UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~March~~December 31, 2020


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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)

225 South Main Avenue		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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer," “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~4/27/20,~~1/28/2021, the number of shares of the registrant’s Common Stock outstanding was ~~55,013,928.~~55,105,304.

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" and "Company" refers to Great Western Bancorp, Inc., a Delaware corporation, and its consolidated subsidiaries;

•"Bank" refers to Great Western Bank, a South Dakota banking corporation;

•"NAB" refers to National Australia Bank Limited, an Australian public company that was our ultimate parent company prior to our initial public offering in October 2014 and, until July 31, 2015, was our principal stockholder;

•our "states" refers to the nine states (Arizona, Colorado, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota and South Dakota) in which we currently conduct our business;

•our "footprint" refers to the geographic markets within our states in which we currently conduct our business;

•"~~ALLL~~ACL" refers to allowance for ~~loan and lease~~credit 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;~~Instruments, and subsequent related ASUs;

•"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 and Section 21E of the Exchange Act. These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. These statements are often, but not always, made through the use of words or phrases such as "anticipates," "believes," "can," "could," "may," "predicts," "potential," "should," "will," "estimate," "plans," "projects," "continuing," "ongoing," "expects," "views," "intends" and similar words or phrases. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions, estimates and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements.

A number of important factors could cause our actual results to differ materially from those indicated in these forward-looking statements, including those factors identified in "Part I, Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" or "Part II, Item 1A. Risk Factors" of this Report or the following:

•the severity, magnitude and duration of the COVID-19 pandemic and the direct and indirect impact of such pandemic, as well as responses to the pandemic by the government, business and consumers, on our operations and personnel, commercial activity and demand across our business and our customers' business;

•the disruption of global, national, state and local economies associated with the COVID-19 pandemic, which could affect our liquidity and capital positions, impair the ability of our borrowers to repay outstanding loans, impair collateral values and further increase our allowance for credit losses;

•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;

•estimates of fair value of certain of the Company's assets and liabilities, which could change in value significantly from period to period;

•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;~~pandemic;

•our ability to anticipate interest rate changes and manage interest rate risk;

•uncertainty about the discontinued use of the London Inter Bank Offered Rate and transition to an alternative rate;

•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;~~credit losses;

•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 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, 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 Reform Act;

•increases in our FDIC insurance premiums, or the collection of special assessments by the FDIC;

•legal, compliance and reputational risks, including litigation and regulatory risks;

•our ability to use technology to provide products and services that will satisfy customer demands and create efficiencies in operations and to manage risks associated therewith;

•our ability to attract and retain senior management experienced in the banking and financial services industries;

•our inability to receive dividends from our Bank and to service debt, pay dividends to our common stockholders and satisfy obligations as they become due;

•expected cost savings in connection with the consolidation of recent acquisitions may not be fully realized or realized within the expected time frames, and deposit attrition, customer loss and revenue loss following completed acquisitions may be greater than expected;

•our ability to meet our obligations as a public company, including our obligations under Section 404 of the Sarbanes-Oxley Act to maintain an effective system of internal control over financial reporting; and

•other risks and uncertainties inherent to our business, including those discussed under the heading "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2019.~~2020.

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, ~~2019.~~2020. 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

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

GREAT WESTERN BANCORP, INC.

Consolidated Balance Sheets

(Dollars in Thousands, Except Share and Per Share Data)


		(Unaudited)					(Unaudited)
		March 31, 2020		September 30, 2019			December 31, 2020		September 30, 2020
Assets	Assets					Assets
Cash and due from banks	Cash and due from banks	$	171,219	$	201,487	Cash and due from banks	$	228,050	$	150,085
Interest-bearing bank deposits	Interest-bearing bank deposits	176,267		41,987		Interest-bearing bank deposits	833,746		282,802
Cash and cash equivalents	Cash and cash equivalents	347,486		243,474		Cash and cash equivalents	1,061,796		432,887
Securities available for sale	Securities available for sale	1,990,027		1,783,208		Securities available for sale	2,059,615		1,774,626
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		(135,950)		(70,774)
Loans, net of unearned discounts and deferred fees, including $611,588 and $655,185 of loans at fair value under the fair value option at December 31, 2020 and September 30, 2020, respectively; and $11,638 and $12,371 of loans held for sale at December 31, 2020 and September 30, 2020, respectively						Loans, net of unearned discounts and deferred fees, including $611,588 and $655,185 of loans at fair value under the fair value option at December 31, 2020 and September 30, 2020, respectively; and $11,638 and $12,371 of loans held for sale at December 31, 2020 and September 30, 2020, respectively	9,517,876		10,076,142
Allowance for credit losses ¹						Allowance for credit losses ¹	(308,794)		(149,887)
Net loans	Net loans	9,557,345		9,635,989		Net loans	9,209,082		9,926,255
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
Premises and equipment, including $600 of property held for sale at both December 31, 2020 and September 30, 2020						Premises and equipment, including $600 of property held for sale at both December 31, 2020 and September 30, 2020	119,362		119,054
Accrued interest receivable	Accrued interest receivable	49,358		58,699		Accrued interest receivable	47,598		54,658
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
Other repossessed property						Other repossessed property	18,086		20,034

Cash surrender value of life insurance policies	Cash surrender value of life insurance policies	31,231		30,796		Cash surrender value of life insurance policies	31,873		31,658
Net deferred tax assets	Net deferred tax assets	48,084		7,286		Net deferred tax assets	91,704		47,709
Other assets	Other assets	216,335		132,417		Other assets	175,267		197,558
Total assets	Total assets	$	12,387,808	$	12,788,301	Total assets	$	12,814,383	$	12,604,439
Liabilities and stockholders’ equity	Liabilities and stockholders’ equity					Liabilities and stockholders’ equity
Noninterest-bearing	Noninterest-bearing	$	1,973,629	$	1,956,025	Noninterest-bearing	$	2,858,455	$	2,586,743
Interest-bearing	Interest-bearing	8,205,486		8,344,314		Interest-bearing	8,514,863		8,422,036
Total deposits	Total deposits	10,179,115		10,300,339		Total deposits	11,373,318		11,008,779
Securities sold under agreements to repurchase	Securities sold under agreements to repurchase	64,809		68,992		Securities sold under agreements to repurchase	80,355		65,506
FHLB advances and other borrowings	FHLB advances and other borrowings	800,000		340,000		FHLB advances and other borrowings	120,000		195,000
Subordinated debentures and subordinated notes payable	Subordinated debentures and subordinated notes payable	108,740		108,636		Subordinated debentures and subordinated notes payable	108,866		108,832
Accrued expenses and other liabilities	Accrued expenses and other liabilities	81,680		70,085		Accrued expenses and other liabilities	63,343		63,389
Total liabilities	Total liabilities	11,234,344		10,888,052		Total liabilities	11,745,882		11,441,506
Stockholders’ equity	Stockholders’ equity					Stockholders’ equity
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
Common stock, $0.01 par value, authorized 500,000,000 shares; 55,105,105 shares issued and outstanding at December 31, 2020 and 55,014,189 shares issued and outstanding at September 30, 2020						Common stock, $0.01 par value, authorized 500,000,000 shares; 55,105,105 shares issued and outstanding at December 31, 2020 and 55,014,189 shares issued and outstanding at September 30, 2020	550		550
Additional paid-in capital	Additional paid-in capital	1,190,381		1,228,714		Additional paid-in capital	1,184,281		1,183,647
Retained earnings	Retained earnings	(73,705)		657,475		Retained earnings	(148,769)		(57,169)
Accumulated other comprehensive income	Accumulated other comprehensive income	36,238		13,497		Accumulated other comprehensive income	32,439		35,905
Total stockholders' equity	Total stockholders' equity	1,153,464		1,900,249		Total stockholders' equity	1,068,501		1,162,933
Total liabilities and stockholders' equity	Total liabilities and stockholders' equity	$	12,387,808	$	12,788,301	Total liabilities and stockholders' equity	$	12,814,383	$	12,604,439
1 Prior to the adoption of ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and subsequent related ASUs, on October 1, 2020, this line represented the allowance for loan and lease losses under the incurred loss model.						1 Prior to the adoption of ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and subsequent related ASUs, on October 1, 2020, this line represented the allowance for loan and lease losses under the incurred loss model.

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 December 31,
		2020		2019		2020		2019			2020		2019
Interest income	Interest income									Interest income
Loans	Loans	$	113,356	$	123,432	$	232,787	$	245,763	Loans	$	107,323	$	119,431
Investment securities	Investment securities	11,329		9,957		22,827		19,145		Investment securities	8,119		11,498
Federal funds sold and other	Federal funds sold and other	558		497		1,166		1,039		Federal funds sold and other	155		608
Total interest income	Total interest income	125,243		133,886		256,780		265,947		Total interest income	115,597		131,537
Interest expense	Interest expense									Interest expense
Deposits	Deposits	18,867		27,098		40,807		50,892		Deposits	5,992		21,940
FHLB advances and other borrowings	FHLB advances and other borrowings	3,155		1,923		6,268		3,926		FHLB advances and other borrowings	880		3,113
Subordinated debentures and subordinated notes payable	Subordinated debentures and subordinated notes payable	1,238		1,390		2,549		2,760		Subordinated debentures and subordinated notes payable	817		1,311
Total interest expense	Total interest expense	23,260		30,411		49,624		57,578		Total interest expense	7,689		26,364
Net interest income	Net interest income	101,983		103,475		207,156		208,369		Net interest income	107,908		105,173
Provision for loan and lease losses		71,795		7,673		79,898		12,888
Net interest income after provision for loan and lease losses		30,188		95,802		127,258		195,481
Provision for credit losses ¹										Provision for credit losses ¹	11,899		8,103
Net interest income after provision for credit losses										Net interest income after provision for credit losses	96,009		97,070
Noninterest income	Noninterest income									Noninterest income
Service charges and other fees	Service charges and other fees	9,188		10,209		20,597		21,897		Service charges and other fees	9,624		11,409
Wealth management fees	Wealth management fees	3,122		2,117		6,086		4,358		Wealth management fees	3,029		2,964
Mortgage banking income, net	Mortgage banking income, net	1,145		991		2,757		2,311		Mortgage banking income, net	4,090		1,612
Net loss on sale of securities		—		—		—		(513)
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)
Net gain on sale of securities and other assets										Net gain on sale of securities and other assets	248		0
Derivative interest expense										Derivative interest expense	(3,393)		(890)
Change in fair value of FVO loans and related derivatives										Change in fair value of FVO loans and related derivatives	(1,672)		(2,124)
Other derivative income										Other derivative income	898		1,597
Other	Other	1,135		1,920		2,300		3,004		Other	1,324		1,165
Total noninterest (loss) income		(83)		18,223		15,650		34,943
Total noninterest income										Total noninterest income	14,148		15,733
Noninterest expense	Noninterest expense									Noninterest expense
Salaries and employee benefits	Salaries and employee benefits	37,312		34,537		73,217		69,307		Salaries and employee benefits	37,554		35,905
Data processing and communication	Data processing and communication	6,123		5,964		11,896		11,242		Data processing and communication	6,226		5,773
Occupancy and equipment	Occupancy and equipment	5,597		5,539		10,690		10,665		Occupancy and equipment	5,213		5,093
Professional fees	Professional fees	5,263		3,970		9,027		7,258		Professional fees	3,915		3,764
Advertising	Advertising	958		1,216		1,823		2,154		Advertising	556		865
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		Net loss on repossessed property and other related expenses	345		342
Goodwill and intangible assets impairment		742,352		—		742,352		—

Other	Other	5,157		4,950		10,345		9,593		Other	3,640		5,188
Total noninterest expense	Total noninterest expense	808,453		56,580		865,383		113,686		Total noninterest expense	57,449		56,930
(Loss) income before income taxes		(778,348)		57,445		(722,475)		116,738
(Benefit from) provision for income taxes		(37,730)		12,934		(25,131)		26,441
Net (loss) income		$	(740,618)	$	44,511	$	(697,344)	$	90,297
Income before income taxes										Income before income taxes	52,708		55,873
Provision for income taxes										Provision for income taxes	11,389		12,599
Net income										Net income	$	41,319	$	43,274
Basic earnings per common share	Basic earnings per common share									Basic earnings per common share
Weighted average common shares outstanding	Weighted average common shares outstanding	55,906,002		56,994,817		56,141,816		57,484,838		Weighted average common shares outstanding	55,119,909		56,377,631
Basic earnings per share	Basic earnings per share	$	(13.25)	$	0.78	$	(12.42)	$	1.57	Basic earnings per share	$	0.75	$	0.77
Diluted earnings per common share	Diluted earnings per common share									Diluted earnings per common share
Weighted average diluted common shares outstanding	Weighted average diluted common shares outstanding	55,906,002		57,074,674		56,141,816		57,556,984		Weighted average diluted common shares outstanding	55,247,343		56,457,967
Diluted earnings per share	Diluted earnings per share	$	(13.25)	$	0.78	$	(12.42)	$	1.57	Diluted earnings per share	$	0.75	$	0.77
Dividends per share	Dividends per share									Dividends per share
Dividends paid	Dividends paid	$	16,769	$	14,235	$	33,654	$	28,771	Dividends paid	$	550	$	16,885
Dividends per share	Dividends per share	$	0.30	$	0.25	$	0.60	$	0.50	Dividends per share	$	0.01	$	0.30
1 For the three months ended December 31, 2020, this line includes a $(0.1) million (reversal of) provision for unfunded commitments reserve. For the three months ended December 31, 2019, provision for unfunded commitments reserve of $0.2 million was recorded in other noninterest expense in the consolidated income statement.										1 For the three months ended December 31, 2020, this line includes a $(0.1) million (reversal of) provision for unfunded commitments reserve. For the three months ended December 31, 2019, provision for unfunded commitments reserve of $0.2 million was recorded in other noninterest expense in the consolidated income statement.

See accompanying notes.

GREAT WESTERN BANCORP, INC.

Consolidated Statements of Comprehensive Income (Unaudited)

(Dollars in Thousands)

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


	Three Months Ended December 31,
	2020		2019
Net income	$	41,319	$	43,274
Other comprehensive loss, net of tax
Securities available for sale:
Net unrealized holding loss arising during the period	(4,352)		(8,160)
Reclassification adjustment for net gain realized in net income	(248)		0
Income tax benefit	1,134		2,010






Other comprehensive loss, net of tax	(3,466)		(6,150)
Comprehensive income	$	37,853	$	37,124

See accompanying notes.

GREAT WESTERN BANCORP, INC.

Consolidated Statements 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 $ 568 $ 1,244,232 $ 584,264 $ (17,056) $ 1,812,008
Net income $ 44,511 — — 44,511 — 44,511
Other comprehensive income, net of tax 8,684 — — — 8,684 8,684
Total comprehensive income $ 53,195
Stock-based compensation, net of tax 1 1,425 — — 1,426
Cash dividends:
Common stock, $0.25 per share — — (14,235) — (14,235)
Balance, March 31, 2019 $ 569 $ 1,245,657 $ 614,540 $ (8,372) $ 1,852,394
Balance, January 1, 2020 $ 563 $ 1,229,077 $ 683,682 $ 7,347 $ 1,920,669
Net (loss) $ (740,618) — — (740,618) — (740,618)
Other comprehensive income, net of tax 28,891 — — — 28,891 28,891
Total comprehensive (loss) $ (711,727)
Stock-based compensation, net of tax 1 1,273 — — 1,274
Repurchase common stock (14) (39,969) — — (39,983)
Cash dividends:
Common stock, $0.30 per share — — (16,769) — (16,769)
Balance, March 31, 2020 $ 550 $ 1,190,381 $ (73,705) $ 36,238 $ 1,153,464


	Comprehensive Income (Loss)		Common Stock Par Value		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income		Total
Balance, October 1, 2019			$	563	$	1,228,714	$	657,475	$	13,497	$	1,900,249
Net income	$	43,274	—		—		43,274		—		43,274
Other comprehensive (loss), net of tax	(6,150)		—		—		—		(6,150)		(6,150)
Total comprehensive income	$	37,124
Cumulative effect adjustment related to ASU adoption ¹			—		—		(182)		—		(182)
Stock-based compensation, net of tax			—		363		—		—		363


Cash dividends:
Common stock, $0.30 per share			—		—		(16,885)		—		(16,885)
Balance, December 31, 2019			$	563	$	1,229,077	$	683,682	$	7,347	$	1,920,669

Balance, October 1, 2020			$	550	$	1,183,647	$	(57,169)	$	35,905	$	1,162,933
Net income	$	41,319	—		—		41,319		—		41,319
Other comprehensive (loss), net of tax	(3,466)		—		—		—		(3,466)		(3,466)
Total comprehensive income	$	37,853
Cumulative effect adjustment related to ASU adoption ²			—		—		(132,919)		—		(132,919)
Stock-based compensation, net of tax			—		1,184		—		—		1,184


Cash dividends:
Common stock, $0.01 per share			—		(550)		—		—		(550)
Balance, December 31, 2020			$	550	$	1,184,281	$	(148,769)	$	32,439	$	1,068,501
¹ Cumulative effect adjustment related to the Company's adoption of ASU 2016-02 and subsequent related ASUs on October 1, 2019.
2 Cumulative effect adjustment related to the adoption of ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and subsequent related ASUs, on October 1, 2020. For additional information, see Note 2, "New Accounting Pronouncements".

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)

(Dollars in Thousands)


		Six Months Ended March 31,							Three Months Ended December 31,
		2020		2019			2020		2019
Operating activities	Operating activities					Operating activities
Net (loss) income		$	(697,344)	$	90,297
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Net income						Net income	$	41,319	$	43,274
Adjustments to reconcile net income to net cash provided by operating activities:						Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	8,373		5,916		Depreciation and amortization	4,778		3,947
Amortization of FDIC indemnification asset	Amortization of FDIC indemnification asset	641		853		Amortization of FDIC indemnification asset	0		251
Net loss on sale of securities and other assets		4,716		2,974
Net gain on sale of other assets						Net gain on sale of other assets	(605)		0

Net gain on sale of loans	Net gain on sale of loans	(3,148)		(2,724)		Net gain on sale of loans	(4,330)		(1,814)
Provision for loan and lease losses		79,898		12,888
Goodwill and intangible assets impairment		742,352		—
Provision for credit losses ¹						Provision for credit losses ¹	11,899		8,103

Provision for loan servicing rights loss	Provision for loan servicing rights loss	7		—		Provision for loan servicing rights loss	0		1
Stock-based compensation	Stock-based compensation	1,637		1,839		Stock-based compensation	1,184		363
Originations of residential real estate loans held for sale	Originations of residential real estate loans held for sale	(172,370)		(98,875)		Originations of residential real estate loans held for sale	(132,118)		(105,185)
Proceeds from sales of residential real estate loans held for sale	Proceeds from sales of residential real estate loans held for sale	178,527		103,407		Proceeds from sales of residential real estate loans held for sale	137,182		108,816
Proceeds from sale of other assets						Proceeds from sale of other assets	348		0
Net deferred income taxes	Net deferred income taxes	(48,238)		688		Net deferred income taxes	11		(6,626)
Changes in:	Changes in:					Changes in:
Accrued interest receivable	Accrued interest receivable	9,341		2,727		Accrued interest receivable	7,060		3,722
Other assets	Other assets	(66,709)		22,116		Other assets	21,358		(71)
Accrued interest payable and other liabilities	Accrued interest payable and other liabilities	12,890		(27,768)		Accrued interest payable and other liabilities	510		23,674
Net cash provided by operating activities	Net cash provided by operating activities	50,573		114,338		Net cash provided by operating activities	88,596		78,455
Investing activities	Investing activities					Investing activities
Purchase of securities available for sale	Purchase of securities available for sale	(413,887)		(541,872)		Purchase of securities available for sale	(487,816)		(247,934)
Proceeds from sales of securities available for sale	Proceeds from sales of securities available for sale	—		97,212		Proceeds from sales of securities available for sale	0		0
Proceeds from maturities of securities available for sale	Proceeds from maturities of securities available for sale	234,077		94,926		Proceeds from maturities of securities available for sale	195,585		117,333
Net increase in loans		(11,939)		(383,665)
(Payment) recovery of covered losses from FDIC indemnification claims		(43)		43
Net decrease in loans						Net decrease in loans	528,843		65,253
Payment of covered losses from FDIC indemnification claims						Payment of covered losses from FDIC indemnification claims	0		(4)
Purchase of premises and equipment	Purchase of premises and equipment	(3,861)		(5,953)		Purchase of premises and equipment	(2,110)		(2,033)
Proceeds from sale of premises and equipment		—		299

Proceeds from sale of repossessed property	Proceeds from sale of repossessed property	12,368		6,593		Proceeds from sale of repossessed property	2,313		4,569
Purchase of FHLB stock	Purchase of FHLB stock	(110,637)		(46,948)		Purchase of FHLB stock	(10)		(29,687)
Proceeds from redemption of FHLB stock	Proceeds from redemption of FHLB stock	92,350		47,030		Proceeds from redemption of FHLB stock	127		20,342
Net cash paid in business acquisition	Net cash paid in business acquisition	(4,711)		—		Net cash paid in business acquisition	0		(4,711)
Net cash used in investing activities		(206,283)		(732,335)
Net cash provided by (used in) investing activities						Net cash provided by (used in) investing activities	236,932		(76,872)
Financing activities	Financing activities					Financing activities
Net (decrease) increase in deposits		(121,163)		734,966
Net decrease in securities sold under agreements to repurchase and other short-term borrowings		(4,183)		(28,370)
Net increase (decrease) in deposits						Net increase (decrease) in deposits	364,561		(211,780)
Net increase (decrease) in securities sold under agreements to repurchase and other short-term borrowings						Net increase (decrease) in securities sold under agreements to repurchase and other short-term borrowings	14,849		(2,703)
Proceeds from FHLB advances and other long-term borrowings	Proceeds from FHLB advances and other long-term borrowings	650,000		465,000		Proceeds from FHLB advances and other long-term borrowings	0		250,000
Repayments on FHLB advances and other long-term borrowings	Repayments on FHLB advances and other long-term borrowings	(190,000)		(465,000)		Repayments on FHLB advances and other long-term borrowings	(75,000)		(15,000)
Common stock repurchased		(39,983)		(74,659)

Taxes paid related to net share settlement of equity awards	Taxes paid related to net share settlement of equity awards	(1,295)		(1,227)		Taxes paid related to net share settlement of equity awards	(479)		(1,268)
Dividends paid	Dividends paid	(33,654)		(28,771)		Dividends paid	(550)		(16,885)
Net cash provided by financing activities	Net cash provided by financing activities	259,722		601,939		Net cash provided by financing activities	303,381		2,364
Net increase (decrease) in cash and cash equivalents		104,012		(16,058)
Net increase in cash and cash equivalents						Net increase in cash and cash equivalents	628,909		3,947
Cash and cash equivalents, beginning of period	Cash and cash equivalents, beginning of period	243,474		298,696		Cash and cash equivalents, beginning of period	432,887		243,474
Cash and cash equivalents, end of period	Cash and cash equivalents, end of period	$	347,486	$	282,638	Cash and cash equivalents, end of period	$	1,061,796	$	247,421
Supplemental disclosure of cash flow information	Supplemental disclosure of cash flow information					Supplemental disclosure of cash flow information
Cash payments for interest	Cash payments for interest	$	56,613	$	52,551	Cash payments for interest	$	8,741	$	26,959
Cash payments for income taxes		$	17,194	$	19,113
Cash (receipts from) payments for income taxes						Cash (receipts from) payments for income taxes	$	(47)	$	232
Supplemental disclosure of noncash investing and financing activities	Supplemental disclosure of noncash investing and financing activities					Supplemental disclosure of noncash investing and financing activities
Loans transferred to repossessed properties	Loans transferred to repossessed properties	$	(7,507)	$	(17,919)	Loans transferred to repossessed properties	$	0	$	(7,295)
1 For the three months ended December 31, 2020, this line includes a $0.1 million (reversal of) provision for unfunded commitments reserve.						1 For the three months ended December 31, 2020, this line includes a $0.1 million (reversal of) provision for unfunded commitments reserve.

See accompanying notes.

10-

GREAT WESTERN BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

1. Nature of Operations and Summary of Significant Policies

Nature of Operations

The Company is a bank holding company organized under the laws of Delaware and is listed on the NYSE under the symbol ~~"GWB".~~"GWB." The primary business of the Company is ownership of its wholly-owned subsidiary, Great Western Bank. The Bank is a full-service regional bank focused on relationship-based business and agri-business banking in Arizona, Colorado, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota and South Dakota. Substantially all of the Company's income is generated from banking operations. The Company and the Bank are subject to the regulation of certain federal and/or state agencies and undergo periodic examinations by those regulatory authorities. ~~Substantially all of the Company’s income is generated from banking operations.~~

Basis of Presentation

The accompanying unaudited consolidated interim financial statements have been prepared in accordance with ~~U.S.~~ GAAP and reflect all adjustments that are, in the opinion of management, necessary for the fair presentation of the financial position and results of operations for the periods presented. All such adjustments are of a normal recurring nature.

Certain previously reported amounts have been reclassified to conform to the current presentation.

The unaudited interim consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended September 30, ~~2019,~~2020, which includes a description of significant accounting policies. The results of operations for interim periods are not necessarily indicative of the results that may be expected for the year or any other period.

The accompanying unaudited consolidated financial statements include the accounts and results of operations of the Company and its subsidiaries after elimination of all significant intercompany accounts and transactions. The preparation of unaudited consolidated financial statements in conformity with ~~U.S.~~ GAAP requires management to make certain estimates and assumptions that affect the amounts reported on the consolidated financial statements and accompanying notes. Actual results could differ from these estimates.

Changes in Significant Accounting Policies

Pursuant to the Company's adoption of ASU ~~2016-02 and subsequent related ASUs~~2016-13, as amended, as of October 1, ~~2019,~~2020, the Company updated its accounting ~~policy~~policies related to ~~leases.~~securities, loans and allowance for credit losses. See ~~Note 12~~"Note 2. New Accounting Standards" for additional information on the adoption of the standard. See "Note 3. Securities Available for Sale" and "Note 4. Loans and Allowance for Credit Losses" for new disclosures and additional policy ~~information related to the Company's leases.~~ information.

There were no other significant changes to the Company's accounting policies from those disclosed in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, ~~2019~~2020 that could have a material effect on the Company's consolidated financial statements.

~~Subsequent Events~~Securities

Purchases and sales of securities are recognized on a trade date basis. The cost of securities sold is based on the specific identification method. The Company ~~has evaluated all events~~classifies securities upon purchase in one of three categories: trading, held to maturity, or ~~transactions that occurred through the date~~available for sale. Debt securities held for resale are classified as trading. Debt securities for which the Company ~~issued these financial statements. Other than those described below, there were no material events or transactions that would require recognition~~has the ability and positive intent to hold until maturity are classified as held to maturity. All other securities are classified as available for sale as they may be sold prior to maturity in response to changes in the ~~consolidated financial statements~~Company’s interest rate risk profile, funding needs, demand for collateralized deposits by public entities or ~~disclosure in the notes to the consolidated financial statements.~~other reasons. Interest and dividends, including amortization of premiums and accretion of discounts, are recognized as interest income when earned.

~~In April 2020, the Company offered loans to customers that~~Trading securities 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~~stated at fair value. Realized and unrealized gains and losses from ~~the FRB to access the PPP Liquidity Facility to fund PPP loans if needed.~~

~~On April 30, 2020, the Board~~sales and fair value adjustments of Directors of the Company declared a dividend of $0.15 per common share payable on May 29, 2020 to stockholders of record as of close of business on May 15, 2020. With the many uncertainties of the COVID-19 pandemic, including the full impacts on the future financial results and operations of the Company, the Board of Directors determined a reduction to its regular quarterly dividend will help strengthen the Company's balance sheet and liquidity in light of the uncertainty surrounding the COVID-19 pandemic.

~~11-~~

~~GREAT WESTERN BANCORP, INC.~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~2. New Accounting Standards~~

~~Accounting Standards Adopted in Fiscal Year 2020~~

~~In August 2017, the FASB issued ASU 2017-12,~~ ~~Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities~~, which amended 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 was 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~~trading securities 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 recordedincluded in other ~~assets and accrued expenses and other liabilities~~noninterest income on the consolidated ~~balance sheets were $19.9 million and $20.9 million, respectively, arising from operating leases~~statements of income.

Available for sale securities are stated at fair value. For available for sale debt securities in ~~which~~an unrealized loss position, management first evaluates whether (1) the Company has the intent to sell a security; or (2) it is more-likely-than-not that 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~~sell the ~~range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. ASU 2018-13~~security before recovery of its amortized cost basis. If either criteria is ~~effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. Entities are also allowed to elect to early adopt~~met, the ~~eliminated or modified disclosure requirements and delay adoption~~entire amount of ~~the new disclosure requirements until after their effective date. As ASU 2018-13 only revises disclosure requirements, the Company does not believe this ASU will have a material impact on~~unrealized loss is recognized in the consolidated ~~financial statements.~~

~~In June 2016, the FASB issued ASU 2016-13,~~ ~~Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments~~, which addresses timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. ASU 2016-13 requires institutions to measure all expected credit losses related to financial assets measured at amortized costsincome statement 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 model. ASU 2016-13 requires enhanced disclosures, including qualitative and quantitative requirements, to help understand significant estimates and judgments used in estimating credit losses, as well as provide additional information about the amounts recorded in the financial statements. From November 2018 through February 2020, the FASB issued ASUs which made technical corrections and improvementsa corresponding adjustment to the ~~previous ASU issued (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 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 is currentlysecurity's amortized cost basis.

~~12-~~11-

GREAT WESTERN BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

~~evaluating~~If neither criteria is met, the ~~potential impact on~~Company evaluates whether the ~~consolidated financial statements; however, since~~decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the ~~magnitude~~extent to which fair value is less than amortized cost, any changes to the rating of the ~~anticipated change~~security by a rating agency, and adverse conditions specifically related to the security, among other factors. Furthermore, securities issued by the U.S. Government or a U.S. Government sponsored enterprise which carry the explicit or implicit guarantee of the U.S. Government are considered "risk-free" and therefore no credit losses are assumed on those securities. If the assessment indicates a credit loss exists, the amortized cost basis is compared to the present value of cash flows expected to be collected from the security; if it is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded. Changes in the allowance for credit losses ~~will be impacted by economic conditions and trends~~are recorded as a provision for (reversal of) credit losses in the ~~Company’s portfolio at~~consolidated income statement. If the ~~time of adoption,~~assessment indicates a credit loss does not exist, the ~~quantitative impact cannot yet be reasonably estimated.~~

~~In December 2019, the FASB issued ASU 2019-12,~~ ~~Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which aims to simplify the accounting for income taxes by removing certain exceptions to the general principles and also simplification of areas such as franchise taxes, step-up~~change in tax basis goodwill, separate entity financial statements and interim recognition of enactment of tax laws or rate changes. The ASU will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the potential impact of ASU 2019-12 on the consolidated financial statements.

~~In January 2020, the FASB issued ASU 2020-01,~~ Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323 and Topic 815~~, which clarifies that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the~~ fair value ~~measurement alternative. The ASU will be effective for fiscal years,~~is recorded as unrealized gains and ~~interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company does not expect adoption to have~~losses, net of related taxes, and is included in stockholders’ equity as a ~~material impact on the consolidated financial statements.~~component of accumulated other comprehensive income (loss).

~~In March 2020, the FASB issued ASU 2020-04,~~ ~~Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for a limited time period to ease the potential burden in accounting for reference rate reform on financial reporting. The amendments in ASU 2020-04~~Equity securities are elective for entities with contracts, including derivative contracts, that reference LIBOR or some other reference rate that are expected to be discontinued. For the Company's cash flow hedges, ASU 2020-04 allows: (i) an entity to change the reference rate without having to designate the hedging relationship; (ii) for cash flow hedges in which the designated hedged risk is LIBOR, allows an entity 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 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 accounting standard will have on the consolidated financial statements.

~~3. Securities Available for Sale~~

~~The amortized cost and approximate~~carried at fair value, ~~of investments~~with changes in ~~securities, all of which are classified as available for sale according to management’s intent, are summarized as follows.~~

Amortized
Cost Gross Unrealized Gains Gross Unrealized Losses Estimated
Fair Value
(dollars in thousands)
As of March 31, 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

~~13-~~

~~GREAT WESTERN BANCORP, INC.~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

Amortized
Cost Gross Unrealized Gains Gross Unrealized Losses Estimated
Fair Value
(dollars in thousands)
As of September 30, 2019
U.S. Treasury securities $ 94,178 $ 599 $ (32) $ 94,745
Mortgage-backed securities:
Government National Mortgage Association 501,139 3,374 (3,027) 501,486
Federal Home Loan Mortgage Corporation 463,974 8,840 (770) 472,044
Federal National Mortgage Association 322,340 5,409 (398) 327,351
Small Business Assistance Program 316,502 3,674 (154) 320,022
States and political subdivision securities 66,145 494 (116) 66,523
Other 1,006 31 — 1,037
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 March 31, 2020 and September 30, 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.

March 31, 2020 September 30, 2019
Amortized
Cost Estimated
Fair Value Amortized
Cost Estimated
Fair Value
(dollars in thousands)
Due in one year or less $ 82,615 $ 83,577 $ 58,377 $ 58,343
Due after one year through five years 35,858 36,102 89,836 90,601
Due after five years through ten years 11,667 11,905 12,110 12,324
Due after ten years — — — —
130,140 131,584 160,323 161,268
Mortgage-backed securities 1,810,776 1,857,392 1,603,955 1,620,903
Securities without contractual maturities 1,006 1,051 1,006 1,037
Total $ 1,941,922 $ 1,990,027 $ 1,765,284 $ 1,783,208

Proceeds from sales of securities available for sale were $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 March 31, 2019, respectively. NaN gross gains (pre-tax) were realized on the sales for the three and six months ended March 31, 2020 and 2019, using the specific identification method. Nominal gross losses (pre-tax) were realized on the sales for the three months ended March 31, 2020 and 2019, 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 0 other-than-temporary impairment for the three and six months ended March 31, 2020 and 2019.

Securities with an estimated fair value of approximately $918.8 million and $863.9 million at March 31, 2020 and September 30, 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 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 12% and 36% of the Company’s investment portfolio at estimated fair value at March 31, 2020 and September 30, 2019, respectively, are reported in the consolidated ~~financial~~ statements of income. Equity securities without readily determinable fair values are carried at ~~an amount less than their amortized cost. Based on evaluation of available evidence, including recent~~cost, minus impairment, if any, plus or minus changes resulting from observable price changes in ~~market interest rates, credit rating information, implicit~~orderly transactions for the identical or ~~explicit government guarantees,~~similar investment.

Loans

Originated Loans

Loans that management has the intent and ~~information obtained from regulatory filings, management believes~~ability to hold for the ~~declines in fair value of these securities~~foreseeable future, or until maturity or pay-off, are ~~temporary. As the Company does not intend to sell the securities and it is not more-likely-than-not the Company will be required to sell the securities before the recovery of their~~reported at amortized cost ~~basis, which may be maturity, the Company does not consider the securities to be other-than-temporarily impaired at March 31, 2020 or September 30, 2019.~~

~~14-~~

~~GREAT WESTERN BANCORP, INC.~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~The following table presents the Company’s gross unrealized losses~~(i.e., outstanding principal balance, adjusted for charge-offs and ~~approximate fair value in investments, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position.~~

Less than 12 months 12 months or more Total
Estimated
Fair Value Unrealized
Losses Estimated
Fair Value Unrealized
Losses Estimated
Fair Value Unrealized
Losses
(dollars in thousands)
As of March 31, 2020
U.S. Treasury securities $ — $ — $ — $ — $ — $ —
Mortgage-backed securities 30,374 (189) 207,955 (1,344) 238,329 (1,533)
States and political subdivision securities — — 9,242 (27) 9,242 (27)
Other — — — — — —
Total $ 30,374 $ (189) $ 217,197 $ (1,371) $ 247,571 $ (1,560)

Less than 12 months 12 months or more Total
Estimated
Fair Value Unrealized
Losses Estimated
Fair Value Unrealized
Losses Estimated
Fair Value Unrealized
Losses
(dollars in thousands)
As of September 30, 2019
U.S. Treasury securities $ — $ — $ 44,729 $ (32) $ 44,729 $ (32)
Mortgage-backed securities 94,612 (205) 474,979 (4,144) 569,591 (4,349)
States and political subdivision securities — — 23,693 (116) 23,693 (116)
Other — — — — — —
Total $ 94,612 $ (205) $ 543,401 $ (4,292) $ 638,013 $ (4,497)

~~As of March 31, 2020 and September 30, 2019, the Company had 58 and 169 securities, respectively, in an unrealized loss position.~~

~~4. Loans~~

~~The following table presents the composition of loans as of March 31, 2020 and September 30, 2019.~~

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 agreement totaling $29.7 million and $31.9 million as of March 31, 2020 and September 30, 2019, respectively, residential real estate loans held for sale totaling $4.3 million and $7.4 million at March 31, 2020 and September 30, 2019, respectively, and $792.1 million and $813.0 million of loans accounted for at fair value at March 31, 2020 and September 30, 2019, respectively.

~~Unearned net~~any unamortized deferred fees ~~and costs totaled $13.7 million and $13.9 million as of March 31, 2020 and September 30, 2019, respectively. Loans in process represent loans that have been funded as of the balance sheet dates but~~or costs). Other fees not ~~classified into~~associated with originating a loan ~~category and loan payments received~~are recognized as ~~of the balance sheet dates that have not been applied to individual loan accounts. Loans in process totaled $(0.4) million and $(1.6) million at March 31, 2020 and September 30, 2019, respectively.~~

~~Loans guaranteed by agencies of the U.S. government totaled $146.2 million and $154.2 million at March 31, 2020 and September 30, 2019, respectively.~~

~~15-~~

~~GREAT WESTERN BANCORP, INC.~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

Principal balances of residential real estate loans sold totaled $68.4 million and $46.8 million for the three months ended March 31, 2020 and 2019, respectively, and $175.4 million and $100.7 million for the six months ended March 31, 2020 and 2019, respectively.

~~Nonaccrual~~fee income when earned.

Interest income on loans is accrued daily on the outstanding balances. A loan is placed on nonaccrual status when management believes, after considering collection efforts and other factors, the ~~borrowers'~~borrower's condition is such that collection of interest is doubtful, which is generally 90 days past due. When 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.

For loans held for sale, loan fees charged or received on origination, net of certain direct loan origination costs, are recognized in income when the related loan is sold. For loans held for investment, loan fees, net of certain direct loan origination costs, are deferred and the net amount is amortized as an adjustment of the related loan’s yield. The ~~following table presents~~Company is generally amortizing these amounts over the contractual lives of the loans. Commitment fees are recognized as income when received.

The Company makes commercial, agricultural, residential real estate, consumer and other loans to customers primarily in Arizona, Colorado, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota and South Dakota. The amount of collateral obtained, if deemed necessary, is based on management’s credit evaluation of the borrower. Collateral held varies but includes accounts receivable, marketable securities, inventory, equipment and real estate. Personal guarantees of the borrower or related parties and government guarantees are also obtained for some loans, which reduces the Company’s ~~nonaccrual~~risk of loss.

Loans originated and intended for sale in the secondary market are carried at the lower of cost or fair value. Loans held for sale include fixed rate single-family residential mortgage loans under contract to be sold in the secondary market. In most cases, loans are carried at ~~March 31, 2020~~cost and ~~September 30, 2019, excluding ASC 310-30~~sold within 45 days. These loans are sold with the mortgage servicing rights released. Under limited circumstances, buyers may have recourse to return a purchased loan to the Company. Recourse conditions may include early payment default, breach of representation or warranties, or documentation deficiencies.

Fair value of loans held for sale is determined based on prevailing market prices for loans with similar characteristics, sale contract prices, or, for certain portfolios, discounted cash flow analysis. Declines in fair value below cost (and subsequent recoveries) are recognized in net gain on sale of loans. Deferred fees and costs related to these loans are not amortized but are recognized as part of the cost basis of the loan at the time it is sold. Gains or losses on sales are recognized upon delivery and included in net gain on sale of loans.

12-

GREAT WESTERN BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

Loans at Fair Value Under the Fair Value Option ("FVO loans")

The Company has elected to measure certain long-term loans and written loan commitments at fair value to assist in managing interest rate risk for longer-term loans. Fair value loans are fixed-rate loans having original maturities of 5 years or greater ~~than 90 days past due~~(typically between 5 and ~~still accruing~~15 years) to our business and agri-business banking customers to assist them in facilitating their risk management strategies. The fair value option was elected upon the origination or acquisition of these loans and written loan commitments. Interest income is recognized in the same manner on loans reported at fair value as on non-fair value loans, except in regard to origination fees and costs which are recognized immediately upon closing.

The Company has also entered into interest rate derivative contracts to convert these long term fixed rate loans to variable rates. These contracts do not quality for hedge accounting and instead 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 change in fair value of ~~March 31, 2020~~FVO loans and ~~September 30, 2019, were $2.3 million~~related 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. When determined necessary, a credit mark is applied against the valuation of the asset that reflects the borrower's credit worthiness. Changes in the credit mark are included in change in fair value of FVO loans and ~~$11.2 million, respectively.~~

March 31,
2020 September 30,
2019
(dollars in thousands)
Nonaccrual loans
Commercial real estate $ 41,541 $ 14,973
Agriculture 143,198 77,880
Commercial non-real estate 21,334 9,502
Residential real estate 4,437 2,661
Consumer 97 74
Total $ 210,607 $ 105,090
related derivatives on the consolidated statements of income.

Credit ~~Quality Information~~Risk Management

The Company uses several credit quality indicators to manage credit risk in an ongoing manner. The Company’s strategy for credit risk management includes well-defined, centralized credit policies, uniform underwriting criteria and ongoing risk monitoring and review processes for all credit exposures. The strategy also emphasizes diversification on a geographic, industry, loan class type, and customer level; regular credit examinations; and management reviews of loans exhibiting deterioration of credit quality. The credit risk management strategy also includes a credit risk assessment process that performs assessments of compliance with commercial and consumer credit policies, risk ratings, and other critical credit information. Loan decisions are documented with respect to the borrower’s business, purpose of the loan, evaluation of the repayment sources, and the associated risks, evaluation of collateral, covenants and monitoring requirements, and risk rating rationale.

The Company assigns all non-consumer loans a credit quality risk rating. ~~These~~The Company implemented a more granular risk rating methodology as of October 1, 2020. See the table below for a summary of credit quality risk ratings ~~are Pass, Watch, Substandard, Doubtful and Loss. Loans with a Pass and Watch rating represent those loans not classified~~at December 31, 2020. For information on the ~~Company’s rating scale as problem credits, with~~credit quality risk ratings in effect before October 1, 2020, see "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, 2020.


Credit Quality Risk Rating Effective After October 1, 2020			Credit Quality Indicators
Pass			Commercial loans within this category are not adversely rated, current as to principal and interest, and are otherwise in compliance with the contractual terms of the loan agreement. Management believes there is a low likelihood of loss related to loans in this category.
Special Mention			Commercial loans within this category have potential weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or in the Company's credit position at some future date. Special mention assets are not adversely classified and do not expose the Company to sufficient risk to warrant an adverse classification.
Substandard			Commercial loans within this category are inadequately protected by the current sound worth and paying capacity of the borrower or of the collateral pledged, if any. Assets so classified must have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Loans in this category are assigned a workout loan officer to closely monitor the relationship.
Doubtful			Commercial loans within this category are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be effected in the future.

Revolving lines of credit rated Substandard or Doubtful require a ~~Watch rating being monitored~~higher level of approval and ~~updated at least quarterly by management. Substandard loans~~ are ~~those where a well-defined weakness has been identified that~~reviewed quarterly. Advances are allowed to support the continued operating needs of the borrower for their operation and may ~~put full collection of contractual debt at risk. Doubtful loans are those where a well-defined weakness has been identified~~include, but not limited to, working capital needs to support inventory, accounts receivable, payroll, tax payments, utilities and ~~a loss of contractual debt is probable. Substandard and doubtful loans are monitored and updated monthly.~~ other needs to operate the business.

All non-consumer loan risk ratings are monitored by management and updated 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, delinquencies are monitored and standard credit scoring systems are used to assess credit risks of residential real estate and consumer loans.

The following table presents the composition of the loan portfolio by internally assigned grade as of March 31, 2020 and September 30, 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 $792.1 million at March 31, 2020 and $813.0 million at September 30, 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.

~~16-~~13-

GREAT WESTERN BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

As of September 30, 2019 Commercial Real Estate Agriculture Commercial
Non-Real Estate Residential Real Estate ¹ Consumer ¹ Other Total
(dollars in thousands)
Credit Risk Profile by Internally Assigned Grade
Grade:
Pass $ 4,433,530 $ 1,346,436 $ 1,424,357 $ 763,797 $ 50,796 $ 47,541 $ 8,066,457
Watchlist 85,256 179,965 103,514 6,297 755 — 375,787
Substandard 54,242 322,327 42,048 6,863 205 — 425,685
Doubtful 56 5,811 296 55 2 — 6,220
Loss — — — — — — —
Ending balance 4,573,084 1,854,539 1,570,215 777,012 51,758 47,541 8,874,149
Loans covered by a FDIC loss sharing agreement — — — 31,891 — — 31,891
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.

~~Past Due Loans~~

The following table presents the Company’s past due loans at March 31, 2020 and September 30, 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 $792.1 million at March 31, 2020 and $813.0 million at September 30, 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

~~17-~~

~~GREAT WESTERN BANCORP, INC.~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~Impaired Loans~~

The following table presents the Company’s impaired loans. This table excludes purchased credit impaired loans and loans measured at fair value with changes in fair value reported in earnings of $792.1 million at March 31, 2020 and $813.0 million at September 30, 2019.

March 31, 2020 September 30, 2019
Recorded Investment Unpaid Principal Balance Related Allowance Recorded Investment Unpaid Principal Balance Related Allowance
(dollars in thousands)
Impaired loans:
With an allowance recorded:
Commercial real estate $ 60,619 $ 61,828 $ 7,020 $ 26,003 $ 26,297 $ 4,159
Agriculture 35,013 36,267 8,136 98,392 104,350 8,234
Commercial non-real estate 34,227 37,737 8,601 21,331 21,777 6,062
Residential real estate 5,426 5,923 2,115 3,829 4,311 1,795
Consumer 125 133 36 207 214 97
Total impaired loans with an allowance recorded 135,410 141,888 25,908 149,762 156,949 20,347
With no allowance recorded:
Commercial real estate 72,060 110,873 — 28,272 66,631 —
Agriculture 312,866 331,126 — 231,087 255,308 —
Commercial non-real estate 59,250 67,488 — 21,579 31,414 —
Residential real estate 5,475 7,870 — 3,290 5,454 —
Consumer 2 110 — 1 108 —
Total impaired loans with no allowance recorded 449,653 517,467 — 284,229 358,915 —
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 March 31, 2020 and 2019.~~

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 adjustment reductions made to repossessed properties totaled $4.8 million and $0.1 million for the three months ended March 31, 2020 and 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~~Loans modified under troubled debt restructurings involve granting a concession to a borrower who is experiencing financial difficulty. These concessions could include a reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance, or other actions intended to maximize collection, which generally would not otherwise be considered. The Company's TDRs include performing and nonperforming TDRs, which consist of loans that continue to accrue interest at the loan's original interest rate when the Company expects to collect the remaining principal and interest on the loan, and nonaccrual TDRs, which include loans that are in a nonaccrual status and are no longer accruing interest, as the Company does not expect to collect the full amount of principal and interest owed from the borrower on these loans. At the time of modification (except for loans on nonaccrual status), a TDR is classified as nonperforming TDR until a six-month payment history of principal and interest payments, in accordance with the terms of the loan modification, is sustained, at which time the loan is moved to a performing status (performing TDR). If the Company does not expect to collect all principal and interest on the loan, the modified loan is classified as a nonaccrual TDR. All TDRs are accounted for as impaired loans and are 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 analysis of the allowance for credit losses. A TDR that has been renewed for a borrower who is no longer experiencing financial difficulty and which yields a market rate of interest at the time of a renewal is no longer considered a TDR.

In March 2020, a statement was issued by our banking regulators titled "Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus" that encourages financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations due to the effects of COVID-19. Additionally, Section 4013 of the CARES Act further provides that a qualified loan and lease losses for TDRs were $6.9 million and $10.3 million at March 31, 2020 and September 30, 2019, respectively. There were $0.1 million and $0.2 million of commitments to lend additional funds to borrowers whose loans were modified inmodification is exempt by law from classification as a TDR as defined by GAAP, from the period beginning March 1, 2020 until December 31, 2020. In December 2020, the Economic Aid to Hard Hit Small Businesses, Non-Profits, and Ventures Act was enacted, which extended the TDR provisions of ~~March 31,~~the CARES Act to January 1, 2022. Accordingly, we are offering short-term modifications made in response to COVID-19 to borrowers who are current and otherwise not past due. These include short-term, 180 days or less, modifications in the form of payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant.

Allowance for Credit Losses ("ACL")

The Company adopted ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and subsequent related ASUs, on October 1, 2020, which uses the current expected credit loss model ("CECL") to determine the allowance for credit losses based on an ongoing evaluation, driven primarily by monitoring changes in loan risk grades, delinquencies, and other credit risk indicators, which are inherently subjective. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loans receivables and held-to-maturity debt securities. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and the net investments in leases recognized by a lessor in accordance with Topic 842 on leases. The CECL methodology requires recognition of lifetime expected credit losses that takes into consideration all relevant information, including historical losses, current conditions and reasonable and supportable forecasts of future operating conditions.

Loans that do not share similar risk characteristics and are collateral dependent, primarily large loans on nonaccrual status and those which have undergone a TDR, are evaluated on an individual basis ("individual reserve"). The reserve related to these loans is using the collateral available to repay the loan, most typically the liquidation value of the collateral (less selling costs, if applicable). The Company has chosen to continue to include small, less complex loans within the collective reserve for loans on nonaccrual or with TDR status.

Loans that are not reserved for on an individual basis are measured on a collective, or pooled basis ("collective reserve"). Loans are aggregated into pools (or segments) based on similar risk characteristics including borrower type, collateral, type and expected credit loss patterns. The historical loss experience of the pool is generally the starting point for estimating expected credit losses under the collective reserve methodology. The historical loss experience rate of the loan segment is applied to each loan within the segment over the contractual life of each loan, adjusted for estimated prepayments. Management then determines an appropriate macroeconomic forecast based on the expectation of future conditions, including but not limited to the unemployment rate, which is the most significant factor, gross domestic product and corporate bond spreads, and applies the forecast to models which estimate the change in loss expectations relative to the historical loss rates. These models have been implemented in accordance with the Company's Model Risk Management Policy. Additionally, using its new risk rating system, the Company evaluates if the current credit quality of the portfolio materially differs from the one observed over the historical loss period and applies adjustments to the allowance accordingly. Qualitative adjustments may also be made to expected losses based on current and future conditions that may not be fully captured in the modeling components above, such as but not limited to industry, geographic and borrower concentrations, loans servicing practices and changes in underwriting criteria.

14-

GREAT WESTERN BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

ASU 2016-13 requires institutions to establish a supportable forecast and reversion period for forecasted operating conditions. Management determined a two-year forecast period would capture the majority of the impact associated with current economic conditions and is short enough to be supportable. Additionally, loss rate forecasts follow a straight-line reversion back to the historical loss rate over one year following the initial forecast period.

The following table describes the Company’s 8 loan portfolio pools, which is the level at which it develops and documents a systematic methodology to determine the allowance for credit losses.

Loan Segment

Composition

Collateral

Primary Source of Repayment

Key Risk Characteristics

Construction and development 1

Commercial and residential construction loans

Secured by commercial and residential real estate

Cash flows

Industry and geography of borrower's business, purpose of the loan, repayment sources, borrower's capacity and financial performance, loan covenants, guarantees and nature of pledged collateral

Owner-occupied CRE

Small and middle market businesses

Secured by commercial real estate

Non-owner-occupied CRE

Multifamily residential real estate

Agriculture

Agri-business operating and real estate loans

Secured by operating assets, agricultural real estate, and guarantees of owners

Cash flows

Geography of the borrower's operations, commodity type and prices and weather patterns, purpose of the loan, repayment sources, borrower's debt capacity and financial performance, loan covenants, guarantees and nature of pledged collateral

Commercial non-real estate

Small and middle market businesses and loans made to public sector

Secured by business assets and guarantees of owners

Cash flows

Industry and geography of the borrower's business, purpose of the loan, repayment sources, borrower's debt capacity and financial performance, loan covenants, guarantees and nature of pledged collateral

Residential real estate

Residential mortgages and home equity loans and lines

Secured by residential real estate

Borrower's income

Borrower's capacity and willingness to repay, unemployment rates and other economic factors, and customer repayment history

Consumer and other

Consumer loans and all other loan relationships that do not fit within categories above, including consumer and commercial credit cards and consumer deposit account overdrafts

Secured by automobiles, unsecured

1 Residential real estate construction loans are included in the construction and development segment until construction is completed, after which the loan is moved to the residential real estate loan segment.

Changes to the allowance for credit losses are made by charges to the provision for credit losses, which is reflected on the consolidated statements of income. Past due status is monitored as an indicator of credit deterioration. Loans deemed to be uncollectible are charged off against the allowance for credit losses. Recoveries of amounts previously charged-off are credited to the allowance for credit losses.

Unfunded Commitments and Unfunded Commitments Reserve

Unfunded residential mortgage loan commitments entered into in connection with mortgage loans to be held for sale are considered derivatives and are recorded at fair value and included in accrued expenses and other liabilities on the consolidated balance sheets with changes in fair value recorded in other interest income in the consolidated statements of income. All other unfunded loan commitments are generally related to providing credit facilities to customers and are not considered derivatives.

The unfunded commitments reserve ("unfunded reserve") presents the expected credit losses on off-balance sheet commitments such as unfunded commitments to extend credit and standby letters of credit. An unfunded reserve is not recognized for commitments unconditionally cancellable by the Company, which includes credit cards, warehouse lines of credit and other revolving lines which are deemed to be unconditionally cancellable and is recorded in accrued expenses and other liabilities on the consolidated balance sheet. Changes to the unfunded reserve are recognized in provision for credit losses in the consolidated statements of income. The unfunded reserve is determined by estimating future draws and applying the expected loss rates on those draws. Future draws are based on historical averages of utilization rates (i.e., the likelihood of draws taken). Loss rates are estimated by utilizing the same loss rates calculated for the collective reserve of the allowance for credit losses. The Company's change in unfunded commitments reserve from the incurred loss methodology to the current expected credit loss methodology was immaterial as of the date of adoption and therefore no provision was recognized.

15-

GREAT WESTERN BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

Accrued Interest Receivable

Upon adoption of ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and subsequent related ASUs, the Company has elected the following:

•Accrued interest receivable balances are presented separately within the consolidated balance sheets,

•Accrued interest receivable balances are excluded from amortized cost of financing receivables and related disclosure requirements, and

•Uncollectible accrued interest receivable is written off by reversing interest income, generally upon becoming 90 days past due.

Accordingly, we do not recognize an allowance for credit losses on accrued interest receivable.

Subsequent Events

The Company has evaluated all events or transactions that occurred through the date the Company issued these financial statements. Other than those described below, there were no material events or transactions that would require recognition in the consolidated financial statements or disclosure in the notes to the consolidated financial statements.

On January 27, 2021, the Board of Directors of the Company declared a dividend of $0.01 per common share payable on February 26, 2021 to stockholders of record as of close of business on February 12, 2021.

2. New Accounting Standards

Accounting Standards Adopted in Fiscal Year 2021

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and subsequent related ASUs, which address recording of estimated lifetime credit losses on loans, including funded and unfunded commitments, and other financial instruments held by financial institutions and other organizations. ASU 2016-13, as amended, requires institutions to measure all expected credit losses related to financial assets measured at amortized cost 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 CECL model. ASU 2016-13, as amended, 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.

The measurement of expected losses under CECL is applicable to financial assets measured at amortized cost, including loan receivables and debt securities held to maturity. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit and other similar instruments). In addition, CECL requires debt securities available for sale with an unrealized loss to be recognized as allowance for credit loss rather than as a write-down of the securities amortized cost basis when management intends to sell or believes that it is not more-likely-than-not that they will be required to sell the securities prior to recovery of the securities amortized cost to be recognized as allowance for credit loss rather than as a write-down of the securities amortized cost basis . The CECL standard does not apply to the loan portfolio accounted for using the fair value option.

The Company identified 8 loan portfolio segments for which a model has been established to estimate credit losses. The historical data sets of these segments were identified, populated and validated. Each segment contains loans which have similar risk characteristics. Not unlike the incurred loss model, each segment is split into loans that are individually assessed and those that are collectively assessed.

The Company adopted the standard on October 1, 2020, and ~~September 30, 2019, respectively.~~applied the standard's provisions under the modified retrospective approach. Upon adoption of the standard, the Company recorded a $177.3 million increase to the ACL, of which $1.5 million related to the transfer of discounts on previously acquired loans and $175.8 million related to changes from the incurred loss model to the CECL model, which resulted in a cumulative effect adjustment decrease of $132.9 million (after-tax) to retained earnings. The tax effect resulted in a $42.9 million increase in deferred tax assets. In addition, the Company has elected the 5 year CECL transition for regulatory capital ratios, resulting in an add-back of $129.5 million to common equity tier 1 capital as of December 31, 2020.

~~18-~~16-

GREAT WESTERN BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

The following table presents the composition of loans and allowance by portfolio segment as of September 30, 2020, as adjusted at September 30, 2020 and October 1, 2020.


	Reported Balance September 30, 2020		Reclassifications ¹		Unamortized Discounts, Unearned Net Deferred Fees and Net Loans in Process Included in Amortized Cost ²		Adjusted Balance September 30, 2020		Adoption of ASU 2016-13, as amended ³		Adjusted Balance October 1, 2020
	(dollars in thousands)
Loans:
Construction and development	n/a ⁴		$	512,539	$	(2,895)	$	509,644	$	0	$	509,644
Owner-occupied CRE	n/a ⁴		1,420,061		(2,667)		1,417,394		36		1,417,430
Non-owner-occupied CRE	n/a ⁴		2,902,612		(8,232)		2,894,380		1,497		2,895,877
Multifamily residential real estate	n/a ⁴		536,828		(2,845)		533,983		(8)		533,975
Total commercial real estate	5,274,941		(5,274,941)		0		0		0		0
Agriculture	1,724,350		0		(1,654)		1,722,696		55		1,722,751
Commercial non-real estate	2,181,656		0		(16,618)		2,165,038		(85)		2,164,953
Residential real estate	830,102		(97,099)		(2,191)		730,812		23		730,835
Consumer and other	0		100,553		1,642		102,195		(20)		102,175
Consumer	63,206		(63,206)		0		0		0		0
Other	37,347		(37,347)		0		0		0		0
Ending balance	10,111,602		0		(35,460)		10,076,142		1,498		10,077,640
Less: Unamortized discount on acquired loans	(8,215)		0		8,215		0		0		0
Unearned net deferred fees and costs and net loans in process	(27,245)		0		27,245		0		0		0
Total	$	10,076,142	$	—	$	—	$	10,076,142	$	1,498	$	10,077,640

Allowance:
Construction and development	n/a ⁴		$	(7,012)	$	0	$	(7,012)	$	(11,963)	$	(18,975)
Owner-occupied CRE	n/a ⁴		(20,530)		0		(20,530)		(4,298)		(24,828)
Non-owner-occupied CRE	n/a ⁴		(50,965)		0		(50,965)		(98,986)		(149,951)
Multifamily residential real estate	n/a ⁴		(6,726)		0		(6,726)		(2,681)		(9,407)
Total commercial real estate	(84,496)		84,496		—		—		—		—
Agriculture	(27,018)		0		0		(27,018)		(24,360)		(51,378)
Commercial non-real estate	(27,599)		0		0		(27,599)		(32,938)		(60,537)
Residential real estate	(8,202)		737		0		(7,465)		(2,595)		(10,060)
Consumer and other	(2,572)		0		0		(2,572)		532		(2,040)
Total	$	(149,887)	$	0	$	0	$	(149,887)	$	(177,289)	$	(327,176)
1 Reclassifications made from reported loan and related allowance segments to align with the eight loan portfolio segments established for adoption of ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and subsequent related ASUs, to estimate credit losses.
2 Unamortized discount on acquired loans, unearned net deferred fees and costs and net loans in process to related were assigned to appropriate loan portfolio segment to present loan categories at amortized cost.
3 Discounts on previously acquired loans and Day 1 impact of adoption of ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and subsequent related ASUs, were transferred to allowance for credit losses as a part of CECL adoption.
4 Balance for this segment is included in total commercial real estate for September 30, 2020.

The Company did not record an allowance for available for sale or held to maturity securities upon adoption as the investment portfolio consisted primarily of debt securities explicitly or implicitly backed by the U.S. Government for which expected credit loss is zero.

We adopted the CECL standard using the prospective transition approach for financial assets purchased with credit deterioration ("PCD") that were previously classified as purchased credit impaired ("PCI") and accounted for under ASC 310-30. In accordance with the standard, we did not reassess whether PCI assets met the definition of PCD assets as of the date of adoption. On October 1, 2020, the Company determined $1.5 million of existing discounts on PCD loans was related to credit factors and was reclassified to the ACL. The remaining noncredit discount of $6.7 million was determined to be related to noncredit factors and will be accreted into interest income on a level-yield method over the remaining life of the loans. For additional information, see "Note 1. Nature of Operations and Summary of Significant Policies", "Note 3. Securities Available for Sale", and "Note 4. Loans and Allowance for Credit Losses."

17-

GREAT WESTERN BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

Accounting Standards Not Yet Adopted in Fiscal Year 2021

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes in the Disclosure Requirements for Fair Value Measurement, which eliminates, adds and modifies certain disclosure requirements for fair value measurements. Among the changes, entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. ASU 2018-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. Entities are also allowed to elect to early adopt the eliminated or modified disclosure requirements and delay adoption of the new disclosure requirements until after their effective date. As ASU 2018-13 only revises disclosure requirements, the Company does not believe this ASU will have a material impact on the consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which aims to simplify the accounting for income taxes by removing certain exceptions to the general principles and also simplification of areas such as franchise taxes, step-up in tax basis goodwill, separate entity financial statements and interim recognition of enactment of tax laws or rate changes. The ASU will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the potential impact of ASU 2019-12 on the consolidated financial statements.

In January 2020, the FASB issued ASU 2020-01, Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323 and Topic 815, which clarifies that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the fair value measurement alternative. The ASU will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company does not expect adoption to have a material impact on the consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for a limited 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 reference LIBOR or some other reference rate that are expected to be discontinued. For the Company's cash flow hedges, ASU 2020-04 allows: (i) an entity to change the reference rate without having to designate the hedging relationship; (ii) for cash flow hedges in which the designated hedged risk is LIBOR, allows an entity 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 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 accounting standard will have on the consolidated financial statements.

3. Securities Available for Sale

The amortized cost and approximate fair value of investments in securities, all of which are classified as available for sale according to management’s intent, are summarized as follows.


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(dollars in thousands)
As of December 31, 2020
U.S. Treasury securities	$	24,991	$	23	$	0	$	25,014
U.S. Agency securities	24,975		0		(272)		24,703
Mortgage-backed securities:
Government National Mortgage Association	424,756		10,220		(102)		434,874
Federal Home Loan Mortgage Corporation	769,254		17,187		(65)		786,376
Federal National Mortgage Association	455,651		7,301		(206)		462,746
Small Business Assistance Program	264,798		7,829		(192)		272,435
States and political subdivision securities	51,120		1,297		0		52,417
Other	1,006		44		0		1,050
Total	$	2,016,551	$	43,901	$	(837)	$	2,059,615

18-

GREAT WESTERN BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(dollars in thousands)
As of September 30, 2020
U.S. Treasury securities	$	49,924	$	228	$	0	$	50,152
U.S. Agency securities	24,974		86		0		25,060
Mortgage-backed securities:
Government National Mortgage Association	485,689		11,481		(43)		497,127
Federal Home Loan Mortgage Corporation	578,650		18,919		(9)		597,560
Federal National Mortgage Association	287,842		7,788		(16)		295,614
Small Business Assistance Program	244,653		7,884		(58)		252,479
States and political subdivision securities	54,224		1,356		0		55,580
Other	1,006		48		0		1,054
Total	$	1,726,962	$	47,790	$	(126)	$	1,774,626

The amortized cost and approximate fair value of debt securities available for sale as of December 31, 2020 and September 30, 2020, 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, 2020				September 30, 2020
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
	(dollars in thousands)
Due in one year or less	$	42,973	$	43,103	$	67,131	$	67,456
Due after one year through five years	48,047		48,499		51,779		52,694
Due after five years through ten years	10,066		10,532		10,212		10,642
Due after ten years	0		0		0		0
	101,086		102,134		129,122		130,792
Mortgage-backed securities	1,914,459		1,956,431		1,596,834		1,642,780
Securities without contractual maturities	1,006		1,050		1,006		1,054
Total	$	2,016,551	$	2,059,615	$	1,726,962	$	1,774,626

There were 0 sales of securities available for sale for both the three months ended December 31, 2020 and 2019 and as such there were 0 proceeds from the sales of securities available for sale for same periods. NaN gross gains (pre-tax) were realized on the sales for each of the three months ended December 31, 2020 and 2019, using the specific identification method. NaN gross losses (pre-tax) were realized on the sales for each of the three months ended December 31, 2020 and 2019, using the specific identification method.

