UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FormFORM 10-Q
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(Mark One) | | |
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| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2020
OR
| | For the quarterly period ended December 31, 2017 | | | |
| | Or |
¨ | ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
| | For the transition period from to |
For the transition period from x to x
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) |
| | |
Delaware | | 47-1308512 |
(State or other jurisdiction of
incorporation or organization)
| | (IRS Employer
Identification Number)
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225 South Main Avenue Sioux Falls, South Dakota
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57104 |
| Sioux Falls, | South Dakota | |
| (Address of principal executive offices) | | (Zip Code) |
(605) 334-2548
Registrant’s telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act: | | | | | | | | |
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Common Stock, $0.01 par value per share | GWB | New York Stock Exchange |
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.
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Large accelerated filerx | ☒ | Accelerated filero | ☐ | Non-accelerated filero(Do not check if a smaller reporting company)
| ☐ |
Smaller reporting companyo | ☐ | Emerging growth companyo | ☐ | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o☐ No x☒
As of February 1, 2018,4/27/20, the number of shares of the registrant’s Common Stock outstanding was 58,896,189.55,013,928.
GREAT WESTERN BANCORP, INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
EXPLANATORY NOTE
Except as otherwise stated or the context otherwise requires, references in this Quarterly Report on Form 10-Q to:
“•"we” “our,” “us”," "our," "us" and our “company”"Company" refers to Great Western Bancorp, Inc., a Delaware corporation, and its consolidated subsidiaries.subsidiaries;
•"our bank”Bank" refers to Great Western Bank, a South Dakota banking corporation;
“NAB”•"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 31,2015,31, 2015, was our principal stockholder;
•our “states”"states" refers to the nine states (Arizona, Colorado, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota and South Dakota) in which we currently conduct our business; and
•our “footprint”"footprint" refers to the geographic markets within our states in which we currently conduct our business.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;
•"CARES Act" refers to The Coronavirus Aid, Relief, and Economic Security Act;
•"CECL" refers to the current expected credit loss model in ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments;
•"COVID-19" or "COVID-19 pandemic" refers to the Coronavirus Disease 2019;
•"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;
•"LIBOR" refers to London Interbank Offered Rate, and is a benchmark interest rate index for various adjustable rate products;
•"NYSE" refers to the New York Stock Exchange;
•"PPP" refers to Small Business Administration Paycheck Protection Program;
•"RPA" refers to a risk participation agreement;
•"Sarbanes-Oxley Act" refers to the Sarbanes-Oxley Act of 2002;
•"SBA" refers to Small Business Administration;
•"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.
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,”"anticipates," "believes," "can," "could," "may," "predicts," "potential," "should," "will," "estimate," "plans," "projects," "continuing," "ongoing," "expects," "views," “intends”"intends" and similar words or phrases. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions, estimates and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements.
A number of important factors could cause our actual results to differ materially from those indicated in these forward-looking statements, including those factors identified in “Item 1A. Risk Factors” or “Item"Part I, Item 2. Management’sManagement's Discussion and Analysis of Financial Condition and Results of Operations”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;
•the impact on our business, operations, financial condition, liquidity, results of operations, prospects and trading prices of our shares arising out of the COVID-19 outbreak;
•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;
•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;
•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;
•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;disasters, social instability and changes in governmental policies;
•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 Cuts and Jobs Act of 2017;Reform Act;
•legal, compliance and reputational risks, including litigation and regulatory risks;
•our inability to receive dividends from our bankBank 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"Item 1A. Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended September 30, 2017.2019.
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, 2017.2019. 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.
PART I. FINANCIAL INFORMATION
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ITEM 1. | FINANCIAL STATEMENTS (UNAUDITED) |
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) GREAT WESTERN BANCORP, INC.
Consolidated Balance Sheets
(Dollars in Thousands, Except Share and Per Share Data) | | | | (Unaudited) | | | | (Unaudited) | |
| | December 31, 2017 | | September 30, 2017 | | March 31, 2020 | | September 30, 2019 |
| Assets | | | | Assets | | | |
| Cash and due from banks | $ | 189,907 |
| | $ | 170,657 |
| Cash and due from banks | $ | 171,219 | | | $ | 201,487 | |
| Interest-bearing bank deposits | 107,689 |
| | 189,739 |
| Interest-bearing bank deposits | 176,267 | | | 41,987 | |
| Cash and cash equivalents | 297,596 |
| | 360,396 |
| Cash and cash equivalents | 347,486 | | | 243,474 | |
| Securities available for sale | 1,366,641 |
| | 1,367,960 |
| Securities available for sale | 1,990,027 | | | 1,783,208 | |
| Loans, net of unearned discounts and deferred fees, including $53,388 and $57,537 of loans covered by FDIC loss share agreements at December 31, 2017 and September 30, 2017, respectively, and $980,144 and $1,016,576 of loans at fair value under the fair value option at December 31, 2017 and September 30, 2017, respectively, and $5,757 and $7,456 of loans held for sale at December 31, 2017 and September 30, 2017, respectively | 9,165,373 |
| | 8,968,553 |
| |
| Loans, net of unearned discounts and deferred fees, including $29,691 and $31,891 of loans covered by a FDIC loss share agreement at March 31, 2020 and September 30, 2019, respectively; $792,117 and $812,991 of loans at fair value under the fair value option at March 31, 2020 and September 30, 2019, respectively; and $4,342 and $7,351 of loans held for sale at March 31, 2020 and September 30, 2019, respectively | | Loans, net of unearned discounts and deferred fees, including $29,691 and $31,891 of loans covered by a FDIC loss share agreement at March 31, 2020 and September 30, 2019, respectively; $792,117 and $812,991 of loans at fair value under the fair value option at March 31, 2020 and September 30, 2019, respectively; and $4,342 and $7,351 of loans held for sale at March 31, 2020 and September 30, 2019, respectively | 9,693,295 | | | 9,706,763 | |
| Allowance for loan and lease losses | (64,023 | ) | | (63,503 | ) | Allowance for loan and lease losses | (135,950) | | | (70,774) | |
| Net loans | 9,101,350 |
| | 8,905,050 |
| Net loans | 9,557,345 | | | 9,635,989 | |
| Premises and equipment, including $1,111 and $5,147 of property held for sale at December 31, 2017 and September 30, 2017, respectively | 107,731 |
| | 112,209 |
| |
| Premises and equipment, including $706 and $2,757 of property held for sale at March 31, 2020 and September 30, 2019, respectively | | Premises and equipment, including $706 and $2,757 of property held for sale at March 31, 2020 and September 30, 2019, respectively | 120,653 | | | 120,645 | |
| Accrued interest receivable | 54,817 |
| | 53,176 |
| Accrued interest receivable | 49,358 | | | 58,699 | |
| Other repossessed property, including $86 and $0 of property covered by FDIC loss share agreements at December 31, 2017 and September 30, 2017, respectively | 10,486 |
| | 8,985 |
| |
| Other repossessed property, including $0 of property covered by a FDIC loss share agreement at both March 31, 2020 and September 30, 2019 | | Other repossessed property, including $0 of property covered by a FDIC loss share agreement at both March 31, 2020 and September 30, 2019 | 27,289 | | | 36,764 | |
| Goodwill | 739,023 |
| | 739,023 |
| Goodwill | — | | | 739,023 | |
| Cash surrender value of life insurance policies | 29,823 |
| | 29,619 |
| Cash surrender value of life insurance policies | 31,231 | | | 30,796 | |
| Net deferred tax assets | 28,548 |
| | 42,400 |
| Net deferred tax assets | 48,084 | | | 7,286 | |
| Other assets | 70,566 |
| | 71,193 |
| Other assets | 216,335 | | | 132,417 | |
| Total assets | $ | 11,806,581 |
| | $ | 11,690,011 |
| Total assets | $ | 12,387,808 | | | $ | 12,788,301 | |
| Liabilities and stockholders’ equity | | | | Liabilities and stockholders’ equity | | | |
| Deposits | | | | |
| Noninterest-bearing | $ | 1,932,080 |
| | $ | 1,856,126 |
| Noninterest-bearing | $ | 1,973,629 | | | $ | 1,956,025 | |
| Interest-bearing | 7,092,105 |
| | 7,121,487 |
| Interest-bearing | 8,205,486 | | | 8,344,314 | |
| Total deposits | 9,024,185 |
| | 8,977,613 |
| Total deposits | 10,179,115 | | | 10,300,339 | |
| Securities sold under agreements to repurchase | 116,884 |
| | 132,636 |
| Securities sold under agreements to repurchase | 64,809 | | | 68,992 | |
| FHLB advances and other borrowings | 721,009 |
| | 643,214 |
| FHLB advances and other borrowings | 800,000 | | | 340,000 | |
| Subordinated debentures and subordinated notes payable | 108,343 |
| | 108,302 |
| Subordinated debentures and subordinated notes payable | 108,740 | | | 108,636 | |
| Accrued expenses and other liabilities | 68,287 |
| | 73,246 |
| Accrued expenses and other liabilities | 81,680 | | | 70,085 | |
| Total liabilities | 10,038,708 |
| | 9,935,011 |
| Total liabilities | 11,234,344 | | | 10,888,052 | |
| Stockholders’ equity | | | | Stockholders’ equity | | | |
| Common stock, $0.01 par value, authorized 500,000,000 shares; 58,896,189 shares issued and outstanding at December 31, 2017 and 58,834,066 shares issued and outstanding at September 30, 2017 | 588 |
| | 588 |
| |
| Common stock, $0.01 par value, authorized 500,000,000 shares; 55,013,928 shares issued and outstanding at March 31, 2020 and 56,283,659 shares issued and outstanding at September 30, 2019 | | Common stock, $0.01 par value, authorized 500,000,000 shares; 55,013,928 shares issued and outstanding at March 31, 2020 and 56,283,659 shares issued and outstanding at September 30, 2019 | 550 | | | 563 | |
| Additional paid-in capital | 1,314,723 |
| | 1,314,039 |
| Additional paid-in capital | 1,190,381 | | | 1,228,714 | |
| Retained earnings | 463,207 |
| | 445,747 |
| Retained earnings | (73,705) | | | 657,475 | |
| Accumulated other comprehensive (loss) | (10,645 | ) | | (5,374 | ) | |
| Accumulated other comprehensive income | | Accumulated other comprehensive income | 36,238 | | | 13,497 | |
| Total stockholders' equity | 1,767,873 |
| | 1,755,000 |
| Total stockholders' equity | 1,153,464 | | | 1,900,249 | |
| Total liabilities and stockholders' equity | $ | 11,806,581 |
| | $ | 11,690,011 |
| Total liabilities and stockholders' equity | $ | 12,387,808 | | | $ | 12,788,301 | |
See accompanying notes.
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, | |
| | Three Months Ended | | 2020 | | 2019 | | 2020 | | 2019 |
| | December 31, 2017 | | December 31, 2016 | |
| Interest and dividend income | | | | |
| Interest income | | Interest income | | | | | | | |
| Loans | $ | 107,680 |
| | $ | 99,932 |
| Loans | $ | 113,356 | | | $ | 123,432 | | | $ | 232,787 | | | $ | 245,763 | |
| Taxable securities | 6,494 |
| | 5,878 |
| |
| Nontaxable securities | 260 |
| | 199 |
| |
| Dividends on securities | 289 |
| | 300 |
| |
| Investment securities | | Investment securities | 11,329 | | | 9,957 | | | 22,827 | | | 19,145 | |
| Federal funds sold and other | 231 |
| | 346 |
| Federal funds sold and other | 558 | | | 497 | | | 1,166 | | | 1,039 | |
| Total interest and dividend income | 114,954 |
| | 106,655 |
| |
| Total interest income | | Total interest income | 125,243 | | | 133,886 | | | 256,780 | | | 265,947 | |
| Interest expense | | | | Interest expense | |
| Deposits | 10,998 |
| | 7,290 |
| Deposits | 18,867 | | | 27,098 | | | 40,807 | | | 50,892 | |
| Securities sold under agreements to repurchase | 95 |
| | 115 |
| |
| FHLB advances and other borrowings | 2,069 |
| | 1,271 |
| FHLB advances and other borrowings | 3,155 | | | 1,923 | | | 6,268 | | | 3,926 | |
| Subordinated debentures and subordinated notes payable | 1,170 |
| | 1,088 |
| Subordinated debentures and subordinated notes payable | 1,238 | | | 1,390 | | | 2,549 | | | 2,760 | |
| Total interest expense | 14,332 |
| | 9,764 |
| Total interest expense | 23,260 | | | 30,411 | | | 49,624 | | | 57,578 | |
| Net interest income | 100,622 |
| | 96,891 |
| Net interest income | 101,983 | | | 103,475 | | | 207,156 | | | 208,369 | |
| Provision for loan and lease losses | 4,557 |
| | 7,049 |
| Provision for loan and lease losses | 71,795 | | | 7,673 | | | 79,898 | | | 12,888 | |
| Net interest income after provision for loan and lease losses | 96,065 |
| | 89,842 |
| Net interest income after provision for loan and lease losses | 30,188 | | | 95,802 | | | 127,258 | | | 195,481 | |
| Noninterest income | | | | Noninterest income | |
| Service charges and other fees | 13,178 |
| | 13,837 |
| Service charges and other fees | 9,188 | | | 10,209 | | | 20,597 | | | 21,897 | |
| Wealth management fees | 2,185 |
| | 2,254 |
| Wealth management fees | 3,122 | | | 2,117 | | | 6,086 | | | 4,358 | |
| Mortgage banking income, net | 1,660 |
| | 2,662 |
| Mortgage banking income, net | 1,145 | | | 991 | | | 2,757 | | | 2,311 | |
| Net (loss) on sale of securities | (1 | ) | | — |
| |
| Net (decrease) in fair value of loans at fair value | (8,665 | ) | | (64,001 | ) | |
| Net realized and unrealized gain on derivatives | 7,227 |
| | 58,976 |
| |
| Net loss on sale of securities | | Net loss on sale of securities | — | | | — | | | — | | | (513) | |
| Net increase in fair value of loans at fair value | | Net increase in fair value of loans at fair value | 35,541 | | | 14,018 | | | 20,608 | | | 33,234 | |
| Net realized and unrealized loss on derivatives | | Net realized and unrealized loss on derivatives | (50,214) | | | (11,032) | | | (36,698) | | | (29,348) | |
| Other | 1,090 |
| | 1,930 |
| Other | 1,135 | | | 1,920 | | | 2,300 | | | 3,004 | |
| Total noninterest income | 16,674 |
| | 15,658 |
| |
| Total noninterest (loss) income | | Total noninterest (loss) income | (83) | | | 18,223 | | | 15,650 | | | 34,943 | |
| Noninterest expense | | | | Noninterest expense | | | | | | | |
| Salaries and employee benefits | 32,868 |
| | 31,634 |
| Salaries and employee benefits | 37,312 | | | 34,537 | | | 73,217 | | | 69,307 | |
| Data processing | 5,896 |
| | 5,677 |
| |
| Occupancy expenses | 4,002 |
| | 4,024 |
| |
| Data processing and communication | | Data processing and communication | 6,123 | | | 5,964 | | | 11,896 | | | 11,242 | |
| Occupancy and equipment | | Occupancy and equipment | 5,597 | | | 5,539 | | | 10,690 | | | 10,665 | |
| Professional fees | 4,240 |
| | 2,835 |
| Professional fees | 5,263 | | | 3,970 | | | 9,027 | | | 7,258 | |
| Communication expenses | 988 |
| | 1,040 |
| |
| Advertising | 1,059 |
| | 975 |
| Advertising | 958 | | | 1,216 | | | 1,823 | | | 2,154 | |
| Equipment expense | 846 |
| | 798 |
| |
| Net loss recognized on repossessed property and other related expenses | 214 |
| | 658 |
| |
| Amortization of core deposits and other intangibles | 426 |
| | 839 |
| |
| Acquisition expenses | — |
| | 710 |
| |
| Net loss on repossessed property and other related expenses | | Net loss on repossessed property and other related expenses | 5,691 | | | 404 | | | 6,033 | | | 3,467 | |
| Goodwill and intangible assets impairment | | Goodwill and intangible assets impairment | 742,352 | | | — | | | 742,352 | | | — | |
| | Other | 4,329 |
| | 3,347 |
| Other | 5,157 | | | 4,950 | | | 10,345 | | | 9,593 | |
| Total noninterest expense | 54,868 |
| | 52,537 |
| Total noninterest expense | 808,453 | | | 56,580 | | | 865,383 | | | 113,686 | |
| Income before income taxes | 57,871 |
| | 52,963 |
| |
| Provision for income taxes | 28,641 |
| | 16,060 |
| |
| Net income | $ | 29,230 |
| | $ | 36,903 |
| |
| (Loss) income before income taxes | | (Loss) income before income taxes | (778,348) | | | 57,445 | | | (722,475) | | | 116,738 | |
| (Benefit from) provision for income taxes | | (Benefit from) provision for income taxes | (37,730) | | | 12,934 | | | (25,131) | | | 26,441 | |
| Net (loss) income | | Net (loss) income | $ | (740,618) | | | $ | 44,511 | | | $ | (697,344) | | | $ | 90,297 | |
| Basic earnings per common share | | | | Basic earnings per common share | | | | | | | |
| Weighted average shares outstanding | 58,902,629 |
| | 58,750,522 |
| |
| Weighted average common shares outstanding | | Weighted average common shares outstanding | 55,906,002 | | | 56,994,817 | | | 56,141,816 | | | 57,484,838 | |
| Basic earnings per share | $ | 0.50 |
| | $ | 0.63 |
| Basic earnings per share | $ | (13.25) | | | $ | 0.78 | | | $ | (12.42) | | | $ | 1.57 | |
| Diluted earnings per common share | | | | Diluted earnings per common share | |
| Weighted average shares outstanding | 59,087,729 |
| | 58,991,905 |
| |
| Weighted average diluted common shares outstanding | | Weighted average diluted common shares outstanding | 55,906,002 | | | 57,074,674 | | | 56,141,816 | | | 57,556,984 | |
| Diluted earnings per share | $ | 0.49 |
| | $ | 0.63 |
| Diluted earnings per share | $ | (13.25) | | | $ | 0.78 | | | $ | (12.42) | | | $ | 1.57 | |
| Dividends per share | | | | Dividends per share | |
| Dividends paid | $ | 11,770 |
| | $ | 9,981 |
| Dividends paid | $ | 16,769 | | | $ | 14,235 | | | $ | 33,654 | | | $ | 28,771 | |
| Dividends per share | $ | 0.20 |
| | $ | 0.17 |
| Dividends per share | $ | 0.30 | | | $ | 0.25 | | | $ | 0.60 | | | $ | 0.50 | |
See accompanying notes.
GREAT WESTERN BANCORP, INC.
Consolidated Statements of Comprehensive Income (Unaudited)
|
| | | | | | | |
| | Three Months Ended |
| | December 31, 2017 | | December 31, 2016 |
| Net income | $ | 29,230 |
| | $ | 36,903 |
|
| Other comprehensive (loss), net of tax: | | | |
| Securities available for sale: | | | |
| Net unrealized holding (loss) arising during the year | (8,645 | ) | | (21,468 | ) |
| Reclassification adjustment for net loss realized in net income | 1 |
| | — |
|
| Income tax benefit | 3,283 |
| | 8,158 |
|
| Net change in unrealized (losses) on securities available for sale | (5,361 | ) | | (13,310 | ) |
| | | | |
| Defined benefit pension plan obligation: | | | |
| Net unrealized holding gain arising during the year | 145 |
| | — |
|
| Income tax (expense) | (55 | ) | | — |
|
| Net change in defined benefit pension plan obligation | 90 |
| | — |
|
| Other comprehensive (loss), net of tax | (5,271 | ) | | (13,310 | ) |
| Comprehensive income | 23,959 |
| | 23,593 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | | | Six months ended March 31, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
| Net (loss) income | $ | (740,618) | | | $ | 44,511 | | | $ | (697,344) | | | $ | 90,297 | |
| Other comprehensive income, net of tax | | | | | | | |
| Securities available for sale: | | | | | | | |
| Net unrealized holding gain arising during the period | 38,341 | | | 11,523 | | | 30,181 | | | 30,192 | |
| Reclassification adjustment for net loss realized in net income | — | | | — | | | — | | | 513 | |
| Income tax expense | (9,450) | | | (2,839) | | | (7,440) | | | (7,568) | |
| Net change in unrealized gain on securities available for sale | 28,891 | | | 8,684 | | | 22,741 | | | 23,137 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Comprehensive (loss) income | $ | (711,727) | | | $ | 53,195 | | | $ | (674,603) | | | $ | 113,434 | |
| | | | | | | |
See accompanying notes.
GREAT WESTERN BANCORP, INC.
Consolidated StatementStatements of Stockholders' Equity (Unaudited)
(Dollars in Thousands, Except Share and Per Share Data) | | | | | | | | | | | | | | | | Comprehensive Income (Loss) | | Common Stock Par Value | | Additional
Paid-in Capital | | Retained
Earnings | | Accumulated Other Comprehensive (Loss) Income | | Total |
| Balance, January 1, 2019 | | Balance, January 1, 2019 | | | $ | 568 | | | $ | 1,244,232 | | | $ | 584,264 | | | $ | (17,056) | | | $ | 1,812,008 | |
| Net income | | Net income | $ | 44,511 | | | — | | | — | | | 44,511 | | | — | | | 44,511 | |
| Other comprehensive income, net of tax | | Other comprehensive income, net of tax | 8,684 | | | — | | | — | | | — | | | 8,684 | | | 8,684 | |
| Total comprehensive income | | Total comprehensive income | $ | 53,195 | | |
| | Comprehensive Income | | Common Stock Par Value | | Additional
Paid-in Capital | | Retained
Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total | |
| Balance, September 30, 2016 | | | $ | 587 |
| | $ | 1,312,347 |
| | $ | 344,923 |
| | $ | 5,534 |
| | $ | 1,663,391 |
| |
| Net income | $ | 36,903 |
| | — |
| | — |
| | 36,903 |
| | — |
| | 36,903 |
| |
| Other comprehensive (loss), net of tax | (13,310 | ) | | — |
| | — |
| | — |
| | (13,310 | ) | | (13,310 | ) | |
| Total comprehensive income | $ | 23,593 |
| | | | | | | | | | | |
| Stock-based compensation, net of tax | | | — |
| | 1,635 |
| | — |
| | — |
| | 1,635 |
| Stock-based compensation, net of tax | | | 1 | | | 1,425 | | | — | | | — | | | 1,426 | |
| | Cash dividends: | | | | | | | | | | | | Cash dividends: | |
| Common stock, $0.17 per share | | | — |
| | — |
| | (9,981 | ) | | — |
| | (9,981 | ) | |
| Balance, December 31, 2016 | | | $ | 587 |
| | $ | 1,313,982 |
| | $ | 371,845 |
| | $ | (7,776 | ) | | $ | 1,678,638 |
| |
| Common stock, $0.25 per share | | Common stock, $0.25 per share | | — | | | — | | | (14,235) | | | — | | | (14,235) | |
| Balance, March 31, 2019 | | Balance, March 31, 2019 | | $ | 569 | | | $ | 1,245,657 | | | $ | 614,540 | | | $ | (8,372) | | | $ | 1,852,394 | |
| | | | | | | | | | | | | | | | | | | | | | |
| Balance, September 30, 2017 | | | $ | 588 |
| | $ | 1,314,039 |
| | $ | 445,747 |
| | $ | (5,374 | ) | | $ | 1,755,000 |
| |
| Net income | $ | 29,230 |
| | — |
| | — |
| | 29,230 |
| | — |
| | 29,230 |
| |
| Other comprehensive (loss), net of tax | (5,271 | ) | | — |
| | — |
| | — |
| | (5,271 | ) | | (5,271 | ) | |
| Total comprehensive income | $ | 23,959 |
| | | | | | | | | | | |
| Balance, January 1, 2020 | | Balance, January 1, 2020 | | $ | 563 | | | $ | 1,229,077 | | | $ | 683,682 | | | $ | 7,347 | | | $ | 1,920,669 | |
| Net (loss) | | Net (loss) | $ | (740,618) | | | — | | | — | | | (740,618) | | | — | | | (740,618) | |
| Other comprehensive income, net of tax | | Other comprehensive income, net of tax | 28,891 | | | — | | | — | | | — | | | 28,891 | | | 28,891 | |
| Total comprehensive (loss) | | Total comprehensive (loss) | $ | (711,727) | | |
| | Stock-based compensation, net of tax | | | — |
| | 684 |
| | — |
| | — |
| | 684 |
| Stock-based compensation, net of tax | | | 1 | | | 1,273 | | | — | | | — | | | 1,274 | |
| | Repurchase common stock | | Repurchase common stock | | (14) | | | (39,969) | | | — | | | — | | | (39,983) | |
| Cash dividends: | | | | | | | | | | | | Cash dividends: | |
| Common stock, $0.20 per share | | | — |
| | — |
| | (11,770 | ) | | — |
| | (11,770 | ) | |
| Balance, December 31, 2017 | | | $ | 588 |
| | $ | 1,314,723 |
| | $ | 463,207 |
| | $ | (10,645 | ) | | $ | 1,767,873 |
| |
| Common stock, $0.30 per share | | Common stock, $0.30 per share | | — | | | — | | | (16,769) | | | — | | | (16,769) | |
| Balance, March 31, 2020 | | Balance, March 31, 2020 | | $ | 550 | | | $ | 1,190,381 | | | $ | (73,705) | | | $ | 36,238 | | | $ | 1,153,464 | |
|
See accompanying notes.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Comprehensive Income (Loss) | | Common Stock Par Value | | Additional
Paid-in Capital | | Retained
Earnings | | Accumulated Other Comprehensive (Loss) Income | | Total |
| 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 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 | |
| | | | | | | | | | | |
| Balance, October 1, 2019 | | | $ | 563 | | | $ | 1,228,714 | | | $ | 657,475 | | | $ | 13,497 | | | $ | 1,900,249 | |
| Net (loss) | $ | (697,344) | | | — | | | — | | | (697,344) | | | — | | | (697,344) | |
| Other comprehensive income, net of tax | 22,741 | | | — | | | — | | | — | | | 22,741 | | | 22,741 | |
| Total comprehensive (loss) | $ | (674,603) | | | | | | | | | | | |
| Cumulative effect adjustment related to ASU adoption ¹ | | | — | | | — | | | (182) | | | — | | | (182) | |
| Stock-based compensation, net of tax | | | 1 | | | 1,636 | | | — | | | — | | | 1,637 | |
| | | | | | | | | | | |
| Repurchase of common stock | | | (14) | | | (39,969) | | | — | | | — | | | (39,983) | |
| Cash dividends: | | | | | | | | | | | |
| Common stock, $0.60 per share | | | — | | | — | | | (33,654) | | | — | | | (33,654) | |
| Balance, March 31, 2020 | | | $ | 550 | | | $ | 1,190,381 | | | $ | (73,705) | | | $ | 36,238 | | | $ | 1,153,464 | |
| ¹ Related to the Company's adoption of ASU 2016-02 and subsequent related ASUs on October 1, 2019. See Note 2, "New Accounting Pronouncements," for additional information. | | | | | | | | | | | |
| | | | | | | | | | | |
GREAT WESTERN BANCORP, INC.
Consolidated Statements of Cash Flows (Unaudited)
| | | | Three months ended | | Six Months Ended March 31, | |
| | December 31, 2017 | | December 31, 2016 | | 2020 | | 2019 |
| Operating activities | | | | Operating activities | | | |
| Net income | $ | 29,230 |
| | $ | 36,903 |
| |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | |
| Net (loss) income | | Net (loss) income | $ | (697,344) | | | $ | 90,297 | |
| Adjustments to reconcile net (loss) income to net cash provided by operating activities: | | Adjustments to reconcile net (loss) income to net cash provided by operating activities: | |
| Depreciation and amortization | 3,514 |
| | 3,990 |
| Depreciation and amortization | 8,373 | | | 5,916 | |
| Amortization of FDIC indemnification asset | 1,018 |
| | 867 |
| Amortization of FDIC indemnification asset | 641 | | | 853 | |
| Net loss on sale of securities | 1 |
| | — |
| |
| Gain on redemption of subordinated debentures | — |
| | (111 | ) | |
| Net loss on sale of securities and other assets | | Net loss on sale of securities and other assets | 4,716 | | | 2,974 | |
| | Net gain on sale of loans | (1,935 | ) | | (3,165 | ) | Net gain on sale of loans | (3,148) | | | (2,724) | |
| Net loss on FDIC indemnification asset | 224 |
| | 211 |
| |
| Net loss on sale of premises and equipment | 79 |
| | 9 |
| |
| Net loss from sale/writedowns of repossessed property | 214 |
| | 658 |
| |
| Provision for loan and lease losses | 4,557 |
| | 7,049 |
| Provision for loan and lease losses | 79,898 | | | 12,888 | |
| Reversal of provision for loan servicing rights loss | (38 | ) | | (5 | ) | |
| Goodwill and intangible assets impairment | | Goodwill and intangible assets impairment | 742,352 | | | — | |
| Provision for loan servicing rights loss | | Provision for loan servicing rights loss | 7 | | | — | |
| Stock-based compensation | 684 |
| | 1,635 |
| Stock-based compensation | 1,637 | | | 1,839 | |
| Originations of residential real estate loans held for sale | (48,476 | ) | | (87,868 | ) | Originations of residential real estate loans held for sale | (172,370) | | | (98,875) | |
| Proceeds from sales of residential real estate loans held for sale | 52,110 |
| | 94,866 |
| Proceeds from sales of residential real estate loans held for sale | 178,527 | | | 103,407 | |
| Net deferred income taxes | 17,226 |
| | (817 | ) | Net deferred income taxes | (48,238) | | | 688 | |
| Changes in: | | | | Changes in: | |
| Accrued interest receivable | (1,641 | ) | | 174 |
| Accrued interest receivable | 9,341 | | | 2,727 | |
| Other assets | 2,574 |
| | (524 | ) | Other assets | (66,709) | | | 22,116 | |
| FDIC clawback liability | 206 |
| | 267 |
| |
| Accrued interest payable and other liabilities | (2,212 | ) | | (62,884 | ) | Accrued interest payable and other liabilities | 12,890 | | | (27,768) | |
| Net cash provided by (used in) operating activities | 57,335 |
| | (8,745 | ) | |
| Net cash provided by operating activities | | Net cash provided by operating activities | 50,573 | | | 114,338 | |
| Investing activities | | | | Investing activities | | | |
| Purchase of securities available for sale | (55,865 | ) | | (144,530 | ) | Purchase of securities available for sale | (413,887) | | | (541,872) | |
| Proceeds from sales of securities available for sale | 164 |
| | — |
| Proceeds from sales of securities available for sale | — | | | 97,212 | |
| Proceeds from maturities of securities available for sale | 47,125 |
| | 67,468 |
| Proceeds from maturities of securities available for sale | 234,077 | | | 94,926 | |
| Net increase in loans | (205,929 | ) | | (105,771 | ) | Net increase in loans | (11,939) | | | (383,665) | |
| Payment of covered losses from FDIC indemnification claims | (230 | ) | | (188 | ) | |
| (Payment) recovery of covered losses from FDIC indemnification claims | | (Payment) recovery of covered losses from FDIC indemnification claims | (43) | | | 43 | |
| Purchase of premises and equipment | (1,469 | ) | | (940 | ) | Purchase of premises and equipment | (3,861) | | | (5,953) | |
| Proceeds from sale of premises and equipment | 3,993 |
| | 1 |
| Proceeds from sale of premises and equipment | — | | | 299 | |
| Proceeds from sale of repossessed property | 1,956 |
| | 2,641 |
| Proceeds from sale of repossessed property | 12,368 | | | 6,593 | |
| Purchase of FHLB stock | (17,020 | ) | | (3,000 | ) | Purchase of FHLB stock | (110,637) | | | (46,948) | |
| Proceeds from redemption of FHLB stock | 13,969 |
| | 9,512 |
| Proceeds from redemption of FHLB stock | 92,350 | | | 47,030 | |
| Net cash paid in business acquisition | | Net cash paid in business acquisition | (4,711) | | | — | |
| Net cash used in investing activities | (213,306 | ) | | (174,807 | ) | Net cash used in investing activities | (206,283) | | | (732,335) | |
| Financing activities | | | | Financing activities | | | |
| Net increase in deposits | 46,659 |
| | 101,663 |
| |
| Net (decrease) increase in securities sold under agreements to repurchase and other short-term borrowings | (15,752 | ) | | 1,053 |
| |
| Net (decrease) increase in deposits | | Net (decrease) increase in deposits | (121,163) | | | 734,966 | |
| Net decrease in securities sold under agreements to repurchase and other short-term borrowings | | Net decrease in securities sold under agreements to repurchase and other short-term borrowings | (4,183) | | | (28,370) | |
| Proceeds from FHLB advances and other long-term borrowings | 665,000 |
| | 24,999 |
| Proceeds from FHLB advances and other long-term borrowings | 650,000 | | | 465,000 | |
| Repayments on FHLB advances and other long-term borrowings | (587,200 | ) | | (185,000 | ) | Repayments on FHLB advances and other long-term borrowings | (190,000) | | | (465,000) | |
| Redemption of subordinated debentures | — |
| | (3,625 | ) | |
| Common stock repurchased | | Common stock repurchased | (39,983) | | | (74,659) | |
| Taxes paid related to net share settlement of equity awards | (3,766 | ) | | — |
| Taxes paid related to net share settlement of equity awards | (1,295) | | | (1,227) | |
| Dividends paid | (11,770 | ) | | (9,981 | ) | Dividends paid | (33,654) | | | (28,771) | |
| Net cash provided by (used in) financing activities | 93,171 |
| | (70,891 | ) | |
| Net decrease in cash and cash equivalents | (62,800 | ) | | (254,443 | ) | |
| Net cash provided by financing activities | | Net cash provided by financing activities | 259,722 | | | 601,939 | |
| Net increase (decrease) in cash and cash equivalents | | Net increase (decrease) in cash and cash equivalents | 104,012 | | | (16,058) | |
| Cash and cash equivalents, beginning of period | 360,396 |
| | 524,611 |
| Cash and cash equivalents, beginning of period | 243,474 | | | 298,696 | |
| Cash and cash equivalents, end of period | $ | 297,596 |
| | $ | 270,168 |
| Cash and cash equivalents, end of period | $ | 347,486 | | | $ | 282,638 | |
| Supplemental disclosure of cash flow information | | | | Supplemental disclosure of cash flow information | | | |
| Cash payments for interest | $ | 12,599 |
| | $ | 9,246 |
| Cash payments for interest | $ | 56,613 | | | $ | 52,551 | |
| Cash payments for income taxes | $ | 1,117 |
| | $ | 10,574 |
| Cash payments for income taxes | $ | 17,194 | | | $ | 19,113 | |
| Supplemental disclosure of noncash investing and financing activities | | | | Supplemental disclosure of noncash investing and financing activities | | | |
| Loans transferred to repossessed properties | $ | (3,671 | ) | | $ | (1,110 | ) | Loans transferred to repossessed properties | $ | (7,507) | | | $ | (17,919) | |
See accompanying notes.
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”)The Company is a bank holding company organized under the laws of Delaware and is listed on the New York Stock Exchange ("NYSE")NYSE under the symbol GWB."GWB". The primary business of the Company is ownership of its wholly ownedwholly-owned subsidiary, Great Western Bank (the “Bank”).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”)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, 2017,2019, which includes a description of significant accounting policies. The results of operations for interim periods are not necessarily indicative of the results that may be expected for the year or any other period.
The accompanying unaudited consolidated financial statements include the accounts and results of operations of the Company and its subsidiaries after elimination of all significant intercompany accounts and transactions. The preparation of unaudited consolidated financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the amounts reported on the consolidated financial statements and accompanying notes. Actual results could differ from these estimates.
FDIC Indemnification AssetChanges in Significant Accounting Policies
Pursuant to the Company's adoption of ASU 2016-02 and Clawback Liability
FDIC Indemnification assets are includedsubsequent related ASUs as of October 1, 2019, the Company updated its accounting policy related to leases. See Note 12 for new disclosures and policy information related to the Company's leases. There were no other significant changes to the Company's accounting policies from those disclosed in other assetsthe Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2019 that could have a material effect on the Company's consolidated balance sheets.
Core Deposits and Other Intangibles
Core deposits and other intangibles are included in other assets in the consolidated balance sheets.
Loan Servicing Rights
Loan servicing rights are included in other assets in the consolidated balance sheets.
Derivatives
The Company maintains an overall interest rate risk management strategy that permits the use of derivative instruments to modify exposure to interest rate risk. The Company enters into interest rate swap contracts to offset the interest rate risk associated with borrowers who lock in long-term fixed rates (greater than or equal to 5 years to maturity) through a fixed rate loan. Generally, under these swaps, the Company agrees with various swap counterparties to exchange the difference between fixed-rate and floating-rate interest amounts based upon notional principal amounts. These contracts do not qualify for hedge accounting. These interest rate derivative instruments are recognized as other assets or other liabilities on the consolidated balance sheets and measured at fair value, with changes in fair value reported in net realized and unrealized gain (loss) on derivatives on the consolidated statements of income. Since each fixed rate loan is paired with an offsetting derivative contract, the impact to net income is minimized. The Company also has back-to-back swaps with loan customers where the Company enters into an interest rate swap with loan customers to provide a facility to mitigate the interest rate risk associated with offering a fixed rate and simultaneously enters into a swap with an outside third party that is matched in exact offsetting terms. The back-to-back swaps are recorded at fair value and recognized as other assets or other liabilities, depending on the rights or obligations under the contract, on the consolidated balance sheet, with changes in fair value reported in net realized and unrealized gain (loss) on derivatives on the consolidated statements of income.
GREAT WESTERN BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)
The Company enters into forward interest rate lock commitments on mortgage loans to be held for sale, which are commitments to originate loans whereby the interest rate on the loan is determined prior to funding. The Company also has corresponding forward sales contracts related to these interest rate lock commitments. Both the mortgage loan commitments and the related sales contracts are considered derivatives and are recorded at fair value and included in other assets or other liabilities on the consolidated balance sheets with changes in fair value offsetting each other in net realized and unrealized gain (loss) on derivatives on the consolidated statements of income.financial statements.
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 or transactions that would require recognition in the consolidated financial statements or disclosure in the notes to the consolidated financial statements.
In April 2020, the Company offered loans to customers that are guaranteed by the SBA under its PPP authorized under the CARES Act. The Company has provided approximately $600.0 million in loans to customers under this program. The Bank also received approval from the FRB to access the PPP Liquidity Facility to fund PPP loans if needed.
On January 25, 2018,April 30, 2020, the Board of Directors of the Company declared a dividend of $0.20$0.15 per common share payable on February 21, 2018May 29, 2020 to stockholders of record as of close of business on February 9, 2018.
CorrectionMay 15, 2020. With the many uncertainties of Prior Period Balances
The consolidated statementsthe COVID-19 pandemic, including the full impacts on the future financial results and operations of income for the quarter ended December 31, 2016 has been revisedCompany, the Board of Directors determined a reduction to correct an immaterial classification errorits regular quarterly dividend will help strengthen the Company's balance sheet and liquidity in interest income and noninterest income related to credit card interchange income. As a result,light of the consolidated statements of income has been revised to reflect these changes, as follows:uncertainty surrounding the COVID-19 pandemic.
|
| | | | | | | | | | | |
| | As originally reported | | Adjustments | | As revised |
| | (dollars in thousands) |
| Three months ended December 31, 2016 | | | | | |
| Interest income - loans | $ | 101,683 |
| | $ | (1,751 | ) | | $ | 99,932 |
|
| Noninterest income - service charges and other fees | 12,086 |
| | 1,751 |
| | 13,837 |
|
| | | | | | |
| Twelve months ended September 30, 2017 | | | | | |
| Interest income - loans | $ | 414,434 |
| | $ | (7,152 | ) | | $ | 407,282 |
|
| Noninterest income - service charges and other fees | 48,573 |
| | 7,152 |
| | 55,725 |
|
| | | | | | |
| Twelve months ended September 30, 2016 | | | | | |
| Interest income - loans | $ | 370,444 |
| | $ | (6,716 | ) | | $ | 363,728 |
|
| Noninterest income - service charges and other fees | 46,209 |
| | 6,716 |
| | 52,925 |
|
The above revision had no effect on net income, earnings per share, retained earnings or capital ratios. Periods not presented herein will be revised, as applicable, as they are included in future filings.
GREAT WESTERN BANCORP, INC. Notes to Consolidated Financial Statements (Unaudited)
2. New Accounting PronouncementsStandards
Accounting Standards Adopted in Fiscal Year 2020
In August 2017, the Financial Accounting Standards Board ("FASB")FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which amendsamended 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 existingwas effective for the Company on October 1, 2019. For the periods presented, the Company did not designate any derivative financial instruments as formal hedging relationships, and therefore, did not utilize hedge accounting. As such, ASU 2017-12 did not impact the Company's consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires that lessees recognize the assets and liabilities arising from leases on the balance sheet and disclose key information about leasing arrangements. Lessees are 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. 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, including a modified retrospective transition method that allows entities to apply the standard as of the adoption date. In December 2018, the FASB issued ASU 2018-20, Leases (Topic 842): Narrow-Scope Improvements for Lessors, which allowed lessors to exclude sales tax from consideration of the contract through a policy election and clarified treatment of certain lessor costs and variable payments for contracts with lease and nonlease components. The Company adopted this guidance beginning October 1, 2019 using the modified retrospective transition method and all practical expedients available other than the use of hindsight with respect to determining the lease term and assessing impairment of its right-of-use assets. As of the date of adoption, the Company's right-of-use assets and lease liabilities recorded in other assets and accrued expenses and other liabilities on the consolidated balance sheets were $19.9 million and $20.9 million, respectively, arising from operating leases in which the Company is the lessee. The Company also recognized a cumulative effect adjustment of $0.2 million as a result of remeasuring a pre-existing lease impairment as of the date of adoption. These ASUs did not have a material impact on the timing of expense or income recognition in the Company's consolidated statements of income.
Accounting Standards Not Yet Adopted in Fiscal Year 2020
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, 2018. Early adoption is permitted in any interim period, with the effect of adoption reflected as of the beginning of the fiscal year of adoption. The Company is currently evaluating the potential impact of ASU 2017-12 on our consolidated financial statements.
In March 2017, FASB issued ASU 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities, which shortens the amortization period for certain callable debt securities held at a premium to the earliest call date unless applicable guidance related to certain pools of securities is applied to consider estimated prepayments. Under prior guidance, entities were generally required to amortize premiums on individual, non-pooled callable debt securities as a yield adjustment over the contractual life of the security. There is no accounting change for debt securities held at a discount. ASU 2017-08 will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15,
GREAT WESTERN BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)
2018,2019, with early adoption permitted. TheEntities 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 early adopteddoes not believe this ASU 2017-08 duringwill have a material impact on the first quarter of fiscal year 2018. There was no cumulative effect adjustment necessary to the Company's consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which addresses timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The ASU 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. The 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. From November 2018 through February 2020, the FASB issued ASUs which made technical corrections and improvements to the previous ASU 2016-13issued (ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments, Credit Losses; ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments; ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments - Credit Losses; and ASU 2020-02, Financial Instruments - Credit Losses (Topic 326) and Leases (Topic 842)). The ASUs require the use of the modified retrospective approach for adoption. 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.Company continues to make progress on its implementation plan including continuing to work through finalizing processes, controls and an independent model validation and we are on track to adopt as required on October 1, 2020. The Company has formed a project teamis currently
GREAT WESTERN BANCORP, INC.
Notes to work on the implementation of ASU 2016-13 and is currently Consolidated Financial Statements (Unaudited)
evaluating the potential impact on ourthe consolidated financial statements.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,December 2019, the FASB issued ASU No. 2016-02, Leases2019-12, Income Taxes (Topic 842)740): Simplifying the Accounting for Income Taxes, which requires that lessees recognizeaims to simplify the assetsaccounting for income taxes by removing certain exceptions to the general principles and liabilities arising from leases on the balance sheetalso simplification of areas such as franchise taxes, step-up in tax basis goodwill, separate entity financial statements 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.interim recognition of enactment of tax laws or rate changes. The 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, 2018.2020, with early adoption permitted. The Company is currently evaluating the potential impact of ASU 2016-022019-12 on ourthe consolidated financial statements.
In January 2016,2020, the FASB issued ASU No. 2016-01, Financial Instruments2020-01, Investments - Overall (Subtopic 825-10)Equity Securities (Topic 321), Investments - RecognitionEquity Method and Measurement of Financial AssetsJoint Ventures (Topic 323), and Financial LiabilitiesDerivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323 and Topic 815, 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 evaluateconsider observable transactions that require it to either apply or discontinue the needequity method of accounting 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 simplifiespurposes of applying the impairment assessment of equity investments without readily determinable fair values.value measurement alternative. The ASU 2016-01 will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017,2020, with early adoption permitted. The Company does not believe ASU 2016-01 willexpect adoption to have a material impact on ourthe consolidated financial statements.
In May 2014,March 2020, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers2020-04, Reference Rate Reform (Topic 606)848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which implementsprovides optional expedients and exceptions for a more robust frameworklimited time period to ease the potential burden in accounting for reference rate reform on financial reporting. The amendments in ASU 2020-04 are elective for entities with contracts, including derivative contracts, that clarifiesreference LIBOR or some other reference rate that are expected to be discontinued. For the principles for recognizing revenue and gives greater consistency and comparability in revenue recognition practices. In the new framework,Company's cash flow hedges, ASU 2020-04 allows: (i) an entity recognizes revenueto change the reference rate without having to designate the hedging relationship; (ii) for cash flow hedges in an amount that reflects the consideration to which the designated hedged risk is LIBOR, allows an entity expects to assert that it remains probable that the hedged forecasted transaction will occur; and (iii) allows an entity to change the designated method used to assess hedge effectiveness and simplifies or temporarily suspends the assessment of hedge effectiveness for hedging relationships. ASU 2020-04 must be entitled in exchange for goods or services.applied prospectively and was effective immediately upon issuance and remains effective through December 31, 2022. The Company is currently evaluating the impact that adopting this new model requires the identification of performance obligations included in the contract with customers, a determination of the transaction price and an allocation of the price to those performance obligations. The entity recognizes revenue when performance obligations are satisfied. In August 2015, the FASB issued ASU No. 2015-14, which deferred the effective date of ASU No. 2014-09 to annual reporting periods beginning after December 15, 2017. In March 2016, the FASB issued ASU No. 2016-08, which intends to improve the operability and understandability of the implementation guidance on principal versus agent considerations. In April 2016, the FASB issued ASU No. 2016-10, which clarifies guidance pertaining to the identification of performance obligations and the licensing implementation. In May 2016, the FASB issued ASU Nos. 2016-11 and 2016-12, which further clarify guidance and provide practical expedients related to the adoption of ASU No. 2014-09. Theaccounting standard permits the use of either the retrospective or cumulative effect transition method. The standard, along with subsequent guidance from FASB, lists several items that are specifically out of scope for ASU 2014-09, including but not limited to: core interest income, derivative instruments, investments, and loan origination fees.
To address the new standard, the Company formed a working group and has completed the initial scoping phase to determine which revenue streams may be subject to accounting or disclosure changes upon adoption in October of 2018. Based on this preliminary analysis, we do not anticipate significant changes as a result of implementing the standard, but will concludehave on the quantitative and qualitative impacts once we have completed our review of key contracts for any in-scope items over the coming months.consolidated financial statements.
GREAT WESTERN BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)
3. Securities Available for Sale
The amortized cost and approximate fair value of investments in securities, all of which are classified as available for sale according to management’s intent, are summarized as follows:follows.
| | | | | | | | | | | | | | | | | | | | | | | |
| Amortized
Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Estimated
Fair Value |
| (dollars in thousands) | | | | | | |
| As of March 31, 2020 | | | | | | | |
| U.S. Treasury securities | $ | 69,629 | | | $ | 954 | | | $ | — | | | $ | 70,583 | |
| Mortgage-backed securities: | | | | | | | |
| Government National Mortgage Association | 566,747 | | | 11,340 | | | (733) | | | 577,354 | |
| Federal Home Loan Mortgage Corporation | 556,535 | | | 15,747 | | | (731) | | | 571,551 | |
| Federal National Mortgage Association | 386,996 | | | 15,337 | | | (27) | | | 402,306 | |
| Small Business Assistance Program | 300,498 | | | 5,725 | | | (42) | | | 306,181 | |
| States and political subdivision securities | 60,511 | | | 517 | | | (27) | | | 61,001 | |
| Other | 1,006 | | | 45 | | | — | | | 1,051 | |
| Total | $ | 1,941,922 | | | $ | 49,665 | | | $ | (1,560) | | | $ | 1,990,027 | |
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 December 31, 2017 | | | | | | | |
| U.S. Treasury securities | $ | 228,302 |
| | $ | 2 |
| | $ | (527 | ) | | $ | 227,777 |
|
| Mortgage-backed securities: | | | | | | | |
| Government National Mortgage Association | 481,441 |
| | 94 |
| | (9,330 | ) | | 472,205 |
|
| Federal Home Loan Mortgage Corporation | 203,561 |
| | — |
| | (2,869 | ) | | 200,692 |
|
| Federal National Mortgage Association | 161,958 |
| | — |
| | (2,528 | ) | | 159,430 |
|
| Small Business Assistance Program | 237,965 |
| | 212 |
| | (1,838 | ) | | 236,339 |
|
| States and political subdivision securities | 70,034 |
| | 86 |
| | (943 | ) | | 69,177 |
|
| Other | 1,006 |
| | 15 |
| | — |
| | 1,021 |
|
| Total | $ | 1,384,267 |
| | $ | 409 |
| | $ | (18,035 | ) | | $ | 1,366,641 |
|
| | | | | | | | | | | | Amortized
Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Estimated
Fair Value |
| | Amortized
Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Estimated
Fair Value | | (dollars in thousands) | |
| | (dollars in thousands) | |
| As of September 30, 2017 | | | | | | | | |
| As of September 30, 2019 | | As of September 30, 2019 | |
| U.S. Treasury securities | $ | 228,039 |
| | $ | 579 |
| | $ | (15 | ) | | $ | 228,603 |
| U.S. Treasury securities | $ | 94,178 | | | $ | 599 | | | $ | (32) | | | $ | 94,745 | |
| Mortgage-backed securities: | | | | | | | | Mortgage-backed securities: | |
| Government National Mortgage Association | 511,457 |
| | 228 |
| | (6,635 | ) | | 505,050 |
| Government National Mortgage Association | 501,139 | | | 3,374 | | | (3,027) | | | 501,486 | |
| Federal Home Loan Mortgage Corporation | 169,147 |
| | 75 |
| | (1,247 | ) | | 167,975 |
| Federal Home Loan Mortgage Corporation | 463,974 | | | 8,840 | | | (770) | | | 472,044 | |
| Federal National Mortgage Association | 170,247 |
| | 22 |
| | (1,287 | ) | | 168,982 |
| Federal National Mortgage Association | 322,340 | | | 5,409 | | | (398) | | | 327,351 | |
| Small Business Assistance Program | 224,005 |
| | 726 |
| | (1,001 | ) | | 223,730 |
| Small Business Assistance Program | 316,502 | | | 3,674 | | | (154) | | | 320,022 | |
| States and political subdivision securities | 73,041 |
| | 187 |
| | (642 | ) | | 72,586 |
| States and political subdivision securities | 66,145 | | | 494 | | | (116) | | | 66,523 | |
| Other | 1,006 |
| | 28 |
| | — |
| | 1,034 |
| Other | 1,006 | | | 31 | | | — | | | 1,037 | |
| Total | $ | 1,376,942 |
| | $ | 1,845 |
| | $ | (10,827 | ) | | $ | 1,367,960 |
| Total | $ | 1,765,284 | | | $ | 22,421 | | | $ | (4,497) | | | $ | 1,783,208 | |
The amortized cost and approximate fair value of debt securities available for sale as of DecemberMarch 31, 20172020 and September 30, 2017,2019, by contractual maturity, are shown below. Maturities of mortgage-backed securities may differ from contractual maturities because the mortgages underlying the securities may be called or repaid without penalty.
| | | | December 31, 2017 | | September 30, 2017 | | March 31, 2020 | | | September 30, 2019 | |
| | Amortized
Cost | | Estimated
Fair Value | | Amortized
Cost | | Estimated
Fair Value | | Amortized
Cost | Estimated
Fair Value | | Amortized
Cost | Estimated
Fair Value |
| | (dollars in thousands) | | (dollars in thousands) | |
| Due in one year or less | $ | 93,551 |
| | $ | 93,461 |
| | $ | 91,535 |
| | $ | 91,597 |
| Due in one year or less | $ | 82,615 | | $ | 83,577 | | | $ | 58,377 | | $ | 58,343 | |
| Due after one year through five years | 189,128 |
| | 188,080 |
| | 193,117 |
| | 193,373 |
| Due after one year through five years | 35,858 | | 36,102 | | | 89,836 | | 90,601 | |
| Due after five years through ten years | 15,535 |
| | 15,291 |
| | 16,306 |
| | 16,097 |
| Due after five years through ten years | 11,667 | | 11,905 | | | 12,110 | | 12,324 | |
| Due after ten years | 122 |
| | 122 |
| | 122 |
| | 122 |
| Due after ten years | — | | — | | | — | | — | |
| 298,336 |
| | 296,954 |
| | 301,080 |
| | 301,189 |
| | 130,140 | | 131,584 | | | 160,323 | | 161,268 | |
| Mortgage-backed securities | 1,084,925 |
| | 1,068,666 |
| | 1,074,856 |
| | 1,065,737 |
| Mortgage-backed securities | 1,810,776 | | 1,857,392 | | | 1,603,955 | | 1,620,903 | |
| Securities without contractual maturities | 1,006 |
| | 1,021 |
| | 1,006 |
| | 1,034 |
| Securities without contractual maturities | 1,006 | | 1,051 | | | 1,006 | | 1,037 | |
| Total | $ | 1,384,267 |
| | $ | 1,366,641 |
| | $ | 1,376,942 |
| | $ | 1,367,960 |
| Total | $ | 1,941,922 | | $ | 1,990,027 | | | $ | 1,765,284 | | $ | 1,783,208 | |
Proceeds from sales of securities available for sale were $0.2$0.0 million for both the three and six months ended March 31, 2020. Proceeds from the sales of securities available for sale were $0.0 million and $97.2 million for the three and six months ended DecemberMarch 31, 2017 and $0.0 million2019, respectively. NaN gross gains (pre-tax) were realized on the sales for the three and six months ended DecemberMarch 31, 2016. No gross gains (pre-tax) or2020 and 2019, using the specific identification method. Nominal gross losses (pre-tax) were realized on the sales for the three months ended DecemberMarch 31, 20172020 and 20162019, and nominal and $0.5 million gross losses (pre-tax) were realized on the sales for the six months ended March 31, 2020 and 2019, respectively, using the specific identification method. The Company recognized no0 other-than-temporary impairment for the three and six months ended DecemberMarch 31, 20172020 and 2016.
