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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)
 
 
x
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the quarterly period ended March 31, 2019
 
 
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 every Interactive Data File required to be submitted 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 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  
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 3, 2019, the number of shares of the registrant’s Common Stock outstanding was 56,938,553.





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;
"ALLL" refers to allowance for loan and lease losses;
"ASC" refers to Accounting Standards Codification;
"ASC 310-30 loans" or "purchased credit impaired loans" refers to certain loans that had deteriorated credit quality at acquisition;
"ASU" refers to Accounting Standards Update;
"Capital Rules" or "Basel III" refers to the Basel Committee’s December 2010 final capital framework for strengthening international capital standards;
"CRE" refers to commercial real estate;
"Exchange Act" refers to the Securities Exchange Act of 1934;
"FASB" refers to the Financial Accounting Standards Board;
"FDIC" refers to the Federal Deposit Insurance Corporation;
"FHLB" refers to the Federal Home Loan Bank;
"FRB" or "Federal Reserve" refers to the Board of Governors of the Federal Reserve System;
"FTE" refers to fully-tax equivalent;
"GAAP" or "U.S. GAAP" refers to U.S. generally accepted accounting principles;
"HELOC" refers to home equity lines of credit;
"HF Financial" refers to HF Financial Corporation;
"IRS" refers to the Internal Revenue Service;
"NYSE" refers to the New York Stock Exchange;
"RPA" refers to a risk participation agreement;
"Sarbanes-Oxley Act" refers to the Sarbanes-Oxley Act of 2002;
"SEC" refers to the Securities and Exchange Commission;
"Securities Act" refers to the Securities Act of 1933;
"Tax Reform Act" refers to the Tax Cuts and Jobs Act of 2017; and
"TDR" refer to a troubled debt restructuring.

3-




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 and Section 21E of 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;
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 and retaliatory 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 effects of adverse weather conditions, particularly on our agricultural borrowers;
the impact of, and changes in applicable laws, regulations and accounting standards, policies and interpretations, including the impact of the Tax Reform Act;
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;

4-




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 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 "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended September 30, 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, 2018. 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.

5-




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, 2019
 
September 30, 2018
Assets
 
 
 
Cash and due from banks
$
160,852

 
$
168,119

Interest-bearing bank deposits
121,786

 
130,577

Cash and cash equivalents
282,638

 
298,696

Securities available for sale
1,763,305

 
1,385,650

Loans, net of unearned discounts and deferred fees, including $36,975 and $42,627 of loans covered by a FDIC loss share agreement at March 31, 2019 and September 30, 2018, respectively, and $835,822 and $865,386 of loans at fair value under the fair value option at March 31, 2019 and September 30, 2018, respectively, and $3,648 and $5,456 of loans held for sale at March 31, 2019 and September 30, 2018, respectively
9,770,911

 
9,415,924

Allowance for loan and lease losses
(68,003
)
 
(64,540
)
Net loans
9,702,908

 
9,351,384

Premises and equipment, including $3,216 and $1,104 of property held for sale at March 31, 2019 and September 30, 2018, respectively
115,189

 
113,839

Accrued interest receivable
56,221

 
58,948

Other repossessed property, including $0 and $131 of property covered by a FDIC loss share agreement at March 31, 2019 and September 30, 2018, respectively
32,450

 
23,074

Goodwill
739,023

 
739,023

Cash surrender value of life insurance policies
30,366

 
30,461

Net deferred tax assets
22,389

 
30,132

Other assets
85,673

 
85,601

Total assets
$
12,830,162

 
$
12,116,808

Liabilities and stockholders’ equity
 
 
 
Deposits
 
 
 
Noninterest-bearing
$
1,824,507

 
$
1,842,704

Interest-bearing
8,643,876

 
7,890,795

Total deposits
10,468,383

 
9,733,499

Securities sold under agreements to repurchase
62,537

 
90,907

FHLB advances and other borrowings
275,000

 
275,000

Subordinated debentures and subordinated notes payable
108,528

 
108,468

Accrued expenses and other liabilities
63,320

 
68,383

Total liabilities
10,977,768

 
10,276,257

Stockholders’ equity
 
 
 
Common stock, $0.01 par value, authorized 500,000,000 shares; 56,938,435 shares issued and outstanding at March 31, 2019 and 58,917,147 shares issued and outstanding at September 30, 2018
569

 
589

Additional paid-in capital
1,245,657

 
1,318,457

Retained earnings
614,540

 
553,014

Accumulated other comprehensive (loss)
(8,372
)
 
(31,509
)
Total stockholders' equity
1,852,394

 
1,840,551

Total liabilities and stockholders' equity
$
12,830,162

 
$
12,116,808

See accompanying notes.

