# GREAT SOUTHERN BANCORP, INC. (GSBC) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from GREAT SOUTHERN BANCORP, INC.'s 10-K for fiscal year 2024.

SEC filing source: https://www.sec.gov/Archives/edgar/data/854560/000141057825000294/gsbc-20241231x10k.htm
Accession: 0001410578-25-000294
Filing date: 2025-03-07
Report date: 2024-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/GSBC/
All MD&A years: /company/GSBC/mda/
Previous year: /company/GSBC/mda/fy2023/ (FY 2023)
Next year: /company/GSBC/mda/fy2025/ (FY 2025)

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following sets forth selected consolidated financial information and other financial data of the Company. The summary statement of financial condition information and statement of income information are derived from our consolidated financial statements, which have been audited by Forvis Mazars, LLP. See Item 8. “Financial Statements and Supplementary Information.” Results for past periods are not necessarily indicative of results that may be expected for any future period.

​

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

​

69

Table of Contents

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","","For the Year Ended December 31,"],["\u200b","","2024","","2023","","2022","","2021","","2020"],["\u200b","\u200b","(In Thousands)"],["Summary Statement of Income Information:","","\u200b","","","\u200b","","","\u200b","","","\u200b","","","\u200b"],["Interest income:","","\u200b","","","\u200b","","","\u200b","","","\u200b","","","\u200b"],["Loans","\u200b","$","297,176","\u200b","$","271,952","\u200b","$","205,751","\u200b","$","186,269","\u200b","$","204,964"],["Investment securities and other","\u200b","","27,522","\u200b","","24,883","\u200b","","21,226","\u200b","","12,404","\u200b","","12,739"],["\u200b","\u200b","","324,698","\u200b","","296,835","\u200b","","226,977","\u200b","","198,673","\u200b","","217,703"],["Interest expense:","\u200b","","\u200b","\u200b","","\u200b","\u200b","","\u200b","\u200b","","\u200b","\u200b","","\u200b"],["Deposits","\u200b","","109,705","\u200b","","88,757","\u200b","","20,676","\u200b","","13,102","\u200b","","32,431"],["Securities sold under reverse repurchase agreements","\u200b","","1,407","\u200b","","1,205","\u200b","","324","\u200b","","37","\u200b","","31"],["Short-term borrowings, overnight FHLBank borrowings and other interest-bearing liabilities","\u200b","","18,222","\u200b","","7,500","\u200b","","1,066","\u200b","","\u2014","\u200b","","644"],["Subordinated debentures issued to capital trust","\u200b","","1,798","\u200b","","1,736","\u200b","","875","\u200b","","448","\u200b","","628"],["Subordinated notes","\u200b","","4,423","\u200b","","4,422","\u200b","","4,422","\u200b","","7,165","\u200b","","6,831"],["\u200b","\u200b","","135,555","\u200b","","103,620","\u200b","","27,363","\u200b","","20,752","\u200b","","40,565"],["Net interest income","\u200b","","189,143","\u200b","","193,215","\u200b","","199,614","\u200b","","177,921","\u200b","","177,138"],["Provision (credit) for credit losses on loans","\u200b","","1,700","\u200b","","2,250","\u200b","","3,000","\u200b","","(6,700)","\u200b","","15,871"],["Provision (credit) for unfunded commitments","\u200b","\u200b","1,016","\u200b","\u200b","(5,329)","\u200b","\u200b","3,187","\u200b","\u200b","939","\u200b","\u200b","\u2014"],["Net interest income after provision (credit) for credit losses and provision (credit) for unfunded commitments","\u200b","","186,427","\u200b","","196,294","\u200b","","193,427","\u200b","","183,682","\u200b","","161,267"],["Non-interest income:","\u200b","","\u200b","\u200b","","\u200b","\u200b","","\u200b","\u200b","","\u200b","\u200b","","\u200b"],["Commissions","\u200b","","1,227","\u200b","","1,153","\u200b","","1,208","\u200b","","1,263","\u200b","","892"],["Overdraft and insufficient funds fees","\u200b","","5,140","\u200b","","7,617","\u200b","","7,872","\u200b","","6,686","\u200b","","6,481"],["POS and ATM fee income and service charges","\u200b","","13,586","\u200b","","14,346","\u200b","","15,705","\u200b","","15,029","\u200b","","12,203"],["Net gain on loan sales","\u200b","","3,779","\u200b","","2,354","\u200b","","2,584","\u200b","","9,463","\u200b","","8,089"],["Net realized gain (loss) on sales of available-for-sale securities","\u200b","","\u2014","\u200b","","\u2014","\u200b","","(130)","\u200b","","\u2014","\u200b","","78"],["Late charges and fees on loans","\u200b","","512","\u200b","","786","\u200b","","1,182","\u200b","","1,434","\u200b","","1,419"],["Gain (loss) on derivative interest rate products","\u200b","","(58)","\u200b","","(337)","\u200b","","321","\u200b","","312","\u200b","","(264)"],["Other income","\u200b","","6,379","\u200b","","4,154","\u200b","","5,399","\u200b","","4,130","\u200b","","6,152"],["\u200b","\u200b","","30,565","\u200b","","30,073","\u200b","","34,141","\u200b","","38,317","\u200b","","35,050"],["Non-interest expense:","\u200b","","\u200b","\u200b","","\u200b","\u200b","","\u200b","\u200b","","\u200b","\u200b","","\u200b"],["Salaries and employee benefits","\u200b","","78,599","\u200b","","78,521","\u200b","","75,300","\u200b","","70,290","\u200b","","70,810"],["Net occupancy and equipment expense","\u200b","","32,118","\u200b","","30,834","\u200b","","28,471","\u200b","","29,163","\u200b","","27,582"],["Postage","\u200b","","3,329","\u200b","","3,590","\u200b","","3,379","\u200b","","3,164","\u200b","","3,069"],["Insurance","\u200b","","4,622","\u200b","","4,542","\u200b","","3,197","\u200b","","3,061","\u200b","","2,405"],["Advertising","\u200b","","3,124","\u200b","","3,396","\u200b","","3,261","\u200b","","3,072","\u200b","","2,631"],["Office supplies and printing","\u200b","","1,008","\u200b","","1,057","\u200b","","867","\u200b","","848","\u200b","","1,016"],["Telephone","\u200b","","2,772","\u200b","","2,730","\u200b","","3,170","\u200b","","3,458","\u200b","","3,794"],["Legal, audit and other professional fees","\u200b","","5,399","\u200b","","7,086","\u200b","","6,330","\u200b","","6,555","\u200b","","2,378"],["Expense (income) on other real estate and repossessions","\u200b","","(304)","\u200b","","311","\u200b","","359","\u200b","","627","\u200b","","2,023"],["Acquired intangible asset amortization","\u200b","","433","\u200b","","286","\u200b","","768","\u200b","","863","\u200b","","1,154"],["Other operating expenses","\u200b","","10,395","\u200b","","8,670","\u200b","","8,264","\u200b","","6,534","\u200b","","6,363"],["\u200b","\u200b","","141,495","\u200b","","141,023","\u200b","","133,366","\u200b","","127,635","\u200b","","123,225"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Income before income taxes","\u200b","","75,497","\u200b","","85,344","\u200b","","94,202","\u200b","","94,364","\u200b","","73,092"],["Provision for income taxes","\u200b","","13,690","\u200b","","17,544","\u200b","","18,254","\u200b","","19,737","\u200b","","13,779"],["Net income","\u200b","$","61,807","\u200b","$","67,800","\u200b","$","75,948","\u200b","$","74,627","\u200b","$","59,313"]]
[[/GREPCENT_TABLE]]

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70

Table of Contents

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","","At or For the Year Ended December 31,"],["\u200b","","2024","","2023","","2022","","2021","","2020"],["\u200b","\u200b","(Number of Shares In Thousands)"],["Performance Data and Ratios:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Per Common Share Data:","","\u200b","","","\u200b","","","\u200b","","","\u200b","","","\u200b","","\u200b"],["Basic earnings per common share","\u200b","$","5.28","\u200b","$","5.65","\u200b","$","6.07","\u200b","$","5.50","\u200b","$","4.22","\u200b"],["Diluted earnings per common share","\u200b","","5.26","\u200b","","5.61","\u200b","","6.02","\u200b","","5.46","\u200b","","4.21","\u200b"],["Cash dividends declared","\u200b","","1.60","\u200b","","1.60","\u200b","","1.56","\u200b","","1.40","\u200b","","2.36","\u200b"],["Book value per common share","\u200b","","51.14","\u200b","","48.44","\u200b","","43.58","\u200b","","46.98","\u200b","","45.79","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Average shares outstanding","\u200b","","11,695","\u200b","","11,992","\u200b","","12,517","\u200b","","13,558","\u200b","","14,043","\u200b"],["Year-end actual shares outstanding","\u200b","","11,724","\u200b","","11,804","\u200b","","12,231","\u200b","","13,128","\u200b","","13,753","\u200b"],["Average fully diluted shares outstanding","\u200b","","11,755","\u200b","","12,080","\u200b","","12,607","\u200b","","13,674","\u200b","","14,104","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Earnings Performance Ratios:","\u200b","","\u200b","\u200b","","\u200b","\u200b","","\u200b","\u200b","","\u200b","\u200b","","\u200b","\u200b"],["Return on average assets(1)","\u200b","","1.05","%","","1.19","%","","1.38","%","","1.36","%","","1.11","%"],["Return on average stockholders\u2019 equity(2)","\u200b","","10.55","\u200b","","12.31","\u200b","","13.44","\u200b","","11.89","\u200b","","9.53","\u200b"],["Non-interest income to average total assets","\u200b","","0.52","\u200b","","0.53","\u200b","","0.62","\u200b","","0.70","\u200b","","0.66","\u200b"],["Non-interest expense to average total assets","\u200b","","2.40","\u200b","","2.47","\u200b","","2.42","\u200b","","2.32","\u200b","","2.31","\u200b"],["Average interest rate spread(3)","\u200b","","2.76","\u200b","","2.97","\u200b","","3.59","\u200b","","3.22","\u200b","","3.23","\u200b"],["Year-end interest rate spread","\u200b","","2.86","\u200b","","2.78","\u200b","","3.63","\u200b","","3.20","\u200b","","3.08","\u200b"],["Net interest margin(4)","\u200b","","3.42","\u200b","","3.57","\u200b","","3.80","\u200b","","3.37","\u200b","","3.49","\u200b"],["Efficiency ratio(5)","\u200b","","64.40","\u200b","","63.16","\u200b","","57.05","\u200b","","59.03","\u200b","","58.07","\u200b"],["Net overhead ratio(6)","\u200b","","1.88","\u200b","","1.94","\u200b","","1.80","\u200b","","1.62","\u200b","","1.66","\u200b"],["Common dividend pay-out ratio(7)","\u200b","","30.42","\u200b","","28.52","\u200b","","25.91","\u200b","","25.64","\u200b","","56.06","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Asset Quality Ratios (8):","\u200b","","\u200b","\u200b","","\u200b","\u200b","","\u200b","\u200b","","\u200b","\u200b","","\u200b","\u200b"],["Allowance for credit losses/year-end loans","\u200b","","1.36","%","","1.39","%","","1.39","%","","1.49","%","","1.32","%"],["Non-performing assets/year-end loans and foreclosed assets","\u200b","","0.20","\u200b","","0.25","\u200b","","0.08","\u200b","","0.15","\u200b","","0.09","\u200b"],["Allowance for credit losses/non-performing loans","\u200b","","1,812.48","\u200b","","550.48","\u200b","","1,729.69","\u200b","","1,120.31","\u200b","","1,831.86","\u200b"],["Net charge-offs/average loans","\u200b","","0.03","\u200b","","0.02","\u200b","","0.01","\u200b","","0.00","\u200b","","0.01","\u200b"],["Gross non-performing assets/year end assets","\u200b","","0.16","\u200b","","0.20","\u200b","","0.07","\u200b","","0.11","\u200b","","0.07","\u200b"],["Non-performing loans/year-end loans","\u200b","","0.07","\u200b","","0.25","\u200b","","0.08","\u200b","","0.13","\u200b","","0.07","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Balance Sheet Ratios:","\u200b","","\u200b","\u200b","","\u200b","\u200b","","\u200b","\u200b","","\u200b","\u200b","","\u200b","\u200b"],["Loans to deposits","\u200b","","101.99","%","","97.33","%","","96.30","%","","88.23","%","","95.52","%"],["Average interest-earning assets as a percentage of average interest-bearing liabilities","\u200b","","126.98","\u200b","","131.11","\u200b","","140.32","\u200b","","139.94","\u200b","","132.49","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Capital Ratios:","\u200b","","\u200b","\u200b","","\u200b","\u200b","","\u200b","\u200b","","\u200b","\u200b","","\u200b","\u200b"],["Average common stockholders\u2019 equity to average assets","\u200b","","10.0","%","","9.6","%","","10.2","%","","11.4","%","","11.7","%"],["Year-end tangible common stockholders\u2019 equity to tangible assets(9)","\u200b","","9.9","\u200b","","9.7","\u200b","","9.2","\u200b","","11.2","\u200b","","11.3","\u200b"],["Great Southern Bancorp, Inc.:","\u200b","","\u200b","\u200b","","\u200b","\u200b","","\u200b","\u200b","","\u200b","\u200b","","\u200b","\u200b"],["Tier 1 capital ratio","\u200b","","12.8","\u200b","","12.4","\u200b","","11.0","\u200b","","13.4","\u200b","","12.7","\u200b"],["Total capital ratio","\u200b","","15.4","\u200b","","15.2","\u200b","","13.5","\u200b","","16.3","\u200b","","17.2","\u200b"],["Tier 1 leverage ratio","\u200b","","11.2","\u200b","","11.0","\u200b","","10.6","\u200b","","11.3","\u200b","","10.9","\u200b"],["Common equity Tier 1 ratio","\u200b","","12.3","\u200b","","11.9","\u200b","","10.6","\u200b","","12.9","\u200b","","12.2","\u200b"],["Great Southern Bank:","\u200b","","\u200b","\u200b","","\u200b","\u200b","","\u200b","\u200b","","\u200b","\u200b","","\u200b","\u200b"],["Tier 1 capital ratio","\u200b","","12.6","\u200b","","13.1","\u200b","","11.9","\u200b","","14.1","\u200b","","13.7","\u200b"],["Total capital ratio","\u200b","","13.9","\u200b","","14.3","\u200b","","13.1","\u200b","","15.4","\u200b","","14.9","\u200b"],["Tier 1 leverage ratio","\u200b","","11.0","\u200b","","11.6","\u200b","","11.5","\u200b","","11.9","\u200b","","11.8","\u200b"],["Common equity Tier 1 ratio","\u200b","","12.6","\u200b","","13.1","\u200b","","11.9","\u200b","","14.1","\u200b","","13.7","\u200b"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","Net income divided by average total assets."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(2)","Net income divided by average stockholders\u2019 equity."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(3)","Yield on average interest-earning assets less rate on average interest-bearing liabilities."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(4)","Net interest income divided by average interest-earning assets."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(5)","Non-interest expense divided by the sum of net interest income plus non-interest income."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(6)","Non-interest expense less non-interest income divided by average total assets."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(7)","Cash dividends per common share divided by earnings per common share."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(8)","Prior to January 1, 2021, these ratios excluded FDIC-assisted acquired loans."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(9)","Non-GAAP Financial Measure. For additional information, including a reconciliation to GAAP, see \u201c\u2013 Non-GAAP Financial Measures.\u201d"]]
[[/GREPCENT_TABLE]]

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Forward-looking Statements

When used in this Annual 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 effects of any new or continuing public health issues on general economic and financial market conditions; (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; and (xviii) 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.

