.4 million, from $533.1 million at December 31, 2022 to $531.7 million at September 30, 2023. Stockholders’ equity decreased due to repurchases of the Company’s common stock totaling $19.5 million and dividends declared on common stock of $14.4 million. Accumulated other comprehensive income/loss decreased $23.4 million (net loss increased) during the nine months ended September 30, 2023, due to decreases in the fair value of available-for-sale investment securities and cash flow hedges, as a result of increased market interest rates. Partially offsetting these decreases were net income of $54.7 million for the nine months ended September 30, 2023 and a $1.3 million increase due to stock option exercises.

Results of Operations and Comparison for the Three and Nine Months Ended September 30, 2023 and 2022

General

Net income was $15.9 million for the three months ended September 30, 2023 compared to $18.1 million for the three months ended September 30, 2022. This decrease of $2.2 million, or 12.4%, was primarily due to a decrease in net interest income of $6.2 million, or 11.6% and an increase in non-interest expense of $799,000, or 2.3%, partially offset by a decrease in provision for credit losses on loans and unfunded commitments of $4.5 million, or 136.0%, and a decrease in income tax expense of $327,000, or 7.0%.

Net income was $54.7 million for the nine months ended September 30, 2023 compared to $53.4 million for the nine months ended September 30, 2022. This increase of $1.3 million, or 2.5%, was primarily due to an increase in net interest income of $3.1 million, or 2.1%, and a decrease in provision for credit losses on loans and unfunded commitments of $7.5 million, or 140.0%. The provision for credit losses on loans decreased $500,000, while the provision for credit losses on unfunded commitments decreased $7.0 million.

These items were partially offset by an increase in non-interest expense of $5.7 million, or 5.8%, a decrease in non-interest income of $3.0 million, or 11.2%, and an increase in income tax expense of $570,000, or 4.1%.

Total Interest Income

Total interest income increased $15.6 million, or 26.2%, during the three months ended September 30, 2023 compared to the three months ended September 30, 2022. The increase was due to a $14.8 million increase in interest income on loans and an $814,000 increase in interest income on investment securities and other interest-earning assets. Interest income from loans increased during the three months ended September 30, 2023 compared to the same period in 2022 due to higher average balances and higher average rates of interest. Interest income from investment securities and other interest-earning assets increased during the three months ended September 30, 2023 compared to the same period in 2022 due to higher average rates of interest and higher average balances of other interest-earning assets, partially offset by decreased average balances of investment securities.

Total interest income increased $61.3 million, or 38.6%, during the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022. The increase was due to a $57.9 million increase in interest income on loans and a $3.5 million increase in interest income on investment securities and other interest-earning assets. Interest income from loans increased during the nine months ended September 30, 2023 compared to the same period in 2022 due to higher average balances and higher average rates of interest. Interest income from investment securities and other interest-earning assets increased during the nine months ended September 30, 2023 compared to the same period in 2022 due to higher average rates of interest and higher average balances of investment securities, partially offset by decreased average balances of other interest-earning assets.

Interest Income – Loans

During the three months ended September 30, 2023 compared to the three months ended September 30, 2022, interest income on loans increased $13.1 million due to higher average interest rates on loans. The average yield on loans increased from 4.79% during the three months ended September 30, 2022, to 5.92% during the three months ended September 30, 2023. This increase was primarily due to the repricing of floating rate loans in the second half of 2022 and into 2023 as market interest rates increased significantly and the origination of new fixed-rate loans at higher market interest rates. Interest income on loans also increased $1.7 million as the result of higher average loan balances, which increased from $4.48 billion during the three months ended September 30, 2022, to $4.62 billion during the three months ended September 30, 2023. The Company continued to originate loans at a pace similar to prior periods through the first nine months of 2022, and overall loan repayments slowed in 2022 and 2023 compared to the level of repayments in 2021. Since the end of 2022, loan originations and net loan growth have been muted.

During the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022, interest income on loans increased $47.0 million due to higher average interest rates on loans. The average yield on loans increased from 4.46% during the nine months ended September 30, 2022, to 5.84% during the nine months ended September 30, 2023. This increase was primarily due to the repricing of floating rate loans in the second half of 2022 and into 2023 as market interest rates increased significantly and the origination of new fixed-rate loans at higher market interest rates. Interest income on loans also increased $10.9 million as the result of higher average loan balances, which increased from $4.31 billion during the nine months ended September 30, 2022, to $4.62 billion during the nine months ended September 30, 2023.

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. As previously disclosed by the Company, on March 2, 2020, the Company and its swap counterparty mutually agreed to terminate this swap, effective immediately. The Company was paid $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 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 periods. The Company recorded interest income related to the interest rate swap of $2.0 million in each of the three months ended September 30, 2023 and 2022. The Company recorded interest income related to the interest rate swap of $6.1 million in each of the nine month periods ended September 30, 2023 and 2022. At September 30, 2023, the Company expected to have a sufficient amount of eligible variable rate loans to continue to accrete this interest income ratably 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.

of interest equal to one-month USD-LIBOR (now the equivalent replacement USD-SOFR rate since USD-LIBOR rate is no longer available). The floating rate resets monthly and net settlements of interest due to/from the counterparty also occur monthly. The initial floating rate of interest was set at 0.2414%. To the extent that the fixed rate exceeds one-month USD-SOFR, the Company receives net interest settlements, which are recorded as loan interest income. If one-month USD-SOFR exceeds the fixed rate of interest, the Company pays net settlements to the counterparty and records those net payments as a reduction of interest income on loans. The Company recorded a reduction of loan interest income related to this swap transaction of $2.8 million in the three months ended September 30, 2023, compared to a reduction of $428,000 in the three months ended September 30, 2022. The Company recorded a reduction of loan interest income related to this swap transaction of $7.5 million in the nine months ended September 30, 2023. The Company recorded loan interest income related to this swap transaction of $610,000 in the nine months ended September 30, 2022.

In July 2022, the Company entered into two additional interest rate swap transactions as part of its ongoing interest rate management strategies to hedge the risk of its floating rate loans. The notional amount of each swap is $200 million with an effective date of May 1, 2023 and a termination date of May 1, 2028. Under the terms of one swap, beginning in May 2023, the Company receives a fixed rate of interest of 2.628% and pays a floating rate of interest equal to one-month USD-SOFR OIS. Under the terms of the other swap, beginning in May 2023, the Company receives a fixed rate of interest of 5.725% and pays a floating rate of interest equal to one-month USD-Prime. In each case, the floating rate resets monthly and net settlements of interest due to/from the counterparty also occur monthly. To the extent the fixed rate of interest exceeds the floating rate of interest, the Company receives net interest settlements, which are recorded as loan interest income. If the floating rate of interest exceeds the fixed rate of interest, the Company pays net settlements to the counterparty and records those net payments as a reduction of interest income on loans. The Company recorded a reduction of loan interest income related to these swap transactions of $2.7 million and $4.4 million, respectively, in the three and nine months ended September 30, 2023. At September 30, 2023, the USD-Prime rate was 8.50% and the one-month USD-SOFR OIS rate was 5.31663%.

Interest Income – Investments and Other Interest-earning Assets

Interest income on investments decreased $111,000 in the three months ended September 30, 2023 compared to the three months ended September 30, 2022. Interest income decreased $493,000 as a result of a decrease in average balances from $734.5 million during the three months ended September 30, 2022, to $678.6 million during the three months ended September 30, 2023. Average balances of securities decreased primarily due to normal monthly payments received related to the portfolio of U.S. Government agency mortgage-backed securities and collateralized mortgage obligations. Interest income increased $382,000 as a result of higher average interest rates, which increased from 2.77% during the three months ended September 30, 2022, to 2.93% during the three month period ended September 30, 2023.

