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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 March 31, 2018
 
 
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 May 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;
our “footprint” refers to the geographic markets within our states in which we currently conduct our business; and
"FHLB" refers to Federal Home Loan Bank.
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;

3-




our ability to effectively compete with other financial services companies and the effects of competition in the financial services industry on our business;
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, including the potential negative effects of recently proposed tariffs on products that our customers may import or export, including among others, agricultural products;
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)
 
 
 
March 31, 2018
 
September 30, 2017
Assets
 
 
 
Cash and due from banks
$
168,357

 
$
170,657

Interest-bearing bank deposits
203,392

 
189,739

Cash and cash equivalents
371,749

 
360,396

Securities available for sale
1,307,598

 
1,367,960

Loans, net of unearned discounts and deferred fees, including $50,727 and $57,537 of loans covered by a FDIC loss share agreement at March 31, 2018 and September 30, 2017, respectively, and $920,965 and $1,016,576 of loans at fair value under the fair value option at March 31, 2018 and September 30, 2017, respectively, and $2,429 and $7,456 of loans held for sale at March 31, 2018 and September 30, 2017, respectively
9,338,306

 
8,968,553

Allowance for loan and lease losses
(65,139
)
 
(63,503
)
Net loans
9,273,167

 
8,905,050

Premises and equipment, including $1,109 and $5,147 of property held for sale at March 31, 2018 and September 30, 2017, respectively
107,048

 
112,209

Accrued interest receivable
49,353

 
53,176

Other repossessed property, including $86 and $0 of property covered by FDIC loss share agreements at March 31, 2018 and September 30, 2017, respectively
16,726

 
8,985

Goodwill
739,023

 
739,023

Cash surrender value of life insurance policies
30,032

 
29,619

Net deferred tax assets
31,629

 
42,400

Other assets
65,992

 
71,193

Total assets
$
11,992,317

 
$
11,690,011

Liabilities and stockholders’ equity
 
 
 
Deposits
 
 
 
Noninterest-bearing
$
1,854,734

 
$
1,856,126

Interest-bearing
7,532,233

 
7,121,487

Total deposits
9,386,967

 
8,977,613

Securities sold under agreements to repurchase
103,291

 
132,636

FHLB advances and other borrowings
551,003

 
643,214

Subordinated debentures and subordinated notes payable
108,385

 
108,302

Accrued expenses and other liabilities
53,973

 
73,246

Total liabilities
10,203,619

 
9,935,011

Stockholders’ equity
 
 
 
Common stock, $0.01 par value, authorized 500,000,000 shares; 58,896,189 shares issued and outstanding at March 31, 2018 and 58,834,066 shares issued and outstanding at September 30, 2017
589

 
588

Additional paid-in capital
1,316,150

 
1,314,039

Retained earnings
494,312

 
445,747

Accumulated other comprehensive (loss)
(22,353
)
 
(5,374
)
Total stockholders' equity
1,788,698

 
1,755,000

Total liabilities and stockholders' equity
$
11,992,317

 
$
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 March 31,
 
Six Months Ended March 31,
 
2018
 
2017
 
2018
 
2017
Interest income
 
 
 
 
 
 
 
Loans
$
109,993

 
$
99,481

 
$
217,674

 
$
199,413

Investment securities
7,013

 
6,538

 
14,055

 
12,916

Federal funds sold and other
227

 
219

 
458

 
565

Total interest income
117,233

 
106,238

 
232,187

 
212,894

Interest expense
 
 
 
 
 
 
 
Deposits
12,658

 
7,829

 
23,656

 
15,118

FHLB advances and other borrowings
2,815

 
1,567

 
4,978

 
2,953

Subordinated debentures and subordinated notes payable
1,207

 
1,098

 
2,377

 
2,186

Total interest expense
16,680

 
10,494

 
31,011

 
20,257

Net interest income
100,553

 
95,744

 
201,176

 
192,637

Provision for loan and lease losses
4,900

 
4,009

 
9,457

 
11,058

Net interest income after provision for loan and lease losses
95,653

 
91,735

 
191,719

 
181,579

Noninterest income
 
 
 