Critical Accounting Policies, Judgments and Estimates

The accounting and financial reporting policies of the Company conform to accounting principles generally accepted in the United States 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.

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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 3 to the accompanying financial statements contained in Item 8 of this Report 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 of $100,000 or more, 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, commercial real estate price index, consumer sentiment and construction spending. The adjustments are based on results from various regression models projecting the impact of the macroeconomic variables to loss rates. The forecast is used for a reasonable and supportable period before reverting to historical averages 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 3 “Loans and Allowance for Credit Losses” to the accompanying financial statements for additional information regarding the allowance for credit losses. Inherent in this process is the evaluation and risk assessment of individual credit relationships. From time to time, certain credit relationships may deteriorate due to changes in payment performance, cash flow of the borrower, value of collateral, or other factors. Due to these changing circumstances, management may revise its loss estimates and assumptions for these specific credits. In some cases, 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 recognizes that the determination of the valuation 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 sale 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 sale of the assets could differ materially from the carrying value reflected in the financial statements, resulting in gains or losses that could materially impact earnings in future periods.

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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 December 31, 2024, 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. Intangible assets that are not amortized are tested for impairment at least annually by comparing the fair values of those assets to their carrying values. At December 31, 2024, 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. Other identifiable deposit intangible assets that are subject to amortization are amortized on a straight-line basis over a period of seven years and have been fully amortized.

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 naming rights intangible assets through non-interest expense over a period not to exceed 15 years.

At December 31, 2024, the amortizable intangible assets consisted of the arena naming rights of $4.7 million. The amortizable intangible assets are reviewed for impairment if circumstances indicate their value may not be recoverable based on a comparison of fair value. See Note 1 to the accompanying audited financial statements for additional information.

Based on the Company’s qualitative goodwill impairment testing, management does not believe any of the Company’s goodwill or other intangible assets were impaired as of December 31, 2024. While management believes no impairment existed at December 31, 2024, different conditions or assumptions used to measure fair value of the reporting unit, or changes in cash flows or profitability, if significantly negative or unfavorable, could have a material adverse effect on the outcome of the Company’s impairment evaluation in the future.

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 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.

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. 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 the level of support provided during the global financial crisis of 2007-2008.

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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 $1.4 trillion in fiscal 2022, and $1.7 trillion in fiscal 2023. The Federal Reserve aggressively raised the federal funds interest rates from early 2022 through mid-2023, pushing the federal funds rate to more than 5.50%, its highest level in 22 years.

The Federal Reserve’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 Federal Reserve made some headway in its attempt to force 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 2.9% in December 2023. Core PCE, which excludes food and energy prices, was 2.8% at December 31, 2024, above the Federal Reserve’s target of 2%.

Based on Moody’s U.S. Baseline Outlook and Alternative Scenarios Analysis dated January 2025, real GDP in 2025 is projected to be 2.2% on an annual average basis, which is unchanged from the projection in December 2024. GDP is projected to grow 1.7% in 2026 and 1.9% in 2027, before returning to trend in 2028. Consumer spending remained an important source of growth, along with exports, nonresidential investment both federal and state, and local spending.

Employment

The national unemployment rate was unchanged compared to the previous quarter end at 4.1% for both December 2024 and September 2024. The number of unemployed individuals was 6.9 million as of December 2024 with 256,000 jobs added in December 2024. In December 2024, the healthcare, retail trade, government, social assistance, and leisure and hospitality areas contributed to the 188,000 of total job gains.

As of December 2024, the labor force participation rate (the share of working-age Americans employed or actively looking for a job) remained stable at 62.5%. The unemployment rate for the Midwest, where the Company conducts most of its business, increased from 3.6% in December 2023 to 4.1% in December 2024. Unemployment rates for December 2024 in the states where the Company has a branch or a loan production office were: Arizona at 3.8%, Arkansas at 3.4%, Colorado at 4.4%, Georgia at 3.7%, Illinois at 5.2%, Iowa at 3.2%, Kansas at 3.6%, Minnesota at 3.3%, Missouri at 3.7%, Nebraska at 2.8%, North Carolina at 3.7%, and Texas at 4.2%. These rates are slightly higher for a majority of the states compared to September 2024.

Single Family Housing

Existing-home sales increased by 2.2% in December 2024 to a seasonally adjusted annual rate of 4.24 million, up 9.3% from the previous year. In the Midwest, existing-home sales fell 1.0% in December 2024 to an annual rate of 990,000, up 6.5% from one year earlier.

The median existing-home sales price rose 6.0% from December 2023 to $404,400 in December 2024, which is the 18th consecutive month of year-over-year price increases. The median price in the Midwest was $298,600, up 9.0% from December 2023. All regions reported median price increases when compared to the prior year.

Total housing inventory registered at the end of December 2024 was 1.15 million units, down 13.5% from November 2024 and up 16.2% from 1.0 million at the end of December 2023. Unsold inventory sat at a 3.3-month supply at the end of December 2024, up from 3.1 months at the end of December 2023.

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. Single-family housing starts in December 2024 were at a rate of 1.05 million; 3.3% above the revised November 2024 figure of 1.02 million.

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Sales of new single‐family houses in December 2024 were at a seasonally adjusted annual rate of 698,000, according to the U.S. Census Bureau and the Department of Housing and Urban Development. This was 3.6% above the November 2024 rate of 674,000 and 6.7% above the December 2023 rate of 654,000.

The median sales price of new houses sold in December 2024 was $427,000, in line with the $428,600 reported in December 2023. The average sales price in December 2024 of $513,600 was down from $514,000 in December 2023. The seasonally‐adjusted estimate of new houses for sale at the end of December 2024 was 494,000. This represented a supply of 8.5 months at the current sales rate.

According to Freddie Mac, the average commitment rate for a 30-year, fixed-rate mortgage was 6.95% as of January 31, 2025 which was up from 6.63% one year ago.

Other Residential (Multi-Family) Housing and Commercial Real Estate

The U.S. multi-family market experienced a continued strong recovery in demand through 2024, driven by stable economic growth plus a continued slowing of renter households making the jump to ownership and creating fewer units to backfill. Despite the notable growth in demand in 2024, the influx of new supply continued to saturate the market. The gap closed significantly in the second half of 2024. In the fourth quarter of 2024, the supply/demand gap only totaled 24,000 units, the smallest amount since the end of 2021. Most new supply additions are concentrated at the 4 and 5 Star price point, contributing to the weakest rent growth observed in this level of the market. Consequently, the persistent imbalance between supply and demand stabilized the vacancy rate in the fourth quarter of 2024 at 8%.

CoStar reported, nationally, absorption continued to accelerate in the fourth quarter of 2024, offering the market an opportunity to stabilize and possibly begin recovering. The year ended December 31, 2024 saw 553,000 units absorbed, which was the strongest year since 2021. Despite this demand, 677,000 new units were completed in 2024, which completes three years in a row in which supply outpaced demand. Forecasts for 2025 show demand finally outpacing deliveries, which positions the market to see the vacancy rate begin declining. The 4 & 5 Star segment exhibited the weakest performance, at 0.2%, a slight improvement from the negative or zero year-over-year rent growth experienced over the past year due to increasing vacancies.

The Midwest and Northeast regions have fared the best over the past two years in terms of rent growth. Deliveries in the Midwest for 2024 were only 22,000 units higher than in 2019. This controlled increase in projected new supply is expected to keep Midwestern markets more balanced, thereby avoiding the oversupply conditions that contributed to weaker rent growth in the Sun Belt. At the market level, projections suggest that all but 2 major markets, Austin and San Antonio, will return to positive rent growth by the end of 2025. Kansas City was one of the metropolitan areas with the most robust rent growth at the end of 2024.

The December 2024 national multi-family market vacancy rates were slightly higher than the previous quarter at 8%. Our market areas reflected the following apartment vacancy levels as of December 2024: Springfield, Missouri at 5.9%, St. Louis at 9.9%, Kansas City at 8.1%, Minneapolis at 7.6%, Dallas-Fort Worth at 11.2%, Chicago at 5.1%, Atlanta at 12.4%, Phoenix at 11.7%, Denver at 11.1% and Charlotte, North Carolina at 12.6%.

Absorption for the office industry was flat for 2024, and the vacancy rate has remained unchanged since September 2024 at 13.9%. CoStar expects the vacancy rate to rise further before plateauing in 2026. Rents are expected to flatten out in the next 12 months before beginning a recovery driven by stabilizing demand and a lack of relevant, competitive supply. Various indicators show office attendance was still trending upward, albeit slowly. But while attendance was rising, office-using job growth had nearly stalled.

The stock of office space rose by about 25 million square feet in 2024 with a similar amount forecasted in 2025. The ongoing reset in property values could lead to lower asking rates as more buildings transact at significant discounts to prior valuations. The national trend showed a shrinking pipeline, as some cities, like Austin, TX, faced near-term supply pressure with only 3% of inventory underway.

CoStar reported office asking rents have remained steady over the past four years, and said a combination of aggressive discounts by new, low-basis owners, a looming lack of available space in premium new buildings, and an ongoing amount of sublease inventory is expected to keep office asking rents flat for the next 12 to 18 months. With attendance rising only gradually and job growth stagnant, there appears little likelihood of a dramatic change in demand conditions in the next 18-24 months.

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As of December 2024, national office vacancy rates remained stable at 13.9% compared to September 2024, while our market areas reflected the following vacancy levels: Springfield, Missouri at 4.2%, St. Louis at 9.7%, Kansas City at 11.2%, Minneapolis at 11.5%, Dallas-Fort Worth at 18%, Chicago at 16.7%, Atlanta at 16.7%, Denver at 17.2%, Phoenix at 16.7% and Charlotte, North Carolina at 14.5%.

As of December 31, 2024, the U.S. retail market was in one of its firmest fundamental positions on record thanks to steadily rising demand and limited new supply. However, there has been a sharp uptick in bankruptcies and store closures. At that date, there was just 501 million SF of space available for lease across the U.S., which was almost 125 million SF below the amount available for lease during the height of the pandemic.

As transaction volumes trended higher, the rise in cap rates was settling down. Higher exit caps have made it more challenging for developers to meet their proformas and an increasing number are choosing to hold instead of taking their assets to market. The shift in cap rates over the last two years was evident in the trend of single-tenant investment sales of net leased properties. Fewer buyers were in the market, and investment opportunities continued to expand. Unanchored and open-air shopping centers have seen cap rates above 7%, occasionally climbing into the 8% to 9% range, depending on market specifics and the quality of the asset. However, the limited new retail construction and historically low availability rates should limit any potential surge in vacancy rates in the event of a demand pullback.

During the fourth quarter of 2024, national retail vacancy rates remained steady at 4.1% while our market areas reflected the following vacancy levels: Springfield, Missouri at 2.0%, St. Louis at 4.2%, Kansas City at 3.8%, Minneapolis at 2.5%, Dallas-Fort Worth at 4.5%, Chicago at 4.6%, Atlanta at 3.8%, Phoenix at 4.9%, Denver at 3.8%, and Charlotte, North Carolina at 3.1%.

U.S. industrial market performance continued to downshift in the fourth quarter of 2024. While the national vacancy rate is not expected to rise above its 20-year average of 7.0%, forecasts for 2025 could still prove challenging for the market. Net absorption has remained positive but continued to lose steam, with early 2024 registering the lowest first quarter absorption tally since 2012. Net absorption for 2024 was 101 million SF compared to 133 million SF for 2023. This weakness tied partly to recent 12-year lows in home sales, which lowered sales of furniture, building materials, and appliances, leading to large distribution center closures by tenants including Big Lots, Ashley Furniture, and Home Depot.

The prospect of escalating tariffs at home and abroad could make retailers hesitant to expand distribution networks until the threat of additional trade barriers dissipates. Significant tariff increases would also force retailers to raise prices, decreasing the volume of goods consumers are able to purchase. During November 2024, the CFO of Walmart, the third largest user of U.S. industrial space, noted that tariffs “are inflationary for customers” and that “there probably will be cases where prices will go up for consumers.”