Interest income on investments increased $745,000 in the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022. Interest income increased $516,000 as a result of an increase in average balances from $670.7 million during the nine months ended September 30, 2022, to $694.7 million during the nine months ended September 30, 2023. Average balances of securities increased primarily due to purchases of agency multi-family mortgage-backed securities that have a fixed rate of interest with expected lives of four to ten years, which fits with the Company’s current asset/liability management strategies, partially offset by normal monthly payments received related to the portfolio of U.S. Government agency mortgage-backed securities and collateralized mortgage obligations. Interest income also increased $229,000 as a result of higher average interest rates, which increased from 2.84% during the nine months ended September 30, 2022, to 2.89% during the nine month period ended September 30, 2023.

Interest income on other interest-earning assets increased $925,000 in the three months ended September 30, 2023 compared to the three months ended September 30, 2022. Interest income increased $799,000 as a result of higher average interest rates, which increased from 2.11% during the three months ended September 30, 2022, to 5.22% during the three months ended September 30, 2023. Interest income also increased $126,000 as a result of an increase in average balances from $84.8 million during the three months ended September 30, 2022, to $104.5 million during the three months ended September 30, 2023. The increase in average interest rates was due to the increase in the rate paid on funds held at the Federal Reserve Bank. This rate was increased multiple times in 2022 and 2023 in conjunction with the increase in the Federal Funds target interest rate.

Interest income on other interest-earning assets increased $2.7 million in the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022. Interest income increased $2.9 million as a result of higher average interest rates, which increased from 0.53% during the nine months ended September 30, 2022, to 4.91% during the nine months ended September 30, 2023. Partially offsetting that increase, interest income decreased $194,000 as a result of a decrease in average balances from $218.3 million during the nine months ended September 30, 2022, to $97.8 million during the nine months ended September 30, 2023. The increase in average interest rates was due to the increase in the rate paid on funds held at the Federal Reserve Bank. This rate was increased

multiple times in 2022 and 2023 in conjunction with the increase in the Federal Funds target interest rate. The decrease in average balances was due to utilization of these funds in loan originations and securities purchases.

Total Interest Expense

Total interest expense increased $21.8 million, or 322.2%, during the three months ended September 30, 2023, when compared with the three months ended September 30, 2022, due to an increase in interest expense on deposits of $20.2 million, or 406.3%, an increase in interest expense on short-term borrowings of $1.1 million, or 280.1%, an increase in interest expense on securities sold under reverse repurchase agreements of $263,000, or 584.4%, and an increase in interest expense on subordinated debentures issued to capital trusts of $206,000, or 83.1%.

Total interest expense increased $58.3 million, or 415.1%, during the nine months ended September 30, 2023, when compared with the nine months ended September 30, 2022, due to an increase in interest expense on deposits of $52.2 million, or 548.0%, an increase in interest expense on short-term borrowings of $4.5 million, or 739.7%, an increase in interest expense on securities sold under reverse repurchase agreements of $809,000, or 1,304.8%, and an increase in interest expense on subordinated debentures issued to capital trusts of $748,000, or 142.5%.

Interest Expense – Deposits

Interest expense on demand and savings deposits increased $6.8 million due to average rates of interest that increased from 0.23% in the three months ended September 30, 2022 to 1.46% in the three months ended September 30, 2023. Interest rates paid on demand deposits were higher in the 2023 period due to significant increases in overall market rates. Partially offsetting this increase, interest expense on demand deposits decreased $59,000, due to a decrease in average balances from $2.30 billion during the three months ended September 30, 2022 to $2.20 billion during the three months ended September 30, 2023. The Company experienced decreased balances in various types of money market accounts, certain types of NOW accounts and IntraFi Network Reciprocal Deposits.

Interest expense on demand and savings deposits increased $16.5 million due to average rates of interest that increased from 0.17% in the nine months ended September 30, 2022 to 1.18% in the nine months ended September 30, 2023. Interest rates paid on demand deposits were higher in the 2023 period due to significant increases in overall market rates. Partially offsetting this increase, interest expense on demand deposits decreased $190,000, due to a decrease in average balances from $2.36 billion during the nine months ended September 30, 2022 to $2.19 billion during the nine months ended September 30, 2023. The Company experienced decreased balances in various types of money market accounts, certain types of NOW accounts and IntraFi Network Reciprocal Deposits.

Interest expense on time deposits increased $6.3 million as a result of an increase in average rates of interest from 0.82% during the three months ended September 30, 2022, to 3.37% during the three months ended September 30, 2023. Interest expense on time deposits increased $292,000 due to an increase in average balances of time deposits from $872.3 million during the three months ended September 30, 2022 to $996.2 million in the three months ended September 30, 2023. 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 higher rate of interest due to increases in market interest rates throughout 2022 and 2023 and targeted promotions during the latter half of 2022 and the first nine months of 2023.

Interest expense on time deposits increased $16.5 million as a result of an increase in average rates of interest from 0.54% during the nine months ended September 30, 2022, to 2.76% during the nine months ended September 30, 2023. Interest expense on time deposits increased $764,000 due to an increase in average balances of time deposits from $839.3 million during the nine months ended September 30, 2022 to $999.9 million in the nine months ended September 30, 2023. As noted above, 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 higher rate of interest due to increases in market interest rates throughout 2022 and 2023 and targeted promotions during the latter half of 2022 and the first nine months of 2023.

Interest expense on brokered deposits increased $3.7 million due to average rates of interest that increased from 2.27% in the three months ended September 30, 2022 to 5.16% in the three months ended September 30, 2023. Interest expense on brokered deposits also increased $3.1 million due to an increase in average balances from $324.2 million during the three months ended September 30, 2022 to $669.8 million during the three months ended September 30, 2023. Brokered deposits added during 2023 were at higher market rates than brokered deposits previously issued. The Company uses brokered deposits of select maturities and interest rate structures from time to time to supplement its various funding channels and to manage interest rate risk.

Interest expense on brokered deposits increased $12.9 million, due to an increase in average balances from $175.7 million during the nine months ended September 30, 2022 to $588.9 million during the nine months ended September 30, 2023. Interest expense on brokered deposits also increased $5.6 million due to average rates of interest that increased from 2.45% in the nine months ended September 30, 2022 to 4.93% in the nine months ended September 30, 2023. Brokered deposits added during 2023 were at higher market rates than brokered deposits previously issued.

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

FHLBank term advances were not utilized during the three and nine months ended September 30, 2023 and 2022.

Interest expense on reverse repurchase agreements increased $273,000 due to higher average interest rates during the three months ended September 30, 2023 when compared to the three months ended September 30, 2022. The average rate of interest was 0.13% for the three months ended September 30, 2022 compared to 2.18% for the three months ended September 30, 2023. The average balance of repurchase agreements decreased $78.7 million from $134.9 million in the three months ended September 30, 2022 to $56.2 million in the three months ended September 30, 2023, which was due to changes in customers’ desire for this product, which can fluctuate.

Interest expense on reverse repurchase agreements increased $823,000 due to higher average interest rates during the nine months ended September 30, 2023 when compared to the nine months ended September 30, 2022. The average rate of interest was 0.06% for the nine months ended September 30, 2022 compared to 1.36% for the nine months ended September 30, 2023. The average balance of repurchase agreements decreased $47.1 million from $132.9 million in the nine months ended September 30, 2022 to $85.8 million in the nine months ended September 30, 2023, which was due to changes in customers’ desire for this product, which can fluctuate.

Interest expense on short-term borrowings (including overnight borrowings from the FHLBank) and other interest-bearing liabilities increased $806,000 during the three months ended September 30, 2023 when compared to the three months ended September 30, 2022 due to higher average rates of interest. The average rate of interest was 2.14% for the three months ended September 30, 2022, compared to 5.47% for the three months ended September 30, 2023. Short-term market interest rates increased sharply throughout 2022 and into 2023. Interest expense on short-term borrowings (including overnight borrowings from the FHLBank) and other interest-bearing liabilities increased $250,000 during the three months ended September 30, 2023 when compared to the three months ended September 30, 2022 due to higher average balances. The average balance of short-term borrowings and other interest-bearing liabilities increased from $70.0 million in the three months ended September 30, 2022 to $103.8 million in the three months ended September 30, 2023, which was primarily due to changes in the Company’s funding needs and the mix of funding, which can fluctuate. Most of this increase was due to the utilization of overnight borrowings from the FHLBank, which were used to fund loan growth and supplement deposit balances.

