1 unchanged sentence
Forward-looking Statements
−Removed: When used in this Quarterly Report and in other documents filed or furnished by Great Southern Bancorp, Inc.
+Added: When used in this Quarterly Report and in documents filed or furnished by Great Southern Bancorp, Inc.
(the “Company”) with the Securities and Exchange Commission (the “SEC”), in the Company’s press releases or other public or stockholder communications, and in oral statements made with the approval of an authorized executive officer, the words or phrases “may,” “might,” “could,” “should,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “believe,” “estimate,” “project,” “intends” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.
2 unchanged sentences
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.
−Removed: 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.
+Added: While general business and economic conditions have 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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(ix) the possibility that security measures implemented might not be sufficient to mitigate the risk of a cyber-attack or cyber theft, and that such security measures might not protect against systems failures or interruptions;
−Removed: (x) legislative or regulatory changes that adversely affect the Company’s business, including, without limitation, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and its implementing regulations, the overdraft protection regulations and customers’ responses thereto and the Tax Cut and Jobs Act;
+Added: (x) legislative or regulatory changes that adversely affect the Company’s business;
(xi) changes in accounting policies and practices or accounting standards;
−Removed: (xii) monetary and fiscal policies of the Federal Reserve Board and the U.S.
−Removed: Government and other governmental initiatives affecting the financial services industry;
−Removed: (xiii) results of examinations of the Company and Great Southern Bank by their regulators, including the possibility that the regulators may, among other things, require the Company to limit its business activities, change its business mix, increase its allowance for credit losses, write-down assets or increase its capital levels, or affect its ability to borrow funds or maintain or increase deposits, which could adversely affect its liquidity and earnings;
+Added: (xii) results of examinations of the Company and Great Southern Bank by their regulators, including the possibility that the regulators may, among other things, require the Company to limit its business activities, change its business mix, increase its allowance for credit losses, write-down assets or increase its capital levels, or affect its ability to borrow funds or maintain or increase deposits, which could adversely affect its liquidity and earnings;
(xiv) costs and effects of litigation, including settlements and judgments;
25 unchanged sentences
Additionally, the allowance for credit losses considers other qualitative factors not included in historical loss rates or macroeconomic forecast such as changes in portfolio composition, underwriting practices, or significant unique events or conditions.
−Removed: See Note 6 “Loans and Allowance for Credit Losses” included in Item 1 for additional information regarding the allowance for credit losses.
+Added: See Note 6 “Loans and Allowance for Credit Losses” of the accompanying financial statements for additional information regarding the allowance for credit losses.
Inherent in this process is the evaluation of individual significant credit relationships.
3 unchanged sentences
in other instances, the factors that led to the deterioration may improve or the credit may be refinanced elsewhere and allocated allowances may be released from the particular credit.
−Removed: Significant changes were made to management’s overall methodology for evaluating the allowance for credit losses during the periods presented in the financial statements of this report due to the adoption of ASU 2016-13.
+Added: Significant changes were made to management’s overall methodology for evaluating the allowance for credit losses beginning in 2021 due to the adoption of ASU 2016-13.
On January 1, 2021, the Company adopted the new accounting standard related to the Allowance for Credit Losses.
8 unchanged sentences
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.
−Removed: As of September 30, 2021, the Company had one reporting unit to which goodwill has been allocated – the Bank.
+Added: As of March 31, 2022, 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.
1 unchanged sentence
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.
−Removed: At September 30, 2021, goodwill consisted of $5.4 million at the Bank reporting unit, which included goodwill of $4.2 million that was recorded during 2016 related to the acquisition of 12 branches and related deposits in the St.
−Removed: Louis, Mo., market.
+Added: At March 31, 2022, goodwill consisted of $5.4 million at the Bank reporting unit, which included goodwill of $4.2 million that was recorded during 2016 related to the acquisition of 12 branches and the assumption of related deposits in the St.
+Added: Louis market from Fifth Third Bank.
Other identifiable intangible assets that are subject to amortization are amortized on a straight-line basis over a period of seven years.
−Removed: At September 30, 2021, the amortizable intangible assets consisted of core deposit intangibles of $843,000, which are reflected in the table below.
+Added: At March 31, 2022, the amortizable intangible assets consisted of core deposit intangibles of $527,000, which are reflected in the table below.
These amortizable intangible assets are reviewed for impairment if circumstances indicate their value may not be recoverable based on a comparison of fair value.
−Removed: Our regular annual impairment assessment occurs in the third quarter of each year.
−Removed: At September 30, 2021, the Company performed this annual review and concluded that no impairment of its goodwill or intangible assets had occurred at September 30, 2021.
−Removed: While the Company believes no impairment of its goodwill or other intangible assets existed at September 30, 2021, different conditions or assumptions used to measure fair value of reporting units, or changes in cash flows or profitability, if significantly negative or unfavorable, could have a material adverse effect on the outcome of the Company’s impairment evaluation in the future.
For purposes of testing goodwill for impairment, the Company used a market approach to value its reporting unit.
2 unchanged sentences
This judgment may include developing cash flow projections, selecting appropriate discount rates, identifying relevant market comparables and incorporating general economic and market conditions.
+Added: Management does not believe any of the Company’s goodwill or other intangible assets were impaired as of March 31, 2022.
+Added: While management believes no impairment existed at March 31, 2022, 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:
−Removed: September 30,
(In Thousands)
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Deposit intangibles
−Removed: Boulevard Bank (March 2014)
−Removed: Valley Bank (June 2014)
Fifth Third Bank (January 2016)
3 unchanged sentences
Unemployment rose from 4.7% in November 2007 to peak at 10.0% in October 2009.
−Removed: Economic conditions improved in the subsequent years, as indicated by higher consumer confidence levels, increased economic activity and lower unemployment levels.
−Removed: economy continued to operate at historically strong levels until the impact of the COVID-19 pandemic began to take its toll in March 2020.
−Removed: economic trends later rebounded, a new COVID variant emerged and the severity and extent of the coronavirus on the global, national and regional economies is still uncertain.
+Added: Economic conditions improved in the subsequent years, as indicated by higher consumer confidence levels, increased economic activity and low unemployment levels.
+Added: economy continued to operate at historically strong levels until the COVID-19 pandemic in March 2020.
+Added: economic trends have rebounded, new COVID variants have 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.
−Removed: The economy plunged into recession in the first quarter of 2020, as efforts to contain the spread of the coronavirus forced all but essential business activity, or any work that could not be done from home, to stop, shuttering factories, restaurants, entertainment, sports events, retail shops, hotels, personal services, and more.
+Added: 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 businesses closed their doors or reduced their operations, sending employees home on furlough or layoffs.
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As a result, gross domestic product (GDP), the broadest measure of the nation's economic output, plunged.
−Removed: Improvements in consumer spending, GDP, and employment have occurred since then, significantly supported by the actions discussed below.
−Removed: 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.
−Removed: The “American Rescue Plan,” an economic relief fiscal measure of approximately $1.9 trillion with an emphasis on vaccination, individual and small business relief, was passed early in 2021.
−Removed: The “Build Back Better” recovery package is being pursued with an emphasis on infrastructure, research and development, education and green energy transition.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: With consumer interest rates at record lows and 30-year fixed-rate mortgages below 3%, the housing market has boomed.
−Removed: Home sales have been above their pre-pandemic levels, and construction activity has picked up in response.
−Removed: The Fed's quantitative easing is expected to begin tapering in early 2022, while the zero-interest-rate policy is expected to remain in place until the economy is near full employment and inflation is firmly above the Fed's 2% inflation target, which is currently not expected until early 2023.
+Added: Since then, significant improvements in consumer spending, GDP, and employment have occurred, greatly supported by the actions described below.
+Added: The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), a fiscal relief bill passed by Congress and signed by the President in March 2020, injected approximately $3 trillion into the economy through direct payments to individuals and grants to small businesses that would keep employees on their payroll, fueling a historic bounce-back in economic activity.
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.
−Removed: PPP loans and modifications were made in accordance with guidance from banking regulatory authorities.
+Added: PPP loans and loan modifications were made in accordance with guidance from banking regulatory authorities.
These modifications did not result in loans being classified as troubled debt restructurings, potential problem loans or non-performing loans.
More severely impacted industries in our loan portfolio included retail, hotel and restaurants.
−Removed: While the U.S.
−Removed: economic recovery began with a robust rebound from the pandemic-induced recession, challenges remain with the emergence of the new COVID-19 variant, which caused a resurgence of cases and renewed pressure on the healthcare industry.
−Removed: With the increase in cases, the re-instatement of mask mandates and social distancing occurred in a number of areas of the country.
−Removed: September 2021 saw just 194,000 jobs added in the U.S., down from 366,000 in August 2021 and far below the increase of more than one million in July 2021, before the Delta variant led to a spike in COVID-19 cases across much of the country.
−Removed: Leisure and hospitality business, added fewer than 100,000 jobs for the second straight month.
−Removed: The national unemployment rate edged down to 4.8%, or 7.7 million unemployed individuals.
−Removed: 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).
−Removed: Employment in professional and business services, retail trade, transportation and warehousing, information, social assistance, manufacturing, construction, mining, and wholesale trade industries rose as well;
−Removed: however, the employment rates in these industries are still below February 2020 levels with the exception of transportation and warehousing, which is up 72,000 from its pre-pandemic level.
−Removed: The number of persons not in the labor force who currently want a job was 6.0 million in September 2021, little changed from previous numbers.
−Removed: In September 2021, the U.S.
−Removed: labor force participation rate (the share of working-age Americans employed or actively looking for a job) was unchanged from the previous quarter at 61.6% and has remained within a range of 61.4% to 61.7% since September 2020.
−Removed: The unemployment rate for the Midwest, where the Company conducts most of its business, decreased from 5.7% in December 2020 to 4.7% in September 2021.
−Removed: Unemployment rates for September 2021 in the states where the Company has branch or loan production offices were Arkansas at 4.0%, Colorado at 5.9%, Georgia at 3.2%, Illinois at 6.8%, Iowa at 4.0%, Kansas at 3.9%, Minnesota at 3.7%, Missouri at 3.8%, Nebraska at 2.0%, Oklahoma at 3.0%, and Texas at 5.6%.
−Removed: Of the metropolitan areas in which the Company does business, most are below the national unemployment rate of 4.8% for September 2021.
−Removed: Chicago leads our markets with a higher unemployment rate of 7.1%, followed by Denver and Dallas at 5.6% and 4.7% respectively as of the end of August 2021.
−Removed: Sales of new single-family homes in September 2021 were at a seasonally adjusted annual rate of 800,000, according to U.S.
+Added: Nearly all modified loans have returned to original terms.
+Added: The Federal Reserve acted decisively, employing a wide arsenal of tools, including slashing its benchmark interest rate to near zero and ensuring credit availability to businesses, households, and municipal governments.
+Added: The Federal Reserve’s efforts largely insulated the financial system from the problems in the economy, a significant difference from the financial crisis of 2007-2008.
+Added: Purchases of Treasury and agency mortgage-backed securities totaling $120 billion each month by the Federal Reserve commenced shortly after the pandemic began.
+Added: In November 2021, the Federal Reserve decided to taper its quantitative easing (QE), winding down its bond purchases with its final open market purchase conducted on March 9, 2022.
+Added: Additionally, Federal fund rates, which have been at zero lower bound since the pandemic began, increased 12 basis points in March 2022.
+Added: Financial markets are anticipating an aggressive increase in interest rates in 2022, with three to six hikes anticipated.
+Added: Several factors prompting the Federal Reserve to begin normalizing policy include:
+Added: the strengthening economy, the recent surge in inflation, higher inflation expectations, upward trajectory of wages, reduced pandemic concerns and the strong housing market.
+Added: However, the military hostilities in Ukraine have now created uncertainty regarding the world economy and the path of market interest rates, including the aggressiveness of Federal Reserve interest rate increases.
+Added: 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 enacted early in 2021.
+Added: Additionally, many of the climate-related policies in the “Build Back Better” package may be passed into law later this year to be paid for with higher corporate taxes and tax enforcement.
+Added: The federal government posted a deficit of $2.8 trillion in the 2021 fiscal year and is expected to post a deficit of $1.2 trillion in the 2022 fiscal year.
+Added: While Congress has not been focused on deficits during the pandemic, it will likely face pressure to address the mounting fiscal debt.
+Added: The national unemployment rate dropped from 3.8% in February 2022 to 3.6% in March 2022, or 6 million unemployed individuals, compared to February 2020, just prior to the beginning of the COVID-19 pandemic, at which time the unemployment rate was 3.5% and unemployed persons numbered 5.7 million.
+Added: economy added 431,000 jobs in March 2022 with overall job growth averaging 562,000 per month in the first quarter of 2022, the same as the average monthly gain for 2021.
+Added: The labor market remains tighter than headline unemployment data would indicate as companies are still competing for qualified workers.
+Added: Wages and salaries grew 4.5% in 2021.
+Added: Across industries, the economic recovery remains uneven.
+Added: Employment in the financial activities, professional and business services, retail and transportation and warehousing sectors are now above pre-pandemic levels;
+Added: however, leisure and entertainment, healthcare and manufacturing remain under February 2020 employment levels.
+Added: One of the largest employment sectors in the country, leisure and hospitality, although showing job increases, remains negatively impacted by the loss of 1.5 million jobs, or 8.7% of the workforce, since February 2020.
+Added: Most jobs in the leisure and hospitality industry cannot be performed remotely, with many businesses closed or experiencing a sharp reduction in business at the onset of the health and economic crises.
+Added: As of March 2022, the labor force participation rate (the share of working-age Americans employed or actively looking for a job) was 62.4% which remains below the February 2020 reported rate of 63.4%.
+Added: The unemployment rate for the Midwest, where the Company conducts most of its business, has decreased from 5.2% in March 2021 to 3.5% in March 2022.
+Added: Unemployment rates for March 2022 in the states where the Company has a branch or loan production offices were Arizona at 3.3%, Arkansas at 3.1%, Colorado at 3.7%, Georgia at 3.1%, Illinois at 4.7%, Iowa at 3.3%, Kansas at 2.5%, Minnesota at 2.5%, Missouri at 3.6%, Nebraska at 2.0%, Oklahoma at 2.7%, and Texas at 4.4%.
+Added: Of the metropolitan areas in which the Company does business, most are below the national unemployment rate of 3.6% for March 2022.
+Added: Chicago leads our markets with a higher unemployment rate of 4.5%, followed by St.
+Added: Louis at 3.7% and Denver at 3.6% in March 2022.
+Added: Single Family Housing
+Added: New home sales in the United States dropped 8.6% in March 2022 when compared to February 2022, to a seasonally adjusted annual rate of 763,000 in March of 2022, according to U.S.
Census Bureau and Department of Housing and Urban Development estimates.
−Removed: This is 17.6 percent below the September 2020 estimate of 971,000.
−Removed: The median sales price of new houses sold in September 2021 was $408,800, up from $344,400 a year earlier, and the average sales price of $451,700 was up from $405,100 a year ago in September 2020.
−Removed: The inventory of new homes for sale, at an estimate of 379,000 at the end of September 2021, would support a 5.7 months’ supply at the current sales rate, up from 3.5 months at the end of September 2020.
−Removed: Existing-home sales rebounded in September 2021 after seeing sales wane the previous month, according to the National Association of Realtors.
−Removed: Total existing-home sales grew 7% from August 2021 to a seasonally adjusted annual rate of 6.29 million in September 2021.
−Removed: The median existing home price for all housing types in September 2021 was $352,800, up 13.3% from $311,500 in September 2020, as prices increased in every region of the U.S.
−Removed: September’s national price jump marks the 115th straight month of year-over-year increases.
−Removed: Existing home sales in the Midwest rose 5.1% to an annual rate of 1,440,000 in September 2021, a 2.7% drop from a year ago.
−Removed: The median price in the Midwest in September 2021 was $265,300, a 9.1% increase from September 2020.
−Removed: First-time buyers accounted for 28% of sales in September 2021, down from 29% in August 2021 and 31% in September 2020.
−Removed: Nationally, the inventory of homes actively for sale in September 2021 decreased by 22.2% over the past year, Homes are being quickly snapped up as demand remains elevated.
−Removed: Underbuilding over the last 20 years and a shrinking inventory of existing homes for sales has led to a significant housing shortage.
−Removed: 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.
−Removed: According to Freddie Mac, the average commitment rate for a 30-year, conventional, fixed-rate mortgage was 2.90% in September 2021, up slightly from 2.84% in August 2021.
+Added: The median sales price of new houses sold in March 2022 was $436,700, up from $359,600 a year earlier.
+Added: The average sales price in March 2022 of $523,900 was up from $414,700 in March 2021.
+Added: The inventory of new homes for sale, at an estimated 406,000 at the end of March 2022, would support a 6.4 months’ supply at the current sales rate, up from 4.2 months’ supply at the end of March 2021.
+Added: The housing market is beginning to feel the impact of sharply rising mortgage rates and higher inflation on purchasing power.
+Added: With rising mortgage rates, cash sales made up a larger percentage of transactions, climbing to its highest share since 2014.
+Added: Total existing-home sales dipped 2.7% from February 2022 to a seasonally adjusted annual rate of 5.77 million in March 2022.
+Added: Year-over-year, sales fell 4.5% (6.05 million in March 2021).
+Added: There were 950,000 previously owned homes on the market in March 2022, up 11.8% from February and down 9.5% from one year ago (1.05 million).
+Added: With slower demand, the inventory of unsold existing homes increased to 590,000 as of the end of March 2022, which would support 2 months at the monthly sales pace up from 1.7 months in February 2022 and down from 2.1 months in March 2021.
+Added: The median existing-home sales price as of March 2022 was $375,300, up 15% from $326,300 at March 2021 as prices rose in each region.
+Added: This marks 121 consecutive months of year-over-year increases, the longest-running streak on record.
+Added: Home prices have consistently moved upward as supply remains tight;
+Added: however, if and when demand subsides, easy-profit gains and multiple offers can be expected to decline.
+Added: Properties typically remained on the market for 17 days in March 2022, down from 18 days in February 2022 and 18 days in March 2021.
+Added: 87% of homes sold in March 2022 were on the market for less than a month.
+Added: Year-over-year, prices increased in every region of the United States, with the Midwest showing an increase of 10.4%, with median prices increasing from $245,500 in March 2021 to $271,000 in March 2022.
+Added: First-time buyers accounted for 30% of sales in March 2022, up from 29% of sales in February 2022 and down from 32% in March 2021.
+Added: According to Freddie Mac, the average commitment rate for a 30-year, conventional, fixed-rate mortgage was 4.17% in March 2022, up from 3.76% in February 2022.
The average commitment rate for all of 2021 was 2.96%, down from 3.11% for 2020.