The U.S. industrial market is nearing the end of a record development surge. Higher interest rates have caused construction starts on new industrial projects to fall over the past two years. Quarterly net supply additions are on pace to fall below the pre-pandemic three-year average by mid-2025 and continue declining through at least 2026 when supply growth is set to hit an 11-year low. A gradual but persistent decline in speculative development completions has already begun. As of December 31, 2024, the amount of vacant space among existing Phoenix logistics properties 50,000 SF or larger has increased by 35 million SF, primarily due to speculative development since 2019 pushing the vacancy rate among these buildings over 19%, while another 11 million SF worth of unleased space remained under construction.

Nationally, year-over-year industrial rent growth decelerated over the past 12 months to 2.3%, a rate which was below the pre-pandemic five-year average. In the near term, it is expected that rent growth will slow further in both the small bay and big box logistics sectors. If net absorption can gradually increase, there is potential for rent growth to reaccelerate and return to the pre-pandemic three-year average of 5.5% by 2026, given the limited amount of new supply that will likely be on track to be completed during the year. However, big box logistics properties in markets most saturated with speculative development such as Austin, Indianapolis, Greenville/Spartanburg, Phoenix, and San Antonio are most at risk of lagging in any developing rent recovery, either due to slower asking rent increases or lingering, high levels of concessions.

For the fourth quarter of 2024, national industrial vacancy rates increased to 6.9%, from 6.8% for the third quarter of 2024. Our market areas reflected the following industrial vacancy levels for the fourth quarter of 2024: Springfield, Missouri at 1.6%, St. Louis at 4.0%, Kansas City at 5.2%, Minneapolis at 4.0%, Dallas-Fort Worth at 9.6%, Chicago at 5.5%, Atlanta at 8.1%, Phoenix at 12%, Denver at 7.9% and Charlotte, North Carolina at 9.2%.

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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 index and commercial real estate occupancy, absorption and rental rates, as these could significantly affect customers in each of our market areas.

For discussion of the risk factors associated with multi-family and commercial real estate loans, see “Risk Factors – Risks Relating to Lending Activities – Our loan portfolio possesses increased risk due to our relatively high concentration of commercial and residential construction, commercial real estate, other residential (multi-family) and other commercial loans” and “Risk Factors – Risks Relating to Regulation – We currently exceed thresholds defined in interagency guidance on commercial real estate concentrations, and as such, we may incur additional expense or slow the growth of certain categories of commercial real estate lending.”

General

The profitability of the Company and, more specifically, the profitability of its primary subsidiary, the Bank, depend 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.

The Company’s total assets increased $169.2 million, or 2.9%, from $5.81 billion at December 31, 2023, to $5.98 billion at December 31, 2024. Full details of the current year changes in total assets are provided below, under “Comparison of Financial Condition at December 31, 2024 and December 31, 2023.”

Loans. In the year ended December 31, 2024, the Company’s net loans increased $100.8 million, or 2.2%, from $4.59 billion at December 31, 2023, to $4.69 billion at December 31, 2024. This increase was primarily in other residential (multi-family) loans ($607.2 million increase), which was partially offset by decreases in construction loans ($358.7 million decrease), commercial business loans ($109.1 million decrease), and one- to four- family residential loans ($57.2 million decrease). The pipeline of loan commitments remained strong at the end of 2024 and increased slightly compared to the end of 2023. The pipeline of the unfunded portion of construction loans remained strong at the end of 2024 and decreased slightly compared to the end of 2023. As construction projects were completed, the related loans were either paid off or moved from the construction category to the appropriate permanent loan categories. As loan demand is affected by a variety of factors, including general economic conditions, and because of the competition we face and our focus on pricing discipline and credit quality, no assurance can be given 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) loans 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, and Phoenix. Certain minimum 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 subject to underwriting standards designed to assure portfolio quality. In 2019, the Company discontinued indirect auto loan originations.

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Of the total loan portfolio at December 31, 2024 and 2023, 92.1% and 89.5%, respectively, was secured by real estate, as this is the Bank’s primary focus in its lending efforts. At December 31, 2024 and 2023, commercial real estate and commercial construction loans (excluding multi-family loans) were 36.1% and 36.8% of the Bank’s total loan portfolio, respectively. Commercial real estate and commercial construction loans generally afford the Bank an opportunity to increase the yield on, and the proportion of interest rate sensitive loans in, its portfolio. They do, however, present somewhat greater risk to the Bank because they may be more adversely affected by conditions in the real estate markets or in the economy generally. At both December 31, 2024 and 2023, loans made in the Springfield, Missouri metropolitan statistical area (Springfield MSA) comprised 8% of the Bank’s total loan portfolio. The Company’s headquarters are located in Springfield and we have operated in this market since 1923. Loans made in the St. Louis metropolitan statistical area (St. Louis MSA) comprised 17% of the Bank’s total loan portfolio at both December 31, 2024 and 2023. The Company’s expansion into the St. Louis MSA, beginning in May 2009, has provided an opportunity to not only diversify from the Springfield MSA, but also has provided access to a larger economy with increased lending opportunities despite higher levels of competition. Loans made in the St. Louis MSA are primarily commercial real estate, commercial business and other residential (multi-family) loans, which are less likely to be impacted by the higher levels of unemployment rates, as mentioned above under “Current Economic Conditions,” than if the focus were on one- to four-family residential and consumer loans. For further discussions of the Bank’s loan portfolio, and specifically, commercial real estate and commercial construction loans, see “Item 1. Business – Lending Activities.”

The percentage of fixed-rate loans in our loan portfolio has been as much as 40% in recent years and was 37% as of December 31, 2024. The majority of the increase in fixed rate loans over the past few years was in commercial real estate, which typically has short durations within our portfolio. Of the total amount of fixed rate loans in our portfolio as of December 31, 2024, approximately 90% mature within the next five years and therefore are not considered to create significant long-term interest rate risk for the Company. Fixed rate loans make up only a portion of our balance sheet and our overall interest rate risk strategy. As of December 31, 2024, our interest rate risk models indicated a one-year interest rate earnings sensitivity position that is modestly positive in an increasing rate environment. For further discussion of our interest rate sensitivity gap and the processes used to manage our exposure to interest rate risk, see “Quantitative and Qualitative Disclosures About Market Risk – How We Measure the Risks to Us Associated with Interest Rate Changes.” For discussion of the risk factors associated with interest rate changes, see “Risk Factors – We may be adversely affected by interest rate changes.”

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 December 31, 2024 and 2023, 0.2% of our owner occupied one- to four-family residential loans had loan-to-value ratios above 100% at origination. At December 31, 2024 and 2023, an estimated 0.4%, of total 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 performance on the loans. Generally, the higher the level of non-performing assets, the greater the negative impact on interest income and net income.

Available-for-sale Securities. Available-for-sale securities increased $55.2 million, or 11.5%, from $478.2 million at December 31, 2023, to $533.4 million at December 31, 2024. The Company purchased some agency mortgage-backed securities in 2024 with expected yields significantly in excess of the overall portfolio yield. For further information on investment securities, see Note 2 to the accompanying financial statements contained in this Report.

Held-to-maturity Securities. Held-to-maturity securities decreased $7.6 million, or 3.9%, from $195.0 million at December 31, 2023, to $187.4 million at December 31, 2024. For further information on investment securities, see Note 2 to the accompanying financial statements contained in this Report.

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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 year ended December 31, 2024, total deposit balances decreased $116.2 million, or 2.5%. Compared to December 31, 2023, transaction account balances decreased $54.3 million and retail certificates of deposit decreased $172.4 million. 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 certificates of deposit decreased due to a decrease in retail certificates generated through the banking center network and time deposits initiated through internet channels, which experienced a planned decrease as part of the Company’s balance sheet management between funding sources. Brokered deposits, including IntraFi program purchased funds, were $772.1 million at December 31, 2024, an increase of $110.6 million from $661.5 million at December 31, 2023. The Company uses brokered deposits of select maturities and interest rate characteristics 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 generate 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.

Securities sold under reverse repurchase agreements with customers. Securities sold under reverse repurchase agreements with customers decreased $6.4 million, or 9.0%, from $70.8 million at December 31, 2023 to $64.4 million at December 31, 2024. These balances fluctuate over time based on customer demand for this product.

Short-Term Borrowings and Other Interest-bearing Liabilities. The Company’s FHLBank term advances were $-0- at both December 31, 2024 and December 31, 2023. At December 31, 2024 and 2023, overnight borrowings from the FHLBank were $333.0 million and $251.0 million, respectively, which are included in short-term borrowings.

Short-term borrowings and other interest-bearing liabilities increased $261.6 million from $252.6 million at December 31, 2023 to $514.2 million at December 31, 2024. The Company may utilize overnight borrowings and short-term FHLBank advances, depending on relative interest rates. In addition, in 2024, the Company utilized BTFP borrowings from FRBSTL.

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 “Quantitative and Qualitative Disclosures About Market Risk”).

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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 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 December 31, 2023 the Federal Funds rate was 5.50%. In 2024, the FRB implemented rate decreases of 0.50%, 0.25%, and 0.25% in September, November and December, respectively. At December 31, 2024, the Federal Funds rate was 4.50%. Financial markets now expect the possibility of further decreases in Federal Funds interest rates in 2025 to be likely, but possibly cuts of only 0.50% at a methodical pace and with interest rate decisions being made at each FRB meeting based on economic data available at the time.

Great Southern’s loan portfolio includes loans ($1.57 billion at December 31, 2024) tied to various SOFR indices that will be subject to adjustment at least once within 90 days after December 31, 2024. All of these loans have interest rate floors at various rates. Great Southern also has a portfolio of loans ($748.0 million at December 31, 2024) tied to a “prime rate” of interest that will adjust immediately or within 90 days of a change to the “prime rate” of interest. Nearly all of these loans had interest rate floors at various rates. In addition, Great Southern has a portfolio of loans ($8.6 million at December 31, 2024) tied to an AMERIBOR index that will adjust immediately or within 90 days of a change to the rate of interest on this index. All of these loans had interest rate floors at various rates. At December 31, 2024, nearly all of these SOFR, AMERIBOR 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, and most are expected to move fully with future market interest rate decreases as many of these loans have floor rates well below their current index rate.

A rate cut by the FRB generally would be expected to have an immediate negative impact on the Company’s interest income on loans due to the large total balance of loans tied to the SOFR indexes or the “prime rate” index that 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 for deposits, 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 December 31, 2024, Great Southern’s interest rate risk models indicate that, generally, rising interest rates are expected to have a modestly positive impact on the Company’s net interest income, while declining interest rates are expected to have a mostly neutral impact on net interest income. Any 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 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 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 would expect that net interest margin would stabilize and begin to recover, as renewal interest rates on maturing time deposits decrease.

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During 2020, we experienced some compression of our net interest margin 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 moderated and loan yield increases 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. Deposit and other funding costs moderated a bit in late 2024 as the FRB cut the federal funds rate, but competition for deposits remains significant. For further discussion of the processes used to manage our exposure to interest rate risk, see “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. 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 under “Results of Operations and Comparison for the Years Ended December 31, 2024 and 2023.”

Business Initiatives

Great Southern has previously reported certain issues and contractual disputes regarding its proposed conversion to a new core banking platform to be delivered by a third-party vendor. This ultimately led to Great Southern terminating the Master Agreement with the third-party vendor and initiating litigation against them, with the third-party vendor filing a counterclaim against Great Southern. In December 2024, an agreement in principle was reached between Great Southern and the third-party vendor whereby the Master Agreement would be terminated and the parties’ card servicing agreement would be continued and expanded. Great Southern recorded a $2.0 million accrued expense in 2024 in connection with these developments. However, at this time, no assurance can be given as to when or whether final agreements will be executed and a full settlement of the matter will be achieved.

The Company’s banking centers and loan production offices are consistently reviewed to measure performance and ensure responsiveness to changing customer needs and preferences. As such, the Company may open banking centers and loan production offices and invest resources where customer demand leads, and from time to time, consolidate offices or even exit markets when conditions dictate.

The following changes were initiated in 2024 and early 2025:

[[GREPCENT_TABLE]]
[["","\u25cf","In January 2024, in Springfield, Missouri, a retail banking center at 600 W. Republic Road was consolidated into another banking center at 2945 W. Republic Road, a short distance away."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","In February 2024, the Company closed its loan production office in Tulsa, Oklahoma after an analysis of lending priorities and operational efficiencies. Loan clients served through this office were reassigned to other relationship managers."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","In 2025, the Company plans to replace one banking center in Springfield, Mo. with a newly constructed building on the same property at 723 N. Benton. The new facility, designed as a next-generation banking center, will allow for flexibility of new designs, processes, technology and tools balanced with customer convenience. Construction on the new building is expected to begin in the first quarter of 2025, with completion anticipated in the fourth quarter of 2025. During construction, customers will be served in a temporary facility on the property. The Company also has 11 other banking centers and an Express Center in Springfield."]]
[[/GREPCENT_TABLE]]

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Two long-term executive team members retired from the Company in 2024. Both announced their retirements at least a year in advance to ensure an orderly leadership transition.

[[GREPCENT_TABLE]]
[["","\u25cf","Chief Retail Banking Officer Kris Conley retired in December 2024 after a notable career at Great Southern Bank. He joined the Company in 1998 and led the retail banking division since 2010. His successor, Laura Smith, joined Great Southern in 2003 and previously managed the Company\u2019s investment services division."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Chief Communications & Marketing Officer Kelly Polonus retired in December 2024, concluding a distinguished 41-year career in banking, including the last 22 years at Great Southern Bank. Succeeding Polonus is Stacy Fender, who joined Great Southern in June 2024 after serving 18 years in communications and marketing roles at a regional healthcare system."]]
[[/GREPCENT_TABLE]]

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 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. While the Economic Growth Act maintains most of the regulatory structure established by the Dodd-Frank Act, it amends certain aspects of the regulatory framework for small depository institutions with assets of less than $10 billion and for large banks with assets of more than $50 billion. Many of these amendments could result in meaningful regulatory changes.

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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. Upon election, 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 to not utilize the new CBLR due to the Company’s size and complexity, including its commercial real estate and construction lending concentrations and significant off-balance sheet funding commitments.

