What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-08-05 compared with 2021-05-06 · 485 added, 337 removed, 585 unchanged (58% of the section changed)

5 unchanged sentences

The Company’s ability to predict results or the actual effects of future plans or strategies is inherently uncertain, and the Company’s actual results could differ materially from those contained in the forward-looking statements.

The novel coronavirus disease, or COVID-19, pandemic is adversely affecting the Company, its customers, counterparties, employees, and third-party service providers, and the ultimate extent of the impacts on the Company’s business, financial position, results of operations, liquidity, and prospects is uncertain.

Continued deterioration in general business and economic conditions, including further increases in unemployment rates, or turbulence in domestic or global financial markets could adversely affect the Company’s revenues and the values of its assets and liabilities, reduce the availability of funding, lead to a tightening of credit, and further increase stock price volatility.

The novel coronavirus disease, or COVID-19, pandemic has adversely affected the Company, its customers, counterparties, employees, and third-party service providers, and the ultimate extent of the impacts on the Company’s business, financial position, results of operations, liquidity, and prospects is uncertain.

While general business and economic conditions have recently improved, increases in unemployment rates, or turbulence in domestic or global financial markets could adversely affect the Company’s revenues and the values of its assets and liabilities, reduce the availability of funding, lead to a tightening of credit, and further increase stock price volatility.

In addition, changes to statutes, regulations, or regulatory policies or practices as a result of, or in response to, COVID-19, could affect the Company in substantial and unpredictable ways.

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(iv) the risks of lending and investing activities, including changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for credit losses;

(v) the possibility of other-than-temporary impairments of securities held in the Company’s securities portfolio;

(v) the possibility of impairments of securities held in the Company's investment portfolio;

(vi) the Company’s ability to access cost-effective funding;

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(xv) competition;

(xvi) uncertainty regarding the future of LIBOR;

(xvi) uncertainty regarding the future of LIBOR and potential replacement indexes;

and (xvii) natural disasters, war, terrorist activities or civil unrest and their effects on economic and business environments in which the Company operates.

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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.

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.

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On January 1, 2021, the Company adopted the new accounting standard related to the Allowance for Credit Losses.

For assets held at amortized cost basis, this standard eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses.

For assets held at amortized cost basis, this standard eliminates the probable initial recognition threshold in GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses.

See Note 6 of the accompanying financial statements for additional information.

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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 March 31, 2021, the Company had one reporting unit to which goodwill has been allocated – the Bank.

As of June 30, 2021, the Company had one reporting unit to which goodwill has been allocated – the Bank.

If the fair value of a reporting unit exceeds its carrying value, then no impairment is recorded.

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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 March 31, 2021, goodwill consisted of $5.4 million at the Bank reporting unit, which included goodwill of $4.2 million that was recorded during 2016 related to the acquisition of 12 branches and related deposits in the St.

At June 30, 2021, goodwill consisted of $5.4 million at the Bank reporting unit, which included goodwill of $4.2 million that was recorded during 2016 related to the acquisition of 12 branches and related deposits in the St.

Louis, Mo., market.

Other identifiable intangible assets that are subject to amortization are amortized on a straight-line basis over a period of seven years.

At March 31, 2021, the amortizable intangible assets consisted of core deposit intangibles of $1.3 million, which are reflected in the table below.

At June 30, 2021, the amortizable intangible assets consisted of core deposit intangibles of $1.0 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.

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This judgment may include developing cash flow projections, selecting appropriate discount rates, identifying relevant market comparables and incorporating general economic and market conditions.

Based on the Company’s goodwill impairment testing, management does not believe any of the Company’s goodwill or other intangible assets were impaired as of March 31, 2021.

While management believes no impairment existed at March 31, 2021, different conditions or assumptions used to measure fair value of the reporting unit, 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.

Management does not believe any of the Company’s goodwill or other intangible assets were impaired as of June 30, 2021.

While management believes no impairment existed at June 30, 2021, different conditions or assumptions used to measure fair value of the reporting unit, 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:

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Economic conditions improved in the following years, as indicated by higher consumer confidence levels, increased economic activity and low unemployment levels.

economy continued to operate at historically strong levels until the impact of COVID-19 began to take its toll in March 2020.

economic trends have rebounded, the severity and extent of the coronavirus on the global, national and regional economies is still uncertain.

The economy plunged into recession during the first quarter of 2020.

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 and sports events, retail shops, personal services, and more.

More than 22 million jobs were lost in March and April of 2020, as firms closed their doors or reduced their operations, sending employees home on furlough or layoffs.

economy continued to operate at historically strong levels until the impact of the COVID-19 pandemic began to take its toll in March 2020.

economic trends have rebounded, a new COVID variant has emerged and the severity and extent of the coronavirus on the global, national and regional economies is still uncertain.

Any long-term impact on the performance of the financial sector remains indeterminable.

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

More than 22 million jobs were lost in March and April 2020, as firms 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.

Since that time, improvements in consumer spending, the GDP and employment have occurred.

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

Improvements in consumer spending, GDP, and employment have occurred.

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

Early in 2021, the “American Rescue Plan,” an economic relief fiscal measure of approximately $1.9 trillion with an emphasis on vaccination, individual and small business relief, was passed.

Later in 2021, the "Build Back Better"

recovery package will be pursued with an emphasis on infrastructure, research and development, education and green energy transition.

Funding is expected to come at least partially from corporate tax changes and tax increases on wealthy individuals.

Also, as the crisis unfolded, the Federal Reserve acted decisively, employing a wide arsenal of tools including slashing its benchmark interest rate to zero and ensuring credit availability to businesses, households, and municipal governments.

The Fed’s efforts have insulated the financial system from the problems in the economy, a significant difference than the financial crisis of 2007 and 2008.

The Fed’s efforts have largely insulated the financial system from the problems in the economy, a significant difference from the financial crisis of 2007-2008.

The Federal Reserve continues to maintain a highly accommodative monetary policy by maintaining short-term rates firmly at the zero lower bound and purchasing Treasury and agency mortgage-backed securities to keep long-term interest rates down.

With consumer interest rates at record lows and with 30-year fixed-rate mortgages below 3%, the housing market has boomed.

With consumer interest rates at record lows and 30-year fixed-rate mortgages below 3%, the housing market has boomed.

Home sales have been above their pre-pandemic levels, and construction activity has picked up in response.

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

To help our customers navigate through the pandemic situation, we offered and supplied PPP loans and short-term modifications to loan terms.

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

To help our customers navigate through the pandemic situation, we offered and supplied Paycheck Protection Program (PPP) loans and short-term modifications to loan terms.

PPP loans and modifications were made in accordance with guidance from banking regulatory authorities.

These modifications were not classified troubled debt restructurings, potential problem loans or non-performing loans.

More severely impacted industries in our loan portfolio included retail, hotel and restaurants.

These modifications did not result in these loans being classified as troubled debt restructurings, potential problem loans or non-performing loans.

More severely impacted industries in our loan portfolio include retail, hotel and restaurants.

While the U.S.

economic recovery began with a robust rebound in mid to late 2020 from the pandemic-induced recession, challenges remain with millions still out of work and many businesses still closed or operating under reduced hours or capacity.

Vaccine distribution has enabled an easing of capacity and social distancing restrictions;

however, COVID variants and the impact of ability of global and localized ability to control the virus are still variables.

Early in 2021, the “American Rescue Plan”, an economic relief fiscal measure of approximately $1.9 trillion with an emphasis on vaccination, individual and small business relief, was passed.

Later in 2021, the “Build Back Better” recovery package is expected to be pursued with an emphasis on infrastructure, research and development, education and green energy transition.

Funding is expected to come at least partially from corporate tax changes and tax increases on wealthy individuals.

In March 2021, employment rose by 916,000 jobs and the national unemployment rate edged down to 6.0%.

The rate is down considerably from its recent high in April 2020 but is 2.5 percentage points higher than its pre-pandemic level in February 2020.These improvements in the labor market reflect the continued resumption of economic activity previously curtailed due to the COVID-19 pandemic.

The recent widespread job growth was led by gains in leisure and hospitality, public and private education, and construction.

Employment in leisure and hospitality increased by 280,000, as pandemic-related restrictions eased in many parts of the country, but is still down by 3.1 million (18.5%) since February 2020.

Nearly two-thirds of the increase was in food services and drinking places (176 million).

Employment also increased in both public and private education, reflecting the continued resumption of in-person learning and other school-related activities in many parts of the country, as well as in the construction sector;

however, the employment rates in these industries are still below the February 2020 levels.

The number of unemployed persons at 9.7 million continued to trend down in March 2020 but is 4.0 million higher than February 2020.

In March 2021, the U.S.

labor force participation rate (the share of working-age Americans employed or actively looking for a job) was 1.8 percentage points lower, at 61.5% than in February 2020 pre-COVID levels.

The unemployment rate for the Midwest, where the Company conducts most of its business, decreased from 5.7% in December 2020 to 4.8% in March 2021.

Unemployment rates for March 2021 were Arkansas at 4.4%, Colorado at 6.4%, Georgia at 4.5%, Illinois at 7.1%, Iowa at 3.7%, Kansas at 3.7%, Minnesota at 4.2%, Missouri at 4.2%, Nebraska at 2.9%, Oklahoma at 4.2%, and Texas at 6.9%.

Of the metropolitan areas in which the Company does business, all but three were below the national unemployment rate of 6.6% for February 2021.

Chicago leads with an 8.3% unemployment rate, with Denver and Dallas following at 6.9% and 6.8% respectfully.

Sales of new single-family homes in March 2021 were at a seasonally adjusted annual rate of 1,021,000 according to U.S.

Census Bureau and the Department of Housing and Urban Development estimates.

This is 20.7% above the revised February 2020 rate of 846,000 and is 66.8 percent above the March 2020 estimate of 612,000.

The median sales price of new houses sold in March 2021 was $330,800, up slightly from $321,400 a year earlier, and the average sales price of $397,800 was up slightly from $375,300 a year ago in March 2020.

The inventory of new homes for sale at the end of March 2021 would support 3.6 months’ supply at the current sales rate, down from 6.4 months in March 2020.

Existing-home sales fell 3.7% in March 2021 from the prior month to a seasonally adjusted annual rate of 6.01 million as sales in all major regions declined, according to the National Association of Realtors (NAR), marking two consecutive months of declines.

March 2021 sales are higher by 12.3% from one year ago when home sales first started to fall due to the pandemic, making record-high home prices and gains.

While each of the four major U.S.

regions experienced month-over-month drops, all four areas welcomed year-over-year gains in home sales.

The median existing home price for all housing types in March 2021 was $329,100, up 17.2% from March 2020 at $280,700, as prices increased in every region.

March’s national price jump marks the 109th straight month of year-over-year gains.

Existing home sales in the Midwest declined 2.3% to an annual rate of 1,280,000 in March 2021, a 0.8% rise from a year ago.

The Median price in the Midwest was $248,200, a 13.5% increase from March 2020.

First-time buyers accounted for 32% of sales in March 2021, up from 31% in February 2021 and down from 34% in March 2020.

According to Freddie Mac, the average commitment rate for a 30-year, conventional, fixed-rate mortgage was 3.08% in March 2021, up from 2.81% in February 2021.

economic recovery began with a robust rebound from the pandemic-induced recession, challenges remain with the emergence of a new COVID-19 variant, which is causing a resurgence of cases and renewed pressure on the healthcare industry.

With the increase in cases, the re-instatement of mask mandates and social distancing is occurring in various areas of the country.

In June 2021, employment rose by 850,000 jobs and the national unemployment rate edged down to 5.9%, or 9.5 million unemployed individuals.

These measures are down considerably from their highs in April 2020 but remain well above their levels prior to the COVID-19 pandemic (3.5% unemployment rate and 5.7 million unemployed individuals in February 2020).

The June 2021 numbers reflect job gains in leisure and hospitality, public and private education, professional and business services, retail trade and other services.

Employment in leisure and hospitality increased by 343,000, as pandemic-related restrictions continued to ease in some parts of the country, but is still down by 2.2 million (12.9%) since February 2020.

Over half of the job gains in leisure and hospitality were in restaurant and bars.

Employment also continued to increase in accommodations and arts, entertainment, and recreation.

Employment also increased in both public and private education, reflecting, in part, a return to in-person learning and other school related activities.

Increases in employment in professional and business services, retail trade, other services, social services, manufacturing, mining, trade and transportation industries rose as well;

however, the employment rates in these industries are still below February 2020 levels.

The number of persons not in the labor force who currently want a job was 6.4 million in June 2021, little changed from previous numbers.

In June 2021, the U.S.

labor force participation rate (the share of working-age Americans employed or actively looking for a job) was unchanged from the previous quarter at 61.6% and has remained within a narrow range of 61.5% to 61.7% since June 2020.

The employment-population ratio was also unchanged from the previous quarter at 58% and was up by 0.6% from December 2020, but remained 3.1% below its February 2020 level.

The unemployment rate for the Midwest, where the Company conducts most of its business, has decreased from 5.7% in December 2020 to 4.9% in June 2021.

Unemployment rates for June 2021 in the states where the Company has branch or loan production offices were Arkansas at 4.4%, Colorado at 6.2%, Georgia at 4.0%, Illinois at 7.2%, Iowa at 4.0%, Kansas at 3.7%, Minnesota at 4.0%, Missouri at 4.3%, Nebraska at 2.5%, Oklahoma at 3.7%, and Texas at 6.5%.

Of the metropolitan areas in which the Company does business, most are below the national unemployment rate of 5.9% for June 2021.

Chicago leads our markets with a higher unemployment rate of 7.3%, followed by Denver and Dallas at 5.9% and 5.3% respectively.

Sales of new single-family homes dropped 6.6% in June 2021 to a seasonally adjusted annual rate of 676,000, its lowest level since April 2020 according to U.S.

Census Bureau and Department of Housing and Urban Development estimates.

This is 19.4 percent below the June 2020 estimate of 839,000.

The median sales price of new houses sold in June 2021 was $361,800, up from $341,100 a year earlier, and the average sales price of $428,700 was up from $382,200 a year ago in June 2020.

The inventory of new homes for sale at 353,000 at the end of June 2021 would support 6.3 months’ supply at the current sales rate, up from 4.3 months in March 2020.

Existing-home sales increased in June 2021, snapping four consecutive months of declines, according to the National Association of Realtors.

Total existing-home sales grew 1.4% from May 2021 to a seasonally adjusted annual rate of 5.86 million in June 2021.

The median existing home price for all housing types in June 2021 was $363,300, up 23.4% from June 2020 at $294,400, as prices increased in every region of the U.S.

June’s national price jump marks the 112th straight month of year-over-year increases.

Existing home sales in the Midwest increased to 1,330,000 in June 2021, an 18.8% rise from a year ago.

The median price in the Midwest in June 2021 was $278,700, an 18.5% increase from June 2020.

First-time buyers accounted for 31% of sales in June 2021, even with 31% in May 2021 but down from 35% in June 2020.

Housing demand far outpaces available supply nationwide.

Underbuilding over the last 20 years and a shrinking inventory of existing homes for sales has led to a housing shortage of 5.5 million units, based on research from a recent National Association of Realtors report.

At the same time, industry-wide materials scarcity, price increases and labor shortages have hit builders hard and made them struggle to finish projects on time and as planned.

According to Freddie Mac, the average commitment rate for a 30-year, conventional, fixed-rate mortgage was 2.98% in June 2021, up slightly from 2.96% in May 2021.

The average commitment rate for all of 2020 was 3.11%, down from 4.54% for 2018.

Commercial Real Estate Other Than Housing

The COVID-19 pandemic upended the U.S.

apartment sector in 2020, resulting in changing attitudes regarding working from home.

Renters have sought more space and affordability;

rents for two-bedroom units have held up better, with studios and downtown units experiencing the worst losses.

CoStar estimates that demand for apartments neared the seasonal average totaling roughly 100,000 units in the first quarter of 2021.

Renters continue to favor suburban locations, where demand continues to hit record levels and vacancies have fallen below pre-COVID lows.

Demand at downtown locations has returned, however, with vacancy rates appearing to have peaked.

Apartment rents rebounded in March 2021 with rents rising a full percentage point.

If the level of growth so far in 2021 continues, this will effectively make up for the rent losses of 2020 and put rent growth back on the pre-COVID trajectory.

Downtown areas in secondary markets are posting the largest gains this year thus far.Multifamily assets remain in demand among investors.

As of March 31, 2021, national apartment vacancy rates had recovered to pre-COVID levels at 6.4% compared to 6.2% as of December 2019.

Our market areas reflected the following vacancy levels as of March 31, 2021:

CoStar indicates demand for apartments totaled roughly 350,000 units through the first half of 2021, nearly matching full-year totals for both 2020 and 2019 with the national apartment vacancy rate plummeting to a two-decade low of 5.4%.

Both suburban and downtown areas are recording strong gains across a wide range of diverse markets.

Apartment rents rose nearly 7% in the first half of the year.

The use of concessions has come back down to normal levels, although many downtown properties continue to utilize them to attract tenants.

With demand and rent growth indicators surging, investors have regained confidence in the sector, and sales volume has return to more normal levels over the past quarters.

Values are back on the rise with investors gravitating toward Sun Belt markets and increased sales volume observed in metros like Dallas-Fort Worth, Atlanta, and Phoenix.

As of the end of June 2021, national apartment vacancy rates had recovered to pre-COVID levels at 5.4% compared to 6.2% as of December 2019.

Our market areas reflected the following vacancy levels as of June 30, 2021:

Springfield, Mo.

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at 5.8%, Dallas-Fort Worth at 7.4%, Chicago at 6.4%, Atlanta at 6.2%, and Denver at 5.9%.

Even before the disruption caused by the COVID-19 pandemic, the trend of slowing growth in the office industry was expected to continue in 2020 and linger through 2021.

Even before the disruption caused by the COVID-19 pandemic, the trend of slowing growth in the office industry was expected to continue in 2020 and linger throughout 2021.

The office demand losses that characterized much of last year have carried into 2021.

Office-using employment remained nearly one million jobs lower than the peak level from the first quarter of 2020.

Absorption posted its worst quarter on record as tenants continue to downsize and adopt hybrid work models.

Absorption posted its worst quarter on record in the three months ended June 30, 2021, as tenants continue to downsize and adopt hybrid work models.

While office-using job sectors have shown resilience, the office sector has about 800,000 fewer office jobs than the peak at the start of 2020.

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however, overall projected job growth may no longer closely correlate to office demand.

At March 31, 2021, national office vacancy rates had increased slightly to 12.1% while our market areas reflected the following vacancy levels:

As of the end of June 2021, national office vacancy rates had increased slightly to 12.4% while our market areas reflected the following vacancy levels:

Springfield, Mo.

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at 11.7%, Dallas-Fort Worth at 17.9%, Chicago at 14.4%, Atlanta at 14.1% and Denver at 14.4%.

Retail sales activity surged in the first quarter of 2021, as focus on coordinated vaccine distribution and supporting strong consumer confidence bolstered leasing activity and overall economic growth.

Retail sales activity surged in the first half of 2021 as focus on coordinated vaccine distribution and supporting strong consumer confidence bolstered leasing activity and overall economic growth.

While e-commerce continues to expand, consumers have continued to visit physical stores for both their basic needs and discretionary purchases.

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While these essential-oriented tenant types remain a positive source of demand, several areas of the retail sector remain under financial strain.

Ongoing capacity restraints for service-oriented retailers such as restaurants, together with reduced foot traffic for various indoor malls and retailer, continues to contribute to both bankruptcies and store closure announcements particularly concentrated throughout the restaurant, apparel and department store subtypes.

High-quality properties with strong tenant mixes and essential-oriented anchors, in central location and growing demographics continue to trade.

At March 31, 2021, national retail vacancy rates stayed the same at 5.1% while our market areas reflected the following vacancy levels:

Mall vacancy rates rose most significantly throughout 2020.

In addition, ongoing capacity restraints for service-oriented retailers such as restaurants, together with reduced foot traffic for various indoor malls and retailers, continues to contribute to both bankruptcies and store closure announcements particularly concentrated throughout the restaurant, apparel and department store subtypes.

At June 30, 2021, national retail vacancy rates remained level at 5.0% while our market areas reflected the following vacancy levels:

Springfield, Mo.

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

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

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

Strong demand from a wide variety of business types and segments was enough to offset new supply and decrease vacancy rates.

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Investors continue to aggressively pursue industrial acquisitions.

At March 31, 2021, national industrial vacancy rates decreased slightly to 5.5% while our market areas reflected the following vacancy levels:

At June 30, 2021, national industrial vacancy rates decreased slightly to 5.1% while our market areas reflected the following vacancy levels:

Springfield, Mo.

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COVID-19 Impact to Our Business and Response

Great Southern is actively monitoring and responding to the effects of the COVID-19 pandemic, including the administration of vaccines in its local markets.

Great Southern is actively monitoring and responding to the effects of the COVID-19 pandemic, including the administration of vaccines in our local markets.

As always, the health, safety and well-being of our customers, associates and communities, while maintaining uninterrupted service, are the Company’s top priorities.

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To date, there have been no service disruptions or reductions in staffing.

With the advent of COVID-19 vaccinations in the Company’s markets, plans are being considered to allow associates working from home or other sites to return to their normal workplace in the third quarter of 2021, dependent on health and safety conditions.

Taking care of customers and providing uninterrupted access to services are top priorities.

With the advent of COVID-19 vaccinations in the Company’s markets, plans are being considered to allow associates working from home or other sites to return to their normal workplace beginning in the third quarter of 2021, dependent on health and safety conditions.

As always, customers can conduct their banking business using the banking center network, online and mobile banking services, ATMs, Telephone Banking, and online account opening services.

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Great Southern continues to work with customers experiencing hardships caused by the pandemic.

As a resource to customers, a COVID-19 information center has been made available on the Company’s website, www.GreatSouthernBank.com.

As a resource to customers, a COVID-19 information center continues to be available on the Company’s website, www.GreatSouthernBank.com.

General information about the Company’s pandemic response, how to receive assistance, and how to avoid COVID-19 scams and fraud are included.

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Each of these factors could, individually or collectively, result in reduced net income in future periods.

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

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

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

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In the earlier round of the PPP, we originated approximately 1,600 PPP loans totaling approximately $121 million.

As of May 5, 2021, full forgiveness proceeds have been received from the SBA for 1,249 of these PPP loans totaling approximately $73 million.

As of July 26, 2021, full forgiveness proceeds have been received from the SBA for 1,591 of these PPP loans totaling approximately $121 million.

On December 27, 2020, the Economic Aid to Hard-Hit Small Businesses, Nonprofits and Venues Act authorized the reopening of the PPP for eligible first-draw and second-draw borrowers which began on January 19, 2021, and had an original expiration date of March 31, 2021.

On March 30, 2021, the PPP Extension Act of 2021 was signed, extending the PPP an additional two months to May 31, 2021, and providing an additional 30-day period for the SBA to process applications that are still pending.

On March 30, 2021, the PPP Extension Act of 2021 was signed, extending the PPP an additional two months to May 31, 2021, along with an additional 30-day period for the SBA to process applications that were still pending as of May 31, 2021.

Since the reopening period began in January 2021, the Company has funded 1,650 loans totaling approximately $58 million.

As of July 26, 2021, full forgiveness proceeds have been received from the SBA for 16 of these PPP loans totaling approximately $2.5 million.

Great Southern receives fees from the SBA for originating PPP loans based on the amount of each loan.

At March 31, 2021, remaining net deferred fees related to PPP loans totaled $3.9 million.

At June 30, 2021, remaining net deferred fees related to PPP loans totaled $3.7 million.

The fees, net of origination costs, are deferred in accordance with standard accounting practices and will be accreted to interest income on loans over the contractual life of each loan.

These loans originated in 2020 generally have a contractual maturity of two years from origination date and those originated in 2021 generally have a contractual maturity of five years from the origination date, but may be repaid or forgiven (by the SBA) sooner.

These loans generally have a contractual maturity of two years from origination date, but may be repaid or forgiven (by the SBA) sooner.

If these loans are repaid or forgiven prior to their contractual maturity date, the remaining deferred fee for such loan will be accreted to interest income on loans immediately.

We expect a portion of these remaining net deferred fees will accrete to interest income in the second quarter of 2021.

In the three months ended March 31, 2021, Great Southern recorded approximately $1.2 million of these net deferred fees in interest income on loans.

We expect a portion of these remaining net deferred fees will accrete to interest income in the third and fourth quarters of 2021.

In the three and six months ended June 30, 2021, Great Southern recorded approximately $1.1 million and $2.3 million, respectively, of net deferred fees in interest income on PPP loans.

Loan Modifications

At March 31, 2021, the Company had remaining 19 modified commercial loans with an aggregate principal balance outstanding of $141 million and 92 modified consumer and mortgage loans with an aggregate principal balance outstanding of $5 million.

At June 30, 2021, the Company had remaining 15 modified commercial loans with an aggregate principal balance outstanding of $91 million and 30 modified consumer and mortgage loans with an aggregate principal balance outstanding of $ 876,000.

These balances have decreased from $233 million and $18 million, respectively, for these loan categories at December 31, 2020.

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therefore, they are not considered TDRs.

At March 31, 2021, the largest total modified loans by collateral type were in the following categories:

At June 30, 2021, the largest total modified loans by collateral type were in the following categories:

hotel/motel - $29 million;

healthcare - $28 million;

retail - $22 million;

healthcare - $18 million;

multifamily - $11 million.

A portion of the loans modified at March 31, 2021, may be further modified, and new loans may be modified, within the guidance provided by the CARES Act (and subsequent legislation enacted in December 2020), the federal banking regulatory agencies, the SEC and the FASB if a more severe or lengthier deterioration in economic conditions occurs in future periods.

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

The profitability of the Company and, more specifically, the profitability of its primary subsidiary, the Bank, depend primarily on net interest income, as well as provisions for credit losses and the level of non-interest income and non-interest expense.

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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 $77.4 million, or 1.4%, from $5.53 billion at December 31, 2020, to $5.60 billion at March 31, 2021.

Details of the current period changes in total assets are provided in the “Comparison of Financial Condition at March 31, 2021 and December 31, 2020” section of this Quarterly Report on Form 10-Q.

Net outstanding loans decreased $11.1 million, or 0.3%, from $4.30 billion at December 31, 2020, to $4.29 billion at March 31, 2021.

The net decrease in loans reflects reductions of $6.7 million in the FDIC-assisted acquired loan portfolios.

This decrease was primarily in construction loans, home equity lines of credit, and consumer auto loans.

This decrease was offset by increases in other residential (multi-family) loans and commercial real estate loans.

Excluding FDIC-assisted acquired loans and mortgage loans held for sale, total gross loans decreased $2.7 million, or 0.1%, from December 31, 2020 to March 31, 2021.

Great Southern’s total assets increased $51.2 million, or 0.9%, from $5.53 billion at December 31, 2020, to $5.58 billion at June 30, 2021.

Details of the current period changes in total assets are provided in the “Comparison of Financial Condition at June 30, 2021 and December 31, 2020” section of this Quarterly Report on Form 10-Q.

Net outstanding loans decreased $82.5 million, or 1.9%, from $4.30 billion at December 31, 2020, to $4.21 billion at June 30, 2021.

The net decrease in loans included reductions of $14.3 million in the FDIC-assisted acquired loan portfolios.

The decrease was primarily in construction loans, commercial business, and consumer auto loans.

This decrease was offset by increases in other residential (multi-family) loans, one- to four family residential loans and commercial real estate loans.

Excluding FDIC-assisted acquired loans and mortgage loans held for sale, total gross loans decreased $40.0 million, or 0.8%, from December 31, 2020 to June 30, 2021.

As loan demand is affected by a variety of factors, including general economic conditions, and because of the competition we face and our focus on pricing discipline and credit quality, no assurances can be made regarding our future loan growth.

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The Company’s strategy continues to be focused on maintaining credit risk and interest rate risk at appropriate levels.

Recent loan growth has occurred in several loan types, primarily other residential (multi-family) loans and commercial real estate loans and in most of Great Southern’s primary lending locations, including Springfield, St.

Recent growth has occurred in several loan types, primarily other residential (multi-family) loans and commercial real estate loans and in most of Great Southern’s primary lending locations, including Springfield, St.

Louis, Kansas City, Des Moines and Minneapolis, as well as our loan production offices in Atlanta, Chicago, Dallas, Denver, Omaha and Tulsa.

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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 March 31, 2021, 0.1% of the owner occupied portfolio had loan-to-value ratios above 100% at origination, all of which were FDIC-acquired loans.

At June 30, 2021, 0.4% of the owner occupied portfolio had loan-to-value ratios above 100% at origination.

At December 31, 2020, none of our owner occupied one- to four-family residential loans had loan-to-value ratios above 100% at origination.

At March 31, 2021 and December 31, 2020, an estimated 0.6% of total non-owner occupied one- to four-family residential loans had loan-to-value ratios above 100% at origination.

At March 31, 2021, TDRs, including FDIC-acquired loans, totaled $4.0 million, or 0.09% of total loans, an increase of $689,000 from $3.3 million, or 0.08% of total loans, at December 31, 2020.

At June 30, 2021 and December 31, 2020, an estimated 0.6% of total non-owner occupied one- to four-family residential loans had loan-to-value ratios above 100% at origination.

At June 30, 2021, TDRs, including FDIC-acquired loans, totaled $4.0 million, or 0.09% of total loans, an increase of $726,000 from $3.3 million, or 0.08% of total loans, at December 31, 2020.

The December 31, 2020 amount excludes $1.7 million of FDIC-acquired loans accounted for under ASC 310-30.