Securities with an estimated fair value of approximately $1.07 billion and $1.10 billion at December 31, 2020 and September 30, 2020, respectively, were pledged as collateral on public deposits, securities sold under agreements to repurchase, and for other purposes as required by contractual obligation or law. The counterparties do not have the right to sell or pledge the securities the Company has pledged as collateral.

As detailed in the following tables, certain investments in debt securities, which are approximately 9% and 6% of the Company’s investment portfolio at estimated fair value at December 31, 2020 and September 30, 2020, 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 not the result of credit losses at December 31, 2020, and therefore, an allowance for credit losses was 0t recorded. Prior to the adoption of ASU 2016-13, as amended, the Company recognized 0 other-than-temporary impairment for the three months ended December 31, 2019.

19-

GREAT WESTERN BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

The following table presents the Company’s gross unrealized losses and approximate fair value in investments, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position.


	Less than 12 months				12 months or more				Total
	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses
	(dollars in thousands)
As of December 31, 2020

U.S. Agency securities	$	24,703	$	(272)	$	0	$	0	$	24,703	$	(272)
Mortgage-backed securities	146,799		(553)		8,388		(12)		155,187		(565)


Total	$	171,502	$	(825)	$	8,388	$	(12)	$	179,890	$	(837)


	Less than 12 months				12 months or more				Total
	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses
	(dollars in thousands)
As of September 30, 2020

U.S. Agency securities	$	0	$	0	$	0	$	0	$	0	$	0
Mortgage-backed securities	71,547		(103)		27,897		(23)		99,444		(126)


Total	$	71,547	$	(103)	$	27,897	$	(23)	$	99,444	$	(126)

As of December 31, 2020 and September 30, 2020, the Company had 22 and 18 securities, respectively, in an unrealized loss position.

4. Loans and Allowance for Credit Losses

The following table presents the composition of loans at amortized cost as of December 31, 2020 and September 30, 2020.


	December 31, 2020								September 30, 2020
	Total Loans		Less: Fair Value Option Loans		Less: Guaranteed Loans ¹		Loans at Amortized Cost		Total Loans ²		Less: Fair Value Option Loans		Less: Guaranteed Loans ¹		Loans at Amortized Cost
	(dollars in thousands)
Construction and development	$	482,462	$	0	$	0	$	482,462	$	509,644	$	0	$	0	$	509,644
Owner-occupied CRE	1,411,558		107,541		47,808		1,256,209		1,417,394		109,097		48,468		1,259,829
Non-owner-occupied CRE	2,660,682		260,916		27,168		2,372,598		2,894,380		283,266		27,402		2,583,712
Multifamily residential real estate	476,159		3,045		0		473,114		533,983		3,847		0		530,136
Total commercial real estate	5,030,861		371,502		74,976		4,584,383		5,355,401		396,210		75,870		4,883,321
Agriculture	1,635,952		115,925		39,426		1,480,601		1,722,696		129,041		42,353		1,551,302
Commercial non-real estate	2,054,478		124,161		715,163		1,215,154		2,165,038		129,934		744,371		1,290,733
Residential real estate ³	708,086		0		294		707,792		730,812		0		290		730,522
Consumer and other ⁴	88,499		0		0		88,499		102,195		0		0		102,195
Total	$	9,517,876	$	611,588	$	829,859	$	8,076,429	$	10,076,142	$	655,185	$	862,884	$	8,558,073
1 Includes loans guaranteed by agencies of the U.S. government.
2 As a part of the adoption of CECL, loan segments are presented based on amortized cost, which includes unpaid principal balance, unamortized discount on acquired loans, and unearned net deferred fees and costs. For additional information on September 30, 2020 loan segment balances, see Note 2.
3 Includes residential real estate loans held for sale of $11.6 million and $12.4 million at December 31, 2020 and September 30, 2020, respectively, recorded at the lower of cost or fair value..
4 Other loans primarily include consumer and commercial credit cards, customer deposit account overdrafts and loans in process.

20-

GREAT WESTERN BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

The following table presents the Company’s past due and nonaccrual loans at amortized cost as of December 31, 2020. This table excludes loans measured at fair value under the fair value option of $611.6 million at December 31, 2020. Loans greater than 90 days past due and still accruing interest as of December 31, 2020 were nominal.


As of December 31, 2020	Current or Less Than 30 Days Past Due		30-89 Days Past Due		Nonaccrual		Total
	(dollars in thousands)
Construction and development	$	468,025	$	180	$	14,257	$	482,462
Owner-occupied CRE	1,286,830		411		16,776		1,304,017
Non-owner-occupied CRE	2,346,904		16,097		36,765		2,399,766
Multifamily residential real estate	472,675		439		0		473,114
Total commercial real estate	4,574,434		17,127		67,798		4,659,359
Agriculture	1,322,075		12,319		185,633		1,520,027
Commercial non-real estate	1,909,610		3,210		17,497		1,930,317
Residential real estate	698,146		3,166		6,774		708,086
Consumer and other	88,228		152		70		88,450
Total	$	8,592,493	$	35,974	$	277,772	$	8,906,239

The following table presents the Company’s past due loans at September 30, 2020. This table is presented net of unamortized discount on acquired loans and excludes loans measured at fair value under the fair value option of $655.2 million at September 30, 2020.


	Current or Less Than 30 Days Past Due		30-89 Days Past Due		Nonaccrual		Total
	(dollars in thousands)
As of September 30, 2020
Commercial real estate	$	4,790,963	$	8,894	$	73,146	$	4,873,003
Agriculture	1,317,377		60,020		217,642		1,595,039
Commercial non-real estate	2,021,308		3,512		26,843		2,051,663
Residential real estate	821,154		2,459		4,441		828,054
Consumer and other	100,319		45		74		100,438
Ending balance	$	9,051,121	$	74,930	$	322,146	$	9,448,197

The following table provides additional information on nonaccrual loans for the three months ended December 31, 2020. There were 0 loans greater than 90 days past due and still accruing interest as of September 30, 2020.


Three Months Ended December 31, 2020	Nonaccrual September 30, 2020		Nonaccrual December 31, 2020		Nonaccrual Loans with No Related ACL		Interest Income Recognized on Nonaccrual Loans		Accrued Interest Written Off on Nonaccrual Loans
	(dollars in thousands)
Construction and development	n/a ¹		$	14,257	$	0	$	0	$	110
Owner-occupied CRE	n/a ¹		16,776		8,036		0		13
Non-owner-occupied CRE	n/a ¹		36,765		11,686		0		1,717
Multifamily residential real estate	n/a ¹		0		0		0		0
Total commercial real estate	$	73,146	67,798		19,722		0		1,840
Agriculture	217,642		185,633		154,508		0		382
Commercial non-real estate	26,843		17,497		7,711		0		2
Residential real estate	4,441		6,774		0		0		25
Consumer and other	74		70		0		0		1
Total	$	322,146	$	277,772	$	181,941	$	0	$	2,250
1 Balance for this segment is included in total commercial real estate for September 30, 2020.

This table presents the loans based on credit quality, loan segment and year of origination at amortized cost and excludes loans measured at fair value under the fair value option of $611.6 million at December 31, 2020.

21-

GREAT WESTERN BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)


	Term loans
	Fiscal Year to Date		Fiscal Year
	2021		2020		2019		2018		2017		Prior to 2017		Revolving Loans		Revolving Loans Converted to Term Loans		Total
	(dollars in thousands)
Construction and development
Pass	$	86,339	$	160,884	$	108,053	$	30,830	$	2,570	$	824	$	63,584	$	0	$	453,084
Special Mention	3,686		0		200		0		0		0		0		0		3,886
Substandard	11,322		33		0		12,746		0		0		1,364		0		25,465
Doubtful	0		0		27		0		0		0		0		0		27
Total construction and development	$	101,347	$	160,917	$	108,280	$	43,576	$	2,570	$	824	$	64,948	$	0	$	482,462
Owner-occupied CRE
Pass	$	104,322	$	372,920	$	227,194	$	117,287	$	164,280	$	185,366	$	51,397	$	59	$	1,222,825
Special Mention	465		1,853		2,170		6,651		8,481		8,032		332		0		27,984
Substandard	4,358		4,609		4,643		18,257		11,704		6,447		0		0		50,018
Doubtful	0		0		3,190		0		0		0		0		0		3,190
Total owner-occupied CRE	$	109,145	$	379,382	$	237,197	$	142,195	$	184,465	$	199,845	$	51,729	$	59	$	1,304,017
Non-owner-occupied CRE
Pass	$	161,105	$	423,025	$	360,220	$	348,757	$	382,487	$	334,667	$	44,898	$	0	$	2,055,159
Special Mention	18,991		1,555		35,322		77,164		15,448		16,874		0		0		165,354
Substandard	14,418		64,261		15,527		41,830		0		7,758		35,459		0		179,253
Doubtful	0		0		0		0		0		0		0		0		0
Total non-owner-occupied CRE	$	194,514	$	488,841	$	411,069	$	467,751	$	397,935	$	359,299	$	80,357	$	0	$	2,399,766
Multifamily residential real estate
Pass	$	72,043	$	100,793	$	102,328	$	71,541	$	16,889	$	56,216	$	248	$	0	$	420,058
Special Mention	256		0		2,629		20,686		46		107		21,200		0		44,924
Substandard	0		7,311		0		0		487		334		0		0		8,132
Doubtful	0		0		0		0		0		0		0		0		0
Total multifamily residential real estate	$	72,299	$	108,104	$	104,957	$	92,227	$	17,422	$	56,657	$	21,448	$	0	$	473,114
Total commercial real estate
Pass	$	423,809	$	1,057,622	$	797,795	$	568,415	$	566,226	$	577,073	$	160,127	$	59	$	4,151,126
Special Mention	23,398		3,408		40,321		104,501		23,975		25,013		21,532		0		242,148
Substandard	30,098		76,214		20,170		72,833		12,191		14,539		36,823		0		262,868
Doubtful	0		0		3,217		0		0		0		0		0		3,217
Total commercial real estate	$	477,305	$	1,137,244	$	861,503	$	745,749	$	602,392	$	616,625	$	218,482	$	59	$	4,659,359

22-

GREAT WESTERN BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)


	Term loans
	Fiscal Year to Date		Fiscal Year
	2021		2020		2019		2018		2017		Prior to 2017		Revolving Loans		Revolving Loans Converted to Term Loans		Total
	(dollars in thousands)
Agriculture
Pass	$	56,160	$	222,029	$	105,591	$	85,249	$	82,726	$	62,253	$	460,060	$	0	$	1,074,068
Special Mention	21,040		29,166		7,402		13,400		23,817		4,511		49,451		0		148,787
Substandard	11,412		36,842		15,034		41,653		39,723		8,121		114,838		0		267,623
Doubtful	1,595		49		754		22,230		1,446		0		3,475		0		29,549
Total agriculture	$	90,207	$	288,086	$	128,781	$	162,532	$	147,712	$	74,885	$	627,824	$	0	$	1,520,027
Commercial non-real estate
Pass	$	28,084	$	827,457	$	195,666	$	63,526	$	52,661	$	43,956	$	573,735	$	8	$	1,785,093
Special Mention	6,500		21,521		2,812		1,714		2,576		864		19,391		0		55,378
Substandard	7,950		20,120		12,992		4,561		255		1,395		32,619		0		79,892
Doubtful	0		390		52		84		0		4,269		5,159		0		9,954
Total commercial non-real estate	$	42,534	$	869,488	$	211,522	$	69,885	$	55,492	$	50,484	$	630,904	$	8	$	1,930,317
Residential real estate ¹
Pass	$	48,697	$	213,698	$	86,203	$	52,442	$	31,231	$	119,770	$	138,017	$	282	$	690,340
Special Mention	297		825		341		303		304		998		220		0		3,288
Substandard	279		1,545		2,828		1,363		421		6,083		1,937		0		14,456
Doubtful	0		0		0		0		0		2		0		0		2
Total residential real estate	$	49,273	$	216,068	$	89,372	$	54,108	$	31,956	$	126,853	$	140,174	$	282	$	708,086
Consumer and other ¹
Pass	$	31,451	$	22,536	$	16,856	$	2,898	$	1,220	$	1,370	$	12,058	$	0	$	88,389
Special Mention	9		0		0		0		0		12		3		0		24
Substandard	6		6		18		2		10		8		35		0		85
Doubtful	0		0		0		1		0		0		0		0		1
Total consumer and other	$	31,466	$	22,542	$	16,874	$	2,901	$	1,230	$	1,390	$	12,096	$	0	$	88,499
Total loans
Pass	$	588,201	$	2,343,342	$	1,202,111	$	772,530	$	734,064	$	804,422	$	1,343,997	$	349	$	7,789,016
Special Mention	51,244		54,920		50,876		119,918		50,672		31,398		90,597		0		449,625
Substandard	49,745		134,727		51,042		120,412		52,600		30,146		186,252		0		624,924
Doubtful	1,595		439		4,023		22,315		1,446		4,271		8,634		0		42,723
Total loans	$	690,785	$	2,533,428	$	1,308,052	$	1,035,175	$	838,782	$	870,237	$	1,629,480	$	349	$	8,906,288
1 The Company generally does not risk rate residential real estate or consumer and other 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 and other loans.

The following table presents the composition of the loan portfolio by internally assigned grade as of September 30, 2020. This table is presented net of unamortized discount on acquired loans and excludes loans measured at fair value under the fair value option of $655.2 million at September 30, 2020.


As of September 30, 2020	Commercial Real Estate		Agriculture		Commercial Non-Real Estate		Residential Real Estate ¹		Consumer and Other ¹		Total
	(dollars in thousands)
Credit Risk Profile by Internally Assigned Grade
Grade:
Pass	$	4,062,814	$	968,875	$	1,851,323	$	806,436	$	99,632	$	7,789,080
Watchlist	577,399		265,714		94,401		6,972		709		945,195
Substandard	229,467		348,910		94,316		13,173		93		685,959
Doubtful	3,323		11,540		11,623		1,473		4		27,963
Loss	0		0		0		0		0		0
Ending balance	4,873,003		1,595,039		2,051,663		828,054		100,438		9,448,197
1 The Company generally does not risk rate residential real estate or consumer and other 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 and other loans.

23-

GREAT WESTERN BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

Additional disclosures previously required by ASC Topic 310 related to the Company's September 30, 2020 balances and activity for the quarter ended December 31, 2019 are included as follows:

The following table presents the Company’s impaired loans at September 30, 2020. This table excludes purchased credit impaired loans and loans measured at fair value under the fair value option.


	September 30, 2020
	Recorded Investment		Unpaid Principal Balance		Related Allowance for Credit Losses
Impaired loans:	(dollars in thousands)
With an allowance for credit losses recorded:
Commercial real estate	$	111,121	$	114,034	$	25,087
Agriculture	53,052		55,145		8,151
Commercial non-real estate	39,821		47,571		7,822
Residential real estate	5,670		6,314		1,903
Consumer and other	98		109		30
Total impaired loans with an allowance for credit losses recorded	209,762		223,173		42,993
With no allowance for credit losses recorded:
Commercial real estate	121,380		161,211		—
Agriculture	308,734		332,272		—
Commercial non-real estate	66,542		75,365		—
Residential real estate	6,543		8,818		—
Consumer and other	0		108		—
Total impaired loans with no allowance for credit losses recorded	503,199		577,774		—
Total impaired loans	$	712,961	$	800,947	$	42,993

The following table presents the average recorded ~~value~~investment on impaired loans and interest income recognized on impaired loans for the three months ended December 31, 2019.


	Three Months Ended December 31, 2019
	Average Recorded Investment		Interest Income Recognized While on Impaired Status
	(dollars in thousands)
Commercial real estate	$	73,422	$	2,379
Agriculture	360,397		8,517
Commercial non-real estate	72,389		2,870
Residential real estate	9,013		266
Consumer	179		1
Total	$	515,400	$	14,033

The Company did not acquire any loans during the three months ended December 31, 2020. Prior to October 1, 2020, the Company accounted for acquired impaired loans in accordance with ASC 310-30. The following is a summary of changes in the accretable difference for all loans accounted for under ASC 310-30 during the three months ended December 31, 2019.


	Three Months Ended December 31, 2019
	(dollars in thousands)
Balance, beginning of period	$	26,047
Accretion	(1,940)
Reclassification (to) from nonaccretable difference	(2,977)
Balance, end of period	$	21,130

24-

GREAT WESTERN BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

Troubled Debt Restructurings

Included in certain loan categories in the impaired loans are TDRs that were classified as impaired. Loans are designated as TDRs when the borrower is experiencing financial difficulty, and the Company agrees to concessions that are both significant and outside of market terms. Individual reserves included in the allowance for credit losses for TDRs were $8.5 million and $11.0 million at December 31, 2020 and September 30, 2020, respectively. There were 0 commitments to lend additional funds to borrowers whose loans were modified in a TDR at both December 31, 2020 and September 30, 2020.

The following table presents the amortized cost of the Company’s TDR balances as of ~~March~~December 31, 2020 and recorded value of TDR balances as of September 30, ~~2019.~~2020.

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, 2020				September 30, 2020
	Accruing		Nonaccrual		Accruing		Nonaccrual
	(dollars in thousands)
Construction and development	$	1,364	$	27	n/a ¹		n/a ¹
Owner-occupied CRE	5,590		0		n/a ¹		n/a ¹
Non-owner-occupied CRE	12,203		11,637		n/a ¹		n/a ¹
Multifamily residential real estate	0		0		n/a ¹		n/a ¹
Total commercial real estate	19,157		11,664		$	23,215	$	11,913
Agriculture	3,356		35,736		2,976		45,971
Commercial non real estate	8,304		5,096		8,734		4,803
Real estate	269		69		277		74
Consumer and other	2		27		3		31
Total	$	31,088	$	52,592	$	35,205	$	62,792
1 Balance for this segment is included in total commercial real estate for September 30, 2020.

TDRs are generally restructured through either a rate modification, term extension, payment modification or due to a bankruptcy. The following table presents a summary of all accruing loans restructured in TDRs for the three ~~and six~~ months ended ~~March~~December 31, 2020 and 2019.


		Three Months Ended March 31,																			Six Months Ended March 31,																Three Months Ended December 31,
		2020								2019								2020											2019						2020		2019
			Recorded Investment							Recorded Investment							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			Number		Pre-Modification		Post-Modification		Number	Pre-Modification		Post-Modification
		(dollars in thousands)																																				(dollars in thousands)
Commercial real estate		1	$	2,879	$	2,879	—	$	—	$	—	1	$	2,879	$	2,879		—	$	—	$	—
Construction and development																							Construction and development	0		$	0	$	0	n/a ¹
Owner-occupied CRE																							Owner-occupied CRE	0		0		0		n/a ¹
Non-owner-occupied CRE																							Non-owner-occupied CRE	1		10,640		10,640		n/a ¹
Multifamily residential real estate																							Multifamily residential real estate	0		0		0		n/a ¹
Total commercial real estate																							Total commercial real estate	1		10,640		10,640		0	0		0
Agriculture	Agriculture	2	993		993		—	—		—		2	993		993			—	—		—		Agriculture	1		700		700		0	0		0
Commercial non-real estate	Commercial non-real estate	2	3,952		3,952		—	—		—		4	5,096		5,096			—	—		—		Commercial non-real estate	0		0		0		2	1,144		1,444
Residential real estate	Residential real estate	1	50		50		—	—		—		1	50		50			—	—		—		Residential real estate	0		0		0		0	0		0
Consumer		—	—		—		—	—		—		—	—		—			1	89		89
Consumer and other																							Consumer and other	0		0		0		0	0		0
Total accruing	Total accruing	6	$	7,874	$	7,874	—	$	—	$	—	8	$	9,018	$	9,018		1	$	89	$	89	Total accruing	2		$	11,340	$	11,340	2	$	1,144	$	1,444
Change in recorded investment due to principal paydown at time of modification	Change in recorded investment due to principal paydown at time of modification	—	$	—	$	—	—	$	—	$	—	—	$	—	$	—		—	$	—	$	—	Change in recorded investment due to principal paydown at time of modification	0		$	0	$	0	0	$	0	$	0
Change in recorded investment due to chargeoffs at time of modification	Change in recorded investment due to chargeoffs at time of modification	—	—		—		—	—		—		—	—		—			—	—		—		Change in recorded investment due to chargeoffs at time of modification	0		0		0		0	0		0
1 Balance for this segment is included in total commercial real estate for September 30, 2020.																							1 Balance for this segment is included in total commercial real estate for September 30, 2020.

25-

GREAT WESTERN BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

The following table presents a summary of all nonaccruing loans restructured in TDRs for the three ~~and six~~ months ended ~~March~~December 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 — — — — — — — — — — — —

~~19-~~

~~GREAT WESTERN BANCORP, INC.~~

~~Notes to Consolidated Financial Statements (Unaudited)~~


	Three Months Ended December 31,
	2020					2019
		Recorded Investment					Recorded Investment
	Number	Pre-Modification		Post-Modification		Number	Pre-Modification		Post-Modification
	(dollars in thousands)
Construction and development	0	$	0	$	0	n/a ¹	n/a ¹		n/a ¹
Owner-occupied CRE	0	0		0		n/a ¹	n/a ¹		n/a ¹
Non-owner-occupied CRE	0	0		0		n/a ¹	n/a ¹		n/a ¹
Multifamily residential real estate	0	0		0		n/a ¹	n/a ¹		n/a ¹
Total commercial real estate	0	0		0		1	2,216		2,216
Agriculture	3	2,776		2,776		10	1,455		1,455
Commercial non-real estate	1	748		748		2	830		830
Residential real estate	0	0		0		0	0		0
Consumer and other	0	0		0		0	0		0
Total nonaccruing	4	$	3,524	$	3,524	13	$	4,501	$	4,501
Change in recorded investment due to principal paydown at time of modification	0	$	0	$	0	0	$	0	$	0
Change in recorded investment due to chargeoffs at time of modification	0	0		0		0	0		0
1 Balance for this segment is included in total commercial real estate for September 30, 2020.

The following table presents loans that were modified as TDRs within the previous 12 months and for which there was a payment default or a charge-off for the three ~~and six~~ months ended ~~March~~December 31, 2020 and 2019, respectively.


		Three Months Ended March 31,											Six Months Ended March 31,											Three Months Ended December 31,
		2020				2019					2020						2019				2020		2019
		Number of Loans	Recorded Investment		Number of Loans	Recorded Investment		Number of Loans	Recorded Investment			Number of Loans	Recorded Investment			Number of Loans		Recorded Investment		Number of Loans	Recorded Investment
		(dollars in thousands)																							(dollars in thousands)
Commercial real estate		—	$	—	—	$	—	—	$	—		—	$	—
Construction and development															Construction and development	0		$	0	n/a ¹
Owner-occupied CRE															Owner-occupied CRE	0		0		n/a ¹
Non-owner-occupied CRE															Non-owner-occupied CRE	0		0		n/a ¹
Multifamily residential real estate															Multifamily residential real estate	0		0		n/a ¹
Total commercial real estate															Total commercial real estate	0		0		0	$	0
Agriculture	Agriculture	17	2,106		—	—		19	11,180			—	—		Agriculture	0		0		19	14,347
Commercial non-real estate	Commercial non-real estate	—	—		—	—		1	2,834			—	—		Commercial non-real estate	3		653		1	2,834
Residential real estate	Residential real estate	—	—		—	—		—	—			—	—		Residential real estate	0		0		0	0
Consumer		—	—		—	—		—	—			—	—
Consumer and other															Consumer and other	0		0		0	0
Total	Total	17	$	2,106	—	$	—	20	$	14,014		—	$	—	Total	3		$	653	20	$	17,181
1 Balance for this segment is included in total commercial real estate for September 30, 2020.															1 Balance for this segment is included in total commercial real estate for September 30, 2020.

For 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 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. ~~There were $0.3 million and $0.0 million for~~During the three months ended ~~March~~December 31, 2020 and 2019, ~~respectively, and $0.3 million and $0.0 million for the six months ended March 31, 2020 and 2019, respectively, of~~there were 0 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 are 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, 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"), as well as probable losses inherent in the loan portfolio that are not specifically identified ("collective 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 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, which may not be reflected in the historical loss experience.

~~20-~~26-

GREAT WESTERN BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

~~The following tables present~~Allowance for Credit Losses ("ACL")

As previously mentioned in Note 2. New Accounting Standards, the ~~Company’s~~Company adopted ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and subsequent related ASUs, which resulted in a significant change to the Company's methodology for estimating the ACL. As a result of this adoption, the Company recorded a $177.3 million increase to the allowance ~~for loan and lease losses roll forward for the three and six months ended March 31, 2020 and 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

as a cumulative-effect adjustment on October 1, 2020.

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

~~21-~~

~~GREAT WESTERN BANCORP, INC.~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

The following tables ~~provide details regarding~~presents ACL activity by loan portfolio segment for the three months ended December 31, 2020.


Three Months Ended December 31, 2020	Adjusted balance September 30, 2020 ¹		Adoption of ASU 2016-13, as amended		Adjusted beginning balance, October 1, 2020		Charge-offs		Recoveries		(Reversal of) provision for credit losses on loans		Ending balance, December 31, 2020
	(dollars in thousands)
Construction and development	$	7,012	$	11,963	$	18,975	$	(27)	$	268	$	(502)	$	18,714
Owner-occupied CRE	20,530		4,298		24,828		0		0		258		25,086
Non-owner-occupied CRE	50,965		98,986		149,951		(28,269)		61		(992)		120,751
Multifamily residential real estate	6,726		2,681		9,407		0		0		366		9,773
Total commercial real estate	85,233		117,928		203,161		(28,296)		329		(870)		174,324
Agriculture	27,018		24,360		51,378		(2,144)		1,734		(3,989)		46,979
Commercial non-real estate	27,599		32,938		60,537		(2,043)		245		17,216		75,955
Residential real estate	7,465		2,595		10,060		(96)		32		(324)		9,672
Consumer and other	2,572		(532)		2,040		(232)		113		(57)		1,864
Total	$	149,887	$	177,289	$	327,176	$	(32,811)	$	2,453	$	11,976	$	308,794
1 At September 30, 2020, the allowance balances were reclassified to align with the eight loan portfolio segments established for adoption of ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and subsequent related ASUs. For additional information, see Note 2.

The allowance for ~~loan~~unfunded commitments was $2.3 million and ~~lease losses and balance by type of allowance as of March~~$2.4 million at December 31, 2020 and September 30, 2019. These tables are presented net of unamortized discount on acquired loans and excludes loans of $792.1 million measured at fair value, loans held for sale of $4.3 million, and guaranteed loans of $138.0 million for March 31, 2020, ~~and loans measured at fair value of $813.0 million, loans held for sale of $7.4 million, and guaranteed loans of $145.9 million for September 30, 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 September 30, 2019 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 $ 4,159 $ 8,234 $ 6,062 $ 1,795 $ 97 $ — $ 20,347
Collectively evaluated for impairment 12,509 22,320 11,476 2,188 330 1,039 49,862
ASC 310-30 loans 159 265 29 112 — — 565
Total allowance $ 16,827 $ 30,819 $ 17,567 $ 4,095 $ 427 $ 1,039 $ 70,774
Financing Receivables
Individually evaluated for impairment $ 54,275 $ 329,479 $ 42,910 $ 7,119 $ 208 $ — $ 433,991
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 22,124 2,756 221 30,280 438 — 55,819
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 $0.7 million and $0.6 million at March 31, 2020 and September 30, 2019, respectively. For both the three and six months ended March 31, 2020, loan pools accounted for under ASC 310-30 had a net impairment of provision of $0.1 million. For the three and six months ended March 31, 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, respectively.

~~The reserve for unfunded loan commitments was $1.1 million and $0.5 million at March 31, 2020 and September 30, 2019,~~ respectively, and is recorded in accrued expenses and other liabilities on the consolidated balance sheets.

~~22-~~

~~GREAT WESTERN BANCORP, INC.~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~6. Accounting~~ The (reversal of) provision 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 known as ASC 310-30 loans or purchased credit impaired loans. Several factors were considered when evaluating whether a loanunfunded commitments 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. 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$0.1 million 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 ~~March~~December 31, 2020 and ~~2019.~~

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~~is included in provision for credit losses in the ~~table above represent instances where specific pools~~consolidated statements of ~~loans are expected to perform better over~~income. The provision for unfunded commitments was $0.2 million for the ~~remaining lives~~three months ended December 31, 2019 and is included in other noninterest expense in the consolidated statements of ~~the loans than expected at the prior re-assessment date.~~income.

The following table ~~provides purchased credit impaired loans at March~~presents ACL activity by loan portfolio segment for the three months ended December 31, ~~2020 and September 30,~~ 2019.

March 31, 2020 September 30, 2019
Outstanding Balance ¹ Recorded Investment ² Carrying Value ³ Outstanding Balance ¹ Recorded Investment ² Carrying Value ³
(dollars in thousands)
Commercial real estate $ 88,443 $ 21,611 $ 21,502 $ 90,295 $ 22,124 $ 21,965
Agriculture 4,259 2,970 2,970 4,462 2,756 2,491
Commercial non-real estate 7,072 178 149 7,190 221 192
Residential real estate 32,947 28,263 27,769 35,413 30,280 30,168
Consumer 441 383 362 493 438 438
Total lending $ 133,162 $ 53,405 $ 52,752 $ 137,853 $ 55,819 $ 55,254
¹Represents the legal 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.


Three Months Ended December 31, 2019	Beginning balance, October 1, 2019		Charge-offs		Recoveries		Provision for credit losses on loans		Impairment (improvement) of ASC 310-30 loans		Ending balance, December 31, 2019
	(dollars in thousands)
Commercial real estate	$	16,827	$	(37)	$	120	$	572	$	(20)	$	17,462
Agriculture	30,819		(4,606)		103		5,978		(265)		32,029
Commercial non-real estate	17,567		(1,481)		112		1,191		0		17,389
Residential real estate	4,095		(169)		164		192		338		4,620
Consumer and other	1,466		(373)		71		117		0		1,281
Total	$	70,774	$	(6,666)	$	570	$	8,050	$	53	$	72,781

~~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 under the non-commercial loss share agreement. As covered assets are resolved, whether 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.

~~23-~~

~~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 March 31, 2020 and 2019.~~

Three Months Ended March 31, Six Months Ended March 31,
2020 2019 2020 2019
(dollars in thousands)
Balance, beginning of period $ 832 $ 1,950 $ 1,079 $ 2,502
Amortization (390) (360) (641) (853)
Changes in expected reimbursements from FDIC for changes in expected credit losses — (13) — (13)
Changes in reimbursable expenses — (16) — (41)
Payments (reimbursements) of covered losses to (from) the FDIC 39 (9) 43 (43)
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 agreement which ends June 4, 2020.~~

8.5. 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.

27-

GREAT WESTERN BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

The following table presents the notional amounts and gross fair values of all derivative assets and liabilities held by the Company as of ~~March~~December 31, 2020 and September 30, ~~2019.~~2020.