 
 
 
 
Service charges and other fees
12,047

 
13,574

 
25,224

 
27,410

Wealth management fees
2,335

 
2,429

 
4,519

 
4,683

Mortgage banking income, net
1,166

 
1,640

 
2,826

 
4,302

Net (loss) gain on sale of securities
(8
)
 
44

 
(9
)
 
44

Net (decrease) in fair value of loans at fair value
(14,838
)
 
(5,216
)
 
(23,502
)
 
(69,218
)
Net realized and unrealized gain on derivatives
14,282

 
1,592

 
21,509

 
60,568

Other
3,758

 
1,426

 
4,849

 
3,357

Total noninterest income
18,742

 
15,489

 
35,416

 
31,146

Noninterest expense
 
 
 
 
 
 
 
Salaries and employee benefits
33,672

 
32,370

 
66,539

 
64,004

Data processing and communication
9,190

 
6,879

 
16,074

 
13,595

Occupancy and equipment
5,290

 
5,123

 
10,138

 
9,946

Professional fees
4,027

 
3,559

 
8,267

 
6,394

Advertising
1,121

 
995

 
2,181

 
1,970

Net loss recognized on repossessed property and other related expenses
1,000

 
397

 
1,214

 
1,056

Amortization of core deposits and other intangibles
426

 
550

 
852

 
1,389

Acquisition expenses

 

 

 
710

Other
4,418

 
3,979

 
8,747

 
7,325

Total noninterest expense
59,144

 
53,852

 
114,012

 
106,389

Income before income taxes
55,251

 
53,372

 
113,123

 
106,336

Provision for income taxes
14,719

 
18,210

 
43,361

 
34,271

Net income
$
40,532

 
$
35,162

 
$
69,762

 
$
72,065

Basic earnings per common share
 
 
 
 
 
 
 
Weighted average common shares outstanding
58,941,315

 
58,788,802

 
58,921,972

 
58,769,662

Basic earnings per share
$
0.69

 
$
0.60

 
$
1.18

 
$
1.23

Diluted earnings per common share
 
 
 
 
 
 
 
Weighted average diluted common shares outstanding
59,146,117

 
59,073,669

 
59,116,923

 
59,032,787

Diluted earnings per share
$
0.69

 
$
0.60

 
$
1.18

 
$
1.22

Dividends per share
 
 
 
 
 
 
 
Dividends paid
$
11,780

 
$
9,989

 
$
23,550

 
$
19,970

Dividends per share
$
0.20

 
$
0.17

 
$
0.40

 
$
0.34

See accompanying notes.

6-




GREAT WESTERN BANCORP, INC.
Consolidated Statements of Comprehensive Income (Unaudited)
(Dollars in Thousands)
 
Three Months Ended March 31,
 
Six Months Ended March 31,
 
2018
 
2017
 
2018
 
2017
Net income
$
40,532

 
$
35,162

 
$
69,762

 
$
72,065

Other comprehensive (loss) gain, net of tax:
 
 
 
 
 
 
 
Securities available for sale:
 
 
 
 
 
 
 
Net unrealized holding (loss) gain arising during the period
(12,425
)
 
1,815

 
(21,070
)
 
(19,653
)
Reclassification adjustment for net loss (gain) realized in net income
8

 
(44
)
 
9

 
(44
)
Income tax benefit (expense)
3,062

 
(673
)
 
6,345

 
7,485

Net change in unrealized (loss) gain on securities available for sale
(9,355
)
 
1,098

 
(14,716
)
 
(12,212
)
 
 
 
 
 
 
 
 
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) gain, net of tax
(9,355
)
 
1,098

 
(14,626
)
 