Concessions granted to borrowers experiencing financial difficulties may include a reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize

For TDRs occurring during the three months ended March 31, 2021, none were restructured into multiple new loans.

For TDRs occurring during the six months ended June 30, 2021, none were restructured into multiple new loans.

For TDRs occurring during the year ended December 31, 2020, five loans totaling $107,000 were restructured into multiple new loans.

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Although loan modifications were made, they did not result in these loans being classified as TDRs, potential problem loans or non-performing loans.

As of March 31, 2021, $141 million of commercial loans and $5 million of residential and consumer loans were subject to such modifications.

As of June 30, 2021, $91 million of commercial loans and $ 876,000 of residential and consumer loans were subject to such modifications.

If more severe or lengthier negative impacts of the COVID-19 pandemic occur or the effects of the SBA loan programs and other loan and stimulus programs do not enable companies and individuals to completely recover financially, this could result in more and/or longer-term modifications, which may be deemed to be TDRs, additional potential problem loans and/or additional non-performing loans.

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The Company has been monitoring its portfolio of loans tied to LIBOR on a regular frequency since 2019, with specific groups of loans identified.

The Company implemented robust LIBOR fallback language for all commercial loan transactions beginning near the end of 2018, with such language implemented with all new originations and renewed/modified commercial loans since that time.

The Company is particularly monitoring the remaining group of loans that originated prior to the fourth quarter of 2018, have not been renewed or modified, and do not mature prior to December 31, 2021.

The Company implemented robust LIBOR fallback language for all commercial loan transactions beginning near the end of 2018, with such language utilized for all new originations and renewed/modified commercial loans since that time.

The Company is particularly monitoring the remaining group of loans that were originated prior to the fourth quarter of 2018, have not been renewed or modified, and do not mature prior to December 31, 2021.

This represented approximately 70 commercial loans totaling approximately $245 million;

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The Company also has a portfolio of residential mortgage loans tied to LIBOR indices with standard index replacement language included (approximately $427 million), and that portfolio is being monitored for potential changes that may be facilitated by the mortgage industry.

As described, the vast majority of the loan portfolio tied to LIBOR now includes robust LIBOR replacement language which identifies appropriate “trigger” events for the cessation of LIBOR and the steps that the Company will take upon the occurrence of one or more of those events, including adjustments to any rate margin to ensure that the replacement interest rate on the loan is equivalent to the previous LIBOR-based rate.

Available-for-sale Securities.

In the three months ended March 31, 2021, available-for-sale securities increased $42.7 million, or 10.3%, from $414.9 million at December 31, 2020, to $457.7 million at March 31, 2021.

In the six months ended June 30, 2021, available-for-sale securities increased $35.9 million, or 8.7%, from $414.9 million at December 31, 2020, to $450.8 million at June 30, 2021.

The increase was primarily due to the purchase of U.S.

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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 three months ended March 31, 2021, total deposit balances increased $110.0 million, or 2.4%.

Transaction account balances increased $249.2 million, or 8.0%, to $3.38 billion at March 31, 2021, while retail certificates of deposit decreased $80.9 million, or 6.6%, to $1.15 billion at March 31, 2021.

In the six months ended June 30, 2021, total deposit balances increased $49.5 million, or 1.1%.

Transaction account balances increased $281.0 million, or 9.0%, to $3.41 billion at June 30, 2021, while retail certificates of deposit decreased $140.2 million, or 11.4%, to $1.09 billion at June 30, 2021.

The increases in transaction accounts were primarily a result of increases in various money market accounts and NOW deposit accounts.

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CDs initiated through internet channels experienced a planned decrease due to increases in overall liquidity levels and to reduce the Company’s cost of funds.

Customer deposits at March 31, 2021 and December 31, 2020, totaling $36.5 million and $39.4 million, respectively, were part of the CDARS program, which allows customers to maintain balances in an insured manner that would otherwise exceed the FDIC deposit insurance limit.

Brokered deposits, including CDARS program purchased funds, were $100.4 million at March 31, 2021, a decrease of $58.3 million from $158.7 million at December 31, 2020.

Customer deposits at June 30, 2021 and December 31, 2020, totaling $42.7 million and $39.4 million, respectively, were part of the IntraFi program, which allows customers to maintain balances in an insured manner that would otherwise exceed the FDIC deposit insurance limit.

Brokered deposits, including IntraFi Funding deposits, were $67.4 million at June 30, 2021, a decrease of $91.3 million from $158.7 million at December 31, 2020.

The brokered deposits were allowed to mature without replacement as other deposit categories increased and to reduce the Company’s cost of funds.

Our deposit balances may fluctuate depending on customer preferences and our relative need for funding.

We do not consider our retail certificates of deposit to be guaranteed long-term funding because customers can withdraw their funds at any time with minimal

interest penalty.

We do not consider our retail certificates of deposit to be guaranteed long-term funding because customers can withdraw their funds at any time with minimal interest penalty.

When loan demand trends upward, we can increase rates paid on deposits to attract more deposits and utilize brokered deposits to provide additional funding.

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Securities sold under reverse repurchase agreements with customers.

Securities sold under reverse repurchase agreements with customers decreased $23.5 million from $164.2 million at December 31, 2020 to $140.7 million at March 31, 2021.

Securities sold under reverse repurchase agreements with customers decreased $5.8 million from $164.2 million at December 31, 2020 to $158.4 million at June 30, 2021.

These balances fluctuate over time based on customer demand for this product.

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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 March 31, 2021, the Federal Funds rate stood at 0.25%.

The FRB met in April 2021 and indicated they plan to keep the rates steady.

A substantial portion of Great Southern’s loan portfolio ($2.00 billion at March 31, 2021) is tied to the one-month or three-month LIBOR index and will be subject to adjustment at least once within 90 days after March 31, 2021.

At June 30, 2021, the Federal Funds rate stood at 0.25%.

The FRB met in June 2021 and indicated they plan to keep the rates steady.

A substantial portion of Great Southern’s loan portfolio ($1.94 billion at June 30, 2021) is tied to the one-month or three-month LIBOR index and will be subject to adjustment at least once within 90 days after June 30, 2021.

Of these loans, $1.93 billion had interest rate floors.

Great Southern also has a portfolio of loans ($246 million at March 31, 2021) tied to a “prime rate” of interest and will adjust immediately with changes to the “prime rate” of interest.

Great Southern also has a portfolio of loans ($254 million at June 30, 2021) tied to a "prime rate"

of interest and will adjust immediately with changes to the “prime rate” of interest.

A rate cut by the FRB generally would have an anticipated immediate negative impact on the Company’s net interest income due to the large total balance of loans tied to the one-month or three-month LIBOR index and will be subject to adjustment at least once within 90 days or loans which generally adjust immediately as the Federal Funds rate adjusts.

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Conversely, interest rate increases would normally result in increased interest rates on our LIBOR-based and prime-based loans.

As of March 31, 2021, Great Southern’s interest rate risk models indicate that, generally, rising interest rates are expected to have a positive impact on the Company’s net interest income, while declining interest rates are expected to have a negative impact on net interest income.

As of June 30, 2021, Great Southern's interest rate risk models indicate that, generally, rising interest rates are expected to have a positive impact on the Company's net interest income, while declining interest rates are expected to have a negative impact on net interest income.

We model various interest rate scenarios for rising and falling rates, including both parallel and non-parallel shifts in rates.

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In the subsequent months we expect that the net interest margin would stabilize and begin to improve, as renewal interest rates on maturing time deposits are expected to decrease compared to the current rates paid on those products.

During 2020, we did experience some compression of our net interest margin due to 2.25% of

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 asset and the issuance of subordinated notes during 2020.

LIBOR interest rates have decreased, putting pressure on loan yields, and strong pricing competition for loans and deposits remains in most of our markets.

During 2020, we did experience some compression of our net interest margin due to Federal Fund rate cuts totaling 2.25% during the nine month period of July 2019 through March 2020.

Margin compression primarily resulted from changes in the asset mix, mainly the addition of lower-yielding assets and the issuance of subordinated notes during 2020.

LIBOR interest rates decreased significantly in 2020 and have remained very low so far in 2021, putting pressure on loan yields, and strong pricing competition for loans and deposits remains in most of our markets.

For further discussion of the processes used to manage our exposure to interest rate risk, see “Item 3.

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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, 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 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.

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Operating expenses consist primarily of salaries and employee benefits, occupancy-related expenses, expenses related to foreclosed assets, postage, FDIC deposit insurance, advertising and public relations, telephone, professional fees, office expenses and other general operating expenses.

Details of the current period changes in non-interest income and non-interest expense are provided in the “Results of Operations and Comparison for the Three Months Ended March 31, 2021 and 2020” section of this report.

Details of the current period changes in non-interest income and non-interest expense are provided in the “Results of Operations and Comparison for the Three and Six Months Ended June 30, 2021 and 2020” section of this report.

Effect of Federal Laws and Regulations

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In May 2018, the Economic Growth, Regulatory Relief, and Consumer Protection Act (the “Economic Growth Act”), was enacted to modify or eliminate certain financial reform rules and regulations, including some implemented under the Dodd-Frank Act.

While the Economic Growth Act maintains most of the regulatory structure established by the Dodd-Frank Act, it amends

certain aspects of the regulatory framework for small depository institutions with assets of less than $10 billion and for large banks with assets of more than $50 billion.

While the Economic Growth Act maintains most of the regulatory structure established by the Dodd-Frank Act, it amends certain aspects of the regulatory framework for small depository institutions with assets of less than $10 billion and for large banks with assets of more than $50 billion.

Many of these amendments could result in meaningful regulatory changes.

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Business Initiatives

Great Southern is actively monitoring and responding to the effects of the evolving 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.

See the “COVID-19 Business Impact and Response” section of this report for further information, including the Company’s participation in the SBA’s PPP for small businesses.

The Company’s banking center network continues to evolve.

In the Joplin, Mo., market, the Company purchased a banking facility in late 2019 vacated by another financial institution, which included a contractual black-out period ending in April 2021.

In the Joplin, Missouri, market, the Company purchased a banking facility in the fourth quarter of 2019 vacated by another financial institution, which included a contractual black-out period that ended in April 2021.

A third party vendor has been engaged by the Company to redesign this facility as a “bank of the future” prototype to incorporate evolving customer preferences.

Variations of this prototype design may be utilized in other select banking centers in the Company’s footprint in the future.

The Company expects the new office in Joplin to be completed in the third quarter of 2021, whereupon the nearby leased banking center at 1710 E.

The Company expects the new office in Joplin to open on September 20, 2021, whereupon the nearby leased banking center at 1710 E.

32nd Street will be consolidated into this new office.

There are two banking centers currently serving the Joplin market.

Great Southern Bank has been recognized as part of Forbes’ annual list of the World’s Best Banks 2021.

Great Southern was ranked first in the list of best banks in the United States.

The World’s Best Banks list is comprised of the financial institutions that differentiate their services and build trustworthy relationships with their customers.

Some 500 banks around the world are featured on the list, which was announced online on April 13, 2021, and can currently be viewed on the Forbes website.

The study involved asking 43,000 bank customers from 28 countries to rate banks they are involved with on general satisfaction and key attributes like trust, terms and conditions, customer services, digital services and financial advice.

The Company announced that its 2021 Annual Meeting of Stockholders, to be held at 10 a.m.

Central Time on May 12, 2021, will be a virtual meeting over the internet and will not be held at a physical location.

Stockholders will be able to attend the Annual Meeting via a live webcast.

Holders of record of Great Southern Bancorp, Inc.

common stock at the close of business on the record date, March 3, 2021, may vote during the live webcast of the Annual Meeting or by proxy.

Please see the Company’s Notice of Annual Meeting and Proxy Statement available on the Company’s website, www.GreatSouthernBank.com, (click “About” then “Investor Relations”) for additional information about the virtual meeting.

Comparison of Financial Condition at March 31, 2021 and December 31, 2020

During the three months ended March 31, 2021, the Company’s total assets increased by $77.4 million to $5.60 billion.

Louis market area, the Company intends to consolidate its Westfall Plaza banking center at 8013 W.

Florissant into the Ferguson banking center at 10385 W.

Florissant, which is less than three miles away.

The Westfall Plaza banking center is expected to close after business hours on November 5, 2021.

With this consolidation, the Company will operate 18 banking centers in the St.

Louis metropolitan area.

On June 30, 2021, the Company notified holders that it will redeem on August 15, 2021, all of the Company’s outstanding 5.25% Fixed-to-Floating Rate Subordinated Notes (due August 15, 2026) having an aggregate principal amount of $75 million, in accordance with the terms of the subordinated notes.

The Company will use excess cash on hand for the redemption payment.

The Company’s Chief Operating Officer, Doug Marrs, retired from the Company on July 6, 2021.

Marrs joined Great Southern in 1996, with his banking career spanning 43 years.

During his tenure at Great Southern, the Company grew from less than $1 billion in assets with operations primarily in the southwest Missouri region, to $5.6 billion in assets with operations in eleven states.

Marrs announced his retirement more than a year ago to ensure a smooth management transition.

His successor, Mark Maples, is a banking veteran with 39 years of banking experience, 16 of which have been with Great Southern.

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

During the six months ended June 30, 2021, the Company’s total assets increased by $51.2 million to $5.58 billion.

The increase was primarily attributable to increases in available-for-sale investment securities and cash equivalents.

Cash and cash equivalents were $612.6 million at March 31, 2021, an increase of $48.8 million, or 8.7%, from $563.7 million at December 31, 2020.

These additional funds were held at the Federal Reserve Bank and primarily were the result of increases in deposits.

Cash and cash equivalents were $681.8 million at June 30, 2021, an increase of $118.1 million, or 20.9%, from $563.7 million at December 31, 2020.

These additional funds were held at the Federal Reserve Bank and primarily were the result of increases in deposits and net loan repayments.

The Company's available-for-sale securities increased $35.9 million, or 8.7%, compared to December 31, 2020.

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Government agency securities.

The available-for-sale securities portfolio was 8.2% and 7.5% of total assets at March 31, 2021 and December 31, 2020, respectively.

Net loans decreased $11.1 million from December 31, 2020, to $4.29 billion at March 31, 2021.

Excluding FDIC-assisted acquired loans and mortgage loans held for sale, total gross loans (including the undisbursed portion of loans) decreased $2.7 million, or 0.1%, from December 31, 2020 to March 31, 2021.

This decrease was primarily in construction loans ($24 million), consumer auto loans ($13 million) and home equity lines of credit ($6 million).

These decreases were partially offset by increases in other residential (multi-family) loans ($28 million) and commercial real estate loans ($12 million).

Total liabilities increased $95.6 million, from $4.90 billion at December 31, 2020 to $4.99 billion at March 31, 2021.

The available-for-sale securities portfolio was 8.1% and 7.5% of total assets at June 30, 2021 and December 31, 2020, respectively.

