What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-05-08 compared with 2022-11-08 · 207 added, 381 removed, 863 unchanged (41% of the section changed)

4 unchanged sentences

(In Thousands, Except Per Share Data)

SEPTEMBER 30,

Interest-bearing deposits in other financial institutions

3 unchanged sentences

Mortgage loans held for sale

Loans receivable, net of allowance for credit losses of $ 62,761 – September 2022;

Loans receivable, net of allowance for credit losses of $ 64,987 – March 2023;

$ 63,480 – December 2022

20 unchanged sentences

authorized 1,000,000 shares;

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

issued and outstanding March 2023 and December 2022 - - 0 - shares

Common stock, $ .01 par value;

authorized 20,000,000 shares;

issued and outstanding September 2022 – 12,245,593 shares;

issued and outstanding March 2023 – 12,133,886 shares;

December 2022 – 12,231,290 shares

10 unchanged sentences

THREE MONTHS ENDED

SEPTEMBER 30,

INTEREST INCOME

8 unchanged sentences

NET INTEREST INCOME

PROVISION (CREDIT) FOR CREDIT LOSSES ON LOANS

PROVISION FOR UNFUNDED COMMITMENTS

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

NON-INTEREST INCOME

Overdraft and insufficient funds fees

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

Net gains on loan sales

Net realized gain on sale of available for sale securities

Late charges and fees on loans

Gain on derivative interest rate products

TOTAL NON-INTEREST INCOME

NON-INTEREST EXPENSE

Salaries and employee benefits

Net occupancy and equipment expense

Office supplies and printing

Legal, audit and other professional fees

Expense on other real estate and repossessions

Acquired intangible asset amortization

Other operating expenses

TOTAL NON-INTEREST EXPENSE

INCOME BEFORE INCOME TAXES

PROVISION FOR INCOME TAXES

Basic Earnings Per Common Share

Diluted Earnings Per Common Share

Dividends Declared Per Common Share

See Notes to Consolidated Financial Statements

GREAT SOUTHERN BANCORP, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In Thousands, Except Per Share Data)

NINE MONTHS ENDED

SEPTEMBER 30,

INTEREST INCOME

Investment securities and other

TOTAL INTEREST INCOME

INTEREST EXPENSE

Securities sold under reverse repurchase agreements

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

Subordinated debentures issued to capital trust

Subordinated notes

TOTAL INTEREST EXPENSE

NET INTEREST INCOME

PROVISION (CREDIT) FOR CREDIT LOSSES ON LOANS

PROVISION FOR CREDIT LOSSES ON LOANS

PROVISION (CREDIT) FOR UNFUNDED COMMITMENTS

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

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

NON-INTEREST INCOME

4 unchanged sentences

Late charges and fees on loans

Gain on derivative interest rate products

Gain (loss) on derivative interest rate products

TOTAL NON-INTEREST INCOME

16 unchanged sentences

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In Thousands, Except Per Share Data)

THREE MONTHS ENDED

SEPTEMBER 30,

Unrealized appreciation (depreciation) on available-for-sale securities, net of taxes (credit) of $ 2,258 and $( 5,966 ), for 2023 and 2022, respectively

Unrealized loss on securities transferred to held-to-maturity, net of taxes (credit) of $( 65 ) and $-0- for 2022 and 2021, respectively

reclassification adjustment for gains included in net income, net of taxes of $( 7 ) and $-0- for 2022 and 2021, respectively

Amortization of realized gain on termination of cash flow hedge, net of taxes (credit) of $( 467 ) and $( 468 ), for 2022 and 2021, respectively

Change in value of active cash flow hedges, net of taxes (credit) of $( 5,876 ) and $-0- for 2022 and 2021, respectively

Comprehensive Income (Loss)

NINE MONTHS ENDED

SEPTEMBER 30,

Unrealized appreciation (depreciation) on available-for-sale securities, net of taxes (credit) of $( 17,965 ) and $( 3,314 ), for 2022 and 2021, respectively

Unrealized gain on securities transferred to held-to-maturity, net of taxes of $ 9 and $-0- for 2022 and 2021, respectively

Unrealized (gain) loss on securities transferred to held-to-maturity, net of taxes (credit) of $( 5 ) and $ 224 for 2023 and 2022, respectively

reclassification adjustment for gains included in net income, net of taxes of $ 0 and $ 2 for 2023 and 2022, respectively

7 unchanged sentences

(In Thousands, Except Per Share Data)

THREE MONTHS ENDED SEPTEMBER 30, 2021

Comprehensive

Paid-in Capital

Income (Loss)

Balance, June 30, 2021

Stock issued under Stock Option Plan

Common dividends declared, $ 0.36 per share

Other comprehensive loss

Purchase of the Company’s common stock

Reclassification of treasury stock per Maryland law

Balance, September 30, 2021

THREE MONTHS ENDED SEPTEMBER 30, 2022

THREE MONTHS ENDED MARCH 31, 2022

Comprehensive

1 unchanged sentence

Income (Loss)

Balance, June 30, 2022

Balance, January 1, 2022

Stock issued under Stock Option Plan

1 unchanged sentence

Change in fair value of cash flow hedges

Change in unrealized loss on transferred held-to-maturity securities

Change in unrealized gain on held-to-maturity securities

Change in unrealized loss on available-for-sale securities

1 unchanged sentence

Reclassification of treasury stock per Maryland law

Balance, September 30, 2022

See Notes to Consolidated Financial Statements

GREAT SOUTHERN BANCORP, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In Thousands, Except Per Share Data)

NINE MONTHS ENDED SEPTEMBER 30, 2021

Comprehensive

Paid-in Capital

Income (Loss)

Balance, January 1, 2021

Impact of ASU 2016-13 adoption

Stock issued under Stock Option Plan

Common dividends declared, $ 1.04 per share

Other comprehensive loss

Purchase of the Company’s common stock

Reclassification of treasury stock per Maryland law

Balance, September 30, 2021

NINE MONTHS ENDED SEPTEMBER 30, 2022

Balance, March 31, 2022

THREE MONTHS ENDED MARCH 31, 2023

Comprehensive

3 unchanged sentences

Stock issued under Stock Option Plan

Common dividends declared, $ 1.16 per share

Common cash dividends declared, $ 0.40 per share

Change in fair value of cash flow hedges

Change in unrealized gain on transferred held-to-maturity securities

Change in unrealized gain on held-to-maturity securities

Change in unrealized loss on available-for-sale securities

1 unchanged sentence

Reclassification of treasury stock per Maryland law

Balance, September 30, 2022

Balance, March 31, 2023

See Notes to Consolidated Financial Statements

2 unchanged sentences

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

NINE MONTHS ENDED

SEPTEMBER 30,

(In Thousands, Except Per Share Data)

THREE MONTHS ENDED

CASH FLOWS FROM OPERATING ACTIVITIES

3 unchanged sentences

Compensation expense for stock option grants

Provision (credit) for credit losses on loans

Provision for credit losses on loans

Provision (credit) for unfunded commitments

Net gain on loan sales

Net gain on sale of premises and equipment

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

Net (gain) loss on sale of premises and equipment

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

Net gain on sale of available-for-sale investments

Accretion of deferred income, premiums, discounts and other

Gain on derivative interest rate products

(Gain) loss on derivative interest rate products

Deferred income taxes

14 unchanged sentences

Purchase of available-for-sale securities

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

Net cash provided by (used in) investing activities

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

Net cash used in investing activities

CASH FLOWS FROM FINANCING ACTIVITIES

Net increase (decrease) in certificates of deposit

Net increase (decrease) in checking and savings deposits

Net increase in short-term borrowings

Net increase in checking and savings deposits

Net increase (decrease) in short-term borrowings

Advances from borrowers for taxes and insurance

Redemption of subordinated notes

Dividends paid

14 unchanged sentences

Those adjustments consist only of normal recurring adjustments.

Operating results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the full year.

Operating results for the three months ended March 31, 2023 are not necessarily indicative of the results that may be expected for the full year.

The consolidated statement of financial condition of the Company as of December 31, 2022, has been derived from the audited consolidated statement of financial condition of the Company as of that date.

24 unchanged sentences

Optional expedients for hedge accounting permit changes to critical terms of hedging relationships and to the designated benchmark interest rate in a fair value hedge and also provide relief for assessing hedge effectiveness for cash flow hedges.

Companies are able to apply ASU 2020-04 immediately;

however, the guidance will only be available for a limited time (generally through December 31, 2022).

ASU 2020-04 was effective upon issuance;

however, the guidance was originally only available generally through December 31, 2022.

Based upon amendments provided in ASU 2022-06 discussed below, provisions of ASU 2020-04 can now generally be applied through December 31, 2024.

The application of ASU 2020-04 has not had, and is not expected to have, a material impact on the Company’s consolidated financial statements.

2 unchanged sentences

ASU 2021-01 also amends the expedients and exceptions in ASC 848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition.

ASU 2021-01 was effective upon issuance and generally can be applied through December 31, 2022.

ASU 2021-01 was effective upon issuance;

however, the guidance was originally only available generally through December 31, 2022.

Based upon amendments provided in ASU 2022-06 discussed below, provisions of ASU 2021-01 can now

generally be applied through December 31, 2024.

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

5 unchanged sentences

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

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

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

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

ASU 2022-01 is effective for the Company on January 1, 2023.

The adoption of ASU 2022-01 did not have a material impact on the Company’s consolidated financial statements.

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

2 unchanged sentences

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

The Company previously adopted ASU 2016-13;

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

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

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

ASU 2022-02 is effective for the Company on January 1, 2023.

The adoption of ASU 2022-02 did not have a material impact on the Company’s consolidated financial statements.

The adoption of this ASU does, however, require changes in disclosures related to certain loan modifications.

In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848):

Deferral of the Sunset Date of Topic 848 .

ASU 2022-06 extends the period of time entities can utilize the reference rate reform relief guidance provided by ASU 2020-04 and ASU 2021-01, which are discussed above.

ASU 2022-06 was effective upon issuance and defers the sunset date of this prior guidance to December 31, 2024, after which entities will no longer be permitted to apply the relief guidance in Topic 848.

ASU 2022-06 has not had, and is not expected to have, a material impact on the Company’s consolidated financial statements.

EARNINGS PER SHARE

Three Months Ended September 30,

(In Thousands, Except Per Share Data)

Average common shares outstanding

Per common share amount

Average common shares outstanding

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

Diluted common shares

Per common share amount

Nine Months Ended September 30,

Three Months Ended March 31,

(In Thousands, Except Per Share Data)

5 unchanged sentences

Per common share amount

Options outstanding at September 30, 2022 and 2021, to purchase 364,199 and 448,256 shares of common stock, respectively, were not included in the computation of diluted earnings per common share for each of the three month periods because the exercise prices of such options were greater than the average market prices of the common stock for the three months ended September 30, 2022 and 2021, respectively.

Options outstanding at September 30, 2022 and 2021, to purchase 366,699 and 448,256 shares of common stock, respectively, were not included in the computation of diluted earnings per common share for each of the nine month periods because the exercise prices of such options were greater than the average market prices of the common stock for the nine months ended September 30, 2022 and 2021, respectively.

Options outstanding at March 31, 2023 and 2022, to purchase 672,368 and 376,237 shares of common stock, respectively, were not included in the computation of diluted earnings per common share for each of the three month periods because the exercise prices of such options were greater than the average market prices of the common stock for the three months ended March 31, 2023 and 2022, respectively.

INVESTMENT SECURITIES

9 unchanged sentences

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

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

The related net unrealized gross gains were $ 1.0 million;

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

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

As of September 30, 2022, the net unrealized gross gains remaining were $39,000 ;

net of income taxes, these unrealized gains were $30,000 .

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

September 30, 2022

March 31, 2023

(In Thousands)

4 unchanged sentences

Small Business Administration securities

September 30, 2022

March 31, 2023

(In Thousands)

8 unchanged sentences

Agency collateralized mortgage obligations

States and political subdivisions

States and political subdivisions securities

Small Business Administration securities

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

The amortized cost and fair value of available-for-sale and held-to-maturity securities at September 30, 2022, by contractual maturity, are shown below.

December 31, 2022

(In Thousands)

HELD-TO-MATURITY SECURITIES:

Agency mortgage-backed securities

Agency collateralized mortgage obligations

States and political subdivisions

The amortized cost and fair value of available-for-sale and held-to-maturity securities at March 31, 2023, by contractual maturity, are shown below.

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

12 unchanged sentences

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

Total fair value of these investments at September 30, 2022 and December 31, 2021, was approximately $ 481.6 million and $ 173.9 million, respectively, which was approximately 99.7 % and 34.7 % of the Company’s total available-for-sale investment portfolio.

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

Total fair value of these investments at March 31, 2023 and December 31, 2022, was approximately $ 467.7 million and $ 472.0 million, respectively, which is approximately 94.8 % and 96.2 % of the Company’s total available-for-sale investment portfolio.

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

government-sponsored entities and agencies.

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

Held-to-maturity investments in debt securities are reported in the financial statements at their amortized cost, which was $ 206.5 million at September 30, 2022.

Total fair value of these investments at September 30, 2022 was approximately $ 180.4 million.

There were no held-to-maturity investment securities at December 31, 2021.

Held-to-maturity investments in debt securities are reported in the financial statements at their amortized cost at March 31, 2023 and December 31, 2022, which was $ 200.4 million and $ 202.5 million, respectively.

Total fair value of these investments at March 31, 2023 and December 31, 2022 was approximately $ 179.9 million and $ 177.8 million, respectively.

Held-to-maturity investment securities are evaluated for potential losses under ASU 2016-13.

The Company continually assesses its liquidity sources, both on-balance sheet and off-balance sheet, and believes at March 31, 2023, that it has ample liquidity sources to fund its ongoing operations.

The Company has the intent and ability to hold these held-to-maturity securities until they are fully repaid.

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

September 30, 2022

The following table shows the Company’s available-for-sale and held-to-maturity securities’ gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2023 and December 31, 2022:

March 31, 2023

Less than 12 Months

7 unchanged sentences

Small Business Administration securities

September 30, 2022

Less than 12 Months

12 Months or More

Description of Securities

(In Thousands)

HELD-TO-MATURITY SECURITIES:

11 unchanged sentences

States and political subdivisions securities

Available-for-sale securities totaling $ 5.1 million were sold during the three months ended September 30, 2022, resulting in the recognition of a $ 31,000 gain during the period.

Available-for-sale securities totaling $ 10.2 million were sold during the nine months ended September 30, 2022, resulting in the recognition of a $ 38,000 gain during the period.

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

Small Business Administration securities

HELD-TO-MATURITY SECURITIES:

Agency mortgage-backed securities

Agency collateralized mortgage obligations

States and political subdivisions securities

There were no sales of available-for-sale securities during the three months ended March 31, 2023.

Available-for-sale securities totaling $ 4.9 million were sold during the three months ended March 31, 2022, resulting in the recognition of a $ 7,000 gain during the period.

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

15 unchanged sentences

Measurement of Credit Losses on Financial Instruments , effective January 1, 2021.

The guidance replaces the incurred loss methodology with an expected loss methodology that is referred to as the CECL methodology.

The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables.

It also applies to off-balance sheet credit exposures not accounted for as insurance, including loan commitments, standby letters of credits, financial guarantees, and similar instruments.

The Company adopted ASC 326 using the modified retrospective method for loans and off-balance sheet credit exposures.

The Company recorded a one-time cumulative-effect adjustment to the allowance for credit losses of $ 11.6 million.

This adjustment brought the balance of the allowance for credit losses to $ 67.3 million as of January 1, 2021.

In addition, the Company recorded an $ 8.7 million liability for unfunded commitments as of January 1, 2021.

The after-tax effect decreased retained earnings by $ 14.2 million.

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

The Company adopted ASC 326 using the prospective transition approach for financial assets purchased with credit deterioration (PCD) that were previously classified as purchased credit impaired (PCI) and accounted for under ASC 310-30.

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

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

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

1 unchanged sentence

Loans are aggregated into pools based on similar risk characteristics, including borrower type, collateral and repayment types and expected credit loss patterns.

Loans that do not share similar risk characteristics, primarily classified and/or TDR loans with a balance greater than or equal to $ 100,000 , are evaluated on an individual basis.

Loans that do not share similar risk characteristics, primarily classified loans with a balance greater than or equal to $ 100,000 , are evaluated on an individual basis.

For loans evaluated for credit losses on a collective basis, average historical loss rates are calculated for each pool using the Company’s historical net charge-offs (combined charge-offs and recoveries by observable historical reporting period) and outstanding loan balances during a lookback period.

5 unchanged sentences

The forecast is used for a reasonable and supportable period before reverting to historical averages.

The forecast-adjusted loss rate is applied to the amortized cost of loans over the remaining contractual lives, adjusted for expected prepayments.

The contractual term excludes expected extensions, renewals and modifications unless there is a reasonable expectation that a troubled debt restructuring (“TDR”) will be executed.

The forecast-adjusted loss rate is applied to the amortized cost of loans over the remaining contractual lives,

adjusted for expected prepayments.

The contractual term excludes expected extensions, renewals and modifications.

Additionally, the allowance for credit losses considers other qualitative factors not included in historical loss rates or macroeconomic forecasts such as changes in portfolio composition, underwriting practices, or significant unique events or conditions.

5 unchanged sentences

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

Classes of loans at September 30, 2022 and December 31, 2021 were as follows:

September 30,

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

(In Thousands)

15 unchanged sentences

Weighted average interest rate

The following tables present the classes of loans by aging.

September 30, 2022

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

March 31, 2023

> 90 Days Past

37 unchanged sentences

Non-accruing loans are summarized as follows:

September 30,

(In Thousands)

13 unchanged sentences

Total non-accruing loans

No interest income was recorded on these loans for the three and nine months ended September 30, 2022 and 2021, respectively.

Nonaccrual loans for which there is no related allowance for credit losses as of September 30, 2022 had an amortized cost of $ 2.4 million.

No interest income was recorded on these loans for the three months ended March 31, 2023 and 2022, respectively.

Nonaccrual loans for which there is no related allowance for credit losses as of March 31, 2023 had an amortized cost of $ 1.7 million.

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

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

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

The following tables present the activity in the allowance for credit losses by portfolio segment for the three and nine months ended September 30, 2022 and 2021.

During the three months ended September 30, 2022, the Company recorded provision expense of $ 2.0 million on its portfolio of outstanding loans, compared to a negative provision expense of $ 3.0 million during the three months ended September 30, 2021.

During the nine months ended September 30, 2022, the Company recorded provision expense of $ 2.0 million on its portfolio of outstanding loans, compared to a negative provision expense of $ 3.7 million during the nine months ended September 30, 2021.

One- to Four-

Residential and

(In Thousands)

Allowance for credit losses

Balance, June 30, 2021

Provision (credit) charged to expense

Losses charged off

Balance, September 30, 2021

Allowance for credit losses

Balance, June 30, 2022

Provision (credit) charged to expense

Losses charged off

Balance, September 30, 2022

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

The following table presents the activity in the allowance for credit losses by portfolio segment for the three months ended March 31, 2023 and 2022.

During the three months ended March 31, 2023, the Company recorded provision expense of $ 1.5 million on its portfolio of outstanding loans.

During the three months ended March 31, 2022, the Company did not record a provision expense on its portfolio of outstanding loans

One- to Four-

2 unchanged sentences

Allowance for credit losses

Balance, December 31, 2020

CECL adoption

Balance, January 1, 2022

1 unchanged sentence

Losses charged off

Balance, September 30, 2021

Balance, March 31, 2022

Allowance for credit losses

2 unchanged sentences

Losses charged off

Balance, September 30, 2022

The following tables present the activity in the allowance for unfunded commitments by portfolio segment for the three and nine months ended September 30, 2022 and 2021.

The provision for losses on unfunded commitments for the three months ended September 30, 2022 was $ 1.3 million, compared to $ 643,000 for the three months ended September 30, 2021.

The provision for losses on unfunded commitments for the nine months ended September 30, 2022 was $ 3.3 million, compared to a credit (negative expense) of $ 338,000 for the nine months ended September 30, 2021.

In the 2022 periods, the Company experienced increases in its unfunded commitments, resulting in an increase in its required reserves for such potential losses.

The level and mix of unfunded commitments resulted in a decrease in the required reserve for such potential losses in the 2021 nine month period presented.

One- to Four-

Residential and

(In Thousands)

Allowance for unfunded commitments

Balance, June 30, 2021

Provision (credit) charged to expense

Balance, September 30, 2021

Allowance for unfunded commitments

Balance, June 30, 2022

Provision (credit) charged to expense

Balance, September 30, 2022

Balance, March 31, 2023

The following table presents the activity in the allowance for unfunded commitments by portfolio segment for the three months ended March 31, 2023 and 2022.

The provision for losses on unfunded commitments for the three months ended March 31, 2023 was a credit (negative expense) of $ 826,000 , compared to a credit (negative expense) of $ 193,000 for the three months ended March 31, 2022.

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

One- to Four-

2 unchanged sentences

Allowance for unfunded commitments

Balance, December 31, 2020

CECL adoption

Balance, January 1, 2022

Provision (credit) charged to expense

Balance, September 30, 2021

Balance, March 31, 2022

Allowance for unfunded commitments

1 unchanged sentence

Provision (credit) charged to expense

Balance, September 30, 2022

Balance, March 31, 2023

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

6 unchanged sentences

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

September 30, 2022

March 31, 2023

December 31, 2022

13 unchanged sentences

Home equity lines of credit

TDRs by class are presented below as of September 30, 2022 and December 31, 2021.

September 30, 2022

Accruing TDR Loans

Non-accruing TDR Loans

Total TDR Loans

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

Troubled Debt Restructurings and Vintage Disclosures .

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

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

ASU 2022-02 was effective for the Company on January 1, 2023.

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

The Corporation has adopted this update prospectively.

Under ASU 2022-02, effective January 1, 2023, loan modifications are reported if concessions have been granted to borrowers that are experiencing financial difficulty.

Information on these loan modifications originated after the effective date is presented according to the new accounting guidance.

Reporting periods prior to the adoption of ASU 2022-02 present information on TDRs under the previous disclosure requirements.

The following tables show the composition of loan modifications made to borrowers experiencing financial difficulty by the loan portfolio and type of concessions granted during the three months ended March 31, 2023.

Each of the types of concessions granted comprised less than 2.5 % of their respective classes of loan portfolios at March 31, 2023.

Amortized Cost Basis at March 31, 2023

Interest Rate

(In Thousands)

4 unchanged sentences

Commercial business

The Company closely monitors the performance of loans to borrowers experiencing financial difficulty that are modified to understand the effectiveness of its modification efforts.

The following table depicts the performance at March 31, 2023 of loans that were modified during the three months ended March 31, 2023:

March 31, 2023

(In Thousands)

Construction and land development

One- to four-family residential

Other residential

Commercial real estate

Commercial business

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

December 31, 2022

8 unchanged sentences

Commercial business

The following tables present newly restructured loans, which were considered TDRs, during the three and nine months ended September 30, 2022 and 2021, respectively, by type of modification:

Three Months Ended September 30, 2022

Interest Only

(In Thousands)

Commercial real estate

Three Months Ended September 30, 2021

Interest Only

(In Thousands)

One- to four-family residential

Nine Months Ended September 30, 2022

Interest Only

(In Thousands)

Commercial real estate

Nine Months Ended September 30, 2021

The following table presents newly restructured loans, which were considered TDRs, during the three months ended March 31, 2022, by type of modification:

Three Months Ended March 31, 2022

Interest Only

1 unchanged sentence

Commercial real estate

One- to four-family residential

At September 30, 2022, of the $ 3.0 million in TDRs, $ 1.8 million were classified as substandard using the Company’s internal grading system, which is described below.

The Company had no TDRs that were modified in the previous 12 months and subsequently defaulted during the three months ended September 30, 2022.

At December 31, 2022, of the $ 2.9 million in TDRs, $ 1.7 million were classified as substandard using the Company’s internal grading system.

The Company had no TDRs that were modified in the previous 12 months and subsequently defaulted during the year ended December 31, 2022.

During the three and nine months ended September 30, 2022, $ 66,000 and $ 578,000 of loans, respectively, met the criteria for placement back on accrual status.

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

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

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

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

The nature and extent of impairments of modified loans, including those which have experienced a subsequent payment default, are considered in the determination of an appropriate level of the allowance for credit losses.

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

21 unchanged sentences

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

The following table present a summary of loans by category and risk rating separated by origination and loan class as of September 30, 2022.

The following table presents a summary of loans by category and risk rating separated by origination and loan class as of March 31, 2023.

Term Loans by Origination Year

39 unchanged sentences

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

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

Term Loans by Origination Year

54 unchanged sentences

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

The following table presents the balances of acquired loans related to the various FDIC-assisted transactions at September 30, 2022 and December 31, 2021.

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

(In Thousands)

September 30, 2022

Gross loans receivable

Balance of accretable discount due to change in expected losses

Net carrying value of loans receivable

March 31, 2023

Carrying value of loans receivable

December 31, 2022

Gross loans receivable

Balance of accretable discount due to change in expected losses

Net carrying value of loans receivable

Carrying value of loans receivable

OTHER REAL ESTATE OWNED AND REPOSSESSIONS

Major classifications of other real estate owned were as follows:

September 30,

(In Thousands)

11 unchanged sentences

Other real estate owned and repossessions

At September 30, 2022, other real estate owned not acquired through foreclosure included two properties, both of which were branch locations that were closed and held for sale.

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

At September 30, 2022, residential mortgage loans totaling $ 480,000 were in the process of foreclosure.

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

At March 31, 2023 and December 31, 2022, other real estate owned not acquired through foreclosure included two properties, both of which were branch locations that were closed and held for sale.

At March 31, 2023 and December 31, 2022, residential mortgage loans totaling $ 38,000 and $ 173,000 , respectively, were in the process of foreclosure.

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

Three Months Ended

September 30,

(In Thousands)

Net gains on sales of other real estate owned and repossessions

Valuation write-downs

Operating expenses, net of rental income

Nine Months Ended

September 30,

(In Thousands)

Net gains on sales of other real estate owned and repossessions

Net loss (gains) on sales of other real estate owned and repossessions

Valuation write-downs

2 unchanged sentences

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

September 30,

(In Thousands)

3 unchanged sentences

accumulated depreciation

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

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

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

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

As of September 30, 2022, the lease right of use asset value was $ 7.6 million and the corresponding lease liability was $ 7.8 million.

In 2019, the Company adopted ASU 2016 02, Leases (Topic 842).

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

The amount of the right of use asset and

corresponding lease liability will fluctuate based on the Company’s lease terminations, new leases and lease modifications and renewals.

As of March 31, 2023, the lease right of use asset value was $ 7.5 million and the corresponding lease liability was $ 7.7 million.

As of December 31, 2022, the lease right of use asset value was $ 7.4 million and the corresponding lease liability was $ 7.6 million.

At September 30, 2022, expected lease terms ranged from 0.5 years to 16.2 years with a weighted-average lease term of 8.4 years.

The weighted-average discount rate at September 30, 2022 was 3.42 %.

For the three months ended September 30, 2022 and 2021, lease expense was $ 408,000 and $ 386,000 , respectively.

For each of the nine months ended September 30, 2022 and 2021, lease expense was $ 1.2 million.

At March 31, 2023, expected lease terms ranged from 1.1 years to 15.7 years with a weighted-average lease term of 7.4 years.

The weighted-average discount rate at March 31, 2023 was 3.75 %.

For the three months ended March 31, 2023 and 2022, lease expense was $ 411,000 and $ 369,000 , respectively.

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

The variable portion of these lease payments is not material and the total lease expense related to ATMs for the three months ended September 30, 2022 and 2021 was $ 80,000 and $ 79,000 , respectively.

The total lease expense related to ATMs for the nine months ended September 30, 2022 and 2021 was $ 228,000 and $ 230,000 , respectively.

The variable portion of these lease payments is not material and the total lease expense related to ATMs for the three months ended March 31, 2023 and 2022 was $ 72,000 and $ 69,000 , respectively.

The Company does not sublease any of its leased facilities;

1 unchanged sentence

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

In the three months ended September 30, 2022 and 2021, income recognized from these lease agreements was $ 300,000 and $ 323,000 , respectively, and was included in occupancy and equipment expense.

In the nine months ended September 30, 2022 and 2021, income recognized from these lease agreements was $ 890,000 and $ 903,000 , respectively, and was included in occupancy and equipment expense.

September 30, 2022

In the three months ended March 31, 2023 and 2022, income recognized from these lease agreements was $ 324,000 and $ 294,000 , respectively, and was included in occupancy and equipment expense.

March 31, 2023

December 31, 2022

4 unchanged sentences

For the Three Months Ended

September 30, 2022

September 30, 2021

(In Thousands)

Statement of Income

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

Supplemental Cash Flow Information

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

Operating cash flows from operating leases

Right of use assets obtained in exchange for lease obligations:

Operating leases

For the Nine Months Ended

September 30, 2022

September 30, 2021

March 31, 2023

March 31, 2022

(In Thousands)

6 unchanged sentences

Operating leases

At September 30, 2022, future expected lease payments for leases with terms exceeding one year were as follows (In Thousands):

At March 31, 2023, future expected lease payments for leases with terms exceeding one year were as follows (In Thousands):

Future lease payments expected

1 unchanged sentence

Lease liability

September 30,

(In Thousands)

4 unchanged sentences

3.00 % - 3.99 %

4.00 % - 4.99 %

5.00 % and above

2 unchanged sentences

Interest-bearing demand and savings deposits (weighted average rate 1.09 % and 0.65 %)

Brokered deposits (weighted average rate 4.69 % and 4.03 %)

Total Deposits

At September 30, 2022 and December 31, 2021, total time deposits included $ 361.6 million and $ 67.4 million, respectively, of brokered deposits, and $ 78.3 million and $ 203.8 million, respectively, of national time deposits initiated through internet channels.

The Bank utilizes brokered deposits as an additional funding source.

The aggregate amount of brokered deposits was approximately $ 537.0 million and $ 411.5 million at March 31, 2023 and December 31, 2022, respectively.

At March 31, 2023 and December 31, 2022, brokered deposits included $ 250.0 million and $ 150.0 million, respectively, of purchased funds through the IntraFi Financial network.

These IntraFi Financial deposits have a rate of interest that floats daily with an index of effective federal funds rate plus a spread.

At March 31, 2023, there were additional brokered deposits totaling $ 149.5 million that had variable rates of interest that reset monthly or quarterly and there were other brokered deposits totaling $ 137.5 million that had fixed rates of interest but are currently callable at the Bank’s discretion.

At March 31, 2023, approximately 14 % of the Company’s total deposits were uninsured.

ADVANCES FROM FEDERAL HOME LOAN BANK

At September 30, 2022 and December 31, 2021, there were no outstanding term advances from the Federal Home Loan Bank of Des Moines (FHLBank advances).

There were overnight funds borrowed from the Federal Home Loan Bank of Des Moines as of September 30, 2022, which are included below in Note 12 .

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

At March 31, 2023 and December 31, 2022, there were no outstanding term advances from the Federal Home Loan Bank of Des Moines.

At March 31, 2023 and December 31, 2022, there were outstanding overnight borrowings from the Federal Home Loan Bank of Des Moines, which are included in Short-Term Borrowings below in Note 12 .

SECURITIES SOLD UNDER REVERSE REPURCHASE AGREEMENTS AND SHORT-TERM BORROWINGS

September 30,

(In Thousands)

Notes payable – Community Development Equity Funds

Other interest-bearing liabilities

Securities sold under reverse repurchase agreements

5 unchanged sentences

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

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

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

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

September 30, 2022

March 31, 2023

December 31, 2022

4 unchanged sentences

SUBORDINATED NOTES

On August 8, 2016, the Company completed the public offering and sale of $ 75.0 million of its subordinated notes.

The notes were due August 15, 2026 and had a fixed interest rate of 5.25 % until August 15, 2021, at which time the rate was to become floating at a rate equal to three-month LIBOR plus 4.087 %.

The notes were sold at par, resulting in net proceeds, after underwriting discounts and commissions, legal, accounting and other professional fees, of approximately $ 73.5 million.

Total debt issuance costs of approximately $ 1.5 million were deferred and amortized over the five-year expected life of the notes.

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

On June 10, 2020, the Company completed the public offering and sale of $ 75.0 million of its subordinated notes.

3 unchanged sentences

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

Amortization of the debt issuance costs during the three months ended September 30, 2022 and 2021 of both subordinated note offerings, to the extent applicable, totaled $ 74,000 and $ 146,000 , respectively.

Amortization of the debt issuance costs during the nine months ended September 30, 2022 and 2021 of both subordinated notes offerings, to the extent applicable, totaled $ 223,000 and $ 512,000 , respectively.

Amortization of the debt issuance costs is included in interest expense on subordinated notes in the consolidated statements of income, resulting in an imputed interest rate of 5.96 % on the 2020 issuance.

At September 30, 2022 and December 31, 2021, subordinated notes are summarized as follows:

September 30, 2022

Amortization of the debt issuance costs during the three months ended March 31, 2023 and 2022, totaled $ 75,000 and $ 74,000 , respectively.

Amortization of the debt issuance costs is included in interest expense on subordinated notes in the consolidated statements of income, resulting in an imputed interest rate of 5.95 %.

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

March 31, 2023

December 31, 2022

3 unchanged sentences

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

Three Months Ended September 30,

Tax at statutory rate

Nontaxable interest and dividends

Nine Months Ended September 30,

Three Months Ended March 31,

Tax at statutory rate

7 unchanged sentences

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

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

The MAHC has received documents from each party but no hearings have occurred to date.

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

There were no proposed material changes to the returns.

DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

13 unchanged sentences

Recurring Measurements

The following table presents the fair value measurements of assets recognized in the accompanying statements of financial condition measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fell at September 30, 2022 and December 31, 2021:

Fair value measurements using

2 unchanged sentences

(In Thousands)

September 30, 2022

March 31, 2023

Available-for-sale securities

13 unchanged sentences

Interest rate derivative liability

The following is a description of inputs and valuation methodologies used for assets recorded at fair value on a recurring basis and recognized in the accompanying statements of financial condition at September 30, 2022 and December 31, 2021 as well as the general classification of such assets pursuant to the valuation hierarchy.

There have been no significant changes in the valuation techniques during the nine-month period ended September 30, 2022.

The following is a description of inputs and valuation methodologies used for assets recorded at fair value on a recurring basis and recognized in the accompanying statements of financial condition at March 31, 2023 and December 31, 2022 as well as the general classification of such assets pursuant to the valuation hierarchy.

There have been no significant changes in the valuation techniques during the three-month period ended March 31, 2023.

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

6 unchanged sentences

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

There were no recurring Level 3 securities at September 30, 2022 or December 31, 2021.

There were no recurring Level 3 securities at March 31, 2023 or December 31, 2022.

Interest Rate Derivatives.

1 unchanged sentence

Nonrecurring Measurements

The following table presents the fair value measurements of assets measured at fair value on a nonrecurring basis and the level within the hierarchy in which such measurements fall at September 30, 2022 and December 31, 2021:

The following table presents the fair value measurements of assets measured at fair value on a nonrecurring basis and the level within the hierarchy in which such measurements fell at March 31, 2023 and December 31, 2022:

Fair Value Measurements Using

2 unchanged sentences

(In Thousands)

September 30, 2022

March 31, 2023

Collateral-dependent loans

11 unchanged sentences

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

At September 30, 2022 and December 31, 2021, the aggregate fair value of mortgage loans held for sale was not materially different than their cost.

At March 31, 2023 and December 31, 2022, the aggregate fair value of mortgage loans held for sale was not materially different than their cost.

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

2 unchanged sentences

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

Loans for which such charge-offs or reserves were recorded during the nine months ended September 30, 2022 or the year ended December 31, 2021, are shown in the table above (net of reserves).

Loans for which such charge-offs or reserves were recorded during the three months ended March 31, 2023 or the year ended December 31, 2022, are shown in the table above (net of reserves).

Foreclosed Assets Held for Sale.

2 unchanged sentences

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

The foreclosed assets represented in the table above have been re-measured during the nine months ended September 30, 2022 or the year ended December 31, 2021, subsequent to their initial transfer to foreclosed assets.

The foreclosed assets represented in the table above have been re-measured during the three months ended March 31, 2023 or the year ended December 31, 2022, subsequent to their initial transfer to foreclosed assets.

Fair Value of Financial Instruments

30 unchanged sentences

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

September 30, 2022

March 31, 2023

December 31, 2022

31 unchanged sentences

As the interest rate swaps associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings.

As part of the Valley Bank FDIC-assisted acquisition, the Company acquired seven loans with related interest rate swaps.

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

All seven acquired loans with interest rate swaps have now paid off.

The aggregate notional amount of the remaining Valley swaps was $ 482,000 at December 31, 2021.

At September 30, 2022, the Company had seven interest rate swaps and one interest rate cap totaling $ 104.6 million in notional amount with commercial customers, and seven interest rate swaps and one interest rate cap with the same aggregate notional amount with third parties related to its program.

At March 31, 2023, the Company had seven interest rate swaps and one interest rate cap totaling $ 111.1 million in notional amount with commercial customers, and seven interest rate swaps and one interest rate cap with the same aggregate notional amount with third parties related to its program.

In addition, the Company has one participation loan purchased totaling $ 8.8 million, in which the lead institution has an interest rate swap with its customer and the economics of the counterparty swap are passed along to the Company through the loan participation.

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

During the three months ended September 30, 2022 and 2021, the Company recognized net gains of $ 88,000 and $ 45,000 , respectively, in non-interest income related to changes in the fair value of these swaps.

During the nine months ended September 30, 2022 and 2021, the Company recognized net gains of $ 385,000 and $ 340,000 during, respectively, in non-interest income related to changes in the fair value of these swaps.

At December 31, 2022, the Company had six interest rate swaps and one interest rate cap totaling $ 107.0 million in notional amount with commercial customers, and six interest rate swaps and one interest rate cap with the same notional amount with third parties related to its program.

In addition, at December 31, 2022, the Company had one participation loan purchased totaling $ 8.8 million, in which the lead institution has an interest rate swap with their customer and the economics of the counterparty swap are passed along to the Company through the loan participation.

During the three months ended March 31, 2023 and 2022, the Company recognized net losses of $ 291,000 and net gains of $ 152,000 , respectively, in non-interest income related to changes in the fair value of these swaps.

Fair Value Hedges

Interest Rate Swaps .

As a strategy to maintain acceptable levels of exposure to the risk of changes in future cash flows due to interest rate fluctuations, in February 2023, the Company entered into interest rate swap transactions as part of its ongoing interest rate management strategies to hedge the risk of certain of its fixed rate brokered deposits.

The total notional amount of the swaps was $ 95 million with a termination date of February 28, 2025.

Under the terms of the swaps, the Company receives a fixed rate of interest of 4.65 % and pays a floating rate of interest equal to USD-SOFR-COMPOUND plus a spread.

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

To the extent that the fixed rate of interest exceeds USD-SOFR-COMPOUND plus the spread, the Company receives net interest settlements which are recorded as a reduction of deposit interest expense.

If USD-SOFR-COMPOUND plus the spread exceeds the fixed rate of interest, the Company is required to pay net settlements to the counterparty and record those net payments as interest expense on deposits.

Cash Flow Hedges

10 unchanged sentences

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

At September 30, 2022, the Company expected to have a sufficient amount of eligible variable rate loans to continue to accrete this interest income in future periods.

At March 31, 2023, the Company expected to have a sufficient amount of eligible variable rate loans to continue to accrete this interest income on the terminated swap in future periods.

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

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

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

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

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

The floating rate of interest was 2.553 % as of September 30, 2022.

The Company will receive net interest settlements, which will be recorded as loan interest income, to the extent that the fixed rate of interest exceeds one-month USD-LIBOR.

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

On October 1, 2022, the floating rate of interest reset to 3.14271 %.

In July 2022, the Company entered into two interest rate swap transactions as part of its ongoing interest rate management strategies to hedge the risk of its floating rate loans.

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

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

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

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

The floating rate of interest was 4.66943 % as of March 31, 2023.

To the extend the floating rate of interest exceeds the fixed rate of interest, 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.

If the fixed rate of interest exceeds the floating rate of interest, the Company will receive net interest settlements, which will be recorded as loan interest income.

On April 1, 2023, the floating rate of interest reset to 4.85771 %.

In July 2022, the Company entered into two additional interest rate swap transactions as part of its ongoing interest rate management strategies to hedge the risk of its floating rate loans.

The notional amount of each swap is $ 200 million with an effective date of May 1, 2023 and a termination date of May 1, 2028.

4 unchanged sentences

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

The Company recorded loan interest income of $ 2.0 million on the terminated interest rate swap during each of the three months ended September 30, 2022 and 2021.

The Company recorded loan interest income of $ 6.1 million on this interest rate swap during each of the nine months ended September 30, 2022 and 2021.

The Company recorded negative loan interest income of $ 428,000 and loan interest income of $ 610,000 , related to the February 2022 interest rate swap during the three and nine months ended September 30, 2022, respectively.The effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affected earnings.

At March 31, 2023, the USD-Prime rate was 8.00 % and the one-month USD-SOFR OIS rate was 4.62101 %.

The Company recorded loan interest income of $ 2.0 million on the terminated interest rate swap during each of the three months ended March 31, 2023 and 2022.

The Company recorded negative loan interest income of $ 2.2 million and loan interest income of $ 370,000 , related to the March 2022 interest rate swap during the three months ended March 31, 2023 and March 31, 2022, respectively.

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

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

During each of the three and nine months ended September 30, 2022 and 2021, the Company recognized no non-interest income related to changes in the fair value of these derivatives.

At September 30, 2022, the Company expected to have an amount of eligible variable rate loans to continue to accrete this interest income in future periods.

During each of the three-months ended March 31, 2023 and 2022, the Company recognized no non-interest income related to changes in the fair value of these derivatives.

At March 31, 2023, the Company expected to have an amount of eligible variable rate loans to continue to accrete this interest income on the terminated swap in future periods.

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

1 unchanged sentence

Consolidated Statements

September 30,

of Financial Condition

16 unchanged sentences

Recognized in AOCI

Three Months Ended September 30,

Cash Flow Hedges

(In Thousands)

Terminated interest rate swap, net of income taxes

Active interest rate swaps, net of income taxes

Amount of Gain (Loss)

Recognized in AOCI

Nine Months Ended September 30,

Three Months Ended March 31,

Cash Flow Hedges

3 unchanged sentences

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

Three Months Ended September 30,

Cash Flow Hedges

(In Thousands)

Total Interest Income

Total Interest Expense

Terminated interest rate swap

Active interest rate swaps

Nine Months Ended September 30,

Three Months Ended March 31,

Cash Flow Hedges

9 unchanged sentences

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

At September 30, 2022, the termination value of derivatives with our derivative dealer counterparties (related to loan level swaps with commercial lending customers and active interest rate swaps to hedge risk related to the Company’s variable rate loans) in an overall net liability position, which included accrued interest but excluded any adjustment for nonperformance risk, related to these agreements was $ 21.7 million.

At March 31, 2023, the termination value of derivatives with our derivative dealer counterparties (related to loan level swaps with commercial lending customers and an active interest rate swap to hedge risk related to the Company’s variable rate loans) in an overall net asset position, which included accrued interest but excluded any adjustment for nonperformance risk, related to these agreements was $ 183,000 .

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

At September 30, 2022, the Company had given cash collateral to one derivative counterparty of $ 20.8 million to cover its fair value position.

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

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

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

If the Company had breached any of these provisions at September 30, 2022 or December 31, 2021, it could have been required to settle its obligations under the agreements at the termination value.

At March 31, 2023, the Company had given cash collateral to one derivative counterparty of $ 14.6 million to cover its net fair value position.

This counterparty position included collateral from the counterparty of $ 9.0 million for commercial lending swaps, collateral from the counterparty of $ 894,000 for swaps related to brokered deposits and collateral from the Company of $ 23.3 million for interest rate swaps related to variable rate loans.

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

Additionally, the Company’s activity with one of its derivative counterparties met the level at which the minimum collateral posting thresholds take effect (collateral to be given by the Company) and the Company had posted collateral of $ 20.7 million to the derivative counterparty.

If the Company had breached any of these provisions at March 31, 2023 or December 31, 2022, it could have been required to settle its obligations under the agreements at the termination value.

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

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements