What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2022-05-06 compared with 2021-11-05 · 299 added, 527 removed, 760 unchanged (52% of the section changed)

4 unchanged sentences

(In thousands, except number of shares)

SEPTEMBER 30,

Interest-bearing deposits in other financial institutions

1 unchanged sentence

Available-for-sale securities

Held-to-maturity securities

Mortgage loans held for sale

Loans receivable, net of allowance for credit losses of $ 63,629 – September 2021;

net of allowance for loan losses of $ 55,743 - December 2020

Loans receivable, net of allowance for credit losses of $ 60,797 – March 2022;

$ 60,754 – December 2021

Interest receivable

19 unchanged sentences

authorized 1,000,000 shares;

issued and outstanding September 2021 and December 2020 - - 0 - shares

issued and outstanding March 2022 and December 2021 - - 0 - shares

Common stock, $ .01 par value;

authorized 20,000,000 shares;

issued and outstanding September 2021 – 13,366,737 shares;

issued and outstanding March 2022 – 12,760,972 shares;

December 2021 – 13,128,493 shares

10 unchanged sentences

THREE MONTHS ENDED

SEPTEMBER 30,

INTEREST INCOME

2 unchanged sentences

INTEREST EXPENSE

Short-term borrowings and repurchase agreements

Subordinated debentures issued to capital trust

Subordinated notes

TOTAL INTEREST EXPENSE

NET INTEREST INCOME

PROVISION (CREDIT) FOR CREDIT LOSSES ON LOANS

PROVISION FOR UNFUNDED COMMITMENTS

NET INTEREST INCOME AFTER PROVISION (CREDIT) FOR CREDIT LOSSES AND PROVISION FOR UNFUNDED COMMITMENTS

NON-INTEREST INCOME

Overdraft and insufficient funds fees

Point-Of-Sale and ATM fee income and service charges

Net gains on loan sales

Late charges and fees on loans

Gain on derivative interest rate products

TOTAL NON-INTEREST INCOME

NON-INTEREST EXPENSE

Salaries and employee benefits

Net occupancy and equipment expense

Office supplies and printing

Legal, audit and other professional fees

Expense on other real estate and repossessions

Acquired deposit intangible asset amortization

Other operating expenses

TOTAL NON-INTEREST EXPENSE

INCOME BEFORE INCOME TAXES

PROVISION FOR INCOME TAXES

NET INCOME AND NET INCOME AVAILABLE TO COMMON STOCKHOLDERS

Basic Earnings Per Common Share

Diluted Earnings Per Common Share

Dividends Declared Per Common Share

See Notes to Consolidated Financial Statements

GREAT SOUTHERN BANCORP, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)

NINE MONTHS ENDED

SEPTEMBER 30,

INTEREST INCOME

Investment securities and other

TOTAL INTEREST INCOME

INTEREST EXPENSE

Short-term borrowings and repurchase agreements

Securities sold under reverse repurchase agreements

Short-term borrowings, overnight FHLBank borrowings and other interest-bearing liabilities

Subordinated debentures issued to capital trust

2 unchanged sentences

NET INTEREST INCOME

PROVISION (CREDIT) FOR CREDIT LOSSES ON LOANS

PROVISION FOR CREDIT LOSSES ON LOANS

CREDIT FOR UNFUNDED COMMITMENTS

NET INTEREST INCOME AFTER PROVISION (CREDIT) FOR CREDIT LOSSES AND CREDIT FOR UNFUNDED COMMITMENTS

NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES AND CREDIT FOR UNFUNDED COMMITMENTS

NON-INTEREST INCOME

2 unchanged sentences

Net gains on loan sales

Net realized gain on sale of available-for-sale securities

Late charges and fees on loans

Gain (loss) on derivative interest rate products

Net realized gains on sales of available-for-sale securities

Gain on derivative interest rate products

TOTAL NON-INTEREST INCOME

20 unchanged sentences

THREE MONTHS ENDED

SEPTEMBER 30,

Unrealized depreciation on available-for-sale securities, net of taxes (credit) of $( 5,966 ) and $( 4,109 ), for 2022 and 2021, respectively

Amortization of realized gain on termination of cash flow hedge, net of taxes (credit) of $( 468 ) and $( 467 ), for 2021 and 2020, respectively

Comprehensive Income

NINE MONTHS ENDED

SEPTEMBER 30,

Unrealized appreciation (depreciation) on available-for-sale securities, net of taxes (credit) of $( 3,314 ) and $ 4,482 , for 2021 and 2020, respectively

Unrealized gain on securities transferred to held-to-maturity, net of taxes of $ 224 and $- 0 - for 2022 and 2021, respectively

reclassification adjustment for gains included in net income, net of taxes of $ 2 and $- 0 - for 2022 and 2021, respectively

Change in fair value of cash flow hedge, net of taxes of $ 0 and $ 3,519 , for 2021 and 2020, respectively

Amortization of realized gain on termination of cash flow hedge, net of taxes (credit) of $( 456 ) and $( 457 ), for 2022 and 2021, respectively

Comprehensive Income

See Notes to Consolidated Financial Statements

GREAT SOUTHERN BANCORP, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except per share data)

THREE MONTHS ENDED SEPTEMBER 30, 2020

Comprehensive

Paid-in Capital

Income (Loss)

Balance, June 30, 2020

Stock issued under Stock Option Plan

Common dividends declared, $ 0.34 per share

Other comprehensive loss

Purchase of the Company’s common stock

Reclassification of treasury stock per Maryland law

Balance, September 30, 2020

THREE MONTHS ENDED SEPTEMBER 30, 2021

Comprehensive

Paid-in Capital

Income (Loss)

Balance, June 30, 2021

Stock issued under Stock Option Plan

Common dividends declared, $ 0.36 per share

Other comprehensive loss

Purchase of the Company’s common stock

Reclassification of treasury stock per Maryland law

Balance, September 30, 2021

Change in value of active cash flow hedge, net of taxes (credit) of $( 911 ) and $- 0 - for 2022 and 2021, respectively

Comprehensive Income (Loss)

See Notes to Consolidated Financial Statements

3 unchanged sentences

(In thousands, except per share data)

NINE MONTHS ENDED SEPTEMBER 30, 2020

THREE MONTHS ENDED MARCH 31, 2021

Comprehensive

2 unchanged sentences

Balance, January 1, 2021

Impact of ASU 2016-13 adoption

Stock issued under Stock Option Plan

Common dividends declared, $ 0.34 per share

Other comprehensive gain

Change in fair value of cash flow hedges

Change in unrealized loss on available-for-sale securities

Purchase of the Company’s common stock

Reclassification of treasury stock per Maryland law

Balance, September 30, 2020

NINE MONTHS ENDED SEPTEMBER 30, 2021

Balance, March 31, 2021

THREE MONTHS ENDED MARCH 31, 2022

Comprehensive

2 unchanged sentences

Balance, January 1, 2022

Impact of ASU 2016-13 adoption

Stock issued under Stock Option Plan

Common dividends declared, $ 0.36 per share

Other comprehensive loss

Change in fair value of cash flow hedges

Change in unrealized gain on held-to-maturity securities

Change in unrealized loss on available-for-sale securities

Purchase of the Company’s common stock

Reclassification of treasury stock per Maryland law

Balance, September 30, 2021

Balance, March 31, 2022

See Notes to Consolidated Financial Statements

3 unchanged sentences

(In thousands)

NINE MONTHS ENDED

SEPTEMBER 30,

THREE MONTHS ENDED

CASH FLOWS FROM OPERATING ACTIVITIES

3 unchanged sentences

Compensation expense for stock option grants

Provision (credit) for credit losses on loans

Provision for credit losses on loans

Provision (credit) for unfunded commitments

Net gains on loan sales

Net realized gains on sales of available-for-sale securities

Net (gains) losses on sale of premises and equipment

Net (gains) losses on sale/write-down of other real estate owned and repossessions

Net gain on loan sales

Net loss on sale of premises and equipment

Net loss on sale/write-down of other real estate owned and repossessions

Net gain on sale of available-for-sale investments

Accretion of deferred income, premiums, discounts and other

Loss (gain) on derivative interest rate products

Gain on derivative interest rate products

Deferred income taxes

6 unchanged sentences

Net change in loans

Purchase of loans and loan participations

Purchase of loans

Purchase of premises and equipment

1 unchanged sentence

Proceeds from sale of other real estate owned and repossessions

Capitalized costs on other real estate owned

Proceeds from termination of interest rate derivative

Proceeds from sales of available-for-sale securities

Proceeds from sale of available-for-sale securities

Proceeds from maturities and calls of available-for-sale securities

2 unchanged sentences

Redemption of Federal Home Loan Bank stock and change in other interest-earning assets

Net cash provided by (used in) investing activities

Net cash used in investing activities

CASH FLOWS FROM FINANCING ACTIVITIES

3 unchanged sentences

Advances from borrowers for taxes and insurance

Proceeds from issuance of subordinated notes

Redemption of subordinated notes

Dividends paid

2 unchanged sentences

Net cash provided by (used in) financing activities

INCREASES IN CASH AND CASH EQUIVALENTS

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

9 unchanged sentences

Those adjustments consist only of normal recurring adjustments.