Net loans decreased $82.5 million from December 31, 2020, to $4.21 billion at June 30, 2021.

Excluding FDIC-assisted acquired loans and mortgage loans held for sale, total gross loans (including the undisbursed portion of loans) decreased $40.0 million, or 0.8%, from December 31, 2020 to June 30, 2021.

This decrease was primarily in construction loans ($41 million decrease), consumer auto loans ($23 million decrease) and commercial business loans ($65 million decrease).

These decreases were partially offset by increases in other residential (multi-family) loans ($18 million increase), one- to four-family residential loans ($46 million increase) and commercial real estate loans ($31 million increase).

Total liabilities increased $51.3 million, from $4.90 billion at December 31, 2020 to $4.95 billion at June 30, 2021.

The increase was primarily attributable to an increase in deposits, partially offset by a decrease in securities sold under reverse repurchase agreements.

Total deposits increased $110.0 million, or 2.4%, to $4.63 billion at March 31, 2021.

Transaction account balances increased $249.2 million to $3.38 billion at March 31, 2021, while retail certificates of deposit decreased $80.9 million compared to December 31, 2020, to $1.15 billion at March 31, 2021.

The increase in transaction accounts was primarily a result of increases in NOW deposit accounts, money market accounts and Insured Cash Sweep (ICS) reciprocal accounts.

Total deposits increased $49.5 million, or 1.1%, to $4.57 billion at June 30, 2021.

Transaction account balances increased $281.0 million to $3.41 billion at June 30, 2021, while retail certificates of deposit decreased $140.2 million compared to December 31, 2020, to $1.09 billion at June 30, 2021.

The increase in transaction accounts was primarily a result of increases in NOW deposit accounts, money market accounts and IntraFi Network Deposits.

Interest-bearing checking accounts increased $162.1 million while demand deposit accounts increased $118.9 million.

Customer retail certificates of deposit initiated through our banking center network decreased $59.5 million and certificates of deposit initiated through our national internet network decreased $84.0 million.

Customer deposits at March 31, 2021 and December 31, 2020 totaling $36.5 million and $39.4 million, respectively, were part of the CDARS program, which allows customers to maintain balances in an insured manner that would otherwise exceed the FDIC deposit insurance limit.

Brokered deposits, including CDARS program purchased funds, were $100.4 million at March 31, 2021, a decrease of $58.3 million from $158.7 million at December 31, 2020.

Customer deposits at June 30, 2021 and December 31, 2020 totaling $42.7 million and $39.4 million, respectively, were part of the IntraFi program, which allows customers to maintain balances in an insured manner that would otherwise exceed the FDIC deposit insurance limit.

Brokered deposits, including IntraFi Funding deposits, were $67.4 million at June 30, 2021, a decrease of $91.3 million from $158.7 million at December 31, 2020.

The brokered deposits were allowed to mature without replacement as other deposit categories increased.

Securities sold under reverse repurchase agreements with customers decreased $23.5 million from $164.2 million at December 31, 2020 to $140.7 million at March 31, 2021.

Securities sold under reverse repurchase agreements with customers decreased $5.8 million from $164.2 million at December 31, 2020 to $158.4 million at June 30, 2021.

These balances fluctuate over time based on customer demand for this product.

Total stockholders’ equity decreased $18.3 million from $629.7 million at December 31, 2020 to $611.5 million at March 31, 2021.

The Company recorded net income of $18.9 million for the three months ended March 31, 2021.

In addition, total stockholders’ equity increased $920,000 due to stock option exercises.

Accumulated other comprehensive income decreased $15.5 million due to decreases in the fair value of available-for-sale investment securities and the termination value of the cash flow hedge.

Total stockholders' equity decreased $184,000 from $629.7 million at December 31, 2020 to $629.6 million at June 30, 2021.

The Company recorded net income of $39.0 million for the six months ended June 30, 2021.

In addition, total stockholders’ equity increased $2.7 million due to stock option exercises.

Accumulated other comprehensive income decreased $10.9 million due to decreases in the fair value of available-for-sale investment securities and the termination value of the cash flow interest rate swap.

Stockholders’ equity also decreased due to dividends declared on common stock of $9.3 million and repurchases of the Company’s common stock totaling $7.5 million.

In addition, the initial adoption of the CECL accounting standard for credit losses resulted in a decrease in stockholders’ equity of $14.2 million.

Results of Operations and Comparison for the Three Months Ended March 31, 2021 and 2020

Net income was $18.9 million for the three months ended March 31, 2021 compared to $14.9 million for the three months ended March 31, 2020.

This increase of $4.0 million, or 26.9%, was primarily due to a decrease in the provision for credit losses on loans and unfunded commitments of $4.2 million, or 109.7%, an increase in noninterest income of $2.4 million, or 32.2%, and a decrease in noninterest expense of $494,000, or 1.6%, partially offset by an increase in income tax expense of $2.3 million, or 82.1%, and a decrease in net interest income of $849,000, or 1.9%.

Results of Operations and Comparison for the Three and Six Months Ended June 30, 2021 and 2020

Net income was $20.1 million for the three months ended June 30, 2021 compared to $13.2 million for the three months ended June 30, 2020.

This increase of $6.9 million, or 52.3%, was primarily due to a decrease in the provision for credit losses on loans and unfunded commitments of $7.3 million, or 121.8%, an increase in noninterest income of $1.3 million, or 16.0%, and an increase in net interest income of $1.2 million, or 2.8%, partially offset by an increase in income tax expense of $2.1 million, or 66.6%, and an increase in noninterest expense of $842,000, or 2.9%.

Net income was $39.0 million for the six months ended June 30, 2021 compared to $28.1 million for the six months ended June 30, 2020.

This increase of $10.9 million, or 38.9%, was primarily due to a decrease in the provision for credit losses on loans and unfunded commitments of $11.6 million, or 117.0%, an increase in noninterest income of $3.7 million, or 23.6%, and an increase in net interest income of $380,000, or 0.4%, partially offset by an increase in income tax expense of $4.4 million, or 73.8%, and an increase in noninterest expense of $349,000, or 0.6%.

Total Interest Income

Total interest income decreased $6.8 million, or 11.9%, during the three months ended March 31, 2021 compared to the three months ended March 31, 2020.

The decrease was due to a $6.4 million decrease in interest income on loans and a $420,000 decrease in interest income on investments and other interest-earning assets.

Interest income on loans decreased for the three months ended March 31, 2021 compared to the same period in 2020, due to lower average rates of interest on loans, partially offset by higher average balances.

Interest income from investment securities and other interest-earning assets decreased during the three months

ended March 31, 2021 compared to the same period in 2020 primarily due to lower average rates of interest, partially offset by higher average balances of investment securities and other interest-earning assets.

Total interest income decreased $3.6 million, or 6.6%, during the three months ended June 30, 2021 compared to the three months ended June 30, 2020.

The decrease was due to a $3.5 million decrease in interest income on loans and a $71,000 decrease in interest income on investment securities and other interest-earning assets.

Interest income on loans decreased for the three months ended June 30, 2021 compared to the same period in 2020, primarily due to lower average rates of interest on loans.

Interest income from investment securities and other interest-earning assets decreased during the three months ended June 30, 2021 compared to the same period in 2020 primarily due to lower average rates of interest, partially offset by higher average balances of investment securities and other interest-earning assets.

Total interest income decreased $10.4 million, or 9.3%, during the six months ended June 30, 2021 compared to the six months ended June 30, 2020.

The decrease was due to a $9.9 million decrease in interest income on loans and a $491,000 decrease in interest income on investment securities and other interest-earning assets.

Interest income on loans decreased for the six months ended June 30, 2021 compared to the same period in 2020, due to lower average rates of interest on loans, partially offset by higher average balances.

Interest income from investment securities and other interest-earning assets decreased during the six months ended June 30, 2021 compared to the same period in 2020 primarily due to lower average rates of interest, partially offset by higher average balances of investment securities and other interest-earning assets.

Interest Income – Loans

During the three months ended March 31, 2021 compared to the three months ended March 31, 2020, interest income on loans decreased $8.6 million as a result of lower average interest rates on loans.

The average yield on loans decreased from 5.15% during the three months ended March 31, 2020, to 4.39% during the three months ended March 31, 2021.

During the three months ended June 30, 2021 compared to the three months ended June 30, 2020, interest income on loans decreased $3.3 million as a result of lower average interest rates on loans.

The average yield on loans decreased from 4.64% during the three months ended June 30, 2020, to 4.33% during the three months ended June 30, 2021.

This decrease was primarily due to decreased yields in most loan categories as a result of decreased LIBOR and Federal Funds interest rates.

Interest income on loans increased $2.2 million as the result of higher average loan balances, which increased from $4.23 billion during the three months ended March 31, 2020, to $4.41 billion during the three months ended March 31, 2021.

Interest income on loans decreased $230,000 as the result of lower average loan balances, which decreased from $4.40 billion during the three months ended June 30, 2020, to $4.38 billion during the three months ended June 30, 2021.

The lower average balances were primarily due to higher loan repayments during the 2021 period.

During the six months ended June 30, 2021 compared to the six months ended June 30, 2020, interest income on loans decreased $11.8 million as a result of lower average interest rates on loans.

The average yield on loans decreased from 4.89% during the six months ended June 30, 2020, to 4.36% during the six months ended June 30, 2021.

This decrease was primarily due to decreased yields in most loan categories as a result of decreased LIBOR and Federal Funds interest rates.

Interest income on loans increased $1.9 million as the result of higher average loan balances, which increased from $4.31 billion during the six months ended June 30, 2020, to $4.39 billion during the six months ended June 30, 2021.

The higher average balances were primarily due to organic loan growth in commercial business loans, other residential (multi-family) loans, commercial real estate loans and one- to four-family residential loans, partially offset by decreases in outstanding construction loans and consumer loans.

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The entire amount of the discount adjustment has been and will be accreted to interest income over time.

For the three months ended March 31, 2021 and 2020, the adjustments increased interest income by $691,000 and $1.9 million, respectively.

As of March 31, 2021, the remaining accretable yield adjustment that will affect interest income was $1.3 million.

For the three months ended June 30, 2021 and 2020, the adjustments increased interest income by $428,000 and $1.5 million, respectively.

For the six months ended June 30, 2021 and 2020, the adjustments increased interest income by $1.1 million and $3.4 million, respectively.

As of June 30, 2021, the remaining accretable yield adjustment that will affect interest income was $885,000.

Of the remaining adjustments affecting interest income, we expect to recognize approximately $453,000 of interest income during the remainder of 2021.

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All adjustments made prior to January 1, 2021, will continue to be accreted to interest income.

Apart from the yield accretion, the average yield on loans was 4.33% during the three months ended March 31, 2021, compared to 4.97% during the three months ended March 31, 2020, as a result of lower current market rates on adjustable rate loans and new loans originated during the past year.

Apart from the yield accretion, the average yield on loans was 4.30% during the three months ended June 30, 2021, compared to 4.50% during the three months ended June 30, 2020, as a result of lower current market rates on adjustable rate loans and new loans originated during the past year.

Apart from the yield accretion, the average yield on loans was 4.31% during the six months ended June 30, 2021, compared to 4.73% during the six months ended June 30, 2020.

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.

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If one-month USD-LIBOR exceeded the fixed rate of interest, the Company was required to pay net settlements to the counterparty and record those net payments as a reduction of interest income on loans.

The Company recorded interest income related to the swap of $2.0 million and $1.6 million, respectively, in the three months ended March 31, 2021 and 2020.

The Company recorded interest income related to the interest rate swap of $2.0 million and $2.0 million, respectively, in the three months ended June 30, 2021 and 2020.

The Company recorded interest income related to the interest rate swap of $4.0 million and $3.6 million, respectively, in the six months ended June 30, 2021 and 2020.

In March 2020, the Company and its swap counterparty mutually agreed to terminate the $400 million interest rate swap prior to its contractual maturity.

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Interest Income – Investments and Other Interest-earning Assets

Interest income on investments decreased $266,000 in the three months ended March 31, 2021 compared to the three months ended March 31, 2020.

Interest income decreased $485,000 as a result of lower average interest rates from 3.22% during the three months ended March 31, 2020, to 2.75% during the three month period ended March 31, 2021.

Partially offsetting that decrease, was an

increase of $219,000 as a result of an increase in average balances from $385.0 million during the three months ended March 31, 2020, to $414.7 million during the three months ended March 31, 2021.

Interest income on investments decreased $121,000 in the three months ended June 30, 2021 compared to the three months ended June 30, 2020.

Interest income decreased $306,000 as a result of lower average interest rates from 2.86% during the three months ended June 30, 2020, to 2.58% during the three month period ended June 30, 2021.

Partially offsetting that decrease was an increase of $185,000 as a result of an increase in average balances from $433.4 million during the three months ended June 30, 2020, to $460.0 million during the three months ended June 30, 2021.

Average balances of securities increased primarily due to purchases of agency multi-family mortgage-backed securities which have a fixed rate of interest with expected lives of four to ten years.

These purchased securities fit with the Company’s current asset/liability management strategies.

Interest income on other interest-earning assets decreased $154,000 in the three months ended March 31, 2021 compared to the three months ended March 31, 2020.

Interest income decreased $414,000 as a result of a decrease in average interest rates to 0.10% during the three months ended March 31, 2021 compared to 1.16% during the three months ended March 31, 2020.

Interest income on investments decreased $387,000 in the six months ended June 30, 2021 compared to the six months ended June 30, 2020.

Interest income decreased $787,000 as a result of lower average interest rates from 3.03% during the six months ended June 30, 2020, to 2.66% during the six month period ended June 30, 2021.

Partially offsetting that decrease was an increase of $400,000 as a result of an increase in average balances from $409.2 million during the six months ended June 30, 2020, to $437.5 million during the six months ended June 30, 2021.

Average balances of securities increased primarily due to the investment purchases described above.

Interest income on other interest-earning assets increased $50,000 in the three months ended June 30, 2021 compared to the three months ended June 30, 2020.

Average interest rates were unchanged, at 0.10%, during both the three months ended June 30, 2021 and the three months ended June 30, 2020.

Interest income increased $50,000 as a result of an increase in average balances from $321.4 million during the three months ended June 30, 2020, to $514.7 million during the three months ended June 30, 2021.

Excess liquidity, after repayment of FHLBank borrowings, was maintained at the Federal Reserve Bank as a result of the significant increase in deposits since March 31, 2020.

Interest income on other interest-earning assets decreased $104,000 in the six months ended June 30, 2021 compared to the six months ended June 30, 2020.

Interest income decreased $343,000 as a result of a decrease in average interest rates to 0.10% during the six months ended June 30, 2021 compared to 0.33% during the six months ended June 30, 2020.

Market interest rates earned on balances held at the Federal Reserve Bank were significantly lower in the 2021 period due to significant reductions in the federal funds rate of interest.

Partially offsetting this decrease, interest income increased $260,000 as a result of an increase in average balances from $90.1 million during the three months ended March 31, 2020, to $419.4 million during the three months ended March 31, 2021.

