Toggle SGML Header (+)


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 June 30, 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 August 1, 2018, the number of shares of the registrant’s Common Stock outstanding was 58,911,563.





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;
"HF Financial" refers to HF Financial Corporation; 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 “Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” or "Part II, Item 1A Risk Factors" 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 imposed and 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 and in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2018.
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)
 
 
 
June 30, 2018
 
September 30, 2017
Assets
 
 
 
Cash and due from banks
$
162,885

 
$
170,657

Interest-bearing bank deposits
131,729

 
189,739

Cash and cash equivalents
294,614

 
360,396

Securities available for sale
1,372,711

 
1,367,960

Loans, net of unearned discounts and deferred fees, including $46,477 and $57,537 of loans covered by a FDIC loss share agreement at June 30, 2018 and September 30, 2017, respectively, and $888,247 and $1,016,576 of loans at fair value under the fair value option at June 30, 2018 and September 30, 2017, respectively, and $6,805 and $7,456 of loans held for sale at June 30, 2018 and September 30, 2017, respectively
9,379,819

 
8,968,553

Allowance for loan and lease losses
(64,688
)
 
(63,503
)
Net loans
9,315,131

 
8,905,050

Premises and equipment, including $1,107 and $5,147 of property held for sale at June 30, 2018 and September 30, 2017, respectively
107,364

 
112,209

Accrued interest receivable
51,979

 
53,176

Other repossessed property, including $131 and $0 of property covered by FDIC loss share agreements at June 30, 2018 and September 30, 2017, respectively
10,221

 
8,985

Goodwill
739,023

 
739,023

Cash surrender value of life insurance policies
30,245

 
29,619

Net deferred tax assets
31,487

 
42,400

Other assets
56,273

 
71,193

Total assets
$
12,009,048

 
$
11,690,011

Liabilities and stockholders’ equity
 
 
 
Deposits
 
 
 
Noninterest-bearing
$
1,793,293

 
$
1,856,126

Interest-bearing
7,792,025

 
7,121,487

Total deposits
9,585,318

 
8,977,613

Securities sold under agreements to repurchase
105,478

 
132,636

FHLB advances and other borrowings
335,000

 
643,214

Subordinated debentures and subordinated notes payable
108,426

 
108,302

Accrued expenses and other liabilities
58,085

 
73,246

Total liabilities
10,192,307

 
9,935,011

Stockholders’ equity
 
 
 
Common stock, $0.01 par value, authorized 500,000,000 shares; 58,911,563 shares issued and outstanding at June 30, 2018 and 58,834,066 shares issued and outstanding at September 30, 2017
589

 
588

Additional paid-in capital
1,317,327

 
1,314,039

Retained earnings
525,462

 
445,747

Accumulated other comprehensive (loss)
(26,637
)
 
(5,374
)
Total stockholders' equity
1,816,741

 
1,755,000

Total liabilities and stockholders' equity
$
12,009,048

 
$
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 June 30,
 
Nine Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
Interest income
 
 
 
 
 
 
 
Loans
$
116,522

 
$
101,593

 
$
334,196

 
$
301,005

Investment securities
7,471

 
6,803

 
21,526

 
19,719

Federal funds sold and other
424

 
163

 
882

 
728

Total interest income
124,417

 
108,559

 
356,604

 
321,452

Interest expense
 
 
 
 
 
 
 
Deposits
16,460

 
9,478

 
40,116

 
24,596

FHLB advances and other borrowings
1,963

 
1,080

 
6,941

 
4,033

Subordinated debentures and subordinated notes payable
1,322

 
1,113

 
3,699

 
3,299

Total interest expense
19,745

 
11,671

 
50,756

 
31,928

Net interest income
104,672

 
96,888

 
305,848

 
289,524

Provision for loan and lease losses
3,515

 
5,796

 
12,972

 
16,854

Net interest income after provision for loan and lease losses
101,157

 
91,092

 
292,876

 
272,670

Noninterest income
 
 
 
 
 
 
 
Service charges and other fees
12,655

 
14,572

 
37,879

 
41,983

Wealth management fees
2,242

 
2,433

 
6,761

 
7,116

Mortgage banking income, net
1,352

 
1,828

 
4,178

 
6,130

Net gain on sale of securities
15

 

 
6

 
44

Net (decrease) increase in fair value of loans at fair value
(7,370
)
 
6,060

 
(30,872
)
 