Operating results for the three and nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the full year.

Operating results for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the full year.

The consolidated statement of financial condition of the Company as of December 31, 2021, has been derived from the audited consolidated statement of financial condition of the Company as of that date.

6 unchanged sentences

The Company’s business primarily consists of the operations of Great Southern Bank (the “Bank”), which provides a full range of financial services to customers primarily located in Missouri, Iowa, Kansas, Minnesota, Nebraska and Arkansas.

The Bank also originates commercial loans from lending offices in Atlanta, Ga., Chicago, Ill., Dallas, Texas, Denver, Colo., Omaha, Neb.

and Tulsa, Okla.

The Bank also originates commercial loans from lending offices in Atlanta, Chicago, Dallas, Denver, Omaha, Nebraska, Phoenix, and Tulsa, Oklahoma.

The Company and the Bank are subject to regulation by certain federal and state agencies and undergo periodic examinations by those regulatory agencies.

4 unchanged sentences

RECENT ACCOUNTING PRONOUNCEMENTS

In June 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (ASU) No.

2016-13, Financial Instruments – Credit Losses (Topic 326) .

The Update amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities.

For assets held at amortized cost basis, Topic 326 eliminates the probable initial recognition threshold in GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses.

The Update affects entities holding financial assets and net investments in leases that are not accounted for at fair value through net income.

The Update affects loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash.

The Update was set to be effective for the Company on January 1, 2020.

During March 2020, pursuant to the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) and guidance from the SEC and FASB, we elected to delay adoption of the new accounting standard under the Update, which is referred to as the current expected credit loss (“CECL”) methodology.

In December 2020, additional legislation was enacted that amended certain provisions of the CARES Act.

One of the provisions that was affected by this additional legislation allowed for the election to further delay the adoption of the CECL accounting standard to January 1, 2022.

An adoption date of January 1, 2021, was also an acceptable option and we elected January 1, 2021 as our adoption date for the CECL standard.

As a result, our 2020 financial statements were prepared under the incurred loss methodology standard for accounting for loan losses.

The adoption of the CECL model during the first quarter of 2021 required us to recognize a one-time cumulative adjustment to our allowance for credit losses and a liability for potential losses related to the unfunded portion of our loans and commitments in order to fully transition from the incurred loss model to the CECL model.

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

The after-tax effect of these adjustments decreased our retained earnings by $ 14.2 million.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848):

16 unchanged sentences

ASU 2021-01 has not had, and is not expected to have, a material impact on the Company’s consolidated financial statements.

In March 2022, the FASB issued ASU 2022-01, Derivatives and Hedging (Topic 815):

Fair Value Hedging – Portfolio Layer Method .

ASU 2022-01 further clarifies certain targeted improvements to the optional hedge accounting model that were made under ASU 2017-12.

ASU 2022-01 expands the last-of-layer method and renames this method to portfolio layer method to reflect this expansion, as well as expanding the scope of the portfolio layer method to include nonprepayable financial assets.

It also specifies eligible hedging instruments and provides additional guidance on the accounting for and disclosure of hedge basis adjustments that are applicable to the portfolio layer method.

ASU 2022-01 permits an entity to apply the same portfolio hedging method to both prepayable and nonprepayable financial assets, thereby allowing consistent accounting for similar hedges.

ASU 2022-01 is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years.

Early adoption is permitted for any entity that has adopted the amendments in ASU 2017-12 for the corresponding period.

The application of ASU 2022-01 is not expected to have a material impact on the Company’s consolidated financial statements.

In March 2022, the FASB issued ASU 2022-02, Financial Instruments – Credit Losses (Topic 326):

Troubled Debt Restructurings and Vintage Disclosures .

ASU 2022-02 eliminates the troubled debt restructuring recognition and measurement guidance and, instead, requires that an entity evaluate whether the loan modification represents a new loan or a continuation of an existing loan.

It also enhances existing disclosure requirements and introduces new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty.

The Company has previously adopted ASU 2016-13;

therefore, ASU 2022-02 is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years.

Early adoption is permitted for any entity that has adopted the amendments in ASU 2016-13.

The application of ASU 2022-02 is not expected to have a material impact on the Company’s consolidated financial statements.

EARNINGS PER SHARE

Three Months Ended September 30,

(In Thousands, Except Per Share Data)

Average common shares outstanding

Net income and net income available to common stockholders

Per common share amount

Average common shares outstanding

Net effect of dilutive stock options – based on the treasury stock method

using average market price

Diluted common shares

Net income and net income available to common stockholders

Per common share amount

Nine Months Ended September 30,

Three Months Ended March 31,

(In Thousands, Except Per Share Data)

3 unchanged sentences

Average common shares outstanding

Net effect of dilutive stock options – based on the treasury stock method

using average market price

Net effect of dilutive stock options – based on the treasury stock method using average market price

Diluted common shares

1 unchanged sentence

Per common share amount

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

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

Options outstanding at March 31, 2022 and 2021, to purchase 376,237 and 352,488 shares of common stock, respectively, were not included in the computation of diluted earnings per common share for each of the three month periods because the exercise prices of such options were greater than the average market prices of the common stock for the three months ended March 31, 2022 and 2021, respectively.

INVESTMENT SECURITIES

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

September 30, 2021

Held-to-maturity securities (“HTM”), which include any security for which the Company has both the positive intent and ability to hold until maturity, are carried at historical cost adjusted for amortization of premiums and accretion of discounts.

Premiums and discounts are amortized and accreted, respectively, to interest income over the security’s estimated life.

Prepayments are anticipated for certain mortgage-backed securities.

Premiums on callable securities are amortized to their earliest call date.

Available-for-sale securities (“AFS”), which include any security for which the Company has no immediate plan to sell but which may be sold in the future, are carried at fair value.

Realized gains and losses, based on specifically identified amortized cost of the individual security, are included in noninterest income.

Unrealized gains and losses are recorded, net of related income tax effects, in stockholders’ equity.

Premiums and discounts are amortized and accreted, respectively, to interest income over the estimated life of the security.

Prepayments are anticipated for certain mortgage-backed and Small Business Administration (SBA) securities.

Premiums on callable securities are amortized to their earliest call date.

During the three months ended March 31, 2022, the Company transferred, at fair value, $ 226.5 million of securities from the available-for-sale portfolio to the held-to-maturity portfolio.

The related net unrealized gross gains were $ 1.0 million;

$ 775,000 (net of income taxes) remained in accumulated other comprehensive income and will be amortized over the remaining life of the securities.

No gains or losses on these securities were recognized at the time of transfer.

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

March 31, 2022

(In Thousands)

4 unchanged sentences

Small Business Administration securities

March 31, 2022

(In Thousands)

HELD-TO-MATURITY SECURITIES:

Agency mortgage-backed securities

Agency collateralized mortgage obligations

States and political subdivisions

December 31, 2021

5 unchanged sentences

Small Business Administration securities

The amortized cost and fair value of available-for-sale securities at September 30, 2021, by contractual maturity, are shown below.

No securities were classified as held-to-maturity at December 31, 2021.

The amortized cost and fair value of available-for-sale and held-to-maturity securities at March 31, 2022, by contractual maturity, are shown below.

Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

Available-for-Sale

Held-to-Maturity

Carrying Value

(In Thousands)

One year or less

After one through five years

After five through ten years

After ten years

After one through two years

After two through three years

After three through four years

After four through five years

After five through fifteen years

After fifteen years

Securities not due on a single maturity date

There were no securities classified as held to maturity at September 30, 2021 or December 31, 2020.