Interest expense on short-term borrowings (including overnight borrowings from the FHLBank) and other interest-bearing liabilities increased $2.5 million during the nine months ended September 30, 2023 when compared to the nine months ended September 30, 2022 due to higher average rates of interest. The average rate of interest was 1.67% for the nine months ended September 30, 2022, compared to 5.12% for the nine months ended September 30, 2023. Short-term market interest rates increased sharply throughout 2022 and into 2023. Interest expense on short-term borrowings (including overnight borrowings from the FHLBank) and other interest-bearing liabilities increased $2.1 million during the nine months ended September 30, 2023 when compared to the nine months ended September 30, 2022 due to higher average balances. The average balance of short-term borrowings and other interest-bearing liabilities increased from $49.2 million in the nine months ended September 30, 2022 to $134.6 million in the nine months ended September 30, 2023, which was primarily due to changes in the Company’s funding needs and the mix of funding, which can fluctuate. Most of this increase was due to the utilization of overnight borrowings from the FHLBank.

During the three months ended September 30, 2023, compared to the three months ended September 30, 2022, interest expense on subordinated debentures issued to capital trusts increased $206,000 due to higher average interest rates. The average interest rate was 7.00% in the three months ended September 30, 2023 compared to 3.82% in the three months ended September 30, 2022. The subordinated debentures are variable-rate debentures which bear interest at an average rate of three-month SOFR (originally LIBOR) plus 1.60%, adjusting quarterly, which was 7.23% at September 30, 2023. There was no change in the average balance of the subordinated debentures between the 2022 and 2023 periods.

During the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, interest expense on subordinated debentures issued to capital trusts increased $748,000 due to higher average interest rates. The average interest rate was 6.61% in the nine months ended September 30, 2023 compared to 2.72% in the nine months ended September 30, 2022. The subordinated debentures are variable-rate debentures, as stated above. There was no change in the average balance of the subordinated debentures between the 2022 and 2023 periods.

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. 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. During the three months ended September 30, 2023, compared to the three months ended September 30, 2022, interest expense on subordinated notes increased $1,000. There was no change in the interest expense on subordinated notes during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022.

Net Interest Income

Net interest income for the three months ended September 30, 2023 decreased $6.2 million to $46.7 million compared to $52.9 million for the three months ended September 30, 2022. Net interest margin was 3.43% in the three months ended September 30, 2023, compared to 3.96% in the three months ended September 30, 2022, a decrease of 53 basis points, or 13.4%. The Company experienced increases in interest income on both loans and other interest-earning assets. The Company experienced increases in interest expense on deposits, short-term borrowings, subordinated debentures issued to capital trust and securities sold under reverse repurchase agreements with customers.

Net interest income for the nine months ended September 30, 2023 increased $3.1 million to $148.1 million compared to $145.0 million for the nine months ended September 30, 2022. Net interest margin was 3.66% in the nine months ended September 30, 2023, compared to 3.73% in the nine months ended September 30, 2022, a decrease of 7 basis points, or 1.9%. The Company experienced increases in interest income on loans, other interest-earning assets and investment securities. The Company experienced increases in interest expense on deposits, short-term borrowings, subordinated debentures issued to capital trust and securities sold under reverse repurchase agreements with customers.

The Company’s overall average interest rate spread decreased 97 basis points, or 25.8%, from 3.76% during the three months ended September 30, 2022 to 2.79% during the three months ended September 30, 2023. The decrease was due to a 204 basis point increase in the weighted average rate paid on interest-bearing liabilities, partially offset by a 107 basis point increase in the weighted average yield on interest-earning assets. In comparing the two periods, the yield on loans increased 113 basis points, the yield on investment securities increased 16 basis points and the yield on other interest-earning assets increased 311 basis points. The rate paid on deposits increased 203 basis points, the rate paid on reverse repurchase agreements increased 205 basis points, the rate paid on short-term borrowings and other interest-bearing liabilities increased 333 basis points and the rate paid on subordinated debentures issued to capital trust increased 318 basis points.

The Company’s overall average interest rate spread decreased 49 basis points, or 13.8%, from 3.58% during the nine months ended September 30, 2022 to 3.09% during the nine months ended September 30, 2023. The decrease was due to a 185 basis point increase in the weighted average rate paid on interest-bearing liabilities, partially offset by a 135 basis point increase in the weighted average yield on interest-earning assets. In comparing the two periods, the yield on loans increased 138 basis points, the yield on investment securities increased five basis points and the yield on other interest-earning assets increased 438 basis points. The rate paid on deposits increased 180 basis points, the rate paid on reverse repurchase agreements increased 130 basis points, the rate paid on short-term borrowings and other interest-bearing liabilities increased 345 basis points and the rate paid on subordinated debentures issued to capital trust increased 389 basis points. Interest rates on short-term borrowings and subordinated debentures issued to capital trust reprice quickly and directly with changes to market interest rates. Interest rates earned on loans and paid on deposits are affected by the mix of the loan and deposit portfolios, the stated maturity of loans and time deposits, the amount of fixed-rate and variable-rate loans and other repricing characteristics. Throughout 2022, competition for deposits was not as intense and market rates on deposits moved higher at a slower pace. In 2023, overall competition for deposits intensified as a few banks experienced significant liquidity issues in March 2023 and market rates moved higher more rapidly. Also, as market interest rates moved higher, some deposit holders chose to move funds into non-deposit investment products. In addition, in the three months ended September 30, 2023, the Company had nearly $200 million of lower-rate time deposits mature and reprice at the substantially higher then-market interest rates.

If market interest rates remain near their current levels, the Company’s interest rate swaps will continue to have a negative impact on net interest income. Based on the interest rates on these swaps at September 30, 2023, the negative impact of all the interest rate swaps combined in the three months ending December 31, 2023 is expected to be approximately $3.7 million. The negative impact of all the interest rate swaps combined in the three months ended September 30, 2023 was approximately $3.5 million. As noted previously, one of these interest rate swaps will terminate March 1, 2024. This interest rate swap had a negative impact to net interest income of $2.8 million in the three months ended September 30, 2023. It is expected to have a negative impact to net interest income of $2.9 million in the three months ending December 31, 2023 and $1.9 million in the three months ending March 31, 2024, then no further impact in subsequent periods.

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 replaced 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.

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 economic conditions, including but not limited to; changes in the national unemployment rate, commercial real estate price index, housing price index, consumer sentiment, gross domestic product (GDP) and construction spending.

Challenging or worsening economic conditions from higher inflation or interest rates, COVID-19 and subsequent variant outbreaks or similar events, global unrest 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 identify and 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, ongoing correspondence with borrowers and problem loan workouts. Management determines which loans are collateral-dependent, evaluates 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, 2023, the Company did not record a provision expense on its portfolio of outstanding loans, compared to a $2.0 million provision expense during the three months ended September 30, 2022. During the nine months ended September 30, 2023 and September 30, 2022, the Company recorded provision expense of $1.5 million and $2.0 million, respectively, on its portfolio of outstanding loans. Total net charge-offs were $99,000 for the three months ended September 30, 2023, compared to $297,000 in the three months ended September 30, 2022. Total net charge-offs were $227,000 for the nine months ended September 30, 2023, compared to net recoveries of $7,000 in the nine months ended September 30, 2022. For the three months ended September 30, 2023, the Company recorded a negative provision for losses on unfunded commitments of $1.2 million, compared to provision expense of $1.3 million for the three months ended September 30, 2022. For the nine months ended September 30, 2023, the Company recorded a negative provision for losses on unfunded commitments of $3.6 million, compared to provision expense of $3.3 million for the nine months ended September 30, 2022. General market conditions and unique circumstances related to specific industries and individual projects contribute to the level of provisions and charge-offs.