Partially offsetting this decrease, interest income increased $239,000 as a result of an increase in average balances from $205.8 million during the six months ended June 30, 2020, to $467.3 million during the three six ended June 30, 2021.

Excess liquidity, after repayment of FHLBank borrowings, was maintained at the Federal Reserve Bank as a result of the significant increase in deposits since March 31, 2020.

Total Interest Expense

Total interest expense decreased $6.0 million, or 47.8%, during the three months ended March 31, 2021, when compared with the three months ended March 31, 2020, due to a decrease in interest expense on deposits of $6.4 million, or 60.1%, a decrease in interest expense on short-term borrowings and repurchase agreements of $640,000, or 98.6%, and a decrease in interest expense on subordinated debentures issued to capital trust of $103,000, or 47.7%, partially offset by an increase in interest expense on subordinated notes of $1.1 million, or 101.1%.

Total interest expense decreased $4.8 million, or 45.4%, during the three months ended June 30, 2021, when compared with the three months ended June 30, 2020, due to a decrease in interest expense on deposits of $5.6 million, or 61.8% and a decrease in interest expense on subordinated debentures issued to capital trust of $54,000, or 32.3%, partially offset by an increase in interest expense on subordinated notes of $850,000, or 63.5%.

Total interest expense decreased $10.8 million, or 46.7%, during the six months ended June 30, 2021, when compared with the six months ended June 30, 2020, due to a decrease in interest expense on deposits of $11.9 million, or 60.9%, a decrease in interest expense on short-term borrowings and repurchase agreements of $640,000, or 97.1%, and a decrease in interest expense on subordinated debentures issued to capital trust of $157,000, or 41.0%, partially offset by an increase in interest expense on subordinated notes of $2.0 million, or 80.4%.

Interest Expense – Deposits

Interest expense on demand deposits decreased $1.6 million due to average rates of interest that decreased from 0.54% in the three months ended March 31, 2020 to 0.22% in the three months ended March 31, 2021.

Partially offsetting this decrease, interest expense on demand deposits increased $632,000, due to an increase in average balances from $1.58 billion during the three months ended March 31, 2020 to $2.19 billion during the three months ended March 31, 2021.

Interest expense on demand deposits decreased $1.2 million due to average rates of interest that decreased from 0.41% in the three months ended June 30, 2020 to 0.18% in the three months ended June 30, 2021.

Interest rates paid on demand deposits were significantly lower in the 2021 period due to significant reductions in the federal funds rate of interest and other market interest rates.

Partially offsetting this decrease, interest expense on demand deposits increased $398,000, due to an increase in average balances from $1.84 billion during the three months ended June 30, 2020 to $2.31 billion during the three months ended June 30, 2021.

The Company experienced increased balances in various types of money market accounts and certain types of NOW accounts.

Interest expense on time deposits decreased $3.8 million as a result of a decrease in average rates of interest from 1.99% during the three months ended March 31, 2020, to 0.94% during the three months ended March 31, 2021.

Interest expense on time deposits also decreased $1.7 million due to a decrease in average balances of time deposits from $1.71 billion during the three months ended March 31, 2020 to $1.31 billion in the three months ended March 31, 2021.

A large portion of the Company’s certificate of deposit portfolio matures within six to eighteen months and therefore reprices fairly quickly;

Interest expense on demand deposits decreased $2.7 million due to average rates of interest that decreased from 0.47% in the six months ended June 30, 2020 to 0.20% in the six months ended June 30, 2021.

Interest rates paid on demand deposits were significantly lower in the 2021 period due to significant reductions in the federal funds rate of interest and other market interest rates.

Partially offsetting this decrease, interest expense on demand deposits increased $1.0 million due to an increase in average balances from $1.71 billion during the six months ended June 30, 2020 to $2.25 billion during the six months ended June 30, 2021.

The Company experienced increased balances in various types of money market accounts and certain types of NOW accounts.

Interest expense on time deposits decreased $2.9 million as a result of a decrease in average rates of interest from 1.61% during the three months ended June 30, 2020, to 0.80% during the three months ended June 30, 2021.

Interest expense on time deposits also decreased $1.9 million due to a decrease in average balances of time deposits from $1.79 billion during the three months ended June 30, 2020 to $1.21 billion in the three months ended June 30, 2021.

A large portion of the Company’s certificate of deposit portfolio matures within six to twelve months and therefore reprices fairly quickly;

this is consistent with the portfolio over the past several years.

Older certificates of deposit that renewed or were replaced with new deposits generally resulted in the Company paying a lower rate of interest due to market interest rate decreases throughout 2020.

Market interest rates remained low during the first three months of 2021.

The decrease in average balances of time deposits was a result of decreases in both retail customer time deposits obtained through on-line channels and decreases in brokered deposits, primarily those added through the CDARS program purchased funds.

Market interest rates remained low during the first six months of 2021.

The decrease in average balances of time deposits was a result of decreases in both retail customer time deposits obtained through on-line channels and decreases in brokered deposits.

Interest expense on time deposits decreased $6.6 million as a result of a decrease in average rates of interest from 1.80% during the six months ended June 30, 2020, to 0.87% during the six months ended June 30, 2021.

Interest expense on time deposits also decreased $3.6 million due to a decrease in average balances of time deposits from $1.75 billion during the six months ended June 30, 2020 to $1.26 billion in the six months ended June 30, 2021.

A large portion of the Company’s certificate of deposit portfolio matures within six to twelve months and therefore reprices fairly quickly;

this is consistent with the portfolio over the past several years.

Older certificates of deposit that renewed or were replaced with new deposits generally resulted in the Company paying a lower rate of interest due to market interest rate decreases throughout 2020.

Market interest rates remained low during the first six months of 2021.

The decrease in average balances of time deposits was a result of decreases in both retail customer time deposits obtained through on-line channels and decreases in brokered deposits.

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

FHLBank advances were not utilized during the three months ended March 31, 2021 and 2020.

Overnight borrowings from the FHLBank also were not utilized during the three months ended March 31, 2021 and 2020.

Interest expense on short-term borrowings and repurchase agreements decreased $438,000 due to a decrease in average rates from 0.99% in the three months ended March 31, 2020 to 0.03% in the three months ended March 31, 2021.

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

Interest expense on short-term borrowings and repurchase agreements during the three months ended June 30, 2021 was unchanged when compared to the three months ended June 30, 2020.

The average rate of interest was 0.03% for each of the three months ended June 30, 2021 and 2020.

The average balance of short-term borrowings and repurchase agreements decreased $18.7 million from $162.3 million in the three months ended June 30, 2020 to $143.6 million in the three months ended June 30, 2021, which was primarily due to changes in the Company’s funding needs and the mix of funding, which can fluctuate.

Interest expense on short-term borrowings and repurchase agreements decreased $640,000 during the six months ended June 30, 2021 compared to the six months ended June 30, 2020.

Interest expense decrease $479,000 due to a decrease in average rates from 0.62% in the six months ended June 30, 2020 to 0.03% in the six months ended June 30, 2021.

The decrease was due to a decrease in market interest rates during the period.

Interest expense on short-term borrowings and repurchase agreements also decreased $202,000 due to a decrease in average balances from $265.1 million during the three months ended March 31, 2020 to $146.1 million during the three months ended March 31, 2021, which was primarily due to changes in the Company’s funding needs and the mix of funding, which can fluctuate.

During the three months ended March 31, 2021, compared to the three months ended March 31, 2020, interest expense on subordinated debentures issued to capital trusts decreased $103,000 due to lower average interest rates.

The average interest rate was

1.78% in the three months ended March 31, 2021 compared to 3.37% in the three months ended March 31, 2020.

The subordinated debentures are variable-rate debentures which bear interest at an average rate of three-month LIBOR plus 1.60%, adjusting quarterly, which was 1.81% at March 31, 2021.

Interest expense on short-term borrowings and repurchase agreements also decreased $161,000 due to a decrease in average balances from $213.7 million during the six months ended June 30, 2020 to $144.9 million during the six months ended June 30, 2021, which was primarily due to changes in the Company’s funding needs and the mix of funding.

During the three months ended June 30, 2021, compared to the three months ended June 30, 2020, interest expense on subordinated debentures issued to capital trusts decreased $54,000 due to lower average interest rates.

The average interest rate was 1.76% in the three months ended June 30, 2021 compared to 2.60% in the three months ended June 30, 2020.

The subordinated debentures are variable-rate debentures which bear interest at an average rate of three-month LIBOR plus 1.60%, adjusting quarterly, which was 1.78% at June 30, 2021.

There was no change in the average balance of the subordinated debentures between the 2020 and the 2021 periods.

During the six months ended June 30, 2021, compared to the six months ended June 30, 2020, interest expense on subordinated debentures issued to capital trusts decreased $157,000 due to lower average interest rates.

The average interest rate was 1.77% in the six months ended June 30, 2021 compared to 2.99% in the six months ended June 30, 2020.

There was no change in the average balance of the subordinated debentures between the 2020 and the 2021 periods.

In August 2016, the Company issued $75.0 million of 5.25% fixed-to-floating rate subordinated notes due August 15, 2026.

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In both cases, these issuance costs are amortized over the expected life of the notes, which is five years from the issuance date, impacting the overall interest expense on the notes.

During the three months ended March 31, 2021, compared to the three months ended March 31, 2020, interest expense on subordinated notes increased $1.1 million due to higher average balances resulting from the issuance of new notes in the three months ended June 30, 2020.

Interest expense on subordinated notes increased $16,000 due to slightly higher average interest rates.

The average interest rate was 6.01% in the three months ended March 31, 2021 compared to 5.92% in the three months ended March 31, 2020.

In June 2021, the Company announced plans to redeem all $75 million of the Company’s outstanding 5.25% fixed-to-floating rate subordinated notes due August 15, 2026, on August 15, 2021.

The total redemption price will be 100% of the aggregate principal balance of the subordinated notes plus accrued and unpaid interest.

During the three months ended June 30, 2021, compared to the three months ended June 30, 2020, interest expense on subordinated notes increased $870,000 due to higher average balances resulting from the issuance of new notes in the three months ended June 30, 2020.

Interest expense on subordinated notes decreased $20,000 due to slightly lower average interest rates.

The average interest rate was 5.99% in the three months ended June 30, 2020 compared to 5.90% in the three months ended June 30, 2021.

During the six months ended June 30, 2021, compared to the six months ended June 30, 2020, interest expense on subordinated notes increased $2.0 million due to higher average balances resulting from the issuance of new notes in the three months ended June 30, 2020.

The average interest rate declined slightly from 5.96% in the six months ended June 30, 2020 to 5.95% in the six months ended June 30, 2021.

Net Interest Income

Net interest income for the three months ended March 31, 2021 decreased $849,000 to $44.1 million compared to $44.9 million for the three months ended March 31, 2020.

Net interest margin was 3.41% in the three months ended March 31, 2021, compared to 3.84% in the three months ended March 31, 2020, a decrease of 43 basis points, or 11.2%.

Net interest income for the three months ended June 30, 2021 increased $1.2 million to $44.7 million compared to $43.5 million for the three months ended June 30, 2020.

Net interest margin was 3.35% in the three months ended June 30, 2021, compared to 3.39% in the three months ended June 30, 2020, a decrease of 4 basis points, or 1.2%.

In both three month periods, the Company’s net interest income and margin were positively impacted by the increases in expected cash flows from the FDIC-assisted acquired loan pools and the resulting increase to accretable yield, which were previously discussed in Note 7 of the Notes to Consolidated Financial Statements.

The positive impact of these changes in the three months ended March 31, 2021 and 2020 were increases in interest income of $691,000 and $1.9 million, respectively, and increases in net interest margin of five basis points and 16 basis points, respectively.

Excluding the positive impact of the additional yield accretion, in the three months ended March 31, 2021, net interest margin decreased 33 basis points when compared to the year-ago three month period.

The positive impact of these changes in the three months ended June 30, 2021 and 2020 were increases in interest income of $428,000 and $1.5 million, respectively, and increases in net interest margin of four basis points and 12 basis points, respectively.

Excluding the positive impact of the additional yield accretion, in the three months ended June 30, 2021, net interest margin increased four basis points when compared to the year-ago three-month period.

Most of the net interest margin decrease resulted from changes in the asset mix, with average cash equivalents increasing $193 million and average investment securities increasing $27 million.

The average yield on cash equivalents decreased 106 basis points between the 2021 and 2020 periods.

Also in comparing the 2021 and 2020 periods, the average yield on loans decreased 76 basis points while the average rate on deposits declined 80 basis points.

This change in asset mix represents approximately 24 basis points of the decrease, with the additional subordinated notes issued in June 2020 representing eight basis points.

The Company’s overall average interest rate spread decreased 31 basis points, or 8.7%, from 3.54% during the three months ended March 31, 2020 to 3.23% during the three months ended March 31, 2021.

The average yield on loans decreased 31 basis points between the 2021 and 2020 three-month periods, while the average rate on deposits declined 61 basis points.

Net interest income for the six months ended June 30, 2021 increased $380,000 to $88.8 million compared to $88.4 million for the six months ended June 30, 2020.

Net interest margin was 3.38% in the six months ended June 30, 2021, compared to 3.61% in the six months ended June 30, 2020, a decrease of 23 basis points, or 6.4%.

In both six month periods, the Company’s net interest income and margin were positively impacted by the increases in expected cash flows from the FDIC-assisted acquired loan pools and the resulting increase to accretable yield, which were previously discussed in Note 7 of the Notes to Consolidated Financial Statements.

The positive impact of these changes in the six months ended June 30, 2021 and 2020 were increases in interest income of $1.1 million and $3.4 million, respectively, and increases in net interest margin of four basis points and 14 basis points, respectively.

Excluding the positive impact of the additional yield accretion, in the six months ended June 30, 2021, net interest margin decreased 13 basis points when compared to the year-ago six-month period.

Most of the net interest margin decrease resulted from changes in the asset mix, with average cash equivalents increasing $262 million and average investment securities increasing $28 million.

The average yield on cash equivalents decreased 23 basis points between the 2021 and 2020 six-month periods.

Also in comparing the 2021 and 2020 six-month periods, the average yield on loans decreased 53 basis points while the average rate on deposits declined 70 basis points.

The Company's overall average interest rate spread increased 6 basis points, or 1.6%, from 3.12% during the three months ended June 30, 2020 to 3.18% during the three months ended June 30, 2021.

The increase was due to a 49 basis point decrease in the weighted average rate paid on interest-bearing liabilities, partially offset by a 43 basis point decrease in the weighted average yield on interest-earning assets.

In comparing the two periods, the yield on loans decreased 31 basis points and the yield on investment securities decreased 28 basis points.

The rate paid on deposits decreased 61 basis points, the rate paid on subordinated debentures issued to capital trusts decreased 84 basis points, and the rate paid on subordinated notes decreased nine basis points.