6-




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,
 
2019
 
2018
 
2019
 
2018
Interest income
 
 
 
 
 
 
 
Loans
$
123,432

 
$
109,993

 
$
245,763

 
$
217,674

Investment securities
9,957

 
7,013

 
19,145

 
14,055

Federal funds sold and other
497

 
227

 
1,039

 
458

Total interest income
133,886

 
117,233

 
265,947

 
232,187

Interest expense
 
 
 
 
 
 
 
Deposits
27,098

 
12,658

 
50,892

 
23,656

FHLB advances and other borrowings
1,923

 
2,815

 
3,926

 
4,978

Subordinated debentures and subordinated notes payable
1,390

 
1,207

 
2,760

 
2,377

Total interest expense
30,411

 
16,680

 
57,578

 
31,011

Net interest income
103,475

 
100,553

 
208,369

 
201,176

Provision for loan and lease losses
7,673

 
4,900

 
12,888

 
9,457

Net interest income after provision for loan and lease losses
95,802

 
95,653

 
195,481

 
191,719

Noninterest income
 
 
 
 
 
 
 
Service charges and other fees
10,209

 
12,047

 
21,897

 
25,224

Wealth management fees
2,117

 
2,335

 
4,358

 
4,519

Mortgage banking income, net
991

 
1,166

 
2,311

 
2,826

Net loss on sale of securities

 
(8
)
 
(513
)
 
(9
)
Net increase (decrease) in fair value of loans at fair value
14,018

 
(14,838
)
 
33,234

 
(23,502
)
Net realized and unrealized (loss) gain on derivatives
(11,032
)
 
14,282

 
(29,348
)
 
21,509

Other
1,920

 
3,758

 
3,004

 
4,849

Total noninterest income
18,223

 
18,742

 
34,943

 
35,416

Noninterest expense
 
 
 
 
 
 
 
Salaries and employee benefits
34,537

 
33,672

 
69,307

 
66,539

Data processing and communication
5,964

 
9,190

 
11,242

 
16,074

Occupancy and equipment
5,539

 
5,290

 
10,665

 
10,138

Professional fees
3,970

 
4,027

 
7,258

 
8,267

Advertising
1,216

 
1,121

 
2,154

 
2,181

Net loss on repossessed property and other related expenses
404

 
1,000

 
3,467

 
1,214

Other
4,950

 
4,844

 
9,593

 
9,599

Total noninterest expense
56,580

 
59,144

 
113,686

 
114,012

Income before income taxes
57,445

 
55,251

 
116,738

 
113,123

Provision for income taxes
12,934

 
14,719

 
26,441

 
43,361

Net income
$
44,511

 
$
40,532

 
$
90,297

 
$
69,762

Basic earnings per common share
 
 
 
 
 
 
 
Weighted average common shares outstanding
56,994,817

 
58,941,315

 
57,484,838

 
58,921,972

Basic earnings per share
$
0.78

 
$
0.69

 
$
1.57

 
$
1.18

Diluted earnings per common share
 
 
 
 
 
 
 
Weighted average diluted common shares outstanding
57,074,674

 
59,146,117

 
57,556,984

 
59,116,923

Diluted earnings per share
$
0.78

 
$
0.69

 
$
1.57

 
$
1.18

Dividends per share
 
 
 
 
 
 
 
Dividends paid
$
14,235

 
$
11,780

 
$
28,771

 
$
23,550

Dividends per share
$
0.25

 
$
0.20

 
$
0.50

 
$
0.40

See accompanying notes.

7-




GREAT WESTERN BANCORP, INC.
Consolidated Statements of Comprehensive Income (Unaudited)
(Dollars in Thousands)
 
Three Months Ended March 31,
 
Six Months Ended March 31,
 
2019
 
2018
 
2019
 
2018
Net income
$
44,511

 
$
40,532

 
$
90,297

 
$
69,762

Other comprehensive income (loss), net of tax
 
 
 
 
 
 
 
Securities available for sale:
 
 
 
 
 
 
 
Net unrealized holding gain (loss) arising during the period
11,523

 
(12,425
)
 
30,192

 
(21,070
)
Reclassification adjustment for net loss realized in net income

 
8

 
513

 
9

Income tax (expense) benefit
(2,839
)
 
3,062

 
(7,568
)
 
6,345

Net change in unrealized gain (loss) on securities available for sale
8,684

 
(9,355
)
 