In addition, the Economic Growth Act includes regulatory relief in the areas of examination cycles, call reports, mortgage disclosures and risk weights for certain high-risk commercial real estate loans.

Recent Accounting Pronouncements

See Note 1 to the accompanying audited financial statements, which are included in Item 8 of this Report, for a description of recent accounting pronouncements including the respective dates of adoption and expected effects on the Company’s financial position and results of operations.

Comparison of Financial Condition at December 31, 2024 and December 31, 2023

During the year ended December 31, 2024, total assets increased by $169.2 million, or 2.9%, to $5.98 billion. The increase was primarily attributable to increases in loans receivable and investment securities.

Cash and cash equivalents were $195.8 million at December 31, 2024, a decrease of $15.5 million, or 7.4%, from $211.3 million at December 31, 2023. This decrease was primarily due to a $20.7 million decrease in interest-bearing deposits in the FRBSTL. In 2024, these excess funds were used to purchase new investment securities and originate loans.

The Company’s available-for-sale securities increased $55.2 million, or 11.5%, compared to December 31, 2023. The increase was primarily due to the purchase of agency fixed-rate multi-family mortgage-backed securities and agency collateralized mortgage obligation securities, partially offset by normal monthly payments received related to the portfolio of mortgage-backed securities and collateralized mortgage obligations. The available-for-sale securities portfolio was 8.9% and 8.2% of total assets at December 31, 2024 and 2023, respectively.

The Company’s held-to-maturity securities decreased $7.6 million, or 3.9%, compared to December 31, 2023. The decrease was primarily due to normal monthly payments received related to the portfolio of mortgage-backed securities and collateralized mortgage obligations. The held-to-maturity securities portfolio was 3.1% and 3.4% of total assets at December 31, 2024 and 2023, respectively.

Net loans increased $100.8 million, or 2.2%, from December 31, 2023, to $4.69 billion at December 31, 2024. This increase was primarily in other residential (multi-family) loans of $607.2 million, partially offset by decreases in construction loans of $358.7 million, commercial business loans of $109.1 million and one- to four-family residential loans of $57.2 million. The pipeline of loan commitments and the unfunded portion of construction loans remained strong at December 31, 2024. As construction projects were completed, the related loans were either paid off or moved from the construction category to the appropriate permanent loan categories.

Total liabilities increased $141.5 million from $5.24 billion at December 31, 2023 to $5.38 billion at December 31, 2024. The increase was primarily due to increases in short-term borrowings from FHLBank, borrowings under the FRBSTL BTFP program and increases in brokered deposits, partially offset by a decrease in retail time deposits.

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Total deposits decreased $116.2 million, or 2.5%, from $4.72 billion at December 31, 2023 to $4.61 billion at December 31, 2024. Transaction account balances decreased $54.3 million, from $3.11 billion at December 31, 2023 to $3.06 billion at December 31, 2024. Retail certificates of deposit decreased $172.4 million compared to December 31, 2023, to $775.8 million at December 31, 2024. Decreases in transaction account balances were primarily in certain NOW account types and non-interest-bearing checking accounts. Total interest-bearing checking decreased $1.7 million and non-interest-bearing demand deposit accounts decreased $52.6 million. Customer retail time deposits initiated through our banking center network decreased $158.1 million and time deposits initiated through our national internet network decreased $10.6 million. Customer deposits at December 31, 2024 and December 31, 2023, totaling $5.0 million and $8.8 million, respectively, were part of the IntraFi Network Deposits program, which allows customers to maintain balances in an insured manner that would otherwise exceed the FDIC deposit insurance limit. Brokered deposits increased $110.6 million to $772.1 million at December 31, 2024, compared to $661.5 million at December 31, 2023. Brokered deposits were utilized to fund growth in outstanding loans and investment securities 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. Of the total brokered deposits at December 31, 2024, $300.0 million were floating rate deposits which adjust daily based on the effective federal funds rate index.

The Company’s term Federal Home Loan Bank advances were $-0- at both December 31, 2024 and 2023. At December 31, 2024 and 2023, there were no borrowings from the FHLBank, other than overnight borrowings, which are included in the short-term borrowings category. The Company maintains the flexibility to utilize both overnight borrowings and short-term FHLBank advances depending on relative interest rates.

Short-term borrowings and other interest-bearing liabilities increased $261.6 million, or 103.6%, from $252.6 million at December 31, 2023 to $514.2 million at December 31, 2024. The short-term borrowings included overnight FHLBank borrowings of $333.0 million at December 31, 2024, compared to $251.0 million at December 31, 2023. In January 2024, the Bank borrowed $180.0 million under the Federal Reserve Bank’s Bank Term Funding Program (BTFP). The borrowing, which matured in January 2025 and had a fixed interest rate of 4.83%, was repaid in full in January 2025. The line was secured primarily by the Bank’s held-to-maturity investment securities. These short-term borrowings were primarily used to purchase new investment securities and originate loans.

Securities sold under reverse repurchase agreements with customers decreased $6.4 million, or 9.0%, from $70.8 million at December 31, 2023 to $64.4 million at December 31, 2024. These balances fluctuate over time based on customer demand for this product.

Total stockholders’ equity increased $27.8 million, or 4.9%, from $571.8 million at December 31, 2023 to $599.6 million at December 31, 2024. The Company recorded net income of $61.8 million for the year ended December 31, 2024. In addition, total stockholders’ equity increased $11.9 million due to the issuance of the Company’s common stock upon stock option exercises. Accumulated other comprehensive income decreased $11.9 million due to decreases in the fair value of investment securities and the fair value of cash flow hedges, as a result of increasing intermediate-term market interest rates which generally decreased the fair value of the investment securities and interest rate swaps. Total stockholders’ equity decreased $15.2 million due to repurchases of the Company’s common stock. Dividends declared on common stock, which also decreased total stockholders’ equity, were $18.7 million.

Results of Operations and Comparison for the Years Ended December 31, 2024 and 2023

General

Net income decreased $6.0 million, or 8.8%, during the year ended December 31, 2024, compared to the year ended December 31, 2023. Net income was $61.8 million for the year ended December 31, 2024 compared to $67.8 million for the year ended December 31, 2023. This decrease was primarily due to a decrease in net interest income of $4.1 million, or 2.1%, and an increase in provision for credit losses on loans and unfunded commitments of $5.8 million, partially offset by a decrease in provision for income taxes of $3.9 million, or 22.0%.

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Total Interest Income

Total interest income increased $27.9 million, or 9.4%, during the year ended December 31, 2024 compared to the year ended December 31, 2023. The increase was due to a $25.2 million increase in interest income on loans and a $2.6 million increase in interest income on investment securities and other interest-earning assets. Interest income on loans increased for the year ended December 31, 2024 compared to the year ended December 31, 2023, primarily due to higher average rates of interest on loans and also due to higher average loan balances. Interest income from investment securities and other interest-earning assets increased during the year ended December 31, 2024 compared to the year ended December 31, 2023, due to higher average balances and average rates of interest on investment securities.

Interest Income – Loans

During the year ended December 31, 2024 compared to the year ended December 31, 2023, interest income on loans increased $20.2 million as the result of higher average interest rates on loans. The average yield on loans increased from 5.87% during the year ended December 31, 2023 to 6.30% during the year ended December 31, 2024. This increase was primarily due to the repricing of floating rate loans in 2024 as market interest rates increased and the origination of new fixed-rate loans at higher market interest rates. In addition, interest income on loans increased $5.0 million as a result of higher average loan balances, which increased from $4.63 billion during the year ended December 31, 2023, to $4.72 billion during the year ended December 31, 2024. Since the end of 2022, loan originations and net loan growth have been muted; however, some loan growth has come as a result of the funding of previously approved but unfunded balances on construction loans and a reduced level of loan repayments in 2024.

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, in March 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 (AOCI) and is being accreted to interest income on loans monthly through the original contractual termination date of October 6, 2025. This has had the effect of reducing AOCI and increasing Net Interest Income and Retained Earnings over the periods. The Company recorded interest income related to the interest rate swap of $8.1 million in each of the years ended December 31, 2024 and December 31, 2023. After October 6, 2025, the Company will no longer have the benefit of that income from the terminated swap. In 2025, the Company anticipates recording approximately $2.0 million in interest income from the terminated swap in each of the first three quarterly periods, after which no further interest income will be realized. At December 31, 2024, the Company expected to have a sufficient amount of eligible variable rate loans to continue to accrete this interest income ratably in 2025. 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 was $300 million, with a contractual termination date of March 1, 2024. Under the terms of the swap, the Company received a fixed rate of interest of 1.6725% and paid a floating rate of interest equal to one-month USD-LIBOR (or the equivalent replacement USD-SOFR rate once the USD-LIBOR rate ceased to be available). The floating rate was reset monthly and net settlements of interest due to/from the counterparty also occurred monthly. To the extent that the fixed rate exceeded one-month USD-LIBOR/SOFR, the Company received net interest settlements, which were recorded as loan interest income. If one-month USD-LIBOR/SOFR exceeded the fixed rate of interest, the Company paid net settlements to the counterparty and recorded 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 $1.9 million in the year ended December 31, 2024, compared to a reduction of loan interest income related to this swap transaction of $10.4 million in the year ended December 31, 2023. As this interest rate swap reached its contractual termination date of March 1, 2024, there was no further interest income impact related to this swap after that date.

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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, 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, 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 $10.4 million and $7.2 million in the years ended December 31, 2024 and 2023, respectively. At December 31, 2024, the USD-Prime rate was 7.50% and the one-month USD-SOFR OIS rate was 4.52766%.

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.

Interest Income – Investments and Other Interest-earning Assets

Interest income on investments increased $2.6 million in the year ended December 31, 2024 compared to the year ended December 31, 2023. Interest income increased $1.5 million due to an increase in average interest rates from 2.91% during the year ended December 31, 2023 to 3.13% during the year ended December 31, 2024. At December 31, 2024, the investment portfolio did not include a material amount of adjustable rate securities. Interest income increased $1.0 million as a result of an increase in average balances from $685.5 million during the year ended December 31, 2023, to $719.6 million during the year ended December 31, 2024. Average balances and average rates of interest of securities increased primarily due to purchases in 2024 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 on other interest-earning assets increased $80,000 in the year ended December 31, 2024 compared to the year ended December 31, 2023. Interest income increased $52,000 as a result of higher average interest rates from 5.04% during the year ended December 31, 2023, to 5.09% during the year ended December 31, 2024. Interest income increased $28,000 as a result of an increase in average balances from $98.0 million during the year ended December 31, 2023, to $98.6 million during the year ended December 31, 2024.

Total Interest Expense

Total interest expense increased $31.9 million, or 30.8%, during the year ended December 31, 2024, when compared with the year ended December 31, 2023, due to an increase in interest expense on deposits of $20.9 million, or 23.6%, an increase in interest expense on short-term borrowings of $10.7 million, or 143.0%, an increase in interest expense on securities sold under reverse repurchase agreements of $202,000, or 16.8%, and an increase in interest expense on subordinated debentures issued to capital trusts of $62,000, or 3.6%.

Interest Expense – Deposits

Interest expense on demand deposits increased $9.2 million due to an increase in average rates from 1.30% during the year ended December 31, 2023, to 1.71% during the year ended December 31, 2024. Interest rates paid on demand deposits were higher in 2024 due to significant increases in overall market rates in 2023. Market interest rates peaked in early 2024 and generally declined in the latter part of 2024, but not to the same degree as the increases that occurred in 2023. Interest on demand deposits increased $346,000 due to an increase in average balances from $2.20 billion in the year ended December 31, 2023, to $2.23 billion in the year ended December 31, 2024. The Company experienced decreased balances in certain types of NOW accounts, mostly offset by increases in money market accounts, which generally have higher rates of interest than NOW accounts.

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Interest expense on time deposits increased $7.5 million as a result of an increase in average rates of interest from 2.97% during the year ended December 31, 2023, to 3.93% during the year ended December 31, 2024. Partially offsetting this increase, interest expense on time deposits decreased $2.9 million due to a decrease in the average balance of time deposits from $991.2 million during the year ended December 31, 2023, to $866.5 million during the year ended December 31, 2024. A large portion of the Company’s certificate of deposit portfolio matures within six to twelve months and therefore reprices fairly quickly, which 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 2023 and targeted rate promotions during 2023 and 2024. Average time deposit interest rates continued to increase into mid-year 2024 and trended somewhat lower in the latter portion of 2024.

Interest expense on brokered deposits increased $6.0 million, due to an increase in average balances from $611.8 million during the year ended December 31, 2023 to $729.3 million during the year ended December 31, 2024. Interest expense on brokered deposits also increased $788,000 due to average rates of interest that increased from 5.02% in the year ended December 31, 2023 to 5.15% in the year ended December 31, 2024. Brokered deposits added during 2024 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.

The Company may use interest rate swaps from time to time to manage its interest rate risks from recorded financial liabilities, primarily brokered deposits. These interest rate swaps have allowed the Company to create funding of varying maturities at a variable rate that in the past has approximated three-month SOFR. In February 2023, the Company entered into five new interest rate swap transactions totaling $95.0 million. The Company elected to terminate these swaps in 2024, prior to their contractual termination date in February 2025. The Company received a net settlement payment from the swap counterparty totaling $26,500 upon termination. The Company did not utilize these types of interest rate swaps on brokered deposits in 2024 or 2022.

As of December 31, 2024, time deposit maturities (including brokered deposits) over the next 12 months were as follows: within three months -- $724.3 million with a weighted-average rate of 4.19%; within three to six months -- $306.1 million with a weighted-average rate of 3.86%; and within six to twelve months -- $155.6 million with a weighted-average rate of 3.34%. Based on time deposit market rates in February 2025, replacement rates for these maturing time deposits are likely to be approximately 3.50-4.00%.