The Company's overall average interest rate spread decreased 12 basis points, or 3.6%, from 3.32% during the six months ended June 30, 2020 to 3.20% during the six months ended June 30, 2021.

The decrease was due to a 70 basis point decrease in the weighted average yield on interest-earning assets, partially offset by a 58 basis point decrease in the weighted average rate paid on interest-bearing liabilities.

In comparing the two periods, the yield on loans decreased 53 basis points, the yield on investment securities decreased 37 basis points and the yield on other interest-earning assets decreased 23 basis points.

The rate paid on deposits decreased 80 basis points, the rate paid on short-term borrowings and repurchase agreements decreased 96 basis points, the rate paid on subordinated debentures issued to capital trusts decreased 159 basis points, and the rate paid on subordinated notes increased nine basis points.

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

Provision and Allowance for Credit Losses

The rate paid on deposits decreased 70 basis points, the rate paid on short-term borrowings and repurchase agreements decreased 59 basis points, and the rate paid on subordinated debentures issued to capital trusts decreased 122 basis points.

For additional information on net interest income components, refer to the "Average Balances, Interest Rates and Yields"

tables in this Quarterly Report on Form 10-Q.

Provision for and Allowance for Credit Losses

The Company adopted ASU 2016-13, Financial Instruments – Credit Losses (Topic 326):

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This standard requires the consideration of historical loss experience and current conditions adjusted for reasonable and supportable economic forecasts.

Our 2020 financial statements are prepared under the incurred loss methodology standard.

Our 2020 financial statements were prepared under the incurred loss methodology standard.

Upon adoption of the CECL accounting standard, we increased the balance of our allowance for credit losses related to outstanding loans by $11.6 million and created a liability for potential losses related to the unfunded portion of our loans and commitments of approximately $8.7 million.

The after-tax effect reduced our retained earnings by approximately $14.2 million.

The adjustment was based upon the Company’s analysis of current conditions, assumptions and economic forecasts at

January 1, 2021.

The adjustment was based upon the Company’s analysis of current conditions, assumptions and economic forecasts at January 1, 2021.

ASC 326 requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses as well as the credit quality and underwriting standards of a company’s portfolio.

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Worsening economic conditions from the COVID-19 pandemic, higher inflation or interest rates, or other factors may lead to increased losses in the portfolio and/or requirements for an increase in provision expense.

Management maintains various controls in an attempt to limit future losses, such as a watch list of possible problem loans, documented loan administration policies and loan review staff to review the quality and anticipated collectability of the portfolio.

Management maintains various controls in an attempt to limit future losses, such as a watch list of problem loans and potential problem loans, documented loan administration policies and loan review staff to review the quality and anticipated collectability of the portfolio.

Additional procedures provide for frequent management review of the loan portfolio based on loan size, loan type, delinquencies, financial analysis, on-going correspondence with borrowers and problem loan work-outs.

Management determines which loans are potentially uncollectible, or represent a greater risk of loss, and makes additional provisions to expense, if necessary, to maintain the allowance at a satisfactory level.

The provision for credit losses on loans for the three months ended March 31, 2021 was $300,000 compared with $3.9 million for the three months ended March 31, 2020.

In the three months ended March 31, 2021, the Company experienced net recoveries of $64,000.

Total net charge-offs were $237,000 for the three months ended March 31, 2020.

The provision for losses on unfunded commitments for the quarter ended March 31, 2021 was a credit of $674,000, as the level and mix of unfunded commitments resulted in a decrease in the required reserve for such potential losses.

We have seen and expect to continue to see rapid reductions in the outstanding automobile loan balance as we determined in February 2019 to cease providing indirect lending services to automobile dealerships.

At March 31, 2021, indirect automobile loans totaled approximately $38 million.

During the three months ended June 30, 2021, the Company recorded a negative provision expense of $1.0 million on its portfolio of outstanding loans, compared to a $6.0 million provision expense recorded for the three months ended June 30, 2020.

During the six months ended June 30, 2021, the Company recorded a negative provision expense of $700,000 on its portfolio of outstanding loans, compared to a $9.9 million provision expense recorded for the six months ended June 30, 2020.

The negative provision for credit losses in the 2021 periods reflected continued positive trends in asset quality metrics, combined with an improved economic forecast.

During the three months ended June 30, 2021, the national unemployment rate continued to decrease and many measures of economic growth improved.

In the three months ended June 30, 2021 and 2020, the Company experienced net charge-offs of $100,000 and $127,000, respectively.

Total net charge-offs were $36,000 and $365,000 for the six months ended June 30, 2021 and 2020, respectively.

The provision for losses on unfunded commitments for the three and six months ended June 30, 2021 was a credit of $307,000 and $981,000, respectively, as the level and mix of unfunded commitments resulted in a decrease in the required reserve for such potential losses.

General market conditions and unique circumstances related to specific industries and individual projects contributed to the level of provisions and charge-offs.

Collateral and repayment evaluations of all assets categorized as potential problem loans, non-performing loans or foreclosed assets were completed with corresponding charge-offs or reserve allocations made as appropriate.

In 2020, due to the COVID-19 pandemic and its effects on the overall economy and unemployment, the Company increased its provision for credit losses and increased its allowance for credit losses, even though actual realized net charge-offs were very low.

All FDIC-acquired loans were grouped into pools based on common characteristics and were recorded at their estimated fair values, which incorporated estimated credit losses at the acquisition date.

These loan pools have been systematically reviewed by the Company to determine the risk of losses that may exceed those identified at the time of the acquisition.

Techniques used in determining risk of loss are similar to those used to determine the risk of loss for the legacy Great Southern Bank portfolio, with most focus being placed on those loan pools which include the larger loan relationships and those loan pools which exhibit higher risk characteristics.

characteristics.

Review of the acquired loan portfolio also includes review of financial information, collateral valuations and customer interaction to determine if additional reserves are warranted.

The Bank’s allowance for credit losses as a percentage of total loans was 1.56% and 1.32% at March 31, 2021 and December 31, 2020, respectively.

The Bank’s allowance for credit losses as a percentage of total loans was 1.56% and 1.32% at June 30, 2021 and December 31, 2020, respectively.

Prior to January 1, 2021, the ratio excluded the FDIC-assisted acquired loans.

Management considers the allowance for credit losses adequate to cover losses inherent in the Bank’s loan portfolio at March 31, 2021, based on recent reviews of the Bank’s loan portfolio and current economic conditions.

Management considers the allowance for credit losses adequate to cover losses inherent in the Bank’s loan portfolio at June 30, 2021, based on recent reviews of the Bank’s loan portfolio and current economic conditions.

If challenging economic conditions were to last longer than anticipated or deteriorate further or management’s assessment of the loan portfolio were to change, additional loan loss provisions could be required, thereby adversely affecting the Company’s future results of operations and financial condition.

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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 March 31, 2021, non-performing assets, including FDIC-acquired assets, were $10.9 million, an increase of $2.8 million from $8.1 million at December 31, 2020.

Non-performing assets as a percentage of total assets were 0.19% at March 31, 2021 and 0.15% at December 31, 2020.

At March 31, 2021, non-performing assets, excluding all FDIC-acquired assets, were $6.7 million, an increase of $2.9 million from $3.8 million at December 31, 2020.

Excluding all FDIC-acquired assets, non-performing assets as a percentage of total assets were 0.12% at March 31, 2021, compared to 0.07% at December 31, 2020.

Compared to December 31, 2020, and excluding all FDIC-acquired loans, non-performing loans increased $3.0 million to $6.0 million at March 31, 2021, and foreclosed assets decreased $73,000 to $704,000 at March 31, 2021.

Including all FDIC-acquired loans, when compared to December 31, 2020, non-performing loans increased $2.7 million to $9.5 million at March 31, 2021, and foreclosed assets increased $96,000 to $1.3 million at March 31, 2021.

Non-performing one- to four-family residential loans comprised $4.2 million, or 44.2%, of the total non-performing loans at March 31, 2021, a decrease of $242,000 from December 31, 2020.

Prior to adoption of the CECL accounting standard on January 1, 2021, FDIC-acquired non-performing assets, including foreclosed assets and potential problem loans, were not included in the totals or in the discussion of non-performing loans, potential problem loans and foreclosed assets.

These assets were initially recorded at their estimated fair values as of their acquisition dates and accounted for in pools.

The loan pools were analyzed rather than the individual loans.

The performance of the loan pools acquired in each of the Company’s five FDIC-assisted transactions has been better than expectations as of the acquisition dates.

In the tables below, FDIC-acquired assets are included in their particular collateral categories and then the total FDIC-acquired assets are subtracted from the total balances.

At June 30, 2021, non-performing assets, including FDIC-acquired assets, were $8.6 million, an increase of $465,000 from $8.1 million at December 31, 2020.

Non-performing assets as a percentage of total assets were 0.15% at both June 30, 2021 and December 31, 2020.

At June 30, 2021, non-performing assets, excluding all FDIC-acquired assets, were $5.5 million, an increase of $1.7 million from $3.8 million at December 31, 2020.

Excluding all FDIC-acquired assets, non-performing assets as a percentage of total assets were 0.10% at June 30, 2021, compared to 0.07% at December 31, 2020.

Compared to December 31, 2020, and excluding all FDIC-acquired loans, non-performing loans increased $2.4 million, to $5.4 million at June 30, 2021, and foreclosed assets decreased $643,000, to $134,000 at June 30, 2021.

Including all FDIC-acquired loans, when compared to December 31, 2020, non-performing loans increased $939,000, to $7.8 million at June 30, 2021, and foreclosed assets decreased $474,000, to $749,000 at June 30, 2021.

Non-performing commercial real estate loans comprised $3.3 million, or 42.3%, of the total non-performing loans at June 30, 2021, an increase of $2.5 million from December 31, 2020.

Non-performing one- to four-family residential loans comprised $3.1 million, or 39.4%, of the total non-performing loans at June 30, 2021, a decrease of $1.4 million from December 31, 2020.

The majority of the non-performing FDIC-acquired loans are in the one- to four-family category.

Non-performing commercial real estate loans comprised $3.4 million, or 35.6%, of the total non-performing loans at March 31, 2021, an increase of $2.5 million from December 31, 2020.

Non-performing consumer loans comprised $1.0 million, or 10.7%, of the total non-performing loans at March 31, 2021, a decrease of $252,000 from December 31, 2020.

Non-performing construction and land development loans comprised $622,000, or 6.5%, of the total non-performing loans at March 31, 2021, all of which was added during the three months ended March 31, 2021.

Non-performing commercial business loans comprised $106,000, or 1.1%, of the total non-performing loans at March 31, 2021, a decrease of $8,000 from December 31, 2020.

Non-performing consumer loans comprised $869,000, or 11.1%, of the total non-performing loans at June 30, 2021, a decrease of $399,000 from December 31, 2020.

Non-performing construction and land development loans comprised $468,000, or 6.0%, of the total non-performing loans at June 30, 2021, an increase of $468,000 from December 31, 2020.

Non-performing commercial business loans comprised $99,000, or 1.2%, of the total non-performing loans at June 30, 2021, a decrease of $15,000 from December 31, 2020.

Non-performing Loans.

Activity in the non-performing loans category during the three months ended March 31, 2021 was as follows:

Activity in the non-performing loans category during the six months ended June 30, 2021 was as follows:

Repossessions

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Total non-performing loans net of FDIC-acquired loans

At March 31, 2021, the non-performing one- to four-family residential category included 65 loans, four of which were added during 2021.

At June 30, 2021, the non-performing one- to four-family residential category included 52 loans, three of which were added during 2021.

The largest relationship in the category totaled $340,000, or 11.0% of the total category.

The non-performing commercial real estate category included six loans, two of which were added during 2021.

The largest relationship in the category was added during the period and totaled $2.4 million, or 69.4% of the total category.

It is collateralized by a medical office building in the Chicago, Ill., area.

The non-performing consumer category included 60 loans, 16 of which were added in 2021, and the majority of which are indirect and used automobile loans.

The non-performing land development category consisted of one loan, which totaled $622,000 and was added during 2021, and is collateralized by unimproved zoned vacant ground in southern Illinois.

The non-performing commercial real estate category included five loans, two of which were added during 2021.

The largest relationship in the category was added during 2021 and totaled $2.4 million, or 71.2% of the total category.

It is collateralized by an office building in the Chicago, Ill., area.

The non-performing consumer category included 47 loans, 11 of which were added in 2021, and the majority of which are indirect used automobile loans.

The non-performing land development category consisted of one loan added during 2021, which totaled $468,000 and is collateralized by unimproved zoned vacant ground in southern Illinois.

In the table above, loans that were modified under the guidance provided by the CARES Act are not non-performing loans as they are current under their modified terms.

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Potential Problem Loans.

Compared to December 31, 2020, and excluding all FDIC-acquired loans, potential problem loans decreased $720,000 to $3.6 million at March 31, 2021.

Compared to December 31, 2020, potential problem loans, including the FDIC-assisted acquired loans, decreased $757,000, or 12.9%, to $5.1 million at March 31, 2021.

This decrease was primarily due to payments of $123,000 on potential problem loans, $576,000 in loans upgraded and removed from the potential problem loan category, $34,000 in loans transferred to foreclosed assets and repossessions, and $44,000 in loan write-downs, partially offset by $21,000 in loans added to potential problem loans.

Compared to December 31, 2020, and excluding all FDIC-acquired loans, potential problem loans decreased $985,000, to $3.3 million at June 30, 2021.

Compared to December 31, 2020, potential problem loans, including the FDIC-assisted acquired loans, decreased $1.2 million, or 19.7%, to $4.7 million at June 30, 2021.

This decrease was primarily due to payments of $500,000 on potential problem loans, $576,000 in loans upgraded and removed from the potential problem loan category, $34,000 in loans transferred to foreclosed assets and repossessions, $53,000 in loans transferred to non-performing, and $61,000 in loan charge-offs, partially offset by $73,000 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.

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As noted, we experienced an increased level of loan modifications in late March through June 2020;

however, loan modifications have continued to trend down through March 31, 2021.

however, loan modifications have continued to trend down through June 30, 2021.

In accordance with the CARES Act and guidance from the banking regulatory agencies, we made certain short-term modifications to loan terms to help our customers navigate through the current pandemic situation.

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Further actions on our part, including additions to the allowance for credit losses, could result.

Activity in the potential problem loans categories during the three months ended March 31, 2021, was as follows:

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

Repossessions

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Total potential problem loans net of FDIC-acquired loans

At March 31, 2021, the commercial real estate category of potential problem loans included three loans, none of which were added during 2021.

At June 30, 2021, the commercial real estate category of potential problem loans included three loans, none of which were added during 2021.

The largest relationship in this category (added during 2018), which totaled $1.7 million, or 70.3% of the total category, is collateralized by a mixed use commercial retail building in St.

Payments were current on this relationship at March 31, 2021.