23,137

 
(14,716
)
 
 
 
 
 
 
 
 
Defined benefit pension plan obligation 1:
 
 
 
 
 
 
 
Net unrealized holding gain arising during the period

 

 

 
145

Income tax expense

 

 

 
(55
)
Net change in defined benefit pension plan obligation

 

 

 
90

Other comprehensive income (loss), net of tax
8,684

 
(9,355
)
 
23,137

 
(14,626
)
Comprehensive income
$
53,195

 
$
31,177

 
$
113,434

 
$
55,136

1 The Company's Board of Directors voted to terminate the defined benefit pension plan ("Pension Plan") effective February 1, 2018. Transfer of all Pension Plan assets, liabilities and administrative responsibilities were completed as of September 30, 2018.
See accompanying notes.
 

8-




GREAT WESTERN BANCORP, INC.
Consolidated Statements 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, January 1, 2018
 
 
$
588

 
$
1,314,723

 
$
463,207

 
$
(10,645
)
 
$
1,767,873

Net income
$
40,532

 

 

 
40,532

 

 
40,532

Other comprehensive (loss), net of tax
(9,355
)
 

 

 

 
(9,355
)
 
(9,355
)
Total comprehensive income
$
31,177

 
 
 
 
 
 
 
 
 
 
Stock-based compensation, net of tax
 
 
1

 
1,427

 

 

 
1,428

Reclassification due to adoption of ASU 2018-02 ¹
 
 

 

 
2,353

 
(2,353
)
 

Cash dividends:
 
 
 
 
 
 
 
 
 
 
 
Common stock, $0.20 per share
 
 

 

 
(11,780
)
 

 
(11,780
)
Balance, March 31, 2018
 
 
$
589

 
$
1,316,150

 
$
494,312

 
$
(22,353
)
 
$
1,788,698

 
 
 
 
 
 
 
 
 
 
 
 
Balance, January 1, 2019
 
 
$
568

 
$
1,244,232

 
$
584,264

 
$
(17,056
)
 
$
1,812,008

Net income
$
44,511

 

 

 
44,511

 

 
44,511

Other comprehensive income, net of tax
8,684

 

 

 

 
8,684

 
8,684

Total comprehensive income
$
53,195

 
 
 
 
 
 
 
 
 
 
Stock-based compensation, net of tax
 
 
1

 
1,425

 

 

 
1,426

Cash dividends:
 
 
 
 
 
 
 
 
 
 
 
Common stock, $0.25 per share
 
 

 

 
(14,235
)
 

 
(14,235
)
Balance, March 31, 2019
 
 
$
569

 
$
1,245,657

 
$
614,540

 
$
(8,372
)
 
$
1,852,394

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.
 
Comprehensive Income
 
Common Stock Par Value
 
Additional
Paid-in Capital
 
Retained
Earnings
 
Accumulated Other Comprehensive (Loss)
 
Total
Balance, October 1, 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, $0.40 per share
 
 

 

 
(23,550
)
 

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

 
$
1,316,150

 
$
494,312

 
$
(22,353
)
 
$
1,788,698

 
 
 
 
 
 
 
 
 
 
 
 
Balance, October 1, 2018
 
 
$
589

 
$
1,318,457

 
$
553,014

 
$
(31,509
)
 
$
1,840,551

Net income
$
90,297

 

 

 
90,297

 

 
90,297

Other comprehensive income, net of tax
23,137

 

 

 

 
23,137

 
23,137

Total comprehensive income
$
113,434

 
 
 
 
 
 
 
 
 
 
Stock-based compensation, net of tax
 
 
1

 
1,838

 

 

 
1,839

Repurchase of common stock
 
 
(21
)
 
(74,638
)
 

 

 
(74,659
)
Cash dividends:
 
 
 
 
 
 
 
 
 
 
 
Common stock, $0.50 per share
 
 

 

 
(28,771
)
 

 
(28,771
)
Balance, March 31, 2019
 
 
$
569

 
$
1,245,657

 
$
614,540

 
$
(8,372
)
 
$
1,852,394

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 accompanying notes.

9-




GREAT WESTERN BANCORP, INC.
Consolidated Statements of Cash Flows (Unaudited)
(Dollars in Thousands)
 
Six Months Ended March 31,
 
2019
 
2018
Operating activities
 
 
 
Net income
$
90,297

 
$
69,762

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
5,916

 
5,943

Amortization of FDIC indemnification asset
853

 
1,689

Net loss on sale of securities and other assets
2,974

 
2,143

Net gain on sale of loans
(2,724
)
 
(3,314
)
Provision for loan and lease losses
12,888

 
9,457

Reversal of loan servicing rights loss

 
(71
)
Stock-based compensation
1,839

 
2,112

Originations of residential real estate loans held for sale
(98,875
)
 
(112,731
)
Proceeds from sales of residential real estate loans held for sale
103,407

 
121,072

Net deferred income taxes
688

 
17,215

Changes in:
 
 
 
Accrued interest receivable
2,727

 
3,823

Other assets
22,116

 
423

Accrued interest payable and other liabilities
(27,768
)
 
(18,336
)
Net cash provided by operating activities
114,338

 
99,187

Investing activities
 
 
 
Purchase of securities available for sale
(541,872
)
 
(110,741
)
Proceeds from sales of securities available for sale
97,212

 
25,206

Proceeds from maturities of securities available for sale
94,926

 
122,436

Net increase in loans
(383,665
)
 
(392,109
)
Recovery (payment) of covered losses from FDIC indemnification claims
43

 
(419
)
Purchase of premises and equipment
(5,953
)
 
(3,297
)
Proceeds from sale of premises and equipment
299

 
4,565

Proceeds from sale of repossessed property
6,593

 
2,050

Purchase of FHLB stock
(46,948
)
 
(30,420
)
Proceeds from redemption of FHLB stock
47,030

 
34,251

Net cash used in investing activities
(732,335
)
 
(348,478
)
Financing activities
 
 
 
Net increase in deposits
734,966

 
409,509

Net decrease in securities sold under agreements to repurchase and other short-term borrowings
(28,370
)
 
(29,345
)
Proceeds from FHLB advances and other long-term borrowings
465,000

 
419,999

Repayments on FHLB advances and other long-term borrowings
(465,000
)
 
(512,200
)
Common stock repurchased
(74,659
)
 

Taxes paid related to net share settlement of equity awards
(1,227
)
 
(3,769
)
Dividends paid
(28,771
)
 
(23,550
)
Net cash provided by financing activities
601,939

 
260,644

Net (decrease) increase in cash and cash equivalents
(16,058
)
 
11,353

Cash and cash equivalents, beginning of period
298,696

 
360,396

Cash and cash equivalents, end of period
$
282,638

 
$
371,749

Supplemental disclosure of cash flow information
 
 
 
Cash payments for interest
$
52,551

 
$
29,251

Cash payments for income taxes
$
19,113

 
$
23,980

Supplemental disclosure of noncash investing and financing activities
 
 
 
Loans transferred to repossessed properties
$
(17,919
)
 
$
(11,005
)
See accompanying notes.

10-




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


1. Nature of Operations and Summary of Significant Policies
Nature of Operations
The Company is a bank holding company organized under the laws of Delaware and is listed on the NYSE under the symbol "GWB". The primary business of the Company is ownership of its wholly-owned subsidiary, Great Western 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 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, 2018, 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.
Changes in Significant Accounting Policies
Pursuant to the Company's adoption of certain ASUs as of October 1, 2018, the following significant accounting policies have been updated from those disclosed in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2018.
Revenue Recognition
We adopted ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)" and subsequent related ASUs effective October 1, 2018 using the modified retrospective approach, which establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the Company's contracts to provide goods or services to customers. The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration it expects to be entitled to receive in exchange for those goods or services recognized as performance obligations are satisfied.
The majority of our revenue-generating transactions are not subject to ASC Topic 606, including revenue generated from financial instruments, such as our loans, letters of credit, derivatives and investment securities, as well as revenue related to our mortgage servicing activities, as these activities are subject to other GAAP discussed elsewhere within our disclosures and in "Note 1. Nature of Operations and Summary of Significant Policies," in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2018. Descriptions of our revenue-generating activities that are within the scope of ASC Topic 606, which are presented in our consolidated income statements as components of noninterest income, are as follows:
Service charges and fees on deposit accounts. Service charges on deposit accounts are earned for account maintenance and overdraft, wire and treasury management services. Revenue is recognized at the time the services are performed and is included in service charges and other fees within noninterest income on the consolidated statements of income.
Interchange and merchant services income. Interchange and merchant services income are earned from credit and debit card payment processing through card association networks, merchant services and other card related services. Fees for these services are primarily based on interchange rates set by the networks and transaction volumes and are recognized as transactions are processed and settled with networks on behalf of card holders. These fees are presented net of direct expenses, including reward costs, associated with credit and debit card interchange income in service charges and other fees which are included in noninterest income on the consolidated statements of income.

11-




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

Wealth management and trust fee income. Wealth management and trust fees are earned for asset management, custody and recordkeeping, investment advisory and administrative services. Revenue is recognized as the services are performed. Brokerage charges are recorded as a net reduction in wealth management fees which are included in noninterest income on the consolidated statements of income.
Other noninterest income. Other noninterest income primarily includes such items as letter of credit fees, gains on sale of loans held for sale and servicing fees, none of which are subject to the requirements of ASC Topic 606.
The following table presents total noninterest income segregated between contracts with customers within the scope of ASC Topic 606 and those within the scope of other GAAP Topics. The following additionally presents revenues from customers that are included within noninterest income.
 
Three Months Ended March 31,
 
Six Months Ended March 31,
 
2019
 
2018
 
2019
 
2018
 
(dollars in thousands)
Noninterest income
 
 
 
 
 
 
 
Service charges and other fees
$
10,209

 
$
12,047

 
$
21,897

 
$
25,224

Wealth management fees
2,117

 
2,335

 
4,358

 
4,519

Other
1,118

 
3,351

 
1,700

 
4,002

Noninterest income from contracts with customers within the scope of ASC Topic 606 ¹
13,444

 
17,733

 
27,955

 
33,745

Noninterest income within the scope of other GAAP Topics ²
4,779

 
1,009

 
6,988

 
1,671

Total noninterest income
$
18,223

 
$
18,742

 
$
34,943

 
$
35,416

1 Amounts for periods after October 1, 2018 are presented in accordance with ASC Topic 606, Revenue from Contracts with Customers, except for out of scope amounts. Amounts for periods prior to October 1, 2018 are presented in accordance with ASC Topic 605, Revenue Recognition, and have not been restated to conform with ASC Topic 606, Revenue from Contracts with Customers.
2 The Company presents out of scope noninterest income for the purpose of reconciling noninterest income amounts within the scope of ASC Topic 606 to noninterest income amounts presented on the Company's consolidated statements of income.
At March 31, 2019, the Company does not have any material contract assets, liabilities, or other receivables recorded on its consolidated balance sheets relating to its revenue streams within the scope of ASC Topic 606. Additionally, the Company's contracts generally do not contain terms that require significant judgment to determine the amount of revenue to recognize.
Practical expedients
The Company has elected the practical expedient to exclude the disclosure of unsatisfied performance obligations for contracts with an original expected length of one year or less and (ii) contracts for which the Company recognizes revenue at the amount to which the Company has the right to invoice for services performed. The Company recognizes incremental costs of obtaining those contracts as an expense when incurred.
Subsequent Events
The Company has evaluated all events or transactions that occurred through the date the Company issued these financial statements. Other than those described below, there were no other material events or transactions that would require recognition in the consolidated financial statements or disclosure in the notes to the consolidated financial statements.
On April 25, 2019, the Board of Directors of the Company declared a dividend of $0.30 per common share payable on May 24, 2019 to stockholders of record as of close of business on May 10, 2019.
2. New Accounting Standards
Accounting Standards Adopted in Fiscal Year 2019
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 clarifies 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

12-




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

practical expedients related to the adoption of ASU 2014-09. In December 2016, the FASB issued ASU 2016-20, which made technical corrections and improvements to the previous ASUs issued. 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. The Company adopted this standard and subsequent related ASUs October 1, 2018 using the modified retrospective method. Furthermore, the Company prospectively changed the presentation of direct expenses, including reward costs, associated with credit and debit card interchange income previously included in data processing and communication expense which are now netted against interchange income in service charges and other fees, which is included in noninterest income on the consolidated statements of income. Brokerage charges previously included in professional fees are now netted against wealth management fees, which is included in noninterest income on the consolidated statements of income. The net quantitative impact of these presentation changes decreased both revenue and expenses by $2.0 million and $3.7 million for the three and six months ended March 31, 2019; however, these presentation changes did not have an impact on net income. Prior period balances have not been restated to reflect these presentation changes. There were no significant cumulative effect adjustments as a result of implementation as our current revenue recognition policies generally conform with the principals in ASC Topic 606. For additional information, see "Note 1. Nature of Operations and Summary of Significant Policies."
Accounting Standards Not Yet Adopted in Fiscal Year 2019
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes in the Disclosure Requirements for Fair Value Measurement, which eliminates, adds and modifies certain disclosure requirements for fair value measurements. Among the changes, entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. ASU 2018-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. Entities are also allowed to elect to early adopt the eliminated or modified disclosure requirements and delay adoption of the new disclosure requirements until after their effective date. As ASU 2018-13 only revises disclosure requirements, the Company does not believe this ASU will have a material impact on our consolidated financial statements.
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 and does not expect to early adopt this standard.
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. In November 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments, Credit Losses, which made technical corrections and improvements to the previous ASU issued. These ASUs 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 continues to make progress on the implementation plan and has submitted historical data to third party vendor to start making necessary changes to our existing credit loss estimation process. The Company does not expect to early adopt this standard and 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

13-




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

necessary, lessor accounting with the lessee accounting model and ASC Topic 606, Revenue from Contracts with Customers. In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases, and ASU 2018-11, Leases (Topic 842), Targeted Improvements, which made technical corrections and improvements to the previous ASU issued. In December 2018, the FASB issued ASU 2018-20, Leases (Topic 842): Narrow-Scope Improvements for Lessors, which allows lessors to exclude sales tax from consideration of the contract through a policy election and clarifies treatment of certain lessor costs and variable payments for contracts with lease and nonlease components. These ASUs will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The guidance will be effective with respect to the Company beginning fiscal year 2020. The Company has a project team working on the implementation plan, is currently reviewing all existing lease agreements for which the amended guidance is to be applied, is in the process of determining which practical expedients will be elected for transition and is currently evaluating the potential impact on our consolidated financial statements.
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, 2019
 
 
 
 
 
 
 
U.S. Treasury securities
$
93,696

 
$
419

 
$
(296
)
 
$
93,819

Mortgage-backed securities:
 
 
 
 
 
 
 
Government National Mortgage Association
491,888

 
1,811

 
(9,909
)
 
483,790

Federal Home Loan Mortgage Corporation
438,605

 
3,697

 
(2,839
)
 
439,463

Federal National Mortgage Association
303,643

 
1,268

 
(2,386
)
 
302,525

Small Business Assistance Program
382,165

 
514

 
(2,841
)
 
379,838

States and political subdivision securities
63,400

 
151

 
(681
)
 
62,870

Other
1,006

 

 
(6
)
 
1,000

Total
$
1,774,403

 
$
7,860

 
$
(18,958
)
 
$
1,763,305

 
Amortized
Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Estimated
Fair Value
 
(dollars in thousands)
As of September 30, 2018
 
 
 
 
 
 
 
U.S. Treasury securities
$
168,394

 
$

 
$
(1,222
)
 
$
167,172

Mortgage-backed securities:
 
 
 
 
 
 
 
Government National Mortgage Association
442,458

 
35

 
(16,335
)
 
426,158

Federal Home Loan Mortgage Corporation
297,380

 

 
(7,055
)
 
290,325

Federal National Mortgage Association
188,192

 

 
(6,081
)
 
182,111

Small Business Assistance Program
260,458

 

 
(9,345
)
 
251,113

States and political subdivision securities
69,566

 
4

 
(1,795
)
 
67,775

Other
1,006

 

 
(10
)
 
996

Total
$
1,427,454

 
$
39

 
$
(41,843
)
 
$
1,385,650


14-




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

The amortized cost and approximate fair value of debt securities available for sale as of March 31, 2019 and September 30, 2018, 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, 2019
 
September 30, 2018
 
Amortized 
Cost
Estimated
Fair Value
 
Amortized 
Cost
Estimated
Fair Value
 
(dollars in thousands)
Due in one year or less
$
36,309

$
36,153

 
$
111,842

$
111,221

Due after one year through five years
111,862

111,756

 
114,920

113,069

Due after five years through ten years
8,803

8,658

 
11,076

10,535

Due after ten years
122

122

 
122

122

 
157,096

156,689

 
237,960

234,947

Mortgage-backed securities
1,616,301

1,605,616

 
1,188,488

1,149,707

Securities without contractual maturities
1,006

1,000

 
1,006

996

Total
$
1,774,403

$
1,763,305

 
$
1,427,454

$
1,385,650

Proceeds from sales of securities available for sale were $0.0 million and $97.2 million for the three and six months ended March 31, 2019 and $25.0 million and $25.2 million for the three and six months ended March 31, 2018, respectively. No gross gains (pre-tax) were realized on the sales for the three and six months ended March 31, 2019 and 2018 using the specific identification method. Negligible gross losses (pre-tax) were realized on the sales for the three months ended March 31, 2019 and 2018, and $0.5 million and negligible gross losses (pre-tax) were realized on the sales for each of the six months ended March 31, 2019 and 2018, respectively, using the specific identification method. The Company recognized no other-than-temporary impairment for the three and six months ended March 31, 2019 and 2018.
Securities with an estimated fair value of approximately $945.9 million and $787.4 million at March 31, 2019 and September 30, 2018, 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 62% and 98% of the Company’s investment portfolio at estimated fair value at March 31, 2019 and September 30, 2018, 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, 2019 or September 30, 2018.
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, 2019
 
 
 
 
 
 
 
 
U.S. Treasury securities
$

$

 
$
44,232

$
(296
)
 
$
44,232

$
(296
)
Mortgage-backed securities
126,015

(468
)
 
865,274

(17,507
)
 
991,289

(17,975
)
States and political subdivision securities


 
49,649

(681
)
 
49,649

(681
)
Other


 
1,000

(6
)
 
1,000

(6
)
Total
$
126,015

$
(468
)
 
$
960,155

$
(18,490
)
 
$
1,086,170

$
(18,958
)

15-




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

 
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, 2018
 
 
 
 
 
 
 
 
U.S. Treasury securities
$
167,172

$
(1,222
)
 
$

$

 
$
167,172

$
(1,222
)
Mortgage-backed securities
416,677

(8,427
)
 
709,387

(30,389
)
 
1,126,064

(38,816
)
States and political subdivision securities
23,534

(250
)
 
42,282

(1,545
)
 
65,816

(1,795
)
Other
996

(10
)
 


 
996

(10
)
Total
$
608,379

$
(9,909
)
 
$
751,669

$
(31,934
)
 
$
1,360,048

$
(41,843
)
As of March 31, 2019 and September 30, 2018, the Company had 293 and 390 securities, respectively, in an unrealized loss position.
4. Loans
The following table presents the composition of loans as of March 31, 2019 and September 30, 2018.
 
March 31,
 
September 30,
 
2019
 
2018
 
(dollars in thousands)
Commercial real estate
$
5,049,792

 
$
4,629,330

Agriculture
2,121,872

 
2,182,688

Commercial non-real estate
1,721,095

 
1,699,987

Residential real estate
815,212

 
837,569

Consumer
44,504

 
49,689

Other
46,163

 
46,487

Ending balance
9,798,638

 
9,445,750

Less: Unamortized discount on acquired loans
(15,255
)
 
(18,283
)
Unearned net deferred fees and costs and loans in process
(12,472
)
 
(11,543
)
Total
$
9,770,911

 
$
9,415,924

The loan segments above include loans covered by a FDIC loss sharing agreement totaling $37.0 million and $42.6 million as of March 31, 2019 and September 30, 2018, respectively, residential real estate loans held for sale totaling $3.6 million and $5.5 million at March 31, 2019 and September 30, 2018, respectively, and $835.8 million and $865.4 million of loans accounted for at fair value at March 31, 2019 and September 30, 2018, respectively.
Unearned net deferred fees and costs totaled $13.5 million and $13.0 million as of March 31, 2019 and September 30, 2018, 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 $(1.0) million and $(1.5) million at March 31, 2019 and September 30, 2018, respectively.
Loans guaranteed by agencies of the U.S. government totaled $164.5 million and $168.6 million at March 31, 2019 and September 30, 2018, respectively.
Principal balances of residential real estate loans sold totaled $46.8 million and $67.6 million for the three months March 31, 2019 and 2018, respectively, and $100.7 million and $117.8 million for the six months ended March 31, 2019 and 2018, respectively.
Nonaccrual
Interest income on loans is accrued daily on the outstanding balances. A loan is placed on nonaccrual status and accrual of interest is discontinued when principal or interest becomes 90 days past due unless it is well secured and is in the process of collection, or earlier when concern exists as to the ultimate collectibility of principal or interest. 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.

16-




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

The following table presents the Company’s nonaccrual loans at March 31, 2019 and September 30, 2018, excluding ASC 310-30 loans. Loans greater than 90 days past due and still accruing interest as of March 31, 2019 and September 30, 2018, were $0.0 million and $0.2 million, respectively.
 