(63,158
)
Net realized and unrealized gain on derivatives
8,093

 
(9,088
)
 
29,602

 
51,481

Other
1,952

 
1,522

 
6,801

 
4,878

Total noninterest income
18,939

 
17,327

 
54,355

 
48,474

Noninterest expense
 
 
 
 
 
 
 
Salaries and employee benefits
35,122

 
32,868

 
101,661

 
96,872

Data processing and communication
7,177

 
7,370

 
23,251

 
20,965

Occupancy and equipment
4,974

 
4,866

 
15,112

 
14,812

Professional fees
4,297

 
4,141

 
12,564

 
10,535

Advertising
1,260

 
1,059

 
3,441

 
3,029

Net loss recognized on repossessed property and other related expenses
305

 
152

 
1,519

 
1,208

Amortization of core deposits and other intangibles
416

 
538

 
1,268

 
1,927

Acquisition expenses

 

 

 
710

Other
4,312

 
3,928

 
13,059

 
11,254

Total noninterest expense
57,863

 
54,922

 
171,875

 
161,312

Income before income taxes
62,233

 
53,497

 
175,356

 
159,832

Provision for income taxes
16,359

 
18,437

 
59,720

 
52,707

Net income
$
45,874

 
$
35,060

 
$
115,636

 
$
107,125

Basic earnings per common share
 
 
 
 
 
 
 
Weighted average common shares outstanding
58,948,944

 
58,790,314

 
58,930,963

 
58,776,546

Basic earnings per share
$
0.78

 
$
0.60

 
$
1.96

 
$
1.82

Diluted earnings per common share
 
 
 
 
 
 
 
Weighted average diluted common shares outstanding
59,170,058

 
59,130,632

 
59,134,635

 
59,065,402

Diluted earnings per share
$
0.78

 
$
0.59

 
$
1.96

 
$
1.81

Dividends per share
 
 
 
 
 
 
 
Dividends paid
$
14,724

 
$
11,752

 
$
38,274

 
$
31,722

Dividends per share
$
0.25

 
$
0.20

 
$
0.65

 
$
0.54

See accompanying notes.

6-




GREAT WESTERN BANCORP, INC.
Consolidated Statements of Comprehensive Income (Unaudited)
(Dollars in Thousands)
 
Three Months Ended June 30,
 
Nine Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
Net income
$
45,874

 
$
35,060

 
$
115,636

 
$
107,125

Other comprehensive (loss) gain, net of tax:
 
 
 
 
 
 
 
Securities available for sale:
 
 
 
 
 
 
 
Net unrealized holding (loss) gain arising during the period
(5,671
)
 
1,896

 
(26,596
)
 
(17,757
)
Reclassification adjustment for net gain realized in net income
(15
)
 

 
(6
)
 
(44
)
Income tax benefit (expense)
1,402

 
(721
)
 
7,692

 
6,764

Net change in unrealized (loss) gain on securities available for sale
(4,284
)
 
1,175

 
(18,910
)
 
(11,037
)
Comprehensive income
$
41,590

 
$
36,235

 
$
96,726

 
$
96,088

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
$
107,125

 

 

 
107,125

 

 
107,125

Other comprehensive (loss), net of tax
(11,037
)
 

 

 

 
(11,037
)
 
(11,037
)
Total comprehensive income
$
96,088

 
 
 
 
 
 
 
 
 
 
Cumulative effect adjustment ¹
 
 

 
751

 
(488
)
 

 
263

Stock-based compensation, net of tax
 
 

 
4,963

 

 

 
4,963

Cash dividends:
 
 
 
 
 
 
 
 
 
 
 
Common stock, $0.54 per share
 
 

 

 
(31,722
)
 

 
(31,722
)
Balance, June 30, 2017
 
 
$
587

 
$
1,318,061

 
$
419,838

 
$
(5,503
)
 
$
1,732,983

 
 
 
 
 
 
 
 
 
 
 
 
Balance, September 30, 2017
 
 
$
588

 
$
1,314,039

 
$
445,747

 
$
(5,374
)
 
$
1,755,000

Net income
$
115,636

 

 

 
115,636

 

 
115,636

Other comprehensive (loss), net of tax
(18,910
)
 

 

 

 
(18,910
)
 
(18,910
)
Total comprehensive income
$
96,726

 
 
 
 
 
 
 
 
 
 
Stock-based compensation, net of tax
 
 
1

 
3,288

 

 