A single loan of $554,000 in the commercial real estate category of potential problem loans was upgraded to performing after six months of consecutive payments.

Payments were current on this relationship at June 30, 2021.

A single loan of $554,000 in the commercial real estate category of potential problem loans (added during 2020) was upgraded and removed from the potential problem loans category after six months of consecutive payments.

The one- to four-family residential category of potential problem loans included 29 loans, none of which were added during 2021.

The largest relationship in this category totaled $314,000, or 17.4% of the total category.

The consumer category of potential problem loans included 36 loans, five of which were added during 2021, the majority of which are indirect and used automobile loans.

The consumer category of potential problem loans included 32 loans, six of which were added during 2021, and the majority of which are indirect used automobile loans.

Other Real Estate Owned and Repossessions.

Of the total $1.9 million of other real estate owned and repossessions at March 31, 2021, $532,000 represents properties which were not acquired through foreclosure.

Activity in other real estate owned and repossessions during the three months ended March 31, 2021, was as follows:

Of the total $1.0 million of other real estate owned and repossessions at June 30, 2021, $284,000 represents properties which were not acquired through foreclosure.

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

(In Thousands)

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Total foreclosed assets and repossessions net of FDIC-acquired assets

At March 31, 2021, the land development category of foreclosed assets included two properties, with one located in the Camdenton, Mo., area and the other in Pleasant Hill, Iowa (this was an FDIC-acquired asset).

The subdivision construction category of foreclosed assets included one property, located in the Branson, Mo., area, and had a balance of $169,000 after a valuation write-down during the period.

The one- to four-family residential category of foreclosed assets included three properties.

Two properties were added during the three months ended March 31, 2021 (both of which were FDIC-acquired assets).

At June 30, 2021, the land development category of foreclosed assets consisted of one property located in central Iowa (this was an FDIC-acquired asset), which was added prior to 2021.

The one- to four-family residential category of foreclosed assets consisted of two properties (both of which were FDIC-acquired assets), both of which were added during 2021.

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

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The Company reviews the credit quality of its loan portfolio using an internal grading system that classifies loans as “Satisfactory,” “Watch,” “Special Mention,” “Substandard” and “Doubtful.” Loans classified as “Watch” are being monitored because of indications of potential weaknesses or deficiencies that may require future classification as special mention or substandard.

In the three months ended March 31, 2021, loans classified as “Watch” decreased $20.0 million, from $64.8 million at December 31, 2020 to $44.8 million at March 31, 2021.

In the six months ended June 30, 2021, loans classified as “Watch” decreased $21.3 million, from $64.8 million at December 31, 2020 to $44.4 million at June 30, 2021.

This decrease was primarily due to loans being upgraded out of the “watch” category, which primarily included one $14.3 million relationship collateralized by a shopping center and one $3.9 million relationship collateralized by a shopping center and other real estate and business assets.

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Non-interest Income

For the three months ended March 31, 2021, non-interest income increased $2.4 million to $9.7 million when compared to the three months ended March 31, 2020, primarily as a result of the following items:

For the three months ended June 30, 2021, non-interest income increased $1.3 million to $9.6 million when compared to the three months ended June 30, 2020, primarily as a result of the following items:

Net gains on loan sales :

Net gains on loan sales increased $2.1 million compared to the prior year period.

The increase was due to an increase in originations of fixed-rate loans during the 2021 period compared to the 2020 period.

Net gains on loan sales increased $772,000 compared to the prior year quarter.

The increase was due to an increase in originations of fixed-rate single-family mortgage loans during the 2021 period compared to the 2020 period.

Fixed rate single-family mortgage loans originated are generally subsequently sold in the secondary market.

Fixed-rate mortgage loan originations increased substantially when market interest rates decreased to historically low levels in 2020.

These loan originations increased substantially when market interest rates decreased to historically low levels in 2020.

Point-of-sale and ATM fees :

Point-of-sale and ATM fees increased $967,000 compared to the prior year period.

This increase was primarily due to a reduction in customer usage in the second quarter of 2020 as the COVID-19 pandemic caused many businesses to close and large portions of the U.

population were required to stay at home for a period of time.

In the quarter ended June 30, 2021, debit card and ATM usage by customers was back to normal levels, and in some cases, increased levels of activity.

Other income :

Other income decreased $740,000 compared to the prior year quarter.

In the 2020 period, the Company recognized approximately $823,000 of fee income related to newly-originated interest rate swaps in the Company’s back-to-back swap program with loan customers and swap counterparties.

Fewer of these types of transactions occurred in the 2021 period, resulting in less fee income.

For the six months ended June 30, 2021, non-interest income increased $3.7 million to $19.3 million when compared to the six months ended June 30, 2020, primarily as a result of the following items:

Net gains on loan sales :

Net gains on loan sales increased $2.9 million compared to the prior year period.

The increase was due to an increase in originations of fixed-rate single-family mortgage loans during the 2021 period compared to the 2020 period.

As noted above, these loan originations increased substantially when market interest rates decreased to historically low levels in 2020.

Point-of-sale and ATM fees :

Point-of-sale and ATM fees increased $1.5 million compared to the prior year period.

This increase was due to the same conditions as noted above in the comparison of the three-month periods.

Gain (loss) on derivative interest rate products :

The net gain on derivative interest rate products increased $881,000 compared to the net loss in the prior year period.

In the 2021 period, the Company recognized a $474,000 increase in the net fair value related to interest rate swaps in the Company’s back-to-back swap program with loan customers and swap counterparties.

As market interest

rates increase, this generally increases the net fair value of these back-to-back swaps.

In the 2021 period, the Company recognized a gain of $295,000 on the change in fair value of its back-to-back interest rate swaps related to commercial loans.

In the 2020 period, the Company recognized a loss of $514,000 on the change in fair value of its back-to-back interest rate swaps related to commercial loans.

Generally, as market interest rates increase, this creates a net increase in the fair value of these instruments.

This is a non-cash item as there was no required settlement of this amount between the Company and its swap counterparties.

Other income :

Other income decreased $616,000 compared to the prior year period.

In the 2020 period, the Company recognized approximately $486,000 of fee income related to newly-originated interest rate swaps in the Company’s back-to-back swap program with loan customers and swap counterparties, with no such fee income generated in the current period.

In the 2020 period, the Company also recognized more income related to the exit of certain tax credit partnerships.

Other income decreased $1.4 million compared to the prior year period.

In the 2020 period, the Company recognized approximately $1.3 million of fee income related to newly-originated interest rate swaps in the Company’s back-to-back swap program with loan customers and swap counterparties, with fewer of these transactions and related fee income generated in the current period.

The Company also recognized approximately $441,000 in income related to the exit of certain tax credit partnerships during the six months ended June 30, 2020.

Non-interest Expense

For the three months ended March 31, 2021, non-interest expense decreased $494,000 to $30.3 million when compared to the three months ended March 31, 2020, primarily as a result of the following items:

For the three months ended June 30, 2021, non-interest expense increased $843,000 to $30.2 million when compared to the three months ended June 30, 2020, primarily as a result of the following item:

Salaries and employee benefits :

Salaries and employee benefits decreased $1.0 million from the prior year period.

In March 2020, the Company approved a special cash bonus to all employees totaling $1.1 million in response to the COVID-19 pandemic.

This bonus was not repeated in the first quarter of 2021.

Salaries and employee benefits increased $1.1 million from the prior year period.

The increase was primarily due to annual employee compensation merit increases and increased incentives in the operations and lending areas, including mortgage lending where new loan originations and sales of many of these loans increased.

In addition, compensation expense was lower in the 2020 period by approximately $400,000 compared to the 2021 period as a result of loan origination costs which were deferred and amortized.

For the six months ended June 30, 2021, non-interest expense increased $349,000 to $60.5 million when compared to the six months ended June 30, 2020, primarily as a result of the following items:

Insurance expense increased $603,000 compared to the prior year period.

This increase was primarily due to an increase in FDIC deposit insurance premiums.

In the three months ended March 31, 2020, the Company had a credit with the FDIC for a portion of premiums previously paid to the deposit insurance fund.

The deposit insurance fund balance was sufficient to result in no premium being due for the three months ended March 31, 2020, while the premium expense was $357,000 in the three months ended March 31, 2021.

In 2020, the Company had a credit with the FDIC for a portion of premiums previously paid to the deposit insurance fund.

The remaining deposit insurance fund credit was utilized in 2020 in addition to $157,000 in premiums being due for the six months ended June 30, 2020, while the premium expense was $713,000 in the six months ended June 30, 2021.

Expense on other real estate owned and repossessions :

Expense on other real estate owned and repossessions decreased $211,000 compared to the prior year period primarily due to higher valuation write-downs of certain foreclosed assets during the 2020 period.

During the 2020 period, expenses related to certain foreclosed assets totaled approximately $414,000, while such expenses in the 2021 period totaled approximately $23,000.

The Company’s efficiency ratio for the three months ended March 31, 2021, was 56.33% compared to 58.91% for the same period in 2020.

In the three months ended March 31, 2021, the improved efficiency ratio was due to an increase in non-interest income and a decrease in non-interest expense.

The Company’s ratio of non-interest expense to average assets was 2.22% and 2.48% for the three months ended March 31, 2021 and 2020, respectively.

The decrease in the current three-month period ratio was primarily due to an increase in average assets.

Average assets for the three months ended March 31, 2021, increased $504.8 million, or 10.2%, from the three months ended March 31, 2020, primarily due to increases in net loans receivable, investment securities and interest bearing cash equivalents.

Expense on other real estate owned and repossessions decreased $377,000 compared to the prior year period primarily due to sales of most foreclosed assets and a smaller amount of repossessed automobiles in the current period, plus higher valuation write-downs of certain foreclosed assets during the prior year period.

During the 2020 period, sales and valuation write-downs of certain foreclosed assets totaled a net expense of $142,000, while sales and valuation write-downs in the 2021 period totaled a net gain of $29,000.

The Company’s efficiency ratio for the three months ended June 30, 2021, was 55.63% compared to 56.75% for the same period in 2020.

The Company’s efficiency ratio for the six months ended June 30, 2021, was 55.98% compared to 57.84% for the same period in 2020.

In the three- and six-month periods ended June 30, 2021, the improved efficiency ratio was due to an increase in net interest income and an increase in non-interest income, partially offset by an increase in non-interest expense.

The Company’s ratio of non-interest expense to average assets was 2.16% and 2.17% for the three months ended June 30, 2021 and 2020, respectively.

The Company’s ratio of non-interest expense to average assets was 2.19% and 2.32% for the six months ended June 30, 2021 and 2020, respectively.

Average assets for the three months ended June 30, 2021, increased $181.6 million, or 3.4%, from the three months ended June 30, 2020, primarily due to increases in investment securities and interest bearing cash equivalents, offset by a decrease in net loans receivable.

Average assets for the six months ended June 30, 2021, increased $343.6 million, or 6.6%, from the six months ended June 30, 2020, primarily due to increases in loans receivable, investment securities and interest bearing cash equivalents.

Provision for Income Taxes

For the three months ended March 31, 2021 and 2020, the Company’s effective tax rate was 21.0% and 15.6%, respectively.

For the three months ended June 30, 2021 and 2020, the Company's effective tax rate was 20.8% and 19.3%, respectively.

For the six months ended June 30, 2021 and 2020, the Company's effective tax rate was 20.9% and 17.4%, respectively.

These effective rates were at or below the statutory federal tax rate of 21%, due primarily to the utilization of certain investment tax credits and to tax-exempt investments and tax-exempt loans, which reduced the Company’s effective tax rate.

The Company’s effective tax rate may fluctuate in future periods as it is impacted by the level and timing of the Company’s utilization of tax credits, the level of tax-exempt investments and loans, the amount of taxable income in various state jurisdictions and the overall level of pre-tax income.

The higher effective tax rate in the 2021 period was due to higher overall income, lower levels of low income housing tax credits and less tax-exempt interest income compared to prior periods.

The higher effective tax rate in the 2021 six-month period was due to higher overall income, lower levels of low income housing tax credits and less tax-exempt interest income compared to prior periods.

The Company's effective income tax rate is currently generally expected to remain at or below the statutory federal tax rate due primarily to the factors noted above.

The Company currently expects its effective tax rate (combined federal and state) to be approximately 19.5% to 20.5% in future periods.

The Company currently expects its effective tax rate (combined federal and state) will be approximately 20.0% to 21.0% in future periods.

Average Balances, Interest Rates and Yields

The following table presents, for the periods indicated, the total dollar amount of interest income from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates, and the net interest margin.

The following tables present, for the periods indicated, the total dollar amount of interest income from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates, and the net interest margin.

Average balances of loans receivable include the average balances of non-accrual loans for each period.

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Interest income on loans includes the amortization of net loan fees which were deferred in accordance with accounting standards.

Net fees included in interest income were

$2.5 million and $1.1 million for the three months ended March 31, 2021 and 2020, respectively.

Net fees included in interest income were $2.5 million and $1.5 million for the three months ended June 30, 2021 and 2020, respectively.

Net fees included in interest income were $5.0 million and $2.6 million for the six months ended June 30, 2021 and 2020, respectively.

Tax-exempt income was not calculated on a tax equivalent basis.

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Three Months Ended

March 31, 2021

March 31, 2020

June 30, 2021

June 30, 2020

(Dollars in Thousands)

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* 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 $45.2 million and $32.6 million for the three months ended March 31, 2021 and 2020, respectively.

In addition, average tax-exempt loans and industrial revenue bonds were $18.7 million and $21.0 million for the three months ended March 31, 2021 and 2020, respectively.

Interest income on tax-exempt assets included in this table was $419,000 and $524,000 for the three months ended March 31, 2021 and 2020, respectively.

Interest income net of disallowed interest expense related to tax-exempt assets was $403,000 and $478,000 for the three months ended March 31, 2021 and 2020, respectively.

(2) The yield on loans at March 31, 2021 does not include the impact of the accretable yield (income) on loans acquired in the FDIC-assisted transactions.

See “Net Interest Income” for a discussion of the effect on results of operations for the three months ended March 31, 2021.

(1) Of the total average balances of investment securities, average tax-exempt investment securities were $40.9 million and $64.0 million for the three months ended June 30, 2021 and 2020, respectively.

In addition, average tax-exempt loans and industrial revenue bonds were $17.9 million and $20.0 million for the three months ended June 30, 2021 and 2020, respectively.

Interest income on tax-exempt assets included in this table was $428,000 and $538,000 for the three months ended June 30, 2021 and 2020, respectively.

Interest income net of disallowed interest expense related to tax-exempt assets was $419,000 and $493,000 for the three months ended June 30, 2021 and 2020, respectively.

(2) The yield on loans at June 30, 2021 does not include the impact of the accretable yield (income) on loans acquired in the FDIC-assisted transactions.

See “Net Interest Income” for a discussion of the effect on results of operations for the three months ended June 30, 2021.