March 31,
 
September 30,
 
2019
 
2018
 
(dollars in thousands)
Nonaccrual loans
 
 
 
Commercial real estate
$
17,929

 
$
22,871

Agriculture
91,771

 
107,198

Commercial non-real estate
6,868

 
6,887

Residential real estate
2,499

 
3,549

Consumer
87

 
61

Total
$
119,154

 
$
140,566

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 as 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.
The following table presents the composition of the loan portfolio by internally assigned grade as of March 31, 2019 and September 30, 2018. 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 $835.8 million at March 31, 2019 and $865.4 million at September 30, 2018.
As of March 31, 2019
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
$
4,455,347

 
$
1,584,602

 
$
1,512,883

 
$
762,495

 
$
44,013

 
$
46,163

 
$
8,405,503

Watchlist
47,424

 
199,585

 
32,402

 
5,450

 
102

 

 
284,963

Substandard
32,938

 
158,061

 
20,926

 
6,435

 
210

 

 
218,570

Doubtful
61

 
137

 
1,325

 
29

 

 

 
1,552

Loss

 

 

 

 

 

 

Ending balance
4,535,770

 
1,942,385

 
1,567,536

 
774,409

 
44,325

 
46,163

 
8,910,588

Loans covered by a FDIC loss sharing agreement

 

 

 
36,975

 

 

 
36,975

Total
$
4,535,770

 
$
1,942,385

 
$
1,567,536

 
$
811,384

 
$
44,325

 
$
46,163

 
$
8,947,563

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.

17-




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

As of September 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
$
4,108,314

 
$
1,610,291

 
$
1,401,418

 
$
779,610

 
$
48,979

 
$
46,487

 
$
7,995,099

Watchlist
53,150

 
239,392

 
19,503

 
4,548

 
322

 

 
316,915

Substandard
41,184

 
137,205

 
20,117

 
6,366

 
159

 

 
205,031

Doubtful
93

 
2

 
2,277

 
37

 

 

 
2,409

Loss

 

 

 

 

 

 

Ending balance
4,202,741

 
1,986,890

 
1,443,315

 
790,561

 
49,460

 
46,487

 
8,519,454

Loans covered by a FDIC loss sharing agreement

 

 

 
42,627

 

 

 
42,627

Total
$
4,202,741

 
$
1,986,890

 
$
1,443,315

 
$
833,188

 
$
49,460

 
$
46,487

 
$
8,562,081

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 March 31, 2019 and September 30, 2018. 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 $835.8 million at March 31, 2019 and $865.4 million at September 30, 2018.
 
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, 2019
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate
$
3,051

 
$
95

 
$
5,519

 
$
8,665

 
$
4,527,105

 
$
4,535,770

Agriculture
11,558

 
8,985

 
37,075

 
57,618

 
1,884,767

 
1,942,385

Commercial non-real estate
2,161

 
4,134

 
3,452

 
9,747

 
1,557,789

 
1,567,536

Residential real estate
2,341

 
700

 
803

 
3,844

 
770,565

 
774,409

Consumer
208

 
15

 

 
223

 
44,102

 
44,325

Other

 

 

 

 
46,163

 
46,163

Ending balance
19,319

 
13,929

 
46,849

 
80,097

 
8,830,491

 
8,910,588

Loans covered by a FDIC loss sharing agreement
1,955

 
78

 
214

 
2,247

 
34,728

 
36,975

Total
$
21,274

 
$
14,007

 
$
47,063

 
$
82,344

 
$
8,865,219

 
$
8,947,563

 
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, 2018
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate
$
920

 
$
551

 
$
9,135

 
$
10,606

 
$
4,192,135

 
$
4,202,741

Agriculture
1,243

 
2,042

 
51,579

 
54,864

 
1,932,026

 
1,986,890

Commercial non-real estate
551

 
16

 
4,068

 
4,635

 
1,438,680

 
1,443,315

Residential real estate
913

 
200

 
1,747

 
2,860

 
787,701

 
790,561

Consumer
83

 
47

 
1

 
131

 
49,329

 
49,460

Other

 

 

 

 
46,487

 
46,487

Ending balance
3,710

 
2,856

 
66,530

 
73,096

 
8,446,358

 
8,519,454

Loans covered by a FDIC loss sharing agreement
30

 
233

 
471

 
734

 
41,893

 
42,627

Total
$
3,740

 
$
3,089

 
$
67,001

 
$
73,830

 
$
8,488,251

 
$
8,562,081


18-




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

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 $835.8 million at March 31, 2019 and $865.4 million at September 30, 2018.
 
March 31, 2019
 
September 30, 2018
 
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
$
22,058

$
22,102

$
2,258

 
$
25,136

$
25,223

$
3,668

Agriculture
67,476

81,601

14,281

 
60,053

76,874

9,590

Commercial non-real estate
14,214

16,933

3,338

 
14,177

17,241

4,508

Residential real estate
3,093

3,678

1,562

 
4,509

5,153

2,210

Consumer
209

213

123

 
160

165

61

Total impaired loans with an allowance recorded
107,050

124,527

21,562

 
104,035