−Removed: Commercial Real Estate Other Than Housing
−Removed: CoStar indicates demand for apartments totaled roughly 600,000 units through the first nine months of 2021, nearly matching full-year totals for both 2020 and 2019 with the national apartment vacancy rate plummeting to a two-decade low of 4.5%.
−Removed: Both suburban and downtown areas are recording strong gains across a wide range of diverse markets.
−Removed: Apartment rents rose nearly 7% in the first half of the year.
−Removed: The use of concessions has come back down to normal levels, although many downtown properties continue to utilize them to attract tenants.
−Removed: With demand and rent growth indicators surging, investors have renewed confidence in the sector, and sales volume has returned to more normal levels.
−Removed: 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.
−Removed: As of the end of September 2021, national apartment vacancy rates had recovered to pre-COVID levels at 4.6% compared to 6.2% as of December 2019.
−Removed: Our market areas reflected the following vacancy levels as of September 30, 2021:
−Removed: Springfield, Mo.
−Removed: Louis at 6.4%, Kansas City at 6.1%, Minneapolis at 5.2%, Tulsa, Okla.
−Removed: at 5.8%, Dallas-Fort Worth at 5.7%, Chicago at 5.6%, Atlanta at 5.2%, and Denver at 5.4%.
−Removed: Even before the disruption caused by the COVID-19 pandemic, the trend of slowing growth in the market for office space was expected to continue in 2020 and linger throughout 2021.
−Removed: The office demand losses that characterized much of last year have carried into 2021.
−Removed: Office-using employment remained nearly one million jobs lower than the peak level in the first quarter of 2020.
−Removed: Even though tenants continue to downsize and adopt hybrid work models, typical office-using job sectors are projected to regain their pre-pandemic peak by the end of 2021.
−Removed: As of the end of September 2021, national office vacancy rates remained about the same at 12.2% quarter-over-quarter while our market areas reflected the following vacancy levels:
−Removed: Springfield, Mo.
−Removed: Louis at 8.3%, Kansas City at 9.4%, Minneapolis at 9.9%, Tulsa, Okla.
−Removed: at 12.0%, Dallas-Fort Worth at 17.8%, Chicago at 14.6%, Atlanta at 13.8% and Denver at 14.3%.
−Removed: Retail sales activity surged in the first nine months of 2021 as focus on coordinated vaccine distribution and supporting strong consumer confidence bolstered leasing activity and overall economic growth.
−Removed: While e-commerce continues to expand, consumers have continued to visit physical stores for both their basic needs and discretionary purchases.
−Removed: Pockets of strength in the retail industry include discounters such as Dollar General, Dollar Tree, TJ Maxx, and Ross Dress for Less;
−Removed: general merchandisers such as Target and Walmart;
−Removed: pharmacies such as Walgreens;
−Removed: and home improvement/tool retailers.
−Removed: While these essential-oriented tenant types remain a positive source of demand, several areas of the retail sector remain under financial strain.
−Removed: Mall vacancy rates rose most significantly throughout 2020.
−Removed: 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.
−Removed: At September 30, 2021, national retail vacancy rates remained level at 4.7% while our market areas reflected the following vacancy levels:
−Removed: Springfield, Mo.
−Removed: Louis at 4.8%, Kansas City at 5.5%, Minneapolis at 3.3%, Tulsa, Okla.
−Removed: at 3.7%, Dallas-Fort Worth at 5.6%, Chicago at 6.0%, Atlanta at 4.7% and Denver at 5.0%.
−Removed: The unprecedented rise in online shopping and quick delivery demands brought on by the pandemic have propelled industrial demand to all-time highs.
−Removed: Leasing activity in the industrial sector improved throughout the first nine months of 2021, primarily led by commitments from Amazon, power-grocers Walmart and Target, smaller healthcare and medical-oriented supply companies, food and beverage producers and manufacturers.
−Removed: Strong demand from a wide variety of business types and segments was enough to offset new supply and decreased vacancy rates.
−Removed: Persistent demand from e-commerce and third-party logistics (3PLs) companies continues to drive demand.
−Removed: Investors continue to aggressively pursue industrial acquisitions.
−Removed: At September 30, 2021, national industrial vacancy rates decreased slightly to 4.6% while our market areas reflected the following vacancy levels:
−Removed: Springfield, Mo.
−Removed: Louis at 3.8%, Kansas City at 4.6%, Minneapolis at 3.5%, Tulsa, Okla.
−Removed: at 3.1%, Dallas-Fort Worth at 5.7%, Chicago at 5.2%, Atlanta at 3.9% and Denver at 6.4%.
+Added: Multi-Family Housing and Commercial Real Estate
+Added: There has been unprecedented demand for apartments, with the vacancy rate hitting historic lows at the end of 2021 and continuing into 2022.
+Added: The overall lack of available housing, both single-family and rental apartment units, has pricing on a significant upward trajectory, resulting in a vacancy rate of 4.9% for the first quarter of 2022.
+Added: Rents nationally rose 11% in 2021 with the nation absorbing 714,000 units in 2021, twice the annual average of the past five years.
+Added: With demand and rent growth indicators surging, investors have shown high interest for apartment assets, creating a highly competitive acquisition environment and driving the average national cap rate to an all-time low.
+Added: Our market areas reflected the following apartment vacancy levels as of March 31, 2022:
+Added: Springfield, Missouri at 2.9%, St.
+Added: Louis at 6.9%, Kansas City at 6.1%, Minneapolis at 6.1%, Tulsa, Oklahoma at 6.1%, Dallas-Fort Worth at 6.1%, Chicago at 5.7%, Atlanta at 6.5%, Phoenix at 6.2%, and Denver at 6.6%.
+Added: Three of our market areas, Dallas-Fort Worth, Phoenix and Atlanta, were in the top ten metropolitan areas for current construction and 12 month deliveries to market.
+Added: The national office market is showing early signs of a recovery, but the sector still has a long way to go before it reaches pre-pandemic levels of performance.
+Added: Remote and hybrid work structures instituted early on in the pandemic appear here to stay, at least to an extent, and it is likely that office-using companies will continue to reassess their physical footprints as their leases roll over.
+Added: Office-using employment has bounced back quicker than the average for all employment sectors, and more office jobs could lead to stronger office leasing.
+Added: However, leasing volume is still below pre-pandemic norms, and the amount of sublet space on the market remains near record highs.
+Added: Furthermore, the national office market is contending with a glut of newly vacated space and a still-robust supply pipeline.
+Added: These trends, combined with the looming prospect of firms exploring more permanent remote and flexible work setups, may continue to place upward pressure on the national office vacancy rate in the near term.
+Added: Rent growth is flat on a year-over-year basis, and it will remain difficult for office owners to push asking rents until leasing activity returns to pre-pandemic levels for an extended period of time.
+Added: Despite a still uncertain near-term outlook, office sales volume rebounded in the second half of 2021.
+Added: As of March 31, 2022, national office vacancy rates remained about the same at 12.3%, compared to December 31, 2021, while our market areas reflected the following vacancy levels at March 31, 2022:
+Added: Springfield, Missouri at 2.8%, St.
+Added: Louis at 9.0%, Kansas City at 9.5%, Minneapolis at 10.0%, Tulsa, Oklahoma at 12.2%, Dallas-Fort Worth at 17.6%, Chicago at 15.3%, Atlanta at 14.1% and Denver at 14.4%.
+Added: The retail sector continued its positive momentum into first quarter of 2022, as consumers drove continued improvement in the sector.
+Added: Retail sales have accelerated briskly since mid-2021, due to the significant increase in consumers’ disposable income resulting from pandemic-related government transfers and strong wage growth.
+Added: With additional funds at their disposal, American consumers pushed brick and mortar retail sales to record levels in 2021.
+Added: With sales sitting at record highs, some retailers have selectively turned back to expansion mode.
+Added: While demand for retail space is on the rise, construction activity continues to fall.
+Added: Just over 13 million square feet of retail space was delivered during the first quarter of 2022, 80% of which was pre-leased.
+Added: Most recent construction activity has consisted of single-tenant build-to-suits or smaller ground floor spaces in mixed-use developments.
+Added: Thanks to growing demand and minimal new supply, vacancy rates declined across most retail segments in the first quarter of 2022, with exceptions still including regional and super-regional malls.
+Added: Rents increased at their fastest clip, 3.8%, in over a decade during the period from March 31, 2021 to March 31, 2022.
+Added: Retail rent growth is forecast to accelerate over the coming quarters due to the combination of a strong retail sales environment and continued rising demand for space.
+Added: Inflation expectations will weigh on the real rate of rental growth though, likely keeping it in line with or slightly below the average growth rate seen during the five years preceding the pandemic.
+Added: At March 31, 2022, national retail vacancy rates remained level at 4.5% while our market areas reflected the following vacancy levels:
+Added: Springfield, Missouri at 3.3%, St.
+Added: Louis at 6.0%, Kansas City at 5.0%, Minneapolis at 3.2%, Tulsa, Oklahoma at 3.5%, Dallas-Fort Worth at 4.9%, Chicago at 5.9%, Atlanta at 4.2%, Phoenix at 6.0% and Denver at 4.6%.
+Added: industrial market is experiencing a record level of new logistics facilities deliveries from late 2021 through the first quarter of 2022.
+Added: has been in the midst of a historic boom in household spending on retail goods (both online and in store), all of which need to be stored in logistics properties across the country before reaching the end consumer.
+Added: Record savings accumulated during the pandemic and the strongest wage growth in more than 20 years will likely remain as tailwinds for elevated consumer spending over the next several months;
+Added: however, rising gas prices and inflation risk partially eroding consumers’ purchasing power, causing real goods spending to slow from current levels.
+Added: Signals are emerging that a gradual slowing in leasing and absorption is approaching, which should cause rent growth to slow given the active construction pipeline.
+Added: Amazon announced early in 2022 that it would be slowing growth in its distribution network from its recent breakneck pace.
+Added: At March 31, 2022, national industrial vacancy rates sat at a record low of 4.1% while our market areas reflected the following vacancy levels:
+Added: Springfield, Missouri at 1.4%, St.
+Added: Louis at 2.9%, Kansas City at 4.4%, Minneapolis at 3.5%, Tulsa, Oklahoma at 3.7%, Dallas-Fort Worth at 5.7%, Chicago at 4.7%, Atlanta at 4.0%, Phoenix at 4.6% and Denver at 5.2%.
Our management will continue to monitor regional, national, and global economic indicators such as unemployment, GDP, housing starts and prices, commercial real estate occupancy, absorption and rental rates, as these could significantly affect customers in each of our market areas.
COVID-19 Impact to Our Business and Response
−Removed: Great Southern is actively monitoring and responding to the effects of the COVID-19 pandemic, including the administration of vaccines in our local markets.
+Added: Great Southern continues to monitor and respond to the effects of the COVID 19 pandemic.
As always, the health, safety and well-being of our customers, associates and communities, while maintaining uninterrupted service, are the Company’s top priorities.
−Removed: Centers for Disease Control and Prevention (CDC) guidelines, as well as directives from federal, state and local officials, are being closely followed to make informed operational decisions.
+Added: Centers for Disease Control and Prevention (CDC) guidelines, as well as directives from federal, state and local officials, are being closely followed to make informed operational decisions, if necessary.
The Company continues to work diligently with its nearly 1,100 associates to enforce the most current health, hygiene and social distancing practices.
−Removed: Teams in nearly every operational department have been split, with part of each team working at an off-site disaster recovery facility to promote social distancing and to avoid service disruptions.
To date, there have been no service disruptions or reductions in staffing.
−Removed: With the advent of COVID-19 vaccinations in the Company’s markets, plans are being considered to allow associates working from home or other sites to return to their normal workplace beginning in the fourth quarter of 2021, dependent on health and safety conditions.
−Removed: 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.
+Added: As always, customers can conduct their banking business using our banking center network, online and mobile banking services, ATMs, Telephone Banking, and online account opening services.
As health conditions in local markets dictate, Great Southern banking center lobbies are open following social distancing and health protocols.
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The magnitude of the impact on the Company of the COVID-19 pandemic continues to evolve and will ultimately depend on the remaining length and severity of the economic downturn brought on by the pandemic.
−Removed: Some positive economic signs have occurred in 2021, such as lower unemployment rates, improving gross domestic product (“GDP”) levels and other measures of the economy and increased vaccination rates.
−Removed: The Company expects that the COVID-19 pandemic could still impact our business in one or more of the following ways, among others.
−Removed: Each of these factors could, individually or collectively, result in reduced net income in future periods.
−Removed: ● 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
−Removed: ● Certain fees for deposit and loan products may be waived or reduced
−Removed: ● Non-interest expenses may increase as we continue to deal with the effects of the COVID-19 pandemic, including cleaning costs, supplies, equipment and other items
−Removed: ● Banking center lobbies have been closed at various times, and may close again in future periods if the pandemic situation worsens again
−Removed: ● Additional loan modifications may occur and borrowers may default on their loans, which may necessitate further increases to the allowance for credit losses
−Removed: ● A contraction in economic activity may reduce demand for our loans and for our other products and services
+Added: Some positive economic signs have occurred in 2021 and early 2022, such as lower unemployment rates, improving gross domestic product (“GDP”) levels and other measures of the economy and increased vaccination rates.
+Added: Over the previous two years, the COVID-19 pandemic has impacted the Company’s business in one or more of the following ways, among others.
+Added: ● Consistently low market interest rates for a significant period of time have had a negative impact on our variable and fixed rate loans, resulting in reduced net interest income
+Added: ● Certain fees for deposit and loan products were waived or reduced for a period of time
+Added: ● Non-interest expenses increased as we dealt with the effects of the COVID-19 pandemic, including cleaning costs, supplies, equipment and other items
+Added: ● Banking center lobbies were closed at various times, and may close again in future periods if the pandemic situation worsens again
+Added: ● Loan modifications occurred
+Added: ● A contraction in economic activity reduced demand for our loans and for our other products and services
+Added: Current COVID-19 infection rates are low in our markets and the CDC has relaxed most restrictions that were previously in place.
+Added: Our business is currently operating normally, similar to operations prior to the onset of the COVID-19 pandemic.
+Added: We continue to monitor infection rates and other health and economic indicators to ensure we are prepared to respond to future challenges, should they arise.
Paycheck Protection Program Loans
Great Southern has actively participated in the PPP through the SBA.
−Removed: The PPP has been met with very high demand throughout the country, resulting in a second round of funding in 2021 through an amendment to the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).
In the first round of the PPP, we originated approximately 1,600 PPP loans, totaling approximately $121 million.
−Removed: As of September 30, 2021, full forgiveness proceeds have been received from the SBA for almost all of these PPP loans.
−Removed: 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.
−Removed: 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.
+Added: SBA forgiveness was approved and processed, and full repayment proceeds were received by us, for all of these PPP loans during 2021.
In the second round of the PPP, we funded approximately 1,650 PPP loans, totaling approximately $58 million.
−Removed: As of October 25, 2021, full forgiveness proceeds have been received from the SBA for 911 of these PPP loans, totaling approximately $28 million.
−Removed: Great Southern receives fees from the SBA for originating PPP loans based on the amount of each loan.
−Removed: At September 30, 2021, remaining net deferred fees related to PPP loans totaled $2.1 million.
−Removed: 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.
−Removed: These remaining loans generally have a contractual maturity of up to five years from origination date, but may be repaid or forgiven (by the SBA) sooner.
−Removed: If these loans are repaid or forgiven prior to their contractual maturity date, the remaining deferred fee for such loans will be accreted to interest income immediately.
−Removed: We expect a significant portion of these remaining net deferred fees will accrete to interest income during the remainder of 2021, with little of this income being recognized in 2022 or beyond.
−Removed: In the three and nine months ended September 30, 2021, Great Southern recorded approximately $1.6 million and $3.9 million, respectively, of net deferred fees in interest income on PPP loans.
−Removed: Loan Modifications
−Removed: 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.
−Removed: These balances have decreased from $232.4 million and $18.2 million, respectively, for these loan categories at December 31, 2020.
−Removed: The loan modifications are within the guidance provided by the CARES Act, the federal banking regulatory agencies, the SEC and the FASB;
−Removed: therefore, they are not considered TDRs.
−Removed: At September 30, 2021, the largest total modified loans by collateral type were in the following categories:
−Removed: healthcare - $11.6 million;
−Removed: hotel/motel - $10.9 million;
−Removed: retail - $7.7 million;
−Removed: office - $6.9 million.
−Removed: 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.
+Added: As of March 31, 2022, full forgiveness proceeds have been received by us from the SBA for 1,608 of these PPP loans, totaling approximately $57 million.
+Added: Great Southern received fees from the SBA for originating PPP loans based on the amount of each loan.
+Added: At March 31, 2022, remaining net deferred fees related to PPP loans totaled $88,000, and we expect these remaining net deferred fees will accrete to interest income during the second quarter of 2022.
+Added: The fees, net of origination costs, are deferred in accordance with standard accounting practices and accreted to interest income on loans over the contractual life of each loan.
+Added: In the three months ended March 31, 2022 and 2021, Great Southern recorded approximately $415,000 and $1.2 million, respectively, of net deferred fees in interest income on PPP loans.
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.
−Removed: Great Southern’s total assets decreased $74.6 million, or 1.3%, from $5.53 billion at December 31, 2020, to $5.45 billion at September 30, 2021.
−Removed: Details of the current period changes in total assets are provided in the “Comparison of Financial Condition at September 30, 2021 and December 31, 2020” section of this Quarterly Report on Form 10-Q.
−Removed: Net outstanding loans decreased $271.1 million, or 6.3%, from $4.30 billion at December 31, 2020, to $4.03 billion at September 30, 2021.
−Removed: The net decrease in loans included reductions of $19.1 million in the FDIC-assisted acquired loan portfolios.
−Removed: The decrease was primarily in other residential (multi-family) loans, commercial business loans, commercial real estate loans and consumer auto loans.
−Removed: These decreases were partially offset by increases in one- to four family residential loans and construction loans.
−Removed: Excluding FDIC-assisted acquired loans and mortgage loans held for sale, total gross loans decreased $210.0 million, or 4.1%, from December 31, 2020 to September 30, 2021.
−Removed: 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.
−Removed: We currently expect minimal net loan growth for the foreseeable future due to uncertainty resulting from the higher level of loan repayments we have experienced in 2021.
−Removed: New loan origination volumes have been strong and are consistent with levels seen in the past couple of years.
+Added: Great Southern’s total assets decreased $75.7 million, or 1.4%, from $5.45 billion at December 31, 2021, to $5.37 billion at March 31, 2022.
+Added: Details of the current period changes in total assets are provided in the “Comparison of Financial Condition at March 31, 2022 and December 31, 2021” section of this Quarterly Report on Form 10-Q.
+Added: Net outstanding loans increased $104.0 million, or 2.5%, from $4.01 billion at December 31, 2021, to $4.11 billion at March 31, 2022.
+Added: The increase was primarily in other residential (multi-family) loans, commercial real estate loans and one- to four family residential loans.
+Added: These increases were partially offset by a decrease in construction loans.
+Added: As loan demand is affected by a variety of factors, including general economic conditions, and because of the competition we face and our focus on pricing discipline and credit quality, we cannot be assured that our loan growth will match or exceed the average level of growth achieved in prior years.
The Company’s strategy continues to be focused on maintaining credit risk and interest rate risk at appropriate levels.
−Removed: Recent growth has occurred in some loan types, primarily construction loans, and in most of Great Southern’s primary lending locations, including Springfield, St.
+Added: Recent growth has occurred in some loan types, primarily other residential (multi-family) and commercial real estate, 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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Great Southern’s loan committee reviews and approves all new loan originations in excess of lender approval authorities.
−Removed: Generally, the Company considers commercial construction, consumer, and commercial real estate loans to involve a higher degree of risk compared to some other types of loans, such as first mortgage loans on one- to four-family, owner-occupied residential properties.
−Removed: For commercial real estate, commercial business and construction loans, the credits are subject to an analysis of the borrower’s and guarantor’s financial condition, credit history, verification of liquid assets, collateral, market analysis and repayment ability.
+Added: Generally, the Company considers commercial construction, consumer, other residential (multi-family) and commercial real estate loans to involve a higher degree of risk compared to some other types of loans, such as first mortgage loans on one- to four-family, owner-occupied residential properties.
+Added: For other residential (multi-family), commercial real estate, commercial business and construction loans, the credits are subject to an analysis of the borrower’s and guarantor’s financial condition, credit history, verification of liquid assets, collateral, market analysis and repayment ability.
It has been, and continues to be, Great Southern’s practice to verify information from potential borrowers regarding assets, income or payment ability and credit ratings as applicable and as required by the authority approving the loan.
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Underwriting standards for all loans also include loan-to-value ratio limitations which vary depending on collateral type, debt service coverage ratios or debt payment to income ratio guidelines, where applicable, credit histories, use of guaranties and other recommended terms relating to equity requirements, amortization, and maturity.
−Removed: Consumer loans are primarily secured by new and used motor vehicles and these loans are also subject to certain minimum underwriting standards to assure portfolio quality.
−Removed: In 2019, the Company made the decision to discontinue indirect auto loan originations.
+Added: Consumer loans, other than home equity loans, are primarily secured by new and used motor vehicles and these loans are also subject to certain minimum underwriting standards to assure portfolio quality.
+Added: In 2019, the Company decided to discontinue indirect auto loan originations.
While our policy allows us to lend up to 95% of the appraised value on one-to four-family residential properties, originations of loans with loan-to-value ratios at that level are minimal.
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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.
−Removed: At September 30, 2021, 0.3% of our owner occupied one-to four-family residential loans had loan-to-value ratios above 100% at origination.
−Removed: At December 31, 2020, none of our owner occupied one- to four-family residential loans had loan-to-value ratios above 100% at origination.
−Removed: At September 30, 2021 and December 31, 2020, an estimated 0.6% of total non-owner occupied one- to four-family residential loans had loan-to-value ratios above 100% at origination.
−Removed: At September 30, 2021, TDRs, including FDIC-assisted acquired loans, totaled $3.8 million, or 0.09% of total loans, an increase of $448,000 from $3.3 million, or 0.08% of total loans, at December 31, 2020.
−Removed: The December 31, 2020 amount excludes $1.7 million of FDIC-assisted acquired loans accounted for under ASC 310-30.
−Removed: Concessions granted to borrowers experiencing financial difficulties may include a reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize collection.
−Removed: For TDRs occurring during the nine months ended September 30, 2021, none were restructured into multiple new loans.
−Removed: For TDRs occurring during the year ended December 31, 2020, five loans totaling $107,000 were restructured into multiple new loans.
+Added: At both March 31, 2022 and December 31, 2021, 0.3% of our owner occupied one-to four-family residential loans had loan-to-value ratios above 100% at origination.
+Added: At both March 31, 2022 and December 31, 2021, an estimated 0.2% of total non-owner occupied one- to four-family residential loans had loan-to-value ratios above 100% at origination.
+Added: At March 31, 2022, TDRs totaled $3.7 million, or 0.1% of total loans, a decrease of $121,000 from $3.9 million, or 0.1% of total loans, at December 31, 2021.
+Added: Concessions granted to borrowers experiencing financial difficulties may include a reduction in the
+Added: interest rate on the loan, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize collection.
+Added: For TDRs occurring during the three months ended March 31, 2022, none were restructured into multiple new loans.
+Added: For TDRs occurring during the year ended December 31, 2021, one loan totaling $45,000 was restructured into multiple new loans.
For further information on TDRs, see Note 6 of the Notes to Consolidated Financial Statements contained in this report.
−Removed: 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.
−Removed: Although loan modifications were made, they did not result in these loans being classified as TDRs, potential problem loans or non-performing loans.
−Removed: As of September 30, 2021, $38.2 million of commercial loans and $1.6 million of residential and consumer loans were subject to such modifications.
−Removed: If more severe or lengthier negative impacts of the COVID-19 pandemic occur or the effects of the SBA loan programs and other loan and stimulus programs do not enable companies and individuals to completely recover financially, this could result in more and/or longer-term modifications, which may be deemed to be TDRs, additional potential problem loans and/or additional non-performing loans.
The level of non-performing loans and foreclosed assets affects our net interest income and net income.
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LIBOR is a benchmark interest rate referenced in a variety of agreements used by the Company, but by far the most significant area impacted by LIBOR is related to commercial and residential mortgage loans.
−Removed: After 2021, certain LIBOR rates may no longer be published and it is expected to eventually be discontinued as a reference rate.
+Added: After 2021, certain LIBOR rates may no longer be published and it is expected to eventually be discontinued as a reference rate by June 2023.
Other interest rates used globally could also be discontinued for similar reasons.
1 unchanged sentence
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.
−Removed: 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.
−Removed: This represented approximately 70 commercial loans totaling approximately $249 million;
+Added: The Company is particularly monitoring the remaining group of loans that were originated prior to the fourth quarter of 2018, and have not been renewed or modified since that time.
+Added: At March 31, 2022, this represented approximately 47 commercial loans totaling approximately $122 million;
however, only 26 of those loans, totaling $22 million, mature after June 2023 (the date upon which the LIBOR indices used by the Company are expected to no longer be available).
−Removed: The Company also has a portfolio of residential mortgage loans tied to LIBOR indices with standard index replacement language included (approximately $430 million), and that portfolio is being monitored for potential changes that may be facilitated by the mortgage industry.
+Added: The Company also has a portfolio of residential mortgage loans tied to LIBOR indices with standard index replacement language included (approximately $410 million at March 31, 2022), and that portfolio is being monitored for potential changes that may be facilitated by the mortgage industry.
As described, the vast majority of the loan portfolio tied to LIBOR now includes robust LIBOR replacement language which identifies appropriate “trigger” events for the cessation of LIBOR and the steps that the Company will take upon the occurrence of one or more of those events, including adjustments to any rate margin to ensure that the replacement interest rate on the loan is substantially similar to the previous LIBOR-based rate.
Available-for-sale Securities.
−Removed: In the nine months ended September 30, 2021, available-for-sale securities increased $18.0 million, or 4.3%, from $414.9 million at December 31, 2020, to $432.9 million at September 30, 2021.
−Removed: The increase was primarily due to the purchase of U.S.
−Removed: Government agency fixed-rate multi-family mortgage-backed securities and collateralized mortgage obligation securities, partially offset by calls of municipal securities and normal monthly payments received related to the portfolio of these U.S.
−Removed: Government agency securities.
−Removed: The Company used increased deposits and loan repayments to fund this increase in investment securities.
+Added: In the three months ended March 31, 2022, available-for-sale securities decreased $39.7 million, or 7.9%, from $501.0 million at December 31, 2021, to $461.4 million at March 31, 2022.
+Added: The decrease was primarily due to $226.5 million in available-for-sale securities being transferred to held-to-maturity during the period and calls of municipal securities and normal monthly payments received related to the portfolio of U.S.
+Added: Government agency mortgage-backed securities and collateralized mortgage obligations.
+Added: This was partially offset by the purchase of U.S.
+Added: Government agency fixed-rate single-family and multi-family mortgage-backed securities and collateralized mortgage obligations.
+Added: The Company used excess liquid funds and loan repayments to fund this increase in investment securities.
+Added: In determining securities that were elected to be transferred to the held-to-maturity category, the Company reviewed all of its investment securities purchased prior to 2022 and determined that certain of those securities, for various reasons, would likely be held to their maturity or full repayment prior to contractual maturity.
+Added: Held-to-maturity Securities.
+Added: In the three months ended March 31, 2022, as noted above, available-for-sale securities of $226.5 million were transferred to held-to-maturity.
+Added: This transfer included $220.2 million of mortgage-backed securities and collateralized mortgage obligations and $6.3 million in municipal securities.
The Company attracts deposit accounts through its retail branch network, correspondent banking and corporate services areas, and brokered deposits.
The Company then utilizes these deposit funds, along with FHLBank advances and other borrowings, to meet loan demand or otherwise fund its activities.
−Removed: In the nine months ended September 30, 2021, total deposit balances decreased $6.7 million, or 0.1%.
−Removed: Transaction account balances increased $328.3 million, or 10.5%, to $3.45 billion at September 30, 2021, while retail certificates of deposit decreased $243.7 million, or 19.8%, to $988.4 million at September 30, 2021.
−Removed: The increases in transaction accounts were primarily a result of increases in various money market accounts and NOW deposit accounts.
−Removed: Retail certificates of deposit decreased due to a decrease in retail certificates generated through the banking center network and decreases in national CDs initiated through internet channels.
−Removed: 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.
−Removed: Customer deposits at September 30, 2021 and December 31, 2020, totaling $41.5 million and $39.4 million, respectively, were part of the IntraFi Network Deposits program, which allows customers to maintain balances in an insured manner that would otherwise exceed the FDIC deposit insurance limit.
−Removed: Brokered deposits, including IntraFi Funding deposits, were $67.4 million at September 30, 2021, a decrease of $91.3 million from $158.7 million at December 31, 2020.
−Removed: The brokered deposits were allowed to mature without replacement as other deposit categories increased and to reduce the Company’s cost of funds.
+Added: In the three months ended March 31, 2022, total deposit balances decreased $62.8 million, or 1.4%.
+Added: Compared to December 31, 2021, transaction account balances remained flat at $3.59 billion at March 31, 2022, while retail certificates of deposit decreased $63.0 million, or 7.1%, to $830.7 million at March 31, 2022.
+Added: Increases in transaction accounts were primarily a result of increases in various money market accounts and NOW deposit accounts, offset by decreases in non-interest-bearing accounts.
+Added: Retail time deposits decreased due to a decrease in retail certificates generated through the banking center network and decreases in national time deposits initiated through internet channels.
+Added: Time deposits initiated through internet channels experienced a planned decrease due to increases in overall liquidity levels and to reduce the Company’s cost of funds.
+Added: Brokered deposits were $67.4 million at both March 31, 2022 and December 31, 2021.
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.
−Removed: When loan demand trends upward, we can increase rates paid on deposits to attract more deposits and utilize brokered deposits to provide additional funding.
+Added: When loan demand trends upward, we can increase rates paid on deposits to attract more deposits and utilize brokered
+Added: deposits to provide additional funding.
The level of competition for deposits in our markets is high.
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Securities sold under reverse repurchase agreements with customers.
−Removed: Securities sold under reverse repurchase agreements with customers increased $3.1 million from $164.2 million at December 31, 2020 to $167.3 million at September 30, 2021.
+Added: Securities sold under reverse repurchase agreements with customers increased $10.9 million from $137.1 million at December 31, 2021 to $148.0 million at March 31, 2022.
These balances fluctuate over time based on customer demand for this product.
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Quantitative and Qualitative Disclosures About Market Risk”).
−Removed: In addition, our net interest income has been impacted by changes in the cash flows expected to be received from acquired loan pools.
−Removed: As described in Note 7 of the Notes to the Consolidated Financial Statements contained in this report, the Company’s evaluation of cash flows expected to be received from acquired loan pools has been on-going and increases in cash flow expectations have been recognized as increases in accretable yield through interest income.
−Removed: Decreases in cash flow expectations have been recognized as impairments through the allowance for credit losses.
The current level and shape of the interest rate yield curve poses challenges for interest rate risk management.
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The FRB also implemented rate change increases of 0.25% on eight additional occasions beginning December 14, 2016 and through December 31, 2018, with the Federal Funds rate reaching as high as 2.50%.
−Removed: After December 2018, the FRB paused its rate increases and, in July, September and October 2019, implemented rate change decreases of 0.25% on each of those occasions.
+Added: After December 2018, the FRB paused its rate increases and, in July, September and October 2019, implemented rate decreases of 0.25% on each of those occasions.
At December 31, 2019, the Federal Funds rate stood at 1.75%.
In response to the COVID-19 pandemic, the FRB decreased interest rates on two occasions in March 2020, a 0.50% decrease on March 3 and a 1.00% decrease on March 16.
−Removed: At September 30, 2021, the Federal Funds rate stood at 0.25%.
−Removed: The FRB met in September 2021 and indicated they plan to keep the rates steady.
−Removed: A substantial portion of Great Southern’s loan portfolio ($1.80 billion at September 30, 2021) is tied to the one-month or three-month LIBOR index and will be subject to adjustment at least once within 90 days after September 30, 2021.
+Added: In March 2022, the FRB increased interest rates 0.25%.
+Added: At March 31, 2022, the Federal Funds rate stood at 0.50%.
+Added: Financial markets are anticipating an aggressive increase in interest rates in 2022, with up to 2.00% of cumulative rate hikes currently anticipated.
+Added: A substantial portion of Great Southern’s loan portfolio ($1.31 billion at March 31, 2022) 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, 2022.
Of these loans, $1.30 billion had interest rate floors.
−Removed: Great Southern also has a portfolio of loans ($533.8 million at September 30, 2021) tied to a “prime rate” of interest and will adjust immediately with changes to the “prime rate” of interest.
+Added: Great Southern also has a portfolio of loans ($613 million at March 31, 2022) tied to a “prime rate” of interest and will adjust immediately or within 90 days with changes to the “prime rate” of interest.
Of these loans, $592 million had interest rate floors at various rates.
−Removed: At September 30, 2021, $1.3 billion in LIBOR and “prime rate” loans were at their floor rate.
−Removed: If interest rates were to
−Removed: increase 25 basis points, loans of $284.6 million would move above their floor rate.
−Removed: If interest rates were to increase 50 basis points, an additional $344.8 million in loans would move above their floor rate.
−Removed: 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.
+Added: At March 31, 2022, $800 million in LIBOR and “prime rate” loans were at their floor rate.
+Added: If interest rates were to increase 50 basis points, approximately $460 million of these loans would move above their floor rate.
+Added: 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 or the “prime rate” index and will be subject to adjustment at least once within 90 days or loans which generally adjust immediately as the Federal Funds rate adjusts.
Interest rate floors may at least partially mitigate the negative impact of interest rate decreases.
1 unchanged sentence
Because the Federal Funds rate is again very low, there may also be a negative impact on the Company’s net interest income due to the Company’s inability to significantly lower its funding costs in the current competitive rate environment, although interest rates on assets may decline further.
−Removed: Conversely, interest rate increases would normally result in increased interest rates on our LIBOR-based and prime-based loans.
−Removed: As of September 30, 2021, Great Southern’s interest rate risk models indicate that, generally, rising interest rates are expected to have a positive impact on the Company's net interest income, while declining interest rates are expected to have a negative impact on net interest income.
+Added: Conversely, market interest rate increases would normally result in increased interest rates on our LIBOR-based and prime-based loans.
+Added: As of March 31, 2022, 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.
−Removed: The results of our modeling indicate that net interest income is not likely to be significantly affected either positively or negatively in the first twelve months following a rate change, regardless of any changes in interest rates, because our portfolios are relatively well-matched in a twelve-month horizon.
−Removed: In a situation where market interest rates decrease significantly in a short period of time, as they did in March 2020, our net interest margin decrease may be more pronounced in the very near term (first one to three months), due to fairly rapid decreases in LIBOR interest rates.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: 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.
+Added: The results of our modeling indicate that net interest income is not likely to be significantly affected either positively or negatively in the first twelve months following relatively minor changes in market interest rates because our portfolios are relatively well-matched in a twelve-month horizon.
+Added: In a situation where market interest rates increase significantly in a short period of time, our net interest margin increase may be more pronounced in the very near term (first one to three months), due to fairly rapid increases in LIBOR interest rates and “prime” interest rates.
+Added: In a situation where market interest rates decrease significantly in a short period of time, as they did in March 2020, our net interest margin decrease may be more pronounced in the very near term (first one to three months), due to fairly rapid decreases in LIBOR interest rates and “prime” interest rates.
+Added: 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
+Added: compared to the current rates paid on those products.
+Added: During 2020, we did experience some compression of our net interest margin percentage due to 2.25% of Federal Fund rate cuts during the nine month period of July 2019 through March 2020.
+Added: Margin compression primarily resulted from changes in the asset mix, mainly the addition of lower-yielding assets and the issuance of subordinated notes during 2020 and the net interest margin remained lower than our historical average in 2021.
+Added: LIBOR interest rates decreased significantly in 2020 and remained very low in 2021, putting pressure on loan yields, and strong pricing competition for loans and deposits remains in most of our markets.
For further discussion of the processes used to manage our exposure to interest rate risk, see “Item 3.
6 unchanged sentences
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.
−Removed: Details of the current period changes in non-interest income and non-interest expense are provided in the “Results of Operations and Comparison for the Three and Nine Months Ended September 30, 2021 and 2020” section of this report.
+Added: 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, 2022 and 2021” section of this report.
Effect of Federal Laws and Regulations
9 unchanged sentences
“Basel III” refers to various documents released by the Basel Committee on Banking Supervision.
−Removed: Company and the Bank, the general effective date of the rules was January 1, 2015, and, for certain provisions, various phase-in periods and later effective dates apply.
+Added: For the Company and the Bank, the general effective date of the rules was January 1, 2015, and, for certain provisions, various phase-in periods and later effective dates apply.
The chief features of these rules are summarized below.
9 unchanged sentences
Economic Growth Act.
−Removed: 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.
+Added: 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-
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.