		March 31, 2020										September 30, 2019									December 31, 2020						September 30, 2020
		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:													Derivatives not designated as hedging instruments:
Interest rate swaps
Interest rate swaps - FVO loan portfolio														Interest rate swaps - FVO loan portfolio
Financial institution counterparties														Financial institution counterparties	$	562,359	$	0	$	(54,568)	$	592,241	$	0	$	(62,587)

Interest rate swaps - Other														Interest rate swaps - Other
Financial institution counterparties	Financial institution counterparties	$	1,279,918	$	—	$	(68,412)	$	1,259,765	$	35	$	(38,755)	Financial institution counterparties	708,872		0		(1,516)		641,189		0		(1,672)
Customer counterparties	Customer counterparties	574,453		83,802		—		499,643		48,652		—		Customer counterparties	708,872		74,495		0		641,189		83,533		0
Interest rate caps	Interest rate caps													Interest rate caps
Financial institution counterparties	Financial institution counterparties	3,438		4		—		100		2		—		Financial institution counterparties	26,538		2		0		20,538		2		0
Customer counterparties	Customer counterparties	3,438		—		(4)		100		—		(2)		Customer counterparties	26,538		0		(2)		20,538		0		(2)
Risk participation agreements	Risk participation agreements	78,194		—		(593)		56,833		—		(58)		Risk participation agreements	82,111		0		(22)		80,681		0		(32)
Mortgage loan commitments	Mortgage loan commitments	170,012		636		—		56,665		—		(11)		Mortgage loan commitments	79,738		322		0		92,278		0		(96)
Mortgage loan forward sale contracts	Mortgage loan forward sale contracts	166,683		—		(636)		61,872		11		—		Mortgage loan forward sale contracts	80,441		0		(322)		94,084		96		0
Total	Total	$	2,276,136	$	84,442	$	(69,645)	$	1,934,978	$	48,700	$	(38,826)	Total	$	2,275,469	$	74,819	$	(56,430)	$	2,182,738	$	83,631	$	(64,389)

Netting of Derivatives

The 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.

~~24-~~

~~GREAT WESTERN BANCORP, INC.~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

The following tables provide information on the Company's netting adjustments as of ~~March~~December 31, 2020 and September 30, ~~2019.~~2020.


		Gross Fair Value		Fair Value Offset Amount		Cash Collateral		Net Amount Presented 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)															(dollars in thousands)
As of March 31, 2020
As of December 31, 2020										As of December 31, 2020
Total Derivative Assets	Total Derivative Assets	$	84,442	$	(6,922)	$	21,203	$	98,723	Total Derivative Assets	$	74,819	$	(4,321)	$	17,763	$	88,261
Total Derivative Liabilities ¹	Total Derivative Liabilities ¹	(69,645)		6,922		62,083		(640)		Total Derivative Liabilities ¹	(56,430)		4,321		51,785		(324)

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.
1 There was an additional $25.1 million of collateral held for initial margin with a Futures Clearing Merchant for clearing derivatives at December 31, 2020 and is included in other assets in the consolidated balance sheets.										1 There was an additional $25.1 million of collateral held for initial margin with a Futures Clearing Merchant for clearing derivatives at December 31, 2020 and is included in other assets in the consolidated balance sheets.


		Gross Fair Value		Fair Value Offset Amount		Cash Collateral		Net Amount Presented 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)															(dollars in thousands)
As of September 30, 2019
As of September 30, 2020										As of September 30, 2020
Total Derivative Assets	Total Derivative Assets	$	48,700	$	(2,445)	$	12,279	$	58,534	Total Derivative Assets	$	83,631	$	(5,263)	$	20,012	$	98,380
Total Derivative Liabilities ¹	Total Derivative Liabilities ¹	(38,826)		2,445		36,368		(13)		Total Derivative Liabilities ¹	(64,389)		5,263		59,028		(98)
¹There 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.
1 There was an additional $22.9 million of collateral held for initial margin with a Futures Clearing Merchant for clearing derivatives at September 30, 2020 and is included in other assets in the consolidated balance sheets.										1 There was an additional $22.9 million of collateral held for initial margin with a Futures Clearing Merchant for clearing derivatives at September 30, 2020 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.

28-

GREAT WESTERN BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

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 pledging thresholds with its Swap Dealers and Futures Clearing Merchant.

~~In 2018, the~~The Company ~~entered~~enters into RPAs with some of its derivative counterparties to assume the credit exposure related to interest rate derivative contracts. The Company's loan customer enters into an interest rate swap directly with a derivative counterparty and the Company 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 income for the three ~~and six~~ months ended ~~March~~December 31, 2020 and 2019 was as follows.


			Amount of Loss Recognized in Consolidated Statements of Income															Amount of (Loss) Gain Recognized in Consolidated Statements of Income
			Three Months Ended March 31,						Six Months Ended March 31,								Three Months Ended December 31,
		Location of Loss Recognized in Consolidated Statements of Income	2020		2019		2020		2019			Location of (Loss) Gain Recognized in Consolidated Statements of Income	2020		2019
			(dollars in thousands)												(dollars in thousands)
Derivatives not designated as hedging instruments:	Derivatives not designated as hedging instruments:										Derivatives not designated as hedging instruments:
Interest rate swaps - FVO loan portfolio											Interest rate swaps - FVO loan portfolio	Derivative interest expense	$	(3,393)	$	(890)
Interest rate swaps - FVO loan portfolio											Interest rate swaps - FVO loan portfolio	Change in fair value of FVO loans and related derivatives	8,570		12,809
Interest rate swaps and other derivatives	Interest rate swaps and other derivatives	Net realized and unrealized loss on derivatives	$	(50,214)	$	(11,032)	$	(36,698)	$	(29,348)	Interest rate swaps and other derivatives	Other derivative income	898		1,597
Mortgage loan commitments	Mortgage loan commitments	Net realized and unrealized loss on derivatives	620		9		648		21		Mortgage loan commitments	Other derivative income	(418)		28
Mortgage loan forward sale contracts	Mortgage loan forward sale contracts	Net realized and unrealized loss on derivatives	(620)		(9)		(648)		(21)		Mortgage loan forward sale contracts	Other derivative income	418		(28)

~~25-~~

~~GREAT WESTERN BANCORP, INC.~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

9.6. The Fair Value Option for 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 1814 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 ~~$57.5~~$31.6 million at ~~March~~December 31, 2020 and a net favorable difference of approximately ~~$34.2~~$37.3 million at September 30, ~~2019.~~2020. The total unpaid principal balance of these long-term loans was approximately ~~$734.6~~$580.0 million and ~~$778.8~~$617.9 million at ~~March~~December 31, 2020 and September 30, ~~2019,~~2020, 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 ~~March~~December 31, 2020 and September 30, ~~2019,~~2020, there were loans with a fair value of ~~$9.1~~$14.6 million and ~~$16.5~~$21.7 million, respectively, which were greater than 90 days past due or in nonaccrual status with an unpaid principal balance of ~~$12.1~~$14.6 million and ~~$17.8~~$26.2 million, respectively.

Changes in fair value for items for which the fair value option has been elected were ~~an increase~~a decrease in fair value of ~~$35.5~~$10.2 million and ~~$20.6~~$14.9 million for the three ~~and six~~ months ended ~~March~~December 31, 2020 ~~respectively,~~ and ~~an increase in fair value of $14.0 million and $33.2 million for the three and six months ended March~~December 31, 2019, respectively. These changes in fair value are reported net of the related derivative activity in ~~noninterest income (loss)~~change in fair value of FVO loans and related derivatives within the consolidated statements of income.

For long-term loans, ~~$10.5~~$1.5 million and ~~$12.7~~$2.1 million for the three ~~and six~~ months ended ~~March~~December 31, 2020 ~~respectively,~~ and ~~$0.4 million and $0.8 million for the three and six months ended March~~December 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.

~~26-~~29-

GREAT WESTERN BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

~~11.~~7. Core Deposits and Other Intangibles

The following table presents a summary of intangible assets subject to amortization as of ~~March~~December 31, 2020 and September 30, ~~2019.~~2020.


		Core Deposit Intangible		Brand Intangible		Customer Relationships Intangible		Other Intangible		Total			Core Deposit Intangible		Customer Relationships Intangible		Other Intangible		Total
		(dollars in thousands)																	(dollars in thousands)
As of March 31, 2020
As of December 31, 2020												As of December 31, 2020
Gross carrying amount	Gross carrying amount	$	7,339	$	—	$	3,172	$	538	$	11,049	Gross carrying amount	$	7,339	$	3,172	$	538	$	11,049
Accumulated amortization	Accumulated amortization	(3,933)		—		(122)		(291)		(4,346)		Accumulated amortization	(4,499)		(305)		(341)		(5,145)
Net intangible assets	Net intangible assets	$	3,406	$	—	$	3,050	$	247	$	6,703	Net intangible assets	$	2,840	$	2,867	$	197	$	5,904
As of September 30, 2019
As of September 30, 2020												As of September 30, 2020
Gross carrying amount	Gross carrying amount	$	7,339	$	8,464	$	—	$	538	$	16,341	Gross carrying amount	$	7,339	$	3,172	$	538	$	11,049
Accumulated amortization	Accumulated amortization	(3,518)		(6,392)		—		(257)		(10,167)		Accumulated amortization	(4,316)		(244)		(325)		(4,885)
Net intangible assets	Net intangible assets	$	3,821	$	2,072	$	—	$	281	$	6,174	Net intangible assets	$	3,023	$	2,928	$	213	$	6,164

Amortization expense of intangible assets were ~~$0.4~~$0.3 million and ~~$0.9~~$0.4 million for the three ~~and six~~ months ended ~~March~~December 31, 2020 ~~respectively,~~ and ~~$0.4 million and $0.8 million for the three and six months ended March~~December 31, 2019, 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 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.


Fiscal year	Fiscal year	Amount		Fiscal year	Amount
		(dollars in thousands)			(dollars in thousands)
Remaining in 2020		$	538
2021		1,014
Remaining in 2021				Remaining in 2021	$	754
2022	2022	929		2022	929
2023	2023	831		2023	831
2024	2024	742		2024	742
2025 and thereafter		2,649
2025				2025	683
2026 and thereafter				2026 and thereafter	1,965
Total	Total	$	6,703	Total	$	5,904

~~12.~~8. Leases

ASC Topic 842, Leases ("ASC 842"), became effective for the Company on October 1, 2019. ASC 842 requires a lease, whether classified as an operating lease or a financing lease, be accounted for as a right-of-use asset ("ROU asset") with a related lease liability recorded at the present value of the lease payments. The ROU asset represents the Company's right to use an underlying asset for the lease term and is included in other assets on the Company's consolidated balance sheets. The lease liability represents the Company's obligation to make lease payments and is included in accrued expenses and other liabilities on the Company's consolidated balance sheets. The cost of the lease is recognized on a straight-line basis over the lease term as lease expense. As permitted by ASC 842, the Company elected not to reassess (i) whether any expired or existing contracts are leases or contain leases, (ii) the lease classification of any expired or existing leases, and (iii) the initial direct costs for existing leases.

Subsequent 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 not generally considered reasonably certain of exercise, they are not included in the lease 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 longest term having a lease expiration of March 31, 2034. The Company has no significant financing leases as of ~~March~~December 31, 2020.

~~27-~~30-

GREAT WESTERN BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

The following table summarizes the ROU asset and lease liability as of ~~March~~December 31, 2020 and September 30, 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.~~


	December 31, 2020			September 30, 2020
	(dollars in thousands)
ROU asset	$	21,264		$	22,709
Total lease liability	22,586			24,114
Weighted average remaining lease term	6.21 years			6.29 years
Weighted average discount rate ¹	1.82		%	1.83		%
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.

Total lease expense incurred by the Company was ~~$1.9 million and $3.6~~$1.7 million for both the three ~~and six~~ months ended ~~March~~December 31, 2020 ~~respectively,~~and 2019, principally made up of contractual lease payments for operating leases.

As of ~~March~~December 31, 2020 and September 30, 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~~December 31, ~~2020:~~2020 and 2019:


							Three Months Ended December 31,
		Three Months Ended March 31, 2020		Six Months Ended March 31, 2020			2020		2019
		(dollars in thousands)							(dollars in thousands)
Cash paid for amounts included in the measurement of lease liabilities:	Cash paid for amounts included in the measurement of lease liabilities:					Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows paid for operating leases	Operating cash flows paid for operating leases	$	1,416	$	2,826	Operating cash flows paid for operating leases	$	1,482	$	1,410
Right-of-use assets obtained in exchange for lease liabilities:	Right-of-use assets obtained in exchange for lease liabilities:					Right-of-use assets obtained in exchange for lease liabilities:
Operating leases	Operating leases	$	5,007	$	5,631	Operating leases	$	987	$	624

The following table presents a maturity analysis of the Company's operating lease liability as of ~~March~~December 31, 2020.


Fiscal year	Fiscal year	Amount		Fiscal year	Amount
		(dollars in thousands)			(dollars in thousands)
Remaining in 2020		$	2,832
2021		4,741
Remaining in 2021				Remaining in 2021	$	4,383
2022	2022	4,049		2022	4,701
2023	2023	3,580		2023	4,149
2024	2024	3,072		2024	3,410
2025 and thereafter		7,500
2025				2025	2,469
2026 and thereafter				2026 and thereafter	5,395
Total undiscounted lease payments	Total undiscounted lease payments	25,774		Total undiscounted lease payments	24,507
Less: Amounts representing interest	Less: Amounts representing interest	(1,738)		Less: Amounts representing interest	(1,921)
Lease liability	Lease liability	$	24,036	Lease liability	$	22,586

~~13.~~9. 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 ~~$81.4~~$93.6 million and ~~$94.7~~$82.6 million and fair value of approximately ~~$83.0~~$95.8 million and ~~$94.4~~$84.7 million at ~~March~~December 31, 2020 and September 30, ~~2019,~~2020, respectively. In most cases, in alignment with the repurchase agreements in place with customers, the Company over-collateralizes the 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 ~~March~~December 31, 2020 and September 30, ~~2019.~~2020.


		March 31, 2020																			December 31, 2020
		Remaining Contractual Maturity of the Agreements																			Remaining Contractual Maturity of the Agreements
		Overnight and Continuous		Up to 30 Days		30-90 Days		Greater than 90 Days		Total			Overnight and Continuous		Up to 30 Days		30-90 Days		Greater than 90 Days		Total
		(dollars in thousands)																			(dollars in thousands)
Repurchase agreements	Repurchase agreements											Repurchase agreements

Mortgage-backed securities	Mortgage-backed securities	$	64,809	$	—	$	—	$	—	$	64,809	Mortgage-backed securities	$	80,355	$	0	$	0	$	0	$	80,355
Total repurchase agreements	Total repurchase agreements	$	64,809	$	—	$	—	$	—	$	64,809	Total repurchase agreements	$	80,355	$	0	$	0	$	0	$	80,355

~~28-~~31-

GREAT WESTERN BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)


		September 30, 2019																			September 30, 2020
		Remaining Contractual Maturity of the Agreements																			Remaining Contractual Maturity of the Agreements
		Overnight and Continuous		Up to 30 Days		30-90 Days		Greater than 90 Days		Total			Overnight and Continuous		Up to 30 Days		30-90 Days		Greater than 90 Days		Total
		(dollars in thousands)																			(dollars in thousands)
Repurchase agreements	Repurchase agreements											Repurchase agreements

Mortgage-backed securities	Mortgage-backed securities	$	68,992	$	—	$	—	$	—	$	68,992	Mortgage-backed securities	$	65,506	$	0	$	0	$	0	$	65,506
Total repurchase agreements	Total repurchase agreements	$	68,992	$	—	$	—	$	—	$	68,992	Total repurchase agreements	$	65,506	$	0	$	0	$	0	$	65,506

~~14.~~10. FHLB Advances and Other Borrowings

FHLB advances and other borrowings consist of the following at ~~March~~December 31, 2020 and September 30, ~~2019.~~2020.


		March 31, 2020		September 30, 2019			December 31, 2020		September 30, 2020
		(dollars in thousands)							(dollars in thousands)
Short-term borrowings:	Short-term borrowings:					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
Fed funds purchased, matured in October 2020						Fed funds purchased, matured in October 2020	$	0	$	75,000

Long-term borrowings:	Long-term borrowings:					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
Notes payable to FHLB, interest rates from 2.76% to 2.88% and maturity dates from September 2022 to September 2024 collateralized by real estate loans						Notes payable to FHLB, interest rates from 2.76% to 2.88% and maturity dates from September 2022 to September 2024 collateralized by real estate loans	120,000		120,000
Total	Total	$	800,000	$	340,000	Total	$	120,000	$	195,000

As of ~~March~~December 31, 2020 and September 30, ~~2019,~~2020, the Company had a borrowing capacity of ~~$1.23 billion~~$943.5 million and ~~$1.44 billion,~~$947.7 million, respectively, with the FRB Discount Window. Principal balances of loans pledged to FRB Discount Window to collateralize the borrowing totaled ~~$1.48~~$1.11 billion at ~~March~~December 31, 2020 and ~~$1.72~~$1.17 billion at September 30, ~~2019.~~2020. The Company has secured this line for contingency funding.

As of ~~March~~December 31, 2020 and September 30, ~~2019,~~2020, based on its collateral pledged, the additional borrowing capacity of the Company with the FHLB was ~~$1.46~~$1.99 billion and ~~$1.80~~$2.03 billion, respectively.

Principal balances of loans pledged to the FHLB to collateralize notes payable totaled ~~$4.11~~$3.93 billion and ~~$4.20~~$4.07 billion at ~~March~~December 31, 2020 and September 30, ~~2019,~~2020, 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~~$75.0 million at ~~March~~December 31, 2020 and September 30, ~~2019,~~2020, respectively. The Company had additional letters of credit from the FHLB of ~~$14.5~~$10.2 million and ~~$14.9~~$14.6 million at ~~March~~December 31, 2020 and September 30, ~~2019,~~2020, respectively, for other purposes.

As of ~~March~~December 31, 2020, FHLB advances and other borrowings are due or callable (whichever is earlier) in subsequent fiscal years as follows.


Fiscal year	Fiscal year	Amount		Fiscal year	Amount
		(dollars in thousands)			(dollars in thousands)
Remaining in 2020		$	475,000
2021		120,000
Remaining in 2021				Remaining in 2021	$	0
2022	2022	60,000		2022	30,000
2023	2023	85,000		2023	30,000
2024	2024	60,000		2024	60,000
2025 and thereafter		—
2025				2025	0
2026 and thereafter				2026 and thereafter	0
Total	Total	$	800,000	Total	$	120,000

~~29-~~32-

GREAT WESTERN BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

~~15.~~11. Subordinated Debentures and Subordinated Notes Payable

Junior Subordinated Deferrable Interest Debentures

The Company has 7 trusts which were created or assumed as part of prior acquisitions that as of ~~March~~December 31, 2020 have 73,400 shares in the aggregate issued and outstanding, $1,000 par value, of Company Obligated Mandatorily Redeemable Preferred Securities ("Preferred Securities"). These 7 trusts were established and exist for the sole purpose of issuing Preferred Securities and investing the proceeds in junior subordinated deferrable interest debentures ("Debentures") issued by the Company. The Debentures constitute the sole assets of the 7 trusts. The Preferred Securities provide for cumulative cash distributions calculated at a rate based on ~~three month~~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 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 7 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. As of ~~March~~December 31, 2020 and September 30, ~~2019,~~2020, Debentures, net of fair value adjustment, of ~~$73.8~~$73.9 million and ~~$73.7~~$73.8 million, respectively, were eligible for treatment as Tier 1 capital.

Relating to the trusts, the Company held as assets $2.5 million in common shares at ~~March~~December 31, 2020 and September 30, ~~2019,~~2020, 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~~whose eligibility as Tier 2 capital ~~under Capital Rules~~was reduced by 20% beginning in ~~effect at March 31,~~the quarter ended September 30, 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 the stated maturity date or earlier redemption, the notes will bear interest at a rate per annum equal to ~~three month~~three-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 upon certain events of bankruptcy, insolvency or reorganization. Unamortized debt issuance costs related to these notes, which are included in Subordinated Debentures and Subordinated Notes Payable, were negligible and $0.1 million at March 31, 2020 and September 30, 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, 2020				September 30, 2020
	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	(2,054)				(2,088)
Total junior subordinated debentures payable, net of fair value adjustment	73,866				73,832
Subordinated notes payable
Fixed to floating rate effective August 2020, 3.150% plus 3 month LIBOR	35,000				35,000


Total subordinated debentures and subordinated notes payable	$	108,866			$	108,832
1 Adjustment reflects the fair value adjustments related to the junior subordinated deferrable interest debentures assumed as part of the HF Financial acquisition.

~~30-~~

33-

GREAT WESTERN BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

~~Subordinated debentures and subordinated notes payable are summarized as follows.~~

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.

~~16.~~12. Profit Sharing Plan

The Company participates in a multiple employer 401(k) profit sharing plan ("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 ~~$1.6~~$1.9 million and ~~$3.3~~$1.7 million to the 401(k) Plan for the three ~~and six~~ months ended ~~March~~December 31, 2020 ~~respectively,~~ and ~~$1.1 million and $2.9 million for the three and six months ended March~~December 31, 2019, respectively.

~~17.~~13. Stock-Based Compensation

On September 26, 2014, the Board of Directors adopted, and on October 10, 2014, NAB, at that time the Company's controlling shareholder, approved the Great Western Bancorp, Inc. 2014 Omnibus Incentive Compensation Plan ("2014 Plan"), the Great Western Bancorp, Inc. 2014 Non-Employee Director Plan ("2014 Director Plan"), and the Great Western Bancorp, Inc. Executive Incentive Compensation 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 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 has been met and, 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.

~~31-~~

~~GREAT WESTERN BANCORP, INC.~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

Stock compensation is recognized based on the number of awards expected 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. Stock compensation expense was ~~$1.3 million and $2.9~~$1.4 million for the three ~~and six~~ months ended ~~March~~December 31, 2020 ~~respectively,~~ and ~~$1.4 million and $3.1~~$1.6 million for the three ~~and six~~ months ended ~~March~~December 31, ~~2019, respectively.~~2019. Related income tax benefits recognized were $0.3 million for the three months ended December 31, 2020 and ~~$0.7~~$0.4 million for the three ~~and six~~ months ended ~~March~~December 31, ~~2020, respectively and $0.4 million and $0.8 million for the three and six months ended March 31, 2019, respectively.~~2019.

34-

GREAT WESTERN BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

The following is a summary of the Plans’ restricted share and performance-based stock award activity as of ~~March~~December 31, 2020 and September 30, ~~2019.~~2020. The number of performance shares granted in the following table are reflected at the amount of achievement of the pre-established targets.


		March 31, 2020				September 30, 2019						December 31, 2020				September 30, 2020
		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
Restricted shares, beginning of fiscal year	Restricted shares, beginning of fiscal year	190,805	$	37.20	163,287	$	37.86	Restricted shares, beginning of fiscal year	249,180	$	32.89		190,805	$	37.20
Granted	Granted	134,185	32.34		106,753	37.27		Granted	152,028	17.30			147,282	30.68
Vested	Vested	(83,909)	38.61		(76,210)	38.64		Vested	(79,093)	36.28			(84,316)	38.60
Forfeited	Forfeited	(3,109)	36.61		(3,025)	38.67		Forfeited	(2,017)	28.89			(4,591)	36.18
Canceled	Canceled	—	—		—	—		Canceled	0	0			0	0
Restricted shares, end of period	Restricted shares, end of period	237,972	$	33.97	190,805	$	37.20	Restricted shares, end of period	320,098	$	24.67		249,180	$	32.89

Vested, but not issuable at end of period	Vested, but not issuable at end of period	62,992	$	33.98	50,770	$	33.88	Vested, but not issuable at end of period	87,324	$	29.32		62,992	$	33.98

Performance Shares	Performance Shares							Performance Shares
Performance shares, beginning of fiscal year	Performance shares, beginning of fiscal year	173,332	$	38.50	175,196	$	36.29	Performance shares, beginning of fiscal year	175,740	$	33.56		173,332	$	38.50
Granted	Granted	(48,753)	(49.22)		60,583	32.77		Granted	115,885	17.26			62,278	40.15
Vested	Vested	(54,861)	39.43		(59,937)	30.79		Vested	(25,452)	41.07			(54,861)	39.43
Forfeited	Forfeited	(3,732)	38.14		(2,510)	39.25		Forfeited	(11,904)	39.04			(5,009)	37.90
Canceled	Canceled	—	—		—	—		Canceled	0	0			0	0
Performance shares, end of period	Performance shares, end of period	65,986	$	34.61	173,332	$	38.50	Performance shares, end of period	254,269	$	25.12		175,740	$	33.56

Vested, but not issuable at end of period	Vested, but not issuable at end of period	5,612	$	18.00	5,612	$	18.00	Vested, but not issuable at end of period	5,612	$	18.00		5,612	$	18.00

As of ~~March~~December 31, 2020, there was ~~$7.7~~$9.7 million of unrecognized compensation cost related to non-vested restricted stock awards expected to be recognized over a period of ~~2.7~~2.8 years. The fair value of the vested, but not issued stock awards was ~~$1.4~~$1.9 million and ~~$1.9~~$0.9 million at ~~March~~December 31, 2020 and September 30, ~~2019,~~2020, respectively.

~~18.~~14. 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:

Level 1 Quoted prices in active markets for identical 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.

~~32-~~

~~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.

35-

GREAT WESTERN BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

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 ~~March~~December 31, 2020 and September 30, ~~2019.~~2020.

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 offset the interest rate risk and an adjustment for credit risk based on the 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 interest 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).

~~33-~~

~~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 ~~March~~December 31, 2020 and September 30, ~~2019.~~2020.


		Fair Value		Level 1		Level 2		Level 3			Fair Value		Level 1		Level 2		Level 3
		(dollars in thousands)															(dollars in thousands)
As of March 31, 2020
As of December 31, 2020										As of December 31, 2020
U.S. Treasury securities	U.S. Treasury securities	$	70,583	$	70,583	$	—	$	—	U.S. Treasury securities	$	25,014	$	25,014	$	0	$	0
U.S. Agency securities										U.S. Agency securities	24,703		24,703		0		0
Mortgage-backed securities	Mortgage-backed securities	1,857,392		—		1,857,392		—		Mortgage-backed securities	1,956,431		0		1,956,431		0
States and political subdivision securities	States and political subdivision securities	61,001		—		57,015		3,986		States and political subdivision securities	52,417		0		48,751		3,666
Other	Other	1,051		—		1,051		—		Other	1,050		0		1,050		0
Total securities available for sale	Total securities available for sale	$	1,990,027	$	70,583	$	1,915,458	$	3,986	Total securities available for sale	$	2,059,615	$	49,717	$	2,006,232	$	3,666
Derivatives-assets	Derivatives-assets	$	98,723	$	—	$	98,723	$	—	Derivatives-assets	$	88,261	$	0	$	88,261	$	0
Derivatives-liabilities	Derivatives-liabilities	640		—		640		—		Derivatives-liabilities	324		0		324		0
Fair value loans	Fair value loans	792,117		—		792,117		—		Fair value loans	611,588		0		611,588		0
Loan servicing rights	Loan servicing rights	1,863		—		—		1,863		Loan servicing rights	1,063		0		0		1,063
As of September 30, 2019
U.S. Treasury securities		$	94,745	$	94,745	$	—	$	—
Mortgage-backed securities		1,620,903		—		1,620,903		—
States and political subdivision securities		66,523		—		62,403		4,120
Other		1,037		—		1,037		—
Total securities available for sale		$	1,783,208	$	94,745	$	1,684,343	$	4,120
Derivatives-assets		$	58,534	$	—	$	58,534	$	—
Derivatives-liabilities		13		—		13		—
Fair value loans		812,991		—		812,991		—
Loan servicing rights		2,255		—		—		2,255

36-

GREAT WESTERN BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)


	Fair Value		Level 1		Level 2		Level 3
	(dollars in thousands)
As of September 30, 2020
U.S. Treasury securities	$	50,152	$	50,152	$	0	$	0
U.S. Agency securities	25,060		25,060		0		0
Mortgage-backed securities	1,642,780		0		1,642,780		0
States and political subdivision securities	55,580		0		51,783		3,797
Other	1,054		0		1,054		0
Total securities available for sale	$	1,774,626	$	75,212	$	1,695,617	$	3,797
Derivatives-assets	$	98,380	$	0	$	98,380	$	0
Derivatives-liabilities	98		0		98		0
Fair value loans	655,185		0		655,185		0
Loan servicing rights	1,303		0		0		1,303

The following table presents the changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the three ~~and six~~ months ended ~~March~~December 31, 2020 and 2019.


		Three Months Ended March 31,						Six Months Ended March 31,							Three Months Ended December 31,
		2020		2019		2020		2019			2020		2019
		(dollars in thousands)											(dollars in thousands)
Other securities available for sale	Other securities available for sale									Other securities available for sale
Balance, beginning of period	Balance, beginning of period	$	3,986	$	961	$	4,120	$	970	Balance, beginning of period	$	3,797	$	4,120
Additions	Additions	—		350		—		350		Additions	0		0
Principal paydown	Principal paydown	—		—		(134)		(9)		Principal paydown	(131)		(134)

Balance, end of period	Balance, end of period	$	3,986	$	1,311	$	3,986	$	1,311	Balance, end of period	$	3,666	$	3,986

Loan servicing rights	Loan servicing rights									Loan servicing rights
Balance, beginning of period	Balance, beginning of period	$	2,054	$	2,862	$	2,255	$	3,087	Balance, beginning of period	$	1,303	$	2,255

Realized and unrealized loss ¹	Realized and unrealized loss ¹	(191)		(188)		(392)		(413)		Realized and unrealized loss ¹	(240)		(201)
Balance, end of period	Balance, end of period	$	1,863	$	2,674	$	1,863	$	2,674	Balance, end of period	$	1,063	$	2,054

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.															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.

~~34-~~

~~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, 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.

37-

GREAT WESTERN BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

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.

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 table 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 ~~March~~December 31, 2020 and September 30, ~~2019.~~2020.


		Fair Value		Level 1		Level 2		Level 3			Fair Value		Level 1		Level 2		Level 3
		(dollars in thousands)															(dollars in thousands)
As of March 31, 2020
As of December 31, 2020										As of December 31, 2020
Other repossessed property	Other repossessed property	$	21,486	$	—	$	—	$	21,486	Other repossessed property	$	8,594	$	0	$	0	$	8,594
Impaired loans	Impaired loans	559,155		—		—		559,155		Impaired loans	275,334		0		0		275,334
Mortgage loans held for sale, at lower of cost or fair value	Mortgage loans held for sale, at lower of cost or fair value	4,342		—		4,342		—		Mortgage loans held for sale, at lower of cost or fair value	11,638		0		11,638		0
Property held for sale	Property held for sale	706		—		—		706		Property held for sale	600		0		0		600
As of September 30, 2019
As of September 30, 2020										As of September 30, 2020
Other repossessed property	Other repossessed property	$	34,721	$	—	$	—	$	34,721	Other repossessed property	$	17,991	$	0	$	0	$	17,991
Impaired loans	Impaired loans	413,644		—		—		413,644		Impaired loans	669,968		0		0		669,968
Mortgage loans held for sale, at lower of cost or fair value	Mortgage loans held for sale, at lower of cost or fair value	7,351		—		7,351		—		Mortgage loans held for sale, at lower of cost or fair value	12,371		0		12,371		0
Property held for sale	Property held for sale	2,757		—		—		2,757		Property held for sale	600		0		0		600

The valuation techniques and significant unobservable inputs used to measure Level 3 fair value measurements at ~~March~~December 31, 2020 were as follows.

Fair Value of Assets / (Liabilities) at ~~March~~December 31, 2020

Valuation
Technique(s)

Unobservable
Input

Range

Weighted
Average

(dollars in thousands)

Other repossessed property

~~21,486~~8,594

Appraisal value

~~Property~~Collateral specific adjustment

N/A

Impaired loans

~~559,155~~275,334

Appraisal value

~~Property~~Collateral specific adjustment

N/A

Property held for sale

~~706~~600

Appraisal value

~~Property~~Collateral specific adjustment

N/A

Disclosures about Fair Value of 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. Additionally, in accordance with the disclosure guideline, receivables and payables due in one year or less, insurance contracts, equity investments not accounted for at fair value, and 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.

~~35-~~38-

GREAT WESTERN BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

Fair values for on-balance sheet instruments as of ~~March~~December 31, 2020 and September 30, ~~2019~~2020 are as follows.


			March 31, 2020						September 30, 2019								December 31, 2020					September 30, 2020
		Level in Fair Value Hierarchy	Carrying Amount		Fair Value		Carrying Amount		Fair Value			Level in Fair Value Hierarchy	Carrying Amount		Fair Value			Carrying Amount		Fair Value
			(dollars in thousands)																	(dollars in thousands)
Assets	Assets										Assets
Cash and cash equivalents	Cash and cash equivalents	Level 1	$	347,486	$	347,486	$	243,474	$	243,474	Cash and cash equivalents	Level 1	$	1,061,796	$	1,061,796		$	432,887	$	432,887
Loans, net, excluding fair valued loans, loans held for sale and impaired loans ¹	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		Loans, net, excluding fair valued loans, loans held for sale and impaired loans ¹	Level 3	8,619,316		8,623,172			8,738,617		8,768,314
Liabilities	Liabilities										Liabilities
Time deposits	Time deposits	Level 2	1,528,234		1,532,200		2,095,676		2,101,239		Time deposits	Level 2	1,078,580		1,082,378			1,282,978		1,287,814
FHLB advances and other borrowings	FHLB advances and other borrowings	Level 2	800,000		818,669		340,000		351,517		FHLB advances and other borrowings	Level 2	120,000		129,077			195,000		204,715
Securities sold under repurchase agreements	Securities sold under repurchase agreements	Level 2	64,809		64,809		68,992		68,992		Securities sold under repurchase agreements	Level 2	80,355		80,355			65,506		65,506
Subordinated debentures and subordinated notes payable	Subordinated debentures and subordinated notes payable	Level 2	108,740		97,268		108,636		101,164		Subordinated debentures and subordinated notes payable	Level 2	108,866		93,213			108,832		96,424
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.
1 Includes $29.2 million and $29.0 million of net deferred loan fees at December 31, 2020 and September 30, 2020, respectively, of which carrying value approximates fair value.											1 Includes $29.2 million and $29.0 million of net deferred loan fees at December 31, 2020 and September 30, 2020, respectively, of which carrying value approximates fair value.

~~19.~~15. 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 ~~March~~December 31, 2020 and 2019.


		Three Months Ended March 31,						Six Months Ended March 31,							Three Months Ended December 31,
		2020		2019		2020		2019			2020		2019
		(dollars in thousands, except per share data)														(dollars in thousands, except per share data)
Net income	Net income	$	(740,618)	$	44,511	$	(697,344)	$	90,297	Net income	$	41,319	$	43,274

Weighted average common shares outstanding	Weighted average common shares outstanding	55,906,002		56,994,817		56,141,816		57,484,838		Weighted average common shares outstanding	55,119,909		56,377,631
Dilutive effect of stock based compensation	Dilutive effect of stock based compensation	—		79,857		—		72,146		Dilutive effect of stock based compensation	127,434		80,336
Weighted average common shares outstanding for diluted earnings per share calculation	Weighted average common shares outstanding for diluted earnings per share calculation	55,906,002		57,074,674		56,141,816		57,556,984		Weighted average common shares outstanding for diluted earnings per share calculation	55,247,343		56,457,967

Basic earnings per share	Basic earnings per share	$	(13.25)	$	0.78	$	(12.42)	$	1.57	Basic earnings per share	$	0.75	$	0.77
Diluted earnings per share	Diluted earnings per share	$	(13.25)	$	0.78	$	(12.42)	$	1.57	Diluted earnings per share	$	0.75	$	0.77

The Company had ~~5,037~~115,160 and 0 shares of unvested performance stock as of ~~March~~December 31, 2020 and 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 ~~63,076~~169,539 and ~~67,971~~66,155 shares of anti-dilutive stock awards outstanding as of ~~March~~December 31, 2020 and 2019, respectively.

39-

~~20.~~

GREAT WESTERN BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

16. 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.~~2020. 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:

~~36-~~

~~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,							Three Months Ended December 31,
		2020		2019		2020		2019			2020		2019
		(dollars in thousands)											(dollars in thousands)
Noninterest income	Noninterest income									Noninterest income
Service charges and other fees	Service charges and other fees	$	9,188	$	10,209	$	20,597	$	21,897	Service charges and other fees	$	9,624	$	11,409
Wealth management fees	Wealth management fees	3,122		2,117		6,086		4,358		Wealth management fees	3,029		2,964
Other	Other	664		1,118		1,332		1,700		Other	848		668
Noninterest income from contracts with customers within the scope of ASC Topic 606	Noninterest income from contracts with customers within the scope of ASC Topic 606	12,974		13,444		28,015		27,955		Noninterest income from contracts with customers within the scope of ASC Topic 606	13,501		15,041
Noninterest income within the scope of other GAAP Topics ¹	Noninterest income within the scope of other GAAP Topics ¹	(13,057)		4,779		(12,365)		6,988		Noninterest income within the scope of other GAAP Topics ¹	647		692
Total noninterest income	Total noninterest income	$	(83)	$	18,223	$	15,650	$	34,943	Total noninterest income	$	14,148	$	15,733
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.	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.													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.


			~~Amount~~
			~~(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.

~~37-~~40-

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, ~~2019,~~2020, 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 Note Regarding Forward-Looking Statements." For a more complete discussion of the factors that could affect our future results, see "Item 1A. Risk 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, ~~2019.~~2020.

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 ~~March~~December 31, 2020 and references to "the comparable period" or "the comparable quarter" refer to the fiscal quarter ended ~~March~~December 31, 2019.

Tax Equivalent Presentation

All references to net interest income, net interest margin, interest income on ~~non-ASC 310-30~~ loans, yield on ~~non-ASC 310-30~~ loans and the related non-GAAP adjusted financial measure of each item are presented on a FTE basis unless otherwise noted.

Overview

We are a full-service regional bank holding company focused on relationship-based business ~~and agri-business~~ banking. ~~We serve our customers through 175 branches in attractive markets in nine states: Arizona, Colorado, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota and South Dakota.~~

Our Bank 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~~We serve our ~~business and agri-business focus, presence~~customers through 175 branches in attractive markets ~~highly efficient operating model~~in Arizona, Colorado, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota and ~~robust approach to risk management, we have achieved significant and profitable growth—both organically and through disciplined acquisitions.~~South Dakota. 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; (ii) interest on fixed income investments held by our Bank; (iii) fees on wealth management services; (iv) service charges on deposit accounts maintained at our 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's loan and deposit functions; (iv) occupancy expenses for maintaining our Bank's facilities; (v) professional fees, including FDIC insurance assessments; (vi) business development; and (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~~businesses and individuals ~~in March 2020~~ as a result of the COVID-19 pandemic. While many of these initial restrictions have been lifted, the recent surge of infections in some of these states raises the possibility that certain restrictions could re-imposed or extended to contain further spread. 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

We 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~~focused on keeping our employees safe and our Bank running effectively to serve our customers. We are managing branch access and occupancy levels in relation to cases and close contact scenarios, encouraging remote work and supporting our employees with paid time off and following CDC guidelines for those working in the office. For our customers, ~~is a major concern~~we are supporting PPP, having provided $727.3 million in loans to ~~our management~~over 4,800 customers and ~~every effort is being made~~now having processed $27.8 million of loans through the forgiveness pathway. We are prepared to ~~have employees work from home or, if working from one~~provide additional PPP lending as part of ~~our locations is required,~~the recently enacted Economic Aid to ~~maintain appropriate social distancing~~Hard Hit Small Businesses, Non-Profits, and ~~observe other health precautions.~~Ventures Act.

~~38-~~41-

Through 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 spread of COVID-19 to our employees and customers. As of April 24th, we have more than 750 employees working remotely from home with those still in the office 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 best protection for our employees and customers, an enhance our ability to continue providing our banking services.

Financial results this quarter included several items linked to the impact of the COVID-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 of $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 above items. Our management believes additional increases in credit and other related charges could occur if the effects of the COVID-19 restrictions continue to negatively impact the loan portfolio.

Furthermore, the onset and continuation of the COVID-19 pandemic has significantly heightened the level of challenges, risks and uncertainties facing our ~~Company~~business and ~~its~~continuation of 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~~have experienced and/or anticipated 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, in whole or in part, due to the 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~~We have experienced and/or anticipated an increase in ~~increased~~ risk of delinquencies, defaults and foreclosures, as well as declining collateral values and further impairment of the ability of our borrowers to repay their loans, ~~resulting~~all of which may result in additional credit charges and other losses toin our ~~Company;~~loan portfolio;

•~~The~~Volatility in economic forecasts caused by the COVID-19 pandemic ~~restrictions have created significant volatility and disruption~~create wider uncertainty in the ~~financial markets, and these conditions may require us to recognize an elevated level~~outlook for future net charge off activity resulting in the potential for changing levels of ~~other than temporary impairments on investment securities~~reserves in ~~our portfolio as issues of these securities are negatively impacted by~~ the ~~economic slowdown.~~ allowance for credit losses;

•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~~In meeting our ~~Bank are required to comply with minimum capital and leverage requirements. Our capital strategy is primarily~~objective to maintain our capital levels and liquidity position through the COVID-19 pandemic, ~~and~~ our Board of Directors has reduced, and could determine ~~further~~to altogether forego payment of future ~~reductions or foregoing~~ dividends in order to maintain and/or strengthen our capital and liquidity position.

Highlights for the Three ~~and Six~~ Months Ended ~~March~~December 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,~~Net income was $41.3 million, or $0.75 per diluted share, for the first quarter of fiscal year 2021, compared to ~~11.7%, 12.7% and 10.1%, respectively, at September 30, 2019. In addition, our Common Equity Tier 1~~net income of $43.3 million, or $0.77 per diluted share, for the same period in fiscal year 2020, a decrease of $2.0 million. The decline in net income in the current quarter was primarily due to a $1.6 million decrease in noninterest income mainly due to changes in the fair value of loans combined with a $1.1 million decrease in net interest income after provision for credit losses. Our efficiency ratio was ~~10.6%~~46.2% for both the first quarter of fiscal year 2021 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 considered "well capitalized".2020. For more information on our ~~tangible common equity to tangible assets~~efficiency ratio, including a reconciliation to the most directly comparable GAAP financial measure, ~~see "—Non-GAAP Financial Measures" section.~~

During the second quarter of fiscal 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.

~~39-~~

With the many uncertainties of the COVID-19 pandemic, including the full impacts on the future financial results and operations of the Company, the Board of Directors has determined to reduce its regular quarterly dividend for the quarter 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 payable on May 29, 2020 to stockholders of record as of 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 dividends throughout the year.

Net loss was $740.6 million, or $(13.25) per diluted share, for the second quarter of fiscal year 2020, compared to net income of $44.5 million, or $0.78 per diluted share, for the same period in fiscal year 2019, a decrease of $785.1 million. Adjusted net income which excludes the COVID-19 pandemic impact on goodwill, certain intangible assets and credit and other related charges, was $29.1 million, or $0.52 per diluted share, compared to $44.5 million, or $0.78 per diluted 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 second quarter of fiscal year 2020 and 2019, respectively. For more information on our adjusted net income and efficiency ratio, including a reconciliation to the most directly comparable GAAP financial 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 ~~3.59%~~3.63%, ~~3.68%~~3.51% and ~~3.75%~~3.68%, respectively, for the three months ended ~~March~~December 31, 2020, ~~December 31, 2019~~September 30, 2020 and ~~March~~December 31, 2019. Adjusted net interest margin, which reflects the ~~realized gain (loss)~~derivative interest expense on interest rate swaps, was ~~3.55%~~3.52%, ~~3.65%~~3.40% and ~~3.76%~~3.65%, 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 margin decreased by 165 and 2113 basis points, respectively, compared to the same quarter in fiscal year ~~2019.~~2020. Net interest margin decreased between the two periods primarily due to ~~securities and~~ loan yields, which decreased ~~23 and 39~~49 basis points ~~respectively, reflecting the impact of repricing following the emergency rate cuts discussed previously, partially~~ offset by a 3365 basis point decrease in the cost of deposits to ~~0.75%~~0.21%. A ~~$1.7~~$2.5 million increase in the current quarter of the cost of interest rate swaps compared to the same period in fiscal year ~~2019~~2020 is the primary driver of the more pronounced decrease 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 ~~$9.69~~$9.52 billion at ~~March~~December 31, 2020 compared to ~~$9.71~~$10.08 billion at September 30, ~~2019,~~2020, a decrease of ~~$13.5~~$558.3 million, or ~~0.1%~~5.5%. The ~~decline in loans during the period~~reduction was mainly ~~attributable to~~driven by sales of $208.8 million in hotel loans, a ~~reduction~~number of payoffs in nonaccrual and classified loans, an increase in paydowns across the commercial, agriculture ~~segment~~and consumer portfolios, and processing of ~~$126.9~~$27.8 million of PPP loan forgiveness.

Deposits were $11.37 billion at December 31, 2020, an increase of $364.5 million, or ~~6.3%~~3.3%, ~~largely~~compared to $11.01 billion at September 30, 2020, due to a ~~seasonal~~$438.5 million increase in checking and savings deposits across both business and consumer accounts offset with a $67.9 million reduction in business and consumer time deposits and a $6.1 million decrease ~~related~~in public and brokered deposits. FHLB advances and other borrowings decreased by $75.0 million due to ~~customer tax planning and~~matured borrowings during the period.

42-

At December 31, 2020, nonaccrual loans were $292.4 million, a decrease of $32.6 million compared to September 30, 2020, driven by a number of ~~relationships refinanced elsewhere, a reduction~~payoffs causing agriculture loans to decline by $24.7 million and non-agriculture loans to decrease by $7.9 million. Classified loans, which include nonaccrual loans, were $716.9 million as of $20.8 million, or 1.2%, in the commercial non-real estate segment of the portfolio due to disbursement transaction timing within our mortgage warehouse lending, offset by an increase of $130.4 million, or 2.6%, in CRE attributable to growth from construction drawdowns and new relationships across the footprint.

~~Deposits were $10.18 billion at March~~December 31, 2020, a decrease of ~~$121.2~~$52.6 million ~~or 1.2%, compared to $10.30 billion at~~from $769.5 million as of September 30, ~~2019, due~~2020, driven by a reduction in the use of brokered deposits offset by an increase in business deposits. Interest-bearing deposits were $8.21 billion, a 1.7% decrease, and noninterest-bearing deposits were $1.97 billion, a 0.9% increase. FHLB and other borrowings increased by $460.0 million, or 135.3%, as a result of more favorable rates during the quarter.

~~At March 31, 2020, nonaccrual loans, including ASC 310-30 loans, were $213.1 million, an increase of $105.9 million, or 98.8%, compared to September 30, 2019, related primarily to a small~~ number of upgraded agriculture relationships, a number of payoffs and sales in healthcare and agriculture industries as they progress through the workout process. Loans graded "Watch" were $420.3 million, an increase of $14.7 million, or 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 increase in loans graded "Substandard" was primarily due to downgrades in theboth agriculture and ~~agriculture-related commercial non-real estate segments,~~non-agriculture loans, partially offset with ~~a small number of downgrades~~approximately $54.0 million in ~~the commercial non-real estate segment.~~new hotel downgrades. Total other repossessed property balances were ~~$27.3~~$18.1 million as of ~~March~~December 31, 2020, a decrease of ~~$9.5~~$1.9 million, or ~~25.8%~~9.7%, compared to September 30, ~~2019.~~2020.

The balance of the ACL increased to $308.8 million at December 31, 2020 from $149.9 million at September 30, 2020. The increase was driven by the adoption of CECL on October 1, 2020, where we recognized a Day 1 increase in the ACL of $177.3 million, which was partially offset by the net impact from provisioning and charge-offs during the quarter. Provision for ~~loan and lease~~credit losses was ~~$71.8~~$11.9 million for the ~~second~~first quarter of fiscal year ~~2020,~~2021, compared to ~~$7.7~~$8.1 million for the same period of fiscal year ~~2019,~~2020, an increase of ~~$64.1~~$3.8 million ~~due to incurred loss resulting from~~between the ~~COVID-19 pandemic. This increase did not contemplate the potential impact of CECL implementation, which is effective for the Company October 1, 2020.~~periods. Net charge-offs for the ~~second~~first quarter of fiscal year ~~2020~~2021 were ~~$8.6~~$30.4 million, or ~~0.36%~~1.22% of average total loans on an annualized basis, compared to net charge-offs of ~~$5.9~~$6.1 million, or 0.25% of average total loans on an annualized basis for the comparable period in fiscal year ~~2019, with~~2020. The increase was driven by $25.6 million of discount on the ~~majority~~sales of ~~net charge-offs concentrated in the agriculture segment of the loan portfolio. The ratio of ALLL to~~certain hotel loans.

Tier 1 capital, total ~~loans was 1.40%~~capital and Tier 1 leverage ratios were 12.7%, 14.3% and 9.7%, respectively, at ~~March~~December 31, 2020, compared to ~~0.73%~~11.8%, 13.3% and 9.4%, respectively, at September 30, ~~2019. The balance of the ALLL increased to $136.0 million~~2020. In addition, our Common Equity Tier 1 ratio was 12.0% and 11.0% at ~~March~~December 31, 2020 ~~from $70.8 million~~and September 30, 2020, respectively. Our tangible common equity to tangible assets ratio was 8.3% at December 31, 2020 and 9.2% at September 30, ~~2019.~~2020. All regulatory capital ratios remain above regulatory minimums to be considered "well capitalized". 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.

~~40-~~

Key Factors Affecting Our Business and Financial Performance

As discussed in our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2019,~~2020, our financial performance is impacted by a number of external factors outside our control, as well as our ability to execute on the key components of our strategy for continued success and future growth. There have been no material changes to these factors or key components of our strategy except as otherwise supplemented within ~~this~~our Quarterly Report on Form 10-Q for the quarterly period ended ~~March~~December 31, 2020.

43-

Results of Operations—Three ~~and Six~~ Months Ended ~~March~~December 31, 2020 and 2019

Overview

The following table highlights certain key financial and performance information for the three ~~and six~~ months ended ~~March~~December 31, 2020 and 2019.


		Three Months Ended March 31,									Six Months Ended March 31,										Three Months Ended December 31,
		2020			2019			2020			2019				2020			2019
		(dollars in thousands, except share and per share amounts)																				(dollars in thousands, except share and per share amounts)
Operating Data:	Operating Data:													Operating Data:
Interest income (FTE)	Interest income (FTE)	$	126,757		$	135,328		$	259,817		$	268,879		Interest income (FTE)	$	117,195		$	133,060
Interest expense	Interest expense	23,260			30,411			49,624			57,578			Interest expense	7,689			26,364
Noninterest income	Noninterest income	(83)			18,223			15,650			34,943			Noninterest income	14,148			15,733
Noninterest expense	Noninterest expense	808,453			56,580			865,383			113,686			Noninterest expense	57,449			56,930
Provision for loan and lease losses		71,795			7,673			79,898			12,888
Provision for credit losses ³														Provision for credit losses ³	11,899			8,103
Net income	Net income	(740,618)			44,511			(697,344)			90,297			Net income	41,319			43,274
Adjusted net income ¹		29,080			44,511			72,354			90,297

Common shares outstanding	Common shares outstanding	55,013,928			56,938,435			55,013,928			56,938,435			Common shares outstanding	55,105,105			56,382,915
Weighted average diluted common shares outstanding	Weighted average diluted common shares outstanding	55,906,002			57,074,674			56,141,816			57,556,984			Weighted average diluted common shares outstanding	55,247,343			56,457,967
Earnings per common share - diluted	Earnings per common share - diluted	$	(13.25)		$	0.78		$	(12.42)		$	1.57		Earnings per common share - diluted	$	0.75		$	0.77
Adjusted earnings per common share - diluted ¹	Adjusted earnings per common share - diluted ¹	0.52			0.78			1.29			1.57			Adjusted earnings per common share - diluted ¹	0.75			0.77
Performance Ratios:	Performance Ratios:													Performance Ratios:
Net interest margin (FTE) ¹ ²	Net interest margin (FTE) ¹ ²	3.59		%	3.75		%	3.63		%	3.78		%	Net interest margin (FTE) ¹ ²	3.63		%	3.68		%
Adjusted net interest margin (FTE) ¹ ²	Adjusted net interest margin (FTE) ¹ ²	3.55		%	3.76		%	3.60		%	3.79		%	Adjusted net interest margin (FTE) ¹ ²	3.52		%	3.65		%
Return on average total assets ²	Return on average total assets ²	(23.16)		%	1.44		%	(10.86)		%	1.46		%	Return on average total assets ²	1.30		%	1.34		%
Return on average common equity ²	Return on average common equity ²	(155.3)		%	9.9		%	(72.9)		%	10.0		%	Return on average common equity ²	15.2		%	9.0		%
Return on average tangible common equity ¹ ²	Return on average tangible common equity ¹ ²	(9.3)		%	16.9		%	2.8		%	17.0		%	Return on average tangible common equity ¹ ²	15.3		%	15.0		%
Efficiency ratio ¹	Efficiency ratio ¹	63.5		%	45.6		%	54.1		%	45.8		%	Efficiency ratio ¹	46.2		%	46.2		%
¹This 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.	¹This 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.
² Annualized for all partial-year periods.	² Annualized for all partial-year periods.																						2 Annualized for all partial-year periods.
3 Prior to the adoption of ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and subsequent related ASUs, on October 1, 2020, this line represented the provision for loan and lease losses under the incurred model.														3 Prior to the adoption of ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and subsequent related ASUs, on October 1, 2020, this line represented the provision for loan and lease losses under the incurred model.

Net Interest Income

The following table presents net interest income, net interest margin and adjusted net interest margin for the three ~~and six~~ months ended ~~March~~December 31, 2020 and 2019.


		Three Months Ended March 31,									Six Months Ended March 31,										Three Months Ended December 31,
		2020			2019			2020			2019				2020			2019
		(dollars in thousands)																				(dollars in thousands)
Net interest income:	Net interest income:													Net interest income:
Total interest income (FTE)	Total interest income (FTE)	$	126,757		$	135,328		$	259,817		$	268,879		Total interest income (FTE)	$	117,195		$	133,060
Less: Total interest expense	Less: Total interest expense	23,260			30,411			49,624			57,578			Less: Total interest expense	7,689			26,364
Net interest income (FTE)	Net interest income (FTE)	$	103,497		$	104,917		$	210,193		$	211,301		Net interest income (FTE)	$	109,506		$	106,696
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	Average interest-earning assets	$	11,590,453		$	11,345,559		$	11,567,032		$	11,216,179		Average interest-earning assets	$	11,965,555		$	11,543,610
Average interest-bearing liabilities	Average interest-bearing liabilities	10,850,104			10,639,351			10,827,113			10,510,762			Average interest-bearing liabilities	11,436,823			10,804,123
Net interest margin (FTE)	Net interest margin (FTE)	3.59		%	3.75		%	3.63		%	3.78		%	Net interest margin (FTE)	3.63		%	3.68		%
Adjusted net interest margin (FTE) ¹	Adjusted net interest margin (FTE) ¹	3.55		%	3.76		%	3.60		%	3.79		%	Adjusted net interest margin (FTE) ¹	3.52		%	3.65		%
¹This 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.	¹This 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 ~~$103.5~~$109.5 million for the ~~second~~first quarter of fiscal year ~~2020,~~2021, compared to ~~$104.9~~$106.7 million for the same period in fiscal year ~~2019, a decrease~~2020, an increase of ~~$1.4~~$2.8 million, or ~~1.4%~~2.6%. ~~Net~~For the first quarter of fiscal year 2021, interest expense decreased $18.7 million driven by a $15.9 million decrease in deposit interest resulting from lower yields on interest-bearing deposits, along with a $2.7 million decrease in borrowings interest. The decrease in interest expense was partially offset by lower interest income ~~was $210.2~~of $15.9 million ~~for~~as loan interest decreased $12.1 million from lower volumes and lower yields. Securities interest decreased $3.4 million due to lower yields driven by the ~~first six~~low interest rate environment.

~~41-~~44-

months of fiscal year 2020, compared to $211.3 million for the same period in fiscal year 2019, a decrease of $1.1 million, or 0.5%. The decrease in net interest income for both periods was 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, leading to a lower net interest margins.

Net interest margin was ~~3.59%~~3.63% and ~~3.75%~~3.68% for the ~~second~~first quarter of fiscal year ~~2020~~2021 and ~~2019,~~2020, respectively, a decrease of 165 basis points, while the adjusted net interest margin was ~~3.55%~~3.52% and ~~3.76%~~3.65% for the same periods, respectively, a decrease of 21 basis points. Net interest margin was 3.63% and 3.78% for the first six months of fiscal year 2020, respectively, a decrease of 15 basis points, while the adjusted net interest margin was 3.60% and 3.79% for the same periods, respectively, a decrease of 1913 basis points. The ~~decreases~~decrease in net interest margin for ~~both~~ the three ~~and six~~ month ~~periods~~period was primarily driven by loan yields, which decreased 49 basis points, and securities yields, which decreased ~~23 and 13~~71 basis points, ~~respectively, and loan yields, which decreased 39 and 28 basis points, respectively, resulting from the impact of repricing following the rate cuts discussed previously,~~ partially offset by the yield on deposits, which decreased ~~33 and 20~~65 basis ~~points, respectively.~~points. A ~~$1.7 million and $2.6~~$2.5 million increase in the cost of interest rate swaps between the three ~~and six~~ month ~~periods~~period in fiscal year ~~2020~~2021 and the comparable period in fiscal year ~~2019, respectively,~~2020, is the primary driver for the more pronounced decrease 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.

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 are 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 ~~$743.0~~$710.5 million at ~~March~~December 31, 2020 and ~~$753.2~~$750.1 million at ~~March~~December 31, 2019, are typically entered at lower interest rate arrangements than comparable non-exempt loans and securities. The amount of interest income reflected in 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. Prior to the October 1, 2020 adoption of ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and subsequent related ASUs, ASC 310-30 loans ~~represent~~represented loans accounted for in accordance with ASC 310-30, Accounting for Purchased Loans, that were credit impaired at the time we acquired them. Non-ASC 310-30 loans ~~represent~~represented loans we have originated and loans we have acquired that were not credit impaired at the time we acquired them. After adoption of ASU 2016-13, as amended, all loans were presented as non-ASC 310-30 loans.

~~42-~~45-


		Three Months Ended																							Three Months Ended
		March 31, 2020										March 31, 2019									December 31, 2020							December 31, 2019
		Average Balance		Interest (FTE)		Yield / Cost ¹		Average Balance		Interest (FTE)		Yield / Cost ¹			Average Balance		Interest (FTE)		Yield / Cost ¹		Average Balance		Interest (FTE)		Yield / Cost ¹
		(dollars in thousands)																							(dollars in thousands)
Assets	Assets													Assets
Interest-bearing bank deposits ²	Interest-bearing bank deposits ²	$	56,883	$	558	3.95	%	$	63,546	$	497	3.17	%	Interest-bearing bank deposits ²	$	492,105	$	155	0.12	%	$	32,803	$	608	7.37		%
Investment securities	Investment securities	1,987,045		11,329		2.29	%	1,603,038		9,957		2.52	%	Investment securities	1,905,771		8,119		1.69	%	1,904,350		11,498		2.40		%
Non-ASC 310-30 loans, net ³	Non-ASC 310-30 loans, net ³	9,496,153		113,484		4.81	%	9,615,096		122,970		5.19	%	Non-ASC 310-30 loans, net ³	9,567,679		108,921		4.52	%	9,554,161		119,232		4.96		%
ASC 310-30 loans, net		50,372		1,386		11.07	%	63,879		1,904		12.09	%
ASC 310-30 loans, net ⁴														ASC 310-30 loans, net ⁴	—		—		—	%	52,296		1,722		13.10		%
Loans, net	Loans, net	9,546,525		114,870		4.84	%	9,678,975		124,874		5.23	%	Loans, net	9,567,679		108,921		4.52	%	9,606,457		120,954		5.01		%
Total interest-earning assets	Total interest-earning assets	11,590,453		126,757		4.40	%	11,345,559		135,328		4.84	%	Total interest-earning assets	11,965,555		117,195		3.89	%	11,543,610		133,060		4.59		%
Noninterest-earning assets	Noninterest-earning assets	1,273,143						1,186,286						Noninterest-earning assets	614,946						1,267,983
Total assets	Total assets	$	12,863,596	$	126,757	3.96	%	$	12,531,845	$	135,328	4.38	%	Total assets	$	12,580,501	$	117,195	3.70	%	$	12,811,593	$	133,060	4.13		%
Liabilities and Stockholders' Equity	Liabilities and Stockholders' Equity													Liabilities and Stockholders' Equity
Noninterest-bearing deposits	Noninterest-bearing deposits	$	1,942,686					$	1,800,307					Noninterest-bearing deposits	$	2,664,117					$	1,977,084
Interest-bearing deposits	Interest-bearing deposits	6,473,524		$	12,083	0.75	%	6,363,730		$	17,865	1.14	%	Interest-bearing deposits	7,278,073		$	3,966	0.22	%	6,306,861		$	13,373	0.84		%
Time deposits	Time deposits	1,686,977		6,784		1.62	%	2,039,208		9,233		1.84	%	Time deposits	1,187,148		2,026		0.68	%	1,847,954		8,567		1.84		%
Total deposits	Total deposits	10,103,187		18,867		0.75	%	10,203,245		27,098		1.08	%	Total deposits	11,129,338		5,992		0.21	%	10,131,899		21,940		0.86		%
Securities sold under agreements to repurchase	Securities sold under agreements to repurchase	56,369		24		0.17	%	63,237		43		0.28	%	Securities sold under agreements to repurchase	78,639		18		0.09	%	66,527		31		0.19		%
FHLB advances and other borrowings	FHLB advances and other borrowings	581,834		3,131		2.16	%	264,347		1,880		2.88	%	FHLB advances and other borrowings	120,000		862		2.85	%	497,034		3,082		2.47		%
Subordinated debentures and subordinated notes payable	Subordinated debentures and subordinated notes payable	108,714		1,238		4.58	%	108,522		1,390		5.19	%	Subordinated debentures and subordinated notes payable	108,846		817		2.98	%	108,663		1,311		4.80		%
Total borrowings	Total borrowings	746,917		4,393		2.37	%	436,106		3,313		3.08	%	Total borrowings	307,485		1,697		2.19	%	672,224		4,424		2.62		%
Total interest-bearing liabilities	Total interest-bearing liabilities	10,850,104		$	23,260	0.86	%	10,639,351		$	30,411	1.16	%	Total interest-bearing liabilities	11,436,823		$	7,689	0.27	%	10,804,123		$	26,364	0.97		%
Noninterest-bearing liabilities	Noninterest-bearing liabilities	95,457						69,554						Noninterest-bearing liabilities	61,601						98,951
Stockholders' equity	Stockholders' equity	1,918,035						1,822,940						Stockholders' equity	1,082,077						1,908,519
Total liabilities and stockholders' equity	Total liabilities and stockholders' equity	$	12,863,596					$	12,531,845					Total liabilities and stockholders' equity	$	12,580,501					$	12,811,593
Net interest spread	Net interest spread					3.10	%					3.22	%	Net interest spread					3.43	%					3.16		%
Net interest income and net interest margin (FTE)	Net interest income and net interest margin (FTE)			$	103,497	3.59	%			$	104,917	3.75	%	Net interest income and net interest margin (FTE)			$	109,506	3.63	%			$	106,696	3.68		%
Less: Tax equivalent adjustment	Less: Tax equivalent adjustment			1,514						1,442				Less: Tax equivalent adjustment			1,598						1,523
Net interest income and net interest margin - ties to Statements of Comprehensive Income	Net interest income and net interest margin - ties to Statements of Comprehensive Income			$	101,983	3.54	%			$	103,475	3.70	%	Net interest income and net interest margin - ties to Statements of Comprehensive Income			$	107,908	3.58	%			$	105,173	3.62		%
¹ Annualized for all partial-year periods.	¹ Annualized for all partial-year periods.																									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.
2 Interest income includes nominal and $0.4 million for the first quarter of fiscal years 2021 and 2020, respectively, resulting from interest earned on derivative collateral included in other assets on the consolidated balance sheets.														2 Interest income includes nominal and $0.4 million for the first quarter of fiscal years 2021 and 2020, respectively, resulting from interest earned on derivative collateral included in other assets on the consolidated balance sheets.
3 Interest income includes $0.0 million and $0.6 million for the first quarter of fiscal years 2021 and 2020, respectively, resulting from accretion of purchase accounting discount associated with acquired loans.														3 Interest income includes $0.0 million and $0.6 million for the first quarter of fiscal years 2021 and 2020, respectively, resulting from accretion of purchase accounting discount associated with acquired loans.
4 Beginning in the first quarter of fiscal year 2021, ASC 310-30 loans began being reported with non-ASC 310-30 loans. Upon adoption of ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and subsequent related ASUs, discounts on ASC 310-30 loans related to noncredit factors accreted to interest income were immaterial.														4 Beginning in the first quarter of fiscal year 2021, ASC 310-30 loans began being reported with non-ASC 310-30 loans. Upon adoption of ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and subsequent related ASUs, discounts on ASC 310-30 loans related to noncredit factors accreted to interest income were immaterial.

~~43-~~

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.
²Interest 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 Income

The following table presents interest income for the three ~~and six~~ months ended ~~March~~December 31, 2020 and 2019.


		Three Months Ended March 31,						Six Months Ended March 31,							Three Months Ended December 31,
		2020		2019		2020		2019			2020		2019
		(dollars in thousands)														(dollars in thousands)
Interest income:	Interest income:									Interest income:
Loans (FTE)	Loans (FTE)	$	114,870	$	124,874	$	235,824	$	248,695	Loans (FTE)	$	108,921	$	120,954
Investment securities	Investment securities	11,329		9,957		22,827		19,145		Investment securities	8,119		11,498
Federal funds sold and other	Federal funds sold and other	558		497		1,166		1,039		Federal funds sold and other	155		608
Total interest income (FTE)	Total interest income (FTE)	126,757		135,328		259,817		268,879		Total interest income (FTE)	117,195		133,060
Less: Tax equivalent adjustment	Less: Tax equivalent adjustment	1,514		1,442		3,037		2,932		Less: Tax equivalent adjustment	1,598		1,523
Total interest income (GAAP)	Total interest income (GAAP)	$	125,243	$	133,886	$	256,780	$	265,947	Total interest income (GAAP)	$	115,597	$	131,537

46-

Total interest income consists primarily of interest income on loans and interest income on our investment portfolio. Total interest income was ~~$126.8~~$117.2 million for the ~~second~~first quarter of fiscal year ~~2020,~~2021, compared to ~~$135.3~~$133.1 million for the same period of fiscal year ~~2019,~~2020, a decrease of ~~$8.5~~$15.9 million, or ~~6.3%. Total interest income was $259.8 million for the first six months of fiscal year 2020, compared to $268.9 million for the same period in fiscal year 2019, a decrease of $9.1 million, or 3.4%~~11.9%. Significant components of interest income are described in further detail below.

~~44-~~

Loans. Interest income on all loans decreased to ~~$114.9~~$108.9 million in ~~second~~first quarter of fiscal year ~~2020~~2021 from ~~$124.9~~$121.0 million in the same period in fiscal year ~~2019,~~2020, a decrease of ~~$10.0~~$12.1 million, or 8.0%. Interest income on all loans decreased to $235.8 million for the first six months of fiscal year 2020, from $248.7 million in the same period in fiscal year 2019, a decrease of $12.9 million, or 5.2%10.0%. The ~~decreases~~decrease in loan ~~yields for both periods were primarily~~yield was attributable to lower loan interest income driven by ~~decreases of 39~~lower loan volumes and 28a 49 basis ~~points, respectively,~~point decrease between the ~~periods. For~~periods reflecting the ~~three and six months ended March 31, 2020, interest income on ASC 310-30~~impact of PPP loans which ~~are purchased credit impaired loans with~~yield 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.~~lower rate.

Our yield on loans is also affected by market interest rates, the level of ~~adjustable-rate~~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 ~~4.81%~~4.52% for the ~~second~~first quarter of fiscal year ~~2020,~~2021, a decrease of 3844 basis points compared to the same period in fiscal year ~~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.~~2020. Adjusted for the ~~current realized gain (loss)~~derivative interest expense 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-ASC 310-30~~ loans was ~~4.75%~~4.38% for the ~~second~~first quarter of fiscal year ~~2020,~~2021, a 4555 basis point decrease compared to the same period in fiscal year ~~2019. The adjusted yield on non-ASC 310-30 loans was 4.84% for the first six months of fiscal year 2020, a decrease of 32 basis points, compared to the same period in fiscal year 2019.~~2020. For more information on our adjusted yield on non-ASC 310-30 loans, including a reconciliation to the 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 1.5 years as of ~~March~~December 31, 2020. Approximately ~~48%~~52%, or ~~$4.64~~$4.93 billion, of the portfolio is comprised of fixed rate loans, $611.6 million of which ~~$792.1 million of loans are fixed rate loans with~~have 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. For floating and variable rate loans in the portfolio, approximately ~~40%~~36% are indexed to Wall Street Journal Prime, ~~29%~~28% to 5-year Treasuries, 23% are indexed to 1-month LIBOR and the balance to various other indices. ~~Approximately~~Less than 22% of our total loans' rates are floored, with an average interest rate floor ~~119~~112 basis points above market rates as of ~~March~~December 31, 2020. In addition, there were approximately 7% of our total loans with rate floors that have not been reached, with an average interest rate 46 basis points below market rates.

Loan-related fee income of ~~$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~~$1.7 million is included in interest income for the first ~~six months~~quarter of fiscal year ~~2020,~~2021, compared to ~~$3.1~~$2.3 million for the same period in fiscal year ~~2019.~~2020. 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 $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 six months of fiscal years 2020 and 2019, respectively, is included as a reduction to interest income.

Investment Portfolio. The carrying value of investment securities and FHLB stock, ~~was $2.03~~which is included in other assets in the consolidated balance sheets, totaled $2.08 billion as of ~~March~~December 31, 2020. Interest income on investments includes income earned on investment securities and FHLB stock. Interest income on investments was ~~$11.3~~$8.1 million for the ~~second~~first quarter of fiscal year ~~2020, an increase~~2021, a decrease of ~~$1.3~~$3.4 million, or ~~13.8%~~29.4%, from ~~$10.0~~$11.5 million for the same period in fiscal year ~~2019,~~2020, driven ~~by an increase in average investment balance of $384.0 million, or 24.0%, offset~~ by a yield decrease to ~~2.29%~~1.69% from ~~2.52%~~2.40% for the same 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 ~~3.3~~3.4 and ~~3.7~~3.2 years at ~~March~~December 31, 2020 and September 30, ~~2019,~~2020, respectively. Average investments represented ~~17.1%~~15.9% and ~~14.1%~~16.5% of total average interest-earning assets for the ~~second~~first quarter of fiscal years 2021 and 2020, ~~and 2019,~~ respectively.

Interest Expense

The following table presents interest expense for the three ~~and six~~ months ended ~~March~~December 31, 2020 and 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

~~45-~~


	Three Months Ended December 31,
	2020		2019
	(dollars in thousands)
Interest expense
Deposits	$	5,992	$	21,940
FHLB advances and other borrowings	880		3,113
Subordinated debentures and subordinated notes payable	817		1,311
Total interest expense	$	7,689	$	26,364

Total interest expense 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~~$18.7 million, or ~~23.5%~~70.8%, to ~~$23.3~~$7.7 million in the ~~second~~first quarter of fiscal year ~~2020,~~2021, from ~~$30.4~~$26.4 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 six months of fiscal year 2020, from $57.6 million in the same period in fiscal year 2019.~~2020. Significant components of interest expense are described in further detail below.

47-

Deposits. Interest expense on deposits, consisting of interest-bearing accounts and time deposits, was ~~$18.9~~$6.0 million and ~~$27.1~~$21.9 million for the ~~second~~first quarter of fiscal years ~~2020~~2021 and ~~2019,~~2020, respectively, a decrease of ~~$8.2~~$15.9 million, or ~~30.4%. Interest expense on deposits was $40.8 million and $50.9 million for the first six months of fiscal year 2020 and 2019, respectively, a decrease of $10.1 million, or 19.8%~~72.7%. The ~~decreases for both periods were~~decrease was a result of decreasing ~~interest rates in the~~ cost of ~~deposits.~~deposits offset with increases in average deposit balances. Average deposit balances increased to ~~$10.12~~$11.13 billion for the first ~~six months~~quarter of fiscal year ~~2020,~~2021, from ~~$10.08~~$10.13 billion for the comparable period in fiscal year ~~2019,~~2020, an increase of ~~$40.2~~$997.4 million, or ~~0.4%~~9.8%. The cost of deposits decreased to ~~0.81%~~0.21% for the first ~~six months~~quarter of fiscal year ~~2020~~2021 from ~~1.01%~~0.86% for the same period of fiscal year ~~2019.~~2020.

Average noninterest-bearing demand account balances increased to ~~19.2%~~23.9% of average total deposits for the ~~second~~first quarter of fiscal year ~~2020~~2021 from ~~17.6%~~19.5% for the comparable period in fiscal year ~~2019.~~2020. Total average other liquid accounts, consisting of interest-bearing demand deposits, increased to ~~64.1%~~65.4% of total average deposits for the ~~second~~first quarter of fiscal year ~~2020,~~2021, compared to ~~62.4%~~62.2% of total average deposits for the comparable period in fiscal year ~~2019,~~2020, while time deposit accounts decreased to ~~16.7%~~10.7% of average total deposits for the ~~second~~first quarter of fiscal year ~~2020,~~2021, compared to ~~20.0%~~18.2% in the comparable period in fiscal year ~~2019.~~2020.

FHLB Advances and Other Borrowings. Interest expense on FHLB advances and other borrowings was ~~$3.2~~$0.9 million for the ~~second~~first quarter of fiscal year ~~2020, an increase~~2021, a decrease of ~~$1.3~~$2.2 million, or ~~64.1%~~71.7%, compared to ~~$1.9~~$3.1 million for the ~~comparable period in 2019,~~first quarter of fiscal year 2020, reflecting a weighted average cost of ~~2.16%~~2.85% and ~~2.88%~~2.47%, respectively, for the same periods. The average balance of FHLB advances and other borrowings was ~~$539.4~~$120.0 million for the first ~~six months~~quarter of fiscal year ~~2020~~2021 compared to ~~$253.4~~$497.0 million for the same period in fiscal year 2019. Interest expense on FHLB advances and other borrowings was $6.3 million for the first six months of fiscal year 2020 and $3.9 million for the same period in fiscal year 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.2020. 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 ~~1.46%~~2.81% and ~~2.85%~~2.34% at ~~March~~December 31, 2020 and 2019, respectively, and the average tenor was 1434 and 4519 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 ~~March~~December 31, 2020, we had pledged ~~$4.11~~$3.93 billion of loans to the FHLB, against which we had borrowed ~~$800.0~~$120.0 million.

Subordinated Debentures and Subordinated Notes Payable. Interest expense on our outstanding junior subordinated debentures and subordinated notes payable was ~~$1.2~~$0.8 million in ~~second~~first quarter of fiscal year ~~2020~~2021 and ~~$1.4~~$1.3 million in the comparable period in fiscal year ~~2019,~~2020, a decrease of ~~$0.2~~$0.5 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%37.7%. The weighted average contractual rate on outstanding junior subordinated debentures was ~~3.29%~~2.44% and ~~4.87%~~4.13% at ~~March~~December 31, 2020 and 2019, respectively. The weighted average contractual rate on outstanding subordinated notes was 3.37% and 4.88% at ~~both March~~December 31, 2020 and ~~2019.~~2019, respectively.

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
	Volume		Rate		Total
	(dollars in thousands)
Increase (decrease) in interest income:
Cash and cash equivalents	$	693	$	(1,146)	$	(453)
Investment securities	9		(3,388)		(3,379)


Loans	(652)		(11,381)		(12,033)
Total increase (decrease)	50		(15,915)		(15,865)
Increase (decrease) in interest expense:
Interest-bearing deposits	1,796		(11,203)		(9,407)
Time deposits	(2,364)		(4,177)		(6,541)
Securities sold under agreements to repurchase	5		(18)		(13)
FHLB advances and other borrowings	(2,644)		424		(2,220)
Subordinated debentures and subordinated notes payable	3		(497)		(494)
Total decrease	(3,204)		(15,471)		(18,675)
Increase (decrease) in net interest income (FTE)	$	3,254	$	(444)	$	2,810

~~46-~~

48-

Current Quarter vs Comparable Quarter Current 6 month period vs Comparable 6 month period
Volume Rate Total Volume Rate Total
(dollars in thousands)
Increase (decrease) in interest income:
Cash and cash equivalents $ (49) $ 110 $ 61 $ (557) $ 684 $ 127
Investment securities 2,313 (941) 1,372 4,796 (1,114) 3,682
Non-ASC 310-30 loans (1,331) (8,155) (9,486) (8) (12,097) (12,105)
ASC 310-30 loans (367) (151) (518) (857) 91 (766)
Loans (1,698) (8,306) (10,004) (865) (12,006) (12,871)
Total increase (decrease) 566 (9,137) (8,571) 3,374 (12,436) (9,062)
Increase (decrease) in interest expense:
Interest-bearing deposits 309 (6,091) (5,782) 710 (8,855) (8,145)
Time deposits (1,437) (1,012) (2,449) (1,829) (111) (1,940)
Securities sold under agreements to repurchase (4) (15) (19) (12) (32) (44)
FHLB advances and other borrowings 1,817 (566) 1,251 3,488 (1,102) 2,386
Subordinated debentures and subordinated notes payable 3 (155) (152) 5 (216) (211)
Total increase (decrease) 688 (7,839) (7,151) 2,362 (10,316) (7,954)
(Decrease) increase in net interest income (FTE) $ (122) $ (1,298) $ (1,420) $ 1,012 $ (2,120) $ (1,108)

Provision for ~~Loan and Lease~~Credit Losses

We recognized provision for ~~loan and lease~~credit losses of ~~$71.8~~$11.9 million for the ~~second~~first quarter of fiscal year ~~2020~~2021 compared to a provision for ~~loan and lease~~credit losses of ~~$7.7~~$8.1 million for the comparable period in fiscal year ~~2019,~~2020, an increase of ~~$64.1~~$3.8 million between the periods 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. Provision for loan and lease losses was $79.9 million for the first six months of fiscal year 2020, compared to $12.9 million for the comparable period in fiscal year 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.

~~47-~~


	Three Months Ended December 31,
	2020		2019
	(dollars in thousands)
Provision for credit losses, non-ASC 310-30 loans *	$	11,976	$	8,050
Decrease in provision for unfunded commitments reserve	(77)		—
Impairment in loan and lease losses, ASC 310-30 loans	—		53
Provision for credit losses, total	$	11,899	$	8,103
* 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. Upon adoption of CECL, ASC 310-30 loans and related activity began being reported with non-ASC 310-30 loans.

Total Credit-Related Charges

We believe that the following table, which summarizes each component of the total credit-related charges incurred during the current and comparable 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 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


		Three Months Ended December 31,
Item	Included within F/S Line Item(s):	2020		2019
		(Dollars in thousands)
Provision for credit losses ¹	Provision for credit losses	$	11,899	$	8,103
Increase in provision for unfunded commitments reserve ¹	Other noninterest expense ¹	—		200
Net other repossessed property charges	Net loss on repossessed property and other related expenses	345		342
Net (recovery) reversal of interest income on nonaccrual loans	Interest income on loans	(2,913)		2,006
Net realized credit loss on derivatives	Change in fair value of FVO loans and related derivatives	210		—
Loan fair value adjustment related to credit	Change in fair value of FVO loans and related derivatives	1,464		2,134
Total credit-related charges		$	11,005	$	12,785
1 Beginning in the first quarter of fiscal year 2021, increase in provision for unfunded commitments reserve is included in provision for credit losses.

~~In determining the credit related charges attributable~~We continue to ~~the COVID-19 pandemic, we considered~~evaluate the impact ~~upon~~of COVID-19 on our loan portfolio. Industries such as ~~oil & energy,~~ hotels & resorts (excluding casino hotels), casino hotels, restaurants, oil & energy, retail malls, airlines and ~~others~~healthcare have ~~been cited as being at risk for~~experienced significant revenue ~~loss.~~loss due to COVID-19. Within our portfolio ~~at March 31, 2020, $1.14 billion, or 11.8% relates to~~we are closely monitoring the following segments with elevated risk (excluding PPP loans): hotels & resorts ~~$109.8~~(excluding casino hotels) with $822.6 million, or ~~1.1% relates to~~8.6% of total loans, restaurants with $123.1 million, or 1.3% of total loans, arts and entertainment with $115.5 million, or 1.2% of total loans, senior care with $312.1 million, or 3.3% of total loans, and skilled nursing with $215.2 million, or 2.3% of total loans, for a total exposure of $1.59 billion, or 18.0% of total loans excluding PPP loans. Loan 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.~~either immaterial or has not shown general distress thus far.

49-

Noninterest Income

The following table presents noninterest income for the three ~~and six~~ months ended ~~March~~December 31, 2020 and 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

~~48-~~


	Three Months Ended December 31,
	2020		2019
	(dollars in thousands)
Noninterest income
Service charges and other fees	$	9,624	$	11,409
Wealth management fees	3,029		2,964
Mortgage banking income, net	4,090		1,612
Net gain on sale of securities and other assets	248		—
Other	1,324		1,165
Subtotal, service and product fees	18,315		17,150
Derivative interest expense	(3,393)		(890)
Change in fair value of FVO loans and related derivatives	(1,672)		(2,124)
Other derivative income (loss)	898		1,597
Subtotal, changes in fair value for loans at fair value and derivatives	(4,167)		(1,417)
Total noninterest income	$	14,148	$	15,733

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.risk.

Noninterest income was ~~$(0.1)~~$14.1 million for the ~~second~~first quarter of fiscal year ~~2020~~2021 compared to ~~$18.2~~$15.7 million for the same period in fiscal year ~~2019,~~2020, a decrease of $18.3 million, or 100.5%. Noninterest income was $15.7 million for the first six months of fiscal year 2020 compared to $34.9 million for the same period in fiscal year 2019, a decrease of $19.2 million, or 55.2%.$1.6 million. Significant components of noninterest income are described in further detail below.

~~Product~~Service and ~~Service~~Product Fees. We recognized $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$18.3 million of noninterest income related to product and service fees in the first ~~six months~~quarter of fiscal year ~~2020,~~2021, an increase of ~~$0.7~~$1.2 million, or ~~2.2%~~6.8%, compared to the same period in fiscal year ~~2019.~~2020. The ~~decreases for both periods~~increase was primarily due to an increase in mortgage banking income, net of $2.5 million, partially offset by a decrease related to lower service charges and interchange revenue driven by declines in transaction activity from COVID-19 pandemic impacts.

~~Loans~~Changes in fair value for 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 ~~second~~first quarter of fiscal year ~~2020,~~2021, these items accounted for ~~$(14.7)~~$(4.2) million of noninterest ~~income~~(loss) compared to ~~$3.0~~$(1.4) million of noninterest ~~income~~(loss) for the same period in fiscal year ~~2019.~~2020. The change for the period was driven by a ~~$1.7~~$2.5 million increase in the current cost of interest rate swaps due to changes in the interest rate environment, and a ~~$1.1 million decrease in swap fees, and a net unfavorable~~favorable change in the credit risk adjustment of ~~$14.9~~$0.4 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 drivenpartially offset by a ~~$2.6~~$0.1 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.~~fees. We believe that the ~~current realized loss on the derivatives~~derivative interest expense economically offsets the interest income earned on the related loans. 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 ~~and six~~ months ended ~~March~~December 31, 2020 and 2019.


		Three Months Ended March 31,						Six Months Ended March 31,							Three Months Ended December 31,
		2020		2019		2020		2019			2020		2019
		(dollars in thousands)														(dollars in thousands)
Noninterest expense	Noninterest expense									Noninterest expense
Salaries and employee benefits	Salaries and employee benefits	$	37,312	$	34,537	$	73,217	$	69,307	Salaries and employee benefits	$	37,554	$	35,905
Data processing and communication	Data processing and communication	6,123		5,964		11,896		11,242		Data processing and communication	6,226		5,773
Occupancy and equipment	Occupancy and equipment	5,597		5,539		10,690		10,665		Occupancy and equipment	5,213		5,093
Professional fees	Professional fees	5,263		3,970		9,027		7,258		Professional fees	3,915		3,764
Advertising	Advertising	958		1,216		1,823		2,154		Advertising	556		865
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		Net loss on repossessed property and other related expenses	345		342
Goodwill and intangible assets impairment		742,352		—		742,352		—

Other	Other	5,157		4,950		10,345		9,593		Other	3,640		5,188
Total noninterest expense	Total noninterest expense	$	808,453	$	56,580	$	865,383	$	113,686	Total noninterest expense	$	57,449	$	56,930

~~49-~~50-

Our noninterest expense consists primarily of salaries and employee benefits, data processing and communication, occupancy and equipment, professional fees and net loss on repossessed property, ~~goodwill and intangible assets impairment~~ and other related expenses. Noninterest expense was ~~$808.5~~$57.4 million inand $56.9 million for the ~~second~~first quarter of fiscal year 2021 and 2020, 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 $56.6 million for the same period in fiscal year 2019,respectively, an increase of ~~$5.8 million, or 10.2%, and $119.3 million for the first six months of fiscal year 2020, compared to $113.7 million for the same period in fiscal year 2019, an~~$0.5 million. The increase ~~of $5.6 million, or 4.9%. The remaining increases were~~was primarily driven by ana $1.6 million increase in salaries and employee benefits ~~related to annual merit increases effective~~offset by a $1.5 million decrease in ~~January, a one-time bonus payment to retail staff of $0.5 million and elevated legal and administrative costs on OREO assets.~~other noninterest expense.

Our efficiency ratio was ~~63.5% and 45.6%~~46.2% for both the ~~second~~first quarter of fiscal years ~~2020~~2021 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 were mainly due to the decrease in net revenues attributable to emergency rate cuts and decreased deposit service charges from lower account activity combined with increased expense results from both one-off and recurring costs.2020. 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 ~~benefit~~provision for income taxes of ~~$37.7~~$11.4 million for the ~~second~~first quarter of fiscal year ~~2020~~2021 represents an effective tax rate of ~~4.8%~~21.6% compared to a provision of ~~$12.9~~$12.6 million, or an effective tax rate of 22.5%, for the comparable period of fiscal year 2019. The benefit for income taxes of $25.1 million for the first six months of fiscal year 2020 represents an effective tax rate of 3.5%, compared to a provision of $26.4 million or an effective tax rate of 22.6% for the same period in fiscal year 2019. The substantial drop in the effective tax rate for both periods was due to the impairment of goodwill and certain intangible assets and provision for loan and lease losses in the current quarter. A sizable portion of the goodwill 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 fiscal year 2020, respectively.2020.

Return on Assets and Equity

The following table presents our return on average total assets, return on average common equity and return on average tangible common equity for the dates presented.


		Three Months Ended March 31,						Six Months Ended March 31,							Three Months Ended December 31,
		2020		2019		2020		2019			2020		2019
Return on average total assets	Return on average total assets	(23.16)	%	1.44	%	(10.86)	%	1.46	%	Return on average total assets	1.30	%	1.34	%
Return on average common equity	Return on average common equity	(155.3)	%	9.9	%	(72.9)	%	10.0	%	Return on average common equity	15.2	%	9.0	%
Return on average tangible common equity ¹	Return on average tangible common equity ¹	(9.3)	%	16.9	%	2.8	%	17.0	%	Return on average tangible common equity ¹	15.3	%	15.0	%
¹This 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.	¹This 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.

~~50-~~

Analysis of Financial Condition

The following table highlights certain key financial and performance information as of the dates indicated.


		As of March 31, 2020			As of September 30, 2019				As of December 31, 2020			As of September 30, 2020
		(dollars in thousands)										(dollars in thousands)
Balance Sheet and Other Information:	Balance Sheet and Other Information:							Balance Sheet and Other Information:
Total assets	Total assets	$	12,387,808		$	12,788,301		Total assets	$	12,814,383		$	12,604,439
Loans ¹	Loans ¹	9,693,295			9,706,763			Loans ¹	9,517,876			10,076,142
Allowance for loan and lease losses		135,950			70,774
Allowance for credit losses ⁴								Allowance for credit losses ⁴	308,794			149,887
Deposits	Deposits	10,179,115			10,300,339			Deposits	11,373,318			11,008,779
Stockholders' equity	Stockholders' equity	1,153,464			1,900,249			Stockholders' equity	1,068,501			1,162,933
Tangible common equity ²	Tangible common equity ²	1,146,761			1,155,052			Tangible common equity ²	1,062,597			1,156,769
Tier 1 capital ratio	Tier 1 capital ratio	11.3		%	11.7		%	Tier 1 capital ratio	12.7		%	11.8		%
Total capital ratio	Total capital ratio	12.9		%	12.7		%	Total capital ratio	14.3		%	13.3		%
Tier 1 leverage ratio	Tier 1 leverage ratio	9.2		%	10.1		%	Tier 1 leverage ratio	9.7		%	9.4		%
Common equity tier 1 ratio	Common equity tier 1 ratio	10.6		%	11.0		%	Common equity tier 1 ratio	12.0		%	11.0		%
Tangible common equity / tangible assets ²	Tangible common equity / tangible assets ²	9.3		%	9.6		%	Tangible common equity / tangible assets ²	8.3		%	9.2		%
Book value per share - GAAP	Book value per share - GAAP	$	20.97		$	33.76		Book value per share - GAAP	$	19.39		$	21.14
Tangible book value per share ²	Tangible book value per share ²	$	20.84		$	20.52		Tangible book value per share ²	$	19.28		$	21.03
Nonaccrual loans / total loans	Nonaccrual loans / total loans	2.20		%	1.10		%	Nonaccrual loans / total loans	3.07		%	3.22		%
Net charge-offs (recoveries) / average total loans ³	Net charge-offs (recoveries) / average total loans ³	0.31		%	0.36		%	Net charge-offs (recoveries) / average total loans ³	1.22		%	0.40		%
Allowance for loan and lease losses / total loans		1.40		%	0.73		%
¹Loans include unpaid principal balance net of unamortized discount on acquired loans and unearned net deferred fees and costs and loans in process.
Allowance for credit losses ⁴ / total loans								Allowance for credit losses ⁴ / total loans	3.24		%	1.49		%
1 Loans include unpaid principal balance net of unamortized discount on acquired loans and unearned net deferred fees and costs and net loans in process.								1 Loans include unpaid principal balance net of unamortized discount on acquired loans and unearned net deferred fees and costs and net loans in process.
²This 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.	²This 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, 2019, which was for the twelve month period.
3 Annualized for partial-year periods, except for September 30, 2020, which was for the twelve month period.								3 Annualized for partial-year periods, except for September 30, 2020, which was for the twelve month period.
4 Prior to the adoption of ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and subsequent related ASUs, on October 1, 2020, this line represented the allowance for loan and lease losses under the incurred loss model.								4 Prior to the adoption of ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and subsequent related ASUs, on October 1, 2020, this line represented the allowance for loan and lease losses under the incurred loss model.

51-

Our total assets were ~~$12.39~~$12.81 billion at ~~March~~December 31, 2020, compared with ~~$12.79~~$12.60 billion at September 30, ~~2019, a decrease~~2020, an increase of ~~$400.5~~$209.9 million, or ~~3.1%~~1.7%. The ~~decrease~~increase in total assets during the first ~~six months~~quarter of fiscal year ~~2020~~2021 was principally attributable to ~~a full impairment~~an increase in cash and cash equivalents of ~~goodwill~~$628.9 million and an increase in investment securities of ~~$739.0~~$285.0 million, ~~or 100.0%,~~partially offset by a decrease in net loans of ~~$78.6 million, or 0.8%, offset by an increase in investment securities of $206.8 million, or 11.6%.~~$717.2 million. At ~~March~~December 31, 2020, loans were ~~$9.69~~$9.52 billion, compared to ~~$9.71~~$10.08 billion at September 30, ~~2019.~~2020. See "—Loan Portfolio" within this section for further discussion on the decrease in net loans. During the first ~~six months~~quarter of fiscal year ~~2020,~~2021, total deposits ~~decreased~~increased by ~~$121.2~~$364.5 million, or ~~1.2%~~3.3%, compared to September 30, ~~2019 due to a reduction in~~2020. See "—Deposits" within this section for further discussion on the ~~use of brokered deposits offset by an~~ increase in ~~business~~total deposits.

~~51-~~

Loan Portfolio

The following table presents our loan portfolio at amortized cost by category at each of the dates indicated.

March 31,
2020 September 30,
2019
(dollars in thousands)
Unpaid principal balance:
Commercial real estate ¹
Originated $ 5,009,438 $ 4,824,827
Acquired 213,381 267,583
Total 5,222,819 5,092,410
Agriculture ¹
Originated 1,814,630 1,932,722
Acquired 67,162 75,922
Total 1,881,792 2,008,644
Commercial non-real estate ¹
Originated 1,657,077 1,691,026
Acquired 42,120 28,930
Total 1,699,197 1,719,956
Residential real estate
Originated 721,122 696,403
Acquired 99,637 115,805
Total 820,759 812,208
Consumer
Originated 48,815 47,324
Acquired 3,825 4,601
Total 52,640 51,925
Other lending
Originated 39,908 47,541
Acquired — —
Total 39,908 47,541
Total originated 9,290,990 9,239,843
Total acquired 426,125 492,841
Total unpaid principal balance 9,717,115 9,732,684
Less: Unamortized discount on acquired loans (10,468) (13,655)
Less: Unearned net deferred fees and costs and loans in process (13,352) (12,266)
Total loans 9,693,295 9,706,763
Allowance for loan and lease losses (135,950) (70,774)
Loans, net $ 9,557,345 $ 9,635,989
¹Unpaid 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.


	December 31, 2020		September 30, 2020 1
	(dollars in thousands)
Construction and development	$	482,462	$	509,644
Owner-occupied CRE	1,411,558		1,417,394
Non-owner-occupied CRE	2,660,682		2,894,380
Multifamily residential real estate	476,159		533,983
Total commercial real estate	5,030,861		5,355,401
Agriculture	1,635,952		1,722,696
Commercial non-real estate	2,054,478		2,165,038
Residential real estate ³	708,086		730,812
Consumer and other ²	88,499		102,195
Total loans	9,517,876		10,076,142
Allowance for credit losses	(308,794)		(149,887)
Loans, net	$	9,209,082	$	9,926,255
1 As a part of the adoption of ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and subsequent related ASUs, loan segments are presented based on amortized cost, which includes unpaid principal balance, unamortized discount on acquired loans, unearned net deferred fees and costs and loans in process. For additional information on September 30, 2020 loan segment balances, see Note 2.
2 Other loans primarily include consumer and commercial credit cards, customer deposit account overdrafts, and loans in process.

During the first ~~six months~~quarter of fiscal year ~~2020,~~2021, total loans decreased by ~~0.1%~~5.5%, or ~~$13.5~~$558.3 million, compared to September 30, ~~2019.~~2020. The net loan reduction was mainly ~~attributable to~~driven by sales of $208.8 million in hotel loans, a ~~reduction~~number of payoffs in ~~the agriculture segment of $126.9 million, or 6.3%, a reduction in the commercial non-real estate segment of $20.8 million, or 1.2%, offset by~~nonaccrual and classified loans, 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 inpaydowns across 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 drawdownsagriculture and ~~new relationships across the footprint. Over the same time period, residential real estate,~~ consumer portfolios, and ~~other~~processing of $27.8 million of PPP loan ~~balances remained stable.~~

~~52-~~

forgiveness.

The following table presents an analysis of the ~~unpaid principal balance~~amortized cost of our loan portfolio at ~~March~~December 31, 2020, by borrower and collateral type and by each of the ~~six~~ major geographic areas we use to manage our markets.

March 31, 2020
South
Dakota Iowa /
Missouri Nebraska / Kansas Arizona Colorado North Dakota / Minnesota Other ² Total %
(dollars in thousands)
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 ¹ 554,250 342,397 127,061 705,235 141,993 1,516 9,340 1,881,792 19.4 %
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 216,427 227,743 185,824 37,792 116,682 20,204 16,087 820,759 8.5 %
Consumer 15,206 17,652 15,153 421 3,277 440 491 52,640 0.5 %
Other lending — — — — — — 39,908 39,908 0.4 %
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 22.4 % 24.7 % 20.8 % 14.0 % 13.3 % 2.8 % 2.0 % 100.0 %
¹Unpaid 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.
²Balances 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.


	December 31, 2020
	South Dakota			Iowa / Missouri			Nebraska / Kansas			Arizona			Colorado			North Dakota / Minnesota			Specialized Assets ¹			Corporate and Other ²			Total			%
	(dollars in thousands)
Construction and development	$	29,882		$	72,209		$	113,183		$	132,066		$	121,431		$	12,280		$	4,107		$	(2,696)		$	482,462		5.1	%
Owner-occupied CRE	312,784			398,567			214,120			166,976			267,270			33,931			10,963			6,947			1,411,558			14.8	%
Non-owner-occupied CRE	422,180			651,288			536,876			264,849			454,842			84,586			234,944			11,117			2,660,682			28.0	%
Multifamily residential real estate	109,209			102,609			85,670			8,039			51,768			119,406			1,032			(1,574)			476,159			5.0	%
Total commercial real estate	874,055			1,224,673			949,849			571,930			895,311			250,203			251,046			13,794			5,030,861			52.9	%
Agriculture	407,080			287,791			113,737			659,125			100,595			332			66,579			713			1,635,952			17.2	%
Commercial non-real estate	321,762			652,899			566,853			159,593			200,046			7,623			23,606			122,096			2,054,478			21.6	%
Residential real estate ³	207,487			185,153			165,083			52,574			70,814			14,365			14,506			(1,896)			708,086			7.4	%
Consumer and other	13,454			22,004			21,419			404			1,661			52			8			29,497			88,499			0.9	%
Total	$	1,823,838		$	2,372,520		$	1,816,941		$	1,443,626		$	1,268,427		$	272,575		$	355,745		$	164,204		$	9,517,876		100.0	%
% by location	19.2		%	24.9		%	19.1		%	15.2		%	13.3		%	2.9		%	3.7		%	1.7		%	100.0		%
1 Balances in this column represent workout loans and certain other loans the Company placed with a central team for enhanced monitoring and potential exit.
2 Balances in this column represent commercial and consumer credit card loans, certain other loans managed by our staff, and 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.

52-

The following table presents additional detail regarding our agriculture, CRE and residential real estate loans at ~~March~~December 31, 2020.


	~~March~~December 31, 2020
	(dollars in thousands)
Construction and development	$	~~434,264~~482,462
Owner-occupied CRE	~~1,414,476~~1,411,558
Non-owner-occupied CRE	~~2,910,516~~2,660,682
Multifamily residential real estate	~~463,563~~476,159
~~Commercial~~Total commercial real estate	~~5,222,819~~5,030,861
Agriculture real estate	~~916,106~~773,379
Agriculture operating loans	~~965,686~~862,573
~~Agriculture~~Total agriculture	~~1,881,792~~1,635,952
Commercial non-real estate	~~1,699,197~~2,054,478
Home equity lines of credit	~~169,121~~133,081
Closed-end first lien	~~520,126~~545,499
Closed-end junior lien	~~33,647~~29,506
~~Residential construction~~	~~97,865~~
~~Residential~~Total residential real estate	~~820,759~~708,086
Consumer and other	~~52,640~~
~~Other~~	~~39,908~~88,499
Total ~~unpaid principal balance~~	$	~~9,717,115~~9,517,876

Commercial Real Estate. CRE includes commercial and residential construction and development, owner-occupied CRE, non-owner-occupied CRE, ~~construction and development lending,~~ and multi-family residential real estate. While CRE lending is 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 ~~December 31, 2019,~~September 30, 2020, we were ranked the ~~fifth-largest~~seventh-largest farm lender bank in the United States measured by total dollar volume of farm loans. We consider agriculture lending one of our core lending areas. We target a 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. Over recent years, our borrowers have experienced volatile commodity prices, and the adverse effects of recently imposed ~~and proposed~~ tariffs on the export of agricultural products, effects of waivers of the amount of ethanol to be blended into the country's gasoline production and isolated areas of flooding within parts of the Midwest 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

~~53-~~

indirectly and adversely impact other lending categories including commercial non-real estate, CRE, residential real estate and 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~~competencies through 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.~~customers. 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.

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 HELOCs. 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. 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~~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 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.~~loans in process.

53-

The following table presents the maturity distribution of our loan portfolio as of ~~March~~December 31, 2020. The maturity dates were determined based on the contractual maturity date of the loan.


		March 31, 2020															December 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:									Maturity distribution:
Commercial real estate		$	621,604	$	2,139,467	$	2,461,748	$	5,222,819
Construction and development										Construction and development	$	319,141	$	121,963	$	41,358	$	482,462
Owner-occupied CRE										Owner-occupied CRE	1,304,756		64,114		42,688		1,411,558
Non-owner-occupied CRE										Non-owner-occupied CRE	2,330,443		167,544		162,695		2,660,682
Multifamily residential real estate										Multifamily residential real estate	435,253		24,169		16,737		476,159
Total commercial real estate										Total commercial real estate	4,389,593		377,790		263,478		5,030,861
Agriculture	Agriculture	902,870		631,222		347,700		1,881,792		Agriculture	1,588,991		29,860		17,101		1,635,952
Commercial non-real estate	Commercial non-real estate	832,875		505,318		361,004		1,699,197		Commercial non-real estate	1,926,093		85,060		43,325		2,054,478
Residential real estate	Residential real estate	161,211		235,799		423,749		820,759		Residential real estate	603,546		69,209		35,331		708,086
Consumer		9,062		35,725		7,853		52,640
Other lending		39,908		—		—		39,908
Consumer and other										Consumer and other	73,630		13,780		1,089		88,499
Total	Total	$	2,567,530	$	3,547,531	$	3,602,054	$	9,717,115	Total	$	8,581,853	$	575,699	$	360,324	$	9,517,876

The following table presents the distribution, as of ~~March~~December 31, 2020, of our loans that were due after one year between fixed and variable interest rates.


		March 31, 2020											December 31, 2020
		Fixed		Variable		Total			Fixed		Variable		Total
		(dollars in thousands)											(dollars in thousands)
Maturity distribution:	Maturity distribution:							Maturity distribution:
Commercial real estate		$	2,240,425	$	2,360,790	$	4,601,215
Construction and development								Construction and development	$	35,291	$	128,030	$	163,321
Owner-occupied CRE								Owner-occupied CRE	59,744		47,058		106,802
Non-owner-occupied CRE								Non-owner-occupied CRE	126,202		204,037		330,239
Multifamily residential real estate								Multifamily residential real estate	5,416		35,490		40,906
Total commercial real estate								Total commercial real estate	226,653		414,615		641,268
Agriculture	Agriculture	762,995		215,927		978,922		Agriculture	13,956		33,005		46,961
Commercial non-real estate	Commercial non-real estate	529,107		337,215		866,322		Commercial non-real estate	60,814		67,571		128,385
Residential real estate	Residential real estate	307,012		352,536		659,548		Residential real estate	47,229		57,311		104,540
Consumer		36,627		6,951		43,578
Consumer and other								Consumer and other	768		14,101		14,869
Total	Total	$	3,876,166	$	3,273,419	$	7,149,585	Total	$	349,420	$	586,603	$	936,023

Other Repossessed Property

In the normal course of business, we obtain title to 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 ~~$27.3~~$18.1 million as of ~~March~~December 31, 2020, a decrease of ~~$9.5~~$1.9 million, or ~~25.8%~~9.7%, compared to September 30, ~~2019,~~2020, due primarily to one large ~~relationship~~ liquidation ~~and~~during the ~~write down of the value of a hotel property negatively impacted by COVID-19 travel restrictions.~~

~~54-~~

period.

The following table presents our other repossessed property balances for the period indicated.

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


	Three Months Ended December 31, 2020
	(dollars in thousands)
Balance, beginning of period	$	20,034
Additions to other repossessed property	—
Valuation adjustments and other	(8)
Sales	(1,940)
Balance, end of period	$	18,086

54-

Asset Quality

We place an asset on nonaccrual status when management believes, after considering collection efforts and other factors, the borrower's condition is such that collection of interest is doubtful, which is generally 90 days past due. 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 the establishment of ~~a specific~~an individual 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 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.

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 agreement 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 for single-family real estate loans and other repossessed property covered by the FDIC loss-sharing agreement through June 4, 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.
²Loans not covered by a FDIC loss-sharing agreement.
³Includes nonaccrual loans, which includes nonperforming restructured loans.

~~55-~~


	December 31, 2020			September 30, 2020
	(dollars in thousands)
Nonaccrual loans ¹
Construction and development	$	14,257		n/a ³
Owner-occupied CRE	16,776			n/a ³
Non-owner-occupied CRE	36,765			n/a ³
Multifamily residential real estate	1,540			n/a ³
Total commercial real estate	69,338			$	73,501
Agriculture	192,988			217,642
Commercial non-real estate	23,187			26,918
Residential real estate	6,774			6,811
Consumer and other	70			74
Total nonaccrual loans	292,357			324,946
Other repossessed property	18,086			20,034
Total nonperforming assets	310,443			344,980
Performing TDRs	31,088			35,205
Total nonperforming and restructured assets	$	341,531		$	380,185
Accruing loans 90 days or more past due	$	—		$	—
Nonperforming TDRs included in total nonaccrual loans	52,592			62,792

Percent of total assets
Total nonaccrual loans	2.28		%	2.58		%
Other repossessed property	0.14		%	0.16		%
Nonperforming assets ²	2.42		%	2.74		%
Nonperforming and restructured assets ²	2.67		%	3.02		%
1 Includes nonperforming restructured loans.
2 Includes nonaccrual loans, which includes nonperforming restructured loans.
3 Balance for this segment is included in total commercial real estate for September 30, 2020.

At ~~March~~December 31, 2020 and September 30, ~~2019,~~2020, our nonperforming assets were ~~1.94%~~2.42% and ~~1.13%~~2.74%, respectively, of total assets. Nonaccrual loans were ~~$213.1~~$292.4 million as of ~~March~~December 31, 2020, ~~with $2.1 million of the balance covered by the FDIC non-commercial loss-sharing agreement,~~ which represented a total ~~increase~~decrease in nonaccrual loans of ~~$105.9~~$32.6 million ~~or 98.8%,~~ compared to September 30, ~~2019.~~2020. The decrease resulted from a number of payoffs including $24.7 million of agriculture loans and $7.9 million of non-agriculture loans.

We recognized approximately ~~$1.0~~$3.3 million of interest income on loans that were on nonaccrual for the first ~~six months~~quarter of fiscal year ~~2020. Excluding loans covered by the FDIC non-commercial loss-sharing agreement, we~~2021. We had average nonaccrual loans (calculated as a two-point average) of ~~$158.0~~$308.7 million outstanding during the first ~~six months~~quarter of fiscal year ~~2020.~~2021. Based on the average loan portfolio yield for these loans for the first ~~six months~~quarter of fiscal year ~~2020,~~2021, we estimate that interest income would have been ~~$3.9~~$3.5 million higher during this period had these loans been accruing.

The Company implemented a more granular risk rating methodology as of October 1, 2020. We consistently monitor all loans internally rated ~~"watch"~~"special mention" or worse because that rating indicates we have identified some potential weakness emerging; but loans rated ~~"watch"~~"special mention" will not necessarily become problem loans or become impaired. Aside from the loans ~~on the watch list,~~rated "special mention", 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.

55-

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 TDRs.

The following table outlines total TDRs, split between performing and nonperforming loans, at each of the dates indicated.

March 31,
2020 September 30,
2019
(dollars in thousands)
Commercial real estate
Performing TDRs $ 19,843 $ 17,145
Nonperforming TDRs 3,088 904
Total 22,931 18,049
Agriculture
Performing TDRs 11,838 22,929
Nonperforming TDRs 20,357 24,762
Total 32,195 47,691
Commercial non-real estate
Performing TDRs 9,402 4,398
Nonperforming TDRs 4,465 4,257
Total 13,867 8,655
Residential real estate
Performing TDRs 294 263
Nonperforming TDRs 92 102
Total 386 365
Consumer
Performing TDRs 5 107
Nonperforming TDRs 40 48
Total 45 155
Total performing TDRs 41,382 44,842
Total nonperforming TDRs 28,042 30,073
Total TDRs $ 69,424 $ 74,915


	December 31, 2020						September 30, 2020
	Performing TDRs		Nonperforming TDRs		Total		Performing TDRs		Nonperforming TDRs		Total
	(dollars in thousands)
Construction and development	$	1,364	$	27	$	1,391	n/a ¹		n/a ¹		n/a ¹
Owner-occupied CRE	5,590		—		5,590		n/a ¹		n/a ¹		n/a ¹
Non-owner-occupied CRE	12,203		11,637		23,840		n/a ¹		n/a ¹		n/a ¹
Multifamily residential real estate	—		—		—		n/a ¹		n/a ¹		n/a ¹
Total commercial real estate	19,157		11,664		30,821		$	23,215	$	11,913	$	35,128
Agriculture	3,356		35,736		39,092		2,976		45,971		48,947
Commercial non-real estate	8,304		5,096		13,400		8,734		4,803		13,537
Residential real estate	269		69		338		277		74		351
Consumer and other	2		27		29		3		31		34
Total	$	31,088	$	52,592	$	83,680	$	35,205	$	62,792	$	97,997
1 Balance for this segment is included in total commercial real estate for September 30, 2020.

As of ~~March~~December 31, 2020, total performing TDRs decreased ~~$3.5~~$4.1 million, or ~~7.7%~~11.7%, compared to September 30, ~~2019, primarily due to the payoff of one large relationship in the agriculture loan portfolio.~~2020. Total nonperforming TDRs decreased ~~$2.0~~$10.2 million, or ~~6.8%~~16.2%, compared to September 30, ~~2019~~2020 primarily due to ~~paydowns in~~two relationship payoffs during the ~~agriculture portfolio.~~

~~56-~~

The following table presents nonaccrual loans, TDRs, and other repossessed property covered by the loss-sharing agreement; a rollforward of the allowance for loan and lease losses for loans covered by the loss-sharing agreement; a rollforward of allowance for loan and lease losses for ASC 310-30 loans covered by the loss-sharing agreement; and a rollforward of other repossessed property covered by the 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
(dollars in thousands)
Assets covered by a FDIC loss-sharing agreement
Nonaccrual loans ¹ $ 2,128 $ 2,190
TDRs 33 43
Other repossessed property — —
Allowance for loan and lease losses, loans covered by a FDIC loss-sharing agreement
Balance, beginning of period $ 113 $ 262
Additional impairment recorded 442 309
Recoupment of previously-recorded impairment — (379)
Charge-offs (61) (79)
Balance, end of period $ 494 $ 113
Other repossessed property covered by a loss-sharing agreement
Balance, beginning of period $ — $ 131
Additions to other repossessed property — —
Sales — (131)
Balance, end of period $ — $ —
¹Includes nonperforming restructured loans.
period.

Allowance for ~~Loan~~Credit Losses

The Company adopted ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and ~~Lease Losses~~

~~We establish an allowance for~~subsequent related ASUs, on October 1, 2020, which uses the ~~inherent risk of probable losses within our loan portfolio. The allowance for loan and lease losses is management’s best estimate of probable~~current expected credit ~~losses that are incurred in the loan portfolio. We~~loss model ("CECL") to determine the allowance for ~~loan and lease~~credit losses based on an ongoing evaluation, driven primarily by monitoring changes in loan risk grades, delinquencies, and other credit risk indicators, which are inherently subjective. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loans receivables and held-to-maturity debt securities. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and the net investments in leases recognized by a lessor in accordance with Topic 842 on leases. The CECL methodology requires recognition of lifetime expected credit losses that takes into consideration all relevant information, including historical losses, current conditions and reasonable and supportable forecasts of future operating conditions.

Loans that do not share similar risk characteristics and are collateral dependent, primarily large loans on nonaccrual status and those which have undergone a TDR, are evaluated on an ~~inherently subjective process. We consider the uncertainty~~individual basis ("individual reserve"). The reserve related to ~~certain industry sectors and~~these loans is using the ~~extent of credit exposure~~collateral available to specific borrowers within the portfolio. In addition, we consider concentration risks associated with the various loan portfolios, 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 ofrepay 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 betweenmost typically the liquidation value of the ~~underlying~~ collateral (less selling costs, if applicable). The Company has chosen to continue to include small, less complex loans within the collective reserve for loans on nonaccrual or with TDR status.

Loans that are not reserved for on an individual basis are measured on a collective, or pooled basis ("collective reserve"). Loans are aggregated into pools (or segments) based on similar risk characteristics including borrower type, collateral, type and expected credit loss patterns. The historical loss experience of the ~~recorded investment value~~pool is generally the starting point for estimating expected credit losses under the collective reserve methodology. The historical loss experience rate of the loan segment is ~~considered~~applied to each loan within the ~~required specific reserve amount. Actual losses~~segment over the contractual life of each loan, adjusted for estimated prepayments. Management then determines an appropriate macroeconomic forecast based on the expectation of future conditions, including but not limited to the unemployment rate, which is the most significant factor, gross domestic product and corporate bond spreads, and applies the forecast to models which estimate the change in ~~any period may exceed allowance amounts. We evaluate and adjust our allowance for loan and lease losses, and~~loss expectations relative to the ~~allocation~~historical loss rates. These models have been implemented in accordance with the Company's Model Risk Management Policy. Additionally, using its new risk rating system, the Company evaluates if the current credit quality of the portfolio materially differs from the one observed over the historical loss period and applies adjustments to the allowance ~~between loan categories, each month.~~accordingly. Qualitative adjustments may also be made to expected losses based on current and future conditions that may not be fully captured in the modeling components above, such as but not limited to industry, geographic and borrower concentrations, loans servicing practices and changes in underwriting criteria.

~~57-~~56-

economic conditions and is short enough to be supportable. Additionally, loss rate forecasts follow a straight-line reversion back to the historical loss rate over one year following the initial forecast period.

The following table presents an analysis of our allowance for ~~loan and lease~~credit losses, including provisions for ~~loan and lease~~credit losses, charge-offs and recoveries, for the periods indicated.


		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, 2020			At and for the Fiscal Year Ended September 30, 2020
		(dollars in thousands)										(dollars in thousands)
Allowance for loan and lease losses:
Allowance for credit losses on loans:								Allowance for credit losses on loans:
Balance, beginning of period	Balance, beginning of period	$	70,774		$	64,540		Balance, beginning of period	$	149,887		$	70,774
Provision charged to expense		79,750			41,506
Impairment (improvement) of ASC 310-30 loans		148			(559)
Adoption of ASU 2016-13, as amended								Adoption of ASU 2016-13, as amended	177,289			—
Provision for credit losses ³								Provision for credit losses ³	11,976			118,204
(Improvement) impairment of ASC 310-30 loans								(Improvement) impairment of ASC 310-30 loans	—			188
Charge-offs:	Charge-offs:							Charge-offs:
Commercial real estate		(1,454)			(1,511)
Construction and development								Construction and development	(27)			n/a ⁴
Owner-occupied CRE								Owner-occupied CRE	—			n/a ⁴
Non-owner-occupied CRE								Non-owner-occupied CRE	(28,269)			n/a ⁴
Multifamily residential real estate								Multifamily residential real estate	—			n/a ⁴
Total commercial real estate								Total commercial real estate	(28,296)			(5,181)
Agriculture								Agriculture	(2,144)			(21,705)
Commercial non-real estate								Commercial non-real estate	(2,043)			(14,178)
Consumer								Consumer	(96)			(615)
Consumer and other								Consumer and other	(232)			(3,071)
Total charge-offs								Total charge-offs	(32,811)			(44,750)
Recoveries:								Recoveries:
Construction and development								Construction and development	268			n/a ⁴
Owner-occupied CRE								Owner-occupied CRE	—			n/a ⁴
Non-owner-occupied CRE								Non-owner-occupied CRE	61			n/a ⁴
Multifamily residential real estate								Multifamily residential real estate	—			n/a ⁴
Total commercial real estate								Total commercial real estate	329			1,395
Agriculture	Agriculture	(9,128)			(24,847)			Agriculture	1,734			2,189
Commercial non-real estate	Commercial non-real estate	(5,059)			(7,895)			Commercial non-real estate	245			1,018
Residential real estate	Residential real estate	(287)			(998)			Residential real estate	32			453
Consumer		(45)			(452)
Other lending		(1,060)			(1,358)
Total charge-offs		(17,033)			(37,061)
Recoveries:
Commercial real estate		234			567
Agriculture		1,408			385
Commercial non-real estate		172			392
Residential real estate		312			468
Consumer		48			174
Other lending		137			362
Consumer and other								Consumer and other	113			416
Total recoveries	Total recoveries	2,311			2,348			Total recoveries	2,453			5,471
Net loan charge-offs	Net loan charge-offs	(14,722)			(34,713)			Net loan charge-offs	(30,358)			(39,279)
Balance, end of period	Balance, end of period	$	135,950		$	70,774		Balance, end of period	$	308,794		$	149,887

Average total loans for the period ¹	Average total loans for the period ¹	$	9,648,678		$	9,741,293		Average total loans for the period ¹	$	9,840,055		$	9,908,495
Total loans at period end ¹	Total loans at period end ¹	9,693,295			9,706,763			Total loans at period end ¹	9,517,876			10,076,142
Ratios	Ratios							Ratios
Net charge-offs to average total loans ³		0.31		%	0.36		%
Allowance for loan and lease losses to:
Net charge-offs to average total loans ²								Net charge-offs to average total loans ²	1.22		%	0.40		%
Allowance for credit losses on loans to:								Allowance for credit losses on loans to:
Total loans	Total loans	1.40		%	0.73		%	Total loans	3.24		%	1.49		%
Nonaccruing loans ²		64.45		%	67.40		%
¹Loans include unpaid principal balance net of unamortized discount on acquired loans and unearned net deferred fees and costs and loans in process.
²Nonaccruing loans excludes loans covered by a FDIC loss-sharing agreement.
³Annualized for partial-year periods.
Nonaccruing loans								Nonaccruing loans	105.62		%	46.13		%
1 Loans are shown at amortized cost.								1 Loans are shown at amortized cost.
2 Annualized for partial-year periods.								2 Annualized for partial-year periods.
3 For December 31, 2020, provision for credit losses in the consolidated statements of income includes $(0.1) million of (reversal of) provision for unfunded commitments reserve.								3 For December 31, 2020, provision for credit losses in the consolidated statements of income includes $(0.1) million of (reversal of) provision for unfunded commitments reserve.
4 Balance for this segment is included in total commercial real estate for September 30, 2020.								4 Balance for this segment is included in total commercial real estate for September 30, 2020.

In the first ~~six months~~quarter of fiscal year ~~2020,~~2021, net charge-offs were ~~$14.7~~$30.4 million, or ~~0.31%~~1.22%, of average total loans on an annualized basis, comprised of ~~$17.0~~$32.8 million of charge-offs and ~~$2.3~~$2.4 million of recoveries. The increase was driven by $25.6 million of discount on the sales of certain hotel loans. Excluding those, net charge-offs for the quarter were ~~concentrated in the agriculture and commercial non-real estate segments in the loan portfolio.~~$4.8 million, or 0.19% of average total loans (annualized). For fiscal year ~~2019,~~2020, net charge-offs were ~~$34.7~~$39.3 million, or ~~0.36%~~0.40%, of average total loans.

57-

At ~~March~~December 31, 2020, the allowance for ~~loan and lease~~credit losses on loans was ~~1.40%~~3.24% of our total loan portfolio, ~~a 67 basis point increase,~~ compared to ~~0.73%~~1.49% at September 30, ~~2019.~~2020. The balance of the ~~ALLL~~ACL increased to ~~$136.0~~$308.8 million from ~~$70.8~~$149.9 million over the same 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~~adoption on October 1, ~~2020. In determining~~2020, where we recognized a Day 1 increase in the ~~credit~~ACL of $177.3 million, which resulted in a cumulative effect adjustment decrease of $132.9 million (after-tax) to retained earnings. The tax effect resulted in a $42.9 million increase in deferred tax assets. The increase in ACL related ~~charges attributable~~ to the ~~COVID-19 pandemic, we considered~~adoption of CECL was partially offset by the net impact ~~upon our loan portfolio. Industries such as oil & energy, hotels & resorts, restaurants, retail malls, airlines~~from provisioning 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 ofcharge-offs during the ~~view the credit-related adjustments reflect the best estimate of incurred losses in our portfolio as of March 31, 2020.~~

~~58-~~

quarter.

Additionally, a portion of our loans which are carried at fair value, totaling ~~$792.1~~$611.6 million at ~~March~~December 31, 2020 and ~~$813.0~~$655.2 million at September 30, ~~2019,~~2020, respectively, have no associated allowance for ~~loan and lease~~credit 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~~credit losses to total loans lower. The amount of fair value adjustment related to credit risk on these loans was ~~$16.7~~$27.5 million and ~~$6.8~~$30.5 million at ~~March~~December 31, 2020 and September 30, ~~2019,~~2020, respectively, or ~~0.17%~~0.29% and ~~0.07%~~0.30% of total loans, ~~respectively. Finally, total purchase discount remaining on all acquired loans equates to 0.11% and 0.14% of total loans at March 31, 2020 and September 30, 2019,~~ respectively.

The following table presents management’s allocation of the allowance for ~~loan and lease~~credit losses on loans by loan category, in both dollars and percentage of our total allowance for ~~loan and lease~~credit losses on loans, to specific loans in those categories at the dates indicated.

March 31, 2020 September 30, 2019
Amount Percent Amount Percent
(dollars in thousands)
Allocation of allowance for loan and lease losses:
Commercial real estate $ 64,414 47.4 % $ 16,827 23.8 %
Agriculture 29,526 21.7 % 30,819 43.5 %
Commercial non-real estate 31,766 23.4 % 17,567 24.8 %
Residential real estate 8,356 6.1 % 4,095 5.8 %
Consumer 777 0.6 % 427 0.6 %
Other lending 1,111 0.8 % 1,039 1.5 %
Total $ 135,950 100.0 % $ 70,774 100.0 %


	December 31, 2020				Adjusted balance September 30, 2020 ¹
	Amount		Percent		Amount		Percent
	(dollars in thousands)
Allocation of allowance for credit losses on loans:
Construction and development	$	18,714	6.1	%	$	7,012	4.7	%
Owner-occupied CRE	25,086		8.1	%	$	20,530	13.7	%
Non-owner-occupied CRE	120,751		39.1	%	$	50,965	34.0	%
Multifamily residential real estate	9,773		3.2	%	$	6,726	4.5	%
Total commercial real estate	174,324		56.5	%	$	85,233	56.9	%
Agriculture	46,979		15.2	%	27,018		18.0	%
Commercial non-real estate	75,955		24.6	%	27,599		18.4	%
Residential real estate ³	9,672		3.1	%	7,465		5.0	%
Consumer and other	1,864		0.6	%	2,572		1.7	%
Total	$	308,794	100.0	%	$	149,887	100.0	%
1 At September 30, 2020, the allowance balances were reclassified to align with the eight loan portfolio segments established for adoption of CECL. For additional information, see Note 2.

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~~credit loss provisions. We review the appropriateness of our allowance for ~~loan and lease~~credit 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~~credit 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~~credit loss provisions when the results of our problem loan assessment methodology or overall allowance testing of appropriateness indicates 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~~lending reserve related commitments that represents our estimate of ~~incurred~~credit losses on the portion of lending commitments that borrowers have not advanced. The Company's change in unfunded commitments reserve from the incurred loss methodology to the current expected credit loss methodology was immaterial as of the date of adoption and therefore no provision was recognized. The balance of the ~~allowance for~~ unfunded lending-related commitments reserve was ~~$1.1~~$2.3 million and ~~$0.5~~$2.4 million at ~~March~~December 31, 2020 and September 30, ~~2019,~~2020, respectively, and is recorded in accrued expenses and other liabilities in the consolidated balance sheet.

58-

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			December 31, 2020		September 30, 2020
		(dollars in thousands)							(dollars in thousands)
U.S. Treasury securities	U.S. Treasury securities	$	69,629	$	94,178	U.S. Treasury securities	$	24,991	$	49,924
U.S. Agency securities						U.S. Agency securities	24,975		24,974
Mortgage-backed securities:	Mortgage-backed securities:					Mortgage-backed securities:
Government National Mortgage Association	Government National Mortgage Association	566,747		501,139		Government National Mortgage Association	424,756		485,689
Federal Home Loan Mortgage Corporation	Federal Home Loan Mortgage Corporation	556,535		463,974		Federal Home Loan Mortgage Corporation	769,254		578,650
Federal National Mortgage Association	Federal National Mortgage Association	386,996		322,340		Federal National Mortgage Association	455,651		287,842
Small Business Assistance Program	Small Business Assistance Program	300,498		316,502		Small Business Assistance Program	264,798		244,653
States and political subdivision securities	States and political subdivision securities	60,511		66,145		States and political subdivision securities	51,120		54,224
Other	Other	1,006		1,006		Other	1,006		1,006
Total	Total	$	1,941,922	$	1,765,284	Total	$	2,016,551	$	1,726,962

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,~~2020, the fair value of the portfolio has increased by ~~$206.8~~$285.0 million, or ~~11.6%~~16.1%.

~~59-~~

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~~December 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																																																								December 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					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			Amount		WA Yield		Amount		WA Yield		Amount		WA Yield		Amount		WA Yield		Amount		WA Yield		Amount		WA Yield		Amount		WA Yield
		(dollars in thousands)																																																								(dollars in thousands)
U.S. Treasury securities	U.S. Treasury securities	$	69,629	2.50	%	$	—	0.00	%	$	—	—	%		$	—	—	%	$	—	—	%	$	—	—	%	$	69,629	2.50	%	U.S. Treasury securities	$	24,991	2.87	%	$	—	—	%	$	—	—	%	$	—	—	%	$	—	—	%	$	—	—	%	$	24,991	2.87		%
U.S. Agency securities																															U.S. Agency securities	—		—	%	24,975		1.13	%	—		—	%	—		—	%	—		—	%	—		—	%	24,975		1.13		%
Mortgage-backed securities	Mortgage-backed securities	—		—	%	—		—	%	—		—	%		—		—	%	1,810,776		2.21	%	—		—	%	1,810,776		2.21	%	Mortgage-backed securities	—		—	%	—		—	%	—		—	%	—		—	%	1,914,459		1.62	%	—		—	%	1,914,459		1.62		%
States and political subdivision securities ¹ ²	States and political subdivision securities ¹ ²	12,986		1.51	%	35,858		1.75	%	11,667		2.54	%		—		—	%	—		—	%	—		—	%	60,511		1.85	%	States and political subdivision securities ¹ ²	17,982		1.72	%	23,072		1.79	%	10,066		2.56	%	—		—	%	—		—	%	—		—	%	51,120		1.92		%
Other	Other	—		—	%	—		—	%	—		—	%		—		—	%	—		—	%	1,006		—	%	1,006		—	%	Other	—		—	%	—		—	%	—		—	%	—		—	%	—		—	%	1,006		—	%	1,006		—		%
Total	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	%	Total	$	42,973	2.39	%	$	48,047	1.45	%	$	10,066	2.56	%	$	—	—	%	$	1,914,459	1.62	%	$	1,006	—	%	$	2,016,551	1.64		%
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.	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.																																																										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.	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.																																																										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~~Available for sale securities are stated at fair ~~value of investment securities~~value. For 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:~~an unrealized loss position, management first evaluates whether (1) ~~we have~~the Company has the intent to sell a security; or (2) it is more-likely-than-not that wethe Company will be required to sell the security before recovery of its amortized cost ~~basis; or (3) we do not expect to recover~~basis. If either criteria is met, the entire ~~amortized cost basis~~amount 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~~unrealized loss is recognized in ~~earnings equal~~the consolidated income statement with a corresponding adjustment to the ~~difference between~~security's amortized cost basis.

If neither criteria is met, the ~~security’s~~Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. Furthermore, securities issued by the U.S. Government or a U.S. Government sponsored enterprise which carry the explicit or implicit guarantee of the U.S. Government are considered "risk-free" and therefore no credit losses are assumed on those securities. If the assessment indicates a credit loss exists, the amortized cost basis ~~and its fair value. If we do not intend~~is compared to ~~sell~~ the ~~security or~~present value of cash flows

59-

expected to be collected from the security; if it is ~~not more-likely-than-not that it will be required to sell~~less than the ~~security before recovery, the other-than-temporary impairment write-down is separated into an amount representing~~amortized cost basis, a credit loss ~~which is recognized in earnings,~~exists and an ~~amount~~allowance for credit losses is recorded. Changes in the allowance for credit losses are recorded as a provision for (reversal of) credit losses in the consolidated income statement. If the assessment indicates a credit loss does not exist, the change in fair value is recorded as unrealized gains and losses, net of related ~~to all other factors, which~~taxes, and is ~~recognized~~included in stockholders’ equity as a component of accumulated other comprehensive income (loss).

Deposits

We obtain funds from depositors by offering consumer and business interest-bearing accounts and term time deposits. At ~~March~~December 31, 2020 and September 30, ~~2019,~~2020, our total deposits were ~~$10.18~~$11.37 billion and ~~$10.30~~$11.01 billion, respectively, representing ~~a decrease~~an increase of ~~$121.2~~$364.5 million, or ~~1.2%~~3.3%, due to a $438.5 million increase in checking and savings deposits across both business and consumer accounts offset with a $67.9 million reduction in ~~the use of~~business and consumer time deposits and a $6.1 million decrease in public and brokered ~~deposits partially offset by an increase in business~~ deposits. ~~Our accounts are federally insured by the FDIC up to the legal maximum.~~

The following table presents the balances and weighted average cost of our deposit portfolio at the following dates.


		March 31, 2020						September 30, 2019							December 31, 2020					September 30, 2020
		Amount		Weighted Avg. Cost		Amount		Weighted Avg. Cost			Amount		Weighted Avg. Cost			Amount		Weighted Avg. Cost
		(dollars in thousands)																(dollars in thousands)
Noninterest-bearing demand	Noninterest-bearing demand	$	1,973,629	—	%	$	1,956,025	—	%	Noninterest-bearing demand	$	2,858,455	—	%		$	2,586,743	—	%
Interest-bearing demand	Interest-bearing demand	6,677,252		0.61	%	6,248,638		1.00	%	Interest-bearing demand	7,436,283		0.21	%		7,139,058		0.26	%
Time deposits, greater than $250,000	Time deposits, greater than $250,000	416,361		1.98	%	493,530		2.30	%	Time deposits, greater than $250,000	283,635		0.97	%		352,913		1.12	%
Time deposits, less than or equal to $250,000	Time deposits, less than or equal to $250,000	1,111,873		1.20	%	1,602,146		1.68	%	Time deposits, less than or equal to $250,000	794,945		0.54	%		930,065		0.75	%
Total	Total	$	10,179,115	0.61	%	$	10,300,339	0.98	%	Total	$	11,373,318	0.20	%		$	11,008,779	0.27	%

At ~~March~~December 31, 2020 and September 30, ~~2019,~~2020, we had ~~$464.0~~$261.5 million and ~~$706.5~~$329.0 million, respectively, in brokered deposits, a decrease of ~~$242.5~~$67.5 million, or ~~34.3%~~20.5%.

~~60-~~

Municipal public deposits constituted ~~$1.01~~$1.30 billion and ~~$1.04~~$1.25 billion of our deposit portfolio at ~~March~~December 31, 2020, and September 30, ~~2019,~~2020, respectively, of which ~~$636.0~~$941.6 million and ~~$691.9~~$859.7 million, respectively, were required to be collateralized. Our top 10 depositors were responsible for ~~8.1%~~7.7% and ~~7.0%~~6.4% of our total deposits at ~~March~~December 31, 2020 and September 30, ~~2019,~~2020, respectively.

The following table presents deposits by region.


		March 31, 2020		September 30, 2019			December 31, 2020		September 30, 2020
		(dollars in thousands)							(dollars in thousands)
South Dakota	South Dakota	$	2,634,144	$	2,575,833	South Dakota	$	2,961,862	$	2,839,891
Iowa / Missouri	Iowa / Missouri	2,925,216		2,799,597		Iowa / Missouri	3,446,114		3,184,321
Nebraska / Kansas	Nebraska / Kansas	2,591,149		2,611,332		Nebraska / Kansas	2,819,476		2,833,921
Arizona	Arizona	479,846		508,308		Arizona	601,376		590,567
Colorado	Colorado	1,226,068		1,237,052		Colorado	1,319,271		1,300,351
North Dakota / Minnesota	North Dakota / Minnesota	44,682		55,258		North Dakota / Minnesota	28,479		30,228
Corporate and other		278,010		512,959
Specialized Assets						Specialized Assets	11,947		—
Corporate and Other						Corporate and Other	184,793		229,500
Total deposits	Total deposits	$	10,179,115	$	10,300,339	Total deposits	$	11,373,318	$	11,008,779

60-

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 ~~March~~December 31, 2020 and September 30, ~~2019,~~2020, our time deposits greater than $250,000 totaled ~~$416.4~~$283.6 million and ~~$493.5~~$352.9 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 ~~March~~December 31, 2020.


		March 31, 2020										December 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:							Remaining maturity:
Three months or less	Three months or less	$	118,963		$	405,357		Three months or less	$	76,140		$	238,532
Over three through six months	Over three through six months	121,962			199,388			Over three through six months	79,412			185,450
Over six through twelve months	Over six through twelve months	111,495			305,220			Over six through twelve months	71,696			223,606
Over twelve months	Over twelve months	63,941			201,908			Over twelve months	56,387			147,357
Total	Total	$	416,361		$	1,111,873		Total	$	283,635		$	794,945
Percent of total deposits	Percent of total deposits	4.1		%	10.9		%	Percent of total deposits	2.5		%	7.0		%

At ~~both March~~December 31, 2020 and September 30, ~~2019,~~2020, the average remaining maturity of all time deposits was approximately 9 and 8 ~~months.~~months, respectively. The average time deposits amount per account was approximately ~~$39,576~~$33,062 and ~~$45,936~~$37,174 at ~~March~~December 31, 2020 and September 30, ~~2019,~~2020, 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.

~~61-~~

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 agri-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 Value Option. 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 interest 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 fair 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)~~derivative interest expense 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 interest rate swap activity resulting from loan customer prepayments (partial or full) to the customer.

In addition, we enter into interest rate derivative contracts to support the business needs of our 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.

We enter 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 $82.1 million and $80.7 million as of December 31, 2020 and September 30, 2020, 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 nominal at both December 31, 2020 and September 30, 2020, respectively, based on the fair value of the underlying swaps.

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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.


		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, 2020			At and for the Fiscal Year Ended September 30, 2020
		(dollars in thousands)										(dollars in thousands)
Short-term borrowings:	Short-term borrowings:							Short-term borrowings:
Securities sold under agreements to repurchase	Securities sold under agreements to repurchase	$	64,809		$	68,992		Securities sold under agreements to repurchase	$	80,355		$	65,506
FHLB advances		475,000			15,000

Other short-term borrowings								Other short-term borrowings	—			75,000
Total short-term borrowings	Total short-term borrowings	$	539,809		$	83,992		Total short-term borrowings	$	80,355		$	140,506

Maximum amount outstanding at any month-end during the period	Maximum amount outstanding at any month-end during the period	$	539,809		$	371,649		Maximum amount outstanding at any month-end during the period	$	80,355		$	539,809
Average amount outstanding during the period	Average amount outstanding during the period	275,882			175,133			Average amount outstanding during the period	78,640			218,340
Weighted average rate for the period	Weighted average rate for the period	0.96		%	1.72		%	Weighted average rate for the period	0.09		%	0.75		%
Weighted average rate as of date indicated	Weighted average rate as of date indicated	0.65		%	0.91		%	Weighted average rate as of date indicated	0.09		%	0.09		%

Other Borrowings

In addition to ~~FHLB~~the short-term ~~advances,~~borrowings above, we also had FHLB long-term borrowings of ~~$325.0~~$120.0 million outstanding as of both ~~March~~December 31, 2020 and September 30, ~~2019.~~2020.

We had outstanding ~~$73.8~~$73.9 million and ~~$73.7~~$73.8 million of junior subordinated debentures to affiliated trusts in connection with the issuance of trust preferred securities by such trusts as of ~~March~~December 31, 2020 and September 30, ~~2019,~~2020, respectively. We are permitted under applicable laws and regulations to count these trust preferred securities as part of our Tier 1 capital.

We 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~~whose eligibility as Tier 2 capital ~~under Capital Rules~~was reduced by 20% beginning in ~~effect~~the quarter ended September 30, 2020, bear interest at ~~March 31, 2020, have an interest~~a rate ~~of 4.875%~~ per annum equal to three-month LIBOR for the related interest period plus 3.150%, payable ~~semi-annually~~quarterly on each November 15, February 15, April 15 and August ~~15, commencing on February 15, 2016 until August 15, 2020.~~15. During the ~~second~~first quarter of fiscal year ~~2020,~~2021, we incurred ~~$1.2~~$0.8 million in interest expense on all outstanding subordinated debentures and notes compared to ~~$1.4~~$1.3 million in the same period in fiscal year ~~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.~~2020.

~~62-~~

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 ~~March~~December 31, 2020. Customer deposit obligations categorized as "not determined" include noninterest-bearing demand accounts and interest-bearing demand accounts with no stated maturity date.


		March 31, 2020																							December 31, 2020
		Less Than 1 Year		1 to 2 Years		2 to 5 Years		>5 Years		Not Determined		Total			Less Than 1 Year		1 to 2 Years		2 to 5 Years		>5 Years		Not Determined		Total
		(dollars in thousands)																							(dollars in thousands)
Contractual Obligations:	Contractual Obligations:													Contractual Obligations:
Customer deposits	Customer deposits	$	1,240,321	$	189,147	$	76,510	$	192	$	8,672,945	$	10,179,115	Customer deposits	$	848,202	$	147,652	$	54,507	$	1,585	$	10,321,372	$	11,373,318
Securities sold under agreement to repurchase	Securities sold under agreement to repurchase	64,809		—		—		—		—		64,809		Securities sold under agreement to repurchase	80,355		—		—		—		—		80,355
FHLB advances and other borrowings	FHLB advances and other borrowings	515,000		110,000		175,000		—		—		800,000		FHLB advances and other borrowings	—		30,000		90,000		—		—		120,000
Subordinated debentures	Subordinated debentures	—		—		—		75,920		—		75,920		Subordinated debentures	—		—		—		75,920		—		75,920
Subordinated notes payable	Subordinated notes payable	—		—		—		35,000		—		35,000		Subordinated notes payable	—		—		35,000		—		—		35,000
Accrued interest payable	Accrued interest payable	9,102		—		—		—		—		9,102		Accrued interest payable	4,035		—		—		—		—		4,035
Interest on FHLB advances	Interest on FHLB advances	9,176		6,481		7,471		—		—		23,128		Interest on FHLB advances	3,372		3,156		3,111		—		—		9,639
Interest on subordinated debentures	Interest on subordinated debentures	2,495		2,495		7,484		23,906		—		36,380		Interest on subordinated debentures	1,852		1,852		5,557		16,275		—		25,536
Interest on subordinated notes payable	Interest on subordinated notes payable	1,706		1,706		5,119		640		—		9,171		Interest on subordinated notes payable	1,180		1,180		3,097		—		—		5,457
Other Commitments:	Other Commitments:													Other Commitments:
Commitments to extend credit—non-credit card	Commitments to extend credit—non-credit card	$	987,183	$	308,861	$	392,305	$	224,108	$	—	$	1,912,457	Commitments to extend credit—non-credit card	$	1,471,544	$	181,417	$	241,291	$	154,769	$	—	$	2,049,021
Commitments to extend credit—credit card	Commitments to extend credit—credit card	128,429		—		—		—		—		128,429		Commitments to extend credit—credit card	129,447		—		—		—		—		129,447
Letters of credit	Letters of credit	69,768		—		—		—		—		69,768		Letters of credit	52,760		—		—		—		—		52,760

We rent certain premises and equipment under operating leases. See Note 128 to the consolidated financial statements for additional information on long-term lease arrangements.

62-

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.


		March 31, 2020		September 30, 2019			December 31, 2020		September 30, 2020
		(dollars in thousands)							(dollars in thousands)
Commitments to extend credit	Commitments to extend credit	$	2,040,886	$	2,229,678	Commitments to extend credit	$	2,178,468	$	2,138,138
Letters of credit	Letters of credit	69,768		68,983		Letters of credit	52,760		65,707
Total	Total	$	2,110,654	$	2,298,661	Total	$	2,231,228	$	2,203,845

Liquidity

Liquidity refers to our ability to maintain resources that are 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.

~~63-~~

Our liquidity risk is managed through a comprehensive framework of policies and limits overseen by our Bank’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. We also monitor our Bank’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. 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 Bank through equity contributions and for acquisitions. At ~~March~~December 31, 2020, our holding company had ~~$31.4~~$34.1 million of cash. During the ~~second~~first quarter of fiscal year ~~2020,~~2021, we declared and paid a dividend of ~~$0.30~~$0.01 per common share. The outstanding amount under our private placement subordinated capital notes was $35.0 million at ~~March~~December 31, 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~~on June 1, 2020 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.

63-

Great Western Bank. Our Bank 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. At ~~March~~December 31, 2020, our Bank had cash of ~~$347.5~~$1.06 billion (inclusive of $34.1 million of cash from our holding company) and ~~$1.99~~$2.06 billion of highly-liquid securities held in our investment portfolio, of which ~~$918.8 million~~$1.07 billion 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 Bank had ~~$800.0~~$120.0 million in FHLB borrowings at ~~March~~December 31, 2020, with additional available lines of ~~$1.46~~$1.99 billion. Our Bank also had an additional borrowing capacity of ~~$1.23 billion~~$943.5 million with the FRB Discount Window. Our Bank 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 ~~March~~December 31, 2020, we had a total of ~~$2.11~~$2.23 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’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 Bank must comply with the capital requirements established by the FDIC. The current risk-based guidelines applicable to us and our Bank are based on the Basel III framework, as implemented by the federal bank regulators.

~~64-~~

The following table presents our regulatory capital ratios at ~~March~~December 31, 2020 and the standards for both well-capitalized depository institutions and minimum capital requirements. Our capital ratios exceeded applicable regulatory requirements as of that date.


		March 31, 2020															December 31, 2020
		Actual											Actual
		Capital Amount		Ratio		Minimum Capital Requirement Ratio ¹		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.									Great Western Bancorp, Inc.
Tier 1 capital	Tier 1 capital	$	1,185,668	11.3	%	6.0	%	N/A		Tier 1 capital	$	1,234,286	12.7	%	6.0	%	N/A
Total capital	Total capital	1,352,037		12.9	%	8.0	%	N/A		Total capital	1,383,691		14.3	%	8.0	%	N/A
Tier 1 leverage	Tier 1 leverage	1,185,668		9.2	%	4.0	%	N/A		Tier 1 leverage	1,234,286		9.7	%	4.0	%	N/A
Common equity Tier 1		1,111,903		10.6	%	4.5	%	N/A
Common equity Tier 1 ²										Common equity Tier 1 ²	1,160,420		12.0	%	4.5	%	N/A
Risk-weighted assets	Risk-weighted assets	10,504,680								Risk-weighted assets	9,698,465
Great Western Bank	Great Western Bank									Great Western Bank
Tier 1 capital	Tier 1 capital	$	1,183,213	11.3	%	6.0	%	8.0	%	Tier 1 capital	$	1,228,516	12.7	%	6.0	%	8.0	%
Total capital	Total capital	1,314,582		12.5	%	8.0	%	10.0	%	Total capital	1,349,899		13.9	%	8.0	%	10.0	%
Tier 1 leverage	Tier 1 leverage	1,183,213		9.2	%	4.0	%	5.0	%	Tier 1 leverage	1,228,516		9.7	%	4.0	%	5.0	%
Common equity Tier 1		1,183,213		11.3	%	4.5	%	6.5	%
Common equity Tier 1 ²										Common equity Tier 1 ²	1,228,516		12.7	%	4.5	%	6.5	%
Risk-weighted assets	Risk-weighted assets	10,503,830								Risk-weighted assets	9,696,713
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 December 31, 2020.										1 Does not include capital conservation buffer, which was 2.5% at December 31, 2020.
2 The Company has elected the 5 year CECL transition for regulatory capital ratios, resulting in an add-back of $129.5 million to common equity Tier 1 capital as of December 31, 2020.										2 The Company has elected the 5 year CECL transition for regulatory capital ratios, resulting in an add-back of $129.5 million to common equity Tier 1 capital as of December 31, 2020.

At ~~March~~December 31, 2020 and September 30, ~~2019,~~2020, our Tier 1 capital included an aggregate of ~~$73.8~~$73.9 million and ~~$73.7~~$73.8 million, respectively, of trust preferred securities issued by our subsidiaries, net of fair value adjustment. At ~~March~~December 31, 2020, our Tier 2 capital included ~~$131.4~~$121.4 million of the allowance for ~~loan and lease~~credit losses and ~~$35.0~~$28.0 million of ~~private placement~~ subordinated capital ~~notes.~~notes whose eligibility as Tier 2 capital was reduced by 20% beginning in the quarter ending September 2020. At September 30, ~~2019,~~2020, our Tier 2 capital included ~~$70.8~~$127.2 million of the allowance for ~~loan and lease~~credit losses and ~~$35.0~~$28.0 million of ~~private placement~~ subordinated capital notes. Our total risk-weighted assets were ~~$10.50~~$9.70 billion at ~~March~~December 31, 2020.

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.~~ 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.

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In particular, we evaluate our profitability and performance based on our adjusted net income, adjusted earnings per common share, pre-provision pre-tax income ("PTPP"), 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 second quarter of fiscal year 2020 COVID-19 impact on credit and other related charges and the impairment of goodwill and certain intangible assets). Our PTPP income excludes total provision for credit losses, credit gain/losses on loans held for investment measured at fair value and goodwill impairment. 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), measure our ability to generate capital by providing net income excluding credit losses (for PTPP income) and measure net income 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-ASC 310-30~~ loans and adjusted yield on ~~non-ASC 310-30~~ loans. We adjust each of these four measures to include the ~~current realized gain (loss) of derivatives~~derivative interest expense 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.

~~65-~~

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 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, 2020		September 30, 2020		June 30, 2020		March 31, 2020		December 31, 2019
		(Dollars in thousands except share and per share amounts)
Adjusted net income and adjusted earnings per common share:
Net income (loss) - GAAP		$	41,319	$	11,136	$	5,400	$	(740,618)	$	43,274
Add: COVID-19 related impairment of goodwill and certain intangible assets, net of tax		—		—		—		713,013		—
Add: COVID-19 impact on credit and other related charges, net of tax		—		—		—		56,685		—
Adjusted net income		$	41,319	$	11,136	$	5,400	$	29,080	$	43,274

Weighted average diluted common shares outstanding		55,247,343		55,164,548		55,145,619		55,906,002		56,457,967
Earnings per common share - diluted		$	0.75	$	0.20	$	0.10	$	(13.25)	$	0.77
Adjusted earnings per common share - diluted		$	0.75	$	0.20	$	0.10	$	0.52	$	0.77

Pre-tax pre-provision income ("PTPP"):
Income (loss) before income taxes - GAAP		$	52,708	$	10,279	$	5,878	$	(778,348)	$	55,873
Add: Provision for credit losses - GAAP		11,899		16,853		21,641		71,795		8,103
Add: Change in fair value of FVO loans and related derivatives - GAAP		1,672		24,648		25,001		10,533		2,124
Add: Goodwill impairment - GAAP		—		—		—		742,352		—
Pre-tax pre-provision income		$	66,279	$	51,780	$	52,520	$	46,332	$	66,100

65-


	At or for the three months ended:
		December 31, 2020			September 30, 2020			June 30, 2020			March 31, 2020			December 31, 2019
		(Dollars in thousands except share and per share amounts)
Tangible net income and return on average tangible common equity:
Net income (loss) - GAAP		$	41,319		$	11,136		$	5,400		$	(740,618)		$	43,274
Add: Amortization of intangible assets and COVID-19 related impairment of goodwill and certain intangible assets, net of tax		261			261			261			713,440			377
Tangible net income (loss)		$	41,580		$	11,397		$	5,661		$	(27,178)		$	43,651

Average common equity		$	1,082,077		$	1,174,996		$	1,163,724		$	1,918,035		$	1,908,519
Less: Average goodwill and other intangible assets		6,004			6,265			6,527			741,257			748,146
Average tangible common equity		$	1,076,073		$	1,168,731		$	1,157,197		$	1,176,778		$	1,160,373

Return on average common equity *		15.2		%	3.8		%	1.9		%	(155.3)		%	9.0		%
Return on average tangible common equity **		15.3		%	3.9		%	2.0		%	(9.3)		%	15.0		%
* 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		$	107,908		$	106,018		$	106,251		$	101,983		$	105,173
Add: Tax equivalent adjustment		1,598			1,508			1,601			1,514			1,523
Net interest income (FTE)		109,506			107,526			107,852			103,497			106,696
Add: Derivative interest expense		(3,393)			(3,541)			(3,040)			(1,250)			(890)
Adjusted net interest income (FTE)		$	106,113		$	103,985		$	104,812		$	102,247		$	105,806

Average interest-earning assets		$	11,965,555		$	12,184,093		$	12,156,505		$	11,590,453		$	11,543,610
Net interest margin (FTE) *		3.63		%	3.51		%	3.57		%	3.59		%	3.68		%
Adjusted net interest margin (FTE) **		3.52		%	3.40		%	3.47		%	3.55		%	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.

Adjusted net interest income and adjusted net interest margin (fully-tax equivalent basis):
Interest income - GAAP		$	107,323		$	106,305		$	107,725		$	111,970		$	117,709
Add: Tax equivalent adjustment		1,598			1,508			1,601			1,514			1,523
Interest income (FTE)		108,921			107,813			109,326			113,484			119,232
Add: Derivative interest expense		(3,393)			(3,541)			(3,040)			(1,250)			(890)
Adjusted interest income (FTE)		$	105,528		$	104,272		$	106,286		$	112,234		$	118,342

Average non-ASC310-30 loans		$	9,567,679		$	9,977,591		$	9,974,802		$	9,496,153		$	9,554,161
Yield (FTE) *		4.52		%	4.30		%	4.41		%	4.81		%	4.96		%
Adjusted yield (FTE) **		4.38		%	4.16		%	4.29		%	4.75		%	4.93		%
* 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.

Efficiency ratio:
Total revenue - GAAP		$	122,056		$	102,068		$	94,568		$	101,900		$	120,906
Add: Tax equivalent adjustment		1,598			1,508			1,601			1,514			1,523
Total revenue (FTE)		$	123,654		$	103,576		$	96,169		$	103,414		$	122,429

Noninterest expense		$	57,449		$	74,936		$	67,049		$	808,453		$	56,930
Less: Amortization of intangible assets and COVID-19 related impairment of goodwill and certain intangible assets		261			261			278			742,779			427
Tangible noninterest expense		$	57,188		$	74,675		$	66,771		$	65,674		$	56,503

Efficiency ratio *		46.2		%	72.1		%	69.4		%	63.5		%	46.2		%
* Calculated as the ratio of tangible noninterest expense to total revenue (FTE).

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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 interest income and adjusted yield (fully-tax equivalent basis), on non-ASC 310-30 loans:
Interest income - GAAP $ 229,679 $ 241,889 $ 111,970 $ 117,709 $ 124,923 $ 124,098 $ 121,528
Add: Tax equivalent adjustment 3,037 2,932 1,514 1,523 1,487 1,424 1,442
Interest income (FTE) 232,716 244,821 113,484 119,232 126,410 125,522 122,970
Add: Current realized derivative gain (loss) (2,140) 426 (1,250) (890) (127) 321 405
Adjusted interest income (FTE) $ 230,576 $ 245,247 $ 112,234 $ 118,342 $ 126,283 $ 125,843 $ 123,375
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) * 4.89 % 5.15 % 4.81 % 4.96 % 5.17 % 5.19 % 5.19 %
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 adjusted interest income (FTE) divided by average loans. Annualized for partial-year periods.
Efficiency ratio:
Total revenue - GAAP $ 222,806 $ 243,312 $ 101,900 $ 120,906 $ 121,732 $ 116,395 $ 121,698
Add: Tax equivalent adjustment 3,037 2,932 1,514 1,523 1,487 1,424 1,442
Total revenue (FTE) $ 225,843 $ 246,244 $ 103,414 $ 122,429 $ 123,219 $ 117,819 $ 123,140
Noninterest expense $ 865,383 $ 113,686 $ 808,453 $ 56,930 $ 55,212 $ 56,000 $ 56,580
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 $ 122,177 $ 112,898 $ 65,674 $ 56,503 $ 54,846 $ 55,615 $ 56,186
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).
Tangible common equity and tangible common equity to tangible assets:
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 6,703 745,947 6,703 749,481 745,197 745,563 745,947
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 $ 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 6,703 745,947 6,703 749,481 745,197 745,563 745,947
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 9.3 % 9.2 % 9.3 % 9.7 % 9.6 % 9.3 % 9.2 %
Tangible book value per share:
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 6,703 745,947 6,703 749,481 745,197 745,563 745,947
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 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 $ 20.97 $ 32.53 $ 20.97 $ 34.06 $ 33.76 $ 33.04 $ 32.53
Tangible book value per share $ 20.84 $ 19.43 $ 20.84 $ 20.77 $ 20.52 $ 19.94 $ 19.43


	At or for the three months ended:
		December 31, 2020			September 30, 2020			June 30, 2020			March 31, 2020			December 31, 2019
		(Dollars in thousands except share and per share amounts)
Tangible common equity and tangible common equity to tangible assets:
Total stockholders' equity		$	1,068,501		$	1,162,933		$	1,160,644		$	1,153,464		$	1,920,669
Less: Goodwill and other intangible assets		5,904			6,164			6,425			6,703			749,481
Tangible common equity		$	1,062,597		$	1,156,769		$	1,154,219		$	1,146,761		$	1,171,188

Total assets		$	12,814,383		$	12,604,439		$	12,934,328		$	12,387,808		$	12,851,665
Less: Goodwill and other intangible assets		5,904			6,164			6,425			6,703			749,481
Tangible assets		$	12,808,479		$	12,598,275		$	12,927,903		$	12,381,105		$	12,102,184

Tangible common equity to tangible assets		8.3		%	9.2		%	8.9		%	9.3		%	9.7		%

Tangible book value per share:
Total stockholders' equity		$	1,068,501		$	1,162,933		$	1,160,644		$	1,153,464		$	1,920,669
Less: Goodwill and other intangible assets		5,904			6,164			6,425			6,703			749,481
Tangible common equity		$	1,062,597		$	1,156,769		$	1,154,219		$	1,146,761		$	1,171,188

Common shares outstanding		55,105,105			55,014,189			55,014,047			55,013,928			56,382,915
Book value per share - GAAP		$	19.39		$	21.14		$	21.10		$	20.97		$	34.06
Tangible book value per share		$	19.28		$	21.03		$	20.98		$	20.84		$	20.77

Recent Accounting Pronouncements

See "Note 2. New Accounting Standards" in the accompanying "Notes to Consolidated Financial Statements (Unaudited)" included in this report for a discussion of new accounting pronouncements and their expected impact on our financial statements.

~~67-~~

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

See "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~~securities, loans, allowance for credit losses, unfunded commitments and unfunded commitments reserve, and accrued interest receivable policies as a result of adopting ASU ~~2016-02, "~~2016-13, ~~Leases~~Financial Instruments-Credit Losses (Topic ~~842)~~326): Measurement of Credit Losses on Financial Instruments", 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, ~~2019.~~2020.

67-

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of ~~March~~December 31, 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, ~~2019.~~2020.

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 regularly 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)~~derivative interest expense) in hypothetical rising and declining rate scenarios calculated as of ~~March~~December 31, 2020 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~~shift 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 300 and 400 basis points does not provide us with realistic 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.

~~68-~~


		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, 2020
Change in Market Interest Rates as of March 31, 2020		Twelve Months Ending March 31, 2021		Twelve Months Ending March 31, 2022
Change in Market Interest Rates as of December 31, 2020						Change in Market Interest Rates as of December 31, 2020	Twelve Months Ending December 31, 2021		Twelve Months Ending December 31, 2022
Immediate Shifts	Immediate Shifts					Immediate Shifts
+400 basis points	+400 basis points	7.76	%	13.24	%	+400 basis points	13.60	%	21.30	%
+300 basis points	+300 basis points	5.86	%	10.33	%	+300 basis points	10.30	%	16.40	%
+200 basis points	+200 basis points	3.87	%	7.27	%	+200 basis points	7.00	%	11.30	%
+100 basis points	+100 basis points	1.86	%	3.97	%	+100 basis points	3.70	%	6.10	%
-100 basis points	-100 basis points	(2.26)	%	(3.33)	%	-100 basis points	(3.50)	%	(8.10)	%
-200 basis points		(2.47)	%	(3.48)	%

Gradual Shifts	Gradual Shifts					Gradual Shifts
+400 basis points	+400 basis points	(0.28)	%			+400 basis points	3.20	%
+300 basis points	+300 basis points	(0.06)	%			+300 basis points	2.50	%
+200 basis points	+200 basis points	0.14	%			+200 basis points	1.90	%
+100 basis points	+100 basis points	0.25	%			+100 basis points	1.30	%
-100 basis points	-100 basis points	(0.42)	%			-100 basis points	(1.20)	%
-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 interest rate swap strategies.

68-

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

(a) Evaluation of Disclosure Controls and Procedures. Our 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 Exchange 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 our disclosure controls and procedures as of the 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 we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SECs rules and forms.

(b) Changes in Internal Control over Financial Reporting. During the most recently completed fiscal quarter, there have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that have materially affected, or are 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.

~~69-~~

ITEM 1A. RISK FACTORS

There ~~are certain risks and uncertainties~~have been no material changes in ~~our business that could cause our actual results to differ materially from those anticipated. See~~the risk factors as described in "Part I, Item 1A. Risk Factors" of the Annual Report on Form 10-K of Great Western Bancorp, Inc., for the fiscal year ended September 30, 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.

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.

~~70-~~

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.2020.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Sales of Unregistered Equity Securities

None.

Purchases of Equity Securities

~~On September 1, 2019, our Board of Directors approved an amendment to our stock~~We did not repurchase ~~program originally approved on October 26, 2016, wherein we may repurchase up to $100.0 million~~any of our common stock. 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 purchasedstock during the ~~second~~first quarter of fiscal year ~~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

2021.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

~~71-~~

69-

ITEM 6. EXHIBITS


Exhibit Number	Description

~~10.1~~ *	Employment 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))

~~10.2~~ *	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))

11.1	Statement regarding Computation of Per Share Earnings (included as Note 1815 to the registrant's unaudited consolidated financial statements)

31.1**	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

31.2**	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

32.1**	Section 1350 Certification of Chief Executive Officer of Great Western Bancorp, Inc. in accordance with Section 906 of the Sarbanes-Oxley Act of 2002

32.2**	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

* Indicates management contract or compensatory plan
** Filed herewith
*** Furnished, not filed

~~72-~~70-

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: ~~April 30, 2020~~February 9, 2021	By:	/s/ Peter Chapman
	Name:	Peter Chapman
	Title:	Chief Financial Officer and Executive Vice President (Principal Financial Officer and Authorized Officer)

~~73-~~71-


EXPLANATORY NOTE
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)			6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			3841
Item 3. Quantitative and Qualitative Disclosures About Market Risk			68
Item 4. Controls and Procedures			69
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			69
Item 1A. Risk Factors			7069
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			7169
Item 3. Defaults Upon Senior Securities			7169
Item 4. Mine Safety Disclosures			7169
Item 5. Other Information			7169
Item 6. Exhibits			7269
SIGNATURES			7371


	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


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 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


	March 31, 2020										September 30, 2019
	Outstanding Balance ¹		Recorded Investment ²		Carrying Value ³		Outstanding Balance ¹		Recorded Investment ²		Carrying Value ³
	(dollars in thousands)
Commercial real estate	$	88,443	$	21,611	$	21,502	$	90,295	$	22,124	$	21,965
Agriculture	4,259		2,970		2,970		4,462		2,756		2,491
Commercial non-real estate	7,072		178		149		7,190		221		192
Residential real estate	32,947		28,263		27,769		35,413		30,280		30,168
Consumer	441		383		362		493		438		438
Total lending	$	133,162	$	53,405	$	52,752	$	137,853	$	55,819	$	55,254
¹Represents the legal 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.


	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.
²Interest 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.


	Current Quarter vs Comparable Quarter										Current 6 month period vs Comparable 6 month period
	Volume		Rate		Total		Volume		Rate		Total
	(dollars in thousands)
Increase (decrease) in interest income:
Cash and cash equivalents	$	(49)	$	110	$	61	$	(557)	$	684	$	127
Investment securities	2,313		(941)		1,372		4,796		(1,114)		3,682
Non-ASC 310-30 loans	(1,331)		(8,155)		(9,486)		(8)		(12,097)		(12,105)
ASC 310-30 loans	(367)		(151)		(518)		(857)		91		(766)
Loans	(1,698)		(8,306)		(10,004)		(865)		(12,006)		(12,871)
Total increase (decrease)	566		(9,137)		(8,571)		3,374		(12,436)		(9,062)
Increase (decrease) in interest expense:
Interest-bearing deposits	309		(6,091)		(5,782)		710		(8,855)		(8,145)
Time deposits	(1,437)		(1,012)		(2,449)		(1,829)		(111)		(1,940)
Securities sold under agreements to repurchase	(4)		(15)		(19)		(12)		(32)		(44)
FHLB advances and other borrowings	1,817		(566)		1,251		3,488		(1,102)		2,386
Subordinated debentures and subordinated notes payable	3		(155)		(152)		5		(216)		(211)
Total increase (decrease)	688		(7,839)		(7,151)		2,362		(10,316)		(7,954)
(Decrease) increase in net interest income (FTE)	$	(122)	$	(1,298)	$	(1,420)	$	1,012	$	(2,120)	$	(1,108)


	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.


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