GREAT WESTERN BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)
2019.
Securities with an estimated fair value of approximately $990.6$918.8 million and $951.4$863.9 million at DecemberMarch 31, 20172020 and September 30, 2017,2019, respectively, were pledged as collateral on public deposits, securities sold under agreements to repurchase, and for other purposes as required by contractual obligation or permitted by law. The counterparties do not have the right to sell or pledge the securities the Company has pledged as collateral.
As detailed in the following tables, certain investments in debt securities, which are approximately 90%12% and 68%36% of the Company’s investment portfolio at estimated fair value at DecemberMarch 31, 20172020 and September 30, 2017,2019, 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 notmore-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 DecemberMarch 31, 20172020 or September 30, 2017.2019.
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:position. | | | | | | | | | | | | | | | | Less than 12 months | | | 12 months or more | | | Total | |
| | Less than 12 months | | 12 months or more | | Total | | Estimated
Fair Value | Unrealized
Losses | | Estimated
Fair Value | Unrealized
Losses | | Estimated
Fair Value | Unrealized
Losses |
| | Estimated
Fair Value | | Unrealized
Losses | | Estimated
Fair Value | | Unrealized
Losses | | Estimated
Fair Value | | Unrealized
Losses | | (dollars in thousands) | |
| | (dollars in thousands) | |
| As of December 31, 2017 | | | | | | | | | | | | |
| As of March 31, 2020 | | As of March 31, 2020 | |
| U.S. Treasury securities | $ | 183,651 |
| | $ | (415 | ) | | $ | 19,133 |
| | $ | (112 | ) | | $ | 202,784 |
| | $ | (527 | ) | U.S. Treasury securities | $ | — | | $ | — | | | $ | — | | $ | — | | | $ | — | | $ | — | |
| Mortgage-backed securities | 184,096 |
| | (1,703 | ) | | 787,256 |
| | (14,862 | ) | | 971,352 |
| | (16,565 | ) | Mortgage-backed securities | 30,374 | | (189) | | | 207,955 | | (1,344) | | | 238,329 | | (1,533) | |
| States and political subdivision securities | 5,198 |
| | (33 | ) | | 54,253 |
| | (910 | ) | | 59,451 |
| | (943 | ) | States and political subdivision securities | — | | — | | | 9,242 | | (27) | | | 9,242 | | (27) | |
| Other | | Other | — | | — | | | — | | — | | | — | | — | |
| Total | $ | 372,945 |
| | $ | (2,151 | ) | | $ | 860,642 |
| | $ | (15,884 | ) | | $ | 1,233,587 |
| | $ | (18,035 | ) | Total | $ | 30,374 | | $ | (189) | | | $ | 217,197 | | $ | (1,371) | | | $ | 247,571 | | $ | (1,560) | |
| | | | | | | | | | | | | | | | Less than 12 months | | | 12 months or more | | | Total | |
| | Less than 12 months | | 12 months or more | | Total | | Estimated
Fair Value | Unrealized
Losses | | Estimated
Fair Value | Unrealized
Losses | | Estimated
Fair Value | Unrealized
Losses |
| | Estimated
Fair Value | | Unrealized
Losses | | Estimated
Fair Value | | Unrealized
Losses | | Estimated
Fair Value | | Unrealized
Losses | | (dollars in thousands) | |
| | (dollars in thousands) | |
| As of September 30, 2017 | | | | | | | | | | | | |
| As of September 30, 2019 | | As of September 30, 2019 | |
| U.S. Treasury securities | $ | 10,003 |
| | $ | (15 | ) | | $ | — |
| | $ | — |
| | $ | 10,003 |
| | $ | (15 | ) | U.S. Treasury securities | $ | — | | $ | — | | | $ | 44,729 | | $ | (32) | | | $ | 44,729 | | $ | (32) | |
| Mortgage-backed securities | $ | 635,969 |
| | $ | (5,425 | ) | | $ | 241,368 |
| | $ | (4,746 | ) | | $ | 877,337 |
| | $ | (10,171 | ) | Mortgage-backed securities | 94,612 | | (205) | | | 474,979 | | (4,144) | | | 569,591 | | (4,349) | |
| States and political subdivision securities | 21,705 |
| | (197 | ) | | 25,773 |
| | (444 | ) | | 47,478 |
| | (641 | ) | States and political subdivision securities | — | | — | | | 23,693 | | (116) | | | 23,693 | | (116) | |
| Other | | Other | — | | — | | | — | | — | | | — | | — | |
| Total | $ | 667,677 |
| | $ | (5,637 | ) | | $ | 267,141 |
| | $ | (5,190 | ) | | $ | 934,818 |
| | $ | (10,827 | ) | Total | $ | 94,612 | | $ | (205) | | | $ | 543,401 | | $ | (4,292) | | | $ | 638,013 | | $ | (4,497) | |
As of DecemberMarch 31, 20172020 and September 30, 2017,2019, the Company had 32058 and 249169 securities, respectively, in an unrealized loss position.
4. Loans
The following table presents the composition of loans as of DecemberMarch 31, 20172020 and September 30, 2017, is as follows:2019.
|
| | | | | | | |
| | December 31, 2017 | | September 30, 2017 |
| | (dollars in thousands) |
| Commercial real estate | $ | 4,295,696 |
| | $ | 4,124,805 |
|
| Agriculture | 2,177,383 |
| | 2,122,138 |
|
| Commercial non-real estate | 1,695,731 |
| | 1,718,914 |
|
| Residential real estate | 924,439 |
| | 932,892 |
|
| Consumer | 62,872 |
| | 66,559 |
|
| Other | 45,805 |
| | 43,207 |
|
| Ending balance | 9,201,926 |
| | 9,008,515 |
|
| Less: Unamortized discount on acquired loans | (26,536 | ) | | (29,121 | ) |
| Unearned net deferred fees and costs and loans in process | (10,017 | ) | | (10,841 | ) |
| Total | $ | 9,165,373 |
| | $ | 8,968,553 |
|
GREAT WESTERN BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)
| | | | | | | | | | | |
| March 31,
2020 | | September 30,
2019 |
| (dollars in thousands) | | |
| Commercial real estate | $ | 5,222,819 | | | $ | 5,092,410 | |
| Agriculture | 1,881,792 | | | 2,008,644 | |
| Commercial non-real estate | 1,699,197 | | | 1,719,956 | |
| Residential real estate | 820,759 | | | 812,208 | |
| Consumer | 52,640 | | | 51,925 | |
| Other | 39,908 | | | 47,541 | |
| Ending balance | 9,717,115 | | | 9,732,684 | |
| Less: Unamortized discount on acquired loans | (10,468) | | | (13,655) | |
| Unearned net deferred fees and costs and loans in process | (13,352) | | | (12,266) | |
| Total | $ | 9,693,295 | | | $ | 9,706,763 | |
The loan segments above include loans covered by a FDIC non-commercial loss sharing agreementsagreement totaling $53.4$29.7 million and $57.5$31.9 million as of DecemberMarch 31, 20172020 and September 30, 2017,2019, respectively, residential real estate loans held for sale totaling $5.8$4.3 million and $7.5$7.4 million at DecemberMarch 31, 20172020 and September 30, 2017,2019, respectively, and $980.1$792.1 million and $1.02 billion$813.0 million of loans accounted for at fair value at DecemberMarch 31, 20172020 and September 30, 2017,2019, respectively.
Unearned net deferred fees and costs totaled $11.9$13.7 million and $11.6$13.9 million as of DecemberMarch 31, 20172020 and September 30, 2017,2019, respectively.
Loans in process represent loans that have been funded as of the balance sheet dates but not classified into a loan category and loan payments received as of the balance sheet dates that have not been applied to individual loan accounts. Loans in process totaled $(1.9)$(0.4) million and $(0.8)$(1.6) million at DecemberMarch 31, 20172020 and September 30, 2017,2019, respectively.
Loans guaranteed by agencies of the U.S. government totaled $162.3$146.2 million and $168.3$154.2 million at DecemberMarch 31, 20172020 and September 30, 2017,2019, respectively.
GREAT WESTERN BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)
Principal balances of residential real estate loans sold totaled $50.2$68.4 million and $91.7$46.8 million for the three months ended DecemberMarch 31, 20172020 and 2016,2019, respectively, and $175.4 million and $100.7 million for the six months ended March 31, 2020 and 2019, respectively.
Nonaccrual
Interest income on loans is accrued daily on the outstanding balances. Accrual of interestA loan is discontinuedplaced on nonaccrual status when management believes, after considering collection efforts and other factors, the borrower’s financialborrowers' condition is such that collection of interest is doubtful, which is generally at 90 days past due. Generally, whenWhen loans are placed on nonaccrual status, accrual of interest is discontinued and 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 DecemberMarch 31, 20172020 and September 30, 2017,2019, excluding ASC 310-30 loans. Loans greater than 90 days past due and still accruing interest as of DecemberMarch 31, 20172020 and September 30, 2017,2019, were $0.2$2.3 million and $1.9$11.2 million, respectively.
| | | | December 31, 2017 | | September 30, 2017 | | March 31,
2020 | | September 30,
2019 |
| | (dollars in thousands) | | (dollars in thousands) | |
| Nonaccrual loans | | | | Nonaccrual loans | |
| Commercial real estate | $ | 33,816 |
| | $ | 14,693 |
| Commercial real estate | $ | 41,541 | | | $ | 14,973 | |
| Agriculture | 91,094 |
| | 99,325 |
| Agriculture | 143,198 | | | 77,880 | |
| Commercial non-real estate | 13,016 |
| | 13,674 |
| Commercial non-real estate | 21,334 | | | 9,502 | |
| Residential real estate | 4,068 |
| | 4,421 |
| Residential real estate | 4,437 | | | 2,661 | |
| Consumer | 162 |
| | 112 |
| Consumer | 97 | | | 74 | |
| Total | $ | 142,156 |
| | $ | 132,225 |
| Total | $ | 210,607 | | | $ | 105,090 | |
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 foras 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 non-consumer loan risk ratings are monitored by management and updated and monitored on a continuous basis.as deemed appropriate. 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 residential real estate and consumer loans.
GREAT WESTERN BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)
The following table presents the composition of the loan portfolio by internally assigned grade is as follows as of DecemberMarch 31, 20172020 and September 30, 2017.2019. This table is presented net of unamortized discount on acquired loans and excludes loans measured at fair value with changes in fair value reported in earnings of $980.1$792.1 million at DecemberMarch 31, 20172020 and $1.02 billion$813.0 million at September 30, 2017:2019.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of March 31, 2020 | 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 | $ | 4,478,193 | | | $ | 1,157,671 | | | $ | 1,431,706 | | | $ | 776,696 | | | $ | 51,657 | | | $ | 39,908 | | | $ | 7,935,831 | |
| Watchlist | 104,941 | | | 229,606 | | | 28,859 | | | 986 | | | 728 | | | — | | | 365,120 | |
| Substandard | 132,937 | | | 345,674 | | | 92,849 | | | 10,694 | | | 122 | | | — | | | 582,276 | |
| Doubtful | 51 | | | 1,437 | | | 99 | | | 16 | | | 4 | | | — | | | 1,607 | |
| Loss | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Ending balance | 4,716,122 | | | 1,734,388 | | | 1,553,513 | | | 788,392 | | | 52,511 | | | 39,908 | | | 8,884,834 | |
| Loans covered by a FDIC loss sharing agreement | — | | | — | | | — | | | 29,691 | | | — | | | — | | | 29,691 | |
| Total | $ | 4,716,122 | | | $ | 1,734,388 | | | $ | 1,553,513 | | | $ | 818,083 | | | $ | 52,511 | | | $ | 39,908 | | | $ | 8,914,525 | |
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. | | | | | | | | | | | | | |
GREAT WESTERN BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, 2017 | Commercial Real Estate | | Agriculture | | Commercial
Non-Real Estate | | Residential Real Estate | | Consumer | | Other | | Total |
| | (dollars in thousands) |
| Credit Risk Profile by Internally Assigned Grade | | | | | | | | | | | | | |
| Grade: | | | | | | | | | | | | | |
| Pass | $ | 3,693,522 |
| | $ | 1,669,121 |
| | $ | 1,363,503 |
| | $ | 849,854 |
| | $ | 62,084 |
| | $ | 45,805 |
| | $ | 7,683,889 |
|
| Watchlist | 48,429 |
| | 149,746 |
| | 32,571 |
| | 3,708 |
| | 195 |
| | — |
| | 234,649 |
|
| Substandard | 72,183 |
| | 117,824 |
| | 22,177 |
| | 7,495 |
| | 250 |
| | — |
| | 219,929 |
|
| Doubtful | 198 |
| | 29 |
| | 3,031 |
| | 133 |
| | — |
| | — |
| | 3,391 |
|
| Loss | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Ending balance | 3,814,332 |
| | 1,936,720 |
| | 1,421,282 |
| | 861,190 |
| | 62,529 |
| | 45,805 |
| | 8,141,858 |
|
| Loans covered by FDIC loss sharing agreements | — |
| | — |
| | — |
| | 53,388 |
| | — |
| | — |
| | 53,388 |
|
| Total | $ | 3,814,332 |
| | $ | 1,936,720 |
| | $ | 1,421,282 |
| | $ | 914,578 |
| | $ | 62,529 |
| | $ | 45,805 |
| | $ | 8,195,246 |
|
| | | As of September 30, 2017 | Commercial Real Estate | | Agriculture | | Commercial
Non-Real Estate | | Residential Real Estate | | Consumer | | Other | | Total | |
| As of September 30, 2019 | | As of September 30, 2019 | Commercial Real Estate | | Agriculture | | Commercial
Non-Real Estate | | Residential Real Estate ¹ | | Consumer ¹ | | Other | | Total |
| | (dollars in thousands) | | (dollars in thousands) | |
| Credit Risk Profile by Internally Assigned Grade | | | | | | | | | | | | | | Credit Risk Profile by Internally Assigned Grade | |
| Grade: | | | | | | | | | | | | | | Grade: | |
| Pass | $ | 3,519,689 |
| | $ | 1,577,403 |
| | $ | 1,369,803 |
| | $ | 853,266 |
| | $ | 65,673 |
| | $ | 43,207 |
| | $ | 7,429,041 |
| Pass | $ | 4,433,530 | | | $ | 1,346,436 | | | $ | 1,424,357 | | | $ | 763,797 | | | $ | 50,796 | | | $ | 47,541 | | | $ | 8,066,457 | |
| Watchlist | 80,195 |
| | 157,407 |
| | 31,878 |
| | 4,158 |
| | 187 |
| | — |
| | 273,825 |
| Watchlist | 85,256 | | | 179,965 | | | 103,514 | | | 6,297 | | | 755 | | | — | | | 375,787 | |
| Substandard | 37,627 |
| | 130,953 |
| | 21,438 |
| | 7,368 |
| | 306 |
| | — |
| | 197,692 |
| Substandard | 54,242 | | | 322,327 | | | 42,048 | | | 6,863 | | | 205 | | | — | | | 425,685 | |
| Doubtful | 521 |
| | 119 |
| | 3,841 |
| | 242 |
| | — |
| | — |
| | 4,723 |
| Doubtful | 56 | | | 5,811 | | | 296 | | | 55 | | | 2 | | | — | | | 6,220 | |
| Loss | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| Loss | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Ending balance | 3,638,032 |
| | 1,865,882 |
| | 1,426,960 |
| | 865,034 |
| | 66,166 |
| | 43,207 |
| | 7,905,281 |
| Ending balance | 4,573,084 | | | 1,854,539 | | | 1,570,215 | | | 777,012 | | | 51,758 | | | 47,541 | | | 8,874,149 | |
| Loans covered by FDIC loss sharing agreements | — |
| | — |
| | — |
| | 57,537 |
| | — |
| | — |
| | 57,537 |
| |
| Loans covered by a FDIC loss sharing agreement | | Loans covered by a FDIC loss sharing agreement | — | | | — | | | — | | | 31,891 | | | — | | | — | | | 31,891 | |
| Total | $ | 3,638,032 |
| | $ | 1,865,882 |
| | $ | 1,426,960 |
| | $ | 922,571 |
| | $ | 66,166 |
| | $ | 43,207 |
| | $ | 7,962,818 |
| Total | $ | 4,573,084 | | | $ | 1,854,539 | | | $ | 1,570,215 | | | $ | 808,903 | | | $ | 51,758 | | | $ | 47,541 | | | $ | 8,906,040 | |
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. | | 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 DecemberMarch 31, 20172020 and September 30, 2017.2019. This table is presented net of unamortized discount on acquired loans and excludes loans measured at fair value with changes in fair value reported in earnings of $980.1$792.1 million at DecemberMarch 31, 20172020 and $1.02 billion$813.0 million at September 30, 2017.2019.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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, 2020 | | | | | | | | | | | |
| Commercial real estate | $ | 25,351 | | | $ | 4,056 | | | $ | 13,752 | | | $ | 43,159 | | | $ | 4,672,963 | | | $ | 4,716,122 | |
| Agriculture | 30,196 | | | 10,160 | | | 60,176 | | | 100,532 | | | 1,633,856 | | | 1,734,388 | |
| Commercial non-real estate | 2,538 | | | 956 | | | 20,497 | | | 23,991 | | | 1,529,522 | | | 1,553,513 | |
| Residential real estate | 3,702 | | | 252 | | | 2,550 | | | 6,504 | | | 781,888 | | | 788,392 | |
| Consumer | 42 | | | 5 | | | 29 | | | 76 | | | 52,435 | | | 52,511 | |
| Other | — | | | — | | | — | | | — | | | 39,908 | | | 39,908 | |
| Ending balance | 61,829 | | | 15,429 | | | 97,004 | | | 174,262 | | | 8,710,572 | | | 8,884,834 | |
| Loans covered by a FDIC loss sharing agreement | 1,201 | | | 319 | | | 757 | | | 2,277 | | | 27,414 | | | 29,691 | |
| Total | $ | 63,030 | | | $ | 15,748 | | | $ | 97,761 | | | $ | 176,539 | | | $ | 8,737,986 | | | $ | 8,914,525 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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, 2019 | | | | | | | | | | | |
| Commercial real estate | $ | 3,587 | | | $ | 570 | | | $ | 2,475 | | | $ | 6,632 | | | $ | 4,566,452 | | | $ | 4,573,084 | |
| Agriculture | 13,411 | | | 1,267 | | | 33,089 | | | 47,767 | | | 1,806,772 | | | 1,854,539 | |
| Commercial non-real estate | 3,932 | | | 120 | | | 4,424 | | | 8,476 | | | 1,561,739 | | | 1,570,215 | |
| Residential real estate | 311 | | | 676 | | | 939 | | | 1,926 | | | 775,086 | | | 777,012 | |
| Consumer | 61 | | | 110 | | | 7 | | | 178 | | | 51,580 | | | 51,758 | |
| Other | — | | | — | | | — | | | — | | | 47,541 | | | 47,541 | |
| Ending balance | 21,302 | | | 2,743 | | | 40,934 | | | 64,979 | | | 8,809,170 | | | 8,874,149 | |
| Loans covered by a FDIC loss sharing agreement | 536 | | | 410 | | | 331 | | | 1,277 | | | 30,614 | | | 31,891 | |
| Total | $ | 21,838 | | | $ | 3,153 | | | $ | 41,265 | | | $ | 66,256 | | | $ | 8,839,784 | | | $ | 8,906,040 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | 30-59 Days Past Due | | 60-89 Days Past Due | | 90 Days or Greater Past Due | | Total
Past Due | | Current | | Total Financing Receivables |
| | (dollars in thousands) |
| As of December 31, 2017 | | | | | | | | | | | |
| Commercial real estate | $ | 5,571 |
| | $ | 18,485 |
| | $ | 11,134 |
| | $ | 35,190 |
| | $ | 3,779,142 |
| | $ | 3,814,332 |
|
| Agriculture | 8,515 |
| | 11,173 |
| | 19,122 |
| | 38,810 |
| | 1,897,910 |
| | 1,936,720 |
|
| Commercial non-real estate | 1,651 |
| | 283 |
| | 6,734 |
| | 8,668 |
| | 1,412,614 |
| | 1,421,282 |
|
| Residential real estate | 3,733 |
| | 954 |
| | 1,572 |
| | 6,259 |
| | 854,931 |
| | 861,190 |
|
| Consumer | 124 |
| | 15 |
| | 77 |
| | 216 |
| | 62,313 |
| | 62,529 |
|
| Other | — |
| | — |
| | — |
| | — |
| | 45,805 |
| | 45,805 |
|
| Ending balance | 19,594 |
| | 30,910 |
| | 38,639 |
| | 89,143 |
| | 8,052,715 |
| | 8,141,858 |
|
| Loans covered by FDIC loss sharing agreements | 1,721 |
| | 328 |
| | 1,525 |
| | 3,574 |
| | 49,814 |
| | 53,388 |
|
| Total | $ | 21,315 |
| | $ | 31,238 |
| | $ | 40,164 |
| | $ | 92,717 |
| | $ | 8,102,529 |
| | $ | 8,195,246 |
|
GREAT WESTERN BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | 30-59 Days Past Due | | 60-89 Days Past Due | | 90 Days or Greater Past Due | | Total
Past Due | | Current | | Total Financing Receivables |
| | (dollars in thousands) |
| As of September 30, 2017 | | | | | | | | | | | |
| Commercial real estate | $ | 876 |
| | $ | 22,536 |
| | $ | 6,504 |
| | $ | 29,916 |
| | $ | 3,608,116 |
| | $ | 3,638,032 |
|
| Agriculture | 1,453 |
| | 3,181 |
| | 20,844 |
| | 25,478 |
| | 1,840,404 |
| | 1,865,882 |
|
| Commercial non-real estate | 2,485 |
| | 115 |
| | 8,580 |
| | 11,180 |
| | 1,415,780 |
| | 1,426,960 |
|
| Residential real estate | 1,428 |
| | 76 |
| | 951 |
| | 2,455 |
| | 862,579 |
| | 865,034 |
|
| Consumer | 71 |
| | 24 |
| | 18 |
| | 113 |
| | 66,053 |
| | 66,166 |
|
| Other | — |
| | — |
| | — |
| | — |
| | 43,207 |
| | 43,207 |
|
| Ending balance | 6,313 |
| | 25,932 |
| | 36,897 |
| | 69,142 |
| | 7,836,139 |
| | 7,905,281 |
|
| Loans covered by FDIC loss sharing agreements | 998 |
| | 54 |
| | 738 |
| | 1,790 |
| | 55,747 |
| | 57,537 |
|
| Total | $ | 7,311 |
| | $ | 25,986 |
| | $ | 37,635 |
| | $ | 70,932 |
| | $ | 7,891,886 |
| | $ | 7,962,818 |
|
Impaired Loans
The following table presents the Company’s impaired loans. This table excludes purchased credit impaired loans and loans measured at fair value with changes in fair value reported in earnings of $980.1$792.1 million at DecemberMarch 31, 20172020 and $1.02 billion$813.0 million at September 30, 2017:2019.
| | | | December 31, 2017 | | September 30, 2017 | | March 31, 2020 | | | September 30, 2019 | |
| | Recorded Investment | | Unpaid Principal Balance | | Related Allowance | | Recorded Investment | | Unpaid Principal Balance | | Related Allowance | | Recorded Investment | Unpaid Principal Balance | Related Allowance | | Recorded Investment | Unpaid Principal Balance | Related Allowance |
| | (dollars in thousands) | | (dollars in thousands) | |
| Impaired loans: | | | | | | | | | | | | Impaired loans: | |
| With an allowance recorded: | | | | | | | | | | | | With an allowance recorded: | |
| Commercial real estate | $ | 17,503 |
| | $ | 21,856 |
| | $ | 3,168 |
| | $ | 20,819 |
| | $ | 24,893 |
| | $ | 3,621 |
| Commercial real estate | $ | 60,619 | | $ | 61,828 | | $ | 7,020 | | | $ | 26,003 | | $ | 26,297 | | $ | 4,159 | |
| Agriculture | 62,382 |
| | 72,426 |
| | 9,447 |
| | 79,219 |
| | 88,268 |
| | 11,468 |
| Agriculture | 35,013 | | 36,267 | | 8,136 | | | 98,392 | | 104,350 | | 8,234 | |
| Commercial non-real estate | 18,428 |
| | 26,662 |
| | 5,210 |
| | 17,950 |
| | 28,755 |
| | 4,779 |
| Commercial non-real estate | 34,227 | | 37,737 | | 8,601 | | | 21,331 | | 21,777 | | 6,062 | |
| Residential real estate | 5,713 |
| | 6,469 |
| | 2,731 |
| | 5,177 |
| | 5,874 |
| | 2,581 |
| Residential real estate | 5,426 | | 5,923 | | 2,115 | | | 3,829 | | 4,311 | | 1,795 | |
| Consumer | 230 |
| | 237 |
| | 86 |
| | 280 |
| | 287 |
| | 86 |
| Consumer | 125 | | 133 | | 36 | | | 207 | | 214 | | 97 | |
| Total impaired loans with an allowance recorded | 104,256 |
| | 127,650 |
| | 20,642 |
| | 123,445 |
| | 148,077 |
| | 22,535 |
| Total impaired loans with an allowance recorded | 135,410 | | 141,888 | | 25,908 | | | 149,762 | | 156,949 | | 20,347 | |
| | | | | | | | | | | | | |
| With no allowance recorded: | | | | | | | | | | | | With no allowance recorded: | | | |
| Commercial real estate | 53,783 |
| | 93,231 |
| | — |
| | 16,652 |
| | 69,677 |
| | — |
| Commercial real estate | 72,060 | | 110,873 | | — | | | 28,272 | | 66,631 | | — | |
| Agriculture | 54,806 |
| | 60,690 |
| | — |
| | 51,256 |
| | 64,177 |
| | — |
| Agriculture | 312,866 | | 331,126 | | — | | | 231,087 | | 255,308 | | — | |
| Commercial non-real estate | 13,415 |
| | 22,835 |
| | — |
| | 13,983 |
| | 38,924 |
| | — |
| Commercial non-real estate | 59,250 | | 67,488 | | — | | | 21,579 | | 31,414 | | — | |
| Residential real estate | 2,070 |
| | 5,047 |
| | — |
| | 2,574 |
| | 9,613 |
| | — |
| Residential real estate | 5,475 | | 7,870 | | — | | | 3,290 | | 5,454 | | — | |
| Consumer | 15 |
| | 134 |
| | — |
| | 13 |
| | 950 |
| | — |
| Consumer | 2 | | 110 | | — | | | 1 | | 108 | | — | |
| Total impaired loans with no allowance recorded | 124,089 |
| | 181,937 |
| | — |
| | 84,478 |
| | 183,341 |
| | — |
| Total impaired loans with no allowance recorded | 449,653 | | 517,467 | | — | | | 284,229 | | 358,915 | | — | |
| Total impaired loans | $ | 228,345 |
| | $ | 309,587 |
| | $ | 20,642 |
| | $ | 207,923 |
| | $ | 331,418 |
| | $ | 22,535 |
| Total impaired loans | $ | 585,063 | | $ | 659,355 | | $ | 25,908 | | | $ | 433,991 | | $ | 515,864 | | $ | 20,347 | |
The following table presents the average recorded investment on impaired loans and interest income recognized on impaired loans for the three and six months ended DecemberMarch 31, 20172020 and 2016, respectively, are as follows:2019.
|
| | | | | | | | | | | | | | | |
| | Three Months Ended December 31, 2017 | | Three Months Ended December 31, 2016 |
| | Average Recorded Investment | | Interest Income Recognized While on Impaired Status | | Average Recorded Investment | | Interest Income Recognized While on Impaired Status |
| | (dollars in thousands) |
| Commercial real estate | $ | 54,379 |
| | $ | 1,576 |
| | $ | 52,022 |
| | $ | 670 |
|
| Agriculture | 123,832 |
| | 982 |
| | 107,222 |
| | 1,867 |
|
| Commercial non-real estate | 31,888 |
| | 451 |
| | 48,700 |
| | 422 |
|
| Residential real estate | 7,767 |
| | 165 |
| | 10,056 |
| | 114 |
|
| Consumer | 269 |
| | 4 |
| | 374 |
| | 15 |
|
| Total | $ | 218,135 |
| | $ | 3,178 |
| | $ | 218,374 |
| | $ | 3,088 |
|
GREAT WESTERN BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | | | | | Six Months Ended March 31, | | | | |
| 2020 | | | 2019 | | | 2020 | | | 2019 | |
| 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 | $ | 112,623 | | $ | 1,287 | | | $ | 34,475 | | $ | 345 | | | $ | 93,174 | | $ | 3,666 | | | $ | 36,616 | | $ | 697 | |
| Agriculture | 369,598 | | 4,784 | | | 151,021 | | 2,203 | | | 356,225 | | 13,301 | | | 146,423 | | 3,202 | |
| Commercial non-real estate | 97,672 | | 1,531 | | | 22,556 | | 312 | | | 79,418 | | 4,401 | | | 22,731 | | 678 | |
| Residential real estate | 10,904 | | 127 | | | 6,724 | | 93 | | | 9,642 | | 393 | | | 6,711 | | 182 | |
| Consumer | 139 | | 3 | | | 237 | | 6 | | | 162 | | 4 | | | 212 | | 11 | |
| Total | $ | 590,936 | | $ | 7,732 | | | $ | 215,013 | | $ | 2,959 | | | $ | 538,621 | | $ | 21,765 | | | $ | 212,693 | | $ | 4,770 | |
Valuation adjustmentsadjustment reductions made to repossessed properties totaled $0.0$4.8 million and $0.4$0.1 million for the three months ended DecemberMarch 31, 20172020 and 2016,2019, respectively. Valuation adjustment reductions made to repossessed properties totaled $4.8 million and $2.0 million for the six months ended March 31, 2020 and 2019, respectively. The adjustments are included in net loss 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”)TDRs that were classified as impaired. These TDRs do not include purchased credit impaired loans. When the Company grants concessions to borrowers such as reduced interest rates or extensions of loan periods that would not be considered other than because of borrowers’ financial difficulties, the modification is considered a TDR. Specific reserves included in the allowance for loan and lease losses for TDRs were $6.9 million and $8.8$10.3 million at DecemberMarch 31, 20172020 and September 30, 2017,2019, respectively. There were no$0.1 million and $0.2 million of commitments to lend additional funds to borrowers whose loans were modified in a TDR as of DecemberMarch 31, 20172020 and September 30, 2017.2019, respectively.
GREAT WESTERN BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)
The following table presents the recorded value of the Company’s TDR balances as of DecemberMarch 31, 20172020 and September 30, 2017:2019.
| | | | | | | | | | | | | | | | | |
| March 31, 2020 | | | September 30, 2019 | |
| Accruing | Nonaccrual | | Accruing | Nonaccrual |
| (dollars in thousands) | | | | |
| Commercial real estate | $ | 19,843 | | $ | 3,088 | | | $ | 17,145 | | $ | 904 | |
| Agriculture | 11,838 | | 20,357 | | | 22,929 | | 24,762 | |
| Commercial non-real estate | 9,402 | | 4,465 | | | 4,398 | | 4,257 | |
| Residential real estate | 294 | | 92 | | | 263 | | 102 | |
| Consumer | 5 | | 40 | | | 107 | | 48 | |
| Total | $ | 41,382 | | $ | 28,042 | | | $ | 44,842 | | $ | 30,073 | |
|
| | | | | | | | | | | | | | | |
| | December 31, 2017 | | September 30, 2017 |
| | Accruing | | Nonaccrual | | Accruing | | Nonaccrual |
| | (dollars in thousands) |
| Commercial real estate | $ | 621 |
| | $ | 4,859 |
| | $ | 1,121 |
| | $ | 5,351 |
|
| Agriculture | 23,178 |
| | 54,401 |
| | 22,678 |
| | 59,633 |
|
| Commercial non-real estate | 8,284 |
| | 3,957 |
| | 8,369 |
| | 5,641 |
|
| Residential real estate | 258 |
| | 808 |
| | 311 |
| | 688 |
|
| Consumer | 11 |
| | — |
| | 11 |
| | 21 |
|
| Total | $ | 32,352 |
| | $ | 64,025 |
| | $ | 32,490 |
| | $ | 71,334 |
|
GREAT WESTERN BANCORP, INC.
NotesTDRs are generally restructured through either a rate modification, term extension, payment modification or due to Consolidated Financial Statements (Unaudited)
a bankruptcy. The following table presents a summary of all accruing loans restructured in TDRs duringfor the three and six months ended DecemberMarch 31, 20172020 and 2016, respectively:2019. |
| | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended December 31, 2017 | | Three Months Ended December 31, 2016 |
| | | | Recorded Investment | | | | Recorded Investment |
| | Number | | Pre-Modification | | Post-Modification | | Number | | Pre-Modification | | Post-Modification |
| | (dollars in thousands) |
| Commercial real estate | | | | | | | | | | | |
| Rate modification | — |
| | $ | — |
| | $ | — |
| | — |
| | $ | — |
| | $ | — |
|
| Term extension | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Payment modification | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Bankruptcy | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Other | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Total commercial real estate | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Agriculture | | | | | | | | | | | |
| Rate modification | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Term extension | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Payment modification | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Bankruptcy | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Other | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Total agriculture | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Commercial non-real estate | | | | | | | | | | | |
| Rate modification | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Term extension | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Payment modification | — |
| | — |
| | — |
| | 2 |
| | 433 |
| | 433 |
|
| Bankruptcy | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Other | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Total commercial non-real estate | — |
| | — |
| | — |
| | 2 |
| | 433 |
| | 433 |
|
| Residential real estate | | | | | | | | | | | |
| Rate modification | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Term extension | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Payment modification | — |
| | — |
| | — |
| | 1 |
| | 9 |
| | 9 |
|
| Bankruptcy | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Other | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Total residential real estate | — |
| | — |
| | — |
| | 1 |
| | 9 |
| | 9 |
|
| Consumer | | | | | | | | | | | |
| Rate modification | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Term extension | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Payment modification | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Bankruptcy | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Other | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Total consumer | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Total accruing | — |
| | $ | — |
| | $ | — |
| | 3 |
| | $ | 442 |
| | $ | 442 |
|
| Change in recorded investment due to principal paydown at time of modification | — |
| | $ | — |
| | $ | — |
| | — |
| | $ | — |
| | $ | — |
|
| Change in recorded investment due to chargeoffs at time of modification | — |
| | $ | — |
| | $ | — |
| | — |
| | $ | — |
| | $ | — |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | | | | | | | Six Months Ended March 31, | | | | | | |
| 2020 | | | | 2019 | | | | 2020 | | | | 2019 | | |
| | 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 | 1 | | $ | 2,879 | | $ | 2,879 | | | — | | $ | — | | $ | — | | | 1 | | $ | 2,879 | | $ | 2,879 | | | — | | $ | — | | $ | — | |
| Agriculture | 2 | | 993 | | 993 | | | — | | — | | — | | | 2 | | 993 | | 993 | | | — | | — | | — | |
| Commercial non-real estate | 2 | | 3,952 | | 3,952 | | | — | | — | | — | | | 4 | | 5,096 | | 5,096 | | | — | | — | | — | |
| Residential real estate | 1 | | 50 | | 50 | | | — | | — | | — | | | 1 | | 50 | | 50 | | | — | | — | | — | |
| Consumer | — | | — | | — | | | — | | — | | — | | | — | | — | | — | | | 1 | | 89 | | 89 | |
| Total accruing | 6 | | $ | 7,874 | | $ | 7,874 | | | — | | $ | — | | $ | — | | | 8 | | $ | 9,018 | | $ | 9,018 | | | 1 | | $ | 89 | | $ | 89 | |
| Change in recorded investment due to principal paydown at time of modification | — | | $ | — | | $ | — | | | — | | $ | — | | $ | — | | | — | | $ | — | | $ | — | | | — | | $ | — | | $ | — | |
| Change in recorded investment due to chargeoffs at time of modification | — | | — | | — | | | — | | — | | — | | | — | | — | | — | | | — | | — | | — | |
The following table presents a summary of all nonaccruing loans restructured in TDRs for the three and six months ended March 31, 2020 and 2019.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | | | | | | | Six Months Ended March 31, | | | | | | |
| 2020 | | | | 2019 | | | | 2020 | | | | 2019 | | |
| | 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 | — | | $ | — | | $ | — | | | — | | $ | — | | $ | — | | | 1 | | $ | 2,216 | | $ | 2,216 | | | — | | $ | — | | $ | — | |
| Agriculture | — | | — | | — | | | — | | — | | — | | | 10 | | 1,455 | | 1,455 | | | — | | — | | — | |
| Commercial non-real estate | — | | — | | — | | | — | | — | | — | | | 2 | | 830 | | 830 | | | — | | — | | — | |
| Residential real estate | — | | — | | — | | | — | | — | | — | | | — | | — | | — | | | — | | — | | — | |
| Consumer | — | | — | | — | | | — | | — | | — | | | — | | — | | — | | | — | | — | | — | |
| Total nonaccruing | — | | $ | — | | $ | — | | | — | | $ | — | | $ | — | | | 13 | | $ | 4,501 | | $ | 4,501 | | | — | | $ | — | | $ | — | |
| Change in recorded investment due to principal paydown at time of modification | — | | $ | — | | $ | — | | | — | | $ | — | | $ | — | | | — | | $ | — | | $ | — | | | — | | $ | — | | $ | — | |
| Change in recorded investment due to chargeoffs at time of modification | — | | — | | — | | | — | | — | | — | | | — | | — | | — | | | — | | — | | — | |
GREAT WESTERN BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)
The following table presents a summary of all non-accruing loans restructured in TDRs during the three months ended December 31, 2017 and 2016:
|
| | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended December 31, 2017 | | Three Months Ended December 31, 2016 |
| | | | Recorded Investment | | | | Recorded Investment |
| | Number | | Pre-Modification | | Post-Modification | | Number | | Pre-Modification | | Post-Modification |
| | (dollars in thousands) |
| Commercial real estate | | | | | | | | | | | |
| Rate modification | — |
| | $ | — |
| | $ | — |
| | — |
| | $ | — |
| | $ | — |
|
| Term extension | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Payment modification | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Bankruptcy | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Other | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Total commercial real estate | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Agriculture | | | | | | | | | | | |
| Rate modification | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Term extension | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Payment modification | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Bankruptcy | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Other | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Total agriculture | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Commercial non-real estate | | | | | | | | | | | |
| Rate modification | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Term extension | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Payment modification | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Bankruptcy | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Other | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Total commercial non-real estate | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Residential real estate | | | | | | | | | | | |
| Rate modification | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Term extension | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Payment modification | — |
| | — |
| | — |
| | 1 |
| | 21 |
| | 21 |
|
| Bankruptcy | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Other | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Total residential real estate | — |
| | — |
| | — |
| | 1 |
| | 21 |
| | 21 |
|
| Consumer | | | | | | | | | | | |
| Rate modification | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Term extension | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Payment modification | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Bankruptcy | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Other | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Total consumer | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Total non-accruing | — |
| | $ | — |
| | $ | — |
| | 1 |
| | $ | 21 |
| | $ | 21 |
|
| Change in recorded investment due to principal paydown at time of modification | — |
| | $ | — |
| | $ | — |
| | — |
| | $ | — |
| | $ | — |
|
| Change in recorded investment due to chargeoffs at time of modification | — |
| | $ | — |
| | $ | — |
| | — |
| | $ | — |
| | $ | — |
|
GREAT WESTERN BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)
The table below represents loans that were modified as TDRs within the previous 12 months and for which there was a payment default for the three and six months ended DecemberMarch 31, 20172020 and 2016,2019, respectively.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | | | | | Six Months Ended March 31, | | | | |
| 2020 | | | 2019 | | | 2020 | | | 2019 | |
| Number of Loans | Recorded Investment | | Number of Loans | Recorded Investment | | Number of Loans | Recorded Investment | | Number of Loans | Recorded Investment |
| (dollars in thousands) | | | | | | | | | | |
| Commercial real estate | — | | $ | — | | | — | | $ | — | | | — | | $ | — | | | — | | $ | — | |
| Agriculture | 17 | | 2,106 | | | — | | — | | | 19 | | 11,180 | | | — | | — | |
| Commercial non-real estate | — | | — | | | — | | — | | | 1 | | 2,834 | | | — | | — | |
| Residential real estate | — | | — | | | — | | — | | | — | | — | | | — | | — | |
| Consumer | — | | — | | | — | | — | | | — | | — | | | — | | — | |
| Total | 17 | | $ | 2,106 | | | — | | $ | — | | | 20 | | $ | 14,014 | | | — | | $ | — | |
|
| | | | | | | | | | | | | |
| | Three Months Ended December 31, 2017 | | Three Months Ended December 31, 2016 |
| | Number of Loans | | Recorded Investment | | Number of Loans | | Recorded Investment |
| | (dollars in thousands) |
| Commercial real estate | 1 |
| | $ | 3,230 |
| | 1 |
| | $ | 34 |
|
| Agriculture | — |
| | — |
| | — |
| | — |
|
| Commercial non-real estate | — |
| | — |
| | 3 |
| | 1,945 |
|
| Residential real estate | — |
| | — |
| | — |
| | — |
|
| Consumer | — |
| | — |
| | 1 |
| | 8 |
|
| Total | 1 |
| | $ | 3,230 |
| | 5 |
| | $ | 1,987 |
|
AFor purposes of the table above, a loan is considered to be in payment default once it is 90 days or more contractually past due under the modified terms. The table above includes loans that experienced a payment default during the period, but may be performing in accordance with the modified terms as of the balance sheet date. ForThere were $0.3 million and $0.0 million for the three months ended DecemberMarch 31, 20172020 and 2016, there were $0.62019, respectively, and $0.3 million and $0.0 million for the six months ended March 31, 2020 and 2019, respectively, of loans removed from TDR status as they were restructured at market terms and are performing.
5. Allowance for Loan and Lease Losses
The allowance for loan and lease losses under the incurred loss model is determined based on an ongoing evaluation, driven primarily by monitoring changes in loan risk grades, delinquencies, and other credit risk indicators, which isare inherently subjective. The Company considers the uncertainty related to certain industry sectors and the extent of credit exposure to specific borrowers within the portfolio. In addition, consideration is given to concentration risks associated with the various loan portfolios, and current economic conditions and other environmental factors that might impact the portfolio. The Company also considers changes, if any, in underwriting activities, the loan portfolio composition (including product mix and geographic, industry, or customer-specific concentrations), trends in loan performance, the level of allowance coverage relative to similar banking institutions under an incurred loss model and macroeconomic factors, such as changes in unemployment rates, gross domestic product, and consumer bankruptcy filings.
Changes to the allowance for loan and lease losses are made by charges to the provision for loan and lease losses, which is reflected on the consolidated statements of income. Past due status is monitored as an indicator of credit deterioration. Loans that are 90 days or more past due are put on nonaccrual status unless a repayment is eminent. Loans deemed to be uncollectible are charged off against the allowance for loan and lease losses. Recoveries of amounts previously charged-off are credited to the allowance for loan and lease losses.
The allowance for loan and lease losses consist of reserves for probable losses that have been identified related to specific borrowing relationships that are individually evaluated for impairment (“("specific reserve”reserve"), as well as probable losses inherent in ourthe loan portfolio that are not specifically identified (“("collective reserve”reserve").
The specific reserve relates to impaired loans. A loan is impaired when, based on current information and events, it is probable the Company will be unable to collect all amounts due (interest as well as principal) according to the contractual terms of the loan agreement. Specific reserves are determined on a loan-by-loan basis based on management’s best estimate of the Company's exposure, given the current payment status of the loan, the present value of expected payments, and the value of any underlying collateral. Impaired loans also include loans modified in troubled debt restructurings.TDRs. Generally, the impairment related to troubled debt restructurings is measured based on the fair value of the collateral, less cost to sell, or the present value of expected payments relative to the unpaid principal balance. If the impaired loan is identified as collateral dependent, then the fair value of the collateral method of measuring the amount of the impairment is utilized. This method requires obtaining an independent appraisal of the collateral and reducing the appraised value by applying a discount factor to the appraised value, if necessary, and including costs to sell.
Management’s estimate for collective reserves reflects losses incurred in the loan portfolio as of the consolidated balance sheet reporting date. Incurred loss estimates primarily are based on historical loss experience and portfolio mix. Incurred loss estimates may be adjusted for qualitative factors such as current economic conditions and current portfolio trends including credit quality, concentrations, aging of the portfolio, and/or significant policy and underwriting changes.
changes, which may not be reflected in the historical loss experience.