Interest Expense – FHLBank Advances; Short-term Borrowings, Repurchase Agreements and Other Interest-bearing Liabilities; Subordinated Debentures Issued to Capital Trust and Subordinated Notes

FHLBank term advances were not utilized during the years ended December 31, 2024 and 2023. FHLBank overnight borrowings were utilized in 2024 and 2023, and are included in short-term borrowings.

Interest expense on reverse repurchase agreements increased $288,000 due to an increase in average rates during the year ended December 31, 2024 when compared to the year ended December 31, 2023. The average rate of interest was 1.86% for the year ended December 31, 2024, compared to 1.47% during the year ended December 31, 2023. The average balance of repurchase agreements decreased $6.6 million from $82.2 million in the year ended December 31, 2023 to $75.6 million in the year ended December 31, 2024, 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 BTFP borrowings from FRBSTL) and other interest-bearing liabilities increased $10.9 million due to an increase in average balances from $142.9 million during the year ended December 31, 2023, to $358.3 million during the year ended December 31, 2024, which was primarily due to changes in the Company’s funding needs for loans and investments and the mix of funding, which can fluctuate. Most of this increase was due to the increased utilization of overnight borrowings from the FHLBank and BTFP borrowings from FRBSTL. Partially offsetting this increase, interest expense on short-term borrowings, overnight FHLBank borrowings from the FHLBank and BTFP borrowings from FRBSTL and other interest-bearing liabilities decreased $226,000 due to average rates that decreased from 5.25% in the year ended December 31, 2023, to 5.09% in the year ended December 31, 2024. The decrease in the average rate of interest was primarily due to 2024 including the BTFP borrowing, which had a lower rate of interest at 4.83% than the FHLB overnight borrowings.

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During the year ended December 31, 2024, compared to the year ended December 31, 2023, interest expense on subordinated debentures issued to capital trusts increased $62,000 due to higher average interest rates. The average interest rate was 6.74% in 2023, compared to 6.98% in 2024. The subordinated debentures are variable-rate debentures. There was no change in the average balance of the subordinated debentures between 2023 and 2024.

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. There was no material change in interest expense on subordinated notes between 2023 and 2024.

Net Interest Income

Net interest income for the year ended December 31, 2024 decreased $4.1 million, or 2.1%, to $189.1 million, compared to $193.2 million for the year ended December 31, 2023. Net interest margin was 3.42% for the year ended December 31, 2024, compared to 3.57% for the year ended December 31, 2023, a decrease of 15 basis points. The Company experienced increases in interest income on both loans and investment securities and increases in interest expense on deposits, short-term borrowings, subordinated debentures issued to capital trust and repurchase agreements.

The Company’s overall interest rate spread decreased 21 basis points, or 7.3%, from 2.97% during the year ended December 31, 2023, to 2.76% during the year ended December 31, 2024. The decrease was due to a 60 basis point increase in the weighted average rate paid on interest-bearing liabilities, partially offset by a 39 basis point increase in the weighted average yield on interest-earning assets. In comparing the two years, the yield on loans increased 43 basis points, the yield on investment securities increased 22 basis points and the yield on other interest-earning assets increased five basis points. The rate paid on deposits increased 54 basis points, the rate paid on short-term borrowings and other interest-bearing liabilities decreased 16 basis points, the rate paid on subordinated debentures issued to capital trusts increased 24 basis points and the rate paid on reverse repurchase agreements increased 39 basis points. 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.

For additional information on net interest income components, refer to the “Average Balances, Interest Rates and Yields” table in this Report.

Provision for and Allowance for Credit Losses

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 changes 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, 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 non-homogeneous or collateral-dependent, evaluates risk of loss and makes additional provisions to expense, if necessary, to maintain the allowance at a satisfactory level.

During the year ended December 31, 2024, the Company recorded a provision expense of $1.7 million on its portfolio of outstanding loans, compared to a provision expense of $2.3 million for the year ended December 31, 2023. The Company experienced net charge offs of $1.6 million for the year ended December 31, 2024 compared to net charge offs of $1.1 million for the year ended December 31, 2023.

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The Company recorded a provision for losses on unfunded commitments of $1.0 million for the year ended December 31, 2024, compared to a negative provision of $5.3 million for the year ended December 31, 2023. The level of provisions for unfunded commitments is primarily related to the increases and decreases in the balance of unfunded commitments.

The Bank’s allowance for credit losses as a percentage of total loans was 1.36% and 1.39% at December 31, 2024 and 2023, respectively. Management considers the allowance for credit losses adequate to cover losses inherent in the Bank’s loan portfolio at December 31, 2024, 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 loan portfolio composition, changes in economic and market conditions and other factors specific to a borrower’s circumstances, the level of non-performing assets will fluctuate.

Non-performing assets at December 31, 2024, were $9.6 million, a decrease of $2.2 million from $11.8 million at December 31, 2023. Non-performing assets as a percentage of total assets were 0.16% at December 31, 2024, compared to 0.20% at December 31, 2023.

Compared to December 31, 2023, non-performing loans decreased $8.1 million to $3.6 million at December 31, 2024, and foreclosed assets increased $6.0 million, to $6.0 million at December 31, 2024. The majority of the decrease in non-performing loans was in the non-performing commercial real estate loans category, which decreased $10.5 million from December 31, 2023, primarily due to one loan relationship, totaling $6.0 million, being transferred from non-performing loans to foreclosed assets held for sale in 2024. Additionally, non-performing commercial real estate loans also decreased in 2024 due to payments on such loans of $3.7 million. One other residential (multi-family) loan relationship, totaling $9.3 million, was added to non-performing loans, then transferred from non-performing loans to foreclosed assets held for sale and sold for a gain, all during 2024.

Non-performing Loans. Activity in the non-performing loans category during the year ended December 31, 2024, was as follows:

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[[/GREPCENT_TABLE]]

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At December 31, 2024, the non-performing one-to four-family residential category included seven loans, six of which were added during 2024. The largest relationship in this category, totaling $2.1 million and which was added during 2024, is collateralized by three rental duplexes, a one-to four-family residential property and a condominium unit. The non-performing land development category consisted of one loan, added in 2024, which totaled $464,000 and is collateralized by improved commercial land in the Omaha, Nebraska area. The non-performing commercial business category consisted of two loans, both of which were added during 2024. The non-performing commercial real estate category consisted of two loans, one of which was added during 2024. During 2024, a single commercial real estate loan totaling $6.0 million which had been collateralized by an office building in Clayton, Missouri was transferred from the non-performing commercial real estate category to foreclosed assets. Prior to the transfer in 2024, the Company collected payments of $1.1 million and charged down the loan balance by $1.2 million. Another relationship in the commercial real estate category totaling $2.4 million at December 31, 2023, was collected in full during 2024. During 2024, one loan of $9.6 million (discussed above), collateralized by a student housing project in Texas, was added to the other residential (multi-family) category. The Company collected payments of $293,000 and subsequently transferred this non-performing loan to foreclosed assets, after which the collateral was sold for a $300,000 gain.

Other Real Estate Owned and Repossessions. All of the total $6.0 million of other real estate owned and repossessions at December 31, 2024 were acquired through foreclosure.

Activity in foreclosed assets and repossessions during the year ended December 31, 2024, was as follows:

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[[/GREPCENT_TABLE]]

​

At December 31, 2024, the commercial real estate category of foreclosed assets consisted of one office building located in Clayton, Missouri that previously collateralized a $6.0 million loan that was transferred from non-performing loans during 2024 as described above in the discussion of non-performing loans. The other residential (multi-family) category of foreclosed assets previously included one property consisting of a student housing project in Texas, which was added and sold during 2024 as described previously in the discussion of non-performing loans. Upon the sale of this asset, the Company realized a gain of $300,000. 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.

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Potential Problem Loans. Potential problem loans decreased $312,000 during the year ended December 31, 2024, from $7.4 million at December 31, 2023 to $7.1 million at December 31, 2024. 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 category during the year ended December 31, 2024, was as follows:

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

​

At December 31, 2024, the commercial real estate category of potential problem loans included three loans totaling $4.3 million, all of which are part of one relationship and were added in 2024. This relationship is collateralized by three nursing care facilities located in southwest Missouri. The borrower’s business cash flow was negatively impacted by a reduction in labor participation and increased operating costs as well as ongoing changes to the Missouri Medicaid reimbursement rate. Monthly payments were timely made prior to the transfer to this category and have continued to be paid timely. At December 31, 2024, the one- to four-family residential category of potential problem loans included 11 loans, 10 of which were added during 2024. The largest relationship in this category totaled $234,000, or 19.5% of the total category. The consumer category includes one home equity loan totaling $748,000 related to the nursing care facility relationship noted above. Another home equity loan totaling $642,000 is associated with the largest one- to four-family residential relationship described above in the non-performing loans discussion. The decrease in the other residential (multi-family) category of potential problem loans included the payment in full during 2024 of one $7.2 million loan relationship that was collateralized by an apartment and retail project in Oklahoma. This was the only loan relationship in the category.

Loans Categorized as “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.” Multiple loan reviews take place on a continuous basis by credit risk and lending management. Reviews are focused on financial performance, occupancy trends, delinquency status, covenant compliance, collateral support, economic considerations and various other factors. Loans classified as “Watch” are being monitored due to indications of potential weaknesses or deficiencies that may require future reclassification as special mention or substandard. Loans classified as “Watch” increased $7.6 million, from $8.3 million at December 31, 2023 to $15.9 million at December 31, 2024, due to the addition of ten loans totaling $11.3 million, partially offset by payoffs of $1.6 million and loans totaling $1.4 million being downgraded during 2024. While loans classified as “Special Mention” are not adversely classified, they are deserving of management’s close attention to ensure repayment prospects or the credit position of the assets does not deteriorate and expose the institution to elevated risk to warrant adverse classification at a future date. In the year ended December 31, 2024, loans classified as “Special Mention” decreased $25.2 million, from $26.7 million at December 31, 2023 to $1.5 million at December 31, 2024. The $1.5 million balance consisted of two relationships which were added in 2024. Two loan relationships totaling $7.2 million were upgraded to “Watch” and two loan relationships totaling $14.3 million were downgraded to “Substandard.” In addition, there were payments collected on loans categorized as “Watch” totaling $5.1 million in 2024. See Note 3 for further discussion of the Company’s loan grading system.

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Non-Interest Income

Non-interest income for the year ended December 31, 2024 was $30.6 million compared to $30.1 million for the year ended December 31, 2023. The increase of $492,000, or 1.6%, was primarily as a result of the following items:

Other income: Other income increased $2.2 million compared to the prior year. In 2024, the Company recorded $2.7 million of other income, net of expenses and write-offs, related to the termination of the Master Agreement between the Company and a third-party software vendor for the conversion of the Company’s core banking platform. This amount represented the elimination of certain deferred credits and other liabilities, along with the write-off of certain capitalized hardware, software and other assets, that previously had been recorded as part of the preparation to convert to the intended new core-banking platform. For additional information, see Part I, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Business Initiatives.”

Net gains on loan sales: Net gains on loan sales increased $1.4 million compared to the prior year. The increase was partially due to an increase in balance of fixed-rate single-family mortgage loans sold during 2024 compared to 2023. The Company also realized higher premiums on the sale of loans in 2024, as market interest rates were more stable when compared to the prior year.

Overdraft and insufficient funds fees: Overdraft and insufficient funds fees decreased $2.5 million compared to the prior year. This decrease was primarily due to the continuation of a multi-year trend whereby our customers are choosing to forego authorizing payments of certain items which exceed their account balances, resulting in fewer overdrafts in checking accounts and related fees.

Point-of-sale and ATM fees: Point-of-sale and ATM fees decreased $760,000 compared to the prior year. This decrease was primarily due to a portion of these transactions now being routed through channels with lower fees to the Company, which is expected to continue in future periods, and certain increases in related processing costs during the transition to a new debit card processor.

Non-Interest Expense

Total non-interest expense increased $472,000, or 0.3%, from $141.0 million in the year ended December 31, 2023, to $141.5 million in the year ended December 31, 2024. The Company’s efficiency ratio for the year ended December 31, 2024 was 64.40%, compared to 63.16% for 2023. The Company’s ratio of non-interest expense to average assets was 2.40% for the year ended December 31, 2024 compared to 2.47% for the year ended December 31, 2023. Average assets for the year ended December 31, 2024, increased $167.0 million, or 2.9%, from the year ended December 31, 2023, primarily due to increases in average net loans receivable.

The following were significant items related to the increase in non-interest expense for the year ended December 31, 2024 as compared to the year ended December 31, 2023:

Other operating expenses: Other operating expenses increased $1.7 million from the prior year. In 2024, the Company expensed $2.0 million due to developments related to a litigation/contract dispute matter. For additional information, see Part I, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Business Initiatives.”

Net occupancy and equipment expense: Net occupancy expenses increased $1.3 million from the prior year. Various components of computer license and support expenses collectively increased by $1.4 million in 2024 compared to 2023.

Legal, audit and other professional fees: Legal, audit and other professional fees decreased $1.7 million from the prior year, to $5.4 million. In 2023, the Company expensed a total of $4.1 million related to training and implementation costs for the intended core systems conversion and professional fees to consultants engaged to support the Company’s proposed transition of core and ancillary software and information technology systems, compared to $2.0 million expensed in 2024.

Expense on other real estate owned: Expense on other real estate owned decreased $615,000 when compared to 2023, to income of $304,000 in 2024. In 2024, the Company recorded a gain on foreclosed asset sales of $495,000 compared to a $39,000 loss in 2023.

93

Table of Contents

Provision for Income Taxes

For the years ended December 31, 2024 and 2023, the Company’s effective tax rate was 18.1% and 20.6%, respectively. These effective rates were at or below the statutory federal tax rate of 21%, due primarily to the utilization of certain investment tax credits and 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 currently expects its effective tax rate (combined federal and state) will be approximately 18.0% to 20.0% in future periods, primarily due to additional investment tax credits being utilized beginning in 2024.