−Removed: The Economic Growth Act, among other matters, expands the definition of qualified mortgages which may be held by a financial institution and simplifies the regulatory capital rules for financial institutions and their holding companies with total consolidated assets of less than $10 billion by instructing the federal banking regulators to establish a single “Community Bank Leverage Ratio” of between 8 and 10 percent.
−Removed: Any qualifying depository institution or its holding company that exceeds the “Community Bank Leverage Ratio” will be considered to have met generally applicable leverage and risk-based regulatory capital requirements and any qualifying depository institution that exceeds the new ratio will be considered “well-capitalized” under the prompt corrective action rules.
−Removed: Effective January 1, 2020, the Community Bank Leverage Ratio was 9.0%.
+Added: The Economic Growth Act, among other matters, expands the definition of qualified mortgages which may be held by a financial institution and simplifies the regulatory capital rules for financial institutions and their holding companies with total consolidated assets of less than $10 billion by instructing the federal banking regulators to establish a single “Community Bank Leverage Ratio” (“CBLR”) of between 8 and 10 percent.
+Added: Any qualifying depository institution or its holding company that exceeds the CBLR will be considered to have met generally applicable leverage and risk-based regulatory capital requirements and any qualifying depository institution that exceeds the new ratio will be considered “well-capitalized” under the prompt corrective action rules.
+Added: Effective January 1, 2020, the CBLR was 9.0%.
In April 2020, pursuant to the CARES Act, the federal bank regulatory agencies announced the issuance of two interim final rules, effective immediately, to provide temporary relief to community banking organizations.
−Removed: Under the interim final rules, the Community Bank Leverage Ratio requirement is a minimum of 8.5% for calendar year 2021, and 9% thereafter.
−Removed: The Company and the Bank have chosen to not utilize the new Community Bank Leverage Ratio due to the Company’s size and complexity, including its commercial real estate and construction lending concentrations and significant off-balance sheet funding commitments.
+Added: Under the interim final rules, the CBLR requirement was a minimum of 8.5% for calendar year 2021, and is 9% thereafter.
+Added: The Company and the Bank have chosen to not utilize the new CBLR due to the Company’s size and complexity, including its commercial real estate and construction lending concentrations and significant off-balance sheet funding commitments.
In addition, the Economic Growth Act includes regulatory relief in the areas of examination cycles, call reports, mortgage disclosures and risk weights for certain high-risk commercial real estate loans.
Business Initiatives
−Removed: The Company’s banking center network continues to evolve.
−Removed: In late September 2021 in the Joplin, Missouri, market, the Company opened a new banking center at 2801 E.
−Removed: 32nd Street, replacing a nearby leased office.
−Removed: The new office provides customers more convenient access and has a fresh, modern design facilitating an enhanced customer experience.
−Removed: The Company currently has two banking centers serving the Joplin market.
−Removed: After a thorough evaluation, the Company announced that it will consolidate one banking center in the St.
−Removed: Louis region.
−Removed: The Westfall Plaza banking center located at 8013 W.
−Removed: Florissant is expected to be consolidated into a nearby Great Southern office at 10385 W.
−Removed: Florissant, less than three miles away.
−Removed: The Westfall Plaza office is scheduled to close after business hours on November 5, 2021, which will leave the Company with 18 banking centers serving the greater St.
−Removed: Thomason, Vice President and Chief Information Officer, intends to retire at the end of 2021.
−Removed: Thomason is primarily responsible for information services and technology for Great Southern.
−Removed: He announced his intention to retire more than a year in advance to assure an orderly leadership transition.
−Removed: A succession plan is in place.
−Removed: With more than 40 years in the banking industry, Mr.
−Removed: Thomason joined Great Southern in 1997.
−Removed: He has been an integral part of the Bank’s growth and success for the last 24 years.
−Removed: Comparison of Financial Condition at September 30, 2021 and December 31, 2020
−Removed: During the nine months ended September 30, 2021, the Company’s total assets decreased by $74.6 million to $5.45 billion.
−Removed: The decrease was primarily in net loans, and was partially offset by an increase in cash equivalents.
−Removed: Cash and cash equivalents were $769.2 million at September 30, 2021, an increase of $205.5 million, or 36.4%, from $563.7 million at December 31, 2020.
−Removed: These additional funds were held at the Federal Reserve Bank and primarily were the result of increases in net loan repayments throughout 2021.
−Removed: The Company's available-for-sale securities increased $18.0 million, or 4.3%, compared to December 31, 2020.
−Removed: The increase was primarily due to the purchase of U.S.
−Removed: Government agency fixed-rate multi-family mortgage-backed securities and collateralized mortgage obligation securities, partially offset by calls of municipal securities and normal monthly payments received related to the portfolio of these U.S.
−Removed: Government agency securities.
−Removed: The available-for-sale securities portfolio was 7.9% and 7.5% of total assets at September 30, 2021 and December 31, 2020, respectively.
−Removed: Net loans decreased $271.1 million from December 31, 2020, to $4.03 billion at September 30, 2021.
−Removed: Excluding FDIC-assisted acquired loans and mortgage loans held for sale, total gross loans (including the undisbursed portion of loans) decreased $210.0 million, or 4.1%, from December 31, 2020 to September 30, 2021.
−Removed: This decrease was primarily in other residential (multi-family) loans ($233 million decrease), commercial business loans ($77 million decrease), commercial real estate loans ($45 million decrease) and consumer auto loans ($31 million decrease).
−Removed: These decreases were partially offset by increases in construction loans ($135 million increase) and one- to four-family residential loans ($44 million increase).
−Removed: Total liabilities decreased $69.5 million, from $4.90 billion at December 31, 2020 to $4.83 billion at September 30, 2021.
−Removed: The decrease was primarily attributable to the redemption of $75 million of subordinated notes during the 2021 period.
−Removed: Total deposits decreased $6.7 million, or 0.1%, to $4.51 billion at September 30, 2021.
−Removed: Transaction account balances increased $328.3 million to $3.45 billion at September 30, 2021, while retail certificates of deposit decreased $243.7 million compared to December 31, 2020, to $988.4 million at September 30, 2021.
−Removed: The increase in transaction accounts was primarily a result of increases in NOW deposit accounts, money market accounts and IntraFi Network Deposits.
−Removed: Total interest-bearing checking accounts increased $257.5 million while demand deposit accounts increased $70.8 million.
−Removed: Customer retail certificates of deposit initiated through our banking center network decreased $111.8 million and certificates of deposit initiated through our national internet network decreased $134.0 million.
−Removed: Customer deposits at September 30, 2021 and December 31, 2020 totaling $41.5 million and $39.4 million, respectively, were part of the IntraFi Network Deposits program, which allows customers to maintain balances in an insured manner that would otherwise exceed the FDIC deposit insurance limit.
−Removed: Brokered deposits, including IntraFi Funding deposits, were $67.4 million at September 30, 2021, a decrease of $91.3 million from $158.7 million at December 31, 2020.
−Removed: The brokered deposits were allowed to mature without replacement as other deposit categories increased.
−Removed: Securities sold under reverse repurchase agreements with customers increased $3.1 million from $164.2 million at December 31, 2020 to $167.3 million at September 30, 2021.
+Added: Great Southern continues to monitor and respond to the effects of the COVID-19 pandemic.
+Added: As always, the health, safety and well-being of our customers, associates and communities, while maintaining uninterrupted service, are the Company’s top priorities.
+Added: Centers for Disease Control and Prevention (CDC) guidelines, as well as directives from federal, state and local officials, are being followed to make informed operational decisions, if necessary.
+Added: The Company’s banking center network continues to be optimized.
+Added: During 2022, the high-performing banking center in Kimberling City, Missouri, will be replaced with a newly constructed building on the same property at 14309 Highway 13.
+Added: Customers will be served in a temporary building on the property during construction.
+Added: The new office is expected to open in the fourth quarter of 2022.
+Added: Including this office, the Company operates three banking centers in the Branson Tri-Lakes area of southwest Missouri.
+Added: In February 2022, the Company opened a new commercial loan production office (LPO) in Phoenix, Arizona, which represents the seventh LPO in the Company’s franchise.
+Added: A local and highly-experienced lender was hired to manage the office.
+Added: The new LPO provides a wide variety of commercial lending services, including commercial real estate loans for new and existing properties and commercial construction loans.
+Added: The Company expects to continue looking for opportunities to open additional LPOs in other markets during 2022.
+Added: The Company announced that its 2022 Annual Meeting of Stockholders, to be held at 10 a.m.
+Added: Central Time on May 11, 2022, will be a virtual meeting over the internet and will not be held at a physical location.
+Added: Stockholders will be able to attend the Annual Meeting via a live webcast.
+Added: Holders of record of Great Southern Bancorp, Inc.
+Added: common stock at the close of business on the record date, March 2, 2022, may vote during the live webcast of the Annual Meeting or by proxy.
+Added: 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 Annual Meeting.
+Added: Comparison of Financial Condition at March 31, 2022 and December 31, 2021
+Added: During the three months ended March 31, 2022, the Company’s total assets decreased by $75.7 million to $5.37 billion.
+Added: The decrease was primarily in cash equivalents, and was partially offset by an increase in loans and investment securities.
+Added: Cash and cash equivalents were $353.0 million at March 31, 2022, a decrease of $364.2 million, or 50.8%, from $717.3 million at December 31, 2021.
+Added: Excess funds held at the Federal Reserve Bank at December 31, 2021 were primarily the result of increases in net loan repayments throughout 2021.
+Added: In 2022, these excess funds were used to fund the purchase of new investment securities and to fund loan originations.
+Added: The Company's available-for-sale securities decreased $39.7 million, or 7.9%, compared to December 31, 2021.
+Added: The decrease was primarily due to the transfer of $226.5 million in available-for-sale securities to held-to-maturity during the period and by calls of municipal securities and normal monthly payments received related to the portfolio of mortgage-backed securities and collateralized mortgage obligations.
+Added: This was mostly offset by the purchase of U.S.
+Added: Government agency fixed-rate single-family or multi-family
+Added: mortgage-backed securities and collateralized mortgage obligations.
+Added: The Company used excess funds held at the Federal Reserve Bank and loan repayments to fund this increase in investment securities.
+Added: The available-for-sale securities portfolio was 8.6% and 9.2% of total assets at March 31, 2022 and December 31, 2021, respectively.
+Added: The transfer of $226.5 million in available-for-sale securities to held-to-maturity included $220.2 million of mortgage-backed securities and collateralized mortgage obligations and $6.3 million in municipal securities.
+Added: In determining securities that were elected to be transferred to the held-to-maturity category, the Company reviewed all of its investment securities purchased prior to 2022 and determined that certain of those securities, for various reasons, would likely be held to their maturity or full repayment prior to contractual maturity.
+Added: The held-to-maturity securities portfolio was 4.2% of total assets at March 31, 2022.
+Added: Net loans increased $104.0 million from December 31, 2021, to $4.11 billion at March 31, 2022.
+Added: This increase was primarily in other residential (multi-family) loans ($152 million increase), commercial real estate loans ($82 million increase) and one- to four-family residential loans ($51 million increase).
+Added: These increases were partially offset by a decrease in construction loans ($181 million decrease).
+Added: Loan origination volume in the three months ended March 31, 2022 was similar to loan origination volume that occurred in 2020 and 2021.
+Added: Total liabilities decreased $41.5 million, from $4.83 billion at December 31, 2021 to $4.79 billion at March 31, 2022.
+Added: The decrease was primarily attributable to a reduction in total deposits, primarily time deposits.
+Added: Time deposits initiated through internet channels experienced a planned decrease due to increases in overall liquidity levels and to reduce the Company’s cost of funds.
+Added: Total deposits decreased $62.8 million, or 1.4%, to $4.49 billion at March 31, 2022.
+Added: Transaction account balances were flat at $3.59 billion at March 31, 2022, while retail certificates of deposit decreased $63.0 million compared to December 31, 2021, to $830.7 million at March 31, 2022.
+Added: Changes in transaction account balances were primarily a result of increases in NOW deposit accounts and money market accounts, offset by decreases in IntraFi Network Reciprocal Deposits and non-interest-bearing checking accounts.
+Added: Total interest-bearing checking accounts increased $33.8 million while demand deposit accounts decreased $33.5 million.
+Added: Customer retail time deposits initiated through our banking center network decreased $15.4 million and time deposits initiated through our national internet network decreased $44.7 million.
+Added: Customer deposits at March 31, 2022 and December 31, 2021 totaling $38.9 million and $41.7 million, respectively, were part of the IntraFi Network Deposits program, which allows customers to maintain balances in an insured manner that would otherwise exceed the FDIC deposit insurance limit.
+Added: Brokered deposits were $67.4 million at both March 31, 2022 and December 31, 2021.
+Added: Securities sold under reverse repurchase agreements with customers increased $10.9 million from $137.1 million at December 31, 2021 to $148.0 million at March 31, 2022.
These balances fluctuate over time based on customer demand for this product.
−Removed: Total stockholders' equity decreased $5.1 million from $629.7 million at December 31, 2020 to $624.6 million at September 30, 2021.
−Removed: The Company recorded net income of $59.3 million for the nine months ended September 30, 2021.
+Added: Total stockholders' equity decreased $34.2 million, from $616.8 million at December 31, 2021 to $582.6 million at March 31, 2022.
+Added: Accumulated other comprehensive income decreased $24.1 million during the three months ended March 31, 2022, primarily due to decreases in the fair value of available-for-sale investment securities.
+Added: Stockholders’ equity also decreased due to repurchases of the Company’s common stock totaling $25.3 million and dividends declared on common stock of $4.6 million.
+Added: The Company recorded net income of $17.0 million for the three months ended March 31, 2022.
In addition, stockholders’ equity increased $2.8 million due to stock option exercises.
−Removed: Accumulated other comprehensive income decreased $15.9 million due to decreases in the fair value of available-for-sale investment securities and the termination value of the cash flow interest rate swap.
−Removed: Stockholders’ equity also decreased due to dividends declared on common stock of $14.1 million and repurchases of the Company’s common stock totaling $23.8 million.
−Removed: In addition, the initial adoption of the CECL accounting standard for credit losses on January 1, 2021, resulted in a decrease in stockholders’ equity of $14.2 million.
−Removed: Results of Operations and Comparison for the Three and Nine Months Ended September 30, 2021 and 2020
−Removed: Net income was $20.4 million for the three months ended September 30, 2021 compared to $13.5 million for the three months ended September 30, 2020.
−Removed: This increase of $6.9 million, or 51.4%, was primarily due to a decrease in the provision for credit losses on loans and unfunded commitments of $6.9 million, or 152.4%, an increase in net interest income of $755,000, or 1.7%, an increase in noninterest income of $332,000, or 3.5%, and a decrease in noninterest expense of $649,000, or 2.0%, partially offset by an increase in income tax expense of $1.7 million, or 45.6%.
−Removed: Net income was $59.3 million for the nine months ended September 30, 2021 compared to $41.5 million for the nine months ended September 30, 2020.
−Removed: This increase of $17.8 million, or 42.9%, was primarily due to a decrease in the provision for credit losses on loans and unfunded commitments of $18.4 million, or 128.1%, an increase in net interest income of $1.1 million, or 0.9%, an increase in noninterest income of $4.0 million, or 16.0%, and a decrease in noninterest expense of $299,000, or 0.3%, partially offset by an increase in income tax expense of $6.0 million, or 63.0%.
+Added: Results of Operations and Comparison for the Three Months Ended March 31, 2022 and 2021
+Added: Net income was $17.0 million for the three months ended March 31, 2022 compared to $18.9 million for the three months ended March 31, 2021.
+Added: This decrease of $1.9 million, or 10.0%, was primarily due to an increase in noninterest expense of $947,000, or 3.1%, a decrease in net interest income of $823,000, or 1.9%, a decrease in noninterest income of $560,000, or 5.8%, and a smaller negative provision for credit losses on loans and unfunded commitments of $181,000, or 48.4%, partially offset by a decrease in income tax expense of $630,000, or 12.6%.
Total Interest Income
−Removed: Total interest income decreased $4.0 million, or 7.4%, during the three months ended September 30, 2021 compared to the three months ended September 30, 2020.
−Removed: The decrease was due to a $3.9 million decrease in interest income on loans and a $19,000 decrease in interest income on investment securities and other interest-earning assets.
−Removed: Interest income on loans decreased for the three months ended September 30, 2021 compared to the same period in 2020, primarily due to lower average loan balances, but also due to lower average rates of interest.
−Removed: Interest income from investment securities and other interest-earning assets decreased during the three months ended September 30, 2021 compared to the same period in 2020 primarily due to lower average rates of interest, partially offset by higher average balances of investment securities and other interest-earning assets.
−Removed: Total interest income decreased $14.4 million, or 8.7%, during the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.
−Removed: The decrease was due to a $13.8 million decrease in interest income on loans and a $511,000 decrease in interest income on investment securities and other interest-earning assets.
−Removed: Interest income on loans decreased for the nine months ended September 30, 2021 compared to the same period in 2020, due primarily to lower average rates of interest on loans.
−Removed: Interest income from investment securities and other interest-earning assets decreased during the nine months ended September 30, 2021 compared to the same period in 2020 primarily due to lower average rates of interest, partially offset by higher average balances of investment securities and other interest-earning assets.
+Added: Total interest income decreased $4.0 million, or 7.8%, during the three months ended March 31, 2022 compared to the three months ended March 31, 2021.
+Added: The decrease was due to a $4.6 million decrease in interest income on loans, partially offset by a $684,000 increase in interest income on investment securities and other interest-earning assets.
+Added: Interest income on loans decreased for the three months ended March 31, 2022 compared to the same period in 2021, primarily due to lower average loan balances, combined with lower average rates of interest.
+Added: Interest income from investment securities and other interest-earning assets increased during the three
+Added: months ended March 31, 2022 compared to the same period in 2021 primarily due to higher average balances of investment securities and other interest-earning assets, partially offset by lower average rates of interest on investment securities.
Interest Income – Loans
−Removed: During the three months ended September 30, 2021 compared to the three months ended September 30, 2020, interest income on loans decreased $2.8 million as the result of lower average loan balances, which decreased from $4.51 billion during the three months ended September 30, 2020, to $4.24 billion during the three months ended September 30, 2021.
−Removed: The lower average balances were primarily due to higher loan repayments during the 2021 period.
+Added: During the three months ended March 31, 2022 compared to the three months ended March 31, 2021, interest income on loans decreased $3.0 million as the result of lower average loan balances, which decreased from $4.41 billion during the three months ended March 31, 2021, to $4.13 billion during the three months ended March 31, 2022.
+Added: The lower average balances were primarily due to higher loan repayments during 2021.
Interest income on loans also decreased $1.7 million as a result of lower average interest rates on loans.
−Removed: The average yield on loans decreased from 4.46% during the three months ended September 30, 2020, to 4.35% during the three months ended September 30, 2021.