The Bank’s allowance for credit losses as a percentage of total loans was 1.40% and 1.39% at September 30, 2023 and December 31, 2022, respectively. Management considers the allowance for credit losses adequate to cover losses inherent in the Bank’s loan portfolio at September 30, 2023 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 credit 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.

At September 30, 2023, non-performing assets were $10.9 million, an increase of $7.2 million from $3.7 million at December 31, 2022. Non-performing assets as a percentage of total assets were 0.19% at September 30, 2023, compared to 0.07% at December 31, 2022.

Compared to December 31, 2022, non-performing loans increased $7.1 million, to $10.8 million at September 30, 2023, and foreclosed and repossessed assets decreased $12,000, to $38,000 at September 30, 2023. The majority of the increase in non-performing loans was in the commercial real estate loans category, which included $8.6 million in loans transferred to non-performing since December 31, 2022.

Non-performing Loans. Activity in the non-performing loans category during the nine months ended September 30, 2023 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		384		—		—		—		—		—		—		384
Commercial construction		—		—		—		—		—		—		—		—
One- to four-family residential		722		173		—		—		(21)		(31)		(602)		241
Other residential		—		—		—		—		—		—		—		—
Commercial real estate		1,579		8,735		—		—		—		—		(182)		10,132
Commercial business		586		16		—		—		—		—		(602)		—
Consumer		399		174		—		—		—		(121)		(378)		74
Total non-performing loans	$	3,670	$	9,098	$	—	$	—	$	(21)	$	(152)	$	(1,764)	$	10,831

FDIC-assisted acquired loans included above	$	428	$	68	$	—	$	—	$	(21)	$	(31)	$	(353)	$	91

At September 30, 2023, the non-performing commercial real estate category included four loans, one of which was added during the current period. The largest relationship in the category, which totaled $8.5 million, or 84.3% of the total category, was added to non-performing loans during the three months ended June 30, 2023 and is collateralized by an office building in Missouri. The non-performing one- to four-family residential category included three loans, one of which was added during 2023. The largest relationship in the category totaled $150,000, or 62.3% of the category. The non-performing one- to four-family residential category experienced $602,000 in repayments during the nine months ended September 30, 2023, primarily related to a note sale of 16 non-performing loans. The loan sale proceeds were sufficient to result in no loss to the Company. The non-performing land development category consisted of one loan added during 2021, which totaled $384,000 and is collateralized by unimproved zoned vacant ground in southern Illinois. The non-performing consumer category included seven loans.

Potential Problem Loans. Compared to December 31, 2022, potential problem loans decreased $1.2 million, or 78.6%, to $337,000 at September 30, 2023. The decrease during the period was primarily due to multiple loans totaling $1.0 million that were upgraded to a satisfactory risk rating, $294,000 in loan payments, $111,000 in loans downgraded to the non-performing category and $13,000 in charge offs, partially offset by $181,000 in loans added to potential problem loans. 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.

Activity in the potential problem loans categories during the nine months ended September 30, 2023, was as follows:


					Removed				Transfers to
	Beginning		Additions		from		Transfers to		Foreclosed				Loan		Ending
	Balance,		to Potential		Potential		Non-		Assets and		Charge-		Advances		Balance,
	January 1		Problem		Problem		Performing		Repossessions		Offs		(Payments)		September 30

	(In thousands)
One- to four-family construction	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Subdivision construction		—		—		—		—		—		—		—		—
Land development		—		—		—		—		—		—		—		—
Commercial construction		—		—		—		—		—		—		—		—
One- to four-family residential		1,348		167		(939)		(105)		—		—		(235)		236
Other residential		—		—		—		—		—		—		—		—
Commercial real estate		—		—		—		—		—		—		—		—
Commercial business		—		—		—		—		—		—		—		—
Consumer		230		14		(65)		(6)		—		(13)		(59)		101
Total potential problem loans	$	1,578	$	181	$	(1,004)	$	(111)	$	—	$	(13)	$	(294)	$	337

FDIC-assisted acquired loans included above	$	743	$	—	$	(561)	$	—	$	—	$	—	$	(5)	$	177

At September 30, 2023, the one- to four-family residential category of potential problem loans included three loans, one of which was added during 2023. The largest relationship in this category totaled $99,000, or 42.0% of the total category. During the nine months ended September 30, 2023, 19 loans, totaling $1.0 million, met the criteria to be upgraded to a satisfactory risk rating. The consumer category of potential problem loans included 10 loans, one of which was added during the current period.

Other Real Estate Owned and Repossessions. All of the total $38,000 of other real estate owned and repossessions at September 30, 2023 were acquired through foreclosure.

Activity in foreclosed assets and repossessions during the nine months ended September 30, 2023, was as follows:


	Beginning				ORE and				ORE and		Ending
	Balance,				Repossession		Capitalized		Repossession		Balance,
	January 1		Additions		Sales		Costs		Write-Downs		September 30

	(In thousands)
One-to four-family construction	$	—	$	—	$	—	$	—	$	—	$	—
Subdivision construction		—		—		—		—		—		—
Land development		—		—		—		—		—		—
Commercial construction		—		—		—		—		—		—
One- to four-family residential		—		21		(21)		—		—		—
Other residential		—		—		—		—		—		—
Commercial real estate		—		—		—		—		—		—
Commercial business		—		—		—		—		—		—
Consumer		50		79		(91)		—		—		38
Total foreclosed assets and repossessions	$	50	$	100	$	(112)	$	—	$	—	$	38

FDIC-assisted acquired loans included above	$	—	$	21	$	(21)	$	—	$	—	$	—

The additions and sales in the consumer category were due to the volume of repossessions of automobiles, which generally are subject to a shorter repossession process.

Loans Classified “Watch” and “Special Mention”

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 identified as “Watch” are monitored due to indications of potential weaknesses or deficiencies that may require future re-classification as special mention or substandard. In the nine months ended September 30, 2023, loans classified as “Watch” decreased $9.8 million, from $28.7 million at December 31, 2022 to $18.9 million at September 30, 2023, primarily due to the combination of one large loan being upgraded to “Satisfactory” out of the “Watch” category and an unrelated loan being downgraded to substandard and added to non-performing loans, partially offset by two unrelated loans being downgraded from “Satisfactory” to “Watch.” While loans classified as “Special Mention” are not adversely classified, they are deserving of management's close attention to ensure deterioration of the repayment prospects or the credit position of the assets does not expose the institution to elevated risk to warrant adverse classification at a future date. In the nine months ended September 30, 2023, loans classified as “Special Mention” increased $21.7 million as two loan relationships were downgraded from “Satisfactory.” See Note 6 for further discussion of the Company’s loan grading system.

Non-interest Income

For the three months ended September 30, 2023, non-interest income decreased $132,000 to $7.9 million when compared to the three months ended September 30, 2022. None of the components of non-interest income experienced increases or decreases exceeding $200,000 in comparing the two periods.

For the nine months ended September 30, 2023, non-interest income decreased $3.0 million to $23.5 million when compared to the nine months ended September 30, 2022, primarily as a result of the following items:

Other income: Other income decreased $845,000 compared to the prior year period. In the 2022 period, a gain of $1.1 million was recognized on sales of fixed assets, with no similar transactions occurring in the current year period.

Point-of-sale and ATM fees: Point-of-sale and ATM fees decreased $738,000 compared to the prior year period. This decrease was primarily due to a portion of these transactions now being routed through channels with lower fees to the Company, which we expect will continue in future periods.