 
3,289

Reclassification due to adoption of ASU 2018-02 ²
 
 

 

 
2,353

 
(2,353
)
 

Cash dividends:
 
 
 
 
 
 
 
 
 
 
 
Common stock, $0.65 per share
 
 

 

 
(38,274
)
 

 
(38,274
)
Balance, June 30, 2018
 
 
$
589

 
$
1,317,327

 
$
525,462

 
$
(26,637
)
 
$
1,816,741

¹ Cumulative effect adjustment relates to adoption of ASU 2016-09, Compensation - Stock Based Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.
² 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)
 
Nine months ended
 
June 30, 2018
 
June 30, 2017
Operating activities
 
 
 
Net income
$
115,636

 
$
107,125

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
9,496

 
11,187

Amortization of FDIC indemnification asset
2,244

 
3,473

Net loss on sale of securities and other assets
2,711

 
1,465

Gain on redemption of subordinated debentures

 
(111
)
Net gain on sale of loans
(4,924
)
 
(7,381
)
Provision for loan and lease losses
12,972

 
16,854

Reversal of provision for loan servicing rights loss
(72
)
 
(6
)
Stock-based compensation
3,289

 
5,226

Originations of residential real estate loans held for sale
(189,827
)
 
(209,695
)
Proceeds from sales of residential real estate loans held for sale
195,402

 
218,491

Net deferred income taxes
18,743

 
192

Changes in:
 
 
 
Accrued interest receivable
1,197

 
4,053

Other assets
669

 
737

Accrued interest payable and other liabilities
(14,850
)
 
(67,750
)
Net cash provided by operating activities
152,686

 
83,860

Investing activities
 
 
 
Purchase of securities available for sale
(224,159
)
 
(255,014
)
Proceeds from sales of securities available for sale
25,906

 
5,042

Proceeds from maturities of securities available for sale
163,393

 
179,160

Net increase in loans
(433,428
)
 
(130,643
)
Payment of covered losses from FDIC indemnification claims
(588
)
 
(571
)
Purchase of premises and equipment
(5,492
)
 
(4,979
)
Proceeds from sale of premises and equipment
4,600

 
4,024

Proceeds from sale of repossessed property
8,433

 
4,205

Purchase of FHLB stock
(47,372
)
 
(22,945
)
Proceeds from redemption of FHLB stock
59,914

 
39,217

Net cash used in investing activities
(448,793
)
 
(182,504
)
Financing activities
 
 
 
Net increase in deposits
607,914

 
354,801

Net decrease in securities sold under agreements to repurchase and other short-term borrowings
(27,158
)
 
(17,837
)
Proceeds from FHLB advances and other long-term borrowings
150,000

 
375,700

Repayments on FHLB advances and other long-term borrowings
(458,200
)
 
(775,000
)
Redemption of subordinated debentures

 
(3,625
)
Taxes paid related to net share settlement of equity awards
(3,957
)
 
(383
)
Dividends paid
(38,274
)
 
(31,722
)
Net cash provided by (used in) financing activities
230,325

 
(98,066
)
Net decrease in cash and cash equivalents
(65,782
)
 
(196,710
)
Cash and cash equivalents, beginning of period
360,396

 
524,611

Cash and cash equivalents, end of period
$
294,614

 
$
327,901

Supplemental disclosure of cash flow information
 
 
 
Cash payments for interest
$
47,237

 
$
30,996

Cash payments for income taxes
$
39,404

 
$
52,796

Supplemental disclosure of noncash investing and financing activities
 
 
 
Loans transferred to repossessed properties
$
(11,188
)
 
$
(4,182
)
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 July 26, 2018, the Board of Directors of the Company declared a dividend of $0.25 per common share payable on August 22, 2018 to stockholders of record as of close of business on August 10, 2018.
Correction of Prior Period Balances
The consolidated statements of income for the quarter ended June 30, 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 June 30, 2017
 
 
 
 
 
Interest income - loans
$
103,435

 
$
(1,842
)
 
$
101,593

Noninterest income - service charges and other fees
12,730

 
1,842

 
14,572

 
 
 
 
 
 
Nine months ended June 30, 2017
 
 
 
 
 
Interest income - loans
$
306,253

 
$
(5,248
)
 
$
301,005

Noninterest income - service charges and other fees
36,735

 
5,248

 
41,983

 
 
 
 
 
 