(12,212
)
Comprehensive income
$
31,177

 
$
36,260

 
$
55,136

 
$
59,853

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 Loss
 
Total
Balance, September 30, 2016
 
 
$
587

 
$
1,312,347

 
$
344,923

 
$
5,534

 
$
1,663,391

Net income
$
72,065

 

 

 
72,065

 

 
72,065

Other comprehensive (loss), net of tax
(12,212
)
 

 

 

 
(12,212
)
 
(12,212
)
Total comprehensive income
$
59,853

 
 
 
 
 
 
 
 
 
 
Stock-based compensation, net of tax
 
 

 
3,587

 

 

 
3,587

Cash dividends:
 
 
 
 
 
 
 
 
 
 
 
Common stock, $0.17 per share
 
 

 

 
(19,970
)
 

 
(19,970
)
Balance, March 31, 2017
 
 
$
587

 
$
1,315,934

 
$
397,018

 
$
(6,678
)
 
$
1,706,861

 
 
 
 
 
 
 
 
 
 
 
 
Balance, September 30, 2017
 
 
$
588

 
$
1,314,039

 
$
445,747

 
$
(5,374
)
 
$
1,755,000

Net income
$
69,762

 

 

 
69,762

 

 
69,762

Other comprehensive (loss), net of tax
(14,626
)
 

 

 

 
(14,626
)
 
(14,626
)
Total comprehensive income
$
55,136

 
 
 
 
 
 
 
 
 
 
Stock-based compensation, net of tax
 
 
1

 
2,111

 

 

 
2,112

Reclassification due to adoption of ASU 2018-02 ¹
 
 

 

 
2,353

 
(2,353
)
 

Cash dividends:
 
 
 
 
 
 
 
 
 
 
 
Common stock, $0.20 per share
 
 

 

 
(23,550
)
 

 
(23,550
)
Balance, March 31, 2018
 
 
$
589

 
$
1,316,150

 
$
494,312

 
$
(22,353
)
 
$
1,788,698

 
 
 
 
 
 
 
 
 
 
 
 
¹ Reclassification due to adoption of ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. See Note 2, New Accounting Pronouncements and Note 15, Income Taxes, for additional information.
See accompanying notes.

8-




GREAT WESTERN BANCORP, INC.
Consolidated Statements of Cash Flows (Unaudited)
(Dollars in Thousands)
 
Six months ended
 
March 31, 2018
 
March 31, 2017
Operating activities
 
 
 
Net income
$
69,762

 
$
72,065

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
5,943

 
7,984

Amortization of FDIC indemnification asset
1,689

 
1,981

Net loss on sale of securities and other assets
2,143

 
1,061

Gain on redemption of subordinated debentures

 
(111
)
Net gain on sale of loans
(3,314
)
 
(5,180
)
Provision for loan and lease losses
9,457

 
11,058

Reversal of provision for loan servicing rights loss
(71
)
 
(10
)
Stock-based compensation
2,112

 
3,587

Originations of residential real estate loans held for sale
(112,731
)
 
(137,061
)
Proceeds from sales of residential real estate loans held for sale
121,072

 
150,257

Net deferred income taxes
17,215

 
(328
)
Changes in:
 
 
 
Accrued interest receivable
3,823

 
5,841

Other assets
423

 
1,063

Accrued interest payable and other liabilities
(18,336
)
 
(77,655
)
Net cash provided by operating activities
99,187

 
34,552

Investing activities
 
 
 
Purchase of securities available for sale
(110,741
)
 
(183,678
)
Proceeds from sales of securities available for sale
25,206

 
5,042

Proceeds from maturities of securities available for sale
122,436

 
122,760

Net increase in loans
(392,109
)
 
(36,433
)
Payment of covered losses from FDIC indemnification claims
(419
)
 
(218
)
Purchase of premises and equipment
(3,297
)
 
