GREAT SOUTHERN BANCORP, INC. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward-looking Statements When used in this Quarterly Report and in other documents filed or furnished by Great Southern Bancorp, Inc. (the “Company”) with the Securities and Exchange Commission (the “SEC”), in the Company’s press releases or other public or stockholder communications, and in oral statements made with the approval of an authorized executive officer, the words or phrases “may,” “might,” “could,” “should,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “believe,” “estimate,” “project,” “intends” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements also include, but are not limited to, statements regarding plans, objectives, expectations or consequences of announced transactions, known trends and statements about future performance, operations, products and services of the Company. The Company’s ability to predict results or the actual effects of future plans or strategies is inherently uncertain, and the Company’s actual results could differ materially from those contained in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to: (i) expected revenues, cost savings, earnings accretion, synergies and other benefits from the Company’s merger and acquisition activities might not be realized within the anticipated time frames or at all, and costs or difficulties relating to integration matters, including but not limited to customer and employee retention, might be greater than expected; (ii) changes in economic conditions, either nationally or in the Company’s market areas; (iii) the remaining effects of the COVID-19 pandemic on general economic and financial market conditions and on public health; (iv) fluctuations in interest rates, the effects of inflation or a potential recession, whether caused by Federal Reserve actions or otherwise; (v) the impact of bank failures or adverse developments at other banks and related negative press about the banking industry in general on investor and depositor sentiment; (vi) slower economic growth caused by changes in energy prices, supply chain disruptions or other factors; (vii) the risks of lending and investing activities, including changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for credit losses; (viii) the possibility of realized or unrealized losses on securities held in the Company’s investment portfolio; (ix) the Company’s ability to access cost-effective funding and maintain sufficient liquidity; (x) fluctuations in real estate values and both residential and commercial real estate market conditions; (xi) the ability to adapt successfully to technological changes to meet customers’ needs and developments in the marketplace; (xii) the possibility that security measures implemented might not be sufficient to mitigate the risk of a cyber-attack or cyber theft, and that such security measures might not protect against systems failures or interruptions; (xiii) legislative or regulatory changes that adversely affect the Company’s business; (xiv) changes in accounting policies and practices or accounting standards; (xv) results of examinations of the Company and Great Southern Bank by their regulators, including the possibility that the regulators may, among other things, require the Company to limit its business activities, change its business mix, increase its allowance for credit losses, write-down assets or increase its capital levels, or affect its ability to borrow funds or maintain or increase deposits, which could adversely affect its liquidity and earnings; (xvi) costs and effects of litigation, including settlements and judgments; (xvii) competition; (xviii) the transition from LIBOR to new interest rate benchmarks; and (xix) natural disasters, war, terrorist activities or civil unrest and their effects on economic and business environments in which the Company operates. The Company wishes to advise readers that the factors listed above and other risks described in the Company’s most recent Annual Report on Form 10-K, including, without limitation, those described under “Item 1A. Risk Factors,” subsequent Quarterly Reports on Form 10-Q and other documents filed or furnished from time to time by the Company with the SEC (which are available on our website at www.greatsouthernbank.com and the SEC’s website at www.sec.gov), could affect the Company’s financial performance and cause the Company’s actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements. The Company does not undertake-and specifically declines any obligation- to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. 37 ​ Critical Accounting Policies, Judgments and Estimates The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America and general practices within the financial services industry. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates. Allowance for Credit Losses and Valuation of Foreclosed Assets On January 1, 2021, the Company adopted the new accounting standard related to the allowance for credit losses. This standard eliminates the probable initial recognition threshold in GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. See Note 6 of the accompanying financial statements for additional information. The Company believes that the determination of the allowance for credit losses involves a higher degree of judgment and complexity than its other significant accounting policies. The allowance for credit losses is calculated with the objective of maintaining an allowance level believed by management to be sufficient to absorb estimated 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. The allowance for credit losses is measured on a collective (pool) basis. 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 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. Lookback periods can be different based on the individual pool and represent management’s credit expectations for the pool of loans over the remaining contractual life. In certain loan pools, if the Company’s own historical loss rate is not reflective of the loss expectations, the historical loss rate is augmented by industry and peer data. 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, GDP, disposable income and market volatility. 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 back to historical averages using a straight-line method. The forecast-adjusted loss rate is applied to the principal balance 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. See Note 6 “Loans and Allowance for Credit Losses” of the accompanying financial statements for additional information regarding the allowance for credit losses. Inherent in this process is the evaluation of individual significant credit relationships. From time to time certain credit relationships may deteriorate due to payment performance, cash flow of the borrower, value of collateral, or other factors. In these instances, management may revise its loss estimates and assumptions for these specific credits due to changing circumstances. In some cases, additional losses may be realized; in other instances, the factors that led to the deterioration may improve or the credit may be refinanced elsewhere and allocated allowances may be released from the particular credit. In addition, the Company considers that the determination of the valuations of foreclosed assets held for sale involves a high degree of judgment and complexity. The carrying value of foreclosed assets reflects management’s best estimate of the amount to be realized from the sales of the assets. While the estimate is generally based on a valuation by an independent appraiser or recent sales of similar properties, the amount that the Company realizes from the sales of the assets could differ materially from the carrying value reflected in the financial statements, resulting in losses that could adversely impact earnings in future periods. 38 ​ Goodwill and Intangible Assets Goodwill and intangible assets that have indefinite useful lives are subject to an impairment test at least annually and more frequently if circumstances indicate their value may not be recoverable. Goodwill is tested for impairment using a process that estimates the fair value of each of the Company’s reporting units compared with its carrying value. The Company defines reporting units as a level below each of its operating segments for which there is discrete financial information that is regularly reviewed. As of September 30, 2023, the Company had one reporting unit to which goodwill has been allocated – the Bank. If the fair value of a reporting unit exceeds its carrying value, then no impairment is recorded. If the carrying value exceeds the fair value of a reporting unit, further testing is completed comparing the implied fair value of the reporting unit’s goodwill to its carrying value to measure the amount of impairment, if any. Intangible assets that are not amortized will be tested for impairment at least annually by comparing the fair values of those assets to their carrying values. At September 30, 2023, goodwill consisted of $5.4 million at the Bank reporting unit, which included goodwill of $4.2 million that was recorded during 2016 related to the acquisition of 12 branches and the assumption of related deposits in the St. Louis market from Fifth Third Bank. Other identifiable deposit intangible assets that are subject to amortization are amortized on a straight-line basis over a period of seven years. In April 2022, the Company, through its subsidiary Great Southern Bank, entered into a naming rights agreement with Missouri State University related to the main arena on the university’s campus in Springfield, Missouri. The terms of the agreement provide the naming rights to Great Southern Bank for a total cost of $5.5 million, to be paid over a period of seven years. The Company expects to amortize the intangible asset through non-interest expense over a period not to exceed 15 years. At September 30, 2023, the amortizable intangible assets included the arena naming rights of $5.2 million, which are reflected in the table below. These amortizable intangible assets are reviewed for impairment if circumstances indicate their value may not be recoverable based on a comparison of fair value. For purposes of testing goodwill for impairment, the Company uses a market approach to value its reporting unit. The market approach applies a market multiple, based on observed purchase transactions for each reporting unit, to the metrics appropriate for the valuation of the operating unit. Significant judgment is applied when goodwill is assessed for impairment. This judgment may include developing cash flow projections, selecting appropriate discount rates, identifying relevant market comparables and incorporating general economic and market conditions. Our regular annual impairment assessment occurs in the third quarter of each year. At September 30, 2023, the Company performed this annual review and concluded that no impairment of its goodwill or other intangible assets had occurred at September 30, 2023. While the Company believes no impairment of its goodwill or other intangible assets existed at September 30, 2023, different conditions or assumptions used to measure fair value of reporting units, or changes in cash flows or profitability, if significantly negative or unfavorable, could have a material adverse effect on the outcome of the Company’s impairment evaluation in the future. A summary of goodwill and intangible assets is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ December 31, ​ ​ 2023 ​ 2022 ​ ​ (In Thousands) Goodwill – Branch acquisitions $ 5,396 $ 5,396 Deposit intangibles ​ ​ Fifth Third Bank (January 2016) ​ — ​ 53 Arena Naming Rights (April 2022) ​ 5,189 ​ 5,364 Intangibles ​ ​ 5,189 ​ ​ 5,417 ​ ​ $ 10,585 ​ $ 10,813 ​ Current Economic Conditions Changes in economic conditions could cause the values of assets and liabilities recorded in the Company’s financial statements to change rapidly, resulting in material future adjustments to asset values, the allowance for credit losses, or capital that could negatively affect the Company’s ability to meet regulatory capital requirements and maintain sufficient liquidity. Following the housing and mortgage crisis and correction beginning in mid-2007, the United States entered an economic downturn. Unemployment rose from 4.7% in November 2007 to peak at 10.0% in October 2009. Economic conditions improved in the subsequent years, as indicated by higher consumer confidence levels, increased economic activity and low unemployment levels. The U.S. economy continued to operate at historically strong levels until the COVID-19 pandemic in March 2020, which severely affected tourism, labor markets, business travel, immigration and the global supply chain, among other areas. The economy plunged into recession in the first quarter 39 ​ of 2020, as efforts to contain the spread of the coronavirus forced all but essential business activity, or any work that could not be done from home, to stop, shuttering factories, restaurants, entertainment, sporting events, retail shops, personal services, and more. The pandemic is now less disruptive to the U.S. and global economies, with governments, households and businesses becoming increasingly adept at making adjustments for the virus. More than 22 million jobs were lost in March and April 2020 as businesses closed their doors or reduced their operations, sending employees home on furlough or layoffs. Hunkered down at home with uncertain incomes and limited buying opportunities, consumer spending plummeted. As a result, gross domestic product (GDP), the broadest measure of the nation’s economic output, plunged. The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), a fiscal relief bill passed by Congress and signed by the President in March 2020, injected approximately $3 trillion into the economy through direct payments to individuals and loans to small businesses intended to help keep employees on their payroll, fueling a historic bounce-back in economic activity. Total fiscal support to the economy throughout the pandemic, including the CARES Act, the American Rescue Plan of March 2021, and several smaller fiscal packages, totaled well over $5 trillion. The amount of this support was equal to almost 25% of pre-pandemic 2019 GDP and approximately three times that provided during the global financial crisis of 2007-2008. Additionally, the Federal Reserve acted decisively by slashing its benchmark interest rate to near zero and ensuring credit availability to businesses, households, and municipal governments. The Federal Reserve’s efforts largely insulated the financial system from the problems in the economy, a significant difference from the financial crisis of 2007-2008. Purchases of Treasury and agency mortgage-backed securities totaling $120 billion each month by the Federal Reserve commenced shortly after the pandemic began. In November 2021, the Federal Reserve began to taper its quantitative easing (QE), winding down its bond purchases with its final open market purchase conducted on March 9, 2022. The federal government deficit was $2.8 trillion in fiscal 2021, close to $1.38 trillion in fiscal 2022, and is expected to increase slightly to $1.4 trillion in fiscal 2023. The Federal Reserve has been aggressively raising interest rates since early 2022, pushing the federal funds rate to more than 5.25%, its highest level in 22 years. The Fed's actions were motivated by surging inflation in 2021 caused by pandemic-fueled spending, which outpaced the ability of producers to supply goods and services after having been impacted by COVID-related shutdowns and clogged transportation systems. The Fed has made some headway in its attempt to tamp inflation down. The personal consumption expenditures (PCE) price index, the Federal Reserve's preferred measure of inflation, eased from its peak of 7.1% in June 2022 to 3.5% in August 2023, but core PCE, which excludes food and energy prices, has been slower to retreat and still sits at 3.9%, almost twice the Federal Reserve's target. Overall, the U.S. economy strengthened in the third quarter of 2023, with estimates of real GDP growth ranging from 3% to close to 5% (on a seasonally adjusted annual rate). Economists have pushed back expectations of a mild recession but expect GDP growth to slow later this year or early next year, as consumers and businesses slow purchases and investments in the face of higher borrowing costs brought about by the Fed's rate hiking program. On an average annual basis, Moody’s projects growth to be 2.1% in 2023 and 1.3% in 2024 with growth returning to trend in 2025. Recent data confirms a slowdown in some activity. Manufacturers report new orders for their products have fallen and the housing market has seen sales plummet over the past year as higher borrowing costs and still elevated prices erode affordability. The services sector, with increased demand for travel, entertainment, and dining out has been persistently solid, however, recent revisions to economic data show that households have been spending at a slower pace than previously reported. Additionally, real disposable income has slowed meaningfully during the past two months. These trends are expected to continue, slowing the economy in coming months. Employment The national unemployment rate remained unchanged for the month at 3.8% as of September 2023, ranging from 3.4% to 3.8% since March 2022. The number of unemployed individuals also increase slightly to 6.4 million as of September 2023, compared to 6.0 million in June 2023, with total employment increasing by 336,000 in September 2023, compared with the average monthly gain of 267,000 over the prior 12 months. In September 2023, employment gains occurred in leisure and hospitality; government; health care; professional, scientific, technical services; and social assistance. While the labor market remains strong, there are signs of softening. Wage growth has been moderating and, while layoffs are not rising yet, departure rates are down to pre-pandemic levels. Employers are cutting back on hours and are hiring fewer temporary workers, possibly an early sign that demand for labor is pulling back. As of September 2023, the labor force participation rate (the share of working-age Americans employed or actively looking for a job) remained stable at 62.8%. Based on September 2023 information, the unemployment rate for the Midwest, where the Company conducts most of its business, has decreased from 3.6% in September 2022 to 3.4% in September 2023. Unemployment rates for 40 ​ September 2023 in the states where the Company has branches or loan production offices were: Arizona at 4.0%, Arkansas at 2.9%, Colorado at 3.2%, Georgia at 3.4%, Illinois at 4.4%, Iowa at 3.0%, Kansas at 2.8%, Minnesota at 3.1%, Missouri at 2.9%, Nebraska at 2.1%, North Carolina at 3.4%, Oklahoma at 3.0%, and Texas at 4.1%. Of the metropolitan areas in which the Company does business, most are below the national unemployment rate of 3.8% for September 2023. Single Family Housing Existing home sales slipped to a seasonally adjusted annual rate of 3.96 million in September 2023, down 2% from 4 million in August 2023 and down 15.4% from 4.68 million in September 2022. In the Midwest, existing-home sales declined by 4.1% from the previous month to an annual rate of 930,000 in September 2023, and down 18.4% from one year ago. The median existing-home sales price nationally as of September 2023 was $394,300, up 2.8% from the September 2022 median of $383,500. All four U.S. regions posted price increases with the median price in the Midwest recorded at $293,300, up 4.7% from September 2022. For the third consecutive month, home prices are up from a year ago, confirming the pressing need for more housing supply. The inventory of unsold existing homes climbed 2.7% from the prior month to 1.13 million at the end of September 2023 but down 8.1% from one year ago of 1.23 million. Unsold inventory sits at a 3.4-month supply at the current sales pace, up from 3.3 months in August 2023 and 3.2 months in September 2022. A 5 to 6 month supply is typically required for a more balanced market. Nationally, properties on average remained on the market for 21 days in September 2023, up from 20 days in August 2023 and 19 days in September 2022. Sixty-nine percent of homes sold in September were on the market for less than a month. New home construction dropped precipitously after the financial crisis of 2007-2008 and has yet to fully recover. Issues contributing to the country’s current housing shortage include increasing labor and materials costs, availability of building materials, increased interest rates and tighter lending underwriting standards. Sales of new single‐family houses in September 2023 were at a seasonally adjusted annual rate of 759,000, according to the U.S. Census Bureau and the Department of Housing and Urban Development. This is 12.3% above the revised August 2023 rate of 676,000 and 33.9% above the September 2022 estimate of 567,000. The median sales price of new houses sold in September 2023 was $418,800, down from $477,700 in September 2022. The average sales price in September 2023 of $503,900 was down from $530,100 in September 2022. The seasonally‐ adjusted estimate of new houses for sale at the end of September 2023 was 435,000. This represents a supply of 6.9 months at the current sales rate. First-time buyers accounted for 27% of sales in September 2023, down from 29% in August 2023 and September 2022. According to Freddie Mac, the average commitment rate for a 30-year, fixed-rate mortgage was 7.57% as of October 12, 2023 which is up from 7.49% the previous week and 6.92% one year ago. Other Residential (Multi-Family) Housing and Commercial Real Estate When demand in the multi-family market spiked in the first year of the pandemic, developers accelerated plans for new projects. Three years later, a good number of those developments are set to deliver this year. The national forecast sits at 554,000 new units to be delivered in 2023, the most new supply to hit the market since the mid-1980s. In addition, 15 markets are projected to hit new record deliveries in 2023 and Sun Belt locations make up 12 of those markets. These record deliveries are hitting at a time when demand remains weak, putting several of these 15 markets at significant risk of worsening fundamentals by the end of the year. The supply/demand imbalance has pushed the national vacancy rate up 200 basis points from an all-time low of 4.7% in the third quarter of 2021 to 7.1% in the third quarter of 2023. The national vacancy rate is forecasted to finish 2023 in the mid 7% range, which would be 100 basis points higher than pre-pandemic levels. Our market areas reflected the following apartment vacancy levels as of September 2023: Springfield, Missouri at 4.4%, St. Louis at 10.0%, Kansas City at 7.6%, Minneapolis at 7.1%, Tulsa, Oklahoma at 8.4%, Dallas-Fort Worth at 9.4%, Chicago at 5.5%, Atlanta at 11.4%, Phoenix at 10.2%, Denver at 8.1% and Charlotte, North Carolina at 10.6%. More than 1 million units were under construction at the end of the third quarter of 2023, with almost 450,000 units expected to deliver in 2024. However, the rising interest rate environment combined with a pullback in construction lending has seen some 41 ​ developers unable to move forward on proposed projects, suggesting the beginning of a meaningful pause in deliveries towards the end of 2024 and into 2025. This pause could allow many overbuilt markets to absorb their current supply overhang and return to equilibrium more quickly. The Midwest region now leads the nation in terms of rent growth and is projected to hold that lead throughout 2023. Midwest markets have avoided the sharp reversal of rent growth seen in Sun Belt locations as their construction pipelines remained modest during the pandemic. Deliveries in the Midwest in 2022 were only 5,500 units higher than what was delivered in 2019. That limited increase in new supply for the Midwest allowed those markets to be better balanced and avoid the dramatic surge and now pullback in rent growth as was experienced in Sun Belt locations. Economic uncertainty continues to hold back household formation, which is dampening middle market demand. Conversion of office buildings to multi-family units has been a trending topic in commercial real estate circles as hybrid work arrangements have diminished office utilization. However, the number of conversion projects that are actually moving forward at this time remains very low. Although factors such as declining household formations, rising supply deliveries, and weakening demand may present temporary obstacles, the long-term issue of a major housing shortage remains in our nation. Thus, rent growth is anticipated to rebound above historical averages, and multi-family should maintain its place as investors’ choice. The Office sector remains weak in 2023 with office vacancy rates continuing their climb to a record 13.4% nationally, compared to 12.5% at September 30, 2022, while our market areas reflected the following vacancy levels at September 30, 2023: Springfield, Missouri at 4.1%, St. Louis at 10.5%, Kansas City at 11.8%, Minneapolis at 11.2%, Tulsa, Oklahoma at 11.0%, Dallas-Fort Worth at 17.8%, Chicago at 16.2%, Atlanta at 15%, Denver at 16.1%, Phoenix at 15.9% and Charlotte, North Carolina at 12.8%. So far in 2023, tenants have vacated nearly 60 million square feet (SF), putting 2023 on pace for the largest amount of negative net absorption on record. Total occupancy is now at its lowest level since the first quarter of 2017, despite office-using employment being over 11% higher. To add to this, the quantity of space that is formally occupied but nevertheless available for lease has risen by more than 40 million SF since mid-2020. Recent market trends suggest that stagnant demand is likely to linger and that space-per-worker requirements could shrink even further. Leasing data for the most recent four quarters shows the volume of new leasing activity to be 15-20% below pre-pandemic norms, with the average size of a new lease shrinking by a similar amount. Two factors contributing to this trend are large tenants moving into smaller spaces when their existing leases expire and smaller tenants choosing to relocate rather than renew, pushing the market toward projects with smaller lease space requirements. Through the first three quarters of 2023, about 30 million SF in net new office inventory has come online, further exacerbating vacancy. Another 20 million SF is expected before the end of 2023, though construction delays associated with rising costs have already pushed a number of projects into 2024. The total of just over 50 million SF would be in line with net annual deliveries since 2015. Another 45 million SF is expected in 2024, most of it in the first half of the year. By 2025, however, supply pressure should moderate quickly. Construction starts have been modest throughout the pandemic era and are now slowing rapidly, due in part to a difficult lending environment. Despite growing concerns surrounding rising costs and a potential recession, resilient demand from a diverse array of sectors, coupled with a below-average pace of store closures, resulted in another period of positive expansion for the U.S. retail sector in the third quarter 2023. Although a pullback in leasing activity has occurred, a significant slowdown in move-outs has contributed to consistent demand growth across the U.S. retail sector, which has now recorded 11 consecutive quarters of positive net absorption. Approximately 53.9 million square feet of retail space has been absorbed across the U.S. over the past year, about 90% of which has flowed into the general retail or neighborhood center segments. Availabilities are now at record-low levels within small to mid-sized centers and freestanding single-tenant properties. On the other hand, availabilities within the mall segment (which consists of regional and super-regional malls as well as lifestyle centers) have continued to increase since the pandemic. However, there is significant variation in performance across the mall segment, with 4 & 5 Star malls and lifestyle centers seeing fundamentals improve over the past year, while malls rated 3 Star and below continue to see vacancies rise. This difference is likely to persist, as numerous mall-based retailers such as Bath and Body Works, Victoria's Secret, and Macy's have announced plans to move more stores out of malls and into open-air neighborhood and community centers with stronger foot traffic. 42 ​ Despite longstanding concerns of a softening economy and eventual pullback in consumer spending, U.S. retail space markets have remained resilient through the first three quarters of the year thanks to steady demand from a diverse array of sectors, a significant pullback in store closures, and minimal new supply. On a cautionary note, U.S. consumer spending will potentially take center stage over the next few months following the depletion of $2.1 trillion in excess economic relief savings and increased consumer credit card debt. As consumers increasingly rely on credit and contend with higher interest rates, the consumer's financial health appears to be deteriorating. Since their spending contributes to roughly two-thirds of the U.S. GDP, instability here could send reverberations across the retail sector in 2024. During the third quarter of 2023, national retail vacancy rates remained steady at 4.1% while our market areas reflected the following vacancy levels: Springfield, Missouri at 3.3%, St. Louis at 4.6%, Kansas City at 4.3%, Minneapolis at 2.9%, Tulsa, Oklahoma at 2.7%, Dallas-Fort Worth at 4.4%, Chicago at 4.9%, Atlanta at 3.6%, Phoenix at 4.6%, Denver at 4.1%, and Charlotte, North Carolina at 2.9%. U.S. industrial market performance continues to downshift as 2024 approaches. Accelerating completions of new industrial developments have caused the U.S. industrial vacancy rate to inch up from a record low of 3.9% in mid-2022, to 5.3% as of 3 rd quarter 2023. While that is still comfortably below the market's average vacancy rate of 7.3% over the past 20 years, U.S. industrial net absorption has also slowed to a crawl in 2023 with the slowdown broad-based across most market areas. Not only was 3 rd quarter absorption down more than 75% from the booming levels recorded in 2021 and 2022, it was the weakest third-quarter recorded since 2012. Our market areas reflected the following vacancy levels: Springfield, Missouri at 1.1%, St. Louis at 4.1%, Kansas City at 4.7%, Minneapolis at 3.6%, Tulsa, Oklahoma at 3.1%, Dallas-Fort Worth at 7.8%, Chicago at 4.6%, Atlanta at 5.4%, Phoenix at 7.2%, Denver at 6.9% and Charlotte, North Carolina at 5.5%. After rebuilding inventories during 2022, tenant retailers and wholesalers are pausing further inventory accumulation out of caution over the economic outlook, causing U.S. imports to decline from record highs. A swift recovery appears unlikely, with higher interest rates still weighing on the economy and posing downside risks for net absorption through 2024. As higher interest rates keep home sales depressed, companies with sales tied to the housing market have shed the most space. Tenants including Bed Bath & Beyond, Ashley Furniture, American Building Supply, and Big Lots have all closed distribution centers larger than 500,000 SF since the beginning of 2023. In June 2023, The Home Depot announced plans to cut supply chain costs by $500 million throughout 2024. However, on net, the industrial tenant base is still growing. Amazon sales have been rising by double digits, and the company is slowing the distribution center closures it began in early 2022. The recent slowdown in imports has also helped major retailers including Walmart, Target, and Costco clear excess inventories accumulated last year. Drags on household finances including elevated gas prices, and multi-decade highs in credit card interest rates may need to abate before consumer goods spending can reaccelerate and give retailers the confidence to resume distribution network expansions. Regardless, large distribution center expansions by companies that sell necessities consumers still generally purchase in high volume despite inflation, including Dollar General, Sam's Club, and auto parts suppliers, may continue to help offset distribution center closures and keep net absorption positive in the remainder of 2023. Higher interest rates have also caused construction starts on new industrial projects to plummet this year. Given the average construction time of 14 months for large industrial projects, this recent pullback in starts signals that by late 2024, the number of new projects completing construction will begin to rapidly decline. This may well set the stage for vacancies to stabilize or begin tightening again in late 2024, and for rent growth to accelerate thereafter. Our management will continue to monitor regional, national, and global economic indicators such as unemployment, GDP, housing starts and prices, consumer sentiment, commercial real estate price indices and commercial real estate occupancy, absorption and rental rates, as these could significantly affect customers in each of our market areas. COVID-19 Impact to Our Business and Response Great Southern continues to monitor and respond to the effects of the COVID-19 pandemic. As always, the health, safety and well-being of our customers, associates and communities, while maintaining uninterrupted service, are the Company’s top priorities. Centers for Disease Control and Prevention (CDC) guidelines, as well as directives from federal, state and local officials, are closely monitored to make informed operational decisions, if necessary. COVID-19 infection rates currently are low in our markets and the CDC has removed restrictions that were previously in place. 43 ​ Our business is currently operating normally, similar to operations prior to the onset of the COVID-19 pandemic. Customers can conduct their banking business using our banking center network, online and mobile banking services, ATMs, Telephone Banking, and online account opening services. General The profitability of the Company and, more specifically, the profitability of its primary subsidiary, the Bank, depends primarily on its net interest income, as well as provisions for credit losses and the level of non-interest income and non-interest expense. Net interest income is the difference between the interest income the Bank earns on its loans and investment portfolios, and the interest it pays on interest-bearing liabilities, which consists mainly of interest paid on deposits and borrowings. Net interest income is affected by the relative amounts of interest-earning assets and interest-bearing liabilities and the interest rates earned or paid on these balances. When interest-earning assets approximate or exceed interest-bearing liabilities, any positive interest rate spread will generate net interest income. Great Southern’s total assets increased $67.4 million, or 1.2%, from $5.68 billion at December 31, 2022, to $5.75 billion at September 30, 2023. Details of the current period changes in total assets are provided below, under “Comparison of Financial Condition at September 30, 2023 and December 31, 2022.” Loans. Net outstanding loans increased $57.7 million, or 1.3%, from $4.51 billion at December 31, 2022, to $4.56 billion at September 30, 2023. The increase was primarily in other residential (multi-family) loans and commercial business loans. This increase was partially offset by a decrease in commercial real estate loans. As loan demand is affected by a variety of factors, including general economic conditions, and because of the competition we face and our focus on pricing discipline and credit quality, we cannot be assured that our loan growth will match or exceed the average level of growth achieved in prior years. The Company’s strategy continues to be focused on maintaining credit risk and interest rate risk at appropriate levels. Recent growth has occurred in some loan types, primarily other residential (multi-family) and commercial business, and in most of Great Southern’s primary lending locations, including Springfield, St. Louis, Kansas City, Des Moines and Minneapolis, as well as our loan production offices in Atlanta, Charlotte, Chicago, Dallas, Denver, Omaha, Phoenix and Tulsa. Stringent underwriting standards and monitoring help assure the Company’s portfolio quality. All new loan originations that exceed lender approval authorities are subject to review and approval by Great Southern’s loan committee. Generally, the Company considers commercial construction, consumer, other residential (multi-family) and commercial real estate loans to involve a higher degree of risk compared to some other types of loans, such as first mortgage loans on one- to four-family, owner-occupied residential properties. For other residential (multi-family), commercial real estate, commercial business and construction loans, the credits are subject to an analysis of the borrower’s and guarantor’s financial condition, credit history, verification of liquid assets, collateral, market analysis and repayment ability. It has been, and continues to be, Great Southern’s practice to verify information from potential borrowers regarding assets, income or payment ability and credit ratings as applicable and as required by the authority approving the loan. To minimize construction risk, projects are monitored as construction draws are requested by comparison to budget and with progress verified through property inspections. The geographic and product diversity of collateral, equity requirements and limitations on speculative construction projects help to mitigate overall risk in these loans. Underwriting standards for all loans also include loan-to-value ratio limitations, which vary depending on collateral type, debt service coverage ratios or debt payment to income ratio guidelines, where applicable, credit histories, use of guaranties and other recommended terms relating to equity requirements, amortization, and maturity. Consumer loans, other than home equity loans, are primarily secured by new or used motor vehicles and these loans are also subject to certain underwriting standards to assure portfolio quality. In 2019, the Company discontinued indirect auto loan originations. While our policy allows us to lend up to 95% of the appraised value on one-to four-family residential properties, originations of loans with loan-to-value ratios at that level are minimal. Private mortgage insurance is typically required for loan amounts above the 80% level. Few exceptions occur and would be based on analyses which determined minimal transactional risk to be involved. We consider these lending practices to be consistent with or more conservative than what we believe to be the norm for banks our size. At both September 30, 2023 and December 31, 2022, 0.2% of our owner occupied one-to four-family residential loans had loan-to-value ratios above 100% at origination. At September 30, 2023 and December 31, 2022, an estimated 0.1% and 0.2%, respectively, of our non-owner occupied one- to four-family residential loans had loan-to-value ratios above 100% at origination. The level of non-performing loans and foreclosed assets affects our net interest income and net income. We generally do not accrue interest income on these loans and do not recognize interest income until the loans are repaid or interest payments have been made for a period of time sufficient to provide evidence of improved repayment ability on the loans. Generally, the higher the level of non-performing assets, the greater the negative impact on interest income and net income. 44 ​ The Company has prepared for discontinuation of the use of interest rates such as LIBOR. LIBOR is a benchmark interest rate referenced in a variety of agreements used by the Company, but by far the most significant area impacted by LIBOR is related to commercial and residential mortgage loans. With the cessation of all remaining LIBOR indices as of June 30, 2023, the Company implemented its LIBOR fallback plan for all remaining LIBOR-based loans, replacing the LIBOR indices with various SOFR-based indices consistent with the regulations of the Board of Governors of the Federal Reserve System implementing the Adjustable Interest Rate (LIBOR) Act. All impacted customers were notified and the Company’s systems were updated with the applicable indices as of July 1, 2023. Available-for-sale Securities. In the nine months ended September 30, 2023, available-for-sale securities decreased $42.6 million, or 8.7%, from $490.6 million at December 31, 2022, to $447.9 million at September 30, 2023. A decrease in the market value of these securities accounted for $22.0 million of this balance decrease while the rest of the decrease related to normal monthly payments on mortgage-backed securities and collateralized mortgage obligations. The available-for-sale securities portfolio had a gross unrealized loss of $84.3 million at September 30, 2023. As of that date, the portfolio had a tax-equivalent yield of approximately 2.70% and an estimated effective duration of five to six years. Held-to-maturity Securities. In the nine months ended September 30, 2023, held-to-maturity securities decreased $5.8 million, or 2.9%, from $202.5 million at December 31, 2022, to $196.7 million at September 30, 2023. The held-to-maturity securities portfolio had a gross unrealized loss of $30.6 million at September 30, 2023, that was not included in the Company’s total capital balance. As of September 30, 2023, the portfolio had a tax-equivalent yield of approximately 2.63% and an estimated effective duration of five to six years. If these held-to-maturity unrealized losses were included in capital (net of taxes), this would have decreased total stockholder’s equity by $23.1 million at September 30, 2023. This amount was equal to 4.3% of total stockholders’ equity of $531.7 million. Deposits. The Company attracts deposit accounts through its retail branch network, correspondent banking and corporate services areas, internet channels and brokered deposits. The Company then utilizes these deposit funds, along with FHLBank advances and other borrowings, to meet loan demand or otherwise fund its activities. In the nine months ended September 30, 2023, total deposit balances increased $166.6 million, or 3.6%. Compared to December 31, 2022, transaction account balances decreased $66.3 million, or 2.0%, to $3.19 billion at September 30, 2023, and retail certificates of deposit decreased $24.9 million, or 2.4%, to $996.4 million at September 30, 2023. The decrease in transaction accounts was primarily a result of a decrease in non-interest-bearing accounts and various NOW accounts, as small businesses and individuals appear to be drawing down their balances to pay for goods and services, or are seeking a higher-yielding alternative. Retail time deposits decreased due to decreases in national time deposits initiated through internet channels and also a decrease in retail certificates generated through the Company’s banking center network. Time deposits initiated through internet channels are no longer a significant part of the Company’s total deposits. Brokered deposits, including IntraFi program purchased funds, were $669.3 million and $411.5 million at September 30, 2023 and December 31, 2022, respectively. The Company uses brokered deposits of select maturities from time to time to supplement its various funding channels and to manage interest rate risk. Our deposit balances may fluctuate depending on customer preferences and our relative need for funding. We do not consider our retail certificates of deposit to be guaranteed long-term funding because customers can withdraw their funds at any time with minimal interest penalty. When loan demand trends upward, we can increase rates paid on deposits to attract more deposits and utilize brokered deposits to obtain additional funding. The level of competition for deposits in our markets is high. It is our goal to gain deposit market share, particularly checking accounts, in our branch footprint. To accomplish this goal, increasing rates to attract deposits may be necessary, which could negatively impact the Company’s net interest margin. Our ability to fund growth in future periods may also depend on our ability to continue to access brokered deposits and FHLBank advances. In times when our loan demand has outpaced our generation of new deposits, we have utilized brokered deposits and FHLBank advances to fund these loans. These funding sources have been attractive to us because we can create either fixed or variable rate funding, as desired, which more closely matches the interest rate nature of much of our loan portfolio. It also gives us greater flexibility in increasing or decreasing the duration of our funding. While we do not currently anticipate that our ability to access these sources will be reduced or eliminated in future periods, if this should happen, the limitation on our ability to fund additional loans could have a material adverse effect on our business, financial condition and results of operations. See “Results of Operations and Comparison for the Three and Nine Months Ended September 30, 2023 and 2022 – Liquidity” below for further information on funding sources. Securities sold under reverse repurchase agreements with customers. Securities sold under reverse repurchase agreements with customers decreased $118.6 million from $176.8 million at December 31, 2022 to $58.2 million at September 30, 2023. These balances fluctuate over time based on customer demand for this product. 45 ​ Short-term borrowings and other interest-bearing liabilities . The Company’s FHLBank term advances were $-0- at both September 30, 2023 and December 31, 2022. At September 30, 2023 and December 31, 2022, overnight borrowings from the FHLBank were $82.5 million and $88.5 million, respectively, which are included in short term borrowings. Short term borrowings and other interest-bearing liabilities decreased $5.5 million from $89.6 million at December 31, 2022 to $84.1 million at September 30, 2023. The Company may utilize both overnight and other short-term borrowings depending on relative interest rates. Net Interest Income and Interest Rate Risk Management. Our net interest income may be affected positively or negatively by changes in market interest rates. A large portion of our loan portfolio is tied to one-month SOFR, three-month SOFR or the “prime rate” and adjusts immediately or shortly after the index rate adjusts (subject to the effect of contractual interest rate floors on some of the loans, which are discussed below). We monitor our sensitivity to interest rate changes on an ongoing basis (see “Item 3. Quantitative and Qualitative Disclosures About Market Risk”). The current level and shape of the interest rate yield curve poses challenges for interest rate risk management. Prior to its increase of 0.25% on December 16, 2015, the FRB had last changed interest rates on December 16, 2008. This was the first rate increase since September 29, 2006. The FRB also implemented rate change increases of 0.25% on eight additional occasions beginning December 14, 2016 and through December 31, 2018, with the Federal Funds rate reaching as high as 2.50%. After December 2018, the FRB paused its rate increases and, in July, September and October 2019, implemented rate decreases of 0.25% on each of those occasions. At December 31, 2019, the Federal Funds rate stood at 1.75%. In response to the COVID-19 pandemic, the FRB decreased interest rates on two occasions in March 2020, a 0.50% decrease on March 3 and a 1.00% decrease on March 16. At December 31, 2021, the Federal Funds rate was 0.25%. In 2022, the FRB implemented rate increases of 0.25%, 0.50%, 0.75%, 0.75%, 0.75%, 0.75% and 0.50% in March, May, June, July, September, November and December 2022, respectively. At December 31, 2022, the Federal Funds rate was 4.50%. In 2023, the FRB implemented rate increases of 0.25%, 0.25%, 0.25% and 0.25% in February, March, May and July 2023, respectively. At September 30, 2023 the Federal Funds rate was 5.50%. Financial markets now expect the possibility of significant further increases in Federal Funds interest rates in the latter months of 2023 and into 2024 to be less likely, with interest rate decisions being made at each FRB meeting based on economic data available at the time. However, the FRB has further indicated, and financial markets now have begun to price in, that it is likely that the Federal Funds interest rate will remain near this peak level for many months before any rate cuts occur. Great Southern’s loan portfolio includes loans ($1.27 billion at September 30, 2023) tied to various SOFR indices that will be subject to adjustment at least once within 90 days after September 30, 2023. All of these loans had interest rate floors at various rates. Great Southern also has a portfolio of loans ($790.9 million at September 30, 2023) tied to a “prime rate” of interest that will adjust immediately or within 90 days of a change to the “prime rate” of interest. All of these loans had interest rate floors at various rates. Great Southern also has a portfolio of loans ($6.7 million at September 30, 2023) tied to an AMERIBOR index that will adjust immediately or within 90 days of a change to the “prime rate” of interest. All of these loans had interest rate floors at various rates. At September 30, 2023, nearly all of these SOFR and “prime rate” loans had fully-indexed rates that were at or above their floor rate and so are expected to move fully with future market interest rate increases. A rate cut by the FRB generally would have an anticipated immediate negative impact on the Company’s net interest income due to the large total balance of loans tied to the SOFR indices or the “prime rate” index and will be subject to adjustment at least once within 90 days or loans which generally adjust immediately as the Federal Funds rate adjusts. Interest rate floors may at least partially mitigate the negative impact of interest rate decreases. Loans at their floor rates are, however, subject to the risk that borrowers will seek to refinance elsewhere at the lower market rate. There may also be a negative impact on the Company’s net interest income if the Company is unable to significantly lower its funding costs due to a highly competitive rate environment, although interest rates on assets may decline further. Conversely, market interest rate increases would normally result in increased interest rates on our SOFR-based, AMERIBOR-based and prime-based loans. As of September 30, 2023, Great Southern’s interest rate risk models indicate that, generally, rising interest rates are expected to have a slightly positive impact on the Company’s net interest income within the next twelve months, while declining interest rates are expected to have a slightly negative impact on net interest income within the next twelve months. The negative impact of a falling Federal Funds rate and other market interest rates also falling could be more pronounced if we are not able to decrease non-maturity deposit rates accordingly. We model various interest rate scenarios for rising and falling rates, including both parallel and non-parallel shifts in rates. The results of our modeling indicate that net interest income is not likely to be significantly affected either positively or negatively in the first twelve months following relatively minor changes in market interest rates because our portfolios are relatively well-matched in a twelve-month horizon. In a situation where market interest rates increase significantly in a short period of time, our net interest margin increase may be more pronounced in the very near term (first one to three months), due to fairly rapid increases in SOFR interest rates and “prime” interest rates. In a situation where market interest rates decrease significantly in a short period of time, as they did in March 2020, our net 46 ​ interest margin decrease may be more pronounced in the very near term (first one to three months), due to fairly rapid decreases in SOFR interest rates and “prime” interest rates. In the subsequent months, we expect that net interest margin would stabilize and begin to improve, as renewal interest rates on maturing time deposits would be expected to decrease compared to the then-current rates paid on those products. During 2020, we did experience some compression of our net interest margin percentage due to Federal Fund rate cuts during the nine month period of July 2019 through March 2020. Margin compression primarily resulted from changes in the asset mix, mainly the addition of lower-yielding assets and the issuance of subordinated notes during 2020, and net interest margin remained lower than our historical average in 2021. LIBOR interest rates decreased significantly in 2020 and remained very low in 2021, putting pressure on loan yields, and strong pricing competition for loans and deposits remained in most of our markets. Beginning in March 2022, market interest rates, including LIBOR interest rates, SOFR interest rates and “prime” interest rates, began to increase rapidly. This resulted in increasing loan yields and expansion of our net interest income and net interest margin throughout 2022 and into the first three months of 2023. In 2023, market interest rate increases have moderated and loan yield increases have also moderated in line with market rates. However, there has been increased competition for deposits and other sources of funding, resulting in higher costs for those funds. This has been especially true since early March 2023. For further discussion of the processes used to manage our exposure to interest rate risk, see “Item 3. Quantitative and Qualitative Disclosures About Market Risk – How We Measure the Risks to Us Associated with Interest Rate Changes.” Non-Interest Income and Non-Interest (Operating) Expenses. The Company’s profitability is also affected by the level of its non-interest income and operating expenses. Non-interest income consists primarily of service charges and ATM fees, POS interchange fees, late charges and prepayment fees on loans, gains on sales of loans and available-for-sale investments and other general operating income. Non-interest income may also be affected by the Company’s interest rate derivative activities, if the Company chooses to implement derivatives. See Note 16 “Derivatives and Hedging Activities” in the Notes to Consolidated Financial Statements included in this report. Operating expenses consist primarily of salaries and employee benefits, occupancy-related expenses, expenses related to foreclosed assets, postage, FDIC deposit insurance, advertising and public relations, telephone, professional fees, office expenses and other general operating expenses. Details of the current period changes in non-interest income and non-interest expense are provided below, under “Results of Operations and Comparison for the Three and Nine Months Ended September 30, 2023 and 2022.” Effect of Federal Laws and Regulations General. Federal legislation and regulation significantly affect the operations of the Company and the Bank, and have increased competition among commercial banks, savings institutions, mortgage banking enterprises and other financial institutions. In particular, the capital requirements and operations of regulated banking organizations such as the Company and the Bank have been and will be subject to changes in applicable statutes and regulations from time to time, which changes could, under certain circumstances, adversely affect the Company or the Bank. Dodd-Frank Act. In 2010, sweeping financial regulatory reform legislation entitled the “Dodd-Frank Wall Street Reform and Consumer Protection Act” (the “Dodd-Frank Act”) was signed into law. The Dodd-Frank Act implemented far-reaching changes across the financial regulatory landscape. Certain aspects of the Dodd-Frank Act have been