−Removed: This decrease was primarily due to decreased yields in most loan categories as a result of decreased LIBOR and Federal Funds interest rates.
−Removed: In addition, new loans (excluding one- to four-family mortgage loans) originated in the three months ended September 30, 2021, had an average contractual interest rate of 3.87%, compared to an average contractual interest rate of about 3.89% for the portfolio (excluding one- to four-family mortgage loans) at September 30, 2021.
−Removed: Commercial real estate loans (including multifamily loans and construction loans) originated in the three months ended September 30, 2021, had contractual interest rates averaging 3.65-3.75%, compared to an average contractual interest rate of about 3.85% for the portfolio of these loan types at September 30, 2021.
−Removed: During the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, interest income on loans decreased $12.6 million as a result of lower average interest rates on loans.
−Removed: The average yield on loans decreased from 4.74% during the nine months ended September 30, 2020, to 4.36% during the nine months ended September 30, 2021.
−Removed: This decrease was primarily due to decreased yields in most loan categories as a result of decreased LIBOR and Federal Funds interest rates.
−Removed: Interest income on loans also decreased $1.3 million as the result of lower average loan balances, which decreased from $4.38 billion during the nine months ended September 30, 2020, to $4.34 billion during the nine months ended September 30, 2021.
−Removed: The lower average balances were primarily due to higher loan repayments during the 2021 period.
−Removed: On an on-going basis, the Company has estimated the cash flows expected to be collected from FDIC-assisted acquired loan pools.
−Removed: For each of the loan portfolios acquired, the cash flow estimates have increased, based on the payment histories and the collection of certain loans, thereby reducing loss expectations of certain loan pools, resulting in adjustments to be spread on a level-yield basis over the remaining expected lives of the loan pools.
−Removed: The entire amount of the discount adjustment has been and will be accreted to interest income over time.
−Removed: For the three months ended September 30, 2021 and 2020, the adjustments increased interest income by $279,000 and $1.2 million, respectively.
−Removed: For the nine months ended September 30, 2021 and 2020, the adjustments increased interest income by $1.4 million and $4.6 million, respectively.
−Removed: As of September 30, 2021, the remaining accretable yield adjustment that will affect interest income was $606,000.
−Removed: Of the remaining adjustments affecting interest income, we expect to recognize approximately $178,000 of interest income during the fourth quarter of 2021 .
−Removed: As discussed in Note 6 of the Notes to Consolidated Financial Statements contained in this report, we adopted the new accounting standard related to accounting for credit losses as of January 1, 2021.
−Removed: With the adoption of this standard, there is no further reclassification of discounts from non-accretable to accretable subsequent to December 31, 2020.
−Removed: All adjustments made prior to January 1, 2021, will continue to be accreted to interest income.
−Removed: Apart from the yield accretion, the average yield on loans was 4.33% during the three months ended September 30, 2021, compared to 4.35% during the three months ended September 30, 2020.
−Removed: Apart from the yield accretion, the average yield on loans was 4.32% during the nine months ended September 30, 2021, compared to 4.60% during the nine months ended September 30, 2020, as a result of lower current market rates on adjustable rate loans and new loans originated during the past year.
+Added: The average yield on loans decreased from 4.39% during the three months ended March 31, 2021, to 4.23% during the three months ended March 31, 2022.
+Added: This decrease was primarily due to decreased yields in most loan categories as some loans with higher rates refinanced or repaid as a result of the sale of the financed project.
+Added: In addition, some new loans originated after March 31, 2021, had an average contractual interest rate that was less than the average contractual interest rate for the portfolio at the time.
+Added: Additionally, the Company’s net interest income included accretion of net deferred fees related to PPP loans originated in 2020 and 2021.
+Added: The amount of net deferred fees recognized in interest income was $416,000 in the three months ended March 31, 2022 compared to $1.2 million in the three months ended March 31, 2021 and $1.6 million in the three months ended December 31, 2021.
+Added: At March 31, 2022, remaining net deferred fees related to PPP loans was $88,000.
In October 2018, the Company entered into an interest rate swap transaction as part of its ongoing interest rate management strategies to hedge the risk of its floating rate loans.
The notional amount of the swap was $400 million with a contractual termination date in October 2025.
−Removed: 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.
−Removed: The floating rate reset monthly and net settlements of interest due to/from the counterparty also occurred monthly.
−Removed: To the extent that the fixed rate exceeded one-month USD-LIBOR, the Company received net interest settlements, which were recorded as interest income on loans.
−Removed: 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.
−Removed: In March 2020, the Company and its swap counterparty mutually agreed to terminate the $400 million interest rate swap prior to its contractual maturity.
+Added: As previously disclosed by the Company, in March 2020, the Company and its swap counterparty mutually agreed to terminate the $400 million interest rate swap prior to its contractual maturity.
The Company received a payment of $45.9 million from its swap counterparty as a result of this termination.
This $45.9 million, less the accrued to date interest portion and net of deferred income taxes, is reflected in the Company’s stockholders’ equity as Accumulated Other Comprehensive Income and is being accreted to interest income on loans monthly through the original contractual termination date of October 6, 2025.
−Removed: This has the effect of reducing Accumulated Other Comprehensive Income and increasing Net Interest Income and Retained Earnings over the period.
−Removed: In each quarterly period, until the original contract termination date, the Company expects to record loan interest income related to this swap transaction of approximately $2.0 million,
−Removed: based on the termination values of the swap.
−Removed: The Company recorded interest income related to the interest rate swap of $2.0 million and $2.0 million, respectively, in the three months ended September 30, 2021 and 2020.
−Removed: The Company recorded interest income related to the interest rate swap of $6.1 million and $5.6 million, respectively, in the nine months ended September 30, 2021 and 2020.
−Removed: The Company currently expects to have a sufficient amount of eligible variable rate loans to continue to accrete this interest income in future periods.
+Added: This has the effect of reducing Accumulated Other Comprehensive Income and increasing Net Interest Income and Retained Earnings over the periods.
+Added: The Company recorded interest income related to this terminated interest rate swap of $2.0 million in each of the three months ended March 31, 2022 and 2021.
+Added: The Company currently expects to have a sufficient amount of eligible variable rate loans to continue to accrete this interest income ratably in future periods.
If this expectation changes and the amount of eligible variable rate loans decreases significantly, the Company may be required to recognize this interest income more rapidly.
+Added: 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.
+Added: 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.
+Added: 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).
+Added: The floating rate resets monthly and net settlements of interest due to/from the counterparty also occur monthly.
+Added: The initial floating rate of interest was set at 0.2414%.
+Added: To the extent that the fixed rate of interest continues to exceed one-month USD-LIBOR, the Company will receive net interest settlements, which will be recorded as loan interest income.
+Added: If one-month 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.
+Added: The Company recorded loan interest income related to this swap transaction of $370,000 in the three months ended March 31, 2022.
Interest Income – Investments and Other Interest-earning Assets
−Removed: Interest income on investments decreased $183,000 in the three months ended September 30, 2021 compared to the three months ended September 30, 2020.
−Removed: Interest income decreased $210,000 as a result of lower average interest rates from 2.71% during the three months ended September 30, 2020, to 2.52% during the three month period ended September 30, 2021.
−Removed: Partially offsetting that decrease was an increase in interest income of $27,000 as a result of an increase in average balances from $449.4 million during the three months ended September 30, 2020, to $453.3 million during the three months ended September 30, 2021.
+Added: Interest income on investments increased $593,000 in the three months ended March 31, 2022 compared to the three months ended March 31, 2021.
+Added: Interest income increased $770,000 as a result of an increase in average balances from $414.7 million during the three months ended March 31, 2021, to $534.0 million during the three months ended March 31, 2022.
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.
−Removed: Interest income on investments decreased $571,000 in the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.
−Removed: Interest income decreased $992,000 as a result of lower average interest rates from 2.92% during the nine months ended September 30, 2020, to 2.61% during the nine month period ended September 30, 2021.
−Removed: Partially offsetting that decrease was an increase in interest income of $421,000 as a result of an increase in average balances from $422.7 million during the nine months ended September 30, 2020, to $442.8 million during the nine months ended September 30, 2021.
−Removed: Average balances of securities increased primarily due to the investment purchases described above.
−Removed: Interest income on other interest-earning assets increased $164,000 in the three months ended September 30, 2021 compared to the three months ended September 30, 2020.
−Removed: Interest income increased $110,000 as a result of an increase in average balances from $270.5 million during the three months ended September 30, 2020, to $604.0 million during the three months ended September 30, 2021.
−Removed: Excess liquidity, after repayment of FHLBank borrowings, has been maintained at the Federal Reserve Bank as a result of the significant increase in deposits since March 31, 2020 and significant loan repayments in 2021.
−Removed: Interest income increased $54,000 as a result of higher average interest rates from 0.09% during the three months ended September 30, 2020, to 0.15% during the three month period ended September 30, 2021.
−Removed: Interest income on other interest-earning assets increased $60,000 in the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.
−Removed: Interest income increased $329,000 as a result of an increase in average balances from $227.5 million during the nine months ended September 30, 2020, to $513.4 million during the nine months ended September 30, 2021.
−Removed: Excess liquidity, after repayment of FHLBank borrowings, has been maintained at the Federal Reserve Bank as a result of the significant increase in deposits since March 31, 2020 and significant loan repayments in 2021.
−Removed: Partially offsetting this increase, interest income decreased $269,000 as a result of a decrease in average interest rates to 0.12% during the nine months ended September 30, 2021 compared to 0.24% during the nine months ended September 30, 2020.
−Removed: 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.
+Added: Partially offsetting that increase, interest income decreased $177,000 as a result of lower average interest rates from 2.75% during the three months ended March 31, 2021, to 2.59% during the three month period ended March 31, 2022.
+Added: Interest income on other interest-earning assets increased $91,000 in the three months ended March 31, 2022 compared to the three months ended March 31, 2021.
+Added: Interest income increased $80,000 as a result of higher average interest rates from 0.10% during the three months ended March 31, 2021, to 0.18% during the three month period ended March 31, 2022.
+Added: Interest income increased $11,000 as a result of an increase in average balances from $419.4 million during the three months ended March 31, 2021, to $458.6 million during the three months ended March 31, 2022.
+Added: The increase in the average interest rates was due to the increase in the rate
+Added: paid on funds held at the Federal Reserve Bank.
+Added: This rate was increased in March 2022 in conjunction with the increase in the Federal Funds target interest rate.
Total Interest Expense
−Removed: Total interest expense decreased $4.7 million, or 50.0%, during the three months ended September 30, 2021, when compared with the three months ended September 30, 2020, due to a decrease in interest expense on deposits of $4.2 million, or 58.8%, a decrease in interest expense on subordinated notes of $530,000, or 24.1% and a decrease in interest expense on subordinated debentures issued to capital trust of $17,000, or 13.3%.
−Removed: Total interest expense decreased $15.5 million, or 47.6%, during the nine months ended September 30, 2021, when compared with the nine months ended September 30, 2020, due to a decrease in interest expense on deposits of $16.1 million, or 60.3%, a decrease in interest expense on short-term borrowings and repurchase agreements of $638,000, or 95.7%, and a decrease in interest expense on subordinated debentures issued to capital trust of $174,000, or 34.1%, partially offset by an increase in interest expense on subordinated notes of $1.4 million, or 30.8%.
+Added: Total interest expense decreased $3.1 million, or 47.9%, during the three months ended March 31, 2022, when compared with the three months ended March 31, 2021, due to a decrease in interest expense on deposits of $2.0 million, or 48.5% and a decrease in interest expense on subordinated notes of $1.1 million, or 49.8%.
Interest Expense – Deposits
−Removed: Interest expense on demand deposits decreased $1.0 million due to average rates of interest that decreased from 0.33% in the three months ended September 30, 2020 to 0.15% in the three months ended September 30, 2021.
−Removed: 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.
−Removed: Partially offsetting this decrease, interest expense on demand deposits increased $288,000, due to an increase in average balances from $1.96 billion during the three months ended September 30, 2020 to $2.36 billion during the three months ended September 30, 2021.
−Removed: The Company experienced increased balances in various types of money market accounts and certain types of NOW accounts.
−Removed: Interest expense on demand deposits decreased $3.7 million due to average rates of interest that decreased from 0.42% in the nine months ended September 30, 2020 to 0.18% in the nine months ended September 30, 2021.
−Removed: 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.
−Removed: Partially offsetting this decrease, interest expense on demand deposits increased $1.3 million due to an increase in average balances from $1.79 billion during the nine months ended September 30, 2020 to $2.29 billion during the nine months ended September 30, 2021.
+Added: Interest expense on demand deposits decreased $512,000 due to average rates of interest that decreased from 0.22% in the three months ended March 31, 2021 to 0.13% in the three months ended March 31, 2022.
+Added: Interest rates paid on demand deposits were significantly lower in the 2022 period due to significant reductions in the federal funds rate of interest and other market interest rates since 2020.
+Added: Partially offsetting this decrease, interest expense on demand deposits increased $95,000, due to an increase in average balances from $2.19 billion during the three months ended March 31, 2021 to $2.38 billion during the three months ended March 31, 2022.
The Company experienced increased balances in various types of money market accounts and certain types of NOW accounts.
−Removed: Interest expense on time deposits decreased $2.1 million as a result of a decrease in average rates of interest from 1.35% during the three months ended September 30, 2020, to 0.71% during the three months ended September 30, 2021.
−Removed: Interest expense on time deposits also decreased $1.3 million due to a decrease in average balances of time deposits from $1.60 billion during the three months ended September 30, 2020 to $1.11 billion in the three months ended September 30, 2021.
+Added: Interest expense on time deposits decreased $892,000 as a result of a decrease in average rates of interest from 0.94% during the three months ended March 31, 2021, to 0.61% during the three months ended March 31, 2022.
+Added: Interest expense on time deposits also decreased $740,000 due to a decrease in average balances of time deposits from $1.31 billion during the three months ended March 31, 2021 to $931.1 million in the three months ended March 31, 2022.
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.
−Removed: 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.
−Removed: Market interest rates remained low during the first nine months of 2021.
−Removed: The decrease in average balances of time deposits was a result of decreases in retail customer time deposits obtained through the banking center network, retail customer time deposits obtained through on-line channels and decreases in brokered deposits.
−Removed: Brokered and on-line channel deposits were actively reduced by the Company as other deposit sources increased.
−Removed: Interest expense on time deposits decreased $8.6 million as a result of a decrease in average rates of interest from 1.66% during the nine months ended September 30, 2020, to 0.82% during the nine months ended September 30, 2021.
−Removed: Interest expense on time deposits also decreased $5.0 million due to a decrease in average balances of time deposits from $1.70 billion during the nine months ended September 30, 2020 to $1.21 billion in the nine months ended September 30, 2021.
−Removed: Interest Expense – FHLBank Advances, Short-term Borrowings and Repurchase Agreements, Subordinated Debentures Issued to Capital Trusts and Subordinated Notes
−Removed: FHLBank advances and overnight borrowings from the FHLBank were not utilized during the three or nine months ended September 30, 2021 and 2020.
−Removed: Interest expense on short-term borrowings and repurchase agreements increased $2,000 during the three months ended September 30, 2021 when compared to the three months ended September 30, 2020.
−Removed: The average rate of interest was 0.02% for both the three months ended September 30, 2021 and September 30, 2020.
−Removed: The average balance of short-term borrowings and repurchase agreements decreased $8.1 million from $159.4 million in the three months ended September 30, 2020 to $151.3 million in the three months ended September 30, 2021, which was primarily due to changes in the Company’s funding needs and the mix of funding, which can fluctuate.
−Removed: Interest expense on short-term borrowings and repurchase agreements decreased $638,000 during the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.
−Removed: Interest expense decreased $505,000 due to a decrease in average rates from 0.46% in the nine months ended September 30, 2020 to 0.03% in the nine months ended September 30, 2021.
−Removed: The decrease was due to a decrease in market interest rates during the period.
−Removed: Interest expense on short-term borrowings and repurchase agreements also decreased $133,000 due to a decrease in average balances from $195.5 million during the nine months ended September 30, 2020 to $147.0 million during the nine months ended September 30, 2021, which was primarily due to changes in the Company’s funding needs and the mix of funding.
−Removed: During the three months ended September 30, 2021, compared to the three months ended September 30, 2020, interest expense on subordinated debentures issued to capital trusts decreased $17,000 due to lower average interest rates.
−Removed: The average interest rate was
−Removed: 1.71% in the three months ended September 30, 2021 compared to 1.98% in the three months ended September 30, 2020.
−Removed: The subordinated debentures are variable-rate debentures which bear interest at an average rate of three-month LIBOR plus 1.60%, adjusting quarterly, which was 1.73% at September 30, 2021.
−Removed: There was no change in the average balance of the subordinated debentures between the 2020 and 2021 periods.
−Removed: During the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020, interest expense on subordinated debentures issued to capital trusts decreased $174,000 due to lower average interest rates.
−Removed: The average interest rate was 1.75% in the nine months ended September 30, 2021 compared to 2.65% in the nine months ended September 30, 2020.
+Added: 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 2021 with rates only beginning to increase minimally during the three months ended March 31, 2022 due to increases in the Federal Funds rate.
+Added: The decrease in average balances of time deposits was a result of decreases in retail customer time deposits obtained through the banking center network and retail customer time deposits obtained through on-line channels.
+Added: On-line channel deposits were actively reduced by the Company during 2021 and 2022 as other deposit sources increased.
+Added: Interest Expense – FHLBank Advances;
+Added: Short-term Borrowings, Repurchase Agreements and Other Interest-bearing Liabilities;
+Added: Subordinated Debentures Issued to Capital Trusts and Subordinated Notes
+Added: FHLBank advances and overnight borrowings from the FHLBank were not utilized during the three months ended March 31, 2022 and 2021.
+Added: Interest expense on repurchase agreements increased $1,000 during the three months ended March 31, 2022 when compared to the three months ended March 31, 2021.
+Added: The average rate of interest was 0.03% for both the three months ended March 31, 2022 and the three months ended March 31, 2021.
+Added: The average balance of repurchase agreements decreased $16.2 million from $144.5 million in the three months ended March 31, 2022 to $128.3 million in the three months ended March 31, 2022, which was due to changes in customers’ need for this product, which can fluctuate.
+Added: Interest expense on short-term borrowings and other interest-bearing liabilities increased $1,000 during the three months ended March 31, 2022 when compared to the three months ended March 31, 2021.
+Added: The average rate of interest was 0.08% for the three months ended March 31, 2022, compared to 0.00% for the three months ended March 31, 2021.
+Added: The average balance of short-term borrowings and other interest-bearing liabilities increased $1.9 million from $1.7 million in the three months ended March 31, 2021 to $3.6 million in the three months ended March 31, 2022, which was primarily due to cash collateral provided to the Company from one of its derivative counterparties to satisfy collateral pledging requirements.
+Added: During the three months ended March 31, 2022, compared to the three months ended March 31, 2021, interest expense on subordinated debentures issued to capital trusts increased $5,000 due to higher average interest rates.
+Added: The average interest rate was 1.86% in the three months ended March 31, 2022 compared to 1.78% in the three months ended March 31, 2021.
+Added: 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 1.92% at March 31, 2022.
There was no change in the average balance of the subordinated debentures between the 2021 and 2022 periods.
In August 2016, the Company issued $75.0 million of 5.25% fixed-to-floating rate subordinated notes due August 15, 2026.
−Removed: The notes were sold at par, resulting in net proceeds, after underwriting discounts and commissions and other issuance costs, of approximately $73.5 million.
+Added: The notes were sold at par, resulting in net proceeds, after underwriting discounts and commissions and other issuance costs, of approximately
+Added: $73.5 million.
In June 2020, the Company issued $75.0 million of 5.50% fixed-to-floating rate subordinated notes due June 15, 2030.
3 unchanged sentences
The notes were redeemed for cash by the Company at 100% of their principal amount, plus accrued and unpaid interest.
−Removed: During the three months ended September 30, 2021, compared to the three months ended September 30, 2020, interest expense on subordinated notes decreased $597,000 due to lower average balances during the three months ended September 30, 2021 resulting from the redemption of the 5.25% subordinated notes due August 15, 2026.
−Removed: The average balance of subordinated notes was $148.1 million in the three months ended September 30, 2020 compared to $108.9 million in the three months ended September 30, 2021.
+Added: During the three months ended March 31, 2022, compared to the three months ended March 31, 2021, interest expense on subordinated notes decreased $1.1 million due to lower average balances during the three months ended March 31, 2022 resulting from the redemption of the 5.25% subordinated notes due August 15, 2026.
+Added: The average balance of subordinated notes was $74.0 million in the three months ended March 31, 2022 compared to $148.5 million in the three months ended March 31, 2021.
Interest expense on subordinated notes increased $18,000 due to slightly higher weighted average interest rates.
−Removed: The average interest rate was 6.09% in the three months ended September 30, 2021 compared to 5.91% in the three months ended September 30, 2020.
−Removed: During the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020, interest expense on subordinated notes increased $1.4 million due to higher average balances resulting from the issuance of new notes in the three months ended June 30, 2020, slightly offset by the redemption of the subordinated notes maturing in 2026 during the three months ended September 30, 2021.
−Removed: The average interest rate increased slightly from 5.94% in the nine months ended September 30, 2020 to 5.99% in the nine months ended September 30, 2021.
−Removed: Interest expense on subordinated notes increased $44,000 due to higher average balances.
−Removed: The average balance was $104.3 million in the nine months ended September 30, 2020 compared to $135.2 million in the nine months ended September 30, 2021.
+Added: The average interest rate was 6.06% in the three months ended March 31, 2022 compared to 6.01% in the three months ended March 31, 2021.
Net Interest Income
−Removed: Net interest income for the three months ended September 30, 2021 increased $755,000 to $44.9 million compared to $44.2 million for the three months ended September 30, 2020.
−Removed: Net interest margin was 3.36% in both the three months ended September 30, 2021 and the three months ended September 30, 2020.
−Removed: 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.
−Removed: The positive impact of these changes in the three months ended September 30, 2021 and 2020 were increases in interest income of $279,000 and $1.2 million, respectively, and increases in net interest margin of two basis points and nine basis points, respectively.
−Removed: Excluding the positive impact of the additional yield accretion, net interest margin was 3.34% in the three months ended September 30, 2021 compared to 3.27% in the three months ended September 30, 2020.
−Removed: Net interest income for the nine months ended September 30, 2021 increased $1.1 million to $133.7 million compared to $132.6 million for the nine months ended September 30, 2020.
−Removed: Net interest margin was 3.37% in the nine months ended September 30, 2021, compared to 3.52% in the nine months ended September 30, 2020, a decrease of 15 basis points, or 4.3%.
−Removed: In both nine month periods, the Company’s net interest income and margin were positively impacted by the increases in expected cash flows from the FDIC-assisted acquired loan pools and the resulting increase to accretable yield, which were previously discussed in Note 7 of the Notes to Consolidated Financial Statements.
−Removed: The positive impact of these changes in the nine months ended September 30, 2021 and 2020 were increases in interest income of $1.4 million and $4.6 million, respectively, and increases in net interest margin of three basis points and 12 basis points, respectively.
−Removed: Excluding the positive impact of the additional yield accretion, in the nine months ended September 30, 2021, net interest margin decreased six basis points when compared to the year-ago nine-month period.
−Removed: Excluding the positive impact of the additional yield accretion, net interest margin was 3.34% in the nine months ended September 30, 2021 compared to 3.40% in the nine months ended September 30, 2020.
−Removed: Most of the net interest margin decrease resulted from changes in the asset mix, with average other interest earning assets increasing $286 million and average investment securities increasing $20 million.
−Removed: The average yield on other interest earning assets decreased 12 basis points between the 2021 and 2020 nine-month periods.
−Removed: comparing the 2021 and 2020 nine-month periods, the average yield on loans decreased 38 basis points while the average rate on deposits declined 61 basis points.
−Removed: The Company's overall average interest rate spread increased 10 basis points, or 3.2%, from 3.12% during the three months ended September 30, 2020 to 3.22% during the three months ended September 30, 2021.
+Added: Net interest income for the three months ended March 31, 2022 decreased $823,000 to $43.3 million compared to $44.1 million for the three months ended March 31, 2021.
+Added: Net interest margin was 3.43% in the three months ended March 31, 2022, compared to 3.41% in the three months ended March 31, 2021, an increase of two basis points, or 0.6%.
+Added: In the 2021 period compared to the 2022 period, the Company recorded a higher amount of interest income related to net deferred fees on PPP loans.
+Added: The Company's overall average interest rate spread increased eight basis points, or 2.5%, from 3.23% during the three months ended March 31, 2021 to 3.31% during the three months ended March 31, 2022.
The increase was due to a 30 basis point decrease in the weighted average rate paid on interest-bearing liabilities, partially offset by a 22 basis point decrease in the weighted average yield on interest-earning assets.
−Removed: In comparing the two periods, the yield on loans decreased 11 basis points and the yield on investment securities decreased 19 basis points.
−Removed: The rate paid on deposits decreased 46 basis points, the rate paid on subordinated debentures issued to capital trusts decreased 27 basis points, and the rate paid on subordinated notes increased 18 basis points.
−Removed: The Company's overall average interest rate spread decreased four basis points, or 1.2%, from 3.24% during the nine months ended September 30, 2020 to 3.20% during the nine months ended September 30, 2021.
−Removed: The decrease was due to a 58 basis point decrease in the weighted average yield on interest-earning assets, partially offset by a 54 basis point decrease in the weighted average rate paid on interest-bearing liabilities.
−Removed: In comparing the two periods, the yield on loans decreased 38 basis points, the yield on investment securities decreased 31 basis points and the yield on other interest-earning assets decreased 12 basis points.
−Removed: The rate paid on deposits decreased 61 basis points, the rate paid on short-term borrowings and repurchase agreements decreased 43 basis points, and the rate paid on subordinated debentures issued to capital trusts decreased 90 basis points.
+Added: In comparing the two periods, the yield on loans decreased 16 basis points, the yield on investment securities decreased 16 basis points and the yield on other interest-earning assets increased eight basis points.
+Added: The rate paid on deposits decreased 22 basis points, the rate paid on subordinated debentures issued to capital trusts increased eight basis points, and the rate paid on subordinated notes increased five 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.
4 unchanged sentences
This standard requires the consideration of historical loss experience and current conditions adjusted for reasonable and supportable economic forecasts.
−Removed: Our 2020 financial statements were prepared under the incurred loss methodology standard.
−Removed: 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.
−Removed: The after-tax effect reduced our retained earnings by approximately $14.2 million.
−Removed: The adjustment was based upon the Company’s analysis of current conditions, assumptions and economic forecasts at January 1, 2021.
−Removed: ASC 326 requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses as well as the credit quality and underwriting standards of a company’s portfolio.
Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts.
1 unchanged sentence
Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in environmental conditions, such as changes in the national unemployment rate, commercial real estate price index, housing price index and national retail sales index.
−Removed: 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.
−Removed: 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.
+Added: Worsening economic conditions from the COVID-19 pandemic or similar events, 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.
+Added: Management maintains various controls in an attempt to identify and limit future losses, such as a watch list of problem loans and potential problem loans, documented loan administration policies and loan review staff to review the quality and anticipated collectability of the portfolio.
Additional procedures provide for frequent management review of the loan portfolio based on loan size, loan type, delinquencies, financial analysis, on-going correspondence with borrowers and problem loan work-outs.
−Removed: 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.
−Removed: During the three months ended September 30, 2021, the Company recorded a negative provision expense of $3.0 million on its portfolio of outstanding loans, compared to a $4.5 million provision expense recorded for the three months ended September 30, 2020.
−Removed: During the nine months ended September 30, 2021, the Company recorded a negative provision expense of $3.7 million on its portfolio of outstanding loans, compared to a $14.4 million provision expense recorded for the nine months ended September 30, 2020.
−Removed: The negative provision for credit losses in the 2021 periods reflected decreased outstanding total loans and continued positive trends in asset quality metrics, combined with an improved economic forecast.
−Removed: During the three months ended September 30, 2021, the national unemployment rate continued to decrease and many measures of economic growth improved.
−Removed: In the three months ended
−Removed: September 30, 2021 and 2020, the Company experienced net recoveries of $27,000 and net charge-offs of $63,000, respectively.
−Removed: Total net charge-offs were $9,000 and $427,000 for the nine months ended September 30, 2021 and 2020, respectively.
−Removed: The provision for losses on unfunded commitments for the three months ended September 30, 2021 was $643,000 compared to a negative provision expense of $338,000 for the nine months ended September 30, 2021.
−Removed: In the nine-month period, the level and mix of unfunded commitments resulted in a decrease in the required reserve for such potential losses.
+Added: Management determines which loans are collateral-dependent, evaluates risk of loss and makes additional provisions to expense, if necessary, to maintain the allowance at a satisfactory level.
+Added: 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 three months ended March 31, 2021.
+Added: In the three months ended March 31, 2022 and 2021, the Company experienced net recoveries of $43,000 and $64,000, respectively.
+Added: The negative provision for losses on
+Added: unfunded commitments for the three months ended March 31, 2022 was $193,000 compared to a negative provision of $674,000 for the three months ended March 31, 2021.
+Added: 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.
−Removed: In 2020, due to the COVID-19 pandemic and its effects on the overall economy and unemployment, the Company increased its provision for credit losses and increased its allowance for credit losses, even though actual realized net charge-offs were very low.
All FDIC-assisted acquired loans were grouped into pools based on common characteristics and were recorded at their estimated fair values, which incorporated estimated credit losses at the acquisition date.
2 unchanged sentences
Review of the acquired loan portfolio also includes review of financial information, collateral valuations and customer interaction to determine if additional reserves are warranted.
−Removed: The Bank’s allowance for credit losses as a percentage of total loans was 1.56% and 1.32% at September 30, 2021 and December 31, 2020, respectively.
−Removed: Prior to January 1, 2021, the ratio excluded the FDIC-assisted acquired loans.
−Removed: Management considers the allowance for credit losses adequate to cover losses inherent in the Bank’s loan portfolio at September 30, 2021, based on recent reviews of the Bank’s loan portfolio and current economic conditions.
+Added: The Bank’s allowance for credit losses as a percentage of total loans was 1.46% and 1.49% at March 31, 2022 and December 31, 2021, respectively.
+Added: Management considers the allowance for credit losses adequate to cover losses inherent in the Bank’s loan portfolio at March 31, 2022, 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.
1 unchanged sentence
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.
−Removed: Prior to adoption of the CECL accounting standard on January 1, 2021, FDIC-assisted acquired non-performing assets, including foreclosed assets and potential problem loans, were not included in the totals or in the discussion of non-performing loans, potential problem loans and foreclosed assets.
−Removed: These assets were initially recorded at their estimated fair values as of their acquisition dates and accounted for in pools.
−Removed: The loan pools were analyzed rather than the individual loans.
−Removed: 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.
−Removed: In the tables below, FDIC-assisted acquired assets are included in their particular collateral categories and then the total FDIC-assisted acquired assets are subtracted from the total balances.
−Removed: At September 30, 2021, non-performing assets, including FDIC-assisted acquired assets, were $7.9 million, a decrease of $171,000 from $8.1 million at December 31, 2020.
−Removed: Non-performing assets as a percentage of total assets were 0.15% at both September 30, 2021 and December 31, 2020.
−Removed: At September 30, 2021, non-performing assets, excluding all FDIC-assisted acquired assets, were $5.2 million, an increase of $1.4 million from $3.8 million at December 31, 2020.
−Removed: Excluding all FDIC-assisted acquired assets, non-performing assets as a percentage of total assets were 0.10% at September 30, 2021, compared to 0.07% at December 31, 2020.
−Removed: Compared to December 31, 2020, and excluding all FDIC-assisted acquired loans, non-performing loans increased $2.0 million, to $5.0 million at September 30, 2021, and foreclosed and repossessed assets decreased $625,000, to $152,000 at September 30, 2021.
−Removed: Including all FDIC-assisted acquired loans, when compared to December 31, 2020, non-performing loans increased $95,000, to $7.0 million at September 30, 2021, and foreclosed and repossessed assets decreased $266,000, to $957,000 at September 30, 2021.
−Removed: Non-performing one- to four-family residential loans comprised $3.0 million, or 43.0%, of the total non-performing loans at September 30, 2021, a decrease of $1.5 million from December 31, 2020.
−Removed: The majority of the non-performing FDIC-assisted acquired loans are in the one- to four-family category.
−Removed: Non-performing commercial real estate loans comprised $2.6 million, or 37.2%, of the total non-performing loans at September 30, 2021, an increase of $1.7 million from December 31, 2020.
−Removed: Non-performing consumer loans comprised $799,000, or 11.5%, of the total non-performing loans at September 30, 2021, a decrease of $469,000 from December 31, 2020.
−Removed: Non-performing construction and land development loans comprised $468,000, or 6.7%, of the total non-performing loans at September 30, 2021, an increase of $468,000 from December 31, 2020.
−Removed: Non-performing commercial business loans comprised $111,000, or 1.6%, of the total non-performing loans at September 30, 2021, a decrease of $3,000 from December 31, 2020.
+Added: At March 31, 2022, non-performing assets were $5.2 million, a decrease of $821,000 from $6.0 million at December 31, 2021.
+Added: Non-performing assets as a percentage of total assets were 0.10% at March 31, 2022, compared to 0.11% at December 31, 2021.
+Added: Compared to December 31, 2021, non-performing loans decreased $454,000, to $5.0 million at March 31, 2022, and foreclosed and repossessed assets decreased $367,000, to $221,000 at March 31, 2022.
+Added: Non-performing one- to four-family residential loans comprised $2.0 million, or 40.3%, of the total non-performing loans at March 31, 2022, a decrease of $212,000 from December 31, 2021.
+Added: Non-performing commercial real estate loans comprised $1.8 million, or 35.7%, of the total non-performing loans at March 31, 2022, a decrease of $233,000 from December 31, 2021.
+Added: Non-performing consumer loans comprised $724,000, or 14.6%, of the total non-performing loans at March 31, 2022, a decrease of $9,000 from December 31, 2021.
+Added: Non-performing construction and land development loans comprised $468,000, or 9.4%, of the total non-performing loans at March 31, 2022, unchanged from December 31, 2021.
Non-performing Loans.
−Removed: Activity in the non-performing loans category during the nine months ended September 30, 2021 was as follows:
+Added: Activity in the non-performing loans category during the three months ended March 31, 2022 was as follows:
Repossessions
9 unchanged sentences
Total non-performing loans
−Removed: FDIC-assisted acquired loans
−Removed: Total non-performing loans net of FDIC-assisted acquired loans
−Removed: At September 30, 2021, the non-performing one- to four-family residential category included 45 loans, four of which were added during 2021.
−Removed: The largest relationship in the category was added during 2021 and totaled $351,000, or 11.7% of the total category.
−Removed: The non-performing commercial real estate category included three loans, two of which were added during 2021.
−Removed: The largest relationship in the category was added during 2021 and totaled $2.4 million, or 90.7% of the total category.
−Removed: It is collateralized by an office building in the Chicago, Ill., area.
−Removed: The non-performing consumer category included 38 loans, nine of which were added in 2021.
−Removed: 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.
−Removed: 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.
−Removed: For additional information about these loan modifications, see the “Loan Modifications” section of this report.
+Added: FDIC-assisted acquired loans included above
+Added: At March 31, 2022, the non-performing one- to four-family residential category included 34 loans, none of which were added during the three months ended March 31, 2022.
+Added: The largest relationship in the category totaled $322,000, or 16.1% of the total category.
+Added: The non-performing commercial real estate category includes two loans, neither of which were added during the three months ended March 31, 2022.
+Added: The largest relationship in the category, which totaled $1.5 million, or 86.1% of the total category, was transferred from potential problems during the fourth quarter of 2021, and is collateralized by a mixed use commercial retail building.
+Added: The non-performing land development category consisted of one loan added during the first quarter of 2021, which totaled $468,000 and is collateralized by unimproved zoned vacant ground in southern Illinois.
+Added: The non-performing consumer category included 30 loans, four of which were added during the three months ended March 31, 2022.
Potential Problem Loans.
−Removed: Compared to December 31, 2020, and excluding all FDIC-assisted acquired loans, potential problem loans decreased $1.6 million, to $2.8 million at September 30, 2021.
−Removed: Compared to December 31, 2020, potential problem loans, including the FDIC-assisted acquired loans, decreased $2.0 million, or 35.1%, to $3.8 million at September 30, 2021.
+Added: Compared to December 31, 2021, potential problem loans decreased $117,000, or 5.9%, to $1.9 million at March 31, 2022.
Potential problem loans are loans which management has identified through routine internal review procedures as having possible credit problems that may cause the borrowers difficulty in complying with the current repayment terms.
These loans are not reflected in non-performing assets.
−Removed: Due to the impact on economic conditions from COVID-19, it is possible that we could experience an increase in potential problem loans in the remainder of 2021.
−Removed: As noted, we experienced an increased level of loan modifications in late March through June 2020;
−Removed: however, total loan modifications were much lower at December 31, 2020, and decreased further through September 30, 2021.
−Removed: 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.