GREAT WESTERN BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)
The following tables present the Company’s allowance for loan and lease losses roll forward for the three and six months ended DecemberMarch 31, 20172020 and 2016:2019.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2020 | Commercial Real Estate | | Agriculture | | Commercial Non-Real Estate | | Residential Real Estate | | Consumer | | Other | | Total |
| (dollars in thousands) | | | | | | | | | | | | |
| Beginning balance, January 1, 2020 | $ | 17,462 | | | $ | 32,029 | | | $ | 17,389 | | | $ | 4,620 | | | $ | 288 | | | $ | 993 | | | $ | 72,781 | |
| Charge-offs | (1,417) | | | (4,522) | | | (3,577) | | | (118) | | | (25) | | | (707) | | | (10,366) | |
| Recoveries | 114 | | | 1,305 | | | 59 | | | 147 | | | 28 | | | 87 | | | 1,740 | |
| Provision | 48,285 | | | 714 | | | 17,895 | | | 3,602 | | | 465 | | | 738 | | | 71,699 | |
| (Improvement) impairment of ASC 310-30 loans | (30) | | | — | | | — | | | 105 | | | 21 | | | — | | | 96 | |
| Ending balance, March 31, 2020 | $ | 64,414 | | | $ | 29,526 | | | $ | 31,766 | | | $ | 8,356 | | | $ | 777 | | | $ | 1,111 | | | $ | 135,950 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2019 | Commercial Real Estate | | Agriculture | | Commercial Non-Real Estate | | Residential Real Estate | | Consumer | | Other | | Total |
| (dollars in thousands) | | | | | | | | | | | | |
| Beginning balance, January 1, 2019 | $ | 16,348 | | | $ | 31,785 | | | $ | 12,093 | | | $ | 4,611 | | | $ | 430 | | | $ | 926 | | | $ | 66,193 | |
| Charge-offs | (75) | | | (5,767) | | | (110) | | | (310) | | | (85) | | | (249) | | | (6,596) | |
| Recoveries | 162 | | | 199 | | | 104 | | | 125 | | | 44 | | | 99 | | | 733 | |
| Provision | (855) | | | 7,508 | | | 962 | | | (344) | | | (15) | | | 150 | | | 7,406 | |
| Impairment of ASC 310-30 loans | 23 | | | — | | | — | | | 244 | | | — | | | — | | | 267 | |
| Ending balance, March 31, 2019 | $ | 15,603 | | | $ | 33,725 | | | $ | 13,049 | | | $ | 4,326 | | | $ | 374 | | | $ | 926 | | | $ | 68,003 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended March 31, 2020 | Commercial Real Estate | | Agriculture | | Commercial Non-Real Estate | | Residential Real Estate | | Consumer | | Other | | Total |
| (dollars in thousands) | | | | | | | | | | | | |
| Beginning balance, October 1, 2019 | $ | 16,827 | | | $ | 30,819 | | | $ | 17,567 | | | $ | 4,095 | | | $ | 427 | | | $ | 1,039 | | | $ | 70,774 | |
| Charge-offs | (1,454) | | | (9,128) | | | (5,059) | | | (287) | | | (45) | | | (1,060) | | | (17,033) | |
| Recoveries | 234 | | | 1,408 | | | 172 | | | 312 | | | 48 | | | 137 | | | 2,311 | |
| Provision | 48,857 | | | 6,692 | | | 19,086 | | | 3,794 | | | 326 | | | 995 | | | 79,750 | |
| (Improvement) impairment of ASC 310-30 loans | (50) | | | (265) | | | — | | | 442 | | | 21 | | | — | | | 148 | |
| Ending balance, March 31, 2020 | $ | 64,414 | | | $ | 29,526 | | | $ | 31,766 | | | $ | 8,356 | | | $ | 777 | | | $ | 1,111 | | | $ | 135,950 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended iMarch 31, 2019 | Commercial Real Estate | | Agriculture | | Commercial Non-Real Estate | | Residential Real Estate | | Consumer | | Other | | Total |
| (dollars in thousands) | | | | | | | | | | | | |
| Beginning balance, October 1, 2018 | $ | 16,777 | | | $ | 28,121 | | | $ | 13,610 | | | $ | 4,749 | | | $ | 257 | | | $ | 1,026 | | | $ | 64,540 | |
| Charge-offs | (946) | | | (7,028) | | | (1,471) | | | (642) | | | (334) | | | (394) | | | (10,815) | |
| Recoveries | 259 | | | 357 | | | 228 | | | 287 | | | 128 | | | 131 | | | 1,390 | |
| Provision | (68) | | | 12,275 | | | 682 | | | (369) | | | 323 | | | 163 | | | 13,006 | |
| (Improvement) impairment of ASC 310-30 loans | (419) | | | — | | | — | | | 301 | | | — | | | — | | | (118) | |
| Ending balance, March 31, 2019 | $ | 15,603 | | | $ | 33,725 | | | $ | 13,049 | | | $ | 4,326 | | | $ | 374 | | | $ | 926 | | | $ | 68,003 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended December 31, 2017 | Commercial Real Estate | | Agriculture | | Commercial Non-Real Estate | | Residential Real Estate | | Consumer | | Other | | Total |
| | (dollars in thousands) |
| Beginning balance October 1, 2017 | $ | 16,941 |
| | $ | 25,757 |
| | $ | 14,114 |
| | $ | 5,347 |
| | $ | 329 |
| | $ | 1,015 |
| | $ | 63,503 |
|
| Charge-offs | (329 | ) | | (2,198 | ) | | (1,239 | ) | | (255 | ) | | (54 | ) | | (534 | ) | | (4,609 | ) |
| Recoveries | 148 |
| | 47 |
| | 121 |
| | 90 |
| | 22 |
| | 144 |
| | 572 |
|
| Provision | (755 | ) | | 1,144 |
| | 3,438 |
| | 330 |
| | 10 |
| | 437 |
| | 4,604 |
|
| (Improvement) of ASC 310-30 loans | (10 | ) | | — |
| | — |
| | (37 | ) | | — |
| | — |
| | (47 | ) |
| Ending balance December 31, 2017 | $ | 15,995 |
| | $ | 24,750 |
| | $ | 16,434 |
| | $ | 5,475 |
| | $ | 307 |
| | $ | 1,062 |
| | $ | 64,023 |
|
GREAT WESTERN BANCORP, INC. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended December 31, 2016 | Commercial Real Estate | | Agriculture | | Commercial Non-Real Estate | | Residential Real Estate | | Consumer | | Other | | Total |
| | (dollars in thousands) |
| Beginning balance October 1, 2016 | $ | 17,946 |
| | $ | 25,115 |
| | $ | 12,990 |
| | $ | 7,106 |
| | $ | 438 |
| | $ | 1,047 |
| | $ | 64,642 |
|
| Charge-offs | — |
| | (2,866 | ) | | (1,959 | ) | | (150 | ) | | (79 | ) | | (498 | ) | | (5,552 | ) |
| Recoveries | 99 |
| | 27 |
| | 98 |
| | 205 |
| | 15 |
| | 184 |
| | 628 |
|
| Provision | (1,546 | ) | | 6,243 |
| | 2,314 |
| | (350 | ) | | (34 | ) | | 323 |
| | 6,950 |
|
| (Improvement) impairment of ASC 310-30 loans | 124 |
| | — |
| | — |
| | (25 | ) | | — |
| | — |
| | 99 |
|
| Ending balance December 31, 2016 | $ | 16,623 |
| | $ | 28,519 |
| | $ | 13,443 |
| | $ | 6,786 |
| | $ | 340 |
| | $ | 1,056 |
| | $ | 66,767 |
|
The following tables provide details regarding the allowance for loan and lease losses and balance by type of allowance as of DecemberMarch 31, 20172020 and September 30, 2017.2019. These tables are presented net of unamortized discount on acquired loans and excludes loans of $980.1$792.1 million measured at fair value, loans held for sale of $5.8$4.3 million, and guaranteed loans of $162.3$138.0 million for DecemberMarch 31, 20172020 and loans measured at fair value of $1.02 billion,$813.0 million, loans held for sale of $7.5$7.4 million, and guaranteed loans of $168.3$145.9 million for September 30, 2017.2019.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of March 31, 2020 | Commercial Real Estate | | Agriculture | | Commercial Non-Real Estate | | Residential Real Estate | | Consumer | | Other | | Total |
| (dollars in thousands) | | | | | | | | | | | | |
| Allowance for loan and lease losses | | | | | | | | | | | | | | |
| Individually evaluated for impairment | | $ | 7,020 | | | $ | 8,136 | | | $ | 8,601 | | | $ | 2,115 | | | $ | 36 | | | $ | — | | | $ | 25,908 | |
| Collectively evaluated for impairment | | 57,285 | | | 21,390 | | | 23,136 | | | 5,747 | | | 720 | | | 1,111 | | | 109,389 | |
| ASC 310-30 loans | | 109 | | | — | | | 29 | | | 494 | | | 21 | | | — | | | 653 | |
| Total allowance | | $ | 64,414 | | | $ | 29,526 | | | $ | 31,766 | | | $ | 8,356 | | | $ | 777 | | | $ | 1,111 | | | $ | 135,950 | |
| Financing Receivables | | | | | | | | | | | | | |
| Individually evaluated for impairment | $ | 132,679 | | | $ | 347,879 | | | $ | 93,477 | | | $ | 10,901 | | | $ | 127 | | | $ | — | | | $ | 585,063 | |
| Collectively evaluated for impairment | 4,486,167 | | | 1,365,625 | | | 1,415,903 | | | 774,083 | | | 52,001 | | | 39,908 | | | 8,133,687 | |
| ASC 310-30 loans | 21,611 | | | 2,970 | | | 178 | | | 28,263 | | | 383 | | | — | | | 53,405 | |
| Loans Outstanding | | $ | 4,640,457 | | | $ | 1,716,474 | | | $ | 1,509,558 | | | $ | 813,247 | | | $ | 52,511 | | | $ | 39,908 | | | $ | 8,772,155 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, 2017 | Commercial Real Estate | | Agriculture | | Commercial Non-Real Estate | | Residential Real Estate | | Consumer | | Other | | Total |
| | (dollars in thousands) |
| Allowance for loan and lease losses | | | | | | | | | | | | | |
| Individually evaluated for impairment | $ | 3,168 |
| | $ | 9,447 |
| | $ | 5,210 |
| | $ | 2,731 |
| | $ | 86 |
| | $ | — |
| | $ | 20,642 |
|
| Collectively evaluated for impairment | 12,155 |
| | 15,188 |
| | 11,224 |
| | 2,646 |
| | 221 |
| | 1,062 |
| | 42,496 |
|
| ASC 310-30 loans | 672 |
| | 115 |
| | — |
| | 98 |
| | — |
| | — |
| | 885 |
|
| Total allowance | $ | 15,995 |
| | $ | 24,750 |
| | $ | 16,434 |
| | $ | 5,475 |
| | $ | 307 |
| | $ | 1,062 |
| | $ | 64,023 |
|
| | | | | | | | | | | | | | |
| Financing Receivables | | | | | | | | | | | | | |
| Individually evaluated for impairment | $ | 71,286 |
| | $ | 117,188 |
| | $ | 31,843 |
| | $ | 7,783 |
| | $ | 245 |
| | $ | — |
| | $ | 228,345 |
|
| Collectively evaluated for impairment | 3,635,278 |
| | 1,788,260 |
| | 1,328,215 |
| | 851,442 |
| | 61,683 |
| | 45,805 |
| | 7,710,683 |
|
| ASC 310-30 loans | 29,388 |
| | 7,181 |
| | 1,926 |
| | 49,085 |
| | 601 |
| | — |
| | 88,181 |
|
| Loans Outstanding | $ | 3,735,952 |
| | $ | 1,912,629 |
| | $ | 1,361,984 |
| | $ | 908,310 |
| | $ | 62,529 |
| | $ | 45,805 |
| | $ | 8,027,209 |
|
GREAT WESTERN BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)
| | | As of September 30, 2017 | Commercial Real Estate | | Agriculture | | Commercial Non-Real Estate | | Residential Real Estate | | Consumer | | Other | | Total | |
| As of September 30, 2019 | | As of September 30, 2019 | Commercial Real Estate | | Agriculture | | Commercial Non-Real Estate | | Residential Real Estate | | Consumer | | Other | | Total |
| | (dollars in thousands) | | (dollars in thousands) | |
| Allowance for loan and lease losses | | | | | | | | | | | | | | Allowance for loan and lease losses | |
| Individually evaluated for impairment | $ | 3,621 |
| | $ | 11,468 |
| | $ | 4,779 |
| | $ | 2,581 |
| | $ | 86 |
| | $ | — |
| | $ | 22,535 |
| Individually evaluated for impairment | $ | 4,159 | | | $ | 8,234 | | | $ | 6,062 | | | $ | 1,795 | | | $ | 97 | | | $ | — | | | $ | 20,347 | |
| Collectively evaluated for impairment | 12,638 |
| | 14,174 |
| | 9,335 |
| | 2,570 |
| | 243 |
| | 1,015 |
| | 39,975 |
| Collectively evaluated for impairment | 12,509 | | | 22,320 | | | 11,476 | | | 2,188 | | | 330 | | | 1,039 | | | 49,862 | |
| ASC 310-30 loans | 682 |
| | 115 |
| | — |
| | 196 |
| | — |
| | — |
| | 993 |
| ASC 310-30 loans | 159 | | | 265 | | | 29 | | | 112 | | | — | | | — | | | 565 | |
| Total allowance | $ | 16,941 |
| | $ | 25,757 |
| | $ | 14,114 |
| | $ | 5,347 |
| | $ | 329 |
| | $ | 1,015 |
| | $ | 63,503 |
| Total allowance | | $ | 16,827 | | | $ | 30,819 | | | $ | 17,567 | | | $ | 4,095 | | | $ | 427 | | | $ | 1,039 | | | $ | 70,774 | |
| | | | | | | | | | | | | | | |
| Financing Receivables | | | | | | | | | | | | | | Financing Receivables | | | | | | | | | | | | | |
| Individually evaluated for impairment | $ | 37,471 |
| | $ | 130,475 |
| | $ | 31,933 |
| | $ | 7,751 |
| | $ | 293 |
| | $ | — |
| | $ | 207,923 |
| Individually evaluated for impairment | $ | 54,275 | | | $ | 329,479 | | | $ | 42,910 | | | $ | 7,119 | | | $ | 208 | | | $ | — | | | $ | 433,991 | |
| Collectively evaluated for impairment | 3,487,232 |
| | 1,702,634 |
| | 1,333,888 |
| | 854,330 |
| | 65,207 |
| | 43,207 |
| | 7,486,498 |
| Collectively evaluated for impairment | 4,418,611 | | | 1,501,164 | | | 1,480,949 | | | 763,645 | | | 51,112 | | | 47,541 | | | 8,263,022 | |
| ASC 310-30 loans | 30,099 |
| | 7,174 |
| | 1,920 |
| | 52,736 |
| | 666 |
| | — |
| | 92,595 |
| ASC 310-30 loans | 22,124 | | | 2,756 | | | 221 | | | 30,280 | | | 438 | | | — | | | 55,819 | |
| Loans Outstanding | $ | 3,554,802 |
| | $ | 1,840,283 |
| | $ | 1,367,741 |
| | $ | 914,817 |
| | $ | 66,166 |
| | $ | 43,207 |
| | $ | 7,787,016 |
| Loans Outstanding | | $ | 4,495,010 | | | $ | 1,833,399 | | | $ | 1,524,080 | | | $ | 801,044 | | | $ | 51,758 | | | $ | 47,541 | | | $ | 8,752,832 | |
For acquired loans not accounted for under ASC 310-30 (purchased non-impaired), the Company utilizes specific and collective reserve calculation methods similar to originated loans. The required ALLL for these loans is included in the individually evaluated for impairment bucket of the ALLL if the loan is rated substandard or worse, and in the collectively evaluated for impairment bucket for pass rated loans.
The Company maintains an ALLL for acquired loans accounted for under ASC 310-30 as a result of impairment to loan pools arising from the periodic re-valuation of these loans. Any impairment in the individual pool is generally recognized in the current period as provision for loan and lease losses. Any improvement in the estimated cash flows, is generally not recognized immediately, but is instead reflected as an adjustment to the related loan pools yield on a prospective basis once any previously recorded impairment has been recaptured.
The ALLL for ASC 310-30 loans totaled $0.9$0.7 million and $0.6 million at DecemberMarch 31, 2017, compared to $1.0 million at2020 and September 30, 2017.2019, respectively. For both the three and six months ended DecemberMarch 31, 2017,2020, loan pools accounted for under ASC 310-30 had a net reversalimpairment of provision of $0.1 million as a result of increases in expected cash flows.million. For the three and six months ended DecemberMarch 31, 2016,2019, loan pools accounted for under ASC 310-30 had a net impairment of $0.3 million and a net reversal of provision of $0.1 million, as a result of actual cash flows being lower than expected cash flows.respectively.
The reserve for unfunded loan commitments was $1.1 million and $0.5 million at both DecemberMarch 31, 20172020 and September 30, 20172019, respectively and is recorded in accrued expenses and other liabilities on the consolidated balance sheets.
GREAT WESTERN BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)
6. Accounting for Certain Loans Acquired with Deteriorated Credit Quality
In June 2010 and May 2016, the Company acquired certain loans in the TierOne Bank and HF Financial transactions, respectively, that had deteriorated credit quality (ASCknown as ASC 310-30 loans or Purchase Credit Impaired loans).purchased credit impaired loans. Several factors were considered when evaluating whether a loan was considered a purchased credit impaired loan, including the delinquency status of the loan, updated borrower credit status, geographic information and updated loan-to-values ("LTV").loan-to-values. Further, these purchased credit impaired loans had differences between contractual amounts owed and cash flows expected to be collected, that were at least in part, due to credit quality. U.S. GAAP allows purchasers to aggregate purchased credit impaired loans acquired in the same fiscal quarter in one or more pools, provided that the loans have common risk characteristics. A pool is then accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows.
Loan pools are periodically reassessed to determine expected cash flows. In determining the expected cash flows, the timing of cash flows and prepayment assumptions for smaller, homogeneous loans are based on statistical models that take into account factors such as the loan interest rate, credit profile of the borrowers, the years in which the loans were originated, and whether the loans are fixed or variable rate loans. Prepayments may be assumed on large individual loans that consider similar prepayment factors listed above for smaller homogeneous loans.
The re-assessment of purchased credit impaired loans resulted in the following changes in the accretable yield during the three
and six months ended
DecemberMarch 31,
20172020 and
2016:2019. |
| | | | | | | |
| | Three Months Ended |
| | December 31, 2017 | | December 31, 2016 |
| | (dollars in thousands) |
| Balance at beginning of period | $ | 44,131 |
| | $ | 38,124 |
|
| Accretion | (3,381 | ) | | (2,938 | ) |
| Reclassification from nonaccretable difference | 1,168 |
| | 4,572 |
|
| Balance at end of period | $ | 41,918 |
| | $ | 39,758 |
|
GREAT WESTERN BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | | | Six Months Ended March 31, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
| (dollars in thousands) | | | | | | |
| Balance, beginning of period | $ | 21,130 | | | $ | 35,493 | | | $ | 26,047 | | | $ | 34,973 | |
| Accretion | (1,753) | | | (2,188) | | | (3,693) | | | (4,343) | |
| Reclassification (to) from nonaccretable difference | (37) | | | 375 | | | (3,014) | | | 3,050 | |
| Balance, end of period | $ | 19,340 | | | $ | 33,680 | | | $ | 19,340 | | | $ | 33,680 | |
The reclassifications (to) from nonaccretable difference noted in the table above represent instances where specific pools of loans are expected to perform better over the remaining lives of the loans than expected at the prior re-assessment date.
The following table provides purchased credit impaired loans at DecemberMarch 31, 20172020 and September 30, 2017:2019. | | | | December 31, 2017 | | September 30, 2017 | | March 31, 2020 | | | September 30, 2019 | |
| | Outstanding Balance 1 | | Recorded Investment 2 | | Carrying
Value 3 | | Outstanding Balance 1 | | Recorded Investment 2 | | Carrying
Value 3 | | Outstanding Balance ¹ | Recorded Investment ² | Carrying Value ³ | | Outstanding Balance ¹ | Recorded Investment ² | Carrying Value ³ |
| | (dollars in thousands) | | (dollars in thousands) | |
| Commercial real estate | $ | 108,397 |
| | $ | 29,388 |
| | $ | 28,716 |
| | $ | 110,797 |
| | $ | 30,099 |
| | $ | 29,417 |
| Commercial real estate | $ | 88,443 | | $ | 21,611 | | $ | 21,502 | | | $ | 90,295 | | $ | 22,124 | | $ | 21,965 | |
| Agriculture | 10,341 |
| | 7,181 |
| | 7,066 |
| | 10,463 |
| | 7,174 |
| | 7,059 |
| Agriculture | 4,259 | | 2,970 | | 2,970 | | | 4,462 | | 2,756 | | 2,491 | |
| Commercial non-real estate | 9,764 |
| | 1,926 |
| | 1,926 |
| | 9,825 |
| | 1,920 |
| | 1,920 |
| Commercial non-real estate | 7,072 | | 178 | | 149 | | | 7,190 | | 221 | | 192 | |
| Residential real estate | 57,758 |
| | 49,085 |
| | 48,987 |
| | 61,981 |
| | 52,736 |
| | 52,540 |
| Residential real estate | 32,947 | | 28,263 | | 27,769 | | | 35,413 | | 30,280 | | 30,168 | |
| Consumer | 737 |
| | 601 |
| | 601 |
| | 798 |
| | 666 |
| | 666 |
| Consumer | 441 | | 383 | | 362 | | | 493 | | 438 | | 438 | |
| Total lending | $ | 186,997 |
| | $ | 88,181 |
| | $ | 87,296 |
| | $ | 193,864 |
| | $ | 92,595 |
| | $ | 91,602 |
| Total lending | $ | 133,162 | | $ | 53,405 | | $ | 52,752 | | | $ | 137,853 | | $ | 55,819 | | $ | 55,254 | |
| | | | | | | | | | | | | |
1 Represents the legal balance of ASC 310-30 loans. | 1 Represents the legal balance of ASC 310-30 loans. | 1 Represents the legal balance of ASC 310-30 loans. | |
2 Represents the book balance of ASC 310-30 loans. | 2 Represents the book balance of ASC 310-30 loans. | 2 Represents the book balance of ASC 310-30 loans. | |
3 Represents the book balance of ASC 310-30 loans net of the related allowance for loan and lease losses. | 3 Represents the book balance of ASC 310-30 loans net of the related allowance for loan and lease losses. | 3 Represents the book balance of ASC 310-30 loans net of the related allowance for loan and lease losses. | |
7. FDIC Indemnification Asset
Under the terms of the purchase and assumption agreement with the FDIC with regard to the TierOne Bank acquisition, the Company is reimbursed for a portion of the losses incurred on covered assets.assets under the non-commercial loss share agreement. As covered assets are resolved, whether it be through repayment, short sale of the underlying collateral, the foreclosure on or sale of collateral, or the sale or charge-off of loans or other repossessed property, any differences between the carrying value of the covered assets versus the payments received during the resolution process that are reimbursable by the FDIC are recognized as reductions in the FDIC indemnification asset. Any gains or losses realized from the resolution of covered assets reduce or increase, respectively, the amount recoverable from the FDIC.
GREAT WESTERN BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)
The following table represents a summary of the activity related to the FDIC indemnification asset for the three and six months ended DecemberMarch 31, 20172020 and 2016:2019.
| | | | | | | | Three Months Ended March 31, | | | Six Months Ended March 31, | |
| | Three Months Ended | | 2020 | | 2019 | | 2020 | | 2019 |
| | December 31, 2017 | | December 31, 2016 | | (dollars in thousands) | |
| | (dollars in thousands) | |
| Balance at beginning of period | $ | 5,704 |
| | $ | 10,777 |
| |
| Balance, beginning of period | | Balance, beginning of period | $ | 832 | | | $ | 1,950 | | | $ | 1,079 | | | $ | 2,502 | |
| Amortization | (1,018 | ) | | (867 | ) | Amortization | (390) | | | (360) | | | (641) | | | (853) | |
| Changes in expected reimbursements from FDIC for changes in expected credit losses | (18 | ) | | 28 |
| Changes in expected reimbursements from FDIC for changes in expected credit losses | — | | | (13) | | | — | | | (13) | |
| Changes in reimbursable expenses | (206 | ) | | (239 | ) | Changes in reimbursable expenses | — | | | (16) | | | — | | | (41) | |
| Reimbursements of covered losses to the FDIC | 230 |
| | 188 |
| |
| Balance at end of period | $ | 4,692 |
| | $ | 9,887 |
| |
| Payments (reimbursements) of covered losses to (from) the FDIC | | Payments (reimbursements) of covered losses to (from) the FDIC | 39 | | | (9) | | | 43 | | | (43) | |
| Balance, end of period | | Balance, end of period | $ | 481 | | | $ | 1,552 | | | $ | 481 | | | $ | 1,552 | |
The loss claims filed are subject to review, approval, and annual audits by the FDIC or its assigned agents for compliance with the terms in the loss sharing agreements. The commercial loss share agreement claim period ended on June 4, 2015. The non-commercial loss share agreementwhich ends June 4, 2020.
GREAT WESTERN BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)
8. Derivative Financial Instruments
The Company uses interest rate swaps and interest rate caps/floors to manage its interest rate risk and market risk in accommodating the needs of its customers. Interest rate swaps include both traditional interest rate swaps and interest rate swaps which can be canceled by the customer on specified dates at no cost, typically referred to as swaptions. The Company recognizes all derivatives on the consolidated balance sheet at fair value in either other assets or accrued expenses and other liabilities as appropriate.
The following table presents the notional amounts and gross fair values of all derivative assets and liabilities held by the Company as of DecemberMarch 31, 20172020 and September 30, 2017:2019.
| | | | December 31, 2017 | | September 30, 2017 | | March 31, 2020 | | | September 30, 2019 | |
| | Notional Amount | | Gross
Asset
Fair Value | | Gross
Liability
Fair Value | | Notional Amount | | Gross
Asset
Fair Value | | Gross
Liability
Fair Value | | Notional Amount | Gross Asset
Fair Value | Gross Liability
Fair Value | | Notional Amount | Gross Asset
Fair Value | Gross Liability
Fair Value |
| | (dollars in thousands) | | (dollars in thousands) | |
| Derivatives not designated as hedging instruments: | | | | | | | | | | | | Derivatives not designated as hedging instruments: | |
| Interest rate swaps | | | | | | | | | | | | Interest rate swaps | |
| Financial institution counterparties | $ | 1,022,553 |
| | $ | 7,554 |
| | $ | (16,858 | ) | | $ | 1,025,474 |
| | $ | 4,967 |
| | $ | (22,737 | ) | Financial institution counterparties | $ | 1,279,918 | | $ | — | | $ | (68,412) | | | $ | 1,259,765 | | $ | 35 | | $ | (38,755) | |
| Customer counterparties | 63,915 |
| | 814 |
| | (76 | ) | | 36,072 |
| | 615 |
| | — |
| Customer counterparties | 574,453 | | 83,802 | | — | | | 499,643 | | 48,652 | | — | |
| Interest rate caps | | Interest rate caps | |
| Financial institution counterparties | | Financial institution counterparties | 3,438 | | 4 | | — | | | 100 | | 2 | | — | |
| Customer counterparties | | Customer counterparties | 3,438 | | — | | (4) | | | 100 | | — | | (2) | |
| Risk participation agreements | | Risk participation agreements | 78,194 | | — | | (593) | | | 56,833 | | — | | (58) | |
| Mortgage loan commitments | 22,618 |
| | 1 |
| | — |
| | 37,765 |
| | — |
| | (48 | ) | Mortgage loan commitments | 170,012 | | 636 | | — | | | 56,665 | | — | | (11) | |
| Mortgage loan forward sale contracts | 27,622 |
| | — |
| | (1 | ) | | 43,628 |
| | 48 |
| | — |
| Mortgage loan forward sale contracts | 166,683 | | — | | (636) | | | 61,872 | | 11 | | — | |
| Total | $ | 1,136,708 |
| | $ | 8,369 |
| | $ | (16,935 | ) | | $ | 1,142,939 |
| | $ | 5,630 |
| | $ | (22,785 | ) | Total | $ | 2,276,136 | | $ | 84,442 | | $ | (69,645) | | | $ | 1,934,978 | | $ | 48,700 | | $ | (38,826) | |
Netting of Derivatives
We recordThe Company records the derivatives on a net basis when a right of offset exists, based on transactions with a single counterparty that are subject to a legally enforceable master netting agreement. When bilateral netting agreements or similar agreements exist between the Company and its counterparties that create a single legal claim or obligation to pay or receive the net amount in settlement of the individual derivative contracts, the Company reports derivative assets and liabilities on a net by derivative contract by counterparty basis.
GREAT WESTERN BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)
The following tables provide information on the Company's netting adjustments as of DecemberMarch 31, 20172020 and September 30, 2017:2019.
| | | | | | | | | | | | | | | | | | | | | | | |
| Gross Fair Value | | Fair Value Offset Amount | | Cash Collateral | | Net Amount Presented on the Consolidated Balance Sheet |
| (dollars in thousands) | | | | | | |
| As of March 31, 2020 | | | | | | | |
| Total Derivative Assets | $ | 84,442 | | | $ | (6,922) | | | $ | 21,203 | | | $ | 98,723 | |
| Total Derivative Liabilities ¹ | (69,645) | | | 6,922 | | | 62,083 | | | (640) | |
| | | | | | | |
1 There was an additional $23.6 million of collateral held for initial margin with a Futures Clearing Merchant for clearing derivatives at March 31, 2020 and is included in other assets in the consolidated balance sheets. | | | | | | | |
|
| | | | | | | | | | | | | | | |
| | Amounts offset on the Consolidated Balance Sheet |
| | Gross Fair Value | | Fair Value Offset Amount | | Cash Collateral | | Net Amount Presented on the Consolidated Balance Sheet |
| | (dollars in thousands) |
| December 31, 2017 | | | | | | | |
| Total Derivative Assets | $ | 8,369 |
| | $ | (5,906 | ) | | $ | (1,650 | ) | | $ | 813 |
|
Total Derivative Liabilities 1, 2 | $ | (16,935 | ) | | $ | 5,906 |
| | $ | — |
| | $ | (11,029 | ) |
| | | | | | | | |
1 In addition to the cash collateral, there were securities of $24.9 million posted as collateral for financial institution counterparties at December 31, 2017. |
2 There was an additional $2.9 million of collateral held for initial margin with our Futures Clearing Merchant for clearing derivatives at December 31, 2017 and is included in other assets in the consolidated balance sheets. |
|
| | | | | | | | | | | | | | | |
| | Amounts offset on the Consolidated Balance Sheet |
| | Gross Fair Value | | Fair Value Offset Amount | | Cash Collateral | | Net Amount Presented on the Consolidated Balance Sheet |
| | (dollars in thousands) |
| September 30, 2017 | | | | | | | |
| Total Derivative Assets | $ | 1,850 |
| | $ | (1,850 | ) | | $ | — |
| | $ | — |
|
Total Derivative Liabilities 1, 2 | (19,005 | ) | | 1,850 |
| | — |
| | (17,155 | ) |
| | | | | | | | |
1 In addition to the cash collateral, there were securities of $25.0 million posted as collateral for financial institution counterparties at September 30, 2017. |
2 There was an additional $2.3 million of collateral held for initial margin with our Futures Clearing Merchant for clearing derivatives at September 30, 2017 and is included in other assets in the consolidated balance sheets. |
GREAT WESTERN BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Gross Fair Value | | Fair Value Offset Amount | | Cash Collateral | | Net Amount Presented on the Consolidated Balance Sheet |
| (dollars in thousands) | | | | | | |
| As of September 30, 2019 | | | | | | | |
| Total Derivative Assets | $ | 48,700 | | | $ | (2,445) | | | $ | 12,279 | | | $ | 58,534 | |
| Total Derivative Liabilities ¹ | (38,826) | | | 2,445 | | | 36,368 | | | (13) | |
1 There was an additional $18.3 million of collateral held for initial margin with a Futures Clearing Merchant for clearing derivatives at September 30, 2019 and is included in other assets in the consolidated balance sheets. | | | | | | | |
As with any financial instrument, derivative financial instruments have inherent risk including adverse changes in interest rates. The Company’s exposure to derivative credit risk is defined as the possibility of sustaining a loss due to the failure of the counterparty to perform in accordance with the terms of the contract. Credit risks associated with interest rate swaps are similar to those relating to traditional on-balance sheet financial instruments. The Company manages interest rate swap credit risk with the same standards and procedures applied to its commercial lending activities.
Credit-risk-related contingent features
The Company has agreements with its derivative counterparties that contain a provision where if the Company or the derivative counterparty fails to maintain its status as a well/adequately capitalized institution, then the other party has the right to terminate the derivative positions and the Company or the derivative counterparty would be required to settle its obligations under the agreements. The Company has minimum collateral postingpledging thresholds with its Swap Dealers and Futures Clearing Merchant.
In 2018, the Company entered into RPAs with some of its derivative counterparties.
As of December 31, 2017 and September 30, 2017,counterparties to assume the termination value of derivatives in a net liability positioncredit exposure related to these agreements was $10.7 million and $20.3 million, respectively, which includes accrued interest but excludes any adjustment for nonperformance risk. Additionally, as of December 31, 2017 and September 30, 2017 the termination value of derivatives inrate derivative contracts. The Company's loan customer enters into an interest rate swap directly with a net asset position related to these agreements was $1.6 million and $1.2 million, respectively, which includes accrued interest but excludes any adjustment for nonperformance risk and as of December 31, 2017 and September 30, 2017, the derivative counterparty had posted toand the Company $1.7 million and $1.0 million, respectively, in eligible collateral.agrees through an RPA to take on the counterparty's risk of loss on the interest rate swap due to a default by the customer.
The effect of derivatives on the consolidated statements of comprehensive income for the three and six months ended DecemberMarch 31, 20172020 and 20162019 was as follows:follows.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Amount of Loss Recognized in Consolidated Statements of Income | | | | | | |
| | Three Months Ended March 31, | | | | Six Months Ended March 31, | | |
| Location of Loss Recognized in Consolidated Statements of Income | 2020 | | 2019 | | 2020 | | 2019 |
| | (dollars in thousands) | | | | | | |
| Derivatives not designated as hedging instruments: | | | | | | | | |
| Interest rate swaps and other derivatives | Net realized and unrealized loss on derivatives | $ | (50,214) | | | $ | (11,032) | | | $ | (36,698) | | | $ | (29,348) | |
| Mortgage loan commitments | Net realized and unrealized loss on derivatives | 620 | | | 9 | | | 648 | | | 21 | |
| Mortgage loan forward sale contracts | Net realized and unrealized loss on derivatives | (620) | | | (9) | | | (648) | | | (21) | |
|
| | | | | | | | | |
| | | | Amount of Gain (Loss) Recognized in Statements of Income |
| | | | Three Months Ended |
| | Location of Gain (Loss) Recognized in Statements of Income | | December 31, 2017 | | December 31, 2016 |
| | | | (dollars in thousands) |
| Derivatives not designated as hedging instruments: | | | | | |
| Interest rate swaps | Net realized and unrealized gain on derivatives | | $ | 7,227 |
| | $ | 58,976 |
|
| Mortgage loan commitments | Net realized and unrealized gain on derivatives | | 1 |
| | (105 | ) |
| Mortgage loan forward sale contracts | Net realized and unrealized gain on derivatives | | (1 | ) | | 105 |
|
Notes to Consolidated Financial Statements (Unaudited) 9. The Fair Value Option Forfor Certain Loans
The Company has elected to measure certain long-term loans at fair value to assist in managing the interest rate risk for longer-term loans. This fair value option was elected upon the origination of these loans. Interest income is recognized in the same manner as interest on non-fair value loans.
See Note 18 for additional disclosures regarding the fair value of the fair value option loans.
Long-term loans for which the fair value option has been elected had a net favorable difference between the aggregate fair value and the aggregate unpaid loan principal balance and written loan commitment amount of approximately $1.3 million and $8.8$57.5 million at DecemberMarch 31, 20172020 and a net favorable difference of approximately $34.2 million at September 30, 2017, respectively.2019. The total unpaid principal balance of these long-term loans was approximately $978.9$734.6 million and $1.01 billion$778.8 million at DecemberMarch 31, 20172020 and September 30, 2017,2019, respectively. The fair value of these loans is included in total loans in the consolidated balance sheets and are grouped with commercial real estate, agricultural and commercial non-real estate loans in Note 4. As of DecemberMarch 31, 20172020 and September 30, 2017,2019, there were loans with a fair value of $14.1$9.1 million and $14.7$16.5 million, respectively, which were greater than 90 days past due or in nonaccrual status with an unpaid principal balance of $15.0$12.1 million and $17.0$17.8 million, respectively.
Changes in fair value for items for which the fair value option has been elected were an increase in fair value of $35.5 million and $20.6 million for the line itemsthree and six months ended March 31, 2020, respectively, and an increase in which thesefair value of $14.0 million and $33.2 million for the three and six months ended March 31, 2019, respectively. These changes in fair value are reported in noninterest income (loss) within the consolidated statements of income are as follows for the three months ended December 31, 2017 and 2016:
|
| | | | | | | | | | | | | | | |
| | Three Months Ended December 31, 2017 | | Three Months Ended December 31, 2016 |
| | Noninterest Income | | Total Changes in Fair Value | | Noninterest Income | | Total Changes in Fair Value |
| | (dollars in thousands) |
| Long-term loans | $ | (8,665 | ) | | $ | (8,665 | ) | | $ | (64,001 | ) | | $ | (64,001 | ) |
GREAT WESTERN BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)
income.
For long-term loans, $1.0$10.5 million and $0.5$12.7 million for the three and six months ended DecemberMarch 31, 20172020, respectively, and 2016,$0.4 million and $0.8 million for the three and six months ended March 31, 2019, respectively, of the total change in fair value is attributable to changes in specific credit risk. The gains or losses attributable to changes in instrument-specific credit risk were determined based on an assessment of existing market conditions and credit quality of the underlying loan for the specific portfolio of loans.
10. Goodwill
The following table presents the Company's carrying amount of goodwill as of March 31, 2020 and September 30, 2019.
| | | | | | | | | | | |
| March 31,
2020 | | September 30,
2019 |
| (dollars in thousands) | | |
| Balance, beginning of period | $ | 739,023 | | | $ | 739,023 | |
| Goodwill acquired during the period | 1,539 | | | — | |
| Goodwill impairment during the period | (740,562) | | | — | |
| Balance, end of period | $ | — | | | $ | 739,023 | |
In accordance with ASC 350-20, the Company conducts a goodwill impairment test at least annually, or more frequently as events occur or circumstances change that would more-likely-than-not reduce the fair value below its carrying amount. In the second quarter of fiscal year 2020, the onset of the COVID-19 pandemic prompted the Company to assess qualitative and quantitative factors to determine whether it was more-likely-than-not the fair value of the Company was less than the carrying amount.
The Company assessed relevant events and circumstances, including macroeconomic conditions, industry and market considerations, overall financial performance, changes in the composition or carrying amount of assets and liabilities, the market price of the Company's common stock and other relevant facts. The Company performed both a market capitalization approach and a discounted cash flow approach to determine the fair value of the Company. As a result of the analysis, the Company recognized a goodwill impairment charge of $740.6 million for both the three and six months ended March 31, 2020. NaN goodwill impairment charge was recognized for the three and six months ended March 31, 2019.
GREAT WESTERN BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)
11. Core Deposits and Other Intangibles
AThe following table presents a summary of intangible assets subject to amortization is as follows:of March 31, 2020 and September 30, 2019. | | | | | | | | | | | | Core Deposit Intangible | | Brand
Intangible | | Customer Relationships Intangible | | Other
Intangible | | Total |
| | Core Deposit Intangible | | Brand
Intangible | | Other
Intangible | | Total | | (dollars in thousands) | |
| As of December 31, 2017 | (dollars in thousands) | |
| As of March 31, 2020 | | As of March 31, 2020 | |
| Gross carrying amount | $ | 7,339 |
| | $ | 8,464 |
| | $ | 538 |
| | $ | 16,341 |
| Gross carrying amount | $ | 7,339 | | | $ | — | | | $ | 3,172 | | | $ | 538 | | | $ | 11,049 | |
| Accumulated amortization | (1,847 | ) | | (5,405 | ) | | (141 | ) | | (7,393 | ) | Accumulated amortization | (3,933) | | | — | | | (122) | | | (291) | | | (4,346) | |
| Net intangible assets | $ | 5,492 |
| | $ | 3,059 |
| | $ | 397 |
| | $ | 8,948 |
| Net intangible assets | $ | 3,406 | | | $ | — | | | $ | 3,050 | | | $ | 247 | | | $ | 6,703 | |
| | | | | | | | | |
| As of September 30, 2017 | | | | | | | | |
| As of September 30, 2019 | | As of September 30, 2019 | | | | | | | | | |
| Gross carrying amount | $ | 7,339 |
| | $ | 8,464 |
| | $ | 538 |
| | $ | 16,341 |
| Gross carrying amount | $ | 7,339 | | | $ | 8,464 | | | $ | — | | | $ | 538 | | | $ | 16,341 | |
| Accumulated amortization | (1,579 | ) | | (5,264 | ) | | (124 | ) | | (6,967 | ) | Accumulated amortization | (3,518) | | | (6,392) | | | — | | | (257) | | | (10,167) | |
| Net intangible assets | $ | 5,760 |
| | $ | 3,200 |
| | $ | 414 |
| | $ | 9,374 |
| Net intangible assets | $ | 3,821 | | | $ | 2,072 | | | $ | — | | | $ | 281 | | | $ | 6,174 | |
Amortization expense of intangible assets waswere $0.4 million and $0.9 million for the three and six months ended March 31, 2020, respectively, and $0.4 million and $0.8 million for the three and six months ended DecemberMarch 31, 20172019, respectively.
In the second quarter of fiscal year 2020, the onset of the COVID-19 pandemic prompted the Company to assess its intangible assets for impairment. The Company believed the brand intangible asset was closely aligned with the goodwill of the Company, which was determined to be impaired as of March 31, 2020. As a result, the Company recognized an intangible asset impairment of $1.8 million for both the three and 2016, respectively.six months ended March 31, 2020. NaN intangible asset impairment charge was recognized for the three and six months ended March 31, 2019.
The estimated amortization expense of intangible assets assumes no activities, such as acquisitions, which would result in additional amortizable intangible assets. Estimated amortization expense of intangible assets in subsequent fiscal years is as follows:follows.
| | | | | |
| Fiscal year | | Amount |
| (dollars in thousands) |
| Remaining in 2020 | $ | 538 | |
| 2021 | 1,014 | |
| 2022 | 929 | |
| 2023 | 831 | |
| 2024 | 742 | |
| 2025 and thereafter | 2,649 | |
| Total | $ | 6,703 | |
12. Leases
|
| | | |
| | Amount |
| | (dollars in thousands) |
| Remaining in 2018 | $ | 1,236 |
|
| 2019 | 1,538 |
|
| 2020 | 1,430 |
|
| 2021 | 1,334 |
|
| 2022 | 1,249 |
|
| 2023 and thereafter | 2,161 |
|
| Total | $ | 8,948 |
|
11. Loan Servicing Rights
Loan servicing rightsSubsequent to the adoption of ASC 842, the Company assesses contracts at inception to determine whether the contract is a lease or contains an embedded lease. A ROU asset and lease liability is recorded on the consolidated balance sheet for all leases except those with an original lease term of twelve months or less. Most of these leases include one or more renewal options, and certain leases also include lessee termination options. As these renewal options are created when residential mortgage loansnot generally considered reasonably certain of exercise, they are soldnot included in the secondary marketlease term.
The Company leases certain branch and corporate offices, land and ATM facilities through operating leases with terms typically ranging from 1 to 15 years, with the seller retaining the right to service those loans and receive servicing income over the lifelongest term having a lease expiration of the loan.March 31, 2034. The Company acquired loan servicing rightshas no significant financing leases as a part of the HF Financial acquisition. The actual balance of loans being serviced for others are not reported as assets in the accompanying consolidated balance sheets.March 31, 2020.
The following table is the activity for loan servicing rights and the related valuation allowance for the three months ended December 31, 2017 and 2016:
|
| | | | | | | |
| | Three Months Ended |
| | December 31, 2017 | | December 31, 2016 |
| | (dollars in thousands) |
| Loan servicing rights | | | |
| Beginning of period | $ | 4,155 |
| | $ | 5,794 |
|
| Additions | — |
| | — |
|
Amortization 1 | (313 | ) | | (508 | ) |
| End of period | $ | 3,842 |
| | $ | 5,286 |
|
| | | | |
GREAT WESTERN BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)
The following table summarizes the ROU asset and lease liability as of March 31, 2020.
| | | | | | | | |
| | March 31, 2020 |
| | (dollars in thousands) |
| ROU asset | | $ | 23,143 | |
| Total lease liability | | 24,036 | |
| Weighted average remaining lease term | | 6.7 years |
| Weighted average discount rate ¹ | | 1.98 | % |
1 The Company uses its incremental borrowing rate to calculate the present value of lease payments when the interest rate implicit in the lease is not disclosed. | | |
|
| | | | | | | |
| | Three Months Ended |
| | December 31, 2017 | | December 31, 2016 |
| | (dollars in thousands) |
| Valuation allowance | | | |
| Beginning of period | $ | (81 | ) | | $ | (13 | ) |
(Additions) / reductions 1 | 38 |
| | 5 |
|
| End of period | $ | (43 | ) | | $ | (8 | ) |
| Loan servicing rights, net | $ | 3,799 |
| | $ | 5,278 |
|
| | | | |
| Servicing fees received | $ | 437 |
| | $ | 548 |
|
| Balance of loans serviced at: | | | |
| Beginning of period | 722,461 |
| | 868,865 |
|
| End of period | 692,593 |
| | 823,375 |
|
| | | | |
1 Changes to carrying amounts are reported net of loan servicing income on the consolidated statements of comprehensive income for the periods presented. |
AmortizationAs of servicing rights is adjusted each quarter based uponMarch 31, 2020, the Company had 0 operating leases that had not yet commenced.
The following table presents supplemental cash flow information related to leases for the three and six months ended March 31, 2020:
| | | | | | | | | | | |
| Three Months Ended March 31, 2020 | | Six Months Ended March 31, 2020 |
| (dollars in thousands) | | |
| Cash paid for amounts included in the measurement of lease liabilities: | | | |
| Operating cash flows paid for operating leases | $ | 1,416 | | | $ | 2,826 | |
| Right-of-use assets obtained in exchange for lease liabilities: | | | |
| Operating leases | $ | 5,007 | | | $ | 5,631 | |
The following table presents a maturity analysis of portfolio attributes and factors, including an evaluation of historical prepayment activity and prospective industry consensus data. An independent third party is utilized to calculate the amortization and valuation based upon specific loan characteristics, prepayment speeds generated from a validation model utilizing both empirical and market derived data and discount rates. At December 31, 2017, the constant prepayment rates (CPR) used to calculate the amortization averaged 12.0%. For valuation purposes, an average discount rate of 11.9% was utilized at December 31, 2017. Based on the Company's analysisoperating lease liability as of mortgage servicing rights, a $0.0 million valuation reserve was recorded at DecemberMarch 31, 2017, and a $0.1 million valuation reserve was recorded at September 30, 2017.2020.
| | | | | |
| Fiscal year | | Amount |
| (dollars in thousands) |
| Remaining in 2020 | $ | 2,832 | |
| 2021 | 4,741 | |
| 2022 | 4,049 | |
| 2023 | 3,580 | |
| 2024 | 3,072 | |
| 2025 and thereafter | 7,500 | |
| Total undiscounted lease payments | 25,774 | |
| Less: Amounts representing interest | (1,738) | |
| Lease liability | $ | 24,036 | |
12.
13. Securities Sold Under Agreements to Repurchase
Securities sold under agreements to repurchase generally mature overnight following the transaction date. Securities underlying the agreements had an amortized cost of approximately $152.8$81.4 million and $139.3$94.7 million and fair value of approximately $149.8$83.0 million and $137.4$94.4 million at DecemberMarch 31, 20172020 and September 30, 2017,2019, respectively. In most cases, in alignment with the repurchase agreements in place with customers, the Company over-collateralizes the repurchase agreements at 102% of total funds borrowed to protect the purchaser from changes in market value. Additionally, the Company utilizes held-in-custody procedures to ensure the securities sold under repurchase agreements are unencumbered.
The following tables present the gross obligation by the class of collateral pledged and the remaining contractual maturity of the agreements at DecemberMarch 31, 20172020 and September 30, 2017.2019.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2020 | | | | | | | | |
| Remaining Contractual Maturity of the Agreements | | | | | | | | |
| Overnight and Continuous | | Up to 30 Days | | 30-90 Days | | Greater than 90 Days | | Total |
| (dollars in thousands) | | | | | | | | |
| Repurchase agreements | | | | | | | | | |
| | | | | | | | | |
| Mortgage-backed securities | $ | 64,809 | | | $ | — | | | $ | — | | | $ | — | | | $ | 64,809 | |
| Total repurchase agreements | $ | 64,809 | | | $ | — | | | $ | — | | | $ | — | | | $ | 64,809 | |
|
| | | | | | | | | | | | | | | | | | | |
| | December 31, 2017 |
| | Remaining Contractual Maturity of the Agreements |
| | Overnight and Continuous | | Up to 30 Days | | 30-90 Days | | Greater than 90 Days | | Total |
| | (dollars in thousands) |
| Repurchase agreements | | | | | | | | | |
| Municipal securities | $ | 2,919 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 2,919 |
|
| Mortgage-backed securities | 113,965 |
| | — |
| | — |
| | — |
| | 113,965 |
|
| Total repurchase agreements | $ | 116,884 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 116,884 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | September 30, 2017 |
| | Remaining Contractual Maturity of the Agreements |
| | Overnight and Continuous | | Up to 30 Days | | 30-90 Days | | Greater than 90 Days | | Total |
| | (dollars in thousands) |
| Repurchase agreements | | | | | | | | | |
| Municipal securities | $ | 3,626 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 3,626 |
|
| Mortgage-backed securities | 129,010 |
| | — |
| | — |
| | — |
| | 129,010 |
|
| Total repurchase agreements | $ | 132,636 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 132,636 |
|
GREAT WESTERN BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)
13. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2019 | | | | | | | | |
| Remaining Contractual Maturity of the Agreements | | | | | | | | |
| Overnight and Continuous | | Up to 30 Days | | 30-90 Days | | Greater than 90 Days | | Total |
| (dollars in thousands) | | | | | | | | |
| Repurchase agreements | | | | | | | | | |
| | | | | | | | | |
| Mortgage-backed securities | $ | 68,992 | | | $ | — | | | $ | — | | | $ | — | | | $ | 68,992 | |
| Total repurchase agreements | $ | 68,992 | | | $ | — | | | $ | — | | | $ | — | | | $ | 68,992 | |
14. FHLB Advances and Other Borrowings
FHLB advances and other borrowings consist of the following at DecemberMarch 31, 20172020 and September 30, 2017:2019.
| | | | | | | | | | | |
| March 31,
2020 | | September 30,
2019 |
| (dollars in thousands) | | |
| Short-term borrowings: | | | |
| Notes payable to FHLB, interest rates from 0.37% to 0.74%, maturing in April 2020 and May 2020 | $ | 400,000 | | | $ | — | |
| FHLB fed funds advance, interest rate of 0.35%, matured in April 2020 | 75,000 | | | 15,000 | |
| Long-term borrowings: | | | |
| Notes payable to FHLB, interest rates from 2.36% to 3.66% and maturity dates from March 2021 to September 2024 collateralized by real estate loans, with various call dates at the option of the FHLB | 325,000 | | | 325,000 | |
| Total | $ | 800,000 | | | $ | 340,000 | |
|
| | | | | | | |
| December 31, 2017 | | September 30, 2017 |
| | (dollars in thousands) |
| Short-term borrowings: | | | |
| Notes payable to Federal Home Loan Bank (FHLB), interest rates from 1.42% to 1.54% and maturity dates in January 2018, collateralized by real estate loans and FHLB stock, with various call dates at the option of the FHLB | $ | 665,000 |
| | $ | 512,200 |
|
| Federal Home Loan Bank fed funds advance, interest rate of 1.33% | — |
| | 75,000 |
|
| Long-term borrowings: | | | |
| Notes payable to Federal Home Loan Bank (FHLB), interest rates from 1.05% to 3.66% and maturity dates from April 2018 to July 2023, collateralized by real estate loans and FHLB stock, with various call dates at the option of the FHLB | 56,000 |
| | 56,000 |
|
| Total | 721,000 |
| | 643,200 |
|
Fair value adjustment 1 | 9 |
| | 14 |
|
| Total FHLB advances and other borrowings | $ | 721,009 |
| | $ | 643,214 |
|
| | | | |
1 Adjustment reflects the fair value adjustments related to the FHLB advances and notes payable assumed as part of the HF Financial acquisition. |
The Company has a $10.0 million revolving lineAs of credit which expires on July 28, 2018. The line of credit has an interest rate of one month LIBOR plus 200 basis points, with interest payable monthly. There is also an unused line fee of 0.15% on the unused portion which is payable quarterly. The interest rate was 3.56% at DecemberMarch 31, 2017. There were no outstanding advances on this line of credit at December 31, 20172020 and September 30, 2017.
As of December 31, 2017,2019, the Company had a borrowing capacity of $1.69$1.23 billion and $1.44 billion, respectively, with the Federal Reserve Board Discount Window ("FRB Discount Window").Window. Principal balances of loans pledged to FRB Discount Window to collateralize the borrowing totaled $1.99$1.48 billion at DecemberMarch 31, 20172020 and $2.55$1.72 billion at September 30, 2017.2019. The Company has secured this line for contingency funding.
As of DecemberMarch 31, 20172020 and September 30, 2017,2019, based on its Federal Home Loan Bank stock holdings,collateral pledged, the combined aggregate additional borrowing capacity of the Company with the Federal Home Loan BankFHLB was $1.40$1.46 billion and $1.55$1.80 billion, respectively.
Principal balances of loans pledged to the Federal Home Loan BankFHLB to collateralize notes payable totaled $3.77$4.11 billion and $3.71$4.20 billion at DecemberMarch 31, 20172020 and September 30, 2017,2019, respectively. The Company purchased letters of credit from the FHLB to pledge as collateral on public deposits. The amount outstanding was $0.0 million and $170.0 million at March 31, 2020 and September 30, 2019, respectively. The Company had additional letters of credit from the FHLB of $14.5 million and $14.9 million at March 31, 2020 and September 30, 2019, respectively, for other purposes.
As of DecemberMarch 31, 2017,2020, FHLB advances and other borrowings are due or callable (whichever is earlier) in subsequent fiscal years as follows:follows.
| | | | | |
| Fiscal year | | Amount |
| (dollars in thousands) |
| Remaining in 2020 | $ | 475,000 | |
| 2021 | 120,000 | |
| 2022 | 60,000 | |
| 2023 | 85,000 | |
| 2024 | 60,000 | |
| 2025 and thereafter | — | |
| Total | $ | 800,000 | |
GREAT WESTERN BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)
|
| | | |
| | Amount |
| | (dollars in thousands) |
| Remaining in 2018 | $ | 696,000 |
|
| 2019 | — |
|
| 2020 | — |
|
| 2021 | — |
|
| 2022 | — |
|
| 2023 and thereafter | 25,000 |
|
| Total | $ | 721,000 |
|
14.15. Subordinated Debentures and Subordinated Notes Payable
Junior Subordinated Deferrable Interest Debentures
The Company has seven7 trusts which were created or assumed as part of the HF Financial and Sunstate Bankprior acquisitions that as of March 31, 2020 have 73,400 shares in the aggregate issued and outstanding, 73,400 shares, $1,000 par value, as of December 31, 2017 of Company Obligated Mandatorily Redeemable Preferred Securities (the "Preferred("Preferred Securities"). These seven7 trusts were established and exist for the sole purpose of issuing Preferred Securities and investing the proceeds in junior subordinated deferrable interest debentures (the "Debentures"("Debentures") issued by the Company. The Debentures constitute the sole assets of the seven7 trusts. The Preferred Securities provide for cumulative cash distributions calculated at a rate based on three month LIBOR plus a range from 1.48% to 3.35% adjusted quarterly. The Company may, at one or more times, defer interest payments on the Debentures for up to 20 consecutive quarters following suspension of
GREAT WESTERN BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)
dividends on all capital stock, but not beyond the respective maturity date. At the end of any deferral period, all accumulated and unpaid interest must be paid. The Debentures have redemption dates ranging from January 7, 2033 to October 1, 2037; however, the Company has the option to shorten the respective maturity date for all seven7 Preferred Securities as the initial call option date has passed. Holders of the Preferred Securities have no voting rights. The Preferred Securities are unsecured and rank junior in priority of the payment to all of the Company's indebtedness and senior to the Company's common and preferred stock. The trusts’ ability to pay amounts due on the Preferred Securities is solely dependent upon the Company making payment on the related Debentures. The Company’s obligation under the Debentures and relevant trust agreements constitute a full, irrevocable, and unconditional guarantee on a subordinated basis by it of the obligations of the trusts under the Preferred Securities.
For regulatory purposes, the Debentures qualify as elements of capital. $73.5As of March 31, 2020 and September 30, 2019, Debentures, net of fair value adjustment, of $73.8 million of Debenturesand $73.7 million, respectively, were eligible for treatment as Tier 1 capital as of December 31, 2017 and September 30, 2017.capital.
Relating to the trusts, the Company held as assets $2.5 million in common shares at DecemberMarch 31, 20172020 and September 30, 20172019, which are included in other assets on the consolidated balance sheets.
Subordinated Notes Payable
In 2015, the Company issued $35.0 million of 4.875% fixed-to-floating rate subordinated notes that mature on August 15, 2025 through a private placement. The notes, which qualify as Tier 2 capital under capital rulesCapital Rules in effect at DecemberMarch 31, 2017,2020, have an interest rate of 4.875% per annum, payable semi-annually on each February 15 and August 15, which commenced on February 15, 2016 until August 15, 2020, or the date of earlier redemption, and then from August 15, 2020 to but excluding the stated maturity date or date of earlier redemption, the notes will bear interest at a rate per annum equal to three-monththree month LIBOR for the related interest period plus 3.15%, payable quarterly on each November 15, February 15, April 15 and August 15. The notes are subordinated in right of payment to all of the Company's senior indebtedness and effectively subordinated to all existing and future debt and all other liabilities of the Company's subsidiary bank. The Company may elect to redeem the notes (subject to regulatory approval), in whole or in part, on any early redemption date which is any interest payment date on or after August 15, 2020 at a redemption price equal to 100% of the principal amount plus any accrued and unpaid interest. Other than on an early redemption date, the notes cannot be accelerated except in the event of bankruptcy or the occurrence ofupon certain other events of bankruptcy, insolvency or reorganization. Unamortized debt issuance costs related to these notes, which are included in Subordinated Debentures and Subordinated Notes Payable, totaled $0.2were negligible and $0.1 million at DecemberMarch 31, 20172020 and September 30, 2017.2019, respectively. Proceeds from the private placement of subordinated notes repaid outstanding subordinated debt.
Subordinated debentures and subordinated notes payable are summarized as follows:
|
| | | | | | | | | | | | | | | |
| | December 31, 2017 | | September 30, 2017 |
| | Amount Outstanding | | Common Shares Held in Other Assets | | Amount Outstanding | | Common Shares Held in Other Assets |
| | (dollars in thousands) |
| Junior subordinated debentures payable to nonconsolidated trusts | | | | | | | |
| GW Statutory Trust IV, variable rate of 2.85%, plus 3 month LIBOR | $ | 23,093 |
| | $ | 693 |
| | $ | 23,093 |
| | $ | 693 |
|
| GW Statutory Trust VI, variable rate of 1.48%, plus 3 month LIBOR | 30,928 |
| | 928 |
| | 30,928 |
| | 928 |
|
| SSB Trust II, variable rate of 1.85%, plus 3 month LIBOR | 2,062 |
| | 62 |
| | 2,062 |
| | 62 |
|
| HF Capital Trust III, variable rate of 3.35%, plus 3 month LIBOR | 5,155 |
| | 155 |
| | 5,155 |
| | 155 |
|
| HF Capital Trust IV, variable rate of 3.10%, plus 3 month LIBOR | 7,217 |
| | 217 |
| | 7,217 |
| | 217 |
|
| HF Capital Trust V, variable rate of 1.83%, plus 3 month LIBOR | 5,310 |
| | 310 |
| | 5,310 |
| | 310 |
|
| HF Capital Trust VI, variable rate of 1.65%, plus 3 month LIBOR | 2,155 |
| | 155 |
| | 2,155 |
| | 155 |
|
| Total junior subordinated debentures payable | 75,920 |
| | $ | 2,520 |
| | 75,920 |
| | $ | 2,520 |
|
Less: fair value adjustment 1 | (2,387 | ) | | | | (2,409 | ) | | |
| Total junior subordinated debentures payable, net of fair value adjustment | 73,533 |
| | | | 73,511 |
| | |
| | | | | | | | |
| Subordinated notes payable | | | | | | | |
| Fixed to floating rate, 4.875% per annum | 35,000 |
| | | | 35,000 |
| | |
| Less: unamortized debt issuance costs | (190 | ) | | | | (209 | ) | | |
| Total subordinated notes payable | 34,810 |
| | | | 34,791 |
| | |
| Total subordinated debentures and subordinated notes payable | $ | 108,343 |
| | | | $ | 108,302 |
| | |
| | | | | | | | |
1 Adjustment reflects the fair value adjustments related to the junior subordinated deferrable interest debentures assumed as part of the HF Financial acquisition. |
GREAT WESTERN BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)
Subordinated debentures and subordinated notes payable are summarized as follows.
15. Income Taxes | | | | | | | | | | | | | | | | | |
| March 31, 2020 | | | September 30, 2019 | |
| Amount Outstanding | Common Shares Held in Other Assets | | Amount Outstanding | Common Shares Held in Other Assets |
| (dollars in thousands) | | | | |
| Junior subordinated debentures payable to non-consolidated trusts | | | | | |
| GW Statutory Trust IV, variable rate of 2.85%, plus 3 month LIBOR | $ | 23,093 | | $ | 693 | | | $ | 23,093 | | $ | 693 | |
| GW Statutory Trust VI, variable rate of 1.48%, plus 3 month LIBOR | 30,928 | | 928 | | | 30,928 | | 928 | |
| SSB Trust II, variable rate of 1.85%, plus 3 month LIBOR | 2,062 | | 62 | | | 2,062 | | 62 | |
| HF Capital Trust III, variable rate of 3.35%, plus 3 month LIBOR | 5,155 | | 155 | | | 5,155 | | 155 | |
| HF Capital Trust IV, variable rate of 3.10%, plus 3 month LIBOR | 7,217 | | 217 | | | 7,217 | | 217 | |
| HF Capital Trust V, variable rate of 1.83%, plus 3 month LIBOR | 5,310 | | 310 | | | 5,310 | | 310 | |
| HF Capital Trust VI, variable rate of 1.65%, plus 3 month LIBOR | 2,155 | | 155 | | | 2,155 | | 155 | |
| Total junior subordinated debentures payable | 75,920 | | $ | 2,520 | | | 75,920 | | $ | 2,520 | |
| Less: fair value adjustment ¹ | (2,155) | | | | (2,223) | | |
| Total junior subordinated debentures payable, net of fair value adjustment | 73,765 | | | | 73,697 | | |
| Subordinated notes payable | | | | | |
| Fixed to floating rate, 4.875% per annum | 35,000 | | | | 35,000 | | |
| Less: unamortized debt issuance costs | (25) | | | | (61) | | |
| Total subordinated notes payable | 34,975 | | | | 34,939 | | |
| Total subordinated debentures and subordinated notes payable | $ | 108,740 | | | | $ | 108,636 | | |
1 Adjustment reflects the fair value adjustments related to the junior subordinated deferrable interest debentures assumed as part of the HF Financial acquisition. | | | | | |
The provision for income taxes charged to operations consists of the following for the three months ended December 31, 2017 and 2016:
|
| | | | | | | |
| | Three Months Ended December 31, |
| | 2017 | | 2016 |
| | (dollars in thousands) |
| Currently paid or payable | | | |
| Federal | $ | 8,960 |
| | $ | 13,152 |
|
| State | 2,455 |
| | 2,364 |
|
| Total | 11,415 |
| | 15,516 |
|
| Deferred tax expense | | | |
| Federal | 16,764 |
| | 478 |
|
| State | 462 |
| | 66 |
|
| Total | 17,226 |
| | 544 |
|
| Total provision for income taxes | $ | 28,641 |
| | $ | 16,060 |
|
The income tax provision differs from the amount of income tax determined by applying the U.S. federal income tax rate of 24.5% for the three months ended December 31, 2017 and 35% for the three months ended December 31, 2016 to pretax income due to the following for the three months ended December 31, 2017 and 2016: |
| | | | | | | |
| | Three Months Ended December 31, |
| | 2017 | | 2016 |
| | (dollars in thousands) |
| Income tax expense computed at the statutory rate | $ | 14,195 |
| | $ | 18,537 |
|
| Increase (decrease) in income taxes resulting from: | | | |
| State income taxes, net of federal benefit | 2,202 |
| | 1,580 |
|
| Tax exempt interest income | (1,371 | ) | | (2,038 | ) |
| Impact of enacted federal income tax rate reduction | 13,586 |
| | — |
|
| Other | 29 |
| | (2,019 | ) |
| Income tax expense, as reported | $ | 28,641 |
| | $ | 16,060 |
|
Net deferred tax assets (liabilities) consist of the following components at December 31, 2017 and September 30, 2017:
|
| | | | | | | |
| | December 31, 2017 | | September 30, 2017 |
| | (dollars in thousands) |
| Deferred tax assets: | | | |
| Allowance for loan and lease losses | $ | 16,026 |
| | $ | 23,730 |
|
| Compensation | 2,481 |
| | 6,227 |
|
| Securities available for sale | 4,345 |
| | 3,413 |
|
| Other real estate owned | 475 |
| | 763 |
|
| Core deposit intangible and other fair value adjustments | 4,197 |
| | 6,058 |
|
| Excess tax basis of FDIC indemnification asset and clawback liability | 3,393 |
| | 4,563 |
|
| Excess tax basis of loans acquired over carrying value | 6,349 |
| | 9,417 |
|
| Other reserves | 2,446 |
| | 4,406 |
|
| Other | 4,953 |
| | 6,922 |
|
| Total deferred tax assets | 44,665 |
| | 65,499 |
|
| Deferred tax liabilities: | | | |
| Goodwill and other intangibles | (10,493 | ) | | (13,784 | ) |
| Premises and equipment | (5,211 | ) | | (8,828 | ) |
| Other | (413 | ) | | (487 | ) |
| Total deferred tax liabilities | (16,117 | ) | | (23,099 | ) |
| Net deferred tax assets | $ | 28,548 |
| | $ | 42,400 |
|
GREAT WESTERN BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)
At December 31, 2017, the Company had an income tax payable to the Internal Revenue Service (the "IRS") of $4.6 million, which is included in other liabilities on the consolidated balance sheets. At September 30, 2017, the Company had an income tax receivable from the IRS of $4.6 million, which is included in other assets on the consolidated balance sheets. The Company is no longer subject to U.S. federal, state and local or non-U.S. income tax examinations by tax authorities for years before 2014.
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the "Tax Reform Act"), was enacted into law. Beginning in 2018, the Tax Reform Act reduces the federal tax rate for corporations from 35% to 21% and changes or limits certain tax deductions. Because of the Company's September 30 fiscal year end, a blended statutory rate of 24.5% is applied to all net income before taxes generated during the current fiscal year. The new blended statutory rate reduced the provision for income taxes by approximately $5.0 million for the three months ended December 31, 2017. Another result of the lower corporate tax rate this quarter was the Company recording a revaluation discrete tax adjustment of $13.6 million to reduce its net deferred tax assets, which increased the provision for income taxes. The actual impact of the revaluing deferred taxes may vary from the estimated charge to provision of $13.6 million due to uncertainties in our preliminary estimates and the effect of further clarification of the new law that cannot be estimated at this time.
The Bank's effective tax rate for the three months ended December 31, 2017 was 49.5%, compared to 30.8% for the prior quarter. The increase in the effective tax rate during the quarter mostly resulted from the revaluation of deferred taxes. For 2018, the Bank expects its annual effective tax rate to be approximately 26%.
Uncertain tax positions were not significant at December 31, 2017 or September 30, 2017.
16. Employee Benefit Plans
Profit Sharing Plan
The Company participates in a multiple employer 401(k) profit sharing plan ("the 401(k) Plan"). All employees are eligible to participate, beginning with the first day of the month coincident with or immediately following the completion of one year of service and having reached the age of 21. In addition to employee contributions, the Company may contribute discretionary amounts for eligible participants. Contribution rates for participating employees must be equal. The Company contributed $1.8$1.6 million and $1.5$3.3 million to the 401(k) Plan for the three and six months ended DecemberMarch 31, 20172020, respectively, and 2016,$1.1 million and $2.9 million for the three and six months ended March 31, 2019, respectively.
Defined Benefit Plan
The Company acquired a noncontributory (cash balance) defined benefit pension plan ("the Pension Plan") from HF Financial which covers former employees of HF Financial and its wholly-owned subsidiaries. Effective July 1, 2015, the Pension Plan was frozen which eliminates future contributions for qualified individuals.
On November 27, 2017, the Company's Board of Directors voted to terminate the Pension Plan, effective February 1, 2018. In order to settle its liabilities under the Pension Plan, the Company will offer participants the option to receive either an annuity purchased from an insurance carrier or a lump-sum cash payment. If the total $3.1 million value of the Pension Plan's cash assets is insufficient to cover the lump-sum payouts and annuity purchases, the Company will contribute the necessary funds to complete the termination of the Pension Plan. In addition to plan assets, the Company has a $2.3 million pension liability recorded as of December 31, 2017. The required final contribution is subject to a number of factors, including changes in interest rates and the exact proportion of participants electing a lump-sum distribution versus an annuity. The Company estimates that the total benefit payments will be $5.4 million as part of Pension Plan termination. At this time, the Company is unable to estimate the net income or expense associated with terminating the Pension Plan, but believes the amount will not be material to the financial statements.
The Company anticipates completing the transfer of all liabilities and administrative responsibilities under the Pension Plan by the end of fiscal third quarter 2018. Once this process is complete, the Company will no longer have any remaining pension obligations and thus no periodic pension expense.
17. Stock-Based Compensation
On September 26, 2014, the Board of Directors adopted, and on October 10, 2014, NAB, at that time ourthe Company's controlling shareholder, approved the Great Western Bancorp, Inc. 2014 Omnibus Incentive Compensation Plan (the “2014 Plan”("2014 Plan"), the Great Western Bancorp, Inc. 2014 Non-Employee Director Plan (the “2014("2014 Director Plan”Plan"), and the Great Western Bancorp, Inc. Executive Incentive Compensation Plan (the “Bonus Plan”("Bonus Plan"), collectively ("the Plans"), which provide for the issuance of restricted share units and performance based share units to certain officers, employees and directors of the Company. On February 22, 2018, the Company's stockholders approved amendments to the 2014 Plan and the 2014 Director Plan to increase the number of shares available for future grants under the Plans. The Plans were primarily established to enhance the Company’s ability to attract, retain and motivate employees. The Company’s Board of Directors, the Compensation Committee of the Board of Directors ("Compensation Committee"), or executive management upon delegation of the Compensation
GREAT WESTERN BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)
Committee has exclusive authority to select the employees and others, including directors, to receive the awards and to establish the terms and conditions of each award made pursuant to the Company’s stock-based compensation plans.
Stock units issued under the Company’s restricted and performance based stock plans may not be sold or otherwise transferred until the vesting period (typically 3 years) has been met and/orand, if applicable, performance objectives have been obtained. During the vesting periods, participants do not have voting rights and dividends are accumulated until the time upon which the award vests. Upon specified events, as defined in the Plans, stock unit awards that have not vested and/or performance hurdles that have not been met will be forfeited.
Based on the substantive terms of each award, restricted and performance-based awards are classified as equity awards and accounted for under the treasury stock method. The fair value of equity-classified awards is based on the market price of the stock on the measurement date and is amortized as compensation expense on a straight-line basis over the vesting or performance period.
GREAT WESTERN BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)
Stock compensation is recognized based on the number of awards to vest using actual forfeiture amounts. For performance-based stock awards, an estimate is made of the number of shares expected to vest as a result of actual performance against the performance targets to determine the amount of compensation expense to be recognized. The estimate is reevaluated quarterly and total compensation expense is adjusted for any change in the current period. Stock-based compensation expense is included in salaries and employee benefits expense in the consolidated statements of income. For the three months ended December 31, 2017 and 2016, stockStock compensation expense was $1.5$1.3 million and $1.6$2.9 million for the three and six months ended March 31, 2020, respectively, and $1.4 million and $3.1 million for the three and six months ended March 31, 2019, respectively. Related income tax benefits recognized were $0.5$0.3 million and $0.6$0.7 million for the three and six months ended DecemberMarch 31, 20172020, respectively and 2016,$0.4 million and $0.8 million for the three and six months ended March 31, 2019, respectively.
The following is a summary of the Plans’ restricted share and performance-based stock award activity as of DecemberMarch 31, 20172020 and September 30, 2017.2019. The number of performance shares granted is reflected in the belowfollowing table are reflected at the amount of achievement of the pre-established targets.
| | | | December 31, 2017 | | September 30, 2017 | | March 31, 2020 | | | September 30, 2019 | |
| | Common
Shares | | Weighted-Average Grant Date Fair Value | | Common
Shares | | Weighted-Average Grant Date Fair Value | | Common
Shares | Weighted-Average Grant Date Fair Value | | Common
Shares | Weighted-Average Grant Date Fair Value |
| Restricted Shares | | | | | | | | Restricted Shares | | | |
| Restricted shares, beginning of fiscal year | 180,337 |
| | $ | 33.06 |
| | 160,335 |
| | $ | 26.89 |
| Restricted shares, beginning of fiscal year | 190,805 | | $ | 37.20 | | | 163,287 | | $ | 37.86 | |
| Granted | 85,481 |
| | 41.07 |
| | 90,363 |
| | 39.35 |
| Granted | 134,185 | | 32.34 | | | 106,753 | | 37.27 | |
| Vested | (81,999 | ) | | 32.12 |
| | (68,293 | ) | | 26.97 |
| Vested | (83,909) | | 38.61 | | | (76,210) | | 38.64 | |
| Forfeited | (471 | ) | | 39.41 |
| | (2,068 | ) | | 30.91 |
| Forfeited | (3,109) | | 36.61 | | | (3,025) | | 38.67 | |
| Canceled | — |
| | — |
| | — |
| | — |
| Canceled | — | | — | | | — | | — | |
| Restricted shares, end of period | 183,348 |
| | $ | 37.20 |
| | 180,337 |
| | $ | 33.06 |
| Restricted shares, end of period | 237,972 | | $ | 33.97 | | | 190,805 | | $ | 37.20 | |
| | | | | | | | | | | | |
| Vested, but not issuable at end of period | 39,514 |
| | $ | 32.90 |
| | 29,287 |
| | $ | 30.05 |
| Vested, but not issuable at end of period | 62,992 | | $ | 33.98 | | | 50,770 | | $ | 33.88 | |
| | | | | | | | | | | | |
| Performance Shares | | | | | | | | Performance Shares | |
| Performance shares, beginning of fiscal year | 133,604 |
| | $ | 33.39 |
| | 236,185 |
| | $ | 20.28 |
| Performance shares, beginning of fiscal year | 173,332 | | $ | 38.50 | | | 175,196 | | $ | 36.29 | |
| Granted | 58,528 |
| | 28.16 |
| | 137,612 |
| | 39.43 |
| Granted | (48,753) | | (49.22) | | | 60,583 | | 32.77 | |
| Vested | — |
| | — |
| | (235,055 | ) | | 18.00 |
| Vested | (54,861) | | 39.43 | | | (59,937) | | 30.79 | |
| Forfeited | (441 | ) | | 36.82 |
| | (5,138 | ) | | 19.80 |
| Forfeited | (3,732) | | 38.14 | | | (2,510) | | 39.25 | |
| Canceled | — |
| | — |
| | — |
| | — |
| Canceled | — | | — | | | — | | — | |
| Performance shares, end of period | $ | 191,691 |
| | $ | 35.73 |
| | $ | 133,604 |
| | $ | 33.39 |
| Performance shares, end of period | 65,986 | | $ | 34.61 | | | 173,332 | | $ | 38.50 | |
| | | | | | | | | | | | |
| Vested, but not issuable at end of period | 5,612 |
| | $ | 18.00 |
| | — |
| | $ | — |
| Vested, but not issuable at end of period | 5,612 | | $ | 18.00 | | | 5,612 | | $ | 18.00 | |
As of DecemberMarch 31, 2017,2020, there was $9.3$7.7 million of unrecognized compensation cost related to nonvestednon-vested restricted stock awards expected to be recognized over a period of 2.92.7 years. The fair value of the vested, but not issued stock awards was $1.4 million and $1.9 million at DecemberMarch 31, 2017, was $1.8 million.2020 and September 30, 2019, respectively.
GREAT WESTERN BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)
18. Fair Value Measurements
The Company measures, monitors and discloses certain of its assets and liabilities on a fair value basis. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value guidance also establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The guidance describes the following three levels of inputs that may be used to measure fair value are as follows:value:
Level 1 Quoted prices in active markets for identical assets or liabilitiesliabilities;
| |
Level 2 | Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities |
| |
Level 3 | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities |
Level 2 Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and
Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
GREAT WESTERN BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)
Level 1 inputs are considered to be the most transparent and reliable and Level 3 inputs are considered to be the least transparent and reliable. The Company assumes the use of the principal market to conduct a transaction of each particular asset or liability being measured and then considers the assumptions that market participants would use when pricing the asset or liability. Whenever possible, the Company first looks for quoted prices for identical assets or liabilities in active markets (Level 1 inputs) to value each asset or liability. However, when inputs from identical assets or liabilities on active markets are not available, the Company utilizes market observable data for similar assets and liabilities. The Company maximizes the use of observable inputs and limits the use of unobservable inputs to occasions when observable inputs are not available. The need to use unobservable inputs generally results from the lack of market liquidity of the actual financial instrument or of the underlying collateral. Although in some instances, third party price indications may be available, limited trading activity can challenge the observability of these quotations.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Following is a description of the valuation methodologies and inputs used for assets and liabilities measured at fair value on a recurring basis and recognized in the accompanying consolidated balance sheets, as well as the general classification of such assets and liabilities pursuant to the valuation hierarchy.
Securities Available for Sale
Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities include U.S. Treasury securities. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows and classified as Level 2 securities. Level 2 securities include mortgage-backed, states and political subdivisions, and other securities. Where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy. Level 3 securities were immaterial at DecemberMarch 31, 20172020 and September 30, 2017.2019.
Interest Rate Swaps and Loans
Interest rate swaps are valued by the Company's Swap Dealers using cash flow valuation techniques with observable market data inputs. The fair value of loans accounted for under the fair value option represents the net carrying value of the loan, plus the equal and opposite amount of the value of the swap needed to hedgeoffset the interest rate risk and an adjustment for credit risk based on ourthe Company's assessment of existing market conditions for the specific portfolio of loans. This is used due to the strict prepayment penalties put in the loan terms to cover the cost of exiting the hedgeinterest rate swap of the loans in the case of early prepayment or termination. The adjustment for credit risk on loans accounted for under the fair value option is not significant to the overall fair value of the loans. The fair values estimated by the Company's Swap Dealers use interest rates that are observable or that can be corroborated by observable market data and, therefore, are classified within Level 2 of the valuation hierarchy. The Company has entered into Collateral Agreements with its Swap Dealers and Futures Clearing Merchant which entitle it to receive collateral to cover market values on derivatives which are in asset position, thus a credit risk adjustment on interest rate swaps is not warranted. The Company regularly enters into interest rate lock commitments on mortgage loans to be held for sale with corresponding forward sales contracts related to these interest rate lock commitments, the fair values of which are calculated by applying observable market values from Fannie Mae TBA pricing to each interest rate lock commitment and forward sales contract, therefore, are classified within Level 2 of the valuation hierarchy. The Company also has back-to-back swaps with loan customers, with corresponding swaps with an outside third party in exact offsetting terms.
Loan Servicing Rights
Fair value is determined at a tranche level, based on market prices for comparable mortgage servicing contracts (Level 3), when available, or alternatively based on a valuation model that calculates the present value of estimated future net servicing income. The valuation model utilizes interest rate, prepayment speed, and default rate assumptions that market participants would use in estimating future net servicing income and that can be validated against market data (Level 3).
GREAT WESTERN BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)
The following table presents the fair value measurements of assets and liabilities recognized in the accompanying consolidated balance sheets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at DecemberMarch 31, 20172020 and September 30, 2017:2019.
| | | | | | | | | | | | Fair Value | | Level 1 | | Level 2 | | Level 3 |
| | Fair Value | | Level 1 | | Level 2 | | Level 3 | | (dollars in thousands) | |
| | (dollars in thousands) | |
| As of December 31, 2017 | | | | | | | | |
| As of March 31, 2020 | | As of March 31, 2020 | |
| U.S. Treasury securities | $ | 227,777 |
| | $ | 227,777 |
| | $ | — |
| | $ | — |
| U.S. Treasury securities | $ | 70,583 | | | $ | 70,583 | | | $ | — | | | $ | — | |
| Mortgage-backed securities | 1,068,666 |
| | — |
| | 1,068,666 |
| | — |
| Mortgage-backed securities | 1,857,392 | | | — | | | 1,857,392 | | | — | |
| States and political subdivision securities | 69,177 |
| | — |
| | 68,212 |
| | 965 |
| States and political subdivision securities | 61,001 | | | — | | | 57,015 | | | 3,986 | |
| Other | 1,021 |
| | — |
| | 1,021 |
| | — |
| Other | 1,051 | | | — | | | 1,051 | | | — | |
| Total securities available for sale | $ | 1,366,641 |
| | $ | 227,777 |
| | $ | 1,137,899 |
| | $ | 965 |
| Total securities available for sale | $ | 1,990,027 | | | $ | 70,583 | | | $ | 1,915,458 | | | $ | 3,986 | |
| Derivatives-assets | $ | 813 |
| | $ | — |
| | $ | 813 |
| | $ | — |
| Derivatives-assets | $ | 98,723 | | | $ | — | | | $ | 98,723 | | | $ | — | |
| Derivatives-liabilities | 11,029 |
| | — |
| | 11,029 |
| | — |
| Derivatives-liabilities | 640 | | | — | | | 640 | | | — | |
| Fair value loans | 980,144 |
| | — |
| | 980,144 |
| | — |
| Fair value loans | 792,117 | | | — | | | 792,117 | | | — | |
| | | | | | | | | |
| As of September 30, 2017 | | | | | | | | |
| Loan servicing rights | | Loan servicing rights | 1,863 | | | — | | | — | | | 1,863 | |
| As of September 30, 2019 | | As of September 30, 2019 | |
| U.S. Treasury securities | $ | 228,603 |
| | $ | 228,603 |
| | $ | — |
| | $ | — |
| U.S. Treasury securities | $ | 94,745 | | | $ | 94,745 | | | $ | — | | | $ | — | |
| Mortgage-backed securities | 1,065,737 |
| | — |
| | 1,065,737 |
| | — |
| Mortgage-backed securities | 1,620,903 | | | — | | | 1,620,903 | | | — | |
| States and political subdivision securities | 72,586 |
| | — |
| | 71,517 |
| | 1,069 |
| States and political subdivision securities | 66,523 | | | — | | | 62,403 | | | 4,120 | |
| Other | 1,034 |
| | — |
| | 1,034 |
| | — |
| Other | 1,037 | | | — | | | 1,037 | | | — | |
| Total securities available for sale | $ | 1,367,960 |
| | $ | 228,603 |
| | $ | 1,138,288 |
| | $ | 1,069 |
| Total securities available for sale | $ | 1,783,208 | | | $ | 94,745 | | | $ | 1,684,343 | | | $ | 4,120 | |
| Derivatives-assets | $ | 48 |
| | $ | — |
| | $ | 48 |
| | $ | — |
| Derivatives-assets | $ | 58,534 | | | $ | — | | | $ | 58,534 | | | $ | — | |
| Derivatives-liabilities | 17,107 |
| | — |
| | 17,107 |
| | — |
| Derivatives-liabilities | 13 | | | — | | | 13 | | | — | |
| Fair value loans | 1,016,576 |
| | — |
| | 1,016,576 |
| | — |
| Fair value loans | 812,991 | | | — | | | 812,991 | | | — | |
| Loan servicing rights | | Loan servicing rights | 2,255 | | | — | | | — | | | 2,255 | |
The following table presents the changes in Level 3 financial instrumentsassets and liabilities measured at fair value on a recurring basis for the three and six months ended DecemberMarch 31, 20172020 and 2016:2019.
| | | | | | | | Three Months Ended March 31, | | | Six Months Ended March 31, | |
| | Three Months Ended | | 2020 | | 2019 | | 2020 | | 2019 |
| | December 31, 2017 | | December 31, 2016 | | (dollars in thousands) | | | | | |
| Other securities available for sale | | Other securities available for sale | |
| Balance, beginning of period | | Balance, beginning of period | $ | 3,986 | | | $ | 961 | | | $ | 4,120 | | | $ | 970 | |
| Additions | | Additions | — | | | 350 | | | — | | | 350 | |
| Principal paydown | | Principal paydown | — | | | — | | | (134) | | | (9) | |
| | (dollars in thousands) | |
| Balance, end of period | | Balance, end of period | $ | 3,986 | | | $ | 1,311 | | | $ | 3,986 | | | $ | 1,311 | |
| | Loan servicing rights | | Loan servicing rights | |
| Balance, beginning of period | $ | 1,069 |
| | $ | 1,315 |
| Balance, beginning of period | $ | 2,054 | | | $ | 2,862 | | | $ | 2,255 | | | $ | 3,087 | |
| Principal paydown | (104 | ) | | (91 | ) | |
| | Realized and unrealized loss ¹ | | Realized and unrealized loss ¹ | (191) | | | (188) | | | (392) | | | (413) | |
| Balance, end of period | $ | 965 |
| | $ | 1,224 |
| Balance, end of period | $ | 1,863 | | | $ | 2,674 | | | $ | 1,863 | | | $ | 2,674 | |
| 1 Realized and unrealized loss related to loan servicing rights are reported as a component of mortgage banking income, net on the consolidated statements of income. | | 1 Realized and unrealized loss related to loan servicing rights are reported as a component of mortgage banking income, net on the consolidated statements of income. | |
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Following is a description of the valuation methodologies used for assets and liabilities measured at fair value on a nonrecurring basis and recognized in the accompanying consolidated balance sheets, as well as the general classification of such assets and liabilities pursuant to the valuation hierarchy.
Other Repossessed Property
Other repossessed property consists of loan collateral that has been repossessed through foreclosure. This collateral is comprised of commercial and residential real estate and other repossessed assets. Other repossessed property is recorded initially at fair value of the collateral less estimated selling costs. Subsequent to foreclosure, valuations are updated periodically, and the assets may be marked down further to fair value less selling costs, reflecting a valuation allowance. Fair value measurements may be based upon appraisals, third-party price opinions, or internally developed pricing methods. These measurements are classified as Level 3.
GREAT WESTERN BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)
Impaired Loans (Collateral Dependent)
Loans for which it is probable that the Company will not collect all principal and interest due according to contractual terms are measured for impairment. Allowable methods for estimating fair value include using the fair value of the collateral for collateral dependent loans or, where a loan is determined not to be collateral dependent, using the discounted cash flow method.
If the impaired loan is identified as collateral dependent, then the fair value method of measuring the amount of the impairment is utilized. This method requires obtaining a current independent appraisal of the collateral and applying a discount factor,
GREAT WESTERN BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)
if necessary, to the appraised value and including costs to sell. Because many of these inputs are not observable, the measurements are classified as Level 3.
Mortgage Loans Held for Sale
Fair value of mortgage loans held for sale is based on either quoted prices for the same or similar loans, or values obtained from third parties, or are estimated for portfolios of loans with similar financial characteristics and are therefore considered a Level 2 valuation.
Loan Servicing Rights
Fair value is determined at a tranche level, based on market prices for comparable mortgage servicing contracts (Level 3), when available, or alternatively based on a valuation model that calculates the present value of estimated future net servicing income. The valuation model utilizes interest rate, prepayment speed, and default rate assumptions that market participants would use in estimating future net servicing income and that can be validated against market data (Level 3).
Property Held for Sale
This real estate property is carried in premises and equipment as property held for sale at fair value based upon the transactional price if available, or the appraised value of the property.
The following tables presenttable presents the fair value measurement of assets and liabilities measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at DecemberMarch 31, 20172020 and September 30, 2017:2019.
| | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value | | Level 1 | | Level 2 | | Level 3 |
| (dollars in thousands) | | | | | | |
| As of March 31, 2020 | | | | | | | |
| Other repossessed property | $ | 21,486 | | | $ | — | | | $ | — | | | $ | 21,486 | |
| Impaired loans | 559,155 | | | — | | | — | | | 559,155 | |
| Mortgage loans held for sale, at lower of cost or fair value | 4,342 | | | — | | | 4,342 | | | — | |
| Property held for sale | 706 | | | — | | | — | | | 706 | |
| As of September 30, 2019 | | | | | | | |
| Other repossessed property | $ | 34,721 | | | $ | — | | | $ | — | | | $ | 34,721 | |
| Impaired loans | 413,644 | | | — | | | — | | | 413,644 | |
| Mortgage loans held for sale, at lower of cost or fair value | 7,351 | | | — | | | 7,351 | | | — | |
| Property held for sale | 2,757 | | | — | | | — | | | 2,757 | |
|
| | | | | | | | | | | | | | | |
| | Fair Value | | Level 1 | | Level 2 | | Level 3 |
| | (dollars in thousands) |
| As of December 31, 2017 | | | | | | | |
| Other repossessed property | $ | 2,590 |
| | $ | — |
| | $ | — |
| | $ | 2,590 |
|
| Impaired loans | 207,703 |
| | — |
| | — |
| | 207,703 |
|
| Loans held for sale, at lower of cost or fair value | 5,757 |
| | — |
| | 5,757 |
| | — |
|
| Loan servicing rights | 3,799 |
| | — |
| | — |
| | 3,799 |
|
| Property held for sale | 1,111 |
| | — |
| | — |
| | 1,111 |
|
| | | | | | | | |
| As of September 30, 2017 | | | | | | | |
| Other repossessed property | $ | 7,728 |
| | $ | — |
| | $ | — |
| | $ | 7,728 |
|
| Impaired loans | 185,388 |
| | — |
| | — |
| | 185,388 |
|
| Loans held for sale, at lower of cost or fair value | 7,456 |
| | — |
| | 7,456 |
| | — |
|
| Loan servicing rights | 4,074 |
| | — |
| | — |
| | 4,074 |
|
| Property held for sale | 5,147 |
| | — |
| | — |
| | 5,147 |
|
The valuation techniques and significant unobservable inputs used to measure Level 3 fair value measurements at DecemberMarch 31, 20172020 were as follows:follows. |
| | | | | | | | | | | |
| | Fair Value of Assets / (Liabilities) at December 31, 2017 | | Valuation
Technique(s) | | Unobservable
Input | | Range | | Weighted
Average |
| | (dollars in thousands) |
| Other repossessed property | $ | 2,590 |
| | Appraisal value | | Property specific adjustment | | N/A | | N/A |
| Impaired loans | 207,703 |
| | Appraisal value | | Property specific adjustment | | N/A | | N/A |
| Loan servicing rights | 3,799 |
| | Discounted cash flows | | Constant prepayment rate
Discount rate | | 9.2 - 23.2%
10.0 - 15.0% | | 12.0%
11.9% |
| Property held for sale | 1,111 |
| | Appraisal value | | Property specific adjustment | | N/A | | N/A |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value of Assets / (Liabilities) at March 31, 2020 | | Valuation
Technique(s) | | Unobservable
Input | | Range | | Weighted
Average |
| (dollars in thousands) | | | | | | | | |
| Other repossessed property | $ | 21,486 | | | Appraisal value | | Property specific adjustment | | N/A | | N/A |
| Impaired loans | 559,155 | | | Appraisal value | | Property specific adjustment | | N/A | | N/A |
| Property held for sale | 706 | | | Appraisal value | | Property specific adjustment | | N/A | | N/A |
Disclosures about Fair Value of Financial Instruments
For financial instruments that have quoted market prices, those quotes are used to determine fair value. Financial instruments that have no defined maturity, have a remaining maturity of 180 days or less, or reprice frequently to a market rate are assumed to have a fair value that approximates carrying value, after taking into consideration any applicable credit risk. If no market quotes are
GREAT WESTERN BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)
available, financial instruments are valued by discounting the expected cash flows using an estimated current market interest rate for the financial instrument.
The short maturity of the Company’s assets and liabilities results in having a significant number of financial instruments whose fair value equals or closely approximates carrying value. Such financial instruments are reported in the following consolidated balance sheet categories: cash and cash equivalents, securities sold under agreements to repurchase, and accrued interest.
Fair value estimates are based on existing on and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Significant assets and liabilities that are not considered financial instruments are accounted for at amortized cost and include premises and equipment, deferred income taxes, goodwill, and core deposit and other intangibles. In addition,Additionally, in accordance with the tax ramifications related to the realization of unrealized gainsdisclosure guideline, receivables and losses can have a significant effect onpayables due in one year or less, insurance contracts, equity investments not accounted for at fair value, estimates and have not been considered in the estimates.
deposits with no defined or contractual maturities are excluded. Off-balance sheet instruments (commitments to extend credit and standby letters of credit) are generally short-term and at variable rates. Therefore, both the carrying amount and the estimated fair value associated with these instruments are immaterial. Fair values for balance sheet instruments as of December 31, 2017 and September 30, 2017 are as follows:
|
| | | | | | | | | | | | | | | | | |
| | | | December 31, 2017 | | September 30, 2017 |
| | Level in Fair Value Hierarchy | | Carrying Amount | | Fair
Value | | Carrying Amount | | Fair
Value |
| | | | (dollars in thousands) |
| Assets | | | | | | | | | |
| Cash and cash equivalents | Level 1 | | $ | 297,596 |
| | $ | 297,596 |
| | $ | 360,396 |
| | $ | 360,396 |
|
| Loans, net excluding fair valued loans and loans held for sale | Level 3 | | 8,115,449 |
| | 8,020,867 |
| | 7,881,018 |
| | 7,798,134 |
|
| Accrued interest receivable | Level 2 | | 54,817 |
| | 54,817 |
| | 53,176 |
| | 53,176 |
|
| Cash surrender value of life insurance policies | Level 2 | | 29,823 |
| | 29,823 |
| | 29,619 |
| | 29,619 |
|
| Federal Home Loan Bank stock | Level 2 | | 40,602 |
| | 40,602 |
| | 37,551 |
| | 37,551 |
|
| | | | | | | | | | |
| Liabilities | | | | | | | | | |
| Deposits | Level 2 | | $ | 9,024,185 |
| | $ | 9,020,660 |
| | $ | 8,977,613 |
| | $ | 8,978,926 |
|
| FHLB advances and other borrowings | Level 2 | | 721,009 |
| | 722,807 |
| | 643,214 |
| | 645,421 |
|
| Securities sold under repurchase agreements | Level 2 | | 116,884 |
| | 116,884 |
| | 132,636 |
| | 132,636 |
|
| Accrued interest payable | Level 2 | | 6,139 |
| | 6,139 |
| | 4,405 |
| | 4,405 |
|
| Subordinated debentures and subordinated notes payable | Level 2 | | 108,343 |
| | 108,097 |
| | 108,302 |
| | 108,293 |
|
The following methods and assumptions were used in estimating the fair value of financial instruments that were not previously disclosed:
Cash and cash equivalents: Due to the short term nature of cash and cash equivalents, the estimated fair value is equal to the carrying value and they are categorized as a Level 1 fair value measurement.
Loans, net excluding fair valued loans and loans held for sale: The fair value of the loan portfolio is estimated using observable inputs including estimated cash flows, and discount rates based on interest rates currently being offered for loans with similar terms, to borrowers of similar credit quality. Loans held for investment are categorized as a Level 3 fair value measurement.
Accrued interest receivable: Due to the nature of accrued interest receivable, the estimated fair value is equal to the carrying value and they are categorized as a Level 2 fair value measurement.
Cash Surrender Value of Life Insurance Policies: Fair value is equal to the cash surrender value of the life insurance policies.
Federal Home Loan Bank stock: The carrying amount of FHLB stock approximates its fair value as it can only be redeemed with the FHLB at par value. Federal Home Loan Bank stock has been categorized as a Level 2 fair value measurement.
Deposits: The estimated fair value of deposits with no stated maturity, such as non-interest bearing demand deposits, savings, NOW, and money market accounts, is equal to the amount payable on demand. The fair value of interest-bearing time deposits is based on the discounted value of contractual cash flows of such deposits, taking into account the option for early withdrawal. The discount rate is estimated using the rates offered by the Company, at the respective measurement dates, for deposits of similar maturities. Deposits have been categorized as a Level 2 fair value measurement.
GREAT WESTERN BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)
Fair values for on-balance sheet instruments as of March 31, 2020 and September 30, 2019 are as follows.
FHLB advances and other borrowings: The fair value of FHLB advances and other borrowings is estimated using discounted cash flow analysis, based on current incremental borrowing rates for similar types of borrowing arrangements. In the absence of a reasonably precise methodology to determine the fair value of the credit agreement, carrying value has been used to represent fair value. FHLB advances and other borrowings have been categorized as a Level 2 fair value measurement. | | | | | | | | | | | | | | | | | | | | | | | |
| | | March 31, 2020 | | | September 30, 2019 | |
| Level in Fair Value Hierarchy | | Carrying Amount | Fair
Value | | Carrying Amount | Fair
Value |
| | | (dollars in thousands) | | | | |
| Assets | | | | | | | |
| Cash and cash equivalents | Level 1 | | $ | 347,486 | | $ | 347,486 | | | $ | 243,474 | | $ | 243,474 | |
| Loans, net, excluding fair valued loans, loans held for sale and impaired loans ¹ | Level 3 | | 8,337,681 | | 8,498,042 | | | 8,472,777 | | 8,533,612 | |
| Liabilities | | | | | | | |
| Time deposits | Level 2 | | 1,528,234 | | 1,532,200 | | | 2,095,676 | | 2,101,239 | |
| FHLB advances and other borrowings | Level 2 | | 800,000 | | 818,669 | | | 340,000 | | 351,517 | |
| Securities sold under repurchase agreements | Level 2 | | 64,809 | | 64,809 | | | 68,992 | | 68,992 | |
| Subordinated debentures and subordinated notes payable | Level 2 | | 108,740 | | 97,268 | | | 108,636 | | 101,164 | |
1 Includes $13.7 million and $13.9 million of net deferred loan fees at March 31, 2020 and September 30, 2019, respectively, of which carrying value approximates fair value. | | | | | | | |
Securities sold under repurchase agreements: The Company’s repurchase agreements are overnight transactions that mature the day after the transaction, and as a result of this short-term nature, the estimated fair value equals the carrying value. Securities sold under repurchase agreements have been categorized as a Level 2 fair value measurement.
Accrued interest payable: Due to the nature of accrued interest payable, the estimated fair value is equal to the carrying value and they are categorized as a Level 2 fair value measurement.
Subordinated Debentures and Subordinated Notes Payable: The fair value of subordinated debentures and subordinated notes payable is estimated using discounted cash flow analysis, based on current incremental debt rates. Subordinated debentures and subordinated notes payable have been categorized as a Level 2 fair value measurement.
19. Earnings per Share
Basic earnings per common share is calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per common share is calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding determined for the basic earnings per share calculation plus the dilutive effect of stock compensation using the treasury stock method.
The following information was used in the computation of basic and diluted earnings per share (EPS) for the three and six months ended DecemberMarch 31, 20172020 and 2016:2019.
| | | | Three Months Ended | | Three Months Ended March 31, | | | Six Months Ended March 31, | |
| | December 31, 2017 | | December 31, 2016 | | 2020 | | 2019 | | 2020 | | 2019 |
| | (dollars in thousands, except per share data) | | (dollars in thousands, except per share data) | |
| Net income | $ | 29,230 |
| | $ | 36,903 |
| Net income | $ | (740,618) | | | $ | 44,511 | | | $ | (697,344) | | | $ | 90,297 | |
| | | | | |
| Weighted average common shares outstanding | 58,902,629 |
| | 58,750,522 |
| Weighted average common shares outstanding | 55,906,002 | | | 56,994,817 | | | 56,141,816 | | | 57,484,838 | |
| Dilutive effect of stock based compensation | 185,100 |
| | 241,383 |
| Dilutive effect of stock based compensation | — | | | 79,857 | | | — | | | 72,146 | |
| Weighted average common shares outstanding for diluted earnings per share calculation | 59,087,729 |
| | 58,991,905 |
| Weighted average common shares outstanding for diluted earnings per share calculation | 55,906,002 | | | 57,074,674 | | | 56,141,816 | | | 57,556,984 | |
| | | | | | | | | | | | |
| Basic earnings per share | $ | 0.50 |
| | $ | 0.63 |
| Basic earnings per share | $ | (13.25) | | | $ | 0.78 | | | $ | (12.42) | | | $ | 1.57 | |
| Diluted earnings per share | $ | 0.49 |
| | $ | 0.63 |
| Diluted earnings per share | $ | (13.25) | | | $ | 0.78 | | | $ | (12.42) | | | $ | 1.57 | |
The Company had 05,037 and 50,0760 shares of unvested performance stock as of DecemberMarch 31, 20172020 and 2016,2019, respectively, which were not included in the computation of diluted earnings per common share because performance conditions for vesting had not been met. The Company had 063,076 and 95,55367,971 shares of anti-dilutive stock awards outstanding as of DecemberMarch 31, 20172020 and 2016,2019, respectively.
20. Revenue Recognition
The Company recognizes revenue from contracts with customers in accordance with ASC Topic 606, Revenue from Contracts with 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 the Company's revenue-generating transactions are not subject to ASC Topic 606, including revenue generated from financial instruments, such as loans, letters of credit, derivatives and investment securities, as well as revenue related to mortgage servicing activities, as these activities are subject to other GAAP and discussed elsewhere within Item 8. Financial Statements and Supplementary Data, "Note 1. Nature of Operations and Summary of Significant Accounting Policies" in our Annual Report on Form 10-K for the fiscal year ended September 30, 2019. Descriptions of the Company's revenue-generating activities that are within the scope of ASC Topic 606, which are presented in the consolidated income statements as components of noninterest income, are as follows:
GREAT WESTERN BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)
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.
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, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
| (dollars in thousands) | | | | | | |
| Noninterest income | | | | | | | |
| Service charges and other fees | $ | 9,188 | | | $ | 10,209 | | | $ | 20,597 | | | $ | 21,897 | |
| Wealth management fees | 3,122 | | | 2,117 | | | 6,086 | | | 4,358 | |
| Other | 664 | | | 1,118 | | | 1,332 | | | 1,700 | |
| Noninterest income from contracts with customers within the scope of ASC Topic 606 | 12,974 | | | 13,444 | | | 28,015 | | | 27,955 | |
| Noninterest income within the scope of other GAAP Topics ¹ | (13,057) | | | 4,779 | | | (12,365) | | | 6,988 | |
| Total noninterest income | $ | (83) | | | $ | 18,223 | | | $ | 15,650 | | | $ | 34,943 | |
1 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. | | | | | | | |
21. Acquisition Activity
Effective October 1, 2019, the Company purchased and assumed the management of $306.0 million of trust assets managed in Colorado from Independent Bank, a wholly owned subsidiary of Independent Bank Group, Inc., for $4.7 million. The Company accounted for the purchase under the acquisition method in accordance with ASC Topic 805, Business Combinations. Accordingly, the purchase price is allocated to the fair value of the assets acquired and liabilities assumed as of the date of acquisition. The following table summarizes the consideration paid and the allocation of the purchase price to net assets as of the acquisition date.
| | | | | |
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSAmount |
| (dollars in thousands) |
| Total consideration paid | $4,711 |
| Customer relationship intangible | $3,172 |
| Goodwill | $1,539 |
The foregoing purchase price allocation on the acquisition is considered final and no subsequent adjustments to the purchase price allocation are expected. Goodwill related to this acquisition was not deductible for tax purposes. See Note 10 for additional disclosure regarding goodwill. The customer relationship intangible is being amortized over an estimated useful life of 13 years. See Note 11 for additional disclosure regarding intangible assets.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The historical consolidated financial data discussed below reflects our historical results of operations and financial condition and should be read in conjunction with our financial statements and related notes thereto presented elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the fiscal year ended September 30, 2017,2019, previously filed with the SEC. In addition to historical financial data, this discussion includes certain forward-looking statements regarding events and trends that may affect our future results. Such statements are subject to risks and uncertainties that could cause our actual results to differ materially. See “Cautionary"Cautionary Note Regarding Forward-Looking Statements.”" For a more complete discussion of the factors that could affect our future results, see “Item"Item 1A. Risk Factors”Factors" in this Quarterly Report on Form 10-Q and "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended September 30, 2017.2019.
Any discrepancies included in this filing between totals and the sums of percentages and dollar amounts presented, or between rounded dollar amounts, are due to rounding.
Unless otherwise noted, references to "the current period" or "the current quarter" refer to the fiscal quarter ended DecemberMarch 31, 20172020 and references to "the comparable period" or "the comparable quarter" refer to the fiscal quarter ended DecemberMarch 31, 2016.2019.
Tax Equivalent Presentation
All references to net interest income, net interest margin, interest income on non ASCnon-ASC 310-30 loans, yield on non ASCnon-ASC 310-30 loans and the related non-GAAP adjusted financial measure of each item are presented on a fully-tax equivalent ("FTE")FTE basis unless otherwise noted.
Overview
We are a full-service regional bank holding company focused on relationship-based business and agribusinessagri-business banking. We serve our customers through 173175 branches in attractive markets in nine states: Arizona, Colorado, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota and South Dakota.
Our bankBank was established more than 80 years ago and we have achieved strong market positions by developing and maintaining extensive local relationships in the communities we serve. By leveraging our business and agribusinessagri-business focus, presence in attractive markets, highly efficient operating model and robust approach to risk management, we have achieved significant and profitable growth—both organically and through disciplined acquisitions. We provide financial results based on a fiscal year ending September 30 as a single reportable segment.
The principal sources of our revenues and cash flows are: (i) interest and fees earned on loans made or held by our bank;Bank; (ii) interest on fixed income investments held by our bank;Bank; (iii) fees on wealth management services; (iv) service charges on deposit accounts maintained at our bank;Bank; (v) gain on the sale of loans held for sale (vi) gains on sales of securities; and (vii) merchant and card fees. Our principal expenses are: (i) interest expense on deposit accounts and other borrowings; (ii) salaries and employee benefits; (iii) data processing and communication costs primarily associated with maintaining our bank'sBank's loan and deposit functions; (iv) occupancy expenses for maintaining our bank'sBank's facilities; (v) professional fees;fees, including FDIC insurance assessments; (vi) business development; (vii) FDIC insurance assessments; and (viii)(vii) other real estate owned expenses. The largest component contributing to our net income is net interest income, which is the difference between interest earned on earning assets (primarily loans and investments) and interest paid on interest-bearing liabilities (primarily deposit accounts and other borrowings). One of management's principal functions is to manage the spread between interest earned on earning assets and interest paid on interest-bearing liabilities in an effort to maximize net interest income while maintaining an appropriate level of interest rate risk.
Impact and Response to COVID-19 Pandemic
We conduct business in nine states, including Arizona, Colorado, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota and South Dakota. Many of these states have placed or are considering placing significant restrictions on companies and individuals in March 2020 as a result of the COVID-19 pandemic. As a financial institution, we are considered an essential business and therefore continue to operate on a modified basis to comply with governmental restrictions and public health authority guidelines. Our bank lobbies are closed to the general public, although business is still being transacted through drive-up facilities, online, telephone or by appointment. Although we believe these arrangements will remain in effect until the restrictions are lifted by governmental authorities, we continue to operate and maintain our customer relationships. The health and safety of our employees and customers is a major concern to our management and every effort is being made to have employees work from home or, if working from one of our locations is required, to maintain appropriate social distancing and observe other health precautions.
ImpactThrough this time of disruption we have remained open for business supporting our customers while implementing our business continuity plan to mitigate the risks of the Tax Cutsspread of COVID-19 to our employees and Jobs Actcustomers. As of 2017
The Tax Cuts and Jobs Act of 2017 significantly impacted the Company's financial results for the quarter and going forward. The three main impacts include:
A nonrecurring reductionApril 24th, we have more than 750 employees working remotely from home with those still in the carrying valueoffice appropriately spaced, 97% of our branches open with limited access, increased functionality of ATM, online banking and mobile channels, and processed 2,300 applications approved for Paycheck Protection Program loans totaling over $600.0 million. We have also taken such other actions as social distancing, restrictions on in-person meetings and conferences, Company travel restrictions and increased sanitary protocols. We believe these actions offer the Company's deferred taxes of $13.6 million, equatingbest protection for our employees and customers, an enhance our ability to $0.23, or 1.3%, of the Company's tangible book value per share and a reduction of approximately 15 basis pointscontinue providing our banking services.
Financial results this quarter included several items linked to the total capital ratio as of December 31, 2017 and $0.23 per diluted share for the quarter ended December 31, 2017;
A reduction in the statutory federal tax rate upon which the Company's net income before taxes is taxed beginning with the current fiscal year ending September 30, 2018. Because of the Company's fiscal year end, a blended statutory federal tax rate of 24.5% is applied to all net income before taxes generated during the current fiscal year and the overall effective tax rate for the fiscal year is expected to be approximately 26.0%. Compared to the previous statutory tax rate, the blended rate reduced the provision for income taxes by approximately $5.0 million for the quarter ended December 31, 2017. Beginning in fiscal year 2019, the Company's net income will be taxed at the 21.0% statutory federal tax rate; and
| |
• | A reduction in the tax-related benefit generated by tax-advantaged assets. The tax equivalent adjustment to net interest income and net interest margin was $1.6 million for the current quarter, compared to $2.1 million in the prior quarter, on a consistent asset base. This change reduced net interest margin and adjusted net interest marginin the current quarterby approximately 2 basis points and increased our efficiency ratio by a negligible amount.
|
The actual impact of the revaluing deferredCOVID-19 pandemic. Most significantly, we recognized an impairment included in noninterest expense of $742.4 million, of which $622.4 million stemmed from goodwill related to the acquisition of Great Western Bank in 2008 by National Australia Bank, $118.2 million from goodwill related to subsequent acquisitions and $1.8 million from certain intangible assets, which were considered impaired given the market and valuation disruption during the quarter. The expense was offset in part by a related benefit from income taxes may varyof $29.3 million.
In addition, the COVID-19 impacts included $73.8 million in several credit and other related charges for loan and other real estate reserves, including a $59.7 million charge for general allowance increases in provision expense under the incurred loss model, $7.1 million and $3.3 million of charges for fair value credit risk and derivative reserves in noninterest income, respectively, a $3.3 million write down on an OREO hotel property negatively impacted by COVID-19 pandemic travel restrictions, and $0.4 million of charges for the reserve on unfunded commitments in noninterest expenses. All of these pretax expenses are offset in part by a related benefit from income taxes of $17.2 million. See "—Non-GAAP Financial Measures" section in this document for further discussion of the estimated chargeabove items. Our management believes additional increases in credit and other related charges could occur if the effects of the COVID-19 restrictions continue to provisionnegatively impact the loan portfolio.
Furthermore, the onset of $13.6 millionthe COVID-19 pandemic has significantly heightened the level of challenges, risks and uncertainties facing our Company and its operations, including the following:
•Market interest rates have declined significantly and these reductions, especially if prolonged, could adversely affect our net interest income, net interest margin and earnings;
•We anticipate a potential slowdown in demand for our products and services, including the demand for traditional loans, although we believe the decline will likely be offset due to uncertaintiesthe new volume of PPP loans under the CARES Act and other governmental programs established in response to the pandemic;
•The inability of our customers to meet their loan commitments and could result in increased risk of delinquencies, defaults, foreclosures, declining collateral values and ability of our borrowers to repay their loans resulting in losses to our Company;
•The COVID-19 pandemic restrictions have created significant volatility and disruption in the financial markets, and these conditions may require us to recognize an elevated level of other than temporary impairments on investment securities in our preliminary estimatesportfolio as issues of these securities are negatively impacted by the economic slowdown. Declines in fair value of investment securities in our portfolio could also reduce the unrealized gains reported as part of our consolidated comprehensive income (loss); and
•We and our Bank are required to comply with minimum capital and leverage requirements. Our capital strategy is primarily to maintain capital levels through the effectCOVID-19 pandemic, and our Board of Directors could determine further clarification offuture reductions or foregoing dividends in order to maintain and/or strengthen our capital and liquidity position.
Highlights for the new law that cannotThree and Six Months Ended March 31, 2020
Tier 1 capital, total capital and Tier 1 leverage ratios were 11.3%, 12.9% and 9.2%, respectively, at March 31, 2020, compared to 11.7%, 12.7% and 10.1%, respectively, at September 30, 2019. In addition, our Common Equity Tier 1 ratio was 10.6% and 11.0% at March 31, 2020 and September 30, 2019, respectively. Our tangible common equity to tangible assets ratio was 9.3% at March 31, 2020 and 9.6% at September 30, 2019. All regulatory capital ratios remain above regulatory minimums to be estimated at this time.considered "well capitalized". For more information on our tangible book value per share, net interest margin, adjusted net interest margin and efficiencycommon equity to tangible assets ratio, including a reconciliation to the most directly comparable GAAP financial measure, see "—Non-GAAP Financial Measures" section.
CorrectionDuring the second quarter of Prior Period Balancesfiscal year 2020, $40.0 million was deployed to repurchase and retire approximately 1.4 million shares of Company's common stock under the repurchase program authorized by the Board of Directors at an average price of $29.45. These purchases occurred prior to the onset of the COVID-19 pandemic. In early March 2020, the Company determined to indefinitely suspend additional buybacks within its remaining authorization to support the Federal Reserve Board in actions taken to moderate the impact of COVID-19 by maintaining strong capital levels and liquidity to support customers and other stakeholders.
The consolidated statements
With the many uncertainties of income have been revisedthe COVID-19 pandemic, including the full impacts on the future financial results and operations of the Company, the Board of Directors has determined to correct an immaterial classification error in loan interest income and noninterest income related to credit card interchange income for all periods presented. The reclassification had no effect on net income, earnings per share, retained earnings or capital ratios for all periods presented; however, our net interest margin and adjusted net interest margin were reduced by seven to eight basis points compared to what was originally reportedreduce its regular quarterly dividend for the prior comparable periods presented. Periods not presented hereinquarter ending March 31, 2020 to $0.15 per common share. The reduced dividend will help strengthen the Company's balance sheet and liquidity in light of the uncertainty surrounding the COVID-19 pandemic. The dividend will be revised,payable on May 29, 2020 to stockholders of record as applicable, as they are included inof close of business on May 15, 2020. The aggregate dividend payment will be approximately $8.3 million. The Board of Directors will continue to evaluate the impacts of the COVID-19 pandemic and the appropriateness of declaring future filings. For more information ondividends throughout the reclassification of credit card interchange income, see "—Notes to the Consolidated Financial Statements, Nature of Operations and Summary of Significant Policies" section. For more information on our efficiency ratio, net interest margin and adjusted net interest margin, including a reconciliation to the most directly comparable GAAP financial measure, see "—Non-GAAP Financial Measures" section.
Highlights for the First Quarter of Fiscal Year 2018year.
Net incomeloss was $29.2$740.6 million, or $0.49$(13.25) per diluted share, for the firstsecond quarter of fiscal year 2018,2020, compared to $36.9net income of $44.5 million, or $0.63$0.78 per diluted share, for the first quarter ofsame period in fiscal year 2017.2019, a decrease of $785.1 million. Adjusted net income which excludes the effect of one-time acquisition expensesCOVID-19 pandemic impact on goodwill, certain intangible assets and the deferred taxes revaluation triggered by the Tax Cutscredit and Jobs Act of 2017,other related charges, was $42.8$29.1 million, or $0.72$0.52 per diluted share, compared to $37.3$44.5 million, or $0.63$0.78 per diluted share, respectively,share. The decline in adjusted net income in the current quarter was due to lower net interest income primarily attributable to a decline in loan and securities yields were outpaced by a decline in deposit and funding yields, particularly in March 2020 following the Federal Reserve's emergency rate cutting of 150 basis points. Our efficiency ratio was 63.5% and 45.6% for the same periods, an increase of $5.5 million, or 14.7%. Compared to the firstsecond quarter of fiscal year 2017, total revenue (non-FTE) for the first quarter of fiscal year 2018 grew by 4.2%, provision for loan2020 and lease losses were reduced 35.4% and noninterest expenses grew by 4.4%. Total revenue (non-FTE) is the sum of net interest income (non-FTE) and noninterest income. Our efficiency ratio was 45.8% and 45.1% for the quarters ending December 31, 2017 and December 31, 2016,2019, respectively. For more information on our adjusted net income and efficiency ratio, including a reconciliation to the most directly comparable GAAP financial measure,measures, see "—Non-GAAP Financial Measures" section.
Net interest margin, which measures our ability to maintain interest rates on interest earning assets above those of interest bearing liabilities, was 3.89%3.59%, 3.93%3.68% and 3.82%3.75%, respectively, for the quartersthree months ended March 31, 2020, December 31, 2017, September 30, 20172019 and DecemberMarch 31, 2016.2019. Adjusted net interest margin, which reflects the realized gain (loss) on interest rate swaps, was 3.80%3.55%, 3.82%3.65% and 3.65%3.76%, respectively, for the same periods. We believe our adjusted net interest margin is more representative of our underlying performance and is the measure we use internally to evaluate our results. Net interest margin and adjusted net interest marginincreased decreased by 7 basis points16 and 1521 basis points, respectively, compared to the same quarter in fiscal year 2017. The yield on interest-earning assets increased by 242019. Net interest margin decreased between the two periods primarily due to securities and loan yields, which decreased 23 and 39 basis points, overrespectively, reflecting the same quarter in fiscal year 2017, drivenimpact of repricing following the emergency rate cuts discussed previously, partially offset by higher average loan balances as a proportion of
earning assets and improving loan and investment yields. Meanwhile, the cost of interest-bearing liabilities increased by 18 basis points over the same period, including a 1533 basis point increasedecrease in the cost of deposits partially offset by a reduction in average FHLB borrowings outstanding. In addition, the reductionto 0.75%. A $1.7 million increase in the magnitudecurrent quarter of the tax equivalent adjustment driven by a lower statutory tax rate reduced each metric by approximately 2 basis points. A $2.0 million reduction in the cost of interest rate swaps that hedge the interest rate risk on long term fixed rate loans in the portfolio, compared to the prior comparable quartersame period in fiscal year 2019 is the primary driver of the more pronounced increasedecrease in adjusted net interest margin compared to the decrease in net interest margin. For more information on our adjusted net interest margin, including a reconciliation to the most directly comparable GAAP financial measure, see "—Non-GAAP Financial Measures" section.
Total loans were $9.17$9.69 billion at DecemberMarch 31, 20172020 compared to $8.97$9.71 billion at September 30, 2017. The net growth2019, a decrease of $196.8$13.5 million, or 2.2%0.1%. The decline in loans during the period was mainly attributable to a reduction in the agriculture segment of $126.9 million, or 6.3%, occurred primarily withinlargely due to a seasonal decrease related to customer tax planning and a number of relationships refinanced elsewhere, a reduction of $20.8 million, or 1.2%, in the commercial realnon-real estate ("CRE") segment of the loan portfolio which grew $170.9 million, including strong growth in owner-occupied CRE and construction loans. The agriculture loan segment increaseddue to disbursement transaction timing within our mortgage warehouse lending, offset by $55.2 million, with approximately $20 million of that growth resulting from short-term advances required by many of our dairy customers for tax planning purposes that have already been repaid.
Deposits grew to $9.02 billion at December 31, 2017, an increase of $46.6$130.4 million, or 0.5%2.6%, in CRE attributable to growth from construction drawdowns and new relationships across the footprint.
Deposits were $10.18 billion at March 31, 2020, a decrease of $121.2 million, or 1.2%, compared to $8.98$10.30 billion at September 30, 2017. Deposit growth was driven2019, due a reduction in the use of brokered deposits offset by $76.0 millionan increase in business deposits. Interest-bearing deposits were $8.21 billion, a 1.7% decrease, and noninterest-bearing deposits partially offsetwere $1.97 billion, a 0.9% increase. FHLB and other borrowings increased by $460.0 million, or 135.3%, as a $29.4 million reduction in interest-bearing deposits, which is netresult of continued outflows of time deposits.more favorable rates during the quarter.
At DecemberMarch 31, 2017,2020, nonaccrual loans, graded "Watch"including ASC 310-30 loans, were $287.5$213.1 million, a decreasean increase of $24.1$105.9 million, or 7.7%98.8%, compared to September 30, 2017.2019, related primarily to a small number of relationships in healthcare and agriculture industries as they progress through the workout process. Loans graded "Substandard""Watch" were $247.7$420.3 million, an increase of $14.8$14.7 million, or 6.4%3.6%, compared to September 30, 2019 while loans graded "Substandard" were $627.7 million, an increase of $155.2 million, or 32.9%, over the same period. The decrease in "Watch" graded loans and the increase in "Substandard"loans graded loans"Substandard" was primarily driven bydue to downgrades in the deterioration ofagriculture and agriculture-related commercial non-real estate segments, with a small number of CRE relationships.
Nonaccrual loans, including ASC 310-30 loans, were $147.3 million as of December 31, 2017, with $4.1 million ofdowngrades in the balance covered by FDIC loss-sharing agreements. Total nonaccrual loans increased by $9.0 million compared to September 30, 2017, primarily driven by one CRE loan relationship.commercial non-real estate segment. Total other repossessed property balances were $10.5$27.3 million as of DecemberMarch 31, 2017, an increase2020, a decrease of $1.5$9.5 million, or 16.7%25.8%, compared to September 30, 2017.
As of mid-January, annual reviews have been completed on approximately 70% of agriculture loan relationships with maturity dates between November 1, 2017 and January 15, 2018. Growers' 2017 performance was broadly in line with expectations and risk rating changes are expected to be minimal with upgrades modestly exceeding downgrades.2019.
Provision for loan and lease losses was $4.6$71.8 million for the firstsecond quarter of fiscal year 2018,2020, compared to $7.0$7.7 million for the same period of fiscal year 2019, an increase of $64.1 million due to incurred loss resulting from the COVID-19 pandemic. This increase did not contemplate the potential impact of CECL implementation, which is effective for the Company October 1, 2020. Net charge-offs for the second quarter of fiscal year 2017. Net charge-offs for the first quarter of fiscal year 20182020 were $4.0$8.6 million, or 0.18%0.36% of average total loans on an annualized basis, compared to net charge-offs of $5.9 million, or 0.25% of average total loans on an annualized basis for the comparable period in fiscal year 2019, with the majority of net charge-offs concentrated in the agriculture and commercial non-real estate segmentssegment of the loan portfolio. Net charge-offs were $4.9 million, or 0.22% of average total loans on an annualized basis for the first quarter of fiscal year 2017. The ratio of ALLL to total loans was 0.70%1.40% at DecemberMarch 31, 2017, a reduction from 0.71%2020 compared to 0.73% at September 30, 2017.2019. The balance of the ALLL increased to $136.0 million at March 31, 2020 from $63.5$70.8 million at September 30, 2017 to $64.0 million at December 31, 2017.
Our capital position is strong, with Tier 1 capital, total capital and Tier 1 leverage ratios of 11.3%, 12.3% and 10.3%, respectively, at December 31, 2017, compared to 11.4%, 12.5% and 10.3%, respectively, at September 30, 2017. In addition, our Common Equity Tier 1 ratio was 10.5% at December 31, 2017 and 10.7% at September 30, 2017. Our tangible common equity to tangible assets ratio was 9.2% at December 31, 2017 and 9.2% at September 30, 2017. The revaluation of the Company's deferred taxes reduced the total capital ratio by approximately 15 basis points. For more information on our tangible common equity to tangible assets ratio, including a reconciliation to the most directly comparable GAAP financial measure, see "—Non-GAAP Financial Measures" section.
2019.
Key Factors Affecting Our Business and Financial StatementsPerformance
As discussed in our Annual Report on Form 10-K for the fiscal year ended September 30, 2017,2019, our business, financial condition and results of operations areperformance is impacted by severala number of external factors outside our control, as well as our ability to execute on the key factors, including economic conditions, interest rates, asset qualitycomponents of our strategy for continued success and loss-sharing agreements, banking laws and regulations, competition, operational efficiency, goodwill and amortization of other intangible assets and loans and interest rate swaps accounted for at fair value.future growth. There have been no material changes to these factors or key components of our strategy except as otherwise supplemented within this Quarterly Report on Form 10-Q for the three monthsquarterly period ended DecemberMarch 31, 2017.2020.
Results of Operations—erations—ThreeMonth Periods and Six Months EndedDecember March 31, 20172020 and2016 2019
Overview
The following table highlights certain key financial and performance information for the three month periodsand six months ended DecemberMarch 31, 20172020 and 2016:2019.
|
| | | | | | | |
| | Three Months Ended |
| | December 31, 2017 | | December 31, 2016 |
| | (dollars in thousands, except share and per share amounts) |
| Operating Data: | | | |
| Interest and dividend income (FTE) | $ | 116,519 |
| | $ | 108,797 |
|
| Interest expense | 14,332 |
| | 9,764 |
|
| Noninterest income | 16,674 |
| | 15,658 |
|
| Noninterest expense | 54,868 |
| | 52,537 |
|
| Provision for loan and lease losses | 4,557 |
| | 7,049 |
|
| Net income | 29,230 |
| | 36,903 |
|
Adjusted net income 1 | 42,816 |
| | 37,343 |
|
| Common shares outstanding | 58,896,189 |
| | 58,755,989 |
|
| Weighted average diluted common shares outstanding | 59,087,729 |
| | 58,991,905 |
|
| Earnings per common share - diluted | $ | 0.49 |
| | $ | 0.63 |
|
Adjusted earnings per common share - diluted 1 | 0.72 |
| | 0.63 |
|
| | | | |
| Performance Ratios: | | | |
Net interest margin (FTE) 1 2 | 3.89 | % | | 3.82 | % |
Adjusted net interest margin (FTE) 1 2 | 3.80 | % | | 3.65 | % |
Return on average total assets 2 | 1.00 | % | | 1.28 | % |
Return on average common equity 2 | 6.6 | % | | 8.8 | % |
Return on average tangible common equity 1 2 | 11.6 | % | | 16.3 | % |
Efficiency ratio 1 | 45.8 | % | | 45.1 | % |
| | | | |
1 This is a non-GAAP financial measure we believe is helpful to interpreting our financial results. For more information on this non-GAAP financial measure, including a reconciliation to the most directly comparable GAAP financial measure, see "—Non-GAAP Financial Measures" section. |
2 Annualized for all partial-year periods. |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | | | Six Months Ended March 31, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
| (dollars in thousands, except share and per share amounts) | | | | | | |
| Operating Data: | | | | | | | |
| Interest income (FTE) | $ | 126,757 | | | $ | 135,328 | | | $ | 259,817 | | | $ | 268,879 | |
| Interest expense | 23,260 | | | 30,411 | | | 49,624 | | | 57,578 | |
| Noninterest income | (83) | | | 18,223 | | | 15,650 | | | 34,943 | |
| Noninterest expense | 808,453 | | | 56,580 | | | 865,383 | | | 113,686 | |
| Provision for loan and lease losses | 71,795 | | | 7,673 | | | 79,898 | | | 12,888 | |
| Net income | (740,618) | | | 44,511 | | | (697,344) | | | 90,297 | |
| Adjusted net income ¹ | 29,080 | | | 44,511 | | | 72,354 | | | 90,297 | |
| Common shares outstanding | 55,013,928 | | | 56,938,435 | | | 55,013,928 | | | 56,938,435 | |
| Weighted average diluted common shares outstanding | 55,906,002 | | | 57,074,674 | | | 56,141,816 | | | 57,556,984 | |
| Earnings per common share - diluted | $ | (13.25) | | | $ | 0.78 | | | $ | (12.42) | | | $ | 1.57 | |
| Adjusted earnings per common share - diluted ¹ | 0.52 | | | 0.78 | | | 1.29 | | | 1.57 | |
| Performance Ratios: | | | | | | | |
| Net interest margin (FTE) ¹ ² | 3.59 | % | | 3.75 | % | | 3.63 | % | | 3.78 | % |
| Adjusted net interest margin (FTE) ¹ ² | 3.55 | % | | 3.76 | % | | 3.60 | % | | 3.79 | % |
| Return on average total assets ² | (23.16) | % | | 1.44 | % | | (10.86) | % | | 1.46 | % |
| Return on average common equity ² | (155.3) | % | | 9.9 | % | | (72.9) | % | | 10.0 | % |
| Return on average tangible common equity ¹ ² | (9.3) | % | | 16.9 | % | | 2.8 | % | | 17.0 | % |
| Efficiency ratio ¹ | 63.5 | % | | 45.6 | % | | 54.1 | % | | 45.8 | % |
1 This is a non-GAAP financial measure we believe is helpful to interpreting our financial results. For more information on this non-GAAP financial measure, including a reconciliation to the most directly comparable GAAP financial measure, see "—Non-GAAP Financial Measures" section. | | | | | | | |
2 Annualized for all partial-year periods. | | | | | | | |
Net Interest Income
The following table presents net interest income, net interest margin and adjusted net interest margin for the three month periodsand six months ended DecemberMarch 31, 20172020 and 2016:2019.
| | | | Three Months Ended | | Three Months Ended March 31, | | | Six Months Ended March 31, | |
| | December 31, 2017 | | December 31, 2016 | | 2020 | | 2019 | | 2020 | | 2019 |
| | (dollars in thousands) | | (dollars in thousands) | |
| Net interest income: | | | | Net interest income: | |
| Total interest and dividend income (FTE) | $ | 116,519 |
| | $ | 108,797 |
| |
| Total interest income (FTE) | | Total interest income (FTE) | $ | 126,757 | | | $ | 135,328 | | | $ | 259,817 | | | $ | 268,879 | |
| Less: Total interest expense | 14,332 |
| | 9,764 |
| Less: Total interest expense | 23,260 | | | 30,411 | | | 49,624 | | | 57,578 | |
| Net interest income (FTE) | $ | 102,187 |
| | $ | 99,033 |
| Net interest income (FTE) | $ | 103,497 | | | $ | 104,917 | | | $ | 210,193 | | | $ | 211,301 | |
| | | | | |
Net interest margin (FTE) and adjusted net interest margin (FTE) 1 | | | | |
| Net interest margin (FTE) and adjusted net interest margin (FTE) ¹ | | Net interest margin (FTE) and adjusted net interest margin (FTE) ¹ | | | | | |
| Average interest-earning assets | 10,412,882 |
| | 10,286,284 |
| Average interest-earning assets | $ | 11,590,453 | | | $ | 11,345,559 | | | $ | 11,567,032 | | | $ | 11,216,179 | |
| Average interest-bearing liabilities | 9,751,936 |
| | 9,652,611 |
| Average interest-bearing liabilities | 10,850,104 | | | 10,639,351 | | | 10,827,113 | | | 10,510,762 | |
| Net interest margin (FTE) | 3.89 | % | | 3.82 | % | Net interest margin (FTE) | 3.59 | % | | 3.75 | % | | 3.63 | % | | 3.78 | % |
Adjusted net interest margin (FTE) 1 | 3.80 | % | | 3.65 | % | |
| | | | | |
| Adjusted net interest margin (FTE) ¹ | | Adjusted net interest margin (FTE) ¹ | 3.55 | % | | 3.76 | % | | 3.60 | % | | 3.79 | % |
1 This is a non-GAAP financial measure we believe is helpful to interpreting our financial results. For more information on this non-GAAP financial measure, including a reconciliation to the most directly comparable GAAP financial measure, see "—Non-GAAP Financial Measures" section. | 1 This is a non-GAAP financial measure we believe is helpful to interpreting our financial results. For more information on this non-GAAP financial measure, including a reconciliation to the most directly comparable GAAP financial measure, see "—Non-GAAP Financial Measures" section. | 1 This is a non-GAAP financial measure we believe is helpful to interpreting our financial results. For more information on this non-GAAP financial measure, including a reconciliation to the most directly comparable GAAP financial measure, see "—Non-GAAP Financial Measures" section. | |
Net interest income was $102.2$103.5 million for the second quarter of fiscal year 2020, compared to $104.9 million for the same period in fiscal year 2019, a decrease of $1.4 million, or 1.4%. Net interest income was $210.2 million for the first quartersix
months of fiscal year 2018,2020, compared to $99.0$211.3 million for the same quarterperiod in fiscal year 2017, an increase2019, a decrease of 3.2%$1.1 million, or 0.5%. The increasedecrease in net interest income for both periods was primarily attributable to highera decline in loan and securities yields were outpaced by a decline in deposit and funding yields, particularly in March 2020 following the Federal Reserve's emergency rate cutting of 150 basis points, leading to a lower net interest income driven by 3.3% of growth in average loans outstanding between periods and a modest increase in investment portfolio income driven by rising interest rates, partially offset by higher interest expense associated with interest-bearing deposits and borrowings.margins.
Net interest margin was 3.89%3.59% and 3.75% for the firstsecond quarter of fiscal year 2018, an increase2020 and 2019, respectively, a decrease of 716 basis points, compared towhile the same quarter in fiscal year 2017. Adjustedadjusted net interest margin was 3.80%3.55% and 3.76% for the same periods, respectively, a decrease of 21 basis points. Net interest margin was 3.63% and 3.78% for the first quartersix months of fiscal year 2018, an increase2020, respectively, a decrease of 15 basis points, compared towhile the adjusted net interest margin was 3.60% and 3.79% for the same quarterperiods, respectively, a decrease of 19 basis points. The decreases in fiscal year 2017. The yield on interest-earning assets increasednet interest margin for both the three and six month periods was primarily driven by 24securities yields, which decreased 23 and 13 basis points, over the same quarter in fiscal year 2017, driven by higher averagerespectively, and loan balances as a proportion of earning assetsyields, which decreased 39 and improving loan and investment yields. Meanwhile, the cost of interest-bearing liabilities increased by 1828 basis points, overrespectively, resulting from the same period, including a 15 basis point increase inimpact of repricing following the cost of deposits,rate cuts discussed previously, partially offset by a reduction in average FHLB borrowings outstanding. In addition, the reduction in the magnitude of the tax equivalent adjustment driven by a lower statutory tax rate reduced each metric by approximately 2yield on deposits, which decreased 33 and 20 basis points.points, respectively. A $2.0$1.7 million reductionand $2.6 million increase in the cost of interest rate swaps that hedgebetween the interest rate risk on long term fixed rate loansthree and six month periods in fiscal year 2020 and the portfolio, compared to the prior comparable quarterperiod in fiscal year 2019, respectively, is the primary driver offor the more pronounced increasedecrease in adjusted net interest margin compared to the decrease in net interest margin. For more information on our adjusted net interest income and adjusted net interest margin, including a reconciliation of each to the most directly comparable GAAP financial measure, see "—Non-GAAP Financial Measures" section.
The following tables present the distribution of average assets, liabilities and equity, interest income and resulting yields on average interest-earning assets, and interest expense and rates on average interest-bearing liabilities for the current and comparable three and six month periods, respectively. Loans on nonaccrual status that had interest accrued as of the date of nonaccrual isare immediately reversed as a reduction to interest income, while any interest subsequently recovered is recorded in the period of recovery. Tax-exempt loans and securities, totaling $735.7$743.0 million at DecemberMarch 31, 20172020 and $724.1$753.2 million at DecemberMarch 31, 2016,2019, are typically entered at lower interest rate arrangements than comparable non-exempt loans and securities. The amount of interest income reflected belowin the following table has been adjusted to include the amount of tax benefit realized in the period and as such is presented on a fully-tax equivalent basis, the calculation of which is outlined in the discussion of non-GAAP items later in this section. ASC 310-30 loans represent loans accounted for in accordance with ASC 310-30, Accounting for Purchased Loans, that were credit impaired at the time we acquired them. Non ASCNon-ASC 310-30 loans represent loans we have originated and loans we have acquired that were not credit impaired at the time we acquired them.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | | | |
| March 31, 2020 | | | | March 31, 2019 | | |
| Average Balance | Interest (FTE) | Yield / Cost ¹ | | Average Balance | Interest (FTE) | Yield / Cost ¹ |
| (dollars in thousands) | | | | | | |
| Assets | | | | | | | |
| Interest-bearing bank deposits ² | $ | 56,883 | | $ | 558 | | 3.95 | % | | $ | 63,546 | | $ | 497 | | 3.17 | % |
| Investment securities | 1,987,045 | | 11,329 | | 2.29 | % | | 1,603,038 | | 9,957 | | 2.52 | % |
| Non-ASC 310-30 loans, net ³ | 9,496,153 | | 113,484 | | 4.81 | % | | 9,615,096 | | 122,970 | | 5.19 | % |
| ASC 310-30 loans, net | 50,372 | | 1,386 | | 11.07 | % | | 63,879 | | 1,904 | | 12.09 | % |
| Loans, net | 9,546,525 | | 114,870 | | 4.84 | % | | 9,678,975 | | 124,874 | | 5.23 | % |
| Total interest-earning assets | 11,590,453 | | 126,757 | | 4.40 | % | | 11,345,559 | | 135,328 | | 4.84 | % |
| Noninterest-earning assets | 1,273,143 | | | | | 1,186,286 | | | |
| Total assets | $ | 12,863,596 | | $ | 126,757 | | 3.96 | % | | $ | 12,531,845 | | $ | 135,328 | | 4.38 | % |
| Liabilities and Stockholders' Equity | | | | | | | |
| Noninterest-bearing deposits | $ | 1,942,686 | | | | | $ | 1,800,307 | | | |
| Interest-bearing deposits | 6,473,524 | | $ | 12,083 | | 0.75 | % | | 6,363,730 | | $ | 17,865 | | 1.14 | % |
| Time deposits | 1,686,977 | | 6,784 | | 1.62 | % | | 2,039,208 | | 9,233 | | 1.84 | % |
| Total deposits | 10,103,187 | | 18,867 | | 0.75 | % | | 10,203,245 | | 27,098 | | 1.08 | % |
| Securities sold under agreements to repurchase | 56,369 | | 24 | | 0.17 | % | | 63,237 | | 43 | | 0.28 | % |
| FHLB advances and other borrowings | 581,834 | | 3,131 | | 2.16 | % | | 264,347 | | 1,880 | | 2.88 | % |
| Subordinated debentures and subordinated notes payable | 108,714 | | 1,238 | | 4.58 | % | | 108,522 | | 1,390 | | 5.19 | % |
| Total borrowings | 746,917 | | 4,393 | | 2.37 | % | | 436,106 | | 3,313 | | 3.08 | % |
| Total interest-bearing liabilities | 10,850,104 | | $ | 23,260 | | 0.86 | % | | 10,639,351 | | $ | 30,411 | | 1.16 | % |
| Noninterest-bearing liabilities | 95,457 | | | | | 69,554 | | | |
| Stockholders' equity | 1,918,035 | | | | | 1,822,940 | | | |
| Total liabilities and stockholders' equity | $ | 12,863,596 | | | | | $ | 12,531,845 | | | |
| Net interest spread | | | 3.10 | % | | | | 3.22 | % |
| Net interest income and net interest margin (FTE) | | $ | 103,497 | | 3.59 | % | | | $ | 104,917 | | 3.75 | % |
| Less: Tax equivalent adjustment | | 1,514 | | | | | 1,442 | | |
| Net interest income and net interest margin - ties to Statements of Comprehensive Income | | $ | 101,983 | | 3.54 | % | | | $ | 103,475 | | 3.70 | % |
| ¹ Annualized for all partial-year periods. | | | | | | | |
2 Interest income includes $0.4 million and $0.1 million for the second quarter of fiscal years 2020 and 2019, respectively, resulting from interest earned on derivative collateral included in other assets on the consolidated balance sheets. | | | | | | | |
3 Interest income includes $0.4 million and $0.4 million for the second quarter of fiscal years 2020 and 2019, respectively, resulting from accretion of purchase accounting discount associated with acquired loans. | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended |
| | December 31, 2017 | | December 31, 2016 |
| | Average Balance | | Interest (FTE) | | Yield / Cost 1 | | Average Balance | | Interest (FTE) | | Yield / Cost 1 |
| | (dollars in thousands) |
| Assets | | | | | | | | | | | |
| Interest-bearing bank deposits | $ | 65,935 |
| | $ | 231 |
| | 1.39 | % | | $ | 266,704 |
| | $ | 346 |
| | 0.51 | % |
| Investment securities | 1,416,179 |
| | 7,043 |
| | 1.97 | % | | 1,377,459 |
| | 6,377 |
| | 1.84 | % |
Non ASC 310-30 loans, net 2 | 8,840,929 |
| | 106,500 |
| | 4.78 | % | | 8,515,947 |
| | 99,730 |
| | 4.65 | % |
| ASC 310-30 loans, net | 89,839 |
| | 2,745 |
| | 12.12 | % | | 126,174 |
| | 2,344 |
| | 7.37 | % |
| Loans, net | 8,930,768 |
| | 109,245 |
| | 4.85 | % | | 8,642,121 |
| | 102,074 |
| | 4.69 | % |
| Total interest-earning assets | 10,412,882 |
| | 116,519 |
| | 4.44 | % | | 10,286,284 |
| | 108,797 |
| | 4.20 | % |
| Noninterest-earning assets | 1,176,658 |
| | | | | | 1,152,013 |
| | | | |
| Total assets | $ | 11,589,540 |
| | $ | 116,519 |
| | 3.99 | % | | $ | 11,438,297 |
| | $ | 108,797 |
| | 3.77 | % |
| | | | | | | | | | | | |
| Liabilities and Stockholders' Equity | | | | | | | | | | | |
| Noninterest-bearing deposits | $ | 1,844,490 |
| | | | | | $ | 1,792,060 |
| | | | |
| NOW, money market and savings deposits | 5,887,195 |
| | $ | 8,291 |
| | 0.56 | % | | 5,548,112 |
| | $ | 5,129 |
| | 0.37 | % |
| Time deposits | 1,267,300 |
| | 2,707 |
| | 0.85 | % | | 1,348,119 |
| | 2,161 |
| | 0.64 | % |
| Total deposits | 8,998,985 |
| | 10,998 |
| | 0.48 | % | | 8,688,291 |
| | 7,290 |
| | 0.33 | % |
| Securities sold under agreements to repurchase | 125,060 |
| | 95 |
| | 0.30 | % | | 136,405 |
| | 115 |
| | 0.33 | % |
| FHLB advances and other borrowings | 519,575 |
| | 2,069 |
| | 1.58 | % | | 716,953 |
| | 1,271 |
| | 0.70 | % |
| Subordinated debentures and subordinated notes payable | 108,316 |
| | 1,170 |
| | 4.28 | % | | 110,962 |
| | 1,088 |
| | 3.89 | % |
| Total borrowings | 752,951 |
| | 3,334 |
| | 1.76 | % | | 964,320 |
| | 2,474 |
| | 1.02 | % |
| Total interest-bearing liabilities | 9,751,936 |
| | $ | 14,332 |
| | 0.58 | % | | 9,652,611 |
| | $ | 9,764 |
| | 0.40 | % |
| Noninterest-bearing liabilities | 76,477 |
| | | | | | 119,443 |
| | | | |
| Stockholders' equity | 1,761,127 |
| | | | | | 1,666,243 |
| | | | |
| Total liabilities and stockholders' equity | $ | 11,589,540 |
| | | | | | $ | 11,438,297 |
| | | | |
| Net interest spread | | | | | 3.41 | % | | | | | | 3.37 | % |
| Net interest income and net interest margin (FTE) | | | $ | 102,187 |
| | 3.89 | % | | | | $ | 99,033 |
| | 3.82 | % |
| Less: Tax equivalent adjustment | | | $ | 1,565 |
| | | | | | $ | 2,142 |
| | |
| Net interest income and net interest margin - ties to Statements of Comprehensive Income | | | $ | 100,622 |
| | 3.83 | % | | | | $ | 96,891 |
| | 3.74 | % |
| | | | | | | | | | | | |
1 Annualized for all partial-year periods. |
2 Interest income includes $0.6 million and $1.4 million for the third quarter of fiscal year 2018 and 2017, respectively, resulting from accretion of ASC 310-20 loan marks associated with acquired loans. |
The yield on interest-earning assets was 4.44% for the first quarter of fiscal year 2018, an increase of 24 basis points over the same quarter in fiscal year 2017, driven by higher average loan balances as a proportion of earning assets and improving loan and investment yields. Meanwhile, the cost of interest-bearing liabilities was 0.58% for the first quarter of fiscal year 2018, an increase of 18 basis points over the same quarter in fiscal year 2017, including a 15 basis point increase in the cost of deposits, partially offset by a reduction in average FHLB borrowings outstanding.
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended | | | | | | |
| March 31, 2020 | | | | March 31, 2019 | | |
| Average Balance | Interest (FTE) | Yield / Cost ¹ | | Average Balance | Interest (FTE) | Yield / Cost ¹ |
| (dollars in thousands) | | | | | | |
| Assets | | | | | | | |
| Interest-bearing bank deposits ² | $ | 44,843 | | $ | 1,166 | | 5.20 | % | | $ | 77,663 | | $ | 1,039 | | 2.68 | % |
| Investment securities | 1,945,698 | | 22,827 | | 2.35 | % | | 1,547,161 | | 19,145 | | 2.48 | % |
| Non-ASC 310-30 loans, net ³ | 9,525,157 | | 232,716 | | 4.89 | % | | 9,525,498 | | 244,821 | | 5.15 | % |
| ASC 310-30 loans, net | 51,334 | | 3,108 | | 12.11 | % | | 65,857 | | 3,874 | | 11.80 | % |
| Loans, net | 9,576,491 | | 235,824 | | 4.93 | % | | 9,591,355 | | 248,695 | | 5.20 | % |
| Total interest-earning assets | 11,567,032 | | 259,817 | | 4.49 | % | | 11,216,179 | | 268,879 | | 4.81 | % |
| Noninterest-earning assets | 1,270,562 | | | | | 1,186,554 | | | |
| Total assets | $ | 12,837,594 | | $ | 259,817 | | 4.05 | % | | $ | 12,402,733 | | $ | 268,879 | | 4.35 | % |
| Liabilities and Stockholders' Equity | | | | | | | |
| Noninterest-bearing deposits | $ | 1,959,885 | | | | | $ | 1,831,877 | | | |
| Interest-bearing deposits | 6,390,193 | | $ | 25,456 | | 0.80 | % | | 6,257,167 | | $ | 33,601 | | 1.08 | % |
| Time deposits | 1,767,465 | | 15,351 | | 1.74 | % | | 1,988,251 | | 17,291 | | 1.74 | % |
| Total deposits | 10,117,543 | | 40,807 | | 0.81 | % | | 10,077,295 | | 50,892 | | 1.01 | % |
| Securities sold under agreements to repurchase | 61,448 | | 55 | | 0.18 | % | | 71,543 | | 99 | | 0.28 | % |
| FHLB advances and other borrowings | 539,434 | | 6,213 | | 2.30 | % | | 253,421 | | 3,827 | | 3.03 | % |
| Subordinated debentures and subordinated notes payable | 108,688 | | 2,549 | | 4.69 | % | | 108,503 | | 2,760 | | 5.10 | % |
| Total borrowings | 709,570 | | 8,817 | | 2.49 | % | | 433,467 | | 6,686 | | 3.09 | % |
| Total interest-bearing liabilities | 10,827,113 | | $ | 49,624 | | 0.92 | % | | 10,510,762 | | $ | 57,578 | | 1.10 | % |
| Noninterest-bearing liabilities | 97,204 | | | | | 71,975 | | | |
| Stockholders' equity | 1,913,277 | | | | | 1,819,996 | | | |
| Total liabilities and stockholders' equity | $ | 12,837,594 | | | | | $ | 12,402,733 | | | |
| Net interest spread | | | 3.13 | % | | | | 3.25 | % |
| Net interest income and net interest margin (FTE) | | $ | 210,193 | | 3.63 | % | | | $ | 211,301 | | 3.78 | % |
| Less: Tax equivalent adjustment | | 3,037 | | | | | 2,932 | | |
| Net interest income and net interest margin - ties to Statements of Comprehensive Income | | $ | 207,156 | | 3.58 | % | | | $ | 208,369 | | 3.73 | % |
| ¹ Annualized for all partial-year periods. | | | | | | | |
2 Interest income includes $0.8 million and $0.1 million for the first six months of fiscal years 2020 and 2019, respectively, resulting from interest earned on derivative collateral included in other assets on the consolidated balance sheets. | | | | | | | |
3 Interest income includes $1.0 million and $0.7 million for the first six months of fiscal years 2020 and 2019, respectively, resulting from accretion of purchase accounting discount associated with acquired loans. | | | | | | | |
Interest and Dividend Income
The following table presents interest and dividend income for the three month periodsand six months ended DecemberMarch 31, 20172020 and 2016:2019.
|
| | | | | | | |
| | Three Months Ended |
| | December 31, 2017 | | December 31, 2016 |
| | (dollars in thousands) |
| Interest and dividend income: | | | |
| Loans (FTE) | $ | 109,245 |
| | $ | 102,074 |
|
| Taxable securities | 6,494 |
| | 5,878 |
|
| Nontaxable securities | 260 |
| | 199 |
|
| Dividends on securities | 289 |
| | 300 |
|
| Federal funds sold and other | 231 |
| | 346 |
|
| Total interest and dividend income (FTE) | 116,519 |
| | 108,797 |
|
| Less: Tax equivalent adjustment | 1,565 |
| | 2,142 |
|
| Total interest and dividend income (GAAP) | $ | 114,954 |
| | $ | 106,655 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | | | Six Months Ended March 31, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
| (dollars in thousands) | | | | | | |
| Interest income: | | | | | | | |
| Loans (FTE) | $ | 114,870 | | | $ | 124,874 | | | $ | 235,824 | | | $ | 248,695 | |
| Investment securities | 11,329 | | | 9,957 | | | 22,827 | | | 19,145 | |
| Federal funds sold and other | 558 | | | 497 | | | 1,166 | | | 1,039 | |
| Total interest income (FTE) | 126,757 | | | 135,328 | | | 259,817 | | | 268,879 | |
| Less: Tax equivalent adjustment | 1,514 | | | 1,442 | | | 3,037 | | | 2,932 | |
| Total interest income (GAAP) | $ | 125,243 | | | $ | 133,886 | | | $ | 256,780 | | | $ | 265,947 | |
Total interest and dividend income consists primarily of interest income on loans and interest and dividend income on our investment portfolio. Total interest and dividend income was $116.5$126.8 million for the second quarter of fiscal year 2020, compared to $135.3 million for the same period of fiscal year 2019, a decrease of $8.5 million, or 6.3%. Total interest income was $259.8 million for the first quartersix months of fiscal year 2018,2020, compared to $108.8$268.9 million for the same quarter ofperiod in fiscal year 2017, an increase2019, a decrease of 7.1%$9.1 million, or 3.4%. Significant components of interest and dividend income are described in further detail below.
Loans. Average net loan balances for the first Interest income on all loans decreased to $114.9 million in second quarter of fiscal year 2018 were $8.93 billion, representing a 3.3% increase compared to2020 from $124.9 million in the same period in fiscal year 2017.2019, a decrease of $10.0 million, or 8.0%. Interest income on all loans increaseddecreased to $109.2$235.8 million infor the first quartersix months of fiscal year 20182020, from $102.1$248.7 million in the same quarterperiod in fiscal year 2017, an increase2019, a decrease of $7.1$12.9 million, or 7.0%5.2%. The decreases in loan yields for both periods were primarily attributable to lower loan interest income driven by decreases of 39 and 28 basis points, respectively, between the two periods. For the three and six months ended March 31, 2020, interest income on ASC 310-30 loans, which are purchased credit impaired loans with a different income recognition model, decreased $0.5 million, or 27.2%, and $0.8 million, or 19.8%, respectively, primarily driven by runoff of the acquired loan portfolios.
Our yield on loans is affected by market interest rates, the level of adjustable-rate loan indices, interest rate floors and caps, customer repayment activity, the level of loans held for sale, portfolio mix, and the level of nonaccrual loans. The average tax equivalent yield on non-ASC 310-30 loans was 4.78%4.81% for the firstsecond quarter of fiscal year 2018, an increase2020, a decrease of 1338 basis points compared to the same quarterperiod in fiscal year 2017.2019. The average tax equivalent yield on non-ASC 310-30 loans was 4.89% for the first six months of fiscal year 2020, a decrease of 26 basis points compared to the same period in fiscal year 2019. Adjusted for the current realized gain (loss) on derivatives we use to manage interest rate risk on certain of our loans at fair value, which we believe represents the underlying economics of the transactions, the adjusted yield on non ASCnon-ASC 310-30 loans was 4.67%4.75% for the firstsecond quarter of fiscal year 2018,2020, a 2345 basis point an increasedecrease compared to the same quarterperiod in fiscal year 2017. In addition,2019. The adjusted yield on non-ASC 310-30 loans was 4.84% for the reduction in the magnitude of the tax equivalent adjustment driven by a lower statutory tax rate reduced each metric by approximately 2 basis points. Starting in first quartersix months of fiscal year 2016 and continuing through2020, a decrease of 32 basis points, compared to the first quarter of 2018 we have begunsame period in fiscal year 2019. For more information on our adjusted yield on non-ASC 310-30 loans, including a reconciliation to benefit from a period-over-period increase in LIBOR rates which has reduced the net cost of pay fixed, receive floating interest rate swaps the Company utilizes related to certain fixed rate loans and benchmark rate hikes which have raised interest rates on many of our floating and variable rate loans.most directly comparable GAAP financial measure, see "—Non-GAAP Financial Measures" section.
The average duration, net of interest rate swaps, of the loan portfolio was 1.21.5 years as of DecemberMarch 31, 2017.2020. Approximately 47%48%, or $4.33$4.64 billion, of the portfolio is comprised of fixed rate loans, of which $980.1$792.1 million of loans are fixed rate loans with an original term of 5 years or greater for which we have entered into equal and offsetting fixed-to-floating interest rate swaps. These loans effectively behave as floating rate loans. Of the remainingFor floating and variable rate loans in the portfolio, approximately 51%40% are indexed to Wall Street Journal Prime, 28%29% to 5-year Treasuries and the balance to various other indices. Approximately 2%22% of our total loans' rates are floored, with an average interest rate floor 71 bps119 basis points above market rates.rates as of March 31, 2020.
Loan-related fee income of $2.0$1.9 million is included in interest income for the second quarter of fiscal year 2020, compared to $1.6 million for the same period in fiscal year 2019. Loan-related fee income of $4.2 million is included in interest income for the first quartersix months of fiscal year 2018 and $1.42020, compared to $3.1 million for the same quarterperiod in fiscal year 2017.2019. In addition, certain fees collected at loan origination are considered to be a component of yield on the underlying loans and are deferred and recognized into income over the life of the loans. Amortization related to the FDIC indemnification assets of $1.0$0.4 million for both of the second quarters of fiscal years 2020 and 2019, respectively, and $0.6 million and $0.9 million for the first quartersix months of fiscal years 20182020 and 2017,2019, respectively, is included as a reduction to interest income.
Investment Portfolio. The carrying value of investment securities and FHLB stock was $1.41$2.03 billion as of DecemberMarch 31, 2017.2020. Interest and dividend income on investments includes income earned on investment securities and FHLB stock. Interest and dividend income on investments was $7.0$11.3 million for the firstsecond quarter of fiscal year 2018,2020, an increase of $0.6$1.3 million, or 10.4%13.8%, from $6.4$10.0 million infor the first quarter ofsame period in fiscal year 2017,2019, driven by an increase in average balances coupled withinvestment balance of $384.0 million, or 24.0%, offset by a yield increasedecrease to 2.29% from 1.84% to 1.97% over2.52% for the same period.
periods. Interest income on investments was $22.8 million for the first six months of fiscal year 2020, an increase of $3.7 million, or 19.2%, from $19.1 million for the same period in fiscal year 2019, primarily due to an increase in average investment balance of $398.5 million, or 25.8%, offset by a yield decrease to 2.35% from 2.48%.
The weighted average life of the investment portfolio was 3.63.3 and 3.7 years at DecemberMarch 31, 20172020 and September 30, 2017.2019, respectively. Average investments represented 13.6%17.1% and 13.4%14.1% of total average interest-earning assets for the first quarterssecond quarter of fiscal years 20182020 and 2017,2019, respectively.
Interest Expense
The following table presents interest expense for the three month periodsand six months ended DecemberMarch 31, 20172020 and 2016:2019.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | | | Six Months Ended March 31, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
| (dollars in thousands) | | | | | | |
| Interest expense | | | | | | | |
| Deposits | $ | 18,867 | | | $ | 27,098 | | | $ | 40,807 | | | $ | 50,892 | |
| FHLB advances and other borrowings | 3,155 | | | 1,923 | | | 6,268 | | | 3,926 | |
| Subordinated debentures and subordinated notes payable | 1,238 | | | 1,390 | | | 2,549 | | | 2,760 | |
| Total interest expense | $ | 23,260 | | | $ | 30,411 | | | $ | 49,624 | | | $ | 57,578 | |
|
| | | | | | | |
| | Three Months Ended |
| | December 31, 2017 | | December 31, 2016 |
| | (dollars in thousands) |
| Interest expense: | | | |
| Deposits | $ | 10,998 |
| | $ | 7,290 |
|
| Securities sold under agreements to repurchase | 95 |
| | 115 |
|
| FHLB advances and other borrowings | 2,069 |
| | 1,271 |
|
| Subordinated debentures and subordinated notes payable | 1,170 |
| | 1,088 |
|
| Total interest expense | $ | 14,332 |
| | $ | 9,764 |
|
Total interest increased $4.6expense consists primarily of interest expense on three components: deposits, FHLB advances and other borrowings, and our outstanding subordinated debentures and subordinated notes payable. Total interest expense decreased $7.1 million, or 46.8%23.5%, to $14.3$23.3 million in the second quarter of fiscal year 2020, from $30.4 million in the same period in fiscal year 2019. Total interest expense decreased $8.0 million, or 13.8%, to $49.6 million in the first quartersix months of fiscal year 20182020, from $9.8$57.6 million in the same quarterperiod in fiscal year 2017.2019. Significant components of interest expense are described in further detail below.
Deposits. Interest expense on deposits, consisting of checking accounts, money market accounts, NOW accounts, savingsinterest-bearing accounts and time deposits, was $11.0$18.9 million and $7.3$27.1 million for the second quarter of fiscal years 2020 and 2019, respectively, a decrease of $8.2 million, or 30.4%. Interest expense on deposits was $40.8 million and $50.9 million for the first quartersix months of fiscal year 20182020 and 2017,2019, respectively, an increasea decrease of $3.7$10.1 million, or 50.9%, driven by growth19.8%. The decreases for both periods were a result of decreasing interest rates in average interest-bearing deposits outstanding and increasing benchmark interest rates.the cost of deposits. Average deposit balances increased to $9.00 billion from $8.69$10.12 billion for the same periods,first six months of fiscal year 2020, from $10.08 billion for the comparable period in fiscal year 2019, an increase of $0.31 billion,$40.2 million, or 3.6%0.4%. The cost of deposits increaseddecreased to 0.48%0.81% for the first quartersix months of fiscal year 20182020 from 0.33%1.01% for the same quarterperiod of fiscal year 2017.2019.
Average non-interest-bearingnoninterest-bearing demand account balances remained stable at 20.5%increased to 19.2% of average total deposits for the firstsecond quarter of fiscal year 2018 and 20.6%2020 from 17.6% for the comparable quarterperiod in fiscal year 2017.2019. Total average other liquid accounts, consisting of money market and savings accounts,interest-bearing demand deposits, increased to 65.4%64.1% of total average deposits for the firstsecond quarter of fiscal year 2018,2020, compared to 63.9%62.4% of total average deposits for the comparable quarterperiod in fiscal year 2017,2019, while time deposit accounts decreased to 14.1%16.7% of average total deposits for the firstsecond quarter of fiscal year 2018,2020, compared to 15.5%20.0% in the comparable quarterperiod in fiscal year 2017. We continue our strategy of focusing on cost-effective transaction accounts as well as our focus on gathering business deposits, which are typically transaction accounts by nature.2019.
FHLB Advances and Other Borrowings. Interest expense on FHLB advances and other borrowings was $2.1$3.2 million for the firstsecond quarter of fiscal year 2018,2020, an increase of $0.8$1.3 million, or 62.7%64.1%, compared to $1.3$1.9 million for the comparable quarterperiod in 2017,2019, reflecting a weighted average cost of 1.58%2.16% and 0.70%2.88%, respectively, for the first quarters of fiscal years 2018 and 2017, respectively. Oursame periods. The average balance forof FHLB advances and other borrowings was $519.6$539.4 million infor the current quarterfirst six months of fiscal year 2018, a $197.4 million reduction,2020 compared to $717.0$253.4 million infor the comparable quarter ofsame period in fiscal year 2017. Average2019. Interest expense on FHLB advances and other borrowings as a proportion of total average interest-bearing liabilities were 5.3%was $6.3 million for the first quartersix months of fiscal year 2018, compared to 7.4%2020 and $3.9 million for the comparable quartersame period in fiscal year 2017.2019, an increase of $2.3 million, or 59.7%, representing a weighted average cost of 2.30% and 3.03%, respectively, for the same periods. The average rate paid on FHLB advances is impacted by market rates and the various terms and repricing frequency of the specific outstanding borrowings in each year. The weighted average contractual rate paid on our FHLB advances was 1.57%1.46% and 0.83%2.85% at DecemberMarch 31, 20172020 and 2016,2019, respectively, and the average tenor was 314 and 6145 months for the same periods.
We must collateralize FHLB advances by pledging real estate loans or investments. We pledge more assets than required by our current level of borrowings in order to maintain additional borrowing capacity. Although we may substitute other loans for such pledged loans, we are restricted in our ability to sell or otherwise pledge these loans without substituting collateral or prepaying a portion of the FHLB advances. At DecemberMarch 31, 2017,2020, we had pledged $3.77$4.11 billion of loans to the FHLB, against which we had borrowed $721.0$800.0 million.
Subordinated Debentures and Subordinated Notes Payable. Interest expense on our outstanding junior subordinated debentures and subordinated notes payable was $1.2 million in firstsecond quarter of fiscal year 20182020 and $1.1$1.4 million in the comparable quarterperiod in fiscal year 2017.2019, a decrease of $0.2 million, or 10.9%. Interest expense on our outstanding junior subordinated debentures and subordinated notes payable was $2.5 million for the first six months of fiscal year 2020 and $2.8 million in the comparable period in fiscal year 2019, a decrease of $0.3 million, or 7.6%. The weighted average contractual rate on outstanding junior subordinated debentures was 3.29% and 4.87% at March 31, 2020 and 2019, respectively. The weighted average contractual rate on outstanding subordinated notes was 4.88% at both DecemberMarch 31, 20172020 and September 30, 2017.
Securities Sold Under Agreements to Repurchase. Securities sold under agreements to repurchase represent retail repurchase agreements with customers and represent a small portion of our overall funding profile. The interest expense associated with this class of liabilities remained largely consistent between the current quarter and comparable quarter.2019.
Rate and Volume Variances
Net interest income is affected by changes in both volume and interest rates. Volume changes are caused by increases or decreases during the year in the level of average interest-earning assets and average interest-bearing liabilities. Rate changes result from increases or decreases in the yields earned on assets or the rates paid on liabilities.
The following table presents for the current and comparable quarter and six months periods a summary of the changes in interest income and interest expense on a tax equivalent basis resulting from changes in the volume of average asset and liability balances and changes in the average yields or rates compared with the preceding fiscal year. If significant, the change in interest income or interest expense due to both volume and rate has been prorated between the volume and the rate variances based on the dollar amount of each variance.
| | | | Current Quarter vs Comparable Quarter | | Current Quarter vs Comparable Quarter | | | Current 6 month period vs Comparable 6 month period | |
| | Volume | | Rate | | Total | | Volume | Rate | Total | | Volume | Rate | Total |
| | (dollars in thousands) | | (dollars in thousands) | |
| Increase (decrease) in interest income: | | | | | | Increase (decrease) in interest income: | |
| Cash and cash equivalents | $ | (397 | ) | | $ | 282 |
| | $ | (115 | ) | Cash and cash equivalents | $ | (49) | | $ | 110 | | $ | 61 | | | $ | (557) | | $ | 684 | | $ | 127 | |
| Investment securities | 183 |
| | 483 |
| | 666 |
| Investment securities | 2,313 | | (941) | | 1,372 | | | 4,796 | | (1,114) | | 3,682 | |
| Non ASC 310-30 loans | 3,868 |
| | 2,902 |
| | 6,770 |
| |
| Non-ASC 310-30 loans | | Non-ASC 310-30 loans | (1,331) | | (8,155) | | (9,486) | | | (8) | | (12,097) | | (12,105) | |
| ASC 310-30 loans | (810 | ) | | 1,211 |
| | 401 |
| ASC 310-30 loans | (367) | | (151) | | (518) | | | (857) | | 91 | | (766) | |
| Loans | 3,058 |
| | 4,113 |
| | 7,171 |
| Loans | (1,698) | | (8,306) | | (10,004) | | | (865) | | (12,006) | | (12,871) | |
| Total increase | 2,844 |
| | 4,878 |
| | 7,722 |
| |
| Total increase (decrease) | | Total increase (decrease) | 566 | | (9,137) | | (8,571) | | | 3,374 | | (12,436) | | (9,062) | |
| Increase (decrease) in interest expense: | | | | | | Increase (decrease) in interest expense: | | | |
| NOW, money market & savings deposits | 331 |
| | 2,831 |
| | 3,162 |
| |
| Interest-bearing deposits | | Interest-bearing deposits | 309 | | (6,091) | | (5,782) | | | 710 | | (8,855) | | (8,145) | |
| Time deposits | (136 | ) | | 682 |
| | 546 |
| Time deposits | (1,437) | | (1,012) | | (2,449) | | | (1,829) | | (111) | | (1,940) | |
| Securities sold under agreements to repurchase | (10 | ) | | (10 | ) | | (20 | ) | Securities sold under agreements to repurchase | (4) | | (15) | | (19) | | | (12) | | (32) | | (44) | |
| FHLB advances and other borrowings | (428 | ) | | 1,226 |
| | 798 |
| FHLB advances and other borrowings | 1,817 | | (566) | | 1,251 | | | 3,488 | | (1,102) | | 2,386 | |
| Subordinated debentures and subordinated notes payable | (26 | ) | | 108 |
| | 82 |
| Subordinated debentures and subordinated notes payable | 3 | | (155) | | (152) | | | 5 | | (216) | | (211) | |
| Total (decrease) increase | (269 | ) | | 4,837 |
| | 4,568 |
| |
| Increase in net interest income (FTE) | $ | 3,113 |
| | $ | 41 |
| | $ | 3,154 |
| |
| Total increase (decrease) | | Total increase (decrease) | 688 | | (7,839) | | (7,151) | | | 2,362 | | (10,316) | | (7,954) | |
| (Decrease) increase in net interest income (FTE) | | (Decrease) increase in net interest income (FTE) | $ | (122) | | $ | (1,298) | | $ | (1,420) | | | $ | 1,012 | | $ | (2,120) | | $ | (1,108) | |
Provision for Loan and Lease Losses
We recognized provision for loan and lease losses of $4.6$71.8 million for the firstsecond quarter of fiscal year 20182020 compared to a provision for loan and lease losses of $7.0$7.7 million for the comparable quarterperiod in fiscal year 2017, a decrease2019, an increase of $2.4$64.1 million, between the periods or 35.4%. The decrease in provisiondue to incurred loss resulting from the COVID-19 pandemic. This increase did not contemplate the potential impact of CECL implementation, which is effective for the Company October 1, 2020. Provision for loan and lease losses was driven primarily by lower specific reserves in the agriculture and commercial non-real estate segments of the loan portfolio. We recorded a $0.1$79.9 million net improvement in provision for ASC 310-30 loans for the first quartersix months of fiscal year 2018,2020, compared to a net impairment in provision of $0.1$12.9 million for the comparable quarterperiod in fiscal year 2017.2019, an increase of $67.0 million between the periods. See "—Overview—Impact and Response to COVID-19 Pandemic" section in this document for further discussion on the increase in provision for loan and lease losses for both periods.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | | | Six Months Ended March 31, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
| (dollars in thousands) | | | | | | |
| Provision for loan and lease losses, non-ASC 310-30 loans * | $ | 71,699 | | | $ | 7,406 | | | $ | 79,750 | | | $ | 13,006 | |
| Provision for (reduction in) loan and lease losses, ASC 310-30 loans | 96 | | | 267 | | | 148 | | | (118) | |
| Provision for loan and lease losses, total | $ | 71,795 | | | $ | 7,673 | | | $ | 79,898 | | | $ | 12,888 | |
| * As presented above, the non-ASC 310-30 loan portfolio includes originated loans, other than loans for which we have elected the fair value option, and loans we acquired that we did not determine were acquired with deteriorated credit quality. | | | | | | | |
|
| | | | | | | |
| | Three Months Ended |
| | December 31, 2017 | | December 31, 2016 |
| | (dollars in thousands) |
| Provision for loan and lease losses, non ASC 310-30 loans * | $ | 4,604 |
| | $ | 6,950 |
|
| Provision for (reduction in) loan and lease losses, ASC 310-30 loans | (47 | ) | | 99 |
|
| Provision for loan and lease losses, total | $ | 4,557 |
| | $ | 7,049 |
|
| | | | |
| * As presented above, the non ASC 310-30 loan portfolio includes originated loans, other than loans for which we have elected the fair value option, and loans we acquired that we did not determine were acquired with deteriorated credit quality. |
Total Credit-Related Charges
In addition to the lower provision for loan losses we incurred during the current fiscal quarter of 2018 compared to the same quarter in 2017, we recognized other credit-related charges. We believe that the following table, which summarizes each component of the total credit-related charges incurred during the current prior and comparable quarter,quarters and six month periods, is helpful to understanding the overall impact on our quarterly results of operations. Net other repossessed property charges includes other repossessed property operating costs, valuation adjustments and (loss) gain on sale of other repossessed properties, each of which entered other repossessed property as a result of the former borrower failing to perform on a loan obligation. Reversal of interest income on nonaccrual loans occurs when we become aware that a loan, for which we had been recognizing interest income, will no longer be able to perform according to the terms and conditions of the loan agreement, including repayment of interest owed to us, while a recovery of interest income on nonaccrual loans occurs when we receive repayment of interest owed to us. Loan fair value adjustments related to credit relate to the portion of our loan portfolio for which we have elected the fair value option; these amounts reflect the portion of the fair value adjustment related to expected credit losses in the portfolio.portfolio of loans carried at fair value.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | | | Six Months Ended March 31, | | |
| Item | Included within F/S Line Item(s): | 2020 | | 2019 | | 2020 | | 2019 |
| | (Dollars in thousands) | | | | | | |
| Pre-COVID-19 pandemic related | | | | | | | | |
| Provision for loan and lease losses | Provision for loan and lease losses | $ | 12,083 | | | $ | 7,673 | | | $ | 20,186 | | | $ | 12,888 | |
| Net other repossessed property charges | Net loss on repossessed property and other related expenses | 2,377 | | | 404 | | | 2,719 | | | 3,467 | |
| Net reversal of interest income on nonaccrual loans | Interest income on loans | 1,088 | | | 337 | | | 3,094 | | | 296 | |
| Loan fair value adjustment related to credit | Net decrease (increase) in fair value of loans at fair value | 3,423 | | | (422) | | | 5,557 | | | 762 | |
| Subtotal pre-COVID-19 pandemic related | | $ | 18,971 | | | $ | 7,992 | | | $ | 31,556 | | | $ | 17,413 | |
| COVID-19 pandemic related | | | | | | | | |
| Provision for loan and lease losses | Provision for loan and lease losses | $ | 59,712 | | | $ | — | | | $ | 59,712 | | | $ | — | |
| Net other repossessed property charges | Net loss on repossessed property and other related expenses | 3,314 | | | — | | | 3,314 | | | — | |
| Net reversal of interest income on nonaccrual loans | Interest income on loans | — | | | — | | | — | | | — | |
| Loan fair value adjustment related to credit | Net decrease (increase) in fair value of loans at fair value | 7,100 | | | — | | | 7,100 | | | — | |
| Subtotal COVID-19 pandemic related | | $ | 70,126 | | | $ | — | | | $ | 70,126 | | | $ | — | |
| Total credit-related charges | | $ | 89,097 | | | $ | 7,992 | | | $ | 101,682 | | | $ | 17,413 | |
|
| | | | | | | | |
| | | For the three months ended: |
| Item | Included within F/S Line Item(s): | December 31, 2017 | | December 31, 2016 |
| | | (Dollars in thousands) |
| Provision for loan and lease losses | Provision for loan and lease losses | $ | 4,557 |
| | $ | 7,049 |
|
| Net other repossessed property charges | Net loss on repossessed property and other related expenses | 214 |
| | 658 |
|
| Reversal (recovery) of interest income on nonaccrual loans | Interest income on loans | 1,068 |
| | (74 | ) |
| Loan fair value adjustment related to credit | Net (decrease) increase in fair value of loans at fair value | (1,038 | ) | | 539 |
|
| Total | | $ | 4,801 |
| | $ | 8,172 |
|
Noninterest Income
The following table presents noninterest income for the three month periodsand six months ended DecemberMarch 31, 20172020 and 2016:2019.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | | | Six Months Ended March 31, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
| (dollars in thousands) | | | | | | |
| Noninterest income | | | | | | | |
| Service charges and other fees | $ | 9,188 | | | $ | 10,209 | | | $ | 20,597 | | | $ | 21,897 | |
| Wealth management fees | 3,122 | | | 2,117 | | | 6,086 | | | 4,358 | |
| Mortgage banking income, net | 1,145 | | | 991 | | | 2,757 | | | 2,311 | |
| Net loss on sale of securities | — | | | — | | | — | | | (513) | |
| Other | 1,135 | | | 1,920 | | | 2,300 | | | 3,004 | |
| Subtotal, product and service fees | 14,590 | | | 15,237 | | | 31,740 | | | 31,057 | |
| Net increase in fair value of loans at fair value | 35,541 | | | 14,018 | | | 20,608 | | | 33,234 | |
| Net realized and unrealized loss on derivatives | (50,214) | | | (11,032) | | | (36,698) | | | (29,348) | |
| Subtotal, loans at fair value and related derivatives | (14,673) | | | 2,986 | | | (16,090) | | | 3,886 | |
| Total noninterest income | $ | (83) | | | $ | 18,223 | | | $ | 15,650 | | | $ | 34,943 | |
|
| | | | | | | |
| | Three Months Ended |
| | December 31, 2017 | | December 31, 2016 |
| | (dollars in thousands) |
| Non-interest income: | | | |
| Service charges and other fees | $ | 13,178 |
| | $ | 13,837 |
|
| Wealth management fees | 2,185 |
| | 2,254 |
|
| Mortgage banking income, net | 1,660 |
| | 2,662 |
|
| Net (loss) on sale of securities | (1 | ) | | — |
|
| Other | 1,090 |
| | 1,930 |
|
| Subtotal, product and service fees | 18,112 |
| | 20,683 |
|
| Net (decrease) in fair value of loans at fair value | (8,665 | ) | | (64,001 | ) |
| Net realized and unrealized gain on derivatives | 7,227 |
| | 58,976 |
|
| Subtotal, loans at fair value and related derivatives | (1,438 | ) | | (5,025 | ) |
| Total noninterest income | $ | 16,674 |
| | $ | 15,658 |
|
Our noninterest income is comprised of the various fees we charge our customers for products and services we provide and the impact of changes in fair value of loans for which we have elected the fair value treatment and realized and unrealized gains (losses) on the related interest rate swaps we utilize to manage interest rate risk on these loans. While we are required under U.S. GAAP to present both components within total noninterest income, we believe it is helpful to analyze the two broader components of noninterest income separately to better understand the underlying performance of the business.
Noninterest income was $16.7$(0.1) million for the second quarter of fiscal year 2020 compared to $18.2 million for the same period in fiscal year 2019, a decrease of $18.3 million, or 100.5%. Noninterest income was $15.7 million for the first quartersix months of fiscal year 2018,2020 compared to $15.7$34.9 million for the comparable quartersame period in fiscal year 2017, an increase2019, a decrease of $1.0$19.2 million, or 6.5%55.2%. Significant components of noninterest income are described in further detail below.
Product and Service Fees. We recognized $18.1$14.6 million of noninterest income related to product and service fees in the second quarter of fiscal year 2020, a decrease of $0.6 million, or 4.2%, compared to the same period in fiscal year 2019. We recognized $31.7 million of noninterest income related to product and service fees in the first quartersix months of fiscal year 2018, a decrease2020, an increase of $2.6$0.7 million, or 12.4%2.2%, compared to the same quarterperiod in fiscal year 2017.2019. The decreasedecreases for both periods was primarily attributablerelated to a $1.0 million decreasedeclines in mortgage banking income, a $0.8 million decrease in other income, and a $0.7transaction activity from COVID-19 pandemic impacts.
million decrease in service charges and other fees, which reflected a modest decrease primarily driven by the full quarter impact of the "Durbin Amendment" limit on debit card interchange income that became effective in July 2017.
Loans at fair value and related derivatives. As discussed in "—Analysis of Financial Condition—Derivatives," changes in the fair value of loans for which we have elected the fair value treatment and realized and unrealized gains and losses on the related derivatives are recognized within noninterest income. For the firstsecond quarter of fiscal year 2018,2020, these items accounted for $(1.4)$(14.7) million of noninterest income compared to $(5.0)$3.0 million of noninterest income for the same quarterperiod in fiscal year 2017.2019. The change was driven by a net favorable change in the credit adjustment of $1.6$1.7 million combined with a $2.0 million reductionincrease in the current cost of interest rate swaps driven bydue to changes in the interest rate environment.environment and a $1.1 million decrease in swap fees, and a net unfavorable change in the credit risk adjustment of $14.9 million, $10.4 million of which was related to the COVID-19 pandemic impact on loan fair value adjustment related to credit. For the first six months of fiscal year 2020, these items accounted for $(16.1) million of noninterest income compared to $3.9 million of noninterest income for the same period in fiscal year 2019. The change was driven by a $2.6 million increase in the current cost of interest rate swaps due to changes in the interest rate environment and $3.0 million decrease in swap fees, and a net unfavorable change in credit risk adjustment of $14.5 million, $10.4 million of which was related to the COVID-19 pandemic impact on loan fair value adjustment related to credit. We believe that the current realized loss on the derivatives economically offsets the interest income earned on the related loans; weloans. We present elsewhere the adjusted net interest income and adjusted net interest margin reflecting the metrics we use to manage the business.
Noninterest Expense
The following table presents noninterest expense for the three month periodsand six months ended DecemberMarch 31, 20172020 and 2016:2019.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | | | Six Months Ended March 31, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
| (dollars in thousands) | | | | | | |
| Noninterest expense | | | | | | | |
| Salaries and employee benefits | $ | 37,312 | | | $ | 34,537 | | | $ | 73,217 | | | $ | 69,307 | |
| Data processing and communication | 6,123 | | | 5,964 | | | 11,896 | | | 11,242 | |
| Occupancy and equipment | 5,597 | | | 5,539 | | | 10,690 | | | 10,665 | |
| Professional fees | 5,263 | | | 3,970 | | | 9,027 | | | 7,258 | |
| Advertising | 958 | | | 1,216 | | | 1,823 | | | 2,154 | |
| Net loss on repossessed property and other related expenses | 5,691 | | | 404 | | | 6,033 | | | 3,467 | |
| Goodwill and intangible assets impairment | 742,352 | | | — | | | 742,352 | | | — | |
| Other | 5,157 | | | 4,950 | | | 10,345 | | | 9,593 | |
| Total noninterest expense | $ | 808,453 | | | $ | 56,580 | | | $ | 865,383 | | | $ | 113,686 | |
|
| | | | | | | |
| | Three Months Ended |
| | December 31, 2017 | | December 31, 2016 |
| | (dollars in thousands) |
| Noninterest expense: | | | |
| Salaries and employee benefits | $ | 32,868 |
| | $ | 31,634 |
|
| Data processing | 5,896 |
| | 5,677 |
|
| Occupancy expenses | 4,002 |
| | 4,024 |
|
| Professional fees | 4,240 |
| | 2,835 |
|
| Communication expenses | 988 |
| | 1,040 |
|
| Advertising | 1,059 |
| | 975 |
|
| Equipment expense | 846 |
| | 798 |
|
| Net loss recognized on repossessed property and other related expenses | 214 |
| | 658 |
|
| Amortization of core deposits and other intangibles | 426 |
| | 839 |
|
| Acquisition expenses | — |
| | 710 |
|
| Other | 4,329 |
| | 3,347 |
|
| Total noninterest expense | $ | 54,868 |
| | $ | 52,537 |
|
Our noninterest expense consists primarily of salaries and employee benefits, data processing and communication, occupancy expenses,and equipment, professional fees communication expenses, advertising and acquisitionnet loss on repossessed property, goodwill and intangible assets impairment and other related expenses. Noninterest expense was $54.9$808.5 million in the firstsecond quarter of fiscal year 20182020 and $865.4 million for the first six months of fiscal year 2020. Included within these amounts are goodwill impairment of $740.6 million, impairment of certain intangible assets of $1.8 million, and the COVID-19 pandemic credit related charges of a $3.3 million charge for one OREO hotel property negatively impacted by COVID-19 travel restrictions and $0.4 million increase in reserve for unfunded commitments. Excluding these items, noninterest expense was $62.3 million for the second quarter of fiscal year 2020, compared to $52.5$56.6 million for the same quarterperiod in fiscal year 2017,2019, an increase of $2.3$5.8 million, or 4.4%. Included in noninterest expense10.2%, and $119.3 million for the first quartersix months of fiscal year 2017 was $0.72020, compared to $113.7 million for the same period in fiscal year 2019, an increase of non-recurring acquisitions expenses; absent this reduction, total noninterest expense increased by $3.0$5.6 million, or 5.9%, over the same period. This increase was primarily attributable to a $1.4 million increase in professional fees primarily4.9%. The remaining increases were driven by an increase in our FDIC assessment, a $1.2 million increase in salaries and employee benefits related to annual merit increases effective in January, a one-time bonus payment to retail staff of $0.5 million and a $1.0 million increase in other expenses, partially offset by a decrease of $0.4 million in net loss recognizedelevated legal and administrative costs on repossessed property and other related expenses.OREO assets.
Our efficiency ratio was 45.8%63.5% and 45.1%45.6% for the three monthsecond quarter of fiscal years 2020 and 2019, respectively and 54.1% and 45.8% for the first six months of fiscal years 2020 and 2019, respectively. The increases for both periods ending December 31, 2017were mainly due to the decrease in net revenues attributable to emergency rate cuts and 2016, respectively.decreased deposit service charges from lower account activity combined with increased expense results from both one-off and recurring costs. For more information on our efficiency ratio, including a reconciliation to the most directly comparable GAAP financial measures, see "—Non-GAAP Financial Measures" section.
Provision for Income Taxes
The provision for income taxes varies due to the amount of taxable income, the level and effectiveness of tax-advantaged assets and tax credit funds and the rates charged by federal and state authorities. The provisionbenefit for income taxes of $28.6$37.7 million for the firstsecond quarter of fiscal year 20182020 represents an effective tax rate of 49.5%,4.8% compared to a provision of $16.1$12.9 million, or an effective tax rate of 30.3%22.5%, for the comparable quarter. Excludingperiod of fiscal year 2019. The benefit for income taxes of $25.1 million for the deferred taxes revaluation asfirst six months of fiscal year 2020 represents an effective tax rate of 3.5%, compared to a resultprovision of $26.4 million or an effective tax rate of 22.6% for the Tax Reform Act of 2017,same period in fiscal year 2019. The substantial drop in the effective tax rate for both periods was 26.0%. For more information ondue to the impactimpairment of goodwill and certain intangible assets and provision for loan and lease losses in the current quarter. A sizable portion of the deferred taxes adjustment, see "—Overview, Impactgoodwill impairment was related to non-tax-deductible goodwill for which no tax benefit was recorded. Excluding the COVID-19 pandemic related goodwill and certain intangible assets impairment and additional provision for loan and lease losses, the effective tax rate would have been 23.3% and 22.8% for the second quarter and first six months of the Tax Cuts and Jobs Act of 2017" section.
fiscal year 2020, respectively.
Return on Assets and Equity
The following table below presents our return on average total assets, return on average common equity and return on average tangible common equity to average assets ratio for the dates presented:presented.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | | | Six Months Ended March 31, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
| Return on average total assets | (23.16) | % | | 1.44 | % | | (10.86) | % | | 1.46 | % |
| Return on average common equity | (155.3) | % | | 9.9 | % | | (72.9) | % | | 10.0 | % |
| Return on average tangible common equity ¹ | (9.3) | % | | 16.9 | % | | 2.8 | % | | 17.0 | % |
1 This is a non-GAAP financial measure we believe is helpful to interpreting our financial results. For more information on this non-GAAP financial measure, including a reconciliation to the most directly comparable GAAP financial measure, see "—Non-GAAP Financial Measures" section. | | | | | | | |
|
| | | | | |
| | Three Months Ended |
| | December 31, 2017 | | December 31, 2016 |
| Return on average total assets | 1.00 | % | | 1.28 | % |
| Return on average common equity | 6.6 | % | | 8.8 | % |
| Average common equity to average assets ratio | 15.2 | % | | 14.6 | % |
Excluding the revaluation of our deferred taxes, return on average total assets and return on average common equity would have been 1.47% and 9.6%, respectively, for the three months ended December 31, 2017.
Analysis of Financial Condition
The following table highlights certain key financial and performance information as of the dates indicated:indicated.
| | | | As of | | | | | | | | | | |
| | December 31, 2017 | | September 30, 2017 | | As of March 31,
2020 | | As of September 30,
2019 |
| | (dollars in thousands) | | (dollars in thousands) | |
| Balance Sheet and Other Information: | | | | Balance Sheet and Other Information: | |
| Total assets | $ | 11,806,581 |
| | $ | 11,690,011 |
| Total assets | $ | 12,387,808 | | | $ | 12,788,301 | |
Loans 1 | 9,165,373 |
| | 8,968,553 |
| |
| Loans ¹ | | Loans ¹ | 9,693,295 | | | 9,706,763 | |
| Allowance for loan and lease losses | 64,023 |
| | 63,503 |
| Allowance for loan and lease losses | 135,950 | | | 70,774 | |
| Deposits | 9,024,185 |
| | 8,977,613 |
| Deposits | 10,179,115 | | | 10,300,339 | |
| Stockholders' equity | 1,767,873 |
| | 1,755,000 |
| Stockholders' equity | 1,153,464 | | | 1,900,249 | |
Tangible common equity 2 | 1,019,902 |
| | 1,006,603 |
| |
| Tangible common equity ² | | Tangible common equity ² | 1,146,761 | | | 1,155,052 | |
| Tier 1 capital ratio | 11.3 | % | | 11.4 | % | Tier 1 capital ratio | 11.3 | % | | 11.7 | % |
| Total capital ratio | 12.3 | % | | 12.5 | % | Total capital ratio | 12.9 | % | | 12.7 | % |
| Tier 1 leverage ratio | 10.3 | % | | 10.3 | % | Tier 1 leverage ratio | 9.2 | % | | 10.1 | % |
| Common equity tier 1 ratio | 10.5 | % | | 10.7 | % | Common equity tier 1 ratio | 10.6 | % | | 11.0 | % |
Tangible common equity / tangible assets 2 | 9.2 | % | | 9.2 | % | |
| Tangible common equity / tangible assets ² | | Tangible common equity / tangible assets ² | 9.3 | % | | 9.6 | % |
| Book value per share - GAAP | $ | 30.02 |
| | $ | 29.83 |
| Book value per share - GAAP | $ | 20.97 | | | $ | 33.76 | |
Tangible book value per share 2 | $ | 17.32 |
| | $ | 17.11 |
| |
| Tangible book value per share ² | | Tangible book value per share ² | $ | 20.84 | | | $ | 20.52 | |
| Nonaccrual loans / total loans | 1.61 | % | | 1.54 | % | Nonaccrual loans / total loans | 2.20 | % | | 1.10 | % |
Net charge-offs (recoveries) / average total loans 3 | 0.18 | % | | 0.26 | % | |
| Net charge-offs (recoveries) / average total loans ³ | | Net charge-offs (recoveries) / average total loans ³ | 0.31 | % | | 0.36 | % |
| Allowance for loan and lease losses / total loans | 0.70 | % | | 0.71 | % | Allowance for loan and lease losses / total loans | 1.40 | % | | 0.73 | % |
| | | | | |
1 Loans include unpaid principal balance net of unamortized discount on acquired loans and unearned net deferred fees and costs and loans in process. | 1 Loans include unpaid principal balance net of unamortized discount on acquired loans and unearned net deferred fees and costs and loans in process. | 1 Loans include unpaid principal balance net of unamortized discount on acquired loans and unearned net deferred fees and costs and loans in process. | |
2 This is a non-GAAP financial measure we believe is helpful to interpreting our financial results. For more information on this non-GAAP financial measure, including a reconciliation to the most directly comparable GAAP financial measure, see "—Non-GAAP Financial Measures" section. | 2 This is a non-GAAP financial measure we believe is helpful to interpreting our financial results. For more information on this non-GAAP financial measure, including a reconciliation to the most directly comparable GAAP financial measure, see "—Non-GAAP Financial Measures" section. | 2 This is a non-GAAP financial measure we believe is helpful to interpreting our financial results. For more information on this non-GAAP financial measure, including a reconciliation to the most directly comparable GAAP financial measure, see "—Non-GAAP Financial Measures" section. | |
3 Annualized for partial-year periods, except for September 30, 2017, which was for the twelve month period. | |
3 Annualized for partial-year periods, except for September 30, 2019, which was for the twelve month period. | | 3 Annualized for partial-year periods, except for September 30, 2019, which was for the twelve month period. | |
Our total assets were $11.81$12.39 billion at DecemberMarch 31, 2017,2020, compared with $11.69$12.79 billion at September 30, 2017.2019, a decrease of $400.5 million, or 3.1%. The increasedecrease in total assets during the first threesix months of fiscal year 20182020 was principally attributable to an increasea full impairment of goodwill of $739.0 million, or 100.0%, a decrease in net loans of $196.3$78.6 million, since September 30, 2017, partiallyor 0.8%, offset by a decreasean increase in cash and cash equivalentsinvestment securities of $62.8$206.8 million, for the same period.or 11.6%. At DecemberMarch 31, 2017,2020, loans were $9.17$9.69 billion, compared to $8.97$9.71 billion at September 30, 2017. Net loan growth was primarily driven by growth2019. See "—Loan Portfolio" within this section for further discussion on the decrease in CRE and agriculture segments of the loan portfolio, offset by a reduction in commercial non-real estatenet loans. During the first quartersix months of fiscal year 2018,2020, total deposits grewdecreased by $46.6$121.2 million, or 0.5%. The growth was driven1.2%, compared to September 30, 2019 due to a reduction in the use of brokered deposits offset by a $76.0 millionan increase in noninterest-bearing deposits, partially offset by a $29.4 million reduction in interest-bearing deposits, which is net of continued outflows of timebusiness deposits.
Loan Portfolio
The following table presents our loan portfolio by category at each of the dates indicated:indicated.
| | | | December 31, 2017 | | September 30, 2017 | | March 31,
2020 | | September 30,
2019 |
| | (dollars in thousands) | | (dollars in thousands) | |
| Unpaid principal balance: | | | | Unpaid principal balance: | |
Commercial real estate 1 | | | | |
| Commercial real estate ¹ | | Commercial real estate ¹ | |
| Originated | $ | 3,824,110 |
| | $ | 3,628,235 |
| Originated | $ | 5,009,438 | | | $ | 4,824,827 | |
| Acquired | 471,586 |
| | 496,570 |
| Acquired | 213,381 | | | 267,583 | |
| Total | 4,295,696 |
| | 4,124,805 |
| Total | 5,222,819 | | | 5,092,410 | |
Agriculture 1 | | | | |
| Agriculture ¹ | | Agriculture ¹ | |
| Originated | 2,055,784 |
| | 1,990,648 |
| Originated | 1,814,630 | | | 1,932,722 | |
| Acquired | 121,599 |
| | 131,490 |
| Acquired | 67,162 | | | 75,922 | |
| Total | 2,177,383 |
| | 2,122,138 |
| Total | 1,881,792 | | | 2,008,644 | |
Commercial non-real estate 1 | | | | |
| Commercial non-real estate ¹ | | Commercial non-real estate ¹ | |
| Originated | 1,652,168 |
| | 1,670,349 |
| Originated | 1,657,077 | | | 1,691,026 | |
| Acquired | 43,563 |
| | 48,565 |
| Acquired | 42,120 | | | 28,930 | |
| Total | 1,695,731 |
| | 1,718,914 |
| Total | 1,699,197 | | | 1,719,956 | |
| Residential real estate | | | | Residential real estate | |
| Originated | 731,517 |
| | 724,906 |
| Originated | 721,122 | | | 696,403 | |
| Acquired | 192,922 |
| | 207,986 |
| Acquired | 99,637 | | | 115,805 | |
| Total | 924,439 |
| | 932,892 |
| Total | 820,759 | | | 812,208 | |
| Consumer | | | | Consumer | |
| Originated | 53,698 |
| | 56,467 |
| Originated | 48,815 | | | 47,324 | |
| Acquired | 9,174 |
| | 10,092 |
| Acquired | 3,825 | | | 4,601 | |
| Total | 62,872 |
| | 66,559 |
| Total | 52,640 | | | 51,925 | |
| Other lending | | | | Other lending | |
| Originated | 45,737 |
| | 43,132 |
| Originated | 39,908 | | | 47,541 | |
| Acquired | 68 |
| | 75 |
| Acquired | — | | | — | |
| Total | 45,805 |
| | 43,207 |
| Total | 39,908 | | | 47,541 | |
| Total originated | 8,363,014 |
| | 8,113,737 |
| Total originated | 9,290,990 | | | 9,239,843 | |
| Total acquired | 838,912 |
| | 894,778 |
| Total acquired | 426,125 | | | 492,841 | |
| Total unpaid principal balance | 9,201,926 |
| | 9,008,515 |
| Total unpaid principal balance | 9,717,115 | | | 9,732,684 | |
| Less: Unamortized discount on acquired loans | (26,536 | ) | | (29,121 | ) | Less: Unamortized discount on acquired loans | (10,468) | | | (13,655) | |
| Less: Unearned net deferred fees and costs and loans in process | (10,017 | ) | | (10,841 | ) | Less: Unearned net deferred fees and costs and loans in process | (13,352) | | | (12,266) | |
| Total loans | 9,165,373 |
| | 8,968,553 |
| Total loans | 9,693,295 | | | 9,706,763 | |
| Allowance for loan and lease losses | (64,023 | ) | | (63,503 | ) | Allowance for loan and lease losses | (135,950) | | | (70,774) | |
| Loans, net | $ | 9,101,350 |
| | $ | 8,905,050 |
| Loans, net | $ | 9,557,345 | | | $ | 9,635,989 | |
| | | | | |
1 Unpaid principal balance for commercial non-real estate, agriculture and commercial real estate loans includes fair value adjustments associated with long-term fixed-rate loans where we have entered into interest rate swaps to hedge our interest rate risk. | |
1 Unpaid principal balance for commercial non-real estate, agriculture and commercial real estate loans includes fair value adjustments associated with long-term fixed-rate loans where we have entered into interest rate swaps to manage our interest rate risk. | | 1 Unpaid principal balance for commercial non-real estate, agriculture and commercial real estate loans includes fair value adjustments associated with long-term fixed-rate loans where we have entered into interest rate swaps to manage our interest rate risk. | |
During the first quartersix months of fiscal year 2018,2020, total loans increaseddecreased by 2.2%0.1%, or $196.8 million.$13.5 million, compared to September 30, 2019. The growthnet loan reduction was primarily focused in CRE and agriculture segments of the loan portfolio, which grew $170.9 million and $55.2 million, respectively, offset bymainly attributable to a reduction in the agriculture segment of $23.2$126.9 million, or 6.3%, a reduction in the commercial non-real estate loans.segment of $20.8 million, or 1.2%, offset by an increase in the CRE segment of $130.4 million, or 2.6%. The decrease in the agriculture segment was largely due to a seasonal decrease related to customer tax planning and a number of relationships financed elsewhere. The decrease in the commercial non-real estate segment was due to disbursement transaction timing within our mortgage warehouse lending to independent mortgage originators. The increase in the CRE segment was attributable to growth from construction drawdowns and new relationships across the footprint. Over the same time period, residential real estate, consumer and other loan balances remained generally stable.
The following table presents an analysis of the unpaid principal balance of our loan portfolio at DecemberMarch 31, 2017,2020, by borrower and collateral type and by each of the six major geographic areas we use to manage our markets.
| | | | | | | | | | | | | | | | | | | | | | March 31, 2020 | |
| | December 31, 2017 | | South
Dakota | Iowa /
Missouri | Nebraska / Kansas | Arizona | Colorado | North Dakota / Minnesota | Other ² | Total | % |
| | South
Dakota | | Iowa /
Kansas /
Missouri | | Nebraska | | Arizona | | Colorado | | North Dakota / Minnesota | | Other(2) | | Total | % | | (dollars in thousands) | |
| | (dollars in thousands) | |
Commercial real estate 1 | $ | 1,048,217 |
| | $ | 1,093,977 |
| | $ | 823,487 |
| | $ | 447,780 |
| | $ | 669,144 |
| | $ | 203,797 |
| | $ | 9,294 |
| | $ | 4,295,696 |
| 46.7 | % | |
Agriculture 1 | 677,224 |
| | 422,709 |
| | 166,876 |
| | 733,246 |
| | 177,045 |
| | 3,313 |
| | (3,030 | ) | | 2,177,383 |
| 23.7 | % | |
Commercial non-real estate 1 | 269,197 |
| | 829,648 |
| | 355,848 |
| | 73,320 |
| | 120,453 |
| | 8,714 |
| | 38,551 |
| | 1,695,731 |
| 18.4 | % | |
| Commercial real estate ¹ | | Commercial real estate ¹ | $ | 1,087,541 | | $ | 1,241,095 | | $ | 1,149,213 | | $ | 539,362 | | $ | 922,553 | | $ | 242,597 | | $ | 40,458 | | $ | 5,222,819 | | 53.7 | % |
| Agriculture ¹ | | Agriculture ¹ | 554,250 | | 342,397 | | 127,061 | | 705,235 | | 141,993 | | 1,516 | | 9,340 | | 1,881,792 | | 19.4 | % |
| Commercial non-real estate ¹ | | Commercial non-real estate ¹ | 300,086 | | 568,771 | | 541,070 | | 80,327 | | 111,204 | | 5,247 | | 92,492 | | 1,699,197 | | 17.5 | % |
| Residential real estate | 224,912 |
| | 277,580 |
| | 196,380 |
| | 23,106 |
| | 154,553 |
| | 18,898 |
| | 29,010 |
| | 924,439 |
| 10.0 | % | Residential real estate | 216,427 | | 227,743 | | 185,824 | | 37,792 | | 116,682 | | 20,204 | | 16,087 | | 820,759 | | 8.5 | % |
| Consumer | 24,288 |
| | 20,394 |
| | 14,461 |
| | 893 |
| | 1,277 |
| | 694 |
| | 865 |
| | 62,872 |
| 0.7 | % | Consumer | 15,206 | | 17,652 | | 15,153 | | 421 | | 3,277 | | 440 | | 491 | | 52,640 | | 0.5 | % |
| Other lending | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 45,805 |
| | 45,805 |
| 0.5 | % | Other lending | — | | — | | — | | — | | — | | — | | 39,908 | | 39,908 | | 0.4 | % |
| Total | $ | 2,243,838 |
| | $ | 2,644,308 |
| | $ | 1,557,052 |
| | $ | 1,278,345 |
| | $ | 1,122,472 |
| | $ | 235,416 |
| | $ | 120,495 |
| | $ | 9,201,926 |
| 100.0 | % | Total | $ | 2,173,510 | | $ | 2,397,658 | | $ | 2,018,321 | | $ | 1,363,137 | | $ | 1,295,709 | | $ | 270,004 | | $ | 198,776 | | $ | 9,717,115 | | 100.0 | % |
| % by location | 24.4 | % | | 28.7 | % | | 16.9 | % | | 13.9 | % | | 12.2 | % | | 2.6 | % | | 1.3 | % | | 100.0 | % | | % by location | 22.4 | % | 24.7 | % | 20.8 | % | 14.0 | % | 13.3 | % | 2.8 | % | 2.0 | % | 100.0 | % | |
| | | | | | | | | | | | | | | | | | |
1 Unpaid principal balance for commercial non-real estate, agriculture and commercial real estate loans includes fair value adjustments associated with long-term fixed-rate loans where we have entered into interest rate swaps to hedge our interest rate risk. | |
1 Unpaid principal balance for commercial non-real estate, agriculture and commercial real estate loans includes fair value adjustments associated with long-term fixed-rate loans where we have entered into interest rate swaps to manage our interest rate risk. | | 1 Unpaid principal balance for commercial non-real estate, agriculture and commercial real estate loans includes fair value adjustments associated with long-term fixed-rate loans where we have entered into interest rate swaps to manage our interest rate risk. | |
2 Balances in this column represent acquired workout loans and certain other loans managed by our staff, commercial and consumer credit card loans, fair value adjustments related to acquisitions and loans for which we have elected the fair value option, which could result in a negative carrying amount in the event of a net negative fair value adjustment. | 2 Balances in this column represent acquired workout loans and certain other loans managed by our staff, commercial and consumer credit card loans, fair value adjustments related to acquisitions and loans for which we have elected the fair value option, which could result in a negative carrying amount in the event of a net negative fair value adjustment. | 2 Balances in this column represent acquired workout loans and certain other loans managed by our staff, commercial and consumer credit card loans, fair value adjustments related to acquisitions and loans for which we have elected the fair value option, which could result in a negative carrying amount in the event of a net negative fair value adjustment. | |
The following table presents additional detail regarding our agriculture, CRE and residential real estate loans at DecemberMarch 31, 2017:2020.
| | | | | |
| March 31, 2020 |
| (dollars in thousands) |
| Construction and development | $ | 434,264 | |
| Owner-occupied CRE | 1,414,476 |
| Non-owner-occupied CRE | 2,910,516 |
| Multifamily residential real estate | 463,563 |
| Commercial real estate | 5,222,819 | |
| Agriculture real estate | 916,106 | |
| Agriculture operating loans | 965,686 |
| Agriculture | 1,881,792 | |
| Commercial non-real estate | 1,699,197 |
| Home equity lines of credit | 169,121 |
| Closed-end first lien | 520,126 |
| Closed-end junior lien | 33,647 |
| Residential construction | 97,865 |
| Residential real estate | 820,759 |
| Consumer | 52,640 |
| Other | 39,908 |
| Total unpaid principal balance | $ | 9,717,115 | |
|
| | | |
| | December 31, 2017 |
| | (dollars in thousands) |
| Construction and development | $ | 622,985 |
|
| Owner-occupied CRE | 1,317,585 |
|
| Non-owner-occupied CRE | 2,035,987 |
|
| Multifamily residential real estate | 319,139 |
|
| Commercial real estate | 4,295,696 |
|
| Agriculture real estate | 994,069 |
|
| Agriculture operating loans | 1,183,314 |
|
| Agriculture | 2,177,383 |
|
| Commercial non-real estate | 1,695,731 |
|
| Home equity lines of credit | 286,328 |
|
| Closed-end first lien | 461,499 |
|
| Closed-end junior lien | 38,278 |
|
| Residential construction | 138,334 |
|
| Residential real estate | 924,439 |
|
| Consumer | 62,872 |
|
| Other | 45,805 |
|
| Total unpaid principal balance | $ | 9,201,926 |
|
Commercial Real Estate. CRE includes owner-occupied CRE, non-owner-occupied CRE, construction and development lending, and multi-family residential real estate. While CRE lending will remainis a significant component of our overall loan portfolio, we are committed to managing our exposure to riskier construction and development lending specifically, and to CRE lending in general, by targeting relationships with sound management and financials, which are priced to reflect the amount of risk we accept as the lender.
Agriculture. Agriculture loans include farm operating loans and loans collateralized by farm land. According to the American Banker's Association, at September 30, 2017,December 31, 2019, we were ranked the sixth-largestfifth-largest farm lender bank in the United States measured by total dollar volume of farm loans. We consider agriculture lending one of our core competencies.lending areas. We target a 20% to 30% portfolio composition for agriculture loans not to exceed 225% of total capital according to our Risk Appetite Statement approved by our Board of Directors. Within our agriculture portfolio, loans are diversified across a wide range of subsectors with the majority of the portfolio concentrated within various types of grain, livestock and dairy products, and across different geographical segments within our footprint. WhileOver recent years, our borrowers have experienced volatile commodity prices, over recent years, we believe there continuesand the adverse effects of recently imposed and proposed tariffs on the export of agricultural products, effects of waivers of the amount of ethanol to typically be strong secondary
sourcesblended into the country's gasoline production and isolated areas of repayment and low borrower leverage forflooding within parts of the agriculture loan portfolio. Continued pressure on commodity pricesMidwest in which certain of our agricultural borrowers conduct their operations. While these events, the impacts of the COVID-19 pandemic or a further downturn in the agriculture economy, could directly and adversely affect our agricultural loan portfolio and
indirectly and adversely impact other lending categories including commercial non-real estate, CRE, residential real estate and consumer.consumer, we believe there continues to typically be strong secondary sources of repayment for the agriculture loan portfolio.
Commercial Non-Real Estate. Commercial non-real estate, or business lending, represents one of our core competencies. We believe that providing a tailored range of integrated products and services, including lending, to small- and medium-enterprise customers is the business at which we excel and through which we can generate favorable returns for our stockholders. We offer a number of different products including working capital and other shorter-term lines of credit, fixed-rate loans and variable rate loans with interest rate swaps over a wide range of terms, and variable-rate loans with varying terms. Our bank's direct exposure to energy-related borrowers is less than 1.4% of total loans.
Residential Real Estate. Residential real estate lending reflects 1-to-4-family real estate construction loans, closed-end first-lien mortgages (primarily single-family long-term first mortgages resulting from acquisitions of other banks), closed-end junior-lien mortgages and home equity lines of credit, or HELOCs. Our closed-end first-lien mortgages include a small percentage of single-family first mortgages that we originate and do not subsequently sell into the secondary market, including some jumbo products, adjustable-rate mortgages and rural home mortgages. Conversely, a large percentage of our total single-family first mortgage originations are sold into the secondary market in order to meet our interest rate risk management objectives.
Consumer. Our consumer lending offering comprises a relatively small portion of our total loan portfolio, and predominantly reflects small-balance secured and unsecured products marketed by our retail branches.
Other Lending. Other lending includes all other loan relationships that do not fit within the categories above, primarily consumer and commercial credit cards, customer deposit account overdrafts, and lease receivables.
The following table presents the maturity distribution of our loan portfolio as of DecemberMarch 31, 2017.2020. The maturity dates were determined based on the contractual maturity date of the loan:loan.
| | | | | | | | | | | | March 31, 2020 | |
| | 1 Year or Less | | >1 Through 5
Years | | >5 Years | | Total | | 1 Year or Less | | >1 Through 5 Years | | >5 Years | | Total |
| | (dollars in thousands) | | (dollars in thousands) | |
| Maturity distribution: | | | | | | | | Maturity distribution: | |
| Commercial real estate | $ | 406,956 |
| | $ | 1,922,674 |
| | $ | 1,966,066 |
| | $ | 4,295,696 |
| Commercial real estate | $ | 621,604 | | | $ | 2,139,467 | | | $ | 2,461,748 | | | $ | 5,222,819 | |
| Agriculture | 1,089,887 |
| | 697,437 |
| | 390,059 |
| | 2,177,383 |
| Agriculture | 902,870 | | | 631,222 | | | 347,700 | | | 1,881,792 | |
| Commercial non-real estate | 731,008 |
| | 503,767 |
| | 460,956 |
| | 1,695,731 |
| Commercial non-real estate | 832,875 | | | 505,318 | | | 361,004 | | | 1,699,197 | |
| Residential real estate | 232,965 |
| | 317,212 |
| | 374,262 |
| | 924,439 |
| Residential real estate | 161,211 | | | 235,799 | | | 423,749 | | | 820,759 | |
| Consumer | 10,257 |
| | 42,043 |
| | 10,572 |
| | 62,872 |
| Consumer | 9,062 | | | 35,725 | | | 7,853 | | | 52,640 | |
| Other lending | 45,805 |
| | — |
| | — |
| | 45,805 |
| Other lending | 39,908 | | | — | | | — | | | 39,908 | |
| Total | $ | 2,516,878 |
| | $ | 3,483,133 |
| | $ | 3,201,915 |
| | $ | 9,201,926 |
| Total | $ | 2,567,530 | | | $ | 3,547,531 | | | $ | 3,602,054 | | | $ | 9,717,115 | |
The following table presents the distribution, as of DecemberMarch 31, 2017,2020, of our loans that were due after one year between fixed and variable interest rates:rates.
|
| | | | | | | | | | | |
| | Fixed | | Variable | | Total |
| | (dollars in thousands) |
| Maturity distribution: | | | | | |
| Commercial real estate | $ | 1,986,802 |
| | $ | 1,901,938 |
| | $ | 3,888,740 |
|
| Agriculture | 839,307 |
| | 248,189 |
| | 1,087,496 |
|
| Commercial non-real estate | 595,977 |
| | 368,746 |
| | 964,723 |
|
| Residential real estate | 215,908 |
| | 475,566 |
| | 691,474 |
|
| Consumer | 42,432 |
| | 10,183 |
| | 52,615 |
|
| Total | $ | 3,680,426 |
| | $ | 3,004,622 |
| | $ | 6,685,048 |
|
| | | | | | | | | | | | | | | | | |
| March 31, 2020 | | | | |
| Fixed | | Variable | | Total |
| (dollars in thousands) | | | | |
| Maturity distribution: | | | | | |
| Commercial real estate | $ | 2,240,425 | | | $ | 2,360,790 | | | $ | 4,601,215 | |
| Agriculture | 762,995 | | | 215,927 | | | 978,922 | |
| Commercial non-real estate | 529,107 | | | 337,215 | | | 866,322 | |
| Residential real estate | 307,012 | | | 352,536 | | | 659,548 | |
| Consumer | 36,627 | | | 6,951 | | | 43,578 | |
| Total | $ | 3,876,166 | | | $ | 3,273,419 | | | $ | 7,149,585 | |
Other Repossessed Property
In the normal course of business, we obtain title to parcels of real estate and other assets when borrowers are unable to meet their contractual obligations and we initiate foreclosure proceedings, or via deed in lieu of foreclosure actions. Other repossessed property assets are considered nonperforming assets. When we obtain title to an asset, we evaluate how best to maintain and protect our interest in the property and seek to liquidate the asset at an acceptable price in a timely manner. Our total other repossessed property carrying value was $10.5$27.3 million as of DecemberMarch 31, 2017, an increase2020, a decrease of $1.5$9.5 million, or 16.7%25.8%, compared to September 30, 2017. 2019, due primarily to one large relationship liquidation and the write down of the value of a hotel property negatively impacted by COVID-19 travel restrictions.
The following table presents our other repossessed property balances for the period indicated:indicated.
|
| | | |
| | Three Months Ended December 31, 2017 |
| | (dollars in thousands) |
| Beginning balance | $ | 8,985 |
|
| Additions to other repossessed property | 3,671 |
|
| Valuation adjustments and other | (13) |
|
| Sales | (2,157) |
|
| Ending balance | $ | 10,486 |
|
Investments
The following table presents the amortized cost of each category of our investment portfolio at the dates indicated:
|
| | | | | | | |
| | December 31, 2017 | | September 30, 2017 |
| | (dollars in thousands) |
| U.S. Treasury securities | $ | 228,302 |
| | $ | 228,039 |
|
| Mortgage-backed securities: | | | |
| Government National Mortgage Association | 481,441 |
| | 511,457 |
|
| Federal Home Loan Mortgage Corporation | 203,561 |
| | 169,147 |
|
| Federal National Mortgage Association | 161,958 |
| | 170,247 |
|
| Small Business Assistance Program | 237,965 |
| | 224,005 |
|
| States and political subdivision securities | 70,034 |
| | 73,041 |
|
| Other | 1,006 |
| | 1,006 |
|
| Total | $ | 1,384,267 |
| | $ | 1,376,942 |
|
We have historically invested excess deposits in high-quality, liquid investment securities including residential agency mortgage-backed securities and, to a lesser extent, U.S. Treasury securities, corporate debt securities and securities issued by U.S. states and political subdivisions. Our investment portfolio serves as a means to collateralize FHLB borrowings and public funds deposits, to earn net spread income on excess deposits and to maintain liquidity and balance interest rate risk. Since September 30, 2017, the fair value of the portfolio has decreased by $1.3 million, or 0.1%.
The following table presents the aggregate amortized cost of each investment category of the investment portfolio and the weighted average yield for each investment category for each maturity period held at December 31, 2017. Maturities of mortgage-backed securities may differ from contractual maturities because the mortgages underlying the securities may be called or prepaid without any penalties. The weighted-average yield ("WA Yield") on these assets is presented below based on the contractual rate, as opposed to a tax equivalent yield concept.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2017 |
| | Due in one year
or less | | Due after one year
through five years | | Due after five years
through ten years | | Due after
ten years | | Mortgage-backed
securities | | Securities without
contractual maturities | | Total |
| | Amount | WA Yield | | Amount | WA Yield | | Amount | WA Yield | | Amount | WA Yield | | Amount | WA Yield | | Amount | WA Yield | | Amount | WA Yield |
| | (dollars in thousands) |
| U.S. Treasury securities | $ | 84,927 |
| 1.39 | % | | $ | 143,375 |
| 1.66 | % | | $ | — |
| — | % | | $ | — |
| — | % | | $ | — |
| — | % | | $ | — |
| — | % | | $ | 228,302 |
| 1.56 | % |
| Mortgage-backed securities | — |
| — | % | | — |
| — | % | | — |
| — | % | | — |
| — | % | | 1,084,925 |
| 2.06 | % | | — |
| — | % | | 1,084,925 |
| 2.06 | % |
| States and political subdivision securities | 8,624 |
| 1.40 | % | | 45,753 |
| 1.49 | % | | 15,535 |
| 1.84 | % | | 122 |
| 5.00 | % | | — |
| — | % | | — |
| — | % | | 70,034 |
| 1.56 | % |
| Other | — |
| — | % | | — |
| — | % | | — |
| — | % | | — |
| — | % | | — |
| — | % | | 1,006 |
| — | % | | 1,006 |
| — | % |
| Total | $ | 93,551 |
| 1.39 | % | | $ | 189,128 |
| 1.62 | % | | $ | 15,535 |
| 1.84 | % | | $ | 122 |
| 5.00 | % | | $ | 1,084,925 |
| 2.06 | % | | $ | 1,006 |
| — | % | | $ | 1,384,267 |
| 1.95 | % |
| | | | | | | | | | | |
| Three Months Ended March 31, 2020 | | Six Months Ended March 31, 2020 |
| (dollars in thousands) | | |
| Balance, beginning of period | $ | 39,490 | | | $ | 36,764 | |
| Additions to other repossessed property | 212 | | | 7,507 | |
| Valuation adjustments and other | (4,756) | | (4,756) |
| Sales | (7,657) | | (12,226) |
| Balance, end of period | $ | 27,289 | | | $ | 27,289 | |
Asset Quality
We place an asset on nonaccrual status when any installmentmanagement believes, after considering collection efforts and other factors, the borrower's condition is such that collection of principal or interest is more thandoubtful, which is generally 90 days past duedue. If a borrower has failed to comply with the original contractual terms, further action may be required, including a downgrade in the risk rating, movement to nonaccrual status, a charge-off or earlier when management determines the ultimateestablishment of a specific reserve. If there is a collateral shortfall, we generally work with the borrower for a principal reduction, pledge of additional collateral or guarantee. If these alternatives are not available, we engage in formal collection of all contractually due principal or interest to be unlikely.activities. Restructured loans for which we grant payment or significant interest rate concessions are placed on nonaccrual status until collectability improves and a satisfactory payment history is established, generally by the receipt of at least six consecutive payments. Our collection policies related to delinquent and charged-off loans are highly focused on individual relationships, and we believe that these policies are in compliance with all applicable laws and regulations.
The following table presents the dollar amount of nonaccrual loans, other repossessed property, restructured performing loans and accruing loans over 90 days past due, at the end of the dates indicated. We entered into a non-commercial loss-sharing agreement with the FDIC related to certain assets (loans and other repossessed property) acquired from TierOne Bank on June 4, 2010. Loans covered by a FDIC loss-sharing agreementsagreement are generally pooled with other similar loans and are accreting purchase discount into income each period. Subject to compliance with the applicable loss-sharing agreement, we are indemnified by the FDIC at a rate of 80% for any future credit losses onfor single-family real estate loans and other repossessed property covered by athe FDIC loss-sharing agreement through June 4, 2020 for single-family real estate loans.2020.
| | | | | | | | | | | |
| March 31,
2020 | | September 30,
2019 |
| (dollars in thousands) | | |
| Nonaccrual loans ¹ | | | |
| Commercial real estate ² | $ | 41,886 | | | $ | 14,973 | |
| Agriculture ² | 143,277 | | | 77,880 | |
| Commercial non-real estate ² | 21,334 | | | 9,502 | |
| Residential real estate | | | |
| Loans covered by a FDIC loss-sharing agreement | 2,128 | | | 2,190 | |
| Loans not covered by a FDIC loss-sharing agreement | 4,353 | | | 2,572 | |
| Total | 6,481 | | | 4,762 | |
| Consumer ² | 97 | | | 74 | |
| Total nonaccrual loans covered by a FDIC loss-sharing agreement | 2,128 | | | 2,190 | |
| Total nonaccrual loans not covered by a FDIC loss-sharing agreement | 210,947 | | | 105,001 | |
| Total nonaccrual loans | 213,075 | | | 107,191 | |
| Other repossessed property | 27,289 | | | 36,764 | |
| Total nonperforming assets | 240,364 | | | 143,955 | |
| Performing TDRs | 41,382 | | | 44,842 | |
| Total nonperforming and restructured assets | $ | 281,746 | | | $ | 188,797 | |
| Accruing loans 90 days or more past due | $ | 2,300 | | | $ | 11,180 | |
| Nonperforming TDRs included in total nonaccrual loans | 28,042 | | | 30,073 | |
| | | |
| Percent of total assets | | | |
| Nonaccrual loans not covered by a FDIC loss-sharing agreement | 1.70 | % | | 0.82 | % |
| Total nonaccrual loans | 1.72 | % | | 0.84 | % |
| Other repossessed property | 0.22 | % | | 0.29 | % |
| Nonperforming assets ³ | 1.94 | % | | 1.13 | % |
| Nonperforming and restructured assets ³ | 2.27 | % | | 1.48 | % |
1 Includes nonperforming restructured loans. | | | |
2 Loans not covered by a FDIC loss-sharing agreement. | | | |
3 Includes nonaccrual loans, which includes nonperforming restructured loans. | | | |
|
| | | | | | | |
| | December 31, 2017 | | September 30, 2017 |
| | (dollars in thousands) |
Nonaccrual loans 1 | | | |
Commercial real estate 3 | $ | 33,939 |
| | $ | 14,912 |
|
Agriculture 3 | 92,262 |
| | 100,504 |
|
Commercial non-real estate 3 | 13,016 |
| | 13,674 |
|
| Residential real estate | | | |
| Loans covered by FDIC loss-sharing agreements | 4,131 |
| | 4,893 |
|
| Loans not covered by FDIC loss-sharing agreements | 3,810 |
| | 4,206 |
|
| Total | 7,941 |
| | 9,099 |
|
Consumer 3 | 167 |
| | 123 |
|
Other lending 3 | — |
| | — |
|
| Total nonaccrual loans covered by FDIC loss-sharing agreements | 4,131 |
| | 4,893 |
|
| Total nonaccrual loans not covered by FDIC loss-sharing agreements | 143,194 |
| | 133,419 |
|
| Total nonaccrual loans | 147,325 |
| | 138,312 |
|
| Other repossessed property | 10,486 |
| | 8,985 |
|
| Total nonperforming assets | 157,811 |
| | 147,297 |
|
| Restructured performing loans | 32,352 |
| | 32,490 |
|
| Total nonperforming and restructured assets | $ | 190,163 |
| | $ | 179,787 |
|
| | | | |
| Accruing loans 90 days or more past due | $ | 157 |
| | $ | 1,859 |
|
| Nonperforming restructured loans included in total nonaccrual loans | $ | 64,025 |
| | $ | 71,334 |
|
| | | | |
| Percent of total assets | | | |
Nonaccrual loans 1 | | | |
| Loans not covered by FDIC loss-sharing agreements | 1.21 | % | | 1.14 | % |
| Total | 1.25 | % | | 1.18 | % |
| Other repossessed property | 0.09 | % | | 0.08 | % |
Nonperforming assets 2 | 1.34 | % | | 1.26 | % |
Nonperforming and restructured assets 2 | 1.61 | % | | 1.54 | % |
| | | | |
1 Includes nonperforming restructured loans |
2 Includes nonaccrual loans, which includes nonperforming restructured loans. |
3 Loans not covered by FDIC loss-sharing agreements |
At DecemberMarch 31, 20172020 and September 30, 2017,2019, our nonperforming assets were 1.34%1.94% and 1.26%1.13%, respectively, of total assets. Nonaccrual loans were $147.3$213.1 million as of DecemberMarch 31, 2017,2020, with $4.1$2.1 million of the balance covered by the FDIC non-commercial loss-sharing agreements,agreement, which represented a total increase in nonaccrual loans of $9.0$105.9 million, or 6.5%98.8%, compared to September 30, 2017. Total other repossessed property balances were $10.5 million as of December 31, 2017, an increase of $1.5 million, or 16.7%, compared to September 30, 2017.
2019.
We recognized approximately $0.2$1.0 million of interest income on loans that were on nonaccrual for the first quartersix months of fiscal year 2018.2020. Excluding loans covered by the FDIC non-commercial loss-sharing agreements,agreement, we had average nonaccrual loans (calculated as a two-point average) of $138.3$158.0 million outstanding during the first quartersix months of fiscal year 2018.2020. Based on the average loan portfolio yield for these loans for the first quartersix months of fiscal year 2018,2020, we estimate that interest income would have been $1.7$3.9 million higher during this period had these loans been accruing.
We consistently monitor all loans internally rated “watch”"watch" or worse because that rating indicates we have identified some potential weakness emerging; but loans rated “watch”"watch" will not necessarily become problem loans or become impaired. Aside from the loans on the watch list, we do not believe we have any potential problem loans that are not already identified as nonaccrual, past due or restructured as it is our policy to promptly reclassify loans as soon as we become aware of doubts as to the borrowers’ ability to meet repayment terms.
When we grant concessions to borrowers that we would not otherwise grant if not for the borrowers’ financial difficulties, such as reduced interest rates or extensions of loan periods, we consider these modifications troubled debt restructurings ("TDRs").TDRs.
The following table below outlines total TDRs, split between performing and nonperforming loans, at each of the dates indicated:indicated. | | | | December 31, 2017 | | September 30, 2017 | | March 31,
2020 | | September 30,
2019 |
| | (dollars in thousands) | | (dollars in thousands) | |
| Commercial real estate | | | | Commercial real estate | |
| Performing TDRs | $ | 621 |
| | $ | 1,121 |
| Performing TDRs | $ | 19,843 | | | $ | 17,145 | |
| Nonperforming TDRs | 4,859 |
| | 5,351 |
| Nonperforming TDRs | 3,088 | | | 904 | |
| Total | 5,480 |
| | 6,472 |
| Total | 22,931 | | | 18,049 | |
| Agriculture | | | | Agriculture | |
| Performing TDRs | 23,178 |
| | 22,678 |
| Performing TDRs | 11,838 | | | 22,929 | |
| Nonperforming TDRs | 54,401 |
| | 59,633 |
| Nonperforming TDRs | 20,357 | | | 24,762 | |
| Total | 77,579 |
| | 82,311 |
| Total | 32,195 | | | 47,691 | |
| Commercial non-real estate | | | | Commercial non-real estate | |
| Performing TDRs | 8,284 |
| | 8,369 |
| Performing TDRs | 9,402 | | | 4,398 | |
| Nonperforming TDRs | 3,957 |
| | 5,641 |
| Nonperforming TDRs | 4,465 | | | 4,257 | |
| Total | 12,241 |
| | 14,010 |
| Total | 13,867 | | | 8,655 | |
| Residential real estate | | | | Residential real estate | |
| Performing TDRs | 258 |
| | 311 |
| Performing TDRs | 294 | | | 263 | |
| Nonperforming TDRs | 808 |
| | 688 |
| Nonperforming TDRs | 92 | | | 102 | |
| Total | 1,066 |
| | 999 |
| Total | 386 | | | 365 | |
| Consumer | | | | Consumer | |
| Performing TDRs | 11 |
| | 11 |
| Performing TDRs | 5 | | | 107 | |
| Nonperforming TDRs | — |
| | 21 |
| Nonperforming TDRs | 40 | | | 48 | |
| Total | 11 |
| | 32 |
| Total | 45 | | | 155 | |
| Total performing TDRs | 32,352 |
| | 32,490 |
| Total performing TDRs | 41,382 | | | 44,842 | |
| Total nonperforming TDRs | 64,025 |
| | 71,334 |
| Total nonperforming TDRs | 28,042 | | | 30,073 | |
| Total TDRs | $ | 96,377 |
| | $ | 103,824 |
| Total TDRs | $ | 69,424 | | | $ | 74,915 | |
As of DecemberMarch 31, 2017,2020, total performing TDRs decreased $0.1$3.5 million, or 0.4%7.7%, compared to September 30, 2017.2019, primarily due to the payoff of one large relationship in the agriculture loan portfolio. Total nonperforming TDRs decreased $7.3$2.0 million, or 10.2%6.8%, compared to September 30, 20172019 primarily due mainly to partial charge offs on two relationships and a substantial paydown from one relationshippaydowns in ourthe agriculture portfolio during the quarter.portfolio.
We entered into loss-sharing agreements with the FDIC related to certain assets (loans and other repossessed property) acquired from TierOne Bank on June 4, 2010. We are generally indemnified by the FDIC at a rate of 80% for any future credit losses through June 4, 2020 for single-family real estate loans and other repossessed property. Our commercial loss-sharing agreement with the FDIC has expired.
The following table below presents nonaccrual loans, TDRs, and other repossessed property covered by the remaining loss-sharing agreement; a rollforward of the allowance for loan and lease losses for loans covered by the remaining loss-sharing agreement; a rollforward of allowance for loan and lease losses for ASC 310-30 loans covered by the remaining loss-sharing agreement; and a rollforward of other repossessed property covered by the remaining loss-sharing agreement at and for the periods presented. | | | | | | | | At and for the Six Months Ended March 31, 2020 | | At and for the Fiscal Year Ended September 30, 2019 |
| | At and for the three months ended December 31, 2017 | | At and for the fiscal year ended September 30, 2017 | | (dollars in thousands) | |
| | (dollars in thousands) | |
| Assets covered by FDIC loss-sharing agreements | | | | |
Nonaccrual loans 1 | $ | 4,131 |
| | $ | 4,893 |
| |
| Assets covered by a FDIC loss-sharing agreement | | Assets covered by a FDIC loss-sharing agreement | |
| Nonaccrual loans ¹ | | Nonaccrual loans ¹ | $ | 2,128 | | | $ | 2,190 | |
| TDRs | 182 |
| | 191 |
| TDRs | 33 | | | 43 | |
| Other repossessed property | 86 |
| | — |
| Other repossessed property | — | | | — | |
| Allowance for loan and lease losses, loans covered by FDIC loss-sharing agreements | | | | |
| Balance at beginning of period | $ | 196 |
| | $ | 907 |
| |
| Allowance for loan and lease losses, loans covered by a FDIC loss-sharing agreement | | Allowance for loan and lease losses, loans covered by a FDIC loss-sharing agreement | |
| Balance, beginning of period | | Balance, beginning of period | $ | 113 | | | $ | 262 | |
| Additional impairment recorded | 52 |
| | 196 |
| Additional impairment recorded | 442 | | | 309 | |
| Recoupment of previously-recorded impairment | (90 | ) | | (892 | ) | Recoupment of previously-recorded impairment | — | | | (379) | |
| Charge-offs | (60 | ) | | (15 | ) | Charge-offs | (61) | | | (79) | |
| Balance at end of period | $ | 98 |
| | $ | 196 |
| |
| Balance, end of period | | Balance, end of period | $ | 494 | | | $ | 113 | |
| | | | | | | | |
| Other repossessed property covered by loss-sharing arrangement | | | | |
| Balance at beginning of period | $ | — |
| | $ | 106 |
| |
| Other repossessed property covered by a loss-sharing agreement | | Other repossessed property covered by a loss-sharing agreement | |
| Balance, beginning of period | | Balance, beginning of period | $ | — | | | $ | 131 | |
| Additions to other repossessed property | 86 |
| | 14 |
| Additions to other repossessed property | — | | | — | |
| Sales | — |
| | (120 | ) | Sales | — | | | (131) | |
| Balance at end of period | $ | 86 |
| | $ | — |
| |
| | | | | |
| Balance, end of period | | Balance, end of period | $ | — | | | $ | — | |
1 Includes nonperforming restructured loans. | 1 Includes nonperforming restructured loans. | 1 Includes nonperforming restructured loans. | |
Allowance for Loan and Lease Losses
We establish an allowance for the inherent risk of probable losses within our loan portfolio. The allowance for loan and lease losses is management’s best estimate of probable credit losses that are incurred in the loan portfolio. We determine the allowance for loan and lease losses based on an ongoing evaluation, driven primarily by monitoring changes in loan risk grades, delinquencies and other credit risk indicators, which is an inherently subjective process. We consider the uncertainty related to certain industry sectors and the extent of credit exposure to specific borrowers within the portfolio. In addition, we consider concentration risks associated with the various loan portfolios, and current economic conditions and other environmental factors that might impact the portfolio. All of these estimates are susceptible to significant change. Changes to the allowance for loan and lease losses are made by charges to the provision for loan and lease losses. Loans deemed to be uncollectible are charged off against the allowance for loan and lease losses. Recoveries of amounts previously charged-off are credited to the allowance for loan and lease losses.
Our allowance for loan and lease losses consists of two components. For non-impaired loans, we calculate a weighted average loss ratio of 12-, 36- and 60-month historical realized losses by collateral type; adjust as necessary for our interpretation of current economic conditions, environmental factors and current portfolio trends including credit quality, concentrations, aging of the portfolio and/or significant policy and underwriting changes not entirely covered by the calculated historical loss rates; and apply the loss rates to outstanding loan balances in each collateral category. We calculate the weighted average ratio of 12-, 36- and 60-month historical realized losses for each collateral type by dividing the average net annual charge-offs by the average outstanding loans of such type subject to the calculation for each of the 12-, 36- and 60-month periods, then averaging those three results. For impaired loans, we estimate our exposure for each individual relationship, given the current payment status of the loan and the value of the underlying collateral as supported by third party appraisals, broker’s price opinions, and/or the borrower’s financial statements and internal valuation assessments, each adjusted for liquidation costs. Any shortfall between the liquidation value of the underlying collateral and the recorded investment value of the loan is considered the required specific reserve amount. Actual losses in any period may exceed allowance amounts. We evaluate and adjust our allowance for loan and lease losses, and the allocation of the allowance between loan categories, each month.
The following table presents an analysis of our allowance for loan and lease losses, including provisions for loan and lease losses, charge-offs and recoveries, for the periods indicated:indicated.
| | | | At and for the three months ended December 31, 2017 | | At and for the fiscal year ended September 30, 2017 | | At and for the Six Months Ended March 31, 2020 | | At and for the Fiscal Year Ended September 30, 2019 |
| | (dollars in thousands) | | (dollars in thousands) | |
| Allowance for loan and lease losses: | | | | Allowance for loan and lease losses: | |
| Balance at beginning of period | $ | 63,503 |
| | $ | 64,642 |
| |
| Balance, beginning of period | | Balance, beginning of period | $ | 70,774 | | | $ | 64,540 | |
| Provision charged to expense | 4,604 |
| | 22,210 |
| Provision charged to expense | 79,750 | | | 41,506 | |
| Recoupment of ASC 310-30 loans | (47 | ) | | (671 | ) | |
| Impairment (improvement) of ASC 310-30 loans | | Impairment (improvement) of ASC 310-30 loans | 148 | | | (559) | |
| Charge-offs: | | | | Charge-offs: | |
| Commercial real estate | (329 | ) | | (2,043 | ) | Commercial real estate | (1,454) | | | (1,511) | |
| Agriculture | (2,198 | ) | | (7,853 | ) | Agriculture | (9,128) | | | (24,847) | |
| Commercial non-real estate | (1,239 | ) | | (12,576 | ) | Commercial non-real estate | (5,059) | | | (7,895) | |
| Residential real estate | (255 | ) | | (809 | ) | Residential real estate | (287) | | | (998) | |
| Consumer | (54 | ) | | (196 | ) | Consumer | (45) | | | (452) | |
| Other lending | (534 | ) | | (2,403 | ) | Other lending | (1,060) | | | (1,358) | |
| Total charge-offs | (4,609 | ) | | (25,880 | ) | Total charge-offs | (17,033) | | | (37,061) | |
| | | | | |
| Recoveries: | | | | Recoveries: | | | |
| Commercial real estate | 148 |
| | 485 |
| Commercial real estate | 234 | | | 567 | |
| Agriculture | 47 |
| | 415 |
| Agriculture | 1,408 | | | 385 | |
| Commercial non-real estate | 121 |
| | 652 |
| Commercial non-real estate | 172 | | | 392 | |
| Residential real estate | 90 |
| | 507 |
| Residential real estate | 312 | | | 468 | |
| Consumer | 22 |
| | 102 |
| Consumer | 48 | | | 174 | |
| Other lending | 144 |
| | 1,041 |
| Other lending | 137 | | | 362 | |
| Total recoveries | 572 |
| | 3,202 |
| Total recoveries | 2,311 | | | 2,348 | |
| Net loan charge-offs | | Net loan charge-offs | (14,722) | | | (34,713) | |
| Balance, end of period | | Balance, end of period | $ | 135,950 | | | $ | 70,774 | |
| | | | | | | | |
| Net loan charge-offs | (4,037 | ) | | (22,678 | ) | |
| | | | | |
| Balance at end of period | $ | 64,023 |
| | $ | 63,503 |
| |
| | | | | |
Average total loans for the period 1 | $ | 8,930,768 |
| | $ | 8,695,672 |
| |
Total loans at period end 1 | $ | 9,165,373 |
| | $ | 8,968,553 |
| |
| Average total loans for the period ¹ | | Average total loans for the period ¹ | $ | 9,648,678 | | | $ | 9,741,293 | |
| Total loans at period end ¹ | | Total loans at period end ¹ | 9,693,295 | | | 9,706,763 | |
| Ratios | | | | Ratios | |
Net charge-offs to average total loans 3 | 0.18 | % | | 0.26 | % | |
| Net charge-offs to average total loans ³ | | Net charge-offs to average total loans ³ | 0.31 | % | | 0.36 | % |
| Allowance for loan and lease losses to: | | | | Allowance for loan and lease losses to: | |
| Total loans | 0.70 | % | | 0.71 | % | Total loans | 1.40 | % | | 0.73 | % |
Nonaccruing loans 2 | 44.71 | % | | 47.60 | % | |
| | | | | |
| Nonaccruing loans ² | | Nonaccruing loans ² | 64.45 | % | | 67.40 | % |
1 Loans include unpaid principal balance net of unamortized discount on acquired loans and unearned net deferred fees and costs and loans in process. | 1 Loans include unpaid principal balance net of unamortized discount on acquired loans and unearned net deferred fees and costs and loans in process. | 1 Loans include unpaid principal balance net of unamortized discount on acquired loans and unearned net deferred fees and costs and loans in process. | |
2 Nonaccruing loans excludes loans covered by FDIC loss-sharing agreements. | |
3 Annualized for partial-year periods | |
2 Nonaccruing loans excludes loans covered by a FDIC loss-sharing agreement. | | 2 Nonaccruing loans excludes loans covered by a FDIC loss-sharing agreement. | |
3 Annualized for partial-year periods. | | 3 Annualized for partial-year periods. | |
In the first quartersix months of fiscal year 2018,2020, net charge-offs were $4.0$14.7 million, or 0.18%0.31%, of average total loans on an annualized basis, comprised of $4.6$17.0 million of charge-offs and $0.6$2.3 million of recoveries. The charge-offs were concentrated in the agriculture and commercial non-real estate segments in the loan portfolio. For fiscal year 2017,2019, net charge-offs were $22.7$34.7 million, or 0.26%0.36%, of average total loans.
At DecemberMarch 31, 2017,2020, the allowance for loan and lease losses was 0.70%1.40% of our total loan portfolio, a 167 basis point decreaseincrease, compared to 0.71%0.73% at September 30, 2017.2019. The balance of the ALLL increased to $64.0$136.0 million from $63.5$70.8 million over the same period.period due to incurred loss resulting from COVID-19 pandemic. This increase did not contemplate the potential impact of CECL implementation, which is effective for the Company October 1, 2020. In determining the credit related charges attributable to the COVID-19 pandemic, we considered the impact upon our loan portfolio. Industries such as oil & energy, hotels & resorts, restaurants, retail malls, airlines and others have been cited as being at risk for significant revenue loss. Within our portfolio, $1.14 billion, or 11.8% relates to hotels & resorts, $109.8 million, or 1.1% relates to restaurants, with exposure in such other identified industries being immaterial. At this time it is difficult to determine ultimate impact upon our portfolio, but we are of the view the credit-related adjustments reflect the best estimate of incurred losses in our portfolio as of March 31, 2020.
Additionally, a portion of our loans which are carried at fair value, totaling $980.1$792.1 million at DecemberMarch 31, 20172020 and $1.02 billion$813.0 million at September 30, 2017,2019, respectively, have no associated allowance for loan and lease losses, but rather have a fair value adjustment related to credit risk included within their carrying value, thus driving the overall ratio of allowance for loan and lease losses to total loans lower. The amount of fair value adjustment related to credit risk on these loans was $6.2$16.7 million and $8.3$6.8 million at DecemberMarch 31, 20172020 and September 30, 2017,2019, respectively, or 0.07%0.17% and 0.09%0.07% of total loans, respectively. Finally, total purchase
discount remaining on all acquired loans equates to 0.29%0.11% and 0.32%0.14% of total loans at DecemberMarch 31, 20172020 and September 30, 2017,2019, respectively.
The following table presents management’s historical allocation of the allowance for loan and lease losses by loan category, in both dollars and percentage of our total allowance for loan and lease losses, to specific loans in those categories at the dates indicated:indicated.
| | | | December 31, 2017 | | September 30, 2017 | | March 31, 2020 | | | September 30, 2019 | |
| | Amount | | Percent | | Amount | | Percent | | Amount | Percent | | Amount | Percent |
| | (dollars in thousands) | | (dollars in thousands) | |
| Allocation of allowance for loan and lease losses: | | | | | | | | Allocation of allowance for loan and lease losses: | |
| Commercial real estate | $ | 15,995 |
| | 25.0 | % | | $ | 16,941 |
| | 26.7 | % | Commercial real estate | $ | 64,414 | | 47.4 | % | | $ | 16,827 | | 23.8 | % |
| Agriculture | 24,750 |
| | 38.7 | % | | 25,757 |
| | 40.6 | % | Agriculture | 29,526 | | 21.7 | % | | 30,819 | | 43.5 | % |
| Commercial non-real estate | 16,434 |
| | 25.7 | % | | 14,114 |
| | 22.2 | % | Commercial non-real estate | 31,766 | | 23.4 | % | | 17,567 | | 24.8 | % |
| Residential real estate | 5,475 |
| | 8.5 | % | | 5,347 |
| | 8.4 | % | Residential real estate | 8,356 | | 6.1 | % | | 4,095 | | 5.8 | % |
| Consumer | 307 |
| | 0.4 | % | | 329 |
| | 0.5 | % | Consumer | 777 | | 0.6 | % | | 427 | | 0.6 | % |
| Other lending | 1,062 |
| | 1.7 | % | | 1,015 |
| | 1.6 | % | Other lending | 1,111 | | 0.8 | % | | 1,039 | | 1.5 | % |
| Total | $ | 64,023 |
| | 100.0 | % | | $ | 63,503 |
| | 100.0 | % | Total | $ | 135,950 | | 100.0 | % | | $ | 70,774 | | 100.0 | % |
Management will continue to evaluate the loan portfolio and assess economic conditions in order to determine future allowance levels and the amount of loan and lease loss provisions. We review the appropriateness of our allowance for loan and lease losses on a monthly basis. Management monitors closely all past due and restructured loans in assessing the appropriateness of its allowance for loan and lease losses. In addition, we follow procedures for reviewing and grading all substantial commercial and agriculture relationships at least annually. Based predominantly upon the review and grading process, we determine the appropriate level of the allowance in response to our assessment of the probable risk of loss inherent in our loan portfolio. Management makes additional loan and lease loss provisions when the results of itsour problem loan assessment methodology or overall allowance testing of appropriateness test indicateindicates additional provisions are required.
The review of problem loans is an ongoing process during which management may determine that additional charge-offs are required or additional loans should be placed on nonaccrual status. We have also recorded an allowance for unfunded lending-related commitments that represents our estimate of incurred losses on the portion of lending commitments that borrowers have not advanced. The balance of the allowance for unfunded lending-related commitments was $1.1 million and $0.5 million at DecemberMarch 31, 20172020 and September 30, 2017.2019, respectively, and is recorded in accrued expenses and other liabilities in the consolidated balance sheet.
Investment Securities
The following table presents the amortized cost of each category of our investment portfolio at the dates indicated.
| | | | | | | | | | | |
| March 31,
2020 | | September 30,
2019 |
| (dollars in thousands) | | |
| U.S. Treasury securities | $ | 69,629 | | | $ | 94,178 | |
| Mortgage-backed securities: | | | |
| Government National Mortgage Association | 566,747 | | | 501,139 | |
| Federal Home Loan Mortgage Corporation | 556,535 | | | 463,974 | |
| Federal National Mortgage Association | 386,996 | | | 322,340 | |
| Small Business Assistance Program | 300,498 | | | 316,502 | |
| States and political subdivision securities | 60,511 | | | 66,145 | |
| Other | 1,006 | | | 1,006 | |
| Total | $ | 1,941,922 | | | $ | 1,765,284 | |
We generally invest excess deposits in high-quality, liquid investment securities including residential agency mortgage-backed securities and, to a lesser extent, U.S. Treasury securities, corporate debt securities and securities issued by U.S. states and political subdivisions. Our investment portfolio serves as a means to collateralize FHLB borrowings and public funds deposits, to earn net spread income on excess deposits, to maintain liquidity and to balance interest rate risk. Since September 30, 2019, the fair value of the portfolio has increased by $206.8 million, or 11.6%.
The following table presents the aggregate amortized cost of each investment category of the investment portfolio and the weighted average yield for each investment category for each maturity period held at March 31, 2020. Maturities of mortgage-backed securities may differ from contractual maturities because the mortgages underlying the securities may be called or prepaid without any penalties. The weighted-average yield ("WA Yield") on these assets is presented in the following table based on the contractual rate, as opposed to a tax equivalent yield concept.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2020 | | | | | | | | | | | | | | | | | | | |
| Due in one year
or less | | | Due after one year
through five years | | | Due after five years
through ten years | | | Due after
ten years | | | Mortgage-backed
securities | | | Securities without
contractual maturities | | | Total | |
| Amount | WA Yield | | Amount | WA Yield | | Amount | WA Yield | | Amount | WA Yield | | Amount | WA Yield | | Amount | WA Yield | | Amount | WA Yield |
| (dollars in thousands) | | | | | | | | | | | | | | | | | | | |
| U.S. Treasury securities | $ | 69,629 | | 2.50 | % | | $ | — | | 0.00 | % | | $ | — | | — | % | | $ | — | | — | % | | $ | — | | — | % | | $ | — | | — | % | | $ | 69,629 | | 2.50 | % |
| Mortgage-backed securities | — | | — | % | | — | | — | % | | — | | — | % | | — | | — | % | | 1,810,776 | | 2.21 | % | | — | | — | % | | 1,810,776 | | 2.21 | % |
| States and political subdivision securities ¹ ² | 12,986 | | 1.51 | % | | 35,858 | | 1.75 | % | | 11,667 | | 2.54 | % | | — | | — | % | | — | | — | % | | — | | — | % | | 60,511 | | 1.85 | % |
| Other | — | | — | % | | — | | — | % | | — | | — | % | | — | | — | % | | — | | — | % | | 1,006 | | — | % | | 1,006 | | — | % |
| Total | $ | 82,615 | | 2.34 | % | | $ | 35,858 | | 1.75 | % | | $ | 11,667 | | 2.54 | % | | $ | — | | — | % | | $ | 1,810,776 | | 2.21 | % | | $ | 1,006 | | — | % | | $ | 1,941,922 | | 2.21 | % |
1 Information related to obligations of state and political subdivisions is presented based upon yield to first optional call date if the security is purchased at a premium, yield to maturity if purchased at par or a discount. | | | | | | | | | | | | | | | | | | | | |
2 Maturity calculations for obligations of state and political subdivisions are based on the first optional call date for securities with a fair value above par and contractual maturity for securities with a fair value equal to or below par. | | | | | | | | | | | | | | | | | | | | |
Declines in the fair value of investment securities available for sale that are deemed to be other-than-temporary are recognized in earnings as a realized loss, and a new cost basis for the securities is established. In evaluating other-than-temporary impairment, we consider the length of time and extent to which the fair value has been less than amortized cost, the financial condition and near-term prospects of the issuer, and our intent and ability to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value in the near term. Declines in the fair value of debt securities below amortized cost are deemed to be other-than-temporary in circumstances where: (1) we have the intent to sell a security; (2) it is more-likely-than-not that we will be required to sell the security before recovery of its amortized cost basis; or (3) we do not expect to recover the entire amortized cost basis of the security. If we intend to sell a security or if it is more-likely-than-not that we will be required to sell the security before recovery, an other-than-temporary impairment loss is recognized in earnings equal to the difference between the security’s amortized cost basis and its fair value. If we do not intend to sell the security or it is not more-likely-than-not that it will be required to sell the security before recovery, the other-than-temporary impairment write-down is separated into an amount representing credit loss, which is recognized in earnings, and an amount related to all other factors, which is recognized in other comprehensive income (loss).
Deposits
We obtain funds from depositors by offering consumer and business demand deposit accounts, money market accounts, NOW accounts, savingsinterest-bearing accounts and term time deposits. At DecemberMarch 31, 20172020 and September 30, 2017,2019, our total deposits were $9.02$10.18 billion and $8.98$10.30 billion, respectively, representing a decrease of $121.2 million, or 1.2%, due to a reduction in the use of brokered deposits partially offset by an increase of 0.5%, which was primarily spread across commercial and public deposit accounts.in business deposits. Our accounts are federally insured by the FDIC up to the legal maximum. We have significantly shifted the composition of our deposit portfolio away from time deposits toward demand, NOW, money market and savings accounts in recent years.
The following table presents the balances and weighted average cost of our deposit portfolio at the following dates:dates.
|
| | | | | | | | | | | | | |
| | December 31, 2017 | | September 30, 2017 |
| | Amount | | Weighted Avg. Cost | | Amount | | Weighted Avg. Cost |
| | (dollars in thousands) |
| Non-interest-bearing demand | $ | 1,932,080 |
| | — | % | | $ | 1,856,126 |
| | — | % |
| NOW accounts, money market and savings | 5,838,497 |
| | 0.58 | % | | 5,847,432 |
| | 0.55 | % |
| Time certificates, $250,000 or more | 268,179 |
| | 1.25 | % | | 273,365 |
| | 1.16 | % |
| Other time certificates | 985,429 |
| | 0.84 | % | | 1,000,690 |
| | 0.78 | % |
| Total | $ | 9,024,185 |
| | 0.50 | % | | $ | 8,977,613 |
| | 0.48 | % |
| | | | | | | | | | | | | | | | | |
| March 31, 2020 | | | September 30, 2019 | |
| Amount | Weighted Avg. Cost | | Amount | Weighted Avg. Cost |
| (dollars in thousands) | | | | |
| Noninterest-bearing demand | $ | 1,973,629 | | — | % | | $ | 1,956,025 | | — | % |
| Interest-bearing demand | 6,677,252 | | 0.61 | % | | 6,248,638 | | 1.00 | % |
| Time deposits, greater than $250,000 | 416,361 | | 1.98 | % | | 493,530 | | 2.30 | % |
| Time deposits, less than or equal to $250,000 | 1,111,873 | | 1.20 | % | | 1,602,146 | | 1.68 | % |
| Total | $ | 10,179,115 | | 0.61 | % | | $ | 10,300,339 | | 0.98 | % |
At DecemberMarch 31, 20172020 and September 30, 2017,2019, we had $701.0$464.0 million and $725.4$706.5 million, respectively, in brokered deposits.
deposits, a decrease of $242.5 million, or 34.3%.
Municipal public deposits constituted $886.8 million$1.01 billion and $843.5 million$1.04 billion of our deposit portfolio at DecemberMarch 31, 2017,2020, and September 30, 2017,2019, respectively, of which $584.8$636.0 million and $533.3$691.9 million, respectively, were required to be collateralized. Our top 10 depositors were responsible for 8.5%8.1% and 7.0% of our total deposits at DecemberMarch 31, 20172020 and September 30, 2017.2019, respectively.
The following table presents deposits by region:region. | | | | December 31, 2017 | | September 30, 2017 | | March 31,
2020 | | September 30,
2019 |
| | (dollars in thousands) | | (dollars in thousands) | |
| South Dakota | $ | 2,290,178 |
| | $ | 2,231,857 |
| South Dakota | $ | 2,634,144 | | | $ | 2,575,833 | |
| Iowa / Kansas / Missouri | 2,650,868 |
| | 2,561,315 |
| |
| Nebraska | 2,438,327 |
| | 2,521,631 |
| |
| Iowa / Missouri | | Iowa / Missouri | 2,925,216 | | | 2,799,597 | |
| Nebraska / Kansas | | Nebraska / Kansas | 2,591,149 | | | 2,611,332 | |
| Arizona | 404,166 |
| | 377,610 |
| Arizona | 479,846 | | | 508,308 | |
| Colorado | 1,114,374 |
| | 1,153,058 |
| Colorado | 1,226,068 | | | 1,237,052 | |
| North Dakota / Minnesota | 43,927 |
| | 51,527 |
| North Dakota / Minnesota | 44,682 | | | 55,258 | |
| Corporate and other | 82,345 |
| | 80,615 |
| Corporate and other | 278,010 | | | 512,959 | |
| Total deposits | $ | 9,024,185 |
| | $ | 8,977,613 |
| Total deposits | $ | 10,179,115 | | | $ | 10,300,339 | |
We fund a portion of our assets with time deposits that have balances greater than $250,000 and that have maturities generally in excess of six months. At DecemberMarch 31, 20172020 and September 30, 2017,2019, our time deposits greater than $250,000 totaled $268.2$416.4 million and $273.4$493.5 million, respectively. The following table presents the maturities of our time deposits greater than $250,000 and less than or equal to $250,000 in size at DecemberMarch 31, 2017:2020.
| | | | | | | | March 31, 2020 | |
| | Greater than $250,000 | | Less than or equal to $250,000 | | Greater than $250,000 | | Less than or equal to $250,000 |
| | (dollars in thousands) | | (dollars in thousands) | |
| Remaining maturity: | | | | Remaining maturity: | |
| Three months or less | $ | 54,429 |
| | $ | 181,847 |
| Three months or less | $ | 118,963 | | | $ | 405,357 | |
| Over three through six months | 38,086 |
| | 111,578 |
| Over three through six months | 121,962 | | | 199,388 | |
| Over six through twelve months | 69,227 |
| | 326,341 |
| Over six through twelve months | 111,495 | | | 305,220 | |
| Over twelve months | 106,437 |
| | 365,663 |
| Over twelve months | 63,941 | | | 201,908 | |
| Total | $ | 268,179 |
| | $ | 985,429 |
| Total | $ | 416,361 | | | $ | 1,111,873 | |
| Percent of total deposits | 3.0 | % | | 10.9 | % | Percent of total deposits | 4.1 | % | | 10.9 | % |
At Decemberboth March 31, 20172020 and September 30, 2017,2019, the average remaining maturity of all time deposits was approximately 148 months. The average time deposits amount per account was approximately $28,124$39,576 and $27,870$45,936 at DecemberMarch 31, 20172020 and September 30, 2017,2019, respectively.
Derivatives
Beginning in the second quarter of fiscal year 2018, we entered into RPAs with some of our derivative counterparties to assume the credit exposure related to interest rate derivative contracts. Our loan customer enters into an interest rate swap directly with a derivative counterparty and we agree through an RPA to take on the counterparty's risk of loss on the interest rate swap due to a default by the customer. The notional amounts of RPAs sold were $78.2 million and $56.8 million as of March 31, 2020 and September 30, 2019, respectively. Assuming all underlying loan customers defaulted on their obligation to perform under the interest rate swap with a derivative counterparty, the exposure from these RPAs would be $0.6 million and $0.1 million at March 31, 2020 and September 30, 2019, respectively, based on the fair value of the underlying swaps.
In 2017, we began a new program of selling interest swaps directly to customers. These interest rate swaps sales are used to enable customers to achieve a long-term fixed rate by selling the customer a long-term variable rate loan indexed to LIBOR plus a credit spread whereby the Bank enters into an interest rate swap with our customer where the customer pays a fixed rate of interest set at the time of origination on the interest rate swap and then the customer receives a floating rate equal to the rate paid on the loan, thus resulting in a fixed rate of interest over the life of the interest rate swap. We then enter into a mirrored interest rate swap with a swap dealer where we pay and receive the same fixed and floating rate as we pay and receive from the interest rate swap we have with our customer. As the interest paid and received by us on the two swaps net to zero, we are left with the variable rate of the long-term loan.
Prior to 2017 we entered into fixed-rate loans having original maturities of 5 years or greater (typically between 5 and 15 years) with certain of our commercial and agribusinessagri-business banking customers to assist them in facilitating their risk management strategies. We mitigated our interest rate risk associated with certain of these loans by entering into equal and offsetting fixed-to-floating interest rate swap agreements for these loans with swap counterparties. We elected to account for the loans at fair value under ASC 825, Fair ValueOption. Changes in the fair value of these loans are recorded in earnings as a component of noninterest income in the relevant period. The related interest rate swaps are recognized as either assets or liabilities in our financial statements and any gains or losses on these swaps, both realized and unrealized, are recorded in earnings as a component of noninterest income. The economic hedgesinterest rate swaps are fully effective from an interest rate risk perspective, as gains and losses on our swaps are directly offset by changes in fair value of the hedgedfair value option loans (i.e., swap interest rate risk adjustments are directly offset by associated loan interest rate risk adjustments). Consequently, any changes in noninterest income associated with changes in fair value resulting from interest rate
movement, as opposed to changes in credit quality, on the loans are directly offset by equal and opposite unrealized charges to or reductions in noninterest income for the related interest rate swap. Any changes in the fair value of the loans related to credit quality and the current realized gain (loss) on derivatives are not offsetting amounts within noninterest income. To ensure the correlation of movements in fair value between the interest rate swap and the related loan, we pass on all economic costs associated with our hedginginterest rate swap activity resulting from loan customer prepayments (partial or full) to the customer.
Short-Term Borrowings
Our primary sources of short-term borrowings include securities sold under repurchase agreements and certain FHLB advances maturing within 12 months. The following table presents certain information with respect to only our borrowings with original maturities less than 12 months at and for the periods noted:noted.
|
| | | | | | | |
| | At and for the Three Months Ended December 31, 2017 | | At and for the Fiscal Year Ended September 30, 2017 |
| | (dollars in thousands) |
| Short-term borrowings: | | | |
| Securities sold under agreements to repurchase | $ | 116,884 |
| | $ | 132,636 |
|
| FHLB advances | 665,000 |
| | 587,200 |
|
| Total short-term borrowings | $ | 781,884 |
| | $ | 719,836 |
|
| | | | |
| Maximum amount outstanding at any month-end during the period | $ | 781,884 |
| | $ | 719,836 |
|
| Average amount outstanding during the period | $ | 587,306 |
| | $ | 352,395 |
|
| Weighted average rate for the period | 1.23 | % | | 0.70 | % |
| Weighted average rate as of date indicated | 1.24 | % | | 1.24 | % |
We have a $10.0 million revolving line of credit with a large national bank, which expires July 28, 2018, at an interest rate of one month LIBOR plus 200 basis points. At December 31, 2017, we did not have any advances on the line of credit. | | | | | | | | | | | |
| At and for the Six Months Ended March 31, 2020 | | At and for the Fiscal Year Ended September 30, 2019 |
| (dollars in thousands) | | |
| Short-term borrowings: | | | |
| Securities sold under agreements to repurchase | $ | 64,809 | | | $ | 68,992 | |
| FHLB advances | 475,000 | | | 15,000 | |
| Total short-term borrowings | $ | 539,809 | | | $ | 83,992 | |
| | | |
| Maximum amount outstanding at any month-end during the period | $ | 539,809 | | | $ | 371,649 | |
| Average amount outstanding during the period | 275,882 | | | 175,133 | |
| Weighted average rate for the period | 0.96 | % | | 1.72 | % |
| Weighted average rate as of date indicated | 0.65 | % | | 0.91 | % |
Other Borrowings
In addition to FHLB short-term advances, we also had FHLB long-term borrowings of $325.0 million outstanding as of both March 31, 2020 and September 30, 2019.
We havehad outstanding $75.9$73.8 million and $73.7 million of junior subordinated debentures to affiliated trusts in connection with the issuance of trust preferred securities by such trusts as of DecemberMarch 31, 20172020 and September 30, 2017.2019, respectively. We are permitted under applicable laws and regulations to count these trust preferred securities as part of our Tier 1 capital.
In 2015, weWe issued $35.0 million of fixed-to-floating rate subordinated notes that mature on August 15, 2025 through a private placement. The notes, which qualify as Tier 2 capital under capital rulesCapital Rules in effect at DecemberMarch 31, 2017,2020, have an interest rate of 4.875% per annum, payable semi-annually on each February 15 and August 15, commencing on February 15, 2016 until August 15, 2020. During the firstsecond quarter of fiscal year 2018,2020, we incurred $1.2 million in interest expense on all outstanding subordinated debentures and notes compared to $1.1$1.4 million in the same period in fiscal year 2017.
2019. During the first six months of fiscal years 2020 and 2019, interest expense on all outstanding subordinated debentures and notes was $2.5 million and $2.8 million, respectively.
Off-Balance Sheet Commitments, Commitments, Guarantees and Contractual Obligations
The following table summarizes the maturity of our contractual obligations and other commitments to make future payments at DecemberMarch 31, 2017.2020. Customer deposit obligations categorized as “not determined”"not determined" include noninterest-bearing demand accounts NOW accounts, money market and savingsinterest-bearing demand accounts with no stated maturity date.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2020 | | | | | | | | | | |
| Less Than 1 Year | | 1 to 2 Years | | 2 to 5 Years | | >5 Years | | Not Determined | | Total |
| (dollars in thousands) | | | | | | | | | | |
| Contractual Obligations: | | | | | | | | | | | |
| Customer deposits | $ | 1,240,321 | | | $ | 189,147 | | | $ | 76,510 | | | $ | 192 | | | $ | 8,672,945 | | | $ | 10,179,115 | |
| Securities sold under agreement to repurchase | 64,809 | | | — | | | — | | | — | | | — | | | 64,809 | |
| FHLB advances and other borrowings | 515,000 | | | 110,000 | | | 175,000 | | | — | | | — | | | 800,000 | |
| Subordinated debentures | — | | | — | | | — | | | 75,920 | | | — | | | 75,920 | |
| Subordinated notes payable | — | | | — | | | — | | | 35,000 | | | — | | | 35,000 | |
| Accrued interest payable | 9,102 | | | — | | | — | | | — | | | — | | | 9,102 | |
| Interest on FHLB advances | 9,176 | | | 6,481 | | | 7,471 | | | — | | | — | | | 23,128 | |
| Interest on subordinated debentures | 2,495 | | | 2,495 | | | 7,484 | | | 23,906 | | | — | | | 36,380 | |
| Interest on subordinated notes payable | 1,706 | | | 1,706 | | | 5,119 | | | 640 | | | — | | | 9,171 | |
| Other Commitments: | | | | | | | | | | | |
| Commitments to extend credit—non-credit card | $ | 987,183 | | | $ | 308,861 | | | $ | 392,305 | | | $ | 224,108 | | | $ | — | | | $ | 1,912,457 | |
| Commitments to extend credit—credit card | 128,429 | | | — | | | — | | | — | | | — | | | 128,429 | |
| Letters of credit | 69,768 | | | — | | | — | | | — | | | — | | | 69,768 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Less Than 1 Year | | 1 to 2 Years | | 2 to 5 Years | | >5 Years | | Not Determined | | Total |
| | (dollars in thousands) |
| Contractual Obligations: | | | | | | | | | | | |
| Customer deposits | $ | 753,768 |
| | $ | 257,158 |
| | $ | 213,794 |
| | $ | 1,148 |
| | $ | 7,798,317 |
| | $ | 9,024,185 |
|
| Securities sold under agreement to repurchase | 116,884 |
| | — |
| | — |
| | — |
| | — |
| | 116,884 |
|
| FHLB advances and other borrowings | 696,000 |
| | — |
| | — |
| | 25,000 |
| | — |
| | 721,000 |
|
| Subordinated notes payable | — |
| | — |
| | — |
| | 75,920 |
| | — |
| | 75,920 |
|
| Subordinated debentures | — |
| | — |
| | — |
| | 35,000 |
| | — |
| | 35,000 |
|
| Operating leases, net of sublease income | 5,157 |
| | 4,523 |
| | 8,757 |
| | 6,629 |
| | — |
| | 25,066 |
|
| Accrued interest payable | 6,139 |
| | — |
| | — |
| | — |
| | — |
| | 6,139 |
|
| Interest on FHLB advances | 1,541 |
| | 915 |
| | 2,745 |
| | 534 |
| | — |
| | 5,735 |
|
| Interest on subordinated notes payable | 2,851 |
| | 2,851 |
| | 8,553 |
| | 34,012 |
| | — |
| | 48,267 |
|
| Interest on subordinated debentures | 1,706 |
| | 1,706 |
| | 5,119 |
| | 4,479 |
| | — |
| | 13,010 |
|
| Other Commitments: | | | | | | | | | | | |
| Commitments to extend credit—non-credit card | $ | 1,338,261 |
| | $ | 210,889 |
| | $ | 436,865 |
| | $ | 302,759 |
| | $ | — |
| | $ | 2,288,774 |
|
| Commitments to extend credit—credit card | 209,318 |
| | — |
| | — |
| | — |
| | — |
| | 209,318 |
|
| Letters of credit | 68,240 |
| | — |
| | — |
| | — |
| | — |
| | 68,240 |
|
Instruments with Off-Balance Sheet Risk
In the normal course of business, we enter into various transactions that are not included in our consolidated financial statements in accordance with U.S. GAAP. These transactions include commitments to extend credit to our customers and letters of credit. Commitments to extend credit are agreements to lend to a customer provided there is no violation of any condition established in the commitment. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Letters of credit are conditional commitments issued primarily to support or guarantee the performance of a customer’s obligations to a third party. The credit risk involved in issuing letters of credit is essentially the same as originating a loan to the customer. We manage the risks associated with these arrangements by evaluating each customer’s creditworthiness prior to issuance through a process similar to that used by us in deciding whether to extend credit to the customer.
The following table presents the total notional amounts of all commitments by us to extend credit and letters of credit as of the dates indicated:indicated. | | | | December 31, 2017 | | September 30, 2017 | | March 31,
2020 | | September 30,
2019 |
| | (dollars in thousands) | | (dollars in thousands) | |
| Commitments to extend credit | $ | 2,498,092 |
| | $ | 2,515,653 |
| Commitments to extend credit | $ | 2,040,886 | | | $ | 2,229,678 | |
| Letters of credit | 68,240 |
| | 70,186 |
| Letters of credit | 69,768 | | 68,983 |
| Total | $ | 2,566,332 |
| | $ | 2,585,839 |
| Total | $ | 2,110,654 | | | $ | 2,298,661 | |
Liquidity
Liquidity refers to our ability to maintain cash flowresources that isare adequate to fund operations and meet present and future financial obligations through either the sale or maturity of existing assets or by obtaining additional funding through liability management. We consider the effective and prudent management of liquidity to be fundamental to our health and strength. Our objective is to manage our cash flow and liquidity reserves so that they are adequate to fund our obligations and other commitments on a timely basis and at a reasonable cost.
Our liquidity risk is managed through a comprehensive framework of policies and limits overseen by our bank’sBank’s asset and liability committee. We continuously monitor and make adjustments to our liquidity position by adjusting the balance between sources and uses of funds as we deem appropriate. Our primary measures of liquidity include monthly cash flow analyses under ordinary business activities and conditions and under situations simulating a severe run on our bank.Bank. We also monitor our bank’sBank’s deposit to loan ratio to ensure high quality funding is available to support our strategic lending growth objectives, and have internal management targets for the FDIC’s liquidity ratio, net short-term non-core funding dependence ratio and non-core liabilities to total assets ratio. The results of these measures and analyses are incorporated into our contingency funding plan, which provides the basis for the identification of our liquidity needs. We also acquire brokered deposits when the cost of funds is advantageous to other funding sources.