Certain investments in debt securities are reported in the financial statements at an amount less than their historical cost.

Total fair value of these investments at September 30, 2021 and December 31, 2020, was approximately $ 99.0 million and $ 24.2 million, respectively, which is approximately 22.9 % and 5.8 % of the Company’s available-for-sale investment portfolio, respectively.

Certain available-for-sale investments in debt securities are reported in the financial statements at an amount less than their amortized cost.

Total fair value of these investments at March 31, 2022 and December 31, 2021, was approximately $ 351.5 million and $ 173.9 million, respectively, which is approximately 76.2 % and 34.7 % of the Company’s total available-for-sale investment portfolio.

A high percentage of the unrealized losses were related to the Company’s mortgage-backed securities, collateralized mortgage obligations and Small Business Administration securities, which are issued and guaranteed by U.S.

government-sponsored entities and agencies.

The Company’s state and political subdivisions securities are investments in insured fixed rate municipal bonds for which the issuers continue to make timely principal and interest payments under the contractual terms of the securities.

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

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

September 30, 2021

The following table shows the Company’s available-for-sale and held-to-maturity securities gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2022 and December 31, 2021:

March 31, 2022

Less than 12 Months

2 unchanged sentences

(In Thousands)

AVAILABLE-FOR-SALE SECURITIES:

Agency mortgage-backed securities

1 unchanged sentence

States and political subdivisions securities

Small Business Administration securities

March 31, 2022

Less than 12 Months

12 Months or More

Description of Securities

(In Thousands)

HELD-TO-MATURITY SECURITIES:

Agency mortgage-backed securities

Agency collateralized mortgage obligations

States and political subdivisions securities

December 31, 2021

3 unchanged sentences

(In Thousands)

AVAILABLE-FOR-SALE SECURITIES:

Agency mortgage-backed securities

Agency collateralized mortgage obligations

Small Business Administration securities

States and political subdivisions securities

There were no sales of available-for-sale securities during the three or nine months ended September 30, 2021.

There were no sales of available-for-sale securities during the three months ended September 30, 2020.Gross gains of $ 78,000 resulting from sales of available-for-sale securities were realized during the nine months ended September 30, 2020.

Available-for-sale securities totaling $ 4.9 million were sold during the three months ended March 31, 2022.

A gain of $ 7,000 resulting from the sale of this available-for-sale security was recognized during the three months ended March 31, 2022.

There were no sales of available-for-sale securities during the three months ended March 31, 2021.

Gains and losses on sales of securities are determined on the specific-identification method.

Allowance for Credit Losses On January 1, 2021, the Company began evaluating all securities quarterly to determine if any securities in a loss position require a provision for credit losses in accordance with ASC 326, Measurement of Credit Losses on Financial Instruments .

Allowance for Credit Losses.

On January 1, 2021, the Company began evaluating all securities quarterly to determine if any securities in a loss position require a provision for credit losses in accordance with ASC 326, Measurement of Credit Losses on Financial Instruments .

All of the mortgage-backed, collateralized mortgage, and SBA securities held by the Company are issued by U.S.

9 unchanged sentences

Accordingly, no allowance for credit losses has been recorded for these securities.

Amounts Reclassified Out of Accumulated Other Comprehensive Income.

There were no amounts reclassified from accumulated other comprehensive income during the three or nine months ended September 30, 2021 and 2020.

LOANS AND ALLOWANCE FOR CREDIT LOSSES

12 unchanged sentences

In accordance with the standard, management did not reassess whether PCI assets met the criteria of PCD assets as of the date of adoption.

On January 1, 2021, the amortized cost basis of the PCD assets were adjusted to reflect the addition of $ 1.9 million of the allowance for credit losses.

Results for reporting periods after December 31, 2020 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP.

Under the incurred loss model, the Company delayed recognition of losses until it was probable that a loss was incurred.

The allowance for loan losses was established as losses were estimated to have occurred through a provision for loan losses charged to earnings.

Loan losses were charged against the allowance when management believed the uncollectability of a loan balance was confirmed.

The allowance for loan losses was evaluated on a regular basis by management and was based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions.

The allowance consisted of allocated and general components.

The allocated component relates to loans that are classified as impaired.

For loans classified as impaired, an allowance is established when the present value of expected future cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan.

The general component covers non-classified loans and is based on historical charge-off experience and expected loss given default derived from the Company’s internal risk rating process.

Results for reporting periods after December 31, 2020 include loans acquired and accounted for under ASC 310-30 net of discount within the loan classes, while for reporting periods prior to January 1, 2021 the loans acquired and accounted for under ASC 310-30 are separate.

Beginning on January 1, 2021, the allowance for credit losses is measured using an average historical loss model which incorporates relevant information about past events (including historical credit loss experience on loans with similar risk characteristics), current conditions, and reasonable and supportable forecasts that affect the collectability of the remaining cash flows over the contractual term of the loans.

On January 1, 2021, the amortized cost basis of the PCD assets were adjusted to reflect the addition of $ 1.9 million to allowance for credit losses.

The allowance for credit losses is measured using an average historical loss model which incorporates relevant information about past events (including historical credit loss experience on loans with similar risk characteristics), current conditions, and reasonable and supportable forecasts that affect the collectability of the remaining cash flows over the contractual term of the loans.

The allowance for credit losses is measured on a collective (pool) basis.

17 unchanged sentences

however, the liability for unfunded lending commitments incorporates assumptions for the portion of unfunded commitments that are expected to be funded.

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

September 30,

Classes of loans at March 31, 2022 and December 31, 2021 were as follows:

(In Thousands)

12 unchanged sentences

Home equity lines of credit

Loans acquired and accounted for under ASC 310-30, net of discounts (1)

Undisbursed portion of loans in process

Allowance for credit losses

1 unchanged sentence

Weighted average interest rate

(1) Loans acquired and accounted for under ASC 310-30 of $ 79.5 million have been included in the totals by loan class as of September 30, 2021.

At the date of CECL adoption, the Company did not reassess whether PCI loans met the criteria of PCD loans.

The following tables present the classes of loans by aging.

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

September 30, 2021

March 31, 2022

> 90 Days Past

14 unchanged sentences

Home equity lines of credit

FDIC-assisted acquired loans

December 31, 2021

15 unchanged sentences

Home equity lines of credit

Loans acquired and accounted for under ASC 310-30, net of discounts

Loans are placed on nonaccrual status at 90 days past due and interest is considered a loss unless the loan is well secured and in the process of collection.

3 unchanged sentences

Consumer loans are charged-off at specified delinquency dates consistent with regulatory guidelines.

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

September 30,

Non-accruing loans are summarized as follows:

(In Thousands)

13 unchanged sentences

Total non-accruing loans

FDIC-assisted acquired loans

Total non-accruing loans net of FDIC-assisted acquired loans

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

Nonaccrual loans for which there is no related allowance for credit losses as of September 30, 2021 had an amortized cost of $ 2.7 million.

No interest income was recorded on these loans for the three months ended March 31, 2022 and 2021, respectively.

Nonaccrual loans for which there is no related allowance for credit losses as of March 31, 2022 had an amortized cost of $ 3.3 million.

These loans are individually assessed and do not require an allowance due to being adequately collateralized under the collateral-dependent valuation method.

A collateral-dependent loan is a financial asset for which the repayment is expected to be

provided substantially through the operation or sale of the collateral when the borrower is experiencing financial difficulty based on the Company’s assessment as of the reporting date.

A collateral-dependent loan is a financial asset for which the repayment is expected to be provided substantially through the operation or sale of the collateral when the borrower is experiencing financial difficulty based on the Company’s assessment as of the reporting date.

Collateral-dependent loans are identified by either a classified risk rating or TDR status and a loan balance equal to or greater than $ 100,000 , including, but not limited to, any loan in process of foreclosure or repossession.

The following tables present the activity in the allowance for credit losses by portfolio segment for the three and nine months ended September 30, 2021.

On January 1, 2021, the Company adopted the CECL methodology, which added $ 11.6 million to the total Allowance for Credit Loss, including $ 1.9 million of remaining discount on loans that were previously accounted for as PCI.