−Removed: Although loan modifications were made, they did not automatically result in these loans being classified as TDRs, potential problem loans or non-performing loans.
−Removed: If more severe or lengthier negative impacts of the COVID-19 pandemic occur or the effects of the SBA loan programs and other loan and stimulus programs do not enable companies and individuals to completely recover financially, this could result in longer-term modifications, which may be deemed to be TDRs, additional potential problem loans and/or additional non-performing loans.
−Removed: Further actions on our part, including additions to the allowance for credit losses, could result.
−Removed: Activity in the potential problem loans categories during the nine months ended September 30, 2021, was as follows:
+Added: Activity in the potential problem loans categories during the three months ended March 31, 2022, was as follows:
Repossessions
9 unchanged sentences
Total potential problem loans
−Removed: FDIC-assisted acquired loans
−Removed: Total potential problem loans net of FDIC-assisted acquired loans
−Removed: At September 30, 2021, the commercial real estate category of potential problem loans included two loans, neither of which were added during 2021.
−Removed: The largest relationship in this category (added during 2018), which totaled $1.7 million, or 88.9% of the total category, is collateralized by a mixed use commercial retail building in St.
−Removed: Payments under the original loan term were current on this relationship at September 30, 2021.
−Removed: Two loans that totaled $1.1 million in the commercial real estate category of potential problem loans (both added during 2020) were upgraded and removed from the potential problem loans category after six months of consecutive payments.
−Removed: The one- to four-family residential category of potential problem loans included 27 loans, none of which were added during 2021.
−Removed: The largest relationship in this category totaled $173,000, or 11.9% of the total category.
−Removed: A single loan of $314,000 in the one- to four- family residential category of potential problem loans was upgraded and removed from the potential problem loans.
−Removed: The consumer category of potential problem loans included 31 loans, six of which were added during 2021.
+Added: FDIC-assisted acquired loans included above
+Added: At March 31, 2022, the one- to four-family residential category of potential problem loans included 25 loans, one of which was added during the three months ended March 31, 2022.
+Added: The largest relationship in this category totaled $168,000, or 12.2% of the total
+Added: The commercial real estate category of potential problem loans included one loan, which was added in a previous period.
+Added: The consumer category of potential problem loans included 23 loans, four of which were added during the three months ended March 31, 2022.
Other Real Estate Owned and Repossessions.
−Removed: Of the total $1.2 million of other real estate owned and repossessions at September 30, 2021, $285,000 represents properties which were not acquired through foreclosure.
−Removed: Activity in other real estate owned and repossessions during the nine months ended September 30, 2021, was as follows:
+Added: Of the total $1.7 million of other real estate owned and repossessions at March 31, 2022, $1.5 million represents properties which were not acquired through foreclosure.
+Added: Activity in other real estate owned and repossessions during the three months ended March 31, 2022, was as follows:
(In Thousands)
8 unchanged sentences
Total foreclosed assets and repossessions
−Removed: FDIC-assisted acquired assets
−Removed: Total foreclosed assets and repossessions net of FDIC-assisted acquired assets
−Removed: At September 30, 2021, the land development category of foreclosed assets consisted of one property in central Iowa (this was an FDIC-assisted acquired asset), which was added prior to 2021.
−Removed: The one- to four-family residential category of foreclosed assets consisted of two properties (both of which were FDIC-assisted acquired assets), both of which were added during 2021.
−Removed: 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.
+Added: FDIC-assisted acquired assets included above
+Added: At March 31, 2022, the one- to four-family residential category of foreclosed assets consisted of two properties (both of which were FDIC-assisted acquired assets).
+Added: The land development category of foreclosed assets previously consisted of one property in central Iowa (this was an FDIC-assisted acquired asset) which was sold during the three months ended March 31, 2022.
+Added: The additions and sales in the consumer category were due to the volume of repossessions of automobiles, which generally are subject to a shorter repossession process.
Loans Classified “Watch”
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.
−Removed: In the nine months ended September 30, 2021, loans classified as “Watch” decreased $21.2 million, from $64.8 million at December 31, 2020 to $43.6 million at September 30, 2021.
−Removed: This decrease was primarily due to loans being upgraded out of the “watch” category, which primarily included one $14.3 million relationship collateralized by a shopping center, one $10.6 million relationship collateralized by recreational facilities and other real estate and business assets, and one $3.9 million relationship collateralized by a shopping center and other real estate and business assets.
−Removed: One $10.3 million relationship collateralized by a healthcare facility in the Dallas, Texas area was downgraded and added to the “Watch” category.
+Added: In the three months ended March 31, 2022, loans classified as “Watch” increased $33,000, from $30.7 million at December 31, 2021 to $30.8 million at March 31, 2022.
See Note 6 for further discussion of the Company’s loan grading system.
Non-interest Income
−Removed: For the three months ended September 30, 2021, non-interest income increased $332,000 to $9.8 million when compared to the three months ended September 30, 2020, primarily as a result of the following items:
−Removed: Point-of-sale and ATM fees :
−Removed: Point-of-sale and ATM fees increased $657,000 compared to the prior year period.
−Removed: This increase was primarily due to a reduction in customer usage in the three months ended September 30, 2020 as the COVID-19 pandemic caused many businesses to close and large portions of the U.S.
−Removed: population were required to stay at home for a period of time.
−Removed: In the three months ended September 30, 2021, debit card and ATM usage by customers was back to normal levels, and in some cases, saw increased levels of activity.
−Removed: Overdraft and insufficient funds fees :
−Removed: Overdraft and insufficient funds fees increased $210,000 compared to the prior year period.
−Removed: This increase was primarily due to reduced fees in the 2020 period.
−Removed: This was due to both a reduction in usage by customers and a decision in March 2020 to waive (through August 31, 2020) certain fees for customers in response to the COVID-19 pandemic.
−Removed: The effects of that decision were felt during March through September 2020.
+Added: For the three months ended March 31, 2022, non-interest income decreased $560,000 to $9.2 million when compared to the three months ended March 31, 2021, primarily as a result of the following items:
Net gains on loan sales :
−Removed: Net gains on loan sales decreased $537,000 compared to the prior year period.
+Added: Net gains on loan sales decreased $1.6 million compared to the prior year period.
The decrease was due to a decrease in originations of fixed-rate single-family mortgage loans during the 2022 period compared to the 2021 period.
Fixed rate single-family mortgage loans originated are generally subsequently sold in the secondary market.
−Removed: These loan originations increased substantially when market interest rates decreased to historically low levels in 2020.
−Removed: As a result of the significant volume of refinance activity in recent periods, and as market interest rates have moved a bit higher in the three months ended September 30, 2021, mortgage refinance volume has decreased and loan originations and related gains on sales of these loans have returned to levels more similar to historic averages.
−Removed: For the nine months ended September 30, 2021, non-interest income increased $4.0 million to $29.1 million when compared to the nine months ended September 30, 2020, primarily as a result of the following items:
−Removed: Net gains on loan sales :
−Removed: Net gains on loan sales increased $2.3 million compared to the prior year period.
−Removed: 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.
−Removed: As noted above, these loan originations increased substantially when market interest rates decreased to historically low levels in the latter half of 2020 and the first half of 2021.
+Added: These loan originations increased substantially when market interest rates decreased to historically low levels in 2020 and 2021.
+Added: As a result of the significant volume of refinance activity in 2020 and 2021, and as market interest rates have moved higher in the first quarter of 2022, mortgage refinance volume has decreased and loan originations and related gains on sales of these loans have decreased substantially.
Point-of-sale and ATM fees :
−Removed: Point-of-sale and ATM fees increased $2.2 million compared to the prior year period.
−Removed: This increase was due to the same conditions as noted above.
−Removed: Gain (loss) on derivative interest rate products :
−Removed: In the 2021 period, the Company recognized a gain of $340,000 on the change in fair value of its back-to-back interest rate swaps related to commercial loans.
−Removed: In the 2020 period, the Company recognized a loss of $424,000 on the change in fair value of its back-to-back interest rate swaps related to commercial loans.
−Removed: Generally, as market interest rates increase, this creates a net increase in the fair value of these instruments.
−Removed: This is a non-cash item as there was no required settlement of this amount between the Company and its swap counterparties.
+Added: Point-of-sale and ATM fees increased $606,000 compared to the prior year period.
+Added: This increase was almost entirely due to increased customer debit card transactions in the 2022 period compared to the 2021 period.
+Added: In the latter half of 2021 and in the three months ended March 31, 2022, debit card usage by customers rebounded and was back to normal levels, and in many cases, increased levels of activity.
Other income :
−Removed: Other income decreased $1.4 million compared to the prior year period.
−Removed: In the 2020 period, the Company recognized approximately $1.2 million of fee income related to newly-originated interest rate swaps in the Company’s back-to-back swap program with loan customers and swap counterparties, with fewer of these transactions and related fee income generated in the current period.
−Removed: The Company also recognized approximately $541,000 in income related to the exit of certain tax credit partnerships during the nine months ended September 30, 2020, with no similar activity during the 2021 period.
+Added: Other income increased $255,000 compared to the prior year period.
+Added: In the 2022 period, the Company recorded a one-time bonus of $500,000 from its card processor as a result of achieving certain benchmarks related to debit card activity.
Non-interest Expense
−Removed: For the three months ended September 30, 2021, non-interest expense decreased $649,000 to $31.3 million when compared to the three months ended September 30, 2020, primarily as a result of the following item:
−Removed: Salaries and employee benefits :
−Removed: Salaries and employee benefits decreased $867,000 from the prior year period.
−Removed: In the 2020 period, the Company paid a special cash bonus to all employees totaling $1.1 million in response to the ongoing impacts of the COVID-19 pandemic.
−Removed: This bonus was not repeated in the third quarter of 2021.
−Removed: For the nine months ended September 30, 2021, non-interest expense decreased $299,000 to $91.9 million when compared to the nine months ended September 30, 2020, primarily as a result of the following items:
+Added: For the three months ended March 31, 2022, non-interest expense increased $947,000 to $31.3 million when compared to the three months ended March 31, 2021, primarily as a result of the following item:
Salaries and employee benefits :
−Removed: Salaries and employee benefits decreased $812,000 in the nine months ended September 30, 2021 compared to the prior year period.
−Removed: In 2020, the Company approved two special cash bonuses to all employees totaling $2.2 million in response to the COVID-19 pandemic.
−Removed: These bonuses were not repeated in the nine months ended September 30, 2021.
−Removed: Expense on other real estate owned and repossessions :
−Removed: Expense on other real estate owned and repossessions decreased $473,000 compared to the prior year period primarily due to sales of most foreclosed assets and a smaller amount of repossessed automobiles in the current period, plus higher valuation write-downs of certain foreclosed assets during the prior year period.
−Removed: During the 2020 period, sales and valuation write-downs of certain foreclosed assets totaled a net expense of $136,000, while sales and valuation write-downs in the 2021 period totaled a net gain of $29,000.
−Removed: Insurance expense increased $626,000 compared to the prior year period.
−Removed: This increase was primarily due to an increase in FDIC deposit insurance premiums.
−Removed: In 2020, the Company had a credit with the FDIC for a portion of premiums previously paid to the deposit insurance fund.
−Removed: The remaining deposit insurance fund credit was utilized in 2020 in addition to $522,000 in premiums being due for the nine months ended September 30, 2020, while the premium expense was $1.1 million in the nine months ended September 30, 2021.
−Removed: The Company’s efficiency ratio for the three months ended September 30, 2021, was 57.27% compared to 59.64% for the same period in 2020.
−Removed: The Company’s efficiency ratio for the nine months ended September 30, 2021, was 56.42% compared to 58.45% for the same period in 2020.
−Removed: In the three- and nine-month periods ended September 30, 2021, the improved efficiency ratio was due to an increase in net interest income, an increase in non-interest income and a decrease in non-interest expense.
−Removed: The Company’s ratio of non-interest expense to average assets was 2.27% and 2.34% for the three months ended September 30, 2021 and 2020, respectively.
−Removed: The Company’s ratio of non-interest expense to average assets was 2.22% and 2.33% for the nine months ended September 30, 2021 and 2020, respectively.
−Removed: Average assets for the three months ended September 30, 2021, increased $62.8 million, or 1.1%, from the three months ended September 30, 2020, primarily due to increases in investment securities and interest bearing cash equivalents, offset by a decrease in net loans receivable.
−Removed: Average assets for the nine months ended September 30, 2021, increased $249.3 million,
−Removed: or 4.7%, from the nine months ended September 30, 2020, primarily due to increases in investment securities and interest bearing cash equivalents, offset by a decrease in net loans receivable.
+Added: Salaries and employee benefits increased $960,000 from the prior year period.
+Added: A significant amount of this increase related to normal annual merit increases in various lending and operations areas.
+Added: In 2022, many of these increases were larger than in previous years due to the current employment environment.
+Added: In addition, the new Phoenix loan production office was opened in the first quarter of 2022.
+Added: Lastly, certain loan origination compensation costs were deferred under accounting standards in the 2021 period that related primarily to the origination of PPP loans;
+Added: therefore, more costs were deferred in the 2021 period versus the 2022 period.
+Added: Other expense categories experienced smaller changes compared to the prior year period, including a $186,000 increase in travel and entertainment expenses as there was very little in-person activity in the 2021 period due to COVID-19 restrictions;
+Added: a $120,000 increase in professional fees related to the swap transaction completed in 2022;
+Added: a $131,000 decrease in amortization of deposit intangibles due to the completion of the amortization for the 2014 acquisitions;
+Added: and a $105,000 decrease in expenses on other real estate owned and repossessions due to fewer foreclosed properties and repossessed autos in the 2022 period.
+Added: The Company’s efficiency ratio for the three months ended March 31, 2022, was 59.62% compared to 56.33% for the same period in 2021.
+Added: In the three-month period ended March 31, 2022, the higher efficiency ratio was primarily due to an increase in non-interest expense.
+Added: The Company’s ratio of non-interest expense to average assets was 2.34% and 2.22% for the three months ended March 31, 2022 and 2021, respectively.
+Added: Average assets for the three months ended March 31, 2022, decreased $121.8 million, or 2.2%, from the three months ended March 31, 2021, primarily due to a decrease in average net loans receivable, partially offset by increases in average investment securities and interest bearing cash equivalents.
Provision for Income Taxes
−Removed: For the three months ended September 30, 2021 and 2020, the Company's effective tax rate was 20.9% and 21.5%, respectively.
−Removed: For the nine months ended September 30, 2021 and 2020, the Company's effective tax rate was 20.9% and 18.8%, respectively.
+Added: For the three months ended March 31, 2022 and 2021, the Company's effective tax rate was 20.5% and 21.0%, 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.
−Removed: In 2020, the Company’s state income tax expenses were higher than normal in various states due to the recognition of income for tax purposes related to the gain recognized on the termination of the interest rate swap.
−Removed: State tax expense estimates have evolved throughout 2021 as taxable income and apportionment between states have been analyzed.
−Removed: Higher effective tax rates in the 2021 periods were due to higher overall income, lower levels of low income housing tax credits and less tax-exempt interest income compared to prior periods.
−Removed: 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.
+Added: State tax expense estimates evolved throughout 2021 as taxable income and apportionment between states were analyzed.
+Added: The Company's effective income tax rate is currently generally expected to remain near the statutory federal tax rate due primarily to the factors noted above.
The Company currently expects its effective tax rate (combined federal and state) will be approximately 20.5% to 21.5% in future periods.
4 unchanged sentences
Interest income on loans includes the amortization of net loan fees which were deferred in accordance with accounting standards.
−Removed: Net fees included in interest income were $2.9 million and $1.7 million for the three months ended September 30, 2021 and 2020, respectively.
−Removed: Net fees included in interest income were $7.9 million and $4.4 million for the nine months ended September 30, 2021 and 2020, respectively.
+Added: Net fees included in interest income were $1.7 million and $2.5 million for the three months ended March 31, 2022 and 2021, respectively.
Tax-exempt income was not calculated on a tax equivalent basis.
The table does not reflect any effect of income taxes.
−Removed: September 30,
Three Months Ended
Three Months Ended
−Removed: September 30, 2021
−Removed: September 30, 2020
−Removed: (Dollars in Thousands)
−Removed: Interest-earning assets:
−Removed: Loans receivable:
−Removed: One- to four-family residential
−Removed: Other residential
−Removed: Commercial real estate
−Removed: Commercial business
−Removed: Industrial revenue bonds(1)
−Removed: Total loans receivable
−Removed: Investment securities(1)
−Removed: Other interest-earning assets
−Removed: Total interest-earning assets
−Removed: Non-interest-earning assets:
−Removed: Cash and cash equivalents
−Removed: Other non-earning assets
−Removed: Interest-bearing liabilities:
−Removed: Interest-bearing demand and savings
−Removed: Time deposits
−Removed: Total deposits
−Removed: Short-term borrowings, repurchase agreements and other interest-bearing liabilities
−Removed: Subordinated debentures issued to capital trusts
−Removed: Subordinated notes
−Removed: Total interest-bearing liabilities
−Removed: Non-interest-bearing liabilities:
−Removed: Demand deposits
−Removed: Other liabilities
−Removed: Total liabilities
−Removed: Stockholders’ equity
−Removed: Total liabilities and stockholders’ equity
−Removed: Net interest income:
−Removed: Interest rate spread
−Removed: Net interest margin*
−Removed: Average interest-earning assets to average interest- bearing liabilities
−Removed: * Defined as the Company’s net interest income divided by total average interest-earning assets.
−Removed: (1) Of the total average balances of investment securities, average tax-exempt investment securities were $40.8 million and $67.8 million for the three months ended September 30, 2021 and 2020, respectively.
−Removed: In addition, average tax-exempt loans and industrial revenue bonds were $17.6 million and $19.8 million for the three months ended September 30, 2021 and 2020, respectively.
−Removed: Interest income on tax-exempt assets included in this table was $397,000 and $570,000 for the three months ended September 30, 2021 and 2020, respectively.
−Removed: Interest income net of disallowed interest expense related to tax-exempt assets was $389,000 and $537,000 for the three months ended September 30, 2021 and 2020, respectively.
−Removed: (2) The yield on loans at September 30, 2021 does not include the impact of the accretable yield (income) on loans acquired in the FDIC-assisted transactions.
−Removed: See “Net Interest Income” for a discussion of the effect on results of operations for the three months ended September 30, 2021.
−Removed: September 30,
−Removed: Nine Months Ended
−Removed: Nine Months Ended
−Removed: September 30, 2021
−Removed: September 30, 2020
+Added: March 31, 2022
+Added: March 31, 2021
(Dollars in Thousands)
8 unchanged sentences
Investment securities(1)
−Removed: Other interest-earning assets
+Added: Interest-earning deposits in other banks
Total interest-earning assets
6 unchanged sentences
Total deposits
−Removed: Short-term borrowings, repurchase agreements and other interest-bearing liabilities
+Added: Securities sold under reverse repurchase agreements
+Added: Short-term borrowings, overnight FHLBank borrowings and other interest-bearing liabilities
Subordinated debentures issued to capital trusts
12 unchanged sentences
* Defined as the Company’s net interest income divided by total average interest-earning assets.