Average Balances, Interest Rates and Yields

The following table presents, 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 the net interest margin. Average balances of loans receivable include the average balances of nonaccrual loans for each period. Interest income on loans includes interest received on nonaccrual loans on a cash basis. Interest income on loans includes the amortization of net loan fees, which were deferred in accordance with accounting standards. Net fees included in interest income were $4.6 million, $5.7 million and $6.3 million for 2024, 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.

​

94

Table of Contents

[[GREPCENT_TABLE]]
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and other interest-bearing liabilities","\u200b","\u200b","4.69","\u200b","\u200b","358,262","\u200b","\u200b","18,222","\u200b","\u200b","5.09","\u200b","\u200b","142,866","\u200b","\u200b","7,500","\u200b","5.25","\u200b","\u200b","48,530","\u200b","\u200b","1,066","\u200b","2.20","\u200b"],["Subordinated debentures issued to capital trust","\u200b","","6.43","\u200b","","25,774","\u200b","","1,798","","\u200b","6.98","\u200b","","25,774","\u200b","","1,736","","6.74","\u200b","","25,774","\u200b","","875","","3.40","\u200b"],["Subordinated notes","\u200b","","5.90","\u200b","","74,734","\u200b","","4,423","","\u200b","5.92","\u200b","","74,430","\u200b","","4,422","","5.94","\u200b","","74,131","\u200b","","4,422","","5.97","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Total interest-bearing liabilities","\u200b","","2.82","\u200b","","4,358,683","\u200b","","135,555","","\u200b","3.11","\u200b","","4,130,553","\u200b","","103,620","","2.51","\u200b","","3,746,733","\u200b","","27,363","","0.73","\u200b"],["Non-interest-bearing liabilities:","\u200b","","\u200b","\u200b","","\u200b","\u200b","","\u200b","","\u200b","\u200b","\u200b","","\u200b","\u200b","","\u200b","","\u200b","\u200b","","\u200b","\u200b","","\u200b","","\u200b","\u200b"],["Demand deposits","\u200b","","\u200b","\u200b","","857,322","\u200b","","\u200b","","\u200b","\u200b","\u200b","","949,045","\u200b","","\u200b","","\u200b","\u200b","","1,141,660","\u200b","","\u200b","","\u200b","\u200b"],["Other liabilities","\u200b","","\u200b","\u200b","","84,249","\u200b","","\u200b","","\u200b","\u200b","\u200b","","88,678","\u200b","","\u200b","","\u200b","\u200b","","66,224","\u200b","","\u200b","","\u200b","\u200b"],["Total liabilities","\u200b","","\u200b","\u200b","","5,300,254","\u200b","","\u200b","","\u200b","\u200b","\u200b","","5,168,276","\u200b","","\u200b","","\u200b","\u200b","","4,954,617","\u200b","","\u200b","","\u200b","\u200b"],["Stockholders\u2019 equity","\u200b","","\u200b","\u200b","","585,960","\u200b","","\u200b","","\u200b","\u200b","\u200b","","550,920","\u200b","","\u200b","","\u200b","\u200b","","565,173","\u200b","","\u200b","","\u200b","\u200b"],["Total liabilities and stockholders\u2019 equity","\u200b","\u200b","\u200b","\u200b","$","5,886,214","\u200b","","\u200b","","\u200b","\u200b","\u200b","$","5,719,196","\u200b","","\u200b","","\u200b","\u200b","$","5,519,790","\u200b","","\u200b","","\u200b","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Net interest income:","\u200b","","\u200b","\u200b","","\u200b","\u200b","","\u200b","","\u200b","\u200b","\u200b","","\u200b","\u200b","","\u200b","","\u200b","\u200b","","\u200b","\u200b","","\u200b","","\u200b","\u200b"],["Interest rate spread","\u200b","","2.86","%","\u200b","\u200b","\u200b","$","189,143","\u200b","\u200b","2.76","%","","\u200b","\u200b","$","193,215","\u200b","2.97","%","","\u200b","\u200b","$","199,614","\u200b","3.59","%"],["Net interest margin*","\u200b","","\u200b","\u200b","","\u200b","\u200b","","","\u200b","","3.42","%","","\u200b","\u200b","","\u200b","\u200b","3.57","%","","\u200b","\u200b","","\u200b","\u200b","3.80","%"],["Average interest-earning assets to average interest- bearing liabilities","\u200b","","\u200b","\u200b","","127.0","%","","","\u200b","","\u200b","\u200b","","131.1","%","","\u200b","\u200b","","","","140.3","%","","\u200b","\u200b"]]
[[/GREPCENT_TABLE]]

*Defined as the Company’s net interest income divided by total interest-earning assets.

[[GREPCENT_TABLE]]
[["(1)","Of the total average balance of investment securities, average tax-exempt investment securities were $56.9 million, $56.0 million and $54.0 million for 2024, 2023 and 2022, respectively. In addition, average tax-exempt industrial revenue bonds were $10.6 million, $13.9 million and $16.4 million in 2024, 2023 and 2022, respectively. Interest income on tax-exempt assets included in this table was $2.2 million, $2.4 million and $2.2 million for 2024, 2023 and 2022, respectively. Interest income net of disallowed interest expense related to tax-exempt assets was $1.8 million, $2.1 million and $2.1 million for 2024, 2023 and 2022, respectively."]]
[[/GREPCENT_TABLE]]

95

Table of Contents

Rate/Volume Analysis

The following table presents the dollar amount 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.

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Year Ended","\u200b","Year Ended"],["\u200b","\u200b","December 31, 2024 vs.","\u200b","December 31, 2023 vs."],["\u200b","\u200b","December 31, 2023","\u200b","December 31, 2022"],["\u200b","\u200b","Increase (Decrease)","\u200b","Total","\u200b","Increase (Decrease)","\u200b","Total"],["\u200b","\u200b","Due to","\u200b","Increase","\u200b","Due to","\u200b","Increase"],["\u200b","","Rate","","Volume","","(Decrease)","","Rate","","Volume","","(Decrease)"],["\u200b","","(In Thousands)"],["Interest-earning assets:","","\u200b","","","\u200b","","","\u200b","","","\u200b","","","\u200b","","","\u200b"],["Loans receivable","\u200b","$","20,180","\u200b","$","5,044","\u200b","$","25,224","\u200b","$","54,141","\u200b","$","12,060","\u200b","$","66,201"],["Investment securities","\u200b","","1,539","\u200b","","1,020","\u200b","","2,559","\u200b","\u200b","488","\u200b","","284","\u200b","\u200b","772"],["Interest-earning deposits in other banks","\u200b","","52","\u200b","","28","\u200b","","80","\u200b","\u200b","3,321","\u200b","","(436)","\u200b","\u200b","2,885"],["Total interest-earning assets","\u200b","","21,771","\u200b","","6,092","\u200b","","27,863","\u200b","\u200b","57,950","\u200b","","11,908","\u200b","\u200b","69,858"],["Interest-bearing liabilities:","\u200b","","\u200b","\u200b","","\u200b","\u200b","","\u200b","\u200b","\u200b","\u200b","\u200b","","\u200b","\u200b","\u200b","\u200b"],["Demand deposits","\u200b","","9,215","\u200b","","346","\u200b","","9,561","\u200b","\u200b","22,904","\u200b","","(293)","\u200b","\u200b","22,611"],["Time deposits","\u200b","","7,513","\u200b","","(2,941)","\u200b","","4,572","\u200b","\u200b","19,843","\u200b","","1,070","\u200b","\u200b","20,913"],["Brokered Deposits","\u200b","","788","\u200b","","6,027","\u200b","","6,815","\u200b","\u200b","10,449","\u200b","","14,108","\u200b","\u200b","24,557"],["Total deposits","\u200b","\u200b","17,516","\u200b","\u200b","3,432","\u200b","\u200b","20,948","\u200b","\u200b","53,196","\u200b","\u200b","14,885","\u200b","\u200b","68,081"],["Securities sold under reverse repurchase agreements","\u200b","","288","\u200b","","(86)","\u200b","","202","\u200b","\u200b","953","\u200b","","(72)","\u200b","\u200b","881"],["Short-term borrowings, overnight FHLBank borrowings and other interest-bearing liabilities","\u200b","","(226)","\u200b","","10,948","\u200b","","10,722","\u200b","\u200b","2,684","\u200b","","3,750","\u200b","\u200b","6,434"],["Subordinated debentures issued to capital trust","\u200b","","62","\u200b","","\u2014","\u200b","","62","\u200b","\u200b","861","\u200b","","\u2014","\u200b","\u200b","861"],["Subordinated notes","\u200b","","(13)","\u200b","","14","\u200b","","1","\u200b","\u200b","(18)","\u200b","","18","\u200b","\u200b","\u2014"],["Total interest-bearing liabilities","\u200b","","17,627","\u200b","","14,308","\u200b","","31,935","\u200b","\u200b","57,676","\u200b","","18,581","\u200b","\u200b","76,257"],["Net interest income","\u200b","$","4,144","\u200b","$","(8,216)","\u200b","$","(4,072)","\u200b","$","274","\u200b","$","(6,673)","\u200b","$","(6,399)"]]
[[/GREPCENT_TABLE]]

​

Results of Operations and Comparison for the Years Ended December 31, 2023 and 2022

General

Net income decreased $8.1 million, or 10.7%, during the year ended December 31, 2023, compared to the year ended December 31, 2022. Net income was $67.8 million for the year ended December 31, 2023 compared to $75.9 million for the year ended December 31, 2022. This decrease was primarily due to an increase in non-interest expense of $7.7 million, or 5.7%, a decrease in net interest income of $6.4 million, or 3.2%, and a decrease in non-interest income of $4.1 million, or 11.9%, partially offset by a decrease in provision for credit losses on loans and unfunded commitments of $9.3 million, and a decrease in provision for income taxes of $710,000, or 3.9%.

Total Interest Income

Total interest income increased $69.9 million, or 30.8%, during the year ended December 31, 2023 compared to the year ended December 31, 2022. The increase was due to a $66.2 million increase in interest income on loans and a $3.7 million increase in interest income on investment securities and other interest-earning assets. Interest income on loans increased for the year ended December 31, 2023 compared to the year ended December 31, 2022, primarily due to higher average rates of interest on loans and higher average loan balances. Interest income from investment securities and other interest-earning assets increased during the year ended December 31, 2023 compared to the year ended December 31, 2022, due to higher average balances of investment securities combined with higher average rates of interest on investment securities and other interest-earning assets, partially offset by a decrease in the average balance on other interest-earning assets.

96

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Interest Income – Loans

During the year ended December 31, 2023 compared to the year ended December 31, 2022, interest income on loans increased $54.1 million as the result of higher average interest rates on loans. The average yield on loans increased from 4.69% during the year ended December 31, 2022 to 5.87% during the year ended December 31, 2023. This increase was primarily due to the repricing of floating rate loans in 2023 as market interest rates increased significantly and the origination of new fixed-rate loans at higher market interest rates. In addition, interest income on loans increased $12.1 million as a result of higher average loan balances, which increased from $4.39 billion during the year ended December 31, 2022, to $4.63 billion during the year ended December 31, 2023. The Company continued to originate loans at a pace similar to prior periods through the end of 2022, and overall loan repayments slowed in 2022 and 2023 compared to the level of repayments in 2021. During 2023, loan originations and net loan growth were muted; however, some loan growth occurred in 2023 as a result of the funding of previously approved but unfunded balances on construction loans and the slowed loan repayments in 2023.

Described above, in the comparison of the year ended December 31, 2024 to the year ended December 31, 2023, is an interest rate swap with a notional amount of $400 million that was previously terminated. The Company recorded interest income related to this interest rate swap of $8.1 million in each of the years ended December 31, 2023 and December 31, 2022.

Also described above, in the comparison of the year ended December 31, 2024 to the year ended December 31, 2023, is an interest rate swap with a notional amount of $300 million that contractually terminated on March 1, 2024. The Company recorded a reduction of loan interest income related to this swap transaction of $10.4 million in the year ended December 31, 2023, compared to a reduction of loan interest income related to this swap transaction of $941,000 in the year ended December 31, 2022.

In addition, described above, in the comparison of the year ended December 31, 2024 to the year ended December 31, 2023, are two additional interest rate swap transactions, each with a notional amount of $200 million, an effective date of May 1, 2023 and a termination date of May 1, 2028. The Company recorded a reduction of loan interest income related to these swap transactions of $7.2 million in the year ended December 31, 2023.

Interest Income – Investments and Other Interest-earning Assets

Interest income on investments increased $772,000 in the year ended December 31, 2023 compared to the year ended December 31, 2022. Interest income increased $488,000 due to an increase in average interest rates from 2.84% during the year ended December 31, 2022 to 2.91% during the year ended December 31, 2023. At December 31, 2023, the investment portfolio did not include a material amount of adjustable rate securities. Interest income increased $284,000 as a result of an increase in average balances from $675.6 million during the year ended December 31, 2022, to $685.5 million during the year ended December 31, 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 on other interest-earning assets increased $2.9 million in the year ended December 31, 2023 compared to the year ended December 31, 2022. Interest income increased $3.3 million as a result of higher average interest rates from 1.05% during the year ended December 31, 2022, to 5.04% during the year ended December 31, 2023. Partially offsetting that increase, interest income decreased $436,000 as a result of a decrease in average balances from $195.8 million during the year ended December 31, 2022, to $98.0 million during the year ended December 31, 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. The decrease in average balances was due to utilization of these funds in loan originations and securities purchases.

97

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Total Interest Expense

Total interest expense increased $76.3 million, or 278.7%, during the year ended December 31, 2023, when compared with the year ended December 31, 2022, due to an increase in interest expense on deposits of $68.1 million, or 329.3%, an increase in interest expense on short-term borrowings of $6.4 million, or 603.6%, an increase in interest expense on securities sold under reverse repurchase agreements of $881,000, or 271.9%, and an increase in interest expense on subordinated debentures issued to capital trusts of $861,000, or 98.4%.

Interest Expense – Deposits

Interest expense on demand deposits increased $22.9 million due to an increase in average rates from 0.26% during the year ended December 31, 2022, to 1.30% during the year ended December 31, 2023. Interest rates paid on demand deposits were higher in 2023 due to significant increases in overall market rates in the latter half of 2022 and all of 2023. Partially offsetting that increase, interest on demand deposits decreased $293,000 due to a decrease in average balances from $2.32 billion in the year ended December 31, 2022, to $2.20 billion in the year ended December 31, 2023. The Company also experienced decreased balances in certain types of NOW accounts and IntraFi Network Reciprocal Deposits, mostly offset by increases in money market accounts, which generally have higher rates of interest than NOW accounts.

Interest expense on time deposits increased $19.8 million as a result of an increase in average rates of interest from 0.96% during the year ended December 31, 2022, to 2.97% during the year ended December 31, 2023. Interest expense on time deposits increased $1.1 million due to an increase in the average balance of time deposits from $890.5 million during the year ended December 31, 2022, to $991.2 million during the year ended December 31, 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 in the latter half of 2022 and throughout 2023 and targeted rate promotions during 2023.

Interest expense on brokered deposits increased $14.1 million, due to an increase in average balances from $252.3 million during the year ended December 31, 2022 to $611.8 million during the year ended December 31, 2023. Interest expense on brokered deposits also increased $10.4 million due to average rates of interest that increased from 2.44% in the year ended December 31, 2022 to 5.02% in the year ended December 31, 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.

At December 31, 2023, the Company had $95.0 million in interest rate swaps on brokered deposits, which were accounted for as fair value hedges. Subsequent to December 31, 2023, the Company elected to terminate these swaps prior to their contractual termination date in 2025. The Company received a net settlement payment from the swap counterparty totaling $26,500 upon termination. The Company did not utilize these types of interest rate swaps on brokered deposits in 2022.

The Company’s net interest income was negatively impacted in 2023 by the high level of competition for deposits due to asset growth across the industry and the lingering effects of liquidity events at several banks in March 2023. The Company also had a substantial amount of time deposits maturing at relatively low rates in the second quarter of 2023, and these time deposits either renewed at higher rates or left the Company, in turn requiring their replacement with other funding sources at then-current, higher market rates. In addition, sporadically throughout 2023, the Company experienced a higher-than-normal reduction in balances of non-interest-bearing deposits. Customer balances in both non-interest-bearing checking and interest-bearing checking accounts fluctuated during the year ended December 31, 2023. As market interest rates for certain checking account types and time deposit accounts have increased, some customers have chosen to reallocate funds into higher-rate accounts.

Interest Expense - FHLBank Advances, Short-term Borrowings, Repurchase Agreements and Other Interest-bearing Liabilities; Subordinated Debentures Issued to Capital Trust and Subordinated Notes

FHLBank term advances were not utilized during the years ended December 31, 2023 and 2022. FHLBank overnight borrowings were utilized in 2023 and 2022.

98

Table of Contents

Interest expense on reverse repurchase agreements increased $953,000 due to an increase in average rates during the year ended December 31, 2023 when compared to the year ended December 31, 2022. The average rate of interest was 1.47% for the year ended December 31, 2023, compared to 0.24% during the year ended December 31, 2022. The average balance of repurchase agreements decreased $50.4 million from $132.6 million in the year ended December 31, 2022 to $82.2 million in the year ended December 31, 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 $3.8 million due to an increase in average balances from $48.5 million during the year ended December 31, 2022, to $142.9 million during the year ended December 31, 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 increased utilization of overnight borrowings from the FHLBank. In addition to this increase, interest expense on short-term borrowings, overnight FHLBank borrowings and other interest-bearing liabilities increased $2.7 million due to average rates that increased from 2.20% in the year ended December 31, 2022, to 5.25% in the year ended December 31, 2023. Short-term market interest rates increased sharply in the latter half of 2022 and throughout 2023.

During the year ended December 31, 2023, compared to the year ended December 31, 2022, interest expense on subordinated debentures issued to capital trusts increased $861,000 due to higher average interest rates. The average interest rate was 3.40% in 2022, compared to 6.74% in 2023. The subordinated debentures are variable-rate debentures, as stated above. There was no change in the average balance of the subordinated debentures between 2022 and 2023.

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. There was no material change in interest expense on subordinated notes between 2022 and 2023.

Net Interest Income

Net interest income for the year ended December 31, 2023 decreased $6.4 million, or 3.2%, to $193.2 million, compared to $199.6 million for the year ended December 31, 2022. Net interest margin was 3.57% for the year ended December 31, 2023, compared to 3.80% for the year ended December 31, 2022, a decrease of 23 basis points. The Company experienced increases in interest income on both loans and investment securities and increases in interest expense on deposits, short-term borrowings, subordinated debentures issued to capital trust and repurchase agreements.

The Company’s overall interest rate spread decreased 62 basis points, or 17.1%, from 3.59% during the year ended December 31, 2022, to 2.97% during the year ended December 31, 2023. The decrease was due to a 178 basis point increase in the weighted average rate paid on interest-bearing liabilities, partially offset by a 116 basis point increase in the weighted average yield on interest-earning assets. In comparing the two years, the yield on loans increased 118 basis points, the yield on investment securities increased 7 basis points and the yield on other interest-earning assets increased 399 basis points. The rate paid on deposits increased 173 basis points, the rate paid on short-term borrowings and other interest-bearing liabilities increased 305 basis points, the rate paid on subordinated debentures issued to capital trusts increased 334 basis points and the rate paid on reverse repurchase agreements increased 123 basis points. 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.

For additional information on net interest income components, refer to the “Average Balances, Interest Rates and Yields” table in this Report.

99

Table of Contents

Provision for and Allowance for Credit Losses

During the year ended December 31, 2023, the Company recorded a provision expense of $2.3 million on its portfolio of outstanding loans, compared to a provision expense of $3.0 million for the year ended December 31, 2022. The Company experienced net charge offs of $1.1 million for the year ended December 31, 2023 compared to net charge offs of $274,000 for the year ended December 31, 2022. The Company recorded a negative provision for losses on unfunded commitments of $5.3 million for the year ended December 31, 2023, compared to provision expense of $3.2 million for the year ended December 31, 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 1.39% at both December 31, 2023 and 2022.

Non-performing Assets

Non-performing assets at December 31, 2023, were $11.8 million, an increase of $8.1 million from $3.7 million at December 31, 2022. Non-performing assets as a percentage of total assets were 0.20% at December 31, 2023, compared to 0.07% at December 31, 2022.

Compared to December 31, 2022, non-performing loans increased $8.1 million to $11.7 million at December 31, 2023, and foreclosed assets decreased $27,000, to $23,000 at December 31, 2023. The majority of the increase in non-performing loans was in the non-performing commercial real estate loans category, which increased $9.0 million from December 31, 2022, primarily due to one loan relationship being added to the category in 2023.

Non-performing Loans. Activity in the non-performing loans category during the year ended December 31, 2023, was as follows:

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","","\u200b","\u200b","","\u200b","\u200b","","","\u200b","","Transfers to","","Transfers to","","","\u200b","","","\u200b","","","\u200b"],["\u200b","\u200b","Beginning","\u200b","Additions","\u200b","Removed","\u200b","Potential","\u200b","Foreclosed","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","Ending"],["\u200b","\u200b","Balance,","\u200b","to Non-","\u200b","from Non-","\u200b","Problem","\u200b","Assets and","\u200b","Charge-","\u200b","\u200b","\u200b","\u200b","Balance,"],["\u200b","\u200b","January 1","\u200b","Performing","\u200b","Performing","\u200b","Loans","\u200b","Repossessions","\u200b","Offs","\u200b","Payments","\u200b","December 31"],["\u200b","\u200b","(In Thousands)"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["One- to four-family construction","\u200b","$","\u2014","\u200b","$","\u2014","\u200b","$","\u2014","\u200b","$","\u2014","\u200b","$","\u2014","\u200b","$","\u2014","\u200b","$","\u2014","\u200b","$","\u2014"],["Subdivision construction","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014"],["Land development","\u200b","","384","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014","\u200b","","384"],["Commercial construction","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014"],["One- to four-family residential","\u200b","","722","\u200b","","716","\u200b","","\u2014","\u200b","","\u2014","\u200b","","(21)","\u200b","","(31)","\u200b","","(664)","\u200b","","722"],["Other residential","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014"],["Commercial real estate","\u200b","","1,579","\u200b","","10,991","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014","\u200b","","(2,018)","\u200b","","10,552"],["Commercial business","\u200b","","586","\u200b","","47","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014","\u200b","","(602)","\u200b","","31"],["Consumer","\u200b","","399","\u200b","","204","\u200b","","(11)","\u200b","","\u2014","\u200b","","\u2014","\u200b","","(123)","\u200b","","(410)","\u200b","","59"],["Total non-performing loans","\u200b","$","3,670","\u200b","$","11,958","\u200b","$","(11)","\u200b","$","\u2014","\u200b","$","(21)","\u200b","$","(154)","\u200b","$","(3,694)","\u200b","$","11,748"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["FDIC-assisted acquired loans included above","\u200b","$","428","\u200b","$","2,298","\u200b","$","\u2014","\u200b","$","\u2014","\u200b","$","(21)","\u200b","$","(31)","\u200b","$","(412)","\u200b","$","2,262"]]
[[/GREPCENT_TABLE]]

​

100

Table of Contents

At December 31, 2023, the non-performing commercial real estate category included four loans, two of which were added during the year ended December 31, 2023. The largest relationship in this category, which totaled $8.1 million, or 76.4% of the total category, was added to non-performing loans during the three months ended June 30, 2023 and was collateralized by an office building in Missouri. The loan was classified due to a decline in occupancy resulting in a stressed cash flow. In 2023, occupancy improved somewhat and lease income from the building continued, and the Company received some principal paydowns from the borrower. Another significant relationship was added to the commercial real estate category in the three months ended December 31, 2023. This relationship totaled $2.2 million and was collateralized by an assisted living facility in Wisconsin. The non-performing one- to four-family residential category included three loans. The largest relationship in this category, which was added during 2023 and was collateralized by a single-family home in the Kansas City metro area, totaled $543,000, or 75.2% of the total category. The non-performing land development category consisted of one loan added in 2021, which totaled $384,000 and was collateralized by unimproved zoned vacant ground in southern Illinois. The non-performing commercial business category consisted of two loans that totaled $31,000 to a single borrower, both of which were added during 2023. The non-performing consumer category included six loans, three of which were added during 2023.

Other Real Estate Owned and Repossessions. All of the total $23,000 of other real estate owned and repossessions at December 31, 2023 were acquired through foreclosure.

Activity in foreclosed assets and repossessions during the year ended December 31, 2023, was as follows:

​

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

​

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.

Potential Problem Loans. Potential problem loans increased $5.8 million during the year ended December 31, 2023, from $1.6 million at December 31, 2022 to $7.4 million at December 31, 2023.

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Table of Contents

Activity in the potential problem loans category during the year ended December 31, 2023, was as follows:

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","","\u200b","\u200b","","\u200b","\u200b","","Removed","","","\u200b","","Transfers to","","","\u200b","","","\u200b","","","\u200b"],["\u200b","\u200b","Beginning","\u200b","Additions","\u200b","from","\u200b","Transfers to","\u200b","Foreclosed","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","Ending"],["\u200b","\u200b","Balance,","\u200b","to Potential","\u200b","Potential","\u200b","Non-","\u200b","Assets and","\u200b","Charge-","\u200b","\u200b","\u200b","\u200b","Balance,"],["\u200b","\u200b","January 1","\u200b","Problem","\u200b","Problem","\u200b","Performing","\u200b","Repossessions","\u200b","Offs","\u200b","Payments","\u200b","December 31"],["\u200b","\u200b","(In Thousands)"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["One- to four-family construction","\u200b","$","\u2014","\u200b","$","\u2014","\u200b","$","\u2014","\u200b","$","\u2014","\u200b","$","\u2014","\u200b","$","\u2014","\u200b","$","\u2014","\u200b","$","\u2014"],["Subdivision construction","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014"],["Land development","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014"],["Commercial construction","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014"],["One- to four-family residential","\u200b","","1,348","\u200b","","167","\u200b","","(1,016)","\u200b","","(105)","\u200b","","\u2014","\u200b","","\u2014","\u200b","","(236)","\u200b","","158"],["Other residential","\u200b","","\u2014","\u200b","","7,162","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014","\u200b","","7,162"],["Commercial real estate","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014"],["Commercial business","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014"],["Consumer","\u200b","","230","\u200b","","60","\u200b","","(143)","\u200b","","(6)","\u200b","","(5)","\u200b","","(15)","\u200b","","(67)","\u200b","","54"],["Total potential problem loans","\u200b","$","1,578","\u200b","$","7,389","\u200b","$","(1,159)","\u200b","$","(111)","\u200b","$","(5)","\u200b","$","(15)","\u200b","$","(303)","\u200b","$","7,374"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["FDIC-assisted acquired loans included above","\u200b","$","743","\u200b","$","\u2014","\u200b","$","(639)","\u200b","$","\u2014","\u200b","$","\u2014","\u200b","$","\u2014","\u200b","$","(4)","\u200b","$","100"]]
[[/GREPCENT_TABLE]]

​

At December 31, 2023, the other residential (multi-family) category of potential problem loans included one loan, which totaled $7.2 million, and was added in 2023. This loan was collateralized by an apartment and retail project in Oklahoma City, OK. This loan was added to potential problems loans due to a decline in occupancy resulting in a stressed cash flow. At December 31, 2023, the one- to four-family residential category of potential problem loans included two loans. The largest relationship in this category totaled $99,000, or 62.5% of the total category. The consumer category of potential problem loans included six loans.