affected by the more recently enacted Economic Growth Act, as defined and discussed below under “-Economic Growth Act.” Capital Rules. The federal banking agencies have adopted regulatory capital rules that substantially amend the risk-based capital rules applicable to the Bank and the Company. The rules implement the “Basel III” regulatory capital reforms and changes required by the Dodd-Frank Act. “Basel III” refers to various documents released by the Basel Committee on Banking Supervision. For the Company and the Bank, the general effective date of the rules was January 1, 2015, and, for certain provisions, various phase-in periods and later effective dates apply. The chief features of these rules are summarized below. The rules refine the definitions of what constitutes regulatory capital and add a new regulatory capital element, common equity Tier 1 capital. The minimum capital ratios are (i) a common equity Tier 1 (“CET1”) risk-based capital ratio of 4.5%; (ii) a Tier 1 risk-based capital ratio of 6%; (iii) a total risk-based capital ratio of 8%; and (iv) a Tier 1 leverage ratio of 4%. In addition to the minimum capital ratios, the rules include a capital conservation buffer, under which a banking organization must have CET1 more than 2.5% above each of its minimum risk-based capital ratios in order to avoid restrictions on paying dividends, repurchasing shares, and paying certain discretionary bonuses. The capital conservation buffer became fully implemented on January 1, 2019. These rules also revised the prompt corrective action framework, which is designed to place restrictions on insured depository institutions if their capital levels show signs of weakness. Under the revised prompt corrective action requirements, insured depository institutions are required to meet the following in order to qualify as “well capitalized:” (i) a common equity Tier 1 risk-based capital 47 ​ ratio of at least 6.5%, (ii) a Tier 1 risk-based capital ratio of at least 8%, (iii) a total risk-based capital ratio of at least 10% and (iv) a Tier 1 leverage ratio of 5%, and must not be subject to an order, agreement or directive mandating a specific capital level. Economic Growth Act. In May 2018, the Economic Growth, Regulatory Relief, and Consumer Protection Act (the “Economic Growth Act”), was enacted to modify or eliminate certain financial reform rules and regulations, including some implemented under the Dodd-Frank Act. The Economic Growth Act, among other matters, expands the definition of qualified mortgages which may be held by a financial institution and simplifies the regulatory capital rules for financial institutions and their holding companies with total consolidated assets of less than $10 billion by instructing the federal banking regulators to establish a single “Community Bank Leverage Ratio” (“CBLR”) of between 8 and 10 percent. Any qualifying depository institution or its holding company that exceeds the CBLR will be considered to have met generally applicable leverage and risk-based regulatory capital requirements and any qualifying depository institution that exceeds the new ratio will be considered “well-capitalized” under the prompt corrective action rules. Currently, the CBLR is 9.0%. The Company and the Bank have chosen not to utilize the new CBLR due to the Company’s size and complexity, including its commercial real estate and construction lending concentrations and significant off-balance sheet funding commitments. In addition, the Economic Growth Act includes regulatory relief in the areas of examination cycles, call reports, mortgage disclosures and risk weights for certain high-risk commercial real estate loans. Business Initiatives Since early 2022, Great Southern has been preparing to convert to a new core banking platform (New System) to be delivered by a third-party vendor. As previously disclosed, the migration to the New System, originally scheduled for the third quarter of 2023, has been delayed to mid-2024. Certain contractual disputes have arisen between Great Southern and the third-party vendor. While discussions are ongoing between the parties, there is no assurance that a resolution will be achieved. In the meantime, Great Southern expects to continue operations with its current core banking provider, which will allow Great Southern to offer its full array of products and services. In September 2023, in Springfield, Missouri, the Company opened Great Southern Express, a modern four-lane drive-through center using only interactive teller machine (ITM) technology to serve customers. ITMs, also known as video remote tellers, offer an ATM-like interface, but with the enhancement of a video screen that allows customers to speak directly to a service representative in real time and in a highly personal manner during extended business hours seven days a week. Nearly any teller transaction that can be performed in the traditional drive-thru can be performed at an ITM, including cashing a check to the penny. ITMs provide convenience and enhanced access for customers, while creating greater operational efficiencies for the Bank. Also in the Springfield market, after a thorough evaluation, at the close of business on January 12, 2024, the banking center at 600 West Republic Road will be consolidated into the Great Southern banking center located at 2945 W. Republic Road, a short distance away. After the West Republic Road location closes, an on-site ITM will be available there indefinitely for customers’ convenience. Headquartered in Springfield, Missouri, Great Southern offers a broad range of banking services to customers. The Company operates 90 retail banking centers in Missouri, Iowa, Kansas, Minnesota, Arkansas and Nebraska and commercial lending offices in Atlanta; Charlotte, North Carolina; Chicago; Dallas; Denver; Omaha, Nebraska; Phoenix and Tulsa, Oklahoma. The common stock of Great Southern Bancorp, Inc. is listed on the Nasdaq Global Select Market under the symbol "GSBC." Comparison of Financial Condition at September 30, 2023 and December 31, 2022 During the nine months ended September 30, 2023, the Company’s total assets increased by $67.4 million to $5.75 billion. The increase was primarily in interest-bearing deposits in other financial institutions and loans. Cash and cash equivalents were $182.3 million at September 30, 2023, an increase of $13.8 million, or 8.2%, from $168.5 million at December 31, 2022. This increase was primarily due to a $26.5 million increase in interest-bearing deposits in the Federal Reserve Bank. The Company’s available-for-sale securities decreased $42.6 million, or 8.7%, compared to December 31, 2022. The decrease was primarily due to a decrease in the market value of these available-for-sale securities as a result of increases in market interest rates and by normal monthly payments received related to the portfolio of mortgage-backed securities and collateralized mortgage obligations. The available-for-sale securities portfolio was 7.8% of total assets at September 30, 2023 compared to 8.6% at December 31, 2022. 48 ​ Held-to-maturity securities were $196.7 million at September 30, 2023, a decrease of $5.8 million, or 2.9%, from $202.5 million at December 31, 2022. The held-to-maturity securities portfolio was 3.4% and 3.6% of total assets at September 30, 2023 and December 31, 2022, respectively. Net loans increased $57.7 million from December 31, 2022, to $4.56 billion at September 30, 2023. This increase was primarily in other residential (multi-family) loans ($64 million increase) and commercial business loans ($50 million increase), which was partially offset by a decrease in commercial real estate loans ($27 million decrease). Loan origination volume in the nine months ended September 30, 2023 significantly decreased compared to the origination volume that occurred in 2021 and most of 2022 due to the increase in market interest rates that began in late 2022 and continued into 2023. In addition, the pace of loan payoffs prior to maturity has slowed in the latter half of 2022 and into 2023 due to the significant increase in market rates of interest. The Company did experience a few large loan payoffs in the three months ended September 30, 2023, as completed projects were sold or the borrower paid off our loan by refinancing the debt elsewhere with long-term financing. Total liabilities increased $68.8 million, from $5.15 billion at December 31, 2022 to $5.22 billion at September 30, 2023. This increase was primarily due to an increase in deposits ($167 million increase), which was partially offset by a reduction in securities sold under reverse repurchase agreements with customers ($119 million decrease). Total deposits increased $166.6 million, or 3.6%, to $4.85 billion at September 30, 2023. Total checking account balances decreased $66.3 million, from $3.25 billion at December 31, 2022 to $3.19 billion at September 30, 2023. Total interest-bearing checking accounts increased $55.1 million while non-interest-bearing checking accounts decreased $121.4 million. Retail certificates of deposit decreased $24.9 million compared to December 31, 2022, to $996.4 million at September 30, 2023. Customer retail time deposits initiated through our banking center network increased $8.6 million and time deposits initiated through our national internet network decreased $31.9 million. Brokered deposits increased $257.8 million to $669.3 million at September 30, 2023, compared to $411.5 million at December 31, 2022. Brokered deposits were utilized to fund growth in outstanding loans and to offset reductions in balances in other deposit categories. The Company has the capacity to further expand its use of brokered deposits if it chooses to do so. The market remains extremely competitive for both time deposits and non-time deposits. The Company attempts to retain its non-brokered deposits, but at times will utilize more brokered deposits and overnight FHLBank borrowings when market rates paid on non-brokered deposits are very high. Securities sold under reverse repurchase agreements with customers decreased $118.6 million from $176.8 million at December 31, 2022 to $58.2 million at September 30, 2023. These balances fluctuate over time based on customer demand for this product. In 2023, some customers elected to move funds from these repurchase accounts into other types of deposit accounts offered by the Bank that included deposit insurance coverage through the IntraFi deposit program. Short-term borrowings and other interest-bearing liabilities decreased $5.5 million from $89.6 million at December 31, 2022 to $84.1 million at September 30, 2023. At September 30, 2023, $82.5 million of this total was overnight borrowings from the FHLBank, which was used to fund increases in outstanding loans. Total stockholders’ equity decreased $1.4 million, from $533.1 million at December 31, 2022 to $531.7 million at September 30, 2023. Stockholders’ equity decreased due to repurchases of the Company’s common stock totaling $19.5 million and dividends declared on common stock of $14.4 million. Accumulated other comprehensive income/loss decreased $23.4 million (net loss increased) during the nine months ended September 30, 2023, due to decreases in the fair value of available-for-sale investment securities and cash flow hedges, as a result of increased market interest rates. Partially offsetting these decreases were net income of $54.7 million for the nine months ended September 30, 2023 and a $1.3 million increase due to stock option exercises. Results of Operations and Comparison for the Three and Nine Months Ended September 30, 2023 and 2022 General Net income was $15.9 million for the three months ended September 30, 2023 compared to $18.1 million for the three months ended September 30, 2022. This decrease of $2.2 million, or 12.4%, was primarily due to a decrease in net interest income of $6.2 million, or 11.6% and an increase in non-interest expense of $799,000, or 2.3%, partially offset by a decrease in provision for credit losses on loans and unfunded commitments of $4.5 million, or 136.0%, and a decrease in income tax expense of $327,000, or 7.0%. Net income was $54.7 million for the nine months ended September 30, 2023 compared to $53.4 million for the nine months ended September 30, 2022. This increase of $1.3 million, or 2.5%, was primarily due to an increase in net interest income of $3.1 million, or 2.1%, and a decrease in provision for credit losses on loans and unfunded commitments of $7.5 million, or 140.0%. The provision for credit losses on loans decreased $500,000, while the provision for credit losses on unfunded commitments decreased $7.0 million. 49 ​ These items were partially offset by an increase in non-interest expense of $5.7 million, or 5.8%, a decrease in non-interest income of $3.0 million, or 11.2%, and an increase in income tax expense of $570,000, or 4.1%. Total Interest Income Total interest income increased $15.6 million, or 26.2%, during the three months ended September 30, 2023 compared to the three months ended September 30, 2022. The increase was due to a $14.8 million increase in interest income on loans and an $814,000 increase in interest income on investment securities and other interest-earning assets. Interest income from loans increased during the three months ended September 30, 2023 compared to the same period in 2022 due to higher average balances and higher average rates of interest. Interest income from investment securities and other interest-earning assets increased during the three months ended September 30, 2023 compared to the same period in 2022 due to higher average rates of interest and higher average balances of other interest-earning assets, partially offset by decreased average balances of investment securities. Total interest income increased $61.3 million, or 38.6%, during the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022. The increase was due to a $57.9 million increase in interest income on loans and a $3.5 million increase in interest income on investment securities and other interest-earning assets. Interest income from loans increased during the nine months ended September 30, 2023 compared to the same period in 2022 due to higher average balances and higher average rates of interest. Interest income from investment securities and other interest-earning assets increased during the nine months ended September 30, 2023 compared to the same period in 2022 due to higher average rates of interest and higher average balances of investment securities, partially offset by decreased average balances of other interest-earning assets. Interest Income – Loans During the three months ended September 30, 2023 compared to the three months ended September 30, 2022, interest income on loans increased $13.1 million due to higher average interest rates on loans. The average yield on loans increased from 4.79% during the three months ended September 30, 2022, to 5.92% during the three months ended September 30, 2023. This increase was primarily due to the repricing of floating rate loans in the second half of 2022 and into 2023 as market interest rates increased significantly and the origination of new fixed-rate loans at higher market interest rates. Interest income on loans also increased $1.7 million as the result of higher average loan balances, which increased from $4.48 billion during the three months ended September 30, 2022, to $4.62 billion during the three months ended September 30, 2023. The Company continued to originate loans at a pace similar to prior periods through the first nine months of 2022, and overall loan repayments slowed in 2022 and 2023 compared to the level of repayments in 2021. Since the end of 2022, loan originations and net loan growth have been muted. During the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022, interest income on loans increased $47.0 million due to higher average interest rates on loans. The average yield on loans increased from 4.46% during the nine months ended September 30, 2022, to 5.84% during the nine months ended September 30, 2023. This increase was primarily due to the repricing of floating rate loans in the second half of 2022 and into 2023 as market interest rates increased significantly and the origination of new fixed-rate loans at higher market interest rates. Interest income on loans also increased $10.9 million as the result of higher average loan balances, which increased from $4.31 billion during the nine months ended September 30, 2022, to $4.62 billion during the nine months ended September 30, 2023. In October 2018, the Company entered into an interest rate swap transaction as part of its ongoing interest rate management strategies to hedge the risk of its floating rate loans. The notional amount of the swap was $400 million with a contractual termination date in October 2025. As previously disclosed by the Company, on March 2, 2020, the Company and its swap counterparty mutually agreed to terminate this swap, effective immediately. The Company was paid $45.9 million, including accrued but unpaid interest, from its swap counterparty as a result of this termination. This $45.9 million, less the accrued to date interest portion and net of deferred income taxes, is reflected in the Company’s stockholders’ equity as Accumulated Other Comprehensive Income and is being accreted to interest income on loans monthly through the original contractual termination date of October 6, 2025. This has the effect of reducing Accumulated Other Comprehensive Income and increasing Net Interest Income and Retained Earnings over the periods. The Company recorded interest income related to the interest rate swap of $2.0 million in each of the three months ended September 30, 2023 and 2022. The Company recorded interest income related to the interest rate swap of $6.1 million in each of the nine month periods ended September 30, 2023 and 2022. At September 30, 2023, the Company expected to have a sufficient amount of eligible variable rate loans to continue to accrete this interest income ratably in future periods. If this expectation changes and the amount of eligible variable rate loans decreases significantly, the Company may be required to recognize this interest income more rapidly. In March 2022, the Company entered into another 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 contractual 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 50 ​ of interest equal to one-month USD-LIBOR (now the equivalent replacement USD-SOFR rate since USD-LIBOR rate is no longer available). The floating rate resets monthly and net settlements of interest due to/from the counterparty also occur monthly. The initial floating rate of interest was set at 0.2414%. To the extent that the fixed rate exceeds one-month USD-SOFR, the Company receives net interest settlements, which are recorded as loan interest income. If one-month USD-SOFR exceeds the fixed rate of interest, the Company pays net settlements to the counterparty and records those net payments as a reduction of interest income on loans. The Company recorded a reduction of loan interest income related to this swap transaction of $2.8 million in the three months ended September 30, 2023, compared to a reduction of $428,000 in the three months ended September 30, 2022. The Company recorded a reduction of loan interest income related to this swap transaction of $7.5 million in the nine months ended September 30, 2023. The Company recorded loan interest income related to this swap transaction of $610,000 in the nine months ended September 30, 2022. 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 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 resets 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 receives net interest settlements, which are recorded as loan interest income. If the floating rate of interest exceeds the fixed rate of interest, the Company pays net settlements to the counterparty and records those net payments as a reduction of interest income on loans. The Company recorded a reduction of loan interest income related to these swap transactions of $2.7 million and $4.4 million, respectively, in the three and nine months ended September 30, 2023. At September 30, 2023, the USD-Prime rate was 8.50% and the one-month USD-SOFR OIS rate was 5.31663%. Interest Income – Investments and Other Interest-earning Assets Interest income on investments decreased $111,000 in the three months ended September 30, 2023 compared to the three months ended September 30, 2022. Interest income decreased $493,000 as a result of a decrease in average balances from $734.5 million during the three months ended September 30, 2022, to $678.6 million during the three months ended September 30, 2023. Average balances of securities decreased primarily due to normal monthly payments received related to the portfolio of U.S. Government agency mortgage-backed securities and collateralized mortgage obligations. Interest income increased $382,000 as a result of higher average interest rates, which increased from 2.77% during the three months ended September 30, 2022, to 2.93% during the three month period ended September 30, 2023. Interest income on investments increased $745,000 in the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022. Interest income increased $516,000 as a result of an increase in average balances from $670.7 million during the nine months ended September 30, 2022, to $694.7 million during the nine months ended September 30, 2023. Average balances of securities increased primarily due to purchases of agency multi-family mortgage-backed securities that have a fixed rate of interest with expected lives of four to ten years, which fits with the Company’s current asset/liability management strategies, partially offset by normal monthly payments received related to the portfolio of U.S. Government agency mortgage-backed securities and collateralized mortgage obligations. Interest income also increased $229,000 as a result of higher average interest rates, which increased from 2.84% during the nine months ended September 30, 2022, to 2.89% during the nine month period ended September 30, 2023. Interest income on other interest-earning assets increased $925,000 in the three months ended September 30, 2023 compared to the three months ended September 30, 2022. Interest income increased $799,000 as a result of higher average interest rates, which increased from 2.11% during the three months ended September 30, 2022, to 5.22% during the three months ended September 30, 2023. Interest income also increased $126,000 as a result of an increase in average balances from $84.8 million during the three months ended September 30, 2022, to $104.5 million during the three months ended September 30, 2023. The increase in average interest rates was due to the increase in the rate paid on funds held at the Federal Reserve Bank. This rate was increased multiple times in 2022 and 2023 in conjunction with the increase in the Federal Funds target interest rate. Interest income on other interest-earning assets increased $2.7 million in the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022. Interest income increased $2.9 million as a result of higher average interest rates, which increased from 0.53% during the nine months ended September 30, 2022, to 4.91% during the nine months ended September 30, 2023. Partially offsetting that increase, interest income decreased $194,000 as a result of a decrease in average balances from $218.3 million during the nine months ended September 30, 2022, to $97.8 million during the nine months ended September 30, 2023. The increase in average interest rates was due to the increase in the rate paid on funds held at the Federal Reserve Bank. This rate was increased 51 ​ multiple times in 2022 and 2023 in conjunction with the increase in the Federal Funds target interest rate. The decrease in average balances was due to utilization of these funds in loan originations and securities purchases. Total Interest Expense Total interest expense increased $21.8 million, or 322.2%, during the three months ended September 30, 2023, when compared with the three months ended September 30, 2022, due to an increase in interest expense on deposits of $20.2 million, or 406.3%, an increase in interest expense on short-term borrowings of $1.1 million, or 280.1%, an increase in interest expense on securities sold under reverse repurchase agreements of $263,000, or 584.4%, and an increase in interest expense on subordinated debentures issued to capital trusts of $206,000, or 83.1%. Total interest expense increased $58.3 million, or 415.1%, during the nine months ended September 30, 2023, when compared with the nine months ended September 30, 2022, due to an increase in interest expense on deposits of $52.2 million, or 548.0%, an increase in interest expense on short-term borrowings of $4.5 million, or 739.7%, an increase in interest expense on securities sold under reverse repurchase agreements of $809,000, or 1,304.8%, and an increase in interest expense on subordinated debentures issued to capital trusts of $748,000, or 142.5%. Interest Expense – Deposits Interest expense on demand and savings deposits increased $6.8 million due to average rates of interest that increased from 0.23% in the three months ended September 30, 2022 to 1.46% in the three months ended September 30, 2023. Interest rates paid on demand deposits were higher in the 2023 period due to significant increases in overall market rates. Partially offsetting this increase, interest expense on demand deposits decreased $59,000, due to a decrease in average balances from $2.30 billion during the three months ended September 30, 2022 to $2.20 billion during the three months ended September 30, 2023. The Company experienced decreased balances in various types of money market accounts, certain types of NOW accounts and IntraFi Network Reciprocal Deposits. Interest expense on demand and savings deposits increased $16.5 million due to average rates of interest that increased from 0.17% in the nine months ended September 30, 2022 to 1.18% in the nine months ended September 30, 2023. Interest rates paid on demand deposits were higher in the 2023 period due to significant increases in overall market rates. Partially offsetting this increase, interest expense on demand deposits decreased $190,000, due to a decrease in average balances from $2.36 billion during the nine months ended September 30, 2022 to $2.19 billion during the nine months ended September 30, 2023. The Company experienced decreased balances in various types of money market accounts, certain types of NOW accounts and IntraFi Network Reciprocal Deposits. Interest expense on time deposits increased $6.3 million as a result of an increase in average rates of interest from 0.82% during the three months ended September 30, 2022, to 3.37% during the three months ended September 30, 2023. Interest expense on time deposits increased $292,000 due to an increase in average balances of time deposits from $872.3 million during the three months ended September 30, 2022 to $996.2 million in the three months ended September 30, 2023. A large portion of the Company’s certificate of deposit portfolio matures within six to twelve months and therefore reprices fairly quickly; this is consistent with the portfolio over the past several years. Older certificates of deposit that renewed or were replaced with new deposits generally resulted in the Company paying a higher rate of interest due to increases in market interest rates throughout 2022 and 2023 and targeted promotions during the latter half of 2022 and the first nine months of 2023. Interest expense on time deposits increased $16.5 million as a result of an increase in average rates of interest from 0.54% during the nine months ended September 30, 2022, to 2.76% during the nine months ended September 30, 2023. Interest expense on time deposits increased $764,000 due to an increase in average balances of time deposits from $839.3 million during the nine months ended September 30, 2022 to $999.9 million in the nine months ended September 30, 2023. As noted above, a large portion of the Company’s certificate of deposit portfolio matures within six to twelve months and therefore reprices fairly quickly; this is consistent with the portfolio over the past several years. Older certificates of deposit that renewed or were replaced with new deposits generally resulted in the Company paying a higher rate of interest due to increases in market interest rates throughout 2022 and 2023 and targeted promotions during the latter half of 2022 and the first nine months of 2023. Interest expense on brokered deposits increased $3.7 million due to average rates of interest that increased from 2.27% in the three months ended September 30, 2022 to 5.16% in the three months ended September 30, 2023. Interest expense on brokered deposits also increased $3.1 million due to an increase in average balances from $324.2 million during the three months ended September 30, 2022 to $669.8 million during the three months ended September 30, 2023. Brokered deposits added during 2023 were at higher market rates than brokered deposits previously issued. The Company uses brokered deposits of select maturities and interest rate structures from time to time to supplement its various funding channels and to manage interest rate risk. 52 ​ Interest expense on brokered deposits increased $12.9 million, due to an increase in average balances from $175.7 million during the nine months ended September 30, 2022 to $588.9 million during the nine months ended September 30, 2023. Interest expense on brokered deposits also increased $5.6 million due to average rates of interest that increased from 2.45% in the nine months ended September 30, 2022 to 4.93% in the nine months ended September 30, 2023. Brokered deposits added during 2023 were at higher market rates than brokered deposits previously issued. Interest Expense – FHLBank Advances; Short-term Borrowings, Repurchase Agreements and Other Interest-bearing Liabilities; Subordinated Debentures Issued to Capital Trusts and Subordinated Notes FHLBank term advances were not utilized during the three and nine months ended September 30, 2023 and 2022. Interest expense on reverse repurchase agreements increased $273,000 due to higher average interest rates during the three months ended September 30, 2023 when compared to the three months ended September 30, 2022. The average rate of interest was 0.13% for the three months ended September 30, 2022 compared to 2.18% for the three months ended September 30, 2023. The average balance of repurchase agreements decreased $78.7 million from $134.9 million in the three months ended September 30, 2022 to $56.2 million in the three months ended September 30, 2023, which was due to changes in customers’ desire for this product, which can fluctuate. Interest expense on reverse repurchase agreements increased $823,000 due to higher average interest rates during the nine months ended September 30, 2023 when compared to the nine months ended September 30, 2022. The average rate of interest was 0.06% for the nine months ended September 30, 2022 compared to 1.36% for the nine months ended September 30, 2023. The average balance of repurchase agreements decreased $47.1 million from $132.9 million in the nine months ended September 30, 2022 to $85.8 million in the nine months ended September 30, 2023, which was due to changes in customers’ desire for this product, which can fluctuate. Interest expense on short-term borrowings (including overnight borrowings from the FHLBank) and other interest-bearing liabilities increased $806,000 during the three months ended September 30, 2023 when compared to the three months ended September 30, 2022 due to higher average rates of interest. The average rate of interest was 2.14% for the three months ended September 30, 2022, compared to 5.47% for the three months ended September 30, 2023. Short-term market interest rates increased sharply throughout 2022 and into 2023. Interest expense on short-term borrowings (including overnight borrowings from the FHLBank) and other interest-bearing liabilities increased $250,000 during the three months ended September 30, 2023 when compared to the three months ended September 30, 2022 due to higher average balances. The average balance of short-term borrowings and other interest-bearing liabilities increased from $70.0 million in the three months ended September 30, 2022 to $103.8 million in the three months ended September 30, 2023, which was primarily due to changes in the Company’s funding needs and the mix of funding, which can fluctuate. Most of this increase was due to the utilization of overnight borrowings from the FHLBank, which were used to fund loan growth and supplement deposit balances. Interest expense on short-term borrowings (including overnight borrowings from the FHLBank) and other interest-bearing liabilities increased $2.5 million during the nine months ended September 30, 2023 when compared to the nine months ended September 30, 2022 due to higher average rates of interest. The average rate of interest was 1.67% for the nine months ended September 30, 2022, compared to 5.12% for the nine months ended September 30, 2023. Short-term market interest rates increased sharply throughout 2022 and into 2023. Interest expense on short-term borrowings (including overnight borrowings from the FHLBank) and other interest-bearing liabilities increased $2.1 million during the nine months ended September 30, 2023 when compared to the nine months ended September 30, 2022 due to higher average balances. The average balance of short-term borrowings and other interest-bearing liabilities increased from $49.2 million in the nine months ended September 30, 2022 to $134.6 million in the nine months ended September 30, 2023, which was primarily due to changes in the Company’s funding needs and the mix of funding, which can fluctuate. Most of this increase was due to the utilization of overnight borrowings from the FHLBank. During the three months ended September 30, 2023, compared to the three months ended September 30, 2022, interest expense on subordinated debentures issued to capital trusts increased $206,000 due to higher average interest rates. The average interest rate was 7.00% in the three months ended September 30, 2023 compared to 3.82% in the three months ended September 30, 2022. The subordinated debentures are variable-rate debentures which bear interest at an average rate of three-month SOFR (originally LIBOR) plus 1.60%, adjusting quarterly, which was 7.23% at September 30, 2023. There was no change in the average balance of the subordinated debentures between the 2022 and 2023 periods. During the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, interest expense on subordinated debentures issued to capital trusts increased $748,000 due to higher average interest rates. The average interest rate was 6.61% in the nine months ended September 30, 2023 compared to 2.72% in the nine months ended September 30, 2022. The subordinated debentures are variable-rate debentures, as stated above. There was no change in the average balance of the subordinated debentures between the 2022 and 2023 periods. 53 ​ In June 2020, the Company issued $75.0 million of 5.50% fixed-to-floating rate subordinated notes due June 15, 2030. The notes were sold at par, resulting in net proceeds, after underwriting discounts and commissions and other issuance costs, of approximately $73.5 million. These issuance costs are amortized over the expected life of the notes, which is five years from the issuance date, impacting the overall interest expense on the notes. During the three months ended September 30, 2023, compared to the three months ended September 30, 2022, interest expense on subordinated notes increased $1,000. There was no change in the interest expense on subordinated notes during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022. 54 ​ Net Interest Income Net interest income for the three months ended September 30, 2023 decreased $6.2 million to $46.7 million compared to $52.9 million for the three months ended September 30, 2022. Net interest margin was 3.43% in the three months ended September 30, 2023, compared to 3.96% in the three months ended September 30, 2022, a decrease of 53 basis points, or 13.4%. The Company experienced increases in interest income on both loans and other interest-earning assets. The Company experienced increases in interest expense on deposits, short-term borrowings, subordinated debentures issued to capital trust and securities sold under reverse repurchase agreements with customers. Net interest income for the nine months ended September 30, 2023 increased $3.1 million to $148.1 million compared to $145.0 million for the nine months ended September 30, 2022. Net interest margin was 3.66% in the nine months ended September 30, 2023, compared to 3.73% in the nine months ended September 30, 2022, a decrease of 7 basis points, or 1.9%. The Company experienced increases in interest income on loans, other interest-earning assets and investment securities. The Company experienced increases in interest expense on deposits, short-term borrowings, subordinated debentures issued to capital trust and securities sold under reverse repurchase agreements with customers. The Company’s overall average interest rate spread decreased 97 basis points, or 25.8%, from 3.76% during the three months ended September 30, 2022 to 2.79% during the three months ended September 30, 2023. The decrease was due to a 204 basis point increase in the weighted average rate paid on interest-bearing liabilities, partially offset by a 107 basis point increase in the weighted average yield on interest-earning assets. In comparing the two periods, the yield on loans increased 113 basis points, the yield on investment securities increased 16 basis points and the yield on other interest-earning assets increased 311 basis points. The rate paid on deposits increased 203 basis points, the rate paid on reverse repurchase agreements increased 205 basis points, the rate paid on short-term borrowings and other interest-bearing liabilities increased 333 basis points and the rate paid on subordinated debentures issued to capital trust increased 318 basis points. The Company’s overall average interest rate spread decreased 49 basis points, or 13.8%, from 3.58% during the nine months ended September 30, 2022 to 3.09% during the nine months ended September 30, 2023. The decrease was due to a 185 basis point increase in the weighted average rate paid on interest-bearing liabilities, partially offset by a 135 basis point increase in the weighted average yield on interest-earning assets. In comparing the two periods, the yield on loans increased 138 basis points, the yield on investment securities increased five basis points and the yield on other interest-earning assets increased 438 basis points. The rate paid on deposits increased 180 basis points, the rate paid on reverse repurchase agreements increased 130 basis points, the rate paid on short-term borrowings and other interest-bearing liabilities increased 345 basis points and the rate paid on subordinated debentures issued to capital trust increased 389 basis points. Interest rates on short-term borrowings and subordinated debentures issued to capital trust reprice quickly and directly with changes to market interest rates. Interest rates earned on loans and paid on deposits are affected by the mix of the loan and deposit portfolios, the stated maturity of loans and time deposits, the amount of fixed-rate and variable-rate loans and other repricing characteristics. Throughout 2022, competition for deposits was not as intense and market rates on deposits moved higher at a slower pace. In 2023, overall competition for deposits intensified as a few banks experienced significant liquidity issues in March 2023 and market rates moved higher more rapidly. Also, as market interest rates moved higher, some deposit holders chose to move funds into non-deposit investment products. In addition, in the three months ended September 30, 2023, the Company had nearly $200 million of lower-rate time deposits mature and reprice at the substantially higher then-market interest rates. If market interest rates remain near their current levels, the Company’s interest rate swaps will continue to have a negative impact on net interest income. Based on the interest rates on these swaps at September 30, 2023, the negative impact of all the interest rate swaps combined in the three months ending December 31, 2023 is expected to be approximately $3.7 million. The negative impact of all the interest rate swaps combined in the three months ended September 30, 2023 was approximately $3.5 million. As noted previously, one of these interest rate swaps will terminate March 1, 2024. This interest rate swap had a negative impact to net interest income of $2.8 million in the three months ended September 30, 2023. It is expected to have a negative impact to net interest income of $2.9 million in the three months ending December 31, 2023 and $1.9 million in the three months ending March 31, 2024, then no further impact in subsequent periods. For additional information on net interest income components, refer to the “Average Balances, Interest Rates and Yields” tables in this Quarterly Report on Form 10-Q. 55 ​ Provision for and Allowance for Credit Losses The Company adopted ASU 2016 13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, effective January 1, 2021. The CECL methodology replaced the incurred loss methodology with a lifetime “expected credit loss” measurement objective for loans, held-to-maturity debt securities and other receivables measured at amortized cost at the time the financial asset is originated or acquired. This standard requires the consideration of historical loss experience and current conditions adjusted for reasonable and supportable economic forecasts. Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level or term, as well as for changes in economic conditions, including but not limited to; changes in the national unemployment rate, commercial real estate price index, housing price index, consumer sentiment, gross domestic product (GDP) and construction spending. Challenging or worsening economic conditions from higher inflation or interest rates, COVID-19 and subsequent variant outbreaks or similar events, global unrest or other factors may lead to increased losses in the portfolio and/or requirements for an increase in provision expense. Management maintains various controls in an attempt to identify and limit future losses, such as a watch list of problem loans and potential problem loans, documented loan administration policies and loan review staff to review the quality and anticipated collectability of the portfolio. Additional procedures provide for frequent management review of the loan portfolio based on loan size, loan type, delinquencies, financial analysis, ongoing correspondence with borrowers and problem loan workouts. Management determines which loans are collateral-dependent, evaluates risk of loss and makes additional provisions to expense, if necessary, to maintain the allowance at a satisfactory level. During the three months ended September 30, 2023, the Company did not record a provision expense on its portfolio of outstanding loans, compared to a $2.0 million provision expense during the three months ended September 30, 2022. During the nine months ended September 30, 2023 and September 30, 2022, the Company recorded provision expense of $1.5 million and $2.0 million, respectively, on its portfolio of outstanding loans. Total net charge-offs were $99,000 for the three months ended September 30, 2023, compared to $297,000 in the three months ended September 30, 2022. Total net charge-offs were $227,000 for the nine months ended September 30, 2023, compared to net recoveries of $7,000 in the nine months ended September 30, 2022. For the three months ended September 30, 2023, the Company recorded a negative provision for losses on unfunded commitments of $1.2 million, compared to provision expense of $1.3 million for the three months ended September 30, 2022. For the nine months ended September 30, 2023, the Company recorded a negative provision for losses on unfunded commitments of $3.6 million, compared to provision expense of $3.3 million for the nine months ended September 30, 2022. General market conditions and unique circumstances related to specific industries and individual projects contribute to the level of provisions and charge-offs. The Bank’s allowance for credit losses as a percentage of total loans was 1.40% and 1.39% at September 30, 2023 and December 31, 2022, respectively. Management considers the allowance for credit losses adequate to cover losses inherent in the Bank’s loan portfolio at September 30, 2023 based on recent reviews of the Bank’s loan portfolio and current economic conditions. If challenging economic conditions were to last longer than anticipated or deteriorate further or management’s assessment of the loan portfolio were to change, additional credit loss provisions could be required, thereby adversely affecting the Company’s future results of operations and financial condition. Non-performing Assets As a result of changes in balances and composition of the loan portfolio, changes in economic and market conditions and other factors specific to a borrower’s circumstances, the level of non-performing assets will fluctuate. At September 30, 2023, non-performing assets were $10.9 million, an increase of $7.2 million from $3.7 million at December 31, 2022. Non-performing assets as a percentage of total assets were 0.19% at September 30, 2023, compared to 0.07% at December 31, 2022. Compared to December 31, 2022, non-performing loans increased $7.1 million, to $10.8 million at September 30, 2023, and foreclosed and repossessed assets decreased $12,000, to $38,000 at September 30, 2023. The majority of the increase in non-performing loans was in the commercial real estate loans category, which included $8.6 million in loans transferred to non-performing since December 31, 2022. 56 ​ Non-performing Loans . Activity in the non-performing loans category during the nine months ended September 30, 2023 was as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Transfers to ​ Transfers to ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Beginning ​ Additions ​ Removed ​ Potential ​ Foreclosed ​ ​ ​ ​ ​ ​ ​ Ending ​ ​ Balance, ​ to Non- ​ from Non- ​ Problem ​ Assets and ​ Charge- ​ ​ ​ ​ Balance, ​ January 1 Performing Performing Loans Repossessions Offs Payments September 30 ​ (In thousands) One- to four-family construction ​ $ — ​ $ — ​ $ — ​ $ — ​ $ — ​ $ — ​ $ — ​ $ — Subdivision construction ​ — ​ — ​ — ​ — ​ — ​ — ​ — ​ — Land development ​ 384 ​ — ​ — ​ — ​ — ​ — ​ — ​ 384 Commercial construction ​ — ​ — ​ — ​ — ​ — ​ — ​ — ​ — One- to four-family residential ​ 722 ​ 173 ​ — ​ — ​ (21) ​ (31) ​ (602) ​ 241 Other residential ​ — ​ — ​ — ​ — ​ — ​ — ​ — ​ — Commercial real estate ​ 1,579 ​ 8,735 ​ — ​ — ​ — ​ — ​ (182) ​ 10,132 Commercial business ​ 586 ​ 16 ​ — ​ — ​ — ​ — ​ (602) ​ — Consumer ​ 399 ​ 174 ​ — ​ — ​ — ​ (121) ​ (378) ​ 74 Total non-performing loans ​ $ 3,670 ​ $ 9,098 ​ $ — ​ $ — ​ $ (21) ​ $ (152) ​ $ (1,764) ​ $ 10,831 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ FDIC-assisted acquired loans included above ​ $ 428 ​ $ 68 ​ $ — ​ $ — ​ $ (21) ​ $ (31) ​ $ (353) ​ $ 91 ​ At September 30, 2023, the non-performing commercial real estate category included four loans, one of which was added during the current period. The largest relationship in the category, which totaled $8.5 million, or 84.3% of the total category, was added to non-performing loans during the three months ended June 30, 2023 and is collateralized by an office building in Missouri. The non-performing one- to four-family residential category included three loans, one of which was added during 2023. The largest relationship in the category totaled $150,000, or 62.3% of the category. The non-performing one- to four-family residential category experienced $602,000 in repayments during the nine months ended September 30, 2023, primarily related to a note sale of 16 non-performing loans. The loan sale proceeds were sufficient to result in no loss to the Company. The non-performing land development category consisted of one loan added during 2021, which totaled $384,000 and is collateralized by unimproved zoned vacant ground in southern Illinois. The non-performing consumer category included seven loans. 57 ​ Potential Problem Loans. Compared to December 31, 2022, potential problem loans decreased $1.2 million, or 78.6%, to $337,000 at September 30, 2023. The decrease during the period was primarily due to multiple loans totaling $1.0 million that were upgraded to a satisfactory risk rating, $294,000 in loan payments, $111,000 in loans downgraded to the non-performing category and $13,000 in charge offs, partially offset by $181,000 in loans added to potential problem loans. Potential problem loans are loans which management has identified through routine internal review procedures as having possible credit problems that may cause the borrowers difficulty in complying with the current repayment terms. These loans are not reflected in non-performing assets. Activity in the potential problem loans categories during the nine months ended September 30, 2023, was as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Removed ​ Transfers to ​ ​ ​ ​ ​ Beginning ​ Additions ​ from ​ Transfers to ​ Foreclosed ​ ​ ​ Loan ​ Ending ​ ​ Balance, ​ to Potential ​ Potential ​ Non- ​ Assets and ​ Charge- ​ Advances ​ Balance, ​ January 1 Problem Problem Performing Repossessions Offs (Payments) September 30 ​ ​ (In thousands) One- to four-family construction ​ $ — ​ $ — ​ $ — ​ $ — ​ $ — ​ $ — ​ $ — ​ $ — Subdivision construction ​ — ​ — ​ — ​ — ​ — ​ — ​ — ​ — Land development ​ — ​ — ​ — ​ — ​ — ​ — ​ — ​ — Commercial construction ​ — ​ — ​ — ​ — ​ — ​ — ​ — ​ — One- to four-family residential ​ 1,348 ​ 167 ​ (939) ​ (105) ​ — ​ — ​ (235) ​ 236 Other residential ​ — ​ — ​ — ​ — ​ — ​ — ​ — ​ — Commercial real estate ​ — ​ — ​ — ​ — ​ — ​ — ​ — ​ — Commercial business ​ — ​ — ​ — ​ — ​ — ​ — ​ — ​ — Consumer ​ 230 ​ 14 ​ (65) ​ (6) ​ — ​ (13) ​ (59) ​ 101 Total potential problem loans ​ $ 1,578 ​ $ 181 ​ $ (1,004) ​ $ (111) ​ $ — ​ $ (13) ​ $ (294) ​ $ 337 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ FDIC-assisted acquired loans included above ​ $ 743 ​ $ — ​ $ (561) ​ $ — ​ $ — ​ $ — ​ $ (5) ​ $ 177 ​ At September 30, 2023, the one- to four-family residential category of potential problem loans included three loans, one of which was added during 2023. The largest relationship in this category totaled $99,000, or 42.0% of the total category. During the nine months ended September 30, 2023, 19 loans, totaling $1.0 million, met the criteria to be upgraded to a satisfactory risk rating. The consumer category of potential problem loans included 10 loans, one of which was added during the current period. Other Real Estate Owned and Repossessions. All of the total $38,000 of other real estate owned and repossessions at September 30, 2023 were acquired through foreclosure. Activity in foreclosed assets and repossessions during the nine months ended September 30, 2023, was as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Beginning ​ ​ ​ ORE and ​ ​ ​ ORE and ​ Ending ​ ​ Balance, ​ ​ ​ Repossession ​ Capitalized ​ Repossession ​ Balance, ​ ​ January 1 ​ Additions ​ Sales ​ Costs ​ Write-Downs ​ September 30 ​ (In thousands) One-to four-family construction $ — $ — $ — $ — $ — $ — Subdivision construction ​ — ​ — ​ — ​ — ​ — ​ — Land development ​ — ​ — ​ — ​ — ​ — ​ — Commercial construction ​ — ​ — ​ — ​ — ​ — ​ — One- to four-family residential ​ — ​ 21 ​ (21) ​ — ​ — ​ — Other residential ​ — ​ — ​ — ​ — ​ — ​ — Commercial real estate ​ — ​ — ​ — ​ — ​ — ​ — Commercial business ​ — ​ — ​ — ​ — ​ — ​ — Consumer ​ 50 ​ 79 ​ (91) ​ — ​ — ​ 38 Total foreclosed assets and repossessions ​ $ 50 ​ $ 100 ​ $ (112) ​ $ — ​ $ — ​ $ 38 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ FDIC-assisted acquired loans included above ​ $ — ​ $ 21 ​ $ (21) ​ $ — ​ $ — ​ $ — ​ The additions and sales in the consumer category were due to the volume of repossessions of automobiles, which generally are subject to a shorter repossession process. 58 ​ Loans Classified “Watch” and “Special Mention” The Company reviews the credit quality of its loan portfolio using an internal grading system that classifies loans as “Satisfactory,” “Watch,” “Special Mention,” “Substandard” and “Doubtful.” Loans identified as “Watch” are monitored due to indications of potential weaknesses or deficiencies that may require future re-classification as special mention or substandard. In the nine months ended September 30, 2023, loans classified as “Watch” decreased $9.8 million, from $28.7 million at December 31, 2022 to $18.9 million at September 30, 2023, primarily due to the combination of one large loan being upgraded to “Satisfactory” out of the “Watch” category and an unrelated loan being downgraded to substandard and added to non-performing loans, partially offset by two unrelated loans being downgraded from “Satisfactory” to “Watch.” While loans classified as “Special Mention” are not adversely classified, they are deserving of management's close attention to ensure deterioration of the repayment prospects or the credit position of the assets does not expose the institution to elevated risk to warrant adverse classification at a future date. In the nine months ended September 30, 2023, loans classified as “Special Mention” increased $21.7 million as two loan relationships were downgraded from “Satisfactory.” See Note 6 for further discussion of the Company’s loan grading system. Non-interest Income For the three months ended September 30, 2023, non-interest income decreased $132,000 to $7.9 million when compared to the three months ended September 30, 2022. None of the components of non-interest income experienced increases or decreases exceeding $200,000 in comparing the two periods. For the nine months ended September 30, 2023, non-interest income decreased $3.0 million to $23.5 million when compared to the nine months ended September 30, 2022, primarily as a result of the following items: Other income : Other income decreased $845,000 compared to the prior year period. In the 2022 period, a gain of $1.1 million was recognized on sales of fixed assets, with no similar transactions occurring in the current year period. Point-of-sale and ATM fees : Point-of-sale and ATM fees decreased $738,000 compared to the prior year period. This decrease was primarily due to a portion of these transactions now being routed through channels with lower fees to the Company, which we expect will continue in future periods. Gain (loss) on derivative interest rate products : In the 2023 period, the Company recognized a loss of $234,000 on the change in fair value of its back-to-back interest rate swaps related to commercial loans and the change in fair value on interest rate swaps related to brokered time deposits. In the 2022 period, the Company recognized a gain of $385,000 on the change in fair value of its back-to-back interest rate swaps related to commercial loans. Non-interest Expense For the three months ended September 30, 2023, non-interest expense increased $799,000 to $35.6 million when compared to the three months ended September 30, 2022, primarily as a result of the following items: Salaries and employee benefits : Salaries and employee benefits increased $697,000 in comparing the three month periods. A portion of this increase related to normal annual merit increases in various lending and operations areas. In 2023, some of these increases were larger than in previous years due to the current employment environment. In addition, compensation costs related to originated loans that are deferred under accounting rules decreased by $233,000 in the 2023 period compared to the 2022 period (which resulted in higher expense in the 2023 period because deferred costs and the related credit to expense were less), as the volume of loans originated in the three months ended September 30, 2023 decreased substantially compared to the three months ended September 30, 2022. Net occupancy and equipment expenses : Net occupancy expenses increased $531,000 from the prior year period. Various components of computer license and support expenses increased by $333,000 in the 2023 period compared to the 2022 period. In addition, various repairs and maintenance expenses increased by $106,000 in the 2023 period compared to the 2022 period. Insurance : Insurance expense increased $498,000 from the prior year period. The increase was primarily due to previously announced increases in deposit insurance rates by the FDIC’s Deposit Insurance Fund. 59 ​ Legal, Audit and Other Professional Fees : Legal, audit and other professional fees decreased $390,000 from the prior year period, to $1.8 million. In the 2022 period, the Company expensed $372,000 in professional fees related to the interest rate swaps initiated in July 2022, which was not repeated in the 2023 period. For the nine months ended September 30, 2023, non-interest expense increased $5.7 million to $104.7 million when compared to the nine months ended September 30, 2022, primarily as a result of the following items: Salaries and employee benefits : Salaries and employee benefits increased $2.1 million from the prior year period. A portion of this increase related to normal annual merit increases in various lending and operations areas. In 2023, some of these increases were larger than in previous years due to the current employment environment. In addition, compensation costs related to originated loans that are deferred under accounting rules decreased by $1.2 million in the 2023 period compared to the 2022 period (which resulted in higher expense in the 2023 period because deferred costs and the related credit to expense were less), as the volume of loans originated in the first nine months of 2023 decreased substantially compared to the same period in 2022. Net occupancy and equipment expenses : Net occupancy expenses increased $2.0 million from the prior year period. Various components of computer license and support expenses increased by $986,000 in the 2023 period compared to the 2022 period. Depreciation and related expenses for equipment placed in service in 2023 increased expenses by $500,000 in the 2023 period compared to the 2022 period. In addition, various repairs and maintenance expenses increased by $224,000 in the 2023 period compared to the 2022 period. Legal, Audit and Other Professional Fees : Legal, audit and other professional fees increased $1.2 million from the prior year period, to $5.5 million. In the 2023 period, the Company expensed a total of $3.1 million, compared to $1.7 million expensed in the 2022 period, primarily related to training and implementation costs for the upcoming core systems conversion and professional fees to consultants engaged to support the Company’s transition of core and ancillary software and information technology systems. Insurance : Insurance expense increased $795,000 from the prior year period. The increase was primarily due to previously announced increases in deposit insurance rates by the FDIC’s Deposit Insurance Fund. The Company’s efficiency ratio for the three months ended September 30, 2023, was 65.13% compared to 57.09% for the same period in 2022. The Company’s efficiency ratio for the nine months ended September 30, 2023, was 61.04% compared to 57.75% for the same period in 2022. The Company’s ratio of non-interest expense to average assets was 2.49% for both the three months ended September 30, 2023 and the three months ended September 30, 2022. The Company’s ratio of non-interest expense to average assets was 2.45% and 2.42% for the nine months ended September 30, 2023 and 2022, respectively. Average assets for the three months ended September 30, 2023, increased $124.5 million, or 2.2%, from the three months ended September 30, 2022, primarily due to an increase in net loans receivable and interest-bearing cash equivalents, partially offset by a decrease in investment securities. Average assets for the nine months ended September 30, 2023, increased $255.6 million, or 4.7%, compared to the nine months ended September 30, 2022, primarily due to an increase in net loans receivable and investment securities, partially offset by a decrease in interest-bearing cash equivalents. In comparing the 2023 and 2022 periods, the increases in the efficiency ratio and the ratio of net non-interest expense to average assets primarily resulted from increases in non-interest expense. Provision for Income Taxes For the three months ended September 30, 2023 and 2022, the Company’s effective tax rate was 21.5% and 20.5%, respectively. For the nine months ended September 30, 2023 and 2022, the Company’s effective tax rate was 20.8% and 20.5%, respectively. These effective rates were near or below the statutory federal tax rate of 21%, due primarily to the utilization of certain investment tax credits and the Company’s tax-exempt investments and tax-exempt loans, which reduced the Company’s effective tax rate. The Company’s effective tax rate may fluctuate in future periods as it is impacted by the level and timing of the Company’s utilization of tax credits, the level of tax-exempt investments and loans, the amount of taxable income in various state jurisdictions and the overall level of pre-tax income. State tax expense estimates continually evolve as taxable income and apportionment between states are analyzed. The Company’s effective income tax rate is currently generally expected to remain near the statutory federal tax rate due primarily to the factors noted above. The Company currently expects its effective tax rate (combined federal and state) will be approximately 20.5% to 22.0% in future periods. 60 ​ Average Balances, Interest Rates and Yields ​ The following tables present, for the periods indicated, the total dollar amount of interest income from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates, and net interest margin. Average balances of loans receivable include the average balances of non-accrual loans for each period. Interest income on loans includes interest received on non-accrual loans on a cash basis. Interest income on loans also includes the amortization of net loan fees which were deferred in accordance with accounting standards. Net loan fees included in interest income were $1.5 million and $1.6 million for the three months ended September 30, 2023 and 2022, respectively. Net loan fees included in interest income were $4.4 million and $4.7 million for the nine months ended September 30, 2023 and 2022, respectively. Tax-exempt income was not calculated on a tax equivalent basis. The table does not reflect any effect of income taxes. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ Three Months Ended ​ Three Months Ended ​ ​ 2023 ​ September 30, 2023 ​ September 30, 2022 ​ ​ Yield/ ​ Average ​ ​ ​ ​ Yield/ ​ Average ​ ​ ​ Yield/ ​ Rate Balance Interest Rate Balance Interest Rate ​ ​ (Dollars in Thousands) Interest-earning assets: ​ ​ ​ ​ ​ Loans receivable: ​ ​ ​ ​ ​ One- to four-family residential 3.79 % $ 903,147 ​ $ 8,594 3.78 % $ 872,243 ​ $ 7,532 3.43 % Other residential 7.07 ​ 829,520 ​ 14,702 7.03 ​ 885,883 ​ 11,836 5.30 ​ Commercial real estate 6.01 ​ 1,466,739 ​ 21,730 5.88 ​ 1,584,249 ​ 19,368 4.85 ​ Construction 7.89 ​ 911,731 ​ 16,691 7.26 ​ 635,811 ​ 9,116 5.69 ​ Commercial business 6.36 ​ 313,909 ​ 4,812 6.08 ​ 293,529 ​ 3,734 5.05 ​ Other loans 6.45 ​ 178,030 ​ 2,128 ​ 4.74 ​ 197,070 ​ 2,309 4.65 ​ Industrial revenue bonds(1) 6.01 ​ 12,322 ​ 221 7.11 ​ 13,100 ​ 182 5.52 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total loans receivable 6.16 ​ 4,615,398 ​ 68,878 5.92 ​ 4,481,885 ​ 54,077 4.79 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Investment securities(1) 2.72 ​ 678,564 ​ 5,018 2.93 ​ 734,518 ​ 5,129 2.77 ​ Interest-earning deposits in other banks 5.33 ​ 104,546 ​ 1,376 5.22 ​ 84,797 ​ 451 2.11 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total interest-earning assets 5.77 ​ 5,398,508 ​ 75,272 5.53 ​ 5,301,200 ​ 59,657 4.46 ​ Non-interest-earning assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ ​ ​ 91,860 ​ ​ ​ ​ 101,307 ​ ​ ​ ​ Other non-earning assets ​ ​ ​ 213,411 ​ ​ ​ ​ 176,768 ​ ​ ​ ​ Total assets ​ ​ ​ $ 5,703,779 ​ ​ ​ ​ $ 5,579,275 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest-bearing liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest-bearing demand and savings 1.54 ​ $ 2,195,848 ​ 8,064 1.46 ​ $ 2,303,579 ​ 1,320 0.23 ​ Time deposits 3.53 ​ 996,220 ​ 8,450 3.37 ​ 872,269 ​ 1,811 0.82 ​ Brokered deposits ​ 5.06 ​ ​ 669,829 ​ ​ 8,719 ​ 5.16 ​ ​ 324,183 ​ ​ 1,853 ​ 2.27 ​ Total deposits 2.65 ​ 3,861,897 ​ 25,233 2.59 ​ 3,500,031 ​ 4,984 0.56 ​ Securities sold under reverse repurchase agreements ​ 2.42 ​ ​ 56,152 ​ ​ 308 ​ 2.18 ​ ​ 134,917 ​ ​ 45 ​ 0.13 ​ Short-term borrowings, overnight FHLBank borrowings and other interest-bearing liabilities 5.57 ​ 103,828 ​ 1,433 5.47 ​ 69,956 ​ 377 2.14 ​ Subordinated debentures issued to capital trusts 7.23 ​ 25,774 ​ 454 7.00 ​ 25,774 ​ 248 3.82 ​ Subordinated notes 5.93 ​ 74,462 ​ 1,106 5.89 ​ 74,165 ​ 1,105 5.91 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total interest-bearing liabilities 2.79 ​ 4,122,113 ​ 28,534 2.74 ​ 3,804,843 ​ 6,759 0.70 ​ Non-interest-bearing liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Demand deposits ​ ​ ​ 938,076 ​ ​ ​ ​ 1,146,542 ​ ​ ​ ​ Other liabilities ​ ​ ​ 89,970 ​ ​ ​ ​ 70,566 ​ ​ ​ ​ Total liabilities ​ ​ ​ 5,150,159 ​ ​ ​ ​ 5,021,951 ​ ​ ​ ​ Stockholders’ equity ​ ​ ​ 553,620 ​ ​ ​ ​ 557,324 ​ ​ ​ ​ ​ ​ ​ ​ $ 5,703,779 ​ ​ ​ ​ ​ ​ $ 5,579,275 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net interest income: ​ ​ ​ ​ $ 46,738 ​ ​ ​ ​ $ 52,898 ​ ​ Interest rate spread 2.98 % ​ ​ ​ ​ ​ 2.79 % ​ ​ ​ ​ ​ 3.76 % Net interest margin* ​ ​ ​ ​ ​ ​ ​ ​ 3.43 % ​ ​ ​ 3.96 % Average interest-earning assets to average interest-bearing liabilities ​ ​ ​ 131.0 % ​ ​ ​ 139.3 % ​ ​ ​ * Defined as the Company’s net interest income divided by total average interest-earning assets. (1) Of the total average balances of investment securities, average tax-exempt investment securities were $56.1 million and $63.4 million for the three months ended September 30, 2023 and 2022, respectively. In addition, average tax-exempt loans and industrial revenue bonds were $13.7 million and $16.2 million for the three months ended September 30, 2023 and 2022, respectively. Interest income on tax-exempt assets included in this table was $608,000 and $628,000 for the three months ended September 30, 2023 and 2022, respectively. Interest income net of disallowed interest expense related to tax-exempt assets was $503,000 and $604,000 for the three months ended September 30, 2023 and 2022, respectively. 61 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ Nine Months Ended ​ Nine Months Ended ​ ​ 2023 ​ September 30, 2023 ​ September 30, 2022 ​ ​ Yield/ ​ Average ​ ​ ​ ​ Yield/ ​ Average ​ ​ ​ ​ Yield/ ​ Rate Balance Interest Rate Balance Interest Rate ​ (Dollars in Thousands) ​ Interest-earning assets: ​ Loans receivable: ​ ​ ​ ​ ​ One- to four-family residential 3.79 % $ 907,990 $ 25,124 3.70 % $ 782,592 $ 20,107 3.44 % Other residential 7.07 ​ ​ 824,453 ​ ​ 41,767 6.77 ​ ​ 832,641 ​ ​ 29,890 4.80 ​ Commercial real estate 6.01 ​ ​ 1,495,186 ​ ​ 65,508 5.86 ​ ​ 1,550,445 ​ ​ 51,834 4.47 ​ Construction 7.89 ​ ​ 899,026 ​ ​ 48,544 7.22 ​ ​ 642,264 ​ ​ 24,367 5.07 ​ Commercial business 6.36 ​ ​ 296,605 ​ ​ 13,153 5.93 ​ ​ 290,420 ​ ​ 10,431 4.80 ​ Other loans 6.45 ​ ​ 183,679 ​ ​ 7,001 5.10 ​ ​ 200,014 ​ ​ 6,770 4.53 ​ Industrial revenue bonds(1) 6.01 ​ ​ 12,493 ​ ​ 661 7.08 ​ ​ 13,472 ​ ​ 507 5.03 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total loans receivable 6.16 ​ ​ 4,619,432 ​ ​ 201,758 5.84 ​ ​ 4,311,848 ​ ​ 143,906 4.46 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Investment securities(1) 2.72 ​ ​ 694,727 ​ ​ 15,005 2.89 ​ ​ 670,700 ​ ​ 14,260 2.84 ​ Interest-earning deposits in other banks 5.33 ​ ​ 97,829 ​ ​ 3,590 4.91 ​ ​ 218,263 ​ ​ 862 0.53 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total interest-earning assets 5.77 ​ ​ 5,411,988 ​ ​ 220,353 5.44 ​ ​ 5,200,811 ​ ​ 159,028 4.09 ​ Non-interest-earning assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ ​ ​ ​ 91,515 ​ ​ ​ ​ ​ ​ ​ 95,943 ​ ​ ​ ​ ​ ​ Other non-earning assets ​ ​ ​ ​ 205,415 ​ ​ ​ ​ ​ ​ ​ 156,577 ​ ​ ​ ​ ​ ​ Total assets ​ ​ $ 5,708,918 ​ ​ ​ ​ ​ $ 5,453,331 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest-bearing liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest-bearing demand and savings 1.54 $ 2,191,827 ​ ​ 19,281 1.18 $ 2,355,937 ​ ​ 2,927 0.17 ​ Time deposits 3.53 ​ ​ 999,856 ​ ​ 20,658 2.76 ​ ​ 839,286 ​ ​ 3,375 0.54 ​ Brokered deposits 5.06 ​ ​ 588,862 ​ ​ 21,729 4.93 ​ ​ 175,717 ​ ​ 3,214 2.45 ​ Total deposits 2.65 ​ ​ 3,780,545 ​ ​ 61,668 2.18 ​ ​ 3,370,940 ​ ​ 9,516 0.38 ​ Securities sold under reverse repurchase agreements 2.42 ​ ​ 85,811 ​ ​ 871 1.36 ​ ​ 132,930 ​ ​ 62 0.06 ​ Short-term borrowings, overnight FHLBank borrowings and other interest-bearing liabilities 5.57 ​ ​ 134,595 ​ ​ 5,156 5.12 ​ ​ 49,217 ​ ​ 614 1.67 ​ Subordinated debentures issued to capital trusts 7.23 ​ ​ 25,774 ​ ​ 1,273 6.61 ​ ​ 25,774 ​ ​ 525 2.72 ​ Subordinated notes 5.93 ​ ​ 74,392 ​ ​ 3,317 5.96 ​ ​ 74,094 ​ ​ 3,317 5.99 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total interest-bearing liabilities 2.79 ​ ​ 4,101,117 ​ ​ 72,285 2.36 ​ ​ 3,652,955 ​ ​ 14,034 0.51 ​ Non-interest-bearing liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Demand deposits ​ ​ ​ ​ 965,403 ​ ​ ​ ​ ​ ​ ​ 1,165,125 ​ ​ ​ ​ ​ ​ Other liabilities ​ ​ ​ ​ 88,309 ​ ​ ​ ​ ​ ​ ​ 55,287 ​ ​ ​ ​ ​ ​ Total liabilities ​ ​ ​ ​ 5,154,829 ​ ​ ​ ​ ​ ​ ​ 4,873,367 ​ ​ ​ ​ ​ ​ Stockholders’ equity ​ ​ ​ ​ 554,089 ​ ​ ​ ​ ​ ​ ​ 579,964 ​ ​ ​ ​ ​ ​ Total liabilities and stockholders’ equity ​ ​ $ 5,708,918 ​ ​ ​ ​ ​ $ 5,453,331 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net interest income: ​ ​ ​ ​ ​ $ 148,068 ​ ​ ​ ​ ​ $ 144,994 ​ ​ ​ Interest rate spread 2.98 % ​ ​ ​ ​ ​ 3.09 % ​ ​ ​ ​ ​ 3.58 % Net interest margin* ​ ​ ​ ​ ​ ​ ​ ​ 3.66 % ​ ​ ​ ​ ​ 3.73 % Average interest-earning assets to average interest-bearing liabilities ​ ​ ​ ​ 132.0 % ​ ​ ​ ​ ​ ​ 142.4 % ​ ​ ​ ​ ​ * Defined as the Company’s net interest income divided by total average interest-earning assets. (1) Of the total average balances of investment securities, average tax-exempt investment securities were $57.0 million and $51.4 million for the nine months ended September 30, 2023 and 2022, respectively. In addition, average tax-exempt loans and industrial revenue bonds were $14.2 million and $16.3 million for the nine months ended September 30, 2023 and 2022, respectively. Interest income on tax-exempt assets included in this table was $1.9 million and $1.5 million for the nine months ended September 30, 2023 and 2022, respectively. Interest income net of disallowed interest expense related to tax-exempt assets was $1.6 million and $1.4 million for the nine months ended September 30, 2023 and 2022, respectively. ​ 62 ​ Rate/Volume Analysis The following tables present the dollar amounts of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities for the periods shown. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in rate (i.e., changes in rate multiplied by old volume) and (ii) changes in volume (i.e., changes in volume multiplied by old rate). For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately to volume and rate. Tax-exempt income was not calculated on a tax equivalent basis. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended September 30, ​ ​ 2023 vs. 2022 ​ ​ Increase (Decrease) Total ​ ​ Due to ​ Increase ​ ​ Rate Volume ​ (Decrease) ​ ​ (Dollars in Thousands) Interest-earning assets: ​ ​ ​ Loans receivable ​ $ 13,147 ​ $ 1,654 ​ $ 14,801 Investment securities ​ 382 ​ (493) ​ (111) Interest-earning deposits in other banks ​ 799 ​ 126 ​ 925 Total interest-earning assets ​ 14,328 ​ 1,287 ​ 15,615 Interest-bearing liabilities: ​ ​ ​ ​ ​ ​ Demand deposits ​ 6,803 ​ (59) ​ 6,744 Time deposits ​ 6,347 ​ 292 ​ 6,639 Brokered deposits ​ ​ 3,742 ​ ​ 3,124 ​ ​ 6,866 Total deposits ​ 16,892 ​ 3,357 ​ 20,249 Securities sold under reverse repurchase agreements ​ ​ 273 ​ ​ (10) ​ ​ 263 Short-term borrowings, overnight FHLBank borrowings and other interest-bearing liabilities ​ 806 ​ 250 ​ ​ 1,056 Subordinated debentures issued to capital trust ​ 206 ​ — ​ 206 Subordinated notes ​ (3) ​ 4 ​ 1 Total interest-bearing liabilities ​ 18,174 ​ 3,601 ​ 21,775 Net interest income ​ $ (3,846) ​ $ (2,314) ​ $ (6,160) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine Months Ended September 30, ​ ​ 2023 vs. 2022 ​ ​ Increase (Decrease) ​ Total ​ ​ Due to ​ Increase ​ Rate Volume (Decrease) ​ (Dollars in Thousands) Interest-earning assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ Loans receivable $ 46,992 $ 10,860 $ 57,852 Investment securities ​ ​ 229 ​ ​ 516 ​ ​ 745 Interest-earning deposits in other banks ​ ​ 2,922 ​ ​ (194) ​ ​ 2,728 Total interest-earning assets ​ ​ 50,143 ​ ​ 11,182 ​ ​ 61,325 Interest-bearing liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Demand deposits ​ ​ 16,544 ​ ​ (190) ​ ​ 16,354 Time deposits ​ ​ 16,519 ​ ​ 764 ​ ​ 17,283 Brokered deposits ​ ​ 5,592 ​ ​ 12,923 ​ ​ 18,515 Total deposits ​ ​ 38,655 ​ ​ 13,497 ​ ​ 52,152 Securities sold under reverse repurchase agreements ​ ​ 823 ​ ​ (14) ​ ​ 809 Short-term borrowings, overnight FHLBank borrowings and other interest-bearing liabilities ​ ​ 2,472 ​ ​ 2,070 ​ ​ 4,542 Subordinated debentures issued to capital trust ​ ​ 748 ​ ​ — ​ ​ 748 Subordinated notes ​ ​ (13) ​ ​ 13 ​ ​ — Total interest-bearing liabilities ​ ​ 42,685 ​ ​ 15,566 ​ ​ 58,251 Net interest income $ 7,458 $ (4,384) $ 3,074 ​ 63 ​ Liquidity Liquidity is a measure of the Company’s ability to generate sufficient cash to meet present and future financial obligations in a timely manner through either the sale or maturity of existing assets or the acquisition of additional funds through liability management. These obligations include the credit needs of customers, funding deposit withdrawals, and the day-to-day operations of the Company. Liquid assets include cash, interest-bearing deposits with financial institutions and certain investment securities and loans. As a result of the Company’s management of its ability to generate liquidity primarily through liability funding, management believes that the Company maintains overall liquidity sufficient to satisfy its depositors’ requirements and meet its borrowers’ credit needs. At September 30, 2023, the Company had commitments of approximately $22.1 million to fund loan originations, $1.46 billion of unused lines of credit and unadvanced loans, and $16.9 million of outstanding letters of credit. Loan commitments and the unfunded portion of loans at the dates indicated were as follows (In Thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ June 30, March 31, December 31, December 31, December 31, ​ 2023 2023 2023 2022 2021 2020 Closed non-construction loans with unused available lines ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Secured by real estate (one- to four-family) ​ $ 205,935 ​ $ 207,597 ​ $ 205,517 ​ $ 199,182 ​ $ 175,682 ​ $ 164,480 Secured by real estate (not one- to four-family) ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ 23,752 ​ 22,273 Not secured by real estate - commercial business ​ ​ 103,434 ​ ​ 109,135 ​ ​ 113,186 ​ ​ 104,452 ​ 91,786 ​ 77,411 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Closed construction loans with unused available lines ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Secured by real estate (one-to four-family) ​ ​ 104,666 ​ ​ 111,491 ​ ​ 104,045 ​ ​ 100,669 ​ 74,501 ​ 42,162 Secured by real estate (not one-to four-family) ​ ​ 921,632 ​ ​ 1,123,860 ​ ​ 1,333,596 ​ ​ 1,444,450 ​ 1,092,029 ​ 823,106 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Loan commitments ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Secured by real estate (one-to four-family) ​ ​ 22,123 ​ ​ 25,571 ​ ​ 33,221 ​ ​ 16,819 ​ 53,529 ​ 85,917 Secured by real estate (not one-to four-family) ​ ​ 56,159 ​ ​ 50,071 ​ ​ 78,384 ​ ​ 157,645 ​ 146,826 ​ 45,860 Not secured by real estate - commercial business ​ ​ 16,971 ​ ​ 21,835 ​ ​ 37,477 ​ ​ 50,145 ​ 12,920 ​ 699 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ $ 1,430,920 ​ $ 1,649,560 ​ $ 1,905,426 ​ $ 2,073,362 ​ $ 1,671,025 ​ $ 1,261,908 ​ The Company’s primary sources of funds are customer deposits, FHLBank advances, other borrowings, loan repayments, unpledged securities, proceeds from sales of loans and available-for-sale securities and funds provided from operations. The Company utilizes particular sources of funds based on the comparative costs and availability at the time. The Company has from time to time chosen not to pay rates on deposits as high as the rates paid by certain of its competitors and, when believed to be appropriate, supplements deposits with less expensive alternative sources of funds. At September 30, 2023, approximately 35% 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 16% of the Company’s total deposits were uninsured at September 30, 2023. At September 30, 2023 and December 31, 2022, the Company had the following available secured lines and on-balance sheet liquidity: ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2023 December 31, 2022 Federal Home Loan Bank line $ 1,053.1 million ​ $ 1,005.1 million Federal Reserve Bank line (traditional funding line) ​ $ 439.8 million ​ $ 397.0 million Cash and cash equivalents ​ $ 182.3 million ​ $ 168.5 million Unpledged securities – Available-for-sale ​ $ 361.6 million ​ $ 371.8 million Unpledged securities – Held-to-maturity ​ $ 193.4 million ​ $ 202.5 million ​ 64 ​ Statements of Cash Flows. During the nine months ended September 30, 2023 and 2022, the Company had positive cash flows from operating activities. The Company had negative cash flows from investing activities during the nine months ended September 30, 2023 and 2022. The Company had positive cash flows from financing activities during the nine months ended September 30, 2023 and 2022. Cash flows from operating activities for the periods covered by the Statements of Cash Flows have been primarily related to changes in accrued and deferred assets, credits and other liabilities, the provision for credit losses, depreciation and amortization, realized gains on sales of loans and the amortization of deferred loan origination fees and discounts (premiums) on loans and investments, all of which are non-cash or non-operating adjustments to operating cash flows. Net income adjusted for non-cash and non-operating items and the origination and sale of loans held for sale were the primary source of cash flows from operating activities. Operating activities provided cash flows of $40.1 million and $53.9 million during the nine months ended September 30, 2023 and 2022, respectively. During the nine months ended September 30, 2023 and 2022, investing activities used cash of $39.1 million and $788.9 million, respectively. Investing activities in the 2023 period used cash primarily for the net origination of loans, partially offset by payments received on investment securities. Investing activities in the 2022 period used cash primarily for the purchase of investment securities, the purchases of loans and the net origination of loans, partially offset by payments received on investment securities. Changes in cash flows from financing activities during the periods covered by the Statements of Cash Flows were due to changes in deposits after interest credited and changes in short-term borrowings, as well as advances from borrowers for taxes and insurance, dividend payments to stockholders, repurchases of the Company’s common stock and the exercise of common stock options. During the nine months ended September 30, 2023 and 2022, financing activities provided cash of $12.8 million and $206.7 million, respectively. In the 2023 period, financing activities provided cash primarily as a result of net increases in time deposits and checking and savings deposits, partially offset by net decreases in short-term borrowings, the repurchase of the Company’s common stock and dividends paid to stockholders. In the 2022 period, financing activities provided cash primarily as a result of net increases in time deposits and net increases in short-term borrowings, partially offset by net decreases in checking and savings deposits, the repurchase of the Company’s common stock and dividends paid to stockholders. Capital Resources Management continuously reviews the capital position of the Company and the Bank to ensure compliance with minimum regulatory requirements, as well as to explore ways to increase capital either by retained earnings or other means. At September 30, 2023, the Company’s total stockholders’ equity and common stockholders’ equity were each $531.7 million, or 9.3% of total assets, equivalent to a book value of $44.81 per common share. As of December 31, 2022, total stockholders’ equity and common stockholders’ equity were each $533.1 million, or 9.4% of total assets, equivalent to a book value of $43.58 per common share. At September 30, 2023, the Company’s tangible common equity to tangible assets ratio was 9.1%, compared to 9.2% at December 31, 2022 (See Non-GAAP Financial Measures below). Included in stockholders’ equity at September 30, 2023 and December 31, 2022, were unrealized losses (net of taxes) on the Company’s available-for-sale investment securities totaling $63.5 million and $47.2 million, respectively. This change in net unrealized loss during the nine months ended September 30, 2023, primarily resulted from decreasing intermediate-term market interest rates (which generally increased the fair value of investment securities) during the first three months of 2023, followed by increasing intermediate-term market interest rates (which generally decreased the fair value of investment securities) during the period from March 31, 2023 through September 30, 2023. Also included in stockholders’ equity at September 30, 2023, were unrealized losses (net of taxes) totaling $3,000 on the Company’s investment securities that were transferred to the held-to-maturity category. Approximately $227 million of investment securities previously included in available-for-sale were transferred to held-to-maturity during the first quarter of 2022. In addition, included in stockholders’ equity at September 30, 2023, were realized gains (net of taxes) on the Company’s terminated cash flow hedge (interest rate swap), totaling $12.7 million. This amount, plus associated deferred taxes, is expected to be accreted to interest income over the remaining term of the original interest rate swap contract, which was to end in October 2025. At September 30, 2023, the remaining pre-tax amount to be recorded in interest income was $16.4 million. The net effect on total stockholders’ equity over time will be no impact, as the reduction of this realized gain will be offset by an increase in retained earnings (as the interest income flows through pre-tax income). Also included in stockholders’ equity at September 30, 2023, was an unrealized loss (net of taxes) on the Company’s outstanding cash flow hedges (interest rate swaps) totaling $25.9 million. Increases in market interest rates since the inception of these hedges have caused their fair values to decrease. 65 ​ As noted above, total stockholders’ equity decreased $1.4 million, from $533.1 million at December 31, 2022 to $531.7 million at September 30, 2023. Stockholders’ equity decreased due to repurchases of the Company’s common stock totaling $19.5 million and dividends declared on common stock of $14.4 million. In addition, accumulated other comprehensive loss increased $23.4 million during the nine months ended September 30, 2023, primarily due to declines in the market value of available-for-sale securities and decreases in the fair value of cash flow hedges. Partially offsetting these changes were net income of $54.7 million in the nine months ended September 30, 2023 and a $1.3 million increase in stockholders’ equity due to stock option exercises. The Company also had unrealized losses on its portfolio of held-to-maturity investment securities, which totaled $30.6 million at September 30, 2023, that were not included in its total capital balance. If these held-to-maturity unrealized losses were included in capital (net of taxes) it would have decreased total stockholder’s equity by $23.1 million at September 30, 2023. This amount was equal to 4.3% of total stockholders’ equity of $531.7 million. Banks are required to maintain minimum risk-based capital ratios. These ratios compare capital, as defined by the risk-based regulations, to assets adjusted for their relative risk as defined by the regulations. Under current guidelines, which became effective January 1, 2015, banks must have a minimum common equity Tier 1 capital ratio of 4.50%, a minimum Tier 1 risk-based capital ratio of 6.00%, a minimum total risk-based capital ratio of 8.00%, and a minimum Tier 1 leverage ratio of 4.00%. To be considered “well capitalized,” banks must have a minimum common equity Tier 1 capital ratio of 6.50%, a minimum Tier 1 risk-based capital ratio of 8.00%, a minimum total risk-based capital ratio of 10.00%, and a minimum Tier 1 leverage ratio of 5.00%. On September 30, 2023, the Bank’s Tier 1 Leverage Ratio was 11.7%, Common Equity Tier 1 Capital Ratio was 12.7%, Tier 1 Capital Ratio was 12.7%, and Total Capital Ratio was 14.0%. As a result, as of September 30, 2023, the Bank was well capitalized, with capital ratios in excess of those required to qualify as such. On December 31, 2022, the Bank’s common equity Tier 1 capital ratio was 11.9%, its Tier 1 risk-based capital ratio was 11.9%, its total risk-based capital ratio was 13.1% and its Tier 1 leverage ratio was 11.5%. As a result, as of December 31, 2022, the Bank was well capitalized, with capital ratios in excess of those required to qualify as such. The FRB has established capital regulations for bank holding companies that generally parallel the capital regulations for banks. On September 30, 2023, the Company’s Tier 1 Leverage Ratio was 11.0%, Common Equity Tier 1 Capital Ratio was 11.5%, Tier 1 Capital Ratio was 12.0%, and Total Capital Ratio was 14.7%. To be considered well capitalized, a bank holding company must have a Tier 1 risk-based capital ratio of at least 6.00% and a total risk-based capital ratio of at least 10.00%. As of September 30, 2023, the Company was considered well capitalized, with capital ratios in excess of those required to qualify as such. On December 31, 2022, the Company’s common equity Tier 1 capital ratio was 10.6%, its Tier 1 risk-based capital ratio was 11.0%, its total risk-based capital ratio was 13.5% and its Tier 1 leverage ratio was 10.6%. As of December 31, 2022, the Company was considered well capitalized, with capital ratios in excess of those required to qualify as such. In addition to the minimum common equity Tier 1 capital ratio, Tier 1 risk-based capital ratio and total risk-based capital ratio, the Company and the Bank have to maintain a capital conservation buffer consisting of additional common equity Tier 1 capital greater than 2.5% of risk-weighted assets above the required minimum levels in order to avoid limitations on paying dividends, repurchasing shares, and paying discretionary bonuses. At September 30, 2023, the Company and the Bank both had additional common equity Tier 1 capital in excess of the buffer amount. Dividends . During the three months ended September 30, 2023, the Company declared a common stock cash dividend of $0.40 per share, or 30% of net income per diluted common share for that three month period, and paid a common stock cash dividend of $0.40 per share (which was declared in June 2023). During the three months ended September 30, 2022, the Company declared a common stock cash dividend of $0.40 per share, or 27% of net income per diluted common share for that three month period, and paid a common stock cash dividend of $0.40 per share (which was declared in June 2022). During the nine months ended September 30, 2023, the Company declared common stock cash dividends totaling $1.20 per share, or 27% of net income per diluted common share for that nine month period, and paid common stock cash dividends of $1.20 per share. During the nine months ended September 30, 2022, the Company declared common stock cash dividends totaling $1.16 per share, or 28% of net income per diluted common share for that nine month period, and paid common stock cash dividends of $1.12 per share. The Board of Directors meets regularly to consider the level and the timing of dividend payments. The $0.40 per share dividend declared but unpaid as of September 30, 2023, was paid to stockholders in October 2023. 66 ​ Common Stock Repurchases and Issuances . The Company has been in various buy-back programs since May 1990. During the three months ended September 30, 2023, the Company repurchased 106,801 shares of its common stock at an average price of $50.52 per share and issued 1,640 shares of common stock at an average price of $33.71 per share to cover stock option exercises. During the three months ended September 30, 2022, the Company repurchased 150,271 shares of its common stock at an average price of $59.06 per share and issued 52,415 shares of common stock at an average price of $37.26 per share to cover stock option exercises. During the nine months ended September 30, 2023, the Company repurchased 376,122 shares of its common stock at an average price of $51.97 per share and issued 9,195 shares of common stock at an average price of $33.78 per share to cover stock option exercises. During the nine months ended September 30, 2022, the Company repurchased 999,586 shares of its common stock at an average price of $59.28 per share and issued 116,686 shares of common stock at an average price of $42.17 per share to cover stock option exercises. In December 2022, the Company’s Board of Directors authorized the purchase of up to one million shares of the Company’s outstanding common stock, under a program of open market purchases or privately negotiated transactions. At September 30, 2023, approximately 801,000 shares remained available in our stock repurchase authorization. Management has historically utilized stock buy-back programs from time to time as long as management believed that repurchasing the Company’s common stock would contribute to the overall growth of stockholder value. The number of shares that will be repurchased at any particular time and the prices that will be paid are subject to many factors, several of which are outside of the control of the Company. The primary factors typically include the number of shares available in the market from sellers at any given time, the market price of the stock and the projected impact on the Company’s earnings per share and capital. Non-GAAP Financial Measures This document contains certain financial information determined by methods other than in accordance with accounting principles generally accepted in the United States (“GAAP”), specifically, the ratio of tangible common equity to tangible assets. In calculating the ratio of tangible common equity to tangible assets, we subtract period-end intangible assets from common equity and from total assets. Management believes that the presentation of this measure excluding the impact of intangible assets provides useful supplemental information that is helpful in understanding our financial condition and results of operations, as it provides a method to assess management’s success in utilizing our tangible capital as well as our capital strength. Management also believes that providing a measure that excludes balances of intangible assets, which are subjective components of valuation, facilitates the comparison of our performance with the performance of our peers. In addition, management believes that this is a standard financial measure used in the banking industry to evaluate performance. This non-GAAP financial measurement is supplemental and is not a substitute for any analysis based on GAAP financial measures. Because not all companies use the same calculation of non-GAAP measures, this presentation may not be comparable to other similarly titled measures as calculated by other companies. Non-GAAP Reconciliation: Ratio of Tangible Common Equity to Tangible Assets ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2023 December 31, 2022 ​ ​ (Dollars in Thousands) ​ ​ ​ ​ ​ ​ ​ ​ Common equity at period end ​ $ 531,697 ​ $ 533,087 ​ Less: Intangible assets at period end ​ 10,585 ​ 10,813 ​ Tangible common equity at period end (a) ​ $ 521,112 ​ $ 522,274 ​ ​ ​ ​ ​ ​ ​ ​ ​ Total assets at period end ​ $ 5,748,078 ​ $ 5,680,702 ​ Less: Intangible assets at period end ​ 10,585 ​ 10,813 ​ Tangible assets at period end (b) ​ $ 5,737,493 ​ $ 5,669,889 ​ ​ ​ ​ ​ ​ ​ ​ ​ Tangible common equity to tangible assets (a) / (b) ​ 9.08 % 9.21 % ​ ​ ​ 67 ​