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 in the process of selecting a vendor to partner with to make the required changes to our existing credit loss estimation methodology. The Company is currently evaluating the potential impact on our consolidated financial statements, however, since the magnitude of the anticipated change in the allowance for credit losses will be impacted by economic conditions and trends in the Company’s portfolio at the time of adoption, the quantitative impact cannot yet be reasonably estimated.
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 became 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 the analysis to date, we do not anticipate significant changes as a result of implementing the standard, but will conclude on quantitative and qualitative impacts during the fourth quarter.
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 June 30, 2018
 
 
 
 
 
 
 
U.S. Treasury securities
$
178,774

 
$

 
$
(1,239
)
 
$
177,535

Mortgage-backed securities:
 
 
 
 
 
 
 
Government National Mortgage Association
445,376

 
48

 
(15,082
)
 
430,342

Federal Home Loan Mortgage Corporation
250,832

 
56

 
(5,720
)
 
245,168

Federal National Mortgage Association
194,515

 
33

 
(5,241
)
 
189,307

Small Business Assistance Program
267,428

 
72

 
(7,167
)
 
260,333

States and political subdivision securities
70,509

 
13

 
(1,496
)
 
69,026

Other
1,006

 

 
(6
)
 
1,000

Total
$
1,408,440

 
$
222

 
$
(35,951
)
 
$
1,372,711


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 June 30, 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.
 
June 30, 2018
 
September 30, 2017
 
Amortized 
Cost
 
Estimated
Fair Value
 
Amortized 
Cost
 
Estimated
Fair Value
 
(dollars in thousands)
Due in one year or less
$
120,927

 
$
120,476

 
$
91,535

 
$
91,597

Due after one year through five years
116,445

 
114,655

 
193,117

 
193,373

Due after five years through ten years
11,789

 
11,308

 
16,306

 
16,097

Due after ten years
122

 
122

 
122

 
122

 
249,283

 
246,561

 
301,080

 
301,189

Mortgage-backed securities
1,158,151

 
1,125,150

 
1,074,856

 
1,065,737

Securities without contractual maturities
1,006

 
1,000

 
1,006

 
1,034

Total
$
1,408,440

 
$
1,372,711

 
$
1,376,942

 
$
1,367,960

Proceeds from sales of securities available for sale were $0.7 million and $25.9 million for the three and nine months ended June 30, 2018 and $0.0 million and $5.0 million for the three and nine months ended June 30, 2017, respectively. Negligible gross gains (pre-tax) or gross losses (pre-tax) were realized on the sales for the three and nine months ended June 30, 2018 and 2017 using the specific identification method. The Company recognized no other-than-temporary impairment for the three and nine months ended June 30, 2018 and 2017.
Securities with an estimated fair value of approximately $901.1 million and $951.4 million at June 30, 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 by contractual obligation or 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 93% and 68% of the Company’s investment portfolio at estimated fair value at June 30, 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 June 30, 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 June 30, 2018
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
$
167,539

 
$
(1,234
)
 
$
9,996

 
$
(5
)
 
$
177,535

 
$
(1,239
)
Mortgage-backed securities
313,945

 
(6,369
)
 
713,284

 
(26,841
)
 
1,027,229

 
(33,210
)
States and political subdivision securities
20,601

 
(145
)
 
44,235

 
(1,351
)
 
64,836

 
(1,496
)
Other
1,000

 
(6
)
 

 

 
1,000

 
(6
)
Total
$
503,085

 
$
(7,754
)
 
$
767,515

 
$
(28,197
)
 
$
1,270,600

 
$
(35,951
)
 
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 June 30, 2018 and September 30, 2017, the Company had 361 and 249 securities, respectively, in an unrealized loss position.
4. Loans
The composition of loans as of June 30, 2018 and September 30, 2017, is as follows.
 
June 30, 2018
 
September 30, 2017
 
(dollars in thousands)
Commercial real estate
$
4,529,446

 
$
4,124,805

Agriculture
2,176,318

 
2,122,138

Commercial non-real estate
1,750,827

 
1,718,914

Residential real estate
857,848

 
932,892

Consumer
51,417

 
66,559

Other
44,187

 
43,207

Ending balance
9,410,043

 
9,008,515

Less: Unamortized discount on acquired loans
(19,850
)
 
(29,121
)
Unearned net deferred fees and costs and loans in process
(10,374
)
 
(10,841
)
Total
$
9,379,819

 
$
8,968,553

The loan segments above include loans covered by a FDIC loss sharing agreement totaling $46.5 million and $57.5 million as of June 30, 2018 and September 30, 2017, respectively, residential real estate loans held for sale totaling $6.8 million and $7.5 million at June 30, 2018 and September 30, 2017, respectively, and $888.2 million and $1.02 billion of loans accounted for at fair value at June 30, 2018 and September 30, 2017, respectively.
Unearned net deferred fees and costs totaled $13.1 million and $11.6 million as of June 30, 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 $(2.7) million and $(0.8) million at June 30, 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 $169.7 million and $168.3 million at June 30, 2018 and September 30, 2017, respectively.
Principal balances of residential real estate loans sold totaled $72.7 million and $66.0 million for the three months ended June 30, 2018 and 2017, respectively, and $190.5 million and $211.1 million for the nine months ended June 30, 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 June 30, 2018 and September 30, 2017, excluding ASC 310-30 loans. Loans greater than 90 days past due and still accruing interest as of June 30, 2018 and September 30, 2017, were $0.1 million and $1.9 million, respectively.
 
June 30, 2018
 
September 30, 2017
 
(dollars in thousands)
Nonaccrual loans
 
 
 
Commercial real estate
$
29,869

 
$
14,693

Agriculture
81,387

 
99,325

Commercial non-real estate
9,154

 
13,674

Residential real estate
3,590

 
4,421

Consumer
55

 
112

Total
$
124,055

 
$
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 residential real estate or 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 June 30, 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 $888.2 million at June 30, 2018 and $1.02 billion at September 30, 2017.
As of June 30, 2018
Commercial Real Estate
 
Agriculture
 
Commercial
Non-Real Estate
 
Residential Real Estate ¹
 
Consumer ¹
 
Other
 
Total
 
(dollars in thousands)
Credit Risk Profile by Internally Assigned Grade
 
 
 
 
 
 
 
 
 
 
 
 
 
Grade:
 
 
 
 
 
 
 
 
 
 
 
 
 
Pass
$
3,971,920

 
$
1,680,976

 
$
1,438,425

 
$
795,325

 
$
50,657

 
$
44,187

 
$
7,981,490

Watchlist
55,047

 
166,130

 
23,440

 
5,158

 
336

 

 
250,111

Substandard
61,592

 
127,661

 
25,935

 
6,050

 
165

 

 
221,403

Doubtful
97

 
4

 
2,322

 
39

 

 

 
2,462

Loss

 

 

 

 

 

 

Ending balance
4,088,656

 
1,974,771

 
1,490,122

 
806,572

 
51,158

 
44,187

 
8,455,466

Loans covered by a FDIC loss sharing agreement

 

 

 
46,477

 

 

 
46,477

Total
$
4,088,656

 
$
1,974,771

 
$
1,490,122

 
$
853,049

 
$
51,158

 
$
44,187

 
$
8,501,943

1 The Company generally does not risk rate residential real estate or consumer loans unless a default event such as a bankruptcy or extended nonperformance takes place. Alternatively, standard credit scoring systems are used to assess credit risks of residential real estate and consumer loans.
As of September 30, 2017
Commercial Real Estate
 
Agriculture
 
Commercial
Non-Real Estate
 
Residential Real Estate ¹
 
Consumer ¹
 
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

1 The Company generally does not risk rate residential real estate or consumer loans unless a default event such as a bankruptcy or extended nonperformance takes place. Alternatively, standard credit scoring systems are used to assess credit risks of residential real estate and consumer loans.
Past Due Loans
The following table presents the Company’s past due loans at June 30, 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 $888.2 million at June 30, 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 June 30, 2018
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate
$
3,199

 
$
94

 
$
23,019

 
$
26,312

 
$
4,062,344

 
$
4,088,656

Agriculture
1,138

 
2,746

 
20,060

 
23,944

 
1,950,827

 
1,974,771

Commercial non-real estate
685

 
128

 
7,481

 
8,294

 
1,481,828

 
1,490,122

Residential real estate
1,562

 
444

 
1,410

 
3,416

 
803,156

 
806,572

Consumer
106

 
15

 

 
121

 
51,037

 
51,158

Other

 

 

 

 
44,187

 
44,187

Ending balance
6,690

 
3,427

 
51,970

 
62,087

 
8,393,379

 
8,455,466

Loans covered by a FDIC loss sharing agreement
274

 
541

 
263

 
1,078

 
45,399

 
46,477

Total
$
6,964

 
$
3,968

 
$
52,233

 
$
63,165

 
$
8,438,778

 
$
8,501,943


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 $888.2 million at June 30, 2018 and $1.02 billion at September 30, 2017.
 