During the three months ended September 30, 2021, the Company recorded a credit (negative expense) of $ 3.0 million on its portfolio of outstanding loans, compared to a $ 4.5 million provision expense recorded for the quarter ended September 30, 2020.

During the nine months ended September 30, 2021, the Company recorded a credit (negative expense) of $ 3.7 million on its portfolio of outstanding loans, compared to a $ 14.4 million provision expense recorded for the nine months ended September 30, 2020.

The following tables present the activity in the allowance for credit losses by portfolio segment for the three months ended March 31, 2022 and 2021.

During the three months ended March 31, 2022, the Company did not record a provision expense on its portfolio of outstanding loans, compared to a $ 300,000 provision expense recorded for the quarter ended March 31, 2021.

One- to Four-

2 unchanged sentences

Allowance for credit losses

Balance, June 30, 2021

Balance, December 31, 2020

CECL adoption

Balance, January 1, 2021

Provision (credit) charged to expense

Losses charged off

Balance, September 30, 2021

Balance, March 31, 2021

Allowance for credit losses

Balance, December 31, 2020

CECL adoption

Balance, January 1, 2022

1 unchanged sentence

Losses charged off

Balance, September 30, 2021

The following table presents the activity in the allowance for unfunded commitments by portfolio segment for the three and nine months ended September 30, 2021.

On January 1, 2021, the Company adopted the CECL methodology, which created an $ 8.7 million allowance for unfunded commitments.

The provision for losses on unfunded commitments for the three and nine months ended September 30, 2021 was a provision expense of $ 643,000 and a credit (negative expense) of $ 338,000 , respectively, as the level and mix of unfunded commitments resulted in a decrease in the required reserve for such potential losses in the nine-month period.

Balance, March 31, 2022

The following table presents the activity in the allowance for unfunded commitments by portfolio segment for the three months ended March 31, 2022 and 2021.

The provision for losses on unfunded commitments for the three months ended March 31, 2022 was a credit (negative expense) to provision expense of $ 193,000 , compared to a credit (negative expense) of $ 673,000 for the three months ended March 31, 2021.

The level and mix of unfunded commitments resulted in a decrease in the required reserve for such potential losses in each of the three month periods presented.

One- to Four-

2 unchanged sentences

Allowance for unfunded commitments

Balance, June 30, 2021

Provision (credit) charged to expense

Balance, September 30, 2021

Allowance for unfunded commitments

Balance, December 31, 2020

2 unchanged sentences

Provision (credit) charged to expense

Balance, September 30, 2021

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

One- to Four-

Residential and

(In Thousands)

Allowance for loan losses

Balance, July 1, 2020

Provision (credit) charged to expense

Losses charged off

Balance, September 30, 2020

Allowance for loan losses

Balance, March 31, 2021

Allowance for unfunded commitments

Balance, January 1, 2022

Provision charged to expense

Losses charged off

Balance, September 30, 2020

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

One- to Four-

Residential and

(In Thousands)

Allowance for loan losses

Individually evaluated for impairment

Collectively evaluated for impairment

Loans acquired and accounted for under ASC 310-30

Individually evaluated for impairment

Collectively evaluated for impairment

Loans acquired and accounted for under ASC 310-30

Provision (credit) charged to expense

Balance, March 31, 2022

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

5 unchanged sentences

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

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

September 30, 2021

(In Thousands)

One- to four-family residential construction

Subdivision construction

Land development

Commercial construction

Owner occupied one- to four- family residential

Non-owner occupied one- to four-family residential

Commercial real estate

Other residential

Commercial business

Industrial revenue bonds

Consumer auto

Consumer other

Home equity lines of credit

The following table presents information pertaining to impaired loans as of December 31, 2020, in accordance with previous GAAP prior to the adoption of ASU 2016-13.

A loan is considered impaired, in accordance with the impairment accounting guidance (FASB ASC 310-10-35-16), when based on current information and events, it is probable the Company will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan.

Impaired loans include not only nonperforming loans or classified loans, but also loans modified in TDRs where concessions have been granted to borrowers experiencing financial difficulties.

At or for the Year Ended December 31, 2020

(In Thousands)

One- to four-family residential construction

Subdivision construction

Land development

Commercial construction

Owner occupied one- to four- family residential

Non-owner occupied one- to four-family residential

Commercial real estate

Other residential

Commercial business

Industrial revenue bonds

Consumer auto

Consumer other

Home equity lines of credit

September 30, 2020

(In Thousands)

One- to four-family residential construction

Subdivision construction

Land development

Commercial construction

Owner occupied one- to four- family residential

Non-owner occupied one- to four-family residential

Commercial real estate

Other residential

Commercial business

Industrial revenue bonds

Consumer auto

Consumer other

Home equity lines of credit

Three Months Ended

Nine Months Ended

September 30, 2020

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

March 31, 2022

December 31, 2021

(In Thousands)

12 unchanged sentences

Home equity lines of credit

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

TDRs by class are presented below as of September 30, 2021 and December 31, 2020.

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

September 30, 2021

TDRs by class are presented below as of March 31, 2022 and December 31, 2021.

March 31, 2022

Accruing TDR Loans

8 unchanged sentences

December 31, 2021

Troubled Debt

Accruing TDR Loans

Non-accruing TDR Loans

Total TDR Loans

(In Thousands)

Commercial real estate

Construction and land development

One- to four-family residential

Other residential

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

Three Months Ended September 30, 2021

Interest Only

(In Thousands)

One- to four-family residential

Three Months Ended September 30, 2020

Interest Only

(In Thousands)

One- to four-family residential

Commercial real estate

Commercial business

Nine Months Ended September 30, 2021

The following tables present newly restructured loans, which were considered TDRs, during the three months ended March 31, 2022 and 2021, respectively, by type of modification:

Three Months Ended March 31, 2022

Interest Only

1 unchanged sentence

Commercial real estate

One- to four-family residential

Nine Months Ended September 30, 2020

Three Months Ended March 31, 2021

Interest Only

(In Thousands)

One- to four-family residential

Commercial real estate

Commercial business

At September 30, 2021, of the $ 3.8 million in TDRs, $ 2.9 million were classified as substandard using the Company’s internal grading system, which is described below.

The Company had no TDRs that were modified in the previous 12 months and subsequently defaulted during the nine months ended September 30, 2021.

At March 31, 2022, of the $ 3.7 million in TDRs, $ 2.8 million were classified as substandard using the Company’s internal grading system, which is described below.

The Company had one TDR that was modified in the previous 12 months and subsequently defaulted during the three months ended March 31, 2022.

At December 31, 2021, of the $ 3.9 million in TDRs, $ 2.9 million were classified as substandard using the Company’s internal grading system.

The Company had no TDRs that were modified in the previous 12 months and subsequently defaulted during the year ended December 31, 2021.

During the three and nine months ended September 30, 2021, $ 96,000 and $ 433,000 of loans, respectively, met the criteria for placement back on accrual status.

During the three months ended March 31, 2022, $ 221,000 of loans met the criteria for placement back on accrual status.

The criteria are generally a minimum of six months of consistent and timely payment performance under original or modified terms.

During the three and nine months ended September 30, 2020, one $ 155,000 one- to four-family loan designated as a TDR met the criteria for placement back on accrual status.

In addition to the above loans considered TDRs, at September 30, 2021, the Company had remaining eight modified commercial loans with an aggregate principal balance outstanding of $ 38.2 million and 16 modified consumer and mortgage loans with an aggregate principal balance outstanding of $ 1.6 million.

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

healthcare - $ 11.6 million;

hotel/motel - $ 10.9 million;

retail - $ 7.7 million;

office - $ 6.9 million.

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

The loan modifications discussed in the preceding two paragraphs are within the guidance provided by the CARES Act and subsequent legislation, the federal banking regulatory agencies, the SEC and the FASB;

therefore, they are not considered TDRs.

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

During the three months ended March 31, 2021, four loans designated as TDRs, totaling $ 27,000 , met the criteria for placement back on accrual status.

The Company utilizes an internal risk rating system comprised of a series of grades to categorize loans according to perceived risk associated with the expectation of debt repayment.

22 unchanged sentences

In addition to the regular monitoring performed by the lending personnel and credit committees, loans are subject to review by the credit review department, which verifies the appropriateness of the risk ratings for the loans chosen as part of its risk-based review plan.