Six Months Ended

June 30, 2021

June 30, 2020

(Dollars in Thousands)

Interest-earning assets:

Loans receivable:

One- to four-family residential

Other residential

Commercial real estate

Commercial business

Industrial revenue bonds(1)

Total loans receivable

Investment securities(1)

Other interest-earning assets

Total interest-earning assets

Non-interest-earning assets:

Cash and cash equivalents

Other non-earning assets

Interest-bearing liabilities:

Interest-bearing demand and savings

Time deposits

Total deposits

Short-term borrowings, repurchase agreements and other interest-bearing liabilities

Subordinated debentures issued to capital trusts

Subordinated notes

Total interest-bearing liabilities

Non-interest-bearing liabilities:

Demand deposits

Other liabilities

Total liabilities

Stockholders’ equity

Total liabilities and stockholders’ equity

Net interest income:

Interest rate spread

Net interest margin*

Average interest-earning assets to average interest- bearing liabilities

* 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 $43.0 million and $48.3 million for the six months ended June 30, 2021 and 2020, respectively.

In addition, average tax-exempt loans and industrial revenue bonds were $18.3 million and $20.7 million for the six months ended June 30, 2021 and 2020, respectively.

Interest income on tax-exempt assets included in this table was $846,000 and $1.1 million for the six months ended June 30, 2021 and 2020, respectively.

Interest income net of disallowed interest expense related to tax-exempt assets was $822,000 and $971,000 for the six months ended June 30, 2021 and 2020, respectively.

(2) The yield on loans at June 30, 2021 does not include the impact of the accretable yield (income) on loans acquired in the FDIC-assisted transactions.

See “Net Interest Income” for a discussion of the effect on results of operations for the six months ended June 30, 2021.

Rate/Volume Analysis

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Tax-exempt income was not calculated on a tax equivalent basis.

Three Months Ended March 31,

Three Months Ended June 30,

Increase (Decrease)

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Net interest income

Six Months Ended June 30,

Increase (Decrease)

(Dollars in Thousands)

Interest-earning assets:

Loans receivable

Investment securities

Other interest-earning assets

Total interest-earning assets

Interest-bearing liabilities:

Demand deposits

Time deposits

Total deposits

Short-term borrowings

Subordinated debentures issued to capital trust

Subordinated notes

Total interest-bearing liabilities

Net interest income

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.

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As a result of the Company’s management of the ability to generate liquidity primarily through liability funding, management believes that the Company maintains overall liquidity sufficient to satisfy its depositors' requirements and meet its borrowers’ credit needs.

March 31, 2021, the Company had commitments of approximately $147.2 million to fund loan originations, $1.18 billion of unused lines of credit and unadvanced loans, and $16.0 million of outstanding letters of credit.

At June 30, 2021, the Company had commitments of approximately $121.3 million to fund loan originations, $1.23 billion of unused lines of credit and unadvanced loans, and $15.1 million of outstanding letters of credit.

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

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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 March 31, 2021, the Company had these available secured lines and on-balance sheet liquidity:

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

Federal Home Loan Bank line

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Statements of Cash Flows.

During both the three months ended March 31, 2020 and 2019, the Company had positive cash flows from operating activities, negative cash flows from investing activities and positive cash flows from financing activities.

During both the six months ended June 30, 2021 and 2020, the Company had positive cash flows from operating activities and positive cash flows from financing activities.

The Company had positive cash flows from investing activities during the six months ended June 30, 2021 and negative cash flows from investing activities during the six months ended June 30, 2020.

Cash flows from operating activities for the periods covered by the Statements of Cash Flows have been primarily related to changes in accrued and deferred assets, credits and other liabilities, the provision for credit losses, depreciation and amortization, realized gains on sales of loans and the amortization of deferred loan origination fees and discounts (premiums) on loans and investments, all of which are non-cash or non-operating adjustments to operating cash flows.

Net income adjusted for non-cash and non-operating items and the origination and sale of loans held for sale were the primary source of cash flows from operating activities.

Operating activities provided cash flows of $24.5 million and $17.7 million during the three months ended March 31, 2021 and 2020, respectively.

During the three months ended March 31, 2021, investing activities used cash of $55.9 million, primarily due to the purchase of investment securities and the purchase of loans, partially offset by the net repayment of loans and payments received on investment securities.

Investing activities in the 2020 period used cash of $4.3 million, primarily due to the net origination of loans, the purchase of investment securities and the purchase of equipment, partially offset by the cash proceeds from the termination of interest rate derivatives and the payments received on investment securities.

dividend payments to stockholders, purchases of the Company’s common stock and the exercise of common stock options.

Financing activities provided cash of $80.2 million and $7.0 million during the three months ended March 31, 2021 and 2020, respectively.

In the 2021 three-month period, financing activities provided cash primarily as a result of net increases in checking account balances, partially offset by decreases in time deposits, decreases in short-term borrowings, dividends paid to stockholders and the purchase of the Company’s common stock.

In the 2020 three-month period, financing activities provided cash primarily as a result of net increases in checking account balances and certificates of deposit, partially offset by decreases in short-term borrowings, dividends paid to stockholders and the purchase of the Company’s common stock.

Operating activities provided cash flows of $54.8 million and $35.4 million during the six months ended June 30, 2021 and 2020, respectively.

During the six months ended June 30, 2021, investing activities provided cash of $33.5 million, primarily due to the net repayment of loans and payments received on investment securities, partially offset by the purchase of investment securities and the purchase of loans.

Investing activities in the 2020 period used cash of $259.5 million, primarily due to the net origination of loans and the purchase of investment securities, partially offset by the cash proceeds from the termination of interest rate derivatives and the payments received on investment securities.

Changes in cash flows from financing activities during the periods covered by the Statements of Cash Flows are 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, purchases of the Company’s common stock and the exercise of common stock options.

Financing activities provided cash of $29.8 million and $477.6 million during the six months ended June 30, 2021 and 2020, respectively.

In the 2021 six-month period, financing activities provided cash primarily as a result of net increases in checking account balances, partially offset by decreases in time deposits, decreases in short-term borrowings, dividends paid to stockholders and the purchase of the Company’s common stock.

In the 2020 six-month period, financing activities provided cash primarily as a result of net increases in checking account balances, partially offset by decreases in short-term borrowings, dividends paid to stockholders and the purchase of the Company’s common stock.

In the 2020 period, the Company also received cash proceeds from the issuance of subordinated notes.

Capital Resources

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

At March 31, 2021, the Company’s total stockholders’ equity and common stockholders’ equity were each $611.5 million, or 10.9% of total assets, equivalent to a book value of $44.65 per common share.

At June 30, 2021, the Company's total stockholders' equity and common stockholders’ equity were each $629.6 million, or 11.3% of total assets, equivalent to a book value of $46.09 per common share.

As of December 31, 2020, total stockholders’ equity and common stockholders’ equity were each $629.7 million, or 11.4% of total assets, equivalent to a book value of $45.79 per common share.

At March 31, 2021, the Company’s tangible common equity to tangible assets ratio was 10.8%, compared to 11.3% at December 31, 2020 (See Non-GAAP Financial Measures below).

Included in stockholders’ equity at March 31, 2021 and December 31, 2020, were unrealized gains (net of taxes) on the Company’s available-for-sale investment securities totaling $9.3 million and $23.3 million, respectively.

This decrease in unrealized gains primarily resulted from rising market interest rates, which decreased the fair value of the investment securities.

Also included in stockholders’ equity at March 31, 2021, were realized gains (net of taxes) on the Company’s cash flow hedge (interest rate swap), which was terminated in March 2020, totaling $28.3 million.

At June 30, 2021, the Company’s tangible common equity to tangible assets ratio was 11.2%, compared to 11.3% at December 31, 2020 (See Non-GAAP Financial Measures below).

Included in stockholders’ equity at June 30, 2021 and December 31, 2020, were unrealized gains (net of taxes) on the Company’s available-for-sale investment securities totaling $15.5 million and $23.3 million, respectively.

This decrease in unrealized gains primarily resulted from rising market interest rates, which decreased the fair value of investment securities.

Also included in stockholders’ equity at June 30, 2021, were realized gains (net of taxes) on the Company’s cash flow hedge (interest rate swap), which was terminated in March 2020, totaling $26.8 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 March 31, 2021, the remaining pre-tax amount to be recorded in interest income was $36.7 million.

At June 30, 2021, the remaining pre-tax amount to be recorded in interest income was $34.7 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).

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Under current guidelines banks must have a minimum common equity Tier 1 capital ratio of 4.50%, a minimum Tier 1 risk-based capital ratio of 6.00%, a minimum total risk-based capital ratio of 8.00%, and a minimum Tier 1 leverage ratio of 4.00%.

To be considered “well capitalized,” banks must have a minimum common equity Tier 1 capital ratio of 6.50%, a minimum Tier 1 risk-based capital ratio of 8.00%, a minimum total risk-based capital ratio of 10.00%, and a minimum Tier 1 leverage ratio of 5.00%.

On March 31, 2021, the Bank’s common equity Tier 1 capital ratio was 14.1%, its Tier 1 capital ratio was 14.1%, its total capital ratio was 15.4% and its Tier 1 leverage ratio was 11.8%.

As a result, as of March 31, 2021, the Bank was well capitalized, with capital ratios in excess of those required to qualify as such.

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 June 30, 2021, the Bank's common equity Tier 1 capital ratio was 14.4%, its Tier 1 capital ratio was 14.4%, its total capital ratio was 15.6% and its Tier 1 leverage ratio was 11.7%.

As a result, as of June 30, 2021, the Bank was well capitalized, with capital ratios in excess of those required to qualify as such.

On December 31, 2020, the Bank's common equity Tier 1 capital ratio was 13.7%, its Tier 1 capital ratio was 13.7%, its total capital ratio was 14.9% and its Tier 1 leverage ratio was 11.8%.

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The FRB has established capital regulations for bank holding companies that generally parallel the capital regulations for banks.

On March 31, 2021, the Company’s common equity Tier 1 capital ratio was 12.7%, its Tier 1 capital ratio was 13.2%, its total capital ratio was 17.8% and its Tier 1 leverage ratio was 11.0%.

On June 30, 2021, the Company's common equity Tier 1 capital ratio was 13.0%, its Tier 1 capital ratio was 13.6%, its total capital ratio was 18.1% and its Tier 1 leverage ratio was 11.0%.

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 March 31, 2021, the Company was considered well capitalized, with capital ratios in excess of those required to qualify as such.

As of June 30, 2021, the Company was considered well capitalized, with capital ratios in excess of those required to qualify as such.

On December 31, 2020, the Company's common equity Tier 1 capital ratio was 12.2%, its Tier 1 capital ratio was 12.7%, its total capital ratio was 17.2% and its Tier 1 leverage ratio was 10.9%.

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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 March 31, 2021, the Company and the Bank both had additional common equity Tier 1 capital in excess of the buffer amount.

At June 30, 2021, the Company and the Bank both had additional common equity Tier 1 capital in excess of the buffer amount.

On June 30, 2021, the Company announced its intention to redeem on August 15, 2021 all of the Company’s outstanding 5.25% fixed-to-floating rate subordinated notes due August 15, 2026, with an aggregate principal balance of $75 million.

The total redemption price will be 100% of the aggregate principal balance of the subordinated notes plus accrued and unpaid interest.

The Company will utilize excess cash on hand for the redemption payment.

The annual combined interest expense and amortization of deferred issuance costs on these subordinated notes has been approximately $4.3 million.

These subordinated notes have been included as capital in the Company’s calculation of its total capital ratio.

For additional information, see “Item 1.

Business--Government Supervision and Regulation-Capital” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

During the three months ended March 31, 2021, the Company declared a common stock cash dividend of $0.34 per share, or 25% of net income per diluted common share for that three month period, and paid a common stock cash dividend of $0.34 per share (which was declared in December 2020).

During the three months ended March 31, 2020, the Company declared common stock cash dividends of $1.34 per share, or 129% of net income per diluted common share for that three month period, and paid common stock cash dividends of $1.34 per share ($0.34 of which was declared in December 2019).

The dividends declared and paid during the three months ended March 31, 2020 included a special cash dividend of $1.00 per share in addition to the regular cash dividend of $0.34 per share.

During the three months ended June 30, 2021, the Company declared a common stock cash dividend of $0.34 per share, or 23% of net income per diluted common share for that three month period, and paid a common stock cash dividend of $0.34 per share (which was declared in March 2021).

During the three months ended June 30, 2020, the Company declared common stock cash dividends of $0.34 per share, or 37% of net income per diluted common share for that three month period, and paid common stock cash dividends of $0.34 per share (which was declared in March 2020).

During the six months ended June 30, 2021, the Company declared common stock cash dividends of $0.68 per share, or 24% of net income per diluted common share for that six month period, and paid common stock cash dividends of $0.68 per share ($0.34 of which was declared in December 2020).

During the six months ended June 30, 2020, the Company declared common stock cash dividends of $1.68 per share, or 85% of net income per diluted common share for that six month period, and paid common stock cash dividends of $1.68 per share ($0.34 of which was declared in December 2019).

The total dividends declared during the six months ended June 30, 2020, consisted of regular cash dividends of $0.68 per share and a special cash dividend of $1.00 per share.

The Board of Directors meets regularly to consider the level and the timing of dividend payments.

The $0.34 per share dividend declared but unpaid as of March 31, 2021, was paid to stockholders in April 2021.

The $0.34 per share dividend declared but unpaid as of June 30, 2021, was paid to stockholders in July 2021.

Common Stock Repurchases and Issuances .

The Company has been in various buy-back programs since May 1990.

During the three months ended March 31, 2021, the Company issued 15,904 shares of stock at an average price of $39.09 per share to cover stock option exercises and repurchased 74,865 shares of its common stock at an average price of $50.50 per share.

During the three months ended March 31, 2020, the Company issued 6,475 shares of stock at an average price of $37.58 per share to cover stock option exercises and repurchased 183,707 shares of its common stock at an average price of $44.36 per share.

During the three months ended June 30, 2021, the Company issued 33,227 shares of stock at an average price of $44.36 per share to cover stock option exercises and repurchased 67,514 shares of its common stock at an average price of $54.50 per share.

During the three months ended June 30, 2020, the Company issued 600 shares of stock at an average price of $23.19 per share to cover stock option exercises and did not repurchase any shares of its common stock.

During the six months ended June 30, 2021, the Company issued 49,131 shares of stock at an average price of $42.66 per share to cover stock option exercises and repurchased 142,379 shares of its common stock at an average price of $52.39 per share.

During the six months ended June 30, 2020, the Company issued 7,075 shares of stock at an average price of $36.36 per share to cover stock option exercises and repurchased 183,707 shares of its common stock at an average price of $44.36 per share.

Management has historically utilized stock buy-back programs from time to time as long as management believed that repurchasing the stock would contribute to the overall growth of shareholder value.

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Ratio of Tangible Common Equity to Tangible Assets

June 30, 2021

December 31, 2020

(Dollars in Thousands)

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis