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Section 1: 10-Q (10-Q)

Document

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


Form 10-Q
 
 
 
(Mark One)
 
 
þ

 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the quarterly period ended December 31, 2017
 
 
Or
¨
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the transition period from                 to

Commission File Number 001-36688



Great Western Bancorp, Inc.
(Exact name of registrant as specified in its charter)
Delaware
 
47-1308512
(State or other jurisdiction of
incorporation or organization)
 
(IRS Employer
Identification Number)
 
 
 

225 South Main Avenue
Sioux Falls, South Dakota
 


57104
(Address of principal executive offices)
 
(Zip Code)
(605) 334-2548
Registrant’s telephone number, including area code



Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes x    No   o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes x    No   o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer," “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer  x
Accelerated filer   o
Non-accelerated filer o  
(Do not check if a smaller reporting company)
Smaller reporting company   o
Emerging growth company o 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes o    No   x
As of February 1, 2018, the number of shares of the registrant’s Common Stock outstanding was 58,896,189.





GREAT WESTERN BANCORP, INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS

 
 

2-




EXPLANATORY NOTE
Except as otherwise stated or the context otherwise requires, references in this Quarterly Report on Form 10-Q to:
“we,” “our,” “us” and our “company” refers to Great Western Bancorp, Inc., a Delaware corporation, and its consolidated subsidiaries.
"our bank” refers to Great Western Bank, a South Dakota banking corporation;
“NAB” refers to National Australia Bank Limited, an Australian public company that was our ultimate parent company prior to our initial public offering in October 2014 and, until July 31,2015, was our principal stockholder;
our “states” refers to the nine states (Arizona, Colorado, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota and South Dakota) in which we currently conduct our business; and
our “footprint” refers to the geographic markets within our states in which we currently conduct our business.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. These statements are often, but not always, made through the use of words or phrases such as “anticipates,” “believes,” “can,” “could,” “may,” “predicts,” “potential,” “should,” “will,” “estimate,” “plans,” “projects,” “continuing,” “ongoing,” “expects,” "views," “intends” and similar words or phrases. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions, estimates and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements.
A number of important factors could cause our actual results to differ materially from those indicated in these forward-looking statements, including those factors identified in “Item 1A. Risk Factors” or “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Report or the following:
current and future economic and market conditions in the United States generally or in our states in particular, including the rate of growth and employment levels;
our ability to anticipate interest rate changes and manage interest rate risk;
our ability to achieve loan and deposit growth;
the relative strength or weakness of the commercial, agricultural and real estate markets where our borrowers are located, including without limitation related asset and market prices;
declines in asset prices and the market prices for agricultural products or changes in governmental support programs for the agricultural sector;
our ability to effectively execute our strategic plan and manage our growth;
our ability to successfully manage our credit risk and the sufficiency of our allowance for loan and lease loss;
our ability to develop and effectively use the quantitative models we rely upon in our business;
our ability to effectively compete with other financial services companies and the effects of competition in the financial services industry on our business;

3-




operational risks or risk management failures by us or critical third parties, including without limitation with respect to data processing, information systems, cyber-security, technological changes, vendor problems, business interruption and fraud risks;
fluctuations in the values of our assets and liabilities and off-balance sheet exposures;
unanticipated changes in our liquidity position, including but not limited to changes in our access to sources of liquidity and capital to address our liquidity needs;
possible changes in trade, monetary and fiscal policies of, and other activities undertaken by, governments, agencies, central banks and similar organizations;
possible impairment of our goodwill and other intangible assets, or any adjustment of the valuation of our deferred tax assets;
the effects of geopolitical instability, including war, terrorist attacks, and man-made and natural disasters;
the impact of, and changes in applicable laws, regulations and accounting standards, policies and interpretations, including the impact of the Tax Cuts and Jobs Act of 2017;
legal, compliance and reputational risks, including litigation and regulatory risks;
our inability to receive dividends from our bank and to service debt, pay dividends to our common stockholders and satisfy obligations as they become due;
expected cost savings in connection with the consolidation of recent acquisitions may not be fully realized or realized within the expected time frames, and deposit attrition, customer loss and revenue loss following completed acquisitions may be greater than expected;
our ability to meet our obligations as a public company, including our obligations under Section 404 of the Sarbanes-Oxley Act of 2002 to maintain an effective system of internal control over financial reporting; and
other risks and uncertainties inherent to our business, including those discussed under the heading "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended September 30, 2017.
The foregoing factors should not be considered an exhaustive list and should be read together with the other cautionary statements included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2017. If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate. Accordingly, you should not place undue reliance on any such forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made, and we do not undertake any obligation to update or review any forward-looking statement to reflect events or circumstances occurring after the date on which the statement is made or to reflect the occurrence of unanticipated events.

4-




PART I. FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS (UNAUDITED)
GREAT WESTERN BANCORP, INC.
Consolidated Balance Sheets
(Dollars in Thousands, Except Share and Per Share Data)
 
(Unaudited)
 
 
 
December 31, 2017
 
September 30, 2017
Assets
 
 
 
Cash and due from banks
$
189,907

 
$
170,657

Interest-bearing bank deposits
107,689

 
189,739

Cash and cash equivalents
297,596

 
360,396

Securities available for sale
1,366,641

 
1,367,960

Loans, net of unearned discounts and deferred fees, including $53,388 and $57,537 of loans covered by FDIC loss share agreements at December 31, 2017 and September 30, 2017, respectively, and $980,144 and $1,016,576 of loans at fair value under the fair value option at December 31, 2017 and September 30, 2017, respectively, and $5,757 and $7,456 of loans held for sale at December 31, 2017 and September 30, 2017, respectively
9,165,373

 
8,968,553

Allowance for loan and lease losses
(64,023
)
 
(63,503
)
Net loans
9,101,350

 
8,905,050

Premises and equipment, including $1,111 and $5,147 of property held for sale at December 31, 2017 and September 30, 2017, respectively
107,731

 
112,209

Accrued interest receivable
54,817

 
53,176

Other repossessed property, including $86 and $0 of property covered by FDIC loss share agreements at December 31, 2017 and September 30, 2017, respectively
10,486

 
8,985

Goodwill
739,023

 
739,023

Cash surrender value of life insurance policies
29,823

 
29,619

Net deferred tax assets
28,548

 
42,400

Other assets
70,566

 
71,193

Total assets
$
11,806,581

 
$
11,690,011

Liabilities and stockholders’ equity
 
 
 
Deposits
 
 
 
Noninterest-bearing
$
1,932,080

 
$
1,856,126

Interest-bearing
7,092,105

 
7,121,487

Total deposits
9,024,185

 
8,977,613

Securities sold under agreements to repurchase
116,884

 
132,636

FHLB advances and other borrowings
721,009

 
643,214

Subordinated debentures and subordinated notes payable
108,343

 
108,302

Accrued expenses and other liabilities
68,287

 
73,246

Total liabilities
10,038,708

 
9,935,011

Stockholders’ equity
 
 
 
Common stock, $0.01 par value, authorized 500,000,000 shares; 58,896,189 shares issued and outstanding at December 31, 2017 and 58,834,066 shares issued and outstanding at September 30, 2017
588

 
588

Additional paid-in capital
1,314,723

 
1,314,039

Retained earnings
463,207

 
445,747

Accumulated other comprehensive (loss)
(10,645
)
 
(5,374
)
Total stockholders' equity
1,767,873

 
1,755,000

Total liabilities and stockholders' equity
$
11,806,581

 
$
11,690,011

See accompanying notes.

5-




GREAT WESTERN BANCORP, INC.
Consolidated Statements of Income (Unaudited)
(Dollars in Thousands, Except Share and Per Share Data)
 
Three Months Ended
 
December 31, 2017
 
December 31, 2016
Interest and dividend income
 
 
 
Loans
$
107,680

 
$
99,932

Taxable securities
6,494

 
5,878

Nontaxable securities
260

 
199

Dividends on securities
289

 
300

Federal funds sold and other
231

 
346

Total interest and dividend income
114,954

 
106,655

Interest expense
 
 
 
Deposits
10,998

 
7,290

Securities sold under agreements to repurchase
95

 
115

FHLB advances and other borrowings
2,069

 
1,271

Subordinated debentures and subordinated notes payable
1,170

 
1,088

Total interest expense
14,332

 
9,764

Net interest income
100,622

 
96,891

Provision for loan and lease losses
4,557

 
7,049

Net interest income after provision for loan and lease losses
96,065

 
89,842

Noninterest income
 
 
 
Service charges and other fees
13,178

 
13,837

Wealth management fees
2,185

 
2,254

Mortgage banking income, net
1,660

 
2,662

Net (loss) on sale of securities
(1
)
 

Net (decrease) in fair value of loans at fair value
(8,665
)
 
(64,001
)
Net realized and unrealized gain on derivatives
7,227

 
58,976

Other
1,090

 
1,930

Total noninterest income
16,674

 
15,658

Noninterest expense
 
 
 
Salaries and employee benefits
32,868

 
31,634

Data processing
5,896

 
5,677

Occupancy expenses
4,002

 
4,024

Professional fees
4,240

 
2,835

Communication expenses
988

 
1,040

Advertising
1,059

 
975

Equipment expense
846

 
798

Net loss recognized on repossessed property and other related expenses
214

 
658

Amortization of core deposits and other intangibles
426

 
839

Acquisition expenses

 
710

Other
4,329

 
3,347

Total noninterest expense
54,868

 
52,537

Income before income taxes
57,871

 
52,963

Provision for income taxes
28,641

 
16,060

Net income
$
29,230

 
$
36,903

Basic earnings per common share
 
 
 
Weighted average shares outstanding
58,902,629

 
58,750,522

Basic earnings per share
$
0.50

 
$
0.63

Diluted earnings per common share
 
 
 
Weighted average shares outstanding
59,087,729

 
58,991,905

Diluted earnings per share
$
0.49

 
$
0.63

Dividends per share
 
 
 
Dividends paid
$
11,770

 
$
9,981

Dividends per share
$
0.20

 
$
0.17

See accompanying notes.

6-




GREAT WESTERN BANCORP, INC.
Consolidated Statements of Comprehensive Income (Unaudited)
(Dollars in Thousands)
 
Three Months Ended
 
December 31, 2017
 
December 31, 2016
Net income
$
29,230

 
$
36,903

Other comprehensive (loss), net of tax:
 
 
 
Securities available for sale:
 
 
 
Net unrealized holding (loss) arising during the year
(8,645
)
 
(21,468
)
Reclassification adjustment for net loss realized in net income
1

 

Income tax benefit
3,283

 
8,158

Net change in unrealized (losses) on securities available for sale
(5,361
)
 
(13,310
)
 
 
 
 
Defined benefit pension plan obligation:
 
 
 
Net unrealized holding gain arising during the year
145

 

Income tax (expense)
(55
)
 

Net change in defined benefit pension plan obligation
90

 

Other comprehensive (loss), net of tax
(5,271
)
 
(13,310
)
Comprehensive income
23,959

 
23,593

See accompanying notes.


7-




GREAT WESTERN BANCORP, INC.
Consolidated Statement of Stockholders' Equity (Unaudited)
(Dollars in Thousands, Except Share and Per Share Data)
 
Comprehensive Income
 
Common Stock Par Value
 
Additional
Paid-in Capital
 
Retained
Earnings
 
Accumulated Other Comprehensive Income (Loss)
 
Total
Balance, September 30, 2016
 
 
$
587

 
$
1,312,347

 
$
344,923

 
$
5,534

 
$
1,663,391

Net income
$
36,903

 

 

 
36,903

 

 
36,903

Other comprehensive (loss), net of tax
(13,310
)
 

 

 

 
(13,310
)
 
(13,310
)
Total comprehensive income
$
23,593

 
 
 
 
 
 
 
 
 
 
Stock-based compensation, net of tax
 
 

 
1,635

 

 

 
1,635

Cash dividends:
 
 
 
 
 
 
 
 
 
 
 
Common stock, $0.17 per share
 
 

 

 
(9,981
)
 

 
(9,981
)
Balance, December 31, 2016
 
 
$
587

 
$
1,313,982

 
$
371,845

 
$
(7,776
)
 
$
1,678,638

 
 
 
 
 
 
 
 
 
 
 
 
Balance, September 30, 2017
 
 
$
588

 
$
1,314,039

 
$
445,747

 
$
(5,374
)
 
$
1,755,000

Net income
$
29,230

 

 

 
29,230

 

 
29,230

Other comprehensive (loss), net of tax
(5,271
)
 

 

 

 
(5,271
)
 
(5,271
)
Total comprehensive income
$
23,959

 
 
 
 
 
 
 
 
 
 
Stock-based compensation, net of tax
 
 

 
684

 

 

 
684

Cash dividends:
 
 
 
 
 
 
 
 
 
 
 
Common stock, $0.20 per share
 
 

 

 
(11,770
)
 

 
(11,770
)
Balance, December 31, 2017
 
 
$
588

 
$
1,314,723

 
$
463,207

 
$
(10,645
)
 
$
1,767,873

See accompanying notes.

8-




GREAT WESTERN BANCORP, INC.
Consolidated Statements of Cash Flows (Unaudited)
(Dollars in Thousands)
 
Three months ended
 
December 31, 2017
 
December 31, 2016
Operating activities
 
 
 
Net income
$
29,230

 
$
36,903

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
3,514

 
3,990

Amortization of FDIC indemnification asset
1,018

 
867

Net loss on sale of securities
1

 

Gain on redemption of subordinated debentures

 
(111
)
Net gain on sale of loans
(1,935
)
 
(3,165
)
Net loss on FDIC indemnification asset
224

 
211

Net loss on sale of premises and equipment
79

 
9

Net loss from sale/writedowns of repossessed property
214

 
658

Provision for loan and lease losses
4,557

 
7,049

Reversal of provision for loan servicing rights loss
(38
)
 
(5
)
Stock-based compensation
684

 
1,635

Originations of residential real estate loans held for sale
(48,476
)
 
(87,868
)
Proceeds from sales of residential real estate loans held for sale
52,110

 
94,866

Net deferred income taxes
17,226

 
(817
)
Changes in:
 
 
 
Accrued interest receivable
(1,641
)
 
174

Other assets
2,574

 
(524
)
FDIC clawback liability
206

 
267

Accrued interest payable and other liabilities
(2,212
)
 
(62,884
)
Net cash provided by (used in) operating activities
57,335

 
(8,745
)
Investing activities
 
 
 
Purchase of securities available for sale
(55,865
)
 
(144,530
)
Proceeds from sales of securities available for sale
164

 

Proceeds from maturities of securities available for sale
47,125

 
67,468

Net increase in loans
(205,929
)
 
(105,771
)
Payment of covered losses from FDIC indemnification claims
(230
)
 
(188
)
Purchase of premises and equipment
(1,469
)
 
(940
)
Proceeds from sale of premises and equipment
3,993

 
1

Proceeds from sale of repossessed property
1,956

 
2,641

Purchase of FHLB stock
(17,020
)
 
(3,000
)
Proceeds from redemption of FHLB stock
13,969

 
9,512

Net cash used in investing activities
(213,306
)
 
(174,807
)
Financing activities
 
 
 
Net increase in deposits
46,659

 
101,663

Net (decrease) increase in securities sold under agreements to repurchase and other short-term borrowings
(15,752
)
 
1,053

Proceeds from FHLB advances and other long-term borrowings
665,000

 
24,999

Repayments on FHLB advances and other long-term borrowings
(587,200
)
 
(185,000
)
Redemption of subordinated debentures

 
(3,625
)
Taxes paid related to net share settlement of equity awards
(3,766
)
 

Dividends paid
(11,770
)
 
(9,981
)
Net cash provided by (used in) financing activities
93,171

 
(70,891
)
Net decrease in cash and cash equivalents
(62,800
)
 
(254,443
)
Cash and cash equivalents, beginning of period
360,396

 
524,611

Cash and cash equivalents, end of period
$
297,596

 
$
270,168

Supplemental disclosure of cash flow information
 
 
 
Cash payments for interest
$
12,599

 
$
9,246

Cash payments for income taxes
$
1,117

 
$
10,574

Supplemental disclosure of noncash investing and financing activities
 
 
 
Loans transferred to repossessed properties
$
(3,671
)
 
$
(1,110
)
See accompanying notes.

9-




GREAT WESTERN BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)



1. Nature of Operations and Summary of Significant Policies
Nature of Operations
Great Western Bancorp, Inc. (the “Company”) is a bank holding company organized under the laws of Delaware and is listed on the New York Stock Exchange ("NYSE") under the symbol GWB. The primary business of the Company is ownership of its wholly owned subsidiary, Great Western Bank (the “Bank”). The Bank is a full-service regional bank focused on relationship-based business and agri-business banking in Arizona, Colorado, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota and South Dakota. The Company and the Bank are subject to the regulation of certain federal and/or state agencies and undergo periodic examinations by those regulatory authorities. Substantially all of the Company’s income is generated from banking operations.
Basis of Presentation
The accompanying unaudited consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) and reflect all adjustments that are, in the opinion of management, necessary for the fair presentation of the financial position and results of operations for the periods presented. All such adjustments are of a normal recurring nature.
Certain previously reported amounts have been reclassified to conform to the current presentation.
The unaudited interim consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended September 30, 2017, which includes a description of significant accounting policies. The results of operations for interim periods are not necessarily indicative of the results that may be expected for the year or any other period.
The accompanying unaudited consolidated financial statements include the accounts and results of operations of the Company and its subsidiaries after elimination of all significant intercompany accounts and transactions. The preparation of unaudited consolidated financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the amounts reported on the consolidated financial statements and accompanying notes. Actual results could differ from these estimates.
FDIC Indemnification Asset and Clawback Liability
FDIC Indemnification assets are included in other assets on the consolidated balance sheets.
Core Deposits and Other Intangibles
Core deposits and other intangibles are included in other assets in the consolidated balance sheets.
Loan Servicing Rights
Loan servicing rights are included in other assets in the consolidated balance sheets.
Derivatives
The Company maintains an overall interest rate risk management strategy that permits the use of derivative instruments to modify exposure to interest rate risk. The Company enters into interest rate swap contracts to offset the interest rate risk associated with borrowers who lock in long-term fixed rates (greater than or equal to 5 years to maturity) through a fixed rate loan. Generally, under these swaps, the Company agrees with various swap counterparties to exchange the difference between fixed-rate and floating-rate interest amounts based upon notional principal amounts. These contracts do not qualify for hedge accounting. These interest rate derivative instruments are recognized as other assets or other liabilities on the consolidated balance sheets and measured at fair value, with changes in fair value reported in net realized and unrealized gain (loss) on derivatives on the consolidated statements of income. Since each fixed rate loan is paired with an offsetting derivative contract, the impact to net income is minimized. The Company also has back-to-back swaps with loan customers where the Company enters into an interest rate swap with loan customers to provide a facility to mitigate the interest rate risk associated with offering a fixed rate and simultaneously enters into a swap with an outside third party that is matched in exact offsetting terms. The back-to-back swaps are recorded at fair value and recognized as other assets or other liabilities, depending on the rights or obligations under the contract, on the consolidated balance sheet, with changes in fair value reported in net realized and unrealized gain (loss) on derivatives on the consolidated statements of income.

10-




GREAT WESTERN BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)


The Company enters into forward interest rate lock commitments on mortgage loans to be held for sale, which are commitments to originate loans whereby the interest rate on the loan is determined prior to funding. The Company also has corresponding forward sales contracts related to these interest rate lock commitments. Both the mortgage loan commitments and the related sales contracts are considered derivatives and are recorded at fair value and included in other assets or other liabilities on the consolidated balance sheets with changes in fair value offsetting each other in net realized and unrealized gain (loss) on derivatives on the consolidated statements of income.
Subsequent Events
The Company has evaluated all events or transactions that occurred through the date the Company issued these financial statements. Other than those events described below, there were no other material events that would require recognition in the consolidated financial statements or disclosure in the notes to the consolidated financial statements.
On January 25, 2018, the Board of Directors of the Company declared a dividend of $0.20 per common share payable on February 21, 2018 to stockholders of record as of close of business on February 9, 2018.
Correction of Prior Period Balances
The consolidated statements of income for the quarter ended December 31, 2016 has been revised to correct an immaterial classification error in interest income and noninterest income related to credit card interchange income. As a result, the consolidated statements of income has been revised to reflect these changes, as follows:
 
As originally reported
 
Adjustments
 
As revised
 
(dollars in thousands)
Three months ended December 31, 2016
 
 
 
 
 
Interest income - loans
$
101,683

 
$
(1,751
)
 
$
99,932

Noninterest income - service charges and other fees
12,086

 
1,751

 
13,837

 
 
 
 
 
 
Twelve months ended September 30, 2017
 
 
 
 
 
Interest income - loans
$
414,434

 
$
(7,152
)
 
$
407,282

Noninterest income - service charges and other fees
48,573

 
7,152

 
55,725

 
 
 
 
 
 
Twelve months ended September 30, 2016
 
 
 
 
 
Interest income - loans
$
370,444

 
$
(6,716
)
 
$
363,728

Noninterest income - service charges and other fees
46,209

 
6,716

 
52,925

The above revision had no effect on net income, earnings per share, retained earnings or capital ratios. Periods not presented herein will be revised, as applicable, as they are included in future filings.
2. New Accounting Pronouncements
In August 2017, the Financial Accounting Standards Board ("FASB") issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which amends the hedge accounting recognition and presentation requirements in ASC 815 to improve the transparency and understandability of information conveyed to financial statement users about an entity’s risk management activities to better align the entity’s financial reporting for hedging relationships with those risk management activities and to reduce the complexity of and simplify the application of hedge accounting. ASU 2017-12 is to be applied to all existing hedging relationships on the date of adoption and will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted in any interim period, with the effect of adoption reflected as of the beginning of the fiscal year of adoption. The Company is currently evaluating the potential impact of ASU 2017-12 on our consolidated financial statements.
In March 2017, FASB issued ASU 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities, which shortens the amortization period for certain callable debt securities held at a premium to the earliest call date unless applicable guidance related to certain pools of securities is applied to consider estimated prepayments. Under prior guidance, entities were generally required to amortize premiums on individual, non-pooled callable debt securities as a yield adjustment over the contractual life of the security. There is no accounting change for debt securities held at a discount. ASU 2017-08 will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15,

11-




GREAT WESTERN BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)