The following tables present a summary of loans by risk category and past due status separated by origination and loan class as of September 30, 2021.

The first table, which is as of September 30, 2021, was prepared using the CECL methodology and includes $ 79.5 million in FDIC-assisted acquired loans included in the loan class categories.

The following tables present a summary of loans by risk category and past due status separated by origination and loan class as of March 31, 2022.

The remaining accretable discount of $ 204,000 has not been included in this table.

See Note 7 for further discussion of the FDIC-assisted acquired loans and related discount.

The undisbursed portions of loans in process have been netted against the gross loan balances for presentation in this table.

The second table, which is as of December 31, 2020, was prepared using the previous GAAP incurred loss methodology prior to the adoption of ASU 2016-13.

The $ 98.6 million in FDIC-assisted acquired loans are shown as a total, not within the loan class categories.

Term Loans by Origination Year

8 unchanged sentences

Classified (7-9)

Land development construction

Construction and land development

Satisfactory (1-4)

27 unchanged sentences

Classified (7-9)

December 31, 2020

The following tables present a summary of loans by risk category and past due status separated by origination and loan class as of December 31, 2021.

The remaining accretable discount of $ 429,000 has not been included in this table.

Term Loans by Origination Year

(In Thousands)

One- to four-family residential construction

Satisfactory (1-4)

Special Mention (6)

Classified (7-9)

Subdivision construction

Land development

Commercial construction

Owner occupied one- to-four-family residential

Non-owner occupied one- to-four-family residential

Commercial real estate

Satisfactory (1-4)

Special Mention (6)

Classified (7-9)

Construction and land development

Satisfactory (1-4)

Special Mention (6)

Classified (7-9)

Other construction

Satisfactory (1-4)

Special Mention (6)

Classified (7-9)

One- to four-family residential

Satisfactory (1-4)

Special Mention (6)

Classified (7-9)

Other residential

Satisfactory (1-4)

Special Mention (6)

Classified (7-9)

Commercial real estate

Satisfactory (1-4)

Special Mention (6)

Classified (7-9)

Commercial business

Industrial revenue bonds

Consumer auto

Consumer other

Home equity lines of credit

Loans acquired and accounted for under ASC 310‑30, net of discounts

Satisfactory (1-4)

Special Mention (6)

Classified (7-9)

Satisfactory (1-4)

Special Mention (6)

Classified (7-9)

Satisfactory (1-4)

Special Mention (6)

Classified (7-9)

FDIC-ASSISTED ACQUIRED LOANS

14 unchanged sentences

Based upon the acquisition date fair values of the net assets acquired, no goodwill was recorded.

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

The following table presents the balances of the acquired loans related to the various FDIC-assisted transactions at March 31, 2022 and December 31, 2021.

(In Thousands)

September 30, 2021

March 31,2022

Gross loans receivable

4 unchanged sentences

Balance of accretable discount due to change in expected losses

Expected loss remaining

Net carrying value of loans receivable

Fair Value and Expected Cash Flows .

At the times of these acquisitions, the Company determined the fair value of the loan portfolios based on several assumptions.

Factors considered in the valuations were projected cash flows for the loans, type of loan and related collateral, classification status, fixed or variable interest rate, term of loan, current discount rates and whether or not the loan was amortizing.

Loans were grouped together according to similar characteristics and were treated in the aggregate when applying various valuation techniques.

Management also estimated the amount of credit losses that were expected to be realized for the loan portfolios.

The discounted cash flow approach was used to value each pool of loans.

For non-performing loans, fair value was estimated by calculating the present value of the recoverable cash flows using a discount rate based on comparable corporate bond rates.

The amount of the estimated cash flows expected to be received from the acquired loan pools in excess of the fair values recorded for the loan pools is referred to as the accretable yield.

The accretable yield is recognized as interest income over the estimated lives of the loans.

Because the balance of these adjustments to accretable yield will be recognized generally over the remaining lives of the loan pools, they will impact future periods as well.

As of January 1, 2021, we adopted the new accounting standard related to accounting for credit losses.

With the adoption of this standard, discounts are no longer reclassified from non-accretable to accretable.

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

As of September 30, 2021, the remaining accretable yield adjustment that will affect interest income was $ 606,000 .

Of the remaining adjustments affecting interest income, we expect to recognize approximately $ 178,000 of interest income during the remainder of 2021.

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

Three Months Ended

September 30, 2021

September 30, 2020

(In Thousands, Except Per Share Data and Basis Points Data)

Impact on net interest income/

net interest margin (in basis points)

Net impact to pre-tax income

Net impact net of taxes

Impact to diluted earnings per share

Nine Months Ended

September 30, 2021

September 30, 2020

(In Thousands, Except Per Share Data and Basis Points Data)

Impact on net interest income/

net interest margin (in basis points)

Net impact to pre-tax income

Net impact net of taxes

Impact to diluted earnings per share

OTHER REAL ESTATE OWNED AND REPOSSESSIONS

Major classifications of other real estate owned were as follows:

September 30,

(In Thousands)

8 unchanged sentences

Commercial business

Foreclosed assets acquired through FDIC-assisted transactions, net of discounts

Foreclosed assets held for sale and repossessions, net

Foreclosed assets held for sale and repossessions

Other real estate owned not acquired through foreclosure

Other real estate owned and repossessions

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

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

At September 30, 2021, residential mortgage loans totaling $ 39,000 were in the process of foreclosure, none of which were acquired loans related to FDIC-assisted transactions.

Pursuant to Section 4022 of the CARES Act, the Company suspended all foreclosure proceedings.

Under this provision, no mortgage servicer of any federally-backed mortgage loan was permitted to initiate any foreclosure process, whether judicial or non-judicial, move for a foreclosure judgment or order of sale, or execute a foreclosure- related eviction or foreclosure sale for a 60-day period, beginning March 18, 2020.

This provision’s foreclosure moratorium was subsequently extended through July 31, 2021, and its eviction moratorium was subsequently extended through September 30, 2021.

At December 31, 2020, residential mortgage loans totaling $ 602,000 were in the process of foreclosure, $ 518,000 of which were acquired loans related to FDIC-assisted transactions.

At March 31, 2022 and December 31, 2021, other real estate owned not acquired through foreclosure included four properties, all of which were branch locations that were closed and held for sale.

At March 31, 2022, residential mortgage loans totaling $ 20,000 were in the process of foreclosure.

At December 31, 2021, residential mortgage loans totaling $ 125,000 were in the process of foreclosure.

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

Three Months Ended

September 30,

(In Thousands)

2 unchanged sentences

Operating expenses, net of rental income

Nine Months Ended

September 30,

(In Thousands)

Net gains on sales of other real estate owned and repossessions

Valuation write-downs

Operating expenses, net of rental income

PREMISES AND EQUIPMENT

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

September 30,

(In Thousands)

2 unchanged sentences

Operating leases right of use asset

Less accumulated depreciation

accumulated depreciation

The Company adopted ASU 2016 02, Leases (Topic 842), on January 1, 2019, using the modified retrospective transition approach whereby comparative periods were not restated.

The Company also elected certain relief options under the ASU, including the option not to recognize right of use asset and lease liabilities that arise from short-term leases (leases with terms of twelve months or less).

Adoption of this ASU resulted in the Company initially recognizing a right of use asset and corresponding lease liability of $ 9.5 million as of January 1, 2019.

The amount of the right of use asset and corresponding lease liability will fluctuate based on the Company’s lease terminations, new leases and lease modifications and renewals.

As of September 30, 2021, the lease right of use asset value was $ 7.9 million and the corresponding lease liability was $ 8.1 million.

As of March 31, 2022, the lease right of use asset value was $ 7.5 million and the corresponding lease liability was $ 7.7 million.

As of December 31, 2021, the lease right of use asset value was $ 7.7 million and the corresponding lease liability was $ 7.9 million.

All of our leases are classified as operating leases (as they were prior to January 1, 2019), and therefore were previously not recognized on the Company’s consolidated statements of financial condition.

With the adoption of ASU 2016-02, these operating leases are now included as a right of use asset in the premises and equipment line item on the Company’s consolidated statements of financial condition.

The corresponding lease liability is included in the accrued expenses and other liabilities line item on the Company’s consolidated statements of financial condition.