Great Western Bancorp, Inc. Our primary source of liquidity is cash obtained from dividends paid by our bank.Bank. We primarily use our cash for the payment of dividends, when and if declared by our Board of Directors, and the payment of interest on our outstanding junior subordinated debentures and subordinated notes. We also use cash, as necessary, to satisfy the needs of our bankBank through equity contributions and for acquisitions. At DecemberMarch 31, 2017,2020, our holding company had $53.4$31.4 million of cash. During the firstsecond quarter of fiscal year 2018,2020, we declared and paid a dividend of $0.20$0.30 per common share. The outstanding amountsamount under our revolving line of credit with a large retail bank and our private placement subordinated capital notes together totaledwas $35.0 million at DecemberMarch 31, 2017.2020. Our management believes that the sources of available liquidity are adequate to meet all reasonably foreseeable short-term and intermediate-term demands. We may consider raising additional capital in public or private offerings of debt or equity securities. To this end, in August 2018 we filed a shelf registration statement with the SEC registering an indeterminate amount of our common stock, debt securities and other securities which we may decide to issue in the future. The specific terms of any shares or other securities we choose to issue will be based on current market conditions and will be described in a supplement to the prospectus contained in the shelf registration statement.
Great Western Bank. Our bankBank maintains sufficient liquidity by maintaining minimum levels of excess cash reserves (measured on a daily basis), a sufficient amount of unencumbered, highly liquid assets and access to contingent funding with the FHLB.funding. At DecemberMarch 31, 2017,2020, our bankBank had cash of $297.6$347.5 million and $1.37$1.99 billion of highly-liquid securities held in our investment portfolio, of which $990.6$918.8 million were pledged as collateral on public deposits, securities sold under agreements to repurchase, and for other purposes as required or permitted by law. The balance could be sold to meet liquidity requirements. Our bankBank had $721.0$800.0 million in FHLB borrowings at DecemberMarch 31, 2017,2020, with additional available lines of $1.40$1.46 billion. Our bankBank also had an additional borrowing capacity of $1.69$1.23 billion with the FRB Discount Window. Our bankBank primarily uses liquidity to meet loan requests and commitments (including commitments under letters of credit), to accommodate outflows in deposits and to take advantage of interest rate market opportunities. At DecemberMarch 31, 2017,2020, we had a total of $2.57$2.11 billion of outstanding exposure under commitments to extend credit and issued letters of credit. Our management believes that the sources of available liquidity are adequate to meet all our bank’sBank’s reasonably foreseeable short-term and intermediate-term demands.
Capital
As a bank holding company, we must comply with the capital requirements established by the Federal Reserve, and our bankBank must comply with the capital requirements established by the FDIC. The current risk-based guidelines applicable to us and our bankBank are based on the Basel III framework, as implemented by the federal bank regulators.
The following table presents our regulatory capital ratios at DecemberMarch 31, 20172020 and the standards for both well-capitalized depository institutions and minimum capital requirements. Our capital ratios exceeded applicable regulatory requirements as of that date.
|
| | | | | | | | | | | | |
| | Actual | | | | |
| | Capital Amount | | Ratio | | Minimum Capital Requirement Ratio | | Well Capitalized Ratio |
| | (dollars in thousands) |
| Great Western Bancorp, Inc. | | | | | | | |
| Tier 1 capital | $ | 1,116,008 |
| | 11.3 | % | | 6.0 | % | | 8.0 | % |
| Total capital | 1,215,514 |
| | 12.3 | % | | 8.0 | % | | 10.0 | % |
| Tier 1 leverage | 1,116,008 |
| | 10.3 | % | | 4.0 | % | | 5.0 | % |
| Common equity Tier 1 | 1,042,475 |
| | 10.5 | % | | 5.75 | % | | 6.5 | % |
| Risk-weighted assets | 9,892,037 |
| | | | | | |
| | | | | | | | |
| | | | | | | | | | | | March 31, 2020 | |
| | Actual | | | | | | Actual | | |
| | Capital Amount | | Ratio | | Minimum Capital Requirement Ratio | | Well Capitalized Ratio | | Capital Amount | Ratio | | Minimum Capital Requirement Ratio ¹ | | Well Capitalized Ratio |
| | (dollars in thousands) | | (dollars in thousands) | |
| Great Western Bancorp, Inc. | | Great Western Bancorp, Inc. | |
| Tier 1 capital | | Tier 1 capital | $ | 1,185,668 | | 11.3 | % | | 6.0 | % | | N/A | |
| Total capital | | Total capital | 1,352,037 | 12.9 | % | | 8.0 | % | | N/A | |
| Tier 1 leverage | | Tier 1 leverage | 1,185,668 | 9.2 | % | | 4.0 | % | | N/A | |
| Common equity Tier 1 | | Common equity Tier 1 | 1,111,903 | 10.6 | % | | 4.5 | % | | N/A | |
| Risk-weighted assets | | Risk-weighted assets | 10,504,680 | |
| Great Western Bank | | | | | | | | Great Western Bank | |
| Tier 1 capital | $ | 1,087,819 |
| | 11.0 | % | | 6.0 | % | | 8.0 | % | Tier 1 capital | $ | 1,183,213 | | 11.3 | % | | 6.0 | % | | 8.0 | % |
| Total capital | 1,152,325 |
| | 11.7 | % | | 8.0 | % | | 10.0 | % | Total capital | 1,314,582 | 12.5 | % | | 8.0 | % | | 10.0 | % |
| Tier 1 leverage | 1,087,819 |
| | 10.0 | % | | 4.0 | % | | 5.0 | % | Tier 1 leverage | 1,183,213 | | 9.2 | % | | 4.0 | % | | 5.0 | % |
| Common equity Tier 1 | 1,087,819 |
| | 11.0 | % | | 5.75 | % | | 6.5 | % | Common equity Tier 1 | 1,183,213 | | 11.3 | % | | 4.5 | % | | 6.5 | % |
| Risk-weighted assets | 9,889,986 |
| | | | | | | Risk-weighted assets | 10,503,830 | | |
1 Does not include capital conservation buffer, which was 2.5% at March 31, 2020. | | 1 Does not include capital conservation buffer, which was 2.5% at March 31, 2020. | |
At DecemberMarch 31, 20172020 and September 30, 2017,2019, our Tier 1 capital included an aggregate of $73.5$73.8 million and $73.7 million, respectively, of trust preferred securities issued by our subsidiaries.subsidiaries, net of fair value adjustment. At DecemberMarch 31, 2017,2020, our Tier 2 capital included $64.0$131.4 million of the allowance for loan and lease losses and $35.0 million of private placement subordinated capital notes. At September 30, 2017,2019, our Tier 2 capital included $63.5$70.8 million of the allowance for loan and lease losses and $35.0 million of private placement subordinated capital notes. Our total risk-weighted assets were $9.89$10.50 billion at DecemberMarch 31, 2017.2020.
The revaluation of the Company's deferred taxes reduced the total capital ratio by approximately 15 basis points.
Non-GAAP Financial Measures
We rely on certain non-GAAP financial measures in making financial and operational decisions about our business. We believe that each of the non-GAAP financial measures presented is helpful in highlighting trends in our business, financial condition and results of operations which might not otherwise be apparent when relying solely on our financial results calculated in accordance with U.S. generally accepted accounting principles, or GAAP. We disclose net interest income and related ratios and analysis on a taxable-equivalent basis, which may also be considered non-GAAP financial measures. We believe this presentation to be the preferred industry measurement of net interest income as it provides a relevant comparison of net interest income arising from taxable and tax-exempt sources. In addition, certain performance measures, including the efficiency ratio and net interest margin utilize net interest income on a taxable-equivalent basis.
In particular, we evaluate our profitability and performance based on our adjusted net income, adjusted earnings per common share, tangible net income and return on average tangible common equity. Our adjusted net income and adjusted earnings per common share exclude the after-tax effect of items with a significant impact to net income that we do not believe to be recurring in nature, (e.g., one-time acquisition expenses as well as the effectCOVID-19 impact on credit and other related charges and the impairment of revaluation of deferred taxes)goodwill and certain intangible assets). Our tangible net income and return on average tangible common equity exclude the effects of amortization expense relating to intangible assets and related tax effects from the acquisition of us by NAB and our acquisitions of other institutions. We believe these measures help highlight trends associated with our financial condition and results of operations by providing net income and return information excluding significant nonrecurring items (for adjusted net income and adjusted earnings per common share) and based on our cash payments and receipts during the applicable period (for tangible net income and return on average tangible common equity).
We also evaluate our profitability and performance based on our adjusted net interest income, adjusted net interest margin, adjusted interest income on non ASCnon-ASC 310-30 loans and adjusted yield on non ASCnon-ASC 310-30 loans. We adjust each of these four measures to include the current realized gain (loss) of derivatives we use to manage interest rate risk on certain of our loans, which we believe economically offsets the interest income earned on the loans. Similarly, we evaluate our operational efficiency based on our efficiency ratio, which excludes the effect of amortization of core deposit and other intangibles (a non-cash expense item) and includes the tax benefit associated with our tax-advantaged loans.
We evaluate our financial condition based on the ratio of our tangible common equity to our tangible assets and the ratio of our tangible common equity to common shares outstanding. Our calculation of this ratio excludes the effect of our goodwill and other intangible assets. We believe this measure is helpful in highlighting the common equity component of our capital and because of its focus by federal bank regulators when reviewing the health and strength of financial institutions in recent years and when considering regulatory approvals for certain actions, including capital actions. We also believe the ratio of our tangible common equity to common shares outstanding is helpful in understanding our stockholders’ relative ownership position as we undertake various actions to issue and retire common shares outstanding.
Reconciliations for each of these non-GAAP financial measures to the closest GAAP financial measures are included in the tables below.following tables. Each of the non-GAAP financial measures presented should be considered in context with our GAAP financial results included in this filing.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| At or for the six months ended: | | | At or for the three months ended: | | | | |
| March 31,
2020 | March 31,
2019 | | March 31,
2020 | December 31,
2019 | September 30,
2019 | June 30,
2019 | March 31,
2019 |
| (Dollars in thousands except share and per share amounts) | | | | | | | |
| Adjusted net income and adjusted earnings per common share: | | | | | | | | |
| Net (loss) income - GAAP | $ | (697,344) | | $ | 90,297 | | | $ | (740,618) | | $ | 43,274 | | $ | 50,285 | | $ | 26,783 | | $ | 44,511 | |
| Add: COVID-19 related impairment of goodwill and certain intangible assets, net of tax | 713,013 | | — | | | 713,013 | | — | | — | | — | | — | |
| Add: COVID-19 impact on credit and other related charges, net of tax | 56,685 | | — | | | 56,685 | | — | | — | | — | | — | |
| Adjusted net income | $ | 72,354 | | $ | 90,297 | | | $ | 29,080 | | $ | 43,274 | | $ | 50,285 | | $ | 26,783 | | $ | 44,511 | |
| | | | | | | | |
| Weighted average diluted common shares outstanding | 56,141,816 | | 57,556,984 | | | 55,906,002 | | 56,457,967 | | 56,804,172 | | 57,110,103 | | 57,074,674 | |
| Earnings per common share - diluted | $ | (12.42) | | $ | 1.57 | | | $ | (13.25) | | $ | 0.77 | | $ | 0.89 | | $ | 0.47 | | $ | 0.78 | |
| Adjusted earnings per common share - diluted | $ | 1.29 | | $ | 1.57 | | | $ | 0.52 | | $ | 0.77 | | $ | 0.89 | | $ | 0.47 | | $ | 0.78 | |
| | | | | | | | |
| Tangible net income and return on average tangible common equity: | | | | | | | | |
| Net (loss) income - GAAP | $ | (697,344) | | $ | 90,297 | | | $ | (740,618) | | $ | 43,274 | | $ | 50,285 | | $ | 26,783 | | $ | 44,511 | |
| Add: Amortization of intangible assets and COVID-19 related impairment of goodwill and certain intangible assets, net of tax | 713,817 | | 687 | | | 713,440 | | 377 | | 315 | | 335 | | 343 | |
| Tangible net income | $ | 16,473 | | $ | 90,984 | | | $ | (27,178) | | $ | 43,651 | | $ | 50,600 | | $ | 27,118 | | $ | 44,854 | |
| | | | | | | | |
| Average common equity | $ | 1,913,277 | | $ | 1,819,996 | | | $ | 1,918,035 | | $ | 1,908,519 | | $ | 1,885,785 | | $ | 1,864,132 | | $ | 1,822,940 | |
| Less: Average goodwill and other intangible assets | 744,702 | | 746,305 | | | 741,257 | | 748,146 | | 745,349 | | 745,718 | | 746,107 | |
| Average tangible common equity | $ | 1,168,575 | | $ | 1,073,691 | | | $ | 1,176,778 | | $ | 1,160,373 | | $ | 1,140,436 | | $ | 1,118,414 | | $ | 1,076,833 | |
| | | | | | | | |
| Return on average common equity * | (72.9) | % | 10.0 | % | | (155.3) | % | 9.0 | % | 10.6 | % | 5.8 | % | 9.9 | % |
| Return on average tangible common equity ** | 2.8 | % | 17.0 | % | | (9.3) | % | 15.0 | % | 17.6 | % | 9.7 | % | 16.9 | % |
| * Calculated as net income - GAAP divided by average common equity. Annualized for partial-year periods. | | | | | | | | |
| ** Calculated as tangible net income divided by average tangible common equity. Annualized for partial-year periods. | | | | | | | | |
| | | | | | | | |
| Adjusted net interest income and adjusted net interest margin (fully-tax equivalent basis): | | | | | | | | |
| Net interest income - GAAP | $ | 207,156 | | $ | 208,369 | | | $ | 101,983 | | $ | 105,173 | | $ | 106,709 | | $ | 105,629 | | $ | 103,475 | |
| Add: Tax equivalent adjustment | 3,037 | | 2,932 | | | 1,514 | | 1,523 | | 1,487 | | 1,424 | | 1,442 | |
| Net interest income (FTE) | 210,193 | | 211,301 | | | 103,497 | | 106,696 | | 108,196 | | 107,053 | | 104,917 | |
| Add: Current realized derivative gain (loss) | (2,140) | | 426 | | | (1,250) | | (890) | | (127) | | 321 | | 405 | |
| Adjusted net interest income (FTE) | $ | 208,053 | | $ | 211,727 | | | $ | 102,247 | | $ | 105,806 | | $ | 108,069 | | $ | 107,374 | | $ | 105,322 | |
| | | | | | | | |
| Average interest-earning assets | $ | 11,567,032 | | $ | 11,216,179 | | | $ | 11,590,453 | | $ | 11,543,610 | | $ | 11,609,823 | | $ | 11,617,521 | | $ | 11,345,559 | |
| Net interest margin (FTE) * | 3.63 | % | 3.78 | % | | 3.59 | % | 3.68 | % | 3.70 | % | 3.70 | % | 3.75 | % |
| Adjusted net interest margin (FTE) ** | 3.60 | % | 3.79 | % | | 3.55 | % | 3.65 | % | 3.69 | % | 3.71 | % | 3.76 | % |
| * Calculated as net interest income (FTE) divided by average interest earning assets. Annualized for partial-year periods. | | | | | | | | |
| ** Calculated as adjusted net interest income (FTE) divided by average interest earning assets. Annualized for partial-year periods. | | | | | | | | |
| | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | |
| | At or for the three months ended: |
| | December 31, 2017 | | September 30, 2017 | | June 30, 2017 | | March 31, 2017 | | December 31, 2016 |
| | (Dollars in thousands except share and per share amounts) |
| Adjusted net income and adjusted earnings per common share: | | | | | | | | | |
| Net income - GAAP | $ | 29,230 |
| | $ | 37,662 |
| | $ | 35,060 |
| | $ | 35,162 |
| | $ | 36,903 |
|
| Add: Acquisition expenses, net of tax | — |
| | — |
| | — |
| | — |
| | 440 |
|
| Add: Deferred taxes revaluation | 13,586 |
| | — |
| | — |
| | — |
| | — |
|
| Adjusted net income | $ | 42,816 |
| | $ | 37,662 |
| | $ | 35,060 |
| | $ | 35,162 |
| | $ | 37,343 |
|
| | | | | | | | | | |
| Weighted average diluted common shares outstanding | 59,087,729 |
| | 58,914,144 |
| | 59,130,632 |
| | 59,073,669 |
| | 58,991,905 |
|
| Earnings per common share - diluted | $ | 0.49 |
| | $ | 0.64 |
| | $ | 0.59 |
| | $ | 0.60 |
| | $ | 0.63 |
|
| Adjusted earnings per common share - diluted | $ | 0.72 |
| | $ | 0.64 |
| | $ | 0.59 |
| | $ | 0.60 |
| | $ | 0.63 |
|
| | | | | | | | | | |
| Tangible net income and return on average tangible common equity: | | | | | | | | | |
| Net income - GAAP | $ | 29,230 |
| | $ | 37,662 |
| | $ | 35,060 |
| | $ | 35,162 |
| | $ | 36,903 |
|
| Add: Amortization of intangible assets, net of tax | 376 |
| | 380 |
| | 488 |
| | 500 |
| | 676 |
|
| Tangible net income | $ | 29,606 |
| | $ | 38,042 |
| | $ | 35,548 |
| | $ | 35,662 |
| | $ | 37,579 |
|
| | | | | | | | | | |
| Average common equity | $ | 1,761,127 |
| | $ | 1,740,429 |
| | $ | 1,715,460 |
| | $ | 1,686,770 |
| | $ | 1,666,243 |
|
| Less: Average goodwill and other intangible assets | 748,144 |
| | 748,571 |
| | 749,074 |
| | 749,638 |
| | 750,290 |
|
| Average tangible common equity | $ | 1,012,983 |
| | $ | 991,858 |
| | $ | 966,386 |
| | $ | 937,132 |
| | $ | 915,953 |
|
| Return on average common equity * | 6.6 | % | | 8.6 | % | | 8.2 | % | | 8.5 | % | | 8.8 | % |
| Return on average tangible common equity ** | 11.6 | % | | 15.2 | % | | 14.8 | % | | 15.4 | % | | 16.3 | % |
| | | | | | | | | | |
| * Calculated as net income - GAAP divided by average common equity. Annualized for partial-year periods. |
| ** Calculated as tangible net income divided by average tangible common equity. Annualized for partial-year periods. |
| | | | | | | | | | |
| Adjusted net interest income and adjusted net interest margin (fully-tax equivalent basis): | | | | | | | | | |
| Net interest income - GAAP | $ | 100,622 |
| | $ | 99,672 |
| | $ | 96,888 |
| | $ | 95,744 |
| | $ | 96,891 |
|
| Add: Tax equivalent adjustment | 1,565 |
| | 2,122 |
| | 2,154 |
| | 2,182 |
| | 2,142 |
|
| Net interest income (FTE) | 102,187 |
| | 101,794 |
| | 99,042 |
| | 97,926 |
| | 99,033 |
|
| Add: Current realized derivative gain (loss) | (2,476 | ) | | (2,714 | ) | | (3,320 | ) | | (3,875 | ) | | (4,486 | ) |
| Adjusted net interest income (FTE) | $ | 99,711 |
| | $ | 99,080 |
| | $ | 95,722 |
| | $ | 94,051 |
| | $ | 94,547 |
|
| | | | | | | | | | |
| Average interest-earning assets | $ | 10,412,882 |
| | $ | 10,283,401 |
| | $ | 10,124,404 |
| | $ | 10,144,875 |
| | $ | 10,286,284 |
|
| Net interest margin (FTE) * | 3.89 | % | | 3.93 | % | | 3.92 | % | | 3.91 | % | | 3.82 | % |
| Adjusted net interest margin (FTE) ** | 3.80 | % | | 3.82 | % | | 3.79 | % | | 3.76 | % | | 3.65 | % |
| | | | | | | | | | |
| * Calculated as net interest income (FTE) divided by average interest earning assets. Annualized for partial-year periods. |
| ** Calculated as adjusted net interest income (FTE) divided by average interest earning assets. Annualized for partial-year periods. |
| | | | | | | | | | |
| | | | | | | | | | | | | | At or for the six months ended: | | | At or for the three months ended: | |
| | At or for the three months ended: | | March 31,
2020 | March 31,
2019 | | March 31,
2020 | December 31,
2019 | September 30,
2019 | June 30,
2019 | March 31,
2019 |
| | December 31, 2017 | | September 30, 2017 | | June 30, 2017 | | March 31, 2017 | | December 31, 2016 | | (Dollars in thousands except share and per share amounts) | |
| | (Dollars in thousands except share and per share amounts) | |
| Adjusted interest income and adjusted yield (fully-tax equivalent basis), on non ASC 310-30 loans: | | | | | | | | | | |
| Adjusted interest income and adjusted yield (fully-tax equivalent basis), on non-ASC 310-30 loans: | | Adjusted interest income and adjusted yield (fully-tax equivalent basis), on non-ASC 310-30 loans: | |
| Interest income - GAAP | $ | 104,935 |
| | $ | 102,998 |
| | $ | 98,724 |
| | $ | 97,170 |
| | $ | 97,588 |
| Interest income - GAAP | $ | 229,679 | | $ | 241,889 | | | $ | 111,970 | | $ | 117,709 | | $ | 124,923 | | $ | 124,098 | | $ | 121,528 | |
| Add: Tax equivalent adjustment | 1,565 |
| | 2,122 |
| | 2,154 |
| | 2,182 |
| | 2,142 |
| Add: Tax equivalent adjustment | 3,037 | | 2,932 | | | 1,514 | | 1,523 | | 1,487 | | 1,424 | | 1,442 | |
| Interest income (FTE) | 106,500 |
| | 105,120 |
| | 100,878 |
| | 99,352 |
| | 99,730 |
| Interest income (FTE) | 232,716 | | 244,821 | | | 113,484 | | 119,232 | | 126,410 | | 125,522 | | 122,970 | |
| Add: Current realized derivative gain (loss) | (2,476 | ) | | (2,714 | ) | | (3,320 | ) | | (3,875 | ) | | (4,486 | ) | Add: Current realized derivative gain (loss) | (2,140) | | 426 | | | (1,250) | | (890) | | (127) | | 321 | | 405 | |
| Adjusted interest income (FTE) | $ | 104,024 |
| | $ | 102,406 |
| | $ | 97,558 |
| | $ | 95,477 |
| | $ | 95,244 |
| Adjusted interest income (FTE) | $ | 230,576 | | $ | 245,247 | | | $ | 112,234 | | $ | 118,342 | | $ | 126,283 | | $ | 125,843 | | $ | 123,375 | |
| | | | | | | | | | | | | | |
| Average non ASC 310-30 loans | $ | 8,840,929 |
| | $ | 8,728,514 |
| | $ | 8,550,349 |
| | $ | 8,531,652 |
| | $ | 8,515,947 |
| |
| Average non-ASC 310-30 loans | | Average non-ASC 310-30 loans | $ | 9,525,157 | | $ | 9,525,498 | | | $ | 9,496,153 | | $ | 9,554,161 | | $ | 9,693,395 | | $ | 9,699,433 | | $ | 9,615,096 | |
| Yield (FTE) * | 4.78 | % | | 4.78 | % | | 4.73 | % | | 4.72 | % | | 4.65 | % | Yield (FTE) * | 4.89 | % | 5.15 | % | | 4.81 | % | 4.96 | % | 5.17 | % | 5.19 | % | 5.19 | % |
| Adjusted yield (FTE) ** | 4.67 | % | | 4.65 | % | | 4.58 | % | | 4.54 | % | | 4.44 | % | Adjusted yield (FTE) ** | 4.84 | % | 5.16 | % | | 4.75 | % | 4.93 | % | 5.17 | % | 5.20 | % | 5.20 | % |
| | | | | | | | | | | |
| * Calculated as interest income (FTE) divided by average loans. Annualized for partial-year periods. | * Calculated as interest income (FTE) divided by average loans. Annualized for partial-year periods. | * Calculated as interest income (FTE) divided by average loans. Annualized for partial-year periods. | |
| ** Calculated as adjusted interest income (FTE) divided by average loans. Annualized for partial-year periods. | ** Calculated as adjusted interest income (FTE) divided by average loans. Annualized for partial-year periods. | ** Calculated as adjusted interest income (FTE) divided by average loans. Annualized for partial-year periods. | |
| | | | | | | | | | | |
| Efficiency ratio: | | | | | | | | | | Efficiency ratio: | |
| Total revenue - GAAP | $ | 117,296 |
| | $ | 114,412 |
| | $ | 114,215 |
| | $ | 111,233 |
| | $ | 112,549 |
| Total revenue - GAAP | $ | 222,806 | | $ | 243,312 | | | $ | 101,900 | | $ | 120,906 | | $ | 121,732 | | $ | 116,395 | | $ | 121,698 | |
| Add: Tax equivalent adjustment | 1,565 |
| | 2,122 |
| | 2,154 |
| | 2,182 |
| | 2,142 |
| Add: Tax equivalent adjustment | 3,037 | | 2,932 | | | 1,514 | | 1,523 | | 1,487 | | 1,424 | | 1,442 | |
| Total revenue (FTE) | $ | 118,861 |
| | $ | 116,534 |
| | $ | 116,369 |
| | $ | 113,415 |
| | $ | 114,691 |
| Total revenue (FTE) | $ | 225,843 | | $ | 246,244 | | | $ | 103,414 | | $ | 122,429 | | $ | 123,219 | | $ | 117,819 | | $ | 123,140 | |
| | | | | | | | | | | | | | |
| Noninterest expense | $ | 54,868 |
| | $ | 55,332 |
| | $ | 54,922 |
| | $ | 53,852 |
| | $ | 52,537 |
| Noninterest expense | $ | 865,383 | | $ | 113,686 | | | $ | 808,453 | | $ | 56,930 | | $ | 55,212 | | $ | 56,000 | | $ | 56,580 | |
| Less: Amortization of intangible assets | 426 |
| | 430 |
| | 538 |
| | 550 |
| | 839 |
| |
| Less: Amortization of intangible assets and COVID-19 related impairment of goodwill and certain intangible assets | | Less: Amortization of intangible assets and COVID-19 related impairment of goodwill and certain intangible assets | 743,206 | | 788 | | | 742,779 | | 427 | | 366 | | 385 | | 394 | |
| Tangible noninterest expense | $ | 54,442 |
| | $ | 54,902 |
| | $ | 54,384 |
| | $ | 53,302 |
| | $ | 51,698 |
| Tangible noninterest expense | $ | 122,177 | | $ | 112,898 | | | $ | 65,674 | | $ | 56,503 | | $ | 54,846 | | $ | 55,615 | | $ | 56,186 | |
| | Efficiency ratio * | 45.8 | % | | 47.1 | % | | 46.7 | % | | 47.0 | % | | 45.1 | % | Efficiency ratio * | 54.1 | % | 45.8 | % | | 63.5 | % | 46.2 | % | 44.5 | % | 47.2 | % | 45.6 | % |
| | | | | | | | | | | |
| * Calculated as the ratio of tangible noninterest expense to total revenue (FTE). | * Calculated as the ratio of tangible noninterest expense to total revenue (FTE). | * Calculated as the ratio of tangible noninterest expense to total revenue (FTE). | |
| | | | | | | | | | | |
| Tangible common equity and tangible common equity to tangible assets: | | | | | | | | | | Tangible common equity and tangible common equity to tangible assets: | |
| Total stockholders' equity | $ | 1,767,873 |
| | $ | 1,755,000 |
| | $ | 1,732,983 |
| | $ | 1,706,861 |
| | $ | 1,678,638 |
| Total stockholders' equity | $ | 1,153,464 | | $ | 1,852,394 | | | $ | 1,153,464 | | $ | 1,920,669 | | $ | 1,900,249 | | $ | 1,881,128 | | $ | 1,852,394 | |
| Less: Goodwill and other intangible assets | 747,971 |
| | 748,397 |
| | 748,828 |
| | 749,366 |
| | 749,916 |
| Less: Goodwill and other intangible assets | 6,703 | | 745,947 | | | 6,703 | | 749,481 | | 745,197 | | 745,563 | | 745,947 | |
| Tangible common equity | $ | 1,019,902 |
| | $ | 1,006,603 |
| | $ | 984,155 |
| | $ | 957,495 |
| | $ | 928,722 |
| Tangible common equity | $ | 1,146,761 | | $ | 1,106,447 | | | $ | 1,146,761 | | $ | 1,171,188 | | $ | 1,155,052 | | $ | 1,135,565 | | $ | 1,106,447 | |
| | | | | | | | | | | | | | |
| Total assets | $ | 11,806,581 |
| | $ | 11,690,011 |
| | $ | 11,466,184 |
| | $ | 11,356,841 |
| | $ | 11,422,617 |
| Total assets | $ | 12,387,808 | | $ | 12,830,162 | | | $ | 12,387,808 | | $ | 12,851,665 | | $ | 12,788,301 | | $ | 12,954,896 | | $ | 12,830,162 | |
| Less: Goodwill and other intangible assets | 747,971 |
| | 748,397 |
| | 748,828 |
| | 749,366 |
| | 749,916 |
| Less: Goodwill and other intangible assets | 6,703 | | 745,947 | | | 6,703 | | 749,481 | | 745,197 | | 745,563 | | 745,947 | |
| Tangible assets | $ | 11,058,610 |
| | $ | 10,941,614 |
| | $ | 10,717,356 |
| | $ | 10,607,475 |
| | $ | 10,672,701 |
| Tangible assets | $ | 12,381,105 | | $ | 12,084,215 | | | $ | 12,381,105 | | $ | 12,102,184 | | $ | 12,043,104 | | $ | 12,209,333 | | $ | 12,084,215 | |
| | Tangible common equity to tangible assets | 9.2 | % | | 9.2 | % | | 9.2 | % | | 9.0 | % | | 8.7 | % | Tangible common equity to tangible assets | 9.3 | % | 9.2 | % | | 9.3 | % | 9.7 | % | 9.6 | % | 9.3 | % | 9.2 | % |
| | | | | | | | | | | |
| Tangible book value per share: | | | | | | | | | | Tangible book value per share: | |
| Total stockholders' equity | $ | 1,767,873 |
| | $ | 1,755,000 |
| | $ | 1,732,983 |
| | $ | 1,706,861 |
| | $ | 1,678,638 |
| Total stockholders' equity | $ | 1,153,464 | | $ | 1,852,394 | | | $ | 1,153,464 | | $ | 1,920,669 | | $ | 1,900,249 | | $ | 1,881,128 | | $ | 1,852,394 | |
| Less: Goodwill and other intangible assets | 747,971 |
| | 748,397 |
| | 748,828 |
| | 749,366 |
| | 749,916 |
| Less: Goodwill and other intangible assets | 6,703 | | 745,947 | | | 6,703 | | 749,481 | | 745,197 | | 745,563 | | 745,947 | |
| Tangible common equity | $ | 1,019,902 |
| | $ | 1,006,603 |
| | $ | 984,155 |
| | $ | 957,495 |
| | $ | 928,722 |
| Tangible common equity | $ | 1,146,761 | | $ | 1,106,447 | | | $ | 1,146,761 | | $ | 1,171,188 | | $ | 1,155,052 | | $ | 1,135,565 | | $ | 1,106,447 | |
| | | | | | | | | | | | | | |
| Common shares outstanding | 58,896,189 |
| | 58,834,066 |
| | 58,761,597 |
| | 58,760,517 |
| | 58,755,989 |
| Common shares outstanding | 55,013,928 | | 56,938,435 | | | 55,013,928 | | 56,382,915 | | 56,283,659 | | 56,939,032 | | 56,938,435 | |
| Book value per share - GAAP | $ | 30.02 |
| | $ | 29.83 |
| | $ | 29.49 |
| | $ | 29.05 |
| | $ | 28.57 |
| Book value per share - GAAP | $ | 20.97 | | $ | 32.53 | | | $ | 20.97 | | $ | 34.06 | | $ | 33.76 | | $ | 33.04 | | $ | 32.53 | |
| Tangible book value per share | $ | 17.32 |
| | $ | 17.11 |
| | $ | 16.75 |
| | $ | 16.29 |
| | $ | 15.81 |
| Tangible book value per share | $ | 20.84 | | $ | 19.43 | | | $ | 20.84 | | $ | 20.77 | | $ | 20.52 | | $ | 19.94 | | $ | 19.43 | |
Impact of Inflation and Changing Prices
Our financial statements included in this report have been prepared in accordance with GAAP, which requires us to measure financial position and operating results primarily in terms of historic dollars. Changes in the relative value of money due to inflation or recession generally are not considered. The primary effect of inflation on our operations is reflected in increased operating costs. In our management’s opinion, changes in interest rates affect the financial condition of a financial institution to a far greater degree than changes in the inflation rate. While interest rates are greatly influenced by changes in the inflation rate, they do not necessarily change at the same rate or in the same magnitude as the inflation rate. Interest rates are highly sensitive to many factors that are beyond our control, including changes in the expected rate of inflation, the influence of general and local economic conditions and the monetary and fiscal policies of the United States government, its agencies and various other governmental regulatory authorities.
Recent Accounting Pronouncements
See "Note 2. New Accounting Pronouncements"Standards" in the accompanying "Notes to Unaudited Consolidated Financial Statements"Statements (Unaudited)" included in this report for a discussion of new accounting pronouncements and their expected impact on our financial statements.
Impact of Inflation and Changing Prices
Our financial statements included in this report have been prepared in accordance with U.S. GAAP, which requires us to measure financial position and operating results primarily in terms of historic dollars. Changes in the relative value of money due to inflation or recession generally are not considered. The primary effect of inflation on our operations is reflected in increased operating costs. In our management’s opinion, changes in interest rates affect the financial condition of a financial institution to a far greater degree than changes in the inflation rate. While interest rates are greatly influenced by changes in the inflation rate, they do not necessarily change at the same rate or in the same magnitude as the inflation rate. Interest rates are highly sensitive to many factors that are beyond our control, including changes in the expected rate of inflation, the influence of general and local economic conditions and the monetary and fiscal policies of the United States government, its agencies and various other governmental regulatory authorities.
Critical Accounting Policies and the Impact of Accounting Estimates
There have been no materialSee "Note 1. Nature of Operations and Summary of Significant Policies" in the accompanying "Notes to Consolidated Financial Statements (Unaudited)" included in this report for a discussion of changes to our lease accounting policies as a result of adopting ASU 2016-02, "Leases (Topic 842)" and subsequent related ASUs in the current fiscal year. The remainder of our critical accounting policies and accounting estimates have had no material changes from those disclosed in our Annual Report on Form 10-K for the fiscal year ended September 30, 2017.2019.
| |
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of DecemberMarch 31, 2017,2020, there have been no material changes in the quantitative and qualitative information about market risk provided pursuant to Item 305 of Regulation S-K as presented in our Annual Report on Form 10-K for the fiscal year ended September 30, 2017.2019.
Evaluation of Interest Rate Risk
We use a net interest income simulation model to measure and evaluate potential changes in our net interest income. We run various hypothetical interest rate scenarios at least monthlyregularly and compare these results against a scenario with no changes in interest rates. Our net interest income simulation model incorporates various assumptions, which we believe are reasonable but which may have a significant impact on results such as: (1) the timing of changes in interest rates, (2) shifts or rotations in the yield curve, (3) re-pricing characteristics for market-rate-sensitive instruments on and off balance sheet, (4) differing sensitivities of financial instruments due to differing underlying rate indices, (5) varying loan prepayment speeds for different interest rate scenarios, (6) the effect of interest rate limitations in our assets, such as floors and caps, (7) the effect of our interest rate swaps, and (8) overall growth and repayment rates and product mix of assets and liabilities. Because of limitations inherent in any approach used to measure interest rate risk, simulation results are not intended as a forecast of the actual effect of a change in market interest rates on our results but rather as a means to better plan and execute appropriate asset-liability management strategies and manage our interest rate risk.
Potential changes to our adjusted net interest income (i.e., GAAP net interest income plus current realized gain or loss on derivatives) in hypothetical rising and declining rate scenarios calculated as of DecemberMarch 31, 20172020 are presented in the following table. The projections assume (1) immediate, parallel shifts downward of the yield curve of 100 and 200 basis points and immediate, parallel shifts upward of the yield curve of 100, 200, 300 and 400 basis points and (2) gradual shifts downward of 100 and 200 basis points over 12 months and gradual shifts upward of 100, 200, 300 and 400 basis points over 12 months. In the current interest rate environment, a downward shift of the yield curve of 200, 300 and 400 basis points does not provide us with meaningfulrealistic results. In a downward parallel shift of the yield curve, interest rates at the short-end of the yield curve are not modeled to decline any further than 0%. For the immediate-shift scenarios, we assume short-term rates follow a forward yield curve throughout the forecast period that is dictated by the instantaneously shocked yield curve from the as of date. In the gradual-shift scenarios, we take each rate across the yield curve from the as of date and shock it by 1/12th of the total change in rates each month for twelve months.
| | | | | | | Estimated Increase (Decrease) in Annualized Adjusted Net Interest Income for the Quarter Ended March 31, 2020 | |
| | Estimated Increase (Decrease) in Annualized Adjusted Net Interest Income for the Quarter Ended December 31, 2017 | |
| Change in Market Interest Rates as of December 31, 2017 | Twelve Months Ending December 31, 2018 | | Twelve Months Ending December 31, 2019 | |
| Change in Market Interest Rates as of March 31, 2020 | | Change in Market Interest Rates as of March 31, 2020 | Twelve Months Ending March 31, 2021 | | Twelve Months Ending March 31, 2022 |
| Immediate Shifts | | | | Immediate Shifts | |
| +400 basis points | 10.76 | % | | 17.37 | % | +400 basis points | 7.76 | % | | 13.24 | % |
| +300 basis points | 8.09 | % | | 13.11 | % | +300 basis points | 5.86 | % | | 10.33 | % |
| +200 basis points | 5.41 | % | | 8.81 | % | +200 basis points | 3.87 | % | | 7.27 | % |
| +100 basis points | 2.72 | % | | 4.44 | % | +100 basis points | 1.86 | % | | 3.97 | % |
| -100 basis points | (4.66 | )% | | (6.87 | )% | -100 basis points | (2.26) | % | | (3.33) | % |
| | | | | |
| -200 basis points | | -200 basis points | (2.47) | % | | (3.48) | % |
| Gradual Shifts | | | | Gradual Shifts | |
| +400 basis points | 2.16 | % | | | +400 basis points | (0.28) | % | |
| +300 basis points | 1.64 | % | | | +300 basis points | (0.06) | % | |
| +200 basis points | 1.11 | % | | | +200 basis points | 0.14 | % | |
| +100 basis points | 0.57 | % | | | +100 basis points | 0.25 | % | |
| -100 basis points | (1.43 | )% | | | -100 basis points | (0.42) | % | |
| -200 basis points | | -200 basis points | (1.37) | % | |
We primarily use interest rate swaps to ensure that long-term fixed-rate loans are effectively re-priced as short-term rates change, which we believe would allow us to achieve these results. The results of this simulation analysis are hypothetical, and a variety of factors might cause actual results to differ substantially from what is depicted. For example, if the timing and magnitude of interest rate changes differ from those projected, our net interest income might vary significantly. Non-parallel yield curve shifts, such as a flattening or steepening of the yield curve or changes in interest rate spreads, would also cause our net interest income to be different from that depicted. An increasing interest rate environment could reduce projected net interest income if deposits and other short-term liabilities re-price faster than expected or faster than our assets re-price. Actual results could differ from those projected if we grow assets and liabilities faster or slower than estimated, if we experience a net outflow of deposit liabilities or if our mix of assets and liabilities otherwise changes. Actual results could also differ from those projected if we experience substantially different repayment speeds in our loan portfolio than those assumed in the simulation model. Finally, these simulation results do not contemplate all the actions that we may undertake in response to potential or actual changes in interest rates, such as changes to our loan, investment, deposit, funding or hedginginterest rate swap strategies.
For more information on our adjusted net interest income, including a reconciliation to the most directly comparable GAAP financial measures, see "—Non-GAAP Financial Measures" above.
| |
ITEM 4. | CONTROLS AND PROCEDURES |
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures. AsOur management is responsible for establishing and maintaining effective disclosure controls and procedures as defined under Rules 13a-15(e) and 15d-15(e) of the end of the period covered by this report, our management carried out anExchange Act. An evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) underas of the Exchange Act),period covered by this report. Based on and as of the time of that evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded our disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’sSECs rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were effective as of the end of the period covered by this report.forms.
(b) Changes in Internal Control over Financial Reporting. During the most recently completed fiscal quarter, there washave been no change madechanges in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that hashave materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we are a party to various litigation and regulatory matters incidental to the conduct of our business. We establish reserves for such matters when potential losses become probable and can be reasonably estimated. We believe the ultimate resolution of existing litigation and regulatory matters will not have a material adverse effect on our financial condition, results of operations or cash flows. However, changes in circumstances or additional information could result in additional accruals or resolution of these matters in excess of established accruals, which could adversely affect our financial condition, results of operations or cash flows, potentially materially.
ITEM 1A. RISK FACTORS
There have been no material changesare certain risks and uncertainties in the risk factors described inour business that could cause our actual results to differ materially from those anticipated. See "Part I, Item 1A1A. Risk Factors" of ourthe Annual Report on Form 10-K of Great Western Bancorp, Inc., for the fiscal year ended September 30, 2017.2019 (the “2019 Form 10-K”), which includes a detailed discussion of our risk factors. Other than as noted below, our risk factors have not changed significantly from those disclosed in our 2019 Form 10-K. These risk factors should be read carefully in connection with evaluating our business and in connection with the forward-looking statements and other information contained in this Quarterly Report on Form 10-Q. Any of the risks described in our 2019 Form 10-K could materially affect our business, consolidated financial condition or future results of operations and the actual outcome of matters as to which forward-looking statements are made. The risk factors described in our 2019 Form 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial, also may materially adversely affect our business, consolidated financial condition and/or future results of operations.
The outbreak of the COVID-19 pandemic has caused a significant global economic downturn which has adversely affected, and is expected to continue to adversely affect, our business and results of operations, and the future impacts of the COVID-19 pandemic on the global economy and our business, results of operations and financial condition remain uncertain. | |
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
Health epidemics or pandemics (or expectations about them) such as COVID-19, have destabilized financial markets in which we operate. COVID-19, which has been identified as a pandemic by the World Health Organization, is causing worldwide concern and economic disruption. The ongoing COVID-19 global and national health emergency has caused and will likely continue to cause significant disruption in the international and United States economies and financial markets, including the capital markets, as well as locally in our markets. There are cases of COVID-19 in all of our states in which we have branches. The ultimate extent of the impact on our business, financial condition, liquidity, results of operations and prospects will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of the pandemic, and actions taken to contain or prevent further spread. These and other potential impacts of epidemics, pandemics or other outbreaks of an illness, disease or virus could therefore materially and adversely affect our business, revenue, operations, financial condition, liquidity, results of operations and prospects. If the response to contain COVID-19 is unsuccessful, material adverse effects may be exacerbated.
COVID-19 and its associated impacts on economic activities have had, are currently having and may for some time continue to have a destabilizing effect on financial markets and economic activity and have coincided with heightened volatility and significant disruption in financial markets and economy in the United States and worldwide, which could have a material adverse effect on our business, cash flows, business and consumer confidence, consolidated financial condition, results of operations, profitability, and growth asset quality. The full extent of the impact of COVID-19 is currently uncertain, cannot be predicted and will depend on certain developments, including, among others, governmental, regulatory and private sector actions and responses. Market interest rates have declined significantly. We expect that these reductions in interest rates, especially if prolonged, could adversely affect our net interest income, margins and our profitability. Our assets and liabilities may be significantly impacted by changes in interest rates.
Our business is dependent upon the willingness and ability of our customers to conduct banking and other financial transactions. The spread of COVID-19 could disrupt the business, activities, and operations of our customers, cause a decline in demand for our products and services, including loans and deposits which may result in a significant decrease in business and would negatively impact our liquidity position, our growth strategy and our ability to make payments under our debt obligations as they become due. Our financial results could also be impacted due to an inability of our customers to meet their loan commitments because of their losses associated with impacts of the disease, and could also result in increased risk of delinquencies, defaults, foreclosures, declining collateral values and the ability of our borrowers to repay their loans resulting in losses to our Bank. Moreover, current and future governmental action may temporarily require the Company to conduct business related to foreclosures, repossessions, payments, deferrals and other customer-related transactions differently.
Although the Company has established a pandemic response plan and procedures, our workforce has been, is, and may continue to be impacted by COVID-19. We are taking precautions to protect the safety and well-being of our employees and customers, including temporary branch and office closures, but no assurance can be given that our actions will be adequate or appropriate, nor can we predict the level of disruption which will occur to our employees’ ability to provide customer support and service. The spread could also negatively impact availability of key personnel and employee productivity, as well as the business and operations of third-party service providers who perform critical services for us, which could adversely impact our ability to deliver products and services to our customers.
Federal and state governments have enacted laws intending to stimulate the economy. President Trump has signed into law three economic stimulus packages, including the $2.0 trillion Coronavirus Relief and Economic Security Act on March 26, 2020, which, among other things, initiated the Small Business Administration PPP. On April 16, 2020 the original $349.0 billion of funding under the PPP ran out, however on April 24, 2020 the Federal Government added an additional $310.0 billion. Our Bank participated as a lender in both the initial and second rounds of the PPP which was designed to help small businesses maintain their workforce during the COVID-19 pandemic. As of April 24, 2020, we have made approximately 2,300 PPP loans totaling over $600.0 million. The Company understands that these loans are fully guaranteed by the U.S. government and believes the majority of these loans will be forgiven. However, in the event of a loss resulting from a default on a PPP loan and a determination by the SBA that there was a deficiency in the manner in which the PPP loan was originated, funded or serviced by the Bank, which may or may not be related to an ambiguity in the laws, rules or guidance regarding operation of the PPP, the SBA may deny its liability under the guaranty, reduce the amount of the guaranty, or, if it has already been paid under the guaranty, seek recovery of any loss related to the deficiency from the Company. In addition, there can be no assurance that the borrowers will use the funds appropriately to qualify for forgiveness.
Since the opening of the PPP, several other larger banks have been subject to litigation regarding the process and procedures that such banks used in processing applications for the PPP. The Company and the Bank may be exposed to the risk of similar litigation, from both customers and non-customers that approached the Bank regarding PPP loans, regarding its processes and procedures used in processing applications for the PPP. If any such litigation is filed against the Bank and is not resolved in a manner favorable to the Bank, it may result in significant financial liability or adversely affect the Company's reputation. In addition, litigation can be costly, regardless of outcome. Any financial liability, litigation costs or reputational damage caused by PPP related litigation could have a material adverse impact on our business, financial condition and results of operations.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Sales of Unregistered Equity Securities
None.
Purchases of Equity Securities
We did notOn September 1, 2019, our Board of Directors approved an amendment to our stock repurchase anyprogram originally approved on October 26, 2016, wherein we may repurchase up to $100.0 million of our common stockstock. Pursuant to the amendment, we may repurchase up to an additional $75.0 million of our common stock. The plan does not have an expiration date. In early March 2020, the Company determined to indefinitely suspend additional buybacks within its remaining authorization to support the Federal Reserve Board in actions taken to moderate the impact of COVID-19 by maintaining strong capital levels and liquidity to support customers and other stakeholders. Information on the shares purchased during the firstsecond quarter of fiscal year 2018.2020 is as follows.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Period | | Total number of shares (or units) purchased
(a) | | Average price paid per share (or unit)
(b) | | Total number of shares (or units) purchased as part of publicly announced plans or programs
(c) | | Maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under the plans or programs
(d) |
| 1/1/2020 - 1/31/2020 | | 298,400 | | | | $ | 30.46 | | | 298,400 | | | | $ | 66,030,076 | |
| 2/1/2020 - 2/29/2020 | | 830,387 | | | | 30.07 | | | 830,387 | | | | 41,422,294 | |
| 3/1/2020 - 3/31/2020 | | 242,283 | | | | 26.07 | | | 242,283 | | | | 35,089,719 | |
| Total | | 1,371,070 | | | | $ | 29.45 | | | 1,371,070 | | | | $ | 35,089,719 | |
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS
| | | | | |
| Exhibit Number | Description |
| |
ITEM 3. | DEFAULTS UPON SENIOR SECURITIESEmployment Agreement, dated February 6, 2020, between Great Western Bancorp, Inc. and Mark Borrecco (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by Great Western Bancorp, Inc. on February 11, 2020 (File No. 001-36688)) |
None.
| |
| Employment Agreement, dated April 20, 2020, between Great Western Bancorp, Inc. and Stephen W. Yose (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by Great Western Bancorp, Inc. on April 22, 2020 (File No. 001-36688)) | | | ITEM 4.11.1 | MINE SAFETY DISCLOSURES |
Not applicable.
Not applicable.
| | EX - 11.1 | Statement regarding Computation of Per Share Earnings (included as Note 1918 to the registrant's unaudited consolidated financial statements) |
| | EX - | Rule 13a-14(a) Certification of Chief Executive Officer of Great Western Bancorp, Inc. in accordance with Section 302 of the Sarbanes-Oxley Act of 2002 |
| | EX - | Rule 13a-14(a) Certification of Chief Financial Officer of Great Western Bancorp, Inc. in accordance with Section 302 of the Sarbanes-Oxley Act of 2002 |
| | EX - | Section 1350 Certification of Chief Executive Officer of Great Western Bancorp, Inc. in accordance with Section 906 of the Sarbanes-Oxley Act of 2002 |
| | EX - | Section 1350 Certification of Chief Financial Officer of Great Western Bancorp, Inc. in accordance with Section 906 of the Sarbanes-Oxley Act of 2002 |
| | 101.INS101.INS*** | | XBRL Instance Document |
| | 101.SCH101.SCH*** | | XBRL Taxonomy Extension Schema Document |
| | 101.CAL101.CAL*** | | XBRL Taxonomy Extension Calculation Linkbase Document |
| | 101.DEF101.DEF*** | | XBRL Taxonomy Extension Definition Linkbase Document |
| | 101.LAB101.LAB*** | | XBRL Taxonomy Extension Label Linkbase Document |
| | 101.PRE101.PRE*** | | XBRL Taxonomy Extension Presentation Linkbase Document | | | | * Indicates management contract or compensatory plan | | | ** Filed herewith | | | | *** Furnished, not filed | | | | |
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. | | | | | | | | | | | | Great Western Bancorp, Inc.
| Date: February 7, 2018April 30, 2020 | By:______/ | /s/_Peter Chapman_________________Name: Peter Chapman
| | Name: | Peter Chapman | | Title: | Chief Financial Officer and Executive Vice President
(Principal Financial Officer and Authorized Officer)
|
INDEX TO EXHIBITS
| | | | | Number
| | | Description
| | | 11.1 | Statement regarding Computation of Per Share Earnings (included as Note 19 to the registrant's unaudited consolidated financial statements) | | | | Rule 13a-14(a) Certification of Chief Executive Officer of Great Western Bancorp, Inc. in accordance with Section 302 of the Sarbanes-Oxley Act of 2002 | | | | Rule 13a-14(a) Certification of Chief Financial Officer of Great Western Bancorp, Inc. in accordance with Section 302 of the Sarbanes-Oxley Act of 2002 | | | | Section 1350 Certification of Chief Executive Officer of Great Western Bancorp, Inc. in accordance with Section 906 of the Sarbanes-Oxley Act of 2002 | | | | Section 1350 Certification of Chief Financial Officer of Great Western Bancorp, Inc. in accordance with Section 906 of the Sarbanes-Oxley Act of 2002 | | | | | 101.INS** | | | XBRL Instance Document | | | | | 101.SCH** | | | XBRL Taxonomy Extension Schema Document | | | | | 101.CAL** | | | XBRL Taxonomy Extension Calculation Linkbase Document | | | | | 101.DEF** | | | XBRL Taxonomy Extension Definition Linkbase Document | | | | | 101.LAB** | | | XBRL Taxonomy Extension Label Linkbase Document | | | | | 101.PRE** | | | XBRL Taxonomy Extension Presentation Linkbase Document | | | | | * Filed herewith | | | | ** Furnished, not filed | | | |
|