−Removed: (1) Of the total average balances of investment securities, average tax-exempt investment securities were $42.3 million and $54.8 million for the nine months ended September 30, 2021 and 2020, respectively.
−Removed: In addition, average tax-exempt loans and industrial revenue bonds were $18.1 million and $20.4 million for the nine months ended September 30, 2021 and 2020, respectively.
−Removed: Interest income on tax-exempt assets included in this table was $1.2 million and $1.6 million for the nine months ended September 30, 2021 and 2020, respectively.
−Removed: Interest income net of disallowed interest expense related to tax-exempt assets was $1.2 million and $1.5 million for the nine months ended September 30, 2021 and 2020, respectively.
−Removed: (2) The yield on loans at September 30, 2021 does not include the impact of the accretable yield (income) on loans acquired in the FDIC-assisted transactions.
−Removed: See “Net Interest Income” for a discussion of the effect on results of operations for the nine months ended September 30, 2021.
+Added: (1) Of the total average balances of investment securities, average tax-exempt investment securities were $37.2 million and $45.2 million for the three months ended March 31, 2022 and 2021, respectively.
+Added: In addition, average tax-exempt loans and industrial revenue bonds were $16.9 million and $18.7 million for the three months ended March 31, 2022 and 2021, respectively.
+Added: income on tax-exempt assets included in this table was $459,000 and $419,000 for the three months ended March 31, 2022 and 2021, respectively.
+Added: Interest income net of disallowed interest expense related to tax-exempt assets was $452,000 and $403,000 for the three months ended March 31, 2022 and 2021, respectively.
Rate/Volume Analysis
1 unchanged sentence
For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in rate (i.e., changes in rate multiplied by old volume) and (ii) changes in volume (i.e., changes in volume multiplied by old rate).
−Removed: For purposes of this table, changes attributable to both rate and
−Removed: volume, which cannot be segregated, have been allocated proportionately to volume and rate.
+Added: For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately to volume and rate.
Tax-exempt income was not calculated on a tax equivalent basis.
−Removed: Three Months Ended September 30,
−Removed: Increase (Decrease)
−Removed: (Dollars in Thousands)
−Removed: Interest-earning assets:
−Removed: Loans receivable
−Removed: Investment securities
−Removed: Other interest-earning assets
−Removed: Total interest-earning assets
−Removed: Interest-bearing liabilities:
−Removed: Demand deposits
−Removed: Time deposits
−Removed: Total deposits
−Removed: Short-term borrowings
−Removed: Subordinated debentures issued to capital trust
−Removed: Subordinated notes
−Removed: Total interest-bearing liabilities
−Removed: Net interest income
−Removed: Nine Months Ended September 30,
+Added: Three Months Ended March 31,
Increase (Decrease)
3 unchanged sentences
Investment securities
−Removed: Other interest-earning assets
+Added: Interest-earning deposits in other banks
Total interest-earning assets
3 unchanged sentences
Total deposits
−Removed: Short-term borrowings
+Added: Securities sold under reverse repurchase agreements
+Added: Short-term borrowings, overnight FHLBank borrowings and other interest-bearing liabilities
Subordinated debentures issued to capital trust
6 unchanged sentences
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.
−Removed: September 30, 2021, the Company had commitments of approximately $191.9 million to fund loan originations, $1.26 billion of unused lines of credit and unadvanced loans, and $15.9 million of outstanding letters of credit.
+Added: 31, 2022, the Company had commitments of approximately $271.1 million to fund loan originations, $1.55 billion of unused lines of credit and unadvanced loans, and $11.9 million of outstanding letters of credit.
Loan commitments and the unfunded portion of loans at the dates indicated were as follows (in thousands):
−Removed: September 30,
Closed non-construction loans with unused available lines
12 unchanged sentences
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.
−Removed: At September 30, 2021, the Company had these available secured lines and on-balance sheet liquidity:
+Added: At March 31, 2022 and December 31, 2021, the Company had these available secured lines and on-balance sheet liquidity:
+Added: March 31, 2022
+Added: December 31, 2021
Federal Home Loan Bank line
844.5 million
+Added: 756.5 million
Federal Reserve Bank line
357.2 million
+Added: 352.4 million
Cash and cash equivalents
353.0 million
−Removed: Unpledged securities
717.3 million
+Added: Unpledged securities – Available-for-sale
+Added: 404.3 million
+Added: 406.8 million
+Added: Unpledged securities – Held-to-maturity
Statements of Cash Flows.
−Removed: During the nine months ended September 30, 2021 and 2020, the Company had positive cash flows from operating activities.
−Removed: The Company had positive cash flows from investing activities during the nine months ended September 30, 2021 and negative cash flows from investing activities during the nine months ended September 30, 2020.
−Removed: The Company had negative cash flows from financing activities during the nine months ended September 30, 2021 and positive cash flows from financing activities during the nine months ended September 30, 2020.
+Added: During the three months ended March 31, 2022 and 2021, the Company had positive cash flows from operating activities and negative cash flows from investing activities.
+Added: The Company had negative cash flows from financing activities during the three months ended March 31, 2022 and positive cash flows from financing activities during the three months ended March 31, 2021.
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.
−Removed: Operating activities provided cash flows of $77.7 million and $35.8 million during the nine months ended September 30, 2021 and 2020, respectively.
−Removed: During the nine months ended September 30, 2021, investing activities provided cash of $239.9 million, primarily due to the net repayment of loans and payments received on investment securities, partially offset by the purchase of investment securities and the purchase of loans.
−Removed: Investing activities in the 2020 period used cash of $278.9 million, primarily due to the net origination of loans, the purchase of investment securities and the purchase of equipment, partially offset by cash proceeds from the termination of interest rate derivatives, the sale of other real estate owned and payments received on investment securities.
+Added: Operating activities provided cash flows of $31.4 million and $24.5 million during the three months ended March 31, 2022 and 2021, respectively.
+Added: During the three months ended March 31, 2022 and 2021, investing activities used cash of $318.4 million and $55.9 million, respectively.
+Added: Investing activities in the 2022 period used cash primarily due to the purchase of investment securities, the purchases of loans and the net origination of loans, partially offset by payments received on investment securities.
+Added: Investing activities in the 2021 period used cash primarily due to the purchase of investment securities and the purchases of loans, partially offset by payments received on investment securities and the net repayments of loans.
Changes in cash flows from financing activities during the periods covered by the Statements of Cash Flows were due to changes in deposits after interest credited and changes in short-term borrowings, as well as advances from borrowers for taxes and insurance, dividend payments to stockholders, repurchases of the Company’s common stock and the exercise of common stock options.
−Removed: Financing activities used cash of $112.2 million during the nine months ended September 30, 2021 and provided cash of $361.2 million during the nine months ended September 30, 2020.
−Removed: In the 2021 nine-month period, financing activities used cash primarily as a result of decreases in time deposits, redemption of subordinated notes, dividends paid to stockholders and the repurchase of the Company’s common stock, partially offset by net increases in checking account balances.
−Removed: In the 2020 nine-month period, financing activities provided cash primarily as a result of net increases in checking account balances, partially offset by decreases in short-term borrowings, decreases in time deposits, dividends paid to stockholders and the purchase of the Company’s common stock.
−Removed: Also in the 2020 period, cash was provided by the issuance of subordinated notes.
+Added: Financing activities used cash of $77.2 million during the three months ended March 31, 2022 and provided cash of $80.2 million during the three months ended March 31, 2021.
+Added: In the 2022 three-month period, financing activities used cash primarily as a result of decreases in time deposits, dividends paid to stockholders and the repurchase of the Company’s common stock, partially offset by net increases in short-term borrowings.
+Added: 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.
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.
−Removed: At September 30, 2021, the Company's total stockholders' equity and common stockholders’ equity were each $624.6 million, or 11.5% of total assets, equivalent to a book value of $46.73 per common share.
+Added: At March 31, 2022, the Company's total stockholders' equity and common stockholders’ equity were each $582.6 million, or 10.8% of total assets, equivalent to a book value of $45.65 per common share.
As of December 31, 2021, total stockholders’ equity and common stockholders’ equity were each $616.8 million, or 11.3% of total assets, equivalent to a book value of $46.98 per common share.
−Removed: At September 30, 2021, the Company’s tangible common equity to tangible assets ratio was 11.4%, compared to 11.3% at December 31, 2020 (See Non-GAAP Financial Measures below).
−Removed: Included in stockholders’ equity at September 30, 2021 and December 31, 2020, were unrealized gains (net of taxes) on the Company’s available-for-sale investment securities totaling $12.0 million and $23.3 million, respectively.
+Added: At March 31, 2022, the Company’s tangible common equity to tangible assets ratio was 10.7%, compared to 11.2% at December 31, 2021 (See Non-GAAP Financial Measures below).
+Added: Included in stockholders’ equity at March 31, 2022 and December 31, 2021, were unrealized gains (losses) (net of taxes) on the Company’s available-for-sale investment securities totaling $(11.1 million) and $9.1 million, respectively.
This decrease in unrealized gains primarily resulted from rising market interest rates, which decreased the fair value of investment securities.
−Removed: Also included in stockholders’ equity at September 30, 2021, were realized gains (net of taxes) on the Company’s cash flow hedge (interest rate swap), which was terminated in March 2020, totaling $25.2 million.
+Added: Also included in stockholders’ equity at March 31, 2022, were unrealized gains (net of taxes) on the Company’s held-to-maturity investment securities totaling $759,000.
+Added: Approximately $227 million of investment securities which were previously included in available-for-sale were transferred to held-to-maturity during the first quarter of 2022.
+Added: In addition, included in stockholders’ equity at March 31, 2022, were realized gains (net of taxes) on the Company’s terminated cash flow hedge (interest rate swap), totaling $22.1 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.
−Removed: At September 30, 2021, the remaining pre-tax amount to be recorded in interest income was $32.6 million.
+Added: At March 31, 2022, the remaining pre-tax amount to be recorded in interest income was $28.6 million.
The net effect on total stockholders’ equity over time will be no impact as the reduction of this realized gain will be offset by an increase in retained earnings (as the interest income flows through pre-tax income).
+Added: Also included in stockholders’ equity at March 31, 2022, was an unrealized loss (net of taxes) on the Company’s outstanding cash flow hedge (interest rate swap) totaling $3.1 million.
+Added: Anticipated higher market interest rates have caused the fair value of this interest rate swap to decrease.
Banks are required to maintain minimum risk-based capital ratios.
These ratios compare capital, as defined by the risk-based regulations, to assets adjusted for their relative risk as defined by the regulations.
−Removed: 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%.
−Removed: 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%.
−Removed: On September 30, 2021, the Bank's common equity Tier
−Removed: 1 capital ratio was 14.7%, its Tier 1 capital ratio was 14.7%, its total capital ratio was 15.9% and its Tier 1 leverage ratio was 11.7%.
−Removed: As a result, as of September 30, 2021, the Bank was well capitalized, with capital ratios in excess of those required to qualify as such.
+Added: Under current guidelines, which became effective January 1, 2015, banks must have a minimum common equity Tier 1 capital ratio of 4.50%, a minimum Tier 1 risk-based capital ratio of 6.00%, a minimum total risk-based capital ratio of 8.00%, and a minimum Tier 1 leverage ratio of 4.00%.
+Added: To be considered "well capitalized,"
+Added: 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%.
+Added: On March 31, 2022, the Bank's common equity Tier 1 capital ratio was 13.3%, its Tier 1 capital ratio was 13.3%, its total capital ratio was 14.6% and its Tier 1 leverage ratio was 12.0%.
+Added: As a result, as of March 31, 2022, the Bank was well capitalized, with capital ratios in excess of those required to qualify as such.
On December 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 11.9%.
1 unchanged sentence
The FRB has established capital regulations for bank holding companies that generally parallel the capital regulations for banks.
−Removed: On September 30, 2021, the Company's common equity Tier 1 capital ratio was 13.4%, its Tier 1 capital ratio was 14.0%, its total capital ratio was 16.9% and its Tier 1 leverage ratio was 11.1%.
+Added: On March 31, 2022, the Company's common equity Tier 1 capital ratio was 12.0%, its Tier 1 capital ratio was 12.5%, its total capital ratio was 15.3% and its Tier 1 leverage ratio was 11.2%.
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%.
−Removed: As of September 30, 2021, the Company was considered well capitalized, with capital ratios in excess of those required to qualify as such.
−Removed: 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%.
+Added: As of March 31, 2022, the Company was considered well capitalized, with capital ratios in excess of those required to qualify as such.
+Added: On December 31, 2021, the Company's common equity Tier 1 capital ratio was 12.9%, its Tier 1 capital ratio was 13.4%, its total capital ratio was 16.3% and its
+Added: Tier 1 leverage ratio was 11.3%.
As of December 31, 2021, the Company was considered well capitalized, with capital ratios in excess of those required to qualify as such.
In addition to the minimum common equity Tier 1 capital ratio, Tier 1 risk-based capital ratio and total risk-based capital ratio, the Company and the Bank have to maintain a capital conservation buffer consisting of additional common equity Tier 1 capital greater than 2.5% of risk-weighted assets above the required minimum levels in order to avoid limitations on paying dividends, repurchasing shares, and paying discretionary bonuses.
−Removed: At September 30, 2021, the Company and the Bank both had additional common equity Tier 1 capital in excess of the buffer amount.
+Added: At March 31, 2022, the Company and the Bank both had additional common equity Tier 1 capital in excess of the buffer amount.
On August 15, 2021, the Company completed the redemption, at par, of all $75.0 million aggregate principal amount of its 5.25% subordinated notes due August 15, 2026.
2 unchanged sentences
These subordinated notes were included as capital in the Company’s calculation of its total capital ratio.
−Removed: For additional information, see “Item 1.
−Removed: Business--Government Supervision and Regulation-Capital” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
−Removed: During the three months ended September 30, 2021, the Company declared a common stock cash dividend of $0.36 per share, or 24% of net income per diluted common share for that three month period, and paid a common stock cash dividend of $0.34 per share (which was declared in June 2021).
−Removed: During the three months ended September 30, 2020, the Company declared a common stock cash dividend of $0.34 per share, or 35% of net income per diluted common share for that three month period, and paid a common stock cash dividend of $0.34 per share (which was declared in June 2020).
−Removed: During the nine months ended September 30, 2021, the Company declared common stock cash dividends of $1.04 per share, or 24% of net income per diluted common share for that nine month period, and paid common stock cash dividends of $1.02 per share ($0.34 of which was declared in December 2020).
−Removed: During the nine months ended September 30, 2020, the Company declared common stock cash dividends of $2.02 per share, or 69% of net income per diluted common share for that nine month period, and paid common stock cash dividends of $2.02 per share ($0.34 of which was declared in December 2019).
−Removed: The total dividends declared during the nine months ended September 30, 2020, consisted of regular cash dividends of $1.02 per share and a special cash dividend of $1.00 per share.
+Added: During the three months ended March 31, 2022, the Company declared a common stock cash dividend of $0.36 per share, or 28% of net income per diluted common share for that three month period, and paid a common stock cash dividend of $0.36 per share (which was declared in December 2021).
+Added: 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).
The Board of Directors meets regularly to consider the level and the timing of dividend payments.
−Removed: The $0.36 per share dividend declared but unpaid as of September 30, 2021, was paid to stockholders in October 2021.
+Added: The $0.36 per share dividend declared but unpaid as of March 31, 2022, was paid to stockholders in April 2022.
Common Stock Repurchases and Issuances .
The Company has been in various buy-back programs since May 1990.
−Removed: During the three months ended September 30, 2021, the Company issued 14,439 shares of stock at an average price of $37.87 per share to cover stock option exercises and repurchased 307,059 shares of its common stock at an average price of $53.13 per share.
−Removed: During the three months ended September 30, 2020, the Company issued 2,550 shares of stock at an average price of $26.53 per share to cover stock option exercises and repurchased 206,400 shares of its common stock at an average price of $37.39 per share.
−Removed: During the nine months ended September 30, 2021, the Company issued 63,570 shares of stock at an average price of $41.57 per share to cover stock option exercises and repurchased 449,438 shares of its common stock at an average price of $52.89 per share.
−Removed: During the nine months ended September 30, 2020, the Company issued 9,625 shares of stock at an average price of $33.76 per share to cover stock option exercises and repurchased 390,107 shares of its common stock at an average price of $40.67 per share.
−Removed: Management has historically utilized stock buy-back programs from time to time as long as management believed that repurchasing the Company’s stock would contribute to the overall growth of shareholder value.
−Removed: The number of shares of stock that will be repurchased at any particular time and the prices that will be paid are subject to many factors, several of which are outside of the control of the Company.
+Added: During the three months ended March 31, 2022, the Company repurchased 419,215 shares of its common stock at an average price of $60.40 per share and issued 51,694 shares of common stock at an average price of $47.49 per share to cover stock option exercises.
+Added: During the three months ended March 31, 2021, the Company repurchased 74,865 shares of its common stock at an average price of $50.50 per share and issued 15,904 shares of common stock at an average price of $39.09 per share to cover stock option exercises.
+Added: On January 19, 2022, the Company's Board of Directors authorized management to purchase up to one million shares of the Company's outstanding common stock, under a program of open market purchases or privately negotiated transactions.
+Added: This program does not have an expiration date.
+Added: The authorization of this program became effective upon completion of the previous repurchase program authorized in October 2020.
+Added: As of May 3, 2022, a total of approximately 700,000 shares were available in the Company’s stock repurchase authorization.
+Added: Management has historically utilized stock buy-back programs from time to time as long as management believed that repurchasing the Company’s common stock would contribute to the overall growth of shareholder value.
+Added: The number of shares that will be repurchased at any particular time and the prices that will be paid are subject to many factors, several of which are outside of the control of the Company.
The primary factors typically include the number of shares available in the market from sellers at any given time, the market price of the stock and the projected impact on the Company’s earnings per share and capital.
−Removed: On October 21, 2020, the Company’s Board of Directors authorized management to repurchase up to one million additional shares of the Company’s common stock under a program of open market purchases or privately negotiated transactions.
−Removed: The authorization of this program became effective in November 2020 and does not have an expiration date.
Non-GAAP Financial Measures
9 unchanged sentences
Ratio of Tangible Common Equity to Tangible Assets
−Removed: September 30, 2021
+Added: March 31, 2022
December 31, 2021
8 unchanged sentences
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.