Because these leases are classified as operating leases, the adoption of the new standard did not have a material effect on lease expense on the Company’s consolidated statements of income.

ASU 2016-02 provides a number of optional practical expedients in transition.

The Company has elected the “package of practical expedients,” which permits the Company not to reassess under the new standard the prior conclusions about lease identification, lease classification and initial direct costs.

The Company also elected the use of the hindsight, a practical expedient which permits the use of information available after lease inception to determine the lease term via the knowledge of renewal options exercised not available as of the lease’s inception.

The practical expedient pertaining to land easements is not applicable to the Company.

ASU 2016-02 also requires certain other accounting elections.

The Company elected the short-term lease recognition exemption for all leases that qualify, meaning those with terms under twelve months.

Right of use assets or lease liabilities are not to be recognized for short-term leases.

The Company also elected the practical expedient to not separate lease and non-lease components for all leases.

The Company’s short-term leases related to offsite ATMs have both fixed and variable lease payment components, based on the number of transactions at the various ATMs.

The variable portion of these lease payments is not material and the total lease expense related to ATMs for the three months ended September 30, 2021 and 2020 was $ 79,000 and $ 76,000 , respectively.

The total lease expense related to ATMs for the nine months ended September 30, 2021 and 2020, was $ 230,000 and $ 202,000 , respectively.

The calculated amounts of the right of use assets and lease liabilities in the table below are impacted by the length of the lease term and the discount rate used to present value the minimum lease payments.

The Company’s lease agreements often include one or more options to renew the extended term in the calculation of the right of use asset and lease liability.

Regarding the discount rate, the ASU requires the use of the rate implicit in the lease at the Company’s discretion.

If at lease inception, the Company considers the exercising of a renewal option to be reasonably certain, the Company will include the extended term in the calculation of the right of use asset and lease liability.

Regarding the discount rate, the ASU requires the use of the rate implicit in the lease whenever this rate is readily determinable.

As this rate is rarely determinable, the Company utilizes its incremental borrowing rate at lease inception over a similar term.

The discount rate utilized was the FHLBank borrowing rate for the term corresponding to the expected term of the lease.

The remaining expected lease terms range from 1.5 years to 17.2 years with a weighted-average lease term of 9.5 years .

At March 31, 2022, expected lease terms range from 1.0 years to 16.7 years with a weighted-average lease term of 9.1 years.

The weighted-average discount rate was 3.44 %.

At or For the Three Months Ended

September 30, 2021

September 30, 2020

For the three months ended March 31, 2022 and 2021, lease expense was $ 369,000 and $ 374,000 , respectively.

The Company’s short-term leases related to offsite ATMs have both fixed and variable lease payment components, based on the number of transactions at the various ATMs.

The variable portion of these lease payments is not material and the total lease expense related to ATMs for the three months ended March 31, 2022 and 2021 was $ 69,000 and $ 66,000 , respectively.

The Company does not sublease any of its leased facilities;

however, it does lease to other parties portions of facilities that it owns.

In terms of being the lessor in these circumstances, all of these lease agreements are classified as operating leases.

In the three months ended March 31, 2022 and 2021, income recognized from these lease agreements was $ 294,000 and $ 291,000 , respectively, and was included in occupancy and equipment expense.

March 31, 2022

December 31, 2021

(In Thousands)

2 unchanged sentences

Operating leases liability

Statement of Income

Operating lease costs classified as occupancy and equipment expense (includes short-term lease costs and amortization of right of use asset)

Supplemental Cash Flow Information

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases

Right of use assets obtained in exchange for lease obligations:

Operating leases

At or For the Nine Months Ended

September 30, 2021

September 30, 2020

For the Three Months Ended

March 31, 2022

March 31, 2021

(In Thousands)

Statement of Financial Condition

Operating leases right of use asset

Operating leases liability

Statement of Income

3 unchanged sentences

Operating cash flows from operating leases

Right of use assets obtained in exchange for lease obligations:

Operating leases

For the three months ended September 30, 2021 and 2020, lease expense was $ 386,000 and $ 397,000 , respectively.

For both the nine months ended September 30, 2021 and 2020, lease expense was $ 1.2 million.

At September 30, 2021, future expected lease payments for leases with terms exceeding one year were as follows (In Thousands):

At March 31, 2022, future expected lease payments for leases with terms exceeding one year were as follows (In Thousands):

Future lease payments expected

Less interest portion of lease payments

interest portion of lease payments

Lease liability

The Company does not sublease any of its leased facilities;

however, it does lease to other parties portions of facilities that it owns.

In terms of being the lessor in these circumstances, all of these lease agreements are classified as operating leases.

In the three months ended September 30, 2021 and 2020, income recognized from these lessor agreements was $ 323,000 and $ 294,000 , respectively, and was included in occupancy and equipment expense.

In the nine months ended September 30, 2021 and 2020, income recognized from these lessor agreements was $ 903,000 and $ 864,000 , respectively, and was included in occupancy and equipment expense.

September 30,

(In Thousands)

9 unchanged sentences

ADVANCES FROM FEDERAL HOME LOAN BANK

At September 30, 2021 and December 31, 2020, there were no outstanding term advances from the Federal Home Loan Bank of Des Moines (FHLBank advances).

There were no overnight funds from the Federal Home Loan Bank of Des Moines as of September 30, 2021 or December 31, 2020.

At March 31, 2022 and December 31, 2021, there were no outstanding term advances from the Federal Home Loan Bank of Des Moines (FHLBank advances).

There were no overnight funds from the Federal Home Loan Bank of Des Moines as of March 31, 2022 or December 31, 2021.

SECURITIES SOLD UNDER REVERSE REPURCHASE AGREEMENTS AND SHORT-TERM BORROWINGS

September 30,

(In Thousands)

7 unchanged sentences

All agreements are written on a term of one month or less.

At March 31, 2022 and December 31, 2021, other interest-bearing liabilities consisted of cash collateral held by the Company to satisfy minimum collateral posting thresholds with its derivative dealer counterparties representing the termination value of derivatives, which at such time were in a net asset position.

Under the collateral agreements between the parties, either party may choose to provide cash or securities to satisfy its collateral requirements.

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

September 30, 2021

March 31, 2022

December 31, 2021

14 unchanged sentences

Total debt issuance costs of approximately $ 1.5 million were deferred and are being amortized over the expected life of the notes, which is five years .

Amortization of the debt issuance costs during the three months ended September 30, 2021 and 2020 of both subordinated notes offerings totaled $ 146,000 and $ 186,000 , respectively.

Amortization of the debt issuance costs during the nine months ended September 30, 2021 and 2020 totaled $ 512,000 and $ 428,000 , respectively.

Amortization of the debt issuance costs during the three months ended March 31, 2022 and 2021 of both subordinated notes offerings totaled $ 74,000 and $ 183,000 , respectively.

Amortization of the debt issuance costs is included in interest expense on subordinated notes in the consolidated statements of income, resulting in an imputed interest rate of 5.97 %.

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

September 30, 2021

At March 31, 2022 and December 31, 2021, subordinated notes are summarized as follows:

March 31, 2022

December 31, 2021

3 unchanged sentences

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

Three Months Ended September 30,

Tax at statutory rate

Nontaxable interest and dividends

Nine Months Ended September 30,

Three Months Ended March 31,

Tax at statutory rate

7 unchanged sentences

The Company has engaged legal and tax advisors and continues to believe it will ultimately prevail on the issue;

however, if the Company does not prevail, the tax obligation to the State of Missouri could be up to $ 4.0 million.

however, if the Company does not prevail, the tax obligation to the State of Missouri could be up to a total of $ 4.0 million for these tax years and additional amounts could be levied for certain subsequent tax years.

The State of Illinois Department of Revenue recently began a tax examination of the Company's Illinois Business Income Tax for the 2018 and 2019 tax years.

DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

ASC Topic 820, Fair Value Measurements , defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Topic 820 also specifies a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

Topic 820 also specifies a fair value hierarchy

which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The standard describes three levels of inputs that may be used to measure fair value:

10 unchanged sentences

Recurring Measurements

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

Fair value measurements using

2 unchanged sentences

(In Thousands)

September 30, 2021

March 31, 2022

Available-for-sale securities

Agency mortgage-backed securities

5 unchanged sentences

December 31, 2021

Available-for-sale securities

Agency mortgage-backed securities

4 unchanged sentences

Interest rate derivative liability

The following is a description of inputs and valuation methodologies used for assets recorded at fair value on a recurring basis and recognized in the accompanying statements of financial condition at September 30, 2021 and December 31, 2020, as well as the general classification of such assets pursuant to the valuation hierarchy.

There have been no significant changes in the valuation techniques during the nine-month period ended September 30, 2021.

The following is a description of inputs and valuation methodologies used for assets recorded at fair value on a recurring basis and recognized in the accompanying statements of financial condition at March 31, 2022 and December 31, 2021 as well as the general classification of such assets pursuant to the valuation hierarchy.

There have been no significant changes in the valuation techniques during the three-month period ended March 31, 2022.

For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described below.

6 unchanged sentences

Additional inputs include indicative values derived from the independent pricing service’s proprietary computerized models.

There were no recurring Level 3 securities at September 30, 2021 or December 31, 2020.

There were no recurring Level 3 securities at March 31, 2022 or December 31, 2021.

Interest Rate Derivatives.

1 unchanged sentence

Nonrecurring Measurements

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

Fair Value Measurements Using

2 unchanged sentences

(In Thousands)

September 30, 2021

March 31, 2022

Collateral-dependent loans

1 unchanged sentence

December 31, 2021

Impaired loans

Collateral-dependent loans

Foreclosed assets held for sale

7 unchanged sentences

The Company typically does not have commercial loans held for sale.

At September 30, 2021 and December 31, 2020, the aggregate fair value of mortgage loans held for sale was not materially different than their cost.

At March 31, 2022 and December 31, 2021, the aggregate fair value of mortgage loans held for sale was not materially different than their cost.

Accordingly, no mortgage loans held for sale were marked down and reported at fair value.

Impaired Loans .

Prior to January 1, 2021, a loan was considered to be impaired when it was probable that all of the principal and interest due may not be collected according to its contractual terms.

Generally, when a loan was considered impaired, the amount of reserve required under FASB ASC 310, Receivables , was measured based on the fair value of the underlying collateral.

The Company made such measurements on all material loans deemed impaired using the fair value of the collateral for collateral-dependent loans.

The fair value of collateral used by the Company was determined by obtaining an observable market price or by obtaining an appraised value from an independent, licensed or certified appraiser, using observable market data.

This data included information such as selling price of similar properties and capitalization rates of similar properties sold within the market, expected future cash flows or earnings of the subject property based on current market expectations, and other relevant factors.

All appraised values were adjusted for market-related trends based on the Company’s experience in sales and other appraisals of similar property types as well as estimated selling costs.

Each quarter, management reviewed all collateral-dependent impaired loans on a loan-by-loan basis to determine whether updated appraisals were necessary based on loan performance, collateral type and guarantor support.

At times, the Company measured the fair value of collateral-dependent impaired loans using appraisals with dates more than one year prior to the date of review.

These appraisals were discounted by applying current, observable market data about similar property types such as sales contracts, estimations of value by individuals familiar with the market, other appraisals, sales or collateral assessments based on current market activity until updated appraisals are obtained.

Depending on the length of time since an appraisal was performed and the data provided through our reviews, these appraisals were typically discounted 10 - 40 %.

The policy described above was the same for all types of collateral-dependent impaired loans.

Subsequent to December 31, 2020, these loans are no longer considered impaired.

Collateral-Dependent Loans .

The Company records collateral-dependent loans as Nonrecurring Level 3.

If a loan’s fair value as estimated by the Company is less than its carrying value, the Company either records a charge-off of the portion of the loan that exceeds the fair value or establishes a reserve within the allowance for credit losses specific to the loan.

Loans for which such charge-offs or reserves were recorded during the year ended December 31, 2020, are shown in the table above (net of reserves).

Loans for which such charge-offs or reserves were recorded during the three months ended March 31, 2022 or the year ended December 31, 2021, are shown in the table above (net of reserves).

Foreclosed Assets Held for Sale.

1 unchanged sentence

Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less estimated cost to sell.

Foreclosed assets held for sale are classified within Level 3 of the fair value hierarchy.

The foreclosed assets represented in the table above have been re-measured during the nine months ended September 30, 2021 or the year ended December 31, 2020, subsequent to their initial transfer to foreclosed assets.

Foreclosed assets held for sale are classified within Level 3 of the

fair value hierarchy.

The foreclosed assets represented in the table above have been re-measured during the three months ended March 31, 2022 or the year ended December 31, 2021, subsequent to their initial transfer to foreclosed assets.

Fair Value of Financial Instruments

2 unchanged sentences

The carrying amount approximates fair value.

Held-to-Maturity Securities.

Fair values for held-to-maturity securities are estimated based on quoted market prices of similar securities.

For these securities, the Company obtains fair value measurements from an independent pricing service, which represent either quoted market prices for the identical asset or fair values determined by pricing models, or other model-based valuation techniques, that consider observable market data, such as interest rate volatilities, LIBOR yield curve, credit spreads and prices from market makers and live trading systems.

These securities include U.S.

government agency securities, mortgage-backed securities, state and municipal bonds and certain other investments.

Loans and Interest Receivable.

21 unchanged sentences

Because no market exists for certain of these financial instruments and because management does not intend to sell these financial instruments, the Company does not know whether the fair values shown below represent values at which the respective financial instruments could be sold individually or in the aggregate.

September 30, 2021

March 31, 2022

December 31, 2021

2 unchanged sentences

Cash and cash equivalents

Held-to-maturity securities

Mortgage loans held for sale

1 unchanged sentence

Interest receivable

Investment in FHLBank stock and other interest-earning assets

Investment in FHLBank stock and other assets

Financial liabilities

24 unchanged sentences

Valley’s swap program differed from the Company’s in that Valley did not have back to back swaps with the customer and a counterparty.

Five of the seven acquired loans with interest rate swaps have paid off.

The aggregate notional amount of the two remaining Valley swaps was $ 508,000 and $ 584,000 at September 30, 2021 and December 31, 2020, respectively.

At September 30, 2021, excluding the Valley Bank swaps, the Company had 15 interest rate swaps totaling $ 124.0 million in notional amount with commercial customers, and 15 interest rate swaps with the same aggregate notional amount with third parties related to its program.

Six of the seven acquired loans with interest rate swaps have paid off.

The aggregate notional amount of the remaining Valley swaps was $ 468,000 and $ 482,000 at March 31, 2022 and December 31, 2021, respectively.

At March 31, 2022, excluding the Valley Bank swaps, the Company had nine interest rate swaps and one interest rate cap totaling $ 94.2 million in notional amount with commercial customers, and nine interest rate swaps and one interest rate cap with the same aggregate notional amount with third parties related to its program.

In addition, the Company has four participation loans purchased totaling $ 27.1 million, in which the lead institution has an interest rate swap with its customer and the economics of the counterparty swap are passed along to the Company through the loan participation.

At December 31, 2020, excluding the Valley Bank swaps, the Company had 19 interest rate swaps totaling $ 142.8 million in notional amount with commercial customers, and 19 interest rate swaps with the same notional amount with third parties related to its program.

During the three months ended September 30, 2021, the Company recognized net gains of $ 45,000 , compared to net gains of $ 89,000 during the three months ended September 30, 2020, in noninterest income related to changes in the fair value of these swaps.

During the nine months ended September 30, 2021, the Company recognized net gains of $ 340,000 , compared to net losses of $ 424,000 during the nine months ended September 30, 2020, in noninterest income related to changes in the fair value of these swaps.

At December 31, 2021, excluding the Valley Bank swaps, the Company had 11 interest rate swaps and one interest rate cap totaling $ 93.9 million in notional amount with commercial customers, and 11 interest rate swaps and one interest rate cap with the same notional amount with third parties related to its program.

During the three months ended March 31, 2022, the Company recognized net gains of $ 152,000 , compared to net gains of $ 474,000 during the three months ended March 31, 2021, in noninterest income related to changes in the fair value of these swaps.

Cash Flow Hedges

3 unchanged sentences

Under the terms of the swap, the Company received a fixed rate of interest of 3.018 % and paid a floating rate of interest equal to one-month USD-LIBOR.

The floating rate reset monthly and net settlements of interest due to/from the counterparty also occurred monthly.