Gain (loss) on derivative interest rate products: In the 2023 period, the Company recognized a loss of $234,000 on the change in fair value of its back-to-back interest rate swaps related to commercial loans and the change in fair value on interest rate swaps related to brokered time deposits. In the 2022 period, the Company recognized a gain of $385,000 on the change in fair value of its back-to-back interest rate swaps related to commercial loans.

Non-interest Expense

For the three months ended September 30, 2023, non-interest expense increased $799,000 to $35.6 million when compared to the three months ended September 30, 2022, primarily as a result of the following items:

Salaries and employee benefits: Salaries and employee benefits increased $697,000 in comparing the three month periods. A portion of this increase related to normal annual merit increases in various lending and operations areas. In 2023, some of these increases were larger than in previous years due to the current employment environment. In addition, compensation costs related to originated loans that are deferred under accounting rules decreased by $233,000 in the 2023 period compared to the 2022 period (which resulted in higher expense in the 2023 period because deferred costs and the related credit to expense were less), as the volume of loans originated in the three months ended September 30, 2023 decreased substantially compared to the three months ended September 30, 2022.

Net occupancy and equipment expenses: Net occupancy expenses increased $531,000 from the prior year period. Various components of computer license and support expenses increased by $333,000 in the 2023 period compared to the 2022 period. In addition, various repairs and maintenance expenses increased by $106,000 in the 2023 period compared to the 2022 period.

Insurance: Insurance expense increased $498,000 from the prior year period. The increase was primarily due to previously announced increases in deposit insurance rates by the FDIC’s Deposit Insurance Fund.

Legal, Audit and Other Professional Fees: Legal, audit and other professional fees decreased $390,000 from the prior year period, to $1.8 million. In the 2022 period, the Company expensed $372,000 in professional fees related to the interest rate swaps initiated in July 2022, which was not repeated in the 2023 period.

For the nine months ended September 30, 2023, non-interest expense increased $5.7 million to $104.7 million when compared to the nine months ended September 30, 2022, primarily as a result of the following items:

Salaries and employee benefits: Salaries and employee benefits increased $2.1 million from the prior year period. A portion of this increase related to normal annual merit increases in various lending and operations areas. In 2023, some of these increases were larger than in previous years due to the current employment environment. In addition, compensation costs related to originated loans that are deferred under accounting rules decreased by $1.2 million in the 2023 period compared to the 2022 period (which resulted in higher expense in the 2023 period because deferred costs and the related credit to expense were less), as the volume of loans originated in the first nine months of 2023 decreased substantially compared to the same period in 2022.

Net occupancy and equipment expenses: Net occupancy expenses increased $2.0 million from the prior year period. Various components of computer license and support expenses increased by $986,000 in the 2023 period compared to the 2022 period. Depreciation and related expenses for equipment placed in service in 2023 increased expenses by $500,000 in the 2023 period compared to the 2022 period. In addition, various repairs and maintenance expenses increased by $224,000 in the 2023 period compared to the 2022 period.

Legal, Audit and Other Professional Fees: Legal, audit and other professional fees increased $1.2 million from the prior year period, to $5.5 million. In the 2023 period, the Company expensed a total of $3.1 million, compared to $1.7 million expensed in the 2022 period, primarily related to training and implementation costs for the upcoming core systems conversion and professional fees to consultants engaged to support the Company’s transition of core and ancillary software and information technology systems.

Insurance: Insurance expense increased $795,000 from the prior year period. The increase was primarily due to previously announced increases in deposit insurance rates by the FDIC’s Deposit Insurance Fund.

The Company’s efficiency ratio for the three months ended September 30, 2023, was 65.13% compared to 57.09% for the same period in 2022. The Company’s efficiency ratio for the nine months ended September 30, 2023, was 61.04% compared to 57.75% for the same period in 2022. The Company’s ratio of non-interest expense to average assets was 2.49% for both the three months ended September 30, 2023 and the three months ended September 30, 2022. The Company’s ratio of non-interest expense to average assets was 2.45% and 2.42% for the nine months ended September 30, 2023 and 2022, respectively. Average assets for the three months ended September 30, 2023, increased $124.5 million, or 2.2%, from the three months ended September 30, 2022, primarily due to an increase in net loans receivable and interest-bearing cash equivalents, partially offset by a decrease in investment securities. Average assets for the nine months ended September 30, 2023, increased $255.6 million, or 4.7%, compared to the nine months ended September 30, 2022, primarily due to an increase in net loans receivable and investment securities, partially offset by a decrease in interest-bearing cash equivalents. In comparing the 2023 and 2022 periods, the increases in the efficiency ratio and the ratio of net non-interest expense to average assets primarily resulted from increases in non-interest expense.

Provision for Income Taxes

For the three months ended September 30, 2023 and 2022, the Company’s effective tax rate was 21.5% and 20.5%, respectively. For the nine months ended September 30, 2023 and 2022, the Company’s effective tax rate was 20.8% and 20.5%, respectively. These effective rates were near or below the statutory federal tax rate of 21%, due primarily to the utilization of certain investment tax credits and the Company’s 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. State tax expense estimates continually evolve as taxable income and apportionment between states are analyzed. The Company’s effective income tax rate is currently generally expected to remain near 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 20.5% to 22.0% in future periods.

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 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 also includes the amortization of net loan fees which were deferred in accordance with accounting standards. Net loan fees included in interest income were $1.5 million and $1.6 million for the three months ended September 30, 2023 and 2022, respectively. Net loan fees included in interest income were $4.4 million and $4.7 million for the nine months ended September 30, 2023 and 2022, 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
	2023		September 30, 2023							September 30, 2022
	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	3.79	%	$	903,147		$	8,594	3.78	%	$	872,243		$	7,532	3.43	%
Other residential	7.07			829,520			14,702	7.03			885,883			11,836	5.30
Commercial real estate	6.01			1,466,739			21,730	5.88			1,584,249			19,368	4.85
Construction	7.89			911,731			16,691	7.26			635,811			9,116	5.69
Commercial business	6.36			313,909			4,812	6.08			293,529			3,734	5.05
Other loans	6.45			178,030			2,128	4.74			197,070			2,309	4.65
Industrial revenue bonds(1)	6.01			12,322			221	7.11			13,100			182	5.52

Total loans receivable	6.16			4,615,398			68,878	5.92			4,481,885			54,077	4.79

Investment securities(1)	2.72			678,564			5,018	2.93			734,518			5,129	2.77
Interest-earning deposits in other banks	5.33			104,546			1,376	5.22			84,797			451	2.11

Total interest-earning assets	5.77			5,398,508			75,272	5.53			5,301,200			59,657	4.46
Non-interest-earning assets:
Cash and cash equivalents				91,860							101,307
Other non-earning assets				213,411							176,768
Total assets			$	5,703,779						$	5,579,275

Interest-bearing liabilities:
Interest-bearing demand and savings	1.54		$	2,195,848			8,064	1.46		$	2,303,579			1,320	0.23
Time deposits	3.53			996,220			8,450	3.37			872,269			1,811	0.82
Brokered deposits	5.06			669,829			8,719	5.16			324,183			1,853	2.27
Total deposits	2.65			3,861,897			25,233	2.59			3,500,031			4,984	0.56
Securities sold under reverse repurchase agreements	2.42			56,152			308	2.18			134,917			45	0.13
Short-term borrowings, overnight FHLBank borrowings and other interest-bearing liabilities	5.57			103,828			1,433	5.47			69,956			377	2.14
Subordinated debentures issued to capital trusts	7.23			25,774			454	7.00			25,774			248	3.82
Subordinated notes	5.93			74,462			1,106	5.89			74,165			1,105	5.91

Total interest-bearing liabilities	2.79			4,122,113			28,534	2.74			3,804,843			6,759	0.70
Non-interest-bearing liabilities:
Demand deposits				938,076							1,146,542
Other liabilities				89,970							70,566
Total liabilities				5,150,159							5,021,951
Stockholders’ equity				553,620							557,324
			$	5,703,779						$	5,579,275

Net interest income:						$	46,738						$	52,898
Interest rate spread	2.98	%						2.79	%						3.76	%
Net interest margin*								3.43	%						3.96	%
Average interest-earning assets to average interest-bearing liabilities				131.0	%						139.3	%

* 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 $56.1 million and $63.4 million for the three months ended September 30, 2023 and 2022, respectively. In addition, average tax-exempt loans and industrial revenue bonds were $13.7 million and $16.2 million for the three months ended September 30, 2023 and 2022, respectively. Interest income on tax-exempt assets included in this table was $608,000 and $628,000 for the three months ended September 30, 2023 and 2022, respectively. Interest income net of disallowed interest expense related to tax-exempt assets was $503,000 and $604,000 for the three months ended September 30, 2023 and 2022, respectively.


	September 30,		Nine Months Ended							Nine Months Ended
	2023		September 30, 2023							September 30, 2022
	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	3.79	%	$	907,990		$	25,124	3.70	%	$	782,592		$	20,107	3.44	%
Other residential	7.07			824,453			41,767	6.77			832,641			29,890	4.80
Commercial real estate	6.01			1,495,186			65,508	5.86			1,550,445			51,834	4.47
Construction	7.89			899,026			48,544	7.22			642,264			24,367	5.07
Commercial business	6.36			296,605			13,153	5.93			290,420			10,431	4.80
Other loans	6.45			183,679			7,001	5.10			200,014			6,770	4.53
Industrial revenue bonds(1)	6.01			12,493			661	7.08			13,472			507	5.03

Total loans receivable	6.16			4,619,432			201,758	5.84			4,311,848			143,906	4.46

Investment securities(1)	2.72			694,727			15,005	2.89			670,700			14,260	2.84
Interest-earning deposits in other banks	5.33			97,829			3,590	4.91			218,263			862	0.53

Total interest-earning assets	5.77			5,411,988			220,353	5.44			5,200,811			159,028	4.09
Non-interest-earning assets:
Cash and cash equivalents				91,515							95,943
Other non-earning assets				205,415							156,577
Total assets			$	5,708,918						$	5,453,331

Interest-bearing liabilities:
Interest-bearing demand and savings	1.54		$	2,191,827			19,281	1.18		$	2,355,937			2,927	0.17
Time deposits	3.53			999,856			20,658	2.76			839,286			3,375	0.54
Brokered deposits	5.06			588,862			21,729	4.93			175,717			3,214	2.45
Total deposits	2.65			3,780,545			61,668	2.18			3,370,940			9,516	0.38
Securities sold under reverse repurchase agreements	2.42			85,811			871	1.36			132,930			62	0.06
Short-term borrowings, overnight FHLBank borrowings and other interest-bearing liabilities	5.57			134,595			5,156	5.12			49,217			614	1.67
Subordinated debentures issued to capital trusts	7.23			25,774			1,273	6.61			25,774			525	2.72
Subordinated notes	5.93			74,392			3,317	5.96			74,094			3,317	5.99

Total interest-bearing liabilities	2.79			4,101,117			72,285	2.36			3,652,955			14,034	0.51
Non-interest-bearing liabilities:
Demand deposits				965,403							1,165,125
Other liabilities				88,309							55,287
Total liabilities				5,154,829							4,873,367
Stockholders’ equity				554,089							579,964
Total liabilities and stockholders’ equity			$	5,708,918						$	5,453,331

Net interest income:						$	148,068						$	144,994
Interest rate spread	2.98	%						3.09	%						3.58	%
Net interest margin*								3.66	%						3.73	%
Average interest-earning assets to average interest-bearing liabilities				132.0	%						142.4	%

* 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 $57.0 million and $51.4 million for the nine months ended September 30, 2023 and 2022, respectively. In addition, average tax-exempt loans and industrial revenue bonds were $14.2 million and $16.3 million for the nine months ended September 30, 2023 and 2022, respectively. Interest income on tax-exempt assets included in this table was $1.9 million and $1.5 million for the nine months ended September 30, 2023 and 2022, respectively. Interest income net of disallowed interest expense related to tax-exempt assets was $1.6 million and $1.4 million for the nine months ended September 30, 2023 and 2022, respectively.

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 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,
	2023 vs. 2022
	Increase (Decrease)				Total
	Due to				Increase
	Rate		Volume		(Decrease)

	(Dollars in Thousands)
Interest-earning assets:
Loans receivable	$	13,147	$	1,654	$	14,801
Investment securities		382		(493)		(111)
Interest-earning deposits in other banks		799		126		925
Total interest-earning assets		14,328		1,287		15,615
Interest-bearing liabilities:
Demand deposits		6,803		(59)		6,744
Time deposits		6,347		292		6,639
Brokered deposits		3,742		3,124		6,866
Total deposits		16,892		3,357		20,249
Securities sold under reverse repurchase agreements		273		(10)		263
Short-term borrowings, overnight FHLBank borrowings and other interest-bearing liabilities		806		250		1,056
Subordinated debentures issued to capital trust		206		—		206
Subordinated notes		(3)		4		1
Total interest-bearing liabilities		18,174		3,601		21,775
Net interest income	$	(3,846)	$	(2,314)	$	(6,160)


	Nine Months Ended September 30,
	2023 vs. 2022
	Increase (Decrease)				Total
	Due to				Increase
	Rate		Volume		(Decrease)

	(Dollars in Thousands)
Interest-earning assets:
Loans receivable	$	46,992	$	10,860	$	57,852
Investment securities		229		516		745
Interest-earning deposits in other banks		2,922		(194)		2,728
Total interest-earning assets		50,143		11,182		61,325
Interest-bearing liabilities:
Demand deposits		16,544		(190)		16,354
Time deposits		16,519		764		17,283
Brokered deposits		5,592		12,923		18,515
Total deposits		38,655		13,497		52,152
Securities sold under reverse repurchase agreements		823		(14)		809
Short-term borrowings, overnight FHLBank borrowings and other interest-bearing liabilities		2,472		2,070		4,542
Subordinated debentures issued to capital trust		748		—		748
Subordinated notes		(13)		13		—
Total interest-bearing liabilities		42,685		15,566		58,251
Net interest income	$	7,458	$	(4,384)	$	3,074

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 its 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 September 30, 2023, the Company had commitments of approximately $22.1 million to fund loan originations, $1.46 billion of unused lines of credit and unadvanced loans, and $16.9 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,
	2023		2023		2023		2022		2021		2020
Closed non-construction loans with unused available lines
Secured by real estate (one- to four-family)	$	205,935	$	207,597	$	205,517	$	199,182	$	175,682	$	164,480
Secured by real estate (not one- to four-family)		—		—		—		—		23,752		22,273
Not secured by real estate - commercial business		103,434		109,135		113,186		104,452		91,786		77,411

Closed construction loans with unused available lines
Secured by real estate (one-to four-family)		104,666		111,491		104,045		100,669		74,501		42,162
Secured by real estate (not one-to four-family)		921,632		1,123,860		1,333,596		1,444,450		1,092,029		823,106

Loan commitments
Secured by real estate (one-to four-family)		22,123		25,571		33,221		16,819		53,529		85,917
Secured by real estate (not one-to four-family)		56,159		50,071		78,384		157,645		146,826		45,860
Not secured by real estate - commercial business		16,971		21,835		37,477		50,145		12,920		699

	$	1,430,920	$	1,649,560	$	1,905,426	$	2,073,362	$	1,671,025	$	1,261,908

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, 2023, approximately 35% of the Company’s total deposits were uninsured, when including deposit accounts of consolidated subsidiaries of the Company and collateralized deposits of unaffiliated entities. Excluding deposit accounts of the Company’s consolidated subsidiaries, approximately 16% of the Company’s total deposits were uninsured at September 30, 2023.

At September 30, 2023 and December 31, 2022, the Company had the following available secured lines and on-balance sheet liquidity:


	September 30, 2023		December 31, 2022
Federal Home Loan Bank line	$	1,053.1 million	$	1,005.1 million
Federal Reserve Bank line (traditional funding line)	$	439.8 million	$	397.0 million
Cash and cash equivalents	$	182.3 million	$	168.5 million
Unpledged securities – Available-for-sale	$	361.6 million	$	371.8 million
Unpledged securities – Held-to-maturity	$	193.4 million	$	202.5 million

Statements of Cash Flows. During the nine months ended September 30, 2023 and 2022, the Company had positive cash flows from operating activities. The Company had negative cash flows from investing activities during the nine months ended September 30, 2023 and 2022. The Company had positive cash flows from financing activities during the nine months ended September 30, 2023 and 2022.

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 $40.1 million and $53.9 million during the nine months ended September 30, 2023 and 2022, respectively.

During the nine months ended September 30, 2023 and 2022, investing activities used cash of $39.1 million and $788.9 million, respectively. Investing activities in the 2023 period used cash primarily for the net origination of loans, partially offset by payments received on investment securities. Investing activities in the 2022 period used cash primarily for the purchase of investment securities, the purchases of loans and the net origination of loans, partially offset by 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. During the nine months ended September 30, 2023 and 2022, financing activities provided cash of $12.8 million and $206.7 million, respectively. In the 2023 period, financing activities provided cash primarily as a result of net increases in time deposits and checking and savings deposits, partially offset by net decreases in short-term borrowings, the repurchase of the Company’s common stock and dividends paid to stockholders. In the 2022 period, financing activities provided cash primarily as a result of net increases in time deposits and net increases in short-term borrowings, partially offset by net decreases in checking and savings deposits, the repurchase of the Company’s common stock and dividends paid to stockholders.

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, 2023, the Company’s total stockholders’ equity and common stockholders’ equity were each $531.7 million, or 9.3% of total assets, equivalent to a book value of $44.81 per common share. As of December 31, 2022, total stockholders’ equity and common stockholders’ equity were each $533.1 million, or 9.4% of total assets, equivalent to a book value of $43.58 per common share. At September 30, 2023, the Company’s tangible common equity to tangible assets ratio was 9.1%, compared to 9.2% at December 31, 2022 (See Non-GAAP Financial Measures below).

Included in stockholders’ equity at September 30, 2023 and December 31, 2022, were unrealized losses (net of taxes) on the Company’s available-for-sale investment securities totaling $63.5 million and $47.2 million, respectively. This change in net unrealized loss during the nine months ended September 30, 2023, primarily resulted from decreasing intermediate-term market interest rates (which generally increased the fair value of investment securities) during the first three months of 2023, followed by increasing intermediate-term market interest rates (which generally decreased the fair value of investment securities) during the period from March 31, 2023 through September 30, 2023. Also included in stockholders’ equity at September 30, 2023, were unrealized losses (net of taxes) totaling $3,000 on the Company’s investment securities that were transferred to the held-to-maturity category. Approximately $227 million of investment securities previously included in available-for-sale were transferred to held-to-maturity during the first quarter of 2022.

In addition, included in stockholders’ equity at September 30, 2023, were realized gains (net of taxes) on the Company’s terminated cash flow hedge (interest rate swap), totaling $12.7 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, 2023, the remaining pre-tax amount to be recorded in interest income was $16.4 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).

Also included in stockholders’ equity at September 30, 2023, was an unrealized loss (net of taxes) on the Company’s outstanding cash flow hedges (interest rate swaps) totaling $25.9 million. Increases in market interest rates since the inception of these hedges have caused their fair values to decrease.

As noted above, total stockholders’ equity decreased $1.4 million, from $533.1 million at December 31, 2022 to $531.7 million at September 30, 2023. Stockholders’ equity decreased due to repurchases of the Company’s common stock totaling $19.5 million and dividends declared on common stock of $14.4 million. In addition, accumulated other comprehensive loss increased $23.4 million during the nine months ended September 30, 2023, primarily due to declines in the market value of available-for-sale securities and decreases in the fair value of cash flow hedges. Partially offsetting these changes were net income of $54.7 million in the nine months ended September 30, 2023 and a $1.3 million increase in stockholders’ equity due to stock option exercises.

The Company also had unrealized losses on its portfolio of held-to-maturity investment securities, which totaled $30.6 million at September 30, 2023, that were not included in its total capital balance. If these held-to-maturity unrealized losses were included in capital (net of taxes) it would have decreased total stockholder’s equity by $23.1 million at September 30, 2023. This amount was equal to 4.3% of total stockholders’ equity of $531.7 million.

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, which became effective January 1, 2015, 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, 2023, the Bank’s Tier 1 Leverage Ratio was 11.7%, Common Equity Tier 1 Capital Ratio was 12.7%, Tier 1 Capital Ratio was 12.7%, and Total Capital Ratio was 14.0%. As a result, as of September 30, 2023, the Bank was well capitalized, with capital ratios in excess of those required to qualify as such. On December 31, 2022, the Bank’s common equity Tier 1 capital ratio was 11.9%, its Tier 1 risk-based capital ratio was 11.9%, its total risk-based capital ratio was 13.1% and its Tier 1 leverage ratio was 11.5%. As a result, as of December 31, 2022, 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, 2023, the Company’s Tier 1 Leverage Ratio was 11.0%, Common Equity Tier 1 Capital Ratio was 11.5%, Tier 1 Capital Ratio was 12.0%, and Total Capital Ratio was 14.7%. 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, 2023, the Company was considered well capitalized, with capital ratios in excess of those required to qualify as such. On December 31, 2022, the Company’s common equity Tier 1 capital ratio was 10.6%, its Tier 1 risk-based capital ratio was 11.0%, its total risk-based capital ratio was 13.5% and its Tier 1 leverage ratio was 10.6%. As of December 31, 2022, 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, 2023, the Company and the Bank both had additional common equity Tier 1 capital in excess of the buffer amount.

Dividends. During the three months ended September 30, 2023, the Company declared a common stock cash dividend of $0.40 per share, or 30% of net income per diluted common share for that three month period, and paid a common stock cash dividend of $0.40 per share (which was declared in June 2023). During the three months ended September 30, 2022, the Company declared a common stock cash dividend of $0.40 per share, or 27% of net income per diluted common share for that three month period, and paid a common stock cash dividend of $0.40 per share (which was declared in June 2022). During the nine months ended September 30, 2023, the Company declared common stock cash dividends totaling $1.20 per share, or 27% of net income per diluted common share for that nine month period, and paid common stock cash dividends of $1.20 per share. During the nine months ended September 30, 2022, the Company declared common stock cash dividends totaling $1.16 per share, or 28% of net income per diluted common share for that nine month period, and paid common stock cash dividends of $1.12 per share. The Board of Directors meets regularly to consider the level and the timing of dividend payments. The $0.40 per share dividend declared but unpaid as of September 30, 2023, was paid to stockholders in October 2023.

Common Stock Repurchases and Issuances. The Company has been in various buy-back programs since May 1990. During the three months ended September 30, 2023, the Company repurchased 106,801 shares of its common stock at an average price of $50.52 per share and issued 1,640 shares of common stock at an average price of $33.71 per share to cover stock option exercises. During the three months ended September 30, 2022, the Company repurchased 150,271 shares of its common stock at an average price of $59.06 per share and issued 52,415 shares of common stock at an average price of $37.26 per share to cover stock option exercises. During the nine months ended September 30, 2023, the Company repurchased 376,122 shares of its common stock at an average price of $51.97 per share and issued 9,195 shares of common stock at an average price of $33.78 per share to cover stock option exercises. During the nine months ended September 30, 2022, the Company repurchased 999,586 shares of its common stock at an average price of $59.28 per share and issued 116,686 shares of common stock at an average price of $42.17 per share to cover stock option exercises.

