What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-08-04 compared with 2023-05-08 · 315 added, 128 removed, 942 unchanged (32% of the section changed)

9 unchanged sentences

Mortgage loans held for sale

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

Loans receivable, net of allowance for credit losses of $ 64,852 – June 2023;

$ 63,480 – December 2022

20 unchanged sentences

authorized 1,000,000 shares;

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

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

Common stock, $ .01 par value;

authorized 20,000,000 shares;

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

issued and outstanding June 2023 – 11,969,524 shares;

December 2022 – 12,231,290 shares

27 unchanged sentences

Net gains on loan sales

Late charges and fees on loans

Gain on derivative interest rate products

TOTAL NON-INTEREST INCOME

NON-INTEREST EXPENSE

Salaries and employee benefits

Net occupancy and equipment expense

Office supplies and printing

Legal, audit and other professional fees

Expense on other real estate and repossessions

Acquired 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)

SIX MONTHS ENDED

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 FOR CREDIT LOSSES ON LOANS

PROVISION (CREDIT) FOR UNFUNDED COMMITMENTS

NET INTEREST INCOME AFTER PROVISION 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

23 unchanged sentences

Unrealized appreciation (depreciation) on available-for-sale securities, net of taxes (credit) of $( 2,165 ) and $( 5,115 ), for 2023 and 2022, respectively

Unrealized loss on securities transferred to held-to-maturity, net of taxes of $( 12 ) and $( 150 ) for 2023 and 2022, respectively

Amortization of realized gain on termination of cash flow hedge, net of taxes (credit) of $( 463 ) and $( 462 ), for 2023 and 2022, respectively

Change in value of active cash flow hedges, net of taxes (credit) of $( 2,072 ) and $( 766 ) for 2023 and 2022, respectively

Comprehensive Income (Loss)

SIX MONTHS ENDED

Unrealized appreciation (depreciation) on available-for-sale securities, net of taxes (credit) of $ 93 and $( 11,082 ), for 2023 and 2022, respectively

Unrealized gain (loss) on securities transferred to held-to-maturity, net of taxes (credit) of $( 17 ) and $ 75 for 2023 and 2022, respectively

8 unchanged sentences

(In Thousands, Except Per Share Data)

THREE MONTHS ENDED MARCH 31, 2022

THREE MONTHS ENDED JUNE 30, 2022

Comprehensive

1 unchanged sentence

Income (Loss)

Balance, March 31, 2022

Stock issued under Stock Option Plan

Common dividends declared, $ 0.40 per share

Change in fair value of cash flow hedges

Change in unrealized loss on held-to-maturity securities

Change in unrealized loss on available-for-sale securities

Purchase of the Company’s common stock

Reclassification of treasury stock per Maryland law

Balance, June 30, 2022

THREE MONTHS ENDED JUNE 30, 2023

Comprehensive

Paid-in Capital

Income (Loss)

Balance, March 1, 2023

Stock issued under Stock Option Plan

Common cash dividends declared, $ 0.40 per share

Change in fair value of cash flow hedges

Change in unrealized gain on held-to-maturity securities

Change in unrealized loss on available-for-sale securities

Purchase of the Company’s common stock

Reclassification of treasury stock per Maryland law

Balance, June 30, 2023

See Notes to Consolidated Financial Statements

GREAT SOUTHERN BANCORP, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In Thousands, Except Per Share Data)

SIX MONTHS ENDED JUNE 30, 2022

Comprehensive

Paid-in Capital

Income (Loss)

Balance, January 1, 2022

6 unchanged sentences

Reclassification of treasury stock per Maryland law

Balance, March 31, 2022

THREE MONTHS ENDED MARCH 31, 2023

Balance, June 30, 2022

SIX MONTHS ENDED JUNE 30, 2023

Comprehensive

9 unchanged sentences

Reclassification of treasury stock per Maryland law

Balance, March 31, 2023

Balance, June 30, 2023

See Notes to Consolidated Financial Statements

3 unchanged sentences

(In Thousands, Except Per Share Data)

THREE MONTHS ENDED

SIX MONTHS ENDED

CASH FLOWS FROM OPERATING ACTIVITIES

7 unchanged sentences

Net (gain) loss on sale of premises and equipment

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

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

Net gain on sale of available-for-sale investments

17 unchanged sentences

Purchase of available-for-sale securities

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

Net cash used in investing activities

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

Net cash provided by (used in) investing activities

CASH FLOWS FROM FINANCING ACTIVITIES

Net increase (decrease) in certificates of deposit

Net increase in checking and savings deposits

Net increase in certificates of deposit

Net increase (decrease) in checking and savings deposits

Net increase (decrease) in short-term borrowings

16 unchanged sentences

Those adjustments consist only of normal recurring adjustments.

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.

Operating results for the three and six months ended June 30, 2023 are not necessarily indicative of the results that may be expected for the full year.

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

42 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 the Company on January 1, 2023.

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

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

1 unchanged sentence

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.

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

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

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

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

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

5 unchanged sentences

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

In March 2023, the FASB issued ASU 2023-02, Investments – Equity Method and Joint Ventures (Topic 323):

Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method .

ASU 2023-02 is intended to improve the accounting and disclosures for investments in tax credit structures.

ASU 2023-02 allows entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related income tax credits.

Previously, this method was only available for qualifying tax equity investments in low-income housing tax credit structures.

The Company is evaluating whether or not to use this method for other tax credit structures in which it invests.

Currently, the Company does not have a material amount of tax credit structures, other than low-income housing tax credit structures.

ASU 2023-02 will be effective for the Company on January 1, 2024, though early adoption is permitted, and its adoption is not expected to have a material impact on the Company’s consolidated financial statements.

EARNINGS PER SHARE

Three Months Ended March 31,

Three Months Ended June 30,

(In Thousands, Except Per Share Data)

5 unchanged sentences

Per common share amount

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.

Six Months Ended June 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

Options outstanding at June 30, 2023 and 2022, to purchase 767,479 and 372,449 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 June 30, 2023 and 2022, respectively.

Options outstanding at June 30, 2023 and 2022, to purchase 675,118 and 372,449 shares of common stock, respectively, were not included in the computation of diluted earnings per common share for each of the six month periods because the exercise prices of such options were greater than the average market prices of the common stock for the six months ended June 30, 2023 and 2022, respectively.

INVESTMENT SECURITIES

10 unchanged sentences

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

March 31, 2023

June 30, 2023

(In Thousands)

4 unchanged sentences

Small Business Administration securities

March 31, 2023

June 30, 2023

(In Thousands)

16 unchanged sentences

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.

The amortized cost and fair value of available-for-sale and held-to-maturity securities at June 30, 2023, by contractual maturity, are shown below.

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

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 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.

Total fair value of these investments at June 30, 2023 and December 31, 2022, was approximately $ 467.5 million and $ 472.0 million, respectively, which is approximately 98.0 % 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.

1 unchanged sentence

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

Held-to-maturity investments in debt securities are reported in the financial statements at their amortized cost at 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 investments in debt securities are reported in the financial statements at their amortized cost at June 30, 2023 and December 31, 2022, which was $ 198.4 million and $ 202.5 million, respectively.

Total fair value of these investments at June 30, 2023 and December 31, 2022 was approximately $ 173.7 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 continually assesses its liquidity sources, both on-balance sheet and off-balance sheet, and believes at June 30, 2023, that it has ample liquidity sources to fund its ongoing operations.

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

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

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

June 30, 2023

Less than 12 Months

25 unchanged sentences

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.

There were no sales of available-for-sale securities during the three or six months ended June 30, 2023.

There were no sales of available-for-sale securities during the three months ended June 30, 2022.

Available-for-sale securities totaling $ 4.9 million were sold during the six months ended June 30, 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.

1 unchanged sentence

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

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

All of the mortgage-backed, collateralized mortgage, and SBA securities held by the Company as of June 30, 2023 were issued by U.S.

government-sponsored entities and agencies.

19 unchanged sentences

The calculated average net charge-off rate is then adjusted for current conditions and reasonable and supportable forecasts.

These adjustments increase or decrease the average historical loss rate to reflect expectations of future losses given economic forecasts of key macroeconomic variables including, but not limited to, unemployment rate, gross domestic product (“GDP”), commercial real estate price index, consumer sentiment and construction spending.

consumer sentiment and construction spending.

The adjustments are based on results from various regression models projecting the impact of the macroeconomic variables to loss rates.

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

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

adjusted for expected prepayments.

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.

ASU 2016-13 requires an allowance for off balance sheet credit exposures:

In addition, ASU 2016-13 requires an allowance for off balance sheet credit exposures:

unfunded lines of credit, undisbursed portions of loans, written residential and commercial commitments, and letters of credit.

3 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 March 31, 2023 and December 31, 2022 were as follows:

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

(In Thousands)

16 unchanged sentences

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

March 31, 2023

June 30, 2023

> 90 Days Past

52 unchanged sentences

Total non-accruing loans

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.

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

Nonaccrual loans for which there is no related allowance for credit losses as of June 30, 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.

1 unchanged sentence

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

The following table presents the activity in the allowance for credit losses by portfolio segment for the three and six months ended June 30, 2023 and 2022.

During the three months ended June 30, 2023, the Company did no t record a provision expense on its portfolio of outstanding loans.

During the six months ended June 30, 2023, the Company recorded provision expense of $ 1.5 million on its portfolio of outstanding loans.

During the three and six months ended June 30, 2022, the Company did no t record a provision expense on its portfolio of outstanding loans.

One- to Four-

2 unchanged sentences

Allowance for credit losses

Balance, January 1, 2022

Balance, March 31, 2022

Provision (credit) charged to expense

Losses charged off

Balance, June 30, 2022

Allowance for credit losses

Balance, March 31, 2023

Provision (credit) charged to expense

Losses charged off

Balance, June 30, 2023

One- to Four-

Residential and

(In Thousands)

Allowance for credit losses

2 unchanged sentences

Losses charged off

Balance, June 30, 2022

Allowance for credit losses

Balance, January 1, 2023

Provision (credit) charged to expense

Losses charged off

Balance, June 30, 2023

The following table presents the activity in the allowance for unfunded commitments by portfolio segment for the three and six months ended June 30, 2023 and 2022.

The provision for losses on unfunded commitments for the three months ended June 30, 2023 was a credit (negative expense) of $ 1.6 million, compared to a provision expense of $ 2.2 million for the three months ended June 30, 2022.

The provision for losses on unfunded commitments for the six months ended June 30, 2023 was a credit (negative expense) of $ 2.4 million, compared to a provision expense of $ 2.0 million for the six months ended June 30, 2022.

The analysis of the level and mix of unfunded commitments resulted in a decrease in the required reserve for such potential losses in the three and six month periods of 2023 presented below.

One- to Four-

Residential and

(In Thousands)

Allowance for unfunded commitments

Balance, March 31, 2022

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

Provision (credit) charged to expense

Balance, June 30, 2022

Allowance for unfunded commitments

Balance, March 31, 2023

Provision (credit) charged to expense

Balance, June 30, 2023

One- to Four-

4 unchanged sentences

Provision (credit) charged to expense

Balance, March 31, 2022

Balance, June 30, 2022

Allowance for unfunded commitments

1 unchanged sentence

Provision (credit) charged to expense

Balance, March 31, 2023

Balance, June 30, 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:

March 31, 2023

June 30, 2023

December 31, 2022

13 unchanged sentences

Home equity lines of credit

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

Modified Loans.

As indicated in Note 3 , in March 2022, the FASB issued ASU 2022-02, Financial Instruments – Credit Losses (Topic 326):

Troubled Debt Restructurings and Vintage Disclosures .

1 unchanged sentence

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.

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

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

The Corporation has adopted this update prospectively.

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

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

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

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

The 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

The estimate of lifetime expected losses utilized in the allowance for credit losses model is developed using average historical loss on loans with similar risk characteristics, which includes losses from modifications of loans to borrowers experiencing financial difficulty.

As a result, a change to the allowance for credit losses is generally not recorded upon modification.

For modifications to loans made to borrowers experiencing financial difficulty that are adversely classified, the Company determines the allowance for credit losses on an individual basis, using the same process that it utilizes for other adversely classified loans.

If collection efforts have begun and the modified loan is subsequently deemed collateral-dependent, the loan is placed on non-accrual status and the allowance for credit losses is determined based on an individual evaluation.

If necessary, the loan is charged down to fair market value less sales costs.

Each of the types of concessions granted comprised 2 % or less of their respective classes of loan portfolios at June 30, 2023.

During the three and six months ended June 30, 2023, principal forgiveness of $ 6,000 and $ 39,000 , respectively, was completed on consumer loans.

A commercial real estate loan modified in the three months ended March 31, 2023, which totaled $ 21.6 million, was paid in full during the three months ended June 30, 2023.

Three Months Ended June 30, 2023

Interest Rate

Modifications

(In Thousands)

4 unchanged sentences

Commercial business

Six Months Ended June 30, 2023

Interest Rate

Modifications

(In Thousands)

Construction and land development

One- to four-family residential

Other residential

Commercial real estate

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

The following table depicts the performance (under modified terms) at June 30, 2023 of loans that were modified during the six months ended June 30, 2023:

June 30, 2023

(In Thousands)

15 unchanged sentences

Commercial business

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

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

Three Months Ended June 30, 2022

Interest Only

Modifications

(In Thousands)

Commercial real estate

Six Months Ended June 30, 2022

Interest Only

Modifications

(In Thousands)

Commercial real estate

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 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.

During the three and six months ended June 30, 2022, $ 290,000 and $ 511,000 of loans, respectively, met the criteria for placement back on accrual status.

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

Loan Risk Ratings .

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

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

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

expectation of debt repayment.

The analysis of the borrower’s ability to repay considers specific information, including but not limited to current financial information, historical payment experience, industry information, collateral levels and collateral types.

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

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

Term Loans by Origination Year

95 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 March 31, 2023 and December 31, 2022.

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

(In Thousands)

March 31, 2023

June 30, 2023

Carrying value of loans receivable

16 unchanged sentences

Other real estate owned and repossessions

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.

At June 30, 2023, there was no other real estate owned not acquired through foreclosure, as two properties were sold during the six months ended June 30, 2023.

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

At June 30, 2023 and December 31, 2022, residential mortgage loans totaling $ 190,000 and $ 173,000 , respectively, were in the process of foreclosure.

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

4 unchanged sentences

Operating expenses, net of rental income

Six Months Ended

(In Thousands)

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

Valuation write-downs

Operating expenses, net of rental income

PREMISES AND EQUIPMENT

7 unchanged sentences

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.

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 June 30, 2023, the lease right of use asset value was $ 7.2 million and the corresponding lease liability was $ 7.4 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 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.

At June 30, 2023, expected lease terms ranged from 0.8 years to 15.4 years with a weighted-average lease term of 7.2 years.

The weighted-average discount rate at June 30, 2023 was 3.75 %.

For the three months ended June 30, 2023 and 2022, lease expense was $ 433,000 and $ 389,000 , respectively.

For the six months ended June 30, 2023 and 2022, lease expense was $ 843,000 and $ 758,000 , respectively.

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

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

The variable portion of these lease payments is not material and the total lease expense related to ATMs for the three months ended June 30, 2023 and 2022 was $ 78,000 and $ 80,000 , respectively.

The total lease expense related to ATMs for the six months ended June 30, 2023 and 2022 was $ 150,000 and $ 149,000 , 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 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

In the three months ended June 30, 2023 and 2022, income recognized from these lease agreements was $ 325,000 and $ 296,000 , respectively, and was

included in occupancy and equipment expense.

In the six months ended June 30, 2023 and 2022, income recognized from these lease agreements was $ 649,000 and $ 590,000 , respectively, and was included in occupancy and equipment expense.

June 30, 2023

December 31, 2022

4 unchanged sentences

For the Three Months Ended

March 31, 2023

March 31, 2022

June 30, 2023

June 30, 2022

(In Thousands)

6 unchanged sentences

Operating leases

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

For the Six Months Ended

June 30, 2023

June 30, 2022

(In Thousands)

Statement of Income

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

Supplemental Cash Flow Information

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

Operating cash flows from operating leases

Right of use assets obtained in exchange for lease obligations:

Operating leases

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

Future lease payments expected

15 unchanged sentences

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.

The aggregate amount of brokered deposits was approximately $ 669.7 million and $ 411.5 million at June 30, 2023 and December 31, 2022, respectively.

At June 30, 2023 and December 31, 2022, brokered deposits included $ 300.0 million and $ 150.0 million, respectively, of purchased funds through the IntraFi Financial network.

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

At 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.

At June 30, 2023, there were additional brokered deposits totaling $ 133.8 million that had variable rates of interest that reset monthly or quarterly and there were other brokered deposits totaling $ 185.5 million that had fixed rates of interest but are callable at the Bank’s discretion.

At June 30, 2023, approximately 28 % of the Company’s total deposits were uninsured, when including deposit accounts of consolidated subsidiaries of the Company and collateralized deposits of unaffiliated entities.

Excluding deposit accounts of the Company’s consolidated subsidiaries, approximately 15 % of the Company’s total deposits were uninsured at June 30, 2023.

ADVANCES FROM FEDERAL HOME LOAN BANK

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 .

At June 30, 2023 and December 31, 2022, there were no outstanding term advances from the Federal Home Loan Bank of Des Moines.

At June 30, 2023 and December 31, 2022, there were outstanding overnight borrowings from the Federal Home Loan Bank of Des Moines, which are included in Short-Term Borrowings below in Note 12 .

SECURITIES SOLD UNDER REVERSE REPURCHASE AGREEMENTS AND SHORT-TERM BORROWINGS

9 unchanged sentences

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

March 31, 2023

June 30, 2023

December 31, 2022

9 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 March 31, 2023 and 2022, totaled $ 75,000 and $ 74,000 , respectively.

Amortization of the debt issuance costs during the three months ended June 30, 2023 and 2022, totaled $ 75,000 and $ 75,000 , respectively.

Amortization of the debt issuance costs during the six months ended June 30, 2023 and 2022, totaled $ 149,000 and $ 149,000 , 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 5.94 %.

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

March 31, 2023

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

June 30, 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 March 31,

Three Months Ended June 30,

Tax at statutory rate

Nontaxable interest and dividends

Six Months Ended June 30,

Tax at statutory rate

Nontaxable interest and dividends

The Company and its consolidated subsidiaries have not been audited recently by the Internal Revenue Service (IRS).

22 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 March 31, 2023 and December 31, 2022:

Fair value measurements using

2 unchanged sentences

(In Thousands)

March 31, 2023

June 30, 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 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.

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 June 30, 2023 and December 31, 2022 as well as the general classification of such assets pursuant to the valuation hierarchy.

There were no significant changes in the valuation techniques during the six-month period ended June 30, 2023.

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

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 March 31, 2023 or December 31, 2022.

There were no recurring Level 3 securities at June 30, 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 fell at March 31, 2023 and December 31, 2022:

Fair Value Measurements Using

2 unchanged sentences

(In Thousands)

March 31, 2023

June 30, 2023

Collateral-dependent loans

Foreclosed assets held for sale

December 31, 2022

Collateral-dependent loans

Foreclosed assets held for sale

The following is a description of valuation methodologies used for assets measured at fair value on a nonrecurring basis and recognized in the accompanying statements of financial condition, as well as the general classification of such assets pursuant to the valuation hierarchy.

6 unchanged sentences

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

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.

At June 30, 2023 and December 31, 2022, the aggregate fair value of mortgage loans held for sale was not materially different than their cost.

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

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 three months ended March 31, 2023 or the year ended December 31, 2022, are shown in the table above (net of reserves).

Loans for which such charge-offs or reserves were recorded during the six-months ended June 30, 2023 or the year ended December 31, 2022, are shown in the table above (net of reserves).

Foreclosed Assets Held for Sale.

Foreclosed assets held for sale are initially recorded at fair value less estimated cost to sell at the date of foreclosure.

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

Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the

lower of carrying amount or fair value less estimated cost to sell.

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

The foreclosed assets represented in the table above have been re-measured during the 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

27 unchanged sentences

The following table presents estimated fair values of the Company’s financial instruments not recorded at fair value on the statements of financial condition.

The fair values of certain of these instruments were calculated by discounting expected cash flows, which method involves significant judgments by management and uncertainties.

The fair values of certain of these instruments were calculated by discounting expected cash flows, which involves significant judgments by management and uncertainties.

Fair value is the estimated amount at which financial assets or liabilities could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.

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

March 31, 2023

June 30, 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.

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.

At June 30, 2023, the Company had seven interest rate swaps and one interest rate cap totaling $ 110.5 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 $ 8.7 million, in which the lead institution has an interest rate swap with its customer and the economics of the counterparty swap are passed along to the Company through the loan participation.

1 unchanged sentence

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.

During the three months ended June 30, 2023 and 2022, the Company recognized net gains of $ 2,000 and $ 145,000 , respectively, in non-interest income related to changes in the fair value of these swaps.

During the six months ended June 30, 2023 and 2022, the Company recognized net losses of $ 289,000 and net gains of $ 297,000 , respectively, in non-interest income related to changes in the fair value of these swaps.

Fair Value Hedges

18 unchanged sentences

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

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.

At June 30, 2023, the Company expected to have a sufficient amount of eligible variable rate loans to continue to accrete this interest income on the terminated swap in future periods.

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

3 unchanged sentences

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.

The floating rate of interest was 5.193 % as of June 30, 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.

Under the terms of one swap, beginning in May 2023, the Company will receive a fixed rate of interest of 2.628 % and will pay a floating rate of interest equal to one-month USD-SOFR OIS.

Under the terms of the other swap, beginning in May 2023, the Company will receive a fixed rate of interest of 5.725 % and will pay a floating rate of interest equal to one-month USD-Prime.

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

Under the terms of one swap, beginning in May 2023, the Company receives a fixed rate of interest of 2.628 % and pays a floating rate of interest equal to one-month USD-SOFR OIS.

Under the terms of the other swap, beginning in May 2023, the Company receives a fixed rate of interest of 5.725 % and pays a floating rate of interest equal to one-month USD-Prime.

In each case, the floating rate is reset monthly and net settlements of interest due to/from the counterparty also occur monthly.

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

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.

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.

At June 30, 2023, the USD-Prime rate was 8.25 % and the one-month USD-SOFR OIS rate was 5.06528 %.

The Company recorded loan interest income of $ 2.0 million on the terminated interest rate swap during each of the three months ended June 30, 2023 and 2022.

The Company recorded loan interest income of $ 4.0 million on the terminated interest rate swap during each of the six months ended June 30, 2023 and 2022.

The Company recorded negative loan interest income related to the March 2022 interest rate swap of $ 2.6 million in the three months ended June 30, 2023 and recorded loan interest income of $ 668,000 in the three months ended June 30, 2022.

The Company recorded negative loan interest income related to the March 2022 interest rate swap of $ 4.7 million in the six months ended June 30, 2023 and recorded loan interest income of $ 1.0 million in the six months ended June 30, 2022.

The Company recorded negative loan interest income related to the two July 2022 interest rate swaps of $ 1.7 million in the three and six months ended June 30, 2023.

Net settlements on these two interest rate swaps began in May 2023.

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

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

During each of the three-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.

During each of the three and six months ended June 30, 2023 and 2022, the Company recognized no non-interest income related to changes in the fair value of these derivatives.

The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the Consolidated Statements of Financial Condition:

3 unchanged sentences

Derivatives designated as hedging instruments

Active interest rate swap

Active interest rate swaps

Accrued expenses and other liabilities

12 unchanged sentences

Recognized in AOCI

Three Months Ended March 31,

Three Months Ended June 30,

Cash Flow Hedges

2 unchanged sentences

Active interest rate swaps, net of income taxes

Amount of Gain (Loss)

Recognized in AOCI

Six Months Ended June 30,

Cash Flow Hedges

(In Thousands)

Terminated interest rate swap, net of income taxes

Active interest rate swaps, net of income taxes

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

Three Months Ended March 31,

Three Months Ended June 30,

Cash Flow Hedges

4 unchanged sentences

Active interest rate swaps

Six Months Ended June 30,

Cash Flow Hedges

(In Thousands)

Total Interest Income

Total Interest Expense

Terminated interest rate swap

Active interest rate swaps

Agreements with Derivative Counterparties

3 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 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 .

At June 30, 2023, the termination value of derivatives with our derivative dealer counterparties (related to loan level swaps with commercial lending customers and an active interest rate swap to hedge risk related to the Company’s variable rate loans) in an overall

net asset position, which included accrued interest but excluded any adjustment for nonperformance risk, related to these agreements was $ 185,000 .

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

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 June 30, 2023, the Company had given cash collateral to one derivative counterparty of $ 23.1 million to cover its net fair value position.

This counterparty position included collateral from the counterparty of $ 10.3 million for commercial lending swaps, collateral from the Company of $ 32.7 million for interest rate swaps related to variable rate loans and collateral from the Company of $ 519,000 for swaps related to brokered deposits.

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

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

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

If the Company had breached any of these provisions at June 30, 2023 or December 31, 2022, it could have been required to settle its obligations under the agreements at the termination value.

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

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