2018, with early adoption permitted. The Company early adopted ASU 2017-08 during the first quarter of fiscal year 2018. There was no cumulative effect adjustment necessary to the Company's consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which addresses timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The ASU requires institutions to measure all expected credit losses related to financial assets measured at amortized costs with an expected loss model based on historical experience, current conditions and reasonable and supportable forecasts relevant to affect the collectability of the financial assets, which is referred to as the current expected credit loss (CECL) model. The ASU requires enhanced disclosures, including qualitative and quantitative requirements, to help understand significant estimates and judgments used in estimating credit losses, as well as provide additional information about the amounts recorded in the financial statements. ASU 2016-13 will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted after December 15, 2018. The amendment requires the use of the modified retrospective approach for adoption. The Company has formed a project team to work on the implementation of ASU 2016-13 and is currently evaluating the potential impact on our consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires that lessees recognize the assets and liabilities arising from leases on the balance sheet and disclosing key information about leasing arrangements. Lessees will be required to recognize an obligation for future lease payments measured on a discounted basis and a related right-of-use asset. ASU 2016-02 does not significantly change lease accounting requirements applicable to lessors; however, certain changes were made to align, where necessary, lessor accounting with the lessee accounting model and ASC Topic 606, "Revenue from Contracts with Customers." ASU 2016-02 will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is currently evaluating the potential impact of ASU 2016-02 on our consolidated financial statements.
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10) - Recognition and Measurement of Financial Assets and Financial Liabilities, which requires equity investments, in general, to be measured at fair value with changes in fair value recognized in earnings. It also eliminates the requirement to disclose the methods and significant assumptions used to estimate the fair value for financial instruments measured at amortized cost, requires entities to use the exit price notion when measuring fair value, requires an entity to present separately in other comprehensive income the portion of the total change in fair value of a liability resulting from a change in the measurement category and form on the balance sheet or accompanying notes, clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available for sale securities in combination with the entity's other deferred tax assets, and simplifies the impairment assessment of equity investments without readily determinable fair values. ASU 2016-01 will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. The Company does not believe ASU 2016-01 will have a material impact on our consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which implements a more robust framework that clarifies the principles for recognizing revenue and gives greater consistency and comparability in revenue recognition practices. In the new framework, an entity recognizes revenue in an amount that reflects the consideration to which the entity expects to be entitled in exchange for goods or services. The new model requires the identification of performance obligations included in the contract with customers, a determination of the transaction price and an allocation of the price to those performance obligations. The entity recognizes revenue when performance obligations are satisfied. In August 2015, the FASB issued ASU No. 2015-14, which deferred the effective date of ASU No. 2014-09 to annual reporting periods beginning after December 15, 2017. In March 2016, the FASB issued ASU No. 2016-08, which intends to improve the operability and understandability of the implementation guidance on principal versus agent considerations. In April 2016, the FASB issued ASU No. 2016-10, which clarifies guidance pertaining to the identification of performance obligations and the licensing implementation. In May 2016, the FASB issued ASU Nos. 2016-11 and 2016-12, which further clarify guidance and provide practical expedients related to the adoption of ASU No. 2014-09. The standard permits the use of either the retrospective or cumulative effect transition method. The standard, along with subsequent guidance from FASB, lists several items that are specifically out of scope for ASU 2014-09, including but not limited to: core interest income, derivative instruments, investments, and loan origination fees.
To address the new standard, the Company formed a working group and has completed the initial scoping phase to determine which revenue streams may be subject to accounting or disclosure changes upon adoption in October of 2018. Based on this preliminary analysis, we do not anticipate significant changes as a result of implementing the standard, but will conclude on the quantitative and qualitative impacts once we have completed our review of key contracts for any in-scope items over the coming months.

12-




GREAT WESTERN BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)


3. Securities Available for Sale
The amortized cost and approximate fair value of investments in securities, all of which are classified as available for sale according to management’s intent, are summarized as follows:
 
Amortized
Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Estimated
Fair Value
 
(dollars in thousands)
As of December 31, 2017
 
 
 
 
 
 
 
U.S. Treasury securities
$
228,302

 
$
2

 
$
(527
)
 
$
227,777

Mortgage-backed securities:
 
 
 
 
 
 
 
Government National Mortgage Association
481,441

 
94

 
(9,330
)
 
472,205

Federal Home Loan Mortgage Corporation
203,561

 

 
(2,869
)
 
200,692

Federal National Mortgage Association
161,958

 

 
(2,528
)
 
159,430

Small Business Assistance Program
237,965

 
212

 
(1,838
)
 
236,339

States and political subdivision securities
70,034

 
86

 
(943
)
 
69,177

Other
1,006

 
15

 

 
1,021

Total
$
1,384,267

 
$
409

 
$
(18,035
)
 
$
1,366,641

 
Amortized
Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Estimated
Fair Value
 
(dollars in thousands)
As of September 30, 2017
 
 
 
 
 
 
 
U.S. Treasury securities
$
228,039

 
$
579

 
$
(15
)
 
$
228,603

Mortgage-backed securities:
 
 
 
 
 
 
 
Government National Mortgage Association
511,457

 
228

 
(6,635
)
 
505,050

Federal Home Loan Mortgage Corporation
169,147

 
75

 
(1,247
)
 
167,975

Federal National Mortgage Association
170,247

 
22

 
(1,287
)
 
168,982

Small Business Assistance Program
224,005

 
726

 
(1,001
)
 
223,730

States and political subdivision securities
73,041

 
187

 
(642
)
 
72,586

Other
1,006

 
28

 

 
1,034

Total
$
1,376,942

 
$
1,845

 
$
(10,827
)
 
$
1,367,960

The amortized cost and approximate fair value of debt securities available for sale as of December 31, 2017 and September 30, 2017, by contractual maturity, are shown below. Maturities of mortgage-backed securities may differ from contractual maturities because the mortgages underlying the securities may be called or repaid without penalty.
 
December 31, 2017
 
September 30, 2017
 
Amortized 
Cost
 
Estimated
Fair Value
 
Amortized 
Cost
 
Estimated
Fair Value
 
(dollars in thousands)
Due in one year or less
$
93,551

 
$
93,461

 
$
91,535

 
$
91,597

Due after one year through five years
189,128

 
188,080

 
193,117

 
193,373

Due after five years through ten years
15,535

 
15,291

 
16,306

 
16,097

Due after ten years
122

 
122

 
122

 
122


298,336

 
296,954

 
301,080

 
301,189

Mortgage-backed securities
1,084,925

 
1,068,666

 
1,074,856

 
1,065,737

Securities without contractual maturities
1,006

 
1,021

 
1,006

 
1,034

Total
$
1,384,267

 
$
1,366,641

 
$
1,376,942

 
$
1,367,960

Proceeds from sales of securities available for sale were $0.2 million for the three months ended December 31, 2017 and $0.0 million for the three months ended December 31, 2016. No gross gains (pre-tax) or gross losses (pre-tax) were realized on the sales for the three months ended December 31, 2017 and 2016 using the specific identification method. The Company recognized no other-than-temporary impairment for the three months ended December 31, 2017 and 2016.

13-




GREAT WESTERN BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)


Securities with an estimated fair value of approximately $990.6 million and $951.4 million at December 31, 2017 and September 30, 2017, respectively, were pledged as collateral on public deposits, securities sold under agreements to repurchase, and for other purposes as required or permitted by law. The counterparties do not have the right to sell or pledge the securities the Company has pledged as collateral.
As detailed in the following tables, certain investments in debt securities, which are approximately 90% and 68% of the Company’s investment portfolio at estimated fair value at December 31, 2017 and September 30, 2017, respectively, are reported in the consolidated financial statements at an amount less than their amortized cost. Based on evaluation of available evidence, including recent changes in market interest rates, credit rating information, implicit or explicit government guarantees, and information obtained from regulatory filings, management believes the declines in fair value of these securities are temporary. As the Company does not intend to sell the securities and it is not more likely than not the Company will be required to sell the securities before the recovery of their amortized cost basis, which may be maturity, the Company does not consider the securities to be other-than-temporarily impaired at December 31, 2017 or September 30, 2017.
The following table presents the Company’s gross unrealized losses and approximate fair value in investments, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:
 
Less than 12 months
 
12 months or more
 
Total
 
Estimated
Fair Value
 
Unrealized
Losses
 
Estimated
Fair Value
 
Unrealized
Losses
 
Estimated
Fair Value
 
Unrealized
Losses
 
(dollars in thousands)
As of December 31, 2017
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
$
183,651

 
$
(415
)
 
$
19,133

 
$
(112
)
 
$
202,784

 
$
(527
)
Mortgage-backed securities
184,096

 
(1,703
)
 
787,256

 
(14,862
)
 
971,352

 
(16,565
)
States and political subdivision securities
5,198

 
(33
)
 
54,253

 
(910
)
 
59,451

 
(943
)
Total
$
372,945

 
$
(2,151
)
 
$
860,642

 
$
(15,884
)
 
$
1,233,587

 
$
(18,035
)
 
Less than 12 months
 
12 months or more
 
Total
 
Estimated
Fair Value
 
Unrealized
Losses
 
Estimated
Fair Value
 
Unrealized
Losses
 
Estimated
Fair Value
 
Unrealized
Losses
 
(dollars in thousands)
As of September 30, 2017
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
$
10,003

 
$
(15
)
 
$

 
$

 
$
10,003

 
$
(15
)
Mortgage-backed securities
$
635,969

 
$
(5,425
)
 
$
241,368

 
$
(4,746
)
 
$
877,337

 
$
(10,171
)
States and political subdivision securities
21,705

 
(197
)
 
25,773

 
(444
)
 
47,478

 
(641
)
Total
$
667,677

 
$
(5,637
)
 
$
267,141

 
$
(5,190
)
 
$
934,818

 
$
(10,827
)
As of December 31, 2017 and September 30, 2017, the Company had 320 and 249 securities, respectively, in an unrealized loss position.
4. Loans
The composition of loans as of December 31, 2017 and September 30, 2017, is as follows:
 
December 31, 2017
 
September 30, 2017
 
(dollars in thousands)
Commercial real estate
$
4,295,696

 
$
4,124,805

Agriculture
2,177,383

 
2,122,138

Commercial non-real estate
1,695,731

 
1,718,914

Residential real estate
924,439

 
932,892

Consumer
62,872

 
66,559

Other
45,805

 
43,207

Ending balance
9,201,926

 
9,008,515

Less: Unamortized discount on acquired loans
(26,536
)
 
(29,121
)
Unearned net deferred fees and costs and loans in process
(10,017
)
 
(10,841
)
Total
$
9,165,373

 
$
8,968,553


14-




GREAT WESTERN BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)


The loan segments above include loans covered by FDIC loss sharing agreements totaling $53.4 million and $57.5 million as of December 31, 2017 and September 30, 2017, respectively, residential real estate loans held for sale totaling $5.8 million and $7.5 million at December 31, 2017 and September 30, 2017, respectively, and $980.1 million and $1.02 billion of loans accounted for at fair value at December 31, 2017 and September 30, 2017, respectively.
Unearned net deferred fees and costs totaled $11.9 million and $11.6 million as of December 31, 2017 and September 30, 2017, respectively.
Loans in process represent loans that have been funded as of the balance sheet dates but not classified into a loan category and loan payments received as of the balance sheet dates that have not been applied to individual loan accounts. Loans in process totaled $(1.9) million and $(0.8) million at December 31, 2017 and September 30, 2017, respectively.
Loans guaranteed by agencies of the U.S. government totaled $162.3 million and $168.3 million at December 31, 2017 and September 30, 2017, respectively.
Principal balances of residential real estate loans sold totaled $50.2 million and $91.7 million for the three months ended December 31, 2017 and 2016, respectively.
Nonaccrual
Interest income on loans is accrued daily on the outstanding balances. Accrual of interest is discontinued when management believes, after considering collection efforts and other factors, the borrower’s financial condition is such that collection of interest is doubtful, which is generally at 90 days past due. Generally, when loans are placed on nonaccrual status, interest receivable is reversed against interest income in the current period. Interest payments received thereafter are applied as a reduction to the remaining principal balance as long as concern exists as to the ultimate collection of the principal. Loans are removed from nonaccrual status when they become current as to both principal and interest and concern no longer exists as to the collectability of principal and interest.
The following table presents the Company’s nonaccrual loans at December 31, 2017 and September 30, 2017, excluding ASC 310-30 loans. Loans greater than 90 days past due and still accruing interest as of December 31, 2017 and September 30, 2017, were $0.2 million and $1.9 million, respectively.
 
December 31, 2017
 
September 30, 2017
 
(dollars in thousands)
Nonaccrual loans
 
 
 
Commercial real estate
$
33,816

 
$
14,693

Agriculture
91,094

 
99,325

Commercial non-real estate
13,016

 
13,674

Residential real estate
4,068

 
4,421

Consumer
162

 
112

Total
$
142,156

 
$
132,225

Credit Quality Information
The Company assigns all non-consumer loans a credit quality risk rating. These ratings are Pass, Watch, Substandard, Doubtful, and Loss. Loans with a Pass and Watch rating represent those loans not classified on the Company’s rating scale for problem credits, with loans with a Watch rating being monitored and updated at least quarterly by management. Substandard loans are those where a well-defined weakness has been identified that may put full collection of contractual debt at risk. Doubtful loans are those where a well-defined weakness has been identified and a loss of contractual debt is probable. Substandard and doubtful loans are monitored and updated monthly. All loan risk ratings are updated and monitored on a continuous basis. The Company generally does not risk rate consumer loans unless a default event such as bankruptcy or extended nonperformance takes place. Alternatively, standard credit scoring systems are used to assess credit risks of consumer loans.

15-




GREAT WESTERN BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)


The composition of the loan portfolio by internally assigned grade is as follows as of December 31, 2017 and September 30, 2017. This table is presented net of unamortized discount on acquired loans and excludes loans measured at fair value with changes in fair value reported in earnings of $980.1 million at December 31, 2017 and $1.02 billion at September 30, 2017:
As of December 31, 2017
Commercial Real Estate
 
Agriculture
 
Commercial
Non-Real Estate
 
Residential Real Estate
 
Consumer
 
Other
 
Total
 
(dollars in thousands)
Credit Risk Profile by Internally Assigned Grade
 
 
 
 
 
 
 
 
 
 
 
 
 
Grade:
 
 
 
 
 
 
 
 
 
 
 
 
 
Pass
$
3,693,522

 
$
1,669,121

 
$
1,363,503

 
$
849,854

 
$
62,084

 
$
45,805

 
$
7,683,889

Watchlist
48,429

 
149,746

 
32,571

 
3,708

 
195

 

 
234,649

Substandard
72,183

 
117,824

 
22,177

 
7,495

 
250

 

 
219,929

Doubtful
198

 
29

 
3,031

 
133

 

 

 
3,391

Loss

 

 

 

 

 

 

Ending balance
3,814,332

 
1,936,720

 
1,421,282

 
861,190

 
62,529

 
45,805

 
8,141,858

Loans covered by FDIC loss sharing agreements

 

 

 
53,388

 

 

 
53,388

Total
$
3,814,332

 
$
1,936,720

 
$
1,421,282

 
$
914,578

 
$
62,529

 
$
45,805

 
$
8,195,246

As of September 30, 2017
Commercial Real Estate
 
Agriculture
 
Commercial
Non-Real Estate
 
Residential Real Estate
 
Consumer
 
Other
 
Total
 
(dollars in thousands)
Credit Risk Profile by Internally Assigned Grade
 
 
 
 
 
 
 
 
 
 
 
 
 
Grade:
 
 
 
 
 
 
 
 
 
 
 
 
 
Pass
$
3,519,689

 
$
1,577,403

 
$
1,369,803

 
$
853,266

 
$
65,673

 
$
43,207

 
$
7,429,041

Watchlist
80,195

 
157,407

 
31,878

 
4,158

 
187

 

 
273,825

Substandard
37,627

 
130,953

 
21,438

 
7,368

 
306

 

 
197,692

Doubtful
521

 
119

 
3,841

 
242

 

 

 
4,723

Loss

 

 

 

 

 

 

Ending balance
3,638,032

 
1,865,882

 
1,426,960

 
865,034

 
66,166

 
43,207

 
7,905,281

Loans covered by FDIC loss sharing agreements

 

 

 
57,537

 

 

 
57,537

Total
$
3,638,032

 
$
1,865,882

 
$
1,426,960

 
$
922,571

 
$
66,166

 
$
43,207

 
$
7,962,818

Past Due Loans
The following table presents the Company’s past due loans at December 31, 2017 and September 30, 2017. This table is presented net of unamortized discount on acquired loans and excludes loans measured at fair value with changes in fair value reported in earnings of $980.1 million at December 31, 2017 and $1.02 billion at September 30, 2017.
 
30-59 Days Past Due
 
60-89 Days Past Due
 
90 Days or Greater Past Due
 
Total
Past Due
 
Current
 
Total Financing Receivables
 
(dollars in thousands)
As of December 31, 2017
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate
$
5,571

 
$
18,485

 
$
11,134

 
$
35,190

 
$
3,779,142

 
$
3,814,332

Agriculture
8,515

 
11,173

 
19,122

 
38,810

 
1,897,910

 
1,936,720

Commercial non-real estate
1,651

 
283

 
6,734

 
8,668

 
1,412,614

 
1,421,282

Residential real estate
3,733

 
954

 
1,572

 
6,259

 
854,931

 
861,190

Consumer
124

 
15

 
77

 
216

 
62,313

 
62,529

Other

 

 

 

 
45,805

 
45,805

Ending balance
19,594

 
30,910

 
38,639

 
89,143

 
8,052,715

 
8,141,858

Loans covered by FDIC loss sharing agreements
1,721

 
328

 
1,525

 
3,574

 
49,814

 
53,388

Total
$
21,315

 
$
31,238

 
$
40,164

 
$
92,717

 
$
8,102,529

 
$
8,195,246


16-




GREAT WESTERN BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)


 
30-59 Days Past Due
 
60-89 Days Past Due
 
90 Days or Greater Past Due
 
Total
Past Due
 
Current
 
Total Financing Receivables
 
(dollars in thousands)
As of September 30, 2017
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate
$
876

 
$
22,536

 
$
6,504

 
$
29,916

 
$
3,608,116

 
$
3,638,032

Agriculture
1,453

 
3,181

 
20,844

 
25,478

 
1,840,404

 
1,865,882

Commercial non-real estate
2,485

 
115

 
8,580

 
11,180

 
1,415,780

 
1,426,960

Residential real estate
1,428

 
76

 
951

 
2,455

 
862,579

 
865,034

Consumer
71

 
24

 
18

 
113

 
66,053

 
66,166

Other

 

 

 

 
43,207

 
43,207

Ending balance
6,313

 
25,932

 
36,897

 
69,142

 
7,836,139

 
7,905,281

Loans covered by FDIC loss sharing agreements
998

 
54

 
738

 
1,790

 
55,747

 
57,537

Total
$
7,311

 
$
25,986

 
$
37,635

 
$
70,932

 
$
7,891,886

 
$
7,962,818

Impaired Loans
The following table presents the Company’s impaired loans. This table excludes purchased credit impaired loans and loans measured at fair value with changes in fair value reported in earnings of $980.1 million at December 31, 2017 and $1.02 billion at September 30, 2017:
 
December 31, 2017
 
September 30, 2017
 
Recorded Investment
 
Unpaid Principal Balance
 
Related Allowance
 
Recorded Investment
 
Unpaid Principal Balance
 
Related Allowance
 
(dollars in thousands)
Impaired loans:
 
 
 
 
 
 
 
 
 
 
 
With an allowance recorded:
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate
$
17,503

 
$
21,856

 
$
3,168

 
$
20,819

 
$
24,893

 
$
3,621

Agriculture
62,382

 
72,426

 
9,447

 
79,219

 
88,268

 
11,468

Commercial non-real estate
18,428

 
26,662

 
5,210

 
17,950

 
28,755

 
4,779

Residential real estate
5,713

 
6,469

 
2,731

 
5,177

 
5,874

 
2,581

Consumer
230

 
237

 
86

 
280

 
287

 
86

Total impaired loans with an allowance recorded
104,256

 
127,650

 
20,642

 
123,445

 
148,077

 
22,535

 
 
 
 
 
 
 
 
 
 
 
 
With no allowance recorded:
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate
53,783

 
93,231

 

 
16,652

 
69,677

 

Agriculture
54,806

 
60,690

 

 
51,256

 
64,177

 

Commercial non-real estate
13,415

 
22,835

 

 
13,983

 
38,924

 

Residential real estate
2,070

 
5,047

 

 
2,574

 
9,613

 

Consumer
15

 
134

 

 
13

 
950

 

Total impaired loans with no allowance recorded
124,089

 
181,937

 

 
84,478

 
183,341

 

Total impaired loans
$
228,345

 
$
309,587

 
$
20,642

 
$
207,923

 
$
331,418

 
$
22,535

The average recorded investment on impaired loans and interest income recognized on impaired loans for the three months ended December 31, 2017 and 2016, respectively, are as follows:
 
Three Months Ended December 31, 2017
 
Three Months Ended December 31, 2016
 
Average Recorded Investment
 
Interest Income Recognized While on Impaired Status
 
Average Recorded Investment
 
Interest Income Recognized While on Impaired Status
 
(dollars in thousands)
Commercial real estate
$
54,379

 
$
1,576

 
$
52,022

 
$
670

Agriculture
123,832

 
982

 
107,222

 
1,867

Commercial non-real estate
31,888

 
451

 
48,700

 
422

Residential real estate
7,767

 
165

 
10,056

 
114

Consumer
269

 
4

 
374

 
15

Total
$
218,135

 
$
3,178

 
$
218,374

 
$
3,088


17-




GREAT WESTERN BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)


Valuation adjustments made to repossessed properties totaled $0.0 million and $0.4 million for the three months ended December 31, 2017 and 2016, respectively. The adjustments are included in noninterest expense.
Troubled Debt Restructurings
Included in certain loan categories in the impaired loans are troubled debt restructurings (“TDRs”) that were classified as impaired. These TDRs do not include purchased credit impaired loans. When the Company grants concessions to borrowers such as reduced interest rates or extensions of loan periods that would not be considered other than because of borrowers’ financial difficulties, the modification is considered a TDR. Specific reserves included in the allowance for loan and lease losses for TDRs were $6.9 million and $8.8 million at December 31, 2017 and September 30, 2017, respectively. There were no commitments to lend additional funds to borrowers whose loans were modified in a TDR as of December 31, 2017 and September 30, 2017.
The following table presents the recorded value of the Company’s TDR balances as of December 31, 2017 and September 30, 2017:
 
December 31, 2017
 
September 30, 2017
 
Accruing
 
Nonaccrual
 
Accruing
 
Nonaccrual
 
(dollars in thousands)
Commercial real estate
$
621

 
$
4,859

 
$
1,121

 
$
5,351

Agriculture
23,178

 
54,401

 
22,678

 
59,633

Commercial non-real estate
8,284

 
3,957

 
8,369

 
5,641

Residential real estate
258

 
808

 
311

 
688

Consumer
11

 

 
11

 
21

Total
$
32,352

 
$
64,025

 
$
32,490

 
$
71,334


18-




GREAT WESTERN BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)


The following table presents a summary of all accruing loans restructured in TDRs during the three months ended December 31, 2017 and 2016, respectively:
 
Three Months Ended December 31, 2017
 
Three Months Ended December 31, 2016
 
 
 
Recorded Investment
 
 
 
Recorded Investment
 
Number
 
Pre-Modification
 
Post-Modification
 
Number
 
Pre-Modification
 
Post-Modification
 
(dollars in thousands)
Commercial real estate
 
 
 
 
 
 
 
 
 
 
 
Rate modification

 
$

 
$

 

 
$

 
$

Term extension

 

 

 

 

 

Payment modification

 

 

 

 

 

Bankruptcy

 

 

 

 

 

Other

 

 

 

 

 

Total commercial real estate

 

 

 

 

 

Agriculture
 
 
 
 
 
 
 
 
 
 
 
Rate modification

 

 

 

 

 

Term extension

 

 

 

 

 

Payment modification

 

 

 

 

 

Bankruptcy

 

 

 

 

 

Other

 

 

 

 

 

Total agriculture

 

 

 

 

 

Commercial non-real estate
 
 
 
 
 
 
 
 
 
 
 
Rate modification

 

 

 

 

 

Term extension

 

 

 

 

 

Payment modification

 

 

 
2

 
433

 
433

Bankruptcy

 

 

 

 

 

Other

 

 

 

 

 

Total commercial non-real estate

 

 

 
2

 
433

 
433

Residential real estate
 
 
 
 
 
 
 
 
 
 
 
Rate modification

 

 

 

 

 

Term extension

 

 

 

 

 

Payment modification

 

 

 
1

 
9

 
9

Bankruptcy

 

 

 

 

 

Other

 

 

 

 

 

Total residential real estate

 

 

 
1

 
9

 
9

Consumer