In December 2022, the Company’s Board of Directors authorized the purchase of up to one million shares of the Company’s outstanding common stock, under a program of open market purchases or privately negotiated transactions. At September 30, 2023, approximately 801,000 shares remained available in our stock repurchase authorization.

Management has historically utilized stock buy-back programs from time to time as long as management believed that repurchasing the Company’s common stock would contribute to the overall growth of stockholder value. The number of shares 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.

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”), specifically, 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.

This non-GAAP financial measurement is supplemental and is 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 other similarly titled measures as calculated by other companies.

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


	September 30, 2023			December 31, 2022

	(Dollars in Thousands)

Common equity at period end	$	531,697		$	533,087
Less: Intangible assets at period end		10,585			10,813
Tangible common equity at period end (a)	$	521,112		$	522,274

Total assets at period end	$	5,748,078		$	5,680,702
Less: Intangible assets at period end		10,585			10,813
Tangible assets at period end (b)	$	5,737,493		$	5,669,889

Tangible common equity to tangible assets (a) / (b)		9.08	%		9.21	%

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.

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, 2023, 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 within the next twelve months, while declining interest rates are expected to have a slightly negative impact on net interest income within the next twelve months. The negative impact of a falling Federal Funds rate and other market interest rates also falling could be more pronounced if we are not able to decrease non-maturity deposit rates accordingly. 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 relatively minor changes in interest rates because our portfolios are relatively well matched in a twelve-month horizon. In a situation where market interest rates increase significantly in a short period of time, our net interest margin increase may be more pronounced in the very near term (first one to three months), due to fairly rapid increases in SOFR interest rates (or their replacement rates) and “prime” interest rates. 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 SOFR interest rates (or their replacement rates) and “prime” interest rates. In the subsequent months we expect that net interest margin would stabilize and begin to improve, as renewal interest rates on maturing time deposits are expected to decrease compared to the then-current rates paid on those products. During 2020, we did experience some compression of our net interest margin percentage due to the Federal Fund rate being cut by a total of 2.25% from 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 and net interest margin remained lower than our historical average in 2021. LIBOR/SOFR interest rates decreased significantly in 2020 and remained very low in 2021 and into the first three months of 2022, putting pressure on loan yields, and strong pricing competition for loans and deposits remained in most of our markets. Since March 2022, market interest rates have increased fairly rapidly. This increased loan yields and expanded our net interest income and net interest margin in the latter half of 2022 and the first three months of 2023. While market interest rate increases are expected to result in increases to loan yields, we expect that much of this benefit will be offset by increased funding costs, including changes in the funding mix, as seen in the first nine months of 2023. In the first nine months of 2023, competition for deposits was very intense, resulting in significant increases in rates paid on various deposit types. In addition, the Company had over $500 million and $188 million of time deposits that matured and repriced to significantly higher rates in the three months ended June

30, 2023 and September 30, 2023, respectively. Subsequent to September 30, 2023, time deposit maturities over the next 12 months are as follows: within three months -- $354 million with a weighted-average rate of 3.16%; within three to six months -- $352 million with a weighted-average rate of 3.88%; and within six to twelve months -- $350 million with a weighted-average rate of 3.93%. Based on time deposit market rates in October 2023, replacement rates for these maturing time deposits are likely to be approximately 4.25-4.75%.

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.

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 2022, the Company entered into another 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 is $300 million with an effective date of March 1, 2022 and a termination date of March 1, 2024. Under the terms of the swap, the Company receives a fixed rate of interest of 1.6725% and pays a floating rate of interest equal to one-month USD-LIBOR (now SOFR). The floating rate resets monthly and net settlements of interest due to/from the counterparty also occur monthly. The initial floating rate of interest was set at 0.24143%. The Company receives net interest settlements, which are recorded as loan interest income, to the extent that the fixed rate of interest exceeds one-month USD-SOFR. If the USD-SOFR rate exceeds the fixed rate of interest (as it does currently), the Company pays net settlements to the counterparty and records those net payments as a reduction of interest income on loans.

In July 2022, the Company entered into two interest rate swap transactions as part of its ongoing interest rate management strategies to hedge the risk of its floating rate loans. The notional amount of each swap is $200 million with an effective date of May 1, 2023 and a termination date of May 1, 2028. Under the terms of one swap, beginning in May 2023, the Company receives a fixed rate of interest of 2.628% and pays a floating rate of interest equal to one-month USD-SOFR OIS. Under the terms of the other swap, beginning in May 2023, the Company receives a fixed rate of interest of 5.725% and pays a floating rate of interest equal to one-month USD-Prime. In each case, the floating rate resets monthly and net settlements of interest due to/from the counterparty also occur monthly. To the extent the fixed rate of interest exceeds the floating rate of interest, the Company receives net interest settlements, which are recorded as loan interest income. If the floating rate of interest exceeds the fixed rate of interest (as it does currently), the Company pays net settlements to the counterparty and records those net payments as a reduction of interest income on loans.

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, 2023, 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, 2023, 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 Exchange 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 Exchange Act) that occurred during the quarter ended September 30, 2023, 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, 2022.

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

On December 21, 2022, 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 does not have an expiration date. The authorization of this program became effective in April 2023, upon completion of the previously authorized repurchase program.

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.

The following table reflects the Company’s repurchase activity during the three months ended September 30, 2023.


				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, 2023 – July 31, 2023	16,338	$	52.49	16,338	891,675
August 1, 2023 – August 31, 2023	29,500		51.27	29,500	862,175
September 1, 2023 – September 30, 2023	60,963		49.63	60,963	801,212
	106,801	$	50.52	106,801

(1)	Amount represents the number of shares available to be repurchased under the then-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

Trading Plans

During the quarter ended September 30, 2023, no director or officer (as defined in Rule 16a-1(f) under the Exchange Act) of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.

Item 6. Exhibits

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.

		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 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.*

		Amendment No. 1, dated as of November 17, 2021, to the Amended and Restated Employment Agreement, dated as of November 4, 2019, between the Registrant and William V. Turner, previously filed with the Commission (File No. 000-18082) as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on November 22, 2021, is incorporated herein by reference as Exhibit 10.3A.*

		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, 2021 is incorporated herein by reference as Exhibit 10.4A.*

		Amendment No. 2, dated as of November 17, 2021, to the Amended and Restated Employment Agreement, dated as of November 4, 2019, between the Registrant and Joseph W. Turner, previously filed with the Commission (File No. 000-18082) as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on November 22, 2021, is incorporated herein by reference as Exhibit 10.4B.*

		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 2023 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, 2022 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, 2022 is incorporated herein by reference as Exhibit 10.8.*

		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.*

		The Registrant’s 2022 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 31, 2022, is incorporated herein by reference as Exhibit 10.18.*

		The form of incentive stock option award agreement under the Registrant’s 2022 Omnibus Incentive Plan previously filed with the Commission as Exhibit 99.2 to the Registrant’s Registration Statement on Form S-8 (File No. 333-265683) filed on June 17, 2022 is incorporated herein by reference as Exhibit 10.19.*

		The form of non-qualified stock option award agreement under the Registrant’s 2022 Omnibus Incentive Plan previously filed with the Commission as Exhibit 99.3 to the Registrant’s Registration Statement on Form S-8 (File No. 333-265683) filed on June 17, 2022 is incorporated herein by reference as Exhibit 10.20.*

		The form of Executive Officer Stock Option Alternative Cash Payment Election Form is attached as Exhibit 10.21.*

(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

		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, 2023, 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.

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 7, 2023	/s/ Joseph W. Turner
	Joseph W. Turner President and Chief Executive Officer (Principal Executive Officer)

Date: November 7, 2023	/s/ Rex A. Copeland
	Rex A. Copeland Treasurer (Principal Financial and Accounting Officer)

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Great Southern Bancorp (GSBC) 10-Q2023 Q3 Quarterly report

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