Subordinated Debentures and Subordinated Notes Payable

Junior Subordinated Deferrable Interest Debentures

The Company has caused seven trusts to be created (or assumed as part of the HF Financial and Sunstate Bank acquisitions) that have issued and outstanding 73,400 shares, $1,000 par value, as of December 31, 2016 of Company Obligated Mandatorily Redeemable Preferred Securities (the "Preferred Securities"). These seven trusts were established and exist for the sole purpose of issuing the Preferred Securities and investing the proceeds in junior subordinated deferrable interest debentures (the "Debentures") issued by the Company. The Debentures constitute the sole assets of the seven trusts. The Preferred Securities provide for cumulative cash distributions calculated at a rate based on three-month LIBOR plus a range from 1.48% to 3.35% adjusted quarterly. The Company may, at one or more times, defer interest payments on the Debentures for up to 20 consecutive quarters following suspension of 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 seven Preferred Securities as the call option date has passed. Holders of the Preferred Securities have no voting rights. The Preferred Securities are unsecured and rank junior in priority of the payment to all of the Company's indebtedness and senior to the Company's common and preferred stock. The trusts’ ability to pay amounts due on the Preferred Securities is solely dependent upon the Company making payment on the related Debentures. The Company’s obligation under the Debentures and relevant trust agreements constitute a full, irrevocable, and unconditional guarantee on a subordinated basis by it of the obligations of the trusts under the Preferred Securities.

For regulatory purposes the Debentures qualify as elements of capital. $73.4 million and $77.2 million of Debentures were eligible for treatment as Tier 1 capital, respectively, as of December 31, 2016 and September 30, 2016.

Relating to the trusts, the Company held as assets $2.5 million in common shares at December 31, 2016 and September 30, 2016, respectively, which are included in other assets on the consolidated balance sheets.

In the first quarter ended December 31, 2016, the Company redeemed 5,000 shares of the HF Capital Trust V Debentures under the First Supplemental Indenture dated May 13, 2016.

Subordinated Notes Payable

In 2015, the Company issued $35.0 million of 4.875% fixed-to-floating rate subordinated notes that mature on August 15, 2025 through a private placement. The notes, which qualify as Tier 2 capital under capital rules in effect at December 31, 2016, 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, to but excluding the maturity date or date of earlier redemption, the notes will bear interest at a rate per annum equal to 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 in the event of bankruptcy or the occurrence of certain other events of bankruptcy, insolvency or reorganization. Unamortized debt issuance costs related to these notes, which are included in Subordinated Debentures and Subordinated Notes Payable, totaled $0.3 million and $0.3 million at December 31, 2016 and September 30, 2016, 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, 2016					September 30, 2016
	Amount outstanding			Common Shares Held in Other Assets		Amount outstanding			Common Shares Held in Other Assets
	(dollars in thousands)
Junior subordinated debentures payable to nonconsolidated trusts
GW Statutory Trust IV, variable rate of 2.85%, plus 3 month LIBOR	$	23,093		$	693	$	23,093		$	693
GW Statutory Trust VI, variable rate of 1.48%, plus 3 month LIBOR	30,928			928		30,928			928
SSB Trust II, variable rate of 1.85%, plus 3 month LIBOR	2,062			62		2,062			62
HF Capital Trust III, variable rate of 3.35%, plus 3 month LIBOR	5,155			155		5,155			155
HF Capital Trust IV, variable rate of 3.10%, plus 3 month LIBOR	7,217			217		7,217			217
HF Capital Trust V, variable rate of 1.83%, plus 3 month LIBOR	5,310			310		10,310			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	80,920			$	2,520
Less: fair value adjustment¹	(2,478		)			(3,765		)
Total junior subordinated debentures payable, net of fair value adjustment	73,442					77,155

Subordinated notes payable
Fixed to floating rate, 4.875% per annum	35,000					35,000
Less: unamortized debt issuance costs	(264		)			(282		)
Total subordinated notes payable	34,736					34,718
Total subordinated debentures and subordinated notes payable	$	108,178				$	111,873

¹ Adjustment reflects the fair value adjustments related to the junior subordinated deferrable interest debentures assumed as part of the HF Financial acquisition.