June 30, 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
$
45,330

 
$
47,969

 
$
5,313

 
$
20,819

 
$
24,893

 
$
3,621

Agriculture
63,272

 
77,756

 
10,720

 
79,219

 
88,268

 
11,468

Commercial non-real estate
18,798

 
21,701

 
5,343

 
17,950

 
28,755

 
4,779

Residential real estate
4,383

 
5,032

 
2,022

 
5,177

 
5,874

 
2,581

Consumer
166

 
171

 
70

 
280

 
287

 
86

Total impaired loans with an allowance recorded
131,949

 
152,629

 
23,468

 
123,445

 
148,077

 
22,535

 
 
 
 
 
 
 
 
 
 
 
 
With no allowance recorded:
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate
15,316

 
54,750

 

 
16,652

 
69,677

 

Agriculture
64,317

 
67,427

 

 
51,256

 
64,177

 

Commercial non-real estate
10,176

 
19,316

 

 
13,983

 
38,924

 

Residential real estate
1,802

 
4,267

 

 
2,574

 
9,613

 

Consumer
1

 
118

 

 
13

 
950

 

Total impaired loans with no allowance recorded
91,612

 
145,878

 

 
84,478

 
183,341

 

Total impaired loans
$
223,561

 
$
298,507

 
$
23,468

 
$
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 nine months ended June 30, 2018 and 2017, respectively, are as follows.
 
Three Months Ended June 30, 2018
 
Three Months Ended June 30, 2017
 
Nine Months Ended June 30, 2018
 
Nine Months Ended June 30, 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
$
61,257

 
$
402

 
$
40,939

 
$
579

 
$
57,818

 
$
2,456

 
$
45,294

 
$
1,794

Agriculture
126,262

 
1,592

 
140,512

 
1,993

 
125,047

 
3,763

 
127,621

 
5,186

Commercial non-real estate
28,915

 
354

 
43,224

 
331

 
30,402

 
1,130

 
45,424

 
1,111

Residential real estate
6,780

 
54

 
9,051

 
112

 
7,273

 
335

 
9,489

 
352

Consumer
199

 
3

 
415

 
13

 
234

 
10

 
408

 
40

Total
$
223,413

 
$
2,405

 
$
234,141

 
$
3,028

 
$
220,774

 
$
7,694

 
$
228,236

 
$
8,483

Valuation adjustments made to repossessed properties totaled $0.5 million and $0.1 million for the three months ended June 30, 2018 and 2017 and $1.2 million and $1.0 million for the nine months ended June 30, 2018 and 2017, respectively. The adjustments are included in net loss recognized on repossessed property and other related expenses 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 $10.4 million and $8.8 million at June 30, 2018 and September 30, 2017, respectively. There were $5.2 million commitments to lend additional funds to borrowers whose loans were modified in a TDR as of June 30, 2018 and negligible 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 June 30, 2018 and September 30, 2017.
 
June 30, 2018
 
September 30, 2017
 
Accruing
 
Nonaccrual
 
Accruing
 
Nonaccrual
 
(dollars in thousands)
Commercial real estate
$
612

 
$
2,623

 
$
1,121

 
$
5,351

Agriculture
32,203

 
57,685

 
22,678

 
59,633

Commercial non real estate
3,564

 
3,792

 
8,369

 
5,641

Residential real estate
299

 
261

 
311

 
688

Consumer
80

 

 
11

 
21

Total
$
36,758

 
$
64,361

 
$
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 through either a rate modification, term extension, payment modification or due to a bankruptcy during the three and nine months ended June 30, 2018 and 2017.
 
Three Months Ended June 30, 2018
 
Three Months Ended June 30, 2017
 
Nine Months Ended June 30, 2018
 
Nine Months Ended June 30, 2017
 
 
Recorded Investment
 
 
Recorded Investment
 
 
Recorded Investment
 
 
Recorded Investment
 
Number
Pre-Modification
Post-Modification
 
Number
Pre-Modification
Post-Modification
 
Number
Pre-Modification
Post-Modification
 
Number
Pre-Modification
Post-Modification
 
(dollars in thousands)
Commercial real estate

$