The floating rate was reset monthly and net settlements of interest due to/from the counterparty also occurred monthly.

To the extent that the fixed rate of interest exceeded one-month USD-LIBOR, the Company received net interest settlements which were recorded as loan interest income.

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

On March 2, 2020, the Company and its swap counterparty mutually agreed to terminate the swap, effective on that date.

The Company received a payment of $ 45.9 million, including accrued but unpaid interest, from its swap counterparty as a result of this termination.

This $ 45.9 million, less the accrued interest portion and net of deferred income taxes, was reflected in the Company’s stockholders’ equity as Accumulated Other Comprehensive Income and a portion of it is being accreted to interest income on loans monthly through the original contractual termination date of October 6, 2025.

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

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

The Company received a payment of $ 45.9 million from its swap counterparty as a result of this termination.

This $ 45.9 million, less the accrued interest portion and net of deferred income taxes, is reflected in the Company’s stockholders’ equity as Accumulated Other Comprehensive Income and a portion of it will be accreted to interest income on loans monthly through the original contractual termination date of October 6, 2025.

This has the effect of reducing Accumulated Other Comprehensive Income and increasing Net Interest Income and Retained Earnings over the period.

In each quarterly period, commencing with the quarter ended June 30, 2020, until the original contract termination date, the Company expects to record loan interest income related to this swap transaction of approximately $ 2.0 million, based on the termination value of the swap.

As such, the Company recorded loan interest income of $ 2.0 million and $ 2.0 million on this interest rate swap during the three months ended September 30, 2021 and 2020, respectively.

The Company recorded loan interest income of $ 6.1 million and $ 5.6 million on this interest rate swap during the nine months ended September 30, 2021 and 2020, respectively.

The effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affected earnings.

The Company currently expects to have a sufficient amount of eligible variable rate loans to continue to accrete this interest income in future periods.

If this expectation changes and the amount of eligible variable rate loans decreases significantly, the Company may be required to recognize this interest income more rapidly.

In February 2022, the Company entered into an interest rate swap transaction as part of its ongoing interest rate management strategies to hedge the risk of its floating rate loans.

The notional amount of the swap is $ 300 million with an effective date of March 1, 2022 and a termination date of March 1, 2024.

Under the terms of the swap, the Company will receive a fixed rate of interest of 1.6725 % and will pay a floating rate of interest equal to one-month USD-LIBOR (or the equivalent replacement rate if USD-LIBOR rate is not available).

The floating rate will be reset monthly and net settlements of interest due to/from the counterparty will also occur monthly.

The floating rate of interest was 0.2414 % as of March 31, 2022.

Therefore, in the near term, the Company will receive net interest settlements which will be recorded as loan interest income, to the extent that the fixed rate of interest continues to exceed one-month USD-LIBOR.

If USD-LIBOR exceeds the fixed rate of interest in future periods, the Company will be required to pay net settlements to the counterparty and will record those net payments as a reduction of interest income on loans.

The Company recorded loan interest income of $ 2.0 million on the terminated interest rate swap during each of the three months ended March 31, 2022 and 2021.

The Company recorded loan interest income of $ 370,000 on the active interest rate swap during the three months ended March 31, 2022.The effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affected earnings.

Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings.

During each of the three and nine months ended September 30, 2021 and 2020, the Company recognized no noninterest income related to changes in the fair value of this derivative.

During each of the three months ended March 31, 2022 and 2021, the Company recognized no noninterest income related to changes in the fair value of these derivatives.

The Company currently expects to have an amount of eligible variable rate loans to continue to accrete this interest income in future periods.

2 unchanged sentences

Consolidated Statements

September 30,

of Financial Condition

(In Thousands)

Derivatives designated as hedging instruments

Active interest rate swap

Accrued expenses and other liabilities

Total derivates designated as hedging instruments

Derivatives not designated as hedging instruments

10 unchanged sentences

Recognized in AOCI

Three Months Ended September 30,

Cash Flow Hedges

(In Thousands)

Interest rate swap, net of income taxes

Amount of Gain (Loss)

Recognized in AOCI

Nine Months Ended September 30,

Three Months Ended March 31,

Cash Flow Hedges

(In Thousands)

Interest rate swap, net of income taxes

Terminated interest rate swap, net of income taxes

Active interest rate swap, net of income taxes

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

Three Months Ended September 30,

Cash Flow Hedges

(In Thousands)

Interest rate swap

Nine Months Ended September 30,

Three Months Ended March 31,

Cash Flow Hedges

(In Thousands)

Interest rate swap

Total Interest Income

Total Interest Expense

Terminated interest rate swap

Active interest rate swap

Agreements with Derivative Counterparties

2 unchanged sentences

If the Bank fails to maintain its status as a well-capitalized institution, then the counterparty could terminate the derivative positions and the Company would be required to settle its obligations under the agreements.

Similarly, the Company could be required to settle its obligations under certain of its agreements if certain regulatory events occurred, such as the issuance of a formal directive, or if the Company’s credit rating is downgraded below a specified level.

At September 30, 2021, the termination value of derivatives with our derivative dealer counterparties (related to loan level swaps with commercial lending customers) in an overall net liability position, which included accrued interest but excluded any adjustment for nonperformance risk, related to these agreements was $ 689,000 .

Similarly, the Company could be required to settle its obligations under certain of its agreements if certain regulatory events occur, such as the issuance of a formal directive, or if the Company’s credit rating is downgraded below a specified level.

At March 31, 2022, the termination value of derivatives with our derivative dealer counterparties (related to loan level swaps with commercial lending customers and an active interest rate swap to hedge risk related to the Company's variable rate loans) in an overall net liability position, which included accrued interest but excluded any adjustment for nonperformance risk, related to these agreements was $ 1.5 million.

The Company has minimum collateral posting thresholds with its derivative dealer counterparties.

At September 30, 2021, the Company’s activity with one of its derivative counterparties met the level at which the minimum collateral posting thresholds take effect (collateral to be given by the Company) and the Company had posted collateral totaling $ 1.2 million to the derivative counterparty to satisfy the loan level agreements.

In addition, as of September 30, 2021, the activity with one of its derivative counterparties met the level at which the minimum collateral posting thresholds take effect (collateral to be received by the Company) and the derivative counterparty had given cash collateral of $ 490,000 to the Company to satisfy the loan level agreements.

At March 31, 2022, the Company had received cash collateral from another derivative counterparty of $ 1.8 million to cover its fair value position with us.

At March 31, 2022, the Company did not have any activity with its derivative counterparties that met the level at which the Company’s minimum collateral posting thresholds take effect (requiring collateral to be given by the Company).

At December 31, 2021, the termination value of derivatives with our derivative dealer counterparties (related to loan level swaps with commercial lending customers) in a net liability position, which included accrued interest but excluded any adjustment for nonperformance risk, related to these agreements was $ 437,000 .

Additionally, the Company’s activity with two of its derivative counterparties met the level at which the minimum collateral posting thresholds take effect (collateral to be given by the Company) and the Company had posted collateral of $ 5.3 million to the derivative counterparties to satisfy the loan level agreements.

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

Additionally, the Company’s activity with one of its derivative counterparties met the level at which the Company’s minimum collateral posting thresholds take effect (requiring collateral to be given by the Company) and the Company posted collateral of $ 1.2 million to the derivative counterparty to satisfy the loan level agreements.

Also at December 31, 2021, the Company had received cash collateral from another derivative counterparty of $ 390,000 to cover its fair value position with us.

If the Company had breached any of these provisions at March 31, 2022 or December 31, 2021, it could have been required to settle its obligations under the agreements at the termination value.

Under the collateral agreements between the parties, either party may choose to provide cash or securities to satisfy its collateral requirements.

SUBSEQUENT EVENT – ARENA NAMING RIGHTS

In April 2022, the Company, through its subsidiary Great Southern Bank, entered into a naming rights agreement with Missouri State University related to the main arena on the university’s campus in Springfield, Missouri.

The terms of the agreement provide the naming rights to Great Southern Bank for a total cost of $ 5.5 million, to be paid over a period of seven years .

The Company expects to record this transaction as an intangible asset, with a corresponding accrued liability for the full amount of the agreement.

The Company further expects to amortize the intangible asset through non-interest expense over a period not to exceed 15 years .

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 1. Financial Statements