(2,830
)
Proceeds from sale of premises and equipment
4,565

 
3,868

Proceeds from sale of repossessed property
2,050

 
3,453

Purchase of FHLB stock
(30,420
)
 
(4,240
)
Proceeds from redemption of FHLB stock
34,251

 
28,751

Net cash used in investing activities
(348,478
)
 
(63,525
)
Financing activities
 
 
 
Net increase in deposits
409,509

 
487,502

Net decrease in securities sold under agreements to repurchase and other short-term borrowings
(29,345
)
 
(17,216
)
Proceeds from FHLB advances and other long-term borrowings
419,999

 
93,600

Repayments on FHLB advances and other long-term borrowings
(512,200
)
 
(700,000
)
Redemption of subordinated debentures

 
(3,625
)
Taxes paid related to net share settlement of equity awards
(3,769
)
 

Dividends paid
(23,550
)
 
(19,970
)
Net cash provided by (used in) financing activities
260,644

 
(159,709
)
Net increase (decrease) in cash and cash equivalents
11,353

 
(188,682
)
Cash and cash equivalents, beginning of period
360,396

 
524,611

Cash and cash equivalents, end of period
$
371,749

 
$
335,929

Supplemental disclosure of cash flow information
 
 
 
Cash payments for interest
$
29,251

 
$
20,348

Cash payments for income taxes
$
23,980

 
$
37,350

Supplemental disclosure of noncash investing and financing activities
 
 
 
Loans transferred to repossessed properties
$
(11,005
)
 
$
(1,221
)
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.
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 April 26, 2018, the Board of Directors of the Company declared a dividend of $0.25 per common share payable on May 23, 2018 to stockholders of record as of close of business on May 11, 2018.
Correction of Prior Period Balances
The consolidated statements of income for the quarter ended March 31, 2017 have 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 have been revised to reflect these changes as follows.
 
As originally reported
 
Adjustments
 
As revised
 
(dollars in thousands)
Three months ended March 31, 2017
 
 
 
 
 
Interest income - loans
$
101,136

 
$
(1,655
)
 
$
99,481

Noninterest income - service charges and other fees
11,919

 
1,655

 
13,574

 
 
 
 
 
 
Six months ended March 31, 2017
 
 
 
 
 
Interest income - loans
$
202,818

 
$
(3,405
)
 
$
199,413

Noninterest income - service charges and other fees
24,005

 
3,405

 
27,410

 
 
 
 
 
 

10-




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


 
As originally reported
 
Adjustments
 
As revised
 
(dollars in thousands)
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 revisions 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 February 2018, the Financial Accounting Standards Board ("FASB") issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows for the reclassification of stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017 ("Tax Reform Act") from other comprehensive income to retained earnings. ASU 2018-02 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. The Company early adopted ASU 2018-02 during the second quarter of fiscal year 2018 with period of adoption application. Upon adoption, the Company made a policy election to reclassify stranded tax effects of approximately $2.4 million from accumulated other comprehensive income to retained earnings.
In August 2017, the 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 June 2016, the FASB issued ASU 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. ASU 2016-13 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. ASU 2016-13 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 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.

11-




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


In January 2016, the FASB issued ASU 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 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 2015-14, which deferred the effective date of ASU 2014-09 to annual reporting periods beginning after December 15, 2017. In March 2016, the FASB issued ASU 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 2016-10, which clarifies guidance pertaining to the identification of performance obligations and the licensing implementation. In May 2016, the FASB issued ASU 2016-11 and 2016-12, which further clarify guidance and provide practical expedients related to the adoption of ASU 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. Subsequent to this initial scoping, the Company selected a representative sample of contracts from the in-scope revenue streams for review under the amended guidance ("key contracts"). The review of key contracts is in process. 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.
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 March 31, 2018
 
 
 
 
 
 
 
U.S. Treasury securities
$
178,563

 
$

 
$
(1,144
)
 
$
177,419

Mortgage-backed securities:
 
 
 
 
 
 
 
Government National Mortgage Association
452,297

 
47

 
(13,971
)
 
438,373

Federal Home Loan Mortgage Corporation
218,838

 
3

 
(4,878
)
 
213,963

Federal National Mortgage Association
179,268

 

 
(4,591
)
 
174,677

Small Business Assistance Program
237,156

 
144

 
(4,036
)
 
233,264

States and political subdivision securities
70,513

 
10

 
(1,623
)
 
68,900

Other
1,006

 

 
(4
)
 
1,002

Total
$
1,337,641

 
$
204

 
$
(30,247
)
 
$
1,307,598


12-




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


 
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 March 31, 2018 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.
 
March 31, 2018
 
September 30, 2017
 
Amortized 
Cost
 
Estimated
Fair Value
 
Amortized 
Cost
 
Estimated
Fair Value
 
(dollars in thousands)
Due in one year or less
$
43,291

 
$
43,204

 
$
91,535

 
$
91,597

Due after one year through five years
189,787

 
187,741

 
193,117

 
193,373

Due after five years through ten years
15,876

 
15,252

 
16,306

 
16,097

Due after ten years
122

 
122

 
122

 
122

 
249,076

 
246,319

 
301,080

 
301,189

Mortgage-backed securities
1,087,559

 
1,060,277

 
1,074,856

 
1,065,737

Securities without contractual maturities
1,006

 
1,002

 
1,006

 
1,034

Total
$
1,337,641

 
$
1,307,598

 
$
1,376,942

 
$
1,367,960

Proceeds from sales of securities available for sale were $25.0 million and $25.2 million for the three and six months ended March 31, 2018 and $5.0 million for both the three and six months ended March 31, 2017, respectively. Negligible gross gains (pre-tax) or gross losses (pre-tax) were realized on the sales for the three and six months ended March 31, 2018 and 2017 using the specific identification method. The Company recognized no other-than-temporary impairment for the three and six months ended March 31, 2018 and 2017.
Securities with an estimated fair value of approximately $920.6 million and $951.4 million at March 31, 2018 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 97% and 68% of the Company’s investment portfolio at estimated fair value at March 31, 2018 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 March 31, 2018 or September 30, 2017.

13-




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


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 March 31, 2018
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
$
148,360

 
$
(873
)
 
$
29,059

 
$
(271
)
 
$
177,419

 
$
(1,144
)
Mortgage-backed securities
314,049

 
(4,765
)
 
712,510

 
(22,711
)
 
1,026,559

 
(27,476
)
States and political subdivision securities
14,967

 
(109
)
 
49,249

 
(1,514
)
 
64,216

 
(1,623
)
Other
1,002

 
(4
)
 

 

 
1,002

 
(4
)
Total
$
478,378

 
$
(5,751
)
 
$
790,818

 
$
(24,496
)
 
$
1,269,196

 
$
(30,247
)
 
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
)
Other

 

 

 

 

 

Total
$
667,677

 
$
(5,637
)
 
$
267,141

 
$
(5,190
)
 
$
934,818

 
$
(10,827
)
As of March 31, 2018 and September 30, 2017, the Company had 352 and 249 securities, respectively, in an unrealized loss position.
4. Loans
The composition of loans as of March 31, 2018 and September 30, 2017, is as follows.
 
March 31, 2018
 
September 30, 2017
 
(dollars in thousands)
Commercial real estate
$
4,467,778

 
$
4,124,805

Agriculture
2,177,020

 
2,122,138

Commercial non-real estate
1,767,587

 
1,718,914

Residential real estate
866,982

 
932,892

Consumer
55,190

 
66,559

Other
41,816

 
43,207

Ending balance
9,376,373

 
9,008,515

Less: Unamortized discount on acquired loans
(23,501
)
 
(29,121
)
Unearned net deferred fees and costs and loans in process
(14,566
)
 
(10,841
)
Total
$
9,338,306

 
$
8,968,553

The loan segments above include loans covered by a FDIC loss sharing agreement totaling $50.7 million and $57.5 million as of March 31, 2018 and September 30, 2017, respectively, residential real estate loans held for sale totaling $2.4 million and $7.5 million at March 31, 2018 and September 30, 2017, respectively, and $921.0 million and $1.02 billion of loans accounted for at fair value at March 31, 2018 and September 30, 2017, respectively.
Unearned net deferred fees and costs totaled $13.1 million and $11.6 million as of March 31, 2018 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 $1.5 million and $(0.8) million at March 31, 2018 and September 30, 2017, respectively.

14-




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


Loans guaranteed by agencies of the U.S. government totaled $170.3 million and $168.3 million at March 31, 2018 and September 30, 2017, respectively.
Principal balances of residential real estate loans sold totaled $67.6 million and $53.4 million for the three months ended March 31, 2018 and 2017, respectively, and $117.8 million and $145.1 million for the six months ended March 31, 2018 and 2017, 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 usually 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 March 31, 2018 and September 30, 2017, excluding ASC 310-30 loans. Loans greater than 90 days past due and still accruing interest as of March 31, 2018 and September 30, 2017, were $0.9 million and $1.9 million, respectively.
 
March 31, 2018
 
September 30, 2017
 
(dollars in thousands)
Nonaccrual loans
 
 
 
Commercial real estate
$
26,343

 
$
14,693

Agriculture
86,758

 
99,325

Commercial non-real estate
10,146

 
13,674

Residential real estate
4,058

 
4,421

Consumer
88

 
112

Total
$
127,393

 
$
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 following table presents the composition of the loan portfolio by internally assigned grade as of March 31, 2018 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 $921.0 million at March 31, 2018 and $1.02 billion at September 30, 2017.
As of March 31, 2018
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
$
3,888,128

 
$
1,683,280

 
$
1,443,731

 
$
798,778

 
$
54,324

 
$
41,816

 
$
7,910,057

Watchlist
62,695

 
152,878

 
33,852

 
4,935

 
326

 

 
254,686

Substandard
62,784

 
123,714

 
19,552

 
7,152

 
235

 

 
213,437

Doubtful
113

 
5

 
2,756

 
126

 

 

 
3,000

Loss

 

 

 

 

 

 

Ending balance
4,013,720

 
1,959,877

 
1,499,891

 
810,991

 
54,885

 
41,816

 
8,381,180

Loans covered by a FDIC loss sharing agreement

 

 

 
50,727

 

 

 
50,727

Total
$
4,013,720

 
$
1,959,877

 
$
1,499,891

 
$
861,718

 
$
54,885

 
$
41,816

 
$
8,431,907

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 a FDIC loss sharing agreement

 

 

 
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 March 31, 2018 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 $921.0 million at March 31, 2018 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 March 31, 2018
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate
$
3,308

 
$
67

 
$
22,319

 
$
25,694

 
$
3,988,026

 
$
4,013,720

Agriculture
2,387

 
371

 
26,498

 
29,256

 
1,930,621

 
1,959,877

Commercial non-real estate
3,665

 
1,190

 
5,223

 
10,078

 
1,489,813

 
1,499,891

Residential real estate
2,568

 
90

 
1,364

 
4,022

 
806,969

 
810,991

Consumer
140

 
3

 
44

 
187

 
54,698

 
54,885

Other

 

 

 

 
41,816

 
41,816

Ending balance
12,068

 
1,721

 
55,448

 
69,237

 
8,311,943

 
8,381,180

Loans covered by a FDIC loss sharing agreement
1,283

 
217

 
588

 
2,088

 
48,639

 
50,727

Total
$
13,351

 
$
1,938

 
$
56,036

 
$
71,325

 
$
8,360,582

 
$
8,431,907


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 a FDIC loss sharing agreement
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 $921.0 million at March 31, 2018 and $1.02 billion at September 30, 2017.
 