Loans Categorized as “Watch” and “Special Mention”

Loans classified as “Watch” decreased $20.4 million, from $28.7 million at December 31, 2022 to $8.3 million at December 31, 2023, primarily due to the combination of one large loan being upgraded to “Satisfactory,” one unrelated large loan being downgraded to “Substandard” and added to non-performing loans, and one unrelated loan being downgraded to “Special Mention.” While loans classified as “Special Mention” are not adversely classified, they are deserving of management’s close attention to ensure repayment prospects or the credit position of the assets does not deteriorate and expose the institution to elevated risk to warrant adverse classification at a future date. In the year ended December 31, 2023, loans classified as “Special Mention” increased $26.7 million as four loan relationships were downgraded from “Satisfactory.” The largest relationship consisted of four commercial business loans totaling $9.9 million at December 31, 2023 and were secured by business assets, equipment, accounts receivable and real estate. The relationship was added to the “Special Mention” category during 2023 due to stressed cash flow associated with business expansion. At December 31, 2023, a $9.6 million relationship was included in the “Special Mention” category. The balance represented a participation in a loan collateralized by a student housing project in Texas. The Company was not the lead lender for this relationship. The project suffered from rising debt service requirements and a decline in occupancy. A relationship totaling $4.4 million at December 31, 2023 was added to the “Special Mention” category in 2023. This relationship was collateralized by three assisted care facilities located in southwest Missouri. Business cash flow was negatively impacted by a labor shortage and a decrease in Medicaid reimbursement during 2022-2023. Monthly payments continue to amortize the loan balance. See Note 3 for further discussion of the Company’s loan grading system.

Non-Interest Income

Non-interest income for the year ended December 31, 2023 was $30.1 million compared to $34.1 million for the year ended December 31, 2022. The decrease of $4.0 million, or 11.9%, was primarily as a result of the following items:

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Point-of-sale and ATM fees: Point-of-sale and ATM fees decreased $1.4 million compared to the prior year. This decrease was primarily due to a portion of these transactions now being routed through channels with lower fees to the Company, which is expected to continue in future periods, and certain increases in related processing costs during the transition to a new debit card processor.

Other income: Other income decreased $1.2 million compared to the prior year. In 2022, a gain of $1.1 million was recognized on sales of fixed assets, with no similar transactions occurring in the current year.

Gain (loss) on derivative interest rate products: In 2023, the Company recognized a loss of $337,000 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 2022, the Company recognized a gain of $321,000 on the change in fair value of its back-to-back interest rate swaps related to commercial loans.

Non-Interest Expense

Total non-interest expense increased $7.6 million, or 5.7%, from $133.4 million in the year ended December 31, 2022, to $141.0 million in the year ended December 31, 2023. The Company’s efficiency ratio for the year ended December 31, 2023 was 63.16%, compared to 57.05% for 2022. In the year ended December 31, 2023, the change in the efficiency ratio was primarily due to an increase in non-interest expense, and decreases non-interest income and net interest income. The Company’s ratio of non-interest expense to average assets was 2.47% for the year ended December 31, 2023 compared to 2.42% for the year ended December 31, 2022. Average assets for the year ended December 31, 2023, increased $199.4 million, or 3.6%, from the year ended December 31, 2022, primarily due to increases in average net loans receivable.

The following were key items related to the increase in non-interest expense for the year ended December 31, 2023 as compared to the year ended December 31, 2022:

Salaries and employee benefits: Salaries and employee benefits increased $3.2 million from the prior year. 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. Also, in the fourth quarter of 2023, the Company recorded expense totaling $441,000 related to discretionary bonuses awarded to various associates who have been involved significantly in the software and systems transition. In addition, compensation costs related to originated loans that are deferred under accounting rules decreased by $1.3 million in 2023 compared to 2022 (resulting in higher expense in 2023), as the volume of loans originated in 2023 decreased substantially compared to 2022.

Net occupancy expenses: Net occupancy expenses increased $2.4 million from the prior year. Various components of computer license and support expenses increased by $1.4 million in 2023 compared to 2022. In addition, various repairs and maintenance expenses increased by $252,000 in 2023 compared to 2022.

Insurance: Insurance expense increased $1.3 million from the prior year. The increase was primarily due to previously announced increases in deposit insurance rates for the FDIC’s Deposit Insurance Fund.

Legal, Audit and Other Professional Fees: Legal, audit and other professional fees increased $756,000 from the prior year, to $7.1 million. In 2023, the Company expensed a total of $4.0 million, 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, compared to $3.1 million expensed in 2022. In addition, in 2022, the Company expensed $372,000 in fees related to the interest rate swaps initiated in July 2022, which was not repeated in 2023.

Provision for Income Taxes

For the years ended December 31, 2023 and 2022, the Company’s effective tax rate was 20.6% and 19.4%, 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.

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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 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 December 31, 2024, the Company had commitments of approximately $48.9 million to fund loan originations, $1.20 billion of unused lines of credit and unadvanced loans, and $16.8 million of outstanding letters of credit.

​

Loan commitments and the unfunded portion of loans at the dates indicated were as follows (in thousands):

​

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

​

The following table summarizes the Company’s fixed and determinable contractual obligations by payment date as of December 31, 2024. Additional information regarding these contractual obligations is discussed further in Notes 5, 7, 8, 9, 10, 11, 12 and 17 of the accompanying audited financial statements, which are included in Item 8 of this Report.

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","","Payments Due In:"],["\u200b","\u200b","One Year or","\u200b","Over One to","\u200b","Over Five","\u200b","\u200b","\u200b"],["\u200b","","Less","","Five Years","","Years","","Total"],["\u200b","","(In Thousands)"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Deposits without a stated maturity","\u200b","$","3,057,663","\u200b","$","\u2014","\u200b","$","\u2014","\u200b","$","3,057,663"],["Time and brokered certificates of deposit","\u200b","","1,386,078","\u200b","","160,868","\u200b","","940","\u200b","","1,547,886"],["Short-term borrowings","\u200b","","578,691","\u200b","","\u2014","\u200b","","\u2014","\u200b","","578,691"],["Subordinated debentures","\u200b","","\u2014","\u200b","","\u2014","\u200b","","25,774","\u200b","","25,774"],["Subordinated notes","\u200b","","\u2014","\u200b","","\u2014","\u200b","","74,876","\u200b","","74,876"],["Operating leases","\u200b","","1,313","\u200b","","4,309","\u200b","","1,988","\u200b","","7,610"],["Dividends declared but not paid","\u200b","","4,692","\u200b","","\u2014","\u200b","","\u2014","\u200b","","4,692"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","$","5,028,437","\u200b","$","165,177","\u200b","$","103,578","\u200b","$","5,297,192"]]
[[/GREPCENT_TABLE]]

​

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The Company’s primary sources of funds are customer deposits, brokered deposits, short-term borrowings at the FHLBank, other borrowings, loan repayments, unpledged securities, proceeds from sales of loans and available-for-sale securities, and funds provided from operations. The Company utilizes some or all these sources of funds depending 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. In mid-2022, the Company steadily began increasing the interest rates it paid on many deposit products until September 2024 when the Company decreased the interest rates it paid on certain deposit products. The Company has also utilized both fixed-rate and floating-rate brokered deposits of varying terms, as well as overnight FHLBank borrowings.

At December 31, 2024 and 2023, the Company had these available secured lines and on-balance sheet liquidity:

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","","December 31, 2024","","December 31, 2023"],["Federal Home Loan Bank line","\u200b","$","1,058.8 million","\u200b","$","919.1 million"],["Federal Reserve Bank line","\u200b","","346.4 million","\u200b","","448.7 million"],["Cash and cash equivalents","\u200b","","195.8 million","\u200b","","211.3 million"],["Unpledged securities \u2013 Available-for-sale","\u200b","\u200b","329.9 million","\u200b","\u200b","352.8 million"],["Unpledged securities \u2013 Held-to-maturity","\u200b","","25.0 million","\u200b","","191.7 million"]]
[[/GREPCENT_TABLE]]

​

Statements of Cash Flows. During each of the years ended December 31, 2024, 2023 and 2022, the Company experienced positive cash flows from operating activities, negative cash flows from investing activities and positive cash flows from financing activities.

​

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, realized gains on the sale of investment securities and loans, depreciation and amortization 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 sources of cash flows from operating activities. Operating activities provided cash flows of $44.1 million, $80.7 million and $84.8 million during the years ended December 31, 2024, 2023 and 2022, respectively.

​

During the years ended December 31, 2024, 2023 and 2022, investing activities used cash of $175.4 million, $88.2 million and $819.5 million, respectively, primarily due to the net increases and purchases of loans and investment securities and investments in tax credit partnerships, partially offset by cash received from the proceeds of repayments from investment securities in each year.

​

Changes in cash flows from financing activities during the periods covered by the Statements of Cash Flows are primarily due to changes in deposits after interest credited, changes in short-term borrowings, proceeds from FRB BTFP borrowings, purchases of the Company’s common stock and dividend payments to stockholders. Financing activities provided cash flows of $115.8 million, $50.3 million and $186.0 million during the years ended December 31, 2024, 2023 and 2022, respectively, primarily due to net increases in customer deposit balances (2023 and 2022) and net increases in various borrowings, partially offset by dividend payments to stockholders and purchases of the Company’s common stock.

​

Capital Resources

Management continuously reviews the capital position of the Company and the Bank to ensure compliance with minimum regulatory requirements, as well as to explore ways to increase capital either by retained earnings or other means.

At December 31, 2024, the Company’s total stockholders’ equity was $599.6 million, or 10.0% of total assets, equivalent to a book value of $51.14 per common share. As of December 31, 2023, total stockholders’ equity was $571.8 million, or 9.8% of total assets, equivalent to a book value of $48.44 per common share. At December 31, 2024, the Company’s tangible common equity to tangible assets ratio was 9.9%, compared to 9.7% at December 31, 2023.

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Included in stockholders’ equity at December 31, 2024 and 2023, were unrealized losses (net of taxes) on the Company’s available-for-sale investment securities totaling $46.1 million and $40.5 million, respectively. This change in net unrealized losses during the year ended December 31, 2024, primarily resulted from increasing intermediate-term market interest rates which generally decreased the fair value of investment securities. Market interest rates fluctuated throughout 2024, resulting in fluctuations in the fair value of investment securities. Intermediate-term market interest rates decreased during the period from June 30, 2024 through September 30, 2024 (which generally increased the fair value of investment securities). In the three months ended December 31, 2024, intermediate-term market interest rates increased significantly (which once again generally decreased the fair value of investment securities).

In addition, included in stockholders’ equity at December 31, 2024, were realized gains (net of taxes) on the Company’s cash flow hedge (interest rate swap), which was terminated in March 2020, totaling $4.8 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 December 31, 2024, the remaining pre-tax amount to be recorded in interest income was $6.2 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 December 31, 2024, were unrealized losses (net of taxes) on the Company’s two outstanding cash flow hedges (two interest rate swaps totaling $400 million notional value) totaling $12.8 million. Increases in market interest rates since the inception of these hedges have caused their fair values to decrease.

As noted above, total stockholders’ equity increased $27.8 million, from $571.8 million at December 31, 2023 to $599.6 million at December 31, 2024. Stockholders’ equity increased due to the Company recording net income of $61.8 million for the year ended December 31, 2024 and due to $11.9 million in stock option exercises during 2024. Partially offsetting these increases were repurchases of the Company’s common stock totaling $15.2 million and dividends declared on common stock of $18.7 million. AOCI (loss) increased $11.9 million (decrease to stockholders’ equity) during the year ended December 31, 2024, primarily due to changes in the market value of available-for-sale securities and changes in the fair value of cash flow hedges.

The Company also had unrealized losses on its portfolio of held-to-maturity investment securities, which totaled $24.7 million at December 31, 2024, that were not included in its total capital balance. If these held-to-maturity unrealized losses were included in capital (net of taxes), this would have decreased total stockholder’s equity by $18.6 million at December 31, 2024. This amount was equal to 3.1% of total stockholders’ equity of $599.6 million at that date.

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, 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 December 31, 2024, the Bank’s common equity Tier 1 capital ratio was 12.6%, its Tier 1 capital ratio was 12.6%, its total capital ratio was 13.9% and its Tier 1 leverage ratio was 11.0%. As a result, as of December 31, 2024, the Bank was well capitalized, with capital ratios in excess of those required to qualify as such. On December 31, 2023, the Bank’s common equity Tier 1 capital ratio was 13.1%, its Tier 1 capital ratio was 13.1%, its total capital ratio was 14.3% and its Tier 1 leverage ratio was 11.6%. As a result, as of December 31, 2023, 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 December 31, 2024, the Company’s common equity Tier 1 capital ratio was 12.3%, its Tier 1 capital ratio was 12.8%, its total capital ratio was 15.4% and its Tier 1 leverage ratio was 11.2%. On December 31, 2023, the Company’s common equity Tier 1 capital ratio was 11.9%, its Tier 1 capital ratio was 12.4%, its total capital ratio was 15.2% and its Tier 1 leverage ratio was 11.0%.

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. Both the Company and the Bank had a capital conservation buffer that exceeded the required minimum levels at December 31, 2024 and 2023.

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Dividends. During the year ended December 31, 2024, the Company declared common stock cash dividends of $1.60 per share (30.4% of net income per common share) and paid common stock cash dividends of $1.60 per share. During the year ended December 31, 2023, the Company declared common stock cash dividends of $1.60 per share (28.5% of net income per common share) and paid common stock cash dividends of $1.60 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 December 31, 2024, was paid to stockholders in January 2025.

Common Stock Repurchases and Issuances. The Company has been in various buy-back programs since May 1990. During the years ended December 31, 2024 and 2023, the Company repurchased 284,483 shares of its common stock at an average price of $53.10 per share and 449,622 shares of its common stock at an average price of $51.38 per share, respectively. During the years ended December 31, 2024 and 2023, the Company issued 203,601 shares of stock at an average price of $49.59 per share and 22,762 shares of stock at an average price of $38.83 per share, respectively, 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. As of December 31, 2024, a total of approximately 443,000 shares remained available in the Company’s 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”). This non-GAAP financial information includes the tangible common equity to tangible assets ratio.

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.

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Non-GAAP Reconciliation: Ratio of Tangible Common Equity to Tangible Assets

​

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

​

​