March 31, 2018
 
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
$
48,532

 
$
49,799

 
$
7,248

 
$
20,819

 
$
24,893

 
$
3,621

Agriculture
63,293

 
73,823

 
10,465

 
79,219

 
88,268

 
11,468

Commercial non-real estate
14,747

 
18,140

 
4,320

 
17,950

 
28,755

 
4,779

Residential real estate
5,208

 
5,991

 
2,549

 
5,177

 
5,874

 
2,581

Consumer
217

 
225

 
74

 
280

 
287

 
86

Total impaired loans with an allowance recorded
131,997

 
147,978

 
24,656

 
123,445

 
148,077

 
22,535

 
 
 
 
 
 
 
 
 
 
 
 
With no allowance recorded:
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate
13,335

 
52,866

 

 
16,652

 
69,677

 

Agriculture
61,643

 
66,567

 

 
51,256

 
64,177

 

Commercial non-real estate
14,110

 
23,372

 

 
13,983

 
38,924

 

Residential real estate
2,166

 
5,157

 

 
2,574

 
9,613

 

Consumer
14

 
133

 

 
13

 
950

 

Total impaired loans with no allowance recorded
91,268

 
148,095

 

 
84,478

 
183,341

 

Total impaired loans
$
223,265

 
$
296,073

 
$
24,656

 
$
207,923

 
$
331,418

 
$
22,535


17-




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


The following table presents the average recorded investment on impaired loans and interest income recognized on impaired loans for the three and six months ended March 31, 2018 and 2017, respectively, are as follows.
 
Three Months Ended March 31, 2018
 
Three Months Ended March 31, 2017
 
Six Months Ended March 31, 2018
 
Six Months Ended March 31, 2017
 
Average Recorded Investment
 
Interest Income Recognized While on Impaired Status
 
Average Recorded Investment
 
Interest Income Recognized While on Impaired Status
 
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
$
66,577

 
$
477

 
$
44,807

 
$
545

 
$
56,875

 
$
2,053

 
$
47,873

 
$
1,215

Agriculture
121,062

 
1,189

 
128,919

 
1,326

 
124,200

 
2,171

 
119,892

 
3,193

Commercial non-real estate
30,350

 
325

 
46,304

 
358

 
30,878

 
776

 
47,477

 
780

Residential real estate
7,578

 
116

 
9,565

 
126

 
7,636

 
281

 
9,831

 
240

Consumer
238

 
4

 
389

 
12

 
256

 
8

 
391

 
27

Total
$
225,805

 
$
2,111

 
$
229,984

 
$
2,367

 
$
219,845

 
$
5,289

 
$
225,464

 
$
5,455

Valuation adjustments made to repossessed properties totaled $0.7 million and $0.5 million for the three months ended March 31, 2018 and 2017 and $0.7 million and $0.9 million for the six months ended March 31, 2018 and 2017, 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 $10.0 million and $8.8 million at March 31, 2018 and September 30, 2017, respectively. There were $0.7 million commitments to lend additional funds to borrowers whose loans were modified in a TDR as of March 31, 2018 and no commitments to lend additional funds to borrowers whose loans were modified in a TDR as of September 30, 2017.
The following table presents the recorded value of the Company’s TDR balances as of March 31, 2018 and September 30, 2017.
 
March 31, 2018
 
September 30, 2017
 
Accruing
 
Nonaccrual
 
Accruing
 
Nonaccrual
 
(dollars in thousands)
Commercial real estate
$
617

 
$
2,632

 
$
1,121

 
$
5,351

Agriculture
29,200

 
60,098

 
22,678

 
59,633

Commercial non real estate
7,647

 
3,916

 
8,369

 
5,641

Real estate
249

 
739

 
311

 
688

Consumer
83

 

 
11

 
21

Total
$
37,796

 
$
67,385

 
$
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 March 31, 2018 and 2017.